THRILL PARK LIMITED, MUMBAI V. ITO , WARD 11(3)(1), MUMBAI

ITA 7157/MUM/2019

• Counselvise Citation: [2021] 107 COUNSELVISE.COM (IT) 4267 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 10 month(s) 7 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 28-09-2021
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: E
• Assessment Year: 2016-2017
• Appeal Filed On: 20-11-2019
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: VIJAY KUMAR MENON
• Keywords: Earning of tax free income; Tax effect; Rule 8D; Set aside
• Section: 14A; 13

Judgement Text

THE INCOME TAX APPELLATE TRIBUNAL E BENCH, MUMBAI SHRI SHAMIM YAHYA (AM) & SHRI PAVANKUMAR GADALE ( JM) I.T.A. NO. 7157/MUM/2019 (ASSESSMENT YEAR 2016-17) THRILL PARK LIMITED 9 TH FLOOR, LOTUS BUSINESS PARK, NEW LINK ROAD ANDHERI WEST, MUMBAI 400 053. PAN : AACCT7914M VS. ITO WARD-11(3)(1) AAYAKAR BHAVAN M.K. ROAD MUMBAI-400 020. (APPELLANT) (RESPONDENT) ASSESSEE BY SHRI MAHESH O. RAJORA DEPARTMENT BY SHRI VIJAY KUMAR MENON DATE OF HEARING 15 .0 7 .2021 DATE OF PRONOUNCEMENT 28.09.2021 O R D E R PER SHAMIM YAHYA (AM) :- THIS APPEAL BY THE ASSESSEE IS DIRECTED AGAINST TH E ORDER OF LEARNED CIT(A) DATED 30.9.2019 PERTAINING TO ASSESSMENT YEA R (A.Y.) 2016-17. 2. GROUNDS OF APPEAL READ AS UNDER : 1. A) THE COMMISSIONER OF INCOME TAX (APPEALS) - 1 8, MUMBAI [CIT(A)] ERRED IN CONFIRMING THE DISALLOWANCE OF RS.23,30,891/- U/ S 14A OF THE I. T. ACT R.W.R. 8D OF THE I.T. RULE MADE BY THE AO AS EXPENSE S ATTRIBUTABLE TO INVESTMENT ACTIVITY GIVING RISE TO THE EXEMPT INCOME. THE APPELLANT SUBMITS THAT IT HAS NOT INCURRED ANY EXPE NSES IN RELATION TO EARNING OF EXEMPT INCOME AND HENCE NO DISALLOWANCE WAS CALLED FOR. B) THE CIT(A) ERRED IN CONFIRMING THE ACTION OF AO IN INVOKING RULE 8D OF THE I.T. RULES FOR COMPUTING DISALLOWANCE U/S 14A OF THE I.T. ACT WITHOUT RECORDING SUFFICIENT REASON AND SATISFACTION FOR REJE CTING APPELLANT'S CONTENTION FOR EXPENSES INCURRED FOR EARNING EXEMPT I NCOME C) THE CIT(A) ERRED IN CONFIRMING THE ACTION OF AO I N CONSIDERING AVERAGE OF TOTAL VALUE OF INVESTMENTS DURING THE YEAR FOR THE PUR POSES OF DISALLOWANCE AS PER RULE 8D OF THE RULES. THE APPELLANT SUBMITS THAT THE AO OUGHT TO HAVE CONSID ERED AVERAGE VALUE OF ONLY THOSE INVESTMENTS ON WHICH APPELLANT HAS EARNED TH E EXEMPT INCOME. THRILL PARK LIMITED 2 YOUR APPELLANT CRAVES LEAVE TO ADD, TO ALTER OR TO AMEN D THE AFORESAID GROUND OF APPEAL. 3. BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE IS ENGAGED IN THE BUSINESS OF BUILDING AND PROMOTING AMUSEMENT PARKS AND TOURIST DESTINATION. THE ASSESSEE FILED ITS RETURN OF INCOME FOR A.Y. 2016-1 7 ON 28.09.2016 DECLARING TOTAL INCOME OF RS.7,310/-. THE ASSESSMENT PROCEEDI NGS WERE COMPLETED WITH ASSESSED INCOME OF RS.23,38,201/- UNDER SECTION 143 (3) OF THE INCOME TAX ACT, 1961, VIDE ORDER DATED 30.11.2018 BY MAKING DISALLO WANCE OF RS.23,30,891/- U/S. 14A. 4. UPON ASSESSEES APPEAL LEARNED CIT(A) NOTED FOLL OWING SUBMISSION OF THE ASSESSEE :- DURING THE YEAR UNDER CONSIDERATION, THE APPELLANT HA S EARNED DIVIDEND INCOME OF RS. 25,96,678/- ON MUTUAL FUND HELD AS CU RRENT INVESTMENT (REFER NOTE 1O ON PAGE 19 OF PAPER BOOK] WHICH HAVE BEEN C LAIMED AS EXEMPT U/S 10(35) OF THE ACT. DURING THE COURSE OF ASSESSMENT PR OCEEDING, THE APPELLANT WAS ASKED TO EXPLAIN AS TO WHY DISALLOWANCES SHOULD N OT BE CALCULATED AS PER SECTION 14A OF THE ACT R.W. RULE 8D OF THE RULES. THE APPELLANT SUBMITTED THAT FOR THE PURPOSE OF CALCULATING THE DISALLOWANCE U/ S 14 A R.W.R 8D(2)(II) OF THE RULES, THE APPELLANT HAS O MOTO DISALLOWED RS.36,12 9,410/- BEING EXPENSES NOT INCURRED FOR BUSINESS PURPOSE AND BALAN CE OF RS.4,55,798/- (RS. 3,65,85,208 - RS.3, 61,29,410) CLAIMED BUSINES S EXPENDITURE. FURTHER THE APPELLANT SUBMITTED THAT NONE OF THE EXPENSES DEBITE D TO PROFIT AND LOSS ACCOUNT HAVE BEEN INCURRED FOR EARNING EXEMPT INCOME; HENCE, NO DISALLOWANCE U/R 8D(2)(III) OF THE RULES SHOULD BE M ADE. HOWEVER, THE AO DID NOT ACCEPT THE CONTENTION PUT FORTH BY THE APPELLANT AND UORKED OUT THE DISALLOWANCE OF RS. 23,30,891/- U/S 14A R.W.S. 8D(2 )(III) OF THE RULES. '2.2 THE APPELLANT AT THE VERY OUTSET SUBMITS THAT FOR TH E PURPOSES OF CALCULATING THE DISALLOWANCE UNDER RULE 8D(2)(III) O F THE RULES, ONLY THOSE INVESTMENT HAS TO BE CONSIDERED ON WHICH THE APPELLAN T HAS ACTUALLY EARNED THE EXEMPT INCOME. YOUR HONOUR WOULD APPRECIATE THAT FO R THE PURPOSES OF CALCULATING THE DISALLOWANCES U/S 14 A OF THE ACT 8 D(2)(III) OF THE I.T. RULES 'AVERAGE OF VALUE OF INVESTMENT, INCOME FROM WHICH DO ES NOT OR SHALL NOT FORM PART OF THE TOTAL INCOME' HAS TO BE CONSIDERED AND NOT ALL THE INVESTMENTS AS DONE BY THE AO. THE APPELLANT, IN RAP PORT OF THE ABOVE CONTENTION, -RELY ON JUDGMENT OF HON'BLE DELHI HIGH C OURT IN HE CASE OF ACB INDIA LIMITED [374 ITR 108] WHEREIN THE HON'BLE DELH I HIGH COURT HELD AS UNDER: 4. THE AO, INSTEAD OF ADOPTING THE AVERAGE VALUE OF INVESTMENT OF WHICH INCOME IS TOT PART OF THE TOTAL INCOME I.E. THE V ALUE OF TAX EXEMPT INVESTMENT, CHOSE TO FACTOR N THE TOTAL INVESTMENT ITSELF. EVEN THOUGH THE CIT (APPEALS) NOTICED THE EXACT VALUE OF TH E INVESTMENT THRILL PARK LIMITED 3 WHICH YIELDED TAXABLE INCOME, HE DID NOT CORRECT THE E RROR BUT CHOSE TO APPLY HIS OWN EQUITY. GIVEN THE RECORD THAT HAD TO BE DONE SO TO SUBSTITUTE THE FIGURE OF 38,61 ,09,287/- WITH THE FIGU RE OF 3,53,26,800/- AND THEREAFTER ARRIVE AT THE EXACT DISA LLOWANCE OF .05%. 5. IN VIEW OF THE ABOVE REASONING, THE FINDINGS OF THE IT AT AND THE LOWER AUTHORITIES ARE HEREBY SET ASIDE. THE APPEAL IS ALLOWED AND THE MATTER IS REMITTED TO WORK OUT THE TAX EFFECT TO THE AO W HO SHALL DO SO AFTER GIVING DUE NOTICE TO THE PARTY. ' 2.3 THE ABOVE VIEW WAS REITERATED BY THE HON'BLE SPE CIAL BENCH DELHI IN THE CASE OF ACIT VS VIREET INVESTMENT PVT LTD [(2017) 188 TT J 1(DEIHI)(SB)[ WHEREIN HON'BLE SPECIAL BENCH HAS HELD THAT THE FOR T HE PURPOSES OF COMPUTING THE DISALLOWANCE AS PER RULE 8D ONLY THOSE INVESTMENT SHALL BE CONSIDERED ON WHICH APPELLANT HAS ACTUALLY EARNED T HE EXEMPT INCOME. IDENTICAL VIEW WAS TAKEN IN THE FOLLOWING JUDICIAL PR ONOUNCEMENTS: EDELWEISS FINANCE AND INVESTMENT LIMITED VS ADDL. CI T (ITA NO 6610/M/2O11) DCIT VS EDELWEISS FINANCIAL SERVICES LIMITED (ITA N O 2249 M/2012 PIRAMAL ENTERPRISES LIMITED VS ADDL CIT (ITA NO 5471 /M/2017) EDELWEISS SECURITIES LIMITED VS DCIT (ITA 7235/M/201 1) EDELWEISS CAPITAL LIMITED VS ADDL. CIT (ITA NO 6608/ M/2011) EDELWEISS SECURITIES LIMITED VS CIT(A) (ASSTT YEAR 13 -14) 2.4 THE APPELLANT SUBMITS THAT APPLYING THE SAID PRINCIP LE TO THE PRESENT CASE BEFORE YOUR HONOUR, THE DISALLOWANCE WORKS OUT TO RS. 2,194/- WHICH IS TABULATED AS UNDER: NAME OF SCRIP AMOUNT INVST. AS ON 31.03.2016 INVST. AS ON 31.03.2015 HDFC CASH MANAGEMENT FUND- SAVINGS PLAN-DAILY DIVIDEND 25,96,678 8,77,654 TOTAL 25,96,678 8,77,654 - AVERAGE INVESTMENT (8,77,654 + 0) /2 4,38,827 DISALLOWANCE AS PER RULE 8D(2)(III) OF THE RULES [R S. 4,38,827 X 0.5%] 2,194 IN THE TIGHT OF ABOVE FACTS AND JUDICIAL PRONOUNCEMENTS , THE APPELLANT SUBMITS THAT THE DISALLOWANCE MADE BY THE AO SHALL BE DELETED. ' 5. HOWEVER, IN ADJUDICATION LEARNED CIT(A) DID NOT ADJUDICATE THIS ISSUE. ON THE ISSUE OF APPLICATION OF SPECIAL BENCH DECISION IN VIREET INVESTMENT PVT. LTD. (188 TTJ 1)(SB) HE HELD THAT SEVERAL CASE LAWS PROV IDE THAT THE DISALLOWANCE THRILL PARK LIMITED 4 CANNOT EXCEED EXEMPT INCOME. SINCE THE ASSESSING OF FICERS DISALLOWANCE WAS WITHIN THE EXEMPT INCOME EARNED. HE UPHELD THE ADDI TION. BEFORE US LEARNED COUNSEL OF THE ASSESSEE SUBMITTED THAT THE ABOVE DE CISION OF HON'BLE SPECIAL BENCH SHOULD BE DIRECTED TO BE FOLLOWED. 6. UPON HEARING BOTH THE COUNSEL, WE FIND THAT HON' BLE SPECIAL BENCH IN THE CASE OF VIREET INVESTMENT PVT. LTD. (SUPRA) HAS HELD THAT FOR DISALLOWANCE UNDER RULE 8D(2)(III) ONLY THOSE INVESTMENT SHOULD BE CONSIDERED WHICH HAVE EARNED EXEMPT INCOME. HENCE, THIS ISSUE IS REMITTED TO THE FILE OF THE ASSESSING OFFICER TO FOLLOW VIREET INVESTMENT PVT. LTD. (SUPR A) ON THE ISSUE OF DISALLOWANCE UNDER RULE 8D(2)(III). 7. IN THE RESULT, APPEAL IS PARTLY ALLOWED. PRONOUNCED IN THE OPEN COURT ON 28.9.2021. SD/- SD/- (PAVANKUMAR GADALE) (SHAM IM YAHYA) JUDICIAL MEMBER ACCO UNTANT MEMBER MUMBAI; DATED : 28/09/2021 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// ( ASSISTANT REGISTRAR) PS ITAT, MUMBAI