TD TOLL ROAD PRIVATE LIMITED, MUMBAI V. DEPUTY COMMISSIONER OF INCOME TAX 15(3)(1), MUMBAI

ITA 5981/MUM/2017

• Counselvise Citation: [2019] 118 COUNSELVISE.COM (IT) 3902 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 4 month(s) 8 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 31-01-2019
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: E
• Assessment Year: 2013-2014
• Appeal Filed On: 22-09-2017
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: D G
• Assessee Lawyers: VITENDRA SANGHAVI
• Keywords: Earning of tax free income
• Section: 14A

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL E , BENCH MUMBAI BEFORE SHRI R.C.SHARMA, AM & SHRI RAM LAL NEGI , JM ITA NO. 5981 / MUM/20 1 7 ( ASSESSMENT YEAR : 2013 - 14 ) M/S. TD TOLL ROAD PVT. LTD., 361, 3 RD FLOOR, NORTH WING RELIANCE CENTRE SANTACRUZ (E) MUMB AI - 400065 VS. DY. COMMISSIONER OF INCOME - TAX 15(3)(1) MUMBAI PAN/GIR NO. AACCT6395C ( APPELLANT ) .. ( RESPONDENT ) ASSESSEE BY SHRI VITENDRA SANGHAVI REVENUE BY SHRI D.G. PANSARI DATE OF HEARING 04 / 12 /201 8 DATE OF PRONOUNCEMENT 31 / 01 / 201 9 / O R D E R PER R.C.SHARMA (A.M) : THIS IS AN APPEAL FILED BY ASSESSEE AGAINST THE ORDER OF CIT(A) - 24, MUMBAI DATED 02/06/2017 FOR A.Y.2013 - 14 IN THE MATTER OF ORDER PASSED U/S.143(3) OF THE IT ACT, 1961. 2. FIRST GRIEVANCE OF ASSESSEE RE LATES TO DISALLOWANCE OF EXPENSES U/S.14A OF THE ACT R.W.R 8D. 3. RIVAL CONTENTIONS HAVE BEEN HEARD AND RECORD PERUSED. 4. DURING THE COURSE OF ASSESSMENT PROCEEDINGS, AO FOUND THAT ASSESSEE HAS DIVIDEND INCOME OF RS.14,69,395/ - CLAIMED A S EXEMPT. THE AO M ADE ITA NO. 5981/MUM/2017 M/S. TD TOLL ROAD PVT. LTD., 2 DISALLOWANCE BY INVOKING PROVISIONS OF RULE 8D2(II) AND 8D(2)(III). THE CONTENTION OF ASSESSEE WAS THAT WHILE MAKING DISALLOWANCE IN RULE 8D2(II) AVERAGE OF INVESTMENT IS AT THE BEGINNING OF YEAR AND AT THE END OF THE YEAR IS TO BE TAKEN, WHERE AS SUCH INVESTMENT WAS NIL AT THE BEGINNING AS WELL AS AT THE END OF THE YEAR, THEREFORE NO DISALLOWANCE IS WARRANTED UNDER RULE 8D2(III). HOWEVER, THE AO HAS TAKEN MONTHWISE INVESTMENT AT THE BEGINNING AND AT THE END OF THE YEAR AND AFTER WORKING OUT ITS AVERAGE BALANCE OF INVESTMENT HE APPLIED 0.5% AND MADE DISALLOWANCE UNDER RULE 8D2(III) WHICH CONFIRMED BY THE CIT(A). IT WAS ARGUED BY LEARNED AR THAT AO CANNOT DISREGARD RULE 8D SINCE OPENING AND CLOSING INVESTMENTS WAS NIL, NO DISALLOWANCE IS WORKABLE AS PER R ULE 8D. 5. AS PER OUR CONSIDERED VIEW, IN TERMS OF PROVISIONS OF SECTION 14A OF THE ACT, IF THE LEARNED ASSESSING OFFICER IS NOT SATISFIED WITH THE CORRECTNESS OF THE CLAIM OF THE ASSESSEE IN RESPECT OF THE AMOUNT DISALLOWED UNDER SECTION 14A, THE ASSESSIN G OFFICER SHALL DETERMINE THE AMOUNT OF DISALLOWANCE AS PER THE METHOD PRESCRIBED. SUB RULE (2) OF RULE 8D OF THE RULES SPECIFIES SUCH METHODOLOGY OF DISALLOWANCE OF EXPENDITURE UNDER SECTION 14A. THE AGGREGATE OF RULE 8D(2) (I), (II) AND (HI) DERIVES THE AMOUNT OF DISALLOWANCE. 6. AS PER RULE 8D(2)(I) OF THE RULES, AMOUNT OF EXPENDITURE DIRECTLY RELATING TO INCOME WHICH DOES NOT FOR PART OF THE TOTAL INCOME HAS TO BE DISALLOWED. THE ASSESSEE HAD NOT INCURRED ANY DIRECT EXPENDITURE THAT RELATES TO EARNING ITA NO. 5981/MUM/2017 M/S. TD TOLL ROAD PVT. LTD., 3 T HE DIVIDEND INCOME OF RS. 14,69,395/ - . THUS, THE AMOUNT OF DISALLOWANCE UNDER THIS SUB RULE IS NIL. 7. AS PER RULE 8D(2)(II) OF THE RULES, WHERE THE ASSESSEE HAS INCURRED ANY EXPENDITURE BY WAY OF INTEREST NOT DIRECTLY ATTRIBUTABLE TO THE EXEMPT INCOME, OUT OF SUCH INTEREST EXPENDITURE, ON AMOUNT EQUIVALENT TO THE AVERAGE AMOUNT OF INVESTMENTS APPEARING IN THE BALANCE SHEET ON THE FIRST AND LAST DAY OF THE PREVIOUS YEAR TO THE AVERAGE ASSETS APPEARING IN THE BALANCE SHEET ON THE FIRST AND LAST DAY OF THE PREVIOUS YEAR HAS TO BE DISALLOWED AS INTEREST COST. AS PER THE BALANCE SHEET OF THE YEAR ENDED 31.03.2013, THE INVESTMENTS OF THE ASSESSEE THAT MAY YIELD TAX FREE INCOME AT THE BEGINNING AS WELL AS THE END OF THE YEAR WERE NIL. THEREFORE, THE AVERAGE INV ESTMENTS THAT MAY YIELD TAX FREE INCOME OF THE ASSESSEE FOR THE YEAR ENDED 31.03.2013 WAS NIL. THUS, WHILE COMPUTING THE DISALLOWANCE UNDER SECTION 14A OF THE ACT R.W.R. 8D(2)(II) OF THE RULES, THE ASSESSEE COMPUTED NIL DISALLOWANCES UNDER THIS SUB RULE . N O FAULT CAN BE FOUND IN ASSESSEES CONTENTION OF COMPUTING NIL DISALLOWANCE UNDER RULE 8D2(II). SIMILARLY, AS PER RULE 8D2(III), 0.5% OF AVERAGE INVESTMENT APPEARING IN THE BALANCE SHEET ON THE FIRST AND LAST DAY OF THE PREVIOUS YEAR HAS TO BE DISALLOWED. AS STATED ABOVE, THE AVERAGE VALUE OF INVESTMENTS OF THE ASSESSEE FOR THE YEAR ENDED 31.03.2013 WAS NIL. THUS, THE AMOUNT OF DISALLOWANCE UNDER THIS SUB RULE WAS ALSO COMPUTED AT NIL. 8. IN VIEW OF THE ABOVE DISALLOWANCE WE DO NOT FIND ANY MERIT IN THE ACT ION OF LOWER AUTHORITIES FOR MAKING DISALLOWANCE IN RULE 8D2(II) AND ITA NO. 5981/MUM/2017 M/S. TD TOLL ROAD PVT. LTD., 4 8D2(III) WITH RESPECT TO THE AVERAGE INVESTMENT AT THE BEGINNING AND END OF THE MONTH BY IGNORING THE METHOD OF CALCULATING INVESTMENT IS AT THE BEGINNING OF THE YEAR AND AT THE END OF TH E YEAR. 9. ASSESSEE IS ALSO AGGRIEVED FOR DISALLOWANCE OF INTEREST U/S.14A. LEARNED A R DRAWN OUR ATTENTION TO THE AUDITED BALANCE SHEET OF THE ASSESSEE WHEREIN CAPITAL WAS AT RS.213.09 CRORE AS AGAINST AVERAGE INVESTMENT OF RS.2.27 CRORES. ACCORDINGLY, IT WAS ARGUED THAT WHEN ASSESSEE WAS HAVING SUFFICIENT INTEREST FREE FUNDS IN THE FORM OF CAPITAL AS COMPARED TO THE INVESTMENT MADE IN EXEMPT SECURITIES, NO DISALLOWANCE IS WARRANTED. 10. LEARNED AR ALSO PLACED ON RECORD DECISION OF HONBLE SUPREME COURT IN CASE OF SINTEX INDUSTRIES LIMITED 93 TAXMANN.COM 24 WHEREIN SLP FILED BY THE DEPARTMENT AGAINST THE DECISION OF HONBLE GUJARAT HIGH COURT IN CASE OF SINTEX INDUSTRIES LTD., WAS DISMISSED. IN THE CASE OF SINTEX INDUSTRIES LTD., HONBLE GUJARAT HIGH COURT HAS HELD THAT WHERE ASSESSEE HAD ITS SURPLUS FUNDS AGAINST WHICH INVESTMENT WAS MADE, NO DISALLOWANCE OF INTEREST CAN BE MADE. IN VIEW OF THE ABOVE, WE DO NOT FIND ANY JUSTIFICATION FOR THE DISALLOWANCE OF INTEREST SO MADE BY THE AO ON THE PLEA OF FUND HA VING BEEN INVESTED IN TAX FREE SECURITIES. 11. ASSESSEE IS ALSO AGGRIEVED FOR ADDING THE DISALLOWANCE MADE U/S.14A WHILE COMPUTING BOOK PROFIT U/S.115JB. IN THIS REGARD, WE OBSERVE THAT ISSUE IS COVERED BY THE DECISION OF SPECIAL BENCH IN CASE OF VIREET IN VESTMENT PVT. LTD., 82 TAXMANN.COM 415. THE TRIBUNAL IN ITS ORDER HELD AS UNDER: - ITA NO. 5981/MUM/2017 M/S. TD TOLL ROAD PVT. LTD., 5 SECTION 115JB. READ WITH SECTION 14A. OF THE INCOME - TAX ACT, 1961 AND RULE 8D OF THE INCOME - TAX / RULES, 1962 MINIMUM ALTERNATE TAX (SECTION 14A APPLICATION) - ASSESSMENT YEAR 2008 - 09 COMPUTATION UNDER CLAUSE (F) OF EXPLANATION 1 TO SECTION 115JB(2) IS TO BE MADE WITHOUT RESORTING TO / COMPUTATION AS CONTEMPLATED UNDER SECTION 14A READ WITH RULE 80 - HELD, YES (PARA 22). 12. RESPECTFULLY FOLLOWING THE DECISION OF SPECIAL BENCH, WE RESTORE THE MATTER BACK TO THE FILE OF AO FOR NOT ADDING THE DISALLOWANCE MADE AS PER RULE 8D, WHILE COMPUTING THE BOOK PROFIT. HOWEVER, THE ACTUAL EXPENDITURE DEBITED TO P & L ACCOUNT WHICH RELATE TO EXEMPT INCOME IS REQUIRED TO BE ADDED IN TERM S OF DECISION OF SPECIAL BENCH IN THE CASE OF VIREET INVESTMENT (SUPRA). ACCORDINGLY MATTER IS RESTORED TO THE FILE OF AO FOR RECOMPUTING THE SAME IN TERMS OF DECISION OF VIREET INVESTMENT (SUPRA). WE DIRECT ACCORDINGLY. 13. WE FOUND THAT 10% OF EXEMPT INC OME COMES TO RS.1.46 LAKHS AS AGAINST DISALLOWANCE OF RS.1.13 LAKHS OFFERED BY THE ASSESSEE UNDER RULE 8D2(III). WE DIRECT THE AO TO ESTIMATE EXPENDITURE AGAINST EXEMPT INCOME BY TAKING 10% OF DIVIDEND INCOME AT RS.1.46 LAKHS. THIS AMOUNT CAN BE ADDED WHIL E COMPUTING BOOK PROFIT U/S.115 JB IN TERMS OF DECISION OF VIREET INVESTMENT (SUPRA). 14. IN THE RESULT, APPEAL OF THE ASSESSEE IS ALLOWED IN PART. ORDER PRONOUNCED IN THE OPEN COURT ON THIS 31 / 01 /201 9 SD/ - ( RAM LAL NEGI ) SD / - (R.C.SHARMA) JUDICIAL MEMBER ACCOUNTANT MEMBER MUMBAI ; DATED 31 / 01 /201 9 KARUNA SR. PS ITA NO. 5981/MUM/2017 M/S. TD TOLL ROAD PVT. LTD., 6 COPY OF THE ORDER FORWARDED TO : BY ORDER, ( ASSTT. REGISTRAR) ITAT, MUMBAI 1. THE APPELLANT 2. THE RESPONDENT. 3. THE CIT(A), MUMBAI. 4. CIT 5. DR, ITAT, MUMBAI 6. GUARD FILE. //TRUE COPY//