M/s. Kingfisher Finvest India Limited, Bangalore V. Deputy Commissioner Of Income Tax, Circle- 4(1)(1), Bangalore

ITA 2641/BANG/2019

• Counselvise Citation: [2020] 110 COUNSELVISE.COM (IT) 6477 (ITAT-BANGALORE)
• Duration Of Justice: 8 month(s) 21 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 18-09-2020
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: B
• Next Hearing Date: 16-09-2020
• Assessment Year: 2013-2014
• Appeal Filed On: 27-12-2019
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: MUZAFFAR HUSSAIN
• Assessee Lawyers: K R PRADEEP
• Keywords: Principle of natural justice; Earning of tax free income; Rule 8D; Set aside
• Section: 14A

Judgement Text

ITA NO.2477 /BANG/2019, ITA 2641 & 2642/BANG/2019 M/S. KINGFISHER FINVEST INDIA LTD., BANGALORE 0IN THE INCOME TAX APPELLATE TRIBUNAL BBENCH: BANGALORE BEFORE SHRI B. R. BASKARAN, ACCOUNTANT MEMBER AND SMT. BEENA PILLAI, JUDICIAL MEMBER ITA NO.2641 & 2642/BANG/2019 ASSESSMENTYEAR:2013-14 & 2015-16 M/S. KINGFISHER FINVEST INDIA LTD. NO.24, UB TOWERS, LEVEL 12 VITTALMALLYA ROAD BANGALORE-560001 PAN NO :AABCV9224B VS. DEPUTY COMMISSIONER OF INCOME-TAX CIRCLE 4(1)(1) BANGALORE APPELLANT RESPONDENT ITA NO. 2477/BANG/2019 ASSESSMENT YEAR: 2013-14 DEPUTY COMMISSIONER OF INCOME-TAX CIRCLE 4(1)(1) BANGALORE VS. M/S. KINGFISHER FINVEST INDIA LTD. NO.24, UB TOWERS, LEVEL 12 VITTALMALLYA ROAD BANGALORE-560001 APPELLANT RESPONDENT APPELLANT BY : SHRI K.R. PRADEEP, A.R. RESPONDENT BY : SHRI MUZAFFAR HUSSAIN, D.R. DATE OF HEARING : 16.09.2020 DATE OF PRONOUNCEMENT : 18.09.2020 ITA NO.2477 /BANG/2019, ITA 2641 & 2642/BANG/2019 M/S. KINGFISHER FINVEST INDIA LTD., BANGALORE PAGE 2 OF 6 O R D E R PER B.R. BASKARAN, ACCOUNTANT MEMBER: THE ASSESSEE HAS FILED APPEALS FOR ASSESSMENT YEARS 2013-14 AND 2015-16. THE REVENUE HAS FILED APPEAL FOR ASSE SSMENT YEAR 2013-14. ALL THE APPEALS RELATE TO THE DISALLOWANCE MADE BY THE A.O. U/S 14A OF THE INCOME-TAX ACT,1961 ['THE ACT' FOR SHORT]. HENCE THESE APPEALS WERE HEARD TOGETHER AND ARE BEING DIS POSED OF BY THIS COMMON ORDER. 2. THE ASSESSEE IS ENGAGED IN THE BUSINESS OF MAKING INVESTMENT IN SHARES, PROVIDING GUARANTEES TO GROUP COMPANIES. 3. WE FIRST TAKE UP THE APPEAL FILED BY THE PARTIES FO R ASSESSMENT YEAR 2013-14. IN THIS YEAR, THE ASSESSEE EARNED EX EMPT INCOME OF RS.4.19 CRORES. THE ASSESSEE DID NOT MAKE ANY DISAL LOWANCE U/S 14A OF THE ACT. WHEN QUESTIONED, THE ASSESSEE SUBM ITTED THAT THE MAJORITY OF ITS INVESTMENTS WERE MADE IN THE EARLIE R YEARS AND FURTHER THE LOANS TAKEN DURING THE YEAR UNDER CONSI DERATION WERE USED FOR GENERAL BUSINESS PURPOSES. THE A.O. DID N OT AGREE WITH THE CONTENTIONS OF THE ASSESSEE AND ACCORDINGLY PRO CEEDED TO MAKE DISALLOWANCE U/S 14A OF THE ACT READ WITH RULE 8D O F IT RULES. ACCORDINGLY, HE MADE DISALLOWANCE OF RS.52.10 CRORE S U/S 14A OF THE ACT, WHICH CONSISTED OF INTEREST DISALLOWANCE O F RS.46.88 CRORES UNDER RULE 8D(2)(II) AND EXPENDITURE DISALLOWANCE O F RS.5.22 CRORES UNDER RULE 8D(2)(III). 4. THE ASSESSEE CHALLENGED THE ADDITION BY FILING APPE AL BEFORE LD. CIT(A). BEFORE LD. CIT(A), THE ASSESSEE REITER ATED THE CONTENTIONS WITH REGARD TO THE INTEREST DISALLOWANC E. WITH REGARD TO THE EXPENDITURE DISALLOWANCE MADE UNDER RULE 8D(2)( III), THE ITA NO.2477 /BANG/2019, ITA 2641 & 2642/BANG/2019 M/S. KINGFISHER FINVEST INDIA LTD., BANGALORE PAGE 3 OF 6 ASSESSEE SUBMITTED THAT THE EXPENSES RELATING TO EX EMPT INCOME WAS ONLY RS.35.61 LAKHS. IN THE ALTERNATIVE, THE A SSESSEE CONTENDED BEFORE LD. CIT(A) BY PLACING RELIANCE ON THE DECISI ON RENDERED BY HONBLE DELHI HIGH COURT IN THE CASE OF JOINT INVES TMENTS LIMITED 372 ITR 694 THAT THE DISALLOWANCE SHOULD NOT EXCEED THE EXEMPT INCOME. THE LD. CIT(A) AGREED WITH THE ALTERNATIVE CONTENTIONS OF THE ASSESSEE. ACCORDINGLY, DIRECTED THE A.O. TO RE STRICT THE DISALLOWANCE U/S 14A OF THE ACT TO THE EXTENT OF EX EMPT INCOME EARNED BY THE ASSESSEE DURING THE YEAR. AGGRIEVED BY THE ORDER PASSED BY LD. CIT(A), BOTH THE PARTIES ARE IN APPEA L BEFORE US IN ASSESSMENT YEAR 2013-14. 5. AT THE TIME OF HEARING, THE LD. A.R. SUBMITTED A CH ART TO SUBSTANTIATE THE ASSESSEES CONTENTIONS THAT MAJORI TY OF INVESTMENTS HAVE BEEN MADE IN THE EARLIER YEARS. IT WAS ALSO SUBMITTED THAT INVESTMENTS MADE DURING THE YEAR HAV E BEEN FUNDED OUT OF INTEREST FREE FUNDS PROVIDED BY GROUP CONCER NS. THE LD. A.R. FURTHER SUBMITTED THAT THE ASSESSEE HAD USED INTERE ST FREE FUNDS ONLY FOR MAKING INVESTMENTS AND HENCE NO DISALLOWAN CE OUT OF INTEREST EXPENDITURE IS CALLED FOR. 6. THE LD. A.R. ALSO SUBMITTED THAT THE DIVIDEND INCOM E HAD NOT BEEN RECEIVED FROM CERTAIN INVESTMENTS AND HENCE TH EY SHOULD NOT BE CONSIDERED FOR COMPUTING AVERAGE VALUE OF INVEST MENTS AS PER THE DECISION RENDERED BY THE SPECIAL BENCH IN THE C ASE OF VIREET INVESTMENTS PVT. LTD. 165 ITD 27. THE LD. A.R. FUR THER SUBMITTED THAT THE A.O. HAS MECHANICALLY COMPUTED THE EXPENDI TURE DISALLOWANCE UNDER RULE 8D(2)(III) WITHOUT HAVING R EGARD TO THE ACTUAL EXPENSES INCURRED BY THE ASSESSEE. THE LD. A.R. SUBMITTED THAT THE EXPENDITURE RELATING TO EXEMPT INCOME IS V ERY LESS AND MAJOR PORTION OF THE EXPENSES HAVE BEEN INCURRED BY THE ASSESSEE ITA NO.2477 /BANG/2019, ITA 2641 & 2642/BANG/2019 M/S. KINGFISHER FINVEST INDIA LTD., BANGALORE PAGE 4 OF 6 TOWARDS OTHER ACTIVITIES AND HENCE THE DISALLOWANCE OUT OF ADMINISTRATIVE EXPENSES SHOULD HAVE BEEN RESTRICTED TO THE ACTUAL EXPENDITURE RELATING TO THE EXEMPT INCOME. 7. ON THE CONTRARY, THE LD. D.R. SUBMITTED THAT THE A. O. WAS NOT SATISFIED WITH THE CLAIM OF THE ASSESSEE WITH REGAR D TO THE DISALLOWANCE MADE U/S 14A OF THE ACT AND HENCE HE H AS COMPUTED THE DISALLOWANCE BY APPLYING RULE 8D. 8. WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE RECORD. IT IS THE SUBMISSION OF THE ASSESSEE THAT MAJORITY OF INVESTMENTS HAVE BEEN MADE IN THE EARLIER YEARS. IT IS ALSO TH E SUBMISSION OF THE ASSESSEE THAT THE INVESTMENTS HAVE BEEN MADE OUT OF INTEREST FREE FUNDS PROVIDED BY THE GROUP COMPANIES. THE LD. A.R . ALSO SUBMITTED THAT THE LOANS ON WHICH INTEREST EXPENDIT URE HAS BEEN INCURRED BY THE ASSESSEE FOR THE YEAR RELEVANT TO A Y 2013-14 HAVE NOT BEEN UTILISED FOR THE PURPOSE OF MAKING THE INV ESTMENTS. ACCORDINGLY, IT WAS CONTENDED THAT NO INTEREST DISA LLOWANCE IS CALLED FOR UNDER RULE 8D(2)(II) OF IT RULES. 9. IF THE INTEREST FREE FUNDS AVAILABLE WITH THE ASSES SEE IS MORE THAN THE VALUE OF INVESTMENTS, THEN THE PRESUMPTION IS THAT THE ASSESSEE HAS USED INTEREST FREE FUNDS FOR MAKING IN VESTMENTS. THIS VIEW IS SUPPORTED BY THE DECISION RENDERED BY HONB LE SUPREME COURT IN THE CASE OF RELIANCE INDUSTRIES LTD. 410 I TR 466. THERE SHOULD NOT BE ANY DISPUTE THAT, IF THE ASSESSEE IS ABLE TO DEMONSTRATE THAT THE INTEREST FREE FUNDS AVAILABLE WITH THE ASSESSEE IS MORE THAN THE VALUE OF INVESTMENTS AND FURTHER T HE LOAN FUNDS HAVE NOT BEEN USED TO MAKE THE INVESTMENTS, THEN NO DISALLOWANCE OUT OF INTEREST EXPENDITURE IS CALLED FOR UNDER RUL E 8D(2)(II). HOWEVER, SINCE THE FACTUAL DETAILS RELATING TO THE ISSUE REQUIRE EXAMINATION, WE ARE OF THE VIEW THAT THE ASSESSEE, IN THE INTEREST OF ITA NO.2477 /BANG/2019, ITA 2641 & 2642/BANG/2019 M/S. KINGFISHER FINVEST INDIA LTD., BANGALORE PAGE 5 OF 6 NATURAL JUSTICE, SHOULD BE PROVIDED WITH AN OPPORTU NITY TO PRESENT ITS CASE TO THE A.O. WITH REGARD TO THE DISALLOWAN CE OF ADMINISTRATIVE EXPENSES MADE UNDER RULE 8(D)(III), IT IS THE SUBMISSION OF THE ASSESSEE THAT THE MAJORITY OF EXP ENSES DEBITED TO PROFIT & LOSS ACCOUNT ARE NOT RELATED TO THE EXEMPT INCOME AND FURTHER THE EXPENSES RELATABLE TO THE EXEMPT INCOME COULD BE IDENTIFIED AND THE SAME IS LOWER THAN THE AMOUNT CO MPUTED BY THE A.O. UNDER RULE 8D(2)(III). THIS CONTENTION OF THE ASSESSEE ALSO REQUIRE EXAMINATION AT THE END OF THE A.O. 10. ACCORDINGLY, WE ARE OF THE VIEW THAT THIS ISSUE REQ UIRES FRESH EXAMINATION AT THE END OF THE A.O. IN THE LIGHT OF THE DISCUSSIONS MADE (SUPRA). ACCORDINGLY, WE SET ASIDE THE ORDER PASSED BY LD. CIT(A) AND RESTORE THIS ISSUE TO THE FILE OF THE A. O. FOR EXAMINING IT AFRESH. 11. WE SHALL NOW TAKE UP THE APPEAL FILED BY THE ASSESS EE FOR ASSESSMENT YEAR 2015-16. IN THIS ASSESSMENT YEAR, THE EARNED DIVIDEND INCOME IS OF RS.92,56,000/-. THE ASSESSEE DID NOT MAKE ANY DISALLOWANCE U/S 14A OF THE ACT ON ITS OWN. HE NCE, THE A.O. COMPUTED THE DISALLOWANCE U/S 14A OF THE ACT IN ACC ORDANCE WITH RULE 8D AND DISALLOWED A SUM OF RS.29,23,212/- WHIC H CONSISTED OF INTEREST DISALLOWANCE OF RS.8.26 LAKHS UNDER RULE 8 D (2)(II), EXPENDITURE DISALLOWANCE OF RS.20.98 LAKHS UNDER RU LE 8D(2)(III). THE LD. CIT(A) CONFIRMED THE DISALLOWANCE MADE BY T HE A.O. AND HENCE THE ASSESSEE HAS FILED THIS APPEAL BEFORE US. 12. WE HEARD THE PARTIES ON THIS ISSUE AND PERUSED THE RECORD. SINCE THE FACTS RELATING TO THIS ISSUE ARE IDENTICA L WITH THE FACTS DISCUSSED IN ASSESSMENT YEAR 2013-14, IN THE PRECED ING PARAGRAPHS, CONSISTENT WITH THE VIEW TAKEN THEREIN, WE RESTORE THIS ITA NO.2477 /BANG/2019, ITA 2641 & 2642/BANG/2019 M/S. KINGFISHER FINVEST INDIA LTD., BANGALORE PAGE 6 OF 6 ISSUE TO THE FILE OF THE A.O. FOR EXAMINING IT AFRE SH IN THE LIGHT OF THE DISCUSSIONS MADE (SUPRA). ACCORDINGLY, THE ORDER P ASSED BY LD. CIT(A) IN ASSESSMENT YEAR 2015-16 IS SET ASIDE. 13. IN THE RESULT, BOTH THE APPEALS OF THE ASSESSEE AND THE APPEAL OF THE REVENUE ARE TREATED AS ALLOWED FOR STATISTIC AL PURPOSES. ORDER PRONOUNCED IN THE OPEN COURT ON 18 TH SEPT, 2020 SD/- (BEENA PILLAI) JUDICIAL MEMBER SD/- (B.R. BASKARAN) ACCOUNTANT MEMBER BANGALORE, DATED 18 TH SEPT, 2020. VG/SPS COPY TO: 1. THE APPLICANT 2. THE RESPONDENT 3. THE CIT 4. THE CIT(A) 5. THE DR, ITAT, BANGALORE. 6. GUARD FILE BY ORDER ASST. REGISTRAR, ITAT, BANGALORE.