DCIT - 3(3)(1), MUMBAI V. RELIANCE NIPPON LIFE ASSET MANAGEMENT LTD. (FORMERLY KNOWN AS RELIANCE CAPITAL ASSET MANAGEMENT LTD.), MUMBAI

ITA 6444/MUM/2017

• Counselvise Citation: [2019] 118 COUNSELVISE.COM (IT) 3642 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 3 month(s) 23 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 26-02-2019
• Appeal Filed By: Department
• Order Result: Partly Allowed
• Bench Allotted: D
• Assessment Year: 2014-2015
• Appeal Filed On: 02-11-2017
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: MANOJ KUMAR SINGH LD
• Assessee Lawyers: JITENDRA SANGHAVI LD
• Keywords: Capital asset; Earning of tax free income
• Section: 143(3); 14A; 115JB

Judgement Text

ITA NO. 6444/MUM/2017 RELIANCE NIPPON LIFE ASSET MANAGEMENT LTD. ASSESSMENT YEAR: 2014-15 1 IN THE INCOME TAX APPELLATE TRIBUNAL B BENCH, MUMBAI , '# , % BEFORE SHRI MANOJ KUMAR AGGARWAL, AM AND SHRI RAVISH SOOD, JM ./ I.T.A. NO.6444/MUM/2017 ( & & & & '& '& '& '& / ASSESSMENT YEAR: 2014-15) DEPUTY COMMISSIONER OF INCOME TAX 3(3)(1) 6 TH FLOOR, ROOM NO. 609 AAYKAR BHAWAN M.K.ROAD, MUMBAI 400 020 / VS. RELIANCE NIPPON LIFE ASSET MANAGEMENT LTD. [FORMERLY KNOWN AS RELIANCE CAPITAL ASSET MANAGEMENT LTD] 7 TH FLOOR, RELIANCE CENTRE SOUTH WING OFF. WESTERN EXPRESS HIGHWAY SANTACRUZ (EAST), MUMBAI 55 ( ( ( ( ./ ./PAN/GIR NO. AAACR-2668-G ( (* /APPELLANT ) : ( +,(* / RESPONDENT ) ASSES SEE BY : SH. JITENDRA SANGHAVI, LD. AR REV ENUE BY : SH. MANOJ KUMAR SINGH, LD. DR - ./ / DATE OF HEARING : 14/02/2019 ' - ./ / DATE OF PRONOUNCEMENT : 26/02/2019 / O R D E R PER MANOJ KUMAR AGGARWAL (ACCOUNTANT MEMBER) 1. AFORESAID APPEAL BY REVENUE FOR ASSESSMENT YEAR [AY] 2014-15 CONTEST THE ORDER OF LD. COMMISSIONER OF INCOME-TAX (APPEALS)-8, ITA NO. 6444/MUM/2017 RELIANCE NIPPON LIFE ASSET MANAGEMENT LTD. ASSESSMENT YEAR: 2014-15 2 MUMBAI, [CIT(A)], APPEAL NO. CIT(A)-8/IT-390/16-17 DATED 26/07/2017 ON FOLLOWING EFFECTIVE GROUNDS OF APPEAL: - I. WHETHER ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. COMMISSIONER OF INCOME TAX(APPEALS) IS JUSTIFIED IN NOT CONSIDERING THE FACT THAT THE AMOUNT OF DISALLOWANCE U/S 14AR.W. RULE 8D (2)(III) TO THE AMOUNT OF RS.38,86,138/- OVER AND ABOVE THE SUO-MOTO DISALLOW ANCE OF RS.82,71,741/- MADE BY THE ASSESSEE WAS ON THE BASIS OF CBDT CIRCU LAR NO.5 OF 204 DATED 11.02.2014 AND PROVISIONS OF RULE 8D? II. WHETHER ON THE FACTS AND IN THE CIRCUMSTANCES O F THE CASE AND IN LAW THE LD. COMMISSIONER OF INCOME TAX(APPEALS) IS JUSTIFIED IN DELETING THE AMOUNT OF DISALLOWANCE U/S 14A R.W. RULE 8D(2)(III) TO THE AM OUNT OF RS.38,86,138/- OVER AND ABOVE THE SUO-MOTO DISALLOWANCE OF RS.82,71,741 /- MADE BY THE ASSESSEE IN VIEW OF THE RECENT DECISION OF THE HON BLE HIGH COURT OF KARNATAKA IN THE CASE OF UNITED BREWERIES LTD. VS. DEPUTY COMMISSIONER OF INCOME TAX CENTRAL CIRCLE-2(3), BANGALORE [2016] 72 TAXMANN.COM 102 (KARNATAKA) WHEREIN IT HAS BEEN HELD THAT SECTION 1 4A IS APPLICABLE EVEN WHERE MOTIVE IN ACQUIRING SHARES IS TO OBTAIN CONTR OLLING INTEREST IN COMPANIES. III. WHETHER ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. COMMISSIONER OF INCOME TAX(APPEALS) WAS JUSTIFIED I N RESTRICTING THE ADJUSTMENT MADE TO BOOK PROFIT U/S 115JB OF THE AC T TO RS.35,00,000/- ON ESTIMATE BASIS AND GIVING RELIEF OF RS.3,86,138/- O N ACCOUNT OF EXPENSES RELATABLE TO EXEMPT INCOME U/S 14A OF THE ACT WITHO UT APPRECIATING THE FACT THAT THE ISSUE STANDS SQUARELY COVERED BY THE DECIS ION OF THE HONBLE ITAT D BENCH IN THE CASE OF ITO VS. RBK SHARE BROKING PVT. LTD. -37 TAXMAN 128(2013) AND THE DECISION OF THE HONBLE ITAT F BENCH IN THE CASE OF D.C.I.T. CEN. CIR. 8 & 19, MUMBAI VS. VIRAJ PROFILE S LTD. (205) 64 TAXMANN.COM 52 (MUMBAI-TIB.)-206, 56 ITD 72(MUMBAI- TRIB.) WHEREIN IT IS CLEAR THAT THE PROVISIONS OF SECTION4A R.W.R. 8D IS APPLICABLE FOR COMPUTATION OF BOOK PROFIT U/S 115JB OF THE ACT. 2.1 FACTS IN BRIEF ARE THAT THE ASSESSEE BEING RESIDENT CORPORATE ASSESSEE STATED TO BE ENGAGED IN THE BUSINESS OF INVESTMENT MANAGEMENT & PORTFOLIO MANAGEMENT SERVICES DURING IMPUGNED AY WAS ASSESSED IN SCRUTINY ASSESSMENT U/S 143(3) ON 2 9/12/2016 BY LD. DEPUTY COMMISSIONER OF INCOME TAX-3(3)(1) [AO] WHEREIN THE INCOME OF THE ASSESSEE WAS DETERMINED AS RS.133.97 CRORES UND ER NORMAL PROVISIONS AFTER CERTAIN DISALLOWANCES / ADJUSTMENT S AS AGAINST RETURNED INCOME OF RS.133.55 CRORES E-FILED BY THE ASSESSEE ON 28/11/2014. THE ITA NO. 6444/MUM/2017 RELIANCE NIPPON LIFE ASSET MANAGEMENT LTD. ASSESSMENT YEAR: 2014-15 3 BOOK PROFITS U/S 115JB WAS DETERMINED AT RS.318.29 CRORES AS AG AINST RS.317.90 CRORES COMPUTED BY THE ASSESSEE. 2.2 DURING ASSESSMENT PROCEEDINGS, IT TRANSPIRED TH AT THE ASSESSEE EARNED EXEMPT DIVIDEND INCOME OF RS.497.04 LACS AND OFFERED SUO-MOTO EXPENSE DISALLOWANCE AGAINST THE SAME U/R 8D(2)(III ) FOR RS.82.71 LACS. THE SAID DISALLOWANCE WAS WORKED OUT BY TAKING INTO CONSIDERATION THOSE INVESTMENTS WHICH YIELDED EXEMPT INCOME DURING THE YEAR. THE DISALLOWANCE WORKED OUT BY THE TAX AUDITOR WAS RS.121.57 LACS WHICH WAS ARRIVED AT BY CONSIDERING THOSE INVESTMENT WHIC H WERE CAPABLE OF YIELDING EXEMPT INCOME. FINDING THE DISALLOWANCE WO RKED OUT BY TAX AUDITOR IN LINE WITH CBDT CIRCULAR NO. 5/2014 DATED 11/02/2014, THE SAME WAS ACCEPTED WHICH RESULTED INTO ADDITIONAL DI SALLOWANCE OF RS.38.86 LACS IN THE HANDS OF THE ASSESSEE. THE ADD ITIONAL DISALLOWANCE WAS ADDED WHILE COMPUTING INCOME UNDER NORMAL PROVI SIONS AS WELL AS WHILE COMPUTING BOOK PROFITS U/S 115JB. 3. AGGRIEVED, THE ASSESSEE AGITATED THE SAME WITH S UCCESS BEFORE LD. CIT(A) VIDE IMPUGNED ORDER DATED 26/07/2017 WHEREIN THE ADDITIONAL DISALLOWANCE UNDER NORMAL PROVISIONS WAS DELETED ON THE GROUND THAT STRATEGIC INVESTMENTS IN SUBSIDIARIES SHOULD BE EXC LUDED FROM CALCULATION UNDER RULE 8D. THE GROUND RELATING TO ADJUSTMENT OF THE SAME U/S 115JB WAS ALLOWED BY RELYING UPON APPELLATE ORDERS FOR AY 2008-09 TO 2012-13 IN THE CASE OF ASSESSEES SISTER CONCERN NAMELY M/S RELIANCE CAPITAL LTD. AGGRIEVED, THE REVENUE IS IN FURTHER APPEAL BEFORE US. 4.1 WE HAVE CAREFULLY HEARD THE RIVAL CONTENTIONS A ND PERUSED RELEVANT MATERIAL ON RECORD. THE UNDISPUTED POSITION THAT EM ERGES IS THAT THE ASSESSEE HAS WORKED OUT EXPENSE DISALLOWANCE U/R 8D (2)(III) WHILE ITA NO. 6444/MUM/2017 RELIANCE NIPPON LIFE ASSET MANAGEMENT LTD. ASSESSMENT YEAR: 2014-15 4 COMPUTING INCOME UNDER NORMAL PROVISIONS BY CONSIDE RING ONLY THOSE INVESTMENTS WHICH ACTUALLY YIELDED EXEMPT INCOME DU RING THE YEAR. THE SAID DISALLOWANCE, IN THE OPINION OF LD. AO, WAS TO BE WORKED OUT BY CONSIDERING THE TOTAL INVESTMENTS IRRESPECTIVE OF T HE FACT THAT WHETHER THESE INVESTMENTS YIELDED ANY EXEMPT INCOME DURING IMPUGNED AY OR NOT. WE FIND THAT THE DISALLOWANCE WORKED OUT BY TH E ASSESSEE IS WELL IN LINE WITH THE DECISION OF DELHI TRIBUNAL (SPECIAL B ENCH) RENDERED IN ACIT VS. VIREET INVESTMENT (P.) LTD. [82 TAXMANN.COM 415 ] WHEREIN IT HAS BEEN HELD THAT ONLY EXEMPT INCOME YIELDING INVESTME NTS WERE TO BE CONSIDERED TO ARRIVE AT THE SAID DISALLOWANCE. THER EFORE, THE ADDITIONAL EXPENSE DISALLOWANCE MADE UNDER NORMAL PROVISIONS, AS MADE BY LD. AO, COULD NOT BE SUSTAINED AND THE STAND OF FIRST A PPELLATE AUTHORITY, THOUGH ON DIFFERENT REASONING, WAS TO BE CONFIRMED. ACCORDINGLY, GROUND NUMBER- 1 STAND DISMISSED. 4.2 SO FAR AS THE PLEA OF STRATEGIC INVESTMENT AS ACCEPTED BY FIRST APPELLATE AUTHORITY WHILE GRANTING RELIEF TO THE AS SESSEE, IS CONCERNED, WE FIND THAT THE SAME STAND OVERRULED BY THE RECENT DECISION OF HONBLE APEX COURT RENDERED IN MAXOPP INVESTMENT LTD. VS CIT [12/02/2018 91 TAXMANN.COM 154] AND THEREFORE, THE SAME COULD NOT BE SUSTAINED. NEVERTHELESS, THE ASSESSEE SUCCEEDS ON ANOTHER PROP OSITION AS DISCUSSED BY US IN ABOVE PARA 4.1 AND THEREFORE, NO INTERREFERENCE IS, ANYWAY, CALLED FOR IN THE CONCLUSION DRAWN IN THE I MPUGNED ORDER. TECHNICALLY, THE REVENUE SUCCEEDS ON GROUND NUMBER-2. 4.3 SO FAR AS THE ADJUSTMENT OF DISALLOWANCE U/S 14 A WHILE COMPUTING BOOK PROFITS U/S 115JB IS CONCERNED, LD. AR FAIRLY SUBMITTED THA T IN TERMS OF THE CITED DECISION OF SPECIAL BENCH, DISAL LOWANCE WAS TO BE ITA NO. 6444/MUM/2017 RELIANCE NIPPON LIFE ASSET MANAGEMENT LTD. ASSESSMENT YEAR: 2014-15 5 WORKED OUT WITH REFERENCE TO EXPENSES DEBITED BY TH E ASSESSEE IN THE PROFIT & LOSS ACCOUNT ON ACTUAL BASIS AND NOT BY RE SORTING TO COMPUTATIONAL MECHANISM AS PROVIDED IN RULE 8D (2). FOR THE SAME, THE COPY OF RECENT DECISION OF THIS TRIBUNAL RENDERED I N THE CASE OF ASSESSEES SISTER CONCERN NAMELY M/S RELIANCE CAPITAL LTD., ITA NO. 6396-97/MUM/2017 DATED 30/01/2019 HAS BEEN PLACED ON RECORD. AFTER PERUSAL OF THE SAME, WE FIND THAT THE SPECIAL BENCH IN THE CITED DECISION HAS HELD THAT DISALLOWANCE U/S 14A WAS TO BE MADE I N TERMS OF CLAUSE (F) OF EXPLANATION-1 TO SECTION 115JB. THEREFORE, THE MATTER, IN THE SIMILAR MANNER, STAND RESTORED BACK TO THE FILE OF LD. AO TO ASCERTAIN THE ACTUAL EXPENSES DEBITED IN THE PROFIT & LOSS ACCOUN T TO EARN THE EXEMPT INCOME AND MAKE DISALLOWANCE U/S 115JB ACCORDINGLY. THE ASSESSEE IS DIRECTED TO PROVIDE THE DETAILS THEREOF. GROUND NO. 3 STANDS ALLOWED FOR STATISTICAL PURPOSES. 5. THE APPEAL STANDS PARTLY ALLOWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED IN THE OPEN COURT ON 26 TH FEBRUARY, 2019. SD/- SD/- (RAVISH SOOD) (MAN OJ KUMAR AGGARWAL) / JUDICIAL MEMBER / ACCOUNTANT MEMBER 1 MUMBAI 21 31 DATED 41567857589: SR.PS:- THIRUMALESH / SR.PS:-JAISY VARGHESE #1-1+ #1-1+ #1-1+ #1-1+.'1''. .'1''. .'1''. .'1''.7 COPY OF THE ORDER FORWARDED TO : 1 11 11 11 1 9; 1 (*1 71 THE APPELLANT 1 1 2. +,(* / THE RESPONDENT ITA NO. 6444/MUM/2017 RELIANCE NIPPON LIFE ASSET MANAGEMENT LTD. ASSESSMENT YEAR: 2014-15 6 3. < ( ) / THE CIT(A) 4. < / CIT CONCERNED 5. '=> +. , , / DR, ITAT, MUMBAI 6. >?& / GUARD FILE # # # # / BY ORDER, / (DY./ASSTT. REGISTRAR) 11 11 11 11C1 C1C1 C11 11 1711 711 711 711 ITAT, MUMBAI 1 11 1 1 11 1 1 11 1 1 11 1 1 11 1 1 11 1 1 11 1 1 11 1 1 11 1 1 11 1 1 11 1 1 11 1 1 11 1 1 11 1 1 11 1 1 11 1 1 11 1 1 11 1 1 11 1 1 11 1 1 11 1 1 11 1 1 11 1 1 11 1 1 11 1 1 11 1 1 11 1 1 11 1