ACIT 3(2)(1), MUMBAI V. MUKUND GLOBAL FINANCE LTD, MUMBAI

ITA 809/MUM/2017

• Counselvise Citation: [2017] 128 COUNSELVISE.COM (IT) 0802 (ITAT-MUMBAI)
• Duration Of Justice: 3 month(s) 5 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 09-05-2017
• Appeal Filed By: Department
• Bench Allotted: SMC
• Assessment Year: 2012-2013
• Appeal Filed On: 03-02-2017
• Court: TRIBUNAL
• Department Lawyers: A K KARDA M
• Assessee Lawyers: M A GOHEL
• Keywords: Earning of tax free income
• Section: 14A

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL SMC , BENCH MUMBAI BEFORE SHRI R.C.SHARMA, AM ITA NO. 80 9 / MUM/20 1 7 ( ASSESSMENT YEAR : 2012 - 13 ) ACIT 3 (2) (1), MUMBAI VS. M/S. MUKUND GLOBAL FINANCE LTD., 3 RD FLOOR, BAJAJ BHAVAN, 226, JAMNALAL BAJAJ MARG, NARI MAN POINT, MUMBAI 400 021 PAN/GIR NO. AAACM8384N APPELLANT ) .. RESPONDENT ) REVENUE BY SHRI A.K.KARDAM ASSESSEE BY SHRI M.A.GOHEL DATE OF HEARING 09 / 05 /201 7 DATE OF PRONOUNCEME NT 09 / 05 /201 7 / O R D E R PER R.C.SHARMA (A.M) : THIS IS AN APPEAL FILED BY THE REVENUE AGAINST THE ORDER OF CIT(A) - 8, MUMBAI FOR THE A.Y.2012 - 13 IN THE MATTER OF ORDER PASSED U/S.143(3) OF THE IT ACT. 2. THE ONLY GRIEVANCE OF REVENUE RELATES TO DELETING THE DIS ALLOWANCE OF RS.42,15,838/ - U/S.14A OF THE IT ACT. 3. RIVAL CONTENTIONS HAVE BEEN HEARD AND RECORD PERUSED. 4. FACTS IN BRIEF ARE THAT DURING THE COURSE OF ASSESSMENT PROCEEDINGS , THE AO NOTED THAT THE ASSESSEE IS ENGAGED IN THE BUSINESS OF PROVIDING LOANS AND MAKING INVESTMENTS, CORPORATE FINANCE AND CORPORATE ADVISORY SERVICES. THE AO SHOWCAUSED THE ASSESSEE AS TO WHY ITA NO. 809/MUM/2017 M/S.MUKUND GLOBAL FINANCE LTD., 2 DISALLOWANCE U/S 14 R.W.R. 8D SHOULD NOT BE MADE IN ITS CASE. IN RESPONSE THE ASSESSEE VIDE LETTER DATED 27.01.2015 SUBMITTED THE WORKING O F THE DISALLOWANCE U/S 14A R.W .R. 8D AT RS. 42, .89,317/ - . ACCORDINGLY THE AO. DISALLOWED AN AMOUNT OF RS. 42,89,317/ - U/S 14A R.W.R.8D OF THE I.T. RULES. THE A.O HAS ALSO ADDED THIS DISALLOWANCE WHILE COMPUTING BOOK PROFIT U/S.115JB OF THE ACT. 5. BY THE IM PUGNED ORDER, CIT(A) DELETED THE DISALLOWANCE AFTER OBSERVING AS UNDER: - 5.2.3 I FIND THAT THE A.O. HAS GROSSLY MISINTERPRETED THE APPELLANT'S SUBMISSION DATED 27.01.2015 MADE BEFORE HIM DURING THE COURSE OF ASSESSMENT PROCEEDINGS. THE APPELLANT HAS FAIRLY SUBMITTED THE DISALLOWANCE U / S 14A AT RS. 73,479/ - MADE ON THE SCIENTIFIC METHODOLOGY ADOPTED BY IT. I FIND THAT THE A.O. HAS NOT GIVEN ANY JUSTIFICATION FOR REJECTING THE DETAILED AN D SCIENTIFIC METHODOLOGY OF COMPUTING EXPENSES ATTRIBUTABLE TO EARNING O F EXEMPT INCOME AS SUBMITTED BY THE APPELLANT NOR HAS HE GIVEN ANY SPECIFIC REASONS FOR REJECTING THE COMPUTATION OF INDIRECT EXPENSES. IN ORDER TO INVOKE THE PROVISIONS OF RULE 80 OF THE IT RULES, IT IS A PRE - REQUISITE FOR THE A.O. TO VERIFY THE CLAIM O F THE APPELLANT AND RECORD HIS OBJECTIVE SATISFACTION REGARDING THE APPELLANT'S CLAIM OF EXPENSES INCURRED OR NO EXPENDITURE INCURRED IN RELATION TO THE EXEMPT INCOME HAVING REGARD TO THE ACCOUNTS OF THE APPELLANT. A FAR MORE RIGOROUS REJECTION OF THE APPE LLANT'S CONTENTIONS AND METHODOLOGY OF SUO MOTO DISALLOWANCE WAS REQUIRED FROM THE A.O., IN ABSENCE OF WHICH RULE 8D COULD NOT BE INVOKED IN A MECHANICAL AND AUTOMATIC MANNER. THIS VIEW ALSO FINDS SUPPORT IN FOLLOWING JUDICIAL PRONOUNCEMENTS: GODREJ & BOYCE MFG.CO. LTD VS. DCIT [2010] 234 CTR 001 (BOM); MAXOPP INVESTMENT LTD VS. CIT [2011] 203 TAXMAN 364/247 CTR 162 (DELHI HC); CIT VS. I.P. SUPPORT SERVICES INDIA (P) LTD. (ITA 283/2014) (DELHI HC); CIT VS. TAIKISHA ENGINEERING INDIA LIMITED 3 70 ITR 338 (DEL); CIT VS. ABHISHEK INDUSTRIES LTD. ([2015] 231 TAXMAN 85) (PUNJAB & HARYANA) AUCHTEL PRODUCTS LTD (_JTA NO. 3183,2649 & 3185/MUM/2011) (ORDER DATED 30 APRIL 2012); DCIT VS. JINDAL PHOTO LTD (2011 - TIOL - 653 - ITAT - DEL); REI AGRO L TD. V. DCIT [2013] 144 ITD 141 (KOL); ACIT V. MAGARPATTA TOWNSHIP DEVELOPMENT & CONSTRUCTION CO. LTD ITA NO. 809/MUM/2017 M/S.MUKUND GLOBAL FINANCE LTD., 3 [2015] 152 ITD 469 (PUNE); FALI S NARIMAN VS. ADDNL. CIT [2015] 68 SOT 134 (MUM. ITAT) ACIT VS. PAWAN KUMAR JHUNJHUNWALA [2016] 66 TAXMANN.COM 1 3 (KOL. ITAT) DAMODAR VALLEY CORPORATION VS. CIT [2016] 66 TAXMANN.COM 25 (KOL. ITAT) CIT VS. OM PRAKASH KHAITAN [2015] 376 ITR 390 (DELHI) DCIT V. SUBRAMANYA CONSTRUCTIONS & DEVELOPMENT CO. LTD. (ITA NO. 404/2013); AND JM FINANCIAL LIMITED VS. ACIT (I.T.A NO. 4521/MUM/2012 5.2.4 THE A.O. HAS NOT CHALLENGED OR DISPUTED THE FACT THAT THE APPELLANT'S FUND IN TERM OF SHARE CAPITAL AND RESERVE & SURPLUS IS RS. 39.32 CRORES WHICH ARE WAY ABOVE THE INVESTMENTS OF RS. 19.84 CRORES. 5.2.5 IN DECI DING THE ISSUE IN THE INSTANT CASE, I PLACE RELIANCE ON THE FOLLOWING DECISIONS OF JURISDICTIONAL COURTS: I N PUKHRAJ CHUNILAL BAFNAV. DY. CIT [2014] 65 SOT 187/47 TAX MANN.COM 288 (MUM. - TRIB.) IT WAS HELD THAT THE ASSESSING OFFICER TO TRIGGER RULE 80 HAD NOT TO BE SATISFIED WITH THE CORRECTNESS OF CLAIM OF THE ASSESSEE AS REGARDS EXPENDITURE IN RELATION TO EXEMPT INCOME. HENCE, WITHOUT EXAMINING THE NATURE OF EXPENDITURE DISALLOWED BY THE ASSESSEE OR CORRECTNESS OF ALLOWANCE/DISALLOWANCE, THE ASSESSING OFFICER COULD NOT INVOKE RULE 8D . HON'BLE BOMBAY HIGH COURT IN THE CASE OF CIT V. RELIANCE UTILITIES AND POWER LTD. 313 ITR 340, WHEREIN IT HAS BEEN HELD AS UNDER: 'IF THERE BE INTEREST FREE FUNDS AVAILABLE TO AN ASSESSEE SUFFICIENT TO MEET ITS INV ESTMENTS AND AT THE SAME TIME THE ASSESSEE HAD RAISED A LOAN IT CAN BE PRESUMED THAT THE INVESTMENTS WERE FROM THE INTEREST FREE FUNDS AVAILABLE' M/S. FOOD LINK SERVICES (I) PVT. LTD. V. DCIT ITA NOS. 4620/MUM./2011 AND 7284LMUM/2011 OF HON'BLE MUMBAI ITAT WHICH FOLLOWED THE DECISION OF THE HON'BLE BOMBAY HIGH COURT IN THE CASE OF CIT V. RELIANCE UTILITIES AND POWER LTD. 313 ITR 340, WHEREIN IT WAS HELD THAT WHERE ASSESSEE HAD SUFFICIENT INTEREST FREE FUNDS TO MEET ITS TAX FREE INVESTMENTS YIELDING E XEMPT INCOME, IT COULD BE PRESUMED THAT SUCH INVESTMENTS WERE MADE FROM INT E REST FREE FUNDS AND NOT LOANED FUNDS AND, THUS NO DISALLOWANCE UNDER SECTION 14A BEING WARRANTED. ITA NO. 809/MUM/2017 M/S.MUKUND GLOBAL FINANCE LTD., 4 5.2.6 THEREFORE, IN VIEW OF THE FACTS AND CIRCUMSTANCES OF THE CASE AND THE RATIO OF VARIOUS JUDICIAL PRONOUNCEMENTS AS MENTIONED ABOVE, THE ASSESSING OFFICER IS DIRECTED TO ACCEPT SUO MOTO DISALLOWANCE OF RS. 73,479/ - MADE BY THE APPELLANT UNDER SECTION 14A AND THE BALANCE DISALLOWANCE IS DELETED. THIS GROUND OF APPEAL IS, THERE FORE, ALLOWED. 6. REVENUE IS IN FURTHER APPEAL BEFORE US. 7. I HAVE CONSIDERED RIVAL CONTENTIONS AND FOUND THAT DISALLOWANCE OF INTEREST WAS DELETED BY CIT(A) AFTER RECORDING A FINDING TO THE EFFECT THAT ASSESSEES FUND S IN THE FORM OF SHARE CAPITAL AND RESERVES AND SURPLUS WAS RS.39.32 CRORES WHICH WAS MORE THAN THE INVESTMENT OF RS.19.84 CRORES. WITH REGARD TO THE DISALLOWANCE OF OTHER EXPENDITURE, THE CIT(A) AFTER RELYING ON THE DECISION OF HONBLE BOMBAY HIGH COURT AND MUMBAI TRIBUNAL HELD THAT NOTHIN G WAS POINTED OUT BY THE AO WITH REGARD TO THE CORRECTNESS OF THE CLAIM OF ASSESSEE AS REGARD TO THE EXPENDITURE IN RELATION TO EXEMPT INCOME. ACCORDINGLY, DISALLOWANCE WAS RESTRICTED TO RS.73,479/ - . DETAILED FINDING RECORDED BY CIT(A) ARE AS PER MATERIAL ON RECORD WHICH HAS NOT BEEN CONTROVERTED BY THE DEPARTMENT. ACCORDINGLY, I DO NOT FIND ANY REASON TO INTERFERE IN THE ORDER OF CIT(A). 8 . IN THE RESULT, APPEAL OF THE REVENUE IS DISMISSED. O RDER PRONOUNCED IN THE OPEN COURT ON THIS 09 / 05 /20 17 S D/ - ( R.C.SHARMA ) ACCOUNTANT MEMBER MUMBAI ; DATED 15 / 05 /201 7 KARUNA SR. PS ITA NO. 809/MUM/2017 M/S.MUKUND GLOBAL FINANCE LTD., 5 COPY OF THE ORDER FORWARDED TO : BY ORDER, ( ASSTT. REGISTRAR) ITAT, MUMBAI 1. THE APPELLANT 2. THE RESPONDENT. 3. THE CIT(A), MUMBAI. 4. CIT 5. DR, ITAT, MUMBAI 6. GUARD FILE. //TRUE COPY//