DCIT-8(2)(2), Mumbai V. M/S SPRIT INFRAPOWER & MULTIVENTURES PVT. LTD., Mumbai

ITA 976/MUM/2019

• Counselvise Citation: [2020] 110 COUNSELVISE.COM (IT) 4505 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 8 month(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 20-10-2020
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: G
• Assessment Year: 2011-2012
• Appeal Filed On: 20-02-2019
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: H N SINGH
• Keywords: Earning of tax free income; Rule 8D
• Section: 143(3); 14A; 2

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH G, MUMBAI BEFORE SHRI RAVISH SOOD (JUDICIAL MEMBER) AND SHRI N.K. PRADHAN (ACCOUNTANT MEMBER) ITA NO. 976/MUM/2019 ASSESSMENT YEAR: 2011-12 DY. COMMISSIONER OF INCOME TAX-8(2)(2), ROOM NO. 625, M.K. ROAD, MUMBAI-400020. VS. M/S SPRIT INFRAPOWER & MULTIVENTURES PVT. LTD. (SUCCESSOR TO M/S PREMIER FINANCE & TRADING CO. LTD.),18 TH FLOOR, A-WING, MARATHON FUTUREX, N.M. JOSHI MARG, LOWER PAREL, MUMBAI - 400013. PAN NO. AAACP8140M APPELLANT RESPONDENT REVENUE BY : MR. H.N. SINGH, CIT-DR ASSESSEE BY : MR. JAY BHANSALI, AR DATE OF HEARING : 14/10/2020 DATE OF PRONOUNCEMENT : 20/10/2020 ORDER PER N.K. PRADHAN, A.M. THIS IS AN APPEAL FILED BY THE REVENUE. THE RELEVAN T ASSESSMENT YEAR IS 2011-12. THE APPEAL IS DIRECTED AGAINST THE ORDER O F THE COMMISSIONER OF INCOME TAX (APPEALS)-13, MUMBAI [IN SHORT CIT(A)] AND ARISES OUT OF THE ASSESSMENT COMPLETED U/S 143(3) THE INCOME TAX ACT 1961, (THE ACT). M/S SPRIT INFRAPOWER ITA NO. 976/MUM/2019 2 2. THE 1 ST GROUND OF APPEAL WHETHER ON THE FACTS AND IN THE CIRCUMSTANCES OF TH E CASE AND IN LAW, LD. CIT(A) ERRED IN IGNORING THE DECISION OF HON'BLE SU PREME COURT IN THE CASE OF ACIT VS. TULIP STAR HOTELS LTD. DATED 06.05.2012 AN D DELETING THE DISALLOWANCE OF RS.33,08,31,052/- MADE BY THE ASSESSING OFFICER U/S. 36(1)(III) OF THE INCOME TAX ACT'. 3. BRIEFLY STATED, THE FACTS OF THE CASE ARE THAT T HE ASSESSEE HAD GIVEN ADVANCE SHARE APPLICATION MONEY OF RS.25,00,00,000/ - (OUT OF WHICH RS.300,00,000/- IS PROVIDED AS NPA) AND INTEREST-FR EE LOANS OF RS.272,90,81,533/- CRORES (OUT OF WHICH RS.35,40,81 ,533/- IS PROVIDED AS NPA) OUT OF THE INTEREST-FREE FUNDS AVAILABLE WITH IT. T HE ASSESSEE HAD EARNED INTEREST INCOME OF RS.61,82,27,140/- AND INCURRED INTEREST E XPENSE OF RS.94,90,58,192/- DURING THE YEAR OUT OF WHICH IT H AS ALREADY DISALLOWED INTEREST EXPENDITURE OF RS.19,08,96,715/- U/S 14A I N THE RETURN OF INCOME FILED. IN RESPONSE TO A QUERY RAISED BY THE AO TO EXPLAIN WHY THE EXCESS OF INTEREST PAID OVER INTEREST RECEIVED SHOULD NOT BE DISALLOWE D IN VIEW OF THE PROVISIONS OF SECTION 36(1)(III) OF THE ACT, THE ASSESSEE FILE D A REPLY VIDE LETTER DATED 16.12.2013 STATING AS UNDER : THERE CANNOT BE ANY DISALLOWANCES U/S 36(1)(III) A S THE COMPANY HAS SUFFICIENT NON- INTEREST BEARING FUND AVAILABLE IN THE FORM OF SHAR E CAPITAL, RESERVE AND SURPLUS AND SHARE APPLICATION MONEY ON WHICH NO INTEREST IS PAY ABLE AND HENCE, INTEREST BEARING FUND HAS NOT BEEN UTILIZED FOR GIVING LOANS AND ADV ANCES ON WHICH NO INTEREST HAS BEEN RECEIVED. HOWEVER, THE AO WAS NOT CONVINCED WITH THE ABOVE R EPLY OF THE ASSESSEE AND FOLLOWING THE ORDER OF THE SUPREME COURT IN THE CASE OF ACIT V. TULIP STAR M/S SPRIT INFRAPOWER ITA NO. 976/MUM/2019 3 HOTELS LTD. DATED 06.05.2012 AND THE ASSESSMENT ORDER FOR THE AYS 2008-09, 2009-10 & 2010-11, DISALLOWED RS.33,08,31,052/- U/S 36(1)(III) OF THE ACT. 4. IN APPEAL, THE LD. CIT(A) DELETED THE ABOVE DISA LLOWANCE MADE BY THE AO BY OBSERVING AS UNDER : I HAVE CONSIDERED THE SUBMISSION MADE BY THE APPEL LANT AND THE REASONS RECORDED BY THE AO. IT IS SEEN FROM THE ASSESSMENT ORDER THAT THE A O HAS SIMPLY DISALLOWED THE EXCESS OF INTEREST PAID BY THE APPELLANT OVER THE INTEREST EA RNED BY IT BY OBSERVING THAT EXCESS INTEREST PAID BY THE APPELLANT CAN BE ATTRIBUTED TO THOSE LOANS AND ADVANCES WHICH HAVE BEEN UTILIZED FOR ADVANCING INTEREST FREE LOANS. TH ERE IS NO QUANTIFICATION OF INTEREST-FREE LOANS GIVEN BY THE APPELLANT IN THE ASSESSMENT ORDE R. IN VIEW OF THESE FACTS, IT CAN BE INFERRED THAT THE DISALLOWANCE MADE BY THE AO IS PR IMARILY ON ACCOUNT OF SIMILAR DISALLOWANCE MADE IN THE CASE OF THE APPELLANT FROM A.Y. 2008 - TO A.Y. 2010 - 11. IT IS SEEN FROM THE SUBMISSION MADE BY THE APPELLANT THAT GROS S AMOUNT OF INTEREST FREE FUNDS AVAILABLE WITH THE APPELLANT AS ON 31.03.2011 IS RS .2411,75,11,878/- OUT OF WHICH INTEREST FREE ADVANCES GIVEN IN FORM OF SHARE APPLICATION MO NEY/LOANS ARE RS.262,50,00,000/- ONLY AND LOANS CLASSIFIED AS NPA ARE RS.35,40,81,533/-. THUS, AFTER GIVING INTEREST FREE ADVANCES GIVEN IN FORM OF SHARE APPLICATION MONEY/LOANS, THE APPELLANT IS STILL HAVING INTEREST FREE FUNDS AMOUNTING TO RS.2149,25,11,878/- WITH IT. THE REFORE, IN VIEW OF DECISION OF THE JURISDICTIONAL HIGH COURT IN THE CASES OF RELIANCE UTILITIES AND POWER LTD. (313 ITR 340) AND HDFC BANK LTD. IN APPEAL NO. 330 OF 2012 VIDE ORDER DATED 23.07.2014, THERE IS NO CASE FOR DISALLOWANCE OF ANY INTEREST U/S. 36(1)(III) OF THE I.T. ACT. IT WILL NOT BE OUT OF PLACE MENTION THAT SIMILAR INTEREST DISALLOWANCE MADE BY THE AO I N A.Y. 2008-09 TO 2010-11 HAS BEEN DELETED BY THE ITAT VIDE ITS DECISIONS IN ITA NO. 1 655/MUM/2013 AND ITA NO. 4416/MUM/2014 DATED 22.05.2016 AND ITA NO. 6454/MUM /2016 DATED 19.09.2018. IN VIEW OF THIS, DISALLOWANCE OF RS.33,08,31,052/- MAD E BY THE AO U/S. 36(1)(III) OF THE I.T. ACT IS DIRECTED TO BE DELETED. 5. BEFORE US, THE LD. DEPARTMENTAL REPRESENTATIVE ( DR) SUPPORTS THE ORDER OF THE AO BY RELYING ON THE DECISION IN TULIP STAR HOTELS LTD . (SUPRA). ON THE M/S SPRIT INFRAPOWER ITA NO. 976/MUM/2019 4 OTHER HAND, THE LD. COUNSEL FOR THE ASSESSEE RELIES ON THE ORDER OF THE LD. CIT(A). 6. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE RELEVANT MATERIALS ON RECORD. THE REASON FOR OUR DECISION ARE GIVEN BE LOW. AS RIGHTLY NOTED BY THE LD. CIT(A), THE GROSS AMOUN T OF INTEREST-FREE FUNDS AVAILABLE WITH THE ASSESSEE AS ON 31.03.2011 IS RS.2411,75,11,878/- OUT OF WHICH INTEREST-FREE ADVANCES GIVEN IN FORM OF SH ARE APPLICATION MONEY/LOANS ARE RS.262,50,00,000/- ONLY AND LOANS C LASSIFIED AS NPA ARE RS.35,40,81,533/-. ACCORDINGLY, AFTER GIVING INTERE ST-FREE ADVANCES IN THE FORM OF SHARE APPLICATION MONEY/LOANS, THE ASSESSEE IS S TILL HAVING INTEREST-FREE FUNDS AMOUNTING TO RS.2149,25,11,878/- WITH IT. IN THE CASE OF RELIANCE UTILITIES & POWER LTD. (SUPRA), THE HONBLE BOMBAY HIGH COURT HAS HELD TH AT : - 10. IF THERE BE INTEREST-FREE FUNDS AVAILABLE TO AN ASS ESSEE SUFFICIENT TO MEET ITS INVESTMENTS AND AT THE SAME TIME THE ASSESSEE HAD R AISED A LOAN IT CAN BE PRESUMED THAT THE INVESTMENTS WERE FROM THE INTEREST-FREE FU NDS AVAILABLE. IN OUR OPINION THE SUPREME COURT IN EAST INDIA PHARMACEUTICAL WORKS LT D. (SUPRA) HAD THE OCCASION TO CONSIDER THE DECISION OF THE CALCUTTA HIGH COURT IN WOOLCOMBERS OF INDIA LTD. (SUPRA) WHERE A SIMILAR ISSUE HAD ARISEN. BEFORE TH E SUPREME COURT IT WAS ARGUED THAT IT SHOULD HAVE BEEN PRESUMED THAT IN ESSENCE A ND TRUE CHARACTER THE TAXES WERE PAID OUT OF THE PROFITS OF THE RELEVANT YEAR AND NO T OUT OF THE OVERDRAFT ACCOUNT FOR THE RUNNING OF THE BUSINESS AND IN THESE CIRCUMSTAN CES THE APPELLANT WAS ENTITLED TO CLAIM THE DEDUCTIONS. THE SUPREME COURT NOTED THAT THE ARGUMENT HAD CONSIDERABLE FORCE, BUT CONSIDERING THE FACT THAT THE CONTENTION HAD NOT BEEN ADVANCED EARLIER IT DID NOT REQUIRE TO BE ANSWERED. IT THEN NOTED THAT IN WOOLCOMBER'S CASE (SUPRA) THE CALCUTTA HIGH COURT HAD COME TO THE CONCLUSION THAT THE PROFITS WERE SUFFICIENT TO MEET THE ADVANCE TAX LIABILITY AND THE PROFITS WERE DEPOSITED IN THE OVERDRAFT ACCOUNT OF THE ASSESSEE AND IN SUCH A CASE IT SHOUL D BE PRESUMED THAT THE TAXES WERE M/S SPRIT INFRAPOWER ITA NO. 976/MUM/2019 5 PAID OUT OF THE PROFITS OF THE YEAR AND NOT OUT OF THE OVERDRAFT ACCOUNT FOR THE RUNNING OF THE BUSINESS. IT NOTED THAT TO RAISE THE PRESUMPTION, THERE WAS SUFFICIENT MATERIAL AND THE ASSESSEE HAD URGED THE CONTENTION BEFORE THE HIGH COURT. THE PRINCIPLE THEREFORE WOULD BE THAT IF THERE ARE FUND S AVAILABLE BOTH INTEREST-FREE AND OVERDRAFT AND/OR LOANS TAKEN, THEN A PRESUMPTION WO ULD ARISE THAT INVESTMENTS WOULD BE OUT OF THE INTEREST-FREE FUND GENERATED OR AVAILABLE WITH THE COMPANY, IF THE INTEREST-FREE FUNDS WERE SUFFICIENT TO MEET THE INVESTMENTS. 6.1 THE ABOVE DECISION IS UPHELD BY THE HONBLE SUP REME COURT IN CIT V. M/S RELIANCE INDUSTRIES LTD. (CA NO. 10 OF 2019) OBSERVING THAT : THE HIGH COURT HAS NOTED THE FINDING OF THE TRIBUN AL THAT THE INTEREST-FREE FUNDS AVAILABLE TO THE ASSESSEE WERE SUFFICIENT TO MEET I TS INVESTMENT. HENCE, IT COULD BE PRESUMED THAT THE INVESTMENTS WERE MADE FROM THE IN TEREST-FREE FUNDS AVAILABLE WITH THE ASSESSEE. 6.2 THE CONTENTION OF THE LD. DR THAT THE DECISION IN TULIP STAR HOTELS LTD. (SUPRA) IS TO BE CONSIDERED IS REJECTED ON THE GROU ND THAT IT RELATED TO THE RECONSIDERATION OF THE DECISION IN THE CASE OF S.A. BUILDERS LTD. V. CIT (2007) 288 ITR 1, WHEREIN THE FOLLOWING OBSERVATIONS WERE MADE : ..WHERE IT IS OBVIOUS THAT A HOLDING COMPANY HAS A DEEP INTEREST IN ITS SUBSIDIARY, AND HENCE IF THE HOLDING COMPANY ADVANCES BORROWED MONEY TO A SUBSIDIARY AND THE SAME IS USED BY THE SUBSIDIARY FOR SOME BUSINES S PURPOSES, THE ASSESSEE WOULD, IN OUR OPINION ORDINARILY BE ENTITLED TO DEDUCTION OF INTEREST ON ITS BORROWED LOANS. 6.3 WE FIND THAT IN THE INSTANT CASE, THE RATIO LA ID DOWN BY THE HONBLE BOMBAY HIGH COURT IN RELIANCE UTILITIES & POWER LTD . (SUPRA), WHICH IS CONFIRMED BY THE HONBLE SUPREME COURT IS SQUARELY APPLICABLE. THEREFORE, FOLLOWING THE SAME WE DISMISS THE 1 ST GROUND OF APPEAL. M/S SPRIT INFRAPOWER ITA NO. 976/MUM/2019 6 7. THE 2 ND GROUND OF APPEAL WHETHER ON THE FACTS AND IN THE CIRCUMSTANCES OF TH E CASE AND IN LAW, LD. CIT(A) ERRED IN IGNORING THE DECISION OF HON'BLE SUPREME C OURT IN THE CASE OF ACIT VS. TULIP STAR HOTELS LTD. DATED O6.05.2012 AND THE DEC ISION OF HON'BLE HIGH COURT IN THE CASE OF GODREJ & BOYCE CO. LTD. ITXA NO. 626 /10 & WP 758/10 DATED 12.08.2010 AND DELETING THE DISALLOWANCE OF RS.39,5 7,36,740/- MADE BY THE ASSESSING OFFICER U/S. 14A OF THE INCOME TAX ACT. 8. THE AO NOTED THAT THE ASSESSEE HAS SHOWN DIVIDEN D INCOME OF RS.21,88,22,976/-. IN THE COMPUTATION OF INCOME, TH E ASSESSEE HAS CLAIMED THE SAID DIVIDEND INCOME AS EXEMPT U/S 10(34) OF THE AC T AND SUO MOTU DISALLOWED AN AMOUNT OF RS.19,08,96,715/- U/S 14A R .W. RULE 8D OF THE INCOME TAX RULES, 1962 (THE RULES). HOWEVER, THE AO COMPUTED A DISALLOWANCE OF RS.58,66,33,455/- CONSISTING OF RS. 45,82,11,048/- UNDER RULE 8D(2)(II) AND RS.12,84,22,407/- UNDER RULE 8D(2)(II I). AS THE ASSESSEE HAD DISALLOWED RS.19,08,96,715/- IN ITS COMPUTATION OF INCOME, THE AO RESTRICTED THE DISALLOWANCE TO RS.39,57,36,740/-. 9. IN APPEAL, THE LD. CIT(A) HELD AS UNDER : I HAVE CONSIDERED THE SUBMISSION MADE BY THE APPELL ANT AND THE REASONS RECORDED BY THE AO. IN VIEW OF THE DECISIONS OF THE JURISDIC TION TRIBUNAL AND OTHER DECISIONS QUOTED BY THE APPELLANT, I AM AGREEMENT WITH THE SU BMISSION OF THE APPELLANT THAT NET INTEREST EXPENDITURE OF RS.33,16,74,921/- ONLY SHOULD BE CONSIDERED FOR THE PURPOSE OF DISALLOWANCE UNDER RULE 8D(2)(II). IN VI EW OF THE DECISION OF SPECIAL BENCH, ITAT, DELHI IN THE CASE OF VIREET INVESTMENT (P) LTD. (SUPRA), I AM ALSO IN AGREEMENT WITH THE SUBMISSION OF THE APPELLANT THAT ONLY THOSE INVESTMENTS SHOULD BE CONSIDERED FOR PURPOSE OF MAKING DISALLOWANCE WH ICH HAVE YIELDED EXEMPT M/S SPRIT INFRAPOWER ITA NO. 976/MUM/2019 7 INCOME DURING THE YEAR. THE AO IS DIRECTED TO RECAL CULATE THE DISALLOWANCE UNDER RULE 8D(2)(II) ACCORDINGLY. SO FAR AS DISALLOWANCE UNDER RULE 8D(2)(III) IS CON CERNED, THE AO HAS COMPUTED THE AMOUNT DISALLOWABLE AS PER RULES AT RS.12,84,22,407 /-. HOWEVER, IT IS SEEN FROM THE SUBMISSION OF THE APPELLANT THAT NET ADMINISTRATIVE EXPENDITURE CLAIMED BY THE APPELLANT IS RS.7,10,484/- ONLY BECAUSE OUT OF GROS S ADMINISTRATIVE EXPENDITURE OF RS.17,98,784/- DEBITED TO THE P&L A/C., THE APPELLA NT HAS SUO MOTU DISALLOWED AMOUNT OF RS.10,88,300/-. IN VIEW OF THESE FACTS, T HE DISALLOWANCE UNDER RULE 8D(2)(III) IS DIRECTED TO BE RESTRICTED TO RS.7,10, 484/-, THE ACTUAL EXPENDITURE CLAIMED BY THE APPELLANT. 10. BEFORE US, THE LD. DR SUPPORTS THE ORDER PASSED BY THE AO. ON THE OTHER HAND, THE LD. COUNSEL SUBMITS THAT THE DISALLOWANCE BE RESTRICTED TO THE ONE AMOUNTING TO RS.19,08,96,715/- FILED BY THE ASSESSE E BEFORE THE AO. ALSO THE LD. COUNSEL RELIES ON THE ORDER OF THE CIT(A). 11. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE RELEVANT MATERIALS ON RECORD. IN THE CASE OF VIREET INVESTMENT (P.) LTD. (SUPRA), THE SPECIAL BENCH OF THE TRIBUNAL HAS HELD THAT ONLY THOSE INVESTMEN TS ARE TO BE CONSIDERED FOR COMPUTING AVERAGE VALUE OF INVESTMENT WHICH YIELDED EXEMPT INCOME DURING THE YEAR. THEREFORE, THE LD. CIT(A) HAS RIGHTLY DI RECTED THE AO TO RE-CALCULATE THE DISALLOWANCE UNDER RULE 8D(2)(II) ACCORDINGLY. AS RECORDED BY THE LD. CIT(A), THE ASSESSEE HAS CL AIMED NET ADMINISTRATIVE EXPENDITURE OF RS.7,10,484/- ONLY BE CAUSE OUT OF GROSS ADMINISTRATIVE EXPENDITURE OF RS.17,98,784/- DEBITE D TO THE PROFIT AND LOSS ACCOUNT, IT HAS SUO MOTU DISALLOWED AN AMOUNT OF RS.10,88,300/-. WE FIND TH AT THE LD. CIT(A), CONSIDERING THE FACTS OF THE CASE, HAS RIGHTLY DIRECTED THE AO TO M/S SPRIT INFRAPOWER ITA NO. 976/MUM/2019 8 RESTRICT THE DISALLOWANCE TO THE ACTUAL EXPENDITURE CLAIMED BY THE ASSESSEE AMOUNTING TO RS.7,10,484/-. THUS, THE 2 ND GROUND OF APPEAL IS DISMISSED. 12. IN THE RESULT, THE APPEAL FILED BY THE REVENUE IS DISMISSED. ORDER PRONOUNCED THROUGH NOTICE BOARD UNDER RULE 34 (4) OF THE INCOME TAX (APPELLATE TRIBUNAL) RULES, 1963. SD/- SD/- (RAVISH SOOD) (N.K. PRADHAN) JUDICIAL MEMBER ACCOUNTANT MEMBER MUMBAI; DATED: 20/10/2020 RAHUL SHARMA 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