DCIT CIR 3(3), MUMBAI V. VALUE INDUSTRIES LTD, MUMBAI

ITA 5763/MUM/2013

• Counselvise Citation: [2018] 125 COUNSELVISE.COM (IT) 0374 (ITAT-MUMBAI)
• Duration Of Justice: 4 year(s) 11 month(s) 25 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 19-09-2018
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: F
• Assessment Year: 2010-2011
• Appeal Filed On: 24-09-2013
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Earning of tax free income; Revised return
• Section: 14A; 115JB

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCHES F, MUMBAI BEFORE SHRI SAKTIJIT DEY, JUDICIAL MEMBER & SHRI MANOJ KUMAR AGGARWAL, ACCOUNTANT MEMBER ITA NO.4417/MUM/2012 ASSESSMENT YEAR : 2008-09 ITA NO.1856/MUM/2013 ASSESSMENT YEAR : 2009-10 ITA NO.5763/MUM/2013 ASSESSMENT YEAR : 2010-11 ACIT CIR 3(3)/DCIT3(3), MUMBAI VS . VALUE INDUSTRIES LTD., 171-C, MITTAL COURT, NARIMAN POINT, MUMBAI 400 021, PAN AAACV2299K (APPELLANT) (RESPONDENT) CO 124/M/2016 (ARISING OUT OF ITA NO.4417/MUM/2012 ASSESSMENT YEA R : 2008-09) CO 125/M/2016 (ARISING OUT OF ITA NO.1856/MUM/2013 ASSESSMENT YEA R : 2009-10 CO 126/M/2016 (ARISING OUT OF ITA NO.5763/MUM/2013 ASSESSMENT YEA R : 2010-11 VALUE INDUSTRIES LTD., MUMBAI 400 021. PAN AAACV2299K VS . ACIT CIR 3(3)/DCIT3(3), MUMBAI (CROSS-OBJECTOR) (RESPONDENT) APPELLANT BY : SHRI RAJEEV GUBGOTRA CROSS-OBJECTOR BY : SHRI MAYANK CHAUHAN DATE OF HEARING : 0 8 .0 8 .201 8 DATE OF PRONOUNCEMENT : 19 .0 9 .201 8 ITA 4417/MUM/12, 1857&5763/MUM/13, CO 124, 125 & 126/MUM/2016 VALUE INDUSTRIES LTD 2 O R D E R PER SAKTIJIT DEY, JUDICIAL MEMBER AFORESAID APPEALS BY THE DEPARTMENT AND CROSS-OBJEC TIONS BY THE ASSESSEE ARE DIRECTED AGAINST THREE SEPARATE ORDERS PASSED BY THE CIT(A)-7, MUMBAI, PERTAINING TO ASSESSMENT YEARS 2008-09, 200 9-10 AND 2010-11. 2. ITA 4417/MUM/2012, 1857&5763/MUM/2013: THE GROUNDS RAISED BY THE DEPARTMENT IN ALL THESE APPEALS ARE COMMON. THE FIRST COMMON ISSUE IN GROUND NOS. 1 & 2 OF THE AFORESAID APPEALS RELATE TO DISALLOWANCE MADE OF DIFFERENT AMOUNTS U/S. 14A REA D WITH RULE 8D (2)(II). SINCE, THE FACTS RELATING TO THIS ISSUE ARE COMMON IN ALL THE ASSESSMENT YEARS UNDER APPEAL, EXCEPT, THE QUANTUM, FOR THE SAKE OF CONVENIENCE, WE SHALL DEAL WITH THE FACTS AS INVOLVED IN ITA NO.4417/MUM/2012 FOR A.Y. 2008-09. 3. BRIEF, FACTS ARE THE ASSESSEE - A COMPANY, IS EN GAGED IN MANUFACTURE AND TRADING OF ELECTRICAL GOODS. FOR THE ASSESSMEN T YEAR UNDER DISPUTE ASSESSEE FILED ITS RETURN OF INCOME ON 30.09.2008 D ECLARING TOTAL INCOME AT NIL UNDER THE NORMAL PROVISIONS AFTER SET-OFF OF BROUGH T FORWARD LOSSES. WHEREAS, ASSESSEE OFFERED BOOK PROFIT OF ` 12,43,11,886 U/S. 115JB OF THE ACT. SUBSEQUENTLY, ASSESSEE FILED REVISED RETURN OF INCO ME ON 12.03.2010 DECLARING TOTAL INCOME AT ` 10,73,84,259/- AFTER SET-OFF OF BROUGHT FORWARD LO SS OF ` 32,08,23,143/-. DURING THE ASSESSMENT PROCEEDINGS , THE ASSESSING OFFICER NOTICED THAT IN THE RELEVANT PREVIOUS YEAR ASSESSEE HAS RECEIVED DIVIDEND ITA 4417/MUM/12, 1857&5763/MUM/13, CO 124, 125 & 126/MUM/2016 VALUE INDUSTRIES LTD 3 INCOME OF ` 19,82,960/- WHICH, THOUGH, IS EXEMPT U/S. 10(34) O F THE ACT, HOWEVER, ASSESSEE HAS NOT CLAIMED ANY EXEMPTION WIT H REGARD TO SUCH INCOME. FURTHER, HE FOUND THAT THE ASSESSEE HAD INCOME OF ` 1,52,79,126/- FROM LONG TERM CAPITAL GAIN FROM SALE OF SECURITIES, WHICH HA S BEEN CLAIMED AS EXEMPT U/S. 10(38) OF THE ACT. WHEN THE ASSESSING OFFICER CALLED UPON THE ASSESSEE TO EXPLAIN WHY DISALLOWANCE U/S. 14A READ WITH RULE 8D SHOULD NOT BE MADE FOR EARNING EXEMPT INCOME, IT WAS SUBMITTED BY THE ASSE SSEE THAT UNLESS IT INCURS EXPENDITURE ATTRIBUTABLE TO EARNING OF EXEMPT INCOM E, NO DISALLOWANCE U/S. 14A CAN BE MADE. FURTHER, IT WAS SUBMITTED BY THE ASSESSEE THAT NO DISALLOWANCE OF INTEREST EXPENDITURE CAN BE MADE AS THE ASSESSEE HAD SUFFICIENT INTEREST FREE FUNDS AVAILABLE WITH IT TO MAKE INVESTMENT IN EXEMPT INCOME YIELDING ASSETS. AFTER CONSIDERING THE SUBM ISSIONS OF THE ASSESSEE, THE ASSESSING OFFICER, HOWEVER, DID NOT FIND MERIT IN T HEM AND HELD THAT AS PER THE PROVISIONS OF SECTION 14A READ WITH RULE 8D, DISALL OWANCE HAS TO BE MADE FOR EARNING EXEMPT INCOME. ACCORDINGLY, APPLYING THE M ETHODOLOGY PRESCRIBED UNDER RULE 8D HE DISALLOWED INTEREST EXPENDITURE OF ` 2,02,13,803/- UNDER RULE 8D(2)(II) AND ADMINISTRATIVE EXPENDITURE OF ` 21,26,124/- UNDER RULE 8D(2)(III), TOTAL DISALLOWANCE AGGREGATING TO ` 2,23,39,927/-. HOWEVER, THE ASSESSING OFFICER ALLOWED EXEMPTION IN RESPECT OF D IVIDEND INCOME OF ` 19,82,960/-. BEING AGGRIEVED OF DISALLOWANCE MADE U/S. 14A READ WITH RULE 8D, ASSESSEE PREFERRED APPEAL BEFORE THE CIT(A). ITA 4417/MUM/12, 1857&5763/MUM/13, CO 124, 125 & 126/MUM/2016 VALUE INDUSTRIES LTD 4 4. THE LEARNED CIT(A) AFTER CONSIDERING THE SU BMISSIONS OF THE ASSESSEE IN THE CONTEXT OF FACT AND MATERIAL AVAILABLE BEFORE H IM, OBSERVED THAT AS AGAINST SURPLUS INTEREST FREE FUNDS AVAILABLE WITH THE ASSE SSEE TO THE TUNE OF ` 398.79 CRORE, THE INVESTMENTS MADE BY THE ASSESSEE AMOUNTE D TO ` 43.97 CRORE. THEREFORE, FOLLOWING THE DECISION OF HONBLE JURISD ICTIONAL HIGH COURT IN THE CASE OF CIT VS. RELIANCE UTILITIES LTD. (313 ITR 34 0), LEARNED CIT(A) HELD THAT NO DISALLOWANCE OF INTEREST EXPENDITURE UNDER RULE 8D(2)(II) CAN BE MADE. HOWEVER, AS REGARDS DISALLOWANCE OF ADMINISTRATIVE EXPENDITURE UNDER RULE 8D(2)(III) IS CONCERNED, LEARNED CIT(A) REJECTING T HE CONTENTION OF THE ASSESSEE UPHELD THE DISALLOWANCE MADE BY THE ASSESSING OFFIC ER AT ` 21,26,124/-. 5. THE LEARNED DR SUBMITTED, ASSESSEES CLAIM THAT IT HAS SUFFICIENT INTEREST FREE FUNDS AVAILABLE WITH IT TO MAKE INVES TMENT FOR EXEMPT YIELDING ASSETS HAS NOT BEEN VERIFIED BY THE ASSESSING OFFIC ER AND, HENCE, IT SHOULD BE RESTORED BACK TO HIM FOR EXAMINING ASSESSEES CLAIM . 6. THE LEARNED AR STRONGLY RELIED UPON THE OBSERVAT IONS OF THE LEARNED CIT(A) AND SUBMITTED THAT ASSESSEE HAS FURNISHED AL L MATERIAL EVIDENCE BOTH BEFORE THE ASSESSING OFFICER AS WELL AS THE CIT(A) TO DEMONSTRATE THAT IT HAD SUFFICIENT INTEREST FREE FUNDS AVAILABLE WITH IT TO MAKE THE INVESTMENT IN EXEMPT INCOME YIELDING ASSET. HE SUBMITTED, WHILE THE ASS ESSING OFFICER COMPLETELY OVERLOOKED THE CONTENTION OF THE ASSESSEE AND THE E VIDENCES FILED, THE LEARNED CIT(A) AFTER VERIFYING THE DOCUMENTARY EVIDENCES AV AILABLE ON RECORD WAS CONVINCED THAT THE ASSESSEE HAD SUFFICIENT INTEREST FREE FUNDS AVAILABLE WITH IT ITA 4417/MUM/12, 1857&5763/MUM/13, CO 124, 125 & 126/MUM/2016 VALUE INDUSTRIES LTD 5 TO MAKE INVESTMENTS. THEREFORE, HE DELETED THE DIS ALLOWANCE OF INTEREST EXPENDITURE MADE UNDER RULE 8D(2)(II). TO DEMONST RATE AVAILABILITY OF INTEREST FREE SURPLUS FUNDS WITH THE ASSESSEE, THE LEARNED A R DREW OUR ATTENTION TO A CHART INDICATING THE SURPLUS INTEREST FREE FUNDS AV AILABLE FROM A.Y. 1992-93 TO A.Y 2008-09. HE SUBMITTED, THE INVESTMENTS ON WHIC H ASSESSEE HAS EARNED EXEMPT INCOME DURING THE YEAR WERE MADE IN A.Y. 199 3-94 AND IN THAT ASSESSMENT YEAR ALSO THE ASSESSEE HAD SUFFICIENT IN TEREST FREE FUNDS AVAILABLE WITH IT TO MAKE INVESTMENT. THUS, THE LEARNED AR S UBMITTED, LEARNED CIT(A)S DECISION TO DELETE THE DISALLOWANCE OF INTEREST EXP ENDITURE MADE UNDER RULE 8D(2)(II) IS IN CONSONANCE WITH THE RATIO OF DECISI ON LAID DOWN BY THE HONBLE JURISDICTIONAL HIGH COURT IN THE CASE OF CIT VS. RE LIANCE UTILITIES LTD (SUPRA) AND CIT VS. HDFC BANK LTD. (366 ITR 505) 7. WE HAVE CONSIDERED RIVAL SUBMISSIONS AND PERUSE D MATERIAL ON RECORD. WE HAVE ALSO APPLIED OUR MIND TO THE DECISIONS RELI ED UPON. THE SPECIFIC DISPUTE BETWEEN THE PARTIES IS WITH REGARD TO DISAL LOWANCE OF INTEREST EXPENDITURE UNDER RULE 8D(2)(II) OF THE RULES. AS COULD BE SEEN FROM THE MATERIAL ON RECORD, IN COURSE OF ASSESSMENT PROCEED INGS, THE ASSESSEE WHILE JUSTIFYING ITS STAND THAT NO DISALLOWANCE U/S. 14A READ WITH RULE 8D CAN BE MADE HAS SPECIFICALLY STATED THAT INTEREST EXPENDIT URE INCURRED BY THE ASSESSEE CANNOT BE ATTRIBUTED TO EARNING OF EXEMPT INCOME, S INCE, THERE IS NO NEXUS BETWEEN INTEREST BEARING FUNDS AND TAX FREE INVESTM ENTS. HOWEVER, THE ASSESSING OFFICER HAS REJECTED THE AFORESAID CONTEN TION OF THE ASSESSEE SIMPLY ITA 4417/MUM/12, 1857&5763/MUM/13, CO 124, 125 & 126/MUM/2016 VALUE INDUSTRIES LTD 6 ON THE REASONING THAT DISALLOWANCE U/S. 14A HAS TO BE COMPUTED BY APPLYING RULE 8D. HOWEVER, THE FIRST APPELLATE AUTHORITY TA KING NOTE OF ASSESSEES SUBMISSIONS, HAS EXAMINED THE AVAILABILITY OF INTER EST FREE FUNDS WITH THE ASSESSEE AND HAS FOUND THAT AS AGAINST INVESTMENT M ADE OF ` 43.97 CRORE THE ASSESSEE HAD INTEREST FREE SURPLUS FUNDS OF ` 398.79 CRORE. BEING SATISFIED WITH THE FACTUAL POSITION THAT ASSESSEE HAD ENOUGH INTER EST FREE SURPLUS FUNDS TO TAKE CARE OF THE INVESTMENT, HE HAS DELETED THE DIS ALLOWANCE OF INTEREST EXPENDITURE MADE UNDER RULE 8D(2)(II) OF THE ACT. FROM THE CHART SUBMITTED BEFORE US BY THE LEARNED AR INDICATING THE AVAILABI LITY OF FUNDS WITH THE ASSESSEE, WE FIND THAT RIGHT FROM A.Y. 1992-93 TO A .Y. 2008-09, EACH YEAR ASSESSEE HAD SUFFICIENT INTEREST FREE FUNDS AVAILAB LE WITH IT, WHICH IS MORE THAN THE INVESTMENTS MADE. THEREFORE, APPLYING THE RAT IO LAID DOWN BY THE HONBLE JURISDICTIONAL HIGH COURT IN THE CASE OF CIT VS. RE LIANCE UTILITIES LTD (SUPRA) AND CIT VS. HDFC BANK LTD.(SUPRA), NO DISALLOWANCE OF E XPENDITURE CAN BE MADE UNDER RULE 8D(2)(II). THAT BEING SO, WE DO NOT FIN D ANY INFIRMITY IN THE DECISION OF THE LEARNED CIT(A) IN DELETING THE DISA LLOWANCE MADE UNDER RULE 8D(2)(II) READ WITH SECTION 14A OF THE ACT. THIS G ROUND IS DISMISSED. 8. THE COMMON ISSUE RAISED IN GROUND NO.2 OF ALL TH ESE APPEALS IS WITH REGARD TO APPLICABILITY OF SECTION 14A READ WITH RU LE 8D WHILE COMPUTING BOOK PROFIT U/S. 115JB OF THE ACT. BRIEFLY, FACTS ARE W HILE MAKING DISALLOWANCE U/S. 14A READ WITH RULE 8D OF THE ACT UNDER THE NORMAL P ROVISIONS, THE ASSESSING OFFICER ALSO ADDED IT TO THE BOOK PROFIT COMPUTED U /S. 115JB OF THE ACT. THE ITA 4417/MUM/12, 1857&5763/MUM/13, CO 124, 125 & 126/MUM/2016 VALUE INDUSTRIES LTD 7 ASSESSEE CHALLENGED AFORESAID DECISION OF THE ASSES SING OFFICER BEFORE THE CIT(A). THE CIT(A) AFTER CONSIDERING THE SUBMISSIO NS OF THE ASSESSEE HELD THAT PROVISIONS OF SECTION 14A CANNOT BE IMPORTED W HILE COMPUTING BOOK PROFIT U/S. 115JB OF THE ACT. REFERRING TO CLAUSE (F) OF EXPLANATION TO SECTION 115JB HE OBSERVED THAT IT REFERS TO AMOUNT DEBITED TO THE PROFIT AND LOSS ACCOUNT, WHICH CAN BE ADDED BACK TO THE BOOK PROFIT COMPUTED U/S. 115JB OF THE ACT. REFERRING TO CERTAIN JUDICIAL PRECEDENT, LEARNED CI T(A) ULTIMATELY CONCLUDED THAT NO ADDITION TO BOOK PROFIT CAN BE MADE ON ACCO UNT OF DISALLOWANCE U/S. 14A, EXCEPT, AS STIPULATED UNDER CLAUSE (F) OF EXPL ANATION 1 OF SECTION 115JB OF THE ACT. 9. WE HAVE CONSIDERED RIVAL SUBMISSIONS AND PERUSED MATERIAL ON RECORD. AFTER ANALYZING THE PROVISIONS CONTAINED U/S. 115JB OF THE ACT, WE AGREE WITH THE LEARNED CIT(A) THAT COMPUTATION OF BOOK PROFIT U/S. 115JB CANNOT BE MADE BY TAKING RECOURSE TO THE PROVISIONS OF SECTION 14A READ WITH RULE 8D, EXCEPT, AS STIPULATED UNDER CLAUSE (F) OF EXPLANATION 1 OF SECTION 115JB OF THE ACT, IN SO FAR AS IT RELATES TO EXPENDITURE ATTRIBUTABLE TO EXEMPT INCOME. THIS VIEW HAS ALSO BEEN EXPRESSED BY THE ITAT, DELHI, SPECIAL BENCH IN CASE OF ACIT VS. VIREET INVESTMENT PRIVATE LTD. (2017) 165 ITD 27. IN VIEW OF THE ABOVE, WE UPHOLD THE DECISION OF THE LEARNED CIT(A) BY DISMIS SING THE GROUND RAISED. 10. OUR AFORESAID DECISION APPLIES MUTATIS MUTANDIS TO THE OTHER TWO APPEALS OF THE REVENUE UNDER CONSIDERATION. ITA 4417/MUM/12, 1857&5763/MUM/13, CO 124, 125 & 126/MUM/2016 VALUE INDUSTRIES LTD 8 IN THE RESULT, THE APPEALS OF THE REVENUE ARE DISM ISSED. 11. CO 124, 125 & 126/M/2016 ALL THESE CROSS-OBJECTIONS HAVE BEEN FILED BY THE ASSESSEE WITH INORDINATE DELAY. THE CROSS-OBJECTIONS HAVE BEEN F ILED BASICALLY CHALLENGING THE DECISION OF THE CIT(A) IN SUSTAINING THE DISALL OWANCE OF ADMINISTRATIVE EXPENDITURE MADE U/S. 14A READ WITH RULE 8D(III). HOWEVER, AT THE TIME OF HEARING, THE LEARNED AR ON THE INSTRUCTION OF HIS C LIENT DID NOT PRESS THE CROSS- OBJECTION. ACCORDINGLY, THE CROSS-OBJECTIONS ARE D ISMISSED AS NOT PRESSED 12. TO SUM UP, THE DEPARTMENTS APPEALS AND ASSESSE ES CROSS-OBJECTIONS ARE DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON THIS DAY OF 19 TH SEPTEMBER 2018. SD/- SD/- (MANOJ KUMAR AGGARWAL) (SAKTIJIT DEY) ACCOUNTANT MEMBER JUDICIAL MEMBER MUMBAI, DATED : 19 TH SEPTEMBER, 2018. SA COPY OF THE ORDER FORWARDED TO : 1. THE APPELLANT. 2. THE RESPONDENT. 3. THE C I T(A), MUMBAI. 4. THE C I T 5. THE DR, F BENCH, ITAT, MUMBAI BY ORDER, //TRUE COPY// (ASSISTANT REGISTRAR) INCOME TAX APPELLATE TRIBUNAL, MUMBAI