United Metal Industries, CHENNAI V. ACIT Non Corporate Circle 3, CHENNAI

ITA 2070/CHNY/2018

• Counselvise Citation: [2021] 107 COUNSELVISE.COM (IT) 8406 (ITAT-CHENNAI)
• Duration Of Justice: 3 year(s) 1 month(s) 16 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 18-08-2021
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: A
• Next Hearing Date: 04-08-2021
• Assessment Year: 2012-2013
• Appeal Filed On: 02-07-2018
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: S SRIDHAR
• Keywords: Earning of tax free income; Rule 8D; Set aside
• Section: 14A

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL , A B ENCH, CHENNAI . , . , % BEFORE SHRI V.DURGA RAO , JUDICIAL MEMBER AND SHRI G.MANJUNATHA, ACCOUNTANT MEMBER ./ I.T.A.NO.2070/CHNY/2018 ( / ASSESSMENT YEAR: 2012-13) M/S. UNITED METAL INDUSTRIES 9, MCNICHOLS ROAD, CHETPET, CHENNAI-600 031. VS THE ASSISTANT COMMISSIONER OF INCOME TAX, NON-CORPORATE CIRCLE-3 CHENNAI PAN: AAAFU 1182F ( /APPELLANT) ( /RESPONDENT) / APPELLANT BY : MR. S.SRIDHAR, ADVOCATE /RESPONDENT BY : MR. SURESH PERIASAMY, JCIT /DATE OF HEARING : 04.08.2021 /DATE OF PRONOUNCEMENT : 18.08.2021 / O R D E R PER G.MANJUNATHA, AM: THIS APPEAL FILED BY THE ASSESSEE IS DIRECTED AGA INST THE ORDER PASSED BY THE LEARNED CIT(A)-4, CHENNAI DATED 17.05.2018 AND PERTAINS TO ASSESSMENT YEAR 2012-13. 2. THE ASSESSEE HAS RAISED FOLLOWING GROUNDS OF AP PEAL:- 1. THE ASSESSING OFFICER AND THE COMMISSIONER (APP EALS) FAILED TO EVEN LOOK INTO THE ISSUE OF OWN FUNDS BEI NG USED FOR THE INVESTMENTS AND THUS ERRED IN THE DISALLOWANCE OF INTEREST UNDER RULE 8D(II) AMOUNTING TO RS 10,33,188. 2. THE AUTHORITIES BELOW FAILED TO APPRECIATE THAT THE ITAT HAD JUST GIVEN A BASIC GUIDANCE AS TO HOW 14A DISALLOWA NCE HAD TO BE DONE WITH REGARD TO RULE 8D (2)( III) AND THE GU IDANCE WAS SUBJECT TO THE RULES THAT EXISTED AT THE RELEVANT P OINT IN TIME. 3. THE ASSESSING OFFICER ERRED IN GOING BEYOND THE SCOPE OF RULE 8D WHICH CLEARLY SPECIFIES HOW AVERAGE INVESTM ENTS ARE TO BE COMPUTED. 4. THE ASSESSING OFFICER ERRED IN DISALLOWING INTER EST WHEN THE ASSESSEE HAD CLEARLY PROVED THAT NO BORROWED FUNDS HAVE 2 ITA NO. 2070/CHNY/2018 BEEN UTILISED FOR THE PURPOSE OF INVESTMENTS EARNIN G TAX FREE INCOME. 5. THE ASSESSING OFFICER ERRED IN COMPUTING DISALLO WANCES FAR IN EXCESS OF THE TAX FREE INCOME OF RS 7,57,560/- C LAIMED BY THE APPELLANT. 3. BRIEF FACTS OF THE CASE ARE THAT IN THIS CASE AS SESSMENT HAS BEEN COMPLETED U/S.143(3) OF THE ACT ON 02.01.2 015 BY MAKING ADDITIONS TOWARDS DISALLOWANCES U/S.14A R .W.RULE 8D OF INCOME TAX RULES, 1962, AT RS.8,48,746/-. THE AS SESSEE HAS CHALLENGED ADDITIONS MADE BY THE ASSESSING OF FICER BEFORE THE CIT(A). THE LEARNED CIT(A) UPHELD ADDI TIONS MADE BY THE ASSESSING OFFICER. THE ASSESSEE PREFERRED APPEAL BEFORE THE TRIBUNAL AND THE TRIBUNAL VIDE ITS ORDE R DATED 14.06.2016 IN ITA NO.513/MDS/2016 SET ASIDE THE APP EAL TO THE FILE OF ASSESSING OFFICER AND DIRECT HIM TO RECOM PUTE DISALLOWANCE U/S.14A BY TAKING INTO AVERAGE MONTHLY INVESTMENTS FOR DISALLOWANCE OF INTEREST EXPENSES. CONSEQUENT TO THE ORDER OF THE TRIBUNAL, THE ASSESSING OFFICE R HAS TAKEN UP CASE FOR VERIFICATION AND ON THE BASIS OF DETAIL S SUBMITTED BY THE ASSESSEE RECOMPUTED DISALLOWANCE U/S.14A AT RS,.11,04,831/- BY TAKING INTO ACCOUNT AVERAGE MONT HLY INVESTMENTS. 3 ITA NO. 2070/CHNY/2018 4. BEING AGGRIEVED BY ASSESSMENT ORDER, THE ASSESSE E PREFERRED APPEAL BEFORE THE CIT(A) . BEFORE THE LEA RNED CIT(A) THE ASSESSEE SUBMITTED THAT EVEN THOUGH THE TRIBUN AL HAS SET ASIDE THE APPEAL WITH A DIRECTION TO REEXAMINE CLAI M OF THE ASSESSEE WITH REGARD TO AVAILABILITY OF OWN CAPI TAL FOR MAKING INVESTMENTS AND TO COMPUTE AVERAGE MONTHLY INVESTME NTS, BUT THE ASSESSING OFFICER HAS ONLY CONSIDERED AVER AGE MONTHLY INVESTMENTS TO RECOMPUTE DISALLOWANCE U/S.14A OF TH E ACT. THE LEARNED CIT(A), AFTER CONSIDERING RELEVANT SUBMISS IONS OF THE ASSESSEE AND ALSO TAKEN NOTE OF ORDER OF THE TRIBU NAL, HELD THAT THE TRIBUNAL HAS DIRECTED TO COMPUTE DISALLOWANCE A FTER DETERMINING AVERAGE MONTHLY INVESTMENTS. HOWEVER, T HE ASSESSEE COULD NOT FURNISH ANY SUCH COMPUTATION. A CCORDINGLY, THE ASSESSING OFFICER WAS LEFT WITH NO OPTION, BU T TO COMPUTE DISALLOWANCE BASED ON INFORMATION AVAILABLE ON REC ORD. THEREFORE, THERE IS NO ERROR IN THE FINDINGS RECORD ED BY THE ASSESSING OFFICER AND COMPUTED DISALLOWANCE U/S.1 4A BY TAKING AVERAGE VALUE OF INVESTMENTS, ACCORDINGLY, R EJECTED APPEAL FILED BY THE ASSESSEE. 5. THE LEARNED AR FOR THE ASSESSEE SUBMITTED THAT EVEN THOUGH THE TRIBUNAL HAS DIRECTED THE ASSESSING OFF ICER TO 4 ITA NO. 2070/CHNY/2018 EXAMINE CLAIM OF THE ASSESSEE THAT IT HAS SURPLUS NON-INTEREST BEARING FUNDS FOR INVESTMENTS, THE ASSESSING OFFIC ER HAS IGNORED FINDINGS OF THE TRIBUNAL AND WENT ON TO COM PUTE DISALLOWANCE BY TAKING INTO ACCOUNT AVERAGE MONTHLY INVESTMENTS WITHOUT CONSIDERING ARGUMENTS OF THE AS SESSEE THAT IT HAS SUFFICIENT OWN FUNDS TO COVER UP INVEST MENTS WHICH YIELDED EXEMPT INCOME. THEREFORE, APPEAL MAY BE SE T ASIDE TO THE FILE OF THE ASSESSING OFFICER TO GIVE ONE MOR E OPPORTUNITY TO THE ASSESSEE TO EXPLAIN ITS CASE. 6. THE LEARNED DR, ON THE OTHER HAND, SUBMITTED THA T ASSESSEE HAS FAILED TO FILE NECESSARY DETAILS INCL UDING PROOF OF AVAILABILITY OF OWN FUNDS BEFORE THE ASSESSING OFF ICER, THEREFORE, THERE IS NO REASON TO GIVE ANOTHER OPPOR TUNITY TO THE ASSESSEE TO GO BACK TO THE ASSESSING OFFICER. 7. WE HAVE HEARD BOTH THE PARTIES, PERUSED MATERIAL S AVAILABLE ON RECORD AND GONE THROUGH ORDERS OF THE AUTHORITIES BELOW. WE FIND THAT THE TRIBUNAL IN FIRST ROUND OF LITIGATION HAS RECORDED CATEGORICAL FINDING THAT PRIMA-FACIE, THE ASSESSEE HAS INVESTED IDLE FUNDS IN LIQUID DIVIDEND INVESTMENT PLANS WITH J.M FINANCIAL MUTUAL FUND. HOWEVER, SET ASIDE APPEAL TO THE FILE OF 5 ITA NO. 2070/CHNY/2018 THE ASSESSING OFFICER, WITH A DIRECTION TO RECONS IDER THE ISSUE AND ALSO TO TAKE AVERAGE VALUE OF INVESTMENTS ON M ONTHLY BASIS TO DETERMINE DISALLOWANCE U/S.14A OF THE ACT. WE FURTHER NOTED THAT IN SECOND ROUND, THE ASSESSING OFFICER HAS NOT CONSIDERED PLEA OF THE ASSESSEE THAT IT HAS SUFFICI ENT OWN FUNDS, BUT WENT ON TO COMPUTE DISALLOWANCES BY TAKING ONLY AVERAGE MONTHLY INVESTMENTS MADE IN MUTUAL FUNDS. IT IS A W ELL SETTLED PRINCIPLES OF LAW THAT IF THE ASSESSEE IS ABLE TO P ROVE AVAILABILITY OF OWN FUNDS TO MAKE INVESTMENTS IN SHARES AND SECU RITIES, WHICH YIELD EXEMPT INCOME, THEN NO DISALLOWANCE CAN BE MADE TOWARDS INTEREST EXPENSES. IN THIS CASE, ALTHOUGH T HE ASSESSEE CLAIMS TO HAVE OWN INTEREST FREE FUNDS, THE ASSESSI NG OFFICER HAS NOT CONSIDERED PLEA OF THE ASSESSEE AND DISALLO WED INTEREST BY TAKING ONLY MONTHLY AVERAGE INVESTMENTS MADE IN MUTUAL FUNDS. THEREFORE, WE ARE OF THE CONSIDERED V IEW THAT THE ISSUE NEEDS TO BE GO BACK TO THE ASSESSING OFFICER ONCE AGAIN TO CONSIDER PLEA OF THE ASSESSEE THAT IT HAS SUFFIC IENT OWN FUNDS TO COVER UP INVESTMENTS MADE IN MUTUAL FUNDS. HENC E, WE SET ASIDE THE APPEAL TO THE FILE OF THE ASSESSING OFFI CER AND DIRECT HIM TO RECONSIDER THE ISSUE IN LIGHT OF ARGUMENTS O F THE ASSESSEE THAT IT HAS IDLE INTEREST FREE FUNDS, WHIC H HAS BEEN 6 ITA NO. 2070/CHNY/2018 USED FOR MAKING INVESTMENTS IN MUTUAL FUNDS. IN CAS E, THE ASSESSEE PROVES WITH NECESSARY EVIDENCE WITH REGARD TO AVAILABILITY OF OWN FUNDS, THEN THE ASSESSING OFFI CER IS DIRECTED TO CONSIDER AVAILABILITY OF OWN FUNDS WHILE COMPUTI NG DISALLOWANCES U/S.14A OF THE ACT. 8. IN THE RESULT, APPEAL FILED BY THE ASSESSEE IS A LLOWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED IN THE OPEN COURT ON 18 TH AUGUST, 2021 SD/- SD/- ( . ) ( . ) (V.DURGA RAO) ( G.MANJUNATHA ) $ & / JUDICIAL MEMBER & / ACCOUNTANT MEMBER $ /CHENNAI, ) /DATED 18 TH AUGUST, 2021 DS +, -, /COPY TO: 1. APPELLANT 2. RESPONDENT 3. . () /CIT(A) 4. . /CIT 5. , 2 /DR 6. /GF .