Bhaskar Transport Private Limited, Hyderabad V. Dy. Commissioner of Income Tax , Central Circle-2, Hyderabad

ITA 1386/Hyd/2018

• Counselvise Citation: [2018] 119 COUNSELVISE.COM (IT) 2326 (ITAT-HYDERABAD)
• Duration Of Justice: 4 month(s) 16 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 15-11-2018
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: B
• Assessment Year: 2014-2015
• Appeal Filed On: 29-06-2018
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: P MURALI MOHAN RAO
• Keywords: Earning of tax free income; Rule 8D; Set aside
• Section: 271(1)(c); 143(3); 14A; 6

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL HYDERABAD BENCHES B , HYDERABAD BEFORE SMT. P. MADHAVI DEVI, JUDICIAL MEMBER AND SHRI S. RIFAUR RAHMAN, ACCOUNTANT MEMBER ITA NO. ASST. YEAR APPELLANT RESPONDENT 1383 /HYD/ 1 8 20 11 - 12 M/S. BHASKAR TRAN SPOR T PRIVATE LIMITED, HYDERABAD [PAN: A A C CB0423F ] DEPUT Y COMMISSIONER OF INCOME TAX, CENTRAL CIRCLE - 2 , HYDERABAD 1384 /HYD/ 1 8 20 12 - 13 DEPUT Y COMMISSIONER OF INCOME TAX, CENTRAL CIRCLE - 1( 2 ) , HYDERABAD 1385/HYD/18 2013 - 14 INCOME TAX OFFICER, WAR D - 1 ( 3), HYDERABAD 1386/ HYD/18 2014 - 15 FOR ASSESSEE : SHRI P. MURALI MOHAN RAO , AR FOR REVENUE : S HRI PAWAN KUMAR , DR DATE OF HEARING : 0 5 - 1 1 - 201 8 DATE OF PRONOUNCEMENT : 15 - 1 1 - 201 8 O R D E R PER BENCH : TH E S E APPEAL S FI LED BY THE ASS ESSEE ARE DIRECTED AGAINST THE ORDER S OF THE COMMISSIONER OF INCOME TAX (APPEALS) 1 , HYDERABAD , FOR THE AY S . 20 11 - 1 2 , 201 2 - 1 3 , 201 3 - 1 4 & 20 1 4 - 1 5 . SINCE THE ISSUES ARE ALMOST COMMON IN ALL THESE APPEALS, WE HAVE HEARD ALL THESE APPEALS TOGETH ER AND M/S. BHASKAR TRANSP ORT PRIVATE LIMITED : - 2 - : ADJUDICATED BY THIS COMMON ORDER. FOR THE SAKE OF CONVENIENCE, THE FACTS IN ITA NO. 1383/HYD/2018 FOR THE AY. 2011 - 12 ARE DISCUSSED IN DETAIL HERE UNDER . 2. BRIEF FACTS OF THE CASE ARE THAT ASSESSEE - COMPANY IS ENGAGED IN THE BUSINESS OF TRA NSPORTAT ION. T HE RETURN OF INCOME FOR THE A Y. 2011 - 12 WAS FILED ON 29 - 09 - 2011 DECLARING TOTAL INCOME OF RS. 34,95,000/ - . NOTICES U/S.143(2) AND 1 42(1) OF THE INCOME TAX ACT [ACT] WERE ISSUED TO THE ASSESSEE - COMPANY. THE ASSESSEE - COMPAN Y HA D DULY COMP LIED WITH TH E SAID NOTICES. THE ASSESSMENT PR OC EEDINGS U/S. 143(3) WERE COMPLETED ON 06 - 03 - 2014 BY MAKING THE A DDITION AS UNDER: A. DISALLOWANCE OF INTEREST U/S 14A : I. THE ASSESSING OFFICER WHILE COMPLETING THE ASSESSMENT U/S. 143(3) OF THE ACT, OBSERVED THA T THE PR OVISIONS OF S ECTION 14A ARE APPLICABLE TO THE ASSESSEE - COMPANY WHICH STATES THAT WHEN ANY EXPENDITURE IS FOUND TO HAVE BEEN CLAIMED AS DEDUCTION UNDER ANY OF THE HEADS OF THE INCOME IN RELATION TO INCOME WHICH DOES NOT FORM ANY PART OF THE TOTA L IN COME UND ER THE INCOME TAX ACT THAT WILL FALL IN THE CONSIDERATION ZONE OF S ECTION 14A FOR DISALLOWANCE WHICH IS A SPECIAL PROVISION. ACCORD INGLY, THE ASSESSING OFFICER HAS, BY APPLYING THE PROVISIONS OF S ECTION 14A READ WITH RULE 8 D , DISALLOWED AN AMOU NT O F RS. 9,6 9,174/ - . THEREFORE, AGAINST THE ABOVE SAID ORDER, ASSESSEE PREFERR ED AN APPEAL BEFORE THE CIT(A) . II. B EFORE THE LD.CIT(A) , IT WAS THE SUBMISSION THAT T HE ASSESSEE - COMPANY HAS ALREADY SUBMITTED THAT DURING THE F INANCIAL Y E AR 2 010 - 11, THE COMPANY HAS DEBIT ED THE INTEREST M/S. BHASKAR TRANSP ORT PRIVATE LIMITED : - 3 - : EXPENSES TO THE P ROFIT & LOSS ACCOUNT AND THE SAME WAS CREDITED AS INTEREST INCOME. THEREFORE, THE SAID INTEREST WAS ALREADY OFFERED TO TAXABLE INCOME. SINCE THERE IS NO EXEMPT INCOME IN RESPECT OF THE INTER EST, THE DISALLOWANCE U/S. 14A IS NOT ATTRACTED BY THE ASSESSEE - COMPANY. IT IS AN ESTABLISHED POSITION OF LAW THAT, IF THE R E IS N O EXEMPT INCOME EA RNED, WHICH DOES NOT FORM PART OF THE TOTAL INCOME OF THE ASSESSEE THEN, THE PROVISIONS OF SECTION 14A DO NOT APP LY. A CCORDINGLY, DURING THE CURRENT FINANCIAL YEAR, THE ASSESSEE - COMPANY HAS NOT EARNED ANY EX EMPT INCOME WHICH DOES NOT FORM PART OF THE TOTAL INCOME AND HENCE, NO DISALLOWANCE U/S. 14A CAN BE MADE. III. FURTHER, IT IS SUBMITTED THAT DURING THE YEAR UND ER CONSIDER ATION , ASSESSEE - CO MPANY OBTAINED LOAN FROM UCO BANK AND THE BALANCE OUTSTANDING AS ON 31 ST MARCH, 2011 WAS RS. 4,04,47,045/ - AND THE INTEREST PAID DURING THE FY. 2010 - 11 WAS RS. 68,29,520/ - , WHICH WAS DEBITED TO THE PROFIT & LOSS ACCOUNT AS INTE REST EXPENSES. IV. SUBSEQUEN TLY, THE LOAN OBTAINED BY BHASKAR TRANSPORT FROM UCO BANK WAS GIVEN TO JASPER INDUSTRIES AND JASPER INDUSTRIES HAS PAID INTEREST AMOUNT OF RS. 68,33,480 / - TO BHASKAR TRANSPORT AND THE SAME WAS RECORDED AS INTEREST INCOME IN THE FINANCIAL STATEMENTS OF BHAS KAR TRANSPORT PRIVATE LIMITED FOR THE FINANCIAL Y EAR 2010 - 11. V. SINCE BOTH THE INTEREST EXPENSES AND INTEREST INCOME ARE PASSED THROUGH THE BOOKS IN CASE OF ASSESSEE - C OMPANY AND FURTHER SINCE THE INTEREST INCOME HAS ALRE ADY BEEN OFFERED TO TAX , T HERE IS NO REASON FOR MAKING THE DISALLOWANCE U/S. 1 4A FOR A SUM OF R S. 9,69,174/ - . THEREFORE, IT WAS SUBMIT TED THAT THE M/S. BHASKAR TRANSP ORT PRIVATE LIMITED : - 4 - : DISALLOWANCE MADE MAY BE DELETED AS S ECTION 14A NOT APPLICABLE IN THE PRESENT CASE . VI. IT WAS FURTHER SUBMI TTED THAT , THE ASSESSEE - COMPAN Y H AS NOT EARNED ANY EXEMPT INCOME WHICH DOES NOT FORM PART OF TOTAL INCOME OF THE COMPANY. SINCE THERE IS NO EXEMPT INCOME, THE DISALLOWANCE U/S. 14A IS NOT ATTRACTED TO THE ASSESSEE - COMPANY. IT IS AN ESTABLISHED POSITION OF LAW THAT, IF THERE IS NO EXEM PT I NCOME EARNED, WHICH DOES NOT FORM PART OF THE TOTAL INCOME , THEN THE PROVISIONS OF SECTION 14A DO NOT APPLY. A CCORDINGLY, DURING THE CURRENT FINANCIAL YEAR, THE ASSESSEE - COMPANY DID NOT EARN ANY EX E M PT INCOME , WHICH DOES N OT F ORM PART OF THE TOTAL INCOME AND HENCE, NO DISALLOWANCE U/S. 14A CAN BE MADE. 3. IN THIS CONNECTION , LD.AR OF THE ASSESSEE RELIED ON THE FOLLOWING CASE LAW: A. YATISH TRADING CO . PVT LTD VS . CIT (2011) [ 129 IT D 237/9 ] HELD THAT ' WHEN IT I S POSSIBLE TO D ETER M INE ACTUAL EXPENDITURE 'IN R ELATION TO' EXEMPT INCOME OR WHEN NO EXPENDITURE HAS BEEN INCURRED 'IN RELATION TO' EXEMPT INCOME, THE PRINCIPAL OF APPORTIONMENT EMBEDDED IN SECTION 14A OR RULE 8( D ) HAS NOT APPLICATION . B. SHREE S HYAM KAMAL FINANCE & LEA SING COMP A N Y ( P ) LTD VS . ITO (200 8) [ 21 SOT 42 ] ( M UM - TRIBUNAL) (SMC) STATED THAT ' WHERE THE INTEREST BEARING FUNDS ARE INVESTED IN SHARES WHICH HAVE YIELDED NO DIVIDEND INCOME, ASSESSING OFFICER CANNOT DISALLOW INTEREST PAID ON SU CH LOANS BY INVOKING SECT ION 1 4A.' IN VIEW OF AB OVE EXPL ANATION, LD.AR SUBMIT TED THAT THE ASSESSING OFFICER HAS ERRED IN DISALLOWANCE OF INTEREST EXPENDITURE OF RS. 9 , 69,174/ - U/S. 14A OF THE AC , WITHOUT APPRECIATING THE FACT AND EXPLANATION SUBMITTED . M/S. BHASKAR TRANSP ORT PRIVATE LIMITED : - 5 - : B. IT WAS FURTHER ARGUED THAT T HE A SSESSING O FFICER FURTHE R ERRED BY INITIATING PENALTY PROCEEDINGS U/S. 271(1)(C) OF THE A CT WITHOUT CONSIDERING THE FACT THAT THE ASSESSEE - COMPANY H AS NEITHER CONCEALED INCOME NOR FURNISHED ANY INAC CURATE PARTICULARS OF INCOME. 4. AFTER CONSIDER ING THE SUBMISSIONS AND VARIOUS G ROUNDS RAISED BY ASSESSEE - COMPANY, LD.CIT(A) DISMISSED THE APPEAL OF THE ASSESSEE . 4.1. AGGRIEVED WITH THE ORDER OF LD.CIT(A) , ASSESSEE IS IN APPEAL BEFORE US WITH THE FOLLOWING GROUNDS OF APPEAL: 1. THE ORDER OF THE CIT (A) IS ERRONEOUS BOTH ON FACT S AND IN LAW. 2. THE LD. CIT (A) ERRED IN CONFIRMING THE DISALLOWANCE MADE U/S 14A OF RS. 9,69,174/ - WITHOUT PROPERLY APPRECIATING THE FACTS OF THE CASE. 3. THE LD. CIT (A) OUGHT TO HAVE APPRECIATED THAT NO DISALLOWANCE U/ S.14 A OF THE ACT CAN BE MADE BY T HE AO IN THE ASSESSEE'S CASE SINCE THE AO HAS NOT RECORDED HIS DISSATISFACTION WITH REGARD TO THE ASSESSEE'S CLAIM THAT NO EXPENDITURE HAS BEEN INCURRED TO EARN EXEMPT INCOME HAVING REGARD TO THE ACCOUNTS OF THE ASSESSEE AS STI PULATED IN RULE 8D (1) OF THE INCOME TAX RULES, 1962. 4. THE LD. CIT (A) OUGHT TO HAVE APPRECIATED THAT THE ASSESSING OFFICER HAS NOT ESTABLISHED ANY DIRECT NEXUS BETWEEN THE INVESTMENT MADE WITH SISTER CONCERNS AND THE EXPENDITURE INCURRED. 5. THE L D. CI T (A) OUGHT TO HAVE APPRECIATE D THAT T HE INTEREST FREE FUNDS ARE AVAILABLE WITH THE ASSESSEES WHICH ARE LARGER AS COMPARED TO THE ADVANCES GIVEN TO THE SISTER CONCERNS. 6. THE LD. CIT (A) OUGHT TO HAVE APPRECIATED THAT IF THERE IS NO EXPENDITURE INCURRE D IN EARNING EXEMPT INCOME, NO DI SALLO WANCE M/S. BHASKAR TRANSP ORT PRIVATE LIMITED : - 6 - : U/S.14A OF THE ACT READ WITH SUB - RULE (2) OF RULE 8D OF THE I.T. RULES ,1962 CAN BE MADE. 7. THE LD. CIT (A) OUGHT TO HAVE APPRECIATED THAT THERE ARE NO FRESH INVESTMENTS MADE BY THE ASSESSEE IN THE SISTER CONCERN S DU RING THE YEAR UNDER CONSIDER A TION. 8. THE LD. CIT (A) OUGHT TO HAVE APPRECIATED THAT THE ASSESSING OFFICER HAS NOT ESTABLISHED ANY NEXUS BETWEEN THE BORROWED FUNDS AND THE INVESTMENT MADE IN SISTER CONCERNS. 9. THE LD. CIT (A) OUGHT TO HAVE APPRECIATED THA T FOR THE PURPOSE OF CO MPUTIN G THE AVERAGE VALUE OF INVESTMENTS, THE INVESTMENTS THAT YIELD EXEMPT INCOME DURING THE YEAR UNDER CONSIDERATION ARE ONLY TO BE CONSIDERED. 10. THE LD. CIT (A) ERRED IN INVOKING THE PROVISIONS OF SEC 14A OF THE ACT, WITHOUT APP RECIATING THE FACT TH AT THE I NVESTMENTS MADE BY THE APPELLANT COMPANY ARE FOR THE PURPOSE OF BUSINESS EXPEDIENCY. 11. THE LD. CIT (A) OUGHT TO HAVE APPRECIATED THAT NO INTEREST BEARING FUNDS WERE USED FOR THE PURPOSE OF INVESTMENTS MADE BY THE APPELLAN T AN D NO EXPENDITURE HA D BEEN INC URRED BY THE ASSESSEE IN RELATION TO THE FUNDS INVESTED. 12. THE LD. CIT(A) OUGHT TO HAVE APPRECIATED THAT RULE 8 D OF I T RULES,1962 CANNOT BE APPLIED WHEN THE ASSESSEE HAS MAINTAINED THE BOOKS OF ACCOUNT, GOT THEM AUDITED BY A CHARTERED ACCOUNTANT AND THA T THERE IS NO MISTAKE OR INFIRMITY NOTICED IN THE MAINTENANCE OF BOOKS OF ACCOUNT. 13. THE LD. CIT (A) OUGHT TO HAVE APP RECIATED THAT THE FINANCE COST OF RS.68,29,520 DEBITED IN P&L ACCOUNT HAS NO NEXUS WITH THE INVESTMENTS H EL D BY ASSESSEE COMPANY. 14. THE LD. CIT (A) OUGHT TO HAVE APPRECIATED THAT DURING THE YEAR UNDER CONSIDERATION, THE APPELLANT COMPANY HAS NOT EARNED AN Y EXEMPTED INCOME AND HENCE THE PROVISIONS OF SECTION 14A ARE NOT APPLICABLE. 15. THE ASSESSEE MAY A DD, A LT ER OR MODIFY ANY OTHER POI NTS TO THE GROUNDS OF APPEAL AT ANY TIME BEFORE OR AT THE TIME OF HEARING OF THE APPEAL . M/S. BHASKAR TRANSP ORT PRIVATE LIMITED : - 7 - : 5 . LD. DR SUPPORTED THE ORDERS OF THE REVENUE AUTHORITIES . 6 . CONSIDERED THE RIVAL SUBMISSIONS AND MATERIAL ON RECORD. LD. AR OF THE ASSESSEE RELIED ON VARIOUS CA SE LAWS INCLUDING THE DECISION OF ITAT, HYDERABAD IN ITA NO. 1302/HYD/2015 FOR AY 2011 - 12, ORDER DATED 29/04/2016 (WHERE JM WAS ONE OF THE SIGNATORY) WHEREIN THE BENCH HAS HELD AS UNDER: 6. HAVING REGARD TO THE RIVAL CONTENTIONS AND THE MATERIAL ON RECORD , WE FIND THAT SECTION 14A CLEARLY STIPULATES THAT THE EXPENDITURE INCURRED FOR EARNING OF ANY INCOME W HICH DOES NOT FORM PART OF THE TOTAL INCOME ALONE CAN BE DISALLOWED. IN THE CASE BEFORE US, WHEN THE ASSESSEE HAS NOT EARNED ANY EXEMPT INCOME, THERE CAN BE NO DISALLOWANCE UNDER SECTION 14A OF THE ACT. THE HONBLE DELHI HIGH COURT IN THE CASE OF CHEMINVE ST LTD., REPORTED IN (2015) 378 ITR 33 (DEL.) HAS HELD THAT SECTION 14A WILL NOT APPLY WHERE NO EXEMPT INCOME IS RECEIVED OR RECEIVABLE DURING THE RELEVA NT ASSESSMENT YEAR. IN VIEW OF THE SAME, ASSESSEES APPEAL ON THIS GROUND IS ALLOWED. 6. 1 IN THE CASE UNDER CONSIDERATION, WE FIND THAT THE INVESTMENT S WERE MADE PURELY ON ACCOUNT OF COMMERCIAL NECESSITY AND AS NO EXEMPT INCOME WAS EARNED FROM THE INVEST MENT SO MADE, THE PROVISIONS OF SECTION 14A WILL N OT APPLICABLE TO THE CASE OF ASSESSEE. THEREFORE, F OLLOWING THE SAID DECISION S OF THE COORDINATE BENCH , WE SET ASIDE THE OR DER OF THE CIT(A) AND ALLOW THE GROUNDS RAISED BY THE ASSESSEE ON THIS ISSUE. 7. AS THE FACTS AND GROUNDS RAISED IN AYS 2012 - 1 3 TO 2014 - 15 ARE MATE RIALLY IDENTICAL TO THAT OF AY 2011 - 12 , FOLLO WING THE CONCLUSIONS DRAWN THEREIN, WE ALLOW THE G ROUN DS RAISED IN THESE YEARS. M/S. BHASKAR TRANSP ORT PRIVATE LIMITED : - 8 - : 8. IN THE RESULT, ALL THE APPEALS OF THE ASSESSEE ARE ALLOWE D. O RDER PRONOUNCED IN THE OPEN C OURT ON 15 TH NOVEM B ER , 201 8 SD/ - SD/ - (P. MADHAVI DEVI) (S . RIFAUR RAHMAN) JUDI CIAL MEMBER ACC OUNT ANT MEMBER HYDERABAD, DATED 15 TH NO VEM BER , 2018 COPY TO : 1. M/S. BHASKAR TRANSPORT PRIVATE LIMITED, C/O. P. MURALI & CO., CHARTERED ACCOUNTANTS, 6 - 3 - 655/2/3, 1 ST FLOOR, SOMAJIGUDA, HYDERABAD. 2. THE D EPUTY COMMIS SIONE R OF INCOM E TA X, CENTRAL CIRCLE - 2, HYDERABAD. 3. THE DEPUTY COMMISS IONER OF INCOME TAX, CENTRAL CIRCLE - 1( 2 ) , HYDERABAD. 4 . THE INCOME TAX OFFICER , WARD - 1 ( 3 ) , HYDER ABAD. 5 . CIT(APPEALS) - 1 , HYDERABAD . 6 . PR. CIT - 1 , HYDERABAD . 7 . D .R. ITAT, HY DERAB AD. 8 . G UARD FILE. S .NO. DETAILS DATE 1 DRAFT DICTATED ON 0 5 - 1 1 - 1 8 2 DRAFT PLACED BEFORE AUTHOR 0 6 - 1 1 - 18 3 DRAFT PR OPOSED & PLACED BEFORE THE SECON D MEMBER 4 DRAFT DISCUSSED/APPROVED BY SECOND MEMBER 5 APPROVED DRAFT COMES TO THE SR. PS/P S 6 KEPT FOR P RONO UNCEMENT 7 FILE SENT TO BENCH CLERK 8 DATE ON WH IC H T HE FILE GOES TO HEAD CLERK 9 DATE ON WHICH FILE GO ES TO A.R. 10 DATE OF DISPATCH OF ORDER