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Income Tax Appellate Tribunal, MUMBAI BENCHES “D”, MUMBAI
Before: SHRI ABY T. VARKEY, HONBLE & SHRI S. RIFAUR RAHMAN, HONBLE
IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCHES “D”, MUMBAI
BEFORE SHRI ABY T. VARKEY, HON'BLE JUDICIAL MEMBER AND SHRI S. RIFAUR RAHMAN, HON'BLE ACCOUNTANT MEMBER
ITA No. 2218/MUM/2011 (A.Y. 2007-08) Raymond Limited v. The Addl. CIT– 2(3) New Hind House Aayakar Bhavan, M.K. Road Narottam Morarjee Marg Mumbai - 400020 Ballard Estate, Mumbai - 400001 PAN: AAACR4896A Appellant Respondent C.O. NO. 287/MUM/2017 [ARISING OUT OF ITA No. 2218/MUM/2011 (A.Y. 2007-08)] The Addl. CIT– 2(3) v. Raymond Limited Aayakar Bhavan, M.K. Road New Hind House Mumbai - 400020 Narottam Morarjee Marg Ballard Estate, Mumbai - 400001 PAN: AAACR4896A Appellant Respondent ITA No. 4322/MUM/2012 (A.Y. 2008-09) M/s. Raymond Limited v. The DCIT – OSD- 2(3) New Hind House, Aayakar Bhavan, M.K. Road Narottam Morarjee Marg Mumbai – 400020 Ballard Estate, Mumbai - 400001 PAN: AAACR4896A Appellant Respondent
2 ITA No. 2218/MUM/2011 (A.Y. 2007-08) ITA No. 4322/MUM/2012 (A.Y. 2008-09) C.O. NO. 287& 288/MUM/2017 M/s. Raymond Limited C.O. NO. 288/MUM/2017 [ARISING OUT OF ITA No. 4322/MUM/2012 (A.Y. 2008-09)]
DCIT-CC– 8(1) v. M/s. Raymond Limited Room No. 656, 6th Floor New Hind House Aayakar Bhavan, M.K. Road Narottam Morarjee Marg Mumbai - 400020 Ballard Estate, Mumbai - 400001 PAN: AAACR4896A Appellant Respondent
Assessee Represented by : Shri Madhur Agarwal & Shri Nirav Poddar Revenue Represented by : Shri S.H. Usmani
Date of Hearing : 22.09.2022 Date of pronouncement : 12.12.2022
ORDER PER S. RIFAUR RAHMAN (AM) 1. These appeals and cross objections are filed by the assessee and Revenue against different orders of the Learned Commissioner of Income Tax (Appeals)-6, Mumbai [hereinafter in short “Ld.CIT(A)”] dated 27.01.2011 and 23.04.2012 for the A.Ys. 2007-08 and 2008-09 respectively.
3 ITA No. 2218/MUM/2011 (A.Y. 2007-08) ITA No. 4322/MUM/2012 (A.Y. 2008-09) C.O. NO. 287& 288/MUM/2017 M/s. Raymond Limited 2. Since the issues raised in all these appeals are identical, therefore, for the sake of convenience, these appeals are clubbed, heard and disposed off by this consolidated order.
ITA No. 2218/MUM/2011 (A.Y. 2007-08) – ASSESSEE APPEAL
Assessee has raised following grounds in its appeal: - “1. The learned Commissioner of Income tax (Appeals) erred in directing the Assessing Officer to determine the annual value of the property, at 12% of the cost of land and building rather than accepting the same at Rs.2,89,000/- as returned by the appellant. 2. (a) The learned Commissioner of Income Tax (Appeals) erred in not deleting the disallowance made under section 14A of the Act (b) The learned Commissioner of Income-tax (Appeals) erred in setting aside the matter in respect of disallowance under section 14A of the Act to the Assessing Officer following the decision of Hon'ble Bombay High Court in the case of Godrej & Boyce Mfg. Co. Ltd. 3. (a) The learned Commissioner of Income-tax (Appeals) erred in upholding the action of the Assessing Officer in denying the claim for short term capital loss of Rs.4,97,00,000/- and long term capital loss of Rs.4,91,00,000/- in respect of FCDs of Plugin Sales Ltd. (b) The appellant submits that it had filed various documentary evidence, whereby itis apparent that the entire transaction was bonafide and genuine. (c) The appellant submits that it had invested in debentures which constituted a capital asset and merely because the investee company was incurring losses, the claim for such losses cannot be denied on the said ground.
4 ITA No. 2218/MUM/2011 (A.Y. 2007-08) ITA No. 4322/MUM/2012 (A.Y. 2008-09) C.O. NO. 287& 288/MUM/2017 M/s. Raymond Limited (d) The appellant submits that it had transferred the said debentures to a reputed and unrelated third party and accordingly had incurred bonafide capital loss which ought to have been allowed. (e) The appellant submits that the learned Commissioner of Income tax (Appeals) erred in making various observations/upholding the observations of the AssessingOfficer which are not substantiated by any evidence/findings and are merely surmises and appellant objects to the same. (f) The appellant submits that the subscription to equity shares and FCDs of Plug in Sales Ltd were made in the year of incorporation of company itself and not in a Loss making company. The entire investment has taken place in first year of operation i.e. FY 2003-04. Business losses were incurred by Plug in Sales after investment was committed by appellant. The appellant sold FCDs as it is justified from commercial point of view. 4. (a) The learned Commissioner of Income-tax (Appeals) erred in upholding the action of the Assessing Officer in disallowing rent paid to J.K. Investors (Bombay) Limited. (b) The appellant submits that the learned Commissioner of Income-tax (Appeals) erred in upholding the action of Assessing Officer who failed to appreciate the fact that the rates as per stamp duty recknor are the minimum indicative rates for the purpose of levy of stamp duty and the same could not be regarded as market rates. (c) The appellant submits that the learned Commissioner of Income-tax (Appeals) erred in upholding the action of Assessing Officer who failed to appreciate the valuation report obtained by the appellant from a Government Approved Valuer which clearly indicated that, considering various factors such as location, ambience & facilities of the building, the market rate was between Rs.190 to Rs.220 per sq. 5. The Learned Commissioner of Income tax (Appeals) erred in not giving direction regarding giving credit for TDS certificates amounting to Rs. 98,09,238/-
5 ITA No. 2218/MUM/2011 (A.Y. 2007-08) ITA No. 4322/MUM/2012 (A.Y. 2008-09) C.O. NO. 287& 288/MUM/2017 M/s. Raymond Limited 6. The appellant submits that the learned Assessing Officer be directed: a. to delete the addition made by determining annual value of the property at a higher amount as against Rs.2,89,000/-; b. to delete the disallowance under section 14A of the Act: c. to allow the claim of short term capital loss and long term capital loss on sale of FCD's of plugin sales Ltd.; d. to the disallowance made of rent expenses under section 40A(2)(b) of the Act: e. to give credit for TDS certificates amounting to Rs. 98,09,238/- and to modify the assessment in accordance with the provisions of the Act. 7. Each of the above grounds of appeal are independent and without prejudice to each other. 8. The appellant craves liberty to add, to alter and/or amend the grounds of appeal as andwhen given.”
At the outset, with regard to Ground No. 1 which is in respect of directing the Assessing Officer to adopt 12% of cost of land and building as annual value of property being J.K. House, u/s. 23 of the Act, Ld. AR of the assessee brought to our notice that the issue in appeal has been considered by the Co-ordinate Bench of this tribunal and decided the issue in favour of the revenue and against the assessee. Ld. AR further submitted that assessee has challenged the above ground before
6 ITA No. 2218/MUM/2011 (A.Y. 2007-08) ITA No. 4322/MUM/2012 (A.Y. 2008-09) C.O. NO. 287& 288/MUM/2017 M/s. Raymond Limited Hon'ble Bombay High Court and the same is pending for disposal. Ld.AR submitted that the assessee has contested the said ground before us only to keep the issue alive.
On the other hand, Ld. DR submitted that the issue is decided against the assessee.
Considered the rival submissions and material placed on record, we observe from the record that identical issue is decided in favour of the revenue for the A.Y. 2005-06 and 2006-07. While deciding the issue, the Coordinate Bench of the Tribunal in ITA.No. 7793 & 7794/Mum/2010 dated 28.10.2015 held as under: - “3. The first ground relates to the treatment of income under the head income from house property. The assessee is aggrieved by the direction of the CIT(A) to determine the annual value of the property at 12% of the cost of land and building. At the very outset, the Counsel for the assessee fairly conceded that this issue has been decided against the assessee and in favour of the Revenue by the Tribunal vide a consolidated order dated 1st May, 2009 for assessment years 1999-2000, 2000- 2001 and 2001-2002. 3.1 We find that this issue has been considered by the Tribunal in para 2.7 of its order and at 2.7.1, the Tribunal has followed the decision of the coordinate bench given for assessment years 1994-95 and 1995-96 to assessment year 1998-99. Following the decision of the Tribunal, the appeal of the assessee was dismissed. As the learned Senior Counsel has fairly conceded that since this issue has been decided against
7 ITA No. 2218/MUM/2011 (A.Y. 2007-08) ITA No. 4322/MUM/2012 (A.Y. 2008-09) C.O. NO. 287& 288/MUM/2017 M/s. Raymond Limited the assessee by the Tribunal, the same view should be taken. Respectfully following the finding of the co-ordinate bench in assessee’s own case (supra) ground no.1 is dismissed.”
Respectfully following the above decision and following the principle of consistency, the view taken by the Tribunal in A.Y. 2005-06 & 2006-07 is respectfully followed; ground raised by the assessee is accordingly dismissed.
With regard to Ground No. 2 which is in respect of setting aside the issue of disallowance u/s. 14A of the Act to the file of the Assessing Officer. Ld. AR of the assessee brought to our notice that issue in appeal has been considered by the Coordinate Bench of the Tribunal in assessee’s own case for the Assessment Year 2005-06 and 2006-07 and held that disallowance u/s. 14A of the Act be determined on reasonable basis at 2% of the exempt income earned by the assessee. Ld.AR further submitted that for the A.Y. 2007-08 assessee has earned exempt income of ₹.25,31,60,217/-. Ld.AR prayed that the disallowance be restricted to 2% of the exempt income earned by the assessee as adopted for the year 2005-06 and 2006-07.
8 ITA No. 2218/MUM/2011 (A.Y. 2007-08) ITA No. 4322/MUM/2012 (A.Y. 2008-09) C.O. NO. 287& 288/MUM/2017 M/s. Raymond Limited 9. On the other hand, Ld. DR relied on the orders of the lower authorities.
Considered the submissions and material placed on record, we observe from the record that identical issue is decided in favour of the assessee for the A.Y. 2005-06 and 2006-07. While deciding the issue in favour of the assessee the Coordinate Bench of the Tribunal in ITA.No. 7793 & 7794/Mum/2010 dated 28.10.2015 held as under: - “4. “Ground no.2 with all its sub-grounds relate to the disallowance made u/s 14A of the Act read with rule 8D. 4.1 This issue is no more res integra as the applicability of Rule 8D has been held to be prospective from assessment year 2008-2009 by the decision of the Hon’ble High Court of Bombay in the case of Godrej & Boyce Ltd. Mfg. Co. v. DCIT [(2010) 328 ITR 81 (Bom.)]. We, therefore, restore this issue to the file of the A.O. to be decided afresh without applying Rule 8D after giving a reasonable opportunity of being heard to the assessee. Ground no.2 with all its sub-grounds are treated as allowed for statistical purposes.”
Respectfully following the above decision and following the principle of consistency, the view taken by the Tribunal in A.Y.2005-06 is respectfully followed, accordingly, ground raised by the assessee is allowed for statistical purpose. The Assessing Officer is directed to follow the consequential order passed for the A.Y 2005-06 and estimate the disallowance at the same rate as determined in the above said
9 ITA No. 2218/MUM/2011 (A.Y. 2007-08) ITA No. 4322/MUM/2012 (A.Y. 2008-09) C.O. NO. 287& 288/MUM/2017 M/s. Raymond Limited Consequential order for AY 2005-06. Accordingly, the ground raised by the assessee is allowed for statistical purpose.
With regard to Ground No. 3 which is in respect of upholding the action of the Assessing Officer in denying the claim of short-term capital loss of ₹.4,97,00,0000/- and long term capital loss of ₹.4,91,03,6000/- arising out of sale of fully convertible debentures of Plugin Sales Limited. The relevant findings of the Assessing Officer are, he observed that assessee has claimed short term loss and long term loss on sale of debentures of Plugin Sales Ltd (in short PSL), a sister concern of the assessee, in which the assessee had invested ₹.9.94 crores, which the assessee had sold for ₹.3 lakhs which worth’s ₹.5 crores and for ₹.296,400/- which worth’s ₹.4.94 crores. At the same time, he observed that more than 25% of the stakes in the PSL are held by the directors/promoters of the Assessee company. According to the Assessing Officer, the assessee had violated the provisions of section 295 and 301 of the Companies Act, 1956.
Further, he observed that the assessee had decided to sell the 6000 equity shares and zero coupon FCDs at the best possible price by passing a resolution dated 10.03.2006 and accordingly sold the same to
10 ITA No. 2218/MUM/2011 (A.Y. 2007-08) ITA No. 4322/MUM/2012 (A.Y. 2008-09) C.O. NO. 287& 288/MUM/2017 M/s. Raymond Limited Videocon Group at the price of ₹.5,96,400/-. After analyzing the Balance Sheet of the PSL, he observed that all the debentures were subscribed only by the assessee and no other shareholders have subscribed to the above debentures. He also referred to the subscription agreement and observed that all the fully paid up debentures would be converted into equity shares at a predetermined rate of share premium on achievement of certain operational targets. If such targets are not achieved before 30.09.2006, all the debentures would be converted into total of 70000 equity shares. Further he also observed that the PLS had incurred loss of ₹.4.41 crores for the year ended 31.03.2004 and further loss of ₹.3.56 crores for the year ended 31.03.2005. Assessing Officer of the opinion that since the assessee could have been in a position to advance the loans to the sister concern or to associates i.e., PLS. Therefore, such loans were advanced in the garb of debentures. Suddenly within the end of the two years from the last subscription, the assessee decided to sale such- debentures at heavy short term and long term capital losses. Accordingly, he treated the above transaction as sham transaction and not genuine. By relying on several case law as discussed in his order, he rejected the set off losses claimed by the assessee relating to long term as well as short term capital losses.
11 ITA No. 2218/MUM/2011 (A.Y. 2007-08) ITA No. 4322/MUM/2012 (A.Y. 2008-09) C.O. NO. 287& 288/MUM/2017 M/s. Raymond Limited 14. Aggrieved assessee preferred an appeal before CIT(A)- 6, Mumbai and after considering the submissions of the assessee, Ld CIT(A) dismissed the ground raised by the assessee in this regard.
Ld. AR submitted that due to advent of technology and higher purchasing power, electronics items of daily use like TV, refrigerator, air-conditioner, microwave ovens, audio & video systems, dishwashers etc. are more in demand. Since company is dealing with ready-made garments & perfumes, toiletries through retail stores; it thought of entering the market of retailing of electronics goods also. “Plugin Sales Private Limited" (PLS) is formed on 28.01.2003 at Mumbai. By a "Share Subscription and shareholders agreement dated 28.03.2003 company agreed to subscribe to the shares & debentures of PLS. The FMCG market is very capital intensive and electronics good itself are delicate & costly, accordingly company invested ₹.1000.00 lacs through shares & debentures into PLS during First year of actual operation i.e. FY 2003-04 as per agreement. As per provisions of Companies act as well as other financial regulations, there are only three avenues for funding any business ventures viz, shares, debentures OR Loan. Based on prudent practice, Raymond Ltd, subscribed to Shares & fully convertible
12 ITA No. 2218/MUM/2011 (A.Y. 2007-08) ITA No. 4322/MUM/2012 (A.Y. 2008-09) C.O. NO. 287& 288/MUM/2017 M/s. Raymond Limited debenture of PLS. Please note that there is no violation of any provisions of companies act OR Income tax act or any other financial regulations in such investments.
Further, Ld. AR submitted that the PLS is incorporated on 28.01.2003, there is no trading activity for the Financial year ended 31-03-2003, only income is interest on bank balance and sundry expenses related to formation of company. Financial year 2003-04 is first year of actual operation of PLS. During the first year of actual operation 2 (FY 2003-04), company has invested ₹.6.00 lacs in shares of PLS and ₹.994.00 lacs in Debentures of PLS total investment is ₹1000.00 lacs as per terms of "Share Subscription and shareholders agreement" dated 28/03/2003. This being first year of actual operation of PLS, total revenue of PLS for FY 2003-04 is ₹.1289.89 lacs and Loss for the year is ₹.440.86 lacs. During second year ended 31-03-2005 total revenue is ₹.1978.35 lacs and loss for the year of ₹.355.92 lacs. Annual accounts for FY 2003-04 & FY 2004-05 are placed on record.
Furthermore, Ld. AR submitted that, any new venture has teething problems and there are always chances of either success or failure. Due to various reasons beyond control of the company the venture could not
13 ITA No. 2218/MUM/2011 (A.Y. 2007-08) ITA No. 4322/MUM/2012 (A.Y. 2008-09) C.O. NO. 287& 288/MUM/2017 M/s. Raymond Limited generate required revenue and more funds are required to accommodate deficit from operations. When company realized that it may not be prudent to run the show (venture) further, it decided to sale the PLS as it is. Since total capital of the PLS is wiped off due to deficit, its net worth has become negative. Under such circumstances debentures of PLS are sold at nominal token value to Videocon group. By a Debenture Purchase Agreement dated 08.07.2006 between Raymond Ltd (as debenture holder), Plugin Sales Ltd (as company therein) and Videocon group companies (as purchasers) 9,94,000 fully convertible Debentures are sold. It is submitted that Videocon group is a very well-known business entity and NOT related to Raymond Ltd. It is an independent Third party as far as this transaction is considered. In electronics market, Videocon group was a leader at that time. Due to recurring losses of PLS amount fetched by company is very low as compared to investment. However, by selling the venture even at loss, company has been able to curtail future recurring losses and further funding of such deficit. The said sale of debentures at loss has resulted into long term & short term capital loss which is disallowed by income tax officer in assessment in A.Y. 2007-08.
14 ITA No. 2218/MUM/2011 (A.Y. 2007-08) ITA No. 4322/MUM/2012 (A.Y. 2008-09) C.O. NO. 287& 288/MUM/2017 M/s. Raymond Limited 18. There are provisions for adjustment / set off of losses generated in business in Income tax Act. This implies that any business adventure may have losses instead of profit. Just because any adventure has generated losses does not mean that it is not a business adventure. Raymond Ltd since 1925 is earning profit and paying taxes to government. However, if one of the adventure went wrong, it could not be termed as loss of revenue, tax evasion, colorable device, funding of losses of subsidiary etc. In fact from facts mentioned above it is evident that total investment of ₹.1000.00 lacs is made in first year of actual operations and losses had accrued subsequently. Thus there is no question of funding of losses of subsidiaries. It is submitted that any adventure needs to be looked into as an adventure and normal business practice should be applied to it. There are chances that adventure may turn either profitable OR loss making. The sequence of events in above adventure is given in chart. Plugin Sales Limited (PLS) Sequence of events: - Date Particulars Number Amount Rs. LTCL STCL F.Y. 2002-03 A.Y.: 2003-04 28-01-2003 INCORPORATION OF COMPANY PLS 26-03-2003 Share subscription and shareholders agreement , Turn over for the year / Interest income 31-03-2003 9,041 Loss for the year / Incidental Expenses 31-03-2003 (5,47,765)
15 ITA No. 2218/MUM/2011 (A.Y. 2007-08) ITA No. 4322/MUM/2012 (A.Y. 2008-09) C.O. NO. 287& 288/MUM/2017 M/s. Raymond Limited Date Particulars Number Amount Rs. LTCL STCL F.Y. 2003-04 A.Y.: 2004-05 FIRST YEAR OF ACTUAL OPERATIONS 03-04-2003 Allotment of Debentures 94,000 94,00,000 17-06-2003 Allotment of Debentures 4,00,000 4,00,00,000 30-10-2003 Allotment of Debentures 1,00,000 1,00,00,000 03-11-2003 Allotment of shares 6,000 6,00,000 01-12-2003 Allotment of Debentures 2,00,000 2,00,00,000 17-03-2004 Allotment of Debentures 2,00,000 2,00,00,000 31-03-2004 Turn over for the year 12,89,89,806 31-03-2004 Loss for the year (4,40,86,922) F.Y. 2004-05 A.Y.: 2005-06 SECOND YEAR OF ACTUAL OPERATIONS 31-03-2005 Turn over for the year 19,78,33,478 t 31-03-2005 Loss for the year (3,55,92,047) F.Y. 2005-06 A.Y.: 2006-07 31-03-2006 Sale of shares 6,000 6,000 6,38,050 F.Y. 2008-07 A.Y.: 2007-08 08-07-2006 Sale of Debentures 4,94,000 2,96,400 4,91,03,600 08-07-2006 Sale of Debentures 5,00,000 3,00,000 4,97.00,000
List of Documents submitted for reference Sr. No. Date Particulars 1 28-01-2003 Certificate of Incorporation of PLS 31-01-2003 Raymond Board resolution to invest in Plugin Sales Pvt Ltd 2 3 26-03-2003 Share subscription and shareholders agreement 4 26-03-2003 Subscription to initial shares & debentures 5 03-04-2003 Debenture Certificates of PLS 6 31-03-2004 Annual Accounts of PLS 7 31-03-2005 Annual Accounts of PLS 8 10-03-2006 Raymond Board resolution to Divest from Plugin Sales Ltd 9 08-07-2006 Debenture purchase agreement
Ld.DR relied on the orders of the lower authorities.
Considered the rival submissions and material placed on record, we observe that the assessee in order to expand its operation in FMCG
16 ITA No. 2218/MUM/2011 (A.Y. 2007-08) ITA No. 4322/MUM/2012 (A.Y. 2008-09) C.O. NO. 287& 288/MUM/2017 M/s. Raymond Limited market in particular electronic items, it entered into share subscription and shareholders agreement dated 28.03.2003 with the prospective investors with the expertise in this line of business. In order to safe guard its investment, it planned its investment such a way that they control the investment and management. Therefore, we observe that it invested the funds in the share capital as well as it planned its investment in the capital intensive operation such a way that it can monitor the progress and not to lock the whole investment in the form of share capital. They have invested the funds in the form of Debentures, in case it is not doing well, it can exit from the operation and plan the disinvestment. From the events unfolded in the subsequent years and also it is not possible to predict the future events, in the given case, unfortunately, the new venture, PLS, incurred huge losses in the initial stage itself. It is fact on record that the company incurred huge loss in the two years itself, the Assessing Officer also acknowledged that the two years losses incurred are ₹.7.97 crores. It is beyond the capacity of any business to recover and it needs further investments. It is fact on record that when the assessee invested in shares as well as Debentures to the extent of ₹.10 crores and faced with the erosion of capital invested is almost 80%. At this stage, it is left to the board to decide
17 ITA No. 2218/MUM/2011 (A.Y. 2007-08) ITA No. 4322/MUM/2012 (A.Y. 2008-09) C.O. NO. 287& 288/MUM/2017 M/s. Raymond Limited whether to keep investment in the venture or to exit at this stage, the board taken a decision to exit, even though they have to observe these losses. The unfolding of events brought to our notice has clearly indicate that the exit decision is in favour of the assessee.
We observe from the findings of Assessing Officer and he acknowledges that the assessee has made investment and at the same time, PLS is not the wholly owned subsidiary of the assessee company and it invested in the above said company as lead investor in order to promote the new line of business. Ld AR has demonstrated the investment pattern and time line in his submissions in the above paragraph, as per which the assessee has invested the funds cautiously, still the new venture failed to take off. It cannot be termed as sham or non genuine transaction, it is only failed business attempt with the prospective investors in the capital sensitive venture. It is also fact on record that the assessee disposed off the venture under distress and found the best prospective buyer, who is not the related person or group. From the time line submitted by the assessee and investment pattern clearly demonstrate that the assessee made the genuine effort to make the venture successful. Under distress and in order to stop the
18 ITA No. 2218/MUM/2011 (A.Y. 2007-08) ITA No. 4322/MUM/2012 (A.Y. 2008-09) C.O. NO. 287& 288/MUM/2017 M/s. Raymond Limited future bleeding in the business, it accepted the best possible deal with the Videocon group. Considering the facts on record, we are not incline to accept the line of argument of the revenue authorities that the assessee has deliberately entered in this venture to book the losses, even the investment pattern adopted by the assessee is legally acceptable, it is not falling into loan or guarantee and also no violation of provisions of section 295 or 301 of the Companies Act. Therefore, no organization will plan to book losses in this way, we observe that the assessee has genuinely tried to expand its operation in the new area of operation and due to unavoidable circumstances, the company PLS was incurring continues losses and it is in the interest of the assessee to exit from the arrangement made with the new partners/shareholders. The fact in the record shows that the assessee has made systematic plan to expand the business and exited due to circumstances brought on record. There is absolutely no record or any finding from the revenue side except interpreting the transaction that it is colorable device to book the losses. There is no supporting evidence brought on record to indicate the reasons for booking such losses, there has to be some reasons for booking such huge losses, no businessman will try to book losses blatantly, there has to be some evidence to show that the assessee has
19 ITA No. 2218/MUM/2011 (A.Y. 2007-08) ITA No. 4322/MUM/2012 (A.Y. 2008-09) C.O. NO. 287& 288/MUM/2017 M/s. Raymond Limited devised a plan to book losses in order to avoid payment of tax. In the absence of any reasons, it is not proper for the Assessing Officer to interpret genuine claim of losses as sham and non genuine transaction. Therefore, we are incline to accept the submissions of the assessee, accordingly, allow the grounds raised by the them. We direct the Assessing Officer to allow the claim of the assessee on the short term and long term capital losses to be adjusted in the other regular income of the business. In view of the above, we are inclined to allow the ground raised by the assessee.
With regard to Ground No. 4 which is in respect of upholding the action of the Assessing Officer in disallowing the rent of ₹.3,95,72,346/- (4,15,74,060 – 20,01,714/-) paid to J.K. Investors (Bombay) Ltd., u/s.40A(2)(b) of the Act.
Ld. AR of the assessee submitted that Assessing Officer denied the claim u/s. 40(A)(2)(b) of the Act observing that rent paid is excessive comparing the earlier years. Ld. AR vide letter dated 26th September, 2022 submitted as under: - “In relation to the issue of disallowance u/s 40A(2)(b) of the Act (i.e. Ground No 4 of A.Y. 2007-08 and Ground no. 3 of A.Y. 2008-09) argued before your Honor, the learned AR, amongst
20 ITA No. 2218/MUM/2011 (A.Y. 2007-08) ITA No. 4322/MUM/2012 (A.Y. 2008-09) C.O. NO. 287& 288/MUM/2017 M/s. Raymond Limited other arguments, had placed reliance on decision of Hon'ble Bombay High Court in the case of CIT vs Indo Saudi services (Travel)(P) Ltd. (2009] 310 ITR 306 (Bombay) (copy of the said decision was already furnished during the course of hearing) wherein it was held that, there is no evasion of taxes by alleged payment of higher expenditure to its sister concern since the sister concern was also paying tax at higher rate which was evident from copies of assessment order of sister concern. To substantiate that the aforesaid decision squarely applies to the facts of the assessee, we are enclosing the assessment order of JK Investors Bombay Ltd for A.Y. 2007-08 and A.Y. 2008-09 as Annexure 1 & 2 respectively. Kindly refer page 9 and page 9 respectively, wherein it is evident that J.K. Investors Bombay Ltd is paying taxes at the rate of 30% and thus applying the principles of the aforesaid decision, there is no evasion of taxes by the appellant.”
On the other hand, Ld. DR relied on the orders of the lower authorities.
Considered the rival submissions and material placed on record, we observe that Assessing Officer has invoked the provision of section 40A(2)(b) of the Act to disallow substantial amount as excess payment of rent to the related concern. At the outset, we observe that the rate adopted by the Assessing Officer without there being any bench mark or basis for adopting such rate without bringing on record the market rate at that point of time. Further we observe that the related concern JK Investors have declared the rent receipt and paid the relevant tax and they are also falling under the tax bracket of 30% slab. Therefore, there
21 ITA No. 2218/MUM/2011 (A.Y. 2007-08) ITA No. 4322/MUM/2012 (A.Y. 2008-09) C.O. NO. 287& 288/MUM/2017 M/s. Raymond Limited is no evasion of tax in these transactions. As held in the case of CIT v. Indo Saudi Services (Travel)(P.) Ltd., [310 ITR 306], when there is payment to its sister concern and both the concerns are falling in same slab rate of taxation, there is no evasion of tax. In the given case also, the payments made to sister concern which also pays tax at the same slab rate of the assessee, there is no loss to the revenue. Hence, we are inclined to accept the submissions of the assessee and direct the Assessing Office to allow the claim of the assessee. Accordingly, the ground no.4 raised by the assessee is allowed.
With regard to Ground No. 5 and 6, Ld. AR submitted that these grounds are not pressed, accordingly the same are dismissed as not pressed.
C.O. NO. 287/MUM/2017 (A.Y. 2007-08) – REVENUE APPEAL
Revenue has raised following grounds in its cross objection: -
"1. The CIT(A) has erred in taking the rental income at 12% of the cost of land and building, which will not change over the years and have its effect in future years. 2. The CIT(A) has erred in not taking the annual value of the property as per section 22 and 23 of the IT Act, that the
22 ITA No. 2218/MUM/2011 (A.Y. 2007-08) ITA No. 4322/MUM/2012 (A.Y. 2008-09) C.O. NO. 287& 288/MUM/2017 M/s. Raymond Limited annual value of the property is a sum which may be expected to be let out from year to year basis."
At the outset, we observe that the present cross objection is filed by the revenue with a delay of 2411 days. Ld. DR prayed for condonation of delay in the interest of natural justice. Ld. AR of the assessee strongly objected for condonation of delay and filed the affidavit as under: -
“1. That I am a Chartered Accountant employed by M/s.Raymond Ltd. and am authorized to reply to the Affidavit of delay filed by the Appellant in the above matter. 2. I have seen the Affidavit and would state that Affidavit does not explain any reason for the delay of 2411 days in filing the cross objections. The cross objections have to be filed within 30 days of the receipt of the Appeal and in the present case cross objections are hopelessly delayed. There is no reason given what caused the delay in filing the cross objections. Change of view by I.T. Department on a point of law cannot be a reason fordelay in filing cross objections. 3. The same issue was raised in assessment years from AY. 1994-95 to A.Y. 1996-97 (ITA NO. 2600/M/98, ITA No.257/M/99 & ITA No. 6269/M/99) and this Hon'ble Tribunal by its order dated 22-03-2007 has decided the point of annual letting value in favour of the respondent on the Appeals filed by the Assesse. The Income Tax Department who is the present Appellant had not even filed any Appeal against the order of CIT (Appeals). The same issue about the annual letting value had also come up in the following assessment years where this Hon'ble Tribunal followed its earlier orders. In none of those years Income Tax Department filed any Appeal or cross objections against the order of the CIT (Appeals). In subsequent years they have accepted the Order of the CIT (Appeals). 4. In fact, it was the Assesse who was aggrieved by the order of CIT (Appeals) and even when they lost before this Hon'ble Tribunal, they have taken the matter to High Court and the said
23 ITA No. 2218/MUM/2011 (A.Y. 2007-08) ITA No. 4322/MUM/2012 (A.Y. 2008-09) C.O. NO. 287& 288/MUM/2017 M/s. Raymond Limited Appeals are still pending. The Income Tax Department has not approached either the Tribunal or the High Court in any of these years. 5. The annual letting value of a property cannot change from year to year. It remains the same as the standardrent in those places where the Rent Control Act is in force. This is a settled position of law. Only because for Assessment years 2004-05, 2007-08 & 2008-09, the Department wants to argue that the annual letting value should change from year to year, need not be a ground for the delay in filing cross objections after 2411 days. This is not the case of ignorance of law. But, of not accepting Tribunal's verdict in earlier years in the case of the same Assesse. 6. It is therefore, prayed that no case has been made out for explaining the delay of the Department and the application for delay and the cross objections should be dismissed in limine.”
Ld. AR of the assessee objected for the condonation of delay as revenue has not brought on record any sufficient and reasonable cause for the delay in filing cross objection. Ld. AR of the assessee relied on the case of Hon'ble Bombay High Court in the case of Somerset Place Co-operative Housing Society Ltd. v. ITO.
Considered the submissions of both parties, it is fact on record that revenue has failed to file the cross objection in time. We observe that Hon'ble Supreme Court in the case of Collector, Land Acquisition v. MST. Katiju and others, [1987]167 ITR 471, considered the issue of condonation of delay and for the sake of overall justice held as under: - “3. The legislature has conferred the power to condone delay by enacting s. 5 of the Limitation Act of 1963 in order to enable
24 ITA No. 2218/MUM/2011 (A.Y. 2007-08) ITA No. 4322/MUM/2012 (A.Y. 2008-09) C.O. NO. 287& 288/MUM/2017 M/s. Raymond Limited the Courts to do substantial justice to parties by disposing of matters on "merits". The expression "sufficient cause" employed by the legislature is adequately elastic to enable the Courts to apply the law in a meaningful manner which subserves the ends of justice—that being the life-purpose of the existence of the institution of Courts. It is common knowledge that this Court has been making a justifiably liberal approach in matters instituted in this Court. But the message does not appear to have percolated down to all the other Courts in the hierarchy. 4. And such a liberal approach is adopted on principle as it is realized that: 1. Ordinarily, a litigant does not stand to benefit by lodging an appeal late. 2. Refusing to condone delay can result in a meritorious matter being thrown out at the very threshold and cause of justice being defeated. As against this, when delay is condoned, the highest that can happen is that a cause would be decided on merits after hearing the parties. 3. "Every day's delay must be explained" does not mean that a pedantic approach should be made. Why not every hour's delay, every second's delay? The doctrine must be applied in a rational common sense and pragmatic manner. 4. When substantial justice and technical considerations are pitted against each other, the cause of substantial justice deserves to be preferred, for the other side cannot claim to have vested right in injustice being done because of a non- deliberate delay. 5. There is no presumption that delay is occasioned deliberately, or on account of culpable negligence, or on account of mala fides. A litigant does not stand to benefit by resorting to delay. In fact, he runs a serious risk. 6. It must be grasped that the judiciary is respected not on account of its power to legalize injustice on technical grounds but because it is capable of removing injustice and is expected to do so.”
25 ITA No. 2218/MUM/2011 (A.Y. 2007-08) ITA No. 4322/MUM/2012 (A.Y. 2008-09) C.O. NO. 287& 288/MUM/2017 M/s. Raymond Limited 31. Respectfully following the ratio laid down in the above judgment, we condone the delay in filing the cross objection and decide the appeal on merits.
Grounds raised by the revenue are relating to restricting the rental income at 12% of the cost of land and building. Ld.DR submitted that the Ld.CIT(A) has not taken the annual value of the property as per section 22 and 23 of the Act , that the annual value of the property is a sum which may be expected to be let out from year to year basis and Ld.DR prayed for allowing the ground.
On the other hand, Ld. AR of the assessee submitted that similar issue was raised in assessment years from AY. 1994-95 to A.Y. 1996-97 (ITA NO. 2600/M/98, ITA No.257/M/99 & ITA No. 6269/M/99) and the Tribunal by its order dated 22-03-2007 has decided the point of annual letting value in favour of the assessee. The revenue had not even filed any Appeal against the order of CIT(Appeals). The same issue about the annual letting value had also come up in the subsequent assessment years where this Hon'ble Tribunal followed its earlier orders. In none of those years’ revenue filed any Appeal or cross objections against the order of the CIT (Appeals) and in subsequent years they have accepted
26 ITA No. 2218/MUM/2011 (A.Y. 2007-08) ITA No. 4322/MUM/2012 (A.Y. 2008-09) C.O. NO. 287& 288/MUM/2017 M/s. Raymond Limited the Order of the CIT (Appeals). Ld.AR further submitted that the annual letting value of a property cannot change from year to year and it remains the same as the standard rent in those places where the Rent Control Act is in force. Ld. AR prayed for dismissal of the above ground raised by the revenue.
Considered the rival submissions and material placed on record, we observe from the record that the Tribunal in assessee’s own case for the A.Y.1994-95 to 1996-97 in ITA.No. 2600/Mum/1998, ITA.No. 257/Mum/1999 and ITA.No. 6269/Mum/1999 vide common order dated 22.03.20007 decided the issue of annual letting value in favour of the assessee. Further, we observe in cross objection No. 286/MUM2017 for the A.Y. 2004-05, the Coordinate Bench held as under:- “15. The Revenue has also filed the cross objection agitating that determining the annual value @ 12% of the cost of land and building shall mean that the same annual value shall remain for eternity as the cost of the land and building will never change. 16. We find that the Revenue’s cross objection is delayed and the assessee has vehemently argued that the deletion should not be condoned, as there is no reasonable cause for the delay. We find that on this issue, the assessee has made the following submissions: In the assesse' s own appeal for A.Y. 1995-96 the CIT (A) has held to determine the annual value of the property @
27 ITA No. 2218/MUM/2011 (A.Y. 2007-08) ITA No. 4322/MUM/2012 (A.Y. 2008-09) C.O. NO. 287& 288/MUM/2017 M/s. Raymond Limited 12% of the cost of land & building and dismissed the ground of Assessee. Said Judgment is confirmed as well as followed by ITAT from A.Y. 1994-95 to A.Y. 2001-02, A.Y. 2003-04, A.Y. 2005-06 and A.Y. 2006-07. 17. In this regard, we may gainfully refer to the adjudication of this issue in the assessee’s own case for A.Y. 2003-04 in ITA No. 1972/Mum/2009 vide order dated 21.06.2017, the same read as under: 8. Ground No.2 is in relation to income from house property. The assessee has shown the annual value of the property at Rs.2,89,000/- and A.O. has determined the annual value of the property at Rs.3,50,21,280/-. 9. The matter carried to Ld. CIT(A) and the Ld. CIT(A) has dismissed the appeal. 10. During the course hearing the Ld. D.R. submitted that this issue is decided against the assessee in the own case of the assessee in earlier years also. Therefore, it may be decided against the assessee. 11. Since the issue has already been decided against the assessee in the own case of the as sin earlier years, we dismiss ground No.2 of the assessee. In ITA No.7793/Mum/2010 in assessee’s own case for A.Y. 2005-06 vide order dated 28.10.2015, the ITAT has held as under on this issue: 3. The first ground relates to the treatment of income under the head income from house property. The assessee is aggrieved by the direction of the CIT(A) to determine the annual value of the property at 12% of the cost of land and building. At the very outset, the Counsel for the assessee fairly conceded that this issue has been decided against the assessee and in favour of the Revenue by the Tribunal vide a consolidated order dated 1st May, 2009 for assessment years 1999-2000, 2000- 2001 and 2001-2002.
28 ITA No. 2218/MUM/2011 (A.Y. 2007-08) ITA No. 4322/MUM/2012 (A.Y. 2008-09) C.O. NO. 287& 288/MUM/2017 M/s. Raymond Limited 3.1 We find that this issue has been considered by the Tribunal in para 2.7 of its order and at 2.7.1, the Tribunal has followed the decision of the co- ordinate bench given for assessment years 1994-95 and 1995-96 to assessment year 1998-99. Following the decision of the Tribunal, the appeal of the assessee was dismissed. As the learned Senior Counsel has fairly conceded that since this issue has been decided against the assessee by the Tribunal, the same view should be taken. Respectfully following the finding of the co-ordinate bench in assessee's own case (supra) ground no.1 is dismissed. A reading of the above decisions and the pleadings of the ld. Counsel of the assessee and the submissions of the ld. DR shows that the A.O. has computed the annual value of the property at Rs.3,60,21,880/- and the income chargeable under the property can be Rs.2,56,41,066/-. The ld. CIT(A) on the other hand directed the A.O. to compute the annual value of the property with reference to the standard rate of the property determinable as per the relevant provisions of the Rent Act and modify the A.O.’s order accordingly. In this regard, the assessee’s contention is that the direction should be given in accordance with the earlier year ITAT order that the annual value of the property should be 12% of the cost and the land and building. In this regard, we note that it is the plea of the Revenue that making an annual value as a percentage of the cost of the land and building forever will lead to annual value fixed for eternity which can never be permitted. We find that the ITAT earlier had confirmed the same direction. The matter is already before the Hon'ble Jurisdictional High Court. We do not find any cogent reason to depart from the earlier order of the Tribunal in the assessee’s own case. Hence, we follow the same and direct that the ITAT’s order in assessee’s own case on this issue be followed, as the same has not been reversed by the Hon'ble Jurisdictional High Court.
Respectfully following the above said decision, we direct the Assessing Officer to follow the ITAT’s above order in assessee’s own
29 ITA No. 2218/MUM/2011 (A.Y. 2007-08) ITA No. 4322/MUM/2012 (A.Y. 2008-09) C.O. NO. 287& 288/MUM/2017 M/s. Raymond Limited case on this issue, as the same has not been reversed by the Hon'ble Jurisdictional High Court. Grounds raised in the cross objection by the revenue are dismissed.
Even otherwise also we find that the tax effect in this cross objection is less than ₹.50 Lakhs and therefore the cross objection of the revenue is not maintainable on account of low tax effect in view of the CBDT Circular No. 17/2019 dated 08.08.2019.
ITA.NO. 4322/MUM/2012 (A.Y. 2008-09) – ASSESSEE APPEAL
Assessee has raised following grounds in its appeal: - “1. The learned Commissioner of Income tax (Appeals) erred in directing the AssessingOfficer to determine the annual value of the property, at 12% of the cost of land andbuilding rather than accepting the same at Rs.2,89,000/- as returned by the appellant. 2. (a) The learned Commissioner of Income-tax (Appeals) erred in upholding the action of Assessing Officer in disallowing a sum of Rs.16,80,76,000/- in addition to disallowance made by the appellant of Rs.1,01,40,000/- under section 14A while computing total income as per normal provisions of the Act and while computing Book Profit as per provisions of section 115JB of the Act. (b) The learned Commissioner of Income-tax (Appeals) erred in upholding the action of Assessing Officer in considering gross interest expenses as against as net interest expense in working
30 ITA No. 2218/MUM/2011 (A.Y. 2007-08) ITA No. 4322/MUM/2012 (A.Y. 2008-09) C.O. NO. 287& 288/MUM/2017 M/s. Raymond Limited out the disallowance of interest expense under section 14A of the Act. (c) The learned Commissioner of Income-tax (Appeals) erred in upholding the action of Assessing Officer in not excluding accumulated depreciation and amortization and current liabilities and provisions as on the Balance Sheet date for the purpose of calculating the average value of total assets as per clause (ii) of Rule 8D for disallowance under section 14A of the Act. 3. (a) The learned Commissioner of Income-tax (Appeals) erred in upholding the action of the Assessing Officer in disallowing rent paid to J.K. Investors (Bombay) Limited by restricting the disallowance of rent paid over and above Rs.121.00 per sq. ft. as against disallowance made by the Assessing Officer of rent paid over and above Rs. 110.00 per sq.ft. (b) The appellant submits that the learned Commissioner of Income-tax (Appeals) erred in upholding the action of Assessing Officer who failed to appreciate the fact that the rates as per stamp duty reckoner are the minimum indicative rates forthe purpose of levy of stamp duty and the same could not be regarded as market rates. (c) The appellant submits that the learned Commissioner of Income-tax (Appeals) erred in upholding the action of Assessing Officer who failed to appreciate the valuation report obtained by the appellant from a Government Approved valuerwhich clearly indicated that, considering various factors such as location, ambience & facilities of the building, the market rate was between Rs.190 toRs.220 per sq. 4. The learned Commissioner of Income-tax (Appeals) erred in upholding the action of Assessing Officer in reducing short term capital gains on which STT is paid, from the gross total income while computing 10% of gross total income for arriving at qualifying amount for the purpose of determining deduction under section 80G of the Act. 5. The learned Commissioner of Income-tax (Appeals) erred in upholding the action of Assessing Officer in granting interest
31 ITA No. 2218/MUM/2011 (A.Y. 2007-08) ITA No. 4322/MUM/2012 (A.Y. 2008-09) C.O. NO. 287& 288/MUM/2017 M/s. Raymond Limited under section 244A on excess credit for tax deducted at source claimed during the assessment proceedings from the date on which the TDS Certificates were furnished till the date of refund granted. 6. The learned Commissioner of Income-tax (Appeals) ought to have directed the Assessing Officer to delete the interest levied under section 234D of the Act, as the refund determined under section 143(3) is higher than the refund determined under section 143(1) and accordingly, the provisions of section 234D are not applicable. 7. The appellant submits that the learned Assessing Officer be directed: a. to delete the addition made by determining annual value of the property at a higher amount as against Rs.2,89,000/-; b. to delete the disallowance under section 14A of the Act; c. to delete the disallowance made of rent expenses under section 40A(2)(b) of the Act; d. to not reduce short term capital gains on which STT is paid, from the gross total income while computing 10% of gross total income for arriving at qualifying amount for the purpose of determining deduction under section 80G of the Act, e. to grant interest under section 244A of the Act for TDS Certificates submitted from the first day of assessment year till date of refund order, f. to delete interest levied under section 234D of the Act; and to modify the assessment in accordance with the provisions of the Act. 8. Each of the above grounds of appeal are independent and without prejudice to each other. 9. The appellant craves liberty to add, to alter and/or amend the grounds of appeal as and when given.”
32 ITA No. 2218/MUM/2011 (A.Y. 2007-08) ITA No. 4322/MUM/2012 (A.Y. 2008-09) C.O. NO. 287& 288/MUM/2017 M/s. Raymond Limited 38. We shall dispose off this appeal by adjudicating the various issues ground wise.
We observe that Ground No. 1 is similar to Ground No. 1 of grounds of appeal raised for the A.Y. 2007-08 and the decision taken therein shall apply mutatis-mutandis to the appeal for the A.Y. 2008-09. We order accordingly. Ground raised by the assessee is dismissed.
With regard to Ground No. 2, Ld. AR submitted that Ld.CIT(A) erred in upholding the action of Assessing Officer in disallowing a sum of ₹.17,82,16,099/- in addition to disallowance made by the assessee of ₹.1,01,40,000/- u/s 14A while computing total income as per normal provisions of the Act and while computing Book Profit as per provisions of section 115JB of the Act. The learned CIT(A) erred in upholding the action of Assessing Officer in considering gross interest expenses as against as net interest expense in working out the disallowance of interest expense under section 14A of the Act. The learned CIT(A) erred in upholding the action of Assessing Officer in not excluding accumulated depreciation and amortization and current liabilities and provisions as on the Balance Sheet date for the purpose of calculating
33 ITA No. 2218/MUM/2011 (A.Y. 2007-08) ITA No. 4322/MUM/2012 (A.Y. 2008-09) C.O. NO. 287& 288/MUM/2017 M/s. Raymond Limited the average value of total assets as per clause (ii) of Rule 8D for
disallowance under section 14A of the Act.
Further, Ld. AR submitted that the disallowance should be
restricted to the exempt income earned by the assessee and only those
investments which actually earned the exempt income. In support of
the above contention Ld. AR relied on the decision of the Vireet
Investment (P) Ltd [82 taxmann.com 415] and prayed that proper
direction may be given.
Further, Ld. AR submitted a detailed chart relating the
disallowance u/s.14A as under: -
As per Suo Moto AS per Assessment As per grounds As per CIT(A) Order disallowance Order before ITAT sr Particulars . Amount Amount Amount Amount Amount Amount Amount Amount (₹.) (₹.) (₹.) (₹.) (₹.) (₹.) (₹.) (₹.) (i) Direct Expenses- Rule 8D(2)(i) 1,01,04,280 1010428 10104280 10104280 (ii Interest Expenses- Rule ) 8D(2)(ii) A Amount of expenditure by way 0 59,80,10,000 508010000 25,23,22,000 of interest other than the amount of interest included in clause (i) incurred during the previous year B The average value of 0 6459920000 6459920000 2569962500 investment, income from which does not or shall not form part of the total income, as appearing in the balance sheet of the assessee, on the first day and the last day of the previous year
34 ITA No. 2218/MUM/2011 (A.Y. 2007-08) ITA No. 4322/MUM/2012 (A.Y. 2008-09) C.O. NO. 287& 288/MUM/2017 M/s. Raymond Limited As per Suo Moto AS per Assessment As per grounds As per CIT(A) Order disallowance Order before ITAT sr Particulars . Amount Amount Amount Amount Amount Amount Amount Amount (₹.) (₹.) (₹.) (₹.) (₹.) (₹.) (₹.) (₹.) c The average of total assets as 0 26474781000 26474751000 32374060500 appearing in the balance sheet of the assessee, on the first day and the last day of the previous year 14,59,16,099 14,59,16,099 AXB / C 0 AXB / C AXB / C 0 (iii 0.5% of the average of the 0 0 (0.5% of Rs. 32300000 (0.5% of Rs. 32300000 (0.5% of Rs. 12849813 6460000000) ) value of investment: Rule 6460000000) 2569962500) 8D(2)(iii) 188320379 188320379 Total disallowance U/S.14A i)+(ii)+(i 10104280 i)+(ii)+(iii) i)+(ii)+(iii) 22954093 ii)
Ld.DR relied on the order of the lower authorities.
Considered the rival submissions and material placed on record,
we observe from the informations submitted by the assessee clearly
indicates that the various investments were made by the assessee in
earlier Assessment Years which is backed with the details of the non
interest borrowing funds available with the assessee in the respective
years. Therefore, assessee has brought to our notice clearly that
assessee has enough funds at their disposal to make various
investments in the sister concerns as well as with the various other
investments. In our considered view with the information available on
record it clearly indicates that the assessee has utilized non interest
bearing funds for making the various investments. Therefore, the
Assessing Officer cannot invoke Rule 8D(2)(ii) of I.T. Rules to disallow
35 ITA No. 2218/MUM/2011 (A.Y. 2007-08) ITA No. 4322/MUM/2012 (A.Y. 2008-09) C.O. NO. 287& 288/MUM/2017 M/s. Raymond Limited the interest expenditure u/s. 14A of the Act, accordingly, ground raised by the assessee is allowed.
With regard to disallowance u/r 8D(2)(iii), it is well settled that it should be restricted to the investments which has actually derived the exempt income. For calculating the disallowances, Assessing Officer should consider only those investments in shares and investments made in firm, from which assessee has earned dividend and share of profit. Therefore, we are inclined to allow the ground raised by the assessee and direct the Assessing Officer to follow the above direction as per judicial precedent and law.
Ground No. 3 is similar to Ground No. 4 of grounds of appeal raised for the A.Y. 2007-08 and the decision taken therein shall apply mutatis-mutandis to the appeal for the A.Y. 2008-09. We order accordingly. Ground raised by the assessee is allowed.
With regard to Ground No. 4 which is in respect of upholding the action of the Assessing Officer in reducing short term capital gains on which STT is paid, from the gross total income while computing 10% of
36 ITA No. 2218/MUM/2011 (A.Y. 2007-08) ITA No. 4322/MUM/2012 (A.Y. 2008-09) C.O. NO. 287& 288/MUM/2017 M/s. Raymond Limited gross total income for arriving at qualifying amount for the purpose of
determining deduction u/s. 80G of the Act.
Ld. AR vide letter dated 26th September, 2022 submitted as
under:-
“In addition to the above, for your Honors ready reference, we would like to submit a brief summary of the contentions of the learned AR that was argued before your Honor with respect to Ground No. 4 of A.Y. 2008-09. The said ground is reproduced for the sake of brevity, as under: Ground no. 4 for A.Y. 2008-09 "The learned CIT(A) erred in upholding the action of Assessing Officer in reducing short term capital gains on which STT is paid, from the gross total income while computing 10% of gross total income for arriving at qualifying amount for the purpose of determining deduction under section 80G of the Act". A table summarizing the basis for determining the eligibility of deduction u/s 80G, is reproduced for your Honors ready reference, as under: Claimed in ROI As per AO Particulars by assessee order(Para 6.2) Amount (inRs.) Amount (In Rs.) Business Loss (15,802,791) (15,802,791) Income from House Property 1,593,654 1,593,654 Short Term Capital Gains u/s 111A 115,603,250 115,603,250 Short Term Capital Gains (Others) 22,858,550 22,858,550 After inter-head set-off: STCG (others) + House Property - Business loss 8,649,413 8,649,413 Short Term Capital Gains u/s 111A 115,603,250 115,603,250 GTI 124,252,663 124,252,663 Less: Amts as specified u/s 80G(4), as under - Amt on which income tax is not payable - Amt of other deductions claimed under Chp VIA, if any Adjusted GTI as per assessee 124,252,663 124,252,663 Less: STCG u/s 111A (115,603,250) Adjusted GTI as per AO 8,649,413 Actual Donation eligible u/s 80G 27,299,000 27,299,000
37 ITA No. 2218/MUM/2011 (A.Y. 2007-08) ITA No. 4322/MUM/2012 (A.Y. 2008-09) C.O. NO. 287& 288/MUM/2017 M/s. Raymond Limited Claimed in ROI As per AO Particulars by assessee order(Para 6.2) Amount (inRs.) Amount (In Rs.) 50% of above 13,649,500 13,649,500 Restricted by- 10 % of Adjusted Total Income 12,425,266 864,941 50% of above 62,12,633 432,471 Deduction u/s 80G 62,12,633 4,32,471 The appellant had made donations which qualify for 50% deduction u/s 80G amounting to Rs 27,299,000. Accordingly, the appellant would be eligible to claim deduction of ₹.1,36,49,500 being 50% of Rs 2,72,99,000. However, it is pertinent to note that, in view of sub-section 4 of Section 80G, such deduction gets restricted to 10 % of adjusted gross total income. The relevant extract of Section 80G(4) is reproduced, as under: "(4) Where the aggregate of the sums referred to in sub-clauses (iv), (v), (vi), (via) and (vii) of clause (a) and in clauses (b) and (c) of sub-section (2) exceeds ten per cent of the gross total income (as reduced by any portion thereof on which income-tax is not payable under any provision of this Act and by any amount in respect of which the assessee is entitled to a deduction under any other provision of this Chapter), then the amount in excess of ten per cent of the gross total income shall be ignored for the purpose of computing the aggregate of the sums in respect of which deduction is to be allowed under sub- section (1)." Here, it may be noted that the dispute with the department pertains to what would be the correct value of adjusted gross total income. The Assessing officer, upon reading Section 111A(2), was of the view that the amount of STCG u/s 111A ought to be reduced from the GTI to arrive at adjusted gross total income. It is submitted that this interpretation of the ld AO is erroneous due to the following points: 1. Section 80G(4) while defining the basis of adjusted gross total income does not anywhere state that STCG ought to be reduced. It only speaks of the following two types of deductions i.e. a) Any income which on which tax is not payable and b) Other deductions under Chp VIA
38 ITA No. 2218/MUM/2011 (A.Y. 2007-08) ITA No. 4322/MUM/2012 (A.Y. 2008-09) C.O. NO. 287& 288/MUM/2017 M/s. Raymond Limited 2. Section 80B(5) defines "Gross Total Income" as the total income computed in accordance with the provisions of this Act, before making any deduction under this Chapter. So here again, it is understood that STCG u/s 111A very much forms a part of Gross total income. Accordingly, no question of not including it for the purpose of adjusted gross total income. 3. Further, it is clarified that, provisions of Section 111A(2) which states that the such gains ought to be excluded while determining the deduction under Chp VIA. It may be noted that, here there is no explicit reference to Section 80G here and it does not speak about the manner of arriving at adjusted gross total income. The meaning of the said clause only throws light on the fact that, no benefit of deduction under chapter VIA ought to be given to STCG u/s 111A. In other words, this provision ensures that the STCG u/s 111A gets fully taxed at its special rates of tax. In the present facts of the case, it is seen that assessee in its ROI has claimed deduction of Rs 62,12,633. Going by this basis, the net total income remaining after such deduction is Rs 11,80,40,030 (Rs 12,42,52,663 Rs 62,12,633) which is taxable. Since STCG u/s 111Aof Rs 11,56,03,250 is less than the said taxable income of Rs 11,80,40,030, it means that no benefit of 80G deduction is being passed onto STCG u/s 111A.
Ld. AR submitted the details of comparison between JCIT Special Range v. Hari K. Taneja and Rohan P. Shah, computation of section 80G as under: -
Mumbai ITAT in the case of JCIT special Range 45 vs Hari K.Taneja& Rohan P. Shah Assessee AO ITAT Other Income 1,070,447 1,070,447 1,070,447 LTCG 93,644,171 93,644,171 93,644,171 GTI 94,714,618 94,714,618 94,714,618 Less: Deduction u/s SOL -1,625 -1,625 -1,625 Less: LTCG 0 -93,644,171 0 GTI 94,712,993 1,068,822 94,712,993 Actual Donation eligible u/s 80G 60,106,000 60,106,000 60,106,000 50% of above 30,053,000 30,053,000 30,053,000 Restricted by-
39 ITA No. 2218/MUM/2011 (A.Y. 2007-08) ITA No. 4322/MUM/2012 (A.Y. 2008-09) C.O. NO. 287& 288/MUM/2017 M/s. Raymond Limited Assessee AO ITAT 10 % of Adjusted Total Income 9,471,299 106,882 9,471,299 50% of above 4,735,650 53,441 4,735,650 Deduction u/s BOG 4,735,650 53,441 4,735,650 ITAT held that workings of AO is incorrect. Section 112 prescribes cap for deduction under Chp VIA, so as to ensure full amount of LTCG to be taxed at special rates. Thus, deduction u/s 80G to be further Restricted as under - GTI 94,714,618 Less: other deductions under chp VIA -1,625 Less: LTCG -93,644,171 Deduction u/s 80G 1,068,822 AY 2008-09 Calculation for Deduction u/s 80G Claimed in As per AO Following ROI by order (Para ITAT order Particulars assessee 6.2) Amount Amount Amount (in Rs.) (inRs.) (in Rs.) Business Loss (15,802,791) (15,802,791) (15,802,791) Income from House Property 1,593,654 1,593,654 1,593,654 Short Term Capital Gains u/s 111 A 115,603,250 115,603,250 115,603,250 Short Term Capital Gains (Others) 22,858,550 22,858,550 22,858,550 After inter-head set-off: STCG (others) + House Property - Business 8,649,413 8,649,413 8,649,413 loss Short Term Capital Gains u/s 111 A 115,603,250 115,603,250 115,603,250 GTI 124,252,663 124,252,663 124,252,663 Less: Amts as specified u/s 80G(4), as under - Amt on which income tax is not payable - - - - Amt of other deductions claimed under . . . Chp VIA, if any Adjusted GTI as per assessee 124,252,663 124,252,663 124,252,663 Less: STCG u/s 111A (115,603,250) Adjusted GTI as per AO 8,649,413 Actual Donation eligible u/s 80G 27,299,000 27,299,000 27,299,000 50% of above 13,649,500 13,649,500 13,649,500 Restricted by- 10 % of Adjusted Total Income 12,425,266 864,941 12,425,266 50% of above 6,212,633 432,471 6,212,633.
40 ITA No. 2218/MUM/2011 (A.Y. 2007-08) ITA No. 4322/MUM/2012 (A.Y. 2008-09) C.O. NO. 287& 288/MUM/2017 M/s. Raymond Limited Claimed in As per AO Following ROI by order (Para ITAT order assessee 6.2) Particulars Amount Amount Amount (in Rs.) (inRs.) (in Rs.) Deduction u/s 80G 6,212,633 432,471 6,212,633 Further, to be restricted as under: GTI 124,252,663 Less: other deductions under chp VIA 0 Less: STCG u/s 111A (115,603,250) Deduction u/s 80G 8,649,413 Therefore, deduction claimed by assessee of Rs 62,12,633 is within restricted cap of Rs 86,49,413 applying the said ITAT order.”
On the other hand, Ld. DR relied on the orders of the Authorities below.
Considered the rival submissions and material placed on record, we observe that the calculation submitted by the assessee and the facts in the case of Hari K. Taneja and Rohan P. Shah (supra) are similar and the coordinate bench has considered the issues in detail, they have adjudicated in favor of the assessee. Therefore, respectfully following the ratio in the above said case, the facts in the present case are also similar therefore, we are inclined to allow the ground raised by the assessee and direct Assessing Officer to follow the above said directions.
41 ITA No. 2218/MUM/2011 (A.Y. 2007-08) ITA No. 4322/MUM/2012 (A.Y. 2008-09) C.O. NO. 287& 288/MUM/2017 M/s. Raymond Limited 52. With regard to Ground No. 5 and 6 Ld. AR of the assessee submitted that these ground are not pressed by the assessee, accordingly, the same are dismissed as not pressed.
C.O. NO. 288/MUM/2017 (A.Y. 2008-09) – REVENUE APPEAL
Coming to the cross objection relating to A.Ys. 2008-09, since facts and grounds in this cross objection mutatis mutandis for the A.Y.2007-08, therefore the decision taken in the revenue’s cross objection for the A.Y.2007-08 is applicable to this assessment year also. Accordingly, cross objection filed by the revenue is dismissed.
To sum-up, appeal filed by the assessee are partly allowed for statistical purposes and cross objections filed by the revenue are dismissed.
Order pronounced in the open court on 12th December, 2022.
Sd/- Sd/- (ABY T. VARKEY) (S. RIFAUR RAHMAN) JUDICIAL MEMBER ACCOUNTANT MEMBER Mumbai / Dated 12/12/2022 Giridhar, Sr.PS
42 ITA No. 2218/MUM/2011 (A.Y. 2007-08) ITA No. 4322/MUM/2012 (A.Y. 2008-09) C.O. NO. 287& 288/MUM/2017 M/s. Raymond Limited Copy of the Order forwarded to: 1. The Appellant 2. The Respondent. 3. The CIT(A), Mumbai. 4. CIT 5. DR, ITAT, Mumbai 6. Guard file. //True Copy// BY ORDER
(Asstt. Registrar) ITAT, Mum