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

ITA 4494/MUM/2014

• Counselvise Citation: [2016] 131 COUNSELVISE.COM (IT) 3061 (ITAT-MUMBAI)
• Duration Of Justice: 2 year(s) 2 month(s) 21 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 21-09-2016
• Appeal Filed By: Assessee
• Bench Allotted: C
• Next Hearing Date: 15-06-2016
• Assessment Year: 2010-2011
• Appeal Filed On: 30-06-2014
• Court: TRIBUNAL
• Assessee Lawyers: NEELKANT KHANDELW AL
• Section: 143(3); 14A

Judgement Text

1 I.T.A. NO.4494/MUM/2014 IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCHES C, MUMBAI BEFORE SHRI C.N. PRASAD (JUDICIAL MEMBER) AND SHRI ASHWANI TANEJA (ACCOUNTANT MEMBER) I.T.A. NO.4494/MUM/2014 (ASSESSMENT YEAR : 2010-11) SHRI PANKAJ D SHAH 60-B, DOLAT, EAST WEST ROAD NO.2 JVPD, VILE PARLE (W), MUMBI-49 VS ACIT 21(1), MUMBAI PAN : AAAFPS1913H (APPELLANT) (RESPONDENT) APPELLANT BY SHRI NEELKANT KHANDELWAL RESPONDENT BY SHRI AIRIJU JAIKARAN DATE OF HEARING : 15-09-2016 DATE OF PRONOUNCEMENT : 21-09-2016 O R D E R PER ASHWANI TANEJA, AM THIS APPEAL HAS BEEN FILED BY THE ASSESSEE AGAINST THE ORDER OF COMMISSIONER OF INCOME-TAX (APPEALS) [HEREINAFTER C ALLED LD.CIT(A)] DT 19/05/2014 PASSED AGAINST THE ASSESSMENT ORDER OF T HE AO DT 25/03/2013 U/S 143(3) FOR A.Y. 2010-11 ON THE FOLLOWING GROUNDS: COMMISSIONER OF I.T. (A) ERRED IN CONFIRMING FURTHE R ADDITION MADE BY ASSESSING OFFICER U/S.14A OF RS 10,95,697/- WIT HOUT CONSIDERING FACT THAT INTEREST EXPENSES IS RELATED TO BUSINESS ACTIVITY OF APPELLANT AND THERE IS NO BORROWING MADE FOR INVESTMENT. 2. COMMISSIONER OF I.T. (A) ERRED IN CONFIRMING APP LICATION OF RULE 80(2)(II) OF SECTION 14A, WITHOUT CONSIDERING THE F ACT THAT NET WORTH OF APPELLANT IS MORE THAN INVESTMENTS AND NO NEW INVES TMENT ARE MADE BY APPELLANT BY BORROWING. 3. COMMISSIONER OF I.T. (A) ERRED IN CONFIRMING APP LICATION OF RULE 8D (2)(III) BEING 0.5% OF AVERAGE INVESTMENT BY IGN ORING FACT THAT ALL INVESTMENTS ARE IN GROUP COMPANIES FOR MAINTAIN ING CONTROL OF 2 I.T.A. NO.4494/MUM/2014 GROUP AND INVESTMENT WAS OUT OF OWN NET WORTH AND A PPELLANT NEED NOT INCUR ANY ADMINISTRATIVE EXPENSES TO EARN EXEMP T INCOME. 4. THE APPELLANT PLEAD BEFORE HONOURABLE ITAT TO DI RECT THE ASSESSING OFFICER TO: - (I) TO ALLOW THE CLAIM OF THE APPELLANT THAT THE GROUP INVESTMENT SHOULD NOT BE CONSIDERED WHILE APPLYING RULE 8D (2)(III). (II) TO DELETE ADDITION U/S 14A BY APPLICATION OF RULE 8 D (2)(II) IN VIEW OF FACT THAT THERE WAS NO BORROWING MADE BY TH E APPELLANT FOR INVESTMENTS. (III) TO DIRECT AO TO RECALCULATE DISALLOWANCE. 2. DURING THE COURSE OF HEARING, THE LD.COUNSEL OF TH E ASSESSEE SUBMITTED THAT AGGREGATE DISALLOWANCE U/S 14A HAS BEEN MADE F OR A SUM OF RS.10,95,697 COMPRISING OF INTEREST DISALLOWED U/S 14A READ WITH RULE 8D(2)(II) ON ACCOUNT OF INTEREST AMOUNTING TO RS.2,72,730 AND U/R 8D(2)(III ) ON ACCOUNT OF EXPENSES AMOUNTING TO RS.8,22,966. 3. IT WAS SUBMITTED THAT INTEREST PORTION CANNOT BE DI SALLOWED BECAUSE OWN FUNDS OF THE ASSESSEE ARE MORE THAN THE AMOUNT OF INVESTM ENT AND, THEREFORE, IN VIEW OF THE JUDGEMENT OF THE HONBLE BOMBAY HIGH COURT IN THE CASE OF HDFC BANK LTD 365 ITR 505(BOM), THE DISALLOWANCE MA DE BY THE AO ON ACCOUNT OF INTEREST IS LEGALLY INCORRECT. SIMILARLY WITH R EGARD TO DISALLOWANCE ON ACCOUNT OF EXPENSES UNDER CLAUSE (III) IT WAS SUBMITTED THA T AROUND 99.10% OF THE TOTAL INVESTMENT MADE BY THE ASSESSEE HAVE BEEN MADE IN T HE GROUP COMPANIES FOR ACQUIRING CONTROLLING STAKE IN THE INVESTEE COMPANI ES AND, THEREFORE, IN VIEW OF FOLLOWING JUDGMENTS, THE SAME INVESTMENTS SHOULD BE EXCLUDED FOR MAKING DISALLOWANCE U/S 14A: 1. CIT VS INDIA ADVANTAGE SECURITIES LTD APPEAL N O.1131 OF 2013 (BOM) 3 I.T.A. NO.4494/MUM/2014 2. CCI LTD VS JCIT 20 TAXMANN.COM 196 (KAR) 3. GARWARE WALL ROPES LTD VS ADDL CIT 46 TAXMANN. COM 18 (MUM) 4. RAJENDRA D SHAH ITA NO.4492/MUM/2014 THE LD.COUNSEL ALSO SUBMITTED THAT ALTHOUGH ARGUMEN TS WERE MADE BEFORE THE LOWER AUTHORITIES IN THIS REGARD, BUT, SINCE THE LA W IN THIS REGARD WAS NOT PROPERLY EVOLVED AND SINCE NOW VARIOUS COURTS HAVE CLARIFIED THE CORRECT POSITION OF LAW IN THIS REGARD, THIS ISSUE MAY BE S ENT BACK TO THE FILE OF THE AO FOR PROPER VERIFICATION OF FACTS TO DECIDE THIS ISS UE AFRESH ACCORDINGLY. 4. PER CONTRA, THE LD.DR RELIED UPON THE ORDERS OF THE LOWER AUTHORITIES. 5. WE HAVE GONE THROUGH THE ORDERS PASSED BY THE LOWER AUTHORITIES AND JUDGEMENTS PLACED BEFORE US. IT IS NOTED WITH THE ASSISTANCE OF THE PARTIES THAT BALANCE-SHEET OF THE ASSESSEE SHOWS THAT ASSESSEE H AS OWN FUNDS IN THE FORM OF HIS INDIVIDUAL CAPITAL AGGREGATING TO RS.29.51 C RORES WHEREAS THE TOTAL AMOUNT OF INVESTMENT IS AROUND RS.17.60 CRORES. TH EREFORE, APPARENTLY, OWN FUNDS OF THE ASSESSEE ARE FAR MORE THAN THE AMOUNT OF INVESTMENT IN TAX FREE SECURITIES. THUS, IN VIEW OF THE JUDGEMENT OF HON BLE BOMBAY HIGH COURT IN THE CASE OF HDFC BANK LTD (SUPRA), WE FIND THAT NOTHING WAS DISALLOWABLE OUT OF INTEREST AND, THEREFORE, DISALLOWANCE OF INTEREST O F RS.2,72,730 IS DIRECTED TO BE DELETED. 6. WITH REGARD TO EXCLUSION OF THE INVESTMENT MADE IN GROUP COMPANIES FOR ACQUIRING CONTROLLING INTEREST FOR THE PURPOSE OF D ETERMINING THE AMOUNT TO BE DISALLOWED U/R 8D(2)(III), IT IS NOTED WITH THE ASS ISTANCE OF THE LD.COUNSEL THAT THERE ARE VARIOUS COMPANIES IN WHICH ASSESSEE HAS M ADE CONTROLLING INVESTMENTS ALONG WITH HIS OTHER FAMILY MEMBERS. I N THIS REGARD, RELIANCE HAS 4 I.T.A. NO.4494/MUM/2014 BEEN PLACED ON THE DECISION OF THE TRIBUNAL IN THE CASE OF FAMILY MEMBER OF THE ASSESSEE, VIZ. SHRI RAJENDRA D SHAH IN ITA NO.449/M UM/2014 DATED 18-05-2016 WHEREIN A VIEW HAS BEEN TAKEN IN FAVOUR OF THE SAID ASSESSEE BY THE TRIBUNAL WITH THE FOLLOWING OBSERVATIONS: 6. AFTER CONSIDERATION OF THE RIVAL SUBMISSIONS AND ARGUMENTS AND RELEVANT MATERIALS, WE FIND FROM THE BALANCE SHEET OF THE ASSESSEE THAT THE ASSESSEE'S OWN FUNDS WERE RS. 17.62 CR V/S A V/S INVESTMENTS IN SHARES RS. 5.57 CR WHICH IS PLAC ED AT PAGE NO 11 OF THE PAPER BOOK. THE JURISDICTIONAL HIGH COURT IN TH E CASE OF HDFC VS CIT (SUPRA) HAS HELD THAT WHERE THE OWN FUNDS ARE M ORE THAN THE INVESTMENTS IN SHARES, THE PRESUMPTION IS THAT THE ASSESSEE HAS INVESTED OWN FUNDS AND NOT LOANED MONEY INTO SHARES AND THUS NO DISALLOWANCE CAN BE MADE UNDER RULE8D(2)(I,9. ON TH E SECOND LIMB OF THE ADDITION THE ID AR REFERRED AND RELIED ON THE D ECISION BOMBAY TRIBUNAL IN THE CASE OF GARWARE WALL ROPES LTD V AD D. CIT (SUPRA) IN WHICH THE TRIBUNAL HAS HELD THAT WHERE THE INVES TMENTS ARE MADE IN THE GROUP COMPANIES AND NOT IN THE SHARES OF UNR ELATED PARTIES AND THE PRIMARY OBJECT IS TO HOLD THE CONTROLLING STAKE IN THE GROUP CONCERN AND NOT EARNING INCOME OUT OF INVESTMENTS T HEN THE DISALLOWANCE UNDER RULE 8D CANNOT BE APPLIED AND TH US DELETED THE ADDITIONS. IN THE CASE OF THE ASSESSEE, WE FIND FRO M DETAILS FILED BY THE ASSESSEE DURING THE COURSE OF HEARING THAT THE 99.7 8% OF THE TOTAL INVESTMENTS WERE MADE IN THE GROUP CONCERNS WITH TH E MOTIVE TO HOLD THE CONTROL IN THE SAID CONCERN AND NOT TO EAR N ANY DIVIDEND OR INCOME. IN OUR OPINION, THE CASE OF THE ASSESSEE IS FULLY COVERED BY THE ABOVE CITED DECISIONS AND THEREFORE, FOLLOWI NG THE RATIO LAID IN THE SAID DECISIONS, WE ALLOW THE APPEAL OF THE A SSESSEE BY DELETING THE ADDITION AS MADE U/S14A READ WITH RULE 8D OF RS . 4,57,101/-. ACCORDINGLY, GROUNDS RAISED BY THE ASSESSEE ARE ALL OWED. 7. IN THIS CASE, IT WAS REQUESTED BY THE LD.DR THAT SI NCE FACTS IN THIS CASE ARE NOT 5 I.T.A. NO.4494/MUM/2014 CLEAR, THIS ISSUE SHOULD BE SENT BACK TO THE FILE O F THE ASSESSING OFFICER FOR WHICH THE LD.COUNSEL DID NOT RAISE ANY OBJECTION. THEREFORE, WE SEND THIS ISSUE BACK TO THE FILE OF THE ASSESSING OFFICER WITH THE DIRECTION TO ALLOW T HE ASSESSEE THE OPPORTUNITY TO SUBMIT REQUISITE DETAILS IN THIS REGARD. THE ASSESSEE SHO ULD FURNISH DETAILS OF INVESTMENT MADE IN THE CASE ALONGWITH THE FAMILY MEMBERS. IN CASE, IT IS FOUND THAT THE ASSESSEE, ALONG WITH HIS FAMILY MEMBERS HAS ACQUIRED CONTROLLING IN TEREST AND THE INVESTEE COMPANIES ARE GROUP COMPANIES OF THE ASSESSEE, THEN THE INVES TMENT WOULD BE A STRATEGIC INVESTMENT AND IN VIEW OF THE JUDGMENTS RELIED UPON BY THE LD.COUNSEL, THE SAME NEEDS TO BE EXCLUDED FOR THE PURPOSE OF COMPUTING DISALLO WANCE U/S 14A OF THE ACT. THUS, WITH THESE DIRECTIONS, THIS ISSUE IS SENT BACK TO THE FI LE OF THE ASSESSING OFFICER TO BE DECIDED AFRESH, AFTER GIVING ADEQUATE OPPORTUNITY TO THE AS SESSEE AND KEEPING IN VIEW THE JUDGEMENTS RELIED UPON BY THE LD.COUNSEL. ACCORDIN GLY, THE GROUNDS OF THE ASSESSEE ARE PARTLY ALLOWED. 8. AS A RESULT, APPEAL OF THE ASSESSEE IS PARTLY ALLOW ED. ORDER PRONOUNCED IN THE COURT ON THIS 21 ST DAY OF SEPTEMBER,2016. SD/- SD/- (C.N.PRASAD) (ASHWANI TANEJA) JUDICIAL MEMBER ACCOUNTANT MEMBER MUMBAI, DT : 21 ST SEPTEMBER, 2016 PK/- COPY TO : 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT(A) 4. THE CIT 5. THE LD. DEPARTMENTAL REPRESENTATIVE FOR THE REVENUE , C-BENCH (TRUE COPY) BY ORDER ASSTT.REGISTRAR, ITAT, MUMBAI BENCHES