Ratnakar Bank Ltd., V. Jt. CIT (Central) Cir. Kolhapur,

ITA 136/PUN/2007

• Counselvise Citation: [2010] 135 COUNSELVISE.COM (IT) 3145 (ITAT-PUNE)
• Duration Of Justice: 3 year(s) 9 month(s) 24 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 19-11-2010
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: B
• Assessment Year: 2002-2003
• Appeal Filed On: 25-01-2007
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: ABHAY DAMLE
• Assessee Lawyers: SUNIL PATHAK
• Keywords: Proportionate interest
• Section: 14A

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL PUNE BENCHES, B PUNE BEFORE SHRI SHAILENDRA KUMAR YADAV JM AND SHRI D. KARUNAKARA RAO, AM SR.NO. ITA NO. A.Y. APPELLANT RESPONDENT 1. 136/PN/07 2002-03 THE RATNAKAR BANK LTD., SHREE SHAHU MARKET YARD, KOLHAPUR PAN AABCT3335M JT. CIT (CENTRAL) CIR. KOLHAPUR 2. 137/PN/07 2003-04 -DO- -DO- 3. 287/PN/06 2002-03 -DO- -DO- 4. 288/PN/06 2003-04 -DO- -DO- APPELLANT BY : S/SHRI SUNIL PATHAK AND NIKHIL PATHAK RESPONDENT BY: SHRI ABHAY DAMLE ORDER PER SHAILENDRA KUMAR YADAV, JM ALL THESE APPEALS PERTAIN TO SAME ASSESSEE. SO, TH EY ARE BEING DISPOSED OFF BY THIS CONSOLIDATED ORDER FOR T HE SAKE OF CONVENIENCE. ITA NO. 287 AND 288/PN/2006: 2. BOTH THESE APPEALS ARE FILED BY THE ASSESSEE AGA INST THE ORDER OF CIT(A) KOLHAPUR DATED 30-12-2005 ON THE P OINT OF CONFIRMATION OF DISALLOWANCE OF INTEREST OF RS. 33, 84,000/- ON ACCOUNT OF PROPORTIONATE EXPENDITURE RELATING TO TA X FREE INVESTMENTS. 3. DURING THE ASSESSMENT PROCEEDINGS, RELYING UPON THE PROVISIONS OF SECTION 14A OF THE ACT, THE ASSESSING OFFICER ITA NO. 136, 137PN/2006, 287 & 288/PN/07 RATNAKAR BANK LTD. A.Y. 2002-03 AND 2003-04 2 OBSERVED THAT THE INCOME FROM TAX FREE INVESTMENT I S NOT A PART OF TOTAL INCOME AND THEREFORE, EXPENDITURE ON THE SAME HAS BEEN DISALLOWED. THE ASSESSING OFFICER ACCORDI NGLY HAS COMPUTED THE PROPORTIONATE INTEREST EXPENDITURE ON INVESTMENT MADE IN TAX FREE INVESTMENTS AND ADDED B ACK TO THE INCOME OF THE ASSESSEE. THE ASSESSEE CARRIED T HE MATTER IN APPEAL BEFORE CIT(A) WHO CONFIRMED THE ORDER OF ASS ESSING OFFICER IN BOTH THE YEARS. SAME HAS BEEN OPPOSED BEFORE US. ON THE OTHER HAND, LEARNED DR SUPPORTED THE ORDERS OF AUTHORITIES BELOW. 4. HAVING CONSIDERED THE RIVAL SUBMISSIONS AND PERU SING THE MATERIAL ON RECORD, WE FIND THAT ON SIMILAR SET OF FACTS, THE HONBLE JURISDICTIONAL HIGH COURT IN THE CASE OF CI T VS. UTTAMCHAND JAIN (2010) 320 ITR 554 (BOM) HAS DECIDE D THE ISSUE IN FAVOUR OF THE ASSESSEE. ADMITTEDLY, THE I NVESTMENT IN TAX FREE INVESTMENTS WAS MUCH LOWER THAN THE INTERE ST FREE FUNDS AVAILABLE WITH THE ASSESSEE FOR INVESTMENT. THUS, IT CAN BE SAFELY SAID THAT BORROWED FUNDS WERE NOT UTILIZE D TO MAKE INVESTMENT IN TAX FREE BONDS ETC. THE ASSESSEE IS ENGAGED IN BANKING ACTIVITY. THE INVESTMENTS ARE MADE IN THE C OURSE OF BANKING BUSINESS. SIMILARLY, SALE OF INVESTMENTS W AS ALSO A PART OF THE BANKING ACTIVITY. THE BORROWED FUNDS I N THE NATURE OF DEPOSITS WERE UTILIZED IN THE BANKING BUSINESS A ND THE INTEREST ON BORROWED FUNDS IS ALLOWABLE UNDER THE P ROVISIONS ITA NO. 136, 137PN/2006, 287 & 288/PN/07 RATNAKAR BANK LTD. A.Y. 2002-03 AND 2003-04 3 OF SECTION 36(1)(III) OF THE ACT. THE INTEREST ON CAPITAL BORROWED IS ALLOWABLE EVEN THOUGH A PART OF THE FUNDS MIGHT HAVE BEEN INVESTED IN SECURITIES. IN THIS VIEW OF THE MATTER, WE SET ASIDE THE ORDERS OF THE AUTHORITIES BELOW AND RESTORE THE ISSUE TO THE FILE OF THE ASSESSING OFFICER FOR DE NOVO ASSESSME NT IN THE LIGHT OF THE FACTS AND LAW AVAILABLE AT THE RELEVANT POIN T OF TIME AND AFTER TAKING INTO CONSIDERATION THE JUDGMENT OF THE JURISDICTIONAL HIGH COURT IN THE CASE OF CIT VS. UT TAMCHAND JAIN (SUPRA) AFTER PROVIDING DUE OPPORTUNITY OF HEA RING TO THE ASSESSEE. CONSEQUENTLY, THE APPEALS OF THE ASSESSE E ARE TREATED AS ALLOWED FOR STATISTICAL PURPOSES. ITA NO. 136 AND 137/PN/2007 5. THESE APPEALS ARISE OUT OF ORDER OF THE CI(A) ON THE POINT OF CONFIRMATION OF PENALTY U/S 271(1)(C) OF THE ACT . DURING THE ASSESSMENT PROCEEDINGS, THE ASSESSING OFFICER FOUN D THAT THE ASSESSEE WAS IN RECEIPT OF SUBSTANTIAL AMOUNTS OF T AX FREE INCOME BY WAY OF INTEREST AND DIVIDEND FROM TAX FRO M PUBLIC SECTOR UNDERTAKING BONDS AND OTHER INVESTMENTS. TH E ASSESSEE HAD NOT ADDED BACK ANY EXPENDITURE INCURRE D IN EARNING THE ABOVE TAX FREE INCOME. THE ASSESSING O FFICER THEREFORE, COMPUTED INTEREST EXPENDITURE ON A PROPO RTIONATE BASIS AND DISALLOWED THE AMOUNT OUT OF INTEREST PAI D BY THE BANK, RESORTING TO SECTION 14A OF THE ACT. SINCE T HE DISALLOWANCE MADE U/S 14A WAS CONFIRMED BY THE CIT( A) THE ASSESSING OFFICER LEVIED THE PENALTY @ 100% RELYIN G ON THE ITA NO. 136, 137PN/2006, 287 & 288/PN/07 RATNAKAR BANK LTD. A.Y. 2002-03 AND 2003-04 4 DECISION OF BOMBAY TRIBUNAL IN THE CASE OF ASSTT. C IT VS. HINDUSTAN CONDUCTORS (P) LTD. (1996) 58 ITD 410 (MU M). ON APPEAL, THE CIT(A) ALSO CONFIRMED THE PENALTY SO IM POSED BY THE ASSESSING OFFICER. WHICH IS SUBJECT MATTER BEFO RE US. 6. HAVING CONSIDERED THE ARGUMENTS OF BOTH THE SIDE S AND PERUSING THE MATERIAL ON RECORD, WE FIND THAT THE V ERY BASIS FOR LEVYING THE IMPUGNED PENALTY IS THE INTEREST DISALL OWANCE, WHICH HAS BEEN SET ASIDE BY THE TRIBUNAL AS DISCUSS ED ABOVE. WE ARE THEREFORE, OF THE CONSIDERED OPINION THAT TH E ISSUE WITH RESPECT TO IMPUGNED PENALTY ALSO REQUIRES TO BE SET ASIDE TO THE FILE OF THE ASSESSING OFFICER FOR PASSING A FR ESH ORDER IN ACCORDANCE WITH LAW AND FACTS AVAILABLE AT THE RELE VANT POINT OF TIME. WE THEREFORE, SET ASIDE THE ORDERS OF THE AU THORITIES BELOW AND REMIT THIS MATTER TO THE FILE OF THE ASSE SSING OFFICER FOR PASSING A FRESH ORDER AFTER PROVIDING DUE OPPOR TUNITY OF HEARING TO THE ASSESSEE. 7. IN THE RESULT, ALL THE APPEALS ARE ALLOWED FOR S TATISTICAL PURPOSES. ORDER PRONOUNCED IN THE OPEN COURT ON 19 TH NOVEMBER 2010. SD/- SD/- (D. KARUNAKARA RAO) (SHAILENDRA KUMAR YADAV) ACCOUNTANT MEMBER JUDICIAL MEMBER PUNE, DATED THE 19 TH NOVEMBER, 2010 ANKAM ITA NO. 136, 137PN/2006, 287 & 288/PN/07 RATNAKAR BANK LTD. A.Y. 2002-03 AND 2003-04 5 COPY FORWARDED TO: (1) ASSESSEE (2) DEPARTMENT (3) CIT (A) KOLHAPUR (4) CIT I KOLHAPUR (5) THE D.R. ITAT 'B' PUNE BENCH, PUNE (6) GUARD FILE BY ORDER ASSISTANT REGISTRAR INCOME-TAX APPELLATE TRIBUNAL, PUNE BENCHES, PUNE