APTECH LTD, MUMBAI V. DCIT 8(1), MUMBAI

ITA 5216/MUM/2015

• Counselvise Citation: [2018] 126 COUNSELVISE.COM (IT) 0444 (ITAT-MUMBAI)
• Duration Of Justice: 2 year(s) 3 month(s) 7 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 13-02-2018
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: Not Allotted
• Assessment Year: 2011-2012
• Appeal Filed On: 05-11-2015
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: RAJESH KUMAR YADAV
• Assessee Lawyers: S C TIWARI; RUTUJA PAWAR
• Keywords: Earning of tax free income
• Section: 143(3); 14A; 115JB

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL, BENCH A, MU MBAI BEFORE SHRI G.S. PANNU, ACCOUNTANT MEMBER AND SHRI PAWAN SINGH, JUDICIAL MEMBER ITA NO. 5216//MUM/2015 (ASSESSMENT YEAR-2011-12) M/S APTECH LTD. A-65, APTECH HOUSE, MIDC MAROL, ANDHERI (E), MUMBAI-400093. PAN: AADCA0602L VS. DCIT 8(1), ROOM NO.2010, 2 ND FLOOR, AAYAKAR BHAVAN, M.K. ROAD, MUMBAI-20. (APPELLANT) (RESPONDENT) ASSESSEE BY : SHRI S.C. TIWARI & RUTUJA PAWAR (AR REVENUE BY : SHRI RAJESH KUMAR YADAV (DR) DATE OF HEARING : 30.11.2017 DATE OF PRONOUNCEMENT : 13.02.2018 ORDER UNDER SECTION 254(1) OF INCOME TAX ACT PER PAWAN SINGH, JUDICIAL MEMBER: 1. THIS APPEAL BY ASSESSEE UNDER SECTION 253 OF THE IN COME-TAX ACT (THE ACT) IS DIRECTED AGAINST THE ORDER LD. CIT(A)-16, MUMBAI DATED 15.09.2015 FOR ASSESSMENT YEAR (AY) 2011-12, WHICH IN TURN ARI SES FROM THE ASSESSMENT ORDER DATED 26.03.2014 PASSED UNDER SECT ION 143(3) OF THE ACT. THE ASSESSEE HAS RAISED THE FOLLOWING GROUNDS OF AP PEAL: GROUNDS OF APPEAL AGAINST ORDER DATED 15-09-2015 OF THE CIT(A)- 16, V/S 250 OF THE ACT IN APPEAL AGAINST OR DER U/S 143(3) OF THE INCOME TAX ACT, 1961. 1. (A) LEARNED CIT (A) ERRED IN RAW AND ON FACTS AND I N. THE CIRCUMSTANCES OF THE CASE IN CONFIRMING THE DISALLOWANCE U/S 14A OF THE ACT READ WITH RULE 8D(2) (III) OF RS.19,40,805/-. ITA NO. 5216/M/2015- M/S APTECH LTD. 2 (B) LEARNED CIT (A) ERRED IN LAW AND ON FACTS AND IN THE CIRCUMSTANCES OF THE CASE IN CONFIRMING DISALLOWANCE U/S 14A OF THE ACT READ WITH RULE 8D(2) (III) IGNORING THAT STRATEGIC INVESTMENTS HAVE TO BE EXCL UDED FOR THE PURPOSE OF ARRIVING AT DISALLOWANCE UNDER RULE 8D(III). 2. LEARNED CIT (A) ERRED IN LAW AND ON FACTS AND IN THE CIRCUMSTANCES OF THE CASE IN CONFIRMING DISALLOWANCE U/S 14A OF THE ACT READ WITH RULE 8D(2) (III) OF RS.19,40,805/- WHICH IS MORE THAN DIVIDEND INCOM E EARNED OF RS.6,81,948/-. 3. ORDER OF COMMISSIONER (APPEALS) BEING CONTRARY T O LAW, EVIDENCE AND FACTS OF THE CASE SHOULD BE SET ASIDE, AMENDED OR MODIFIE D. 4. EACH GROUND OF APPEAL HEREINABOVE IS INDEPENDENT AND WITHOUT PREJUDICE TO EACH OTHER. 2. BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE IS A COMPANY ENGAGED IN IMPARTING EDUCATION AND TRAINING IN INFORMATION TEC HNOLOGY. THE ASSESSEE FILED ITS RETURN OF INCOME FOR RELEVANT ASSESSMENT YEAR ON 29.09.2011 DECLARING NIL INCOME, AFTER CLAIMING CARRY FORWARD OF CURRENT YEAR LOSS OF RS. 6,09,83,608/- AND HAVE SHOWN INCOME UNDER SECTI ON 115JB AT RS. 3,47,48,327/-. THE ASSESSMENT ORDER WAS PASSED ON 2 6.03.2014 UNDER SECTION 143(3). DURING THE ASSESSMENT THE ASSESSING OFFICER NOTED THAT IN THE PROFIT AND LOSS ACCOUNT THE ASSESSEE HAS SHOWN EXEM PT INCOME OF RS.6,81,498/-. THE ASSESSEE SUO MOTU DISALLOWED R S. 6,320/- UNDER SECTION 14A. THE ASSESSING OFFICER (AO) INVOKED THE PROVISI ONS OF RULE 8D AND MADE THE DISALLOWANCE OF RS.64,04,866/- UNDER SECTI ON 14A. BY INVOKING THE PROVISIONS OF RULE 8D. ON APPEAL BEFORE THE LD. CIT(A), THE DISALLOWANCE UNDER SECTION 14A WAS RESTRICTED TO RS .19,40,805/-. THE LD CIT(A) DELETED THE DISALLOWANCE OF RS.44,57,743/- ON HIS OBSERVATION THAT THE ASSESSEE HAS SUFFICIENT INTEREST FREE FUNDS AVA ILABLE WITH IT BY FOLLOWING ITA NO. 5216/M/2015- M/S APTECH LTD. 3 THE DECISION OF JURISDICTIONAL HIGH COURT IN CIT V S. RELIANCE UTILITY IN ITA NO. 198 OF 2008 DATED 09.01.2008 AND CIT VS. HDFC I N ITA NO. 330/2012 DATED 23.07.2014. THUS, FURTHER AGGRIEVED, THE ASSE SSEE HAS FILED THE PRESENT APPEAL BEFORE US. 3. WE HAVE HEARD THE LD. AUTHORIZED REPRESENTATIVE (AR ) OF THE ASSESSEE AND LD. DEPARTMENTAL REPRESENTATIVE (DR) FOR THE REVENU E AND PERUSED THE MATERIAL AVAILABLE ON RECORD. THE LD. AR OF THE AS SESSEE SUBMITS THAT BEFORE INVOKING THE PROVISIONS OF RULE 8D. THE AO HAS NOT GIVEN ANY REASON ABOUT HIS NON-SATISFACTION ABOUT THE CORRECTNESS OF THE C LAIM FOR VOLUNTARY DISALLOWANCE UNDER SECTION 14A OFFERED BY ASSESSEE. THE AO MUST RECORD THE REASONS FOR HIS SATISFACTION. THE LD. AR OF THE ASSESSEE FURTHER SUBMITS THAT THE ASSESSEE HAD EARNED DIVIDEND INCOME OF RS. 6,81,948/- ONLY DURING THE RELEVANT FINANCIAL YEAR. THE DISALLOWANCE UNDER SECTION 14A R.W. RULE 8D MUST NOT EXCEED THE EXEMPT INCOME. IN SUPPORT OF HIS SUBMISSIONS THE LD AR FOR THE ASSESSEE RELIED ON THE DECISIONS OF DE CISION OF HONBLE SUPREME COURT IN GODREJ & BOYCE MANUFACTURING CO. LTD. VS. DCIT IN CIVIL APPEAL NO. 7020 OF 2011 DATED 08.05.2017, DELHI HIGH COURT IN CASE OF CHEM INVESTMENT LTD. VS. DCIT (ITA NO. 749 OF 2014 DATED 2 ND SEPTEMBER 2015), KARNATAKA HIGH COURT IN CANARA BANK VS. ACIT [2005] 228 TAXMAN 212 (KAR), AND THE DECISION OF MUMBAI TRIBUNAL IN GARWA RE WALL ROPES LTD. VS. ACIT (ITA NO. 5408/MUM/12). ON THE OTHER HAND, THE LD. DR FOR THE REVENUE SUPPORTED THE ORDERS OF AUTHORITIES BELOW. ITA NO. 5216/M/2015- M/S APTECH LTD. 4 4. WE HAVE CONSIDERED THE RIVAL CONTENTIONS OF THE LD. REPRESENTATIVES OF THE PARTIES AND PERUSED THE MATERIAL ON RECORD. THE AO DURING THE ASSESSMENT PROCEEDING, NOTED THAT ASSESSEE CLAIMED THE DIVIDEN D INCOME OF RS. 68,19,481/-. THE ASSESSEE SUO MOTTO DISALLOWED RS. 6,320/- UNDER SECTION 14A. THE AO ISSUED SHOW-CAUSE NOTICE AS TO WHY THE PROVISION OF SECTION 14A R.W. RULE 8D SHOULD NOT BE APPLIED. THE ASSESSE E FILED ITS REPLY DATED 27.02.2014. IN THE REPLY THE ASSESSEE CONTENDED THA T NO SPECIFIC EXPENDITURE HAS BEEN INCURRED IN CONNECTION WITH ITS INVESTMENT S FOR INTEREST EXPENDITURE. THE ASSESSEE CONTENDED THAT INTEREST E XPENDITURE BE NETTED FOR THE PURPOSE OF TAKING THE COMPONENT OF INTEREST EXP ENDITURE. THE ASSESSEE FURNISHED THE WORKING OF SUO MOTTO DISALLOWANCE UNDER SECTION 14A FOR RS.6,320/-. THE ASSESSEE ALSO CONTENDED THAT THE AS SESSEE EARNED DIVIDEND INCOME OF RS. 6,81,498/- ONLY AND THE DISALLOWANCE UNDER SECTION CANNOT EXCEED TO RS. 6,81,948/-. THE CONTENTION OF ASSESSE E WAS NOT ACCEPTED BY AO. THE AO RECORDED HIS DISSATISFACTION ABOUT THE C ORRECTNESS OF CLAIM OF ASSESSEE AND INVOKED THE PROVISIONS OF RULE 8D OF I NCOME TAX RULES, 1962. THE AO MADE THE DISALLOWANCE UNDER SECTION 14A AS P ER THE PROVISIONS OF RULE 8D. THE ASSESSING OFFICER DISALLOWED RS. 6,320 /- UNDER CLAUSE-(I) OF RS. 44,57,743/- UNDER CLAUSE (II) AND RS. RS. 19,4 0,805/- UNDER CLAUSE-(III) OF RULE 8D(2). THUS, THE AO MADE THE TOTAL DISALLOW ANCE OF RS. 64,04,868/-. ON APPEAL BEFORE FIRST APPELLATE AUTHORITY THE INTE REST DISALLOWANCE [UNDER RULE 8D(2)(II)] OF RS.44,57,743/- WAS DELETED. THE REVENUE HAS NOT ITA NO. 5216/M/2015- M/S APTECH LTD. 5 CHALLENGED THE ORDER OF FIRST APPELLATE AUTHORITY F OR DELETING THE INTEREST DISALLOWANCE. IN NARROW COMPASS THE DISPUTE BEFORE US IS ONLY WITH REGARD TO DISALLOWANCE UNDER CLAUSE-(III) OF RULE 8D(2).WE HAVE NOTED THAT THE ASSESSING OFFICER HAS NOT RECODED ANY REASONS WHILE DISREGARDING THE VOLUNTARY DISALLOWANCE OFFERED BY ASSESSEE UNDER SE CTION 14A. THE HONBLE DELHI HIGH COURT IN CASE OF JOINT INVESTMENT PVT. L TD. VS. CIT IN ITA NO. 117 OF 2015 HELD THAT BY NO STRETCH OF IMAGINATION UNDER SECTION 14A OR RULE 8D BE INTERPRETED SO AS TO MEAN THE ENTIRE TAX EXEMPT INCOME IS TO BE DISALLOWED. THE PORTION OF TAX EXEMPT INCOME SURELY CANNOT SWALLOW THE ENTIRE AMOUNT AS HAS BEEN HAPPENED IN THAT CASE, TH E WINDOW FOR DISALLOWANCE AS INDICATED IN SECTION 14A IS ONLY TO THE EXTENT OF DISALLOWING THE EXPENDITURE INCURRED BY ASSESSEE ONLY TO EARN E XEMPT INCOME. 5. THUS, CONSIDERING THE FACT OF THE PRESENT CASE AND THE SUBMISSION MADE BY LD. AR OF THE ASSESSEE, WE DIRECT THE AO TO RESTRIC T THE DISALLOWANCE TO THE EXTENT OF EXEMPT INCOME EARNED BY ASSESSEE DURING T HE FINANCIAL YEAR. IN THE RESULT, GROUNDS OF APPEAL RAISED BY ASSESSEE AR E ALLOWED. 6. IN THE RESULT, APPEAL FILED BY ASSESSEE IS ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON THIS 13 TH DAY OF FEBRUARY, 2018. SD/- SD/- (G.S. PANNU) (PAWAN SINGH) ACCOUNTANT MEMBER JUDICIAL MEMBER MUMBAI; DATED 13/02/2018 S.K.PS COPY OF THE ORDER FORWARDED TO : 1. THE APPELLANT ITA NO. 5216/M/2015- M/S APTECH LTD. 6 BY ORDER, (ASSTT.REGISTRAR) ITAT, MUMBAI 2. THE RESPONDENT. 3. THE CIT(A), MUMBAI. 4. CIT 5. DR, ITAT, MUMBAI 6. GUARD FILE. //TRUE COPY/