D.Veeradhra Reddy (HUF), Kakinada V. THE DCIT, CIRCLE - 1, Kakinada

ITA 263/VIZ/2014

• Counselvise Citation: [2017] 127 COUNSELVISE.COM (IT) 8860 (ITAT-VISAKHAPATNAM)
• Duration Of Justice: 3 year(s) 1 month(s) 3 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 23-06-2017
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: DB
• Assessment Year: 2009-2010
• Appeal Filed On: 20-05-2014
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: M BHUPAL REDDY
• Keywords: Revision of order; Depreciation; Earning of tax free income
• Section: 143(3); 14A

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL, VISAKHAPATNAM BENCH, VISAKHAPATNAM . , . . , BEFORE SHRI V. DURGA RAO, JUDICIAL MEMBER & SHRI D .S. SUNDER SINGH , ACCOUNTANT MEMBER . / I . T .A.NO. 263 /VIZAG/ 201 4 ( / ASSESSMENT YEAR: 20 09 - 1 0 ) D VEERABHADRA REDDY (HUF) D.NO.19 - 10 - 4/2 SATYAPRAKASH NAGAR KAKINADA EAST GODAVARI DISTRICT DY. COMMISSIONER OF INCOME - TAX CIRCLE I, KAKINADA [PAN NO.AA DHD8033R ] ( / APPELLANT) ( / RESPONDENT) / APPELLANT BY : SHRI G.V.N.HARI, AR / RESPONDENT BY : SHRI M BHUPAL REDDY , D R / DATE OF HEARING : 1 4 .06.2017 / DATE OF PRONOUNCEMENT : 23 .06.2017 / O R D E R PER D.S. SUNDER SINGH , ACCOUNTANT MEMBER : THIS APPEAL IS FILED BY THE ASSE SSEE AGAINST THE ORDER OF THE LD. C OMMISSIONER OF INCOME TAX , RAJAHMUNDRY IN F. NO. 43/263/CIT/RJY/ 2013 - 14 DATED 21 .0 3 .201 4 FOR THE A.Y. 20 09 - 1 0 . 2 ITA NO. 263 /VIZAG/201 4 , AY 20 09 - 1 0 SHRI D VEERABHADRA REDDY (HUF),KAKINDA 2. IN THIS CASE, THE ASSESSMENT WAS COMPLETED U/S 143(3) BY THE ORDER DATED 04.11.2011 A SSESSING THE TOTAL INCOME AT RS.16,44,453/ - . SUBSEQUENTLY, THE CASE WAS TAKEN FOR REVISION U/S 263 BY CIT RAJAHMUNDRY FOR INCORRECT SET OFF OF BUSINESS LOSS OF RS. 10,11,822/ - AGAINST THE PROPERTY INCOME . FOR READY REFERENCE, WE EXTRACT PARA 3 AND 4 OF NOTI CE ISSUED U/S 263. 3. IT IS SEEN FROM THE COMPUTATION OF TOTAL INCOME AND COPIES OF PROFIT & L OSS ACCOUNT ANNEXED TO THE ORIGINAL RETURN OF INCOME FILED ON 29.09.2009 THAT THE ASSESSEE HAS RECEIVED AN AMOUNT OF RS.40,41,399/ - TOWARDS RENT FROM GODOWNS A ND ARRIVED AT INCOME FROM HOUSE PROPERTY AT RS.27,51,775/ - AFTER CLAIMING DEDUCTION OF RS.11,79,332/ - U/S 24 AND RS.1,10,292/ - TOWARDS MUNICIPAL TAXES. FURTHER, UNDER THE HEAD INCOME FROM BUSINESS IT CLAIMED LOSS OF ( - )RS. 10,11,822/ - AND THE SAME WAS SET OFF AGAINST THE INCOME FROM HOUSE PROPERTY. THUS THE TOTAL INCOME HAS BEEN ARRIVED AT TO THE TUNE OF RS.17,39,953/ - BEFORE CLAIMING DEDUCTION U/S80C OF RS.95,500/ - . FURTHER, FROM THE PROFIT & LOSS ACCOUNT, IT IS SEEN THAT AN AMOUNT OF RS.9,18,813/ - WAS DEBITED TOWARDS INTEREST. 4. HOWEVER, HAVING GODOWN RENT AS THE ONLY SOURCE OF INCOME BY THE ASSESSEE AND THE SAME WAS OFFERED UNDER THE HEAD INCOME FROM HOUSE PROPERTY, CLAIMING OF INTEREST PAID ON UNSECURED LOANS AND DEPRECIATION AS BUSINESS LOSS IS NOT CORRECT SINCE THESE LOANS WERE NEITHER USED FOR BUSINESS ACTIVITY NOR FOR ACQUIRING THE ASSET / GODOWN. THEREFORE, THE CLAIM OF LOSS UNDER THE BUSINESS HEAD IS INCORRECT. 3. THE LD. CIT AFTER CONSIDERING THE SUBMISSION MADE BY THE ASSESSEE PASSED AN ORDER U/S 263 DIRECTING THE ASSESSING OFFICER TO VERIFY THE DISALLOWANCE REQUIRED TO BE MADE U/S 14A OF IT ACT S INCE THE ASSESSEE HAS MADE INVESTMENTS IN M/S BHASKARA EXIMS, MANASA QUALITY ENTERPRISES, SRI BHASKARA PACKING PRODUCTS, SRI BHASKARA MARKE TING 3 ITA NO. 263 /VIZAG/201 4 , AY 20 09 - 1 0 SHRI D VEERABHADRA REDDY (HUF),KAKINDA SERVICES, SRI VENTAKA PADMAVATHI RAW & BOILED RICE MILL ETC.. . AGGRIEVED BY THE ORDER OF THE LD. CIT, THE ASSESSEE FILED APPEAL BEFORE THIS T RIBUNAL. 4 . APPEARING FOR THE ASSESSEE, THE LD. AR ARGUED THAT THE LD.CIT ISSUED SHOW CAUSE NOTICE FOR INCO RRECT SET OFF OF LOSS OF RS.10,11,822/ - RELATING TO THE BUSINESS AGAINST THE INCOME FROM HOUSE PROPERTY. THIS ISSUE HAS BEEN EXAMINED BY THE ASSESSING OFFICER IN THE ORIGINAL ASSESSMENT ORDER PASSED U/S 143(3) WHICH IS EVIDENT FROM THE SHOW CAUSE NOTICE I SSUED BY THE ASSESSING OFFICER DATED 13.09.2011 . T HE ASSESSING OFFICER PROPOSED TO DISALLOW THE LOSS CLAIMED BY THE ASSESSEE VIDE SHOW CAUSE NOTICE SINCE THERE WAS NO BUSINESS CARRIED ON BY HUF. HOWEVER, THE ASSESSEE REPLIED VIDE LETTER DATED 20.10.2011 EXPLAINING THAT HE WAS CARRYING ON THE BUSINESS AND THE LOSS WAS DUE TO THE PAYMENT OF INTEREST TO FIRMS, IN WHICH THE ASSESSEE WAS A PARTNER AND HENCE RESULTING LOSS WAS BUSINESS LOSS WHICH WAS CLAIMED AS SET OFF AGAINST THE OTHER SOURCES. THE ASSESSING OFFICER AFTER CONSIDERING THE REPLY DROPPED THE PROPOSED DISALLOWANCE IN THE ASSESSMENT ORDER WITHOUT MAKING ANY ADDITION . THEREFORE, THE LD. A.R SUBMITTED THAT ASSESSING OFFICER HAS CONSIDERED THE ISSUE AND TAKEN A CONSCIOUS DECISION NOT TO MAKE ANY ADDI TION , HENCE THE ACTION U/S 263 IS NOT 4 ITA NO. 263 /VIZAG/201 4 , AY 20 09 - 1 0 SHRI D VEERABHADRA REDDY (HUF),KAKINDA PERMISSIBLE ON THE SAME ISSUE . THEREFORE, THE LD.AR ARGUED THAT THE NOTICE U/S 263 IS REQUIRED TO BE QUASHED. THE LD.AR FURTHER ARGUED THAT THE LD.CIT HAS DIRECTED THE ASSESSING OFFICER TO VERIFY THE DISALLOWANCE OF E XPENDITURE U/S 14A (3) WHICH IS NOT FORTHCOMING FROM THE NOTICE, HENCE THE LD.CIT HAS NO JURISDICTION TO DIRECT THE ASSESSING OFFICER TO EXAMINE THIS ISSUE. 5 . ON THE OTHER HAND, THE LD.DR ARGUED THAT THOUGH ASSESSING OFFICER HAS CALLED FOR THE DETAILS, WITH REGARD TO THE INTEREST PAID AND THE BUSINESS LOSS, THE ASSESSING OFFICER HAS NOT EXAMINED THE ISSUE WITH REGARD TO THE INVESTMENTS MADE IN VARIOUS COMPANIES AND THE DISALLOWANCE REQUIRED TO BE MADE U/S14A R.W. RULE 8D OF INCOME TAX RULES. DURING THE C OURSE OF 263 PROCEEDINGS, IT HAS COME TO THE NOTICE OF LD.CIT THAT THE ASSESSEE HAD MADE INVESTMENTS BUT DID NOT MAKE ANY DISALLOWANCE TOWARDS THE EARNING OF DIVIDEND INCOME AS REQUIRED BY RULE 8D. THE LD.CIT HAS GIVEN AN OPPORTUNITY TO THE ASSESSEE AND AF TER CONSIDERING THE OBJECTIONS, THE LD.CIT HAS DIRECTED THE ASSESSING OFFICER TO VERIFY THE DISALLOWANCE REQUIRED TO BE MADE U/S 14A R.W.RULE 8D OF I NCOME TAX RULES. SINCE THE ASSESSING OFFICER HAS NOT EXAMINED THE ISSUE WITH REGARD TO THE INVESTMENTS MADE IN SHARES AND BONDS AND DID NOT GIVE ANY FINDING WITH REGARD TO THE DISALLOWANCE U/S14A, THE CIT 5 ITA NO. 263 /VIZAG/201 4 , AY 20 09 - 1 0 SHRI D VEERABHADRA REDDY (HUF),KAKINDA ASSUMED THE JURISDICTION, HENCE THE LD.DR ARGUED THAT THERE IS NO ERROR IN THE ORDER OF THE LD.CIT AND THE SAME IS REQUIRED TO BE UPHELD. 6 . WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL ON RECORD. THE ASSESSEE HAS RENTAL INCOME FROM GODOWNS AND THE BUSINESS LOSS . THE ASSESSING OFFICER HAS COMPLETED THE ASSESSMENT U/S 143(3) BY ORDER DATED 04.11.2011. THE LD.CIT HAS CALLED FOR THE RECORD U/S 263 AND ISSUED THE NOTICE FOR REVISION F OR INCORRECT SET OFF OF BUSINESS LOSS AGAINST THE RENTAL INCOME. AFTER VERIFICATION OF THE MATERIAL ON RECORD , THE LD.CIT HAS DROPPED THE ISSUE WITH REGARD TO INCORRECT SET OFF OF BUSINESS LOSS AGAINST THE INCOME F ROM PROPERTY WHICH WAS EXAMINED BY THE ASSESSING OFFICER. DURING THE COURSE OF REVISION PROCEEDINGS, IT HAS COME TO THE NOTICE OF LD.CIT THAT THE ASSESSEE HAS MADE INVESTMENTS IN SHARES AND BONDS AND DID NOT MAKE DISALLOWANCE WHICH WAS REQUIRED TO BE MADE U/S14A OF IT ACT. THE ASSESSEE EXPLAINED THAT THERE WE RE NO EXPENSES INCURRED IN RELATION TO THE EXEMPT INCOME WHICH WAS CLAIMED AS DEDUCTION FOR THE ASSESSMENT YEAR 2009 - 10. HENCE, THE ASSESSEE ARGUED BEFORE THE LD.CIT THAT SECTION 14A IS NOT APPLICABL E IN A SSESSEES CASE. AS PER THE OBSERVATION OF THE LD.CIT, THE ASSESSEE MA DE THE INVESTMENTS TO THE TUNE OF RS.19,90,625/ - IN SHARES AND BONDS FROM THE BORROWED FUNDS AND THE INTEREST EXPENDITURE RELATING TO THE EARNING OF 6 ITA NO. 263 /VIZAG/201 4 , AY 20 09 - 1 0 SHRI D VEERABHADRA REDDY (HUF),KAKINDA DIVIDEND INCOME IS REQUIRED TO BE DISALLOWED U/S 14A. THOUGH CIT OPINED THAT THE EXPENDITURE RELATING TO THE EARNING OF DIVIDEND INCOME REQUIRED TO BE DISALLOWED , THERE WA S NO FINDING GIVEN BY THE CIT IN HIS ORDER WITH REGARD TO EARNING OF DIVIDEND INCOME . THE CIT ALSO DID NOT REBUT T HE EXPLANATION OFFERED BY THE ASSESSEE STATING THAT NO EXPENDITURE WAS INCURRED FOR MAKING THE INVESTMENTS. THE LD.DR DID NOT MAKE ANY CLARIFICATION WITH REGARD TO THE QUANTUM OF DIVIDEND INCOME EARNED BY THE ASSESSEE. THE LD.AR SUBMITTED PAPER BOOK ENCLO SING THE COPY OF STATEMENT OF COMPUTATION, RETURN OF INCOME, BALANCE SHEET AND PROFIT AND LOSS ACCOUNT. IT IS SEEN FROM THE PROFIT AND LOSS ACCOUNT AND THE STATEMENT OF COMPUTATION OF INCOME THAT THE ASSESSEE HAS NOT DERIVED ANY DIVIDEND INCOME. WHEN THE ASSESSEE HAS NO EXEMPT INCOME, THE QUESTION OF DISALLOWANCE U/S14A R.W.RULE 8D IS NOT CALLED FOR. THE SAME VIEW IS EXPRESSED BY THE DECISION OF HONBLE MADRAS HIGH COURT IN REDINGTON (INDIA) LTD. VS. ADDL.CIT , 77 TAXMAN.COM 257, HONBLE DELHI HIGH COURT IN CHEM INVESTMENTS VS. CIT , 61 TAXMAN.COM 118 AND THE HONBLE GUJARAT HIGH COURT IN PRINCIPAL CIT VS. SINTEX INDUSTRIES LTD., 8 2 TAXMAN.COM 171 HELD THAT NO DISALLOWANCE IS CALLED FOR WHEN ASSESSEE MAKES SMALL INVESTMENT FROM THE SURPLUS FUNDS. T HERE WAS NO DIVIDEND INCOME EARNED BY THE ASSESSEE AND THE CASE WAS TAKEN FOR REVISION TO DISALLOW THE BUSINESS LOSS CLAIMED AGAINST THE 7 ITA NO. 263 /VIZAG/201 4 , AY 20 09 - 1 0 SHRI D VEERABHADRA REDDY (HUF),KAKINDA PROPERTY INCOME WHICH WAS EXAMINED BY THE AO AND DROPPED THE ASSESSMENT PROCEEDINGS AND T HE LD.CIT ALSO SATISFIED THAT THERE IS NO CASE FOR REVISION ON ACCOUNT OF INCORRECT SET OFF OF BUSINESS LOSS. WITH REGARD TO THE ISSUE OF DISALLOWANCE U/S 14A AS PER THE JUDICIAL PRONOUNCEMENTS NO DISALLOWANCE IS CALLED FOR WHEN THERE IS NO EXEMPT INCOME. THEREFORE, W E ARE OF THE CONSIDERED OPINION THAT THERE IS NO CASE FOR REVISION OF ORDER U / S 263 AND ACCORDINGLY WE SET ASIDE THE ORDER S OF THE CIT AND ALLOW THE APPEAL OF THE ASSESSEE. 7 . IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE IS ALLOWED . T HE ABOVE ORDER WAS PRONOUNCED IN THE O PEN COURT ON 23 RD JUN 20 17 . SD/ - SD/ - ( . ) ( . . ) (V. DURGA RAO) ( D.S. SUNDER SINGH ) /JUDICIAL MEMBER /ACCOUNTANT MEMBER /VISAKHAPATNAM /DATED : 23 .06.2017 L. RAMA, SPS 8 ITA NO. 263 /VIZAG/201 4 , AY 20 09 - 1 0 SHRI D VEERABHADRA REDDY (HUF),KAKINDA / COPY OF THE ORDER FORWARDED TO : - 1. / THE APPELLANT D VEERABHADRA REDDY (HUF), D.NO.19 - 10 - 4/2, SATYAPRAKASH NAGAR, KAKINADA, EAST GODAVARI DISTRICT. 2 . / THE RESPONDENT DY. COMMISSIONER OF INCOME TAX, CIRCLE - I, KAKINADA 3 . / THE PR. CIT 4 . ( ) / TH E CIT , RAJAHMUNDRY 5 . , , / DR, ITAT, VISAKHAPATNAM 6 . / GUARD FILE / BY ORDER // TRUE COPY // SR. PRIVATE SECRETARY ITAT, VISAKHAPATNAM