DCIT 3(3)(1), MUMBAI vs RADHA MADHAV INVESTMENT P.LTD, MUMBAI

Income Tax Appellate Tribunal, “D” BENCH, MUMBAI

Before: SHRI SAKTIJIT DEY, JM & SHRI MANOJ KUMAR AGGARWAL, AM

Per Bench 1. Aforesaid appeal by revenue for Assessment Year [AY] 2012-13 contest the order of the Ld. Commissioner of Income-Tax (Appeals)-8 [CIT(A)], Mumbai, Appeal No.CIT(A)-8/IT-117/15-16 dated 27/10/2016 by raising the following effective grounds of appeal:-

1. Whether on facts and circumstances of the case and in law, the Ld. CIT(A) has erred in deleting the disallowance of Rs.1,70,13,192/- which was over & above suo moto disallowance made by the assessee without appreciating the fact that the amount of disallowance u/s.14A of the I.T.Act, 1961 has to be computed as per Rule 8D of I.T.Rules, 1962 as held in the order of the Hon’ble High Court in the case of M/s. Godrej & Boyce Manufacturing Co. Ltd.

2. Whether on the facts and circumstances of the case and in law, the Ld. CIT(A) has erred in deleting the disallowance u/s.14A to the book profit u/s.115JB of the I.T.Act, 1961 ignoring the decisions of the Hon’ble ITAT, Mumbai in the case of M/s. Viraj Profiles Ltd. In dated 21/10/2015 – 46 ITR(T) 626 (Mumbai – Trib.)/[2016] and in Ferani Hotels Pvt.Ltd.in ITA No.857/Mum/2013 dated 17/11/2014.

3. Whether on the facts and circumstances of the case and in law, the Ld. CIT(A) has erred in deleting the disallowance u/s.14A of the I.T.Act, 1961 relying on the decision of Hon’ble ITAT, Mumbai in assessee’s own case for AY:2008-09 without appreciating that the facts involved therein are distinguishable from the facts involved in the instant case.

The assessee has filed cross-objection against the same. The assessment for impugned AY was framed by Ld. Deputy Commissioner of Income Tax-Circle 3(3)(1), Mumbai [AO] u/s 143(3) of the Income tax Act,1961 on 18/03/2015 wherein the income of the assessee has been assessed at Rs.7071.92 Lacs under normal provisions & Rs.4951.14 Lacs for the purpose of Minimum Alternative Tax [MAT] u/s 115JB after certain additions / disallowances. As evident from the grounds of appeal

, the only dispute before us is disallowance u/s 14A. During the impugned ITA.No.108/Mum/2017 & CO.No.88/Mum/2018 Radha Madhav Investments Limited Assessment Year 2012-13 AY, the assessee being resident corporate assessee was engaged in the business of Trading and investment & financing.

2. During assessment proceedings, it was noted that the assessee earned exempt income by way of dividend, Long Term Capital Gains & Share of profits from partnership firms aggregating to Rs.69.11 crores against which it had made suo-moto expense disallowance u/s 14A for Rs.76.84 Lacs, the computation of which has been extracted at para-5.1 of the quantum assessment order. It was noted that the assessee did not include the investments in partnership firms aggregating to Rs.294 crores while arriving at the aforesaid disallowance. The assessee defended the same, inter-alia, on the premises that no expenditure was incurred and no efforts were made by the assessee to earn any income from the partnership firm. However, it was noted that pursuant to terms of respective partnership deeds, the director of the assessee company, being partner in those firms, was required to devote their full time and attention to the partnership business and all the firms were operating from the address of the assessee. Therefore, not convinced, Ld. AO applying Rule 8D, worked out expenses disallowance of Rs.246.97 Lacs as against Rs.76.84 Lacs computed by the assessee and added the difference of Rs.170.13 Lacs in the hands of the assessee. The aforesaid adjustment was made while arriving at income under normal provisions as well as u/s 115JB.

3. Aggrieved, the assessee contested the same with success before Ld. CIT(A) vide impugned order dated 27/10/2016 wherein various submissions were made by the assessee which have been extracted in ITA.No.108/Mum/2017 & CO.No.88/Mum/2018 Radha Madhav Investments Limited Assessment Year 2012-13 the impugned order. The Ld. CIT(A) relying upon the decision of this Tribunal for AY 2008-09, deleted the additional disallowance. Aggrieved, the revenue is in further appeal before us.

The Ld. Departmental Representative [DR], Shri Ram Tiwari contended that the computations were to be made only as per statutory mandate as contained in Rule 8D and therefore, the action of the Ld. AO was justified. The Ld. Authorized Representative for Assessee [AR], Shri Vijay Mehta placed reliance on the decision of this Tribunal for AYs 2009-10 to 2011-12 and submitted that impugned additions may be restricted to 0.22% of average investments as done in earlier AYs. The rate of 0.22% is nothing but average of suo-moto disallowance made by assessee for AYs 2009-10 to 2011-12, which has also been accepted by the Tribunal.

The assessee, vide letter dated 30/07/2018 has drawn attention to the fact that the name of the assessee has been changed from Radha Madhav Investments Limited to Radha Madhav Investments Private Limited w.e.f. 21/05/2016 vide fresh certificate of incorporation issued by Registrar of Companies, Mumbai, a copy of which has been placed on record. The same is noted and we proceed to adjudicate the issue on merits.

We have carefully heard the rival contentions and perused relevant material on record including the decision of Tribunal in assessee’s own case for earlier years. We find that identical issue in revenue’s appeal for AY 2013-14 has been remitted back to the file of Ld. AO, by this very ITA.No.108/Mum/2017 & CO.No.88/Mum/2018 Radha Madhav Investments Limited Assessment Year 2012-13 bench vide dated 27/07/2018 with the following observations:- 5.2 We have carefully heard the rival contentions and perused relevant material on record including the decision of Tribunal in assessee’s own case for earlier years. The Ld. AR has primarily placed reliance on the stand of this Tribunal for AYs 2009- 10 to 2011-12, the copies of which have been placed on record. We have gone through the same as well as financial statements for impugned AY as placed on record. 5.3 The perusal of Tribunal’s order for AY 2009-10, ITA No. 6972/Mum/2012 dated 17/04/2015 reveal that the decision for that AY has been rendered after due consideration of factual matrix and perusal of expenditure as claimed by the assessee in the Profit & Loss Account. From the order, it is evident that in that year, the assessee had made suo-moto disallowance of Rs.165.43 Lacs against common expenditure of Rs.471 Lacs which translated into disallowance rate of 35%, which led the Tribunal to delete the additional disallowance made by Ld. AO. 5.4 Similarly, the Tribunal’s order for AY 2010-11, ITA No. 309/Mum/2014 dated 12/04/2017 records a finding that the suo-moto disallowance made by the assessee for Rs.151.54 Lacs translated into approx. 44% of common expenditure. This rate was 35.45% in AY 2011-12. However, no such tabulation has been placed before us for the impugned AY. In view of the stated facts, the disallowance as offered by Ld. AR @0.22% of average investment could not be accepted. 5.5 So far as the decision of Tribunal for AY 2008-09 as extracted in the impugned order and as relied upon by Ld. CIT(A) is concerned, the same is clearly distinguishable since it has been observed therein that the Ld. AO failed to fulfill the requirements of Section 14(2) qua satisfaction, which is not the case here since Ld. AO, with due application of mind has rejected the computations offered by the assessee. 5.6 Another aspect of the issue is quantum of investments. The perusal of Balance Sheet, prima-facie, reveal that the assessee’s year end current investments and non-current investments aggregate to Rs.787.43 Crores which is approx. 76% of total assets i.e. Rs.1037.69 Crores as reflected in the Balance Sheet. The same reveal that the assessee is pre-dominantly an investment company. At this juncture, we find that we stood benefitted by the recent judgment of Hon’ble Apex Court rendered in Maxopp Investment Ltd. Vs. CIT [12/02/2018 91 Taxmann.com 154] wherein it has categorically been held that the objective of holding the investments was immaterial and the disallowance was to be applied in all cases irrespective of the fact whether the same are held as stock-in-trade or as an investments. 5.7 Therefore, keeping in view the totality of facts and keeping in view the recent judgment of Hon’ble Apex Court as cited above, we deem it fit to restore the matter back to the file of Ld. AO for re-adjudication in the light of statutory provisions as well as in the light of ratio of cited judgment of Hon’ble Supreme Court. The assessee, in turn, is directed to substantiate his claim with supporting evidences in this regard failing which Ld. AO shall be at liberty to decide the issue on the basis of material available on record.

ITA.No.108/Mum/2017 & CO.No.88/Mum/2018 Radha Madhav Investments Limited Assessment Year 2012-13 The facts are identical in this AY. Therefore, taking the same view, the matter stand remitted back to the file of Ld. AO on similar lines. Ground Numbers 1 & 3 stand allowed for statistical purposes. In the result, assessee’s cross-objections become infructuous.

So far as adjustment of disallowance u/s 14A in computation of book profit u/s 115JB is concerned, we find that the matter stood squarely in assessee’s favour by the cited judgment of Delhi Tribunal (Special Bench) rendered in ACIT Vs. Vireet Investment (P.) Ltd. [82 Taxmann.com 415]. Upon perusal of the same, we find that Special Bench, after considering two contrary decision of Hon’ble Delhi High Court titled as CIT Vs. Goetze (India) Ltd. [2014 361 ITR 505] & PCIT Vs. Bhushan Steel Ltd. [ITA 593/2015 dated 29/09/2015], took the view favorable to the assessee in terms of ratio of decision of Hon’ble Supreme Court rendered in CIT Vs. Vegetable Products Limited [1973 88 ITR 192]. The decision in PCIT Vs. Bhushan Steel Ltd., in turn, placed reliance on the decision of Hon’ble Supreme Court rendered in Apollo Tyres Ltd. Vs. CIT [255 ITR 273] which held that the Assessing Officer did not have the jurisdiction to go behind the net profit shown in the Profit & Loss Account except to the extent provided in Explanation to Section 115J. Similar view has been expressed by our jurisdictional Bombay High Court rendered in CIT Vs. JSW Energy Limited [2015 60 Taxmann.com 303], CIT v. Essar Teleholdings Ltd. [ITA No. 438 of 2012, dated 07/08/2014] & CIT Vs. Bengal Finance & Investments Pvt. Limited [ITA No. 337 of 2013 dated 10/02/2015]. Therefore, respectfully following the catena of judgment in assessee’s favour, we hold that adjustment of ITA.No.108/Mum/2017 & CO.No.88/Mum/2018 Radha Madhav Investments Limited Assessment Year 2012-13 disallowance u/s 14A was not required to be made in Book Profits for the purpose of Section 115JB. Ground Number 2 of revenue’s appeal stands dismissed.

In nutshell, the revenue’s appeal stand partly allowed for statistical purposes whereas the cross-objection stand dismissed.

Order pronounced in the open court on 12th September, 2018.

DCIT 3(3)(1), MUMBAI vs. RADHA MADHAV INVESTMENT P.LTD, MUMBAI