Electro Automation, CHENNAI V. DCIT Non Corporate Circle 10(1), CHENNAI

ITA 1174/CHNY/2018

• Counselvise Citation: [2019] 118 COUNSELVISE.COM (IT) 6862 (ITAT-CHENNAI)
• Duration Of Justice: 8 month(s) 26 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 02-01-2019
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: B
• Assessment Year: 2012-2013
• Appeal Filed On: 06-04-2018
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: J PRABHAKAR
• Section: 14A

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL A BENCH, CHENNAI . . . , . !' , $ % BEFORE SHRI N.R.S. GANESAN, JUDICIAL MEMBER AND SHRI A. MOHAN ALANKAMONY, ACCOUNTANT MEMBER ./ ITA NO.1174/CHNY/2018 ' (' / ASSESSMENT YEAR : 2012-13 M/S ELECTRO AUTOMATION, 267, KILPAUK GARDEN ROAD, KILPAUK, CHENNAI - 600 010. PAN : AAAFE 7480 Q V. THE DEPUTY COMMISSIONER OF INCOME TAX, NON-CORPORATE CIRCLE 10(1), CHENNAI - 600 034. (*+/ APPELLANT) (,-*+/ RESPONDENT) *+ . / / APPELLANT BY : SHRI J. PRABHAKAR, FCA ,-*+ . / / RESPONDENT BY : SHRI AR.V. SREENIVASAN, JCIT 0 . 1$ / DATE OF HEARING : 26.12.2018 2!( . 1$ / DATE OF PRONOUNCEMENT : 02.01.2019 / O R D E R PER N.R.S. GANESAN, JUDICIAL MEMBER : THIS APPEAL OF THE ASSESSEE IS DIRECTED AGAINST T HE ORDER OF THE COMMISSIONER OF INCOME TAX (APPEALS) -12, CHENN AI, DATED 31.01.2018 AND PERTAINS TO ASSESSMENT YEAR 2012-13. 2. SHRI J. PRABHAKAR, THE LD. REPRESENTATIVE FOR TH E ASSESSEE, SUBMITTED THAT THE ONLY ISSUE ARISES FOR CONSIDERAT ION IS 2 I.T.A. NO. 1174/CHNY/18 DISALLOWANCE MADE BY THE ASSESSING OFFICER UNDER SE CTION 14A OF THE INCOME-TAX ACT, 1961 (IN SHORT 'THE ACT'). ACC ORDING TO THE LD. REPRESENTATIVE, THE ASSESSEE-PARTNERSHIP FIRM INVES TED IN THE MUTUAL FUNDS AND EARNED EXEMPTED INCOME. ACCORDING TO THE LD. REPRESENTATIVE, THE ASSESSEE INVESTED ITS OWN FUNDS IN THE MUTUAL FUNDS AND NO BORROWED FUNDS WERE USED FOR INVESTMEN T IN THE MUTUAL FUNDS. ACCORDING TO THE LD. REPRESENTATIVE, THE ASSESSING OFFICER HAS FOUND THAT THE ASSESSEE HAS PAID INTERE ST ON THE CAPITAL ACCOUNT OF THE PARTNERS. IF THESE FUNDS WERE UTILI SED FOR THE PURPOSE OF BUSINESS, THE INTEREST PAID TO THE PARTNERS COUL D HAVE BEEN AVOIDED. ACCORDING TO THE LD. REPRESENTATIVE, INTE REST PAID TO THE PARTNERS IS NOT AN EXPENDITURE. ACCORDING TO THE L D. REPRESENTATIVE, NO MONEY WAS BORROWED FOR MAKING ANY INVESTMENT. P LACING RELIANCE ON THE ORDER OF THIS TRIBUNAL IN DCIT V. R AJAPALAYAM MILLS LTD. IN I.T.A. NO.3165/MDS/2016 DATED 25.01.2018, T HE LD. REPRESENTATIVE SUBMITTED THAT WHEN THE ASSESSEE INV ESTED ITS OWN FUNDS, THIS TRIBUNAL FOUND THAT THERE CANNOT BE ANY DISALLOWANCE EVEN THOUGH THE INVESTMENT RESULTED IN EARNING OF E XEMPTED INCOME. TO ESTABLISH THE AVAILABILITY OF FUNDS, AC CORDING TO THE LD. REPRESENTATIVE, THE ASSESSEE HAS ALSO FILED COPIES OF BALANCE SHEET AND OTHER MATERIALS. 3 I.T.A. NO. 1174/CHNY/18 3. ON THE CONTRARY, SHRI AR.V. SREENIVASAN, THE LD. DEPARTMENTAL REPRESENTATIVE, SUBMITTED THAT THE ASS ESSEE HAS INVESTED IN MUTUAL FUNDS APART FROM DEBT FUND AND E QUITY FUND. ACCORDING TO THE LD. D.R., THE ASSESSEE HAS RECEIVE D DIVIDEND BOTH FROM DEBT FUND AND EQUITY FUND AND ALSO EARNED EXEM PTED INCOME FROM MUTUAL FUNDS. FOR THE ASSESSMENT YEAR 2012-13 , ACCORDING TO THE LD. D.R., THE ASSESSEE INVESTED TO THE EXTENT O F 2,73,89,262/- AS ON 31.03.2012. THE ASSESSEE RECEIVED DIVIDEND I NCOME OF 24,32,092/-. THE ASSESSEE HAS ALSO PAID INTEREST T O THE EXTENT OF 76,63,708/- TO THE PARTNERS BASED ON THE BALANCES A VAILABLE IN THE CURRENT ACCOUNT OF THE PARTNERS. ACCORDING TO THE LD. D.R., IF THE AVAILABLE FUNDS WERE UTILISED FOR MAKING INVESTMENT FOR EARNING DIVIDEND INCOME FOR THE PURPOSE OF BUSINESS, THEN T HE INTEREST PAID TO THE PARTNERS COULD HAVE BEEN AVOIDED. THEREFORE , ACCORDING TO THE LD. D.R., THE CIT(APPEALS) HAS RIGHTLY CONFIRME D THE DISALLOWANCE MADE BY THE ASSESSING OFFICER. 4. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS ON EITH ER SIDE AND PERUSED THE RELEVANT MATERIAL AVAILABLE ON RECORD. THE ASSESSEE ADMITTEDLY IS A PARTNERSHIP FIRM. THE ASSESSEE NOW CLAIMS BEFORE THIS TRIBUNAL THAT THE INVESTMENT IN THE MUTUAL FUN DS AND OTHER 4 I.T.A. NO. 1174/CHNY/18 INVESTMENTS, WHICH YIELDED EXEMPTED INCOME, WERE MA DE FROM ITS OWN FUNDS. DISALLOWANCE UNDER SECTION 14A OF THE A CT NEEDS TO BE MADE PROVIDED THE ASSESSEE INCURRED EXPENDITURE. I N THIS CASE, THE ASSESSEE CLAIMS THAT THERE WAS NO SUCH EXPENDITURE INCURRED. THE ASSESSEE ALSO PAID INTEREST TO THE PARTNERS ON THE OUTSTANDING BALANCE IN THE CURRENT ACCOUNT. SINCE THE ASSESSEE CLAIMS THAT THE INVESTMENTS WERE MADE FROM ITS OWN FUNDS, THIS TRIB UNAL IS OF THE CONSIDERED OPINION THAT THE MATTER NEEDS TO BE RE-E XAMINED BY THE ASSESSING OFFICER AND FIND OUT WHETHER THE ASSESSEE HAS INVESTED FROM ITS OWN FUNDS OR THE BORROWED FUNDS. 5. IT ALSO NEEDS TO BE EXAMINED WHETHER THE ASSESSE E HAS INCURRED ANY INDIRECT EXPENDITURE OF PAYMENT OF INT EREST BY BORROWING FUNDS FOR THE PURPOSE OF BUSINESS. IN TH OSE FACTUAL CIRCUMSTANCES, THIS TRIBUNAL IS OF THE CONSIDERED O PINION THAT THE MATTER NEEDS TO BE RE-EXAMINED. ACCORDINGLY, ORDER S OF BOTH THE AUTHORITIES BELOW ARE SET ASIDE AND THE ENTIRE ISSU E IS REMITTED BACK TO THE FILE OF THE ASSESSING OFFICER. THE ASSESSIN G OFFICER SHALL RE- EXAMINE THE MATTER IN THE LIGHT OF THE MATERIAL THA T MAY BE FILED BY THE ASSESSEE AND BRING ON RECORD WHETHER THE ASSESS EE BORROWED ANY FUNDS FOR THE PURPOSE OF BUSINESS DURING THE YE ARS AND 5 I.T.A. NO. 1174/CHNY/18 CONSIDERATION AND WHETHER THE ASSESSEE HAD SUFFICIE NT FUNDS FOR MAKING INVESTMENT IN THE MUTUAL FUNDS AND OTHER INV ESTMENTS FOR EARNING EXEMPTED INCOME DURING THE YEAR UNDER CONSI DERATION AND THEREAFTER DECIDE THE ISSUE AFRESH IN ACCORDANCE WI TH LAW, AFTER GIVING A REASONABLE OPPORTUNITY TO THE ASSESSEE. 6. IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE IS ALLOWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED IN THE COURT ON 2 ND JANUARY, 2019 AT CHENNAI. SD/- SD/- (. !' ) ( . . . ) (A. MOHAN ALANKAMONY) (N.R.S. GANESA N) $ / ACCOUNTANT MEMBER /JUDICIAL MEMBER /CHENNAI, 4 /DATED, THE 2 ND JANUARY, 2019. KRI. . ,156 76(1 /COPY TO: 1. *+ /APPELLANT 2. ,-*+ /RESPONDENT 3. 0 81 () /CIT(A)-12, CHENNAI 4. PRINCIPAL CIT-3, CHENNAI 5. 69 ,1 /DR 6. :' ; /GF.