AMMA LINES P.LTD, MUMBAI V. ASST CIT 6(1), MUMBAI

ITA 5701/MUM/2013

• Counselvise Citation: [2017] 126 COUNSELVISE.COM (IT) 9786 (ITAT-MUMBAI)
• Duration Of Justice: 3 year(s) 11 month(s) 10 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 23-08-2017
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: A
• Next Hearing Date: 18-01-2016
• Assessment Year: 2009-2010
• Appeal Filed On: 12-09-2013
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: T A KHAN
• Keywords: Earning of tax free income; Retrospective amendment
• Section: 14A

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL A , BENCH MUMBAI BEFORE SHRI R.C.SHARMA, AM & SHRI AMARJIT SINGH , JM ITA NO. 5701/MUM /20 1 3 ( ASSESSMENT YEAR : 2009 - 10 ) M/S. AMMA LINES PVT. LTD., 304, SHIV SMRITI CHAMBERS, 49, DR. A.B.ROAD, WORLI MUMBAI 40 0 018 VS. ASST. CIT 6(1), AAYAKAR BHAVAN MUMBAI PAN/GIR NO. AAACA5349P APPELLANT ) .. RESPONDENT ) ASSESSEE BY SHRI SHAILESH PARMAR REVENUE BY SHRI T.A. KHAN DATE OF HEARING 10 / 07 /201 7 DATE OF PRONOUNCEME NT 23 / 08 /201 7 / O R D E R PER R.C.SHARMA (A.M) : THIS IS AN APPEAL FILED BY THE ASSESSEE AGAINST THE ORDER OF CIT(A) 14, MUMBAI DATED 17/07/2013 FOR A.Y.2009 - 10 IN THE MATTER OF ORDER PASSED U/S.143(3) OF THE IT ACT. 2. IN THIS APPEAL, ASSESSEE IS AGG RIEVED FOR THE DISALLOWANCE MADE U/S.14A AND ALSO U/S.40(A)(IA) OF THE IT ACT. 3. RIVAL CONTENTIONS HAVE BEEN HEARD AND RECORD PERUSED. 4. FACTS IN BRIEF ARE THAT THE ASSESSEE IS ENGAGED IN THE BUSINESS OF DREDGING AND MARINE CONSTRUCTION. FOR THE A.Y. 200 9 - 10, THE ASSESSEE FILED ITS RETURN OF INCOME ON 29/09/2009 DECLARING TOTAL INCOME OF RS.1,78,65,535/ - . ASSESSEE ALSO SUBMITTED THE AUDIT REPORT U/S.44AB OF ITA NO. 5701/MUM/2013 M/S. AMMA LINES PVT. LTD., 2 THE INCOME TAX ACT, 1961 IN FORM NO.3CB AND 3CD ALONGWITH NOTES THEREON AND FINANCIAL STATEMENTS. 5 . DURING THE COURSE OF SCRUTINY ASSESSMENT, AO MADE DISALLOWANCE U/S.14A BY OBSERVING THAT ASSESSEE HAS NOT DISALLOWED ANY EXPENDITURE AGAINST THE EXEMPT INCOME U/S 14A. BEFORE THE AO, THE ASSESSEE CONTENDED THAT NO DISALLOWANCE U/S.14A IS WARRANTED IN SO FAR AS ASSESSEE WAS NOT HAVING ANY EXEMPT INCOME. THE SUBMISSION FILED BEFORE THE AO READS AS UNDER: - DUR ING THE COURSE AS SESSMENT PROCEEDINGS YOUR HONOUR ASKED WHY DISALLOWENSES U/S, 1 4A SHOULD NOT BE MADE. IN THIS REGARD, THE ASSESSEE WOULD LIKE TO STATE TH AT, THE ASSESSEE ENTERED INFO - A CONCESSIONA L AGREEMENT WITH MMB (AN ORGAN OF GOVERNMENT OF MAHARASHTRA), TO DEVELOP AN ALL WEATHER PORT IN REWAS, MA H ARASHTRA. FOR THE PURPOSE OF DEVELOPING 'REWAS PORT: THE ASSESSEE INCORPORATED A SPECIAL PURPOSE VEHICLE (SPV) VIZ; REWAS PORT DEVELOPMENT CO LTD AND REWAS PORT L TD . AS PER THE AGREEMENT, THE ASSESSEE HAS SUBSCRIBED TO THE SHARE CAPITAL OF REWAS PORT DEVELOPMENT CO LTD (RPDCL) AND REWAS PORT LT D . THESE COMPANIES WERE FORMED SOLELY FOR THE PURPOSE OF DEVELOPI NG REWAS PORT PROJECT AND NOT FOR ANY OTHER PURPOSE. THE INVESTMENT IN THESE COMPANIES ARE MADE FROM THE SHARE CAPITAL AND RESERVE AND SURPLUS OF THE ASSESSEE. DURING THE YEAR THE ASSESSEE HAS NOT RECEIVED ANY DIVIDEND FROM RPDCL AND ALSO NOT EARNED ANY EXEMPTED INCOME. AS THE ASSESSEE HAS NOT CLAIMED ANY EXEMPTED INCOME, THEREFORE, THE QUESTION OF DISALLOWANCE U/S. 14A OF THE INCOME TAX ACT, 1961 DOES NOT ARISE. THE DISALLOWANCE U/S. 14A IS APPLICABLE ONLY I F THE ASSESSEE CLAIMED ANY INCOME WHICH DOES NO T FORM PART OF THE TOTAL INCOME UNDER THE INCOME TAX ACT. FOR THE SAKE OF BREVITY SUB - SECTION (1) OF SECTION 14A WHICH DEAL WITH THE DISALLOWANCE U/S. 14A IS REPRODUCED HEREIN UNDER: - 'EXPENDITURE INCURRED IN RELATION TO INCOME NOT INCLUDIBLE IN TOTAL INC OME. 14A (1) FOR THE PURPOSE OF COMPUTING THE TOTAL INCOME UNDER THE CHAPTER, NO DEDUCTION SHALL BE ALLOWED IN RESPECT OF EXPENDITURE INCURRED BY THE ASSESSEE IN RELATION TO INCOME WHICH DOES NOT FORM PART OF THE TOTAL INCOME UNDER THIS ACT. ITA NO. 5701/MUM/2013 M/S. AMMA LINES PVT. LTD., 3 SINCE ASSES SEE HAS NOT INCURRED IN EXPENDITURE IN RELATION TO INCOME NOT INCLUDING IN TOTAL INCOME, NO PART OF THE EXPENDITURE CLAIMED IN THE RETURN OF INCOME IS D I SA L LOWABLE BY INVOKING THE PROVISIONS OF SECTION 14A. THE ASSESSEE WOULD LIKE TO STATE THAT ALL THE MON E Y BORROWED BY THE ASSESSEE IS DIRECTLY ATTR IBUTABLE TO SOME PARTICULAR INCOME OR RECEIPT AND IT DID NOT BORROWS ANY MONEY FOR THE PURPOSE OF INVESTMENT. THE ASSESSEE WOULD LIKE TO SUBMIT THE FOLLOWING STATEMENT OF THE LOAN TAKEN AND INTEREST PAID DURING T HE YEAR AND THE PURPOSE OF THE LOAN TAKEN AS UNDE R: - SR. NO. NAME NATURE OF LOAN PURPOSE OF LOAN 1 DENA BANK C/C A/C WORKING CAPITAL 2 G.E.CONT. CONSU. FIN. SERVICES LTD., TERM LOAN CAR LOAN 3 G.E.CONT. CONSU. FIN. SERVICES LTD., TERM LOAN CAR LOAN 4 K OTAK MAHINDRA BANK LTD., TERM LOAN FOR HAZIRA PROJECT 5 KOTAK MAHINDRA PRIME LTD., TERM LOAN CAR LOAN 6 RAIGAD DIST. CENTRAL CO - OP BANK LTD., TERM LOAN WORKING CAPITAL 7 RELIANCE CAPITAL LTD., TERM LOAN CAR LOAN 8 RELIANCE CAPITAL LTD., TERM LOAN FOR K ARIKAL PROJECT 9 SUNDARAM FINANCE LTD., TERM LOAN FOR HAZIRA PROJECT 10 SUNDARAM FINANCE LTD., TERM LOAN FOR HAZIRA PROJECT 11 SUNDARAM FINANCE LTD., TERM LOAN FOR HAZIRA PROJECT 12 LARSEN & TOUBRO LTD., TERM LOAN FOR HAZIRA PROJECT THE ASSESSEE ALSO SUBMITTED THE VARIOUS SUPPORTING DOCUMENT ON THE ABOVE WHICH CLEARLY JUSTIFY AND PROVE THAT THE ASSESSEE HAS NOT UTILIZED ANY OF THE ABOVE BORROWED FUND FOR THE PURPOSE OF MAKING INVESTMENT. ON THE CONTRARY IT IS CLEARLY PROVED THAT THE EXPENDITURE BY WAY OF INTEREST IS DIRECTLY ATTRIBUTABLE TO THE BUSINESS OF THE ASSESSEE, FROM WHERE THE ASSESSEE HAS INCURRED THE INCOME WHICH IS OFFERED TO TAX. ITA NO. 5701/MUM/2013 M/S. AMMA LINES PVT. LTD., 4 IN RULE 8D IT IS CLEARLY SPECIFIED THAT IN THE CASE OF INTEREST, THE INTEREST WHICH IS NOT USED FOR THE PURPOS E OF BUSINESS TO EARN INCOME ONLY TO BE DISALLOWED U/S. 14A OF THE INCOME TAX ACT, 1961 AS PER THE FORMULA PRESCRIBED AND NOT THE 'INTEREST WHICH IS DIRECTLY USED FOR EARNING THE INCOME AND IS TAXABLE UNDER THE INCOME TAX ACT. THE ASSESSEE WOULD LIKE TO FURTHER SUBMIT THAT, IT WA S HELD IN THE CASE OF CIT V. WINSOME TEXTILE INDUSTRIES LTD. (2010) 31 (I) ITCL 212 (P&H - HC), WHEREIN IT WAS HELD THAT ASSESSEE ACQUIRING SHARES USING HIS OWN MONEY AND NO EXPENDITURE ON INTEREST INCURRED AND WHERE IN A CASE ASSES SEE DOES NOT MAKE ANY CLAIM FOR THEN SECTION 14A WOULD NOT BE APPLICABLE FROM THE FI NANCIAL STATEMENTS OF THE A SSESSEE FILLED, YOUR HONOUR WILL APPRECIATE THE FACTS THAT, AS ON 31/03/2009 THE ASSESSEE HAS RS.174.28 CRORES IN SHARE CAPITAL AND RESERVE AN D SURPLUS. WHEREAS THE INVESTMENT MADE BY THE ASSESSEE AS ON 31/03/2009 IS RS.130.59 CRORES. HENCE ALL THE MONEY IS INVESTED FROM THE SHARE CAPITAL AND RESERVE & SURPLUS OF THE ASSESSEE. 6. BY THE IMPUGNED ORDER, CIT(A) CONFIRMED THE ACTION OF THE AO AGAI NST WHICH ASSESSEE IS IN FURTHER APPEAL BEFORE US. 7. WE HAVE CONSIDERED RIVAL CONTENTIONS AND CAREFULLY GONE THROUGH THE ORDERS OF THE AUTHORITIES BELOW AND FOUND THAT DURING THE YEAR UNDER CONSIDERATION, ASSESSEE HAS NOT RECEIVED ANY EXEMPT INCOME, THERE FORE, IN VIEW OF THE FOLLOWING JUDICIAL PRONOUNCEMENTS, NO DISALLOWANCE U/S.14A IS WARRANTED. SR. NO. NAME OF THE CASE CITATION 1 INTEGRATED COAL MINING LTD., 67 TAXMANN.COM 260 (KOL) 2 ACB INDIA LTD., 62 TAXMANN.COM 71 (DELHI HC) 3 REI AGRO LTD., 35 T AXMANN.COM 404 (KOL) 4 SARABHAI HOLDING PVT. LTD., ITA NO.2328/AHD/2012 ITA NO. 5701/MUM/2013 M/S. AMMA LINES PVT. LTD., 5 8. RESPECTFULLY FOLLOWING THESE JUDICIAL PRONOUNCEMENTS, WE DIRECT THE AO TO DELETE THE ADDITION / DISALLOWANCE MADE U/S.14A OF THE IT ACT. 9. AO HAS ALSO MADE DISALLOWANCE U/S.40 ( A ) (IA) ON THE PLEA THAT NO TDS WAS DEDUCTED ON THE INTEREST AND FINANCIAL CHARGES PAID BY IT. 10. IT WAS CONTENDED BY LEARNED AR THAT IN THE SUBSEQUENT YEAR, ASSESSEE HAS DULY PAID TAX ON THE INTEREST AND FINANCIAL CHARGES SO PAID. HE FURTHER CONTENDED THAT THE AMOUNT PAID BY ASSESSEE HAVE DULY BEEN INCLUDED BY RECIPIENT IN THEIR RESPECTIVE INCOMES AND ALSO PAID TAX THEREON. RELIANCE WAS PLACED ON THE DECISION OF HONBLE DELHI HIGH COURT IN CASE OF ANSAL LANDMARK TOWNSHIP PVT. LTD., 377 ITR 635 WHEREIN HONB LE HIGH COURT HELD THAT PROVISION U/S.40 ( A ) (IA) IS DECLARATORY AND CURATIVE AND IT HAS RETROSPECTIVE EFFECT FROM 01/04/2005. IT WAS FURTHER HELD THAT WHERE ASSESSEE MADE PAYMENT WITHOUT DEDUCTING TAX AT SOURCE, SINCE PAYEE HAD FILED RETURN AND OFFERED SUM RECEIVED FROM ASSESSEE TO TAX, IMPUGNED DISALLOWANCE MADE U/S. 40(A)(IA) DESERVES TO BE DELETED. 11. RELIANCE WAS ALSO PLACED ON THE DECISION OF RAJKOT BENCH IN THE CASE OF SHRI NAVUBHA J. CHAVDA VS. J.P. MEENA IN ITA NO.592/RJT/2014 BY ORDER DATED 20/02 /2017 WHEREIN TRIBUNAL OBSERVED AS UNDER: - 3. WE HAVE CAREFULLY CONSIDERED THE SUBMISSIONS MADE ON BEHALF OF THE RESPECTIVE PARTIES. IT IS THE CASE OF THE ASSESSEE THAT IN VIEW OF THE SECOND PROVISO TO S ECTION 40(A)(IA) OF THE ACT INTRODUCED BY THE FINANCE ACT , 2012 W.E.F. 01/07/2012 R.W.S. 201, DESPITE FAILURE TO DEDUCT TDS, DISALLOWANCE OF EXPENDITURE OUGHT NOT TO HAVE BEEN MADE IF THE RECIPIENTS PAY EE, NAMELY TATA MOTORS LTD. AND TATA CAPITALS LTD. HAVE ITA NO. 5701/MUM/2013 M/S. AMMA LINES PVT. LTD., 6 TAKEN INTO ACCOUNT THE AFORESAID SUM OF INTEREST WHILE COMPUTING INCOME IN THEIR HANDS AND PAID TAXES THEREON. IT IS A CASE OF THE ASSESSEE THAT THE AFORESAID AMENDMENT IS RETROSPECTIVE IN NATURE AND THEREFORE APPLY TO THE PRESENT CASE. IT WAS CLAIMED BY THE ASSESSEE THAT RECIPIENTS OF THE INTEREST ARE REPUTED FINANCIAL INSTITUTIONS HAVE DULY PAID THE TAXES. WE FIND THAT THE ISSUE IS FAIRLY SETTLED BY LONG LINE OF JUDICIAL PRECEDENTS ON THE ISSUE. THE LATEST DECISION OF THE ISSUE IS IN THE CASE OF CIT VS. ANSOL LAND MARK TOWNSHIP PVT.LTD . REPORTED IN 377 ITR 635 (DELHI). THE REVENUE HAS NOT BEEN ABLE TO REBUT THE ASSERTIONS OF THE ASSESSEE ON FACTU AL POSITION THAT THE RECIPIENTS HAVE DULY PAID THE TAXES ON THE AFORESAID AMOUNT. THE RECIPIENTS ARE REPUTED COMPANIES. THE AMOUNT INVOLVED IS MEAGER. THUS, THERE IS NO REASON TO DOUBT THE CLAIM OF THE ASSESSEE. THUS, IN THE BACKDROP OF THE AFORESAID DECIS ION OF THE HON'BLE DELHI HIGH COURT, WE HOLD THAT DISALLOWANCE UNDER S.40(A)(IA) CANNOT BE FASTENED ON THE ASSESSEE IN SUCH CIRCUMSTANCES. WE THUS FIND MERIT IN THE CASE OF THE ASSESSEE AND DIRECT THE AO TO DELETE THE DISALLOWANCE. 12. WE HAVE CONSIDERED R IVAL CONTENTIONS AND CAREFULLY GONE THROUGH THE ORDERS OF THE AUTHORITIES BELOW. WE HAD ALSO DELIBERATED ON THE JUDICIAL PRONOUNCEMENTS CITED BY LEARNED AR. IN THE INSTANT CASE, WE FOUND THAT ASSESSEE HAS PAID INTEREST AND FINANCIAL CHARGES TO THE REPUTED COMPANIES WHICH H AVE DULY INCLUDED T HE SAID INCOME IN THE RESPECTIVE RETURNS FILED WITH THE DEPARTMENT AND ALSO PAID TAX THERE ON. THUS, THE ISSUE IS SQUARELY COVERED BY THE DECISION OF HONBLE DELHI HIGH COURT, HENCE, NO DISALLOWANCE U/S.40(A)(IA) IS WARR ANTED. THE AO IS DIRECTED TO DELETE THE SAME. 13. IN THE RESULT, APPEAL OF THE ASSESSEE IS ALLOWED. O RDER PRONOUNCED IN THE OPEN COURT ON THIS 23 / 08 /2017 S D/ - ( AMARJIT SINGH ) S D/ - ( R.C.SHARMA ) JUDICIAL ME MBER ACCOUNTANT MEMBER MUMBAI ; DATED 23 / 08 /201 7 KARUNA SR. PS ITA NO. 5701/MUM/2013 M/S. AMMA LINES PVT. LTD., 7 COPY OF THE ORDER FORWARDED TO : BY ORDER, ( ASSTT. REGISTRAR) ITAT, MUMBAI 1. THE APPELLANT 2. THE RESPONDENT. 3. THE CIT(A), MUMBAI. 4. CIT 5. DR, ITAT, MUMBAI 6. GUARD FILE. //TRUE COPY//