RAPTAKOS BRETT AND CO. LTD, MUMBAI V. DCIT RG 5(3)(1), MUMBAI

ITA 4427/MUM/2016

• Counselvise Citation: [2018] 121 COUNSELVISE.COM (IT) 6921 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 11 month(s) 26 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 20-06-2018
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: H
• Assessment Year: 2012-2013
• Appeal Filed On: 24-06-2016
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: M C OMI NINGSHEN
• Assessee Lawyers: YOGESH A THAR
• Keywords: Earning of tax free income
• Section: 234B; 14A; 115JB; 11

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL, MUMBAI BENCH H, MUMBAI BEFORE SHRI C.N. PRASAD, JUDICIAL MEMBER AND SHRI RAJESH KUMAR, ACCOUNTANT MEMBER ITA NO.4427/M/2016 ASSESSMENT YEAR: 2012-13 M/S. RAPTAKOS BRETT AND CO. LTD., 253, DR. ANNIE BESANT ROAD, WORLI, MUMBAI- 400 030 PAN: AAACR1772R VS. DY. COMMISSIONER OF INCOME TAX, RANGE 5(3)(1), MUMBAI (APPELLANT) (RESPONDENT) PRESENT FOR: ASSESSEE BY : SHRI YOGESH A THAR, A.R. & MS. AYUSHI MODANI, A.R. REVENUE BY : SHRI M.C. OMI NINGSHEN, D.R. DATE OF HEARING :15.06.2018 DATE OF PRONOUNCEMENT :20.06.2018 O R D E R PER RAJESH KUMAR, ACCOUNTANT MEMBER: THE PRESENT APPEAL HAS BEEN PREFERRED BY THE ASSES SEE AGAINST THE ORDER DATED 30.03.2016 OF THE COMMISSIONE R OF INCOME TAX (APPEALS) [HEREINAFTER REFERRED TO AS TH E CIT(A)] RELEVANT TO ASSESSMENT YEAR 2012-13. 2. THE VARIOUS GROUNDS RAISED BY THE ASSESSEE ARE A S UNDER: GROUND NO 1 :DISALLOWANCE U/S 14A OF THE ACT AMOUNT ING TO RS. 1,75,13,524/-. 1 ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE CIT(A) ERRED IN UPHOLDING THE ACTION OF THE AO TO DISALLOW A SLIM OF RS. 1,75,13,524/- IN ADDITION TO SUO MOTO DISALLOWANCE MADE BY THE APPEL LANT OF RS. ITA NO.4427/M/2016 M/S. RAPTAKOS BRETT AND CO. LTD. 2 52,05,005/- AS EXPENSES INCURRED TOWARDS EARNING EX EMPT INCOME UNDER SECTION 14A OF THE ACT R.W.R. 8D OF THE INCOME TAX RULES, 1962 (THE RULES'). 2. THE APPELLANT PRAYS THAT DISALLOWANCE OF RS. 1,75,13,524/- MADE UNDER SECTION 14A OF THE ACT R.V.R. 3D OF THE RULES BE DELETED AND THE DISALLOWANCE U/S. 14A SHOULD HE RESTRICTED TO RS. 5 2,05,005/- TOWARDS EXPENSES INCURRED FOR THE PURPOSE OF EARNING EXEMPT INCOME AS WORKED OUT BY THE APPELLANT. 3. WITHOUT PREJUDICE TO 1, 2 ABOVE, CONSIDERING THE FACT THAT THE APPELLANT HAD SUFFICIENT OWN INTEREST FREE FUNDS FO R MAKING THE INVESTMENTS, DISALLOWANCE OF INTEREST U/S 14A R.W.R. 8D(2)(II) H E DELETED. 4. WITHOUT PREJUDICE TO 1,2 & 3 ABOVE, IF RULE 8D WERE TO APPLY, 'AVERAGE INVESTMENTS' FOR THE PURPOSE OF CALCULATION UNDER P ART 2(U) AND (III) OF RULE 8D SHOULD NOT INCLUDE THE STRATEGIC INVESTMENTS MADE B Y AN ASSESSEE. 5. WITHOUT PREJUDICE TO 1,2, 3 & 4 ABOVE, IF RULE 8D WERE TO APPLY, 'AVERAGE INVESTMENTS' FOR THE PURPOSE OF CALCULATION UNDER P ART 2(U) AND (III) OF RULE 8D WILL INCLUDE ONLY THOSE INVESTMENTS FROM WHICH EXEM PT INCOME HAS BEEN EARNED DURING THE YEAR. GROUND II: ADJUSTMENT OF SECTION 14A DISALLOWANCE W ITH BOOK PROFIT U/S 115JB OF THE ACT: 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE A ND IN LAW, THE CIT (A) ERRED IN UPHOLDING THE ACTION OF THE LD. AO OF ADDI NG THE DISALLOWANCE U/S 14A OF RS. 2,27,18,529/- TO THE BOOK PROFIT COMPUTED U/ S 115 JB OF THE ACT. 2. THE APPELLANT PRAYS THAT THE LD. AO BE DIRECTED TO DELETE THE ADDITION MADE TO BOOK PROFITS COMPUTED U/S 115JB OF THE ACT. 3. WITHOUT PREJUDICE TO 1, 2 ABOVE, THE APPELLANT PRAYS THAT THE AMOUNT ADDED BACK U/S II5JB IN CALCULATING THE BOOK PROFIT S BE RESTRICTED TO RS.1,75,13,524/- BEING THE ADDITIONAL AMOUNT DISALL OWED U/S. 14A OF THE ACT BY THE LD. AO. GROUND III: LEVY OF INTEREST UNDER SECTION 234B AN D 234C OF THE ACT: I. THE AO ERRED IN LEVYING EXCESS INTEREST UNDER SE CTION 234B AND 234C OF THE ACT. 2. THE APPELLANT PRAYS THAT THE AFORESAID ADDITION BE DELETED. 3. THE ISSUE RAISED IN GROUND NO.1 & 2 IS AGAINST T HE UPHOLDING OF DISALLOWANCE OF RS.1,75,13,525/- BY LD. C IT(A) AS MADE BY THE AO BY IGNORING THE FACT THAT THE ASS ESSEE HAS ITA NO.4427/M/2016 M/S. RAPTAKOS BRETT AND CO. LTD. 3 SUO MOTTO DISALLOWED A SUM OF RS.52,05,005/- TOWARDS THE EXPENSES INCURRED ON EARNING OF EXEMPT INCOME. 4. AT THE OUTSET, THE LD. A.R. SUBMITTED THAT THE CA SE OF THE ASSESSEE IS IDENTICAL TO ONE AS HAS BEEN DECIDED IN ITA NO.7490/M/2013 FOR A.Y. 2010-11 IN THE OWN CASE OF T HE ASSESSEE IN WHICH THE CO-ORDINATE BENCH OF THE TRIB UNAL HAS TAKEN A VIEW UNDER IDENTICAL FACTS THAT NO DISALLOW ANCE SHOULD BE MADE UNDER SECTION 14A READ WITH RULE 8D OVER AN D ABOVE THE SUO MOTTO DISALLOWANCE BY THE ASSESSEE. THE LD. A.R., THEREFORE, PRAYED BEFORE THE BENCH THAT FOLLOWING T HE ORDER OF THE CO-ORDINATE BENCH OF THE TRIBUNAL IN THE ASSESS EES OWN CASE THE PRESENT APPEAL SHOULD ALSO BE DECIDED IN T HE LIKE MANNER AND BE ALLOWED ACCORDINGLY. 5. THE LD. D.R. DID NOT AGREE TO THE CONTENTION OF THE ASSESSEE THAT THE PRESENT CASE IS SQUARELY COVERED BY THE TRIBUNAL IN ASSESSEES OWN CASE IN EARLIER YEARS. THE LD. D.R. SUBMITTED THAT ALL THE EXPENSES HAVE TO BE SEEN ON YEAR TO YEAR BASIS AND THE DISALLOWANCE HAS TO BE MADE BY A PPLYING THE PROVISION OF SECTION 14A READ WITH RULE 8D AND THUS PRAYED THE BENCH THAT THE ORDER OF THE LD. CIT(A) BE AFFIR MED. 6. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL AVAILABLE ON RECORD. THE UNDISPUTED FACTS ARE THAT DURING THE YEAR, THE ASSESSEE EARNED EXEMPT INCOME O F RS.8,27,30,037/- AND MADE A SUO MOTTO DISALLOWANCE U NDER SECTION 14A READ WITH RULE 8D OF RS.52,05,005/- AS DET AILED IN PARA 8 OF THE ASSESSMENT ORDER COMPRISING THE DIREC T EXPENSES ITA NO.4427/M/2016 M/S. RAPTAKOS BRETT AND CO. LTD. 4 ON ACCOUNT OF DEMAT AND DEPOSITORY CHARGES RS.38,00 ,098/-, SALARY OF EMPLOYEES RS.6,33,415/-, OTHER EXPENSES OF H O PRORATED BASIS RS.7,71,493/-. THE DETAILED CALCULATION WHEREOF IS INCORPORATED BY THE AO IN PARA 7 WHICH FOR THE SAKE OF CONVENIENCE IS REPRODUCED AS UNDER: 7. EXPENSES OTHER THAN INTEREST ON BORROWINGS: 7.1 RBCL HAS INCURRED A TOTAL EXPENSE OF RS.38,00, 098/- TOWARDS DEMAT, DEPOSITORY CHARGES AND THIS HAS BEEN CONSIDERED FOR THE PURPOSE OF DISALLOWANCE. 7.2 IN SO FAR AS OTHER EXPENDITURE IS CONCERNED, BA SED ON THE INTERNAL RECORDS, EXPENDITURE DIRECTLY IDENTIFIABLE SUCH AS STAMP DUT Y, TRANSFER FEES AND SAFE CUSTODY CHARGES HAS NOT BEEN DISALLOWED AS SUCH EXP ENSES ARE NOT DIRECTLY RELATABLE TO EARNING OF DIVIDEND; THEY MAY BE RELAT ABLE TO ACQUISITION OF SHARES BUT NOT TO DIVIDEND BEING EARNED. FOR THIS VIEW REL IANCE IS PLACED ON CIT VS GIC OF INDIA (254 ITR 203) (BORN) WHICH HAS HELD THAT EXPE NSES INCURRED ON ACCOUNT OF SALARY PAID TO STAFF, STAMP DUTY, TRANSFER FEES, CU STODY ARE NOT DIRECTLY RELATABLE TO EARNING OF DIVIDEND 7.3 WE HAVE THEREAFTER IDENTIFIED THE EXPENSES THAT ARE INDIRECTLY INCURRED IN RELATION TO SUCH INVESTMENTS BY WAY OF COST ON THE PERSONNEL OF RBCL WHO ARE ENGAGED IN THE DAY- TO-DAY ACTIVITY OF FUND MANAGEM ENT AND INVESTMENTS. FOLLOWING TABLE SHOWS THE ENTIRE EMOLUMENTS OF FUND MANAGEMENT TEAM ON COST-TO-COMPANY BASIS AND ALSO THE PORTION THEREOF REASONABLY ATTRIBUTABLE, BASED ON TIME SPENT BY THE TEAM, TO THE ACTIVITY OF INVESTMENT WHICH GIVES / MAY GIVE RISE TO TAX FREE INCOME. SR. NO. NAME EMPLOYEE DESIGNATION EMOLUMENTS [COST TO COMPANY] (AMOUNT IN RS.) % ATTRIBUTABLE TO INVESTMENTS ACTIVITY ATTRIBUTED AMOUNT (IN RS.) 1 MR. KETAN MAZUMDAR VP - FINANCE 19,63,140 20% 3,92,628 2 MR. S K SHENOY SR. MANAGER - FINANCE 5,42,836 20% 1,08,567 3 MR. VITHOBA PATIL SR. EXECUTIVE - ACCOUNTS 3,72,817 18% 67,107 4 MR. LAXMAN ADDAGATLA EXECUTIVE - ACCOUNTS 3,61,740 18% 65,113 TOTAL 6,33,415/- ITA NO.4427/M/2016 M/S. RAPTAKOS BRETT AND CO. LTD. 5 4. APART FROM THE EMOLUMENTS THAT ARE INCURRED FOR SUCH PERSONNEL, OTHER EXPENSES THAT CAN BE DIRECTLY OR INDIRECTLY ATTRIBU TABLE TO SUCH PERSONNEL ARE ALSO IDENTIFIED BASED ON THE TOTAL EXPENSES OF HO, WHICH ARE DULY ALLOCATED IN RELATION TO SUCH PERSONNEL. THERE ARE TOTAL NINETY SIX (96) EMPLOYEES IN HO OUT OF WHICH FOUR (4) EMPLOYEES MENTIONED AT S. NO. 1, 2, 3 & 4 IN THE ABOVE TABLE ARE WORKING IN THE FUND MANAGEMENT TEAM OF THE COMP ANY. DETAILS OF SUCH EXPENSES IS GIVEN BELOW AND THE BASIS OF ALLOCATION IS THE RATIO OF EMPLOYEES OF THE FMT TO THE TOTAL NUMBER OF EMPLOYEES IN HO: SR. NO. PARTICULARS AMOUNT (RS. LACS) EXPENSE OF HO APPROPRIATED AMOUNT (4/90 OF EXPENSE OF HO) 1. STAFF WELFARE 8,08,247 33,704 2. ELECTRICITY EXPENSES 25,30,603 1,05,526 3. REPAIRS AND MAINTENANCE 20,09, 738 83,806 4 PRINTING & STATIONERY 17,06,922 71,179 5 BOOKS & PERIODICALS 2,8 7,671 11,996 6 TELECOMMUNICATION EXPENSES 65,45,141 2, 72,932 7 POSTAGE AND TELEGRAM 7,73,152 32,240 8 AUTOMOBILE EXPENSES 34,99,986 1,45,949 9 CONVEYANCE CHARGES 3,39,561 14,160 TOTAL 1,85,01,021 7,71,492 THE AO, HOWEVER, CALCULATED THE DISALLOWANCE AT RS.2,27,18,529/- UNDER SECTION 14A READ WITH RULE 8D AND AFTER ALLOWING THE CREDIT OF SUO MOTTO DISALLOWANCE OF RS.52,05,005/-, THE ADDITION UNDER SECTION 14A WAS R ESTRICTED TO RS.1,75,13,524/-. 7. IN THE APPELLATE PROCEEDINGS, THE LD. CIT(A) ALSO SUSTAINED THE ADDITION AS MADE BY THE AO BY HOLDING THAT THE PROVISIONS OF SECTION 14A R.W.R. 8D HAVE BEEN CORRECT LY APPLIED. UPON PERUSAL OF THE ORDER OF THE CO-ORDINA TE BENCH OF THE TRIBUNAL IN A.Y. 2010-11, WE FIND THAT UNDER SIMIL AR SET OF FACTS, THE TRIBUNAL HAS DELETED THE ADDITION AS MAD E BY THE AO UNDER SECTION 14A READ WITH RULE 8D BY OBSERVING TH AT THE SUO ITA NO.4427/M/2016 M/S. RAPTAKOS BRETT AND CO. LTD. 6 MOTTO DISALLOWANCE MADE BY THE ASSESSEE IS SUFFICIE NT TO COVER THE EXPENSES RELATABLE TO EARNING THE EXEMPT INCOME . WE WOULD LIKE TO MENTION THAT ASSESSEES OWN FUNDS IN THE FORM OF SHARE CAPITAL, RESERVES AND SURPLUS WERE RS.434.47 CR ORE WHEREAS THE INVESTMENTS WERE ONLY TO THE TUNE OF RS .282.75 CR. WHICH INCLUDED THE INVESTMENTS IN SUBSIDIARY CO MPANIES FROM STRATEGIC POINT OF VIEW. THUS, THE INTEREST F REE FUNDS AVAILABLE WITH THE ASSESSEE AND THEREFORE, THE PRESU MPTION HAS TO BE MADE THAT INVESTMENTS IN THE SHARES AND S ECURITIES WERE MADE OUT OF INTEREST FREE FUNDS AVAILABLE WITH THEM. THE CO-ORDINATE BENCH OF THE TRIBUNAL HAS DECIDED THE I DENTICAL ISSUE IN FAVOUR OF THE ASSESSEE BY OBSERVING AND HO LDING AS UNDER: 6. WE HAVE HEARD RIVAL CONTENTIONS AND GONE THROUG H THE FACT AND CIRCUMSTANCES OF THE CASE. FROM THE ABOVE IT IS CLEAR THAT NO DIS ALLOWANCE U/S RULE 8D CAN BE MADE FOR THE REASON THAT THE ABOVE FACTS CLEARLY DE MONSTRATED THAT THE ASSESSEE IS HAVING NON-INTEREST BEARING FUNDS AVAILABLE IN THE SHAPE OF SHARE CAP ITA L AND RESERVES AND SURPLUSES WITH HIM AMOUNTING TO RS. 28 5.27 CRORE WHICH IS MORE THAN THE AMOUNT OF INVESTMENT MADE IN INTEREST EARNING I NSTRUMENTS AMOUNTING TO RS. 18.19 CRORES AND ONCE AVAILABILITY OF AMOUNT FROM I NTEREST FREE FUND OF THE ASSESSEE IS MORE THAN THE INVESTMENT, THEN A PRESUMPTION ARI SES THAT ASSESSEE MIGHT HAVE INVEST OUT OF INTEREST FREE FUND AVAILABLE WITH HIM . THIS VIEW OF OURS IS SUPPORTED BY THE DECISIONS OF HON'BLE BOMBAY HIGH COURT IN THE C ASE OF HDFC BANK LTD. (SUPRA). AS REGARDS TO DIRECT EXPENDITURE UNDER RULE 8D (1), THERE IS NO DISPUTE. AS REGARDS TO WORKING OF DISALLOWANCE UNDER RULE 8D (3), THE A SSESSEE HAS COMPUTED THE DISALLOWANCE AND THE ASSESSING OFFICER COULD NOT PO INT OUT ANY DISCREPANCY OR UNREASONABLENESS OR COULD NOT FIND ANY FAULT IN THE SAME. ACCORDINGLY, IN VIEW OF THE GIVEN FACTS AND CIRCUMSTANCES, WE DELETE THEADD ITION AND ALLOW THE APPEAL OF THE ASSESSEE RETAINING THE SAME TO THE EXTENT OF TH E ASSESSEE SUO-MOTO DISALLOWANCE OF SUM OF RS.11,78,104/-. WE DIRECT TH E AO ACCORDINGLY. 8. WE, THEREFORE, FOLLOWING THE ORDER OF THE CO-ORD INATE BENCH OF THE TRIBUNAL AND MAINTAINING THE CONSISTEN CY WITH THE EARLIER YEARS DECISION, SET ASIDE THE ORDER OF THE LD. CIT(A) AND DIRECT THE AO TO DELETE THE ADDITIONS OF RS.1,75 ,13,524/- MADE UNDER SECTION 14A READ WITH RULE 8D. ITA NO.4427/M/2016 M/S. RAPTAKOS BRETT AND CO. LTD. 7 9. THE ISSUE RAISED IN GROUND NOS.3, 4 & 5 WERE WITHOUT PREJUDICE AND THEREFORE REQUIRE NO ADJUDICATION. 10. THE ISSUE RAISED IN GROUND NO.II IS AGAINST THE DECISION OF THE LD. CIT(A) UPHOLDING THE ACTION OF AO IN ADDING THE DISALLOWANCE UNDER SECTION 14A TO THE EXTENT OF RS.2,27,18,529/- TO THE BOOK PROFIT UNDER SECTION 11 5 JB OF THE ACT. THE ISSUE IS DECIDED BY THE SPECIAL BENCH D ELHI IN THE CASE OF ACIT VS VIREET INVESTMENT PVT. LTD. (165 ITD 27) WHEREIN IT HAS BEEN HELD THAT THE COMPUTATION UNDER CLAUSE (F) OF EXPLANATION 1 TO SECTION 115JB(2) IS TO BE MADE WITHOUT RESORTING TO THE COMPUTATION AS CONTEMPLATED UNDER SECTION 14A READ WITH RULE 8D OF THE INCOME TAX RULES. THU S RESPECTFULLY FOLLOWING THE SAID DECISION WE RESTORE THIS GROUND TO THE AO WHO SHALL DECIDE THE ISSUE KEEPING IN VIE W THE DECISION OF THE SPECIAL BENCH (SUPRA). ACCORDINGLY , THIS GROUND IS ALSO ALLOWED FOR STATISTICAL PURPOSE. 11. THE ISSUE RAISED IN GROUND NO.III IS CONSEQUENT IAL AND REQUIRED NO ADJUDICATION. 12. IN THE RESULT, APPEAL OF THE ASSESSEE IS PARTLY ALLOWED AS INDICATED ABOVE. ORDER PRONOUNCED IN THE OPEN COURT ON 20.06.2018. SD/- SD/- (C.N. PRASAD) (RAJESH KUMAR) JUDICIAL MEMBER ACCOUNTANT MEMBER MUMBAI, DATED: 20.06.2018. * KISHORE, SR. P.S. ITA NO.4427/M/2016 M/S. RAPTAKOS BRETT AND CO. LTD. 8 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.