Asst. Commissioner of Income Tax Circle-8(1), Hyderabad V. M/s Agroha Co-op.Urban Bank Limited, Hyderabad

ITA 1614/HYD/2013

• Counselvise Citation: [2014] 140 COUNSELVISE.COM (IT) 77889 (ITAT-HYDERABAD)
• Duration Of Justice: 5 month(s) 9 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 07-05-2014
• Appeal Filed By: Department
• Bench Allotted: A
• Assessment Year: 2010-2011
• Appeal Filed On: 28-11-2013
• Court: TRIBUNAL
• Department Lawyers: ADAGIRI
• Assessee Lawyers: LAXMINIVAS SHARMA
• Keywords: Earning of tax free income
• Section: 14A

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL HYDERABAD BENCH A', HYDERABAD BEFORE SHRI B.RAMAKOTAIAH, ACCOUNTANT MEMBER AND SMT. ASHA VIJAYARAGHAVAN, JUDICIAL MEMBER ITA NO.1614/HYD/13 : ASSESSMENT YEAR 2010 - 11 ASST. COMMISSIONER OF INCOME - TAX, CIRCLE 8(1), HYDERABAD V/S. M/S. AGROHA CO - OP. URBAN BANK LTD., HYDERABAD ( PAN - AGHFB 9433 H) (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI B.YADAGIRI DR RESPONDENT BY : SHRI LAXMI NIVAS SHARMA DATE OF HEARING 02.04.2014 DATE OF PRONOUNCEMENT 07.05.2014 O R D E R PER SMT. ASHA VIJAYARAGHAVAN, JUDICIAL MEMBER: THIS APPEAL BY THE REVENUE IS DIRECTED AGAINST THE ORDER OF THE COMMISSIONER OF INCOME - TAX( APPEALS) III, HYDERABAD DATED 10.9.2013 FOR THE ASSESSMENT YEAR 2010 - 11. 2. GRIEVANCE OF THE REVENUE IN THIS APPEAL RELATES TO DISALLOWANCE OF EXPENDITURE UNDER S.14A R.W. R . 8D OF THE ACT MADE BY THE ASSESSING OFFICER AT RS.10,69,818, BUT RESTRICTED BY THE CIT(A) BY THE IMPUGNED ORDER TO RS.1,00,000. GROUNDS OF THE REVENUE IN THAT BEHALF READ AS FOLLOWS - 1. THE ORDER OF TH E CIT(A) IS ERRONEOUS ON FACTS AND IN LAW. 2. THE CIT(A) OUGHT TO HAVE APPRECIATED THAT THE DISALLOWANCE OF EXPENDITURE U/S. 14A R.W.R. 8D IS CORRECTLY WORKED OUT AT RS.10,69,818. 3. THE CIT(A) OUGHT NOT TO HAVE ESTIMATE D THE DISALLOWANCE OF EXPENDITURE U/S. 14A AT RS.1,00,000 WITHOUT ANY COGENT REASONS. 4. . ITA NO. 1 614 / HYD/20 13 M/S. AGROHA CO - OP. URBAN BANK LTD., HYDERABAD 2 3. FACTS IN BRIEF ARE THAT THE ASSESSEE IS A COOPERATIVE BANK WITH L IMITED LIABILITY ENGAGED IN BANKING BUSINESS. THE ASSESSING OFFICER WHILE MAKING THE ASSESSMENT NOTED THAT THE ASSESSEE HAS CERTAIN INTEREST BEARING LOANS FROM VARIOUS RELATED (SHARE HOLDERS) PERSONS AND INTEREST IS PAID ON THESE BORROWINGS. THE ASSESSIN G OFFICER ALSO ASKED THE ASSESSEE TO FURNISH THE DETAILS OF EXPENDITURE INCURRED BY THE ASSESSEE FOR EARNING THE DIVIDEND INCOME. IN RESPONSE, ASSESSEE SUBMITTED THAT NO EXPENDITURE WAS INCURRED FOR THE PURPOSE OF EARNING THE DIVIDEND INCOME, AND NO SPECI ALISED STAFF WAS EXCLUSIVELY CREATED FOR THE PURPOSE OF MAKING INVESTMENTS, AND THE EXPENDITURE THAT IS NORMALLY INCURRED FOR ITS REGULAR BUSINESS ACTIVITIES, IS CONSIDERED EVEN FOR EARNING DIVIDEND INCOME. NOT SATISFIED WITH THE EXPLANATION OF THE ASSESS EE, CONSIDERING THE VOLUME OF INVESTMENTS IN THE SHARES/MUTUAL FUNDS, WHICH IS VERY HIGH, AND OBSERVING THAT CERTAIN AMOUNT OF EXPENDITURE INCURRED BY THE ASSESSEE EVEN IN THE NORMAL COURSE OF BUSINESS IS DEFINITELY ATTRIBUTABLE TO THE EARNING OF DIVIDEND INCOME, WHICH IS CLAIMED AS EXEMPT FROM TAX, THE ASSESSING OFFICER MADE AN ESTIMATED DISALLOWANCE OF RS.10,69,818 AND MADE ADDITION IN THAT BEHALF UNDER S.14A OF THE ACT. 4. ON APPEAL, THE CIT(A) TOO OBSERVED THAT SOME AMOUNT OF INFRASTRUCTURE AND SALA RY COSTS HAVE TO BE ATTRIBUTED TO THE MAKING OF THE INVESTMENTS, AND JUST BECAUSE THE ASSESSEE HAS NOT DISCLOSED ANY COSTS, IT DOES NOT MEAN THAT INVESTMENTS IN SHARES AND MUTUAL FUNDS ARE WITHOUT ANY TRANSACTIONS COSTS. HE FURTHER OBSERVED THAT THERE ARE ALSO COMMISSION AND UPFRONT COSTS OF MUTUAL FUNDS WHICH ARE TO BE PAID AT THE TIME OF INVESTMENTS. HENCE, HE WAS OF THE VIEW THAT CERTAIN AMOUNT OF DISALLOWANCE OF EXPENDITURE IN TERMS OF S.14A IS WARRANTED. HOWEVER, FINDING THE ESTIMATED DISALLOWANCE M ADE BY THE ASSESSING OFFICER TO BE ON THE HIGHER SIDE, THE CIT(A) RESTRICTED THE SAME TO RS.1 LAKH, DELETING THE BALANCE ADDITION MADE BY THE ASSESSING OFFICER. ITA NO. 1 614 / HYD/20 13 M/S. AGROHA CO - OP. URBAN BANK LTD., HYDERABAD 3 5 AGGRIEVED BY THE RELIEF GRANTED BY THE CIT(A), REVENUE PREFERRED THE PRESENT APPEAL BEFORE US. 6. WE HEARD BOTH SIDES AND PERUSED THE ORDERS OF THE REVENUE AUTHORITIES AND ALSO PERUSED THE WRITTEN SUBMISSIONS FILED BY THE LEARNED COUNSEL FOR THE ASSESSEE BEFORE US. WE FIND THAT IN THE CONTEXT OF THE DISALLOWANCE SUSTAINED BY THE CIT(A) OUT OF THE TOTAL DISALLOWANCE MADE BY THE ASSESSING OFFICER IN TERMS OF S.14 READ WITH RULE 8D FOR THE ASSESSMENT YEAR 2010 - 11 ITSELF, IN THE CONTEXT OF ASSESSEES APPEAL ITA NO.1411/HYD/2013, THIS ISSUE CAME UP FOR CONSIDERATION BEFORE THE TRIBUNAL, AND THIS TR IBUNAL VIDE PARA 18 OF ITS ORDER DATED HAS HELD AS FOLLOWS - 8. WE HEARD BOTH SIDES AND PERUSED THE ORDERS OF THE REVENUE AUTHORITIES. WE HAVE ALSO GONE THROUGH THE DETAILED WRITTEN SUBMISSIONS OF THE ASSESSEE ON THIS ISSUE, BESIDES THE PLETHORA OF D ECISIONS DISCUSSED THEREIN. IT IS THE CASE OF THE ASSESSEE THAT IT HAS NOT INCURRED DIRECTLY OR INDIRECTLY ANY EXPENDITURE TO EARN EXEMPT INCOME, AND ON AN ESTIMATE BASIS, THE ASSESSING OFFICER CANNOT PRESUME THAT EXPENDITURE HAS BEEN INCURRED BY THE ASSES SEE. WE FIND MERIT IN THIS CONTENTION OF THE ASSESSEE. THE DEPARTMENT HAS NOT BROUGHT OUT ANY EVIDENCE TO PROVE THAT THE ASSESSEE HAS ENGAGED ANY SPECIALIZED STAFF EITHER FOR MAKING THE INVESTMENTS IN SHARES AND MUTUAL FUNDS OR FOR LOOKING AFTER SUCH ACTI VITIES OF THE ASSESSEE, OR TO PROVE THAT ANY EXPENDITURE HAS IN FACT BEEN SPECIFICALLY INCURRED FOR MAKING SUCH INVESTMENTS OR FOR CARRYING OUT SUCH ACTIVITIES. IN THE CIRCUMSTANCES, IN VIEW OF THE CASE - LAWS RELIED UPON BY THE ASSESSEE, NOTED ABOVE, WHIC H SQUARELY APPLIES TO THE FACTS OF THE CASE ON HAND, NO DISALLOWANCE IN TERMS OF S.14A IS CALLED FOR, MERELY BASED ON THE PRESUMPTION THAT CERTAIN EXPENDITURE MUST HAVE BEEN INCURRED, BY RESORTING TO ESTIMATION OF SUCH EXPENDITURE. FOR BRINGING ANY INTERES T EXPENDITURE CLAIMED BY THE ASSESSEE UNDER THE AMBIT OF RULE 8D(2)(II) THE ASSESSING OFFICER HAS TO SHOW THAT THE SAID INTEREST IS NOT DIRECTLY ATTRIBUTABLE TO ANY PARTICULAR INCOME OR RECEIPT. WE FIND THAT THE ASSESSEE IN THIS CASE, HAS SUBSTANTIAL RESE RVES, AND THEREFORE, WE FIND MERIT IN THE CONTENTION OF THE ASSESSEE THAT THE INVESTMENTS HAVE BEEN MADE FROM OUT OF THE INTEREST - FREE FUNDS AVAILABLE WITH IT. HENCE, NO DISALLOWANCE OUT OF THE INTEREST EXPENDITURE IS CALLED FOR IN TERMS OF S.14A OF THE A CT, BY ESTIMATING SUCH INTEREST EXPENDITURE AS ATTRIBUTABLE TO THE AMOUNTS OF INVESTMENT. IN THIS VIEW OF THE MATTER, WE DO NOT FIND ANY JUSTIFICATION FOR THE ADDITION SUSTAINED BY THE CIT(A). WE ACCORDINGLY DELETE THE ADDITION OF RS.1 LAKH SUSTAINED BY T HE CIT(A) AND ALLOW THE GROUND OF THE ASSESSEE ON THIS ISSUE. CONSISTENT WITH THE VIEW TAKEN BY US IN THE CONTEXT OF THE ASSESSEES APPEAL ON THIS VERY ISSUE, VIDE OUR ORDER DATED 16.4.2014, TO WHICH ONE OF US, VIZ. J.M., IS ITA NO. 1 614 / HYD/20 13 M/S. AGROHA CO - OP. URBAN BANK LTD., HYDERABAD 4 A SIGNATORY, WE FIND NO MERI T IN THE GRIEVANCE OF THE REVENUE IN THIS APPEAL. GROUNDS OF THE REVENUE IN THIS APPEAL ARE ACCORDINGLY REJECTED. 7. IN THE RESULT, REVENUES APPEAL IS DISMISSED. ORDER PRONOUNCED IN THE COURT ON 07.05.2014 SD/ - SD/ - ( B.RAMAKOTAIAH ) (ASHA VIJAYARAGHAVAN) ACCOUNTANT MEMBER JUDICIAL MEMBER DT/ - 7 TH MAY , 2014 COPY FORWARDED TO: 1. M/S. AGROHA CO - OP. URBAN BANK LTD., 21 - 1 - 663, RIKABGUNJ, HYDERABAD 2 . ASST . COMMISSIONER OF INCOME - TAX CIRCLE 8 (1) , HYDERABAD 3. COMMISSIONER OF INCOME - TAX(APPEALS) III HYDERABAD 4. COMMISSIONER OF INCOME - TAX II , HYDERABAD 5 DEPARTMENTAL REPRESENTATIVE, ITAT, HYDERABAD. B.V.S