FUN MULTIPLEX P. LTD, MUMBAI V. ASST CIT RG 8(1), MUMBAI

ITA 6654/MUM/2011

• Counselvise Citation: [2012] 119 COUNSELVISE.COM (IT) 9437 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 1 month(s) 22 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 26-11-2012
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: F
• Next Hearing Date: 26-11-2012
• Assessment Year: 2008-2009
• Appeal Filed On: 04-10-2011
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: V S SAMUEL
• Assessee Lawyers: SANJIV M SHAH
• Keywords: Depreciation; Earning of tax free income
• Section: 14A; 115JB

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL, MUMBAI BENCH F BENCH BEFORE SHRI RAJENDRA SINGH(ACCOUNTANT MEMBER) AND SHRI VIJAYPAL RAO (JUDICIAL MEMBER) ITA NO.6654/MUM/2011 ASSESSMENT YEAR: 2008-09 FUN MULTIPLEX P.LTD., 844/4, SHAH INDL. ESTATE, OFF NEW LINK ROAD, OPP. LAXMI INDL. ESTATE, MUMBAI PA NO.AAACE 8924 E ACIT, RANGE 8(1), AAYAKAR BHAVAN, M.K. ROAD, MUMBAI. (APPELLANT) VS. (RESPONDENT) APPELLANT BY: SHRI SANJIV M SHAH RESPONDENT BY: SHRI V.S.SAMUEL DATE OF HEARING: 26.11.2012 DATE OF PRONOUNCEMENT: 26. 11.2012 ORDER PER RAJENDRA SINGH,AM: THIS APPEAL FILED BY THE ASSESSEE IS DIRECTED AGAIN ST ORDER DATED 20.7.2011 OF LD CIT(A) FOR ASSESSMENT YEAR 2008-09. 2. THE ONLY DISPUTE RAISED BY THE ASSESSEE IN THIS APPEAL IS REGARDING DISALLOWANCE OF EXPENSES U/S.14A OF THE ACT AND ADJUSTMENT MADE ON THAT ACCOUNT IN COMPUTATION OF BOOK PROFIT. 3. THE FACTS IN BRIEF ARE THAT THE ASSESSING OFFICE R, DURING THE COURSE OF ASSESSMENT PROCEEDINGS, NOTED THAT THE ASSESSEE HAD MADE INVE STMENTS IN SHARE CAPITAL OF SUBSIDIARY AMOUNTING TO RS.7,21,99,000/- AND HAD AL SO EARNED INCOME EXEMPT FROM TAX AS DIVIDEND. THE AO, THEREFORE, ASKED THE ASSESSEE TO EXPLAIN AS TO WHY THE EXPENSES SHOULD NOT BE DISALLOWED UNDER SECTION 14A OF THE A CT. ASSESSEE SUBMITTED THAT INVESTMENT OF RS.7,21,99,000 IN THE EQUITY SHARES O F E-CITY CINEMAS PVT LTD. HAD BEEN MADE OUT OF INTEREST FREE FUNDS RECEIVED FROM THE H OLDING COMPANY I.E. E-CITY INVESTMENTS & HOLDING PVT LTD.. THEREFORE, NO DISA LLOWANCES WAS REQUIRED TO BE MADE ITA NO.6654/MUM/2011 ASSESSMENT YEAR: 2008-09 2 ON ACCOUNT OF EXPENSES. AO DID NOT ACCEPT THE EXPL ANATION GIVEN BY THE ASSESSEE AND COMPUTED THE DISALLOWANCE UNDER RULE 8D BOTH IN RES PECT OF INTEREST EXPENSES AND IN RESPECT OF OTHER INDIRECT EXPENSES. THE TOTAL DISAL LOWANCES MADE WAS RS.12,41,434/- CONSISTING OF DISALLOWANCE OF INTEREST OF RS.10,60, 936 AND DISALLOWANCE OF OTHER EXPENSES OF RS.1,80,498. AO ALSO MADE ADJUSTMENT O N ACCOUNT OF DISALLOWANCE U/S.14A OF THE ACT WHILE COMPUTING BOOK PROFIT UNDER CLAUSE (F) OF EXPLANATION (1) TO SECTION 115JB OF THE ACT. 4. IN APPEAL, ASSESSEE REITERATED THE SUBMISSIONS M ADE EARLIER THAT INTEREST FREE FUNDS OBTAINED FROM THE HOLDING COMPANY HAD BEEN IN VESTED IN THE SHARES OF THE SUBSIDIARY I.E. E-CITY INVESTMENTS & HOLDING PVT LT D. HOWEVER, LD CIT(A) OBSERVED THAT ASSESSEE HAD NOT DEBITED DIRECT EXPENSES ON ACCOUNT OF EXEMPT INCOME BUT HAD INCURRED EXPENSES ON ACCOUNT OF OFFICE RENT, SALARY AND DEPRECIATION AND DEBITED THE SAME IN THE PROFIT AND LOSS ACCOUNT. HE, THEREFORE , UPHELD THE ORDER OF AO AND CONFIRMED THE DISALLOWANCE OF RS.10,60,936 ON ACCOU NT OF INTEREST AND RS.1,80,498 ON ACCOUNT OF OTHER EXPENSES. HE ALSO UPHELD THE ADJU STMENT MADE ON THIS ACCOUNT U/S.115JB OF THE ACT. AGGRIEVED BY SUCH DECISION O F LD CIT(A), ASSESSEE IS IN FURTHER APPEAL BEFORE THE TRIBUNAL. 5. BEFORE US, LD A.R. FOR THE ASSESSEE SUBMITTED TH AT INVESTMENT IN SHARES OF SUBSIDIARY IN RESPECT OF WHICH INTEREST HAS BEEN DI SALLOWED HAD BEEN MADE OUT OF INTEREST FREE FUNDS OBTAINED FROM THE HOLDING COMPA NY. THEREFORE, NO EXPENDITURE HAD BEEN INCURRED AND, ACCORDINGLY, NO DISALLOWANCE WAS CALLED FOR. THE CLAIM OF THE ASSESSEE THAT INTEREST FREE FUNDS HAD BEEN INVESTED , MADE BEFORE THE AUTHORITIES BELOW HAD NOT BEEN EXAMINED AND DISALLOWANCE HAS BEEN MAD E IN A ROUTINE MANNER UNDER RULE 8D. IT WAS ACCORDINGLY, URGED THAT THE ORDER OF LD CIT(A) BE SET ASIDE OR MATTER MAY BE RESTORED BACK TO HIS FILE FOR PROPER EXAMINA TION. 6. ON THE OTHER HAND, LD D.R. PLACED RELIANCE ON TH E ORDERS OF AUTHORITIES BELOW. 7. WE HAVE PERUSED THE RECORDS AND CONSIDERED RIVAL CONTENTIONS CAREFULLY. THE DISALLOWANCE OF EXPENSES RELATING TO EXEMPT INCOME ARE REQUIRED TO BE MADE UNDER SECTION 14A AS PER RULE 8D, WHICH IS APPLICABLE FRO M ASSESSMENT YEAR 2008-09 IN VIEW OF THE JUDGMENT OF HONB LE BOMBAY HIGH COURT IN TH E CASE OF GODREJ & BOYCE MFG CO ITA NO.6654/MUM/2011 ASSESSMENT YEAR: 2008-09 3 LTD VS DCIT (328 ITR 81). THE APPLICABILITY OF RUL E 8D IN THE YEAR UNDER REFERENCE THEREFORE IS NOT IN DISPUTE. HOWEVER, THE DISALLOW ANCE OF EXPENSES U/S.14A CAN BE MADE ONLY AFTER AO RECORDS SATISFACTION THAT THE CL AIM OF THE ASSESSEE THAT NO EXPENSES HAVE BEEN INCURRED IS NOT CORRECT. SUCH SATISFACT ION IS REQUIRED TO BE ARRIVED IN AN OBJECTIVE MANNER AFTER GIVING REASONS FOR THE SAME. IN THIS CASE, THE BULK OF DISALLOWANCE IS ON ACCOUNT OF INTEREST EXPENDITURE ON ACQUISITION OF SHARES OF THE SUBSIDIARY. ASSESSEE HAS CLAIMED THAT INVESTMENT I N SHARES OF SUBSIDIARY HAD BEEN MADE OUT OF INTEREST FREE FUNDS OBTAINED FROM THE HOLDIN G COMPANY. NO CLEAR FINDINGS HAVE BEEN RECORDED BY EITHER OF THE AUTHORITIES BELOW TH AT INVESTMENT IN SHARES HAD NOT BEEN MADE OUT OF OWN FUNDS. ONCE IT IS ESTABLISHED THAT INVESTMENT IN SHARES HAVE BEEN MADE FROM OWN FUNDS, NO DISALLOWANCE OF INTEREST EX PENDITURE CAN BE MADE EITHER DIRECT OR INDIRECT UNDER THE PROVISIONS OF RULE 8D. THIS ASPECT THEREFORE REQUIRES FRESH EXAMINATION AT THE LEVEL OF LD CIT(A). ACCORDINGLY , THE ISSUE OF ADDITION U/S.14A IS RESTORED BACK TO THE FILE OF LD CIT(A) FOR FRESH DE CISION. SINCE ADJUSTMENT U/S.115JB IS ALSO LINKED TO THE DISALLOWANCES UNDER SECTION 14A, THIS ISSUE IS ALSO RESTORED. ACCORDINGLY, WE SET ASIDE THE ORDER OF LD CIT(A) BE LOW AND RESTORE THE SAME BACK TO THE FILE OF LD CIT(A) FOR FRESH ADJUDICATION AFTER NECE SSARY EXAMINATION IN THE LIGHT OF OBSERVATIONS MADE ABOVE AND AFTER ALLOWING OPPORTU NITY OF BEING HEARD TO THE ASSESSEE. 8. IN THE RESULT, APPEAL IS ALLOWED FOR STATISTICAL PURPOSES. PRONOUNCED IN THE OPEN COURT ON 26 TH NOVEMBER, 2012 SD/- (VIJAYPAL RAO) JUDICIAL MEMBER SD/- (RAJENDRA SINGH) ACCOUNTANT MEMBER MUMBAI, DATED 26 TH NOVEMBER, 2012 PARIDA COPY TO: 1. THE APPELLANT 2. THE RESPONDENT 3. COMMISSIONER OF INCOME TAX (APPEALS),3, MUMBAI 4. COMMISSIONER OF INCOME TAX, 11, MUMBAI 5. DEPARTMENTAL REPRESENTATIVE, BENCH F MUMBAI //TRUE COPY// BY ORDER ASSTT. REGISTRAR, ITAT, MUMBAI