DCIT 8(2), MUMBAI V. HSBC INVEST DIRECT (I) LTD, MUMBAI

ITA 4673/MUM/2013

• Counselvise Citation: [2015] 134 COUNSELVISE.COM (IT) 1816 (ITAT-MUMBAI)
• Duration Of Justice: 2 year(s) 6 month(s) 2 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 16-12-2015
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: H
• Next Hearing Date: 19-05-2015
• Assessment Year: 2009-2010
• Appeal Filed On: 14-06-2013
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: D V LAKHANI
• Assessee Lawyers: K MOHANDA S
• Keywords: Earning of tax free income; Revised return
• Section: 143(3); 234B; 14A; 115JB; 28

Judgement Text

HSBC INVEST DIRECT (I) LTD . (FORMERLY IL & FS INVESTMART LTD) ITA NO. 1601 / MUM /201 3 ITA NO. 4673 / MUM /201 3 1 IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH H , MUMBAI , , BEFORE SHRI JASON P BOAZ, ACCOUNTANT MEMBER AND SHRI AMIT SHUKLA , JUD ICIAL MEMBER I TA NO. : 1601 / MUM /20 1 3 ( ASSESSMENT YEAR: 200 9 - 1 0 ) HSBC INVEST DIRECT (I) LTD . (FORMERLY IL & FS INVESTMART LTD), DHANSINGH PROCESSOR PREMISES, J B NAGAR, ANDHERI KURLA ROAD, MUMBAI - 400 0 93 VS DC I T, - 8(2) , 216A, AAYAKAR BHAVAN, M K ROAD, M UMBAI - 400 020 (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI D V LAKHANI RESPONDENT BY : SHRI K MOHANDAS ITA NO. : 4673 / MUM /20 13 ( ASSESSMENT YEAR: 2009 - 10 ) DC I T, - 8(2) , 216A, AAYAKAR BHAVAN, M K ROAD, MUMB AI - 400 020 VS HSBC INVEST DIRECT (I) LTD . (FORMERLY IL & FS INVESTMART LTD), DHANSINGH PROCESSOR PREMISES, J B NAGAR, ANDHERI KURLA ROAD, MUMBAI - 400 0 93 .: PAN: AAACI 3364 A (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI K MOHANDAS RESPONDENT BY : SHRI D V LAKHANI /DATE OF HEARING : 08 - 12 - 201 5 / DATE OF PRONOUNCEMENT : 16 - 12 - 201 5 ORDER , . . : PER AMIT SHUKLA , J M : THE AFORESAID CROSS APPEAL S HAVE BEEN FILED BY THE ASSESSEE AS WELL AS BY THE REVENUE AGAINST THE IMPUGNED ORDER DATED 04 .1 1 .201 2 PASSED BY THE CIT(A) - 17 , MUMBAI FOR THE QUANTUM OF ASSESSMENT PASSED U/S 143(3) FOR THE ASSESSMENT YEAR 200 9 - 1 0. HSBC INVEST DIRECT (I) LTD . (FORMERLY IL & FS INVESTMART LTD) ITA NO. 1601 / MUM /201 3 ITA NO. 4673 / MUM /201 3 2 FIRST OF ALL , WE WILL TAKE - UP ASSESSEES APPEAL , VIDE WHICH FOLLOWING GROUNDS HAVE BEEN RAISED: - 1. ON THE FACTS & CIRCUMSTANCES OF THE CASE THE LEARNED COMMISSIONER OF INCOME TAX (A PPEALS ) HAS ERRED IN GRANTING PART RELIEF IN RESPECT OF DISALLOWANCE MADE BY T HE LEARNED ASSESSING OFFICER AMOUNTING TO RS. 1,22,66,688/ - . THE APPELLANT PRAYS THAT THE ADDITION CONFIRMED BY THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) MAY BE DELETED. 2. ON THE FACTS & CIRCUMSTANCES OF THE CASE THE LEARNED COMMISSIONER OF INCOM E TAX (A PPEALS ) HAS ERRED IN CONFIRMI NG THE ADDITION OF RS. 1,22,66,688/ - , BEING THE DISALLOWANCE U/S 14A, TO THE BOOK PROFIT COMPUTED U/S 115JB. THE APPELLANT PRAYS THAT NO ADDITION CAN BE MADE WHILE COMPUTING BOOK PROFIT U/S 115JB IN RESPECT OF DISALLOWA NCE TO BE MADE U/S 14A. 3. WITHOUT PREJUDICE TO GROUND NO.2 THE APPELLANT PRAYS THAT THE ADDITIONS WHICH MAY BE FINALLY CONFIRMED U/S 14A WHILE COMPUTING THE TOTAL INCOME U/S 28 OF THE INCOME TAX ACT, 1961 MAY BE CONSIDERED AS ADDITION FOR COMPUTING BOOK PROFIT U/S 115JB OF INCOME TAX ACT, 1961. 4. ON THE FACTS & CIRCUMSTANCES OF THE CASE THE LEARNED COMMISSIONER OF INCOME TAX (A PPEALS ) HAS ERRED IN CONFIRMING LEVY OF INTEREST U/S 234B. THE APPELLANT DENIES THE LIABILITY OF PAYMENT OF INTEREST U/S 234B. O N THE FACTS & CIRCUMSTANCES OF THE CASE THE APPELLANT SUBMIT THAT LEVY OF INTEREST U/S 234B IS NOT JUSTIFIED AND BE DELETED. 5. ON THE FACTS & CIRCUMSTANCES OF THE CASE THE LEARNED COMMISSIONER OF INCOME TAX (A PPEALS ) HAS ERRED IN REJECTING THE CLAIM OF A PPELLANT REGARDING THE DEDUCTION OF RS. 7,48,75,000/ - BEING THE EX - GRATIA PAYMENT MADE TO MR. JAMES LESILE WHITEFORD. THE APPELLANT PRAYS THAT THEY ARE ENTITLED TO CLAM THE DEDUCTION OF RS. 7,48,75,000/ - AND THE SAME MAY BE ALLOWED AS DEDUCTION IN COMPUTIN G TOTAL INCOME FOR AY 2010 - 11. 2. AT THE OUTSET, THE LD. COUNSEL SUBMITTED THAT GROUND NO. 5 IS NOT PRESSED AND ACCORDINGLY , THE SAME IS DISMISSED AS NOT PRESSED. 3. THE MAIN ISSUE INVOLVED, WHICH HAS BEEN RAISED VIDE GROUND NO.1 IS DISALLOWANCE OF RS. 1,22,66,688/ - MADE U/S 14A R.W. RULE 8D. HSBC INVEST DIRECT (I) LTD . (FORMERLY IL & FS INVESTMART LTD) ITA NO. 1601 / MUM /201 3 ITA NO. 4673 / MUM /201 3 3 4. BRIEF FACTS ARE THAT, ASSESSEE IS A PUBLIC LIMITED COMPAN Y AND IS ENGAGED IN THE BUSINESS OF INVESTMENT IN SUBSIDIARIES AND ASSOCIATE COMPANIES ; LENDING TO SUBSIDIARY COMPANIES ; EMPLOYEES WELFARE TRUST ; LOAN SYN DICATION ; INVESTMENT IN UNITS OF MUTUAL FUNDS - GROWTH PLAN ; AND EQUITY SHARES CONSIDERED AS STOCK - IN - TRADE, INVESTMENT IN FIXED DEPOSIT WITH BANK , ETC. THE LD. AO NOTED THAT, ASSESSEE HA D EARNED DIVIDEND INCOME OF RS.5,58,480/ - UNDER THE HEAD INCOME FRO M S TOCK - IN - TRADE AND ANOTHER DIVIDEND INCOME OF RS. 10,37,760/ - FROM INVESTMENTS UNDER THE HEAD INCOME FROM INVESTMENTS. SUCH A DIVIDEND INCOME WAS CLAIMED AS EXEMPT IN THE COMPUTATION OF INCOME. THE AO FURTHER NOTED THAT THE AUDITORS HAVE MENTIONED THAT T HE AMOUNT OF DEDUCTION INADMISSIBLE IN THE TERMS OF SECTION 14A AMOUNTS TO RS. 2,53,35,688/ - IN ITS TAX AUDIT REPORT. WHEREAS, THE ASSESSEE HAD SUO MOTO OFFERED THE DISALLOWANCE U/S 14A AMOUNTING TO RS. 1,30,69,000/ - IN ITS REVISED RETURN OF INCOME. IN RES PONSE TO THE SHOW CAUSE NOTICE, AS TO WHY RULE 8D SHOULD N OT BE APPLIED, THE ASSESSEE SUBMITTED THAT IT HAS MADE THE INVESTMENT IN SUBSIDIARY COMPANIES AND ALL THESE ENTITIES ARE HANDLED BY PROFESSIONALS WHO HAVE RESPECTIVE EXPERTISE IN DIVERSE FIELDS AND NO EMPLOYEES OF THE ASSESSEE COMPANY WERE INVOLVED DURING THE YEAR. HOWEVER, THE AO HELD THAT , SINCE ASSESSEE HAS OFFERED SUO MOTO DISALLOWANCE U/S 14A AMOUNTING A T RS. 1,30,69,000/ - BASED ON THE ESTIMATE WHICH CANNOT BE ACCEPTED AS SUCH, AND ACCORDINGLY , HE WORKED OUT THE DISALLOWANCE AS PER THE AMOUNT QUANTIFIED BY THE AUDITORS IN ACCORDANCE WITH THE RULE 8D AT RS. 2,53, 35 ,688/ - . S INCE THE AMOUNT OF RS. 1,30,69,000/ - HA D ALREADY BEEN OFFERED BY THE ASSESSEE IN THE REVISED RETURN, THEREFORE, HE RESTRICTED THE DISALLOWANCE TO RS. 1,22,66,688/ - . 6. THE LD. CIT(A) HELD THAT, IN THE ASSESSMENT YEAR 2008 - 09 THE CIT(A) HAS GIVEN CERTAIN DIRECTIONS TO WORK - OUT THE DISALLOWANCE U/S 14A WHICH HAS BEEN REFERRED BY HIM IN PARA 4.1 AND HSBC INVEST DIRECT (I) LTD . (FORMERLY IL & FS INVESTMART LTD) ITA NO. 1601 / MUM /201 3 ITA NO. 4673 / MUM /201 3 4 ACCORDINGLY DIRECTED THE AO TO WORK OUT THE DISALLOWANCE AS PER THE DIRECTIONS GIVEN BY THE CIT(A) IN THE EARLIER YEAR. 7. BEFORE US THE LD. COUNSEL SUBMITTED THAT, NOW VARIOUS DECISIONS OF HIGH COURT S HAVE COME , WHEREIN IT HAS BEEN HELD THAT, IF THERE IS NO DIVIDEND INCOME THEN NO DIS ALLOWANCE U/S 14A SHOULD BE MADE OR IT SHOULD BE IN PROPORTIONATE TO THE EXEMPT INCOME . HERE IN THIS CASE, THE ASSESSEES DIVIDEND INCOME IS APPROXIMATELY 16 LAKHS RUPEES, THEREFORE, SUCH A HUGE DISALLOWANCE CANNOT BE MADE. ACCORDINGLY, HE SUBMITTED THAT , MATTER SHOULD BE RESTORED BACK TO THE FILE OF THE AO TO DEAL AND DECIDE THE ISSUE IN ACCORDANCE WITH THE DECISION OF THE HONBLE DELHI HIGH COURT ORDER DATED 02.09.2015 V I DE APPEAL IN 799 OF 2014, IN THE CASE OF CHEM INVEST LTD. VS CIT WHICH HAS REVERSED T HE DECISION OF ITAT SPECIAL BENCH. HE FURTHER POINTED OUT THAT, ITAT MUMBAI BENCH IN THE CASE OF COX AND KINGS FOLLOWING THE ORDER OF THE SAID HIGH COURT HA S DIRECTED THE AO TO FOLLOW THE RATIO LAID DOWN THEREIN. 8. ON THE OTHER HAND, LD. DR SUBMITTED THA T, IF THE ASSESSEE HAS EARNED LESS DIVIDEND INCOME , THEN IT DOES NOT MEAN THAT EXPENDITURE ATTRIBUTABLE TO EARNING OF SUCH EXEMPT INCOME SHOULD BE LESS THAN THE EXEMPT INCOME. THUS, HE SUBMITTED THAT DISALLOWANCE AS WORKED OUT BY THE CIT(A) IN VIEW OF THE PAST HISTORY SHOULD BE UPHELD. 9. WE HAVE HEARD THE RIVAL CONTENTIONS AND ALSO PERUSED THE RELEVANT FINDING GIVEN IN THE IMPUGNED ORDERS. IT IS AN ADMITTED FACT THAT ASSESSEE HAD OFFERED SUO MOTO DISALLOWANCE U/S 14A AMOUNTING TO RS. 1,30,69,000/ - , IN ITS REVISED RETURN OF INCOME. THE AO HAS ENHANCED THE DISALLOWANCE TO RS.2,53,35,688/ - , THEREBY MAKING AN ADDITION OF RS. 1,22,66,688/ - ON THE GROUND THAT IN THE FORM 3CD OF TAX AUDIT REPORT, THE AUDITORS HAVE QUANTIFIED THE DISALLOWANCE U/S 14A R.W. RULE 8D. FROM THE HSBC INVEST DIRECT (I) LTD . (FORMERLY IL & FS INVESTMART LTD) ITA NO. 1601 / MUM /201 3 ITA NO. 4673 / MUM /201 3 5 PERUSAL OF THE ASSESSMENT ORDER, IT IS SEEN THAT THE AO HAS RELIED UPON THE DECISION OF ITAT SPECIAL BENCH IN THE CASE OF CHEM INVEST LTD., REPORTED IN 317 ITR 86 (AT). NOW, THIS DECISION OF THE SPECIAL BENCH OF THE TRIBUNAL , HA S BEEN REVERSED BY THE HONBLE DELHI HIGH COURT, AS REFERRED BY THE LD. COUNSEL. HOWEVER, IF WE AGREE WITH THE CONTENTION OF THE COUNSEL THAT THE DECISION OF DELHI HIGH COURT SHOULD BE APPLIED AND FOLLOWED WHEREIN IT HAS BEEN LAID DOWN THAT SECTION 14A ENVISAGES THERE SHOUL D BE ACTUAL RECEIPT OF EXEMPT INCOME AND IN CASE THERE IS NO EXEMPT INCOME RECEIVED OR RECEIVABLE , THEN NO EXPENDITURE SHOULD BE DISALLOWED THEN HERE IN THIS CASE IT IS ALSO AN ADMITTED FACT THAT DIVIDEND INCOME WAS APPROXIMATELY RS. 10 LAKHS , WHEREAS THE ASSESSEE HAS SUO MOTO DISALLOWED RS. 1,30,69 ,000/ - , THUS, THE DISALLOWANCE OFFERED BY THE ASSESSEE ITSELF IS MUCH MORE THAN THE EXEMPT INCOME. HENCE, WE RESTRICT THE DISALLOWANCE AS OFFERED BY THE ASSESSEE IN THE REVISED RETURN OF INCOME. ACCORDINGLY , WE H OLD THAT NO FURTHER DISALLOWANCE OVER AND ABOVE THE AMOUNT OF RS. 1,30,69,000/ - SHOULD BE MADE AND ACCORDINGLY, GROUND NO. 1 AS RAISED BY THE ASSESSEE IS TREATED AS ALLOWED AND ENHANCEMENT OF DISALLOWANCE OF RS. 1,22,66,688/ - STANDS DELETED. 10. G ROUND NO . 2 AND GROUND NO. 3 RELATES TO DISALLOWANCE UNDER SECTION 14A IN THE BOOK PROFIT COMPUTED U/S 115JB. SINCE WE HAVE UPHELD THE DISALLOWANCE OFFERED BY THE ASSESSEE AT RS. 1,30,69,000/ - , THE SAME SHOULD ALSO BE PART OF THE DISALLOWANCE WHILE COMPUTING THE B OOK PROFIT U/S 115JB. THUS, GROUND NO. 2 & 3 ARE TREATED AS PARTLY ALLOWED. 11. IN GROUND NO. 4 THE ASSESSEE HAS CHALLENGED LEVY OF INTEREST U/S 234B , WHICH ADMITTEDLY IS CONSEQUENTIAL IN NATURE AND HENCE THE SAME IS DISMISSED. 12. IN REVENUES APPEAL, F OLLOWING GROUND HAS BEEN RAISED: - HSBC INVEST DIRECT (I) LTD . (FORMERLY IL & FS INVESTMART LTD) ITA NO. 1601 / MUM /201 3 ITA NO. 4673 / MUM /201 3 6 ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LEARNED CIT(A) ERRED IN DIRECTING THE ASSESSING OFFICER TO ACCEPT THE WORKING GIVEN BY THE ASSESSEE FOR DISALLOWANCE U/S 14A WITHOUT APPRECIATING THE FAC T THAT THE AO HAS PROPERLY RECORDED HIS SATISFACTION FOR INVOKING THE PROVISIONS OF RULE 8D IS INVOKED, THE DISALLOWANCE HAS TO BE WORKED OUT AS PER THE FORMULA PRESCRIBED THEREIN AND THERE IS NOT SCOPE FOR ANY DEVIATION THEREFROM 13. IN VIEW OF OUR FIND ING GIVEN IN THE ASSESSEES APPEAL, WE DO NOT FIND ANY MERITS IN THE GROUND RAISED BY THE REVENUE AND ACCORDINGLY THE SAME IS DISMISSED. 14. IN THE RESULT, APPEAL OF THE ASSESSEE IS PARTLY ALLOWED WHEREAS APPEAL OF THE REVENUE IS DISMISSED. ORDER PRO NOUNCED IN THE OPEN COURT ON 16 TH DECEMBER , 2015 . SD/ - SD/ - ( ) ( ) ( JASON P BOAZ ) ( AMIT SHUKLA ) ACCOUNTANT MEMBER JUDICIAL MEMBER MUMBAI, DATE: 16 TH DEC EMBER , 2015 / COPY TO: - 1 ) / THE APPELLANT. 2 ) / THE RESPONDENT. 3) THE CIT (A) - 17 , MUMBAI . 4 ) THE CIT 8 , MUMBAI . 5 ) , , / THE D.R. H BENCH, MUMBAI. 6 ) \ COPY TO GUARD FILE. / BY ORDER / / TRUE COPY / / / , DY. / ASSTT. REGISTRAR I.T.A.T., MUMBAI * . . *CHAVAN, SR.PS