PATAN SOLAR PVT. LTD., MUMBAI V. DCIT - 13(1)(2), MUMBAI

ITA 5942/MUM/2016

• Counselvise Citation: [2019] 117 COUNSELVISE.COM (IT) 8262 (ITAT-MUMBAI)
• Duration Of Justice: 2 year(s) 6 month(s) 4 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 09-04-2019
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: C
• Assessment Year: 2012-2013
• Appeal Filed On: 05-10-2016
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: ABI RAMA KARTIKIYEN
• Assessee Lawyers: TANMAYPADHKE AR S
• Keywords: Earning of tax free income; Rule 8D; Set aside
• Section: 143(3); 14A

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH C MUMBAI BEFORE SHRI RAVISH SOOD (JUDICIAL MEMBER) AND SHRI N.K. PRADHAN (ACCOUNTANT MEMBER) ITA NO. 5942/MUM/2016 ASSESSMENT YEAR: 2012 - 13 M/S PATAN SOLAR PVT. LTD., 602, WESTERN EDGE - I, WESTERN EXPRESS HIGHWAY, BORIVALI (WEST), MUMBAI - 400092. VS. THE DCIT - 13(1)(2), MUMBA I AAYAKARBHAVAN, M.K.ROAD MUMBAI - 400020 PAN NO. AAFCP6744A APPELLANT RESPONDENT ASSESSEE BY : MR. K. GOPAL & MR. TANMAYPADHKE, AR S REVENUE BY : MR. ABI RAMA KARTIKIYEN , DR DATE OF HEARING : 03 /0 4 /2019 DATE OF PRONOUNCEMENT: 09 /04/2019 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 T HE COMMISSIONER OF INCOME TAX - 21 , MUMBAI [IN SHORT CIT(A)] AND ARISES OUT OF THE ASSESSMENT COMPLETED U/S 143(3) OF THE INCOME TAX ACT 1961, (THE ACT). HAVING GONE THROUGH THE AFF IDAVIT FILED BY THE ASSESSEE, WE CONDONE THE DELAY OF ONE DAY IN FILING THE APPEAL BY THE APPELLANT . M/S PATAN SOLAR PVT. LTD. ITA NO. 5942/MUM/2016 2 2. AT THE START OF HEARING, THE LD. COUNSEL OF THE ASSESSEE SUBMITS THAT THE ASSESSEE WOULD NOT PRESS THE 1 ST GROUND OF APPEAL. CONSIDERING THE SUBMISSION, WE DISMISS THE 1 ST GROUND OF APPEAL AS NOT PRESSED. 3. THE 2 ND GROUND OF APPEAL FILED BY THE ASSESSEE IS AGAINST THE ORDER OF THE LD. CIT(A) CONFIRMING THE DISALLOWANCE OF RS.91,72,479/ - MADE BY THE ASSESSING OFFICER (AO) U/S 14A R.W. RULE 8D OF THE INCOME TAX RULES (THE RULES ). THE ADDITIONAL GROUNDS OF APPEAL FILED BY THE ASSESSEE REITERATES THE ABOVE GROUND. IN A NUTSHELL, THE FACTS ARE THAT THE ASSESSEE HAD RECEIVED DIVIDEND OF RS.29,78,190/ - DURING THE YEAR UNDER CONSIDERATION. DURING THE COURSE OF ASSESSMENT PROCEEDINGS, THE AO ASKED THE ASSESSEE TO EXPLAIN WHY EXPENSES RELATING TO INVESTMENT, INCOME FROM WHICH DOES NOT OR SHALL NOT FORM PART OF THE TOTAL INCOME BE DISALLOWED U/S 14A R.W. RULE 8D. THE ASSESSEE FILED A REPLY DATED 12.03.2015 WHICH HAS BEEN EXTRACTED AT PARA 6.2 (PAGE 6) OF THE ASSESSMENT ORDER DATED 14.03.2015 BY THE AO. HOWEVER, THE AO WAS NOT CONVINCED WITH THE SAID REPLY OF THE ASSESSEE AND RELYING ON THE DECISION IN GODREJ & BOYCE MF G. CO. LTD. V. DCIT 234 CTR (BOM) 1 (2010) MADE A DISALLOWANCE OF RS.91,72,479/ - U/S 14A R.W. RULE 8D. THE SAID DISALLOWANCE COMPRISES OF RS.51,61,823/ - UNDER RULE 8D(2)(II) AND RS.40,10,656/ - UNDER RULE 8D(2)(III). 4. IN APPEAL, THE LD. CIT(A), RELYING ON THE DECISION IN GODREJ & BOYCE MFG. CO. LTD. (SUPRA) CONFIRMED THE DISALLOWANCE MADE BY THE AO BY OBSERVING THAT : THE DIVIDENDS RECEIVED IS ON INVESTMENTS FINANCED OUT OF BORROWED FUNDS. THE SHARE CAPITAL RESERVES AS ON 31.03.2011 WAS NEGATIVE AMOUNT OF RS.97.25 M/S PATAN SOLAR PVT. LTD. ITA NO. 5942/MUM/2016 3 LAKHS AND THE BORROWINGS WERE RS.136 CRORES. THE BORROWINGS INCLUDED SHORT TERM FACILITY FROM SYNDICATE BANK OF RS.27 CRORES. THE BALANCE WAS UNSECURED LOANS. THIS WAS DEPLOYED AS LOANS AND ADVANCES OF RS.71 CRORES, FIXED D EPOSITS OF RS.45 CROR ES AND INVESTMENTS OF RS.11 CRORES. IN THE CURRENT YEAR BORROWINGS HAVE COME DOWN AND SO HAS THE INVESTMENTS. THE BORROWINGS AT THE END OF THE YEAR IS RS.21 CRORES OF UNSECURED LOANS. AGAINST THESE UNSECURED LOANS, THE UTILISATION IS REFLECTED IN SHORT TER M LOAN AND ADVANCES OF RS.19 CRORES AND INVESTMENTS OF RS.2 CRORES. THUS, THERE IS NO DIRECT LINK OF INTEREST PAID ONLY TO INTEREST EARNED. THE RULE 8D(2)(II) TAKES CARE OF THIS DEPLOYMENT OF INTEREST BEARING FUNDS BY CONSIDERING IT AS INVESTMENT/TOTAL ASS ETS. THUS, THE DISALLOWANCE AS PER RULE 8D(2) IS APPROPRIATE. THUS, THE LD. CIT(A) CONFIRMED THE DISALLOWANCE OF RS.91,72,479/ - MADE BY THE AO. 5. BEFORE US, THE LD. COUNSELS OF THE ASSESSEE RELY ON THE DECISION IN PR. CIT V. NIRMA CREDIT & CAPITAL (P. ) LTD. (2017) 85 TAXMANN.COM 72 (GUJ), ARGUING THAT FOR PURPOSE OF APPLYING FACTORS CONTAINED IN CLAUSE (II) OF SUB - RULE (2) OF RULE 8D, PRIOR TO ITS AMENDMENT W.E.F. 02.06.2016, AMOUNT OF EXPENDITURE BY WAY OF INTEREST WOULD BE OF INTEREST PAID BY ASSESSE E ON BORROWINGS MINUS TAXABLE INTEREST EARNED DURING THE FINANCIAL YEAR. FURTHER, THE Y RELY ON THE DECISION IN ACIT V. VIREET INVESTMENT (P.) LTD. (2017) 82 TAXMANN.COM 415 (DELHI - TRIB) (SB). ALSO THE LD. COUNSELS RELY ON THE SUBMISSION MADE BEFORE THE AO AS WELL AS LD. CIT(A). ON THE OTHER HAND, THE LD. DR RELIES ON THE ORDER OF THE LD. CIT(A). 6. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE RELEVANT MATERIALS ON RECORD. THE REASONS FOR OUR DECISION ARE GIVEN BELOW. M/S PATAN SOLAR PVT. LTD. ITA NO. 5942/MUM/2016 4 A PERUSAL OF THE BALANCE SHEET AS AT MARCH 31, 2012 OF THE ASSESSEE - COMPANY INDICATES THAT ITS OWN FUNDS (SHARE CAPITAL, RESERVES AND SURPLUS) STAND AT RS.2,58,61,888/ - WHEREAS THE NON - CURRENT INVESTMENTS ARE AT RS.2,04,25,400/ - . IN HDFC BANK LTD. VS. DCIT [2016] 67 TAXMANN.COM 42 (BOM), THE HON'BLE BOMBAY HIGH COURT REFERRING TO THE DECISION IN CIT VS. HDFC BANK LTD . [2014] 366 ITR 505 (BOM) AND CIT V. RELIANCE UTILITIES & POWER LTD. [2009] 313 ITR 340 (BOM) HELD AS UNDER : 15. IT IS CLEAR THAT FOR THE FIRST TIME IN THE CASE OF HDFC BANK LTD. (SUPRA) THAT THIS COURT TOOK A VIEW THAT THE PRESUMPTION WHICH HAS BEEN LAID DOW N IN RELIANCE UTILITIES & POWER LTD . (SUPRA) WITH REGARD TO INVESTMENT IN TAX FREE SECURITIES COMING OUT OF ASSESSEE'S OWN FUNDS IN CASE THE SAME ARE IN EXCESS OF THE INVESTMENTS MADE IN THE SECURITIES (NOTWITHSTANDING THE FACT THAT THE ASSESSEE CONCERNED MAY ALSO HAVE TAKEN SOME FUNDS ON INTEREST) APPLIES, WHEN APPLYING SECTION 14A OF THE ACT. THUS, THE DECISION OF THIS COURT IN HDFC BANK LTD. (SUPRA) FOR THE FIRST TIME ON 23RD JULY, 2014 HAS SETTLED THE ISSUE BY HOLDING THAT THE TEST OF PRESUMPTION AS HEL D BY THIS COURT IN RELIANCE UTILITIES AND POWER LTD . (SUPRA) WHILE CONSIDERING SECTION 36(1)(III) OF THE ACT WOULD APPLY WHILE CONSIDERING THE APPLICATION OF SECTION 14A OF THE ACT. THE AFORESAID DECISION OF THIS COURT IN HDFC BANK LTD. (SUPRA) ON THE ABOV E ISSUE HAS ALSO BEEN ACCEPTED BY THE REVENUE IN AS MUCH AS EVEN THOUGH THEY HAVE FILED AN APPEAL TO THE SUPREME COURT AGAINST THAT ORDER ON THE OTHER ISSUE THEREIN VIZ. BROKEN PERIOD INTEREST, NO APPEAL HAS BEEN PREFERRED BY THE REVENUE ON THE ISSUE OF IN VOKING THE PRINCIPLES LAID DOWN IN RELIANCE UTILITIES & POWER LTD . (SUPRA) IN ITS APPLICATION TO SECTION 14A OF THE ACT. RESPECTFULLY FOLLOWING THE ABOVE DECISION, WE DELETE THE DISALLOWANCE OF RS.51,61,823/ - MADE BY THE AO UNDER RULE 8D(2)(II). M/S PATAN SOLAR PVT. LTD. ITA NO. 5942/MUM/2016 5 6.1 IN THE CASE OF VIREET INVESTMENT (P.) LTD. (SUPRA), THE SPECIAL BENCH OF THE TRIBUNAL HAS HELD THAT ONLY THOSE INVESTMENTS ARE TO BE CONSIDERED FOR COMPUTING AVERAGE VALUE OF INVESTMENT WHICH YIELDED EXEMPT INCOME DURING THE YEAR. FOLLOWING THE ABOVE ORDER OF THE SPECIAL BENCH OF THE TRIBUNAL, WE SET ASIDE THE ORDER OF THE LD. CIT(A) AND RESTORE THE MATTER TO THE FILE OF THE AO TO RESTRICT THE DISALLOWANCE UNDER RULE 8D(2)(III) BY CONSIDERING ONLY THOSE INVESTMENTS FOR COMPUTING THE AVERAGE VALUE OF INVESTME NT WHICH YIELDED EXEMPT INCOME DURING THE YEAR. WE DIRECT THE ASSESSEE TO FILE THE RELEVANT DOCUMENTS/EVIDENCE BEFORE THE AO. NEEDLESS TO SAY, THE AO WOULD GIVE REASONABLE OPPORTUNITY BEFORE FINALIZING THE DISALLOWANCE UNDER RULE 8D(2)(III). 7. IN THE RESU LT, THE APPEAL IS PARTLY ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 09 /04/2019. SD/ - SD/ - ( RAVISH SOOD ) (N.K. PRADHAN) JUDICIAL MEMBER ACCOUNTANT MEMBER MUMBAI ; DATED: 09 /04/2019 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