THOMAS COOK INDIA LIMTED, MUMBAI V. DCIT 1(3)(2), MUMBAI

ITA 5510/MUM/2017

• Counselvise Citation: [2019] 115 COUNSELVISE.COM (IT) 4296 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 6 month(s) 12 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 13-03-2019
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: E
• Assessment Year: 2013-2014
• Appeal Filed On: 31-08-2017
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: D G PANSARI
• Keywords: Sale consideration of property below Jantri Value; Earning of tax free income; Rule 8D
• Section: 143(3); 14A

Judgement Text

IN THE INCOME-TAX APPELLATE TRIBUNAL E BENC H MUMBAI BEFORE SHRI G. S. PANNU, VICE- PRESIDENT AND SHRI PAWAN SINGH, JUDICIAL MEMBER ITA NO. 5510/MUM/2017 (ASSESSMENT YEAR 2013-14) THOMAS COOK (INDIA) LTD. A-WING, 11 TH FLOOR, MARATHON FUTUREX, N.M. JOSHI MARG, LOWER PAREL (EAST), MUMBAI-400013. P AN: AAACT4050C VS. DCIT- 1(3)(2) MUMBAI. APPELLANT RESPONDENT ITA NO. 5580/MUM/2017 (ASSESSMENT YEAR 2013-14) DCIT- 1(3)(2) MUMBAI. VS. THOMAS COOK SUMITOMO CHEMICAL (I) LTD., A-WING, 11 TH FLOOR, MARATHON FUTUREX, N.M. JOSHI MARG, LOWER PAREL (EAST), MUMBAI- 400013. P AN: AAACT4050C APPELLANT RESPONDENT APPELLANT BY : SHRI PERCY PARDIWALA (AR) RESPONDENT BY : SHRI D.G. PANSARI (DR) DATE OF HEARING : 21.01.2019 DATE OF PRONOUNCEMEN T : 13.03.2019 ORDER UNDER SECTION 254(1)OF INCOME TAX ACT PER PAWAN SINGH, JUDICIAL MEMBER; 1. THESE CROSS APPEAL ARE DIRECTED AGAINST THE ORDER O F LD. COMMISSIONER OF INCOME-TAX (APPEALS)-3, MUMBAI [LD. CIT(A)] DATED 2 4.06.2017 FOR ASSESSMENT YEAR 2013-14. 2. BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE COMPA NY ENGAGED IN THE BUSINESS OF TRAVEL AGENT AND TOUR OPERATOR. THE ASS ESSEE FILED ITS RETURN OF ITA NO. 5510 & 5580 MUM 2017 -THOMAS COOK (INDIA) LTD. 2 INCOME FOR ASSESSMENT YEAR 2013-14 ON 28.11.2013 DE CLARING INCOME OF RS. 73.51 CRORE UNDER NORMAL PROVISIONS OF THE INCO ME-TAX ACT. THE RETURN OF INCOME WAS SELECTED FOR SCRUTINY. THE ASS ESSMENT WAS COMPLETED ON 22.12.2016 UNDER SECTION 143(3) OF THE ACT. DURING THE ASSESSMENT THE ASSESSING OFFICER NOTED THAT THE AS SESSEE HAS SHOWN DIVIDEND INCOME OF RS. 34,93,771/- WHICH WAS CLAIME D AS EXEMPTED UNDER SECTION 10(35) OF THE ACT. THE ASSESSEE MADE SUO MOTO DISALLOWANCE UNDER SECTION 14A OF RS. 7,35,573/-. T HE ASSESSING OFFICER NOTED THAT WHILE MAKING THE DISALLOWANCE, THE ASSES SEE HAS CONSIDERED INVESTMENT OF RS. 6.00 CRORE ONLY WHICH YIELDED EXE MPT INCOME AND IGNORED THE OTHER INVESTMENT OF RS. 185 CRORE (APRO X) MADE IN SHARES OF TRAVEL CORPORATION (I) LTD MADE. THEREFORE, THE ASS ESSING OFFICER WAS NOT SATISFIED WITH THE SUO MOTO DISALLOWANCE RS. 7,35,573/- UNDER SECTION 14A R.W. RULE 8D. THE ASSESSING OFFICER ISSUED SHOW -CAUSE NOTICE AS TO WHY DISALLOWANCE UNDER SECTION 14A READ WITH RULE 8 D SHOULD NOT BE MADE. THE ASSESSEE FILED ITS REPLY DATED 08.12.2016 CONTENDING THAT THE ASSESSEE HAS EARNED DIVIDEND INCOME FROM MUTUAL FUN D OF RS. 34,93,771/- AND OFFERED SUO MOTO DISALLOWANCE OF RS. 7,35,572/-. THE ASSESSEE HAS NOT INCURRED ANY EXPENDITURE, DIRECT OR INDIRECT FO R EARNING SAID EXEMPT INCOME. THE ASSESSEE FURTHER CONTENDED THAT THE ASS ESSEE HAS SUFFICIENT INTEREST FREE FUNDS AVAILABLE ENDING ON MARCH 2013. THERE IS NO NEXUS BETWEEN THE INTEREST EXPENDITURE AND THE INVESTMENT . THE CONTENTION OF ITA NO. 5510 & 5580 MUM 2017 -THOMAS COOK (INDIA) LTD. 3 ASSESSEE WAS NOT ACCEPTED BY ASSESSING OFFICER. THE ASSESSING OFFICER INVOKED THE PROVISIONS OF RULE 8D AND DISALLOWED RS . 5,38,58,422/- UNDER RULE 8D(II) AND RS.98,10,521/- UNDER RULE 8D( III) BEING % OF INVESTMENT MADE FOR EARNING EXEMPT INCOME. THUS, TH E ASSESSING OFFICER MADE TOTAL DISALLOWANCE UNDER SECTION 14A READ WITH RULE 8D OF RS. 6,36,68,943/-. AFTER GIVING THE SET OFF OF SUO MOTO DISALLOWANCE OF RS.7,35,572/-, THE ASSESSING OFFICER ADDED RS. 6,29 ,33,371/-. ON APPEAL BEFORE THE LD. CIT(A), THE DISALLOWANCE UNDER SECTI ON 14A WAS RESTRICTED TO EXEMPT INCOME OF RS. 34,93,771/-. THEREFORE, AGG RIEVED BY THE ORDER OF LD. CIT(A), BOTH THE PARTIES HAVE FILED THEIR RE SPECTIVE APPEAL RAISING THE GROUNDS OF APPEAL AS REFERRED BELOW. 3. THE ASSESSEE HAS RAISED THE FOLLOWING GROUNDS OF AP PEAL: ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE A ND IN LAW, 1: 0 RE.: ADDITION OF RS. 34,93,771/- BEING THE DISALLOW ANCE UNDER SECTION 14A OF THE INCOME- TAX ACT, 1961 READ WITH RULE 8D OF THE INCOME-TAX RULES, 1962 : 1 : 1 THE ID. CIT(A) HAS ERRED IN DISALLOWING A SUM OF RS.34,93,771/-, BEING THE AMOUNT OF EXEMPT INCOME EARNED BY THE APPELLANT FOR THE YEAR UNDER CONSIDERATION, UNDER SECTION 14A OF THE INCOME-TAX ACT, 1961 READ WITH RULE 8D OF THE INCOME-TAX RULES, 1962,. 1 : 2 THE ID. CIT(A) ERRED IN DISALLOWING THE AMOUN T UNDER SECTION 14A OF THE ACT WITHOUT APPRECIATING THAT THE APPELLANT HAS SUO MOTA DISALLOWED RS.7,35,572/- IN ITS RETURN OF INCOME FOR AY 2013-1 4. THE ID. CIT(A) ALSO FAILED TO APPRECIATE THAT THE HON'BLE INCOME TAX AP PELLATE TRIBUNAL ('ITAT''), IN THE APPELLANT'S OWN CASE FOR AY 2009-10, AY 2010-11 & AY 2011-12 AND THE CIT(A) FOR AY 2008- 09 & 2009-10; HAS HELD THAT STR ATEGIC INVESTMENTS ITA NO. 5510 & 5580 MUM 2017 -THOMAS COOK (INDIA) LTD. 4 SHOULD BE EXCLUDED FROM THE LIST OF INVESTMENTS WHI LE COMPUTING THE DISALLOWANCE UNDER SECTION 14A OF THE ACT READ WITH RULE 8D OF THE RULES. 1 : 3 THE APPELLANT SUBMITS THAT CONSIDERING THE FA CTS AND CIRCUMSTANCES OF ITS CASE AND THE LAW PREVAILING ON THE SUBJECT NO FURTH ER DISALLOWANCE U/S. 14A OF THE INCOME-TAX ACT, 1961 WAS CALLED FOR AND HENCE T HE STAND TAKEN BY THE CIT(A) IN THIS REGARD IS MISCONCEIVED, ERRONEOUS AN D INCORRECT. 1: 4 THE APPELLANT SUBMITS THAT CONSIDERING THE FAC TS OF THE CASE, THE ADDITIONAL DISALLOWANCE U/S. 14A OF RS. 34,93,771/- BE DELETED AND TOTAL INCOME AND TAX OF THE APPELLANT BE RE-COMPUTE THEREON ACCORDINGLY. 4. IN CROSS APPEAL, THE REVENUE HAS RAISED THE FOLLOWI NG GROUNDS OF APPEAL: 1. WHETHER ON THE FACTS AND CIRCUMSTANCES OF THE CASE , THE LD. CIT(A) JUSTIFIED IN LAW IN HOLDING THAT DISALLOWANCE SHOUL D NOT EXCEED EXEMPT INCOME AND RESTRICTING THE DISALLOWANCE TO THE EXTE NT OF EXEMPT INCOME WHILE COMPUTING THE DISALLOWANCE U/S 14A R.W.R.8D. 5. WE HAVE HEARD THE SUBMISSION OF LD. AUTHORIZED REPR ESENTATIVE (AR) OF THE ASSESSEE AND LD. DEPARTMENTAL REPRESENTATIVE (D R) FOR THE REVENUE AND PERUSED THE MATERIAL AVAILABLE ON RECORD. THE L D. AR OF THE ASSESSEE SUBMITS THAT ONLY THOSE INVESTMENT ARE TO BE CONSID ERED FOR COMPUTING AVERAGE VALUE OF INVESTMENT WHICH YIELDED THE EXEMP T INCOME DURING THE YEAR AS PER THE DECISION OF SPECIAL BENCH IN ACIT V S. VIREET INVESTMENT PVT. LTD. [165 ITD 27 (DEL.)]. THE LD. AR OF THE AS SESSEE SUBMITS THAT THE ASSESSEE EARNED EXEMPT INCOME ONLY, FROM THE INVEST MENT OF RS. 6.00 CRORE INVESTED IN ITS SUBSIDIARIES. THE ASSESSEE HA S NOT EARNED ANY EXEMPT INCOME FROM INVESTMENT MADE IN OTHER EQUITY SHARES. THEREFORE, OTHER INVESTMENT MADE IN TRAVEL CORPORATION OF INDIA OF R S. 184.84 CRORE SHOULD BE EXCLUDED WHILE TAKING AVERAGE VALUE OF IN VESTMENT. ITA NO. 5510 & 5580 MUM 2017 -THOMAS COOK (INDIA) LTD. 5 6. THE LD. AR SUBMITS THAT THE HONBLE DELHI HIGH COUR T IN PCIT VS. CARAF BUILDERS & CONSTRUCTIONS (P.) LTD. [2019] 101 TAXMA NN.COM 167 (DEL.) HELD THAT ONLY AVERAGE VALUE OF THE INVESTMENT WHIC H YIELDED EXEMPT INCOME SHOULD BE CONSIDERED AND NOT THE ENTIRE INVE STMENT WHICH COULD BE COVERED BY THE DISALLOWANCE OF RULE 8D(2)(II). T HE LD. AR OF THE ASSESSEE ALSO FURNISHED THE CALCULATION OF SUO MOTO DISALLOWANCE, WHEREIN IT WAS POINTED OUT THAT INVESTMENT IN MUTUAL FUND O F RS. 6.00 CRORE WAS TAKEN INTO CONSIDERATION WHILE MAKING DISALLOWANCE. 7. ON THE OTHER HAND, THE LD. DR FOR THE REVENUE SUPPO RTED THE ORDER OF ASSESSING OFFICER AND RELIED UPON THE DECISION OF H ONBLE APEX COURT IN MAXOPP INVESTMENT LTD. VS. CIT [2018] 91 TAXMANN.CO M 154(SC). 8. WE HAVE CONSIDERED THE RIVAL SUBMISSION OF THE PART IES AND HAVE GONE THROUGH THE ORDERS OF AUTHORITIES BELOW. THE GROUND S OF APPEAL RAISED BY THE PARTIES ARE INTERCONNECTED; THEREFORE, WE SHALL DECIDE THE GROUNDS OF APPEAL IN BOTH THE APPEAL TOGETHER. THE ASSESSING OFFICER DURING THE ASSESSMENT DISALLOWED RS. 5,38,58,422/- UNDER RULE 8D2(II) AND RS.98,10,521/- UNDER RULE 8D2(III) BEING % OF INVE STMENT MADE FOR EARNING EXEMPT INCOME, NO DISALLOWANCE UNDER RULE 8 D(I) WAS MADE. THUS, TOTAL DISALLOWANCE UNDER SECTION 14A OF RS. 6 ,36,68,943/-. AFTER GIVING THE SET OFF OF SUO MOTO DISALLOWANCE OF RS.7,35,572/-, THE ASSESSING OFFICER ADDED RS. 6,29,33,371/-. ITA NO. 5510 & 5580 MUM 2017 -THOMAS COOK (INDIA) LTD. 6 9. THE ASSESSING OFFICER HAS MADE THE CALCULATION ON T HE BASIS OF THE PROVISIONS OF RULE 8D(2), WHICH WAS PRIOR TO ITS SU BSTITUTED POSITION. THE RULE 8D(2) HAS BEEN SUBSTITUTED W.E.F. 02.06.2016, WHICH HAS NOT BEEN CONSIDERED BY ASSESSING OFFICER. THE LD CIT(A) REST RICTED THE DISALLOWANCES UNDER SECTION 14A READ WITH RULE 8D T O THE EXTENT OF EXEMPT INCOME. 10. SPECIAL BENCH OF DELHI TRIBUNAL IN ACIT VS VIREET I NVESTMENT (P) LTD [2017] 165 ITD 27(DELHI-TRIBUNAL) HELD THAT ONLY TH OSE INVESTMENT ARE TO BE CONSIDERED FOR COMPUTING AVERAGE VALUE OF INV ESTMENT WHICH YIELDED EXEMPT INCOME DURING THE YEAR. 11. THE HONBLE DELHI HIGH COURT IN PR CIT VS CARAF BUI LDERS & CONSTRUCTION (P) LTD (SUPRA) WHILE CONSIDERING THE QUANTUM OF DISALLOWANCE UNDER SECTION 14A HELD WHILE COMPUTIN G THE DISALLOWANCE UNDER CLAUSE (II) OF RULE 8D(2) WITH REFERENCE TO T HE FORMULA PRESCRIBED. NUMERICAL B IN CLAUSE (II) REFERS TO AVERAGE VALUE OF THE INVESTMENT, INCOME FROM WHICH DOES NOT FORM PART OR SHALL NOT F ORM PART OF THE TOTAL INCOME. THE HONBLE COURT OBSERVED THAT ASSESSING O FFICER FOR NUMERICAL B IN CLAUSE (II) HAD TAKEN THE TOTAL VALUE OF THE I NVESTMENT AND NOT THE INVESTMENT THAT HAD YIELDED EXEMPT INCOME. THE DELH I HIGH COURT ALSO RELIED ON ITS EARLIER DECISION IN ACB INDIA LTD. VS ACIT [2015] 62 TAXMANN.COM 71/235 TAXMAN 22 (DELHI) WHEREIN IT WAS HELD THAT ONLY AVERAGE VALUE OF THE ENTIRE INVESTMENT THAT DOES NO T FORM PART OF THE TOTAL ITA NO. 5510 & 5580 MUM 2017 -THOMAS COOK (INDIA) LTD. 7 INCOME IS THE FACTOR WHICH COULD BE COVERED BY THE NUMERICAL B FOR COMPUTING DISALLOWANCE UNDER CLAUSE (II) OF RULE 8D (2). 12. NOW COMING TO THE FACTS OF THE PRESENT CASE, WE HA VE NOTED THAT THE LD. AR FOR THE ASSESSEE WHILE MAKING SUBMISSIONS FURNIS HED THE WORKING OF THE SUO MOTO DISALLOWANCE UNDER SECTION 14A. THE ASSESSEE HAS O FFERED RS. 5,85,357/- BEING INTEREST NOT DIRECTLY ATTRIBUT ABLE AND RS.1,50,215/- BEING 0.5% OF AVERAGE VALUE ON INVESTMENT (YIELDING EXEMPT INCOME) THUS TOTAL OF RS. 7,35,572/-. THE ASSESSEE HAS INCL UDED THOSE INVESTMENT WHICH YIELDED EXEMPT INCOME AND HAS NOT CONSIDERED THE STRATEGIC INVESTMENT ON WHICH DIVIDEND WAS EARNED. THE ASSES SEE HAS SHOWN AVERAGE TOTAL INTEREST FREE FUNDS OF RS. 918 CRORE AS ON 31.03.2013. THE ASSESSEE HAS INVESTED ONLY RS. 6.00 CRORE IN MUTUAL FUND AND RS.20,000/- IN INVESTMENT IN SHARES. THE BONE OF CONTENTION I S RS. 185 CRORE (APROX.) INVESTED IN THE SHARES OF TRAVEL CORPORATI ON (I) LTD. THE CONTENTION OF THE ASSESSEE THROUGHOUT THE PROCEEDIN GS THAT THE ASSESSEE HAS CONSIDERED THOSE INVESTMENTS FOR TREATING THE A VERAGE VALUE OF INVESTMENT WHICH YIELDED THE EXEMPT INCOME. THE CON TENTION OF THE ASSESSEE GETS SUPPORT FROM THE DECISION OF HONBLE DELHI HIGH COURT IN PR CIT VS CARAF BUILDERS & CONSTRUCTION (P) LTD (SU PRA). THEREFORE, RESPECTFULLY FOLLOWING THE DECISION OF DELHI HIGH C OURT IN CARAF BUILDERS & CONSTRUCTION (P) LTD (SUPRA), WE DIRECT THE ASSES SING OFFICER TO EXAMINE THE SUO MOTO WORKING OF THE ASSESSEE AND CONSIDER ONLY THOSE IN VESTMENTS ITA NO. 5510 & 5580 MUM 2017 -THOMAS COOK (INDIA) LTD. 8 WHICH YIELDED THE EXEMPT INCOME DURING THE RELEVANT PERIOD AND GRANT APPROPRIATE RELIEF TO THE ASSESSEE ON DISALLOWANCE UNDER RULE 8D(II)[ AMENDED W.E.F.02.06.2016]. 13. THE RELIANCE IN MAXOPP INVESTMENT LTD VS CIT (SUPR A) IS NOT HELPFUL TO THE LD DR FOR THE REVENUE AS THE ASSESSEE HAS NOT T AKEN PLEA BEFORE US THAT THE INVESTMENT OF RS. 185 CRORE (APPROX) MADE BY AS SESSEE FOR STRATEGIC PURPOSE FOR CONTROLLING STAKE. RATHER THE RATIO LAI D DOWN BY HONBLE DELHI HIGH COURT IN CARAF BUILDERS & CONSTRUCTION (P) LTD (SUPRA) IS FULLY APPLICABLE ON THE FACTS OF THE PRESENT CASE. 14. IN THE RESULT THE GROUNDS OF APPEAL ARE ALLOWED FO R STATISTICAL PURPOSE. 15. AS WE HAVE ALLOWED THE GROUNDS OF APPEAL IN DIRECT ING THE ASSESSING OFFICER FOR EXAMINING THE SUO MOTO DISALLOWANCE IN ACCORDANCE WITH THE DECISION OF DELHI HIGH COURT IN CARAF BUILDERS & CO NSTRUCTION (P) LTD (SUPRA), THEREFORE, THE GROUND OF APPEAL RAISED BY THE REVENUE HAS BECOME INFRUCTUOUS. IN THE RESULT THE APPEAL OF THE REVENU E IS DISMISSED. 16. IN THE RESULT, APPEAL OF THE ASSESSEE IS ALLOWED AN D REVENUE IS DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 13/ 03/2019. SD/- SD/- G.S. PANNU PAWAN SINGH VICE-PRESIDENT JUD ICIAL MEMBER MUMBAI, DATE: 13.03.2019 SK ITA NO. 5510 & 5580 MUM 2017 -THOMAS COOK (INDIA) LTD. 9 COPY OF THE ORDER FORWARDED TO : 1. ASSESSEE 2. RESPONDENT 3. THE CONCERNED CIT(A) 4. THE CONCERNED CIT 5. DR E BENCH, ITAT, MUMBAI 6. GUARD FILE BY ORDER, DY./ASST. REGISTRAR ITAT, MUMBAI