RALLIS INDIA LTD, MUMBAI V. DCIT RG 3(3), MUMBAI

ITA 4369/MUM/2012

• Counselvise Citation: [2016] 131 COUNSELVISE.COM (IT) 2354 (ITAT-MUMBAI)
• Duration Of Justice: 4 year(s) 3 month(s) 22 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 19-10-2016
• Appeal Filed By: Assessee
• Bench Allotted: D
• Next Hearing Date: 08-04-2015
• Assessment Year: 2008-2009
• Appeal Filed On: 27-06-2012
• Court: TRIBUNAL
• Department Lawyers: B S BIST
• Keywords: Business expenditure; Bad and doubtful debts
• Section: 14A; 2

Judgement Text

, , D, IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCHES D, MUMBAI , , , BEFORE SHRI SANJAY GARG, JUDICIAL MEMBER, AND SHRI ASHWANI TANEJA, ACCOUNTANT MEMBER ITA NO.4369/MUM/2012 ASSESSMENT YEAR: 2008-09 RALLIS INDIA LTD. C/O. KALYANIWALLA & MISTRY, ARMY & NAVY BLDG., 3 RD FLOOR, 148, M.G. RD. FORT, MUMBAI-40001 / VS. D CIT RG 3 ( 3 ) MUMBAI ( APPELLANT ) ( REVENUE ) P.A. NO . AABC R2657N APPELLANT BY SHRI M.M. GOLVALA (AR) REVENUE BY SHRI B.S. BIST (SR. DR) DATE OF HEARING : 04/10/2016 DATE OF ORDER: 19/10/2016 / O R D E R PER ASHWANI TANEJA (ACCOUNTANT MEMBER): THIS APPEAL HAS BEEN FILED BY THE ASSESSEE AGAINST THE ORDER OF LD. COMMISSIONER OF INCOME TAX (APPEALS), MUMBAI- 7,{(IN SHORT CIT(A)}, DATED 27.03.2012 PASSED AGA INST ASSESSMENT ORDER OF THE AO DATED 24.11.2010 U/S 143 (3) FOR THE ASSESSMENT YEAR 2008-09 ON THE FOLLOWING GROUND S: 1.THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) ERRED IN CONFIRMING THE DISALLOWANCE OF RALIS INDIA LTD. 2 INTEREST U/S. 14A READ WITH RULE 8D(2)(II) TO THE TUNE OF RS.2 1,16,000/-. 2.BOTH THE LOWER AUTHORITIES ERRED IN INVOKING RULE 8D, WITHOUT RECORDING ANY OBJECTIVE SATISFACTION AS TO HOW THE APPELLANT'S SUBMISSION WAS ERRONEOUS. 3.THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) FAILED TO CONSIDER THE EVIDENCE LED BEFOR E HIM TO DEMONSTRATE THAT INVESTMENTS WERE MADE OUT OF THE APPELLANT'S OWN FUNDS. 4.BOTH THE LOWER AUTHORITIES ERRED IN HOLDING THAT ADMINISTRATIVE EXPENSES TO THE TUNE OF RS.21,80,947/- WERE REQUIRED TO BE ALLOCATED TO THE EARNING OF DIVIDEND INCOME UNDER SECTION 14A READ WITH RULE 8D(2)(III). 5.WITHOUT PREJUDICE TO THE FOREGOING, AND IN ANY EVENT, THE ALLOCATION OF EXPENDITURE U/S.14A READ WITH RULE 8D(2)(III) TO THE TUNE OF RS.21,80,947/- IS HIGHLY EXCESSIVE AND ARBITRARY AND THE SAME IS REQUIRED TO BE REDUCED SUBSTANTIALLY. 6.THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) ERRED IN NOT HOLDING THAT PROFESSIONAL FEES PAID TO M/S. UDWADIA UDESHI & CO. (RS.4,62,500/-) AND TO M/S. PRICE WATERHOUSE COOPERS (RS.5,50,000/-) WERE ALLOWABLE AS NORMAL BUSINESS EXPENDITURE HAVING REGARD TO THE FACTS AND CIRCUMSTANCES OF THE CASE, THE APPELLANT SUBMITTED THAT THE ASSESSING OFFICER BE SO DIRECTED. 7. BOTH THE LOWER AUTHORITIES ERRED IN ADDING BACK PROVISION FOR DOUBTFUL DEBTS WHILE COMPUTING BOOK PROFITS U/S.115JB. 8. BOTH THE LOWER AUTHORITIES ERRED IN ADDING BACK DISALLOWANCE U/S.14A WHILE COMPUTING BOOK PROFITS U/S.115JB. 2. DURING THE COURSE OF HEARING, ARGUMENTS WERE MADE B Y SHRI M.M. GOLVALA, AUTHORISED REPRESENTATIVE (AR) O N BEHALF OF THE ASSESSEE AND BY SHRI B.S. BIST, DEPARTMENTAL REPRESENTATIVE (DR) ON BEHALF OF THE REVENUE. RALIS INDIA LTD. 3 3. DURING THE COURSE OF HEARING GROUND NOS. 6, 7 & 8 W ERE NOT PRESSED BY THE LD. COUNSEL OF THE ASSESSEE AND THER EFORE, THESE ARE DISMISSED. 4. GROUND NOS.1: IN THIS GROUND, THE ASSESSEE HAD CONTESTED THE ACTION OF LOWER AUTHORITIES IN MAKING DISALLOW ANCE OF INTEREST U/S 14A READ WITH RULE 8D(2)(II) AMOUNTING TO RS.21,16,000/-. DURING THE COURSE OF HEARING IT WAS SUBMITTED BY THE LD. COUNSEL THAT OWN FUNDS ARE TO THE TUNE O F RS.307.53 CRORES APPROXIMATELY WHEREAS INVESTMENT M ADE IN TAX FREE SECURITIES AMOUNTING TO RS.55.51 CRORES. T HEREFORE, NO DISALLOWANCE OF INTEREST COULD HAVE BEEN MADE AS PE R LAW AND FACTS. IT WAS FURTHER SUBMITTED THAT HONBLE ITAT I N ASSESSEES OWN CASE IN A.Y. 2007-08 DELETED THE DISALLOWANCE F OR SIMILAR REASONS. THE RELIANCE WAS ALSO PLACED UPON THE RECE NT JUDGMENT OF HONBLE BOMBAY HIGH COURT IN THE CASE O F HDFC BANK V. DCIT 383 ITR 529. 4.1. PER CONTRA, LD. DR RELIED UPON THE ORDERS OF THE L OWER AUTHORITIES. 4.2. WE HAVE GONE THROUGH THE ORDERS PASSED BY THE LOWE R AUTHORITIES AS WELL AS ORDER OF THE TRIBUNAL FOR A. Y. 2007-08. IT IS NOTED FROM THE PERUSAL OF ASSESSEES BALANCE SHE ET DT 31 ST MARCH 2002 THAT OWN FUNDS OF THE ASSESSEE WERE AGGR EGATING TO RS. 307.53 CRORES WHERE INVESTMENT IN TAX FREE S ECURITIES WAS TO THE TUNE OF RS.55.51 CRORES ONLY. THUS, OWN FUNDS OF THE ASSESSEE ARE IN EXCESS OF INVESTMENTS. THE IDEN TICAL SITUATIONS HAD COME UP BEFORE THE TRIBUNAL IN ASSES SEES OWN CASE IN A.Y. 2007-08, WHEREIN VIDE ITS ORDER 25.05. 2016 IN ITA NO.1319/M/11 DATED 25.5.2016), THE TRIBUNAL DELETED THE RALIS INDIA LTD. 4 DISALLOWANCE OF INTEREST MADE BY THE AO U/S 14A, WI TH FOLLOWING OBSERVATIONS: 6. WE HEARD THE PARTIES ON THIS ISSUE. THE ASSESS EE HAS DEMONSTRATED THAT OWN FUNDS AVAILABLE WITH IT IS MO RE THAN THE INVESTMENT MADE HENCE THERE IS NO REQUIREM ENT OF MAKING ANY DISALLOWANCE OUT OF INTEREST EXPENDITURE . THE VIEW TAKEN BY THE ASSESSEE IS SUPPORTED BY THE DECI SION OF HON'BLE HIGH COURT RENDERED IN THE CASE OF CIT VS. HDFC BANK LTD. (366 ITR 505). FURTHER THE ASSESSEE HAS M ADE FRESH INVESTMENT IN TWO MUTUAL FUNDS AND MOST OF TH E SHARES HAVE BEEN BROUGHT FORWARD FROM THE EARLIER Y EAR. UNDER THESE SET OF FACTS, WE ARE OF THE VIEW THAT T HE DISALLOWANCE U/S. 14A MAY BE RESTRICTED TO 2% OF TH E DIVIDEND INCOME EARNED BY THE ASSESSEE AS HELD IN T HE CASE OF GODREJ AGROVET LTD. (ITA NO. 934 OF 2011 DA TED 8.1.2013) BY HONBLE BOMBAY HIGH COURT. THE ORDER O F LEARNED CIT(A) STANDS MODIFIED ACCORDINGLY. WE ORDE R ACCORDINGLY. 4.3. IT IS FURTHER BROUGHT TO OUR NOTICE THAT HONBLE B OMBAY HIGH COURT IN THE RECENT JUDGMENT IN THE CASE OF HD FC BANK V. DCIT 383 ITR 529 (BOM) HAS ALSO DELETED THE DISA LLOWANCE OF INTEREST IN CASE OWN FUNDS OF THE ASSESSEE ARE M ORE THAN THE AMOUNT OF INVESTMENT MADE IN TAX FREE SECURITIES. L D. DR DID NOT CONTROVERT THESE FACTS AND AFORESAID LEGAL POSI TION. THEREFORE, RESPECTFULLY FOLLOWING THE TRIBUNAL FOR A.Y. 2007-08 AS WELL AS ORDER OF BOMBAY HIGH COURT, THE DISALLOW ANCE OF INTEREST U/S 14A FOR RS.2,11,000/- IS HEREBY DELETE D. THIS GROUND IS ALLOWED. 5. GROUND NO.2 TO 5 : IN THESE GROUNDS, THE ASSESSEE HAS CHALLENGED THE ACTION OF LOWER AUTHORITIES IN MAKIN G DISALLOWANCE OUT OF ADMINISTRATIVE EXPENSES U/S 14A READ WITH RULE 8D(2)(III) TO THE TUNE OF RS.21,80,947/-. DURI NG THE COURSE OF HEARING, IT WAS SUBMITTED BY THE LD. COUNSEL THA T IT HAD RALIS INDIA LTD. 5 MADE SUO MOTTO DISALLOWANCE OF RS.49,763/-. THE AMO UNT WAS WORKED OUT BY THE ASSESSEE ON THE BASIS OF SALARY P AID BY THE ASSESSEE TO ITS EMPLOYEE WHO WAS LOOKING AFTER INVE STMENTS. BUT, THE AO WITHOUT RECORDING ANY REASONS AS TO WHY THE WORKING SUBMITTED BY THE ASSESSEE WAS INCORRECT, IN CREASED THE AMOUNT OF DISALLOWANCE BY COMPUTING THE SAME AT 0.5% OF AVERAGE VALUE OF INVESTMENTS WHICH AMOUNTED TO RS.21,80,947/-. IT WAS SUBMITTED THAT SINCE AO DID NOT GIVE PROPER REASONING FOR INCREASING THE DISALLOWANCE, T HEREFORE, THE DISALLOWANCE SHOULD BE DELETED. AN ALTERNATIVE SUBMISSIONS WAS MADE BY THE LD. COUNSEL THAT INVOKI NG OF RULE 8D(2)(III) IS NOT MANDATORY. THE DISALLOWANCE CAN BE WORKED OUT ON A REASONABLE BASIS, KEEPING IN VIEW A CTIVITIES OF THE ASSESSEE CARRIED OUT IN MAKING INVESTMENTS AND EXPENSES INCURRED THEREON AND IT IS NOT NECESSARY THAT 0.5% OF THE AVERAGE VALUE INVESTMENT SHOULD BE MANDATORILY DISA LLOWED. HE ALSO PLACED RELIANCE ON THE JUDGMENT OF KOLKATA BENCH OF THE TRIBUNAL IN THE CASE OF ALLAHABAD BANK V. ACIT (ITA NO.119/KOL/2012 DATED 1.06.2016). IN RESPONSE TO OU R QUERY WITH REGARD TO THE DISALLOWANCE SUSTAINED BY THE TR IBUNAL IN A.Y. 2007-08 @ 2% OF THE DIVIDEND INCOME, IT WAS SU BMITTED BY THE LD. COUNSEL THAT IN THE IMPUGNED YEAR NO MAJ OR EXPENSES HAVE BEEN INCURRED THEREFORE DISALLOWANCE CANNOT BE MADE OF THAT MAGNITUDE. 5.1. PER CONTRA, LD. DR RELIED UPON THE ORDER THE LD. C IT(A) AND SUBMITTED THAT SINCE DECISION OF THE TRIBUNAL I S BEING FOLLOWED FOR A.Y. 2007-08 WITH REGARD TO INTEREST, THEREFORE, THE SAME SHOULD BE FOLLOWED WITH REGARD TO ADMINISTRATI VE RALIS INDIA LTD. 6 EXPENSES ALSO AND ACCORDINGLY 2% OF THE DIVIDEND RE CEIVED DURING THE YEAR MAY BE DISALLOWED ON ACCOUNT OF ADMINISTRATIVE EXPENSES. 5.2. WE HAVE GONE THROUGH THE ORDERS OF THE LOWER AUTHO RITIES AS WELL WAS JUDGMENT OF THE TRIBUNAL FOR A.Y. 2007- 08 AND ALSO JUDGMENT OF KOLKATA BENCH OF THE TRIBUNAL IN T HE CASE OF ALLAHABAD BANK V. ACIT (ITA NO.119/KOL/2012 DATED 1.06.2016). IN OUR VIEW, SINCE THE TRIBUNAL IN ASSE SSEES OWN CASE HAS ALREADY HELD THAT 2% OF THE DIVIDEND INCOM E EARNED BY THE ASSESSEE IN THE GIVEN FACTS OF THIS CASE WOU LD BE REASONABLE DISALLOWANCE, THEREFORE, RESPECTFULLY FO LLOWING THE ORDER OF THE TRIBUNAL, WE DIRECT THE AO TO MAKE DIS ALLOWANCE @ 2% OF THE DIVIDEND INCOME RECEIVED BY THE ASSESSEE DURING THE YEAR UNDER CONSIDERATION, AND THE BALANCE DISALLOWA NCE SHOULD BE DELETED. THESE GROUNDS MAY BE TREATED AS PARTLY ALLOWED. 6. IN THE RESULT, THE APPEAL AS MAY BE TREATED AS PAR TLY ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 10 TH OCTOBER, 2016 SD/- (SANJAY GARG ) SD/- (ASHWANI TANEJA) ! / JUDICIAL MEMBER ' ! / ACCOUNTANT MEMBER MUMBAI; $ DATED : 19/10/2016 CTX? P.S/. .. RALIS INDIA LTD. 7 #$%&'(')% / COPY OF THE ORDER FORWARDED TO : 1. & '( / THE APPELLANT 2. )*'( / THE RESPONDENT. 3. +, + - ( & ) / THE CIT, MUMBAI. 4. +, + - / CIT(A)- , MUMBAI 5. 01 ) 23 , +, &4 23,5 , / DR, ITAT, MUMBAI 6. 6 7 / GUARD FILE. / BY ORDER, * 0& ) //TRUE COPY// / (DY./ASSTT. REGISTRAR) , / ITAT, MUMBAI