OMPRAKASH BASANTLAL GOENKA, MUMBAI V. ACIT CEN CIR 14, MUMBAI

ITA 4949/MUM/2015

• Counselvise Citation: [2017] 128 COUNSELVISE.COM (IT) 0073 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 8 month(s) 23 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 21-06-2017
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: C
• Assessment Year: 2011-2012
• Appeal Filed On: 28-09-2015
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: RAJAT MITTAL
• Assessee Lawyers: ROHITAK SHAH
• Keywords: Earning of tax free income
• Section: 143(3); 14A

Judgement Text

, IN THE INCOME TAX APPELLATE TRIBUNAL C BENCH, MUMBAI BEFORE SHRI MAHAVIR SINGH , JM AND SHRI RAJESH KUMAR, AM ITA NO. 4949 / MUM/ 20 1 5 ( / ASSESSMENT YEAR: 20 11 - 12 ) MR.OMPRAKASH BASANTLAL GOEN KA, 317/318, PARVATI INDUSTRIAL ESTATE, SUN MILL COMPOUND, LOWER PAREL (W) MUMBAI - 400013 / VS. ASSTT. COMMISSIONER OF INCOME TAX , CENTRAL CIRCLE 2(4) (ERSTWHILE CC - 14), 8 TH FLOOR, PRATISHTA BHAVAN, M K ROAD, MUMBAI - 400020 ( / APPELLAN T) : ( / RESPONDENT ) ./ PAN : AECPG3854J ( / APPELLANT) : ( / RESPONDENT ) / APPELLANT BY : SHRI ROHITAK SHAH /R E SPONDENT BY : SHRI RAJAT MITTAL / DATE OF HEARING : 21.6 .2017 / DATE OF PRONOUNCEMENT : 21. 6 . 201 7 / O R D E R PER RAJESH KUMAR, A. M: THE CAPTIONED APPEAL BY THE ASSESSEE IS DIRECTED AGAINST THE ORDER OF THE CIT(A) - 48, MUMBAI , DATED 6.8.2015 , PERTAINING TO THE ASSE SSMENT YEAR S 20 11 - 12 WHICH IN TURN HA VE ARISEN FROM THE ORDER PASSED BY THE ASSESSING OFFICER DATED 3.12.2013 UNDER SECTION 143(3) O F THE INCOME TAX ACT, 1961(IN SHORT THE ACT). 2 ITA NO. 4949 /MUM/201 5 2. THE ONLY ISSUE RAISED BY THE ASSESSEE IN VARIOUS GROUNDS OF APPEAL IS AGA INST THE CONFIRMATION OF ADDITION OF RS.39,07,352/ - BY THE LD.CIT(A) AS MADE BY THE AO U/S 14A READ WITH RULE 8D OF THE INCOME TAX RULES, 1962. 3 . BRIEF FACTS OF THE CASE ARE THAT DURING THE ASSESSMENT PROCEEDINGS, THE AO NOTICED THAT THE ASSESSEE HAS EARNED INCOME BY WAY DIVIDEND INCOME OF RS.7,41,105/ - . ACCORDINGLY, THE AO ASKED THE AUTHORIZED REPRESENTATIVE OF THE ASSESSEE AS TO WHY PROPORTIONATE DISALLOWANCE SHOULD NOT BE MADE BY INVOKING THE PROVISIONS OF SECTION 14A OF THE INCOME TAX ACT R.W.R.8D OF THE INCOME TAX RULES, 1962, WHICH, THE ASSESSEE, BY A LETTER DATED 14.8.2013 REPLIED AND SUBMITTED HIS CONTENTIONS. THE SAID LETTER IS INCORPORATED BY THE ASSESSING OFFICER AT PAGE 2 OF THE ASSESSMENT ORDER. NOT SATISFIED BY THE REPLY OF T HE ASSESSEE , THE AO MADE A DISALLOWANCE OF RS.39,07,352/ - COMPRISING RS.35,68,854/ - U/R 8D(2)(II) AND RS.3,38,498/ - U/R 8D(2)(III) BY ASSESSING THE TOTAL INCOME AT RS.6,85,35,850/ - VIDE ORDER DATED 3.12.2013 PASSED UNDER SECTION 143(3) OF THE ACT. 4. IN THE APPE LLATE PROCEEDINGS, T HE LD.CIT(A) ALSO DISMISSED THE APPEAL OF THE ASSESSEE BY OBSERVING AND HOLDING AS UNDER : 2.5 I HAVE GIVEN A CAREFUL CONSIDERATION TO THE APPELLANTS CONTENTION . THE APPELLANT HAS MADE SUCH CLAIM MERELY BY SPECIFYING PERCENTAGES OF H OLDING OF SHARES IN THESE COMPANIES/ CONCERNS BUT HE HAS NEITHER SPECIFIED NOR EXPLAINED AS TO HOW APPELLANTS BUSINESS HAS GAINED FROM SUCH STRATEGIC INVESTMENT OR HOW IT WAS DONE BIN FURTHERANCE OF ITS BUSINESS. 3 ITA NO. 4949 /MUM/201 5 2.6 IN THIS REGARD IT WOULD BE PERTINENT TO KNOW WHAT IT MEANT BY STRATEGIC INVESTMENT IN COMMERCIAL PARLANCE: STRATEGIC INVESTMENT IS AN INVESTMENT THAT A CORPORATION OR AFFILIATED FIRM MAKES IN A YOUNG COMPANY THAT OFFERS TO BRING SOMETHING OF VALUE TO THE CORPORATION ITSELF OR WITH AN AIM THAT IT COULD BECOME CUSTOMERS FOR CORPORATION PRODUCT. IN STRATEGIC INVESTMENTS ONE COMPANY MAKES INVESTMENT IN ANOTHER COMPANY. THESE TWO COMPANIES ENTER INTO AGREEMENTS THAT THEY ARE DESIGNED TO SERVE SHARED GOALS. THE STRATEGIC INVESTMENT BEGINS WITH I DENTIFYING AND EVALUATING VARIOUS PROJECTS AND MAKING A SELECTION THAT LIKELY TO BOOST THE COMPANY'S COMPETITIVE ADVANTAGE. THE TWO COMPANIES MAY ENTER INTO SUPPLY AND SOURCING CONTRACT , TECHNOLOGY SHARING AGREEMENTS OR RESEARCH AND DEVELOPM E NT AGREEMENTS. THE STRATEGIC INVESTMENT GIVES THE INVESTING COMPANY ACCESS TO RESOURCES AT FAIRLY LOW COST. FOR INSTANCE, WHEN TARGETED COMPANY'S BUSINESS IS TO DEVELOP TECHNOLOGY, WHICH THE INVESTING COMPANY FINDS USEFUL, THE LATER CAN MAKE A STRATEGIC INVESTMENT IN TH E FORMER COMPANY INSTEAD OF DEVELOPING ITS OWN TECHNOLOGY. 2.7 IN LIGHT OF ABOVE, IT BECOMES PERTINENT TO EXAMINE APPELLANT'S CLAIM OF STRATEGIC INVESTMENT IN SHARES OF VARIOUS COMPANIES. IN THE INSTANT CASE, THE APPELLANT HAS SIMPLY MADE A CLAIM OF STR ATEGIC INVESTMENT WITHOUT TELLING HOW IT COULD BE CALLED A STRATEGIC TO HIS BUSINESS. IT IS WORTHWHILE TO MENTION HERE THAT APPELLANT IS IN THE BUSINESS OF SHARE TRADING. HE HAS NOT BROUGHT ANYTHING WORTH THE NAME ON RECORD TO SHOW THAT INVESTMENT IN SHARE S IN PARTICULAR COMPANIES WAS STRATEGIC FOR HIS GROWTH, OR OF ADVANTAGE OR BENEFICIAL TO HIS BUSINESS. I DO NOT FIND SUCH MOTIVE ON GOING THROUGH THE FACTS OF THE CASE EXCEPT THAT OF EARNING EXEMPT INCOME OR OTHERWISE. IN VIEW OF THIS MATTER, THE APPELLANT 'S CLAIM OF EXCLUSION OF STRATEGIC INVESTMENT IN GROUP COMPANIES HAS NO MERIT AND HENCE DESERVES TO BE REJECTED. THUS, NO INTERFERENCE IS CALLED FOR IN WORKING OF DISALLOWANCE MADE BY AO UNDER RULE 80 OF I T RULES. 5 . WE HAVE CAREFULLY CONSIDERED THE RI VAL SUBMISSIONS AND PERUSED THE MATERIAL PLACED BEFORE US INCLUDING THE IMPUGNED ORDER. IT HAS BEEN VEHEMENTLY ARGUED BEFORE US THAT THE INVESTMENT S WHICH YIELDED DIVIDEND WERE IN THE NATURE OF STRATEGIC INVESTMENT S MADE WITH THE SOLE PURPOSE OF 4 ITA NO. 4949 /MUM/201 5 BUSINESS EXPEDIENCY THE AND THEREFORE THE PROVISIONS OF SECTION 14A R.S.R.8D WERE NOT APPLICABLE TO THE DIVIDEND INCOME EARNED BY THE ASSESSEE. ALTERNATIVELY, THE LD.AR SUBMITTED THAT IN ANY CASE THE DISALLOWANCE SHOULD NOT EXCEED THE EXEMPT INCOME AS HAS BEEN SETT LED BY THE VARIOUS JUDICIAL PRONOUNCEMENTS . THE LD.DR, ON THE OTHER HAND, STRONGLY RELIED UPON THE ORDERS OF AUTHORITIES BELOW. FROM THE PERUSAL OF THE RECORD AND CONTENTIONS OF RIVAL PARTIES, WE ARE OF THE OPINION THAT THE ISSUE OF STRATEGIC INVESTMENTS REQUIRE S VERIFICATION AT THE END OF THE AO. MOREOVER, WE ALSO FIND MERIT IN THE SUBMISSIONS THAT THE DISALLOWANCE CANNOT EXCEED THE EXEMPT INCOME. WE THEREFORE ARE , OF THE VIEW THAT THE ISSUE SHOULD BE RESTORED TO THE FILE OF THE AO TO CARRY OUT NECESSAR Y VERIFICATION, WHETHER THE INVESTMENT ARE OF STRATEGIC NATURE OR OTHERWISE. ACCORDINGLY, WE SET ASIDE THE ORDER OF LD.CIT(A) AND RESTORE THIS ISSUE TO THE FILE OF AO WITH DIRECT ION TO DECIDE THE SAME IN TERMS OF OUR OBSERVATION AS MADE HEREINABOVE AFTER PROVID ING REASONABLE OPPORTUNITY TO THE ASSESSEE. 6 . IN THE RESULT, THE APPEAL OF THE APPEAL OF THE ASSESSEE STANDS ALLOWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED IN THE OPEN COURT ON 21TH JUNE , 2017. SD SD ( MAHAVIR SINGH ) (RAJESH KUMAR) / JUDICIAL MEMBER / ACCOUNTANT MEMBER MUMBAI ; DATED : 21. 6 .2017 SRL,SR.PS 5 ITA NO. 4949 /MUM/201 5 / COPY OF THE ORDER FORWARDED TO : 1. / THE APP ELLANT 2. / THE RESPONDENT 3. ( ) / THE CIT(A) 4. / CIT CONCERNED 5. , , / DR, ITAT, MUMBAI 6. / GUARD F ILE / BY ORDER, TRUE COPY / (DY./ASSTT. REGISTRAR) , / ITAT, MUMBAI