Capital Gorutnes Ventures Private Limited, Hyderabad, Hyderabad V. ITO, Ward-1(4), Hyderabad, Hyderabad

ITA 1539/HYD/2016

• Counselvise Citation: [2017] 128 COUNSELVISE.COM (IT) 2520 (ITAT-HYDERABAD)
• Duration Of Justice: 5 month(s) 27 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 12-05-2017
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: B
• Assessment Year: 2012-2013
• Appeal Filed On: 15-11-2016
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: K J RAO
• Assessee Lawyers: C S SUBRAMANYAM; E V SRIKRISHNA
• Keywords: Depreciation; Earning of tax free income
• Section: 14A

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL HYDERABAD BENCHES B (SMC), HYDERABAD BEFORE SMT. ASHA VIJAYARAGHAVAN, JUDICIAL MEMBER I.T.A. NO. 1539/HYD/2016 ASSESSMENT YEAR: 2012-13 CAPITAL FORTUNES VENTURES PVT. LTD., HYDERABAD. PAN AAACF 3023 H VS INCOME-TAX OFFICER, WARD 1(4), HYDERABAD. (APPELLANT) (RESPONDENT) FOR ASSESSEE : SHRI E.V. SRIKRISHNA & SHRI C.S. SUBRAMANYAM FOR REVENUE : SHRI K.J. RAO DATE OF HEARING : 04-05-2017 DATE OF PRONOUNCEMENT : 12-05-2017 O R D E R THIS IS AN APPEAL BY ASSESSEE AGAINST THE ORDER OF THE COMMISSIONER OF INCOME TAX (APPEALS)-1, HYDERABAD, DATED 08-09-2016 FOR THE AY. 2012-13. 2. BRIEFLY THE FACTS OF THE CASE ARE THAT THE ASSES SEE IS A COMPANY ENGAGED IN PROVIDING CONSULTANCY SERVICES I N FINANCIAL SECTOR. ASSESSEE MADE INVESTMENT IN SHARE S OF PUBLIC LISTED COMPANIES AS WELL AS UNLISTED COMPANI ES. FOR SUCH INVESTMENT, ASSESSEE CLAIMED THAT NO BORROWED CAPITAL WAS USED BY IT. ASSESSEE ALSO STATED BEFORE AO THAT AFTER MAKING SUCH INVESTMENT, NO EFFORTS WERE MADE BY THE ASSESSEE EITHER TO MONITOR SUCH INVESTMENT OR TO EA RN ANY INCOME FROM SUCH INVESTMENT. ACCORDING TO THE ASSES SEE, NO I.T.A. NO. 1539/HYD/2016 CAPITAL FORTUNES VENTURES P. LTD. :- 2 -: EXPENDITURE HAD BEEN INCURRED BY THE ASSESSEE TO EA RN ANY INCOME FROM SUCH INVESTMENT. 2.1 AO EXAMINED THE RECORDS AND INFORMATION GIVEN B Y THE ASSESSEE IN CONNECTION WITH THE APPLICATION OF PROV ISIONS OF SECTION 14A READ WITH RULE 8D. IN RESPECT OF OTHER EXPENDITURE OF RS. 12,04,100/-, THE AO HELD THAT AS SESSEE HAS NOT PROVED THAT SUCH EXPENDITURE IS NOT INCURR ED FOR INVESTMENT AND ACCORDINGLY, THE DISALLOWANCE U/S 14 A WAS WORKED OUT BY THE AO AS ENVISAGED IN RULE 8D(III) A T RS. 5,10,837/-, WHICH WAS ADDED TO THE INCOME RETURNED BY THE ASSESSEE. 2.2 THE AO CONCLUDED THAT THE ENTIRE EXPENDITURE OF RS. 12,04,100/- ALONG DEPRECIATION CLAIM OF RS. 4,790/- WAS NOT LIABLE FOR DISALLOWANCE U/S 14A R.W.R. 8D(II). HOWE VER, THE AO INVOKED THE THIRD LIMB OF RULE 8D AND ARRIVED AT THE DISALLOWANCE OF RS. 5,10,837/- U/S 14A BY TAKING 0. 50% OF AVERAGE INVESTMENT YIELDING EXEMPT INCOME. 3. AGGRIEVED BY THE ORDER OF THE AO, THE ASSESSEE PREFERRED AN APPEAL BEFORE THE CIT(A). 4. BEFORE THE CIT(A), IT WAS SUBMITTED BY THE ASSES SEE THAT THE COMPANY IS ENGAGED IN PROVIDING CONSULTANC Y SERVICES IN FINANCIAL SECTOR. THE COMPANY MADE INVE STMENT IN SHARES OF PUBLIC LISTED COMPANIES AS WELL AS UNL ISTED COMPANIES. FOR SUCH INVESTMENT, NO BORROWED CAPITAL WAS USED BY IT. ALSO, IT WAS SUBMITTED THAT FOR MAKING SUCH I.T.A. NO. 1539/HYD/2016 CAPITAL FORTUNES VENTURES P. LTD. :- 3 -: INVESTMENT, NO EFFORTS WERE MADE TO MONITOR OR TO E ARN ANY INCOME FROM SUCH INVESTMENT AND ACCORDINGLY NO EXPENDITURE HAD BEEN INCURRED TO EARN ANY INCOME FR OM SUCH INVESTMENT. ASSESSEE ALSO RELIED ON THE FOLLOW ING DECISIONS WHEREIN IT WAS HELD THAT IF THERE IS NO E XEMPT INCOME IN THE RELEVANT YEAR, DISALLOWANCE U/S 14A R EAD WITH RULE 8D CANNOT BE MADE: 1. CORRTECH ENERGY (P) LTD. , [2014] 45 TAXMANN.COM 116 (GUJ.) 2. CHEMINVEST LTD. [2015] 61 TAXMANN.COM 118 (DEL.) 3. KRISHNA KNITWEAR TECHNOLOGIES LTD., ITA NO. 2565/MUM/2012. 4. LAKHANI MARKETING INC. [2014] 49 TAXMANN.COM 257 (P&H). 5. AFTER CONSIDERING THE SUBMISSIONS OF THE ASSESSE E, THE CIT(A) OBSERVED THAT DURING THE YEAR INVESTMENT OF RS. 1.20 CRORES WAS MADE BY THE ASSESSEE FROM THE INTEREST F REE ADVANCE RECEIVED FROM ITS PARENT COMPANY M/S CAPITA L FORTUNES PVT. LTD. HENCE, NO INTEREST WAS INCURRED FOR THE SAID INVESTMENT. FURTHER, HE OBSERVED THAT DURING T HE YEAR THE ASSESSEE HAD RECEIVED INTEREST FROM ICD. HE NOT ED THAT AS PER THE COMPUTATION OF INCOME, UNDER OTHER INCO MES ASSESSEE HAD SHOWN RECEIPT OF RS. 5,61,510/-, WHICH WAS TERMED AS INTEREST INCOME AND THE SAME WAS REFLECTE D IN THE BALANCE SHEET. IN VIEW OF THE ABOVE OBSERVATIONS, T HE CIT(A) HELD THAT THE AO WAS RIGHT IN HIS DECISION AND THAT THERE SHOULD BE COST FOR ANY INVESTMENT. ACCORDINGLY, T HE CIT(A) CONFIRMED THE ORDER OF THE AO. 6. AGGRIEVED, THE ASSESSEE IS IN APPEAL BEFORE US R AISING THE FOLLOWING GROUNDS OF APPEAL: I.T.A. NO. 1539/HYD/2016 CAPITAL FORTUNES VENTURES P. LTD. :- 4 -: 1. THE ORDER OF THE LEARNED COMMISSIONER OF INCOME -TAX (APPEALS) IS ERRONEOUS IN LAW AND ON THE FACTS OF T HE CASE. 2 ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE , THE LEARNED COMMISSIONER OF INCOME-TAX (APPEALS) ERRED IN LAW AND FACTS OF THE CASE IN SUSTAINING THE DISALLO WANCE OF RS. 5,10,837/- U/S 14A R.W.R. 8D. 3 THE LEARNED COMMISSIONER OF INCOME-TAX (APPEALS) ERRED IN APPRECIATING THAT RS.12.57 CRORES REPRESEN TS AS ON THE DATE OF BALANCE SHEET, ADVANCE FOR PURCHASE OF INVESTMENTS OF SHARE APPLICATION WHICH DOES NOT ITS ELF EARN ANY DIVIDEND INCOME EXEMPT FROM TAX TO ATTRACT PROVISIONS OF SECTION 14A. 4 THE LEARNED COMMISSIONER OF INCOME-TAX (APPEALS) ERRED IN NOT FOLLOWING THE DECISIONS OF HIGH COURTS AND TRIBUNAL WITHOUT ATTRIBUTING ANY REASONS, WHEREIN I T WAS HELD THAT THE DISALLOWANCE U/S 14A R.W.R 8D IS NOT APPLICABLE IN THE YEAR IN WHICH THERE WAS NO EXEMPT INCOME. 5. THE LEARNED COMMISSIONER OF INCOME-TAX ( APPEALS) OUGHT TO HAVE FOLLOWED THE HIGH COURT AND TRIBUNAL DECISIONS, WHEREIN IT WAS HELD THAT, THE DISALLOWAN CE U/S 14A R.W.R 8D CANNOT EXCEED THE EXEMPT INCOME AND ACCORDINGLY OUGHT TO HAVE DELETED THE DISALLOWANCE SINCE THE EXEMPT INCOME FOR THE CURRENT YEAR IS ZERO. 7. BEFORE US, THE LD. AR OF THE ASSESSEE INVITED TH E BENCH ATTENTION TO NOTE NO. 20 OTHER INCOME OF THE AUDI TED FINANCIALS, WHICH IS PLACED AT PAGE NO. 38 OF THE P APER BOOK, WHEREIN ONLY INTEREST INCOME OF RS. 5,615/- AND TRA VEL EXPENSES (REIMBURSEMENT) OF RS. 76 WERE INDICATED. HE ALSO INVITED THE BENCH ATTENTION TO SCHEDULE E1: EXEMP T INCOME OF ITR-6, WHICH IS PLACED AT PAGE NO. 24 OF PAPER BOOK, FOR THE AY 2012-13, WHICH IS BLANK, INDICATIN G THAT I.T.A. NO. 1539/HYD/2016 CAPITAL FORTUNES VENTURES P. LTD. :- 5 -: THERE WERE NO EXEMPT INCOMES EARNED BY THE ASSESSEE DURING THE YEAR. THE AR SUBMITTED THAT SINCE THE AS SESSEE DID NOT MAKE ANY CLAIM FOR EXEMPT INCOME IN THE CUR RENT YEAR, DIRECTIONS MAY BE GIVEN TO REVENUE AUTHORITIE S TO DELETE THE ADDITION MADE U/S 14A R.W.R. 8D. HE RELI ED ON THE FOLLOWING CASE LAW: 1. CORRTECH ENERGY (P) LTD. , [2014] 45 TAXMANN.COM 116 (GUJ.) 2. CHEMINVEST LTD. [2015] 61 TAXMANN.COM 118 (DEL.) 3. KRISHNA KNITWEAR TECHNOLOGIES LTD., ITA NO. 2565/MUM/2012. 4. LAKHANI MARKETING INC. [2014] 49 TAXMANN.COM 257 (P&H). 5. CHETTINAD LOGISTICS (P) LTD., [2017] 80 TAXMANN. COM 221 (MADRAS HIGH COURT) 6. RANUGUNJ COOPERATIGE BANK LTD., [2016] 73 TAXMANN.COM 90 (KOLKATA TRIBUNAL) 7. SHIVAM MOTORS (P) LTD., ITA NO. 88 OF 2014, DATE D 5 TH MAY, 2014 OF ALLAHABAD HIGH COURT. 8. LD. DR, ON THE OTHER HAND, RELIED ON THE ORDERS OF REVENUE AUTHORITIES. 9. I HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED T HE RELEVANT MATERIAL ON RECORD. I FIND THAT THE ISSUE IN DISPUTE IS SQUARELY COVERED BY THE DECISION OF THE HONBLE MADRAS HIGH COURT IN THE CASE OF REDINGTON (INDIA) LTD. VS . ADDL. CIT, [2017] 392 ITR 633 (MAD.), WHEREIN THE HONBLE COURT HAS HELD AS UNDER: THE PROVISIONS OF SECTION 14A OF THE INCOME-TAX AC T, 1961 READ WITH RULE 8D OF THE INCOME-TAX RULES, 196 2 COULD NOT BE MADE APPLICABLE IN THE ABSENCE OF EXEM PT INCOME. SECTION 14A WAS RELATABLE TO THE EARNING OF ACTUAL INCOME AND NOT NOTIONAL OR ANTICIPATED INCOM E. THE SUBMISSION OF THE DEPARTMENT TO THE EFFECT THAT SECTION 14A WOULD BE ATTRACTED EVEN TO EXEMPT INCOM E I.T.A. NO. 1539/HYD/2016 CAPITAL FORTUNES VENTURES P. LTD. :- 6 -: 'INCLUDIBLE' IN TOTAL INCOME ENTAILED THE ASSESSMEN T OF NOTIONAL INCOME, ASSUMED TO BE EXEMPTED IN THE FUTU RE, IN THE PRESENT ASSESSMENT YEAR. THE COMPUTATION OF TOTAL INCOME UNDER SECTION 5 WAS ON REAL INCOME AND THERE WAS NO SANCTION IN LAW FOR THE ASSESSMENT OF NOTION AL INCOME, PARTICULARLY IN THE CONTEXT OF EFFECTING A DISALLOWANCE IN CONNECTION THEREWITH. THE COMPUTATI ON OF DISALLOWANCE UNDER RULE 8D WAS BY WAY OF A DETERMINATION INVOLVING DIRECT AS WELL AS INDIRECT ATTRIBUTION. ACCEPTING THE SUBMISSION OF THE DEPART MENT WOULD HAVE RESULTED IN THE IMPOSITION OF AN ARTIFIC IAL METHOD OF COMPUTATION ON NOTIONAL AND ASSUMED INCOM E. THE LANGUAGE OF SECTION 14A(L) HAD TO BE READ IN TH E CONTEXT THAT IT WOULD ADVANCE THE SCHEME OF THE ACT RATHER THAN DISTORT IT. 9.1 SINCE THE ASSESSEE DID NOT MAKE ANY CLAIM FOR E XEMPT INCOME DURING THE YEAR UNDER CONSIDERATION, RESPECT FULLY FOLLOWING THE DECISION OF THE HONBLE MADRAS HIGH C OURT IN THE CASE OF REDINGTON (INDIA) LTD., (SUPRA), I DIRE CT THE AO TO DELETE THE DISALLOWANCE OF RS. 5,10,837/- MADE U/S 14A R.W.R. 8D(III). ACCORDINGLY, THE GROUNDS RAISED BY THE ASSESSEE ARE ALLOWED. 10. IN THE RESULT, APPEAL OF THE ASSESSEE IS ALLOW ED. PRONOUNCED IN THE OPEN COURT ON 12 TH MAY, 2017. SD /- (ASHA V IJAYARAGHAVAIN) JU DICIAL MEMBER HYDERABAD, DATED:12 TH MAY , 2017. KV I.T.A. NO. 1539/HYD/2016 CAPITAL FORTUNES VENTURES P. LTD. :- 7 -: COPY TO 1 CAPITAL FORTUNES VENTURES PVT. LTD., 8-2-698, 5 TH FLOOR, MJ TOWERS, ROAD NO. 12, BANJARA HILLS, HYD 500 03 3. 2 IT), WARD 1(4), HYDERABAD. 3 CIT (A)-1, HYDERABAD. 4 PR. CIT 1, HYDERABAD. 5 THE DR, ITAT HYDERABAD 6 GUARD FILE