DCIT CIR 2(2)(1), MUMBAI V. INFINA FINANCE P.LTD, MUMBAI

ITA 711/MUM/2016

• Counselvise Citation: [2017] 127 COUNSELVISE.COM (IT) 9853 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 5 month(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 12-07-2017
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: Not Allotted
• Assessment Year: 2011-2012
• Appeal Filed On: 11-02-2016
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: M C OMI NINGSHEN
• Keywords: Earning of tax free income
• Section: 14A; 27

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL H BENCH, MUMBAI BEFORE S/ SHRI B.R. BASKARAN (AM) & SANDEEP GOSAIN (JM) I.T.A. NO. 711 /MUM/20 16 (ASSESSMENT YEAR 20 11 - 12 ) DCIT 2(2)(1) ROOM NO. 545 AAYAKAR BHAVAN M.K. ROAD MUMBAI - 400 020. VS. M/S. INFINA FINA NCE PVT. LTD. 7 TH FLOOR, DANI CORPORATE PARK 158, CST ROAD KALINA, SANTACRUZE(E) MUMBAI - 400 098. PAN NO.AACCM1561D ( APPELLANT ) ( RESPONDENT ) ASSESSEE BY SHRI FARROKH IRANI DEPARTMENT BY SHRI M.C. OMI NINGSHEN DATE OF HEARING 6.7 . 201 7 DATE OF PRONOUNCEMENT 12 . 7 . 201 7 O R D E R PER B.R. BASKARAN (AM) : - THE APPEAL FILED BY THE REVENUE IS DIRECTED AGAINST THE ORDER DATED 19.1.2015 PASSED BY THE LEARNED CIT(A) - 5, MUMBAI AND IT RELATES TO A.Y. 2011 - 12. THE REVENUE IS AGGRIEVED BY THE DECISI ON OF THE LEARNED CIT(A) IN DELETING THE DISALLOWANCE MADE U/S. 14A OF THE ACT. 2. THE ASSESSEE IS A NBFC. DURING THE YEAR UNDER CONSIDERATION IT RECEIVED DIVIDEND INCOME OF ` 1.29 CRORES AND CLAIMED THE SAME AS EXEMPT. THE ASSESSEE MADE A DISALLOWANCE OF ` 57.84 LAKHS U/S. 14A OF THE ACT IN THE COMPUTATION OF TOTAL INCOME. THE ASSESSING OFFICER, HOWEVER APPLIED THE PROVISIONS OF RULE 8D AND COMPUTED THE DISALLOWANCE U/R. 8D(2)(III) AT ` 97.25 LAKHS, BEING 0.5% OF THE AVERAGE VALUE OF INVESTMENT. ACCORDING LY, HE MADE ADDITION OF ` 39.541 LAKHS TO THE TOTAL INCOME OF THE ASSESSEE U/S. 14A OF THE ACT. M/S. INFINA FINANCE PVT. LTD. 2 3. BEFORE THE LEARNED CIT(A), THE ASSESSEE CONTENDED THAT THE STRATEGIC INVESTMENT AND SHARES HELD AS STOCK IN TRADE SHOULD BE EXCLUDED FOR COMPUTING DISALLOW ANCE U/R. 8D(2)(III). THE ASSESSEE PLACED RELIANCE ON THE DECISION RENDERED BY HON'BLE BOMBAY HIGH COURT IN THE CASE OF CIT VS. INDIA ADVANTAGE SECURITIES LTD. (ITA NO. 1121 OF 2013) AND DECISION RENDERED BY THE COORDINATE BENCH OF THE TRIBUNAL IN THE CASE OF GARWARE WALL ROPES (ITA NO. 5409/ MUM/ 2012) . THE LEARNED CIT(A) AGREED WITH THE CONTENTION S OF THE ASSESSEE AND ACCORDINGLY, DELETED THE ADDITION MADE BY THE ASSESSING OFFICER. AGGRIEVED, THE REVENUE HAS FILED THIS APPEAL BEFORE US CHALLENGING THE RELIE F GRANTED TO THE ASSESSEE. 4. THE ASSESSEE HAS ALSO FILED AN APPLICATION U/S. 27 OF THE INCOME TAX APPELLATE TRIBUNAL RULES, WHEREIN IT IS CONTENDED THAT , AFTER EXCLUSION OF STRATEGIC INVESTMENT AND SHARES HELD AS STOCK IN TRADE, DISALLOWANCE WOULD WORK O UT TO ONLY ` 4,61,438/ - AND THE SAME SHOULD HAVE BEEN SUSTAINED BY THE LEARNED CIT(A). 5. WE HEARD THE PARTIES AND PERUSED THE RECORD. LEARNED DEPARTMENTAL REPRESENTATIVE SUBMITTED THAT THE LEARNED CIT(A) HAS FOLLOWED THE DECISION OF RENDERED BY THE COOR DINATE BENCHES OF THE TRIBUNAL . HOWEVER HE SUBMITTED THAT HE IS SUPPORTING THE ORDER PASSED BY ASSESSING OFFICER. 6. ON THE CONTRARY, LEARNED AR SUBMITTED THAT THE LEARNED CIT(A) HAS ACCEPTED THE CONTENTION S OF THE ASSESSEE THAT THE STRATEGIC INVESTMENT S AND SHARES HELD AS STOCK IN TRADE SHOULD BE EXCLUDED FROM THE VALUE OF INVESTMENT FOR THE PURPOSE OF COMPUTING DISALLOWANCE U/R. 8D(2)(III) . HAVING ACCEPTED SO, THE LEARNED CIT(A) SHOULD HAVE DIRECTED THE ASSESSING OFFICER TO RE - COMPUTE THE DISA LLOW A N CE , INSTEAD OF CONFIRMING THE DISALLOWANCE VOLUNTARY MADE BY THE ASSESSEE. LEARNED AR SUBMITTED THAT THE LAW WAS NOT SETTLED WHEN THE ASSESSEE FILED RETURN OF INCOME AND HENCE ASSESSEE MADE HIGHER DISALLOWANCE OF ` 57.84 LAKHS WHILE FILING RETURN OF INCOME. H E SUBMITTED THAT THERE IS NO ESTOPPEL AGAINST LAW AND HENCE DISALLOWANCE SHALL BE MADE U/S. 14A BY APPLYING THE LAW CORRECTLY . LEARNED AR SUBMITTED THAT THE ASSESSEE HELD STOCK M/S. INFINA FINANCE PVT. LTD. 3 IN TRADE OF ` 10661.60 LAKHS AND THE SAME IS REQUIRED TO BE EXCLUDED AS PER THE DECISION OF THE COORDINATE BENCH OF THE TRIB UNAL AS WELL AS HON'BLE BOMBAY HIGH COURT IN THE CASE OF INDIA ADVANTAGE SECURITIES LTD. (SUPRA). INVESTMENTS MADE IN THE BUSINESS S TANDARD LTD. , A SUBSIDIARY COMPANY OF THE ASSESSEE WAS TO THE TUNE OF ` 8337.2 9 LAKHS AND IT IS ALSO REQUIRED TO BE EXCLUDED AS PER THE DECISION RENDERED IN THE CASE OF GARWARE WALL ROPES (SUPRA). REMAINING INVESTMENTS HAVE BEEN MADE UNDER THE PORTFOLIO MANAGEMENT SCHEME AND IN MUTU AL FUNDS AND THEY DO NOT ABSORB MUCH RESOURCE S OF T HE ASSESSEE. ACCORDINGLY HE SUBMITTED THAT THE PROVISIONS OF RULE 8D SHOULD NOT BE APPLIED IN THE FACTS OF THE CASE. HE SU BMITTED THAT THE ASSESSEE HAS FILED A STATEMENT BEFORE THE ASSESSING OFFICER DURING THE COURSE OF ASSESSMENT PROCEEDINGS BY MAKING RE ALISTIC ESTIMATE OF EXPENSE S ATTRIBUTABLE TO EXEMPT INCOME AND THE SAID WORKING IS PLACED AT PAGE NO. 8 OF THE PAPER BOOK. IN THE SAID WORKING, THE ASSESSEE HAS CONSIDERED VARIOUS EXPENSES ATTRIBUTABLE TO THE DIVIDEND INCOME ON THE BASIS OF TIME SPENT BY T HE EMPLOYEES AND ACCORDI N GLY WORKED OUT THE DISALLOWANCE OF ` 11,89,795/ - . 7. HAVING HEARD THE RIVAL SUBMISSIONS, WE FIND MERIT IN THE CONTENTION OF THE ASSESSEE. IT IS WELL SETTLED PROPOSITION OF LAW THAT THERE IS NO ESTOPPEL AGAINST LAW AND HENCE THE ASSESSING OFFICER IS NO T ENTITLED TO ASSESS THE INCOME, WHICH IS OTHERWISE NOT TAXABLE UNDER THE ACT, EVEN IF IT WAS VOLUNTARILY OFFERED BY THE ASSESSEE. EVEN THOUGH THE ASSESSEE HAS VOLUNTARILY DISALLOWED A SUM OF ` 57.84 LAKHS U/S. 14A OF THE ACT IN THE RETURN OF INCOME, THE SAME HAS BEEN COMPUTED WITHOUT CONSIDERING THE LAW DEVELOPED ON THE SUBJECT . THE COORDINATE BENCHES OF THE TRIBUNAL HAS TAKEN THE VIEW THAT THE STRATEGIC INVESTMENTS AND THE SHARE HELD AS STOCK IN TRADE ARE REQUIRED TO BE EXCLUDED FO R THE PURPOSE OF COMPUTING AVERAGE VALUE OF THE INVESTMENT. IN CASE OF STOCK IN TR ADE, OBJECT OF INVESTMENT IS TO MAKE PROFIT ON ITS TRADING AND NOT TO EARN DIVIDEND. THE ASSESSEE HAS ALSO MADE INVESTMENT IN ITS SUBSIDIARY COMPANY NAMED M/S BUSINESS STAND ARD LTD. THE OBJECT OF MAKING INVESTMENTS IN SUBSIDIARY COMPANIES IS ALSO NOT TO EARN DIVIDEND. HENCE THERE IS MERIT IN THE CONTENTIONS OF THE ASSESSEE THAT THE PROVISIONS OF RULE 8D SHOULD NOT BE M/S. INFINA FINANCE PVT. LTD. 4 APPLIED TO THE FACTS OF THE PRESENT CASE. WE NOTICED THA T THE ASSESSEE HAS COMPUTED THE DISALLOWANCE REQUIRED TO BE MADE U/S. 14A OF THE ACT ON A SCIENTIFIC BASIS BY ALLOCATING SALARY AND OTHER OVERHEADS ON A SCIENTIFIC BASIS AT ` 11,89,795/ - . WE NOTICE THAT THE AO DID NOT FIND FAULT WITH THIS WORKING OF THE A SSESSEE. WE HAVE ALSO NOTICED THAT THE ASSESSEE, APART FROM MAKING STRATEGIC INVESTMENTS AND PURCHASE OF STOCK IN TRADE, HAS MADE INVESTMENTS ONLY IN PMS SCHEME AND MUTUAL FUNDS , WHICH WILL NOT NORMALLY CONSUME MORE RESOURCES OF THE ASSESSEE. UNDER THESE S ET OF FACTS, WE ARE OF THE VIEW THAT THE DISALLOWANCE OF ` 11,89,795/ - WORKED OUT BY THE ASSESSEE APPEARS TO BE REASONABLE AND IT MAY ALSO MEET THE REQUIREMENT OF SECTION 14A OF THE ACT. ACCORDINGLY, WE MODIFY THE ORDER PASSED BY THE LEARNED CIT(A) AND DIR ECT THE ASSESSING OFFICER TO RESTRICT THE DISALLOWANCE U/S. 14A OF THE ACT TO ` 11,89,97,95/ - . WE ORDER ACCORDINGLY 8. IN THE RESULT, APPEAL FILED BY THE REVENUE IS DISMISSED. ORDER HAS BE E N PRONOUNCED IN THE COURT ON 12 .7 .201 7. SD/ - SD/ - (SANDEEP GOSAIN ) (B.R.BASKARAN) JUDICIAL MEMBER ACCOUNTANT MEMBER MUMBAI ; DATED : 12 / 7 / 20 1 7 COPY OF THE ORDER FORWARDED TO : 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT(A) 4. CIT 5. DR, ITAT, MUMBAI 6. GUARD FILE. BY ORDER, //TRUE COPY// ( DY./ASSTT. REGISTRAR) PS ITAT, MUMBAI