DCIT CENT. CIR. 4(2), CENT. RANGE - 4, MUMBAI V. K. RAHEJA CORP PVT. LTD., MUMBAI

ITA 6002/MUM/2016

• Counselvise Citation: [2018] 126 COUNSELVISE.COM (IT) 0962 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 3 month(s) 3 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 10-01-2018
• Appeal Filed By: Department
• Order Result: Partly Allowed
• Bench Allotted: Not Allotted
• Assessment Year: 2011-2012
• Appeal Filed On: 07-10-2016
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: M V RAJGURU
• Assessee Lawyers: ARVIND SONDE
• Keywords: Revised return
• Section: 143(3); 14A

Judgement Text

IN THE INC OME TAX APPELLATE TRIBUNAL L BENCH, MUMBAI BEFORE SHRI B. R. BASKARAN , AM & SHRI SANDEEP GOSAIN, JM ./ I.T.A. NO . 6002 /MUM/2016 , ( / ASSESSMENT YEAR: 2011 - 12 ) DCIT CENT CIR 4(2), CENT. RANGE - 4, ROOM NO. 1918, 19 TH FLOOR, AIR INDIA BUILDING, NARIMAN POINT, MUMBAI - 400021 . / VS. M/S K. RAHEJA CORP. PVT. LTD. PLOT NO. C - 30, BLOCK - G, OPP, SIDBI, BANDRAKURLA COMPLEX, BANDRA (E) , MUMBAI - 400051 ./ ./ PAN/GIR NO. AAACP0522B ( / APPELLANT ) : ( / RESPONDENT ) / APPELLANT BY : SHRI M. V. RAJGURU / RESPONDENTBY : SHRI ARVIND SO NDE / DATE OF HEARING : 07/11 /201 7 / DATE OF PRONOUNCEMENT : 10/01/2018 / O R D E R PER SANDEEP GOSAIN, J UDICIAL MEMBER : THE P RESENT APPE AL FILED BY THE REVENUE IS AGAINST THE ORDER OF COMMISSIONER OF INCOME TAX (APPEALS) - 52 , MUMBAI 2 I.T.A. NO. 6002 /MUM/201 6 M/S K. RAHEJA CORP. PVT. LTD. DATED 13.07.16 FOR AY 20 09 - 10 ON THE GROUNDS MENTIONED HEREIN BELOW: - 1. 'ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW,THE LD.CIT(A) HAS ERRED IN DELETING THE DISALLOWANCE OF RS.14,00,73,91 1/ - U/S 14A R.W,R . 8D EVEN WHEN THE ASSESSEE COULD NOT ESTABLISH ONE - ON - ONE NEXUS BETWEEN THE OWN FUND/ NON - INTEREST BEARING FUND WITH INVESTMENTS EITHER DURING THE ASSESSMENT PROCEEDINGS OR AT THE APPELLATE STAGE.' 2. 'ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW,THE LD.CIT(A) HAS ERRED IN NOT APPRECIATING THE DECISION OF HON'BLE JURISDICIAITONAL HIGH COURT OF BOMBAY IN THE CASE OF M/S.DAGA CAPITAL MANAGEMENT SP) LTD. 117 IID 169 AND M/S.GODREJ & BOYCE MTG. CO. LTD. 328 ITR 81 WHEREIN A DISALLOWANCE U/S 14A OF THE IT ACT AS PER RULE 8D OF THE IT RULE HAS BEEN CATEGORICALLY UPHELD.' 3. THE APPELLANT CRAVES TO LEAVE , TO ADD, TO AMEND AND / OR TO ALTER ANY OF THE GR OUND OF APPEAL , IF NEED BE.' 2 . AS PER THE FACTS OF THE PRESENT CASE, THE ASSESSEE IS A PRIVATE LIMITED COMPANY WHICH IS ENGAGED IN THE CONSTRUCTION ACTIVITY AND IS ALSO RUNNING A HOTEL AT MADHMARVE ROAD, MALAD 3 I.T.A. NO. 6002 /MUM/201 6 M/S K. RAHEJA CORP. PVT. LTD. IN THE NAME AND STYLE THE RESORT. BESIDES, THIS THE COMPANY HAS INVESTED IN SHARES AND IT IS ALSO PARTNER IN VARIOUS PARTNERSHIP FIRMS. THE ASSESSEE FILED ITS RETURN OF I NCOME ELECTRONICALLY ON 30/9/2011, DECLARING TOTAL LO SS OF RS. 5, 45,67 , 1 81/ - . SUBSEQUENTLY THE ASSESSEE FILED REVISED RETURN OF INCOME ON 28/03/201 3 DECLARING TOTAL LOSS OF RS. 10,05, 86 , 547/ - . THE CASE OF THE ASSESSEE WAS SELECTED FOR SCRUTINY AND AFTER SERVING STATUTORY NOTICES AND SEEKING REPLY OF THE ASSESSEE, ORDER DATED 31/03/2015 PASSED U/ S. 143(3) OF THE ACT, BY MAKING DISALLOWANCE U/ S 1 4A OF THE ACT READ WITH RULE 8 D A MOUNTING TO RS. 14,00,73,911/ - . AGGRIEVED BY THE ORDER OF AO, ASSESSEE PREFERRED APPEAL BEFORE LD. CIT(A) AND LD. CIT(A) AFTER CONSIDERING THE CASE OF BOTH THE PARTIES ALLOWED THE APPEAL OF THE ASSESSEE AND DELETED THE ADDITIONS MADE BY THE AO U/S 14A R.W.R. 8D. NOW BEFORE US, THE REVENUE HAS PREFE RRED THE APPEAL BY RAISING THE ABOVE GROUNDS. GROUND NO. 1 TO 2 . 3. SINCE BOTH THE ABOVE GROUNDS RAISED BY THE REVENUE ARE INTER CONNECTED AND INTER RELATED AND RELATES TO CHALLENGING THE 4 I.T.A. NO. 6002 /MUM/201 6 M/S K. RAHEJA CORP. PVT. LTD. ORDER OF LD. CIT(A) IN DELETING THE DISALLOWANCE OF RS. 14,00,73,91 1 U/S 14A R.W.R 8D OF THE I.T. ACT, THEREFORE WE THOUGHT IT FIT TO DISPOSE OF THE SAME THOROUGH THIS COMMON ORDER. 4. WE HAVE HEARD COUNSELS FOR BOTH THE PARTIES AT LENGTH AND WE HAVE ALSO PERUSED THE MATERIAL PLACED ON RECORD AS WELL AS THE ORDERS PASSED BY REVENUE AUTHORITIES. BEFORE WE DECIDE THE MERITS OF THE CASE, IT IS NECESSARY TO EVALUATE THE ORDERS PASSED BY LD. CIT(A). THE LD. CIT(A) HAS DEALT WITH THE ABOVE GROUNDS RAISED BY THE REVENUE IN PARA NO. 5 TO 8 OF ITS ORDER. THE OPERATIVE PORTION OF THE ORDER OF LD. CI T(A) IS CONTAINED IN PARA NO. 7 TO 8 OF ITS ORDER AND THE SAME IS REPRODUCED BELOW: - 7. I HAVE CONSIDERED THE FACTS OF THE CASE AND SUBMISSIONS AND C ONTENTIONS OF THE ASSESSEE. IT APPEARS THAT THIS ISSUE HAS BEEN EXAMINED BY THE HON'BLE ITAT MUMBAI, IN THE CASE OF THE ASSESSEE ITSELF FOR THE A.Y.2008 - 09 WHEREIN VIDE ORDER DATED 04 - 04 - 2016, THE HON'BLE 'A' BENCH OF ITAT, MUMBAI DIRECTED TO DELETE FL ADD ITION MADE U/S 14A BY OBSERVING AS UNDER: - 'WE FIND THAT THE ASSESSEE HAD SHARE CAPITAL OF RS. 60,48,00,000/ - AND RESERVES & SURPLUS STOOD 5 I.T.A. NO. 6002 /MUM/201 6 M/S K. RAHEJA CORP. PVT. LTD. AT RS. 1,74,67,67,552/ - , WHEREAS THE INVESTMENT WAS AT RS. 2,06,66,62,442/ - , THAT OUT OF THE SAID INVESTMENT THE ASSE SSEE HAD MADE INVESTMENT IN PROPERTIES ALSO THAT THE FRESH INVESTMENT IN THE SHARES WAS NOT VERY HUGE, THAT IT HAD MODE STRATEGIC INVESTMENT, THAT THERE WAS NO EVIDENCE TO PROVE THAT BORROWED FUNDS WERE UTILISED FOR MAKING INVESTMENT IN SHARES. IN OUR OPIN ION, THE SETTLED POSITION OF LAW STIPULATE THAT IF THE ASSESSEE HAS SUFFICIENT OWN FUNDS THEN IT SHOULD BE PRESUMED THAT INVESTMENT WAS NOT MADE FROM BORROWED FUNDS. CONSIDERING THE AVAILABILITY OF FUNDS WE ARE OF THE OPINION THAT THE AO WAS NOT JUSTIFIED IN DISALLOWING INTEREST EXPENDITURE. SIMILARITY, DISALLOWANCE AS PER THE PROVISIONS OF SECTION 14A R.W. RULE 8D OF THE RULES CANNOT BE MADE IN A MECHANICAL MANNER. THIRDLY, THE DISALLOWANCE CANNOT BE MORE THAN THE EXPENDITURE CLAIMED BY ON ASSESSEE. WE FIN D THAT IN THE CASE OF THE ASSESSEE THE TRIBUNAL AND THE HON'BLE HIGH COURTHAD D ECIDED THE IDENTICAL ISSUE AGAINST THE AO WHILE DECIDING THE APPEAL FILED BY THE GROUP CONCERN AND RESPECTFULLY FOLLOWING THE ORDERS MENTIONED IN PARA NO. 4, WE DECIDE THE EFFEC TIVE GROUND OF APPEAL IN FAVOUR OF THE ASSESSEE.' 6 I.T.A. NO. 6002 /MUM/201 6 M/S K. RAHEJA CORP. PVT. LTD. IN DOING SO THE HON'BLE ITAT FOLLOWED ITS OWN ORDER IN THE CASE OF THE ASSESSEE FOR EARLIER YEARS AS ALSO THE JUDGMENT OF HON'BLE JURISDICTIONAL HIGH COURT IN CASE OF APPELLANT COMPANY I N 1TA/4431 - 4050/MUM/ 2000 AND ITAS 4159/MUM/2001 AND IN APPEAL NO 1260 OF 2009. AFTER HAVING GONE THROUGH THE FACTS OF THE PRESENT CASE AS WELL AS CONSIDERING THE ORDERS PASSED BY REVENUE AUTHORITIES AND SUBMISSIONS MADE BY BOTH THE PARTIES, WE FIND THAT AS PER THE FACTS OF THE PRESENT CASE, THE ASSESSE E HAS SHOWN INVESTMENT OF RS. 258.40 CRORES IN SHARES OF VARIOUS COMPANIES ON 31.03.11 AS COMPARED TO RS. 1 31.20 CRORES ON 31.03.2010. AS PER THE PROFIT AND LOSS ACCOUNT OF THE ASSESSEE, IT WAS FOUND BY THE AO THAT THE ASSESSEE HAD DEBITED AN AMOUNT OF RS. 1,38,91,50,775/ - AS INTEREST PAID ON ITS BORROWED FUNDS . SINCE THE ASSESSEE HAS INVESTED IN SHARES , THE INCOME FROM WHICH DOES NOT PART OF THE T AXABLE INCOME OF THE ASSESSEE, T HEREFORE, THE AO WAS OF THE VIEW THAT THE PROVISIO NS OF SECTION 14A R .W.R 8D OF THE I.T. ACT 1961 WERE ATTRACTED IN ASSESSEES CASE, T HE REFORE ADDITIONS WERE MADE . LD. CIT (A) WHILE APPRECIATING THE ORDERS PASSED BY HONBLE 7 I.T.A. NO. 6002 /MUM/201 6 M/S K. RAHEJA CORP. PVT. LTD. ITAT IN ASSESSEES OWN CASE FOR THE AY 2008 - 09, HAD DELETED THE ADDITIONS BY HOLDI NG THAT THE ASSESSEE HAD INTEREST FREE FUNDS MORE THAN THE INVESTMENT IN SHARES. THEREFORE, WHILE RELYING UPON THE JUDGMENT OF JURISDICTIONAL HIGH COURT, IT WAS HELD BY LD. CIT(A) THAT IN SUCH CIRCUMSTANCES, IT CAN BE SAFELY BE PRESUMED THAT INVESTMENT IN SHARES HAVE BEEN MADE OUT OF THE INTEREST FREE SURPLUS FUNDS AND HENCE DELETED THE DISALLOWANCE U/S 14A ON THE PREMISE THAT THE ASSESSEE HAD SUFFICIENT INTEREST FREE FUNDS AVAILABLE. AFTER EVALUATING THE ORDERS PASSED BY LD. CIT(A), WE ARE IN AGREEMENT W ITH THIS PROPOSITION THAT WHEN BOTH BORROWED AND OWN FUNDS ARE A VAILABLE AND THE OWN FUNDS AND INTEREST FREE LOAN EXCEEDS INVESTMENT, THE PRESUMPTION CAN VERY WELL BE MADE THAT INVESTM ENTS HAVE BEEN MADE FROM INTEREST FREE FUNDS AND NOT FROM BORROWED FUNDS . IN THIS CIRCUMSTANCES, WHILE PLACED RELIANCE ON THE JUDGMENT PASSED BY HONBLE BOMBAY HIGH COURT IN THE HDFC BANK VRS CIT 366 ITR 505 (BOM) , WE UPHELD THIS PORTION OF THE ORDER PASSED BY LD. CIT(A). THE LD. AR ALSO POINTED OUT THAT THE STRATEGIC INVESTME NTS STAND AT RS. 198.35 CRORE OUT OF TOTAL INVESTMENT OF RS. 258.40 CRORE. 8 I.T.A. NO. 6002 /MUM/201 6 M/S K. RAHEJA CORP. PVT. LTD. F ROM THE FACTS AS WELL AS DOCUMENTS PLACED ON RECORD, WE FURTHER NOTICED THAT THE ASSESSEE HAD MADE HUGE INVESTMENT AS PER PROFIT AND LOSS ACCOUNT AND NECESSARILY EXPENSES MUST H AVE BEEN INCURRED TOWARDS UNDERTAKING THESE TRANSACTION / ACTIVITIES. UNDER THESE CIRCUMSTANCES AND KEEPING IN VIEW TRIBUNAL DECISIONS IN THE PRECEDI NG YEARS IN ASSESSEES OWN CASE , THUS , IN ORDER TO MAINTAIN CONSISTENCY AND JUDICIAL DISCIPLINE , END OF J USTICE WILL BE MET IN THE INSTANT CASE IF FURTHER DISALLOWANCE OF EXPENDITURE U/S 14A IS KEPT AT AN ADDITIONAL AMOUNT OF RS.5 ,0 0,000/ - TOWARDS ADMINISTRATIVE/MISC. EXPENSES TO BE ADDED TO THE INCOME OF THE ASSESSEE . THIS IS IN VIEW OF THE NON RECORDING OF PROPER SATISFACTION BY THE AUTHORITIES BELOW AS TO THE INCORRECTNESS OF THE CLAIM OF THE ASSESSEES CLAIM AND ALSO THIS DISALLOWANCE U/S 14A SO UPHELD BY US IS IN CONSONANCE WITH THE DECISION OF HONBLE SUPREME COURT IN THE CASE OF GODREJ AND BOYCE MANUFA CTURING COMPANY LTD. V. DCIT (2017) 394 ITR 449(SC). WE ORDER ACCORDINGLY. GROUND NO. 3 5 . THIS GROUND RAISED BY THE REVENUE IS GENERAL IN NATURE, THUS REQUIRES NO SPECIFIC ADJUDICATION. 9 I.T.A. NO. 6002 /MUM/201 6 M/S K. RAHEJA CORP. PVT. LTD. 6 . IN THE NET RESULT, THE APPEAL FILED BY THE REVENUE STANDS PARTLY ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 10 TH JAN, 2018 . SD/ - SD/ - (B. R. BASKARAN ) (SANDEEP GOSAIN) / ACCOUNTANT MEMBER / JUDICIAL MEMBER MUMBAI ; DATED : 10 . 01 .201 8 SR.PS . DHANANJAY / 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 I LE / BY ORDER, . / (DY./ASSTT.REGISTRAR) , / ITAT, MUMBAI