DCIT CIR 3(1), MUMBAI V. FLOREAT INVESTMENTS LTD, MUMBAI

ITA 4654/MUM/2014

• Counselvise Citation: [2016] 133 COUNSELVISE.COM (IT) 3818 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 7 month(s) 17 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 24-02-2016
• Appeal Filed By: Department
• Bench Allotted: E
• Assessment Year: 2010-2011
• Appeal Filed On: 07-07-2014
• Court: TRIBUNAL
• Department Lawyers: LOVE KUMAR
• Keywords: Earning of tax free income
• Section: 143(3); 14A

Judgement Text

, , E, IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCHES E, MUMBAI BEFORE SHRI C.N. PRASAD, JUDICIAL MEMBER, AND SHRI ASHWANI TANEJA, ACCOUNTANT MEMBER ITA NO.4654/MUM/2014 ASSESSMENT YEAR: 2010-11 D C IT C IRCLE 3( 1 ) R.NO.607, AAYAKAR BHAVAN, M.K. RD. MUMBAI -400020 / VS. M/S. FLOREAT INVESTMENTS LTD. SHAPOORJI PALLONJI CENTRE, 41/44, MINOO DESAI MARG, COLABA, MUMBAI-5 (REVENUE) (RESPONDENT) P.A. NO. AAACF0794R REVENUE BY SHRI LOVE KUMAR (DR) RESPONDENT BY SHRI PORUS KAKA (AR) / DATE OF HEARING : 14/01/2016 / DATE OF ORDER: 24/02/2016 / O R D E R PER ASHWANI TANEJA (ACCOUNTANT MEMBER): THIS APPEAL HAS BEEN FILED BY THE REVENUE AGAINST T HE ORDER OF LD. COMMISSIONER OF INCOME TAX (APPEALS)-6 , MUMBAI {(IN SHORT CIT(A)}, DATED 22.04.2014 FOR THE ASS ESSMENT YEAR 2010-11, PASSED AGAINST THE ASSESSMENT ORDER PASSED BY THE ASSESSING OFFICER (IN SHORT AO) U/S 143(3) OF THE ACT. FLOREAT INVESTMENTS LTD. 2 2. DURING THE COURSE OF HEARING, ARGUMENTS WERE MADE B Y SHRI PORUS KAKA, AUTHORISED REPRESENTATIVE (AR) ON BEHALF OF THE RESPONDENT AND BY SHRI LOVE KUMAR, DEPARTMENTAL REPRESENTATIVE (DR) ON BEHALF OF THE REVENUE. 3. THE ONLY ISSUE RAISED BY THE DEPARTMENT IN THIS AP PEAL IS WITH REGARD TO DISALLOWANCE U/S 14A FOR RS.34,63,41 1/- DELETED BY THE LD. CIT(A). 4. THE BRIEF BACKGROUND OF THE CASE IS THAT DURING TH E COURSE OF ASSESSMENT PROCEEDINGS, THE AO NOTED THAT THE AS SESSEE HAD RECEIVED DIVIDEND INCOME OF RS.1,00,000/- AND H AS CLAIMED THE SAME AS EXEMPT. THE ASSESSEE HAS SUO-MO TO DISALLOWED EXPENSES AGGREGATING RS.25,44,53,328/- A S EXPENDITURE DIRECTLY RELATABLE TO EARNING OF EXEMPT INCOME, WHICH CONSISTED OF INTEREST EXPENSES AMOUNTING TO RS.24,39,24,641/- AND LOAN PROCESSING FEES AMOUNTIN G TO RS.1,05,28,687/-. HOWEVER SINCE NO DISALLOWANCE WAS MADE ON ACCOUNT OF INDIRECT OVERHEAD EXPENSES ATTRIBUTAB LE TO THE EARNING OF EXEMPT INCOME, THE AO COMPUTED THE SAME AT RS.64,03,909/- AS PER RULE 8(D)(2)(III) AND RESTRIC TED THE ADDITIONAL DISALLOWANCE TO THE OVERALL EXPENSES CLA IMED AS PER THE RETURN OF INCOME AT RS. 34,63,411/- 4.1. BEING AGGRIEVED, THE ASSESSEE FILED AN APPEAL BEFO RE THE LD. CIT(A), WHEREIN IT WAS SUBMITTED THAT THE ASSES SEE HAS ALREADY MADE VOLUNTARY DISALLOWANCE OF HUGE AMOUNT AND NONE OF THE EXPENSES COMPRISED IN THE AMOUNT OF FLOREAT INVESTMENTS LTD. 3 RS.34,63,411/- PERTAIN TO THE INVESTMENT IN SHARES OR FOR EARNING THE EXEMPT INCOME. IT WAS FURTHER SHOWN THA T OPENING AND CLOSING AMOUNT OF INVESTMENT IS SAME. IT WAS FU RTHER SHOWN THAT EXPENSES CLAIMED IN THE P & L ACCOUNT WE RE INCURRED TO EARN OTHER INCOMES CREDITED IN THE P & L ACCOUNT AMOUNTING TO MORE THAN RS.4 CRORES. IN RESPONSE TO THE QUERIES RAISED BY THE LD. CIT(A), THE ASSESSEE MADE FURTHER DETAILED SUBMISSIONS BEFORE THE LD. CIT(A) WHICH AR E REPRODUCED AS UNDER: IT IS ALSO PERTINENT TO MENTION THAT THE ASSESSING OFFICER IN PARA 5.6 OF HIS ASSESSMENT ORDER HAS MENTIONED AS UNDER:- IT HAS BEEN CLARIFIED UNAMBIGUOUSLY THAT IN COMPUTI NG THE TOTAL INCOME, NO DEDUCTION SHALL BE ALLOWED IN RESP ECT OF EXPENDITURE INCURRED BY THE ASSESSEE AGAINST THE IN COME WHICH IS CLAIMED AS EXEMPT FROM TAX. CIRCULAR NO.1 4 OF 2001, DATED 22.11.2001, AND CIRCULAR NO.8 OF 2002, DATED 27.08.2002 HAVE ALSO EXPLAINED THE PROVISION WHEREI N IT HAS BEEN CLARIFIED THAT NO EXPENSES RELATABLE TO AN INCOME EXEMPT FROM TAX WOULD BE ALLOWED AS A DEDUCTION. ON GOING THROUGH THE EXEMPT INCOME SHOWN THIS YEAR, IT IS SEEN THAT THE SAME HAS BEEN RECEIVED AS UNDER:- ON 14.10.2009 DIVIDEND RECEIVED BY D.D. OF IDBI BAN K OF RS.1 LAC FROM AFCON INFRA LTD DIVIDEND AS SHOWN I N LEDGER ACCOUNT (COPY ENCLOSED). THE ASSESSING OFFICER HAS NOT RELATED ANY OF THE EX PENSES COMPRISED IN THE EXPENSES DISALLOWED OF RS.34,63,41 1/- TO THE EXEMPT INCOME OF RS. 1 LAC. IN THIS CONNECTION A TRIBUNAL DECISION PASSED FOR A .Y.2008- 09 BY HONBLE ITAT J BENCH UNDER ITA NO. 7858/MUM/2011 AND 7851/MUM/2011 (COPY ENCLOSED) IS REFERRED TO, ESPECIALLY AT PARA 18 OF THE SAID ITAT ORDER WHEREIN IN THE LAST FEW LINES OF THE PARA THE FOLLO WING IS MENTIONED:- DISALLOWANCE UNDER SECTION 14A REQUIRED FINDING OF INCURRING OF EXPENDITURE AND WHERE IT WAS FOUND THA T FOR FLOREAT INVESTMENTS LTD. 4 EARNING EXEMPTED INCOME NO EXPENDITURE HAS BEEN INCURRED, DISALLOWANCE UNDER SECTION 14A COULD NOT STAND. WE NOTICE THAT ASSESSEE ITSELF DISALLOWED THE INTER EST WHICH IS DIRECTLY APPLICABLE, DEMAT CHARGES AND ADMINISTRATIVE EXPENSES ON ESTIMATION TOTALING TO RS.1,55,44,610. ASSESSEE IS A HUNDRED CRORE TURNOV ER COMPANY. ASSESSING OFFICER HAS NOT EXAMINED ANY EXPENDITURE CLAIMED IN P & L A/C SO AS TO RELATE TO EXEMPT INCOME, NOR GAVE A FINDING THAT ASSESSEE CLAIM IS N OT CORRECT FOR ANY REASON. RULE 8D CANNOT BE INVOKED DIRECTLY WITHOUT SATISFYING ABOUT THE CLAIMS OR OTHERWISE. CONSEQUENTLY, THE DISALLOWANCE WAS NOT PERMISSIBLE. WE THEREFORE, ALLOW THE GROUND OF APPEAL. AS THE ASSESSING OFFICER IN OUR CASE HAS FAILED TO RELATE THE EXPENSES OF RS.34,63,411/- CLAIMED IN P & L A/C SO AS TO RELATE TO EXEMPT INCOME NOR GAVE FINDING THAT ASSES SEE CLAIMS IS NOT CORRECT FOR ANY REASON, THE DISALLOWA NCE THEREFORE WAS NOT PERMISSIBLE. LD. CIT(A) CONSIDERED THE SUBMISSIONS OF THE ASSESS EE IN DETAIL AND FOUND THAT THE DISALLOWANCE MADE BY THE AO WAS NOT SUSTAINABLE AND THEREFORE, THE SAME WAS DELETED BY HIM. 4.2. BEFORE US LD. DR HAS RELIED UPON THE ORDER OF THE AO, WHEREAS, LD. COUNSEL APPEARING BEFORE US HAS VEHEME NTLY ARGUED THAT THE ASSESSEE HAS MADE VOLUNTARY DISALLO WANCE OF MORE THAN SUFFICIENT AMOUNT I.E. RS.25,44,53,328/-. IT WAS FURTHER SUBMITTED THAT DURING THE YEAR, THE ASSESSE E RECEIVED DIVIDEND INCOME ONLY FOR RS.1 LAKH, THEREFORE, NO M ORE DISALLOWANCE WAS CALLED FOR AND THUS, LD. CIT(A) HA S RIGHTLY DELETED THE EXCESSIVE DISALLOWANCE MADE BY THE AO. 4.3. WE HAVE GONE THROUGH THE ORDERS OF THE LOWER AUTHO RITIES AND FIND THAT DETAILED REASONING HAS BEEN GIVEN BY THE LD. FLOREAT INVESTMENTS LTD. 5 CIT(A), WHILE DELETING THE DISALLOWANCE MADE BY THE AO. THE RELEVANT PORTION OF THE ORDER OF LD. CIT(A) IS REPR ODUCED BELOW: SO FAR AS THE INVESTMENT ACTIVITY OF THE APPELLANT IN TAX- FREE INVESTMENTS IS CONCERNED, FROM THE ABOVE, IT I S EVIDENT THAT THE SAME HAS REMAINED STATIC AND NO FRESH INVESTMENTS HAVE BEEN MADE DURING THE YEAR. FROM T HE ASSESSMENT ORDER ITSELF, IT IS EVIDENT THAT THE TAX -FREE INVESTMENTS AT THE BEGINNING AND END OF THE YEAR WE RE RS.128,07,81,790/-. SINCE THERE IS NO INVESTMENT A CTIVITY DURING THE YEAR, THE APPELLANTS ARGUMENT THAT NO EXPENSES (OTHER THAN INTEREST EXPENSES AND LOAN PROCESSING FEES) CAN BE ATTRIBUTED TO THE EARNING O F EXEMPT INCOME HAS SUFFICIENT FORCE. THE AO HAS NOT AT AL L ANALYSED THESE FACTS AND FIGURES OF THE CASE OF THE APPELLANT AND HAS MADE GENERAL OBSERVATIONS ONLY IN THIS REGARD TO DIFFERENT FROM THE CLAIM OF THE APPELLANT . IN VIEW OF ABOVE FACTS, THE TWO ITAT DECISIONS RELIED UPON BY THE AO BECOME IN-APPLICABLE TO THE FACTS OF THE CASE OF THE APPELLANT. THE BINDING DECISION AVAILABLE ON THIS ISSUE IS THE JUDGMENT OF HONBLE BOMBAY HIGH COURT IN THE CASE O F GODREJ & BOYCE MFG. CO. LTD. 328 ITR 81, WHEREIN TH E HONBLE COURT HAS HELD THAT THE DIVIDEND INCOME AN D INCOME FROM MUTUAL FUNDS, FALLING WITHIN THE AMBIT OF SECTION 10(33) OF THE ACT ARE NOT INCLUDIBLE IN COM PUTING THE TOTAL INCOME OF THE ASSESSEE. CONSEQUENTLY, NO DED UCTION SHALL BE ALLOWED IN RESPECT OF EXPENDITURE INCURRED BY THE ASSESSEE IN RELATION TO SUCH INCOME. IT HAS ALSO B EEN HELD THAT PROVISIONS OF RULE 8D OF THE I-T RULES, 1962 S HALL APPLY WITH EFFECT FROM ASSESSMENT YEAR 2008-09. HOWEVER, IN THIS DECISION, IT IS ALSO HELD THAT REC ORDING OF REASONS FOR NON-SATISFACTION WITH THE CLAIM OF THE ASSESSEE, IS A MUST FOR THE AO BEFORE APPLYING THE PROVISIONS OF RULE 8D. THE AO HAS ALTHOUGH MADE GE NERAL OBSERVATIONS IN THIS REGARD, HE HAS NOT CONSIDERED THE FACTS AND FIGURES OF THE CASE OF THE APPELLANT. TH IS VIEW IS ALSO SUPPORTED BY THE HONBLE MUMBAI ITAT DECISION IN THE CASE OF J. K. INVESTORS LTD. (SUPRA) CITED BY THE A PPELLANT. HENCE, THE ACTION OF THE AO IN APPLYING THE PROVISI ONS OF RULE 8D IS WRONG. IN THE CASE OF GODREJ, HONBLE JUDGES OF THE BOMBAY HIGH COURT HELD THAT: FLOREAT INVESTMENTS LTD. 6 THE SAFEGUARD INTRODUCED BY SUB-SECTION (2) OF SEC TION 14A FOR A FAIR AND REASONABLE EXERCISE OF POWER BY THE ASSESSING OFFICER, CONDITIONED AS IT IS, BY THE REQ UIREMENT OF AN OBJECTIVE SATISFACTION, MUST, THEREFORE, BE SCRUPULOUSLY OBSERVED. AN OBJECTIVE SATISFACTION CONTEMPLATES A NOTICE TO THE ASSESSEE, AN OPPORTUNI TY TO THE ASSESSEE TO PLACE ON RECORD ALL THE RELEVANT FA CTS INCLUDING HIS ACCOUNTS AND RECORDING OF REASONS BY THE ASSESSING OFFICER IN THE EVENT THAT, HE COMES TO TH E CONCLUSION THAT, HE IS NOT SATISFIED WITH THE CLAIM OF THE ASSESSEE. FROM THE ABOVE, IT IS SEEN THAT RECORDING OF REASON FOR NON- SATISFACTION WITH THE CLAIM OF THE ASSESSEE, IS A M UST AND SUCH NON-SATISFACTION SHOULD BE OBJECTIVE AND BASED ON THE RELEVANT FACTS INCLUDING THE ACCOUNTS OF THE ASSESS EE. AS IS EVIDENT, IN THE CASE OF THE APPELLANT, THERE WAS NO OBJECTIVE SATISFACTION RECORDED BY THE AO AND ONLY GENERAL OBSERVATIONS HAVE BEEN MADE. IN FACT, IN THE CASE OF THE APPELLANT, SINCE NO NEW INVESTMENT ACTIVITY HAS BEEN CARRIED OUT DURING THE YEAR, THERE WAS NO CASE WITH THE AO TO DIFFER FROM THE CLAIM OF THE APPELLA NT. IN VIEW OF ABOVE REASONS THEREFORE, I DO NOT AGREE WITH THE DECISION OF THE AO SO FAR AS THE ADDITIONA L DISALLOWANCE MADE BY HIM OF RS.34,63,411/- IS CONCERNED. THE SAME IS THEREFORE ORDERED TO BE DELETED. (EMPHASIS SUPPLIED) 4.4. IT IS NOTED BY US FROM THE PERUSAL OF DETAILS CONT AINED IN THE ORDERS OF THE LOWER AUTHORITIES THAT THE ASSESS EE HAS SUO- MOTO MADE DISALLOWANCE OF SUFFICIENT AMOUNT. THE RE MAINING EXPENSES, WHICH WERE NOT INCLUDED IN STATUTORY DISA LLOWANCE BY THE ASSESSEE, DO NOT PERTAIN TO AND CANNOT BE SA ID TO HAVE BEEN INCURRED FOR THE PURPOSE OF MAKING INVESTMENT IN TAX-FREE SECURITIES. THESE ARE APPARENTLY NOT RELATED TO THE EARNING OF THE EXEMPT INCOME. NO CASE HAS BEEN MADE OUT BY THE AO AS TO HOW AND WHY SOME MORE DISALLOWANCE WAS CALLED FO R. WE FIND THAT LD. CIT(A) HAS RIGHTLY RECORDED THAT AO H AS NOT FLOREAT INVESTMENTS LTD. 7 RECORDED SATISFACTION BASED ON RELEVANT FACTS BEFOR E REJECTING THE CLAIM OF THE ASSESSEE. WE FIND FINDINGS OF THE LD. CIT(A) ARE WELL REASONED AND IN ACCORDANCE WITH THE LAW AND FA CTS, AND THEREFORE, THESE ARE UPHELD. IN VIEW OF THE SAME AP PEAL FILED BY THE REVENUE IS DISMISSED. 5. IN THE RESULT, THIS APPEAL FILED BY THE REVENUE IS DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 24 TH FEBRUARY, 2016. SD/- (C.N. PRASAD ) SD/- (ASHWANI TANEJA) / JUDICIAL MEMBER / ACCOUNTANT MEMBER MUMBAI; DATED : 24 /02 /2016 CTX? P.S/. .. !'#$%&%'# / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT 2. / THE RESPONDENT. 3. ( ) / THE CIT, MUMBAI. 4. / CIT(A)- , MUMBAI 5. #$% &' , &' ) , / DR, ITAT, MUMBAI 6. %*+ , / GUARD FILE. / BY ORDER, # //TRUE COPY// / (DY./ASSTT. REGISTRAR) , / ITAT, MUMBAI