DCIT 1(1)(2), MUMBAI V. HINDUSTAN PETROLEUM CORP LTD, MUMBAI

ITA 6121/MUM/2017

• Counselvise Citation: [2019] 112 COUNSELVISE.COM (IT) 6487 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 4 month(s) 8 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 13-02-2019
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: H
• Assessment Year: 2000-2001
• Appeal Filed On: 05-10-2017
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: UDAYA BHASKAR JAKKA
• Keywords: Tax effect; Rule 8D; Set aside
• Section: 14A; 6

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCHES H , MUMBAI BEFORE S HRI M. BALAGANESH (AM ) AND SHRI RAM LAL NEGI (JM) ITA NO. 6121 /MUM/2017 ASSESSMENT YEAR: 2000 - 2001 & ITA NO. 6122 /MUM/2017 ASSESSMENT YEAR: 2001 - 2002 THE DY. COMMISSIONER OF INCOME T AX - 1(1)(2), 579, AAYAKAR BHAWAN, M.K. ROAD, MUMBAI - 400020 VS. M/S HINDUSTAN PETROLEUM CORPORATION LTD., PETROLEUM HOUSE, 17, JAMSHEDJI TATA ROAD, CHURCHGATE, MUMBAI - 400020 PAN: AAACH1118B (APPELLANT) (RESPONDENT) REVENUE BY : SHRI UDAYA BH ASKAR JAKKA (D R) ASSESSEE BY : MS. AARTI SATHE (A R) DATE OF HEARING: 31/01 /201 9 DATE OF PRONOUNCEMENT: 13 / 02 /201 9 O R D E R PER RAM LAL NEGI, JM T HE REVENUE HAS FILED THESE APPEALS AGAI NST THE COMMON ORDER DATED 24.07.2017 PASSED BY THE C OMMISSIONER OF INCOME TAX (APPEALS) (FOR SHORT THE CIT (A)) - 2 , MUMBAI , FOR THE ASSESSMENT YEAR S 2000 - 01 AND 2001 - 02 , WHEREBY THE LD. CIT (A) HAS PARTLY ALLOWED THE APPEAL S FILED BY THE ASSESSEE AGAINST ASSESSMENT ORDER S PASSED U/S 143 (3) OF THE INCOME TAX ACT, 1961 (FOR SHORT THE ACT). SINCE, THE FACTS OF THE CASE AND THE ISSUE S INVOLVED IN BOTH THE APPEALS ARE IDENTICAL EXCEPT THE AMOUNT OF DISALLOWANCE MADE BY THE AO U/S 14A OF THE ACT, WE TAKE THE FACTS OF THE CASE PERTAINING TO THE A.Y. 2000 - 01 IN ORDER TO ADJUDICATE THE IDENTICAL ISSUES RAISED BY THE REVENUE. 2 ITA NO S . 6121 & 6122 /MUM/2017 ASSESSMENT YEAR S : 2000 - 01 AND 2001 - 02 2. BRIEF FACTS OF THE CASE PERTAINING TO THE A.Y. 2000 - 01 ARE THAT THE AO PASSED THE ASSESSMENT ORDER U/S 143 (3) OF THE ACT, INTER ALIA M AKING ADDITION OF RS. 4,37,89,000 / - U/S 14A OF THE ACT. AGAINST THE SAID ORDER, THE ASSESSEE FILED APPEAL BEFORE THE CIT (A). THE LD. CIT (A ) AFTER HEARING THE ASSESSEE PARTLY ALLOWED THE ASSESSEES APPEAL AND DIRECTED THE AO TO MAKE DISALLOWANCE OF 3% OF THE ENTIRE RECEIPT AS EXPENDITURE U/S 14A. STILL AGGRIEVED, THE ASSESSEE CHALLENGED THE SAID ORDER BEFORE THE ITAT. THE MUMBAI BENCH OF ITAT AFTER HEARING THE ASSESSEE REMITTED THE ISSUE BACK TO THE LD.CIT (A) TO VERIFY AS TO WHETHER THE INVESTMENTS WERE M ADE OUT OF THE SURPLUS FUNDS AVAILABLE WITH THE ASSESSEE AND TO RECOMPUTE THE DISALLOWANCE ACCORDINGLY. THE RELEVANT PARA OF THE ORDER OF THE ITAT READS AS UNDER: - AFTER CAREFULLY CONSIDERING THE RIVAL SUBMISSIONS, AND THE FINDINGS OF THE LEARNED CIT (A ) AS WELL AS THE ASSESSING OFFICER, WE FIND THAT NEITHER THE ASSESSING OFFICER NOR LEARNED CIT (A) AS EXAMINED AS TO IN WHICH YEAR THE ASSESSEE HAD MADE INVESTMENT IN TAX FREE BONDS AND WHETHER SUCH INVESTMENTS HAVE BEEN MADE OUT OF SURPLUS FUNDS/CASH. WOR KING GIVEN BY THE ASSESSING OFFICER AS WELL LEARNED CIT (A) IS BASED ON ALLOCATION FOR INTEREST ON BORROWED FUNDS WITHOUT EXAMINED WHETHER BORROWED FUNDS WERE DIVERTED FOR MAKING INVESTMENTS IN TAX FREE BONDS. IN VIEW OF THIS MATTER, WE SET ASIDE THIS ISSU E TO THE FILE OF THE LEARNED CIT (A) TO GIVE A PROPER FINDING AS TO, IN WHICH YEAR THE INVESTMENTS HAVE BEEN MADE AND WHETHER THE ASSESSE HAD MADE THIS INVESTMENTS OUT OF SURPLUS FUNDS OR BORROWED FUNDS AFTER GIVING DUE OPPORTUNITY TO THE ASSESSEE, WHO WIL L PROVIDE NECESSARY DETAILS AND IF REQUIRED, LEARNED CIT (A) CAN CALL FOR THE REMAND REPORT FROM THE ASSESSING OFFICER. ACCORDINGLY GROUND NO. 2 IS TREATED AS ALLOWED FOR STATISTICAL PURPOSES, SUBJECT TO ABOVE DIRECTIONS. 3. IN COMPLIANCE OF THE DIRECTION S OF THE ITAT, THE LD.CIT (A) SOUGHT DETAILS AND INFORMATION FROM THE ASSESSEE AND AFTER CONSIDERING THE SUBMISSIONS OF THE ASSESSEE IN THE LIGHT OF THE DETAILS FURNISHED BY IT , HELD THAT THE ASSESSEE HA D SUFFICIENT SURPLUS FUNDS FOR MAKING INVESTMENTS IN IRFC BONDS AND 3 ITA NO S . 6121 & 6122 /MUM/2017 ASSESSMENT YEAR S : 2000 - 01 AND 2001 - 02 HINDUSTAN COLAS AND FOLLOWING THE RATIO LAID DOWN BY THE HONBLE BOMBAY HIGH COURT IN THE CASE OF HDFC BANK LTD. (2016) 67 TAXMANN.COM 42 (BOM) AND (2014) 366 ITR 505 (BOM) HELD THAT THE ADDITION MADE IN TERMS OF THE EARLIER ORDER PASSED BY THE LD.CIT (A) OF RS. 40,23,000/ - IS NOT FULLY JUSTIFIABLE. HOWEVER, THE AO PARTLY ALLOWED THE APPEAL OF THE ASSESSEE AND CONFIRMED THE ADDITION OF RS. 1,00,000/ - . THE REVENUE IS IN APPEAL AGAINST THE SAID ORDER PASSED BY THE LD. CIT (A). 4. THE REVENUE HA S CHALLENGED THE IMPUGNED ORDER BY RAISING THE FOLLOWING EFFECTIVE GROUNDS OF APPEAL : - (I) ON THE FACTS AND IN THE CIRCUMSTANCE OF THE CASE AND IN LAW, THE LD. CIT (A) HAS ERRED IN DIRECTING TO RESTRICT THE DISALLOWANCE U/S 14A TO RS. 1 LAKH AS AGAINST RS. 4 37.89 LAKHS & RS. 71.76 LAKHS FOR AY 2000 - 01 & 2001 - 02 RESPECTIVELY, HOLDING THAT SINCE INVESTMENT OF ASSESSEE IS LESS THAN OWN FUNDS THEREFORE, PRESUMPTION ARISES THAT INVESTMENT ARE SOURCED FROM OWN FUNDS THEREBY REJECTING THE APPLICATION OF RULE 8D AND ALSO BY APPLYING THE RATIO OF DECISION GIVEN IN THE CASE OF HDFC BANK LTD. )2016) 67 TAX MAN.COM 43 (BOM) AND (2014) 366 ITR 505 (BOM) WHICH HAS THE IMPACT OF MAKING THE STATUTORY RULE REDUNDANT AND ENTERING INTO THE LEGISLATIVE REALM OF RE - DRAFTING THE MA NDATORY RULE MADE BY PARLIAMENT. (II) ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT (A) HAS ERRED IN DIRECTING TO RESTRICT THE DISALLOWANCE U/S 14A TO RS. 1 LAKH EACH, WITHOUT ASSIGNING ANY REASON, AS AGAINST RS. 437.89 LAKHS & RS. 71.76 LAKHS FOR AY 2000 - 01 & 2001 - 02 RESPECTIVELY, MADE BY AO BY APPLYING THE RATIO OF 3% OF TAX FREE INCOME. 5. BEFORE US, THE LD. DEPARTMENTAL REPRESENTATIVE (DR) SUBMITTED THAT THE LD.CIT (A) HAS ERRED IN DIRECTING THE AO TO RESTRICT THE DISALLOWANCE U/S 14A TO RS. 1,00,000/ - AS AGAINST THE ADDITION OF RS. 4,37,89,000 / - MADE IN THE ORIGINAL ASSESSMENT ORDER HOLDING THAT SINCE THE INVESTMENT OF THE ASSESSEE 4 ITA NO S . 6121 & 6122 /MUM/2017 ASSESSMENT YEAR S : 2000 - 01 AND 2001 - 02 HAD ITS OWN FUNDS AND RESERVES MORE THAN THE INVESTMENT MADE BY THE ASSESSEE DURING THE YEAR RELE VANT TO THE ASSESSMENT YEAR UNDER CONSIDERATION. THE LD. DR FURTHER SUBMITTED THAT THE LD.CIT (A) HAS RESTRICTED THE ADDITION TO RS. 1,00,000/ - WITHOUT ASSIGNING ANY REASON. THEREFORE, THE SAME IS LIABLE TO BE SET ASIDE. 6. ON THE OTHER HAND, THE LD. COUN SEL FOR THE ASSESSEE SUBMITTED THAT SINCE, THE REVENUE HA D NOT CHALLENGED THE ORDER PASSED BY THE LD. CIT(A) IN THE FIRST ROUND OF APPEAL, WHEREIN THE LD. CIT (A) HAD DIRECTED THE AO TO RESTRICT THE ADDITION TO 3% OF THE ENTIRE RECEIPT AS EXPENDITURE U/S 1 4A, IT HAS NO RIGHT TO FILE THE PRESENT APPEAL AGAINST THE ORDER PASSED BY THE LD. CIT(A) IN THE SECOND ROUND, WHEREBY THE LD. CIT(A) HAS RESTRICTED THE ADDITION TO RS. 1,00,000/ - THE LD. COUNSEL FURTHER POINTED OUT THAT EVEN IF IT IS TREATED THAT THE REVE NUE HAS FILED THE PRESENT APPEAL AGAINST THE FINDINGS GIVEN IN THE SECOND ROUND OF APPEAL, THE SAME IS NO T MAINTAINABLE IN THE LIGHT OF THE CBDT CIRCULAR NO. 3/2018, F. NO. 279/MISC.142/2007 - ITJ (PT) DATED 11 TH JULY, 2018, VIDE WHICH THE CBDT HAS FIXED THE MONITORY LIMIT FOR FILING THE APPEAL BEFORE THE ITAT TO 20 LACS . 7. WE HAVE HEARD THE RIVAL SUBMISSIONS AND ALSO PERUSED THE MATERIAL ON RECORD IN THE LIGHT OF THE RIVAL CONTENTIONS. THE ONLY GRIEVANCE OF THE REVENUE IS THAT THE LD. CIT(A) HAS WRONGLY RES TRICTED THE ADDITION U/S 14A OF THE ACT TO RS. 1,00,000/ - WE NOTICE THE DEPARTMENT DID NOT CHALLENGE THE FINDINGS RECORDED BY THE LD. CIT (A) IN ASSESSEES FIRST ROUND OF APPEAL, WHEREBY THE LD. CIT (A) HAD RESTRICTED THE ADDITION TO 3% OF THE ENTIRE RECEI PT , WHICH COMES TO RS.36,12,797/ - . S INCE , THE REVENUE DID NOT CHALLENGE THE ORDER PASSED BY THE LD. CIT (A) IN THE FIRST ROUND OF APPEAL , WE FIND MERIT IN THE CONTENTION OF THE LD. COUNSEL THAT THE REVENUE IS ESTOPPED FROM RAISING THE ISSUE IN PRESENT APPE AL. HENCE, V IDE THE IMPUGNED ORDER THE LD. CIT(A) HAS RESTRICTED THE ADDITION FROM RS.36,12,797/ - TO RS.1,00,000/ - AND NOT FROM RS. 4,37,89,000/ - TO RS. 1,00,000/ - . ACCORDINGLY, THE LD. CIT(A) HAS GIVEN RELIEF OF RS. 5 ITA NO S . 6121 & 6122 /MUM/2017 ASSESSMENT YEAR S : 2000 - 01 AND 2001 - 02 35,12,797/ - , TAX EFFECT OF WHICH IS BELO W THE LIMIT PRESCRIBED BY THE CBDT CIRCULAR (SUPRA) FOR FIL ING APPEAL BEFORE THE ITAT. 8. THE LD. DR DID NOT POINT OUT THAT THE GROUND S RAISED IN THE PRESENT APPEAL FALL IN ANY OF THE EXCEPTIONS MENTIONED IN THE SAID CIRCULAR. SINCE, THE TAX EFFECT IN THE PRESENT APPEAL IS BELOW LIMIT PRESCRIBED BY THE BOARD CIRCULAR DATED 11 TH JULY, 2018 (SUPRA), THIS APPEAL IS NOT MAINTAINABLE. WE THEREFORE, DISMISS THE APPEAL FILED BY THE R EVENUE BEING NOT MAINTAINABLE . ITA NO. 6122/MUM/2017 (ASSESSMENT YEAR: 2001 - 2002 ) THE FACTS OF THE CASE AND THE GROUNDS OF APPEAL RAISED BY REVENUE ARE IDENTICAL TO THE FACTS OF THE CASE AND THE GROUND RAISED BY THE REVENUE IN ASSESSEES CASE FOR THE ASSESSMENT YEAR 2000 - 01 AFORESAID, EXCEPT THE AMOUNT OF RELIEF GRANTED BY THE LD. CI T(A) IN THE PRESENT CASE. AS POINTED OUT BY THE LD. COUNSEL FOR THE ASSESSEE, IN THE PRESENT CASE THE RELIEF GIVEN BY THE LD. CIT(A) IS RS. 10,81,889/ - . SINCE, THE TAX EFFECT IN THE PRESENT APPEAL IS BELOW LIMIT PRESCRIBED BY THE BOARD CIRCULAR DATED 11 TH JULY, 2018 (SUPRA), THIS APPEAL IS NOT MAINTAINABLE. HENCE, CONSISTENT WITH OUR FINDINGS IN THE ASSESSEES OWN CASE FOR THE ASSESSMENT YEAR 2000 - 01 AFORESAID, WE DISMISS THE PRESENT APPEAL FOR THE SAME REASONS. IN THE RESULT, BOTH THE APPEALS FILED BY T HE REVENUE FOR ASSESSMENT YEAR S 2000 - 01 AND 2001 - 02 ARE DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 13 TH FEBRUARY , 2019 . SD/ - S D/ - ( M.BALAGANESH ) ( RAM LAL NEGI ) ACCOUNTAN T MEMBER JUDICIAL MEMBER MUMBAI ; DATED: 13 / 02 / 2019 ALINDRA PS 6 ITA NO S . 6121 & 6122 /MUM/2017 ASSESSMENT YEAR S : 2000 - 01 AND 2001 - 02 / 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// / (DY./ASSTT. REGISTRAR) , / ITAT, MUMBAI