ACIT 2(1), MUMBAI V. CENTRUM CAPITAL P.LTD, MUMBAI

ITA 82/MUM/2013

• Counselvise Citation: [2016] 121 COUNSELVISE.COM (IT) 3295 (ITAT-MUMBAI)
• Duration Of Justice: 3 year(s) 25 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 29-01-2016
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: C
• Next Hearing Date: 01-01-2015
• Assessment Year: 2009-2010
• Appeal Filed On: 03-01-2013
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: PRAKASH OJHA
• Assessee Lawyers: J D MISTRY
• Keywords: Earning of tax free income
• Section: 143(3); 14A

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH C , MUMBAI BEFORE SHRI JASON P. BOAZ , ACCOUNTANT MEMBER AND SHRI SANDEEP GOSAIN, JUDICIAL MEMBER ITA NO. 7708/MUM/2012 : (A.Y : 200 9 - 1 0 ) M/S. CENTRUM CAPITAL LTD., BOMBAY MUTUAL BUILDING, 2 ND FLOOR, DR. D.N. ROAD, FORT, MUMBAI 400 001 PAN : AAACC5099G (APPELLANT) VS ASST. COMMISSIONER OF INCOME TAX 2(1), MUMBAI (RESPONDENT) ITA NO. 82/MUM/2013 : (A.Y : 200 9 - 1 0 ) ASST. COMMISSIONER OF INCOME TAX 2(1), MUMBAI ( APPELLANT ) VS M/S. CENTRUM CAPITAL LTD., BOMBAY MUTUAL BUILDING, 2 ND FLOOR, DR. D.N. ROAD, FORT, MUMBAI 400 001 ( RESPONDENT ) PAN : AAACC5099G ASSESSEE BY : SHRI J.D. MISTRY & SHRI SURENDRA NIJSURE REVENUE BY : SHRI PRAKASH OJHA, DR DATE OF HEARING : 21/01/2016 DATE OF PRONOUNCEMENT : 29 /01/2016 O R D E R PER JASON P. BOAZ , A M : THESE ARE CROSS APPEALS, BY REVENUE AND THE ASSESSEE, DIRECTED AGAINST THE ORDER OF THE CIT(APPEALS) - 4, MUMBAI DT. 5.10.2012 FOR ASST. YEAR 2009 - 10. 2. THE FACTS OF THE CASE, BRIEFLY, ARE AS UNDER : - 2 M/S. CENTRUM CAPITAL LTD. ITA NOS. 7708/MUM/2012 & 82/MUM/2013 2.1 THE ASSESSEE COMPANY, ENGAGED IN THE BUSINESS OF SYNDICATION OF LOANS, PLACEMENT OF BONDS AND OTHER FINANCIAL INSTRUMENTS, FILED ITS RETURN OF INCOME FOR ASST. YEAR 2009 - 10 ON 1.10.2009 DECLARING TOTAL INCOME OF RS.23,42,26,59 0/ - . THE CASE WAS TAKEN UP FOR SCRUTINY AND THE ASSESSMENT WAS COMPLETED U/S 143(3) OF THE INCOME TAX ACT, 1961 (IN SHORT THE ACT) DT. 28.11.2011, WHEREIN THE INCOME OF THE ASSESSEE WAS DETERMINED AT RS.24,93,37,416/ - IN VIEW OF DISALLOWANCE OF RS. 1,51 ,10,827/ - MADE BY THE ASSESSING OFFICER (AO) U/S 14A R.W.R 8D OF THE I.T RULES, 1962 (IN SHORT THE RULES). ON APPEAL, THE LD. CIT(A) - 4, MUMBAI ALLOWED THE ASSESSEE PARTIAL RELIEF VIDE THE IMPUGNED ORDER DT. 5.10.2012. 3. BOTH REVENUE AND THE A SSESSED , BEING AGGRIEVED BY THE ORDER OF THE CIT(APPEALS) - 4, MUMBAI FOR ASST. YEAR 2009 - 10 , HAVE PREFERRED APPEALS BEFORE THE TRIBUNAL IN RESPECT OF THOSE ASPECTS OF THE CASE THAT, IN THEIR VIEW, HAVE BEEN HELD AGAINST THEM. WE SHALL TAKE UP THESE TWO APPEALS HERE UNDER: ASSESSEES APPEAL FOR ASST. YEAR 2009 - 10 IN ITA NO. 7708/MUM/2012 4. IN THIS APPEAL, THE ASSESSEE HAS RAISED THE FOLLOWING GROUNDS : - 1) THE CIT(A) ERRED IN LAW AND ON FACTS IN CONFIRMING THE DISALLOWANCE U/S 14A READ WITH RULE 8D AMOUNTING TO RS. 1,51,10,827/ - . 2) THE CIT(A) IGNORED THAT THE ENTIRE INVESTMENTS HELD ON THE OPENING AND CLOSING DAY WERE MADE OUT OF OWNED AND INTEREST FREE FUNDS AND AS SUCH THE PRESUMPTION SHOULD HAVE BEEN DRAWN THAT THE ENTIRE INVESTMENTS HAVE BEEN MADE FROM THE OWNED FUNDS AND THEREFORE NO DISALLOWANCE SHOULD HAVE BEEN MADE U/S 14A AND RULE 8D. 3) WITHOUT PREJUDICE TO ABOVE GROUNDS OF APPEAL, THE LEARNED CIT(A) ERRED IN LAW AND ON FACTS IN IGNORING THAT FOR THE PURPOSE OF COMPUTING THE 3 M/S. CENTRUM CAPITAL LTD. ITA NOS. 7708/MUM/2012 & 82/MUM/2013 DISALLOWANCE UNDER RULE 8D FOLLOWING ADJUSTMENTS WERE REQUIRED TO INTEREST EXPENDITURE AND INVESTMENTS: A. THAT THERE WAS INTEREST INCOME OF RS. 3,49,97,157/ - AS AGAINST THE INTEREST EXPENSES AND AS SUCH ONLY THE NET INTEREST SHOULD HAVE BEEN CONSIDERED FOR THE PURPOSE OF COMPUTATION UNDER RULE 8D. B. THAT THE INTEREST ON A BANK FACILITY TAKEN FOR TRADING IN BONDS AND THE INCOME FROM WHICH WAS CHARGEABLE TO THE INCOME TAX ACT AND AS THE INTEREST THEREON OF RS. 98,24,254/ - WAS NOT INCURRED FOR EARNING EXEMPT INCOME AND IT SHOULD HAVE BEE N EXCLUDED FROM TOTAL INTEREST WHILE APPLYING RULE 8D. C. THAT BANK CHARGES OF RS. 8,22,500/ - WERE DIFFERENT FROM INTEREST AND WERE INCURRED FOR EARNING TAXABLE INCOME AND IT SHOULD HAVE BEEN EXCLUDED FROM TOTAL INTEREST WHILE APPLYING RULE 8D. D. THAT THE INVESTMENT IN SUBSIDIARY AND ASSOCIATE COMPANIES WERE STRATEGIC INVESTMENTS AND HAVE NEITHER BEING MADE WITH THE INTENTION OF EARNING EXEMPT INCOME NOR HAVE RESULTED IN EARNING ANY EXEMPT INCOME AND THESE INVESTMENTS SHOULD HAVE BEEN EXCLUDED FROM THE TOT AL INVESTMENTS WHILE APPLYING RULE 8D. 5. GROUND NO. 1 IS GENERAL IN NATURE AND THEREFORE NO SPECIFIC ADJUDICATION IS CALLED FOR THEREON. 6. GROUND NO. 2 - DISALLOWANCE U/S 14A R.W. RULE 8D 6.1 IN THIS GROUND, THE ASSESSEE CONTENDS THAT THE LD. CIT(A) IGNORED THE FACT THAT THE ENTIRE INVESTMENTS HELD ON THE OPENING AND CLOSING DAY WERE MADE OUT OF OWN AND INTEREST FREE FUNDS AND AS SUCH, THE PRESUMPTION SHOULD HAVE BEEN DRAWN THAT THE ENTIRE INVESTMENT SHOULD HAVE B EEN MADE FROM THE OWN FUNDS OF THE ASSESSEE AND THEREFORE NO DISALLOWANCE OF INTEREST U/S 14A READ WITH RULE 8D SHOULD HAVE BEEN MADE. IT WAS SUBMITTED BY THE LD. AR FOR THE ASSESSEE BEFORE THE AO THAT IN THE YEAR UNDER CONSIDERATION, THE 4 M/S. CENTRUM CAPITAL LTD. ITA NOS. 7708/MUM/2012 & 82/MUM/2013 ASSESSEE HAD EAR NED DIVIDEND INCOME OF RS. 2,81,58,686/ - WHICH CONSTITUTED EXEMPT INCOME. IT WAS SUBMITTED THAT NO DISALLOWANCE U/S 14A OF THE ACT WAS MADE AS THE ASSESSEE HAD UTILIZED ITS OWN SURPLUS FUNDS FOR INVESTMENTS AND THAT NO EXPENDITURE HAD BEEN INCURRED BY THE ASSESSEE FOR EARNING THE EXEMPT DIVIDEND INCOME. THE AO, HOWEVER, DID NOT ACCEPT THE ASSESSEES CONTENTIONS AND PROCEEDED TO COMPUTE DISALLOWANCE OF RS. 1,51,10,827/ - UNDER RULE 8D OF THE RULES. 6.2 ON APPEAL BEFORE THE LD. CIT(A), THE ASSESSEE REITERAT ED THE SUBMISSIONS PUT FORTH BEFORE THE AO THAT IT HAS ADEQUATE OWN SURPLUS FUNDS IN THE FORM OF SHARE CAPITAL AND FREE RESERVES AND THEREFORE NO DISALLOWANCE OF INTEREST U/S 14A R.W RULE 8D ( 2 ) (II) WAS WARRANTED. THE LD. CIT(A), HOWEVER, UPHELD THE DISALL OWANCE OF INTEREST AS HE WAS OF THE VIEW THAT THE DECISION OF THE HONBLE BOMBAY HIGH COURT IN THE CASE OF RELIANCE UTILITIES & POWER LTD. (313 ITR 340) IS NOT APPLICABLE TO THE FACTS OF THE CASE. IN RESPECT OF THE ASSESSEES CLAIM THAT WHILE COMPUTING TH E OPENING AND CLOSING BALANCE OF INVESTMENTS UNDER RULE 8D(2)(II I ) OF THE RULES, THE AO HAS WRONGLY INCLUDED THE INVESTMENTS MADE BY THE ASSESSEE IN FOREIGN COMPANIES, DEBENTURES, INCOME FROM WHICH IS EXIGIBLE TO TAX AND APPLICATION MONEY FOR SHARE ALLOTME NT AMOUNTING TO RS. 6,74,30,675/ - , THE LD. CIT(A) HELD THAT THE ASSESSEES CLAIMS WERE CORRECT AS ONLY THOSE INVESTMENTS, THE INCOME OF WHICH IS EXEMPT ARE TO BE CONSIDERED FOR COMPUTING THE SAID DISALLOWANCE UNDER RULE 8D(2)(II I ) OF THE RULES AND DIRECTED THE AO TO RE - COMPUTE THE SAME ACCORDINGLY. 6.3 BEFORE US THE LD. AR FOR THE ASSESSEE SUBMITTED THAT THE ASSESSEE HAD SHARE CAPITAL OF RS. 6,82,80,960/ - AND RESERVES AND SURPLUS OF RS.192,47,21,159/ - AS ON 31.3.2009, WHEREAS THE INVESTMENTS WERE ONLY RS.9 4,19,11,498/ - . THEREFORE THE PRESUMPTION SHOULD BE THAT THE INVESTMENTS 5 M/S. CENTRUM CAPITAL LTD. ITA NOS. 7708/MUM/2012 & 82/MUM/2013 HAVE BEEN MOSTLY MADE OUT OF RESERVES AND SURPLUS. IN THESE CIRCUMSTANCES, IT WAS CONTENDED THAT NO DISALLOWANCE OF INTEREST U/S 14A OF THE ACT CAN BE MADE IN VIEW OF THE FOLLOWING JU DICIAL PRONOUNCEMENTS : - I) HDFC BANK LTD. IN ITA NO. 330 OF 2012 DT. 23.7.2014 (BOMBAY HIGH COURT) II) CENTRUM DIRECT LTD. IN ITA NO. 5595/MUM/2011 DT. 15.10.2015 FOR ASST. YEAR 2008 - 09 6.4 PER CONTRA, THE LD. DR STRONGLY RELIED ON THE IMPUGNED ORDER OF THE LD . CIT(A) ON THE ABOVE ISSUES. 6.5.1 WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED AND CAREFULLY CONSIDERED THE MATERIAL ON RECORD; INCLUDING THE JUDICIAL PRONOUNCEMENTS CITED. IT IS SEEN FROM THE DETAILS PLACED BEFORE US, THAT THE ASSESSEE HAS SHOWN TH AT IN THE PERIOD UNDER CONSIDERATION IT HAS HUGE SURPLUS FUNDS I.E. FROM SHARE CAPITAL AND RESERVES AND SURPLUS, FAR IN EXCESS OF THE INVESTMENTS AND THEREFORE IT CAN BE REASONABLY PRESUMED THAT NO INTEREST BEARING FUNDS HAVE BEEN DIVERTED FOR MAKING THESE INVESTMENTS IN TAX FREE SECURITIES. WE FIND THAT THE HONBLE JURISDICTIONAL HIGH COURT IN THE CASE OF CIT V. HDFC BANK LTD. IN ITA NO. 330 OF 2012 DT. 23.7.2014 AT PARAS 4 AND 5 THEREOF HAS LAID DOWN THE PROPOSITION THAT, IF THE ASSESSEES CAPITAL, PROFI TS, RESERVES AND SURPLUS AND CURRENT ACCOUNT DEPOSITS ARE HIGHER THAN THE INVESTMENTS IN TAX FREE SECURITIES, THEN IT WOULD BE PRESUMED THAT THE INVESTMENTS MADE BY THE ASSESSEE WOULD BE OUT OF INTEREST FREE FUNDS AVAILABLE WITH THE ASSESSEE. THIS DECISIO N OF THE HONBLE BOMBAY HIGH COURT (SUPRA) HAS BEEN FOLLOWED BY A CO - ORDINATE BENCH OF THIS TRIBUNAL IN THE CASE OF CENTRUM DIRECT LTD. IN ITA NO. 5595/MUM/2011 DT. 15.10.2015. RESPECTFULLY FOLLOWING THE DECISION OF THE HONBLE BOMBAY HIGH COURT IN THE CA SE OF HDFC BANK LTD. 6 M/S. CENTRUM CAPITAL LTD. ITA NOS. 7708/MUM/2012 & 82/MUM/2013 (SUPRA) AND OF THE CO - ORDINATE BENCH IN THE CASE OF CENTRUM DIRECT LTD. IN ITA NO. 5595/MUM/2011 DT. 15.10.2015, WE CONCUR WITH THE CONTENTION OF THE ASSESSEE THAT NO DISALLOWANCE OF INTEREST CAN BE MADE U/S 14A R.W. RULE 8D OF THE ACT . 6.5.2 WE, HOWEVER, UPHOLD THE IMPUGNED ORDER OF THE LD. CIT(A) THAT DISALLOWANCE IS TO BE MADE U/S 14A R.W. RULE 8D(2)(III) AND HIS DIRECTIONS TO THE AO IN THIS REGARD TO RE - COMPUTE THE SAME BY EXCLUDING FROM THE OPENING AND CLOSING BALANCES OF INVESTME NTS FOR CALCULATING THE AVERAGE INVESTMENT, THOSE INVESTMENTS IN SHARES OF FOREIGN COMPANIES, DEBENTURES ETC. WHOSE INCOME IS EXIGIBLE TO TAX AND APPLICATION MONEY FOR ALLOTMENT OF SHARES AMOUNTING TO RS. 6,74,30,675/ - AFTER DUE VERIFICATION. 7. IN VIEW O F OUR FINDING (SUPRA) IN RESPECT OF GROUND NO. 2 OF THE ASSESSEES APPEAL, THERE IS NO REQUIREMENT FOR US TO ADJUDICATE THE ALTERNATE GROUNDS R A I S E D AT SR. NO. 3(A) TO (D) OF THIS APPEAL. 8. IN THE RESULT, THE ASSESSEES APPEAL FOR ASST. YEAR 2009 - 10 IS PARTLY A LLOWED. REVENUES APPEAL FOR ASST. YEAR 2009 - 10 IN ITA NO. 82/MUM/2013 9. IN THIS APPEAL REVENUE HAS RAISED THE FOLLOWING GROUNDS : 1. THE ORDER OF THE CIT(A) IS OPPOSED TO LAW AND FACTS OF THE CASE. 2. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT(A) ERRED IN EXCLUDING INVESTMENTS MADE IN FOREIGN COMPANY AND INVESTMENTS TOWARD SHARE APPLICATION MONEY FROM THE CALCULATION OF DISALLOWANCE U/S 14A R.W.S. 8D OVERLOOKING THE FACT THAT THERE INVESTMENT RELATE TO INCOME NOT CHA RGEABLE TO TAX AND WERE CORRECTLY INCLUDED BY THE AO IN THE CALCULATION. 7 M/S. CENTRUM CAPITAL LTD. ITA NOS. 7708/MUM/2012 & 82/MUM/2013 3. FOR THESE AND OTHER GROUNDS THAT MAY BE URGED AT THE TIME OF HEARING, THE DECISION OF THE CIT(A) MAY BE SET ASIDE AND THAT OF THE AO RESTORED. 10. THE GROUNDS AT SR. NOS. 1 AN D 3 OF REVENUES APPEAL ARE GENERAL IN NATURE AND THEREFORE NO ADJUDICATION IS CALLED FOR THEREON. 11. GROUND NO. 2 - DISALLOWANCE U/S 14A R.W. RULE 8D 11.1 IN THIS GROUND, REVENUE ASSAILS THE IMPUGNED ORDER OF THE LD. CIT(A) IN DIRECTING THE AO TO EXC LUDE INVESTMENTS MADE IN SHARES OF FOREIGN COMPANY AND INVESTMENTS TOWARDS SHARE APPLICATION MONEY FROM THE CALCULATION OF THE DISALLOWANCE U/S 14A R.W.R. 8D OVERLOOKING THAT THESE INVESTMENTS RELATE TO INCOME NOT CHARGEABLE TO TAX. THE LD. DR WAS HEARD I N THE MATTER AND PLACED STRONG RELIANCE ON THE ORDER OF THE AO IN THE MATTER WHICH HE PLEADED BE RESTORED. 11.2 THE LD. AR FOR THE ASSESSEE WAS HEARD IN THE MATTER AND SUPPORTED THE FINDING RENDERED BY THE LD. CIT(A) IN THE IMPUGNED ORDER. THE LD. AR SUB MITTED THAT THE ISSUE OF WHETHER THE PROVISIONS OF SEC. 14A OF THE ACT COULD BE EXTENDED TO INVESTMENTS MADE IN SHARES OF FOREIGN COMPANIES WAS CONSIDERED BY THE CO - ORDINATE BENCH OF THIS TRIBUNAL IN THE CASE OF STRIDES ARCOLAB LTD. (2012) 24 TAXMANN.COM 8 9 (MUM) AND IT WAS HELD AT PARA 3 THEREOF THAT DISALLOWANCE U/S 14A OF THE ACT IS NOT TO BE MADE IN RESPECT OF INVESTMENT IN SHARES OF FOREIGN COMPANIES. FOLLOWING THE ABOVE FINDING OF THE CO - ORDINATE BENCH (SUPRA), WE UPHOLD THE IMPUGNED ORDER OF THE LD. CIT(A) IN DIRECTING THE AO TO RE - COMPUTE THE DISALLOWANCE U/S 14A R.W.R 8D(2)(III) OF THE RULES TO INCLUDE ONLY THOSE INVESTMENTS INCOME FROM WHICH IS EXEMPT AND TO VERIFY THE ASSESSEES CLAIM THAT THE INVESTMENTS OF 8 M/S. CENTRUM CAPITAL LTD. ITA NOS. 7708/MUM/2012 & 82/MUM/2013 RS.6,74,30,675/ - ARE IN RESPECT OF SUC H SECURITIES FROM WHICH EXEMPT INCOME IS NOT GENERATED AND THEN EXCLUDE THEM FROM THE OPENING AND CLOSING VALUE OF INVESTMENT FOR COMPUTING THE SAID DISALLOWANCE. WE, CONSEQUENTLY, DISMISS GROUND NO. 2 OF REVENUES APPEAL. 12. IN THE RESULT, REVENUES AP PEAL FOR ASST. YEAR 2009 - 10 IS DISMISSED. 13. TO SUM UP, THE ASSESSEES APPEAL FOR ASST. YEAR 2009 - 10 IS PARTLY ALLOWED AND REVENUES CROSS APPEAL IS DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 2 9 T H JANUARY, 2016. S D / - S D / - (SANDEEP GOSAIN) JUDICIAL MEMBER (JASON P. BOAZ) ACCOUNTANT MEMBER MUMBAI, DATE : 2 9 T H JANUARY, 2016 COPY TO : 1) THE APPELLANT 2) THE RESPONDENT 3) THE CIT(A) CONCERNED 4) THE CIT CONCERNED 5) THE D.R, C BENCH, MUMBAI 6) GUARD FILE BY ORDER DY./ASSTT. REGISTRAR *SSL* I.T.A.T, MUMBAI