ACIT, Bangalore V. M/s Advaith Motors Pvt. Ltd., Bangalore

ITA 1326/BANG/2013

• Counselvise Citation: 132621114 RSA 2013
• Duration Of Justice: 1 year(s) 4 month(s) 11 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 22-01-2015
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: A
• Next Hearing Date: 02-12-2014
• Assessment Year: 2010-2011
• Appeal Filed On: 11-09-2013
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: DR P K SRIHARI
• Assessee Lawyers: K GURURAJ ACHARYA
• Keywords: Earning of tax free income
• Section: 14A

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL B BENCH : BANGALORE BEFORE SHRI N.V. VASUDEVAN, JUDICIAL MEMBER AND SHRI ABRAHAM P. GEORGE, ACCOUNTANT MEMBER ITA NOS.1352/BANG/2012 & 1326/BANG/2013 ASSESSMENT YEARS : 2009-10 & 2010-11 THE ASSISTANT COMMISSIONER OF INCOME TAX, CIRCLE 11(1), BANGALORE. VS. M/S. ADVAITH MOTORS PVT. LTD., NO.12, SHAMA RAO COMPOUND, MISSION ROAD, BANGALORE 560 027. PAN : AADCA 2399A APPELLANT RESPONDENT C.O. NO.54/BANG/2013 [IN ITA NO.1352/BANG/2012] ASSESSMENT YEAR : 2009-10 M/S. ADVAITH MOTORS PVT. LTD., NO.12, SHAMA RAO COMPOUND, MISSION ROAD, BANGALORE 560 027. PAN : AADCA 2399A VS. THE ASSISTANT COMMISSIONER OF INCOME TAX, CIRCLE 11(1), BANGALORE. CROSS OBJECTOR RESPONDENT REVENUE BY : DR. P.K. SRIHARI, ADDL. CIT (DR) ASSESSEE BY : SHRI K. GURURAJ ACHARYA, C.A. DATE OF HEARING : 02.12.2014 DATE OF PRONOUNCEMENT : 22.01.2015 ITA NOS.1352/B/12, 1326/B/13 & CO NO.54/B/13 PAGE 2 OF 6 O R D E R PER ABRAHAM P. GEORGE, ACCOUNTANT MEMBER THESE ARE APPEALS BY THE REVENUE FOR THE ASSESSME NT YEAR 2009-10 AND 2010-11, DIRECTED AGAINST THE ORDERS DATED 27.7 .2012 AND 15.7.2013 OF THE CIT(APPEALS)-I, BANGALORE FOR THE RESPECTIVE YE ARS. ASSESSEE HAS FILED CROSS OBJECTION ONLY FOR AY 2009-10 AND SUCH CROSS OBJECTIONS SUPPORT THE ORDER OF THE CIT(A). 2. GRIEVANCE RAISED BY THE REVENUE IS THAT DISALLO WANCES MADE BY THE AO UNDER SECTION 14A OF THE INCOME-TAX ACT, 1961 [I N SHORT 'THE ACT'] READ ALONG WITH RULE 8D(2)(II) WERE DELETED BY THE CIT(A ). 3. FACTS APROPOS ARE THAT ASSESSEE HAD INVESTMENT IN SHARES WHICH YIELDED DIVIDEND INCOME OF RS.8,17,020 AND RS.13,34 ,577. THESE WERE CLAIMED AS EXEMPT IN THE RESPECTIVE YEARS. ASSESSE E WAS A DEALER IN AUTOMOBILES. ITS INVESTMENT IN SHARES AS ON 31.3.2 009 CAME TO RS.4.10 CRORES AND AS ON 31.3.2010 CAME TO RS.7.25 CRORES. AGAINST TOTAL INTEREST COST OF RS.8,72,40,037 FOR A.Y. 2009-10 AND RS.8,39 ,44,973 FOR A.Y. 2010- 11, ASSESSEE HAD OFFERED NO EXPENDITURE AGAINST EXE MPT INCOME, BUT FOR A SUM OF RS.9,18,542 FOR A.Y. 2010-11. LATTER AMOUNT WAS SUO MOTU DISALLOWED BY THE ASSESSEE AS INTEREST EXPENDITURE DIRECTLY ATTRIBUTABLE TO THE TAX FREE INVESTMENTS. THE AO WHILE CONCLUDING THE ASSESSMENT APPLIED ITA NOS.1352/B/12, 1326/B/13 & CO NO.54/B/13 PAGE 3 OF 6 RULE 8D(2)(II) FOR WORKING OUT THE INTEREST EXPENDI TURE NOT DIRECTLY ATTRIBUTABLE TO ANY PARTICULAR INCOME AND RULE 8D(2 )(III) FOR WORKING OUT THE INDIRECT EXPENDITURE OTHER THAN INTEREST. THE DISA LLOWANCES CAME TO RS.29,85,404 AND RS.55,07,236 RESPECTIVELY. COMPON ENT REFERABLE TO INTEREST CAME TO RS.28,18,506 AND RS.43,04,979 RESP ECTIVELY. 4. AGGRIEVED, ASSESSEE MOVED IN APPEAL BEFORE CIT( A). THE LD. CIT(A) MADE AN ANALYSIS OF THE LOANS TAKEN BY THE A SSESSEE. HE FOUND THAT OUT OF INTEREST COST OF RS.8,72,40,037/- FOR A .Y. 2009-10 AND RS.8,39,44,973/- FOR A.Y. 2010-11, SUM OF RS.7,80,6 3,691 AND RS.8,16,86,352 WERE ON LOANS TAKEN FOR SPECIFIC BUS INESS PURPOSE. HE ALSO FOUND THAT THE INTEREST COST INCLUDED TDS INTEREST OF RS.4,800 AND BANK CHARGES OF RS.73,84,672 FOR A.Y. 2009-10. SIMILARL Y INTEREST COST FOR A.Y. 2010-11 INCLUDED BANK CHARGES OF RS.37,00,210. AFT ER EXCLUDING THESE AMOUNTS, HE DIRECTED THE AO TO CONSIDER RS.17,86,87 4 AND RS.13,40,079 AS THE BASE FIGURES FOR WORKING OUT THE DISALLOWANC E UNDER RULE 8D(2)(II) FOR THE RESPECTIVE YEARS. VIS-A-VIS THE DISALLOWANCE M ADE UNDER RULE 8D(2)(III), LD. CIT(A) CHOSE NOT TO INTERFERE. 5. NOW BEFORE US, THE LD. DR STRONGLY ASSAILING TH E ORDERS OF LD. CIT(A), SUBMITTED THAT LD. CIT(A) HAD PRESUMED THE MODE OF UTILISATION OF THE LOANS. ACCORDING TO HIM, LOANS TAKEN INCLUDED CASH CREDIT ACCOUNTS AND NOMENCLATURE OF THE LOANS WOULD NOT ENSURE ITS ULTI MATE UTILISATION. ITA NOS.1352/B/12, 1326/B/13 & CO NO.54/B/13 PAGE 4 OF 6 ACCORDING TO HIM, THE MONEY WAS GOING INTO THE SAME KITTY AND ASSESSEE COULD NOT SHOW THAT THE INVESTMENTS HAD NO LOAN COM PONENTS THEREIN. 6. PER CONTRA , THE LD. AR SUBMITTED THAT LOANS TAKEN FROM BANK W ERE FOR SPECIFIC PURPOSES AND COULD NOT BE USED FOR ANYTHIN G ELSE. FURTHER, ACCORDING TO HIM, ASSESSEE HAD SUBSTANTIAL OWN FUND S AND THE DISALLOWANCES WERE MADE PURELY ON PRESUMPTIONS. 7. WE HAVE PERUSED THE ORDERS AND HEARD THE RIVAL CONTENTIONS. ASSESSEE HAD SHARE CAPITAL AND RESERVES TOTALLING T O RS.337,287,692 AND RS.355,450,356 AS ON 31.3.2009 AND 31.3.2010 RESPEC TIVELY, AS SEEN FROM ITS AUDITED BALANCE SHEET PLACED AT PB PAGE 20. A S AGAINST THIS, ITS INVESTMENT IN LISTED SHARES WERE RS.13,877,323 AND RS.48,740,155 AS PER SCHEDULE-F TO ITS FINAL ACCOUNTS PLACED AT PB PAGE 22. INCREMENTAL INVESTMENT WERE ONLY 1.52 CRORES FOR THE YEAR ENDED 31.3.2009 AND RS.3.15 CRORES FOR THE YEAR ENDED 31.3.2010. THIS IS CLEAR FROM THE WORKING GIVEN AT PB PAGE 5. NO DOUBT, ASSESSEE HAD LOAN FUNDS OF RS.611,984,554 AND RS.858,514,862 AS ON 31.3.2009 A ND 31.3.2010 RESPECTIVELY. NEVERTHELESS, THE INVESTMENT IN SHAR ES WERE ONLY ABOUT 13.71% OF ITS SHARE CAPITAL AND RESERVES AS ON 31.3 .2010 AND EVEN LESSER FOR THE YEAR ENDED 31.3.2011. WHEN ASSESSEE IS HAV ING OWN FUNDS SUBSTANTIALLY IN EXCESS OF ITS INVESTMENT, IT CAN A LWAYS CLAIM THAT THE LATTER WAS MADE OUT OF THE FORMER. A ONE-TO-ONE RELATIONS HIP SHOWING EACH SUM GOING INTO THE COMMON KITTY AND GOING OUT THEREFROM , CANNOT BE CONSIDERED ITA NOS.1352/B/12, 1326/B/13 & CO NO.54/B/13 PAGE 5 OF 6 AS AN ESSENTIAL CRITERIA FOR EVALUATING THE NATURE OF INTEREST OUTGO. IN A BUSINESS ENVIRONMENT, WHEN ASSESSEE PLACES ALL HIS MONEY, WHETHER FROM LOANS OR FROM BUSINESS OPERATION IN ONE KITTY AND M AKES INVESTMENTS THEREFROM, IT CAN ALWAYS ARGUE THAT, LIKE ANY NORMA L BUSINESSMAN, ITS ENDEAVOUR AND INTENTION WAS TO USE BUSINESS LOANS F OR BUSINESS PURPOSES AND OWN FUNDS FOR INVESTMENTS. IN THE GIVEN CASE, ASSESSEE HAD SHOWN THAT LOANS RAISED WERE FOR SPECIFIC BUSINESS PURPOS ES. IT HAD SUO MOTU MADE A DISALLOWANCE FOR DIRECT INTEREST EXPENDITURE UNDER RULE 8D(2)(I) FOR A.Y. 2010-11, WHILE CLAIMING THAT NO SUCH EXPENDITU RE WAS THERE FOR A.Y. 2009-10. FOR APPLICATION OF SECTION 14A(2), IT I S NECESSARY FOR THE AO TO SHOW THAT HE IS NOT SATISFIED WITH THE CORRECTNESS OF THE CLAIM OF ASSESSEE WITH REGARD TO THE EXPENDITURE CLAIMED TO HAVE BEEN INCURRED FOR EARNING EXEMPT INCOME. THAT THIS CONDITION APPLIES EVEN WH ERE THE CLAIM IS ONE OF NO OR NIL EXPENDITURE HAS BEEN HELD BY THE HON'BLE DELHI HIGH COURT IN THE CASE OF MAXOPP INVESTMENTS LTD. V. CIT, (2012) 347 ITR 272 IN PARA 30 OF ITS JUDGMENT. 8. WE ARE THEREFORE OF THE OPINION THAT LD. CIT(A) WAS JUSTIFIED IN DELETING THE DISALLOWANCES MADE UNDER RULE 8D(2)(II ). NO INTERFERENCE IS REQUIRED. INSOFAR AS THE CROSS OBJECTION OF THE A SSESSEE IS CONCERNED, THEY ARE ONLY SUPPORTIVE OF THE CIT(A)'S ORDER. ITA NOS.1352/B/12, 1326/B/13 & CO NO.54/B/13 PAGE 6 OF 6 9. IN THE RESULT, APPEALS OF THE REVENUE AS WELL A S CROSS OBJECTION OF THE ASSESSEE ARE DISMISSED. PRONOUNCED IN THE OPEN COURT ON THIS 22 ND DAY OF JANUARY, 2015. SD/- SD/- ( N.V. VASUDEVAN ) ( ABRAHAM P. G EORGE ) JUDICIAL MEMBER ACCOUNTANT MEMBER BANGALORE, DATED, THE 22 ND JANUARY, 2015. /D S/ COPY TO: 1. REVENUE 2. ASSESSEE 3. CIT 4. CIT(A) 5. DR, ITAT, BANGALORE. 6. GUARD FILE BY ORDER ASSISTANT REGISTRAR / SENIOR PRIVATE SECRETARY ITAT, BANGALORE.