M/S LEATHER CRAFTS INDIA PRIVATE LIMITED, CHENNAI V. ACIT CORPORATE CIRCLE 4 (1), CHENNAI

ITA 1532/CHNY/2018

• Counselvise Citation: [2019] 118 COUNSELVISE.COM (IT) 4322 (ITAT-CHENNAI)
• Duration Of Justice: 9 month(s) 6 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 13-02-2019
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: B
• Assessment Year: 2013-2014
• Appeal Filed On: 07-05-2018
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: B SAGADEVAN IRS
• Assessee Lawyers: B S PURUSHOTTAM
• Keywords: Earning of tax free income
• Section: 14A

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL B BENCH : CHENNAI [BEFORE SHRI N.R.S. GANESAN, JUDICIAL MEMBER AND SHRI ABRAHAM P. GEORGE, ACCOUNTANT MEMBER ] ./I.T.A. NO.1532/CHNY/2018 / ASSESSMENT YEAR : 2013-2014. M/S. LEATHER CRAFTS INDIA PRIVATE LIMITED, NO.11, KONDI CHETTY STREET, CHENNAI 600 001. [PAN AAACL 0493R] VS. THE ASSISTANT COMMISSIONER OF INCOME TAX, CORPORATE CIRCLE 4(1) CHENNAI. ( / APPELLANT) ( /RESPONDENT) / APPELLANT BY : SHRI. B.S. PURUSHOTTAM, C.A., /RESPONDENT BY : SHRI. B. SAGADEVAN, IRS, JCIT. /DATE OF HEARING : 11 - 0 2 - 201 9 /DATE OF PRONOUNCEMENT : 13 - 0 2 - 201 9 / O R D E R PER ABRAHAM P. GEORGE, ACCOUNTANT MEMBER ASSESSEE IN THIS APPEAL IS AGGRIEVED ON DISALLOWAN CE MADE BY THE LD. ASSESSING OFFICER U/S.14A OF THE INCOME TAX ACT, 1961 (IN SHORT THE ACT) R.W.RULE 8D OF THE INCOME TAX RU LES, 1962 (IN SHORT THE RULES), WHICH WAS CONFIRMED BY THE LD. COMM ISSIONER OF INCOME- TAX (APPEALS)-8, CHENNAI THROUGH HIS ORDER DATED 2 7.03.2018. 2. FACTS APROPOS ARE THAT ASSESSEE ENGAGED IN MANUFAC TURE AND EXPORT OF LEATHER GOODS HAD IN RETURN CLAIMED DIVIDEND INCOME OF RS.17,89,298/- AS EXEMPT. LD. ASSESSING OFFICER FOUND THAT ASSESSEE HAD INVESTMENT OF RS.33,67,46,944/- IN THE EQUITY SHARES OF ITA NO.1532/CHNY/2018. :- 2 -: ONE M/S. LES ATELIERS DE PONDICHERRY PVT LTD. ASSE SSEE WAS REQUIRED TO EXPLAIN WHY A DISALLOWANCE U/S.14A OF THE ACT SH OULD NOT BE MADE. IT SEEMS ASSESSEE DID NOT OFFER ANY EXPLANATION BEF ORE LD. AO. LD. AO MADE A DISALLOWANCE UNDER SUB SECTION (III) OF RULE 8D(2) OF THE RULES, TAKING THE AVERAGE INVESTMENT IN EQUITY SHARES FOR THE RELEVANT PREVIOUS YEAR AS THE BASIS. SUCH DISALLOWANCE WORKE D OUT BY THE LD. AO WAS AS UNDER:- AS PER RULE 8D(III) INVESTMENT AS ON 31 ST MARCH, 2012 57,26,91,924 INVESTMENT AS ON 31 ST MARCH, 2013 33,67,46,944 AVERAGE OF THE ABOVE 45,47,19,434 0.5% OF THE ABOVE 22,73,597 ALREADY DISALLOWED BY THE ASSESSEE 1,95,003 BALANCE TO BE DISALLOWED 20,78,594 3. ASSESSEES APPEAL BEFORE LD. CIT(A) DID NOT MEET W ITH ANY SUCCESS. THOUGH IT ARGUED THAT THE INVESTMENTS MAD E WERE STRATEGIC IN NATURE AND SUCH INVESTMENTS SHOULD NOT BE CONSID ERED FOR APPLICATION OF SECTION 14A OF THE ACT, THIS WAS NOT ACCEPTED BY THE LD. CIT(A). HE CONFIRMED THE DISALLOWANCE. 4. NOW BEFORE US, LD. AUTHORIZED REPRESENTATIVE STRONG LY ASSAILING THE ORDERS OF THE LOWER AUTHORITIES SUBMI TTED THAT AGGREGATE INVESTMENTS INCLUDED INVESTMENTS IN MUTUAL FUNDS W ORTH RS.24,50,00,000/-. AS PER THE LD. AR, THE DIVIDEND ON WHICH EXEMPTION WAS CLAIMED WAS FROM SUCH MUTUAL FUNDS AND NOT FRO M THE EQUITY ITA NO.1532/CHNY/2018. :- 3 -: SHARES INVESTED IN THE SUBSIDIARY COMPANY. ACCORD ING TO HIM, DIVIDEND YIELDING INVESTMENTS ALONE SHOULD BE CONSI DERED FOR APPLYING RULE 8D(2)(III). IN ANY CASE, ACCORDING TO HIM, DI VIDEND INCOME CLAIMED AS EXEMPT WAS ONLY RS.17,89,298/- AND A DIS ALLOWANCE OF ANY AMOUNT MORE THAN THAT COULD NOT BE MADE. RELIANCE W AS PLACED ON THE JUDGMENT OF HONBLE DELHI HIGH COURT IN THE CASE OF JOINT INVESTMENTS PRIVATE LIMITED VS. CIT, 372 ITR 694. 5. PER CONTRA, LD. DEPARTMENTAL REPRESENTATIVE STRONGL Y SUPPORTING THE ORDERS OF THE LOWER AUTHORITIES, PLA CED RELIANCE ON THE JUDGMENT OF HONBLE APEX COURT IN THE CASE MAXOPP INVESTMENT LTD. VS. CIT, 402 ITR 640 . 6. WE HAVE CONSIDERED THE RIVAL CONTENTIONS AND PERUSE D THE ORDERS OF THE AUTHORITIES BELOW. BY VIRTUE OF TH E JUDGMENT OF HONBLE APEX COURT IN THE CASE OF MAXOPP INVESTMENT LTD. (SUPRA), THE PURPOSE FOR WHICH THE ASSESSEE HAD INVESTED IN EQUI TY SHARES WAS NOT RELEVANT FOR APPLICATION OF SECTION 14A OF THE ACT . ONLY EXCLUSION MIGHT BE FOR EQUITY SHARES HELD AS STOCK-IN-TRADE. IN THE CASE BEFORE US, THERE IS NO ARGUMENT FROM THE ASSESSEE THAT INV ESTMENTS WERE HELD AS STOCK-IN-TRADE OR IT WAS IN THE BUSINESS OF TRADING IN SHARES. NEVERTHELESS, BY VIRTUE OF THE JUDGMENT OF HONBLE DELHI HIGH COURT IN THE CASE OF JOINT INVESTMENTS PRIVATE LIMITED (SUPRA ) DISALLOWANCE U/S.14A OF THE ACT IN EXCESS OF THE EXEMPT INCOME C LAIMED CANNOT BE ITA NO.1532/CHNY/2018. :- 4 -: MADE. HENCE, WE ARE OF THE OPINION THAT THE MAXIMU M DISALLOWANCE THAT COULD HAVE BEEN MADE WAS RS.17,89,298/- ONLY BEING THE EXEMPT DIVIDEND INCOME CLAIMED BY THE ASSESSEE. WE THEREF ORE DIRECT THE LD. ASSESSING OFFICER TO RESTRICT THE DISALLOWANCE U/S. 14A OF THE ACT TO RS.17,89,298/-. ORDERED ACCORDINGLY. 7. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS PARTL Y ALLOWED. ORDER PRONOUNCED ON WEDNESDAY, THE 13TH DAY OF F EBRUARY, 2019, AT CHENNAI. SD/ - (N.R.S. GANESAN) / JUDICIAL MEMBER SD/ - (ABRAHAM P. GEORGE) / ACCOUNTANT MEMBER / CHENNAI / DATED:13TH FEBRUARY, 2019. K V / COPY TO: 1 . / APPELLANT 3. ( ) / CIT(A) 5. / DR 2. / RESPONDENT 4. / CIT 6. / GF