M/s Tranquil Realty Pvt. Ltd., Bangalore V. ITO, Bangalore

ITA 185/BANG/2016

• Counselvise Citation: [2016] 133 COUNSELVISE.COM (IT) 0276 (ITAT-BANGALORE)
• Duration Of Justice: 5 month(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 15-07-2016
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: C
• Next Hearing Date: 23-06-2016
• Assessment Year: 2012-2013
• Appeal Filed On: 15-02-2016
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Keywords: Earning of tax free income; Question of law; Initiation of penalty proceedings
• Section: 14A

Judgement Text

ITA.185/BANG/2016 PAGE - 1 IN THE INCOME TAX APPELLATE TRIBUNAL BANGALORE BENCH 'C', BANGALORE BEFORE SHRI. ABRAHAM P. GEORGE, ACCOUNTANT MEMB ER I.T.A NO.185/BANG/2016 (ASSESSMENT YEAR : 2012-13) M/S. TRANQUIL REALTY P. LTD, NO.3, 3 RD FLOOR, VASWANI VICTORIA, VICTORIA ROAD, BENGALURU 560 047 .. APPELLANT PAN : AABCD0009Q V. INCOME-TAX OFFICER, WARD 12(2), BENGALURU .. RESPONDENT ASSESSEE BY : SHRI. SURESH MUTHUKRISHNAN, CA REVENUE BY : SMT. SWAPNA DAS, JCIT HEARD ON : 23.06.2016 PRONOUNCED ON : 15.07.2016 O R D E R PER ABRAHAM P. GEORGE, ACCOUNTANT MEMBER : IN THIS APPEAL FILED BY ASSESSEE IT ASSAILS DISALL OWANCE OF RS.4,02,442/- MADE U/S.14A OF THE INCOME-TAX ACT, 1 961 (THE ACT IN SHORT) R.W.RULE 8D, WHICH WAS CONFIRMED BY THE CIT (A). 02. FACTS APROPOS ARE THAT ASSESSEE HAD INVESTMENT TO THE TUNE OF RS.3,00,67,074/- IN MUTUAL FUNDS AND DURING THE REL EVANT PREVIOUS YEAR IT ITA.185/BANG/2016 PAGE - 2 EARNED DIVIDENDS OF RS.67,074/- WHICH IT HAD CLAIME D AS EXEMPT U/S.10(34) OF THE ACT. DURING THE ASSESSMENT PROCEEDINGS, AO WORKED OUT A DISALLOWANCE OF RS.4,02,440/-, RELYING ON RULE 8D. THOUGH IT WAS CLAIMED BY THE ASSESSEE THAT THE ENTIRE EXPENDITURE WAS CAP ITALISED AND NO DISALLOWANCE COULD BE MADE, THIS WAS NOT ACCEPTED. 03. ASSESSEES APPEAL BEFORE THE CIT (A) DID NOT ME ET WITH ANY SUCCESS. 04. BEFORE ME, LD. AR SUBMITTED THAT DISALLOWANCE U /S.14A OF THE ACT AT THE BEST COULD NEVER BE MORE THAN THE EXEMPT INCOME . IN SUPPORT OF THIS HE RELIED ON THE JUDGMENT OF HONBLE DELHI HIGH COURT IN THE CASE OF JOINT INVESTMENTS P. LTD V. CIT [ITA.117/2015, DT.25.02.2 015]. 05. PER CONTRA, LD. DR SUPPORTED THE ORDER OF LOWER AUTHORITIES. 06. WE HAVE PERUSED THE ORDERS AND HEARD THE RIVAL CONTENTIONS. IT IS NOT DISPUTED THAT ASSESSEE HAD CLAIMED EXEMPTION ONLY F OR RS.67,074/- BEING THE DIVIDEND RECEIVED BY IT FROM MUTUAL FUND INVEST MENTS. IN THE CASE OF JOINT INVESTMENTS P. LTD, (SUPRA), HONBLE DELHI HI GH COURT HELD AS UNDER AT PARA 9 OF ITS JUDGMENT : 9. IN THE PRESENT CASE, THE AO HAS NOT FIRSTLY DISCLOS ED WHY THE APPELLANT/ASSESSEE'S CLAIM FOR ATTRIBUTING 2,97,440/- AS A DISALLOWANCE UNDER SECTION 14A HAD TO ITA.185/BANG/2016 PAGE - 3 BE REJECTED. TAIKISHA SAYS THAT THE JURISDICTION TO PROCEED FURTHER AND DETERMINE AMOUNTS IS DERIVED AFTER EXAM INATION OF THE ACCOUNTS AND REJECTION IF ANY OF THE ASSESSE ES CLAIM OR EXPLANATION. THE SECOND ASPECT IS THERE APPEARS TO HAVE BEEN NO SECURITY OF THE ACCOUNTS BY THE AO, AN ASPECT WHICH IS COMPLETELY UNNOTICED BY THE CIT (A) AND THE ITAT. THE THIRD, AND IN THE OPINION OF THIS COURT, IMPORTANT ANOMALY WHICH WE CANNOT BE UNMINDFUL IS THAT WHEREAS THE ENTIRE TAX EXEMPT INCOME IS RS.48,90,000/-, THE DISALLOWANCE ULTIMATE LY DIRECTED WORKS OUT TO NEARLY 110% OF THAT SUM, I.E., RS.52,2 6,197/-. BY NO STRETCH OF IMAGINATION CAN SECTION 14A OR RULE 8 D BE INTERPRETED SO AS TO MEAN THAT THE ENTIRE TAX EXEMP T INCOME IS TO BE DISALLOWED. THE WINDOW FOR DISALLOWANCE IS INDI CATED IN SECTION 14A, AND IS ONLY TO THE EXTENT OF DISALLOWI NG EXPENDITURE 'INCURRED BY THE ASSESSEE IN RELATION TO THE TAX EXEMPT INCOME'. THIS PROPORTION OR PORTION OF THE T AX EXEMPT INCOME SURELY CANNOT SWALLOW THE ENTIRE AMOU NT AS HAS HAPPENED IN THIS CASE. 10. FOR THE ABOVE REASONS, THE IMPUGNED ORDER OF THE ITAT IS SET ASIDE. THE QUESTION OF LAW IS ANSWERED IN FAVOUR OF THE ASSESSEE. CONSEQUENTLY, ORDER OF THE AO IS SET ASIDE. THE INITIATION OF PENALTY PROCEEDINGS ALSO I S SET ASIDE. THE MATTER IS REMITTED TO THE AO FOR FRESH CONSIDER ATION IN ACCORDANCE WITH THE ABOVE DIRECTIONS. THE APPEAL I S PARTLY ALLOWED. 07. THEIR LORDSHIP HAS CLEARLY OBSERVED THAT THE WI NDOW FOR DISALLOWANCE U/S.14A OF THE ACT IS ONLY TO THE EXTE NT OF A PORTION OF THE TAX EXEMPT INCOME AND COULD NOT SWALLOW THE ENTIRE AMOU NT. IF THE CONTENTION OF THE REVENUE IS ACCEPTED DISALLOWANCE WOULD BE MU CH MORE THAN THE CLAIM OF EXEMPT INCOME. IN VIEW OF THE JUDGMENT OF HONBLE DELHI HIGH COURT MENTIONED ABOVE, THIS IS PATENTLY INCORRECT. I THEREFORE HOLD THAT ITA.185/BANG/2016 PAGE - 4 MAXIMUM AMOUNT THAT COULD HAVE BEEN DISALLOWED U/S. 14A OF THE ACT, IS RS.67,074/- AND NOTHING MORE. ASSESSEE IS GIVEN RE LIEF TO THIS EXTENT. ORDERED ACCORDINGLY. 08. IN THE RESULT, APPEAL OF THE ASSESSEE IS PARTLY ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 15 TH DAY OF JULY, 2016. SD/- (ABRAHAM P GEORGE) ACCOUNTANT MEMBER MCN COPY TO: 1. THE ASSESSEE 2. THE ASSESSING OFFICER 3. THE COMMISSIONER OF INCOME-TAX 4. COMMISSIONER OF INCOME-TAX(A) 5. DR 6. GF, ITAT, BANGALORE BY ORDER ASSISTANT REGISTRAR