Income Tax Appellate Tribunal - Hyderabad
Dy. Commissioner Of Income Tax , ... vs Caspian Impact Investments Private ... on 9 April, 2021
ITA Nos 1080 of 2019 and 2116 of 2018
Caspian Impact Investments P Ltd Hyderabad
IN THE INCOME TAX APPELLATE TRIBUNAL
Hyderabad ' A ' Bench, Hyderabad
(Through Video Conferencing)
Before Shri S.S. Godara, Judicial Member
AND
Shri Laxmi Prasad Sahu, Accountant Member
ITA Nos.1080/Hyd/2019 & 2116/Hyd/2018
Assessment Years: 2010-11 & 2014-15
Dy./Asst. CIT Vs. Caspian Impact
Circle 1(2) Investments (P) Ltd
Hyderabad Hyderabad
PAN:AADCS4132K
(Appellant) (Respondent)
Revenue by: Sri Sunil Kumar Pandey, DR
Assessee by: Sri Rajan Vora
Date of hearing: 24/02/2021
Date of pronouncement: 09/04/2021
ORDER
Per S.S. Godara, J.M.
These two Revenue's appeals for AYs.2010-11 & 2014- 15 arise from the CIT(A)-1, Hyderabad's orders dated 24.4.2019 and 7.8.2018 passed in appeal No.10584/2015-16/ITO Ward 1(1) Hyd/CIT(A)-1/Hyd/2019-20 and 0098/CIT(A)-1/Hyd/2017-18/ 2018-19 respectively involving proceedings u/s.143(3) of the Income Tax Act, 1961 [in short, 'the Act'].
Heard both the parties. Case file perused.
2. Coming to the A.Y 2010-11 involving ITA No.1080/Hyd/2019, we find that the Revenue solitary substantive grievance challenging correctness of the CIT (A)'s action restricting the Assessing Officer's action making section 14A r.w. Rule 8D Page 1 of 8 ITA Nos 1080 of 2019 and 2116 of 2018 Caspian Impact Investments P Ltd Hyderabad disallowance of Rs.3,13,31,370/- involving alleged direct and administrative expenses of Rs.2,81,01,260 and 32,30,110/- respectively only to the extent of the corresponding investments yielding the exempt income. The CIT (A)'s detailed discussion to this effect reads as under:
"6.2 During the course of appeal proceedings, with regard to the above ground, the appellant submits as under:
"The company received dividend income only from its investments made in M/ s. MAS Financial Services ltd through Bellwether Microfinance Trust. The company has suo-moto considered only the investments which have yielded exempt income and accordingly computed disallowance of Rs.11, 09, 716/-. The company disallowed Rs. 7,84,716/ - under clause (i) of Rule 8D(2) by considering the investments which have actually yield exempt income during the year. The language of Rule 8D(2)(i) suggests that only the expenditure which is in relation to earn such exempt income has to be disallowed. The appellant relied on its own case for the AY 2009-10 in ITA No. 1743/Hyd/2013 & AY 2013-14 in ITA No.1462/Hyd/2017 & AY 201415 in ITA No.0098/CIT(A)- 1/Hyd/2017-18, Pr.CIT Vs. IL & FS Energy Development, Chemivest Lid Vs. CIT [2015J 234 Taxmann 761 and Srinivasa Cystine Pvt ltd Vs. ITO in ITA No. 1846/ Hyd/ 2014, Vireet Investments Pvt ltd in ITA No. 502/ Del/2012."
6.3 With regard to the above ground, I have carefully considered the facts of the case, assessment order and submissions of the appellant. The Hon'ble ITAT order in the appellant's case for the AY 2013-14 held that the value of investment which yielded exempt income alone be considered for the purpose of computing the average value of investments for the purpose of quantifying the amount of disallowance u/s.14A. Similarly in the case of Srinivasa Cystine Pvt Ltd Vs. ITO in ITA No.1846/Hyd/2014, wherein the Hon'ble ITAT held that only investments which yielded exempt income is considered for the disallowance u/s.14A. Appellant already disallowed Rs.11,09,716/- u/s.14A in its computation of income. Therefore, the Assessing Officer is directed to consider the disallowance u/s.14A made by the appellant and recalculate the same by keeping in view of the above caselaws".
3. We have heard rival argument against and in support of the CIT (A)'s impugned directions. We notice that he has Page 2 of 8 ITA Nos 1080 of 2019 and 2116 of 2018 Caspian Impact Investments P Ltd Hyderabad followed the tribunal's order in assessee's case itself for A.Y 2013- 14 (Supra) that only exempt income yielding investments deserve to be considered for the purpose of Rule 8D disallowance computation. The Revenue is equally fair in its substantive ground in not pinpointing any distinction on facts or law in these twin assessment years. We thus adopt judicial consistency to affirm CIT (A)'s impugned directions. Revenue's formal appeal ITA No.1080/Hyd/2019 rising this solitary substantive grievance fails therefore.
4. Next in A.Y 2014-15 comes Revenues latter appeal ITA No.2166/Hyd/2018 seeking to revive AO's action making 14A r.w.s 8D disallowance of Rs.1,92,70,574/-. The CIT (A)'s detailed discussion under challenge reads as follows:
"5.3 The submissions of the appellant have been carefully considered. The only issue before me is regarding Section 14A disallowance. The appellant company has made investment in the following cases:
1. M/s. Mimoza Enterprises Finance Private Limited
2. M/s. Janalakshmi Financial Services Private Limited
3. M/s. Equitas Holdings Private Limited
4. M/s. A Little World Private Limited
5. M/s. Sonata Finance Private Limited
6. Mr. Anup Kmar Singh As seen above, the appellant company received dividend from one of the six investment companies i.e., M/s.
Janalakshmi Financial Services Private Limited. No dividend has been received from the other companies. Appellant has disallowed on its own an expenditure of Rs.23,23,699/- for this. However, the Assessing Officer has calculated disallowances on basis of all investments. Also, the Assessing Officer taken the cognizance of disallowance made by the appellant in its return of income. The issue before me is whether the disallowance should be made only in the case where dividend is received or should be made on the total investment. It is pertinent to refer to the following case laws which deals with the same issue:
Page 3 of 8ITA Nos 1080 of 2019 and 2116 of 2018 Caspian Impact Investments P Ltd Hyderabad
a) Hyderabad Tribunal's order in the case of Srinivasa Cystine Pvt Ltd Vs. ITO, in ITA No.1846/Hyd/2014 dated 18.01.2017, wherein the decision was held as "it is only the investments which yield tax free income that has to be considered for applying the formula prescribed under rule 80(2)(iii). Similar view was also taken by this Bench in other cases also. Considering this view, we direct the AO to consider only the investments, which yielded the exempt income in the formula under rule 80(2)(iii) and accordingly, disallow the expenses relating to exempt income. "
b) Hon'ble Delhi Tribunal's order in the case of M/s. Vireet Investment Private Ltd in ITA No.502/DeIj2012 dated 16.06.2017, wherein it had held that"
"11.16. Therefore, in our considered opinion, no contrary view can be taken under these circumstances. We accordingly, hold that only those investments are to be considered for computing average value of investments which yielded exempt income during the year. "
5.4 Following tile Jurisdictional Tribunal Stand on the issue, I accept the contention of the appellant. Only in the case where the appellant received dividend, "the cost"
should be calculated. The Assessing Officer is directed to recalculate disallowance made on this issue accordance to the accepted view of the Hyderabad Tribunal.
Ground Partly Allowed"
5. Learned authorised representative at this stage invited our attention to assessee's petition under Rule 27 of the ITAT Rules dated 30.12.2020 as under:
"Respected Sir/Madam, Ref: Caspian Impact Investments Private Limited (Formerly known as Bellwether Microfinance Fund Private Limited) ('Caspian' or the 'Company' or 'We' or 'Respondent') PAN: AADCS4132K; Assessment Year (' AY') 2014-15 ITA. No. 21 16/Hyd/2018 - Department's appeal Sub: Application under Rule 27 of the Appellate Tribunal Rules, 1963 ('the Tribunal Rules') We refer to the subject appeal filed by the Deputy CIT, Circle 1(2), Hyderabad ('Department') (ITA No. 2116/Hyd/2018 before 'A' Bench) against the order August 07, 2018 passed by the Learned Commissioner of Income- tax (Appeals) -1 ('CIT(A)'), in respect of the captioned year.Page 4 of 8
ITA Nos 1080 of 2019 and 2116 of 2018 Caspian Impact Investments P Ltd Hyderabad
1. Background During the captioned year, the Company earned exempt income in the nature of dividend of Rs. 10,91,280/-. During the time of filing of return of income, the Company suo-moto made disallowance of Rs. 23,23,699/- as per the provisions of section 14A read with Rule 8D of the Income-tax Rules, 1962 ('IT Rules'). In this regard, the learned assessing officer (' AO') had made disallowance u/s 14A read with Rule 8D of the IT Rules of Rs. 1,92,70,574/- under normal provisions and also under section ('u/s') 115JB of the Income-tax Act, 1961 ('the Act'). Against this, the Company preferred an appeal before the CIT(A) on both, normal provisions and section 115JB of the Act.
2. Appeal before the CIT(A) The learned CIT(A) accepted the submissions of the Company and directed the AO to restrict the disallowance under section 14A read with Rule 8D(iii) of the IT Rules by considering only the investments which yield exempt income and not the total investments while computing disallowance under the normal provisions. However, the learned CIT(A) upheld the order of the learned AO for the 14A disallowance made u/s 115JB of the Act.
In this regard, without prejudice to the findings of the learned CIT(A) in the CIT(A) Order, the Respondent wishes to submit the following:
It is now a judicially settled principle that the disallowance made u/s 14A r.w.r 80 of the IT Rules is to be restricted to the amount of exempt income earned by the assessee during that year. In this regard, the Respondent wishes to place reliance on the following judgements:
1. Hon'ble Supreme Court, in the case of Principal Commissioner of Income-tax-2 v. Caraf Builders & Constructions (P.) Ltd. lI2019j 112 taxmann.com 322 (SC)], wherein the SLP filed by the tax authorities against the judgement of the Hon'ble Delhi High Court lI2019j 101 taxmann.com 167j was dismissed which held that the 14A disallowance cannot exceed the exempt income.
2. Hon'ble Supreme Court, in the case of Principal Commissioner of Income-tax v. State Bank of Patiala lI2018j 99 taxmann.com 286 (SC)], wherein the SLP filed by the tax authorities against the judgement of the Hon'ble Delhi High Court lI2018j 99 taxmann.com 285 (Haryana)] was dismissed which held that the 14A disallowance cannot exceed the exempt Income.
3. Hon'ble Bombay High Court, in the case of Principal Commissioner of Income-tax-3 vs. Reliance Ports and Terminals Ltd.lI2020j 114 taxmann.com 529 [Bombay] Page 5 of 8 ITA Nos 1080 of 2019 and 2116 of 2018 Caspian Impact Investments P Ltd Hyderabad
4. Hon'ble Jurisdictional Tribunal in the case of Mylan Laboratories Ltd. v. Deputy Commissioner of Income-tax, Circle-16(2), Hyderabad lI2020j 113 taxmann.com 6 (Hyderabad - Trib)] Therefore, the respondent is filing an application under Rule 27 of the Tribunal rules in order to plead for restricting the disallowance under section l4A to the exempt income earned during the year and on without prejudice basis, to delete the disallowance made by the learned AO, computed u/s 14A of the Act, while computing the book profits u/s 115JB of the Act.
3. Objection against order of CIT(A) as per Rule 27 of the IT AT rules The Respondent wishes to take the following grounds before the Hon'ble Tribunal as per Rule 27 of the Tribunal Rules:
a) The disallowance u/s 14A of the Act is to be restricted to the quantum of exempt income earned during the year;
b) Without prejudice to the above, the Ld. AO erred in law and fact in making adjustment to boo profit u/s 115JB of the Act for the expenditure computed u/s 14A of the Act r.w.r. Rule 8D the IT Rules.
4. On the point of right of Respondent as per Rule 27 of the Rules, Respondent wishes to pia reliance on the following:
• Skol Breweries Ltd Vs ACIT (ITA No. 34 of 2009) dated 9 February 2009 (Bom HC) • C1T v Sundaram and Co Pvt Ltd - 52 ITR 763 (Mad) • CIT v Edward Keventer (Successors) Pvt Ltd - 123 ITR 200 (Del) • CIT v Bhumraddi (T.M) - 33 ITR 82 (Mum) • Marolia and Sons v CIT - 129 ITR 475 (All) • Dy CIT v Hind Industries Ltd - 14 DTR 561 (Delhi Tribunal) • CIT v Gilbert and Barker Manufacturing Co, USA - 111 ITR 529 (Mum) • CIT v Mahalakshmi Textile Mills Ltd - 66 ITR 710 (SC) Iv • CIT v Nelliappan (S) - 66 ITR 722 (SC) (\ • ACIT v M/s Bank Of Tokyo-Mitsubishi UJF Ltd. (2009-
TIOL-51-ITAT-DEL) /
5. In view of the above, we request your Honors to kindly consider our application under Rule 27 of the Rules, on the additional issues, while disposing of the Department's appeal".
Page 6 of 8ITA Nos 1080 of 2019 and 2116 of 2018 Caspian Impact Investments P Ltd Hyderabad
6. We have given our thoughtful consideration to rival pleadings in Revenue's main appeal as well as assessee's Rule 27m petition. We find no merit in Revenue's stand since the CIT (A)'s has directed to identify only the exempt income yielding interest in tune with AYs 2013-14 and 2010-11. Its appeal ITA 2116/Hyd/2018 is rejected therefore.
7. We next advert to assessee's rule 27 petition. Its formal plea seeking to restrict sec 14A read with rule 8 disallowance (supra) to the extent of exempt income and other facts deserve to be declined since the CIT (A)'s has not decided the same against its stand which forms a necessary condition in Rule
27. Coming to sec 115JB MAT issue qua sec 14A disallowance, this tribunal's special bench in Income Tax Officer vs. Vineet Investment (P) Ltd (2017) 165 ITD 27(Delhi) has decided the issue to assessee's favour. Thus Rule 27 petition is partly allowed to this limited extent.
8. These Revenue's appeals ITA No.1080/Hyd/2019 and ITA No.2116/Hyd/2018 are dismissed and assessee's Rule 27 petition is partly allowed in above terms. A copy of this common order be placed in respective case files.
Order pronounced in the Open Court on 9th April, 2021.
Sd/- Sd/-
(LAXMI PRASAD SAHU) (S.S. GODARA)
ACCOUNTANT MEMBER JUDICIAL MEMBER
Hyderabad, dated 9th April, 2021.
Vinodan/sps
Page 7 of 8
ITA Nos 1080 of 2019 and 2116 of 2018
Caspian Impact Investments P Ltd Hyderabad Copy to:
1 Dy./Asstt. CIT, Circle 1(2) Room No.724, 7th Floor, B Block, IT Towers, Hyderabad 2 M/s.Caspian Impact Investments (P) Ltd 3rd Floor, 8-2- 596/5/B/1 Road No.10 Banjara Hills, Hyderabad 500034 3 CIT (A)-1 Hyderabad 4 Pr. CIT -1, Hyderabad 5 The DR, ITAT Hyderabad 6 Guard File By Order Page 8 of 8