FOODLINK SERVICES (I) P. LTD, MUMBAI V. DCIT 10(2), MUMBAI

ITA 4620/MUM/2011

• Counselvise Citation: 462019914 RSA 2011
• Duration Of Justice: 2 year(s) 7 month(s) 15 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 24-01-2014
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: F
• Next Hearing Date: 21-01-2014
• Assessment Year: 2008-2009
• Appeal Filed On: 08-06-2011
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: O P SINGH
• Assessee Lawyers: JAYESH DADIA
• Keywords: Business income; Earning of tax free income
• Section: 143(3); 14A

Judgement Text

, IN THE INCOME TAX APPELLATE TRIBUNAL F BENCH, MUMBAI . . , , , BEFORE SHRI R.C. SHARMA , ACCOUNTANT MEMBER AND SHRI AMIT SHUKLA , JUDICIAL MEM BER . / ITA NO. 4620 /MUM./ 2011 ( / ASSESSMENT YEAR : 200 8 09 ) . / ITA NO. 7284 /MUM./ 2011 ( / ASSESSMENT YEAR : 2009 10 ) M/S. FOODLINK SERVICES (I) PVT. LTD. 301, SAFAL PRIDE, CTS NO.396/A/2 OPP. SARAS BAUG , PUNJAB WADI SION TROMBAY ROAD, MUMBAI 400 088 .. / APP ELLANT V/S DY. COMMISSIONER OF INCOME TAX CIRCLE 10(2), MUMBAI .... / RESPONDENT ./ PERMANENT ACCOUNT NUMBER AAACF7690L / REVENUE BY : MR. O.P. SINGH / ASSESSEE BY: MR. JAYESH DADIA / DATE OF HEARING 2 1 .0 1 .201 4 / DATE OF ORDE R 24.01. 2 014 / ORDER , / PER AMIT SHUKLA , J.M. THE PRESENT APPEAL S HA VE BEEN PREFERRED BY THE ASSESSEE CHALLENGING THE IMPUGNED ORDER 9 TH MAY 2011 , FOR THE ASSESSMENT YEAR 2008 09 AND ORDER DATED 20 TH SEPTEMBER 2011, FOR THE ASSESSMENT M/S. FOODLINK SERVICES INDIA PVT. LTD. 2 YEAR 2009 10, PASSED BY THE L EARNED COMMISSIONER (APPEALS) X X I, MUMBAI, FOR THE QUANTUM OF ASSESSMENT PASSED UNDER SECTION 143(3) OF THE INCOME TAX ACT, 1961 (FOR SHORT THE ACT ) . SINCE THE GROUNDS RAISED BY THE ASSESSEE IN BOTH THE YEARS UNDER APPEAL ARE COMMON, EXCEPT VARIATION IN FIGURES, THEREFORE, AS A MATTER OF CONVENIENCE, THESE WERE HEARD TOGETHER AND ARE BEING DISPOSED OF BY WAY OF THIS CONSOLIDATED ORDER. HOWEVER, IN ORDER TO UNDERSTAND THE IMPLICATION, IT WOULD BE NECESSARY TO TAKE NOTE OF FACTS OF ONE APPEAL AND, ACCORDING LY, WE ARE NARRATING THE FACTS, AS THEY APPEAR IN ITA NO. 2143/MUM./2009, FOR THE ASSESSMENT YEAR 200 8 09 . 2 . THE ONLY ISSUE INVOLVED IN BOTH THE YEARS UNDER APPEAL IS, WHETHER OR NOT THE LEARNED COMMISSIONER (APPEALS) IS JUSTIFIED IN CONFIRMING THE DISALLOW ANCE MADE BY THE ASSESSING OFFICER UNDER SECTION 14A OF THE ACT OF ` 26,12,396 FOR THE ASSESSMENT YEAR 2008 09 AND ` 27,05,708 FOR THE ASSESSMENT YEAR 2009 10. 3 . FACTS IN BRIEF : THE ASSESSEE COMPANY IS MAINLY ENGAGED IN THE BUSINESS OF RESTAURANT AND OUT D OOR CATERING. DURING THE COURSE OF SCRUTINY PROCEEDINGS FOR THE ASSESSMENT YEAR 2008 09, THE ASSESSING OFFICER NOTED THAT THE ASSESSEE HAS MADE HUGE INVESTMENT BY WAY OF PURCHASE OF SHARES TO THE TUNE OF ` 5,12,76,421 OF RAMESH HOTEL RESORTS PVT. LTD. FURT HER, THE ASSESSEE HAS ALSO CLAIMED HUGE EXPENDITURE ON ACCOUNT OF INTEREST PAID. IN THE COMPUTATION OF INCOME, THE ASSESSEE HAS MADE SUO MOTU DISALLOWANCE OF ` 2,56,382 UNDER SECTION 14A. IN RESPONSE TO THE SHOW CAUSE NOTICE, THE ASSESSEE SUBMITTED THAT TH E ENTIRE INVESTMENT OF ` 5,12,76,421 HAS BEEN SOLD IN THE FINANCIAL YEAR 2009 10 ON WHICH THE ASSESSEE HAS PAID LONG TERM CAPITAL GAIN. HENCE, IT CANNOT BE SAID THAT THE INCOME FROM INVESTMENT HAS YIELDED EXEMPT INCOME RATHER THE ASSESSEE HAS PAID TAXES ON SALE M/S. FOODLINK SERVICES INDIA PVT. LTD. 3 OF SHARES. IT WAS FURTHER POINTED OUT THAT THE ASSESSEE ALSO HAD OWN FUNDS WHICH IS REFLECTED IN THE BALANCE SHEET. THE ASSESSING OFFICER REJECTED THE ASSESSEES CONTENTION AND HELD THAT THE DISALLOWANCE UNDER SECTION 14A HAS TO BE MADE UNDER RULE 8D AS THE SAME IS EFFECTIVE FROM THE ASSESSMENT YEAR 2008 09. ACCORDINGLY, HE COMPUTED THE DISALLOWANCE UNDER RULE 8D AT ` 26,12,396 AS PER THE WORKING GIVEN AT PAGE 4 OF THE ASSESSMENT ORDER. 4 . BEFORE THE LEARNED COMMISSIONER (APPEALS), IT WAS SUBMITTED THAT THE ASSESSEE HAS MADE STRATEGIC INVESTMENT IN RAMESH HOTEL RESORTS PVT. LTD. AND THE INTENTION WAS NOT TO EARN EXEMPT INCOME BUT TO EARN BUSINESS INCOME BY WAY OF PROVIDING CATERING SERVICES IN THE PROPOSED HOTEL. THE ASSESSEE HAS NOT EARNED ANY DIVIDEND FROM THIS INVESTMENT. IT WAS ALSO SUBMITTED THAT THE ENTIRE INVESTMENT WAS MADE OUT OF OWN FUNDS INCLUDING THE INTEREST FREE LOANS TAKEN FROM THE PROMOTERS. IT WAS POINTED OUT THAT THE ASSESSEES OWN FUNDS IN THE FORM OF SHARE CAPITAL AND FREE RESERVES WAS AT ` 4.34 CRORES AND INTEREST FREE LO ANS WERE TO THE TUNE OF ` 0.80 CRORES WHICH WAS SUFFICIENT FOR MAKING THE INVESTMENT. THUS, INTEREST COMPONENT CANNOT BE BROUGHT FOR THE PURPOSE OF WORKING THE DISALLOWANCE UNDER SECTION 14A R/W RULE 8D. THE LEARNED CO MMISSIONER (APPEALS) REJECTED THE ASSESSEES CONTENTION ON THE GROUND THAT PROVISIONS OF SECTION 14A ARE APPLICABLE EVEN THOUGH THE INCOME IS EARNED OR NOT. HOWEVER, ON THE ISSUE OF INVESTMENT BEING MADE OUT OF INTEREST FREE FUNDS, NO FINDING HAS BEEN GIVE N. 5 . BEFORE US, THE LEARNED COUNSEL FOR THE ASSESSEE POINTED OUT THAT IN THE BALANCE SHEET ITSELF, IT IS EVIDENT THAT THE ASSESSEE HAS FUNDS IN THE FORM OF SHARE CAPITAL AND RESERVE & SURPLUS AND ALSO UNSECURED LO ANS WHICH WERE INTEREST FREE. THE AGGREGATE OF SUCH INTEREST FREE M/S. FOODLINK SERVICES INDIA PVT. LTD. 4 FUNDS WERE TO THE TUNE OF ` 5.14 CRORES AS AGAINST THE INVESTMENT MADE TO THE TUNE OF ` 5 . 12 CRORES. IF THE ASSESSEE HAS INTEREST FREE FUNDS, THEN NORMAL PRESUMPTION IS THAT THE ASSESSEE HAS MADE INVESTMENT FROM THESE FUNDS AND NO DIS ALLOWANCE OF INTEREST CAN BE MADE WHILE WORKING THE DISALLOWANCE UNDER SECTION 8D. IN SUPPORT OF HIS CONTENTION, HE STRONGLY RELIED UPON THE DECISION OF THE HON'BLE JURISDICTIONAL HIGH COURT IN CIT V/S RELIANCE UTILITIES AND POWER LTD. , [2009] 313 ITR 340 (BOM.) AND THE DECISION OF HONBLE GUJARAT HIGH COURT IN CIT V/S UTI BANK LTD., [2013] 215 TAXMAN 8 (GUJ.) . IN TH E S E DECISION S , THE AFORESAID PROPOSITION HAS BEEN CLEARLY UPHELD THAT IF THE ASSESSEE HAD SUFFICIENT INTEREST FREE FUNDS TO MEET ITS TAX FREE I NVESTMENT YIELDING EXEMPT INCOME, THEN IT COULD BE PRESUMED THAT SUCH INVESTMENTS HAVE BEEN MADE FROM INTEREST FREE FUNDS AND NOT LOAN FUNDS. THUS, HE SUBMITTED THAT THE INTEREST COMPONENT SHOULD BE REMOVED FROM THE WORKING OF RULE 8D. 6 . ON THE OTHER HAND, THE LEARNED DEPARTMENTAL REPRESENTATIVE SUBMITTED THAT THE ASSESSEE HAS NOT DEMONSTRATED AS TO WHAT WAS THE AVAILABILITY OF INTEREST FREE FUNDS AT THE TIME OF MAKING THE INVESTMENT. IF, IN THE BALANCE SHEET, THERE ARE INTEREST FREE FUNDS IN THE FORM OF SHA RE CAPITAL , RESERVE AND SURPLUS AND INTEREST FREE L OANS , THEN IT CANNOT BE HELD THAT THE ENTIRE FUNDS HAVE BEEN USED FOR INVESTMENT PURPOSE AND ALL THE ASSETS AND WORKING CAPITAL IS FROM INTEREST BEARING FUNDS. THUS, IT CANNOT BE HELD THAT THE ENTIRE INTER EST FREE FUNDS HAVE BEEN UTILIZED FOR THE PURPOSE OF INVESTMENT, AT LEAST THIS HAS NOT BEEN DEMONSTRATED BY THE ASSESSEE BEFORE ANY OF THE AUTHORITIES. THEREFORE, THE DISALLOWANCE UNDER SECTION 14A R/W RULE 8D HAS RIGHTLY BEEN MADE BY THE ASSESSING OFFICER . M/S. FOODLINK SERVICES INDIA PVT. LTD. 5 7 . WE HAVE HEARD THE RIVAL CONTENTION, PERUSED THE RELEVANT FINDINGS OF THE AUTHORITIES BELOW AND THE MATERIAL AVAILABLE ON RECORD. BEFORE THE ASSESSING OFFICER AS WELL AS THE LEARNED COMMISSIONER (APPEALS), THE ASSESSEE HAS CATEGORICALLY SUBMITTED THAT TH E ASSESSEE HAS INTEREST FREE FUNDS IN THE FORM OF CAPITAL , RESERVE & SURPLUS AND BESIDES THIS, INTEREST FREE UNSECURED LOANS FROM THE PROMOTERS. THE AGGREGATE OF SUCH INTEREST FREE FUNDS COMES TO ` 5.14 CRORES. HOWEVER, NEITHER THE ASSESSING OFFICER NOR TH E LEARNED COMMISSIONER (APPEALS) HAS EXAMINED THIS FACT AND HAS APPLIED PROVISIONS OF RULE 8D EVEN ON THE INTEREST COMPONENT. THE HON'BLE JURISDICTIONAL HIGH COURT IN RELIANCE UTILITIES AND POWER LTD. (SUPRA) HAS CLEARLY HELD THAT IF THERE ARE INTEREST FRE E FUNDS AVAILABLE TO THE ASSESSEE WHICH IS SUFFICIENT TO MEET ITS INVESTMENT AND AT THE SAME TIME THE ASSESSEE HAS ALSO INTEREST B EARING FUNDS IN THE FORM OF LOAN, THEN IT CAN BE PRESUMED THAT THE INVESTMENT HAD BEEN MADE FROM INTEREST FREE FUNDS AVAILABLE . THIS PROPOSITION OF THE HON'BLE JURISDICTIONAL HIGH COURT HAS ALSO BEEN REFERRED AND RELIED UPON BY THE HON'BLE GUJARAT HIGH COURT IN UTI BANK LTD. (SUPRA). THIS BINDING PRECEDENCE HAS TO BE KEPT IN MIND WHILE WORKING THE DISALLOWANCE UNDER SECTION RULE 8D. ACCORDINGLY, WE SET ASIDE THE IMPUGNED ORDERS PASSED BY THE LEARNED COMMISSIONER (APPEALS) FOR THE ASSESSMENT YEAR 2008 09 AND 2009 10 AND RESTORE THE ISSUE BACK TO THE FILE OF THE ASSESSING OFFICER DIRECTING HIM TO EXAMINE THE AVAILABILITY OF INTEREST FREE FUNDS AND AFTER APPLYING THE BINDING PRECEDENCE OF THE HON'BLE JURISDICTIONAL HIGH COURT IN RELIANCE UTILITIES AND POWER LTD. (SUPRA) , DECIDE THE ISSUE ACCORDINGLY. IN CASE, THE ASSESSEES CONTENTION IS FOUND TO BE CORRECT, THEN THE INTEREST COM PONEN T, AS GIVEN IN FORMULA OF R ULE 8D, HAS TO BE REMOVED AND DISALLOWANCE FOR BOTH THE YEARS, THAT IS FOR THE ASSESSMENT YEAR 2008 09 AND 2009 10 HAS TO BE WORKED OUT ACCORDINGLY. CONSEQUENTLY, THE M/S. FOODLINK SERVICES INDIA PVT. LTD. 6 GROUND RAISED BY THE ASSESSEE IN BOTH THE YEARS UNDER APPEAL I S TREATED AS PARTLY ALLOWED FOR STATISTICAL PURPOSE. 8 . 2008 09 2009 10 8. IN THE RESULT, ASSESSEE S APPEAL S FOR THE A.Y. 2008 09 & 2009 10 ARE TREATED AS PARTLY ALLOWED FOR STATISTICAL PURPOSES . 24 TH JANUARY 2014 ORDER PRONOUNCED IN THE OPEN COURT ON 24 TH JANUARY 2014 SD/ - . . R.C. SHARMA ACCOUNTANT MEMBER SD/ - AMIT SHUKLA JUDICIAL MEMBER MUMBAI, DATED : 24 TH JANUARY 2014 / COPY OF THE ORDER FORWARDED TO : ( 1 ) / THE ASSESSEE ; ( 2 ) / THE REVENUE; ( 3 ) ( ) / THE CIT(A ) ; ( 4 ) / THE CIT, MUMBAI CITY CONCERNED ; ( 5 ) , , / THE DR, ITAT, MU MBAI ; ( 6 ) / GUARD FILE . / TRUE COPY / BY ORDER . / PRADEEP J. CHOWDHURY / SR. PRIVATE SECRETARY / / (DY./ASSTT. REGISTRAR) , / ITAT, MUMBAI