Khambatta Family Trust, Ahmedabad V. The Dy. CIT, Circle-5(2), Ahmedabad

ITA 2071/AHD/2017

• Counselvise Citation: [2019] 116 COUNSELVISE.COM (IT) 9775 (ITAT-AHMEDABAD)
• Duration Of Justice: 1 year(s) 9 month(s) 18 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 03-07-2019
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: A
• Assessment Year: 2013-2014
• Appeal Filed On: 15-09-2017
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: PF JAIN
• Keywords: Earning of tax free income; Proportionate interest; Rule 8D
• Section: 14A

Judgement Text

- , - IN THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD BENCH A BEFORE SHRI RAJPAL YADAV, JUDICIAL MEMBER AND SHRI PRADIPKUMAR KEDIA, ACCOUNTANT MEMBER ./ ITA NO.2071/AHD/2017 / ASSTT. YEAR: 2013-14 KHAMBATTA FAMILY TRUST PIOMA INDUSTRIES B/H. ELLISBRIDGE GYMKHANA ELLISBRIDGE AHMEDABAD 380 006. PAN : AAAAK 0428 P VS. DCIT, CIR.5(2) AHMEDABAD. ( APPLICANT ) (RESPONDENT) ASSESSEE BY : SHRI P.F. JAIN, AR REVENUE BY : SHRI S.K. DEV, SR.DR ! '#$ % &' / DATE OF HEARING : 01/07/2019 ()* % &' / DATE OF PRONOUNCEMENT: 03/07/2019 ,- / O R D E R PER RAJPAL YADAV, JUDICIAL MEMBER: ASSESSEE IS IN APPEAL BEFORE THE TRIBUNAL AGAINST O RDER OF LD.CIT(A)-5, AHMEDABAD DATED 14.7.2017 PASSED FOR T HE ASSTT.YEAR 2013-14. 2. THE ASSESSEE HAS TAKEN FIVE GROUNDS OF APPEAL. HOWEVER, ITS GRIEVANCE REVOLVES AROUND A SINGLE ISSUE VIZ. THE L D.CIT(A) HAS ERRED IN UPHOLDING ADDITION OF RS.3,06,737/- WHICH WAS ADDED BY ITA NO.2071/AHD/2017 2 THE AO UNDER SECTION 14A OF THE INCOME TAX ACT 14A R.W. RULE 8D OF THE INCOME TAX RULES. 3. BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE IS AN AOP ENGAGED IN THE BUSINESS OF MANUFACTURING OF SOFT DR INK AND FRUIT GRAIN DRINK MIX ETC. UNDER THE BRAND NAME RASNA. IT HAS FILED ITS RETURN OF INCOME ON 29.9.2013 DECLARING TOTAL I NCOME AT RS.3,19,10,958/-. THE CASE OF THE ASSESSEE WAS SEL ECTED FOR SCRUTINY ASSESSMENT AND NOTICE UNDER SECTION 143(2) WAS ISSUED AND SERVED UPON THE ASSESSEE. ON SCRUTINY OF THE A CCOUNTS, ACCORDING TO THE AO, THE ASSESSEE HAS SHOWN DIVIDEN D INCOME OF RS.2,46,246/- WHICH WAS CLAIMED AS EXEMPT. THE LD. AO THEREAFTER INVITED EXPLANATION OF THE ASSESSEE TO SHOW THE EXP ENSES WHICH WERE RELATABLE TO EARNING OF EXEMPT INCOME, AND HOW THOSE EXPENDITURE HAVE BEEN ADDED BACK BY THE ASSESSEE WH ILE FILING THE RETURN. THE ASSESSEE HAS FILED WRITTEN SUBMISSIONS WHICH HAS BEEN REPRODUCED BY THE AO, AND THEREAFTER HE DISALL OWED A SUM OF RS.13,88,959/-. THE DISCUSSION MADE BY THE AO READ S AS UNDER: 5.3 I HAVE DULY CONSIDERED THE ABOVE REPLY OF THE ASSESSEE. THE MAIN EMPHASIS OF THE ASSESSEE IS ON THE FACT TH AT HE HAS INVESTED SURPLUS FUND AND NO BORROWED FUND WAS UTIL IZED FOR THE INVESTMENT. HERE IT WILL BE BETTER TO REFER TO THE BALANCE SHEET OF THE ASSESSEE WHICH SHOWS THAT THE ASSESSEE HAS TOTAL FUNDS OF RS.6,48,82,007/- AS ON 31.03.2013 WH ICH IS ITS OWN CAPITAL. FURTHER, TOTAL INVESTMENT AS ON 31.03. 2013 HAS BEEN SHOWN AT RS.8,01,09,664/- AGAINST AN AMOUNT OF RS.4,25,85,391 /-. THE TWO FIGURES I.E. THE FUNDS A VAILABLE WITH THE ASSESSEE AND THE INVESTMENT MADE THEMSELVE S SPEAKS VOLUMES ABOUT THE AVAILABILITY OF SURPLUS FU NDS WITH THE ASSESSEE AS THE AMOUNT OF INVESTMENT MADE FOR E ARNING EXEMPT INCOME ITSELF EXCEEDS THE AMOUNT OF TOTAL FU ND AVAILABLE WITH THE ASSESSEE BY AN AMOUNT OF RS. 1,52,27,657/-, IN LIGHT OF THIS FACT, THE CASE LAWS RELIED UPON BY THE ASSESSEE DO NOT IN ANY MANNER HELP HIM. APAR T FROM ITA NO.2071/AHD/2017 3 ABOVE, THE ASSESSEE HAS ALSO PAID INTEREST AMOUNTIN G TO RS. 13,88,023/- DURING THE YEAR UNDER CONSIDERATION. FU RTHER- MORE, FROM THE DETAILS SUBMITTED BY THE ASSESSEE IT IS FOUND THAT FRESH INVESTMENT OF RS. 3,75,24,273/- HAS BEEN MADE BY THE ASSESSEE DURING THE. YEAR UNDER CONSIDERATIO N ITSELF. THE VOLUME OF THE ABOVE INVESTMENT ALSO INDICATE T HAT CERTAIN ADMINISTRATIVE EXPENSES MUST HAVE BEEN INVO LVED THEREIN. IN LIGHT OF THESE FACTS, THE REPLY OF THE ASSESSEE CANNOT BE ACCEPTED. DISALLOWANCE OF EXPENSES ATTRIBUTABLE TO EXEMPT INCOME HAS BEEN CON SIDERED IN VIEW OF FOLLOWINGCASE LAWS: (I) DHANUKA SONS VS. C1T339ITR 0319 CALCUTTA (2011), WHEREIN THE HON'BLE HIGH COURT HELD THAT DISALLOWAN CE OF IN EXPENDITURE IN RELATING TO EXEMPT INCOME U/S 10(34) IS JUSTIFIED U/S 14A. (II) CIT VS. SMT LEENA RAMCHANDRAN 339 ITR 0296 (2011), WHEREIN HON'BLE KERALA HIGH COURT HELD THAT EXPENDITURE IN RELATION TO INCOME NOT FORMING PART OF TOTAL INCOME IS JUSTIFIABLY DISALLOWED. (III) PUNJAB STATE COOPERATION FEDERATION LTD. VS. CIT 33 6 ITR 0495 (2011), IN THIS CASE HON'BLE PUNJAB AND HARYANA HIGH COURT HELD THAT EXPENSE INCURRED BY TH E ASSESSES FOR EARNING INCOME WHICH DOES NOT FORM PAR T OF TOTAL INCOME UNDER THE ACT SHALL NOT BE ALLOWABL E EXPENDITURE. DISALLOWANCE REQUIRED TO BE MADE U/S 14A READ WITH RULE 8D IS ALSO EXAMINED IN VIEW OF FOLLOWING CASE LAWS: CIT VS. POPULAR VEHICLE SERVICE LTD. 325 ITR 0523 (2010 KERALA) PRADEEP KAR VS. ASSTT. COMMISSIONER OF INCOME TAX 319 ITR 0416 (2009) KARNATAKA. 5.4 PROVISIONS OF RULE 8D SPECIFICALLY MAKE A MENTI ON, IN RESPECT OF FORMULA GIVEN FOR COMPUTING INDIRECT EXP ENSES ATTRIBUTABLE TO INCOME CLAIMED AS EXEMPT UNDER SECT ION 14A OF THE ACT. THEREFORE, FOLLOWING THE PROVISIONS LAI D DOWN, A DISALLOWANCE ON ACCOUNT OF EXPENSES IS COMPUTED IN THE FOLLOWING MANNER: ITA NO.2071/AHD/2017 4 PARTICULARS AMOUNT AMOUNT 1 . DIRECT EXPENSES - - 2. PROPORTIONATE INTEREST COST(A*B/C A. INTEREST EXPENSES B. AVERAGE VALUE OF INVESTMENT OPENING BALANCE CLOSING BALANCE TOTAL 1388023 42585391 80109664 122695055 1074222 AVERAGE INVESTMENT C. AVERAGE ASSETS IN BALANCE SHEET OPENING ASSETS CLOSING ASSETS TOTAL 61347528 93654580 64882007 158536587 AVERAGE ASSETS 79268294 3. 0.5% OF AVERAGE INVESTMENTS 306737 TOTAL 1380959 4. DISSATISFIED WITH THE DISALLOWANCE, THE ASSESSEE CARRIED THE MATTER IN APPEAL BEFORE THE LD.CIT(A). THE LD.CIT( A) HAS SCALED DOWN THIS DISALLOWANCE TO RS.3,06,737/- ON THE GROU ND THAT 0.5% OF AVERAGE INVESTMENT WITH REGARD TO ADMINISTRATIVE EXPENSES IS REQUIRED TO BE MADE. THE LD.COUNSEL FOR THE ASSESS EE WHILE IMPUGNING THE ORDER OF THE LD.REVENUE AUTHORITIES T OOK US THROUGH BIFURCATION OF ALLEGED DIVIDEND OF MUTUAL FUND WHIC H READS AS UNDER: DIVIDEND ON MUTUAL FUND: 1. DIVIDEND ON SBI SDFS: 2,03,248 2. DIVIDEND ON SBI SHORT HORIZON FUND ULTRA SHORT TERM FUND: 24,011 3. DIVIDEND ON TATA FLATER FUND DAILY DIV. 8,629 4. DIVIDEND ON RELIANCE MONEY MANAGER FUND-DAILY DIV. 10,358 TOTAL 2,46,246/ - ITA NO.2071/AHD/2017 5 5. HE THEREAFTER MADE REFERENCE TO PAGE NO.39 OF TH E PAPER BOOK WHERE DETAILS OF INVESTMENT IN SCHEDULE-B ARE B EING PLACED ON RECORD. HE POINTED OUT THAT THE INVESTMENT IN F MP DEBT MUTUAL FUNDS WHERE IT DOES NOT REQUIRE MUCH ADMINISTRATIVE LOOK-AFTER. ACCORDING TO THE LD.COUNSEL FOR THE ASSESSEE IN THE PAST NO DISALLOWANCE WAS MADE NOR IN THE SUBSEQUENT YEAR. ON THE OTHER HAND, THE LD.DR RELIED UPON THE ORDER OF THE LD.CIT (A). 6. WE HAVE DULY CONSIDERED RIVAL SUBMISSIONS AND GO NE THROUGH THE RECORD CAREFULLY. A PERUSAL OF THE ORDER OF TH E LD.CIT(A) WOULD REVEAL THAT THE ASSESSEE HAS NET INTEREST INCOME. IT HAS SHOWN INTEREST INCOME OF RS.58,38,817/-THEREFORE INTEREST IS NOT REQUIRED TO BE COMPUTED FOR MAKING DISALLOWANCE. FOR BUTTR ESSING OUR VIEW POINT, WE RELY UPON JUDGMENT OF HONBLE GUJARA T HIGH COURT IN THE CASE OF CIT VS. NIRMA CAPITAL & CREDIT P.LTD ., 85 TAXMANN.COM 72 = TAX APPEAL NO.409 AND 409 AND 514 OF 2017. AS FAR AS ADMINISTRATIVE EXPENSES ARE CONCERNED, IT IS PERTINENT TO OBSERVE THAT SUB-SECTION (2) OF SECTION 14A CONTEMP LATES THAT THE AO HAS TO RECORD A FINDING AS TO HOW ACCOUNTING ENT RIES MAINTAINED BY THE ASSESSEE SHOWING INTEREST EXPENDI TURE ARE NOT ACCEPTABLE. HE HAS TO RECORD HIS SATISFACTION BEF ORE APPLYING COMPUTATION UNDER RULE 8D. THE ASSESSEE HAS DEMONS TRATED THAT IT HAS NOT INCURRED ANY EXPENDITURE FOR MAKING INVE STMENT IN MUTUAL FUND. THESE ARE OLD INVESTMENTS THOUGH CERT AIN CHANGES ARE THERE, BUT FOR THAT PURPOSE IT IS NOT REQUIRED TO INCUR EXPENDITURE AS COMPUTED BY THE AO. ITA NO.2071/AHD/2017 6 7. THE LD.AR DURING THE COURSE OF HEARING ALSO POIN TED OUT THAT IF THE CALCULATION IS BEING MADE ON THE BASIS OF 0. 5% OF AVERAGE VALUE OF THE INVESTMENT, WHICH HAS YIELDED DIVIDEND , THEN TOTAL EXPENDITURE COULD BE WORKED AT RS.548/- ONLY. THER EFORE, CONSIDERING THE DETAILS SUBMITTED BY THE ASSESSEE A S WELL AS THE FACT THAT ON SIMILAR INVESTMENT NO EXPENDITURE WAS DISALLOWED IN EARLIER YEARS OR IN THE SUBSEQUENT YEAR, WE ARE OF THE VIEW THAT NO DISALLOWANCE IS REQUIRED UNDER SECTION 14A IN THE P RESENT YEAR ALSO. THIS GROUND OF APPEAL IS ALLOWED. 8. IN THE RESULT, APPEAL OF THE ASSESSEE IS ALLOWED . ORDER PRONOUNCED IN THE COURT ON 3 RD JULY, 2019. SD/- SD/- (PRADIPKUMAR KEDIA) ACCOUNTANT MEMBER (RAJPAL YADAV) JUDICIAL MEMBER AHMEDABAD; DATED 03/07/2019