Arunachala Logistics Private Limited, Hyderabad V. Dy. Commissioner of Income Tax , Circle-1(1), Hyderabad

ITA 2213/Hyd/2018

• Counselvise Citation: [2021] 108 COUNSELVISE.COM (IT) 8592 (ITAT-HYDERABAD)
• Duration Of Justice: 2 year(s) 3 month(s) 29 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 25-03-2021
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: DB-A
• Next Hearing Date: 25-02-2021
• Assessment Year: 2010-2011
• Appeal Filed On: 26-11-2018
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Assessee Lawyers: S RAMA RAO
• Keywords: Earning of tax free income; Proportionate interest; Rule 8D
• Section: 271(1)(c); 143(3); 14A; 250; 201; 11

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL HYDERABAD A BENCH, HYDERABAD. BEFORE SHRI S.S. GODARA, JUDICIAL MEMBER AND SHRI LAXMI PRASAD SAHU, ACCOUNTANT MEMBER (THROUGH VIRTUAL HEARING) ITA NO S . 2204, 2213 & 2208 /HYD/2018 (ASSESSMENT YEAR S : 201 0 - 11 & 2014 - 15 ) M/S.ARUNACHALA LOGISTICS PVT. LTD., 8 - 2 - 1/1/3, AVTAR NIVAS, SRINAGAR COLONY, MAIN ROAD, PUNJAGUTTA, HYDERABAD - 500 082 PAN AAGCS 1855C VS. DY. COMMISSIONER OF INCOME TAX, CIRCLE 1(1), HYDERABAD. APPELLANT RESPONDENT APPELLANT BY : SHRI S. RAMA RAO. RESPONDENT BY : SHRI SUNIL KUMAR PANDEY, D.R. DATE OF HEARING : 25.02. 2021. DATE OF PRONOUNCEMENT : 25 .03. 2021. O R D E R PER SHRI S.S. GODARA, J.M. : TH ESE THREE APPEALS PERTAIN TO A SINGLE ASSESSEE M/S. ARUNACHALA LOGISTICS PVT. LTD. IT HAS FILED APPEALS ITA NOS.2204, 2213 & 2208/HYD/2018 AGAINST THE CIT(A) - 1, HYDERABAD SEPARATE ORDERS DT.11.9.2018 IN FIRST AND 7.9.2018 IN LATTER TWIN INSTANT IN CASE NOS .1000 5/CIT(A) - 1,HYD/2017 - 18/2018 - 19, 0044/CIT(A) - 1,HYD/2016 - 17/2018 - 19 AND 0337/CIT(A) - 1/HYD/2016 - 17/2018 - 19; INVOLVING 2 ITA NO S . 2204, 2213 & 2208/HYD/2018 PROCEEDINGS U/S. 271(1)(C), 143(3) R.W.S. 263 AND 143(3) OF THE INCOME TAX ACT, 1961 ('THE ACT'); (APPEAL - WISE); RESPECTIVELY. HEARD BOTH THE PARTIES . C ASE FILE S PERUSED. WE PROCEED APPEAL - WISE FOR THE SAKE OF CONVENIENCE AND BREVITY. 2. COMING TO THE ASSESSEE'S FIRST AND FOREMOST APPEAL ITA NO.22204/HYD/2018 CHALLENGING CORRECTNESS OF BOTH THE LOWER AUTHORITIES IMP OSING SEC. 271(1)(C) PENALTY OF RS.50,98,500 , IT TRANSPIRES , AT THE OUTSET THAT THE ASSESSING OFFICER HAD ISSUED HIS SHOW CAUSE NOTICE DT. 11.3.2013 ; NOWHERE S PECIF Y AS TO UNDER WHICH LIMB WAS ISSUED IN THE FACTS AND CIRCUMSTANCES. WE THUS ARE OF THE OPIN ION TH IS FIRST APPEAL DOES NOT REQUIRE MUCH ADJUDICATION SINCE THE ASSESSING OFFICER HA D HIMSELF NOT MADE IT CLEAR IN THE SHOW CAUSE IF THE ASSESSEE HAD CONCEALED THE INCOME OR FURNISHED INACCURATE PARTICULARS OF SUCH INCOME IN OTHER WORDS. HONBLE JURISD ICTIONAL HIGH COURT DECISION IN THE CASE OF P R. CIT VS. SMT B AISE TTI REVATI DT.13.7.2017 IN ITTA NO.684 OF 2016 HOLDS THAT SUCH A FAILURE ON ASSESSING OFFICER S PART RENDERS THE ENTIRE PENAL PROCESS AS NOT SUSTAINABLE. 3. L EARNED DR, ON THE O THER HAND, HAS QUOTED SUNDARAM FINANCE VS. ACIT (2018) 93 TAXMAN.COM 250 (MAD) THAT SUCH A FAILURE IS VERY MUCH A CURABLE DEFAULT ONLY . WE FIND NO MERIT IN THE R EVENUES INSTANT ARGUMENT SINCE THE SAID HONBLE 3 ITA NO S . 2204, 2213 & 2208/HYD/2018 NON - JURISDICTIONAL HIGH COURT S DECISION COULD NOT BE APPLIED AT THE COST OF THE HONBLE JURISDICTIONAL HIGH COURT DECISION HEREINABOVE . WE THUS DIRECT THE ASSESSING OFFICER TO DELETE THE IMPUGNED PENALTY FOR THIS PRECISE REASON ALONE . THE ASSESSEE'S FIRST AND FORMER APPEAL 2204/HYD/2018 IS ACCEPTED IN ABOVE TERMS. 4 . THE ASSESSEE'S SECOND APPEAL ITA NO.2213/HYD/2018 RAIS ES THE SOLE SUBSTANTIVE GROUND THAT BOTH THE LOWER AUTHORITIES HAVE ERRED IN LAW AND ON FACTS IN INVOKING SECTION 14A R.W. RULE 8D DISALLOWANCE/ ADDITION OF RS.85,50,344 IN RELATION TO ITS EXEMPT INCOME OF RS.6,36,581 FROM DIVIDEND S . THE ASSESSING OFFICER INVOKED THE SECOND AND THIRD LIMB S OF RULE 8D(2) OF THE RULES RELATING TO PROPORTIONATE INTEREST AND ADMINISTRATIVE EXPENSES OF RS.80,26,335 AND RS.5,24,009; RESPECTIVELY TOTALLING TO THE IMPUGNED SUM OF RS.85,50,344. 5. MR. RAMA RAO VEHEMENTLY CONTENDED DURING THE COURSE OF HEARING BOTH THE LOWER AUTHORITIES HAVE ERRED IN DISALLOWING THE IMPUGNED TWIN HEADS OF DISALLOWANCE IN THE ASSESSEE'S HANDS. WE SOUGHT TO NOTE THAT THE ASSESSEE'S FINANCIAL POSITION. IT EMERGES WITH THE ABLE ASSISTANCE OF BOTH THE PARTIES THAT THE ASSESSEE HAD MADE INVESTMENTS OF RS.19,19,16,964 AS AGAINST CAPITAL AND RESERVES HEAD FIGURES OF RS.25,86 ,000 AND RS.10,24,80,936; RESPECTIVELY. THE ASSESSEE'S NON - INTEREST BEARING FUNDS ARE FOUND TO BE LESSER THAN ITS INVESTMENT YIELDING 4 ITA NO S . 2204, 2213 & 2208/HYD/2018 EXEMPT INCOME IN OTHER WORDS. WE THUS FIND NO REASON TO SUSTAIN THE ASSESSEE'S ARGUMENT CHALLENGING THE IMPUGNED DISALLO WANCE, IN PRINCIPLE THEREFORE . 6 . THE ASSESSEE'S NEXT ISSUE RAISES YET ANOTHER EQUALLY IMPORTANT ASPECTS OF QUANTIFICATION OF THE IMPUGNED DISALLOWANCE. MR. RAMA RAO QUOTED HONOURABLE DELHI HIGH COURT DECISION IN THE CASE OF JOINT INVESTMENTS P. LTD. VS. CIT 372 ITR 694 (DEL) THAT THE IMPUGNED DISALLOWANCE COULD NOT EX CEED THE SUM OF THE EXEMPT INCOME ITSELF. THIS CLINCHING ARGUMENT HAS GONE UNREBUTTED FROM THE R EVENUES SIDE. WE THUS DIRECT THE ASSESSING OFFICER TO RESTRICT THE IMPUGNED SECTI O N 14A R.W. RULE 8D DISALLOWANCE OF RS.85,50,344 TO THE EX TENT OF EXEMPT INCOME OF RS.6,36,581 ONLY. N ECESSARY COMPUTATION TO FOLLOW AS PER LAW. THE ASSESSEE'S SECOND APPEAL ITA 2213/HYD/2018 IS PARTLY ACCEPTED. 7 . LASTLY COME S ASSESSEE'S THIRD APPEAL ITA 2213/HYD/2018. ITS SOLE SUBSTANTIVE GRIEVANCE CHALLENGES BOTH THE LOWER AUTHORITIES ACTION INVOKING SECTION 14A R.W. RULE 8D OF THE RULES OF RS.1,42,44,497 COMPRISING OF PROPORTIONATE INTEREST AND ADMINISTRATIVE EXPENSES OF RS.12,12,3,241 AND RS.21, 21,256; RESPECTIVELY. THE ASSESSEE'S EXEMPT INCOME AND INVESTMENT AND THE CORRESPONDING INVESTMENT S FIGURE S REA D RS.34,80,605 AND RS.42,47,07,114; RESPECTIVELY. 5 ITA NO S . 2204, 2213 & 2208/HYD/2018 8 . THE ASSESSEE'S BALANCE SHEET IS IN PAGE 16 OF THE PAPER BOOK. IT HAD INTEREST FRE E FUNDS IN THE NATURE OF SHARE CAPITAL WITH RESERVES AND SURPLUS OF RS.28,71000 AND RS.57,9733,196 I.E. MUCH MORE THAN THE EXEMPT INCOME HELD IN INVESTMENT. CASE LAW CIT VS. SUZLONENERGY LTD. (2013) 354 ITR 630 (GUJ ), CIT VS. RELIANCE UTILITIES AND POWER (2009) 313 ITR 340 (BOM) AND CIT VS. HDFC BANK LTD. (2014) 366 ITR 505 (BOM) HOLDS THAT THE NECESSARY PRESUMPTION IN SUCH A CASE IS ON DEPLOYMENT OF INTEREST FREE FUNDS ONLY. WE THUS DIRECT THE ASSESSING OFFICER TO DELETE THE PROPORTIONATE INTEREST DISALLOWANCE OF RS.1,21,23,241 IN ISSUE. 9 . COMING TO LATTER ASPECT OF ADMINISTRATIVE EXPENDITURE DISALLOWANCE, WE QUOTE HONBLE CALCUTTA HIGH COURT IN THE CASE OF PR. CIT VS. REL AN AGRO LTD. GA NO.3581/2013 (CAL) HOLDS THAT ONLY THE EXEMPT INCOME YIELDING INVESTMENTS THAN THE ENTIRE SUMS THEREOF IS TO BE CONSIDERED IN COMPUTING THE IMPUGNED DISALLOWANCE. WE THUS RESTORE THE INSTANT LATTER ISSUE OF ADMINISTRATIVE EXPENDITURE C OMPUTATION BACK TO THE FILE OF ASSESS ING OFFICER FOR HIS A FRESH ADJUDICATION AS PER LAW. TH IS THIRD APPEAL IN ITA NO.2208/HYD/2018 IS PARTLY ALLOWED IN ABOVE TERMS. 6 ITA NO S . 2204, 2213 & 2208/HYD/2018 11 . TO SUM UP, THESE ASSESSEE'S APPEALS IN ITA NOS.2204, 2213 & 2208/HYD/2018 ARE ALLOWED IN FIRST AND PARTLY ALLOWED IN LATTER TWO CASES ; RESPECTIVELY. A COPY OF THIS ORDER BE PLACED IN THE RESPECTIVE CASE FILES. ORDER PRONOUNCED IN THE OPEN COURT ON 25TH MARCH, 2021. SD/ - SD/ - (LAXMI PRASAD SAHU) (S.S . GODARA) ACCOUNTANT MEMBER JUDICIAL MEMBER HYDERABAD, DT. 25.0 3.2021. * REDDY GP COPY TO : 1. M/S.ARUNACHALA LOGISTICS PVT. LTD., 8 - 2 - 1/1/3, AVTAR NIVAS , SRINAGAR COLONY, MAIN ROAD, PUNJAGUTTA, HYDERABAD - 500 082 2. DCIT, CIRCLE 1(1), HYDERABAD. 3. PR. C I T - 1 , HYDERABAD. 4. CIT(APPEALS) - 1, HYDERABAD. 5. DR, ITAT, HYDERABAD. 6. GUARD FILE. BY ORDER SR. PVT. SECRETARY, ITAT, HYDERABAD.