ALOK INFRASTRUCTURE LTD, MUMBAI V. ADDL CIT RG 6(1), MUMBAI

ITA 818/MUM/2012

• Counselvise Citation: [2016] 132 COUNSELVISE.COM (IT) 2322 (ITAT-MUMBAI)
• Duration Of Justice: 4 year(s) 5 month(s) 22 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 29-07-2016
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: A
• Next Hearing Date: 27-07-2015
• Assessment Year: 2008-2009
• Appeal Filed On: 07-02-2012
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Earning of tax free income; Proportionate interest
• Section: 143(3); 14A; 154

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH A, MUMBAI BEFORE SHRI G.S.PANNU, ACCOUNTANT MEMBER AND SHRI SANJAY GARG, JUDICIAL MEMBER. ITA NO. 818 /MUM/2012 (ASSESSMENT YEAR : 2008-09) ALOK INFRASTRUCTURE LIMITED, 2, GROUND FLOOR, PENINSULA TOWERS, PENINSULA CORPORATE PARK, G.K.MARG, LOWER PAREL, MUMBAI 400013 PAN:AAGCA 1949P ... APPELLAN T VS. THE ACIT, RANGE 6(1), AAYKAR BHAVAN, MK ROAD, MUMBAI 400 020 .... RESPONDENT ITA NO.1651/MUM/2012 (ASSESSMENT YEAR 2008-09) THE ACIT, RANGE 6(1), AAYKAR BHAVAN, MK ROAD, MUMBAI 400 020 ...... APPELLANT VS. ALOK INFRASTRUCTURE LIMITED, 2, GROUND FLOOR, PENINSULA TOWERS, PENINSULA CORPORATE PARK, G.K.MARG, LOWER PAREL, MUMBAI 400013 ........ RESPONDENT ASSESSEE BY : S/SHRI M.P.LOHIA & NIKHIL T IWARI REVENUE BY : SHRI JAVED AKHTAR DATE OF HEARING : 22/07/2016 DATE OF PRONOUNCEMENT : 29/07/2016 2 ITA NO. 818& 1651 /MUM/2012 (ASSESSMENT YEAR : 2008-09) ORDER PER G.S.PANNU, A.M:- THE CAPTIONED CROSS-APPEALS FILED BY THE ASSESSE E AND REVENUE PERTAINING TO A.Y. 2008-09 ARE DIRECTED AGAINST AN ORDER PASSED BY LD. CIT(A)-14, MUMBAI DATED 27/12/2011, WHICH IN TURN A RISES OUT OF AN ORDER PASSED BY THE ASSESSING OFFICER UNDER SECTION 143(3) OF THE INCOME TAX ACT, 1961 (IN SHORT THE ACT) DATED 18 /03/2010. THE GROUNDS OF APPEAL RAISED BY THE ASSESSEE AS WELL AS THE REVENUE READ AS UNDER:- ASSESSEES GROUNDS OF APPEAL: ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS)- 14 (CIT(A)): DISALLOWANCE UNDER SECTION 14A OF RS 33,93,829/- 1. ERRED IN CONFIRMING DISALLOWANCE UNDER SECTION 14A OF THE INCOME-TAX ACT, 1961 ('THE ACT') OF RS 33,93,8291- BY INVOKING PROV ISIONS OF RULE 8D, WITHOUT APPRECIATING THAT NO EXPENSES HAVE BEEN INCURRED FO R EARNING EXEMPT INCOME AND EXPENSES WERE INCURRED ONLY IN RELATION TO THE APPELLANT'S BUSINESS OF CONSTRUCTION AND REAL ESTATE DEVELOPMEN T; 2. FAILED TO APPRECIATE THAT THE PROVISIONS OF SUB RULES (2) AND (3) OF RULE 8D OF THE RULES READ WITH SECTION 14A(2) OF THE ACT CA NNOT BE INVOKED, IN ABSENCE OF ANY SATISFACTION BY THE LEARNED ASSESSIN G OFFICER UNDER SECTION 14A(1) OF THE ACT READ WITH RULE 8D(1) OF THE RULES ; 3. WITHOUT PREJUDICE TO THE ABOVE, SHOULD HAVE APPR ECIATED THAT ONLY THE INVESTMENTS ON WHICH EXEMPT INCOME IS EARNED DURING THE YEAR, SHOULD BE CONSIDERED WHILE COMPUTING DISALLOWANCE UNDER RULE 8D; 4. WITHOUT PREJUDICE TO THE ABOVE, SHOULD BE DIREC TED TO RESTRICT THE DISALLOWANCE TO A NOMINAL AMOUNT AS NO DIVIDEND WAS EARNED DURING THE YEAR AND NO FURTHER ACTIVITIES WERE DONE IN RESPECT OF INVESTMENTS MADE. REVENUES GROUNDS OF APPEAL:- 1 . ' ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT(A) ERRED IN DELETING THE ADDITION OF RS. 53,07, 2601- MADE U/S. 36(1)(III) OF 3 ITA NO. 818& 1651 /MUM/2012 (ASSESSMENT YEAR : 2008-09) THE ACT WITHOUT APPRECIATING THE FACTS THAT BORROWE D FUNDS WERE UTILIZED FOR THE PURPOSE OF INVESTMENT AS ADMITTED BY THE ASSESS EE ITSELF' 2. 'ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE AND IN LAW, THE LD. CIT(A) ERRED IN NOT APPRECIATING THE FACT THAT THE BORROWED FUNDS WERE UTILIZED FOR THE PURPOSE OF NON-BUSINESS PURPOSES A ND ALSO THE ASSESSEE COULD NOT PROVE BEFORE THE ASSESSING OFFICER THAT THE INV ESTMENT WAS MADE OUT OF OWN FUNDS.' 3 'THE APPELLANT PRAYS THAT THE ORDER OF CIT(A) ON THE ABOVE GROUNDS BE SET ASIDE AND THAT OF THE ASSESSING OFFICER BE RESTORED '. 2. THE ASSESSEE IS A COMPANY INCORPORATED UNDER T HE PROVISIONS OF THE COMPANIES ACT, 1956, AND IS, INTER-ALIA, ENGAGE D IN THE BUSINESS OF CONSTRUCTION ACTIVITY. FOR ASSESSMENT YEAR 2008-09 , IT FILED RETURN OF INCOME DECLARING A TOTAL INCOME OF RS.3,15,64,466/- , WHICH WAS SUBJECT TO SCRUTINY ASSESSMENT WHEREBY, THE TOTAL INCOME HA S BEEN ASSESSED AT RS.4,24,98,864/-, AFTER MAKING DISALLOWANCES OUT O F INTEREST/FINANCE CHARGES AND UNDER SECTION 14A OF THE ACT. IN AN AP PEAL PREFERRED BY THE ASSESSEE, THE CIT(A) HAS ALLOWED PART RELIEF, THER EFORE, THE ASSESSEE AND THE REVENUE ARE IN APPEAL CHALLENGING THE ORDER OF THE CIT(A) ON RESPECTIVE GROUNDS OF APPEAL. 3. IN SO FAR AS THE ASSESSEES APPEAL IS CONCERNED, ALTHOUGH MULTIPLE GROUNDS HAVE BEEN RAISED, BUT THE SOLITARY GRIEVANC E IS WITH REGARD TO THE ACTION OF THE CIT(A) IN SUSTAINING THE DISALLOW ANCE OF RS.33,93,829/- UNDER SECTION 14A OF THE ACT . 3.1 IN THIS REGARD, BRIEF FACTS ARE THAT THE ASSESS ING OFFICER NOTED THAT ASSESSEE HAD INVESTED IN SHARES, WHICH WOULD YIELD EXEMPT INCOME AND, THEREFORE, ACCORDING TO HIM THE DISALLOWANCE U NDER SECTION 14A OF THE ACT WAS MERITED. ACCORDINGLY, HE WORKED OUT TH E DISALLOWANCE UNDER SECTION 14A BY APPLYING THE FORMULA CONTAINED IN RULE 8D(2)(III) 4 ITA NO. 818& 1651 /MUM/2012 (ASSESSMENT YEAR : 2008-09) OF THE INCOME TAX RULES, 1962 ( IN SHORT THE RULES ) ON ACCOUNT OF INDIRECT EXPENSES AMOUNTING TO RS. RS.33,93,829/- 4. IN APPEAL BEFORE THE CIT(A), THE ASSESSEE COMPAN Y MADE VARIED SUBMISSIONS, NAMELY, THAT NO PART OF EXPENSES WAS I NCURRED IN RELATION TO EARNING OF EXEMPT INCOME; THAT EXPENSES WERE INCURRED ONLY IN RELATION TO ITS CONSTRUCTION AND REAL ESTATE BUSINE SS; THAT THE INVESTMENTS WERE IN THE SHARES OF A PRIVATE LIMITE D COMPANY, WHERE OF THE GAIN ON SALE OF SUCH SHARES WOULD RESULT IN TAX ABLE INCOME; THAT IN ANY CASE, INVESTMENTS WERE IN SUBSIDIARY CONCERNS, WHICH WERE STRATEGIC INVESTMENTS FOR BUSINESS PURPOSES; AND, THAT NO EXE MPT INCOME BY WAY OF DIVIDENDS WAS EARNED DURING THE YEAR UNDER CONS IDERATION. ALL THE AFORESAID REASONS WERE CANVASSED BY THE ASSESSEE TO SUPPORT ITS ASSERTION THAT DISALLOWANCE UNDER SECTION 14A WAS N OT MERITED. HOWEVER, THE CIT(A) SUSTAINED THE DISALLOWANCE ON T HE GROUND THAT APPLICATION OF RULE 8D OF THE RULES WAS MANDATORY W .E.F. ASSESSMENT YEAR 2008-09. AGAINST SUCH A DECISION, ASSESSEE IS IN FURTHER APPEAL BEFORE US. 5. BEFORE US, LD. REPRESENTATIVE FOR THE ASSESSEE H AS REITERATED ALL THE SUBMISSIONS WHICH WERE CANVASSED BEFORE THE CIT (A). 6. ON THE OTHER HAND, THE LD. DEPARTMENTAL REPRESEN TATIVE HAS DEFENDED THE ORDERS OF THE AUTHORITIES BELOW BY PLA CING RELIANCE ON THE SAME. 7. WE HAVE CAREFULLY CONSIDERED THE RIVAL SUBMISSIO NS. PERTINENTLY, IN THIS CASE, THE PRIMARY PLEA OF THE ASSESSEE HAS BEEN THAT DURING THE YEAR UNDER CONSIDERATION, IT HAS NOT EARNED ANY EX EMPT INCOME IN 5 ITA NO. 818& 1651 /MUM/2012 (ASSESSMENT YEAR : 2008-09) ORDER TO INVOKE THE PROVISIONS OF SECTION 14A OF TH E ACT. IN THIS CONTEXT, THE LD. REPRESENTATIVE FOR THE ASSESSEE HAS PLACED RELIANCE ON THE JUDGMENT OF THE HON'BLE BOMBAY HIGH COURT IN THE CA SE OF CIT VS. DELITE ENTERPRISES, ITA NO.110 OF 2009 DATED 26/02/ 2009, WHEREIN NON-APPLICATION OF SECTION 14A HAS BEEN UPHELD IN T HE ABSENCE OF ANY EXEMPT INCOME FOR THE RELEVANT ASSESSMENT YEAR. THE LD. REPRESENTATIVE FOR THE ASSESSEE ALSO RELIED UPON TH E JUDGMENT OF THE HONBLE DELHI HIGH COURT IN THE CASE OF CIT VS. HOLCIM INDIA P. LTD. IN ITA NO.486/2014 & ITA 299/2014 DATED 05/09/2014, W HEREIN ALSO SIMILAR PROPOSITION HAS BEEN UPHELD. ON THE AFORES AID PRIMARY POINT ITSELF, WE FIND NO REASON TO UPHOLD THE IMPUGNED D ISALLOWANCE MADE BY THE INCOME TAX AUTHORITIES BY INVOKING SECTION 14A OF THE ACT. ACCORDINGLY, THE DISALLOWANCE OF RS.33,93,829/- SUS TAINED BY THE CIT(A) IS HEREBY DIRECTED TO BE DELETED. THUS, ON THIS AS PECT, ASSESSEE SUCCEEDS. 8. IN THE RESULT, APPEAL OF THE ASSESSEE IS ALLOWED . 9. IN SO FAR AS CROSS APPEAL OF THE REVENUE IS CON CERNED, THE SOLITARY ISSUE RELATES TO ACTION OF THE CIT(A) IN DELETING A N ADDITION OF RS.53,07,260/-, WHICH WAS MADE BY THE ASSESSING OFF ICER BY INVOKING THE PROVISIONS OF SECTION 36(1)(III) OF THE ACT. 9.1 IN THIS CONTEXT, RELEVANT FACTS ARE THAT THE AS SESSING OFFICER NOTICED THAT ASSESSEE COMPANY HAD INCURRED INTEREST EXPENDITURE OF RS.1,66,32,240/- ON BORROWINGS OF RS.43.00 CRORES R AISED FROM L&T INFRASTRUCTURE FINANCE COMPANY LTD. THE ASSESSING OFFICER ALSO NOTED THAT DURING THE YEAR UNDER CONSIDERATION ASSESSEE H AD MADE INVESTMENTS OF RS.135.00 CRORES IN SHARES, WHICH WA S CLAIMED TO HAVE 6 ITA NO. 818& 1651 /MUM/2012 (ASSESSMENT YEAR : 2008-09) BEEN MADE OUT OF OWN NON-INTEREST BEARING FUNDS. THE ASSESSING OFFICER HAS NOTED IN THE ASSESSMENT ORDER THAT ON B EING ASKED TO FURNISH ANY NEXUS BETWEEN THE FUNDS UTILIZED AND IN VESTMENTS, THE ASSESSEE FAILED TO DO SO. THE ASSESSING OFFICER FU RTHER NOTICED THAT AFTER RAISING OF BORROWED FUNDS FROM L&T INFRASTRUCTURE FINANCE COMPANY LTD. ON 8/01/2008, ASSESSEE HAD MADE TWO INVESTMENT S NAMELY,(I) ALSPON INFRASTRUCTURE- RS.10,60,00,000 ON 25,26,27 /3/2008; AND (II)ASHFORD INFOTECH (P) LTD.- RS. 50.00 CRORES ON 25/02/2008. THE ASSESSING OFFICER WORKED OUT PROPORTIONATE INTEREST ON SUCH INVESTMENTS AND MADE A TOTAL DISALLOWANCE OF RS.69, 50,569/- OUT OF INTEREST EXPENDITURE UNDER SECTION. 36(1)(III) OF T HE ACT. A SUM OF RS.6,93,624/- RELATED TO INVESTMENT MADE IN ALSPO N INFRASTRUCTURE AND RS.62,56,945/- FOR INVESTMENT IN ASHFORD INFOTECH(P ) LTD. SUBSEQUENTLY, THE ASSESSING OFFICER, ON APPLICATION FILED BY THE ASSESSEE UNDER SECTION 154 OF THE ACT, DELETED THE ADDITION OF RS.6,93,624 /- RELATING TO THE INVESTMENT IN ALSPON INFRASTRUCTURE. 11. BEFORE THE CIT(A), ASSESSEE RAISED VARIOUS SUB MISSIONS ON FACTS AND IN LAW. THE ASSESSEE POINTED OUT THAT A SUM O F RS.50.00 CRORES WAS GIVEN TO ITS SUBSIDIARY ASHFORD INFOTECH (P) LTD BY WAY OF SHARE APPLICATION MONEY AND SUCH SUBSIDIARY WAS ALSO ENGA GED IN THE BUSINESS OF CONSTRUCTION AND DEVELOPMENT OF REAL ESTATE. F OR THE SAID REASON, IT WAS CANVASSED THAT SUCH INVESTMENT WAS FOR FURTHER ANCE OF ASSESSEES BUSINESS, FOLLOWING THE RATIO OF THE DECISION OF TH E HON'BLE SUPREME COURT IN THE CASE OF S.A. BUILDERS LIMITED VS. CIT , 288 ITR 1(SC). RELIANCE WAS ALSO PLACED ON THE JUDGMENT OF THE HO N'BLE DELHI HIGH COURT IN THE CASE OF BHARTI TELEVENTURES LTD , 331 ITR 502 (DEL) FOR THE PROPOSITION THAT WHERE INTEREST BEARING FUNDS WERE ADVANCED TO 7 ITA NO. 818& 1651 /MUM/2012 (ASSESSMENT YEAR : 2008-09) SUBSIDIARY COMPANY, SUCH ADVANCES WERE TO BE CONSID ERED FOR BUSINESS CONSIDERATION AS PROFITS OF THE SUBSIDIARY WOULD AL SO ULTIMATELY BECOME PART OF THE PROFITS OF THE HOLDING COMPANY. AN ALTERNATIVE SUBMISSION WAS ALSO MADE BY THE ASSESSEE, WHICH WAS TO THE EFFECT THAT ITS TOTAL SHAREHOLDER FUNDS, WHICH WERE FREE OF INT EREST, WERE IN EXCESS OF THE IMPUGNED INVESTMENTS AND, THEREFORE, FOLLOWI NG THE RATIO OF THE JUDGMENT OF THE HON'BLE BOMBAY HIGH COURT IN THE CA SE OF CIT. VS. RELIANCE UTILITIES AND POWER LIMITED.,313 ITR 340(B OM), IT WAS TO BE PRESUMED THAT SUCH INVESTMENTS ARE OUT OF NON-INTER EST BEARING FUNDS, AND, THUS NO INTEREST WAS DISALLOWABLE. THE CIT(A) ACCEPTED BOTH THE PLEAS SET UP BY THE ASSESSEE AND HAS DELETED THE AD DITION. 12. BEFORE US, THE LD. DEPARTMENTAL REPRESENTATIVE HAS PRIMARILY RELIED UPON THE ORDER OF THE ASSESSING OFFICER IN S UPPORT OF THE CASE OF THE REVENUE, WITHOUT CONTROVERTING ANY OF THE FACTU AL MATRIX BROUGHT OUT BY THE CIT(A). NOTABLY, THE CIT(A) IN PARA 3.9 OF HIS ORDER HAS REFERRED TO THE FUND FLOW STATEMENT FURNISHED BY TH E ASSESSEE WHEREBY, ASSESSEE HAD OWNED INTEREST FREE FUNDS OF RS.193.7 0 CRORES AND INVESTMENT IN SUBSIDIARY WAS RS.135.00 CRORES. ON THIS BASIS, THE CIT(A) HAS CONCLUDED THAT ASSESSEE HAD SUFFICIENT OWN FUN DS AND , THEREFORE, FOLLOWING THE JUDGMENT OF HON'BLE BOMBAY HIGH COURT IN THE CASE RELIANCE UTILITIES AND POWER LIMITED(SUPRA), IT CAN BE PRESUMED THAT NO BORROWED FUNDS WERE USED TO MAKE SUCH INVESTMENTS. AS PER HON'BLE BOMBAY HIGH COURT, THE PRINCIPLE IS THAT, IF THERE ARE FUNDS AVAILABLE BOTH INTEREST FREE AND INTEREST BEARING, THEN A PRE SUMPTION CAN BE DRAWN THAT INVESTMENTS ARE MADE OUT OF INTEREST F REE FUNDS, SO LONG AS SUCH INTEREST FREE FUNDS ARE SUFFICIENT TO MEET THE INVESTMENTS. IN OUR CONSIDERED OPINION, HAVING REGARD TO THE FACT POSIT ION BROUGHT OUT BY 8 ITA NO. 818& 1651 /MUM/2012 (ASSESSMENT YEAR : 2008-09) THE CIT(A), THE PROPOSITION LAID DOWN BY THE HON'BL E BOMBAY HIGH COURT IN THE CASE OF RELIANCE UTILITIES AND POWER LIMITED(SUPRA) IS FULL Y ATTRACTED IN THE PRESENT CASE. SUCH FACT-SITUATION HAS BEEN ENUMERA TED BY THE CIT(A) IN PARA 3.4 OF HIS ORDER, WHICH DEPIC TS THE SUMMARIZED FUND FLOW POSITION OF THE ASSESSEE, AND THE SAME HA S NOT BEEN CONTROVERTED BY THE REVENUE BEFORE US, RATHER THE S AME IS ALSO BORNE OUT OF THE MATERIAL PLACED IN THE PAPER BOOK FILED BEFORE US. THEREFORE, ON THIS COUNT ITSELF, WE FIND NO REASON TO INTERFER E WITH THE ULTIMATE CONCLUSION OF THE CIT(A) IN DELETING THE ADDITION O F RS.62,56,945/-, WHICH WE HEREBY AFFIRM. THUS, ON THIS ASPECT ALSO REVENUE FAILS. 13. IN THE RESULT, WHEREAS THE APPEAL OF THE ASSESS EE IS ALLOWED, THAT OF REVENUE IS DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 29/07/2016 SD/- SD/- (SANJAY GARG) (G.S. PANNU) JUDICIAL MEMBER ACCOU NTANT MEMBER MUMBAI, DATED 29/07/2016 VM , SR. 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. BY ORDER, //TRUE COPY// (DY./ASSTT. REGISTRAR) ITAT, MUMBAI