RAMGOPAL TEXTILES LTD., MUMBAI V. DCIT- 3(3)(1), MUMBAI

ITA 5383/MUM/2018

• Counselvise Citation: [2020] 111 COUNSELVISE.COM (IT) 6112 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 4 month(s) 22 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 10-02-2020
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: D
• Assessment Year: 2013-2014
• Appeal Filed On: 18-09-2018
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: JYOTI LAKSHMI NAYAKLD
• Assessee Lawyers: J P BAIRAGRA LD
• Keywords: Earning of tax free income; Rule 8D
• Section: 143(3); 14A; 115JB

Judgement Text

ITA NO.5383 & 5384/MUM/2018 RAMGOPAL TEXTILES LTD. ASSESSMENT YEARS :2013-14 & 2014-15 1 IN THE INCOME TAX APPELLATE TRIBUNAL D BENCH, MUMBAI , , BEFORE HONBLE SHRI AMARJIT SINGH, JM AND HONBLE SHRI MANOJ KUMAR AGGARWAL, AM ./ I.T.A. NO.5383/MUM/2018 ( / ASSESSMENT YEAR: 2013-14) & ./ I.T.A. NO.5384/MUM/2018 ( / ASSESSMENT YEAR: 2014-15) M/S. RAMGOPAL TEXTILES LTD. 701, TULSIANI CHAMBERS FREE PRESS JOURNAL MARG NARIMAN POINT, MUMBAI-400 021. / VS. D CIT - 3(3)(1) AAYKAR BHAVAN MUMBAI-400 020. !' ./ ./PAN/GIR NO. AAACR-0435-P ( '$ /APPELLANT ) : ( %&'$ / RESPONDENT ) ASSESSEE BY : SHRI J.P. BAIRAGRA-LD. AR REVENUE BY : MS. JYOTI LAKSHMI NAYAK-LD.DR / DATE OF HEARING : 10/02/2020 / DATE OF PRONOUNCEMENT : 10/02/2020 / O R D E R MANOJ KUMAR AGGARWAL (ACCOUNTANT MEMBER) 1. AFORESAID APPEALS BY ASSESSEE FOR ASSESSMENT YEA RS [IN SHORT REFERRED TO AS AY] 2013-14 AND 2014-15 CONTEST SE PARATE ORDERS OF LD. FIRST APPELLATE AUTHORITY ON CERTAIN COMMON GROUNDS OF APPEAL. SINCE THE ISSUES WERE COMMON, THE APPEALS WERE HEARD TOGETHER AND ARE NOW ITA NO.5383 & 5384/MUM/2018 RAMGOPAL TEXTILES LTD. ASSESSMENT YEARS :2013-14 & 2014-15 2 BEING DISPOSED-OFF BY WAY OF THIS COMMON ORDER FOR THE SAKE OF CONVENIENCE AND BREVITY. FIRST, WE TAKE UP APPEAL F OR AY 2013-14. ITA NO. 5383/MUM/2018, AY 2013-14 2.1 THIS APPEAL CONTESTS THE ORDER OF LD. COMMISSIO NER OF INCOME-TAX (APPEALS)-8, MUMBAI, [IN SHORT REFERRED TO AS CIT( A)], DATED 18/06/2018 ON FOLLOWING GROUNDS: - 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E AND IN LAW, THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) HAS ERRED IN C ONFIRMING THE DISALLOWANCE MADE UNDER SECTION 14A OF THE INCOME TAX ACT, 1961 TO THE EXTENT OF EXEMPTED INCOME EARNED OF RS.23,56,611/-. FURTHER, THE SAME WAS ADDED TO TOTAL INCOME WHILE CALCULATING MINIMUM ALTERNATE TAX UNDER SECTI ON 115JB OF THE INCOME TAX ACT, 1961. 2. THE APPELLANT PRAYS THAT THE DISALLOWANCE OF RS. 23,56,611/- TO BE DELETED. AS EVIDENT, THE SOLE SUBJECT MATTER OF APPEAL IS DI SALLOWANCE U/S. 14A. 2.2 BRIEFLY STATED, THE ASSESSEE BEING RESIDENT COR PORATE ASSESSEE STATED TO BE ENGAGED IN FINANCING & TRADING OF FABR ICS WAS ASSESSED FOR YEAR UNDER CONSIDERATION U/S. 143(3) ON 04/12/2015 WHEREIN ITS INCOME WAS DETERMINED AT RS.113.51 LACS UNDER NORMAL PROVI SIONS AFTER SOLE DISALLOWANCE U/S 14A FOR RS.25.10 LACS AS AGAINST R ETURNED INCOME OF RS.88.41 LACS E-FILED BY THE ASSESSEE ON 19/09/2013 . THIS DISALLOWANCE U/S 14A WAS ALSO MADE WHILE COMPUTING BOOK PROFITS U/S 115JB. THE PERUSAL OF QUANTUM ASSESSMENT ORDER REVEAL THAT THE ASSESSEE HAS PAID TAXES AS PER THE PROVISIONS OF SEC. 115JB. 2.3 DURING ASSESSMENT PROCEEDINGS, IT TRANSPIRED TH AT ASSESSEE EARNED EXEMPT DIVIDEND INCOME OF RS.24.10 LACS AND OFFERED SUO-MOTO DISALLOWANCE U/S 14A FOR RS.0.54 LACS WHILE COMPUTI NG ITS INCOME. THE ASSESSEE SUBMITTED THAT INVESTMENTS WERE OUT OF OWN FUNDS AND THEREFORE NO INTEREST DISALLOWANCE WOULD BE WARRANT ED. HOWEVER, ITA NO.5383 & 5384/MUM/2018 RAMGOPAL TEXTILES LTD. ASSESSMENT YEARS :2013-14 & 2014-15 3 REJECTING ASSESSEES PLEA, LD. AO COMPUTED AGGREGAT E DISALLOWANCE OF RS.25.64 LACS U/S 14A READ WITH RULE 8D WHICH COMPR ISED-OFF OF DIRECT EXPENSE DISALLOWANCE U/R 8D(2)(I) FOR RS.0.51 LACS, INTEREST DISALLOWANCE U/R 8D(2)(II) FOR RS.20.74 LACS AND INDIRECT EXPENS E DISALLOWANCE U/R 8D(2)(III) FOR RS.4.38 LACS. AFTER ADJUSTING THE SU O-MOTO DISALLOWANCE, THE NET DISALLOWANCE THUS WORKED OUT TO BE RS. 25.1 0 LACS WHICH WAS ADDED WHILE COMPUTING INCOME UNDER NORMAL PROVISION S AS WELL AS WHILE COMPUTING BOOK PROFITS U/S 115JB. 3. THE LEARNED CIT(A), UPON PERUSAL OF FACTUAL MATR IX AS WELL AS ASSESSEES SUBMISSIONS, DIRECTED LD. AO TO RESTRICT THE DISALLOWANCE TO RS.24.10 LACS, BEING EXEMPT INCOME EARNED BY THE AS SESSEE. THE LD. CIT(A) ALSO CONFIRMED THE ACTION OF LD.AO IN MAKING THE SAID DISALLOWANCE WHILE COMPUTING BOOK PROFITS U/S 115JB . AGGRIEVED, THE ASSESSEE IS UNDER FURTHER APPEAL BEFORE US. 4. THE LD. AUTHORIZED REPRESENTATIVE FOR ASSESSEE ( AR), SUBMITTED THAT OWN FUNDS FAR EXCEEDED THE INVESTMENTS MADE BY THE ASSESSEE AND UNLESS THE NEXUS OF BORROWED FUNDS WITH THAT OF INV ESTMENTS MADE BY THE ASSESSEE WAS ESTABLISHED, INTEREST DISALLOWANCE WOU LD NOT BE JUSTIFIED. RELIANCE WAS PLACED ON THE BINDING DECISION OF HON BLE BOMBAY HIGH COURT RENDERED IN CIT V/S HDFC BANK LTD. (49 TAXMANN.COM 335) & RELIANCE UTILITIES & POWER LTD. (313 ITR 340) FOR THE SUBMISSIONS THAT A PRESUMPTION WAS TO BE DRAWN IN ASSESSEES FAVOR T HAT THE INVESTMENTS WERE OUT OF FREE FUNDS AVAILABLE WITH THE ASSESSEE. THE LD. AR ALSO RAISED A PLEA THAT FOR THE PURPOSE OF DISALLOWANCE, ONLY THOSE INVESTMENTS WERE TO BE CONSIDERED WHICH ACTUALLY YI ELDED ANY EXEMPT INCOME DURING THE YEAR. LASTLY, LD. AR ASSAILED ADJ USTMENT OF ITA NO.5383 & 5384/MUM/2018 RAMGOPAL TEXTILES LTD. ASSESSMENT YEARS :2013-14 & 2014-15 4 DISALLOWANCE U/S 14A WHILE COMPUTING BOOK PROFITS U /S 115JB ON THE STRENGTH OF DECISION OF DELHI TRIBUNAL (SPECIAL BEN CH) RENDERED IN ACIT VS. VIREET INVESTMENT (P.) LTD. [82 TAXMANN.COM 415 ]. THE LD. DR SUBMITTED THAT THE DISALLOWANCE MADE BY LOWER AUTHO RITIES WAS FAIR AND REASONABLE. 5. WE HAVE DULY CONSIDERED THE RIVAL SUBMISSIONS AN D PERUSED RELEVANT MATERIAL ON RECORD INCLUDING DOCUMENTS PLA CED IN THE PAPER- BOOK. WE HAVE ALSO DELIBERATED ON JUDICIAL PRONOUNC EMENTS AS CITED BEFORE US. UPON PERUSAL OF ASSESSEES FINANCIAL STA TEMENTS AS PLACED ON RECORD, WE CONCUR WITH THE SUBMISSIONS OF LD. AR TH AT ASSESSEES OWN FUNDS FAR EXCEEDED THE INVESTMENTS HELD BY THE ASSE SSEE WHICH IS EVIDENT FROM THE FACT THAT THE ASSESSEE HAS YEAR-EN D SHARE CAPITAL AND FREE RESERVES AGGREGATING TO RS.17.25 CRORES AS AGA INST INVESTMENTS OF RS.9.16 CRORES HELD BY THE ASSESSEE. FURTHER, THE I NCREMENTAL RESERVES DURING THE YEAR FAR EXCEEDS THE INCREMENTAL INVESTM ENTS MADE BY THE ASSESSEE DURING THE YEAR. IN SUCH A CASE, UNLESS NE XUS OF BORROWED FUNDS VIS--VIS INVESTMENTS MADE BY THE ASSESSEE WA S ESTABLISHED BY LD. AO, A PRESUMPTION WAS TO BE DRAWN IN ASSESSEES FAVOR THAT THE INVESTMENTS WERE OUT OF OWN FUNDS. THE CITED CASE L AWS, WHICH ARE BINDING IN NATURE, SQUARELY APPLY TO FACTS OF THE C ASE. THEREFORE, WE HOLD THAT ON GIVEN FACTUAL MATRIX, INTEREST DISALLOWANCE U/R 8D(2)(II) WOULD NOT BE WARRANTED. THEREFORE, WE DELETE THE SAME. 6. SO FAR AS THE DISALLOWANCE OF DIRECT EXPENDITURE U/R 8D(2)(I) IS CONCERNED, WE FIND THAT THE ASSESSEE HAS IDENTIFIED DIRECT EXPENDITURE IN THE SHAPE OF DEMAT CHARGES AND SECURITIES TRANSACTI ONS CHARGES FOR RS.53,389/- AND OFFERED SUO-MOTO DISALLOWANCE OF TH E SAME IN ITS ITA NO.5383 & 5384/MUM/2018 RAMGOPAL TEXTILES LTD. ASSESSMENT YEARS :2013-14 & 2014-15 5 COMPUTATION OF INCOME. THESE EXPENSES ARE DIRECTLY RELATABLE TO EARNING OF EXEMPT INCOME AND THE SAME HAS ALREADY BEEN DISA LLOWED BY THE ASSESSEE WHILE COMPUTING ITS INCOME UNDER NORMAL PR OVISIONS. HOWEVER, THE SAME HAS NOT BEEN ADDED BACK WHILE COMPUTING BO OK PROFITS U/S115JB. KEEPING IN VIEW THE CLAUSE (F) TO EXPLANA TION-1 TO SECTION 115JB (2), THE SAME WOULD BE ADDED BACK WHILE COMPU TING BOOK PROFITS U/S 115JB. THE LD.AO IS DIRECTED TO ADD BACK THE SA ME WHILE MAKING COMPUTATIONS U/S 115JB. 7. SO FAR AS THE DISALLOWANCE OF INDIRECT EXPENDITU RE U/R 8D(2)(III) IS CONCERNED, THE LD. AO IS DIRECTED TO CONSIDER ONLY THOSE INVESTMENTS WHICH HAVE YIELDED EXEMPT INCOME DURING THE YEAR AN D ADD BACK THE SAME WHILE COMPUTING INCOME UNDER NORMAL PROVISIONS . HOWEVER, THE SAME WOULD NOT BE ADDED BACK WHILE MAKING COMPUTATI ONS U/S 115JB AS HELD BY DELHI TRIBUNAL (SPECIAL BENCH) IN ACIT VS. VIREET INVESTMENT (P.) LTD. [82 TAXMANN.COM 415]. 8. RESULTANTLY, THE APPEAL STANDS PARTLY ALLOWED IN TERMS OF OUR ABOVE ORDER. ITA NO. 5384/MUM/2018, AY 2014-15 9. FACTS ARE PARI-MATERIA THE SAME IN THIS YEAR. TH E ASSESSEE EARNED EXEMPT INCOME OF RS.32.7 LACS AND OFFERED SUO-MOTO DISALLOWANCE OF RS.26,416/. HOWEVER, LD. AO, APPLYING RULE 8D, COMP UTED AGGREGATE DISALLOWANCE OF RS.38.07 LACS AND ADDED THE SAME TO THE INCOME OF THE ASSESSEE UNDER NORMAL PROVISIONS AS WELL AS WHILE M AKING COMPUTATIONS U/S 115JB. THE LD. CIT(A) DIRECTED LD. AO TO RESTRI CT THE DISALLOWANCE TO THE EXTENT OF EXEMPT INCOME EARNED BY THE ASSESSEE. ITA NO.5383 & 5384/MUM/2018 RAMGOPAL TEXTILES LTD. ASSESSMENT YEARS :2013-14 & 2014-15 6 10. FACTS AND CIRCUMSTANCES BEING PARI-MATERIA THE SAME, OUR ADJUDICATION AS GIVEN FOR AY 2013-14 SHALL APPLY MUTATIS MUTANDIS TO THIS YEAR ALSO. THE LD. AO IS DIRECTED TO RECOMPUTE THE INCOME UNDER NORMAL PROVISIONS AS WELL AS U/S 115JB IN TERMS OF OUR ABO VE ORDER. 11. RESULTANTLY, THE APPEAL STANDS PARTLY ALLOWED I N TERMS OF OUR ABOVE ORDER. CONCLUSION 12. BOTH THE APPEALS STAND PARTLY ALLOWED IN TERMS OF OUR ABOVE ORDER. ORDER PRONOUNCED IN THE OPEN COURT ON 10 TH FEBRUARY, 2020. SD/- SD/- (AMARJIT SINGH) (MANOJ KUMAR AGGARWAL) / JUDICIAL MEMBER / ACCOUNTANT MEMBER MUMBAI; DATED : 10/02/2020 SR.PS, JAISY VARGHESE / COPY OF THE ORDER FORWARDED TO : 1. '$ / THE APPELLANT 2. %&'$ / THE RESPONDENT 3. , ( ) / THE CIT(A) 4. , / CIT CONCERNED 5. -.%/ , / , / DR, ITAT, MUMBAI 6. .012 / GUARD FILE / BY ORDER, / (DY./ASSTT.REGISTRAR) , / ITAT, MUMBAI.