M/s Intergra Micro Systems Pvt Ltd , Bangalore V. The Assistant Commissioner of Income Tax Circle-3(2)(1), Bangalore

ITA 1417/BANG/2018

• Counselvise Citation: [2021] 109 COUNSELVISE.COM (IT) 4528 (ITAT-BANGALORE)
• Duration Of Justice: 2 year(s) 9 month(s) 7 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 10-02-2021
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: A
• Assessment Year: 2013-2014
• Appeal Filed On: 03-05-2018
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Assessee Lawyers: H GURUSWAMY ITP
• Keywords: Condonation of delay; Rule 8D
• Section: 14A; 13; 154

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL BANGALORE BENCHES A BENCH: BANGALORE BEFORE SHRI CHANDRA POOJARI, ACCOUNTANT MEMBER AND SHRI GEORGE GEORGE K , JUDICIAL MEMBER ITA NO. 1417 /BANG/2018 (ASSESSMENT YEAR: 20 13 - 14 ) M/S. INTEGRA MICRO SYSTEMS PVT. LTD., G5, SWISS COMPLEX, 33,RACECOURSE ROAD, BANGALORE - 560 001 .APPELLANT . PAN AAACI 3467J VS. ASSISTANT COMMISSIONER OF INCOME TAX, CIRCLE 3(2)(1), BANGALORE. RESPONDENT. ASSESSEE BY: SHRI H. GURUSWAMY, ITP REVENUE BY: SHRI KANNAN NARAYANAN, JCIT (D.R) DATE OF HEARING : 09.02 .20 2 1 . DATE OF PRONOUNCEMENT : 10 .02.2 0 2 1 . O R D E R PER SHRI CHANDRA POOJARI, A M : THE APPEAL BY THE ASSESSEE IS DIRECTED AGAINST THE ORDER OF C OMMISSIONER OF INCOME TAX (APPEALS) - 3 , BANGALORE DT.08.02.2018 FOR THE ASSESSMENT YEAR 2013 - 14. 2 ITA NO.1417/BANG/2018 1.1 THE ASSESSEE HAS SOUGHT CONDONATION OF DELAY OF 110 DAYS IN FILING THE APPEA L BEFORE THE TRIBUNAL. THE LD. AR SUBMITTED THAT THE ASSESSEE WAS PURSUING ALTERNATE REMEDY BY FILING PETITION U/S. 154 OF THE INCOME TAX ACT, 1961 ('THE ACT') BEFORE THE LOWER AUTHORITIES WHICH RESULTED IN DELAY. IN OUR OPINION, THERE IS A GOOD AND REAS ONABLE CAUSE FOR DELAY OF 110 DAYS IN FILING THE APPEAL BEFORE THE TRIBUNAL. ACCORDINGLY, WE CONDONE THE DELAY AND ADMIT THE APPEAL FOR ADJUDICATION. 2. THE GROUNDS OF APPEAL RAISED B Y THE ASSESSEE ARE AS UNDER : 3 ITA NO.1417/BANG/2018 3. THE FACTS OF THE CASE ARE THAT THE ASSESSEE IS ENGAGED IN THE BUSINESS OF PROVIDING IT ENABLED SERVICES AND SOFTWARE DEVELOPMENT SERVICES. THE ASSESSEE HAS EXEMPTED INCOME OF RS.28,48,599. THE ASSESSING OFFICER OBSERVED THAT THE DIVIDEND INCOME RECEIVED WAS FROM THE INVESTM ENT MADE OUT OF BORROWED FUND. THEREFORE, HE INVOKED THE PROVISIONS OF SECTION 14A R.W. RULE 8D OF I.T. RULES AND MADE DISALLOWANCE OF RS.26,17,690. THE ASSESSEE THOUGH PLEADED BEFORE THE ASSESSING OFFICER THAT THE ASSESSEE IS HAVING ENOUGH SURPLUS IN THE FORM OF SHARE CAPITAL AND RE S ERVES & SURPLUS AND THE INVESTMENT MADE OUT OF THESE FUNDS , T HE ASSESSING OFFICER HAS NOT AGREED WITH THE CONTENTION OF THE ASSESSEE AND PASSED THE ASSESSMENT ORDER MAKING THE ABOVE ADDITION . A GGRIEVED BY THE ORDER OF ASSESSMENT, THE ASSESSEE APPEALED BEFORE THE CIT (APPEALS) AND PLEADED BEFORE 4 ITA NO.1417/BANG/2018 HIM THAT THE INVESTMENTS RELATED TO EXEMPTED INCOME WHICH MADE IN EARLIER YEAR S AND NOT MADE IN THE ASSESSMENT YEAR 2013 - 14. THE CIT (APPEALS) OBSERVED THAT EVEN IF THE INVESTMENT WAS MADE IN EARLIER YEAR, THE ONUS IS ON THE ASSESSEE TO SHOW THAT THE INVESTMENT ACTUALLY MADE IN EARLIER YEAR S OUT OF INTEREST FREE FUNDS. ACCORDING TO THE CIT (APPEALS), THE ASSESSEE IS NOT DISCHARGED THE ONUS CAST UPON IT AND HE CONFIRMED THE DISALLOWANCE MADE BY THE ASSESSING OFFICER. FURTHER THE ASSESSEE HAS NOT DEMONSTRATED BY MAINTAINING SEPARATE ACCOUNT IN THIS REGARD. AGGRIEVED BY THE ASSESSEE, THE ASSESSEE IS IN APPEAL BEFORE US. 4. THE LEARNED AUTHORISED REPRES ENTATIVE SUBMITTED THAT THE INTEREST FREE FUNDS ARE MORE THAN THE INVESTMENT MADE IN EARLIER ASSESSMENT YEAR S AND NO DISALLOWANCE U/S. 14A COULD BE MADE. HE RELIED ON THE JUDGMENT OF HON'BLE KARNATAKA HIGH COURT IN THE CASE OF CIT VS. MICRO LAB LTD. (2017 ) 79 TAXMANN.COM 365 (KAR) AND ALSO JUDGEMENT OF HON'BLE BOMBAY HIGH COURT IN ITA NO.330/2012 DT.23.07.2014 IN THE CASE OF CIT VS. HDFC BANK LIMITED. HE ALSO RELIED ON THE JUDGEMENT OF HON'BLE KARNATAKA HIGH COURT IN ITA NO.423/2014 DT.20.11.2015 IN THE CASE OF CIT VS. KARNATAKA STATE INDUSTRAL & INFRASRUCTURE DEVELOPMENT CORPORATION LTD. FURTHER HE FILED A CHART SHOWING HE INVESTMENT MADE IN FINANCIAL YEAR ENDED ON 31.03.2012 AT RS.7.94 CRORES AND AS ON 31.03.2013 AT RS.7.75 CRORES TO SHOW THAT THERE W AS NO FRESH INVESTMENT IN THE F.Y. ENDING ON 5 ITA NO.1417/BANG/2018 31.03.2013 AND IT WAS ONLY EARLIER YEAR INVESTMENT WAS CARRIED FORWARD TO THIS ASSESSMENT YEAR UNDER CONSIDERATION. 5. ON THE OTHER HAND, THE LEARNED DEPARTMENTAL REPRESENTATIVE RELIED ON THE ORDER OF LOW ER AUTHORITIES AND SUB MI TTED THAT THE ASSESSEE HAS NOT DEMONSTRATED THE AVAILABILITY OF INTEREST FREE FUNDS IN EARLIER YEAR S BY PRODUCING RELEVANT FINANCIALS. ACCORDING TO HIM, THE ORDER OF THE LOWER AUTHORITIES HAS TO BE CONFIRMED. 6. WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE MATERIAL ON RECORD. THE ASSESSING OFFICER MADE DISALLOWANCE BY INVOKING THE PROVISIONS OF SECTION 14A R.W. RULE 8D(2)(II) AND 8D(2)(III) OF THE INCOME TAX RULES. THE DISALLOWANCE MADE BY INVOKING T HE PROVISIONS OF RULE 8 D(2)(III) I S AT RS.5,88,840 AND RULE 8D(2)( II) IS AT RS.20,28,830. THE DISALLOWANCE UNDER RULE 8D(2)(III) IS WITH REGARD TO ADMINISTRATIVE AND OTHER COMMON EXPENSES WHEN THE ASSESSEE DERIVE EXEMPTED INCOME. THE MANAGEMENT OF THE ASSESSEE IS INVOLVED IN TAKING A DECISION WITH REGARD TO INVESTMENT IN EXE MPTED INCOME. THIS INVESTMENT DECISION IS VERY STRATEGIC WHICH RESULTED IN INCURRING OF VARIOUS ADMINISTRATIVE EXPENSES. THE ASSESSEE CANNOT TAKE A PLEA THAT THE ASSESSEE HAS NOT INCURRED ANY ADMINISTR ATIVE EXPENDITURE TO TAKE SUCH STRATEGIC DECISION OF MAKING INVESTMENT IN EXEMPTED INCOME YIELDED ASSETS. WE ARE OF THE OPINION THAT THE DISALLOWANCE MADE BY THE ASSESSING OFFICER UNDER RULE 8D(2)(III) IS JUSTIFIED AND THUS THE DISALLOWANCE OF 6 ITA NO.1417/BANG/2018 RS.5,88,840 IS CONFIRMED. HOWEVER COMING TO THE DISALLOWANCE UNDER RULE 8D(2)(II), IT IS INDIRECT INTEREST EXPENDITURE. THE CONTENTION OF THE ASSESSEE IS THAT THE ASSESSEE IS HAVING INTEREST FREE FUNDS IN THE FORM OF RESERVES AND SURPLUS AND NO PART OF INTEREST BEA RING FUNDS WERE USED FOR MAKING THESE INVESTMENTS WHICH YIELDED EXEMPTED INCOME. HOWEVER, THE A VAILABILITY OF INTEREST FREE FUNDS IN THE YEAR OF INVESTMENT HAS NOT BEEN DEMONSTRATED BY THE ASSESSEE BEFORE THE LOWER AUTHORITIES BY PRODUCING THE RELEVANT F INANCIALS WHICH SHOWS THAT THERE WAS ACTUALLY INTEREST FREE FUNDS AVAILABLE WITH THE ASSESSEE. IT IS THE DUTY OF THE ASSESSEE TO PROVE THAT NO INTEREST BEARING FUNDS WERE UTILIZED FOR INVESTMENT IN THESE ASSETS WHICH YIELDED EXEMPTED INCOME. THE ASSESSE E HAS TO FILE NECESSARY FUND / CASH FLOW STATEMENTS WITH THE LOWER AUTHORITIES AS ON DATE OF MAKING INVESTMENTS WHICH HAD GIVEN RISE TO EXEMPTED INCOME. IF THERE IS ACTUAL AVAILABILITY OF THE INTEREST FREE FUNDS AS ON DATE OF MAKING THE INVESTMENT, THERE CANNOT BE ANY DISALLOWANCE UNDER SECTION 14A R.W. RULE 8D(2)(II) OF THE I.T. RULES. BEING SO, I N THE INTEREST OF JUSTICE, WE DEEM IT APPROPRIATE TO REMAND THIS ISSUE TO THE FILE OF ASSESSING OFFICER FOR FRESH CONSIDERATION. IF THE ASSESSEE PROVES THAT TH ERE IS AVAILABILITY OF INTEREST FREE FUNDS FOR MAKING THESE INVESTMENTS BY PRODUCING NECESSARY FUND/CASH FLOW STATEMENTS FOR THE RESPECTIVE YEAR OF INVESTMENT, THE CLAIM OF THE ASSESSEE IS TO BE ALLOWED. WITH THESE OBSERVATIONS, WE 7 ITA NO.1417/BANG/2018 REMIT THIS ISSUE OF DIS ALLOWANCE U/S. 14A R.W. RULE 8D(2)(II) OF THE I.T. RULES TO THE FILE OF ASSESSING OFFICER FOR FRESH CONSIDERATION . 7. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS PARTLY ALLOWED FOR STATISTICAL PURPOSES. PRONOUNCED IN THE OPEN COURT ON THE DATE MENTIONED ON THE CAPTION PAGE. S D / - S D / - ( GEORGE GEORGE K ) ( CHANDRA POOJARI ) JUDICIAL MEMBER ACCOUNTANT MEMBER DATED: 1 0 . 02. 20 2 1 . *REDDY GP COPY TO 1. THE APPELLANT 2. THE RESPONDENT 3. CIT (A) 4. PR. CIT 5. DR, ITAT, BANGALORE. 6. GUARD FILE BY ORDER ASSISTANT REGISTRAR INCOME - TAX APPELLATE TRIBUNAL BANGALORE