DCIT, CHENNAI V. Shri Ravikant Choudhry, CHENNAI

ITA 1515/CHNY/2011

• Counselvise Citation: [2012] 119 COUNSELVISE.COM (IT) 7763 (ITAT-CHENNAI)
• Duration Of Justice: 10 month(s) 17 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 25-07-2012
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: D
• Next Hearing Date: 25-07-2012
• Assessment Year: 2007-2008
• Appeal Filed On: 07-09-2011
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: K E B RANGARAJANJR STA NDING
• Section: 14A

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL D BENCH, CHENNAI BEFORE DR. O.K. NARAYANAN, VICE-PRESIDENT, AND SHRI VIKAS AWASTHY, JUDICIAL MEMBER ITA NO.1515 /MDS/2011 (ASSESSMENT YEAR: 2007-08) DEPUTY COMMISSIONER OF INCOME TAX, COMPANY CIRCLE-I(1) 121, M.G.ROAD, AAYAKAR BHAVAN, NEW BLOCK VI FLOOR, CHENNAI-600 034. VS. MR. RAVIKANT CHOUDHRY, NO.138, DR.RADHAKRISHNAN SALAI, MYLAPORE, CHENNAI-600 034. PAN: AAEPR7102C (APPELLANT) (RESPONDENT) APPELLANT BY : MR. K.E.B. RANGARAJAN, JR.STA NDING COUNSEL RESPONDENT BY : MR. PHIL IP GEORGE, ADVOCATE DATE OF HEARING : 25 TH JULY, 2012 DATE OF PRONOUNCEMENT : 25 TH JULY, 2012 O R D E R PER VIKAS AWASTHY, JUDICIAL MEMBER: THE APPEAL HAS BEEN PREFERRED BY THE REVENUE IMPUGNING THE ORDER OF THE CIT(A)-III, CHENNAI DATE D 27.06.2011. 2. THE ASSESSEE FILED HIS RETURN OF INCOME RELEVAN T TO THE ASSESSMENT YEAR 2007-08 ON 29.10.2007 ADMITTING TO TAL INCOME OF ` 1,11,58,740/-. THE RETURN OF THE ASSESSEE WAS TAKEN UP FOR SCRUTINY AND NOTICE UNDER SECTION 143 (2) DATED 21.7.2008 WAS SERVED ON THE ASSESSEE. THE ASSESSIN G ITA NO. 1515/M DS/2011 2 OFFICER VIDE ASSESSMENT ORDER DATED 15.12.2009 MAD E CERTAIN DISALLOWANCES/ADDITIONS IN THE INCOME RETU RNED BY THE ASSESSEE. AGGRIEVED AGAINST THE ASSESSMENT ORDER, THE ASSESSEE PREFERRED AN APPEAL BEFORE THE CIT(A), INT ER-ALIA, ASSAILING DISALLOWANCE OF EXPENDITURE UNDER SECTION 14A TO THE TUNE OF ` 59,56,414/-. THE CIT(A) VIDE ORDER DATED 27.6.2011 PARTLY ALLOWED THE APPEAL OF THE ASSESSEE . THE CIT(A) ALLOWED THE GROUND OF DISALLOWANCE UNDER SEC TION 14A IN FAVOUR OF THE ASSESSEE WITH A CATEGORIC FINDING THAT RULE 8D WILL NOT APPLY FOR THE ASSESSMENT YEAR 2007-08. THE CIT(A) DIRECTED THE ASSESSING OFFICER TO RESTRICT T HE DISALLOWANCE UNDER SECTION 14A TO 2% ( I.E. ` 1,05,545/-) OF THE NET INTEREST EXPENDITURE OF ` 52,77,258/-. AGGRIEVED AGAINST THE IMPUGNED ORDER, THE REVENUE HAS COME IN APPEAL BEFORE THE TRIBUNAL ASSAILING TH E ORDER OF THE CIT(A) ON THE GROUND THAT THE CIT(A) HAS ERRED IN RESTRICTING THE DISALLOWANCE MADE UNDER SECTION 14A READ WITH RULE 8D TO 2% OF THE EXPENDITURE I.E. ` 1,05,545/- AS AGAINST ` 52,77,258 COMPUTED BY THE ASSESSING OFFICER. ITA NO. 1515/M DS/2011 3 3. SHRI K.E.B. RENGARAJAN, REPRESENTING THE REVENUE SUBMITTED THAT THE CIT(A) OUGHT TO HAVE TAKEN INTO CONSIDERATION THE PROVISIONS OF RULE 8D OF THE INCO ME TAX RULES. HE STRONGLY SUPPORTED THE ORDER OF THE ASSES SING OFFICER IN COMPUTING THE DISALLOWANCE UNDER SECTION 14A OF THE ACT. 4. ON THE OTHER HAND, SHRI PHILIP GEORGE REPRESENT ING THE ASSESSEE SUBMITTED THAT THE CIT(A) HAS PASSED A WEL L- REASONED AND DETAILED ORDER. HE SUBMITTED THAT RULE 8D OF THE INCOME TAX RULES CAME INTO FORCE WITH EFFECT FR OM 24.03.2008. THE SAME IS APPLICABLE ONLY FROM ASSESS MENT YEAR 2008-09 AND NOT IN THE EARLIER YEARS. THE PRES ENT RETURN PERTAINS TO ASSESSMENT YEAR 2007-08, THEREFORE, THE CIT(A) HAS RIGHTLY HELD THAT THE PROVISIONS OF RULE 8D IS NOT APPLICABLE IN THE PRESENT CASE. HE SUPPORTED THE OR DER OF THE CIT(A) ON THE ISSUE. 5. WE HAVE HEARD THE SUBMISSIONS MADE BY THE RESPEC TIVE PARTIES AND HAVE PERUSED THE ORDERS PASSED BY THE A UTHORITIES BELOW. THE ASSESSEE HAS RECEIVED AN AMOUNT OF ` 27,47,498/- AS DIVIDEND AND HAS EARNED LONG TERM CA PITAL GAIN ITA NO. 1515/M DS/2011 4 AMOUNTING TO ` 2,39,82,760/- ON SALE OF SHARES. THE ASSESSEE HAS CLAIMED THE ENTIRE DIVIDEND INCOME AND LONG TER M CAPITAL GAINS AS EXEMPT. THE ASSESSEE HAS PAID TOTAL INTER EST ON BORROWED FUNDS AMOUNTING TO ` 61,12,819/- INCLUDING INTEREST PAID TO INFRASTRUCTURE LEASING & FINANCING SERVICES LTD. (HEREINAFTER REFERRED TO AS ILFS) AMOUNTING TO ` 44,85,132/-. THE ASSESSEE HAD BORROWED FUNDS FROM ILFS AND OTHER S FOR ACQUIRING SHARES, WHICH WERE HELD AS STOCK-IN-TRADE WITH TRADING PORTFOLIO MAINTAINED WITH ILFS. THE ASSES SEE HAS EARNED DIVIDEND AMOUNTING TO ` 5,57,903/- FROM SHARES PURCHASED IN THE COURSE OF TRADING AND THE SAME HA S BEEN CLAIMED AS EXEMPT. THE ASSESSING OFFICER DISALLOWE D THE AMOUNT TO THE TUNE OF ` 59,56,414/- UNDER SECTION 14A READ WITH RULE 8D . IN OUR CONSIDERED OPINION, THE ASSE SSING OFFICER HAS ERRED IN APPLYING THE PROVISIONS OF RUL E 8D OF THE INCOME TAX RULES. RULE 8D WAS INSERTED BY THE FINAN CE ACT, 2008 WITH EFFECT FROM 24.03.2008. THE AMENDMENT HA S BEEN MADE WITH PROSPECTIVE EFFECT AND IS NOT APPLICABLE RETROSPECTIVELY. THEREFORE, THE PROVISIONS OF RULE 8D ARE APPLICABLE FROM ASSESSMENT YEAR 2008-09 AND NOT THE EARLIER ITA NO. 1515/M DS/2011 5 YEARS. THE CASE IN HAND RELATES TO ASSESSMENT YEA R 2007- 08. IT IS A WELL SETTLED PROPOSITION THAT RULE 8D IS APPLICABLE ONLY FROM ASSESSMENT YEAR 2008-09, THEREFORE, THE S AME WILL NOT BE APPLICABLE IN THE INSTANT CASE. 6. IN VIEW OF THE ABOVE, WE UPHOLD THE ORDER OF THE CIT(A) IN RESTRICTING THE DISALLOWANCE MADE UNDER SECTION 14A TO 2% OF THE EXPENDITURE. NO OTHER GROUND IS RAISED BY TH E REVENUE IN THE APPEAL. THEREFORE, THE APPEAL OF THE REVENUE IS DISMISSED BEING DEVOID OF MERIT. ORDER PRONOUNCED IN THE OPEN COURT AT THE TIME OF HEARING ON WEDNESDAY, THE 25 TH DAY OF JULY, 2012 AT CHENNAI. SD/- SD/- (DR. O.K.NARAYANAN) (VIKAS AWASTHY) VICE PRESIDENT JUDICIAL MEMBER CHENNAI, DATED THE 25 TH JULY, 2012. SOMU COPY TO: (1) APPELLANT (4) CIT(A) (2) RESPONDENT (5) D.R. (3) CIT (6) G.F.