JAI JAGADHAMBIGA TEXTILE MILLS (P) LTD., ARUPPUKOTTAI V. DCIT CORPORATE CIRCLCE 2, MADURAI

ITA 1709/CHNY/2019

• Counselvise Citation: [2021] 107 COUNSELVISE.COM (IT) 3365 (ITAT-CHENNAI)
• Duration Of Justice: 2 year(s) 4 month(s) 13 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 13-10-2021
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: C
• Next Hearing Date: 13-10-2021
• Assessment Year: 2013-2014
• Appeal Filed On: 30-05-2019
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: G JOHNSON
• Keywords: Earning of tax free income; Rule 8D; Set aside
• Section: 143(3); 14A; 13

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL C BENCH, CHENNAI , , BEFORE SHRI MAHAVIR SINGH, VICE PRESIDENTAND SHRI MANOJ KUMAR AGGARWAL, ACCOUNTANT MEMBER ./ ITA NO.: 1709/CHNY/2019 [ [ /ASSESSMENT YEAR: 2013-14 M/S. JAI JAGADHAMBIGA TEXTILE MILLS (P) LTD., 252, THIRUCHULI ROAD, ARUPPUKOTTAI 626 101. PAN : AABCS 5359L V. THE DCIT, CORPORATE CIRCLE 2, MADURAI. ( /APPELLANT) ( /RESPONDENT) / APPELLANT BY : NONE /RESPONDENT BY : SHRI G. JOHNSON, ADDL.CIT /DATE OF HEARING : 13.10.2021 /DATE OF PRONOUNCEMENT : 13.10.2021 / O R D E R PER MAHAVIR SINGH, VP: THIS APPEAL BY THE ASSESSEE IS ARISING OUT OF THE ORDER OF THE COMMISSIONER OF INCOME TAX (APPEALS)-1, CHENNAI IN ITA NO.0053/2016-17 DATED 15.04.2019. THE ASSESSMENT WAS FRAMED BY THE DEPUTY COMMISSIONER OF INCOME TAX, CORPORATE CIRCLE 2, MADURAI U/S 143(3) OF THE INCOME TAX ACT, 1961 2 I.T.A. NO. 1709/CHNY/2019 (HEREINAFTER THE ACT) FOR THE A.Y. 2013-14 VIDE ORDER DATED 31.03.2016. 2. THE ONLY ISSUE IN THIS APPEAL OF ASSESSEE IS AGAINST THE ORDER OF CIT(A) CONFIRMING ACTION OF THE AO IN DISALLOWING EXPENSES RELATABLE TO EXEMPT INCOME BY INVOKING PROVISIONS OF SECTION 14A R.W.RULE 8D(2)(II) & 8D(2)(III) OF THE INCOME TAX RULES. FOR THIS ISSUE, THE ASSESSEE HAS RAISED ARGUMENTATIVE GROUNDS NUMBERING 1 TO 5, WHICH WE NEED NOT TO REPRODUCE FOR THE SAKE OF BREVITY. 3. NONE IS PRESENT FROM THE ASSESSEES SIDE BUT, ISSUE BEING SIMPLE WE HAVE TAKEN THE ISSUE AS HEARD. ON BEHALF OF REVENUE, SENIOR DEPARTMENT REPRESENTATIVE SHRI G. JOHNSON, ADDL.CIT ARGUED. 4. BRIEF FACTS ARE THAT, THE ASSESSEE EARNED DIVIDEND INCOME FOR THE RELEVANT ASSESSMENT YEAR 2013-14 AT RS.8,00,907/- OUT OF THE INVESTMENTS MADE IN THE SHARES OF VARIOUS BANKS. THE AO DURING THE COURSE OF ASSESSMENT PROCEEDINGS INVOKED THE PROVISIONS OF SECTION 14A OF THE ACT, READ WITH RULE 8D OF THE RULES AND MADE DISALLOWANCE OF EXPENSES RELATABLE TO EXEMPT 3 I.T.A. NO. 1709/CHNY/2019 INCOME UNDER RULE 8D(2)(II) AT RS.36,583/- BEING INTEREST EXPENSES AND UNDER RULE 8D(2)(III) BEING ADMINISTRATIVE EXPENSES AT RS.19,098/-. AGGRIEVED, THE ASSESSEE PREFERRED AN APPEAL BEFORE THE CIT(A). THE CIT(A) CONFIRMED THE ACTION OF THE AO. AGGRIEVED, THE ASSESSEE IS NOW IN APPEAL BEFORE THE TRIBUNAL. 5. THE LD. SENIOR DR HEAVILY RELIED ON THE ASSESSMENT ORDER AS WELL AS THE ORDER OF THE CIT(A). WE NOTED FROM THE SUBMISSIONS OF THE ASSESSEE BEFORE AO AS WELL AS BEFORE CIT(A) THAT ASSESSEE HAS EARNED DIVIDEND OF RS.8,00,907/- OUT OF INVESTMENT MADE AS ON 31.03.2013 AT RS.38,19,622/-, THE DETAILS OF WHICH ARE AS UNDER:- INVESTED COMPANY DIVIDEND INCOME INVESTMENT AS AT 31 ST MARCH 2013 (RS.) THE SOUTH INDIAN BANK LTD 7,48,932 34,76,512 BANK OF INDIA 50,400 3,24,000 INDIAN BANK 1,575 19,110 TOTAL 8,00,907 38,19,622 THE ASSESSEE BEFORE AO AS WELL AS BEFORE CIT(A) EXPLAINED THAT THE INVESTMENT MADE IS OUT OF RESERVES AND SURPLUS AND THE DETAILS OF RESERVES AND SURPLUS AS PER BALANCE SHEET IS AS UNDER:- 4 I.T.A. NO. 1709/CHNY/2019 RESERVES & SURPLUS AS PER BALANCE SHEET AS AT 31 ST MARCH 2013 BALANCE (IN RS.) GENERAL RESERVE 9,35,59,108 CAPITAL RESERVE 6,294 6. WE NOTED THAT FROM THE ABOVE FACTS, WHICH ARE NOT DISPUTED BY THE LD.SENIOR DR, THAT THE INVESTMENT STANDS AT RS.38,19,622/- AND AVAILABLE FUNDS WITH THE ASSESSEE I.E., INTEREST FREE FUNDS IN THE SHAPE OF RESERVES AND SURPLUS IS AT RS.9,35,65,402/-. IT MEANS THAT THE ASSESSEE HAS AVAILABILITY OF MORE INTEREST FREE FUNDS THAN THE INVESTMENT MADE IN SECURITIES WHICH GIVE RISE TO EXEMPT INCOME. WE ALSO NOTED THAT NEITHER THE AO NOR CIT(A) HAS RECORDED THE FINDING OF ANY NEXUS THAT INTEREST BEARING FUNDS ARE INVESTED IN THE INSTRUMENT GIVING RISE TO EXEMPT INCOME ON WHICH INVESTMENTS IS MADE BY THE ASSESSEE. ONCE, THERE IS NO FINDING FOR IT I.E., NEXUS, THE PRESUMPTION IS THAT THE INVESTMENT IS MADE OUT OF INTEREST FREE FUNDS. THIS VIEW OF OURS IS FORTIFIED BY THE DECISION OF HONBLE HIGH COURT OF BOMBAY IN THE CASE OF HDFC BANK LTD., VS. DCIT, 366 ITR 505. ONCE THIS IS THE PROJECTION, NO DISALLOWANCE BY INVOKING THE PROVISIONS OF SECTION 14A R.W.RULE 8D(2)(II) QUA INTEREST CAN BE MADE. HENCE, WE SET ASIDE THE ORDERS OF THE LOWER AUTHORITIES I.E., THE AO AND THAT OF THE 5 I.T.A. NO. 1709/CHNY/2019 CIT(A) AND ALLOW THE EXPENDITURE OF INTEREST AMOUNTING TO RS.36,583/-. 7. AS REGARDS TO SECOND ASPECT OF DISALLOWANCE OF EXPENSES UNDER RULE 8D(2)(III) BEING ADMINISTRATIVE EXPENSES OF RS.19,098/-, WE NOTED THAT NEITHER THE AO NOR THE CIT(A) HAS PIN-POINTED WHICH EXPENSES ARE RELATABLE TO EXEMPT INCOME OR EVEN THE NATURE OF EXPENSES ARE NOT DISCUSSED. IT SEEMS THAT THIS DISALLOWANCE IS ON ADHOC BASIS AND WITHOUT ANY FINDING. HENCE, WE REVERSE THE ORDER OF CIT(A) AS WELL AS THE AO ON THIS ISSUE AND ALLOW THIS ISSUE OF ASSESSEES APPEAL. 8. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 13 TH OCTOBER, 2021 AT CHENNAI. SD/- SD/- ( ) (MANOJ KUMAR AGGARWAL) /ACCOUNTANT MEMBER ( ) (MAHAVIR SINGH) /VICE PRESIDENT /CHENNAI, /DATED, THE 13 TH OCTOBER, 2021 RSR /COPY TO: 1. /APPELLANT 2. /RESPONDENT 3. ( ) /CIT(A) 4. /CIT 5. /DR 6. /GF.