ALCHEMIE FINANCIAL SERVICES LTD, MUMBAI V. ACIT RG 10(3), MUMBAI

ITA 5570/MUM/2012

• Counselvise Citation: [2015] 134 COUNSELVISE.COM (IT) 2302 (ITAT-MUMBAI)
• Duration Of Justice: 3 year(s) 3 month(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 04-12-2015
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: A
• Next Hearing Date: 07-05-2015
• Assessment Year: 2009-2010
• Appeal Filed On: 04-09-2012
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: A RAMACHANDRAN CITA
• Assessee Lawyers: BHAVIN M DEDHIA
• Keywords: Earning of tax free income
• Section: 14A

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI A BENCH, MUMBAI BEFORE SHRI SHAILENDRA KUMAR YADAV, JUDICIAL MEMBER, AND SHRI RAJESH KUMAR, ACCOUNTANT MEMBER. ITA. NO. 5570/MUM/2012 (ASSESSMENT YEAR:2009-10) ALCHEMIE FINANCIAL SERVICES LIMITED, 2 ND FLOOR, UDYOG KSHETRA, MULUND GOREGAON LINK ROAD, OFF. L.B.S. ROAD, MULUND (WEST), MUMBAI 400080 APPELLANT VS. ADDITIONAL COMMISSIONER OF INCOME TAX, RANGE 10 (3), MUMBAI RESPONDENT PAN: AAACA0948C /BY APPELLANT : SHRI BHAVIN M. DEDHIA, A.R. /BY RESPONDENT : SHRI A. RAMACHANDRAN, CIT(A) D.R. /DATE OF HEARING :19.11.2015 /DATE OF PRONOUNCEMENT :04.12.2015 ORDER PER RAJESH KUMAR, A.M: THIS APPEAL HAS BEEN FILED BY ASSESSEE AGAINST THE ORDER OF COMMISSIONER OF INCOME-TAX (APPEALS)-22, MUMBAI, DA TED 29.06.2012 FOR A.Y. 2009-10 ON FOLLOWING GROUNDS: ITA NO.5570/MUM/12 A.Y. 09-10 [ALCHEMIC FINANCIAL S ERVICES LTD. VS. ADDL.CIT] PAGE 2 1. RE: DISALLOWANCE U/S14A READ WITH RULE 8D AMOUNTING TO RS.7,69,552/-. 1.1 ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE AND IN LAW, THE LEARNED COMMISSIONER OF INCOMETAX(APPEALS) [HEREINA FTER REFERRED TO AS THE LEARNED CIT(A) ] ERRED IN UPHOL DING DISALLOWANCE U/S 14A READ WITH RULE 8D, AS EXPENDIT URE INCURRED FOR EARNING EXEMPT INCOME. 1.2 THE LEARNED CIT(A) GROSSLY ERRED IN NOT CONSIDE RING THE FACTUAL MATRIX PRODUCED BY THE APPELLANT AND ALSO ERRED IN NOT CONSIDERING THAT THE APPELLANT IS IN BUSINESS OF LE NDING MONEY AND MONIES BORROWED HAVE BEEN UTILIZED FOR PURPOSE OF LENDING. 1.3 WITHOUT PREJUDICE TO THE ABOVE , THE LEARNED CIT(A) GROSSLY ERRED IN NOT RECTIFYING THE ERRORS IN CALCULATING A MOUNT OF DISALLOWANCE U/S 14A AS PER RULE 8D. 1.4 WITHOUT PREJUDICE TO THE ABOVE, THE DISALLOWANCE U/S 14A SHOULD BE SUBSTANTIALLY REDUCED. 2. FURTHER, THE LD CIT(A) HAS ERRED IN LAW AS WELL ON THE FACT BY IGNORING THE FACT THAT THE ASSESSEE IS ONLY INVOLVE D IN THE TRADING BUSINESS WHEREIN THE PROFIT SHOULD NOT BE MORE THAN 2% OF THE TOTAL TURNOVER AS COMPARED WITH THE OTHER ASSESSEE ENGAGED IN THE SAME LINE OF BUSINESS HAVING THE PROFIT RATIO R ANGING 1% TO 4%. 2. THE COMMON ISSUE RAISED IN ALL THE GROUNDS OF AP PEAL IS AGAINST THE CONFIRMATION OF ADDITION OF RS.7,69,552 /- U/S.14A R.W. RULE 8D. 3. THE FACTS OF THE CASE ARE THAT THE ASSESSEE COMP ANY FILED ITS RETURN OF INCOME ON 30.09.2009 DECLARING AN INCOME OF RS.2,49,42,320/-. THE ASSESSEE WAS ENGAGED IN THE BUSINESS OF LEASING, FINANCING AND MANUFACTURING ACTIVITY. DUR ING THE YEAR, THE SALES OF THE ASSESSEE WERE RS.13,06,68,895/- IN COME FROM INTEREST AT RS.2,58,10,467/- OTHER INCOME AT RS.5,6 7,234/- AND NET PROFIT WAS 2,44,54,488/-. THE ASSESSEE HAD ALS O INCOME BY WAY OF DIVIDEND ON SHARES OF RS.2,98,077/- WHICH WA S CLAIMED EXEMPT U/S.10 OF THE ACT. ITA NO.5570/MUM/12 A.Y. 09-10 [ALCHEMIC FINANCIAL S ERVICES LTD. VS. ADDL.CIT] PAGE 3 3.1 THE LD. A.O. DURING COURSE OF SCRUTINY PROCEEDI NGS FOUND THAT INVESTMENT ON 31.03.2008 STOOD AT RS.2,17,65,6 20/- WHICH INCREASED TO RS.2,56,65,891/- ON 31.03.2009 AND THE ASSESSEE BY FILING THE RETURN DID NOT DISALLOW THE EXPENSES PERTAINING TO EXEMPT INCOME U/S.14A OF THE ACT. THUS, THE A.O. A FTER ISSUING SHOW CAUSE NOTICE AND REJECTING THE SUBMISSION OF T HE ASSESSEE IN REPLY TO THE SAID SHOW CAUSE FRAMED THE ASSESSME NT U/S.143(3) OF THE ACT BY MAKING A DISALLOWANCE OF R S.7,69,552/- U/S.14A R.W. RULE 8D. 4. THE LD. CIT(A) CONFIRMED THE DISALLOWANCE BY HOL DING THAT AN IDENTICAL ISSUE HAD ARISEN IN THE ASSESSEES OWN CA SE FOR A.Y. 2008-09 WHEREIN VIDE ORDER NO. CIT(A) -22/ACIT 10(3 )/IT- 219/2010-11 DATED 26.06.2011, THE ISSUE WAS DECIDED AGAINST THE ASSESSEE. THE FACTS OF THE CASE OF THE PRESENT CASE BEING SIMILAR TO THAT AND THEREFORE, BY FOLLOWING MY ORDE R FOR A.Y. 2008- 09, IT WAS HELD THAT THE A.O. WAS JUSTIFIED IN MAKI NG DISALLOWANCE U/S.14A R.W.RULE 8D. 5. LD. A.R. SUBMITTED BEFORE US THAT THE ISSUE IN A PPEAL BEFORE THIS HONBLE BENCH WAS COVERED IN FAVOUR OF THE ASS ESSEE BY ITS OWN CASE IN ITA NO.6349/MUM/2011, A.Y. 2008-09 VIDE ORDER DATED 10.08.2012 AND THEREFORE LD. CIT(A) GROSSLY E RRED IN SUSTAINING THE ORDER OF A.O. THUS, LD. COUNSEL SUB MITTED BEFORE US THAT THE ASSESSEES OWN FUNDS AS ON 31.03.2009 W ERE RS.22,77,84,338/- VIS--VIS THE INVESTMENT IN SHARE S OF RS.2,56,65,891/-. THE LD. COUNSEL FURTHER SUBMITTE D THAT THESE SUBSTANTIAL INVESTMENTS WERE MADE IN THE SUBSIDIARY COMPANIES FOR THE PURPOSE OF EXTENSION OF BUSINESS AND NOT FO R EARNING ITA NO.5570/MUM/12 A.Y. 09-10 [ALCHEMIC FINANCIAL S ERVICES LTD. VS. ADDL.CIT] PAGE 4 EXEMPT INCOME AND THUS THESE INVESTMENTS FALL IN TH E CATEGORY OF STRATEGIC INVESTMENT AND THEREFORE, DISALLOWANCE U/ S.14A R.W.RULE 8D WAS UNCALLED FOR. THE LD. D.R., ON THE OTHER HAND, DID NOT RAISE ANY OBJECTION TO THE ARGUMENT ADVANCE D BY THE LD. A.R. DURING THE COURSE OF HEARING IN VIEW OF THE OR DER OF THE CO- ORDINATE BENCH IN ASSESSEES OWN CASE. 6. AFTER GOING THROUGH RIVAL SUBMISSIONS AND MATER IAL ON RECORD, WE FIND THAT IN ITA NO.6349/MUM/2011, A.Y.2 008-09, WHEREIN AN IDENTICAL ISSUE RELATING TO DISALLOWANCE U/S.14A R.W.RULE 8D HAS BEEN DECIDED IN FAVOUR OF ASSESSEE VIDE ORDER DATED 10.08.2012 VIDE PARA NO.5, WHICH IS REPRODUCE D AS UNDER: 5. WE HAVE HEARD THE ARGUMENTS OF BOTH THE SIDES A ND ALSO PERUSED THE RELEVANT MATERIAL ON RECORD. THE LEARNED COUNS EL FOR THE ASSESSEE AT THE OUTSET HAS INVITED OUR ATTENTION TO THE WORKING MADE BY THE AO AS PER RULE 8D OF INCOME-TAX RULES, 1962 GIVEN ON PAGE NO.2 AND 3 OF THE ASSESSMENT ORDER TO POINT OUT THAT THE TOTAL DISALL OWANCE WORKED BY THE ASSESSING OFFICER WAS ON ACCOUNT OF INTEREST AMOUNT ING TO RS.5,13,993/- AND OTHER EXPENSES AMOUNTING TO RS.42 ,695/-. AS DEMONSTRATED BY HIM FROM THE BALANCE SHEET OF THE A SSESSEE COMPANY AS ON 31-03-2008, SHAREHOLDERS FUNDS IN THE FORM O F SHARE CAPITAL AND RESERVE AND SURPLUS AGGREGATING TO RS.19.82 CRORES WERE AVAILABLE WITH THE ASSESSEE COMPANY AS ON 31ST MARCH, 2008. THUS O WN FUNDS TO THE EXTENT OF RS.19.82 CRORES WERE AVAILABLE WITH THE A SSESSEE COMPANY AT THE RELEVANT TIME WHICH WERE MORE THAN THE INVESTME NT OF RS.2.17 CRORES MADE BY IT IN THE SHARES AND SECURITIES DURI NG THE CORRESPONDING PERIOD. IT IS NO DOUBT TRUE THAT NO SEPARATE ACCOUN T WAS MAINTAINED BY THE ASSESSEE IN RESPECT OF INVESTMENT MADE IN SHARE S AND SECURITIES AND IT WAS A CASE OF MIXED FUNDS AVAILABLE IN THE F ORM OF OWN FUNDS AND BORROWED FUNDS WHICH WERE UTILIZED FOR MAKING I NVESTMENTS IN SHARES AS WELL AS FOR OTHER PURPOSE. HOWEVER, AS HE LD BY THE HON'BLE BOMBAY HIGH COURT IN THIS CONTEXT IN THE CASE OF RE LIANCE UTILITIES AND POWER LTD. 313 ITR 340, IF THERE ARE FUNDS AVAILABL E, BOTH INTEREST FREE AND INTEREST BORROWING, THEN A PRESUMPTION WOULD AR ISE THAT INVESTMENT WOULD BE OUT OF INTEREST FREE FUNDS GENERATED OR AV AILABLE WITH THE COMPANY. RELYING ON THE SAID DECISION OF HON'BLE JU RISDICTIONAL HIGH COURT, WE HOLD THAT THE ASSESSEE HAVING SUFFICIENT OWN FUNDS TO MAKE INVESTMENT IN SHARES AND SECURITIES, IT CANNOT BE S AID THAT INTEREST EXPENDITURE INCURRED BY IT ON BORROWED FUNDS WHICH WERE UTILIZED FOR THE PURPOSE OF BUSINESS WAS IN RELATION TO EARNING OF EXEMPT DIVIDEND INCOME SO AS TO WARRANT ANY DISALLOWANCE ON ACCOUNT OF INTEREST ITA NO.5570/MUM/12 A.Y. 09-10 [ALCHEMIC FINANCIAL S ERVICES LTD. VS. ADDL.CIT] PAGE 5 EXPENDITURE U/S.14A. IN SO FAR AS DISALLOWANCE OUT OF OTHER EXPENSES AMOUNTING TO RS.42,695/- IS CONCERNED, WE FIND THAT THE SAME HAS BEEN WORKED OUT BY THE A0 BY APPLYING RULE 8D AND SINCE IT CANNOT BE DISPUTED THAT OTHER EXPENSES INCURRED BY THE ASSESS EE WERE ALSO IN RELATION TO THE EARNING OF EXEMPT DIVIDEND INCOME, WE ARE OF THE VIEW THAT THE DISALLOWANCE MADE U/S 14A OUT OF OTHER EXP ENSES IS SUSTAINABLE. ACCORDINGLY WE MODIFY THE IMPUGNED ORD ER OF THE LEARNED CIT(APPEALS) ON THIS ISSUE AND SUSTAIN THE DISALLOW ANCE MADE BY THE AO U/S 14A TO THE EXTENT OF RS.42,695/-. THE GROUND RAISED BY THE ASSESSEE IN THIS APPEAL IS THUS PARTLY ALLOWED. IN THE SAID ORDER, THE TRIBUNAL DELETED THE DISALLO WANCE ON ACCOUNT OF INTEREST AND SUSTAINED THE DISALLOWANCE OUT OF OTHER EXPENSES. IN THE CASE BEFORE US, LD. A.O. DISALLOW ED THE INTEREST U/S.14A(II) TO THE TUNE OF RS.6,50,973/- AND DISALL OWANCE U/S.14A(III) ON THE BASIS OF AVERAGE INVESTMENT AT RS.1,18,579/-. IN OUR VIEW THE CASE OF THE ASSESSEE IS COVERED BY ITS OWN CASE FOR THE PRECEDING ASSESSMENT YEAR AND BY RESPECTFULLY F OLLOWING THE ABOVE DECISION, WE DELETE THE ADDITION OF RS.6,50,9 73/- ON ACCOUNT OF INTEREST AND SUSTAIN THE ADDITION OF RS. 1,18,579/-. THE GROUND RAISED BY THE ASSESSEE IN THIS APPEAL IS PARTLY ALLOWED. 7. AS A RESULT, APPEAL FILED BY ASSESSEE IS PARTLY ALLOWED. PRONOUNCED IN THE OPEN COURT ON THIS THE 4 TH DAY OF DECEMBER, 2015. SD/- SD/- (SHAILENDRA KUMAR YADAV) (RAJESH KUMAR) JUDICIAL MEMBER ACCOUNTANT MEMBER MUMBAI: DATED 04/12/2015 TRUE COPY S.K.SINHA / COPY OF ORDER FORWARDED TO:- / REVENUE 2 / ASSESSEE ITA NO.5570/MUM/12 A.Y. 09-10 [ALCHEMIC FINANCIAL S ERVICES LTD. VS. ADDL.CIT] PAGE 6 $ %&%'( ) / CONCERNED CIT 4 )- / CIT (A) ,-./00'(1 '( 1 %& / DR, ITAT, MUMBAI 3/4567 / GUARD FILE. BY ORDER / 1 / % 1 '( 1 %&