THE SRI GOPIKRISHNA TRUST, MUMBAI V. ASST CIT 21 (3), MUMBAI

ITA 7005/MUM/2019

• Counselvise Citation: [2021] 107 COUNSELVISE.COM (IT) 7122 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 9 month(s) 15 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 30-08-2021
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: G
• Assessment Year: 2015-2016
• Appeal Filed On: 14-11-2019
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: GURBINDER SINGH
• Assessee Lawyers: ARJIT JAIN
• Keywords: Earning of tax free income; Rule 8D
• Section: 2; 142(1); 14A; 143(2)

Judgement Text

INTHEINCOMETAX APPELLATETRIBUNAL MUMBAI BENCHHMUMBAI BEFORE SHRI S. RIFAURRAHMAN(ACCOUNTANT MEMBER)AND SHRI RAVISHSOOD (JUDICIAL MEMBER) ITANO.6795/MUM/2019 ASSESSMENT YEAR:2015-16 ACIT-22(3), 305, 3 RD FLOOR, PIRAMAL CHAMBERS, LALBAUG, PAREL, MUMBAI-400012. VS. THESRI GOPIKRISHNATRUST, PIRAMAL TOWER, GANPATRAO KADAMMARG, LOWERPAREL, MUMBAI-400013 PAN NO. AABTT 1795Q APPELLANT RESPONDENT ITANO. 7005/MUM/2019 ASSESSMENT YEAR:2015-16 THESRI GOPIKRISHNATRUST, PIRAMAL TOWER, GANPATRAO KADAM MARG, LOWERPAREL, MUMBAI-400013 VS. ACIT-21(3), ROOMNO. 209, PIRAMAL CHAMBERS, LALBAUG, PAREL, MUMBAI-400012. PANNO. AABTT1795 Q APPELLANT RESPONDENT ASSESSEEBY : MR. RONAK G. DOSHI& MR. ARJIT JAIN, ARS REVENUEBY : MR. GURBINDERSINGH, DR DATE OF HEARING : 22/06/2021 DATE OF PRONOUNCEMENT : 30/08/2021 THE SRI GOPIKRISHAN TRUST ITA NOS. 6795 & 7005/M/2019 2 ORDER PER S. RIFAURRAHMAN,A.M. THECAPTIONEDCROSS-APPEALSONEBYTHEREVENUEANDOTHERBYTHEASSESSE AREAGAINSTTHEORDEROFCOMMISSIONEROFINCOMETAX(APPEALS)-33,MUMBAI[IN SHORT CIT(A)] FOR THE ASSESSMENT YEAR 2015-16 AND ARISE OUT OF ASSESSMENT COMPLETEDU/S143(3)R.W.S.147OFTHE INCOMETAXACT,1961(IN SHORTTHEACT). 2. BRIEF FACTS OF THE CASE ARE, THE RETURN OF INCOME FILED BY THE ASSESSEE ON 10.12.2015 DECLARING INCOME OF RS.4,65,37,020/-. THE CASE WAS SELECTED FOR LIMITED SCRUTINY AND ACCORDINGLY NOTICES U/S 143(2) AND 142(1) WERE ISSUED AND SERVED ON THE ASSESSEE. THE ASSESSEE FILED RELEVANT INFORMATION AS CALLED FOR. DURING ASSESSMENT PROCEEDINGS, THE ASSESSING OFFICER OBSERVED THAT THE ASSESSEEHADCLAIMEDINTERESTEXPENDITUREOFRS.42.12CRORESANDTHESAMEWAS ADJUSTED AGAINST INTEREST INCOME OF RS.47.83 CRORES DURING THIS ASSESSMENT YEAR. FURTHER, HE OBSERVED THAT THE ASSESSEE HAS RECEIVED DIVIDEND INCOME OF RS.29,15,730/- WHICH WAS CLAIMED AS EXEMPT. THE ASSESSING OFFICER FURTHER OBSERVEDTHATTHEASSESSEEHASMADEINVESTMENTINSHARESOFRS.61,46,32,262/- WHICH WAS ENTIRELY FROM BORROWED FUND WHICH IS SHOWN OF RS.67,84,98,990/- OUT OF TOTAL FUNDS AVAILABLE OF RS.67,88,27,498/-. THE ASSESSEE SHOWN INTEREST EXPENSES OF RS.1,08,27,893/- IN THAT YEAR AS COMPARED TO THE ONLY INCOME SHOWN BANK INTEREST OF RS.1,15,727/-. ACCORDING TO AO IT CLEARLY INDICATED THAT INTEREST CLAIMED ON BORROWED FUNDS WAS UTILIZED FOR THE PURCHASE OF SHARES. FURTHER,HE MADE ANANALYSISOF THE INTERNALMOVEMENT OF FUNDSTHAT INDICATED, THE ASSESSEE UTILIZEDANAMOUNTOFRS.80 CRORESRECEIVED FROM M/SVKP LLPON 18.03.2014 FOR APPLICATION OF SHARES OF SUNTECK REALTY PVT. LTD. AND THE SAID FUNDS RECEIVED FROM M/S VKP LLP WAS INTEREST BEARING FUNDS. FURTHER, HE THE SRI GOPIKRISHAN TRUST ITA NOS. 6795 & 7005/M/2019 3 OBSERVEDTHATTHEASSESSEE HADAPPLIEDFORSHARESON 20.08.2014BYTRANSFEROF RS.25 CRORES TO MOTILAL OSWAL SECURITIES LTD. AND THE MEDIUM OF SOURCE WAS FROM FUNDS RECEIVED FROM M/S VKP LLP WHICH WAS ALSO INTEREST BEARING FUND. HE OBSERVED THAT THE ASSESSEE UTILIZED THE INTEREST BEARING FUNDS TO INVEST IN THE SHARES AND SECURITIES. IN RESPONSE TO ABOVE OBSERVATIONS OF THE AO THE ASSESSEE SUBMITTED THAT INVESTMENT OF RS.58.94 CRORES MADE ON 18.03.2014 IN SHARES OF SUNTECK REALTY PVT. LTD. WAS FROM INTEREST FREE LOAN OF RS.66 CRORES BORROWEDON25.03.2014FROMSRIKRISHNATRUST.ITWASSUBMITTEDTHATTHELOANS BORROWED FROM M/S VKT VENTURES LLP ON 18.03.2014 WAS IMMEDIATELY PAID BACKON25.03.2014OUTOFINTERESTFREELOANBORROWEDFROMSRIKRISHNATRUST.IT WASALSOSUBMITTEDTHATTHEASSESSEEEARNEDINTERESTINCOMEOFRS.47.62CRORES WHEREAS THE INTEREST EXPENSES IS RS.42.13 CRORES AND THEREBY IT WAS EVIDENT THAT THE INTEREST FREE FUNDS BORROWED FOR MORE THAN THE INTEREST BEARING BORROWED FUNDS THROUGHOUT THE YEAR. IT WAS ALSO SUBMITTED THAT AS ON 31.03.2014 THE INTEREST FREE BORROWED FUND OF RS.66.17 CRORES AND THE INVESTMENT IN SHARES THE ASSESSEE MADE OF RS.58.94 CRORES, THEREFORE, THE OWN FUNDSEXCEEDED THE BORROWEDFUNDSFORMAKING INVESTMENT. 3. AFTER CONSIDERING THE SUBMISSIONS OF THE ASSESSEE, THE ASSESSING OFFICER BY APPLYING THE FIFO METHOD OF FUND MOVEMENT IN INVESTMENT MADE BY THE ASSESSEE AND ALSO ANALYZED THE BORROWED FUND UTILIZATION BY THE TRUST, HE REJECTED THE CONTENTIONS OF THE ASSESSEE AND INVOKED THE PROVISIONS OF SECTION 14A R.W.R.8D(2)(II)TO DISALLOWOFRS.5,84,49,455/-. 4. AGGRIEVED WITH THE ABOVE ORDER THE ASSESSEE PREFERRED AN APPEAL BEFORE THE LD.CIT(A) AND LD. CIT(A) AFTERCONSIDERING THE DETAILED SUBMISSIONSOF THE ASSESSEE AND VARIOUS CASE LAWS SUBMITTED BEFORE HIM HE RESTRICTED THE THE SRI GOPIKRISHAN TRUST ITA NOS. 6795 & 7005/M/2019 4 DISALLOWANCE U/S 14A TO THE EXTENT OF EXEMPT INCOME BY RELYING ON CASE OF PR. CIT V.STATEBANK OF PATIALA (2018) 99TAXMANN.COM 286(SC) ANDOTHERSIMILAR DECISIONS. 5. AGGRIEVED WITH THE ABOVE ORDER BOTH REVENUE AS WELL AS ASSESSEE IS IN APPEAL BEFORE USRAISINGFOLLOWINGGROUNDSOFAPPEAL : REVENUESGROUNDSOFAPPEAL 1. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT(A) ERRED IN DELETING THE DISALLOWANCE U/S 14A R.W.R. 8D(2)(II) WITHOUT CONSIDERING ALL THE RELEVANT FACTS. 2. ONTHE FACTS ANDINTHECIRCUMSTANCES OF THE CASE ANDINLAW, THECIT(A) ERREDIN IGNORING THE LATEST DECISION OF THE HONBLE APEX COURT IN THE CASE OF MAXOPP INVESTMENT LTD. V. CIT. 3. ONTHEFACTSANDINTHECIRCUMSTANCESOFTHECASEANDINLAW,THELD.CIT(A)ERRED IN INTERPRETING THE INTENT OF WHICH STATES THAT THE MANDATE OF SECTION 14A IS CLEAR. IT DESIRES TO CURB THE PRACTICE TO CLAIM DEDUCTION OF EXPENSES INCURRED IN RELATIONTOEXEMPT INCOME AGAINST TAXABLE INCOME AND AT THE SAME TIME AVAIL OF THETAXINCENTIVEBYWAYOFANEXEMPTIONOF EXEMPTINCOMEWITHOUTMAKINGANY APPORTIONMENT OF EXPENSES INCURRED IN RELATION TO EXEMPT INCOME.. AS ENVISAGED BYTHE INCOMETAX ACT. ASSESSEESGROUNDOFAPPEAL 1. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT(A) ERRED IN UPHOLDING THE DISALLOWANCE U/S 14A OF THE ACT TOTHE EXTENT OF RS.29,15,730/- . 2. THE APPELLANT PRAYS THAT THE AO BE DIRECTED TO DELETE THE ENTIRE DISALLOWANCE MADE U/S 14AOF THEACTOR APPROPRIATELYREDUCETHEDISALLOWANCE. THE SRI GOPIKRISHAN TRUST ITA NOS. 6795 & 7005/M/2019 5 6. BEFOREUS,THE LD.AROFTHEASSESSEE BROUGHTTOOURNOTICETHE FACTOFTHIS CASE FROM ASSESSMENT ORDER AND FINDINGS OF LD. CIT(A). WITH REGARD TO THE APPEAL FILED BY THE REVENUE HE BROUGHT TO OUR NOTICE THE CASE LAW OF VARIOUS COURTS TO SUBMIT THAT U/S 14A DISALLOWANCE CANNOT EXCEED EXEMPT INCOME EARNED BY THE ASSESSEE. WITH REGARD TO ASSESSEES APPEAL HE BROUGHT TO OUR NOTICE PAGE 2 OF THE PAPER BOOK (P/B) I.E. INCOME AND EXPENDITURE ACCOUNT FOR THEYEARENDED31.03.2015WHEREINTHEASSESSEEHASEARNEDINTERESTINCOMEOF RS.47.63 CRORES AND AT THE SAME TIME THE ASSESSEE HAS CLAIMED EXPENDITURE OF INTEREST EXPENSES TO THE EXTENT OF RS.42.13 CRORES. HE SUBMITTED THAT THE NET INCOME OF INTEREST EARNED BY THE ASSESSEE DURING THE YEARISRS.5.49 CRORES. HE SUBMITTEDTHATWHENTHEREISAPOSITIVENETINTERESTINCOMETHENTHEPROVISIONS OF SECTION 14A CANNOT BE APPLIED. FOR THAT PROPOSITION, HE RELIED IN THE CASE OF PCIT V.NIRMA CREDIT&CAPITAL(P.)LTD. [2017] 85TAXMANN.COM 72(GUJARAT). 7. ON THE OTHER HAND, THE LD. DEPARTMENTAL REPRESENTATIVE (DR) RELIED ON THEORDERSOFASSESSING OFFICER. 8. CONSIDEREDTHE RIVAL SUBMISSIONSANDMATERIAL ON RECORD.WE NOTICE THAT THE ASSESSING OFFICER INVOKED THE PROVISIONS OF SECTION 14A R.W.R. 8D(2)(II) TO DISALLOWOF RS.5,84,49,455/- AT THE SAME TIME WE NOTICED THAT THE ASSESSEE HAS EARNED EXEMPT INCOME OF RS.29,15,730/- ONLY. WE NOTICE THAT LD. CIT(A) HAS RESTRICTED THE DISALLOWANCE TO THE EXTENT OF EXEMPT INCOME EARNED BY THE ASSESSEE. WE INCLINED TO ACCEPT THE FINDINGS OF LD. CIT(A) WHICH IS BASED ON VARIOUS DECISIONS OF HONBLE SUPREME COURT AND HIGH COURTS. RESPECTFULLY FOLLOWINGTHERATIOOFSTATEBANKOFPATIALA(SUPRA),WEAREINCLINEDTOREJECTTHE GROUNDSRAISEDBYTHEREVENUE. ACCORDINGLY,THEAPPEAL FILEDBYTHEREVENUE IS DISMISSED. THE SRI GOPIKRISHAN TRUST ITA NOS. 6795 & 7005/M/2019 6 9. COMING TO THE APPEAL FILED BY THE ASSESSEE, IT IS BROUGHT TO OUR NOTICE BY THE COUNSEL OF THE ASSESSEE THAT DURING THIS YEAR THE ASSESSEE HAS EARNED NET INTEREST INCOME OVER THE INTEREST EXPENDITURE CLAIMED BY THE ASSESSEE. CONSIDERING THE FACT THAT THE ASSESSEE HAS EARNED INTEREST INCOME, IT CLEARLY SHOWS THATTHE ASSESSEE HASAPPLIEDFORINVESTMENT MORE OF INTEREST FREE FUNDS TO ITS OPERATION THAN THE INTEREST BEARING FUNDS. AS HELD IN THE CASE OF CIT V. JUBILIANT ENTERPRISES (P.) LTD. (416 ITR 58) (BOM. HC) AND NIRMA CREDIT AND CAPITAL (P.) LTD. (SUPRA) THE HONBLE HIGH COURT OF GUJARAT AND JURISDICTIONAL HIGH COURT RESPECTIVELY HELD THAT FOR THE PURPOSE OF APPLYING RULE 8D(2)(II) WHAT WOULD BE CONSIDERED AS AN AMOUNT OF EXPENDITURE BY WAY OF INTEREST WOULDBETHEINTERESTPAIDBYTHEASSESSEEONTHEBORROWINGSMINUSTHETAXABLE INTEREST EARNED DURING THE FINANCIAL YEAR PAID THAT MEANS NET INTEREST ALONE SHOULDBECONSIDEREDFORDISALLOWANCEU/S14AR.W.R.8D(2)(II)INTHEGIVENCASE, THE NET INTEREST PAID BY THE ASSESSEE IS LESS THAN THE INTEREST EARNED BY THE ASSESSEE. THEREFORE, THE RULE 8D(2)(II) CANNOT BE APPLIED IN THE GIVEN CASE. THEREFORE, RESPECTFULLY FOLLOWING THE ABOVE DECISIONS WE ARE INCLINED TO ALLOW THE GROUNDS RAISED BY THE ASSESSEE AND ACCORDINGLY, WE DIRECT THE ASSESSING OFFICERTO DELETE THEADDITIONSMADE U/S14A R.W.R. 8D(2)(II). 10. TO SUM UP, THE APPEAL FILED BY THE REVENUE IS DISMISSED WHEREAS THE APPEALFILED BY THE ASSESSEE ISALLOWED. ORDER PRONOUNCEDINTHEOPENCOURTON 30/08/2021. SD/- SD/- ( RAVISHSOOD ) ( S. RIFAURRAHMAN ) JUDICIALMEMBER ACCOUNTANTMEMBER MUMBAI; THE SRI GOPIKRISHAN TRUST ITA NOS. 6795 & 7005/M/2019 7 DATED:30/08/2021 RAHUL SHARMA,SR. P.S. COPYOFTHEORDER FORWARDED TO : 1. THE APPELLANT 2. THE RESPONDENT. 3. THE CIT(A) - 4. CIT 5. DR, ITAT,MUMBAI 6. GUARDFILE. BY ORDER, //TRUE COPY// (DY./ASSISTANTREGISTRAR) ITAT,MUMBAI