SAURASHTRA FUELS P.LTD, MUMBAI V. ASST CIT CIR 3(3), MUMBAI

ITA 7452/MUM/2013

• Counselvise Citation: [2016] 131 COUNSELVISE.COM (IT) 3573 (ITAT-MUMBAI)
• Duration Of Justice: 2 year(s) 8 month(s) 7 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 25-08-2016
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: E
• Assessment Year: 2010-2011
• Appeal Filed On: 18-12-2013
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: MANJUNATHA SWAMY
• Assessee Lawyers: B V JHAVERI
• Keywords: Earning of tax free income
• Section: 14A; 115JB

Judgement Text

, IN THE INCOME TAX APPELLATE TRIBUNAL E BENCH, MUMBAI BEFORE SHRI SHAILENDRA KUMAR YADAV , JM AND SHRI RAJESH KUMAR, AM ./ I.T.A. NO. 7452 /MUM/ 201 3 ( / ASSESSMENT YEAR : 20 10 - 11 ) M/S SAURASHTRA FUELS PVT LTD - 93 - C , MITTAL TOWER, NARIMAN POINT, MUMBAI - 400021 / VS. ASSTT COMMISSIONER OF INCOME TAX , CIRCLE - 3(3), ROOM NO.609, AAYAKAR B HAVAN, MUMBAI - 400020 ./ PAN : AA AC S7271G / ASSESSEE BY S HRI B V JHAVERI / REVENUE BY SHRI MANJUNATHA SWAMY / DATE OF HEARING : 9 .0 6 . 2016 / DATE OF PRONOUNCEMENT : 25 . 0 8 . 2016 / O R D E R PER RAJE SH KUMAR, A. M: THIS IS AN APPEAL FILED BY THE ASSESSEE AGAINST THE ORDER PASSED BY THE LD.CIT(A) - 7 , MUMBAI DATED 1.10.2013 FOR THE ASSESSMENT YEAR S 2010 - 11 . 2. THE FIRST GROUND RAISED IN THE GROUNDS OF APPEAL IS WITH REGARD TO THE ADDITION MADE BY T HE AO U/S 14A OF THE INCOME TAX ACT, 1961(HEREINAFTER REFERRED TO AS THE ACT) AND CONFIRMED BY THE LD.CIT(A) AMOUNTING TO RS.1,58,35,981/ - . 2 7452 /MUM/201 3 3. THE BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE FILED ITS RETURN OF INCOME ON 24.9.2010 DECLARING LOSS OF RS.14,61,58,992/ - WHICH WAS REVISED ON 14.12.2011 DECLARING A LOSS OF RS.46,94,38,992/ - WHICH WAS PROCESSED U/S 143(1) OF THE ACT. THEREAFTER, SCRUTINY PROCEEDINGS WERE INITIATED AGAINST THE ASSESSEE AND STATUTORY NOTICES UNDER SECTION 143(2) AND 142( 1) WERE ISSUED AND SERVED UPON THE ASSESSEE. THE AO AFTER CONSIDERING THE VARIOUS FACTS AND AFTER SEEKING EXPLANATION FROM THE ASSESSEE ON THE ISSUE OF ADMISSIBILITY OF EXPENSES U/S 14A AND CONTINGENT LIABILITIES FRAMED THE ASSESSMENT VIDE ORDER DATED 2 8.12.2012 AT AN AMOUNT OF RS.( - )13,02,98,593/ - UNDER THE NORMAL PROVISIONS OF ACT AND AT RS. ( - ) 24,82,79,148/ - UNDER THE PROVISIONS OF SECTION 115JB OF THE ACT. AGGRIEVED BY THE ORDER OF THE AO, THE MATTER CARRIED TO LD.CIT(A) WHO ALSO DISMISSED THE A PPEAL OF THE ASSESSEE ON THE ISSUE OF DISALLOWANCE U/S 14A AND WR ITING OFF CONTINGENT LIABILITY OF RS.32,32,80,000/ - . 4 . THE LD. AR AT THE OUTSET, SUBMITTED THAT GROUND NO.2 QUA THE CONFIRMATION OF DISALLOWANCE OF RS.32,32,80,000/ - IS NOT PRESSED AND THEREFORE DISMISSED ACCORDINGLY. 5. THE ISSUE RAISED IN THE GROUND NO. 1 IS AGAINST THE CONFIRMATION OF ADDITION OFRS.1,58,35,981/ - BY CIT(A) AS MADE BY THE AO UNDER SECTION 14A R.W . R 8D. 3 7452 /MUM/201 3 6. FACTS OF THE CASE ARE THAT THE ASSESSEE RECEIVED DIVIDEND INC OME OF RS. 9,949/ - WHICH WAS CLAIMED EXEMPT - U/S 10(34) OF THE ACT AND ALSO MADE SUO MOTTU DISALLOWANCE U/S 14A OF RS.1,28,194/ - . DURING THE COURSE OF ASSESSMENT PROCEEDINGS, THE AO OBSERVED THAT THE DISALLOWANCE AS MADE BY THE ASSESSEE ON I T S OWN WAS NOT AT PER RULE 8D OF THE INCOME TAX RULES, 1962 AND ACCORDINGLY ISSUED SHOW CAUSE NOTICE TO THE ASSESSEE AS TO WHY THE DISALLOWANCE BE MADE AS PER RULE 8D. FINALLY, THE AO WORKED OUT THE DISALLOWANCE AT RS.1,59,64,175/ - COMPRISING RS.1,42,65,582/ - UNDE R RULE 8D(2)( II) AND RS.1698,593/ - UNDER RULE 8D(2)(III) AND AFTER ALLOWING THE CREDIT OF DISALLOWANCE AS MADE BY THE ASSESSEE ITSELF OF RS.1,28,194, ADDED A SUM OF RS.1,58,35,981/ - TO THE INCOME OF THE ASSESSEE . BEFORE THE FIRST APPELLATE AUTHORITY, TH E ASSESSEE SUBMITTED THAT NO INTEREST BEARING FUNDS WERE UTILIZED FOR THE PURPOSE OF MAKING INVESTMENTS IN SHARES/MUTUAL FUNDS. THE LD. CIT(A) AFTER CONSIDERING THE REPLY AND SUBMISSIONS OF THE ASSESSEE DISMISSED THE APPEAL OF THE ASSESSEE ON THIS ISSUE B Y OBSERVING AND HOLDING AS UNDER : IT HAS BEEN HELD IN KALPATARU CONSTRUCTIONS OVERSEAS (P) LTD V/S CIT(2007) 13 SOT 194(MUM) THAT ALL EXPENSES CONNECTED WITH EXEMPT INCOME HAVE TO BE DISALLOWED U/S 14A REGARDLESS OF WHETHER THEY ARE DIRECT OR INDIRECT , FIXED OR VARIABLE AND MANAGERIAL OR FINANCIAL IN ACCORDANCE WITH LAW. ALSO IT HAS BEEN HELD IN SIVA INDUSTRIES AND HOLIDAYS LT D V/S CIT (2012) 54 SOT 49 (CHENNAI) THAT EVEN IN THE YEAR WHERE NO EXEMPT INCOME IS EARNED OR RECEIVED BY T HE APPELLANT, DIS ALLOWANCE U/S 14A CAN BE MADE 4 7452 /MUM/201 3 IN VIEW OF THE ABOVE, THE ADDITION O F RS.1 , 58 , 35,981/ - MADE BY THE AO IS CONFIRMED. 7 . THE LD. AR VEHEMENTLY SUBMITTED BEFORE US THAT THE LD. CIT(A) HAS COMPLETELY IGNORED THE FACTS PLACED BEFORE HIM QUA TO DISALLOWANCE U/S 14A READ WITH RULE 8D MADE BY T HE AO. THE LD. AR REITERATED HIS SUBMISSION S AS MADE BEFORE THE LD. CIT(A) AND SUBMITTED THAT THE ASSESSEE S OWN TAX FREE FUNDS AS ON 31.3.2009 WERE TO THE TUNE OF RS.55.87 CRORES AS AGAINST THE TOTAL INVESTMENT OF RS.37.45 CRORES ON THAT DATE AND CORRESPONDING AMOUNT OF INTEREST FREE OWN FUNDS AND INVESTMENT AS ON 31.3.2010 WERE RS.28 . 49 CR AND RS.30.49 CR CRO R ES RESPECTIVELY . IN DEFENCE OF HIS ARGUMENT S , THE LD. COUNSEL STRONGLY RELIED ON THE DECISION IN THE CASE OF CIT V/S RELIANCE UTILITIES AND POWER LTD. [2009] 313 ITR 340 (BOM) AND IN THE CASE OF CIT V/S HDFC BANK LTD. [2014] 366 ITR 505 (BOM) . THE LD.AR IN THE ALTERNATIVELY WITHOUT PREJUDICE TO THE ABOVE ARGUMENTS SUBMITTED THAT THE ASSESSEE HAD MADE INVEST MENT S IN THE FOREIGN COMPAN Y TO THE TUNE OF RS.1 . 10 CR IN SAURASHTRA WORLD HOLDINGS PVT LTD WHICH WAS INCLUSIVE IN THE TO T AL INVESTMENT S OF RS.30 . 49 CR WHICH WAS FOREIGN COMPANY THE DIVIDEND ON WHICH WOULD BE TAXABLE AND THEREFORE NO DISALLOWANCE COULD BE MADE U/S 14A R.W.R.8D. T HE LD. COUNSEL ALSO SUBMI TT ED THAT RS.8 .00 C R . WERE INVESTED IN THE PREFERENTIAL SHARES IN SAURASHTRA FERROUS PVT LTD. AND RS.12 . 5 0 WERE INVESTED IN THE PREFE RE NTIAL SHARES IN OTHER 51 COMPANIES WHICH WERE ALSO INCL UDED IN THE 5 7452 /MUM/201 3 AMOUNT OF TOTAL INVESTMENTS OF RS.30 . 49 CR IN WHICH NO DISALLOWANCE U/S 14A COULD BE MADE AS INCOME FROM PREFERENTIAL SHA R ES OR REDEEMABLE PREFERENTIAL SHARES IS NOT EXEMPT FROM TAX . IT WAS ALSO SUBMITTED BY THE LD.AR THAT THE ASSESSEE HAS M ADE INVESTMENT OF RS.8 . 7 9 CR IN THE EQUITY SHARES IN SAURASHTRA FERROUS PVT LTD AND OTHER FOUR COMPANIES IN ORDER TO GAIN CONTROL OVER THE SAID COMPANIES AND NOT FOR THE PURPOSE OF EARNING ANY DIVIDEND WHICH WERE OF STRATEGIC NATURE AND THEREFORE NO DISALLOWANCE U/S 14A COULD BE MADE IN RESPECT OF THE SAID INVESTMENT S . THE LD.COUNSEL ALSO RELIED ON THE FOLLOWING DECISIONS IN DEFENCE OF HIS ARGUMENTS : A) EVEREST KANTO CYLINDER LTD V/S ACIT (56 TAXMANN.COM 361, MUM TRIB) AND B) ITO V/S STRIDES ARCO LAB LTD (138 ITD 323) (MUM) TRIB. C) CIT V/S ORIENTAL STRUCTURAL ENGG P LTD (35 TAXMANN. COM 210, DEL HC) D) GARWARE WALL ROPES LTD V/S ACIT (65 SOT 86, MUM TRIB); E) M/S J M FINANCIAL LTD V/S ACIT (ITA NO.4521/MUM/2012), F) SHRI JIGAR P SHAH V ACIT (ITA NO.4366/M/2014 DATED 24 TH FEB 2016 8. ON THE CONTRARY, THE LD.DR RELIED ON THE ORDER OF AUTHORITIES BELOW. 9 . WE HAVE CAREFULLY CONSIDERED THE SUBMISSIONS OF THE PARTIES, PERUSED THE MATERIAL PLACED BEFORE US INCLUDING THE ORDERS OF AUTHORITIES BEL OW AND CASE LAWS RELIED UPON BY THE PARTIES. WE FIND THAT THE ASSESSEE HAS MADE SUBSTANTIAL INVESTMENT S IN THE SHARES AND SECURITIES INCLUDING THE SHARES IN FOREIGN COMPANIES, PREFERENTIAL SHARES AND REDEEMABLE PREFERENTIAL SHARES AND INVESTMENT IN EQUITY SHARES OF SUBSIDIARY COMPANY AND SISTER 6 7452 /MUM/201 3 CONCERN/ASSOCIATE CONCERN. UPON GOING THROUGH THE FACTS OF THE CASE WE FIND THAT THE TOTAL INVESTMENT S AS ON 31.3.2010 IN SHARES AND SECURITIES INCLUDING PREFERENTIAL SHARES, EQUITY SHARES OF ASSOCIATE CONCERN A ND OTHER CONCERNS INCLUDING FOREIGN COMPANY WERE TO THE TUNE OF RS.30 . 49 CR AND THE ASSESSEE HAS TAX FREE FUNDS IN THE FORM OF TAX FREE FUND AND RESERVE OF RS.28 . 49 CR AND O UT OF THE TOTAL INVESTMENTS OF RS.30 . 49 CR AS ON 31.3.2010, THE ASSESSEE HAS MAD E INVESTMENT IN THE SHARES OF M/S SAURASHTRA WORLD HOLDINGS PVT LTD A FOREIGN COMPANY TO THE TUNE OF RS.1 . 10 CR THE DIVIDEND ON WHICH IS TAXABLE UNDER THE ACT AND THE INVESTMENT S IN THE PREFERENTIAL AND REDEEMABLE PREFERENTIAL SHARES TO THE TUNE OF RS.20 . 60 CR THE DIVIDEND ON WHICH IS ALSO TAXABLE UNDER THE ACT AND INVESTMENT S IN SUBSIDIARY COMPANIES/ASSOCIATE CONCERN AS ON 31.3.2010 AMOUNT ED TO RS.8 . 7 9 CR WHICH WAS MADE WITH A MOTIVE OF GAIN CONTROL OVER THE SUBSIDIARIES/ASSOCIATE COMPANY AND NOT WITH AN INTENTION TO EARN DIVIDEND INCOME. THUS, IF WE SUBTRACT THE INVESTMENT S IN FOREIGN COMPANY, IN PREFERENTIAL SHARES AND REDEEMABLE PREFEREN TIAL SHARES AND IN SUBUSIDARY/ASSOCIATE CONCERN , THE REMAINING INVESTMENT WOULD BE NIL. AS TOTAL O F THESE INVESTMENT S WOULD RS.30 . 49 CR WHICH IS TOTAL INVESTMENT S IN THE SHARERS AND SECURITIES AS ON 31.3.2010 IN THE BALANCE SHEET OF THE ASSESSEE . WE, THEREFORE FIND MERIT IN THE SUBMISSIONS OF THE LD.AR THAT THE DISALLOWANCE AS MADE BY THE AO AND UPH ELD BY THE LD.CIT(A) IS WRONG AND 7 7452 /MUM/201 3 CANNOT BE SUSTAINED AND DESERVED DELETION . WE ALSO FIND THAT VARIOUS CASE LAW CITED BY THE LD.AR SQUARELY COVER THE FACTS OF THE ASSESSEE CASE AND WE THEREFORE RESPECTFULLY FOLLOWING THE RATIO LAID DOWN IN THE ABOVE DECIS IONS WE SET ASIDE THE ORDER OF CIT(A) AND RESTORE THE ISSUE BACK TO THE FILE OF AO FOR VERIFICATION OF ISSUE OF INVESTMENTS AS DISCUSSED ABOVE. WE ACCORDINGLY, ALLOW THE APPEAL OF THE ASSESSEE FOR STATISTICAL PURPOSES. 10. IN THE RESULT, THE APPEAL O F THE ASSESSEE IS ALLOWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED ON THIS 25 TH DAY OF AUG, 2016. SD SD ( SHAILENDRA KUMAR YADAV ) (RAJESH KUMAR) / JUDICIAL MEMBER / ACCOUNTANT MEMBER MUMBAI ; DATED : 25 . 8 .2016 SR.PS:SRL: / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT 2. / THE RESPONDENT 3. ( ) / THE CIT(A) 4. / CIT CONCERNED 5. , , / DR, ITAT, MUMBAI 6. / GUARD F ILE / BY ORDER, TRUE COPY / (DY./ASSTT. REGISTRA R) , / ITAT, MUMBAI