HSBC INVEST DIRECT (I) LTD ( FORMERLY IL & FS INVESTMART LTD),MUMBAI vs. DCIT 8(2), MUMBAI

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ITA 1601/MUM/2013Status: DisposedITAT Mumbai16 December 2015AY 2009-106 pages
AI SummaryPartly Allowed

What did the Tribunal hold?

The Tribunal held that since the assessee had already offered a disallowance under Section 14A that was more than the exempt dividend income, no further disallowance was warranted. For book profit computation under Section 115JB, the disallowance offered by the assessee was to be considered.

What were the facts?

The assessee claimed dividend income as exempt. The Assessing Officer (AO) enhanced the disallowance under Section 14A beyond the amount offered by the assessee, relying on the auditor's quantification. The Commissioner (Appeals) directed the AO to work out the disallowance based on directions from a previous year.

What were the issues?

Whether the disallowance under Section 14A can exceed the exempt income, and whether such disallowance should be considered for book profit computation under Section 115JB.

Which sections of the Income-tax Act were involved?

Section 14A,Section 115JB,Section 234B

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Income Tax Appellate Tribunal, MUMBAI BENCH “H”, MUMBAI

Before: SHRI JASON P BOAZ & SHRI AMIT SHUKLA

For Appellant: Shri D V Lakhani
For Respondent: Shri K Mohandas

Heard together (2 matters)

ITA No.1601/ Mum/2013
ITA No.4673/ Mum/2013

Read from the judgment's own cause title. This page is filed under one of them.

ITA No. : 1601/Mum/2013 (Assessment year: 2009-10) HSBC Invest Direct (I) Ltd. Vs DCIT, -8(2), (Formerly IL & FS Investmart Ltd), 216A, Aayakar Bhavan, M K Road, Dhansingh Processor premises, Mumbai -400 020 J B Nagar, Andheri Kurla Road, Mumbai -400 093 अपीलाथ� (Appellant) ��यथ� (Respondent) Appellant by Shri D V Lakhani : Respondent by : Shri K Mohandas ITA No. : 4673/Mum/2013 (Assessment year: 2009-10) DCIT, -8(2), Vs HSBC Invest Direct (I) Ltd. 216A, Aayakar Bhavan, M K Road, (Formerly IL & FS Investmart Ltd), Mumbai -400 020 Dhansingh Processor premises, J B Nagar, Andheri Kurla Road, Mumbai -400 093�थयी लेखा सं.:PAN: AAACI 3364 A अपीलाथ� (Appellant) ��यथ� (Respondent) Appellant by Shri K Mohandas : Respondent by : Shri D V Lakhani सुनवाई क� तार�ख /Date of Hearing : 08-12-2015 घोषणा क� तार�ख /Date of Pronouncement : 16-12-2015 आदेश ORDER अिमत शु�ला, �या. स.: PER AMIT SHUKLA, JM: The aforesaid cross appeals have been filed by the assessee as well as by the revenue against the impugned order dated 04.11.2012 passed by the CIT(A)-17, Mumbai for the quantum of assessment passed u/s 143(3) for the assessment year 2009-10.

2 HSBC Invest Direct (I) Ltd. (Formerly IL & FS Investmart Ltd) Mum/2013 First of all, we will take-up assessee’s appeal, vide which following grounds have been raised:-

“1. On the facts & circumstances of the case the Learned Commissioner of Income Tax (Appeals) has erred in granting part relief in respect of disallowance made by the learned Assessing Officer amounting to Rs. 1,22,66,688/-. The appellant prays that the addition confirmed by the Learned Commissioner of Income Tax (Appeals) may be deleted.

2. On the facts & circumstances of the case the Learned Commissioner of Income Tax (Appeals) has erred in confirming the addition of Rs. 1,22,66,688/-, being the disallowance u/s 14A, to the book profit computed u/s 115JB. The appellant prays that no addition can be made while computing book profit u/s 115JB in respect of disallowance to be made u/s 14A.

3. Without prejudice to Ground no.2 the appellant prays that the additions which may be finally confirmed u/s 14A while computing the total income u/s 28 of the Income Tax Act, 1961 may be considered as addition for computing book profit u/s 115JB of Income Tax Act, 1961.

4.

On the facts & circumstances of the case the Learned Commissioner of Income Tax (Appeals) has erred in confirming levy of interest u/s 234B. The appellant denies the liability of payment of interest u/s 234B. On the facts & circumstances of the case the appellant submit that levy of interest u/s 234B is not justified and be deleted.

5.

On the facts & circumstances of the case the Learned Commissioner of Income Tax (Appeals) has erred in rejecting the claim of appellant regarding the deduction of Rs. 7,48,75,000/- being the ex-gratia payment made to Mr. James Lesile Whiteford. The appellant prays that they are entitled to clam the deduction of Rs. 7,48,75,000/- and the same may be allowed as deduction in computing total income for AY 2010-11”.

2.

At the outset, the Ld. Counsel submitted that ground no. 5 is not pressed and accordingly, the same is dismissed as not pressed.

3.

The main issue involved, which has been raised vide ground no.1 is disallowance of Rs. 1,22,66,688/- made u/s 14A r.w. Rule 8D.

3 HSBC Invest Direct (I) Ltd. (Formerly IL & FS Investmart Ltd) Mum/2013 4. Brief facts are that, assessee is a Public Limited Company and is engaged in the business of investment in subsidiaries and associate companies; lending to subsidiary companies; employees welfare Trust; Loan Syndication; Investment in units of Mutual Funds-Growth plan; and equity shares considered as stock-in- trade, investment in Fixed Deposit with bank, etc. The Ld. AO noted that, assessee had earned dividend income of Rs.5,58,480/- under the head “income from stock-in-trade” and another dividend income of Rs. 10,37,760/- from investments under the head “income from investments”. Such a dividend income was claimed as exempt in the computation of income. The AO further noted that the Auditors have mentioned that the amount of deduction inadmissible in the terms of section 14A amounts to Rs. 2,53,35,688/- in its Tax Audit Report. Whereas, the assessee had suo moto offered the disallowance u/s 14A amounting to Rs. 1,30,69,000/- in its revised return of income. In response to the show cause notice, as to why Rule 8D should not be applied, the assessee submitted that it has made the investment in subsidiary companies and all these entities are handled by professionals who have respective expertise in diverse fields and no employees of the assessee company were involved during the year. However, the AO held that, since assessee has offered suo moto disallowance u/s 14A amounting at Rs. 1,30,69,000/- based on the estimate which cannot be accepted as such, and accordingly, he worked out the disallowance as per the amount quantified by the Auditors in accordance with the Rule 8D at Rs. 2,53,35,688/-. Since the amount of Rs. 1,30,69,000/- had already been offered by the assessee in the revised return, therefore, he restricted the disallowance to Rs. 1,22,66,688/-.

6.

The Ld. CIT(A) held that, in the assessment year 2008-09 the CIT(A) has given certain directions to work-out the disallowance u/s 14A which has been referred by him in para 4.1 and 4 HSBC Invest Direct (I) Ltd. (Formerly IL & FS Investmart Ltd) Mum/2013 accordingly directed the AO to work out the disallowance as per the directions given by the CIT(A) in the earlier year.

7.

Before us the Ld. Counsel submitted that, now various decisions of High Courts have come, wherein it has been held that, if there is no dividend income then no disallowance u/s 14A should be made or it should be in proportionate to the exempt income. Here in this case, the assessee’s dividend income is approximately 16 lakhs rupees, therefore, such a huge disallowance cannot be made. Accordingly, he submitted that, matter should be restored back to the file of the AO to deal and decide the issue in accordance with the decision of the Hon’ble Delhi High Court order dated 02.09.2015 vide Appeal in 799 of 2014, in the case of Chem Invest Ltd. vs CIT which has reversed the decision of ITAT Special Bench. He further pointed out that, ITAT Mumbai Bench in the case of Cox and Kings following the order of the said High Court has directed the AO to follow the ratio laid down therein.

8.

On the other hand, Ld. DR submitted that, if the assessee has earned less dividend income, then it does not mean that expenditure attributable to earning of such exempt income should be less than the exempt income. Thus, he submitted that disallowance as worked out by the CIT(A) in view of the past history should be upheld.

9.

We have heard the rival contentions and also perused the relevant finding given in the impugned orders. It is an admitted fact that assessee had offered suo moto disallowance u/s 14A amounting to Rs. 1,30,69,000/-, in its revised return of income. The AO has enhanced the disallowance to Rs.2,53,35,688/-, thereby making an addition of Rs. 1,22,66,688/- on the ground that in the Form 3CD of Tax Audit Report, the Auditors have quantified the disallowance u/s 14A r.w. Rule 8D. From the 5 HSBC Invest Direct (I) Ltd. (Formerly IL & FS Investmart Ltd) Mum/2013 perusal of the assessment order, it is seen that the AO has relied upon the decision of ITAT Special Bench in the case of Chem Invest Ltd., reported in 317 ITR 86 (AT). Now, this decision of the Special Bench of the Tribunal, has been reversed by the Hon’ble Delhi High Court, as referred by the Ld. Counsel. However, if we agree with the contention of the Counsel that the decision of Delhi High Court should be applied and followed wherein it has been laid down that section 14A envisages there should be actual receipt of exempt income and in case there is no exempt income received or receivable, then no expenditure should be disallowed then here in this case it is also an admitted fact that dividend income was approximately Rs. 10 lakhs, whereas the assessee has suo moto disallowed Rs. 1,30,69,000/-, thus, the disallowance offered by the assessee itself is much more than the exempt income. Hence, we restrict the disallowance as offered by the assessee in the revised return of income. Accordingly, we hold that no further disallowance over and above the amount of Rs. 1,30,69,000/- should be made and accordingly, ground no. 1 as raised by the assessee is treated as allowed and enhancement of disallowance of Rs. 1,22,66,688/- stands deleted.

10.

Ground no. 2 and ground no. 3 relates to disallowance under section 14A in the book profit computed u/s 115JB. Since we have upheld the disallowance offered by the assessee at Rs. 1,30,69,000/-, the same should also be part of the disallowance while computing the book profit u/s 115JB. Thus, ground no. 2 & 3 are treated as partly allowed.

11.

In ground no. 4 the assessee has challenged levy of interest u/s 234B, which admittedly is consequential in nature and hence the same is dismissed.

12.

In revenue’s appeal, following ground has been raised:-

6 HSBC Invest Direct (I) Ltd. (Formerly IL & FS Investmart Ltd) Mum/2013 “On the facts and in the circumstances of the case and in law, the learned CIT(A) erred in directing the Assessing Officer to accept the working given by the assessee for disallowance u/s 14A without appreciating the fact that the AO has properly recorded his satisfaction for invoking the provisions of Rule 8D is invoked, the disallowance has to be worked out as per the formula prescribed therein and there is not scope for any deviation therefrom”

13.

In view of our finding given in the assessee’s appeal, we do not find any merits in the ground raised by the revenue and accordingly the same is dismissed.

14.

In the result, appeal of the assessee is partly allowed whereas appeal of the revenue is dismissed.

Order pronounced in the open court on 16th December, 2015.

Sd/- Sd/- (जेसन पी बोज़) (अिमत शु�ला) लेखा सद�य �याईक सद�य (JASON P BOAZ) (AMIT SHUKLA) ACCOUNTANT MEMBER JUDICIAL MEMBER Mumbai, Date: 16th December, 2015 ��त/Copy to:- 1) अपीलाथ� /The Appellant. 2) ��यथ� /The Respondent. 3) The CIT(A) -17, Mumbai. 4) The CIT–8, Mumbai. 5) िवभागीय �ितिनिध “एच”, आयकर अपीलीय अिधकरण, मुंबई/ The D.R. “H” Bench, Mumbai. 6) गाड� फाईल \ Copy to Guard File. आदेशानुसार/By Order / / True Copy / /

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