The ACIT, Circle-2(1)(2), Ahmedabad V. Milestone Tradelinks Pvt. Ltd., Ahmedabad

ITA 2146/AHD/2017

• Counselvise Citation: [2019] 118 COUNSELVISE.COM (IT) 3373 (ITAT-AHMEDABAD)
• Duration Of Justice: 1 year(s) 4 month(s) 24 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 21-02-2019
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: B
• Assessment Year: 2013-2014
• Appeal Filed On: 27-09-2017
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: B L MEENA
• Assessee Lawyers: BIREN SHAH
• Keywords: Earning of tax free income
• Section: 14A

Judgement Text

, - IN THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD BENCH B BEFORE SHRI RAJPAL YADAV, JUDICIAL MEMBER AND SHRI AMARJIT SINGH, ACCOUNTANT MEMBER ./ ITA NO.2146/AHD/2017 WITH CO NO.54/AHD/2018 / ASSTT. YEAR: 2013-14 ACIT, CIR.2(1)(2) AHMEDABAD. VS. MILESTONE TRADELINK P.LTD. 10, ORCHID SHOPPING MALL OPP: THALTEJ LAKE THALTEJ, AHMEDABAD. PAN : AACCM 9423 C / (APPELLANT) / (RESPONDENT) REVENUE BY : SHRI B.L. MEENA, SR.DR ASSESSEE BY : SHRI BIREN SHAH, AR ! / DATE OF HEARING : 21/02/2019 '#$ ! / DATE OF PRONOUNCEMENT: 21/02/2019 %& / O R D E R PER RAJPAL YADAV, JUDICIAL MEMBER: REVENUE IS IN APPEAL BEFORE THE TRIBUNAL AGAINST OR DER OF THE LD.CIT(A)-2, AHMEDABAD DATED 4.7.2017 PASSED FOR TH E ASSTT.YEAR 2013-14. ON RECEIPT OF NOTICE IN REVENUES APPEAL , THE ASSESSEE HAS FILED CROSS OBJECTION BEARING NO.54/AHD/2018. 2. REGISTRY HAS POINTED OUT THAT THE APPEAL IS TIME BARRED BY 8 DAYS. IN ORDER TO EXPLAIN THE DELAY, REVENUE HAS F ILED AN APPLICATION DATED 27.9.2017 CONTENDING THEREIN THAT PCIT-2, AHMEDABAD WAS HOLDING ADDITIONAL CHARGE OF PCIT-1, PCIT-5 & ITA NO.2146/AHD/2017 WITH CO 2 PCIT-7 AS WELL AS THAT CIT(EXEMPTION). HENCE, HE R EMAINED BUSY AND COULD NOT GET TIME TO GRANT NECESSARY APPROVAL. CONSIDERING THE EXPLANATION OF THE REVENUE, WE CONDONE THE DELA Y AND PROCEED TO DECIDE THE APPEAL ON MERIT. 3. ONLY GROUND TAKEN BY THE REVENUE IS THAT THE LD. CIT(A) HAS ERRED IN DELETING DISALLOWANCE OF RS.2,11,20,355/- OUT OF TOTAL DISALLOWANCE OF RS.2,27,79,227/- WHICH WAS DISALLOW ED BY THE AO UNDER SECTION 14A R.W.S. RULE 8D OF THE INCOME TAX RULES. GRIEVANCE OF THE ASSESSEE IN THE CO IS THAT THE LD. CIT(A) HAS ERRED IN CONFIRMING DISALLOWANCE OF RS.16,58,872/-. IN O THER WORDS, REVENUE IS PLEADING THAT TOTAL DISALLOWANCE MADE BY THE AO OUGHT TO HAVE BEEN CONFIRMED BY THE LD.CIT(A). ON THE OT HER HAND, THE ASSESSEE HAS PLEADED THAT THE TOTAL DISALLOWANCE MA DE BY THE AO UNDER SECTION 14A READ WITH RULE 8D OUGHT TO HAVE B EEN DELETED BY THE CIT(A). 4. BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE HAS FILED ITS RETURN OF INCOME ON 28.9.2013 DECLARING LOSS OF RS. 1,79,69,850/-. THE CASE OF THE ASSESSEE WAS SELECTED FOR SCRUTINY ASSESSMENT AND NOTICE UNDER SECTION 143(2) WAS ISSUED AND SERV ED UPON THE ASSESSEE. ON SCRUTINY OF THE ACCOUNTS IT REVEALED TO THE AO THAT THE ASSESSEE HAS SHOWN DIVIDEND INCOME OF RS.32,69, 912/- WHICH WAS CLAIMED AS EXEMPT FROM TAXES UNDER SECTION 10(3 4)/(35) OF THE ACT. THE LD.AO FURTHER FOUND THAT THE ASSESSEE HAS SHOWN NON-CURRENT INVESTMENT OF RS.2.66 CRORES IN THE IMM EDIATE PRECEDING YEAR. IT HAS ALSO SHOWN CURRENT INVESTME NT TO THE TUNE OF RS.57.82 CRORES. AO FURTHER OBSERVED THAT THE A SSESSEE HAS DEBITED PERSONAL INTEREST EXPENSES OF RS.1.11 CRORE S, AND HENCE ITA NO.2146/AHD/2017 WITH CO 3 HE PROCEEDED TO MAKE DISALLOWANCE UNDER SECTION 14A R.W. RULE 8D. WITH HELP OF FORMULA, HE WORKED OUT THE DISALL OWANCE OF RS.2,27,79,227/-. 5. ON APPEAL, THE LD.CIT(A) HAS DELETED INTEREST CO MPONENT OUT OF THE DISALLOWANCE. THE LD.CIT(A) HAS RECORDED A FINDING THAT THE ASSESSEE HAS NET INTEREST INCOME OF RS.21,60,829/-. THE LD.CIT(A) HAS ALSO OBSERVED THAT TOTAL INVESTMENTS WERE OF RS.64.83 CRORES. IN OTHER WORDS, THE ASSESSEE HAS DEMONSTRATED MORE INTEREST FREE FUNDS THAN THE INVESTMENT MADE B Y IT. THE DISCUSSION MADE BY THE LD.CIT(A) IN THIS REGARD IS WORTH TO NOTE, WHICH READS AS UNDER: 3.5. IT HAS BEEN PLEADED THAT THE INVESTMENTS WERE ONLY TO THE TUNE OF RS.63,68,50,854/- AS ON 31/03/2013 AND RS.2,66,98,0 00/- AS ON 31/03/2012 WHILE THE INTEREST FREE FUNDS IN THE FORM OF SHARE CAPITAL AND RESERVES AND SURPLUS WERE AT RS.64,83,10,970/- AND RS.37,31,10,3 86/- AS ON 31/03/2013 AND 31/03/2012 RESPECTIVELY. THUS, THE INVESTMENT I N SHARES WERE MUCH LESS THAN THE INTEREST FREE FUNDS AVAILABLE, THE AO HAS NOT BROUGHT ANYTHING ON RECORD THAT ANY INTEREST BEARING ADVANCES HAVE B EEN UTILISED FOR THE PURPOSE OF INVESTMENT IN SHARES. 3.6. FURTHER, IT HAS BEEN PLEADED THAT THE APPEL LANT HAD THE INTEREST INCOME OF RS.11,40,90,728/- WHILE IT HAD THE INTERE ST EXPENSES OF RS.11,19,29,899/-. THUS, THERE WAS THE NET INTEREST INCOME OF RS.21,60,829/-. SINCE THERE WAS NET INTEREST INCOME DURING THE YEAR UNDER CONSIDERATION, THEREFORE, NO DISALLOWANCE ON ACCOUN T OF INTEREST UNDER RULE 8D(2)(II) IS CALLED FOR AND HENCE, INTEREST DISALLO WANCE IS DELETED. 6. WITH THE ASSISTANCE OF THE LD.REPRESENTATIVES, W E HAVE GONE THROUGH THE RECORD CAREFULLY. WE FIND THAT DISPUTE IS SQUARELY COVERED IN FAVOUR OF THE ASSESSEE BY DECISION OF HO NBLE GUJARAT HIGH COURT IN THE CASE OF PCIT VS. NIRMA CREDIT AND CAPITAL PVT. LTD., (2017) 85 TAXMANN.COM 72; TAX APPEAL NO.409 A ND 514 OF 2017. HONBLE GUJARAT HIGH COURT HAS OBSERVED THAT DISALLOWANCE UNDER SECTION 14A R.W. RULE 8D COULD BE MADE IF THE RE IS A NET ITA NO.2146/AHD/2017 WITH CO 4 INTEREST EXPENDITURE CLAIMED BY THE ASSESSEE; WHERE THERE IS NET INTEREST INCOME, THEN NO INTEREST EXPENSES COULD BE DISALLOWED. APART FROM THE ABOVE, IN THE CASE OF CIT UTI BANK LTD ., (2017) 37 TAXMANN.COM 370, HONBLE COURT HAS OBSERVED THAT IF THERE ARE MIXED FUNDS, AND THE ASSESSEE HAS MORE INTEREST FRE E FUNDS THAN THE INVESTMENT, THEN INFERENCE WOULD BE THAT INVEST MENT WAS MADE FROM THE INTEREST FREE FUNDS. CONSIDERING BOT H THESE JUDGMENTS, WE ARE OF THE VIEW THAT THE ASSESSEE HAS DEMONSTRATED MORE INTEREST FREE FUNDS AVAILABLE WIT H IT THAN THE INVESTMENT. SIMILARLY, IT HAS NET INTEREST INCOME INSTEAD OF EXPENDITURE. THE DISALLOWANCE ON ACCOUNT OF INTERE ST EXPENDITURE IN A DEEMING WAY, CANNOT BE WORKED OUT. THE LD.CIT (A) HAS RIGHTLY DELETED THE ADDITION. NO INTERFERENCE IS C ALLED FOR IN HER ORDER ON THIS ISSUE. THIS GROUND OF APPEAL OF THE REVENUE IS REJECTED. 7. IN THE RESULT, APPEAL OF THE REVENUE IS DISMISSE D. 8. AS FAR AS CO OF THE ASSESSEE IS CONCERNED, WE FI ND THAT THE ASSESSEE HAS NOT DEBITED ANY EXPENDITURE WHICH COUL D BE ATTRIBUTED TO EARNING OF EXEMPT INCOME. THE ASSESS EE HAS MADE HUGE INVESTMENT AND SOMEBODY MUST HAVE DEPUTED FOR TAKING CARE OF THESE INVESTMENTS. THE LD.AO HAS WORKED OU T EXPENDITURE ATTRIBUTABLE TO EARNING OF TAXES FREE INCOME AS PER RULE 8D, WHICH IS HALF-PERCENT OF THE INVESTMENT YIELDING TAX FREE INCOME. THE LD.CIT(A) HAS CONFIRMED THAT DISALLOWANCE. AFTER C ONSIDERING WELL REASONED ORDER OF THE LD.CIT(A) WE DO NOT FIND ANY ERROR IN IT, AND NO INTERFERENCE IS CALLED FOR AT THE END OF THE TRI BUNAL ON THIS ITA NO.2146/AHD/2017 WITH CO 5 ISSUE. THEREFORE, WE DO NOT FIND ANY MERIT IN THE CO FILED BY THE ASSESSEE. 9. IN THE RESULT, APPEAL OF THE REVENUE AND CO OF T HE ASSESSEE, BOTH ARE DISMISSED. ORDER PRONOUNCED IN THE COURT ON 21 ST FEBRUARY, 2019. SD/- SD/- (AMARJIT SINGH) ACCOUNTANT MEMBER (RAJPAL YADAV) JUDICIAL MEMBER AHMEDABAD; DATED 21/02/2019