ADDON HOLDINGS P.LTD, MUMBAI V. DCIT 12(1)(1), MUMBAI

ITA 6965/MUM/2016

• Counselvise Citation: [2017] 126 COUNSELVISE.COM (IT) 9902 (ITAT-MUMBAI)
• Duration Of Justice: 9 month(s) 7 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 06-09-2017
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: Not Allotted
• Assessment Year: 2010-2011
• Appeal Filed On: 29-11-2016
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: SUMAN KUMAR LD
• Assessee Lawyers: JIGAR MEHTA LD
• Keywords: Earning of tax free income; Reassessment proceedings
• Section: 143(3); 14A; 147

Judgement Text

ITA NO 6965-67/MUM/2016 ADDON HOLDINGS PRIVATE LIMITED ASSESSMENT YEARS- 2010-11, 2011-12 & 2013-14 IN THE INCOME TAX APPELLATE TRIBUNAL B BENCH, MUMBAI . . , , BEFORE SHRI D.T. GARASIA, JM AND SHRI MANOJ KUMAR AGGARWAL, AM ./I.T.A. NO. 6965-67/MUM/2016 ( / ASSESSMENT YEARS: 2010-11, 2011-12 & 2013-14) ADDON HOLDINGS PVT.LTD 104,1 ST FLOOR BUSINESS CLASSIC MALAD(W) CHINCHOLI BUNDER ROAD OPP. HANUMAN TEMPLE MUMBAI 400 064 / VS. DEPUTY COMMISSIONER OF INCOME TAX 12(1)(1) MUMBAI ! ./ ./PAN/GIR NO. AAACA-8827-A ( !# /APPELLANT ) : ( $%!# / RESPONDENT ) ASSESSEE BY : JIGAR MEHTA, LD. AR REVENUE BY : SUMAN KUMAR, LD. DR / DATE OF HEARING : 17/08/2017 / DATE OF PRONOUNCEMENT : 06 /09/2017 ITA NO 6965-67/MUM/2016 ADDON HOLDINGS PRIVATE LIMITED ASSESSMENT YEARS- 2010-11, 2011-12 & 2013-14 2 / O R D E R PER MANOJ KUMAR AGGARWAL (ACCOUNTANT MEMBER) 1. THESE ARE THREE APPEALS BY ASSESSEE FOR ASSESSM ENT YEARS [AY] 2010-11, 2011-12 & 2013-14 WHICH CONTEST SEPARATE O RDERS OF FIRST APPELLATE AUTHORITY. SINCE COMMON ISSUE OF SECTION 14A DISALLOWANCE IS INVOLVED IN ALL THE THREE APPEAL, WE DISPOSE-OFF TH E SAME BY WAY OF THIS COMMON ORDER FOR THE SAKE OF CONVENIENCE & BREVITY. FIRST WE TAKE UP ITA NO. 6965/MUM/2016 FOR AY 2010-11 WHICH CONTEST THE ORDER OF LD. COMMISSIONER OF INCOME TAX (APPEALS)-20 [CIT(A)], M UMBAI DATED 26/08/2016 QUA CONFIRMATION OF DISALLOWANCE U/S 14A FOR RS.4,10,40 2/-. 2. FACTS LEADING TO THE DISPUTE ARE THAT THE ASSESS EE BEING RESIDENT CORPORATE ASSESSEE ENGAGED IN TRADING OF FASHION ACCESSORIES, COMMISSION / CONSIGNMENT AGENT WAS SUBJECTED TO AN ASSESSMENT U/S 143(3) READ WITH SECTION 147 FOR IMPUGNED AY AT RS.69,30,280/- AFTER CERTAIN ADDITIONS / DISALLOWANCE. THE ORIGINAL RETU RN OF INCOME WAS E-FILED ON 15/09/2010 AT RS.65,01,750/- WHICH WAS ASSESSED U/S 143(3) ON 31/10/2012 AT SAME FIGURES. 3. DURING REASSESSMENT PROCEEDINGS, IT WAS NOTED TH AT ASSESSEE MADE INVESTMENTS OF RS.103.18 LACS DURING THE IMPUG NED AY, WHICH CALLED FOR A DISALLOWANCE U/S 14A READ WITH RULE 8D . THE ASSESSEE HAD MADE SUO-MOTO DISALLOWANCE OF RS.25,796/- U/R 8D(2)(III) @0.5% O F AVERAGE INVESTMENT OF RS.51.59 LACS AGAINST THE SAM E. THE ASSESSEE CONTENDED THAT IT DID NOT INCUR ANY EXPENDITURE AGA INST EXEMPT INCOME AND FURTHER ALL THE INVESTMENTS WERE IN SUBSIDIARIE S COMPANIES AND ITA NO 6965-67/MUM/2016 ADDON HOLDINGS PRIVATE LIMITED ASSESSMENT YEARS- 2010-11, 2011-12 & 2013-14 3 THEREFORE STRATEGIC INVESTMENTS WHERE THE MOTIVE WA S NOT TO EARN THE DIVIDEND INCOME. THE ASSESSEE FURTHER CONTENDED THA T IT DID NOT EARN ANY EXEMPT INCOME DURING THE YEAR FROM THE SAID INV ESTMENTS AND MOREOVER, OWN FUNDS WERE SUFFICIENT TO MEET THE SAI D INVESTMENTS AND THEREFORE, NO DISALLOWANCE U/S 14A WAS CALLED FOR. HOWEVER, NOT CONVINCED, LD. AO BY PLACING RELIANCE ON SEVERAL JU DICIAL PRONOUNCEMENTS, WORKED OUT DISALLOWANCE OF RS.4,36, 198/- AS PER RULE 8D WHICH COMPRISED OF INTEREST DISALLOWANCE U/R 8D( 2)(II) FOR RS.4,10,403/- AND EXPENSE DISALLOWANCE U/R 8D(2)(II I) FOR RS.25,795/-. 4. AGGRIEVED, THE ASSESSEE CONTESTED THE SAME WITHO UT ANY SUCCESS BEFORE LD.CIT(A) VIDE IMPUGNED ORDER DATED 26/08/20 16 WHERE THE ASSESSEE REITERATED THE SAME CONTENTIONS. HOWEVER, LD. CIT(A) CONFIRMED THE ADDITIONS BY PLACING RELIANCE ON THE DECISION OF HONBLE BOMBAY HIGH COURT RENDERED IN GODREJ & BOYCE MFG. CO. LTD. VS. DCIT [234 CTR 1] ON THE PREMISES THAT THE APPLICATION OF RULE 8D WAS MANDATORY AND THE LD. AO WAS BOUND TO FOLLOW IT. AG GRIEVED, THE ASSESSEE IS IN FURTHER APPEAL BEFORE US. 5. THE LD. COUNSEL FOR ASSESSEE [AR] ASSAILED THE S TAND OF FIRST APPELLATE AUTHORITY BY CONTENDING THAT THE INVESTME NT IN SUBSIDIARIES WERE MADE OUT OF OWNED FUNDS OF THE ASSESSEE AND TH EREFORE, INTEREST DISALLOWANCE WAS NOT JUSTIFIED. OUR ATTENTION IS FU RTHER DRAWN TO THE FACT THAT NO EXEMPT INCOME HAS BEEN EARNED BY THE ASSESS EE DURING THE IMPUGNED AY OUT OF THE SAID INVESTMENTS AND THEREFO RE, THE ADDITIONS WAS NO JUSTIFIED FROM THAT ANGLE ALSO. PER CONTRA, LD. DR CONTENDED THAT ASSESSEE SUO-MOTO MADE DISALLOWANCE U/R 8D(2)(III) AND THEREFORE, TUL E ITA NO 6965-67/MUM/2016 ADDON HOLDINGS PRIVATE LIMITED ASSESSMENT YEARS- 2010-11, 2011-12 & 2013-14 4 8D HAS TO BE APPLIED IN TOTALITY AND SINCE THE SAME IS APPLICABLE, THE DISALLOWANCE WAS JUSTIFIED. 6. WE HEARD THE RIVAL CONTENTIONS AND PERUSED HE RE LEVANT MATERIAL ON RECORD. WE FIND THAT THERE IS NO QUARREL AS TO APPL ICABILITY OF RULE 8D SINCE THE ASSESSEE MADE SUO-MOTO DISALLOWANCE OF EXPENSES U/R 8D(2)(III) IN THE COMPUTATION OF INCOME. THE ONLY D ISPUTE IS RELATING TO DISALLOWANCE U/R 8D(2)(II) TOWARDS INTEREST EXPENDI TURE. THE ASSESSEE HAS CONTENDED THAT OWN FUNDS WERE SUFFICIENT TO MEE T THE SAID INVESTMENTS AND FURTHER THE INVESTMENT WERE STRATEG IC INVESTMENTS AND FURTHER NO EXEMPT INCOME WAS EARNED BY HIM. WE NOTE THAT THE ASSESSEE HAS INTEREST FREE FUNDS IN THE SHAPE OF SHARE CAPITAL & RESERVES AT YEAR-END TO THE TUNE OF RS.250.80 LACS AS AGAINST INVESTMENT OF RS.103.18 CRORES. THE LD. AO HAS NEIT HER PROVED THE NEXUS OF BORROWED FUNDS WITH THE INVESTMENT NOR CAR RIED OUT ANY EXERCISE IN THIS REGARD. THEREFORE, IN OUR OPINION, THE ISSUE STOOD SQUARELY IN ASSESSEES FAVOR BY THE JUDGMENT OF OUR JURISDICTIONAL HIGH COURT RENDERED IN CIT VS. RELIANCE UTILITIES & POWER LTD. [313 ITR 340] & CIT VS. HDFC BANK LTD. [366 ITR 505] WHERE IT HAS BEEN HELD THAT IN CASE INTEREST FREE FUNDS ARE MORE THAN THE INVESTME NTS THEN IN THE ABSENCE OF NEXUS, A PRESUMPTION HAS TO BE DRAWN THA T THE INVESTMENTS WERE OUT OF INTEREST FREE FUNDS. MOREOVER, ALL THE INVESTMENT WAS STRATEGIC INVESTMENTS AND NO EXEMPT INCOME WAS EARN ED FROM THE SAME DURING IMPUGNED AY. FURTHER, THE INVESTMENT OF RS.2 4 LACS OUT OF CONVERSION OF ADVANCES MADE IN THE EARLIER YEARS. T HEREFORE, IN VIEW OF THE TOTALITY OF FACTS AND CIRCUMSTANCE, WE ARE INCL INED TO DELETE THE ITA NO 6965-67/MUM/2016 ADDON HOLDINGS PRIVATE LIMITED ASSESSMENT YEARS- 2010-11, 2011-12 & 2013-14 5 IMPUGNED ADDITION OF RS.4,10,402/-. RESULTANTLY, TH E ASSESSEES APPEAL STANDS ALLOWED. 7. IN ITA NO. 6966/MUM/2016 FOR AY 2011-12 & ITA N0.6967/MUM/2016 FOR AY 2013-14, THE ASSESSEE IS AG GRIEVED BY SIMILAR DISALLOWANCE U/S 14A FOR RS.3,51,508/- & RS .1,87,100/- RESPECTIVELY. THERE BEING NO CHANGE IN FACTS OR CIR CUMSTANCES EXCEPT FOR MINOR VARIATIONS ETC., OUR DISCUSSION / CONCLUSION / DECISION AS ABOVE APPLY MUTATIS MUTANDIS TO THESE YEARS ALSO. HENCE, TAKING THE SAME STAND, WE DELETE THE IMPUGNED ADDITIONS. 8. RESULTANTLY, ALL THE APPEALS FILED BY THE ASSESS EE STANDS ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 06 TH SEPTEMBER, 2017. SD/- SD/- (D.T. GARASIA) (MANOJ KUMAR AGGARWAL) / JUDICIAL MEMBER / ACCOUNTANT MEMBER MUMBAI; DATED : 06. 09.2017 SR.PS:- THIRUMALESH ! / COPY OF THE ORDER FORWARDED TO : 1. !# / THE APPELLANT 2. $%!# / THE RESPONDENT 3. , ( ) / THE CIT(A) 4. , / CIT CONCERNED 5. $'. , . , / DR, ITAT, MUMBAI 6. / / GUARD FILE / BY ORDER, / (DY./ASSTT. REGISTRAR) , / ITAT, MUMBAI