M/s. Khazana Jewellery Exports Pvt. Ltd., CHENNAI V. ITO, CHENNAI

ITA 2569/CHNY/2016

• Counselvise Citation: [2016] 131 COUNSELVISE.COM (IT) 7842 (ITAT-CHENNAI)
• Duration Of Justice: 3 month(s) 19 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 22-12-2016
• Appeal Filed By: Assessee
• Bench Allotted: C
• Next Hearing Date: 01-12-2016
• Assessment Year: 2012-2013
• Appeal Filed On: 02-09-2016
• Court: TRIBUNAL
• Department Lawyers: A V SREEKANTH
• Assessee Lawyers: S SRIDHAR
• Keywords: Wholly owned subsidiary
• Section: 14A

Judgement Text

- , ( ) , IN THE INCOME TAX APPELLATE TRIBUNAL C (SMC) BENCH, CHENNAI , ! BEFORE SHRI CHANDRA POOJARI, ACCOUNTANT MEMBER . /ITA NO.2569/MDS/2016 / ASSESSMENT YEAR : 2012-13 M/S. KHAZANA JEWELLERY EXPORTS P. LTD., NO.36, CATHEDRAL ROAD, GOPALAPURAM, CHENNAI 600 086. PAN AAACK2565R ( /APPELLANT) V. THE INCOME-TAX OFFICER, CORPORATE WARD 4(3), CHENNAI. RESPONDENT) / APPELLANT BY : SHRI S.SRIDHAR, ADVOCATE / RESPONDENT BY : SHRI A.V.SREEKANTH, JCIT ! / DATE OF HEARING : 05.12.2016 '# ! / DATE OF PRONOUNCEMENT : 22.12.2016 ' / O R D E R THIS APPEAL BY THE ASSESSEE IS DIRECTED AGAINST THE ORDER OF THE COMMISSIONER OF INCOME-TAX(APPEALS) DATED 26 .07.2016. 2. THE ONLY ISSUE IN THIS APPEAL IS WITH REGARD TO DISALLOWANCE U/S.14A R.W. RULE 8D OF THE I.T.RULES. THE - - ITA 2569/16 2 ASSESSEE PAID INTEREST ON BORROWINGS AT 18,85,219/-. ACCORDING TO THE ASSESSING OFFICER, THE AMOUNT BORROWED WAS I NVESTED IN SUBSIDIARY COMPANY, AS SUCH, HE DISALLOWED THE SAID AMOUNT BY APPLYING THE PROVISIONS OF SEC.14A R.W. RULE 8D OF THE I.T.RULES. ACTUALLY, THE INCOME FROM THAT INVESTMENT IS NOT TA XABLE AND EXEMPTED. AGAINST THIS, THE ASSESSEE WENT IN APPEA L BEFORE THE CIT(APPEALS), WHO CONFIRMED THE FINDING OF THE AO. AGGRIEVED, THE ASSESSEE IS IN APPEAL BEFORE THE TRIBUNAL. 3. I HAVE HEARD BOTH THE SIDES AND PERUSED THE MATE RIAL ON RECORD. I FIND THAT SIMILAR ISSUE CAME FOR CONSIDE RATION BEFORE THIS TRIBUNAL IN THE CASE OF EIH ASSOCIATED HOTELS LTD. V. DCIT IN ITA NO.1503/MDS/2012. THE TRIBUNAL VIDE ITS ORDER DATED 17.7.2013 HELD AS UNDER :- 6. WE HAVE HEARD THE SUBMISSIONS MADE BY THE RIVAL PARTIES. WE HAVE ALSO EXAMINED THE ORDERS PASSED BY THE AUTH ORITIES BELOW AND THE JUDGMENTS/ORDERS CITED BY THE REPRESE NTATIVES OF BOTH THE PARTIES. THE FIRST ISSUE IN THE APPEAL OF THE ASSESSEE RELATES TO DIS-ALLOWANCE MADE U/S. 14A R.W.R. 8D. T HE ASSESSING OFFICER HAS MADE DIS-ALLOWANCE TO THE TUN E OF RS. 4,32,66,500/-. THE CONTENTION OF THE ASSESSEE IS TH AT THE ASSESSEE HAS EARNED DIVIDEND INCOME OF RS. 4.6 LAKH S WHICH IS FULLY EXEMPT U/S. 10(34) OF THE ACT. THE ASSESSE E HAS MADE VOLUNTARILY DIS-ALLOWANCE OF RS. 45,927/- U/S. 14A. THE - - ITA 2569/16 3 ASSESSEE HAS MADE FRESH INVESTMENTS TO THE TUNE OF RS. 9.4 CRORES DURING THE YEAR. THE ASSESSING OFFICER HELD THAT THE INVESTMENTS HAVE BEEN MADE FROM THE FRESH SECURED L OANS OBTAINED DURING THE YEAR BY THE ASSESSEE. THE CIT(A PPEALS) AFTER GOING THROUGH THE SUBMISSIONS MADE BY THE PAR TIES HAS COME TO THE CONCLUSION THAT THE ASSESSEE HAS MADE INVESTMENTS FROM ITS OWN FUNDS EXCEPT FOR THE SHORT TERM INVESTMENTS MADE IN HDFC CASH MANAGEMENT FUND AND DSPML CASH PLUS FUND IN RESPECT OF WHICH THE AMOUNT S WERE INVESTED FROM INTEREST BEARING FUNDS BORROWED FROM HBSC. THE REVENUE HAS NOT BEEN ABLE TO CONTROVERT THE FINDING S OF CIT(APPEALS). WE ARE OF THE CONSIDERED OPINION THAT THE INVESTMEN TS MADE BY THE ASSESSEE IN THE SUBSIDIARY COMPANY ARE NOT ON A CCOUNT OF INVESTMENT FOR EARNING CAPITAL GAINS OR DIVIDEND IN COME. SUCH INVESTMENTS HAVE BEEN MADE BY THE ASSESSEE TO PROMO TE SUBSIDIARY COMPANY INTO THE HOTEL INDUSTRY. A PERUS AL OF THE ORDER OF THE CIT(APPEALS) SHOWS THAT OUT OF TOTAL I NVESTMENT OF RS. 64,18,19,775/-, RS. 63,31,25,715/- IS INVESTED IN WHOLLY OWNED SUBSIDIARY. THIS FACT SUPPORTS THE CASE OF TH E ASSESSEE THAT THE ASSESSEE IS NOT INTO THE BUSINESS OF INVES TMENT AND THE INVESTMENTS MADE BY THE ASSESSEE ARE ON ACCOUNT OF BUSINESS EXPEDIENCY. ANY DIVIDEND EARNED BY THE ASS ESSEE FROM INVESTMENT IN SUBSIDIARY COMPANY IS PURELY INC IDENTAL. THEREFORE, THE INVESTMENT MADE BY THE ASSESSEE IN I TS SUBSIDIARY ARE NOT TO BE RECKONED FOR DIS-ALLOWANCE U/S. 14A R.W.R. 8D. THE ASSESSING OFFICER IS DIRECTED TO RE- COMPUTE THE AVERAGE VALUE OF INVESTMENT UNDER THE PROVISIONS OF RULE 8D AFTER DELETING INVESTMENTS MADE BY THE ASSESSEE IN SUBSIDIARY COMPANY. ACCORDINGLY, THIS GROUND OF APPEAL OF THE ASSESSEE IS PARTLY ALLOWED AND THAT OF THE REVENUE IS DISMISSED . THE - - ITA 2569/16 4 FINDINGS OF THE CIT(APPEALS) ON THE ISSUE ARE ACCOR DINGLY MODIFIED. 3.1 IN VIEW OF THE ABOVE, THIS GROUND OF APPEAL OF THE ASSESSEE IS ALLOWED. 4. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS ALL OWED. ORDER PRONOUNCED ON 22 ND DECEMBER, 2016 AT CHENNAI. SD/- ( $ % & ' ) ()*+,-*.//0*-12 ! 34566/7+8*+89:;<:- $= /CHENNAI, >3 /DATED, THE 22 ND DECEMBER, 2016. K S SUNDARAM 3? @ABA /COPY TO: 1. /APPELLANT 2. /RESPONDENT 3. C2 /CIT(A) 4. C /CIT 5. ADE F /DR 6. EGH /GF.