Sri. Roy M. Mathew, Trivandrum V. TheJTCIT, Thiruvalla

ITA 211/COCH/2016

• Counselvise Citation: [2016] 131 COUNSELVISE.COM (IT) 7642 (ITAT-COCHIN)
• Duration Of Justice: 5 month(s) 22 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 25-10-2016
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: DB
• Next Hearing Date: 26-09-2016
• Assessment Year: 2012-2013
• Appeal Filed On: 03-05-2016
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: THOMAS CHERIAN
• Keywords: Earning of tax free income
• Section: 14A

Judgement Text

1 IN THE INCOME TAX APPELLATE TRIBUNAL : COCHIN BENCH : COCHIN BEFORE SHRI B.P. JAIN, HONBLE ACCOUNTANT MEMBER AND SHRI GEORGE GEORGE K., HONBLE JUDICIAL MEMBER IT A NO. 2 1 0 / COCH /201 6 (A.Y. 20 11 - 12 ) ITA NO. 211/COCH/2016 (A.Y. 2012 - 13) ROY. M. MATHEW VS JCIT, C/O. THOMAS CHERIAN FCA, THIRUVALLA RANGE, CHARTERED ACCOUNTANT, THIRUVALLA. KERALAPURAM BUILDINGS, SREENIVASA AYYAR ROAD, KOTTAYAM 68600. PAN NO. AFEPM6522L (APPELLANT) (RESPONDENT) DATE OF HEARING : 2 6 /0 9 /2016 DATE OF PRONOUNCEMENT : 2 5 /10/2016. ASSESSEE BY : SHRI THOMAS CHERIAN , C.A. DEPARTMENT BY : S HRI A. DHANRAJ, SR. D.R. PER B.P. JAIN, E A.M. : 1. TH E APPELLANT/ ASSESS E E HAS CHALLENGED THE SEPARATE ORDER S DATED 02.03.2016 PASSED BY THE LD. CIT(A) KOTTAYAM FOR A.Y. 2011 - 12 AND 2012 - 13. SINCE THE ISSUE IN BOTH THE APPEALS ARE IDENTICAL, THEREFORE, BOTH THE APPEALS ARE TAKEN UP BY THE CONSOLIDATED ORDER. FIRST OF ALL WE TAKE UP THE APPEAL IN ITA NO. 210/COCH/2016 FOR THE ASSESSMENT YEAR 2011 - 12 AND 2 OUR ORDER HERE BELOW SHOULD BE IDENTICALLY APPLICABLE IN ITA NO. 211/COCH/2016 FOR ASSESSMENT YEAR 2012 - 13. 2. THE APPELLANT IS AN INDIVIDUAL AND IS A PARTNER AND DIRECTOR IN THE GROUP COMPANIES OF MUTHOOT MINI. THE RETURN OF INCOME WAS FILED BY T HE APPELLANT ON 18.07.2012 DECLARING AN INCOME OF RS. 76,45,477/ - . THE CASE OF THE APPELLANT WAS SELECTED FOR SCRUTINY AND ACCORDINGLY, A NOTICE UNDER SECTION 143(2) WAS ISSUED ON 14.08.2013. 3. THE A.O. DURING THE COU R SE OF ASSESSMENT PROCEEDINGS INVOKED SECTION 14A OF THE ACT AND HELD THAT THE INTER E ST EXPENDITURE ON EARNING THE EXEMPT INCOME UNDER SECTION 10 OF THE ACT HAS TO BE DISALLOWED. ACC O RDINGLY, BY APPLYING THE PROVISION S CONTAIN E D IN RULE 8D, A DISALLOWANCE OF RS. 1,48,23,516/ - WAS MADE. 4. AGGRIEVED BY THE ORDER DATED 31.01.2014 PASSED BY THE A.O., THE APPELLANT PREFERRED APPEAL BEFORE CIT(A). THE CIT(A) VIDE IMPUGNED ORDER DATED 02.03.2016 UPHELD THE DISALLOWANCE BY HOLDING THAT THE INTEREST EXPENDITURE ON EARNING THE EXEMPT INCOME CA NNOT BE SPECIFICALLY RELATED AND THEREFORE, HAS TO BE DISALLOWED UNDER SECTION 14A. 5. THE APPELLANT IS IN APPEAL BEFORE US AND HAS RAISED THE FOLLOWING GROUNDS OF APPEAL. 1 THE ORDER OF THE COMMISSIONER OF INCOME TAX (APPEALS), KOTTAYAM IS ERRONEOUS NOT ONLY IN LAW, BUT ALSO ON FACTS AND CIRCUMSTANCES OF THE CASE IN SO FAR AS IT IS PREJUDICIAL TO THE INTEREST OF APPELLANT. 3 2. THE COMMISSIONER OF INCOME TAX (APPEALS) ERRED IN DISMISSING THE APPEAL, IN SPITE OF THE FACTS, VARIOUS CASE LAWS AND SUBMIS SIONS FILED BY THE APPELLANT, CONFIRMING THE FINDINGS F FTHE ASSESSING OFFICER WHICH IS NOT IN CONFORMITY WITH LAW AND FACTS AND FIGURES OF THE CASE AND THERE FOR THE DISALLOWANCE OF INTEREST EXPENSES OF RS. 1,48,23,516/ - IS TO BE DELETED. 3. SECTION 14A OF THE INCOME TAX ACT 1961 STATES THAT, FOR THE PURPOSE OF COMPUTING THE TOTAL INCOME UNDER THIS CHAPTER, NO DEDUCTION SHALL BE ALLOWED IN RESPECT OF EXPENDITURE INCURRED BY THE ASSESSEE IN RELATION TO INCOME WHICH DOES NOT FORM PART OF THE TOTAL INCOME UNDER THIS ACT. HERE NO CLAIM FOR EXPENDITURE HAS BEEN MADE BY THE ASSESSEE IN RELATION TO INCOME WHICH DOES NOT FORM P A RT OF THE TOTAL INCOME. 4. THE COMMISSIONER OF INCOME TAX (APPEALS) IS ALSO WRONG IN CONFIRMING THE VIEW OF THE ASSESSING OFFICER, THAT THE EXPENDITURE INCURRED IN RELATION TO NON TAXABLE INCOME CANNOT BE ALLOWED. 5. ON THE BASIS OF ABOVE, AND OTHER GROUNDS AND ARGUMENTS THAT MAY BE PRESENTED AT THE TIME OF HEARING, I REQUEST THAT THE ORDER OF THE ASSESSING OFFICER MAY BE CANCELLED ANY MY ORIGINAL RETURN BE ACCEPTED. 6. ALL THE GROUNDS PERTAIN TO THE DISALLOWANCE OF RS. 1,48,23,516/ - UNDER SECTION 14A OF THE ACT. THE ONLY ISSUE TO BE ADJUDICATED IN THE PRESENT CASE IS REGARDING THE APPLICABILITY OF SECTION 14A OF THE ACT. THE AR 4 HA SUBMITTED THAT SECTION 14A IS NOT APPLICABLE TO THIS CASE AS ONLY N EGLIGIBLE EXEMPT INCOME HAS BEEN EARN ED DURING THE RELEVANT A.Y. HE FURTHER ARGUED THAT THE REVENUE WHILE FRAMING THE ASSESSMEN T H A S TAKEN INTO ACCOUNT ONLY THE INTEREST PAID AND NOT THE INTEREST RECEIVED. IT IS SUBMITTED BY HIM THAT SECTION 14A AND RULE 8D DISALLOWANCE OF INTEREST IS NOT MER ITED WHEN THE INTEREST INCOME EXCEEDS EXPENDITURE. THE LD. DR ON THE OTHER HAND HAS RELIED UPON THE ORDERS PASSED BY THE AO AND THE CIT(A). 7. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE RECORD. TH E APPELLANT IN THE A.Y. 2011 - 12 HAS RECEIVED INTE REST AMOUNTING TO RS. 3,57,32,250/ - . THE INTEREST PAID DURING THE YEAR IS RS. 3,09,76,160/ - . THE BALANCE AMOUNT OF RS. 47,56,090/ - IS OFFERED UNDER INCOME FROM BUSINESS. THE CASE OF THE REVENUE IS THAT A COMPON EN T OF T H E AFORESAID INTER ES T EXPENDITURE WHICH IS USED FOR EARNING EXEMPT INCOME UNDER SECTION 10 OF THE ACT HAS TO BE DISALLOWED. A PERUSAL OF THE INCOME TAX RETURN FILED BY THE APPELLANT FOR A.Y . 2011 - 12 GOES TO SHOW THAT THE ONLY EXEMPT INCOME CLAIMED BY THE APPELLANT IS DIVIDEN D RECEIVED OF RS. 13,629/ - . IT IS ONLY THIS EXEMPT INCOME AGAINST WHICH PROPORTIONATE EXPENDITURE CAN BE DISALLOWED. 8. THE DIS A LLOWANCE UNDER SECTION 14A CANNOT BE MADE ON THE PRESUMPTION THAT THE APPELLANT WOULD H A VE EARNED EXEMPT INCOME. THERE SHOULD BE AN ACTUAL RECEIPT OF INCOME FOR MAK ING A DISALLOWANCE UNDER SECTION 1 4A OF THE AC T. IN THE PRESENT CASE, FOR THE DISALLOWANCE OF RS. 1,48,23,516/ - , THE REVENUE HAS FAILED TO POINT OUT AS TO WHICH IS THE EXEMPT INCOME FOR WHICH SUCH EXPENDITURE RELATES. 5 9. THE HONBLE DELHI HIGH COURT IN THE CASE OF CHEMINVEST LIMITED VS. CIT, ITA NO. 749/2014 HELD AS UNDER : - 23. IN THE CONTEXT OF THE FACTS ENUMERATED HEREINBEFORE THE COURT ANSWERS THE QUESTION FRAMED BY HOLDING THAT THE EXPRESSION DOES NOT FORM PA RT OF THE TOTAL INCOME IN SECTION 14A OF THE ENVISAGES THAT THERE SHOULD BE AN ACTUAL RECEIPT OF INCOME, WHICH IS NOT INCLUDIBL E IN THE TOTAL INCOME, DURING THE RELEVANT PREVIOUS Y E AR FOR THE PURPOSE OF DISALLOWING ANY EXPENDITURE INCURRED IN RELATION TO THE SAID INCOME. IN OTHER WORDS, SECTION 14A WILL NOT APPLY IF NO EXEMPT INCOME IS RECEIVED OR RECEIVABLE DURING THE RELEVANT PREVIOUS YEAR. 10. IN THE PRESENT CASE ALSO APART FROM THE DIVIDEND INCOME OF RS. 13,629/ - , NO OTHER INCOME HAS BEEN CLAIMED AS EXEMPT BY THE APPELLANT. THE DISALLOWANCE IF ANY, CAN ONLY BE LIMITED TO SUCH DIVIDEND INCOME OF RS. 13,629/ - . HOWEVER IN THE PRESENT CASE THE DEPARTMENT HAS NOT GONE INTO THE SAME. 11. IN VIEW THEREOF, THE DISALLOWANCE MADE UNDER SECTION 14A OF THE ACT READ WITH RULE 8D IS DELETED AS THE SAID SECTION HAS NO APPLICATION TO THE FACTS OF THE PRESENT CASE. 12. GROUND NO. 1 TO 4 RAISED BY THE APPELLANT ARE ALLOWED. 13. IN THE RESULT, APPEAL IS ALLOWED. 6 ITA NO. 211/COCH/2016 (A.Y. 201 2 - 1 3 ) 14. THE FACTS OF THE PRESENT CASE ARE IDENTICAL TO THE CASE OF THE ASSESSEE FOR A.Y. 2011 - 12. THE SAME ARE NOT REPEATED HEREIN. 15. IN THE PRESENT CASE THE DISALLOWANCE OF INTEREST EXPENDITURE IS OF RS. 1,12,91,471/ - UNDER SECTION 14A OF THE ACT. IN THE IDENTICAL CASE OF THE APPELLA NT FOR A.Y. 2011 - 12, ITA NO. 210 /COCH/2016, WE HAVE ALLOWED THE APPEAL OF THE APPELLANT. IN THE PRESENT CASE WE FOLLOW THE SAME AND ACCORDINGLY ALLOW THE APPEAL AND OUR ORDER IN ITA NO. 210/COCH/2016 SHALL BE IDENTICALLY APPLIC ABLE IN THE PRESENT APPEALS SUBJECT TO CHANGE IN FIGURES OF QUANTUM AS PER ORDERS OF AUTHORITIES BELOW AND GROUNDS OF APPEAL. 16. IN THE RESULT, BOTH THE APPEAL S ARE ALLOWED. ORDER PRONOUNCED IN THE COURT ON 2 5 /10/2016. S D / - S D / - (GEORGE GEOR GE K.) (B.P. JAIN) JUDICIAL MEMBER ACC O UNTANT MEMBER DATED : 2 5 /10/2016 A/N COPY TO : - 1 - APPELLANT 2 - RESPONDENT 3 - CIT(A) 4 - CIT 5 - D/R, ITAT, COCHIN. ASSISTANT REGISTRAR