DCIT, Bangalore V. M/s John Distilleries Pvt. Ltd., Bangalore

ITA 1209/BANG/2016

• Counselvise Citation: [2017] 128 COUNSELVISE.COM (IT) 5405 (ITAT-BANGALORE)
• Duration Of Justice: 10 month(s) 19 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 28-04-2017
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: B
• Assessment Year: 2011-2012
• Appeal Filed On: 08-06-2016
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: G KAMALADAR HEARD ON
• Assessee Lawyers: H V GOUTHAMA
• Keywords: Earning of tax free income
• Section: 14A

Judgement Text

ITA.1209/BANG/2016 PAGE - 1 IN THE INCOME TAX APPELLATE TRIBUNAL BENGALURU BENCH 'B', BENGALURU BEFORE SHRI VIJAY PAL RAO, JUDICIAL MEMBER AND SHRI. S. JAYARAMAN, ACCOUNTANT MEMBER I.T.A NO.1209/BANG/2016 (ASSESSMENT YEAR : 2011-12) DEPUTY COMMISSIONER OF INCOME-TAX, CIRCLE 4(1)(1), BENGALURU .. APPELLANT V. M/S. JOHN DISTILLERIES P. LTD, NO.110, PANTHARAPALYA, MYSURU ROAD, BENGALURU 560 039 .. RESPONDENT PAN : AABCC9522F ASSESSEE BY : SHRI. H. V. GOUTHAMA, CA REVENUE BY : SHRI. G. KAMALADAR, STANDING COUNSEL HEARD ON : 27.04.2017 PRONOUNCED ON : 28.04.2017 O R D E R PER S. JAYARAMAN, ACCOUNTANT MEMBER : THIS IS AN APPEAL FILED BY THE REVENUE AGAINST THE ORDER OF THE CIT(A)-4, BENGALURU, DT.24.03.2016, FOR THE A. Y. 2 011-12. 02. M/S. JOHN DISTILLERIES P. LTD, THE ASSESSEE, IS ENGAGED IN THE MANUFACTURING OF INDIAN MADE FOREIGN LIQUOR. WHILE MAKING THE ASSESSMENT FOR A. Y. 2011-12, THE AO NOTED THAT AS PER THE BALANCE SHEET, THE ASSESSEES TOTAL CAPITAL AND RESERVE WAS RS.10 0,38,67,874/- AND THAT IN COMPARISON TO TOTAL INVESTMENT (INCLUDING INVESTMEN T IN COMPANY TO BE ITA.1209/BANG/2016 PAGE - 2 ACQUIRED) IS ONLY RS.5,08,67,874/-. THE AO ALSO FO UND THAT THE ASSESSEE HAS ADMITTED A TOTAL DIVIDEND INCOME OF RS.42,067/- . THE AO DISALLOWED RS.1,24,54,220/-, U/S.14A READ WITH RULE 8D. THIS INCLUDED DISALLOWANCE OF RS.1,16,07,892/- BEING PROPORTIONATE INDIRECT INTER EST ATTRIBUTABLE TO EXEMPT INCOME AND RS.8,46,328/- BEING 0.5% OF THE AVERAGE AMOUNT OF TAX EXEMPT INVESTMENTS. AGGRIEVED, THE ASSESSEE FILED APPEAL BEFORE THE CIT (A). 03. THE CIT (A), IN HIS ORDER IN APPEAL NO.361/19/C -4(1)(1)/CIT(A) - 4/2014-15, DT.24.03.2016 ALLOWED THE APPEAL PARTLY, ON THE FOLLOWING LINES BY APPLYING THE PRINCIPLES LAID DOWN BY THIS TRIBUN AL IN ASSESSEES OWN CASE FOR A. Y. 2010-11, IN ITA.1429 & 1565/BANG/20 14, DT.24.02.2016. ON DISALLOWANCE OF RS.1,16,07,892/- BEING PROPORTI ONATE INDIRECT INTEREST EXPENDITURE ATTRIBUTABLE TO EXEMPT INCOM E, SINCE THE ASSESSEES SHARE CAPITAL AND RESERVES FAR EXCEEDED THE INVESTM ENTS, HE DELETED THE PROPORTIONATE INDIRECT INTEREST EXPENDITURE DISALLO WED AT RS.1,16,07,892/-. IN RESPECT OF INTEREST DISALLOWANCE OF RS.8,46,3 38/- BEING 5% OF AVERAGE AMOUNT OF TAX EXEMPT INVESTMENTS, RELYING ON THE ITAT ORDER IN ASSESSEES OWN CASE (SUPRA), HE DIRECTED THE AO TO RESTRICT THE DISALLOWANCE TO THE EXTENT OF RECEIPT OF EXEMPT INCOME AT RS.42 ,067/-, ON THE RATIO THAT ONCE EXEMPT INCOME IS EARNED, IT IMPLIES THAT CERT AIN EXPENDITURE IS ATTRIBUTABLE TO IT SHOULD ALSO BE DISALLOWED. ITA.1209/BANG/2016 PAGE - 3 04. BEING AGGRIEVED, THE REVENUE FILED THIS APPEAL WITH THE FOLLOWING GROUNDS : 2. ON THE FACTS OF THE CASE, THE LD. CIT (A) HAS ER RED IN HOLDING THAT IN CASE THE NEXUS BETWEEN THE INVESTMENT AND INTEREST BEARING FUNDS IS NOT ESTABLISHED, SECTION 14A R.W.R. 8D HAS NOT APPLICAB ILITY AT ALL, WHEN IT IS STATED IN CIRCULAR NO.5/2014 DATED 11/02/2014 THAT THE DISALLOWANCE U/S.14A R.W.R 8D HAS TO BE MADE EVEN WHEN THE TAX P AYER ON A PARTICULAR YEAR HAS NOT EARNED ANY EXEMPTED INCOME. 3. ON FACTS OF THE CASE, THE LD. CIT (A) IS JUSTIFI ED IN DELETING THE 14A ADDITION MADE UNDER RULE 8D WHEN THE AO HAS RIGHTLY MADE THE DISALLOWANCE AFTER ANALYZING THE INVESTMENT PORTF OLIO AND THE BALANCE SHEET GIVEN BY THE ASSESSEE. 05. THE LD. DR PRESENTED HIS CASE ON THE LINE OF GR OUNDS OF APPEAL. THE AR OF THE ASSESSEE RELIED ON THE ITAT ORDER (SUPRA) AND THE JURISDICTIONAL HIGH COURT DECISION IN CIT V. MICROLABS LTD, REPORT ED IN 383 ITR 390. THE RELEVANT PORTION IS EXTRACTED AS UNDER : .....IT IS CLEAR FROM THE SAID STATEMENT THAT THE AVAILABILITY OF PROFIT, SHARE CAPITAL AND RESERVES & SURPLUS WAS MUCH MORE THAN I NVESTMENTS MADE BY THE ASSESSEE WHICH COULD YIELD TAX FREE INCOME. 41. THE HONBLE BOMBAY HIGH COURT IN RELIANCE UTILI TIES & POWER LTD. 313 ITR 340 (BOM) HAS HELD THAT WHERE THE INTEREST FREE FUNDS FAR EXCEED THE VALUE OF INVESTMENTS, IT SHOULD BE CONSIDERED T HAT INVESTMENTS HAVE BEEN MADE OUT OF INTEREST FREE FUNDS AND NO DISALLO WANCE U/S.14A TOWARDS ANY INTEREST EXPENDITURE CAN BE MADE. THIS VIEW WA S AGAIN CONFIRMED BY THE HONBLE BOMBAY HIGH COURT IN CIT V. HDFC BANK L TD. ITA NO.330 OF 2012, JUDGMENT DATED 23.7.14, WHEREIN IT WAS HELD T HAT WHEN INVESTMENTS ARE MADE OUT OF COMMON POOL OF FUNDS AND NON-INTERE ST BEARING FUNDS ITA.1209/BANG/2016 PAGE - 4 WERE MORE THAN THE INVESTMENTS IN TAX FREE SECURITI ES, NO DISALLOWANCE OF INTEREST EXPENDITURE U/S.14A CAN BE MADE. 42. IN THE LIGHT OF ABOVE SAID DECISIONS, WE ARE OF THE VIEW THAT DISALLOWANCE OF INTEREST EXPENSES IN THE PRESENT CA SE OF RS.49,42,473 MADE UNDER RULE 8D(2)(II) OF THE I. T. RULES SHOULD BE DELETED. WE ORDER ACCORDINGLY. 06. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS, THE D ECISION OF THE JURISDICTIONAL HIGH COURT (SUPRA) AND THIS TRIBUN AL DECISION IN THE ASSESSEES OWN CASE FOR A. Y. 2010-11, IN ITA.142 9 & 1565/BANG/2014, DT.24.02.2016 . BASED ON THEM, WE DISMISS THE REVEN UES APPEAL. 07. IN THE RESULT, THE APPEAL OF THE REVENUE IS DIS MISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 28 TH DAY OF APRIL, 2017. SD/- SD/- (VIJAY PAL RAO) (S. JAYARAMAN) JUDICIAL MEMBER A CCOUNTANT MEMBER MCN* COPY TO: 1. THE ASSESSEE 2. THE ASSESSING OFFICER 3. THE COMMISSIONER OF INCOME TAX 4. THE COMMISSIONER OF INCOME TAX (A) 5. DR 6. GF, ITAT, BANGALORE BY ORDER ASSISTANT REGISTRAR