ITO WD 5(3)(1), MUMBAI V. ESSAR INVESTMENTS (I) LTD ( ON BEHALF MERGED COMPANY M/S. RECLAME COMMERCIAL AND SECURIRITES P. LTD), MUMBAI

ITA 7186/MUM/2011

• Counselvise Citation: [2015] 120 COUNSELVISE.COM (IT) 9460 (ITAT-MUMBAI)
• Duration Of Justice: 3 year(s) 4 month(s) 26 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 20-03-2015
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: E
• Next Hearing Date: 04-09-2014
• Assessment Year: 2008-2009
• Appeal Filed On: 24-10-2011
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: NEIL PHILIP
• Keywords: Earning of tax free income

Judgement Text

, E IN THE INCOME TAX APPELLATE TRIBUNAL E BENCH, MUMBAI . , ! '# $ %, & ' BEFORE SHRI D.KARUNAKARA RAO, AM AND SHRI AMIT SHUK LA, JM . / ITA NO. 7186/MUM/2011 ( / ASSESSMENT YEAR : 2008-09 ) ITO WD 5(3)(1) 5 TH FLOOR, R. NO.526, AAYAKAR BHAVAN, M.K. RD. MUMBA-400020 .. / APPELLANT V/S ESSAR INVESTMENT(I) LTD. (ON BEHALF MERGED COMPANY M/S. RECLAME COMMERCIAL AND SECURITIES P. LTD.) ESSAR HOUSE, 11 KESHWAVRAO KHADYE, MARG MAHALAXMI MUMBAI 400034 .... / RESPONDENT . / PERMANENT ACCOUNT NUMBER AAACR62801J REVENUE BY : SHRI NEIL PHILIP (DR) RESPONDENT BY : SHRI VIJAY MEHTA (AR) ! ' # $% / DATE OF HEARING 11.03.2015 &' () # $% / DATE OF ORDER 20.03.2015 $ / ORDER '# $ %, & (! / PER AMIT SHUKLA, J.M. THE AFORESAID APPEAL HAS BEEN FILED BY THE REVENUE AGAINST ORDER DATED 8 TH AUGUST 2011, PASSED BY THE LEARNED COMMISSIONER M/S.ESSAR INVESTMENTS (I) LTD. 2 (APPEALS)9, MUMBAI, FOR THE QUANTUM OF ASSESSMENT P ASSED UNDER SECTION 143(3), FOR THE ASSESSMENT YEAR 2008-09, ON F OLLOWING GROUNDS OF APPEAL:- 1.WHETHER ON THE FACTS AND IN THE CIRCUMSTANCES OF TH E CASE AND IN LAW, THE LD. CIT(A) ERRED IN DIRECTING THE ASSESSI NG OFFICER TO DISALLOW ONLY RS.4,55,292/- U/S.14A/RULE 8D INSTEAD OF THE DISALLOWANCE OF RS.57,47,565/- MADE BY THE A.O. FOL LOWING THE JURISDICTIONAL HIGH COURT DECISION IN THE CASE OF M/ S. GODREJ BOYCE MFG. CO. (328 ITR 81)? 2. WHETHER ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT(A) ERRED IN DIRECTING THE ASS ESSING OFFICER NOT TO RESTRICT THE INTEREST PAYMENT OF RS.1,52,32,192/ - TO RS.1,33,30,601/- FOR THE PURPOSE OF WORKING DISALLO WANCE U/S 14A/RULE 8D OF THE I.T. ACT/RULES? 3. WHETHER ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT(A) HAS ERRED IN ADMITTING ADDITION AL AND FRESH EVIDENCE DURING THE APPEAL PROCEEDINGS WITHOUT GIVIN G AN OPPORTUNITY TO THE ASSESSING OFFICER WHICH IS IN VIOLA TION OF THE I.T. RULES, 1962? 2. THE BRIEF FACTS OF THE CASE ARE THAT, THE ASSESS EE IS ENGAGED IN THE BUSINESS OF INVESTMENTS IN SHARES AND SECURITIES. THE ASSESSING OFFICER NOTED THAT THE ASSESSEE HAD SHOWN DIVIDEND INCO ME OF RS.2,72,15,000/- AND HAS ALSO SUBMITTED THE WORKING UNDER RULE 8D, WHEREIN THE IT HAS BEEN STATE THAT TO EXPENDITURE HAS B EEN INCURRED IN RELATION TO THE EARNING OF EXEMPT INCOME. THE INTERES T PAYMENT HAS BEEN DIRECTLY ADJUSTED AGAINST THE INTEREST INCOME AS THE SAME HAS BEEN SHOWN UNDER THE HEAD INCOME FROM OTHER SOURCES IN THE COMPUTATION OF INCOME. M/S.ESSAR INVESTMENTS (I) LTD. 3 FURTHER THE INDIRECT EXPENDITURES CLAIMED IN THE RETU RN OF INCOME IS RS.2,71,291/-ONLY. THE ASSESSING OFFICER, HOWEVER, DID NOT ACCEPT THE ASSESSEES CLAIM AND WORKED OUT THE DISALLOWANCE U/S .14A R.W.R 8D AT RS.57,47,565/- BY INCLUDING INTEREST EXPENDITURE OF RS.18,91,841/- AND INDIRECT EXPENSES AT RS.38,55,725/-. 3. BEFORE THE LD. CIT(A), THE ASSESSEE SUBMITTED TH AT, IF THE INDIRECT EXPENDITURES CLAIMED IN THE RETURN OF INCOME IS ONLY RS.2,71,291/- THEN, HOW DISALLOWANCE CAN BE MADE UNDER THE HEAD OF INDIRECT EXPENSES AT RS.38,55,725/-. UNDER THE HEAD OF INTERES T INCOME ALSO THE ENTIRE INTEREST PAYMENT IS DIRECTLY ATTRIBUTABLE TO IN TEREST INCOME SHOWN UNDER THE HEAD INCOME FROM OTHER SOURCES AND SAME CANNOT BE DISALLOWED UNDER RULE 8D. AS AN ALTERNATIVE, THE ASSES SEE SUBMITTED THAT THE DISALLOWANCE UNDER RULE 8D IF AT ALL IS TO BE MADE THE SAME WOULD COME TO RS.4,55,291/- AS PER THE WORKING GIVEN AT PAGE 3 OF THE APPELLATE ORDER. THE LD. CIT(A) DID NOT ACCEPT THE AS SESSEES CONTENTION THAT RULE 8D WILL NOT BE APPLICABLE, HOWE VER, HE HELD THAT ONLY THE AMOUNT CLAIMED BY THE ASSESSEE IN THE RETURN O F INCOME CAN BE DISALLOWED WHICH IS AT RS.2,71,291/-. HE FURTHER NOTED THAT THE AO HAS INCLUDED THE PREMIUM ON REDEMPTION OF DEBENTURES OF RS.1,76,50,000/- FOR THE PURPOSE OF DISALLOWANCE UN DER RULE 8D, WHICH M/S.ESSAR INVESTMENTS (I) LTD. 4 HAS NOT BEEN CLAIMED BY THE ASSESSEE. ACCORDINGLY, HE DIRECTED THE AO TO DISALLOW ONLY RS.4,55,292/-. 4. BEFORE US LEARNED COUNSEL, SHRI VIJAY MEHTA, DREW OUR ATTENTION TO THE PROFIT AND LOSS ACCOUNT AND SUBMITTED THAT, EVEN T HOUGH MANY EXPENDITURES HAVE BEEN DEBITED IN THE P & L ACCOUNT, HOWEVER, IN THE RETURN OF INCOME, THE ASSESSEE HAD ONLY CLAIMED EXP ENDITURE OF RS.2,71,291/-. FURTHER IF THE PREMIUM ON REDEMPTION O F DEBENTURES, WHICH HAVE BEEN TAKEN BY THE AO IS REMOVED BECAUSE O F THE FACT THAT THE ASSESSEE HAS ITSELF DISALLOWED THE CLAIM IN THE COMPUTATION OF INCOME, THEN NO DISALLOWANCE OVER AND ABOVE THE SUM D ISALLOWED BY THE CIT(A) IS CALLED FOR. IN SUPPORT OF HIS CONTENTIO N, HE GAVE THE WORKING OF THE DISALLOWANCE OF EXPENSES INCURRED AN D CLAIMED IN THE RETURN OF INCOME IN THE FOLLOWING MANNER: S R. NO. PARTICULARS AMOUNT AS PER P/L A/C DISALLOWED IN THE RETURN OF INCOME ACTUAL EXPENDITURE CLAIMED 1. AUDIT FEES 56,180 - 56,180 2. CERTIFICATION FEES 17,978 - 17,978 3. RATES AND TAXES 95,169 88,354 6,815 4. INVESTMENT W/O 22 22 - 6. MEMBERSHIP F EES 2,00,000 2,00,000 - 7. MISCELLANEOUS EXPENSES 13,000 - 13000 8. BANK CHARGES 5,408 - 5,408 9. CUSTODY FEES 6,710 6,710 - 10. DEMAT CHARGES 3,08,902 3,08,902 - 11. PROFESSIONAL FEES 25,200 - 25,200 M/S.ESSAR INVESTMENTS (I) LTD. 5 12. SUNDRY BALANCES WRITTEN 188 - 188 13. TOTAL 8,77,757 6,03,988 2,73,769 14. LESS: PROFESSION TAX DISALLOWED U/S.43B - (2500) 15. ADMINISTRATIVE EXPENSES DISALLOWED BY THE ASSESSEE - 2,71,291 5. HE ALSO GAVE THE WORKING OF DISALLOWANCE OF INTER EST AS MADE BY THE AO AND CIT(A) WHICH WERE AS UNDER: SR. NO. PARTICULARS AS PER A.O. AMOUNT (RS.) AS PER CIT(A) AMOUNT (RS.) 1. INTEREST 1,52,32,192 1,52,32,192 2. PREMIUM ON REDEMPTION OF DEBENTURES, DISALLOWED BY THE ASSESSEE 1,76,50,000/ - - 3. TOTAL (1+2) 3,28,82,192 1,52,32,192 4. INTEREST RECEIP T 1,33,30,601 1,33,30,601 5. NET INTEREST (3 - 4) 1,95,51,591 19,01,591 6. AVERAGE VALUE OF INVESTMENTS 77,11,44,090 77,11,44,090 7. AVERAGE OF TOTAL ASSETS 7,96,95,35,155 7,96,95,35,155 8. DISALLOWANCE (5*6/7) 18,91,841 1,84,001 THUS, HE SUBMITTED THAT FROM THE AFORESAID FACTS OF TH E CASE, NO DISALLOWANCE SHOULD BE MADE. 6. ON THE OTHER HAND, LD. DR STRONGLY RELIED UPON THE ORDER OF THE AO AND SUBMITTED THAT THE WORKING OF RULE 8D GIVEN BY THE AO SHOULD BE UPHELD AS THE SAME IS SPECIFICALLY IN ACCORDANCE WITH THE FORMULA. M/S.ESSAR INVESTMENTS (I) LTD. 6 7. AFTER CONSIDERING THE RIVAL SUBMISSIONS AND ALSO O N PERUSAL OF THE RELEVANT MATERIAL PLACED ON RECORD, WE AGREE WITH THE FINDINGS OF THE CIT(A), THAT SO FAR AS INDIRECT EXPENDITURE IS CONCER NED, THE SAME CANNOT BE OVER AND ABOVE THE ACTUAL CLAIM MADE BY THE ASSESSEE. WHEN THE ASSESSEE HAD CLAIMED ONLY RS.2,71,291/- IN THE RETURN OF INCOME, THEN, THERE IS NO REQUIREMENT UNDER THE LAW TO MAKE FURTHER DISALLOWANCE. REGARDING DISALLOWANCE OF INTEREST UN DER RULE 8D, IT IS SEEN THAT IF THE PREMIUM ON REDEMPTION OF DEBENTURES WHICH HAS ALREADY ADDED BY THE ASSESSEE IS REMOVED THEN THE FI GURE OF INTEREST WILL COME DOWN TO RS.1,84,001/-. THEREFORE, THE DIS ALLOWANCE UNDER THE HEAD INTEREST AS CONFIRMED BY THE LD. CIT(A) AT RS. 1,84,001/- IS CORRECT ON FACTS. ACCORDINGLY, THE ORDER OF THE LD.CI T(A) BOTH FOR THE INDIRECT EXPENSES AND INTEREST EXPENSES IS CONFIRMED. REGARDING THE GROUND NO.3, THAT THE LD.CIT(A) HAS ADMITTED THE AFRESH EVIDENCE, WE FIND THAT NO SUCH EVIDENCE HAS BEEN POINTED OUT BY THE DEPARTMENT, WHICH HAS BEEN FILED FOR THE FIRST TIME BEFORE THE LD. CIT(A). ALL THE WORKING SUBMITTED BEFORE HIS IS BORE OUT FROM THE COM PUTATION OF INCOME AND AUDITED BALANCE SHEET, WHICH WAS THERE IN THE RECORDS OF THE AO. ACCORDINGLY, THE GROUNDS RAISED BY THE REVENUE ARE DISMISSED. M/S.ESSAR INVESTMENTS (I) LTD. 7 8. IN THE RESULT, THE APPEAL OF THE REVENUE IS DISM ISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 20 TH DAY OF MARCH 2015. SD/- SD/- SSSS SSD - . D. KRUNAKARA RAO ACCOUNTANT MEMBER SD/ - '# $ % & AMIT SHUKLA JUDICIAL MEMBER MUMBAI, )* DATED:20.03.2015 PATEL &' # $*+ ,+$ / COPY OF THE ORDER FORWARDED TO : (1) -$ / THE ASSESSEE; (2) . / THE REVENUE; (3) ! /$( ) / THE CIT(A); (4) ! /$ / THE CIT, MUMBAI CITY CONCERNED; (5) +23 $4, % 4, ! ' / THE DR, ITAT, MUMBAI; (6) 3 6' / GUARD FILE. + $ $ / TRUE COPY &' ! / BY ORDER 7 / 8 . / (DY./ASSTT. REGISTRAR) % 4, ! ' / ITAT, MUMBAI