DCIT, CHENNAI V. Arun Excello Foundations P Ltd., CHENNAI

ITA 1163/CHNY/2016

• Counselvise Citation: [2016] 132 COUNSELVISE.COM (IT) 8771 (ITAT-CHENNAI)
• Duration Of Justice: 2 month(s) 29 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 27-07-2016
• Appeal Filed By: Department
• Order Result: Allowed
• Bench Allotted: C
• Next Hearing Date: 14-07-2016
• Assessment Year: 2011-2012
• Appeal Filed On: 28-04-2016
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: A V SREEKANTH IRS
• Assessee Lawyers: B RAMAKRISHNAN
• Keywords: Earning of tax free income
• Section: 14A

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL C BENCH, CHENNAI , . ! , '!# BEFORE SHRI CHANDRA POOJARI, ACCOUNTANT MEMBER AND SHRI G. PAVAN KUMAR, JUDICIAL MEMBER ./ I.T.A. NO.1163/MDS/2016 ' $ %$ / ASSESSMENT YEAR : 2011-2012 THE DEPUTY COMMISSIONER OF INCOME TAX, CORPORATE CIRCLE 1(1) CHENNAI. VS. M/S. ARUN EXCELLO FOUNDATIONS P. LTD, BHATTAD TOWERS, NO.18, WEST COTT ROAD, ROYAPETTAH, CHENNAI 600 014. [PAN AABCA 8168K] ( / APPELLANT) ( /RESPONDENT) &' ( ) / APPELLANT BY : SHRI. A.V.SREEKANTH, IRS, JCIT. *+&' ( ) /RESPONDENT BY : SHRI. B. RAMAKRISHNAN, C.A. ( , / DATE OF HEARING : 14-07-2016 -.% ( , / DATE OF PRONOUNCEMENT : 27-07-2016 / O R D E R PER G. PAVAN KUMAR, JUDICIAL MEMBER : THE APPEAL FILED BY THE DEPARTMENT IS DIRECTED A GAINST ORDER OF THE COMMISSIONER OF INCOME-TAX (APPEALS)-1 , CHENNAI IN ITA NO.68/14-15/A-1, DATED 15.02.2016 FOR THE ASSESSMEN T YEAR 2011- ITA NO.1163/MDS/2016 :- 2 -: 2012 PASSED U/S.143(3) AND 250 OF THE INCOME TAX A CT, 1961 (HEREIN AFTER REFERRED TO AS THE ACT). 2. THE REVENUE HAS RAISED THE FOLLOWING GROUNDS OF APP EAL:- 2.1 THE LEARNED CIT(A) ERRED IN DELETING THE DISALLOWANCE MADE U/S.14A OF RS. 1,34,19,012/-. 2.2 THE LEARNED CIT(A) OUGHT TO HAVE APPRECIATED THE BOARD'S CIRCULAR NO. 5/2014 DATED 11-02-2014 WHEREI N IT IS STATES THAT DISALLOWANCE U/S. 14A CAN BE MADE EVEN IN CASES WHERE THE TAXPAYER HAS NOT EARNED EXEMPT INCOME IN ANY PARTICULAR. 2.3 THE LEARNED CIT(A) OUGHT TO HAVE APPRECIATED THE FACT THAT ON SIMILAR ISSUE, THE DECISION OF THE JURISDICTIONAL ITAT IN THE CASE OF EIH ASSOCIATED HOTELS IN ITA NO.1503/MDS/2012 FOR A.Y.2008-09 DATED 17-07-2013,THE DEPARTMENT HAS FILED APPEAL U/S.260A WHICH IS PENDING BEFORE THE HON'BLE HIGH COURT. 3. THE BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE I S IN BUSINESS OF ENGINEERING CONTRACT WORKS AND FILED R ETURN OF INCOME ON 30.09.2011 WITH TOTAL INCOME OF >98,89,240/- AND TH E RETURN OF INCOME WAS PROCESSED U/S.143(1) OF THE ACT. SUBSEQ UENTLY, THE CASE WAS SELECTED FOR SCRUTINY AND NOTICE U/S.143(2) OF THE ACT WAS ISSUED. THE LD. AUTHORISED REPRESENTATIVE OF ASSESSEE APPEA RED FROM TIME TO TIME AND FILED DETAILS. THE LD. ASSESSING OFFICER ON PERUSAL OF THE FINANCIAL STATEMENTS FOUND THAT ASSESSEE COMPANY D ISCLOSED INVESTMENTS OF >29,56,80,000/- AND UNDER THE PROV ISIONS OF SEC. 14A OF THE ACT NO DEDUCTION SHALL BE ALLOWED IN RESPECT OF EXPENDITURE ITA NO.1163/MDS/2016 :- 3 -: INCURRED IN RELATION TO SUCH EXEMPTED INCOME ON INV ESTMENTS INCOME WHICH DOES NOT FORM PART OF TOTAL INCOME. IN THE FI NANCIAL YEAR 2010- 2011, THE ASSESSEE COMPANY CLAIMED INTEREST ON BORR OWED FUNDS >2,32,65,576/- AND IT WAS EXPLAINED THAT BORROWED F UNDS WERE NOT UTILIZED FOR INVESTMENT PURPOSE AND NO PORTION OF I NTEREST ON BORROWED CAPITAL PERTAINS TO SUCH INVESTMENTS. FURTHER, THE INVESTMENTS ARE MADE ON THE DECISIONS OF BOARD IN THE MUTUAL FUNDS AND SHARES AND DIVIDEND INCOME IS RECEIVED WITHOUT INCURRING ANY E XPENDITURE AND NO EXPENDITURE IN THE NATURE OF ADMINISTRATION OVERH EADS ARE CHARGED. THE LD. ASSESSING OFFICER HAVING NOT SATISFIED WITH SUBMISSIONS OF LD. AUTHORISED REPRESENTATIVE HAS APPLIED THE PROVISION S OF SEC. 14A R.W.R8D AND RELIED ON JUDICIAL DECISIONS AND CALCU LATED DISALLOWANCE U/S.14A R.W.R. 8D >1,34,19,012/- AND PASSED ORDER U /S.143(3) OF THE ACT DATED 19.03.2014. AGGRIEVED BY THE ORDER, THE A SSESSEE FILED AN APPEAL BEFORE COMMISSIONER OF INCOME TAX (APPEALS). 4. IN THE APPELLATE PROCEEDINGS, THE LD. AUTHORISED REPRESENTATIVE ARGUED THE GROUNDS AND EXPLAINED THA T NO BORROWED FUNDS WERE UTILIZED FOR THE PURPOSE OF INVESTMENTS. THE LD COMMISSIONER OF INCOME TAX (APPEALS) CONSIDERED THE GROUNDS AND SUBMISSIONS AND FINDINGS OF THE LD. ASSESSING OFFIC ER AND CAME TO A CONCLUSION THAT SINCE THERE IS NO EXEMPTED INCOME R ECEIVED BY THE ITA NO.1163/MDS/2016 :- 4 -: ASSESSEE RELIED ON DECISION OF THE CO-ORDINATE BENC H AND DELHI HIGH COURT DIRECTED THE LD. ASSESSING OFFICER TO DELETE THE ADDITION U/SEC. 14A OF THE ACT AND ALLOWED THE APPEAL OF THE ASSES SEE. AGGRIEVED BY THE COMMISSIONER OF INCOME TAX (APPEALS) ORDER, THE REVENUE HAS ASSAILED AN APPEAL BEFORE TRIBUNAL. 5. BEFORE US, THE LD. DEPARTMENTAL REPRESENTATIVE ARG UED THAT THE COMMISSIONER OF INCOME TAX (APPEALS) ERRED IN D ELETING THE DISALLOWANCE WITHOUT CONSIDERING THE FACT THAT THE DISALLOWANCE U/S.14A OF THE ACT CAN BE MADE WERE THE ASSESSEE HA S NOT EARNED ANY EXEMPTED INCOME AND RELIED ON THE DECISION OF CO-O RDINATE BENCH ON SIMILAR ISSUE WERE THE REVENUE HAVING NOT SATISFIED WITH DECISION OF ITAT FILED AN APPEAL BEFORE HONBLE JURISDICTIONAL HIGH COURT AND SAME IS PENDING AND PRAYED FOR ALLOWING THE APPEAL. 6. CONTRA, LD. AUTHORISED REPRESENTATIVE RELIED ON T HE ORDERS OF THE LD. COMMISSIONER OF INCOME TAX (APPEALS) AND VEHEMENTLY OPPOSED TO THE GROUNDS. 7. WE HEARD THE RIVAL SUBMISSIONS, PERUSED THE MATERIA L ON RECORD AND JUDICIAL DECISIONS CITED. THE LD. DEPAR TMENTAL REPRESENTATIVE ARGUED ON THE APPLICABILITY OF PROVI SIONS OF SEC. 14A AND RULE 8D(2) AND CBDT CIRCULAR AND EMPHASIZED THA T APPEAL IS PENDING BEFORE JURISDICTIONAL HIGH COURT, WHEREAS THE LD. AUTHORISED ITA NO.1163/MDS/2016 :- 5 -: REPRESENTATIVE CONTENTION THAT THE ASSESSEE COMPANY MADE INVESTMENTS OUT OF FUNDS GENERATED IN THE BUSINESS AND THE LOANS OBTAINED WERE NOT UTILIZED FOR THE PURPOSE OF INV ESTMENTS AND THE ASSESSEE COMPANY HAS CLAIMED INTEREST CHARGES IN PR OFIT AND LOSS ACCOUNT ON BORROWED FUNDS ONLY. THE LD. AUTHORISED REPRESENTATIVE EMPHASIZED THAT THE INVESTMENTS MADE OUT OF INTERNA L ACCRUALS OF BUSINESS OPERATIONS. BUT BEFORE US, THE ASSESSEE C OMPANY COULD NOT SUBSTANTIATE THE INVESTMENTS WITH CASH FLOW STATE MENT AND BANK ACCOUNT. THE LD. ASSESSING OFFICER HAS RELIED ON P ROVISIONS OF SEC.14A R.W.R. 8D(2) AND CALCULATED DISALLOWANCE. THE CONTENTION OF THE DEPARTMENT BEFORE THE TRIBUNAL THAT THE REVENUE HA S NOT ACCEPTED THE DECISION OF TRIBUNAL AND AN APPEAL HAS ALREADY BEEN FILED BEFORE JURISDICTIONAL HIGH COURT AND THE SAME IS PENDING. THIS TRIBUNAL IS OF THE CONSIDERED OPINION THAT MERE PENDENCY OF APPEAL BEFORE THE JURISDICTIONAL HIGH COURT CANNOT BE A REASON TO T AKE A DIFFERENT VIEW. THE ORDER OF TRIBUNAL IS BINDING ON ALL THE AUTHOR ITIES IN THE STATE OF TAMIL NADU AND UNION TERRITORY OF PONDICHERRY. THER EFORE, WE REMIT THE DISPUTED ISSUE TO THE FILE OF LD. ASSESSING OFF ICER TO VERIFY WHETHER BORROWED FUNDS ARE UTILIZED FOR THE PURPOSE OF INV ESTMENTS AND EXPENDITURE RELATED TO SUCH INVESTMENTS ARE NOT CHA RGED TO PROFIT AND LOSS ACCOUNT ANT CALCULATE THE DISALLOWANCE U/S.14 A R.W.RULE 8D ON MERITS AND THE ASSESSEE SHALL BE PROVIDED ADEQUATE OPPORTUNITY OF ITA NO.1163/MDS/2016 :- 6 -: HEARING BEFORE PASSING THE ORDER. THE APPEAL OF THE REVENUE IS ALLOWED FOR STATISTICAL PURPOSE. 8. IN THE RESULT, THE APPEAL OF THE REVENUE IS ALLOWE D FOR STATISTICAL PURPOSE. ORDER PRONOUNCED ON WEDNESDAY, THE 27TH DAY OF JULY, 2016, AT CHENNAI. SD/- SD/- ( ) (CHANDRA POOJARI) / ACCOUNTANT MEMBER ( . ! ) (G. PAVAN KUMAR) / JUDICIAL MEMBER / CHENNAI 0 / DATED:27.07.2016 KV 1 ( *',23 43%, / COPY TO: 1 . &' / APPELLANT 3. 5, () / CIT(A) 5. 389 *',' / DR 2. *+&' / RESPONDENT 4. 5, / CIT 6. 9:$ ; / GF