WEIZMANN LTD, MUMBAI V. ADDL CIT RG 1(3), MUMBAI

ITA 5418/MUM/2015

• Counselvise Citation: [2017] 126 COUNSELVISE.COM (IT) 9979 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 9 month(s) 7 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 01-09-2017
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: G
• Assessment Year: 2012-2013
• Appeal Filed On: 24-11-2015
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: V VIDHYADHARDR
• Keywords: Earning of tax free income
• Section: 143(3); 14A

Judgement Text

, , , , INCOME-TAX APPELLATE TRIBUNAL -GBENCH MUMBAI , , , , , , ,, , BEFORE S/SHRI RAJENDRA,ACCOUNTANT MEMBER AND SAKTIJIT DEY,JUDICIAL MEMBER / ITA NO. 5418/MUM/2015: /ASSESSMENT YEAR:2012-13 M/S. WEIZMANN LTD. EMPIRE HOUSE,214, DR. D.N. ROAD ENT. A.K. NAYAK MARG, FORT MUMBAI-400 001. PAN:AAACW 1260 H VS. ADDL CIT , RANGE-1(13) MUMBAI. ( /APPELLANT ) ( / RESPONDENT) REV ENUE BY: SHRI V. VIDHYADHAR-DR ASS ESSEE BY: SHRI ANUJ KISHNADWALA / DATE OF HEARING: 29/08/2017 / DATE OF PRONOUNCEMENT: 01.09.2017 ,1961 254(1) ORDER U/S.254(1)OF THE INCOME-TAX ACT,1961(ACT) , / PER RAJENDRA A.M. - CHALLENGING THE ORDER DTD.12.10.2015 OF THE CIT(A)- 3,MUMBAI,THE ASSESSEE HAS FILED THE PRESENT APPEAL.ASSESSEE-COMPANY,ENGAGED IN THE BUSI NESS OF MANUFACTURING AND EXPORT OF TEXTILE AND OTHER GOODS,FILED ITS RETURN OF INCOME ON 26.03.2014,DECLARING TOTAL INCOME OF RS. 3.06CRORES.THEASSESSING OFFICER(AO)FINALISED THE AS SESSMENT,U/S.143(3)OF THE ACT, ON 26.03. 2014,DETERMINING THE INCOME OF THE ASSESSEE AT RS.3 .41 CRORES. 2 .EFFECTIVE GROUND OF APPEAL IS ABOUT DISALLOWANCE M ADE U/S.14A READ WITH RULE 8D(II)AND (III)OF THE INCOME-TAX RULES,1962(RULES)OF RS. 25.5 4 LAKSH AND RS. 10.6 LAKHS RESPECTIVELY. DURING THE ASSESSMENT PROCEEDINGS,AO FOUND THE ASSE SSEE HAD RECEIVED EXEMPT INCOME OF RS.3.9LAKHS.HE HELD THAT HE WAS NOT SATISFIED WITH SUBMISSIONS MADE BY THE ASSESSEE WITH REGARD TO NIL ALLOCATION OF THE EXPENSES TOWARDS TH E INVESTMENTS BEARING EXEMPT INCOME.THE ASSESSEE SUBMITTED THAT IT HAD NOT BORROWED ANY MON EY FOR MAKING INVESTMENT IN SHARES.NOT BEING SATISFIED WITH THE EXPLANATION OF THE ASSESS EE,HE MADE A DISALLOWANCE OF RS.34.90 LAKHS(25.54 LAKSH + RS. 10.6 LAKHS)AS STATED EARLIE R. 3. AGGRIEVED BY THE ORDER OF THE AO,THE ASSESSEE PREF ERRED AN APPEAL BEFORE THE FIRST APPELLATE AUHTORITY(FAA).AFTER CONSIDERING THE SUBM ISSIONS OF THE ASSESSEE AND THE ASSESSMENT ORDER,HE HELD THAT AS PER THE CIRCULAR 5 OF 2004 OF THE CBDT,DTD.11. 02.2014, PROVISIONS OF RULE 8D R.W.S.14A OF THE ACT HAVE TO BE APPLIED EVEN WHEN NO EXEMPT INCOME WAS EARNED,THAT THE AO HAD RIGHTLY DISALLOWED RS.25 .54 LAKHS UNDER RULE 8D(II)OF THE RULES.WITH REGARD TO DISALLOWANCE MADE AS PER THE P ROVISIONS OF RULE 8D(III),HE HELD THAT 5418/M/15(12-13) M/S. WEIZMANN LTD. 2 INVESTMENT DURING THE YEAR WERE AS HIGH AS RS.18.06 CRORES,THAT IN THE EARLIER AY.S THE TRIBUNAL HAD RESTRICTED THE DISALLOWANCE TO 5% OF T HE DIVIDEND INCOME,THAT SOME TIME ENERGY/EFFORT MUST HAVE BEEN DEVOTED TO EARN THE EX EMPT INCOME,THAT THE TRIBUNAL HAD NOT CONSIDERED THE JUDGMENT OF HONBLE BOMBAY HIGH COUR T IN GODREJ & BOYCE(328 ITR 81),THAT THE AO WAS JUSTIFIED IN MAKING THE DISALLO WANCE U/R 8D(III)OF THE RULES. 4. BEFORE US,AUTHORISED REPRESENTATIVE(AR)SUBMITTED TH AT THE TRIBUNAL HAD DECIDED THE IDENTICAL ISSUE IN FAVOUR OF THE ASSESSEE FOR THE A Y.S.2006-07,2008-09 AND 2010-11(ITA/ 4751/MUM/2010,DTD.21.11.2011,ITA/6008/MUM/2012-DTD. 12/02/2014 & ITA/7102/MUM/ 2014, DTD. 04.04.2016),THAT THE HONBLE HIGH COURT HAD DISMISSED THE APPEAL FILED BY THE DEPARTMENT FOR THE AY.S.2006-07 AND 2007-08.THE DEP ARTMENTAL REPRESENTATIVE(DR)LEFT THE ISSUE TO THE DISCRETION OF THE BENCH. 5. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL BEFORE US.WE FIND THAT IN THE AY.2006-07 THE FAA HAD UPHELD THE DISALLOWANCE MADE BY THE AO U/S.14A R.W.8D OF THE INCOME-TAX RULES,1962(RULES).DECIDING THE MATTER IN FAVOUR OF THE ASSESSEE,TRIBUNAL VIDE ITS ORDER 21.11.2011( ITA/4751/M/2010)HAS HELD AS UNDER : 7.WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND PER USED THE RELEVANT MATERIAL ON RECORD.AS DEMONSTRATED BY THE LEARNED COUNSEL FOR THE ASSESSE E FROM THE BALANCE SHEET OF THE ASSESSEE COMPANY ON 31 ST ,MARCH,2006,SHAREHOLDERSFUND IN THE FORM OF SHARE CAPITAL AND RESERVE AND SURPLUS AGGREGATING TO RS.71.16 CRORES WERE AVAILAB LE WITH THE ASSESSEE COMPANY AS ON 31 ST, MARCH,2006.OUT OF THE RESERVES AND SURPLUS, REVALUA TION RESERVES WAS TO THE EXTENT OF RS10.41 CRORES WHEREAS REMAINING RESERVES AVAILABLE TO THE ASSESSEE TO THE EXTENT OF RS.47.89 CRORES WERE FREE RESERVES.THUS OWN FUNDS TO THE EXT ENT OF RS.60.75 CRORES WERE AVAILABLE WITH THE ASSESSEE COMPANY AT THE RELEVANT TIME WHICH WER E MORE THAN THE INVESTMENT OF RS,57.64 CRORES MADE IN THE SHARES AND SECURITIES IN THE COR RESPONDING PERIOD. IT IS NO DOUBT TRUE THAT NO SEPARATE ACCOUNT WAS MAINTAINED BY THE ASSESSEE IN RESPECT OF INVESTMENT MADE IN SHARES AND SECURITIES AND IT WAS A CASE OF MIXED FUNDS AVA ILABLE IN THE FORM OF OWN FUNDS AND BORROWED FUNDS WHICH WERE UTILIZED FOR MAKING INVES TMENTS IN SHARES AS WELL AS FOR THE PURPOSE OF ITS MAIN BUSINESS OF MANUFACTURING AND E XPORT OF TEXTILES AND OTHER PRODUCTS.HOWEVER,AS HELD BY THE HONBLE BOMBAY HIGH COURT IN THIS CONTEXT IN THE CASE OF RELIANCE UTILITIES AND POWER LTD. (SUPRA), IF THERE ARE FUNDS AVAILABLE,BOTH INTEREST FREE AND INTEREST BORROWING,THEN A PRESUMPTION WOULD ARISE T HAT INVESTMENT WOULD BE OUT OF INTEREST FREE FUNDS GENERATED OR AVAILABLE WITH THE COMPANY. RELYING ON THE SAID DECISION OF HONBLE JURISDICTIONAL HIGH COURT,WE HOLD THAT THE ASSESSEE HAVING SUFFICIENT OWN FUNDS TO MAKE INVESTMENT IN SHARES AND SECURITIES,IT CANNOT BE SA ID THAT INTEREST EXPENDITURE INCURRED BY IT ON BORROWED FUNDS WHICH WERE UTILIZED FOR THE PURPO SE OF BUSINESS WAS IN RELATION TO EARNING OF EXEMPT DIVIDEND INCOME,SO AS TO WARRANT ANY DISA LLOWANCE ON ACCOUNT OF INTEREST EXPENDITURE U/S.14A.THE DECISION OF THE TRIBUNAL IN THE CASE OF SHOPPERS STOP LTD. (SUPRA) CITED BY THE 1EARNED COUNSEL FOR THE ASSESSEE FULLY SUPPORTS OUR VIEW WHEREIN IT WAS HELD THAT THE ASSESSEE HAVING SUFFICIENT OWN FUNDS TO COVER U P INVESTMENTS MADE IN SHARES AND SECURITIES,NO DISALLOWANCE U/S.14A ON ACCOUNT OF IN TEREST EXPENDITURE WAS WARRANTED.IT IS ALSO OBSERVED THAT THE AO HIMSELF DID NOT MAKE DISALLOWA NCE U/S L4A ON ACCOUNT OF INTEREST EXPENDITURE IN ASSESSEES OWN CASE FOR ASSESSMENT Y EAR 2005-06 IN THE ASSESSMENT COMPLETED U/S 143(3) VIDE AN ORDER DATED 20-12-2007 HOLDING T HAT THE ASSESSEE HAVING SUFFICIENT SHAREHOLDERS FUND INCLUDING INTERNAL ACCRUALS TO M AKE INVESTMENTS IN SHARES AND SECURITIES,NO DISALLOWANCE U/S 14A WAS CALLED FOR.W E, THEREFORE, HOLD THAT THE DISALLOWANCE 5418/M/15(12-13) M/S. WEIZMANN LTD. 3 MADE BY THE AO AND CONFIRMED BY THE LEARNED CIT(APP EALS) ON ACCOUNT OF INTEREST EXPENDITURE U/S.14A IS NOT SUSTAINABLE AND DELETE T HE SAME. 8.AS REGARDS THE DISALLOWANCE OF RS.27,93,160/- MAD E BY THE AO AND CONFIRMED BY THE LEARNED CIT(APPEALS)ON ACCOUNT OF ADMINISTRATIVE EX PENSES U/S.14A, WE FIND OURSELVES IN AGREEMENT WITH THE LEARNED COUNSEL FOR THE ASSESSEE THAT THE SAME IS HIGHLY EXCESSIVE AND UNREASONABLE CONSIDERING THE AMOUNT OF DIVIDEND INC OME EARNED BY THE ASSESSEE TO THE EXTENT OF RS.L,06,50,514/-.IN ONE OF THE DECISIONS RENDERED IN THE CASE OF ACIT VS. VINOD CHOPRA FILMS P. LTD. VIDE ITS ORDER DATED 29TH JULY ,2011 PASSED IN ITA NO. 4019/MUM/2010, THE TRIBUNAL HAS FOUND IT FAIR AND REASONABLE TO SU STAIN A SIMILAR DISALLOWANCE TO THE EXTENT OF 5% OF THE TOTAL DIVIDEND EARNINGS.RESPECTFULLY F OLLOWING THE SAID DECISION OF THE COORDINATE BENCH OF THIS TRIBUNAL,WE SUSTAIN THE DI SALLOWANCE MADE BY THE AO AND CONFIRMED BY THE LEARNED CIT(APPEALS)ON ACCOUNT OF ADMINISTRATIVE EXPENSES U/S.14A TO THE EXTENT OF 5% OF DIVIDEND INCOME.GROUND NOS.1 TO 5 O F THE ASSESSEES APPEAL ARE THUS PARTLY ALLOWED. SIMILAR ISSUE WAS DECIDED IN FAVOUR OF THE ASSESSEE BY THE TRIBUNAL FOR THE AY.2007-08 ALSO (ITA/7697/MUM/2010-DATED 27.06.2012).WE FIND THAT F ACTS OF THE CASE UNDER APPEAL ARE SIMILAR TO THE FACTS OF EARLIER AY.S.SO,FOLLOWING T HE ORDERS OF THE TRIBUNAL,THAT WERE ENDORSED BY THE HONBLE BOMBAY HIGH COURT, WE HOLD THAT NO D ISALLOWANCE CAN BE MADE UNDER THE HEAD INTEREST EXPENDITURE.AS FAR AS ADMINISTRATIVE EXPENSES ARE CONCERNED;FOLLOWING THE ORDER OF THE TRIBUNAL FOR THE EARLIER YEARS;WE DIRECT THE AO TO RESTRICT THE SAME TO 5% OF DIVIDEND INCOME.GROUNDS OF APPEAL TAKEN BY THE AO ARE ALLOWE D,IN PART. AS A RESULT,APPEAL FILED BY THE AO STANDS PARTLY AL LOWED. . ORDER PRONOUNCED IN THE OPEN COURT ON 1 ST SEPTEMBER, 2017. 01 ,2017 SD/- SD /- ( / SAKTIJIT DEY ) ( / RAJENDRA ) / JUDICIAL MEMBER / ACCOUNTANT MEMBER MUMBAI; /DATED : 01.09.2017. JV.SR.PS. / COPY OF THE ORDER FORWARDED TO : 1. APPELLANT / 2. RESPONDENT / 3. THE CONCERNED CIT(A)/ , 4. THE CONCERNED CIT / 5. DR G BENCH, ITAT, MUMBAI / , , . . . 6. GUARD FILE/ //TRUE COPY// / BY ORDER, / DY./ASST. REGISTRAR , /ITAT, MUMBAI.