NAVYUG KRISHI SADHAN P.LTD, MUMBAI V. DCIT 13(1)(1), MUMBAI

ITA 4804/MUM/2016

• Counselvise Citation: [2017] 126 COUNSELVISE.COM (IT) 8128 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 5 month(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 18-12-2017
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: Not Allotted
• Assessment Year: 2013-2014
• Appeal Filed On: 18-07-2016
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: POOJA SWAROOP
• Keywords: Earning of tax free income
• Section: 14A; 10

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL F , BENCH MUMBAI BEFORE SHRI R.C.SHARMA, AM & SHRI AMARJIT SINGH , JM ITA NO. 4804 / MUM/20 16 ( ASSESSMENT YEAR : 2013 - 14 ) M/S. NAVYUG KRISHI SADHAN PVT. LTD., PLOT NO.1, ADARSH HOUSING SOCIETY, CROSS ROAD NO.2 M ALAD,MUMBAI VS. DCIT 13(1)(1) MUMBAI 400 020 PAN/GIR NO. AAACN2326D APPELLANT ) .. RESPONDENT ) ASSESSEE BY SHRI B.P. PUROHIT ALONGWITH MS. LAVANYA RAJPUROHIT REVENUE BY MS. POOJA SWAROOP DATE OF HEARING 21 / 11 /201 7 DATE OF PRONOUNCEME NT 18 / 12 /201 7 / O R D E R PER R.C.SHARMA (A.M) : THIS IS AN APPEAL FILED BY THE ASSESSEE AGAINST THE ORDER OF CIT(A) - 21, MUMBAI DATED 20/6/2016 FOR THE A.Y.2013 - 14 IN THE MATTER OF ORDER PASSED U/S.143(3) OF THE IT ACT . 2. THE ONLY GRIEVANCE OF ASSESSEE RELATES TO DISALLOWANCE MADE U/S.14A R.W.R 8D. 3. THE PRECISE GROUND RAISED BY THE ASSESSEE READS AS UNDER: - 1) ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD.COMMISSIONER OF INCOME TAX ( APPEAL) - 21, MUMBAI (THE CIT (A)) IS NOT JUSTIFIED IN SUSTAINING ADDITION / DISALLOWANCE OF RS.65,35,935/ - MADE UNDER SEC. 14A READWITH RULE 8D, WITHOUT ITA NO. 4804/MUM/2016 M/S. NAVYUG KRISHI SADHAN PVT. LTD., 2 APPRECIATING THAT THE PROVISIONS OF THE SAID SECTION AND RULE ARE NOT APPLICABLE TO THE APPELLANT. 2) O N THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE PROVISIONS OF SEC. 14A CANNOT BE APPLIED AS ASSESSED OWN INTEREST FREE PAID UP CAPITAL AND RESERVES AND SURPLUS ARE MORE THAN THE INVESTMENT MADE BY IT. 3) ON THE FACTS AND IN THE CIRCUMSTAN CES OF THE CASE AND IN LAW, THE CIT(A) IS NOT JUSTIFIED IN SUSTAINING DISALLOWANCE U/S 14A/R - 8D OF RS. 6535935/ - WITHOUT APPRECIATING THAT THE TAX FREE INCOME IS MERELY RS. 2346826/ - . 4) YOUR APPELLANT THEREFORE HUMBLY PRAYS THAT THE ADDITION CONFIRMED B Y THE CIT(A) MAY KINDLY BE DELETED AND ALL CONSEQUENTIAL RELIEFS MAY KINDLY BE GRANTED. 5) YOUR HUMBLE APPELLANT CRAVES LEAVE TO ADD TO, AMEND, DELETE ANY OF THE ABOVE GROUNDS AND 7 OR TO ADD ANY NEW GROUNDS THERETO. 4. AT THE OUTSET, LEARNED AR PLACED O N RECORD THE ORDER OF THE TRIBUNAL IN ASSESSEES OWN CASE FOR THE A.Y.2011 - 12 DATED 27/07/2016 WHEREIN THE ISSUE RAISED IN THE PRESENT APPEAL IS SQUARELY COVERED. 5. WE HAD CAREFULLY GONE THROUGH THE ORDER OF THE TRIBUNAL DATED 27/07/2016 WHEREIN FINDING G IVEN BY THE TRIBUNAL READS AS UNDER: - 2. THE SOLE ISSUE TAKEN BY THE ASSESSEE IN THIS APPEAL IS REGARDING THE DISALLOWANCE UNDER SECTION 14A RELATING TO THE EXPENDITURE INCURRED FOR EARNING OF TAX EXEMPT INCOME. DURING THE ASSESSMENT PROCEEDINGS, THE ASSE SSING OFFICER (HEREINAFTER REFERRED TO AS THE AO) NOTED THAT THE ASSESSEE HAD EARNED DIVIDEND INCOME OF RS.1,19,405/ - WHICH HAD BEEN CLAIMED EXEMPT UNDER SECTION 10 OF THE ACT. THE ASSESSEE, HOWEVER, HAD NOT SUO - MOTO DISALLOWED ANY EXPENDITURE RELATING TO THE EARNING OF THE EXEMPT INCOME. ON BEING ASKED TO EXPLAIN, THE ASSESSEE SUBMITTED THAT DURING THE YEAR THE ASSESSEE HAD INCURRED TOTAL INTEREST EXPENDITURE OF RS.1,16,72,848/ - . HOWEVER, THE INTEREST RECEIPTS DURING THE YEAR WERE AT RS.1,20,12,701/ - . THUS , THE ASSESSEE HAD NET INTEREST INCOME OF RS.3,39,853/ - . THEREFORE, NO DISALLOWANCE OF INTEREST EXPENDITURE WAS ATTRACTED. HOWEVER, THE ASSESSEE SUBMITTED THAT AN EXPENDITURE OF RS.27,750/ - WAS ATTRACTED FOR DISALLOWANCE UNDER RULE 8D(2)(III) AS BEING 0.5% OF AVERAGE INVESTMENT. THE ASSESSEE WHILE DOING SO EXCLUDED THE SHARE APPLICATION MONEY OF RS.10 CRORE. THE AO, HOWEVER, REJECTED THE CONTENTIONS OF THE ASSESSEE AND DISALLOWED THE ITA NO. 4804/MUM/2016 M/S. NAVYUG KRISHI SADHAN PVT. LTD., 3 INTEREST EXPENDITURE OF RS.3,47,141/ - UNDER RULE 8D(2)(III) AND ALSO RETAI NED THE DISALLOWANCE OF RS.27,750/ - UNDER RULE 8D(2)(III) OF THE INCOME TAX RULES. THUS, HE DISALLOWED THE TOTAL EXPENDITURE OF RS.3,74,891/ - UNDER SECTION 14A READ WITH RULE 8D OF THE IT RULES. BEING AGGRIEVED BY THE ORDER OF THE AO, THE ASSESSEE PREFERRE D APPEAL BEFORE THE LD. CIT(A). 3. BEFORE THE LD. CIT(A), THE ASSESSEE CONTENDED THAT NO DISALLOWANCE OF INTEREST EXPENDITURE WAS ATTRACTED AS THERE WAS A NET POSITIVE INTEREST INCOME OF THE ASSESSEE. THE ASSESSEE FURTHER SUBMITTED THAT EVEN OTHERWISE THE OWN PAID UP CAPITAL AND RESERVES OF THE ASSESSEE WERE MORE THAN THE TOTAL INVESTMENTS MADE. HOWEVER, THE LD. CIT(A) REJECTED THE CONTENTIONS OF THE ASSESSEE OBSERVING THAT THE ASSESSEE COULD NOT ESTABLISH ONE TO ONE RELATION REGARDING THE AVAILABILITY OF INTEREST FREE FUNDS WITH THAT OF INVESTMENTS MADE. THE ASSESSEE, THUS, HAS COME IN APPEAL BEFORE US. 4. BEFORE US, THE LD. A.R. OF THE ASSESSEE HAS STATED THAT THE PAID UP CAPITAL AND RESERVES OF THE ASSESSEE AS ON 31.03.10 WERE RS.10,37,57,569/ - . WHEREAS , AS ON 31.03.11 THE SAME WERE AT RS.11,37,88,432/ - . THE TOTAL INVESTMENTS MADE BY THE ASSESSEE WERE AT RS.1,05,30,000/ - . HE, THEREFORE, HAS STATED THAT SINCE THE OWN INTEREST FREE FUNDS OF THE ASSESSEE WERE MORE THAN THE TOTAL INVESTMENTS MADE BY THE ASSE SSEE, HENCE, IN VIEW OF THE LAW LAID DOWN BY THE HONBLE BOMBAY HIGH COURT IN THE CASES OF CIT VS. RELIANCE UTILITIES AND POWER LTD. (2009) 313 ITR 340 (BOM) AND CIT VS. HDFC BANK LTD. IN ITA NO.330 OF 2012 DECIDED ON 23RD JULY 2014, THE PRESUMPTION AR ISES THAT INVESTMENTS WERE MADE FROM THE OWN INTEREST FREE FUNDS AND HENCE NO DISALLOWANCE UNDER SECTION 14A WAS ATTRACTED. THE LD. A.R. HAS FURTHER SUBMITTED THAT THE ASSESSEE HAD INVESTED IN THE PREFERENCE SHARES OF THE PVT. LTD. COMPANY, THE LONG TERM G AINS REGARDING THE SALE AND PURCHASE OF THE SAME WERE NOT EXEMPT UNDER SECTION 10(38) OF THE ACT AND HENCE, THE PROVISIONS OF SECTION 14A, OTHERWISE, WERE NOT APPLICABLE TO THE CASE OF THE ASSESSEE. 5. ON THE OTHER HAND, THE LD. D.R. HAS SUBMITTED THAT THE DIVIDEND INCOME RELATING TO THE INVESTMENTS WAS EXEMPT UNDER SECTION 10(34) OF THE ACT. HENCE, THE DISALLOWANCE UNDER SECTION 14A READ WITH RULE 8D HAS RIGHTLY BEEN MADE BY THE LOWER AUTHORITIES. 6. WE HAVE HEARD THE RIVAL CONTENTIONS AND HAVE ALSO GONE THROUGH THE RECORDS. AS OBSERVED ABOVE, THE LD. A.R., BEFORE US, HAS DEMONSTRATED THAT THE OWN FUNDS OF THE ASSESSEE WERE MUCH MORE THAN THE INVESTMENTS MADE. EVEN, THERE IS AN INCREASE IN THE OWN FUNDS OF THE ASSESSEE FROM RS.10,37,57,569/ - AS ON 31.03.10 TO RS.11,37,88,432/ - AS ON 31.03.11. FURTHER, WE FIND THAT THE HONBLE BOMBAY HIGH COURT IN THE CASES OF CIT VS. RELIANCE UTILITIES AND POWER LTD. (SUPRA) AND CIT VS. HDFC BANK LTD. (SUPRA) HAS HELD THAT IF THERE ARE FUNDS AVAILABLE, BOTH INTEREST FRE E AND OVER DRAFT AND/OR LOANS TAKEN, THEN A PRESUMPTION WOULD ARISE THAT INVESTMENTS WOULD BE OUT OF THE INTEREST FREE FUND GENERATED OR AVAILABLE WITH THE COMPANY, IF THE INTEREST FREE FUNDS WERE SUFFICIENT TO MEET THE INVESTMENT. IN THE LIGHT OF THE ABOV E CITED DECISIONS, NO INTEREST DISALLOWANCE IS ATTRACTED IN RELATION TO INVESTMENTS MADE BY THE ASSESSEE AS THE ASSESSEE HAD ITS OWN SUFFICIENT FUNDS FOR THE PURPOSE OF MAKING INVESTMENTS. MOREOVER, THERE IS A NET POSITIVE INTEREST INCOME OF THE ASSESSEE O F THE ASSESSEE DURING THE YEAR. THE VARIOUS COURTS OF LAW HAVE HELD THAT FOR THE NETTING OF THE INTEREST INCOME AND INTEREST EXPENDITURE IS TO BE PERMITTED FOR THE PURPOSE OF COMPUTATION OF DISALLOWANCE OF INTEREST EXPENDITURE. ITA NO. 4804/MUM/2016 M/S. NAVYUG KRISHI SADHAN PVT. LTD., 4 7. IN VIEW OF THE ABOVE, NO DISALLOWANCE OF INTEREST EXPENDITURE IS ATTRACTED IN THIS CASE UNDER SECTION 14A. HOWEVER, THE DISALLOWANCE OF ADMINISTRATIVE EXPENDITURE AMOUNTING TO RS.27,750/ - UNDER RULE 8D(2)(III) IS HEREBY CONFIRMED. 8. WITH THE ABOVE OBSERVATIONS, THE APPEAL OF TH E ASSESSEE IS HEREBY PARTLY ALLOWED. 6. AS THE FACTS AND CIRCUMSTANCES DURING THE YEAR UNDER CONSIDERATION ARE SAME WHERE ASSESSEE IS HAVING OWN CAPITAL, RESERVE AND SURPLUS MUCH MORE THAN THE INVESTMENT, NO DISALLOWANCE OF INTEREST IS WARRANTED UNDER RULE 8D(1)(II) . R ESPECTFULLY FOLLOWING THE ORDER OF THE TRIBUNAL IN ASSESSEES OWN CASE, WE DO NOT FIND ANY MERIT FOR THE ADDITION SO MADE BY THE AO AND CONFIRMED BY CIT(A) UNDER RULE 8D(2 )(II). 7. WITH REGARD TO THE DISALLOWANCE MADE UNDER RULE 8D(2)(III), WE FOUND THAT ASSESSEE HAS HIMSELF D ISALLOWED AN AMOUNT OF RS.75,000/ - . FURTHERMORE, INVESTMENT IN SUBSIDIARY / GROUP COMPANIES SHOULD NOT BE INCLUDED FOR PURPOSE OF COMPUTING DISALLOWANCE U/S.14A OF THE ACT SINCE PURPOSE OF INVESTMENT IS TO GAIN CONTROLLING STAKE. FOR THIS PURPOSE, RELIANCE MAY BE PLACED ON THE FOLLOWING JUDICIAL PRONOUNCEMENTS. 1) CHEMINVEST LTD. V CIT [378 ITR 33 (DEL)/ 281 CTR 447 (DEL)] 2) GARWARE WALL ROPES LIMITED V ADDL. CIT (ITA NO. 5408/MUM/2012) 3) M/S JM FINANCIAL LIMITED V ADDL. CIT (ITA NO: 4521/MUM/2012) 4) CIT V ORIENTAL STRUCTURAL ENGINEERS PVT. LTD (DELHI HIGH COURT) 8. IN THE INSTANT CASE, T HERE IS ALSO INVESTMENT IN PREFERENCE SHARES OF GROUP COMPANY, RESPECTFULLY FOLLOWING THE ABOVE JUDICIAL PRONOUNCEMENTS , WE DIRECT THE AO TO RECOMPUTE THE DISALLOWANCE WARRANTED UNDER RULE 8D(2)(III) BY EXCLUDING SUCH INVESTMENT. WE DIRECT ACCORDINGLY. ITA NO. 4804/MUM/2016 M/S. NAVYUG KRISHI SADHAN PVT. LTD., 5 8. IN THE RESULT, APPEAL OF ASSESSEE IS ALLOWED IN PART IN TERMS INDICATED HEREINABOVE. O RDER PRONOUNCED IN THE O PEN COURT ON THIS 18 / 12 /2017 S D/ - ( AMARJIT SINGH ) SD/ - ( R.C.SHARMA ) JUDICIAL MEMBER ACCOUNTANT MEMBER MUMBAI ; DATED 18 / 12 /201 7 KARUNA SR. PS COPY OF THE ORDE R FORWARDED TO : BY ORDER, ( ASSTT. REGISTRAR) ITAT, MUMBAI 1. THE APPELLANT 2. THE RESPONDENT. 3. THE CIT(A), MUMBAI. 4. CIT 5. DR, ITAT, MUMBAI 6. GUARD FILE. //TRUE COPY//