DCIT CIRCLE- 5(2)(1), MUMBAI V. M/S JSW INVESTMENT PVT LTD., MUMBAI

MA 245/MUM/2022

AI Insights

The case involves the Deputy Commissioner of Income Tax (DCIT) vs. M/s JSW Investment Pvt. Ltd., where the revenue filed a Miscellaneous Application claiming an apparent mistake in the earlier judgment regarding the disallowance under Section 14A of the Income Tax Act. The original dispute centered on the disallowance amount related to exempt income, specifically dividend income, and whether it should be calculated based on actual expenses or under Rule 8D as invoked by the assessing officer. The CIT(A) had restricted the disallowance to the actual expenditure debited to the P&L account, a decision which the revenue challenged but was upheld by the Tribunal.

• Counselvise Citation: [2023] 140 COUNSELVISE.COM (IT) 130289 (ITAT-MUMBAI)
• Duration Of Justice: 3 month(s) 21 day(s)
• Appeal Type: Miscellaneous Application
• Pronouncement Date: 04-01-2023
• Appeal Filed By: Department
• Order Result: Allowed
• Bench Allotted: F
• Next Hearing Date: 24-11-2022
• Assessment Year: 2012-2013
• Appeal Filed On: 13-09-2022
• Other Referred Cases: DCIT Circle 4, Kolkata v Trade Apartment Lt., ITO Ward 4(2), Ahmedabad vs Kamavati Petrochem Pvt. Ltd, CIT v Dr. V. P. Gopinathan, Jaipur Spg. & Wvg. Mills Ltd. v. Deputy Commissioner of Income-tax, Jaipur, Tata Industries Limited vs The ACIT, Range 2(3). Mumbai, Commissioner of Income-tax v Dr. C. John Rajan
• Laws Referred To: Income Tax Act
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Keywords: Earning of tax free income; Rule 8D
• Section: 14A

Judgement Text

P a g e | 1 M.A. No.245/Mum/2022 A.Y. 2012-13 The DCIT-5(2)(1) Vs. M/s JSW Investment Pvt. Ltd. IN THE INCOME TAX APPELLATE TRIBUNAL “F” BENCH, MUMBAI BEFORE SHRI AMIT SHUKLA, JUDICIAL MEMBER & SHRI AMARJIT SINGH, ACCOUNTANT MEMBER M.A. No.245/Mum/2022 (Arising out of ITA No.762/Mum/2020) (A.Y. 2012-13) The DCI T-5(2)(1) Room No. 571, 5 th Floor, Aayakar Bhavan, M.K. Road, Mumbai -400020 Vs. M/s JSW Investment Pvt. Ltd., 5a, Jindal Mansion, Dr. G.D. Deshmukh Marg, Peddar Road, Mumbai - 400026 स्थायी लेखा सं./जीआइआर सं./PAN/GIR No: AAJCS2498G Appellant .. Respondent Appellant by : Tejinder Pal Singh Anand Respondent by : None Date of Hearing 25.11.2022 Date of Pronouncement 05.01.2023 आदेश / O R D E R Per Amarjit Singh (AM): Vide Miscellaneous Application No. 245/Mum/2022 the revenue submitted that there was apparent mistake from record and the appeal of Revenue was dismissed without referring the grounds of appeal of the Revenue against the decision of the ld. CIT(A) in restricting the disallowance u/s 14A of the Act to the actual expenditure debited to P & L account. 2. Heard the ld. D.R and perused the material on record. It is noticed that while adjudicating ground of appeal of the revenue at para 4 & 5 inadvertently the findings of the ld. CIT(A) relating to issue of exempt P a g e | 2 M.A. No.245/Mum/2022 A.Y. 2012-13 The DCIT-5(2)(1) Vs. M/s JSW Investment Pvt. Ltd. income was referred. There was an apparent mistake from record and the correct ground of appeal of the assesse was as under: “On the facts and circumstances of the case and in law, the ld. CIT(A) has erred in restricting the disallowance under Section 14A of the Actual expenditure debited to P & L account without taking into consideration the Rule 8D envoked by the assessing officer.” The assesse had claimed dividend income of Rs.63,24,63,668/- as exempt u/s 10(34) of the Act and in the computation of income made a disallowance of Rs.87,04,68,604/- u/s 14A of the Act. During the course of assessment proceedings it worked disallowances under Rule 8D at Rs.83,18,17,709/- which was not accepted by the A.O and computed disallowance u/s 14A at Rs.93,57,74,644/-. 3. The ld. CIT(A) has found merit in the claim of the assesse and restricted the disallowance u/s 14A to actual expenditure debited in the profit and loss account. The relevant part of the decision of CIT(A) is reproduced as under: “Decision: 7.3.1 I have considered the submission of the appellant, carefully gone through the order of the AO, perused the material placed on record, and referred to the case laws relied upon by the appellant. 7.3.2 It is the contention of the AR that the interest income from bank deposits has been set off against interest expenditure and the net interest expenditure debited to P & L account has been considered for disallowance u/s 14A which is in consonance with the ratio laid by the Hon'ble Kolkata Tribunal in the case of DCIT Circle 4, Kolkata v Trade Apartment Lt. (ITA No 1277/KOL/2001 and the Hon'ble Ahmedabad Tribunal in the case of ITO Ward 4(2), Ahmedabad vs Kamavati Petrochem Pvt. Ltd (ITA 2228/AHD/2012). 7.3.3 In this connection, the decision of the Hon'ble Supreme Court in the case of CIT v Dr. V. P. Gopinathan [2001] 248 ITR 449, is relevant wherein the Hon'ble Supreme Court has held that the interest that the assessee received from the bank on the fixed deposit was income in his hands and it could stand diminished only if there was a provision in law permitting such diminution. There was no such provision of law and the interest on the loan taken from the bank did not reduce his income by way of interest on the fixed deposit. 7.3.4 The decision of the Hon'ble High Court of Rajasthan in the case of Jaipur Spg. & Wvg. Mills Ltd. v. Deputy Commissioner of Income-tax, Jaipur P a g e | 3 M.A. No.245/Mum/2022 A.Y. 2012-13 The DCIT-5(2)(1) Vs. M/s JSW Investment Pvt. Ltd. [2017] 88 taxmann.com 608 (Rajasthan) is also relevant in this regard wherein it is held as under: “We also find that the earlier view adopted by this court in CIT v. Dr. V. P Gopinathan [1998] 229 ITR 801 was reversed by the Supreme Court in CIT v. Dr. V. P Gopinathan [20011 248 ITR 449 wherein the Supreme Court held that the interest that the assessee received from the bank on the fixed deposit was income in his hands and it could stand diminished only if there was a provision in law permitting such diminution There was no such provision of law and the interest on the loan taken from the bank did not reduce his income by way of interest on the fixed deposit. We find that the ratio of the decision of the Supreme Court also squarely covers the question referred for our opinion.” 12. In that view of the matter, we are of the opinion that the netting of the interest paid and the interest received is not permissible. Section 57 (i) of the Income Tax Act also does not help the assessee, in peculiar facts of the case, the assessee cannot be heard to say that it has spent Rs.5,33,23,380/- for earning interest of Rs.59,31,141/- on the FDR Hence, the view taken by the tribunal is just and proper and more particularly in the light of observations made by the Supreme Court in para no. 10. 7.3.5 It may also be added that the above position has also been clarified by the Hon'ble High Court of Kerala in Commissioner of Income-tax v Dr. C. John Rajan [2003] 130 TAXMAN 806 (Ker.) wherein it is held as under: 3. We have heard the learned Central Government Standing Counsel appearing for the applicant. Though notice was served on the respondent, there is no appearance. The Standing Counsel submitted that the question referred is covered by the decision of the Supreme Court in CIT v Dr VP Gopinathan [2001] 248 ITR 4492 We have perused the said judgment. The questions involved in the case before the Supreme Court was as to whether the assessee is to be assessed on the gross amount of interest received by him on his Fixed Deposits or on the interest received as reduced by the amount of interest paid on the loan amount taken on the security of the said deposits The Supreme Court held that the interest that the assessee received from the bank on fixed deposit was income in his hands and it could stand diminished only if there was a provision in law permitting such diminution. There is none, and therefore, the amount paid by the assessee as interest on the loan he took from the bank did not reduce his income by way of interest on the fixed deposits placed by him in the bank. 7.3.6 Thus it clearly emerges from the above judgments that interest that the appellant received from the bank on fixed deposit was income in its hands and it could stand diminished only if there was a provision in law permitting such diminution Since there is no such provision of law, therefore, setting off the interest income from bank deposits against interest expenditure the appellant was not as per law. Therefore the AO has justified in rejecting the claim of the appellant as regards the netting of expenses. 7.3.7 The appellant has next contended that the investment made in JSW Steel Ltd. during the year is Rs.29,05,15,034/- which is less than exempt income of Rs.63,24,63,668/- earned during the year, therefore no interest expenditure was incurred by the appellant for earning above dividend income, hence the P a g e | 4 M.A. No.245/Mum/2022 A.Y. 2012-13 The DCIT-5(2)(1) Vs. M/s JSW Investment Pvt. Ltd. correct disallowance under Rule 8D is at Rs.83,18,17,709/- as against disallowance of Rs. 87,04,68,604/- made u/s 14A of the Act in the computation of income. I have considered the submission and in my view such a claim of the appellant cannot merely accepted merely on the basis that investment made in JSW Steel Ltd. during the year is Rs.29,05,15,034/ which is less than exempt income of Rs.63,24,63,668/- earned during the year unless the appellant demonstrate that such dividend income was at the disposal of the appellant when the investment were made. Further, it may be added here that the Hon'ble Income Tax Appellate Tribunal Mumbai Bench "E". Mumbai in the case of Tata Industries Limited vs The ACIT, Range 2(3). Mumbai in ITA No 7595/Mum/2013 (AY 2010-11) & ITA No 1855/Mum/2015 (AY 2011-12) dated 28th September, 2018 has rejected an identical claim of the assessee observing that "The assessee, on its own, determined disallowance as per the provisions of section 14A r.w.r 8D(2)(m) Therefore, we are of the considered view that there is no reason for the assessee to seek revision of its own computation. 7.3.8 However, I find merit in the claim of the appellant that the disallowance u/s 14A should be restricted to actual expenditure debited to debited to P & L account as the disallowance u/s 14A cannot exceed actual expenditure debited to debited to P & L account. Hence, the AO is directed to restrict the disallowance u/s 14A to actual expenditure debited to debited to P & L account.” After taking into consideration the facts and finding of the ld. CIT(A) we don’t find any error in the decision of ld. CIT(A) in restricting the disallowance to the extent of actual expenditure debited to P & L account. Therefore, we don’t find any merit in the appeal of the revenue, the same stand dismissed. 4. In the result, the Miscellaneous Application filed by the revenue is allowed for technical reasons with the status quo that the appeal of the Revenue stand dismissed. Order pronounced in the open court on 05.01.2023 Sd/- Sd/- (Amit Shukla) (Amarjit Singh) Judicial Member Accountant Member Place: Mumbai Date 05.01.2023 Rohit: PS P a g e | 5 M.A. No.245/Mum/2022 A.Y. 2012-13 The DCIT-5(2)(1) Vs. M/s JSW Investment Pvt. Ltd. आदेश की प्रतितिति अग्रेतिि/Copy of the Order forwarded to : 1. अपीलाथी / The Appellant 2. प्रत्यथी / The Respondent. 3. आयकर आयुक्त(अपील) / The CIT(A)- 4. आयकर आयुक्त / CIT 5. विभागीय प्रविविवि, आयकर अपीलीय अविकरण DR, ITAT, Mumbai 6. गार्ड फाईल / Guard file. सत्यावपि प्रवि //True Copy// आदेशानुसार/ BY ORDER, उि/सहायक िंजीकार (Dy./Asstt. Registrar) आयकर अिीिीय अतिकरण/ ITAT, Bench, Mumbai.