ACIT CEN CIR 6, MUMBAI V. D.B. REALTY P.LTD, MUMBAI

ITA 6137/MUM/2012

• Counselvise Citation: 613719914 RSA 2012
• Duration Of Justice: 2 year(s) 1 month(s) 14 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 19-11-2014
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: D
• Next Hearing Date: 29-10-2014
• Assessment Year: 2009-2010
• Appeal Filed On: 05-10-2012
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: NEIL PHILIP
• Assessee Lawyers: SHRIMATI ARATI VISSANJI
• Section: 14A

Judgement Text

, IN THE INCOME TAX APPELLATE TRIBUNAL D BENCH, M UMBAI BEFORE HONBLE S/SHRI H.L. KARWA, PRESIDENT AND B. R.BASKARAN (AM) . . , . . , ./I.T.A. NO.6137/MUM/2012 ( / ASSESSMENT YEAR : 200910) THE ASSTT. COMMISSIONER OF INCOME TAX, CENTRAL CIRCLE 6, OLD CGO BUILDING ANNEX, 9 TH FLOOR, M K ROAD, MUMBAI400020 / VS. M/S D B REALTY PVT.LTD., D B HOUSE, YASHODHAM, GEN. V K VAIDYA MARG, GOREGAON (E), MUMBAI400063 ( / APPELLANT) .. ( ! / RESPONDENT) ./ '# ./ PAN/GIRNO.:AACCD5174F $ / APPELLANT BY : SHRI NEIL PHILIP ! % $ /RESPONDENT BY SHRIMATI ARATI VISSANJI & ' % ( ) / DATE OF HEARING : 29.10.2014 *+ % ( ) /DATE OF PRONOUNCEMENT : 19.11.2014. / O R D E R PER B.R.BASKARAN, ACCOUNTANT MEMBER: THE APPEAL FILED BY THE REVENUE IS DIRECTED AGAINS T THE ORDER DATED 20-07- 2012 PASSED BY LD CIT(A)-36, MUMBAI AND IT RELATES TO THE ASSESSMENT YEAR 2009-10. THE DISALLOWANCE OF RS.1,51,35,812/- MADE BY THE ASSESSING OFFICER U/S 14A OF THE ACT, HAVING BEEN REDUCED BY LD CIT(A ) TO RS.20,70,770/-, THE REVENUE HAS FILED THIS APPEAL BEFORE US. 2. THE FACTS RELATING TO THE ISSUE CITED ABOVE ARE DISCUSSED IN BRIEF. THE ASSESSING OFFICER, HAVING NOTED THAT THE ASSESSEE H AS HELD INVESTMENTS AND HAD ALSO BORROWED FUNDS, ASKED THE ASSESSEE TO WORK OUT THE DISALLOWANCE TO BE MADE U/S 14A OF THE ACT READ WITH RULE 8D OF THE I. T RULES. IT IS PERTINENT TO NOTE THAT THE ASSESSEE DID NOT MAKE ANY DISALLOWANCE U/S 14A OF THE ACT IN ITS RETURN OF INCOME. THE ASSESSEE FURNISHED THE WORKINGS AS PER WHICH A SUM OF RS.1,51,35,812/- WAS DISALLOWABLE AND THE SAME PERT AINED TO ADMINISTRATIVE EXPENSES ONLY. THE ASSESSING OFFICER ACCORDINGLY MA DE DISALLOWANCE OF THE ITA NO.6137/M/2012 2 ABOVE SAID AMOUNT. IN THE APPELLATE PROCEEDINGS BEF ORE LD CIT(A), THE ASSESSEE SUBMITTED THAT THE INVESTMENTS ARE HELD IN EQUITY/P REFERENCE SHARES OF SUBSIDIARY COMPANIES /ASSOCIATE COMPANIES AND ALSO BY WAY OF C APITAL INVESTMENTS IN PARTNERSHIP FIRM. FURTHER IT WAS SUBMITTED THAT THE GENERAL AND ADMINISTRATIVE EXPENSES HAVE TO BE INCURRED EVEN IF THERE ARE NO I NVESTMENTS. IT WAS FURTHER POINTED OUT THAT THE ASSESSEE HAD AGREED FOR DISALL OWANCE OF RS.20,70,770/- PERTAINING TO 5% OF THE FIXED/SEMI-VARIABLE EXPENSE S, IN ITS LETTER DATED 07-12- 2011 FILED BEFORE THE AO. 3. THE LD CIT(A) REFERRED TO THE DECISION REND ERED BY THE CO-ORDINATE BENCH OF TRIBUNAL IN THE CASE OF AUCHTEL PRODUCTS LTD VS. ACIT (ITA NO.3183. 2649 & 3185/MUM/2011) AND ACIT VS. SIL INVESTMENT LTD (ITA NO.2431 (DEL) 2010 DATED 04-05-2012), WHEREIN IT WAS HELD THAT THE ONU S TO DISPROVE THE CLAIM PUT FORTH BY THE ASSESSEE WITH REGARD TO THE DISALLOWAN CE U/S 14A LIES UPON THE ASSESSING OFFICER. ACCORDINGLY, THE LD CIT(A) HAS ACCEPTED THE CLAIM OF THE ASSESSEE THAT THERE WAS NO REQUIREMENT OF MAKING AN Y DISALLOWANCE OF INTEREST EXPENDITURE. WITH REGARD TO THE ADMINISTRATIVE EXP ENSES, THE LD CIT(A) DIRECTED THE AO TO RESTRICT THE DISALLOWANCE TO RS.20,70,770 /-, REFERRED SUPRA. AGGRIEVED, THE REVENUE HAS FILED THIS APPEAL BEFORE US. 4. THE LD D.R STRONGLY SUPPORTED THE ORDER OF THE ASSESSING OFFICER. THE LD D.R SUBMITTED THAT THE ASSESSING OFFICER HAS FOLLOW ED THE DECISION OF DELHI SPECIAL BENCH DATED 5-08-2009 RENDERED IN THE CASE OF M/S CHEM INVEST LTD, WHERE IN IT IS HELD THAT THE DISALLOWANCE U/S 14A I S REQUIRED TO BE MADE EVEN IF THE ASSESSEE DID NOT RECEIVE ANY DIVIDEND. ACCORDI NGLY, THE LD D.R SUBMITTED THAT THE LD CIT(A) WAS NOT JUSTIFIED IN REDUCING TH E DISALLOWANCE MADE AS PER RULE 8D OF IT RULES. 5. ON THE CONTRARY, THE LD A.R SUBMITTED THAT THE P ROVISIONS OF SEC. 14A SHALL NOT APPLY, SINCE THE ASSESSEE DID NOT RECEIVE ANY D IVIDEND AT ALL DURING THIS YEAR. FOR THIS PROPOSITION, THE LD A.R PLACED RELIANCE ON THE FOLLOWING CASE LAW:- (A) JT. CIT VS. SHIVAM MOTORS PVT LTD (ITA NO.17/ LKW/2012 DT. 12.11.13) (B) CIT VS. CORTECH ENERGY PVT LTD (2014)(223 TAX MANN 130)(GUJ) (C) CIT VS. M/S LAKHANI MARKETING INC. (ITA NO.97 0/2008 DT.2.4.14) (D) CIT VS. HOLCIM INDIA P LTD (ITA NO.486/2014 & 299/2014) THE LD A.R TOOK AN ALTERNATIVE CONTENTION THAT ALL THE INVESTMENTS MADE BY THE ASSESSEE, BEING STRATEGIC INVESTMENTS MADE IN SUBSI DIARIES, JOINT VENTURES ETC, ITA NO.6137/M/2012 3 THE QUESTION OF INCURRING ADMINISTRATIVE EXPENSES D OES NOT APPLY. FOR THIS PROPOSITION, THE LD A.R PLACED RELIANCE ON THE FOLL OWING CASE LAW:- (A) GARWARE WALL ROPES LTD VS. ADDL. CIT (ITA NO.5048/ MUM/2012) (B) J.M.FINANCIAL LTD VS. ADDL CIT (ITA NO.4521/M/12) (C) ACIT VS. ORIENTAL STRUCTURAL ENGINEERING P LTD (I TA 4245/DEL/2011) (D) DCIT VS. INTERGLOBE ENTERPRISES LTD (ITA 1362 AND 1032/DEL/2013) (E) EIH ASSOCIATED HOTELS LTD VS. DCIT (ITA 1503/MDS/2 012) THE LD A.R FURTHER SUBMITTED THAT, EVEN THOUGH NO DISALLOWANCE IS REQUIRED TO BE MADE IN THE ASSESSEES HAND BY FOLLOWING THE PRINCI PLES LAID DOWN IN THE ABOVE CITED CASE LAWS, YET THE ASSESSEE HAS AGREED FOR A DISALLOWANCE OF RS.20.70 LAKHS. ACCORDINGLY, THE LD A.R PRAYED THAT THE APP EAL OF THE REVENUE BE DISMISSED. 6. WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE RECORD. ON EXAMINATION OF THE PROFIT AND LOSS ACCOUNT RELATING TO THE YEAR UNDER CONSIDERATION, WE NOTICE THAT THE ASSESSEE HAS SHOW N GROSS RECEIPTS OF RS.29062 LAKHS, WHICH CONSISTED OF SHARE INCOME FR OM PARTNERSHIP FIRMS TO THE TUNE OF RS.28968 LAKHS, INTEREST INCOME OF RS.91 LA KHS AND OTHER INCOME OF RS.2 LAKHS. THUS, IT IS SEEN THAT 99.5% OF THE GROSS REC EIPTS CONSISTED OF SHARE INCOME FROM PARTNERSHIP FIRMS AND THE SAME IS EXEM PT U/S 10(2A) OF THE ACT. THE AHMEDABAD BENCH OF SPECIAL BENCH IN THE CASE OF VISHNU ANANT MAHAJAN VS. CIT (137 ITD 189) HAS HELD THAT THE PROVISIONS OF SEC. 14A SHALL BE APPLICABLE TO THE SHARE INCOME RECEIVED FROM PARTNE RSHIP FIRMS ALSO. 7. HOWEVER, IN THE INSTANT CASE, WE NOTICE THAT T HE ASSESSING OFFICER DOES NOT APPEAR TO HAVE EXAMINED THE APPLICATION OF THE PROV ISIONS OF SEC,. 14A BY HAVING REGARD TO THE ACCOUNTS OF THE ASSESSEE. WE NOTICE THAT THE ASSESSING OFFICER HAS ASKED THE ASSESSEE TO WORK OUT THE DISALLOWANCE AND ACCORDINGLY, THE ASSESSEE HAS FURNISHED FOLLOWING WORKINGS:- AVERAGE INVESTMENTS:- OPENING INVESTMENTS 213,77,04,517 ADD:- SHARE OF LOSS IN PARTNERSHIP FIRM INCLUDED AS BALANCE OF CAPITAL A/C (ADDED SINCE DOES NOT REPRESENT AN INVESTMENT) 13,04,47,866 ----------------------- 226,81,52,383 ============ ITA NO.6137/M/2012 4 CLOSING INVESTMENTS 655,67,45,571 LESS:- SHARE OF PROFIT IN PARTNERSHIP FIRM INCLUDED AS CAPITAL ACCOUNT (REDUCED SINCE DOES NOT REPRESENT INVESTMENT) 277,05 ,73,226 ------------------- 378,61,72,345 =========== AVERAGE OF OPENING ++ CLOSING INVESTMENT - 302 ,71,62,364 0.5% OF AVERAGE INVESTMENTS - 1,51,3 5,812 WE NOTICE THAT THE ASSESSING OFFICER DID NOT EXAMIN E ABOUT THE APPLICABILITY OF RULE 8D(2)(I) AND RULE 8D(2)(II) AT ALL. FROM THE DETAILS OF INVESTMENTS GIVEN IN SCHEDULE 6 OF THE ANNUAL REPORT, WE NOTICE THAT THE ASSESSEE HAS MADE INVESTMENT IN THREE PARTNERSHIP FIRMS, VIZ., M/S DY NAMIX REALTY, M/S DBS REALTY AND M/S MIRA SALT WORKS. HOWEVER, WHILE COMPUTING THE VALUE OF AVERAGE INVESTMENTS, THE ASSESSEE HAS EXCLUDED THE CAPITAL BALANCE OF M/S DYNAMIX REALTY AND DID NOT EXCLUDE THE INVESTMENT MADE IN T WO OTHER PARTNERSHIP FIRMS. IT IS PERTINENT TO NOTE THAT THE ASSESSEE HAS TAKEN A STAND THAT THE INVESTMENT MADE IN PARTNERSHIP FIRM DOES NOT REPRESENT INVEST MENT. WE NOTICE THAT THE ASSESSING OFFICER DID NOT EXAMINE THE ABOVE SAID CL AIM OF THE ASSESSEE AND ALSO FAILED TO NOTE THE INCONSISTENCIES IN WORKING OUT T HE AVERAGE VALUE OF INVESTMENTS. ALL THESE DISCUSSIONS WOULD SHOW THE HALF HEARTED APPROACH ADOPTED BY THE ASSESSING OFFICER AND HIS CARELESSNE SS IN EXAMINING THE WORKINGS FURNISHED BY THE ASSESSEE VIS--VIS THE ACCOUNTS OF THE ASSESSEE COMPANY. WE ALSO FIND THAT THE ASSESSEE HAS ALSO FAILED TO EXPL AIN AS TO HOW THE PROVISIONS OF SEC. 14A SHALL NOT APPLY TO THE SHARE INCOME FROM P ARTNERSHIP FIRMS, WHICH CONSISTED OF 99.5% OF ITS INCOME. 8. BEFORE THE AO AS WELL AS BEFORE THE LD CIT(A) , THE ASSESSEE CANVASSED FOR SEGREGATION OF ALL EXPENSES INTO VARIABLE EXPE NSES AND FIXED/SEMI VARIABLE EXPENSES. THE ASSESSEE HAS FURTHER CANVASSED THE VIEW THAT THE PROVISIONS OF SEC. 14A R.W. RULE 8D SHOULD NOT BE APPLIED TO VARI ABLE EXPENSES, WHICH CONSISTED OF EXPENSES INCURRED DIRECTLY ON THE PROJ ECTS UNDERTAKEN BY IT. WITH REGARD TO THE FIXED/SEMI-VARIABLE EXPENSES, THE ASS ESSEE SUBMITTED THAT THE DISALLOWANCE MAY BE RESTRICTED TO 5% OF THE SAID E XPENSES. THOUGH THE ASSESSEE DID NOT GIVE ANY BASIS FOR ADOPTING THE AB OVE SAID RATE OF 5%, YET THE LD CIT(A) HAS ACCEPTED THE SAME. ITA NO.6137/M/2012 5 9. IT APPEARS THAT BOTH THE TAX AUTHORITIES HAVE ADDRESSED THE ISSUE OF DISALLOWANCE TO BE MADE U/S 14A OF THE ACT FROM THE POINT OF VIEW OF DIVIDEND INCOME ONLY. FURTHER THE DISALLOWANCE HAS BEEN MA DE WITH REFERENCE TO ADMINISTRATIVE EXPENSES ONLY. AS NOTICED EARLIER, BOTH THE TAX AUTHORITIES HAVE FAILED TO MAKE REFERENCE TO THE ACCOUNTS OF THE ASS ESSEE. 10. THOUGH THE REVENUE IS OBJECTING TO THE DECI SION OF LD CIT(A) IN REDUCING THE DISALLOWANCE, THEY COULD NOT POINT OUT ANY DEFI CIENCY IN THE METHOD ADOPTED BY THE ASSESSEE IN DETERMINING THE AMOUNT OF ADMINI STRATIVE EXPENSES ATTRIBUTABLE TO THE INVESTMENTS. UNDER THESE SET OF FACTS, WE HAVE NO OTHER OPTION, BUT TO CONFIRM THE ORDER OF LD CIT(A). 11. IN THE RESULT, THE APPEAL FILED BY THE REVE NUE IS DISMISSED. THE ABOVE ORDER WAS PRONOUNCED IN THE OPE N COURT ON 19TH NOV, 2014 . *+ & , -. / 0 19TH NOV , 2014 + % 1' 2 SD SD ( . . / H.L. KARWA) ( . . , / B.R. BASKARAN ) / PRESIDENT / ACCOUNTANT MEMBER - & ' MUMBAI: 19TH NOV,2014. . . ./ SRL , SR. PS / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT 2. ! / THE RESPONDENT. 3. & 5( ( ) / THE CIT(A)- CONCERNED 4. & 5( / CIT CONCERNED 5. 6. 67 1 (8 , ) 8 , - & ' / DR, ITAT, MUMBAI CONCERNED 1 9 ' / GUARD FILE. ITA NO.6137/M/2012 6 : & / BY ORDER, TRUE COPY ; ' (ASSTT. REGISTRAR) ) 8 , - & ' /ITAT, MUMBAI