DEPUTY COMMISSIONER OF INCOME TAX-14(1)(2), MUMBAI V. GODREJ INVESTMENTS P.LTD, MUMBAI

ITA 4490/MUM/2017

• Counselvise Citation: [2018] 112 COUNSELVISE.COM (IT) 6023 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 6 month(s) 11 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 31-12-2018
• Appeal Filed By: Department
• Order Result: Allowed
• Bench Allotted: G
• Assessment Year: 2012-2013
• Appeal Filed On: 19-06-2017
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Assessee Lawyers: F V IRANI
• Keywords: Earning of tax free income; Rule 8D
• Section: 143(3); 14A; 201

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCHES G , MUMBAI BEFORE SHRI RAJESH KUMAR, ACCOUNTANT MEMBER AND SHRI AMARJIT SINGH, JUDICIAL MEMBER ITA NO. A.Y. APPELLANT RESPONDENT 4490/MUM/17 2012 - 13 THE DY. COMMISSIONER OF INCOME TAX - 14(1)(2), MUMBAI M/S. GODREJ INVESTMENTS PVT. LTD., PLOT NO. 11A, PIROJSHANAGAR, EASTERN EXPRESS HIGHWAY, VIKHROLI (E), MUMBAI [PAN: AAACG 1391 H] 4491/MUM/17 2013 - 14 APPELLANT BY : SHRI SUHAS KULKARNI, DR RESPONDENT BY : SHRI F.V. IRANI, AR DATE OF HEARING : 27 - 12 - 201 8 DATE OF PRONOUNCEMENT : - 31 - 12 - 201 8 O R D E R PER RAJESH KUMAR, ACCOUNTANT MEMBER: TH E S E TWO APPEAL S FILED BY THE REVENUE ARE DIRECTED AGAINST THE ORDER OF THE COMMISSIONER OF INCOME TAX (APPEALS) - 2 2 , MUMBAI , DATED 15 - 0 3 - 201 7 AND 16 - 03 - 2017 FOR THE AYS. 2012 - 13 & 2013 - 14 RESPECTIVELY . SINCE THE ISSUE IS COMMON IN BOTH THE ASSESSMENT YEARS EXCEPT CHANGE IN THE AMOUNTS, WE HAVE HEARD BOTH THE APPEALS TOGETHER AND DECIDED BY THIS COMMON ORDER. ITA NO S . 4 490 & 4491/MUM/2017 : 2 : 2. REVENUE HAS CHALLENGED THE DELETION OF ADDITION BY THE CIT(A) OF RS. 99,15,878/ - AND RS. 2,54,33,817/ - FOR THE AYS. 2012 - 13 & 2013 - 14 AS MADE BY THE AO U/S. 14A OF THE INCOME TAX ACT R.W. RULE 8D2(II). 3. THE FACTS IN BRIEF ARE THAT ASSESSEE IS A LIMITED COMPANY, ENGAGED IN THE BUSINESS AS AN INVESTMENTS IN SHARES AND SECURITIES , NOT ACCEPTING PUBLIC DEPOSITS AND GOVERNED BY THE NON - BANKING FINANCIAL COMPANIES REGULATIONS, LAID DOWN BY THE RESERVE BANK OF INDIA WITH THE MAIN OBJECTIVE OF INVESTING IN SHARES AND LENDING/BORROWING OF MONIES. DURING THE COURSE OF ASSESSMENT PROCEEDINGS, AO NOTICED THAT ASSESSEE HAS DISALLOWED EXPENSES OF RS. 78,84,744/ - U/S. 14A OF THE ACT FOR EARNING DIVIDEND INCOME OF RS. 2 2,20,13,210/ - AND SIMILARLY IN AY . 2013 - 14, ASSESSEE HAS DISALLOWED RS. 80,20,497/ - FOR EARNING EXEMPT INCOME BY WAY OF DIVIDEND OF RS. 28,06,44,413/ - . AO ASKED THE ASSESSEE TO FURNISH THE WORKING OF DISALLOWANCE U/S. 14A R.W. RULE 8D, WHICH WAS SUBMITTED BY ASSESSEE VIDE LETTER DT. 13 - 09 - 2014 FOR ASSESSMENT YEAR. 2012 - 13. AO AFTER CONSIDERING THE SUBMISSIONS OF ASSESSEE, DID NOT AGREE WI TH THE CONTENTIONS OF ASSESSEE AND INVOKED THE PROVISIONS OF SECTION 14A R.W. RULE ITA NO S . 4 490 & 4491/MUM/2017 : 3 : 8D(2)(II), THEREBY MAKING A DISALLOWANCE OF RS. 1,78,00,622/ - AND A NET ADDITION OF RS. 99,15,878/ - WAS MADE AFTER ALLOWING DEDUCTION OF RS. 78,84,744/ - QUA THE DISALLOWANCE THE ASSESSEE HAS MADE SUO MOTTO BY FRAMING ASSESSMENT VIDE ORDER DT. 23 - 03 - 2015 U/S. 143(3) OF THE ACT. 4. IN THE APPELLATE PROCEEDINGS, CIT(A) DELETED THE DISALLOWANCE BY OBSERVING THAT ASSESSEE HAS SUO MOTTO DISALLOWED RS. 78,84,744 / - U/S. 14A, WHICH COMPRISES OF INTEREST DISALLOWANCE OF RS. 77,24,744/ - AND RS. 1,60,000/ - TOWARDS ADMINISTRATIVE EXPENSES. ASSESSEE ALSO FURNISHED CASH FLOW STATEMENT TO DEMONSTRATE HOW IT HAD WORKED OUT THE INTEREST DISALLOWANCE. CIT(A) FURTHER OBSERVED THAT EXCEPT MAKING GENERAL REMARKS, AO HAS NOT RECORDED ANY REASONS FOR HIS DIS - SATISFACTION WITH RESPECT TO CORRECTNESS OF DISALLOWANCE AS CALCULATED BY THE ASSESSEE HAVING REGARD TO THE BOOKS OF ACCOUNT OF ASSESSEE AND ACCORDINGLY ALLOWED THE APPEAL OF ASSESSEE BY DELETING ADDITION OF RS. 99,15,878/ - . 5. LD. AR AT THE OUTSET POINTED OUT THAT THE ISSUE IS SQUARELY COVERED IN FAVOUR OF THE ASSESSEE BY THE DECISION OF THE CO - ORDINATE BENCH IN ASSESSEES OWN CASE IN ITA NO S . 1178/MUM/2013 (AY. 2008 - 09) AND 5879/MUM/2012 (AY . ITA NO S . 4 490 & 4491/MUM/2017 : 4 : 2009 - 10) , DT. 09 - 07 - 2018. LD. AR ALSO SUBMITTED THAT SINCE THE ISSUE IS SQUARELY COVERED BY THE DECISION OF THE CO - ORDINATE BENCH IN ASSESSEES OWN CASE, THE APPEAL OF REVENUE DESERVES TO BE DISMISSED. 6. LD. DR ON THE OTHER HAND RELIED HEAVILY ON THE GROUNDS OF APPEAL AND THE ORDER OF AO. 7. AFTER HEARING THE RIVAL CONTENTIONS, PERUSING THE MATERIAL ON RECORD, INCLUDING THE DECISIONS RELIED UPON, WE FIND THAT THE IDENTICAL ISSUE HAS BEEN DECIDED BY THE CO - ORDINATE BENCH IN THE EARLIER YEARS IN ASSESSEES OWN CASE IN ITA NOS. 1178/MUM/2013 (AY. 2008 - 09) AND 5879/MUM/2012 (AY. 2009 - 10), DT. 09 - 07 - 2018 , WHEREIN IT HAS BEEN DECIDED THAT THE AO HAS INVOKED THE PROVISIONS OF SECTION 14A R.W. RULE 8D WITHOUT RECORDING ANY REASONS OR SATISFACTION AS TO HOW HE DISAGREE D WITH THE DISALLOWANCE MADE BY TH E ASSESSEE HAVING REGARD TO THE BOOKS OF ACCOUNT OF ASSESSEE. THE OPERATIVE PART OF THE SAID DECISION IS REPRODUCED HEREUNDER: 4. WE HAVE HEARD THE RIVAL CONTENTIONS AND GONE THROUGH THE FACTS AND CIRCUMSTANCES OF THE CASE. WE GONE THROUGH THE ORDER OF THE AO AND THAT OF THE CIT(A). WE FIND FROM THE ORDER OF CIT(A) THAT THERE IS CATEGORICAL FINDING BY THE FIRST APPELLATE AUTHORITY THAT THE AO HAS NOT RECORDED ANY SATISFACTION AS TO WHY THE ASSESSEE'S CLAIM OF DISALLOWANCE OF EXPENDITURE IS NO T CORRECT TH E CIT(A) OBSERVED AS UNDER: - ITA NO S . 4 490 & 4491/MUM/2017 : 5 : 'AS PER PROVISIONS OF SEE.14A(IF NO DEDUCTION SHALL BE A LL OW E D IN R E SPECT OF EXPENDITURE INCURRED BY THE ASSESSEE I N RELATION TO INCOME WHICH DOES NO T FORM PART OF TOTAL INCOME UNDER THIS ACT. AS PER PROVISIONS OF SEC 14A(2) WHERE THE A.O. IS NOT SATISFIED WITH THE CORRECTNESS OF CLAIM OF ASSESSEE IN RESPECT OF SUCH EXPENDITURE IN RELATION TO INCOME WHICH DOES NOT FORM PART OF TOTAL INCOME, THE AO SHALL DETERMINE AMOUNT OF EXPENDITURE DISALLOWAB L E BY APPLYING THE FORMULA PROVI DED IN RULE 8D(2). THUS THE A.O. HAS TO APPLY THE PROVISIONS OF RULE BD ONLY WHEN HE IS NO T SATISFIED WITH THE APPELLANT'S CLAIM OF DISALLOWANCE U/S, 14A OFFERED IN THE RETURN OF INCOME. THE BOMBAY HIGH COURT IN THE CASE OF GODREJ & BOYCEE MFG CO. LTD. 234 CTR 1 HAS ALSO HELD THAT SUB - SEC.(2) OF SEC. 14A MAKES IT ABUNDANTLY DEAR THAT THE POWER TO APPLY THE PRESCRIBED METHOD (RULE 3D) ARISES ONLY WHERE THE A. O IS NOT SATISFIED WITH THE CORRECTNESS OF THE CLAIM OF THE ASSESSES HAVING REGARD TO THE ACCOUNTS OF ASSESSES. IN THE EASE UNDER CONSIDERATION THE APPELLANT ITSELF HAS OFFERED DISALLOWANCE OF RS. 1,08,11,971/ - (INTEREST EXPENDITURE RS,1.06,61,930/ - PLUS ADMINISTRATIVE EXPENSES RS 1,50,041/ - ) SUCH DISALLOWANCE WAS BASED ON SCIENTIFIC WORKING AND DAY TO DA Y ACTUAL EXPENDITURE INCURRED FOR THE PURPOSE OF EARNING EXEMPT INCOME. IN THE FACTS AND CIRCUMSTANCES THE A.O. WAS REQUIRED TO RECORD THE FINDING THAT APPELLANT'S OFFER OF DISALLOWANCE U/S'RT4LN THE RETURN OF INCOME WAS NOT CORRECT. ONLY AFTER RECORDING S UCH REASONS, THE A.O COULD APPLY THE PROVISIONS OF RULE 8D ( 2). IN THE CASE UNDER CONSIDERATION THE A.O HAS NOT RECORDED ANY SUCH REASONS/ SATISFACTION FOR DIRECTLY APPLYING THE PROVISIONS OF RULE 8D(2) WITHOUT DISCUSSING AS TO HOW THE APPELLANT'S CLAIM WAS NOT CORRECT. IRRESPECTIVE OF THE FACT THAT THE A.O. HAS NOT RECORDED A NY SUCH SATISFACTION AS MENTIONED ABOVE, THE CIT(A) IS EMPOWERED AND COMPETENT ENOUGH TO EXAMINE AS TO W HETHER OR N OT APPELLANT'S OFFER OF DISALLOWANCE U/ S. 14A(1) IN THE RETURN OF INCOME WAS CORRECT, IN MY CONSIDERED VIEW THE APPELLANT'S OFFER OF DISALLOWANCE U/S. 14A AT RS. 1,08,11 , 971/ - IN THE RETURN OF INCOME WAS JUSTIFIED, LOGICAL AND BASED ON SCIENTIFIC WORKING OF ACTUAL DAY TO DAY WORKING OF INTEREST DISA LL OWABLE BASED ON DAY TO DAY UTILIZATION OF BORROWED FUNDS FOR THE PURPOSE OF MAKING INVESTMENTS IN THE FACTS AND CIRCUMSTANCES THE PROVISIONS OF SEC. 14A(2) WERE NOT APPLICABLE. THEREFORE, THE A O. WAS NOT JUSTIFIED IN MAKING FURTHER DISALLOWANCE BY APPLYING THE PROVISIONS OF RULE 80(2). IN THE, RETURN OF INCOME, THE APPELLANT HAD OFFERED THE CORRECT INTEREST EXPENDITURE DISA L LOWA B LE U/S.14A(1) OF THE ACT THE ITA NO S . 4 490 & 4491/MUM/2017 : 6 : APPELLANT HAD A/SO OFFERED ALL OTHER EXPENSES (AD M N. EXPENSES) FOR DISALLOWANCE . WITHOUT PREJUDICE TO ABOVE FINDING, THE APPELLANT'S ARGUMENT IS A L SO CORRECT THAT IN THE WORKING OF RULE 8 D THE A.O. HAS COMMITTED TOTALING MISTAKE AND HAS ALSO ERRED IN CONSIDERING TAXABLE INVESTMENT AND THE NET ASSETS AS AGAINST GROSS ASSETS. IN VIEW OF THE ABOVE THE APPELLANT'S OFFER OF DISALLOWANCE IN THE RETURN OF INCOME U/S.14A AT R S. 1, 0 8,11,971/ - IS ACCEPTED AND THE FURTHER DISALLOWANCE MADE BY A.O. BY APPLYING THE PROVISIONS OF RULE 8D(2) IS DELETED THESE GROUNDS OF APPEAL ARE THEREFORE, ALLOWED.'' 5. WE ALSO FIND THAT IN REGARD T O RECORDING OF SATISFACTION HON'BLE SUPREME COURT IN THE CASE OF MAXOPP INVESTMENT LTD. VS. CIT [2018] 402 ITR 640 (SC), HAS HELD THAT THE POSITIVE SATISFACTION IS LO BE RECORDED BY THE AO FOR MAKING DISALLOWANCE. HON'BLE SUPREME COURT HELD AS UNDER - '41. HAVING REGARD TO THE LANGUAGE OF SECTION 14A(2) OF THE ACT, READ WITH RULE 8D OF THE RULES, WE ALSO MAKE IT CLEA R THAT BEFORE APPLYING (HE THEORY OF APPORTIONMENT, THE AO NEEDS TO RECORD SATISFACTION THAT HAVING REGARD TO THE KIND OF THE ASSESSES, SUO MOTO DISALLOWANCE UNDER SECTION 14A WAS NOT CO R RECT . IT WILL BE IN THOSE CASES WHERE THE ASSESSES IN HIS RETURN HAS HIMSELF APPORTIONED BUT THE AO WAS NOT ACCEPTING THE SAID APPORTIONMENT IN THAT EVENTUALITY, IT WILL HAVE TO RECORD ITS SATISFACTION TO THI S EFFECT. FURTHER, WHILE RECORDING SUCH A SATISFACTION, NATURE OF LOAN TAKEN BY THE ASSESSES FOR PURCHASING LH& SHARES/ MAKING THE INVESTMENT IN SH ARES IS TO BE EXAMINED BY THE AO .' 6. WE FIND FROM THE ABOVE PROPOSITION AND THE FACTS OF THE CASE THAT THE AO HAS NOT AT AL L RECORDED THE SATISFACTION FOR REJECTING THE CLAIM OF EXPENDITURE SUO M OTO DISALLOWED BY ASSESSEE IN RELATION TO EXEMPT INCOME. ONCE THIS IS THE POSITION, WE ARE OF THE VIEW THAT THE CIT(A) HAS RIGHT L Y DELETED THE DISALLOWANCE ACCORDINGLY, WE CONFIRM THE ORDER OF CIT( A) . 7.1. AFTER CONSIDERING THE FACTS AND CIRCUMSTANCES OF THE CASE IN THE LIGHT OF THE DECISION OF THE CO - ORDINATE BENCH, WE ITA NO S . 4 490 & 4491/MUM/2017 : 7 : OBSERVE THAT THE CO - ORDINATE BENCH HAS DECIDED THE ISSUE UNDER IDENTICAL FACTS IN FAVOUR OF ASSESSEE. THEREFORE RESPECTFULLY FOLLOWING THE SAID DECISION, WE UPHOLD THE ORDER OF CIT(A). GROUND RAISED BY REVENUE IS DISMISSED. 8. IN THE RESULT, THE APPEAL OF REVENUE IN ITA NO. 4490/MUM/2017 IS DISMISSED. 9. SINCE THE ISSUE INVOLVED IN ITA NO. 4491/ MUM/2017 (AY.2013 - 14) IS IDENTICAL TO THE ONE DECIDED BY US HEREIN ABOVE, WE THEREFORE RESPECTFULLY FOLLOWING THE CO - ORDINATE BENCH DECISION IN THE EARLIER PARAGRAPH ABOVE, UPHOLD THE ORDER OF CIT(A) IN THIS APPEAL ALSO. GROUND RAISED BY REVENUE IS DISMISSED. 10. IN THE RESULT, THE APPEAL OF REVENUE IN ITA NO. 4491/MUM/2017 IS DISMISSED. 11. TO SUM - UP, BOTH THE APPEALS OF REVENUE ARE DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 31 ST DAY OF DECEMBER, 2018 SD/ - S D/ - (AMARJIT SINGH) (RAJESH KUMAR) / JUDICIAL MEMBER / ACCOUNTANT MEMBER / MUMBAI; / DATED : 31 ST DECEMBER, 2018 TNMM ITA NO S . 4 490 & 4491/MUM/2017 : 8 : / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT 2. / THE RESPONDENT 3. ( ) / THE CIT(A) , MUMBAI 4. / CIT, MUMBAI 5. , , / DR, ITAT, MUMBAI 6. [ / GUARD FILE / BY ORDER, //TRUE COPY// / (DY./ASST. REGISTRAR) , / ITAT, MUMBAI