ACIT, Central Circle -1, Kochi, Kochi V. M/s Muthoot Finances Ltd, Kochi

ITA 101/COCH/2022

• Counselvise Citation: [2022] 107 COUNSELVISE.COM (IT) 0859 (ITAT-COCHIN)
• Duration Of Justice: 4 month(s) 20 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 02-08-2022
• Appeal Filed By: Department
• Order Result: PartlyAllowed
• Bench Allotted: DB
• Assessment Year: 2016-2017
• Appeal Filed On: 13-03-2022
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Keywords: Rule 8D; Set aside
• Section: 14A

Judgement Text

ITA Nos.99, 100 & 101/Coch/2022 Muthoot Finance, Ernakulam IN THE INCOME TAX APPELLATE TRIBUNAL BENCH: COCHIN BEFORE SHRI CHANDRA POOJARI, ACCOUNTANT MEMBER AND SHRI GEORGE GEORGE K., JUDICIAL MEMBER ITA Nos.99, 100 & 101/Coch/2022 Assessment Years: 2013-14, 2013-14 & 2016-17 ACIT Central Circle-1 Kochi Vs. Muthoot Finance 2 nd Floor, Muthoot Chambers Banrji Road Ernakulam 682 018 PAN NO : AABCT0343B APPELLANT RESPONDENT Appellant by : Shri Sreenivasan R., A.R. Respondent by : Smt. J.M. Jammuna Devi, Sr. D.R. Date of Hearing : 03.08.2022 Date of Pronouncement : 03.08.2022 O R D E R PER CHANDRA POOJARI, ACCOUNTANT MEMBER: These appeals by revenue are directed against different orders of Ld. CIT(A) for the assessment years 2013-14, 2013-14 & 2016-17. The first common ground in these appeals by different orders of Ld. CIT(A) for these assessment years is with regard to the disallowance u/s 14A read with Rule 8D of the Income-tax Act,1961 ['the Act' for short]. 2. The facts of the issue are similar in all these assessment years. We consider the facts in ITA No.99/Bang/2022. Grounds of appeal 1, 2 and 3 for the AY 2012-13 and grounds 1 and 2 for the AY 2013- ITA Nos.99, 100 & 101/Coch/2022 Muthoot Finance, Ernakulam Page 2 of 5 14 are regarding the disallowance made u/s 14A of the Act. The assessee took grounds that the Assessing Officer is not justified in invoking section 14A r.w. rule 8D. The assessee contended that when the assessee did not have any income which was claimed as exempt, then there is no case for any disallowance. The assessee also relied on the clarification from the Reserve Bank of India dated 1.7.2015 which stipulates that in respect of NBFC borrowed funds cannot be invested in Securities. The assessee relied on the decision of the Hon’ble Supreme Court in the case of South Indian Bank Ltd dated 9.9.2021, in support of contention that section 14A will not be applicable in the case where the investments have been made out of mixed funds. 2.1 The submissions made and decisions relied on by the assessee are carefully considered by the Ld. CIT(A) and he observed that in the present case, the assessee made investments in the shares of companies, the income on which is not includible while computing the total income. The investments made are Rs 7.50 cr. The profits of the assessee are about Rs 1363 cr during the A.Y 2012-13. The size of investments made is far smaller compared to the profits and accumulated profits of the assessee. The investments made are not directly attributable to interest bearing funds. The investments are made out of common kitty, which consists of interest free funds and interest bearing funds. When the investments are made out of mixed funds, then the assessee has the right to assert that the available non interest bearing funds as the source of the investments. ITA Nos.99, 100 & 101/Coch/2022 Muthoot Finance, Ernakulam Page 3 of 5 2.2 Before Ld. CIT(A) reliance was placed on the decision of the Hon’ble Supreme Court in the case of South Indian Bank (2021) 130 taxmann.com 178 (SC), relevant portion of which is reproduced as under: "17. In a situation where the assessee has mixed fund (made up partly of interest free funds and partly of interest-bearing funds) and payment is made out of that mixed fund, the investment must be considered to have been made out of the interest free fund. To put it another way, in respect of payment made out of mixed fund, it is the assessee who has such right of appropriation and also the right to assert from what part of the fund a particular investment is made\and it may not be permissible for the Revenue to make an estimation of a proportionate figure ................ " 20. Applying the same logic, the disallowance would be legally impermissible for the investment made by the assessees in bonds/ shares using interest free funds, under section 14A of the Act. In other words, if investments in securities is made out of common funds and the assessee has available, non-interest-bearing funds larger than the investments made in tax-free securities then in such cases, disallowance under section 14A cannot be made". 2.3 In view of the above, the grounds relating to disallowance u/s 14A of the Act are allowed and the additions made u/s 14A for the A.Ys 2012-13 and 201314 are deleted by the Ld. CIT(A). Against this revenue is in appeal before us. 2.4 We have heard the rival submissions and perused the materials available on record. We are fully in agreement with the proposition laid down by Hon’ble Supreme Court that investments in securities is made on common funds i.e. interest free funds and borrowed funds and the assessee is available, non-interest bearing funds larger than the investments made in tax free securities. Then in such cases, disallowance u/s 14A of the Act cannot be made. However, we make it clear that assessee has to demonstrate that non-interest bearing funds larger than the investments made in tax ITA Nos.99, 100 & 101/Coch/2022 Muthoot Finance, Ernakulam Page 4 of 5 free securities then only no disallowance could be made u/s 14A of the Act. Accordingly, the issue is set aside to the file of AO with the direction to assessee to demonstrate non-interest bearing funds larger than the investments made ion tax free securities. Accordingly, this ground of revenue is partly allowed for statistical purposes. 3. Next ground in ITA No.99/Coch/2022 is with regard to allowing the claim of bad debts relating to stolen gold pledged by customers and subsequently seized by the police as stated as bad debts written off. 3.1 Facts of the casae are that the assessee has written off stolen gold pledged by its customers though it was later seized by the police as a property of crime. According to the assessee, this is the nature of lost goods having regard to the guidelines issued by RBI. The assessee relied on the decision of assessee’s own case in ITA No.89 & 175/Coch/2015 dated 26.9.2016 wherein held as under:- 13. The last issue in assesses appeal is with regard to disallowance of Rs 61,88,642/- representing gold loan which was become bad during the year. This loan was stated to have been advanced against the stolen gold pledged by thieves and later seized by the Police as property of crime during the year. The Id representative drew our attention to guidelines issued by RBI who is the apex body for governing the functions of the Non Banking Financial Company. The paperbook filed contains copy of guidelines from page 8 to 23. He drew our attention to page 10 which defines loss assets that is an asset which is anadvance affected by potential threat of non recovery due to either erosion in value of security or non availability of security or due to fraudulent act or omission on the part of the borrower. Again at page -14 the provision requirement is given whereas under loss assets it is prescribed that the entire asset shall be written off. As stated by the assessee money or money's worth is stock in trade as far as the assessee company is concerned, any loss or diminution in it's value has to be written off and claimed as loss. ITA Nos.99, 100 & 101/Coch/2022 Muthoot Finance, Ernakulam Page 5 of 5 14. Having regard to the principal (sic) and respectfully following the guidelines of RBI, we are of the considered view that the assessee company is entitled to claim the loss of Rs.61.88 lakhs in this regard. Thus, all the grounds of the assessee are allowed. Accordingly the appeal filed by the assessee is allowed.” 3.2 In our opinion, the issue is squarely covered by the order of cited (supra) to that extent, we agree with the contention of the assessee’s counsel. However, on recovery of the stolen gold from the police authorities, the same has to be offered for taxation. Ordered accordingly. This ground of revenue is partly allowed. 4. In the result, the appeals filed by the revenue are partly allowed for statistical purposes. Order pronounced in the open court on 3 rd Aug, 2022 Sd/- (George George K. ) Judicial Member Sd/- (Chandra Poojari) Accountant Member Bangalore, Dated 3 rd Aug, 2022. VG/SPS Copy to: 1. The Applicant 2. The Respondent 3. The CIT 4. The CIT(A) 5. The DR, ITAT, Bangalore. 6. Guard file By order Asst. Registrar, ITAT, Bangalore