Shiva Specific Family Trust, Ahmedabad V. The ACIT, (OSD),Circle-10, Ahmedabad

ITA 1106/AHD/2014

• Counselvise Citation: [2018] 125 COUNSELVISE.COM (IT) 8181 (ITAT-AHMEDABAD)
• Duration Of Justice: 4 year(s) 1 month(s) 21 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 06-06-2018
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: A
• Next Hearing Date: 19-06-2017
• Assessment Year: 2002-2003
• Appeal Filed On: 15-04-2014
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Assessee Lawyers: H C SHAH
• Keywords: Earning of tax free income
• Section: 143(3); 244A; 234B; 14A

Judgement Text

ITA NO.1106/AHD/2014 A.Y. 2002-03 PAGE 1 OF 4 IN THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD A BENCH, AHMEDABAD BEFORE SHRI PRAMOD KUMAR, ACCOUNTANT MEMBER AND SHRI RAJPAL YADAV, JUDICIAL MEMBER ITA NO.1106/AHD/2014 ASSESSMENT YEAR: 2002-03 SHIVA SPECIFIC FAMILY TRUST, VS. ASSTT. COMMISSIONER OF INCOME TAX, NIRMA HOUSE, CIRCLE 10, AHMEDABAD. ASHRAM ROAD, AHMEDABAD 380 009. [PAN AANHS 5646 D] (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI H.C. SHAH, A.R. RESPONDENT BY : SHRI MUDIT NAGPAL, SR. D.R. DATE OF HEARING : 08.03.2018 DATE OF PRONOUNCEMENT : 06.06.2018 O R D E R PER RAJPAL YADAV, JUDICIAL MEMBER: 1. THE ASSESSEE IS IN APPEAL BEFORE THE TRIBUNAL AG AINST THE ORDER OF LD. CIT(A) DATED 29 TH JANUARY, 2014 PASSED FOR A.Y. 2002-03. 2. THE FIRST GROUND OF APPEAL TAKEN BY THE ASSESSEE IS GENERAL WHICH DOES NOT CALL FOR RECODING OF ANY FINDING, HENCE REJECTED. 3. IN THE NEXT GROUND OF APPEAL, GRIEVANCE OF THE A SSESSEE IS THAT THE LD. CIT(A) HAS ERRED IN CONFIRMING THE DISALLOWANCE OF INTERES T EXPENDITURE OF RS.25,14,914/- WHICH WAS MADE BY THE ASSESSING OFFICER WITH THE AI D OF SECTION 14A OF THE INCOME TAX ACT, 1961 (THE ACT HEREINAFTER). 4. THE BRIEF FACTS OF THE CASE ARE THAT ASSESSMENT ORDER UNDER SECTION 143(3) OF THE ACT WAS PASSED ON 23.03.2005. THE DISPUTE TRAV ELLED UPTO THE TRIBUNAL AND THE TRIBUNAL VIDE ORDER DATED 30.04.2010 PASSED IN ITA NO.1242/AHD/2006 HAS SET ASIDE THE ISSUE WITH REGARD TO VERIFICATION AND DISALLOWA NCE OF ANY AMOUNT REQUIRED TO BE MADE UNDER SECTION 14A OF THE ACT. IN PURSUANCE OF THE TRIBUNALS ORDER, LEARNED ASSESSING OFFICER ISSUED NOTICE UNDER SECTION 142(1 )/143(2) OF THE ACT. THE LD. ASSESSING OFFICER HAS OBSERVED THAT THE ASSESSEE HA S SHOWN DIVIDEND INCOME OF ITA NO.1106/AHD/2014 A.Y. 2002-03 PAGE 2 OF 4 RS.1,21,87,750/- WHICH IT HAD CLAIMED AS EXEMPT UND ER SECTION 10(33) OF THE ACT. THE ASSESSEE HAS DEBITED INTEREST EXPENSES OF RS.25 ,14,914/- AND SHOWN INTEREST INCOME OF RS.2,15,790/-. HE FURTHER OBSERVED THAT THOUGH RULE 8D OF THE INCOME TAX RULES IS NOT APPLICABLE IN THIS YEAR, BUT EXPENSES ATTRIBUTABLE TO EXEMPT INCOME ARE REQUIRED TO BE DISALLOWED UNDER SECTION 14A ON AN E STIMATE BASIS. ACCORDINGLY HE DISALLOWED INTEREST EXPENDITURE DEBITED BY THE ASSE SSEE IN THE ACCOUNT AND MADE ADDITION OF RS.25,14,914/-. 5. APPEAL TO THE LD. CIT(A) DID NOT BRING ANY RELIE F TO THE ASSESSEE. 6. WHILE IMPUGNING THE ORDERS OF THE REVENUE AUTHOR ITIES, LD. COUNSEL FOR THE ASSESSEE TOOK US TO THE DETAILS OF INVESTMENT IN SH ARES, DEBENTURE & BONDS WHICH HAS BEEN PLACED AT PAGE NO.4 OF THE PAPER BOOK. SUCH D ETAILS READ AS UNDER :- INVESTMENT IN SHARES, DEBENTURE & BONDS 1. SHARE OF MIRZA TANNER LIMITED 154 2. SHARE OF NIRMA LIMITED 34,790,831 3. OFCPN OF NIRMA INDUSTRIES LIMITED 439,500,000 4. OFCPN OF ADESH FINSTOCK PVT. LTD. 30,000,000 504,290,985 7. HE FURTHER CONTENDED THAT THE ASSESSEE IS HOLDIN G CERTAIN INVESTMENTS IN THE NAMES OF OPTIONALLY FULLY CONVERTIBLE PREMIUM NOTES (OFCPN) AND DEEP DISCOUNT BONDS (DDB). INCOME FROM THESE OFCPN/DDB ARE TAXAB LE INCOME AND NOT EXEMPT INCOME. THE LD. ASSESSING OFFICER MADE AN ADDITION OF RS.5,21,423/- ON ACCOUNT OF ACCRUAL OF INTEREST INCOME. THE TRIBUNAL DELETED T HE ADDITIONS IN THE CURRENT ASSESSMENT YEAR ON THE GROUND THAT THE INCOME DID N OT ACCRUE DURING THE YEAR. NEVERTHELESS, THESE ARE TAXABLE INCOME AND NOT EXEM PT INCOME. HE FURTHER CONTENDED THAT THERE IS NO DISPUTE WITH REGARD TO T HIS POSITION THAT IF ANY EXPENDITURE IS BEING INCURRED FOR EARNING EXEMPT INCOME THEN SUCH EXPENDITURE IS TO BE DISALLOWED UNDER SECTION 14A OF THE ACT. THE DISALLOWANCE ASS UMED BY THE ASSESSING OFFICER IS ON THE BASIS OF INVESTMENT MADE IN SHARES OF MIRZA TANNER LIMITED AND NIRMA INDUSTRIES LIMITED. BOTH THESE SHARES WERE ACQUI RED IN EARLIER YEARS AND NOT DURING ITA NO.1106/AHD/2014 A.Y. 2002-03 PAGE 3 OF 4 THE YEAR. NO EXPENSE WAS INCURRED FOR ACQUIRING TH ESE SHARES. THEREFORE, THE ASSESSING OFFICER HAS ERRED IN ASSUMING INTEREST EX PENDITURE FOR ACQUIRING THESE SHARES. THE ASSESSING OFFICER NOWHERE POINTED OUT AS TO WHICH INTEREST EXPENDITURE IS ATTRIBUTABLE FOR MAKING INVESTMENT IN THESE SHAR ES. HE FURTHER POINTED OUT THAT IN ASSESSMENT YEARS 2004-05 & 2005-06 INVESTMENT IN TH ESE SHARES WAS REMITTED BACK FOR VERIFICATION TO THE ASSESSING OFFICER AND THE A SSESSING OFFICER DID NOT MAKE ANY ADDITION BY OBSERVING THAT THE ASSESSEE HAS NOT INC URRED EXPENDITURE IN ACQUIRING THESE SHARES. HE DREW OUR ATTENTION TO PAGE NO.64 AND 66 WHERE ASSESSMENT ORDERS PASSED UNDER SECTION 143(3) IN A.YS. 2004-05 & 200 5-06 ARE BEING PLACED ON RECORD. 8. LD. DEPARTMENTAL REPRESENTATIVE, ON THE OTHER HA ND, RELIED UPON THE ORDERS OF THE REVENUE AUTHORITIES. 9. WE HAVE DULY CONSIDERED THE RIVAL CONTENTIONS AN D GONE THROUGH THE RECORDS CAREFULLY. THE FINDINGS OF THE ASSESSING OFFICER I N A.Y. 2004-05 & 2005-06 DESERVE TO BE TAKEN NOTE OF WHICH READ AS UNDER :- A.Y. 2004-05 WITH RESPECT TO THE CLAIM OF INTEREST EXPENSE OF R S.25,37,280/-, THE ASSESSEE IN ITS REPLY DATED 06.03.2013 SUBMITTED TH AT THE ASSESSEE IS FOLLOWING CASH METHOD OF ACCOUNTING. THE CLAIM OF INTEREST EXPENSE IS RS.15,40,101/- AND NOT RS.25,37,280/- AND DISALLOWA NCE U/S.14A OF THE I.T. ACT ON ACCOUNT OF INVESTMENT IN SECURITIES SHOULD N OT BE MADE AS DURING THE YEAR UNDER CONSIDERATION, NO SECURITY HAVING DI VIDEND INCOME ACQUIRED. THE SHARES OF MIRZA TANNERS LIMITED AND NIRMA LIMITED WERE ACQUIRED DURING EARLIER YEARS. HENCE, THIS DOES NO T ATTRACT DISALLOWANCE U/S. 14A OF THE I.T. ACT. A.Y. 2005-06 WITH RESPECT TO THE CLAIM OF INTEREST EXPENSE OF R S.3,57,848/-, THE ASSESSEE IN ITS REPLY DATED 06.03.2013 SUBMITTED TH AT THE ASSESSEE IS FOLLOWING CASH METHOD OF ACCOUNTING. THE DISALLOWA NCE U/S.14A OF THE INCOME TAX ACT ON ACCOUNT OF INVESTMENT IN SECURITI ES SHOULD NOT BE MADE AS DURING THE YEAR UNDER CONSIDERATION, NO SEC URITY HAVING DIVIDEND INCOME ACQUIRED. THE SHARES OF MIRZA TANNERS LIMIT ED AND NIRMA LIMITED WERE ACQUIRED DURING EARLIER YEARS. HENCE, THIS NO T ATTRACT DISALLOWANCE U/S. 14A OF THE INCOME TAX ACT. 10. IN A.Y. 2004-05 THE ASSESSEE HAS DEBITED INTERE ST EXPENDITURE OF RS.25,37,200/- WHICH WAS DISALLOWED BY THE ASSESSIN G OFFICER IN THE ORIGINAL ASSESSMENT ORDER. HOWEVER, AFTER REMAND FROM THE I TAT, LEARNED ASSESSING OFFICER DID NOT MAKE ANY ADDITION UNDER SECTION 14A OF THE ACT. HE WAS CONSIDERING ITA NO.1106/AHD/2014 A.Y. 2002-03 PAGE 4 OF 4 ACQUISITION OF SAME SHARES OF MIRZA TANNER LIMITED AND NIRMA INDUSTRIES LIMITED. IT IS ALSO PERTINENT TO OBSERVE THAT THE ASSESSEE HAS RS. 48 CRORES SURPLUS FUND OUT OF WHICH IT WAS STATED THAT INVESTMENT WAS MADE. THE ASSESSING OFFICER HAS NOT REBUTTED THIS CONTENTION OF THE ASSESSEE. THEREFOR E, TAKING INTO CONSIDERATION THE STAND OF THE ASSESSING OFFICER IN SUBSEQUENT YEAR O N IDENTICAL ISSUE, WE ARE OF THE VIEW THAT THIS ADDITION IS NOT SUSTAINABLE 11. IN GROUND NO.3, THE ASSESSEE HAS PLEADED THAT T HE LD. CIT(A) HAS ERRED IN NOT DIRECTING THE ASSESSING OFFICER TO GRANT INTEREST U NDER SECTION 244A OF THE ACT. 12. THIS GROUND WAS NOT PRESSED AT THE TIME OF HEAR ING BECAUSE CLAIM OF THE ASSESSEE HAS BEEN ALLOWED BY THE LD. CIT(A) VIDE OR DER DATED 29.01.2014 PASSED UNDER SECTION 154 OF THE ACT. IN OTHER WORDS, THE LD. CIT(A) RECTIFIED ITS ORDER. HENCE, THIS GROUND OF APPEAL BECOMES INFRUCTUOUS AND REJEC TED. 13. IN THE NEXT GROUND OF APPEAL, GRIEVANCE OF THE ASSESSEE IS THAT THE LD. CIT(A) ERRED IN CONFIRMING THE INTEREST LEVIABLE UPON THE ASSESSEE UNDER SECTION 234B OF THE ACT. 14. LD. COUNSEL FOR THE ASSESSEE SUBMITTED THAT IT IS CONSEQUENTIAL IN NATURE. HENCE, THIS GROUND OF APPEAL IS REJECTED. 15. IN THE RESULT, APPEAL OF THE ASSESSEE IS PARTLY ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON THIS 6 TH DAY OF JUNE, 2018. SD/- SD/- PRAMOD KUMAR RAJPAL YADAV (ACCOUNTANT MEMBER) (JUDICIAL MEMBER) AHMEDABAD, THE 6 TH DAY OF JUNE, 2018 PBN/* COPIES TO: (1) THE APPELLANT (2) THE RESPOND ENT (3) CIT (4) CIT(A) (5) DEPARTMENTAL REPRESENTATIVE (6) GUARD FILE BY ORDER UE COPY ASSISTANT REGISTRAR INCOME TAX APPELLATE TRIBUNAL AHMEDABAD BENCHES, AHMEDABAD