JCIT (OSD), CHENNAI V. Bherudan Dugar Finance Ltd., CHENNAI

ITA 1541/CHNY/2016

• Counselvise Citation: [2016] 131 COUNSELVISE.COM (IT) 8450 (ITAT-CHENNAI)
• Duration Of Justice: 3 month(s) 27 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 23-09-2016
• Appeal Filed By: Department
• Order Result: Allowed
• Bench Allotted: B
• Next Hearing Date: 15-05-2017
• Assessment Year: 2011-2012
• Appeal Filed On: 27-05-2016
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: V NANDA KUMAR
• 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 A. MOHAN ALANKAMONY, ACCOUNTANT MEMBER ./ ITA NO.1541/MDS/2016 ( )( / ASSESSMENT YEAR : 2011-12 THE JOINT COMMISSIONER OF INCOME TAX, CORPORATE CIRCLE 1(2), CHENNAI - 600 034. V. M/S BHERUDAN DUGAR FINANCE LTD., NO.73/1A, JERMIAH ROAD, VEPERY, CHENNAI - 600 007. PAN : AAACB 3042 Q (+,/ APPELLANT) (-.+,/ RESPONDENT) +, / 0 / APPELLANT BY : SHRI V. NANDA KUMAR, JCIT -.+, / 0 / RESPONDENT BY : NONE 1 / 2% / DATE OF HEARING : 16.08.2016 3') / 2% / DATE OF PRONOUNCEMENT : 23.09.2016 / O R D E R PER N.R.S. GANESAN, JUDICIAL MEMBER: THIS APPEAL OF THE REVENUE IS DIRECTED AGAINST T HE ORDER OF THE COMMISSIONER OF INCOME TAX (APPEALS) 1, CHENN AI, DATED 09.03.2016 AND PERTAINS TO ASSESSMENT YEAR 2011-12. 2 I.T.A. NO.1541/MDS/16 2. NO ONE APPEARED FOR THE ASSESSEE DESPITE SERVICE OF NOTICE. THEREFORE, WE HEARD THE LD. DEPARTMENTAL REPRESENTA TIVE AND PROCEEDED TO DISPOSE OF THE APPEAL ON MERIT. 3. THE ONLY ISSUE ARISES FOR CONSIDERATION IS WITH REGARD TO DISALLOWANCE MADE BY THE ASSESSING OFFICER UNDER SE CTION 14A OF THE INCOME-TAX ACT, 1961 (IN SHORT 'THE ACT') READ WITH RULE 8D OF INCOME-TAX RULES, 1962. 4. SHRI V. NANDA KUMAR, THE LD. DEPARTMENTAL REPRES ENTATIVE, SUBMITTED THAT THE ASSESSING OFFICER COMPUTED THE D ISALLOWANCE UNDER SECTION 14A OF THE ACT. THE ASSESSING OFFICE R HAS TAKEN THE DIRECT EXPENDITURE AS NIL. AFTER TAKING INTO CONSI DERATION THE LOAN BORROWED BY THE ASSESSEE AND THE INTEREST PAID, THE ASSESSING OFFICER FOUND THAT THE EXPENDITURE, WHICH WAS NOT D IRECTLY ATTRIBUTABLE TO ANY PARTICULAR INCOME, WAS AT ` 21,21,643/-. ACCORDING TO THE LD. D.R., THE ASSESSING OFFICER HA S ALSO FOUND THAT THE AVERAGE VALUE OF INVESTMENT DURING THE RELEVANT FINANCIAL YEAR, WHICH DOES NOT AND SHALL NOT FORM PART OF TOTAL INC OME OF THE ASSESSEE AS APPEARING IN THE BALANCE SHEET, WAS ` 10,11,55,471/-. AFTER TAKING INTO CONSIDERATION OF 0.5% OF AVERAGE VALUE OF INVESTMENT, INCOME FROM WHICH DOES NOT OR SHALL NOT FORM PART OF 3 I.T.A. NO.1541/MDS/16 TOTAL INCOME OF THE ASSESSEE, THE AVERAGE OF ALL TH E THREE LIMBS OF RULE 8D WAS TAKEN AS ` 51,300/-. HOWEVER, ACCORDING TO THE LD. D.R., THE CIT(APPEALS) ALLOWED THE CLAIM OF THE ASS ESSEE ON THE GROUND THAT THE ASSESSEE HAS NOT EARNED ANY INCOME. 5. REFERRING TO RULE 8D OF INCOME-TAX RULES, 1962, THE LD. D.R. SUBMITTED THAT FOR THE PURPOSE OF COMPUTING DISALLO WANCE UNDER SECTION 14A OF THE ACT, THE METHOD AS PRESCRIBED IN THREE STAGES, THE AVERAGE OF THE THREE HAS TO BE TAKEN INTO CONSI DERATION. THE FIRST LIMB OF RULE 8D IS WITH REGARD TO EXPENDITURE INCURRED BY THE ASSESSEE WHICH DOES NOT RELATABLE TO ANY PARTICULAR INCOME. THE THIRD LIMB OF RULE 8D IS WITH REGARD TO 0.5% OF AVE RAGE OF INVESTMENT MADE BY THE ASSESSEE YIELDED EXEMPT INCOME. THEREF ORE, THE ASSESSING OFFICER HAS TO COMPUTE THE DISALLOWANCE U NDER ALL THE THREE LIMBS OF RULE 8D AND HE HAS TO TAKE AVERAGE O F THE SAME. THEREFORE, ACCORDING TO THE LD. D.R., THE CIT(APPEA LS) IS NOT JUSTIFIED IN ALLOWING THE CLAIM OF THE ASSESSEE. 6. WE HAVE HEARD THE LD. DEPARTMENTAL REPRESENTATIV E AND PERUSED THE MATERIAL AVAILABLE ON RECORD. FOR THE PURPOSE OF MAKING DISALLOWANCE UNDER SECTION 14A OF THE ACT, R ULE 8D WAS FRAMED PRESCRIBING THE METHOD FOR COMPUTING THE DIS ALLOWANCE. FOR 4 I.T.A. NO.1541/MDS/16 THE PURPOSE OF CONVENIENCE, WE ARE REPRODUCING RULE 8D OF INCOME-TAX RULES, 1962 WHICH READS AS FOLLOWS:- METHOD FOR DETERMINING AMOUNT OF EXPENDITURE IN RELATION TO INCOME NOT INCLUDIBLE IN TOTAL INCOME (1) WHERE THE ASSESSING OFFICER HAVING REGARD TO THE ACCOUNTS OF THE ASSESSEE OF THE PREVIOUS YEAR, IS NOT SATI SFIED WITH- (A) THE CORRECTNESS OF THE CLAIM OF EXPENDITURE M ADE BY THE ASSESSEE ; OR (B) THE CLAIM MADE BY THE ASSESSEE THAT NO EXPENDITU RE HAS BEEN INCURRED IN RELATION TO INCOME WHICH DOES NOT FORM PART OF THE TOTAL INCOME UNDER THE ACT FOR SUCH PRE VIOUS YEAR, HE SHALL DETERMINE THE AMOUNT OF EXPENDITURE I N RELATION TO SUCH INCOME IN ACCORDANCE WITH THE PROV ISIONS OF SUB-RULE (2). (2) THE EXPENDITURE IN RELATION TO INCOME WHICH DOE S NOT FORM PART OF THE TOTAL INCOME SHALL BE THE AGGREGATE O F FOLLOWING AMOUNTS, NAMELY:- (I) THE AMOUNT OF EXPENDITURE DIRECTLY RELATING T O INCOME WHICH DOES NOT FORM PART OF TOTAL INCOME ; (II) IN A CASE WHERE THE ASSESSEE HAS INCURRED EXPE NDITURE BY WAY OF INTEREST DURING THE PREVIOUS YEAR IS NOT DIR ECTLY ATTRIBUTABLE TO ANY PARTICULAR INCOME OR RECEIPT, A N AMOUNT COMPUTED IN ACCORDANCE WITH THE FOLLOWING FORMULA, NAMELY :- A X B C WHERE A = AMOUNT OF EXPENDITURE BY WAY OF INTERES T OTHER THAN THE AMOUNT OF INTEREST INCLUDED IN CLAUSE (I) INCURRED DURING THE PREVIOUS YEAR ; 5 I.T.A. NO.1541/MDS/16 B = THE AVERAGE OF VALUE OF INVESTMENT, INCOME F ROM WHICH DOES NOT OR SHALL NOT FORM PART OF THE TOTAL INCOME, AS APPEARING IN THE BALANCE-SHEE T OF THE ASSESSEE, ON THE FIRST DAY AND THE LAST DAY OF THE PREVIOUS YEAR ; C = THE AVERAGE OF TOTAL ASSETS AS APPEARING IN THE BALANCE-SHEET OF THE ASSESSEE, ON THE FIRST DA Y AND THE LAST DAY OF THE PREVIOUS YEAR ; (III) AN AMOUNT EQUAL TO ONE-HALF PER CENT. OF THE AVERAGE OF THE VALUE OF INVESTMENT, INCOME FROM WHICH DOES NOT OR SHALL NOT FORM PART OF THE TOTAL INCOME, AS APPEARING IN THE BALANCE-SHEET OF THE ASSESSEE, ON THE FIRST DAY AND THE LAST DAY OF THE PREVIOUS YEAR. (3) FOR THE PURPOSES OF THIS RULE, THE 'TOTAL ASSET S' SHALL MEAN, TOTAL ASSETS AS APPEARING IN THE BALANCE-SHEET EXCLU DING THE INCREASE ON ACCOUNT OF REVALUATION OF ASSETS BUT IN CLUDING THE DECREASE ON ACCOUNT OF REVALUATION OF ASSETS. 7. RULE 8D(2) PROVIDES THREE LIMBS. THE FIRST LIMB RELATES TO DIRECT EXPENDITURE AND THE SECOND LIMB WHICH DOES N OT RELATE TO ANY PARTICULAR INCOME AND THE THIRD LIMB RELATES TO 0.5 % OF THE AVERAGE VALUE OF INVESTMENT, INCOME FROM WHICH DOES NOT FOR M PART OF TOTAL INCOME OF THE ASSESSEE. IN THE CASE BEFORE US, THE CIT(APPEALS) DELETED THE DISALLOWANCE ON THE GROUND THAT THERE W AS NO EXEMPT INCOME EARNED BY THE ASSESSEE. THEREFORE, AT THE B EST, WE MAY SAY THAT THE DISALLOWANCE TO BE COMPUTED UNDER THIR D LIMB OF RULE 8D MAY BE NIL. THE DIRECT EXPENDITURE INCURRED BY THE ASSESSEE IS ALSO NIL. IN VIEW OF THE FACTUAL SITUATION THAT TH E ASSESSEE BORROWED 6 I.T.A. NO.1541/MDS/16 FUNDS FOR THE PURPOSE OF BUSINESS AND PAID INTEREST AND THE ASSESSEE WAS MAINTAINING MIXED ACCOUNT, IT IS VERY DIFFICULT TO FIND OUT THE EXPENDITURE WHICH IS ATTRIBUTABLE TO ANY PA RTICULAR INCOME. IN OTHER WORDS, ONE CANNOT SAY THAT THE ENTIRE EXPENDI TURE INCURRED BY THE ASSESSEE IS ONLY FOR THE PURPOSE OF EARNING INC OME WHICH IS NOT EXEMPT FROM INCOME-TAX. THEREFORE, THIS TRIBUNAL I S OF THE CONSIDERED OPINION THAT THE ASSESSING OFFICER IS BO UND TO APPLY THE PROVISIONS OF RULE 8D OF INCOME-TAX RULES, 1962 FOR THE PURPOSE OF COMPUTING DISALLOWANCE. SINCE THE CIT(APPEALS) HAS NOT CONSIDERED THE PROVISIONS OF RULE 8D AND SIMPLY ALL OWED THE CLAIM OF THE ASSESSEE ON THE GROUND THAT NO INCOME WAS EA RNED BY THE ASSESSEE, THIS TRIBUNAL IS OF THE CONSIDERED OPINIO N THAT THE MATTER NEEDS TO BE RECONSIDERED BY THE ASSESSING OFFICER. ACCORDINGLY, THE ORDERS OF THE LOWER AUTHORITIES ARE SET ASIDE A ND THE ENTIRE DISALLOWANCE MADE BY THE ASSESSING OFFICER UNDER SE CTION 14A OF THE ACT IS REMITTED BACK TO THE FILE OF THE ASSESSI NG OFFICER. THE ASSESSING OFFICER SHALL RECONSIDER THE ISSUE AFRESH IN THE LIGHT OF THE PROVISIONS OF SECTION 14A OF THE ACT READ WITH RULE 8D OF INCOME- TAX RULES, 1962 AND THEREAFTER DECIDE THE ISSUE IN ACCORDANCE WITH LAW, AFTER GIVING A REASONABLE OPPORTUNITY TO THE A SSESSEE. 7 I.T.A. NO.1541/MDS/16 8. IN THE RESULT, THE APPEAL FILED BY THE REVENUE I S ALLOWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED ON 23 RD SEPTEMBER, 2016 AT CHENNAI. SD/- SD/- (. !'# ! ) ( . . . ) (A. MOHAN ALANKAMONY) (N.R.S. GANESAN) % / ACCOUNTANT MEMBER /JUDICIAL MEMBER /CHENNAI, 5 /DATED, THE 23 RD SEPTEMBER, 2016. KRI. / -267 87)2 /COPY TO: 1. +, /APPELLANT 2. -.+, /RESPONDENT 3. 1 92 () /CIT(A)-1, CHENNAI 4. PRINCIPAL CIT, CHENNAI-1, CHENNAI 5. 7: -2 /DR 6. ;( < /GF.