VAKKASH CAPITAL COMPANY LIMITED , MUMBAI V. DEPUTY COMMISSIONER OF INCOME TAX, CIRCLE-14(3)(1), MUMBAI

ITA 4919/MUM/2017

• Counselvise Citation: [2018] 126 COUNSELVISE.COM (IT) 0242 (ITAT-MUMBAI)
• Duration Of Justice: 7 month(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 14-02-2018
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: SMC
• Assessment Year: 2012-2013
• Appeal Filed On: 14-07-2017
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: N HEMALATHA
• Keywords: Earning of tax free income
• Section: 14A

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL, MUMBAI BENCH SMC, MUMBAI BEFORE SHRI D.T. GARASIA, JUDICIAL MEMBER ITA NO.4919/M/2017 ASSESSMENT YEAR: 2012-13 M/S. VAKKASH CAPITAL CO. LTD., 141, MITTAL TOWER, C WING, NARIMAN POINT, MUMBAI 400 021 PAN: AACCV 0990R VS. DY. CIT, CIRCLE-14(3)(1), ROOM NO.307, 3 RD FLOOR, AAYAKAR BHAVAN, M.K. ROAD, MUMBAI 400 009 (APPELLANT) (RESPONDENT) PRESENT FOR: ASSESSEE BY : MS. DINKLE HARIA, A.R. REVENUE BY : MS. N. HEMALATHA, D.R. DATE OF HEARING : 14.12.2017 DATE OF PRONOUNCEMENT : 14.02.2018 O R D E R PER D.T. GARASIA, JUDICIAL MEMBER: THE PRESENT APPEAL HAS BEEN PREFERRED BY THE ASSESS EE AGAINST THE ORDER DATED 04.04.2017 OF THE COMMISSIONER OF I NCOME TAX (APPEALS) [HEREINAFTER REFERRED TO AS THE CIT(A)] R ELEVANT TO ASSESSMENT YEAR 2012-13. 2. THE BRIEF FACTS OF THE CASE ARE THAT DURING THE YEAR ASSESSEE HAS MADE TOTAL INVESTMENT OF RS.2,61,06,000/- WHICH WAS MADE IN GROUP COMPANIES AND ALL THE GROUP COMPANIES IN WHICH THE INVESTMENTS ARE MADE RELATED TO ENTITIES OF THE ASSESSEE. THE ASSE SSEE HAS SHOWN THE DIVIDEND OF RS.3,52,500/- WHICH WAS CLAIMED AS EXEM PT UNDER SECTION 10(34) OF THE ACT. THE ASSESSEE WAS ASKED TO SHOW THE WORKING OF SECTION 14A READ WITH RULE 8D FOR EARNIN G THE EXEMPT INCOME. THEREFORE, NO DISALLOWANCE UNDER SECTION 1 4A OF THE ACT ITA NO.4919/M/2017 M/S. VAKKASH CAPITAL CO. LTD. 2 SHOULD BE MADE. HOWEVER, AO WAS OF A VIEW THAT FOR MAKING INVESTMENT AND EARNING EXEMPT INCOME IT REQUIRES SO ME EFFORTS. ADMINISTRATIVE AND OTHER EXPENSES ARE INCURRED BY T HE ASSESSEE COMPANY FACILITATING EARNING OF INCOME INCLUDING EX EMPT INCOME. THEREFORE, ASSESSING OFFICER (HEREINAFTER REFERRED TO AS THE AO) COMPUTED THE DISALLOWANCE UNDER SECTION 14A READ WI TH RULE 8D AT RS.10,52,020/-. THE LD. A.R. SUBMITTED THAT ASSESS EE IS AN INVESTMENT COMPANY AND HAS INVESTED BY PURCHASING S UBSTANTIAL NUMBER OF SHARES THEREBY SECURING RIGHT TO MANAGEME NT. ASSESSEE HAD INCURRED FOR EXPENDITURE FOR BUSINESS IN FORM O F INVESTMENT IN SHARES OF CEMENT COMPANIES. THE LD. A.R. RELIED UP ON THE DECISION OF CHEM INVESTMENT VS. CIT 378 ITR 33 WHEREIN IT IS HELD THAT IF THE ASSESSEE HAS MADE STRATEGIC INVESTMENT AND NO EXEMP T INCOME WAS EARNED BY THE ASSESSEE IN RELEVANT YEAR AND SINCE T HE GENUINENESS OF THE EXPENDITURE INCURRED BY THE ASSESSEE IS NOT IN DOUBT, NO DISALLOWANCE CAN BE MADE. THE LD. A.R. RELIED UPON THE DECISION OF GARWARE WALL ROPES LTD. VS. ACIT (2014) 65 SOT 86 ( MUMBAI TRIB.) WHEREIN IT IS HELD THAT WHERE THE ASSESSEE H AD MADE CERTAIN INVESTMENTS WITH AN OBJECT OF ACQUIRING CONTROLLING STAKE IN A GROUP CONCERN AND NOT FOR EARNING ANY INCOME OUT OF INVES TMENT NO DISALLOWANCE CAN BE MADE UNDER SECTION 14A READ WIT H RULE 8D. THE LD. A.R. RELIED UPON THOMAS COOK VS. DCIT 49 ITR(T) 178 (MUMBAI TRIB.) WHEREIN IT IS HELD THAT ASSESSEE H AD MADE INVESTMENT IN DOMESTIC AND FOREIGN SUBSIDIARIES AS PART OF STRATEGIC INVESTMENT AND STRATEGIC INVESTMENT WHICH SHOULD BE EXCLUDED FROM THE LIST OF INVESTMENTS WHILE COMPUTING THE DISALLO WANCE UNDER ITA NO.4919/M/2017 M/S. VAKKASH CAPITAL CO. LTD. 3 SECTION 14A READ WITH RULE 8D OF THE RULES. THE LD. A.R. RELIED UPON THE DECISION OF SSPDL LTD. VS DCIT(2013) 24 ITR (TR B) 290 (HYD. TRIB.) WHEREIN IT IS HELD THAT WHEN ASSESSEE COMPA NY HAS NO INCOME FROM SISTER CONCERN AND THERE IS NO NECESSITY FOR U SING THE BORROWED FUND INVESTMENT IN SISTER CONCERN AND WHEN ASSESSEE HAS NOT INCURRED ANY EXPENDITURE BY WAY OF INTEREST IN THE PREVIOUS YEAR WHICH IS NOT DIRECTLY ATTRIBUTED TO ANY INCOME OR RECEIPT NO DIS ALLOWANCE CAN BE MADE. THE LD. A.R. RELIED UPON THE DECISION OF DCI T VS. BINANI INDUSTRIES LTD. IN ITA NO.144/KOL/2013 WHEREIN IT I S HELD THAT WHEN THE ASSESSEE HAS MADE INVESTMENT IN SUBSIDIARY COMP ANIES AND IF THE DIVIDEND IS RECEIVED FROM SUBSIDIARY COMPANY NO DIS ALLOWANCE CAN BE MADE UNDER SECTION 14A READ WITH RULE 2. 3. ON THE OTHER HAND, THE LD. D.R. RELIED UPON THE LOWER AUTHORITIES. 4. I HAVE HEARD THE RIVAL CONTENTIONS OF BOTH THE P ARTIES. LOOKING TO THE FACTS AND CIRCUMSTANCES OF THE CASE, I FIND THAT ASSESSEE HAS SHOWN DIVIDEND INCOME OF RS.3,52,500/-. ASSESSEE S UBMITTED THAT NO EXPENDITURE HAS BEEN INCURRED FOR EARNING THE EX EMPT INCOME. ASSESSEE HAD MADE TOTAL INVESTMENT DURING THE YEAR WAS RS.2,61,06,000/- WHICH IS MADE IN GROUP COMPANY. A LL THE COMPANIES IN WHICH THE INVESTMENTS ARE MADE RELATED TO ENTITIES OF THE ASSESSEE AND INVESTMENTS IN ANOTHER SHARES HAVE BEEN MADE FOR BUSINESS PURPOSE. SAID COMPANIES ARE ALSO CONSULTI NG BUSINESS SIMILAR TO THAT OF ASSESSEE EXCEPT THE FACT THAT AS SESSEE PROVIDES A FINANCING CONSULTANCY WHEREIN THE OTHER COMPANIES P ROVIDE ITA NO.4919/M/2017 M/S. VAKKASH CAPITAL CO. LTD. 4 INVESTMENT TO THE INDUSTRIAL SERVICES AND TECHNICAL CONSULTANCY. THE ASSESSEE HAD INVESTMENT OF RS.2,61,06,000/- OUT OF WHICH RS.2,55,07,000/- IS RELATED TO SISTER CONCERN OF TH E ASSESSEE. THEREFORE, INVESTMENT BY THE ASSESSEE IS IN SUBSIDI ARY COMPANY. THEREFORE, IT DOES NOT REQUIRE ANY INVESTMENT. ASS ESSEE HAS OWN FUNDS OF RS.4,51,000/- CONSISTING OF RS.2 CRORES AS PAID UP FOR SHARE CAPITAL AND BALANCE ARE PRE-RESERVED UP TO 31.03.20 12. THE ASSESSEE HAD SUFFICING OWN FUND AVAILABLE TO UTILISE FOR THE PURPOSE OF INVESTMENT. THEREFORE, I AM OF THE VIEW THAT AS PE R THE DECISION OF HONBLE BOMBAY HIGH COURT IN THE CASE OF CIT VS. R ELIANCE UTILITIES AND POWER LTD. (2009) 313 ITR 340 (BOM) WHEREIN IT IS HELD THAT IF INTEREST FREE FUNDS AVAILABLE WITH THE ASSESSEE ARE MORE THAN INVESTMENT IT WOULD HAVE TO BE PRESUMED THAT I NVESTMENTS HAVE BEEN MADE OUT OF INTEREST FREE FUNDS AVAILABLE WITH THE ASSESSEE. I ALSO FIND THAT SIMILAR CASE HAS BEEN DECIDED BY THE TRIBUNAL IN THE CASE OF DCIT VS. BINANI INDUSTRIES LTD. IN ITA NO.1 44/KOL/2013 WHEREIN THE MAJOR INVESTMENT MADE BY THE ASSESSEE W AS IN SUBSIDIARY COMPANIES LIKE BINAMY CEMENT, GOA CLASS FIBERS AND BINAMI ZINK LTD. OUT OF TOTAL DIVIDEND RECEIVED IT WAS MAINLY F ROM SUBSIDIARY COMPANY. HOWEVER, THE AO RESORTED TO MAKE DISALLOW ANCE UNDER SECTION 14A BY APPLYING 2 & 3 LIMB OF RULE 8D. THE ITAT HAS HELD THAT IF THE INVESTMENTS ARE MADE WHICH ARE STRATEGI C INVESTMENTS NO DISALLOWANCE UNDER SECTION 14A R.W. RULE 8D WILL AP PLY TO THIS EXEMPT INCOME. I FIND THAT THE SIMILAR ISSUE HAS B EEN DECIDED BY THE BOMBAY TRIBUNAL IN THE CASE OF JM FINANCIAL LIMITED IN ITA NO.4521/M/2012 WHEREIN THE TRIBUNAL CONSIDERING THE VARIOUS ITA NO.4919/M/2017 M/S. VAKKASH CAPITAL CO. LTD. 5 JUDGMENTS HAS HELD THAT WHEN THERE IS A STRATEGIC I NVESTMENT BY THE SUBSIDIARY COMPANIES AND NO EXPENDITURE IS INCURRED FOR EARNING THE EXEMPT INCOME, DISALLOWANCE CANNOT BE MADE UNDER SE CTION 14A READ WITH RULE 8D. THEREFORE, RESPECTFULLY FOLLOWI NG THE SAME, I ALLOW THE APPEAL OF THE ASSESSEE. 5. IN THE RESULT, APPEAL OF THE ASSESSEE IS ALLOWED . ORDER PRONOUNCED IN THE OPEN COURT ON 14.02.2018. SD/- (D.T. GARASIA) JUDICIAL MEMB ER MUMBAI, DATED: 14.02.2018. * KISHORE, SR. P.S. COPY TO: THE APPELLANT THE RESPONDENT THE CIT, CONCERNED, MUMBAI THE CIT (A) CONCERNED, MUMBAI THE DR CONCERNED BENCH //TRUE COPY// [ BY ORD ER DY/ASSTT. REGISTRAR, ITAT, MUMBAI.