ACIT 13(2), MUMBAI v. DHIRAJLAL MORARJI, MUMBAI

ITA 3981/MUM/2012 | 2008-2009
Pronouncement Date: 10-07-2013 | Result: Allowed

Appeal Details

RSA Number 398119914 RSA 2012
Assessee PAN AAAFD0750C
Bench Mumbai
Appeal Number ITA 3981/MUM/2012
Duration Of Justice 1 year(s) 1 month(s) 3 day(s)
Appellant ACIT 13(2), MUMBAI
Respondent DHIRAJLAL MORARJI, MUMBAI
Appeal Type Income Tax Appeal
Pronouncement Date 10-07-2013
Appeal Filed By Department
Order Result Allowed
Bench Allotted D
Tribunal Order Date 10-07-2013
Assessment Year 2008-2009
Appeal Filed On 06-06-2012
Judgment Text
IN THE INCOME TAX APPELLATE TRIBUNAL D BENCH MUMBAI . . ! '# ! '# ! '# ! '# $ $ $ $ % % % % BEFORE SHRI R.S. SYAL ACCOUNTANT MEMBER AND SHRI AMIT SHUKLA JUDICIAL MEMBER . / ITA NO. 3981/MUM./2012 ( $' ( )( / ASSESSMENT YEAR : 200809 ) ASSTT. COMMISSIONER OF INCOME TAX CIRCLE13(2) AAYAKAR BHAVAN 101 M.K. ROAD MUMBAI 400 020 .. *+ / APPELLANT ' V/S M/S. DHIRAJLAL MORARJI ANAND BUILDING 82/84 KAZI SAYED STREET MUMBAI 400 003 .... -*+ / RESPONDENT * . / PERMANENT ACCOUNT NUMBER AAAFD0750C / 0 1 / REVENUE BY : MRS. R.M. MADHAVI $' (2! 0 1 / ASSESSEE BY : MR. VIPUL JOSHI ' 0 ! / DATE OF HEARING 03.07.2013 ' 34) 0 ! / DATE OF ORDER 10.07.2013 ' ' ' ' / ORDER ! '# ! '# ! '# ! '# $ $ $ $ 5 5 5 5 / PER AMIT SHUKLA J.M. THE PRESENT APPEAL IS PREFERRED BY THE REVENUE CHA LLENGING THE IMPUGNED ORDER 30 TH MARCH 2012 PASSED BY THE LEARNED COMMISSIONER (APPEALS)XXIV MUMBAI FOR THE QUANTUM OF ASSESSME NT PASSED UNDER M/S. DHIRAJLAL MORARJI 2 SECTION 143(3) OF THE INCOME TAX ACT 1961 FOR THE ASSESSMENT YEAR 2008 09 VIDE WHICH FOLLOWING GROUNDS HAVE BEEN RAISED. (I) ON THE FACTS AND IN THE CIRCUMSTANCES OF THE C ASE AND IN LAW THE ID. CIT (A) HAS ERRED IN HOLDING THAT THE PROVISIONS OF SEC TION 1 4A WERE NOT APPLICABLE IN RESPECT OF THE INTEREST EXPENDITURE I NCURRED BY THE ASSESSEE FOR THE INVESTMENTS. (II) WHILE DOING SO THE LD. CIT (A) HAS FAILED TO APPRECIATE THAT DURING THE YEAR UNDER CONSIDERATION THE PARTNERS HAVE WITHDRAW N THEIR OWN FUNDS THEREBY REDUCING THE OWN FUNDS TO RS.68.69 LAKHS AS AGAINST THE LAST YEARS FUNDS OF RS.247.58 LAKHS. HENCE THE OWN FUNDS WERE NOT SUFFICIENT TO HOLD THE INVESTMENTS OF RS. 154.91 LAKHS DURING THE YEAR UND ER CONSIDERATION AS AGAINST INVESTMENTS OF RS.186.01 LAKHS IN THE PRECE DING YEAR. (III) THE LD. CIT (A) HAS FURTHER ERRED IN NOT APPR ECIATING THAT THE DECISION OF THE EARLIER YEAR CANNOT BE APPLIED AS THE FACTS IN EACH YEAR ARE DIFFERENT AND EACH ASSESSMENT IS MADE INDEPENDENTLY ON THE FACTS OF THE CASE DURING THE RELEVANT ASSESSMENT YEAR. 2. BRIEF FACTS APROPOS THE AFORESAID ISSUE ARE THAT THE ASSESSEE IS A PARTNERSHIP FIRM WHICH IS ENGAGED IN THE BUSINESS O F DEALING IN VARIOUS KINDS OF BALL BEARINGS ROLLER BEARINGS HARDWARE ITEMS LUBRICANT OIL SEALS MAINTENANCE OF THE PRODUCTS AND OTHER ENGINEERING I TEMS. THE ASSESSEE HAD SHOWN TOTAL INVESTMENT IN THE SHARES AND SECURITIES AT ` 1 54 91 495 IN THE BALANCE SHEET AS ON 31 ST MARCH 2008. THE ASSESSING OFFICER NOTED THAT DURIN G THE RELEVANT PREVIOUS YEAR THE ASSESSEE HAS RECEIV ED DIVIDEND INCOME OF ` 2 43 319 WHICH HAS BEEN CLAIMED AS EXEMPT. HE FURT HER NOTED THAT THE ASSESSEE HAS INTEREST BEARING BORROWED FUNDS IN THE FORM OF BEING SECURED AND UNSECURED LOANS ON WHICH THE ASSESSEE HAS PAID INTEREST OF ` 1 16 45 931. HE THEREFORE CONCLUDED THAT THE INVE STMENTS HAVE BEEN MADE OUT OF INTEREST BEARING BORROWED FUNDS AND ACCORDI NGLY HE MADE THE DISALLOWANCE UNDER SECTION 14A R/W RULE 8D AND CALC ULATED THE TOTAL DISALLOWANCE AT ` 20 77 088 AS PER THE WORKING GIVEN AT PAGE3 OF T HE ASSESSMENT ORDER. 3. BEFORE THE LEARNED COMMISSIONER (APPEALS) IT WAS S UBMITTED THAT AT THE BEGINNING OF THE YEAR THE TOTAL INVESTMENT IN SHARES AND SECURITIES WAS AT ` 1 86 01 756 AND AT THE END OF THE YEAR THE INVEST MENTS STOOD AT ` M/S. DHIRAJLAL MORARJI 3 1 54 91 495. THESE INVESTMENTS WERE MADE OUT OF PAR TNERS OWN FUNDS AND NO PART OF THE BORROWED FUNDS WAS INVESTED TO EARN TAX FREE INCOME AND THEREFORE NO INTEREST SHOULD BE DISALLOWED. RELIAN CE WAS PLACED ON THE JUDGMENT OF HON'BLE JURISDICTIONAL HIGH COURT IN CI T V/S RELIANCE UTILITIES AND POWERS LTD. [2009] 313 ITR 340 (BOM.) AND THE JUDG MENT OF HONBLE PUNJAB & HARYANA HIGH COURT IN CIT V/S HERO CYCLES LTD. [ 2010] 323 ITR 518 (P&H). IT WAS FURTHER POINTED OUT THAT UNLESS THE D ISALLOWANCE MADE BY THE ASSESSEE UNDER RULE 8D IS HELD TO BE INCORRECT THE ASSESSING OFFICER CANNOT INVOKE RULE 8D AS THE ASSESSEE HAS WORKED OUT THE D ISALLOWANCE UNDER SECTION 14A AT ` 13 585 BEING DEMAT EXPENDITURE AND SECURITY TRANS ACTION TAX (STT). VARIOUS OTHER SUBMISSIONS WERE ALSO MADE WITH REGARD TO OTHER EXPENDITURES INCURRED BY THE ASSESSEE WHICH WERE EX CLUSIVELY FOR THE PURPOSE OF ITS BUSINESS AND THE SAME CANNOT BE HELD TO BE ATTRIBUTABLE FOR EARNING OF THE DIVIDEND INCOME AND THE ASSESSING OF FICER HAS FAILED TO ESTABLISH THAT THERE WAS PROXIMATE RELATIONSHIP BET WEEN THE EXPENDITURE DISALLOWED AND THE EXEMPT INCOME EARNED BY THE ASSE SSEE. THE ASSESSEE ALSO FURNISHED A CHART SHOWING CAPITAL CONTRIBUTION BY THE PARTNERS IN EACH OF THE FIVE PRECEEDING YEARS WHICH WERE FAR MORE THAN THE INVESTMENTS MADE IN SHARES AND MUTUAL FUNDS. LASTLY HEAVY RELIANCE WAS PLACED ON THE DECISION OF THE TRIBUNAL IN ASSESSEES OWN CASE FOR THE ASSE SSMENT YEAR 200708 IN ITA NO.2139/MUM./2011 WHEREIN ASSESSEES APPEAL WA S ALLOWED ON SIMILAR DISALLOWANCE MADE UNDER SECTION 14A HOLDING THAT T HE ASSESSEE HAS OWN FUNDS IN THE FORM OF PARTNERS CAPITAL. 4. THE LEARNED COMMISSIONER (APPEALS) FOLLOWING THE D ECISION OF THE TRIBUNAL IN ASSESSEES OWN CASE FOR THE ASSESSMENT YEAR 200708 DELETED THE SAID DISALLOWANCE MAINLY ON THE GROUND THAT THE TRIBUNAL HAS HELD THAT THE ASSESSEE HAS MADE INVESTMENT OUT OF OWN SURPLUS FUNDS WHICH WAS AVAILABLE IN THE FORM OF PARTNERS OWN CAPITAL. THE RELEVANT FINDINGS AND OBSERVATIONS OF THE LEARNED COMMISSIONER (APPEALS) FOR THE SAKE OF READY REFERENCE IS REPRODUCED HEREIN BELOW: M/S. DHIRAJLAL MORARJI 4 3.3.1 I HAVE CONSIDERED THE FACTS OF THE CASE AND THE SUBMISSIONS MADE BY THE ASSESSEE. I FIND THAT THE AO HAS GIVEN NO REASO NS AS TO WHY SEC. 14A WAS APPLICABLE IN RESPECT OF INTEREST EXPENDITURE IN TH E CASE OF THE ASSESSEE AND THAT DISALLOWANCE WAS REQUIRED TO BE MADE AS PER TH E METHOD PRESCRIBED BY RULE 8D. I HAVE ALSO CONSIDERED THE FACTS OF THE CA SE AND PERUSED THE ORDER OF THE HONBLE TRIBUNAL IN ASSESSEES OWN CASE FOR THE A.Y. 2007-08 ON IDENTICAL ISSUE. IN THE SAID YEAR THE TOTAL AMOUNT OF INVESTM ENT IN SHARES AND SECURITIES WAS RS.1 86 01 756/-. THE HONBLE TRIBUNAL HAS HELD THAT IT IS AN UNDISPUTED POSITION THAT AS AGAINST AVERAGE INVESTMENT OF RS. 1 84 50 588/- PARTNERS OWN CAPITAL WAS PS. 47 58 004/- AND THEREFORE IN ACCORDANCE WITH THE LAW LAID DOWN BY HON'BLE JURISDICTIONAL HIGH COURT IN T HE CASE OF CIT V/S RELIANCE UTILITIES POWER LTD. (313 ITR 340) ONE HAS TO PROC EED ON THE BASIS THAT INVESTMENTS WERE MADE OUT OF NON-INTEREST BEARING F UNDS. ON THE FACTS OF THIS CASE THEREFORE THERE ARE NO DIRECT COSTS INVOLVED IN FUNDING THE INVESTMENTS. THE ASSESSEE HIS DISALLOWANCE ` 3 148 AS DIRECT COS TS IN EARNING THE DIVIDEND AND NO INFIRMITIES ARE POINTED OUT IN THE SAME. AS FOR INDIRECT COSTS THE ASSESSEE HAS SUO MOTO MADE A DISALLOWANCE OF RS.87 253/- BY COMPUTING THE SAME AT 0.5% OF AVERAGE INVESTMENTS. THE ASSESSING OFFICER OR THE CIT(A) HAS NOT EVEN DISPUTED THAT THIS AMOUNT IS UNDERSTAT ED OR UNREASONABLE EITHER. UNDER THESE CIRCUMSTANCES WE ARE OF THE CONSIDERED VIEW THAT THE DISALLOWANCE OF RS.1 00 401/ OFFERED BY THE ASSESS EE IS FAIR AND REASONABLE AND THE CIT(A) OUGHT TO HAVE ACCEPTED THE SAME. WE THEREFORE UPHOLD THE GRIEVANCE OF THE ASSESSEE. 3.3.2 FROM THE ABOVE IT IS EVIDENT THAT THE HONBL E TRIBUNAL HAS GIVEN A FINDING OF FACT THAT NO BORROWED FUNDS WERE UTILIZE D IN PURCHASING THE SHARES AND SECURITIES ON WHICH DIVIDEND INCOME HAD BEEN EA RNED. DURING THE COURSE OF THE APPELLATE PROCEEDINGS THE ASSESSEE HAS SUBM ITTED RECONCILIATION OF THE INVESTMENTS AS ON 01/04/2007 AND AS ON 31/03/2008. THE INVESTMENTS AS ON 01/04/2007 WAS RS.1 86 01 743/- AND THE HONBLE TRI BUNAL HAS HELD THAT THESE WERE FUNDED OUT OF ASSESSEES OWN SURPLUS FUN DS. THE INVESTMENT REALIZED DURING THE YEAR WAS RS. 57 70 258/- AND NE W INVESTMENTS MADE DURING THE YEAR WAS ONLY TO THE TUNE OF P.S. 26 60 020K AND THE INVESTMENTS AS ON 31/03/2008 WAS RS. 1 54 91 505/-. THEREFORE IT WOULD BE CLEAR THAT THE NEW INVESTMENTS CAN BE SAID TO HAVE BEEN MADE O UT OF INVESTMENTS REALIZED DURING THE YEAR. HENCE NO PART OF THE BOR ROWED FUNDS ON WHICH INTEREST EXPENDITURE HAS BEEN CLAIMED CAN BE SAID T O HAVE BEEN UTILIZED FOR MAKING INVESTMENTS IN THE SHARES. IN VIEW OF THE AF ORESAID REASONS NO DISALLOWANCE OF EXPENDITURE CAN BE MADE U/S 14A R.W . RULE 8D(2)(II). THE DISALLOWANCE OF EXPENDITURE OF RS.19 89 515/- UNDER RULE 8D(2)(II) MADE BY THE AO CANNOT BE UPHELD AND THEREFORE THE SAME IS DIRECTED TO BE DELETED. 5. BEFORE US THE LEARNED DEPARTMENTAL REPRESENTATIVE RELYING UPON THE ORDER OF THE ASSESSING OFFICER SUBMITTED THAT EARLI ER TRIBUNAL ORDER CANNOT BE FOLLOWED IN THIS YEAR AS THERE IS NO EXAMINATION OF INTEREST FREE FUNDS AVAILABLE WITH THE ASSESSEE. NO NEXUS HAS BEEN ESTA BLISHED. 6. ON THE OTHER HAND THE LEARNED COUNSEL FOR THE ASSE SSEE SUBMITTED THAT MOST OF THE INVESTMENTS HAVE BEEN MADE IN THE EARLIER YEARS FOR WHICH THE TRIBUNAL HAS GIVEN A CATEGORICAL FINDING THAT T HEY WERE MADE OUT OF OWN M/S. DHIRAJLAL MORARJI 5 SURPLUS FUNDS AND THE INVESTMENTS MADE IN THIS YEAR WHICH WAS TO THE TUNE OF ` 26 60 020 WAS OUT OF INVESTMENT REALIZED DURING T HE YEAR AT ` 27.70.258. HE THUS SUBMITTED THAT NO DISALLOWANCE CAN BE MADE UNDER RULE 8D SPECIFICALLY ON ACCOUNT OF INTEREST. HE FUR THER SUBMITTED THAT THE LEARNED COMMISSIONER (APPEALS) HAS ALREADY CONFIRME D DISALLOWANCE OF ` 85 233 ON ACCOUNT OF INDIRECT EXPENDITURE. THUS I T CAN BE HELD TO BE A REASONABLE DISALLOWANCE FOR THE PURPOSE OF SECTION 14A ON THE FACTS OF THE CASE. 7. WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE RELEVANT FINDINGS OF THE LEARNED COMMISSIONER (APPEALS). THE ASSESSEE S MAIN CONTENTION HAS BEEN THAT IT HAS MADE INVESTMENT IN SHARES AND SECU RITIES OUT OF SURPLUS FUNDS WHICH WERE AVAILABLE MOSTLY IN THE FORM OF PA RTNERS CAPITAL ACCOUNT. AT THE TIME OF HEARING A QUERY WAS RAISED BY THE BENC H WHETHER OR NOT THE INTEREST HAS BEEN PAID TO THE PARTNERS ON THE CAPIT AL ACCOUNT. TO THIS THE LEARNED COUNSEL FAIRLY SUBMITTED THAT INTEREST HAS BEEN PAID TO THE PARTNERS ON CAPITAL ACCOUNT HOWEVER THE DETAILS OF SUCH IN TEREST WAS NOT READILY AVAILABLE. ONCE IT HAS BEEN CLAIMED THAT INVESTMENT HAS BEEN MADE OUT OF PARTNERS CAPITAL ACCOUNT ON WHICH INTEREST HAS BEE N PAID THEN IT CANNOT BE HELD THAT THE ASSESSEE HAS MADE INVESTMENT OUT OF I NTEREST FREE FUNDS BECAUSE INSOFAR AS THE ASSESSEE FIRM IS CONCERNED IT IS LIABLE TO PAY INTEREST ON THE PARTNERS CAPITAL ACCOUNT IF IT HAS BEEN SP ECIFIED IN THE PARTNERSHIP DEED. BEFORE US THE NEXUS OF SURPLUS AND INTEREST FREE FUNDS VISAVIS THE INVESTMENT MADE IN THE SHARES HAS NOT BEEN ESTABLI SHED. THEREFORE IN ORDER TO EXAMINE THE ENTIRE FACTS FOR THE PURPOSE OF DISA LLOWANCE UNDER SECTION 14A THE MATTER NEEDS TO BE RESTORED BACK TO THE AS SESSING OFFICER FOR FRESH ADJUDICATION. CONSEQUENTLY WE SET ASIDE THE IMPUGN ED ORDER PASSED BY THE LEARNED COMMISSIONER (APPEALS) AND RESTORE THE ENTI RE ISSUE BACK TO THE FILE OF THE ASSESSING OFFICER AND DIRECT HIM TO ADJUDICA TE THIS ISSUE DENOVO AND WILL ALSO KEEP IN MIND THAT FUNDS AVAILABLE IN THE FORM OF PARTNERS CAPITAL ARE INTEREST BEARING FUNDS WHICH HAVE TO BE TAKEN INTO CONSIDERATION FOR ADJUDICATION OF THIS ISSUE. THE ASSESSEE WOULD BE A T LIBERTY TO FILE ANY DETAILS M/S. DHIRAJLAL MORARJI 6 OR EXPLANATION WITH REGARD TO THE ADJUDICATION OF T HIS ISSUE. ACCORDINGLY GROUNDS RAISED BY THE REVENUE ARE TREATED AS ALLOWE D FOR STATISTICAL PURPOSES. 8. 2 !6 / 0 70 89: ! ; ' /! <= > 8. IN THE RESULT REVENUES APPEAL IS TREATED AS AL LOWED FOR STATISTICAL PURPOSES. ' 0 34) ? @'6 10 TH JULY 2013 4 0 A > ORDER PRONOUNCED IN THE OPEN COURT ON 10 TH JULY 2013 SD/- . .. . . . . . R.S. SYAL ACCOUNTANT MEMBER SD/- ! ! ! ! '# '# '# '# $ $ $ $ AMIT SHUKLA JUDICIAL MEMBER MUMBAI @' @' @' @' DATED: 10 TH JULY 2013 ' 0 $! B CB)! / COPY OF THE ORDER FORWARDED TO : (1) $' (2! / THE ASSESSEE; (2) / / THE REVENUE; (3) D () / THE CIT(A); (4) D / THE CIT MUMBAI CITY CONCERNED; (5) BGA $!$' / THE DR ITAT MUMBAI; (6) A( H / GUARD FILE. -B! $! / TRUE COPY '' / BY ORDER /. IJ / PRADEEP J. CHOWDHURY 2K $'/ I / SR. PRIVATE SECRETARY 8 / < / / (DY./ASSTT. REGISTRAR) / ITAT MUMBAI