C.D. Integrated Servioces Ltd., Ahmedabad V. The Jt.CIT.,Range-3, Ahmedabad

ITA 1629/AHD/2012

• Counselvise Citation: 162920514 RSA 2012
• Duration Of Justice: 3 month(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 26-10-2012
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: D
• Assessment Year: 2009-2010
• Appeal Filed On: 26-07-2012
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: MRS R ILAVARASI
• Assessee Lawyers: A C SHAH
• Keywords: Earning of tax free income
• Section: 14A

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD D BENCH AHMADABAD BEFORE SHRI D.K.TYAGI , JUDICIAL MEMBER AND SHRI T.R. MEENA, ACCOUNTANT MEMBER ITA NO. 1629/AHD/2012 ASSESSMENT YEAR :2006-07 C.D. INTEGRATED SERVICES LTD., A-101/102, B-802, PREMIUM HOUSE, OPP. GANDHIGRAM RAILWAY STATION, ASHRAM ROAD, AHMADABAD- 380009. V/S . THE JCIT, RANGE -3, AHMEDABAD PAN NO. AABCC2483R (APPELLANT) .. (RESPONDENT) BY APPELLANT SHRI A.C. SHAH, A.R. /BY RESPONDENT MRS. R. ILAVARASI, SR.D.R. /DATE OF HEARING 19.09.2012 /DATE OF PRONOUNCEMENT 26.10.2012 O R D E R PER : T.R.MEENA, ACCOUNTANT MEMBER THIS IS AN APPEAL AT THE BEHEST OF THE ASSESSEE WHI CH HAS EMANATED FROM THE ORDER OF CIT(A)-6, AHMEDABAD, ORDER DATED 26.04.2012 FOR ASSESSMENT YEAR 2009-10. THE SOLE GROUND OF APPEAL IS AGAINST CONFIRMING THE ADDITION OF RS.2,50,958/- U/S. 14A OF THE IT AC T. ITA NO. 1629/AHD/2012 A.Y.: 09-10 PAGE 2 2. THE A.O. HELD THAT THE ASSESSEE HAD DEBITED INTE REST EXPENSES OF RS.4,00,60,608/- IN P&L ACCOUNT AND EARNED DIVIDEND OF RS.34,16,407/-. THE A.O. GAVE THE REASONABLE OPPORTUNITY ON SECTION 14A AS ASSESSEE HAD EXEMPTED INCOME I.E. DIVIDEND FOR DISALLOWANCE OF E XPENSES UNDER RULE 8D. AFTER CONSIDERING THE ASSESSEES REPLY, THE A.O. DI SALLOWED RS.2,50,958/- U/S. 14A R.W. RULE 8D WHICH HAS BEEN CONFIRMED BY THE CI T(A). THE OPERATIVE PORTION OF THE CIT(A) ORDER IS AS UNDER: 4.3 I HAVE CONSIDERED THE FACTS OF THE CASE; ASSES SMENT ORDER AND APPELLANT'S WRITTEN SUBMISSION. ASSESSING OFFI CER MADE DISALLOWANCE OF EXPENSE RELATING TO EXEMPT INCOME. SUCH DISALLOWANCE WAS CONSIDERED NECESSARY SINCE APPELLA NT DID NOT DISALLOW ANY PART OF COMMON INTEREST AND OTHER EXPE NSES TREATING THE SAME AS RELATING TO INVESTMENT RESULTING IN EXE MPT INCOME. NOW RULE 8D IS HELD TO BE APPLICABLE WITH EFFECT FR OM ASSESSMENT YEAR 2008-09 BY BOMBAY HIGH COURT, THE DISALLOWANCE OF EXPENSES RELATING TO EXEMPT INCOME ARE TO BE MADE B Y THE METHOD PRESCRIBED IN THE SAID RULE. IT IS NOT IN D ISPUTE THAT APPELLANT EARNED EXEMPT INCOME IN THE FORM OF DIVID END ON INVESTMENT/ STOCK OF RS 100,33 LACS. APPELLANT PAID INTEREST OF RS 400.61 LACS ON BORROWED FUNDS USED FOR BUSINESS PURPOSES AS WELL AS MAKING INVESTMENTS. APPELLANT INCURRED S UBSTANTIAL EMPLOYEES' REMUNERATION AND OTHER ADMINISTRATIVE EX PENSES, PART OF WHICH MAY RELATE TO INVESTMENT RESULTING IN EXEM PT INCOME. SIMILARLY PAYMENT OF INTEREST WILL ALSO PARTLY RELA TE TO INVESTMENT AND TRADING RESULTING IN EXEMPT INCOME THEREFORE DI SALLOWANCE UNDER SECTION 14 A ON ACCOUNT OF INTEREST AND OTHER EXPENSES ARE NECESSARY. THE DECISIONS RELIED UPON BY THE APPELLA NT ARE PRIOR TO ITA NO. 1629/AHD/2012 A.Y.: 09-10 PAGE 3 ASSESSMENT YEAR 2008-09 WHEN THE RULE 8D WAS NOT AP PLICABLE. ACCORDINGLY, THESE DECISIONS ARE NOT APPLICABLE TO THIS ASSESSMENT YEAR WHEN THE DISALLOWANCE IS TO BE MADE AS PER THE FORMULA GIVEN IN RULE 8D. COMING TO THE METHOD OF COMPUTATION OF DISALLOWANCE UNDER SECTION 14 A, ASSESSING OFFICER DISALLOWED EX PENSES RELATABLE TO EXEMPT INCOME AS PER RULE 8D WHICH IS MANDATORY FROM ASSESSMENT YEAR 2008-09. FOR INTEREST, PROPORT IONATE EXPENSE IS DISALLOWABLE WHEREAS FOR OTHER EXPENSES .5% OF AVERAGE INVESTMENT VALUE IS DISALLOWABLE. CONSIDER ING THE FACT THAT APPELLANT CLAIMED HUGE ADMINISTRATIVE AND OTHE R EXPENSES, THE DISALLOWANCE OF ADMINISTRATIVE EXPENSES MADE BY THE ASSESSING OFFICER @ .5% OF INVESTMENT RESULTING IN EXEMPT INCOME IS AS PER THE FORMULA GIVEN IN RULE 8D WHICH IS MANDATORY FOR MAKING DISALLOWANCE, IN VIEW OF THIS THE ADDITI ON @ .5% OF INVESTMENT RESULTING IN EXEMPT INCOME MADE BY THE A SSESSING OFFICER IS CONFIRMED. AS REGARDS INTEREST, APPELLANT HAD BORROWED FUNDS O N WHICH INTEREST WAS PAID. WHILE MAKING INVESTMENTS, BOTH BORROWED FUNDS AS WELL AS OWN FUNDS WERE USED HENCE ONE CANNOT SAY THAT BORROWED FUNDS WERE USED ONLY FOR B USINESS PURPOSE AND OWNED CAPITAL WAS ONLY USED FOR INVESTM ENT. ADMITTEDLY NO SEPARATE ACCOUNTS ARE MAINTAINED FOR BUSINESS AND INVESTMENT ACTIVITIES THEREFORE APPELLANT'S CLAIM I S NOT JUSTIFIED THAT BORROWED FUNDS WERE NOT USED IN MAKING INVESTM ENT. AS REGARDS TRADING SHARES, THE ARGUMENTS GIVEN BY THE APPELLANT ARE NOT APPLICABLE IN VIEW OF THE FACT THAT DIVIDEN D RECEIVABLE ON EVEN TRADING STOCK IS EXEMPT AND DISALLOWANCE OF EXPENSES RELATING TO THAT ARE TO BE MADE. THEREFORE IN THE ABSENCE OF CLEAR CUT DETAILS OF UTILIZATION OF FUND S, THE FORMULA GIVEN IN RULE 8D WHICH IS MANDATORY FROM THIS YEAR ONWARD IS TO ITA NO. 1629/AHD/2012 A.Y.: 09-10 PAGE 4 BE APPLIED. SINCE ASSESSING OFFICER WORKED OUT INT EREST DISALLOWANCE AS PER RULE 8D, THE INTEREST DISALLOWA NCE IS CONFIRMED. 3. NOW THE MATTER IS BEFORE US. THE LD. A.R., SHRI A.C. SHAH CONTENDED THAT THE ASSESSEE IS IN THE BUSINESS OF SALE OF THE SHARES AND DIVIDEND INCOME IS INCIDENTAL TO HIS BUSINESS. HE ALSO RELIED UPON THE DECISION OF CCI LTD. VS. JCIT [2012] 206 TAXMAN 563 (KARNATAKA) AND ITAT, B BENCH, PUNE, DECISION IN CASE OF APOORVA PATNI VS. ACIT, ORDER DATED JUNE 21, 2012. FROM THE SIDE OF THE REVENUE, LD. D.R. VEHEMENTLY RELIED UPON THE ORDER OF THE CIT(A) AND PRAYED TO CONFIRM THE ADDITION. 4. WE HAVE GONE THROUGH THE ORDERS OF THE AUTHORITI ES BELOW AND CASE LAWS CITED BY THE APPELLANT. THE APPELLANT HAD SHO WN INVESTMENT IN SHARES IN BALANCE SHEET ON WHICH HE RECEIVED DIVIDEND WHICH H AS BEEN CONSIDERED BY THE A.O. IN COMPUTATION OF RULE 8D. THE CASE LAWS CITED BY THE APPELLANT ARE PERTAINED TO EARLIER YEAR AND RULE 8D WAS EFFECTIVE FROM THE A.Y. 08-09 WHICH IS SQUARELY APPLICABLE ON THE ASSESSEE AND IT IS MA NDATORY ON THE PART OF ASSESSEE TO CALCULATE THE DISALLOWANCE U/S.14A R.W. RULE 8D. BOTH THE CASE LAWS CITED BY THE APPELLANT HAD ONLY TRADING INCOME . IT HAS NOT BORNE OUT FROM THE ORDERS IN THESE CASES, ANY INVESTMENT IN SHARES HAD SHOWN IN BALANCE SHEET SEPARATELY. THE ASSESSEE HAS INCURRED THE EX PENDITURE ON INTEREST AND OTHER EXPENSES ON EMPLOYEE REMUNERATION AND ADMINIS TRATIVE EXPENSES. THEREFORE, WE ARE OF CONSIDERED VIEW THAT THE CIT(A ) WAS RIGHT IN CONFIRMING THE ADDITION IN CASE OF THE ASSESSEE. WE, THEREFOR E, DISMISS THE APPEAL OF THE ASSESSEE. ITA NO. 1629/AHD/2012 A.Y.: 09-10 PAGE 5 5. IN THE RESULT, THE ASSESSEES APPEAL IS DISMISS ED. THIS ORDER PRONOUNCED IN OPEN COURT ON 26.10.2012 SD/- SD/- ( D.K.TYAGI ) (T.R. MEENA) JUDICIAL MEMBER ACCOUNTANT MEMBER TRUE COPY S.K.SINHA ! ! ! ! '! '! '! '! / COPY OF ORDER FORWARDED TO:- 1. / APPELLANT 2. / RESPONDENT 3. '(' ) * / CONCERNED CIT 4. *- / CIT (A) 5. !./ ), ) , 12( / DR, ITAT, AHMEDABAD 6. /45 67 / GUARD FILE. BY ORDER/ , 8/ 1 ': ) , 12( ; STRENGTHEN PREPARATION & DELIVERY OF ORDERS IN THE ITAT 1) DATE OF TAKING DICTATION 22.10.2012 2) DIRECT DICTATION BY MEMBER STRAIGHT ON COMPUTER/LAPTOP/DRAGON DICTATE XXX 3) DATE OF TYPING & DRAFT ORDER PLACE BEFORE MEMBER 22.10.2012 4) DATE OF CORRECTION ,, ,, 5) DATE OF FURTHER CORRECTION XXX 6) DATE OF INITIAL SIGN BY MEMBERS 26.10.2012 7) ORDER UPLOADED ON ,, ,, 8) ORIGINAL DICTATION PAD HAS BEEN ENCLOSED IN THIS FILE YES 9) FINAL ORDER AND 2 ND COPY SEND TO BENCH CLERK ON 26.10.2012