IL & FS TRANSPORTATION NETWORKS LTD, MUMBAI V. ASST CIT 10(1), MUMBAI

ITA 5746/MUM/2012

• Counselvise Citation: [2014] 140 COUNSELVISE.COM (IT) 79527 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 10 month(s) 10 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 23-07-2014
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: I
• Next Hearing Date: 03-07-2014
• Assessment Year: 2008-2009
• Appeal Filed On: 13-09-2012
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Assessee Lawyers: DILIP V LAKHANI
• Keywords: Opportunity of being heard; Earning of tax free income
• Section: 14A; 115JB

Judgement Text

, IN THE INCOME TAX APPELLATE TRIBUNAL I B ENCH, MUMBAI , !', % % % % &' . % . () . % . , !' * BEFORE SHRI N.K. BILLAIYA, ACCOUNTANT MEMBER AND DR.S.T.M. PAVALAN, JUDICIAL MEMBER ./ I.T.A. NO.5746/MUM/2012 ( + + + + / ASSESSMENT YEAR :2008-09 M/S. IL&FS TRANSPORTATION NETWORKS LTD., THE IL&FS FINANCIAL CENTER, PLOT NO. C-22, G BLOCK, BANDRA KURLA COMPLEX, BANDRA (E), MUMBAI-400 051 / VS. THE ACIT-10(1), AAYAKAR BHAVAN, MUMBAI-400020 ./ I.T.A. NO.5162/MUM/2012 ( + + + + / ASSESSMENT YEAR :2008-09 THE ACIT-10(1), AAYAKAR BHAVAN, MUMBAI-400020 / VS. M/S. IL&FS TRANSPORTATION NETWORKS LTD., THE IL&FS FINANCIAL CENTER, PLOT NO. C-22, G BLOCK, BANDRA KURLA COMPLEX, BANDRA (E), MUMBAI-400 051 ', ./ -. ./ PAN/GIR NO. : AABCC 5460A ( ,/ / APPELLANT ) .. ( 01,/ / RESPONDENT ) ,/ 2 / ASSESSEE BY: SHRI DILIP V. LAKHANI 01,/ 3 2 / REVENUE BY: SHRI SANJEEV JAIN 3 4) / DATE OF HEARING :03.07.2014 56+ 3 4) / DATE OF PRONOUNCEMENT :23.07.2014 ITA NO. 5162 & 5746/M/2012 2 !7 / O R D E R PER N.K. BILLAIYA, AM: THESE CROSS APPEALS BY THE ASSESSEE AND THE REVENUE ARE DIRECTED AGAINST THE VERY SAME ORDER OF THE LD. CIT(A)-21, MUMBAI DT.18.05.2012 PERTAINING TO A.Y. 2008-09. AS COMMON ISSUES ARE INVOLVED IN BOTH THESE APPEALS, THEY WERE HEARD TOGETHER AND DISPOSE OF BY THIS COMMON ORDER FOR THE SAKE OF CONVENIENCE AND BREVITY. 2. THE GRIEVANCES OF THE ASSESSEE READ AS UNDER: ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE THE APPELLANT PRAYS THAT PROVISIONS OF SECTION 14A READ WITH RULE 8D ARE NOT APPLICABLE ON THE FACTS OF THE CASE AND NO DISALLOWANCE SHOULD BE MADE U/S L4A READ WITH RULE 8D. 2. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E THE LEARNED COMMISSIONER OF INCOME TAX (A) HAS ERRED IN CONFIRMING THAT THE INTEREST OF RS.1.83 CRORES IS T O BE CONSIDERED FOR COMPUTING THE DISALLOWANCE U/S 14A. THE APPELLANT PRAYS THAT CONCLUSION REACHED BY LEARNED COMMISSIONER OF INCOME TAX (A) IS ERRONEOUS. THE APPELLANT PRAYS THAT THE INTEREST OF RS. 1.83 CRORE S SHOULD NOT BE CONSIDERED WHILE COMPUTING DISALLOWANCE U/S 14A. 3. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E THE LEARNED COMMISSIONER OF INCOME TAX (A) HAS ERRED IN DISREGARDING THE FACT THAT OUTSTANDING SECURED AND UNSECURED LOANS AS ON 1/4/2007 ARE ALSO NOT UTILIZE D FOR THE PURPOSE OF MAKING INVESTMENTS INTO THE SHARES OF TH E COMPANIES IN THE YEAR OF BORROWING FROM WHICH THERE IS ANY POSSIBILITY OF EARNING EXEMPT INCOME. 4. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E THE LEARNED COMMISSIONER OF INCOME TAX (A) HAS ERRED IN REJECTING THE CLAIM OF THE APPELLANT THAT AS NO DIV IDEND ITA NO. 5162 & 5746/M/2012 3 INCOME WAS EARNED DURING THE PREVIOUS YEAR RELEVANT TO A.Y.2008-09 NO DISALLOWANCE SHOULD BE MADE U/S L4A AND THE INTEREST EXPENDITURE AMOUNTING TO RS.1.83 CRORE S SHOULD BE EXCLUDED FROM COMPUTING SECTION L4A DISALLOWANCE R.W. RULE 8D. 5.ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE THE LEARNED COMMISSIONER OF INCOME TAX (A) HAS ERRED IN CONFIRMING THE DISALLOWANCE OF THE ADMINISTRATIVE E XPENSES OF RS.1,77,63,830/-. THE APPELLANT PRAYS THAT THE C ONCLUSION REACHED BY LEARNED COMMISSIONER IS ERRONEOUS AND TH E SAID ADDITION MAY BE DELETED. 6. ON THE FACTS AND CIRCUMSTANCES OF THE CASE THE LEARNED COMMISSIONER OF INCOME TAX (A) HAS ERRED IN REJECTI NG THE CLAIM OF THE APPELLANT THAT PROVISIONS OF SECTION 1 4A(2) CAN ONLY BE INVOKED IF THE LEARNED ASSESSING OFFICER GI VES REASONS AS TO WHY HE IS NOT SATISFIED WITH THE CORR ECTNESS OF THE CLAIM OF THE APPELLANT. IN THE ABSENCE OF ANY S UCH FINDING WE SUBMIT THAT THE LEARNED ASSESSING OFFICER WAS NO T JUSTIFIED IN INVOKING THE PROVISIONS OF SECTION 14A AND MAKING THE DISALLOWANCE OF INTEREST AND ADMINISTRAT IVE EXPENSES. 7. ON THE FACTS & CIRCUMSTANCES OF THE CASE THE LEA RNED COMMISSIONER OF INCOME TAX (A) HAS ERRED IN CONFIRM ING THAT THE EXPENDITURE AS PER FORMULA PROVIDED UNDER RULE 8D IS TO BE CONSIDERED WHILE COMPUTING THE BOOK PROFIT U/S. 115JB. THE APPELLANT PRAYS THAT THE CONCLUSION REAC HED BY LEARNED COMMISSIONER OF INCOME TAX (A) IS ERRONEOUS AND THE EXPENDITURE COMPUTED AS PER FORMULA PROVIDED UN DER RULE 8D CANNOT BE CONSIDERED FOR COMPUTING BOOK PRO FIT U/S.115JB. 3. THE GRIEVANCES OF THE REVENUE READ AS UNDER: ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE LD. CIT(A) ERRED IN DELETING THE ADDITION MADE BY THE A O IN RESPECT OF THE INTEREST EXPENDITURE ON FUNDS BORROW ED DURING THE YEAR FOR BUSINESS PURPOSE WHILE CALCULATING THE DISALLOWANCES U/S. 14A R.W. RULE 8D HOLDING THAT AS PER ITA NO. 5162 & 5746/M/2012 4 PROVISIONS OF RULE 8D THE INTEREST EXPENDITURE INCU RRED ON FUNDS BORROWED DURING THE YEAR FOR BUSINESS PURPOSE IS NOT REQUIRED TO THE CONSIDERED IN THE FORMULA PROVIDED IN RULE 8D. 2. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E, THE LD. CIT(A) ERRED IN DELETING THE ADDITION OF RS. 7, 94,60,371/- MADE TO THE BOOK PROFIT U/S. 115JB OF THE ACT. 4. THE ASSESSEE IS ENGAGED IN THE BUSINESS OF SURFA CE TRANSPORT BUSINESS AND TRADING IN CONSTRUCTION MATERIALS. TH E RETURN FOR THE YEAR WAS FILED ON 29.9.2008 DECLARING TOTAL INCOME AT RS . 129,07,66,413/-. THE RETURN WAS SELECTED FOR SCRUTINY ASSESSMENT AND STATUTORY NOTICES WERE ISSUED AND SERVED UPON THE ASSESSEE ACCORDINGL Y. 4.1. DURING THE COURSE OF THE SCRUTINY ASSESSMENT P ROCEEDINGS, THE ASSESSING OFFICER NOTICED THAT THE ASSESSEE HAS NOT EARNED ANY DIVIDEND INCOME. HOWEVER, THE AO FOUND THAT THE ASSESSEE CO MPANY HOLDS INVESTMENTS WHICH CAN EARN EXEMPT INCOME. THE ASSE SSEE WAS ASKED TO FURNISH DETAILS OF EXPENSES INCURRED IN RELATION TO THE SAID EXEMPT INCOME. THE ASSESSEE WAS ALSO ASKED TO EXPLAIN AS TO WHY DI SALLOWANCE U/S. 14A R.W. RULE 8D SHOULD NOT BE MADE. THE ASSESSEE CONT ENDED THAT NO EXPENSES INCURRED IN THIS RESPECT. THIS EXPLANATIO N OF THE ASSESSEE WAS REJECTED BY THE AO WHO WAS OF THE FIRM BELIEF THAT SEC. 14A HAS BEEN INTRODUCED PROVIDING THAT NO DEDUCTION SHALL BE ALL OWED TO THE ASSESSEE IN RESPECT OF THE EXPENDITURE INCURRED BY THE ASSESSEE IN RELATION TO INCOME WHICH DOES NOT FORM PART OF TOTAL INCOME. THE AO W ENT ON TO DISALLOW EXPENDITURE U/S. 14A R.W. RULE 8D AND COMPUTED THE TOTAL DISALLOWANCE AT RS. 7,94,60,371/-. THE AO ALSO ADDED THE AMOUNT DI SALLOWED U/S. 14A R.W. RULE 8D TO THE BOOK PROFIT U/S. 115JB FOR THE COMPUTATION OF MAT THEREON. ITA NO. 5162 & 5746/M/2012 5 5. AGGRIEVED BY THIS, THE ASSESSEE CARRIED THE MATT ER BEFORE THE LD. CIT(A). BEFORE THE LD. CIT(A), IT WAS ARGUED THAT THE BORROWED FUNDS HAVE BEEN UTILIZED FOR THE PURPOSE OF BUSINESS AND CONSEQUENTLY INTEREST EXPENDITURE WAS ALSO INCURRED FOR THE PURPOSE OF BU SINESS AND HENCE NO INTEREST EXPENDITURE WAS ALLOCABLE TO INVESTMENT AC TIVITY. THE ASSESSEE FILED DETAILED CHART TO SUBSTANTIATE ITS CLAIM HOW THE BORROWED FUNDS HAVE BEEN UTILIZED FOR THE PURPOSE OF BUSINESS. 5.1. THE LD. CIT(A) DULY CONSIDERED THE SUBMISSIONS MADE BY THE ASSESSEE AND THE DETAILS OF UTILIZATION OF FUNDS. THE LD. CIT(A) WAS CONVINCED THAT THE BORROWED FUNDS TAKEN DURING THE ASSESSMENT YEAR UNDER CONSIDERATION AT RS. 355 CRORES WAS UTILIZED FOR THE PURPOSE OF BUSINESS AND NOT FOR THE PURPOSE OF INVESTMENT. AC CORDING TO THE LD. CIT(A), INTEREST AMOUNTING TO RS. 16.22 CRORES FOR LOAN TAKEN DURING THE YEAR UNDER CONSIDERATION WAS NOT REQUIRED TO BE CON SIDERED IN THE WORKING OF RULE 8D. ACCORDING TO THE LD. CIT(A), A S PER SUB-CLAUSE (II) OF RULE 8D(2), ONLY SUCH EXPENDITURE IS REQUIRED T O BE CONSIDERED WHICH IS NOT DIRECTLY ATTRIBUTABLE TO ANY PARTICULAR INCO ME OR RECEIPT. THE LD. CIT(A) OBSERVED THAT THE ASSESSEE HAS SATISFACTORIL Y EXPLAINED THAT THE INTEREST EXPENDITURE INCURRED DURING THE YEAR AT RS . 16.22 CRORES ON THE INTEREST BEARING FUNDS BORROWED DURING THE YEAR AT RS. 355 CRORES WAS DIRECTLY ATTRIBUTABLE TO SPECIFIC ACTIVITIES/PURPOS ES AND NOT FOR INVESTMENT ACTIVITIES. ACCORDINGLY, THE LD. CIT(A) DIRECTED T HE AO TO REWORK OUT THE DISALLOWANCE U/S. 14A WITHOUT CONSIDERING THE I NTEREST EXPENDITURE OF RS. 16.22 CRORES. 5.2. HOWEVER, IN RESPECT OF THE BALANCE DISALLOWANC E, THE LD. CIT(A) WAS NOT CONVINCED THAT THE OPENING BALANCE OF LOANS WERE NOT UTILIZED FOR THE PURPOSE OF INVESTMENT AND THEREFORE DID NOT ACC EPT THE CONTENTION OF ITA NO. 5162 & 5746/M/2012 6 THE ASSESSEE THAT INTEREST EXPENDITURE OF RS. 1.83 CRORES SHOULD NOT BE CONSIDERED FOR THE PURPOSE OF DISALLOWANCE U/S. 14A R.W. RULE 8D. THE LD. CIT(A) ACCORDINGLY DIRECTED THE AO TO REWORK OU T THE DISALLOWANCE U/S. 14A R.W. RULE 8D BY CONSIDERING THE INTEREST E XPENDITURE OF RS. 1.83 CRORES ONLY. 6. THE REVENUE IS IN APPEAL AGAINST THE DIRECTION O F NON CONSIDERATION OF INTEREST AMOUNTING TO RS. 16.22 CRORES AND THE A SSESSEE IS IN APPEAL AGAINST THE BALANCE AMOUNT OF INTEREST TO BE CONSID ERED FOR DISALLOWANCE AMOUNTING TO RS. 1.83 CRORES. 7. IN SO FAR AS THE ADJUSTMENT TO BOOK PROFIT IS CO NCERNED, THE LD. CIT(A) DIRECTED THE AO TO REWORK OUT THE BOOK PROFI T BY INCREASING THE SAME BY AMOUNT OF EXPENDITURE AS WOULD BE RECOMPUTE D AS PER HIS DIRECTION. 8. BEFORE US, THE LD. COUNSEL FOR THE ASSESSEE STRO NGLY SUBMITTED THAT FACTS OF THE CASE DO NOT CALL FOR ANY DISALLOWANCE U/S. 14A R.W. RULE 8D OF THE ACT. THE LD. COUNSEL DIRECTED THE ATTENTION TO THE CHART EXHIBITING THE AMOUNT BORROWED DURING THE YEAR AND THEIR UTILIZATI ON DURING THE YEAR UNDER CONSIDERATION. IT IS THE SAY OF THE LD. COUN SEL THAT NONE OF THE BORROWINGS HAVE BEEN UTILIZED FOR THE PURPOSE OF MA KING INVESTMENTS INTO THE SHARES OF THE COMPANIES FROM WHICH THERE IS AN Y POSSIBILITIES OF EARNING EXEMPT INCOME. THE LD. COUNSEL FURTHER SU BMITTED THAT SINCE THE AMOUNT BORROWED DURING THE YEAR UNDER CONSIDERA TION HAVE NOT BEEN UTILIZED FOR THE PURPOSE OF MAKING INVESTMENTS, NO DISALLOWANCE OF INTEREST IS REQUIRED AND THE LD. CIT(A) HAS RIGHTLY DELETED THE INTEREST ON THE AMOUNT BORROWED DURING THE YEAR UNDER CONSIDERA TION. ITA NO. 5162 & 5746/M/2012 7 9. PER CONTRA, THE LD. DEPARTMENTAL REPRESENTATIVE STRONGLY SUPPORTED THE FINDINGS OF THE AO. 10. WE HAVE CAREFULLY PERUSED THE ORDERS OF THE AUT HORITIES BELOW AND THE RELEVANT MATERIAL EVIDENCES BROUGHT BEFORE US I N THE FORM OF PAPER BOOK. WE FIND THAT SIMILAR CHART WAS SUBMITTED BEF ORE THE LD. CIT(A) WHO HAS CONSIDERED THE SOURCES OF BORROWED FUNDS DU RING THE YEAR UNDER CONSIDERATION AND THEIR APPLICATION THEREOF. WE HA VE ALSO PERUSED THE CHART. WE FIND FORCE IN THE CONTENTION OF THE LD. COUNSEL. NONE OF THE LOANS HAVE BEEN UTILIZED FOR THE INVESTMENT INTO SH ARES OF THE COMPANIES. WE HAVE ALSO CAREFULLY PERUSED EACH AND EVERY LOAN TAKEN IN A.Y. 2008- 09 AND THE CORRESPONDING END USE OF THE SAID LOANS. THE PROVISIONS OF SUB-CLAUSE (II) OF RULE 8D(2) ARE VERY CLEAR ON THI S WHEREIN IT HAS BEEN PROVIDED THAT ONLY SUCH INTEREST EXPENDITURE IS REQ UIRED TO BE CONSIDERED WHICH IS NOT DIRECTLY ATTRIBUTABLE TO ANY PARTICULA R INCOME OR RECEIPT. CONSIDERING THE FACTS IN TOTALITY IN THE LIGHT OF T HE DETAILS SUBMITTED BY THE ASSESSEE, WE DO NOT FIND ANY ERROR IN THE FINDINGS OF THE LD. CIT(A) IN SO FAR AS INTEREST EXPENDITURE OF RS. 16.22 CRORES IS CONCERNED. WE, ACCORDINGLY, CONFIRM THE FINDINGS OF THE LD. CIT(A) TO THE EXTENT OF THE INTEREST EXPENDITURE OF RS. 16.22 CRORES. WITH THI S, GROUND NO. 1 OF THE APPEAL FILED BY THE REVENUE IS DISMISSED. 11. IN SUPPORT OF THE CLAIM OF NON INCLUSION OF THE BALANCE INTEREST AND ADMINISTRATIVE EXPENSES, THE LD. COUNSEL STRONGLY S UBMITTED THAT THE NET WORTH OF THE ASSESSEE IS MUCH HIGHER THAN THE INVES TMENTS THEREFORE, NO DISALLOWANCE IS CALLED FOR. THE LD. COUNSEL FURTHE R STATED THAT AS PER THE PROVISIONS OF SEC. 14A R.W. RULE 8D, ONLY THOSE INV ESTMENTS HAD TO BE CONSIDERED WHICH GIVE EXEMPT INCOME. THE LD. COUNS EL EXPLAINED THAT THE NATURE OF BUSINESS OF THE ASSESSEE IS SUCH THAT IT HAS TO CREATE SPECIAL ITA NO. 5162 & 5746/M/2012 8 PURPOSE VEHICLE (SPV) FOR BIDDING SUCCESSFULLY CONT RACTS GIVEN BY NATIONAL HIGHWAY AUTHORITY OF INDIA (NHAI). THAT B EING SO, THE LD. COUNSEL STRONGLY RELIED UPON THE DECISION OF THE HO NBLE DELHI HIGH COURT IN THE CASE OF ORIENTAL STRUCTURAL ENGINEERS PVT. LTD. IN ITA NO. 605/2012 PLACED AT PAGE-170 OF THE PAPER BOOK CONTA INING DECISIONS. 12. PER CONTRA, THE LD. DR SUBMITTED THAT FROM THE YEAR UNDER CONSIDERATION RULE 8D IS VERY MUCH APPLICABLE AND T HEREFORE THERE IS NO ERROR IN THE FINDINGS OF THE AO. 13. HAVING HEARD THE RIVAL PARTIES AND AFTER PERUSI NG THE RELEVANT DETAILS BROUGHT ON RECORD BEFORE US, IN OUR CONSIDE RED VIEW, THE SUBMISSIONS MADE BY THE LD. COUNSEL BEFORE US WAS N OT TAKEN BEFORE THE ASSESSMENT STAGE AS THERE IS NO MENTION OF SPECIAL PURPOSE VEHICLE IN THE ASSESSMENT ORDER NOR THE AO HAS GIVEN ANY FINDINGS ON THE NET WORTH VIS- -VIS INVESTMENTS OF THE ASSESSEE. NO DOUBT, THE D ECISION RELIED UPON BY THE ASSESSEE BY THE HONBLE DELHI HIGH COURT (SUPRA ) IS IN FAVOUR OF THE ASSESSEE. SINCE THE FACT RELATING TO THE SPECIAL P URPOSE VEHICLE WAS NOT BEFORE THE AO, IN THE INTEREST OF JUSTICE AND FAIR PLAY, WE RESTORE THIS ISSUE BACK TO THE FILE OF THE AO TO DECIDE THIS ISSUE AFR ESH. THE AO IS DIRECTED TO VERIFY THE NET WORTH OF THE ASSESSEE VIS-A-VIS INVESTMENTS. THE AO IS ALSO DIRECTED TO VERIFY THE CLAIM OF THE ASSESSEE T HAT IT CREATES SPV FOR THE PURPOSE OF ITS BUSINESS AND MAKE INVESTMENTS IN SUC H SPV IN THE LIGHT OF THE DECISION OF THE HONBLE DELHI HIGH COURT. THE AO IS ALSO DIRECTED TO VERIFY THE CLAIM OF THE ASSESSEE THAT INTEREST INCO ME EARNED IS GREATER THAN THE INTEREST EXPANDED BY THE ASSESSEE DURING THE YE AR UNDER CONSIDERATION. THE ASSESSEE IS DIRECTED TO FILE NECESSARY DETAILS IN SUPPORT OF ITS CLAIM. NEEDLESS TO MENTION, THE AO SHALL GIVE A REASONABLE OPPORTUNITY OF BEING HEARD TO THE ASSESSEE. ITA NO. 5162 & 5746/M/2012 9 14. THE SECOND GRIEVANCE RELATES TO THE ADJUSTMENTS MADE IN THE BOOK PROFIT. AS WE HAVE SET ASIDE THE ISSUE RELATING TO THE DISALLOWANCE U/S. 14A, THE AO WILL DECIDE THIS ISSUE OF ADJUSTMENTS M ADE TO BOOK PROFIT U/S. 115JB AFRESH AFTER GIVING REASONABLE OPPORTUNI TY OF BEING HEARD TO THE ASSESSEE. 15. IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE AND THE REVENUE ARE PARTLY ALLOWED FOR STATISTICAL PURPOSE. ORDER PRONOUNCED IN THE OPEN COURT ON 23 RD JULY, 2014 . !7 3 6+ 8 9!: 23.7.2014 6 3 ; SD/- SD/- (DR. S.T.M. PAVALAN) (N.K. BILLAIYA) !' /JUDICIAL MEMBER !' / ACCOUNTANT MEMBER MUMBAI; 9! DATED 23 RD JULY, 2014 . . ./ RJ , SR. PS !7 !7 !7 !7 3 33 3 04 04 04 04 <+4 <+4 <+4 <+4 / COPY OF THE ORDER FORWARDED TO : 1. ,/ / THE APPELLANT 2. 01,/ / THE RESPONDENT. 3. = ( ) / THE CIT(A)- 4. = / CIT 5. >; 04 , , / DR, ITAT, MUMBAI 6. ;& ? / GUARD FILE. !7 !7 !7 !7 / BY ORDER, 14 04 //TRUE COPY// @ @@ @ / A A A A - - - - (DY./ASSTT. REGISTRAR) , / ITAT, MUMBAI