JIGAR P. SHAH, MUMBAI V. ACIT 21(1), MUMBAI

ITA 4366/MUM/2014

• Counselvise Citation: [2016] 133 COUNSELVISE.COM (IT) 3830 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 8 month(s) 3 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 24-02-2016
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: J
• Next Hearing Date: 12-01-2016
• Assessment Year: 2010-2011
• Appeal Filed On: 20-06-2014
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: K MOHANDA S
• Keywords: Earning of tax free income
• Section: 14A

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL, MUMBAI BENCH J, MUMBAI BEFORE SHRI SANJAY GARG, JUDICIAL MEMBER AND SHRI ASHWANI TANEJA, ACCOUNTANT MEMBER ITA NO.4366/M/2014 ASSESSMENT YEAR: 2010-11 SHRI JIGAR P. SHAH, 60-B, DOLAT, EAST WEST ROAD NO.2, JVPD, VILE PARLE (W), MUMBAI 400 049 PAN: AALPS8617G VS. ACIT 21(1), PRATYAKSHAKAR BHAVAN, BANDRA KURLA COMPLEX, BANDRA, MUMBAI (APPELLANT) (RESPONDENT) PRESENT FOR: ASSESSEE BY : SHRI RAJIV KHANDELWAL, A.R. REVENUE BY : SHRI K. MOHANDAS, D.R. DATE OF HEARING : 17.02.2016 DATE OF PRONOUNCEMENT : 24.02.2016 O R D E R PER SANJAY GARG, JUDICIAL MEMBER: THE PRESENT APPEAL HAS BEEN PREFERRED BY THE ASSES SEE AGAINST THE ORDER DATED 19.05.2014 OF THE COMMISSIONER OF INCOME TAX (APPEALS) [HEREINAFTER REFERRED TO AS THE CIT(A)] RELEVANT TO ASSESSMENT Y EAR 2010-11. 2. THE SOLE ISSUE RAISED BY THE ASSESSEE THROUGH HI S GROUNDS OF APPEAL IS RELATING TO THE CONFIRMATION OF ADDITION UNDER SECT ION 14A OF RS.2,46,650/-. AT THE OUTSET, THE LD. A.R. OF THE ASSESSEE HAS IN VITED OUR ATTENTION TO PAGE 11 OF THE PAPER BOOK WHICH IS THE DETAIL OF IN VESTMENTS TO SHOW THAT 99.98% OF THE TOTAL INVESTMENTS WERE MADE IN THE GR OUP COMPANIES. THE ASSESSEE HAS CONTENDED THAT THE SAME WERE STRATEGIC INVESTMENTS FOR HAVING CONTROL OVER THE GROUP COMPANIES. THE LD. A.R. OF THE ASSESSEE HAS FURTHER SUBMITTED THAT THE INVESTMENTS SO MADE WERE OLD INV ESTMENTS AND THAT NO NEW INVESTMENTS WERE MADE DURING THE YEAR. HE, THEREFO RE, HAS SUBMITTED THAT THE ITA NO.4366/M/2014 SHRI JIGAR P. SHAH 2 STRATEGIC INVESTMENTS MADE BY THE ASSESSEE WERE NOT FOR THE PURPOSE OF EARNING OF EXEMPT INCOME BUT THE SAME WERE RELATING TO THE BUSINESS STRATEGY OF THE ASSESSEE. HE, THEREFORE, HAS CONTENDED THAT WHILE MAKING OUT THE DISALLOWANCE UNDER SECTION 14A READ WITH RULE 8D OF THE INCOME T AX RULES, THE STRATEGIC INVESTMENTS MADE IN THE GROUP CONCERNS SHOULD NOT B E CONSIDERED AND BE EXCLUDED WHILE CALCULATING THE DISALLOWANCE UNDER R ULE 8D. 3. SO FAR THE CONTENTION OF THE LD. AR THAT NO DISA LLOWANCE IS ATTRACTED IN RELATION TO STRATEGIC INVESTMENTS MADE IN THE SISTE R CONCERNS/GROUP COMPANIES WHERE THE ASSESSEE HOLDS SUBSTANTIAL STAKE IS CONCE RNED, WE FIND THAT THE IDENTICAL ISSUE HAS BEEN RAISED AND DECIDED BY THE CO-ORDINATE BENCH OF THE TRIBUNAL IN THE CASE OF KOTAK MAHINDRA CAPITAL CO. LTD. VS. DCIT IN ITA NOS.5748/M/2012 AND 248/M/2013 FOR A.YS. 2008-09 & 2009-10 RESPECTIVELY, DECIDED ON 21.01.2015 WHEREIN THE TRIBUNAL HAS MADE THE FOLLOWING OBSERVATIONS: 3. RIVAL CONTENTIONS HAVE BEEN HEARD AND PERUSED T HE RECORDS. THE A.O. HAS MADE THE DISALLOWANCE U/S 14A R.W. RULE 8-D AT 0.5% OF A DMINISTRATIVE EXPENSES. THERE WAS NO DISALLOWANCE ON ACCOUNT OF INTEREST WHILE WO RKING OUT THE DISALLOWANCE U/S 14A OF THE INCOME TAX ACT, 1961. IT WAS ARGUED BY T HE LEARNED A.R. THAT THE ASSESSEE HAS INVESTMENTS IN COMPANIES WHICH ARE ITS GROUP COMPANIES WHERE THE ASSESSEE HOLDS SUBSTANTIAL STAKE. THE ID. A.R. SUBM ITS THAT STRATEGIC INVESTMENTS, PER SE DO NOT REQUIRE ANY DAY TODAY MONITORING AS T HEY ARE INHERENTLY LONG TERM IN NATURE. NO EXPENDITURE ON DAY- TO-DAY BASIS IS INCU RRED FOR MANAGING THOSE INVESTMENTS. THEREFORE, STRATEGIC INVESTMENT SHOULD BE EXCLUDED FOR ATTRIBUTING ADMINISTRATIVE EXPENSES FOR MAKING DISALLOWANCE U/S 14A OF THE ACT. THE LD. A.R. HAS PLACED RELIANCE ON THE FOLLOWING DECISIONS:- I) HSBC SECURITIES AND CAPITAL MARKETS (I) P. LTD. - ITA NO. 3186/M/08 II) ZENSTAR TECHNOLOGIES LTD. - ITA NO. 4538/M/05 III) SHRI BHALCHANDRA R. SULE - ITA NO. 3684/M/05 IV) EIH ASSOCIATED HOTELS VS. DCIT - ITA NO. 1503/M AD/12 V) INTERGLOBE ENTERPRISES LTD. VS. DCIT - ITA NO. 1 362 & 1032/DE1/13 VI) JM FINANCIAL LIMITED VS. ACIT - ITA NO. 4521/M /12 VII) CIT VS. ORIENTAL STRUCTURAL ENGINEERS P. LTD. - ITA 605 OF 2012(HC) VIII) ACIT VS. ORIENTAL STRUCTURAL ENGINEERS P. LTD . ITA NO. 4245/DE1/2011 IX) GARWARE WALL ROPES LTD. VS. ACIT - ITA NO. 5408 /M/2012 IN VIEW OF THE ABOVE JUDICIAL PRONOUNCEMENTS, THE L D. A.R. PRAYED THAT THE A.O. BE DIRECTED TO EXCLUDE THE INVESTMENTS MADE IN FOREIGN SUBSIDIARIES AND INVESTMENT ITA NO.4366/M/2014 SHRI JIGAR P. SHAH 3 MADE IN COMPANIES WHICH ARE STRATEGIC IN NATURE WHI LE COMPUTING THE DISALLOWANCE U/S 14A OF THE ACT IN RESPECT OF ADMINISTRATIVE EXP ENSES. 4. ON THE OTHER HAND, THE LD. D.R. RELIED ON THE OR DERS OF LOWER AUTHORITIES. 5. WE HAVE CONSIDERED THE RIVAL CONTENTIONS, CAREFU LLY GONE THROUGH THE ORDERS OF AUTHORITIES BELOW. WE HAVE ALSO DELIBERATED UPON THE JUDICIAL PRONOUNCEMENTS CITED WITH REFERENCE TO THE EXCLUSION OF INVESTMENT MADE IN THE COMPANIES WHICH ARE STRATEGIC IN NATURE. AS PER THE JUDICIAL PRONOU NCEMENTS CITED ABOVE, SUCH INVESTMENTS SHOULD NOT BE TAKEN INTO ACCOUNT FOR WO RKING OUT THE DISALLOWANCE U/S 14A OF THE ACT. 4. THE LD. A.R. OF THE ASSESSEE HAS FURTHER BROUGHT OUR ATTENTION TO THE DECISION OF THE HONBLE BOMBAY HIGH COURT IN THE CA SE OF CIT, PANAJI, GOA VS. PHIL CORPN. LTD. (2011) 202 TAXMAN 368 WHEREIN THE HONBLE BOMBAY HIGH COURT HAS HELD THAT WHERE THE INVESTMENT IN SH ARES OF SISTER/SUBSIDIARY COMPANY IS MADE TO HAVE CONTROL OVER THAT COMPANY A ND FURTHER THAT SUCH AN INVESTMENT WAS ACCORDINGLY PART OF THE BUSINESS OF THE ASSESSEE, IN THAT EVENT THE ASSESSEE IS ENTITLED TO DEDUCTION OF INTEREST P AID ON THE BORROWED AMOUNT UNDER SECTION 36(1)(III) OF THE ACT. WE, FURTHER F IND THAT RECENTLY THE HONBLE DELHI HIGH COURT IN THE CASE OF EICHER GOODEARTH L TD. VS. CIT (2015) 60 TAXMAN.COM 268 (DEL.) HAS HELD THAT IF THE EXPENDIT URE IS INCURRED FOR THE PURPOSE OF PROMOTION OF BUSINESS-MORE SPECIFICALLY TO RETAIN CONTROL OR AS PART OF HIS STRATEGIC INVESTMENT OF THE ASSESSEE COMPANY , SUCH EXPENSES BY WAY OF INTEREST OUT GO WOULD HAVE TO BE TREATED AS ALLOWAB LE UNDER SECTION 36(1)(III) OF THE ACT. 5. IN VIEW OF THE ABOVE DECISIONS AND RESPECTFULLY FOLLOWING THE SAME, WE DIRECT THE AO TO VERIFY THE CLAIM OF THE ASSESSEE R EGARDING THE STRATEGIC INVESTMENTS AND EXCLUDE THE STRATEGIC INVESTMENTS W HILE CALCULATING THE DISALLOWANCE UNDER RULE 8D FOR THE PURPOSE OF SECTI ON 14A OF THE INCOME TAX ACT. ITA NO.4366/M/2014 SHRI JIGAR P. SHAH 4 6. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS TRE ATED AS ALLOWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED IN THE OPEN COURT ON 24.02.2016. SD/- SD/- (ASHWANI TANEJA) (SANJAY GARG) ACCOUNTANT MEMBER JUDICIAL MEMBER MUMBAI, DATED: 24.02.2016. * KISHORE, SR. P.S. COPY TO: THE APPELLANT THE RESPONDENT THE CIT, CONCERNED, MUMBAI THE CIT (A) CONCERNED, MUMBAI THE DR CONCERNED BENCH //TRUE COPY// [ BY ORD ER DY/ASSTT. REGISTRAR, ITAT, MUMBAI.