DCIT, Jaipur V. A.U. FINANCIERS 9INDIA) LTD., Jaipur

ITA 1049/JPR/2016

• Counselvise Citation: [2017] 128 COUNSELVISE.COM (IT) 2078 (ITAT-JAIPUR)
• Duration Of Justice: 5 month(s) 28 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 29-05-2017
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: A
• Assessment Year: 2013-2014
• Appeal Filed On: 01-12-2016
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: R A VERMA DH LS
• Assessee Lawyers: SANJAY JHANWAR DHK
• Keywords: Earning of tax free income
• Section: 14A

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.1049/JP/16 FU/KZKJ.K O'K Z@ ASSESSMENT YEAR : 2013-14 THE DY. COMMISSIONER OF INCOME-TAX, CIRCLE-2, JAIPUR. CUKE VS. M/S A.U. FINANCIERS (INDIA) LTD., 19-A, DHULESHWAR GARDEN, AJMER ROAD, JAIPUR. LFKK;H YS[KK LA-@THVKBZVKJ LA-@ PAN NO. AAACL2777N VIHYKFKHZ@ APPELLANT IZR;FKHZ@ RESPONDENT JKTLO DH VKSJ LS@ REVENUE BY : SHRI R. A. VERMA FU/KZKFJRHDH VKSJ LS@ ASSESSEE BY : SHRI SANJAY JHANWAR LQUOKBZ DH RKJH[K@ DATE OF HEARING : 25/05/2017 ?KKS'K .KK DH RKJH[K @ DATE OF PRONOUNCEMENT: 29/05/2017. 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 30.09.2016 FOR A.Y. 2013-14. THE GROUN DS OF APPEAL TAKEN BY THE REVENUE ARE AS UNDER:- (I) WHETHER ON THE FACTS AND IN THE CIRCUMSTANCES O F THE CASE AND IN LAW THE LD. CIT(A) HAS ERRED IN DELETING THE ENTIRE ADDITION OF RS. 46,91,892/- MADE BY THE AO UNDER SECTION 14A OF THE ACT, 1961, R.W. CLAUSES (II) & (III) OF RULE 8D AND WHETHER IT IS IN CONSONANCE WITH CBDT CIRCULAR 5/2014 DATED 11.02.2014. ITA NO. 1049/JP/16 DCIT,C-2 VS M/S A.U. FINANCIERS (INDIA) LTD., JAIP UR. 2 (II) WHETHER ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW THE LD. CIT(A) HAS ERRED IN APPRECIATING THE FACT THAT IN COMPUTATION OF INCOME, THE ASSESSEE HAS QUOTED EXPENSES OF RS. 993 89/- AS MANAGEMENT FEES INSTEAD OF DISALLOWANCE OF INTER EST EXPENSES FOR EARNING EXEMPT INCOME. 2. AT THE OUTSET, THE LD. AR SUBMITTED THAT THE ISSUE IS SQUARELY COVERED BY THE RECENT DECISION OF HONBLE SUPREME COURT IN CAS E OF GODREJ & BOYCE MANUFACTURING COMPANY LTD. V. DCIT [2017] 81 TAXMA NN.COM 111 AS WELL AS THE DECISION PASSED BY HONBLE ITAT JAIPUR BENCHES IN ASSESSEES OWN CASE FOR A.Y. 2011-12 & 2012-13. 3. THE PROPOSITION IN LAW LAID DOWN BY THE HONBLE SUPREME COURT IN CASE OF GODREJ & BOYCE MANUFACTURING COMPANY LTD IS AS UNDER:- 36. SECTION 14A AS ORIGINALLY ENACTED BY THE FINANC E ACT OF 2001 WITH EFFECT FROM 1.4.1962 IN THE SAME FORM AND LANGUAGE AS CURRENTLY APPEARING IN SUB-SECTION (1) OF SECTION 14A OF THE ACT. SECTION 14A (2) AND (3) OF THE ACT WERE INTRODUCED BY THE FINANCE A CT OF 2006 WITH EFFECT FROM 1.4.2007. THE FINDING OF BOMBAY HIGH CO URT IN THE IMPUGNED ORDER THAT SUB-SECTIONS (2) AND (3) OF SEC TION 14A IS RETROSPECTIVE HAS BEEN CHALLENGED BY THE REVENUE IN ANOTHER APPEAL WHICH IS PRESENTLY PENDING BEFORE THIS COURT. THIS SAID QUESTION, THEREFORE, NEED NOT AND CANNOT BE GONE INTO. NEVERT HELESS, IRRESPECTIVE OF THE AFORESAID QUESTION, WHAT CANNOT BE DENIED I S THAT THE REQUIREMENT FOR ATTRACTING THE PROVISIONS OF SECTIO N 14A(1) OF THE ACT IS PROOF OF THE FACT THAT THE EXPENDITURE SOUGHT TO BE DISALLOWED/DEDUCTED HAD ACTUALLY BEEN INCURRED IN EARNING THE DIVIDEND INCOME. INSOFAR AS THE APPELLANT-ASSESSEE IS CONCERNED, THE ISSUES STA ND CONCLUDED IN ITS FAVOUR IN RESPECT OF THE ASSESSMENT YEARS 1998-1999 , 1999-2000 AND 2001-2002. EARLIER TO THE INTRODUCTION OF SUB-SECTI ONS (2) AND (3) OF SECTION 14A OF THE ACT, SUCH A DETERMINATION WAS RE QUIRED TO BE MADE BY THE ASSESSING OFFICER IN HIS BEST JUDGMENT. IN A LL THE AFORESAID ASSESSMENT YEARS REFERRED TO ABOVE IT WAS HELD THAT THE REVENUE HAD FAILED TO ESTABLISH ANY NEXUS BETWEEN THE EXPENDITU RE DISALLOWED AND THE EARNING OF THE DIVIDEND INCOME IN QUESTION. IN THE APPEALS ARISING OUT OF THE ASSESSMENTS MADE FOR SOME OF THE ASSESSM ENT YEARS THE ITA NO. 1049/JP/16 DCIT,C-2 VS M/S A.U. FINANCIERS (INDIA) LTD., JAIP UR. 3 AFORESAID QUESTION WAS SPECIFICALLY LOOKED INTO FRO M THE STANDPOINT OF THE REQUIREMENTS OF THE PROVISIONS OF SUB-SECTION ( 2) AND (3) OF SECTION 14A OF THE ACT WHICH HAS BEEN THEN BEEN BROUGHT INT O FORCE. IT IS ON SUCH CONSIDERATION THAT FINDINGS HAVE BEEN RECORDED THAT THE EXPENDITURE IN QUESTION BORE NO RELATION TO THE EAR NING OF THE DIVIDEND INCOME AND HENCE THE ASSESSEE WAS ENTITLED TO THE B ENEFIT OF FULL EXEMPTION CLAIMED ON ACCOUNT OF DIVIDEND INCOME. 37. WE DO NOT SEE HOW IN THE AFORESAID FACT SITUATI ON A DIFFERENT VIEW COULD HAVE BEEN TAKEN FOR THE ASSESSMENT YEAR 2002- 03. SUB-SECTION (2) AND (3) OF SECTION 14A OF THE ACT READ WITH RUL E 8D OF THE RULES MERELY PRESCRIBE A FORMULA FOR DETERMINATION OF EXP ENDITURE INCURRED IN RELATION TO INCOME WHICH DOES NOT FORM PART OF THE TOTAL INCOME UNDER THE ACT IN A SITUATION WHERE THE ASSESSING OFFICER IS NOT SATISFIED WITH THE CLAIM OF THE ASSESSEE. WHETHER SUCH DETERMINAT ION IS TO BE MADE ON APPLICATION OF THE FORMULA PRESCRIBED UNDER RULE 8D OR IN THE BEST JUDGMENT OF THE ASSESSING OFFICER, WHAT THE LAW POS TULATES IS THE REQUIREMENT OF A SATISFACTION IN THE ASSESSING OFFI CER THAT HAVING REGARD TO THE ACCOUNTS OF THE ASSESSEE, AS PLACED BEFORE H IM, IT IS NOT POSSIBLE TO GENERATE THE REQUISITE SATISFACTION WITH REGARD TO THE CORRECTNESS OF THE CLAIM OF THE ASSESSEE. IT IS ONLY THEREAFTER TH AT THE PROVISIONS OF SECTION 14A(2) AND (3) READ WITH RULE 8D OF THE RUL ES OR A BEST JUDGMENT DETERMINATION, AS EARLIER PREVAILING, WOUL D BECOME APPLICABLE. 38. IN THE PRESENT CASE, WE DO NOT FIND ANY MENTION OF THE REASONS WHICH HAD PREVAILED UPON THE ASSESSING OFFICER, WHI LE DEALING WITH THE ASSESSMENT YEAR 2002-03, TO HOLD THAT THE CLAIMS OF THE ASSESSEE THAT NO EXPENDITURE WAS INCURRED TO EARN THE DIVIDEND IN COME CANNOT BE ACCEPTED AND WHY THE ORDERS OF THE TRIBUNAL FOR THE EARLIER ASSESSMENT YEARS WERE NOT ACCEPTABLE TO THE ASSESSING OFFICER, PARTICULARLY, IN THE ABSENCE OF ANY NEW FACT OR CHANGE OF CIRCUMSTANCES. NEITHER ANY BASIS HAS BEEN DISCLOSED ESTABLISHING A REASONABLE NEXUS BETWEEN THE EXPENDITURE DISALLOWED AND THE DIVIDEND INCOME RECE IVED. THAT ANY PART OF THE BORROWINGS OF THE ASSESSEE HAD BEEN DIVERTED TO EARN TAX FREE INCOME DESPITE THE AVAILABILITY OF SURPLUS OR INTER EST FREE FUNDS AVAILABLE (RS. 270.51 CRORES AS ON 1.4.2001 AND RS. 280.64 CR ORES AS ON 31.3.2002) REMAINS UNPROVED BY ANY MATERIAL WHATSOE VER. WHILE IT IS TRUE THAT THE PRINCIPLE OF RES JUDICATA WOULD NOT A PPLY TO ASSESSMENT ITA NO. 1049/JP/16 DCIT,C-2 VS M/S A.U. FINANCIERS (INDIA) LTD., JAIP UR. 4 PROCEEDINGS UNDER THE ACT, THE NEED FOR CONSISTENCY AND CERTAINTY AND EXISTENCE OF STRONG AND COMPELLING REASONS FOR A DE PARTURE FROM A SETTLED POSITION HAS TO BE SPELT OUT WHICH CONSPICU OUSLY IS ABSENT IN THE PRESENT CASE. IN THIS REGARD WE MAY REMIND OURSELVE S OF WHAT HAS BEEN OBSERVED BY THIS COURT IN RADHASOAMI SATSANG V. COM MISSIONER OF INCOME-TAX [1992] 193 ITR (SC) 321 [AT PAGE 329]. WE ARE AWARE OF THE FACT THAT STRICTLY SPEAKING RE S JUDICATA DOES NOT APPLY TO INCOME TAX PROCEEDINGS. AGAIN, EACH ASSESS MENT YEAR BEING A UNIT, WHAT IS DECIDED IN ONE YEAR MAY NOT APPLY IN THE FOLLOWING YEAR BUT WHERE A FUNDAMENTAL ASPECT PERMEATING THROUGH T HE DIFFERENT ASSESSMENT YEARS HAS BEEN FOUND AS A FACT ONE WAY O R THE OTHER AND PARTIES HAVE ALLOWED THAT POSITION TO BE SUSTAINED BY NOT CHALLENGING THE ORDER, IT WOULD NOT BE AT ALL APPROPRIATE TO AL LOW THE POSITION TO BE CHANGED IN A SUBSEQUENT YEAR. 4. THE RELEVANT FINDING OF THE COORDINATE BENCH IN ITA NO. 122/JP/2015 VIDE ITS ORDER DATED 05.05.2016 FOR A.Y. 2011-12 HE LD AS UNDER:- 2.7 THE ABOVE FINDING ON FACT BY THE REVENUE IS NO T CONTROVERTED BY PLACING ANY MATERIAL ON RECORD. MOREOVER THERE IS NO DISPUTE WITH REGARD TO FACT THAT THE ASSESSEE HAS EARNED EXEMPT INCOME OF RS. 27,006/- 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 R S.62,878/- 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 INVESTME NT 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 14A(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 ASSESSEE IN RESPECT OF SUCH EXP ENDITURE IN RELATION TO SUCH EXEMPT INCOME, IS EMPOWERED FOR MAKING DISALL OWANCE AS PER RULE 8D. IN THE CASE IN HAND, NO FINDING IS RECOR DED BY THE AO IN THIS REGARD. ON THE CONTRARY, THE LD. CIT(A) HAS GIVEN A FINDING AFTER ITA NO. 1049/JP/16 DCIT,C-2 VS M/S A.U. FINANCIERS (INDIA) LTD., JAIP UR. 5 EXAMINING THE ACCOUNTS OF THE ASSESSEE. THE AO HA S NOT BROUGHT ON RECORD ANY MATERIAL TO SHOW THAT THE ASSESSEE HAS I NCURRED ANY EXPENDITURE IN RELATION TO THE INCOME WHICH DO NOT FORM PART OF THE TOTAL INCOME. MOREOVER IT IS NOT IN DISPUTE THAT T HE ASSESSEE HAS EARNED EXEMPT INCOME OF RS.27,006/- AND EXPENDITURE AMOUNT ING TO RS.42,22,857/- IN RELATION TO THIS IS DISALLOWED. THE FINDING OF THE LD. CIT(A) IS NOT REBUTTED BY REVENUE BY PLACING ANY CO NTRARY MATERIALS. THEREFORE, WE DO NOT SEE ANY REASON TO INTERFERE WI TH THE ORDER OF THE LD. CIT(A). THE SAME IS HEREBY UPHELD. THE GROUND RAISED BY THE REVENUE IS DISMISSED. 5. SIMILAR ISSUE WAS INVOLVED IN AY 2012-13 (IN ITA NO. 100/JP/16) WHERE THIS BENCH FOLLOWING THE ABOVE DECISION OF THE COOR DINATE BENCH HAD DELETED THE DISALLOWANCE MADE BY THE AO U/S 14A VIDE OUR OR DER DATED 23.09.2016. 6. ON PERUSAL OF THE ASSESSMENT ORDER, THE AO OBSERVE D THAT SINCE ASSESSEE HAS EARNED DIVIDEND INCOME OF RS 6,90,933 AND THE F ACT THAT IT HAS INCURRED INTEREST EXPENDITURE OF RS 180.91 CRORES, IT CANNOT BE RULED OUT THAT CERTAIN PART OF THIS INTEREST EXPENDITURE COULD HAVE ALSO B EEN ATTRIBUTABLE TO EARNING OF EXEMPTED INCOME. HENCE, THE CONTENTION OF THE AS SESSEE COMPANY THAT IT HAS NOT INCURRED ANY EXPENSES ATTRIBUTABLE TO EARNI NG OF DIVIDEND INCOME OTHER THAN ADMINISTRATIVE EXPENDITURE OF RS 99,389 CANNOT BE ACCEPTED. THE ABOVE ARE GENERIC OBSERVATION/PRESUMPTIONS MADE BY THE AO WITHOUT TAKING INTO CONSIDERATION THE NATURE OF THE BUSINESS OF TH E ASSESSEE COMPANY AND ESTABLISHING THE REASONABLE NEXUS BETWEEN THE EXPEN DITURE INCURRED AND EARNING OF DIVIDEND INCOME AND CANNOT FORM THE BASI S FOR DISALLOWANCE UNDER SECTION 14A. WHAT IS RELEVANT TO EXAMINE IS WHETHE R ANY EXPENDITURE SOUGHT TO BE DISALLOWED HAD ACTUALLY BEEN INCURRED IN EARN ING THE DIVIDEND INCOME. THE AO HAS NOT BROUGHT ON RECORD ANY MATERIAL TO SH OW THAT THE ASSESSEE HAS INCURRED ANY EXPENDITURE IN RELATION TO THE INCOME WHICH DO NOT FORM PART OF THE TOTAL INCOME. NO REASONABLE NEXUS BETWEEN THE E XPENDITURE DISALLOWED AND THE DIVIDEND INCOME RECEIVED HAS BEEN ESTABLISH ED BY THE AO. ITA NO. 1049/JP/16 DCIT,C-2 VS M/S A.U. FINANCIERS (INDIA) LTD., JAIP UR. 6 7. IT IS EQUALLY RELEVANT TO NOTE THAT OUT OF RS 30.82 CRORES WORTH OF INVESTMENTS IN SUBSIDIARY/ASSOCIATE CONCERNS, AN AM OUNT OF RS 6.50 LACS HAS BEEN INVESTED DURING THE YEAR OUT OF COMPANYS OWN FUNDS AND THE REST ALL INVESTMENTS HAVE BEEN MADE IN THE EARLIER YEARS WHE REIN THE AO HAS NOT ESTABLISHED ANY REASONABLE NEXUS BETWEEN THE EXPEND ITURE DISALLOWED AND THE DIVIDEND INCOME RECEIVED IN THE RESPECTIVE YEAR S. FURTHER, IN EARLIER YEARS, THE COORDINATE BENCHES HAVE DECIDED THE MATT ER IN FAVOUR OF THE ASSESSEE COMPANY HOLDING NO DISALLOWANCE UNDER SECT ION 14A OTHER THAN THE ADMINISTRATIVE EXPENSES SUO-MOTO DISALLOWED BY THE ASSESSEE COMPANY AND WE SEE NO REASON TO DEVIATE FROM THE SAME. 8. ANOTHER ASPECT OF THE MATTER WHICH THE AO HAS LOST SIGHT OF IS THE FACT THAT THE ASSESSEE COMPANY IS IN THE BUSINESS OF FINANCIN G WHEREIN THE FUNDS ARE BORROWED AND LEND AS PART OF ITS REGULAR BUSINESS A CTIVITY. THEREFORE, LOOKING AT INTEREST EXPENDITURE OF RS 180.91 CRORES WITHOUT TAKING INTO CONSIDERATION INTEREST EARNED ON LOANS/ADVANCES TO ITS CUSTOMERS AMOUNTING TO RS 370.69 CRORES WILL NOT BE FACTUALLY CORRECT. 9. IN THE ENTIRETY OF FACTS AND CIRCUMSTANCES OF THE C ASE, RESPECTFULLY FOLLOWING THE DECISION OF THE HONBLE SUPREME COURT AND DECIS IONS IN ASSESSEES OWN CASE IN THE EARLIER YEARS, WE SEE NO REASON TO INTE RFERE WITH THE ORDER OF THE LD CIT(A). THE GROUNDS TAKEN BY THE REVENUE ARE THUS DISMISSED. IN THE RESULT, THE APPEAL OF THE REVENUE IS DISMIS SED. ORDER PRONOUNCED IN THE OPEN COURT ON 29/05/2017. SD/- SD/- DQY HKKJR FOE FLAG ;KNO (KUL BHARAT) (VIKRAM SINGH YADAV) U;KF;D LNL;@ JUDICIAL MEMBER YS[KK LNL;@ ACCOUNTANT MEMBER ITA NO. 1049/JP/16 DCIT,C-2 VS M/S A.U. FINANCIERS (INDIA) LTD., JAIP UR. 7 JAIPUR DATED:- 29/05/2017 SANTOSH VKNS'K DH IZFRFYFI VXZSF'KR @ COPY OF THE ORDER FORWARDED TO: 1. VIHYKFKHZ@ THE APPELLANT- THE DEPUTY COMMISSIONER OF INCOME TAX, CIRCLE-2, JAIPUR. 2. IZR;FKHZ@ THE RESPONDENT- M/S A.U. FINANCIERS (INDIA) LTD., JAIPUR. 3. VK;DJ VK;QDR@ CIT 4. VK;DJ VK;QDRVIHY@ THE CIT(A) 5. FOHKKXH; IZFRFUF/K] VK;DJ VIHYH; VF/KDJ.K] T;IQJ@ DR, ITAT, 6. XKMZ QKBZY@ GUARD FILE (ITA NO.1049/JP/2016) VKNS'KKUQLKJ@ BY ORDER, LGK;D IATHDKJ@ ASSISTANT. REGISTRAR.