Income Tax Appellate Tribunal - Mumbai
Reliance Capital Ltd, Mumbai vs Dcit Rg 3(3), Mumbai on 31 August, 2017
IN THE INCOME TAX APPELLATE TRIBUNAL
MUMBAI BENCH "D", MUMBAI
BEFORE SHRI G.S. PANNU, ACCOUNTANT MEMBER AND
SHRI C.N. PRASAD, JUDICIAL MEMBER,
ITA.No.5694/MUM/2012 (A.Y: 2009-10)
M/s. Reliance Power Limited v. DCIT, Circle 3(3)
C/o Jitendra Sanghavi & Co. R.No.609, 6th Floor,
405, Churchgate Chambers, Aayakar Bhavan, M.K. Road
5, New Marine Lines, Churchgate,
Mumbai - 400 020. Mumbai - 400 020
PAN: AAACR 2365 L
(Appellant) (Respondent)
ITA.No.5975/MUM/2012 (A.Y: 2009-10)
DCIT, Circle 3(3) v. M/s. Reliance Power Limited
R.No.609, 6th Floor, H Block, 1st Floor,
Aayakar Bhavan, M.K. Road Dhirubhai Ambani Knowledge City,
Churchgate, Koparkhairne
Mumbai - 400 020 Navi Mumbai - 400 710
PAN: AAACR 2365 L
(Appellant) (Respondent)
ITA.No.5545/MUM/2013 (A.Y: 2010-11)
M/s. Reliance Power Limited v. DCIT, Circle 3(3)
C/o. Jitendra Sanghavi & Co. R.No.609, 6th Floor,
706A, Moti Mahal Aayakar Bhavan, M.K. Road
195 J. Tata road, Churchgate Churchgate,
Mumbai - 400 020 Mumbai - 400 020
PAN: AAACR 2365 L
(Appellant) (Respondent)
2
ITA.No.5694 & 5975/MUM/2012 (A.Y: 2009-10)
ITA.No.5545 & 5743/MUM/2013 (A.Y: 2010-11)
M/s Reliance Power Limited
ITA.No.5693 & 5928/MUM/2012 (A.Y: 2009-10)
ITA.No.5537 & 5764/MUM/2013 (A.Y: 2010-11)
M/s Reliance Capital Limited
ITA.No.5743/MUM/2013 (A.Y: 2010-11)
DCIT, Circle 3(3) v. M/s. Reliance Power Limited
R.No.609, 6th Floor, H Block, 1st Floor,
Aayakar Bhavan, M.K. Road Dhirubhai Ambani Knowledge City,
Churchgate, Koparkhairne
Mumbai - 400 020 Navi Mumbai
PAN: AAACR 2365 L
(Appellant) (Respondent)
ITA.No.5693/MUM/2012 (A.Y: 2009-10)
M/s. Reliance Capital Ltd. v. DCIT, Range 3(3)
570, Rectifier House R.No.606, 6th Floor,
Naigaum Cross Road, Aayakar Bhavan, M.K. Road
Next to royal Industrial Estate Churchgate,
Wadala (W) Mumbai - 400 020
Mumbai - 400 031.
PAN: AAACR 5054 J
(Appellant) (Respondent)
ITA.No.5982/MUM/2012 (A.Y: 2009-10)
DCIT, Circle 3(3) v. M/s. Reliance Capital Limited
R.No.609, 6th Floor, H Block,
Aayakar Bhavan, M.K. Road Dhirubhai Ambani Knowledge City,
Churchgate, Koparkhairne
Mumbai - 400 020 Navi Mumbai - 400 710
PAN: AAACR 5054 J
(Appellant) (Respondent)
3
ITA.No.5694 & 5975/MUM/2012 (A.Y: 2009-10)
ITA.No.5545 & 5743/MUM/2013 (A.Y: 2010-11)
M/s Reliance Power Limited
ITA.No.5693 & 5928/MUM/2012 (A.Y: 2009-10)
ITA.No.5537 & 5764/MUM/2013 (A.Y: 2010-11)
M/s Reliance Capital Limited
ITA.No.5537/MUM/2013 (A.Y: 2010-11)
M/s. Reliance Capital Ltd. v. DCIT, Range 3(3)
570, Rectifier House R.No.606, 6th Floor,
Naigaum Cross Road, Aayakar Bhavan, M.K. Road
Next to royal Industrial Estate Churchgate,
Wadala (W) Mumbai - 400 020
Mumbai - 400 031.
PAN: AAACR 5054 J
(Appellant) (Respondent)
ITA.No.5764/MUM/2013 (A.Y: 2010-11)
DCIT, Circle 3(3) v. M/s. Reliance Capital Limited
R.No.609, 6th Floor, H Block,
Aayakar Bhavan, M.K. Road Dhirubhai Ambani Knowledge City,
Churchgate, Koparkhairne
Mumbai - 400 020 Navi Mumbai - 400 710
PAN: AAACR 5054 J
(Appellant) (Respondent)
Assessee by : Shri Jitendra Sanghavi
Shri Deepak Jain
Revenue by : Shri Pruseth
Date of Hearing : 01.08.2017
Date of Pronouncement : 31.08.2017
4
ITA.No.5694 & 5975/MUM/2012 (A.Y: 2009-10)
ITA.No.5545 & 5743/MUM/2013 (A.Y: 2010-11)
M/s Reliance Power Limited
ITA.No.5693 & 5928/MUM/2012 (A.Y: 2009-10)
ITA.No.5537 & 5764/MUM/2013 (A.Y: 2010-11)
M/s Reliance Capital Limited
ORDER
PER BENCH
1. These appeals are filed by the assessees Reliance Power Limited and Reliance Capital Limited and by the Revenue for the Assessment Years 2009-10 and 2010-11.
2. First we take up the appeals of the assessee of Reliance Power Limited.
3. The first common ground in both the appeals of the assessee for the Assessment Years 2009-10 and 2010-11 is against confirmation of disallowance u/s 14A amounting to ₹.12,78,65,570/- and ₹.8,64,29,883/- as against suo moto disallowance of ₹.42,48,568/- and ₹.42,48,568/- made by the assessee in its computation for the Assessment Years 2009-10 and 2010-11 respectively.
4. Briefly stated the facts are that the Assessing Officer while completing the assessments noticed that assessee received dividend income of ₹.273,77,89,993/- and ₹.212,01,88,646/- during the Assessment Years 2009-10 and 2010-11 respectively and claimed such dividend income as exempt from tax u/s 10(34)/(35) of the Act. He also 5 ITA.No.5694 & 5975/MUM/2012 (A.Y: 2009-10) ITA.No.5545 & 5743/MUM/2013 (A.Y: 2010-11) M/s Reliance Power Limited ITA.No.5693 & 5928/MUM/2012 (A.Y: 2009-10) ITA.No.5537 & 5764/MUM/2013 (A.Y: 2010-11) M/s Reliance Capital Limited noticed that for the Assessment Years 2009-10 and 2010-11 the assessee suo moto made disallowance of ₹.42,48,568/- and ₹.42,48,093/- respectively as expenses attributable for earning the dividend income. The Assessing Officer was of the view that prima-facie disallowance computed u/s 14A by the assessee is not in accordance with the provisions of Rule 8D and required the assessee to furnish complete details of exempt income and also asked to explain as to why expenses incurred and claimed in respect of the exempt income should not be disallowed as per Section 14A r.w. Rule 8D. The assessee furnished its reply stating that except the expenses of ₹.42,48,568/- and ₹.42,48,093/- all other expenses are normal administrative expenses incurred for the day to day management and business affairs and they are incurred in relation to providing managerial and technical services to various subsidiaries for implementation of their power projects and these expenses have no relation to the earning of dividend income in the Assessment Years 2009-10 and 2010-11 respectively. Assessee provided the details of allocation of expenses as it thought appropriate and the only expenses relevant for disallowance u/s 14A, as reasonable are ₹.42,48,568/- and ₹.42,48,093/- respectively for the Assessment Years 2009-10 and 2010-11. Without prejudice to the above contentions 6 ITA.No.5694 & 5975/MUM/2012 (A.Y: 2009-10) ITA.No.5545 & 5743/MUM/2013 (A.Y: 2010-11) M/s Reliance Power Limited ITA.No.5693 & 5928/MUM/2012 (A.Y: 2009-10) ITA.No.5537 & 5764/MUM/2013 (A.Y: 2010-11) M/s Reliance Capital Limited assessee also made a claim that while computing the disallowance u/s.14A r.w. Rule 8D only those investments which have actually yielded income during the year should be considered and not all the investments and assessee has given the working of disallowance taking only the dividend yielded investments during the year and worked out the disallowance at ₹.12,78,65,570/- and ₹.8,64,29,883/- for the Assessment Years 2009-10 and 2010-11 respectively. The Assessing Officer not convinced with the reply furnished by the assessee rejected the submissions of the assessee and the allocation of expenses made by the assessee in making the suo moto disallowance, invoked the provisions of setion 14A read with rule 8D of I.T. Rules and worked out the disallowance at ₹.24,68,41,371/- and ₹.15,34,38,693/- for the Assessment Years 2009-10 and 2010-11 respectively.
5. The assessee preferred appeal before the Ld.CIT(A) and reiterated the submissions. The Ld.CIT(A) not convinced with the submissions of the assessee he agreed with the view of the Assessing Officer, the allocation of expenses for the purpose of suo moto disallowance is not correct. However, the Ld.CIT(A) accepted without prejudice submission of the assessee that only those investments which have yielded dividend 7 ITA.No.5694 & 5975/MUM/2012 (A.Y: 2009-10) ITA.No.5545 & 5743/MUM/2013 (A.Y: 2010-11) M/s Reliance Power Limited ITA.No.5693 & 5928/MUM/2012 (A.Y: 2009-10) ITA.No.5537 & 5764/MUM/2013 (A.Y: 2010-11) M/s Reliance Capital Limited income during the year should be considered for the purpose of computing disallowance u/s 14A r.w. Rule 8D. He accepted the computation of the assessee where assessee worked out the disallowance at ₹.12,78,65,570/- and ₹.8,64,29,883/- for the Assessment Years 2009-10 and 2010-11 respectively excluding those investments where no dividend income yielded.
6. Before us the Learned Counsel for the assessee reiterated the submissions made before the lower authorities. The Learned Counsel for the assessee further submits that there is no satisfaction recorded by the Assessing Officer for invoking the provisions of Rule 8D. He placed reliance on the decision of the Supreme Court in the case of Godrej & Boyce manufacturing Company Ltd. v. DCIT [81 taxmann.com 111]
7. The Ld. DR vehemently supported the orders of the Ld.CIT(A)/AO.
8. We have heard the rival submissions, perused the orders of the authorities below and the case laws relied on. The Assessing Officer while completing the assessment noticed that the assessee received dividend income and claimed as exempt and assessee made suo moto disallowance of ₹.42,48,568/- and ₹.42,48,093/- treating such expenses 8 ITA.No.5694 & 5975/MUM/2012 (A.Y: 2009-10) ITA.No.5545 & 5743/MUM/2013 (A.Y: 2010-11) M/s Reliance Power Limited ITA.No.5693 & 5928/MUM/2012 (A.Y: 2009-10) ITA.No.5537 & 5764/MUM/2013 (A.Y: 2010-11) M/s Reliance Capital Limited as expenditure attributable for earning the dividend income received by the assessee for the Assessment Years 2009-10 and 2010-11 respectively. The Assessing Officer on a prima facie view that assessee's computation of disallowance u/s 14A is not in accordance with the provisions of Rule 8D, required the assessee to furnish various details of dividend income and expenses attributable for earning such dividend income and why Rule 8D should not be applied. Assessee furnished reply. Not convinced with the reply Assessing Officer by giving reasoning as to why the working of suo moto disallowance made u/s 14A by the assessee is not satisfactory to him computed the disallowance u/s 14A r.w. Rule 8D. Ld. Counsel submits before us is that there is no satisfaction record by the Assessing Officer. On a perusal of the Assessment Order we find that Assessing Officer has clearly stated as to why the working of the assessee is not acceptable for him. Assessing Officer has given reasons for not accepting the working of the assessee. Therefore, it cannot be said that there is no satisfaction recorded by the Assessing Officer. The alternative submission of the assessee that only those investments which have yielded dividend income during the year should be considered has been accepted by the Ld.CIT(A). In the circumstances we do not see any valid reason to interfere with the decision of the 9 ITA.No.5694 & 5975/MUM/2012 (A.Y: 2009-10) ITA.No.5545 & 5743/MUM/2013 (A.Y: 2010-11) M/s Reliance Power Limited ITA.No.5693 & 5928/MUM/2012 (A.Y: 2009-10) ITA.No.5537 & 5764/MUM/2013 (A.Y: 2010-11) M/s Reliance Capital Limited Ld.CIT(A). Ground No.1 of the grounds of appeal of the assessee for the Assessment Years 2009-10 and 2010-11 are rejected.
9. Ground No.2 of the assessee's appeals in respect of the disallowance made u./s 14A while computing the book profits u/s 115JB of the Act.
10. The Learned Counsel for the assessee submits that the Assessing Officer while computing the book profits made disallowance u/s 14A the same amount which was disallowed while computing the income under normal computation of income. The Learned Counsel for the assessee submits that the Ld.CIT(A) however estimated the disallowance by restricting it to ₹.1.12 Crores and ₹.90 Lakhs for the Assessment Years 2009-10 and 2010-11 respectively keeping in view the dividend income earned by the assessee during these Assessment Years. The Learned Counsel for the assessee submits that in view of the Special Bench decision of Delhi Bench in the case of ACIT v. Vireet Investments Private Limited [82 Taxman.com 415] no disallowance is warranted u/s 14A while computing the book profits.
11. The Ld. DR supported the orders of the Ld.CIT(A)/AO. 10
ITA.No.5694 & 5975/MUM/2012 (A.Y: 2009-10) ITA.No.5545 & 5743/MUM/2013 (A.Y: 2010-11) M/s Reliance Power Limited ITA.No.5693 & 5928/MUM/2012 (A.Y: 2009-10) ITA.No.5537 & 5764/MUM/2013 (A.Y: 2010-11) M/s Reliance Capital Limited
12. On hearing both the parties we are of the view that the issue of disallowance u/s 14A r.w. Rule 8D while computing the book profits is now settled by the Special Bench Delhi in the case of ACIT v. Vireet Investments Private Limited (supra) wherein it has been held that computation under Clause (f) of explanation 1 to Section 115JB(2) is to be made without resorting to the computation as contemplated u/s 14A r.w. Rule 8D of I.T. Rules. Therefore, respectfully following the said decision we hold that there should not be any disallowance u/s 14A read with Rule 8D while computing the book profits u/s 115JB of the Act. Thus, we direct the Assessing Officer to compute the book profits u/s 115JB keeping in view the decision of the Hon'ble Special Bench (supra). This ground of appeal is allowed for statistical purpose.
13. Coming to the Revenue's appeals for the Assessment Years 2009-10 and 2010-11 the grievance of the revenue is in respect of the disallowance u/s 14A r.w. Rule 8D. Revenue is agitating the order of the Ld.CIT(A) in restricting the disallowance u/s 14A r.w. Rule 8D while computing the income under normal provisions of the Act as well as the book profits u/s 115JB. In view of our findings and decision given in above paras while deciding the ground raised by the assessee in respect of the 11 ITA.No.5694 & 5975/MUM/2012 (A.Y: 2009-10) ITA.No.5545 & 5743/MUM/2013 (A.Y: 2010-11) M/s Reliance Power Limited ITA.No.5693 & 5928/MUM/2012 (A.Y: 2009-10) ITA.No.5537 & 5764/MUM/2013 (A.Y: 2010-11) M/s Reliance Capital Limited disallowance u/s 14A r.w. Rule 8D while computing the normal provisions as well as book profits u/s 115JB of the Act, the grounds raised by the revenue are disposed off accordingly.
14. Now we take up the appeals of the assessee in the case of Reliance Capital limited for the Assessment Years 2009-10 and 2010-11.
15. The first common ground in the grounds of appeal of the assessee is against the confirmation of disallowance made u/s 14A r.w. Rule 8D in the normal computation of income.
16. The Learned Counsel for the assessee submits that facts in these appeals are also almost similar. However, he submits that the Ld.CIT(A) sustained the disallowance made by the Assessing Officer without considering the alternative claim of the assessee that only those investments which yielded dividend during the year should be considered for computing disallowance under Rule 8D. The Learned Counsel for the assessee submits that, the contention of the assessee is that only those investments which yielded dividend income during the year should be considered for computing the disallowance under Rule 8D r.w.s 14A has been rejected following the Special Bench decision in the case of 12 ITA.No.5694 & 5975/MUM/2012 (A.Y: 2009-10) ITA.No.5545 & 5743/MUM/2013 (A.Y: 2010-11) M/s Reliance Power Limited ITA.No.5693 & 5928/MUM/2012 (A.Y: 2009-10) ITA.No.5537 & 5764/MUM/2013 (A.Y: 2010-11) M/s Reliance Capital Limited Cheminvest Limited [121 ITD 318]. The Learned Counsel for the assessee submits that this decision of the Special Bench has been reversed by the Delhi High Court in the case of Cheminvest Limited v. CIT [378 ITR 33 Delhi]. He further submitted that recently the Special Bench of Delhi in the case of ACIT v. Vireet Investments Private Limited (supra) held that only those investments should be considered for computing the average value of investments which yielded exempt income during the year.
17. The Ld. DR supported the orders of the Ld.CIT(A).
18. We have heard both the parties perused the orders of the authorities below and the decisions relied on. The Assessing Officer in this case noticed that assessee has received huge dividend income and also there was suo moto disallowance by the assessee towards expenses @ 0.5% of average investments at ₹.5,27,66,409/- and ₹.5,76,30,721/- for the Assessment Years 2009-10 and 2010-11 respectively. The assessee in the course of assessment proceedings furnished reply explaining the reasons for allocating only these expenses as attributable for earing exempt income. However, not convinced with the reply the Assessing Officer after elaborate discussion made in the Assessment Order 13 ITA.No.5694 & 5975/MUM/2012 (A.Y: 2009-10) ITA.No.5545 & 5743/MUM/2013 (A.Y: 2010-11) M/s Reliance Power Limited ITA.No.5693 & 5928/MUM/2012 (A.Y: 2009-10) ITA.No.5537 & 5764/MUM/2013 (A.Y: 2010-11) M/s Reliance Capital Limited computed the disallowance of expenses at 0.5% of average value of investments under Rule 8D(2)(iii) at ₹.21,54,43,581/- and ₹.33,46,51,469/-. However, since the assessee itself disallowed ₹.5,27,66,409/- and ₹.5,76,30,721/-, Assessing Officer has made net disallowance of ₹.16,26,77,172/- and ₹.20,70,20,748/- for the Assessment Years 2009-10 and 2010-11 respectively. The Assessing Officer also rejected the without prejudice contention of the assessee that only dividend yielded investments should be considered for computing the disallowance.
19. The Ld.CIT(A) following the decision of the Special Bench in the chase of Cheminvest Limited [121 ITD 318] affirmed the order of the Assessing Officer. The decision relied on by the Ld.CIT(A) has been reversed by the Delhi High Court in the case of Cheminvest Limited Vs. CIT [378 ITR 33 Delhi]. Recently the Special Bench of the Delhi Tribunal in the case of ACIT v. Vireet Investments Private Limited(supra) held that only those investments are to be considered for computing average value of investments which yielded exempt income during the year while computing the disallowance Rule 8D(2)(iii). Therefore, respectfully following the said decision we hold that the disallowance computed u/s 14 ITA.No.5694 & 5975/MUM/2012 (A.Y: 2009-10) ITA.No.5545 & 5743/MUM/2013 (A.Y: 2010-11) M/s Reliance Power Limited ITA.No.5693 & 5928/MUM/2012 (A.Y: 2009-10) ITA.No.5537 & 5764/MUM/2013 (A.Y: 2010-11) M/s Reliance Capital Limited 14A r.w. Rule 8D by the Assessing Officer is not correct. Thus we restore this issue to the file of the Assessing Officer with a direction to re-compute the disallowance under Rule 8D(2)(iii) in view the decision of the Delhi Bench in the case of ACIT v. Vireet Investments Private Limited (supra) by considering only those investments which yielded dividend income during the Assessment Years 2009-10 and 2010-11. This common Ground is allowed for statistical purpose.
20. The second common ground of appeal is in respect of disallowance u/s 14A while computing the book profits u/s 115JB of the Act.
21. This issue is also covered by the decision of the Special Bench Delhi in the case of ACIT v. Vireet Investments Private Limited (supra) wherein it has been held that computation under Clause(f) of Explanation 1 to section 115JB(2) is to be made without resorting to the computation as contemplated u/s 14A r.w. Rule 8D of I.T. Rules. Thus respectfully following the said decision we direct the Assessing Officer to compute the book profits u/s 115JB of the Act in accordance with the directions of the Special Bench (supra). This common ground of appeal is allowed for statistical purpose.
15
ITA.No.5694 & 5975/MUM/2012 (A.Y: 2009-10) ITA.No.5545 & 5743/MUM/2013 (A.Y: 2010-11) M/s Reliance Power Limited ITA.No.5693 & 5928/MUM/2012 (A.Y: 2009-10) ITA.No.5537 & 5764/MUM/2013 (A.Y: 2010-11) M/s Reliance Capital Limited
22. Coming to the Revenue's appeals only grievance of the revenue in its appeal is that the Ld.CIT(A) is not justified in restricting the adjustment to book profits on account of expenses relatable to exempt income, u/s.14A of the Act. This ground of appeal is restored to the file of the Assessing Officer to compute the book profits u/s 115JB in view of the decision of the Delhi Special Bench in the case of ACIT v. Vireet Investments Private Limited (supra) wherein it has been held that computation under Clause(f) of Explanation 1 to section 115JB(2) is to be made without resorting to the computation as contemplated u/s 14A r.w. Rule 8D of I.T. Rules. The grounds raised by the revenue in its appeals on this issue are allowed for statistical purpose.
23. In the result appeals of both the assessees as well as Revenue's appeals are partly allowed.
Order pronounced in the open court on the 31st August, 2017.
Sd/- Sd/-
(G.S. PANNU) (C.N. PRASAD)
ACCOUNTANT MEMBER JUDICIAL MEMBER
Mumbai / Dated 31st/08/2017
VSSGB, SPS
16
ITA.No.5694 & 5975/MUM/2012 (A.Y: 2009-10)
ITA.No.5545 & 5743/MUM/2013 (A.Y: 2010-11)
M/s Reliance Power Limited
ITA.No.5693 & 5928/MUM/2012 (A.Y: 2009-10)
ITA.No.5537 & 5764/MUM/2013 (A.Y: 2010-11)
M/s Reliance Capital 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