Indian Potash Limited, CHENNAI V. DCIT, CHENNAI

ITA 1567/CHNY/2015

• Counselvise Citation: [2015] 140 COUNSELVISE.COM (IT) 96632 (ITAT-CHENNAI)
• Duration Of Justice: 5 month(s) 22 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 30-12-2015
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: C
• Next Hearing Date: 19-11-2015
• Assessment Year: 2011-2012
• Appeal Filed On: 08-07-2015
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: N RENGARAJ
• Assessee Lawyers: R VIJAYARAGHAVAN
• Keywords: Opportunity of being heard; Earning of tax free income
• Section: 14A

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL , C B ENCH, CHENNAI . . , ' # , $ & BEFORE SHRI D.KARUNAKARA RAO, ACCOUNTANT MEMBER AND SHRI CHALLA NAGENDRA PRASAD, JUDICIAL MEMBER ./ I.T.A.NOS . 1566 & 1567/MDS/2015 ( / ASSESSMENT YEARS: 2010-11 & 2011-12) M/S. INDIAN POTASH LTD., 1 ST FLOOR, SEETHAKATHI BUSINESS CENTRE 684-690, ANNA SALAI, CHENNAI-600 006. VS THE DEPUTY COMMISSIONER OF INCOME TAX, CORPORATE CIRCLE-2(2), CHENNAI-600 034. PAN: AACCI0888H ( /APPELLANT) ( /RESPONDENT) / APPELLANT BY : MR. R.VIJAYARAGHAVAN, ADVOCATE /RESPONDENT BY : MR. N.RENGARAJ, CIT /DATE OF HEARING : 19 TH NOVEMBER, 2015 /DATE OF PRONOUNCEMENT : 30 TH DECEMBER, 2015 / O R D E R PER CHALLA NAGENDRA PRASAD, JM: THESE TWO APPEALS ARE FILED BY THE ASSESSEE AGAINS T THE COMMON ORDER OF THE COMMISSIONER OF INCOME TAX (APPEALS)-6, CHENNAI DATED 30.03.2015 FOR THE ASSES SMENT YEARS 2010-11 AND 2011-12. THE ONLY ISSUE IN BOTH T HESE APPEALS OF THE ASSESSEE IS THAT COMMISSIONER OF INC OME TAX (APPEALS) ERRED IN CONFIRMING THE DISALLOWANCE MADE BY THE ASSESSING OFFICER UNDER SECTION 14A READ WITH RULE 8D OF THE ACT. 2. THE ASSESSEE, ENGAGED IN THE BUSINESS OF TRADIN G OF POTASSIC AND NON-POTASSIC FERTILIZERS, FILED RETUR N OF INCOME 2 ITA NO.1566 & 1567 /MDS/2015 ON 28.09.2010 AND 29.09.2011 FOR THE ASSESSMENT YE ARS 2010-11 AND 2011-12 RESPECTIVELY. THE ASSESSING OF FICER WHILE COMPLETING THE ASSESSMENTS BY INVOKING PROVIS IONS OF SECTION 14A READ WITH RULE 8D WORKED OUT EXPENSES F OR EARNING EXEMPT INCOME AT ` 61.71 CRORES AND 24.92 CRORES FOR THE ASSESSMENT YEARS 2010-11 AND 2011-12 RESPECTIVE LY AFTER REDUCING THE AMOUNTS OF ` 2,93,434/- AND ` 3,49,137/- DISALLOWED BY THE ASSESSEE HIMSELF AS THE EXPENSES EARNING FOR EXEMPT INCOME. ON APPEAL, COMMISSIONER OF INCOM E TAX (APPEALS) SUSTAINED THE DISALLOWANCE AGAINST WHICH THE ASSESSEE IS IN APPEAL BEFORE US FOR BOTH THE ASSESS MENT YEARS. 3. COUNSEL FOR THE ASSESSEE SUBMITS THAT THE ASSESS ING OFFICER HAS NOT RECORDED ANY SATISFACTION ABOUT THE CORRECTNESS OF THE CLAIM OF THE ASSESSEE THAT IT HA S INCURRED EXPENDITURE OF ` 2,93,434/- AND ` 3,49,137/- ONLY FOR EARNING THE EXEMPT INCOME AND THIS WAS DISALLOWED BY THE AS SESSEE ITSELF. COUNSEL FOR THE ASSESSEE SUBMITS THAT WITHO UT RECORDING ANY SATISFACTION THE ASSESSING OFFICER BY INVOKING THE PROVISIONS OF SECTION 14A READ WITH RULE 8D DIS ALLOWED HUGE AMOUNTS AS EXPENDITURE INCURRED FOR EARNING EX EMPT INCOME. IT IS SUBMITTED THAT EXPENDITURE DISALLOWED IS MORE 3 ITA NO.1566 & 1567 /MDS/2015 THAN THE DIVIDEND EARNED FOR THE ASSESSMENT YEAR 20 10-11. COUNSEL FOR THE ASSESSEE SUBMITS THAT THE INVESTMEN TS MADE BY THE ASSESSEE ARE FROM INTEREST FREE OWN FUNDS AN D NO PART OF THE BORROWED FUNDS WERE UTILIZED FOR MAKING INVE STMENTS IN MUTUAL FUNDS AND IN SUCH CIRCUMSTANCES, THERE IS NO JUSTIFICATION IN INVOKING PROVISIONS OF SECTION 14A READ WITH RULE 8D(II) FOR MAKING DISALLOWANCE. HE FURTHER SU BMITS THAT INVESTMENTS ARE LOOKED AFTER BY ONLY ONE OFFICER WH O HANDLES PARKING OF FUNDS IN MUTUAL FUNDS AND THE FUNDS ARE SENT THROUGH RTGS. INVESTMENTS WERE HELD IN DEMAT ACCOU NT AND DIVIDENDS WERE DIRECTLY CREDITED TO DEMAT ACCOUNT A ND THEREFORE NO SEPARATE PERSON TO FOLLOW UP THE INVES TMENTS IS REQUIRED. HE THEREFORE SUBMITS THAT SINCE NO PART OF MAJOR EXPENSES RELATE TO EARNING OF DIVIDEND INCOME, ASSE SSEE ITSELF HAS DISALLOWED ` 2,93,434/- AND ` 3,49,137/- AS EXPENDITURE ATTRIBUTABLE FOR DIVIDEND INCOME FOR TH E ASSESSMENT YEARS 2010-11 AND 2011-12 RESPECTIVELY. COUNSEL THEREFORE SUBMITS THAT THERE IS NO JUSTIFIC ATION IN INVOKING PROVISIONS OF SECTION 14A READ WITH RULE 8 D AND MAKING HUGE DISALLOWANCES. COUNSEL PLACES RELIANCE ON THE FOLLOWING DECISIONS IN SUPPORT OF HIS SUBMISSIONS:- I) CIT VS. TAIKISHA ENGG. INDIA LTD.( 370 ITR 338 [ DEL])) 4 ITA NO.1566 & 1567 /MDS/2015 II) JOINT INVESTMENTS LTD. VS.CIT (372 ITR 694 [DEL ]) III) CIT VS. HERO CYCLES LTD. [323 ITR 518 (P &H)] IV) SHRIRAM PROPERTIES P.LTD.VS. ACIT (60 SOT 75) 4. DEPARTMENTAL REPRESENTATIVE VEHEMENTLY SUPPORTS THE ORDERS OF LOWER AUTHORITIES. DEPARTMENTAL REPRESENT ATIVE SUBMITS THAT THE ASPECT OF WHETHER THE ASSESSEE DEP LOYED INTEREST FREE OWN FUNDS AND NO BORROWED FUNDS HAVE BEEN PLACED IN INVESTMENTS HAS NOT BEEN EXAMINED BY THE ASSESSING OFFICER. DEPARTMENTAL REPRESENTATIVE SUBM ITS THAT IF ANY VERIFICATION IS REQUIRED IT SHOULD GO BACK T O THE ASSESSING OFFICER FOR FRESH CONSIDERATION. 5. HEARD BOTH SIDES. PERUSED ORDERS OF LOWER AUTHOR ITIES AND THE DECISIONS RELIED ON. THE ASSESSING OFFICER WHILE COMPLETING THE ASSESSMENTS BY INVOKING PROVISIONS O F SECTION 14A READ WITH RULE 8D DISALLOWED ` 61.71 CRORES AND ` 24.92 CRORES FOR THE ASSESSMENT YEARS 2010-11 AND 2011-1 2 RESPECTIVELY. IT IS THE SUBMISSION OF THE ASSESSEE THAT IT HAS NOT INCURRED MUCH EXPENSES FOR EARNING DIVIDEND INC OME AND IN FACT SURPLUS FUNDS WERE MADE IN MUTUAL FUNDS AND NO INTEREST BEARING FUNDS WERE UTILIZED IN INVESTMENTS . IN SUCH CIRCUMSTANCES, DISALLOWANCE MADE UNDER SECTION 8D(I I) IS NOT PROPER. IT IS THE SUBMISSION OF THE COUNSEL FOR THE ASSESSEE 5 ITA NO.1566 & 1567 /MDS/2015 THAT MATTER HAS TO BE LOOKED INTO BY THE ASSESSING OFFICER AS THIS ASPECT OF THE MATTER HAS NOT BEEN CONSIDERED A T ALL. ON GOING THROUGH THE ORDERS OF THE LOWER AUTHORITIES, WE FIND THAT THE ISSUE IN APPEAL HAS TO BE REEXAMINED BY THE ASS ESSING OFFICER AFRESH WITH REFERENCE TO THE SUBMISSIONS OF THE ASSESSEE AND IN THE LIGHT OF THE CASE LAWS RELIED ON. THUS, WE RESTORE THE APPEALS OF THE ASSESSEE TO THE FILE OF THE ASSESSING OFFICER WITH A DIRECTION TO EXAMINE THE I SSUE AFRESH AFTER PROVIDING ADEQUATE OPPORTUNITY OF BEING HEARD TO THE ASSESSEE AND THE ASSESSEE IS AT LIBERTY TO FILE NE CESSARY INFORMATION IN SUPPORT OF HIS SUBMISSIONS BEFORE TH E ASSESSING OFFICER. 6. IN THE RESULT, BOTH THE APPEALS OF THE ASSESSEE ARE ALLOWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED IN THE OPEN COURT ON 30 TH DECEMBER, 2015. SD/- SD/- ( . $ ) ( & () ) (D.KARUNAKARA RAO) (CHALLA NAGENDR A PRASAD ) + / ACCOUNTANT MEMBER ( + / JUDICIAL MEMBER ( /CHENNAI, - /DATED 30 TH DECEMBER, 2015 SOMU /0 10 /COPY TO: 1. APPELLANT 2. RESPONDENT 3. 2 () /CIT(A) 4. 2 /CIT 5. 0 6 /DR 6. /GF .