NEPTUNE DEVELOPERS LTD, MUMBAI V. D CIT 10(2), MUMBAI

ITA 6854/MUM/2014

• Counselvise Citation: [2017] 128 COUNSELVISE.COM (IT) 0580 (ITAT-MUMBAI)
• Duration Of Justice: 2 year(s) 6 month(s) 21 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 02-06-2017
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: B
• Next Hearing Date: 03-03-2017
• Assessment Year: 2010-2011
• Appeal Filed On: 11-11-2014
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Earning of tax free income
• Section: 14A; 2

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCHES B , MUMBAI BEFORE S HRI B.R. BASKARAN (AM) AND SHRI RAM LAL NEGI (JM) ITA NO. 6854 /MUM/20 1 4 ASSESSMENT YEAR: 2010 - 2011 M/S NEPTUNE DEVELOPERS LTD., (PREVIOUSLY KNOWN AS NEPTUNE DEVELOPERS PVT. LTD.), 3 RD FLOOR, NEPTUNE HOUSE, KARMA STAMBH, LBS MARG, VIKROLI (WEST), MUMBAI - 400083 PAN: AACCN0234C VS. THE DCIT 10(2), AAYAKAR BHAVAN, M.K. ROAD, CHURCHGATE, MUMBAI (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI PARESH SHAPARIA (AR) RESPONDENT B Y : SHRI PURUSHOTTAM KUMAR (DR) DATE OF HEARING: 03/03 /201 7 DATE OF PRONOUNCEMENT: 02 / 0 6 /201 7 O R D E R PER RAM LAL NEGI, JM THIS APPEAL HAS BEEN FILED BY THE ASSESSEE AGAINST ORDER DATED 21/08/2014 PASSED BY LD. CIT (APPEALS ) - 22 , MUMBAI FOR THE A S S ESSMENT YEAR 2010 - 2011 , WHEREBY THE LD. CIT(A) HAS DISMISSED THE APPEAL FILED BY THE ASSESSEE AGAINST ASSESSMENT ORDER PASSED U/S 143 (3) OF THE INCOME TAX ACT, 1961 (FOR SHORT THE ACT). 2. BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE COMPANY ENGAGED IN THE BUSINESS OF CONSTRUCTION OF RESIDENTIAL AND COMMERCIAL BUILDINGS , FILED ITS RETURN OF INCOME FOR THE ASSESSMENT YEAR 2010 - 11 DECLARING THE TOTAL INCOME OF RS. 11,91,10,530/ - . THE RETURN WAS PROCESSED AND ASSESSMENT ORDER U/S 143 2 I TA NO. 6854/MUM/2014 ASSESSMENT YEAR: 2010 - 2011 (3) OF THE ACT WAS PASSED DETERMINING THE TOTAL INCOME OF THE ASSESSEE AT RS. 12,16,16,050/ - AFTER MAKING DISALLOWANCE OF RS. 25,05,518/ - U/S 14A OF THE ACT. THE ASSESSMENT ORDER WAS CHALLENGED BEFORE THE CIT (A) IN THE FIRST APPEAL. THE LD. CIT (A) AFTER HEARING THE ASSESSEE CONFIRMED THE DISALLOWANCE AFORESAID MADE U/S 14A OF THE ACT AND DISMISSED THE APPEAL OF THE ASSESSEE. 3 . AGGRIEVED BY THE IMPUGNED ORDER PASSED BY THE LD. CIT (APPEALS) , THE ASSESSE E HA S PREFERRED THIS APPEAL BEFORE THE TRIBUNAL ON THE FOLLOWING EFFECTIVE GROUNDS: - I. DISALLOWANCE U/S 14A R.W. RULE 8D OF RS. 25,05,518/ - 1. THE LEARNED CIT (A) ERRED IN CONFIRMING DISALLOWANCE OF RS. 25,05,518/ - U/S 14A R.W. RULE 8D OVER AND ABOVE DISALLOWANCE ALREADY MADE BY THE APPELLANT OF RS. 5,67,028/ - . 2. THE LEARNED CIT (A) OUGHT NOT TO HAVE CONFIRMED DISALLOWANCE OF RS. 25,05,518/ - U/S 14A R.W. RULE 8D. 3. THE DISALLOWANCE OF RS. 25,05,518/ - U/S 14A R.W. RULE 8D REQUIRES TO BE DELETED. II. NON ADJUDICATION OF GROUND NO. II WRONG CHARGING OF INTEREST U/S 234C 1. THE LEARNED CIT (A) ERRED IN NOT ADJUDICATING THE GROUND NO. II WRONG CHARGING OF INTEREST U/S 234C. 2. THE LEARNED CIT (A) OUGHT TO HAVE ADJUDICATED GROUND NO. II - WRONG CHARGING OF INTEREST U/S 234C . 3. THE GROUND NO. II WRONG CHARGING OF INTEREST U/S 234C REQUIRES TO BE ADJUDICATED. 4. WITHOUT PREJUDICE TO THE ABOVE, A SEPARATE RECTIFICATION IS BEING FILED WITH THE CIT (A) FOR ADJUDICATION OF GROUND NO. II . 4. BEFORE US, THE LD. COUNSEL FOR THE ASSESS EE SUBMITTED THAT THE PROVISIONS OF SECTION 14A R.W. RULE 8D IS NOT APPLICABLE IN THE ASSESSEES CASE. THE 3 I TA NO. 6854/MUM/2014 ASSESSMENT YEAR: 2010 - 2011 ASSESSEE EARNED DIVIDEND INCOME OF RS. 2,46,760/ - DURING THE FINANCIAL YEAR RELEVANT TO THE ASSESSMENT YEAR UNDER CONSIDERATION. THE ASSESSEE HAS ALR EADY MADE SUO MOTU DISALLOWANCE OF A SUM OF RS. 5,67,028/ - U/S 14A OF THE ACT. THE DISALLOWANCE U/S 14A CANNOT EXCEED THE EXEMPT INCOME AND IN THE PRESENT CASE EXEMPT INCOME BEING RS. 2,46,760/ - , THE DISALLOWANCE SHOULD BE RESTRICTED TO THE SAID AMOUNT ONL Y. THE LD. COUNSEL FURTHER POINTED OUT THAT THE ASSESSEE HAD THE TOTAL INTEREST FREE FUNDS TO THE TUNE OF RS. 416,32,32,343/ - AS ON 31/03/2010. WHEREAS THE TOTAL INVESTMENT DURING THE FINANCIAL YEAR 2009 - 10 WAS RS. 93,24,34,103/ - . THE INVESTMENTS ARE STRAT EGIC INVESTMENTS FOR GETTING COMMERCIAL BENEFITS BUT FOR HAVING CONTROL OVER THE BUSINESS OF SUBSIDIARIES AND ASSOCIATES. SINCE THE INVESTMENTS ARE IN GROUP COMPANIES, NO EXPENDITURE WAS INCURRED FOR MAINTAINING THE PORTFOLIO ON THESE INVESTMENTS OR FOR HO LDING THE SAME. THE ASSESSEE RECEIVED INTEREST OF RS. 15,55,04,351/ - AND PAID INTEREST OF RS. 59,75,354/ - , THEREFORE, THE NET INTEREST EARNED IS RS. 14,95,01,429/ - . THEREFORE, NO INTEREST SHOULD BE CONSIDERED FOR DISALLOWANCE AS NO N INTEREST BEARING FUNDS HA VE BEEN UTILIZED FOR INVESTMENT IN THE SHARE AND PARTNERSHIP FIRM. THE LD. COUNSEL RELIED ON THE DECISIONS OF HONBLE BOMBAY HIGH COURT RENDERED IN CIT VS. HDFC BANK LIMITED 366 ITR 505 (BOM), CIT VS. RELIANCE UTILITIES AND POWER LTD. 313 ITR 340 (BOM) AND DECISIONS OF MUMBAI TRIBUNAL RENDERED IN GARWARE WALL ROPES LTD. VS. ADDL CIT TAXMANN.COM 18 (MUM TRIB . ) TO SUBSTANTIATE THE CONTENTION OF THE ASSESSEE. 5 . ON THE OTHER HAND, THE LD. DEPARTMENTAL REPRESENTATIVE (DR) RELIED ON THE ORDER PASSED BY THE LD.CIT (A). 6 . WE HAVE HEARD THE RIVAL SUBMISSIONS AND ALSO GONE THROUGH THE MATERIAL PLACED ON RECORD. WE NOTICE THAT THE ASSESSEE COMPANY HAD THE CAPITAL OF RS. 416,32,32,343/ - IN THE FORM OF RESERVE CAPITAL/INTEREST FREE UNSECURED LOAN AND AMOUNT RECEI VED AS ADVANCE FROM CUSTOMERS. THE TOTAL INVESTMENT DURING 4 I TA NO. 6854/MUM/2014 ASSESSMENT YEAR: 2010 - 2011 THE FINANCIAL YEAR RELEVANT TO THE ASSESSMENT YEAR UNDER CONSIDERATION WAS RS. 93,24,34,103/ - . WE FURTHER NOTICE THAT THE ASSESSEES INTEREST INCOME IS HIGHER THAN THE INTEREST EXPENDITURE. IN CIT VS. HDFC BANK LTD. 366 ITR 505 (BOM , ) T HE HONBLE JURISDICTIONAL HIGH COURT , FOLLOWING ITS EARLIER VERDICT GIVEN IN RELIANCE UTILITIES AND POWER LTD. 313 ITR 340 (BOM) , HAS HELD THAT WHERE ASSESSEES CAPITAL, PROFIT RESERVES, SURPLUS AND CURRENT ACCOUNT DE POSITS ARE HIGHER THAN THE INVESTMENT IN TAX - FREE SECURITIES, IT WOULD HAVE TO BE PRESUMED THAT INVESTMENT MADE BY THE ASSESSEE WOULD BE OUT OF THE INTEREST FREE FUNDS AVAILABLE WITH ASSESSEE AND NO DISALLOWANCE IS WARRANTED U/S 14A. ACCORDINGLY, WE DIRECT THE AO TO DELETE THE DISALLOWANCE OF INTEREST MADE UNDER RULE 8D(2)(II). 7 . IN RESPECT OF DISALLOWANCE UNDER RULE 8D(2)(III) THE STRATEGIC INVESTMENTS ARE REQUIRED TO BE EXCLUDED AS PER THE DECISION OF THE MUMBAI TRIBUNAL IN GARWARE WALL ROPES LTD. VS. AD DL CIT ( SUPRA) . ACCORDINGLY, WE DIRECT THE AO TO RECOMPUTE THE DISALLOWANCE BY EXCLUDING STRATEGIC INVESTMENTS OF THE ASSESSEE. 8 . THE GROUND OF APPEAL RELATING TO SECTION 234C INTEREST IS CONSEQUENTIAL IN NATURE. SINCE, WE HAVE SET ASIDE THE IMPUGNED ORD ER AND DIRECTED THE AO TO PASS THE ASSESSMENT ORDER AFRESH, THIS GROUND DOES NOT REQUIRE ADJUDICATION AT THIS STAGE. IN THE RESULT, APPEAL FILED BY THE ASSESSEE FOR THE ASSESSMENT YEAR 2010 - 2011 IS ALLOWED FOR STATISTICAL PURPOSES. ORDER PRONOU NCED IN THE OPEN COURT ON 2 ND JUNE , 2017 . SD/ - SD/ - ( B.R. BASKARAN ) ( RAM LAL NEGI ) ACCOUNTANT MEMBER JUDICIAL MEMBER MUMBAI ; DATED: 02 / 0 6 / 2017 5 I TA NO. 6854/MUM/2014 ASSESSMENT YEAR: 2010 - 2011 ALINDRA 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 . / BY ORDER, //TRUE COPY// / (DY./ASSTT. REGISTRAR) , / ITAT, MUMBAI