BGA Tradelink Private Limited, Ahmedabad V. The Dy. CIT, Circle-1(1)(1), Ahmedabad

ITA 2558/AHD/2017

• Counselvise Citation: [2019] 117 COUNSELVISE.COM (IT) 8323 (ITAT-AHMEDABAD)
• Duration Of Justice: 1 year(s) 4 month(s) 7 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 27-03-2019
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: A
• Assessment Year: 2014-2015
• Appeal Filed On: 20-11-2017
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Assessee Lawyers: PARIN SHAH ARS; S N SOPARKAR
• Keywords: Earning of tax free income; Rule 8D
• Section: 14A

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD A BENCH BEFORE: SHRI AMARJIT SINGH , ACCOUNTANT MEMBER AND MS. MADHUMITA ROY , JUDICIAL MEMBER BGA TRADELINK PVT. LTD. D/38, ARYAMAN BUNGALOWS, OPP. ANAND NIKETAN SCHOOL, SHILAJ RLY. CROSSING, AHMEDABAD - 380058 PAN: AADCB6410H (APPELLANT) VS THE D CIT, CIRCLE - 1 (1)(1) , AHMEDABAD (RESPONDENT) REVENUE BY : S H RI JAMES KURIAN , SR. D . R. ASSESSEE BY: SHRI S.N. SOPARKAR AND SHRI PARIN SHAH, ARS DATE OF HEARING : 19 - 03 - 2 019 DATE OF PRONOUNCEMENT : 27 - 03 - 2 019 / ORDER P ER : AMARJIT SINGH, ACCOUNTANT MEMBER : - THE SOLITARY GROUND OF APPEAL OF THE ASSESSEE IS DIRECTED AGAINST THE DECISION OF LD. CIT(A) IN CONFIRMING THE ADDITION MADE BY THE ASSESSING OFFICER ON ACCOUNT OF DISALLOWANCE U/S. 14A OF THE ACT. I T A NO . 2558 / A HD/20 17 A S S ESSMENT YEAR 2014 - 15 I.T.A NO. 2558 /AHD/20 17 A.Y. 2014 - 15 PAGE NO BGA TRADELINK PVT. LTD. VS. D CIT 2 2. THE FACT IN BRIEF IS THAT THE ASSESSEE HAS FILED RETURN OF INCOME DECLARING INCOME OF RS. 27 , 65 , 90 , 490/ - ON 30 TH SEP, 2014. SUBSEQUENTLY, THE CASE WAS SELECTED UNDER SCRUTINY BY ISSUING OF NOTICE U/S. 143(2) OF THE ACT ON 3 RD SEP, 2015. DURING THE CO URSE OF ASSES SMENT, THE ASSESSING OFFICER NOTICED THAT ASSESS EE HAS EARNED DIVIDEND INCOME OF 2 , 64 , 87 , 948/ - WHICH WAS EXEMPT F R O M TAX. THE ASSESSING OFFICER HAS ASKED THE ASSESSEE TO EXPLAIN WHY NOT THE EXPENSES INCURRED FOR EARING EXEMPT INCOME SHOULD N OT BE DISALLOWED U/S. 14A R.W. RULE 8D OF THE IT RULE. IN RESPONSE , THE ASSES S EE STATED THAT IT HAS INVESTED IN THE SHARES F R O M ITS OWN FUND AND HAS NOT INCURRED ANY EXPENDITURE FOR THE SAME. THE ASSESSING OFFICER HAD NOT ACCEPTED THE CONTENTION OF THE A S SESSEE STATING THAT ASSESSEE HAD NOT PRODUCED ANY MATERIAL TO ESTABLISH THAT NO AMOU NT OF INTEREST BEARING FUNDS HAD BEEN UTILIZED TO MAKE THE INVESTMENT ON WHICH EXEMPT INCOME WAS EARNED. FURTHER , THE ASSESSING OFFICER HAS ALSO STAT ED THAT ASSESSEE MUST HAVE INCURRED ADMINISTRATIVE EXPENSES SUCH AS DOCUMENTATION , SALARIES OF EMPLOYEES, IN RELATION TO INVESTMENT PORTFOLIO , STATIONARY, COMPUTER ETC. THEREFORE , THE ASSESSING OFFICER HAS COMPUTED THE DISALLOWANCE AS PER PROVISION OF SECTION 14A R.W.S. RULE 8D TO THE AMOUNT OF S. 94 , 76 , 690/ - AND ADDED TO THE TOTAL INCOME OF THE ASSESSEE. 3. AGGRIEVED ASSESSEE HAS FILED APPEAL BEFORE THE LD. CIT(A). THE LD. CIT(A) HAS CONFIRMED THE DISALLOWANCE MADE BY THE ASSESSING OFFICER REITERATING THE SAME REASON MEN TIONED BY THE ASSESSING OFFICER . 4. D URING THE COURSE OF APPELLATE PROCEEDINGS BEFORE U S, T HE LD. COUNSEL HAS SUBMITTED PAPER BOOK CONTAINING INFORMATION AND SUBMISSION MADE I.T.A NO. 2558 /AHD/20 17 A.Y. 2014 - 15 PAGE NO BGA TRADELINK PVT. LTD. VS. D CIT 3 BEFORE THE ASSESSING OFFICER AND LD. CIT(A) DURING THE COURSE OF ASSESSMENT AND APPELLATE PROCEEDINGS. HE HAS ALSO PLACED RELIANCE ON THE FOLLOWING DECISIONS . (I) 409 ITR 401 CIT VS. SHRENO LTD. (2018) (GUJ)(HC) (II) 376 ITR 553 PR. CIT VS. INDIA GELATINE AND CHEMICAL LTD. (III) 354 ITR 630 CIT - IV VS. SUZLAN ENERGY LTD. (GUJ) (HC) HE HAS ALSO P LACED RELIANCE ON THE DECISION OF HDFC BANK LTD. VS. DY. CIT OF MUMBAI HIGH COURT WRIT PETITION NO. 1753 OF 2016 DATED 25 TH FEB, 2016. HE HAS FURTHER CONTENDED THAT ASSESSEE HAS MADE INVESTMENT FROM ITS OWN FUND THEREFORE LD. CIT(A) HAS ERRED IN CONFIRMIN G THE ADDITION MADE BY ASSESSING OFFICER WITHOUT ANY REASON . HE ALSO REFERRED TO PAGE NO. 12 OF PAPER BOOK WHICH IS BALANCE SHEET OF THE ASSESSEE COMPANY AS ON 31 ST MARCH, 2014 AS PER WHICH THE TOTAL INTEREST FREE FUND WITH THE ASSESSEE WAS TO THE AMOUNT OF RS. 44 CRORES AS AGAINST TOTAL INVESTMENT WAS TO THE AMOUNT OF RS . 42 CRORES. HE HAS ALSO REFERRED PAGE NO. 43 OF PAPER BOOK DEMONSTRATING THAT ASSESSEE HAS MADE INVESTMENT OUT OF ITS OWN FUND. ON THE OTHER HAND, LD. DEPARTMENTAL REPRESENTATIVE HAS SU PPORTED THE ORDER OF LOWER AUTHORITIES. 5 . WE HAVE HEARD THE RIVAL CONTENTION AND PERUSED THE MATERIAL ON RECORD CAREFULLY. WITH THE ASSISTANCE OF LD. REPRESENTATIVES, WE HAVE GONE THROUGH THE MATERIAL ON RECORD THAT AS ON 31 ST MARCH, 2014 TH E TOTAL INTEREST F REE FUND CONSISTING OF CAPITAL AND RESERVE OF THE ASSESSEE COMPANY WAS RS. 44 , 01 , 43 , 494/ - AS AGAINST WHICH THE TOTAL INVESTMENT MADE BY THE ASSESSEE WAS TO THE AMOUNT OF RS. 42 , 30 , 86 , 522/ - . THE RELEVANT PART S OF THE I.T.A NO. 2558 /AHD/20 17 A.Y. 2014 - 15 PAGE NO BGA TRADELINK PVT. LTD. VS. D CIT 4 INFORMATION ABOUT THE INTEREST FREE FUNDS AND INVESTMENT MADE BY THE ASSESSEE ARE REPRODUCED AS UNDER : - PARTICULARS AS AT 31/03/2013 AS AT 30/11/2013 AS AT 31/03/2014 CAPITAL + RESERVES 23,16,75,312/ - 23,16,75,312/ - 44,01,43,494 PROFIT EARNED TILL DATE N.A. 25,53,06,095 N. A. TOTAL OWN FUNDS 23,16,75,312 48,69,81,407 44,01,43,494 INVESTMENTS 1,74,62,596 6,73,93,632 42,30,86,522 WE HAVE ALSO NOTICED FROM THE BALANCE SHEET OF THE ASSESSEE COMPANY PLACED IN THE PAPER BOOK AT PAGE NO. 12 THAT ASSESSEE WAS HAVING INTERE ST FREE FUND TO THE AMOUNT OF R S. 44 CRORES AND THE INVESTMENT MADE BY THE AS SESSEE COMPANY WAS TO THE AMOUNT OF R S. 42 CRORES AS ON 31 ST MARCH, 2014. AFTER CONSIDERING THE ABOVE MATERIAL F ACT AND MATERIAL ON RECORD, WE OBSERVE THAT IT I S CLEARLY DEMONST RATED FROM THE BALANCE SHEET THAT ASSESSEE COMPANY WAS HAVING OWN CAPITAL AND RESERVES SURPLUS TO THE AMOUNT OF RS. 44 , 01 , 43 , 494/ - AS ON 31 ST MARCH, 2014 AS AGAINST WHICH INVESTMENT IN SHARES AND SECURITIES AS ON 31 ST MARCH, 2014 WAS MADE TO THE AMOUNT OF R S. 42 , 30 , 86 , 521/ - . THESE FACTS DEMONSTRATE THAT ASSESSEE COMPANY HAD SUFFICIENT OWN FUND FOR MAKING INVESTMENT IN THE SHARES. AFTER PLACING RELIANCE ON THE DECISION FOR MUMBAI HIGH COURT IN THE CASE OF RELIANCE UTILITIES AND POWER 313 ITR 340 WITH REGA RD TO INVESTMENT IN TAX FREE SECURITIES OUT OF ASSESSEE S OWN FUND AND CONSIDERING THE OTHER JUDICIAL DECISIONS REFERRED BY THE ASSESSSEE, WE ARE NOT INCLINED WITH THE DECISION OF LD. CIT(A) IN SUSTAINING THE IMPUGNED ADDITION MADE BY THE ASSESSING OFFICE R WITHOUT GIVING REASON FOR ITS JUSTIFICATION, THEREFORE, WE ARE OF THE VIEW THAT NO INTEREST EXPENDITURE SHOULD BE DISALLOWED U/S. 14A R.W. RULE 8D IN THE CASE OF THE ASSESSEE. I.T.A NO. 2558 /AHD/20 17 A.Y. 2014 - 15 PAGE NO BGA TRADELINK PVT. LTD. VS. D CIT 5 HOWEVER, REGARDING ADMINISTRATIVE EXPENDITURE, WE ARE OF THE VIEW THAT NO EX EMPT INCOME CAN BE EARNED WITHOUT INCURRING ANY ADMINISTRATIVE EXPENDITURE, THEREFORE, WE RESTORE THIS ISSUE OF COMPUTING ADMINISTRATIVE EXPENDITURE INCURRED FOR EARNING EXEMPT INCOME TO THE FILE OF ASSESSING OFFICER AND DIRECT THE ASSESSING OFFICER TO COM PUTE ADMINISTRATIVE EXPENDITURE @ 0.5% OF INVESTMENT FROM WHICH THE ASSESSEE HAS EARNED THE TAX FREE INCOME. THEREFORE, THE APPEAL OF THE ASSESSEE IS PARTLY ALLOWE D. 6 . IN THE RESULT, THE APPEAL OF THE ASSESSEE IS PARTLY ALLOWED. ORDER P R ONOUNCED IN THE OPEN C OURT ON 27 - 03 - 201 9 SD/ - SD/ - ( MADHUMITA ROY ) ( AMARJIT SINGH ) JUDICIAL MEMBER ACCOUNTANT MEMBER AHMEDABAD : DATED 27 /03 /2019 / COPY OF ORDER FORWARDED TO: - 1. ASSESSEE 2. REVENUE 3. CONCERNED CIT 4. CIT (A) 5. DR, ITAT, AHMEDABAD 6. GUARD FILE. BY ORDER/ , / ,