OLIVE BAR & KITCHEN P.LTD, MUMBAI V. DCIT 13(1)(1), MUMBAI

ITA 7566/MUM/2016

• Counselvise Citation: [2018] 126 COUNSELVISE.COM (IT) 0573 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 1 month(s) 15 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 07-02-2018
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: Not Allotted
• Assessment Year: 2012-2013
• Appeal Filed On: 23-12-2016
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: MAHESH O RAJORA
• Assessee Lawyers: M C OMI NINGSHEN
• Keywords: Earning of tax free income
• Section: 143(3); 142(1); 14A; 115JB

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCHES H , MUMBAI BEFORE S HRI R.C. SHARMA (AM) AND SHRI RAM LAL NEGI (JM) ITA NO. 7566 /MUM/2016 ASSESSMENT YEAR: 2012 - 13 M/S OLIVE BAR & KITCHEN PVT. LTD., 14 TH PALI HILL TOURIST HOTEL, KHAR WEST, MUMBAI 4 00052 PAN: AAACO5346G VS. THE DY. COMMISSIONER OF INCOME TAX 13(1)(1), MUMBAI (APPELLANT) (RESPONDENT) REVENUE BY : SHRI MAHESH O. RAJORA (A R) ASSESSEE BY : SHRI M.C. OMI NINGSHEN (D R) DATE OF HEARING: 08 / 11 /201 7 DATE OF PRONOUNCEMENT: 07 / 02 /201 8 O R D E R PER RAM LAL NEGI, JM THIS APPEAL HAS BEEN FILED BY THE ASSESSEE AGAINST THE ORDER DATED 28/10/2016 PASSED BY THE COMMISSIONER OF INCOME TAX (APPEALS) - 21 , MUMBAI , FOR THE A S S ESSMENT YEAR 2012 - 13 , WHEREBY THE LD. CIT (A) HAS DISMISSED THE APPEAL FILED BY THE ASSESSEE AGAINST ASSESSMENT ORDER PASSED U/S 143(3) OF THE INCOME TAX ACT, 1961 (FOR SHORT THE A CT). 2. THE BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE FILED ITS RET URN OF INCOME FOR THE ASSESSMENT YEAR UNDER CONSIDERATION DECLARING THE TOTAL INCOME OF RS. 3,05,37,400/ - . THE RETURN WAS PROCESSED U/S 143(1) OF THE ACT. SINCE THE CASE WAS SELECTED FOR SCRUTINY NOTICE U/S 143 (2) AND 142(1) WERE ISSUED AND IN RESPONSE TO THE SAID NOTICES THE AUTHORIZED REPRESENTATIVE APPEARED BEFORE THE AO FROM TIME TO TIME AND FILED DETAILS CALLED FOR. IT WAS NOTICED THAT ASSESSEE HAD MADE INVESTMENT S TO THE TUNE OF RS. 5,33,88,587/ - AND EARNED DIVIDEND INCOME OF RS. 83,305/ - AND INTERES T INCOME OF RS. 84,759/ - . SINCE, T HE 2 ITA NO. 7 566 / MUM/2016 ASSESSMENT YEAR: 2012 - 13 ASSESSEE HAD CLAIMED EXEMPTION IN THE COMPUTATION OF TOTAL INCOME , AO THE ASSESSEE TO FURNISH THE WORKING OF DISALLOWANCE AND FURTHER ASKED TO SHOW CAUSE AS TO WHY THE DISALLOWANCE U/S 14A OF THE ACT SHOULD NOT BE MADE. THE ASSESSEE SUBMITTED THAT THE INVESTMENT S MADE ARE STRATEGIC INVESTMENT FOR THE PURPOSE OF ACQUIRING CONTROL AND NOT FOR THE PURPOSE OF EARNING DIVIDEND INCOME AND SINCE, NO INVESTMENT WAS MADE DURING THE RELEVANT ASSESSMENT YEAR NO DISALLOWANCE IS REQU IRED TO BE MADE U/S 14A OF THE ACT. HOWEVER, THE AO REJECTING THE CONTENTION OF THE ASSESSEE WORKED OUT THE DISALLOWANCE U/S 14A OF THE ACT AT RS. 2,68,943/ - . 3. AGGRIEVED BY THE ASSESSMENT ORDER, THE ASSESSEE CHALLENGED THE SAME BEFORE THE LD. CIT (A). THE LD. CIT (A) AFTER HEARING THE ASSESSEE CONFIRMED THE ADDITION MADE BY THE AO AND DISMISS ED THE APPEAL OF THE ASSESSEE. AGAINST THE SAID ORDER, THE ASSESSEE IS IN APPEAL BEFORE THIS TRIBUNAL. 4 . T HE ASSESSEE HAS PREFERRED THIS APPEAL BY RAISING THE F OLLOWING EFFECTIVE GROUND S : - 1. (A) THE COMMISSIONER OF INCOME TAX (APPEALS) - 21, MUMBAI (HEREINAFTER REFERRED TO AS THE CIT (A)) ERRED IN CONFIRMING THE DISALLOWANCE OF RS. 2,68,943/ - U/S 14A OF THE I.T. ACT R.W.R. 8D OF THE I.T. RULE AS ATTRIBUTABLE TO I NVESTMENTS ACTIVITY GIVING RISE TO THE EXEMPTED INCOME . THE APPELLANT SUBMITS THAT IT HAS MADE THE STRATEGIC INVESTMENT IN SHARES OF ITS SUBSIDIARY FOR ACQUIRING CONTROLLING INTEREST. THE APPELLANT FURTHER SUBMITS THAT IT HAS NOT INCURRED ANY EXPENDITURE ATTRIBUTABLE TO INVESTMENT ACTIVITY GIVING RISE TO THE EXEMPTED INCOME AND HENCE NO DISALLOWANCE U/S 14A OF THE ACT IS CALLED FOR. 1. (B) THE CIT (A) ERRED IN CONFIRMING THE ACTION OF AO IN INVOKING RULE 8D OF THE I.T. RULES FOR COMPUTING DISALLOWANCE U/S 14 A OF THE 3 ITA NO. 7 566 / MUM/2016 ASSESSMENT YEAR: 2012 - 13 I.T. ACT WITHOUT RECORDING DIS - SATISFACTION WITH RESPECT TO ACCOUNTS OF THE APPELLANT. (C) THE CIT (A) ERRED IN NOT CONFIRMING THE DISALLOWANCE OF RS. 2,68,943/ - U/S 14A R.W.R. 8D OF THE ACT WITHOUT APPRECIATING THE FACT THAT THE DIVIDEND EARNED BY APPELLANT IS ONLY RS. 83,305 AND HENCE DISALLOWANCE SHALL BE RESTRICTED TO THE EXTENT OF DIVIDEND RECEIVED. 2. THE CIT (A) ERRED IN CONFIRMING THE ADDITION OF EXPENDITURE OF RS. 2,68,943/ - AS ATTRIBUTABLE TO EARNING OF EXEMPTED INCOME WHILE CALCULATING BO OK PROFIT U/S 115JB OF THE I.T. ACT. 5. BEFORE US, THE LD. COUNSEL FOR THE ASSESSEE SUBMITTED THAT THE ASSESSEE HA D MADE INVESTMENTS IN SHARES OF SUBSIDIARIES COMPANIES ACQUIRING CONTROL AND NOT FOR THE PURPOSES OF EARNING DIVIDEND INCOME , PROVISIONS OF SECTION 14A ARE NOT APPLICABLE IN THE ASSESSEES CASE . THE LD. COUNSEL FURTHER SUBMITTED THAT THE INVESTMENTS WERE MADE DURING THE EARLIER YEARS, HOWEVER, NO DISALLOWANCE WAS MADE BY THE AO IN SCRUTINY ASSESSMENT S U/S 143 (3) OF THE ACT PERTAINING TO THE A SSESSMENT YEAR, 2009 - 10 AND 2010 - 11. A LTERNATIVE LY , THE LD. COUNSEL SUBMITTED THAT THE APPELLANT HAS EARNED DIVIDEND INCOME ONLY ON SHARES OF SOUL FRY BAR AND KITCHEN PVT. LTD. AND MOVING KITCHEN PVT. LTD. , THE REFORE, THE DI SALLOWANCE MADE UNDER RULE 8D (I II ) SHOULD HAVE BEEN MADE ON AVERAGE INVESTMENTS OF ABOVE SHARES ON WHICH DIVIDEND INCOME WAS RECEIVED DURING THE ASSESSMENT YEAR . THE LD. COUNSEL FURTHER RELYING ON THE DECISION S IN THE CASE OF ACB INDIA LTD. VS. ACIT (374 ITR 108), DELHI, M/S UMA POLYMER S LTD. VS. DCIT AND VICE - VERSA, ITA NO. 3329/MUM/2015 AND OTHERS (MUMBAI ITAT) AND DELHI SPECIAL BENCH DECISION IN THE CASE OF AICT VS. VIREET INVESTMENTS PVT. LTD. 154 DTR (DEL) SPECIAL BENCH, 241 , SUBMITTED THAT AS PER 4 ITA NO. 7 566 / MUM/2016 ASSESSMENT YEAR: 2012 - 13 THE AFORESAID DECISIONS, DIS ALLOWAN CE U/S 14A CANNOT EXCEED THE EXEMPT INCOME . THE LD. COUNSEL FURTHER SUBMITTED THAT THE IMPUGNED ORDER IS CONTRARY TO THE FINDINGS OF THE HONBLE DELHI HIGH COURT RENDERED IN THE CASE OF JOINT INVESTMENTS PVT. LTD. VS. CIT 372 ITR 694 (DELHI), IN WHICH IT H AS BEEN HELD THAT DISALLOWANCE U/S 14A CANNOT EXCEED THE EXEMPT INCOME. THEREFORE, THE LD. CIT(A) HAS WRONGLY CONFIRMED THE ADDITION MADE BY THE AO. 6. ON THE OTHER HAND, THE LD. DEPARTMENTAL REPRESENTATIVE RELYING ON THE ORDER PASSED BY THE LD. CIT(A), S UBMITTED THAT SINCE THE ADDITION HAS BEEN MADE IN AC CORDANCE WITH THE PROVISIONS OF LAW, THERE IS NO MERIT IN THE APPEAL OF THE ASSESSEE. 7. WE HAVE HEARD THE RIVAL SUBMISSIONS AND CAREFULLY GONE THROUGH THE ORDERS PASSED BY THE AUTHORITIES BELOW AS WELL AS THE CASES RELIED UPON BY THE ASSESSEE. THE ONLY ISSUE RAISED BY THE APPELLANT ASSESSEE IS THAT THE LD. CIT(A) HAS WRONGLY CONFIRMED THE ADDITION MADE BY THE AO U/S 14A READ WITH RULE 8D THE INCOME TAX RULES . WE NOTICE THAT THE AO HAS COMPUTED DISALLOWA NCE @0.5% OF THE OPENING AND CLOSING BALANCE OF RS. 5,37,88,577/ - IGNORING THE FACT THAT THE INVESTMENTS WERE MADE IN THE EARLIER YEARS AND NO FRESH INVESTMENT WAS MADE DURING THE ASSESSMENT YEAR UNDER CONSIDERATION. T HE LD. COUNSEL HAS ALTERNATELY SUBMITT ED THAT THE ASSESSEE HAS EARNED DIVIDEND INCOME ONLY ON SHARES OF SOUL FRY BAR AND KITCHEN PVT. LTD. AND MOVING KITCHEN PVT. LTD., THEREFORE, THE DISALLOWANCE UNDER RULE 8D (III) OF THE INCOME TAX RULES CAN BE MADE ON AVERAGE INVESTMENT OF ABOVE SHARES ON WHICH DIVIDEND INCOME WAS RECEIVED DURING THE YEAR. IN THE CA SE OF JOINT INVESTMENTS PVT. LTD. VS. CIT (SUPRA) , I T HAS BEEN HELD BY THE HONBLE DELHI HIGH COURT THAT DISALLOWANCE U/S 14A CANNOT EXCEED THE EXEMPT INCOME. IN THE CASE OF AICT VS. VIREET INVES TMENT PVT. LTD. (SUPRA.) THE HONBLE DELHI COURT HAS HELD THAT PROVISIONS OF SECTI ON 14A DO NOT APPLY IN COMPUTATION OF BOOK PROFIT U/S 115JB 5 ITA NO. 7 566 / MUM/2016 ASSESSMENT YEAR: 2012 - 13 OF THE ACT. HOWEVER, WE FIND THAT THE AO HAS MADE DISALLOWANCE IN QUESTION WITHOUT TAKING INTO CONSIDERATION, THE POINTS RAISED BY THE ASSESSEE IN THE LIGHT OF THE JUDGMENTS DISCUSSED IN THE FOREGOING PARA . THEREFORE , IN OUR CONSIDERED OPINION, THE LD. CIT (A) HAS WRONGLY CONFIRMED THE DISALLOWANCE MADE BY THE AO . WE ACCORDINGLY SET ASIDE THE IMPUGNED ORDER AND RESTOR E THE ISSUE TO THE FILE OF AO TO DECIDE THE ISSUE AFRESH IN THE LIGHT OF THE DECISION OF THE HONBLE DELHI HIGH COURT RENDERED IN JOINT INVESTMENTS PVT. LTD. VS. CIT (SUPRA) AFTER HEARING THE ASSESSEE. HOWEVER, THE AO IS AT LIBERTY TO VERIFY THE FACTS PRES ENTED BEFORE THE T RIBUNAL WHILE PASSING SUCH ORDER. IN THE RESULT, APPEAL FILED BY THE ASSESSEE FOR A SSESSMENT YEAR 2012 - 2013 IS ALLOWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED IN THE OPEN COURT ON 7 TH FEBRUARY, 2018 . SD/ - S D/ - ( R.C. SHARMA ) ( RAM LAL NEGI ) ACCOUNTANT MEMBER JUDICIAL MEMBER MUMBAI ; DATED: 07 / 02 / 201 8 ALINDRA, PS / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT 2. / THE RESPONDENT. 3. ( ) / THE CIT(A ) - 4. / CIT 5. , , / DR, ITAT, MUMBAI 6. / GUARD FILE . 6 ITA NO. 7 566 / MUM/2016 ASSESSMENT YEAR: 2012 - 13 / BY ORDER, //TRUE COPY// / (DY./ASSTT. REGISTRAR) , / ITAT, MUMBAI