DYSTAR INDIA P.LTD, NAVI MUMBAI V. DCIT 8(1), MUMBAI

ITA 6650/MUM/2013

• Counselvise Citation: [2016] 132 COUNSELVISE.COM (IT) 2396 (ITAT-MUMBAI)
• Duration Of Justice: 2 year(s) 8 month(s) 7 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 22-07-2016
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: D
• Assessment Year: 2010-2011
• Appeal Filed On: 14-11-2013
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: B S BIST
• Keywords: Proportionate interest
• Section: 14A

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCHES D, MUMBAI BEFORE SHRI B.R.BASKARAN (AM) AND SHRI RAM LAL NEGI (JM) ITA NO 6650/MUM/2013 ASSESSMENT YEAR: 2010-11 M/S. DYSTAR INDIA PVT. LTD., R-855, TTC INDUSTRIAL AREA, REBALE, NAVI MUMBAI- 400 701. PAN:- AABCD0295N VS. THE DY. CIT - 8(1), AAYAKAR BHAVAN, MUMBAI- 400 020. (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI. JITENDRA JAIN. RESPONDENT BY : SHRI. B.S.BIST. DATE OF HEARING: 18/07/ 2016 DATE OF PRONOUNCEMENT: 22/07/20 16 O R D E R PER RAM LAL NEGI, JM THE APPELLANT/ASSESSEE HAS PREFERRED THE PRESE NT APPEAL AGAINST ORDER DATED 03/09/2013 PASSED BY THE LD. CIT (APPEALS)-16 MUMBAI FOR THE ASST. YEAR 2010-11. 2. BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE C OMPANY ENGAGED IN THE BUSINESS OF MANUFACTURING, SELLING, TRADING, IMPORT AND EXPORT OF TEXTILE DYESTUFFS. DURING ASSESSMENT PROCEEDINGS THE ASSESS ING OFFICER NOTICED THAT THE ASSESSEE HAD MADE INVESTMENTS FOR EARNING EXEMP T, ASSESSEE WAS ASKED AS TO WHY DISALLOWANCE SHOULD NOT BE MADE IN ACCORDANC E WITH RULE 8D OF THE INCOME TAX RULES. THE ASSESSING OFFICER AFTER TAKIN G INTO CONSIDERATION THE PLEA OF THE ASSESSEE MADE DISALLOWANCE OF RS. 23,42 ,372/- U/S 14A OF THE ACT 2 ITA NO 6650/MUM/2013 ASSESSMENT YEAR: 2010-11 READ WITH RULE 8D OF THE INCOME TAX RULES. ON APPEA L THE LD. CIT(A) CONFIRMED THE SAME. 3. FILLING AGGRIEVED BY THE IMPUGNED ORDER PASSED B Y THE LD. CIT(A), THE ASSESSEE IS IN APPEAL BEFORE THE TRIBUNAL ON THE FO LLOWING EFFECTIVE GROUNDS:- 1. A) THE COMMISSIONER OF INCOME TAX(APPEALS)-16 [ HEREINAFTER REFERRED TO AS CIT(A)] ERRED IN CONFIRMING THE DISA LLOWANCE OF RS. 23,42,372/- U/S 14A OF THE I.T.ACT. R.W.R. 8D OF TH E I.T.RULE BEING THE EXPENSES ATTRIBUTABLE TO INVESTMENT ACTIVITY GIVING RISE TO THE EXEMPTED INCOME. THE APPELLANT SUBMITS THAT IT HAS MADE STR ATEGIC INVESTMENT IN SHARES OF ITS SUBSIDIARY FOR ACQUIRING CONTROLLING INTEREST; FURTHER THE APPELLANT HAS NOT INCURRED ANY EXPENDITURE ATTRIBUT ABLE TO INVESTMENT ACTIVITY GIVING RISE TO THE EXEMPTED INC OME AND HENCE NO DISALLOWANCE U/S 14A OF THE ACT IS CALLED FOR. B) THE CIT(A) ERRED IN CONFIRMING THE DISALLOWANCE OF PROPORTIONATE INTEREST OF RS. 16,36,234/- AS ATTRIBUTABLE TO EARN ING OF EXEMPTED INCOME. THE APPELLANT SUBMITS THAT INTERESTS BEA RING BORROWED FUNDS ARE USED FOR THE PURPOSE OF BUSINESS AND NOT FOR MA KING INVESTMENTS IN SHARES AND SECURITIES RESULTING INTO EARNING OF EXEMPTED INCOME. 2. THE CIT(A) ERRED IN CONFIRMING THE ACTION OF AO IN ADDING THE EXPENDITURE OF RS. 23,42,372/- AS ATTRIBUTABLE TO E ARNING OF EXEMPTED INCOME WHILE CALCULATING BOOK PROFIT U/S 1 15JB OF THE I.T.ACT. 4. BEFORE US, THE LD. AUTHORISED REPRESENTATIVE (A R) SUBMITTED THAT THE ASSESSEES CASE IS COVERED BY THE ORDER OF THE TRIB UNAL DATED 27.4.2016 PASSED 3 ITA NO 6650/MUM/2013 ASSESSMENT YEAR: 2010-11 IN ASSESSEES OWN CASE M/S DYSTAR INDIA PVT. LTD. V S. JCIT, MUMBAI ITA NO 3045 AND 3046/MUM/2012 FOR THE ASSESSMENT YEAR 2008 -09 AND 2009-10 RESPECTIVELY WHEREIN THE TRIBUNAL HAS DECIDED THE I DENTICAL ISSUE IN FAVOUR OF THE ASSESSEE. THE LD. AR FURTHER SUBMITTED THAT SIN CE THE ASSESSEE DID NOT RECEIVE ANY DIVIDEND, SECTION14A OF THE ACT IS NOT APPLICABLE. THE INVESTMENT IN QUESTION WAS MADE BY THE ASSESSEE OUT OF THE SURPLU S FUNDS AVAILABLE DURING THE RELEVANT YEAR AND AS PER THE LAW LAID DOWN BY T HE HONBLE JURISDICTIONAL HIGH COURT IN CIT VS. HDFC BANK LTD. 366 ITR 505 (BOM.) AND CIT VS. RELIANCE UTILITIES 313 ITR 430 NO DISALLOWANCE IS TO BE MADE IN THE ASSESSEES CA SE. AS PER THE DECISIONS RENDERED BY THE MUMBAI TRIBUNAL I N JM FINANCIAL LTD. VS. AICT 2014 TIOL 2002 (MUM) AND GARWARE WALL ROPS LTD. VS. ACIT 65 SOT 86 (MUM) THE TRANSACTION BEING A STRATEGIC INVESTMENT IN TH E SHARES OF ASSESSEES SUBSIDIARY COMPANY PROVISIONS OF 14A OF THE ACT ARE NOT APPLICABLE. ON THE OTHER HAND THE LD. DEPARTMENTAL REPRESENTATIVE RELY ING UPON THE FINDINGS OF AUTHORITIES BELOW SUBMITTED THAT SINCE EACH CASE IS REQUIRED TO BE DECIDED ON ITS OWN MERIT, THE LD. CIT(A) HAS RIGHTLY UPHELD T HE FINDINGS OF THE AO. 5. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL PLACED BEFORE US IN THE LIGHT OF THE RESPECTIVE SUBMISSION S OF THE PARTIES. THE LD. AR HAS DEMONSTRATED DURING THE COURSE OF ARGUMENTS BY REFERRING THE PAPER BOOK ON RECORD THAT THE ASSESSEE HAD ALREADY ACQUIRED 70 % SHARES OF ITS SUBSIDIARY COMPANY, TAXANLAB LABORATORIES PVT. LTD., FOR RS. 1 0.97 CRORE AND DURING THE RELEVANT FINANCIAL YEAR THE ASSESSEE ACQUIRED 20% S HARE OF THE SAID COMPANY FOR RS. 6.28 CRORE. HENCE THE TRANSACTION FALLS IN THE CATEGORY OF STRATEGIC INVESTMENT. THE ASSESSEE HAD ITS OWN FUNDS TO THE T UNE OF RS. 45.36 CRORE AND IT HAD EARNED NET PROFIT OF RS.13.01 CRORE DURING T HE RELEVANT YEAR. 6. SINCE, THE ASSESSEES OWN CAPITAL AND PROFIT RES ERVES WERE CONSIDERABLY HIGHER THAN THE STRATEGIC INVESTMENT MADE BY THE AS SESSEE IN ITS SUBSIDIARY 4 ITA NO 6650/MUM/2013 ASSESSMENT YEAR: 2010-11 COMPANY, IT WOULD HAVE TO BE PRESUMED IN THE LIGHT OF THE DECISION OF THE HONBLE BOMBAY HIGH COURT IN HDFC BANK (SUPRA) THAT THE INVESTMENT MADE BY THE ASSESSEE WOULD BE OUT OF THE INTEREST FREE F UNDS AVAILABLE WITH THE IT AND NO DISALLOWANCE WAS WARRANTED UNDER SECTION 14A OF THE ACT. HENCE, THE IMPUGNED ORDER PASSED BY THE LD. CIT(A) IS NOT IN A CCORDANCE WITH THE LAW. SINCE THE INVESTMENT IN QUESTION IS STRATEGIC INVES TMENT, THE SAME IS REQUIRED TO BE EXCLUDED FROM THE VALUE OF INVESTMENT FOR THE PURPOSE OF RULE 8D(2)(III) AS PER THE DECISION RENDERED BY THE COORDINATE BENCH I N THE CASE OF GARWARE WALL ROPS LTD.(SUPRA). SINCE, THE VALUE OF AGGREGATE INV ESTMENT WILL BE NIL, NO DISALLOWANCE IS REQUIRED TO BE MADE UNDER RULE 8D(2 )(III) ALSO 7. IN VIEW OF THE FOREGOING DISCUSSION IN THE LIGHT OF THE FACTS AND CIRCUMSTANCES OF THE CASE AND THE DECISIONS RENDERE D BY THE COORDINATE BENCH OF ITAT IN JM FINANCIAL LTD. VS. AICT AND GARWARE WALL ROPS LTD. VS. ACIT(SUPRA) AND THE LAW LAID DOWN BY THE HONBLE BOMBAY HIGH C OURT CIT VS. RELIANCE UTILITIES AND CIT VS. HDFC BANK LTD. (SUPR A), THE IMPUGNED ORDER IS APPARENTLY ERRONEOUS AND BAD IN LAW. WE, THEREFORE, SET ASIDE THE IMPUGNED ORDER AND DIRECT THE AO TO DELETE THE DISALLOWANCE MADE UNDER SECTION 14 A OF THE ACT. 8. IN THE RESULT APPEAL FILED BY THE ASSESSEE FOR A.Y. 2010-11 IS ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 22 ND JULY, 2016 SD/- SD/- ( B.R.BASKARAN ) ( RAM LAL NEGI ) ACCOUNTANT MEMBER JUDICIAL MEMBER MUMBAI; DATED: 22/07/2016 5 ITA NO 6650/MUM/2013 ASSESSMENT YEAR: 2010-11 / 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. / BY ORDER, ) //TRUE COPY// / (DY./ASSTT. REGISTRAR) , / ITAT, MUMBAI PRAMILA