ITO 3(3)(1), MUMBAI V. REMI FIANANCE & INVESTMENT P.LTD, MUMBAI

ITA 7461/MUM/2014

• Counselvise Citation: [2016] 131 COUNSELVISE.COM (IT) 2465 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 10 month(s) 6 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 21-10-2016
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: D
• Assessment Year: 2011-2012
• Appeal Filed On: 15-12-2014
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: B S BIST
• Keywords: Earning of tax free income
• Section: 14A

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL, MUMBAI BENCH D, MUMBAI BEFORE SHRI SANJAY GARG, JUDICIAL MEMBER AND SHRI ASHWANI TANEJA, ACCOUNTANT MEMBER ITA NO.7461/M/2014 ASSESSMENT YEAR: 2011-12 I.T.O. 3(3)-1, ROOM NO.602, 6 TH FLOOR, AAYAKAR BHAVAN, M.K. ROAD, MUMBAI - 400020 VS. M/S. REMI FINANCE & INVESTMENT PVT. LTD., PLOT NO.11, CAMA INDUSTRIAL ESTATE, GOREGAON (EAST),, MUMBAI 400 063 PAN: AAACR 0400Q (APPELLANT) (RESPONDENT) PRESENT FOR: ASSESSEE BY : NONE REVENUE BY : SHRI B.S. BIST, D.R. DATE OF HEARING : 17.10.2016 DATE OF PRONOUNCEMENT : 21.10.2016 O R D E R PER SANJAY GARG, JUDICIAL MEMBER: THE PRESENT APPEAL HAS BEEN PREFERRED BY THE REVEN UE AGAINST THE ORDER DATED 29.09.2014 OF THE COMMISSIONER OF INCOME TAX (APPEALS) [HEREINAFTER REFERRED TO AS THE CIT(A)] RELEVANT TO ASSESSMENT Y EAR 2011-12. 2. NO ONE HAS COME PRESENT ON BEHALF OF THE ASSESSE E. CONSIDERING THE SMALL AND SOLE ISSUE INVOLVED IN THIS CASE RELATING TO THE DISALLOWANCE MADE UNDER SECTION 14A IN RELATION TO THE EXPENDITURE IN CURRED FOR EARNING OF TAX EXEMPT INCOME, WE PROCEED TO DECIDE THE APPEAL OF T HE ASSESSEE AFTER HEARING THE LD. DEPARTMENTAL REPRESENTATIVE. 3. REVENUE IS AGGRIEVED BY THE ACTION OF THE LD. CI T(A) IN DELETING THE DISALLOWANCE OF RS.56,20,235/- MADE BY THE ASSESSIN G OFFICER (HEREINAFTER ITA NO.7461/M/2014 M/S. REMI FINANCE & INVESTMENT PVT. LTD. 2 REFERRED TO AS THE AO) UNDER SECTION 14A READ WITH RULE 8D OF THE INCOME TAX RULES. 4. THE BRIEF FACTS OF THE CASE ARE THAT THE AO FOUN D THAT THE ASSESSEE DURING THE YEAR HAD EARNED DIVIDEND INCOME OF RS.11,794/- AND CLAIMED THE SAME AS EXEMPT FROM TAX. THE ASSESSEE, HOWEVER, SUOMOTO MA DE DISALLOWANCE UNDER SECTION 14A OF RS.1,51,256/- IN THE COMPUTATION OF INCOME. ON BEING ASKED TO EXPLAIN IN THIS RESPECT, THE ASSESSEE COMPANY EXPLA INED AS UNDER: '1. DISALLOWANCE U/S 14A : THE COMPANY HAS SHARE CAPITAL AND RESERVES OF RS.593,90,387/- AS AGAINST INVESTMENTS OF RS.366,38,661/-. THE COMPANY DID NOT BORROW ANY FUNDS FOR MAKING INVESTM ENTS. THESE INVESTMENTS ARE MADE OUT OF ITS OWN SHARE CAPITAL A ND RESERVES. FURTHER, THE COMPANY HAS INTEREST INCOME OF RS.148,44,260/- AND INTEREST EXPENSE OF RS.115,74,849/-, I.E. NET INTEREST INCOME 32,69,411 /- DURING THE RELEVANT FINANCIAL YEAR. THUS, NO DISALLOWANCE IS REQUIRED T O BE MADE OUT OF INTEREST EXPENSE U/S 14A READ WITH RULE 8D OF THE INCOME TAX ACT. SECONDLY, THE COMPANY HAS ADDED, WHILE CALCULATING TOTAL INCOME, RS.1,51,256/-, BEING 0.5% OF THE AVERAGE INVESTMENTS U/S 14A READ WITH RULE 8 D OF THE INCOME TAX ACT. IN VIEW OF ABOVE, NO FURTHER DISALLOWANCE IS REQUIRED TO BE MADE U/S 14A READ WITH RULE 8D OF THE INCOME TAX ACT. THE AO, HOWEVER, DID NOT ACCEPT THE ABOVE SUBMISSI ONS OF THE ASSESSEE AND MADE THE IMPUGNED DISALLOWANCE. BEING AGGRIEVE D BY THE ABOVE ORDER OF THE AO, THE ASSESSEE PREFERRED APPEAL BEFORE THE LD . CIT(A). 5. THE LD. CIT(A), AFTER CONSIDERING THE SUBMISSION S OF THE ASSESSEE, DELETED THE DISALLOWANCE SO MADE BY THE AO OBSERVIN G AS UNDER: 5. THE ABOVE GROUNDS ARE TAKEN TOGETHER AS THEY AD DRESS A COMMON ISSUE. I FIND THAT THE ASSESSEE HAS SHOWN DIVIDEND INCOME OF RS.11,794/- AND CLAIMED THE SAME AS EXEMPT FROM TAX. THE ASSESS EE HAS SUO MOTU MADE DISALLOWANCE OF RS.1,51,256/- U/S. 14A OF THE ACT. I ALSO FIND THAT AS PER PARA 4.3 (PAGE 2) OF THE ASSESSMENT ORDER TH E ASSESSEE HAD FILED A WRITTEN SUBMISSION BEFORE THE AO DATED 22/12/2010 STATING THAT 'THE COMPANY HAS SHARE CAPITAL RESERVES OF RS.593,90,387 /- AS AGAINST INVESTMENT OF RS.366,38,661/-. THE COMPANY DID NOT BORROW ANY FUNDS FOR MAKING INVESTMENTS. THESE INVESTMENTS ARE MADE OUT OF ITS OWN SHARE CAPITAL AND RESERVES. THE ABOVE FACT IS NOT DISPUTED BY THE AO . THE ABOVE FACT IS ALSO BORNE OUT FROM THE AUDITED ACCOUNTS OF THE APPELLANT. ALSO I FIND THE APPELLANTS INTEREST EXP ENDITURE DURING THE YEAR WAS RS.115,74,849/-WHEREAS INTEREST INCOME WAS OF RS.148,44,260/-. HENCE THERE WAS NET INTEREST INCOME OF ITA NO.7461/M/2014 M/S. REMI FINANCE & INVESTMENT PVT. LTD. 3 RS.32,69,411/- DURING THE RELEVANT FINANCIAL YEAR. THE INTEREST EXPENSES DURING THE YEAR WERE AGAINST THE LOANS TAK EN FOR LENDING AND INTEREST INCOME OF RS.148,44,260/- WERE RECEIVED. IN THE CASE OF CIT V. HDFC LTD.(ITA NO. 330 OF 2012) ORDER DATED 23/07/2014, THE HON'BLE BOMBAY HIGH COURT HEL D THAT IN VIEW OF THE FACTUAL POSITION AS PER THE JUDGEMENT I N THE CASE OF CIT V. RELIANCE UTILITIES AND POWER LTD. (2009) 313 ITR 340 (BOM), IT WOULD HAVE TO BE PRESUMED THAT THE INVESTMENT MADE BY THE ASSESSEE WOULD BE OUT OF THE INTEREST FREE FUNDS AV AILABLE WITH THE ASSESSEE. THE ISSUE BEFORE THE HON'BLE HIGH COURT W AS DISALLOWANCE U/S. 14A. THE FACT BEFORE THE HON'BLE HIGH COURT WAS THAT THE ASSESSEE'S CAPITAL, PROFIT, RESERVES, SURPLUS AND C URRENT ACCOUNT DEPOSITS WERE HIGHER THAN THE INVESTMENT IN TAX FREE SECURIT IES. IN VIEW OF THE ABOVE POSITION OF LAW THE DISALLOWAN CE OF RS.56,20,235/- MADE BY THE AO AS PER RULE 8D IS DEL ETED. IN THE CASE OF MAXOPP INVESTMENT LTD. V. CIT (2011) 15 TAXMANN.COM 390 (DELHI) THE HON'BLE HIGH COURT HELD THAT IF ONE EXAMINES SUB RULE (2) OF RULE 8D, IT IS FOUND THAT THE METHOD FOR DETERMINING THE EXPENDITURE IN RELATION TO EXEMPT I NCOME HAS THREE COMPONENTS AND THE THIRD COMPONENT IS AN ARTI FICIAL FIGURE - 0.5% OF THE AVERAGE VALUE OF INVESTMENT, INCOME FRO M WHICH DOES NOT OR SHALL NOT FORM PART OF THE TOTAL INCOME, AS APPEARING IN THE BALANCE SHEETS OF THE ASSESSEE, ON THE FIRST DAY AN D LAST DAY OF THE PREVIOUS YEAR. IN VIEW OF THE ABOVE THE DISALLOWANCE @ 0.5% MADE BY THE AO WHICH COMES TO RS.3,25,256/- IS CONFIRMED. THUS THE DISALLOWAN CE IS RESTRICTED TO RS.1,74,000/- (RS.3,25,256 RS.1,51,256) IN PLACE OF RS.57,94,23 5/- MADE BY THE AO. 6. IN THE RESULT THE APPEAL IS HEREBY ALLOWED. 6. BEING AGGRIEVED BY THE ABOVE FINDINGS OF THE LOW ER AUTHORITIES, THE REVENUE HAS COME IN APPEAL BEFORE US. 7. WE FIND THAT THE LD. CIT(A) HAS GIVEN A CATEGORI CAL FINDING THAT THE SHARE CAPITAL RESERVES OF THE ASSESSEE WERE AT RS. 5,93,90,387 /- DURING THE YEAR AGAINST THE INVESTMENTS OF RS. 3,66,38,661 /- ONLY AND THE LD. CIT(A) HAS ALSO GIVEN CATEGORICAL FINDING THAT THE COMPANY DID NOT BORROW ANY FUNDS FOR MAKING INVESTMENTS AND THAT THE INVESTMENTS WERE MA DE OUT OF ITS OWN SHARE CAPITAL AND RESERVES. THAT EVEN THE AO HAS ALSO NOT DISPUTED THE ABOVE FACTS. EVEN, OTHERWISE THE ASSESSEES INTEREST INCOME WAS MUCH MORE THAN THE INTEREST EXPENDITURE INCURRED BY THE ASSESSEE FOR I TS BUSINESS PURPOSES. THE ITA NO.7461/M/2014 M/S. REMI FINANCE & INVESTMENT PVT. LTD. 4 ASSESSEE HAS ALREADY DISALLOWED 0.5% OF THE AVERAGE VALUE OF INVESTMENT ON ACCOUNT OF ADMINISTRATIVE EXPENSES AS PER THE PROVI SIONS OF RULE 8D OF THE INCOME TAX RULES. 8. WE FIND THAT THE ASSESSEE SUO-MOTO OFFERED MUCH MORE DISALLOWANCE OF EXPENDITURE THAN THE TOTAL TAX EXEMPT INCOME EARNED BY THE ASSESSEE DURING THE YEAR. WE, THEREFORE, DO NOT FIND ANY REASON TO INT ERFERE WITH THE WELL REASONED ORDER OF THE LD. CIT(A) AND THE SAME IS THEREFORE U PHELD. 9. IN THE RESULT, THE APPEAL OF THE REVENUE IS HERE BY DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 21.10.2016. SD/- SD/- (ASHWANI TANEJA) (SANJAY GARG) ACCOUNTANT MEMBER JUDICIAL MEMBER MUMBAI, DATED: 21.10.2016. * 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.