Avanti Feeds Limited, Hyderabad, Hyderabad V. DCIT, Circle-1(1), Hyderabad, Hyderabad

ITA 1531/HYD/2016

• Counselvise Citation: [2017] 127 COUNSELVISE.COM (IT) 2482 (ITAT-HYDERABAD)
• Duration Of Justice: 11 month(s) 15 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 27-10-2017
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: B
• Assessment Year: 2009-2010
• Appeal Filed On: 11-11-2016
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: N SWAPNA
• Keywords: Earning of tax free income
• Section: 143(3); 14A

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL HYDERABAD BENCH B, HYDERABAD BEFORE SMT. P. MADHAVI DEVI, JUDICIAL MEMBER AND SHRI S. RIFAUR RAHMAN, ACCOUNTANT MEMBER ITA NOS. 1531 & 1532/HYD/2016 ASSESSMENT YEARS: 2009-10 AND 2010-11 AVANTI FEEDS LTD., HYDERABAD. PAN AABCA 7365E VS. DY. COMMISSIONER OF INCOME- TAX, CIRCLE 1(1), HYDERABAD. (APPELLANT) (RESPONDENT) ASSESSEE BY : SHRI K. GOPAL REVENUE BY : SMT. N. SWAPNA DATE OF HEARING : 29-09-2017 DATE OF PRONOUNCEMENT : 27-10-2017 O R D E R PER S. RIFAUR RAHMAN, A.M.: BOTH THESE APPEALS FILED BY THE ASSESSEE ARE DIREC TED AGAINST THE ORDERS OF THE LEARNED COMMISSIONER OF INCOME-TA X(A) - 1, HYDERABAD, BOTH, DATED 29-07-2016 FOR AY 2009-10 A ND 2010-11. AS THE ISSUE IS IDENTICAL IN BOTH THE APPEALS, THEY WE RE CLUBBED AND HEARD TOGETHER AND, THEREFORE, A COMMON ORDER IS PA SSED FOR THE SAKE OF CONVENIENCE. 2. BRIEFLY THE FACTS OF THE CASE, AS TAKEN FROM AY 2009-10 ARE THAT THE ASSESSEE, ENGAGED IN THE BUSINESS OF MANUFACTUR E OF SHRIMP FEED, EXPORT OF PROCESSED SHRIMP AND GENERATION OF WIND POWER, FILED ITS RETURN OF INCOME FOR THE AY 2009-10 ON 26/09/20 09 DECLARING LOSS OF (-) RS. 8,26,26,843/-. THE CASE WAS SELECTED FOR SCRUTINY AND NOTICE U/S 143(2) WAS ISSUED. THE ASSESSMENT WAS COMPLETED U/S 143(3) ON 30/11/2011 DISALLOWING THE EXPENDITURE ON EXEMPT IN COME TO THE TUNE OF RS. 1,64,69,835/- BY INVOKING RULE 8D R.W.S. 14A OF THE ACT. 2 ITA NOS. 1531 & 1532/H/16 AVANTI FEEDS LTD. 2.1 THE ASSESSEE COMPANY CLAIMED EXEMPTION OF DIVID END OF RS. 2,79,467/- U/S 10(33) FROM EQUITY SHARES/UNITS. AO OBSERVED THAT IN TERMS OF PROVISIONS OF SECTION 14A OF THE ACT, ANY EXPENDITURE INCURRED DIRECTLY OR INDIRECTLY FOR EARNING INCOME WHICH DOES NOT PART OF TAXABLE INCOME IS NOT ALLOWABLE. FURTHER, HE OBS ERVED THAT THOUGH THE ASSESSEE CLAIMED AN AMOUNT OF RS. 2,79,467/- DO NOT FORM PART OF TAXABLE INCOME, IT DID NOT DISALLOW ANY EXPENDITURE INCURRED THAT MIGHT HAVE INCURRED FOR EARNING THE EXEMPT INCOME. THE AO , THEREFORE, DISALLOWED AN AMOUNT OF RS. 1,64,69,895/- BY APPLYI NG RULE 8D R.W.S. 14A OF THE INCOME-TAX ACT. 3. WHEN THE ASSESSEE CARRIED THE MATTER IN APPEAL B EFORE THE CIT(A), THE CIT(A) CONFIRMED THE ACTION OF THE AO. 4. AGGRIEVED, THE ASSESSEE IS IN APPEAL BEFORE US R AISING THE FOLLOWING GROUNDS OF APPEAL, WHICH ARE COMMON IN BO TH THE APPEALS EXCEPT THE QUANTUM OF DISALLOWANCE: 1. THE LD. COMMISSIONER OF INCOME TAX (APPEALS) - 1 , HYDERABAD [HEREINAFTER REFERRED TO AS 'LD. CIT(A)'] ERRED IN CONFIRMING THE ACTION OF THE LD. A.O. IN MAKING DI SALLOWANCE OF RS.1,64,69,835/- UNDER SECTION 14A OF THE INCOME TA X ACT 1961 [HEREINAFTER REFERRED TO AS 'THE ACT'] BY INVOKING RULE 8D WITHOUT APPRECIATING THE FACT THAT THE APPELLANT HA S NOT INCURRED ANY EXPENDITURE IN RELATION TO INCOME WHICH DOES NO T FORM PART OF THE TOTAL INCOME. HENCE, THE DISALLOWANCE MADE U NDER SECTION 14A R.W.R 8D IS UNJUSTIFIED AND THE SAME MA Y BE DELETED. 2. THE LD. CIT(A) FAILED TO APPRECIATING THE FACT T HAT THE OWN FUNDS APPEARING IN THE BALANCE SHEET OF THE APPELLA NT ARE IN EXCESS TO THE INVESTMENTS MADE DURING THE IMPUGNED ASSESSMENT YEAR. THUS, THERE IS NO NEXUS BETWEEN IN VESTMENT AND BORROWED FUNDS. HENCE, THE DISALLOWANCE OF RS.1,64,39,835/- UNDER SECTION 14A R.W.R. 8D2(II) I S NOT JUSTIFIED AND THE SAME MAY BE DELETED. 3. WITHOUT PREJUDICE TO THE OTHER GROUNDS OF APPEAL THE LD. CIT(A) FURTHER ERRED IN MAKING DISALLOWANCE OF RS.1 ,64,39,835/- UNDER SECTION 14A R.W.R. 8D WITHOUT APPRECIATING TH E FACT THAT THE DISALLOWANCE MADE BY THE LD. A.O. IS DISPROPORT IONATE TO 3 ITA NOS. 1531 & 1532/H/16 AVANTI FEEDS LTD. THE EXEMPT DIVIDEND INCOME OF RS.2,79,467/- RECEIVE D DURING THE YEAR. THUS, THE DISALLOWANCE OF RS.1,64,39,835/ - IS UNJUSTIFIED AND THE SAME MAY BE DELETED. 4. WITHOUT PREJUDICE TO THE ABOVE THE LD. CIT (A) F AILED TO APPRECIATE THE FACT THAT THE MAJOR INVESTMENTS HAVE BEEN MADE IN M/S. SRIVASTAVA POWER PROJECTS LTD. AND M/S. PAT IKARI POWER LTD. ON WHICH NO DIVIDEND INCOME HAS BEEN RECEIVED. THUS, THE SAID INVESTMENT HAS TO BE EXCLUDED WHILE COMPUTING THE AVERAGE VALUE OF INVESTMENT FOR THE PURPOSE OF RULE 8D 2(III) . 5. THE APPELLANT CRAVES LEAVES TO ADD, AMEND, ALTER , DELETE OR RESCIND ANY OF THE GROUNDS MENTIONED ABOVE. 5. LD. AR SUBMITTED THAT THE REVENUE AUTHORITIES WR ONGLY MADE DISALLOWANCE U/S 14A BY INVOKING RULE 8D WITHOUT AP PRECIATING THE FACT THE ASSESSEE HAS NOT INCURRED ANY EXPENDITURE IN RE LATION TO INCOME WHICH DOES NOT FORM PART OF TOTAL INCOME. HE SUBMIT TED THAT BOTH THE AO AND CIT(A) FAILED TO APPRECIATE THE FACT THAT TH E OWN FUNDS APPEARING IN THE BALANCE SHEET OF THE ASSESSEE ARE IN EXCESS TO THE INVESTMENTS MADE DURING THE YEAR UNDER CONSIDERATIO N. 5.1 WITHOUT PREJUDICE TO THE ABOVE SUBMISSIONS, TH E AR SUBMITTED THAT THE CIT(A) FAILED TO APPRECIATE THE FACT THAT THE MAJOR INVESTMENTS HAVE BEEN MADE IN M/S SRIVASTAVA POWER PROJECTS LTD. AND M/S PATIKARI POWER LTD. ON WHICH NO DIVIDEND IN COME HAS BEEN RECEIVED AND, THEREFORE, THE SAID INVESTMENT HAS TO BE EXCLUDED WHILE COMPUTING THE AVERAGE VALUE OF INVESTMENT FOR THE P URPOSE OF RULE 8D2(III) OF THE ACT. HE RELIED ON THE FOLLOWING CA SES: 1. HDFC BANK LTD., [2016] 383 ITR 529 (BOM) 2. CIT VS. HDFC BANK LTD., [2014] 366 ITR 505 (BOM .) 3. M/S JM FINANCIAL LTD., VS. ADDL. CIT, ITA NO. 4521/MUM/2012, DATED 26/03/2014. 6. THE LD. DR, ON THE OTHER HAND, RELIED ON THE ORD ERS OF REVENUE AUTHORITIES AND ALSO PLACED RELIANCE ON THE FOLLOWI NG CASES: 1. ACIT VS. CITICORP FINACE (INDIA) LTD., [2007] 10 8 ITD 457 (MUM.) 4 ITA NOS. 1531 & 1532/H/16 AVANTI FEEDS LTD. 2. KALPATARU CONSTRUCTION OVERSEAS (P.) LTD., [2007 ] 13 SOT 194 (MUM.) 3. SPANDANA SPHOORTY FINANCIAL LTD., VS. ADDL. CIT, ITA NO. 1653/HYD/2012, DATED 10/10/2014. 4. BELLWETHER MICROFINANCE FUND PVT. LTD., ITA NO. 1743/HYD/2013, DATED 27/06/2014. 7. CONSIDERED THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL FACTS ON RECORD AS WELL AS THE CASE LAW CITED. WE FIND TH AT SIMILAR ISSUE CAME UP FOR CONSIDERATION BEFORE THE COORDINATE BEN CH OF THIS TRIBUNAL IN THE CASE OF TRANSPORT CORPORATION OF IN DIA LTD. IN ITA NO. 117/HYD/2016 VIDE ORDER DATED 21 ST SEPTEMBER, 2016 WHEREIN THE COORDINATE BENCH HAS HELD AS UNDER: 11.1 WHILE CAREFULLY READING THE RULE 8D(2)(II), T HE FORMULA GIVEN ARE: A X B/C WHERE A = AMOUNT OF EXPENDITURE BY WAY OF INTEREST OTHER THAN THE AMOUNT OF INTEREST INCLUDED IN CLAUSE (I) IN CURRED DURING THE PREVIOUS YEAR: B = THE AVERAGE OF VALUE OF INVESTMENT, INCOME FROM WHICH DOES NOT OR SHALL NOT FORM PART OF THE TOT AL INCOME, AS APPEARING IN THE BALANCE SHEET OF THE ASSESSEE, ON THE FIRST DAY AND THE LAST DAY OF T HE PREVIOUS YEAR; C = THE AVERAGE OF TOTAL ASSETS AS APPEARING I N THE BALANCE SHEET OF THE ASSESSEE, ON THE FIRST DAY AND THE LAST DAY OF THE PREVIOUS YEAR; IN PARTICULAR, THE NOTES FOR B CLEARLY STATES THA T THE AVERAGE VALUE OF INVESTMENT, INCOME FROM WHICH DOES NOT OR SHALL NOT FORM PART OF THE TOTAL INCOME. IT IS CLEAR THAT WE HAVE TO INCLUDE THOSE INVESTMENTS WHICH HAS GENERATED INCOME AND EX CLUDE THOSE INVESTMENTS, WHICH HAVE NOT GENERATED INCOME. IN THE PRESENT CASE, AO HAD TAKEN THE TOTAL INVESTMENT INS TEAD OF THOSE INVESTMENTS, WHICH HAVE GENERATED INCOME. ACCORDING LY, WE DIRECT THE AO TO CALCULATE THE DISALLOWANCE OF INTE REST AS BELOW ( AS PER RULE 8D): INTEREST X INVESTMENT( WHICH GENERATED INCOME) AVERAGE TOTAL ASSETS THE MAIN REASON IS THAT AS PER SECTION 14A, NO DEDU CTION SHALL BE ALLOWED IN RESPECT OF EXPENDITURE INCURRED BY TH E ASSESSEE IN RELATION TO INCOME, WHICH IS EXEMPT FROM TAX. THE R ELEVANCE IS THE EXPENDITURE IN RELATION TO INCOME. THE QUANTIFI CATION HAS TO BE UNDERTAKEN IN RELATION TO THE EXEMPT INCOME. THE INVESTMENT WHICH HAS NOT GENERATED EXEMPT INCOME SHOULD BE EXC LUDED FROM THE CALCULATION OF RATIO TO DETERMINE THE DISALLOWA NCE. 5 ITA NOS. 1531 & 1532/H/16 AVANTI FEEDS LTD. 11.2 SIMILARLY, FOR THE ADMINISTRATIVE EXPENSES, 0. 5% OF AVERAGE INVESTMENTS FROM WHICH THE EXEMPT INCOME IS RECEIVED SHOULD BE CONSIDERED INSTEAD OF AVERAGE OF THE TOTA L INVESTMENTS. 11.3 CONSIDERING THE ABOVE DISCUSSION, WE DIRECT TH E AO TO RECALCULATE THE DISALLOWANCE AS PER RULE 8D AS PER THE ABOVE GUIDANCE. ACCORDINGLY, GROUND RAISED BY ASSESSEE IS ALLOWED. AS THE ISSUE UNDER CONSIDERATION IS MATERIALLY IDEN TICAL TO THAT OF THE SAID CASE, FOLLOWING THE CONCLUSIONS DRAWN THEREIN WE DIRECT THE AO TO RECALCULATE THE DISALLOWANCE AS PER RULE 8D AS PER THE GUIDELINES GIVEN AS ABOVE IN THE CASE OF TRANSPORT CORPORATION OF INDIA AND CALCULATE THE DISALLOWANCE OF EXPENDITURE UNDER RUL E 8D(2)(III) TAKING THE AVERAGE INVESTMENT FROM WHICH THE EXEMPT INCOME IS RECEIVED. 8. IN THE RESULT, BOTH THE APPEALS UNDER CONSIDERAT ION ARE ALLOWED. PRONOUNCED IN THE OPEN COURT ON 27 TH OCTOBER, 2017. SD/- SD/- (P. MADHAVI DEVI) (S. RIFAUR RA HMAN) JUDICIAL MEMBER A CCOUNTANT MEMBER HYDERABAD, DATED: 27 TH OCTOBER, 2017. KV COPY TO:- 1) M/S AVANTI FEEDS LTD., G-2, CONCORDE APARTMENTS, 6-3-658, SOMAJIGUDA, HYDERABAD 500 082. 2) DCIT, CIRCLE 1(1), HYDERABAD. 3) CIT(A) 1, HYDERABAD 4 PR. CIT 1, HYDERABAD 5) THE DEPARTMENTAL REPRESENTATIVE, I.T.A.T., HYDE RABAD. 6) GUARD FILE