ACIT, Hyderabad V. M/s. Margadarsi Chit Fund Ltd, Hyderabad

ITA 1553/HYD/2010

• Counselvise Citation: 155322514 RSA 2010
• Duration Of Justice: 3 year(s) 9 month(s) 14 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 24-09-2014
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: B
• Next Hearing Date: 17-08-2011
• Assessment Year: 2005-2006
• Appeal Filed On: 10-12-2010
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: D SUDHAKAR RAO
• Keywords: Business income; Earning of tax free income
• Section: 37

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL HYDERABAD BENCH B', HYDERABAD BEFORE SHRI P.M.JAGTAP, ACCOUNTANT MEMBER AND SHRI SAKTIJIT DEY, JUDICIAL MEMBER ITA NO.1536/HYD/10 : ASSESSMENT YEAR 2005 - 06 M/S. MARGADARSI CHIT FUND LTD., HYDERABAD (PAN AABCM 4751 G) V/S. DY. COMMISSIONER OF INCOME - TAX, CIRCLE 1(1), HYDERABAD (APPELLANT) (RESPONDENT) AND ITA NO.1553/HYD/10 : ASSESSMENT YEAR 2005 - 06 DY. COMMISSIONER OF INCOME - TAX, CIRCLE 1(1), HYDERABAD V/S. M/S. MARGADARSI CHIT FUND LTD., HYDERABAD (PAN AABCM 4751 G) (APPELLANT) (RESPONDENT) ASSESSEE BY : S HRI K.GOPAL DEPARTMENT BY : SHRI D.SUDHAKAR RAO DATE OF HEARING 16 .0 9 .2014 DATE OF PRONOUNCEMENT 24.09.2014 O R D E R PER P.M. JAGTAP, ACCOUNTANT MEMBER : THESE TWO APPEALS ON E FIL E D BY TH E ASSESSEE BEING ITA N O.1536/HYD/2010 AND THE OTHER FILED BY THE REVENUE BEING ITA N O .1553/HYD/2010 - ARE CROSS APPEALS WHICH ARE DIRECTED AGAINST THE ORDER OF THE COMMISSIONER OF INCOME - TAX(APPEALS) - V, HYDERABAD DATED 17.10.2010 FOR THE ASSESSMENT YEAR 2005 - 06. ASSESSEES APPEAL ITA N O.1536/HYD/2010 2. FIRST, WE SHALL TAKE UP THE APPEAL OF THE ASSESSEE, IN WHICH GROUND NO.1 IS GENERAL IN NATURE SEEKING NO DECISION THEREON. I TA NO .914/H YD/20 13 M/S. ST. JUDE MEDICAL INDIA P RIVATE LIMITED, HYDERABAD 2 3. THE ISSUE RAISED IN GROUND NO.2 OF THE ASSESSEES APPEAL RELATES TO THE DISALLOWANCE OF RS.43,42,.717 MADE BY TH E ASSESSING OFF ICER AND CONFIRMED BY THE LEARNED CIT(A) ON ACCOUNT OF I N TE REST. 4. THE ASSESSEE IN THE PRESENT CA S E IS A COMPANY WHICH IS ENGAGED IN TH E BU S IN ESS OF RUNNING A CHIT FUND, ENTERTAINMENT, F OOD PROCESSING AND FARM MAINTENANCE. THE RETURN OF IN C OM E FOR THE YEAR UNDER CON S I D ERATION WAS FILED BY IT ON 1.11.2005 DECLARING A TOTAL INCOME OF R S .49,52,66,680. IN THE PROFIT & LOSS ACCOUNT FIL E D ALONGWITH THE SAID RETURN , A SUM OF R S .43,42,717 WAS DEBITED BY TH E ASSESSEE ON ACCOUNT OF INTEREST PAID ON THE D EPOSITS RECEIVED F ROM CHIT SUBSCRIBERS. DURIN G THE COU R SE OF ASSESSMENT PROCEEDIN G S, IT WAS NOTICED BY THE ASSESSING OFFICER FROM THE INFORMATION FURNISHED BY TH E ASSESSEE COMPANY THAT IT HAS GIVEN AD V ANCES OF R S .7.47 CRORES TO ITS SISTER CONCERNS ON WHI CH NO INTEREST WAS CHARGED. HE NOTED T HAT THE DEPOSITS RECEIVED BY THE ASSESSEE COMPANY FROM CHIT SUBSCRIBERS WERE ALSO AROUND RS.7.79 CRORES. HE HELD THAT THE DEPOSITS RECEIVED BY THE ASSESSEE COMPANY FROM CHIT SUBSCRIBERS , THUS , WERE DIVERTED BY TH E ASSESSEE COMPANY FOR NON - BUSIN ES S PURPOSES, I.E. GIVING INTEREST FREE AD V ANCES TO ITS SISTER CONCERNS, AND ACCORDINGLY INTER E ST PAID BY TH E ASSESSEE ON SUCH DEPOSITS WA S D ISALLO W ED BY HIM. 5. THE DISALLOWANCE MADE BY TH E ASSESSING OFFICER ON ACCOUNT OF I N T ER E ST WAS CHALLENGED BY THE ASSESSEE IN APPEAL FILED BEFORE THE LEARNED CIT(A) AND THE FOLLOWING SUBMISSIONS WERE MADE ON BEHALF OF TH E ASSESSEE BEFORE THE LEARNED CIT(A) IN SUPPORT OF ITS CLAIM THAT THE SAID DI S ALLO W ANCE MADE BY THE ASSESSING OFFICER ON ACCOUNT OF IN T ER E ST WAS NO T SUSTAINABLE - I TA NO .914/H YD/20 13 M/S. ST. JUDE MEDICAL INDIA P RIVATE LIMITED, HYDERABAD 3 THE APPELLANT SU B MI T S THAT A S A POLICY THE APPELLANT DOES NO T ACCEPT ANY DEPOSITS F R OM PUBLIC. HOW E VER, I F A CHIT MEMBER WANTS TO PAY CHIT SUBSCRIPTION S IN AD V AN C E, THE APPELLAN T ACCEPTS SUCH SUBSCRIPTIONS AND PAYS IN T ER E ST AT 6% ON SUCH AD V ANCE SUBSCRIPTIONS ON REDUCING BALANCE METHOD AFTER ADJUSTING MONTHLY CHIT INSTALM E NTS PAYABLE BY THE CONCERNED CHIT SUBSCRIBER AS PER ITS BY LAW NUMBER 5(D) WHICH READS AS UNDER: 5.D) THE SUBSCRIBER MAY PAY THE FUTURE IN S TALMENTS IN ADVANCE. IF HE PAYS MORE THAN 1 0 INSTALMENTS AT A TIME, THE FOREMAN WILL PROVIDE INTER E ST CALCULATED @ 6% PER A NUM ON THE RE D UCING BALANCES. INTER E ST IS CALCULATED MONT H LY AND KEPT SEPARATELY ON ACCOUNT. IT WILL B E UTILIZED TOWARDS ADJUSTMENT OF SUBSCRIPTION ONLY AFTER THE PRINCIPAL AMOUNT IS EXHAUSTED. ANY MARGINAL BALANCE LEFT OVER WILL B E PAID TO THE SUBSCRIBER AFTER THE CHI T PERIOD.: FURTH E R THE APP E LL A N T SUBMITS TH A T AS PER THE P R OVIS I ON S OF SECTION25 OF THE A.P. CHIT FUN D S ACT, 1971 THE FOREMAN CAN DEMAND FUTURE SUBSCRIPTIONS WHICH ARE TO BE KEPT IN AN APPROVED BANK. SUB - CLAUSE (4) OF SECTION 25 READS AS UNDER. (4) ALL CONSOLIDATED PAYM E N T S OF FUTURE SUBSCRIPTION S REALIZED BY A FOREMAN SHALL BE DEPOSITED BY HIM IN AN APP R OVED BANK BEFORE THE DATE O F THE NE X T SUCCEEDING INSTALMENT. THE AMOUNT SO DEPOSITED MAY B E WITH D RAWN ONLY FOR PAYMENT O F FUTURE SUBSCRIPTIONS. WHEN ANY PROPERTY IS ACQUIRED IN LIEU OF THE CONSOLIDATED PAYMENT IT SHALL REMAIN AS SECURITY FOR THE DUE PAYM E N T OF FUTURE SUBSCRIPTIONS. 3.4 THE APPELL A N T FURTHER SUBMITS THAT, SUCH AMOUNTS ARE KEPT IN SHORT TERM DEPOSITS IN THE BANKS AND IN T ER E ST IS EARNED FROM SUCH DEPOSITS AT MORE THAN 6% AND T H E SAID INTEREST IS OFFERED TO TAX. TH E R E FORE, THE APP E LL A NT SUBMI T S THAT SIN C E THE APPELLANT IS PAYING INTER E ST TO THE SUBSCRI B ERS ON EITHER THE ADVANCE INSTALMENTS RECEIVED OR FUTURE SUBSCRIP T IONS RECE IVED AND EARNING INTER E ST ON THE SAID AMOUNTS FROM BANKS ON KEEPING SUCH AMOUNTS AS DEPOSITS, THE IN TE REST PAID IS TO B E SET OFF AGAINST INTEREST RE C EIVED IN WHI C H CASE NO IN T ER E ST IS DIS A LLOWABLE SI N CE INTERESTS R E CEIVED WOULD BE M UCH MORE THAN THE INTERE ST PAID BY THE APPELLAN T TO ITS SUBSCRIBERS. IN THIS CONNECTION IT WO U LD BE RELEVANT TO NOTE THAT THE APP E LLANT EARNED I TA NO .914/H YD/20 13 M/S. ST. JUDE MEDICAL INDIA P RIVATE LIMITED, HYDERABAD 4 INTEREST OF RS.8,79,74,185/ - AS AGAINST INTER E ST INCURRED O F R S .43,42,717/ - . 6. AFTER CONSID E RIN G THE SUBMI S SION S MADE BY TH E ASSESSEE AS WELL AS THE M A TERIAL AVAILABLE ON RECORD, THE LEARNED CIT(A) DID NO T FIND THE BASIS GIVEN BY TH E ASSESSING OFFICER FOR MAKING DISALLOWANCE OF INTEREST TO BE CORRECT, BY OBSERVING AS UN D ER - 6.3 . I HAVE CON S I D ERED CAREFULLY TH E ARGUM E NTS OF TH E APP E LLANT AS WELL AS THE FACTS OF THE CA S E. I FIND THAT THE CONTENTION OF THE ASSESSING OFFICER IS ERRONEOUS IN THE SENSE THAT THE APPELLANT HAS NO T BORROWED MONEY ON IN T ER E ST TO GIVE IT FURTHER A INTEREST FREE ADVANCES TO SISTER CONCERNS. I T IS CLEA R F R OM TH E ABO V E EXPLANATION THAT THIS AMOUNT HAS BEEN PLACED WITH THE APPELLANT BY THE SUBSCRIBERS TO THE CHIT FUND, WHO HAVE PAID ADVANCE INSTALMENTS. AS AL RE ADY DISCUSSED ABOVE, THESE FUN D S WERE LYING IN THE BANK IN FIXED DEPOSITS AS THEY COULD NO T BE PUT TO ANY OTHER USE AS PER THE A.P. CHIT FUNDS ACT. THE ASSESSING OFFICER HAS NO T DISPU T ED THIS FACT . SU B STANTIAL FUN D S WERE AVAILABLE WITH T HE APPELLANT TO GI V E TO ITS SISTER CONCERNS. TH E R E FORE, THERE IS NO NEXUS BETWEEN THESE FUN D S RECEIVED AND TH E IN T EREST FREE LOANS GIVEN TO SISTER CO N C E RNS. TH E R E FORE, NO ADDITION CAN BE MADE ON THIS ACCOUNT. 7. THE LEARNED CIT(A) , HOWEVER, STILL CONFIRMED THE DISALLOWANCE MADE BY TH E ASSESSING OFFICER ON ACCOUNT OF IN T ER E ST ON A DIFFERENT GROUND AS GIVEN I N PARAGRAPH 6.4 OF HIS IMPUGNED ORDER, WHICH R E ADS AS UNDER - 6.4 N OW, THE QUESTION IS W HETHER THE INTEREST O F RS . 43 ,42,717 PAID BY THE APPELLANT IS ALLO W ABLE AS A DE D UCTION FROM TH E INCOME FROM RUNNING THE CHIT FUND. THE APPELL A N T IS DECLARING INCOME ON ACCOUNT OF COMMISSION EARNED FROM RUNNING THE CHIT FUN D . AS AL RE ADY DIS C USSED ABO V E, THE APPELLANT IS LI A BL E TO PAY IN T ER E ST @ 6% ON AD V ANCE CHIT INSTALMENTS DEPOSITED B Y VARIOUS MEMBERS. PAYMENT O F THIS INTER E ST MAY BE REQUIRED AS PER CHIT FUND RULES, BUT THE ALLOWABILITY O F THI S DE D UC T ION UNDER SEC TI ON 37 OF THE ACT IS GOVERNED BY ITS BUSINESS NEXUS WITH THE BU S IN E SS INCOME. IN THIS CASE, THE BU S IN E SS IN C OM E IS IN THE NATURE O F COMMISSION RECEIVED. THIS INCOME HAS NO NEXUS WHATSO E VER WITH THE PAYM E N T O F IN TE R E ST. IN OTH E R WORDS, WHETHER THE SUB S CRIBERS PAY ADVANCE IN S TALM E N T S AND NO T I TA NO .914/H YD/20 13 M/S. ST. JUDE MEDICAL INDIA P RIVATE LIMITED, HYDERABAD 5 AND WHETHER THE APPELLANT PAYS INTEREST ON TH E SE IN S TALMENTS OR NO T , I T S BUSINESS INCOME FROM COMMISSION IS UNAFFECTED. TH E RE IS NO CORRELATION BETWE EN THE TWO. ONCE, SUCH A NEXUS IS NO T ESTABLISHMENT THE QUESTION OF ALLO W ABILITY O F EXPEN S ES OF R S .43,42,717/ - UNDER SECTION 37 DOES NO T ARI S E. TH E R E FORE, THIS ADDITION IS UPHELD, ALBEIT FOR DIFFERENT REA S ONS THAN THOSE ADVANCED BY TH E ASSESSING OFFICER. FURTHER, THE INCOME EARNED FROM KEEPING THE SUBSCRIBERS MONEY IN FIXED D EPOSITS IS INCOME F R OM OTHER SOU R CES. 8. TH E LEARNED COUNSEL F O R T H E ASSESSEE SUBMITTED T HAT AS PER THE SCHEME OF CHIT FUN D, INSTALMENTS WERE RECEIVED BY TH E ASSESSEE CO M PANY IN AD V ANCE FROM THE CHIT SUBSCRIBERS IN SOME CA S ES AND ON SUCH ADVANCE S RECEIVED FROM MEMBERS , IN TE R E ST WAS PAID AT THE RATE OF 6% PER ANNUM. HE INVITED OU R ATTENTION TO CLAUSE 5(D) OF THE BYE - L AWS OF THE ASSESSEE COMPANY GOVERNING THE C HIT F UND S CHEM E TO POINT OUT THAT THE I N TE REST AT THE RATE OF 6% WAS PAYABLE BY TH E ASSESSEE ON THE FUTURE INSTALMENT S RE CE IVED FROM THE SUBSCRIBERS IN AD V ANCE. HE POINTED OUT THAT THE AMOUNT OF ADVANCE INSTALMENT S AS PER THE BYE - LA WS WAS REQUIRED TO BE KEPT SEPARATEL Y BY TH E ASSESSEE WITH THE BANK AND ACCORDINGLY THE SAME WAS KEPT BY THE ASSESSEE IN THE FORM O F BANK DEPOSIT S DURING THE Y E AR UNDER CON S I D ERATION. HE CONTENDED THAT INTER E ST RECEIVED BY THE ASSESSEE COMPANY ON THE BANK DEPOSITS SO KEPT AS PER THE SC HE ME OF THE CHIT FUND ITSELF CONSTITUTED ITS BUSINESS INCO M E, AS RIGHTLY HELD BY THE ASSESSING OFFICER AND THE LEARNED CIT(A) WAS NO T JUSTIFIED IN TREATING THE SAME AS INCOME FROM OTHER SOURCES. IN SUPPO R T OF T HIS CONTENTION, HE RELIE D ON THE DECISION OF THE HON'BLE BOMBAY HIGH C OU R T IN TH E C A S E OF CIT V/S. LOK HOLDINGS ( 308 ITR 356 ) , WHEREIN INTER ES T RECEIVED BY THE BUILDER ON THE BANK DEPO S ITS MADE OUT OF ADVAN C E AMOUNTS RECEIVED FROM THE FLAT HOLDERS WAS HELD TO B E BU S IN E SS IN C OM E . H E C ONTENDED THAT SIMILARLY, THE INTERESTS PAID BY TH E ASSESSEE ON THE A D VANCE IN S TALMENTS RECEIVED F R OM TH E S UB S CRIBERS OF THE C HI T FUND AS P E R THE BYE - LAWS OF THE SCH E M E ALSO CON S TI T U T ED BU S IN ES S I TA NO .914/H YD/20 13 M/S. ST. JUDE MEDICAL INDIA P RIVATE LIMITED, HYDERABAD 6 EXPENDITURE OF THE ASSESSEE, AND THE LEARNED CIT(A) WAS NO T JUSTIFIED IN CONFIRMING THE DISALLOWANCE MADE BY TH E ASSESSING OFFICER ON AC C OUN T OF SUCH INTER E ST. 9. THE LEARNED DEPARTMENTAL REPRESENTATIVE, ON THE OTH E R HAND, STRONGLY RELIED ON THE IMPU G N E D ORD E R OF THE LEARNED CIT(A) IN SUPPORT O F THE RE VENU E S CASE ON THIS ISSUE AND SUB M I T TED THAT THE REASONS GI V EN BY THE LEARNED CIT(A) IN PARAGRAPH 6.4 OF THE IMPUGNED ORDER FOR CONFIRMING THE DISALLOWANCE MADE BY TH E ASSESSING OFFICER ON ACCOUNT OF IN TE REST MAY BE TAKEN INTO CON S I D ERATION WHILE DECIDING T HE ISSUE . 10. WE HAVE CONSIDERED THE R IVAL SUBMI S SION S AND ALSO PERUSED THE RELEVANT MATERIAL ON R ECORD. IT IS OBSERVED THAT THE ASSESSEE IS MAINLY ENGAGED IN THE BU S IN E SS O F RUNNING OF CHIT FUNDS AND TH E SCHEME OF SUCH CHIT FUNDS IS GOVERNED BY THE BY E - LAWS. A COPY OF THE RELEVANT BYE - LAWS IS PLACED ON RECORD BEFORE US, AND CLAUSE 5(D ) THEREOF , BEING R E LE V ANT IN TH E PRESENT CONTE X T, IS EX T RACTED BELOW - 5.D) THE SUBSCRIBER MAY PAY THE FUTURE INSTALMENTS IN ADVANCE. IF HE PAYS MORE THAN 10 INSTALMENTS AT A TIME, THE FOREMAN WILL PROVIDE INTEREST CALCULATED @ 6% PER A NUM ON THE REDUCING BALANCES. INTEREST IS CALCULATED MONTHLY AND KEPT SEPARATELY ON ACCOUNT. IT WILL BE UTILIZED TOWARDS ADJUSTMENT OF SUBSCRIPTION ONLY AFTER THE PRINCIPAL AMOUNT IS EXHAUSTED. ANY MARGINAL BALANCE LEFT OVER WILL BE PAID TO THE SUBSCRIBER AFTER THE CHIT PERIOD.: IT IS MANIFEST FROM THE RELEVANT CLAUSE OF TH E BYELAWS GOVERNING THE S CHEME OF CHIT FUND THAT THE INTEREST AT TH E RATE OF 6% WAS PAYABLE BY TH E ASSESSEE COMPANY ON THE IN S TALMENTS RECEIVED IN ADVANCE FORM THE SUBSCRIBERS. SUCH IN T ER E ST WAS REQUIRED TO B E CALCULATED MONTHLY AND KEPT SEPARATELY BY TH E ASSESSEE , AND ACCO RD INGL Y IN I TA NO .914/H YD/20 13 M/S. ST. JUDE MEDICAL INDIA P RIVATE LIMITED, HYDERABAD 7 COMPLIANCE WITH CLAUSE 5(D ) OF THE BYE - LAWS, THE AMOUNT OF INSTALMENTS RECEIVED IN ADVAN C E FROM TH E SUB S CRIBERS WAS KEPT BY THE ASSESSEE SEPARATELY IN THE FORM OF BANK DEPOSITS. IN OUR OPINION, RECEIPT OF ADVANCE I N STALMENTS F R OM THE SUBSCRIBERS, PAY M E N T O F IN T ER E ST THEREON AT 6% P E R ANNUM AND IN VE STMENT OF THE AMOUNT OF S UCH ADVA N CE SUBSCRIPTIONS SEPARATELY IN THE BANK DEPOSITS IN CO M PLIANCE WITH TH E BYE LAWS OF THE CHIT FUN D SCHEME, THUS WAS INTEGRAL PART OF THE BU S IN ES S O F TH E ASSESSEE OF RUNNING THE CHIT FUND, AND CON S EQU E NTLY, I N TER E ST RECEIVED BY TH E ASSESSEE ON SUCH BANK DEPOSITS CONSTITUTED ITS BUSINESS INCOME. T HE LEARNED CIT(A) , THEREFORE, WAS NOT JUSTIFIED IN TR E ATING SUCH IN T ER E ST AS INCOME F R OM OTHER SOU R CES. SIMILARLY, THE LEARNED CIT (A) , IN OU R OPINION, WAS NO T JUSTIFIED IN CONFIRMING THE DISALLOWANCE MADE BY TH E ASSESSING OFFICER ON AC C OUN T OF IN T EREST P A ID BY TH E ASSESSEE ON TH E IN S TALMEN TS RECEIVED IN ADVANCE F R OM TH E CUSTOM E RS OF THE CHIT FUNDS, AS THE SAID INTEREST PAID BY TH E A SSESSEE AS P E R THE SCHEME O F THE CHIT FUNDS, CLEARLY CONSTITUTED EXPENDITURE INCURRED B Y IT WHOLLY AND EXCLUSIVELY FOR THE PU R PO S E OF ITS BUSINESS. ACCOR D ING TO US, THERE WAS A DIRECT NEXUS BETWEEN THE INTEREST PAID BY TH E ASSESSEE ON THE S A ID INSTALMENTS DEPOSITED BY TH E MEMBERS WITH ITS BUSINESS OF RUNNING A CHIT FUND, AND TH E SAME , THEREFORE, WAS ALLOWABLE AS BUSIN ES S EXPENDITURE, AS RIGH T LY CLAIMED BY TH E ASSESSEE. W E, TH E REFORE, DELETE TH E DISALLOWANCE MADE BY THE ASSESSING OFFICER AND CO NFIRMED BY TH E LEARNED CIT(A) ON AC C OUN T OF SUCH IN T EREST AND ALLOW GROUND NO.2 OF THE ASSESSEE S APPEAL. 11. THE ISSUE RAISED IN GROUND NO.3 OF THE ASSESSEES APPEAL REL A TES TO DI S ALLO W ANCE OF R S . 4,64,751 MADE BY TH E ASSESSING OFFICER AND CON F IRM E D BY T HE LEARNED CIT(A) UNDER S.14A OF THE AC T, ON ACCOUNT OF EXPENSES INCURRED BY TH E ASSESSEE FOR EARNING THE EXEMPT INCOME FROM DIVI D END. I TA NO .914/H YD/20 13 M/S. ST. JUDE MEDICAL INDIA P RIVATE LIMITED, HYDERABAD 8 12. DU R IN G TH E Y E AR UNDER CONSIDERATION, TH E ASSESSEE COMPANY H A D RECEIVED DIVIDEND INCOME OF R S.46,47,516 , WHICH WAS CLAIMED TO BE EXEMPT UNDER S.10(34) OF THE ACT. NO DISALLOWANCE ON ACCOUNT OF EXPENSES INCURRED FOR EARNING SUCH EXEMPT INCOME , HO W EVER , W A S OFFERED BY THE ASSESSEE AS REQUIR E D BY THE PROVISIONS OF S .14A. ACCOR D ING TO TH E ASSESSING OFFICER, THERE W ERE C E RT A IN IN DIRECT EXPENSES INCURRED BY THE ASSESSEE SUCH AS ADMINI S TRATIVE EXPENSES, SALAR IES , ETC., WHICH WERE ATTRIBUTABLE TO THE E ARNING OF EXEMPT DIVIDEND INCOME. ACCORD I NGLY, HE ES T IMATED SUCH EXP E NS E S INCURRED BY TH E ASSESSEE FOR THE EARNING OF EXEMP T DIVI D END INCOME AT R S .4,64,751, BEING 10% OF THE EXEMPT INCOME E ARNED BY TH E ASSESSEE AND MADE A DISALLOWANCE TO THAT EXTENT UNDER S.14A OF THE A C T. 13. ON APPEAL, THE LEARNED CIT(A) CONFIRMED THE DISALLOWANCE MADE BY THE ASSESSING OFFICER UNDER S.14A HOL D IN G TH E SAME TO BE REASONABLE IN THE FACTS AND CIRCUMSTANCES OF THE ASSESSEES CASE. 14. WE HAVE HEARD THE ARGUMENTS OF BOTH THE SIDES AND ALSO PERUSED THE RELEVANT MATERIAL ON RECORD. ALTHOUGH THE LEARNED COUNSEL FOR THE ASSESSEE HAS CONTENDED THAT THE DISALLOWANCE MADE BY THE ASSESSING OFFICER AND CON F IRMED BY THE LEARNED CIT(A) UN D ER S.14A TO THE EXTENT OF 10% OF THE EXEMPT DIVIDEND INCOME IS EXCESSIVE AND UNREASONABLE AND THE SAME SHOULD B E RESTRICTED TO 1 - 2 % OF THE EXEMPT DIVIDEND INCOM E , WE ARE UNABLE TO AGREE WITH THIS CONTENTION FULLY. IT IS OB SERV E D THAT INVESTMENT IN THE RANGE OF RS.25 TO 30 CRORES WAS MADE BY THE ASSESSEE COMPANY IN THE SHARES DURING THE Y E AR UNDER CON S IDE R ATION AND IN ORDER TO MANAGE THE INVESTMENT OF THIS VOLUME, WHICH ALSO INVOLVED TAKING DECISIONS FROM TIME TO TIME R E GARDIN G CHANGE IN THE PO R TFOLIO, CERTAIN EXPENDITURE WAS REQ U IRED TO B E IN C U R RED, WHICH CANNO T BE AS LOW AS I TA NO .914/H YD/20 13 M/S. ST. JUDE MEDICAL INDIA P RIVATE LIMITED, HYDERABAD 9 1 OR 2% OF THE EXEMPT DIVIDEND INCOME , AS CLAIMED BY THE LE ARNED COUNSEL FOR THE ASSESSEE. HA V ING REGARD TO THE FACTS OF THE CA S E INCLU D IN G ESPECIALLY THE QUANTUM O F INVESTMENT MADE BY THE ASSESSEE IN THE SHARES, THE QU A NTUM OF DIVIDEND INCOME RECEIVED DURING THE Y E AR UNDER CONSIDERATION , ETC., WE ARE OF TH E VI E W THAT IT WOULD BE FAIR AND REASONABLE TO ESTIMATE THE EXPENDITURE INCURRED BY THE ASSESSEE FOR EARNING OF EXEMPT DIVIDEND INCOME AT R S .2,32,375 BEING 5% OF THE EXEMPT DIVIDEND INCOME. W E ACCORDINGLY RESTRICT THE DISALLOWANCE MADE BY THE ASSESSING OFFICER AND CONFIRMED BY THE CIT(A) UNDER S.14A TO RS.2,32,375 AND ALLOW PARTLY G R OUND N O.3 OF THE ASSESSEES APPEAL. REVENUES APPEAL: ITA NO.1553/HYD/2010: 15. NOW, WE SHALL TAKE THE REVENUES APPEAL, BEING IT A N O.1553/HYD/2010, WHICH INVOLVES A SOLITARY ISSUE RELATING TO DELETION BY THE LEARNED CIT(A) OF THE DISALLOWANCE OF RS.188.44 CRORES MADE BY THE ASSESSING OFFICER UNDER S.40A(IA) OF THE ACT, ON ACCOUNT OF DIVIDEND PAID BY TH E ASSESSEE COMPANY TO ITS CHIT S UBSCRIBERS WITHOUT DEDUCTION OF TAX AT SOU R CE, TR E ATING THE SAME AS EXPENDITURE IN THE NATURE OF INTE RE ST . 16. WE HAVE HEARD THE ARGUMENTS OF BOTH THE SIDES AND ALSO PERUSED THE RELEVANT MATERIAL ON RECORD. AS AGREED BY THE LEARNED REPRESEN T ATIVES OF BOTH THE SIDES, THE ISSUE INVOL V ED IN TH E APPEAL O F THE RE VENUE IS SQU A RELY CO V ERED IN FAVOUR O F TH E ASSESSEE BY THE DECISION OF TH E COORDINATE BEN C H OF THIS TRIBUNAL IN ASSESSEES OWN CASE FOR ASSESSMENT YEAR 2008 - 09 RENDERED VIDE ORDER DATED 24.2.201 2 IN ITA N O .973/HYD/2011 , WHEREIN A SIMILAR DISALLO W AN C E MADE BY THE ASSESSING OFFICER WAS HELD TO BE UNSUSTAINABLE, FOLLOWING THE DECISION OF THE MAD RAS HIGH COU R T IN THE CA S E OF BILAHARI INVESTMENTS (P)LTD.(288 ITR 39), WHEREIN IT WAS I TA NO .914/H YD/20 13 M/S. ST. JUDE MEDICAL INDIA P RIVATE LIMITED, HYDERABAD 10 HELD T HAT THE DIVI DEND DISTRIBUTED BY TH E ASSESSEE DID NOT PART - TAKE THE CHARACTER OF INTER E ST AND CONSEQUENTLY, THE ASSESSEE WA S NOT LIABLE TO DEDUCT TAX AT SOURCE. TH E SAID DECISION OF THE T RIBUNAL RENDERED IN ASSESSEE S OWN CA S E FOR ASSESSMENT YEAR 2008 - 09 HAS BEEN UPHEL D BY THE H ONBLE ANDHRA PRADESH H IGH C OU R T VIDE I T S JUDGMENT DATED 10 TH JULY, 2013 PASSED IN ITTA NO.228 OF 2013 AND EVEN THE SLP FILED BY TH E REVENUE AGAINST THE OR D ER OF THE HON BLE ANDHRA PRADESH HIGH COURT HAS ALSO BEEN DISMISSED BY THE H ONBLE SUPREME COURT RECENTLY ON 30 TH J ULY, 2014 IN PETIT I ON FOR SP E CIAL LEAVE TO APPEAL (C) NO.9457/2014 . RESP E CTFULLY FOLLOWING TH E S E JUDICIAL PRONOUNC E MENTS IN ASSESSEES OWN CA S E ON SIMI L AR ISSUE, WE UPHOLD THE IMPUGNED ORDER OF THE LEARNED CIT(A), DELETING THE DISA LLOWANCE MADE B Y T H E ASSESSING OFFICER UNDER S .40A(IA ) ON ACCOUNT OF DIVIDEND PAID BY TH E ASSESSEE TO THE CHI T SUBSCRIBERS FOR NON - DEDUCTION OF TAX AT SOURCE AND DISMISS THE APPEAL OF THE REVENUE. 17. IN THE RESULT, APPEAL OF THE ASSESSEE IS PARTLY A LLOWED AND THE APPEAL OF THE REVENUE IS DISMISSED. ORDER PRONOUNCED IN THE COURT ON 24 TH SEPTEMBER, 2014 SD/ - SD/ - ( SAKTIJIT DEY ) ( P.M.JAGTAP ) JUDICIAL MEMBER ACCOUNTANT MEMBER DT/ - 24 TH SEPTEMBER, 2014 COPY FORWARDED TO: 1. M/S. MARGADARSI CHIT FUND LTD., 5 - 10 - 195, CORPORATE OFFICE, OPP. POLICE CONTROL ROOM, FATEH MAIDAN ROAD, HYDERABAD 2 . ASST . COMMISSIONER OF INCOME - TAX CIRCLE 16 ( 2 ), HYDERABAD 3. 4. COMMISSIONER OF INCOME - TAX(APPEALS) V , HYDERABAD COMMISSIONER OF INCOME - TAX I V , HYDERABAD 5. DEPARTMENTAL REPRESENTATIVE, ITAT, HYDERABAD. B.V.S