T.R.Palanivel, Salem V. ACIT Circle 1, Salem

ITA 2723/CHNY/2018

• Counselvise Citation: [2019] 118 COUNSELVISE.COM (IT) 5602 (ITAT-CHENNAI)
• Duration Of Justice: 4 month(s) 5 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 30-01-2019
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: A
• Assessment Year: 2014-2015
• Appeal Filed On: 24-09-2018
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Assessee Lawyers: T S LAKSHMIVENKATARAMAN
• Keywords: Opportunity of being heard; Earning of tax free income
• Section: 142(1); 14A

Judgement Text

, , IN THE INCOME-TAX APPELLATE TRIBUNAL A BENCH, CHENNAI . , . , BEFORE SHRI ABRAHAM P. GEORGE, ACCOUNTANT MEMBER & SHRI DUVVURU RL REDDY, JUDICIAL MEMBER ./ I T.A. NO. 2723/CHNY/2018 / ASSESSMENT YEAR :2014-15 SHRI T.R. PALANIVEL, 2/50-F, RAMASUNDARAM BHAVAN, R.T. NAGAR, REDDIYUR, SALEM 636 004. [PAN:AIYPP5849A] VS. THE ASSISTANT COMMISSIONER OF INCOME TAX, CIRCLE 1, SALEM. ( /APPELLANT ) ( / RESPONDENT ) / APPELLANT BY : SHRI T.S. LAKSHMI VENKATARAMAN, C.A. / RESPONDENT BY : SHRI AR.V. SREENIVASAN, JCIT / DATE OF HEARING : 22.01.2019 /DATE OF PRONOUNCEMENT : 30.01.2019 / O R D E R PER DUVVURU RL REDDY, JUDICIAL MEMBER: THIS APPEAL FILED BY THE ASSESSEE IS DIRECTED AGAINST THE ORDER OF THE LD. COMMISSIONER OF INCOME TAX (APPEALS), SALEM DATED 29.06.2018 RELEVANT TO THE ASSESSMENT YEAR 2014-15. THE ONLY EFFECTIVE GROUND RAISED IN THE APPEAL OF THE ASSESSEE IS THAT THE LD. CIT(A) HAS ERRED IN CONFIRMING THE ADDITION TO AN EXTENT OF .5,45,570/- AGAINST TOTAL ADDITION OF .20,25,109/- MADE UNDER SECTION 14A OF THE INCOME TAX ACT, 1961 [ACT IN SHORT]. I.T.A. NO.2723/CHNY/18 2 2. BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE FILED ITS RETURN OF INCOME FOR THE ASSESSMENT YEAR 2014-15 ON 05.05.2015 DECLARING AN AMOUNT OF .21,24,580/-. THE CASE WAS SELECTED FOR SCRUTINY UNDER CASS AND A NOTICE UNDER SECTION 143(2) OF THE ACT DATED 28.07.2016 WAS SERVED ON THE ASSESSEE ON 30.07.2016 AND FURTHER A NOTICE UNDER SECTION 142(1) OF THE ACT WAS ALSO ISSUED. FROM THE COMPUTATION OF INCOME, THE ASSESSING OFFICER NOTICED THAT THE ASSESSEE HAS SHOWN DIVIDEND INCOME OF .5,45,570/- AND CLAIMED IT AS EXEMPT UNDER SECTION 10(34) OF THE ACT. THE ASSESSEES BALANCE SHEET SHOWS INVESTMENTS OF .4,44,22,933/- [P.Y. .5,02,44,374/-]. FURTHER IN THE PROFIT AND LOSS ACCOUNT, THE ASSESSEE HAS DEBITED A SUM OF .51,86,601/- AS INTEREST EXPENDITURE. AS THE ASSESSEES MAIN SOURCE OF INCOME IS FROM MONEY LENDING AND INCOME FROM INVESTMENTS, THE INTEREST BEARING FUNDS ARE FOUND UTILIZED BY THE ASSESSE FOR INVESTMENT PURPOSES WHICH DOES NOT FORM PART OF TOTAL INCOME OF THE ASSESSEE. HOWEVER, THE ASSESSEE HAS NOT ADMITTED ANY EXPENDITURE IN RELATION TO THE INCOME, WHICH DOES NOT OR SHALL NOT FORM PART OF TOTAL INCOME AS REQUIRED UNDER SECTION 14A R.W. RULE 8D. THE ASSESSEE UTILIZED COMMON POOL OF FUNDS IN MAKING THE INVESTMENTS AND ALSO INCURRED EXPENSES. THERE ARE NO SEPARATE ACCOUNTS OR ACCOUNTING ENTRIES MAINTAINED BY THE ASSESSEE TO PROVE THAT NO PART OF THE EXPENDITURE IS ATTRIBUTABLE IN RELATION TO EARNING OF EXEMPT INCOME. UNDER THE ABOVE FACTS AND CIRCUMSTANCES, THE ASSESSING OFFICER DETERMINED THE I.T.A. NO.2723/CHNY/18 3 EXPENDITURE COMPONENT AS ENVISAGED UNDER SECTION 14A R.W. RULE 8D AT .20,25,109/-. 3. THE ASSESSEE CARRIED THE MATTER IN APPEAL BEFORE THE LD. CIT(A) . AFTER CONSIDERING THE SUBMISSIONS OF THE ASSESSEE, AND THE MATERIALS AVAILABLE ON RECORD AS WELL AS BY FOLLOWING THE DECISION IN THE CASE OF REDINGTON (INDIA) LTD. V. ADDL. CIT IN TCA NO. 520 OF 2016 DATED 23.12.2016, THE LD. CIT(A) RESTRICTED THE DISALLOWANCE TO THE EXTENT OF EXEMPT INCOME EARNED BY THE ASSESSEE. 4. ON BEING AGGRIEVED, THE ASSESSEE IS IN APPEAL BEFORE THE TRIBUNAL. THE LD. COUNSEL FOR THE ASSESSEE HAS SUBMITTED THAT THE LD. CIT(A) HAS ERRONEOUSLY SUSTAINED/RESTRICTED THE ADDITION TO THE EXTENT OF .5,45,570/- WITHOUT CONSIDERING THE DETAILED WRITTEN SUBMISSIONS FILED BY THE ASSESSEE ON 21.06.2018. MOREOVER, THE LD. COUNSEL FOR THE ASSESSEE ARGUED THAT WHILE MAKING THE DISALLOWANCE UNDER SECTION 14A R.W. RULE 8D, THE ASSESSING OFFICER HAS NOT ESTABLISHED THE NEXUS BETWEEN THE INTEREST BEARING FUNDS AND FUNDS DIVERTED FOR INVESTMENTS IN SHARES AND PRAYED THAT THE ADDITION SUSTAINED BY THE LD. CIT(A) SHOULD BE DELETED. 5. ON THE OTHER HAND, THE LD. DR STRONGLY SUPPORTED THE ORDERS OF AUTHORITIES BELOW. I.T.A. NO.2723/CHNY/18 4 6. WE HAVE HEARD BOTH THE SIDES, PERUSED THE MATERIALS AVAILABLE ON RECORD AND GONE THROUGH THE ORDERS OF AUTHORITIES BELOW. AGAINST THE DISALLOWANCE OF .20,25,109/- MADE UNDER SECTION 14A R.W. RULE 8D BY THE ASSESSING OFFICER TOWARDS THE EXPENDITURE ATTRIBUTABLE IN RELATION TO EARNING OF EXEMPT INCOME AT .5,45,570/-, THE LD. CIT(A) HAS RESTRICTED THE DISALLOWANCE TO THE EXTENT THE EXEMPT INCOME EARNED BY THE ASSESSEE. HOWEVER, IT WAS THE ARGUMENT OF THE LD. COUNSEL THAT THE ASSESSING OFFICER IN MAKING THE DISALLOWANCE SHOULD HAVE ESTABLISHED THE NEXUS BETWEEN THE INTEREST BEARING FUNDS AND THE FUNDS DIVERTED FOR INVESTMENTS IN SHARES AND WITHOUT DOING SUCH EXERCISE, THE ASSESSING OFFICER WAS NOT JUSTIFIED IN MAKING THE DISALLOWANCE, WHICH WAS RESTRICTED BY THE LD. CIT(A) TO THE EXTENT OF EXEMPT INCOME EARNED. FURTHER, BY FILING THE WRITTEN SUBMISSIONS, THE LD. COUNSEL HAS SUBMITTED THAT THE ASSESSEE HAS CLEARLY DEMONSTRATED THAT NO BORROWED FUNDS HAVE BEEN UTILIZED FOR EARNING EXEMPT INCOME AS PER THE FINANCIALS OF THE ASSESSEE GIVEN IN THE WRITTEN SUBMISSIONS, WHICH WAS STATED TO HAVE BEEN FILED BEFORE THE LD. CIT(A) ON 21.06.2018. IN THE SAID FINANCIAL STATEMENT, THE ASSESSEE HAS SUBMITTED THAT THE FIGURES TAKEN BY THE ASSESSING OFFICER ARE FACTUALLY NOT CORRECT. AS PER THE FINANCIAL STATEMENT OF THE ASSESSEE, IT WAS THE SUBMISSION OF THE LD. COUNSEL THAT THE INVESTMENTS IN SHARES WAS ONLY 13.59% OF THE TOTAL OF CAPITAL AND SUNDRY CREDITORS ON WHICH THE ASSESSEE DOES NOT HAVE ANY INTEREST COMMITMENT. HOWEVER, IN THE APPELLATE ORDER, THE LD. CIT(A) HAS NOT GIVEN ANY OBSERVATIONS ON THE WRITTEN I.T.A. NO.2723/CHNY/18 5 SUBMISSIONS CLAIMED TO HAVE BEEN FILED BEFORE HIM ON 21.06.2018. IN VIEW OF THE ABOVE, WE REMIT THE MATTER BACK TO THE FILE OF THE ASSESSING OFFICER TO RE- EXAMINE AND DECIDE THE ISSUE AFRESH IN ACCORDANCE WITH LAW AFTER ALLOWING AN OPPORTUNITY OF BEING HEARD TO THE ASSESSEE BY KEEPING IN MIND THE DECISION OF THE HONBLE SUPREME COURT IN THE CASE OF MAXOPP INVESTMENT LTD. V. CIT IN CIVIL APPEAL NOS. 104-109 OF 2015 DATED 12.02.2018. THUS, THE GROUND RAISED BY THE ASSESSEE IS ALLOWED FOR STATISTICAL PURPOSES. 7. IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE IS ALLOWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED ON THE 30 TH JANUARY, 2019 AT CHENNAI. SD/- SD/- (ABRAHAM P. GEORGE) ACCOUNTANT MEMBER (DUVVURU RL REDDY) JUDICIAL MEMBER CHENNAI, DATED, THE 30.01.2019 VM/- /COPY TO: 1. / APPELLANT, 2. / RESPONDENT, 3. ( ) /CIT(A), 4. /CIT, 5. /DR & 6. /GF.