Pirmal Finance Pvt. Ltd., Mumbai V. The Dy, CIT, Circle-2(1)(2), Vadodara

ITA 981/AHD/2016

• Counselvise Citation: [2019] 118 COUNSELVISE.COM (IT) 5100 (ITAT-AHMEDABAD)
• Duration Of Justice: 2 year(s) 8 month(s) 29 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 18-01-2019
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: Not Allotted
• Assessment Year: 2012-2013
• Appeal Filed On: 19-04-2016
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Keywords: Earning of tax free income
• Section: 143(3); 14A

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD C BENCH BEFORE: SHR I RAJPAL YADAV , JUDICIAL MEMBER AND SHRI AMARJIT SINGH, ACCOUNTANT MEMBER PIRAMAL FINANCE PVT. LTD. 4 TH FLOOR, PIRAMAL TOWER ANNEXE , GANP A TRAO KADAM M ARG, LOWER PAREL, MUMBAI - 400013 PAN: AAACG8457E (APPELLANT) VS THE D CIT, CIRCLE - 2( 1 )(2) , AAYAKAR BHAVAN, VADODARA - 390007 (RESPONDENT) REVENU E BY : S H RI KAMLESH MAKWANA , SR. D . R. ASSESSEE BY: MS. URVASHI SHODHAN, A.R. DATE OF HEARING : 04 - 12 - 2 018 DATE OF PRONOUNCEMENT : 18 - 01 - 2 019 / ORDER P ER : AMARJIT SINGH, ACCOUNTANT MEMBER : - THIS ASSESSEE S APPEAL FOR A.Y. 2012 - 13 , ARI SES FROM ORDER OF THE CIT(A) - 2, VADODARA DATED 25 - 01 - 2 016 , IN PROCEEDINGS UNDER SECTION 143(3) OF THE INCOME TAX ACT, 1961; IN SHORT THE ACT . 2. THE SOLI TARY GROUND OF APPEAL OF THE ASSESSEE IS AGAINST THE DECISION OF LD. CIT (A) OF CONFIRMING THE DISALLOWANCE OF RS. 6 , 29 , 080/ - BY INVOKING THE I T A NO . 981 / A HD/20 16 A SS ESSMENT YEAR 2012 - 13 I.T.A NO. 981 /AHD/20 16 A.Y. 2012 - 13 PAGE NO PIRAMAL FINANCE PVT. LTD. VS. D CIT 2 PROVISION OF SECTION 14A OF THE ACT. ON ACCOUNT OF EXPENDITURE ATTRIBUTABLE TO EXEMPT DIVIDEND INCOME 3. THE BRI EF FACT OF THIS CASE IS THAT DURING THE ASSESSMENT PROCEEDINGS U/S. 143(3) OF THE AC T , THE ASSESSING OFFICER NOTICED THAT ASSESSEE HAS CLAIMED EXEMPT INCOM E AMOUNTING TO RS. 9 , 51 , 000/ - U/S. 10(35) OF T HE ACT . ON FURTHER VERIFICATION , HE NOTICED THAT ASS ESSEE HAS NOT MADE ANY DISALLOWANCE U/S. 14A OF THE ACT READ WITH RULE 8D OF I.T. RULE . ON QUERY , THE ASSESSEE EXPLAINED THAT THERE WAS NO BORROWING AS ON 31 ST MARCH, 2012 AND IT HAD MADE INVESTMENT IN MUTUAL FUND FROM ITS OWN FUND, T HEREFORE, THE QUESTI ON OF DISALLOWANCE U/S. 14A OF INCOME TAX ACT DID NOT ARISE. HOWEVER, THE ASSESSING OFFICER HAS NOT ACCEPTED THE EXPLANATION OF THE ASSESSEE AND COMPUTED DISALLOWANCE AS PER RULE 8D OF THE IT RULE, 1962 TO THE AMOUNT OF RS.6,31,543 AND ADDED TO THE TOTAL INCOME OF THE ASSESSEE. 4. AGGRIEVED ASSESSEE HAS FILE D APPEAL BEFORE HE LD. CIT(A). T HE LD. CIT(A) HAS RESTRICTED THE DISALLOWANCE TO THE AMOUNT OF RS. 6 , 29 , 080/ - . THE RELEVANT PART OF DECISION OF LD. CIT(A) IS REPRODUCED AS UNDER: - 4. I HAVE CAREFU LLY CONSIDERED THE FACTS ON RECORD AND SUBMISSIONS OF THE LD.AR. FIRST GROUND PERTAINS TO DISALLOWANCE MADE U/S 14A AS PER RULE 8D AMOUNTING TO RS. 6,31,543/ - . THIS DISALLOWANCE CONSISTED OF RS. 2463/ - , OUT OF THE INTEREST OF RS.13,000/ - AND RS. 6,29,080/ - BEING 0.5% OF THE AVERAGE VALUE OF THE INVESTMENT, IT IS NOTICED THAT APPELLANT COMPANY HAS RECEIVED SHARE CAPITAL MONEY OF RS. 129.64 CRORES FROM PIRAMAL ENTERPRISES LTD (FORMERLY PHL CAPITAL PL), DURING THE YEAR UNDER CONSIDERATION. FURTHER THERE IS A D IRECT NEXUS BETWEEN THE SHARE CAPITAL RECEIVED BY THE APPELLANT COMPANY AND INVESTMENT IN BIRLA CASH MUTUAL FUNDS. THIS DIRECT NEXUS IS VERIFIABLE FROM THE BANK STATEMENT OF THE APPELLANT WITH HDFC BANK PLACED ON RECORD. THUS, I FIND THAT THE APPELLANT HAS NOT UTILIZED BORROWED FUNDS FOR THE PURPOSES OF INVESTMENT IN MUTUAL FUNDS RESULTING INTO EXEMPTED INCOME. ACCORDINGLY, IN MY CONSIDERED VIEW, NO DISALLOWANCE OUT OF' THE INTEREST IS CALLED FOR AND ACCORDINGLY, A DISALLOWANCE OF RS. 2,463/ - MADE BY THE AO IS DIRECTED TO BE DELETED. HOWEVER, IN RESPECT OF THE DISALLOWANCE AT 0.5% OF THE AVERAGE VALUE OF THE INVESTMENT ON ACCOUNT OF ADMINISTRATIVE EXPENSES, I AM OF THE VIEW THAT TIME AND ENERGY OF THE MANAGEMENT AS WELL AS RESOURCES OF THE COMPANY HAVE CERTA INLY BEEN UTILIZED BY THE APPELLANT COMPANY FOR MAKING INVESTMENT AND EARNING EXEMPTED INCOME. THEREFORE, I HOLD THAT DISALLOWANCE AT 0.5% OF THE AVERAGE VALUE OF THE INVESTMENTS IS JUSTIFIED FOR THE PURPOSES OF I.T.A NO. 981 /AHD/20 16 A.Y. 2012 - 13 PAGE NO PIRAMAL FINANCE PVT. LTD. VS. D CIT 3 ADMINISTRATIVE EXPENSES. THIS VIEW ALSO GETS SUPPORT FROM THE DECISIONS IN THE CASE OF DHAMPUR SUGAR MILLS LTD VS CIT (2014) 51 TAXMANN.COM 508 (ALL - HC) AND ITO VS RBK SHARE BROKING PVT. LTD (2013) 37 TAXMANN.COM 128 (MUM - TRIB.) WHEREIN IT HAS BEEN HELD THAT RULE 8D MANDATES DISALLOWANCE AT 0.5% OF THE AVERAGE VALUE OF THE INVESTMENT EVEN IF NO INTEREST WAS DISALLOWABLE. ACCORDINGLY, I UPHOLD THE ACTION OF AO IN THIS REGARD AND THUS DISALLOWANCE OF RS.6,29,080/ - STANDS CONFIRMED. APPELLANT PARTLY SUCCEEDS IN RESPECT OF GROUND NO.1. 5. WE HAVE HEARD THE RIVAL CONTENTIONS AND PER U SED THE MATERIAL ON RECORD CAREFULLY. IT I S NOTICED THAT ASSESSEE HAS NOT UTILIZED BORROWED FUND FOR THE PURPOSE OF INVESTMENT IN MUTUAL FUND AND TH E INVESTMENT W AS MADE OUT OF ITS OWN FUND. I T IS CLEAR THAT ASSESSEE HAS NO T INCURRED ANY COST OF INTEREST FOR MAKING INVESTMENT FOR EARNING ANY EXEMPT INCOME . AFTER TAKING INTO CONSIDERATION, THE NATURE OF INVESTMENT MADE IN THE MUTUAL FUND, WE ARE OF T HE VIEW T H AT IT WILL BE REASONABLE TO MAKE DISALLOWANCE OF AMOUNT OF RS. 2 LACS AS ADMINISTRATIVE EXPENDITURE INCURRED FOR EARNING THE AFORESAID EXEMPT INCOME . T HEREFORE, WE RESTRICT THE DISALLOWANCE TO THE EXTENT OF RS. 2 LACS. THEREFORE, THE APPEAL OF T HE ASSESSE E IS PARTLY ALLOWED. 6. IN THE RESULT, THE APPEAL OF THE AS SESSEE IS PARTLY ALLOWED. ORDER PR ONOUNCED IN THE OPEN C OURT ON 18 - 01 - 201 9 SD / - SD/ - ( RAJPAL YADAV ) ( AMARJIT SINGH ) JUDICIAL MEMBER ACCOUNTANT MEMBER AHMEDABAD : DATED 18 /01/2019 / COPY OF ORDER FORWARDED TO: - 1. ASSESSEE 2. REVENUE 3. CONCERNED CIT 4. CIT (A) 5. DR, ITAT, AHMEDABAD 6. GUARD FILE. I.T.A NO. 981 /AHD/20 16 A.Y. 2012 - 13 PAGE NO PIRAMAL FINANCE PVT. LTD. VS. D CIT 4 BY ORDER/ , / ,