DEPUTY COMMISSIONER OF INCOME TAX-3(3)(1), MUMBAI V. RELIANCE CAPITAL LTD, MUMBAI

ITA 6396/MUM/2017

• Counselvise Citation: [2019] 118 COUNSELVISE.COM (IT) 5773 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 2 month(s) 29 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 30-01-2019
• Appeal Filed By: Department
• Order Result: Partly Allowed
• Bench Allotted: D
• Assessment Year: 2013-2014
• Appeal Filed On: 31-10-2017
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Assessee Lawyers: VIDISHA KALRA
• Keywords: Rule of consistency; Earning of tax free income
• Section: 14A; 115JB

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL D , BENCH MUMBAI BEFORE SHRI M. BALAGANESH , AM & SHRI AMARJIT SINGH , JM ITA NO. 6396 / MUM/20 1 7 & 6397/MUM/2017 ( ASSESSMENT YEAR : 2013 - 14 & 2014 - 15 ) DY. COMMISSIONER OF INCOME TAX 3(3)(1) ROOM NO.609, 6 TH FLOO R, AAYAKAR BHAVAN, M.K. ROAD MUMBAI - 400 020 VS. M/S. RELIANCE CAPITAL LTD., 6 TH FLOOR, NORTH WING RELIANCE CENTRE, OFF. WESTERN EXPRESS HIGHWAY, SANTACRUZ (E), MUMBAI 400 055 PAN/GIR NO. AAACR5054J ( APPELLANT ) .. ( RESPONDENT ) REVENUE BY SHRI JITENDR A SANGHVI ASSESSEE BY MS. VIDISHA KALRA DATE OF HEARING 23 / 01 /201 9 DATE OF PRONOUNCEMENT 30 / 01 /201 9 / O R D E R PER M. BALAGANESH (A.M) : THESE APPEALS ARE FILED BY REVENUE DIRECTED AGAINST THE ORDER OF CIT(A) - 8, MUMBAI DATED 26 TH JULY 2017 FOR A.Y.2013 - 14 IN THE MATTER OF ORDER PASSED U/S.143(3) OF THE INCOME - TAX ACT, 1961. SINCE IDENTICAL ISSUES ARE INVOLVED IN THESE APPEALS, THEY WERE HEARD TOGETHER AND ARE BEING DISPOSED OFF BY THIS CO MMON ORDER FOR THE SAKE OF CONVENIENCE. 2. THE ONLY EFFECTIVE ISSUE TO BE DECIDED IN THIS APPEAL IS AS TO WHETHER LD. CIT(A) WAS JUSTIFIED IN DIRECTING THE LD. AO TO CONSIDER ONLY ITA NO. 6396/MUM/2017 & 6397/MUM/2017 M/S. RELIANCE CAPITAL LTD., 2 THOSE INVESTMENTS THAT HAD YIELDED DIVIDEND INCOME WHILE COMPUTING THE DISALLOWANCE U/S.14A OF THE ACT R.W.R. 8D(2 )(III) OF THE IT RULES IN THE FACTS AND CIRCUMSTANCES OF THE CASE. THE INTERCONNECTED ISSUE THEREOF IS AS TO WHETHER THE DISALLOWANCE U/S.14A OF THE ACT COULD BE MADE IN RESPECT OF STRATEGIC INVESTMENT S MADE BY THE ASSESSEE. THE INTERCONNECTED ISSUE FURTHE R INVOLVED HEREIN IS AS TO WHETHER THE DISALLOWANCE U/S.14A OF THE ACT READ WITH RULE 8D(2) OF THE RULES COULD BE MADE WHILE COMPUTING THE BOOK PROFITS U/S.115JB OF THE ACT. 3. FACTS OF A.Y.2013 - 14 ARE TAKEN UP FOR ADJUDICATION AND THE DECISION RENDERED TH EREO N WOULD APPLY WITH EQUAL FORCE FOR A.Y.2014 - 15 ALSO EXCEPT WITH VARIANCE IN FIGURES. 4. THE BRIEF FACTS OF THIS ISSUE ARE THAT ASSESSEE IS A PUBLIC LIMITED COMPANY ENGAGED IN THE BUSINESS OF LEASING, LENDING, INVESTMENT IN SHARES AND SECURITIES. THE AS SESSEE IN THE RETURN OF INCOME DECLARED A SUM OF RS.132,43,53,846/ - AS DIVIDEND AND CLAIMED THE SAME AS EXEMPT. THE ASSESSEE SUOMOTO MADE DISALLOWANCE U/S.14A OF THE ACT TO THE TUNE OF RS.5,87,66,710/ - BEING ATTRIBUTABLE ADMINISTRATIVE EXPENSES. THE LD. AO CONSIDERED THE WORKINGS OF THE ASSESSEE IN THIS REGARD AND OBSERVED THAT THE SAME IS INCORRECT AND ACCORDINGLY PROCEEDED TO MAKE DISALLOWANCE U/S.14A OF THE ACT R.W.R 8D(2)(III) OF THE RULES IN THE SUM OF RS.45,48,59,679/ - AFTER REDUCING THE SUOMOTO DISAL LOWANCE MADE BY THE ITA NO. 6396/MUM/2017 & 6397/MUM/2017 M/S. RELIANCE CAPITAL LTD., 3 ASSESSEE IN THE SUM OF RS.5,87,66,710/ - , WHILE COMPUTING THE INCOME UNDER NORMAL PROVISIONS OF THE ACT. 5. THE LD. AO PROCEEDED TO MAKE DISALLOWANCE U/S.14A OF THE ACT FOR THE PURPOSE OF COMPUTATION OF BOOK PROFITS U/S.115JB OF THE ACT. THE LD. AO OBSERVED THAT ASSESSEE HAD EARNED EXEMPT INCOME IN THE FORM OF DIVIDEND AS WELL AS LONG TERM CAPITAL GAINS. OUT OF THIS, THE LONG TERM CAPITAL GAINS ARE NOT EXEMPT IN THE COMPUTATION OF BOOK PROFITS U/S.115JB OF THE ACT. ACCORDINGLY, THE ASSESS EE COMPANY SUBMITTED THAT THE EXPENSES DISALLOWABLE U/S.14A AS WORKED OUT BY IT CANNOT BE THE BASIS FOR DISALLOWANCE U/S.14A WHILE COMPUTING BOOK PROFITS U/S.115JB OF THE ACT. 6. THE ASSESSEE MADE SUO MOTO DISALLOWANCE OF RS 35,00,000/ - ON AN ESTIMATED BA SIS FOR THE PURPOSE OF COMPUTATION OF BOOK PROFITS U/S 115JB OF THE ACT. THE LD. AO PROCEEDED TO WORK OUT THE DISALLOWANCE U/S.14A OF THE ACT WHILE COMPUTING THE BOOK PROFITS U/S 115JB OF THE ACT IN THE FOLLOWING MANNER: - EXPENSES AS WORKED OUT U/S.14A 0. 5% OF INVESTMENT RS. 51,36,26,389 I. INCOME EXEMPT IN COMPUTATION OF BOOK PROFIT RS. 32,43,53,846 II. INCOME EXEMPT IN NORMAL COMPUTATION OF INCOME RS. 199,64,44,659 III. ADDITION UNDER CLAUSE (F) OF EXPLANA TION TO SECTION 115JB RS. 51,36,26,389 X RS. 132,43,53,846 RS.199,64,44,659 RS.34,07,17,225 ITA NO. 6396/MUM/2017 & 6397/MUM/2017 M/S. RELIANCE CAPITAL LTD., 4 7. ACCORDINGLY, THE LD. AO MADE DISALLOWANCE OF RS.33,72,17,245/ - U/S.14A WHILE COMPUTING THE BOOK PROFITS U/S.115JB OF THE ACT. 8. THE AS SESSEE ADDED BACK A SUM OF RS.35 LAKHS ON AN ADHOC BASIS TOWARDS DISALLOWANCE U/S 14A OF THE ACT, WHILE COMPUTING THE BOOK PROFITS U/S.115JB OF THE ACT IN THE RETURN OF INCOME AND PRAYED FOR EXCLUSION OF THE SAME BEFORE THE LD. CIT(A) . THE LD. CIT(A) HELD THAT DISALLOWANCE UNDER RULE 8D(2)(III) OF THE ACT SHOULD BE MADE IN THE FACTS OF THE INSTANT CASE, BUT HOWEVER, HELD THAT THE SAME HAS TO BE WORKED OUT BY TAKING ONLY THOSE INVESTMENTS WHICH HAD YIELDED EXEMPT INCOME TO THE ASSESSEE BY PLACING RELIANCE ON THE DECISION OF HIS PREDECESSOR FOR A.YRS. 2011 - 12 AND 2012 - 13 WHILE COMPUTING INCOME UNDER NORMAL PROVISIONS OF THE ACT. 9. WITH REGARD TO DISALLOWANCE MADE U/S.14A OF THE ACT WHILE COMPUTING BOOK PROFITS U/S.115JB OF THE ACT, THE LD. CIT(A) WENT BY THE DECISION TAKEN BY HIM IN EARLIER YEARS I.E. A.YRS. 2008 - 09, 2009 - 10 AND 2010 - 11 WHEREIN A SUM OF RS.35 LAKHS, RS.37.50 LACS AND RS.35 LACS WAS CONSIDERED RESPECTFULLY WHILE COMPUTING BOOK PROFITS U/S.115JB OF THE ACT. THE LD. CIT(A) ALSO OBSERVED THAT FOR A.Y.2012 - 13, A SUM OF RS.40 LAKHS WHICH WAS WORKED OUT BY THE ASSESSEE ON ESTIMATE BASIS WAS TO BE UPHELD TOWARDS DISALLOWANCE U/S.14A WHILE COMPUTING THE BOOK PROFITS. ACCORDINGLY, FOLLOWING THE PRINCIPLE OF CONSISTENCY HE HELD THAT ONLY A SUM OF RS.35 L AKHS IS TO BE DISALLOWED U/S.14A WHILE COMPUTING BOOK PROFIT S U/S.115JB OF THE ACT. AGGRIEVED, REVENUE IS IN APPEAL BEFORE US. ITA NO. 6396/MUM/2017 & 6397/MUM/2017 M/S. RELIANCE CAPITAL LTD., 5 10. WE HAVE HEARD RIVAL SUBMISSIONS. WE FIND THAT WITH REGARD TO DISALLOWANCE U/S.14A OF THE ACT R.W.R. 8D(2)(III) OF THE RULES UNDER NORMAL PROVISIONS OF THE ACT, WE FIND THAT THE SPECIAL BENCH OF THE DELHI TRIBUNAL IN THE CASE OF ACIT VS. VIREET INVESTMENT PVT. LTD., REPORTED IN 165 ITD 27 HAD HELD THAT ONLY THOSE INVESTMENTS THAT HAD YIELDED EXEMPT INCOME ARE TO BE CONSIDERED WH ILE WORKING OUT THE DISALLOWANCE UNDER RULE 8D OF RULES. RESPECTFULLY FOLLOWING THE SAID SPECIAL BENCH DECISION, WE DO NOT FIND ANY INFIRMITY IN THE ORDER OF THE LD. CIT(A) WITH REGARD TO DISALLOWANCE U/S.14A UNDER NORMAL PROVISIONS OF THE ACT. ACCORDINGLY GROUND NO. ( I ) RAISED BY THE REVENUE IS DISMISSED. 11. WITH REGARD TO COMPUTATION OF BOOK PROFIT S U/S.115JB OF THE ACT, THE SPECIAL BENCH OF DELHI TRIBUNAL IN THE CASE REFERRED TO SUPRA HAD HELD THAT DISALLOWANCE U/S.14A OF THE ACT HAD TO BE MADE WITH REF ERENCE TO THE EXPENSES DEBITED BY THE ASSESSEE IN ITS PROFIT AND LOSS ACCOUNT ON ACTUAL BASIS AND NOT WITH REGARD TO APPLYING THE COMPUTATION MECHANISM PROVIDED UNDER RULE 8D(2) OF THE RULES. WE HOLD THAT DISALLOWANCE IN TERMS OF CLAUSE (F) OF EXPLANATION - 1 TO SECTION 115JB OF THE ACT HAS TO BE WORKED OUT INDEPENDENTLY AFTER CONSIDERING THE EXPENSES DEBITED IN THE PROFIT AND LOSS ACCOUNT AS MANDATED UNDER THE PROVISIONS OF LAW. WE FIND THAT LD. AR PLACED RELIANCE ON THE DECISION OF CO - ORDINATE BENCH OF THE T RIBUNAL IN ITS OWN CASE FOR A.Y.2011 - 12 IN ITA NO.2341/MUM/2016 DATED ITA NO. 6396/MUM/2017 & 6397/MUM/2017 M/S. RELIANCE CAPITAL LTD., 6 03/01/2018 WHEREIN WITH REGARD TO IMPUGNED ISSUE, IT HAS BEEN HELD AS UNDER: - 3.THIRD GROUND OF APPEAL IS ABOUT DIRECTION BY THE FAA TO THE AO TO ADOPT THE DISALLOWANCE OF EXPENDITURE R ELATABLE TO EXEMPT INCOME AT RS.35 LAKHS FOR WORKING OUT BOOK PROFIT U/S. 115 JB INSTEAD OF RS.22.09 CRORES. WE FIND THAT IN THE CASE OF VIREET INVESTMENT (P) LTD.(SUPRA),IDENTICAL ISSUE HAS BEEN DECIDED AGAINST THE REVENUE AND IN FAVOUR OF THE ASSESSEE IN ASSESSEES OWN CASE FOR AY.2010 - 11(ITA 5537/AND 5764/MUM/2013 DATED 31/08/2017). CONSIDERING THE ABOVE, WE DECIDE LAST GROUND OF APPEAL AGAINST THE AO. 12. WE FIND FROM THE AFORESAID FINDING THAT THIS TRIBUNAL HAD PLACED RELIANCE ON THE DECISION OF SP ECIAL BENCH OF THE DELHI TRIBUNAL IN THE CASE OF VIREET INVESTMENTS SUPRA, BY STATING THAT THIS ISSUE WAS DECIDED AGAINST THE REVENUE AND IN FAVOUR OF THE ASSESSEE. BUT WE FIND THAT THE SPECIAL BENCH HAD INDEED HELD THAT THE DISALLOWANCE U/S.14A OF THE ACT IS TO BE MADE IN TERMS OF CLAUSE (F) OF EXPLANATION - 1 OF SECTION 115JB OF THE ACT. HENCE, WE DIRECT THE LD. AO TO LOOK INTO THE EXPENSES DEBITED IN THE PROFIT AND LOSS ACCOUNT AND IDENTIF Y EACH AND E VERY EXPENDITURE AND ASCERTAIN THE QUANTUM OF EXPENDITURE INCURRED FOR THE PURPOSE OF EARNING EXEMPT INCOME AND MAKE DISALLOWANCE UNDER CLAUSE (F) OF EXPLANATION 1 TO SECTION 115JB OF THE ACT. ACCORDINGLY, GROUND NO. ( III ) RAISED BY THE REVENUE IS ALLOWED FOR STATISTICAL PURPOSES SUBJECT TO DIRECTIONS CONTAINED H EREINABOVE. 13. THE GROUND NO. ( II ) RAISED BY THE REVENUE WITH REGARD TO ACTION OF THE LD. CIT(A) IN DELETING DISALLOWANCE U/S.14A OF THE ACT IN RESPECT OF ITA NO. 6396/MUM/2017 & 6397/MUM/2017 M/S. RELIANCE CAPITAL LTD., 7 INVESTMENT IN SHARES WHICH WERE MADE TO OBTAIN CONTROLLING INTEREST IN COMPANIES. WE FIND THAT THIS I SSUE HAD BEEN SETTLED IN FAVOUR OF THE REVENUE BY THE DECISION OF HONBLE SUPREME COURT IN THE CASE OF MAXOOP INVESTMENTS LTD., VS. CIT REPORTED IN 402 ITR 640, ACCORDINGLY GROUND NO. ( II ) RAISED BY THE REVENUE IS ALLOWED. 14. IN THE RESULT, APPEALS OF THE REVENUE ARE PARTLY ALLOWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED IN THE OPEN COURT ON THIS 30 / 01 /201 9 SD/ - ( AMARJIT SINGH ) SD/ - ( M. BALAGANESH ) JUDICIAL MEMBER ACCOUNTANT M EMBER MUMBAI ; DATED 30 / 01 /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//