Seven Hills Co-operative Urban Bank Ltd., Hyderabad, Hyderabad V. ACIT, Circle-7(1), Hyderabad, Hyderabad

ITA 1455/HYD/2016

• Counselvise Citation: [2018] 126 COUNSELVISE.COM (IT) 2398 (ITAT-HYDERABAD)
• Duration Of Justice: 1 year(s) 4 month(s) 27 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 23-03-2018
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: B
• Next Hearing Date: 21-03-2018
• Assessment Year: 2012-2013
• Appeal Filed On: 27-10-2016
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: K J RAO
• Assessee Lawyers: A V RAGHURAM
• Keywords: Earning of tax free income
• Section: 143(3); 14A

Judgement Text

ITA NO 1455 OF 2016 SEVEN HILLS COOPERATIVE URBAN B ANK LTD HYDERABAD. PAGE 1 OF 3 IN THE INCOME TAX APPELLATE TRIBUNAL HYDERABAD B BENCH, HYDERABAD BEFORE SMT. P. MADHAVI DEVI, JUDICIAL MEMBER AND SHRI D.S.SUNDER SINGH, ACCOUNTANT MEMBER ITA NO.1455/HYD/2016 (ASSESSMENT YEAR: 2012-13) M/S. SEVEN HILLS COOP. URBAN BANK LTD HYDERABAD PAN: AAAAS 4904 Q VS ASSTT. COMMISSIONER OF INCOME TAX, CIRCLE 7(1) HYDERABAD (APPELLANT) (RESPONDENT) FOR ASSESSEE : SHRI A.V. RAGHURAM FOR REVENUE : SHRI K.J. RAO, DR O R D E R PER SMT. P. MADHAVI DEVI, J.M. THIS IS ASSESSEES APPEAL FOR THE A.Y 2012-13 AGAIN ST THE ORDER OF THE CIT (A)-3, HYDERABAD, DATED 24.02. 2016. THE ONLY ISSUE INVOLVED IN THIS APPEAL IS THE DISALLOWANCE M ADE BY THE AO U/S 14A R.W. RULE 8D(2)(III) OF THE ACT. 2. BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE, A N AOP, ENGAGED IN THE BUSINESS OF BANKING, FILED ITS RETUR N OF INCOME FOR THE A.Y 2012-13 ON 21.09.2012 DECLARING TOTAL INCOM E OF RS.87,67,240. DURING THE ASSESSMENT PROCEEDINGS U/S 143(3) OF THE ACT, THE AO OBSERVED THAT THE ASSESSEE HAS MADE INVESTMENTS DURING THE YEAR TO THE TUNE OF RS.75,00,000 IN MUTU AL FUNDS AND EARNED DIVIDEND INCOME; AND INVESTED RS.5,55,00,000 IN DATE OF HEARING: 21.03.2018 DATE OF PRONOUNCEMENT: 2 3 . 0 3 .2018 ITA NO 1455 OF 2016 SEVEN HILLS COOPERATIVE URBAN B ANK LTD HYDERABAD. PAGE 2 OF 3 GOVERNMENT SECURITIES AND HAS INCURRED HUGE INTERES T EXPENDITURE, BUT THE ASSESSEE HAS NOT ALLOCATED ANY EXPENDITURE AGAINST THESE INVESTMENT IN TERMS OF SECTION 14A. T HE ASSESSEE WAS ASKED TO SHOW CAUSE VIDE ORDER SHEET NOTING DAT ED 12.03.2015 AS TO WHY THE DISALLOWANCE U/S 14A SHOUL D NOT BE MADE. THE ASSESSEE SUBMITTED THAT IT HAD SUFFICIENT FUNDS OF ITS OWN FOR MAKING THE INVESTMENTS AND THAT NO EXPENDIT URE HAS BEEN INCURRED TOWARDS THE INVESTMENTS. THE AO HOWEV ER, WAS NOT CONVINCED WITH THE ASSESSEES CONTENTIONS AND OBSER VED THAT THE ASSESSEE HAD OFFERED THE DIVIDEND INCOME TO TAX INT ENTIONALLY TO AVOID APPLICATION OF SECTION 14A R.W.RULE 8D. OBSE RVING THAT THE ASSESSEE HAS FAILED TO ESTABLISH A DIRECT NEXUS BET WEEN OWN FUNDS AT THE DISPOSAL OF THE ASSESSEE AND THE INVESTMENTS , THE AO MADE THE DISALLOWANCE U/S 14A R.W RULE 8D(2)(III). THE D ISALLOWANCE THUS WORKED OUT TO RS.26,51,451. 3. AGGRIEVED, THE ASSESSEE PREFERRED AN APPEAL BEFO RE THE CIT (A), WHO CONFIRMED THE ORDER OF THE AO AND THE ASSESSEE IS IN SECOND APPEAL BEFORE US. 4. THE LEARNED COUNSEL FOR THE ASSESSEE SUBMITTED T HAT THE ASSESSEE HAS EARNED THE DIVIDEND INCOME OF RS.8 ,679/- ONLY FROM BIRLA SUN LIFE AND RS.8,758/- ONLY FROM RELIA NCE MUTUAL FUNDS, BUT THE DISALLOWANCE U/S 14A IS MUCH HIGHER AT RS.26,51,451. HE SUBMITTED THAT THE DISALLOWANCE U/ S 14A CANNOT EXCEED THE DIVIDEND INCOME EARNED BY THE ASS ESSEE. 5. THE LEARNED DR WAS ALSO HEARD, WHO SUPPORTED THE ORDERS OF THE AUTHORITIES BELOW. ITA NO 1455 OF 2016 SEVEN HILLS COOPERATIVE URBAN B ANK LTD HYDERABAD. PAGE 3 OF 3 6. HAVING REGARD TO THE RIVAL CONTENTIONS AND THE M ATERIAL ON RECORD, WE FIND THAT THE HON'BLE DELHI HIGH COUR T IN THE CASE OF JOINT INVESTMENT (P) LTD VS. CIT IN ITA NO.117 OF 2 015 DATED 25.2.2015, HAS HELD THAT THE DISALLOWANCE U/S 14A O F THE ACT CANNOT EXCEED THE TAX EXEMPTED INCOME. IT WAS HELD THAT SECTION 14A R.W. RULE 8D OF THE IT RULES CANNOT BE INTERPRE TED SO AS TO MEAN THAT THE ENTIRE TAX EXEMPTED INCOME IS TO BE D ISALLOWED AND THAT THE DISALLOWANCE IS ONLY TO BE TO THE EXTENT O F EXPENDITURE INCURRED BY THE ASSESSEE IN RELATION TO THE TAX EXE MPT INCOME. THE AO IS THEREFORE, DIRECTED TO RESTRICT THE DISAL LOWANCE TO THE EXEMPT INCOME EARNED BY THE ASSESSEE. 7. IN THE RESULT, ASSESSEES APPEAL IS ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 23 RD MARCH, 2018. SD/- SD/- (D.S.SUNDER SINGH) ACCOUNTANT MEMBER (P. MADHAVI DEVI) JUDICIAL MEMBER HYDERABAD, DATED MARCH 2018. VINODAN/SPS COPY TO: 1 K.VASANTKUMAR, AV RAGHURAM, P VINOD & M. NEELIMA DEVI, ADVOCATES, 610 BABUKHAN ESTATE, BASHEERBAGH, HYDERA BAD 1. 2 ASSTT. CIT, CIRCLE 7(1), 8 TH FLOOR, SIGNATURE TOWERS, KONDAPUR, HYDERABAD 3 CIT ( A) - 3 HYDERABAD 4 PR. CIT 3 HYDERABAD 5 THE DR, ITAT HYDERABAD 6 GUARD FILE BY ORDER