ADDL.C.I.T.1(3), MUMBAI V. WEIZMANN LTD., MUMBAI

ITA 6008/MUM/2012

• Counselvise Citation: 600819914 RSA 2012
• Duration Of Justice: 1 year(s) 4 month(s) 9 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 12-02-2014
• Appeal Filed By: Department
• Order Result: Partly Allowed
• Bench Allotted: G
• Next Hearing Date: 30-01-2014
• Assessment Year: 2008-2009
• Appeal Filed On: 03-10-2012
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: MAURYA PRATAP
• Assessee Lawyers: VIJAY MEHTA
• Keywords: Earning of tax free income; Revised return
• Section: 143(3); 14A

Judgement Text

, INCOME TAX APPELLATE TRIBUNAL,MUMBAI - G BENCH. , ! ! ! ! '# '# '# '# , BEFORE S/SH. RAJENDRA,ACCOUNTANT MEMBER & AMIT SHUK LA,JUDICIAL MEMBER /. ITA NO.6008/MUM/2012, $ $ $ $ % % % % / ASSESSMENT YEAR-2008-09 ADDL. CIT 1(3) R.NO. 540, 5 TH FLOOR, AAYAKAR BHAVAN, M.K.ROAD, MUMBAI-400020 VS M/S WEIZMANN. LTD. EMPIRE HOUSE, 214, DR. D.N.ROAD, ENT. A.K. NAYAK MARG, FORT, MUMBAI-400001 PAN: AAACW1260H ( &' / APPELLANT) ( ()&' / RESPONDENT) * + / REVENUE BY : SHRI MAURYA PRATAP $,! $,! $,! $,! + + + + / ASSESSEE BY : SHRI VIJAY MEHTA $ $ $ $ * ** * !- !- !- !- / DATE OF HEARING : 30-01-2014 ./% * !- / DATE OF PRONOUNCEMENT : 12-02-2014 $ $ $ $ , 1961 * ** * 254 )1( !0! !0! !0! !0! ' ' ' ' ORDER U/S.254(1)OF THE INCOME-TAX ACT,1961(ACT) PER RAJENDRA,AM $ $ $ $ : CHALLENGING THE ORDER DT.06.07.2012 OF THE CIT(A)-2 ,MUMBAI,ASSESSING OFFICER (AO) HAS RAISED FOLLOWING GROUNDS OF APPEAL: 1. WHETHER ON THE FACTS AND IN THE CIRCUMSTANCES OF T HE CASE AND IN LAW, THE CIT(A) ERRED IN DIRECTING THE AO TO DELETE THE ADDITION HOLDING THA T THE ASSESSEE COMPANY HAS ITSELF DISALLOWED EXPENDITURE OF RS. 7,89,633/- FOR EARNING EXEMPT DI VIDEND IN ITS COMPUTATION OF TOTAL INCOME?. 2. THE LEARNED CIT(A) HAS FURTHER ERRED IN OVERLOOKIN G THE FACT THAT THE DISALLOWANCE MADE U/S. 14A R.W.R. 8D OF RS. 2,21,83,000/- HAS BEEN CORRECT LY COMPUTED BY THE AO RELYING ON THE GUIDELINES ISSUED BY THE BOMBAY HIGH COURT IN THE G ODREJ & BOYCE MFG. CO.? THE APPELLANT CRAVES LEAVE TO ADD TO, AMEND OR WITH DRAW THE AFORESAID GROUND OF APPEAL. ASSESSEE-COMPANY,ENGAGED IN THE BUSINESS OF MANUFAC TURING AND EXPORT OF TEXTILE AND OTHER GOODS,FILED ITS RETURN OF INCMOE ON 29.09.2008,DECL ARING TOTAL INCOME OF NIL AND A BOOK PROFIT OF RS.4,17,94,945/-.SUBSEQUENTLY,A REVISED RETURN W AS FILED ON 30-09-2009.ON 29.12.2010.AO FINALISED THE ASSESSMENT,U/S.143(3)OF THE ACT,DETER MINING THE INCOME OF THE ASSESSEE AT RS.58.82 LACS. 2 .DURING THE ASSESSMENT PROCEEDINGS,AO FOUND THE ASS ESSEE HAD RECEIVED DIVIDEND INCOME OF RS. 12,17,147/- WHICH WAS EXEMPT U/S 10(34) OF THE ACT,THAT IN ITS COMPUTATION OF TOTAL INCOME, ASSESSEE HAD DISALLOWED EXPENDITURE OF RS.7,89,633/ - FOR EARNING THIS EXEMPT INCOME.HE DIRECTED THE ASSESSEE TO EXPLAIN AS TO WHY THE EXP ENDITURE RELATING TO EXEMPT INCOME SHOULD NOT BE CALCULATED AS PER RULE 8D.AFTER CONSIDERING THE SUBMISSIONS OF THE ASSESSEE.AO WORKED OUT DISALLOWANCE U/S.14A R.W.RULE 8D OF THE INOCME- TAX RULES,1962(RULES) AT RS.2,29,72,633/-. THEREAFTER,HE REDUCED THE AMOUNT ALREADY DISALLOWED BY THE ASSESSEE IN ITS 2 ITA NO. 6008/MUM/2012 M/S WEIZMANN. LTD. COMPUTATION OF INCOME AMOUNTING TO RS.7,89,633/-.FI NALLY,HE MADE AN ADDITION OF RS.2,21,83,000/- IN THE TOTAL INCOME OF THE ASSESSEE. 2.1. ASSESSEE PREFERRED AN APPEAL BEFORE THE FIRST APPEL LATE AUHTORITY(FAA).AFTER CONSIDERING THE SUBMISSIONS OF THE ASSESSEE AND THE ASSESSMENT ORDER,HE HELD THAT ASSESSEE WAS HAVING ITS OWN INTEREST FREE FUNDS TO THE EXTENT OF RS.7962.05 LACS,THAT THE INVESTMENT MADE BY IT WAS OF RS.6774.33 LACS.FOLLOWING THE DECISION OF THE HONB LE BOMBAY HIGH COURT IN THE CASE OF RELIANCE UTILITIES (313ITR340),HE HELD THAT IT COULD NOT BE SAID THAT THE INTEREST EXPENDITURE WAS INCURRED BY ASSESSEE ON THE BORROWED FUNDS WHIC H WERE USED FOR EARNING OF EXEMPT DIVIDEND INCOME WHEN THE SUFFICIENT INTEREST FREE F UNDS ARE AVAILABLE WITH THE COMPANY.REFERRING TO THE ORDERS OF THE TRIBUNAL DEL IVERED IN ASSESSEES OWN CASE FOR A . YRS.2006-07 & 2007-08,HE DIRECTED THE AO TO DELETE THE ADDITION MADE. 2.2. BEFORE US,DEPARTMENTAL REPRESENTATIVE(DR)SUPPORTED THE ORDER OF THE AO.AUTHORISED REPRESENTATIVE(AR)SUBMITTED THAT EXPENDITURE WAS IN CURRED BY THE ASSESSEE FOR EARNING TAX FREE INCOME,THAT IN ITS COMPUTATION OF INCOME, A SU M OF RS.7,89,633/- WAS ALREADY DISALLOWED BY THE ASSESSEE-COMPANY,THAT THE INVESTMENTS WERE M ADE BY THE ASSESSEE ENTIRELY OUT OF ITS OWN INTEREST FREE FUNDS,THAT NO FURTHER DISALLOWAN CE OUT OF THE INTEREST EXPENSES WAS CALLED FOR,THAT AS PER THE BALANCE SHEET OF THE ASSESSEE A S ON 31.03.2008 THE SHAREHOLDERS FUND,IN THE FORM OF SHARE CAPITAL, WAS RS.1286.11 LACS, THAT TH E RESERVE AND SURPLUS AMOUNTING TO RS.6,675.94 LACS WERE ALSO AVAILABLE WITH THE ASSES SEE DURING THE YEAR,THAT THE INVESTMENT MADE BY THE ASSESSEE IN SHARES AND SECURITIES WAS ONLY R S.6774.33 LACS,THAT THE COMPANY HAD ENOUGH OWN FUNDS TO COVER UP THE INVESTMENTS MADE B Y IT THAT NO DISALLOWANCE SHOULD HAVE BEEN MADE WITH RESPECT TO THE FINANCE COST AS PROVI DED IN RULE 8D(2)(II).HE RELIED UPON THE DECISION OF MUMBAI ITAT DELIVERED IN THE CASES OF S HOPPERS STOP [ITA NOS.1448&4475/MUM/2010],RELIANCE UTILITIES & POWER LTD. (SUPRA).HE FURTHER SUBMITTED THAT IN THE APPELLANTS OWN CASE FOR A.YRS. 2006-07 & 2007-08 (ITA NO.4751/M/2010 DATED 21.10.2011&7697/M/2010 DATED 27.06.2012),ITAT HAD H ELD THAT SINCE THE ASSESSEE WAS HOLDING SUFFICIENT OWN FUNDS TO MAKE THE INVESTMENT S IN SHARES AND SECURITIES, NO DISALLOWANCE U/S 14A READ WITH RULE 8D WAS CALLED FOR.AS REGARDS , THE DISALLOWANCE OF RS.30.58 LACS OUT OF ADMINISTRATIVE EXPENSES,HE CONTENDED THAT THE SAME WAS QUITE UNREASONABLE, THAT THE DIVIDEND INCOME EARNED BY THE ASSESSEE WAS ONLY RS.12,17, 14 7/-,THAT IN THE EARLIER YEARS TRIBUNAL HAD RESTRICTED THE DISALLOWANCE TO THE 5% OF DIVIDEND I NCOME EARNED. 2.3. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL BEFORE US.WE FIND THAT IN THE AY.2006-07 FAA HAD UPHELD THE DISALLOWANCE MADE BY THE AO U/S.14A R.W.8D OF THE INCOME-TAX RULES,1962(RULES).DECIDING THE MATTER IN FAVOUR OF THE ASSESSEE,TRIBUNAL VIDE ITS ORDER 21. 11.2011( ITA/4751/M/2010)HAS HELD AS UNDER : 7.WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND PER USED THE RELEVANT MATERIAL ON RECORD.AS DEMONSTRATED BY THE LEARNED COUNSEL FOR THE ASSESSE E FROM THE BALANCE SHEET OF THE ASSESSEE COMPANY ON 31 ST ,MARCH,2006,SHAREHOLDERSFUND IN THE FORM OF SHARE CAPITAL AND RESERVE AND SURPLUS AGGREGATING TO RS.71.16 CRORES WERE AVAILAB LE WITH THE ASSESSEE COMPANY AS ON 31 ST, MARCH,2006.OUT OF THE RESERVES AND SURPLUS, REVALUA TION RESERVES WAS TO THE EXTENT OF RS10.41 CRORES WHEREAS REMAINING RESERVES AVAILABLE TO THE ASSESSEE TO THE EXTENT OF RS.47.89 CRORES WERE FREE RESERVES.THUS OWN FUNDS TO THE EXTENT OF RS.60.75 CRORES WERE AVAILABLE WITH THE ASSESSEE COMPANY AT THE RELEVANT TIME WHICH WERE MO RE THAN THE INVESTMENT OF RS,57.64 CRORES MADE IN THE SHARES AND SECURITIES IN THE CORRESPOND ING PERIOD. IT IS NO DOUBT TRUE THAT NO SEPARATE ACCOUNT WAS MAINTAINED BY THE ASSESSEE IN RESPECT OF INVESTMENT MADE IN SHARES AND SECURITIES AND IT WAS A CASE OF MIXED FUNDS AVAILAB LE IN THE FORM OF OWN FUNDS AND BORROWED FUNDS WHICH WERE UTILIZED FOR MAKING INVESTMENTS IN SHARES AS WELL AS FOR THE PURPOSE OF ITS MAIN BUSINESS OF MANUFACTURING AND EXPORT OF TEXTIL ES AND OTHER PRODUCTS.HOWEVER,AS HELD BY THE HONBLE BOMBAY HIGH COURT IN THIS CONTEXT IN TH E CASE OF RELIANCE UTILITIES AND POWER LTD. (SUPRA), IF THERE ARE FUNDS AVAILABLE,BOTH INTEREST FREE AND INTEREST BORROWING,THEN A 3 ITA NO. 6008/MUM/2012 M/S WEIZMANN. LTD. PRESUMPTION WOULD ARISE THAT INVESTMENT WOULD BE OU T OF INTEREST FREE FUNDS GENERATED OR AVAILABLE WITH THE COMPANY. RELYING ON THE SAID DEC ISION OF HONBLE JURISDICTIONAL HIGH COURT,WE HOLD THAT THE ASSESSEE HAVING SUFFICIENT O WN FUNDS TO MAKE INVESTMENT IN SHARES AND SECURITIES,IT CANNOT BE SAID THAT INTEREST EXPENDIT URE INCURRED BY IT ON BORROWED FUNDS WHICH WERE UTILIZED FOR THE PURPOSE OF BUSINESS WAS IN RE LATION TO EARNING OF EXEMPT DIVIDEND INCOME,SO AS TO WARRANT ANY DISALLOWANCE ON ACCOUNT OF INTEREST EXPENDITURE U/S.14A.THE DECISION OF THE TRIBUNAL IN THE CASE OF SHOPPERS ST OP LTD. (SUPRA) CITED BY THE 1EARNED COUNSEL FOR THE ASSESSEE FULLY SUPPORTS OUR VIEW WHEREIN IT WAS HELD THAT THE ASSESSEE HAVING SUFFICIENT OWN FUNDS TO COVER UP INVESTMENTS MADE IN SHARES AN D SECURITIES,NO DISALLOWANCE U/S.14A ON ACCOUNT OF INTEREST EXPENDITURE WAS WARRANTED.IT IS ALSO OBSERVED THAT THE AO HIMSELF DID NOT MAKE DISALLOWANCE U/S L4A ON ACCOUNT OF INTEREST EX PENDITURE IN ASSESSEES OWN CASE FOR ASSESSMENT YEAR 2005-06 IN THE ASSESSMENT COMPLETED U/S 143(3) VIDE AN ORDER DATED 20-12- 2007 HOLDING THAT THE ASSESSEE HAVING SUFFICIENT SH AREHOLDERS FUND INCLUDING INTERNAL ACCRUALS TO MAKE INVESTMENTS IN SHARES AND SECURITIES,NO DIS ALLOWANCE U/S 14A WAS CALLED FOR.WE, THEREFORE, HOLD THAT THE DISALLOWANCE MADE BY THE A O AND CONFIRMED BY THE LEARNED CIT(APPEALS) ON ACCOUNT OF INTEREST EXPENDITURE U/S .14A IS NOT SUSTAINABLE AND DELETE THE SAME. 8.AS REGARDS THE DISALLOWANCE OF RS.27,93,160/- MAD E BY THE AO AND CONFIRMED BY THE LEARNED CIT(APPEALS)ON ACCOUNT OF ADMINISTRATIVE EXPENSES U /S.14A, WE FIND OURSELVES IN AGREEMENT WITH THE LEARNED COUNSEL FOR THE ASSESSEE THAT THE SAME IS HIGHLY EXCESSIVE AND UNREASONABLE CONSIDER -ING THE AMOUNT OF DIVIDEND INCOME EARNED BY THE ASSESSEE TO THE EXTENT OF RS.L,06,50,514/-.IN ONE OF THE DECISIONS RENDERED I N THE CASE OF ACIT VS. VINOD CHOPRA FILMS P. LTD. VIDE ITS ORDER DATED 29TH JULY,2011 PASSED IN ITA NO. 4019/MURN/2010, THE TRIBUNAL HAS FOUND IT FAIR AND REASONABLE TO SUSTAIN A SIMIL AR DISALLOWANCE TO THE EXTENT OF 5% OF THE TOTAL DIVIDEND EARNINGS.RESPECTFULLY FOLLOWING THE SAID DECISION OF THE COORDINATE BENCH OF THIS TRIBUNAL,WE SUSTAIN THE DISALLOWANCE MADE BY THE AO AND CONFIRMED BY THE LEARNED CIT(APPEALS)ON ACCOUNT OF ADMINISTRATIVE EXPENSES U /S.14A TO THE EXTENT OF 5% OF DIVIDEND INCOME.GROUND NOS.1 TO 5 OF THE ASSESSEES APPEAL A RE THUS PARTLY ALLOWED. SIMILAR ISSUE WAS DECIDED IN FAVOUR OF THE ASSESSEE BY THE TRIBUNAL FOR THE AY.2007-08 ALSO (ITA/7697/ MUM/2010-DATED 27.06.2012). WE FIND THAT FACTS OF THE CASE UNDER APPEAL ARE SIM ILAR TO THE FACTS OF EARLIER TWO AYS.FROM THE ORDER OF THE FAA,IT IS CLEAR THAT THE ASSESSEE HAD MORE FUNDS AT ITS DISPOSAL,IN FORM OF SHARE CAPITAL AND RESERVES,THAN THE INVESTMENT MADE DURIN G THE YEAR.THEREFORE,RESPECTFULLY,FOLLOWING THE ORDERS OF THE TRIBUANL,FOR THE EARLIER YEARS,WE CONFIRM THE ORDER OF THE FAA FOR THE INTEREST EXPENSES.AS FAR AS ADMINISTRATIVE EXPENSES ARE CONC ERNED;FOLLOWING THE ORDER OF THE TRIBUNAL FOR THE EARLIER YEARS;WE DIRECT THE AO TO RESTRICT THE SAME TO 5% OF DIVIDEND INCOME.GROUNDS OF APPEAL TAKEN BY THE AO ARE ALLOWED,IN PART. AS A RESULT,APPEAL FILED B Y THE AO STANDS PARTLY ALLOWED. 1!2 $,! - * ' 3 4 * ! 56. ORDER PRONOUNCED IN THE OPEN COURT ON 12 TH FEBRUARY, 2014 . ' * ./% 8 9$ 12 1- ,201 4 / * 0 : SD/- SD/- ( ! '# / AMIT SHUKLA) ( / RAJENDRA) / JUDICIAL MEMBER /ACCOUNTANT MEMBER / MUMBAI, 9$ /DATE: 12 TH FEBURARY,2014. 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