ACIT, CHENNAI V. C. Subba Reddy (HUF), CHENNAI

ITA 2291/CHNY/2016

• Counselvise Citation: [2016] 131 COUNSELVISE.COM (IT) 7840 (ITAT-CHENNAI)
• Duration Of Justice: 4 month(s) 18 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 22-12-2016
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: B
• Assessment Year: 2011-2012
• Appeal Filed On: 04-08-2016
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: SUPRIYO PAL
• Assessee Lawyers: A S SRIRAMAN
• Section: 143(3); 10

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL , B B ENCH, CHENNAI . , ' # . $ , & ' BEFORE SHRI A.MOHAN ALANKAMONY, ACCOUNTANT MEMBER AND SHRI DUVVURU RL REDDY, JUDICI AL MEMBER ./ I.T.A.NOS.2291 & 2292/MDS/2016 ( / ASSESSMENT YEARS:2011-12 & 2012-13) THE ASSISTANT COMMISSIONER OF INCOME TAX, NON-CORPORATE CIRCLE-1(1) CHENNAI-34. VS M/S.C.SUBBA REDDY (HUF) SUKRITI, THIRD CROSS STREET, R.A.PURAM, CHENNAI-600 028. PAN:AACHC2523G ( /APPELLANT) ( /RESPONDENT) / APPELLANT BY : MR. SUPRIYO PAL, JCIT /RESPONDENT BY : MR. A.S.SRIRAMAN, ADVOCATE /DATE OF HEARING : 27 TH OCTOBER,, 2016 /DATE OF PRONOUNCEMENT : 22 ND DECEMBER, 2016 / O R D E R PER A. MOHAN ALANKAMONY, AM:- THESE TWO APPEALS ARE FILED BY THE REVENUE AGGRIEVED BY THE SEPARATE ORDERS OF THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS)-2, CHENNAI BOT H DATED 30.03.2016 IN ITA NOS.187 & 215/CIT(A)-2/20 13-14 / 2014-15 FOR THE ASSESSMENT YEARS 2011-12 & 2012-1 3 RESPECTIVELY PASSED UNDER SECTION 143(3) R.W.S 250( 6) OF THE ACT. 2. THE REVENUE HAS RAISED SEVERAL GROUNDS IN ITS AP PEALS, HOWEVER, THE CRUX OF THE COMMON ISSUE IN BOTH THESE APPEALS IS AS FOLLOWS:- 2 ITA NO. 2291 & 2292/MDS/2016 THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) HAS ERRED IN DELETING THE DISALLOWANCE OF RS.1,03,73,845/- AND RS.4.88 CRORES FOR THE ASSESSMENT YEARS 2011-12 & 2012-13 RESPECTIVELY MADE BY THE LEARNED ASSESSING OFFICER BEING DIVIDEND EARNED BY THE ASSESSEE FROM HDFC CASH MANAGEMENT SAVINGS PLAN(MUTUAL FUND) AND ULTRA SHORT-TERM BONDS ISSUED BY M/S. PARAMERICA ASSET MANAGEMENT PVT.LTD., (MUTUAL FUND). 3. BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE IS A HUF ENGAGED IN THE BUSINESS OF BUILDING PROMOTERS ETC. , FILED ITS RETURNS OF INCOME FOR THE ASSESSMENT YEAR 2011-12 O N 25.09.2011 DECLARING TOTAL INCOME OF RS.34,46,44,14 9/- AND FOR THE ASSESSMENT YEAR 2012-13 ON 26.09.2012 ADMIT TING TOTAL INCOME OF RS.68,99,65,180/-. THE CASE WAS S ELECTED FOR SCRUTINY AND NOTICE UNDER SECTION 143(2) WAS IS SUED TO THE ASSESSEE ON 07.08.2012 FOR THE ASSESSMENT YEAR 2011 -12 AND ON 19.08.2013 FOR THE ASSESSMENT YEAR 2012-13. SUBSEQUENTLY, THE ASSESSMENTS WERE COMPLETED BY THE LEARNED ASSESSING OFFICER UNDER SECTION 143(3) OF T HE ACT ON 29.03.2014 AND 31.12.2014 FOR THE ASSESSMENT YEARS 2011- 12 & 2012-13 RESPECTIVELY, WHEREIN THE LEARNED ASSE SSING OFFICER AMONGST CERTAIN OTHER ADDITIONS ALSO DISALL OWED THE 3 ITA NO. 2291 & 2292/MDS/2016 EXEMPTION CLAIMED BY THE ASSESSEE UNDER SECTION 10( 23D) & 10(35) OF THE ACT BEING DIVIDEND EARNED FROM MUTUAL FUND INVESTMENTS MADE WITH M/S. HDFC AND M/S. PARAMERICA ASSET MANAGEMENT PVT.LTD . THE DETAILS OF THE INVESTMENTS MADE BY THE ASSESSEE AND THE DIVIDEND INCOME EARNED FROM THE SAME ARE EXTRACTED HEREIN BELOW AS STATED BY TH E LEARNED ASSESSING OFFICER IN HIS ORDER FOR REFERENCE:- YEAR INVESTMENT AMT. OF INVESTMENT RS. DIVIDEND INCOME RS 2011-12 HDFC MUTUAL FUND 25,43,35,943 PARAMERICA ULTRA SHORT TERM BOND FUND 25,60,37,903 TOTAL 51,03,73,846 1,03,73,845 2012-13 HDFC MUTUAL FUND PARAMERICA ULTRA SHORT TERM BOND FUND TOTAL 62,22,71,827 4,88,38,473 4. WHILE MAKING THE DISALLOWANCE, THE LEARNED ASSES SING OFFICER OBSERVED AS FOLLOWS IN HIS ORDER FOR THE AS SESSMENT YEAR 2011-12:- HENCE FROM THE ABOVE, IT IS CLEAR THAT INCOME EARNE D FROM UNITS OF MUTUAL FUNDS IS COVERED AS EXEMPT AND SUCH MUTUAL FUNDS ARE FALLING UNDER THE CATEGORY OF SPECIFIED/APPROVED MUTUAL FUNDS AS DEFINED U/S.10(2 3D). IN THE INSTANT CASE THE SAME CANNOT BE EQUATED TO U NITS OF MUTUAL FUNDS AS THEY ARE DAILY DIVIDEND CASH MANAGEMENT FUNDS OF HDFC. HDFC OTHER MUTUAL FUNDS AND THOSE INCOME MAY BE COVERED AS EXEMPT, BUT NOT EVERY INCOME OF HDFC SCHEMES INVOLVING THE ONES OF 4 ITA NO. 2291 & 2292/MDS/2016 CASH MANAGEMENT SCHEMES THAT DO NOT QUALIFY FOR MUTUAL FUNDS AS DEFINED. FURTHER THOSE SCHEMES DO N OT FALL UNDER EQUITY SHARES FOR EQUITY LINKED/ORIENTED FUNDS AND ASSESSEES MERE CLAIM ON THE WHOLISTIC BASIS CA NNOT BE CONSIDERED AS ALLOWABLE IN THE ABSENCE OF VERIFI ABLE PROOFS OF EXEMPTION ALLOWABLE FOR SUCH CASH MANAGEMENT SCHEMES OF HDFC ETC. IN VIEW OF THE ABOVE, IT IS CLEAR THAT THE INVESTMENTS OF ASSESSEE DO NOT FALL UNDER EQUITY SCHEMES AS ENVISAGED AND ARE EARNING INCOME BY WAY OF REDEMPTION AND REINVESTMENT OF SAME IN THE HDFC FUND MANAGEMENT SCHEMES. ACCORDINGLY, ASSESSEES CLAIM OF EXEMPTION FOR THE INCOME EARNED AS DIVIDEN D OUT OF THE FMP IS CONSIDERED AS TAXABLE INCOME AS IT IS COVERED BY EXPRESS PROVISIONS U/S.10(35) OR 10(38) OF THE I.T.ACT AND SAME IS ADDED AS INCOME AT RS.1,03,73,845/-. FOR THE SUBSEQUENT ASSESSMENT YEAR ALSO, THE LEARNE D ASSESSING OFFICER FOLLOWED HIS DECISION OF THE EARL IER ASSESSMENT YEAR BY STATING THAT THE ASSESSEE HAS NO T PRODUCED ANY NEW INFORMATION TO DISPUTE THE OBSERVA TIONS MADE BY HIM IN HIS EARLIER ORDER FOR THE ASSESSMENT YEAR 2011-12. 5. HOWEVER, WHEN THE MATTER CAME UP BEFORE THE LEAR NED COMMISSIONER OF INCOME TAX (APPEALS), HE HELD THAT THE ASSESSEE IS ENTITLED FOR DEDUCTION UNDER SECTION 10 (35) OF THE ACT FOR THE ASSESSMENT YEAR 2011-12 BY OBSERVING AS UNDER:- VIDE WRITTEN SUBMISSIONS FILED BEFORE THE UNDERSIG NED; THE APPELLANT HAS FURNISHED THE COPY OF THE FOLLOWI NG: 5 ITA NO. 2291 & 2292/MDS/2016 I) TWO LETTERS OF CLARIFICATION DATED 27.07.15 ISSU ED BY M/S. PARAMERICA MUTUAL FUND, MUMBAI ADDRESSED TO THE APPELLANT STATING THAT THE DIVIDENDS RECEIVED UNDER PARAMERICA ULTRA SHORT TERM BOND FUND AND PRAMERICA LIQUID FUND SCHEMES ARE EXEMPT FROM INCOME-TAX UNDER SECTION 10(35) OF THE I.T.ACT. THE LETTER GOES ON T O STATE THAT ANY AMOUNT OF INCOME DISTRIBUTED BY A MUTUAL FUND TO ITS UNIT HOLDERS SHALL BE CHARGEABLE TO TAX AND SUCH SPECIFIED COMPANY OR MUTUAL FUNDS HHLL BE LIABLE TO PAY ADDITIONAL INCOME TAX O N SUCH DISTRIBUTED INCOME. II) LETTER DATED 5.6.2014 ISSUED BY HDFC ASSET MANAGEMENT CO. LTD. INFORMING THAT THE DIVIDENDS RECEIVED UNDER FOLIO SCHEMES W.R.T THE APPELLANTS INVESTMENTS ARE EXEMPT FROM INCOME TAX U/S.10(35) OF THE ACT. FURTHER THAT THE FUNDS SCHEMES WILL HAVE TO PAY TAX U/S.115R AT THE APPLICABLE TAX RATES ON THE AMOUNT DISTRIBUTED AS DIVIDEND UNDER THE SCHEME. BASED ON THE LETTERS/CERTIFICATES, ISSUED BY THE TW O MUTUAL FUNDS, AND ON A CAREFUL CONSIDERATION OF THE FACTS OF THE CASE, IT IS SEEN THAT THE CLAIM OF THE APPEL LANT THAT THE DIVIDENDS EARNED ARE EXEMPT U/S.10(35) OF THE I .T.ACT IS ACCEPTABLE. THE ADDITION/DISALLOWANCE MADE OF A SUM OF RS.1,03,73,845/- IS HENCE DELETED. FOR THE ASSESSMENT YEAR 2012-13 ALSO THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) GAVE RELIEF TO THE ASSESSEE FOLLOWING HIS EARLIER ORDER FOR THE ASSESS MENT YEAR 2011-12 SUPRA. 6. BEFORE US, THE LEARNED DEPARTMENTAL REPRESENTAT IVE VEHEMENTLY ARGUED BY STATING THAT THE INVESTMENTS M ADE BY THE ASSESSEE DO NOT FALL UNDER THE EQUITY ORIENTED MUTUAL 6 ITA NO. 2291 & 2292/MDS/2016 FUND SCHEME, BUT FALLS UNDER THE DEBT ORIENTED FUND S AND THEREFORE, THE ASSESSEE IS NOT ENTITLED FOR DEDUCTI ON UNDER SECTION 10(23D) AND 10(35) OF THE ACT. HE THEREFOR E, PLEADED THAT THE ORDERS OF THE LEARNED ASSESSING OFFICER MA Y BE REINSTATED AND THE ORDERS OF THE LEARNED COMMISSION ER OF INCOME TAX (APPEALS) MAY BE SET ASIDE. 7. THE LEARNED AUTHORIZED REPRESENTATIVE ON THE OTH ER HAND, RELIED IN THE ORDERS OF THE LEARNED COMMISSIO NER OF INCOME TAX (APPEALS) AND ARGUED IN SUPPORT OF THE S AME. 8. WE HAVE HEARD THE RIVAL SUBMISSIONS AND CAREFULL Y PERUSED THE MATERIALS ON RECORD. WE HAVE ALSO PERUS ED THE MUTUAL FUND SCHEME AND THE ULTRA SHORT TERM BOND FU ND SCHEME ISSUED BY M/S. HDFC AND M/S. PARAMERICA ASSE T MANAGEMENT PVT.LTD., RESPECTIVELY AND ALSO EXAMINED THE CERTIFICATES ISSUED BY M/S. HDFC DATED 5.6.2014 AND M/S. PARAMERICA ASSET MANAGEMENT PVT.LTD. DATED 27.07.20 15 WHEREIN THEY HAVE STATED THAT THE ASSESSEE WOULD BE ELIGIBLE FOR DEDUCTION UNDER SECTION 10(35) OF THE ACT. THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) RELYING ON THE 7 ITA NO. 2291 & 2292/MDS/2016 AFORESAID CERTIFICATES HAD GRANTED RELIEF TO THE AS SESSEE. THE LEARNED ASSESSING OFFICER HAS ALSO NOT DISPUTED THE GENUINENESS OF THE CERTIFICATES ISSUED BY THE RELEV ANT PARTIES SUPRA AND THE APPROVAL OF SEBI IN REGARD TO THE MUT UAL FUNDS INVESTED BY THE ASSESSEE. HIS ONLY GRIEVANCE WAS TH AT THE MUTUAL FUNDS ARE BASED ON THE DAILY DIVIDEND CASH MANAGEMENT FUNDS OF HDFC, HENCE THEY ARE NOT COVERE D UNDER THE EXEMPT CATEGORY. HE ALSO OPINED THAT THE INVESTMENTS MADE IN ULTRA SHORT TERM BOND FUNDS WIT H M/S.PARAMERICA ASSET MANAGEMENT PVT.LTD., IS ALSO O F SIMILAR NATURE AND THEREFORE NOT ENTITLED FOR DEDUCTION. W E DO NOT FIND MERIT IN THIS CONTENTION OF THE LEARNED ASSESS ING OFFICER BECAUSE THE PROVISIONS OF SECTION 10(23D) & 10(35) OF THE ACT DOES NOT DISTINGUISH BETWEEN THE DAILY DIVIDEND CASH MANAGEMENT FUNDS AND THE MUTUAL FUNDS BOTH BEING REGISTERED UNDER SECURITIES AND EXCHANGE BOARD OF I NDIA ACT, 1992 OR ANY OTHER MUTUAL FUND SET UP BY PUBLIC SECT OR BANKS OR PUBLIC FINANCIAL INSTITUTIONS OR AUTHORIZED BY R ESERVE BANK OF INDIA. FURTHER THE LEARNED DEPARTMENTAL REPRESEN TATIVE HAS NOT PRODUCED BEFORE US ANY OTHER MATERIALS TO S HOW THAT THE ASSESSEE IS NOT ENTITLED FOR THE BENEFIT OF DED UCTION UNDER 8 ITA NO. 2291 & 2292/MDS/2016 SECTION 10(35) OF THE ACT WITH REGARD TO THE INVES TMENT BY THE ASSESSEE IN SEBI APPROVED MUTUAL FUNDS AND ALSO HE COULD NOT HOLD ANYTHING AGAINST THE DOCUMENTS PRODUCED BY THE LEARNED AUTHORIZED REPRESENTATIVE BEING THE SCHEME OF MUTUAL FUND AND ULTRA SHORT TERM BOND FUND AND THE CERTIFICATES FROM THE RELEVANT PARTIES. HENCE WE DO NOT HAVE ANY OTHER OPTION BUT TO CONFIRM THE ORDERS OF THE L EARNED COMMISSIONER OF INCOME TAX (APPEALS) FOR BOTH THE ASSESSMENT YEARS. ACCORDINGLY, THE ORDERS OF THE LE ARNED COMMISSIONER OF INCOME TAX (APPEALS) ARE HEREBY CONFIRMED. 9. IN THE RESULT, BOTH THE APPEALS OF THE REVENUE A RE DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON THE 22 ND DECEMBER, 2016 SD/- SD/- ( ' # . $ ) ( . ) ( DUVVURU RL REDDY ) ( A. MOHAN ALANKAMONY ) # % / JUDICIAL MEMBER % / ACCOUNTANT MEMBER # /CHENNAI, ( /DATED DECEMBER, 2016 SOMU *+ ,+ /COPY TO: 1. APPELLANT 2. RESPONDENT 3. - () /CIT(A) 4. - /CIT 5. + 1 /DR 6. /GF