ACIT 10(2), MUMBAI V. HINDUSTAN COMPOSITIES LTD, MUMBAI

ITA 6842/MUM/2014

• Counselvise Citation: [2016] 132 COUNSELVISE.COM (IT) 2625 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 8 month(s) 3 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 13-07-2016
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: H
• Assessment Year: 2010-2011
• Appeal Filed On: 10-11-2014
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: RANDHIR GUPTA
• Assessee Lawyers: R S GORDIA
• Keywords: Earning of tax free income
• Section: 14A

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL H BE NCH, MUMBAI BEFORE SHRI B.R. BASKARAN, ACCOUNTANT MEMBER AND SHRI C.N. PRASAD, JUDICIAL MEMBER / I .TA NO. 6842/MUM/2014 ( / ASSESSMENT YEAR:2010-11 THE ACIT - 10(2), AAYKAR BHAVAN, MUMBAI-400 020 / VS. M/S. HINDUSTAN COMPOSITES LTD., B-11, PARAGON CONDOMINIUM, PANDURANG BUDHKAR MARG, WORLI,MUMBAI-400 078 ./ ./ PAN/GIR NO. AAACH 0973N ( / APPELLANT ) .. ( / RESPONDENT ) / APPELLANT BY: SHRI RANDHIR GUPTA / RESPONDENT BY: SHRI R.S. GORDIA / DATE OF HEARING :02.06.2016 ! / DATE OF PRONOUNCEMENT :13.07.2016 / O R D E R PER C.N. PRASAD, JM: THIS APPEAL IS FILED BY THE REVENUE AGAINST THE OR DER OF THE LD. CIT(A)-21, MUMBAI DATED 1.8.2014 PERTAINING TO ASS ESSMENT YEAR 2010-11. 2. THE ONLY ISSUE IN REVENUES APPEAL IS THAT THE L D. CIT(A) ERRED IN DIRECTING THE ASSESSING OFFICER TO RESTRICT THE DISALLOWANCE U/S. 14A R.W. RULE 8D TO 0.5% OF THE AVERAGE INVESTMENT. 3. THE ASSESSING OFFICER WHILE COMPLETING THE ASSES SMENT DISALLOWED INTEREST OF RS. 53,75,374/- UNDER RULE 8D(2)(II) AND RS. ITA NO. 6842/M/2014 2 46,30,726/- BEING 0.5% OF AVERAGE VALUE OF INVESTM ENT WAS DISALLOWED UNDER RULE 8D(2)(III) OF THE ACT TOWARDS EXPENSES ATTRIBUTABLE FOR EARNING EXEMPT INCOME U/S. 14A OF THE ACT. 3. ON APPEAL, THE LD. CIT(A) DELETED THE DISALLOWA NCE IN SO FAR AS THE INTEREST DISALLOWANCE OF RS. 53,75,374/- IS CON CERNED BUT SUSTAINED THE DISALLOWANCE IN RESPECT OF 0.5% OF TH E AVERAGE INVESTMENTS TOWARDS ADMINISTRATIVE EXPENSES. 4. THE REVENUE IS IN APPEAL AGAINST THE DELETION OF DISALLOWANCE OF INTEREST. 5. THE LD. DEPARTMENTAL REPRESENTATIVE SUPPORTING THE ORDER OF THE ASSESSING OFFICER VEHEMENTLY SUBMITS THAT THE L D. CIT(A) IS NOT JUSTIFIED IN DELETING THE DISALLOWANCE OF RS. 53,75 ,374/- IN RESPECT OF INTEREST UNDER RULE 8D(2)(II). 6. THE LD. COUNSEL FOR THE ASSESSEE VEHEMENTLY SUPP ORTS THE ORDERS OF THE LD. CIT(A) AND SUBMITS THAT ASSESSEE HAS SUFFICIENT SURPLUS FUNDS TO MAKE THE INVESTMENTS AND THEREFORE NO PART OF THE BORROWED LOANS WERE UTILIZED FOR INVESTMENTS HENCE EXPENSES TOWARDS INTEREST CANNOT BE DISALLOWED UNDER RULE 8D (2)(II). HE FURTHER PLACES RELIANCE ON THE JURISDICTIONAL HIGH COURT IN THE CASE OF CIT VS HDFC BANK IN I.T APPEAL NO. 30 OF 2012 & CIT VS RELIANCE UTILITIES & POWER LTD., (313 ITR 340) (BOM) IN SUP PORT OF HIS CONTENTIONS. ITA NO. 6842/M/2014 3 7. WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE ORDERS OF THE AUTHORITIES BELOW. IT IS THE FINDINGS OF THE L D. CIT(A) THAT ASSESSEES SHARE CAPITAL IS RS. 5.50 CRORES, RESERV ES AND SURPLUS OF THE ASSESSEE STOOD AT RS. 486.46 CRORES AND WHEREAS TH E INVESTMENTS FOR EARNING EXEMPT INCOME WAS RS. 14.98 CRORES, THEREFO RE SINCE THE RESERVES AND SURPLUS FUNDS ARE FAR MORE THAN THE IN VESTMENTS, THE LD. CIT(A) DELETED THE DISALLOWANCE OBSERVING AS UNDER: I HAVE CONSIDERED THE FACTS AND CIRCUMSTANCES OF THE CASE AND VERIFIED THE FACTS OF THE CASE. THE A PPELLANTS SHARE CAPITAL IS RS. 5.50 CRORES, RESERVES & SURPLU S OF RS. 486.46 CRORES AND APPELLANTS INVESTMENTS FOR EAR NING THE EXEMPT INCOME IS RS. 14.98 CVRORES. HERE APPELLANT S SHARE CAPITAL AND RESERVES IS MUCH MORE THAN THE INVESTME NT. IN VIEW OF BOMBAY HIGH COURT DECISION IN THE CASE OF CIT VS RELIANCE UTILITIES & POWER LTD 313 ITR 340 (BOM) WH EREIN IT IS HELD THAT IF THE SHARE CAPITAL, RESERVES & S URPLUS IS MORE THAN THE INVESTMENT WHICH IS TO BE CONSIDERED THAT APPELLANT HAD INVESTED FROM THE OWN FUNDS, HENCE, N O INTEREST EXPENDITURE CAN BE DISALLOWED. SAME VIEW IS HELD IN CIT VS HDFC BANK IN ITA NO. 330 OF 2012 (BOMBAY HIGH COURT), CIT VS UTI BANK LTD, ITA NO. 180/2013 (GUJ) , CIT VS GUJARAT STATE FERTILIZERS AND CHEMICAL LTD 358 I TR 323 (GUJ). FOLLOWING THE ABOVE DECISIONS, DISALLOWANCE FOR INTEREST EXPENDITURE OF RS. 53,75,374/- IS DELETED. HOWEVER, THE ASSESSING OFFICER IS DIRECTED TO COMPU TE 0.5% OF THE AVERAGE INVESTMENTS FOR THE EXPENDITURE UNDE R ADMINISTRATIVE EXPENSES. THIS GROUND OF APPEAL IS PARTLY ALLOWED. 8. ON READING OF THE LD. CIT(A), WE DO NOT FIND ANY VALID REASON TO DISTURB THE FINDINGS ESPECIALLY WHEN THERE IS NO EV IDENCE PLACED ON RECORD TO REBUT THE FINDINGS OF THE LD. CIT(A). TH EREFORE, WE SUSTAIN THE ORDERS OF THE LD. CIT(A). ITA NO. 6842/M/2014 4 9. IN THE RESULT, THE APPEAL FILED BY THE REVENUE IS DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 13 TH JULY, 2016. SD/- SD/- (B.R. BASKARAN) (C.N. PRASAD ) ' / ACCOUNTANT MEMBER $ %' /JUDICIAL MEMBER MUMBAI; (' DATED 13 TH JULY, 2016 . % . ./ RJ , 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. , /01 / GUARD FILE. / BY ORDER, *% //TRUE COPY// / (DY./ASSTT. REGISTRAR) , / ITAT, MUMBAI