M/s. Toshniwal Brothers (SR) Pvt ltd, Bengaluru V. Deputy Commissioner of Income Tax, Circle-12(4), Bengaluru

ITA 1768/BANG/2018

• Counselvise Citation: [2019] 116 COUNSELVISE.COM (IT) 7394 (ITAT-BANGALORE)
• Duration Of Justice: 1 year(s) 1 month(s) 25 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 19-07-2019
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: C
• Next Hearing Date: 14-03-2019
• Assessment Year: 2009-2010
• Appeal Filed On: 24-05-2018
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: DR P V PRADEEP KUMAR
• Assessee Lawyers: L BHARATH
• Keywords: Opportunity of being heard; Earning of tax free income; Additional evidence; Rule 8D; Set aside
• Section: 14A; 37

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL C BENCH : BANGALORE BEFORE SHRI ARUN KUMAR GARODIA, ACCOUNTANT MEMBER AND SHRI PAVAN KUMAR GADALE, JUDICIAL MEMBER I TA NO. 1 7 68 /BANG/201 8 ASSESSMENT YEAR : 20 09 - 10 M/S. TOSHNIWAL BROTHERS (SR) PRIVATE LIMITED, NO. 11, AECS LAYOUT, 3 RD CROSS, 4 TH MAIN, GEDALAHALLI, SANJAY NAGAR, 1 ST STAGE, BANGALORE 560 094. PAN: AAACT2881R VS. THE DEPUTY COMMISSIONER OF INCOME TAX, CIRCLE 12 (4), BANGALORE. APPELLANT RESPONDENT ASSESSEE BY : SHRI L. BHARATH, CA REVENUE BY : DR. P.V. PRADEEP KUMAR, ADDL. CIT (DR) DATE OF HEARING : 0 8 .0 7 .2019 DATE OF PRONOUNCEMENT : 19 .0 7 .2019 O R D E R PER SHRI A.K. GARODIA, ACCOUNTANT MEMBER THIS APPEAL IS FILED BY THE ASSESSEE AND THE SAME IS DIRECTED AGAINST THE ORDER OF LD. CIT(A), MYSORE DATED 29.12.2017 FOR ASSESSMENT YEAR 2009-10. 2. THE GROUNDS RAISED BY THE ASSESSEE ARE AS UNDER. 1. THE ORDERS OF THE LEARNED ASSESSING OFFICER ('LAO') AND LEARNED APPELLATE AUTHORITY ('LAA') ARE ARBITRARY AND OPPOSED TO LAW, EQUITY, WEIGHT OF EVIDENCE, PROBABILITIES AND THE FACTS AND CIRCUMSTANCES OF THE CASE. 2. THE LAA ERRED IN CONFIRMING THE ORDER OF THE LAO WHICH HAD ERRONEOUSLY DISALLOWED EXPENDITURE UNDER THE PROVISIONS OF SECTION 14A READ WITH RULE 81) OF THE INCOME-TAX RULES, 1962 (`THE RULES') AS HAVING BEEN INCURRED IN RESPECT OF EXEMPTED DIVIDEND INCOME. A) THE LAA ERRED IN NOT APPRECIATING THE FACT THAT THE APPELLANT HAD NOT INCURRED ANY EXPENDITURE EITHER DIRECTLY OR INDIRECTLY FOR EARNING THE EXEMPT INCOME. B) THE LAA ERRED IN NOT ADDUCING ANY FACTS OR EVIDENCE TO ITA NO. 1768/BANG/2018 PAGE 2 OF 5 DEMONSTRATE THAT THE APPELLANT'S CLAIM OF NOT HAVING INCURRED ANY DIRECT OR INDIRECT EXPENDITURE FOR EARNING THE EXEMPT INCOME IS INCORRECT. C) THE LAA ERRED IN NOT APPRECIATING THE FACT THAT THE APPELLANT IS HAVING SUFFICIENT OWN FUNDS AND RESERVES AND INVESTMENTS IN SHARES YIELDING DIVIDEND / EXEMPT INCOME WAS OUT OF THE OWN FUNDS OF THE APPELLANT AND NOT OUT OF THE BORROWED FUNDS. 3. THE LAO ERRED IN DISALLOWING FOREIGN TRAVEL EXPENSE OF RS.7,82,673/- INCURRED BY THE APPELLANT WITH RESPECT TO ONE OF ITS DIRECTOR. THE LAA ERRED IN CONFIRMING THE SAID ACTION OF THE LAO. A) THE LAO ERRED IN NOT CONSIDERING THE FACTS AND CIRCUMSTANCES IN WHICH THE EXPENDITURE WAS INCURRED. B) THE LAO ERRED IN CONSIDERING / NOTING IRRELEVANT FACTS. 4. WITHOUT PREJUDICE TO THE ABOVE, THE LAO DID NOT APPRECIATE THE FACT THAT THE FOREIGN TRAVELLING EXPENSES WAS INCURRED WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF BUSINESS WHICH IS AN ALLOWABLE EXPENDITURE UNDER SECTION 37 OF THE ACT. ON THE ABOVE AND SUCH OTHER GROUNDS AS MAY BE URGED AT THE TIME OF HEARING YOUR APPELLANT PRAYS YOUR HONOUR TO CONSIDER THE FACTS AND CIRCUMSTANCES OF THE CASE/APPEAL AND RENDER JUSTICE. 3. IT WAS SUBMITTED BY LD. AR OF ASSESSEE THAT GROUND NO. 1 IS GENERAL. REGARDING GROUND NO. 2, HE SUBMITTED THAT THIS GROUND IS REGARDING DISALLOWANCE MADE BY THE AO U/S. 14A R.W. RULE 8D OF THE INCOME-TAX RULES, 1962. HE POINTED OUT THAT OUT OF TOTAL DISALLOWANCE MADE BY THE AO U/S. 14A OF THE IT ACT OF RS. 1,70,526/-, AN AMOUNT OF RS. 1,45,801/- IS DISALLOWED OUT OF INTEREST EXPENDITURE AND RS. 24,725/- IS DISALLOWED OUT OF ADMINISTRATIVE EXPENSES TO THE EXTENT OF 0.5% OF AVERAGE INVESTMENT. HIS MAIN ARGUMENT WAS THIS THAT IN THE FACTS OF PRESENT CASE, NO DISALLOWANCE IS JUSTIFIED U/S. 14A OUT OF INTEREST EXPENDITURE BECAUSE THE INTEREST FREE FUNDS OF THE ASSESSEE IS MUCH MORE THAN THE AMOUNT OF INVESTMENT AND IN THIS REGARD, HE DRAWN OUR ATTENTION TO PAGE 14 OF THE PAPER BOOK WHICH CONTAINS THE BALANCE SHEET OF THE ASSESSEE COMPANY AS ON 31.03.2009 AND POINTED OUT THAT SHARE CAPITAL IS RS. 8 LAKHS AND RESERVES & SURPLUS FUNDS IS RS. 3,74,20,600/- AGAINST INVESTMENT OF RS. 49,96,069/- AS ON 31.03.2009 AND THEREFORE, THE INTEREST FREE FUNDS IS MUCH MORE THAN THE AMOUNT OF INVESTMENT. HE PLACED RELIANCE ON THE JUDGEMENT OF HON'BLE KARNATAKA HIGH COURT RENDERED IN THE CASE OF CIT VS. MICROLABS LTD. AS REPORTED IN [2017] 79 TAXMANN.COM 365 (KARNATAKA), COPY AVAILABLE ON PAGES 21 TO 25 OF THE CASE LAW COMPILATION. ITA NO. 1768/BANG/2018 PAGE 3 OF 5 HE SUBMITTED THAT IN THIS CASE, IT WAS HELD BY HON'BLE KARNATAKA HIGH COURT THAT IF THE SHARE CAPITAL AND RESERVES & SURPLUS IS MORE THAN THE INVESTMENT MADE BY THE ASSESSEE RESULTING INTO TAX FREE INCOME, NO DISALLOWANCE OUT OF INTEREST EXPENDITURE U/S. 14A COULD BE MADE. HE ALSO PLACED RELIANCE ON THE TRIBUNAL ORDER RENDERED IN THE CASE OF M/S. SANSERA ENGINEERING P. LTD. VS. DCIT IN ITA NO. 1052/BANG/2016 DATED 28.06.2017, COPY AVAILABLE ON PAGES 26 TO 47 OF THE CASE LAW COMPILATION AND IN PARTICULAR, OUR ATTENTION WAS DRAWN TO PARA NO. 14 OF THIS TRIBUNAL ORDER AVAILABLE ON PAGE NO. 45 OF THE PAPER BOOK AND POINTED OUT THAT IN THIS CASE ALSO, IT IS NOTED BY THE TRIBUNAL IN THIS PARA THAT THE ASSESSEE IS HAVING ITS OWN FUNDS MORE THAN AVERAGE INVESTMENT DURING THE YEAR AND THEREFORE, BY RESPECTFULLY FOLLOWING THE JUDGMENT OF HON'BLE KARNATAKA HIGH COURT RENDERED IN THE CASE OF CIT VS. MICROLABS LTD. (SUPRA), IT WAS HELD THAT NO DISALLOWANCE IS JUSTIFIED U/S. 14A OUT OF INTEREST EXPENDITURE BECAUSE THE AO COULD NOT BRING ON RECORD ANY NEXUS BETWEEN HE BORROWED FUND AND INVESTMENT. THE LD. DR OF REVENUE SUPPORTED THE ORDER OF LD. CIT(A). 4. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS. WE FIND THAT THIS IS NOT IN DISPUTE THAT ASSESSEES OWN FUNDS IN THE FORM OF SHARE CAPITAL AND RESERVES & SURPLUS IS MUCH MORE THE AMOUNT OF INVESTMENT AND THEREFORE, THE JUDGMENT OF HON'BLE KARNATAKA HIGH COURT RENDERED IN THE CASE OF CIT VS. MICROLABS LTD. (SUPRA) IS SQUARELY APPLICABLE AND RESPECTFULLY FOLLOWING THE SAME, WE HOLD THAT IN THE FACTS OF PRESENT CASE, NO DISALLOWANCE IS CALLED FOR U/S. 14A OUT OF INTEREST EXPENDITURE AND HENCE, THE DISALLOWANCE OF RS. 1,45,801/- OUT OF TOTAL DISALLOWANCE U/S. 14A OF RS. 1,70,526/- IS DELETED. GROUND NO. 2 IS PARTLY ALLOWED. 5. REGARDING GROUND NO. 3, THE LD. AR OF ASSESSEE SUBMITTED ADDITIONAL EVIDENCE ON PAGES 26 TO 32 OF PAPER BOOK WHICH CONTAIN THE MINUTES OF THE MEETINGS OF THE COMPANIES VISITED BY MR. ARVIND TOSHNIWAL DURING THE FOREIGN TRAVEL AND THE LEDGER EXTRACTS IN RESPECT OF DIRECTORS FOREIGN TRAVEL EXPENSES. HE SUBMITTED THAT THIS ADDITIONAL EVIDENCE SHOULD BE ADMITTED BECAUSE THE SAME COULD NOT BE PRODUCED BEFORE THE AUTHORITIES BELOW. REGARDING REASONS DUE TO WHICH THESE DETAILS COULD NOT BE PRODUCED BEFORE THE AO, IT WAS ITA NO. 1768/BANG/2018 PAGE 4 OF 5 SUBMITTED THAT IN COURSE OF ASSESSMENT PROCEEDINGS, NO QUERY WAS RAISED BY AO ON THIS ACCOUNT AND HENCE, THERE WAS NO OCCASION FOR ASSESSEE TO BRING THESE DETAILS ON RECORD. REGARDING THE REASON DUE TO WHICH THESE DETAILS WERE NOT BROUGHT ON RECORD BEFORE LD. CIT(A), HE SUBMITTED AN AFFIDAVIT OF SHRI S. RANGANATH, PARTNER, SINGHVI, DEV & UNNI LLP, CAS AND POINTED OUT THAT AS PER THIS AFFIDAVIT, AN EMPLOYEE OF THIS FIRM MR. ASHWIN RAO, CA WHO WAS DULY AUTHORIZED TO REPRESENT THE ASSESSEE, APPEARED BEFORE THE LD. CIT(A), BRIEFED THE FACTS OF THE CASE AND SOUGHT TIME FOR FILING THE WRITTEN SUBMISSIONS. IT IS ALSO STATED IN THE AFFIDAVIT THAT FIRST DATE OF HEARING BEFORE LD. CIT(A) WAS ON 15.12.2017 AND THE ORDER WAS PASSED BY HIM ON 29.12.2017 WITHOUT GRANTING TIME TO THE LD. AR OF ASSESSEE TO FILE THE WRITTEN SUBMISSIONS. HE SUBMITTED THAT UNDER THESE FACTS, THE ADDITIONAL EVIDENCES SHOULD BE ADMITTED AND THE MATTER SHOULD BE RESTORED BACK TO THE FILE OF LD. CIT(A) FOR FRESH DECISION AFTER CONSIDERING THESE NEW EVIDENCES. THE LD. DR OF REVENUE SUPPORTED THE ORDER OF LD. CIT(A). HE ALSO SUBMITTED THAT ADDITIONAL EVIDENCES SHOULD NOT BE ADMITTED AT THIS STAGE. 6. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS. IN VIEW OF THE FACTS DISCUSSED ABOVE, WE FEEL IT PROPER TO ADMIT THE ADDITIONAL EVIDENCE AND SET ASIDE THE ORDER OF LD. CIT(A) ON THIS ISSUE AND RESTORE BACK THE MATTER TO THE FILE OF LD. CIT(A) FOR FRESH DECISION AFTER PROVIDING ADEQUATE OPPORTUNITY OF BEING HEARD TO BOTH SIDES. IN VIEW OF THIS, WE MAKE NO COMMENT ON THE MERIT OF THE CASE ON THE SECOND ISSUE. GROUND NO. 3 IS ALLOWED FOR STATISTICAL PURPOSES. 7. IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE STANDS ALLOWED IN THE TERMS INDICATED ABOVE. ORDER PRONOUNCED IN THE OPEN COURT ON THE DATE MENTIONED ON THE CAPTION PAGE. SD/- SD/- (PAVAN KUMAR GADALE) (ARUN KUMAR GARODIA) JUDICIAL MEMBER ACCOUNTANT MEMBER BANGALORE, DATED, THE 19 TH JULY, 2019. /MS/ ITA NO. 1768/BANG/2018 PAGE 5 OF 5 COPY TO: 1. APPELLANT 4. CIT(A) 2. RESPONDENT 5. DR, ITAT, BANGALORE 3. CIT 6. GUARD FILE BY ORDER ASSISTANT REGISTRAR, INCOME TAX APPELLATE TRIBUNAL, BANGALORE.