DCIT Corporate Circle 5(2), CHENNAI V. PDR Investments Pvt Ltd., CHENNAI

ITA 1273/CHNY/2018

• Counselvise Citation: [2020] 111 COUNSELVISE.COM (IT) 9433 (ITAT-CHENNAI)
• Duration Of Justice: 1 year(s) 8 month(s) 16 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 02-01-2020
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: D
• Assessment Year: 2014-2015
• Appeal Filed On: 16-04-2018
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: R ANITHA
• Assessee Lawyers: R VIJAYARAGHAVAN
• Keywords: Earning of tax free income; Rule 8D
• Section: 14A

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL D BENCH, CHENNAI . . . , !' #, % !& BEFORE SHRI N.R.S. GANESAN, JUDICIAL MEMBER AND SHRI RAMIT KOCHAR, ACCOUNTANT MEMBER ./ ITA NO.1273/CHNY/2018 ) *) / ASSESSMENT YEAR : 2014-15 THE DEPUTY COMMISSIONER OF INCOME TAX, CORPORATE CIRCLE -5(2), CHENNAI - 600 034. V. M/S PDR INVESTMENTS PVT. LTD., 77, POTIPATTI PLAZA, NUNGAMBAKKAM HIGH ROAD, CHENNAI - 600 034. PAN : AACCP 1177 A (,-/ APPELLANT) (./,-/ RESPONDENT) ,- 0 1 / APPELLANT BY : MS. R. ANITHA, JCIT ./,- 0 1 / RESPONDENT BY : SH. R. VIJAYARAGHAVAN, ADVOCA TE 2 0 '% / DATE OF HEARING : 07.11.2019 3#* 0 '% / DATE OF PRONOUNCEMENT : 02.01.2020 / O R D E R PER N.R.S. GANESAN, JUDICIAL MEMBER : THIS APPEAL OF THE REVENUE IS DIRECTED AGAINST TH E ORDER OF THE COMMISSIONER OF INCOME TAX (APPEALS) 3, CHENN AI, DATED 30.01.2018 AND PERTAINS TO ASSESSMENT YEAR 2014-15. 2 I.T.A. NO.1273/CHNY/18 2. THE ONLY ISSUE ARISES FOR CONSIDERATION IN THIS APPEAL IS WITH REGARD TO DISALLOWANCE MADE BY THE ASSESSING OFFICE R UNDER SECTION 14A OF THE INCOME-TAX ACT, 1961 (IN SHORT ' THE ACT'). 3. MS. R. ANITHA, THE LD. DEPARTMENTAL REPRESENTATI VE, SUBMITTED THAT THE ASSESSING OFFICER DISALLOWED 3,67,29,348/- UNDER SECTION 14A READ WITH RULE 8D OF INCOME-TAX R ULES, 1962. ACCORDING TO THE LD. D.R., THE ASSESSING OFFICER HA S FOLLOWED THE MANDATORY RULE PRESCRIBED UNDER RULE 8D(2) AND COMP UTED THE DISALLOWANCE. HOWEVER, THE CIT(APPEALS) ALLOWED TH E CLAIM OF THE ASSESSEE RESTRICTING THE DISALLOWANCE TO THE EXTENT OF EXEMPTED INCOME / DIVIDEND EARNED BY THE ASSESSEE TO THE EXT ENT OF 16,70,729/- ON THE BASIS OF THE DECISION OF THIS BE NCH OF THE TRIBUNAL IN M/S RAYALA CORPORATION PVT. LTD. ACCOR DING TO THE LD. D.R., THIS DECISION WAS NOT ACCEPTED BY THE DEPARTM ENT AND THE APPEAL IS PENDING BEFORE HIGH COURT, THEREFORE, THE CIT(APPEALS) OUGHT NOT TO HAVE FOLLOWED THE ORDER OF THIS TRIBUN AL. 4. ON THE CONTRARY, SH. R. VIJAYARAGHAVAN, THE LD. COUNSEL FOR THE ASSESSEE, SUBMITTED THAT THE ASSESSING OFFICER COMPUTED THE DISALLOWANCE BY APPLYING RULE 8D(2) OF INCOME-TAX R ULES, 1962. PLACING RELIANCE ON THE JUDGEMENT OF DELHI HIGH COU RT IN ACB INDIA 3 I.T.A. NO.1273/CHNY/18 LIMITED V. ACIT (2015) 374 ITR 108, THE LD. COUNSEL SUBMITTED THAT ONLY THOSE INVESTMENTS WHICH YIELDED INCOME, HAVE T O BE TAKEN FOR COMPUTING THE DISALLOWANCE UNDER LIMB (II) AND (III ) OF RULE 8D(2). IN THIS CASE, ACCORDING TO THE LD. COUNSEL, THE ASSESS ING OFFICER HAS TAKEN THE ENTIRE INVESTMENTS EVEN THOUGH MAJORITY O F THEM HAS NOT RESULTED IN EARNING OF ANY INCOME. PLACING RELIAN CE ON ANOTHER JUDGEMENT OF DELHI HIGH COURT IN JOINT INVESTMENTS PVT. LTD. V. CIT(2015) 372 ITR 694, THE LD. COUNSEL SUBMITTED TH AT THE WINDOW FOR DISALLOWANCE WAS INDICATED IN SECTION 14 A OF THE ACT AND WAS ONLY TO THE EXTENT OF DISALLOWING EXPENDITU RE INCURRED BY THE ASSESSEE IN RELATION TO THE TAX EXEMPT INCOME. THIS PROPORTION OR PORTION OF THE TAX EXEMPT INCOME SURELY CANNOT S WALLOW THE ENTIRE AMOUNT AS HAS HAPPENED IN THIS CASE. MOREOVER, AC CORDING TO THE LD. COUNSEL, THIS TRIBUNAL IN RAYALA CORPORATION PV T. LTD. FOUND THAT THE DISALLOWANCE CANNOT EXCEED THE EXEMPTED INCOME EARNED BY THE ASSESSEE. MOREOVER, THE MADRAS HIGH COURT IN R EDINGTON (INDIA) LTD. V. ADDL. CIT (2017) 392 ITR 633 AND CI T V. CHETTINAD LOGISTICS (P.) LTD. (2017) 80 TAXMANN.COM 221 FOUND THAT THERE CANNOT BE ANY DISALLOWANCE WITHOUT ANY EXEMPTED INC OME, THEREFORE, THE CIT(APPEALS) HAS RIGHTLY RESTRICTED THE DISALLOWANCE TO THE EXEMPTED INCOME EARNED BY THE ASSESSEE. 4 I.T.A. NO.1273/CHNY/18 5. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS ON EITH ER SIDE AND PERUSED THE RELEVANT MATERIAL AVAILABLE ON RECORD. ADMITTEDLY, THE ASSESSEE INVESTED FUNDS IN THE SHARES AND EARNED EX EMPTED INCOME. THE QUESTION ARISES FOR CONSIDERATION IS W HEN THE ASSESSEE EARNED NON-EXEMPTED INCOME, CAN THERE BE A NY DISALLOWANCE BY APPLYING THE PROVISIONS OF RULE 8D( 2) OF INCOME-TAX RULES, 1962. THE MADRAS HIGH COURT IN THE CASE OF REDINGTON (INDIA) LTD. (SUPRA) AND CHETTINAD LOGISTICS (P.) L TD. (SUPRA) EXAMINED THIS ISSUE AND FOUND THAT WHEN THERE WAS N O EXEMPTED INCOME, THERE CANNOT BE ANY DISALLOWANCE. THEREFOR E, THE CIT(APPEALS) BY PLACING RELIANCE ON THE DECISION OF THIS BENCH OF THE TRIBUNAL IN RAYALA CORPORATION LTD. (SUPRA), HA S RIGHTLY DIRECTED THE ASSESSING OFFICER TO RESTRICT THE DISALLOWANCE TO THE EXTENT OF EXEMPTED INCOME EARNED BY THE ASSESSEE. THEREFORE, THIS TRIBUNAL DO NOT FIND ANY REASON TO INTERFERE WITH THE ORDER OF THE LOWER AUTHORITY AND ACCORDINGLY THE SAME IS CONFIRMED. 6. IN THE RESULT, THE APPEAL FILED BY THE REVENUE I S DISMISSED. 5 I.T.A. NO.1273/CHNY/18 ORDER PRONOUNCED IN THE COURT ON 2 ND JANUARY, 2020 AT CHENNAI. SD/- SD/- ( !' #) ( . . . ) (RAMIT KOCHAR) (N.R.S. GANESAN) % / ACCOUNTANT MEMBER /JUDICIAL MEMBER /CHENNAI, 5 /DATED, THE 2 ND JANUARY, 2020. KRI. 0 .' 6 76*' /COPY TO: 1. ,- /APPELLANT 2. ./,- /RESPONDENT 3. 2 8' () /CIT(A)-3, CHENNAI 4. PRINCIPAL CIT-5, CHENNAI 5. 69 .' /DR 6. ) : /GF.