JOINT COMMISSIONER OF INCOME TAX (OSD) 14(1)(2), MUMBAI V. DHFL HOLDING PRIVATE LIMITED, MUMBAI

ITA 985/MUM/2018

• Counselvise Citation: [2019] 116 COUNSELVISE.COM (IT) 5976 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 5 month(s) 8 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 31-07-2019
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: D
• Assessment Year: 2012-2013
• Appeal Filed On: 20-02-2018
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: H N SINGH SHRI RAKESH MOHAN
• Assessee Lawyers: IN CIRCUMSTANCES OF CA SE
• Keywords: Earning of tax free income; Retrospective amendment; Rule 8D; Set aside
• Section: 142(1); 14A; 132

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL D BENCH, MUMBAI BEFORE SHRI M. BALAGANESH , AM AND SHRI AMARJIT SINGH, JM / I .T.A. NO.985 /MUM/201 8 ( / ASSESSMENT YEAR: 20 12 - 13 ) JT. COMMISSIONER OF INCOME TAX (OSD) - 14(1)(2) ROOM NO.475, 4 TH FLOOR, AAYAKAR BHAVAN, MAHARASHI KARVE ROAD, MUMBAI - 400020 . / VS. M/S. DHFL HOLDING PVT. LTD. 6 TH FLOOR, HDIL TOWER, A.K. MARG, BANDRA (E), MUMBAI - 400051. ./ ./ PAN/GIR NO. : AA DCD6857C ( / APPELLANT ) .. ( / RESPONDENT ) / DATE OF HEARING: 29 /07/2019 /DATE OF PRONOUNCEMENT: 31 /07/ 201 9 / O R D E R PER AMARJIT SINGH, JM: THE REVENUE HAS FILED THE PRESENT APPEAL AGAINST THE ORDER DATED 28 . 11 .201 7 PASSED BY THE COMMISSIONER OF INCOME TAX (APPEALS) - 22 , MUMBAI [HEREINAFTE R REFERRED TO AS THE CIT(A)] RELEVANT TO THE A.Y. 20 1 2 - 1 3 . 2 . THE REVENUE HAS RAISED THE FOLLOWING GROUNDS: - ' 1. 'ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, WAS THE CIT(A) RIGHT IN UPHOLDING THE DECISION OF THE ASSESSING OFFICER IN PARTLY CONFIRMING THE DECISION OF THE AO; TH AT IS CONTRARY TO THE REVENUE BY : SHRI H.N. SINGH ASSESSEE BY: SHRI RAKESH MOHAN ITA NO. 985 /M/2018 A.Y.20 12 - 13 2 PROVISIONS OF SECTION 14A READ WITH RULE 8D, THAT HAS BEEN INTRODUCED WITH RETROSPECTIVE EFFECT FROM 1.4.1962. 2. 'ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, WAS THE CIT(A) RIGHT IN RESTRICTING THE DISALLOWANCE U/S. 14A TO THE EXTENT OF EXEMPT INCOME EARNED BY THE ASSESSEE COMPANY'. 3. THE APPELLANT PRAYS THAT THE ORDER OF THE CIT(A) ON THE ABOVE GROUND BE REVERSED AND THAT OF THE ASSESSING OFFICER BE RESTORED. 4. THE APPELLANT CRAVES LEAVES TO AMEND OR ALTER ANY GROU ND OR ADD A NEW GROUND WHICH MAY BE NECESSARY. 3 . THE BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE FILED ITS RETURN OF INCOME FOR THE A.Y 2012 - 13 ON 26.09.2012 DECLARING TOTAL INCOME TO THE TUNE OF RS. NIL AND CURREN T YEAR LOSS TO THE TUNE OF RS.52,31,7 4,228/ - THEREAFTER, THE CAS E WAS SELECTED FOR SCRUTINY, THEREFORE, NOTICES U/S 143(2) AND 142(1) OF THE ACT WERE ISSUED AND SERVED UPON THE ASSESSEE. THE ASSESSEE COMPANY WAS A PRIVATE LIMITED COMPANY ENGAGED IN THE BUSINESS OF HOLDING & INVESTMENTS IN SHA RES, BONDS, DEBENTURES ETC. ON VERIFICATION, IT WAS FOUND THAT THE ASSESSEE RECEIVED THE DIV IDEND INCOME TO THE TUNE OF RS. 27,49,31,445/ - WHICH WAS CLAIMED AS EXEMPT U/S 10(34) OF THE ACT. THE AO APPLIED THE PROVISIONS U/S 14A OF THE ACT R.W. RULE 8D OF TH E RULES AND ASSESSED THE EXPENDITURE TO EARN THE EXE MPT INCOME TO THE TUNE OF RS.5176 LAKHS. THE TOTAL INCOME OF THE ASSESSEE WAS ASSESSED AS NIL AND BOOK PROFIT AT LOSS OF RS.2333 LAKHS. FEELING AGGRIEVED, THE ASSESSEE FILED AN APPEAL BEFORE THE CIT(A) AN D THE CIT(A) RESTRICTED THE ADDITION TO THE EXTENT OF EXEMPT INCOME. FEELING AGGRIEVED, THE REVENUE HAS FILED THE PRESENT APPEAL BEFORE US. 4. WE HAVE HEARD THE ARGUMENTS ADVANCED BY THE LD. REPRESENTATIVE OF THE PARTIES AND PERUSED THE RECORD. THE LD. REP RESENTATIVE OF THE REVENUE HAS ARGUED THAT THE CIT(A) HAS WRONGLY DELETED THE ADDITION RAISED BY THE ITA NO. 985 /M/2018 A.Y.20 12 - 13 3 AO IN VIEW OF THE PROVISIONS U/S 14A OF THE ACT R.W. RULE 8D OF THE RULES , THEREFORE, T HE FINDING OF THE CIT(A) IS NOT JUSTIFIABLE, HENCE, IS LIABLE TO BE SET ASIDE. HOWEVER, ON THE OTHER HAND, THE LD. REPRESENTATIVE OF THE ASSESSEE HAS STRONGLY RELIED UPON THE ORDER PASSED BY THE CIT(A) IN QUESTION. BEFORE GOING FURTHER, WE DEEMED IT NECESSARY TO ADVERT THE FINDING OF THE CIT( A) ON RECORD : - 6.2 I HAVE CO NSIDERED THE APPELLANTS SUBMISSIONS. THERE IS NO DISPUTE THAT THE WHOLE OF THE INTEREST EXPENSES OF RS.4832 LAKHS HAS BEEN INCURRED ON ACCOUNT OF BORROWINGS FOR MAKING THE INVESTMENT FROM WHICH EXEMPT INCOME HAS BEEN EARNED. THIS IS AN EXPENDITURE DIRECTL Y RELATING TO SUCH INCOME AND THE WHOLE OF SUCH EXPENDITURE IS TO BE DISALLOWED U/S 14A OF THE ACT. AS REGARDS DISALLOWANCE OF ADMINISTRATIVE EXPENSES OF 0.5% UNDER RULE CD (2)(III), THE VARIOUS COURTS HAVE HELD THAT EARNING OF INCOME INCLUDING EXEMPT INCO ME IS NOT AN AUTOMATIC ACTIVITY AND THAT IT INVOLVES RESOURCES AND ADMINISTRATIVE EXPENSES. THE DISALLOWANCE MADE BY THE ASSESSING OFFICER IS, THEREFORE, CONFIRMED IN PRINCIPLE. HOWEVER, WHILE CALCULATING THE AVERAGE VALUE OF INVESTMENTS, THE INVESTMENTS M ADE IN SUBSIDIARIES FOR STRATEGIC PURPOSE IS TO BE EXCLUDED AS HELD BY THE VARIOUS COURTS. 6.3 THE APPELLANT HAS CONTENDED THAT DISALLOWANCE U/S 14A HAS TO BE RESTRICTED TO THE EXTENT OF EXEMPT INCOME CLAIMED. RELIANCE HAS BEEN PLACED ON THE DECISION OF TH E HON'BLE DELHI HIGH COURT IN THE CASE OF JOINT INVESTMENTS PVT. LTD. VS. CIT (2015) 372 ITR 694 (DELHI)(HC) IN SUPPORT OF THIS PROPOSITION. FURTHER RELIANCE HAS ALSO BEEN PLACED ON THE DECISION OF THE HON'BLE JURISDICTIONAL TRIBUNAL IN THE CASE OF DAGA GL OBAL CHEMICALS PVT. LTD. IN TA NO. 5592/MUM/2012 WHEREIN IT HAS BEEN HELD THAT DISALLOWANCE U/S 14A R.W. RULE 8D CANNOT EXCEED THE EXEMPT INCOME. IN VIEW OF THESE JUDGEMENTS, THE DISALLOWANCE U/S 14A IS RESTRICTED TO THE EXEMPT INCOME OF RS.2749 LAKHS. THE APPELLANT'S GROUND OF APPEAL IS PARTLY ALLOWED. 5 . ON APPRAISAL OF THE ABOVE MENTIONED ORDER, WE NOTICED THAT THE CIT(A) HAS RESTRICTED THE EXPENDITURE TO EARN THE EXEMPT INCOME TO THE EXTENT OF DIVIDEND INCOME IN VIEW OF THE DECISION OF HONBLE DELHI HI GH COURT IN CASE OF JOINT INVESTMENTS PVT. LTD. VS. CIT (2015) 372 ITR 694 ITA NO. 985 /M/2018 A.Y.20 12 - 13 4 (DELHI) (HIGH COURT) AND PLACED RELIANCE UPON THE DECISION OF HONBLE ITAT MUMBAI BENCH IN CASE OF DAGA GLOBAL CHEMICALS PVT. LTD. IN ITA. NO.5592/M/2012. THE FACTS ARE NOT DISTINGU ISHABLE AT THIS STAGE. NO LAW CONTRARY TO THE LAW RELIED BY THE LD. REPRESENTATIVE OF THE CIT(A) HAS BEEN PRODUCED BEFORE US. THE CIT(A) HAS RIGHTLY RESTRICTED THE ADDITION TO THE EXTENT OF DIVIDEND INCOME IN VIEW OF THE PROVISIONS U/S 14A OF THE ACT R.W. RULE 8D OF THE RULES, THEREFORE, T AKING INTO ACCOUNT ALL THE FACTS AND CIRCUMSTANCES, WE ARE OF THE VIEW THAT THE CIT(A) HAS DECIDED THE MATTER OF CONTROVERSY JUDICIOUSLY AND CORRECTLY WHICH IS NOT LIABLE TO BE INTERFERE WITH AT THIS APPELLATE STAGE. ACCOR DINGLY, WE DECIDE THESE ISSUES IN FAVOUR OF THE ASSESSEE AGAINST THE REVENUE. 6 . IN THE RESULT, THE APPEAL FILED BY THE REVENUE IS HEREBY ORDERED TO BE D ISMISSED . ORDER PRONOUNCED IN THE OPEN COURT ON 31 /07/2019 SD/ - SD / - ( M. BALAGANESH ) (AMARJIT SINGH) / ACCOUNTANT MEMBER /JUDICIAL MEMBER MUMBAI; DATED : 31 /07/2019 V IJAY /SR.PS ITA NO. 985 /M/2018 A.Y.20 12 - 13 5 / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT 2. / THE RE SPONDENT. 3. ( ) / THE CIT(A) - 4. / CIT 5. , , / DR, ITAT, MUMBAI 6. / GUARD FILE. / BY ORDER, //TRUE COPY// / / (DY./ASSTT. REGISTRAR) , / ITAT, MUMBAI