Suvarnyug Sahkari Bank Ltd., Pune V. Assistant Commissioner of Income-tax,

ITA 140/PUN/2015

• Counselvise Citation: [2017] 126 COUNSELVISE.COM (IT) 7283 (ITAT-PUNE)
• Duration Of Justice: 2 year(s) 8 month(s) 24 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 27-10-2017
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: A
• Next Hearing Date: 25-10-2017
• Assessment Year: 2011-2012
• Appeal Filed On: 02-02-2015
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Opportunity of being heard; Principle of natural justice; Earning of tax free income
• Section: 14A

Judgement Text

, IN THE INCOME TAX APPELLATE TRIBUNAL PUNE BENCH A, PUNE . , , BEFORE SHRI D.KARUNAKARA RAO, AM AND SHRI VIKAS AWASTHY, JM . / ITA NO.140/PUN/2015 / ASSESSMENT YEAR : 2011-12 SUVARNAYUG SAHKARI BANK LTD., 1102/10/11, MARNE HEIGHTS, BUDHWAR PETH, PUNE 411 002 PAN : AACAS4805L . /APPELLANT VS. ACIT, CIRCLE-6, PUNE . / RESPONDENT / APPELLANT BY : SHRI VIJAY D. KENDHE / RESPONDENT BY : SHRI ACHAL SHARMA, ADDL.CIT DATE OF HEARING : 25.10.2017 / DATE OF PRONOUNCEMENT: 27.10.2017 / ORDER PER D. KARUNAKARA RAO, AM : THIS APPEAL IS FILED BY THE ASSESSEE AGAINST THE OR DER OF CIT(A)-III, PUNE DATED 16-10-2014 FOR THE A.Y. 2011-12. 2. ASSESSEE RAISED COUPLE OF GROUNDS AND THEY REVOL VE AROUND ADDITION OF RS.41,06,251/- U/S.14A OF THE ACT R.W. RULE 8D OF T HE I.T. RULES, 1962. GROUNDS RAISED BY THE ASSESSEE READ AS UNDER : 1. THE LD.CIT(APPEALS)-III HAS ERRED IN LAW AS WE LL AS IN FACTS WHILE CONFIRMING THE ADDITION OF RS.41,06,251/- U/S.14A R EAD WITH RULE 8D MADE BY THE ASSESSING OFFICER, ACIT, CIRCLE-6. SINCE THE ASSES SEE HAS NOT INCURRED ANY EXPENDITURE ON EARNING THE DIVIDEND INCOME AND FURT HER THE INVESTMENT MADE IS AS PER RBI NORMS AND HENCE RELATING TO THE BUSINESS OF THE ASSESSEE AND HENCE THE ADDITION IS UNWARRANTED AND UNCALLED FOR. 2. ALTERNATIVELY AND WITHOUT PREJUDICE TO THE AFORE SAID GROUND OF APPEAL NO.1 HEREINABOVE THE ADDITION OF RS.41,06,251/ MAY BE REDUCED TO A REASONABLE EXTENT. ITA NO. 140/PUN/2015 SUVARNAYUG SAHKARI BANK LTD., 2 3. BRIEFLY STATED RELEVANT FACTS ARE THAT THE ASSES SEE IS A COOPERATIVE BANK ENGAGED IN THE BUSINESS OF BANKING. ASSESSEE FILED THE RETURN OF INCOME ON 29-09-2011 DECLARING TOTAL INCOME OF RS.6,62,65,460 /-. THE PRINCIPAL SOURCE OF INCOME OF THE ASSESSEE IS ON ACCOUNT OF INTEREST AC CRUED ON THE LOANS GIVEN TO THE CUSTOMERS. ASSESSEE EARNED EXEMPT INCOME OF RS .21,53,742/- TOO. 4. BRINGING OUR ATTENTION TO THE ORDERS OF THE AO A ND THE CIT(A), THE LD. COUNSEL FOR THE ASSESSEE SUBMITTED THAT THE ASSESSE E EARNED THE EXEMPT INCOME OF RS.21,53,742/- AND CLAIMED NIL EXPENDITURE DISAL LOWABLE U/S.14A OF THE ACT R.W. RULE 8D(2) OF THE I.T. RULES. IN THE ASSESSMEN T PROCEEDINGS, THE AO APPLIED THE PROVISIONS OF RULE 8D(2) OF I.T. RULES AND QUAN TIFIED THE DISALLOWANCE AT RS.41,06,251/-, I.E. EQUIVALENT TO 0.5% OF THE AVER AGE INVESTMENT OF RS.82,12,50,378/-. CIT(A) CONFIRMED THE SAID DISAL LOWANCE. THEREFORE, THE ASSESSEE IS IN APPEAL BEFORE US. 5. BEFORE US, LD. COUNSEL FOR THE ASSESSEE BROUGHT OUR ATTENTION TO THE CONTENTS OF PARA 5.5 AND 5.6 OF THE ASSESSMENT ORDE R AND THE TABLE THEREIN AND SUBMITTED THAT THE CALCULATIONS RELATING TO AVERAGE INVESTMENT OF RS.82,12,50,378/- NEEDS MAJOR ADJUSTMENTS. THERE I S NEED FOR DOWNWARD REVISION OF THE SAID FIGURE OF AVERAGE INVESTMENT O F THE YEAR. FURTHER, HE SUBMITTED THAT THE EXEMPT INCOME IS ONLY RS.21,53,7 42/- AND THE DISALLOWANCE U/S.14A R.W. RULE 8D SHOULD NOT EXCEED THE EXEMPT I NCOME OF RS.21,53,742/-. HE ALSO SUBMITTED (1) FACTS OF INVESTMENT IN GROUP CONCERNS AND (2) NEEDS FOR EXCLUSION OF INVESTMENTS WHICH DID NOT YIELD EXEMPT INCOME IN THE YEAR, WERE NOT DISCUSSED/EXAMINED. LD. AR FOR THE ASSESSEE RE LIED ON VARIOUS DECISIONS IN THIS REGARD. FURTHER, HE SUBMITTED THAT THE CIT(A ) MERELY CONFIRMED THE CONCLUSIONS OF THE AO BEFORE DISMISSING THE GROUNDS OF THE ASSESSEE ON THIS ISSUE. ITA NO. 140/PUN/2015 SUVARNAYUG SAHKARI BANK LTD., 3 6. FURTHER, LD. AR FOR THE ASSESSEE BROUGHT OUR ATT ENTION TO PAGE 1 OF THE PAPER BOOK SHOWING THE WORKING OF DISALLOWABLE AMOU NT UNDER RULE 8D(2) OF THE I.T. RULES. ACCORDING TO THE ASSESSEE, THE DISALLO WABLE AMOUNT UNDER THE SAID PROVISIONS WORKS OUT TO MERELY RS.3,070/-. LD. AR SUBMITTED THAT HE HAS NO OBJECTION IF THE MATTER IS REMANDED FOR APPLYING TH E SAID LEGAL PROPOSITIONS, FOR MAKING ADJUSTMENT OF THE SAID AVERAGE INVESTMENT AN D REWORKING OF THE DISALLOWABLE EXPENDITURE U/S.14A R.W. RULE 8D(2) OF THE I.T. RULES, 1962. 7. ON THE OTHER HAND, LD. DR FOR THE REVENUE RELIED HEAVILY ON THE ORDERS OF THE AO AND THE CIT(A). 8. WE HEARD BOTH THE SIDES ON THIS ISSUE OF PROPER DISALLOWANCE U/S.14A R.W. RULE 8D(2) OF THE I.T. RULES AND ALSO GONE THROUGH THE WORKING GIVEN BY THE ASSESSEE AT PAGE 1 OF THE PAPER BOOK. AT THE END O F THE PROCEEDINGS BEFORE US, IT IS THE PRAYER OF BOTH THE PARTIES THAT IT IS APP ROPRIATE TO REMAND THIS ISSUE ALONG WITH THE CALCULATIONS GIVEN BY THE ASSESSEE T O THE FILE OF THE AO FOR FRESH ADJUDICATION IN THE MATTER APPLYING THE RELEVANT JU DICIAL PRECEDENTS AND THE PROVISIONS OF SECTION 14A R.W. RULE 8D(2) OF THE I. T. RULES, 1962. IN PRINCIPLE, WE CANNOT APPROVE THE WAY THE DISALLOWANCE IS WORKE D OUT WITHOUT CONSIDERING THE ARGUMENTS AND WORKING OF THE ASSESSEE. ACCORDI NGLY, WE DIRECT THE AO TO GO THROUGH THE CALCULATIONS/WORKING GIVEN BY THE ASSES SEE AND APPLY THE BINDING JUDGMENTS ON THIS ISSUE WHILE ARRIVING AT THE SUSTA INABLE DISALLOWABLE AMOUNT U/S.14A R.W. RULE 8D(2) OF THE I.T. RULES. AO SHAL L NOTE THAT ON THE LAW STANDS TODAY, IT IS A SETTLED LEGAL PROPOSITION THAT THE Q UANTUM OF EXEMPT INCOME IS OUTER LIMIT FOR MAKING DISALLOWANCES. THE DECISION OF THE SPECIAL BENCH OF THE TRIBUNAL IN THE CASE OF CHEMINVEST LIMITED VS. ITO 124 TTJ 577 STANDS REVERSED BY THE JUDGMENT OF THE HONBLE DELHI HIGH COURT IN THE SAID CASE VIDE 347 ITR 272 (DEL.). AO IS ALSO DIRECTED TO CONSIDER THE CL AIM OF THE ASSESSEE LEGALLY ON (1) THE WORKING GIVEN IN PAGE 1 OF THE PAPER BOOK A ND (2) THE DOWNWARD ITA NO. 140/PUN/2015 SUVARNAYUG SAHKARI BANK LTD., 4 ADJUSTMENTS OF CALCULATION OF RS.82.13 CRORES (ROUN DED OFF), THE AVERAGE INVESTMENT FOR THE PURPOSE OF CLAUSE (III) OF RULE 8D(2) OF THE I.T. RULES. ACCORDINGLY, BOTH THE GROUNDS RAISED BY THE ASSESSE E ARE REMANDED TO THE FILE OF THE AO FOR FRESH CONSIDERATION AND DECISION. AO IS REQUIRED TO AFFORD REASONABLE OPPORTUNITY OF BEING HEARD TO THE ASSESSEE AS PER T HE SET PRINCIPLES OF NATURAL JUSTICE. GROUNDS RAISED BY THE ASSESSEE ARE ALLOWE D FOR STATISTICAL PURPOSES. 9. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS ALL OWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED IN THE OPEN COURT ON THIS 27 TH DAY OF OCTOBER, 2017. SD/- SD/- (VIKAS AWASTHY) (D. KARUNAKARA RAO) /JUDICIAL MEMBER / ACCOUNTANT MEMBER PUNE; DATED : 27 TH OCTOBER, 2017. / COPY OF THE ORDER FORWARDED TO : BY ORDER // TRUE COPY // SENIOR PRIVATE SECRETARY , / ITAT, PUNE THE APPELLANT THE RESPONDENT THE CIT(A)-III, PUNE CIT -III, PUNE , , A BENCH PUNE; / GUARD FILE.