The DCIT, Circle-4(1)(2), Ahmedabad V. Vikram Capital Resources Pvt. Ltd., Ahmedabad

ITA 257/AHD/2015

• Counselvise Citation: [2018] 126 COUNSELVISE.COM (IT) 6367 (ITAT-AHMEDABAD)
• Duration Of Justice: 2 year(s) 11 month(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 02-01-2018
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: B
• Assessment Year: 2006-2007
• Appeal Filed On: 02-02-2015
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: IRA KAPOOR WITH VIJAY RANJAN
• Keywords: Earning of tax free income
• Section: 14A

Judgement Text

, CH CHCH CH IN THE INCOME TAX APPELLATE TRIBUNAL B BENCH, AHMEDABAD . . , , BEFORE SHRI N.K. BILLAIYA, ACCOUNTANT MEMBER AND SHRI MAHAVIR PRASAD, JUDICIAL MEMBER ITA NO.257/AHD/2015 (ASSESSMENT YEAR : 2006-07) DCIT, CIR 4(1)(2), AHMEDABAD. / VS. VIKRAM CAPITAL RESOURCES PVT. LTD. 1 ST , FLOOR, SAMBHAV HOUSE, OPP. JUDGES BUNGLOWS, BODAKDEV, AHMEDABAD ! ./ '#$# ./ PAN/GIR NO. : AAACV 5035 F ( %&!' / APPELLANT ) .. ( (!' / RESPONDENT ) %&!' ) / APPELLANT BY : SHRI MUDIT NAGPAL, SR.D.R. (!' * ) / RESPONDENT BY : MS. IRA KAPOOR WITH VIJAY RANJAN + , * -. / DATE OF HEARING 20/12/2017 /012 * -. / DATE OF PRONOUNCEMENT 02/01/2018 # 3 / O R D E R PER MAHAVIR PRASAD, JUDICIAL MEMBER : THIS IS AN APPEAL BY THE DEPARTMENT AGAINST THE ORD ER OF THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS)-XXI, A HMEDABAD, VIDE APPEAL NO.CIT(A)-XXI/86/11-12 DATED 11/11/2014 FOR ASSESSMENT YEAR (A.Y.) 2006-07, ON THE FOLLOWING: 1). 'WHETHER THE LD. COMMISSIONER OF INCOME-TAX (AP PEALS) IS RIGHT IN LAW AND ON FACTS IN DELETING THE DISALLOWANCE OF RS.1,04,79,689/- U/S.14A OF THE ACT' ITA NO.257/ AHD/2015 DCIT VS. VIKRAM CAPITAL RESOURCE PVT. LTD . A.Y. 2006-07 - 2 - 2). ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE, THE LD. COMMISSIONER OF INCOME-TAX (APPEALS) OUGHT TO HAVE UPHELD THE ORDER OF THE ASSESSING OFFICER. 3). IT IS THEREFORE, PRAYED THAT THE ORDER OF THE LD. COMMISSIONER OF INCOME-TAX (APPEALS) MAY BE SET-A-SIDE AND THAT OF THE ORDER OF THE ASSESSING OFFICER BE RESTORED. 2. THE BRIEF FACTS OF THE CASE ARE THAT THE AO MADE DISALLOWANCE OF RS.1,04,79,689/- UNDER SECTION 14A OF THE ACT APPLY ING RULE 8D OF THE INCOME TAX RULES. THE ASSESSEE HAS DIVIDEND INCOME OF RS.33,50,674/- AND LONG TERM CAPITAL GAIN OF RS.2,11,14,331/-. TH E ASSESSEE HAS NOT MADE ANY DISALLOWANCE TO EARN THESE EXEMPT INCOME. ACCORDINGLY, THE AO HAS MADE DISALLOWANCE U/S.14A APPLYING RULE 8D O F RS.1,04,79,689/-, RELYING ON THE DECISION OF ITO VS . DAGA CAPITAL MANAGEMENT PVT. LTD. REPORTED IN 117 ITD 169 (MUMBA I). THE APPELLANT HAS OBJECTED TO THE APPLICATION OF RULE 8D, AS HON' BLE BOMBAY HIGH COURT IN THE CASE OF GODREJ BOYCE MFG. CO. LTD. HAS CATEGORICALLY HELD THAT APPLICATION OF RULE 8D IS PERSPECTIVE IN NATUR E AND SHALL APPLY TO THE ASSESSMENT PROCEEDINGS FOR ASST. YEAR 2008-09 ONWAR DS. THE SUBMISSION OF THE APPELLANT IS REPRODUCED AS UNDER: 1.1 IT IS SUBMITTED THAT THE AO HAS TOTALLY IGNORE D THE FACTS THAT AGAINST THE INTEREST EXPENDITURE OF RS.1,47,03,998/ - THE APPELLANT HAS EARNED TAXABLE INTEREST INCOME OF RS.1,86,03,752/-. THE SAME IS TABULATED HEREUNDER: PARTICULARS AMOUNT (RS.) INTEREST INCOME 1,86,03,752/ - LESS: INTEREST EXPENSES 1,47,03,998/ - NET SURPLUS INTEREST INCOME 38,99,754/- ITA NO.257/ AHD/2015 DCIT VS. VIKRAM CAPITAL RESOURCE PVT. LTD . A.Y. 2006-07 - 3 - FROM THE ABOVE TABLE IT IS CLEAR THE INTEREST INCOM E EXCEEDS THE INTEREST EXPENSES. CONSIDERING THIS ASPECT, EVEN IF DISALLOW ANCE U/S. 14A IS MADE FOR INTEREST EXPENDITURE, ONLY NET INTER EXPENDITUR E IS REQUIRED TO HE CONSIDERED FOR MAKING SUCH DISALLOWANCE. IN THIS CO NNECTION, APPELLANT PLACES RELIANCE ON THE FOLLOWING DECISIONS. A) AHMEDABAD ITAT IN THE CASE OF SAFAL REALITY P. LTD. VS. ACIT - ITA NO. 2334/AHD/2012 & 1842/AHD/2013 FOR A.Y. 2009-10 & 2010-11 DATED 29.11.2013, WHEREIN IT WAS HELD AS UNDER: 'UNDER THE TOTALITY OF THE FACTS AND CIRCUMSTANCES OF THE CASE, WE ARE OF THE CONSIDERED OPINION THAT WHEN INTEREST INCOME WAS MORE THAN THE INTEREST EXPENDITURE THEN THE AO WAS NOT JUSTIF IED TO INVOKE THE PROVISIONS OF SECTION 14A READ WITH RULE 8D.' B) ITAT AHMEDABAD IN THE CASE OF KARNAVATI PETROCHEM P VT. LTD. - ITA 2228/AHD/2012 FOR A.Y. 2008-09 DATED 05.07.2013 'WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED TH E MATERIAL ON RECORD. WE FIND THAT CIT(A) WHILE GRANTING RELIE F TO THE ASSESSEE HAS GIVEN A FINDING THAT NO NEXUS HAS ESTA BLISHED BY THE AO WHICH THE AMOUNT INCURRED BY THE ASSESSEE FOR EA RNING THE TAX FREE INCOME. HE HAS FURTHER NOTED THAT IN THE A SSESSEE'S CASE THE INTEREST INCOME WAS THAN INTEREST EXPENSE AND T HUS THE ASSESSEE WAS HAVING NET POSITIVE INTEREST INCOME AN D THEREFORE THE SAME CANNOT BE CONSIDERED FOR DISALLOWANCE AND FOR WHICH HE PLACE RELIANCE ON THE DECISION OF KOLKATA TRIBUN AL IN THE CASE OF TRADING APARTMENT LIMITED AND THE DECISION OF TR IBUNAL IN THE CASE MORGAN STANLEY INDIA SECURITIES PRIVATE LIMITE D. HE HOWEVER CONSIDERED THE ADMINISTRATIVE EXPENSES TO B E 0.5% OF THE AVERAGE INVESTMENTS AND DISALLOWED THE SAME.' C) MUMBAI TRIBUNAL IN THE CASE OF MORGAN STANLEY IN DIA SECURITIES PVT. LTD. IN ITA NO. 5072/M/2005 AND 6774/M/2008 DA TED 13.04.2011 HAS HELD THAT THERE CAN BE NO DISPUTE TH AT SINCE THE AMOUNT OF INTEREST DEBITED TO THE PROFIT AND LOSS A CCOUNT IS ON ITA NO.257/ AHD/2015 DCIT VS. VIKRAM CAPITAL RESOURCE PVT. LTD . A.Y. 2006-07 - 4 - NET BASIS, THE DISALLOWANCE OF INTEREST U/S.14A SHO ULD ALSO BE MADE ONLY WITH REFERENCE TO THE NET INTEREST. C) KOLKATA ITAT IN THE CASE OF DCIT VS. TRADE INVESTME NT. LTD. IN ITA NO.1277/KOL/2011 DATED 30.03.2012 'AS LEARNED CIT(A) HAS RIGHTLY OBSERVED, ONCE THERE IS NO NET INTEREST EXPENDITURE, AS IS THE CASE BEFORE AS - UP ON SETTING OFF INTEREST CREDITED TO PROFIT AND LOSS ACCOUNT, NO P ART OF INTEREST DEBITED CAN BE DISALLOWED AS ATTRIBUTABLE TO EARNIN G LAX FREE DIVIDEND. THE CIT(A) WAS THUS QUITE JUSTIFIED IN DE LETING THE INTEREST DISALLOWANCE'. 3. AGAINST THE SAID ORDER ASSESSEE PREFERRED FIRST STATUTORY APPEAL BEFORE THE LD.CIT(A) WHO PARTLY ALLOWED THE APPEAL OF THE ASSESSEE. 4. NOW APPEAL IS BEFORE US. 5. WE HAVE GONE THROUGH THE RELEVANT RECORD AND IMP UGNED ORDER. AS REGARD TO INTEREST EXPENDITURE OF RS.1,47,03,898/-, THE ASSESSEE HAS EARNED TAXABLE INTEREST INCOME OF RS.1,86,03,752/-. THEREFORE, NO SURPLUS INTEREST INCOME OF RS.38,99,754/-. IT IS WELL SETTL ED LAW THAT IN THE CASE THE ASSESSEE INTEREST INCOME WAS MORE THAN INTEREST EXPENSES AND THUS ASSESSEE IS HAVING NET POSITIVE INTEREST INCOME AND THEREFORE, SAME CANNOT BE CONSIDERED FOR DISALLOWANCE AND ASSESSEE HAS SUB MITTED IN SUPPORT OF THE CONTENTION AUDITED ACCOUNTS AND TAX AUDIT REPOR T BEFORE THE LOWER AUTHORITIES. ITA NO.257/ AHD/2015 DCIT VS. VIKRAM CAPITAL RESOURCE PVT. LTD . A.Y. 2006-07 - 5 - 6. IN OUR CONSIDERED OPINION LD.CIT(A) HAS PASSED D ETAILED AND REASONED ORDER AND SAME DOES NOT REQUIRE ANY INTERF ERENCE AT OUR END. 7. IN THE RESULT, APPEAL FILED BY THE DEPARTMENT IS DISMISSED. THIS ORDER PRONOUNCED IN OPEN COURT ON 02 /01 /201 8 SD/- SD/- . . ( ) ( ) ( N.K. BILLAIYA ) ( MAHAVIR PRASAD ) ACCOUNTANT MEMBER JUDICIAL MEMBER AHMEDABAD; DATED 02/01/2018 PRITI YADAV, SR.PS ! ' / COPY OF THE ORDER FORWARDED TO : 1. %&!' / THE APPELLANT 2. (!' / THE RESPONDENT. 3. 67- # # + 8- / CONCERNED CIT 4. # # + 8- (%&) / THE CIT(A)-XXI, AHMEDABAD. 5. 9:; -67 , # %&. %672 , % / DR, ITAT, AHMEDABAD 6. ;< =, / GUARD FILE. # $ / BY ORDER, (9&- - //TRUE COPY// %/$ &' ( DY./ASSTT.REGISTRAR) , / ITAT, AHMEDABAD