Appeal details
Counselvise Citation
[2015] 121 COUNSELVISE.COM (IT) 0655 (ITAT-MUMBAI)
Assessee PAN
Bench
Appeal Number
Duration Of Justice
3 year(s) 7 month(s) 6 day(s)
Appellant
Respondent
Appeal Type
Income Tax Appeal
Pronouncement Date
27-05-2015
Appeal Filed By
Assessee
Order Result
Allowed
Bench Allotted
E
Next Hearing Date
04-09-2014
Assessment Year
2008-2009
Appeal Filed On
21-10-2011
Judgement Text
IN THE INCOME TAX APPELLATE TRIBUNAL, MUMBAI BENCH E , MUMBAI BEFORE SHRI R.C. SHARMA , ACCOUNTANT MEMBER AND SHRI SANJAY GARG , JUDICIAL MEMBER ITA NO. 6777 /M/2011 ASSESSMENT YEAR: 2008 - 09 ASSTT . COMMISSIONER OF INCOME - TAX, RANGE 8(3), ROOM NO.217, AAYA KAR BHAVAN, M.K. MARG, MUMBAI 400 020 VS. M/S. TOPS SECURITY LTD., 5, ROYAL PALMS GOLF COUNTRY CLUB, AAREY MILK COLONY, GOREGAON (E), MUMBAI 400 065 PAN: AAACT 01060F (APPELLANT) (RESPONDENT) I TA NO. 7151/M/2011 ASSESSMENT YEAR: 2008 - 09 M/S. TOPS SECURITY LTD., 5, ROYAL PALMS GOLF COUNTRY CLUB, SURVEY, 169, AAREY MILK COLONY, GOREGAON (E), MUMBAI 400 065 PAN: AAACT 01060F VS. DY. COMMISSIONER OF INCOME - TAX, RANGE 8(3), AAYAKAR BHAVAN, MUMBA I - 400020 (APPELLANT) (RESPONDENT) PRESENT FOR: ASSESSEE BY : SHRI SANJEEV LALAN, A.R. REVENUE BY : SHRI NEIL PHILIP, D.R. DATE OF HEARING : 17.03. 201 5 DATE OF PRONOUNCEMENT : 27 .05. 2015 O R D E R PER SANJAY GARG, JUDICIAL MEMBER: THE ABOVE TITLED CROSS APPEAL S ONE BY THE REVENUE AND THE OTHER BY THE ASSESSEE HAVE BEEN DIRECTED AGAINST THE ORDER OF THE COMMISSIONER OF INCOME TAX (APPEALS) [(HEREINAFTER REFERRED TO AS CIT(A)] DATED 06.07.2 011 RELEVANT TO ASSESSMENT YEAR 2008 - 09. SINCE COMMON ISSUES ARE INVOLVED THEREIN, HENCE ITA NO.7151/M/2011 & ITA NO.67 77/M/2011 M/S. TOPS SECURITY LTD. 2 THE SAME ARE TAKEN TOGETHER FOR DISPOSAL BY THIS COMMON ORDER. FIRST WE TAKE UP THE APPEAL OF THE REVENUE. ITA NO.6777/M/2011 2. THE REVENUE HAS TAKEN THE FOLLOWI NG GROUNDS OF APPEAL: ' 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT(A) ERRED IN HOLDING THAT SERVICE TAX THOUGH DEBITED TO THE PROFIT & LOSS ACCOUNT BUT NOT CREDITED TO THE CENTRAL GOVERNMENT, CANNOT BE DISALLOWED U/S.43B O N THE INCOME TAX ACT, 1961. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT(A) ERRED IN FOLLOWING THE JUDGMENT OF THE HON'BLE TRIBUNAL, CHENNAI BENCH IN THE CASE OF ACIT VS. REAL IMAGE MEDIA TECHNOLOGIES PRIVATE LIMITED [(2008) LTD 573 (CHENNAI)], WHEREAS THE FACTS OF THE ASSESSEE'S CASE ARE DISTINGUISHABLE FROM THE FACTS OF THE AFORESAID CASE. 2. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT(A) ERRED IN DELETING DISALLOWANCE OF PROPORTIONATE INTERES T PERTAINING TO INTEREST - FREE DEPOSITS AND ADVANCES GIVEN T O SISTER CONCERNS FOR RENTING RESIDENCE FOR DIRECTORS, HIRING OF VEHICL E ETC. WITHOUT CONSIDERING THE RATIO OF THE JUDGMENT OF THE APEX COURT IN CASE OF S.A. BUILDERS VS. CIT(A) 288 ITR 1. THE APP ELLANT PRAYS THAT THE ORDER OF THE CIT(A) ON THE ABOVE GROUND BE SET ASIDE AND THAT OF THE ITO/ACIT/DCIT BE RESTORED. GROUND NO.1 3. THE ASSESSING OFFICER (HEREINAFTER REFERRED TO AS THE AO) DISALLOWED AN AMOUNT OF RS. 6 , 43 , 88 , 850/ - ON THE GROUND THAT THIS AMOUNT WAS NOT PAID BEFORE THE DUE DATE OF FILING OF RETURN AS PER THE PROVISIONS OF SECTION 43B. THE AO ACCORDINGLY ADDED THE SAID AMOUNT TO THE INCOME OF THE ASSESSEE BY WAY OF INVOKING THE PROVISIONS OF SECTION 43B OF THE ACT. 4. BEFORE THE LD. CIT(A), THE ASSESSEE CONTENDED THAT THOUGH THE SERVICE TAX WAS INCLUDED IN THE BILLS BUT IT WAS NOT ACTUALLY COLLECTED FROM THE CUSTOMERS. THE ASSESSEE REFERRED RULE 6 OF THE SERVICE TAX ACT AND SUBMITTED THAT TAX BECOME PAYABLE ONLY WHEN IT IS COLLECTED FROM THE CUSTOMERS. THE LD. ITA NO.7151/M/2011 & ITA NO.67 77/M/2011 M/S. TOPS SECURITY LTD. 3 CIT(A) ALLOWED THE CLAIM OF THE ASSESSEE AND DELETED THE DISALLOWANCE MADE BY THE AO BY FOLLOWING THE DECISION OF THIS TRIBUNAL IN THE CASE OF CIT VS. REAL IMAGE MEDIA TECHNOLOGIES [114 ITD 573]. 5. THE LD. A.R. OF THE AS SESSEE HAS BROUGHT OUR ATTENTION TO THE DECISION OF THE TRIBUNAL DATED 1 4.11.14 WHEREIN THE TRIBUNAL, WHILE RELYING UPON ITS EARLIER DECISION IN THE OWN CASE OF THE ASSESSEE FOR A.Y. 2005 - 06, HAS DECIDED THE ISSUE IN FAVOUR OF THE ASSESSEE. THE RELEVANT P ART OF THE ORDER DATED 14.11.14 FOR THE SAKE OF REFERENCE IS REPRODUCED AS UNDER: WE FURTHER NOTE THAT AN IDENTICAL ISSUE WAS CONSIDERED AND DECIDED BY THIS TRIBUNAL IN ASSESSEE'S OWN CASE FOR A.Y. 2005 - 06, VIDE DECISION DATED 30.06.2010, IN ITA NO. 53 93/MUM/2008 IN PARA 14 AS UNDER: - '14. AFTER CONSIDERING THE RIVAL SUBMISSIONS AND PERUSING THE RELEVANT MATERIAL ON RECORD IT IS SEEN THAT A SUM OF RS.2,74,26,695 REPRESENTS THE AMOUNT WHICH WAS DEBITED TO THE PROFIT AND LOSS ACCOUNT BUT NOT PAID TO THE GOVERNMENT AS IT WAS NOT COLLECTED. THE REMAINING AMOUNT OF RS.45 LAKHS AND ODD REPRESENTS THE AMOUNT WHICH WAS COLLECTED BY THE ASSESSEE AND IN TURN PAID TO THE GOVERNMENT IN THIS YEAR. THE CONTENTION OF THE LEARNED DEPARTMENTAL REPRESENTATIVE THAT THE SA ID SUM OF RS.3.19 CRORE WHICH WAS CLAIMED AS DEDUCTION SHOULD BE DISALLOWED U1S.43B AS IT WAS NOT PAID TO THE GOVERNMENT, DOES NOT MERIT ACCEPTANCE IN VIEW OF A DIRECT ORDER OF THE TRIBUNAL PASSED BY THE CHENNAI BENCH IN ACIT VS. REAL IMAGE MEDIA TECHNOLOG IES (P.) LTD. [(2008) 114 LTD 573 (CHENNAI)]. IN THIS CASE IT HAS BEEN HELD THAT SERVICE TAX THOUGH BILLED BUT NOT RECEIVED NOT HAVING BEEN CREDITED TO THE CENTRAL GOVERNMENT BY VIRTUE OF FINANCE ACT, 1994 READ WITH RULE 6 OF SERVICE TAX RULES, 1994, CAN N OT BE DISALLOWED U1S.43B. NO CONTRARY JUDGEMENT HAS BEEN BROUGHT TO OUR NOTICE BY THE LEARNED DEPARTMENTAL REPRESENTATIVE. RESPECTFULLY F011OWING THE PRECEDENT, WE UPHOLD THE VIEW TAKEN BY THE LEARNED CIT(A) ON THIS ISSUE. THIS GROUND IS NOT ALLOWED.' 2.2 THE ISSUE BEFORE US, IS REGARDING DISALLOWANCE OF SERVICE TAX WHICH WAS NOT COLLECTED BY THE ASSESSEE FROM THE CUSTOMERS TO THE TUNE OF RS. 5,12,22,734/ - . SINCE AN IDENTICAL ISSUE WAS DECIDED BY THIS TRIBUNAL IN ASSESSEE'S OWN CASE (SUPRA), ACCORDINGLY, F OLLOWING THE EARLIER ORDER OF THIS TRIBUNAL, WE DO NOT FIND ANY ERROR OR ILLEGALITY IN THE IMPUGNED ORDER OF CIT(A) QUA THIS ISSU E. ITA NO.7151/M/2011 & ITA NO.67 77/M/2011 M/S. TOPS SECURITY LTD. 4 THE LD. D.R. COULD NOT BRING BEFORE US ANY DECISION CONTRARY TO THE ABOVE FINDING OF THE TRIBUNAL GIVEN IN THE OWN CASE OF THE ASSESSEE FOR EARLIER ASSESSMENT YEARS. 6. RESPECTFULLY FOLLOWING THE SAME, FOR THE SAKE OF RULE OF CONSISTENCY, THIS ISSUE IS ACCORDINGLY DECIDED IN FAVOUR OF THE ASSESSEE AND AGAINST THE REVENUE. GROUND NO.2 7. VIDE G ROUND NO. 2, THE REV ENUE HAS AGITATED THE ACTION OF THE LD. CIT(A) IN DELETING THE NOTIONAL PROPORTIONATE INTEREST ON INTEREST FREE DEPOSITS ADVANCED TO SISTER CONCERNS. DURING THE ASSESSMENT PROCEEDINGS, THE AO NOTICED THAT THE ASSESSEE HAD DEBITED AN INTEREST AMOUNT OF RS. 494.41 LAKH TO ITS PROFIT & LOSS ACCOUNT. HE OBSERVED THAT IN ASSESSMENT ORDER FOR A.Y. 2003 - 04 THE NOTIONAL INTEREST , RELATABLE TO DEPOSITS GIVEN TO DIRECTORS AND ADVANCES GIVEN TO ASSOCIATE CONCERN TOP S SECURITIES ( U . K ) LTD. WITHOUT CHARGING ANY INTERES T , WAS ADDED TO THE INCOME OF THE ASSESSEE. HE ALSO OBSERVED THAT THE SIMILAR DISALLOWANCES WERE MADE IN THE A.Y. 2005 - 06, 2006 - 07 & 2007 - 08. HE FURTHER OBSERVED THAT DURING THE YEAR, THE AMOUNT OF RS.2,60,30,000/ - HAVE BEEN SHOWN TO BE PLACED WITH DIREC TORS, ASSOCIATE CONCERNS AND SUBSIDIARY COMPANIES AS ON 31.03.08 UPON WHICH THE ASSESSEE HAD NOT CHARGED ANY INTEREST. HE, THEREFORE, FOLLOWING THE LINE ADOPTED IN EARLIER ASSESSMENT YEARS, HELD THAT THE SAID BORROWINGS HAD NOT BEEN MADE FOR THE PURPOSE O F BUSINESS AND THEREFORE DISALLOWED THE INTEREST PAID TO THE EXTENT OF INTEREST FREE LOANS ADVANCED. 8. IN APPEAL, THE LD. CIT(A) DELETED THE INTEREST DISALLOWANCE OBSERVING THAT THE AMOUNT IN QUESTION WAS GIVEN TO THE DIRECTORS ASSOCIATED CONCERNS IN T HE FORM OF RENTAL DEPOSIT FOR RENTING OUT THE PREMISES OWNED BY THEM FOR THE PURPOSE OF RESIDENCE OF DIRECTORS FOR BUSINESS PURPOSE. HE FURTHER OBSERVED ITA NO.7151/M/2011 & ITA NO.67 77/M/2011 M/S. TOPS SECURITY LTD. 5 THAT THE IDENTICAL ISSUE RELATING TO CHARGING OF INTEREST ON RENT DEPOSITS HAS ALREADY BEEN DECIDED BY THE TRIBUNAL IN FAVOUR OF THE ASSESSEE VIDE ORDER DATED 20.11.09 RELEVANT TO A.Y. 2003 - 04. THE LD. CIT(A), RELYING UPON THE SAID DECISION, DIRECTED THE AO NOT TO CHARGE INTEREST ON THE RENT DEPOSIT OF RS.260.33 LAKHS OBSERVING AS UNDER: 6.3 THE INFORMA TION ON RECORD IS CAREFULLY EXAMINED. REGARDING THE CHARGING OF INTEREST ON RENT DEPOSITS, THE SAME ISSUE WAS DECIDED IN FAVOUR OF THE APPELLANT BY THE HON'BLE ITAT FOR AY 2003 - 04 VIDE ORDER DATED 20.11.2009 WHEREIN IT WAS HELD THAT; 'JUST BECAUSE IN THE OPINION OF REVENUE, THE ASSESSEE HAD GIVEN A HIGHER DEPOSIT FOR TAKING THE PREMISES ON LEASE OR FOR TAKING CERTAIN VEHICLES ON HIRE, IT CANNOT BE SAID THAT THE ASSESSEE SHOULD HAVE EARNED INTEREST INCOME, HAD HE NOT DEPLOYED HIS FUNDS FOR GIVING A HIGHER T HAN NORMAL DEPOSIT. IT IS NOT DISPUTED THAT PREMISES AND THE VEHICLES HAVE BEEN USED FOR THE PURPOSE OF BUSINESS. UNDER THESE CIRCUMSTANCES, AS THE LAW DOES NOT PERMIT BRINGING TO TAX NOTIONAL INCOME, THIS ADDITION HAS TO BE NECESSARILY DELETED'. ACCORDIN GLY THE AO IS DIRECTED NOT TO CHARGE INTEREST ON THE RENT DEPOSIT OF RS.260 .33 LACS . 9. BEFORE US, THE LD. A.R. OF THE ASSESSEE HAS RELIED UPON A CHART TO STATE THAT THE INTEREST HAS BEEN CALCULATED BY THE AO ON THE AMOUNT OF RS.260.33 LAKHS AT THE RAT E OF 12% PER ANNUM OUT OF WHICH OPENING BALANCE WAS RS.230.97 WHICH CONSTITUTE RS.146.70 LAKHS AS RENTAL DEPOSIT KEPT WITH OWNERS OF PREMISES, THE OWNERS BEING THE DIRECTORS OF THE COMPANY + AMOUNT OF RS.84.27 LAKHS DUE FROM FIRMS WHERE DIRECTORS OF THE CO MPANY WERE PARTNERS. HE HAS FURTHER CONTENDED THAT THE BALANCE AMOUNT OF RS.29.36 LAKHS WERE THE NEW LOANS WHICH HAD BEEN GIVEN OUT OF INTEREST FREE FUNDS. THE LD. A.R. HAS FURTHER SUBMITTED THAT SO FAR AS THE OPENING BALANCE OF RS.230.97 LAKHS (RS.146.7 0 + RS.84.27) WAS CONCERNED, THE INTEREST RELATING TO THE SAME HAS ALREADY BEEN DELETED BY THE LD. CIT(A) IN THE EARLIER A.Y. 2007 - 08, W HILE RELYING UPON THE DECISION OF THE TRIBUNAL IN THE OWN CASE OF THE ASSESSEE FOR A.Y. 2003 - 04 (SUPRA) AND THAT THE DEP ARTMENT HAS NOT PREFERRED ANY APPEAL ITA NO.7151/M/2011 & ITA NO.67 77/M/2011 M/S. TOPS SECURITY LTD. 6 AGAINST THE SAID ORDER OF THE CIT(A) FOR A.Y. 2007 - 08 . HE HAS FURTHER CONTENDED THAT THE BORROWED FUNDS WERE WHOLLY AND EXCLUSIVELY USED BY THE ASSESSEE FOR ITS BUSINESS PURPOSES. HE, FURTHER RELYING UPON THE DECISION OF THE HONBLE BOMBAY HIGH COURT IN THE CASE OF RELIANCE UTILITIES AND POWER LTD. 178 TAXMANN.COM 135, HAS SUBMITTED THAT NO DISALLOWANCE OF INTEREST WAS ATTRACTED FOR THE LOANS GIVEN OUT OF OWN FUNDS BY THE ASSESSEE. THE LD. D.R., ON THE OTHER HAND, HAS SUBMITTED THAT THE AO HAD RIGHTLY DISALLOWED THE INTEREST EXPENDITURE AS THE ASSESSEE HAS FAILED TO SUBSTANTIATE ITS CLAIM THAT THE LOANS WERE ADVANCED TO SISTER CONCERNS FOR BUSINESS EXPEDIENCY AND FURTHER THAT THE ASSESSEE HAD FAILED TO SUBMIT ANY F UND FLOW STATEMENT TO SHOW THAT THE ASSESSEE HAD USED ITS OWN FUNDS FOR THE PURPOSE OF ADVANCEMENT OF INTEREST FREE LOANS TO SISTER CONCERNS. 10. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND HAVE PERUSED THE RECORDS. WE FIND THAT FOR THE A.Y. 2006 - 07, THE IDENTICAL ISSUE HAD COME UP FOR CONSIDERATION BEFORE THE LD. CIT(A). OUT OF THE TOTAL AMOUNT OF INTEREST FREE DEPOSITS OF RS.283.12 LAKHS FOR THE SAID A.Y. 2007 - 08 , THE ASSESSEE HAD CLAIMED THAT A DEPOSIT OF RS. 146.70 LAKHS WAS THE RENTAL DEPOSIT AS E XPLAINED ABOVE, AN AMOUNT OF RS.52 . 15 LAKH WAS GIVEN TO TOPS SECURITIES (U.K) LTD. WHICH WAS CLAIMED TO BE SISTER CONCERN OF THE ASSESSEE. FURTHER, THE BALANCE AMOUNT OF RS.84.27 LAKHS WAS CLAIMED TO BE DUE FROM FIRMS WHERE DIRECTORS OF THE COMPANY WERE P ARTNERS. THE LD. CIT(A), WHILE DEALING WITH THE ISSUE DELETED THE DISALLOWANCE OF INTEREST RELATING TO THE RENT DEPOSITS OF RS.146.70 LAKHS. THE LD. CIT(A), HOWEVER, CONFIRMED THE DISALLOWANCE RELATING TO THE INTEREST ON LOAN GIVEN TO TOPS SECURITIES (U. K) LTD., WHILE RELYING UPON THE DECISION OF THE TRIBUNAL IN THE OWN CASE OF THE ASSESSEE FOR A.Y. 2003 - 04. THE LD. CIT(A) FURTHER CONFIRMED THE ADDITION OF INTEREST RELATING TO LOANS GIVEN TO RELATED PARTIES/GROUP CONCERNS OBSERVING THAT THE ASSESSEE HAD FAILED TO SUBMIT ITA NO.7151/M/2011 & ITA NO.67 77/M/2011 M/S. TOPS SECURITY LTD. 7 THE CASH FLOW STATEMENT IN ORDER TO SUBSTANTIATE THAT THE INTEREST FREE ADVANCES WERE GIVEN TO THE SISTER CONCERNS OUT OF SURPLUS FUNDS OR TO PROVE THAT THE SAME WERE ADVANCE D FOR BUSINESS PURPOSE OF THE ASSESSEE. WE ALSO FIND THAT THE AS SESSEE HAD NOT PREFERRED ANY APPEAL AGAINST THE ORDER OF THE CIT(A) FOR A.Y. 2006 - 07 AGITATING ANY CONFIRMATION OF INTEREST DISALLOWANCE RELATING TO THE DEPOSITS MADE WITH SISTER CONCERNS . HOWEVER, WE FIND THAT THE LD. CIT(A) IN THE IMPUGNED ORDER HAS NOT GONE INTO THE DETAILS OF THE INTEREST FREE ADVANCES CLAIMED BY THE ASSESSEE. HE HAS TREATED THE ENTIRE AMOUNT OF RS.260.33 LAKHS AS RENT DEPOSITS. HENCE, THE ORDER OF THE LD. CIT(A) SUFFERS FROM AMBIGUITY. 11. WE ACCORDINGLY RESTORE THIS ISSUE TO THE F ILE OF THE AO WITH A DIRECTION TO DECIDE THE SAME AFRESH IN THE LIGHT OF THE DECISION OF THE TRIBUNAL IN THE OWN CASE OF THE ASSESSEE FOR A.Y. 2003 - 04 AND ALSO IN THE LIGHT OF THE DECISION OF THE HONBLE BOMBAY HIGH COURT IN THE CASE OF RELIANCE UTILITIES AND POWER LTD. (SUPRA). 12. IN THE RESULT, THE APPEAL OF THE REVENUE IS THEREFORE PARTLY ALLOWED FOR STATISTICAL PURPOSES. ITA NO. 7151/M/2011 13. THE ASSESSEE , IN HIS APPEAL, HAS AGITATED THE DISALLOWANCE OF RS. 1 , 37 , 115/ - UNDER SECTION 14A READ W ITH RULE 8D OF THE INCOME TAX RULES. THE LD. A.R. OF THE ASSESSEE HAS RELIED UPON THE DECISION OF THE CO - ORDINATE BENCH OF THE TRIBUNAL IN THE CASE OF PROVOGUE INDIA LTD. ITA NO.2155/M/2013 DECIDED ON 21.01.15. 14. WE FIND THAT THE AO HAD MADE THE DISALLOWANCE UNDER SECTION 14A OBSERVING THAT THE ASSESSEE HAD EARNED DIVIDEND OF RS. 11 , 988/ - WHICH WAS CLAIMED AS EXEMPT. FROM THE BALANCE SHEET IT WAS OBSERVED THAT THE ASSESSEE HAD THE OPENING BALANCE OF INVESTMENT IN SHARES AT RS.1,13,19,000/ - AND THE ITA NO.7151/M/2011 & ITA NO.67 77/M/2011 M/S. TOPS SECURITY LTD. 8 CLOSING BALANCE OF RS.21,42,94,000/ - . THE ASSESSEE HAS SUO - MOTO DISALLOWED THE MERE SUM OF RS.2,500/ - UNDER SECTION 14A. HE, THEREFORE, RELYING UPON THE PROVISIONS OF RULE 8D, COMPUTED THE DISALLOWANCE AT RS. 39,66,136/ - , THEREAFTER DEDUCTING THE SUO - MOT O DISALLOWANCE OF RS.2,500/ - OFFERED BY THE ASSESSEE, HE MADE THE ADDITION OF RS.39,66,136/ - INTO THE INCOME OF THE ASSESSEE. THE LD. CIT(A), HOWEVER, GAVE RELIEF RELATING TO THE INTEREST EXPENDITURE INCURRED ON SERVICE TAX , ESIC & LWF AND VEHICLE LOAN ET C. BEING THE INTEREST EXPENDITURE MADE FOR SPECIFIC PURPOSES. HE ALSO DIRECTED THAT THE SHARE APPLICATION MONEY WAS NOT TO BE CONSIDERED AS PART OF INVESTMENTS. HE, HOWEVER, CONFIRMED THE ACTION OF THE AO IN MAKING THE DISALLOWANCE UNDER SECTION 14A AS P ER THE PROVISIONS OF RULE 8D. 15. BEFORE US, THE CONTENTION OF THE ASSESSEE HAS BEEN THAT THE ASSESSEE HAD MADE 100% INVESTMENT IN ITS SUBSIDIARIES IN THE FORM OF STRATEGIC INVESTMENT AND HENCE THE SAID INVESTMENTS WERE REQUIRED TO BE EXCLUDED WHILE CAL CULATING DISALLOWANCE UNDER SECTION 14A READ WITH RULE 8D. 16. WE HAVE PERUSED THE ORDER OF THE CO - ORDINATE BENCH OF THE TRIBUNAL IN THE CASE OF PROVOGUE INDIA LTD. (SUPRA) WHEREIN THE TRIBUNAL, WHILE DEALING WITH THE CONTENTION OF THE ASSESSEE REGARDIN G THE STRATEGIC INVESTMENTS MADE IN THE SUBSIDIARIES FOR BUSINESS PURPOSES , HAS MADE THE FOLLOWING OBSERVATIONS: 4.3 WE HAVE CONSIDERED RIVAL CONTENTIONS AND FOUND THAT ASSESSEE HAS MADE INVESTMENT IN SUBSIDIARIES AS A STRATEGIC INVESTMENT AND NOT FOR EA RNING DIVIDEND INCOME, THE ISSUE WITH REGARD TO COMPUTATION OF DISALLOWANCE U/R.8D WHEN THERE IS ANY INVESTMENT FOR STRATEGIC PURPOSES, HAS BEEN DEALT BY THE IT AT DELHI BENCH IN THE CASE OF INTERGLOBE ENTERPRISES LTD., ITA NO.1362&1032/DEL/2013, ORDER DATE D 4 - 4 - 2014 , WHEREIN THE TRIBUNAL OBSERVED AS UNDER : - 'HOWEVER, WE FIND THAT THE CALCULATION OF DISALLOWANCE UNDER RULE 8D(III) MADE BY THE ASSESSING OFFICER AND UPHELD BY LD CIT(A) IS NOT CORRECT IN VIEW OF THE FACT THAT ASSESSING OFFICER HAD INCLUDED THE VALUE OF TOTAL INVESTMENTS FOR CALCULATION OF DISALLOWANCE WHEREAS IN OUR OPINION THE VALUE OF THOSE INVESTMENTS SHOULD HAVE BEEN INCLUDED WHICH WERE MADE FOR THE PURPOSE OF EARNING EXEMPT ITA NO.7151/M/2011 & ITA NO.67 77/M/2011 M/S. TOPS SECURITY LTD. 9 INCOME. THE ASSESSEE HAD MADE SIGNIFICANT INVESTMENTS IN THE SHARE S 'OF SUBSIDIARY COMPANIES WHICH ARE DEFINITELY NOT FOR THE PURPOSE OF EARNING EXEMPT INCOME. THE HON'BLE TRIBUNAL IN I.T.A. NO. 3349/0E112011 IN THE CASE OF PROMAIN LTD., AFTER RELYING UPON A KOLKATTA JUDGMENT OF TRIBUNAL IN L. TA. NO. 1331 HAS HELD THAT STRATEGIC INVESTMENT HAS TO BE EXCLUDED FOR THE PURPOSE OF ARRIVING AT DISALLOWANCE UNDER RULE 8D (III). THE TRIBUNAL HAD RELIED UPON THE FINDINGS OF KOLKATA TRIBUNAL IN THE CASE OF REI AGRO LTD. V. DCIT IN ITA NO.1331/DEL/2011 DATED 29.7.2011. THE RELEVAN T PORTION OF TRIBUNAL FINDINGS AS CONTAINED IN KOLKATA TRIBUNAL ARE REPRODUCED BELOW. -- '(IFI) FURTHER IN RULE 8D (2) (II), THE WORDS USED IN NUMERATOR B ARE 'THE AVERAGE VALUE OF THE INVESTMENT, INCOME FROM WHICH DOES NOT FORM OR SHALL NOT FORM PART OF T HE TOTAL INCOME AS APPEARING IN THE BALANCE SHEET AS ON THE FIRST DAY AND IN THE LAST DAY OF THE PREVIOUS YEAR' THE ASSESSING OFFICER WAS WRONG IN TAKING INTO CONSIDERATION THE INVESTMENT OF RS. 103 CRORES MADE DURING THE YEAR WHICH HAS NOT EARNED ANY DIVI DEND OR EXEMPT INCOME. IT IS ONLY THE AVERAGE OF THE VALUE OF THE INVESTMENT FROM WHICH THE INCOME HAS BEEN EARNED WHICH IS NOT FALLING WITHIN THE PART OF THE TOTAL INCOME THAT IS TO BE CONSIDERED. THUS, IT IS NOT THE TOTAL INVESTMENT AT ALL BEGINNING OF T HE YEAR AND AT THE END OF THE YEAR, WHICH IS TO BE CONSIDERED BUT IT IS THE AVERAGE OF THE VALUE OF INVESTMENTS WHICH HAS GIVEN RISE TO THE INCOME WHICH DOES NOT FORM PART OF THE TOTAL INCOME WHICH IS TO BE CONSIDERED. THE TERM 'AVERAGE OF THE VALUE OF INV ESTMENT' IS USED TO TAKE CARE OF CASES WHERE THERE IS THE ISSUE OF DIVIDEND STRIPING. IV) UNDER RULE 8D (2) (III), WHAT IS DISALLOWABLE IS AN AMOUNT EQUAL TO Y2 PERCENTAGE OF THE AVERAGE VALUE OF INVESTMENT THE INCOME FROM WHICH DOES NOT OR SHALL NOT FORM PART OF THE TOTAL INCOME /. THUS, UNDER SUB CLAUSE (III), WHAT IS DISALLOWED IS PERCENTAGE OF THE NUMERATOR B IN RULE 8D(2)(III). THIS HAS TO BE CALCULATED ON THE SAME LINES AS MENTIONED EARLIER IN RESPECT OF NUMERATOR B IN THE RULE 8D (2) (II). THUS, NOT ALL INVESTMENTS BECOME THE SUBJECT MATTER OF CONSIDERATION WHEN COMPUTING DISALLOWANCE U/S 14AREAD WITH RULE 8D. THE DISALLOWANCE U/S 14A READ WITH RULE 8D IS TO BE IN RELATION TO THE INCOME WHICH DOES NOT FORM PART OF THE TOTAL INCOME AND THIS CAN BE DON E ONLY BY TAKING INTO CONSIDERATION THE INVESTMENT WHICH HAS GIVEN RISE TO THIS INCOME WHICH DOES NOT FORM PART OF THE TOTAL INCOME. (A. Y.) (I. T.A.NO. 133 1/KOL/201 1 DATED 29.7.2011.' FOLLOWING THE ABOVE JUDICIAL PRECEDENTS, WE HELD THAT VALUE OF STRATE GIC INVESTMENTS SHOULD BE EXCLUDED FOR THE PURPOSE OF DISALLOWANCE UNDER RULE 8D(III).' ITA NO.7151/M/2011 & ITA NO.67 77/M/2011 M/S. TOPS SECURITY LTD. 10 IN VIEW OF THE ABOVE, WE RESTORE THE MATTER BACK TO THE FILE OF AO FOR COMPUTING DISALLOWANCE KEEPING IN VIEW THE JUDICIAL PRONOUNCEMENTS AS DISCUSSED ABOVE. WE DIRECT ACCORDINGLY. (EMPHASIS SUPPLIED) 17. RESPECTFULLY FOLLOWING THE DECISION OF THE CO - ORDINATE BENCH OF THE TRIBUNAL FOR THE SAKE OF CONSISTENCY, WE RESTORE THIS ISSUE TO THE FILE OF THE AO TO DECIDE THE SAME AFRESH IN THE LIGHT OF THE ABOVE DECISION (SU PRA) AND OTHER RELEVANT PROVISIONS OF THE LAW. 18. ACCORDINGLY , THE APPEAL OF THE ASSESSEE IS ALLOWED FOR STATISTICAL PURPOSES. 19. IN THE RESULT, THE APPEAL OF THE REVENUE IS PARTLY ALLOWED FOR STATISTICAL PURPOSES AND THE APPEAL OF THE ASSESSEE IS A LLOWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED IN THE OPEN COURT ON 27.05. 201 5 . SD/ - SD/ - ( R.C. SHARMA ) (SANJAY GARG) ACCOUNTANT MEMBER JUDICIAL MEMBER MUMBAI, DA TED: 27.05.2015. * KISHORE , SR. P.S. COPY TO: THE APPELLANT THE RESPONDENT THE CIT, CONCERNED, MUMBAI THE CIT ( A) CONCERNED, MUMBAI THE DR CONCERNED BENCH //TRUE COPY// [ BY ORDER DY/ASSTT. REGISTRAR, ITAT, MUMBAI.
