Soma Highways Private Limited, Hyderabad, Hyderabad V. DCIT, Circle-3(2), Hyderabad, Hyderabad

ITA 1670/HYD/2016

• Counselvise Citation: [2017] 127 COUNSELVISE.COM (IT) 2574 (ITAT-HYDERABAD)
• Duration Of Justice: 10 month(s) 3 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 12-10-2017
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: A
• Next Hearing Date: 14-06-2017
• Assessment Year: 2012-2013
• Appeal Filed On: 09-12-2016
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: SIBENDU MOHARANA
• Assessee Lawyers: V RAGHAVENDRA RAO
• Keywords: Earning of tax free income; Proportionate interest
• Section: 14A

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL HYDERABAD SMC - A BENCH : HYDERABAD BEFORE SHRI D. MANMOHAN, VICE PRESIDENT ITA.NO.1670/HYD/2016 ASSESSMENT YEAR 2012 - 2013 SOMA HIGHWAYS PRIVATE LIMITED, HYDERABAD. PAN: AANCS 2909 Q VS. DCIT, CIRCLE - 3(2), HYDERABAD. (APPELLANT) (RESPONDENT) FOR ASSESSEE: SRI V. RAGHAVENDRA RAO FOR REVENUE : SRI SIBENDU MOHARANA, DR DATE OF HEARING : 12 .10.2017 DATE OF PRONOUNCEMENT : 12 .10.2017 ORDER PER D. MANMOHAN, VP. THIS APPEAL BY ASSESSEE IS DIRECTED AGAINST ORDER PASSED BY LD. CIT(A) - 3, HYDERABAD AND IT PERTAINS TO ASSESSMENT YEAR 2012 - 2013. 2. AT THE OUTSET IT MAY BE NOTICED THAT THERE IS A DELAY OF THREE DAYS IN FILING APPEAL. ON BEHALF OF ASSESSEE, AN AFFIDAVIT OF SENIOR MANAGER OF ASSESS EE - COMPANY WAS FILED FURNISHING REASONS FOR DELAY. SINCE I AM SATISFIED WITH THE REASONS GIVEN THEREIN, UPON HEARING THE LD DR, I CONDONE THE DELAY AND PROCEED TO DISPOSE OF THE APPEAL ON MERITS. 3. ASSESSEE COMPANY IS BASICALLY ENGAGED IN INFRASTRUCTURE BUSINESS. ASSESSEE INVESTED IN M/S. SOMA DEVELOPERS PVT. LTD AND OTHER GROUP COMPANIES. IT IS AN ADMITTED FACT THAT NO DIVIDEND WAS EARNED DURING THE PREVIOUS YEAR RELEVANT TO THE A.Y. UNDER CONSIDE RATION. WHILE MAKING ASSESSMENT A.O. WAS OF THE OPINION THAT EVEN IF NO INCOME IS EARNED, PROPORTIONATE INTEREST AND OTHER EXPENDITURE ATTRIBUTABLE TO PURCHASE OF SHARES ETC., OF THE GROUP COMPANIES IS DISALLOWABLE U/S 14A R.W. RULE 8D OF THE INCOME TAX R ULES, 1962 IN THE LIGHT OF DECISION OF APEX COURT IN THE CASE OF CIT VS. RAJENDRA PRASAD MOODY (115 ITR 519). THOUGH ASSESSEE CONTENDED THAT AS PER 2 THE SETTLED LEGAL POSITION DISALLOWANCE CANNOT BE MADE UNDER RULE 8D UNLESS ASSESSEE EARNED EXEMPT INCOME I N THE PREVIOUS YEAR RELEVANT TO THE A.Y. UNDER CONSIDERATION , T H E SAME WAS REJECTED BY A.O. AS WELL AS LD. CIT(A) AND THEREFORE, ASSESSEE IS IN APPEAL BEFORE THE TRIBUNAL. 4. LD COUNSEL, APPEARING ON BEHALF OF ASSESSEE, PLACED BEFORE THE TRIBUNAL WRITTEN SUBMISSIONS AS WELL AS CASE LAW TO SUBMIT THAT THE ITAT, HYDERABAD BENCH HAS BEEN TAKING A CONSISTENT VIEW THAT IN THE EVENT OF NOT EARNING OF EXEMPT INCOME IN THE PREVIOUS YEAR RELEVANT TO A.Y. UNDER CONSIDERATION, NO DISALLOWANCE IS PERMISSIBLE U/S 14A R.W. RULE 8D OF THE I T RULES. IT MAY BE NOTICED THAT DECISION OF THE ITAT, SPECIAL BENCH IN THE CASE OF CHEMINVEST LTD. VS. CIT WAS SET ASIDE BY HONBLE DELHI HIGH COURT (REPORT ED IN 378 ITR 33) AND THE SAME WAS FOLLOWED IN THE FOLLOWING DECISIONS TO HOLD THAT DISALLOWANCE IS NOT PERMISSIBLE UNDER RULE 8D. (I) ITA NO. 143/H/13 AND OTHERS, DATED 08.05.2015, IN THE CASE OF VBC INDUSTRIES LTD., (II) ITA NO. 1302/H/2015, DATED 29.04.2016, IN THE CASE OF PRATHISTA INDUSTRIES LTD VS. DCIT AND (III) ITA NOS. 260 & 261/H/2016, DATED 05.06.2015, IN THE CASE OF M/S. MEDHA SERVO DRIVES PVT LTD VS. DCIT. 5. LD COUNSEL ALSO PLACED BEFORE US A LATEST DECISION OF THE ITAT B BENCH, HYDERABAD IN THE CASE OF A CIT VS. M/S. NEKKANTI SEA FOODS (ITA NO.1609/HYD/2016, DATED 13.03.2017) WHEREIN ON IDENTICAL CIRCUMSTANCES THE BENCH PREFERRED TO FOLLOW THE COORDINATE BENCH OF THE ITAT, HYDERABAD AND APPLIED THE RATIO OF THE DECISION OF HONBLE DELHI HIGH COURT IN THE C ASE OF CHEMINVEST LTD (SUPRA) AND HELD THAT IN THE ABSENCE OF EARNING EXEMPT INCOME IN THE YEAR UNDER CONSIDERATION NO DISALLOWANCE IS PERMISSIBLE U/S 14A OF THE ACT. 6. ON THE OTHER HAND, LD DR RELIED UPON DECISION OF THE ITAT B BENCH, HYDERABAD IN THE CASE OF BELLWETHER MICROFINANCE FUND PVT LTD., (ITA NO.1743/HYD/2013, DATED 27.06.2014) WHEREIN THE BENCH HAD TAKEN A DIFFERENT VIEW AND HELD THAT IRRESPECTIVE OF INCOME EARNED IN THIS YEAR, DISALLOWANCE IS PERMISSIBLE UNDER RULE 8D OF THE IT RULES. HE HA S ALSO FILED WRITTEN SUBMISSIONS AND RELIED UPON DECISION OF THE HONBLE SUPREME COURT IN THE CASE OF RAJENDRA PRASAD MOODY (SUPRA). 3 7. I HAVE CAREFULLY CONSIDERED THE RIVAL SUBMISSIONS AND PERUSED RECORD. WITH REGARD TO THE ISSUE OF COMPUTATION OF DISALL OWANCE U/S 14A R.W. RULE 8D OF THE IT RULES, THE HONBLE PRESIDENT, ITAT REFERRED THE MATTER TO SPECIAL BENCH AND IN THE CASE OF CHEMINVEST LTD , ITAT , DELHI SPECIAL BENCH UPHELD THE CONTENTION OF REVENUE (121 ITD 318). HOWEVER, SINCE THE SAID JUDGMENT WAS REVERSED BY HONBLE DELHI HIGH COURT, ALL THE BENCHES OF THE TRIBUNAL HAD BEEN CONSISTENTLY TAKING A VIEW THAT DISALLOWANCE IS NOT PERMISSIBLE IN A Y EAR WHERE THERE IS NO EXEMPT INCOME. CONSISTENT WITH THE VIEW TAKEN BY COORDINATE BENCHES OF THE ITAT, IN PARTICULAR ITAT HYDERABAD BENCH, I HOLD THAT IN THE INSTANT CASE NO DISALLOWANCE IS PERMISSIBLE U/S 14A R.W. RULE 8D OF THE IT RULES, 1962. 8. IN THE RESULT, DISALLOWANCE MADE BY A.O. AS WELL AS LD. CIT(A) IS HEREBY SET ASIDE AND THE APPEAL FILED BY ASSESSEE IS TREATED AS ALLOWED. PRONOUNCED ACCORDINGLY IN THE OPEN COURT ON 12 TH OCTOBER, 2017. SD/ - (D. MANMOHAN) VICE PRESIDENT HYDERABAD, DATED: 12 TH OCTOBER, 2017 OKK, SR.PS COPY TO 1. M/S. SOMA HIGHWAYS PRIVATE LIMITED, 8 - 2 - 623/5/1, PLOT NO.14, AVENUE 4, ROAD NO.10, BANJARA HILLS, HYDERABAD. 2. DCIT, CIRCLE - 3(2), HYDERABAD. 3. CIT (A) - 3, HYDERABAD. 4. PR. CIT - 3, HYDERABAD. 5. D.R. ITAT A - SMC BENCH, HYDERABAD. 6. GUARD FILE