DCIT CIR 2(2)(1), MUMBAI V. SBI COMMERCIAL & INTERNATIONAL BANK LTD, MUMBAI

ITA 5757/MUM/2016

• Counselvise Citation: [2017] 126 COUNSELVISE.COM (IT) 8470 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 1 month(s) 12 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 08-11-2017
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: Not Allotted
• Assessment Year: 2011-2012
• Appeal Filed On: 26-09-2016
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: RAM TIWARI
• Keywords: Earning of tax free income
• Section: 142(1); 14A

Judgement Text

1 ITA NO.5757/MUM/2016 IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH J, MUMBAI BEFORE SHRI SKTIJIT DEY (JUDICIAL MEMBER) AND SHRI G MANJUNATHA (ACCOUNTANT MEMBER) I.T.A NO.5757/MUM/2016 (ASSESSMENT YEAR: 2011-12 ) DY.CIT, CIR.2(2)(1), MUMBAI VS M/S SBI COMMERCIAL & INTERNATIONAL BANK LTD (NOW MERGED WITH SBI), SBI BHAVAN,MADAM CAMA ROAD, NARIMAN POINT, MUMBAI 400 021. PAN : AAACS8249J APPELLANT RESPONDEDNT APPELLANT BY SHRI RAM TIWARI RESPONDENT BY NONE DATE OF HEARING 02-11-2017 DATE OF PRONOUNCEMENT 08-11-2017 O R D E R PER G MANJUNATHA, AM : THIS APPEAL FILED BY THE REVENUE IS DIRECTED AGAI NST THE ORDER OF CIT(A)-5, MUMBAI DATED 07-06-2016 AND IT PERTAINS TO ASSESSME NT YEAR 2011-12. THE REVENUE HAS RAISED THE FOLLOWING GROUNDS OF APPEAL: - 1. THE ORDER OF THE CIT(A) IS OPPOSED TO LAW AND FACTS OF THE CASE. 2. 'ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, WHETHER THE LD.CIT(A) WAS RIGHT IN DIRECTIN G THE A. 0. TO DELETE THE DISALLOWANCES MADE U/S. 14A READ WITH RU LE 8D OF RS. 79.30,0871- WITHOUT CONSIDERING THE FACT THAT IN TH E CASE OF L & T POWER DEVELOPMENT LTD. FOR A. Y. 2010-11, THE ACTIO N OF THE 2 ITA NO.5757/MUM/2016 A.O. WAS UPHELD BY LD. CIT(A) RELYING ON THE DECISI ON OF THE CHEMIVEST LTD. VS. /TO (2009) 121 LTD 318 (DELHI IT AT) (SB), WHICH WAS VEST ON THE DECISION OF THE HON. SUPREME COURT IN THE CASE OF CIT VS. RAJENDRA PRASAD MOODY (115 ITR 519) (SC) WH EREIN ALSO THE IDENTICAL ISSUE WAS INVOLVED. 2. THE BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE, A BANKING COMPANY, FILED ITS RETURN OF INCOME FOR THE ASSESSMENT YEAR 2011-12 ON 29-11-2011 DECLARING TOTAL INCOME OF RS.2,03,90,830. THE CASE WAS SELEC TED FOR SCRUTINY AND NOTICES U/S 143(2) AND 142(1) WERE ISSUED. IN RESPONSE TO NOTICES, THE AUTHORIZED REPRESENTATIVE OF THE ASSESSEE APPEARED FROM TIME T O TIME AND FURNISHED THE DETAILS, AS CALLED FOR. DURING THE COURSE OF ASSES SMENT PROCEEDINGS, THE AO NOTICED THAT THE ASSESSEE HAS EARNED EXEMPT INCOME OF RS.7,65,720 AND CLAIMED THE SAME AS EXEMPT U/S 10(34) OF THE INCOME -TAX ACT, 1961. THE ASSESSEE HAS SUO MOTO DISALLOWED EXPENDITURE INCURR ED IN RELATION TO EARNING EXEMPT INCOME FOR RS.9,130 U/S 14A IN ITS COMPUTATI ON OF INCOME. THEREFORE, THE ASSESSEE WAS ASKED TO EXPLAIN AS TO WHY EXPENSE S RELATED TO EARNING EXEMPT INCOME SHOULD NOT BE DISALLOWED U/S 14A R.W. R. 8D OF IT RULES, 1962. THE AO FURTHER OBSERVED THAT THE ASSESSEE HAS NOT C HOSEN TO FILE ANY EXPLANATION. THEREFORE, HE COMPUTED DISALLOWANCE U /S 14A BY INVOKING RULE 8D AND ACCORDINGLY WORKED OUT TOTAL DISALLOWANCE OF RS .7,93,087 AND ADDED BACK THE SAME TO THE TOTAL INCOME. AGGRIEVED BY THE ASS ESSMENT ORDER, ASSESSEE PREFERRED APPEAL BEFORE CIT(A). 3 ITA NO.5757/MUM/2016 3. BEFORE THE CIT(A), THE ASSESSEE SUBMITTED THAT THER E IS NO DISALLOWANCE U/S 14A R.W.R. 8D(2) IS WARRANTED AS ITS INVESTMENT S ARE FULLY COVERED OUT OF ITS OWN FUNDS AND NO BORROWED FUNDS HAVE BEEN USED FOR INVESTMENTS IN SHARES. THE ASSESSEE FURTHER CONTENDED THAT ITS INVESTMENT IN EQUITY SHARES OF STATE BANK OF BIKANER & JAIPUR FOR RS.18,23,000 AS AGAINS T THIS, ITS OWN FUNDS IN THE FORM OF SHARE CAPITAL AND RESERVES AND SURPLUS ARE AVAILABLE TO THE EXTENT OF RS.132.95 CRORES, THEREFORE, THE AO WAS INCORRECT I N DISALLOWING INTEREST BY INVOKING RULE 8D. INSOFAR AS EXPENDITURE, IT HAS S UO MOTO DISALLOWED EXPENDITURE OF RS.9,130 WHEREAS THE DISALLOWANCE AS PER RULE 8D(2)(II) WORKS OUT TO R.9,122, THEREFORE, NO FURTHER DISALLOWANCE IS CALLED FOR. THE CIT(A), AFTER CONSIDERING THE SUBMISSIONS OF THE ASSESSEE O BSERVED THAT THE ASSESSEE HAS PROVED AVAILABILITY OF ITS OWN FUNDS TO COVER U P INVESTMENTS IN SHARES WHICH GENERATED EXEMPT INCOME. THE CIT(A), FURTHER OBSER VED THAT INSOFAR AS DISALLOWANCE OF EXPENDITURE AS PER RULE 8D2)(III), THE ASSESSEE, ON ITS OWN HAS DISALLOWED RS.9,130 WHICH IS MORE THAN THE DISALLOW ANCE REQUIRED TO BE MADE U/R 8D(2)(III). THEREFORE, FURTHER DISALLOWANCE WA S NOT CALLED FOR. RELEVANT PORTION OF ORDER OF CIT(A) IS EXTRACTED BELOW:- 4 I HAD CONSIDERED THE APPELLANT SUBMISSIONS, HERE APPELLANT EARNED AN EXEMPT INCOME OF RS.7,65,7201- ON THE INV ESTMENTS IN STATE BANK OF BIKANER AND JAIPUR OF THE SHARES O F FOR THE A.Y. 2011-12. ACCORDING TO A.O. INVESTMENTS IN SHARES IS RS. I- 4 ITA NO.5757/MUM/2016 AND AC). HAD APPLIED RULE 8D DISALLOWED A SUM OF RS.79,30,0871-. IN THE APPELLANT SUBMISSIONS, APPEL LANT STATES THAT APPELLANT SHARE CAPITAL 100 CRS. & RESERVES AN D SURPLUS 32.95 CRS. ARE MORE THAN THE INVESTMENTS IN ASSETS WHICH EARNED THE TAX FREE INCOME. HENCE, APPELLANT STATES THAT T HERE NEED NOT BE ANY DISALLOWANCE UNDER RULE 8D(2) FOR THE PURPOS E OF THE INTEREST. I AGREE WITH THE CONTENTION OF THE APPELL ANT IN VIEW OF THE BOMBAY HIGH COURT CASE IN CIT VS. HDFC BANK LTD. 36 6 ITR 505 WHERE IT IS HELD THAT IF THE APPELLANT SHARE CAPITA L RESERVES AND SURPLUS EXCEEDS THE INVESTMENT WHICH EARNED THE EXE MPT INCOME THEN IT HAS TO BE PRESUMED THAT APPELLANT HAD INVES TED FROM HIS OWN FUNDS I.E. INVESTMENTS IN ASSETS TAX FEE EXEMPT INCOME. HENCE, IN VIEW OF THE ABOVE DECISION OF HDFC BANK L TD. HERE NO DISALLOWANCE IS REQUIRED WITH RESPECT TO THE INTERE ST AS PER 8D(2)(III). HENCE, A.O.'S DISALLOWANCE OF RS.7055,0 89/- FOR 8D(2)(III) IS DELETED. HERE APPELLANT'S INVESTMENT IN EQUITY S HARES OF STATE BANK OF BIKANER & JAIPUR IS RS.18,23,000/-. AVERAGE INV ESTMENT WHICH EARN EXEMPT INCOME ISRS.8,24,500/-. 05% AVERAGE IN VESTMENT IS AS PER RULE 8D(2)(III) IS RS.9122.50. AS APPELLANT ALREAD Y DISALLOWED IN THE RETURN OF INCOME. HERE NO DISALLOWANCE IS REQUIRED U/S 14A. GROUND OF APPEAL IS DISMISSED. AGGRIEVED BY THE ORDER OF CIT(A), THE REVENUE IS IN APPEAL BEFORE US. 4. THE LD.DR SUBMITTED THAT THE LD.CIT(A) WAS ERRED IN DELETING ADDITIONS MADE BY THE AO U/S 14A R.W.R. 8D WITHOUT CONSIDERIN G THE FACT THAT IN THE CASE OF L&T POWER DEVELOPMENT LTD FOR THE ASSESSMEN T YEAR 2010-11, THE ACTION OF THE AO WAS UPHELD BY LD.CIT(A) RELYING UP ON THE DECISION IN THE CASE OF CHEMIVEST VS ITO (2009) 121 ITD 318 (DEL)( SB) WHICH WAS BASED ON THE DECISION OF THE HONBLE SUPREME COURT IN THE CA SE OF CIT VS RAJENDRA PRASAD MOODY 115 ITR 519 (SC) WHEREIN THE IDENTICAL ISSUE WAS INVOLVED. 5 ITA NO.5757/MUM/2016 THE LD.DR REFERRING TO THE CIRCULAR ISSUED BY THE C BDT SUBMITTED THAT EVEN IF THERE IS NO EXEMPT INCOME EARNED DURING THE YEAR, D ISALLOWANCE AS CONTEMPLATED U/S 14A HAS TO BE WORKED OUT AS PER RU LE 8D(2). THEREFORE, THE CIT(A) WAS INCORRECT IN DELETING ADDITION MADE BY THE AO. 5. NONE APPEARED ON BEHALF OF ASSESSEE DESPITE SERVICE OF NOTICE BY RPAD. WE HAVE HEARD THE LD.DR,PERUSED MATERIAL AVA ILABLE ON RECORD AND GONE THROUGH THE ORDERS OF AUTHORITIES BELOW. THE AO DISALLOWED EXPENDITURE INCURRED IN RELATION TO EXEMPT INCOME U /S 14A BY INVOKING RULE 8D(2). IT IS THE CONTENTION OF THE ASSESSEE THAT I TS INVESTMENT IN SHARES ARE FULLY COVERED BY ITS OWN FUNDS. THEREFORE, THERE I S NO REQUIREMENT OF DISALLOWING INTEREST U/RE 8D(2). INSOFAR AS EXPEND ITURE, IT HAS SUO MOTO DISALLOWED EXPENDITURE IN RELATION TO EARNING EXEMP T INCOME AS PER RULE 8D(2)(III). THEREFORE, FURTHER DISALLOWANCE IN THI S REGARD IS UNWARRANTED. WE FIND THAT THE CIT(A) HAS GIVEN CATEGORICAL FINDING THAT THE ASSESSEE HAS OWN FUNDS IN THE FORM OF SHARE CAPITAL AS WELL AS RESER VES AND SURPLUS, WHICH COVER UP INVESTMENTS IN SHARES. THE ASSESSEE HAS I NVESTED IN EQUITY SHARES OF RS.18,23,000 AS AGAINST WHICH IT HAS OWN FUNDS I N THE FORM OF SHARE CAPITAL AND RESERVES & SURPLUS TO THE EXTENT OF RS. 132.95 CRORES. THEREFORE, WE ARE OF THE CONSIDERED VIEW THAT THE AO WAS INCOR RECT IN DISALLOWING INTEREST BY INVOKING RULE 8D(2)(II). INSOFAR AS EX PENDITURE, THE ASSESSEE HAS 6 ITA NO.5757/MUM/2016 SUO MOTO DISALLOWED AN AMOUNT OF RS.9,130. THE CIT (A) HAS QUANTIFIED THE DISALLOWANCE AS PER RULE 8D(2)(III) WHICH WORKS OUT TO RS.9,122. SINCE DISALLOWANCE MADE BY THE ASSESSEE IS MORE THAN THE DISALLOWANCE REQUIRED TO BE MADE U/R 8D2)(III), FURTHER DISALLOWANCE WAS NOT CALLED FOR. THE CIT(A), AFTER CONSIDERING RELEVANT PROVISIONS HAS RIGHTLY D ELETED ADDITIONS MADE BY THE AO. WE DO NOT FIND ANY ERROR OR INFIRMITY IN T HE ORDER OF CIT(A). HENCE, WE ARE INCLINED TO UPHOLD THE ORDER OF CIT(A) AN DI SMISS THE APPEAL FILED BY THE REVENUE. ORDER PRONOUNCED IN THE OPEN COURT ON 08 TH NOVEMBER, 2017. SD/- SD/- (SAKTIJIT DEY) (G MANJUNATHA) JUDICIAL MEMBER ACCOUNTANT MEMBER MUMBAI, DT : 08 TH NOVEMBER, 2017 PK/- COPY TO : 1. APPELLANT 2. RESPONDENT 3. CIT(A) 4. CIT 5. DR /TRUE COPY/ BY ORDER ASSTT. 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