M/s. GAYLORD INVESTMENTS & TRADING CO. P. LTD., MUMBAI V. DCIT Rg. - 3(1), MUMBAI

ITA 6199/MUM/2006

• Counselvise Citation: [2015] 140 COUNSELVISE.COM (IT) 92382 (ITAT-MUMBAI)
• Duration Of Justice: 8 year(s) 5 month(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 23-04-2015
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: G
• Next Hearing Date: 12-02-2015
• Assessment Year: 2003-2004
• Appeal Filed On: 23-11-2006
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: SANTOSH KUMAR
• Assessee Lawyers: J D MISTRY
• Keywords: Earning of tax free income; Revenue expenditure
• Section: 14A; 115JB

Judgement Text

, IN THE INCOME TAX APPELLATE TRIBUNAL G BENCH, MUMBAI BEFORE S/SHRI B.R.BASKARAN (AM) AND VIVEK VARMA, (JM) . . , , ./ I.T.A. NO. 6199 / MUM/20 06 ( / ASSESSMENT YEAR : 200 3 - 04 ) GAYLORD INVESTMENT S AND TRADING COMPANY P VT. L TD., 84 - A, MITTAL COURT, 224 NARIMAN POINT, MUMBAI - 400021 / VS. DY.COMMISSIONER OF INCOME TAX, RANGE - 3(1), MUMBAI. ( / APPELLANT ) .. ( / RESPONDENT ) ./ I.T.A. NO. 6296 /MUM/20 06 ( / ASSESSMENT YEAR : 200 3 - 04 ) DY.COMMISSIONER OF INCOME TAX, RANGE - 3(1), ROOM NO.607, 6 TH FLOOR, AAYAKAR BHAVAN, M K ROAD, MUMBAI - 400020 / VS. GAYL ORD INVESTMENTS AND TRADING COMPANY PVT.LTD., 84 - A, MITTAL COURT, 224 NARIMAN POINT, MUMBAI - 400021 ( / APPELLANT ) .. ( / RESPONDENT ) ./ ./PAN/GIR NO. : AAACG1268M /APPELLANT BY : SHRI J D MISTRY / RESPONDENT BY: SHRI SANTOSH KUMAR / DATE OF HEARING : 12.2.2015 / DATE OF PRONOUNCEMENT : 23. 4 .2015 / O R D E R PER B.R.BASKARAN, ACCO UNTANT MEMBER: THESE CROSS APPEALS ARE DIRECTED AGAINST THE ORDER DATED 18 - 09 - 2006 PASSED BY LD CIT(A) - III, MUMBAI AND THEY RELATE TO THE ASSESSMENT YEAR 2003 - 04. I.T.A. NO. 6199 & 6296 /MUM/2 006 2 2. WE HEARD THE PARTIES AND PERUSED THE RECORD. THE ASSESSEE IS ENGAGED IN THE BUSINESS OF INVESTMENTS AND FINANCE. THE ASSESSEE FILED ITS RETURN OF INCOME FOR THE YEAR UNDER CONSIDERATION DECLARING A LOSS OF RS.23.89 CRORES. HOWEVER, THE AO COMPLETED THE ASSESSMENT BY MAKING VARIOUS ADDITIONS, WHICH RESULTED IN A TOTAL INCOME OF RS.0.94 CR ORES. THE APPEAL FILED BY THE ASSESSEE BEFORE LD CIT(A) WAS PARTLY ALLOWED AND HENCE BOTH THE PARTIES ARE IN APPEAL BEFORE US ON THE ISSUES ON WHICH THEY ARE AGGRIEVED BY THE ORDER OF LD CIT(A). 3. THE FIRST ISSUE IN THE APPEAL OF THE ASSESSEE RELATES TO THE DISALLOWANCE OF RS.24.81 CRORES RELATING TO PREMIUM PAID ON REDEMPTION OF PREMIUM NOTES. THE ASSESSEE HAD ISSUED UNSECURED OPTIONALLY CONVERTIBLE PREMIUM NOTES TO ITS SISTER CONCERN. THE PREMIUM NOTE HOLDER COULD CONVERT THE SAID PREMIUM NOTES IN TO EQUITY SHARES OF THE COMPANY AT THE END OF THE MATURITY PERIOD OR REDEEM THE SAME AT ANY TIME AFTER THE END OF THE THREE YEARS FROM THE DATE OF ALLOTMENT. IN THE CASE OF EARLY REDEMPTION, THE INVESTOR WAS ENTITLED TO PROPORTIONATE PREMIUM. DURING THE YEAR UNDER CONSIDERATION, THE PREMIUM NOTES WERE REDEEMED BY THE SUBSCRIBERS AND HENCE THE ASSESSEE PAID PREMIUM OF RS.24.81 CRORES AND CLAIMED THE SAME AS REVENUE EXPENDITURE. 4. THE ASSESSING OFFICER NOTICED THAT THE FUNDS RECEIVED ON ISSUING THE UN SECURED OPTIONALLY CONVERTIBLE PREMIUM NOTES WAS FOUND INVESTED IN PURCHASE OF SHARES/DEBENTURES OF RELIANCE UTILITIES AND POWER LIMITED, AN INFRASTRUCTURE COMPANY. AS PER THE PROVISIONS OF SEC. 10(23G) OF THE ACT, THE INCOME ARISING FROM THE ABOVE SAID INVESTMENT IS EXEMPT FROM TAX. DURING THE YEAR UNDER CONSIDERATION, THE ASSESSEE RECEIVED A SUM OF RS.5.72 CRORES AS INCOME AND CLAIMED THE SAME AS EXEMPT U/S 10(23G) OF THE ACT. THE AO TOOK THE VIEW THE PROVISIONS OF SEC. 14A OF THE ACT SHALL BE APPLICA BLE TO THE CLAIM OF REDEMPTION PREMIUM, SINCE THE ENTIRE PROCEEDS RECEIVED ON ISSUING PREMIUM NOTES WERE INVESTED IN RELIANCE I.T.A. NO. 6199 & 6296 /MUM/2 006 3 UTILITIES AND POWER LTD AND ACCORDINGLY DISALLOWED THE SAME. THE LD CIT(A) ALSO CONFIRMED THE SAID DISALLOWANCE BY FOLLOWING HIS DECISION RENDERED IN THE CASE OF ASCENT TRADE CO. PVT LTD., VIDE HIS ORDER DATED 18.09.2006. HENCE THE ASSESSEE IS AGGRIEVED BY THE SAID DECISION OF LD CIT(A). 5. THE LD A.R SUBMITTED THAT THE LD CIT(A) HAS FOLLOWED THE DECISION RENDERED BY HIM I N THE CASE OF M/S ASCENT TRADECOM PRIVATE LTD IN ORDER TO DECIDE THIS ISSUE AGAINST THE ASSESSEE. HOWEVER M/S ASCENT TRADECOM PRIVATE LIMITED PREFERRED AN APPEAL BEFORE THE TRIBUNAL CHALLENGING THE SAID DECISION OF LD CIT(A). THE CO - ORDINATE BENCH OF TRI BUNAL CONSOLIDATED THE APPEALS HAVING IDENTICAL ISSUE AND ACCORDINGLY, BY ITS CONSOLIDATED ORDER DATED 13.6.2012 PASSED IN THE CASES OF AVSHESH MERCANTILE P LTD AND OTHERS IN ITA NO.5779/MUM/2006 & OTHERS, HAS REVERSED THE ORDER OF LD CIT(A) AND ACCORDINGL Y DECIDED THIS ISSUE IN FAVOUR OF THE ASSESSEE. THE LD A.R POINTED OUT THAT, IN THE ABOVE SAID CONSOLIDATED ORDER OF THE TRIBUNAL INCLUDED THE APPEAL FILED BY M/S ASCENT TRADECOM PRIVATE LTD (ITA NO.6194/MUM/2006). ACCORDINGLY HE SUBMITTED THAT THE DECISI ON RENDERED BY THE LD CIT(A) IN THE HANDS OF M/S ASCENT TRADECOM PRIVATE LTD HAS SINCE BEEN REVERSED BY THE TRIBUNAL AND THE SAID ISSUE HAS BEEN DECIDED IN FAVOUR OF THE ASSESSEE BY THE CO - ORDINATE BENCH OF THE TRIBUNAL. ACCORDINGLY HE PRAYED THAT THE DECI SION OF THE CO - ORDINATE BENCH OF TRIBUNAL SHOULD BE FOLLOWED IN THIS YEAR ALSO. 6. THE LD D.R ALSO CONCURRED WITH THE FACTS PRESENTED BY THE LD A.R. 7. ON A PERUSAL OF THE ORDER CONSOLIDATED ORDER DATED 13.6.2012 PASSED BY THE CO - ORDINATE BENCH OF TRI BUNAL (REFERRED SUPRA), WE NOTICE THAT THE TRIBUNAL HAS CONSIDERED VARIOUS TYPES OF ARGUMENTS, THE PECULIAR NATURE OF INVESTMENT, UNCERTAINTIES AND CONTINGENCIES ATTACHED WITH THE INVESTMENT AND ACCORDINGLY TAKEN THE VIEW THAT THE PREMIUM PAID BY THE ASSE SSEE ON REDEMPTION OF PREMIUM NOTES (OCPN) UTILISED FOR MAKING I.T.A. NO. 6199 & 6296 /MUM/2 006 4 INVESTMENT IN SHARES/DEBENTURES OF RUPL CANNOT BE REGARDED AS EXPENDITURE INCURRED EXCLUSIVELY IN RELATION TO EARNING OF EXEMPT INCOME SO AS TO INVOKE THE PROVISIONS OF SECTION 14A OF THE ACT. FURTHER THE TRIBUNAL HAS NOTICED THAT THE SAID INVESTMENT HAD THE POTENTIAL OF GENERATING TAXABLE INCOME ALSO. FURTHER WE NOTICE THAT THE CO - ORDINATE BENCH HAS TAKEN SUPPORT FROM THE DECISION RENDERED BY THE JURISDICTIONAL HONBLE BOMBAY HIGH COURT IN TH E CASE OF DELOITTE ENTERPRISES. ACCORDINGLY, THE CO - ORDINATE BENCH HAS HELD THAT THE PROVISIONS OF SEC. 14A CANNOT BE APPLIED TO THE EXPENDITURE ON PREMIUM NOTES. 8. SINCE THE CO - ORDINATE BENCH HAS TAKEN A PARTICULAR VIEW ON AN IDENTICAL ISSUE IN A GR OUP OF CASES, WE ARE INCLINED TO FOLLOW THE SAME. ACCORDINGLY, WE SET ASIDE THE ORDER OF LD CIT(A) ON THIS ISSUE AND DIRECT THE ASSESSING OFFICER TO DELETE THE IMPUGNED ADDITION RELATING TO PREMIUM NOTES. 9. THE NEXT ISSUE CONTESTED BY THE ASSESSEE RELATES TO THE DISALLOWANCE OF EXPENSES MADE U/S 14A OF THE ACT. SINCE THE ASSESSEE HAD CLAIMED EXEMPTION U/S 10(23G) OF THE ACT, THE AO DISALLOWED THE PROPORTIONATE EXPENSES RELATABLE TO THE EXEMPTED INCOME AS PER THE PROVISIONS OF SEC. 14A OF THE ACT, I .E., THE AS AGAINST THE TOTAL EXPENSES OF RS.2,46,500/ - CLAIMED BY THE ASSESSEE, THE AO DISALLOWED A SUM OF RS.2,11,949/ - . THE LD CIT(A) ALSO CONFIRMED THE SAME BY FOLLOWING HIS DECISION RENDERED IN THE CASE OF M/S ASCENT TRADE CO. PVT LTD, VIDE HIS ORDER DATED 18.09.2006, FOR AY 2003 - 04. 10. HOWEVER, IN THE CONSOLIDATED ORDER DATED 13.06.2012 (REFERRED SUPRA), THE CO - ORDINATE BENCH HAS TAKEN THE VIEW THAT THE PROVISIONS OF SEC. 14A SHOULD NOT BE APPLIED TO THE INCOME GENERATED FROM THE DEBENTURES IN VI EW OF THE PECULIARITIES ATTACHED TO THE SAID INVESTMENT. ACCORDINGLY, THE TRIBUNAL HAS REVERSED THE DECISION RENDERED BY THE LD CIT(A) IN THE CASE OF M/S ASCENT TRADE CO. PVT LTD IN AY 2003 - 04. WE I.T.A. NO. 6199 & 6296 /MUM/2 006 5 FURTHER NOTICE THAT THE INVESTMENT WAS MADE IN THE EARLIE R YEARS AND THE ASSESSEE HAS ALSO CLAIMED THAT THE EXPENSES CLAIMED BY IT WERE NORMAL ADMINISTRATIVE AND GENERAL EXPENSES WHICH ARE NOT RELATED TO THE ABOVE SAID INVESTMENT. THE SAID CONTENTION OF THE ASSESSEE HAS NOT BEEN CONTROVERTED BY THE AO. UNDER TH ESE SET OF FACTS, FOLLOWING THE SAID DECISION OF THE CO - ORDINATE BENCH OF TRIBUNAL, WE SET ASIDE THE ORDER OF LD CIT(A) AND DIRECT THE ASSESSING OFFICER TO DELETE THE DISALLOWANCE OF RS.2,11,949/ - REFERRED ABOVE. 11. IN THE APPEAL FILED BY THE REVENUE, TH E ISSUE CONTESTED RELATES TO THE EXCLUSION OF GAIN ARISING ON REDEMPTION OF MUTUAL FUND UNITS FOR THE PURPOSE OF COMPUTING BOOK PROFIT U/S 115JB OF THE ACT. THE ASSESSEE HAD DIRECTLY CREDITED THE GAIN OF RS.84,399/ - ARISING ON REDEMPTION OF MUTUAL FUNDS U NITS TO CAPITAL RESERVE ACCOUNT, I.E., IT DID NOT ROUTE THE SAME TO THE PROFIT AND LOSS ACCOUNT. HOWEVER, THE AO INCLUDED THE SAME IN THE COMPUTATION OF BOOK PROFIT, AS HE WAS OF THE VIEW THAT THE ASSESSEE SHOULD HAVE CREDITED THE GAINS REFERRED ABOVE T O THE PROFIT AND LOSS ACCOUNT. IN THE APPEAL FILED BY THE ASSESSEE, THE LD CIT(A) DECIDED THIS ISSUE IN FAVOUR OF THE ASSESSEE AND ACCORDINGLY DIRECTED THE AO TO EXCLUDE THE GAIN FROM COMPUTATION OF BOOK PROFIT. 12. WE NOTICE THAT AN IDENTICAL ISSUE CAME FOR THE CONSIDERATION IN THE ASSESSEES OWN CASE FOR AY 1999 - 2000 IN ITA NO.2192/MUM/2003. THE CO - ORDINATE BENCH, VIDE ITS ORDER DATED 29 - 03 - 2006, HAS UPHELD THE ORDER OF THE LD CIT(A) BY FOLLOWING THE DECISION OF THE TRIBUNAL RENDERED IN THE CASE O F ITO VS. RANJANA TRADERS PVT LTD (ITA NO.4749/M/03 DATED 12.2.2004), WHEREIN THE TRIBUNAL HAD DECIDED THE ISSUE IN FAVOUR OF THE ASSESSEE BY FOLLOWING THE DECISION RENDERED BY HONBLE SUPREME COURT IN THE CASE OF APOLLO TYRES LTD (255 ITR 273). IT IS A W ELL SETTLED PROPOSITION THAT THE ACCOUNTS PREPARED UNDER THE COMPANIES ACT AND APPROVED BY THE AUDITORS AND SHARE HOLDERS SHOULD NOT BE DISTURBED BY THE ASSESSING I.T.A. NO. 6199 & 6296 /MUM/2 006 6 OFFICER. IN THE INSTANT CASE, THE TRANSFER OF GAINS DIRECTLY TO CAPITAL RESERVE HAS BEEN APP ROVED BY THE AUDITORS AND SHARE HOLDERS. HENCE, WE ARE OF THE VIEW THAT THE ASSESSING OFFICER WAS NOT JUSTIFIED IN TINKERING WITH THE ACCOUNTS PREPARED UNDER THE COMPANIES ACT AND THAT HAVE BEEN APPROVED BY THE AUDITORS AND SHARE HOLDERS. ACCORDINGLY, WE DO NOT FIND ANY INFIRMITY IN THE ORDER OF LD CIT(A) ON THIS ISSUE. 13. IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE IS ALLOWED AND THE APPEAL OF THE REVENUE IS DISMISSED. THE ABOVE ORDER WAS PRONOUNCED IN THE OPEN COURT ON 23RD APR ,2015 . 23RD APR , 2015 SD SD ( / VIVEK VARMA) ( . . / B.R. BASKARAN ) / JUDICIAL MEMBER / ACCOUNTANT MEMBER MUMBAI: 23RD APR ,2015 . . . ./ SRL , SR. PS / COPY OF THE ORDER FORWARDED TO : 1. / THE APPEL LANT 2. / THE RESPONDENT. 3. ( ) / THE CIT(A) - CONCERNED 4. / CIT CONCERNED 5. , , / DR, ITAT, MUMBAI CONCERNED 6. / GUARD FILE. / BY ORDER, TRUE COPY (ASSTT. REGISTRAR) , /ITAT, MUMBAI