JAGDISH AHUJA, MUMBAI V. JCIT (OSD) WD 13(3), MUMBAI

ITA 7285/MUM/2013

• Counselvise Citation: [2016] 133 COUNSELVISE.COM (IT) 4156 (ITAT-MUMBAI)
• Duration Of Justice: 2 year(s) 1 month(s) 24 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 05-02-2016
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: J
• Next Hearing Date: 24-11-2015
• Assessment Year: 2009-2010
• Appeal Filed On: 11-12-2013
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: REEPAL TRALSHAWALLA
• Keywords: Earning of tax free income
• Section: 14A

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL, MUMBAI BENCH J, MUMBAI BEFORE SHRI SANJAY GARG, JUDICIAL MEMBER AND SHRI ASHWANI TANEJA, ACCOUNTANT MEMBER ITA NO.7285/M/2013 ASSESSMENT YEAR: 2009-10 SHRI JAGDISH AHUJA, A/201, RAJPIPLA, LINKING ROAD, SANTACRUZ (W), OPP. STD CHTD. BANK, MUMBAI 400 054 PAN: AADPA 6128J VS. JCIT (OSD), WARD 13(3), MUMBAI (APPELLANT) (RESPONDENT) PRESENT FOR: ASSESSEE BY : SHRI REEPAL TRALSHAWALLA, A.R. REVENUE BY : SHRI VINOD KUMAR, D.R. DATE OF HEARING : 03.12.2015 DATE OF PRONOUNCEMENT : 05.02.2016 O R D E R PER SANJAY GARG, JUDICIAL MEMBER: THE PRESENT APPEAL HAS BEEN PREFERRED BY THE ASSES SEE AGAINST THE ORDER DATED 14.09.2013 OF THE COMMISSIONER OF INCOME TAX (APPEALS) [HEREINAFTER REFERRED TO AS THE CIT(A)] RELEVANT TO ASSESSMENT Y EAR 2009-10. 2. THE ASSESSEE, IN THIS APPEAL, HAS AGITATED THE C ONFIRMATION OF DISALLOWANCE OF RS.30,16,806/- MADE BY THE ASSESSIN G OFFICER (HEREINAFTER REFERRED TO AS THE AO) UNDER SECTION 14A OF THE INC OME TAX ACT READ WITH RULE 8D OF THE INCOME TAX RULES IN RELATION TO THE EXPEN DITURE INCURRED FOR EARNING OF TAX EXEMPT DIVIDEND INCOME OF RS.13,350/-. THE BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE DURING THE YEAR HAD EARNED DIVIDE ND INCOME OF RS.13,350/-. THE AO, THEREFORE, COMPUTED THE DISALLOWANCE UNDER SECTION 14A BY WAY OF APPLYING RULE 8D OF INCOME TAX RULES AT RS.30,16,80 6/-. THE AO, IN THIS RESPECT, DISALLOWED A SUM OF RS.27,56,199/- TOWARDS INTEREST EXPENSES ITA NO.7285/M/2013 SHRI JAGDISH AHUJA 2 ATTRIBUTABLE TO THE EARNING OF EXEMPT INCOME AND A SUM OF RS.2,60,607/- TOWARDS 0.5% OF THE AVERAGE VALUE OF INVESTMENTS TO WARDS ADMINISTRATIVE EXPENSES. 3. THE LD. CIT(A) CONFIRMED THE DISALLOWANCE SO MAD E BY THE AO. THE ASSESSEE, THUS, HAS COME IN APPEAL BEFORE US. 4. AT THE OUTSET, THE LD. A.R. OF THE ASSESSEE HAS SUBMITTED THAT NO INVESTMENTS WERE MADE BY THE ASSESSEE OUT OF THE BO RROWED FUNDS, HENCE, NO DISALLOWANCE OF INTEREST EXPENDITURE WAS WARRANTED. HE, IN THIS RESPECT, HAS INVITED OUR ATTENTION TO THE ASSESSMENT ORDER ITSEL F WHEREIN THE AO HAS MENTIONED THAT THE ASSESSEE HAD INCURRED INTEREST E XPENDITURE OF RS.2,31,40,792/- DURING THE YEAR. HOWEVER, THERE I S NO OBSERVATION THAT THE BORROWED FUNDS WERE USED FOR INVESTMENT PURPOSES. THE BASIS UPON WHICH THE AO DISALLOWED THE INTEREST EXPENDITURE IS THAT HAD THERE BEEN NO INVESTMENTS, THE ASSESSEES BURDEN OF LOANS WOULD HAVE REDUCED S O ALSO THE BURDEN OF INTEREST. IN OUR VIEW, SUCH A BASIS ADOPTED BY TH E AO IS WRONG, ILLEGAL AND AGAINST THE PROVISIONS OF LAW. THE ASSESSEE, ADMIT TEDLY, IS IN THE BUSINESS OF FINANCING. IN THE COURSE OF ITS BUSINESS ACTIVITY, THE ASSESSEE USED TO BORROW FUNDS AND FURTHER ADVANCE LOANS TO THE OTHER PARTIE S ON INTEREST BASIS. THE LD. A.R. OF THE ASSESSEE HAS SUBMITTED BEFORE US THAT T HE BORROWED FUNDS WERE UTILIZED FOR INVESTING IN FULLY CONVERTIBLE DEBENTU RES (FCD) AND GRANTING LOANS ON INTEREST AND ON THIS, THE ASSESSEE DURING THE YEAR HAD EARNED INTEREST OF RS.1,69,12,712/- AND RS.94,11,126/- RESPECTIVELY AG GREGATING TOTAL INTEREST EARNED OF RS.2,63,23,838/-. HE, IN THIS RESPECT, H AS INVITED OUR ATTENTION TO PAGE 5 OF THE PAPER BOOK, WHICH IS THE COPY OF THE PROFIT & LOSS ACCOUNT FOR THE PERIOD ENDED ON 31.03.09. THE LD. A.R. HAS FURTHER DEMONSTRATED THAT THE TOTAL INTEREST PAID DURING THE YEAR IS AT RS.2,31,40,792/ - AND THAT THERE HAS BEEN A NET POSITIVE INTEREST INCOME DURING THE YEAR OF MORE TH AN RS.31 LAKHS. HE, THEREFORE, HAS SUBMITTED THAT UNDER THE CIRCUMSTANC ES, IT CANNOT BE PRESUMED THAT THE ASSESSEE HAD INCURRED ANY INTEREST EXPENDI TURE TOWARDS INVESTMENTS. ITA NO.7285/M/2013 SHRI JAGDISH AHUJA 3 THE LD. A.R. HAS FURTHER SUBMITTED THAT NO NEW INVE STMENTS WERE MADE DURING THE YEAR. ALL THE INVESTMENTS WERE MADE LONG BACK, SOME PRIOR TO FINANCIAL YEAR 2007 AND OTHERS PRIOR TO FINANCIAL YEAR 2005. HE HAS FURTHER INVITED OUR ATTENTION TO PAGE 9 OF THE PAPER BOOK TO SHOW THAT ALL THE INVESTMENTS WERE MADE IN THE RELATED CONCERNS WHICH WERE STRATEGIC I NVESTMENTS MADE BY THE ASSESSEE ON LONG TERM BASIS. THE PURPOSE OF SUCH I NVESTMENTS WAS NOT FOR EARNING DIVIDEND INCOME BUT HAVING CONTROL AND FOR BUSINESS PURPOSES AND CONSIDERATION. THE LD. A.R. HAS FURTHER DEMONSTRAT ED THAT THE ASSESSEE WAS HAVING SUFFICIENT OWN FUNDS FOR MAKING SUCH INVESTM ENTS. EVEN NEITHER THE INVESTMENTS WERE MADE FOR EARNING OF ANY DIVIDEND I NCOME NOR ANY FRESH INVESTMENTS WERE MADE DURING THE YEAR AND NO ADMINI STRATIVE EXPENDITURE WAS INCURRED FOR THE PURPOSE OF EARNING OF DIVIDEND INC OME. THE LD. A.R., IN THIS RESPECT, HAS RELIED UPON THE DECISION OF THE HONBL E BOMBAY HIGH COURT IN THE CASE OF HDFC BANK 366 ITR 505. HE HAS RELIED UPO N VARIOUS OTHER JUDICIAL DECISIONS ALSO TO STRESS ON THE POINT THAT WHERE TH E ASSESSEE IS IN THE BUSINESS OF FINANCING AND THERE IS A NET POSITIVE INCOME, THEN UNDER SUCH CIRCUMSTANCES, NO INTEREST DISALLOWANCE IS WARRANTED IN RELATION TO I NVESTMENTS MADE OUT OF THE OWN/INTEREST FREE FUNDS AVAILABLE WITH THE ASSESSEE . CONSIDERING THE ABOVE SUBMISSIONS AND AFTER GOING THROUGH THE RECORD, WE FIND FORCE IN THE CONTENTIONS RAISED BY THE LD. A.R. FROM THE ACCOUN TS OF THE ASSESSEE, IT IS REVEALED THAT THE INVESTMENTS WERE OLD INVESTMENTS AND NO INVESTMENTS WERE MADE DURING THE YEAR. NO BORROWED FUNDS WERE USED FOR MAKING THE INVESTMENTS. THE PURPOSE OF INVESTMENTS WAS STRATE GIC IN NATURE FOR THE PURPOSE OF HAVING BUSINESS CONTROL IN THE RELATED C ONCERNS AND NOT FOR EARNING OF ANY DIVIDEND INCOME. SUCH INVESTMENTS DO NOT RE QUIRE ANY DAY TO DAY DECISION MAKING OR USE OF OFFICIAL MACHINERY OR MAN POWER ON REGULAR BASIS. UNDER SUCH CIRCUMSTANCES, IN OUR VIEW, NO DISALLOWA NCE IS ATTRACTED UNDER SECTION 14A IN THE CASE OF THE ASSESSEE. ITA NO.7285/M/2013 SHRI JAGDISH AHUJA 4 5. IN VIEW OF ABOVE, THE IMPUGNED ADDITIONS MADE BY THE LOWER AUTHORITIES UNDER SECTION 14A UNDER CONSIDERATION ARE HEREBY OR DERED TO BE DELETED. 6. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS HER EBY ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 05.02.2016. SD/- SD/- (ASHWANI TANEJA) (SANJAY GARG) ACCOUNTANT MEMBER JUDICIAL MEMBER MUMBAI, DATED: 05.02.2016. * 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 ORD ER DY/ASSTT. REGISTRAR, ITAT, MUMBAI.