HINDUSTAN PLATINUM P.LTD, NAVI MUMBAI V. ACIT (OSD) 2(1), MUMBAI

ITA 7414/MUM/2012

• Counselvise Citation: 741419914 RSA 2012
• Duration Of Justice: 2 year(s) 5 month(s) 1 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 15-05-2015
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: H
• Next Hearing Date: 10-02-2015
• Assessment Year: 2009-2010
• Appeal Filed On: 14-12-2012
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: JEETENDRA KUMAR
• Assessee Lawyers: HEENA JOSHI
• Keywords: Wholly owned subsidiary
• Section: 143(3); 14A

Judgement Text

H IN THE INCOME TAX APPELLATE TRIBUNAL H BENCH, MUMBAI BEFORE SHRI R.C. SHARMA, ACCOUNTANT MEMBER & SHRI SANJAY GARG, JUDICIAL MEMBER ./ I.T.A. NO.7414 /MUM/2012 ( / ASSESSMENT YEAR : 2009-2010 HINDUSTAN PLATINUM PVT. LTD., C-122 TTC INDUSTRIAL AREA, OAWANE VILLAGE, NAVI MUMBAI 400 703. / VS. THE ASSTT. COMMISSIONER OF INCOME TAX- (OSD)2(1), AAYAKAR BHAVAN, MUMBAI 20. ./ PAN : AAACH1111J ( / APPELLANT ) .. ( / RESPONDENT ) A PPELLANT BY MS. HEENA JOSHI R E SPONDENT BY : SHRI JEETENDRA KUMAR / DATE OF HEARING : 10-02-2015 / DATE OF PRONOUNCEMENT : 15-05-2015 [ !' / O R D E R PER R.C. SHARMA, A.M . : THIS IS AN APPEAL FILED BY THE ASSESSEE IS DIRECTED AGAINST THE ORDER OF LD. CIT(A) -4, MUMBAI DATED 21-09-2012 FOR THE A.Y. 2009-10 IN THE MATTER OF ORDER PASSED U/S 143(3) OF THE INCOME TAX ACT, 1961 . 2. THE ONLY GRIEVANCE OF THE ASSESSEE RELATES TO CO NFIRMING OF DISALLOWANCE OF RS. 27,71,693/- MADE BY THE A.O U/S 14A READ WI TH RULE 8D. 3. RIVAL CONTENTIONS HAVE BEEN HEARD AND PERUSED TH E RECORDS. THE FACTS IN BRIEF ARE THAT THE ASSESSEE IS ENGAGED IN THE BU SINESS OF REFINING AND MANUFACTURING OF PLATINUM GROUP METALS ETC. AND GEN ERATION OF WIND POWER. WHILE MAKING ADDITION OF RS. 27,71,693/- THE A.O. H AS TAKEN INTO ITA 7414/M/12 2 CONSIDERATION INDIRECT EXPENSES DEBITED TO P & L AC COUNT OF RS. 8,63,16,407/- & AVERAGE INVESTMENTS OF RS. 2,32,08,500/- WHICH AR E INVESTMENTS IN WHOLLY OWNED-SUBSIDIARY OVERSEAS- EPSILON LIMITED-MAURITIU S. THE A.O. HAS MADE DISALLOWANCE OF RS. 27,71,693/- UNDER SEC. 14A BY A PPLYING RULE 8D. IT WAS CONTENDED BY THE LD. A.R. THAT FOR APPLYING RULE 8D , PROXIMATE CAUSE FOR DISALLOWANCE SHOULD BE ESTABLISHED WHICH IS THE REL ATIONSHIP OF THE EXPENDITURE WITH INCOME WHICH DOES NOT FORM PART OF THE TOTAL INCOME, AS IN THE ASSESSEES CASE THE A.O. HAS APPLIED RULE 8D AR BITRARILY WITHOUT CONSIDERING THE FACTS. AS PER SECTION 14A(2), THE A SSESSING OFFICER SHALL DETERMINE THE AMOUNT OF EXPENDITURE INCURRED IN REL ATION TO SUCH INCOME WHICH DOES NOT FORM PART OF THE TOTAL INCOME UNDER THIS ACT IN ACCORDANCE WITH SUCH METHOD AS MAY BE PRESCRIBED, HAVING REGAR D TO THE ACCOUNTS OF THE ASSESSE, IF THE ASSESSING OFFICER IS NOT SATISFIED WITH THE CORRECTNESS OF THE CLAIM OF THE ASSESSEE IN RESPECT OF SUCH EXPENDITUR E. AS PER THE LD. A.R. ASSESSEE HAD SUFFICIENT INTERNAL ACCRUALS FOR MAKIN G SUCH INVESTMENT, THEREFORE, NO DISALLOWANCE ON ACCOUNT OF INTEREST E XPENDITURE WAS WARRANTED. IT WAS FURTHER SUBMITTED THAT WHILE MAKING THE SAID DISALLOWANCE THE A.O. HAD CONSIDERED AVERAGE INVESTMENTS OF RS. 3,58,43,5 00/- BY TAKING AVERAGE OF OPENING AND CLOSING INVESTMENTS, HOWEVER THE A.O. C ANNOT APPLY RULE 8D ARBITRARILY TO THE SAID AVERAGE INVESTMENTS WHICH A RE REFLECTING IN THE ASSESSEES BALANCE SHEET AS ON 31 ST MARCH 2009. 4. ON THE OTHER HAND, THE LD. D.R. RELIED ON THE OR DERS OF LOWER AUTHORITIES AND CONTENDED THAT THE A.O. HAS RIGHTLY APPLIED RUL E 8D AS PER DECISION OF HONBLE JURISDICTIONAL HIGH COURT IN THE CASE OF GO DREJ & BOYCE MFG. CO. LTD. 328 ITR 81. 5. WE HAVE CONSIDERED THE RIVAL CONTENTION AND FOUN D THAT AS PER SCHEDULE 6 OF BALANCE SHEET ASSESSEE WAS HAVING LONG TERM (UNQUOTED) INVESTMENTS IN WHOLLY OWNED SUBSIDIARY OVERSEAS- EPSILON LIMITE D-MAURITIUS. AS PER ITA 7414/M/12 3 RULE 8D ONLY THOSE INVESTMENTS SHOULD HAVE BEEN CON SIDERED FOR THE PURPOSE OF CALCULATION OF AVERAGE INVESTMENTS THE INCOME FR OM WHICH DOES NOT FORMING PART OF TOTAL INCOME. AS EPSILON LIMITED-MAURITIUS IS A FOREIGN COMPANY, INCOME OF WHICH IS TAXABLE IN INDIA, ACCORDINGLY TH E SAID INVESTMENT CANNOT BE CONSIDERED IN FORMULA WHILE COMPUTING DISALLOWAN CE UNDER RULE 8D. SINCE THE ASSESSEE HAS MADE INVESTMENT IN A WHOLLY OWNED SUBSIDIARY OVERSEAS EPSILON LIMITED, MAURITIUS, THE DIVIDEND INCOME OF WHICH WAS LIABLE TO BE TAXED IN INDIA, THE A.O. WAS NOT JUSTIFIED IN TAKIN G SUCH INVESTMENT FOR COMPUTING DISALLOWANCE TO BE MADE UNDER RULE 8D. C ONSIDERING THE JUDICIAL PRONOUNCEMENT CITED BY THE LD. A.R., THE SAME SHOUL D NOT BE TAKEN INTO ACCOUNT WHILE COMPUTING THE DISALLOWANCE UNDER RULE 8D(2)(III) OF THE I.T. RULES. ACCORDINGLY WE DIRECT THE A.O. TO EXCLUDE SU CH STRATEGIC INVESTMENT WHILE COMPUTING DISALLOWANCES UNDER RULE 8D. 6. FROM THE RECORD WE ALSO FOUND THAT THE ASSESSEE HAD MADE FRESH INVESTMENTS OF RS. 3,20,00,000/- BIRLA SUN LIFE CAS H PLUS ON 10-04-2008, RS. 5,00,000/- & RS. 3,60,00,000/- ON 01-10-2008 AN D 10-10-2008 RESPECTIVELY IN LIC MUTUAL FUND INCOME PLUS FUND AN D RS. 1,60,00,000/- LIC MF LIQUID FUND ON 09-01-2009 TOTALING TO RS. 8,40,0 0,000/-. THE INITIAL INVESTMENT IS MADE FROM CASH GENERATED FROM OPERATI NG ACTIVITIES WHICH WAS RS. 24,74,14,673/- AS PER CASH FLOW STATEMENT FORMI NG PART OF ANNUAL REPORT. AFTER MAKING ABOVE INITIAL INVESTMENTS THE ASSESSEE HAVE MADE VARIOUS REDEMPTIONS IN RESPECTIVE PLANS DURING THE YEARS FR OM SUCH REDEMPTION PROCEED ONLY NEW PURCHASES OF INVESTMENTS HAVE BEEN MADE. IT APPEARS THAT NO BORROWINGS HAD BEEN USED FOR INVESTING IN MUTUAL FUNDS FROM WHICH INCOME NOT FORMING PART OF TOTAL INCOME HAVE BEEN E ARNED. THEREFORE THE INTEREST COST WHICH HAD BEEN USED BY ACIT (OSD) S HOULD BE EXCLUDED WHILE APPLYING RULE 8D. IN VIEW OF THE ABOVE DISCUSSION, WE RESTORE THE MATTER BACK TO THE FILE OF A.O. FOR RE-WORKING THE AMOUNT OF DI SALLOWANCE TO BE MADE U/S 14A OF THE ACT. ITA 7414/M/12 4 7. IN THE RESULT, APPEAL OF THE ASSESSEE IS ALLOWED IN PART FOR STATISTICAL PURPOSE. ORDER PRONOUNCED IN THE OPEN COURT ON 15 TH MAY, 2015 !' # $% &! ' 15-05-2015 ( ) SD/- SD/- (SANJAY GARG) (R.C. SHARMA) JUDICIAL MEMBER ACCOUNTANT MEMBER $ 5 MUMBAI ; &! DATED 15-05-2015 [ .6../ RK , SR. PS ! '#$% &%# / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT 2. / THE RESPONDENT. 3. 7 () / THE CIT(A) 4,, MUMBAI 4. 7 / CIT 2, MUMBAI 5. :;( 66<= , <= , $ 5 / DR, ITAT, MUMBAI H BENCH 6. (?@ A / GUARD FILE. ' / BY ORDER, : 6 //TRUE COPY// (/') * ( DY./ASSTT. REGISTRAR) , $ 5 / ITAT, MUMBAI