Income Tax Appellate Tribunal - Mumbai
Industrial Development Bank Of India , ... vs Jt. Cit- 19 , Mumba on 21 June, 2019
IN THE INCOME-TAX APPELLATE TRIBUNAL "C" BENCH MUMBAI
BEFORE SHRI G.S. PANNU, VICE PRESIDENT
AND SHRI PAWAN SINGH JUDICIAL MEMBER
ITA No. 3626/Mum/2001 (Assessment Year 1997-98)
Industrial Development Bank of Joint Commissioner of Income
India, Taxation Cell, ICBI Tower, -tax, Range -19,
4th Floor, WTC Complex, Cuff 6th Floor, Aayakar Bhavan,
Prade, Mumbai-400005 Vs Mumbai-400020
PAN: AACI 1105 R
Appellant Respondent
Appellant by : Sh. Satish Mody AR
Respondent by : Sh. Awungshi Ginson ( Sr.DR)
Date of Hearing : 23.04.2019
Date of Pronouncement : 21.06.2019
ORDERUNDER SECTION 254(1)OF INCOME TAX ACT
PER PAWAN SINGH, JUDICIAL MEMBER;
1. This appeal by assessee under section 253 of Income Tax Act is directed against the order of learned Commissioner of Income (Appeals) -XXVI, Mumbai dated 30.03.2011, which in turn arises from the assessment order passed under section 143(3) of the Income tax Act (Act) dated 25.02.2000 for Assessment Year 1997-
98.The assessee has raised following ground of appeal ; Aggrieved by the Appellate Order dated 30tl1 March, 2001 passed by the Commissioner of Income Tax (Appeals) XXVI [CIT (A)], Mumbai for the assessment year 1997-98 u/s 250 of the I.T. Act, the appellant begs to file this appeal and raise the following grounds of appeal, which are independent of and without prejudice to each other.
2 IDBI (ITA No. 3626/M/2001)
AY 1997-98
1. Claim of depreciation on assets given on lease:
1.1 The learned CIT(A) ought to have allowed the depreciation claim made by the appellant in respect of all the lease transactions entered into by the appellant in accordance with the law and circulars issued by the CBDT, having accepted that the appellant is the owner of the asset in lease transactions. In accordance with the provisions of section 32 of the IT Act, depreciation on assets given on lease should have been allowed to the appellant, being the owner of the assets in the said lease transactions.
1.2 Without prejudice to the above, having accepted that the appellant is the owner of the asset, the learned CIT(A) erred in directing the Assessing Officer to verify and disallow depreciation in lease transactions where either the date of purchase invoice is subsequent to the date of lease agreement or in which the purchase invoices were issued in the names of the concerned lessees. The genuineness of the transaction was not in dispute and therefore he has no jurisdiction to give these directions.
1.3 The learned CIT(A) committed a gross error of law and facts in confirming the disallowance of depreciation in respect of assets given on lease in the earlier years.
2. Disallowance of expenditure claimed u/s 36(1)(iii)
2.1 Having held that monies were in fact borrowed for business purposes in para 65 of the Order, the learned CIT(A) committed a gross error of law in drawing a distinction between shares held as investment and as stock-in-trade. He failed to appreciate that such distinction was totally irrelevant for purposes of section 36(1)(iii). 2.2 The CIT(A) failed to appreciate that section 9 of the IDBI Act, which governs the business activities of the appellant, provides for investment in such financial institutions and corporations and thus making such investments is a part of IDBI's business activities. The Honorable tribunal may hold that the interest expenditure in respect of the amounts invested in financial institutions and corporations is therefore allowable u/s 36(1)(iii) of the IT Act being interest payable on capital borrowed for the purposes of the appellants business. 2.3 The learned CIT(A) erred in holding that interest attributable to borrowed capital invested In various financial institutions, corporations, etc. is not a deduction admissible u/s 36(1)(iii) of the Income tax Act. He erred in holding that:
3 IDBI (ITA No. 3626/M/2001)
AY 1997-98
(a) Since the funds have been utilised for the purposes of the business of the respective financial institutions, corporations, it is not used for the appellant's business.
(b) The funds invested in these shares have gone out of circulating capital of the appellant and therefore interest expenditure in respect of those funds could not be said to have been incurred for appellant's business.
(c) The proportionate expenses should be allocated under the head 'income from other sources' and consider for deduction under the said head. The factum, the method, tile manner and the conclusion with regard to the apportionment of expenses is totally contrary to law and is wholly unjustified.
3. Deduction u/s 80M :
The learned CIT(A) committed a gross error of law and facts in not accepting the claim of appellant u/s 80M in the manner in which it was claimed. The appellant submits that its claim u/s 80M should be accepted in totality.
The learned CIT(A) committed a gross error of law and fact in directing the Assessing Officer to give effect to the directions relating to the appellant's claim of deduction u/s 36(i)(iii) while considering the claim u/s 80M. Moreover, the learned CIT(A)'s directions relating to section 36 (1)(iii) are themselves contrary to law and unwarranted.
4. Investment in Shares:
4.1 The learned CIT(A) has no jurisdiction to hold that profit on sale of shares of joint stock companies should be taxed as business profit.
Moreover, this issue did not arise out of grounds of appeal before the learned CIT(A) and he erroneously assumed jurisdiction to deal with this issue without any authority of law 4.2 The learned CIT(A) erred in holding that the appellant's investments in shares of joint stock companies should be treated as business assets and not capital assets. He has erred in holding that income arising out of sale of these investments should be treated as business profits without giving adequate opportunity to the appellant to explain its case and without considering the written submissions filed by the appellant.
4 IDBI (ITA No. 3626/M/2001)
AY 1997-98
5. Depreciation on guest house:
The learned CIT(A) erred in holding that depreciation claimed by the appellant in respect of guest house is not allowable under the IT Act. Guest-house being part of the business assets of the appellant, the CIT (Appeals) ought to have allowed depreciation u/s 32 of the Act.
6. Exemption u/s 10(23G) of the Income Tax Act:
The learned CIT(A) committed an error of fact in observing that "the ground was not pressed.......... ". He ought to have decided the issue on merits. The learned CIT(A) erred in not passing an order in respect of the appellant's claim for exemption u/s 10(23G) in respect of infrastructure business amounting to Rs. 8,36,34,794/= as against Rs. 1,86,27,921/- allowed by the AO. The learned CIT(A) ought to have allowed the claim u/s 10(23G) on gross basis as claimed in the grounds of appeal.
The appellant craves leave to add to, amend, alter, modify, delete and/or substitute all or any of the above grounds of appeal till the final disposal of the appeal.
2. Before we proceed to adjudicate the aforestated Grounds of appeal, a brief background of the case can be summarised as follows. The appellant before us is a public financial institution which has been constituted under the Act of Parliament by way of IDBI Act, 1964 with the object of financing, promoting and developing industries as well as assisting the development of institutions engaged in such activity. For the assessment year under consideration, the assessee filed return of income declaring a total income of Rs.118,92,18,700/- which was subject to a scrutiny assessment whereby the total income has been assessed at Rs 1326,62,24,540/-
after making certain additions/disallowances. The additions so made 5 IDBI (ITA No. 3626/M/2001) AY 1997-98 were carried in appeal before the CIT(A), who has allowed partial relief. Not being satisfied with the order of CIT(A), assessee is in further appeal before us by way of the aforestated Grounds of appeal. At the time of hearing, it was pointed out that so far as the appeal preferred by the Revenue with regard to the relief allowed by the CIT(A) was concerned, the same was dismissed by the Tribunal in the absence of requisite permission from the Committee of Disputes (COD), vide order dated 29th September 2004 in ITA No.3921/M/2001, and that aspect has become final. Therefore, in this background, the rival counsels have made their submissions. Accordingly, we proceed to adjudicate the various Grounds of appeal raised by the assessee in seriatim.
3. Insofar as Ground of appeal nos. 1.1 to 1.3 is concerned, the same relates to assessee's claim for depreciation on the fixed assets which have been leased out. The total claim of depreciation was to the extent of Rs.157,78,82,261/- out of which an amount of Rs.91,88,25,669/- pertained to assets which were leased out in earlier period and such assets were part of the opening written down value (WDV). The Assessing Officer has disallowed the entire claim of depreciation primarily on the ground that it was a case of 'financial lease' of assets and that it was not a case of an 'operating 6 IDBI (ITA No. 3626/M/2001) AY 1997-98 lease'. This stand of the Assessing Officer was consistent with the stand of the assessing authorities in the past years. It has been explained before us that the said dispute is not unique to the instant assessment year, but arose for the first time in the course of assessment for Assessment Year 1994-95. It has also been pointed out that the matter travelled up to the Tribunal and vide order dated 29.10.2014 in ITA Nos. 1839/M/2004, 3369/M/2004, 3370/M/2004, 1951,3922,39923/M/2006 pertaining to Assessment Years 1994-95, 1995-96 and 1996-97, relief has been allowed to the assessee. It was, therefore, contended that the dispute in the instant year be decided in that light. The Ld. CIT-DR appearing for the Revenue has not contested the factual matrix brought out by the Learned Representative for the assessee, but supported the stand of the lower authorities in denying the claim of depreciation.
4. In order to impart completeness to the order on this Ground, we may further notice that the CIT(A) has affirmed the action of the Assessing Officer in denying the claim of depreciation on both aspects, i.e. on fixed assets leased out during the year under consideration as well as the opening WDV of fixed assets, which were hitherto leased out in the earlier assessment years. 7 IDBI (ITA No. 3626/M/2001)
AY 1997-98
5. In this background, we have heard the rival stands, perused the relevant material and proceed to dispose of the issue in the following manner. As briefly noted by us earlier, the appellant is a public financial institution which is, inter-alia, engaged in the activity of providing finance including leasing also. In pursuance to such objects, the assessee had leased out assets to various entities and claimed depreciation on the value of such assets leased out. So far as the terms and conditions of the lease are concerned, both the lower authorities have converged that the same are on similar terms and conditions as was in the past years. In fact, there is a convergence between the two sides to the effect that the facts and circumstances of the dispute stand on an identical footing as was considered by the Tribunal in the earlier years, notably in Assessment Years 1994-95 to 1996-97 by way of a combined order dated 29.10.2014 (supra). We have perused the said decision and find that the Tribunal referred to various decisions, inter-alia, the judgment of the Hon'ble Supreme Court in the case of I.C.D.S. Ltd. Vs CIT [2013] 350 ITR 527 (SC), wherein Hon'ble Court held that even in cases of 'financial leases', the depreciation allowance contemplated under Section 32(1) of the Act is allowable to the lessor. It has not been shown by the Ld. CIT-DR that any of such 8 IDBI (ITA No. 3626/M/2001) AY 1997-98 precedents in assessee's own case has been altered by any higher authority. Therefore, so far as this aspect of the matter is concerned, we do not find any hesitation in directing the Assessing Officer to allow the claim of depreciation on lease of assets where it involves 'financial lease'.
6. Further, a perusal of the order of Tribunal dated 29.10.2014 (supra) shows that certain transactions of lease though not classified by the Assessing Officer as 'financial lease', yet the depreciation was denied on some other ground, namely, lack of appropriate evidence, etc. On this aspect, wherein lease with four particular lessees were identified, namely, Kedia Group, REPL Engineering, Patheja Brothers Forging & Stamping Ltd and and Padma Alloys Casting Ltd, the matter was set-aside by the Tribunal to the file of the Assessing Officer for afresh adjudication as per law. It has been further explained that in Assessment Year 1995-96 as well as 1996- 97 certain lease transactions were identified wherein depreciation was denied for similar reasons, such parties being Trudent Steels, Nathan Steels, Pathreja Brothers and Kedia Distilaries for assessment years 1995-96 and Suman Metals, Kedia galleon Ltd and Trident Steels for assessment years 1996-97. At the time of hearing, the Learned Representative for the assessee pointed out that 9 IDBI (ITA No. 3626/M/2001) AY 1997-98 so far as depreciation claim in the instant year pertaining to said seven lease transactions is concerned, the same amounted to Rs. 2,09,04,638/-.
7. It has also been explained that subsequent to the setting aside of the matter by the Tribunal on this aspect for Assessment Years 1994-95 to 1996-97, no further order has been passed by the Assessing Officer till date. Considering the aforesaid, we deem it fit and proper to direct the Assessing Officer to decide about the admissibility of depreciation of Rs. 2,09,04,638/- pertaining to the aforesaid seven lease arrangements in the light of decision in the earlier years following the order of Tribunal dated 29.10.2014 (supra). Needless to mention, on this aspect the Assessing Officer shall allow the assessee a reasonable opportunity of being heard and thereafter recompute the depreciation allowable to the assessee keeping in mind the directions of the Tribunal in the earlier years, and as per law.
8. Accordingly, insofar as Ground of appeal nos. 1.1 to 1.3 are concerned, the same are allowed to the above extent.
9. Now, we may take-up Ground of appeal nos. 2.1 to 2.3 which, inter- alia, arise out of the action of Assessing Officer in disallowing interest expenditure amounting to Rs.455,70,63,150/- by invoking 10 IDBI (ITA No. 3626/M/2001) AY 1997-98 Sec. 36(1)(iii) of the Act. It has been explained before us that the Assessing Officer was of the opinion that three categories of investments made by the assessee could not be treated as relating to business and, therefore, interest attributable to the borrowing used for making such investments could not be allowed under Section 36(1)(iii) of the Act. The investments so noted by the Assessing Officer totaled to Rs. 4945 crores, whose break-up has been noted by the CIT(A) in para 44 of his order, which reads as under :-
"The break-up of this investment was as follows:
(Rs. In crores)
(i) In securities of Central & State Governments 170
(ii) In stocks, shares, bonds & Debentures of financial institutions 1,230
(iii) In stocks, shares, bonds & Debentures of Various industrial concerns 3,545 Total : 4,945"
10. Accordingly, the Assessing Officer calculated interest expenditure proportionate to the amount of such investments at Rs. 455.70 Crore, which was disallowed under Section 36(1)(iii) of the Act. When the matter travelled before the CIT(A), assessee succeeded in convincing the CIT(A) that so far as the investments made in stocks, shares, bonds, debentures of various industrial concerns amounting to Rs. 10545 crores is concerned, interest corresponding to such investments would not fall for disallowance in terms of Sec. 36(1)(iii) of the Act. The CIT(A) has allowed relief on this aspect, 11 IDBI (ITA No. 3626/M/2001) AY 1997-98 whereas he has sustained the interest disallowance proportionate to the investments made in securities of Central and State Governments as well as stocks, shares, bonds and debentures of other financial institutions, which totaled upto Rs. 1400 crores, and the corresponding interest thereon which is disallowed is Rs. 113,38,12,959/-.
11. In this background, we have heard the rival submissions. At the time of hearing, apart from canvassing that the utilisation of funds by the assessee for acquiring the securities of Central and State Government as well as shares and securities of other financial institutions is an activity undertaken in the course of business, the Learned Representative pointed to the position taken by the Assessing Officer in different assessment years on this very aspect. It is pointed out by the Learned Representative that so far as past assessments are concerned, similar investments were made by the assessee and there has been no disallowance under Section 36(1)(iii) of the Act. Further, it is pointed out that so far as interest relatable to the investments in State Financial Corporation is concerned, from Assessment Year 2003-04 upto Assessment Year 2008-09, the disallowance made by the Assessing Officer was deleted by the CIT(A) and the Department has not contested the same in further 12 IDBI (ITA No. 3626/M/2001) AY 1997-98 appeal before the Tribunal except for Assessment Year 2007-08. It is further pointed out that from Assessment Year 2009-10 onwards to Assessment Year 2012-13, there has been no disallowance under Section 36(1)(iii) of the Act meaning thereby that even with regard to investments made in State Financial Corporations, corresponding interest has not been disallowed under Section 36(1)(iii) of the Act.
12. The aforesaid has been mentioned before us to emphasise the inconsistency in the approach of the Revenue so far as Assessment Year 1997-98 and upto Assessment Year 2002-03 is concerned. Undoubtedly, the aforesaid factual position relating to the investments made in State Financial Corporations, bears out that there is lack of uniformity in the approach of the assessing authority on a similar issue. Be that as it may, even otherwise on merit, we do not find potency in the stand of the Assessing Officer that investments made in other State Financial Corporations are not in the line of assessee's business activity. In this context, we may quote Sec. 9(1) of IDBI Act, 1964 under which assessee operates, which reads as under :-
9. Business of Development Bank.--
(1) The Development Bank shall function as the principal financial institution for co-ordinating the working of institutions engaged in financing, promoting or developing industry and for assisting the development of such institutions in such manner as it may deem appropriate and may] carry on and transact any of the following kinds of business, namely:--13 IDBI (ITA No. 3626/M/2001)
AY 1997-98
(a) granting loans and advances to--
(i) the Industrial Finance Corporation, any State Financial Corporation or any other financial institution which may be approved by the Board in this behalf by way of refinance of any loans or advances granted to industrial concerns by such Corporation or institution which are repayable within a period not exceeding twenty-five years; 1[which may be approved by the Board in this behalf] by way of refinance of any loans or advances granted to industrial concerns by such Corporation or institution which are repayable within a period not exceeding twenty-five years,
(ii) any scheduled bank or State Co-operative Bank, by way of refinance of any loans or advances granted to industrial concerns by such bank which are repayable within a period not exceeding fifteen years; by such bank which are repayable 4[within a period not exceeding fifteen years;
(iii) any scheduled bank or State Co-operative Bank or the Industrial Finance Corporation or any State Financial Corporation or any other financial institution which may be notified by the Central Government in this behalf, by way of refinance of any loans or advances granted to industrial concerns or group of industrial concerns by such bank or institution which are for the purpose of, or in connection with, the export of capital goods, commodities or merchandise from India or the execution of any turnkey project outside India by any industrial concern as aforesaid or by any person in India, and, in any case, are repayable--
(i) within a period not exceeding twelve years in the case of persons outside India, and
(ii) within a period not exceeding fifteen years in the other cases;
(b) subject to such conditions as may be prescribed, accepting, discounting, or re-discounting bills of exchange and 7[promissory notes made, drawn, accepted or endorsed by industrial concerns or by any person selling capitals goods manufactured by one industrial concern]; 6[promissory notes made, drawn, accepted or endorsed by industrial concerns or by any person selling capitals goods manufactured by one industrial concern;"
(c) subscribing to or purchasing stocks, shares, bonds or debentures of the Industrial Finance Corporation, any State Financial Corporation or any other financial institution whether within or outside India which may be approved by the Board in this behalf. (ca) granting letters of credit or loans and advances to the Industrial Finance Corporation, any State Financial Corporation or any other financial institution which may be approved by the Board in this behalf, for the purpose of any business of such Corporation or institution;
(d) granting loans and advances to any industrial concern or subscribing to, or purchasing, or underwriting the issue of, stocks, shares, bonds or debentures of any industrial concern:14 IDBI (ITA No. 3626/M/2001)
AY 1997-98 Provided that nothing contained in this clause shall be deemed to preclude the Development Bank from granting loans or advances to, or subscribing to debentures of, industrial concern, the amounts outstanding thereon may be convertible at the option of the Development Bank into stocks or shares of that concern within the period the loan, advance or debenture is repayable; the amounts outstanding thereon may be convertible at the option of the Development Bank] into stocks or shares of that concern within the period the loan, advance or debenture is repayable;"
Explanation.--In this clause, the expression "the amounts outstanding thereon" used in relation to any loan or advance, shall mean the principal, interest and other charges payable on such loan or advance as at the time when the amounts are sought to be converted into stocks or shares.
(da) granting loan and advances---
(i) to any person exporting products of industrial concerns; or
(ii) to any person outside India, in connection with the export of capital goods from India; or
(iii) for the execution of turn-key projects outside India by any industrial concern or by any person in India;
(db) transferring for consideration any instrument relating to loans and advances granted by it to industrial concerns; (dc) granting loans and advances to any person for purposes of investment in any industrial concern;]
(e) guaranteeing deferred payments due from any industrial concern;
(f) guaranteeing--
(i) loans raised by industrial concerns which are floated in the public market; and
(ii) loans raised by industrial concerns from any scheduled bank or State Co-operative Bank or the Industrial Finance Corporation or any State Financial Corporation or any other financial institution which may be approved by the Board in this behalf; which may be approved by the Board in this behalf;
(g) guaranteeing the obligations of any scheduled bank or State Co-
operative Bank or the Industrial Finance Corporation or any State Financial Corporation or any other financial institution which may be approved by the Board in this behalf arising out of, or in connection with, underwriting the issue of stocks, shares, bonds or debentures of any industrial concern;
(ga) granting, opening, issuing, confirming or endorsing letters of credit and negotiating or collecting bills and other documents drawn thereunder;
(gb) providing consultancy and merchant banking services in or outside India;
(gc) acting as the trustee for the holders of debentures or other securities; (gd) acquiring, with the approval of the Central Government, the undertaking, including the business, assets and liabilities of any institution the principal object of which is the promotion or 15 IDBI (ITA No. 3626/M/2001) AY 1997-98 development of industry in India, or the grant of financial assistance for such promotion or development;]
(h) undertaking research and surveys for evaluating or dealing with marketing or investments and undertaking and carrying on techno- economic studies in connection with the development of industry;
(i) providing technical, legal, marketing] and administrative assistance to any industrial concern or any person for promotion, management or expansion of any industry; legal, marketing] and administrative assistance to any industrial concern or any person for promotion, management or expansion of any industry;"
(j) planning, promoting and developing industries to fill up gaps in the industrial structure in India;
(k) promoting, forming or conducting or associating in the promotion, formation or conduct of companies, subsidiaries, societies, trusts or such other associations of persons as it may deem fit;] (ka) acting as agent of--
(i) the Central Government or of the Reserve Bank, or
(ii) such other Government or person as the Central Government in consultation with] the Reserve Bank, may authorise; in consultation with the Reserve Bank, may authorise;
(l) performing functions entrusted to, or required of, the Development Bank by this Act or by any other law for the time being in force;
(m) doing any other kind of business which the Central Government, may authorise; may authorise;"
(n) generally doing such other acts and things as may be incidental to, or consequential upon, the exercise of its powers or the discharge of its duties under this Act or any other law for the time being in force including sale or transfer of any of its assets.
(2) The Development Bank may receive in consideration of any of the services mentioned in sub-section (1) such commission, brokerage, interest, remuneration or fees as may be agreed upon. (3) The Development Bank shall not grant any loan or advance or other financial accommodation on the security of its own bonds or debentures.
13. Shorn of other details, so far as is relevant for our purpose, a perusal of the aforesaid sub section (1) of section 9 of the IDBI Act, 1964 shows that granting of loans and advances, financing of or refinancing of State Financial Corporations is one of the primary objects of the assessee, as mandated by the Parliament. Therefore, on this very count itself, we are unable to subscribe to the stand of 16 IDBI (ITA No. 3626/M/2001) AY 1997-98 the income-tax authorities that the investments made for financing or refinancing of State Financial Corporations is not an activity undertaken in the course of assessee's business; in our view the interest expenditure relatable to such investments cannot be disallowed in terms of Sec. 36(1)(iii) of the Act having regard to the fact that such activity is in the tune of assessee's business objects.
14. The only other aspect which is left for determination is interest relatable to investments made in securities of Central and State Governments amounting to Rs.170 crores. On this aspect, it has been emphasised that in the earlier years, no such disallowance was made by the Assessing Officer. The rival stands on this aspect remain the same as it pertained to the interest relatable to investments made in State Financial Corporations. It was a common point between the parties that the assessing authority has not differentiated between the two items and the disallowance has been made on a consolidated basis in all the years, therefore, the assessing authority has disallowed the expenditure for similar reasoning as advanced for disallowing interest pertaining to investments in State Financial Corporations.
15. On this aspect, a pertinent point which has been brought out by the Learned Representative is that the interest income earned by the 17 IDBI (ITA No. 3626/M/2001) AY 1997-98 assessee on such Central and State Government securities have all along been assessed as 'business income' and, therefore, there was no justification for disallowing the corresponding interest expenditure on the plea that that the investments are for non- business purpose. Even in the instant assessment year, a reference has been made to the assessment order to point out that the interest income from such securities is lying assessed as 'business income'.
16. Considering the aforesaid aspect, as also the fact that IDBI General Regulations, 1994 prescribe for making investments in securities of Central and State Governments, we do not find any reason to uphold the stand of the income-tax authorities that such investments are not in the course of assessee's business. In fact, there is an apparent contradiction in the stand of the assessing authority inasmuch as the interest yielded by such investments is assessed as 'business income' whereas the interest expenditure attributable to such investments has been sought to be treated as a non-business expenditure. Considering the aforesaid, we deem it fit and proper to set-aside the order of CIT(A) on this aspect and direct the Assessing Officer to allow the claim made by the assessee. Thus, on this aspect, assessee succeeds. In the result this ground of appeal is allowed.
18 IDBI (ITA No. 3626/M/2001)
AY 1997-98
17. Ground No. 3 relates to disallowance of deduction under section 80M. The ld. AR of the assessee submits that this ground of appeal is covered by the decision of Tribunal in assessee own case for A.Y. 1994-95, 1995-96 & 1996-97, wherein the similar disallowance was restricted to 1% of dividend income.
18. On the other hand, the ld. DR for the revenue relied upon the order of lower authorities.
19. We have considered the rival submission of the parties and gone through the orders of Tribunal for earlier years. During the assessment, the Assessing Officer asked to furnish the details of deduction under section 80M and issued show-cause notice as to why the deduction under this section should not be recalculated after deducting interest on money borrowed for investment in shares and after deducting other expenses wholly and exclusively for earning dividend. The Assessing Officer recorded that the assessee filed various submission and stated that as a part of their business the assessee advance loan and provides other financial facilities to various persons engaged in business. For this purpose, the assessee raised funds and loans by issuing bonds, debentures etc. on the borrowings, the assessee has paid interest and debited in Profit & Loss Account. Investments in shares are primarily done as part of 19 IDBI (ITA No. 3626/M/2001) AY 1997-98 assessee's lending activities. The Assessing Officer has not given any clear finding. However, the ld. CIT(A) recorded that perusal of assessment order reveals that decision on computation under section 80M is not clear. The ld. CIT(A) concluded his finding in the following manner:
"109. A perusal of the assessment order shows that the A.O.s decision and computation of deduction u/s. 80M is not clear. In the computation of income, on p.77, he has shown the deduction u/s. 80M to be Rs. 79,84,44,45/-, as per Annexure 'A'. In the Annexure 'A', he has computed the deduction u/s.80M at Rs. 79,84,44,450/-. On the other hand, at page 75 of the assessment order, he states that 'the claim of deduction u/s. 80M of Rs. 82,73,23,090/- is withdrawn'. In view of this, the A.O. is directed to pass a clear, speaking order on the appellant's claim of deduction u/s. 80M. While doing so, he should keep note of, and give effect to, my directions relating to the appellant's claim of deduction u/s. 36(1)(iii)."
20. We have noted that on similar disallowances in appeal for A.Y. 1995-96 in ITA No. 3369/M/2004, the co-ordinate bench of Tribunal by following the decision in assessee's own case for A.Y. 1992-93 in ITA No. 3249/Bom/1995 dated 24.12.2002, restricted the disallowances to 1% of dividend income. Therefore, respectfully following the decision of Tribunal, we direct the Assessing Officer to restrict the disallowance under section 80M to 1% of the dividend income. In the result, the assessee succeeded on this ground of appeal.
20 IDBI (ITA No. 3626/M/2001)
AY 1997-98
21. Ground No. 4 relates to profit on sale of investment treated as Business Income. The ld. AR of the assessee submits that the A.O. has assessed the income from sale of shares of Joint Stock Company as Capital Gains for all the years i.e. AY 1997-98 to AY 2012-13. However, for AYs 1997-98 to 2001-02, CIT(A) assessed profits from sale of shares of Joint Stock Companies (JSCs) as business income. From AY 2002-03 onwards, the profit on sale of shares of JSCs has been accepted as Capital Gains by AO as well as CIT(A). The ld. AR further submits that the assessee has shown the said share as investment. In earlier, the said shares have been accepted by revenue as investment. Even in subsequent year, the AO has taken a view that investment in Joint Stock Company is Capital Gain and not Business Income. The ld. CIT(A) during the hearing, suo moto held that share of Joint Stock Company constitute assessee's stock in trade and the profit on the sale of these shares constitute business profit. It was further submitted that from A.Y. 2002-03 to 2012-13, the ld. CIT(A) has not directed the A.O. to assessee income from sale of Joint Stock Company as Business Income. The ld. AR of the assessee submits that a chart showing that profit from sale of share of Joint Stock Company's offered by assessee under Capital Gain has been accepted is filed at page no. 21 IDBI (ITA No. 3626/M/2001)
AY 1997-98 282 of the Paper Book. The ld. AR submits that the the revenue has accepted the order of ld. CIT(A) and has not challenged the same before Tribunal. The ld. AR also relied upon the CBDT Circular No. 6 of 2016 dated 29th February 2016.
22. On the other hand, the ld. DR for the revenue relied upon the order of lower authorities.
23. We have considered the submission of the parties and perused the records. We have noted that the ld. AR of the assessee vehemently submitted that the A.O. taxed the income from sale of Joint Stock Company under the head Capital Gain. However, the ld. CIT(A) has treated the profit on sale of Joint Stock Company as Business Profit. We have further noted that the department has accepted the similar profit on sale of investment as a Capital Gain from A.Y. 2002-03 to 2012-13 as the same has not been disputed by ld. DR while making his submission. Considering the fact that similar profit is accepted as Capital Gain from the year 2002-03 till 2012-13, therefore, the revenue should follow the consistency when there is no variance in the facts. Hence, we direct the A.O. to treat the profit on sale on investment as Capital Gain as has been accepted from A.Y. 2002-03 onwards. Therefore, the assessee also succeeded on this ground. 22 IDBI (ITA No. 3626/M/2001)
AY 1997-98
24. Ground No.5 relates to disallowance of Guest House Expenses. We have noted that the ld. AR of the assessee has not argued anything against the disallowance of Guest House Expenses. Therefore, this ground is treated as not pressed. Even otherwise we have noted that the ld. CIT(A) has already held that except depreciation other expenses are allowable.
25. Ground No.6 relates to Exemption u/s 10(23G). The ld. AR of the assessee submits that assessee claimed income exempt under section 10(23G) of Rs. 8,36,34,794/-. The assessee has claimed income exempt on gross basis in the return of income furnished by assessee. During the course of assessment, on the direction of A.O., the assessee rework the claim on net basis after disallowing proportionate expenditure, thereby reduced the claim under section 10(23G) to Rs. 1,86,27,921/-. Before the ld. CIT(A), the assessee raised additional ground of appeal for revising the claim under section 10(23G) on gross basis i.e. Rs. 8,63,34,794/-. However, the ld. CIT(A) while passing the order upheld the action of A.O. holding that exemption under section 10(23G) ought to be allowed on net basis after deducting proportionate expenses. The ld. CIT(A) also held that the assessee did not press the said ground of appeal which is factually incorrect. The ld. AR for assessee submits that 23 IDBI (ITA No. 3626/M/2001) AY 1997-98 the assessee has raised ground before the Tribunal that exemption ought to be allowed on gross basis. In support of his submission, the ld. AR of the assessee relied upon the decision of Tribunal in Reliance Industries Ltd. in ITA No. 4475/Mum/2007, the ld AR for the assessee further rely on the order of Tribunal in ADIT vs. Credit Agricole Indosuez for AY. 1997-98 in ITA No. 6615/Mum/2003, Abu Dhabi Commercial Bank Ltd. vs. DDIT in ITA No. 6530/Mum/2006, Dresdner Bank Ag vs. ACIT (2007) 108 ITD 375(Bom) and Dresdner Bank Ag vs. ADIT (ITA No. 2962/Mum/2004). It was canvassed by ld AR for the assessee that Credit Agricole Indosuez (supra) the Tribunal discussed the language of section 10(15) which is similar to section 10(23G) of the Act.
26. On the other hand, the ld. DR for the revenue supported the order of ld. CIT(A).
27. We have considered the submission of the parties and gone through the orders of authorities below. We have noted that in the return of income, the assessee claimed income exempt under section 10(23G) of Rs. 8,36,34,794/-. The assessee claimed exemption under section 10(23G) on gross basis. During the course of assessment, the assessee furnished revised working, thereby reduced the claim 24 IDBI (ITA No. 3626/M/2001) AY 1997-98 under section 10(23G) to Rs. 1,86,27,921/-. Before the ld. CIT(A), the assessee raised additional ground of appeal regarding restructuring the assessee's claim under section 10(23G) in respect of infrastructure business to Rs. 1,86,27,921/- as against Rs. 8,36,34,794/- claimed in the return of income. The ld. CIT(A) in para-114 of his order recorded that this ground was not pressed by assessee. Before us, ld. AR of the assessee vehemently submitted that the assessee has raised specific as well as additional ground of appeal and that the finding of ld. CIT(A) that the assessee has not pressed this ground, is factually incorrect. Before us, the ld. AR of the assessee submits that exemption under section 10(23G) is to be allowed on gross basis. The ld. AR strongly makes reliance on the decision of Tribunal in Reliance Industries vs. ACIT (supra). The co-ordinate bench of Tribunal in Reliance Industries vs. ACIT (supra) held as under:
"9.6 We have carefully considered the orders of authorities below and the submissions of ld. Representatives of the parties. We have also considered the earlier order of the Tribunal dated 28.5.2012 in the assessee's own case for preceding assessment year 2002-03. We observe that AO disallowed an estimated proportionate interest on borrowed funds in respect of investment made by assessee as income was exempt u/s 10(33) and 10(23G) of the Act. However, ld. CIT(A) deleted the said disallowance after stating that it had not been shown by the AO that borrowed funds were employed for making investment which yielded exempt interest income and in the absence of any 25 IDBI (ITA No. 3626/M/2001) AY 1997-98 nexus, disallowance made out of the interest expenses could not be sustained, particularly when own funds of the assessee company were far in excess of the total amount of investment made. We are of the considered view that similar facts are applicable in the assessment year under consideration and also for the reasons stated hereinabove in paras 7.2 and 7.3, we hold that proportionate disallowance of interest of Rs.22.25 crores made by ld. CIT(A) is not justified as the assessee's own I.T.A. No.4475/Mum/2007 12 and 7 other appeals funds are far in excess than the interest free advance given by assessee and the investment made, which is giving exempt interest income to the assessee."
28. The co-ordinate bench of Tribunal in ADIT vs. Credit Agricole Indosuez (supra) also held that it is an undisputed proposition that exemption under section 10(15) on the gross interest and not on net interest. The co-ordinate bench followed the decision Dresdner Bank Ag (supra) and JCIT vs. American Express Bank Ltd. (24 taxmann.com 50 (Mum. Trib.). Considering the decision of co- ordinate bench of Tribunal, we direct the A.O. to allow the deduction on gross basis, ofcource after deducting the direct expenses attributable to earning such income. In the result, the assessee also succeeded on this ground.
29. In the result, appeal of the assessee is partly allowed as above.
Order pronounced in the open court on 21/06/2019.
Sd/- Sd/-
G.S. PANNU PAWAN SINGH
VICE-PRESIDENT JUDICIAL MEMBER
Mumbai, Date: 21.06.2019
SK
26 IDBI (ITA No. 3626/M/2001)
AY 1997-98
Copy of the Order forwarded to :
1. Assessee 2. Respondent
3. The concerned CIT(A) 4.The concerned CIT
5. DR "C" Bench, ITAT, Mumbai
6. Guard File
BY ORDER,
Dy./Asst. Registrar
ITAT, Mumbai