Til Healthcare Pvt Ltd., CHENNAI V. ACIT Corpore ward 3(1), CHENNAI

ITA 2416/CHNY/2017

• Counselvise Citation: [2018] 121 COUNSELVISE.COM (IT) 5310 (ITAT-CHENNAI)
• Duration Of Justice: 6 month(s) 14 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 17-04-2018
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: A
• Assessment Year: 2012-2013
• Appeal Filed On: 03-10-2017
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: T BANUSEKAR
• Keywords: Earning of tax free income; Revenue expenditure
• Section: 142(1); 14A

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL , A B ENCH, CHENNAI . . . , . , BEFORE SHRI N.R.S. GANESAN, JUDICIAL MEMBER AND SHRI A.MOHAN ALANKAMONY, ACCOUNTANT MEMBER ./ I.T.A.NO.2416/CHNY/2017 ( / ASSESSMENT YEAR: 2012-13) M/S. TIL HEALTHCARE PVT. LTD., JHAVER CENTRE, RAJA ANNAMALAI BUILDING, NO.72, MARSHALLS ROAD, EGMORE, CHENNAI 600 008. VS THE ACIT, CORPORATE WARD 3(1), CHENNAI. PAN: AABCT0985H ( /APPELLANT) ( /RESPONDENT) / APPELLANT BY : SHRI T. BANUSEKAR, CA / RESPONDENT BY : SHRI AR.V. SREENIVASAN, JCIT /DATE OF HEARING : 08.02.2018 /DATE OF PRONOUNCEMENT : 17.04.2018 / O R D E R PER A. MOHAN ALANKAMONY, AM:- THIS APPEAL BY THE ASSESSEE IS DIRECTED AGAINST TH E ORDER PASSED BY THE LEARNED COMMISSIONER OF INCOME TAX (A PPEALS)-11, CHENNAI, DATED 21.07.2017 IN ITA NO.201/2015-16/CIT (A)-11 FOR THE ASSESSMENT YEAR 2012-13 PASSED U/S.250(6) R.W.S. 14 3(3) & 147 OF THE ACT. 2 THE ASSESSEE HAS RAISED SEVERAL GROUNDS IN ITS AP PEAL HOWEVER THE CRUXES OF THE ISSUES ARE THAT:- 2 ITA NO. 2416/CHNY/2017 (I) THE LD.CIT(A) HAS ERRED IN CONFIRMING THE ORDER OF THE LD.AO WHO HAD DISALLOWED AN AMOUNT OF RS.9,42,885/- BY INVOKING THE PROVISIONS OF SECTION 14A R.W.S.8D OF THE RULES WITHOUT APPRECIATING THE FACT THAT INVESTMENT YIELD ING EXEMPT INCOME ALONE SHOULD BE TAKEN FOR CALCULATING THE DISALLOWANCE U/S.14A OF THE ACT. (II) THE LD.CIT(A) HAS ERRED IN CONFIRMING THE ORDE R OF THE LD.AO WHO HAD DISALLOWED INTEREST EXPENDITURE OF RS.13,92,463/- U/S.36(1)(III) OF THE ACT BEING THE INTEREST CALCULATED AT 16% TOWARDS THE INTEREST FREE ADVANCE S EXTENDED BY THE ASSESSEE. 3. THE BRIEF FACTS OF THE CASE ARE THAT THE ASSESS EE IS A PRIVATE LIMITED COMPANY ENGAGED IN THE BUSINESS OF EXPORT O F PHARMACEUTICALS FORMULATIONS, FILED ITS RETURN OF I NCOME FOR THE ASSESSMENT YEAR 2012-13 ON 30.09.2012 ADMITTING TOT AL INCOME OF RS.6,38,08,490/-. THE CASE WAS SELECTED FOR SCRUTIN Y UNDER CASS AND NOTICE U/S.143(2) & 142(1) OF THE ACT WAS ISSUE D ON 06.08.2013 & 13.06.2014 RESPECTIVELY. FINALLY ASSESSMENT ORDE R WAS PASSED U/S.143(3) OF THE ACT ON 31.03.2015 WHEREIN THE LD. AO MADE SEVERAL ADDITIONS AMONGST WHICH THE ASSESSEE IS IN APPEAL B EFORE US WITH 3 ITA NO. 2416/CHNY/2017 RESPECT TO THE DISALLOWANCE U/S.14A OF THE ACT AND PAYMENT OF INTEREST WHICH IS ATTRIBUTABLE TO INTEREST FREE ADV ANCE. 4. GROUND NO.2(I) : DISALLOWANCE U/S.14A R.W.R.8D OF T HE RULES:- DURING THE COURSE OF SCRUTINY ASSESSMENT PROCEEDI NGS, IT WAS OBSERVED BY THE LD.AO, THAT THE INVESTMENT PORT FOLIO OF THE ASSESSEE AS ON 31.03.2012 STOOD AS RS.9,75,16,069/- AND THE ASSESSEE HAD EARNED DIVIDEND INCOME OF RS.8,14,369/ - TOWARDS THE INVESTMENT WHICH WAS CLAIMED AS EXEMPTION U/S.10 OF THE ACT. THE LD.AO OPINED THAT THE ASSESSEE WOULD HAVE INCUR RED EXPENDITURE FOR MONITORING THE HUGE VOLUME OF INVES TMENT PORTFOLIO SUCH AS ADMINISTRATIVE AND MANAGERIAL COST. THEREFO RE THE LD.AO INVOKED THE PROVISIONS OF SECTION 14A R.W.R. 8D OF THE RULES AND THEREBY MADE DISALLOWANCE OF RS.9,42,085/-. ON APPE AL THE LD.CIT(A) RESTRICTED THE DISALLOWANCE TO RS.8,14,36 9/- BY HOLDING THAT THE DISALLOWANCE U/S.14A OF THE ACT CANNOT EXCEED T HE EXEMPT INCOME EARNED BY THE ASSESSEE. 4.1 BEFORE US THE LD.AR SUBMITTED THAT THE LD. REVE NUE AUTHORITIES HAD FAILED TO CONSIDER THAT ONLY INVESTMENT YIELDIN G EXEMPT INCOME ALONE SHOULD BE CONSIDERED FOR CALCULATING DISALLOW ANCE U/S.14A OF THE ACT. IT WAS THEREFORE PLEADED THAT DIRECTIONS M AY BE GIVEN TO 4 ITA NO. 2416/CHNY/2017 ASSESS THE INCOME OF THE ASSESSEE ACCORDINGLY. THE LD.DR RELIED ON THE ORDERS OF THE LD. REVENUE AUTHORITIES. 4.2 WE HAVE HEARD THE RIVAL SUBMISSIONS AND CAREFUL LY PERUSED THE MATERIALS AVAILABLE ON RECORD. SECTION 14A OF THE A CT ONLY SPECIFIES THAT NO DEDUCTION SHALL BE ALLOWABLE IN RESPECT OF EXPENDITURE INCURRED BY THE ASSESSEE IN RELATION TO INCOME WHIC H DOES NOT FORM PART OF THE TOTAL INCOME UNDER THE ACT. IT DOES NOT SPECIFY WITH RESPECT TO EXPENDITURE INCURRED ON TAXABLE INCOME. THEREFOR E IN THE CASE WHERE ASSESSEE INCURS REVENUE EXPENDITURE TOWARDS I NVESTMENTS, THE INCOME FROM WHICH IS TAXABLE, THE PROVISIONS OF SECTION 14A OF THE ACTED DOES NOT APPLY. HENCE THE INVESTMENTS MADE BY THE ASSESSEE, WHEREIN THE INCOME DERIVED IS TAXABLE PROVISIONS OF SECTION 14A OF THE ACT ARE NOT APPLICABLE. THE DECISION RENDERED B Y THE DELHI BENCHES OF THE TRIBUNAL IN THE CASE ACIT & ANR V/S. VIREET INVESTMENT PVT.LTD. & ANR ALSO FORTIFY OUR VIEW WHE REIN IT WAS HELD THAT AS PER RULE 8D(2)(III), ONLY THOSE INVESTMENTS WER E TO BE CONSIDERED FOR COMPUTING AVERAGE VALUE OF INVESTMEN T WHICH YIELDED EXEMPT INCOME DURING YEAR UNDER CONSIDERATION. ACCORDINGLY WE HEREBY DIRECT THE LD.AO TO COMPUTE THE DISALLOWANCE U/S.14A R.W.R., 8D(2)(III) OF THE RULES ONLY ON THE INVESTMENT WHIC H YIELD EXEMPT INCOME. 5 ITA NO. 2416/CHNY/2017 5. GROUND NO.2(I) :- DISALLOWANCE OF INTEREST EXPENDIT URE OF RS.13,92,463/- U/S.36(1)(III) OF THE ACT. DURING THE COURSE OF SCRUTINY ASSESSMENT PROCEEDING S, IT WAS OBSERVED BY THE LD.AO THAT THE ASSESSEE HAD ADVANCE D AN AGGREGATE AMOUNT OF RS.2,12,02,892/- TO VARIOUS PAR TIES VIZ., M/S. DK SECURITIES - RS.42,02,892/-, M/S. SHRI HARI FOUNDAT IONS - RS.1,25,00,000/- AND M/S. ARTEC PRODUCTS PVT. LTD., RS.45,00,000/-. ON QUERY IT WAS EXPLAINED THAT THE ADVANCE GIVEN TO M/S. DK SECURITIES WAS INTEREST FREE LOAN AND THE LOAN GIVE N TO M/S. SHRI HARI FOUNDATIONS WAS INVESTMENT. HENCE IT WAS OPINED BY THE LD.AO THAT THE INVESTMENT MADE BY THE ASSESSEE WITH M/S. HARI FOUNDATIONS WOULD ATTRACT THE PROVISIONS OF SECTION 14A R.W.R. 8D OF THE RULES AND FURTHER DISALLOWED THE INTEREST OF RS.13,92,463/- A DOPTING THE RATE AT 16% ON THE AGGREGATE AMOUNT OF RS.87,02,892/- BEING THE INTEREST ATTRIBUTABLE TO THE INTEREST FREE LOAN EXTENDED TO M/S. DK SECURITIES AND M/S.ARTEC PRODUCTS PVT. LTD.. ON APPEAL, THE L D.CIT(A) RELYING IN THE DECISION OF THE HONBLE HIGH COURT OF DELHI IN THE CASE PUNJAB STAINLESS STEEL INDUS VS. CIT REPORTED IN 324 ITR 3 96, THE DECISION OF THE HONBLE JURISDICTIONAL MADRAS HIGH COURT IN THE CASE K. SOMASUNDARAM & BROS. VS. CIT REPORTED IN 238 ITR 93 9, THE DECISION OF THE HONBLE HIGH COURT OF KERALA IN THE CASE CIT VS. POPULAR VEHICLES AND SERVICES LTD., REPORTED IN 325 ITR 523 AND THE DECISION 6 ITA NO. 2416/CHNY/2017 OF THE HONBLE JURISDICTIONAL MADRAS HIGH COURT IN THE CASE CIT VS. P. GANU RAO & SONS REPORTED IN 185 ITR 324 CONFIRMED T HE ORDER OF THE LD.AO BY HOLDING THAT THE APPELLANT HAD DIVERTED IN TEREST BEARING BORROWED LOANS TO THREE PARTIES WITHOUT CHARGING IN TEREST WHICH AMOUNTS TO DIVERSION OF BUSINESS FUND FOR NON-BUSIN ESS PURPOSES. 5.1 BEFORE US THE LD.AR SUBMITTED THE BALANCE SHEET OF THE ASSESSEE FOR THE RELEVANT ASSESSMENT YEAR, WHEREIN THE SHARE- HOLDERS FUNDS STOOD AS RS.41,47,50,179/- (SHARE CAP ITAL - RS.3,03,86,200/- AND RESERVES & SURPLUS - RS.38,43, 63,979/-). THE LD.AR ARGUED THAT WHEN THE ASSESSEE HAD OWN INTERES T-FREE FUNDS MORE THAN RS.41 CRORES, DISALLOWANCE OF INTEREST EX PENDITURE CANNOT BE MADE JUST BECAUSE THE ASSESSEE HAD EXTENDED INTE REST FREE LOAN AGGREGATING TO RS.87,02,892/-. RELIANCE WAS PLACED IN THE DECISION OF THE HONBLE JURISDICTIONAL MADRAS HIGH COURT IN THE CASE CIT VS. HOTEL SAVERA REPORTED IN 239 ITR 795 WHEREIN IT WAS HELD NO PART OF THE INTEREST ON BORROWINGS COULD BE DIS ALLOWED ON THE GROUND THAT PART OF THE MONEY BORROWED WAS ADVANCED TO A T HIRD PARTY FREE OF INTEREST WHEN THERE WAS SUFFICIENT CREDIT BALANCE I N THE PARTNERS ACCOUNTS AND THERE WAS NO EVIDENCE THAT THE AMOUNTS WERE ADV ANCED OUT OF THE BORROWED AMOUNTS 7 ITA NO. 2416/CHNY/2017 THE LD.AR ALSO PLACED RELIANCE IN THE DECISION OF T HE HONBLE MUMBAI HIGH COURT IN THE CASE CIT VS. RELIANCE UTILITIES & POWER LTD., REPORTED IN 313 ITR 340 WHEREIN IT WAS HELD TRIBUNAL HAVING RECORDED A CLEAR FINDING THAT THE ASSESSEE POSSESSED SUFFICIENT INTEREST-FREE FUNDS OF ITS OWN WHICH WER E GENERATED IN THE COURSE OF RELEVANT FINANCIAL YEAR, APART FROM SUBSTANTIAL SHAREHOLDERS FUND, PRESUMPTION STANDS ESTABLISHED THAT THE INVESTMENTS IN SISTER CONCERNS WERE MADE BY THE ASSESSEE OUT OF INTEREST-FREE FUNDS AND THEREFORE NO PART OF INTEREST ON BORROWINGS CAN BE DISALLOWED ON THE BAS IS THAT THE INVESTMENTS WERE MADE OUT OF INTEREST BEARING FUNDS. 5.2 THE LD.DR ON THE OTHER HAND COULD NOT CONTROVER T TO THE SUBMISSION OF THE LD.AR HOWEVER RELIED IN THE ORDER S OF THE LD. REVENUE AUTHORITIES. 5.3 WE HAVE HEARD THE RIVAL SUBMISSIONS AND CAREFUL LY PERUSED THE MATERIALS ON RECORD. WE FIND MERIT IN THE SUBMISSIO N OF THE LD.AR. WHEN THE ASSESSEE HAS OWN INTEREST FREE FUNDS SUCH AS SHARE CAPITAL AND RESERVES & SURPLUS, IT SHOULD BE PRESUMED THAT THE INTEREST FREE LOAN WAS EXTENDED FROM SUCH FUNDS. THE DECISION REL IED BY THE LD.AR IS APPLICABLE TO THE FACTS OF THE CASE PRESENT BEFO RE US. FURTHER THE DECISIONS RELIED BY THE LD.DR ARE NOT IDENTICAL TO THE FACTS OF THE CASE BECAUSE ALL THOSE CASES WAS RELATED TO DIVERSION OF INTEREST BEARING FUNDS. THEREFORE FOLLOWING THE RATIO OF THE DECISIO N RELIED BY THE LD.AR, WE HEREBY DIRECT THE LD.AO TO DELETE THE ADD ITION OF 8 ITA NO. 2416/CHNY/2017 RS.13,92,463/- MADE BY THE LD.AO BY HOLDING THAT TH E ASSESSEE HAD ADVANCED INTEREST FREE LOAN FROM NON-INTEREST BEARI NG FUNDS. 6. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS ALL OWED. ORDER PRONOUNCED ON THE 17 TH APRIL, 2018 AT CHENNAI. SD/- SD/- ( . . . ) (N.R.S. GANESAN) /JUDICIAL MEMBER ( . ) (A. MOHAN ALANKAMONY) / ACCOUNTANT MEMBER #$ /CHENNAI, %& /DATED 17 TH APRIL, 2018 RSR & () *) /COPY TO: 1. /APPELLANT 2. /RESPONDENT 3. - ( )/CIT(A) 4. - /CIT 5. )./ 0 /DR 6. /1 /GF