Sri ASL Finvest Private Limited, Hyderabad, Hyderabad V. ITO, Ward-3(3), Hyderabad, Hyderabad

ITA 1585/HYD/2016

• Counselvise Citation: [2019] 116 COUNSELVISE.COM (IT) 7045 (ITAT-HYDERABAD)
• Duration Of Justice: 2 year(s) 8 month(s) 5 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 31-07-2019
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: DB-A
• Next Hearing Date: 22-07-2019
• Assessment Year: 2012-2013
• Appeal Filed On: 25-11-2016
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: M H NAIK
• Assessee Lawyers: V RAGHAVENDRA RAO
• Keywords: Earning of tax free income; Revised return; Rule 8D
• Section: 14A

Judgement Text

ITA NO 1585 OF 2016 SRI ASL FINVEST (P) LTD HYDERAB AD. PAGE 1 OF 5 IN THE INCOME TAX APPELLATE TRIBUNAL HYDERABAD A BENCH, HYDERABAD BEFORE SMT. P. MADHAVI DEVI, JUDICIAL MEMBER AND SHRI S.RIFAUR RAHMAN, ACCOUNTANT MEMBER ITA NO.1585/HYD/2016 (ASSESSMENT YEAR: 2012-13) SRI ASL FINVEST PVT. LTD HYDERABAD PAN: AADCS 2148D VS INCOME TAX OFFICER WARD 3(3) HYDERABAD (APPELLANT) (RESPONDENT) FOR ASSESSEE : SHRI V. RAGHAVENDRA RAO FOR REVENUE : SHRI M.H. NAIK, DR O R D E R PER SMT. P. MADHAVI DEVI, J.M. THIS IS ASSESSEES APPEAL FOR THE A.Y 2012-13 AGAIN ST THE ORDER OF THE CIT (A)-3, HYDERABAD, DATED 30.08. 2016. 2. BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE E- FILED ITS RETURN OF INCOME FOR THE A.Y 2012-13 ON 20.09.2012 ADMITTING INCOME AT RS.45,65,970/-. THEREAFTER, THE ASSESSEE FILED REVISED RETURN OF INCOME INCLUDING LONG TERM CAPITAL GAINS OF RS.1,93,61,211/-ARISING ON ENTERING INTO DEVELOPMEN T AGREEMENT DURING THE PREVIOUS YEAR RELEVANT TO THE A.Y 2012-1 3. THE RETURN OF INCOME WAS TAKEN FOR SCRUTINY UNDER CASS AND THE ASSESSEE WAS REQUIRED TO FURNISH THE BOOKS OF ACCOUNT FOR VE RIFICATION. THE ASSESSEE SUBMITTED THE BOOKS AND ON PERUSAL OF THE SAME, THE AO DATE OF HEARING : 22.07.2019 DATE OF PRONOUNCEMENT : 31.07.2019 ITA NO 1585 OF 2016 SRI ASL FINVEST (P) LTD HYDERAB AD. PAGE 2 OF 5 NOTICED THAT THE ASSESSEE COMPANY HAS EARNED DIVIDE ND INCOME AND ALSO INCOME FROM UNITS OF MUTUAL FUNDS AGGREGAT ING TO RS.23,79,908/- WHICH IS EXEMPT FROM TAX. THE ASSESS EE WAS THEREFORE, REQUIRED TO SHOW-CAUSE AS TO WHY THE PRO VISIONS OF SECTION 14A R.W.R 8D SHOULD NOT BE INVOKED. THE ASS ESSEE SUBMITTED THAT THERE IS NO DISALLOWANCE BY HIM U/S 14A SINCE THE INVESTMENT IN MUTUAL FUNDS WAS NOT MADE OUT OF BORR OWED FUNDS AND NO DIRECT EXPENDITURE CAN BE ATTRIBUTABLE TO EA RNING OF DIVIDEND (EXEMPT) INCOME. IT WAS ALSO SUBMITTED THA T NO INTEREST PAYMENT IS MADE ON ACCOUNT OF BORROWED FUNDS. THE A O HOWEVER, OBSERVED THAT RULE 8D(2)(III) IS APPLICABLE AND ACC ORDINGLY MADE THE DISALLOWANCE U/S 14A OF THE ACT. 3. AGGRIEVED, THE ASSESSEE PREFERRED AN APPEAL BEFO RE THE CIT (A) WHO UPHELD THE ORDER OF THE AO AND THE ASSE SSEE IS IN SECOND APPEAL BEFORE US BY RAISING THE FOLLOWING GR OUNDS OF APPEAL: 1. THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS ) - 3, HYDERABAD [CIT(AL] HAS ERRED ON FACTS AND IN LAW, I N DISMISSING THE APPEAL OF THE ASSESSEE. 2. LEARNED CIT(A) HAS ERRED IN OBSERVING THAT THE ASSESSING OFFICER (A.O.) WAS REASONABLE ENOUGH TO D ISAILOW AN AMOUNT OF RS.3,64,431/- OUT OF EXPENSES OF RS.7, 71.934 -( 22,71,934 - 15,00,000/-), WHEREAS HE MECHANICALL Y APPLIED RULE 8D(2)(III) LW.S. 14A OF THE 1.T. ACT W ITHOUT REACHING SATISFACTION. 3. LEARNED CIT(A) HAS ALSO ERRED IN HOLDING THAT SU BSTANTIAL FUNDS WERE INVESTED AND EXPENSES CLAIMED HAS PROXIM ATE NEXUS WITH EARNING OF DIVIDEND INCOME. THIS IS AGAI NST THE FACTS OF THE CASE BECAUSE NO EXPENDITURE WAS INCURR ED TO RECEIVE OR EARN DIVIDEND INCOME, ALL THE FUNDS INVE STED BEING OWN FUNDS. DIVIDENDS GET DIRECTLY CREDITED IN THE BANK AI C OF THE ASSESSEE AND N:) EXPENDITURE IS IN CURRED FOR THE PURPOSE. ITA NO 1585 OF 2016 SRI ASL FINVEST (P) LTD HYDERAB AD. PAGE 3 OF 5 4. LEARNED CIT(A) HAS ERRED IN COMING TO THE CONCLU SION THAT OBSERVATION OF THE A.O THAT SUBSTANTIAL FUNDS WERE INVESTED AND EXPENSES CLAIMED HAS PROXIMATE NEXUS WITH EARNI NG OF DIVIDEND INDICATES SATISFACTION ON THE PART OF THE A.O, UNDER SEC. 14A OF THE LT. ACT R.W.S RULE 8D WHEREAS A.O H AS NOT INDICATED ONLY SUCH SATISFACTION. 5. ASSUMING THAT THE OBSERVATIONS OF THE A.O. AMOUN T TO HIS SATISFACTION U/S 14A R.W.S RULE 8D, LEARNED CIT (A) HAS ERRED IN HOLDING THAT SUBSTANTIAL INVESTMENTS OF OW N FUNDS HAS ANY NEXUS WITH ANY OF THE ITEMS OF EXPENSES CLA IMED. THE TWO ARE TOTALLY UNCONNECTED. 6. FOR THESE AND ANY OTHER GROUNDS THAT MAY BE RAIS ED AT/BEFORE THE TIME OF HEARING, IT IS PRAYED THAT TH E DISALLOWANCE MADE BY THE A.O, AND UPHELD BY THE LEA RNED CIT(A) BE KINDLY DELETED. 4. FURTHER, THE ASSESSEE ALSO RAISED THE FOLLOWING ADDITIONAL GROUND OF APPEAL: WITHOUT PREJUDICE TO THE GROUNDS OF APPEAL ALREADY FILED, THE DISALLOWANCE UNDER RULE 8D(2)(III) SHOULD BE ON THE BASIS OF AVERAGE OF THE INVESTMENTS WHICH HAVE YIEL DED EXEMPT INCOME THAT IS DIVIDEND INCOME IN THE PREVIO US YEAR AND NOT ON THE ENTIRE INVESTMENTS ADOPTED BY THE AO . 5. UPON HEARING BOTH THE PARTIES, WE FIND THAT FOR THE A.Y 2012-13, THE PROVISIONS OF SECTION 14A R.W.R 8D(2)( III) OF THE ACT ARE APPLICABLE. THE AO HAS MADE DISALLOWANCE U/S 8D (2)(III) OF THE I.T. ACT I.E. 0.5% OF THE AVERAGE INVESTMENTS. IN A NUMBER OF CASES, THIS TRIBUNAL HAS HELD THAT THE DISALLOWANCE UNDER RULE 8D(2)(III) IS TO BE CALCULATED ON THE AVERAGE VALUE OF THE INVESTMENTS WHICH HAVE YIELDED EXEMPT INCOME ONLY. IN THE CASE OF YASHODA HEALTH CARE SERVICES (P) LTD VS. DY. CIT REPORTED IN (2017) 54 ITR (TRIB.) 26 (ITAT HYDERABAD) (TO WHICH BOTH OF US I.E. AM & JM ARE SIGNATORIES) THE TRIBUNAL AT PARA 6 OF ITS ORDER HELD AS UNDER: 6. CONSIDERED THE RIVAL SUBMISSIONS AND PERUSED THE M ATERIAL FACTS ON RECORD. WE FIND THAT A SIMILAR ISSUE CAME UP FOR CO NSIDERATION BEFORE THE ITA NO 1585 OF 2016 SRI ASL FINVEST (P) LTD HYDERAB AD. PAGE 4 OF 5 CO-ORDINATE BENCH OF THIS TRIBUNAL IN THE CASE OF T RANSPORT CORPORATION OF INDIA LTD. V. ASSTT. CIT [IT APPEAL NO. 117 (HYD .) OF 2016, DATED 21- 9-2016] WHEREIN THE CO-ORDINATE BENCH HAS HELD AS U NDER : '11.1 WHILE CAREFULLY READING THE RULE 8D(2)(II), T HE FORMULA GIVEN ARE : A X B C WHERE A = AMOUNT OF EXPENDITURE BY WAY OF INTEREST OTHER THAN THE AMOUNT OF INTEREST INCLUDED IN CLAUSE (I) INCURRED DURING THE PREVIOUS YEAR : B = THE AVERAGE OF 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 ; C = THE AVERAGE OF TOTAL ASSETS AS APPEARING IN THE BALANCE SHEET OF THE ASSESSEE, ON THE FIRST DAY AND THE LAST DAY OF THE PREVIOUS Y EAR ; IN PARTICULAR, THE NOTES FOR 'B' CLEARLY STATES THA T THE AVERAGE VALUE OF INVESTMENT, INCOME FROM WHICH DOES NOT OR SHALL NOT FORM PART O F THE TOTAL INCOME. IT IS CLEAR THAT WE HAVE TO INCLUDE THOSE INVESTMENTS WHICH HAS GENERATED INCOME AND EXCLUDE THOSE INVESTMENTS, WHICH HAVE NOT GENERATED INCOME. IN THE PRESENT CASE, THE ASSESSING OFFICER HAD TAKEN THE TOTAL INVESTMENT IN STEAD OF THOSE INVESTMENTS, WHICH HAVE GENERATED INCOME. ACCORDINGLY, WE DIRECT THE ASSESSING OFFICER TO CALCULATE THE DISALLOWANCE OF INTEREST AS BELOW (AS PER RULE 8D) : INTEREST X INVESTMENT (WHICH GENERATED INCOME) AVERAGE TOTAL ASSETS THE MAIN REASON IS THAT AS PER SECTION 14A, NO DEDU CTION SHALL BE ALLOWED IN RESPECT OF EXPENDITURE INCURRED BY THE ASSESSEE IN RELATION TO INCOME, WHICH IS EXEMPT FROM TAX. THE RELEVANCE IS THE EXPENDITURE I N RELATION TO INCOME. THE QUANTIFICATION HAS TO BE UNDERTAKEN IN RELATION TO THE EXEMPT INCOME. THE INVESTMENT WHICH HAS NOT GENERATED EXEMPT INCOME SH OULD BE EXCLUDED FROM THE CALCULATION OF RATIO TO DETERMINE THE DISALLOWANCE. 11.2 SIMILARLY, FOR THE ADMINISTRATIVE EXPENSES, 0. 5 PER CENT. OF AVERAGE INVESTMENTS FROM WHICH THE EXEMPT INCOME IS RECEIVE D SHOULD BE CONSIDERED INSTEAD OF AVERAGE OF THE TOTAL INVESTMENTS. 11.3 CONSIDERING THE ABOVE DISCUSSION, WE DIRECT TH E ASSESSING OFFICER TO RECALCULATE THE DISALLOWANCE AS PER RULE 8D AS PER THE ABOVE GUIDANCE. ACCORDINGLY, GROUND RAISED BY THE ASSESSEE IS ALLOW ED.' AS THE ISSUE UNDER CONSIDERATION IS MATERIALLY IDEN TICAL TO THAT OF THE SAID CASE, FOLLOWING THE CONCLUSIONS DRAWN THEREIN WE DIRECT T HE ASSESSING OFFICER TO RECALCULATE THE DISALLOWANCE AS PER RULE 8D AS PER THE GUIDELINES GIVEN AS ABOVE IN THE CASE OF TRANSPORT CORPORATION OF INDIA AND CALC ULATE THE DISALLOWANCE OF ITA NO 1585 OF 2016 SRI ASL FINVEST (P) LTD HYDERAB AD. PAGE 5 OF 5 EXPENDITURE UNDER RULE 8D(2)(III) TAKING THE AVERAG E INVESTMENT FROM WHICH THE EXEMPT INCOME IS RECEIVED. 6. RESPECTFULLY FOLLOWING THE SAME, WE DIRECT THE A O TO RECALCULATE THE DISALLOWANCE U/S 14A R.W.R 8D(2)(II I) ONLY IN ACCORDANCE WITH THE ABOVE DIRECTIONS. THE ASSESSEE S APPEAL IS ACCORDINGLY ALLOWED FOR STATISTICAL PURPOSES. 7. IN THE RESULT, ASSESSEES APPEAL IS ALLOWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED IN THE OPEN COURT ON 31 ST JULY, 2019. SD/- SD/- (S.RIFAUR RAHMAN) ACCOUNTANT MEMBER (P. MADHAVI DEVI) JUDICIAL MEMBER HYDERABAD, DATED 31 ST JULY, 2019. VINODAN/SPS COPY TO: 1 SRI ASL FINVEST PVT. LTD, 3 RD FLOOR, MOHANS PLAZA, PLOT NO.733, ROAD NO.36, JUBILEE HILLS, HYDERABAD 500033 2 ITO WARD 3(3) SIGNATURE TOWERS, KONDAPUR, OPP: BO TANICAL GARDENS, HYDERABAD 3 CIT (A)-3 HYDERABAD 4 PR. CIT 3 HYDERABAD 5 THE DR, ITAT HYDERABAD 6 GUARD FILE BY ORDER