ARNAV GRUH LTD, MUMBAI V. DCIT CEN CIR 36, MUMBAI

ITA 5349/MUM/2011

• Counselvise Citation: [2012] 119 COUNSELVISE.COM (IT) 8824 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 2 month(s) 12 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 26-09-2012
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: A
• Assessment Year: 2008-2009
• Appeal Filed On: 14-07-2011
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Keywords: Earning of tax free income
• Section: 14A

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL, MUMBAI BENCH A BENCH BEFORE SHRI B.R. MITTAL, (JUDICIAL MEMBER) AND SHRI B.RAMAKOTAIAH (ACCOUNTANT MEMBER) ITA NO.5349/MUM/2011 ASSESSMENT YEAR: 2008-09 M/S. ARNAV GRUH LTD. 6 TH FLOOR, AKRUTI TRADE CENTRE, MIDC, MAROL, ANDHERI (E), MUMBAI 400093. PAN NO. AAACA4900E VS. DY. CIT, CENTRAL CIRCLE-36, AAYKAR BHAVAN, GROUND FLOOR, M K ROAD, MUMBAI 400020. (APPELLANT) (RESPONDENT) APPELLANT BY : M R. VIJAY MEHTA RESPONDENT BY : MS . NEERAJA PRADHAN DATE OF HEARING : 30 .0 8 .2012 DATE OF PRONOUNCEMENT : 26.09.2012 ORDER PER B.RAMAKOTAIAH, AM : THIS IS AN APPEAL BY ASSESSEE AGAINST THE ORDER OF THE CIT(A)-41, MUMBAI DATED 13.05.2011. THE ASSESSEE RAISED THE FO LLOWING TWO GROUNDS : 1. DISALLOWANCE U/S.14A RS.97,82,691/- 1.01 ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN L AW, THE LEARNED CIT(A) ERRED IN CONFIRMING THE ADDITION OF RS.97,82,691/- U/S.14A OF THE ACT TO THE BUSINESS L OSS ITA NO.5349/MUM/2011 M/S. ARNAV GRUH LTD. 2 DETERMINED IN RETURN FILED U/S.139(A) OF THE ACT OF RS.48,599/. THE ADDITION OF RS.97,82,691/- COMPRISED OF DISALLO WANCE MADE OUT OF INTEREST AMOUNTING TO RS.93,60,788/- AN D FROM OTHER ADMINISTRATIVE EXPENSES AMOUNTING TO RS.4,21, 903/-. 1.02 THE LEARNED CIT(A) DID NOT APPRECIATE THAT NO DISAL LOWANCE WAS WARRANTED U/S. 14A OF THE ACT AS THE APPELLANT HAS ALSO RECEIVED TAXABLE INTEREST INCOME OF RS.95,43,091/-, WHICH WAS ALREADY OFFERED TO TAX. DIRECT NEXUS BETWEEN TA XABLE INTEREST INCOME AND EXPENSES HAVING BEEN PROVED, AP PELLANT PRAYS THAT NO DISALLOWANCE U/S. 14A WAS WARRANTED A S THE PROVISION OF HE SAID SECTION 14A ARE TRIGGERED ONLY IF THE APPELLANT HAS EARNED TAX FREE INCOME AGAINST ANY EX PENSES INCURRED. 1.03 THE LEARNED CIT(A) FURTHER ERRED IN STATING THAT A PPELLANT FAILED TO SUBMIT ANY EVIDENCE TO PROVE ONE TO ONE N EXUS BETWEEN THE FUNDS BORROWED AND INVESTED WITHOUT TAK ING COGNIZANCE OF THE DETAILED SUBMISSION MADE BEFORE L EARNED CIT(A). 1.04 THE LEARNED CIT(A) HAS FURTHER ERRED IN PLACING REL IANCE ON VARIOUS DECISIONS WHICH WERE NOT APPLICABLE TO APPE LLANT ON THE FACTS OF ITS CASE. 1.05 THE APPELLANT FURTHER PRAYS THAT THE DISALLOWANCE O F RS.4,21,903/- U/S 14A OF THE ACT, WAS ALSO NOT WARR ANTED AS NO ADDITIONAL EFFORTS OR EXPENSES WERE UNCURED BY T HE APPELLANT FOR MAKING/ MANAGING INVESTMENTS MADE AND MAINTAINED BY IT. 1.06 THE ADDITION U/S. 14A, BEING BAD IN LAW AND AGAINST THE PRINCIPLES OF NATURAL LAW OF EQUITY AND JUSTICE NEE DS TO BE CANCELLED. 2. INTERST RECEIVED NOT CHARGEBLE TO TAX RS.95,43,091 2.01 WITHOUT PREJUDICE TO THE GROUND NO.1, THE APPELLANT SUBMITS THAT THE LEARNED CIT(A) ERRED IN CONFIRMING TAXABIL ITY ON THE ITA NO.5349/MUM/2011 M/S. ARNAV GRUH LTD. 3 AMOUNT OF INTEREST OF RS.95,43,091/- RECEIVED FROM M/S. ACKRUTI SMC, AN ASSOCIATION OF PERSON (AOP), IN WHI CH THE APPELLANT IS A CO-VENTURE. IN DOING SO, THE LEARNED CIT(A) FAILED TO APPRECIATE THAT THE AMOUNTS RECEIVED FROM THE AO P IS SHARE OF THE MEMBER AFTER TAX PAYMENT BY THE AOP AND IS N OT TAXABLE AGAIN IN THE HANDS OF THE MEMBERS AS IS PRO VIDED UNDER PROVISIONS OF SECTION 167B READ WITH SECTION 86 OF THE INCOME TAX ACT. LD. COUNSEL WITHDREW GROUND NO.2 DURING THE COURSE OF HEARING. SINCE THE ASSESSEE OFFERED THE INTEREST UNDER HEAD INCOME FROM OTHER SOURCE, THE GROUND IS ALLOWED TO BE WITHDRAWN. ONL Y GROUND NO. 1 SURVIVES FOR CONSIDERATION. 2. WE HAVE HEARD LD. COUNSEL AND LD. DR AND PERUSED THE PAPER BOOK FILED. 3. BRIEFLY STATED ASSESSEE IS A MEMBER OF JOINT VEN TURE M/S. ACKRUTI SMC. IT HAS INVESTED IN CAPITAL OF JOINT VE NTURE. THE BREAK UP OF INVESTMENT AS ON 31.03.2007 AND 31.03.2008 IS AS UN DER. SR.NO. INVESTMENTS 31.03.2007 31.03.2008 1 CAPITAL / CURRENT ACCOUNT OF PARTNERSHIP FIRM 82,654,353 86,106,854 TO MAKE INVESTMENT IN THE JV, ASSESSEE HAS TAKEN LO ANS AND IS PAYING INTEREST ON THE SAME. THE INTEREST INCOME OF RS.95,43,091 HAS BEEN OFFERED TO TAX BY THE ASSESSEE UNDER THE HEAD INCOME FROM OTHER SOURCES. THE INTEREST PAID HAS BEEN CLAIMED AS DED UCTION U/S 57 CLAIMING THAT THERE IS DIRECT NEXUS BETWEEN THE AMO UNTS BORROWED AND THE AMOUNTS INVESTED IN THE VENTURE. IT WAS THE CON TENTION THAT THERE WAS NO EXPENDITURE INCURRED TO EARN THE INTEREST IN COME OR SHARE FROM AOP. HOWEVER, THE ASSESSING OFFICER APPLIED SECTION 14A READ WITH RULE 8D AND DISALLOWED THE EXPENSES AMOUNTING TO RS.97,3 4,092/- OF WHICH RS. 93,60,788/- PERTAINS TO DISALLOWANCE OF INTERES T AND RS.4,21,903/- ITA NO.5349/MUM/2011 M/S. ARNAV GRUH LTD. 4 PERTAINS TO ADMINISTRATIVE EXPENSES. THE REASON FOR INVOKING 14A IS THAT ASSESSEE CLAIMED AN AMOUNT OF RS.71,706/- AS EXEMPT INCOME RECEIVED AS A SHARE OF PROFIT FOR THE JOINT VENTURE U/S.10(2 A) OF THE ACT. 4. IT WAS SUBMISSION BEFORE THE CIT(A) THAT ASSESSE E RECEIVED INTEREST INCOME OF RS.95,43,091/- FROM JOINT VENTURE AND HAD OFFERED TO TAX. THE INTEREST CLAIM OF RS.99,77,398/- WAS AGAINST THAT I NCOME U/S 57(III) OF THE ACT. IGNORING THE FACTUAL POSITION, THE LD.CIT( A) CONFIRMED THE DISALLOWANCE. THERE IS NO ADJUDICATION OF GROUND 2 RAISED BEFORE HIM WHICH HE DISMISSED SUMMARILY. 5. AFTER CONSIDERING THE RIVAL SUBMISSIONS AND PERU SING THE ORDERS AND PAPER BOOK, WE ARE OF THE OPINION THAT THE REVE NUE AUTHORITIES WRONGLY INVOKED 14A/8D IN DISALLOWING THE INTEREST AND ADMINISTRATIVE EXPENSES. THE PROFIT & LOSS A/C OF THE ASSESSEE FOR THE YEAR IS AS UNDER. INCOME SHARE PROFIT FROM JV OTHER INCOME EXPENDITURE ADMINISTRATIVE EXPENSES INTEREST & FINANCE CHARGES TOTAL PROFIT & LOSS BEFORE TAX 71,706 95,43,091 96,14,797 51,047 99,77,398 1,00,28,445 (4,13,648) ITA NO.5349/MUM/2011 M/S. ARNAV GRUH LTD. 5 6. THE COMPUTATION OF INCOME FILED BY ASSESSEE IS A S UNDER : STATEMENT OF INCOME INCOME FORM BUSINESS: NET LOSS AS PER PROFIT & LOSS ACCOUNT (413,479) ADD : DISALLOWABLE EXPENSES FILING FEES (SUB DIVISION SHARE) INTEREST PAID 2448 9977398 9979846 9,566,367 LESS:DISALLOWABLE INCOME SHARE OF PROFIT FROM JV(FY:2006-07) SHARE OF PROFIT FROM JV(FY:2007-08) INTEREST RECEIVED. 169 71706 9543091 9,614,966 SHARE OF PROFIT FROM JV: SHARE OF PROFIT FROM JV(FY:2006-07) SHARE OF PROFIT FROM JV(FY:2007-08) 169 71,706 71875 LESS:SHARE OF PROFIT EXEMPTED U/S. 10(2A) 71875 NIL INCOME FROMOTHER SOURCE: INTEREST RECEIVED LESS : INTEREST PAID 9,543,091 9,977,398 (434,307) TOTAL INCOME: (482,906) 7. AS CAN BE SEEN FROM THE ABOVE DETAILS THE ASSESS EE OFFERED THE INTEREST RECEIVED AND CLAIMED INTEREST PAID UNDER T HE HEAD OTHER SOURCES AND THE NET LOSS UNDER THAT HEAD AT RS.4,34,307/- W AS IGNORED. IN ADDITION, THE ENTIRE EXPENDITURE CLAIM (OTHER THAN INTEREST) WAS ONLY RS.51,047/- OUT OF WHICH AN AMOUNT OF RS.2,448/- BE ING FILING FEES WAS ITA NO.5349/MUM/2011 M/S. ARNAV GRUH LTD. 6 DISALLOWED AND LOSS CLAIM WAS RESTRICTED TO RS.48,5 99/- WHICH WAS CLAIMED FOR THE BENEFIT OF CARRIED FORWARD LOSS FRO M THIS YEAR. 8. WE ARE UNABLE TO UNDERSTAND HOW THERE CAN BE DIS ALLOWANCE OF INTEREST CLAIMED U/S 57(III) AGAINST INCOME OFFERED , U/S. 14A. NOT ONLY THAT WHEN THE ENTIRE EXPENDITURE CLAIMED WAS ONLY R S.48,499/-, HOW AN AMOUNT OF RS.4,21,903/- COULD BE DISALLOWED WAS NOT EXPLAINED. THERE IS NO APPLICATION OF MIND BY ASSESSING OFFICER AS WELL AS CIT(A). WITHOUT GOING INTO THE LEGAL ASPECTS DISCUSSED BY ASSESSING OFFICER & CIT(A), ON FACTS WE ARE UNABLE TO AGREE WITH THEIR ACTION. SEC TION 14A CANNOT BE INVOKED ARBITRARILY AND RULE 8D CANNOT BE APPLIED W ITHOUT ANY SATISFACTION BEING RECORDED U/S. 14A(2) AS HELD BY HONBLE BOMBAY HIGH COURT IN THE CASE OF GODREJ & BOYCE MFG.CO. LTD 328 ITR 81 (BOMBAY). THERE SEEMS TO BE BLIND APPLICATION OF SECTION 14A R.W.R 8D JUST BECAUSE THE ASSESSEE CLAIMED EXEMPT INCOME OF RS.71,706/- A S SHARE OF PROFIT FROM JV. WE, THEREFORE DELETE THE ADDITIONS MADE BY ASSESSING OFFICER. CONSIDERING THE SMALLNESS OF EXPENDITURE INCURRED, WHICH IS OTHERWISE REQUIRED FOR MAINTAINING CORPORATE STRUCTURE OF THE ASSESSEE COMPANY, WE ARE OF THE OPINION 5% OF THE EXEMPT INCOME CAN B E DISALLOWED IN THIS YEAR U/S.14A ON THE FACTS OF THE CASE. AO IS DIRECT ED TO MODIFY THE ORDER ACCORDINGLY. GROUND IS PARTLY ALLOWED. 9. IN THE RESULT, THE APPEAL IS PARTLY ALLOWED. PRONOUNCED IN THE OPEN COURT ON 26 TH SEPTEMBER, 2012 SD/ - ( B.R. MITTAL ) JUDICIAL MEMBER SD/- (B.RAMAKOTAIAH) ACCOUNTANT MEMBER MUMBAI, DATED 26 TH SEPTEMBER, 2012 RASIKA COPY TO: 1. THE APPELLANT 2. THE RESPONDENT 3. THE COMMISSIONER OF INCOME TAX 41, MUMBAI ITA NO.5349/MUM/2011 M/S. ARNAV GRUH LTD. 7 4. THE COMMISSIONER OF INCOME TAX, MUMBAI 5. THE DEPARTMENTAL REPRESENTATIVE, BENCH A MUMB AI //TRUE COPY// BY ORDER ASSTT. REGISTRAR, ITAT, MUMBAI