M/s Way2wealth Securities Pvt Ltd , Bangalore V. The Deputy Commissioner of Income Tax Circle-7(1)(2), Bangalore

ITA 1679/BANG/2017

• Counselvise Citation: [2018] 121 COUNSELVISE.COM (IT) 4702 (ITAT-BANGALORE)
• Duration Of Justice: 9 month(s) 15 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 01-06-2018
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: A
• Assessment Year: 2013-2014
• Appeal Filed On: 16-08-2017
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Assessee Lawyers: C RAMESH
• Keywords: Earning of tax free income; Commercial expediency
• Section: 14A

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL A BENCH : BANGALORE BEFORE SHRI N.V. VASUDEVAN, JUDICIAL MEMBER AND SHRI INTURI RAMA RAO, ACCOUNTANT MEMBER ITA NO. 1679/BANG/2017 ASSESSMENT YEAR : 2013 - 14 M/S. WAY2WEALTH SECURITIES (P) LTD., NO.14, GROUND FLOOR, FRONTLINE GRANDEUR, WALTON ROAD, BANGALORE 560 001. PAN: AAACW 3137H VS. THE DEPUTY COMMISSIONER OF INCOME TAX, CIRCLE 7(1)(2), BANGALORE. APP ELL ANT RESPONDENT A PP EL LANT BY : SHRI C. RAMESH, CA RE SPONDENT BY : DR. SANDEEP GOEL, ADD L.CIT(DR)(ITAT), BENGALURU. DATE OF HEARING : 2 3 . 0 5 .201 8 DATE OF PRONOUNCEMENT : 01.06.2018 O R D E R PER N.V. VASUDEVAN, JUDICIAL MEMBER THIS APPEAL BY THE ASSESSEE IS AGAINST THE ORDER DATED 30.05.2017 OF THE CIT(APPEALS)-7, BENGALURU RELATING TO ASSESS MENT YEAR 2013-14. 2. THE ONLY ISSUE THAT ARISES FOR CONSIDERATION I N THIS APPEAL IS WITH REGARD TO THE DISALLOWANCE OF EXPENSES INCURRED IN EARNING EXEMPT INCOME IN TERMS OF SECTION 14A OF THE INCOME-TAX ACT, 1961 [THE ACT] R.W. RULE 8D(2)(III) OF THE INCOME-TAX RULES, 1962 [THE RULES ]. 3. THE ASSESSEE IS A COMPANY ENGAGED IN THE BUSINES S OF RENDERING FINANCIAL INTERMEDIARY SERVICES. IT IS NOT IN DISP UTE THAT THE ASSESSEE EARNED DIVIDEND INCOME OF RS.9,40,215 WHICH IS NOT CHARGEABLE TO TAX ITA NO. 1679/BANG/2017 PAGE 2 OF 5 UNDER CHAPTER III [SECTION 10(34)] OF THE ACT. THE ASSESSEE ON ITS OWN HAD DISALLOWED A SUM OF RS.84,753 AS EXPENDITURE INCURR ED TO EARN EXEMPT INCOME. THE BASIS ON WHICH THE AFORESAID DISALLOWA NCE WAS WORKED OUT BY THE ASSESSEE WAS AS FOLLOWS:- ITA NO. 1679/BANG/2017 PAGE 3 OF 5 4. THE AO, HOWEVER, COMPUTED THE DISALLOWANCE U/S. 14A OF THE ACT AS FOLLOWS:- INVESTMENTS AS ON 31.03.2012 RS.71,13,49,032 INVESTMENTS AS ON 31.03.2013 RS.80,01,89,963 AVERAGE OF INVESTMENTS RS.75,57,69,497 ACCORDINGLY, THE AMOUNT OF DISALLOWANCE IS WORKED T O RS.37,78,847 (0.5% OF AVG INVESTMENT I.E. RS.75,57, 69,497). SINCE THE ASSESSEE ON ITS OWN DISALLOWED RS.84,753 IN COMPUTATION OF TOTAL INCOME, THE REMAINING AMOUNT O F RS.36,94,094 IS ADDED BACK TO THE TOTAL INCOME OF T HE ASSESSEE. 5. BEFORE THE CIT(APPEALS), THE ASSESSEE CONTENDED THAT FOR WORKING OUT THE AVERAGE VALUE OF INVESTMENTS, IT HAD NOT TA KEN INTO CONSIDERATION INVESTMENTS WHICH WERE MADE WITH AN INTENTION OF HA VING CONTROLLING INTEREST IN OTHER GROUP COMPANIES. THE ASSESSEE CO NTENDED THAT INVESTMENTS IN SUBSIDIARY COMPANIES WERE MADE OWING TO BUSINESS AND COMMERCIAL EXPEDIENCY AND THEREFORE THEY HAVE TO BE CONSIDERED AS INVESTMENTS MADE FOR THE PURPOSE OF BUSINESS AND NO T FOR EARNING EXEMPT INCOME. 6. THE CIT(APPEALS), HOWEVER, DID NOT AGREE WITH TH E CONTENTIONS PUT FORTH BY THE ASSESSEE. HE HELD THAT THE STRATEGIC INVESTMENTS HAVE ALSO TO BE CONSIDERED FOR THE PURPOSE OF ARRIVING AT THE AV ERAGE VALUE OF INVESTMENTS AS PER RULE 8D(2)(III) OF THE RULES. H E ALSO REJECTED THE ITA NO. 1679/BANG/2017 PAGE 4 OF 5 CONTENTION OF THE ASSESSEE THAT THE DISALLOWANCE U/ S. 14A CANNOT EXCEED THE EXEMPT INCOME EARNED BY THE ASSESSEE BY RELYING ON THE CBDT CIRCULAR DATED 11.02.2014. ACCORDINGLY, THE DISAL LOWANCE MADE BY THE AO WAS CONFIRMED BY THE CIT(APPEALS). 7. AGGRIEVED BY THE ORDER OF CIT(APPEALS), THE ASSE SSEE HAS PREFERRED THE PRESENT APPEAL BEFORE THE TRIBUNAL. 8. WE HAVE HEARD THE RIVAL SUBMISSIONS. THE HONBL E DELHI HIGH COURT IN THE CASE OF JOINT INVESTMENTS (P) LTD. V. CIT, 372 ITR 694 HAS TAKEN THE VIEW THAT DISALLOWANCE U/S. 14A OF THE ACT CANNOT E XCEED THE EXEMPT INCOME. SIMILAR VIEW WAS EXPRESSED BY THE HONBLE DELHI HIGH COURT IN THE CASE OF CIT V. HOLCIM INDIA PVT. LTD., 272 CTR 282 (DEL) . THESE DECISIONS WERE CONSIDERED BY THE MUMBAI BENCH OF THE TRIBUNAL IN THE CASE OF FUTURE CORPORATE RESOURCES LTD V. ACIT, ITA NO.4658/MUM/20 15 DATED 26.07.2017 RELATING TO AY 2011-12 AND IT WAS HELD BY THE TRIB UNAL MUMBAI BENCH THAT DISALLOWANCE U/S. 14A OF THE ACT CANNOT EXCEED THE EXEMPT INCOME. FOLLOWING THE AFORESAID DECISIONS, WE HOLD THAT DISALLOWANCE U/S. 14A OF THE ACT IN THE PRESENT CASE SHOULD BE RESTRI CTED TO THE EXEMPT INCOME EARNED BY THE ASSESSEE. WE HOLD AND DIRECT ACCORDINGLY. 9. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS PAR TLY ALLOWED PRONOUNCED IN THE OPEN COURT ON THIS 1 ST DAY OF JUNE, 2018. SD/- SD/- ( INTURI RAMA RAO ) ( N.V. VASUDEVAN ) ACCOUNTANT MEMBER JUDICIAL MEMBER BANGALORE, DATED, THE 1 ST JUNE, 2018. / D ESAI S MURTHY / ITA NO. 1679/BANG/2017 PAGE 5 OF 5 COPY TO: 1. APP ELL ANT 2. RESP ONDENT 3. CIT 4. CIT(A) 5. DR, ITAT, BANGALORE. 6. GUARD FILE BY ORDER SENIOR PRIVATE SECRETARY ITAT, BANGALORE.