DCIT, Jaipur V. AU FINANCIERS (INDIA) LTD., Jaipur

ITA 100/JPR/2016

• Counselvise Citation: [2016] 131 COUNSELVISE.COM (IT) 5089 (ITAT-JAIPUR)
• Duration Of Justice: 7 month(s) 20 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 23-09-2016
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: Not Allotted
• Assessment Year: 2012-2013
• Appeal Filed On: 03-02-2016
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: R A VERMA CIT DHK
• Keywords: Earning of tax free income
• Section: 14A; 2

Judgement Text

VK;DJ VIHYH; VF/KDJ.K] T;IQJ U;K;IHB] T;IQJ IN THE INCOME TAX APPELLATE TRIBUNAL, JAIPUR BENCHE S, JAIPUR JH DQY HKKJR] U;KF;D LNL; ,OA JH FOE FLAG ;KNO ] YS[KK LNL; DS LE{K BEFORE: SHRI KUL BHARAT, JM & SHRI VIKRAM SINGH YAD AV, AM VK;DJ VIHY LA-@ ITA NO.100/JP/16 FU/KZKJ.K O'K Z@ ASSESSMENT YEAR : 2012-13 THE DY. CIT, CIRCLE-2, JAIPUR CUKE VS. M/S AU FINANCIERS (INDIA) LTD. 19-A DHULESHWAR GARDEN, AJMER ROAD, JAIPUR LFKK;H YS[KK LA-@THVKBZVKJ LA-@ PAN NO. AAACL 2777 N VIHYKFKHZ@ APPELLANT IZR;FKHZ@ RESPONDENT FU/KZKFJRH DH VKSJ LS@ ASSESSEE BY : SHRI SANJAY JHANWAR (ADV) SHRI MUKESH GUPTA (CA) JKTLO DH VKSJ LS@ REVENUE BY : SHRI R.A., VERMA (ADDL. CIT ) LQUOKBZ DH RKJH[K@ DATE OF HEARING : 21.09.2016 ?KKS'K .KK DH RKJH[K @ DATE OF PRONOUNCEMENT : 23/09/2016. VKNS'K@ ORDER PER SHRI VIKRAM SINGH YADAV, A.M. THIS IS AN APPEAL FILED BY THE REVENUE AGAINST THE ORDER OF LD. CIT(A)-I, JAIPUR DATED 16.11.2015 WHEREIN THE REVENUE HAS TAK EN FOLLOWING GROUNDS OF APPEAL: WHETHER ON THE FACTS AND IN THE CIRCUMSTANCES OF TH E CASE AND IN LAW THE LD. CIT(A) HAS ERRED IN DELETING THE DISALLOWANCE O F RS. 52,74,497/- MADE BY THE AO U/S 14A OF THE IT ACT, 1961. 2. THE BRIEF FACTS OF THE CASE ARE THAT THE APPELLA NT IS A NBFC ENGAGED IN ASSET FINANCING AND CHANNEL FINANCING BUSINESS WITH HDFC BANK. DURING THE YEAR UNDER CONSIDERATION, THE APPELLANT COMPANY HAD EARNED DIVIDEND INCOME TO THE TUNE OF RS.1,64,921/- AND IN ITS COMPUTATION OF INCOME, IT HAS DISALLOWED EXPENSES RELATED TO EXEMPT INCOME OF RS.1,29,713/-. CONSIDERING THE PROVISION ITA NO. 100/JP/16 DCIT, CIRCLE-2, JAIPUR VS. M/S AU FINANCERS (INDIA ) LTD. JAIPUR 2 OF SECTION 14A OF THE ACT, A SHOW CAUSE NOTICE WA S ISSUED BY THE AO TO APPELLANT AS TO WHY EXPENDITURE PERTAINING TO EARN ING OF INCOME WHICH DO NOT FORM PART OF THE TOTAL INCOME SHOULD NOT BE DISALLO WED U/S 14A READ WITH RULE 8D. HOWEVER, THE AO NOT SATISFIED WITH THE EXPLANA TION OF THE APPELLANT, COMPLETED THE ASSESSMENT BY MAKING ADDITION OF RS.5 2,74,497/- BY DISALLOWANCE EXPENSES UNDER SECTION 14A OF ACT. ON APPEAL, THE LD CIT(A) HAS DELETED THE DISALLOWANCE AND NOW THE REVENUE IS IN APPEAL BEFORE US. 2.1 THE FINDING OF THE LD. CIT(A) IS GIVEN AS UNDER : I FIND MERIT AND SUBSTANCE IN THE CONTENTION OF THE APPELLANT THAT EXPENDITURE AMOUNTING TO RS.1,29,713/ HAD BEEN INCU RRED BY IT FOR EARNING THE EXEMPT INCOME, WHICH HAS ALREADY BEEN D ISALLOWED BY THE APPELLANT IN ITS COMPUTATION OF INCOME. FURTHER TH E INVESTMENT HAS BEEN MADE BY IT IN ITS SUBSIDIARY COMPANY AND NOT IN THE SHARES OF ANY UNRELATED PARTY. THEREFORE THE PRIMARY OBJECT OF I NVESTMENT IS HOLDING AND CONTROLLING STAKE IN THE GROUP CONCERN AND NOT EARNING ANY INCOME OUT OF INVESTMENT. FURTHER THE INVESTMENTS, WERE M ADE OUT OF OWN FUNDS FOR LONG TERM BASIS FOR HAVING BUSINESS CONT ROL OVER THESE SUBSIDIARIES. THEREFORE, IN VIEW OF THE FACT THAT THE INVESTMENT ARE IN THE GROUP CONCERN, I DO NOT FIND ANY REASON TO OBSERVE THAT THE APPELLANT WOULD HAVE INCURRED ANY ADMINISTRATIVE EXPENSES IN HOLDING THESE INVESTMENTS ON REGULAR BASIS BEYOND THE AMOUNT ALRE ADY DISALLOWED BY IT. THE AO HAS NOT BROUGHT ON RECORD ANY MATERIAL TO SHOW THAT THE APPELLANT HAS INCURRED ANY EXPENDITURE IN RELATION TO THE INCOME WHICH DOES NOT FORM PART OF THE TOTAL INCOME BEYOND THE S AID AMOUNT. SECTION 14A HAS WITHIN IT IMPLICIT THE NOTION OF APPORTION MENT IN THE CASES WHERE THE EXPENDITURE IS INCURRED FOR COMPOSITE/IND IVISIBLE ACTIVITIES IN WHICH TAXABLE AND NON TAXABLE INCOME IS RECEIVED B UT WHEN NO EXPENDITURE HAS BEEN INCURRED IN RELATION TO THE EX EMPT INCOME THEN PRINCIPLE OF APPORTIONMENT EMBEDDED IN SECTION 14A HAS NO APPLICATION. THE OBJECT OF SECTION 14A IS NOT ALLOWING TO REDUC E TAX PAYABLE ON THE NON EXEMPT INCOME BY DEDUCTING THE EXPENDITURE INC URRED TO EARN THE EXEMPT INCOME. IN THE CASE UNDER CONSIDERATION , I T IS NOT THE CASE OF AO THAT THE APPELLANT HAS INCURRED ANY DIRECT EXPENDIT URE OR ANY INTEREST EXPENDITURE FOR EARNING THE EXEMPT INCOME OR KEEPIN G THE INVESTMENT IN QUESTION. IF THERE IS EXPENDITURE DIRECTLY OR IND IRECTLY INCURRED IN RELATION ITA NO. 100/JP/16 DCIT, CIRCLE-2, JAIPUR VS. M/S AU FINANCERS (INDIA ) LTD. JAIPUR 3 TO EXEMPT INCOME, THE SAME CANNOT BE CLAIMED AGAINS T THE INCOME WHICH IS TAXABLE. FOR ATTRACTING THE PROVISIONS O F SECTION 14A OF THE ACT, THERE SHOULD BE PROXIMATE CAUSE FOR DISALLOWANCE W HICH HAS RELATIONSHIP WITH THE TAX EXEMPT INCOME AS HELD BY THE HONBLE S UPREME COURT IN CASE OF CIT VS. WALFORT SHARE AND STOCK BROKERS P . LTD. (2010) 3276 ITR 1. THEREFORE THERE SHOULD A PROXIMATE RELATIONSHIP BETWEEN THE EXPENDITURE AND THE INCOME WHICH DOES NOT FORM PAR T OF THE TOTAL INCOME. IN THE INSTANT CASE UNDER CONSIDERATION, THE APPELLANT HAS ALREADY DISALLOWED A SUM OF RS.1,29,713/- FOR THE E XEMPT INCOME, THEREFORE IT WAS INCUMBENT ON THE AO TO FIND OUT A S TO WHETHER THE ASSESSEE HAS INCURRED ANY EXPENDITURE BEYOND RS.1, 29,713/- IN RELATION TO INCOME WHICH DOES NOT FORM PART OF THE TOTAL INC OME AND IF SO TO QUANTIFY THE EXPENDITURE OF DISALLOWANCE. THE AO HA S NOT BROUGHT ON RECORD ANY FACT OR MATERIAL TO SHOW THAT ANY EXPEND ITURE BEYOND RS.1,29,713/- HAS BEEN INCURRED ON THE ACTIVITY WH ICH HAS RESULTED INTO BOTH TAXABLE AND NON-TAXABLE INCOME. THEREFORE IN THE ABSENCE OF ANY FINDING THAT EXPENDITURE HAS BEEN INCURRED BEYOND RS. 1,29,713/- FOR EARNING THE EXEMPT INCOME, THE PROVISIONS OF SECTIO N 14A CANNOT BE APPLIED. IN THE INSTANT CASE UNDER CONSIDERATION, THE AO DI SALLOWED THE EXPENSES U/S 14A AND RULE 8D WITHOUT ELUCIDATION AND EXPLAIN ING THE VOLUNTARY DISALLOWANCE MADE BY THE APPELLANT WAS UNREASONABLE AND UNSATISFACTORY. THEREFORE, THE RATIO OF THE CASE O F CIT VS. TAIKISHA ENGINEERING INDIA LTD. IS CLEARLY APPLICABLE TO THE FACTS OF THE INSTANT CASE UNDER CONSIDERATION. IT MAY BE MENTIONED THAT THE LD. CIT(A) VIDE ORDER DATED 29.10.2014 AND 14.11.2014 IN THE CASE OF THE APPELLANT FOR THE ASS ESSMENT YEAR 2009-10 AND 2011-12 IN ITA NO.471/11-12 AND 485/13-14 DELET ED THE ADDITION MADE BY THE AO U/S 14A OF THE ACT READ WITH RULE 8D OF THE IT RULES. I DO NOT FIND ANY REASON TO DIFFER WITH THE FINDINGS OF LD. CIT(A) IN THIS REGARD. 2.2 THE LD AR SUBMITTED THAT THE HONBLE ITAT, JAIP UR BENCH VIDE ORDER IN APPEAL NO. 122/JP/2015 DATED 05.05.2016 IN ASSESSEE S OWN CASE FOR A.Y. 2011-12 HAVE ALLOWED THE RELIEF TO THE APPELLANT AN D SINCE THERE IS NO CHANGE IN THE FACTS OF THE CASE, THE SAME SHOULD BE FOLLOW ED. ITA NO. 100/JP/16 DCIT, CIRCLE-2, JAIPUR VS. M/S AU FINANCERS (INDIA ) LTD. JAIPUR 4 2.3 THE RELEVANT FINDINGS OF THE COORDINATE BENCH I N DECISION REFERRED SUPRA IS AS UNDER: THE ABOVE FINDING ON FACT BY THE REVENUE IS NOT CO NTROVERTED BY PLACING ANY MATERIAL ON RECORD. MOREOVER THERE IS NO DISPU TE WITH REGARD TO FACT THAT THE ASSESSEE HAS EARNED EXEMPT INCOME OF RS. 2 7,006/- AGAINST WHICH DISALLOWANCE OF EXPENDITURE AMOUNTING TO RS. 42,22,857/- WAS MADE. THE AO HAS NOT RECORDED HIS SATISFACTION AS TO HOW THE EXPENDITURE DISALLOWED BY THE ASSESSEE OF RS.62,987 8/- TOWARDS ADMINISTRATIVE EXPENSES IS NOT REASONABLE. FURTHER WE FIND THAT THE ASSESSEE HAS DEMONSTRATED BY PLACING SUFFICIENT MAT ERIAL ON RECORD THAT NO BORROWED FUNDS WERE UTILIZED FOR MAKING INVESTM ENT AND WHEREFROM THE EXEMPT INCOME IS EARNED. IN OUR CONSIDERED VIE W, THE PROVISIONS OF SECTION 14A OF THE ACT READ WITH RULE 8D OF INCOME TAX RULES, CANNOT BE INVOKED IN MECHANICAL WAY BY AO. AS PER SECTION 14 A(2), THE AO IS REQUIRED TO DETERMINE THE AMOUNT OF EXPENDITURE INC URRED IN RELATION TO SUCH INCOME WHICH DOES NOT FORM PART OF THE TOTAL I NCOME UNDER THE ACT AND IN ACCORDANCE WITH RULE 8D OF INCOME TAX RULES, 1961 IF THE AO HAVING REGARDING TO THE ACCOUNTS, IS NOT SATISFIED WITH THE CORRECTNESS OF THE CLAIM OF THE ASESSEE IN RESPECT OF SUCH EXPENDI TURE IN RELATION TO SUCH EXEMPT INCOME, IS EMPOWERED FOR MAKING DISALLOWANC E AS PER RULE 8D. IN THE CASE IN HAND, NO FINDING IS RECORDED BY THE AO IN THIS REGARD. ON THE CONTRARY, THE LD. CIT(A) HAS GIVEN A FINDING AF TER EXAMINING THE ACCOUNTS OF THE ASSESSEE. THE AO HAS NOT BROUGHT ON RECORD ANY MATERIAL TO SHOW THAT THE ASSESSEE HAS INCURRED ANY EXPENDITURE IN RELATION TO THE INCOME WHICH DO NOT FORM PART OF TH E TOTAL INCOME. MOREOVER IT IS NOT IN DISPUTE THAT THE ASSESEE HAS EARNED EXEMPT INCOME OF RS.27,006/- AND EXPENDITURE AMOUNTING TO RS.42,2 2,857/- IN RELATION TO THIS IS DISALLOWED. THE FINDING OF THE LD. CIT( A) IS NOT REBUTTED BY REVENUE BY PLACING ANY CONTRARY MATERIALS. THEREFO RE, WE DO NOT SEE ANY REASON TO INTERFERE WITH THE ORDER OF THE LD. CIT( A). THE SAME IS HEREBY UPHELD. THE GROUND RAISED BY THE REVENUE IS DISMI SSED. 2.4 WE HAVE HEARD THE RIVAL CONTENTIONS AND PURSUED THE MATERIAL AVAILABLE ON RECORD. UNDISPUTEDLY, THERE IS NO CHANGE IN THE FACTS AND CIRCUMSTANCES VIS- A-VIS THE FACTS OF THE YEAR WHICH HAS BEEN ADJUDICA TED BY THE COORDINATE BENCH IN DECISION REFERRED SUPRA. HENCE, FOLLOWING THE D ECISION OF THE COORDINATE BENCH, THE GROUND TAKEN BY THE REVENUE IS DISMISSED . ITA NO. 100/JP/16 DCIT, CIRCLE-2, JAIPUR VS. M/S AU FINANCERS (INDIA ) LTD. JAIPUR 5 IN THE RESULT THE APPEAL FILED BY THE REVENUE IS DI SMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 23/0 9/2016. SD/- SD/- ( KUL BHARAT ) (VIKRAM SINGH YADAV) U;KF;D LNL;@ JUDICIAL MEMBER YS[KK LNL;@ ACCOUNTANT MEMBER JAIPUR DATED:- 23/ 09/2016 PILLAI VKNS'K DH IZFRFYFI VXZSF'KR@ COPY OF THE ORDER FORWARDED TO: 1. VIHYKFKHZ@ THE APPELLANT-THE DCIT, CIRCLE-2, JAIPUR 2. IZR;FKHZ@ THE RESPONDENT- M/S AU FINANCERS (INDIA ) LTD. JAIP UR 3. VK;DJ VK;QDR@ CIT I, JAIPUR 4. VK;DJ VK;QDRVIHY@ THE CIT(A)-I, JAIPUR 5. FOHKKXH; IZFRFUF/K] VK;DJ VIHYH; VF/KDJ.K] T;IQJ@ DR, ITAT, JAIPUR 6. XKMZ QKBZY@ GUARD FILE (ITA NO. 100/JP/2016) VKNS'KKUQLKJ@ BY ORDER, LGK;D IATHDKJ@ ASSISTANT. REGISTRAR