MALANI HOLDINGS PRIVATE LIMITED, RAIPUR V. INCOME TAX OFFICER, WARD -4(1), RAIPUR

ITA 110/RPR/2019

• Counselvise Citation: [2022] 106 COUNSELVISE.COM (IT) 3190 (ITAT-RAIPUR)
• Duration Of Justice: 3 year(s) 2 month(s) 2 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 25-07-2022
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: DB
• Assessment Year: 2013-2014
• Appeal Filed On: 23-05-2019
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: S PRAVEEN KHANDELWAL
• Keywords: Earning of tax free income; Question of law; Rule 8D
• Section: 143(3); 14A

Judgement Text

आयकर अपीलȣय अͬधकरण Ûयायपीठ रायप ु र मɅ। IN THE INCOME TAX APPELLATE TRIBUNAL, RAIPUR BENCH, RAIPUR BEFORE SHRI RAVISH SOOD, JUDICIAL MEMBER AND SHRI RATHOD KAMLESH JAYANTBHAI, ACCOUNTANT MEMBER आयकरअपीलसं. / ITA No. 110/RPR/2019 Ǔनधा[रणवष[ / Assessment Year : 2013-14 Malani Holdings Pvt. Ltd. 1 st Floor, H. No.69, Behind Ayurvedic College, Rohinipuram Road, Raipur (C.G.) PAN : AADCM7533L .......अपीलाथȸ / Appellant बनाम / V/s. The Income Tax Officer, Ward-4(1), Raipur (C.G.) ......Ĥ×यथȸ / Respondent Assessee by : S/Shri Praveen Khandelwal, CA Praveen Goyal, CA Revenue by : Shri G.N Singh, DR स ु नवाई कȧ तारȣख / Date of Hearing :10.06.2022 घोषणा कȧ तारȣख / Date of Pronouncement : 26.07.2022 2 Malani Holdings Private Limited Vs. ITO, Ward-4(1) ITA No.110/RPR/2019 आदेश/ ORDER PER RAVISH SOOD, JM: The present appeal filed by the assessee is directed against the order passed by the CIT (Appeals)-II, Raipur, dated 30.01.2019, which in turn arises from the order passed by the A.O under Sec. 143(3) of the Income Tax Act, 1961 (for short ‘the Act’) dated 30.03.2016 for assessment year 2013-14. Before us the assessee has assailed the impugned order on the following grounds of appeal: “1. The Commissioner of income tax Appeals erred in confirming the determination of total income of the appellant at Rs.45,24,106/- in the assessment order dt. 30.03.2016 passed u/s.143(3) of the Act. 2. The Commissioner of income Tax Appeals erred in confirming the addition of Rs.34,59,623/- u/s. 14A read with Rule 8D.” 2. Controversy involved in the present appeal hinges around the sustainability of disallowance of Rs. 34,59,623/- made by the A.O u/s.14A r.w Rule 8D(2)(ii) of the Income-Tax Rules, 1962. 3. During the course of the assessment proceedings, it was observed by the A.O that the assesee during the year under consideration was in receipt of exempt dividend income of Rs.75,84,277/-. It was further noticed by the A.O that the assessee had on a suo-moto basis offered for disallowance u/s.14A of the Act an amount of Rs.1,77,116/-. Observing that the assessee had raised a claim for deduction of interest expenditure of Rs.38,81,227/-, the A.O, holding a conviction 3 Malani Holdings Private Limited Vs. ITO, Ward-4(1) ITA No.110/RPR/2019 that the interest bearing funds were diverted by the assessee for making investments in exempt income yielding shares, thus, worked out the disallowance u/s.14A r.w Rule 8D(2)(ii) at Rs.36,36,739/-. Considering the suo-moto disallowance of Rs.1,77,116/-, that was already on a suo-motto basis offered by the assessee in its return of income, the A.O made a further disallowance of Rs.34,59,623/-. 4. Aggrieved, the assesee carried the matter in appeal before the CIT(Appeals) but without any success. 5. The assessee being aggrieved with the order of the CIT(Appeals) has carried the matter in appeal before us. 6. We have heard the Ld. Authorized Representatives of both the parties, perused the orders of the lower authorities and the material available on record, as well as considered the judicial pronouncements that have been pressed into service by them to drive home their respective contentions. 7. Before us, the Ld. Authorized Representative (for short ‘AR’) for the assessee has assailed the validity of the disallowance made by the A.O u/s.14A r.w Rule 8D on two fold grounds, viz. (i) that the A.O without recording his dissatisfaction as regards the correctness of the disallowance that was on a suo-motto basis offered by the assessee u/s.14A had thus, wrongly assumed jurisdiction and substituted the same by an amount that was arrived at by him by triggering the mechanism 4 Malani Holdings Private Limited Vs. ITO, Ward-4(1) ITA No.110/RPR/2019 contemplated in Rule 8D of the Income-Tax Rules, 1962; and (ii). that as the assessee had sufficient self-owned funds to justify the investments in the exempt income yielding shares, therefore, no disallowance of any part of interest expenditure was called for in its hands u/s.14A r.w Rule 8D(2)(ii) of the Income Tax Rules, 1962. 8. Per contra, the ld. Departmental Representative (“DR”, for short) relied on the orders of the lower authorities. 9 We have heard the ld. Authorized representatives of both the parties, perused the orders of the lower authorities and the material available on record, as well as considered the judicial pronouncements that have been pressed into service by the ld. AR in order to drive home his contentions. 10. Before us, it is the claim of the Ld. AR that as the assessee company had sufficient interest free funds available with it in the form of share capital, reserves and surplus a/w. interest free unsecured loans aggregating to an amount of Rs.26,79,80,125/- which would justifiably explain the investments made in the exempt income yielding shares of Rs.24,58,19,170/-, therefore, no part of the interest expenditure was liable for disallowance u/s.14A r.w Rule 8D(2)(ii) of the Income Tax Rules, 1962. In order to dispel all doubts as regards the availability of sufficient interest free funds for making investments in the exempt income yielding 5 Malani Holdings Private Limited Vs. ITO, Ward-4(1) ITA No.110/RPR/2019 shares, the Ld. AR had placed on record a chart elucidating the aforesaid factual position, as under: Interest free funds in the company as at 31.03.2013 Amount Fund invested As at 31.03.2013(Exempt income bearing investment) Amount Share capital (Note No.3, 18 of PB) Reserve and surplus (Note No.4, Page No.18 of PB) Unsecured Loan (Included in note No.5, page No.19 of PB) Shashi Gupta Sarika Malani Shailaja Malani Shailendra Malani 3,81,62,770/- 22,45,17,355/- 7,00,000/- 10,00,000/- 26,00,000/- 10,00,000/- Investment in Equity shares of companies (Note. No.10, Page No.20 of paper book) Unquoted Quoted Total (A) Investment held as stock in trade (B) ( Note No.13, Page No. 21 of paper book) 23,38,71,075/- 97,27,521/- 24,35,98,596/- 22,20,574/- Total 26,79,80,125/- Total interest free investment and utilization in Fixed Assets ( A + B) 24,58,19,170/- Backed by the aforesaid facts, it was submitted by the Ld. AR that as both the lower authorities had failed to appreciate in the right perspective the factum of availability of sufficient self-owned funds with the assessee that justifiably explained the source of investments in the exempt income yielding shares, therefore, the disallowance of interest expenditure u/s.14A made/sustained by them could not sustained and was liable to be vacated. 6 Malani Holdings Private Limited Vs. ITO, Ward-4(1) ITA No.110/RPR/2019 11. After having given a thoughtful consideration to the aforesaid claim of the Ld. AR, we find substance in the same. Admittedly, as is discernible from the aforesaid extract of the financial statement of the assessee company as had been filed by the ld. AR before us, it is a matter of fact borne from record that the assessee had a on 31.03.2103 sufficient self-owned funds in the form of share capital and reserves and surplus of Rs. 26.26 crore a/w. Rs.53 lac interest free unsecured loans. As the interest free funds available with the assessee company would sufficiently explain the investment of Rs.24.58 crores ( as on 31.03.2013) made in the exempt income yielding shares, therefore, it could safely be presumed that the investment made in such tax-free securities had come out of the interest free funds available with the assessee. Our aforesaid view is fortified by the judgment of the Hon’ble Supreme Court in the case of South Indian Bank Ltd. Vs. CIT, Civil Appeal No.9606 of 2011 dated 09.09.2021. Indulgence of the Hon’ble Supreme Court in the aforesaid case was sought by the assessee on the following substantial question of law: “Whether proportionate disallowance of interest paid by the banks is called for under Section 14A of Income Tax Act for investments made in tax free bonds/ securities which yield tax free dividend and interest to assessee Banks when assessee had sufficient interest free own funds which were more than the investments made” After deliberating at length on the aforesaid issue, the Hon’ble Apex Court after drawing support from its earlier order passed in the case of CIT Vs. Reliance Industries Ltd. (2019) 410 ITR 466 (SC), had held, that where there is a finding of fact that interest free funds available with the assessee were sufficient to meet its 7 Malani Holdings Private Limited Vs. ITO, Ward-4(1) ITA No.110/RPR/2019 investment, it was to be presumed that the investment was made from such interest free funds. Also, the Hon’ble Apex Court had referred to and found favor with a similar view that had been taken by the various High Courts, viz. (i) HDFC Bank Ltd. Vs. DCIT, (2016) 383 ITR 529 (Bom); (ii) CIT Vs. Suzlon Energy Ltd. (2013) 354 ITR 630 (Guj); (iii) CIT Vs. Microlabs Ltd. (2016) 383 ITR 490 ( Karn.); and (iv) CIT Vs. Max India Ltd. (2016) 388 ITR 81 (P&H). On the basis of its aforesaid observations, it was therein held that if investments in securities were made out of common funds and, the non-interest-bearing funds available with the assessee were larger than the investments made in the tax-free securities, then, in such cases no disallowance u/s. 14A would be called for. 12. As in the case before us, it is a matter of an admitted fact borne from record that the interest free funds available with the assessee company are more than the investment made by it in the exempt income yielding shares, therefore, respectfully following the aforesaid judgment of the Hon’ble Apex Court in the case of South Indian Bank Ltd.(supra.), no disallowance of any part of interest expenditure u/s.14A r.w. Rule 8D(2)(ii) could have been made in the hands of the assessee company. We, thus, in terms of our aforesaid observations vacate the disallowance of Rs.34,59,623/- made by the A.O u/s. 14A r.w Rule 8D(2)(ii) of the Act. 13. As we have in the backdrop of our aforesaid observations vacated the disallowance made by the A.O u/s.14A of the Act, therefore, we refrain from 8 Malani Holdings Private Limited Vs. ITO, Ward-4(1) ITA No.110/RPR/2019 adverting to the other contentions that have been advanced by the Ld. AR in order to impress upon us that the aforesaid disallowance u/s.14A of the Act was even otherwise not sustainable, which, thus are left open. 14. In the result, appeal of the assessee is allowed in terms of our aforesaid observations. Order pronounced under rule 34(4) of the Appellate Tribunal Rules, 1963, by placing the details on the notice board. Sd/- Sd/- RATHOD KAMLESH JAYANTBHAI RAVISH SOOD (ACCOUNTANT MEMBER) (JUDICIAL MEMBER) रायप ु र/ RAIPUR ; Ǒदनांक / Dated : 26 th July, 2022 **SB आदेश कȧ ĤǓतͧलͪप अĒेͪषत / Copy of the Order forwarded to :- 1. अपीलाथȸ / The Appellant. 2. Ĥ×यथȸ / The Respondent. 3. The CIT(Appeals)-II, Raipur (C.G) 4. The Pr. CIT-II, Raipur (C.G) 5. ͪवभागीय ĤǓतǓनͬध, आयकर अपीलȣय अͬधकरण, रायप ु र बɅच, रायप ु र / DR, ITAT, Raipur Bench, Raipur. 6. गाड[फ़ाइल / Guard File. आदेशान ु सार / BY ORDER, // True Copy // Ǔनजी सͬचव / Private Secretary आयकर अपीलȣय अͬधकरण, रायप ु र / ITAT, Raipur. 9 Malani Holdings Private Limited Vs. ITO, Ward-4(1) ITA No.110/RPR/2019 Date 1 Draft dictated on 10.06.2022 Sr.PS/PS 2 Draft placed before author 21.06.2022 Sr.PS/PS 3 Draft proposed and placed before the second Member JM/AM 4 Draft discussed/approved by second Member AM/JM 5 Approved draft comes to the Sr. PS/PS Sr.PS/PS 6 Kept for pronouncement on Sr.PS/PS 7 Date of uploading of order Sr.PS/PS 8 File sent to Bench Clerk Sr.PS/PS 9 Date on which the file goes to the Head Clerk 10 Date on which file goes to the A.R 11 Date of dispatch of order