ACIT CIR 6(3), MUMBAI V. MAHINDRA INFRASTRUCTURAL PROJECTS P. LTD, MUMBAI

ITA 5827/MUM/2013

• Counselvise Citation: [2016] 132 COUNSELVISE.COM (IT) 4227 (ITAT-MUMBAI)
• Duration Of Justice: 2 year(s) 6 month(s) 10 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 07-04-2016
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: B
• Assessment Year: 2005-2006
• Appeal Filed On: 27-09-2013
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: D P REDDY
• Assessee Lawyers: RAJESH ATHAWALE
• Keywords: Business income; Rule of consistency; Earning of tax free income
• Section: 14A

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL B BENCH, MUMBAI BEFORE SHRI R. C. SHARMA , A M AND SHRI PAWAN SINGH , J M ./ I.T.A. NO.5827/MUM/2013 ( / ASSESSMENT YEAR: 2005 - 06 ) DY. CIT, CI RC. - 6(3), R . NO. 522, 5 TH FLOOR, AAYAKAR BHAVAN, M. K. ROAD, MUMBAI - 400 020 / VS. MAHINDRA INFRASTRUCTURAL PROJECTS PVT. LTD. (NOW MERGED WITH ANDROMEDA INVESTMENT & FINANCE PVT. LTD.) 5 TH FLOOR, MAHINDRA TOWERS, G. M. BHOSALE MARG, P. K. KURNE CHOWK, WORLI, MUMBAI - 400 018 ./ ./ PAN/GIR NO. AAACM 3575 B ( / APPELLANT ) : ( / RESPONDENT ) / APPELLANT BY : SHRI D. P. REDDY / RESPONDENT BY : SHRI RAJESH ATHAWALE / DATE OF HEARING : 17.3.2016 / DATE OF PRONOUNCEMENT : 07.04 .2016 / O R D E R PER PAWAN SINGH , JM : TH E PRESENT APPEAL IS FILED BY THE REVENUE AGAINST THE ORDER OF CIT(A) - 8, MUMBAI DATED 09.7.2013 FOR A.Y. 2005 - 06. T HE SOLE GROUND IN THE PRESENT APPEAL IS AGAINST THE DISALLOWANCE U/S. 14A R/W RULE 8D OF THE ACT, ON THE PRETEXT THAT THERE IS DIVERSION OF FUNDS TO SUBSIDIARY COMPANY. 2. THE BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE COMPANY WHICH IS INVOLVED IN TH E BUSINESS OF REAL ESTATE AND INFRASTRUCTURE DEVELOPMENT FILED ITS RETURN OF INCOME ON 2 ITA NO. 5827/MUM/2013 (A.Y. 2005 - 06) DY. CIT VS. MAHINDRA INFRASTRUCTURAL PROJECTS PVT. LTD. 29.10.2005, DECLARING LOSS OF RS.3,07,18,605/ - . THE RETURN OF INCOME WAS SELECTED FOR SCRUTINY AND WHILE MAKING THE ASSESSMENT THE A.O. BESIDES OTHER DISALLOWANCE/A DDITION DISALLOWED A SUM O F RS.6.27 LACS U/S. 14A IN THE ASSESSMENT ORDER DATED 09.12.2007. THE ASSESSEE CARRIED THE MATTER BEFORE THE CIT(A). THE CIT(A) DELETED THE DISALLOWANCE U/S. 14A AND SET ASIDE/DELETED THE ADDITION AND DIRECTED THE A.O. TO DETERMIN E THE AMOUNT OF EXPENDITURE INCURRED IN RELATION TO EXEMPT INCOME IN ACCORDANCE WITH THE DIRECTION GIVEN BY CIT(A) DATED 24.2.2010 IN RESPECT OF ASSESSEES OWN CASE FOR A.YS. 2003 - 04, 2004 - 05 AND 2005 - 06 AGAINST WHICH THE PRESENT APPEAL IS FILED BEFORE US. 3. RIVAL CONTENTION OF THE AR FOR PARTY HEARD AND RECORD PERUSED. LD. AR FOR ASSESSEES ARGUED THAT THE PRESENT APPEAL IS COVERED BY THE DECISION OF ITAT MUMBAI IN ASSESSEES OWN CASE FOR A.Y. 1994 - 95 AND 1996 - 97 DECIDED ON 25.11.2004 IN ITA NO. 1011/M/ 1999 AND 1031/M/2000. DR RELIED ON THE ORDER OF A.O. 4. WE HAVE PERUSED THE ORDER OF CO - ORDINATE BENCH OF ITAT IN ASSESSEES OWN CASE FOR A.Y. 1994 - 95 & 1996 - 97, WHEREIN IT WAS HELD AS UNDER: 5. WE HAVE TAKEN NOTE OF THE UNDISPUTED FACTUAL POSITION THAT THE INVESTMENT MADE BY THE ASSESSEE IS MAINLY IN THE EQUITY SHARE CAPITAL OR CORBEL ESTATE & INVESTMENTS PVT. LTD. WHICH IS ALSO ENGAGED IN THE BUSINESS OF PROPERTY DEVELOPMENT, AND THAT THE SAID INVESTMENT REPRESENTS CONTROLLING INTEREST. THE QUESTION TH EN IS WHETHER IT CAN BE SAID THAT THE ASSESSEE HELD THESE SHARES ONLY FOR THE PURPOSE OF EARNING THE DIVIDENDS. THE ANSWER, IN VIEW OF THE ADMITTED FACTUAL POSITION ABOUT THE INVESTMENT BEING IN THE NATURE OF CONTROLLING INTEREST, HAS TO BE IN NEGATIVE. IN OTHER WORDS, ON THE FACTS OF THIS CASE IT C OUL D NOT B E SA ID TH AT T HE INVESTMENT IN CORBEL ESTATE & INVESTMENTS W AS FOR T HE PURPOSE O F EARNING DIVIDENDS. IN THIS BACKDROP, LET US NOW SEE THE PRINCIPLES LA I D DOWN B Y HON'BLE CALCUTTA HIGH COURT IN THE CASE O F CIT VS ANN IVERSARY I N VEST MENT AGENCIES LIMITED (175 ITR 199). THEIR LORDSHIPS REFER R ED TO AND RELIED UPON THE JUDGMENTS I N THE CASES OF CIT VS NEW INDIA INVE ST M ENT CO R PORA TI ON L T D 113 ITR 778 AND CIT VS DEVENPORT & CO PV L D 158 ITR 348 IN S U PPORT OF THE PROPOSITION THAT 3 ITA NO. 5827/MUM/2013 (A.Y. 2005 - 06) DY. CIT VS. MAHINDRA INFRASTRUCTURAL PROJECTS PVT. LTD. ONCE IT IS NOT POSSIBLE TO AT TRIBUTE ANY PARTICUL AR I TEM OF EXPENDITURE HAVING BEEN INCURRED SOLELY F OR T HE P U RPOSE OF EARNING DIVIDEND INCOME, THE EXPENDITURE, INCLUDING THE INTERES T , H AS TO BE ALLOW ED I N COMPUTING THE BUSINESS INCOME. T HEIR LORDSHIPS F U RT H ER HELD THAT IT IS ONLY FOR THE PURPOSE OF INCOME TAX ASSESSMENT THAT THE DIV IDEND IS R EQUIRED TO BE SHOWN UNDER A DIFFERENT HEAD, BUT IT CONTINUES TO BE IN THE NATURE OF BUSINESS INCOME AND NO PART OF EXPENDITURE C AN BE APPORTIONE D U ND ER THE H EAD INCOME FROM OTHER SOURCES . THESE OBSERVATIONS WERE MADE IN A CASE W H ERE SHARES WERE HELD AS STOCK IN T RADE BUT THEN AS CLEA RLY NOTED I N THE TEXT OF T HE JUDGMENT, THE IMPORTANT FACTOR WAS WHETHER OR NOT THE EXPENDI T URE WAS HELD SOLELY FOR THE PU RPOSE OF EARNING DIVIDEND IN WHICH CASE THE ADMISSIBILITY COULD ONLY BE CONSIDERED UN DER SECTION 57(III). THAT IS NO T THE SITUATION BEFORE US. NO DECISION TO THE CONTRARY BY THE HON'BLE JURISDIC TIONAL HIG H COURT HAS BEEN CITED BEFORE US. AS HE LD BY THE TRI BUNAL IN THE CASE OF TEJ I N TE RNATIONAL PVT. LTD VS DCIT (69 TT J 650), EVEN A NON JURISDICTIONAL HIGH COUR T HOLDS THE FIELD UNLESS THERE IS A DIR ECT JURISDICTIONAL HIGH COURT JU DGMENT IS DIRECTLY TO THE CONTRARY. THE SCHOOL OF THOUGHT EMERGING FROM T H ESE DI SCUSSIONS SUPPORTS THE CONCLUSIONS ARRIVED AT BY THE CIT(A). IN THIS VIEW OF THE MATTER, WE SEE NO INFIRMITY IN THE CONCLUSIONS ARRIVED AT BY THE CIT(A) AND APPROVE THE SAME. 5. WE HAVE FURTHER NOTICED T HAT WHILE DELETING THE ADDITION/ DISALLOWANCE U/S. 14A, LD. CIT(A), ON RELYING THE ORDER OF CIT(A) IN ASSESSEES OWN CASE FOR A.Y. 2003 - 04 , 2004 - 05 AND 2006 - 07, RELIED ON THE FOLLOWING OBSERVATION: I HAVE CONSIDERED THE SUBMISSIONS. THE ISSUE OF DISALLOWANCE U/S. 36(1)(III) HAS BECOME IRRELEVANT AFTER IN TRODUCTION OF SEC. 14A AND A NOTIFICATION OF RULE 8 D. U/S. 14A EXPENDITURE INCURRED IN RELATION TO EXEMPT INCOME IS NOT ALLOWABLE. IT CANNOT BE SAID THAT NO EXPENDITURE IS ATTRIBUTABLE IN RELATION TO INCOME OR POTENTIAL INCOME BY WAY OF DIVIDENDS. EVEN IF, THERE IS SOME BUSINESS PURPOSE BEHIND THE INVESTMENT MADE IN M/ S. CORBEL ESTATE, THE FACT REMAINS THAT INCOME GENERATED OUT OF INVESTMENT IS IN THE FORM OF DIVIDENDS WHICH IS NOT TAXABLE. THE ISSUE THEN IS WHETHER ANY EXPENDITURE HAS BEEN INCURRED IN RELA TION TO SUCH EXEMPT INCOME. RULE 8 D HAS BEEN NOTIFIED U/ S. 14A. THIS RULE APPLIES EITHER WHEN THE ASSESSEE CLAIMS THAT NO EXPENDITURE HAS BEEN INCURRED OR WHEN THE AO AND THE ASSESSEE DISAGREE ON THE AMOUNT OF SUCH EXPENDITURE. THIS RULE PROVIDES A UNIFORM AND STANDARD METHOD FOR DETERMINING THE AMOUNT OF EXPENDITURE INCURRED IN RELATION 4 ITA NO. 5827/MUM/2013 (A.Y. 2005 - 06) DY. CIT VS. MAHINDRA INFRASTRUCTURAL PROJECTS PVT. LTD. TO EXEMPT INCOME. THE OPERATION OF THIS RULE HAS BEEN DECLARED AS RETROSPE CTIVE BY THE SPL. BENCH OF THE ITAT IN DAGA CAPITAL MANAGEMENT (117 IT D 169). IT H AS ALSO BEEN HEL D IN THE SAME CASE THAT EXPENDITURE HAS TO BE DISALLOWED EVEN IF NO INCOME BY WAY OF DIVIDEND IS EARNED DURING THE YEAR. IN VIEW OF THE ABOVE, RULE BD HAS TO BE APPLIED IN THE CASE OF THE APPELLANT AND THE PROPORTIONATE EXPENDITURE IN RELATION TO EXEMPT INCOME DETERMINED. THE AO HAS FOLLOWED A METHOD WHICH IS NOT FULLY CONSONANT WITH THE METHOD PROVIDED IN RULE 8 D. THE AO IS DIRECTED TO DETERMINE AMOUNT OF EXPENDITURE INCURRED IN RELATION TO EXEMPT INCOME BY APPLYING THE METHOD PRESCRIBED IN RULE BD. TH E DISALLOWANCE OF PROPORTIONATE EXPENDITURE DETERMINED IN EACH YEAR ACCORDING TO THE ABOVE RULE WOULD BE THE AMOUNT OF DISALLOWANCE THAT IS CONFIRMED. ANY AMOUNT OF DISALLOWANCE WHICH IS HIGHER THAN THE AMOUNT COMPUTED AS PER RULE 8 D SHOULD BE TREATED AS D ELETED.' 6. LD. CIT(A) PERUSED THE ORDER, ON THE BASIS OF PRINCIPLE OF CONSISTENCY AND DIRECTED TO THE A.O. DETERMINE THE AMOUNT OF EXPENDITURE INCURRED IN RELATION TO THE EXEMPT INCOME. HENCE, WE DO NOT FIND ANY ILLEGALITY OR INFIRMITY IN THE ORDER OF CI T(A). HENCE, THE APPEAL FILED BY THE REVENUE IS DISMISSED. 7. IN THE RESULT, THE R EVENUE S APPEAL IS DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 07.04 . 201 6 SD/ - SD/ - ( R. C. SHARMA ) ( PAWAN SINGH ) / ACCOUNTANT MEMBER / J UDICIAL MEMBER MUMBAI ; DATED : 07.04 .201 6 . . ./ ROSHANI , SR. PS 5 ITA NO. 5827/MUM/2013 (A.Y. 2005 - 06) DY. CIT VS. MAHINDRA INFRASTRUCTURAL PROJECTS PVT. LTD. / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT 2. / THE RESPONDENT 3. ( ) / THE CIT(A) 4. / CIT - CONCERNED 5. , , / DR, ITAT, MUMBAI 6. / GUARD F ILE / BY ORDER, / (DY./ASSTT. REGISTRAR) , / ITAT, MUMBAI