LADDERUP FINANCE LIMITED , MUMBAI V. DEPUTY COMMISSIONER OF INCOME TAX-10(2)(1), MUMBAI

ITA 5893/MUM/2017

• Counselvise Citation: [2019] 118 COUNSELVISE.COM (IT) 6058 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 4 month(s) 7 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 22-01-2019
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: A
• Assessment Year: 2012-2013
• Appeal Filed On: 15-09-2017
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: M R
• Keywords: Earning of tax free income
• Section: 143(3); 14A

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH A MUMBAI BEFORE SHRI JOGINDER SINGH (VICE PRESIDENT) AND SHRI N.K. PRADHAN (ACCOUNTANT MEMBER) ITA NO. 5893/MUM/2017 ASSESSMENT YEAR: 2012 - 13 M/S LADDERUP FINANCE LTD., A - 204, RAJESHRI ACCORD, TELLY CROSS LANE, OFF S.N. ROAD, ANDHERI (E), MUMBAI - 400053. VS. DCIT - 10(2)(1), AAYAKAR BHAVAN, MUMBAI. PAN NO. AAACL0882G APPELLANT RESPONDENT ASSESSEE BY : MR. RUSHABH MEHTA, AR REVENUE BY : M R. PANKAJ KUMAR , DR DATE OF HEARING : 01 /01/2019 DATE OF PRONOUNCEMENT : 22/01/2019 ORDER PER N.K. PRADHAN, AM THIS IS AN APPEAL FILED BY THE ASSESSEE. THE RELEVANT ASSESSMENT YEAR IS 2012 - 13 . THE APPEAL IS DIRECTED AGAINST THE ORDER OF THE COMMISS IONER OF INCOME TAX (APPEALS) - 17 , MUMBAI [IN SHORT CIT(A)] AND ARISES OUT OF THE ASSESSMENT COMPLETED U/S 143(3) OF THE INCOME TAX ACT 1961, (THE ACT). 2. THE GROUND RAISED BY THE ASSESSEE IN THIS APPEAL IS AGAINST THE ORDER OF THE LD. CIT(A ) CONFIRMING DISALLOWANCE OF RS.9,15,113/ - MADE BY THE AO U/S 14A R.W. RULE 8D OF THE INCOME TAX RULES, 1962 (THE RULES). M/S LADDERUP FINANCE ITA NO. 5893/MUM/2017 2 3. BRIEFLY STATED, THE FACTS ARE THAT THE ASSESSEE HAD EARNED DIVIDEND INCOME OF RS.1,01,59,212/ - WHICH IT CLAIMED AS EXEMPT U/S 10(3 1) OF THE ACT. IN THE COMPUTATION OF TOTAL INCOME, THE ASSESSEE HAD DISALLOWED RS.88,016/ - BEING EXPENSES RELATED TO EXEMPT INCOME U/S 14A OF THE ACT. IN RESPONSE TO A QUERY RAISED BY THE AO TO EXPLAIN AS TO WHY THE DISALLOWANCE U/S 14A SHALL NOT BE MADE A S PER RULE 8D, THE ASSESSEE VIDE LETTER DATED 29.12.2014 SUBMITTED IT HAD MADE STRATEGIC INVESTMENTS FOR ITS BUSINESS PURPOSE AND THOSE WERE NOT MADE FOR THE PURPOSE OF EARNING EXEMPT INCOME. IT WAS FURTHER SUBMITTED BEFORE THE AO THAT NO EXPENSES WERE REQ UIRED TO BE INCURRED TO EARN EXEMPT INCOME EXCEPT FOR THE EXPENSES OF RS.88,016/ - DISALLOWED IN THE COMPUTATION OF TOTAL INCOME WHICH INCLUDED DEMAT CHARGES OF RS.15,740/ - AND SECURITY TRANSACTION TAX (STT) OF RS.62,276/ - (BEING DIRECTLY CONNECTED WITH THE EARNING OF DIVIDEND INCOME) AND FURTHER ESTIMATED DISALLOWANCE OF RS.10,000/ - . HOWEVER, THE AO WAS NOT CONVINCED WITH THE ABOVE EXPLANATION OF THE ASSESSEE AND COMPUTED THE DISALLOWANCE U/S 14A R.W. RULE 8D AT RS.10,03,129/ - . THE BREAK - UP SUCH DISALLOWA NCE IS RS.78,016/ - AS DEMAT CHARGES AND STT UNDER RULE 8D(2)(I) AND RS.9,25,113/ - UNDER RULE 8D(2)(III). SINCE THE ASSESSEE HAD MADE A SUO MOTU DISALLOWANCE OF RS.88,016/ - , THE AO RESTRICTED THE DISALLOWANCE TO THE BALANCE AMOUNT OF RS.9,15,113/ - . 4. AGGR IEVED BY THE ORDER OF THE AO, THE ASSESSEE FILED AN APPEAL BEFORE THE LD. CIT(A). WE FIND THAT THE LD. CIT(A) AGREED WITH THE COMPUTATION MADE BY THE AO AND CONFIRMED THE DISALLOWANCE. 5. BEFORE US, THE LD. COUNSEL OF THE ASSESSEE FILES A PAPER BOOK (P/B) CONTAINING (I) COPY OF ACKNOWLEDGEMENT OF RETURN OF INCOME, (II) M/S LADDERUP FINANCE ITA NO. 5893/MUM/2017 3 COPY OF COMPUTATION OF TOTAL INCOME, (III) COPY OF TAX AUDIT REPORT ALONG WITH ANNEXURES AND ENCLOSURES, (IV) COPY OF AUDIT REPORT, FINANCIAL STATEMENTS ALONG WITH ITS SCHEDULES, (V) COPY OF SUBMISSION FILED BEFORE THE LD. CIT(A). ALSO THE LD. COUNSEL FILES A COPY OF THE ORDER OF THE TRIBUNAL IN THE CASE OF SMARTCHEM TECHNOLOGIES LTD. V. ACIT (2017) 85 TAXMANN.COM 43 (MUMBAI - TRIB) AND ADITYA BIRLA FINANCE LTD. V. ACIT (2017) 83 TAXMANN.COM 8 5 (MUMBAI - TRIB). 6. ON THE OTHER HAND, THE LD. DR SUPPORTS THE ORDER PASSED BY THE LD. CIT(A). 7. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE RELEVANT MATERIALS ON RECORD. WE FIND THAT THE AO HAS RECORDED THE REASONS BY ASKING THE ASSESSEE TO EXPL AIN AS TO WHY THE DISALLOWANCE U/S 14A SHOULD NOT BE MADE AS PER RULE 8D, IN RESPONSE TO WHICH THE ASSESSEE FILED A REPLY DATED 29.12.2014. AS MENTIONED EARLIER, THE ASSESSEE HAD SUBMITTED BEFORE THE AO VIDE LETTER DATED 2 9 .12.2014 THAT IT HAD MADE STRATE GIC INVESTMENT FOR ITS BUSINESS PURPOSE AND ARE NOT MADE FOR THE PURPOSE OF EARNING ANY EXEMPT INCOME. THE HONBLE SUPREME COURT IN THE CASE OF MAXOPP INVESTMENT LTD. V. CIT (2018) 402 ITR 640 (SC) HELD AT PARA 35 THAT : WE, THUS, AGREE WITH THE VIEW TAKEN BY THE DELHI HIGH COURT , AND ARE NOT INCLINED TO ACCEPT THE OPINION OF PUNJAB & HARYANA HIGH COURT WHICH WENT BY THE DOMINANT PURPOSE THEORY. THE AFORESAID REASONING WOULD BE APPLICABLE IN CASES WHERE SHARES ARE HELD A S INVESTMENT IN THE INVESTEE COMPANY, MAY BE FOR THE PURPOSE OF HAVING CONTROLLING INTEREST THEREIN. ON M/S LADDERUP FINANCE ITA NO. 5893/MUM/2017 4 THAT REASONING, APPEAL OF MAXOPP INVESTMENT LIMITED AS WELL AS SIMILAR CASES WHERE SHARES WERE PURCHASED BY THE ASSESSES TO HAVE CONTROLLING INTEREST IN THE INVESTEE COMPANIES HAVE TO FAIL AND ARE, THEREFORE, DISMISSED. 7.1 IN GODREJ & BOYCE MFG. CO. LTD. VS. DY. CIT (2010) 194 TAXMAN 203 (BOM.) THE HON'BLE BOMBAY HIGH COURT HAS EXPLAINED RULE 8D AS UNDER : AS REGARD RULE 8D(2)(III), IT HAD BEEN SUBMITTED THAT SOME MECHANISM OR FORMULA HAD TO BE ADOPTED FOR ATTRIBUTING PART OF THE ADMINISTRATIVE / MANAGERIAL EXPENSES TO TAX - EXEMPT INVESTMENT INCOME. THE ADMINISTRATIVE EXPENSES ATTRIBUTABLE TO TAX - FREE INVESTMENT INCOME HAVE A FIXED COMPONENT AND A VARIABLE COMPONENT. A VIEW WAS TAKEN THAT THE DISALLOWANCE SHOULD ALSO BE LINKED TO THE VALUE OF THE INVESTMENT RATHER THAN THE AMOUNT OF EXEMPT INCOME. UNDER PORTFOLIO MANAGEMENT SCHEMES (PMS), THE FEE CHARGED RANGES BETWEEN 2 AND 2.5 PER CENT OF THE PORTFOLIO VALUE WHICH WOULD BE INCLUSIVE OF A PROFIT ELEMENT FOR THE PORTFOLIO MANAGER. WHILE THE FIXED ADMINISTRATIVE EXPENSES WERE EXCLUDED ON THE GROUND THAT IN THE CASE OF A LARGE CORPORATE TAXPAYER THEY WOULD BE SPREAD OVER A LARGE NUMBER OF VOLUMI NOUS ACTIVITIES, THE VARIABLE EXPENSES WERE COMPUTED AT ONE - HALF PER CENT OF THE VALUE OF THE INVESTMENT. 7.2 IN VIEW OF THE DECISION IN MAXOPP INVESTMENT LTD . (SUPRA) AND GODREJ & BOYCE MFG. CO. LTD . (SUPRA), WE ARE NOT ADVERTING TO THE ORDER OF THE TRIB UNAL RELIED ON BY THE LD. COUNSEL. THUS WE UPHOLD THE ORDER OF THE LD. CIT(A). 8. IN THE RESULT, THE APPEAL IS DISMISSED. M/S LADDERUP FINANCE ITA NO. 5893/MUM/2017 5 ORDER PRONOUNCED IN THE OPEN COURT ON 22/01/2019. SD/ - SD/ - (JOGINDER SINGH) (N.K. PRADHAN) VICE PRESIDENT ACCOUNTANT MEMBER MUMBAI ; DATED: 22/01/2019 RAHUL SHARMA, SR. P.S. COPY OF THE ORDER FORWARDED TO : 1. THE APPELLANT 2. THE RESPONDENT. 3. THE CIT(A) - 4. CIT 5. DR, ITAT, MUMBAI 6. GUARD FILE . BY ORDER, //TRUE COPY// ( SR. PRIVATE SECRETARY ) ITAT, MUMBAI