VISHAL NIRMAN (INDIA) LTD., MUMBAI V. D.C.I.T. C.C.36, MUMBAI

ITA 7510/MUM/2011

• Counselvise Citation: [2012] 119 COUNSELVISE.COM (IT) 9158 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 29 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 07-12-2012
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: F
• Next Hearing Date: 04-12-2012
• Assessment Year: 2008-2009
• Appeal Filed On: 08-11-2011
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Opportunity of being heard; Earning of tax free income
• Section: 143(3); 14A

Judgement Text

, IN THE INCOME TAX APPELLATE TRIBUNAL F BENCH, MUMBAI . . !'#$ , % &' BEFORE SHRI H.L. KARWA, PRESIDENT AND SHRI N.K. BILLAIYA, AM ./I.T.A. NO.7510/MUM/2011 ( ( ( ( ( / ASSESSMENT YEAR : 2008-09 M/S. VISHAL NIRMAN (INDIA) LTD., 6 TH FLOOR, ACKRUTI TRADE CENTRE, ROAD NO. 7, MAROL MIDC, ANDHERI (E), MUMBAI-400 093 / VS. THE DCIT, C.C. 36, MUMBAI ') % ./ *+ ./PAN/GIR NO. : AAACV 4859P ( ), /APPELLANT ) .. ( -.), / RESPONDENT ) ), / / APPELLANT BY: SHRI VIJAY MEHTA -.), 0 / / RESPONDENT BY : SHRI RITESH MISRA 0 12% / DATE OF HEARING : 4.12.2012 34( 0 12% / DATE OF PRONOUNCEMENT :7.12.2012 &5 / O R D E R PER N.K. BILLAIYA, AM: THIS APPEAL BY THE ASSESSEE IS DIRECTED AGAINST THE ORDER OF THE LD. CIT(A)-41, MUMBAI DT.6.9.2011 PERTAINING TO A.Y. 2 008-09. 2. THE ASSESSEE HAS RAISED FOLLOWING 3 SUBSTANTIVE GROUNDS OF APPEAL: 1. THE LD. CIT(A) HAS ERRED IN LAW AND ON FACTS IN UPHOLDING THE ORDER PASSED BY THE AO U/S. 143(3) OF THE I.T. ACT, 1961. ITA NO. 7510/M/2011 2 2. THE LD. CIT(A) HAS ERRED IN LAW AND ON FACTS IN SUSTAINING THE DISALLOWANCE OF RS. 38,82,177/- MADE BY THE AO U/S. 14A OF THE ACT R.W. RULE 8D OF THE I .T. RULES, 1962. 3. THE LD. CIT(A) HAS ERRED IN LAW AND ON FACTS IN SUSTAINING THE LEVY OF INTEREST U/S. 234A, 234B, 23 4C AND 234D OF THE I.T. ACT.: 3. THE SOLE GRIEVANCE OF THE ASSESSEE REVOLVES AROU ND THE ISSUE THAT THE LD. CIT(A) ERRED IN LAW AND ON FACTS IN SUSTAIN ING THE DISALLOWANCE OF RS. 38,82,177/- MADE BY THE AO U/S. 14A READ WITH R ULE 8D OF THE I.T. ACT. 4. DURING THE COURSE OF THE SCRUTINY ASSESSMENT PRO CEEDINGS, THE ASSESSING OFFICER NOTICED THAT THE ASSESSEE HAS SHO WN DIVIDEND INCOME AT RS. 15,92,390/- WHICH HAD CLAIMED TO BE EXEMPTED U/ S. 10(34) OF THE I.T. ACT. THE AO OBSERVED THAT THE ASSESSEE HAS DEBITED INTEREST IN THE PROFIT AND LOSS ACCOUNT AT RS. 15,86,14,657/-. THE ASSESS EE WAS ASKED TO EXPLAIN WHY EXPENSES ATTRIBUTABLE TO THE DIVIDEND I NCOME SHOULD NOT BE DISALLOWED U/S. 14A OF THE ACT. IT WAS EXPLAINED B Y THE ASSESSEE THAT ON THE FACTS OF THE CASE SEC. 14A IS NOT APPLICABLE. THE AO OBSERVED THAT THE ASSESSEE HAS RECEIVED A LOAN OF RS. 170 CRORES ON 19.6.2007 FROM M/S. AKRUTI NIRMAN LTD., AND THE ENTIRE BORROWINGS HAVE BEEN INVESTED FOR EARNING THE EXEMPT INCOME AS UNDER: 1. RS. 80 CRORES IN THE HSBC MUTUAL FUND 2. RS. 90 CRORES IN ICICI PRUDENTIAL MUTUAL FUND 4.1 THE AO CONCLUDED THAT THE INTEREST HAVE BEEN PA ID BY THE ASSESSEE FOR THE PERIOD OF 7 DAYS ON INVESTMENT WHICH FETCHE D THE EXEMPT INCOME AND CALCULATED THE DISALLOWABLE PART AT RS. 38,82,1 77/-. ITA NO. 7510/M/2011 3 5. THE ASSESSEE AGITATED THE MATTER BEFORE THE LD. CIT(A). BEFORE THE LD. CIT(A), THE ASSESSEE EXPLAINED THE TRANSACTION AS UNDER: DURING THE ASSESSMENT YEAR 2008-09 THE APPELLANT HA S PARKED A SUM OF RS.80 CR IN A HSBC CASH FUND - INST ITUTIONAL PLUS - DAILY DIVIDEND SCHEME AND RS.90 CR. IN A. IC ICI PRUDENTIAL LIQUID PLAN - SUPER INSTITUTIONAL GROWTH SCHEME MUTUAL FUND FOR A SHORT PERIOD OF 7 DAYS. THE SAID FUNDS ARE NO T EQUITY ORIENTED MUTUAL FUND AND HENCE THE CAPITAL GIN THER EON IS TAXABLE IN THE HANDS OF THE APPELLANT. THE PARTICULAR SHOWI NG THAT THESE TWO MUTUAL FUNDS WERE NOT AN EQUITY ORIENTED MUTUAL FUND BUT WERE DEBT FUND ARE MARKED AS EXHIBIT 2 AND 2A. AS PER PROVISIONS OF CHAPTER VII OF FINANCE (NO.2) ACT 200 4 ON SALE OF UNIT OF EQUITY ORIENTED FUND SELLER IS REQUIRED TO PAY 0 .25% STT. THIS WOULD IMPLY THAT WHEN STT IS NOT PAYABLE BY SELLER ON SALE. OF MUTUAL FUND; IT WOULD BE A FUND OTHER THAN EQUITY O RIENTED MUTUAL FUND. THE COPY OF THE RELEVANT EXTRACT OF THE CHAPT ER VII IS SUBMITTED. AS PER SECTION 10(38) CAPITAL GAIN ARISI NG ON EQUITY ORIENTED MUTUAL FUND IS EXEMPT FROM TAX, BUT CAPITA L GAIN ON TRANSFER OF MUTUAL FUND OTHER THAN EQUITY ORIENTED MUTUAL FUND IS TAXABLE. THE PROVISIONS OF SECTION 14A CAN BE INVOK ED ONLY IF THE INVESTMENT IS EARNING INCOME WHICH DOES NOT FORM PA RT OF THE TOTAL INCOME UNDER THE INCOME-TAX ACT 6. AFTER CONSIDERING THE FACTS AND SUBMISSIONS MADE BY THE ASSESSEE, THE LD. CIT(A) WAS CONVINCED THAT THE PROVISIONS OF SEC. 14A ARE CLEARLY APPLICABLE AND HELD THAT THE AO HAS RIGHTLY COMPUTE D THE DISALLOWANCE U/S. 14A R.W. RULE 8D OF THE ACT. 7. BEFORE US, THE LD. COUNSEL FOR THE ASSESSEE SUBM ITTED THAT THE LOWER AUTHORITIES HAVE NOT UNDERSTOOD THE FACTS OF THE CASE IN THE RIGHT PERSPECTIVE. TO SUBSTANTIATE HIS CLAIM, THE LD. CO UNSEL EXPLAINED THAT THE ENTIRE INVESTMENT OF RS. 90 CRORES IN ICICI PRUDENT IAL LIQUID PLAN WAS NOT UNDER DIVIDEND SCHEME BUT WAS UNDER GROWTH SCHE ME. THE LD. COUNSEL FURTHER EXPLAINED THAT THE SAID FUND IS NOT EQUITY ORIENTED MUTUAL FUND AND THEREFORE, CAPITAL GAINS ARISING THERE FRO M IS ALWAYS TAXABLE. ITA NO. 7510/M/2011 4 THE LD. COUNSEL CONCLUDED THAT HENCE THERE IS NEITH ER ANY TAX FREE INCOME EARNED NOR THERE IS ANY POTENTIAL THEREOF. THEREFORE, PROVISIONS OF SECTION 14A ARE NOT APPLICABLE TO THE EXPENDITURE O F INVESTMENT OF 90 CRORES IN ICICI PRUDENTIAL LIQUID PLAN. THE LD. CO UNSEL FURTHER POINTED OUT THAT THE ACTUAL INTEREST EXPENDITURE IS RS. 15, 74,00,172/- WHICH IS EVIDENT FROM THE PROFIT AND LOSS ACCOUNT. HOWEVER, THE AO HAS TAKEN AN INCORRECT FIGURE AT RS. 15,86,14,657/-. THUS THE WO RKING OF THE DISALLOWANCE IS BASED ON FACTUALLY INCORRECT FIGURE . THE LD. COUNSEL FURTHER DREW OUR ATTENTION TO GROUND NO. 3 BY WHICH IT HAS QUESTIONED THE VALIDITY OF THE ORDER OF THE LD. CIT(A) WHO SUSTAIN ED THE LEVY OF INTEREST U/S. 234ABC&D OF THE ACT. 8. THE LD. DR STRONGLY RELIED UPON THE ORDERS OF TH E LOWER AUTHORITIES. 9. WE HAVE CAREFULLY CONSIDERED THE RIVAL SUBMISSIO N AND PERUSED THE ORDERS OF THE LOWER AUTHORITIES. WE FIND FORCE IN THE CONTENTION OF THE COUNSEL THAT IF THE INVESTMENT OF RS. 90 CRORES IN THE ICICI PRUDENTIAL LIQUID PLAN GROWTH SCHEME IS NOT UNDER DIVIDEND SCH EME, THEN ANY GAIN ARISING OUT OF THE SALE OF THE SAID UNIT WOULD RESU LT IN CAPITAL GAINS WHICH SUGGESTS THAT PROVISIONS OF SEC. 14A WOULD NOT BE A PPLICABLE. THIS ISSUE REQUIRES FURTHER VERIFICATION AT THE ASSESSMENT STA GE. WE ACCORDINGLY RESTORE THIS ISSUE BACK TO THE FILE OF THE AO. THE AO IS DIRECTED TO VERIFY AND ASCERTAIN THE TRUE NATURE OF THE SCHEME OF ICIC I PRUDENTIAL LIQUID PLAN. THE ASSESSEE IS DIRECTED TO FURNISH ALL NECE SSARY DETAILS/DOCUMENTS TO SUBSTANTIATE HIS CLAIM THAT IT IS NOT EQUITY ORI ENTED MUTUAL FUND. AFTER VERIFYING AND SATISFYING, THE AO MUST DECIDE THE I SSUE OF APPLICABILITY OR OTHERWISE OF SECTION 14A TO THE INVESTMENTS AFTE R GIVING REASONABLE OPPORTUNITY OF BEING HEARD TO THE ASSESSEE. ITA NO. 7510/M/2011 5 10. THE SECOND ISSUE APPEARS TO BE A FACTUAL ERROR. THE AO IS ACCORDINGLY DIRECTED TO VERIFY THE CORRECTNESS OF T HE INTEREST FIGURE AFTER DECIDING THE FIRST ISSUE AS DIRECTED HEREINABOVE. THE DISALLOWANCE OF INTEREST, IF ANY, U/S/ 14A HAS TO BE BASED ON THE A CTUAL FIGURE OF INTEREST CHARGED TO THE PROFIT AND LOSS ACCOUNT OF THE ASSES SEE. THIS ISSUE IS ALSO RESTORED BACK TO THE FILE OF THE AO TO BE DECIDED A FRESH IN THE LIGHT OF THE ABOVE DIRECTIONS AFTER GIVING A REASONABLE OPPORTUN ITY OF BEING HEARD TO THE ASSESSEE. 11. AS THE ISSUE HAS BEEN RESTORED BACK TO THE FILE OF THE ASSESSING OFFICER, THE CHARGING/LEVY OF INTEREST U/S. 234ABC& D WOULD BECOME CONSEQUENTIAL. 12. IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE IS ALLOWED FOR STATISTICAL PURPOSE. 6 17 61 0 8 90 :;< '=1 0 *1 ># ORDER PRONOUNCED IN THE OPEN COURT ON 7.12.2012 . &5 0 4( % 8 ?&7 7.12.2012 4 0 @ SD/- SD/- (H.L. KARWA) (N.K. BILLAIYA) /PRESIDENT % &' / ACCOUNTANT MEMBER MUMBAI; ?& DATED 7.12.2012 . . ./ RJ , SR. PS ITA NO. 7510/M/2011 6 &5 &5 &5 &5 0 00 0 -1! -1! -1! -1! A!(1 A!(1 A!(1 A!(1 / COPY OF THE ORDER FORWARDED TO : 1. ), / THE APPELLANT 2. -.), / THE RESPONDENT. 3. B ( ) / THE CIT(A)- 4. B / CIT 5. !C@ -1 , , / DR, ITAT, MUMBAI 6. @D / GUARD FILE. &5 &5 &5 &5 / BY ORDER, .!1 -1 //TRUE COPY// : :: : / > > > > * * * * (DY./ASSTT. REGISTRAR) , / ITAT, MUMBAI