ACIT CEN CIR 34, MUMBAI V. SCOPE P.LTD, MUMBAI

ITA 5376/MUM/2012

• Counselvise Citation: [2014] 120 COUNSELVISE.COM (IT) 6529 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 8 month(s) 19 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 15-05-2014
• Appeal Filed By: Department
• Bench Allotted: E
• Next Hearing Date: 11-11-2014
• Assessment Year: 2009-2010
• Appeal Filed On: 27-08-2012
• Court: TRIBUNAL
• Keywords: Earning of tax free income
• Section: 14A; 115JB

Judgement Text

VK;DJ VIHYH; VF/KDJ.K ** BZ U;K;IHB EQACBZ ESAA IN THE INCOME TAX APPELLATE TRIBUNAL E BENCH, MUMBAI JH TH + ,L + IUUW] YS[KK LNL; ,OA JH VFER KQDYK] U;KF;D LNL; DS LE{KA BEFORE SHRI G.S. PANNU, ACCOUNTANT MEMBER AND SHRI AMIT SHUKLA, JUDICIAL MEMBER VK;DJ VIHY LA[;K@ ITA NO 5376 /MUM/201 2 ( FU/KKZJ.K OKZ / ASSESSMENT YEAR: - 2009 - 10) ACIT, CC - 34, R. NO. 104, FIRST FLOOR, AAYKAR BHAVAN, MUMBAI 400 020. VS.` M/S SCOPE PVT. LTD. APAR HOUSE, CORPORATE PARK, BUILDING NO. 5, SION TROMBAY ROAD, CHEMBUR, MUMBAI 400 071. LFKK;H YS[KK LA[;K@TH VKB VKJ LA[;K@ PAN/GIR NO. AADCS0393L APPELLANT RESPONDENT ORDER PER G.S. PANNU, AM THE CAPTIONED APPEAL PREFERRED BY THE REVENUE IS DIRECTED AGAINST THE ORDER OF THE COMMIS SIONER OF INCOME TAX (APPEALS) [ HEREINAFTER REFERRED TO AS THE CIT(A) ] DATED 25.06.2012 WHICH IN TURN HAS ARISEN FROM AN ORDER PASSED BY THE ASSESSING OFFICER U/S 143 (3) OF THE INCOME TAX ACT, 1961( FU/KZKFJFR FD VKSJ LS @ REVENUE BY SMT. N. V. NADKARNI JKTLO FD VKSJ LS @ ASSESSEE BY SHRI. ANUJ KISANDAWALA LQUOKBZ FD RKJH[K @ DATE OF HEARING 30.04.2015 ?KKSK.KK FD RKJH[K@ DATE OF PRONOUNCEMENT 15 .5.2015 2 ITA NO . 5376/MUM/2012 ASSESSMENT YEAR: - 2009 - 10 PAGE 2 OF 7 HEREINAFTER REFERRED TO AS THE ACT) DATED 28.03.2011 PERTAINING TO ASSESSMENT Y EAR 2009 - 10. IN THIS APPEAL, THE R EVENUE HAS RAISED FOLLOWING GROUNDS OF A PPEAL : - 1. 'WHETHER ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE ID. CIT(A) HAS ERRED IN HOLDING THAT INTEREST EXPENSES OF THE ASSESSEE AMOUNTING TO RS.56,05,066/ - CAN BE CONSIDERED FOR DISALLOWANCE AS PER PROVISIONS OF SECTION 14A READ WITH RULE 8D(II) AS RESPECTIVE LOANS WERE NOT UTILIZED FOR INVESTMENTS WHEN ASSESSEE WAS NOT ABLE TO FURNISH ANY EVIDENCE TO THIS EFFECT BEFORE THE ASSESSING OFFICER.' 2. 'WHETHER ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE I D. CIT(A) HAS ERRED IN HOLDING THAT BOOK PROFITS OF THE ASSESSEE UNDER SECTION 115JB OF THE INCOME TAX ACT CANNOT BE ADJUSTED BY THE AMOUNT OF EXPENSES DISALLOWANCE UNDER SECTION 14A. LD.CIT(A) HAS IGNORED THE PROVISIONS OF CLAUSE (F) TO EXPLANATION TO SECTION 115JB OF THE INCOME TAX ACT .' 2. BRIEFLY PUT , THE RELEVAN T FACTS ARE THAT THE RESPONDENT - ASSESSEE IS A COMPANY INCORPORATED UNDER THE PROVISIONS OF COMPANIES ACT, 1956, AND IS INTER - ALIA ENGAGED IN THE BUSINESS OF SHARE INVESTMENTS AND EARNING INTEREST AND DIVIDEND INCOMES. IN THE COURSE OF ASSESSMENT PROCEEDINGS, THE ASSESSING OFFICER NOTED THAT ASSESSEE HAD EARNED DIVIDEND INCOME OF RS. 14,52,312/ - WHICH WAS EXEMPT FROM TAX AND IT DID N OT FORM PART OF THE TOTAL INCOME. THE ASSESSING OFFICER INVOKED THE PROVISIONS OF SECTION 14A OF THE ACT, IN ORDER TO DISALLOW THE EXPENDITURE IN RELATION TO THE INCOME NO T INCLUDIBLE IN TOTAL INCOME AND SUCH EXPENDITURE WAS COMPUTED BY APPLICATION OF RUL E 8D OF THE INCOME TAX RULES, 1962, AT RS. 85,77,356/ - , DETAILED AS UNDER: - 3 ITA NO . 5376/MUM/2012 ASSESSMENT YEAR: - 2009 - 10 PAGE 3 OF 7 1. CLAUSE ( I ) OF RULE 8D(2) RS. 4,81,888/ - I.E AMOUNT OF EXPENDITURE DIRECTLY RELATING TO INCOME WHICH DOES NOT FORM PART OF THE TOTAL INCOME. 2. CLAUSE ( II ) OF RULE 8D(2) RS. 68,33,915/ - I.E. INTEREST EXPENDITURE NOT DIRECTLY ATTRIBUTABLE TO ANY PARTICULAR INCOME, AN AMOUNT COMPUTED IN ACCORDANCE WITH THE FORMULAE PRESCRIBED. 3. CLAUSE (III ) OF RULE 8D(2) - RS. 12,61, 5 53 I.E. AMOUNT EQUAL TO % OF THE AVERAGE VALUE OF THE INVESTMENT, INCOME FROM WHICH IS EXEMPT FROM TAX, AS APPEARING IN THE BALANCE - SHEET ON THE FIRST AND THE LAST DAY OF PREVIOUS YEAR. TOTAL EXPENDITURE AS PER RULE 8D OF THE RULES IS - 85,77,356/ - 3. IN SO FAR AS THE DISPUTE BEFORE US IS CONCERNED, THE SAME IS RELATABLE TO THE AMOUNT OF INTEREST EXPENDITURE DISALLOWED BY THE ASSESSING OFFI CER BY APPLICATION OF CLAUSE (II ) OF RULE 8D(2) OF THE RULES. ONE OF THE ISSUES RAISED BEFORE THE A SSESSING O FFICER WAS THAT THE INTEREST BEARING FUNDS WERE UTILIZE D FOR ADVANCING LOANS WHICH HAD EARNED TAXABLE INTEREST INCOME AND, THEREFORE, SUCH AMOUNT OF INTEREST EXPENDITURE CANNOT FORM PART OF THE DISALLOWANCE COMPUTABLE IN TERMS O F CLAUSE (II ) TO RULE 8D(2) OF THE RULES. THE ASSESSING OFFICER REJECTED SUCH A PLE A ON THE GROUND THAT ASSESSEE HAD FAILED TO SUBSTANTIATE ITS SUBMISSIONS. BEFORE THE CIT(A), THE ASSESSEE POINTED OUT THAT OUT OF THE TOTAL INTEREST EXPENDITURE OF RS. 71,66,72 4 / - CONSIDERED BY THE ASSESSING OFFICER , THE EXPENSE OF RS. 56,05,966/ - WAS INCURRED IN RELATION TO RAISING OF LOANS WHICH WERE DEPLOYED FOR GIVING INTER CORPORATE DEPOSITS AND INTEREST RECEIVED FROM SUCH INTER CORPORATE DEPOSITS WAS A TAXABLE INCOME. 4 ITA NO . 5376/MUM/2012 ASSESSMENT YEAR: - 2009 - 10 PAGE 4 OF 7 THE CIT(A) CONSIDERED THE AFORESAID ASPECT AND NOTED THAT INTEREST EXPENDITURE TO THE EXTENT OF RS. 56,05,966/ - CANNOT BE MADE A SUBJECT MATTER OF THE DISALLOWANCE COMPUTABLE IN TERMS OF RULE 8D(2) (II) OF THE RULES. AGAINST SUCH A DECISION OF THE CIT(A), THE REVENUE IS IN APPEAL BEFORE US. 4. BEFORE US, THE LD. DR HAS REITERATED THE STAND OF THE ASSESSING OFFICER TO THE EFFECT THAT THE ASSESSEE WAS NOT ABLE TO SUBSTANTIATE ITS PLEA THAT THE IMPUGNED INTEREST BEARING LOANS WERE NOT UTILIZE D FOR MAKING INVESTMENT S WHICH HAVE GENERATED EXEMPT INCOME. 5. ON THE OTHER HAND, THE LD. REPR ESENTATIVE FOR THE ASSESSEE HAS REFERRED TO SUBMISSIONS MADE BEFORE THE CIT(A), WHICH HAVE BEEN REPRODUCED BY THE CIT(A) IN THE IMPUGNED ORDER, WHEREBY, THE UTILIZATION OF LOANS RELATING TO THE INTEREST EXPENDITURE OF RS. 56,05,966/ - HAS BEEN STATED TO BE FOR GIVING OF INTER CORPORATE DEPOSITS TO TWO CONCERNS, INCOME WHEREFROM WAS TAXABLE UNDER THE ACT. IN SUM AND SUBSTANCE, THE LD. REPRESENTATIVE HA S RELIED UPON THE FIND INGS OF THE CIT(A). APART THERE FROM, IN THE COURSE OF HEARING, THE LD. REPRESENTATIVE FURNISHED A CHART IN ORDER TO DEMONSTRATE THAT THE INTEREST BEARING LOAN RAISED FROM M/S APAR CORPORATION PVT. LTD. OF RS. 8.25 CRORES WAS UTILIZED IMMEDIATELY FOR ADVANCEMENT OF INTER - CORPORATE DEPOSITS TO M/S KANJI FOREX PVT. LTD AND M/S GENTEEL TRADING PVT. LTD. AMOUNTING TO RS. 8.11 CRORES. IT WAS IN THIS CONTEXT , THE LD. REPRESENTATIVE EXPLAINED THAT THE INTEREST PAID TO M/S APAR CORPORATION PVT. LTD. WITH RESPECT TO AMOUNT OF RS. 8.11 CRORES WAS CLAIMED TO HAVE BEEN INCURRED ON INVESTMENT WHICH HAS G ENERATED 5 ITA NO . 5376/MUM/2012 ASSESSMENT YEAR: - 2009 - 10 PAGE 5 OF 7 TAXABLE INCOME UNDER THE ACT. ACCORDING, TO THE LD. REPRESENTATIVE IN THE ABOVE BACKGROUND , THE CIT(A) MADE NO MISTAKE IN DIRECTING THE ASSESSING OFFICER TO RE - COMPUTE THE DISALLOWANCE AFTER CONSIDERING THAT THE INTEREST BEARING LOAN S TO THE EXTEN T OF RS. 8.11 CRORES CANNOT BE SAID TO HAVE USED FOR EARNING EXEMPT INCOME. 6. WE HAVE CAREFULLY CONSIDERED THE RIVAL SUBMISSIONS. IN THIS CASE, ASSESSEE HAD EARNED A DIVIDEND INCOME OF RS. 14,52,312/ - WHICH IS EXEMPT FROM TAX. THE ASSESSEE INCURRED TOTAL INTEREST EXPENDITURE OF RS. 71,66,724/ - WITH RESPECT TO THE UNSECURED LOANS OF RS. 3,91,58,000/ - RAISED DURING THE YEAR. THE ASSESSING OFFICER CONSIDERED THE ENTIRE INTEREST EXPENDITURE OF RS. 71,66,724/ - AS BEING AN EXPENDITURE WHICH IS NOT DIRECTLY ATTRIBUTABLE TO ANY PARTICULAR INCOME OR RECEIPT AND THE ENTIRE AMOUNT OF RS. 71,66,724/ - WAS CONSIDERED FOR DETERMINATION OF DIS ALLOWANCE ENVISAGED IN CLAUSE (II ) OF RULE 8D(2) OF THE RULES. THE CLAIM OF THE ASSESSEE IS THAT THE INTEREST BEARING LOAN OF RS. 8.25 CRORES WAS RAISED FROM M/S APAR CORPORATION PVT. LTD. ON 5.5.2008 AND THE SAME WAS IMMEDIATELY UTILIZED FOR GIVING INTER - CORPORATE DEPOSITS TO M/S KANJI FOREX PVT. LTD AND M/S GENTEEL TRADING PVT. LTD. OF RS. 8.11 CRORES. IT WAS FURTHER CONTENDED THAT INTEREST EXPENDITURE RELATABLE TO RS. 8.11 CRORES WAS RS. 56,05,966/ - , WHICH CAN BE SAID TO HAVE BEEN INCURRED ON A LOAN WHICH HAS BEEN UTILIZED FOR EARNING A TAXABLE INCOME. THEREFORE, THE SAID EXPENSE INCURRED BY WAY OF INTEREST WAS DIRECTLY ATTRIB UTABLE TO EARNING OF TAXABLE INCOME AND THUS OUTSIDE THE PURVIEW OF THE APPLICATION OF CLAUSE (II ) OF RULE 8D(2) OF THE RULES. THE AFORESAID FACTUAL MATRIX HAS BEEN ACCEPTED BY THE CIT(A) AND THERE IS NO MATERIAL LEAD BY THE REVENUE BEFORE US, WHICH WOULD 6 ITA NO . 5376/MUM/2012 ASSESSMENT YEAR: - 2009 - 10 PAGE 6 OF 7 REQUIRE US TO INTERFERE WITH THE ORDER OF CIT(A). IN THESE CIRCUMSTANCES, WE FIND NO ERROR ON THE PART OF THE CIT(A) IN DIRECTING THE ASSESSING OFFICER TO EXCLUDE THE INTEREST EXPENDITURE OF RS. 56,05,966/ - FROM THE TOTAL EXPENDITURE ON INTEREST INCURRED F OR THE PURPOSE OF APPLYING THE F ORMULAE PRESCRIBED IN CLAUSE (II ) OF RULE 8 D (2) OF THE RULES. THE ORDER OF THE CIT(A) IS AFFIRM ED AND ACCORDINGLY, THE REV ENUE FAILS IN GROUND OF APPEAL N O. 1. 7. IN SO FAR AS THE GROUND OF APPEAL N O. 2 RAISED BY THE REVENUE IS CONCERNED, THE SAME RELATES TO THE MANNER OF COMPUTING THE BOOK PROFITS IN TERMS OF SECTION 115JB OF THE ACT. WHILE DETERMINING THE BOOK PROFITS U/S 115JB OF THE ACT, THE ASSESSING OFFICER INCREASED THE BOOK PROFITS BY AN A MOUNT OF EXPENDITURE CALCULATED BY HIM AS BEING RELATABLE TO THE EXEMPT DIVIDEND INCOME. THE SAID ADJUSTMENT WAS JUSTIFIED BY THE ASSESSING OFFICER ON THE BASIS OF CLAUSE (F)OF EXPLANATION 1 BELOW SUB - SECTION ( 2 ) OF SECTION 115JB OF THE ACT. THE CIT(A) D ISAGREED WITH THE ASSESSING OFFICER AND IN COMING TO SUCH CONCLUSION, HE RELIED UPON THE DECISION OF DELHI BENCH OF THE TRIBUNAL IN THE CASE OF GOETZE INDIA LTD. VS. CIT 32 SOT 101 . THE AFORESAID ACTION OF THE CIT(A) IS BEING CHALLENGED BY THE REVENUE BEFO RE US BY WAY OF GROUND OF APPEAL N O. 2. 8. AT THE TIME OF HEARING, THE LD. REPRESENTATIVE FOR THE RESPONDENT ASSESSEE QUITE FAIRLY POINTED OUT THAT SUBSEQUENT TO THE DECISION OF CIT(A), THE HONBLE DELHI HIGH IN THE CASE OF GOETZE INDIA LTD. VS. CIT REPOR TED IN (361 ITR 505)(DEL) HAS TAKEN A VIEW CONTRARY TO THAT OF THE DELHI BENCH OF THE 7 ITA NO . 5376/MUM/2012 ASSESSMENT YEAR: - 2009 - 10 PAGE 7 OF 7 TRIBUNAL IN THE CASE OF GOETZE INDIA LTD. VS. CIT(SUPRA). AS A CONSEQUENCE, FOLLOWING THE JUDGMENT OF HONBLE DELHI HIGH COURT , IT HAS TO BE HELD THAT CIT(A) ERRED IN D IRECTING THE ASSESSING OFFICER NOT TO DISALLOW THE AMOUNT OF EXPENDITURE RELATABLE TO THE EXEMPT DIVIDEND INCOME BY APPLICATION OF CLAUSE (F) OF EXPLANATION 1 TO SECTION 115JB(2) OF THE ACT. ACCORDINGLY, THE ORDER OF CIT(A) IS SET ASIDE AND THAT OF THE ASS ESSING OFFICER IS RESTORED ON THIS ASPECT. THUS IN SO FAR AS GROUND OF APPEAL N O. 2 IS CONCERNED, THE REVENUE SUCCEEDS. 9 . RESULTANTLY, THE APPEAL OF THE REVENUE IS PARTLY ALLOWED . ORDER PRONOUNCED IN THE OPEN COURT ON THIS 15 TH DAY OF MAY 2015. SD/ - SD/ - (AMIT SHUKLA) (G.S. PANNU) (JUDICIAL MEMBER/ U;KF;D LNL; ) (ACCOUNTANT MEMBER/ YS[KK LNL; ) MUMBAI DATED 15 - 05 - 2015 SKS SR. P.S, COPY TO: THE APPELLANT THE RESPONDENT THE CONCERNED CIT(A) THE CONCERNED CIT THE DR, E BENCH, ITAT, MUMBAI BY ORDER ASSISTANT REGISTRAR INCOME TAX APPELLATE TRIBUNAL, MUMBAI BENCHES, MUMBAI