Better Value Holdings Pvt. Ltd., Pune V. Deputy Commissioner of Income-tax,

ITA 234/PUN/2014

• Counselvise Citation: 23424514 RSA 2014
• Duration Of Justice: 11 month(s) 13 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 21-01-2015
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: A
• Assessment Year: 2010-2011
• Appeal Filed On: 07-02-2014
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Keywords: Earning of tax free income
• Section: 14A

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL PUNE BENCH A, PUNE BEFORE MS. SUSHMA CHOWLA, JUDICIAL MEMBER AND SHRI R.K. PANDA, ACCOUNTANT MEMBER ITA NO. 234/PN/2014 (ASSESSMENT YEAR : 2010-11) BETTER VALUE HOLDINGS PVT. LTD., 13A, KIRLOSKAR KISAN PREMISES, KARVE ROAD, KOTHRUD, PUNE 411 038 PAN NO.AAACB7594H .. APPELLANT VS. DCIT, CIRCLE-1(1), PUNE .. RESPONDENT ASSESSEE BY : SHRI C.H. NANIWADEKAR REVENUE BY : SHRI RAJESH DAMOR DATE OF HEARING : 20-01-2015 DATE OF PRONOUNCEMENT : 21-01-2015 ORDER PER R.K.PANDA, AM : THIS APPEAL FILED BY THE ASSESSEE IS DIRECTED AGAIN ST THE ORDER DATED 31-10-2013 OF THE CIT(A)-I, PUNE RELATING TO ASSESSMENT YEAR 2010-11. 2. THE ONLY EFFECTIVE GROUND RAISED BY THE ASSESSEE READS AS UNDER : THE LD.CIT(A) ERRED ON FACTS AND IN LAW IN UPHOLD ING DISALLOWANCE U/S.14A. HE PARTICULARLY ERRED IN HOLDING THAT THE ENTIRE INDIRECT EXPENDITURE HAS TO BE TREATED AS RELATABLE TO EXEMPT INCOME. 2.1 FACTS OF THE CASE, IN BRIEF, ARE THAT THE ASSES SEE IS A PRIVATE LIMITED COMPANY ENGAGED IN THE BUSINESS OF INVESTME NT IN STOCK, SHARES AND MUTUAL FUNDS. ITS MAIN INVESTMENTS ARE IN STOCKS OF 2 KIRLOSKAR GROUP OF COMPANIES. IT FILED ITS RETURN OF INCOME ON 13- 10-2010 DECLARING TOTAL INCOME OF RS.3,63,17,889/-. DURING THE COURSE OF ASSESSMENT PROCEEDINGS THE AO OBSERVED FR OM THE PROFIT AND LOSS ACCOUNT AND COMPUTATION OF TOTAL INCOME TH AT THE ASSESSEE HAS CLAIMED EXEMPT DIVIDEND INCOME OF RS.125,83,74, 767/- U/S.10(33) AND 10(34) AND EXEMPT CAPITAL GAIN OF RS .12,67,193/-. HE FURTHER NOTED ON VERIFICATION OF THE DETAILS OF DISALLOWANCES THAT THE ASSESSEE HAS MADE ESTIMATED DISALLOWANCE OF RS. 25 LAKHS U/S.14A OF THE I.T. ACT. 3. HOWEVER, THE AO WAS NOT SATISFIED WITH THE CORRE CTNESS OF THE CLAIM OF THE ASSESSEE. HE THEREFORE ASKED THE ASSESSEE TO EXPLAIN AS TO WHETHER OR NOT THE ASSESSEE IS MAINTA INING SEPARATE DETAILS OF EXPENSES RELATED TO TAX FREE INCOME AND ASKED THE ASSESSEE TO FURNISH SUCH DETAILS MAINTAINED, IF ANY, AND ALS O FURNISH THE BASIS OF CALCULATION OF DISALLOWANCE MADE. IT WAS EXPLAIN ED BY THE ASSESSEE THAT IT IS NOT MAINTAINING SEPARATE DETAIL S FOR THE SAME. ACCORDING TO THE AO, THE ASSESSEE ALSO COULD NOT FU RNISH ANY REASONABLE BASIS OF CALCULATION OF DISALLOWANCE. T HE AO, THEREFORE, ASKED THE ASSESSEE TO EXPLAIN AS TO WHY RULE 8D SHO ULD NOT BE APPLIED FOR CALCULATING THE DISALLOWANCE U/S.14A OF THE I.T. ACT. REJECTING THE VARIOUS EXPLANATIONS GIVEN BY THE ASS ESSEE AND APPLYING THE PROVISIONS OF SECTION 14A R.W. RULE 8D THE AO CALCULATED SUCH DISALLOWANCE UNDER RULE 8D(2)(III) AT RS.63,08,291/-. SINCE THE ASSESSEE HAD ALREADY MAD E ESTIMATED 3 DISALLOWANCE OF RS.25 LAKHS, THE AO ADDED THE BALAN CE AMOUNT OF RS.38,08,291/- TO THE TOTAL INCOME OF THE ASSESSEE. 4. IN APPEAL THE LD.CIT(A) UPHELD THE ADDITION MADE BY THE AO. AGGRIEVED WITH SUCH ORDER OF THE CIT(A) THE AS SESSEE IS IN APPEAL BEFORE US. 5. THE LD. COUNSEL FOR THE ASSESSEE SUBMITTED THAT THE ASSESSEE IS ALSO IN THE BUSINESS OF ADVANCING MONEY TO OTHER GROUP COMPANIES. REFERRING TO PAGE 10 OF THE PAPER BOOK H E SUBMITTED THAT APART FROM DIVIDEND OF RS.125.84 CRORES THE AS SESSEE HAS ALSO EARNED INTEREST INCOME OF ABOUT RS.4 CRORES AND PRO FIT ON SALE OF INVESTMENT AT RS.3.21 CRORES. THEREFORE, IT IS WRO NG TO SAY THAT THE ENTIRE ADMINISTRATIVE EXPENSES IS INCURRED FOR EARN ING THE TAX FREE DIVIDEND INCOME. HE ACCORDINGLY SUBMITTED THAT SOM E EXPENDITURE, WHICH IS ATTRIBUTABLE TOWARDS EARNING OF THE INTERE ST AND OTHER INCOME, SHOULD BE ALLOWED TO THE ASSESSEE. 6. THE LD. DEPARTMENTAL REPRESENTATIVE ON THE OTHER HAND HEAVILY RELIED ON THE ORDER OF THE CIT(A). 7. WE HAVE CONSIDERED THE RIVAL ARGUMENTS MADE BY B OTH THE SIDES, PERUSED THE ORDERS OF THE ASSESSING OFFICER AND THE CIT(A) AND THE PAPER BOOK FILED ON BEHALF OF THE ASSESSEE. THERE IS NO DISPUTE TO THE FACT THAT APART FROM EARNING OF DIVI DEND INCOME OF RS.125.84 CRORES THE ASSESSEE HAS ALSO EARNED INTER EST INCOME OF ABOUT 4 CRORES AND PROFIT ON SALE OF INVESTMENT AT ABOUT RS.3.22 CRORES. WHILE THE DIVIDEND INCOME IS TAX FREE, HOW EVER, THE INTEREST 4 INCOME AND PROFIT ON SALE OF INVESTMENT IS TAXABLE. THEREFORE, ATTRIBUTING THE ENTIRE ADMINISTRATIVE EXPENDITURE F OR EARNING DIVIDEND INCOME, IN OUR OPINION, IS NOT PROPER AND JUSTIFIED UNDER THE FACTS AND CIRCUMSTANCES OF THE CASE. CONSIDERI NG THE TOTALITY OF THE FACTS OF THE CASE AND CONSIDERING THE FACT THAT THE DIVIDEND IS FROM SHARES OF GROUP COMPANIES ONLY, WE ARE OF THE CONSIDERED OPINION THAT AN AMOUNT OF RS.40 LAKHS AS AGAINST TH E WHOLE AMOUNT OF RS.63,08,291/- MAY BE ATTRIBUTABLE TOWARDS SUCH EXEMPT INCOME. THE BALANCE AMOUNT OF RS.23,08,291/- IS ATTRIBUTABL E TOWARDS EARNING OF SUCH INTEREST INCOME. WE HOLD AND DIREC T ACCORDINGLY. THE GROUND RAISED BY THE ASSESSEE IS ACCORDINGLY PA RTLY ALLOWED. 8. IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE IS PARTLY ALLOWED. PRONOUNCED IN THE OPEN COURT ON 21-01-2015. SD/- SD/- (SUSHMA CHOWLA) (R.K. PANDA) JUDICIAL MEMBER ACCOUNTANT MEMBE R PUNE DATED: 21 ST JANUARY, 2015 SATISH COPY OF THE ORDER FORWARDED TO : 1. ASSESSEE 2. DEPARTMENT 3. THE CIT(A)-I, PUNE 4. THE CIT-I, PUNE 5. THE D.R, A PUNE BENCH 6. GUARD FILE BY ORDER // TRUE COPY // ASSISTANT REGISTRAR ITAT, PUNE BENCHES, PUNE