ACIT 8(3), MUMBAI V. SKY GOURMET CATERING P.LTD, MUMBAI

ITA 6887/MUM/2012

• Counselvise Citation: [2014] 140 COUNSELVISE.COM (IT) 83877 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 10 month(s) 15 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 25-09-2014
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: E
• Next Hearing Date: 25-09-2014
• Assessment Year: 2009-2010
• Appeal Filed On: 09-11-2012
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: NITESH JOSHI
• Assessee Lawyers: VIJAY KUMAR VORA
• Keywords: Earning of tax free income; Proportionate interest; Tax effect
• Section: 14A

Judgement Text

, , , , , IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCHES E, MUMBAI .., ! , ' , # BEFORE SHRI I.P.BANSAL, JM AND SHRI RAJENDRA, AM ITA NO.6887/MUM/2012(A.Y. 2009-10) THE ACIT 8(3), ROOM NO.217, AAYKAR BHAVAN, M.K.ROAD, MUMBAI. M/S.SKY GOURMET CATERING PVT. LTD., OFF INTERNATIONAL AIRPORT, APPROACH ROAD, MAROL, ANDHERI (E), MUMBAI 400 059 PAN : AABCG 7068 G ( $% / // / APPELLANT) ' ' ' ' / VS. ( ()$%/ RESPONDENT) $% * + * + * + * + /APPELLANT BY :SHRI NITESH JOSHI ()$% * + * + * + * + /RESPONDENT BY : SHRI VIJAY KUMAR VORA ' * ,-' / / / / DATE OF HEARING : 25.09.2014 ./0 * ,-' / DATE OF PRONOUNCEMENT : 25.09.2014 1 1 1 1 / / / / O R D E R PER I.P.BANSAL (JM) : THIS APPEAL FILED BY THE REVENUE IS DIRECTED AGAINS T THE ORDER PASSED BY LD.CIT(A)-18, MUMBAI DATED 21.08.2012 FOR THE ASSES SMENT YEAR 2009-10. GROUNDS OF APPEAL ARE HEREUNDER:- ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE CIT(A) ERRED IN DELETING THE DISALLOWANCE U/S 14A O F PROPORTIONATE INTEREST OF RS.36,21,985/- UNDER LIMB (II) OF RULE 8D(2). ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE A ND IN LAW, THE CIT(A) ERRED IN DELETING THE DISALLOWANCE COMPUTED BY THE AO AS PER RULE 8D(2)(II) BY DIRECTING THE AO TO EXCLUDE INTEREST O F RS.10.86 CR. ON THE GROUNDS THAT SUCH INTEREST PERTAINED TO BUSINESS PU RPOSES WITHOUT APPRECIATION THAT UNDER RULE 8D(2)(II) ONLY INTERES T DIRECTLY ATTRIBUTABLE TO ANY PARTICULAR INCOME OR RECEIPT IS ELIGIBLE FOR EXCLUSION CONTRARY TO THE VIEW OF THE CIT(A) THAT INTEREST PERTAINING TO BORROWINGS FOR BUSINESS PURPOSES SHOULD BE EXCLUDED WHICH VIEW IS ERRONEOUS SINCE BUSINESS PURPOSES IMPLIES INVESTMENTS/EXPENDITURE A ND NOT INCOME/RECEIPT. ITA NO.6887/MUM/2012(A.Y. 2009-10) 2 2. DURING THE YEAR UNDER CONSIDERATION, THE ASSESSE E HAS EARNED DIVIDEND INCOME OF RS.55,86,449/- WHICH IS CLAIMED AS EXEMPT U/S 10(35) OF THE ACT. THE ASSESSEE WORKED OUT DISALLOWANCE OF RS.1,20,421/- B EING EXPENSES INCURRED FOR EARNING EXEMPTED INCOME. THE ASSESSEE WAS REQUIRED TO EXPLAIN THAT WHY DISALLOWANCE SHOULD NOT BE COMPUTED AS PER RULE 8D READ WITH SECTION 14A OF THE ACT. ACCORDINGLY THE AO COMPUTED DISALLOWANCE OF RS .40,88,527/- AS PER FOLLOWING TABLE. (I) THE AMOUNT OF EXPENDITURE DIRECTLY RELATING TO INCOME WHICH DOES NOT FORM PART OF TOTAL INCOME (II) PROPORTIONATE OF INTEREST EXPENDITURE COMPUTED IN ACCORDANCE WITH THE FORMULA GIVEN IN RULE8D(2)(II) (A X B/C) RS.36,21,985 /- (III) AMOUNT EQUAL TO ONE HALF PERCENT OF THE AVERAGE FOR THE VALUE OF INVESTMENT, INCOME FROM WHICH DOES NOT OR SHALL NOT FORM PART OF THE TOTAL INCOME AS APPEARING IN THE BALANCE SHEET OF THE ASSESSEE, ON THE FIRST DAY AND THE LAST DAY OF THE PREVIOUS YEAR. 0.5% OF 93,308,446/- RS.4,66,542/- TOTAL EXPENDITURE DISALLOWED U/S14A RS.40,88,527 /- NOTE (I) A= INTEREST (FINANCE COST) DEBITED TO PROFIT & LOSS A/C= RS.12,13,42,747/- (II) B= AVERAGE OF EXEMPT INCOME BEARING INVESTMENT S = RS.9,33,08,446/- (III) C= AVERAGE OF TOTAL ASSETS APPEARING IN THE B ALANCE SHEET ON THE FIRST AND LAST DAY OF THE PREVIOUS YEAR = RS.3,12,59,94,1 26/- B AVERAGE VALUE OF INVESTMENTS = OPENING BALANCE OF INVESTMENTS + CLO SING BAL. OF INVESTMENTS 2 C AVERAGE VALUE OF TOTAL ASSETS = OPENING BALANCE OF TOTAL ASSETS + CLOSI NG BALANCE OF TOTAL ASSETS 2 = 2,938,117,205 + 3,313,871,047 = RS.3,12,59,94,126/- BY REDUCING THE SUM ALREADY DISALLOWED BY THE ASSES SEE OF A SUM OF RS.1,20,421/- BALANCE AMOUNT OF RS.39,68,106/- WAS DISALLOWED U/S 14A. THE DISALLOWANCE WAS AGITATED IN THE APPEAL FILED BEFOR E CIT(A). BEFORE CIT(A) IT WAS CONTENDED THAT THE ASSESSEE DID NOT INVEST ANY INTEREST BEARING FUND IN THE INVESTMENTS ON WHICH THE EXEMPTED INCOME IS EARNED. FOR SUBSTANTIATING SUCH ITA NO.6887/MUM/2012(A.Y. 2009-10) 3 EXPLANATION, THE ASSESSEE HAD SUBMITTED VARIOUS DAT A TO THE LD. CIT(A), ACCORDING TO WHICH IT WAS DESCRIBED THAT ITS OWN FUNDS WERE TO THE TUNE OF RS.152.45 CRORE AS AGAINST SIMILAR FUNDS AVAILABLE IN THE LAST Y EAR AS ON 31.03.2008 OF RS.134.60 CRORES. THESE FIGURES CAN BE FOUND IN THE TABLE REPRODUCED AT PAGE 4 OF THE ORDER OF THE LD. CIT(A). REFERENCE WAS MAD E TO THE DECISION BY THE HONBLE BOMBAY HIGH COURT, IN THE CASE OF CIT VS. RELIANCE UTILITIES AND POWER LTD. 313 ITR 340 TO CONTEND THAT IN VIEW OF AVAILABILITY OF SUFFIC IENT OWN FUNDS, NO INTEREST COULD BE ATTRIBUTED TO THE INVESTMENT MADE FOR EARN ING TAX FREE INCOME. TABLE IS AS UNDER:- PARTICULARS 31.03.2009(RS.) 31.03.2008 (RS.) NET OWN FUND SHARE CAPITAL RESERVES & SURPLUS [SHARE CAPITAL+ RESERVES & SURPLUS] LESS DEBIT BALANCE OF PROFIT & LOSS ACCOUNT NEW OWN FUNDS(A) LESS: INVESTMENTS (B) OWN FUNDS-INVESTMENTS (A-B) 51,14,400 158,61,31,322 159,12,45,722 1,36,33,150 43,70,020 147,52,35,730 147,96,05,750 157,76,12,572 147,96,05,750 5,30,87,637 13,35,29,256 152,45,24,935 134,60,76,494 FURTHER IT WAS POINTED OUT THAT THE BORROWED INT EREST BEARING FUNDS WERE UTILIZED FOR THE SPECIFIC PURPOSE FOR WHICH THEY WERE OBTAINED AND THESE WERE NOT USED AT ALL FOR MAKING THE INVESTMENT FROM WHER E THE TAX FREE INCOME HAS BEEN EARNED. PARTICULARS REGARDING INTEREST BEARING FUNDS WERE SUBMITTED IN THE FOLLOWING TABLE WHICH IS REPRODUCED AT PAGE 5 OF TH E ORDER OF THE LD. CIT(A). SL NO. PARTICULARS AMOUNT (RS.) AMOUNT (RS.) 1 (A)INTEREST ON TERM LOAN FROM SBI 8,76,68,872 (B)INTEREST ON CASH CREDIT FROM SBI 2,11,22,942 10 ,87,91,814 2 INTEREST ON VEHICLE LOAN 1,25,50,933 3 FINANCE CHARGES ON CASH CREDIT FROM SBI 7,93,304 TOTAL 12,21,36,051 3. AFTER EXAMINING SUCH CLAIM OF THE ASSESSEE, LD. CIT(A) OBSERVED THAT FOLLOWING INTEREST EXPENDITURE IS DIRECTLY RELATABL E TO EARNING THE TAXABLE INCOME ITA NO.6887/MUM/2012(A.Y. 2009-10) 4 THEREFORE, THESE CANNOT BE CONSIDERED WHILE WORKIN G OUT THE DISALLOWANCE U/S 14A READ WITH RULE 8D. SL NO. PARTICULARS AMOUNT (RS.) 1 INTEREST ON TERM LOAN FROM SBI 4,34,13,677/- 2 INTEREST ON TERM LOAN FROM DYNASTY DEV 32,00,000/- TOTAL 4,66,13,677/- THEREFORE, THE LD. CIT(A) HAS DIRECTED THE AO TO EX CLUDE THE ABOVE INTEREST EXPENDITURE OF RS.4,66,13,677/- WHILE WORKING OUT T HE DISALLOWANCE U/S 14A READ WITH RULE 8D AND FINAL CONCLUSION OF LD. CIT(A) REG ARDING DELETION OF INTEREST EXPENDITURE OF RS.36,21,985/- AS CONTEND IN PARA 2. 2 OF THE IMPUGNED ORDER READ AS UNDER:- 2.2 I HAVE CONSIDERED THE SUBMISSIONS OF THE LD. C OUNSEL AND PARTICULARLY THE FACT THAT IN A.Y. 2008-09 WHEN THE FACTS WERE IDENTICAL THE FINDINGS WERE GIVEN BY ME THAT SINCE THE INTERE ST RELATES TOTALLY TO TAXABLE INCOME LIKE IN THE PRESENT CASE IT IS SEEN THAT THE INTEREST OF RS.12,21,36,051/- RELATES TOTALLY TO THE BUSINESS I NCOME OF WHICH IS DULLY TAXABLE:- SL NO. PARTICULARS AMOUNT (RS.) AMOUNT (RS.) 1 (A)INTEREST ON TERM LOAN FROM SBI 8,76,68,872 (B)INTEREST ON CASH CREDIT FROM SBI 2,11,22,942 10 ,87,91,814 2 INTEREST ON VEHICLE LOAN 1,25,50,933 3 FINANCE CHARGES ON CASH CREDIT FROM SBI 7,93,304 TOTAL 12,21,36,051 HENCE FOLLOWING THE FINDINGS OF MY EARLIER ORDER IN A.Y. 2008-09 THE DISALLOWANCE OF RS.36,21,985/- IS HEREBY DELETE D. FURTHER, THE OTHER PLEA OF THE LD. COUNSEL TO REST RICT THE DISALLOWANCE IN THE THIRD LIMB OF RULE 8D (0.5% OF AVERAGE VALUE OF INVESTMENT) IS NOT ACCEPTED BECAUSE RULE 8D THIRD L IMB PRESCRIBES 0.5% AS DISALLOWANCE ON THE AVERAGE VALUE OF INVESTMENT INCOME FROM WHICH DOES NOT OR SHALL NOT FORM PART OF THE TOTAL INCOME AS APPEARING IN THE BALANCE SHEET ON THE FIRST DAY AND THE LAST DAY OF PREVIOUS YEAR AND THIS DISALLOWANCE COMES TO RS.4,66,542/- WHICH IS S USTAINED AND ACTION OF AO ON THIS POINT ONLY IS CONFIRMED. HENCE, THIS GROUND OF APPEAL IS PARTLY ALLOWED. 4. IN THE PRESENT APPEAL REVENUE HAS AGITATED THE D ECISION OF THE LD. CIT(A) IN DELETING THE PROPORTIONATE INTEREST OF RS.36,21,985 /- AS CALCULATED BY THE AO AS ITA NO.6887/MUM/2012(A.Y. 2009-10) 5 PER FORMULA DONE IN RULE 8D WHICH CALCULATION HAS ALREADY BEEN REPRODUCED IN THE ABOVE PART OF THIS ORDER. 5. AS IT CAN BE SEEN FROM THE FINDINGS RECORDED BY THE LD. CIT(A) THAT HE HAS RELIED UPON HIS DECISION RENDERED IN RESPECT OF ASS ESSMENT YEAR 2008-09. DURING OF HEARING OF THIS APPEAL LD. DR HAS FURNISHED COPY OF LETTER DATED 22.08.2014 RECEIVED FROM THE CONCERNED AO STATING THE POSITION TAKEN BY THE DEPARTMENT IN A.Y. 2008-09 AGAINST THE ORDER OF THE LD. CIT(A) VI DE WHICH DECISION ON DISALLOWANCE U/S 14A READ WITH RULE 8D WAS RENDERED . IN THE SCRUTINY REPORT ATTACHED WITH THE SAID LETTER NO APPEAL HAS BEEN RE COMMENDED ON THE DECISION OF LD. CIT(A) ON THIS ISSUE AS PER FOLLOWING OBSERVATI ONS. SECOND GROUND OF APPEAL RELATES TO DISALLOWANCE O F RS.17,15,549 U/S 14A. DURING THE COURSE OF ASSESSMENT PROCEEDINGS THE AS SESSING OFFICER DISALLOWED RS.17,15,549/- U/S 14A OF THE AC T. LD. CIT(A) RELYING UPON THE DECISION OF HONBLE BO MBAY HIGH COURT IN THE CASE OF GODREJ & BOYCE MFG CO. LTD VS DCIT 10(2) MUMBAI HAS DIRECTED THE ASSESSING OFFICER TO RECALCULATE D ISALLOWANCE U/S 14A AS PER THE STEPS GIVEN IN THE ORDER BY CIT(A). FURT HER LD. CIT(A) HAS DIRECTED TO REDUCE RS.80,120/- WHICH THE ASSESSEE H AS DISALLOWED ON HIS OWN IN COMPUTATION OF INCOME FROM SUCH DISALLOW ANCE. DECISION OF LD.CIT(A) IS ACCEPTED. NO FURTHER APPE AL IS RECOMMENDED ON THIS ISSUE. (TAX EFFECT: RS.5,66,131/-) 6. IN THE LIGHT OF AFOREMENTIONED FACTS PRESENT APP EAL WAS HEARD. BOTH THE PARTIES SUBMITTED THEIR ARGUMENTS. LD. DR RELIED UP ON THE ORDER PASSED BY THE AO AND LD.AR SUBMITTED THAT FACTS OF THE PRESENT CASE ARE IN SIMILARITY WITH THE FACTS FOR ASSESSMENT YEAR 2008-09. IT WAS SUBMITTED BY LD .AR THAT DISALLOWANCE ON ACCOUNT OF INTEREST WAS RIGHTLY DELETED BY THE CIT( A) IN RESPECT OF ASSESSMENT YEAR 2008-09 AND THE HIGHER AUTHORITIES DID NOT RECOMMEN D ANY APPEAL AGAINST THE SAID ORDER, THEREFORE THIS GROUND OF REVENUE FOR TH E PRESENT YEAR SHOULD BE DISMISSED. LD. AR SUBMITTED THAT THE ASSESSEE HAS A CCEPTED THE ORDER OF LD. CIT(A) VIDE WHICH DISALLOWANCE IN PART HAS BEEN UPH ELD. IT WAS SUBMITTED BY LD.AR THAT THE DEPARTMENTAL APPEAL SHOULD BE DISMIS SED. ITA NO.6887/MUM/2012(A.Y. 2009-10) 6 7. WE HAVE HEARD BOTH THE SIDES AND THEIR CONTENTIO NS HAVE BEEN CONSIDERED. THE DATA MENTIONED IN THE TABLES WHICH HAVE BEEN RE PRODUCED ABOVE HAVE NOT BEEN DISPUTED BY THE REVENUE. THE INTEREST CLAIMED BY THE ASSESSEE PERTAINS TO THE AMOUNT BORROWED FOR SPECIFIC PURPOSE WHICH HAS NOT BEEN SHOWN TO BE UTILIZED FOR THE PURPOSE OF MAKING INVESTMENT IN TH E ASSETS FROM WHICH THE ASSESSEE HAS EARNED EXEMPTED INCOME. IF IT IS SO TH EN NO INTEREST CAN BE ATTRIBUTED TO THE INVESTMENT ON WHICH THE ASSESSEE HAS EARNED TAX FREE INCOME. THE ASSESSEE HAS ALSO AMPLE OWN FUNDS. KEEPING IN VIEW ENTIRETY OF THESE FACTS AND THE FACT THAT REVENUE IN IMMEDIATE PRECEDING YE AR DID NOT CHALLENGE SIMILAR DELETION OF DISALLOWANCE, WE ARE OF THE OPINION THA T NO INTERFERENCE IS CALLED FOR IN THE RELIEF GIVEN BY THE LD. CIT(A). THEREFORE, FIND ING NO MERIT IN THE DEPARTMENTAL APPEAL, WE DISMISS THE SAME. 7. IN THE RESULT, THE APPEAL FILED BY THE REVENUE I S DISMISSED . ORDER PRONOUNCED IN THE OPEN COURT ON THIS 25.09. 2 014. 1 * ./0 2'3 25.09.2014 / * : SD/- SD/- ( ! /RAJENDRA) ( .. / I.P.BANSAL) ' ' ' ' / ACCOUNTANT MEMBER / JUDICIAL MEMBER MUMBAI; 2' DATED : 25 ND SEPT. 2014. VM. 1 * (,; < ;0, 1 * (,; < ;0, 1 * (,; < ;0, 1 * (,; < ;0,/ COPY OF THE ORDER FORWARDED TO : 1. $% / THE APPELLANT 2. ()$% / THE RESPONDENT. 3. =() / THE CIT, MUMBAI. 4. = / CIT(A)., MUMBAI 5. ;@: (,' , , / DR, ITAT, MUMBAI 6. :A B / GUARD FILE. 1' 1' 1' 1' / BY ORDER, );, (, //TRUE COPY// C CC C/ // /D D D D (DY./ASSTT. REGISTRAR) , , , , / ITAT, MUMBAI