DCIT 1(2), MUMBAI V. BRICS GILT FINANCE LTD, MUMBAI

ITA 96/MUM/2011

• Counselvise Citation: [2013] 140 COUNSELVISE.COM (IT) 71209 (ITAT-MUMBAI)
• Duration Of Justice: 2 year(s) 8 month(s) 5 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 11-09-2013
• Appeal Filed By: Department
• Order Result: Allowed
• Bench Allotted: B
• Assessment Year: 2007-2008
• Appeal Filed On: 06-01-2011
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: SU RENDRA KUMAR
• Assessee Lawyers: RONAK G DOSHI
• Section: 14A

Judgement Text

, , , , , IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCHES B, MUMBAI .. , ! ' , # !, $ BEFORE SHRI R.S.SYAL, AM AND SHRI VIVEK VARMA, JM ITA NO.96/MUM/2011 : ASST.YEAR 2007-2008 THE DY.COMMISSIONER OF INCOME-TAX CIRCLE 1(2) MUMBAI. M/S.BRICS GILT FINANCE PVT. LTD. SADHANA HOUSE, 1 ST FLOOR, P.B.MARG BEHIND MAHINDRA TOWER, WORLI MUMBAI 400 018. PAN : AAACJ8885B. ( %& / // / APPELLANT) ( ( ( ( / VS. ( )*%&/ RESPONDENT) %& + ++ + , , , , / APPELLANT BY : SHRI SURENDRA KUMAR )*%& + , + , + , + , / RESPONDENT BY : SHRI RONAK G.DOSHI ( + - / / / / DATE OF HEARING : 05.09.2013 ./0 + - / DATE OF PRONOUNCEMENT : 11.09.2013 !1 !1 !1 !1 / / / / O R D E R PER R.S.SYAL (AM) : THIS APPEAL BY THE REVENUE ARISES OUT OF THE ORDER PASSED BY THE COMMISSIONER OF INCOME-TAX (APPEALS) ON 12.10.2010 IN RELATION TO THE ASSESSMENT YEAR 2007-2008. 2. THE ONLY ISSUE RAISED THROUGH THREE GROUNDS IS A GAINST RESTRICTING THE DISALLOWANCE U/S 14A TO ` 20,853 AS AGAINST ` 38,38,481 MADE BY THE ASSESSING OFFICER AS PER RULE 8D. BRIEF LY STATED THE FACTS OF THE CASE ARE THAT THE ASSESSEE IS A NON-BANKING FINANCE COMPANY. CERTAIN EXEMPT DIVIDEND INCOME WAS EARNED. THE A.O. OBSERVED THAT NO EXPENSES LIABLE TO BE DISALLOWED U/S 14A WERE SH OWN TO HAVE BEEN INCURRED IN RELATION TO THE EXEMPT DIVIDEND INCOME. IT WAS FURTHER ITA NO.96/MUM/2011. M/S.BRICS GILT FINANCE PVT. LTD. 2 OBSERVED THAT OUT OF TOTAL INVESTMENTS OF ` 11.17 CRORE, THE ASSESSEE INVESTED ` 11.05 CRORE IN GROUP COMPANIES AND SUBSIDIARY COMPA NIES WHICH WERE UNLISTED. ONLY A SUM OF ` 12.07 LAKH WAS INVESTED IN THE SHARES OF LISTED COMPANIES. HE NOTICED THAT THE ASS ESSEE HAD OBTAINED CERTAIN LOANS AND PAID INTEREST OF ` 1.19 CRORE. INVOKING THE PRESCRIPTION OF SECTION 14A, THE A.O. MADE DISALLOW ANCE AS PER RULE 8D FOR A SUM OF ` 38.38 LAKH BY CONSIDERING THE AVERAGE VALUE OF INVESTMENT AT ` 11.11 CRORE ON WHICH DISALLOWANCE OF INTEREST WAS WORKED OUT AT ` 32.82 LAKH AND OTHER INDIRECT EXPENSES AT THE RATE OF 0.5% AT ` 5.5 LAKH. THE LEARNED CIT(A) NOTICED ON PAGE 3 OF T HE IMPUGNED ORDER THAT THE ENTIRE INVESTMENT IN THE SH ARES OF GROUP CONCERNS HAD COME OUT OF SHARE CAPITAL AND THERE WA S A DIRECT NEXUS BETWEEN DEPOSIT OF SHARE CAPITAL IN THE BANK ACCOUN T AND INVESTMENT MADE IN THE SHARES. CONSIDERING THE JUDGMENT OF THE HONBLE JURISDICTIONAL HIGH COURT IN THE CASE OF GODREJ & BOYCE LTD. MFG. CO. V. DCIT [(2010) 328 ITR 81 (BOM)], IT WAS HELD THAT RULE 8D HAS BEEN ACCEPTED AS VALID BY THE HONBLE JURISDICTIONAL HIG H COURT. IN PARA 9 OF THE IMPUGNED ORDER, HE NOTICED THAT INVESTMENT OF ` 12.07 LAKH WAS MADE DURING THE YEAR WHICH SHOULD BE CONSIDERED FOR THE PURPOSE OF DISALLOWANCE AS PER RULE 8D. IN THIS BACKDROP, H E COMPUTED DISALLOWANCE OF INTEREST AT ` 17,834 BY CONSIDERING THE AVERAGE VALUE OF INVESTMENTS AT ` 6.03 LAKH AND OTHER ADMINISTRATIVE EXPENSES AT THE RATE OF % OF SUCH AVERAGE VALUE OF INVESTMENT AT ` 3,019. THAT IS HOW HE RESTRICTED THE DISALLOWANCE TO A SUM OF ` 20,853. THE REVENUE IS AGGRIEVED AGAINST THE REDUCTION IN THE ADDITION. ITA NO.96/MUM/2011. M/S.BRICS GILT FINANCE PVT. LTD. 3 3. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED T HE RELEVANT MATERIAL ON RECORD. IT IS OBSERVED THAT THE ASSESSM ENT YEAR UNDER CONSIDERATION IS 2007-2008. THE HONBLE JURISDICTIO NAL HIGH COURT IN THE CASE OF GODREJ & BOYCE LTD. MFG. CO. (SUPRA) HAS HELD THAT SECTION 14A IS APPLICABLE IN THE CIRCUMSTANCES WHIC H ARE PREVAILING IN THE PRESENT CASE. HOWEVER THE DISALLOWANCE U/S 14A HAS BEEN DIRECTED TO BE MADE AS PER RULE 8D WITH EFFECT FROM ASSESSME NT YEAR 2008- 2009. FOR THE YEARS ANTERIOR TO THIS ASSESSMENT YEA R, THE HONBLE JURISDICTIONAL HIGH COURT HAS DIRECTED THAT THE DIS ALLOWANCE BE WORKED OUT BY THE A.O. ON SOME `REASONABLE BASIS. IN THE LIGHT OF THE ABOVE BINDING PRECEDENT, WE SET ASIDE THE VIEW TAKE N BY THE LEARNED CIT(A) BY WHICH HE WORKED OUT THE DISALLOWANCE U/S 14A AS PER RULE 8D BECAUSE THE ASSESSMENT YEAR UNDER CONSIDERATION IS 2007-2008 AND FOR SUCH YEAR THE RULE CANNOT BE APPLIED. IT IS FURTHER OBSERVED THAT IN WORKING OUT SUCH DISALLOWANCE, THE LEARNED CIT(A) FELL IN ERROR BY CONSIDERING THE AVERAGE VALUE OF INVESTMEN T AT ` 6.03 LAKH AS AGAINST THE INVESTMENTS OF ` 11.17 CRORE STANDING AT THE END OF THE CURRENT YEAR. THE REASON GIVEN BY HIM THAT THE - I NVESTMENTS OF ` 12,07,744 MADE DURING THE YEAR ALONE SHALL BE CONSIDERED - HAS NO SANCTION OF LAW. WHAT IS REQUIRED TO BE CONSIDERED I S THE AVERAGE VALUE OF INVESTMENT BY CONSIDERING THE TOTAL INVEST MENTS AS APPEARING IN THE BALANCE SHEET AND NOT THE FRESH INVESTMENTS MADE DURING THE YEAR ALONE. AT THE SAME TIME, IT IS RELEVANT TO NO TE THAT THE SHARE CAPITAL ALONG WITH RESERVES AND SURPLUS OF THE ASSE SSEE STAND AT ` 28.07 CRORE AS AGAINST TOTAL INVESTMENTS AMOUNTING TO ` 11.17 CRORE. THE HONBLE JURISDICTIONAL HIGH COURT IN THE CASE OF CIT VS. RELIANCE ITA NO.96/MUM/2011. M/S.BRICS GILT FINANCE PVT. LTD. 4 UTILITIES AND POWER LTD. [(2009) 313 ITR 340 (BOM.) ] HAS HELD THAT IF THERE ARE INTEREST FREE FUNDS AVAILABLE WITH THE AS SESSEE SUFFICIENT TO MEET ITS INVESTMENT AND AT THE SAME TIME LOAN HAS B EEN RAISED IT CAN BE PRESUMED THAT THE INVESTMENTS WERE FROM INTEREST FREE FUNDS AND RESULTANTLY NO DISALLOWANCE OF INTEREST CAN BE MADE . IN VIEW OF THIS BINDING PRECEDENT, THERE CANNOT BE ANY QUESTION OF DISALLOWANCE OF INTEREST BECAUSE OF THE SHAREHOLDERS FUND FAR EXCEE DING THE AMOUNT OF INVESTMENT IN SHARES. WE, THEREFORE, HOLD THAT NO D ISALLOWANCE OF INTEREST IS CALLED FOR U/S 14A. 4. HOWEVER THE DISALLOWANCE ON ACCOUNT OF OTHE R EXPENSES IS WARRANTED. THE LEARNED CIT(A) WRONGLY APPLIED RULE 8D IN WORKING OUT DISALLOWANCE AT 0.5% BY TAKING AVERAGE VALUE OF INVESTMENT AT ` 6.03 LAKH AS AGAINST THE TOTAL INVESTMENT AT MUCH H IGHER LEVEL. SINCE THE DISALLOWANCE U/S 14A IS REQUIRED TO BE MADE ON SOME `REASONABLE BASIS BY THE A.O. AND NOT AS PER RULE 8D, WE ARE O F THE CONSIDERED OPINION THAT THE ENDS OF JUSTICE WOULD MEET ADEQUAT ELY IF THE IMPUGNED ORDER ON THIS ISSUE IS SET ASIDE AND THE M ATTER IS RESTORED TO THE FILE OF A.O. WE ORDER ACCORDINGLY AND DIRECT HI M TO WORK OUT THE DISALLOWANCE U/S 14A IN CONFORMITY WITH THE JUDGMEN T OF THE HONBLE JURISDICTIONAL HIGH COURT IN THE CASE OF GODREJ & BOYCE LTD. MFG. CO. (SUPRA) ON SOME REASONABLE BASIS. 5. 2 -3 4 5+ 678 9 - : + ;- <= IN THE RESULT, THE APPEAL IS ALLOWED FOR STATISTICAL PURPOSES. ITA NO.96/MUM/2011. M/S.BRICS GILT FINANCE PVT. LTD. 5 ORDER PRONOUNCED ON THIS 11 TH DAY OF SEPTEMBER, 2013. !1 + ./0 >!(3 / + ? SD/- SD/- (VIVEK VARMA) (R.S.SYAL) # ! # ! # ! # ! / JUDICIAL MEMBER ! ! ! ! / ACCOUNTANT MEMBER MUMBAI ; >!( DATED : 11 TH SEPTEMBER, 2013. DEVDAS* !1 + )#-9' @'0- !1 + )#-9' @'0- !1 + )#-9' @'0- !1 + )#-9' @'0-/ COPY OF THE ORDER FORWARDED TO : 1. %& / THE APPELLANT 2. )*%& / THE RESPONDENT. 3. A () / THE CIT, MUMBAI. 4. A / CIT(A) 2, MUMBAI. 5. 'D? )#-#( , , / DR, ITAT, MUMBAI 6. ?E F / GUARD FILE. !1( !1( !1( !1( / BY ORDER, *'- )#- //TRUE COPY// 6 6 6 6/ // /< ; < ; < ; < ; ( DY./ASSTT. REGISTRAR) , , , , / ITAT, MUMBAI