DCIT CIR 3(3), MUMBAI V. SHAPOORJI PALLONJI INFRASTRUCTURE CAPITAL CO. LTD, MUMBAI

ITA 7475/MUM/2013

• Counselvise Citation: [2017] 128 COUNSELVISE.COM (IT) 0078 (ITAT-MUMBAI)
• Duration Of Justice: 3 year(s) 6 month(s) 2 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 21-06-2017
• Appeal Filed By: Department
• Order Result: Allowed
• Bench Allotted: E
• Assessment Year: 2010-2011
• Appeal Filed On: 19-12-2013
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: DR A K NAYAK LD
• Assessee Lawyers: DIVESH CHAWLA LD
• Keywords: Business income; Earning of tax free income
• Section: 143(3); 14A

Judgement Text

ITA NO.7475/MUM/2013 SHAPOORJI PALLONJI INFRASTRUCTURE CAPITAL CO.LTD ASSESSMENT YEAR 2010-11 IN THE INCOME TAX APPELLATE TRIBUNAL E BENCH, MUMBAI . , , BEFORE SHRI C.N. PRASAD, JM AND SHRI MANOJ KUMAR AGGARWAL, AM ./I.T.A. NO.7475/MUM/2013 ( / ASSESSMENT YEAR: 2010-11) DEPUTY COMMISSIONER OF INCOME TAX CIRCLE 3(3) 6 TH FLOOR, ROOM NO. 609 AAYKAR BHAVAN M.K.ROAD MUMBAI-400 020 / VS. SHAPOORJI PALLONJI INFRASTRUCTURE CAPITAL CO.LTD. 41/44 MINOO DESAI MARG COLABA MUMBAI 400 005 ! ./ ./ PAN/GIR NO.AABCS-4370-B ( !# /APPELLANT ) : ( $!# / RESPONDENT ) REVENUE BY : DR. A.K. NAYAK, LD. DR ASSESSEE BY : DIVESH CHAWLA, LD.AR / DATE OF HEARING : 07/06/2017 / DATE OF PRONOUNCEMENT : 21/06/2017 2 ITA NO.7475/MUM/2013 SHAPOORJI PALLONJI INFRASTRUCTURE CAPITAL CO.LTD ASSESSMENT YEAR 2010-11 / O R D E R PER MANOJ KUMAR AGGARWAL (ACCOUNTANT MEMBER) 1. THE CAPTIONED APPEAL BY REVENUE FOR ASSESSMENT Y EAR [AY] 2010-11 ASSAILS THE ORDER OF LD. COMMISSIONER OF INCOME TAX (APPEALS)-7 [CIT(A)], MUMBAI DATED 02/10/2013 QUA RELIEF PROVIDED TO THE ASSESSEE U/S 14A READ WITH RULE 8D. 2. BRIEFLY STATED THE ASSESSEE, BEING RESIDENT CORPORATE ASSESSEE ENGAGED IN INVESTMENT IN INFRASTRUCTURE PROJECTS , WAS ASSESSED FOR IMPUGNED AY U/S 143(3) ON 29/12/2012 AT LOSS OF RS.30,82,471/- AS A GAINST RETURNED LOSS OF RS.2,29,04,111/- E-FILED BY THE ASSESSEE ON 01/10/2010. THE ONLY DISPUTE INVOLVED IN THE APPEAL IS DISALLOWANCE U/S 14A. SIN CE, THE ASSESSEE EARNED EXEMPT DIVIDEND INCOME OF RS.4,29,15,600/-, IT MADE SUO-MOTO DISALLOWANCE U/S 14A FOR RS.7,30,24,290/- WHICH COM PRISED OF RS.7,27,74,290/- TOWARDS INTEREST DISALLOWANCE & RS.2,50,000/- TOWARDS ESTABLISHMENT/ ADMINISTRATIVE EXPENSES. THE ASSESSEE CONTENDED THAT THE WHOLE DIVIDEND WAS RECEIVED ONLY FROM ONE ENTITY NA MELY SAMALPATTI POWER CO. LTD. AND ASSESSEES INVESTMENT DURING THE IMPUGNED AY R EFLECTED MARGINAL INCREASE OF RS.8.99 LACS. THE ATTENTION WA S DRAWN TO THE FACT THAT THE ASSESSEE RECEIVED SPECIFIC LOAN OF RS.48 CRORES FROM IDFC WHICH WAS USED TO MAKE THE INVESTMENT AND FULL INTEREST PAID AGAINST THE SAID LOAN AMOUNTING TO RS.7,27,74,290/- WAS DISALLOWED BY THE ASSESSEE. THE TOTAL 3 ITA NO.7475/MUM/2013 SHAPOORJI PALLONJI INFRASTRUCTURE CAPITAL CO.LTD ASSESSMENT YEAR 2010-11 INTEREST EXPENDITURE DEBITED IN THE PROFIT & LOSS A CCOUNT WAS RS.8,85,55,733/-. HOWEVER, NOT CONVINCED WITH SUO-MOTO DISALLOWANCE MADE BY THE ASSESSEE, LD. AO APPLIED RULE 8D AND WO RKED OUT THE SAID DISALLOWANCE IN THE FOLLOWING MANNER:- I EXPENSES DIRECTLY ATTRIBUTABLE TO EXEMPT INCOME R S. NIL II FORMULA : A X B /C A: EXPENSES NOT DIRECTLY RELATED TO EXEMPT INCOME (INTEREST) I.E. 88555733 B: AVERAGE VALUE OF INVESTMENT ON THE OPENING AND CLOSING DAY OF THE PREVIOUS YEAR I.E. (933266652 + 934165964)/2 = 933716308 C: AVERAGE VALUE OF ASSETS ON THE OPENING AND CLOSING DAY OF THE PREVIOUS YEAR I.E. (940399961 + 935046150)/2 = 937723056 88555733 X 933716308 937723056 = 88177348 RS. 8,81,77,348 III 0.5% OF AVERAGE VALUE OF INVESTMENT ON THE OPENING AND CLOSING DAY OF THE PREVIOUS YEAR IE., 0.5% OF B= 4668582 RS. 46,68,582 AGGREGATE OF I + II+ III RS. 9,28,45,930 THUS, THE IMPUGNED DISALLOWANCE WAS WORKED OUT AT R S.928.45 LACS WHICH COMPRISED OF INTEREST DISALLOWANCE OF RS.881.77 LAC S U/R 8D(2)(II) AND ADMINISTRATIVE DISALLOWANCE OF RS.46.68 LACS U/R 8D (2)(III). AFTER ADJUSTING SUO-MOTO DISALLOWANCE OF RS.730.24 LACS MADE BY THE ASSESSEE , NET DISALLOWANCE SO SUFFERED BY THE ASSESSEE AMOUNTED T O RS.198.21 LACS. 4 ITA NO.7475/MUM/2013 SHAPOORJI PALLONJI INFRASTRUCTURE CAPITAL CO.LTD ASSESSMENT YEAR 2010-11 3. AGGRIEVED, THE ASSESSEE CONTESTED THE SAME WITH PARTIAL SUCCESS BEFORE LD. CIT(A) VIDE IMPUGNED ORDER DATED 02/10/2 013 WHERE THE LD. CIT(A) AFTER APPRECIATING THE FACTS AND VARIOUS JUD ICIAL PRONOUNCEMENTS NOTED THAT THE LD. AO AFTER REJECTING THE CORRECTNE SS OF ASSESSEES CLAIM APPLIED RULE 8D. THEREAFTER, LD. CIT(A) CONFIRMED D ISALLOWANCE U/R 8D(2)(III) FOR RS.46.68 LACS BUT DELETED ADDITIONAL INTEREST DISALLOWANCE U/R 8D(2)(II), AGGRIEVED, THE REVENUE IS IN APPEAL BEFO RE US. 4. FIRST OF ALL, IT HAS BEEN BROUGHT TO THE NOTICE OF THE BENCH THAT THE ASSESSEE CONTESTED THE CONFIRMATION OF DISALLOWANCE U/R 8D(2)(III) BEFORE THIS TRIBUNAL VIDE ITA NO.406/MUM/2016 ORDER DATED 10/07/2015 WHERE THE TRIBUNAL RESTRICTED THE DISALLOWANCE U/R 8D(2)(III) TO RS.6.50 LACS FOLLOWING DECISION IN ASSESSEES OWN CASE IN EARLIER YEARS. T HEREFORE, IN THE PRESENT APPEAL, THE ONLY ISSUE BEFORE US IS QUANTUM OF INTE REST DISALLOWANCE U/R 8D(2)(II). 5. PROCEEDING FURTHER, LD. COUNSEL FOR ASSESSEE [AR ], DRAWING OUR ATTENTION TO THE FINANCIAL STATEMENT PLACED IN THE PAPER BOOK, CONTENDED THAT THE ASSESSEE EARNED WHOLE DIVIDEND INCOME FROM ONE COMPANY AND THE ADDITIONAL INVESTMENT MADE BY THE ASSESSEE DURI NG IMPUGNED AY REFLECTED ONLY MARGINAL INCREASE OF RS.8.99 LACS AN D THEREFORE, ADDITIONAL INTEREST DISALLOWANCE WAS NOT WARRANTED FOR SINCE T HE ASSESSEE HAD ALREADY IDENTIFIED THE BORROWED FUNDS USED TO MAKE THOSE IN VESTMENT AND DISALLOWED FULL INTEREST PAID AGAINST THOSE FUNDS. THE LD. AR HAS ALSO OBJECTED TO APPLICATION OF RULE 8D BY LD. AO WITHOU T RECORDING OF DUE 5 ITA NO.7475/MUM/2013 SHAPOORJI PALLONJI INFRASTRUCTURE CAPITAL CO.LTD ASSESSMENT YEAR 2010-11 SATISFACTION. RELIANCE HAS BEEN PLACED ON THE JUDGM ENT OF THIS TRIBUNAL IN J.M.FINANCIAL LTD. VS. ACIT [ITA NO. 4521/MUM/2012 ORDER DATED 26/03/2014] AND LUCKNOW TRIBUNAL IN U.P.ELECTRONIC CORPORATION LTD. VS. DCIT [ITA NO. 538/LKW/2012 ORDER DATED 23/01/2015], THE COPIES OF WHICH HAVE BEEN PLACED BEFORE US. 6. PER CONTRA, LD. DR JUSTIFIED APPLICATION OF RULE 8D AND CONTEND ED THAT SINCE THE ASSESSEE WAS NOT CARRYING OUT ANY BUSINES S ACTIVITY BUT ONLY DERIVING INCOME FROM INVESTMENT AND HENCE RIGHTLY B EEN SADDLED WITH IMPUGNED INTEREST DISALLOWANCE BY THE AO. FURTHER, THE TRIBUNAL, IN ASSESSEES APPEAL, HAS UPHELD DISALLOWANCE U/R 8D(2 )(III) AND RESTRICTED THE SAME TO RS.6.50 LACS AND THEREFORE, RULE 8D HAS TO BE APPLIED IN TOTO. 7. WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED ASSESSEES FINANCIAL STATEMENTS PLACED IN THE PAPER BOOK. WE NOTE THAT THE ASSESSEES INCOME AS PER PROFIT & LOSS ACCOUNT STOOD AT RS.431.35 LAC S WHICH COMPRISED ONLY OF EXEMPT DIVIDEND INCOME OF RS.429.15 LACS AND INTEREST ON INCOME TAX REFUND FOR RS.2.20 LACS WHICH SHOWS THAT THE ASSESSEE HAS NOT DERIVED ANY BUSINESS INCOME DURING THE YEAR. THE ASSESSEE H AS CLAIMED TOTAL EXPENDITURE OF RS.961.68 LACS COMPRISING OF INTERES T EXPENSES OF RS.885.55 LACS AND OTHER EXPENSES FOR RS.76.13 LACS . THE ISSUE OF ADMINISTRATIVE/OTHER EXPENSES U/R 8D(2)(III) HAS AL READY BEEN DECIDED BY THE TRIBUNAL WHERE THE SAID EXPENDITURE HAS BEEN RESTRI CTED TO RS.6.50 LACS AND THEREFORE, THE ASSESSEE HAS ALREADY BEEN ALLOWE D EXPENDITURE OF 6 ITA NO.7475/MUM/2013 SHAPOORJI PALLONJI INFRASTRUCTURE CAPITAL CO.LTD ASSESSMENT YEAR 2010-11 RS.69.63 LACS TOWARDS OTHER EXPENDITURE TO TAKE CAR E OF EXPENDITURE, IF ANY, INCURRED BY THE ASSESSEE TOWARDS ANY BUSINESS PURSU IT. 8. REGARDING NATURE / PURPOSE OF INTEREST EXPENDITU RE OF RS.885.55 LACS, IT WOULD BE PRUDENT TO EXTRACT THE SUMMARIZED BALANCE SHEET OF THE ASSESSEE AS ON 31/03/2009 & 31/03/2010 WHICH IS AS FOLLOWS:- A PERUSAL OF THE SAME REVEALS THAT THE COMPANY IS P RIMARILY INVOLVED IN INVESTMENT ACTIVITY ONLY AND ALL RESOURCES ARE DIVE RTED TOWARDS INVESTMENTS ACTIVITY ONLY WHICH WEAKENS THE ARGUMENT OF LD. AR THAT THERE BEING ONLY MARGINAL INCREASE IN INVESTMENT, NO FURTHER DISALLO WANCE AGAINST INTEREST IS WARRANTED FOR. IT IS VERY CLEAR THAT LOAN FUNDS ARE BEING USED NOT FOR ANY OTHER BUSINESS ACTIVITY BUT ONLY TOWARDS MAKING THE INVESTMENT. RULE 8D(2)(II) IS RELATED WITH INTEREST DISALLOWANCE AND DO NOT DIFFERENTIATE BETWEEN VARIOUS TYPES OF INVESTMENT VIZ. STRATEGIC INVESTMENT OR ANY OTHER INVESTMENT ETC. RATHER WHATEVER INTEREST IS ATTRIBUTABLE TO T HE INVESTMENT PORTION, THE SAME IS TO BE DISALLOWED. 9. THE ASSESSEE HAS OBJECTED TO APPLICATION OF RULE 8D BUT WE FIND THAT THIS TRIBUNAL HAS ALREADY UPHELD DISALLOWANCE OF RS .6.50 LACS U/R 8D(2)(III) LIABILITIES AMOUNT AS ON 31/03/2010 AMOUNT AS ON 31/03/2009 ASSETS AMOUNT AS ON 31/03/2010 AMOUNT AS ON 31/03/2009 SHAREHOLDERS FUND 23.09 26.46 FIXED ASSETS 0.02 0.03 LOAN FUNDS 71.91 67.25 INVESTMENTS 93.41 93.33 OTHERS/CURRENT ASSETS -0.27 0.35 PROFIT & LOSS A/C 1.84 0.00 TOTAL 95.00 93.71 95.00 93.71 (RS. IN CRORES) 7 ITA NO.7475/MUM/2013 SHAPOORJI PALLONJI INFRASTRUCTURE CAPITAL CO.LTD ASSESSMENT YEAR 2010-11 IN ASSESSEES APPEAL. NO DOUBT, RULE 8D HAS TO BE A PPLIED IN TOTO AND NOT IN PIECEMEAL FASHION. EVEN OTHERWISE, THE LD. AO HAS MENTIONED THE FACTUM OF NON SATISFACTION IN THE QUANTUM ORDER WHICH HAS ALSO BEEN NOTED BY LD. CIT(A). THERE IS NO PRESCRIBED MANNER UNDER LAW IN WHICH THE SATISFACTION HAS TO BE RECORDED. THE ONLY REQUIREME NT IS THAT THERE SHOULD BE DUE APPLICATION OF MIND, WHICH IS PRESENT IN THE INSTANT CASE. MOREOVER, THE ASSESSEE DID NOT DERIVE ANY BUSINESS INCOME DUR ING IMPUGNED AY AND EVEN AS PER THE FINANCIAL STATEMENTS, THERE WAS DIR ECT / PROXIMATE CAUSE OF DISALLOWANCE SINCE ALMOST ALL BUSINESS RESOURCES WE RE DIRECTED TOWARDS INVESTMENT ACTIVITY OF THE ASSESSEE. THIS BEING THE CASE, RELIANCE PLACED BY THE ASSESSEE ON CITED ORDERS OF THE TRIBUNAL DO NOT APPLY TO THE FACT OF THE PRESENT CASE. MOREOVER, THE ISSUE IN THOSE CASES WA S RELATED WITH DISALLOWANCE OF DIRECT / INDIRECT EXPENSES. 10. THEREFORE, ON THE FACTS AND CIRCUMSTANCES OF T HE CASE, WE ARE OF THE CONSIDERED OPINION THAT RULE 8D WAS RIGHTLY APPLIED BY THE LD. AO AND THE IMPUGNED DISALLOWANCE HAD TO BE WORKED OUT ON THE B ASIS OF SAID RULE. THE LD. AO WAS CORRECT IN HIS APPROACH AND THEREFORE, T HE ORDER OF LD. CIT(A) IS REVERSED AND THAT OF LD. AO RESTORED. THE REVENUES APPEAL STANDS ALLOWED. 11. HOWEVER, WE NOTICE THAT THE FIGURES OF OPENING/ CLOSING TOTAL ASSET WHILE CALCULATING DISALLOWANCE U/R 8D(2)(II) HAS WR ONGLY BEEN PICKED UP BY LD. AO AND THE SAME REQUIRE CORRECTION AS PER THE F INANCIAL STATEMENT OF THE ASSESSEE. TO RECTIFY THE SAME AND TO ARRIVE AT CORRECT COMPUTATION, THE MATTER IS RESTORED BACK TO THE FILE OF AO FOR THIS LIMITED PURPOSE. 8 ITA NO.7475/MUM/2013 SHAPOORJI PALLONJI INFRASTRUCTURE CAPITAL CO.LTD ASSESSMENT YEAR 2010-11 12. RESULTANTLY, THE REVENUES APPEAL STANDS ALLOWE D. ORDER PRONOUNCED IN THE OPEN COURT ON 21 ST JUNE, 2017. SD/- SD/- (C. N. PRASAD) (MANOJ KUMAR AGGARWAL) / JUDICIAL MEMBER / ACCOUNTANT MEMBER MUMBAI; DATED : 21 .06.2017 SR.PS:- THIRUMALESH / 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 FILE / BY ORDER, / (DY./ASSTT. REGISTRAR) , / ITAT, MUMBAI