MAZDA IMAGING P.LTD, MUMBAI V. ASST CIT CIR 6(3), MUMBAI

ITA 6362/MUM/2013

• Counselvise Citation: [2016] 132 COUNSELVISE.COM (IT) 3866 (ITAT-MUMBAI)
• Duration Of Justice: 2 year(s) 5 month(s) 27 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 27-04-2016
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: B
• Assessment Year: 2009-2010
• Appeal Filed On: 30-10-2013
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: PRAKASH L PATHADE
• Keywords: Earning of tax free income
• Section: 14A

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL B BENCH, MUMBAI BEFORE SHRI R. C. SHARMA , A M AND SHRI PAWAN SINGH, JM ./ I.T.A. NO. 6362/MUM/201 3 ( / ASSESSMENT YEAR: 2009 - 10 ) MAZDA IMAGING PVT. LTD. 10, V K INDUSTRIAL ESTATE, K. KHADYE MARG, JACOB CIRCLE, MUMBAI 400 011 / VS. ASST. CIT, CIRCLE 6(3), AAYAKAR BHAVAN, MUMBAI ./ ./ PAN/GIR NO. AAACM 7245 E ( / APPELLANT ) : ( / RESPONDENT ) / APPELLANT BY : SHRI NITESH JOSHI / RESPONDENT BY : SHRI PRAKASH L. PATHADE / DATE OF HEARING : 07. 0 4.2016 / DATE OF PRONOUNCEMENT : 27 .04.2016 / O R D E R PER PAWAN SING H , JM : TH E PRESENT APPEAL IS FILED BY THE ASSESSEE AGAINST THE ORDER OF CIT(A) - 12, MUMBAI DATED 08.8.2013 FOR THE A.Y. 2009 - 10 . THE ASSESSEE HAS ONLY ISSUE IN RESPECT OF DISALLOWANCE MADE U/S. 14A R/W RULE 8D OF INCOME TAX RULES, 196 2 . 2. THE BRIEF FACT S OF THE CASE ARE THAT THE ASSESSEE FILED RETURN OF INCOME DECLARING THE TOTAL INCOME OF RS .1,73,17,400/ - . T HE RETURN OF INCOME WAS SELECTED FOR SCRUTINY. DURING THE COURSE OF ASSESSMENT PROCEEDINGS THE A.O. OBSERVED THAT THE ASSESSEE 2 ITA NO. 6362/MUM/2013 (A.Y.2009 - 10) MAZDA IMAGING PVT. LTD. VS. ASST. CIT CLAIMED EXEMPT INCOME OF RS.6,34,252/ - . THE ASSESSEE WAS ASKED TO EXPLAIN THE DETAIL OF EXPENDITURE INCURRED FOR EARNING EXEMPT INCOME AND ALSO SHOW CAUSE AS TO WHY THE DISALLOWANCE U/S. 14A R/W RULE 8D BE NOT MADE ON ITS CASE. THE ASSESSEE REPLIED THAT NO EXPENSES WERE INCURR ED FOR THE PURPOSE OF EARNING EXEMPT INCOME AND, HENCE, NO DISALLOWANCE U/S. 14A IS CALLED FOR. THE REPLY SUBMITTED BY THE ASSESSEE WAS NOT ACCEPTED BY THE A.O. AND , THUS , THE A.O. CALCULATED THE DISALLOWANCE U/S. 14A R/W RULE 8D AT RS.7 , 14 , 533/ - ATTRIBUTA BLE TO THE DIVIDEND INCOME IN THE ASSESSMENT ORDER. 3. AGGRIEVED BY THE ASSESSMENT ORDER , THE ASSESSEE FILED THE APPEAL BEFORE THE CIT(A). THE LD. CIT(A) AFTER CONSIDERING THE SUBMISSIONS OF THE ASSES SEE DIRECTED THE A.O. TO REWORK OUT THE AVERAGE VALUE OF THE TOTAL ASSETS FOR THE PURPOSE OF COMPUTATION OF INTEREST COMPONENT IN ACCORDANCE WITH CLAUSE ( 2 ) OF RULE 8D, I N THE IMPUGNED ORDER AGAINST WHICH THE PRESENT APPEAL IS FILED BY THE ASS ESSEE BEFORE US. 4. WE HAVE HEARD THE LD. AR FOR THE ASSESSEE AND THE LD. DR FOR THE REVENUE AND PERUSED THE MATERIAL ON RECORD. THE LD. AR OF THE ASSESSEE ARGUED THAT THE ASSESSEE HAS NOT MADE ANY VOLUNTARY DISALLOWANCE IN THE RETURN OF INCOME AS NO EXPENSES WAS INCURRED FOR EARNING THE EXEMPT INCOME. THE ASSESSEE WAS HAVING SUFFICIENT FUND FOR MAKING INVESTMENT FOR EARNING THE EXEMPT INCOME. THE ASSESSEE FUR THER ARGUED THAT AS ON 31.3.2008 THE ASSESSEE HAD MADE INVESTMENT OF RS.2.85 CRORE THE ASSESSEE HAS OWNED FUND OF RS.5.90 CRORES , AND AS ON 31.3.2009 THE ASSES SEE HAD FUNDS OF RS .7.09 CRORES AGAINST WHICH INVESTMENT WAS OF RS. 2.59 C RORE . THUS THE ASSESSEE WAS HAVING SUFFICIENT OWN FUND S FOR MAKING THE INVESTMENT FOR EARNING THE EXEMPT INCOME. ACCORDINGLY NO DISALLOWANCE ON ACCOUNT OF INTEREST IS WARRANT. 6. WE HAVE CONSIDERED THE RIVAL CONTENTIONS AND PERUSED THE MATERIAL ON RECORD. WE FOUND THAT THE ASSESSEE WAS HAVING SUFFICIENT FUND IN HIS ACCOUNT. THE ASSESSEE HAD NOT BORROWED ANY MONEY FOR MAKING INVESTMENT FOR EARNING THE EXEMPT INCOME. 3 ITA NO. 6362/MUM/2013 (A.Y.2009 - 10) MAZDA IMAGING PVT. LTD. VS. ASST. CIT THERE IS A PRESUMPT ION THAT THE INVESTMENT WHICH HAS BEEN MADE IN THE TAX FREE SECURITIES HAS CAME OUT OF INTEREST FREE FUNDS WHICH WERE AVAILABLE WITH THE PETITIONER IN HDFC BANK LTD. VS. D Y. CIT (IN WRIT PETITION NO. 1753 OF 2016 DATED 25.2.2016), THE HONBLE JURISDICTI ONAL HIGH COURT WHILE DEALING WITH THE RATIO OF SECTION 14A R/W RULE 8D OF THE ACT H AS HELD AS UNDER: T HE ISSUE BEFORE THE TRIBUNAL AS RAISED BY THE PETITIONER WAS THAT SECTION 14 A OF THE ACT WOULD HAVE NO APPLICATION TO DISALLOW INTEREST EXPENDITURE ON FUND BORROWED IN RESPECT OF TAX FREE RETURN ON THE SECURITIES, FOR THE FOLLOWING TWO REGIONS: (A) THE PETITION WAS POSSESSED OF SUFFICIENT INTEREST FREE FUNDS OF RS. 2153 CRORES AS AGAINST THE INVESTMENT IN TAX FREE SECURITIES OF RS. 5.02 CRORES. CONSEQUENT LY, THERE IS A PRESUMPTION THAT THE INVESTMENT WHICH HAS BEEN MADE IN THE TAX FREE SECURITIES HAS CAME OUT OF INTEREST FREE FUNDS AVAILABLE WITH THE PETITIONER. THIS IS SO AS IT HAS BEEN HELD BY THIS COURT IN THE PETITIONERS OWN CASE FOR AN EARLIER ASSESS MENT YEAR IN HDFC BANK LTD(SUPRA). THE DECISION ON THE ABOVE ISSUE HAS BEEN ACCEPTED BY THE REVENUE. THIS IS EVIDENCE BY THE FACT ALTHOUGH AN APPEAL HAS BEEN FILED TO THE SUPREME COURT, WITH REGARD TO ANOTHER ISSUE ARISING FROM THE ORDER OF HDFC BANK LTD S UPRA, NAMELY BROKEN PERIOD INTEREST, NO APPEAL ON THIS ISSUE AS PLACED BEFORE THE TRIBUNAL HAS BEEN CHALLENGED BEFORE THE SUPREME COURT AND (B) IN ANY EVENT THE TAX FREE INVESTMENT IN SECURITIES WAS THE PETITIONERS STOCK IN TRADE. CONSEQUENTLY, THEY WOULD BE NO OCCASION TO INVOKE SECTION 14 A OF THE ACT AS HELD BY THIS COURT IN INDIA ADVANTAGE LTD ( SUPRA ) , WHEREIN THE REVENUES APPEAL FROM THE ORDER OF PROGRAMS WAS DISMISSED, TO CONTEND THAT IN RESPECT OF EXEMPTED INCOME ARISING FROM STOCK IN TRADE. 4 ITA NO. 6362/MUM/2013 (A.Y.2009 - 10) MAZDA IMAGING PVT. LTD. VS. ASST. CIT 7. NOW C OMING TO THE CASE UNDER CONSIDERATION , WE MAY CONCLUDE THAT THE ASSESSEE HAD NOT BORROWED ANY MONEY FOR MAKING INVESTMENT FOR EARNING THE EXEMPT INCOME. MOREOVER THERE IS A PRESUMPTION IN FAVOUR OF ASSESSEE THAT THE INVESTMENT WHICH HAS BEEN MADE IN THE EA RNING THE EXEMPT INCOME, HAS CAME OUT OF INTEREST FREE FUNDS AVAILABLE WITH THE PETITIONER . HENCE KEEPING IN VIEW THE PECULIARITY OF THE FACT FOR THE YEAR UNDER CONSIDERATION NO DISALLOWANCE ON ACCOUNT OF INTEREST IS WARRANT. NOW COMING TO DISALLOWANCE UND ER RULE 8 D 2(III) FOR RELEVANT YEAR UNDER CONSIDERATION I.E. AY 2009 - 10, WE DIRECT THE AO TO RESTRICT THE SAME TO .5% OF AVERAGE VALUE OF INVESTMENT. WE DIRECT ACCORDINGLY. 8. IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE IS ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON APRIL 27 , 201 6 SD/ - SD/ - ( R. C. SHARMA ) ( PAWAN SINGH ) / ACCOUNTANT MEMBER / JUDICIAL MEMBER MUMBAI ; DATE D : 27 . 0 4 .201 6 . . ./ ROSHANI , SR. PS 5 ITA NO. 6362/MUM/2013 (A.Y.2009 - 10) MAZDA IMAGING PVT. LTD. VS. ASST. CIT / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT 2. / THE RESPONDENT 3. ( ) / T HE CIT(A) 4. / CIT - CONCERNED 5. , , / DR, ITAT, MUMBAI 6. / GUARD F ILE / BY ORDER, / (DY./ASSTT. REGISTRAR) , / ITAT, MUMBAI