Sri Shankaran Arayana Industries & Plantation Pvt Ltd , Bangalore V. Joint Commissioner of Income Tax (OSD) Circle-12(3), Bangalore

ITA 1152/BANG/2018

• Counselvise Citation: [2020] 111 COUNSELVISE.COM (IT) 4175 (ITAT-BANGALORE)
• Duration Of Justice: 1 year(s) 10 month(s) 20 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 27-02-2020
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: A
• Next Hearing Date: 25-02-2020
• Assessment Year: 2009-2010
• Appeal Filed On: 06-04-2018
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: B R RAMESH
• Keywords: Rule 8D
• Section: 14A; 13; 10

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL A BENCH, BENGALURU BEFORE SHRI PRADIP KUMAR KEDIA, ACCOUNTANT MEMBER & S MT. BEEN A PILLAI, JUDICIAL MEMB E R I.T.A. NO S . 1152 & 1153 /BANG /201 8 (ASSESSMENT YEAR S : 20 09 - 10 & 20 1 1 - 12 ) SRI SHANKA R ANARAYANA INDUSTRIES & PLANTATION PVT.LTD.,NO.64, I MAIN S.T.BED, 4 TH BLOCK, KORAMANGALA, BANGALORE - 560 0 3 4 VS. J CIT (OSD ) , CIRCLE - 12(3), BANGALORE PAN/GIR NO. A A CCS2282B ( APPELLANT ) .. ( RESPONDENT ) APPELLANT BY : S HRI RAVISHANKAR, ADVOCATE RESPOND ENT BY : SHRI B.R.RAMESH, JCIT DATE OF HEARING 25 - 02 - 2020 DATE OF PRONOUNCEMENT 27 - 02 - 2020 O R D E R PER PRADIP KUMAR KEDIA : AM THE CAPTIONED APPEAL S HA VE BEEN FILED AT THE INSTANCE OF ASSESSEE AGAINST ORDER OF THE CIT(A) , BENGALU RU ARISING IN THE ASSESSMENT ORDER PASSED BY THE A O UNDER S.143(3) OF THE ACT, 1961 ( THE ACT ) CONCERNING ASSESSMENT YEAR 2009 - 10 & 2011 - 12 RESPECTIVELY. 2. THE SOLITARY GROUNDS OF APPEAL CONCERNS DISALLOWANCE UNDER S.14A OF THE IT ACT, 1961 ( THE ACT ) ITA NOS.1152 & 1153(B)/2018 2 3. THE FACTS AND ISSUE INVOLVED BEING SIMILAR IN BOTH CASES, WE NOTE THE FACTS IN ITA NO.1152(B)/2018 (AY: 2009 - 10) FOR ADJUDICATION PURPOSE. 4 . WHEN THE MATTER WAS CALLED FOR HE A RING, THE LE A RNED COUNSEL FO R THE ASSESSEE AT THE OUTSET, SUBMITTED THA T THE DISALLOWANCE HAS BEEN MADE UNDER S.14A OF THE ACT, AS COMPUTED UNDER RULE 8D(2) ( III) I.E ONE AND HALF 1 % OF AVERAGE VALUE OF INVESTMENTS. IT WAS POINTED OUT THAT THE WHOLE OF THE INVESTMENTS HAS BEEN MADE IN MUTUAL FUNDS ONLY WHERE THE ADMINISTRAT IVE CHARGES ARE COLLECTED AND INBUILT IN THE MUTUAL FUND SCHEME ITS ELF. THE LD. AR FURTHER REFERRED TO THE AUDITED FINANCIALS OF THE AS S ESSEE AND POINTED OUT THAT OUT OF 6.77 CRORES TOWARDS ADMINISTRATIVE EXPENSES INCURRED BY THE ASSESSEE AND 6.59 CRORE RE LATES TO ELECTRICITY A ND WATER CHARGES INCURRED FOR THE PURPOSE OF REGULAR BUSINESS OF THE ASSESSEE. THE OTHER INSIGNIFICANT EXPENSES INCURRED AS RECORDED IN THE FINANCIAL STATEMENT HAS NOTHING T O DO WITH THE INVESTMENTS OF ID L E FUNDS IN THE MUTUAL FUND. I T WA S FURTHER CONTENDED THAT NO SATISFACTION HAS B EEN RECORDED BY THE AO AS MANDATED UNDER S.14A FOR THE PURPOSE OF CARRYING OUT DISALLOWANCE, MORE SO, WHERE THE FACTS ARE SO PECULIAR. IT WAS THUS CONTENDED THAT NO D I S ALLOWANCE UNDER S.14A IS POSSIBLE ON THESE FACTS. 5 . WE HAVE CAREFULLY CONSIDERED THE RIVAL SUBMISSIONS. THE ASSESSEE HAS AGITATED THE DISALLOWANCE MADE BY THE AO UNDER S.14A READ WITH RULE 8D(2)(III) OF THE IT RULES. WE NOTICE AVERMENTS MADE ON BEHALF OF THE ASSESSEE THAT TAX FREE INCOM E EARNED IN THE FORM OF DIVIDEND HAS ARISEN ENTIRELY OUT OF MUTUAL FUNDS WHICH ARE ONE TIME INVESTMENTS WITHOUT ANY PROACTIVE INVOLVEMENT OF MANAGEMENT PER SE. THE SURPLUS FUNDS OF THE COMPANY HAVE BEEN SIMPLY PARKED IN THE MUTUAL FUNDS. WE TAKE COGNIZANCE OF THE ARGUMENTS ADVANCED ON BEHALF OF THE ASSESSEE THAT MUTUAL FUND INVESTMENTS BEAR DIFFERENT TRAITS AND ARE DIFFERENT SPECIES OF ITA NOS.1152 & 1153(B)/2018 3 INVESTMENT. THE MUTUAL FUNDS ARE SUPERVISED BY THE EXPERTS IN FIELD AND MANAGEMENT CHARGES FOR SUCH SUPERVISION IS RECOVERE D FROM THE CLIENTS. THIS BEING SO, AN INVESTOR UNDER THE MUTUAL FUND SEPARATELY BEARS ADMINISTRATIVE AND MANAGERIAL EXPENSES UNLIKE A CASE WHERE ASSESSEE CHOOSES TO MAKE INVESTMENT IN SHARES DIRECTLY. IN THE CASE OF MUTUAL FUNDS, ADMINISTRATIVE AND MANAGER IAL EXPENSES ARE FACTORED IN THE INVESTMENTS ITSELF. IN SUCH A SCENARIO, THE EXPLANATION OFFERED BY THE ASSESSEE FOR NON - APPLICABILITY OF R ULE 8D(2)(III) FOR RIGID DISALLOWANCE APPEARS TO BE IN CONGRUITY WITH MARKET PRACTICE. ACCORDINGLY, WE DO NOT FIND IT A FIT CASE FOR RESORTING TO DOUBLE DISALLOWANCE OF SIMILAR EXPENDITURE TAKING SHELTER OF RULE 8D(2)(III) OF THE IT RULES. 6 . IT WILL BE PERTINENT HERE TO NOTE THAT A BARE READING OF SECTION 14A OF THE ACT SUGGESTS THAT ITS APPLICABILITY IS NOT AUTOMATIC . IT IS HEDGED BY CONDITIONS PRESCRIBED THEREIN. SECTION 14A INHERES IN IT THE CONCEPT OF REASONABLENESS. THE FORMIDABLE AMOUNT OF EXPENDITURE AS COMPUTED BY THE AO CANNOT BE SAID TO BE ATTRIBUTABLE TO TAX FREE INCOME GENERATED FROM SEPARATELY ADMINISTERED MUTUAL FUNDS BY APPLYING A STRAIGHT JACKET FORMULA EMBODIED IN RULE 8D(2)(III) OF THE IT RULES. 7 . WE THUS FIND CONSIDERABLE MERIT IN THE PLEA OF THE ASSESSEE FOR NO N AD JUDICATION OF S.14A IN THE FACTS OF THE CASE. HENCE, WE ARE DISPOSED TO ADJUDICATE THE ISSUE IN FA VOUR OF THE ASSESSEE. HENCE, THE ORDER OF THE CIT(A) SUSTAINING THE DISALLOWANCE UNDER S.14A OF THE ACT DESERVES TO BE VACATED. ITA NOS.1152 & 1153(B)/2018 4 8 . IN THE RESULT , THE APPEAL OF THE ASSESSEE IN ITA NO.1152(B)/2018 F OR ASSESSMENT YEAR 2009 - 10 A S WELL AS APPEA L IN ITA NO.1153(B)/2018 INVOLVE THE IDENTICAL ISSUE FOR ASSESSMENT YEAR 2012 - 13 ARE ALLOWED. SD/ - SD/ - (BEENA PILLAI) (PRADIP KUMAR KEDIA) JUDICIAL MEMBER ACCOUNTANT MEMBER PLACE: BENGALURU DATED: 27 - 02 - 2020 AM COPY OF ORDER FORWARDED TO: - 1 . REVENUE 2 . ASSESSEE 3 . CONCERNED CIT 4 . CIT (A) 5 . DR, ITAT, BENGALURU . 6. GUARD FILE. BY ORDER ASST. REGISTRAR THIS ORDER PRONOUNCED IN OPEN COURT ON 27 - 02 - 2020 ITA NOS.1152 & 1153(B)/2018 5