The ACIT, Circle-9, Surat V. The Sarvodaya Sahakari Bank Ltd., Surat

ITA 2269/AHD/2012

• Counselvise Citation: [2016] 132 COUNSELVISE.COM (IT) 0221 (ITAT-AHMEDABAD)
• Duration Of Justice: 4 year(s) 16 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 25-10-2016
• Appeal Filed By: Department
• Order Result: Partly Allowed
• Bench Allotted: B
• Next Hearing Date: 03-10-2016
• Assessment Year: 2009-2010
• Appeal Filed On: 09-10-2012
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: JAMES KURIEN
• Keywords: Depreciation; Principle of natural justice; Earning of tax free income; Commercial expediency
• Section: 143(3); 142(1); 14A; 154

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD B BENCH AHMEDABAD BEFORE SHRI RAJPAL YADAV, JM, & SHRI MANISH BORA D, AM. ITA NO. 2269/AHD/2012 ASST. YEAR: 2009-10 ACIT, CIRCLE-9, SURAT. VS. THE SARVODAYA SAHAKARI BANK LTD. SHRI NIDHI, KHAND BAZAR, VARACHHA ROAD, SURAT. APPELLANT RESPONDENT PAN AABAT 1407E APPELLANT BY SHRI JAMES KURIEN, SR.DR RESPONDENT BY WRITTEN SUBMISSION DATE OF HEARING: 03/10/2016 DATE OF PRONOUNCEMENT: 25/10/2016 O R D E R PER MANISH BORAD, ACCOUNTANT MEMBER . THIS APPEAL BY THE REVENUE FOR ASST. YEAR 2009-10 IS DIRECTED AGAINST THE ORDER OF LD. CIT(A)-V, SURAT DATED 19.0 7.2012 IN APPEAL NO.CAS-V/69/11-12 PASSED AGAINST ORDER U/S 143(3) O F THE IT ACT, 1961 (IN SHORT THE ACT) FRAMED ON 16.12.2011 BY DCI T, CIRCLE -9, SURAT. FOLLOWING GROUNDS HAVE BEEN RAISED BY THE RE VENUE :- [1] ON THE FACTS AND IN THE CIRCUMSTANCES OF T HE CASE AND IN LAW THE CIT(A) HAS ERRED IN DELETING THE ADDITION MADE BY THE ASSE SSING OFFICER RS. 46,93,682/-MADE U/S 14A OF THE IT. ACT BY HOLDING T HAT THERE IS NO DIRECT NEXUS BETWEEN THE FUND INVESTED ON WHICH EXEMPTED I NCOME IS EARNED ON BORROWED FUNDS AND THAT NO EXPENDITURE IS DIRECTLY CO-RELATABLE TO THE FUND INVESTED IN MUTUAL FUND. ITA NO.2269/AHD/2012 ASST. YEAR 2009-10 2 [2] ON THE FACTS AND IN THE CIRCUMSTANCES OF THE C ASE/AND IN LAW THE CIT(A) HAS ERRED IN DELETING THE ADDITION OF RS. 46,93,682 /- MADE BY THE ASSESSING OFFICER U/S 14A OF THE IT ACT WITHOUT APP RECIATING THE FACT THAT THE ASSESSEE HAS NOT PROVED THE NEXUS OF INVESTMENT BEING MADE OUT OF OWN FUND AND THEREFORE THE EXPENDITURE ATTRIBUTABLE TO EXEMPT-INCOME IS REQUIRED TO BE ASCERTAINED ON PROPORTIONATE BASIS B Y APPLYING RULE 8D. [4] ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE AND IN LAW, THE CIT(A) OUGHT TO HAVE UPHELD THE ORDER OF THE ASSESSING OFF ICER. [5] IT IS, THEREFORE, PRAYED THAT THE APPELLATE OR DER OF THE CIT(A) MAY BE CANCELLED AND THE ORDER OF THE A.O. MAY BE UPHELD. 2. BRIEFLY STATED FACTS OF THE CASE ARE THAT THE AS SESSEE IS AN AOP ENGAGED IN THE BUSINESS OF BANKING AND EARNED INTER EST INCOME ON FUNDS ADVANCED BY THE BANK TO ITS VARIOUS CUSTOMERS . RETURN OF INCOME FOR ASST. YEAR 2009-10 WAS FILED ON 30.09.20 09 DECLARING TOTAL INCOME AT RS.1,93,58,890/-. CASE WAS SELECTED FOR S CRUTINY ASSESSMENT. NOTICE U/S 143(2) FOLLOWED BY NOTICE U/ S 142(1) OF THE ACT WERE ISSUED AND DULY SERVED ON THE ASSESSEE ALO NG WITH QUESTIONNAIRE. NECESSARY DETAILS WERE FURNISHED. D URING THE COURSE OF ASSESSMENT PROCEEDINGS IT WAS OBSERVED BY ASSESS ING OFFICER THAT DIVIDEND INCOME OF RS.79,46,095/- HAS BEEN EARNED F ROM INVESTMENTS IN VARIOUS MUTUAL FUNDS. NO DISALLOWANCE HAS BEEN M ADE BY ASSESSEE IN ITS COMPUTATION OF INCOME U/S 14A OF TH E ACT. IN THE SUBMISSIONS DURING THE COURSE OF ASSESSMENT PROCEED INGS IT WAS MENTIONED THAT INVESTMENTS IN MUTUAL FUNDS HAVE BEE N MADE FOR COMMERCIAL EXPEDIENCY AND IN COMPLIANCE TO THE RBI GUIDELINES CONTAINED IN THE MASTER CIRCULAR FOR ALL URBAN CO-O PERATIVE BANKS TO MAINTAIN CERTAIN PERCENTAGE OF SLR AND NON-SLR INVE STMENT. FURTHER ASSESSEE WAS HAVING SUFFICIENT INTEREST FRE E FUNDS OF ITA NO.2269/AHD/2012 ASST. YEAR 2009-10 3 RS.39.29 CRORES FOR MAKING INVESTMENT DURING THE YE AR IN THE MUTUAL FUNDS. HOWEVER, LD. ASSESSING OFFICER WAS NOT CONVI NCED AND PROCEEDED FOR CALCULATION OF DISALLOWANCE AS PER RU LE-8D OF THE IT RULES (IN SHORT THE RULES) R.W.S. 14A OF THE ACT AN D CALCULATED THE DISALLOWANCE U/S 14A OF THE ACT AT RS.4,49,52,770/- . 3. AGGRIEVED, ASSESSEE WENT IN APPEAL BEFORE CIT(A) AND SUCCEEDED IN FULL AS THE IMPUGNED DISALLOWANCE WAS DELETED BY BY LD. CIT(A) BY OBSERVING AS BELOW :- 6. I HAVE GONE THROUGH THE ASSESSMENT ORDER, RECTI FICATION ORDER AND THE SUBMISSIONS OF THE APPELLANT. THE SUBMISSION OF THE APPELLANT IS SELF EXPLANATORY AND DOES NOT NEED MUCH ELABORATION. AFTER CONSIDERI NG THE ABOVE, I HAVE COME TO THE CONCLUSIONS THAT THE DISALLOWANCE UNDER RULE 8D R.W.S. 14A CANNOT BE MADE IN THE APPELLANT'S CASE FOR THE YEAR UNDER CON SIDERATION DUE TO THE FOLLOWING FACTS/REASONS: A) THERE IS NO DIRECT NEXUS BETWEEN THE FUND INVEST ED ON WHICH EXEMPTED INCOME IS EARNED ON BORROWED FUNDS, B) A TOTAL FUND OF RS.9.97 CRORE HAS BEEN INVESTED IN ORDER TO COMPLY WITH THE RBI GUIDELINES, WHICH IS A STATUTORY REQUIREMENT. AGAIN ST THIS THE APPELLANT HAS FREE RESERVES (OWN FUND) TO THE TUNE OF RS.31.30 CRORES. : C) NO EXPENDITURE IS DIRECTLY CO-RELATABLE TO THE FUND INVESTED IN MUTUAL FUND, | D) NONE OF THE DECISIONS QUOTED BY THE APPELLANT AP PROVES SUCH DISALLOWANCE. E) ON THE SIMILAR ISSUE, DISALLOWANCE MADE BY THE A.O. FOR THE A.Y. 2007-08 WAS ALSO DELETED BY THE UNDERSIGNED VIDE ORDER NO. CAS- V/223/09-10 DTD. 16.11. 2010. THEREFORE, IN MY OPINION, THE DISALLOWANCE MADE BY THE A.O. IS NOT LEGALLY AS WELL AS FACTUALLY SUSTAINABLE. ACCORDINGLY, THE ADDITION MADE ON ACCOUNT OF THIS DISALLOWANCE IS HEREBY DELETED AND THE GROUND OF. A PPEAL IS ALLOWED. ITA NO.2269/AHD/2012 ASST. YEAR 2009-10 4 4. BEFORE THE DATE OF ORDER OF LD. CIT(A) I.E. 19.7 .201 AN ORDER U/S 154 OF THE ACT WAS FRAMED ON 21.03.2012 RECTIFYING THE MISTAKE MADE BY ASSESSING OFFICER IN COMPUTATION OF DISALLO WANCE U/S 14A OF THE ACT. AS PER THIS ORDER U/S 154 OF THE ACT, REVI SED DISALLOWANCE U/S 14A WAS CALCULATED AT RS.46,93,682/- AS AGAINST RS. 4,49,52,770/- MADE AT THE TIME OF FRAMING ASSESSMENT ORDER U/S 14 3(3) OF THE ACT. THE REVISED CALCULATION OF DISALLOWANCE U/S 14A OF THE ACT IS REPRODUCED BELOW :- PARTICULARS ACTUAL WOR KING AS PER ASST. . ORDER DISALLOWANCE U/S. 14A I AMOUNT OF EXPENSE DIRECTLY ATTRIBUTABLE TO NIL NIL EXEMPT INCOME II AMOUNT OF INTEREST A 11,00,96,989 11,00,96,98 9 TOTAL INVESTMENT IN MUTUAL FUND AT THE END OF THE YEAR , 9,97,98,826 81,80,75,512 DIVIDEND ON MUTUAL FUND RECEIVED DURING THE YEAR 79,46,095 79,46,095 OPENING BALANCE OF MUTUAL FUND 6,33,31,672 74,42,73,115 CLOSING BALANCE OF MUTUAL FUND 9,97,98,826 81,80,75,512 AVERAGE VALUE OF INVESTMENT B 8,15,65,249 78,11,74,313 OPENING BALANCE OF TOTAL ASSETS 1,97,78,23,649 1,97,78,23,649 CLOSING BALANCE OF TOTAL ASSETS 2,21,27,45,735 2,21,27,45,735 AVERAGE OF TOTAL ASSETS C 2,09,52,84,692 2,09,52,84,692 A X B 42,85,856 4,10,46,899 ITA NO.2269/AHD/2012 ASST. YEAR 2009-10 5 C III 0.5% OF AVERAGE VALUE OF INVESTMENT (0.5% OF 8,1S,65,249/-) 4,07,826 39,05,871 TOTAL DISALLOWANCE: DISALLOWANCE U/S. 14A (1 +11 + III) TOTAL DISALLOWANCE 46,93,682 4,49,52,770 , 46,93,682 4,49,52,770; 5. AGGRIEVED, REVENUE IS NOW IN APPEAL BEFORE THE T RIBUNAL AGAINST THE ACTION OF LD. CIT(A) DELETING THE DISAL LOWANCE U/S 14A OF THE ACT AT RS.46,93,682/-. 6. LD. DR SUPPORTED THE ORDER OF ASSESSING OFFICER. 7. NONE APPEARED ON BEHALF OF THE ASSESSEE. HOWEVER , WRITTEN SUBMISSIONS DATED 18.8.2015 IS PLACED ON RECORD. RE LEVANT PART OF THE SUBMISSION READS AS FOLLOWS :- 8. IT IS ONCE AGAIN EMPHASIZED THAT DURING THE COURSE OF ASSESSMENT AS WELL AS FIRST APPELLATE PROCEEDINGS, THE RESPONDENT HAD SUBMITTED FOLLOWING DETAILS FOR DISALLOWANCE OF EXPENSES MADE U/S. 14A: A. THE ENGLISH VERSION OF FINANCIAL STATEMENTS FOR F. Y. 2008-09 OF THE RESPONDENT HAVE BEEN DULY AUDITED AND TAX AUDIT REP ORT HAS BEEN SUBMITTED BY THE RESPONDENT WITH RETURN OF INCOME AND VERIFIED B Y THE LEARNED DCIT. B. THE RBI GUIDELINES REQUIRED TO MAINTAIN CERTAIN PERCENTAGE OF SLR AND NON - SLR INVESTMENT CONTAINED IN ITS MASTER CIRCULAR UBD. BPD. {PCB). MC. NO /16.20.000/2008-09, DATED 01/07/2008 BY ALL URBAN CO-OPERATIVE BANKS AND VERIFIED BY THE LEARNED DCIT C. COPY OF THE CERTIFICATE OF HOLDING OF SECURITIE S IN BANKS' INVESTMENT PORTFOLIO AS ON 31 S1 MARCH, 2009, SUBMITTED TO RBI AND VERIFIED BY THE LEARNED DCIT. ITA NO.2269/AHD/2012 ASST. YEAR 2009-10 6 D. IT IS SUBMITTED THAT THE RESPONDENT HAD INVESTE D RS. 3.64 CRORES (NET) IN FIVE DEBT BASED MUTUAL FUND SCHEMES ONLY VIZ., UTI MUTUA L FUND, PNB MUTUAL FUND, HDFC MUTUAL FUND, RELIANCE MUTUAL FUND AND TATA MUT UAL FUND DURING THE YEAR UNDER CONSIDERATION OUT OF POOL OF FREE FUNDS, RESERVES, INTERNAL ACCRUALS, AS AVAILABLE WITH THE BANK.. . PARTICULARS MUTUAL FUND SCHEMES TOTAL PNB UTI HDFC RELIANCE TATA OPENING BALANCE (AS ON 31.03.08 6,33,31,472 . . . . 6,33,31,472 ADD PURCHASE (TALLY WITH AIR) 7,90,00,000 9,75,00,000 2,00,00,000 2,00,00,000 2,0 0,00,000 23,65,00,000 ADD DIVIDEND REINVESTED 16,39,692/- 13,35,599 29,75,291 LES S REDEMPTION 12,39,71,164 7,90,36,773 20,30,07,937 CLOSING BALANCE (AS ON 31.03.09) 2,00,00,000 1,97,98,824 2,00,00,000 2,00,00,000 2,0 0,00,000 9,97,98,826 NO OF TRANSACTIONS PURCHASES 05 05 01 01 01 13 SALE/REDEMPTI ON 08 03 11 NET PURCHASE OF MUTUAL FUND DURING THE YEAR 2008-09 TOTAL AMOUNT (RS.) OPENING BALANCE 6,33,31,672.12 LESS CLOSING BALANCE 9,97,98,826.34 TOTAL NET PURCHASES DRING THE YEAR 3,44,67,154,22 COPY OF LEDGER & STATEMENTS OF FIVE DEBT MUTUAL FUN D SCHEMES HAVE ALREADY BEEN SUBMITTED AND VERIFIED BY THE LEARNED DCIT. E. DETAILS OF BANK'S PAID UP SHARE CAPITAL & STAT UTORY / FREE RESERVES OF RS. 31.29 CR. AS PER RBI'S GUIDELINE AS ON 31 S1 MARCH, 2009 HAD ALREADY BEEN SUBMITTED AND VERIFIED BY THE LEARNED DCIT. F. IT IS SUBMITTED THAT THE RESPONDENT HAS NOT B ORROWED ANY FUNDS FROM ANY FINANCIAL INSTITUTIONS, ANY OTHER BANKS OR ANY GOVE RNMENT'S AGENCY. APPELLANT HAS INVESTED IN DEBT MUTUAL SCHEMES OUT OF POOL OF FREE FUNDS, RESERVES, INTERNAL ACCRUALS, AS AVAILABLE WITH THE BANK AND AS PER RBI 'S GUIDELINES ONLY AND THEREFORE, THE SAID INVESTMENTS DID NOT HAVE DIRECT NEXUS TO THE BORROWED FUNDS ITA NO.2269/AHD/2012 ASST. YEAR 2009-10 7 G. THE RESPONDENT HAD ALREADY SUBMITTED BEFORE HON 'BLE CIT(A) BELOW MENTIONED TABLE SHOWING DIRECT NEXUS OF INVESTMENTS IN MUTUAL FUND MADE OUT OF OWN FUNDS & INTERNAL ACCRUALS AND NOT FROM BORROWED FUNDS AND SAME HAD BEEN VERIFIED BY HON'BLE CIT(A) AND THE FACT THAT ALL IN VESTMENTS IN MUTUAL FUNDS HAVE BEEN MADE EITHER FROM THE FREE FUNDS/INTERNAL ACCRU ALS OR FROM THE REDEMPTION OF EARLIER MUTUAL FUNDS IN THE LAST WEEK OF EARLIER YE AR. FURTHER, THERE WERE ONLY 13 TRANSACTIONS OF PURCHASES AND 11 TRANSACTIONS OF SA LES/REDEMPTIONS WHICH ARE VERY NOMINAL AND NOT REQUIRED ANY SPECIAL ADMINISTR ATION SKILLS OR ANY OTHER INDIRECT EXPENSES FLOW OF MUTUAL FUND INVESTMENT FROM BANKS OWN RESE RVES, SURPLUS INTERNAL ACCOUNTS AND MATURITY OF OTH ER MFS DURING FINANCIAL YEAR 2008 - 09 DATE SOURCE FROM MATURITY OF MF & INTERNAL ACCRUALS APPLICATION PURCHASE OF DEBT BASED MF BALANCE PARTICULARS AMOUNT PARTICULARS AMOUNT AMOUNT Q.1 OPENING OF PREVIOUS YEAR FREE FUND (SEE BELOW NOTE) 38,833,720 38,833,720 INCREASE IN SHARE CAPITAL (NET) 1,802,900 40,336,620 4.4.08 PNB MF P1 30,000,000 10,336,620 8.4.08 PNB MF P2 6,500,000 3,836.620 10.4.08 PNB MF MATURED P1 25,000,000 28,836620 10.04.08 PNB MF P3 17,500,000 11,336,620 13.04.08 PNB MF P4 5,000,000 6,336,620 TOTAL 65,336,620 TOTAL 59,000,000 6,336,620 Q2 PARTICULARS AMOUNT PARTICULARS AMOUNT BALANACE BALANCE OF FIRST QUARTERS FREE FUND 6,336,620 6,336,620 CASH PROFIT OF FIRST QUARTER 10,345,580 16,682,200 INCREASE IN SHARE CAPITAL (NET) 1,814,100 18,496,300 1.8.08 PART OF SALE PROCEED OF FIXED ASSET 100,000 18,596,300 TOTAL 18,596,300 TOTAL 18,596,300 Q3 PARTICULARS AMOUNT PARTICULARS AMOUNT BALANCE BALANCE OF SECOND QUARTERS FREE FUND 18,596,300 18,596,300 CASH PROFIT OF SECOND QUARTER 10,345,580 28,941,880 INTEREST IN SHARE CAPITAL (NET) 1,180,600 30,122,480 14.10.08 PNB MF MATURED P2 2,682,113 32,804,593 14.10.08 PNB MF MATURED P3 33,157 32,837,750 ITA NO.2269/AHD/2012 ASST. YEAR 2009-10 8 20.11.08 PNB MF MATURED P4 20,000,000 52,837,750 26.11.08 PNB MF MATURED P5 20,000,000 72,837,750 8.12.08 UTI MF U1 10,000,000 62,837,750 8.12.08 UTI MF U2 30,000,000 32,837,750 10.12.08 PNB MF MATURED P6 20,000,000 52,837,750 11.12.08 UTI MF U3 20,000,000 32,837,750 TOTAL 92,837,750 TOTAL 60,000,000 32,837,750 Q4 PARTICULARS AMOUNT PARTICULARS AMOUNT BALANCE BALANCE OF THIRD QUARTERS FREE FUND 32,837,750 32,837,750 CASH PROFIT OF THIRD QUARTER 10,345,580 43,183,330 INCREASE IN SHARE CAPITAL 2,154,400 45,337,730 1.1.09 PNB MF MATURED P7 16,143,495 61,481,225 5.1.09 UTI MF U4 20,000,000 41,481,225 23.1.09 UTI MF U5 17,500,000 23,981,225 16.03.09 PNB MF MATURED P8 20,000,000 23,981,225 25.3.09 PRINCIPAL PNB MF P5 20,000,000 33,581,225 28.3.09 PART OF SALE PROCEED OF FIXED ASSET 9,100,000 100,581,228 31.3.09 UTI MF MATURED U1 67,500,000 110,581,225 31.3.09 UTI MF MATURED U2 10,000,000 111,581,225 31.3.09 UTI MF MATURED U3 1,000,000 91,581,225 31.3.09 HDFC MF H1 20,000,000 71,581,225 31.3.09 RELIANCE MF R1 20,000,000 51,581,225 31.3.09 TATA MF T1 20,000,000 51,581,225 TOTAL 169,081,225 TOTAL 117,500,000 51,581,225 TOTAL NO. OF TRANSACTIONS 11 TOTAL NO. OF TRANSACTIONS 13 NOTE CALCULATION OF FREE FUND/INTERNAL ACCRUALS FREE FUND F.Y.2007-08 F.Y 2008-09 NET PROFIT 24,192,058 36,603,351 ADD DEPRECIATION 3,097,062 4,778,969 CASH PROFIT 27,289,120 41,382,320 INCREASE IN PAID UP SHARE CAPITAL 1,244,600 6,952, 000 MATURITY OF PNB MF (ON 25.03.2008) 10,000,000 SALE PROCEED OF PROPERTY SOLD 9,200,000 TOTAL FREE FUNDS/INTERNAL ACCRUALS 38,533,720 57,5 34,320 H. IT IS SUBMITTED THAT INVESTING IN THE MUTUAL F UND IS VERY EASY & SIMPLE PROCEDURE BY FILLING ONLY ONE PAGE APPLICATION FORM AND IT IS HARDLY ONE HOUR JOB ITA NO.2269/AHD/2012 ASST. YEAR 2009-10 9 AND ACCORDINGLY, THERE IS NO DIRECT PROXIMATE CONNE CTION BETWEEN THE EXPENDITURE INCURRED AND THE INCOME NOT FORMING PART OF TOTAL I NCOME. COPY OF APPLICATION FORM OF ABOVE MENTIONED FIVE MUTUAL FUNDS HAS ALREA DY BEEN SUBMITTED. I. IT IS SUBMITTED THAT THE RESPONDENT HAD CHOSE N WEEKLY DIVIDEND RE-INVESTED PLAN OPTION IN DEBT BASED MUTUAL SCHEMES AND THEREF ORE, BANK HAS NOT RECEIVED ANY DIVIDEND OR FILLED UP ANY EXTRA FORM OR RECRUIT ED ANY SPECIAL PERSON FOR ADMINISTRATION PURPOSE. FUND MANAGERS OF ABOVE MENT IONED FIVE MUTUAL FUNDS HAVE SIMPLY SEND STATEMENTS TO THE BANK ON REASONAB LE INTERVALS. ALL STATEMENTS HAVE ALREADY BEEN SUBMITTED AND VERIFIED BY THE LEA RNED DCIT. J. FURTHER, IT IS SUBMITTED THAT THE LEARNED DCI T HAS FAILED TO RECORD HIS CLEAR FINDINGS OR DETERMINE THE AMOUNT OF EXPENDITURE INC URRED 'IN RELATION TO' SUCH EXEMPTED DIVIDEND INCOME WHICH DID NOT FORM PART OF THE TOTAL INCOME WHICH IS PREREQUISITE CONDITION BEFORE INVOKING RULE 8D AND MADE IMPUGNED & ERRONEOUS DISALLOWANCE PURELY BASED ON PRESUMPTIONS. K. FURTHERMORE, IT IS SUBMITTED THAT PROCEDURE OR PROCESS OF INVESTING IN THE MUTUAL FUND IS VERY EASY & SIMPLE BY FILLING ONLY O NE PAGE APPLICATION FORM AND IT IS HARDLY 5 MINUTE JOB WHICH IS ALSO DONE BY THE CL ERICAL STAFF OF THE RESPECTIVE MUTUAL FUND AGENCIES AND AUTHORIZED PERSON OF THE A PPELLANT JUST SIGNS ON THE FORM. ACCORDINGLY, THERE IS NO DIRECT PROXIMATE CONNECTIO N BETWEEN THE EXPENDITURE INCURRED AND THE INCOME NOT FORMING PART OF TOTAL I NCOME. COPY OF APPLICATION FORM HAS ALREADY BEEN SUBMITTED AND VERIFIED BY THE LEARNED DCIT. 11. JUDICIAL PRONOUNCEMENTS: TO SUPPORT OUR ABOVE MENTIONED CONTENTIONS, WE ARE RELYING ON THE JUDICIAL PRONOUNCEMENT, WHICH IS PRODUCED HEREIN BELOW FOR T HE IMMEDIATE REFERENCE OF YOUR HONOURS. CASES WHEN INTEREST FREE FUNDS ARE MORE THAN INVESTMENTS MADE TO EARN INCOME - 1. CIT VS. UTI BANK LTD. (2013) 215 TAXMAN 8 (MAG.)(GU J)(HC) 2. CIT VS. GUJARAT NARMADA VALLEY FERTILIZERS CO. LTD. (2014) 221 TAXMAN 479 (GUJ)(HC) 3. CIT VS. TORRENT POWER LTD. (2014) 363 ITR 474/222 T AXMAN 367 (GUJ)(HC) 4. CIT VS. GUJARAT POWER CORPORATION LTD.(2013) 352 I TR 583 (GUJ))(HC) ITA NO.2269/AHD/2012 ASST. YEAR 2009-10 10 5. DCIT VS. FIRESTONE INTERNATIONAL (P) LTD. (2014) 15 0 ITD 151 (MUM. TRIB) 6. ACIT VS. BHARTI TELETECH LTD. (2014) 150 ITD 185/16 3 TTJ 34(UO)(DELHI.TRIB) 7. CIT VS. HDFC BANK LTD. (2014) 366 ITR 505/107 DTR 1 40/226 TAXMAN 132 (MAG)(BOM)(HC) 8. DIT VS. BNP PARIBAS SA (2013) 214 TAXMAN 548 (BOM)( HC) 9. CIT VS. MAHARASHTRA SEAMLESS LTD.(2010) 36 DTR 36 ( DEL). FURTHER IN THE WRITTEN SUBMISSIONS THROUGH PARA 12. ASSESSEE HAS SUBMITTED THAT IF REQUIRED REASONABLE DISALLOWANCE CAN BE MADE IN THE GIVEN FACTS AND CIRCUMSTANCES OF THE CASE AND I N THE INTEREST OF NATURAL JUSTICE AND EQUITY BY SUBMITTING AS UNDER : - WITHOUT PREJUDICE TO ABOVE CONTENTIONS & JUDICIAL PRONOUNCEMENTS, I WOULD LIKE TO SUBMIT BEFORE YOUR HONOURS THAT IF AT ALL, ANY D ISALLOWANCE MADE TO BE DONE, INSPITE OF THE FACTS THAT - ALL INVESTMENTS IN MUTUAL FUNDS HAVE BEEN MADE EITH ER FROM THE FREE FUNDS/INTERNAL ACCRUALS OR FROM THE REDEMPTION OF E ARLIER MUTUAL FUNDS IN THE LAST WEEK OF EARLIER YEAR, AND; DIRECT NEXUS OF INVESTMENTS IN MUTUAL FUND MADE OUT OF OWN FUNDS & INTERNAL ACCRUALS AND NOT FROM BORROWED FUNDS AND SAME HAD B EEN VERIFIED BY HON'BLE CIT(A) ONLY REASONABLE DISALLOWANCE SHOULD BE DONE IN CONSIDERATION OF THE FACTS & CIRCUMSTANCES OF THE PRESENT CASE, IN INTEREST OF N ATURAL JUSTICE & EQUITY. JUDICIAL PRONOUNCEMENTS: IN SUPPORT OF THE ABOVE SUBMISSION, THERE ARE JUDIC IAL PRONOUNCEMENTS WHEN REASONABLE DISALLOWANCE OF EXPENDITURE WAS DONE, WH ICH ARE AS UNDER FOR IMMEDIATE REFERENCE OF YOUR HONOURS. ITA NO.2269/AHD/2012 ASST. YEAR 2009-10 11 DCIT VS. THE SARVODAYA SAHAKARI BANK LTD. ITA NO.77 9/AHD/2011 CIT VS. TALKISHA ENGINEERING INDIA LTD.(2015) 370 I TR 338/229 TAXMAN 143/275 CTR 316/114 DTR 316 (DELHI)(HC) SHAREKHAN FINANCIAL SERVICES (P) LTD. VS. ACIT (201 4) (MUM)(TRIB) GODREJ CONSUMER PRODUCTS LTD. VS. ADDL. CIT (2014) 159 TTJ 21(MUM)(TRIB) CIT VS. GUJARAT STATE FERTILIZERS AND CHEMICALS LTD . (2013) 358 ITR 323/217 TAXMAN 343 (2014) 101 DTR 175 (GUJ)(HC) KARUR VYSYA BANK LTD. VS. ACIT (2013)25 ITR 731/60 SOT 148 (URO)(CHENNAI)(TRIB). KIRLOSKAR OIL ENGINES LTD. VS. DCIT (2012) 54 SOT 2 01(PUNE)(TRIB) ACIT VS. DHAMPUR SUGAR MILL PVT. LTD. (ALL.)(HC) 8. WE HAVE HEARD THE LD. DR AND GONE THROUGH THE SU BMISSIONS AND VARIOUS JUDGMENTS/DECISIONS REFERRED AND RELIED ON BY THE ASSESSEE. SOLITARY GRIEVANCE OF THE REVENUE IS AGAI NST THE ORDER OF LD. CIT(A) DELETING THE DISALLOWANCE U/S 14A OF THE ACT AT RS.46,93,682/-. WE FIND THAT ASSESSEE IS ENGAGED IN THE BUSINESS OF BANKING. A TOTAL FUND OF RS 9.97 CRORES HAS BEEN IN VESTED INORDER TO COMPLY WITH THE RBI GUIDELINES. ASSESSEE HAD FREE R ESERVE TO THE TUNE OF RS. 31.30 CRPRES. REVENUE HAS BEEN UNABLE TO BRING OUT ANY SPECIFIC EXPENDITURE DIRECTLY CO-RELATED TO INVESTM ENT IN MUTUAL FUNDS. 9. WE OBSERVE THAT THE PROVISIONS OF SECTION 14A AR E APPLICABLE TO THE ASSESSEE AND CALCULATION OF DISALLOWANCE IS PRO VIDED UNDER RULE 8D OF THE IT RULES, 1962(IN SHORT THE RULES). AS PE R THE RULE 8D OF THE RULES TOTAL OF FOLLOWING THREE ITEMS IS TAKEN AS DI SALLOWANCE U/S 14A OF THE ACT:- (I) AMOUNT OF EXPENSES DIRECTLY ATTRIBUTABLE TO EXE MPT INCOME. ITA NO.2269/AHD/2012 ASST. YEAR 2009-10 12 (II) DISALLOWANCE TOWARDS INTEREST ON FUNDS USED FO R INVESTMENT INTO TAX FREE INVESTMENT (III)ADMINISTRATIVE COST @ 0.5% OF AVERAGE VALUE OF INVESTMENT WE WILL NOT ADJUDICATE THE FACTS OF THE CASE ON THE SE THREE ITEMS ONE BY ONE. (I) AMOUNT OF EXPENSES DIRECTLY ATTRIBUTABLE TO EXE MPT INCOME NO SUCH EXPENDITURE HAS BEEN BROUGHT ON RECORD BY T HE REVENUE SO THE AMOUNT UNDER THIS PART IS NIL. (II) DISALLOWANCE TOWARDS INTEREST ON FUNDS USED FO R INVESTMENT INTO TAX FREE INVESTMENT WE FIND THAT ASSESSEE HAS SUFFICIENT TAX FREE RESER VE IN ORDER TO COVER THE INVESTMENT IN MUTUAL FUNDS DURING THE YEAR. JUD GMENT OF HON. JURISDICTIONAL HIGH COURT IN THE CASE OF CIT VS. GU JARAT POWER CORPORATION LTD. (2013) 352ITR 583 IS SQUARELY APPL ICABLE TO THE CASE OF ASSESSEE WHEREIN IT HAS BEEN HELD THAT NO DISALL OWANCE OF EXPENDITURE CAN BE MADE IF ASSESSEE USES ITS OWN FU NDS FOR INVESTMENT IN SHARES. RESPECTFULLY FOLLOWING THE SA ME WE ARE OF THE VIEW THAT NO DISALLOWANCE OUT OF INTEREST EXPENDITU RE CAN BE MADE IN THIS PART (II) OF RULE 8D. (III) ADMINISTRATIVE COST @ 0.5% OF AVERAGE VALUE O F INVESTMENT WE FIND THAT IN THE WRITTEN SUBMISSIONS ASSESSEE HA S SUO MOTO REQUESTED FOR A REASONABLE DISALLOWANCE IN THE GIVE N FACTS AND ITA NO.2269/AHD/2012 ASST. YEAR 2009-10 13 CIRCUMSTANCES. WE FIND THAT THERE IS REGULAR PURCHA SE AND SALE OF VARIOUS MUTUAL FUNDS ROUND THE YEAR. CERTAIN ADMINI STRATIVE COST IS INCURRED IN THE FORM OF SALARY OF STAFF AND OTHER R ELATED EXPENDITURE INCURRED FOR INVESTMENTS IN THE FUNDS FOR SWITCHING IN AND SWITCHING OUT OF THE FUNDS, FOR GETTING OPTIMUM INCOME FROM T HE INVESTMENTS. COST FOR USE OF BANKING FACILITIES FOR INVESTING TH E FUNDS AS WELL AS TO DEAL WITH INCOME EARNED DURING THE YEAR. LOOKING TO THESE PRACTICAL ASPECTS WE ARE OF THE VIEW THAT IT WOULD BE REASONA BLE TO DISALLOW A SUM OF RS.407826 BEING 0.5% OF AVERAGE INVESTMENT A ND THE SAME IS SUSTAINED UNDER PART (III) OF RULE8D OF THE RULES. 10. THEREFORE, WE ARE OF THE VIEW THAT TOTAL DISALL OWANCE U/S 14A OF THE ACT IS REQUIRED TO BE SUSTAINED AT RS.407826/- AND WE DO SO.. 11. IN THE RESULT, APPEAL OF THE REVENUE IS PARTLY ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 25 TH OCTOBER, 2016 SD/- SD/- (RAJPAL YADAV) JUDICIAL MEMBER (MANISH BORAD) ACCOUNTANT MEMBER DATED 25/10/2016 MAHATA/- ITA NO.2269/AHD/2012 ASST. YEAR 2009-10 14 COPY OF THE ORDER FORWARDED TO: 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT CONCERNED 4. THE CIT(A) CONCERNED 5. THE DR, ITAT, AHMEDABAD 6. GUARD FILE BY ORDER ASST. REGISTRAR, ITAT, AHMEDABAD 1. DATE OF DICTATION: 21/10/2016 2. DATE ON WHICH THE TYPED DRAFT IS PLACED BEFORE T HE DICTATING MEMBER: 24/10/2016 OTHER MEMBER: 3. DATE ON WHICH APPROVED DRAFT COMES TO THE SR. P. S./P.S.: 4. DATE ON WHICH THE FAIR ORDER IS PLACED BEFORE TH E DICTATING MEMBER FOR PRONOUNCEMENT: __________ 5. DATE ON WHICH THE FAIR ORDER COMES BACK TO THE S R. P.S./P.S.: 6. DATE ON WHICH THE FILE GOES TO THE BENCH CLERK:2 5/10/2016 7. DATE ON WHICH THE FILE GOES TO THE HEAD CLERK: 8. THE DATE ON WHICH THE FILE GOES TO THE ASSISTANT REGISTRAR FOR SIGNATURE ON THE ORDER: 9. DATE OF DESPATCH OF THE ORDER: