INDIA INFOLINE INVESTMENT SERVICES LTD., MUMBAI V. ADDL.C.I..T.9(2), MUMBAI

ITA 6937/MUM/2012

• Counselvise Citation: [2014] 140 COUNSELVISE.COM (IT) 79416 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 8 month(s) 8 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 25-07-2014
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: I
• Next Hearing Date: 21-07-2014
• Assessment Year: 2009-2010
• Appeal Filed On: 16-11-2012
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Earning of tax free income; Wholly owned subsidiary; Bad and doubtful debts
• Section: 14A

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL I BENCH, MUMBAI JH FOT; IKY JKO U;KF;D LNL; JH FOT; IKY JKO U;KF;D LNL; JH FOT; IKY JKO U;KF;D LNL; JH FOT; IKY JKO U;KF;D LNL; ,OA ,OA ,OA ,OA JH JKTSUNZ] YS[KK LNL; DS LE{K JH JKTSUNZ] YS[KK LNL; DS LE{K JH JKTSUNZ] YS[KK LNL; DS LE{K JH JKTSUNZ] YS[KK LNL; DS LE{K BEFORE SHRI VIJAY PAL RAO, JUDICIAL MEMBER AND SHRI RAJENDRA, ACCOUNTANT MEMBER VK;DJ VIHY LA[;K / ITA NO.6937/MUM/2012 FU/KKZJ.K O'KZ @ ASSESSMENT YEAR: - 2009-10 INDIA INFOLINE INVESTMENTS SERVICES LTD. IIFL CENTER, KAMALA CITY, SENAPATI BAGPAT MARG, LOWER PAREL WEST MUMBAI 400 013. VS. ADDL. CIT 9(2), MUMBAI AAYAKAR BHAVAN CHURCHGATE MUMBAI. PAN:-AABCI2915C APPELLANT RESPONDENT ASSESSEE BY / FU/KKZFJRH DH VKSJ LS FU/KKZFJRH DH VKSJ LS FU/KKZFJRH DH VKSJ LS FU/KKZFJRH DH VKSJ LS SHRI PRITESH MEHTA REVENUE BY/ JKTLO DH VKSJ LS JKTLO DH VKSJ LS JKTLO DH VKSJ LS JKTLO DH VKSJ LS SMT. AMRITA SINGH ORDER PER VIJAY PAL RAO, JM THIS APPEAL BY THE ASSESSEE IS DIRECTED AGAINST THE ORDER DATED 30.08.2012 OF CIT(A) FOR THE A.Y. 2009-10. THE ASSESSEE HAS RA ISED THE FOLLOWING GROUNDS IN THIS APPEAL:- 1. THE ASSESSING OFFICER FAILED TO APPRECIATE THAT THE ASSESSEE HAS MINIMAL ACTIVITIES RELATING TO EXEMPT INCOME. 2. THE ASSESSING OFFICER FAILED TO APPRECIATE THAT THE ASSESSEE HAS MADE INVESTMENTS OUT OF OWN FUNDS AND NOT BORROWED FUNDS AND CONSEQUENTLY INTEREST EXPENDITURE SHOULD NOT BE DIS-ALLOWED. DATE OF HEARING 21.07.2014 DATE OF PRONOUNCEMENT 25.07.2014 INDIA INFOLINE INVESTMENTS 2 | P A G E 3. THE ASSESSING OFFICER FAILED TO APPRECIATE THAT THE MONIES BORROWED BY THE ASSESSEE ON WHICH INTEREST WAS PAID WAS LENT ON INT EREST BY THE ASSESSEE IN THE NORMAL COURSE OF BUSINESS AS AN NBFC. 4. THE ASSESSING OFFICER FAILED TO APPRECIATE THAT THE SAID INVESTMENT WERE MADE OUT OF PROPRIETARY FUNDS AND NOT OUT OF BORROWED FU NDS. 5. THE ASSESSING OFFICER FAILED TO APPRECIATE THAT THE ASSESSEE HAS MADE INVESTMENTS IN THE SUBSIDIARY COMPANIES TO RETAIN M ANAGEMENT CONTROL OF THE SAID SUBSIDIARIES AND NOT TO EARN INCOME. THE ASSES SING OFFICER FAILED TO APPRECIATE THAT THE SAID INVESTMENT WERE MADE OUT O F PROPRIETARY FUNDS AND NOT OUT OF BORROWED FUNDS. 6. THE ASSESSING OFFICER FAILED TO APPRECIATE THAT THE EXPENSES OF THE SUBSIDIARY COMPANIES ARE BEING BORNE BY THE SUBSIDIARY COMPANI ES THEMSELVES AND NO SUBSTANTIAL EXPENDITURE IS REQUIRED TO BE INCURRED BY THE ASSESSEE FOR MAKING AND MAINTAINING THESE INVESTMENTS. 7. THE ASSESSING OFFICER FAILED TO APPRECIATE THAT THAT THE DIS-ALLOWANCE ON AD HOC BASIS OF 0.5 % OF AVERAGE INVESTMENTS IS UNCALLED F OR AND UNREASONABLE. 8. THE ASSESSING OFFICER FAILED TO APPRECIATE THAT THE ASSESSEE HAS INVESTED SHORT TERM SURPLUS FUNDS IN LIQUID SCHEMES OF MUTUAL FUND S. SINCE THE INVESTMENTS IN MUTUAL FUNDS WERE MADE ON SHORT TERM BASIS IN LIQUI D MUTUAL FUNDS, NO EXPENSE HAS BEEN INCURRED FOR MAKING SUCH INVESTMENTS 2. THE ONLY ISSUE ARISES FOR OUR CONSIDERATION AND ADJUDICATION IS REGARDING ADDITION MADE U/S 14A BY APPLYING RULE 8D OF INCOME TAX RULES. DURING THE YEAR UNDER CONSIDERATION, THE ASSESSEE RECEIVED DIVIDEND INCOME OF RS. 29,79,24,818/- WHICH WAS CLAIMED AS EXEMPT UNDER THE PROVISIONS OF SECTION 10. THE ASSESSING OFFICER DISALLOWED A SUM OF RS. 4,19,38,990/- BY AP PLYING RULE 8D. THE ASSESSEE CHALLENGED THE ORDER OF ASSESSING OFFICER BEFORE CI T(A) BUT COULD NOT SUCCEED AS THE CIT(A) HAS CONFIRMED THE DISALLOWANCE MADE BY A SSESSING OFFICER U/S 14A. 3. BEFORE US, THE LD. AUTHORIZED REPRESENTATIVE OF THE ASSESSEE HAS SUBMITTED THAT THE ASSESSING OFFICER HAS DISALLOWED THE INTER EST EXPENDITURE OF RS. 1,89,85,307/- U/S 14A BY APPLYING RULE 8D, WHEREAS THE ASSESSEES OWN FUND IS MORE THAN SUFFICIENT TO INVEST IN THE SHARES WHICH HAS YIELDED TAX FREE INCOME. THE LD. AUTHORIZED REPRESENTATIVE HAS REFERRED THE BALA NCE SHEET AND SUBMITTED THAT THE ASSESSEES OWN FUND IS MUCH MORE THAN THE AMOUN T OF INVESTMENT. HE HAS INDIA INFOLINE INVESTMENTS 3 | P A G E FURTHER SUBMITTED THAT THE INTEREST EXPENDITURE DUR ING THE YEAR IS ONLY WITH RESPECT TO THE SHORT TERM BORROWING RANGING FROM 30 DAYS TO 90 DAYS AND NOT EXCEEDED IN ANY CASE 180 DAYS THEN THERE IS NO QUESTION OF USING TH E BORROWED FUNDS FOR THE PURPOSE OF LONG TERM INVESTMENT. THE NEXT ARGUMENT OF LD. AUTHORIZED REPRESENTATIVE OF THE ASSESSEE IS THAT THE MAJORITY OF THE INVESTMENT IS IN THE 100% SUBSIDIARY OF THE ASSESSEE AND, THEREFORE, NO DISAL LOWANCE CAN BE MADE U/S 14A WHEN THE INVESTMENT WAS FOR THE PURPOSE OF CONTROLL ING THE SUBSIDIARIES AND NOT FOR EARNING THE DIVIDEND INCOME. HE HAS RELIED UPON THE DECISION OF THIS TRIBUNAL DATED 15.01.2014 IN CASE OF GARWARE WALL ROPES VS. ACIT I N ITA NO. 5408/MUM/2012. AS REGARDS THE ADMINISTRATIVE EXPENSES DISALLOWED U /S 14A, THE LD. AUTHORIZED REPRESENTATIVE OF THE ASSESSEE HAS SUBMITTED THAT W HEN THE INVESTMENT IS MADE IN THE 100% SUBSIDIARY THEN IN VIEW OF THE DECISION OF THIS TRIBUNAL IN THE CASE OF GARWARE WALL ROPES, NO DISALLOWANCE IS CALLED FOR. HE HAS FURTHER CONTENDED THAT EVEN IF THE DISALLOWANCE IS MADE, THE SAME CAN BE R ESTRICTED ONLY TO THE COMMON EXPENSES WHICH COULD BE ATTRIBUTABLE FOR EARNING TH E DIVIDEND INCOME. HE HAS REFERRED SCHEDULE K TO THE BALANCE SHEET AND SUBM ITTED THAT FOR DISALLOWANCE U/S 14A, THE ASSESSING OFFICER HAS CONSIDERED THE ENTIR E ADMINISTRATIVE EXPENSES WHICH IS NOT PROPER AND JUSTIFIED. THUS THE LD. AUT HORIZED REPRESENTATIVE HAS SUBMITTED THAT THE DISALLOWANCE MADE BY THE ASSESSI NG OFFICER ON ACCOUNT OF INTEREST EXPENDITURE IS TOTALLY UNCALLED FOR AND ON ACCOUNT OF ADMINISTRATIVE EXPENSES WHICH IS EXCESSIVE AND NOT AS PER PROVISIO NS OF SECTION 14A WHICH COULD BE ATTRIBUTABLE TO EARNING THE DIVIDEND INCOME. 4. ON THE OTHER HAND, THE LD. DR HAS RELIED UPON TH E ORDERS OF AUTHORITIES BELOW AND SUBMITTED THAT FOR THE YEAR UNDER CONSIDERATION RULE 8D IS APPLICABLE, THEREFORE, THE ASSESSING OFFICER IS JUSTIFIED TO DI SALLOW U/S 14A BY APPLYING RULE 8D. INDIA INFOLINE INVESTMENTS 4 | P A G E 5. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AS WELL AS RELEVANT MATERIAL ON RECORD. WE NOTE THAT THE ASSESSING OFFICER HAS MADE THE DISALLOWANCE OF RS. 1,89,85,307/- ON ACCOUNT OF INTEREST EXPENDITURE U /S 14A BY APPLYING RULE 8D. THE ASSESSEE HAS BROUGHT OUT THE DETAILS BEFORE US SHOW ING THE ASSESSEES OWN FUND IS RS. 1208 CRORE AGAINST THE INVESTMENT OF RS. 402 CR ORES, THEREFORE, THE ASSESSEE CONTENDED THAT THE ASSESSEES OWN FUND IS MORE THAN SUFFICIENT FOR THE INVESTMENT DURING THE YEAR. PRIMA FACIE IT APPEARS THAT THE ASSESSEES OWN FUND IS MUCH MOR E THAN THE INVESTMENT. FURTHER THE BORROWINGS OF THE ASSESSEE IS FOR A SHORT TERM RANGING FROM 30 DAYS TO 90 DAYS IN MOST OF THE CASE S. THE ASSESSEE HAS FILED THE DETAILS UNDER WHICH THE ASSESSEE HAS RAISED THE FUN DS THROUGH NCD, UNSECURED DEBENTURES FOR 89 DAYS, 88 DAYS AND 30 DAYS RESPECT IVELY. IT IS CLEAR FROM THE SHORT TENURE OF THE BORROWINGS THAT THE SAME CANNOT BE US ED FOR THE PURPOSE OF LONG TERM INVESTMENT WHICH IS IN THE 100% SUBSIDIARY OF THE A SSESSEE, THEREFORE, THE DISALLOWANCE MADE BY ASSESSING OFFICER WITHOUT EXAM INING ALL THESE ASPECTS THAT THE ASSESSEES OWN FUND AND INTEREST PAID ON SHORT BORROWINGS CANNOT BE APPROVED. IT IS PERTINENT TO NOTE THAT WHEN MOST OF THE INVES TMENT ARE IN THE SUBSIDIARIES OF THE ASSESSEE THEN THESE ASPECTS ARE CRUCIAL AND RELEVAN T ASPECTS FOR MAKING DISALLOWANCE U/S 14A. SINCE THE ASSESSING OFFICER H AS NOT EXAMINED THE ISSUE IN THE LIGHT OF THESE FACTS AS DISCUSSED ABOVE, THEREF ORE, THE ISSUE OF DISALLOWANCE OF INTEREST AS WELL AS THE ADMINISTRATIVE EXPENSES REQ UIRES TO BE RECONSIDERED IN THE LIGHT OF FACT THAT THE MAJORITY OF THE INVESTMENT I S IN THE 100% SUBSIDIARY AND FURTHER THE DISALLOWANCE AS COMPUTED UNDER RULE 8D CANNOT E XCEED THE ACTUAL EXPENDITURE WHICH COULD BE ATTRIBUTABLE FOR EARNING THE DIVIDEN D INCOME FROM THE SUSIDIARY. WE NOTE THAT THE ADMINISTRATIVE AND OTHER EXPENSES INC LUDES ADVERTISEMENT, RENT, PROVISIONS FOR BAD AND DOUBTFUL DEBTS, LEGAL AND PR OFESSIONAL FEE, CERTIFICATION EXPENSES WHICH COULD BE ATTRIBUTABLE FOR EARNING TH E DIVIDEND INCOME FROM THE INVESTMENT MADE IN THE 100% SUBSIDIARIES. SINCE THE INVESTMENT IS A LONG TERM INVESTMENT AND WAS MADE IN THE EARLIER YEARS AND, T HEREFORE, NO DECISION MAKING PROCESS IS SAID TO BE UNDERTAKEN DURING THE YEAR FO R MAKING THIS INVESTMENT. INDIA INFOLINE INVESTMENTS 5 | P A G E ACCORDINGLY IN VIEW OF THE ABOVE DISCUSSION AND IN THE FACTS AND CIRCUMSTANCES OF THE CASE, THE ISSUE OF DISALLOWANCE U/S 14A IS SET ASIDE TO THE RECORD OF ASSESSING OFFICER FOR RECONSIDERATION AFTER CONSIDERING ALL T HE FACTS AND ASPECTS DISCUSSED ABOVE AND IN THE LIGHT OF DECISION OF THIS TRIBUNAL IN THE CASE OF GARWARE WALL ROPES LTD. (SUPRA) 6. IN THE RESULT APPEAL OF THE ASSESSEE IS ALLOWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED IN THE OPEN COURT TODAY I.E 25 -7-2014 SD/- SD/- ( RAJENDRA ) (VIJAY PAL RAO) (ACCOUNTANT MEMBER/ YS[KK LNL; YS[KK LNL; YS[KK LNL; YS[KK LNL; ) (JUDICIAL MEMBER/ U;KF;D LNL; U;KF;D LNL; U;KF;D LNL; U;KF;D LNL; ) MUMBAI DATED 25-7 -2014 SKS SR. P.S, COPY TO: 1. THE APPELLANT 2. THE RESPONDENT 3. THE CONCERNED CIT(A) 4. THE CONCERNED CIT 5. THE DR, I BENCH, ITAT, MUMBAI BY ORDER ASSISTANT REGISTRAR INCOME TAX APPELLATE TRIBUNAL, MUMBAI BENCHES, MUMBAI