ITO 1(1)(2), MUMBAI V. DOSTI REALTY LTD., MUMBAI

ITA 4818/MUM/2016

• Counselvise Citation: [2018] 126 COUNSELVISE.COM (IT) 0704 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 5 month(s) 28 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 17-01-2018
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: Not Allotted
• Assessment Year: 2008-2009
• Appeal Filed On: 19-07-2016
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Bogus purchase; Earning of tax free income
• Section: 14A; 115JB; 147

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL K BENCH, MUMBAI BEFORE SHRI RAJENDRA , AM AND SHRI AMARJIT SINGH , JM I.T.A. NO . 4818 /M/ 20 1 6 & 4819/M/2016 ASSESSMENT YEAR : 2008 - 09 & 2010 - 11 ITO - 1(1)(2) 534, AAYAKAR BHAWAN, M.K. ROAD, MUMBAI - 400020 VS. M/S. DOSTI REALTY LTD. 276, 1 ST FLOOR, LAWRENCE & MAYO HOUSE, DR. D.N. ROAD, FORT, MUMBAI - 400001 ./ ./ PAN/GIR NO. : AACCD 7714 K (APPELLANT ) .. (RESPONDENT ) DATE OF HEARING : 3 0 .10 .2017 DATE OF PRONOUNCEMENT : 17.01. 2017 O R D E R PER AMARJIT SINGH, JM: THE REVENUE HAS FILED THE ABOVE MENTIONED APPEA L S AGAINST THE DIFFERENT ORDER PASSED BY THE COMMIS S IONER OF INCOME TAX (APPEALS) - 2 , MUMBAI [HEREINAFTER REFERRED TO AS THE CIT(A)] RELEVANT TO THE ASSESSMENT YEAR S 2008 - 09 & 2010 - 11 . ITA NO.4818 /M/201 6 : - 2 . THE REVENUE HAS FILED THE PRESENT APPEAL AGAINST THE ORDER DATED 29.04.2016 PASSED BY THE COMMISSIONER OF INCOME TAX (APPEALS) - 2, ASSESSEE BY: SHRI RUCHI TAM HANKAR DEPARTMENT BY: SHRI V. JENARDHARAN (DR) ITA. NO. 4818/M/14 & 4819 /M/1 6 A.YS. 2008 - 09 & 2010 - 11 2 MUMBAI [HEREINAFTER REFERRED TO AS THE CIT(A)] RELEVANT TO THE ASSESSMENT YEARS 2008 - 09. 3. THE REVENUE HAS RAISED THE FOLLOWING GROUNDS: - ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, WHETHER THE LD. CIT(A) ERRED IN DELETING THE DISALLOWANCE MADE U/S 14AR,W, R. 8D BY INCLUDING THE INVESTMENTS MADE IN PARTNERSHIP FIRMS IN RESPECT OF WHICH THE ASSESSEE CLAIMED SHARE OF PROFIT A S EXEMPT. 2. ON FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, WHETHER THE LD. CIT(A) ERRED IN DELETING THE DISALLOWANCE MADE U/S 14A R.W.R. 8D DESPITE THE FACT THAT CIRCULAR NO.5 OF 2014 ISSUED BY THE CBDT CLARIFIES THAT EVEN WHEN EXEMPT INCOME IS NOT EARNED DURING THE YEAR, DISALLOWANCE U/S 14A CAN BE WORKED OUT ON THE INVESTMENTS WHICH ARE LIKELY TO GENERATE EXEMPT INCOME. 4, THE APPELLANT CRAVES LEAVE TO ADD, AMEND, ALTER OR DELETE ALL OR ANY OF T HE AFORESAID GROUNDS OF APPEAL. 4 . THE BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE FILED ITS RETUR N OF INCOME FOR THE A.Y. 2008 - 09 ON 30 . 09.20 0 8 DECLARING TOTAL INCOME TO THE T UNE OF RS. NIL . THE RETURN WAS PROCESSED U/S 143(1) OF THE ACT. THEREAFTER, THE CASE WAS REOPENED U/S 147 OF THE I.T. ACT, 1961 ON THE BASIS OF INFORMATION RECEIVED FROM DGIT (INV.), MUMBAI IN WHICH THE ASSESSEE WAS FOUND TO TAKE THE HAWALA ENTRIES. THEREAFTER, THE BOGUS PURCHASE OF THE ASSESSEE WAS ASSESSED TO THE TUNE OF RS.13,85,690/ - AND DISALLOWANCE U/S 14A R.W. RULE 8D OF THE ACT WAS ASSESSED TO THE TUNE OF RS.36,63,490/ - . THE INCOME OF THE ASSESSEE WAS ASSESSED TO THE TUNE OF RS.50,49,180/ - UNDER THE NORMAL PROVISION OF THE ACT AND RS.6,38,69,468/ - U/S 115JB OF THE ACT. THE ASSESSEE WAS NOT SATISFIED, ITA. NO. 4818/M/14 & 4819 /M/1 6 A.YS. 2008 - 09 & 2010 - 11 3 THEREFORE, FIL ED AN APPEAL BEFORE THE CIT(A) WHO ALLOWED THE CLAIM OF THE ASSESSEE IN CONNECTION WITH THE EXPENSES INCURRED TO EARN THE EXEMPT INCOME U/S 14A R.W. RULE 8D OF THE ACT, THEREFORE, THE REVENUE HAS FILED THE PRESENT APPEAL BEFORE US. 5 . WE HAVE HEARD THE ARGUMENT ADVANCED BY THE LD. REPRESENTATIVE OF THE PARTIES AND PERUSED THE RECORD. THE LD. REPRESENTATIVE OF THE REVENUE HAS ARGUED THAT EVEN THE ASSESSEE DID NOT EARN ANY EXEMPT INCOME THEN IN THE SAID CIRCUMSTANCES ALSO THE DISALLOWANCE U/S 14A R.W. RULE 8D OF THE ACT IS JUSTIFIABLE IN VIEW OF THE CIRCULAR NO. 5 OF 2014 ISSUED BY THE CBDT, H ENCE, IN THE SAID CIRCUMSTANCES THE FINDING OF THE CIT(A) IS NOT JUSTIFIABLE AND IS LIABLE TO BE SET ASIDE. HOWEVER, ON THE OTHER HAND, THE LD. REPR ESENTATIVE OF THE ASSESSEE HAS PLACED RELIANCE UPON THE ORDER PASSED BY THE CIT(A) IN QUESTION. BEFORE GOING FURTHER WE DEEMED IT NECESSARY TO ADVERT THE FINDING OF THE CIT(A) ON RECORD.: - 4.4 I HAVE GONE THROUGH THE SUBMISSIONS OF THE AR AND FINDINGS OF THE AO IN RESPECT OF ADDITION ON ACCOUNT OF DISALLOWANCE OF EXPENSES OF RS.36,63,490/ - U/S 14A R.W.R. 8D OF THE RULES. THE APPELLANT HAS OBJECTED TO THE DISALLOWANCE MADE BY THE AO FOR THE FOLLOWING REASONS: (I) NO SATISFACTION RECORDED - THE AO HAS NOT RECORDED HIS DISSATISFACTION WITH THE CORRECTNESS OF CLAIM OF THE APPELLANT. THE AO OUGHT TO HAVE COMPLIED WITH THE MANDATORY REQUIREMENTS OF SUB - SECTION (2) OF SECTION 14A OF THE ACT. ITA. NO. 4818/M/14 & 4819 /M/1 6 A.YS. 2008 - 09 & 2010 - 11 4 (II) STRATEGIC INVESTMENTS - 100% INVESTMENT IN SHARES IS MADE INTO SUBS IDIARIES/GROUP COMPANIES AS STRATEGIC INVESTMENTS WHERE DIVIDEND IS NOT THE PRIMARY PURPOSE. IN FACT THE APPELLANT HAS NOT RECEIVED DIVIDEND DURING THE YEAR FROM THE SAID COMPANIES. THE APPELLANT HAS RELIED ON VARIOUS DECISIONS OF HIGH COURT AND TRIBUNALS. (III) INVESTMENTS IN PARTNERSHIP FIRMS - (A) THE SAID FIRMS HAVE INDEPENDENT MONITORING TEAMS AND THEREFORE NO EXPENDITURE IS INCURRED. (B) SHARE OF PROFIT HAS ALREADY SUFFERED TAX IN THE HANDS OF THE FIRMS AND THEREFORE IS NO EXEMPT IN ABSOLUTE SENSE AND AMOUNTS TO DOUBL E TAXATION (HITESH D GAJARIA VS . ACIT (ITA NO. 993/M/2007) DT. 14.11.2008 AND SACHIN KAPADIA VS. ITO (ITA NO. 7888/M/03. (C) THE INVESTMENT IN PARTNERSHIP FIRM ARE ALSO IN THE NATURE OF STRATEGIC INVESTMENTS TO CONTROL THE AFFAIRS OF THE VA RIOUS FIRMS IN THE GROUP. 6 . ON APPRAISAL OF THE ABOVE SAID FINDING, WE NOTICED THAT THE ASSESSING OFFICER NOWHERE RECORDED THE SATISFACTION . T HE CIT(A) HAS DIRECTED TO EX CLUDE THE STRATEGIC INVESTMENT I N VIEW OF THE LAW SETTLED IN GARWARE WALL ROPES LTD. VS. ADDL CIT IN ITA. NO. 5408/M/2012, MUMBAI TRIBUNAL AND OTHER LAW WHICH HAS BEEN MENTIONED ABOVE . F URTHER THE CIT(A) HAS ALSO NOTICE D THAT THE RESERVES & SURPLUS FUND OF THE ASSESSEE WAS TO THE TUNE OF RS.122,44,76,638/ - WHEREAS THE INVESTMENT WAS TO THE TUNE OF RS. 73,26,98,102/ - SO THEIR INVESTMENT WAS WELL WITHIN THE OWN FUND OF THE COMPANY. IN BRIEF, THE CIT(A) EXCLUDED THE INVESTMEN T MADE IN THE SUBSIDIARY COMPANIES FOR COMPUTING THE AVERAGE VALUE OF INVESTMENT FOR THE PURPOSE OF DISALLOWANCE OF U/S 14A OF THE ACT. THE ITA. NO. 4818/M/14 & 4819 /M/1 6 A.YS. 2008 - 09 & 2010 - 11 5 CIT(A) HAS ALSO FOLLOWED THE DECISION OF THE HONBLE SUPREME COURT IN THE CASE OF CIT MUMBAI VS. R. M. CHIDAMBARAM P ILLAI WHICH WAS FOLLOWED IN THE CASE DECIDED BY HONBLE ITAT MUMBAI TITLED AS HITESH D GAJARIA VS. ACIT IN ITA. NO. 993/M/2007 DATED 14.112008 . IT IS SPECIFICALLY HELD THAT THE SHARE INCOME OF THE FIRM IS EXEMPT U/S 10(2A) OF THE ACT , NOT IN THE ABSOLUTE S ENSE. I T IS ONLY TO AVOID DOUBLE TAXATION ONCE IN THE HANDS OF THE FIRM AND SECONDLY IN THE HANDS OF THE PARTNER. THEREFORE, THE PROVISION OF SECTION 14A OF THE ACT WOULD NOT APPLY TO THE ASSESSEE PARTNER . ACCORDINGLY, T HE CIT(A) HAS GIVEN THE DIRECTION. THE FACTS ARE NOT DISTINGUISHABLE AT THIS APPELLATE STAGE . T HE CIT(A) HAS PASSED THE ORDER ON THE BASIS OF THE LAW MENTIONED IN HIS ORDER . TAKING INTO ACCOUNT ALL THE FACTS AND CIRCUMSTANCES, WE ARE OF THE VIEW THAT THE CIT(A) PASSED THE ORDER JUDICIOUSLY AND CORRECTLY WHICH IS NOT LIABLE TO BE INTERFERE WITH AT THIS APPELLATE STAGE. I TA NO.4819 /M/201 6 ; - 7 . THE FACTS OF THE PRESEN T CASE ARE THAT QUITE SIMILAR TO THE FACTS OF THE CASE AS NARRATED IN TH E ABOVE MENTIONED APPEAL BEARING NO . 4818 /M/201 6 . HOWEVER, THE FIGURE IS DIFFERENT . THE MATTER OF CONTROVERSY IS ALSO THE SAME IN WHICH THE CIT(A) ALLOWED THE CLAIM OF THE ASSESSEE IN VIEW OF THE PROVISION U/S 14A R.W. RULE 8D O F THE ACT. THE CIT(A) ALLOWED THE CLAIM OF THE ASSESSEE ON THE BASIS OF NON RECORDING OF SATISFACTION IN THE ASSESSMENT ORDER AND TO EXCLUDE THE ITA. NO. 4818/M/14 & 4819 /M/1 6 A.YS. 2008 - 09 & 2010 - 11 6 STRATEGIC INVESTMENT WHILE ASSESSING THE EXPENDITURE TO EARN THE EXEMPT INCOME AND TO EXCLUDE THE INVESTMENT IN PARTNERSHIP FIRM . THIS MATTER HAS ALREADY BEEN CONSIDERED BY US WHILE DECID ING THE ITA. NO. 4818/M/2016. SINCE THE CIRCUMSTANCES OF THE PRESENT CASE IS QUITE SIMILAR TO THE FACTS OF THE CASE NARRATED ABOVE, THEREFORE, IN THE SAID CIRCUMSTANCES, WE DISMISSED THE APPEAL OF THE REVENUE ON SIMILAR GROUNDS. ACCORDINGLY, THIS ISSUE IS DECIDED IN FAVOUR OF THE ASSESSEE AGAINST THE REVENUE . 8 . IN THE RESULT , BOTH APPEALS ARE HEREBY ORDERED TO BE DISMISSED . ORDER P RONOUNCED IN THE OPEN COURT ON 17. 01. 201 8 SD/ - SD/ - ( RAJENDRA) (AMARJIT SINGH) / ACCOUNTANT MEMBER / JUDICIAL MEMBER MUMBAI; DATED : 17 . 01 . 201 8 V.P. SINGH ITA. NO. 4818/M/14 & 4819 /M/1 6 A.YS. 2008 - 09 & 2010 - 11 7 / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT 2. / THE RESPONDENT. 3. ( ) / THE CIT(A) - 4. / CIT 5. , , / DR, ITAT, MUMBAI 6. / GUARD FILE. / BY ORDER, //TRUE COPY// / (DY./ASSTT.REGISTRAR) , / ITAT, MUMBAI