Income Tax Appellate Tribunal - Mumbai
Idfc Securities Ltd, Mumbai vs Dcit Rg 4(1), Mumbai on 18 April, 2018
आयकर अपीऱीय अधिकरण "I" न्यायपीठ मब
ुं ई में ।
IN THE INCOME TAX APPELLATE TRIBUNAL "I" BENCH, MUMBAI
BEFORE SHRI JOGINDER SINGH, JUDICIAL MEMBER
AND SHRI RAMIT KOCHAR, ACCOUNTANT MEMBER
आयकर अपीऱ सं./I.T.A. No.7274/Mum/2016
(नििाारण वर्ा / Assessment Year: 2011 -12)
M/s. IDFC Securities Ltd. बिाम/ DCIT, Range -4(1)
C-32, G-Block, Aayakar Bhavan,
Naman Ch ambers, v. Mumbai-400020
Bandra Kurl a Co mplex,
Bandra (E),
Mumbai-400051
स्थायी ऱेखा सं ./ PAN : AAACK1586E
(अपीऱाथी /Appellant) .. (प्रत्यथी / Respondent)
Assessee by: Shri. Hiro Rai
Revenue by : Shri. Saurabh Kumar (DR)
सन
ु वाई की तारीख /Date of Hearin g : 17-04-2018
घोषणा की तारीख /Date of Pronouncement : 18-04-2018
आदे श / ORDER
PER RAMIT KOCHAR, Accountant Member
This is an appeal , filed by the assessee, being ITA No. 7274/Mum/2016 for assessment year 2011-12 is directed against the appellate order dated 29.09.2016 passed by learned Commissioner of Income-tax (Appeals)-9, Mumbai (hereinafter called "the CIT(A)") for assessment year 2011-12, appellate proceedings had arisen before learned CIT(A) from the assessment order dated 31.12.2013 passed by learned Assessing Officer (hereinafter called "the AO") u/s 143(3) of the Income-tax Act, 1961 (hereinafter called "the Act").
2. The grounds of appeal raised by the assessee in the memo of appeal filed with the Income-Tax Appellate Tribunal, Mumbai (hereinafter called "the tribunal") read as under-
I.T.A. No.7274/Mum/2016 "1. Under the facts and in Law, the Learned CIT (A) has erred in confirming disallowance of Rs 49,18,775/-under section 14A r.w.r. 8D of the Income Tax Act, 1961.
1.01 The Learned C1T(A) failed to appreciate the fact that the appellant is having Investment in Subsidiary Companies and the same should not be considered for computing disallowance u/s I4A as such Investments are strategic in nature and are not for the purpose of earning Dividend Income. 1.02 The Learned CIT(A) failed to appreciate the appellant is having Investment in Growth Plan of Mutual Fund and the same should not be considered for computing disallowance u/s 14A as the same do not generate any tax free Income. 1.03 The Learned CIT(A) has failed to appreciate the submission made by the appellant during the course of appeal proceedings.
1.04 The Learned CIT(A) has failed to appreciate the fact that considering its business operations, the appellant had computed suo-moto disallowance of Rs. 776,949/- under section I4A of the Income Tax Act. 1961.
2. Your appellant craves leave to add and/or alter withdraw any grounds of appeal."
3. The assessee is a SEBI Registered stock broker, a Member of the National Stock Exchange dealing in Capital Market , Future & Option Segments and equity share broking, trading and dealing in share. During the course of assessment proceedings u/s 143(3) r.w.s. 143(2), it was observed by the AO that assessee has shown dividend income of Rs. 3,78,26,806/- and dividend income from long term investment of Rs. 10,20,647/- which was claimed as an exempt income under the provisions of the 1961 Act. The assessee offered disallowance of Rs. 7,76,949/- being 2% of dividend income as an expenditures u/s. 14A towards earning an exempt income of Rs. 3,88,47,453/-. The assessee had claimed that it made strategic investments in shares of subsidiary companies to tune of Rs. 13.83 crores, while investment in Mutual Fund were to the tune of Rs. 72.64 crores and other investments were to the tune of Rs. 10,000/-. The AO invoked provision of Section 14A of the 1961 Act and applied Rule 8D of Income-tax Rules, 1962 and made following disallowances of the expenditure incurred in relation to the income which does not form part of the total income:-
Amount (Rs.) Amount of expenses directly related to NIL such income Amount of the interest expenses 265,217 indirectly attributable to such income, in accordance with the formula AxB/C, where A. Total interest expenditure minus 2 I.T.A. No.7274/Mum/2016 direct interest expenditure on such income.
472,024/- (A) Average of such investment on the first and last day of previous year = 983,755,018/- __________ (B) C. Average of total assets on the first and last day of previous year = 1,750,851,645/- __________ (C) A x B/C 0.05% of the „B‟ above 4,918,775 Total disallowance u/s. 14A r.w.r 8D 5,183,992 As the assessee has already allocated expenses of Rs. 776,949/- towards earning exempt income, therefore, the balance expenses to the tune of Rs.4,407,043/- are disallowed by invoking the provisions of section 14A r.w.r.8D of the Act".
4. Aggrieved by the aforesaid assessment order passed by the AO u/s 143(3), the assessee filed an appeal before learned CIT-A who granted relief to the assessee so far as disallowance made u/s. 14A of the Act r.w.r 8D2(ii) of Income-tax Rules, 1962 by the AO , while additions which were made u/r. 8D2(iii) of the 1962 Rules r.w.s. 14A to the tune of Rs. 49,18,775/- were upheld by learned CIT(A). The Revenue has not come in an appeal against the part relief granted by Ld. CIT-A as is contended by Ld. Senior Counsel for the assessee Shri. Hiro Rai, Ld. DR did not contested the said position and hence it is claimed that part relief granted by Ld. CIT-A w.r.t. disallowance of expenditure u/s 14A of the 1961 Act r.w.r. 8D(2)(ii) of the 1962 Rules has attained finality .
Thus, the issue raised by the assessee before the tribunal is now restricted to the disallowance made by the AO u/s. 14A of the 1961 Act r.w.r. 8D2(iii) of the 1962 Rules which was later confirmed by learned CIT-A. The assessee has raised as many as four sub grounds to ground no. 1 raised in memo of appeal filed with the tribunal.
At the outset Ld. Senior Counsel for the assessee submitted that the ground no. 1.01 which is concerning the claim and contentions of the assessee that strategic investment made by the assessee to the tune of Rs. 13.83 crore in subsidiary companies need to be excluded , is to be decided against the assessee in view of the recent decision of Hon‟ble Supreme Court dated 12- 3 I.T.A. No.7274/Mum/2016 02-2018 in the case of Maxopp Investment Limited v. CIT reported in (2018) 91 taxmann.com 154(SC) which decided the issue against the assessee and in favour of Revenue. The Ld DR also submitted that this issue is to be decided against the assessee because of the decision of Hon‟ble Supreme Court in the case of Maxopp Investment Limited(supra) . Thus, after hearing both the parties and keeping in view ratio of decision of Hon‟ble Supreme Court in the case of Maxopp Investment Limited(supra) , we hold that Section 14A of the 1961 Act is applicable even if the assessee had made strategic investments in subsidiary companies and the same cannot be excluded , hence the appeal of the assessee on this ground no 1.01 stood dismissed and decided against the assessee. The assessee fails on this ground. We order accordingly.
5. Now the only effective issue/ground which is agitated by the assessee in this appeal filed before the tribunal is that it had made investments of Rs. 72.64 crores in „IDFC Cash fund - Super Inst Plan C - Growth‟ which cannot be included for the purposes of disallowance u/s. 14A r.w.r. 8D2(iii) because as per the contentions of learned Senior Counsel for the assessee Sh. Hiro Rai, the growth funds invested by the assessee does not declare dividend which could be claimed as an exempt income nor any other exempt income arises from the said growth funds, and hence question of applicability of Section 14A does not arise . It is fairly submitted by Ld. Senior Counsel for the assessee that authorities below have not gone through scheme of issue of IDFC Cash fund - Super Inst. Plan C - Growth and the same were never discussed by the lower authorities. It was fairly submitted that assessee will file before the AO, the scheme of issue of said growth fund by IDFC in which assessee has invested Rs. 72.64 crores. It was contended that the said growth funds are to be excluded while computing disallowance of expenditure u/s 14A. The learned Senior counsel for the assessee had also relied upon three decisions of Hon‟ble tribunal , as under:-
1. 167 TTJ 204 (Mum-Trib) Everest Kanto Cylinder Ltd v Asst. CIT
2. 43 CCH 348 (Mum-Trib) Manugraph India Ltd v DCIT
3. ITA No. 155/Mum/2014- Mumbai Tribunal in Savita Oil Technologies Ltd v DCIT The Ld. DR relied upon the appellate order of the CIT-A. 4 I.T.A. No.7274/Mum/2016
6. We have considered rival contentions and perused the material on record.
The controversy before us is now restricted to the consideration of investment in growth fund in IDFC Cash fund - Super Inst Plan C - Growth to the tune of Rs. 72.64 crores, for the purposes of working out disallowance of expenditure u/s. 14A of the 1961 Act r.w.r. 8D2 (iii) of the 1962 Rules in relation to earning of exempt income , we have gone through order of the tribunal as is relied upon by the assessee and in the lead order of the Everest Kanto Cylinder Ltd.(supra) , the tribunal came to the finding that investments in growth fund is to be excluded for computing disallowance u/s 14A r.w.r.8D(2)(iii) after consideration of the scheme of issue of UTI fixed maturity plan i.e. growth oriented fund issued by UTI which was placed by the said tax-payer before the tribunal, and then the tribunal came to conclusion that as per scheme of issue of said growth fund of UTI , the assessee was not eligible for any exempt income . This lead order is followed by the other two decisions passed by the tribunal as relied upon by learned counsel for the assessee. The aforesaid order of the tribunal in the case of Everest Kanto Cylinder Ltd.(supra) is reproduced here under:-
" 4. We have considered rival contentions and found that disallowance under Rule 8D has been worked out by the AO on the total investment, which included investment made in mutual funds with growth scheme. Such mutual fund investment is required to be excluded while calculating disallowance under Rule 8D, since it is not generating any tax free income. The assessee has also filed copy of the scheme of UTI fixed maturity plan before us, according to which it is a growth oriented fund and not eligible for dividend. If we exclude the amount invested by the assessee in the growth plan, disallowance under Rule 8D @0.5% works out to be Rs.1.39 lakhs. However, copy of scheme of UTI Fixed Maturity Plan was first time filed before Tribunal as an additional evidence along with application for admission of additional evidence dated 27-2-2014. We accept the additional evidence and matter is restored back to the file of AO for deciding afresh the quantum of disallowance keeping in view our above observations."
Thus , under these circumstances it is critical and important for the AO to go through the scheme of issue of IDFC Cash fund - Super Inst Plan C - Growth fund which was issued by IDFC , in which the assessee has claimed to have invested Rs. 72.64 crores, and then to arrive at conclusion whether the assessee is entitled to receive any exempt income from said growth fund issued by IDFC as per terms of the scheme . Thus after evaluation of terms and conditions of the scheme to arrive at conclusion as to applicability of 5 I.T.A. No.7274/Mum/2016 Section 14A r.w.r. 8D2(iii) of the 1962 Rules . The assessee is directed to file the entire scheme of issue of IDFC Cash fund - Super Inst Plan C - Growth, before the AO. The matter is set aside and restored to the file of the AO for fresh adjudication on merits in accordance with law after considering the submissions of the assessee/evidence filed by the assessee which shall be admitted by AO in the interest of justice . Needless to say that the AO shall provide proper and adequate opportunity of being heard to the assessee in accordance with law and principles of natural justice. We order accordingly.
Order pronounced in the open court on 18.04.2018 आदे श की घोषणा खुऱे न्यायाऱय में ददनांकः 18 .04.2018 को की गई ।
Sd/- Sd/-
(JOGINDER SINGH ) (RAMIT KOCHAR)
JUDICIAL MEMBER ACCOUNTANT MEMBER
Mumbai, dated: 18.04.2018
Nishant Verma
Sr. Private Secretary
copy to...
1. The appellant
2. The Respondent
3. The CIT(A) - Concerned, Mumbai
4. The CIT- Concerned, Mumbai
5. The DR Bench,
6. Master File
// Tue copy//
BY ORDER
DY/ASSTT. REGISTRAR
ITAT, MUMBAI
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