Vani Potluri, Hyderabad V. Dy. Commissioner of Income Tax , Circle-9(1), Hyderabad

ITA 2263/Hyd/2017

• Counselvise Citation: [2018] 119 COUNSELVISE.COM (IT) 2647 (ITAT-HYDERABAD)
• Duration Of Justice: 10 month(s) 11 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 09-11-2018
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: A
• Next Hearing Date: 01-11-2018
• Assessment Year: 2013-2014
• Appeal Filed On: 28-12-2017
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: R S ARVINDAKSHAN
• Assessee Lawyers: S RAMA RAO
• Keywords: Earning of tax free income
• Section: 234B; 14A

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL HYDERABAD BENCH A ', HYDERABAD BEFORE SMT. P. MADHAVI DEVI, JUDICIAL MEMBER AND SHRI S. RIFAUR RAHMAN , ACCOUNTANT MEMBER ITA NO. 2263 / HYD/201 7 ASSESSMENT YEAR: 20 13 - 14 VANI POTLURI , HYDERABAD . PAN A DFPP2331R VS. DY. COMMISSIONER OF INCOME - TAX, CIRCLE 9(1), HYDERABAD. APPELLANT RESPONDENT ASSESSEE BY: S HRI S. RAMA RAO REVENUE BY: SHRI R.S. ARVINDAKSHAN DATE OF HEARING: 01 / 1 1 / 201 8 DATE OF PRONOUNCEMENT: 09 / 1 1 /201 8 O R D E R PER S. RIFAUR RAHMAN , AM: T H IS APPEAL IS FILED BY THE ASSESSEE AGAINST THE ORDER OF C IT (A) - 7 , HYDERABAD , DATED 17 / 11 /201 7 FOR AY 20 13 - 14 . 2. BRIEF FACTS OF THE CASE ARE, THE ASSESSEE , PROPRIETOR OF M/S CHOWDARY ENTERPRISES, DEALING IN BUSINESS OF POULTRY EQUIPMENTS, MESH AND NIPPLES ETC., FILED HER RETURN OF INCOME ON 29/11/2013 DECLARING A TOTAL INCOME OF RS. 2,73,19,730/ - BESIDES AGRICULTURAL INCOME OF RS. 90,000/ - FOR THE AY 2013 - 14. SUBSEQUENTLY, THE CASE WAS SELECTED FOR SCRUTINY UNDER CASS AND NOTICE U/S 143(2) WAS ISSUED AND SERVED ON THE ASSESSEE. IN RESPONSE TO THE SAID NOTICE, THE AR OF THE ASSESSEE FILED THE REQUIRED INFORMATION. 2.1 ON VERIFICAT ION OF THE PROFIT & LOSS ACCOUNT, THE AO NOTICED THAT THE ASSESSEE HAD CLAIMED AN AMOUNT OF RS. 56,21,536/ - TOWARDS INTEREST. ON VERIFICATION OF THE BALANCE I.T.A. NO. 2263 /HYD/201 7 VANI POTLURI, HYD. 2 SHEET AND BOOKS OF ACCOUNT , HE NOTICED THAT THE ADVANCES FROM CUSTOMERS STOOD AT RS. 4,73,66,679/ - AS WELL AS LOANS TAKEN WERE INVESTED IN COMPANIES TOWARDS LONG TERM INVESTMENTS TO THE TUNE OF RS.5,05,14,831/ - . HE, THEREFORE, COMPUTED THE DISALLOWANCE U/S 14A R.W.R 8D AT RS. 14,52,640/ - 3. AGGRIEVED BY THE ORDER OF AO, THE ASSESSEE PREFERRED AN APPE AL BEFORE THE CIT(A) AND SUBMITTED THAT SECTION 14A PROVIDES FOR DISALLOWANCE OF EXPENDITURE INCURRED IN RELATION TO INCOME NOT INCLUDIBLE IN THE TOTAL INCOME. HOWEVER, THE AO HAS CONSIDERED THE DISALLOWANCE OF INTEREST EXPENDITURE OF RS. 14,52,640/ - AGAIN ST THE INCOME CLAIMED AS EXEMPT OF RS. 2,59,298/ - . SHE CONTENDED THAT NO PRUDENT BUSINESSMAN WOULD INCUR THE EXPENDITURE OF RS. 14 LAKHS TO EARN INCOME WHICH IS VERY MEAGRE OF RS. 2 . 5 LAKHS. 4. AFTER CONSIDERING THE SUBMISSIONS OF THE ASSESSEE, THE CIT(A ) CONFIRMED THE DISALLOWANCE MADE BY THE AO. 5. AGGRIEVED BY THE ORDER OF CIT(A), THE ASSESSEE IS IN APPEAL BEFORE US RAISING THE FOLLOWING GROUNDS OF APPEAL: 1. THE ORDER OF THE LEARNED COMMISSIONER OF INCOME - TAX (APPEALS) IS ERRONEOUS BOTH ON FACTS A ND IN LAW. 2. THE LEARNED COMMISSIONER OF INCOME - TAX (APPEALS) ERRED IN CONFIRMING THE ADDITION MADE BY THE ASSESSING OFFICER OF RS.14,52,640/ - BY APPLYING THE PROVISIONS OF SEC.14A OF THE I.T. ACT. 3. THE LEARNED COMMISSIONER OF INCOME - TAX (APPEALS) O UGHT TO HAVE CONSIDERED THE FACT THAT THE APPELLANT HAD SUBSTANTIAL CAPITAL FOR INVESTMENT AND THAT THE INVESTMENT MADE FROM OUT OF HER OWN FUNDS AND SUCH INVESTMENT WAS FOR THE PURPOSE OF BUSINESS OF THE APPELLANT. 4. THE LEARNED COMMISSIONER OF INCOME - TAX (APPEALS) OUGHT TO HAVE CONSIDERED THE SUBMISSIONS MADE BEFORE I.T.A. NO. 2263 /HYD/201 7 VANI POTLURI, HYD. 3 HIM AND DELETED THE ADDITION MADE BY THE ASSESSING OFFICER. 5. THE LEARNED COMMISSIONER OF INCOME - TAX (APPEALS) ERRED IN CONFIRMING CHARGING OF INTEREST U/S 234B AND 234C OF THE I.T. ACT. 6. ANY OTHER GROUND THAT MAY BE URGED AT THE TIME OF HEARING. 6 . CONSIDERED THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL ON RECORD. IN THIS CASE, THE ASSESSEE CLAIMED EXEMPT INCOME IN THE RETURN OF INCOME IS ONLY RS. 2,59,298/ - , WHEREAS, THE AO COMPUTED THE DISALLOWANCE OF EXPENDITURE U/S 14A AT RS. 14,52,640/ - . THE GRIEVANCE OF THE ASSESSEE IS THAT DISALLOWANCE U/S 14A CANNOT EXCEED THE EXEMPT INCO ME. WE FIND THAT THE HONBLE DELHI HIGH COURT IN THE CASE OF JOINT INVESTMENTS (P.) LTD. ALL ITAT (5433) ITAT MUMBAI (1687) HELD THAT THE WINDOW FOR DIS ALLOWANCE IS INDICATED IN SECTION 14A AND IS ONLY TO THE EXTENT OF DISALLOWING EXPENDITURE INCURRED BY THE ASSESSEE IN R ELATION TO EXEMPT INCOME. THEREFORE, WE ARE OF THE VIEW THAT DIS ALLOWANCE UNDER SECTION 14A CANNOT EXCEED THE EXEMPT INCOME, AND, HENCE, WE DIRECT THE ASSESSING OFFICER TO RESTRICT DIS ALLOWANCE UNDER SECTION 14A TO THE EXTENT OF EXEMPT INCOME EARNED BY THE ASSESSEE. ACCORDINGLY, GROUND NOS. 2 TO 4 ARE ALLOWED. 6 .1 AS REGARDS GROUND NO. 5 REGARDING CHARGING OF INTEREST U/S 234B AND 234C, CHARGING INTEREST UNDER THESE SECTIONS IS MANDATORY IN NATURE, THEREFORE, THE AO IS DIRECTED ACCORDINGLY. 6 .2 G ROUND NOS. 1 & 6 ARE GENERAL IN NATURE. I.T.A. NO. 2263 /HYD/201 7 VANI POTLURI, HYD. 4 7 . IN THE RESULT, APPEAL OF THE ASSESSEE IS ALLOWED. PRONOUNCED IN THE OPEN COURT ON 9 TH NOVEMBER , 2018. SD/ - ( P. MADHAVI DEVI ) JUDICIAL MEMBER SD/ - ( S. RIFAUR RAHMAN ) ACCOUNTANT MEMBER HYDERABAD, DATED 9 TH NOVEMBER , 2018 KV COPY FORWARDED TO: 1. VANI POTLURI, H. NO. 11 - 7 - 269, POTLURI HOUSE, HUDA COMPLEX, HY DERABAD - 5000 35 2 . DC IT, CIRCLE 9 (1), INCOME - TAX TOWERS, AC GUARDS , HYD. 3 . CIT (A) - 7 HYDERABAD 4. PR. CIT - 7 HYDERABAD 5. THE DR, ITAT, HYDERABAD 6. GUARD FILE