ACIT 7(2), MUMBAI V. RELIANCE LAND P. LTD, MUMBAI

ITA 5547/MUM/2010

• Counselvise Citation: [2011] 140 COUNSELVISE.COM (IT) 56083 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 5 month(s) 6 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 14-12-2011
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: D
• Next Hearing Date: 29-11-2011
• Assessment Year: 2007-2008
• Appeal Filed On: 08-07-2010
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: DR B SENTHI KUMAR
• Keywords: Earning of tax free income
• Section: 14A

Judgement Text

1 ITA 5547/ M/2010, M/S RELIANCWE LAND P. LTD. IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCHES D BEFORE SHRI R.K. PANDA, A.M. AND SHRI VIJAY PAL RAO , J.M. ITA NO. 5547/MUM/2010 ASSESSMENT YEAR 2007-08 ACIT 7(2), R. NO. 624, AAYAKAR BHAWAN, M.K. ROAD, MUMBAI 20. VS. M/S RELIANCE LAND PVT. LTD., 6 TH FLOOR, NAGIN MAHAL, 82 VEER NARIMAN ROAD, CHURCHGATE, MUMBAI 400 020. PAN AAACR 2367J APPELLANT RESPONDENT APPELLANT BY DR. B. SENTHI KUMAR RESPONDENT BY SHRI JITENDRA SANGHVI DATE OF HEARING 30.11.2011 DATE OF PRONOUNCEMENT 14.12.2011 ORDER PER R.K. PANDA A.M. THIS APPEAL FILED BY THE REVENUE IS DIRECTED AGAIN ST THE ORDER DT. 13.03.2010 OF THE CIT(A)- 13 MUMBAI RELATING TO A.Y. 2007-08. 2. THE REVENUE IN ITS GROUNDS OF APPEAL HAS CHALLEN GED THE ORDER OF THE LD. CIT(A) IN RESTRICTING THE DISALLOWANCE U/S 14A OF T HE I.T. ACT TO RS. 47,99,527/- AS AGAINST 3,67,72,335/- MADE BY THE A.O. 3.1. FACTS OF THE CASE IN BRIEF ARE THAT THE A.O. D URING THE COURSE OF ASSESSMENT PROCEEDINGS NOTED THAT THE ASSESSEE HAS EARNED EXEMPT DIVIDEND INCOME OF RS. 4,63,50,000/- ON INVESTMENTS MADE. H E NOTED THAT THE ASSESSEE 2 ITA 5547/ M/2010, M/S RELIANCWE LAND P. LTD. HAS BORROWED INTEREST BEARING FUNDS AND HAS INVESTE D IN SHARES AND SECURITIES. THEREFORE, HE WAS OF THE OPINION THAT THE ASSESSEE SATISFIES ALL THE CONDITIONS FOR DISALLOWANCE OF EXPENSES ATTRIBUTABLE FOR EARNI NG OF EXEMPT INCOME U/S 14A OF THE ACT. ON BEING CONFRONTED BY THE A.O. IT WAS SUBMITTED BY THE ASSESSEE THAT IT HAS SUO MOTU DISALLOWED AN AMOUNT OF RS. 47 ,99,527/- U/A 14A. THE ASSESSEE FILED DETAILED BREAK-UP OF AMOUNT BORROWED AND AMOUNT INVESTED AND TRIED TO PROVE THE NEXUS OF BORROWED FUNDS UTILIZED FOR GIVING LOANS AND ADVANCES. IT WAS EXPLAINED THAT THE EXPENDITURE OF RS. 47,99,527/- HAS BEEN DIRECTLY INCURRED IN RELATION TO INVESTMENT IN SHAR ES OF ADLABS FILMS LTD. AND BALANCE INTEREST OF RS. 8,39,12,877/- IS DIRECTLY INCURRED IN RELATION TO LOAN GIVEN TO SWAN CONSULTANTS LTD. ON WHICH TAXABLE INT EREST HAS BEEN RECEIVED. IT WAS ACCORDINGLY SUBMITTED THAT NO DISALLOWANCE U/S 14A READ WITH RULE 8D2(II) CAN BE RESORTED TO. HOWEVER, THE A.O. WAS NOT SATI SFIED WITH THE EXPLANATION GIVEN BY THE ASSESSEE AND CALCULATED THE DISALLOWAN CE U/S 14A R.W. RULE 8D AT RS. 4,15,71,862/-. AFTER DEDUCTING INTEREST EXPENDI TURE OF RS. 47,99,527/- DISALLOWED BY THE ASSESSEE, THE A.O. MADE AN ADDITI ON OF RS. 8,31,91,23,665/-. 3.2 BEFORE THE LD. CIT(A), THE ASSESSEE FILED STATE MENT OF LOAN TAKEN AND UTILIZATION THEREOF SHOWING ONE TO ONE NEXUS. IT W AS FURTHER SUBMITTED THAT RULE 8D(2)(II) CAN BE APPLIED ONLY WHEN THE EXPENDI TURE INCURRED BY WAY OF INTEREST DURING THE PREVIOUS YEAR IS NOT DIRECTLY A TTRIBUTABLE TO ANY PARTICULAR INCOME OR RECEIPT. IT WAS FURTHER SUBMITTED THAT TH E EXPENDITURE OF RS. 47,99,527/- HAS BEEN DIRECTLY INCURRED IN RELATION TO INVESTMENT IN SHARES OF ADLABS FILMS LTD. AND BALANCE INTEREST OF RS. 8.39, 12,877/- HAS BEEN DIRECTLY INCURRED IN RELATION TO LOAN GIVEN TO SWAN CONSULTA NTS PVT. LTD. ON WHICH TAXABLE INTEREST IS RECEIVED. IT WAS ACCORDINGLY A RGUED THAT THERE CANNOT BE ANY FURTHER DISALLOWANCE U/S 14A READ WITH RULE 8D(2)(I I). 3.3 BASED ON THE ARGUMENTS ADVANCED BY THE ASSESSEE AND THE VARIOUS DETAILS FURNISHED, THE LD. CIT(A) NOTED THAT AN AMO UNT OF RS. 300 CRORES TAKEN 3 ITA 5547/ M/2010, M/S RELIANCWE LAND P. LTD. FROM RELIANCE CAPITAL LTD. BY THE ASSESSEE ON 29.1. 2007 AT 11% INTEREST HAS BEEN GIVEN TO SWAN CONSULTANTS P. LTD. ON THE SAME DAY. THE INTEREST PAID AT RS. 5.61 CRORES TO RELIANCE CAPITAL LTD. HAS BEEN R ECEIVED FROM M/S SWAN CONSULTANTS P. LTD. SIMILARLY, THE ASSESSEE HAS REC EIVED INTEREST OF RS. 2,78,58,082/- ON ACCOUNT OF LOAN GIVEN TO SWAN CONS ULTANTS (P) LTD. AND THE ASSESSEE HAS PAID INTEREST OF RS. 2,78,58,082/- TO RELIANCE CAPITAL LTD. FROM WHOM THE LOAN WAS TAKEN. HOWEVER, INTEREST HAS BEEN PAID TO SONATA INVESTMENTS PVT. LTD. AT RS. 47,99,527/- ON BORROWE D FUNDS WHICH HAS BEEN INVESTED IN SHARES OF ADLABS FILMS LTD. THUS HE NO TED THAT THERE IS ONE TO ONE NEXUS BETWEEN INTEREST PAID AND INTEREST RECEIVED. HE, THEREFORE, REJECTED THE CONTENTION OF THE A.O. THAT THE EXPENSES INCURRED F OR EARNING EXEMPT INCOME CANNOT BE CORRECTLY WORKED OUT. HE THUS DELETED TH E ADDITION MADE BY THE A.O. U/S 14 READ WITH RULE 8D OF THE I.T. RULES. AGGRIE VED WITH SUCH ORDER OF THE LD. CIT(A), THE REVENUE IS IN APPEAL BEFORE US. 4. WE HAVE CONSIDERED THE RIVAL ARGUMENTS MADE BY B OTH THE SIDES, PURSUED THE ORDERS OF THE ASSESSING OFFICER AND THE CIT(A) AND THE PAPER BOOK FILED ON BEHALF OF THE ASSESSEE. AFTER GOING THROUGH THE VAR IOUS DETAILS FILED BY THE ASSESSEE IN THE PAPER BOOK AS WELL AS THE ITEM-WISE DETAILS GIVEN BY THE LD. CIT(A) IN HIS ORDER REGARDING LOAN TAKEN AND UTILIS ATION THEREOF WE FIND THE ASSESSEE HAS PROVED BEYOND DOUBT THAT INTEREST PAID TO RELIANCE CAPITAL LTD. (7% INTEREST ON RS. 538 CRORES) AMOUNTING TO RS. 2, 78,58,082/- HAS BEEN RECEIVED FROM SWAN CONSULTANTS (P) LTD. ON ACCOUNT OF LOAN ADVANCED TO THEM. FURTHER, THE LOAN WAS TAKEN ON 28.4.2006 AND GIVEN ALSO ON 28.4.2006. SIMILARLY, INTEREST PAID TO RELIANCE CAPITAL LTD. A MOUNTING TO RS. 5,60,54,795/- ON ACCOUNT OF LOAN OF RS. 300 CRORES @ 11% INTEREST TAKEN ON 29.1.2007 HAS BEEN GIVEN TO SWAN CONSULTANTS P. LTD. ON THE SAME DAY ON WHICH EQUAL AMOUNT OF INTEREST HAS BEEN RECEIVED FROM THEM. ONL Y THE AMOUNT BORROWED FROM SONATA INVESTMENTS P. LTD. ON WHICH INTEREST O F RS. 47,99,527/- HAS BEEN PAID CAN BE DISALLOWED U/S 14A READ WITH RULE 8D SI NCE THE LOAN HAS BEEN 4 ITA 5547/ M/2010, M/S RELIANCWE LAND P. LTD. UTILIZED IN SHARES OF ADLABS FILMS LTD., THE INCOME OF WHICH IS EXEMPT FROM TAX. IN THIS VIEW OF THE MATTER AND IN ABSENCE OF ANY CO NTRARY MATERIAL BROUGHT TO OUR NOTICE BY THE LD. D.R AGAINST THE FACTUAL FINDI NG GIVEN BY THE LD. CIT(A) THAT THERE IS ONE TO ONE NEXUS BETWEEN INTEREST PAID AND INTEREST RECEIVED, WE DO NOT FIND ANY INFIRMITY IN THE ORDER OF THE LD. CIT(A). ACCORDINGLY THE SAME IS UPHELD. THE GROUNDS RAISED BY THE REVENUE ARE ACCO RDINGLY DISMISSED. 7. IN THE RESULT, APPEAL FILED BY THE REVENUE IS DI SMISSED. ORDER PRONOUNCED ON 14.12.2011. SD/- SD/- (VIJAY PAL RAO) (R.K. PANDA) JUDICIAL MEMBER ACCOUNTANT MEMBER MUMBAI, DATED 14.12.2011. RK COPY TO 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT(A) 13, MUMBAI 4. THE CIT 7, MUMBAI 5. THE DR BENCH, D 6. MASTER FILE // TUE COPY// BY ORDER DY/ASSTT. REGISTRAR ITAT, MUMBAI