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IN THE INCOME TAX APPELLATE TRIBUNAL "C " BENCH, MUMBAI
BEFORE HON'BLE S/SHRI H.L. KARWA, PRESIDENT AND B.R.BASKARAN (AM)
.. , .. ,
./I.T.A. No.2308/Mum/2012
( / Assessment Year : 2009-10)
Dy. Commissioner of Income / Centrum Direct Ltd., (Formerly
Tax,2(1), Room No.561, known as FCH Centrumdirect Ltd)
Vs.
5th floor, Neptune Apartment II,
Aayakar Bhavan, Shop No.02
M K Road, Smt.Nargis Dutt road,
Mumbai-400020. Pali Hill, Bandra,(W)
Mumbai-400050
( /Appellant) .. ( / Respondent)
./I.T.A. No.2712/Mum/2012
( / Assessment Year : 2009-10)
Centrum Direct Ltd., / Asstt. Commissioner of Income
Neptune Apartment II, Tax,2(1), Aayakar Bhavan,
Vs.
Shop No.02 M K Road,
Smt.Nargis Dutt road, Mumbai-400020.
Pali Hill, Bandra,
Mumbai-400050
( /Appellant) .. ( / Respondent)
. / . /PAN/GIR No. :AABCC4763G
/ Appellant by Shri J D Mistry
/ Respondent by Shri Neil Phuilip
/ Date of Hearing
:29.12.2014
/Date of Pronouncement : 20.2.2015
2 ITA. No2308/Mum/2013
and 2712/M/13
/ O R D E R
Per B.R.BASKARAN, Accountant Member:
These cross-appeals are directed against the order dated 21.1.2013
passed by Ld CIT(A)-4, Mumbai and they relate to the assessment year
2009-10.
2. Both the parties are aggrieved by the decision of the ld.CIT(A) with
regard to the disallowance made under section 14A of the Act.
3. We have heard the parties and perused the record. The assessee
had earned dividend income of Rs.4.69 crores. However, it had disallowed
only administrative expenses as per Rule 8D(2)(iii) of the Income Tax
Rules, 1962 (the Rules) and did not make any disallowance out of interest
expenditure. The AO by applying the provisions of Rule 8D computed the
disallowance to be made under section 14A of the Act at Rs.1.55 crores as
against disallowance of Rs.23,90,324/- (but mentioned as Rs.10,71,363/-
in the statement of facts filed before Ld CIT(A)) made by the assessee.
Before the ld.CIT(A) the assessee submitted that it had invested only the
amounts received by way of share capital in purchasing the Mutual Fund
units. It was further submitted that the borrowings were utilized for
specific purposes for which the loans were taken. Accordingly, it was
contended that there is no requirement to make any disallowance of
interest expenditure. The assessee also furnished all the details before the
ld. CIT(A). Hence, the ld. CIT(A) restored the issue to the file of the AO.
The decision rendered by the ld. CIT(A) is extracted below, for the sake of
convenience:
"4. I have considered the facts of the case and submissions of the
assessee. Hon'ble Bombay High Court has held in the case of Godrej
& Boyce Mfg. Co. Ltd. vs. CIT 328 ITR 81 that Rule 8D is applicable
from A.Y.08-09, therefore, A.O. has rightly applied Rule 8D for
disallowance, whereas, assessee does not have any objection as far
as the disallowance of administrative expenses is concerned. The
3 ITA. No2308/Mum/2013
and 2712/M/13
dispute relates to interest only. As per Rule 8D the payment of
interest which is directly relatable to other activities other than the
dividend yielding investment are not to be disallowed under Rule 8D,
whereas, the interest which is directly relatable to such investment
which yields dividend is to be disallowed in toto. For interest which
is not directly relatable to either such investment or other activities
of the assessee, mainly for the reason that borrowed funds and
assessee's own funds are mixed up in other accounts or for any
other reason, then as per Rule 8D proportionate interest is
disallowed presuming that proportionate borrowed funds have been
used for dividend yielding investment. The A.O. has made the same
presumption in the case of the assessee and, therefore, disallowed
the interest accordingly as per Rule 8D, whereas, assessee- has
claimed that the entire investments have been made directly out of
its own funds, out of share capital money only. Assessee has
claimed to have paid no interest to Ratnakar Bank and HDFC Bank,
during the period or for the period when the investments were
acquired and whatever fund was lying in those two accounts at the
time of investment were assessee's own funds only and, therefore, it
is claimed that no interest is allocable for disallowance. The
assessee has claimed that the initial investment of Rs.8 crore in
HSBC Ultra Short Term Bond Fund made on 20/4/07 was out of the
share capital of Rs.8 crore received on the same day in Ratnakar
Bank Ltd. and with the existing balance in the account assessee's
credit balance stood at Rs.8,44,09,281/-, out of which the
investment of Rs.8 crore is made. Subsequently in the HDFC Bank
assessee received share capital money of Rs.75,13,62,734/- in HDFC
Bank and with the existing credit balance, the total credit balance
stood at Rs.76,18,86,838/-on 12/3/08, out of which investment has
been made by the assessee on 12/3/08 of Rs.75,13,62,734/- in
OLPIPD HSBC Liquid Plus Scheme and accordingly subsequently also
the scheme were switched off for Rs.69 crore from OLPIPD HSBC
Liquid Plus to Reliance Mutual Fund on 25/3/08, directly without
receiving the money in any bank account and, therefore it is claimed
that none of these investment have been made out of borrowed
funds. Subsequently also, the assessee has claimed of similar switch
over from existing funds to other funds without any new investment
or without routing through the bank. In this manner assessee has
claimed that all the investments in dividend yielding funds are from
its own capital /funds and, therefore, no interest is disallowable.
A.O.does not appear to have examined this aspect, therefore,A.O.
is directed to examine the above mentioned claim of the assessee
of direct nexus of its own funds/share capital to the investments
which have yielded dividend income which is exempt and
accordingly restrict the disallowance as per Rule 8D on proportionate
4 ITA. No2308/Mum/2013
and 2712/M/13
basis to such investment which does not have direct nexus with
assessee's own funds. In result, the Grounds No.1 and 3 are treated
as partly allowed and Ground No.2 which is the alternative ground,
which does not survive in view of the above decision, therefore, the
same is treated as dismissed."
4. Before us, the Ld A.R submitted that the own funds of the assessee
are more than the loan funds and hence the investments should be taken
as gone out of Own funds only. In this regard, he placed reliance on the
decision of the Bombay High Court rendered in the case of HDFC Bank. A
perusal of the written submissions made before the Ld CIT(A) would show
that the assessee has furnished sufficient documents to substantiate its
contentions that the amounts received as Share Capital only has been
invested in Mutual Fund units and thereafter the redemption funds were
used to make re-investments. Hence, there is prima facie case in favour
of the assessee. However, as held by the Ld CIT(A), all these financial
statements needs to be verified by the department. Accordingly, we set
aside this issue to the file of the AO with the direction to examine this
issue afresh by duly verifying the financial statements of the assessee and
also by duly following the decision of Hon'ble Bombay High Court rendered
in the case of HDFC Bank Ltd.
5. In the result, the appeals of both the parties are treated as allowed
for statistical purposes.
The above order was pronounced in the open court on 20th Feb, 2015.
20th Feb, 2015
sd sd
(../H.L.KARWA) (.. /B.R.BASKARAN)
/JUDICIAL MEMBER / ACCOUNTANT MEMBER
Mumbai: 20th Feb,2015.
. ../ SRL , Sr. PS
5 ITA. No2308/Mum/2013
and 2712/M/13
/Copy of the Order forwarded to :
1. / The Appellant
2. / The Respondent.
3. () / The CIT(A)- concerned
4. / CIT concerned
5. , , /
DR, ITAT, Mumbai concerned
6. / Guard file.
/ BY ORDER,
true copy
(Asstt. Registrar)
, /ITAT, Mumbai
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