EWART INVESTMENTS LTD, MUMBAI V. DCIT 2(1)(2), MUMBAI

ITA 5609/MUM/2017

• Counselvise Citation: [2019] 117 COUNSELVISE.COM (IT) 2808 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 9 month(s) 10 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 14-06-2019
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: E
• Assessment Year: 2013-2014
• Appeal Filed On: 04-09-2017
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: AMEY WAGLE A RS
• Keywords: Earning of tax free income; Bad and doubtful debts; Rule 8D; Set aside
• Section: 143(3); 14A; 115JB

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI E BENCH, MUMBAI BEFORE SHRI PRADIP KUMAR KEDIA, ACCOUNTANT MEMBER & SHRI SANDEEP GOSAIN, JUDICIAL MEMBER ./ I.T.A. NO. 5609/MUM/2017 ( / ASSESSMENT YEAR : 2013-14) EWART INVESTMENT LTD. ELPHINSTONE BUILDING, 1 ST FLOOR, 10, VEER NARIMAN ROAD, MUMBAI - 400001 / VS. DY. COMMISSIONER OF INCOME TAX 2(1)(2) ROOM NO. 561, 5 TH FLOOR, AAYAKAR BHAWAN, M. K. ROAD, MUMBAI 400020 ./ ./ PAN/GIR NO. : AAAEC2546C ( / APPELLANT ) .. ( / RESPONDENT ) / APPELLANT BY : SHRI M. M. GOLVALA & SHRI AMEY WAGLE, A.RS. / RESPONDENT BY : SHRI ABI RAMA KARTHIKEYAN, SR. D.R. / DATE OF HEARING 12/06/2019 !'# / DATE OF PRONOUNCEMENT 14/06/2019 / O R D E R PER PRADIP KUMAR KEDIA - AM: THE CAPTIONED APPEAL HAS BEEN FILED AT THE INSTANCE OF THE ASSESSEE AGAINST THE ORDER OF THE COMMISSIONER OF I NCOME TAX (APPEALS)-6, MUMBAI, (CIT(A) IN SHORT), DATED 15. 06.2017 ARISING IN THE ASSESSMENT ORDER DATED 17.02.2016 PASSED BY THE ASSESSING OFFICER (AO) UNDER S. 143(3) OF THE INCOME TAX ACT, 1961 (T HE ACT) CONCERNING AY 2013-14. ITA NO. 5609/MUM/17 [EWART INVESTMENT LTD. VS. DCIT] A.Y. 2013-14 - 2 - 2. THE ASSESSEE HAS RAISED SEVERAL GROUNDS BUT EXPL AINED IN THE BAR THAT IT IS AGGRIEVED BY THE ORDER OF THE CIT(A) ON ACCOUNT OF THREE BROAD ISSUES; (1) EXCESSIVE DISALLOWANCE UNDER S.14 A R.W. RULE 8D(2)(III), (2) EXCESSIVE ADJUSTMENTS ON ACCOUNT OF DISALLOWANCE UNDER S.14A UNDER SPECIAL PROVISIONS OF SECTION 115JB OF THE ACT & (3) DISALLOWANCE OF BAD DEBTS IN RESPECT OF UNREALIZED RENT. 3. ADDRESSING THE FIRST ISSUE TOWARDS DISALLOWANC E UNDER S.14A UNDER THE NORMAL PROVISIONS OF THE ACT, THE LEARNED AR POINTED OUT THAT THE ASSESSEE HAS MADE SUO MOTU DISALLOWANCE OF RS.64,61,002/- COMPUTED UNDER RULE 8D(2)(III) OF THE IT RULES R.W. SECTION 14A OF THE ACT. HOWEVER, IN THE COURSE OF ASSESSMENT PROC EEDINGS, THE ASSESSEE REALIZED ITS MISTAKE AND REVISED THE DISAL LOWANCE AT RS.34,21,118/-. THE CAUSE FOR DOWNWARD REVISION IN QUANTUM OF DISALLOWANCE IS THAT THE ASSESSEE WHILE FILING THE RETURN HAD WRONGLY TAKEN ALL INVESTMENTS IN EQUITY SHARES FOR THE PURP OSES OF COMPUTATION OF DISALLOWANCE REGARDLESS OF WHETHER THE EQUITY HA S ACTUALLY YIELDED TAX FREE INCOME OR NOT. HOWEVER, THE LAW IN THIS R EGARD HAS BEEN INTERPRETED BY JUDICIAL DECISIONS RENDERED SUBSEQUE NTLY WHEREBY IT WAS HELD THAT THE DISALLOWANCE UNDER RULE 8D(2)(III) IS REQUIRED TO BE MADE ONLY WITH REFERENCE TO THE AVERAGE EQUITY INVE STMENT WHICH HAS ACTUALLY YIELDED TAX FREE INCOME NOT SUSCEPTIBLE TO TAX. IT WAS THUS SUBMITTED THAT THE INVESTMENTS NOT GIVING RISING TO TAX FREE INCOME SHALL NOT BE RECKONED FOR THE PURPOSES OF COMPUTATI ON OF DISALLOWANCE. THE LEARNED AR IN THIS CONTEXT ALSO POINTED OUT THA T THE AO WAS DULY INFORMED ABOUT ITS STAND FOR DOWNWARD REVISION BY L ETTER DATED 24.01.2016 AS ANNEXED IN THE PAGE NOS. 5 TO 9 OF TH E PAPER BOOK. 4. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS ON THE ISSUE AND PERUSED THE ORDERS OF THE AUTHORITIES BELOW. WE ST RAIGHTWAY NOTICE THAT IDENTICAL ISSUE HAS BEEN ADJUDICATED BY DELHI SPECIAL BENCH IN THE CASE OF ACIT VS. VIREET INVESTMENT (P.) LTD. 165 ITD 27 (DE L) WHEREIN ITA NO. 5609/MUM/17 [EWART INVESTMENT LTD. VS. DCIT] A.Y. 2013-14 - 3 - IT HAS BEEN HELD BY THE SPECIAL BENCH THAT INVESTME NTS NOT YIELDING ANY INCOME DURING THE YEAR HAS TO BE EXCLUDED WHILE CALCULATING THE AVERAGE INVESTMENTS AND THE DISALLOWANCE HAS BEEN T O BE WORKED OUT ONLY THEREAFTER ON THE BASIS OF INVESTMENT ACTUALLY YIELDING TAX FREE INCOME. WE THEREFORE FIND SUBSTANTIAL MERIT IN THE CASE OF THE ASSESSEE. WE ALSO NOTICE THAT IDENTICAL ISSUE HAS BEEN ADJUDICATED IN FAVOUR OF THE ASSESSEE IN ITS OWN CASE CONCERNING AY 2011-12 IN ITA NO. 414/MUM/2017 DATED 24 TH JULY, 2018 . AT THIS STAGE, WE ALSO OBSERVE THAT THE ASSESSEE WAS ENTITLED TO CLAIM REV ISION OF DISALLOWANCE NOTWITHSTANDING HIGHER DISALLOWANCE SUO MOTU MADE IN THE RETURN OF INCOME IN THE LIGHT OF THE DECISION O F HONBLE BOMBAY HIGH COURT IN CASE OF CIT VS. PRUTHVI BROKERS AND SHAREHOLDERS P. LTD. (2012) 349 ITR 336 (BOM.). WE ACCORDINGLY SET ASIDE THE ORDER OF THE CIT(A) AND DIRECT THE AO TO RESTRICT THE DIS ALLOWANCE TO RS.34,21,118/- INSTEAD OF RS.67,40,873/-. THE ISSU E IS ACCORDINGLY RESOLVED IN FAVOUR OF THE ASSESSEE. 5. SECOND ISSUE PERTAINS TO ADJUSTMENTS IN BOOK PRO FIT UNDER S.115JB WITH RESPECT TO DISALLOWANCE UNDER S.14A OF THE ACT. IN THE LIGHT OF DECISION OF SPECIAL BENCH IN VIREET INVESTMENT (SUPRA) AND IN VIEW OF FINDINGS GIVEN BY THE CO-ORDINATE BENCH IN ASSESSEES OWN CASE CONCERNING AY 2012-13 IN ITA NO. 3623/MUM/2017 , WE FIND SUBSTANTIAL MERIT IN THE PLEA OF THE ASSESSEE TO RE STRICT THE ADJUSTMENTS TO THE EXTENT OF RS.34,21,118/- IN RESPECT OF DISAL LOWANCE RELATABLE TO EXEMPT INCOME NOTWITHSTANDING HIGHER ADJUSTMENTS MA DE BY THE ASSESSEE. THE AO IS DIRECTED TO REDO THE COMPUTATI ON OF BOOK PROFIT UNDER S. 115JB OF THE ACT ACCORDINGLY. THE SECOND ISSUE IS ACCORDINGLY RESOLVED IN FAVOUR OF THE ASSESSEE. 6. THIRD ISSUE RELATES TO DISALLOWANCE OF BAD DEBTS OF RS.1,52,395/- IN RESPECT OF UNREALIZED RENT. ITA NO. 5609/MUM/17 [EWART INVESTMENT LTD. VS. DCIT] A.Y. 2013-14 - 4 - 7. WE HAVE CONSIDERED RIVAL SUBMISSIONS AND PERUSED THE ORDERS OF THE AUTHORITIES BELOW IN THIS REGARD. WE FIND THAT THE ISSUE IS SQUARELY COVERED IN FAVOUR OF THE ASSESSEE IN VIEW OF THE EX PRESS STATUTORY PROVISION IN TERMS OF EXPLANATION BELOW SECTION 23 R.W. RULE 4 OF THE IT RULES, 1962. THE EXPLANATION CLEARLY PROVIDES FO R DEDUCTION OF UNREALIZED RENT WHILE COMPUTING THE ANNUAL VALUE UN DER S.23 OF THE ACT. RULE 4 EXPOUNDED THE AFORESAID EXPLANATION WHE REBY THE UNREALIZED RENT LOST AS IRRECOVERABLE IS REQUIRED T O BE REDUCED FROM THE CHARGEABLE ANNUAL VALUE. IT IS NOT NECESSARY THAT UNREALIZED RENT SHOULD BE RELATED TO THE SAME YEAR. WE THEREFORE FI ND MERIT IN THE PLEA OF THE ASSESSEE ON THIS ISSUE AS WELL. THE ISSUE I S THUS RESOLVED IN FAVOUR OF THE ASSESSEE. 8. IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE IS ALLOWED. SD/- SD/- (SANDEEP GOSAIN) (PRADIP KU MAR KEDIA) JUDICIAL MEMBER ACCOUNTANT MEMBER MUMBAI: DATED 14/06/2019 TRUE COPY S. K. SINHA / COPY OF ORDER FORWARDED TO:- 1. / REVENUE 2. / ASSESSEE 3. )*+ , / CONCERNED CIT 4. ,- / CIT (A) 5. 012 33*+, *+#, ) / DR, ITAT, MUMBAI 6. 278 9 / GUARD FILE. BY ORDER / , / , *+#, ) THIS ORDER PRONOUNCED IN OPEN COURT ON 14/06/2 019