The Investment Trust of India Limited, CHENNAI V. ACIT, CHENNAI

ITA 1349/CHNY/2015

• Counselvise Citation: [2016] 133 COUNSELVISE.COM (IT) 7875 (ITAT-CHENNAI)
• Duration Of Justice: 9 month(s) 1 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 03-03-2016
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: A
• Next Hearing Date: 03-02-2016
• Assessment Year: 2010-2011
• Appeal Filed On: 02-06-2015
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: P RADHAKRISHNAN IRS
• 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 ./ I.T.A. NO. 1349/MDS/2015 $ & !'& / ASSESSMENT YEAR : 2010-2011 THE INVESTMENT TRUST OF INDIA LIMITED, NO.7, B BLOCK, 1 ST FLOOR, ALSA SAMAR, 2 ND AVENUE, ANNA NAGAR EAST, CHENNAI 600 102. VS. THE ASSISTANT COMMISSIONER OF INCOME TAX, CORPORATE CIRCLE 3(2) CHENNAI. [PAN AABCR 6577K] ( / APPELLANT) ( /RESPONDENT) () * + / APPELLANT BY : SHRI. R. VIJAYARAGHAVAN, ADVOCATE ,-() * + /RESPONDENT BY : SHRI. P. RADHAKRISHNAN, IRS, JCIT. ' ! * . / DATE OF HEARING : 03-02-2016 /0' * . / DATE OF PRONOUNCEMENT : 03-03-2016 / O R D E R PER G. PAVAN KUMAR, JUDICIAL MEMBER : THE APPEAL FILED BY THE ASSESSEE IS DIRECTED AG AINST ORDER OF THE COMMISSIONER OF INCOME-TAX (APPEALS)-11, CHE NNAI IN ITA NO.559/CIT(A)-11/2013-14, DT 30.03.2015 FOR THE ASS ESSMENT YEAR ITA NO.1349/MDS/2015 :- 2 -: 2010-2011 PASSED U/S.143(3) AND 250 OF THE INCOME TAX ACT, 1961 (HEREIN AFTER REFERRED TO AS THE ACT). 2. THE ASSESSEE HAS RAISED ONLY ONE SUBSTANTIVE GROUN D THAT THE COMMISSIONER OF INCOME TAX (APPEALS) ERRED IN C ONFIRMING THE ORDER OF THE ASSESSING OFFICER ON APPLICABILITY OF PROVISIONS OF SECTION 14A R.W. 8D OF THE ACT WITHOUT CONSIDERING THE ACT UAL EXPENDITURE INCURRED FOR THE PURPOSE OF EARNING EXEMPTED INCOME . 3. THE BRIEF FACTS OF THE CASE THAT THE ASSESSEE IS A NON BANKING FINANCE CORPORATION (NBFC) AND ENGAGED IN T HE BUSINESS OF HIRE PURCHASE, LEASING, INVESTMENTS AND TRADING IN SHARES AND SECURITIES. FOR THE ASSESSMENT YEAR 2010-2011, THE RETURN OF INCOME WAS FILED ON 24.09.2010 WITH LOSS (-) OF ?2,96,75 ,416/-. SUBSEQUENTLY, THE RETURN WAS PROCESSED U/S.143(1) O F THE ACT AND ALSO NOTICE U/S.143(2) OF THE ACT WAS ISSUED ON 25.08.20 11. IN COMPLIANCE TO NOTICE, THE ASSESSEES LD. AUTHORISED REPRESENTA TIVE APPEARED FROM TIME TO TIME AND FURNISHED INFORMATION AND THE ASSE SSING OFFICER HAS COMPLETED ASSESSMENT BY ADDITIONS INCLUDING DISALLO WANCE U/S.14A R.W. RULE 8D. THE LD.ASSESSING OFFICER ON PERUSAL OF THE BOOKS OF ACCOUNTS FOUND DIVIDEND INCOME OF ?7,36,757/- RECEIVED BY TH E ASSESSEE AND CLAIMED EXEMPT U/SEC.10(34) OF THE ACT. FURTHER A SSESSEE HAS NOT DISALLOWED ANY EXPENDITURE RELATING TO EXEMPTED IN COME. THE ITA NO.1349/MDS/2015 :- 3 -: ASSESSING OFFICER CONSIDERING THE INVESTMENT AND EX EMPT INCOME APPLIED PROVISIONS OF SEC.14A R.W. RULE 8D AND WRON GLY CONSIDERED EXPENDITURE OF ?4,19,80,254/- AS HAVING NEXUS TO THE DIVIDEND INCOME AND OVERLOOKED THE CHARACTERISTIC OF THE EXP ENDITURE PERTAINING TO PREMIUM ON MATURITY OF OPTIONAL FULLY CONVERTIBL E DEBENTURES (OFCD) ISSUED BY THE COMPANY IN FINANCIAL YEAR 2002 -2003 AND PRESUMED THAT THESE FUNDS WERE UTILIZED BY THE COMP ANY FOR MAKING INVESTMENT AS REFLECTED IN BALANCE SHEET AND CALCUL ATED DISALLOWANCE UNDER RULE 8D(I) (II) AND (III) OF THE INCOME TAX R ULES ?4,66,94,821/- AND PASSED ORDER U/S.143(3) OF THE ACT DATED 28.03 .2013. AGGRIEVED BY THE ORDER OF THE ASSESSING OFFICER, THE ASSESSEE FILED AN APPEAL BEFORE THE COMMISSIONER OF INCOME TAX (APPEALS). 4. THE ASSESSEE ALSO FILED PETITION U/S.154 OF THE ACT ON 02.05.2013 SUBMITTING THAT COMPANY INCURRED EXPENSE S OF ?5,303/- FOR EARNING EXEMPTED INCOME AND NOT ?4,19,80,254/- AS S AME IS PERTAINING PROVISION FOR PREMIUM ON REDEMPTION OF O PTIONALLY FULLY CONVERTIBLE DEBENTURES (OFCD). BEFORE THE COMMISSI ONER OF INCOME TAX (APPEALS) THE ASSESSEE HAS RAISED SUBSTANTIVE G ROUNDS THAT THE ASSESSING OFFICER MADE DISALLOWANCE U/SEC 14A R.W. RULE 8 CONSIDERING PROVISION OF PREMIUM ON REDEMPTION OF DEBENTURES. THE ASSESSEE COMPANY HAS ISSUED OPTIONALLY FULLY CONVERTIBLE DEB ENTURES (OFCD) OF ?100/- EACH AGGREGATING TO ?6996.709 LAKHS TO M/S. INVESTMENT TRUST ITA NO.1349/MDS/2015 :- 4 -: OF INDIA LIMITED TOWARDS ACQUISITION OF BUSINESS OF HIRE PURCHASE, LEASING, FINANCE AND SECURITIES TRADING AND THESE D EBENTURES ARE TO REDEEMED AFTER TEN YEARS AT A PREMIUM OF ?60 PER D EBENTURES AND ASSESSEE HAS PROVIDED ?4,19,80,254/- AS PREMIUM ACC RUED DURING THE YEAR ON REDEMPTION OF DEBENTURES IN THE BOOKS OF AC COUNTS AND ASSESSING OFFICER HAS DISALLOWED THE EXPENDITURE UN DER PRESUMPTION OF DIRECT NEXUS ATTRIBUTABLE TO EXEMPT INCOME. THE LD. AUTHORISED REPRESENTATIVE FILED SUBMISSIONS AND RELIED ON JUD ICIAL DECISION OF CIT VS. HERO CYCLES (323 ITR 518 ) (P & H) AND DECISIONS OF MUMBAI HIGH COURT. BUT THE LD. COMMISSIONER OF INCOME TAX (APP EALS) DISTINGUISHED THE DECISION AND RELIED ON THE JUDGME NT OF BOMBAY HIGH COURT IN THE CASE OF GODREJ & BOYCE MFG CO. 328 ITR 81 AND HELD THAT RULE 8D IS APPLICABLE FROM ASSESSMENT YEAR 200 8-09 AND THE LD. AUTHORISED REPRESENTATIVE CONTENTED THAT THE DEBEN TURE AMOUNT WAS NOT UTILIZED FOR THE PURPOSE OF INVESTMENTS EARNING EXEMPTED INCOME. THE COMMISSIONER OF INCOME TAX (APPEALS) OVERLOOKED THE SUBMISSIONS AND CONFIRMED THE FINDINGS OF THE ASSES SING OFFICER AND PASSED THE ORDER. AGGRIEVED BY THE ORDER OF THE CO MMISSIONER OF INCOME TAX (APPEALS), THE ASSESSEE ASSAILED AN APPE AL BEFORE THE TRIBUNAL. 5. BEFORE US, THE LD. AUTHORISED REPRESENTATIVE REITER ATED HIS SUBMISSIONS MADE BEFORE THE ASSESSING OFFICER AND C OMMISSIONER OF ITA NO.1349/MDS/2015 :- 5 -: INCOME TAX (APPEALS). THE ASSESSEE EXPLAINED THAT D ISALLOWANCE UNDER SEC.14A R.W.RULE 8D IS APPLICABLE FROM THE A SSESSMENT YEAR 2008-09 ONWARDS, AND THE ASSESSEE EARNED DIVIDEND INCOME AND CLAIMED EXEMPT. BUT THE ASSESSING OFFICER CONSIDER ED THE PROVISION FOR PREMIUM ON REDEMPTION OF OPTIONALLY CONVERTIBLE DE BENTURES OF ?4,19,80,254/- AS DIRECT EXPENDITURE AND BY MISTAKE ATTRIBUTED TO EXEMPTED INCOME AND PRESUMED THAT THE DEBENTURE P ROCEEDS WERE UTILIZED FOR MAKING INVESTMENTS BUT THE ASSESSEE C OMPANY HAS INCURRED ?5,303/- AS DIRECT EXPENDITURE AND PRAYE D FOR DELETION OF ADDITION. 6. ON THE OTHER HAND, THE LD. DEPARTMENTAL REPRESENTAT IVE RELIED ON THE ORDERS OF THE LOWER AUTHORITIES AND O BJECTED TO THE SUBMISSIONS . 7. WE AFTER HEARING THE RIVAL SUBMISSIONS, PERUSED THE MATERIAL ON RECORDS AND JUDICIAL DECISIONS CITED, THE LD. AU THORISED REPRESENTATIVE SUBMITTED THAT ASSESSEE COMPANY IN THE EARLIER YEARS HAS ISSUED OPTIONALLY FULLY CONVERTIBLE DEBENTURES (OFCD) AND DURING THE FINANCIAL YEAR THE ASSESSEE HAS MADE PROVISION FOR PREMIUM ON REDEMPTION OF DEBENTURES IN THE BOOKS OF ACCOUNTS. BUT THE DIVIDEND INCOME RECEIVED ON INVESTMENTS DOES NOT ATTRIBUTE A NY NEXUS WITH THE ABOVE PROVISION. THE EXPENDITURE CANNOT BE CO-RELAT ED FOR CALCULATION ITA NO.1349/MDS/2015 :- 6 -: AND APPLICATION OF PROVISIONS OF RULE 8D. WE ARE O F THE OPINION THAT THE ASSESSING OFFICER HAS TO CONSIDER THE EXPENDITU RE PERTAINING TO EXEMPTED INCOME ONLY FOR DISALLOWANCE AND SUCH EXPE NDITURE SHOULD BE RESTRICTED TO EXEMPTED INCOME EARNED AS HELD IN THE CASE OF M/S. JOINT INVESTMENT P. LTD VS. CIT 372 ITR 694 (DEL) . THEREFORE, WE SET ASIDE THE ORDER OF COMMISSIONER OF INCOME TAX (APPEALS) AND REMIT THE ISSUE TO THE FILE OF ASSESSING OFFICER TO RECALCULATE THE DISALLOWANCE UNDER RULE 8D CONSIDERING THE EXPENDIT URE HAVING DIRECT NEXUS WITH EXEMPTED INCOME ONLY. 8. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS PARTL Y ALLOWED FOR STATISTICAL PURPOSE. ORDER PRONOUNCED ON THURSDAY, THE 3 RD DAY OF MARCH, 2016, AT CHENNAI. SD/- SD/- ( ) (CHANDRA POOJARI) / ACCOUNTANT MEMBER ( . ! ' # ) (G. PAVAN KUMAR) /JUDICIAL MEMBER / CHENNAI 1 / DATED:03.03.2016 KV 2 * ,$.34 54'. / COPY TO: 1 . () / APPELLANT 3. ' 6. () / CIT(A) 5. 4!9: ,$.$ / DR 2. ,-() / RESPONDENT 4. ' 6. / CIT 6. :;& < / GF