Alidhara Textool Engineers Pvt.Ltd., Surat V. The ACIT, Circle-1, Surat

ITA 2082/AHD/2014

• Counselvise Citation: [2018] 118 COUNSELVISE.COM (IT) 2325 (ITAT-SURAT)
• Duration Of Justice: 3 year(s) 8 month(s) 9 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 19-03-2018
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: DB
• Next Hearing Date: 25-04-2017
• Assessment Year: 2010-2011
• Appeal Filed On: 10-07-2014
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: R P RASTOGI
• Assessee Lawyers: MEHUL R SHAH
• Keywords: Earning of tax free income; Rule 8D
• Section: 14A

Judgement Text

ALIDHARA TEXTOOL ENGINEERS PVT. LTD. V. ACIT-CIRCLE - 1/I.T.A. NO.2082 /AHD/2014/A.Y.10-11 PAGE 1 OF 4 INCOM TAX APPELLATE TRIBUNAL SURAT-BENCH-SURAT BEFORE SHRI C .M. GARG, JUDICIAL MEMBER AND SHRI O. P. MEENA, ACCOUNTANT MEMBER I.T.A. NO.2082/AHD/2014 : ASSESSMENT YEAR:2010-11 M/S. ALIDHARA TEXTOOL ENGINEERS PVT. LTD. B-168, ROAD NO. 6-G, GROUND FLOOR , UDHYOG NAGAR UDHNA SURAT 394200 PAN: AAACD 8469M V S . ASSISTANT COMMISSIONER OF INCOME TAX, CIRCLE 1 SURAT APPELLANT RESPONDENT ASSESSEE BY SHRI MEHUL R. SHAH, CA REVENUE BY SHRI R. P. RASTOGI, SR. D.R. DATE OF HEARING 19.03.2018 DATE OF PRONOUNCEMENT 26.04.2018 ORDER PER O. P. MEENA, AM 1. THIS APPEAL BY THE ASSESSEE IS DIRECTED AGAINST THE ORDER OF LEARNED OF COMMISSIONER OF INCOME TAX (APPEALS)-1, SURAT (IN SHORT THE CIT (A)) DATED 22.05.2014 PERTAINING TO ASSESSMENT YEAR 2010-11, WHICH IN TURN HAS ARISEN FROM THE ORDER PASSED BY THE ACIT CIRCLE -1, SURAT (IN SHORT THE AO) DATED 22.03.2013 UNDER SECTION 143 (3) OF INCOME TAX ACT,1961 (IN SHORT THE ACT). 2. GROUND NO. 1 &2 : RELATES TO DIRECTING THE AO TO DISALLOWANCE 10% OF THE EXEMPTED RECEIPTS OUT OF TOTAL ADDITION OF RS. OF RS. 22,02,933 U/S. 14A AND THEREBY ENHANCING THE ADDITION BY RS. 4,28,396 ON ACCOUNT OF DISALLOWANCE U/S. 14A OF THE ACT READ WITH RULE 8D OF INCOME-TAX RULES, 1962. 3. BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE HAS MADE INVESTMENT IN SHARES OF INDIAN COMPANIES, THE DIVIDEND INCOME OF RS.2,63,13,291 [ DIVIDEND ON MUTUAL FUNDS ALIDHARA TEXTOOL ENGINEERS PVT. LTD. V. ACIT-CIRCLE - 1/I.T.A. NO.2082 /AHD/2014/A.Y.10-11 PAGE 2 OF 4 RS. 2,25,76,183+ DIVIDEND IN SHARES RS. 37,37,108] INCOME WHICH IS EXEMPTED UNDER SECTION 10(34) OF THE ACT. BUT NO EXPENDITURE HAS BEEN DISALLOWED BY THE ASSESSEE IN RELATION TO EXEMPT INCOME. IT WAS EXPLAINED THAT NO EXPENDITURE HAS BEEN INCURRED IN RELATION TO SUCH INVESTMENT IN SHARES OF INDIAN COMPANIES. HOWEVER, THIS EXPLANATION GIVEN BY THE ASSESSEE WAS NOT FOUND TO BE ACCEPTABLE. THE AO NOTED THAT NO NEXUS OF INVESTMENT MADE OUT OF BORROWED FUNDS HAS BEEN PROVED. AS PER SECTION 14A (3) , WHERE AN ASSESSEE CLAIMS THAT NO EXPENDITURE HAS BEEN INCURRED, THEN THE AO CAN DETERMINE THE AMOUNT OF EXPENDITURE INCURRED IN RELATION TO EXEMPT INCOME. THE INVESTMENT IN SHARES HAVING MADE OUT OF THE COMMON FUNDS OF THE ASSESSEE COMPANY. HENCE THE DISALLOWANCE AS TO BE MADE UNDER SECTION 14A OF THE ACT READ WITH RULE 8D. ACCORDINGLY, THE AO MADE DISALLOWANCE AT THE RATE OF .5% OF AMOUNT THE TOTAL ONE HALF PERCENT OF THE AVERAGE VALUE OF INVESTMENT FROM WHICH INCOME DOES NOT FORM PART OF TOTAL INCOME OF RS. 44,05,86,573, WHICH WORKED OUT TO RS.22,02,933 IN ACCORDANCE WITH PROVISIONS OF SECTION 14A (3) OF THE ACT. 4. BEING AGGRIEVED WITH THE ORDER OF THE AO, THE ASSESSEE FILED APPEAL BEFORE THE CIT(A). IT WAS CLAIMED BEFORE THE CIT (A) THAT THE INVESTMENT IN THE SHARES HAS BEEN MADE BY THE ASSESSEE OUT OF THIS ON FUNDS AND THUS, NO COST IS ASSOCIATED IN MAKING THE SAID INVESTMENT. AS PER ASSESSEE, NO EXPENDITURE HAVE BEEN INCURRED FOR EARNING EXEMPTED INCOME, DISALLOWANCE UNDER SECTION 14A CANNOT BE MADE. IT WAS ALSO SUBMITTED THAT SINCE THE AO HAS NOT RECORDED ANY SATISFACTION IN CONNECTION WITH THE CORRECTNESS OF THE CLAIM OF ASSESSEE, NO EXPENDITURE CAN BE DISALLOWED. IN IN SUPPORT OF HIS CONTENTION, THE APPELLANT RELIED ON VARIOUS DECISIONS AS MENTIONED IN HIS SUBMISSIONS. HOWEVER, THE CIT(A) RELYING ON THE DECISION OF THE AHMEDABAD TRIBUNAL ALIDHARA TEXTOOL ENGINEERS PVT. LTD. V. ACIT-CIRCLE - 1/I.T.A. NO.2082 /AHD/2014/A.Y.10-11 PAGE 3 OF 4 IN THE CASE OF GUJARAT GAS FINANCIAL SERVICES V. ACIT 115 ITD 218/119 TTJ 73(AHD) HELD THAT WHERE NO SEPARATE RECORDS ARE MAINTAINED AND WHEN THE EXEMPTED INCOME WAS LESS THAN 1% OF TOTAL RECEIPTS THAN DISALLOWANCE OF 10% OF EXPENSES WAS REASONABLE WHEN THE BASIS OF THIS LOANS WERE NOT AVAILABLE. ACCORDINGLY, THE AO IS DIRECTED TO THE COMPUTE THE QUANTUM OF THE EXEMPTED RECEIPTS AND DISALLOW 10% OF EXEMPT RECEIPTS AS EXPENDITURE UNDER SECTION 14 A OF THE ACT READ WITH RULE 8D OF THE INCOME-TAX RULES, 1962. 5. BEING NOT SATISFIED, THE ASSESSEE HAS FILED THIS APPEAL BEFORE THE TRIBUNAL. THE LEARNED COUNSEL FOR THE ASSESSEE SUBMITTED THAT ASSESSEE HAS NOT INCURRED ANY INTEREST EXPENDITURE AND INVESTMENT HAS BEEN MADE OUT OF ITS OWN FUNDS . HOWEVER, THE ASSESSING OFFICER WITHOUT BRINGING ANY EVIDENCE ON RECORD THAT ANY EXPENDITURE HAS BEEN INCURRED BY THE ASSESSEE IN RELATION TO DIVIDEND INCOME, SIMPLY REJECTED ASSESSEES EXPLANATION AND PROCEEDED TO MAKE DISALLOWANCE AT RS.22,02,933 UNDER SECTION 14A OF THE ACT READ WITH RULE 8D. THE CIT (A) HAS RESTRICTED THE DISALLOWANCE TO 10% OF DIVIDEND INCOME FOLLOWING THE RATIO OF DELHI HIGH COURT IN THE CASE OF CIT V. ORIENTAL STRUCTURAL PVT. LTD. AS AGAINST THIS YEARS 2% OF EXEMPT ASSETS. 6. THE LEARNED COUNSEL FOR THE ASSESSEE ALSO CITED DECISION OF SPECIAL BENCH IN THE CASE OF ACIT VS. VIREET INVESTMENT (P.) LTD (2017) 82 TAXMANN.COM 415 (DELHI- TRIB.)(SB) WHEREIN IT WAS HELD THAT ONLY THOSE INVESTMENTS ARE TO BE CONSIDERED FOR COMPUTING AVERAGE VALUE OF INVESTMENT WHICH YIELDED EXEMPT INCOME DURING THE YEAR. 7. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND GONE THROUGH THE ORDERS OF THE LOWER AUTHORITIES. IT IS NOTED THAT THE ASSESSEE HAS EARNED EXEMPT INCOME OF ALIDHARA TEXTOOL ENGINEERS PVT. LTD. V. ACIT-CIRCLE - 1/I.T.A. NO.2082 /AHD/2014/A.Y.10-11 PAGE 4 OF 4 RS.2,63,13,291 [ DIVIDEND ON MUTUAL FUNDS OF RS. 2,25,76,183 + DIVIDEND ON SHARES OF RS. 37,37,108] DURING THE YEAR UNDER CONSIDERATION. HOWEVER, THE EXPENDITURE INCURRED IN RELATION TO EARNING, SUCH EXEMPT INCOME HAS NOT BEEN QUANTIFIED DURING THE COURSE OF ASSESSMENT PROCEEDINGS. THE AO INVOKED THE PROVISIONS OF RULE 8D AND WORKED OUT THE DISALLOWANCE OF RS.22,02,933/- BEING 0.5% OF AVERAGE INVESTMENT. THEREFORE, CONSIDERING THE TOTALITY OF THE FACTS, WE ARE OF THE OPINION THAT THE DISALLOWANCES BE COMPUTED ONLY IN RESPECT OF THOSE INVESTMENT, WHICH YIELDED EXEMPTED INCOME DURING THE YEAR AS HELD BY SPECIAL BENCH IN THE CASE OF ACIT VS. VIREET INVESTMENT PVT. LTD. (SUPRA). THEREFORE, THIS ISSUE IS SET ASIDE TO THE FILE OF THE AO TO COMPUTE THE DISALLOWANCE IN THE LIGHT OF RATIO AS LAID DOWN IN ABOVE DECISION. 8. IN THE RESULT, THE APPEAL IS ALLOWED FOR STATISTICAL PURPOSES. 9. THE ORDER PRONOUNCED IN THE OPEN COURT ON 26 TH APRIL 2018. SD/ - ( . . ) SD/ - ( . . ) ( C.M. GARG) (O.P.MEENA) JUDICIAL MEMBER ACCOUNTANT MEMBER / SURAT: / DATED : 26 TH APRIL, 2018/OPM COPY SENT TO- ASSESSEE/AO/PR. CIT/ CIT (A)/ ITAT (DR)/GUARD FILE OF ITAT. BY ORDER / / TRUE COPY / / ASSISTANT REGISTRAR, SURAT