Parry Enterprises India Ltd., CHENNAI V. JCIT, CHENNAI

ITA 2697/CHNY/2016

• Counselvise Citation: [2017] 128 COUNSELVISE.COM (IT) 4569 (ITAT-CHENNAI)
• Duration Of Justice: 7 month(s) 14 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 03-05-2017
• Appeal Filed By: Assessee
• Bench Allotted: B
• Next Hearing Date: 06-03-2017
• Assessment Year: 2009-2010
• Appeal Filed On: 19-09-2016
• Court: TRIBUNAL
• Department Lawyers: SUPRIYO PAL
• Assessee Lawyers: S KRISHNAN
• Section: 14A

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL B BENCH: CHENNAI . . . , '.. % , * BEFORE SHRI N.R.S. GANESAN, JUDICIAL MEMBER AND SHRI D.S.SUNDER SINGH, ACCOUNTANT MEMBER ./ ITA NOS.2697 & 2698/MDS/2016 + + /ASSESSMENT YEARS: 2009-10 & 2011-12 M/S.PARRY ENTERPRISES INDIA LTD., NO.2, DARE HOUSE, NSC BOSE ROAD, CHENNAI-600 001. VS. THE JT. COMMISSIONER OF INCOME TAX, COMPANY RANGE V (I/C), CHENNAI-600 034 [PAN: AAACP 3643 D ] ( . /APPELLANT) ( /0. /RESPONDENT) . 1 / APPELLANT BY : MR.S.KRISHNAN, CA /0. 1 /RESPONDENT BY : MR. SUPRIYO PAL, JCIT 1 /DATE OF HEARING : 06.03.2017 1 /DATE OF PRONOUNCEMENT : 03.05.2017 / O R D E R PER D.S.SUNDER SINGH , ACCOUNTANT MEMBER : THIS IS AN APPEAL FILED BY THE ASSESSEE AGAINST TH E ORDER DATED 30.06.2016 & 24.06.2016 OF COMMISSIONER OF INCOME T AX (APPEALS)-3, CHENNAI, IN ITA NO.30/2011-12/CIT(A)-3 FOR THE AY 2 009-10 & ITA NO.80/2014-15/CIT(A)-3 FOR THE AY 2011-12 RESPECTIV ELY. BOTH APPEALS ARE INVOLVED COMMON ISSUE OF DISALLOWANCE U/S14A R. W.R. 8D OF INCOME TAX RULES. SINCE THE COMMON ISSUES ARE INVOLVED IN BOTH THE APPEALS THE ITA NOS.2697 & 2698/MDS/2016 :- 2 -: APPEALS ARE CLUBBED AND HEARD TOGETHER AND DISPOSED OFF IN A COMMON ORDER AS UNDER: 2.0 ALL THE GROUNDS OF APPEAL ARE RELATED TO THE DISAL LOWANCE MADE BY THE AO U/S.14A R.W.R.8D OF INCOME TAX ACT. DURING THE ASSESSMENT PROCEEDINGS, THE AO FOUND THAT THE ASSESSEE HAS MAD E INVESTMENTS TO THE TUNE OF RS.1030.34 LAKHS BUT DID NOT OFFER ANY EXEM PT INCOME AND NO EXPENDITURE WAS DISALLOWED BY THE ASSESSEE AS PER S ECTION 14A R.W.R. 8D OF INCOME TAX ACT. THEREFORE, THE AO APPLIED RULE 8 D OF INCOME TAX RULES AND MADE THE DISALLOWANCE OF RS.8,84,422/- U/S 14A OF INCOME TAX ACT. FOR THE AY 2011-12, THE ASSESSEE COMPANY EARNED DI VIDEND INCOME OF RS.18,17,598/- AND CLAIMED IT AS EXEMPTED INCOME . NO EXPENDITURE HAS BEEN DEBITED TO THE PROFIT & LOSS A/C RELATING TO EARNING OF DIVIDEND INCOME. THEREFORE, THE AO APPLIED RULE 8D OF INCOM E TAX RULES AND DISALLOWED THE AMOUNT OF RS.10,53,304/- UNDER RULE 8D(2)(II) AND RULE 8D2(III). 3.0 AGGRIEVED BY THE ORDER OF THE AO, THE ASSESSEE WEN T ON APPEAL BEFORE THE CIT(A) AND THE LD.CIT(A) CONFIRMED THE A DDITION MADE BY THE AO. HENCE, THE ASSESSEE FILED THE APPEAL BEFORE TH IS TRIBUNAL. ITA NOS.2697 & 2698/MDS/2016 :- 3 -: 4.0 APPEARING FOR THE ASSESSEE, THE LD.AR ARGUED THAT THE ASSESSEE HAS NOT MADE ANY INVESTMENTS OUT OF THE BORROWED FUNDS AND HENCE NO DISALLOWANCE IS REQUIRED TO BE MADE UNDER RULE 8D(2 )(II) OF INCOME TAX RULES. HE INVITED OUR ATTENTION TO PAGE NO.20 OF P APER BOOK CONTAINING THE ACCOUNT COPY OF STANDARD CHARTERED BANK AND EXP LAINED THAT SALE PROCEEDS OF THE SHARES WERE DEPOSITED IN THE BANK A CCOUNT AND THE SAME WERE INVESTED IN SHARES. THE LD AR FURTHER STATED T HAT THERE WAS COMPLETE IDENTIFICATION OF BORROWED FUNDS AND INTEREST FREE FUNDS. THE ASSESSEE MADE THE INVESTMENTS FROM THE INTEREST FREE FUNDS A VAILABLE TO THE ASSESSEE. THE ASSESSEE VEHEMENTLY OPPOSED THE DISAL LOWANCE U/S.8D(2)(II). PER CONTRA, THE LD.DR ARGUED THAT W HETHER THE ASSESSEE HAS BORROWED THE FUNDS OR NOT, IT HAD INCURRED THE EXPENSES FOR THE PURPOSE OF MAKING INVESTMENTS SUCH AS ADMINISTRATIV E EXPENSES, SERVICES OF THE STAFF ETC. THEREFORE, THE LD.DR CONTENDED T HAT EVEN THE FUNDS ARE IDENTIFIABLE, THE DISALLOWANCE U/S. 14A R.W.RULE 8D (2)(III) IS APPLICABLE. SIMILARLY, THE LD.DR ARGUED THAT THE ASSESSEE DEBIT ED A SUM OF RS.8,58,000/- TOWARDS THE INTEREST AND NO DISALLOWA NCE HAS BEEN MADE BY THE ASSESSEE. THEREFORE, THE LD.DR OF THE VIEW THA T INTEREST EXPENDITURE HAS TO BE DISALLOWED AS PER RULE 8D(2)(II) OF IT AC T ALSO AND SUBMITTED THAT NO INTERFERENCE IS CALLED FOR IN THE CIT(A)S ORDER. 5.0 WE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MAT ERIAL PLACED BEFORE US. ITA NOS.2697 & 2698/MDS/2016 :- 4 -: THE ASSESSEE MADE THE INVESTMENTS TOWARDS SHARES A ND MUTUAL FUNDS FROM THE INTEREST FREE FUNDS AVAILABLE TO THE ASSESSEE. THE ASSESSEE HAS MAINTAINED SEPARATE ACCOUNT AND THE INVESTMENTS ARE NOT MADE OUT OF COMMON POOL OF INTEREST BEARING FUNDS. THERE WAS A COMPLETE IDENTITY OF ACCOUNTS FOR WHICH THE INVESTMENTS WERE MADE OUT OF INTEREST FREE FUNDS. THIS FACT HAS NOT BEEN CONTROVERTED BY THE LD.DR DU RING THE APPEAL HEARING. THEREFORE, WE HOLD THAT THE PROVISIONS OF RULE 8D(2)(II) DOES NOT APPLY IN THE ASSESSEES CASE. ACCORDINGLY, THE AD DITION MADE BY THE AO ON ACCOUNT OF INTEREST AS PER RULE 8D(2)(II) IS DEL ETED AND THE ORDER OF THE LOWER AUTHORITIES ARE SET-ASIDE ON THIS ISSUE. 5.1 THE NEXT ISSUE IS RELATED TO THE DISALLOWANCE OF E XPENDITURE RELATED TO THE DIVIDEND INCOME. IT IS NOT DISPUTED FACT TH AT THE ASSESSEE HAS MADE THE INVESTMENTS IN EARNING EXEMPTED INCOME BUT NO E XPENDITURE HAS BEEN DISALLOWED BY THE ASSESSEE. THE ASSESSEE HAS TO IN CUR VARIOUS EXPENSES FOR MAKING THE INVESTMENTS IN SHARES, BUT NO EXPEND ITURE HAS BEEN DISALLOWED BY THE ASSESSEE. THIS FACT HAS NOT BEEN CONTROVERTED BY THE LD.AR DURING THE APPEAL HEARING. THEREFORE, WE HOL D THAT THOUGH THE DISALLOWANCE U/S.14A R/W RULE 8D(2)(II) IS NOT APPL ICABLE, DISALLOWANCE UNDER RULE 8D(2)(III) IS STILL APPLICABLE IN THE AS SESSEES CASE. THEREFORE, WE UPHOLD THE ORDER OF THE LD.CIT(A) TO THE EXTENT OF DISALLOWANCE RELATED RULE 8D (2)(III) OF INCOME TAX RULES. ACCORDINGLY, THE APPEALS OF THE ASSESSEE IS PARTLY ALLOWED. ITA NOS.2697 & 2698/MDS/2016 :- 5 -: 6.0 IN THE RESULT, THE APPEAL OF THE ASSESSEE FOR BOTH THE ASSESSMENT YEARS ARE PARTLY ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 3 RD MAY, 2017, AT CHENNAI. SD/- SD/- ( . . . ) (N.R.S. GANESAN) /JUDICIAL MEMBER ( ' . . % ) (D.S.SUNDER SINGH) /ACCOUNTANT MEMBER /CHENNAI, 6 /DATED: 3 RD MAY, 2017. TLN 1 /%7 87 /COPY TO: 1. . /APPELLANT 4. 9 /CIT 2. /0. /RESPONDENT 5. 7 / /DR 3. 9 ( ) /CIT(A) 6. + /GF