WORLDWIDE MEDIA P.LTD, MUMBAI V. DCIT 1(3), MUMBAI

ITA 5462/MUM/2014

• Counselvise Citation: [2016] 131 COUNSELVISE.COM (IT) 3640 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 11 month(s) 19 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 16-08-2016
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: G
• Next Hearing Date: 20-07-2016
• Assessment Year: 2009-2010
• Appeal Filed On: 28-08-2014
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: O P MEENADR
• Assessee Lawyers: PARAS SAVLAAR; KEERTHIGA
• Keywords: Earning of tax free income
• Section: 14A

Judgement Text

, INCOME-TAX APPELLATE TRIBUNAL -GBENCH MUMBAI , , , BEFORE S/SHRI RAJENDRA,ACCOUNTANT MEMBER AND RAM LAL NEGI,JUDICIAL MEMBER ./ITA/5462/MUM/2014, /ASSESSMENT YEARS: 2009-10 WORLDWIDE MEDIA PVT. LTD. 4 TH FLOOR, TIMES OF INDIA BUIULDING DR. D.N. ROAD, FORT MUMBAI-400 001. PAN:AADCM 7563 Q VS. DCIT-1(3) AAYAKAR BHAVAN, M.K. ROAD, MUMBAI-400 020. ( /APPELLANT ) ( / RESPONDENT) REVENUE BY: SHRI O.P. MEENA-DR ASSESSEE BY: SHRI PARAS SAVLA-(AR) AND MISS KEERTHIGA /DATE OF HEARING: 16.08.2016 / DATE OF PRONOUNCEMENT: 16.08.2016 , 1961 254 )1( ORDER U/S.254(1)OF THE INCOME-TAX ACT,1961(ACT) PER RAJENDRA, AM - CHALLENGING THE ORDER DATED 29/05/2014 OF THE CIT ( A)-2,MUMBAI THE ASSESSEE HAS FILED THE PRESENT APPEAL.ASSESSEE-COMPANY,ENGAG ED IN THE BUSINESS OF PRINTING AND PUBLISHING OF MAGAZINES,FILED ITS RETU RN OF INCOME ON 30/09/2009, DECLARING TOTAL INCOME AT RS.(-)1.39 CRORES.THE ASS ESSING OFFICER(AO) COMPLETED THE ASSESSMENT U/S.143 (3) OF THE ACT, ON 30/12/2011,DETERMINING ITS INCOME AT RS.27,69,170/-. 2. THE SOLITARY GROUND OF APPEAL IS ABOUT CONFIRMING T HE DISALLOWANCE OF RS. 50. 64 LAKHS,MADE U/S.14A OF THE ACT.DURING THE ASSESSM ENT PROCEEDINGS,THE AO FOUND THAT THE ASSESSEE HAD SHOWN DIVIDEND INCOME O F RS.25.99 LAKHS, THAT THE SAME WAS CLAIMED AS EXEMPT INCOME, THAT IT DID NOT MAKE ANY DISALLOWANCE U/S.14 A OF THE ACT, THAT THE ASSESSEE HAD MADE INV ESTMENT TO THE TUNE OF RS. 12.26 CRORES, THAT IT HAD INCURRED INTEREST EXPENDI TURE OF RS. 2.76 CRORES ON THE FUNDS BORROWED DURING THE YEAR.HE ASKED THE ASSESSE E TO EXPLAIN AS TO WHY DISALLOWANCE U/S.14 A R.W. RULE 8D OF THE INCOME TA X RULES,1962 (RULES) SHOULD NOT BE CALCULATED.VIDE ITS LETTER DATED 9/12 /201 AND 12/12/2011 THE ASSESSEE ARGUED THAT IT HAD NOT INCURRED ANY DIRECT EXPENDITURE FOR EARNING 5462/M/14 WORLDWIDE MEDIA 2 DIVIDEND INCOME OR FOR MAKING ANY INVESTMENT IN THE MUTUAL FUNDS, THAT THE INVESTMENTS WERE MADE OUT OF THE SURPLUS FUNDS. AFT ER CONSIDERING THE SUBMISSION OF THE ASSESSEE, THE AO OBSERVED THAT TH E EFFECT OF SECTION 14A WAS TO WIDEN THE THEORY OF THE APPORTIONMENT OF THE EXP ENDITURE, THAT THE EXPENDITURE INCURRED U/S.14A WOULD INCLUDE DIRECT A ND INDIRECT EXPENDITURE BUT THE RELATIONSHIP WITH THE EXEMPT INCOME HAD TO BE A PPROXIMATE,THAT THERE WAS DIRECT NEXUS BETWEEN THE EXPENDITURE INCURRED AND T HE INCOME NOT FORMING THE PART OF TOTAL INCOME.HE REFERRED TO THE CASE OF CHE MINVESTMENT LTD.(124 TTJ 577)AND MADE THE DISALLOWANCE OF RS.50,64,722/-(RS. 43.42 LAKHS UNDER THE HEAD INTEREST EXPENDITURE+ RS.7.22 LAKHS UNDER THE HEAD 0.5% OF AVERAGE INVESTMENTS). 3. AGGRIEVED BY THE ORDER OF THE AO, THE ASSESSEE PREF ERRED AN APPEAL BEFORE THE FIRST APPELLATE AUTHORITY(FAA).BEFORE HIM,IT WAS CO NTENDED THAT WHILE MAKING DISALLOWANCE OUT OF INTEREST, THE AO HAD CONSIDERED THE ENTIRE INTEREST EXPENDITURE WITHOUT APPRECIATING THE FACT THAT THE BORROWED FUNDS WERE MAINLY UTILISED FOR PAYMENT OF PURCHASE CONSIDERATION OF B RANDS OF MAGAZINES, THAT NO EXPENDITURE HAD BEEN INCURRED IN ARRIVING AT INCOME WHICH WAS NOT CHARGEABLE TO TAX. THE ASSESSEE RELIED UPON CERTAIN CASE LAWS. AFTER CONSIDERING THE SUBMISSION OF THE ASSESSEE AN D THE ASSESSMENT ORDER, THE FAA HELD THAT IN THE EARLIER YEARS THE THEN FAA.S.H AVE DECIDED THE IDENTICAL ISSUE AGAINST THE ASSESSEE.HE REFERRED TO THE CASE OF THE DAMANI ESTATE AND FINANCE PRIVATE LTD., AND HELD THAT WHERE THERE WAS NO SEPARATE AN EXCLUSIVE ESTABLISHMENT MENDING FOR THE PURPOSE OF MANAGING I NVESTMENTS THAT YIELD EXEMPT INCOME OF PRESUMPTION WAS REQUIRED TO BE MAD E THAT COMMON OFFICE FACILITIES AVAILABLE WERE ALSO UTILISED FOR THE PUR POSE OF INVESTMENT ACTIVITIES, THAT THERE WAS AN UNDERLYING PRESUMPTION UNDER THE RULE 8D OF THE RULES. FINALLY, HE UPHELD THE DISALLOWANCE MADE BY THE AO. 5462/M/14 WORLDWIDE MEDIA 3 4. DURING THE COURSE OF HEARING BEFORE US,THE AUTHORIS ED REPRESENTATIVE(AR) CONTENDED THAT THE LOAN WAS TAKEN FOR THE BUSINESS PURPOSES, THAT THE BORROWED FUNDS WERE NOT UTILISED FOR MAKING INVESTMENT RESUL TING IN EXEMPT INCOME, THAT THE OWN FUND OF THE ASSESSEE WAS FAR MORE THAN THE INVESTMENTS FOR THE YEAR UNDER CONSIDERATION, THAT AO HAD NOT MADE ANY DISAL LOWANCE UNDER THE HEAD INTEREST EXPENDITURE WHILE COMPLETING THE ASSESSMEN T FOR THE AY. 2008-09 THOUGH THE FACTS WERE IDENTICAL.ONE QUERY BY THE BE NCH ABOUT THE DISALLOWANCE MADE ON ACCOUNT OF 0.5% OF THE AVERAGE INVESTMENT, THE AO STATED THAT MATTER COULD BE DECIDED ON MERITS. HE REFERRED TO THE CASE S OF ORIENTAL STRUCTURAL ENGINEERS PRIVATE LTD.(ITA 605 OF 2012)OF THE HONOR ABLE DELHI HIGH COURT AND GEOJIT INVESTMENT SERVICES LTD (ITA/261/COCH/2014-A Y.2008- 09,DTD.28/08/2014).THE DEPARTMENTAL REPRESENTATIVE (DR)SUPPORTED THE ORDER OF THE AO AND THE FAA. 5. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL AVAILABLE ON RECORD.THE UNDISPUTED FACTS OF THE CASE ARE THAT TH E ASSESSEE HAD SHOWN DIVIDEND INCOME OF RS.25.99 LAKHS THAT IT HAD NOT M ADE ANY DISALLOWANCE U/S.14 A OF THE ACT,THAT THE AO AFTER CONSIDERING THE SUBM ISSION OF THE ASSESSEE MADE A DISALLOWANCE OF RS. 50.64 LAKHS. WE FIND THAT THE ASSESSEE HAD BORROWED THE FUNDS FOR ITS BUSINESS (PAGES 107-09 OF THE PAPER B OOK),THAT IT HAD NOT INVESTED THE BORROWED MONEY FOR MAKING INVESTMENT THAT YIELD ED DIVIDEND INCOME, THAT THE OWN FUNDS OF THE ASSESSEE WERE OF RS. 68.78 CRO RES, THAT THE INVESTMENT WAS OF RS. 12.26 CRORES ONLY.IN OUR OPINION,IF THE FUND S OWNED BY THE ASSESSEE OR MORE THAN THE INVESTMENTS MADE NO DISALLOWANCE COUL D BE MADE FOR INTEREST EXPENDITURE. THE PRESUMPTION,AS HELD BY THE VARIOUS HONORABLE HIGH COURTS, IS THAT THE ASSESSEE UTILISED ITS OWN FUNDS FOR MAKING INVESTMENTS. IN THE CASE UNDER CONSIDERATION THE AO HAD NOT BROUGHT ON RECOR D ANY FACT PROVING THAT THE LOAN TAKEN BY THE ASSESSEE WAS NOT USED FOR THE BUS INESS PURPOSES. IF THE ASSESSEE HAD UTILISED THE BORROWED FUNDS FOR ITS BU SINESS AND NOT FOR THE 5462/M/14 WORLDWIDE MEDIA 4 INVESTMENT,THERE WAS NO JUSTIFICATION FOR INVOKING THE PROVISIONS OF SECTION 14A OF THE ACT.THEREFORE, WE HOLD THAT THE ORDER OF THE FAA CONFIRMING THE DISALLOWANCE OF RS. 43.42 LAKHS UNDER THE HEAD INTE REST EXPENSES CANNOT BE ENDORSED.AS FAR AS THE DISALLOWANCE MADE UNDER THE HEAD 0.5% OF THE AVERAGE INVESTMENT IS CONCERNED,WE WOULD LIKE MENTION THAT SAME SHOULD BE RESTRICTED TO 2% OF THE DIVIDEND INCOME.EFFECTIVE GROUND OF AP PEAL, RAISED BY THE ASSESSEE, IS ALLOWED IN ITS FAVOUR, IN PART. AS A RESULT, APPEAL FILED BY THE ASSESSEE STANDS PARTLY ALLOWED . ORDER PRONOUNCED IN THE OP EN COURT ON 16 TH ,AUGUST,2016. 16 , 2016 SD/- SD/- ( / R.L.NEGI ) ( / RAJENDRA ) / JUDICIAL MEMBER / ACCOUNTANT MEMBER MUMBAI; DATED : 16 .08.2016. JV.SR.PS. / COPY OF THE ORDER FORWARDED TO : 1. APPELLANT / 2. RESPONDENT / 3. THE CONCERNED CIT(A)/ , 4. THE CONCERNED CIT / 5. DR BENCH, ITAT, MUMBAI / , , . . . 6. GUARD FILE/ !' //TRUE COPY// / BY ORDER, / DY./ASST. REGISTRAR , /ITAT, MUMBAI.