REVASHANKAR GEMS LTD, MUMBAI V. ADDL CIT 5(3), MUMBAI

ITA 6445/MUM/2011

• Counselvise Citation: [2013] 140 COUNSELVISE.COM (IT) 70932 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 11 month(s) 13 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 04-09-2013
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: D
• Next Hearing Date: 06-08-2013
• Assessment Year: 2008-2009
• Appeal Filed On: 21-09-2011
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: C G K NAIR
• Assessee Lawyers: APURVA R SHAH
• Keywords: Opportunity of being heard; Earning of tax free income; Proportionate interest; Commercial expediency
• Section: 14A

Judgement Text

IN THE INCO ME TAX APPELLATE TRIBUNAL D BENCH, MUMBAI BEFORE SHRI VIJAY PAL RAO , JUDICIAL MEMBER AND SHRI D. KARUNAKARA RAO, ACCOUNTANT MEMBER ./I.T.A. NO. 6445/M/2011 ( / ASSESSMENT YEAR : 2008 - 20 09 ) REVASHANKAR GEMS LT D., 322, PANCHRATNA, 14 MAMA PARMANAND MARG, OPERA HOUSE, MUMBAI 400 004. / VS. ADDL. CIT - 5(3), AAYAKAR BHAVAN, M.K. ROAD, MUMBAI - 400 020. ./ PAN : AAACR 4649 D ( / APPELLANT) .. ( / RESPONDENT ) / APPELLANT BY : SHRI APURVA R. SHAH / RESPONDENT BY : SHRI C.G.K. NAIR, DR / DATE OF HEARING : 13 .8.2013 / DATE OF PRONOUNCEMENT : 4.9 .2013 / O R D E R PER D . KARUNAKARA RAO, AM: THIS APPEAL FILED BY THE ASSESSEE ON 21.0.2011 AGAINST THE ORDER OF CIT (A) - 9, MUMBAI DATED 30.6.2011 FOR THE ASSESSMENT YEAR 2008 - 2009. 2. IN THIS APPEAL, ASSESSEE RAISED THE FOLLOWING GROUNDS WHICH READ AS UNDER: THE CIT (A) ER RED , - 1.1. IN CONFIRMING A DISALLOWANCE U/S 14A BY MECHANICALLY APPLYING RULE - 8D . 1.2. WITHOUT PREJUDICE, IN ERRONEOUSLY COMPUTING THE DISALLOWANCE BY INCLUDING INTEREST PERTAINING TO LOANS SPECIFICALLY TAKEN FOR OTHER PURPOSES. 2.1. IN DISALLOWANCE OF I NTEREST ASSUMED TO BE EXTENDED ON INVESTMENT IN PROPERTY AT BHARAT DIAMOND BOURSE AND OTHER SIMILAR ADVANCES GIVEN WHICH WERE BUSINESS ASSETS. 2.2. IN NOT APPRECIATING THAT NO FUNDS HAD BEEN SPECIFICALLY BORROWED FOR THE PURPOSES OF MAKING THIS INVESTMENT AND THAT HENCE NOTING WERE DISALLOWABLE ON THIS ACCOUNT. 2.3. IN NOT APPRECIATING THAT THE APPELLANT HAD ADEQUATE NON - INTEREST BEARING FUNDS AVAILABLE WITH IT AND THAT HENCE NO DISALLOWANCE OF INTEREST WAS CALLED FOR. 3.1. IN DISALLOWING INTEREST PAID TO THE EXTENT THAT SUMS OF MONEY WERE ADVANCED TO A PARTNERSHIP FIRM WHERE THE APPELLANT WAS A PARTNER ON AN INTEREST FREE BASIS. 3.2. IN NOT APPRECIATING THAT THE APPELLANT HAD BUSINESS TRANSACTIONS AS WELL WITH THE SAID FIRM AND HENCE THESE ADVANCES WERE FO R COMMERCIAL EXPEDIENCY . 2 3.3. IN ASSUMING THAT INTEREST FREE ADVANCE GIVEN TO THE FIRM WAS GIVEN FROM BORROWED FUNDS OF THE COMPANY AS A WHOLE AND IN DISALLOWING PROPORTIONATE INTEREST EXPENSE; 3.4. IN NOT APPRECIATING THAT THE ASSESSEE HAD ADEQUATE INTERE ST FREE FUNDS TO MAKE THESE ADVANCES. 3. AT THE OUTSET, SHRI APURVA R. SHAH, LD COUNSEL FOR THE ASSESSEE BROUGHT OUR ATTENTION TO THE GROUNDS RAISED BEFORE US AND MENTIONED THAT THERE ARE COUPLE OF ISSUES RAISED IN THIS APPEAL. THEY ARE (I) THE APPLIC ABILITY OF RULE - 8D R.W.S. 14A OF THE ACT WITHOUT REJECTING THE REASONING GIVEN BY THE ASSESSEE FOR MAKING DISALLOWANCE AND (II) THE DISALLOWANCE U/S 36 - 1(III) OF THE ACT, WHEN THE ASSESSEE HAS ADEQUATE EXCESS INTEREST FREE FUNDS. 3.1. REFERRING TO THE F IRST ISSUE, LD COUNSEL MENTIONED THAT THE ASSESSEE EARNED DIVIDEND INCOME OF RS. 5,55,299/ - WHICH WAS EXEMPTED U/S 10(34) OF THE ACT. ASSESSEE MADE DISALLOWANCE TOWARDS THE EXPENDITURE FOR EARNING THE SAID EXEMPT INCOME @ 10% OF THE EXEMPT INCOME. WITHOU T REJECTING THE CLAIM OF THE ASSESSEE , AO INVOKED THE PROVISIONS OF SECTION 14A READ WITH RULE - 8D OF THE ACT AND RELIED ON THE BINDING JUDGMENT OF THE JURISDICTIONAL HIGH COURT JUDGMENT IN THE CASE OF GODREJ & BOYCE MFG. LTD. VS. DCIT, 328 ITR 81. CIT (A) CONFIRMED THE SAME. IN THIS BACKGROUND OF THE FACTS, LD COUNSEL MENTIONED THAT INVOKING THE SAID PROVISIONS MECHANICALLY WITHOUT REJECTIN G THE CLAIM OF THE ASSESSEE IE RS. 55,530/ - IS THE EXPENDITURE INCURRED FOR EARNING OF THE EXEMPT INCOME, IS UNSUSTAIN ABLE IN LAW AND RELIED ON THE JURISDICTIONAL HIGH COURT JUDGMENT IN THE CASE OF GODREJ & BOYCE MFG. LTD (SUPRA) . IN THIS REGARD, LD COUNSEL PRAYED FOR SETTING ASIDE THE ISSUE FOR RE - EXAMINATION AND APPLYING OF THE JURISDICTIONAL HIGH COURT JUDGMENT ON THIS ISSUE. 3.2. ON THE OTHER HAND, LD DR HAS RELIED ON THE ORDERS OF THE REVENUE AUTHORITIES AND MENTIONED THAT HE HAS NO OBJECTION IF THE ISSUE REMANDED TO THE FILES TO THE FILES OF THE AO FOR FRESH EXAMINATION OF THE ISSUE. 3.3. WE HAVE HEARD BOTH THE P ARTIES AND PERUSED THE ORDERS OF THE REVENUE AUTHORITIES AS WELL AS THE MATERIAL PLACED BEFORE US. WE FIND MERIT IN THE PRAYER OF THE LD COUNSEL TO REMIT THE MATTER TO THE FILES OF THE AO FOR EXAMINATION OF THE ISSUE AFRESH. THEREFORE, WE REMAND THE MATT ER TO THE FILES OF THE AO TO RE - ADJUDICATE THE ISSUE IN ACCORDANCE WITH THE JURISDICTIONAL HIGH COURT JUDGMENT IN THE CASE OF GODREJ & BOYCE (SUPRA) AFTER GRANTING A REASONABLE OPPORTUNITY OF BEING HEARD TO THE 3 ASSESSEE. IT IS THE SETTLED LAW THAT THE AO IS UNDER OBLIGATION TO REJECT THE CLAIM OF THE ASSESSEE BY GIVING SPEAKING ORDER ON THIS ISSUE BEFORE HE RESORT TO THRUST ON THE ASSESSEE THE PROVISIONS OF RULE 8D R W SECTION 14A OF THE ACT. ACCORDINGLY, ISSUE NO.1 IS REMANDED AND RELEVANT CONCLUSIONS OF THE REVENUE AUTHORITIES ARE SET ASIDE. 4. THE SECOND ISSUE RELATES TO THE DISALLOWANCE U/S 36(1)(III) OF THE ACT IN RESPECT OF THE INTEREST CLAIM OF THE ASSESSEE. AT THE OUTSET, LD COUNSEL MENTIONED THAT THE ASSESSEE HAS SUFFICIENT INTEREST FREE FUNDS AN D IN THIS REGARD, HE BROUGHT OUR ATTENTION TO PARA 2.2 OF THE IMPUGNED ORDER AND MENTIONED THAT THE ADVANCES ARE NOT OUT OF INTEREST BEARING FUNDS. FURTHER, LD COUNSEL MENTIONED THAT ASSESSEE HAS RS. 26.9 CRS WORTH OF INTEREST FREE FUNDS BY WAY OF CAPITAL , RESERVES AND INTEREST FREE LOANS , WHICH IS QUANTITATIVELY MUCH HIGHER THAN THE ADVANCES GIVEN BY THE ASSESSEE. IT IS THE CLAIM OF THE AS SESSEE THAT CONSIDERING THE JURISDICTIONAL HIGH COURT JUDGMENT IN THE CASE OF CIT VS. RELIANCE UTILITIES POWER LTD. [ 2009] 313 ITR 340 (BOM) , THE BENEFIT SHOULD BE GIVEN TO THE ASSESSEE CONSIDERING T HE EXISTENCE OF EXCESS INTEREST - FREE FUNDS. FURTHER, LD COUNSEL FAIRLY MENTIONED THAT THE FACTS ABOUT THE ISSUE OF EXISTENCE OF EXCESS FUNDS WERE NOT EXAMINED BY THE LOWER A UTHORITIES. THEREFORE, FOR THIS PURPOSE, THIS ISSUE MAY ALSO BE SET ASIDE FOR EXAMINING THE SAME AFRESH IN THE LIGHT OF THE BINDING JUDGMENT OF THE HONBLE HIGH COURT IN THE CASE OF RELIANCE UTILITIES POWER LTD (SUPRA). 4.1. ON THE OTHER HAND, LD DR RELIED ON THE ORDERS OF THE REVENUE AUTHORITIES AND HE HAS NO OBJECTION IF THE MATTER IS REMANDED BACK TO THE FILES OF THE AO FOR FRESH EXAMINATION OF THE ISSUE. 5. WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE ORDERS OF THE REVENUE AUTHORITIES AS WELL AS THE MATERIAL PLACED BEFORE US. ON HEARING BOTH THE PARTIES, WE FIND MERIT IN THE LD COUNSELS ARGUMENTS. IT IS A FACT THAT NEITHER THE AO NOR THE CIT (A) HAVE REALLY GONE INTO THE ISSUE OF EXISTENCE OF EXCESS FUNDS AND HAVE GIVEN CATEGOR ICAL FINDINGS ABOUT THIS FACT. THEREFORE, IN OUR CONSIDERED OPINION, THIS ISSUE SHOULD ALSO BE SET ASIDE TO THE FILES OF THE AO FOR FRESH ADJUDICATION CONSIDERING THE JUDGMENT OF THE SUPREME COURT IN THE CASE OF RELIANCE PETRO - PRODUCTS (SUPRA) AS WELL AS THE RELEVANT LAW IN FORCE. ACC ORDINGLY, ISSUE NO.2 IS REMANDED AND RELEVANT CONCLUSIONS OF THE REVENUE AUTHORITIES ARE SET ASIDE. 4 6. IN THE RESULT, APPEAL OF THE ASSESSEE IS ALLOWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED I N THE OPEN C OURT ON 4.9 . 2013. S D/ - S D/ - (VIJAY PAL RA O) (D. KARUNAKARA RAO) JUDICIAL MEMBER ACCOUNTANT MEMBER MUMBAI ; 4.9 .2013 . . ./ OKK , SR. PS / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT 2. / THE RESPONDENT. 3. ( ) / THE CIT(A) - 4. / CIT 5. , , / DR, ITAT, MUMBAI 6. / GUARD FILE . //TRUE COPY// / BY ORDER, / (DY./ASSTT. REGISTRAR) , / ITAT, MUMBAI