ASST CIT 4(3), MUMBAI V. TAPI ENERGY PROJECTS LTD, MUMBAI

ITA 56/MUM/2014

• Counselvise Citation: [2016] 132 COUNSELVISE.COM (IT) 2336 (ITAT-MUMBAI)
• Duration Of Justice: 2 year(s) 6 month(s) 26 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 29-07-2016
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: E
• Assessment Year: 2010-2011
• Appeal Filed On: 03-01-2014
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: R K SAHU
• Keywords: Earning of tax free income
• Section: 14A

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL E B ENCH, MUMBAI BEFORE SHRI RAJENDRA, ACCOUNTANT MEMBER AND SHRI C.N. PRASAD, JUDICIAL MEMBER / I .TA NO.56/ MUM /2014 ( / ASSESSMENT YEAR: 2010-11 THE ACIT - 4(3), AAYAKAR BHAVAN, MUMBAI-400 020 / VS. M/S. TAPI ENERGY PROJECTS LTD., 26, GOBIND MAHAL, 86-B, NETAJI SUBHASH ROAD, MARINE DRIVE, MUMBAI-400 002 ./ ./ PAN/GIR NO. AAACT 5757C ( / APPELLANT ) .. ( / RESPONDENT ) / APPELLANT BY: SHRI R.K. SAHU / RESPONDENT BY: SHRI ANUJ KISNADWALA / DATE OF HEARING :26.07.2016 ! / DATE OF PRONOUNCEMENT :29.07.2016 / O R D E R PER C.N. PRASAD, JM: THIS APPEAL IS FILED BY THE REVENUE AGAINST THE ORD ER OF THE LD. CIT(A)-8, MUMBAI DATED 23.10.2013 PERTAINING TO ASS ESSMENT YEAR 2010-11. 2. THE REVENUE CHALLENGES THE ORDER OF THE LD. CIT( A) IN DELETING THE DISALLOWANCE MADE UNDER RULE 8D(II) R.W. SEC. 1 4A OF THE ACT. ITA NO. 56/M/2014 2 3. BRIEF FACTS ARE THAT THE ASSESSING OFFICER WHILE COMPLETING THE ASSESSMENT DISALLOWED RS. 93,43,457/- U/S. 14A R.W. RULE 8D OF THE ACT. THE ASSESSING OFFICER CALCULATED THE EXPENDIT URE DISALLOWABLE U/S. 14A AT RS. 96,73,262/- WHICH COMPRISES OF INTE REST OF RS. 92,31,978/- AND ADMINISTRATIVE EXPENSES OF RS.4,4 1,284/-. BEING 0.5% OF AVERAGE INVESTMENTS. HOWEVER, SINCE ASSESSE E HIMSELF HAS DISALLOWED RS. 3,29,805/- TOWARDS ADMINISTRATIVE EX PENSES, THE ASSESSING OFFICER RESTRICTED THE DISALLOWANCE TO RS . 93,43,457/-. 4. ON APPEAL, THE LD. CIT(A) SUSTAINED THE DISALLOW ANCE TO THE EXTENT OF RS. 4,41,284/- TOWARDS ADMINISTRATIVE EXP ENSES I.E. 0.5% OF AVERAGE INVESTMENTS AND DELETED THE INTEREST PORTIO N OBSERVING THAT THE MUMBAI BENCH OF THE ITAT IN THE CASE OF MORGAN STANLEY INDIA SECURITIES LTD. VS ACIT HAS HELD THAT DISALLOWANCE OF INTEREST SHOULD BE MADE WITH REFERENCE TO NET INTEREST ONLY AND SIN CE THE INTEREST INCOME EARNED BY THE ASSESSEE IS MORE THAN INTEREST EXPENDED, THE INTEREST PAID CANNOT BE CONSIDERED WHILE CALCULATIN G THE DISALLOWANCE UNDER SECTION 14A R.W. RULE 8D(2)(II) 5. THE LD. DEPARTMENTAL REPRESENTATIVE SUPPORTING T HE ORDER OF THE ASSESSING OFFICER SUBMITS THAT THE LD. CIT(A) I S NOT JUSTIFIED IN DELETING THE INTEREST PORTION DISALLOWED UNDER RULE 8D(2)(II) R.W. SECTION 14A. 6. THE LD. COUNSEL FOR THE ASSESSEE SUBMITS THAT AS SESSEE IS HAVING SUFFICIENT INTEREST FREE FUNDS TO MAKE INVES TMENTS AND THEREFORE, NO PART OF INVESTMENTS WERE MADE OUT OF BORROWED FUNDS AND HENCE NO PART OF INTEREST CAN BE DISALLOWABLE U /S. 14A R.W. RULE 8D(2)(II). HE FURTHER SUBMITS THAT ASSESSEE HAS EA RNED DIVIDEND ITA NO. 56/M/2014 3 INCOME OF RS. 1,09,025/- ONLY DURING THIS ASSESSMEN T YEAR AND THEREFORE THERE IS NO JUSTIFICATION AT ALL IN DISAL LOWING RS. 93,43,457/-. HE FURTHER SUBMITS THAT THE DISALLOWANCE SHOULD NOT EXCEED THE DIVIDEND INCOME EARNED AND FOR THIS PROPOSITION HE PLACES RELIANCE ON THE FOLLOWING DECISIONS: 1) JOINT INVESTMENTS VS CIT [372 ITR 694(DEL] 2) INDUS VALLEY INVESTMENTS VS DCIT BEING ITA NO. 3763/DEL/2013 FOR A.Y. 2009-10 DATED 29.4.2015 (COP Y ENCLOSED. 3) M/S. DAGA GLOBAL CHEMICALS VS ACIT BEING ITA NO. 592/M/2012 DATED 1.1.2015 (COPY ENCLOSED) 4) M/S. SLYVEX CABLE CO. PVT. LTD VS DCIT BEING ITA NO . 8581/M/2011 FOR A.Y. 2008-09 DATED 24.2.2016 (COPY ENCLOSED) 5) M/S. GLOBAL CAPITAL LTD VS ACIT BEING ITA NO. 6586/DEL/2013 FOR A.Y. 2009-10 DATED 27.11.2015 (CO PY ENCLOSED) 6) DCIT VS DCM LTD BEING ITA NO. 4467/DEL/2012 FOR A.Y . 2009-10 DATED 1.9.2015. 7. WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE ORDERS OF THE AUTHORITIES BELOW. ADMITTEDLY, IN THIS CASE, A SSESSEE EARNED EXEMPT INCOME OF RS. 1,09,025/-. THE ASSESSEE SUO MOTO DISALLOWED RS. 3,29,805/- BEING 0.5% OF AVERAGE INVESTMENTS TO WARDS ADMINISTRATIVE EXPENSES ATTRIBUTABLE FOR EARNING EX EMPT INCOME. THE ASSESSING OFFICER INVOKED PROVISIONS OF SEC. 14 A R.W. RULE 8D AND COMPUTED THE DISALLOWANCE AT RS. 93,43,457/- AS THE ASSESSEE HAD OFFERED DISALLOWANCE VOLUNTARILY OF RS. 3,29,805/- THE LD. CIT(A) HOWEVER DELETED THE INTEREST PORTION OF RS. 92,31,9 78/- AND ITA NO. 56/M/2014 4 SUSTAINED THE DISALLOWANCE TO THE EXTENT OF ADMINIS TRATIVE EXPENSES BEING 0.5% OF AVERAGE INVESTMENT AT RS.4,41,284/-. AGAINST THIS ORDER OF THE LD. CIT(A), REVENUE IS IN APPEAL AND T HERE IS NO APPEAL OF THE ASSESSEE. 8. WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE ORDERS OF THE AUTHORITIES BELOW AND THE CASE LAWS ON THE ISS UE. IN THE CATENA OF DECISIONS RELIED ON BY THE LD. COUNSEL FOR THE ASSE SSEE, IT WAS HELD THAT DISALLOWANCE U/S. 14A CANNOT EXCEED THE AMOUNT OF EXEMPT INCOME. IN THIS CASE, THE EXEMPT INCOME EARNED BY THE ASSESSEE IS ONLY RS. 1,09,025/-. THE ASSESSEE SUO MOTU DISALLO WED RS. 3,29,805/- THEREFORE WE ARE UNDER THE CONSIDERED VIEW THAT THE RE SHOULD NOT HAVE BEEN ANY FURTHER DISALLOWANCE U/S. 14A OF THE ACT. IN THE CIRCUMSTANCES, WE REJECT THE GROUND OF THE REVENUE AND SUSTAIN THE ORDER OF THE LD. CIT(A). 9. IN THE RESULT, THE APPEAL FILED BY THE REVENUE I S DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 29 TH JULY, 2016. SD/- SD/- (RAJENDRA) (C.N. PRASAD ) / ACCOUNTANT MEMBER $ % /JUDICIAL MEMBER MUMBAI; ( DATED 29 TH JULY, 2016 . % . ./ RJ , SR. PS ITA NO. 56/M/2014 5 !'#$#! / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT 2. / THE RESPONDENT. 3. ) ( ) / THE CIT(A)- 4. ) / CIT 5. *+ ,%%-. , -.! , / DR, ITAT, MUMBAI 6. , /01 / GUARD FILE. / BY ORDER, *% //TRUE COPY// / (DY./ASSTT. REGISTRAR) , / ITAT, MUMBAI