The DCIT, Central Circle-2(3), Ahmedabad V. M/s. Raj Jay Investment Pvt. Ltd., Ahmedabad

ITA 1124/AHD/2018

• Counselvise Citation: [2021] 108 COUNSELVISE.COM (IT) 3894 (ITAT-AHMEDABAD)
• Duration Of Justice: 3 year(s) 1 month(s) 1 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 04-06-2021
• Appeal Filed By: Department
• Order Result: Partly Allowed
• Bench Allotted: B
• Assessment Year: 2009-2010
• Appeal Filed On: 03-05-2018
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: R R MAKWANA
• Keywords: Earning of tax free income; Tax effect; Rule 8D; Set aside
• Section: 143(3); 153A; 14A; 115JB; 147; 132

Judgement Text

, B IN THE INCOME TAX APPELLATE TRIBUNAL B BENCH, AHMEDABAD (CONDUCTED THROUGH VIRTUAL COURT) BEFORE SHRI RAJPAL YADAV, VICE-PRESIDENT AND SHRI AMARJIT SINH, ACCOUNTANT MEMBER ITA NO.1124 AND 1125/AHD/2018 / ASSTT.YEAR : 2010-2011 DCIT , CENT.CIR.2(3) AHMEDABAD. VS. M/S.RAJ JAY INVESTMENT P.LTD. 4 TH FLOOR, PARISEEMA COMPLEX OPP: SWAGAT BUILDING OPP: BODYLINE C.G.ROAD, AHMEDABAD. PAN : AAACR 7471 D ITA NO.1435 AND 1436/AHD/2018 / ASSTT.YEAR : 2009-2010 M/S.RAJ JAY INVESTMENT P.LTD. 4 TH FLOOR, PARISEEMA COMPLEX OPP: SWAGAT BUILDING OPP: BODYLINE C.G.ROAD, AHMEDABAD. VS. DCIT, CENT.CIR.2(3) AHMEDABAD. ( APPLICANT ) ( RESPONENT ) REVENUE BY : SHRI R.R. MAKWANA, SR.DR ASSESSEE BY : WRITTEN SUBMISSIONS / DATE OF HEARING : 20/05/2021 / DATE OF PRONOUNCEMENT: 04/06/2021 !'/ O R D E R PER RAJPAL YADAV, VICE-PRESIDENT: THE ABOVE FOUR APPEALS ARE CROSS-APPEALS BY THE REV ENUE AND THE ASSESSEE DIRECTED AGAINST ORDERS OF THE LD.CIT( A)-7, AHMEDABAD OF EVEN DATED I.E. 12.02.2018 FOR THE ABOVE TWO ASSESS MENT YEARS. ALL THESE FOUR APPEALS ARE DISPOSED OF BY THIS COMMON O RDER FOR THE SAKE OF CONVENIENCE. ITA NO.1124 AND 1125/AHD/2018 & 2 OTHERS 2 2. BEFORE DEALING WITH THE ISSUES ON MERIT, IT IS P ERTINENT TO MENTION HERE THAT THESE ARE RECALLED MATTERS. THE APPEALS OF THE REVENUE WERE DISMISSED ON ACCOUNT OF LOW TAX EFFECT . THE REVENUE HAD FILED MISC. APPLICATIONS FOR RECALL OF THE ORDE R OF THE TRIBUNAL IN ITA NOS.156/AHD/2018 AND 125 OTHERS DATED 31.7.2018 QUA THE ABOVE ASSESSEE, BECAUSE CASE OF THE REVENUE FALLS WITHIN EXCEPTION PROVIDED IN CLAUSE 10(C) OF THE CBDT CIRCULAR NO.3 OF 2018. AFTER HEARING THE MA, THE TRIBUNAL RECALLED THE ORDER DATED 31.7.2018 QUA THE ABOVE ASSESSEE, AND DIRECTED TO LIST THE APPEALS FOR ADJU DICATION ON MERIT. ACCORDINGLY, THE ABOVE APPEALS CAME UP FOR HEARING BEFORE US FOR ADJUDICATION ON MERIT. 3. SOLE ISSUE RAISED IN BOTH APPEALS OF THE REVENUE IS THAT THE LD.CIT(A) HAS ERRED IN RESTRICTING DISALLOWANCE UND ER SECTION 14A OF RS.24,03,566/- TO RS.2,37,810/- IN THE ASSTT.YEAR 2 009-10, AND RS.16,33,651/- TO RS.4,43,802/- IN THE ASSTT.YEAR 2 010-11. WHILE IN THE CROSS APPEALS, ASSESSEE HAS CHALLENGED DISALLOW ANCE OF ADMINISTRATIVE EXPENSES AT THE RATE OF 0.5% OF THE AVERAGE VALUE OF INVESTMENT UNDER RULE 8D(2)(III) OF THE INCOME TAX RULES. SINCE ISSUE AND THE FACTS ARE IDENTICAL EXCEPT VARIATION IN QUA NTUM IN BOTH THE YEARS, WE TAKE THE FACTS GIVEN IN THE ASSTT.YEAR 20 09-10 FOR THE CONVENIENCE OF ADJUDICATION. 4. BRIEF FACTS OF THE CASE ARE THAT IN THE CASE OF THE ASSESSEE, ASSESSMENT WAS FRAMED UNDER SECTION 153A R.W.S. 143 (3) OF THE ACT. SUBSEQUENTLY, THE CASE OF THE ASSESSEE WAS REOPENED UNDER SECTION 147 OF THE ACT AND ASSESSMENT WAS FINALIZED UNDER SECTI ON 143(3) R.W.S. 147 BY MAKING AN ADDITION OF RS.24,03,566/- FOR A.Y .2009-10 AND ITA NO.1124 AND 1125/AHD/2018 & 2 OTHERS 3 RS.16,33,651/- FOR A.Y.2010-11 UNDER SECTION 14A OF THE ACT, AFTER WORKING OUT DISALLOWANCE UNDER RULE 8D OF THE INCOM E TAX RULES, 1962. AGAINST THIS DISALLOWANCE, THE ASSESSEE PRE FERRED APPEAL BEFORE THE LD.FIRST APPELLATE AUTHORITY. THE SUBMISSIONS MADE BY THE ASSESSEE AND FINDING OF THE LD.CIT(A) THEREON ARE SIMILAR IN THE BOTH YEARS. THEREFORE, WE TAKE NOTE OF THE SUBMISSIONS MADE BY THE ASSESSEE AND THE FINDING RECORDED BY THE LD.CIT(A) FOR THE ASSTT .YEAR 2009-10. IT READ AS UNDER: '1. THE APPELLANT BELONGS TO JAYESH STEEL GROUP. TH E SEARCH OPERATION U/S 132 OF THE ACT WAS CAME OUT ON 13.10.2011. THE APPE LLANT WAS COVERED IN SEARCH ACTION AND NOTICE U/S 153A WAS ISSUED. 2. THE APPELLANT HAD FILED RETURN OF INCOME ON 18.0 3.2013 DECLARING TOTAL INCOME OF RS.107599/-U/S. 153A OF THE ACT. APPELLAN T HAS DECLARED RS.755910 AS INCOME U/S 115JB OF THE ACT. ASSESSMEN T WAS COMPLETED U/S 153A RWS 143(3) OF THE ACT. LATER ON CASE WAS REOPE NED U/S 147 OF THE ACT WHILE FINALIZING THE ASSESSMENT U/S 143(3) RWS 147, THE ASSESSING OFFICER HAS MADE ADDITION OF RS.24,03,566/- U/S 14A OF THE ACT THE DISALLOWANCE IS WORKED OUT AS PER RULE 8D OF INCOME TAX RULES. 3. ASSESSING OFFICER HAS ERRED IN MAKING THE ASSESS MENT U/S 147 OF THE ACT ASSESSMENT ORDER PASSED U/S 143(3) RWS. 147 OF THE ACT IS UNTENABLE IN LAW. ASSESSMENT WAS ALREADY FINALIZED U/S 153A RWS 143(3) OF THE ACT. ASSESSING OFFICER CANNOT SAID TO HAVE REASON TO BEL IEVE THAT DISALLOWANCE SHOULD BE MADE U/S 14AOFTHEACT 4. THEREFORE ORDER PASSED U/S 143(3) RWS 147 OF THE ACT NEEDS TO BE QUASHED. WITHOUT PREJUDICE TO THIS, WE MAKE OUR SUB MISSION ON MERIT AS BELOW: 5. THE DETAILS OF FACTS OF THE CASE IS AS UNDER: PARTICULARS AMOUNT SHARE CAPITAL 11668860 SECURITY PREMIUM 84787500 CAPITAL RESERVE 1000000 PROFIT AND LOSS ACCOUNT 1263729 TOTAL OWN CAPITAL 98720089 INVESTMENT IN SHARES 94919515 INTEREST INCOME 6692823 ITA NO.1124 AND 1125/AHD/2018 & 2 OTHERS 4 INTEREST EXPENSES 5397991 NET INTEREST INCOME 1294832 DIVIDEND INCOME 653185 EXPENSES CLAIM 0 ON PERUSAL OF THE ABOVE, IT WILL BE NOTICED THAT - A) THOUGH THERE IS INTEREST EXPENSES OF RS.5397991 /-, THERE IS INTEREST INCOME OF RS.6692823/- AND THERE IS A SURPLUS OF IN TEREST OFRS.1294832/-. AS THERE IS NET INTEREST INCOME, NO DISALLOWANCE CA N BE MADE FOR INTEREST COMPONENT U/S. HA OF THE ACT. B) DIVIDEND INCOME IS OF RS.653185/- WHILE DISALLOW ANCE IS MADE FOR RS.2403566/-. IN NO CASE DISALLOWANCE SHOULD EXCEED EXEMPT INCOME. C) APPELLANT IS HAVING OWN CAPITAL OF RS.98720089, WHICH IS INTEREST FREE FUNDS OF THE APPELLANT. INVESTMENT IN SHARE IS RS.9 4919515. AS OWN CAPITAL IS HIGHER THEN INVESTMENT IN SHARES NO DISALLOWANCE SHOULD BE MADE U/S 14A OF THE ACT. 6. THE APPELLANT RESPECTFULLY SUBMITS THAT PROVISIO NS OF SEC. 14A OF THE ACT ARE NOT APPLICABLE AT ALL. THE APPELLANT HAS NOT IN CURRED ANY EXPENDITURE FOR EARNING EXEMPT INCOME AND THEREFORE DISALLOWANC E CANNOT BE MADE U/S. 14A OF THE ACT. 7. THE APPELLANT FURTHER SUBMITS THAT THE PROVISIO NS OF SEC. 14-A OF THE ACT CANNOT BE APPLIED SUMMARILY. OFFICER HAS TO REC ORD FINDING THAT SOME EXPENDITURE IS INCURRED TO EARN EXEMPT INCOME AND T HEREFORE ONLY PROVISIONS OF SEC.L4A OF THE ACT CANNOT BE APPLIED. THE APPELLANT RELIES ON ITAT JUDGMENT OF MUMBAI IN THE CASE OF GRAVIS HOSPI TALITY LTD. VS. DCIT REPORTED IN [2015] 53 TOXMANN.COM 63. 8. THE APPELLANT ALSO BEGS TO INVITE YOUR HONOR'S A TTENTION TO THE DECISION OF DELHI HC IN THE CASE OF JOINT INVESTMENT PVT. LT D. VS. CIT IN WHICH IT IS HELD THAT SEC. 14A CANNOT BE INTERPRETED SO AS TO M EAN THAT ENTIRE EXEMPTED INCOME IS TO BE ADDED BACK. 9. THE APPELLANT FURTHER SUBMITS THAT HE HAS REED D IVIDEND INCOME. IN THE RESPECTFUL SUBMISSION WE HAVE TO STATE THAT DIVIDEN D INCOME CAN NOT BE TAKEN AS TOTAL EXEMPT INCOME. IN CASE OF DIVIDEND N O TAX IS TO BE PAID BY RECIPIENT ONLY IF DIVIDEND DISTRIBUTION TAX IS PAID BY COMPANY. IT MEANS THAT ON SUM DISTRIBUTED AS DIVIDEND, TAX IS PAID BU T AS PER LEGAL PROVISION THE TAX IS PAID BY PAYER INSTEAD OF RECEIVER. THERE FORE IT CANNOT BE SAY THAT DIVIDEND INCOME IS TOTALLY EXEMPT INCOME. THEREFORE THE PROVISION OF SECTION 14(A) SHOULD NOT BE APPLIED. ITA NO.1124 AND 1125/AHD/2018 & 2 OTHERS 5 10. THE APPELLANT FURTHER REFERS AND RELIES ON GUJ, HC JUDGMENT IN THE CASE OF PR. COMMISSIONER OF INCOME TAX-4 VS. SYNTEX INDUSTRIES LTD. TAX APPEAL NO. 268 OF 2017. THE HONORABLE GUJARAT HC HA S HELD THAT WHEN INTEREST FREE FUNDS ARE MORE THAN INVESTMENTS IN SH ARES, NO DISALLOWANCE CAN BE MADE U/S. 14A OF THE ACT. 11. THE APPELLANT ALSO RELIES ON THE ORDER OF HONOR ABLE CITA(A)-12 IN THE CASE OF PRAVINCHANDRA K. SHAH ITA NO. 106 TO 108 DA TED 28.03.2016. THE ID. CITA(A) HAS DELETED ADDITION U/S. 14A OF THE AC T. 12. THE APPELLANT THEREFORE SUBMITS THAT TH E DISALLOWANCE OF RS.2403566/- BE DELETED.' 3.2 I HAVE CAREFULLY CONSIDERED THE ASSESSMENT ORD ER, FACTS OF THE CASE AND THE SUBMISSIONS MADE BY THE APPELLANT. IT IS SE EN FROM THE SAME THAT THE APPELLANT HAS FURNISHED A DETAILED CHART IN RES PECT OF ITS FUNDS, INVESTMENTS, INTEREST EARNED AND INTEREST EXPENSES CLAIMED. IT IS SEEN THAT THOUGH THE APPELLANT HAS CLAIMED INTEREST EXPENSES OF RS.53,97,991/-, IT ALSO HAS AN INTEREST INCOME OF RS.66,92,823/-. THUS , THE APPELLANT HAS A SURPLUS OF INTEREST INCOME TO THE EXTENT OF RS.12,9 4,832/-. IN THE CASE OF ITO V. KARNAVATI PETROCHEM PVT. LTD., THE HON.ITAT, AHMEDABAD HAS HELD THAT WHEN THE INTEREST INCOME WAS MORE THAN IN TEREST EXPENSE AND THE ASSESSEE WAS HAVING NET POSITIVE INTEREST INCOME, T HE INTEREST EXPENDITURE COULD NOT BE CONSIDERED FOR DISALLOWANCE U/S 14A AN D RULE 8D. VARIOUS OTHER COURTS AND TRIBUNALS HAVE ALSO HELD THE SAME VIEW. THEREFORE, RESPECTFULLY M FOLLOWING THE DECISION OF THE JURISD ICTIONAL TRIBUNAL, THE ADDITION MADE BY THE AO ON ACCOUNT OF DISALLOWANCE OF INTEREST IS DELETED. 3.2.1 HOWEVER, 1 AM OF THE OPINION THAT DISALLOWANC E OF ADMINISTRATIVE EXPENSES @ .5% OF THE AVERAGE OF VALUE OF INVESTMEN T U/R.8D(2)(III) IE RS.2,37,810/- HAS BEEN CORRECTLY MADE BY THE AO AND THE SAME IS UPHELD. THE GROUND OF APPEAL IS PARTLY ALLOWED. 5. AS NOTED ABOVE, THE LD.CIT(A) DELETED DISALLOWAN CE UNDER SECTION 14A OF THE ACT BY HOLDING THAT SINCE THE AS SESSEE HAS INTEREST INCOME MORE THAN THE INTEREST EXPENSES, AND THE ASS ESSEE WAS HAVING NET POSITIVE INTEREST INCOME, NO DISALLOWANCE IS RE QUIRED TO BE MADE UNDER SECTION 14A READ WITH RULE 8D. HOWEVER, THE LD.CIT(A) RESTRICTED THE DISALLOWANCE ADMINISTRATIVE EXPENSES AT 0.5% OF THE AVERAGE VALUE OF INVESTMENT UNDER RULE 8D(2)(III). NOW, REVENUE IS AGGRIEVED BY THE RESTRICTION OF DISALLOWANCE UNDER SECTION 14A WHILE ITA NO.1124 AND 1125/AHD/2018 & 2 OTHERS 6 THE ASSESSEE IS AGGRIEVED THAT NO DISALLOWANCE SHOU LD BE MADE UNDER SECTION 14A OF THE ACT, AS OWN CAPITAL IS HIGHER TH AN THE INVESTMENT IN SHARES. 6. BEFORE US, THE LD.DR SUPPORTED ORDER OF THE AO. HE FURTHER SUBMITTED THAT THE ASSESSEE HAS NOT FURNISHED FUND FLOW STATEMENT TO ESTABLISH THAT SURPLUS FUND OR INTEREST FREE FUNDS WERE UTILIZED FOR INVESTMENT, WHICH EARNED EXEMPT INCOME. THEREFORE, IN THE ABSENCE OF DEMONSTRATIVE EVIDENCES, THE LD.AO HAS RIGHTLY I NVOKED PROVISIONS OF SECTION 14A OF THE ACT AND RULE 8D, WHICH DESERV ES TO BE CONFIRMED AND ORDER OF THE LD.CIT(A) BE SET ASIDE. 7. ON THE OTHER HAND, THE ASSESSEE HAS FILED WRITTE N SUBMISSIONS. THE ASSESSEE SUPPORTED ORDERS OF THE LD.CIT(A) SO F AR AS DISALLOWANCE OF INTEREST EXPENDITURE. ASSESSEE RELIED ON THE PR OPOSITION THAT WHEN THERE IS NET INTEREST INCOME, THEN NO DISALLOWANCE CAN TAKE PLACE UNDER RULE 8D, AS HELD IN NIRMA CREDIT & CAPITAL LTD., 30 0 CTR 286, AND THAT IT IS THE DIFFERENCE BETWEEN THE INTEREST PAID AND THE INTEREST EARNED WHICH SHOULD BE CONSIDERED AS ASSESSEES INT EREST EXPENDITURE FOR WORKING OUT FORMULA PRESCRIBED UNDER RULE 8D. I N OTHER WORDS, FOR COMPUTATION OF DISALLOWANCE UNDER RULE 8D, NOT THE GROSS INTEREST PAYMENT, BUT THE NET INTEREST PAYMENT WOULD BE CONS IDERED. AS FAR AS AD-HOC DISALLOWANCE OF ADMINISTRATIVE EXPENSES AT T HE RATE OF 0.5% RESTRICTED BY THE LD.CIT(A) AS PER RULE 8D(III), TH IS BEING AN ADHOC EXPENSES, THE ASSESSEE PRAYED TO RESTRICT THE SAME TO A LUMPSUM DISALLOWANCE OF RS.1,50,000/- IN EACH ASSESSMENT YE AR. 8. WE HAVE HEARD THE LD.DR AND GONE THROUGH THE SUB MISSIONS FILED BY THE ASSESSEE AND ALSO ORDERS OF THE REVENU E AUTHORITIES AND ITA NO.1124 AND 1125/AHD/2018 & 2 OTHERS 7 OTHER MATERIAL AVAILABLE ON RECORD. SO FAR AS DISAL LOWANCE UNDER SECTION 14A R.W. RULE 8D(2)(II) ARE CONCERNED , WE HAVE NOTED THAT THE LD. CIT(A) DELETED THE DISALLOWANCES BY FO LLOWING THE ORDER OF ITAT, AHMEDABAD ITO VS. KARNAVATI PETROCHEM P.LTD., WHEREIN IT WAS HELD THAT WHEN THE INTEREST INCOME WAS MORE THA N THE INTEREST EXPENSES, AND THE ASSESSEE WAS HAVING NET POSITIVE INTEREST INCOME, THE INTEREST EXPENDITURE COULD NOT BE CONSIDERED FO R DISALLOWANCE UNDER SECTION 14A OF THE ACT. WE FIND THAT THE LD . CIT(A) ALSO EXAMINED THE RESERVE AND SURPLUS FUND AVAILABLE WIT H THE ASSESSEE COMPANY, WHICH IS MORE THAN THE INVESTMENT MADE BY ASSESSEE FOR EARNING EXEMPT INCOME. NO CONTRARY FACT OR LAW IS B ROUGHT TO OUR NOTICE BY THE REVENUE TO TAKE A DIFFERENT VIEW. THE REFORE, THE GROUND OF APPEAL RAISED BY REVENUE IN ITS APPEAL FOR A.Y. 2009-10 IS DISMISSED. 9. SO FAR AS ADMINISTRATIVE EXPENSES, THE LD.CIT(A) HAS RESTRICTED THE SAME AT 0.5% OF AVERAGE VALUE OF INVESTMENT, AS PER RULE 8D(2)(III). WE FIND THAT THE ASSESSEE HAS CLAIMED THAT NO EXPENDITURE WAS INCURRED FOR EARNING EXEMPT INCOME, THEREFORE, THE ASSESSEE PRAYED SINCE THE SAME BEING ON HIGHER SIDE, A REASO NABLE DISALLOWANCE BE MADE. LD.CIT(A) HAS DETERMINED THE ADMINISTRATIV E SAME ON ADHOC BASIS, AND NO NEXUS HAS BEEN MADE BETWEEN THE EXPEN DITURE INCURRED AND THE EXEMPT INCOME. THEREFORE, TO MEET THE END S OF JUSTICE, WE RESTRICT THE DISALLOWANCE TO RS.1,50,000/- IN EACH ASSESSMENT YEAR UNDER APPEAL. THIS GROUND IS ACCORDINGLY ALLOWED. 10. IN THE RESULT, APPEAL OF THE REVENUE FOR THE A. Y.2009-10 IS DISMISSED, AND THE APPEAL OF THE ASSESSEE IS PARTLY ALLOWED. ITA NO.1124 AND 1125/AHD/2018 & 2 OTHERS 8 11. AS FAR AS REVENUES APPEAL AND THE ASSESSEES C ROSS APPEAL FOR THE ASSTT.YEAR 2010-11 ARE CONCERNED, THE PROPOSITI ON CONSIDERED BY US WHILE DECIDING THE APPEALS FOR THE ASSTT.YEAR 20 09-10, ARE IDENTICALLY APPLICABLE TO THE ASSTT.YEAR 2010-11 AS WELL. THEREFORE, WE DISPOSE OF BOTH APPEALS OF THE REVENUE AND THE A SSESSEE ACCORDINGLY. 12. IN THE RESULT, REVENUES APPEALS ARE DISMISSED AND THAT OF ASSESSEE ARE PARTLY ALLOWED. ORDER PRONOUNCED IN THE COURT ON 4 TH JUNE, 2021 AT AHMEDABAD. S D / - (AMARJIT SINGH) ACCOUNTANT MEMBER S D / - (RAJPAL YADAV) VICE-PRESIDENT