K . RAHEJA CORP P. LTD, MUMBAI V. ASST CIT CEN CIR 29, MUMBAI

ITA 6900/MUM/2011

• Counselvise Citation: [2016] 132 COUNSELVISE.COM (IT) 4266 (ITAT-MUMBAI)
• Duration Of Justice: 4 year(s) 5 month(s) 23 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 04-04-2016
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: A
• Next Hearing Date: 23-03-2015
• Assessment Year: 2008-2009
• Appeal Filed On: 11-10-2011
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: P J PARDIWALA
• Section: 143(3); 14A

Judgement Text

1 INCOME TAX APPELLATE TRIBUNAL,MUMBAI- A,BENCH , , BEFORE S/SHJOGINDER SINGH,JUDICIAL MEMBER & RAJENDRA,ACCOUNTANT MEMBER ./ITA NO./6900/MUM/2011, / ASSESSMENT YEAR: 2008-09 M/S. K. RAHEJA CORPORATION PVT. LTD. RAHEJA TOWER, PLOT NO.C-30,G-BLOCK, OPP. SIDBI, BKC ,BANDRA (E),MUMBAI-400 051. PAN:AAACP 0522 B VS. ACIT , CENTRAL CIRCLE-29 MUMBAI. ( /APPELLANT ) ( / RESPONDENT ) REVENUE BY: SHRI ARVIND KUMAR ASSESSEE BY: SHRI P.J. PARDIWALA & MS. AARTI SATHE / DATE OF HEARING: 04.04.2016 / DATE OF PRONOUNCEMENT: 04.04.2016 ,1961 254(1) ORDER U/S.254(1)OF THE INCOME-TAX ACT,1961(ACT) PER RAJENDRA A.M. - CHALLENGING THE ORDER DT. 25.08.2011OF CIT(A) THE A SSESSEE HAS FILED THE PRESENT APPEAL. ASSESSEE-COMPANY,ENGAGED IN THE BUSINESS OF REAL ES TATE DEVELOPMENT AND HOTELIER,FILED ITS RETURN OF INCOME DECLARING TOTAL INCOME OF RS.38,25 ,67,357/-.THE AO COMPLETED THE ASSESSMENT ON 30.12.2012,U/S. 143(3) OF THE ACT,DET RMINING THE INCOME OF THE ASSESSEE AT RS. 47.72 CRORES. 2. EFFECTIVE GROUND OF APPEAL IS DISALLOWANCE MADE U/ S. 14A R.W.R RULE 8D OF THE INCOME TAX RULES,1961(RULES),AMOUNTING TO 9.45 CRORES.DURING T HE ASSESSMENT PROCEEDINGS,THE AO FOUND THAT ASSESSEE HAD RECEIVED DIVIDEND OF 5.93CR ORES,THAT IT HAD MADE INVESTMENT OF 141.80 CRORES IN THE SHARES OF VARIOUS COMPANIES,TH AT THE ASSESSEE HAD PAID INTEREST ON BORROWED FUNDS.HE ASKED THE ASSESSEE AS TO WHY INTE REST RELATABLE TO BORROWED FUNDS USED IN MAKING INVESTMENT IN SHARES SHOULD NOT BE DISALLOWE D U/S.14A OF THE ACT.VIDE,ITS LETTER DT. 22.11.2010,THE ASSESSEE SUBMITTED THAT IT HAD SUFFI CIENT NON-INTEREST BEARING FUNDS THAT NO DISALLOWANCE OF INTEREST WAS CALLED FOR,THAT THE AD DITIONS MADE BY THE AO,IN THE EARLIER YEARS WERE DELETED BY THE TRIBUNAL/FIRST APPELLATE AUTHOR ITY(FAA).HOWEVER,THE AO HELD THAT THE ASSESSEE HAD MADE INVESTMENT IN SHARES OF GROUP COM PANIES,THAT IT HAD USED THE BORROWED FUNDS FOR THE PURPOSE OF BUSINESS.REFERRING TO THE PROVISONS OF SECTION 14 R.W.RULE 8D,THE AO MADE A DISALLOWANCE OF RS.9.45 CORES(RS.8.77 CRO RES UNDER RULE 8D(II)+ RS.68.69 LAKHS UNDER RULE 8D(III)OF THE RULES). 3. DURING THE APPELLATE PROCEEDINGS BEFORE THE FAA,THE ASSESSEE ARGUED THAT INVESTMENT IN SHARES HAD BEEN MADE OUT OF NON INTEREST BEARING FU NDS,THAT IT HAD SOLD SHARES WORTH RS.32.33 CRORES.THE ASSESSEE RELIED UPON THE CASE OF RELIANC E UTILITIES AND POWER LTD.(313ITR340). AFTER CONSIDERING THE AVAILABLE MATERIAL,THE FAA RE FERRED TO THE JUDGMENT OF GODREJ & BOYCE MFG.CO.LTD.(328 ITR 81) AND HELD THAT THE AO WAS NO T PRECLUDED FROM MAKING A REASONABLE DLSALLOWANCE U/S.14A OF THE ACT BY MAKING AN ESTIMA TE OF ATTRIBUTABLE EXPENDITURE FOR THESE EARLIER YEARS,THAT AN ATTEMPT TO MAKE A DISTINCTION BETWEEN BORROWED AND INTEREST FREE FUNDS FOR THE PURPOSE OF SECTION 14A WAS ARTIFICIAL.FINAL LY,HE UPHELD THE ORDER OF THE AO. 2 4. BEFORE US,THE AUTHORISED REPRESENTATIVE(AR)STATED T HAT THE ASSESSEE HAD SUFFICIENT OWN FUNDS,THAT THE INVESTMENT IN SHARES,DURING THE YEAR UNDER APPEAL WAS ONLY A VERY SMALL PORTION OF THE TOTAL AVAILABLE FUND,THAT INCREASE I N INVESTMENTS WAS BECAUSE OF INVESTMENT MADE IN IMMOVABLE PROPERTIES.HE RELIED UPON THE DEC ISIONS/JUDGMENT OF THE TRIBUNAL AND HONBLE HIGH COURT DELIVERED IN ASSESSEES OWN CASE (ITA/4431-4050/MUM/2000, ITA.S. 4759-60/MUM/2001,INCOME-TAX APPEAL NO.1260 OF 2009) .DEPARTMENTAL REPRESENTATIVE (DR) SUPPORTED THE ORDER OF THE FAA. 5. WE FIND THAT THE ASSESSEE HAD SHARE CAPITAL OF RS. 60,48,00,000/-AND RESERVES & SURPLUS STOOD AT RS.1,74,67,67,552/-,WHEREAS THE INVESTMENT WAS AT RS.2,06,66,62,442/-,THAT OUT OF THE SAID INVESTMENT THE ASSESSEE HAD MADE INVESTMEN T IN PROPERTIES ALSO,THAT THE FRESH INVESTMENT IN THE SHARES WAS NOT VERY HUGE,THAT IT HAD MADE STRATEGIC INVESMENT,THAT THERE WAS NO EVIDENCE TO PROVE THAT BORROWED FUNDS WERE U TILISED FOR MAKING INVESTMENT IN SHARES.IN OUR OPINION,THE SETTLED POSITION OF LAW S TIPULATE THAT THE IF THE ASSESSEE HAS SUFFICIENT OWN FUNDS THEN IT SHOULD BE PRESUMED THAT INVESTMEN T WAS NOT MADE FROM BORROWED FUNDS. CONSIDERING THE AVAILABILITY OF FUNDS WE ARE OF THE OPINION THAT THE AO WAS NOT JUSTIFIED IN DISALLOWING INTEREST EXPENDITURE.SIMILARLY, DISALLO WANCE AS PER THE PROVISIONS OF SECTION 14A R.W.RULE 8D OF THE RULES CANNOT BE MADE IN A MECHAN ICAL MANNER.THIRDLY,THE DISALLOWANCE CANNOT BE MORE THAN THE EXPENDITURE CLAIMED BY AN A SSESSEE.WE FIND THAT IN THE CASE OF THE ASSESSEE THE TRIBUNAL AND THE HONBLE HIGH COURT HA D DECIDED THE IDENTICAL ISSUE AGAINST THE AO,WHILE DECIDING THE APPEAL FILED BY THE GROUP CON CERNS AND THE ASSESSEE ITSELF . RESPECTFULLY, FOLLOWING THE ORDERS MENTIONED IN PAR A NO.4 ,WE DECIDE THE EFFECTIVE GROUND OF APPEAL IN FAVOUR OF THE ASSESSEE. AS A RESULT,APPEAL FILED BY THE ASSESSEE STANDS ALLOWED. . ORDER PRONOUNC ED IN THE OPEN COURT ON 4 TH APRIL, 2016. 04 , 2016 SD/- SD/- /JOGINDER SINGH) ( / RAJENDRA) / JUDICIAL MEMBER / ACCOUNTANT MEMBER MUMBAI; DATED :04.04.2016. JV.SR.PS. / COPY OF THE ORDER FORWARDED TO : 1. APPELLANT / 2. RESPONDENT / 3. THE CONCERNED CIT(A)/ , 4. THE CONCERNED CIT / 5. DR A BENCH, ITAT, MUMBAI / , A , . . . 6. GUARD FILE/ //TRUE COPY// / BY ORDER, / DY./ASST. REGISTRAR , /ITAT, MUMBAI.