VARSHA CORPORATION LTD, MUMBAI V. DCIT 13(3)(2), MUMBAI

ITA 7492/MUM/2016

• Counselvise Citation: [2018] 126 COUNSELVISE.COM (IT) 0969 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 13 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 03-01-2018
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: Not Allotted
• Assessment Year: 2013-2014
• Appeal Filed On: 20-12-2016
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: RAM TIWARI
• Assessee Lawyers: MAHESH R AJORA
• Keywords: Earning of tax free income; Wholly owned subsidiary
• 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.7492/MUM/2016, /ASSESSMENT YEAR: 2013-14 M/S.VARSHA CORPORATION LTD., VARSHA 13 ADARSH SOCIETY, RAMCHANDRA LANE EXTENSION, MALAD (WEST), MUBAI 400 064. PAN: AABCV2293E VS. DY.COMMISSIONER OF INCOME TAX- 13(3)(2), AAYAKAR BHAVAN, MUMBAI-400 020. ( /APPELLANT ) ( / RESPONDENT ) REVENUE BY : SHRI RAM TIWARI - DR ASSESSEE BY : SHRI MAHESH RAJORA / 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. 28/10/2016 OF THE CIT(A) -21,MUMBAI THE ASSESSEE HAS FILED THE PRESENT APPEAL.ASSESSEE-COMPANY,ENGAGED IN THE BUSI NESS OF IMPORT AND TRADING IN PLASTIC RAW MATERIALS, CHEMICALS AND TRADING IN BULLION,FILED I TS RETURN OF INCOME ON, 27/09/2013,DECLARING INCOME OF RS.2,83,12,120/-THE ASSESSING OFFICER(AO) COMPLETED THE ASSESSMENT ON 24/11/ 2015, U/S.14A3(3)OF THE ACT,DETERMINING ITS INCOME AT RS. 2.84 CRORES. 2. EFFECTIVE GROUND OF APPEAL IS ABOUT CONFIRMING THE DISALLOWANCE OF RS. 1.62 LAKHS U/S.14A OF THE ACT READ WITH RULE 8D OF THE INCOME TAX RULES, 1962 (RULES). DURING THE ASSESSMENT PROCEEDINGS THE AO FOUND THAT THE ASSESSEE HAD MADE CERTAIN INVESTMENT IN SHARES. HE HELD THAT ORDINARILY SOME EXPENDITURE WOULD DEFINITELY HAVE B EEN INCURRED FOR MAKING AND MAINTAINING SUCH INVESTMENTS, THAT THE ASSESSEE HAD NOT WORKED OUT ANY DISALLOWANCE U/S. 14A. HE REFERRED TO THE CBDT CIRCULAR NO. 05/2014A AND SUB RULE 2 OF TH E RULE 8D OF THE RULES. AMOUNT EQUAL TO % OF THE AVERAGE OF THE VALUE OF INVESTMENT AS APP EARING IN THE BALANCE SHEET OF THE ASSESSEE ON THE FIRST DAY AND THE LAST DAY OF THE PREVIOUS YEAR WAS CONSIDERED FOR DISALLOWANCE AS PER RULE 8D (2)(III) OF THE RULES R.W.S.14A OF THE ACT AND A DI SALLOWANCE OF RS.1,62, 479/- WAS MADE. 3. AGGRIEVED BY THE ORDER OF THE AO, THE ASSESSEE PREF ERRED AN APPEAL BEFORE THE FIRST APPELLATE AUTHORITY (FAA) AND MADE ELABORATE/DETAILED SUBMISS IONS. IT RELIED UPON CERTAIN CASE LAWS ALSO. ITA NO.7492 OF 2016 FOR M/S. VARSHA CORPORATION LTD ., 2 AFTER CONSIDERING THE AVAILABLE MATERIAL, HE HELD T HAT THE COMPUTATION OF INCOME, FILED BY THE ASSESSEE,SHOWED THAT IT HAD NOT MADE ANY DISALLOWAN CE U/S. 14A, THAT IT HAD CLAIMED THAT NO EXPENSES WAS INCURRED/ALLOCABLE TOWARDS EARNING EXE MPT INCOME, THAT IT HAD NOT PRODUCED ANY EVIDENCE TO PROVE THE CLAIM THAT INVESTMENTS MADE B Y IT WERE STRATEGIC INVESTMENTS, THAT INVESTMENT IN A SUBSIDY ENTITY WOULD NOT MAKE IT A STRATEGIC INVESTMENT, THAT IF THE INVESTMENTS WERE STRATEGIC SAME WOULD HAVE BEEN SHOWN UNDER THE HEAD NON-CURRENT INVESTMENTS, THAT THE AO HAD SPECIFICALLY MENTIONED THAT HE WAS NOT SATIS FIED WITH THE CLAIM OF THE ASSESSEE THAT NO EXPENDITURE WAS INCURRED FOR EARNING OF EXEMPT INCO ME, THE AO HAD RIGHTLY APPLIED RULE 8D (2) (III)OF THE RULES.HE REFERRED TO THE CASE OF BELLWE THER MICRO FINANCE FUNDS PRIVATE LTD (108 DTR-/HYD.TRIB-389) AND UPHELD THE ORDER OF THE AO. 4. DURING THE COURSE OF HEARING BEFORE US THE AUTHORIS ED REPRESENTATIVE (AR) STATED THAT THE ASSESSEE HAD NOT INCURRED ANY EXPENDITURE FOR EARNI NG TAX-FREE INCOME,THAT IT HAD MADE STRATEGIC INVESTMENT ONLY,THAT IT HAD MADE INVESTMENTS RELATI NG TO RS. 3.24 CRORES IN THE EQUITY SHARES OF ITS ASSOCIATED GROUP COMPANIES, THAT THE INVESTMENT IN THOSE 100% SUBSIDIARIES WERE SHOWN AS NON- CURRENT INVESTMENT IN NOTE NUMBER EIGHT OF ITS AUDI TED ACCOUNT, THAT DURING THE YEAR UNDER CONSIDERATION IT HAD NOT EARN ANY EXEMPT INCOME FRO M THE INVESTMENT, THAT THE INVESTMENTS WERE MADE WITH SOLE OBJECT OF CONTROLLING GROUP ENTITIES ,THAT THE ADMINISTRATIVE AND INTEREST EXPENSES WERE INCURRED FOR CARRYING OUT ITS NORMAL BUSINESS ACTIVITY,THAT THE NO PART OF EXPENSES COULD BE CONSIDERED AS ELIGIBLE TO EARNING OF EXEMPT INCOME. HE RELIED UPON THE CASES OF CHEMINVEST LIMITED(378 ITR 33), BALLARPUR INDUSTRIES LTD (ITA NO. 51 OF 2016 OF THE HONORABLE HIGH COURT, NAGPUR BENCH)AND BHARAT SERUMS AND VACCINES LTD. (4 9 CCH 50).THE DEPARTMENTAL REPRESENTATIVE(DR) SUPPORTED THE ORDER OF THE AO AN D THE FAA. 5. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL BEFORE US.WE FIND THAT DURING THE YEAR UNDER CONSIDERATION THE ASSESSEE HAD NOT C LAIMED ANY EXEMPT INCOME FROM THE INVESTMENTS MADE BY IT,THAT DURING THE LAST ASSESSM ENT YEAR IT HAD MADE INVESTMENT IN ITS 100% SUBSIDIARY CONPANIES,THAT IT HAD NOT CLAIMED ANY EX PENDITURE FOR EARNING EXEMPT INCOME, THAT THE AO HAD NOT MENTIONED THE FIGURE OF THE EXPENDITURE CLAIMED TO HAVE BEEN INCURRED FOR EARNING THE INCOME WHICH WAS NOT TAXABLE,THAT HE HAD REFERR ED TO THE CIRCULAR OF THE BOARD TO MAKE THE DISALLOWANCE, THAT THE FAA HAD IGNORED THE FACT THA T INVESTMENT IN THE SUBSIDIARIES WAS SHOWN IN THE BALANCE SHEET UNDER THE HEAD NON-CURRENT ASSETS .WE ARE AWARE THAT THE AO.S ARE BOUND TO ITA NO.7492 OF 2016 FOR M/S. VARSHA CORPORATION LTD ., 3 FOLLOW THE CIRCULARS/INSTRUCTIONS/DIRECTIONS OF THE BOARD.BUT,SUCH INSTRUCTIONS ARE NOT BINDING ON THE ASSESSEE. FOR MAKING ANY DISALLOWANCE U/S.14A R .W. 8D OF THE RULES THE AO HAS TO PROVE TWO THINGS THAT THE ASSESSEE HAD EARNED EXEMPT INCOME A ND THAT IT HAD CLAIMED CERTAIN EXPENDITURE AGAINST SUCH INCOME WHICH WAS NOT OFFERED FOR TAXAT ION.THE BASIC PURPOSE TO INTRODUCE THE SECTION WAS TO DISCOURAGE THE PRACTICE OF THE ASSES SEES WHO WOULD CLAIM TO DEDUCTIONS I.E. CLAIMING EXEMPT INCOME AND AGAINST SUCH INCOME CLAI MING EXPENDITURE.IF AN ASSESSEE DOES NOT EARN ANY EXEMPT INCOME INCOME IN A PARTICULAR YEAR THEN THE PROVISIONS OF SECTION 14A WOULD NOT BE APPLICABLE.THE PROVISION WERE INCLUDED IN TH E ACT,TO PREVENT THE MISUSE OF CERTAIN EXEMPTIONS/DEDUCTIONS/ REBATE/ CONCESSIONS ALLOWED TO THE ASSESSEES,CANNOT BE USED INDISCRIMI - NATELY.THE BASIC FACTS ARE TO BE ASCERTAINED FIRST. IN THE CASE UNDER CONSIDERATION,IN THE COMPUTA - TION OF INCOME,THE ASSESSEE HAD NOT CLAIMED ANY EXE MPT INCOME. THE EXPENDITURE CLAIMED BY IT IN THE PROFIT AND LOSS ACCOUNT HAVE NOT BEEN SHOWN TO HAVE BEEN INCURRED FOR EARNING ANY EXEMPT INCOME DURING THE YEAR UNDER CONSIDERATION. THEREFO RE,IN OUR OPINION,THE FAA WAS NOT JUSTIFIED IN CONFIRMING THE DISALLOWANCE MADE BY THE AO,U/S.1 4A OF THE ACT.IN THE CASES RELIED UPON BY THE ASSESSEE I.E. CHEMINVEST LIMITED AND BALLARPUR INDUSTRIES LTD.THE HONOURABLE COURTS HAVE HELD THAT FOR MAKING ANY DISALLOWANCE THE EXISTENCE OF EXEMPT INCOME AND INCURRING OF EXPENDI - TURE TO EARN SUCH INCOME HAD TO BE PROVED.WE WOULD LIKE TO REFER TO THE PARAGRAPH 23 OF THE JUDGMENT OF CHEMINVEST LIMITED (SUPRA) AND IT READS AS UNDER: 23. IN THE CONTEXT OF THE FACTS ENUMERATED HEREINB EFORE THE COURT ANSWERS THE QUESTION FRAMED BY HOLDING THAT THE EXPRESSION 'DOES NOT FORM PART OF THE TOTAL INCOME' IN SECTION 14A OF THE ACT ENVISAGES THAT THERE SHOULD BE AN ACTUAL RECEIPT OF INCOME, WHICH IS NOT INCLUDIBLE IN THE TOTAL INCOME, DURING THE RELEVANT PREVIOUS YEAR FOR THE P URPOSE OF DISALLOWING ANY EXPENDITURE INCURRED IN RELATION TO THE SAID INCOME. IN OTHER W ORDS, SECTION 14A WILL NOT APPLY IF NO EXEMPT INCOME IS RECEIVED OR RECEIVABLE DURING THE RELEVAN T PREVIOUS YEAR. CONSIDERING THE ABOVE AND THE PARTICULAR FACTS AND CIRCUMSTANCES OF THE CASE,WE REVERSE THE ORDER OF THE FAA AND DECIDE THE EFFECTIVE GROUND OF APPEA L IN FAVOUR OF THE ASSESSEE. AS A RESULT,APPEAL FILED BY THE ASSESSEE STANDS ALLOWED. ORDER PRONOUNCED IN THE OPE N COURT ON 3 RD JANUARY 2018. 03 ,2018 SD/- SD/- / RAVISH SOOD) ( / RAJENDRA) / JUDICIAL MEMBER / ACCOUNTANT MEMBER MUMBAI; /DATED : 03. 01.2018. S.GANGADHARA RAO, SR.PS/JV, SR.PS. ITA NO.7492 OF 2016 FOR M/S. VARSHA CORPORATION LTD ., 4 / 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.