Agni Investments Pvt. Ltd., Ahmedabad V. ITO, Ward 1(1)(2), Ahmedabad

ITA 2628/AHD/2017

• Counselvise Citation: [2019] 117 COUNSELVISE.COM (IT) 8825 (ITAT-AHMEDABAD)
• Duration Of Justice: 1 year(s) 4 month(s) 10 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 08-04-2019
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: SMC
• Assessment Year: 2014-2015
• Appeal Filed On: 28-11-2017
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: T C MEENA
• Keywords: Rule 8D
• Section: 14A; 115JB

Judgement Text

, - IN THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD BENCH C BEFORE SHRI RAJPAL YADAV, JUDICIAL MEMBER AND SHRI WASEEM AHMED, ACCOUNTANT MEMBER ./ ITA NO. 2628/AHD/2017 / ASSESSMENT YEAR: 2014-15 ANGI INVESTMENTS P.LTD. 10 & 11, 4 TH FLOOR, ARCHAN 9, ALKAPURI SOCIETY USMANPURA AHMEDABAD 380014. PAN : AABCA 5996 M VS ITO, WARD-1(1)(2) AHMEDABAD. / (APPELLANT) / (RESPONDENT) ASSESSEE BY : SHRI PARIN SHAH, AR REVENUE BY : SHRI T.C. MEENA, SR.DR / DATE OF HEARING : 27/03/2019 /DATE OF PRONOUNCEMENT : 08/ 04/2019 O R D E R PER RAJPAL YADAV, JUDICIAL MEMBER : ASSESSEE IS IN APPEAL BEFORE THE TRIBUNAL AGAINST ORDER OF THE LD.CIT(A)- 1, AHMEDABAD DATED 21.9.2017 PASSED FOR THE ASSTT.YEAR 2014-15. 2. ASSESSEE HAS TAKEN THREE GROUNDS OF APPEAL. IN GROUND NO.2, IT HAS PLEADED THAT THE LD.CIT(A) HAS ERRED IN CONFIRMING INCLUSION OF DISALLOWANCE MADE UNDER SECTION 14A IN THE BOOK PRO FIT DETERMINED UNDER SECTION 115JB OF THE INCOME TAX ACT, 1961. T HE LD.COUNSEL FOR THE ASSESSEE AT THE VERY OUTSET SUBMITTED THAT THIS ISS UE IS COVERED IN FAVOUR OF THE ASSESSEE BY THE DECISION OF SPECIAL BENCH IN THE CASE OF ACIT VS. ITA NO.2628/AHD/2017 - 2 - VIREET INVESTMENTS P.LTD., 165 ITD 27 (SB) WHEREIN IT IS HELD THAT NO INCREASE OR DECREASE CAN BE EFFECTED IN THE BOOK PR OFIT CALCULATED UNDER SECTION 115JB ON ACCOUNT OF CERTAIN DISALLOWANCE MAD E UNDER SECTION 14A. 3. CONSIDERING THE ABOVE FACTS, WE ARE OF THE VIEW THAT SPECIAL BENCH OF THE ITAT IN THE CASE OF VIREET INVESTMENT P.LTD. (SUPRA) HAS FORMULATED FOLLOWING QUESTION FOR ADJUDICATION ON T HIS ISSUE: WHETHER THE EXPENDITURE INCURRED TO EARN EXEMPT IN COME COMPUTED U/S.14A COULD NOT BE ADDED WHILE COMPUTING BOOK PRO FIT U/S.115JB OF THE ACT. 4. SPECIAL BENCH ANSWERED THIS QUESTION IN FAVOUR O F THE ASSESSEE AND HELD THAT COMPUTATION FOR THE PURPOSE OF CLAUSE (F) OF EXPLANATION 1 TO SECTION 115JB(2) IS TO BE MADE WITHOUT RESORTING TO THE COMPUTATION AS CONTEMPLATED UNDER SECTION 14A R.W. RULE 8D. RESPE CTFULLY FOLLOWING THE ABOVE DECISION OF THE SPECIAL BENCH, WE ALLOW T HIS GROUND OF APPEAL AND DIRECT THE AO NOT TO MAKE ADJUSTMENTS IN BOOK P ROFIT FOR THE PURPOSE OF MAT LIABILITY ON THE BASIS OF CALCULATIO NS MADE WITH RULE 8D OF THE INCOME TAX RULES. 5. IN GROUND NO.3, THE GRIEVANCE OF THE ASSESSEE IS THAT THE LD.CIT(A) HAS ERRED IN CHARGING OF INTEREST UNDER SECTION 234 A/B/C OF THE ACT. THE LD.COUNSEL FOR THE ASSESSEE DID NOT ADVANCE ARG UMENTS ON THIS ISSUE, AND AGREED THAT IT IS CONSEQUENTIAL IN NATURE. HEN CE, THIS GROUND IS REJECTED. ITA NO.2628/AHD/2017 - 3 - 6. IN GROUND NO.1, THE ASSESSEE HAS PLEADED THAT TH E LD.CIT(A) HAS ERRED IN CONFIRMING THE DISALLOWANCE OF RS.1,51,005 /- MADE BY THE AO UNDER SECTION 14A OF THE INCOME TAX ACT, 1961. 7. BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE CO MPANY AT THE TIME RELEVANT TIME WAS ENGAGED IN THE BUSINESS OF INVEST MENT. IT HAS FILED RETURN OF INCOME ON 13.9.2014 DECLARING TOTAL INCOM E AT RS.8,59,368/-. ON SCRUTINY OF THE ACCOUNTS IT REVEALED TO THE AO T HAT THE ASSESSEE HAS EARNED DIVIDEND INCOME OF RS.2,00,204/- WHICH WAS C LAIMED AS EXEMPT UNDER SECTION 10(34) OF THE INCOME TAX ACT. THE L D.AO PROCEEDED TO EXAMINE THE EXPENSES RELATING TO EARNING THIS INCOM E WHICH WASS REQUIRED TO BE DISALLOWED UNDER SECTION 14A R.W. RU LE 8D OF THE INCOME TAX RULES. HE ULTIMATELY WORKED OUT SUCH DISALLOWAN CE AT RS.1,51,005/- WHICH INCLUDED DIRECT EXPENDITURE OF RS.954/-, ADMI NISTRATIVE EXPENDITURE OF RS.6,790/- AND INTEREST EXPENDITURE OF RS.1,43,261/-. 8. THE LD.COUNSEL FOR THE ASSESSEE AT THE VERY OUTS ET CONTENDED THAT AS FAR AS INTEREST EXPENDITURE WORKED OUT BY THE AO FO R DISALLOWANCE IS CONCERNED, WHICH OUGHT TO HAVE NOT BEEN DISALLOWED. HE TOOK US THROUGH PAGE NO.14 OF THE PAPER BOOK, WHERE FINANCI AL STATEMENT ENDING ON 31.3.2014 IS AVAILABLE. IT REVEAL FROM THESE D ETAILS THAT THE ASSESSEE HAS INTEREST INCOME AT RS.26,20,621/- WHEREAS IT HA S SHOWN INTEREST EXPENDITURE OF RS.17,34,237/-. THUS, THE ASSESSEE HAS NET INTEREST INCOME. SIMILARLY, THE ASSESSEE HAS MORE INTEREST FREE FUNDS THAN THE INVESTMENT. HONBLE GUJARAT HIGH COURT IN THE CAS E OF PR.CIT VS. NIRMA CREDIT & CAPITAL P.LTD., (2017) REPORTED IN 8 5 TAXMANN.COM 72 (GUJ) = 300 CTR 286 (GUJ) HELD THAT IF THERE IS NET INTEREST INCOME THEN ITA NO.2628/AHD/2017 - 4 - THE INTEREST EXPENDITURE CANNOT BE DISALLOWED. THE RELEVANT OBSERVATION OF HONBLE COURT REDS AS UNDER: 14. WHILE ANSWERING THE QUESTION IN FAVOUR OF THE ASSESSEE, WE HOLD THAT FOR THE PURPOSE OF APPLYING THE FACTORS CONTAI NED IN CLAUSE (II) OF SUB- RULE (2) OF RULE 8D, PRIOR TO ITS AMENDMENT WITH EFF ECT FROM 2.6.2016, WHAT WOULD BE CONSIDERED AS AMOUNT OF EXPENDITURE B Y WAY OF INTEREST WOULD BE THE INTEREST PAID BY THE ASSESSEE ON THE B ORROWINGS MINUS THE TAXABLE INTEREST EARNED DURING THE FINANCIAL YEAR. 9. ON DUE CONSIDERATION OF THE ABOVE FACTS AND CIRC UMSTANCES, WE FIND THAT THE ASSESSEE HAS MORE INTEREST FREE FUNDS THAN THE INVESTMENT MADE BY IT WHICH HAS RESULTED TAX FREE INCOME. APA RT FROM ABOVE, WE FURTHER FIND THAT THE ASSESSEE HAS NET INTEREST INC OME. THEREFORE, IN VIEW OF THE JUDGMENT OF HONBLE GUJARAT HIGH COURT IN TH E CASE OF NIRMA CREDIT & CAPITAL P.LTD. (SUPRA) NO DISALLOWANCE ON ACCOUNT OF INTEREST EXPENDITURE IS TO BE MADE IN THE PRESENT CASE. WE ALLOW THIS GROUND PARTLY AND CONFIRM THE DISALLOWANCE TO THE EXTENT O F RS.6,790/- REPRESENTING ADMINISTRATIVE EXPENSES AND RS.954/- W HICH IS RELATABLE TO DIRECT EXPENDITURE. INTEREST EXPENDITURE OF RS.1,4 3,261/- DISALLOWED BY THE AO IS DELETED. 10. IN THE RESULT, APPEAL OF THE ASSESSEE IS PARTLY ALLOWED. PRONOUNCED IN THE OPEN COURT ON 8 TH APRIL, 2019. SD/- SD/- (WASEEM AHMED) ACCOUNTANT MEMBER (RAJPAL YADAV) JUDICIAL MEMBER AHMEDABAD; DATED, 08/04/2019