M/s. Hindprakash Tradelink Pvt. Ltd., Ahmedabad V. The Income Tax Officer, Ward-4(3), Ahmedabad

ITA 2564/AHD/2013

• Counselvise Citation: [2017] 128 COUNSELVISE.COM (IT) 6127 (ITAT-AHMEDABAD)
• Duration Of Justice: 3 year(s) 5 month(s) 25 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 26-04-2017
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: SMC
• Next Hearing Date: 14-02-2017
• Assessment Year: 2009-2010
• Appeal Filed On: 31-10-2013
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: DINESH SINGH
• Assessee Lawyers: PRAMOD KEDIA
• Keywords: Earning of tax free income
• Section: 143(3); 14A

Judgement Text

ITA NO. 2564 / AHD / 201 3 A SSESSMENT Y EAR: 20 0 9 - 10 PAGE 1 OF 3 IN THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD BENCH, SMC , AHMEDABAD [CORAM: PRAMOD KUMAR AM] ITA NO. 2564 /AHD/201 3 ASSESSMENT Y EAR : 20 0 9 - 10 HINDPRAKASH TRADELINK PVT. LTD., ..... .......... .APPELLANT 101, HINDPRAKASH HOUSE, PLOT NO.10/6, PHASE - I, GIDC, VATVA, AHMEDABAD 382 445. [PAN: A A GCS 9494 R ] VS. INCOME TAX OFFICER , WARD 4 ( 3 ), AHMEDABAD. .. ......... RESPONDENT APPEARANCES BY: PRAMOD KEDIA , FOR THE APPELLANT D INESH SINGH , FOR THE RESPONDENT D ATE OF CONCLUDING THE HEARING : 1 4 . 0 2 . 201 7 DATE OF PRONOUNCING THE ORDER : 26 .04. 2017 O R D E R 1. BY WAY OF THIS APPEAL, THE ASSESSEE APPELLANT HAS CHALLENGED CORRECTNESS OF THE ORDER DATED 2 6 TH AUGUST 2013 , PASSED BY THE LEARNED CIT(A) , IN THE MATTER OF ASSESSMENT UNDER SECTION 143(3) OF THE INCOME T AX ACT 1961 , FOR THE ASSESSMENT YEAR 200 9 - 10 . 2. G RIEVANCE S RAISED IN THIS APPEAL, ALL OF WHICH WE WILL TAKE UP TOGETHER, ARE AS FOLLOWS : - REVISED GROUNDS OF APPEAL 1. ON FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT (APPEALS) ERRED IN UPHOLDING THE LD. AO'S ACTION OF INVOKING AUTOMATIC OPERATION OF RULE 8D OF THE IT RULES, 1962 WITHOUT REBUTTING THE APPELLANT'S DETAILED CONTENTION THAT NO DISALLOWANCE IS CALLED FOR IN VIEW OF THE FACTS OF THE CASE. THE LD. CIT(A) OUGHT TO HAVE STRUCK DOWN THE ACTION OF THE LD. AO'S ACTION U/S 14A RWR 8D. THE APPELLANT, ITA NO. 2564 / AHD / 201 3 A SSESSMENT Y EAR: 20 0 9 - 10 PAGE 2 OF 3 THEREFORE, PRAYS THAT THE LD. AO MAY PLEASE BE DIRECTED TO DELETE THE ADDITION CONFIRMED TOWARDS INTEREST AS WELL AS T OWARDS OTHER EXPENSES. 2. ON FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT (APPEALS) ERRED IN CONFIRMING THE ADDITION TOWARDS INTEREST MADE U/S 14A OF THE I.T. ACT, 1961 RWR 8D OF THE I T RULES, 1962. THEREFORE, APPELLANT PRAYS THAT T HE LD. AO MAY PLEASE BE DIRECTED THAT ADDITION OF RS. 2,98,665/ - (TOWARDS INTEREST) CONFIRMED BY THE LD. CIT(A) MAY PLEASE BE DELETED. 3. ON FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT (APPEALS) ERRED IN CONFIRMING THE ADDITION T OWARDS OTHER EXPENSES MADE U/S 14A OF THE I .T. ACT, 1961 RWR 8D OF THE I . T . RULES, 1962. THEREFORE, APPELLANT PRAYS THAT THE LD. AO MAY PLEASE BE DIRECTED THAT ADDITION OF RS.27,273 / - (TOWARDS OTHER EXPENSE) CONFIRMED BY THE LD. CIT(A) MAY PLEASE BE DELETE D. 3. BRIEFLY STATED, THE RELEVANT MATERIAL FACTS ARE LIKE THIS. THE ASSESSEE BEFORE ME IS A MANUFACTURER AND DEALER IN DYES, DYES INTERMEDIATES AND CHEMICALS. DURING THE COURSE OF SCRUTINY ASSESSMENT PROCEEDINGS, THE ASSESSING OFFICER NOTICED THAT THE AS SESSEE HAS MADE AN INVESTMENT OF RS 63,70,227 IN THE SHARES. HE THUS NOTED THAT THE ASSESSEE HAD EARNED TAX EXEMPT INCOME BUT HAS NOT OFFERED RELATED EXPENSES FOR DISALLOWANCE. ON THESE FACTS, WHEN HE REQUIRED THE ASSESSEE TO SHOW CAUSE AS TO WHY DISALLOW ANCE UNDER SECTION 14A READ WITH RULE 8D NOT BE MADE IN HIS CASE, IT WAS EXPLAINED BY THE ASSESSEE THAT THERE WAS NO NEXUS IN THE BORROWINGS BY THE ASSESSEE AND HIS INVESTMENT IN THE SHARES, AND, AS SUCH, DISALLOWANCE UNDER SECTION 14A DOES NOT COME INTO P LAY. REJECTING THIS CONTENTION, THE ASSESSING OFFICER PROCEEDED WITH MAKING DISALLOWANCE UNDER SECTION 14A R.W.R 8D, WHICH WAS COMPUTED AT RS 3,25,938. AGGRIEVED, ASSESSEE CARRIED THE MATTER IN APPEAL BEFORE THE CIT(A) BUT WITHOUT ANY SUCCESS. THE ASSESSEE IS NOT SATISFIED AND IN FURTHER APPEAL BEFORE THIS TRIBUNAL. 4. I HAVE HEARD THE RIVAL CONTENTIONS, PERUSED THE MATERIAL ON RECORD AND DULY CONSIDERED FACTS OF THE CASE IN THE LIGHT OF THE APPLICABLE LEGAL POSITION. 5. I HAVE NOTED, AT THE OUTSET, THAT THE ASSESSEE S TAX EXEMPT INCOME FROM DIVIDENDS, DURING THE RELEVANT PREVIOUS YEAR, IS ONLY RS 1,54,830 WHEREAS THE DISALLOWANCE UNDER SECTION 14A IS RS 3,25,938. IT IS BY NOW A SETTLED LEGAL POSITION THAT THE DISALLOWANCE UNDER SECTION 14A CANNOT EXCEED THE TAX EXEMPT INCOME. IN ANY CASE, THEREFORE, THE DISALLOWANCE COULD NOT HAVE BEEN MORE THAN RS 1,54,830. IN ANY CASE, ITA NO. 2564 / AHD / 201 3 A SSESSMENT Y EAR: 20 0 9 - 10 PAGE 3 OF 3 EVEN GOING BY THE FORMULA SET OUT IN RULE 8D, THE DISALLOWANCE WORKS OUT TO EVEN LOWER AN AMOUNT. IT IS SO FOR THE REASON THAT THERE AR E ADMITTEDLY NO DIRECT EXPENSES IN EARNING THIS TAX EXEMPT INCOME, AS SUCH EXPENSES, IN THE COMPUTATION OF DISALLOWANCE BY THE AO HIMSELF, ARE SHOWN TO BE NIL. AS FOR THE DISALLOWANCE ON ACCOUNT OF INTEREST, I HAVE NOTICED THAT THE INTEREST FREE FUNDS AVAI LABLE TO THE ASSESSEE ARE FAR IN EXCESS OF THE INVESTMENTS YIELDING TAX EXEMPT INCOME. THE PRESUMPTION, THEREFORE, IS TO BE TAKEN THAT INTEREST FREE FUNDS ARE USED IN MAKING THESE INVESTMENTS. THAT IS WHAT THIS TRIBUNAL HAS, IN A SERIES OF ORDERS, HELD FRO M TIME TO TIME. ALL THAT IS LEFT WITH THAN IS 0.5% OF INVESTMENTS YIELDING TAX EXEMPT INCOME SO AS TO MAKE DISALLOWANCE FOR ADMINISTRATIVE EXPENSES. THIS AMOUNT WORKS OUT TO RS 27,273. CLEARLY, THEREFORE, THE DISALLOWANCE UNDER SECTION 14A SHOULD HAVE BE EN RESTRICTED TO RS 27,273. TO THIS EXTENT, I UPHOLD THE GRIEVANCE OF THE ASSESSEE AND MODIFY THE DISALLOWANCE. 6. AS I PART WITH THE MATTER, I MAY MENTION THAT LEARNED COUNSEL HAS VERY WELL MADE ELABORATE AND METICULOUS WELL RESEARCHED ARGUMENTS ON DIFF ERENT LEGAL PROPOSITIONS RELATING TO THIS CASE, BUT GIVEN THE SMALLNESS OF AMOUNT AND LIMITED IMPACT OF THESE LEGAL ISSUES , I DONOT CONSIDER IT APPROPRIATE TO DEAL WITH CERTAIN ASPECTS WITH VERY LIMITED RAMIFICATIONS. THE PAINSTAKING EFFORTS OF THE LEARNED COUNSEL ARE INDEED ADMIRABLE BUT NOT OF MUCH USE IN THIS CASE. 7. IN THE RESULT, THE APPEAL IS PARTLY ALLOWED IN THE TERMS INDICATED ABOVE. PRONOUNCED IN THE OPEN COURT TODAY ON THE 26 TH DAY OF APRIL,2017. SD/ - PRAMO D KUMAR (ACCOUNTANT MEMBER) DATED: THE 26 TH DAY OF APRIL , 2017 . PBN/* COPIES TO: (1) THE APPELLANT (2) THE RESPONDENT (3) CIT (4) CIT(A) (5) DR (6) GUARD FILE BY ORDER ASSIST ANT REGISTRAR INCOME TAX APPELLATE TRIBUNAL AHMEDABAD BENCHES, AHMEDABAD