HDFC ASSET MANAGEMENT CO. LTD, MUMBAI V. DCIT CIRCLE 1(1)(2), MUMBAI

ITA 5519/MUM/2017

• Counselvise Citation: [2019] 118 COUNSELVISE.COM (IT) 0043 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 6 month(s) 28 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 29-03-2019
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: H
• Assessment Year: 2012-2013
• Appeal Filed On: 31-08-2017
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Capital asset; Opportunity of being heard; Earning of tax free income; Rule 8D; Set aside
• Section: 142(1); 14A

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL H BENCH, MUMBAI BEFORE SHRI SHAMIM YAHYA , AM AND SHRI AMARJIT SINGH , JM I.T.A. NO S . 5519 /M/ 20 1 7 & 5520 /M/201 7 ( ASSESSMENT YEAR S : 2012 - 1 3 & 201 3 - 1 4 ) HDFC ASSET MANAGEMENT CO. LTD. 2 ND FLOOR, HDFC HOUSE, BACKBAY RECLAMATION, H. T. PAREKH MARG, CHURCHGATE, MUMBAI - 400020 . VS. JCIT - RANGE 1(1) AAYAKAR BHAVAN, M.K. MARG, MUMBAI - 400020. ./ ./ PAN/GIR NO. : AAACH7614L ( APPELLANT ) .. ( RESPONDENT ) DATE OF HEARING : 2 7 .0 3 .201 9 DATE OF PRONOUNCEMENT : 29 . 0 3 . 2019 O R D E R PER AMARJIT SINGH, JM: THE ASSESSEE HAS FILED THE ABOVE MENTIONED APPEA LS AGAINST THE ORDER DATED 30.06.2017 PASSED BY THE COMMIS S IONER OF INCOME TAX (APPEALS) - 2 , MUMBAI [HEREINAFTER REFERRED TO AS THE CIT(A)] RELEVANT TO THE ASSESSMENT YEAR S 20 12 - 13 & 2013 - 14 . ITA NO.5519 / M/201 7 : - 2. THE ASSESSEE HAS FILED THE PRESENT A PPEAL AGAINST THE ORDER DATED 30 . 0 6 .201 7 PASSED BY THE COMMISS IONER OF INCOME TAX (APPEALS) - 2 , ASSESSEE BY: SHRI NIRAJ SETH (AR) DEPARTMENT BY: SHRI M. K. SINGH (D R) ITA NOS. 5519 /MUM/201 7 5520 /MUM/2017 A.Y. 2012 - 1 3 & 201 3 - 1 4 2 MUMBAI [HEREINAFTER REFERRED TO AS THE CIT(A)] R ELEVAN T TO THE ASSESSMENT YEAR 2012 - 13 . 3. THE ASSESSEE HAS RAISED THE FOLLOWING GROUNDS: - 1. THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE LEARNED COMMISSIONER OF INCOME TAX (APPEAL) - 2 (HEREINAFTER REFERRED TO AS 'THE LD. CIT(A)') ERRED IN NOT DELETING THE DISALLOWANCE OF RS. 2,34,17,801 MADE AS EXPENSES INCURRED TOWARDS EARNING EXEMPT INCOME U/S 14A R.W.R 8D AND REMITTING THE MATTER BACK TO THE AO TO RE - COMPUTE THE DISALLOWANCE, WITHOUT APPRECIATING THE FACT THAT NO EXPENDITURE WAS ACTUALLY INCURRED BY THE APPELLANT FOR EARNING SUCH INCOME. 2. THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE LD. CI T(A) ERRED IN CONFIRMING DISALLOWANCE AS PER RULE 8D(2)(III), WITHOUT APPRECIATING THE FACT THAT SUBSTANTIAL INVESTMENTS WERE MADE BY THE APPELLANT IN ITS OWN MUTUAL FUNDS AS PER CENTRAL BUSINESS POLICY, WHICH DID NOT REQUIRE ANY SEPARATE COMPLEX ANALYSIS OR INCURRENCE OF ANY EXPENDITURE. 3. THAT THE APPELLANT CRAVES LEAVE TO ADD, AMEND, MODIFY, RESCIND, SUPPLEMENT OR ALTER ANY OF THE GROUNDS STATED HERE - IN - ABOVE, EITHER BEFORE OR AT THE TIME OF HEARING OF THIS APPEAL. 4 . THE BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE FILED ITS RETURN OF INCOME SHOWING INCOME OF RS.343,54,39,230/ - ON 22.11.2012. THE CASE WAS SELECTED FOR SCRUTINY, THEREFORE, NOTICES U/S 143(2) & 142(1) OF THE ACT WERE ISSUED AND SERVED UPON THE ASSESSEE. THE ASSESSEE COMPANY ENGAGED IN THE BUSINESS OF ACTING AS THE INVESTMENT MANAGER TO HDFC MUTUAL FUND. IT IS ALSO PROVIDING PORTFOLIO MANAGER SERVICES (PMS) TO OTHER CLIENTS. DURING THE YEAR UNDER CONSIDERATION, THE ASSESSEE EARNED DIVIDEND INCOME IN SUM OF RS. 28,60,40,387/ - ON MUTUAL FU ND AND INTEREST INCOME TO THE TUNE OF RS.22,05,729/ - EARNED ITA NOS. 5519 /MUM/201 7 5520 /MUM/2017 A.Y. 2012 - 1 3 & 201 3 - 1 4 3 FROM INVESTMENT IN THE TAX - FREE SECURED REDEEMABLE NON - CONVERTIBLE BONDS ISSUED BY NATIONAL HIGHWAY AUTHORITY OF INDIA (NHAI) & INDIAN RAILWAY FINANCE CORPORATION (IRFC). THE SAME HAS BEEN EXEMPT UNDER I.T. ACT, 1961. THE ASSESSEE DID NOT MAKE ANY DISALLOWANCE U/S 14A R.W. RULE 8D OF THE ACT, THEREFORE, THE AO APPLIED THE PROVISION U/S 14A R.W. RULE 8D OF THE ACT AND RAISED THE ADDITION IN VIEW OF THE PROVISIONS U/S 8D(III) IN SUM OF RS.2,34,17,801 / - . ACCORDINGLY, THE INCOME OF THE ASSESSEE WAS ASSESSED IN SUM OF RS.345,88,57,040/ - . FEELING AGGRIEVED, THE ASSESSEE FILED AN APPEAL BEFORE THE CIT(A) WHO CONFIRMED THE ADDITION , THEREFORE , THE ASSESSEE HAS FILED THE PRESENT APPEAL BEFORE US. ISSUE NO S . 1 TO 2 : - 5. UNDER THESE ISSUES THE ASSESSEE HAS CHALLENGED THE CONFIRMATION OF THE ADDITION IN SUM OF RS.2,34,17,801/ - RAISED U/S 14A R.W. RULE 8D(III) OF THE ACT. AT THE VERY OUTSET, THE LD. REPRESENTATIVE OF THE ASSESSEE HAS ARGUED THAT THE ISSUE HAS BEE N RESTORED BEFORE THE AO IN EARLIER A.YS.2010 - 11 & 2011 - 12 BY THE HONBLE ITAT IN THE ASSESSEES OWN CASE IN ITA. NOS. 3057 & 3058/M/2017 , THEREFORE, THE ISSUE IS LIABLE TO BE RESTORED BEFORE THE AO UNDER THE SAME DIRECTIONS IN THE INTEREST OF JUSTICE. HOW EVER, ON THE OTHER HAND, THE LD. REPRESENTATIVE OF THE DEPARTMENT HAS REFUTED THE SAID CONTENTION. THE COPY OF ORDER DATED 29.03.2017 IN THE ASSESSEES OWN CASE IN ITA. NOS. 3057 & 3058/M/2017 FOR THE A.YS.2010 - 11 & 2011 - 12. IS ON THE ITA NOS. 5519 /MUM/201 7 5520 /MUM/2017 A.Y. 2012 - 1 3 & 201 3 - 1 4 4 FILE IN WHICH THE REL EVANT FINDING HAS BEEN GIVEN IN PARA NOS. 5, 6 & 7 WHICH IS HEREBY REPRODUCED AS UNDER .: - 5. WE HAVE HEARD THE RIVAL SUBMISSIONS PERUSED THE ORDERS OF THE AUTHORITIES BELOW AND THE CASE LAW RELIED ON. WE FIND THAT FOR THE ASSESSMENT YEAR 2009 - 10 IDENTICAL ISSUES AROSE IN ASSESSEES CASE AND THE CO - ORDINATE BENCH DECIDED THE ISSUE OF DISALLOWANC E MADE UNDER 8D(2)(III) OBSERVING AS UNDER : 4. ON THE OTHER HAND THE LD. A.R. BROUGHT TO OUR NOTICE DISTINGUISHING FEATURE TO THE EFFECT THAT STRATEGIC INVESTMENT WAS MADE BY THE ASSESSEE DURING THE YEAR WHICH SHOULD NOT BE TAKEN INTO ACCOUNT WHILE COM PUTING DISALLOWANCE UNDER RULE 8D(2)(III). IT WAS SUBMITTED BY THE LD. A.R. THAT ALL THE INVESTMENTS, INCOME FROM WHICH IS EXEMPT, MADE BY THE ASSESSEE COMPANY ARE IN THE SCHEMES OF HDFC MUTUAL FUND. THESE INVESTMENTS MADE IN THE VARIOUS SCHEMES OF HDFC MU TUAL FUND ARE USUALLY MADE OUT OF BUSINESS POLICY AND THE SAME DOES NOT REQUIRE COMPLEX ANALYSIS BY TECHNICAL EXPERTS AND DOES NOT INVOLVE OR REQUIRES ANY INCURRENCE OF EXPENDITURE. HENCE, THESE INVESTMENTS SHOULD NOT BE CONSIDERED IN WORKING OUT DISALLOWA NCE UNDER RULE 8D. RELIANCE WAS PLACED ON THE DECISION OF TRIBUNAL IN RELIANCE CAPITAL ASSET MANAGEMENT LTD. VS. DCIT (ITA NO. 4459/MUM/2012) ON IDENTICAL SETS OF FACTS HELD THAT RULE 8D(III) SHOULD NOT BE APPLIED AS INVESTMENTS MADE BY THE ASSESSEE IS MAI NLY IN SCHEMES OF RELIANCE MUTUAL FUND AND GROUP CONCERN WHICH DOES NOT REQUIRES INCURRENCE OF ANY MAJOR EXPENDITURE AS THESE INVESTMENT ARE DRIVEN BY THE CENTRAL BUSINESS POLICY AND STRATEGY. 5. FURTHER RELIANCE WAS PLACED ON THE FOLLOWING DECISIONS OF MUMBAI BENCH OF ITAT: - GARWARE WALL ROPES LIMITED VS. ADDL. CIT (I.T.A.NO.4957/MUM/2012) . JM FINANCIAL LTD. VS. ADDL. CIT (I.T.A. NO.4521/MUM/2012). INTERGLOBE ENTERPRISES LTD. VS. DCIT (I.T.A. NO.1580/DEL./2013). 6. WE HAVE CONSIDERED THE RIVAL CONTENTIONS AND THE JUDICIAL PRONOUNCEMENTS CITED AT BAR ACCORDING TO WHICH CALCULATION OF ITA NOS. 5519 /MUM/201 7 5520 /MUM/2017 A.Y. 2012 - 1 3 & 201 3 - 1 4 5 DISALLOWANCE AS PER RULE 8D(2)(III) IS ERRONEOUS, AS THE AO WITHOUT ASSIGNING ANY REASON DID NOT REDUCE THE INVESTMENT IN MUTUAL FUNDS AND GROUP CONCERN WHICH DOES NOT QUIRE INCURRENCE OF MAJOR EXPENDITURE. 7. IN VIEW OF THE ABOVE, WE RESTORE THIS GROUND BACK TO THE FILE OF A.O. FOR FRESH CONSIDERATION IN TERMS OF OUR ABOVE DISCUSSION. 6. AS COULD BE SEEN FROM THE ABOVE, THE TRIBUNAL RESTORED THE ISSUE BACK TO THE FILE OF THE ASSESSING OFFICER FOR FRESH CONSIDERATION IN THE LIGHT OF THE OBSERVATION THEREON. THEREFORE, FOLLOWING THE SAID ORDER, WE RESTORE THIS ISSUE TO THE FILE OF THE ASSESSING OFFICER WHO SHALL CONSIDER THE ISSUE KEEPING IN VIEW THE OBSERVATION OF THE TRIBUNAL FOR ASSESSMENT YEAR 2009 - 10 AFTER PROVIDING ADEQUATE OPPORTUNITY OF BEING HEARD TO THE ASSESSEE. 7. AS WE HAVE RESTORED THE APPEALS OF THE ASSESSEE, WE ALSO RESTORE THE APPEALS OF TH E REVENUE TO THE FILE OF THE ASSESSING OFFICER WHO SHALL CONSIDER THE SUBMISSIONS OF THE ASSESSEE THAT THE DIVIDEND INCOME FROM THE INVESTMENTS IN HDFC MUTUAL FUND (GROWTH PLAN) IS TAXABLE WHEN THE DIVIDEND IS RECEIVED AND ALSO THE CAPITAL GAINS IS ATTRACT ED FOR THE GAIN RECEIVED ON SALE OF THESE INVESTMENTS. THE ASSESSING OFFICER SHOULD ALSO CONSIDER AS TO WHETHER INVESTMENT IN FOREIGN SUBSIDIARY COMPANY IS ALSO TAXABLE OR NOT. IN CASE, THE RETURN FROM THESE INVESTMENTS ARE TAXABLE, THE QUESTION OF APPLYIN G DISALLOWANCE UNDER SECTION 14A DOES NOT ARISE. THE ASSESSING OFFICER SHOULD EXAMINE ALL THESE ASPECTS AND DECIDE THE ISSUE IN ACCORDANCE WITH LAW AFTER PROVIDING ADEQUATE OPPORTUNITY TO THE ASSESSEE. 6. SINCE THE MATTER OF CONTROVERSY HAS ALREADY RESTOR ED BEFORE THE AO, THERE FORE, IN THE SAID CIRCUMSTANCES BY FOLLOWING THE ORDER OF COORDINATE BENCH , W E SET ASIDE THE FINDING OF THE CIT(A) ON THESE ISSUES AND RESTORED THE ISSUE BEFORE THE AO TO DECIDE THE MATTER OF CONTROVERSY AFRESH ON SIMILAR LINES. NEED LESS TO SAY THAT AN OPPORTUNITY OF BEING HEARD IS REQUIRED TO BE GIVEN TO THE ASSESSEE IN ACCORDANCE WITH LAW. ACCORDINGLY, THESE ISSUES ARE HEREBY DECIDED IN FAVOUR OF THE ASSESSEE AGAINST THE REVENUE. ITA NOS. 5519 /MUM/201 7 5520 /MUM/2017 A.Y. 2012 - 1 3 & 201 3 - 1 4 6 I TA NO . 5520 /M/201 7 : - 7 . THE MATTER OF CONTROVERSY IN THIS APPEAL IS ALSO THE SAME WHICH HAS BEEN DISCUSSED AND DECIDED WHILE DECIDING THE APPEAL BEARING ITA. N O.5519/M/2017 ABOVE . THE FINDING GIVEN IN THE SAID APPEAL IS APPLICABLE AS MUTATIS MUTANDIS. ACCORDINGLY, WE SET ASIDE THE FINDING OF THE CIT(A) ON T HE ISSUES AND RESTORED THE ISSUE BEFORE THE AO TO DECIDE THE MATTER OF CONTROVERSY AFRESH ON THE BASIS OF SIMILAR LINES AS DISCUSSED AND DECIDED ABOVE WHILE DECIDING THE ITA. NO.5519/M/2017. ACCORDINGLY, THIS APPEAL IS DECIDED IN FAVOUR OF THE ASSESSEE AGA INST THE REVENUE. 8 . IN THE RESULT , ALL THE APPEALS FILED BY THE ASSESSEE ARE HEREBY ORDERED TO BE ALLOWED FOR STATISTICAL PURPOSES . ORDER P RONOUNCED IN THE OPEN COURT ON 2 9 . 03 .2019 . SD/ - SD/ - ( SHAMIM YAHYA ) (AMARJIT SINGH) / ACCOUNTANT MEMBER /JUDICIAL MEMBER MUMBAI; DATED : 2 9 .03 .2019 . V IJAY ITA NOS. 5519 /MUM/201 7 5520 /MUM/2017 A.Y. 2012 - 1 3 & 201 3 - 1 4 7 / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT 2. / THE RESPONDENT. 3. ( ) / THE CIT(A) - 4. / CIT 5. , , / DR, ITAT, MUMBAI 6. / GUARD FILE. / BY ORDER, //TRUE COPY// SR. PRIVATE SECRETARY ) , / ITAT, MUMBAI