EVERSMILE CONSTRUCTION COMPANY PRIVATE LIMITED, MUMBAI V. DCIT CEN CIR 1(4), MUMBAI

ITA 6328/MUM/2017

• Counselvise Citation: [2019] 117 COUNSELVISE.COM (IT) 6735 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 6 month(s) 7 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 30-04-2019
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: SMC
• Assessment Year: 2014-2015
• Appeal Filed On: 23-10-2017
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: MRS NEELIMA NADKARNI
• Keywords: Earning of tax free income; Rule 8D
• Section: 14A

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL E , BENCH MUMBAI BEFORE SHRI M. BALAGANESH , AM & SHRI AMARJIT SINGH , JM ITA NO. 6327/MUM/2017 & 6328 /MUM/201 7 ( ASSESSMENT YEAR : 2013 - 14 & 2014 - 15 ) M/S. EVERSMILE CONSTRUCTION COMPANY PVT.LTD., DB HOUSE, YASHO DHAM GEN. A.K.VAIDYA MARG GOREGAON (E) MUMBAI 400 063 VS. THE DY. COMMISSIONER OF INCOME TAX CENTRAL CIRCLE 1(4), 9 TH FLOOR, OLD CGO BUILDING, ANNEXE, M.K.ROAD MUMBAI 400 020 PAN/GIR NO. AAACE0875E ( APPELLANT ) .. ( RESPONDENT ) ASSESSEE BY MS. AARTI VISSANJI REVENUE BY MRS. NEELIMA NADKARNI DATE OF HEARING 25 / 04 /201 9 DATE OF PRONOUNCEMENT 30/04 /201 9 / O R D E R PER M. BALAGANESH (A.M) : TH ESE APPEAL S IN ITA NO S . 6317/MUM/2017 & 6318/MUM/2017 FOR A.Y . 2013 - 14 & 2014 - 15 ARISE O UT OF THE ORDER BY THE LD. COMMISSIONER OF INCOME TAX (APPEALS) - 47, MUMBAI IN APPEAL NO. CIT(A) - 47/12831/16 - 17 DATED 25/08/2017 (LD. CIT(A) IN SHORT) AGAINST THE ORDER OF ASSESSMENT PASSED U/S.143(3) OF THE INCOME TAX ACT, 1961 (HEREINAFTER REFERRED TO AS AC T) DATED 26/12/2016 BY THE LD. DY. COMMISSIONER OF INCOME TAX, CENTRAL CIRCLE 1(4), MUMBAI (HEREINAFTER REFERRED TO AS LD. AO). ITA NOS.6328/MUM/2017 & 6328/MUM/2017 M/S. EVERSMILE CONSTRUCTION CO. PVT. LTD., 2 THE FACTS OF A.Y.2013 - 14 ARE TAKEN UP FOR ADJUDICATION AND THE DECISION RENDERED THEREO N WOULD APPLY WITH EQUAL FORCE FOR A. Y.2014 - 15 ALSO EXCEPT WITH VARIANCE IN FIGURES. 2. THE ONLY ISSUE INVOLVED IN THIS APPEAL IS WITH REGARD TO THE DISALLOWANCE U/S.14A OF THE ACT. 3. THE BRIEF FACTS OF THIS ISSUE ARE THAT THE ASSESSEE IS ENGAGED IN THE BUSINESS OF CONSTRUCTION AND REAL ESTA TE DEVELOPMENT. IT HAD DERIVED EXEMPT INCOME IN THE FORM OF DIVIDEND TO THE TUNE OF RS.95,34,190/ - . THE ASSESSEE MADE DISALLOWANCE OF RS.22,65,234/ - TOWARDS ADMINISTRATIVE EXPENSES BY D ISALLOWING 20% OF THE SAID TOTAL ADMINISTRATIVE EXPENSES IN THE RETURN OF INCOME AS UNDER: - ( I ) SALARY AND ALLOWANCE - RS.62,82,320/ - ( II ) GRATUITY - RS.9,913/ - ( III ) CONTRIBUTION TO PF AND ALLIED FUNDS - RS.1,49,719/ - ( IV ) STAFF WELFARE EXPENSES - RS.1,71,655/ - ( V ) REMUNERATION TO DIRECTOR - RS.41,57,107/ - ( VI ) POSTAGE, PRINTING & STATIONER Y CHARGES - RS.5,55,456/ - ============== TOTAL RS.1,13,26,170/ - ============== 20% THEREON RS.22,65,234/ - 3.1. THE ASSESSEE WHILE GIVING THIS AFORESAID BASIS OF DISALLOWANCE HAD CATEGORICALLY STATED THAT BORROWED FUNDS WERE UTILISED ON LY FOR ITS BUSINESS PURPOSE AND NOT FOR MAKING ANY INVESTMENT IN SHARES AND ACCORDINGLY, NO INTEREST WAS TO BE DISALLOWED U/S.14A OF THE ACT. THE LD. AO OBSERVED THAT THE ASSESSEE HAD NOT CONSIDERED EXPENDITURE OF MANAGERIAL AND ADMINISTRATIVE EXPENSES WHI CH HAS GOT PROXIMATE RELATIONSHIP WITH MAKING INVESTMENTS AND ACCORDINGLY, THE ACTUAL COST ATTRIBUTABLE TO EARN EXEMPT INCOME WITHIN THESE EXPENSES HAVE NOT BEEN WORKED OUT BY THE ASSESSEE ITA NOS.6328/MUM/2017 & 6328/MUM/2017 M/S. EVERSMILE CONSTRUCTION CO. PVT. LTD., 3 AND NO DATA FOR THE SAME HAD BEEN PROVIDED BY THE ASSESSEE. ACCORDI NGLY, HE RESORTED TO MAKE DISALLOWANCE BY ADOPTING COMPUTATION MECHANISM PROVIDED IN R ULE 8D(2) OF THE RULES AS UNDER: - UNDER RULE 8D(2)(III) - RS.74,13,564/ - LESS: AMOUNT DISALLOWED BY THE ASSESSEE - RS.22,65,234/ - ========== BALANCE AMOUNT T O BE DISALLOWED - RS.51,48,330/ - ========== 3.2. THE LD. CIT(A) OBSERVED THAT ONCE, THE L D . AO HAS RECORDED HIS DISSATISFACTION ABOUT THE WORKING OF THE DISALLOWANCE MADE BY THE ASSESSEE COMPANY AND RULE 8D IS HELD TO BE APPLICABLE . T HERE IS NO DIS CRETION LEFT WITH THE LD. AO , A CCORDINGLY, HE UPHELD THE ACTION OF THE LD. AO IN MAKING DISALLOWANCE U/S.14A OF THE ACT R.W.R.8D(2)(III) OF THE RULES. 4. AGGRIEVED, THE ASSESSEE IS IN APPEAL BEFORE US ON THE FOLLOWING GROUNDS: - ON THE FACTS AND CIRCUMSTA NCES OF THE CASE AND IN LAW: 1. THE HON' TRIBUNAL BE PLEASE D TO HOLD THAT NO DISALLOWANCE I S TO BE MADE U/S. 14A OF THE ACT, ON THE STRATEGIC INVESTMENTS HELD IN SHARES OF COMPANIES. WITHOUT PREJUDICE TO THE ABOVE AND IN THE ALTERNATE 1.2 TH E LD. CIT(A) OUGHT TO HAVE RESTRICTED THE INADMISSIBLE EXPENDITURE U/S. 14A AT RS. 22,65,2347 - , BEING THE AMOUNT DISALLOWED BY THE APPELLANT ITSELF AND CONSEQUENTLY, OUGHT TO HAVE DIRECTED THE LD. AO TO DELETE THE ADDITIONAL DISALLOWANCE OF RS. 51,48,330 / - MADE U/S. 14A BY INVOKING RULE 8D(2)(III). WITHOUT PREJUDICE TO THE ABOVE AND IN THE ALTERNATE 1.3 IF AT ALL INADMISSIBLE EXPENDITURE HAD TO BE QUANTIFIED U/S. 14A BY INVOKING RULE 8D(2)(III), THEN, THE LD. CIT(A) OUGHT TO HAVE DIRECTED THE LD. AO TO CONSIDER ONLY THOSE INVESTMENTS ON WHICH EXEMPT INCOME HAS BEEN RECEIVED DURING THE YEAR AND CONSEQUENTLY, OUGHT TO HAVE DIRECTED THE LD. AO TO RESTRICT THE ADDITIONAL DISALLOWANCE U/S. 14AATRS. 19,81,636 / - . 2. THE APPELLANT CRAVES LEAVE TO AMEN D OR ALTER ANY GROUND OR ADD A NEW GROUND WHICH MAY BE NECESSARY. ITA NOS.6328/MUM/2017 & 6328/MUM/2017 M/S. EVERSMILE CONSTRUCTION CO. PVT. LTD., 4 5. WE HAVE HEARD RIVAL SUBMISSIONS. WE FIND THE ADJUDICATION OF GROUND NO.1.3 BEING AN ALTERNATIVE GROUND RAISED BY THE ASSESSEE I F ADJUDICATED WOULD PUT THE ENTIRE DISPUTE BEFORE US TO RES T IN AS MUCH AS IF THE DIVIDEND BEARING INVESTMENTS ALONE ARE CONSIDERED FOR THE PURPOSE OF MAKING DISALLOWANCE UNDER RULE 8D(2)(III) OF THE RULES, THE DISALLOWANCE WORKED OUT TO RS.19,81,636/ - . THIS PROPOSITION THAT ONLY INVESTMENT YIELDING EXEMPT INCOME A RE TO BE CONSIDERED FOR THE PURPOSE OF DISALLOWANCE UNDER RULE 8D(2) OF THE RULES HAD BEEN HELD IN FAV OUR OF THE ASSESSEE BY THE SPECIAL BENCH DECISION OF DELHI TRIBUNAL IN THE CASE OF ACIT VS. VIREET INVESTMENTS PVT. LTD., REPORTED IN 165 TTD 27. APPLYI NG THE SAID DECISION, THE DISALLOWANCE TO BE MADE WORKS OUT TO RS.19,81,636/ - BUT WHEREAS THE ASSESSEE ITSELF HAD DISALLOWED RS.22,65,234/ - IN THE ASSESSMENT. BUT WE FIND THAT ASSESSING OFFICER HAS ALREADY DISREGARDED THE WORKING OF THE DISALLOWANCE MADE B Y THE ASSESSEE COMPANY. HENCE, WE DIRECT THE LD. AO TO MAKE DISALLOWANCE U/S.14A OF THE ACT R.W.R.8D(2) OF THE RULES ONLY TO THE EXTENT OF RS.19,81,636/ - FOR A.Y.2013 - 14 AND RS.17,96,024/ - FOR A.Y.2014 - 15 IN THE LIGHT OF AFORESAID SPECIAL BENCH DECISION. I N VIEW OF THIS FINDING, THE OTHER GROUNDS RAISED BY THE ASSESSEE DO NOT REQUIRE ANY ADJUDICATION. ITA NOS.6328/MUM/2017 & 6328/MUM/2017 M/S. EVERSMILE CONSTRUCTION CO. PVT. LTD., 5 6. IN THE RESULT, APPEALS FILED BY THE ASSESSEE ARE ALLOWED FOR BOTH THE YEARS. ORDER PRONOUNCED IN THE OPEN COURT ON THIS 30/04 /201 9 SD/ - ( AM ARJIT SINGH ) SD/ - ( M.BALAGANESH ) JUDICIAL MEMBER ACCOUNTANT MEMBER MUMBAI; DATED 30/04 /201 9 KARUNA SR. PS COPY OF THE ORDER FORWARDED TO : BY ORDER, ( ASSTT. REGISTRAR) ITAT, MUMBAI 1. THE APPELLANT 2. THE RESPONDENT. 3. THE CIT(A), MUMBAI. 4. CIT 5. DR, ITAT, MUMBAI 6. GUARD FILE. //TRUE COPY//