SREE RANGARAJ STEEL & ALLOYS PRIVATE LIMITED, SALEM V. ACIT CIRCLE 1, SALEM

CO 69/CHNY/2018

• Counselvise Citation: [2019] 111 COUNSELVISE.COM (IT) 5289 (ITAT-CHENNAI)
• Duration Of Justice: 1 year(s) 3 day(s)
• Appeal Type: Cross Objection
• Pronouncement Date: 05-07-2019
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: B
• Assessment Year: 2013-2014
• Appeal Filed On: 02-07-2018
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: S SRIDHAR ERODE
• Assessee Lawyers: SRIDHAR DORAJCITD R
• Keywords: Earning of tax free income; Rule 8D
• Section: 14A

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL B BENCH, CHENNAI , $% & , ) SHRI GEORGE MATHAN, JUDICIAL MEMBER AND SHRI VIKRAM SINGH YADAV, ACCOUNTANT MEMBER ./ ITA NO. 815/CHNY/2018 AND C.O. NO.69/CHNY/2018 / ASSESSMENT YEAR :2013-14 THE ACIT,CIRCLE-1, SALEM. V. M/S.SREE RANGARAJ STEEL & ALLOYS PRIVATE LTD., 50-A,SANKAGIRI MAIN ROAD, NETHIMEDU,SALEM 636 002. PAN : AACCS 9438 B (./ APPELLANT) (/0./ RESPONDENT/ CROSS OBJECTOR ) . 1 / APPELLANT BY: MR.SRIDHAR DORA,JCIT,D.R /0. 1 / RESPONDENT BY : MR.S.SRIDHAR,ADVOCATE,ERODE 1 / DATE OF HEARING : 04.07.2019 1 / DATE OF PRONOUNCEMENT : 05.07.2019 / O R D E R PER VIKRAM SINGH YADAV, ACCOUNTANT MEMBER : THIS IS AN APPEAL FILED BY THE REVENUE AGAINST T HE ORDER OF CIT(A), SALEM-7, DATED 18.01.2018 WHEREIN THE REVEN UE IS AGGRIEVED WITH THE ACTION OF LD.CIT(A) IN RESTRICTING THE DIS ALLOWANCE MADE BY THE LD.ASSESSING OFFICER U/S.14A OF THE ACT TO THE EXTE NT OF EXEMPT DIVIDEND 2 I.T.A. NO.815/CHNY/2018 C.O NO.69/CHNY/2018 INCOME CLAIMED BY THE ASSESSEE. THE ASSESSEE IN ITS CROSS OBJECTIONS HAS SUPPORTED THE ORDER OF LD.CIT(A). 2. BRIEFLY THE FACTS OF THE CASE ARE THAT DURING T HE YEAR UNDER CONSIDERATION, THE ASSESSEE HAS MADE AN INVESTMENT AMOUNTING TO RS.7,21,35,000/- IN M/S.SREE RENGARAJ ISPAT INDUSTR Y AND AN AMOUNT OF RS.90,000/- IN M/S.SOUTH INDIAN BANK LTD. IT HAS B EEN CONTENDED BY THE ASSESSEE THAT IT HAS NOT RECEIVED ANY DIVIDEND INCO ME FROM M/S.SREE RENGARAJ ISPAT INDUSTRY AND ONLY AN AMOUNT OF RS.22 ,500/- HAS BEEN RECEIVED AS DIVIDEND INCOME FROM M/S.SOUTH INDIAN B ANK LTD. HOWEVER, THE ASSESSING OFFICER HAS MADE A DISALLOWANCE OF IN TEREST OF RS.69,55,295/- ATTRIBUTED TO THE INVESTMENT, WHICH IS NOT INCLUDIABLE IN THE TAXABLE INCOME BY INVOKING THE PROVISIONS OF SECTIO N 14A OF THE ACT READ WITH RULE 8D OF INCOME TAX RULES,1962. ON APPEAL L D.CIT(A) FOLLOWING THE DECISION OF THE HONBLE MADRAS HIGH COURT, MADR AS IN TCA NO.520 OF 2016 IN THE CASE OF M/S.REDINGTON (INDIA) LTD., VS. THE ADDL. C.I.T,CHENNAI HAS HELD THAT THE DISALLOWANCE U/S.14 A SHOULD BE RESTRICTED TO THE AMOUNT OF EXEMPT INCOME AND THE RELEVANT FIN DING ARE CONTAINED AT PARA-6 OF HIS ORDER, WHICH IS REPRODUCED AS UNDER:- 6. IN VIEW OF THE ABOVE, RESPECTFULLY FOLLOWING THE DECISION OF THE HONBLE MADRAS HIGH COURT IN THE CASE OF M/S.REDING TON (INDIA) LTD., CITED (SUPRA) AND THE DISALLOWANCE U/S.14A SHOULD B E RESTRICTED TO THE AMOUNT OF EXEMPTED INCOME. THE A.R HAS SUBMITTED TH AT THE ASSESSEE HAS RECEIVED A DIVIDEND INCOME (EXEMPTED INCOME) OF RS.22,500/- ONLY. THEREFORE, THE DISALLOWANCE MAY BE RESTRICTED TO EX EMPTED INCOME CLAIMED. HOWEVER, IF AN HIGHER AMOUNT HAS BEEN CLAI MED AS EXEMPT 3 I.T.A. NO.815/CHNY/2018 C.O NO.69/CHNY/2018 INCOME IN THE RETURN OF INCOME, THE AMOUNT MAY BE R EVISED UPWARDS ACCORDINGLY. HENCE, THE GROUNDS OF APPEALS ARE PART LY ALLOWED. 3. DURING THE COURSE OF HEARING, LD.AR SUBMITTED T HAT THE MATTER IS SQUARELY COVERED BY THE DECISION OF HONBLE DELHI H IGH COURT IN THE CASE OF JOINT INVESTMENTS PVT LTD., VS.C.I.T IN 372 ITR 694(DELHI) WHEREIN IT WAS HELD AS UNDER:- 9. IN THE PRESENT CASE, THE AO HAS NOT FIRSTLY DIS CLOSED WHY THE APPELLANT/ASSESSEES CLAIM FOR ATTRIBUTING RS.2,97, 440/- AS A DISALLOWANCE UNDER SECTION 14A HAD TO BE REJECTED. TAIKISHA SAYS THAT THE JURISDICTION TO PROCEED FURTHER AND DETERMINE A MOUNTS IS DERIVED AFTER EXAMINATION OF THE ACCOUNTS AND REJECTION IF ANY OF THE ASSESSEES CLAIM OR EXPLANATION. THE SECOND ASPECT IS THERE APPEARS TO HAVE BEEN NO SCRUTINY OF THE ACCOUNTS BY THE AO - AN ASPECT WHICH IS COMPLETELY UNNOTICED BY THE CIT (A) AND THE ITAT . THE THIRD, AND IN THE OPINION OF THIS COURT, IMPORTANT ANOMALY WHICH WE CANNOT BE UNMINDFUL IS THAT WHEREAS THE ENTIRE TAX EXEMPT INC OME IS RS.8,90,000 /- , THE DISALLOWANCE ULTIMATELY DIRECTED WORKS OUT TO NEARLY 110% OF THAT SUM, I.E., RS.52,56,197/-. BY NO STRET CH OF IMAGINATION CAN SECTION 14A OR RULE 8D BE INTERPRETED SO AS TO MEAN THAT THE ENTIRE TAX EXEMPT INCOME IS TO BE DISALLOWED. THE W INDOW FOR DISALLOWANCE IS INDICATED IN SECTION 14A, AND IS ON LY TO THE EXTENT OF DISALLOWING EXPENDITURE INCURRED BY THE ASSESSEE I N RELATION TO THE TAX EXEMPT INCOME. THIS PROPORTION OR PORTION OF THE T AX EXEMPT INCOME SURELY CANNOT SWALLOW THE ENTIRE AMOUNT AS HAS HAPP ENED IN THIS CASE. 4. WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE MATERIAL AVAILABLE ON RECORD. RESPECTFULLY FOLLOWING THE DEC ISION OF THE DELHI HIGH COURT IN THE CASE OF JOINT INVESTMENTS PVT LTD.,(SU PRA), WE HEREBY 4 I.T.A. NO.815/CHNY/2018 C.O NO.69/CHNY/2018 CONFIRM THE FINDINGS OF THE LD.CIT(A) AT PARA-6 OF HIS ORDER. HENCE, THE APPEAL FILED BY THE REVENUE IS DISMISSED. 5. THE CROSS OBJECTIONS FILED BY THE ASSESSEE WAS NOT PRESSED AND HENCE, THE SAME IS ALSO DISMISSED AS NOT PRESSED. 6. IN THE RESULT, THE APPEAL FILED BY THE REVENUE AS WELL AS CROSS OBJECTIONS BY THE ASSESSEE IS DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 05/07/2019 AT CHENNAI. SD/- SD/- ( ) ( ) (GEORGE MATHAN) (VIKRAM SINGH YADAV) /JUDICIAL MEMBER / ACCOUNTANT MEMBER /CHENNAI, 7 /DATED, THE 05 TH JULY, 2019. KS SUNDARAM 1 /&$ 9$ /COPY TO: 1. ./ APPELLANT 2. /0. / RESPONDENT 3. : () /CIT(A) 4. : /CIT 5. $ / /DR 6. /GF.