DCIT, CHENNAI V. Kothari Sugars & Chemicals Ltd., CHENNAI

ITA 128/CHNY/2015

• Counselvise Citation: 12821714 RSA 2015
• Duration Of Justice: 10 month(s) 25 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 11-12-2015
• Appeal Filed By: Department
• Bench Allotted: A
• Next Hearing Date: 05-11-2015
• Assessment Year: 2010-2011
• Appeal Filed On: 16-01-2015
• Court: TRIBUNAL
• Department Lawyers: A B KOLI
• Assessee Lawyers: R VIJAYARAGHAVAN
• Keywords: Earning of tax free income
• Section: 14A

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL A BENCH, CHENNAI , . ! ' , # '$ BEFORE SHRI CHANDRA POOJARI, ACCOUNTANT MEMBER AND SHRI G. PAVAN KUMAR, JUDICIAL MEMBER . /ITA NO.128/MDS/2015 & CO NO.25/MDS/2015 (IN ITA NO.128/MDS/2015) / ASSESSMENT YEAR : 2010-11 THE DEPUTY COMMISSIONER OF INCOME-TAX, CORPORATE CIRCLE-4(2), CHENNAI-34. ( /APPELLANT) V. M/S. KOTHARI SUGARS & CHEMICALS LTD. 118, NUNGAMBAKKAM HIGH ROAD, NUNGAMBAKKAM, CHENNAI 34. PAN AABCK2495F RESPONDENT/CROSS OBJECTOR) / APPELLANT BY : SHRI A.B.KOLI, JCIT / RESPONDENT BY : SHRI R.VIJAYARAGHAVAN, ADVOCATE / DATE OF HEARING : 05.11.2015 !' / DATE OF PRONOUNCEMENT : 11.12.2015 % / O R D E R PER CHANDRA POOJARI, ACCOUNTANT MEMBER THE APPEAL BY THE REVENUE AND THE CROSS OBJECTION B Y THE ASSESSEE ARE DIRECTED AGAINST THE ORDER OF THE COMM ISSIONER OF INCOME-TAX(APPEALS) DATED 25.9.2014 FOR THE ASSESSM ENT YEAR 2010- 11. ITA 128 & CO 25/15 ITA 128 & CO 25/15 ITA 128 & CO 25/15 ITA 128 & CO 25/15 2 2. THE REVENUE HAS RAISED THE FOLLOWING GROUNDS: 2. THE LEARNED CIT(A) ERRED IN DELETING THE DISALL OWANCE OF EXPENSES ON EXEMPT INCOME U/S.14A R.W.RULE 8D ` 46,97,887/-(59,68,720- 12,70,832). 2.1 . HAVING REGARD TO THE INSERTION OF SUB-SECTION(2) OF 14A W.E.F. 24.03.2008 AND ON THE DECISION OF THE HON'BL E BOMBAY HIGH COURT IN THE CASE OF GODREJ BOYCE MFG CO LTD V CIT (2010), THE LD. CIT(A) OUGHT TO HAVE UPHELD THE AO' S ACTION IN INVOKING THE PROVISIONS OF SECTION 14A R. W. R.8D A ND IN WORKING OUT THE EXPENSES IN EARNING THE EXEMPTED IN COME FROM THE FIRM BY ADOPTING THE FORMULA CONTAINED UND ER THE RULE-8D AT RS.59,68,720/- 2.2. THE LEARNED CIT(A) FAILED TO APPRECIATE THAT T HE ASSESSEE DID NOT PRODUCE DETAILS OF INTEREST PAYMENTS, THE N ATURE OF LOANS AVAILED AND THEIR UTILISATION BEFORE THE AO. 2.3. HAVING REGARD TO THE , PROVISIONS OF RULE 46A OF THE LT. RULES, THE LEARNED CIT(A) OUGHT TO HAVE FORWARDED T HE DETAILS OF INTEREST PAYMENTS, THE NATURE OF LOANS AVAILED A ND THEIR UTILISATION WHICH WAS PRODUCED BEFORE HIM FOR THE F IRST TIME, FOR EXAMINATION OF THE ASSESSING OFFICER . 3. THE FACTS OF THE CASE ARE THAT THE AO DISALLOWE D THE EX P EN S ES OF ` 59,68,720/- , MADE U/S . 14A OF THE ACT R.W.RULE 8D OF THE IN C OME T AX RUL ES, RE L ATING T H E E XP E NSES PERT A INING TO TH E EX E MPT E D INCOM E, B OT H UND E R N OR M AL P ROVIS I O N S OF THE ACT AND A LSO U/S.115JB. THE ASSESSING OFFICER IN HIS ORDER NOTICED TH A T TH E ASSESSEE, DURING TH E FINANCI A L Y E AR 2009-10 RELE V ANT T O A. Y.2 010- 11 , M A D E SUBS TA N TIAL AMOUNTS O F IN VE STMENTS IN PURCHAS E OF SHARES/MUTU A L FUNDS , T H E INCOM E FR O M W HI C H IS EXE MP T F ROM T AX IN TH E HANDS OF THE ASS E SSE E. HO WEVE R TH E ASSE S SEE H A S N OT SEGREGATED ANY E XP E NDITUR E ITA 128 & CO 25/15 ITA 128 & CO 25/15 ITA 128 & CO 25/15 ITA 128 & CO 25/15 3 P E RT A INING TO THE EARNING OF THE S A ID E X E MPT E D IN C OM E F ROM T H E IN VE STMENTS M A D E IN SHAR E S AND MUTUAL FUNDS. HENCE THE AS SE SSIN G O F F I CER I N VOKED THE PROVISIONS OF SECTION 14A R .W .RULE 8D AND WORKED OUT TH E EX PENS E S I N EA R N IN G T H E S A ID E XE MPTED INCOME FROM THE FIRM B Y ADOPTING THE FORMUL A C ONT A IN E D U N D E R T H E RUL E 8D , AT ` 59 , 68 , 720/- AND DISALLOW E D , NOT ONL Y UND E R THE NORM A L P ROVISIO N S OF TH E ACT AND BUT A LSO U/S.1L5JB. AGAINST THIS, THE ASSESSEE WENT IN APPEAL BEFORE THE CIT(APPEALS). 4. ON APPEAL, THE CIT(APPEALS) OBSERVED THAT THE AO IS SATISFIED THAT THERE WAS AN ELEMENT OF EXPENSES INV OLVED IN MAKING INVESTMENTS WHOSE INCOME IS EXEMPT FROM TAX. THE AO IS DUTY BOUND TO INVOKE THE PROVISIONS OF RULE-8 D. ONCE THE PROVISIONS OF RULE-8D ARE INVOKED, THE AO HA NO OPTION BUT TO ARRIVE AT THE EXPENSES @0.5% AS PER STEP-3 O F THE FORMULA WHICH IS MANDATORY. THEREFORE, AOS ESTIMA TION OF EXPENSES FOR EARNING THE EXEMPT INCOME, @ 0.5% OF T HE AVERAGE INVESTMENTS OF THE YEAR, UNDER THE STEP-II OF THE FORMULA GIVEN IN RULE 8-D IS JUSTIFIED. 4.1. ACCORDINGLY, THE CIT(APPEALS) WORKED OUT THE EXPENSES ATTRIBUTABLE FOR EARNING THE EXEMPT INCOME AND ITA 128 & CO 25/15 ITA 128 & CO 25/15 ITA 128 & CO 25/15 ITA 128 & CO 25/15 4 DISALLOWANCE U/S.14A R.W.RULE 8-D FOR THE ASSESSMEN T YEAR 2010-11 AS UNDER: 1. THE AMOUNT OF EXPENDITURE DIRECTLY RELATING TO INCOME WHICH DOES NOT FORM PART OF THE TOTAL INCOME NIL 2.A. AMOUNT OF EXPENDITURE BY WAY OF INTEREST OTHER THAN THE AMOUNT OF INTEREST INCLUDED IN CLAUSE(I) INCURRED DURING THE PREVIOUS YEAR ` . NIL/ - B. AVERAGE VALUE OF INVESTMENTS INCOME FROM WHICH DOES NOT OR SHALL NOT FORM PART OF THE TOTAL INCOME , AS APPEARING IN THE BALANCE SHEET OF THE ASSESSEE ON THE FIRST DAY AND THE LAST DAY OF THE PREVIOUS YEAR OPENING BALANCE AS ON 01/04/2009 ` 12,60,30,000 CLOSING BALANCE AS ON 31/03/2010 ` 38,23,03,000 AVERAGE THEREOF ` 25,41,66,500 C. THE AVERAGE OF TOTAL ASSETS AS APPEARING IN T HE BALANCE SHEET OF THE ASSESSEE ON THE FIRS DAY AND L AST DAY OF THE PREVIOUS YEAR OPENING BALANCE AS ON 01/04/2009 ` 2,83,66,90,000 CLOSING BALANCE AS ON 31/03/2010 ` 2,87,32,66,000 AVERAGE THEREOF `2,85 ,49,78,000 A X B = 0 X 25,41,66,500 C 2,85,49,78,000 NIL 3. AN AMOUNT EQUAL TO ONE HALF PER CENT OF THE AVER AGE OF THE VALUE OF INVESTMENT, INCOME FROM WHICH DOES NOT OR SHALL NOT FORM PART OF TOTAL INCOME AS APPEARING IN THE BALANCE SHEET OF THE ASSESSEE, ON THE FIRST DAY AND THE LAST DAY OF THE PREVIOUS YEAR OPENING BALANCE AS ON 01/04/2009 ` 12,60,30,000 CLOSING BALANCE AS ON 31/03/2010 ` 38,23,03,000 AVERAGE THEREOF ` 25,41,66,500 0.5% THEREOF ` 12,70,832 TOTAL EXPENDITURE U/S 14A ` 12,70,832 AGGRIEVED, THE REVENUE IS IN APPEAL BEFORE US. 5. WE HAVE HEARD BOTH THE SIDES AND PERUSED THE MAT ERIAL ON RECORD. THE MAIN GRIEVANCE IS WITH REGARD TO VIOLA TION OF RULE 46 A OF THE IT RULES. ACCORDING TO THE LD. DR, THE DETAILS OF INTEREST PAYMENTS, THE NATURE OF LOANS AVAILED AND THEIR UTILISATION W ERE PRODUCED BEFORE ITA 128 & CO 25/15 ITA 128 & CO 25/15 ITA 128 & CO 25/15 ITA 128 & CO 25/15 5 THE CIT(APPEALS) FOR THE FIRST TIME AND THE CIT(APP EALS) HAS NOT GIVEN AN OPPORTUNITY TO EXAMINE THE DETAILS TO THE AO. C ONSIDERING THESE ARGUMENTS OF THE LD. DR, WE ARE INCLINED TO REMIT T HIS ISSUE BACK TO THE FILE OF THE AO FOR FRESH CONSIDERATION. THE ASSESS EE IS DIRECTED TO PROVIDE ALL THE DOCUMENTS TO THE AO, WHICH WERE FIL ED BEFORE THE CIT(APPEALS). ACCORDINGLY, WE REMIT THE ENTIRE ISS UE BACK TO THE FILE OF THE AO FOR FRESH CONSIDERATION. SINCE, WE HAVE REM ITTED THE ENTIRE ISSUE BACK TO THE FILE OF THE AO, THE CROSS OBJECTI ON FILED BY THE ASSESSEE HAS BECOME INFRUCTUOUS. 6. IN THE RESULT, THE APPEAL OF THE REVENUE IS ALLO WED FOR STATISTICAL PURPOSES AND THE CROSS OBJECTION IS DISMISSED AS IN FRUCTUOUS. ORDER PRONOUNCED ON FRIDAY, THE 11 TH OF DEC., 2015 AT CHENNAI. SD/- SD/- ( #$ % ) ( & ' ( # ) )$*+,+-./0+1234+-51+*667+182 9 :; /JUDICIAL MEMBER :;<=>>6/-?+-?@A0BA1 &9 /CHENNAI, C: /DATED, THE 11 TH DEC., 2015. MPO* :D EFGF /COPY TO: 1. /APPELLANT 2. /RESPONDENT 3. H2 /CIT(A) 4. H /CIT 5. FIJ K /DR 6. JLM /GF.