DCIT CIR 6(1), MUMBAI V. JAYNEER CAPITAL P.LTD, MUMBAI

ITA 7111/MUM/2014

• Counselvise Citation: [2016] 132 COUNSELVISE.COM (IT) 2612 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 7 month(s) 16 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 13-07-2016
• Appeal Filed By: Department
• Order Result: Partly Allowed
• Bench Allotted: J
• Assessment Year: 2007-2008
• Appeal Filed On: 27-11-2014
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Assessee Lawyers: HITENDRA BHANDARI
• Keywords: Opportunity of being heard; Earning of tax free income
• Section: 143(3); 14A

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH J, MUMBAI BEFORE SHRI G.S.PANNU, ACCOUNTANT MEMBER& SHRI SANJAY GARG, JUDICIAL MEMBER. ITA NO. 7111 /MUM/2014 (ASSESSMENT YEAR : 2007-08) THE DCIT, CIR.6(1), ROOM NO.506, 5 TH FLOOR, AAYKAR BHAVAN, MK ROAD, MUMBAI - 400020 ... APPELLA NT VS. M/S. JAYNEER CAPITAL PVT. LTD., CONTINENTAL BUILDING, 135, DR. A.B.ROAD, WORLI, MUMBAI 400 018 PAN:AAACJI 688G .... RESPONDENT APPELLANT BY : SHRI JEEVANLAL RESPONDENT BY : S/SHRI NIRAJ SHETH & HITENDRA BHANDARI DATE OF HEARING : 30/06/2016 DATE OF PRONOUNCEMENT : 13 /07/2016 ORDER PER G.S.PANNU,A.M: THE CAPTIONED APPEAL FILED BY THE REVENUE PERTAININ G TO ASSESSMENT YEAR 2007-08 IS DIRECTED AGAINST AN ORDE R PASSED BY CIT(A)- 14, MUMBAI DATED 15/09/2014, WHICH IN TURN ARISES O UT OF AN ORDER PASSED BY THE ASSESSING OFFICER UNDER SECTION 143(3 ) R.W.S. 147 OF THE INCOME TAX ACT, 1961 (IN SHORT THE ACT) DATED 13 /01/2014. 2. IN THIS APPEAL, THE REVENUE HAS RAISED THE FOL LOWING GROUNDS OF APPEAL:- 2 ITA NO. 7111 /MUM/2014 (ASSESSMENT YEAR : 2007-08) 1. 'WHETHER ON THE FACTS AND IN THE CIRCUMSTANCES O F THE CASE AND IN LAW THE LD CIT(A) ERRED IN DELETING THE INTEREST EX PENDITURE DISALLOWANCE OF RS. 47,50,382/-, TOWARDS EARNING EX EMPT INCOME' 2. 'WHETHER ON THE FACTS AND IN THE CIRCUMSTANCES O F THE CASE AND IN LAW THE LD CIT(A) IS JUSTIFIED IN HOLDING THAT THE DISALLOWANCE U/S 14A CANNOT BE COMPUTED BY APPLYING RULE 80 BY RELYING O N THE JUDGMENT OF BOMBAY HIGH COURT IN THE CASE OF M/S GODREJ & BO YCE MFG. LTD. VS. DCLT(2010) 3281TR 81 (BOM) WITHOUT APPRECIATING THE FACT THAT THE REVENUE HAS CHALLENGED THE SAID DECISION AND FI LED SLP' 3. WHETHER ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE CIT(A) ERRED IN ALLOWING THE APPEAL OF THE ASSESSEE BY STATING THAT DECISION IS IN LINE WITH DECISIONS OF HIGHER APPELLATE AUTHORITIES AND FAILED TO APPRECIATE THAT RULE 80 I S A MACHINERY/ PROCEDURAL PRESCRIBING MECHANISM FOR COMPUTING QUAN TUM OF EXPENDITURE RELATABLE TO EARNING EXEMPT INCOME FOR THE PURPOSE OF DISALLOWANCES UNDER SECTION 14A OF THE INCOME TAX A CT ?' 4. 'WHETHER ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE ID CIT(A) ERRED IN MISINTERPRETING THE PROVISIONS OF SUB SECTION 2 AND SUB SECTION 3 OF SECTION 14A OF THE A CT, INSERTED BY THE FINANCE ACT, 2006 WITH EFFECT FROM APRIL 1, 2007, W OULD APPLY PROSPECTIVELY TO ALL PENDING PROCEEDINGS ?' 5. 'WHETHER ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW THE ID CIT(A) ERRED IN NOT APPRECIATING THAT RULE 80 AS INSERTED BY INCOME TAX (FIFTH AMENDMENT) RULES, 200 7, WITH EFFECT FROM MARCH 2007, WAS PROCEDURAL IN NATURE AND HENCE WOULD APPLY RETROSPECTIVELY TO ALL PENDING PROCEEDINGS ?' 6. 'WHETHER ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE ID CLT(A) ERRED IN NOT APPRECIATING THA T THE DISALLOWANCE AS COMPUTED UNDER SECTION 14A WAS IN TERM OF THE FO RMULA PRESCRIBED IN RULE 80 OF THE INCOME TAX RULES, 1962 ?' 3. AT THE TIME OF HEARING, THE BACKGROUND OF THE C ASE WAS EXPLAINED AS FOLLOWS. THAT THE IMPUGNED PROCEEDINGS RELATE T O A DISALLOWANCE DETERMINED UNDER SECTION 14A OF THE ACT IN PURSUANC E TO THE ORDER OF THE TRIBUNAL IN ITA NO.7116/MUM/2011 DATED 7/9/2012 , WHEREBY THE ORIGINAL DISALLOWANCE MADE BY THE ASSESSING OFFICER WAS SET ASIDE. THE ASSESSING OFFICER HAD MADE THE DISALLOWANCE UNDER S ECTION 14A OF THE 3 ITA NO. 7111 /MUM/2014 (ASSESSMENT YEAR : 2007-08) ACT WITH RESPECT TO THE ELEMENT OF INTEREST EXPENDI TURE BASED ON THE RATIO OF LOANS TO TOTAL FUNDS. THIS APPROACH WAS B ASED ON THE FORMULA ADOPTED IN THE PRECEDING ASSESSMENT YEAR 2006-07. IN ASSESSMENT YEAR 2006-07 ALSO THE TRIBUNAL HAD REMANDED THE ISSUE BA CK TO THE FILE OF THE ASSESSING OFFICER. IN THIS MANNER, THE ASSESSING O FFICER IN THE IMPUGNED ORDER WORKED OUT THE DISALLOWANCE UNDER |SECTION 14 A OF THE ACT AT RS.47,50,382/-, AFTER CONSIDERING THE SUO-MOTU DISALLOWANCE WORKED OUT BY THE ASSESSEE. THE CIT(A) HOWEVER, DELETED T HE ADDITION ON THE GROUND THAT THE TOTAL SHAREHOLDER FUNDS OF THE ASSE SSEE AS ON 31/3/2002 EXCEEDED THE INVESTMENTS. ACCORDING TO T HE CIT(A), IN VIEW OF THE AFORESAID DIRECTIONS OF THE TRIBUNAL, NO DIS ALLOWANCE OUT OF INTEREST EXPENDITURE COULD BE MADE UNDER SECTION 14A OF THE ACT. 4. AT THE TIME OF HEARING, THE LD. DEPARTMENTAL REP RESENTATIVE POINTED OUT THAT ASSESSEE HAD WRONGLY ASSERTED BE FORE THE CIT(A) THAT THE ASSESSING OFFICER HAD NOT GIVEN EFFECT TO THE O RDER OF THE TRIBUNAL ON A SIMILAR ISSUE FOR THE IMMEDIATELY PRECEDING AS SESSMENT YEAR OF 2006-07, WHEREAS THE TRIBUNAL HAD PASSED THE ORDER FOR THE INSTANT ASSESSMENT YEAR I.E. 2007-08 BY RELYING ON ITS EARL IER DECISION IN ASSESSMENT YEAR 2006-07. THE LD. DEPARTMENTAL REPR ESENTATIVE FURNISHED COPY OF THE ORDER PASSED BY THE ASSESSIN G OFFICER FOR ASSESSMENT YEAR 2006-07 DATED 25/03/2013 UNDER SECT ION 143(3) R.W.S. 254 OF THE ACT GIVING EFFECT TO THE ORDER OF THE TR IBUNAL. THE LD. DEPARTMENTAL REPRESENTATIVE HAS POINTED OUT THAT IN THIS ORDER THE ASSESSING OFFICER HAS RETAINED THE DISALLOWANCE OUT OF INTEREST EXPENDITURE UNDER SECTION 14A OF THE ACT. IT WAS, THEREFORE, CONTENDED 4 ITA NO. 7111 /MUM/2014 (ASSESSMENT YEAR : 2007-08) THAT THE CIT(A) HAS PROCEEDED ON A MISTAKEN FOOTIN G IN ORDER TO DELETE THE IMPUGNED ADDITION. 5. ON THE OTHER HAND, LD. REPRESENTATIVE FOR THE AS SESSEE POINTED OUT THAT ASSESSEE WAS NOT AWARE OF THE ORDER PASSED BY THE ASSESSING OFFICER FOR ASSESSMENT YEAR 2006-07 AND THAT ASSESS EE COMPANY WOULD TAKE SEPARATE STEPS FOR THE SAME. BE THAT AS IT MA Y, THE PLEA OF THE ASSESSEE IS THAT IN ANY CASE, DISALLOWANCE OUT OF I NTEREST EXPENDITURE IN TERMS OF SECTION 14A OF THE ACT IS NOT MERITED BECA USE ALL THE INVESTMENTS ARE MADE IN GROUP COMPANIES AND, FURTHE R THAT THE SAME WERE MADE OUT OF INTERNAL ACCRUALS AND NON-INTEREST BEARING FUNDS. THE LD. REPRESENTATIVE FOR THE ASSESSEE POINTED OUT THA T THE STRATEGIC INVESTMENTS ARE LIABLE TO BE EXCLUDED FOR THE PURPO SES OF COMPUTING THE DISALLOWANCE UNDER SECTION 14A OF THE ACT, AND EVEN ON THIS COUNT DISALLOWANCE OUT OF THE INTEREST EXPENDITURE WAS NO T MERITED. ON THIS PLEA, LD. REPRESENTATIVE FOR THE ASSESSEE SUBMITTED THAT THE MATTER MAY BE VERIFIED BY THE ASSESSING OFFICER, INASMUCH AS, ASSESSEE HAD ALREADY CANVASSED SUCH A POSITION IN THE COURSE OF THE ORIGINAL ASSESSMENT PROCEEDINGS UNDER SECTION 143(3) OF THE ACT DATED 15/12/2009. 6. IN VIEW OF THE AFORESAID, WE DEEM IT FIT AND PRO PER TO SET-ASIDE THE MATTER BACK TO THE FILE OF THE ASSESSING OFFICE R TO VERIFY THE PLEA OF THE ASSESSEE THAT THE INVESTMENTS HAVE BEEN MADE IN THE GROUP CONCERNS AS STRATEGIC INVESTMENTS AND IF IT IS SO FOUND, THEN THE SAME SHALL BE EXCLUDED FOR THE PURPOSES OF COMPUTING DIS ALLOWANCE OUT OF INTEREST EXPENDITURE UNDER SECTION 14A OF THE ACT. THE AFORESAID IS IN 5 ITA NO. 7111 /MUM/2014 (ASSESSMENT YEAR : 2007-08) LINE WITH THE JUDGMENT OF HON'BLE DELHI HIGH COURT IN THE CASE OF ORIENTAL STRUCTURAL ENGINEERS (P) LTD., 35 TAXMANN. COM 210; ORDER OF CHENNAI BENCH OF TRIBUNAL IN THE CASE OF EIH ASSOCIATED HOTELS LTD. (ITA NO. 1503/MDS/2012 DATED 17.7.2013); ORDER OF MUMBAI BENCH OF TRIBUNAL IN THE CASE OF M/S. JM FINANCIAL LTD. (ITA NO. 4521/MUM/2012 DATED 26.3.2014); AND, ORDER OF DELHI BENCH OF TRIBUNAL IN THE CASE OF INTERGLOBE ENTERPRISES LTD. (ITA NOS. 1362 & 1032/D EL/2013 DATED 4.4.2014) . NEEDLESS TO MENTION, IN THE ENSUING PROCEEDINGS, THE ASSESSING OFFICER SHALL ALLOW THE ASSESSEE A REASON ABLE OPPORTUNITY OF BEING HEARD AND THEREAFTER, HE SHALL DECIDE THE ISS UE AFRESH IN ACCORDANCE WITH LAW. 7. IN THE RESULT, APPEAL OF THE REVENUE IS ALLOWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED IN THE OPEN COURT ON 13/07/2016 SD/- SD/- (SANJAY GARG) (G.S. PANNU) JUDICIAL MEMBER ACCOU NTANT MEMBER MUMBAI, DATED /07/2016 VM , SR. PS 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) ITAT, MUMBAI