DCIT, CHENNAI V. Kamal Lunawath, CHENNAI

ITA 1273/CHNY/2015

• Counselvise Citation: [2015] 140 COUNSELVISE.COM (IT) 96296 (ITAT-CHENNAI)
• Duration Of Justice: 5 month(s) 1 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 28-10-2015
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: A
• Next Hearing Date: 10-09-2015
• Assessment Year: 2009-2010
• Appeal Filed On: 27-05-2015
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: A B KOLI
• Assessee Lawyers: DEVENDRA KUM AR BHANDARI
• Keywords: Earning of tax free income
• Section: 14A

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL , A B ENCH, CHENNAI . , ! # , $ & BEFORE SHRI CHANDRA POOJARI, ACCOUNTANT MEMBER AND SHRI CHALLA NAGENDRA PRASAD, JUDICIAL MEMBER ./I.T.A.NO .1273/MDS/2015 ( / ASSESSMENT YEAR: 2009-10) THE DEPUTY COMMISSIONER OF INCOME TAX, CORPORATE CIRCLE-I(1), CHENNAI-600 034. VS MR.KAMAL LUNAWATH, 10/8, RAMASWAMY STREET, VEPERY, CHENNAI-600 007. PAN:ABQPL5389J ( /APPELLANT) ( /RESPONDENT) / APPELLANT BY : MR. A.B.KOLI, JCIT /RESPONDENT BY : MR. DEVENDRA KUMAR BHANDARI, CA /DATE OF HEARING : 10 TH SEPTEMBER, 2015 /DATE OF PRONOUNCEMENT : 28 TH OCTOBER, 2015 / O R D E R PER CHALLA NAGENDRA PRASAD, JM: THIS APPEAL IS FILED BY THE REVENUE AGAINST THE ORD ER OF THE COMMISSIONER OF INCOME TAX (APPEALS)-I, CHENNAI DATED 23.01.2015 FOR THE ASSESSMENT YEAR 2009-10. THE ON LY GRIEVANCE IN THE APPEAL OF THE REVENUE IS THAT COM MISSIONER OF INCOME TAX (APPEALS) ERRED IN DIRECTING THE ASSE SSING OFFICER TO DELETE THE DISALLOWANCE MADE UNDER SECTI ON 14A READ WITH RULE 8D(II) OF THE ACT. 2. THE ASSESSING OFFICER WHILE COMPLETING THE ASSES SMENT INVOKING THE PROVISIONS OF SECTION 14A READ WITH R ULE 8D(II) 2 ITA NO.1273/MDS/2015 DISALLOWED INTEREST EXPENDITURE RELATING TO EXEMPT INCOME AT ` 14,20,497/- OUT OF TOTAL INTEREST OF ` 1,04,45,864/- REJECTING THE CONTENTION OF THE ASSESSEE THAT NO PORTION OF I NTEREST PAID RELATES TO INVESTMENTS MADE BY THE ASSESSEE. ON AP PEAL, COMMISSIONER OF INCOME TAX (APPEALS) DELETED THE DISALLOWANCE HOLDING THAT INVESTMENTS MADE BY THE A SSESSEE IN PURCHASE OF SHARES WERE FROM OUT OF THE INTEREST FREE FUNDS MOBILIZED BY THE ASSESSEE. HE FURTHER HELD THAT MOS T OF THE INTEREST DEBITED TO PROFIT AND LOSS ACCOUNT BY THE ASSESSEE TO ICICI BANK FOR TERM LOANS WHICH ARE SPECIFIC AND GE NERAL INTEREST TO THE EXTENT OF ` 31,533/- AGAINST WHICH THE REVENUE IS IN APPEAL BEFORE US. 3. DEPARTMENTAL REPRESENTATIVE VEHEMENTLY SUPPORTS THE ORDER OF THE ASSESSING OFFICER IN DISALLOWING THE I NTEREST UNDER RULE 8D(II) OUT OF INTEREST DEBITED TO PROFIT AND LOSS ACCOUNT TREATING IT AS INTEREST ATTRIBUTABLE FOR MA KING INVESTMENTS. 4. COUNSEL FOR THE ASSESSEE PLACES RELIANCE ON THE ORDER OF THE COMMISSIONER OF INCOME TAX (APPEALS). HE FUR THER SUBMITS THAT INVESTMENTS MADE ARE OUT OF INTEREST F REE FUNDS 3 ITA NO.1273/MDS/2015 AND THE INTEREST DEBITED TO PROFIT AND LOSS ACCOUNT IS ONLY ON TERM LOANS AND GENERAL LOANS NOT ATTRIBUTABLE FOR A NY LOANS BORROWED BY THE ASSESSEE FOR MAKING INVESTMENTS. 5. HEARD BOTH SIDES. PERUSED ORDERS OF LOWER AUTHOR ITIES. THE ASSESSING OFFICER WHILE COMPLETING THE ASSESSME NT DISALLOWED INTEREST INCOME TO THE EXTENT OF ` 14,20,497/- OUT OF THE INTEREST DEBITED TO PROFIT AND LOSS ACCOUNT TREATING SUCH EXPENDITURE AS ATTRIBUTABLE FOR EARNING EXEMPT INCO ME. THE ASSESSEE DEMONSTRATED BEFORE THE COMMISSIONER OF IN COME TAX (APPEALS) THAT INVESTMENTS WERE MADE OUT OF IN TEREST FREE FUNDS AND NO PART OF INVESTMENTS WERE MADE OUT OF BORROWED FUNDS, THEREFORE NO DISALLOWANCE IS WARRAN TED. CONSIDERING THE SUBMISSIONS OF THE ASSESSEE, THE COMMISSIONER OF INCOME TAX (APPEALS) DELETED THE DISALLOWANCE OBSERVING AS UNDER:- 4.2.3 IN THE INSTANT CASE, THE AO HAS APPLIED LIMBS (II) & (III) OF RULE 80. WHILE DOING, '- SO, THE AD HAS TAKEN THE I NTEREST ELEMENT AS RS.1,04,45,864 FOR THE WORKING OF LIMB ( II) HOLDING THAT THE INVESTMENT MADE IN SHARES IS FROM THE BORR OWED FUNDS BEARING INTEREST BURDEN. THE ID.AR OF THE APPELLANT HAS BROUGHT TO MY NOTICE THAT THE COMPANY HAS GOT INTEREST FREE BORROWINGS WHICH WERE DIRECTLY UTILIZED FOR THE PURPOSE OF INV ESTMENT IN SHARES, THEREFORE, THE PROVISIONS OF LIMB (II) WILL NOT ATTRACT. IN SUPPORT OF THIS, HE HAS FILED THE FINANCIAL STATEME NTS OF THE COMPANY ALONG WITH THE INTEREST FREE LOANS BORROWED AND THEIR UTILIZATION IN INVESTMENTS. THEY ARE AS UNDER: 4 ITA NO.1273/MDS/2015 31.03.2008 31.03.2009 INVESTMENT 1,10,54,993 3,06,29,993 ADVANCE FOR PURCHASE OF SHARES 1 ,95,50,000 - FRESH PURCHASE OF SHARES 3,06,04,993 3,06,29,993 AS SEEN FROM THE ABOVE THE NET INCREASE IN INVESTME NT DURING THE YEAR WAS ONLY ` 25,000/-. THE SOURCES OF INVESTMENT AS DISCLOSED F OR THE ASSESSMENT YEAR 2008-09 ARE ALSO RELEVANT FOR T HE PRESENT ASSESSMENT YEAR. THEY ARE AS UNDER:- INTEREST FREE FUNDS RECEIVED AND UTILIZED:- NAME OF THE LENDER DATE OF RECEIPT AMOUNT RECEIVED DATE OF INVESTMENT IN SHARES AMOUNT INVESTED VENKAT SUBRAMANIAN 29.10.07 92,00,000 31.10.2007 92,00,000 CHAITANYA PROPERTIES P.LTD 04.02.08 95,00,000 12.03.2008 1,03,50,000 RENTAL ADVANCE RECD. 01.03.08 28,00,000 12.03.2008 TOTAL 1,95,50,000 AS SEEN FROM THE ABOVE, THE APPELLANT IS HAVING SUF FICIENT OWN SOURCES WHICH ARE INTEREST-FREE AND WERE UTILIZED DIRECTLY IN THE SHARES WITHIN NO TIME. MOST OF THE INVESTMENTS EXCEPT RS.25,000 WERE MADE DURING THE ASST.YEAR 08- 09. FURTHER, AS PER THE P & L ALE, MOST OF THE INTEREST DEBITED WAS TO IGIGI BANK FOR CERTAIN TERM LOANS WHICH ARE SPECIFIC AND GENERAL INTEREST DEBITED WAS ONLY RS.31,533. AS THE APPELLANT IS HAVING ENOUGH OWN SOURCES FOR INVESTME NT IN SHARES AND INTEREST DEBITED WAS FOR SPECIFIC PURPOS E, I AM OF THE OPINION THAT THE INVESTMENTS MADE IN SHARES ARE OUT OF THE INTEREST-FREE FUNDS RAISED BY THE APPELLANT AND THE DISALLOWANCE UNDER LIMB(II) IS NO T CALLED FOR. IT IS ALSO SUPPORTED BY THE DECISION IN THE CA SE OF RELIANCE UTILITIES AND POWER LTD (SUPRA) RELIED ON BY THE APPELLANT. I, THEREFORE, DIRECT THE AD TO WITHDRAW THE DISALLOWANCE MADE UNDER LIMB (II) OF RULE 8D(2). 6. ON GOING THROUGH THE ORDER OF THE COMMISSIONER O F INCOME TAX (APPEALS), IT IS AMPLY CLEAR THAT ASSESS EE MADE INVESTMENTS OUT OF INTEREST FREE FUNDS AND NO PART OF INTEREST WAS DEBITED TO PROFIT AND LOSS ACCOUNT IN RESPECT O F BORROWED 5 ITA NO.1273/MDS/2015 FUNDS FOR MAKING ANY INVESTMENTS. IN THE CIRCUMSTAN CES, WE DO NOT FIND ANY INFIRMITY IN THE ORDER PASSED BY TH E COMMISSIONER OF INCOME TAX (APPEALS) IN DELETING TH E DISALLOWANCE. THUS, WE UPHOLD THE ORDER OF THE COMMISSIONER OF INCOME TAX (APPEALS) AND REJECT THE GROUNDS RAISED BY THE REVENUE. 7. IN THE RESULT, APPEAL OF THE REVENUE IS DISMISSE D. ORDER PRONOUNCED IN THE OPEN COURT ON 28 TH OCTOBER, 2015. SD/- SD/- ( # ) ( & (# ) ( CHANDRA POOJARI ) ( CHALLA NAG ENDRA PRASAD ) * / ACCOUNTANT MEMBER ( * / JUDICIAL MEMBER ( /CHENNAI, , /DATED 28 TH OCTOBER, 2015 SOMU ./ 0/ /COPY TO: 1. APPELLANT 2. RESPONDENT 3. 1 () /CIT(A) 4. 1 /CIT 5. / 5 /DR 6. /GF .