Deputy Commissioner of Income-tax, Circle - 14, Pune V. M/s. Janseva Sahakari Bank Ltd, Pune

ITA 2271/PUN/2017

• Counselvise Citation: [2020] 110 COUNSELVISE.COM (IT) 2781 (ITAT-PUNE)
• Duration Of Justice: 3 year(s) 1 month(s) 25 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 23-11-2020
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: A
• Assessment Year: 2011-2012
• Appeal Filed On: 28-09-2017
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: APARNA M AGARWAL
• Keywords: Earning of tax free income; Rule 8D
• Section: 143(3); 14A; 37

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL A BENCH, PUN E (THROUGH VIRTUAL COURT) BEFORE SHRI P.M. JAGTAP, VICE PRESIDENT AND SHRI PARTHA SARATHI CHAUDHURY, JM . / ITA NO.2271/PUN/2017 / ASSESSMENT YEAR : 2011-12 DCIT, CIRCLE-14, PUNE. ....... / APPELLANT / V/S. M/S. JANSEVA SAHAKARI BANK LTD., 56-GANDHI CHOWK, HADAPSAR, PUNE-411028. PAN : AAAAJ0620Q / RESPONDENT ASSESSEE BY : SHRI SUNIL GANOO REVENUE BY : SMT. APARNA M. AGARWAL / DATE OF HEARING : 23.11.2020 / DATE OF PRONOUNCEMENT : 23.11.2020 / ORDER PER P.M. JAGTAP, VP : THIS APPEAL FILED BY THE REVENUE IS DIRECTED AGAINST THE OR DER OF LD. CIT(A)-7, PUNE DATED 27.02.2017 FOR THE ASSESSMENT YEAR 2011-12 AND THE SOLITARY ISSUE INVOLVED THEREIN RELATES TO THE DELETION BY T HE LD. CIT(A) OF THE ADDITION OF RS.16,85,75,866/- MADE BY THE ASSESSING OFFICER O N ACCOUNT OF DISALLOWANCE U/S 14A OF THE INCOME TAX ACT, 1961 READ WI TH RULE 8D OF THE INCOME TAX RULES, 1962. 2. THE ASSESSEE IN THE PRESENT CASE IS A COOPERATIVE B ANK WHICH FILED ITS RETURN OF INCOME FOR THE YEAR UNDER CONSIDERATION ON 30.0 9.2011 DECLARING A TOTAL INCOME OF RS.15,04,30,463/-. AS NOTICED BY THE ASSESS ING OFFICER DURING THE ASSESSMENT PROCEEDINGS, THE ASSESSEE BANK HAD PUR CHASED MUTUAL FUNDS WORTH RS.310.22 CRORES DURING THE YEAR UNDER CONSIDERAT ION, BUT NO DISALLOWANCE ON ACCOUNT OF EXPENSES INCURRED IN RELATION TO THE SAID 2 ITA NO.2271/PUN/2017 INVESTMENTS WAS OFFERED BY THE ASSESSEE BANK AS REQUIRE D BY THE PROVISIONS OF SECTION 14A OF THE ACT. IN THIS REGARD, IT WAS EXPLAINED O N BEHALF OF THE ASSESSEE BANK THAT NO EXEMPTION ON ACCOUNT OF ANY INCO ME WAS CLAIMED BY IT IN THE RETURN OF INCOME FILED FOR THE YEAR UNDER CONSIDERA TION AND IN THE ABSENCE OF ANY SUCH EXEMPTION CLAIMED BY IT, THE QUESTION OF DISALLOWANCE OF EXPENSES U/S 14A DID NOT ARISE. THIS EXPLANATION OF THE A SSESSEE WAS NOT FOUND ACCEPTABLE BY THE ASSESSING OFFICER. ACCORDING TO H IM, WHETHER THE INVESTMENTS MADE BY THE ASSESSEE BANK IN MUTUAL FUNDS H AD FETCHED ANY EXEMPT INCOME IN THE YEAR UNDER CONSIDERATION WAS NOT M ATERIAL FOR APPLICABILITY OF SECTION 14A R.W. RULE 8D. IN THIS REGARD, HE RELIED ON THE CBDT CIRCULAR NO.5 OF 2014 WHEREIN IT WAS CLARIFIED THAT IT WAS NOT NECESSARY THAT EXEMPT INCOME SHOULD NECESSARILY BE INCLUDED IN A PARTICULA R YEARS INCOME FOR DISALLOWANCE TO BE TRIGGERED U/S 14A OF THE ACT. HE ACC ORDINGLY APPLIED RULE 8D TO WORK OUT THE EXPENSES TO BE DISALLOWED U/S 14A A T RS.16,85,75,866/- AND MADE A DISALLOWANCE TO THAT EXTENT U/S 14A IN THE A SSESSMENT COMPLETED U/S 143(3) OF THE ACT VIDE ORDER DATED 27.03.2014. 3. THE DISALLOWANCE MADE BY THE ASSESSING OFFICER U/S 14A R .W. RULE 8D WAS CHALLENGED BY THE ASSESSEE IN THE APPEAL FILED BEFORE T HE LD. CIT(A) AND AFTER CONSIDERING THE SUBMISSIONS MADE ON BEHALF OF THE ASS ESSEE BANK AND PERUSING THE RELEVANT MATERIAL AVAILABLE ON RECORD, THE LD. CIT(A) DELETED THE SAID DISALLOWANCE FOR THE FOLLOWING REASONS GIVEN IN PARAGRAP HS 5.3 TO 5.6 OF HIS IMPUGNED ORDER :- 5.3 I HAVE CAREFULLY CONSIDERED THE FACTS OF THE C ASE AND LAW APPARENT FROM RECORDS. THE APPELLANT HAS E-FILED ITS ORIGINAL RET URN OF INCOME ON 30.09.2011 DECLARING TOTAL INCOME OF RS. 15,04,30,463/-. THE A O WAS HAVING INFORMATION THAT APPELLANT HAS PURCHASED MUTUAL FUND TO TUNE OF RS. 310,21,92,701/-. THE AO VERIFIED THE INVESTMENT AND FOUND THAT THE INVESTME NTS WERE DISPOSED OFF DURING THE YEAR UNDER CONSIDERATION. THE AO ALSO OBSERVED THAT THE APPELLANT HAS NOT DECLARED ANY EXEMPT INCOME FROM THIS MUTUAL FUND AN D NO DISALLOWANCE HAS BEEN MADE U/S. 14A FOR EXPENDITURE INCURRED. THE AO RELIED ON CBDT CIRCULAR NO. 5 OF 2014 AND INVOKED RULE 8D EVEN WHERE THERE IS N O EXEMPT INCOME. THE AO RELIED ON THE DECISION OF THE BOMBAY HIGH COURT IN CASE OF GODREJ & BOYCE VS. 3 ITA NO.2271/PUN/2017 DCIT REPORTED IN 328 ITR 81 (BOM) AND COMPUTED DISA LLOWANCE OF RS. 16,85,75,866/-. 5.4 DURING THE APPELLATE PROCEEDINGS THE APPELLANT SUBMITTED THAT RECONCILIATION OF SALE AND PURCHASE OF MUTUAL FUNDS WERE GIVEN TO THE AO AND IT WAS EXPLAINED THAT THE INTEREST INCOME WAS RECEIVED AND OFFERED FOR TAXATION AND APPEARING IN THE PROFIT AND LOSS ACCOUNT AND APPELL ANT HAS NOT RECEIVED ANY DIVIDEND INCOME. THE APPELLANT SUBMITS THAT NO DISA LLOWANCE U/S. 14A IS CALLED FOR IN ABSENCE OF EXEMPT INCOME AND RELIED ON THE D ECISION OF THE HON. BOMBAY HIGH COURT IN CASE OF M/S DELITE ENTERPRISES(SUPRA) DECIDED ON 26/02/2009 AND THE DECISION OF HON. DELHI HIGH COURT IN THE CASE O F CHEMINVEST LTD.(SUPRA). 5.5 OSTENSIBLY, THE APPELLANT HAS NOT SHOWN ANY CAP ITAL GAIN OR EXEMPT INCOME IN RETURN OF INCOME. THE INVESTMENTS ON WHIC H DISALLOWANCE U/S. 14A WERE MADE HAS BEEN DISPOSED OFF IN THE YEAR UNDER C ONSIDERATION. THE APPELLANT HAS SUBMITTED THE APPELLANT IS IN RECEIPT OF INTERE ST INCOME FROM INVESTMENTS OF RS. 31,32,03,771 /- (BANK FD AND INVESTMENT) AND SU BMITTED FURTHER DETAILS IN RESPECT OF INTEREST ON PSU AND OTHER BONDS. APPAREN TLY, THE APPELLANT HAS OFFERED THIS INTEREST INCOME UNDER THE HEAD OF INCOME FROM BUSINESS AND PROFESSION AND HAS SHOWN INCOME FROM BUSINESS AND PROFESSION AT RS . 15,04,30,463/-. THE APPELLANT HAS SHOWN NET PROFIT OF RS. 10,42,64,947/ - AND AFTER MAKING DISALLOWANCES U/S. 36 & 37 AND 40 THE APPELLANT SHO WN RETURNED INCOME AT RS. 15,04,30,463/-. THEREFORE, ON FACTUAL MATRIX THE AP PELLANT HAS OFFERED ITS INCOME UNDER THE HEAD INCOME FROM BUSINESS AND PROFESSION ARID NO EXEMPT INCOME OR EVEN CAPITAL GAIN HAS BEEN SHOWN BY THE APPELLANT. IT HAS NOT BEEN BROUGHT ON RECORD THAT THERE IS INVESTMENTS WHICH ARE CAPABLE OF YIELDING EXEMPT INCOME AND APPELLANT IS HOLDING SUCH INVESTMENTS. UNDER THESE CIRCUMSTANCES, ON FACTS DISALLOWANCE U/S. 14A WERE NOT REQUIRED. 5.6 THE BOMBAY HIGH COURT IN CASE OF M/S DELITE ENT ERPRISES(SUPRA) HAS HELD THAT THE QUESTION OF DISALLOWANCE OF INTEREST U/S. 14A WOULD NOT ARISE AS THERE IS NO PROFIT FOR THE RELEVANT ASSESSMENT YEAR. THE DEL HI HIGH COURT IN CASE OF CHEMINVEST LTD.(SUPRA) HAS HELD THAT: SECTION 14A W ILL NOT APPLY IF NO EXEMPT INCOME IS RECEIVED OR RECEIVABLE DURING RELEVANT PR EVIOUS YEAR. THE APPELLANT HAS NOT EARNED ANY EXEMPT INCOME, THEREFORE, THE CASE L AW RELIED UPON IS SQUARELY APPLICABLE. AGGRIEVED BY THE ORDER OF THE LD. CIT(A), THE REVENUE HAS PREFERRED THIS APPEAL BEFORE THE TRIBUNAL. 4. WE HAVE HEARD THE ARGUMENTS OF BOTH THE SIDES AND A LSO PERUSED THE RELEVANT MATERIAL AVAILABLE ON RECORD. AS AGREED BY THE LD . REPRESENTATIVES OF BOTH THE SIDES, THE SOLITARY ISSUE INVOLVED IN THIS APPEAL O F THE REVENUE RELATING TO THE DISALLOWANCE U/S 14A R.W. RULE 8D IS SQUARELY COVE RED IN FAVOUR OF THE ASSESSEE INTER-ALIA BY THE DECISIONS OF THE HONBLE JURISDICTIONAL HIGH COURT A S WELL AS OF THE HONBLE APEX COURT. IN ONE OF SUCH DECISIO NS RENDERED IN THE CASE OF CIT VS. M/S. DELITE ENTERPRISES (INCOME TAX APPEAL NO.110 OF 2009 DATED 26.02.2009), IT WAS HELD BY THE HONBLE BOMBAY HIGH C OURT THAT IF THERE 4 ITA NO.2271/PUN/2017 WAS NO PROFIT DERIVED BY THE ASSESSEE FROM A PARTNERSHIP FIRM WHICH WAS EXEMPT FROM TAX U/S 10(2A) OF THE ACT, THE QUESTION OF DISA LLOWANCE OF INTEREST EXPENSES RELATED TO SUCH TAX FREE PROFIT U/S 14A OF THE ACT WOULD NOT ARISE. IN THE CASE OF G.V.K. PROJECT & TECHNICAL SERVICES LIMITED, TH E DISALLOWANCE MADE BY THE ASSESSING OFFICER U/S 14A ON THE BASIS OF INVESTMEN TS MADE BY THE ASSESSEE WAS DELETED BY THE TRIBUNAL HOLDING THAT SUCH D ISALLOWANCE COULD NOT BE MADE IN THE ABSENCE OF ANY EXEMPT INCOME REPORTED B Y THE ASSESSEE. THE HONBLE DELHI HIGH COURT UPHELD THE ORDER OF THE TRIBUNAL A ND THE SLP FILED BY THE REVENUE AGAINST THE ORDER OF THE HONBLE DELHI HIGH C OURT WAS DISMISSED BY THE HONBLE SUPREME COURT VIDE ITS ORDER REPORTED IN 106 TAXMAN N.COM 181. AS REGARDS THE CBDT CIRCULAR RELIED UPON BY THE ASSESSING OFFICER FOR M AKING A DISALLOWANCE U/S 14A OF THE ACT EVEN IN THE ABSENCE OF AN Y EXEMPT INCOME REPORTED BY THE ASSESSEE, LD. COUNSEL FOR THE ASSESSEE HAS RELIED ON THE DECISION OF THE HONBLE SUPREME COURT IN THE CASE OF HIND USTAN AERONAUTICS LTD. VS. CIT, 243 ITR 808 (SC) WHEREIN IT WAS HELD THAT EVE N THOUGH THE CIRCULARS OR INSTRUCTIONS GIVEN BY THE CBDT ARE BINDING IN LAW ON AUTHORITIES UNDER THE ACT BUT WHEN SUPREME COURT OR HIGH COURT H AS DECLARED LAW ON QUESTION ARISING FOR CONSIDERATION, IT WILL NOT BE OPEN TO A COURT TO DIRECT THAT A CIRCULAR SHOULD BE GIVEN EFFECT TO AND NOT THE VIEW EXPRES SED IN A DECISION OF THE HONBLE SUPREME COURT OR HIGH COURT. KEEPING IN VIEW THE LEGAL POSITION EMANATING FROM THESE JUDICIAL PRONOUNCEMENTS OF HONBLE S UPREME COURT AS WELL AS HONBLE JURISDICTIONAL HIGH COURT, WE FIND NO INFIRMITY IN THE IMPUGNED ORDER OF THE LD. CIT(A) DELETING THE DISALLOWANCE MADE BY T HE ASSESSING OFFICER U/S 14A OF THE ACT BY HOLDING THAT IN THE ABSENCE OF ANY EXEMPT INCOME REPORTED BY THE ASSESSEE DURING THE YEAR UNDER CONSID ERATION, THERE WAS NO QUESTION OF MAKING ANY DISALLOWANCE U/S 14A OF THE ACT. TH E SAME IS ACCORDINGLY UPHELD ON THIS ISSUE DISMISSING THE APPEAL OF THE REVENUE. 5 ITA NO.2271/PUN/2017 5. IN THE RESULT, THE APPEAL OF THE REVENUE IS DISMISSED. ORDER PRONOUNCED ON THIS 23 RD DAY OF NOVEMBER, 2020. SD/ SD/ - ( PARTHA SARATHI CHAUDHURY ) ( P.M. JAGTAP ) JUDICIAL MEMBER VICE PRESIDENT / PUNE; / DATED :23 RD NOVEMBER, 2020. SUJEET / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT. 2. / THE RESPONDENT. 3. THE CIT(A)-7, PUNE. 4. THE PR. CIT-6, PUNE. 5 . , , !'# , / DR, ITAT, A BENCH, PUNE. 6. $%&' / GUARD FILE. / BY ORDER, // TRUE COPY // SENIOR PRIVATE SECRETARY , / ITAT, PUNE.