M/s. Tamil Nadu Urban Development Fund, CHENNAI V. DCIT, CHENNAI

ITA 2550/CHNY/2016

• Counselvise Citation: [2017] 128 COUNSELVISE.COM (IT) 4626 (ITAT-CHENNAI)
• Duration Of Justice: 8 month(s) 9 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 09-05-2017
• Appeal Filed By: Assessee
• Bench Allotted: A
• Next Hearing Date: 22-02-2017
• Assessment Year: 2011-2012
• Appeal Filed On: 31-08-2016
• Court: TRIBUNAL
• Department Lawyers: SHIVA SRINIVAS
• Assessee Lawyers: PUSHYA SITARAMAN
• Section: 143(3); 142(1); 14A

Judgement Text

, , IN THE INCOME - TAX APPELLATE TRIBUNAL A BENCH, CHENNAI , . , BEFORE SHRI CHANDRA POOJARI , ACCOUNTANT MEMBER & SHRI DUVVURU RL REDDY , J UDICIAL MEMBER ./ I.T.A.NO. 2550 /MDS/2016 / ASSESSMENT YEAR :20 1 1 - 1 2 M/S. TAMIL NADU URBAN DEVELOPMENT FUND, NO. 19, T.P. SCHEME ROAD, RAJA STREET EXTENSION, RAJA ANNAMALAIPURAM, CHENNAI 600 028. [PAN:AAATT0859N] VS. THE DEPUTY COMMISSIONER OF INCOME TAX, BUSINESS CIRCLE II, NEW JURISDICTION, DCIT NON - CORPORATE CIRCLE 2, CHENNAI 34. ( / APPELLANT ) ( / RESPONDENT ) / APPELLANT BY : MS. PUSHYA SITARAMAN, SR. ADVOCATE / RESPONDENT BY : SHRI SHIVA SRINIVAS , J CIT / DATE OF HEARING : 22 . 0 2 .201 7 / DATE OF P RONOUNCEMENT : 09 . 0 5 .201 7 / O R D E R PER DUVVURU RL REDDY , JUDICIAL MEMBER : THIS APPEAL FILED BY THE ASSESSE E IS DIRECTED AGAINST THE ORDER OF THE LD. COMMISSIONER OF INCOME TAX (APPEALS) 2 , C HENNAI DATED 30 . 0 6 .2016 RELEVANT TO THE ASSESSMENT YEAR 20 1 1 - 1 2 . THE ONLY EFFECTIVE GROUND RAISED IN THE APPEAL OF THE ASSESSEE IS THAT THE LD. CIT(A) HAS ERRED IN CONFIRMI NG THE DISALLOWANCE MADE UNDER SECTION 14A OF THE INCOME TAX ACT, 1961 [ ACT IN SHORT]. I.T.A. NO . 2550 /M/ 1 6 2 2. BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE FILED ITS RETURN OF INCOME ON 16.09.2011 ADMITTING TOTAL INCOME AT .4,11,41,452/ - . THE RETURN OF INCOME FILED BY THE ASSESSEE WAS SELECTED FOR SCRUTINY AND NOTICE UNDER SECTION 143(2) OF THE ACT WAS ISSUED ON 06.08.2012. SUBSEQUENTLY, NOTICE UNDER SECTION 142(1) OF THE ACT WAS ISSUED ON 27.01.2014 CALLING FOR VARIOUS DET AILS AND DOCUMENTS. IN RESPONSE THERETO, THE ASSESSEE FILED ALL DETAILS. AFTER EXAMINING THE DETAILS AND VERIFICATION OF PARTICULARS FILED BY THE ASSESSEE, THE ASSESSING OFFICER COMPLETED THE ASSESSMENT UNDER SECTION 143(3) OF THE ACT ON 26.03.2014 BY ASSE SSING TOTAL INCOME OF THE ASSESSEE AT .28,35,10,800/ - AFTER MAKING VARIOUS DISALLOWANCES. 3. THE ASSESSEE CARRIED THE MATTER IN APPEAL BEFORE THE LD. CIT(A). AFTER CONSIDERING THE SUBMISSIONS OF THE ASSESSEE AND BY FOLLOWING VARIOUS DECISIONS, THE LD. CIT(A) DISMISSED THE APPEAL FILED BY TH E ASSESSEE. 4. ON BEING AGGRIEVED, THE ASSESSEE IS IN APPEAL BEFORE THE TRIBUNAL CHALLENGING THE DISALLOWANCE MADE UNDER SECTION 14A OF THE ACT. THE LD. COUNSEL FOR THE ASSESSEE HAS CONTENDED THAT THE ASSESSEE HAS MADE THE INVESTMENT IN TAX FREE BONDS O VER DIFFERENT YEARS OUT OF NON - INTEREST BEARING FUNDS AND NOT CLAIMED ANY EXPENDITURE FOR EARNING THE TAX FREE INCOME. BY ASSUMING THAT THE ASSESSEE HAS UTILIZED BORROWED FUNDS FOR THE PURPOSE OF MAKING INVESTMENTS IN TAX FREE BONDS, THE ASSESSING OFFICER HAS MADE THE I.T.A. NO . 2550 /M/ 1 6 3 DISALLOWANCE , WHICH CANNOT BE SUSTAINED BEFORE THE EYES OF LAW. THUS, HE PRAYED TO DELETE THE DISALLOWANCE MADE ON THIS ACCOUNT. 5. ON THE OTHER HAND, THE LD. DR STRONGLY SUPPORTED THE ORDERS OF AUTHORITIES BELOW. 6. WE HAVE HEARD BOTH SI DES, PERUSED THE MATERIALS AVAILABLE ON RECORD AND GONE THROUGH THE ORDERS OF AUTHORITIES BELOW. IN THE ASSESSMENT ORDER, T HE ASSESSING OFFICER FOUND THAT THE INTEREST - FREE OWN FUNDS OF THE ASSESSEE ARE . 8.83 CRORES AND THE BALANCE FUND SHOWN AS 'LIABILITY' IN THE BALANCE SHEET ARE ENTIRELY INTEREST - BEARING LOAN FUNDS. FURTHER, THAT THE ASSESSEE HOLDS INVESTMENTS, THE INTEREST INCOME OUT OF WHICH IS TAX - FREE. THE U NSECURED, R EDEEMABLE, N ON - CONVERTIBLE T AX - FREE BOND ISSUED BY CHENNAI CORPORATION, CMWSSB AND MADURAI CORPORATION, RESULT IN INTEREST INCOME WHICH HAVE BEEN CLAIMED AS EXEMPT, ON BEING TAX - FREE. HENCE, THE ASSESSING OFFICER HAS REASONS TO BELIEVE THAT, A PORTION OF THE INTEREST COST INCURRED BY THE ASSESSEE IS INDIRECTLY ATTRIBUTABLE TO SUCH INVESTMENTS, WHICH REMAIN IN THE TAX - FREE TERRITORY, AND HENCE CALLS FOR INVOKING THE PROVISIONS OF SECTION 14A. FURTHER, T HE ASSESSING OFFICER HAS OBSERVED THAT SINCE THE ACTIVITY OF INVESTMENTS MADE IN THE SE LOCAL AUTHORITIES DOES NOT REQUIRE ANY MANAGERIAL OR ADMINISTRATIVE EXERCISE, THE THIRD LIMB OF COMPUTATION OF DISALLOWANCE UNDER RULE 8D IS NOT BEING UNDERTAKEN. FURTHER, THE ASSESSING OFFICER ALSO OBSERVED, THAT THE EXPENDITURE DEBITED TO THE P&L ACCO UNT IS NOT I.T.A. NO . 2550 /M/ 1 6 4 GENERAL IN NATURE AND THE PERFECT LINK BETWEEN THE INCOME EARNED, WHICH IS OFFERED TO TAX AND THE CORRESPONDING EXPENDITURE (PARTICULARLY AFTER EXCLUDING INTEREST ON LOANS WHICH FUNDED TAX PAYMENTS) IS EXHIBITED. THUS, T HE ASSESSING OFFICER WORK ED OUT THE DISALLOWANCE UNDER RULE 8D (II) AT . 84,58,122/ - AND ADDED BACK TO THE TOTAL INCOME OF THE ASSESSEE , WHICH WAS CONFIRMED BY THE LD. CIT(A) . 6.1 FROM THE DETAILS FILED BY THE ASSESSEE, THE ASSESSING OFFICER HAS NOTED THAT THE ASSESSEE OWNS RES ERVES AND SURPLUS FUNDS AT .8.83 CRORES. ON PERUSAL OF THE BALANCE SHEET AS AT 31.03.2011, WE FIND THAT THE TOTAL INVESTMENTS MADE BY THE ASSESSEE WAS .8,48,72,598/ - , WHICH IS LESS THAN THE INTEREST FREE FUNDS OWNED BY THE ASSESSEE. THE ASSESSEE MADE INV ESTMENTS IN T HE U NSECURED, R EDEEMABLE, N ON - CONVERTIBLE TAX - FREE BOND ISSUED BY CHENNAI CORPORATION, CMWSSB AND MADURAI CORPORATION, RESULT IN INTEREST INCOME WHICH HAVE BEEN CLAIMED AS EXEMPT, ON BEING TAX - FREE. IN THE ASSESSMENT ORDER, THE ASSESSING OFFIC ER HAS NOT DISPUTED THAT THE ASSESSEE HAS UTILIZED BORROWED FUNDS FOR THE PURPOSE OF INVESTMENTS. BUT, THE DISALLOWANCE WAS MADE BY PRESUMING THAT A PORTION OF THE INTEREST COST IS INDIRECTLY ATTRIBUTABLE TO SUCH INVESTMENTS, WHICH REMAIN IN TAX FREE TERRI TORY. 6.2 BY RELYING ON THE DECISION OF HON'BLE APEX COURT IN THE CASE OF EAST INDIA PHARMACEUTICAL WORKS LTD. V . CIT (1997) 224 ITR 624 (SC) , IN THE I.T.A. NO . 2550 /M/ 1 6 5 CASE OF CIT V . RELIANCE UTILITIES AND POWER LTD. (2009 ) 313 ITR 340 (BOM.) THE HON'BLE BOMBAY HIGH COUR T HAS HELD THAT WHEN S UFFICIENT NON - INTEREST FUNDS WERE AVAILABLE FOR INVESTMENT , THEN NO DISALLOWANCE OF INTEREST SHOULD BE MADE. 6.3 ADMITTEDLY, THE ASSESSEE HAS OWN AND INTEREST FREE FUNDS FOR MAKING INVESTMENTS AND THE ASSESSING OFFICER HAS NOT DISPU TED THAT THE ASSESSEE HAS UTILIZED BORROWED FUNDS FOR INVESTMENTS. UNDER THE ABOVE FACTS AND CIRCUMSTANCES AND IN VIEW OF THE ABOVE DECISIONS, THE ADDITION MADE UNDER SECTION 14A OF THE ACT STANDS DELETED. 7 . IN THE RESULT, THE APPEAL FILED BY THE ASSESSE E IS ALLOWED . ORDER PRONOUNCED ON THE 09 TH MAY , 201 7 AT CHENNAI. SD/ - SD/ - ( CHANDRA POOJARI ) ACCOUNTANT MEMBER ( DUVVURU RL REDDY ) JUDICIAL MEMBER CHENNAI, DATED, THE 09 . 0 5 .201 7 VM/ - / COPY TO: 1. / APPELLANT , 2. / RESPONDENT , 3. ( ) / CIT(A) , 4. / CIT , 5. / DR & 6. / GF.