RAJENDRA D. SHAH, MUMBAI V. ACIT 21(1), MUMBAI

ITA 4492/MUM/2014

• Counselvise Citation: [2016] 132 COUNSELVISE.COM (IT) 3476 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 10 month(s) 18 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 18-05-2016
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: D
• Assessment Year: 2010-2011
• Appeal Filed On: 30-06-2014
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: B S BIST
• Assessee Lawyers: NEELKANT KHANDELW AL
• Keywords: Earning of tax free income
• Section: 143(3); 142(1); 14A

Judgement Text

IN THE INCO ME TAX APPELLATE TRIBUNAL D BENCH, MUMBAI BEFORE SHRI SAKTIJIT DEY , JUDICIAL MEMBER AND SHRI RAJESH KUMAR, ACCOUNTANT MEMBER I.T.A. NO. 4492/M/2014 (AY: 2010 - 2011 ) SHRI RAJENDRA D. SHAH, 60 - B, DOLAT, EAST WEST ROAD NO.2, JVPD VILE PARLE (W), MUMBAI 400 049. / VS. ACIT - 21(1), PRATYAKSHAKAR BHAVAN, BANDRA KURLA COMPLEX, BANDRA, MUMBAI. ./ PAN : AAFPS1910E ( / APPELLANT) .. ( / RESPONDENT ) / APPELLANT BY : SHRI NEELKANT KHANDELWAL / RESPONDENT BY : SHRI B.S. BIST, SR.DR / DATE OF HEARING : 21.04 .2016 / DATE OF PRONOUNCEMENT : 18.0 5 .2016 / O R D E R PER RAJESH KUMAR, AM: THIS APPEAL FILED BY THE ASSESSEE ON 30.6.2014 IS AGAINST THE ORDER OF THE CIT (A) - 32, MUMBAI DATED 19.5.2014 FOR THE ASSESSMENT YEAR 2010 - 2011. IN THIS APPEAL, ASSESSEE RAISED THE FOLLOWING GROUNDS WHICH READ AS UNDER: 1. CIT (A) ERRED IN CONFIRMING FURTHER ADDITION MADE BY THE AO U/S 14A OF RS. 4,57,101/ - WITHOUT CONSIDERING FACT THAT INTEREST EXPENSES IS RELATED TO BUSINESS ACTIVITY OF APPELLANT AND THERE IS NO BORROWING MADE FOR INVESTMENT. 2. CIT (A) ERRED IN CONFIRMING APPLICATION OF RULE 8D(2)(II) OF SECTION 14A WITHOUT CONSIDERING THE FACT THAT NET WORTH OF APPELLANT IS MORE THAN INVESTMENTS AND NO NEW INVESTMENT MADE BY APPELLANT DURING THE YEAR BY BORROWING. 3. CIT (A) ERRED IN CONFIRMING APPLICATION OF RULE 8D(2)(III) BEING 0.5% OF AVERAGE INVEST ME NT BY IGNORING FACT THAT ALL INVESTMENTS ARE IN GROUP COMPANIES FOR MAINTAINING CONTROL OF GROUP AND INVESTMENT WAS OUT OF OWN NET WORTH AND APPELLANT NEED NOT INCUR ANY ADMINISTRATIVE TO EARN EXEMPT INCOME. 2. THE BRIEF FACTS OF THE ASSESSEE ARE THAT T HE ASSESSEE FILED HIS RETURN OF INCOME ON 22.09.2010 SHOWING AN INCOME OF RS. 81,94,096/ - . THE CASE OF THE ASSESSEE WAS FIXED FOR SCRUTINY AND STATUTORY NOTICES U/S 143(2) AND 142(1) WERE ISSUED AND SERVED UPON THE ASSESSEE. THERE AFTER , THE ASSESSMENT WAS COMPLETED BY 2 THE AO AFTER CONSIDERING THE REPLIES AND SUBMISSIONS OF THE ASSESSEE FILED FROM TIME TO TIME IN RESPONSE THE VARIOUS QUERIES DURING THE COURSE OF ASSESSMENT PROCEEDINGS VIDE ORDER DATED 25.03.2013 PASSED U/S 143(3) OF THE ACT AT RS. 86,51,197 / - BY MAKING VARIOUS ADDITIONS INCLUDING DISALLOWANCE OF RS.4,57,101/ - MADE U/S 14A OF THE ACT WHICH IS THE SUBJECT MATTER OF PRESENT APPEAL BEFORE US. THE AO MADE THE DISALLOWANCE ON THE GROUND THAT THE ASSESSEE EARNED DIVIDEND OF RS. 3,750/ - AND FAILED TO MADE DISALLOWANCE U/S 14A WHEREAS THE PROVISIONS OF SECTION 14A RULE 8D WERE CLEARLY APPLICABLE. 3. THE AGGRIE VED ASSESSEE , PREFERRED AN APPEAL BEFORE THE CIT(A) , WHO ALSO DISMISSED THE APPEAL BY UPHOLDING THE ADDITIONS AS MADE BY THE AO U/S 14A RULE 8D AFTER CONSIDERING THE SUBMISSIONS OF THE ASSESSEE WHICH HAVE BEEN INCORPORATED IN PARA 3.3 OF THE APPEAL ORDER AND NOW THE ASSESSEE IS BEFORE US CHALLENGING THE ORDER OF CIT(A). 4. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND PERUSED THE RELEVANT RECORDS PLACED BEFORE US. WE NOTE THAT THE DISALLOWANCE CONFIRMED BY THE CIT(A) COMPRISES OF PRORAT A INTEREST OF RS. 1,31,747/ - UNDER RULE 8D(2)(II) AND INDIRECT EXPENSES @0.5% OF AVERAGE INVESTMENTS RS. 3 ,25,353/ - UNDER RULE 8D(2)(III) . THE COMMON ISS UE RAISED IN ALL THE GR OUNDS OF APPEAL IS WITH RESPECT TO CONF IRMATION OF DISALLOWANCE UNDER R ULE 8D OF IT RULES, 1962 . ON THE FIRST LIMB UNDER RULE 8D(2)(II) , T HE LD COUNSEL FOR THE ASSESSEE SUBMITTED BEFORE US THAT THE CASE OF THE ASSESSEE IS FULLY COVE RED IN HIS FAVOUR BY THE DECISION OF THE JURISDICTIONAL HIGH COURT IN THE CASE OF HDFC BANK LTD ( 366 ITR 505 ) (BOM) AS THE OWN FUNDS OF THE ASSESSEE WERE FOR MORE THAN THE INVESTMENTS I N SHARES AND SECURITIES AND ACCORDINGLY PRAYED FOR THE DELETION OF THE SAME. AS REGARDS THE SECOND LIMB OF RULE 8D THE LD AR SUBMITTED BEFORE US THAT THE 99.78% OF THE INVESTMENTS WERE IN GROUP COMPANIES AND DIVIDEND OR PROFIT WAS NOT THE MOTIVE BUT STRATEGICALLY HELD BY THE ASSESSEE IN THOSE CONCERN S AND THEREFORE NO DISALLOWANCE WAS CALLED FOR. IN SUPPORT TO HIS ARGU MENTS THE LD COUNSEL RELIED ON THE DECISION OF THE MUMBAI T RIBUNAL IN THE CASE OF GARWARE WALL ROPES LTD V ADD. CIT(2014) 46 TAXMANN.COM18 (MUMBAI - T RI B ). 5. THE LD DR PER CONTRA RELIED ON THE ORDERS OF A UTHORITIES BELOW. 3 6. AFTER CONSIDERATION OF THE RIVAL SUBMISSIONS AND ARGUMENTS AND RELEVANT MATERIALS , WE FIND FROM THE BALANCE SHEET OF THE ASSESSEE THAT THE ASSESSEES OWN FUNDS WERE RS. 17.62 CR VIS A VIS INVESTMENTS IN SHARES RS. 5.57 CR WHICH IS PLACED AT PAGE NO 11 OF THE PAPER BOOK. THE JURISDICTIONAL HIGH COURT IN THE CASE OF HDFC VS CIT (SUPRA) HAS HELD THAT WHERE THE OWN FUNDS ARE MORE THAN THE INVESTMENTS IN SHARES, THE PRESUMPTION IS THAT THE AS SESSEE HAS INVESTED OWN FUNDS AND NOT LOANED MONEY INTO SHARES AND THUS NO DISALLOWANCE CAN BE MADE UNDER RULE8D(2)(II) . ON THE SECOND LIMB OF THE ADDITION THE LD AR REFERRED AND RELIED ON THE DECISION BOMBAY T RIBUNAL IN THE CASE OF GARWARE WALL ROPES LT D V ADD. CIT (SUPRA) IN WHICH THE T RIBUNAL HAS HELD THAT WHERE THE INVESTMENTS ARE MADE IN THE GROUP COMPANIES AND NOT IN THE SHARES OF UNRELATED PARTIES AND THE PRIMARY OBJECT IS TO HOLD THE CONTROLLING STAKE IN THE GROUP CONCERN AND NOT EARNING INCOME OU T OF INVESTMENTS THEN THE DISALLOWANCE UNDER RULE 8D CAN NOT BE APPLIED AND THUS DELETED THE ADDITIONS. IN THE CASE OF THE ASSESSEE , WE FIND FROM DETAILS FILED BY THE ASSESSEE DURING THE COURSE OF HEARING THAT THE 99.78% OF THE TOTAL INVESTMENTS WERE MADE IN THE GROUP CONCERN S WITH THE MOTIVE TO HOLD THE CONTROL IN THE SAID CONCERN AND NOT TO EARN ANY DIVIDEND OR INCOME. IN OUR OPINION , THE CASE OF THE ASSESSEE IS FULLY COVERED BY THE ABOVE CITED DECISIONS AND THEREFORE , FOLLOWING THE RATIO LAID IN THE SAI D DECISION S, WE ALLOW THE APPEAL OF THE ASSESSEE BY DELETING THE ADDITION AS MADE U/S14A READ WITH R ULE 8D OF RS. 4,57,101/ - . ACCORDINGLY, GROUNDS RAISED BY THE ASSESSEE ARE ALLOWED. 7. IN THE RESULT, ASSESSEES APPEAL IS ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT 18.0 5 . 2016. SD SD ( SAKTIJIT DEY ) (RAJESH KUMAR) JUDICIAL MEMBER ACCOUNTANT MEMBER MUMBAI ; 18.0 5 . 2016 . . ./ OKK , SR. PS 4 / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT 2. / THE RESPONDENT. 3. ( ) / THE CIT(A) - 4. / CIT 5. , , / DR, ITAT, MUMBAI 6. / GUARD FILE . //TRUE COPY// / BY ORDER, TRUE COPY / (DY./ASSTT. REGISTRAR) , / ITAT, MUMBAI