FORTUNE FINANCIAL SERVICES (INDIA) LIMITED , MUMBAI V. ADDITIONAL COMMISSIONER OF INCOME TAX RANGE 4(1), MUMBAI

ITA 4555/MUM/2017

• Counselvise Citation: [2018] 125 COUNSELVISE.COM (IT) 0360 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 2 month(s) 20 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 12-09-2018
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: F
• Assessment Year: 2012-2013
• Appeal Filed On: 22-06-2017
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: POOJASWAROOP LD SR DR
• Assessee Lawyers: ANUJ KISNADWALALD
• Keywords: Earning of tax free income
• Section: 143(3); 14A

Judgement Text

ITA.NO.4555/MUM/2017 FORTUNE FINANCIAL SERVICES (INDIA) LIMITED ASSESSMENT YEAR-2012-13 IN THE INCOME TAX APPELLATE TRIBUNAL F BENCH, MUMBAI , BEFORE SHRI SAKTIJIT DEY, JM AND SHRI MANOJ KUMAR AGGARWAL, AM I.T.A. NO.4555/MUM/2017 ( ASSESSMENT YEAR: 2012-13) FORTUNE FINANCIAL SERVICES (INDIA) LIMITED 21 ST FLOOR, AWING NAMAN MIDTOWN, SENAPATI BAPAT MARG ELEPHINSTONE ROAD(W) MUMBAI-400 013 VS. ADDITIONAL COMMISSIONER OF INCOME TAX RANGE-4(1) MUMBAI ! ' PAN/GIR NO. AAACF-0610-J ( !# APPELLANT ) : ( $%!# RESPONDENT ) ASSESSEE BY : ANUJ KISNADWALA, LD. AR REVENUE BY : POOJA SWAROOP, LD. SR. DR & DATE OF HEARING : 25/07/2018 '() / DATE OF PRONOUNCEMENT : 12/09/2018 O R D E R PER MANOJ KUMAR AGGARWAL (ACCOUNTANT MEMBER) 1. AFORESAID APPEAL BY ASSESSEE FOR ASSESSMENT YEAR [AY] 2012-13 CONTEST THE ORDER OF LD. COMMISSIONER OF INCOME-TAX (APPEALS)-09 [CIT(A)], MUMBAI, APPEAL NO.CIT(A)-9/CIR.4/202/2015-16 DATED 14/03/2017 QUA CONFIRMATION OF DISALLOWANCE U/S 14A. THE ASSESSMEN T ITA.NO.4555/MUM/2017 FORTUNE FINANCIAL SERVICES (INDIA) LIMITED ASSESSMENT YEAR-2012-13 2 FOR IMPUGNED AY WAS FRAMED BY LD.ASSISTANT COMMISSIONER OF INCOME TAX RANGE-4(1), MUMBAI [AO] U/S 143(3) OF THE INCOM E TAX ACT, 1961 ON 27/03/2015 WHEREIN THE INCOME OF THE ASSESSEE HA S BEEN ASSESSED AT RS.98.14 LACS AFTER DISALLOWANCE U/S 14A FOR RS. 60.08 LACS AS AGAINST RETURNED INCOME OF RS.38.06 LACS E-FILED BY THE ASSESSEE ON 24/09/2012. DURING IMPUGNED AY, THE ASSESSEE, BEING RESIDENT CORPORATE ASSESSEE, WAS ENGAGED IN THE BUSINESS OF INVESTMENT BANKING. 2. DURING ASSESSMENT PROCEEDINGS, IT WAS NOTED THAT THE ASSESSEE REFLECTED EXEMPT DIVIDEND INCOME OF RS.19.07 LACS, WHICH CALLED FOR DISALLOWANCE U/S 14A. THE ASSESSEE HAD NOT MADE ANY SUO-MOTO DISALLOWANCE AGAINST THE SAME IN THE RETURN OF INCO ME. THE ASSESSEE DEFENDED THE SAME VIDE SUBMISSIONS DATED 11/03/2015 . HOWEVER, NOT CONVINCED, LD. AO, APPLYING RULE 8D WORKED OUT AGGR EGATE IMPUGNED DISALLOWANCE OF RS.60.08 LACS WHICH COMPRISED-OFF O F INTEREST DISALLOWANCE U/R 8D(2)(II) FOR RS.19.60 LACS AND EX PENSE DISALLOWANCE U/R 8D(2)(III) FOR RS.40.47 LACS. 3. AGGRIEVED, THE ASSESSEE CONTESTED THE SAME WITH PARTIAL SUCCESS BEFORE LD. CIT(A) VIDE IMPUGNED ORDER DATED 14/03/2 017 WHEREIN THE ASSESSEE, INTER-ALIA, SUBMITTED THAT OWN FUNDS IN THE SHAPE OF SHARE CAPITAL & RESERVES WERE MUCH MORE THAN THE INVESTMENTS MADE BY THE ASSESSEE. IT WAS FURTHER SUBMITTED THAT ONLY INCOME YIELDING INVESTMENTS WERE TO BE CONSIDERED WHILE ARRIVING AT THE DISALLO WANCE. FINALLY THE MATTER WAS CONCLUDED IN THE FOLLOWING MANNER:- ITA.NO.4555/MUM/2017 FORTUNE FINANCIAL SERVICES (INDIA) LIMITED ASSESSMENT YEAR-2012-13 3 5.3.1 I HAVE CONSIDERED THE FACTS OF THE CASE AS WE LL AS ASSESSMENT ORDER PASSED BY THE AO AND THE SUBMISSIONS MADE BY THE APPELLANT . IT IS SEEN THAT THE AO HAS MADE DISALLOWANCE UNDER RULE 8D(2)(II) AMOUNTING TO RS.19,60,658/- AND RS.40,47,377/- UNDER RULE 8D(2)(III) OF THE IT RULE 1962. 5.3.2 REGARDING DISALLOWANCE OF INTEREST UNDER RULE 8D(2)(II), THE APPELLANT HAS EXPLAINED THAT THERE WERE CERTAIN EXPENSES WHICH WE RE FOR THE PURPOSE OTHER THAN EARNING EXEMPT INCOME OR OTHER THAN INVESTMENT IN S HARES. THEREFORE, THE AO IS DIRECTED TO EXCLUDE SUCH EXPENSE ON WHICH INTEREST WERE PAID BUT WAS FOR PURPOSE OTHER THAN INVESTMENT IN SHARES. FURTHER, THE APPEL LANT HAS SUBMITTED THAT THE APPELLANT HAD SUFFICIENT FUND. ACCORDINGLY, THE AO IS DIRECTED TO VERIFY FROM THE RECORD REGARDING THE AVAILABILITY OF FUNDS AND SUBJ ECT TO FACTUAL SATISFACTION OF THE AO, THE INTEREST DISALLOWANCE UNDER RULE 8D(2)(II) IS DIRECTED TO BE DELETED. ACCORDINGLY, THIS PART OF GROUND OF THE APPELLANT I S ALLOWED. 5.3.3. AS REGARDS DISALLOWANCE UNDER RULE 8D(2)(III ), THERE IS NO DISPUTE THAT THE INVESTMENT IN SHARES, ETC., WAS MADE FOR THE STRATE GIC PURPOSE OF THE APPELLANT COMPANY. IN THIS REGARD, I WOULD LIKE TO REFER AND PLACE MY RELIANCE ON THE RECENT DECISION OF THE HONBLE ITAT, KOLKATA IN THE CASE O F CIT VS. COAL INDIA LIMITED ITA NO. 1032/KOL/2012 AND ITA NO. 1238/KOL/2012 ORDER D ATED 13/05/2015 WHERE THE HONBLE ITAT AFTER CONSIDERING ALL THE RELEVANT JUDGMENTS HAS OBSERVED AND DECIDED THE ISSUE AS UNDER: THE ASSESSEE CLAIMED THAT NO DISALLOWANCE U/S 14A AND RULE 8D COULD BE MADE AS (I) THE DISALLOWANCE MADE BY THE AO IN A ME CHANICAL AND AUTOMATIC MANNER WITHOUT RECORDING REASONS FOR HIS SATISFACTI ON THAT THE ASSESSEES CLAIM IS INCORRECT AND (II) THE ASSESSEE MADE THE I NVESTMENT FOR THE PURPOSE OF HOLDING CONTROLLING STAKE IN THE GROUP CONCERN A ND NOT FOR THE PURPOSE OF EARNING DIVIDEND. IT WAS CLAIMED THAT THE ASSESSEE HAS NOT INCURRED ANY EXPENSES TO EARN THE DIVIDEND INCOME AND THEREFORE RULE 8D(III) IS NOT APPLICABLE. HELD BY THE TRIBUNAL: (I) THE CONTENTION THAT NO SATISFACTION AS TO BE CO RRECTNESS OF THE CLAIM MADE U/S 14A READ WITH 8D(III) HAS BEEN RECORDED BY THE AO A S WELL AS THE CIT(A) IS NOT ACCEPTABLE. THE AO HAS COMPLIED WITH THE REQUIR EMENT OF SECTION 14A OF THE ACT BY OBSERVING THAT AS TO WHY HE IS NOT SATIS FIED WITH THE CORRECTNESS OF CLAIM OF THE ASSESSEE THAT NO EXPENDITURE WAS INCUR RED. THE AO HAS RECORDED THE FINDINGS THAT EARNING OF DIVIDEND WAS NOT AN AUTOMATIC PROCESS AND THE ASSESSEE WAS REQUIRED TO KEEP REGULAR CONTR OL OVER THE INVESTMENTS MADE; (II) THE CONTENTION THAT THE ASSESSEE EARNED DIVIDE ND INCOME OF RS.262907.86 LAKHS WITHOUT INCURRING ANY EXPENSES DOES NOT CONVI NCE US AT ALL. THE TERM EXPENDITURE AS PER SECTION 14A WOULD INCLUDE THE EXPENDITURES THAT ARE RELATED TO INVESTMENTS MADE I.E. EXPENDITURES ON AD MINISTRATION, CAPITAL EXPENSES, TRAVELLING EXPENSES, OPERATING EXPENSES E TC. IT IS DIFFICULT TO ACCEPT THAT THE ASSESSEE COMPANY WAS MAKING INVESTMENTS DE CISIONS TO THE TUNE OF RS.6,31,637/- LAKHS OF PUBLIC MONEY WITHOUT INCURRI NG A SINGLE PENNY OUT OF ITS POCKET. SUCH DECISIONS ARE HIGHLY STRATEGIC IN NATU RE AND ARE REQUIRED TO BE MADE BY HIGHLY QUALIFIED AND EXPERIENCED PROFESSION ALS. THE SAME WOULD ITA.NO.4555/MUM/2017 FORTUNE FINANCIAL SERVICES (INDIA) LIMITED ASSESSMENT YEAR-2012-13 4 ALSO REQUIRE MARKET RESEARCH AND ANALYSIS. THE ASSE SSEE COMPANY BY ACQUIRING CONTROLLING INTEREST IN THE SUBSIDIARY CO MPANIES WOULD ALSO BE REQUIRED TO ATTEND BOARD MEETINGS AND MAKE POLICY D ECISIONS WITH REGARD TO THE AFORESAID HUGE AMOUNT OF INVESTMENTS MADE. BY N O STRETCH OF IMAGINATION, IT CAN BE ASSUMED THAT SUCH ACTIVITIES WERE DONE WITHOUT INCURRING ANY EXPENDITURE. IT IS PERTINENT TO MENTI ON HERE THAT EVEN THE ASSESSEE DID NOT REBUT THE FINDINGS OF AO THAT THE ASSESSEE WAS REQUIRED TO SUPERVISE AND ADMINISTER ALL THE INVESTMENTS MADE; (III) IN A CASE WHERE THE ASSESSEE CLAIMS THAT NO E XPENDITURE WAS SO INCURRED, THE STATUTE HAS PROVIDED FOR A PRESUMPTIVE EXPENDIT URE WHICH HAS TO BE DISALLOWED BY FORCE OF THE STATUTE. IN A DISTANT MA NNER, LITERALLY SPEAKING, IT MAY EVEN BE CONSIDERED FOR THE PURPOSE OF CONVENIEN CE AS A DEEMING PROVISION. WHEN SUCH DEEMING PROVISION IS MADE ON T HE BASIS OF STATUTORY PRESUMPTION, THE REQUIREMENT OF FACTUAL EVIDENCE IS REPLACED BY STATUTORY PRESUMPTION AND THE ASSESSING OFFICER HAS TO FOLLOW THE CONSEQUENCES STATED IN THE STATUTE. FROM THE ABOVE JUDGMENT, IT CAN BE VERY WELL CONCLU DED THAT THERE IS ALWAYS CERTAIN EXPENSES IN VARIOUS FORMS INCLUDING ADMINIS TRATIVE EXPENSE TO MAINTAIN THE INVESTMENTS PORTFOLIO. AS PER THE ASSE SSMENT ORDER, THE APPELLANT HAS EARNED DIVIDEND INCOME OF RS.19,07,77 7/-. KEEPING IN VIEW OF THE FACTS AND CIRCUMSTANCES OF THE CASE, THE JUDICI AL PRONOUNCEMENTS RELIED UPON BY THE LD. AR IS DISTINGUISHABLE ON FACTS AND THE DECISION OF THE HONBLE KOLKATA ITAT IN COAL INDIA LTD., IS MORE CLOSER TO THE FACTS OF THE PRESENT CASE. ACCORDINGLY, THE DISALLOWANCE MADE BY THE AO U/S 14A R.W.R. 8D (2) IS UPHELD. IN THE RESULT, THIS PART OF THE GROUND OF THE APPEL LANT IS DISMISSED. AGGRIEVED, THE ASSESSEE IS IN FURTHER APPEAL BEFORE US. 4. THE LD. AUTHORIZED REPRESENTATIVE FOR ASSESSEE [ AR], SHRI. ANUJ KISNADWALA, AT THE OUTSET PLACED RELIANCE ON THE ORDER OF TRIBU NAL IN ASSESSEES OWN CASE FOR AY 2011-12 ITA NO. 2103/MUM /2016 DATED 18/12/2017 AND SUBMITTED THAT NO FRESH INVESTMENTS WERE MADE DURING THE YEAR AND THEREFORE INTEREST DISALLOWANCE WAS NO T JUSTIFIED. REGARDING EXPENSE DISALLOWANCE, IT WAS SUBMITTED THAT ONLY IN COME YIELDING INVESTMENTS WERE TO BE CONSIDERED TO ARRIVE AT THE SAID DISALLOWANCE IN TERMS OF DECISION OF DELHI TRIBUNAL (SPECIAL BENCH) RENDERED IN ACIT VS. VIREET INVESTMENT (P.) LTD. [82 TAXMANN.COM 415], A COPY OF WHICH HAS BEEN PLACED ON RECORD. THE SAME HAS BEEN CONTROVERT ED BY LD. DR, MS. ITA.NO.4555/MUM/2017 FORTUNE FINANCIAL SERVICES (INDIA) LIMITED ASSESSMENT YEAR-2012-13 5 POOJA SWAROOP, BY SUBMITTING THAT DISALLOWANCE WAS ATTRACTED AS PE R STATUTORY MANDATE OF RULE 8D. 5. WE HAVE CAREFULLY CONSIDERED THE RIVAL CONTENTIO NS AND PERUSED RELEVANT MATERIAL ON RECORD INCLUDING THE CITED DEC ISION OF TRIBUNAL IN ASSESSEES OWN CASE FOR IMMEDIATELY PRECEDING AY 20 11-12. IN THE SAID ORDER, THE TRIBUNAL HAS RECORDED A FINDING THAT OWN FUNDS IN THE SHAPE OF SHARE CAPITAL & RESERVES OF RS.10004.10 LACS WERE MUCH MORE THAN INVESTMENT OF RS.8094.70 LACS AND THEREFORE, INTERE ST DISALLOWANCE WAS NOT JUSTIFIED IN TERMS OF VARIOUS JUDICIAL PRONOUNC EMENTS. UPON PERUSAL OF FINANCIAL STATEMENTS OF IMPUGNED AY, AS PLACED ON R ECORD, WE FIND THAT THERE IS NO CHANGE IN THE FIGURES OF INVESTMENT AND THE SAME REMAIN STATIC AT RS.8094.75 LACS. THIS BEING THE POSITION, INTEREST DISALLOWANCE AS MADE BY LD. AO STAND DELETED AND THE GROUNDS RAI SED, IN THIS REGARD STAND ALLOWED. 6. SO FAR AS THE EXPENSE DISALLOWANCE IS CONCERNED, THE ONLY SUBMISSION OF THE ASSESSEE IS THAT ONLY INCOME YIEL DING INVESTMENTS ARE TO BE CONSIDERED TO ARRIVE AT DISALLOWANCE IN TERMS OF RATIO OF CITED DECISION OF THE SPECIAL BENCH. THE DISALLOWANCE SO COMPUTED, AS PER SUBMISSIONS, COMES TO RS.7 LACS AS EXTRACTED ON PAGE-7 OF THE IMPUGNED ORDER. WE AGREE WITH THE CONTENTIONS OF LD . AR SINCE, THE SPECIAL BENCH IN THE CITED ORDER HAS OBSERVED AS UN DER:- 11.16 THEREFORE, IN OUR CONSIDERED OPINION, NO CONT RARY VIEW CAN BE TAKEN UNDER THESE CIRCUMSTANCES. WE, ACCORDINGLY, HOLD THAT ONL Y THOSE INVESTMENTS ARE TO BE CONSIDERED FOR COMPUTING AVERAGE VALUE OF INVESTMEN T WHICH YIELDED EXEMPT INCOME DURING THE YEAR. ITA.NO.4555/MUM/2017 FORTUNE FINANCIAL SERVICES (INDIA) LIMITED ASSESSMENT YEAR-2012-13 6 RESPECTFULLY FOLLOWING THE SAME, WE DIRECT LD.AO TO RECOMPUTE EXPENSE DISALLOWANCE U/R 8D(2)(III) BY CONSIDERING ONLY THO SE INVESTMENTS WHICH HAVE YIELDED EXEMPT INCOME DURING THE IMPUGNED AY. THE ASSESSEE IS DIRECTED TO PROVIDE REQUISITE COMPUTATIONS, IN THIS REGARD. THE GROUND STAND PARTLY ALLOWED. 7. RESULTANTLY, THE APPEAL STAND PARTLY ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 12 TH SEPTEMBER, 2018. SD/- S D/- (SAKTIJIT DEY) (MANOJ KUMAR AGGARWAL) / JUDICIAL MEMBER / ACCOUNTANT MEMBER *& MUMBAI; DATED : 12.09.2018 SR.PS:-THIRUMALESH ! COPY OF THE ORDER FORWARDED TO : 1. !# / THE APPELLANT 2. $%!# / THE RESPONDENT 3. / THE CIT(A) 4. / CIT CONCERNED 5. + ,$ - -) *& / DR, ITAT, MUMBAI 6. , ./0 & GUARD FILE ' / BY ORDER, # '$% (DY./ASSTT.REGISTRAR) *& / ITAT, MUMBAI