The DCIT, Circle-2(1)(2), Ahmedabad V. M/s. Mas Financial Services Ltd., Ahmedabad

ITA 2110/AHD/2018

• Counselvise Citation: [2021] 109 COUNSELVISE.COM (IT) 4689 (ITAT-AHMEDABAD)
• Duration Of Justice: 2 year(s) 4 month(s) 1 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 12-02-2021
• Appeal Filed By: Department
• Order Result: Allowed
• Bench Allotted: A
• Assessment Year: 2015-2016
• Appeal Filed On: 11-10-2018
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: S.S. SHUKLA
• Keywords: Earning of tax free income; Rule 8D
• Section: 14A; 143(2)

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL A BENCH, AHMEDABAD [THROUGH VIRTUAL COURT] BEFORE SHRI RAJPAL YADAV, VICE-PRESIDENT AND SHRI PRADIPKUMAR KEDIA, ACCOUNTANT MEMBER ITA.NO.2110/AHD/2018 / ASSTT.YEAR : 2015-16 THE DCIT, CIR.2(1)(2) AHMEDABAD. VS. MAS FINANCIAL SERVICES LTD. 6, GROUND FLOOR, NARAYAN CHAMBERS B/H. PATAN HOTEL ASHRAM ROAD AHMEDABAD 380 006. PAN : AABCM 0640 A / (APPELLANT) / (RESPONDENT) REVENUE BY : SHRI S.S. SHUKLA, SR.DR ASSESSEE BY : NONE / DATE OF HEARING : 11/02/2021 / DATE OF PRONOUNCEMENT: 12/02/2021 !'/ O R D E R PER RAJPAL YADAV, VICE-PRESIDENT REVENUE IS IN APPEAL BEFORE THE TRIBUNAL AGAINST OR DER OF THE LD.CIT(A)-2, AHMEDABAD DATED 18.7.2018 PASSED FOR T HE ASSTT.YEAR 2015-16, VIDE WHICH, THE LD.CIT(A) HAS RESTRICTED T HE DISALLOWANCE UNDER SECTION 14A OF THE INCOME TAX ACT, 1961. 2. NONE APPEARED ON BEHALF OF THE ASSESSEE. THEREF ORE, WE PROCEEDED TO DISPOSE OF THE APPEAL EX PARTE QUA THE ASSESSEE- RESPONDENT, AFTER HEARING THE LD.DR AND CONSIDERING THE MATERIAL AVAILABLE ON RECORD. ITA NO.2110/AHD/2018 2 3. BRIEF FACTS OF THE CASE ARE THAT ASSESSEE IS NON -BANKING FINANCE COMPANY ENGAGED FINANCING LOANS AND ADVANCE AND OTH ER ANCILLARY ACTIVITIES. IT HAS FILED RETURN OF INCOME ON 26.9. 2015 DECLARING TOTAL INCOME AT RS.60,29,81,830/-. THE CASE OF THE ASSES SEE WAS SELECTED FOR SCRUTINY ASSESSMENT BY ISSUANCE OF NOTICE UNDER SECTION 143(2) OF THE ACT. DURING THE ASSESSMENT PROCEEDINGS, IT WAS NOTICED BY THE AO THAT THE ASSESSEE HAS DECLARED DIVIDEND INCOME OF R S.4,87,675/-, WHICH WAS CLAIMED AS EXEMPT INCOME UNDER SECTION 10(35) O F THE INCOME TAX ACT, 1961, BUT NO EXPENSES HAS BEEN DISALLOWED TO C LAIM SUCH EXEMPTED INCOME. THE LD.AO ALSO NOTICED THAT THE A SSESSEE WAS HAVING INVESTMENT OF RS.11,09,94,334/- AND ALSO CLAIMED IN TEREST EXPENDITURE TO THE TUNE OF RS.99,13,34,126/- ON BORROWED FUNDS. THE LD.AO THEREFORE CONSTRUED THAT INVESTMENT MADE IN SHARES, OUT OF WHICH EXEMPT INCOME WAS CLAIMED, WOULD BE FROM THE INTERE ST BEARING BORROWED FUNDS. TO THE SHOW CAUSE NOTICE, IT WAS E XPLAINED BY THE ASSESSEE THAT THE ASSESSEE HAS INTEREST FREE FUND O F RS.103,53,86,985/- IN THE FORM OF SHARES CAPITAL AND RESERVES & SURPLU S AGAINST INVESTMENT OF RS.11,09,94,334/-, THEREFORE, ASSESSEE HAD SUFFI CIENT INTEREST FREE FUND TO MAKE INVESTMENT. FURTHER, DURING THE ACCOU NTING YEAR 2014- 15, THE INTEREST INCOME WAS RS.206,09,45,858/- AGAI NST WHICH INTEREST EXPENSE WAS RS.99,13,34,126/-, THEREFORE, NET INTER EST INCOME WAS RS.106,96,11,732/-, WHICH 2.08 TIMES MORE THAN THE LAST YEAR. IT WAS FURTHER SUBMITTED THAT OUT OF TOTAL INVESTMENT, 96. 85% INVESTMENT WAS MADE IN THE SUBSIDIARY COMPANY AS A STRATEGIC INVES TMENT, AND THE MAIN OBJECT OF THE SUBSIDIARY WAS FOR FINANCING HOU SING PROJECT. AN AMOUNT OF RS.4,87,675/- WAS RECEIVED AS DIVIDEND FR OM THE SUBSIDIARY, WHICH WOULD NOT ATTRACT PROVISIONS OF SECTION 14A O F THE ACT. IT WAS ALSO SUBMITTED THAT IN ANY CASE THE DISALLOWANCE COULD N OT BE EXCEEDED MORE THAN THE EXEMPT INCOME, AS PROPOUNDED IN VARIO US AUTHORITATIVE JUDGMENTS, AND THAT SIMILAR CLAIM FOR EARLIER YEARS WERE ACCEPTED BY THE ITA NO.2110/AHD/2018 3 DEPARTMENT. THE EXPLANATION OF THE ASSESSEE HAS NO T BEEN FOUND SATISFACTORY BY THE AO, AND HE HAS OBSERVED THAT EX PLANATION GIVEN BY THE ASSESSEE WAS GENERAL AND NO DETAILS SHOWING FUN D FLOW HAS BEEN SUBMITTED TO SUBSTANTIATE ITS CLAIM, AND THEREFORE, IT WAS A CASE OF DIVERSION OF INTEREST BEARING FUNDS BY THE ASSESSEE FOR NON-BUSINESS PURPOSE. HE, ACCORDINGLY, MADE DISALLOWANCE OF RS.9 0,55,252/- WITH THE HELP OF SECTION 14A R.W. RULE 8D. 4. DISSATISFIED WITH ORDER OF THE AO, THE ASSESSEE WENT IN APPEAL BEFORE THE LD.FIRST APPELLATE AUTHORITY. THE LD.CI T(A) HAS ALLOWED CLAIM OF THE ASSESSEE ON THE BASIS OF EARLIER APPELLATE O RDER FOR THE ASST.YEAR 2014-15, AND HELD THAT DISALLOWANCE OF THE EXPENSES SHOULD NOT BE MORE THAN THE EXEMPT INCOME EARNED BY THE ASSESSEE. AGGRIEVED BY THE ACTION OF THE LD.CIT(A), REVENUE IS NOW BEFORE THE TRIBUNAL. 5. WE HEARD THE LD.DR ON THE ISSUE, AND GONE THROUG H THE MATERIAL ON RECORD. WITHOUT GOING INTO ANY OTHER DETAILS, W E FIND THAT A PERUSAL OF THE IMPUGNED ORDER WOULD REVEAL THAT THE ASSESSE E HAS DIVIDEND INCOME OF RS.4,87,675/-. THE LD.AO HAS WORKED THE DISALLOWANCE UNDER SECTION 14A AT RS.90,55,252/- WHICH INCLUDED INTERE ST EXPENSES REQUIRED TO BE ALLOCATED UNDER SECTION 14A READ WIT H RULE 8D. HOWEVER, ON APPEAL, THE LD.CIT(A) HAS RESTRICTED TH IS DISALLOWANCE TO RS.4,87,675/-. THE FINDING OF THE LD.CIT(A) ON THI S ASPECT READS AS UNDER: 3.10. IN VIEW OF THE AFORESAID DISCUSSION AND FOLL OWING THE DECISION GIVEN BY CIT(A) - 2, AHMEDABAD IN PRECEDING YEAR I.E. A. Y. 2014-15, THE DISALLOWANCE MADE BY THE AO WITH REGARD TO THE ADMI NISTRATIVE AND EXPENDITURES BEING 0.5% OF THE AVERAGE INVESTMENTS INVOKING THE RULE 8D(2)(III) IS CONFIRMED TO THE EXTENT OF DIVIDEND I NCOME WHICH IS RS.4,87,675/-. IN OTHER WORDS, THE DISALLOWANCE UND ER SECTION 14A AMOUNTING TO RS.90,55,252/- IS RESTRICTED TO RS. 4, 87,675/-. RELIEF IS GRANTED FOR THE BALANCE DISALLOWANCE. ITA NO.2110/AHD/2018 4 6. IT IS PERTINENT TO OBSERVE THAT ISSUE IN DISPUTE IS SQUARELY COVERED BY THE DECISION OF HONBLE JURISDICTIONAL HIGH COUR T IN THE CASE OF CIT VS. CORRTECH ENERGY LTD., 372 ITR 97 (GUJ) WHEREIN IT W AS HELD THAT MAXIMUM DISALLOWANCE UNDER SECTION 14A COULD BE MAD E EQUIVALENT TO EXEMPT INCOME EARNED BY THE ASSESSEE IN THE ABSENCE OF ANY EXPENSES BEING INCURRED TO EARN SUCH INCOME. THEREFORE, IN T HE PRESENT CASE, DISALLOWANCE CANNOT EXCEED THE DIVIDEND INCOME EARN ED BY THE ASSESSEE. CONSIDERING THIS PROPOSITION, THE LD.CIT (A) HAS ALREADY RESTRICTED THE DISALLOWANCE TO RS.4,87,675/-, HENCE , NO INTERFERENCE IS CALLED FOR ON THIS ISSUE. THIS GROUND IS DISMISSE D. 7. IN THE RESULT, APPEAL OF THE REVENUE IS DISMISSE D. ORDER PRONOUNCED IN THE COURT ON 12 TH FEBRUARY, 2021 AT AHMEDABAD. SD/- SD/- (PRADIPKUMAR KEDIA) ACCOUNTANT MEMBER (RAJPAL YADAV) VICE-PRESIDENT