ACIT, Circle-16(2), Hyd, Hyderabad V. T.Venkat Ram Reddy., Hyd, Hyderabad

ITA 1265/HYD/2015

• Counselvise Citation: [2016] 132 COUNSELVISE.COM (IT) 6472 (ITAT-HYDERABAD)
• Duration Of Justice: 7 month(s) 20 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 24-06-2016
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: B
• Next Hearing Date: 09-06-2016
• Assessment Year: 2011-2012
• Appeal Filed On: 04-11-2015
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: B KURMI NAIDU
• Assessee Lawyers: B SHANTI KUMAR
• Keywords: Business income; Carry forward of business losses; Transactions in derivatives; Earning of tax free income
• Section: 142(1); 14A

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL HYDERABAD BENCHES B : HYDERABAD BEFORE SHRI D. MANMOHAN, VICE PRESIDENT AND SHRI S. RIFAUR RAHMAN, ACCOUNTANT MEMBER ITA.NO.1264/HYD/2015 ASSESSMENT YEAR 2011-12 ASST. COMMISSIONER OF INCOME-TAX, CIRCLE 16(2), HYDERABAD. VS. T. VINAYAK RAVI REDDY, HYDERABAD. ABAPT 1317Q (APPELLANT) (RESPONDENT) ITA.NO.1265/HYD/2015 ASSESSMENT YEAR 2011-12 ASST. COMMISSIONER OF INCOME-TAX, CIRCLE 16(2), HYDERABAD. VS. T. VENKAT RAMI REDDY, HYDERABAD. AAWPT 6892M (APPELLANT) (RESPONDENT) REVENUE BY : SHRI B. KURMI NAIDU ASSESSEE BY: SHRI B. SHANTI KUMAR DATE OF HEARING : 15.06.2016 DATE OF PRONOUNCEMENT : .06.2016 ORDER PER SHRI S. RIFAUR RAHMAN, A.M.: BOTH THESE APPEALS FILED BY REVENUE ARE DIRECTED AGAINST SEPARATE ORDERS OF LD. CIT(A) 4, HYDERABA D , BOTH, DATED 06/08/2015 FOR AY 2011-12. SINCE IDENTICAL IS SUE IS INVOLVED IN BOTH THESE APPEALS, THE SAME WERE CLUBB ED AND HEARD TOGETHER AND, THEREFORE, A COMMON ORDER IS PA SSED FOR THE SAKE OF CONVENIENCE. 2 ITA.NOS. 1264 & 1265/HYD/2015 SHRI T. VINAYAK RAVI REDDY & SHRI T. VENKAT RAM REDDY 2. BRIEFLY THE FACTS, AS TAKEN FROM ITA NO. 1264/HY D/2015 IN CASE OF SHRI T. VINAYAK RAVI REDDY, ARE THAT THE ASSESSEE IS AN INDIVIDUAL AND A DIRECTOR OF THE COMPANY M/S DECCAN CHRONICLE HOLDINGS LTD., AND IS IN RECEIPT OF INCO ME FROM SALARY, HOUSE PROPERTY, BUSINESS, CAPITAL GAINS AND OTHER SOURCES. THE ASSESSEE FILED HIS RETURN OF INCOME FO R THE AY 2011-12 ON 30/09/2011 DECLARING TOTAL INCOME OF RS. 3,39,02,224/-, WHICH WAS PROCESSED U/S 143(1) OF TH E INCOME-TAX ACT, 1961 (IN SHORT ACT) ON 25/04/2012 . SUBSEQUENTLY, THE CASE WAS SELECTED FOR SCRUTINY TH ROUGH CASS AND NOTICES U/S 143(2) AND 142(1) OF THE ACT A LONG WITH QUESTIONNAIRE ISSUED AND SERVED ON THE ASSESSE E. AO ASSESSED THE INCOME OF THE ASSESSEE AT RS. 3,95,86, 600/- BY MAKING THE FOLLOWING DISALLOWANCES: A) INTEREST CLAIMED ON BORROWED CAPITAL U/S 24(B) OF RS. 12,08,567/- . B) EXPENDITURE OF RS. 69,85,580/- U/S 14A OF THE A CT. 3. ON AN APPEAL BY THE ASSESSEE, THE CIT(A) HAS SUSTAINED THE DISALLOWANCE MADE BY THE AO WITH REGA RD TO THE INTEREST CLAIMED ON BORROWED CAPITAL U/S 24(B) WHEREAS HE DELETED THE DISALLOWANCE MADE U/S 14A OF THE ACT . 4. AGGRIEVED BY THE ORDER OF THE CIT(A), THE REVENU E IS IN APPEAL BEFORE US RAISING THE FOLLOWING SUBSTANTIVE GROUND: 2. THAT IN THE FACTS & CIRCUMSTANCES OF THE CASE AN D IN LAW THE LD. CIT(A) ERRED IN DELETING THE ADDITI ON OF RS. 69,85,580/- MADE U/S 14A OF THE INCOME TAX ACT , 1961. 5. THE AO OBSERVED THAT WHILE SCRUTINY PROCEEDINGS, AN AMOUNT OF RS. 63,04,68,746.86 HAS BEEN SHOWN UNDER THE HEAD INVESTMENTS AND DECLARED THE DIVIDEND INCOME O F RS. 99,140/- FROM THE SAID INVESTMENT AND CLAIMED THE S AME AS 3 ITA.NOS. 1264 & 1265/HYD/2015 SHRI T. VINAYAK RAVI REDDY & SHRI T. VENKAT RAM REDDY EXEMPT. AO FURTHER OBSERVED THAT FROM THE INFORMATI ON FURNISHED BY THE ASSESSEE THAT IT HAS DEBITED FINAN CE CHARGES OF RS. 92,83,382.51 AND THE ASSESSEE HAS TAKEN SEC URED LOAN AMOUNTING TO RS. 17,51,94,320/- AND UNSECURED LOANS OF RS. 22,48,10,523/-. WITH THE ABOVE INFORMATION, THE AO HAS COMPUTED THE DISALLOWANCE U/S 14A AS UNDER: I. EXPENDITURE DIRECTLY RELATED TO EXEMPT INCOME NIL II. APPORTIONMENT OF EXPENDITURE NOT DIRECTLY RELATED TO EXEMPT INCOME A B C III FINANCIAL CHARGES AVERAGE VALUE OF INVESTMENTS AVERAGE TOTAL ASSETS EXPENDITURE NOT DIRECTLY RELATED TO EXEMPT INCOME (A*B/C) % OF AVERAGE VALUE OF INVESTMENTS 92,83,383 50,59,11,229 105,28,54,607 44,56,024 25,29,550 44,56,924 25,29,556 TOTAL EXPENDITURE TO BE DISALLOWED U/S 14A OF THE IT ACT 69,85,580 6. THE CIT(A) HAS DELETED THE DISALLOWANCE MADE U/S 14A BY THE AO BY OBSERVING THAT THERE IS NO FRESH INVES TMENT MADE IN THE YEAR UNDER CONSIDERATION AND ALL THE IN VESTMENTS WERE CARRIED FORWARD FROM EARLIER YEARS. HE OBSERVE D THAT AS PER THE P&L A/C AND FROM THE DETAILS SUBMITTED, ASS ESSEE HAS NOT CLAIMED ANY EXPENDITURE RELATING TO THIS IN VESTMENT AND THERE IS NO INTEREST EXPENDITURE CLAIMED ON THI S INVESTMENT OF KARVY FINANCIAL SERVICES OF RS. 10 CR ORES. REMAINING SECURED LOANS FROM ICICI HOUSING LOAN AND UNSECURED LOANS, THERE IS NO INTEREST AMOUNT DEBITE D TO P&L A/C. IN SUBSTANCE, THERE IS NO EXPENDITURE CLAIMED BY THE ASSESSEE TO DISALLOW EXPENDITURE U/S 14A OF THE ACT . 4 ITA.NOS. 1264 & 1265/HYD/2015 SHRI T. VINAYAK RAVI REDDY & SHRI T. VENKAT RAM REDDY 7. CONSIDERED THE SUBMISSIONS OF BOTH THE PARTIES A ND PERUSE THE MATERIAL FACTS ON RECORD. THE LD. AR BRO UGHT TO OUR NOTICE THE COMPUTATION OF INCOME FILED BY THE A SSESSEE FOR AY 2011-12. ASSESSEE HAS DECLARED INCOME FROM S HARE TRANSACTIONS, A LOSS OF RS. 79,29,245.20 AFTER CLAI MING EXPENDITURE OF BANK CHARGES AND AUDIT FEES TO THE E XTENT OF RS. 27,755.99. ASSESSEE ALSO DECLARED INCOME FROM S ALARY, INCOME FROM HOUSE PROPERTY, CAPITAL GAINS AND INCOM E FROM OTHER SOURCES. IN THE INCOME FROM OTHER SOURCES, AS SESSEE HAS DECLARED DIVIDEND INCOME OF RS. 99,140/- ONLY. FROM THE ABOVE SAID INCOME STATEMENT, ASSESSEE HAS INVARIABL Y CLAIMED EXPENDITURE OF RS. 27,755.99 ONLY. IT IS R ELEVANT TO NOTE THAT ASSESSEE HAD FILED THE RECEIPT AND PAYME NT A/C, IN WHICH, ASSESSEE HAS SHOWN INTEREST EXPENDITURE O F RS. 92,83,382.51 AND THE BREAK UP OF THE SAME AS UNDER: (REFER PAGE 12 16 OF THE PAPER BOOK) BANK CHARGES RS. 2810.99 INTEREST ON HOUSING LOAN RS. 82,64,843.00 LOCKER RENT RS. 15,442.00 INTEREST ON VEHICLE LOAN RS. 10,00,286.00 RS. 92,83,382.57 ============== FROM THE ABOVE, IT CAN BE SEEN THAT THESE INTEREST EXPENDITURES ARE NOT ANY WAY RELATING TO F&O BUSINE SS OF THE ASSESSEE AND INTEREST ON HOUSING LOAN IS ATTRIBUTAB LE TO INCOME FROM HOUSE PROPERTY, WHICH IS SEPARATELY ASS ESSABLE INCOME AND INTEREST ON VEHICLE LOAN IS ALSO IRRELEV ANT FOR THE EXEMPT INCOME, WHICH DOES NOT REQUIRE THE AO TO APP LY RULE 8D(2)(II) OF IT RULES, 1962. MOREOVER, ASSESSEE HAS NOT CLAIMED ANY OF THE ABOVE EXPENDITURES IN HIS RETURN OF INCOME, WHICH DOES NOT WARRANT THE AO TO CALCULATE THE 5 ITA.NOS. 1264 & 1265/HYD/2015 SHRI T. VINAYAK RAVI REDDY & SHRI T. VENKAT RAM REDDY DISALLOWANCE U/S 14A. IT IS PERTINENT TO NOTE THAT ASSESSEE HAS SHOWN LOSS FROM F&O TRANSACTIONS, WHICH IS PURE LY NET LOSS FROM SHARE TRANSACTIONS AND ASSESSEE WOULD NOT HAVE CHARGED ANY EXPENDITURE ON THE ABOVE LOSS. SINCE, A SSESSEE HAS NOT CHARGED ANY EXPENDITURE ON SUCH F&O LOSS, W E FIND IT DIFFICULT TO UNDERSTAND, HOW AO DECIDES TO DISALLOW THE 14A DISALLOWANCE FROM F&O BUSINESS LOSS CARRY FORWARD. BASICALLY, AO HAS TO DEMONSTRATE FIRST THE CLAIM OF THE EXPENDITURE BY ASSESSEE RELEVANT TO BUSINESS INCOME AND FOR EXEMPT INCOME. WHILE BOTH ARE ABSENT, THERE IS NO Q UESTION OF MAKING ANY DISALLOWANCE U/S 14A. IN OUR CONSIDER ED VIEW, THE ACTION OF THE AO IS UNWARRANTED. ACCORDINGLY, W E UPHOLD THE ACTION OF THE CIT(A) IN DELETING THE DISALLOWAN CE MADE BY THE AO U/S 14A OF THE ACT AND DISMISS THE GROUND RA ISED BY THE REVENUE. 8. AS THE FACTS AND GROUNDS OF APPEAL ARE MATERIALL Y IDENTICAL IN ITA NO. 1265/HYD/15 TO THAT OF ITA NO. 1264/HYD/15, FOLLOWING THE DECISION THEREIN, WE DIS MISS THE APPEAL OF THE REVENUE. 9. IN THE RESULT, BOTH THE APPEALS UNDER CONSIDERAT ION ARE DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 24 .06.2016. SD/- SD/- (D. MANMOHAN) (S. RIFAUR RAHMAN) VICE PRESIDENT ACOUNTANT MEMBER HYDERABAD, DATED 24 TH JUNE, 2016 KV 6 ITA.NOS. 1264 & 1265/HYD/2015 SHRI T. VINAYAK RAVI REDDY & SHRI T. VENKAT RAM REDDY COPY TO : 1. ACIT, CIRCLE 16(2), 7 TH FLOOR, AAYAKAR BHAVAN, BASHEERBAGH, HYDERABAD. 2. SHRI T. VINAYAK RAVI REDDY, PLOT NO. 53, H.NO. 8 -2- 703/A/6/C, ROAD NO. 12, BANJARA HILLS, HYDERABAD 3 SHRI T. VENKAT RAM REDDY, PLOT NO. 53, H.NO. 8-2- 703/A/6/C, ROAD NO. 12, BANJARA HILLS, HYDERABAD 4. CIT(A) - 4, HYDERABAD. 4. PR. CIT - 4, HYDERABAD 5. D.R. ITAT, HYDERABAD. 6. GUARD FILE