Dharamveer Sambhaji Urban Co-Op Bank Ltd., Pune V. Addl C.I.T., Pune

ITA 1287/PUN/2012

• Counselvise Citation: [2013] 140 COUNSELVISE.COM (IT) 72143 (ITAT-PUNE)
• Duration Of Justice: 1 year(s) 3 month(s) 13 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 20-09-2013
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: A
• Next Hearing Date: 13-09-2013
• Assessment Year: 2008-2009
• Appeal Filed On: 06-06-2012
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: Y K BHASKAR
• Keywords: Business income; Earning of tax free income
• Section: 2

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL PUNE BENCH A, PUNE BEFORE SHRI G.S. PANNU, ACCOUNTANT MEMBER AND SHRI R.S. PADVEKAR, JUDICIAL MEMBER ITA NO. 1287/PN/2012 (ASSESSMENT YEAR 2008-09) DHARMVEER SAMBHAJI URBAN CO-OP BANK LTD., 251, SHARMA BUILDING, PUNE-MUMBAI ROAD, KASARWADI, PUNE .. APPELLANT PAN NO. AAAAD2878G VS. ADDL.CIT, RANGE-8, PUNE. .. RESPONDENT APPELLANT BY : SHRI PRAMOD SHINGTE RESPONDENT BY : SHRI Y.K. BHASKAR DATE OF HEARING : 13-09-2013 DATE OF PRONOUNCEMENT : 20-09-2013 ORDER PER R.S. PADVEKAR, JM : IN THIS APPEAL THE ASSESSEE HAS CHALLENGED THE IMPU GNED ORDER OF THE LD.CIT(A)-V, PUNE DATED 13-04-2012 FOR THE A.Y. 2008-09. 2. THE ASSESSEE HAS TAKEN THE FOLLOWING EFFECTIVE G ROUND : ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LOWER AUTHORITIES ERRED IN INVOKING THE PROVISIONS OF SECTION 14A(2) OF THE INCOME TAX ACT 1961 AND THEREBY APPLYING RUL E 8D OF THE INCOME TAX RULES, 1961, BY REJECTING THE APPELLANTS CONTENTION THAT APPELLANT WAS IN POSITION OF SUFFICIENT WITHOU T INTEREST BEARING FUNDS AND ASSESSING OFFICER HAS FAILED TO ESTABLISH ANY NEXUS BETWEEN EXEMPT INCOME AND EXPENDITURE INCURRED. 3. THE SHORT ISSUE IN CONTROVERSY IS DISALLOWANCE M ADE U/S.14A BY THE ASSESSING OFFICER APPLYING RULE 8D. 4. FACTS REVEALED FROM THE RECORD ARE AS UNDER. TH E ASSESSEE IS A COOPERATIVE SOCIETY ENGAGED IN THE BANKING BUS INESS. THE AO HAS NOTED THAT THE ASSESSEE HAS RECEIVED THE INCOME FROM DIVIDEND ON MUTUAL FUNDS AMOUNTING TO RS.31,49,377/ -. THE ASSESSEE HAS ALSO INVESTMENTS IN TREASURY SECURITIE S, TAX FREE 2 BONDS AND EQUITY BONDS AND SHARES. THE ASSESSEE HA S CLAIMED THE DIVIDEND AS EXEMPT U/S.10(35) OF THE INCOME TAX ACT . THE AO WAS OF THE OPINION THAT THE EXPENDITURE PERTAINING TO THE EXEMPT DIVIDEND IS TO BE DISALLOWED U/S.14A R.W. RULE 8D O F THE INCOME TAX ACT. THE ASSESSEE EXPLAINED TO THE AO THAT THE ASSESSEE HAS NOT BORROWED ANY AMOUNT FOR INVESTMENT IN MUTUAL FU NDS AND THE INVESTMENT IS TOTALLY MADE FROM ITS OWN FUNDS AND N O EXPENDITURE WAS INCURRED FOR EARNING THE INCOME FROM THE MUTUAL FUNDS. THE ASSESSEE ALSO EXPLAINED THAT THE ASSESSEE HAD INVES TED LIQUID FUNDS FOR SHORT PERIOD. IT WAS FURTHER STATED THAT THE ASSESSEE HAD TOTAL LIABILITY AROUND RS.43.57 CRORES AND AS AGAIN ST SAID LIABILITY, TO THE EXTENT OF RS.32.73 CRORES ARE INTEREST BEARI NG FUNDS AND HENCE, IT IS TO BE PRESUMED THAT THE INVESTMENT IS OUT OF THE NON- INTEREST BEARING FUNDS, I.E., DIFFERENCE BETWEEN RS .43.57 CRORES & RS.32.73 CRORES. THE ASSESSEE ALSO RELIED ON THE D ECISION IN THE CASE OF CIT VS. RELIANCE UTILITIES AND POWER LTD. 3 43 ITR 340 (BOM) AND CIT VS. HERO CYCLES LTD. 323 ITR 518 (P&H ). 5. THE AO WAS NOT IMPRESSED WITH THE EXPLANATION OF THE ASSESSEE AND HE MADE DISALLOWANCE OUT OF THE INTERE ST EXPENDITURE CLAIMED BY THE ASSESSEE WHICH WORKED OUT AT RS.21,5 5,531/- AS PER THE WORKING GIVEN ON PAGE 4 OF THE ASSESSMENT O RDER. AS NOTED BY THE AO W.E.F.01-04-2007 SECTION 14A(2) IS APPLICABLE. IT AUTHORISES THE AO TO DETERMINE THE AMOUNT OF EXPEND ITURE IN RELATION TO THE INCOME WHICH IS NOT FORMING PART OF THE TOTAL INCOME. THE AO ALSO REFERRED TO RULE 8D OF THE I.T . RULES, 1962. THE ASSESSEE CARRIED THE ISSUE BEFORE THE LD.CIT(A) BUT WITHOUT SUCCESS AS THE ADDITION MADE BY THE AO BY MAKING TH E DISALLOWANCE OUT OF EXPENDITURE CLAIMED BY THE ASSE SSEE WAS CONFIRMED. NOW THE ASSESSEE IS IN APPEAL BEFORE US. 6. WE HAVE HEARD THE RIVAL SUBMISSIONS OF THE PARTI ES AND PERUSED THE RECORD. THE LD. COUNSEL FOR THE ASSESS EE RELIED ON THE FOLLOWING DECISIONS IN SUPPORT OF HIS ARGUMENT THAT UNLESS THE NEXUS IS ESTABLISHED NO DISALLOWANCE CAN BE MADE U/ S.14A(2) ALSO. (1) CIT VS. RELIANCE UTILITIES AND POWER LTD. 313 I TR 340 (BOM.) (2) CIT VS. HERO CYCLES LTD. 323 ITR 518 (P&H) (3) CCI LTD. VS. JCIT 250 CTR 291 (KAR.) 3 (4) APOORVA PATNI VS. ADDL.CIT 54 SOT 09 (PUNE) (URO) 6.1 PER CONTRA, THE LD. DR SUPPORTED THE ORDERS OF THE AUTHORITIES BELOW. THE ISSUE IN THIS CASE IS IN A NARROW COMPA SS. THE ASSESSEE RECEIVED THE DIVIDEND INCOME ON THE MUTUAL FUNDS. AO HAS NOTED THAT THE ASSESSEE HAS ALSO INCOME FROM TH E BONDS AND TREASURY SECURITIES. IN THIS CASE, THE ASSESSEE IS IN THE BANKING BUSINESS AND AS PER THE WELL SETTLED LAW, THE SECUR ITIES HELD BY THE BANK ARE PART OF STOCK-IN-TRADE. 6.2 THE QUESTION IS DIFFERENT SO FAR AS MUTUAL FUND S ARE CONCERNED. IN THIS CASE, IT IS CLAIMED BY THE ASSE SSEE THAT NO EXPENDITURE WAS INCURRED FOR INVESTING IN THE MUTUA L FUNDS. AT THE SAME TIME, THE DIVIDEND INCOME RECEIVED ON THE MUTU AL FUNDS IS EXEMPT. EVEN IF SECTION 14A(2) IS BROUGHT INTO STA TUTE BOOK BUT THE CONDITIONS LAID DOWN IN SECTION 14A(1) ARE TO B E FULFILLED. FIRST OF ALL THE AO HAS TO ESTABLISH THAT THE ASSESSEE HA S INCURRED THE EXPENDITURE FOR EARNING THE EXEMPT INCOME OR INCOME WHICH DOES NOT FORM PART OF THE TOTAL INCOME. 6.3 WE FIND THAT THERE IS NO CATEGORICAL FINDING OF THE AO THAT THE ASSESSEE UTILISED THE INTEREST BEARING FUND FOR MAK ING THE INVESTMENT IN THE MUTUAL FUNDS. WE FURTHER FIND TH AT AO HAS APPLIED SECTION 14A(2) BUT SECTION 14A(2) ONLY VEST S POWERS IN THE AO FOR QUANTIFICATION OF THE EXPENDITURE FOR MAKING THE DISALLOWANCE BUT AT THE SAME TIME SECTION 14A(2) DO ES NOT OVERRIDE SECTION 14A(1) OF THE INCOME TAX ACT. 6.4 IN THE CASE OF HERO CYCLES LTD. (SUPRA) THE HON BLE HIGH COURT OF PUNJAB AND HARYANA HAS OBSERVED THAT DISAL LOWANCE U/S.14A REQUIRED FINDING OF INCURRING OF EXPENDITUR E FOR EARNING EXEMPTED INCOME, AND WITHOUT SAID FINDING NO EXPEND ITURE CAN BE DISALLOWED U/S.14A OF THE ACT. THE HONBLE HIGH CO URT CONSIDERED SECTION 14A(2) AND RULE 8D(1) ALSO. IN THE CASE OF CCI LTD. (SUPRA) THE ASSESSEE EARNED THE DIVIDEND INCOME ON THE ASSETS WHICH WAS CLAIMED EXEMPT BUT THE PROFIT ON THE SALE WAS OFFERED AS BUSINESS INCOME. IN THIS CASE, THERE CANNOT BE PRO FIT ON THE TRANSFER OF THE MUTUAL FUNDS BUT AS WE HAVE HELD TH AT THERE IS NO 4 SPECIFIC FINDING BY THE AO NOR BY THE CIT(A) THAT I NFACT THE ASSESSEE HAS USED THE INTEREST BEARING FUNDS FOR IN VESTMENT, ON THIS FACTUAL ASPECT, WE HOLD THAT THERE IS NO JUSTI FICATION TO MAKE THE DISALLOWANCE. WE ACCORDINGLY DELETE THE ADDITI ON MADE BY THE AO U/S.14A R.W. RULE 8D AS THE MANDATE OF SECTION 1 4A(1) IS NOT FULFILLED. 7. IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE IS ALLOWED. PRONOUNCED IN THE OPEN COURT ON THIS THE 20 TH DAY OF SEPTEMBER 2013. SD/- SD/- (G.S.PANNU) (R.S.PADV EKAR) ACCOUNTANT MEMBER JUDICIA L MEMBER PUNE DATED: 20 TH SEPTEMBER 2013 SATISH COPY OF THE ORDER FORWARDED TO : 1. ASSESSEE 2. DEPARTMENT 3. CIT(A)-V, PUNE 4 CIT-V, PUNE 5. THE D.R, A PUNE BENCH 6. GUARD FILE BY ORDER // TRUE COPY // SENIOR PRIVATE SECRETARY ITAT, PUN E BENCHES, PUNE