DCIT CIR 3(3), MUMBAI v. SAMART CHIP LTD, MUMBAI

ITA 1923/MUM/2012 | 2008-2009
Pronouncement Date: 28-11-2014 | Result: Dismissed

Appeal Details

RSA Number 192319914 RSA 2012
Assessee PAN SABCS2005H
Bench Mumbai
Appeal Number ITA 1923/MUM/2012
Duration Of Justice 2 year(s) 8 month(s) 7 day(s)
Appellant DCIT CIR 3(3), MUMBAI
Respondent SAMART CHIP LTD, MUMBAI
Appeal Type Income Tax Appeal
Pronouncement Date 28-11-2014
Appeal Filed By Department
Order Result Dismissed
Bench Allotted E
Tribunal Order Date 28-11-2014
Date Of Final Hearing 22-10-2014
Next Hearing Date 22-10-2014
Assessment Year 2008-2009
Appeal Filed On 21-03-2012
Judgment Text
IN THE INCOME TAX APPELLATE TRIBUNAL E BENCH M UMBAI BEFORE S/SHRI I.P. BANSAL (JM) AND R.C. SHARMA (A M) . . . . ./I.T.A. NO.1923/MUM/2012 ( / ASSESSMENT YEAR : 2008-09) ASSTT. COMMISSIONER OF INCOME TAX CIRCLE 3(3) ROOM NO.609 6 TH FLOOR AAYAKAR BHAVAN M K ROAD MUMBAI-400020 / VS. M/S SMART CHIP LTD 714 RAHEJA CHAMBERS 213 NARIMAN POINT MUMBAI-400021 ( / APPELLANT) .. ( / RESPONDENT) ./I.T.A. NO.5196/MUM/2012 ( / ASSESSMENT YEAR : 2009-10) M/S SMART CHIP LTD 714 RAHEJA CHAMBERS 213 NARIMAN POINT MUMBAI-400021 / VS. DY.COMMISSIONER OF INCOME TAX CIRCLE 3(3) AAYAKAR BHAVAN M K ROAD MUMBAI-400020 ( / APPELLANT) .. ( / RESPONDENT) ./I.T.A. NO.5367/MUM/2012 ( / ASSESSMENT YEAR : 2009-10) ASSTT. COMMISSIONER OF INCOME TAX CIRCLE 3(3) ROOM NO.609 6 TH FLOOR AAYAKAR BHAVAN M K ROAD MUMBAI-400020 / VS. M/S SMART CHIP LTD 714 RAHEJA CHAMBERS 213 NARIMAN POINT MUMBAI-400021 ( / APPELLANT) .. ( / RESPONDENT) ./ ! ./PAN/GIR NO. ASABCS2005H ' / REVENUE BY SHRI LOVE KUMAR I.T.A. NO.1923/MUM/2012 AND OTHER TWO APPEALS 2 # ' /ASSESSEE BY SHRI SUNIL NAHATA $ # % & / DATE OF HEARING : 20.10.2014 '( # % & /DATE OF PRONOUNCEMENT : 28.11.2014 / O R D E R PER R.C. SHARMA ACCOUNTANT MEMBER: THE REVENUE HAS FILED APPEAL AGAINST THE ORDER D ATED 1.11.2011 PASSED BY THE LD. CIT(A) FOR THE ASSESSMENT YEARS 2008-09. THE REVENUE AND ASSESSEE HAVE ALSO FILED CROSS APPEALS AGAINST THE ORDER DAT ED 3.4.2012 PASSED BY THE LD. CIT(A) FOR THE ASSESSMENT YEAR 2009-10. SINCE ISSU E INVOLVED IN ALL THESE APPEALS IS COMMON WE HAVE HEARD THESE APPEALS TOGE THER AND THESE APPEALS ARE BEING DISPOSED OF BY THIS CONSOLIDATED ORDER F OR THE SAKE OF CONVENIENCE. 2. IN THE ASSESSMENT YEAR 2008-09 THE REVENUE HAS FILED APPEAL AGGRIEVED BY THE ORDER OF LD. CIT(A) FOR DELETING T HE ADDITION OF RS.33 90 461/- MADE UNDER SECTION 14A OF THE INCOME TAX ACT 1961 (THE ACT) READ WITH RULE 8D OF THE INCOME TAX RULES 12962 (THE RULES). 3. RIVAL CONTENTIONS HAVE BEEN HEARD AND RECORD PER USED. 4. FACTS IN BRIEF ARE THAT THE ASSESSEE IS ENGAGED IN THE BUSINESS OF SUPPLY OF SMART CARDS AND SMART CARD BASED SOLUTION SYSTE M INTEGRATION AND DEVELOPMENT OF SYSTEM INTEGRATION SOFTWARE. DURIN G THE COURSE OF SCRUTINY ASSESSMENT THE AO DISALLOWED AN EXPENDITURE OR RS .33 90 461/- ON THE PLEA THAT THIS EXPENDITURE WERE RELATED OF EARNING DIVID END INCOME. THE AO HAS DISCUSSED THE ISSUE IN PARA 6 OF THE ASSESSMENT ORD ER BY APPLYING THE PROVISIONS OF SECTION14A READ WITH RULE 8D . THE DISALLOWANC E WAS MADE TO THE TUNE OF RS.33 90 461/-. BY THE IMPUGNED ORDER THE LD. CIT (A) HAS DELETED THE DISALLOWANCE BY OBSERVING AS UNDER : 5.3 I HAVE CONSIDERED THE A.O.'S ORDER AS WELL AS APPELLANT AR'S SUBMISSIONS. HAVING CONSIDERED BOTH I FIND TH AT THE APPELLANT COMPANY HAS MADE INVESTMENT OF RS.14 55 00 309/- IN A GROUP COMPANY WHICH WAS 100% SUBSIDIARY OF THE APPELLANT COMPANY. FURTHER TO THAT THE APPELLANT'S SUBMISSION ALSO SU GGESTS THAT THE I.T.A. NO.1923/MUM/2012 AND OTHER TWO APPEALS 3 AFORESAID INVESTMENT WAS MADE BY THE APPELLANT COMP ANY AS STRATEGIC INVESTMENT FOR THE PURPOSE OF BUSINESS WHEREIN THE SOLE INTENTION WAS TO CARRYOUT THE BUSINESS PURPOSE OF THE APPELLANT COMP ANY. FURTHER TO THAT IT IS ALSO EVIDENT FROM THE SUBMISSION MADE B Y THE APPELLANT COMPANY THAT THE AFORESAID INVESTMENTS WERE MADE BY THE APPELLANT COMPANY FROM ITS OWN FUND AND NOT FROM ANY BORROWED FUNDS. THE INVESTMENT MADE BY THE APPELLANT COMPANY OF RS.6 05 00 309/- IN SYSCON CORPORATION LTD. WHICH WAS WHOLLY- OWNED SUB SIDIARY OF THE APPELLANT COMPANY WAS INVESTED FROM COMPANY'S OWN F UNDS AND IT IS EVIDENT FROM THE BANK STATEMENT FILED BY THE APPELL ANT COMPANY IN SUPPORT OF ITS CONTENTION AS ANNEXURE 'A' OF THE SUBMISSION . FURTHER TO THAT THE OTHER INVESTMENT OF RS.8 50 00 000/- WHICH HAS BEEN MADE AS SHARE APPLICATION MONEY WAS ALSO FROM THE APPELLANT'S OWN FUNDS AS IT IS EVIDENT FROM THE SUBMISSION MADE BY THE APPELLANT C OMPANY AS PER ANNEXURE 'D' OF THE APPELLANT'S SUBMISSION. IN ADDITION TO THIS IT IS ALSO A FACT ON RECORD THAT THE APPELLANT COMPANY'S OWN FUND IS MORE THAN THE INVESTMENT MADE BY THE APPELLANT COMPANY. HENCE THE DECISION OF JURISDICTIONAL HIGH COURT IN THE CASE O F RELIANCE UTILITIES & POWER LTD. (ITA NO. 1398 OF 2008) ALSO GOES IN FAVO UR OF THE APPELLANT COMPANY THAT THE PRESUMPTION FOR INVESTMENT WILL BE THAT THE APPELLANT COMPANY HAS MADE THE INVESTMENT OUT OF IT S OWN FUND RATHER THAN BORROWED FUND. BESIDES THIS THE FACT REMAINS THAT NO EXEMPT INCOME WAS EARNED BY THE APPELLANT COMPANY DURING THE YEAR . HENCE THE DECISION OF ITAT A' BENCH CHENNAI IN THE CASE SIV A INDUSTRIES & HOLDINGS LTD. VS. ACIT COMPANY CIRCLE-VL(4) CHENN AI AS PER ITA NO.2148/MDS/2010 DATED 20.5.2011 SUGGESTS THAT NO D ISALLOWANCE ON THIS ACCOUNT CAN BE MADE AS STATED IN PARA 5 OF THE SAID ORDER. FURTHER TO THAT I EVEN FIND THAT THE JURISDICTIONAL ITAT DECISION I N THE CASE OF M/S.MULTI COMMODITY EXCHANGE OF (INDIA) LTD VS. DCLT CEN. CI R.-46 MUMBAI (ITA NO.1050/MUM/2010) GOES IN FAVOUR OF THE APPELLANT O N THE AFORE-STATED FACTS OF THE APPELLANT'S CASE. TAKING NOTE OF ALL T HE FACTS AVAILABLE ON RECORD I AM OF THE CONSIDERED VIEW THAT THE A. O. WAS NOT AT ALL JUSTIFIED IN HIS ACTION IN MAKING THE AFORESAID DIS ALLOWANCE AND ACCORDINGLY THE ADDITION SO MADE BY THE A.O. IS DEL ETED. THUS APPELLANT'S IS GROUND OF APPEAL IS ALLOWED. 5. AGGRIEVED BY THE ORDER OF LD. CIT(A) THE ASSES SEE IS IN APPEAL BEFORE US. I.T.A. NO.1923/MUM/2012 AND OTHER TWO APPEALS 4 6. WE HAVE CONSIDERED THE RIVAL CONTENTIONS CARE FULLY PERUSED THE RECORD GONE THROUGH THE ORDERS OF AUTHORITIES BELOW AND TH E JUDICIAL PRONOUNCEMENT REFERRED BY THE LOWER AUTHORITIES AS WELL AS LD. RE PRESENTATIVES OF BOTH THE PARTIES DURING THE COURSE OF HEARING BEFORE US. FROM THE RECORD WE FOUND THAT THE ASSESSEE HAS MADE INVESTMENT IN GROUP COMPANY WHICH WAS 100% SUBSIDIARY OF THE ASSESSEE. THE INVESTMENT WAS MADE AS STRATEG IC INVESTMENT FOR THE PURPOSE OF BUSINESS WHEREIN THE SOLE INTENTION WAS TO CARRYOUT THE BUSINESS PURPOSE OF THE ASSESSEE-COMPANY. WITH REGARD TO TH E DISALLOWANCE OF INTEREST THE LD. CIT(A) HAS RECORDED THE CATEGORIC AL FINDINGS TO THE EFFECT THAT THE INVESTMENT WAS MADE BY THE ASSESSEE FROM ITS OWN FUND AND NOT FROM ANY BORROWED FUNDS. BY REFEREEING ANNEXURE 'A ' FILED BY THE ASSESSEE THE LD. CIT(A) OBSERVED THAT AFTER VERIFYING THE BANK STATEMENT AS PLACED ON RECORD THE ENTIRE FUND WAS SO INVESTED WAS OUT OF THE ASS ESSEES OWN FUND. THE RELIANCE WAS PLACED ON THE DECISION OF JURISDICTION AL HIGH COURT IN THE CASE OF COMMISSIONER OF INCOME-TAX V. RELIANCE UTILITIES AN D POWER LTD.. [2009] 178 TAXMAN 135 (BOM.) TO THE EFFECT THAT THE PRESUMPT ION FOR INVESTMENT WILL BE THAT THE ASSESSEE COMPANY HAS MADE THE INVESTMEN T OUT OF ITS OWN FUND RATHER THAN BORROWED FUND. FINDINGS SO RECORDED BY THE LD. CIT(A) WAS NOT CONTROVERTED BY THE REVENUE BY PLACING ANY SUBSTAN TIAL EVIDENCE. HENCE WE DO NOT FIND ANY INFIRMITY IN THE ORDER OF LD. CIT(A) IN DELETING THE DISALLOWANCE OF RS.33 90 461/-MADE BY THE AO ON ACCOUNT OF INTEREST EXPENDITURE BY APPLYING THE PROVISIONS OF SECTION 14A OF THE ACT R.W.R.8D OF THE RULES. 7. IN THE ASSESSMENT YEAR 2009-10 ALSO FOR THE SIM ILAR REASONS THE LD. CIT(A) HAS DELETED THE DISALLOWANCE BY OBSERVING AS UNDER : 5.3 I HAVE CONSIDERED THE A.O.'S ORDER AS WELL AS APPELLANT AR'S SUBMISSIONS. HAVING CONSIDERED BOTH I FIND TH AT THE APPELLANT COMPANY HAS MADE INVESTMENT OF RS.14 55 00 309/- IN A GROUP COMPANY WHICH WAS 100% SUBSIDIARY OF THE APPELLANT COMPANY. FURTHER TO THAT THE APPELLANT'S SUBMISSION ALSO SU GGESTS THAT THE AFORESAID INVESTMENT WAS MADE BY THE APPELLANT COMP ANY AS STRATEGIC INVESTMENT FOR THE PURPOSE OF BUSINESS WHEREIN THE SOLE INTENTION WAS TO CARRYOUT THE BUSINESS PURPOSE OF THE APPELLANT COMP ANY. FURTHER TO THAT IT IS ALSO EVIDENT FROM THE SUBMISSION MADE B Y THE APPELLANT COMPANY THAT THE AFORESAID INVESTMENTS WERE MADE BY THE APPELLANT COMPANY FROM ITS OWN FUND AND NOT FROM ANY BORROWED FUNDS. THE INVESTMENT MADE BY THE APPELLANT COMPANY OF RS.6 05 00 309/- IN I.T.A. NO.1923/MUM/2012 AND OTHER TWO APPEALS 5 SYSCON CORPORATION LTD. WHICH WAS WHOLLY- OWNED SUB SIDIARY OF THE APPELLANT COMPANY WAS INVESTED FROM COMPANY'S OWN F UNDS AND IT IS EVIDENT FROM THE BANK STATEMENT FILED BY THE APPELL ANT COMPANY IN SUPPORT OF ITS CONTENTION AS ANNEXURE 'A' OF THE SUBMISSION . FURTHER TO THAT THE THER INVESTMENT OF RS.8 50 00 000/- WHICH HAS BEEN MADE AS SHARE APPLICATION MONEY WAS ALSO FROM THE APPELLANT'S OWN FUNDS AS IT IS EVIDENT FROM THE SUBMISSION MADE BY THE APPELLANT C OMPANY AS PER ANNEXURE 'D' OF THE APPELLANT'S SUBMISSION. IN ADDITION TO THIS IT IS ALSO A FACT ON RECORD THAT THE APPELLANT COMPANY'S OWN FUND IS MORE THAN THE INVESTMENT MADE BY THE APPELLANT COMPANY. HENCE THE DECISION OF JURISDICTIONAL HIGH COURT IN THE CASE O F RELIANCE UTILITIES & POWER LTD. (ITA NO. 1398 OF 2008) ALSO GOES IN FAVO UR OF THE APPELLANT COMPANY THAT THE PRESUMPTION FOR INVESTMENT WILL BE THAT THE APPELLANT COMPANY HAS MADE THE INVESTMENT OUT OF IT S OWN FUND RATHER THAN BORROWED FUND. BESIDES THIS THE FACT REMAINS THAT NO EXEMPT INCOME WAS EARNED BY THE APPELLANT COMPANY DURING THE YEAR . THE JURISDICTIONAL ITAT DECISION IN THE CASE OF M/S.MUL TI COMMODITY EXCHANGE OF (INDIA) LTD VS. DCLT CEN. CIR.-46 MUMBAI (ITA NO.1050/MUM/2010) GOES IN FAVOUR OF THE APPELLANT ON THE AFORE-STATED FACTS OF THE APPELLANT'S CASE. TAKING NOTE OF ALL THE FACTS AVAI LABLE ON RECORD I AM OF THE CONSIDERED VIEW THAT THE A.O. WAS NOT AT ALL JUSTIFIED IN HIS ACTION IN MAKING THE AFORESAID DISALLOWANCE ON ACC OUNT OF INTEREST EXPENDITURE U/S 14A R.W.R.8D(2)(II) OF THE IT RULE S TO THE TUNE OF RS.15 96 385/- HOWEVER IT IS DEFINITE THAT THE APP ELLANT COMPANY NEEDS TO INCUR ADMINISTRATIVE EXPENDITURE TO ENSURE THE I NVESTMENT WHICH IS GENERATING EXEMPT INCOME. IN THIS PERSPECTIVE I AM OF THE CONSIDERED VIEW THAT DISALLOWANCE MADE BY HE AO AS PER RULE 8D(2)(III) OF THE IT RULES IS COMPLETELY JUSTIFIED TAKING NOTE OF THE DE CISION IN THE CASE OF GODREJ AND BOYCE MFG CO.LTD REPORTED IN 328 ITR 8 1. ACCORDINGLY HE ADDITION MADE BY THE A.O. OF RS.4 25 000/- UNDER RULE 8D(2) (III) IS CONFIRMED. THUS THE APPELLANTS THIS GROUND OF AP PEAL IS PARTLY ALLOWED. 8. THE FINDING RECORDED BY THE LD. CIT(A) HAS NOT BEEN CONTROVERTED BY THE LD.DR BY BRINGING ANY POSITIVE MATERIAL ON RECORD. FOLLOWING THE SAME REASONS AS DISCUSSED ABOVE WE CONFIRM THE ACTION OF THE L D. CIT(A) IN DELETING THE DISALLOWANCE OF INTEREST MADE BY THE AO. 9. IN THE APPEAL FILED BY THE ASSESSEE FOR THE ASSE SSMENT YEAR 2009-10 THE ASSESSEE IS AGGRIEVED BY THE ORDER OF LD. CIT(A) FO R CONFIRMING THE DISALLOWANCE OF RS.4 25 000/- U/S 14A R.W.R.8D(2)(III) OF THE RULES. 10. WE HAVE CONSIDERED THE RIVAL CONTENTIONS AND PE RUSED THE RECORD AND FOUND THAT AFTER RELYING ON THE DECISION OF THE JUR ISDICTIONAL HIGH COURT IN THE CASE OF GODREJ AND BOYCE MFG CO.LTD(SUPRA) THE LD. CI T(A) HAVE GIVEN DUE I.T.A. NO.1923/MUM/2012 AND OTHER TWO APPEALS 6 JUSTIFICATION AND RESTRICTED THE DISALLOWANCE MADE U/S 14A WITH RESPECT TO ADMINISTRATIVE EXPENSES. THE LD. CIT(A) OBSERVED T HAT THE ASSESSEE COMPANY WAS TO INCUR ADMINISTRATIVE EXPENSES TO ENSURE INVE STMENT WHICH IS GENERATING THE EXEMPT INCOME ACCORDINGLY HE CONFI RMED THE DISALLOWANCE OF RS.4 25 000/- ON ACCOUNT OF ADMINISTRATIVE EXPENSES UNDER RULE 8D(2)(III) OF THE RULES. WE DO NOT FIND ANY INFIRMITY IN THE OR DER OF LD. CIT(A) IN CONFIRMING THE DISALLOWANCE OF ADMINISTRATIVE EXPEN SES WHICH WAS INCURRED AND ATTRIBUTABLE TO EARNING OF EXEMPT INCOME. 11. IN THE RESULT THE APPEAL FILED BY THE REVENUE FOR BOTH THE YEARS AS WELL AS THE APPEAL OF THE ASSESSEE ARE DISMISSED.. THE ABOVE ORDER WAS PRONOUNCED IN THE OPEN COURT ON 28TH NOV 2014. '( $ ) * + 28TH NOV 2014 ( # - SD SD ( . . /I.P. BANSAL) ( . . / R.C. SHARMA) / JUDICIAL MEMBER / ACCOUNTANT MEMBER $ MUMBAI 28TH NOV 2014. . . ./ SRL SR. PS !'#$% &%'# / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT 2. / THE RESPONDENT. 3. $ /% ( ) / THE CIT(A)- CONCERNED 4. $ /% / CIT CONCERNED 5. 01 % 2 & 2 $ / DR ITAT MUMBAI CONCERNED 6. 3 4 / GUARD FILE. $ / BY ORDER TRUE COPY 5 (ASSTT. REGISTRAR) & 2 $ /ITAT MUMBAI