Vasant Chemicals Pvt. ltd., Hyd, Hyderabad V. DCIT, Circle-3(3), Hyd, Hyderabad

ITA 1115/HYD/2016

• Counselvise Citation: [2020] 111 COUNSELVISE.COM (IT) 8746 (ITAT-HYDERABAD)
• Duration Of Justice: 3 year(s) 4 month(s) 25 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 17-01-2020
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: DB-B
• Next Hearing Date: 01-01-2020
• Assessment Year: 2008-2009
• Appeal Filed On: 22-08-2016
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: NILANJAN DEY
• Assessee Lawyers: A V RAGHURAM
• Keywords: Earning of tax free income; Rule 8D
• Section: 14A

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL HYDERABAD BENCHES SMC, HYDERABAD BEFORE SMT. P. MADHAVI DEVI, JUDICIAL MEMBER I.T.A. NO. 1115/HYD/2016 ASSESSMENT YEAR: 2008-09 VASANT CHEMICALS PVT. LTD., HYDERABAD [PAN: AAACV7249K] VS DEPUTY COMMISSIONER OF INCOME TAX, CIRCLE-3(3) HYDERABAD (APPELLANT) (RESPONDENT) FOR ASSESSEE : SHRI A.V.RAGHU RAM, AR FOR REVENUE : SHRI NILANJAN DEY, DR DATE OF HEARING : 01-01-2020 DATE OF PRONOUNCEMENT : 17-01-2020 O R D E R THIS APPEAL FILED BY THE ASSESSEE FOR THE AY.2008-09, IS DIRECTED AGAINST THE ORDER OF THE COMMISSIONER OF INCO ME TAX (APPEALS)5, HYDERABAD, DATED 31-05-2016. THE REVISE D GROUNDS OF APPEAL FILED BY ASSESSEE ARE AS UNDER: REVISED GROUNDS OF APPEAL: 1. THE COMMISSIONER OF INCOME TAX (APPEALS) ERRED I N SUSTAINING THE DISALLOWANCE OF RS.9,73,556 IN AS MUCH AS THE APPEL LANT HAS VOLUNTARILY DISALLOWED AN AMOUNT OF RS.3,34,524 IN THE RETURN OF INCOME FILED BY IT. 2. THE COMMISSIONER (APPEALS) FAILED TO APPRECIATE THAT THE BORROWED FUNDS ARE APPLIED TO REGULAR BUSINESS OPERATIONS AN D FURTHER THAT INTEREST FREE FUNDS ARE UTILIZED TO MAKE THE INVEST MENTS WHICH FETCHED EXEMPTED INCOME, AND THEREFORE NO FURTHER DISALLOWA NCE WAS CALLED FOR. 3. WITHOUT PREJUDICE, THE COMMISSIONER (APPEALS) OU GHT TO HAVE APPRECIATED THAT THE DISALLOWANCE AT THE MOST COULD HAVE BEEN RESTRICTED TO RS.6,39,032 AS THE APPELLANT HAD ALRE ADY DISALLOWED AN AMOUNT OF RS.3,34,524 IN ITS COMPUTATION WHILE ARRI VING AT TOTAL INCOME. ITA NO. 1115/HYD/2016 :- 2 -: 2. FROM THE ABOVE GROUNDS, IT IS SEEN THAT THE ONLY ISSU E BEFORE THE TRIBUNAL IS THE QUANTUM OF DISALLOWANCE U/ S.14A OF THE OF THE INCOME TAX ACT [ACT] R.W.R.8D OF INCOME TAX RULES. THE ASSESSEE-COMPANY WHICH IS ENGAGED IN THE BUSINES S OF MANUFACTURE AND EXPORT OF PERFORMANCE AND SPECIALIT Y CHEMICALS, FILED ITS RETURN OF INCOME FOR THE AY.2008 -09 ON 29-09-2008, DECLARING TOTAL INCOME AT NIL. 3. DURING THE ASSESSMENT PROCEEDINGS U/S.143(3) OF TH E ACT, THE ASSESSING OFFICER (AO) OBSERVED THAT THE ASSES SEE HAS EARNED EXEMPT INCOME OF RS.75,62,985/- AND THEREFORE , THE PROVISIONS OF SECTION 14A ARE APPLICABLE AND THE EXPE NDITURE INCURRED BY THE ASSESSEE IN RELATION TO SUCH EXEMPT INC OME HAS TO BE ALLOWED IN THE MANNER CONTEMPLATED U/S.8D(2 ) OF INCOME TAX RULES. HE ACCORDINGLY COMPUTED THE DISALL OWANCE AT RS.9,73,566/-. AGGRIEVED, THE ASSESSEE PREFERRED A N APPEAL TO THE CIT (A) WHO CONFIRMED THE ORDER OF THE AO AND THE ASSESSEE IS IN SECOND APPEAL BEFORE THE TRIBUNAL. 4. THE LD.COUNSEL FOR THE ASSESSEE SUBMITTED THAT THE ASSESSEE IS AGGRIEVED BY THE COMPUTATION OF DISALLOWA NCE UNDER SUB-RULE(II) OF RULES 8D(2) I.E., THE AMOUNT OF INTEREST EXPENDITURE INCURRED BY THE ASSESSEE, WHICH IS NOT D IRECTLY ATTRIBUTABLE TO ANY EXEMPT INCOME; THE LD.COUNSEL HAS DR AWN MY ATTENTION TO THE DETAILS OF THE INTEREST PAID, PLACED AT P G.85 OF THE PAPER BOOK AND IT IS SEEN THERE FROM THAT THE INTE REST OF RS.89,90,630/- IS PAID TOWARDS TERM LOANS AND RS.46,89,080/- TOWARDS WORKING CAPITAL LOANS. THE INTE REST ON OTHER BORROWINGS IS TO THE EXTENT OF RS.31,33,466/-. TOTAL OF ITA NO. 1115/HYD/2016 :- 3 -: SUCH INTEREST IS RS.1,68,13,176/-. LD.COUNSEL ALSO SUBMITTED THAT THE ONLY INTEREST PORTION NOT RELATING THE BORROWING S SHOULD BE CONSIDERED FOR COMPUTING THE DISALLOWANCE F OR ANY PURPOSE UNDER RULE 8D(2)(II) OF INCOME TAX RULES. F URTHER, HE SUBMITTED THAT THE ASSESSEE ITSELF HAS ALREADY MADE A DISALLOWANCE OF RS.3,34,524/- U/S.14A OF THE ACT, WHI CH HAS TO BE REDUCED FROM THE DISALLOWANCE U/S.14A OF THE ACT M ADE BY THE AO. 5. LD.DR WAS ALSO HEARD. 6. HAVING REGARD TO THE RIVAL CONTENTIONS AND MATERIAL ON RECORD, I AM IN AGREEMENT WITH THE CONTENTIONS OF LD.CO UNSEL FOR THE ASSESSEE. UNDER SUB-RULE(II) OF RULE 8D(2) O F INCOME TAX RULES, ONLY SUCH INTEREST WHICH IS NOT ATTRIBUTABLE TO ANY OTHER PURPOSE CAN BE CONSIDERED FOR COMPUTATION OF DISALLOWANCE U/S.14A OF THE ACT. THEREFORE, THE INTERES T ON BORROWINGS USED FOR BUSINESS CANNOT BE CONSIDERED F OR COMPUTATION OF DISALLOWANCE UNDER RULE 8D(2). THEREFO RE, THE AO IS DIRECTED TO RE-COMPUTE THE DISALLOWANCE U/S.14A O F THE ACT, BY CONSIDERING THE INTEREST ON BORROWINGS WHICH AR E NOT USED FOR BUSINESS ONLY AND AFTER SUCH RE-COMPUTATION, HE SHALL GIVE CREDIT FOR THE DISALLOWANCE OF RS. 3,34,524/-, A LREADY MADE BY THE ASSESSEE IN THE RETURN OF INCOME FILED. A O IS DIRECTED TO RE-COMPUTE THE DISALLOWANCE, ACCORDINGLY. ITA NO. 1115/HYD/2016 :- 4 -: 7. IN THE RESULT, THE APPEAL OF ASSESSEE IS TREATED AS A LLOWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED IN THE OPEN COURT ON 17 TH JANUARY, 2020. SD/- (P. MADHAVI DEVI) JUDICIAL MEMBER HYDERABAD, DATED: -01-2020 TNMM/PVV COPY TO : 1. VASANT CHEMICALS PVT. LTD., C/O. RAJU & PRASAD, CHARTERED ACCOUNTANTS, 401, DIAMOND HOUSE, ADJ.AMRU THA HILLS, PUNJAGUTTA, HYDERABAD. 2. THE DY.COMMISSIONER OF INCOME TAX, CIRCLE-3(3), HYDERABAD. 3. CIT(APPEALS)-5, HYDERABAD. 4. PR.CIT, HYDERABAD. 5. D.R. ITAT, HYDERABAD. 6. GUARD FILE.