M/s. Pioneer Press Pvt. Ltd., Sivakasi V. DCIT, Madurai

CO 107/CHNY/2016

• Counselvise Citation: [2016] 112 COUNSELVISE.COM (IT) 4260 (ITAT-CHENNAI)
• Duration Of Justice: 1 month(s) 27 day(s)
• Appeal Type: Cross Objection
• Pronouncement Date: 23-09-2016
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: C
• Assessment Year: 2012-2013
• Appeal Filed On: 27-07-2016
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: K PARAMANANADHAM
• Assessee Lawyers: A V SREEKANTH
• Keywords: Earning of tax free income; Rule 8D; Set aside
• Section: 14A; 37; 6

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL C BENCH, CHENNAI . . . , . !' , $ % BEFORE SHRI N.R.S. GANESAN, JUDICIAL MEMBER AND SHRI A. MOHAN ALANKAMONY, ACCOUNTANT MEMBER ./ ITA NO.1718/MDS/2016 & C.O. NO.107/MDS/2016 (IN I.T.A. NO.1718/MDS/2016) ' (' / ASSESSMENT YEAR : 2012-13 THE DEPUTY COMMISSIONER OF INCOME TAX, CORPORATE CIRCLE 2, MADURAI. V. M/S PIONEER PRESS PVT. LTD., NO.21B, BOOPATHY BUILDINGS, THIRUTHANGAL ROAD, SIVAKASI 626 123. PAN : AABCP 3492 R (*+/ APPELLANT) ( RESPONDENT & CROSS-OBJECTOR) *+ , - / APPELLANT BY : SHRI A.V. SREEKANTH, JCIT ./*+ , - / RESPONDENT BY : SHRI K. PARAMANANADHAM, CA 0 , 1$ / DATE OF HEARING : 31.08.2016 2!( , 1$ / DATE OF PRONOUNCEMENT : 23.09.2016 / O R D E R PER N.R.S. GANESAN, JUDICIAL MEMBER: THIS APPEAL OF THE REVENUE IS DIRECTED AGAINST T HE ORDER OF THE COMMISSIONER OF INCOME TAX (APPEALS) 1, MADUR AI, DATED 11.03.2016 AND PERTAINS TO ASSESSMENT YEAR 2012-13. THE ASSESSEE HAS ALSO FILED CROSS-OBJECTION AGAINST THE VERY SAME ORDER 2 I.T.A. NO.1718/MDS/16 C.O. NO.107/MDS/16 OF THE CIT(APPEALS). THEREFORE, WE HEARD THE APPEA L AND THE CROSS- OBJECTION TOGETHER AND DISPOSING OF THE SAME BY THI S COMMON ORDER. 2. THE ONLY ISSUE ARISES FOR CONSIDERATION IN THE A PPEAL IS WITH REGARD TO DISALLOWANCE MADE BY THE ASSESSING OFFICE R UNDER SECTION 14A OF THE INCOME-TAX ACT, 1961 (IN SHORT ' THE ACT'). 3. SHRI A.V. SREEKANTH, THE LD. DEPARTMENTAL REPRES ENTATIVE, SUBMITTED THAT THE ASSESSING OFFICER COMPUTED THE D ISALLOWANCE UNDER RULE 8D(2) OF THE INCOME-TAX RULES, 1962. HO WEVER, THE CIT(APPEALS) PARTLY DELETED THE DISALLOWANCE MADE B Y THE ASSESSING OFFICER ON THE GROUND THAT THE DISALLOWAN CE CANNOT EXCEED THE DIVIDEND INCOME RECEIVED BY THE ASSESSEE . ACCORDING TO THE LD. D.R., THE METHOD FOR COMPUTING THE EXPEN DITURE WAS PRESCRIBED IN RULE 8D(2). ALL THE THREE LIMBS OF R ULE 8D(2) HAVE TO BE TAKEN INTO CONSIDERATION FOR THE PURPOSE OF COMP UTING THE DISALLOWANCE FOR EARNING THE EXEMPT INCOME. IN THI S CASE, THE ASSESSEE HAS BORROWED THE MONEY AND PAID INTEREST. EVEN THOUGH THE ASSESSEE CLAIMS THAT BORROWED FUNDS WERE USED F OR THE PURPOSE OF BUSINESS, ACCORDING TO THE LD. D.R., LIMB (II) O F RULE 8D(2) OF INCOME-TAX RULES, 1962 WOULD COME INTO OPERATION SI NCE THE PAYMENT OF INTEREST IS NOT RELATABLE TO ANY PARTICU LAR INCOME. THE 3 I.T.A. NO.1718/MDS/16 C.O. NO.107/MDS/16 CIT(APPEALS) HIMSELF OBSERVED THAT THE BORROWED FUN DS AND THE ASSESSEES OWN FUNDS GOT MIXED UP AND IT IS NOT POS SIBLE TO IDENTIFY THE SPECIFIC BORROWALS FOR THE PURPOSE OF INVESTMEN T IN SHARES. IF THAT IS SO, RULE 8D(2)(II) HAS TO BE NECESSARILY AP PLIED. MOREOVER, 0.5% OF INVESTMENT MADE DURING THE YEAR, WHICH RESU LTED FOR EARNING OF INCOME WHICH DOES NOT FORM PART OF TOTAL INCOME, ALSO NEEDS TO BE TAKEN INTO CONSIDERATION. IN VIEW OF T HE EXPRESS LANGUAGE OF RULE 8D(2), ACCORDING TO THE LD. D.R., THE CIT(APPEALS) IS NOT JUSTIFIED IN RESTRICTING THE DISALLOWANCE MA DE BY THE ASSESSING OFFICER. 4. ON THE CONTRARY, SHRI K. PARAMANANDAM, THE LD. REPRESENTATIVE FOR THE ASSESSEE, SUBMITTED THAT THE DISALLOWANCE UNDER SECTION 14A OF THE ACT SHALL BE RESTRICTED TO EXEMPT INCOME EARNED BY THE ASSESSEE. SINCE THERE WAS NO PROXIMI TY BETWEEN THE BORROWED FUNDS AND INVESTMENT, THE ASSESSING OFFICE R CANNOT APPLY THE PROVISIONS OF RULE 8D(2). MOREOVER, THE ASSESS ING OFFICER HAS NOT RECORDED ANY SATISFACTION FOR THE PURPOSE OF MA KING DISALLOWANCE. ACCORDING TO THE LD. REPRESENTATIVE, SECTION 14A OF THE ACT COULD BE APPLIED ONLY IN THE CASE WHERE THE ASSESSEE EARNED EXEMPT INCOME WHICH DOES NOT FORM PART OF TO TAL INCOME. 4 I.T.A. NO.1718/MDS/16 C.O. NO.107/MDS/16 THEREFORE, THE CIT(APPEALS) HAS RIGHTLY ALLOWED THE CLAIM OF THE ASSESSEE. 5. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS ON EITH ER SIDE AND PERUSED THE RELEVANT MATERIAL AVAILABLE ON RECORD. WE HAVE CAREFULLY GONE THROUGH THE PROVISIONS OF SECTION 14 A OF THE ACT AND RULE 8D OF THE INCOME-TAX RULES, 1962. RULE 8D(2) PROVIDES FOR METHOD OF COMPUTATION OF DISALLOWANCE FOR THE PURPO SE OF MAKING DISALLOWANCE UNDER SECTION 14A OF THE ACT. SECTION 37 OF THE ACT SPECIFICALLY PROVIDES FOR ALLOWANCE OF EXPENDITURE FOR THE PURPOSE OF EARNING THE INCOME. AN EXCEPTION WAS TAKEN FROM SE CTION 37 BY PROVIDING SECTION 14A OF THE ACT THAT THE EXPENDITU RE WHICH IS NOT INCURRED FOR EARNING THE TAXABLE INCOME CANNOT BE A LLOWED WHILE COMPUTING THE TAXABLE INCOME. IN THE CASE BEFORE U S, THE ASSESSEE ADMITTEDLY INVESTED IN SHARES WHICH RESULTED IN DIV IDEND. THE DIVIDEND INCOME EARNED BY THE ASSESSEE IS EXEMPTED FROM TAXATION. THEREFORE, THE EXPENDITURE INCURRED BY THE ASSESSEE FOR EARNING THE DIVIDEND INCOME, WHICH DOES NOT FORM PART OF TOTAL INCOME, CANNOT BE ALLOWED WHILE COMPUTING THE TAXABLE INCOME. 6. RULE 8D(2) PROVIDES METHOD FOR COMPUTING DISALLO WANCE. THE FIRST LIMB OF 8D(2) OF THE ACT PROVIDES FOR DIS ALLOWANCE OF DIRECT 5 I.T.A. NO.1718/MDS/16 C.O. NO.107/MDS/16 EXPENDITURE. IN THE CASE BEFORE US, THE ASSESSEE C LAIMS THAT NO BORROWED FUNDS WERE UTILIZED FOR THE PURPOSE OF MAK ING INVESTMENT AND NO INTEREST WAS PAID. THEREFORE, RULE 8D(2)(I) MAY NOT BE APPLICABLE AT ALL. NOW COMING TO RULE 8D(II), THE ASSESSEE ADMITTEDLY BORROWED FUNDS. THEREFORE, BORROWED FUN DS AND ITS OWN FUNDS GOT MIXED UP AND IT CANNOT BE IDENTIFIED FROM WHICH FUNDS THE INVESTMENT WAS MADE. IT ALSO CANNOT BE IDENTIFIED WHETHER THE EXPENDITURE INCURRED BY THE ASSESSEE FOR PAYMENT OF INTEREST IS ATTRIBUTABLE TO TAXABLE INCOME OR FOR NON-TAXABLE I NCOME. THEREFORE, THIS TRIBUNAL IS OF THE CONSIDERED OPINION THAT RUL E 8D(II) IS SQUARELY APPLICABLE TO THE PRESENT CASE. NOW COMING TO RULE 8D(2)(III), THE AVERAGE INVESTMENT MADE DURING THE YEAR UNDER CONSI DERATION, AS PER THE BALANCE SHEET HAS TO BE TAKEN INTO CONSIDER ATION AND 0.5% OF THE INVESTMENT WHICH RESULTED INCOME AND DOES NO T FORM PART OF TOTAL INCOME, HAS TO BE TAKEN INTO CONSIDERATION. SINCE THESE FACTS WERE NOT TAKEN INTO CONSIDERATION BY THE CIT(APPEAL S), THIS TRIBUNAL IS OF THE CONSIDERED OPINION THAT THE MATTER NEEDS TO BE RECONSIDERED BY THE ASSESSING OFFICER ACCORDINGLY, THE ORDERS OF THE AUTHORITIES BELOW ARE SET ASIDE AND THE ISSUE O F DISALLOWANCE IS REMITTED BACK TO THE FILE OF THE ASSESSING OFFICER. THE ASSESSING OFFICER SHALL RE-EXAMINE THE MATTER IN THE LIGHT OF THE PROVISIONS OF 6 I.T.A. NO.1718/MDS/16 C.O. NO.107/MDS/16 RULE 8D(2) OF INCOME-TAX RULES, 1962 AND THEREAFTER RECOMPUTED THE DISALLOWANCE. 7. WITH THE ABOVE OBSERVATION, THE APPEAL OF THE RE VENUE IS ALLOWED FOR STATISTICAL PURPOSES AND THE CROSS-OBJE CTION OF THE ASSESSEE IS DISMISSED. ORDER PRONOUNCED ON 23 RD SEPTEMBER, 2016 AT CHENNAI. SD/- SD/- (. !' ) ( . . . ) (A. MOHAN ALANKAMONY) (N.R.S. GANESAN) $ / ACCOUNTANT MEMBER /JUDICIAL MEMBER /CHENNAI, 4 /DATED, THE 23 RD SEPTEMBER, 2016. KRI. , .156 76(1 /COPY TO: 1. *+ /APPELLANT 2. ./*+ /RESPONDENT 3. 0 81 () /CIT(A)-1, MADURAI) 4. PRINCIPAL CIT, MADURAI-1, MADURAI 5. 69 .1 /DR 6. :' ; /GF.