NOWROSJEE WADIA & SONS LTD( SUCCESSOR TO NW EXPORTS LIMITED), MUMBAI V. ASST CIT 2(2)(2), MUMBAI

ITA 4275/MUM/2018

• Counselvise Citation: [2019] 115 COUNSELVISE.COM (IT) 3666 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 4 month(s) 22 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 13-11-2019
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: B
• Assessment Year: 2014-2015
• Appeal Filed On: 21-06-2018
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: SAMATHA MULLAMUDISR
• Assessee Lawyers: RONAK G DOSHI; AYUSHI MODANILD ARS
• Keywords: Earning of tax free income; Rule 8D
• Section: 143(3); 234B; 14A

Judgement Text

1 ITA NO.4275/MUM/2018 M/S. NOWROSJEE WADIA & SONS LTD. (SUCCESSOR TO NW EXPORTS LTD.) ASSESSMENT YEAR-2014-15 IN THE INCOME TAX APPELLATE TRIBUNAL B BENCH, MUMBAI , , BEFORE SHRI SAKTIJIT DEY, JM AND SHRI MANOJ KUMAR AGGARWAL, AM ./ I.T.A. NO.4275/MUM/2018 ( / ASSESSMENT YEAR: 2014-15) M/S. NOWROSJEE WADIA & SONS LTD. (SUCCESSOR TO NW EXPORTS LTD.) 4 TH FLOOR, NEVILLE HOUSE J.N. HEREDIA MARG, BALLARD ESTATE MUMBAI-400 001. / VS. ACIT - 2(2)(2) AAYKAR BHAVAN M.K.ROAD MUMBAI-400 020. ./ ./PAN/GIR NO. AAACN-2021-P ( ! /APPELLANT ) : ( '# ! / RESPONDENT ) ASSESSEE BY : SHRI RONAK G. DOSHI AND MS. AYUSHI MODANI-LD. ARS REVENU E BY : MS. SAMATHA MULLAMUDI-SR.DR / DATE OF HEARING : 18/10/2019 / DATE OF PRONOUNCEMENT : 13/11/2019 / O R D E R MANOJ KUMAR AGGARWAL (ACCOUNTANT MEMBER): - 1. AFORESAID APPEAL BY ASSESSEE FOR ASSESSMENT YEA R 2014-15 CONTEST THE ORDER OF LD. COMMISSIONER OF INCOME-TAX (APPEAL S)-5, MUMBAI, [IN 2 ITA NO.4275/MUM/2018 M/S. NOWROSJEE WADIA & SONS LTD. (SUCCESSOR TO NW EXPORTS LTD.) ASSESSMENT YEAR-2014-15 SHORT REFERRED TO AS CIT(A)], APPEAL NO. CIT(A)-5/ITO-2(2)(2)/IT-430/2016- 17 DATED 23/03/2018 ON FOLLOWING GROUNDS OF APPEAL:- GROUND I: DISALLOWANCE U/S. 14A OF THE ACT: . 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E AND IN LAW, THE HON'BLE CIT(A) ERRED IN NOT CONSIDERING THE WORKING OF SUO MOTO DISALLOWANCE U/ S 14A AS SUBMITTED BY THE APPELLANT. THE APPELLANT THEREFORE PRAYS THAT THE SAID WORKING BE CONSIDERED AND DISALLOWANCE BE RESTRICTED TO THE AMOUNT AS WORKED OUT IN THE SAID WORKING. 2. WITHOUT PREJUDICE TO 1. ABOVE, ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE HON'BLE CIT(A) ERRED IN NOT CONSIDERING NET INT EREST EXPENSE AFTER SETTING THE INTEREST INCOME EARNED BY THE APPELLANT FOR THE PURPOSE OF D ISALLOWANCE UNDER RULE 8D(2)(II). THE APPELLANT THEREFORE PRAYS THE DISALLOWANCE BE COMPU TED U/S 14A, IF ANY, AFTER SET OFF OF INTEREST INCOME FROM THE INTEREST EXPENSE. 3. WITHOUT PREJUDICE TO 1. ABOVE, ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE HON'BLE CIT(A) ERRED IN NOT CONSIDERING ONLY TH OSE EXPENSES WHICH HAVE A DIRECT NEXUS WITH EARNING EXEMPT INCOME FOR THE PURPOSE OF DISAL LOWANCE U/S 14A. THE APPELLANT THEREFORE PRAYS THAT DISALLOWANCE U/S 14A, IF ANY, BE MADE ON LY OF THOSE EXPENSES WHICH ARE DIRECTLY RELATED IN EARNING EXEMPT INCOME. 4. WITHOUT PREJUDICE TO 1. ABOVE, ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE HON'BLE C1T(A) ERRED IN DISALLOWING AN AMOUNT E XCEEDING THE TOTAL EXPENSES ACTUALLY CLAIMED BY THE APPELLANT. THE APPELLANT THEREFORE P RAYS THAT FOR THE PURPOSE OF DISALLOWANCE U/S 14A, IF ANY, THE DISALLOWANCE BE RESTRICTED TO AMOUNT ACTUALLY CLAIMED BY THE APPELLANT. GROUND II: INTEREST U/S 234B: 1. THE LD. AO ERRED IN CHARGING INTEREST U/S 234B O F THE ACT. THE APPELLANT THEREFORE PRAYS THAT THE LD. AO BE DIRECTED TO DELETE THE SAME. THE ERSTWHILE ASSESSEE NAMELY M/S. N.W. EXPORTS LTD . HAS BEEN SUCCEEDED BY ANOTHER ENTITY I.E. M/S NOWROSJEE WADI A & SONS LTD. AND ACCORDINGLY, FORM NO. 36 HAS BEEN FILED IN THE NAME OF NEW ENTITY. FINDING THE SAME IN ORDER, WE PROCEED TO ADJUDICATE THE APP EAL AS ARGUED BEFORE US. 2.1 FACTS IN BRIEF ARE THAT ASSESSEE BEING RESIDENT CORPORATE ASSESSEE STATED TO BE ENGAGED IN DISTRIBUTION OF MUTUAL FUND S AND REGISTERED WITH ASSOCIATION OF MUTUAL FUND IN INDIA (AMFI), WAS ASS ESSED FOR YEAR UNDER 3 ITA NO.4275/MUM/2018 M/S. NOWROSJEE WADIA & SONS LTD. (SUCCESSOR TO NW EXPORTS LTD.) ASSESSMENT YEAR-2014-15 CONSIDERATION U/S. 143(3) ON 19/12/2016 WHEREIN THE INCOME OF THE ASSESSEE WAS DETERMINED AT RS.120.66 LACS AFTER SOL E DISALLOWANCE U/S. 14A FOR RS.205.54 LACS AS AGAINST LOSS RETURN OF RS .84.88 LACS FILED BY ASSESSEE ON 30/09/2014. THE ASSESSEE EARNED BROKERA GE UNDER AMFI CODE ON INVESTMENTS MADE DURING THE YEAR. 2.2 DURING ASSESSMENT PROCEEDINGS, IT TRANSPIRED TH AT THE ASSESSEE EARNED EXEMPT INCOME OF RS.5.97 CRORES. THE ASSESSE E REFLECTED CLOSING INVESTMENTS OF RS.262.25 CRORES IN EXEMPT-INCOME YI ELDING ASSETS. ACCORDINGLY, THE ASSESSEE OFFERED SUO-MOTO DISALLOWANCE U/S 14A FOR RS.11 LACS IN ITS COMPUTATION OF INCOME. THE ASSESSEE SUB MITTED THAT IT WAS HOLDING SHARES IN GROUP COMPANIES AS STRATEGIC INVE STMENT FOR CONTROLLING INTEREST AND NOT WITH AN INTENTION OF EARNING DIVID END INCOME AND THEREFORE, NO FURTHER DISALLOWANCE WAS REQUIRED. HOWEVER, NOT SATISFIED, LD. AO, INVOKING RULE 8D, COMPUTED AGGREGATE DISALLOWANCE O F RS.216.54 LACS U/R 8D WHICH COMPRISED-OFF OF INTEREST DISALLOWANCE U/R 8D(2)(II) FOR RS.85.42 LACS AND EXPENSE DISALLOWANCE AT 0.5% OF AVERAGE IN VESTMENT U/R 8D(2)(III) FOR RS.131.12 LACS. AFTER ADJUSTING SUO-MOTO DISALLOWANCE OF RS.11.00 LACS AS OFFERED BY ASSESSEE IN ITS COMPUTATION OF INCOME , THE DIFFERENTIAL I.E. RS.205.54 LACS WAS ADDED TO THE INCOME OF THE ASSES SEE AS ADDITIONAL DISALLOWANCE U/S 14A R.W.R. 8D. 3. AGGRIEVED, THE ASSESSEE CONTESTED THE DISALLOWAN CE BEFORE LD. CIT(A) BY WAY OF WRITTEN SUBMISSIONS WHEREIN THE AS SESSEE, INTER-ALIA, CONTENDED THAT NO EXPENDITURE WAS INCURRED TO EARN EXEMPT INCOME AND 4 ITA NO.4275/MUM/2018 M/S. NOWROSJEE WADIA & SONS LTD. (SUCCESSOR TO NW EXPORTS LTD.) ASSESSMENT YEAR-2014-15 FURTHER, LD. AOS SATISFACTION WAS PRE-REQUISITE FO R APPLICATION OF RULE 8D. THE ASSESSEE FURTHER CONTENDED THAT ONLY THOSE INVE STMENTS WHICH YIELDED EXEMPT INCOME DURING THE YEAR, WERE TO BE CONSIDERE D FOR THE PURPOSE OF COMPUTATION OF DISALLOWANCE. HOWEVER, REJECTING THE PLEA OF STRATEGIC INVESTMENTS IN TERMS OF LATEST DECISION OF HON'BLE SUPREME COURT IN MAXOPP INVESTMENT LTD. VS. CIT (CA NO. 104-109 OF 2 015), LD. CIT(A) DIRECTED FOR EXCLUSION OF INVESTMENT IN SHARES OF U NLISTED COMPANIES SINCE THESE INVESTMENTS WOULD NOT GIVE RISE TO EXEMPT INC OME. THE LD. AO WAS ALSO DIRECTED NOT TO INCLUDE THOSE INVESTMENTS WHIC H HAVE NOT YIELDED ANY EXEMPT INCOME DURING THE YEAR. 4. AGGRIEVED, THE ASSESSEE IS IN FURTHER APPEAL BEF ORE US. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED ASSESSEES FINANCIAL STATEMENTS AS WELL AS DELIBERATED ON JUDICIAL PRONOUNCEMENTS A S CITED BEFORE US. 5. THE LD. AR HAS RAISED A PLEA THAT LD. AO DID NOT RECORD REQUISITE SATISFACTION BEFORE PROCEEDING TO APPLY RULE 8D. HO WEVER, WE FIND THAT EXCEPT FOR FINANCE COST OF RS.11 LACS, THE ASSESSEE DID NOT OFFER ANY DISALLOWANCE ON ACCOUNT OF INDIRECT EXPENDITURE AND THEREFORE, THERE COULD BE NO OCCASION TO CONSIDER THE BASIS OF ALLOCATION OF INDIRECT EXPENDITURE. PROCEEDING FURTHER, WE FIND THAT LD. AO, AFTER DUE CONSIDERATION OF ASSESSEES REPLY, DID NOT ACCEPT THE INTEREST DISAL LOWANCE AS OFFERED BY THE ASSESSEE AND PROCEED TO COMPUTE THE DISALLOWANCE AS PER RULE 8D. THEREFORE, WE DO NOT FIND MUCH FORCE IN THIS ARGUME NT OF LD. AR. 5 ITA NO.4275/MUM/2018 M/S. NOWROSJEE WADIA & SONS LTD. (SUCCESSOR TO NW EXPORTS LTD.) ASSESSMENT YEAR-2014-15 6. THE LD. AR HAS DRAWN OUR ATTENTION TO THE FACT T HAT OWN FUNDS IN THE SHAPE OF SHARE CAPITAL AND FREE RESERVES WERE FAR M ORE THAN THE INVESTMENTS MADE BY THE ASSESSEE AND UNLESS THE NEX US OF BORROWED FUNDS VIS--VIS INVESTMENT MADE BY THE ASSESSEE WAS ESTABLISHED, A PRESUMPTION WAS TO BE DRAWN IN ASSESSEES FAVOR THA T THE INVESTMENTS WERE OUT OF OWN FUNDS. FINDING SUBSTANCE IN THIS PLEA KE EPING IN VIEW THE RATIO OF DECISION OF HONBLE SUPREME COURT IN CIT V/S RELIANCE INDUSTRIES LTD. (410 ITR 466) , WE DIRECT LD. AO TO CONSIDER THE AVAILABILITY OF OWN FUNDS VIS--VIS INVESTMENTS MADE BY THE ASSESSEE AND ADJU DICATE THE ISSUE OF INTEREST DISALLOWANCE AFTER CONSIDERING THE SAME. T HE DIRECTIONS OF LD. CIT(A) SHALL ALSO BE KEPT IN MIND WHILE COMPUTING I NTEREST DISALLOWANCE. THE PLEA OF LD. AR THAT DISALLOWANCE WAS TO BE COMP UTED ON NET OF INTEREST BASIS MAY ALSO BE CONSIDERED BY THE LD. AO, IF THE NEXUS BETWEEN THE TWO IS ESTABLISHED. 7. REGARDING EXPENSE DISALLOWANCE, LD. AR HAS ASSER TED THAT LD.AO, IN THE PROCESS OF COMPUTATION OF DISALLOWANCE, HAS MAD E DISALLOWANCE WHICH FAR EXCEED INDIRECT EXPENDITURE CLAIMED BY THE ASSE SSEE IN THE PROFIT & LOSS ACCOUNT. IT HAS FURTHER BEEN SUBMITTED THAT ONLY TH OSE EXPENSES MAY BE CONSIDERED WHICH HAS DIRECT NEXUS WITH EARNING OF E XEMPT INCOME. FINDING FORCE IN THE SAME, BESIDES DIRECTION OF LD. CIT(A), WE DIRECT LD. AO TO CONSIDER THESE ASPECTS ALSO WHILE RECOMPUTING DISAL LOWANCE U/R 8D(2)(III). 6 ITA NO.4275/MUM/2018 M/S. NOWROSJEE WADIA & SONS LTD. (SUCCESSOR TO NW EXPORTS LTD.) ASSESSMENT YEAR-2014-15 8. GROUND NO.2 QUA INTEREST U/S 234B BEING CONSEQUENTIAL, WOULD NOT REQUIRE ANY ADJUDICATION ON OUR PART. 9. RESULTANTLY, THE APPEAL STANDS PARTLY ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 13 TH NOVEMBER, 2019. SD/- SD/- (SAKTIJIT DEY) (MANOJ KUMAR AGGARWAL) / JUDICIAL MEMBER / ACCOUNTANT MEMBER MUMBAI; DATED : 13/11/2019 SR.PS:-JAISY VARGHESE $% &% / COPY OF THE ORDER FORWARDED TO : 1. ! / THE APPELLANT 2. '# ! / THE RESPONDENT 3. ( ) / THE CIT(A) 4. / CIT CONCERNED 5. ) * ' + , + , / DR, ITAT, MUMBAI 6. * ,-. / GUARD FILE / BY ORDER, / (DY./ASSTT.REGISTRAR) , / ITAT, MUMBAI.