Priyanka Finance Private Limited, CHENNAI V. DCIT, CHENNAI

ITA 1360/CHNY/2017

• Counselvise Citation: [2017] 127 COUNSELVISE.COM (IT) 6033 (ITAT-CHENNAI)
• Duration Of Justice: 4 month(s) 13 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 12-10-2017
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: C
• Assessment Year: 2013-2014
• Appeal Filed On: 29-05-2017
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: ASISH TRIPATHI JCIT
• Assessee Lawyers: SAILEE MEGHARAJ
• Keywords: Transactions in derivatives; Earning of tax free income
• Section: 14A

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL C BENCH, CHENNAI ... , , # BEFORE SHRI N.R.S. GANESAN, JUDICIAL MEMBER AND SHRI S. JAYARAMAN, ACCOUNTANT MEMBER ./ I.T.A. NO. 1360/MDS/2017 / ASSESSMENT YEAR : 2013-14 M/S. PRIYANKA FINANCE PVT. LTD, MASHKUR BUILDINGS NO. 1, KRISHNAMA ROAD, NUNGAMBAKKAM, CHENNAI 600 034 [PAN: AAACP 4293K] VS. DY . COMMISSIONER OF INCOME TAX CORPORATE CIRCLE -5(2) CHENNAI.34 ( / APPELLANT) ( / RESPONDENT) %& / APPELLANT BY : SHRI. SAILEE MEGHARAJ, CA )*%& / RESPONDENT BY : SHRI. ASISH TRIPATHI, JCIT & /DATE OF HEARING : 10.08.2017 & /DATE OF PRONOUNCEMENT : 12.10.2017 / O R D E R PER S. JAYARAMAN, ACCOUNTANT MEMBER: THE ASSESSEE FILED THIS APPEAL AGAINST THE ORDER OF THE COMMISSIONER OF INCOME TAX (APPEALS)-3, CHENNAI, IN ITA NO. 11/201 6-17/CIT(A)-3 DATED 31.03.2017. :-2-: ITA NO. 1360/MDS/2017 2. M/S. PRIYANKA FINANCE PVT. LTD., THE ASSESSEE, I S NON-BANKING FINANCIAL CORPORATION CARRIED ON BUSINESS OF FINANCIAL, MONET ARY AND COMMERCIAL AGENT AND ADVISER AND IS ALSO IN THE BUSINESS OF BUYING A ND SELLING OF SHARES. IN THE ASSESSMENT MADE FOR ASSESSMENT YEAR 2013-14, THE AO FOUND THAT THE ASSESSEE HAS INVESTED IN EQUITY SHARES OF RS. 44,86 ,394/- AND RS. 5,19,83,890/- IN DELTA CORPORATIVE LIMITED AD LINK INTIME INDIA PVT. LTD., RESPECTIVELY. THE ASSESSEE ALSO HAD LONG TERM BORR OWINGS OF RS. 26,51,529/- AND SHORT TERM BORROWINGS OF RS. 17,34,10,244/-. I T HAS EARNED LONG TERM CAPITAL GAINS OF RS. 3,15,12,217/- AND DIVIDEND INC OME OF RS. 1,18,64,464/- WHICH IS CLAIMED AS EXEMPT AND THIS EXEMPTED INCOME HAVE BEEN EARNED FROM THESE INVESTMENTS. THE AO ALSO FOUND THAT THE ASSE SSEE HAS DISALLOWED RS. 1,41,176/- ONLY , BEING 0.5% OF AVERAGE INVESTMENTS IN EQUITY SHARES, TOWARDS EARNING OF EXEMPT INCOME. THE AO CONSIDERE D THAT THE AMOUNT OF DISALLOWANCE BY THE ASSESSEE IS MEAGRE WHEN IT IS C OMPARED TO THE EXEMPT INCOME EARNED. HE FOUND THAT THE ASSESSEE IS HAVING HUGE LONG TERM BORROWINGS FOR WHICH RS. 2,10,39,541/- , INTEREST H AS BEEN PAID. IN VIEW OF THAT THE AO WAS NOT SATISFIED THAT THE DISALLOWANC E MADE BY THE ASSESSEE, SO HE APPLIED RULE 8D AND COMPUTED THE DISALLOWANCES AS UNDER: EXPENSES DIRECTLY ATTRIBUTABLE TO EARNING EXEMPT IN COME 2,96,331/- (SECURITY TRANSACTION CHARGES OF RS. 229283/-AND EX PENSES ON EQUITY AND F&O TRANSACTIONS OF RS. 67,048/-) UNDER RULE 8D(II) 14,12,766/- :-3-: ITA NO. 1360/MDS/2017 SINCE, THE ASSESSEE HAS DISALLOWED 0.5% OF AVERAGE VALUE OF INVESTMENTS, HE DID NOT MAKE ANY FURTHER DISALLOWANCE. THUS, THE A O DISALLOWED RS. 17,09,097/-. AGGRIEVED, THE ASSESSEE FILED AN APPE AL BEFORE THE CIT(A). THE CIT(A) CONFIRMED THE DISALLOWANCES AND DISMISSED TH E APPEAL. 3. AGGRIEVED, THE ASSESSEE FILED THIS APPEAL PLEADI NG THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE HONBLE C IT(A) OVERLOOKED THE FACTS AND CIRCUMSTANCES OF THE APPELLANTS CASE AND (I) ERRED IN SUSTAINING THE ADDITIONAL DISALLOWANCE MADE BY THE LEARNED AO U/S. 14A R.W.R. 8D FOR EARNING THE EXEMPT INCOME. THE APPELLANT PRAYS THAT THE SAID ACTION OF THE CIT(A) MAY BE DELETED; (II) ERRED IN UPHOLDING THE DISALLOWANCE MADE BY TH E LEARNED AO AMOUNTING TO RS. 2,96,331/- U/S. 14A R.W.R. 8D(I) OVERLOOKING TH E FACT THAT THE APPELLANT HAD SUOMOTU DISALLOWED THE DIRECT EXPENSES INCURRED TOW ARDS EARNING OF EXEMPT INCOME. THE APPELLANT PRAYS THAT THE DISALLOWANCE OF RS. 2, 96,331/- MAY KINDLY BE DELETED AND (III) ERRED IN CONFIRMING THE DISALLOWANCE OF AN AD DITIONAL AMOUNT OF RS. 14,12,766/- U/S. 14A R.W.R. 8D(II) MADE BY THE LEAR NED AO, DISREGARDING THE FACT THAT BORROWED FUNDS WERE NOT UTILISED BY THE APPELLANT F OR MAKING THE EXEMPT INCOME EARNING INVESTMENTS. THUS, THE ASSESSEE PRAYED THA T THE DISALLOWANCE OF RS. 14,12,766/- MAY KINDLY BE DELETED. :-4-: ITA NO. 1360/MDS/2017 4. THE AR FILED PAPER BOOK COMPRISING COPIES OF FIN ANCIAL STATEMENTS OF PRIYANKA FINANCE PRIVATE LIMITED (AMALGAMATED COMP ANY) AS ON 31.03.2012 I.E., PRIOR TO AMALGAMATION, FINANCIAL STATEMENTS O F ORACLE CORPORATE SERVICES LIMITED (AMALGAMATED COMPANY) AS ON 31.03.2012 I. E., PRIOR TO AMALGAMATION, AND FINANCIAL STATEMENTS OF PRIYANKA FINANCE PRIVATE LIMITED (AMALGAMATED COMPANY) AS ON 31.03.2013 I.E., POST TO AMALGAMATIONAND SUBMITTED THAT IN ORDER TO DISALLOW THE EXPENDITURE U/S. 14A R.W.R 8D(I), THERE MUST BE A LIVE NEXUS BETWEEN THE EXPENDITURE INCURR ED AND THE INCOME NOT FORMING PART OF THE TOTAL INCOME. THE ASSESSEE HAS ALREADY DISALLOWED THE SECURITY TRANSACTION CHARGES OF RS. 1,02,877/- INCU RRED BY IT IN RELATION TO EXEMPT-INCOME YIELDING INVESTMENTS IN ITS COMPUTATI ON OF INCOME. ON PERUSAL OF THE OTHER EXPENDITURES DEBITED TO THE PROFIT AND LOSS ACCOUNT, IT IS CLEARLY UNDERSTOOD THAT NO LINK CAN BE DRAWN BETWEEN THE EX PENDITURES INCURRED AND THE EXEMPT INCOME EARNED. HENCE, NO FURTHER DISALLO WANCE IS CALLED FOR UNDER THE FIRST LIMB OF RULE 8D (I). HOWEVER, THE A O, WH ILE COMPUTING THE DISALLOWANCE U/S RULE 8D(I), HAD COMPUTED A TOTAL D ISALLOWANCE OF RS. 2,96,331/- BEING SECURITY TRANSACTION CHARGES AMOUN TING TO RS. 2,29,823/- AND FNO TRANSACTION EXPENSES OF RS. 67,048/-. IN TH IS REGARD, THE AR SUBMITTED THAT OUT OF THE SECURITY TRANSACTION CH ARGES OF RS. 2,29,823/-, RS. 1,02,877/- CAN ONLY BE ATTRIBUTED TO EARNING OF EXEMPT INCOME AND THE BALANCE OF SECURITY TRANSACTION CHARGES AND FNO TRA NSACTION CHARGES ARE NOT RELATED TO THE EARNING OF DIVIDEND INCOME. HENCE, H E PLEADED THAT THE :-5-: ITA NO. 1360/MDS/2017 DISALLOWANCE U/S 14A BE RESTRICTED TO RS. 1,02,877 ONLY, AS IS SUOMOTU DISALLOWED BY THE ASSESSEE IN ITS COMPUTATION OF IN COME. 4.1 ON THE DISALLOWANCE MADE UNDER RULE 8D(II), TH E A R SUBMITTED THAT THE ASSESSEE HAS INCURRED INTEREST EXPENSES OF RS. 2,10,39,541/- ON SHORT TERM AND LONG TERM BORROWINGS. FURTHER, THE ASSESSE E HAS ALSO EARNED INTEREST INCOME OF RS. 95,80,410/- FROM THE LOANS G IVEN TO VARIOUS PARTIES. THE ASSESSEE IS ALSO IN BUSINESS OF REAL ESTATE AND THEREFORE IT REQUIRED FUNDS TO FINANCE ITS PROJECTS. THE SAID LOAN AND ADVANCES WAS USED FOR ENTIRELY BUSINESS PURPOSE. THE AR DREW OUR ATTENTION TO THE SCHEDULE OF NON-CURRENT INVESTMENTS OF THE BALANCE SHEET. IT CAN BE SEEN FR OM IT THAT THE TOTAL INVESTMENT AS ON 31.03.2013 IS RS 8,70,15,525/-, O F WHICH THE INVESTMENTS IN IMMOVABLE PROPERTIES, INCOME FROM WHICH IS NOT EXEM PT, AMOUNTS TO RS.3,05,45,241/-. IT IS APPARENT THAT THE SAID INVE STMENTS ARE NOT TO BE CONSIDERED FOR THE DISALLOWANCE U/S14A. THE BALANCE INVESTMENTS OF RS 5,64,70,284/-, BEING INVESTMENTS IN QUOTED AND UNQU OTED EQUITY INSTRUMENTS WERE ACQUIRED AS A RESULT OF THE AMALGAMATION OF OR ACLE CORPORATE SERVICES LIMITED (OCSL) WITH THE ASSESSEE COMPANY AND NO FUN DS BORROWED BY THE ASSESSEE COMPANY HAVE BEEN UTILIZED FOR ACQUISITION OF THESE INVESTMENTS. THE SAID INVESTMENTS WERE BEING HELD BY OCSL , WHIL E NO INVESTMENT WAS HELD BY THE ASSESSEE PRIOR TO THE AMALGAMATION OF T HE TWO, WHICH CAN BE VERIFIED FROM THE PRE-AMALGAMATION BALANCE SHEETS O F OCSL AND THE ASSESSEE :-6-: ITA NO. 1360/MDS/2017 AND ALL THESE DOCUMENTS WERE ENCLOSED WITH THE WRI TTEN SUBMISSIONS MADE BEFORE THE CIT(A) AS ANNEXURE B AND ANNEXURE C , RE SPECTIVELY. THE MAJOR REASON FOR INCREASE IN THE IMPUGNED INVESTMENTS ARE DUE TO THE AMALGAMATION OF THE TWO COMPANIES, AS IT IS EVIDENT THAT NO PART OF THE BORROWED FUNDS COULD HAVE BEEN SPENT ON MAKING THE INVESTMENTS DUR ING THE YEAR. THEREFORE, NO INTEREST EXPENSE CAN BE ATTRIBUTED TO THE EARNIN G OF DIVIDEND INCOME FROM SUCH INVESTMENTS. CONSEQUENTLY, THE PREMISE THAT BO RROWED FUNDS HAVE BEEN UTILIZED FOR INVESTMENT PURPOSES IS BASELESS AND NO DISALLOWANCE OF INTEREST EXPENDITURE U/S 14A R. W. R. 8D(II) IS WARRANTED.PE R CONTRA, THE DR SUPPORTED THE ORDERS OF THE A O AND THE CIT (A). 5. WE HEARD THE RIVAL SUBMISSIONS , GONE THROUGH THE ORDERS AND RELEVANT MATERIAL. THOUGH, THE ASSESSEE HAS NOT L AID THE ABOVE MATERIALS BEFORE THE AO AND IT HAS NOT TAKEN THE ABOVE PLEA B EFORE THE AO, AS IS SEEN FROM THE ASSESSMENT ORDER, IT FURNISHED THOSE MATE RIAL AND TOOK THE ABOVE PLEAS BEFORE THE CIT (A). HOWEVER, ON SUCH MATERIA L AND THE PLEAS ,THE CIT (A) HAS NEITHER CALLED FOR A REPORT FROM THE AO NOR EXAMINED THEM ON HIS OWN WHILE RENDERING HIS DECISION. SINCE THE FACTS REQU IRE VERIFICATION, ON THE FACTS AND CIRCUMSTANCES OF THIS CASE WE SET ASIDE THE ORD ER OF THE CIT (A) AND RESTORETHE MATTER TO THE A O FOR A FRESH EXAMINATIO N. AFTER GIVING ADEQUATE OPPORTUNITY TO THE ASSESSEE, THE AO SHALL PASS A SP EAKING ORDER. :-7-: ITA NO. 1360/MDS/2017 6. IN THE RESULT, THE ASSESSEES APPEAL IS TREATE D AS ALLOWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED ON THURSDAY, THE 12 TH DAY OF OCTOBER, 2017 AT CHENNAI. SD/- ( . . . ) (N.R.S. GANESAN) !' /JUDICIAL MEMBER SD/- ( ) (S. JAYARAMAN) ' /ACCOUNTANT MEMBER /CHENNAI, 0 /DATED: 12 TH OCTOBER, 2017 JPV &)1232 /COPY TO: 1. %/ APPELLANT 2. )*% /RESPONDENT 3. 4 ( )/CIT(A) 4. 4 /CIT 5. 2) /DR 6. 7 /GF