ACIT 3(2)(1), MUMBAI V. INDIABULLS WHOLSALE SERVICES LTD, MUMBAI

ITA 7490/MUM/2016

• Counselvise Citation: [2018] 126 COUNSELVISE.COM (IT) 0980 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 13 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 03-01-2018
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: Not Allotted
• Assessment Year: 2012-2013
• Appeal Filed On: 20-12-2016
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: RAM TIWARI
• Keywords: Earning of tax free income
• Section: 14A

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL G BENCH, MUM BAI , , BEFORE S/SH. RAJENDRA,ACCOUNTANT MEMBER & RAVISH S OOD, JUDICIAL MEMBER /.ITA NO.7490/MUM/2016, /ASSESSMENT YEAR: 2012-13 A.C.I.T-3(2)(1), 6 TH FLOOR, AAYAKAR BHAVAN, M.K.ROAD, MUMBAI 400 020 VS. M/S.INDIABULLS WHOLESALE SERVICES LTD., S.P.CENTRE, 41/44, C-WING, MINOO DESAI MARG,COLABA, MUMBAI-5. PAN: AABCI7129N ( /APPELLANT ) ( / RESPONDENT ) REVENUE BY : SHRI RAM TIWARI - DR ASSESSEE BY : NONE / DATE OF HEARING: 08/11/2017 / DATE OF PRONOUNCEMENT: 03/01/2018 , 1961 254 )1( ORDER U/S.254(1)OF THE INCOME-TAX ACT,1961(ACT) , -PER RAJENDRA,AM: CHALLENGING THE ORDER DTD. 30/09/2016,OF THE CIT(A) -8,MUMBAI THE ASSESSING OFFICER(AO)HAS FILED THE PRESENT APPEAL.ASSESSEE-COMPANY,ENGAGED I N THE BUSINESS OF WHOLESALE TRADING AND RETAIL BUSINESS, REAL ESTATE DEVELOPMENT AND RELATE D ACTIVITIES,FILED ITS RETURN OF INCOME ON,28/ 09/ 2012,DECLARING INCOME OF RS 8.55 CRORE.THE(AO)COMPL ETED THE ASSESSMENT ON, 16/03/ 2015, U/S. 143(3)OF THE ACT, DETERMINING ITS INCOME AT RS 12.1 6 CRORES. 2. EFFECTIVE GROUND OF APPEAL IS ABOUT DELETING THE DI SALLOWANCE OF RS. 3.61 CRORES MADE BY THE AO U/S.14A.DURING THE ASSESSMENT PROCEEDINGS THE AO FOUND THAT THE ASSESSEE HAD SHOWN EXEMPT DIVIDEND INCOME OF RS.6,00,390/-, THAT IT HA D MADE HUGE INVESTMENT IN EQUITY SHARES THAT WERE CAPABLE OF GENERATING EXEMPT INCOME. HE SHOWCA SED THE ASSESSEE AS TO WHY DISALLOWANCE OF EXPENSES ATTRIBUTABLE FOR EARNING SUCH EXEMPT IN COME SHOULD NOT BE MADE AS PER THE PROVISIONS OF SECTION 14A READ WITH RULE 8D OF THE INCOME TAX RULES, 1962 (RULES) AFTER CONSIDERING THE SUBMISSION OF THE ASSESSEE THE AO R EFERRED TO THE CIRCULAR NO.5 OF 2014,DATED 11/02/2014A AND THE CASE OF GODREJ AND BOYCE MANUFA CTURING COMPANY LTD. (WRIT PETITION 785 OF 2010 IN ITXA 626/10) AND MADE A DISALLOWANCE OF RUBYS 3.61 CRORES (RS. 2.61 CRORES UNDER RULE 8D(2)(II) AND RS.1,00,57,400/-,UNDER RULE 8D(2 )(III) OF THE RULES. 3. AGGRIEVED BY THE ORDER OF THE AO, THE ASSESSEE PREF ERRED AN APPEAL BEFORE THE FIRST APPELLATE AUTHORITY (FAA) AND MADE ELABORATE SUBMISSIONS.IT R ELIED UPON CERTAIN CASE LAWS ALSO. AFTER CONSIDERING THE AVAILABLE MATERIAL, HE HELD THAT TH E AO HAD NOT DISCUSSED ANY OF THE ARGUMENTS 7490/M/16 M/S. INDIABULLS WHOLESALE SERVICES 2 RAISED BY THE ASSESSEE BEFORE HIM, THAT HE HAD NOT EXPLAINED AS TO WHY HE WAS NOT SUCH RESPECT WITH THE CLAIM OF THE ASSESSEE THAT NO EXPENDITURE HAD BEEN INCURRED FOR EARNING EXEMPT INCOME, THAT THE AO HAD NOT DISPUTED THE FACT THAT THE INTE REST FUND OF THE ASSESSEE IN TERMS OF SHARE CAPITAL AND RESERVES WERE MORE THAN THE INVESTMENT MADE BY THE ASSESSEE. HE REFERRED TO THE CASES OF RELIANCE UTILITIES AND POWER LTD. (313 ITR 340), MARUTI UDYOG LTD. (92 ITD 119), HERO CYCLES LTD.(323ITR518)AND OBSERVED THAT THE ASSESSE E HAD MADE SPECIFIC CLAIM ABOUT NOT INCURRING OF ANY EXPENDITURE IN RELATION TO EXEMPT DIVIDEND INCOME, THAT THE AO HAD APPLIED THE PROVISIONS OF RULE 8D WITHOUT ASSIGNING ANY REASON AND IN MECHANICAL MANNER, THAT RULE 8D WAS NOT AUTOMATIC, THAT THE AO HAD TO GIVE AN OBJECTIVE SATISFACTION ABOUT INCURRING OF EXPENDITURE IN RELATION TO EXEMPT INCOME, THAT THERE MUST BE ALIVE NEXUS BETWEEN THE EXPENDITURE INCURRED AN TAX-FREE INCOME.FINALLY, HE DIRECTED THE AO TO DELE TE THE DISALLOWANCE MADE BY HIM. 4. DURING THE COURSE OF HEARING BEFORE US THE DEPARTME NTAL REPRESENTATIVE (DR) REFERRED TO THE CIRCULAR NUMBER 5 OF 2014(SUPRA) AND RELIED UPON TH E ORDER OF THE AO. NONE APPEARED ON BEHALF OF THE ASSESSEE,AS STATED EARLIER 5. WE HAVE PERUSED THE MATERIAL BEFORE US AND HAVE HEA RD THE DR.WE FIND THAT ASSESSEE HAD MADE A SPECIFIC ARGUMENT BEFORE THE AO THAT IT HAD NOT I NCURRED ANY EXPENDITURE FOR EARNING EXEMPT INCOME, THAT THE AO HAD CONSIDERED THE INVESTMENT M ADE BY THE ASSESSEE, THAT HE HAD MADE GENERAL OBSERVATIONS ABOUT THE PROVISIONS OF SECTIO N 14A AND RULE 8D OF THE RULES, THAT HE HAD NOT SPECIFIED THE PARTICULAR EXPENSES THAT WERE DIR ECTLY RELATED TO TAX-FREE INCOME,THAT THE FAA HAS CLEARLY MENTIONED THAT THE AO HAD NOT DISCUSSED ANYTHING ABOUT THE DISSATISFACTION WITH REGARD TO CLAIM MADE BY THE ASSESSEE FOR NOT MAKING DISALLOWANCE U/S.14A OF THE ACT,THAT THE AO HAD NOT CONSIDERED ANY ARGUMENT MADE BEFORE HIM BY THE ASSESSEE, THAT FAA HAD GIVEN A FINDING OF FACT THAT THE INTEREST-FREE FUND AVAILABLE WITH THE ASSESSEE (RS. 12.57 CRORES SHARE CAPITAL+ RS.772.53 CRORES-RESERVES AND SURPLUS) WERE MUCH MO RE THAN THE INVESTMENT OF RS.201.14 CRORES.THE PURPOSE OF INTRODUCING SECTION 14A WAS T O CURB THE TENDENCY OF CERTAIN ASSESSEES TO CLAIM DOUBLE DEDUCTIONS BY CLAIMING EXPENDITURE AGA INST THE EXEMPT INCOME.IN OUR OPINION, BEFORE MAKING ANY DISALLOWANCE U/S. 14A, THE AO HAS TO PROVE THAT CERTAIN EXPENSES WERE INCURRED FOR EARNING EXEMPT INCOME. IN THE CASE UND ER CONSIDERATION THE AO HAS FAILED TO PROVE THAT ASSESSEE HAD CLAIMED ANY EXPENDITURE AGAINST T HE TAX-FREE INCOME.IF THE ASSESSEE HAS NOT CLAIMED ANY EXPENDITURE,THERE WILL NOT BE ANY JUSTI FICATION FOR MAKING DISALLOWANCE. JUST BECAUSE 7490/M/16 M/S. INDIABULLS WHOLESALE SERVICES 3 THE ASSESSEE HAS EARNED EXEMPT INCOME WOULD NOT AUT HORISE THE AO TO MAKE ANY DISALLOWANCE AUTOMATICALLY.DISALLOWANCE IS DIRECTLY RELATED THE EXPENDITURE INCURRED AND NOT ON EARNING OF EXEMPT INCOME.EARNING OF TAX-FREE INCOME IS THE FIR ST LEG OF THE TRANSACTION. BUT THE SECOND LEG IS EQUALLY IMPORTANT AND THAT IS INCURRING OF EXPENDIT URE FOR EARNING THE SAID INCOME. UNTIL AND UNLESS BOTH THE CONDITIONS ARE FULFILLED NO DISALLO WANCE CAN BE MADE U/S. 14A. AS THE AO HAS FAILED TO PROVE THAT ASSESSEE HAD INCURRED CERTAIN EXPENDITURE IN RELATION TO THE DIVIDEND INCOME, SO,IN OUR OPINION,THE ORDER OF THE FAA DOES NOT REQ UIRE ANY INTERFERENCE FROM OUR SIDE. UPHOLDING HIS ORDER,WE DECIDE THE EFFECTIVE GROUND OF APPEAL AGAINST THE AO. AS A RESULT,APPEAL FILED BY THE AO STANDS DISMISSED . ORDER PRONOUNCED IN THE OPEN COURT ON 3 RD JANUARY, 2018. SD/- SD/- / RAVISH SOOD) ( / RAJENDRA) / JUDICIAL MEMBER / ACCOUNTANT MEMBER MUMBAI; /DATED : 03 .01.2018. S.GANGADHARA RAO, SR.PS./JV, SR.PS / COPY OF THE ORDER FORWARDED TO : 1. APPELLANT / 2. RESPONDENT / 3. THE CONCERNED CIT(A)/ , 4. THE CONCERNED CIT / 5. DR G BENCH, ITAT, MUMBAI / , , . . 6. GUARD FILE/ //TRUE COPY// / BY ORDER, / DY./ASST. REGISTRAR , /ITAT, MUMBAI.