Kolur Sreenivasan Kamalakannan, Dindigul V. ITO Corporate Ward 4(4), CHENNAI

ITA 2533/CHNY/2017

• Counselvise Citation: [2020] 110 COUNSELVISE.COM (IT) 5534 (ITAT-CHENNAI)
• Duration Of Justice: 2 year(s) 11 month(s) 15 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 05-10-2020
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: A
• Assessment Year: 2013-2014
• Appeal Filed On: 20-10-2017
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Assessee Lawyers: N ARJUN RAJ C A SHRI S SRIDHAR
• Keywords: Earning of tax free income; Rule 8D; Set aside
• Section: 143(3); 14A

Judgement Text

, , IN THE INCOME-TAX APPELLATE TRIBUNAL A BENCH, CHENNAI . , , BEFORE SHRI DUVVURU RL REDDY, JUDICIAL MEMBER & SHRI S. JAYARAMAN, ACCOUNTANT MEMBER ./ I.T.A. NO.2533/CHNY/2017 / ASSESSMENT YEAR:2013-14 SHRI KOLLUR SREENIVASAN KAMALAKANNAN, NO. 1, NAGALAKSHMI ILLAM, SEELAPADI VILLAGE, DINDIGUL 624 005. [PAN: AACPK5960F] VS. THE INCOME TAX OFFICER, CORPORATE WARD 4 (4), CHENNAI. ( /APPELLANT ) ( / RESPONDENT ) / APPELLANT BY : SHRI N. ARJUNRAJ, C.A. FOR SHRI S. SRIDHAR, ADVOCATE / RESPONDENT BY : SHRI AR.V. SREENIVASAN, ADDL. CIT / DATE OF HEARING : 29.07.2020 /DATE OF PRONOUNCEMENT : 05.10.2020 / O R D E R PER DUVVURUL RL REDDY, JUDICIAL MEMBER : THIS APPEAL FILED BY THE ASSESSEE IS DIRECTED AGAINST THE ORDER OF THE LD. COMMISSIONER OF INCOME TAX (APPEALS) 8, CHENNAI DATED 07.09.2017 RELEVANT TO THE ASSESSMENT YEAR 2013-14. THE EFFECTIVE GROUND RAISED IN THE APPEAL OF THE ASSESSEE RELATES TO CONFIRMATION OF DISALLOWANCE OF .29,75,079/- ON THE APPLICATION OF SECTION 14A OF THE INCOME TAX ACT, 1961 [ACT IN SHORT]. ITA NO. 2533/CHNY/2017 2 2. BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE FILED ITS RETURN OF INCOME FOR THE ASSESSMENT YEAR 2013-14 ON 24.09.2013 ADMITTING AN INCOME OF .37,85,000/-. THE RETURN FILED BY THE ASSESSEE WAS SELECTED FOR SCRUTINY AND AGAINST THE STATUTORY NOTICES, THE ASSESSEE FURNISHED THE DETAILS. ON VERIFICATION OF THE DETAILS FILED BY THE ASSESSEE, THE ASSESSING OFFICER COMPLETED THE ASSESSMENT UNDER SECTION 143(3) OF THE ACT BY ASSESSING TOTAL INCOME OF THE ASSESSEE AT .67,60,079/- AFTER MAKING DISALLOWANCE UNDER SECTION 14A OF THE ACT R.W. RULE 8D AT .29,75,079/-. ON APPEAL, THE LD. CIT(A) CONFIRMED THE DISALLOWANCE MADE UNDER SECTION 14A R.W. RULE 8D. 3. ON BEING AGGRIEVED, THE ASSESSEE IS IN APPEAL BEFORE THE TRIBUNAL. BY REFERRING TO THE FINANCIAL STATEMENTS FILED IN THE FORM OF PAPER BOOK, THE LD. COUNSEL FOR THE ASSESSEE HAS SUBMITTED THAT THE ASSESSEE HAS SUFFICIENT OWN FUNDS/INTERNAL ACCRUALS FOR MAKING INVESTMENTS. THE INTEREST EXPENDITURE INCURRED BY THE ASSESSEE SHOULD NOT HAVE BEEN DISALLOWED UNDER SECTION 14A R.W. RULE 8D SINCE NO PART OF THE BORROWED FUNDS WERE USED BY THE ASSESSEE FOR MAKING INVESTMENTS AND PRAYED FOR DELETING THE DISALLOWANCE OF EXPENDITURE. ON THE OTHER HAND, THE LD. DR SUPPORTED THE ORDERS OF AUTHORITIES BELOW. 4. WE HAVE HEARD BOTH THE SIDES THROUGH VIDEO CONFERENCING, PERUSED THE MATERIALS AVAILABLE ON RECORD AND GONE THROUGH THE ORDERS OF AUTHORITIES BELOW ITA NO. 2533/CHNY/2017 3 INCLUDING FINANCIALS OF THE ASSESSEE. ON PERUSAL OF THE ACCOUNTS, THE ASSESSING OFFICER NOTICED THAT THE ASSESSEE HAS CLAIMED INTEREST EXPENSES OF .1,53,26,748/- AND SHOWN DIVIDEND INCOME OF .35,90,592/- AND ALSO INVESTMENT IN SHARES FOR .4,86,42,452/- WITH VARIOUS COMPANIES AND OTHERS. HOWEVER, THE ASSESSEE HAS NOT ADMITTED ANY EXPENDITURE ATTRIBUTABLE TO SUCH INVESTMENTS. HENCE, BY INVOKING THE PROVISIONS OF SECTION 14A R.W. RULE 8D, THE ASSESSING OFFICER DETERMINED THE EXPENDITURE ATTRIBUTABLE FOR EARNING SUCH EXEMPT INCOME BY APPLYING RULE 8D AND BROUGHT TO TAX AN AMOUNT OF .29,75,079/-. BEFORE THE LD. CIT(A), THE ASSESSEE HAS FILED THE COMPUTATION OF INCOME AND FINANCIALS OF THE ASSESSEE FOR THE YEAR UNDER CONSIDERATION. FROM THE DETAILS FURNISHED BY THE ASSESSEE, THE LD. CIT(A) HAS OBSERVED THAT THE ASSESSEE HAS RECEIVED A DIVIDEND OF .35,90,592/- FOR THE YEAR OUT OF TAX EXEMPT INVESTMENTS MADE OF .4.83 CRORES DURING THE YEAR. THE ASSESSEE HAS ALSO SHOWN AN OPENING BALANCE OF LOAN CREDITORS AT .19.97 CRORES AND A CLOSING BALANCE OF .20.03 CRORES ON WHICH THE ASSESSEE HAS DEBITED AN INTEREST OF .1,53,26,748/- DURING THE YEAR. THE ASSESSEE HAS LOAN DEBTORS OF .12.34 CRORES AND PERSONAL PROPERTIES OF .7.10 CRORES FOR THE YEAR. THUS, THE LD. CIT(A) HAS CONFIRMED THE DISALLOWANCE UNDER SECTION 14A R.W. RULE 8 D. SINCE THE ASSESSEE HAS NOT OBJECTED TO THE WORKING OF THE DISALLOWANCE. BEFORE US, IT WAS THE CONTENTION OF THE LD. COUNSEL FOR THE ASSESSEE THAT THE ASSESSING OFFICER FAILED TO APPRECIATE THAT UNDER CAPITAL ACCOUNT, THE ASSESSEE ITA NO. 2533/CHNY/2017 4 HAD BALANCE AMOUNT OF .6,25,90,602/-, BUT THE ASSESSEE INVESTED IN SHARES ONLY FOR .4,83,82,452/-. THEREFORE, IT WAS THE SUBMISSION THAT THE ASSESSEE MADE THE INVESTMENT IN SHARES OUT OF HIS OWN FUND. THOUGH THE ASSESSEE HAS BORROWED AN AMOUNT OF .20 CRORES, THE SAID AMOUNT HAS NOTHING TO DO WITH THE INVESTMENTS MADE BY THE ASSESSEE. THE SAID FACTS ARE NOT DISCUSSED IN THE ASSESSMENT ORDER WHILE CONCLUDING THE ASSESSMENT. 4.1 ON PERUSAL OF THE ASSESSMENT ORDER, WE FIND THAT THE ASSESSING OFFICER ALSO MENTIONED IN THE ASSESSMENT ORDER THAT THE ASSESSEE MADE A SUBMISSION THAT THE ASSESSEE IS HAVING CAPITAL ACCOUNT BALANCE OF .6,25,90,602/-, BUT THE ASSESSING OFFICER HAS NOT APPRECIATED THE SAID FACTS AND NOTHING WAS DISCUSSED IN HIS ORDER. THUS, WE SET ASIDE THE ORDERS OF THE AUTHORITIES BELOW AND REMIT THE MATTER BACK TO THE FILE OF THE ASSESSING OFFICER WITH THE DIRECTION THAT HE SHALL EXAMINE THE BALANCE SHEET OF THE ASSESSEE AND ASCERTAIN AS TO WHETHER AS ON THE DATE OF INVESTMENT, THE ASSESSEE HAS SUFFICIENT OWN FUNDS OR NOT. IF THE ASSESSEE IS HAVING OWN FUNDS AS ON THE DATE OF INVESTMENT, THEN THE ASSESSEE IS ENTITLED TO CLAIM EXEMPTION AND THERE IS NO NEED OF DISALLOWANCE UNDER SECTION 14A OF THE ACT R.W. RULE 8D(2)(II). SO FAR AS DISALLOWANCE UNDER RULE 8D(2)(III) IS CONCERNED, THE ASSESSING OFFICER IS DIRECTED TO CONSIDER ONLY THOSE INVESTMENTS FOR COMPUTING AVERAGE VALUE OF INVESTMENT WHICH YIELDED EXEMPT INCOME DURING THE YEAR UNDER CONSIDERATION ITA NO. 2533/CHNY/2017 5 AS PER RULE 8D(2)(III) IN VIEW OF THE DELHI SPECIAL BENCH OF THE TRIBUNAL IN THE CASE OF ACIT V. VIREET INVESTMENT (P) LTD. (2017) 165 ITD 27 (DELHI)(SB) AND TO PASS DETAILED ORDER ON BOTH COUNTS. ACCORDINGLY, THE GROUND RAISED BY THE ASSESSEE IS ALLOWED FOR STATISTICAL PURPOSES. 5. IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE IS PARTLY ALLOWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED ON THE 5 TH OCTOBER, 2020 AT CHENNAI. SD/- SD/- (S JAYARAMAN) ACCOUNTANT MEMBER (DUVVURUL RL REDDY) JUDICIAL MEMBER CHENNAI, DATED, THE 05.10.2020 VM/- /COPY TO: 1. /APPELLANT, 2. / RESPONDENT, 3. ( )/CIT(A), 4. /CIT, 5. /DR & 6. /GF.