M/s. REPCO Home Finance Ltd., CHENNAI V. ACIT, CHENNAI

ITA 2733/CHNY/2016

• Counselvise Citation: [2017] 127 COUNSELVISE.COM (IT) 6157 (ITAT-CHENNAI)
• Duration Of Justice: 11 month(s) 28 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 20-09-2017
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: B
• Next Hearing Date: 08-06-2017
• Assessment Year: 2012-2013
• Appeal Filed On: 22-09-2016
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: DR S SUNDARESAN ADDITIONAL
• Assessee Lawyers: M VISWANATHAN
• Keywords: Reopening of assessment; Capital asset; Depreciation; Question of law; Tangible material; Reason to believe; Reassessment proceedings
• Section: 143(3); 14A; 147; 148

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL B BENCH : CHENNAI . . . , ! ' , # $% & [ BEFORE SHRI N.R.S. GANESAN, JUDICIAL MEMBER AND SHRI CHANDRA POOJARI, ACCOUNTANT MEMBER ] ./ I.T.A.NOS.2732 & 2733/MDS./2016 / ASSESSMENT YEARS: 2009-10 & 2012-13 M/S.REPCO HOME FINANCE LTD ., ALEXANDAR SQUARE, NO.2(OLD NO.34/35), SARDAR PATEL ROAD, GUNIDY, CHENNAI 600 032. VS. ASSISTANT COMMISSIONER OF INCOME TAX, COMPANY RANGE-5, CHENNAI -600 034. [PAN AACCR 0209 F ] ( '( / APPELLANT) ( )*'( /RESPONDENT) / APPELLANT BY : MR.M.VISWANATHAN, C.A /RESPONDENT BY : DR.S.SUNDARESAN, ADDITIONAL CIT,DR / DATE OF HEARING : 21 - 08 - 201 7 / DATE OF PRONOUNCEMENT : 20 - 09 - 201 7 / O R D E R PER CHANDRA POOJARI, ACCOUNTANT MEMBER THESE TWO APPEALS OF THE ASSESSEE ARE DIRECTED A GAINST DIFFERENT ORDERS OF THE COMMISSIONER OF INCOME-TAX (APPEALS)-3, CHENNAI DATED 29.07.2016 & 30.06.2016 PERTAINING TO ASSESSMENT YEARS 2009-10 & 2012-13 RESPECTIVELY. SINCE THESE TWO APPEALS ARE FILED BY THE SAME ASSESSEE, THESE APPEALS ARE CLUBB ED TOGETHER, HEARD ITA NOS.2732 & 2733/16 :- 2 -: TOGETHER, DISPOSED OFF BY THIS COMMON ORDER FOR THE SAKE OF CONVENIENCE. 2. FIRST WE TAKE ITA NO.2732/MDS./16 (A.Y2009-10) THE FIRST GROUND RAISED IN THIS APPEAL IS WITH REG ARD TO VALIDITY OF REOPENING OF ASSESSMENT AS THE ORIGINAL ASSESSMENT WAS COMPLETED U/S.143(3) OF THE ACT AND THERE WAS NO FR ESH TANGIBLE MATERIAL TO RE-OPEN THE CONCLUDED ASSESSMENT. 3. THE BRIEF FACTS OF THE ISSUE ARE THAT THE ASSES SEE COMPANY FILED E-RETURN FOR ASSESSMENT YEAR 2009-10 ON 27.09 .2009 ADMITTING TOTAL INCOME OF ` 29,44,58,482/- AND THE ASSESSMENT U/S.143(3) OF THE ACT WAS COMPLETED ON 29.11.2011 DETERMINING INCOME ` 29,58,43,681/- LATER IT LAWS NOTICED BY THE AO THAT THE ASSESSEE D EDUCTED A SUM OF ` 1,35,99,036/- BEING LOSS ON SALE OF SHARES FROM THE TOTAL INCOME. IT WAS ALSO NOTICED BY THE AO THAT WHILE CALCULATING T HE ELIGIBLE DEDUCTION U/S.36(I)(VIII) OF THE ACT, THE ASSESSEE HAD NOT DE DUCTED THE INCOME FROM OTHER SOURCES OF ` 3,17,60,073/- BEING INTEREST ON DEPOSITS. AS SUCH, NOTICE U/S.148 OF THE ACT DATED 09.01.2014 WA S ISSUED TO RE-OPEN THE ASSESSMENT. IN RESPONSE, THE ASSESSEE V IDE ITS LETTER DATED 03.02.2014 STATED THAT THE RETURN FILED ORIGINALLY FILED MAY BE TREATED AS ONE IN RESPONSE TO NOTICE U/S.148 OF THE ACT. W HILE FRAMING THE ASSESSMENT, THE AO MADE ADDITION BY DISALLOWING TH E LOSS ON SALE OF ITA NOS.2732 & 2733/16 :- 3 -: SHARES AT ` 1,35,99,036/- AND DISALLOWANCE OF INTEREST U/S.36(I )(VII) OF THE ACT AT ` 63,52,015/-. AGGRIEVED BY THE ORDER OF LD. ASSESSIN G OFFICER, THE ASSESSEE CARRIED THE APPEAL BEFORE THE LD.CIT(A). ON APPEAL, THE CIT(APPEALS) OBSERVED THAT THE RE-ASSES SMENT HAS BEEN TAKEN UP IN THE ASSESSEES CASE WITHIN 4 YEARS AND THE AO HAD SUPPLIED REASONS FOR RE-OPENING THE ASSESSMENT. TH E ASSESSEE HAD FILED OBJECTIONS, WHICH HAVE BEEN DISPOSED OF BY TH E AO. HENCE, LD.CIT(A) CONFIRMED THE RE-OPENING OF ASSESSMENT A S WELL AS THE ADDITION MADE BY THE LD. ASSESSING OFFICER. AGAIN ST THE ORDER OF LD.CIT(A), NOW THE ASSESSEE IS IN APPEAL BEFORE US. 4. BEFORE US, THE LD. AR CONTENDED THAT ALL THE FA CTS WERE SPECIFICALLY DISCLOSED AND EXAMINED IN THE ORIGINAL ASSESSMENT PROCEEDINGS. SINCE, NO NEW FRESH FACTS HAVE COME T O THE AO FOR RESORTING TO THE REASSESSMENT OF CONCLUDING PROCEED INGS U/S.143(3) OF THE ACT, THE AO CANNOT REOPEN THE CASE U/S.147 OF T HE ACT. FURTHER, THE LD. AR CONTENDED THAT THERE IS NO MENTION THAT THE AO HAD GOT TANGIBLE MATERIALS TO EXERCISE HIS POWER TO REOPE N THE CONCLUDED ASSESSMENT. HENCE, THE PRESENT NOTICE ISSUED U/S.1 48 OF THE ACT IS TOTALLY WITHOUT JURISDICTION AND HE RELIED ON THE D ECISION IN THE CASE OF CIT VS. KELVINATOR INDIA LTD.(320 ITR 561(SC) ) TO SUPPORT HIS VIEW. ITA NOS.2732 & 2733/16 :- 4 -: 5. THE LD. DR, RELIED ON THE ORDER OF THE CIT(APPE ALS). 6. WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE MATERIAL ON RECORD. THE MAIN CONTENTION OF LD.A.R IS THAT IN TH IS CASE THE ORIGINAL ASSESSMENT WAS COMPLETED U/S.143(3) OF THE ACT ON 2 9.11.2011. THE ASSESSEE HAS FURNISHED ALL DETAILS TO THE AO AT THE TIME OF FILING OF RETURN OF INCOME AND ACCORDING TO THE A.R, THERE WA S NO FAILURE ON THE PART OF THE ASSESSEE TO DISCLOSE ALL MATERIAL FACTS NECESSARY FOR THE PURPOSE OF ASSESSMENT. HE SUBMITTED THAT THE REOPE NING VIDE NOTICE U/S.148 OF THE ACT DATED 09.01.2014, IT IS ONLY A C HANGE OF OPINION. HE SUBMITTED THAT THE AO GOING THROUGH THE SAME DOCUME NTS, WHICH WERE ALREADY ON RECORD, WANTED TO RE-OPEN THE ASSESSMENT , WHICH IS NOTHING BUT REVIEW OF THE EARLIER OPINION, WHICH IS NOT POS SIBLE U/S.147 OF THE ACT. IN THIS CASE, THE ASSESSMENT WAS REOPENED AFT ER RECORDING THE REASONS THAT THE ASSESSEE HAS WRONGLY CLAIMED LOSS ON SALE OF SHARES AS BUSINESS LOSS AND ALSO THE CLAIM OF INTEREST EXP ENDITURE IS INCORRECT. 6.1 ADMITTEDLY IN THIS CASE, THERE WAS ORIGINAL AS SESSMENT U/S.143(3) OF THE ACT VIDE ORDER DATED 29.11.2011. IT IS A SETTLED LAW THAT ON THE BASIS OF MATERIAL, PRIMA FACIE, AVAILAB LE BEFORE THE ASSESSING OFFICER, OPINED THAT INCOME CHARGEABLE TO TAX HAS ESCAPED ASSESSMENT CAN BE FORMED. THE WORD REASON IN THE PHRASE REASON TO BELIEVE WOULD MEAN CAUSE OR JUSTIFICATION. IN CASE THE ASSESSING ITA NOS.2732 & 2733/16 :- 5 -: OFFICER HAS A CAUSE OR JUSTIFICATION TO KNOW OR SUP POSE THAT INCOME HAS ESCAPED ASSESSMENT, ACTION U/S 148 CAN BE TAKEN. BU T OBVIOUSLY, THERE SHOULD BE RELEVANT MATERIAL ON WHICH A REASONABLE M AN COULD HAVE FORMED A REQUISITE BELIEF. WHETHER THIS MATERIAL(S) WOULD CONCLUSIVELY PROVE THE ESCAPEMENT OF INCOME IS NOT THE CONCERN A T THAT PARTICULAR STAGE. SO WHAT IS REQUIRED IS THE SUBJECTIVE SATISF ACTION OF THE ASSESSING OFFICER BASED ON OBJECTIVE MATERIAL EVIDE NCE. THE REASON WAS RECORDED AS DISCUSSED ABOVE. THE ARGUMENT OF TH E LD.AR IS THAT WHERE THERE WAS NO FRESH TANGIBLE MATERIAL TO REOPE N THE ASSESSMENT U/S 147, NO ACTION COULD BE TAKEN AFTER THE EXPIRY OF FOUR YEARS FROM THE END OF THE RELEVANT ASSESSMENT YEAR UNLESS THE ASSESSEE HAS DISCLOSED FULLY AND TRULY ALL MATERIAL FACTS NECESS ARY FOR THE ASSESSMENT FOR THAT ASSESSMENT YEAR, INTER ALIA. 6.2 AS SEEN FROM THE ASSESSMENT ORDER, IT GIVES A CLEAR PICTURE THAT THE ASSESSING OFFICER HAS GOT MATERIAL EVIDENC E TO FORM HIS OPINION FOR TAKING RECOURSE TO SECTION 147 R.W.S 14 8 OF THE ACT. THERE CANNOT BE TWO OPINIONS. AT THE POINT OF TIME WHEN T HE REASONS ARE RECORDED, FORMING OPINION OF ESCAPEMENT OF INCOME IS ONLY RELEVANT. IT IS TRUE THAT U/S 147, THE ASSESSING OFFICER CAN EITHER ASSESS OR RE- ASSESS BUT FOR TAKING ACTION THERE UNDER, HE HAS TO RECORD REASONS THAT INCOME CHARGEABLE TO TAX HAS ESCAPED ASSESSMENT . I T IS ALSO MANDATED BY SECTION 148(2) TO RECORD REASONS IN WRI TING. THE ITA NOS.2732 & 2733/16 :- 6 -: REASSESSMENT PROCEEDINGS U/S 147 ARE FURTHER SUBJEC T TO SECTIONS 148,149,150,151,152 AND 153. BUT IN THE PRESENT CAS E, WE ARE REQUIRED TO DECIDE THE LIMITED ISSUE REGARDING THE VALIDITY OF PROCEEDINGS UNDERTAKEN WITHIN FOUR YEARS FROM THE E ND OF RELEVANT ASSESSMENT YEAR IN QUESTION. THE ASSESSING OFFICER IS REQUIRED TO SEE IF THE CONDITIONS LAID IN EXPLANATION 2(C) ARE SATI SFIED BECAUSE IN THIS CASE, ASSESSMENT WAS COMPLETED U/S 143(3) OF THE AC T. IN CASE, (I) INCOME CHARGEABLE TO TAX HAS BEEN UNDER ASSESSED; O R (II) SUCH INCOME HAS BEEN ASSESSED AT TOO LOW RATE; OR (III) SUCH INCOME HAS BEEN MADE THE SUBJECTIVE OF EXCESS RELIEF UNDER THI S ACT; OR (IV)EXCESSIVE LOSS OR DEPRECIATION ALLOWANCE OR ANY OTHER ALLOWANCE UNDER THIS ACT HAS BEEN COMPUTED, THEN THE ASSESSIN G OFFICER WOULD HAVE VALID COGNIZANCE U/S 147 OF THE ACT. THE REASO NS RECORDED BY THE ASSESSING OFFICER CLEARLY SPEAK FOR THE UNDER ASSES SMENT OF TAX. HENCE, THE CONDITIONS LAID ABOVE STAND FULFILLED IN SO FAR AS RE- ASSESSMENT PROCEEDINGS ARE CONCERNED. IN SO FAR AS THE REASONS RECORDED, EXTRACTED IN THE EARLIER PORTION OF THIS ORDER, WE ARE SATISFIED THAT THE ASSESSING OFFICER HAS REASON TO BELIEVE THAT INCOME HAS ESCAPED ASSESSMENT. THIS FACT CONFERS JURISDICTION ON HIM TO REOPEN THE ASSESSMENT. THE POWER TO RE-ASSESS POST 1ST APR IL, 1989 ARE MUCH WIDER THAN THESE USED TO BE BEFORE. 6.3 EXPLANATION 2 OF SECTION147, IT IS VERY CLEAR THAT DUE TO NON- ITA NOS.2732 & 2733/16 :- 7 -: DISCLOSURE OF FULL FACTS, THE INCOME CHARGEABLE TO TAX HAD ESCAPED ASSESSMENT. THE ASSESSEE HAS NOT PRODUCED ANYTHING BEFORE THE A.O / COMMISSIONER OF INCOME TAX (APPEALS) TO SHOW AS T O HOW THERE IS NO INCIDENCE OF TAX IN THIS ASSESSMENT YEAR. HENCE , THE ACTION OF COMMISSIONER OF INCOME TAX (APPEALS) AND THAT OF A SSESSING OFFICER IS FULLY COVERED BY THE PROVISIONS OF EXPLANATION 1 TO SECTION 147 OF THE ACT IS NOT CORRECT. THE SAID PROVISION READS AS UNDER: PRODUCTION BEFORE THE ASSESSING OFFICER OF ACCOUN TS BOOKS OR OTHER EVIDENCE FROM WHICH MATERIAL EVIDENCE COUL D WITH DUE DILIGENCE HAVE BEEN DISCOVERED BY THE ASSESSING OFFICER WILL NOT NECESSARILY AMOUNT TO DISCLOSURE WITHIN THE MEANING OF THE FOREGOING PROVISO. IT IS POSSIBLE THAT WITH DUE DILIGENCE OF THE ASSES SING OFFICER WOULD HAVE ASCERTAINED THIS FACT AT THE TIME OF ASSESSMEN T, IF ANY ALSO, BUT IN VIEW OF THE EXPLANATION (1) IT DOES NOT MEAN THAT T HERE WAS NO DEFAULT ON THE PART OF THE ASSESSEE. HENCE, WE HOLD THAT T HE ENTIRE REASSESSMENT PROCEEDING IN THIS CASE IS VALID AND T HEREFORE, THE ACTION OF THE ASSESSING OFFICER IS UPHELD. AS SUCH IN THI S CASE, THE ISSUE TAKEN UP BY THE AO IN REOPENING OF ASSESSMENT VIZ. TO CONSIDER LOSS ON SALE OF SHARES AND ALSO DEDUCTION U/S.36(1)(III) OF THE I.T ACT, WHICH WAS NOT AT ALL CONSIDERED IN THE COURSE OF ORIGINAL ASSESSMENT, THOUGH IT WAS COMPLETED U/S.143(3) OF THE ACT AND MERE PR ODUCTION OF RECORDS BY THE ASSESSEE BEFORE THE AO AT THE TIME O F ORIGINAL ITA NOS.2732 & 2733/16 :- 8 -: ASSESSMENT ITSELF CANNOT BE LED TO THE CONCLUSION THAT THE AO HAD APPLIED HIS MIND WHEREIN IT REQUIRES DUE DILIGENCE AND APPLICATION OF MIND FROM THE END OF THE AO. 6.4 THE LD.A.R RELYING ON THE JUDGEMENT OF SUPREME COURT IN THE CASE OF CIT VS. KELVINATOR OF INDIA LTD., IN (2010) 320 ITR 561(SC)CANNOT BE OF ANY ASSISTANCE TO THE FACTS OF THE CASE IN HAND ON THE REASON THAT WHERE THE AO HAS NOT APPLIED HIS M IND AND NOT TAKEN ANY DECISION ON THE DISPUTED ISSUE. HENCE, IN OUR OPINION, THE ORIGINAL ASSESSMENT IS VALID AND THE SAME IS CONFIRMED. THER EFORE, THIS GROUND OF APPEAL RAISED BY THE ASSESSEE IS DISMISSED. 7. THE SECOND GROUND IS WITH REGARD TO NON-GRANTIN G OF LOSS ON LOSS OF SHARES BY TREATING THE SAME AS CAPITAL LOSS OF ` 1,35,99,036/-. 8. THE BRIEF FACTS OF THE ISSUE ARE THAT THE ASSES SEE HAD DEDUCTED A SUM OF ` 1,35,99,036/- BEING A LOSS ON SALE OF SHARES AS BUSINESS LOSS WHILE COMPUTING THE INCOME EARNED FRO M THE BUSINESS OR PROFESSION. ACCORDING TO THE LD.A.R, THE ASSESSEE HAD CONVERTED THE CAPITAL ASSETS INTO STOCK IN TRADE DURING THE FINAN CIAL YEAR 2008-09 AND THE LOSS AROSE OUT OF SALE OF SHARES TO BE CONSIDER ED AS A BUSINESS LOSS AND IT CANNOT BE CONSIDERED AS A CAPITAL LOSS. FUR THER IT WAS STATED BY ITA NOS.2732 & 2733/16 :- 9 -: THE LD.A.R THAT ENTRY IN BOOKS OF ACCOUNTS CANNOT B E CONSIDERED AS CONCLUSIVE AND THE ENTITLEMENT OF PARTICULAR DEDUCT ION DEPENDS UPON THE PROVISIONS OF LAW RELATING THERETO. THE LD.A.R RELIED ON THE JUDGEMENT OF SUPREME COURT IN THE CASE OF KEDARNATH JUTE MANUFACTURING CO. LTD., VS. CIT 82 ITR 36(SC). 8.1 ACCORDING TO LOWER AUTHORITIES, SHARES HAVE BE EN HELD AS INVESTMENTS FOR THE YEAR ENDED ON 31.03.2009 RELEVA NT TO ASSESSMENT YEAR 2009-10, AS SUCH THE LOSS ARISING OUT OF SALES OF INVESTMENT TO BE CONSIDERED AS A CAPITAL LOSS AS THE INVESTMENTS WAS IN CAPITAL FIELD. AGAINST THE ORDER OF THE REVENUE, NOW THE ASSESSEE IS IN APPEAL BEFORE US. 9. WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE MATERIAL ON RECORD. IN THIS CASE THE ASSESSEE IS ENGAGED IN THE BUSINESS OF HOME FINANCE AND NOT ENGAGED IN BUYING AND SELLING OF SH ARES, AND THE ASSESSEE WAS NEVER IN BUSINESS OF TRADING OF SHARES . THE TERM BUSINESS IS DEFINED IN SEC.2(13); CAPITAL ASSET IS DEFINED IN SEC.2(14) OF THE ACT. THE TEST TO DECIDE WHETHER IT WAS INVESTMENTS OR ADVENTURE IN THE NATURE OF TRADE IS A VERY THIN LIN E OF THE DEMARCATION. EVEN A SINGLE INCIDENCE OF TRANSACTION CAN BE RECOR DED AS BUSINESS AND EVEN MULTIPLE TRANSACTIONS SOMETIMES ARE DEEMED AS INVESTMENTS. SO, THE CRITERIA FOR DECIDING WHETHER IT IS INVESTMENT OR BUSINESS IS THAT OF ITA NOS.2732 & 2733/16 :- 10 - : THE INTENTION OF THE ASSESSEE, NAMELY, WHETHER THE ASSESSEES REAL INTENTION IS TO INVEST OR THE INTENTION IN THE NA TURE OF TRADE. AS SEEN FROM THE FACTS OF THE CASE, THE ASSESSEE WAS ENGAGE D IN THE HOUSING FINANCING ACTIVITY AND NOT AT ALL ENGAGED IN TRADIN G IN SHARES. THE BUYING OF THE SHARES WAS ONLY THE INTENTION OF HOLD ING IT AS AN INVESTMENT. THE ASSESSEE HAS NO INTENTION TO TRADE IN SHARES. HENCE, IT CANNOT BE BUSINESS ASSETS IN THE HANDS OF ASSESSEE RATHER THAN IT WAS TREATED AS INVESTMENT. 9.1 THE INVESTMENTS IN SHARES ARE CLASSIFIED AS LO NG TERM INVESTMENT OR CURRENT INVESTMENTS AND LONG TERM INV ESTMENTS ARE VALUED ON HISTORICAL COST METHOD. ON THE OTHER HAND , CURRENT INVESTMENTS ARE VALUED AT COST OR MARKET VALUE WHIC HEVER IS LOWER. IN OTHER WORDS, INVESTMENTS IN SHARES WERE NOT AT ALL CONSIDERED AS STOCK IN TRADE AS THE ASSESSEE WAS NOT DEALING IN SHARES. ONCE THE SHARES ARE TREATED AS INVESTMENTS, LOSS ARISING OUT OF PUR CHASE AND SALE OF SHARES IS ONLY A CAPITAL LOSS AND IT IS NOT A BUSIN ESS LOSS. IN OTHER WORDS, ASSESSEE HAVING CARRIED ON NO BUSINESS ACTIV ITY AND TREATED THE SHARES AS INVESTMENTS FROM YEAR TO YEAR, INCOME OR LOSS ARISING OUT OF SALE OF SUCH SHARES IS TO BE CONSIDERED AS CAPITAL GAIN OR CAPITAL LOSS. THE SHARE BEING A CAPITAL ASSET CANNOT ACQUIRE DIFF ERENT CHARACTER BECAUSE OF TREATMENT ACCORDED TO IT BY THE ASSESSEE IN ITS RETURN OF ITA NOS.2732 & 2733/16 :- 11 - : INCOME; CONTRARY TO THE TREATMENT GIVEN IN THE BOOK S OF ACCOUNTS. HENCE, THIS GROUND OF APPEAL OF ASSESSEE STANDS REJ ECTED. 10. THE THIRD GROUND IN THIS APPEAL IS WITH REGARD TO NON-GRANTING OF DEDUCTION U/S.36(I)(VIII) TOWARDS I NTEREST ON DEPOSIT AT ` 63,52,015/-. 11. THE FACTS OF THE ISSUE ARE THAT THE ASSESSEE B ORROWED FUNDS FOR THE PURPOSE OF ADVANCING HOUSING LOAN. THE ASS ESSEE MADE A FIXED DEPOSIT BETWEEN THE SPAN OF TIME LAG IN BORROWING A ND ADVANCING THE HOUSING LOAN TO THE BORROWER AND EARNED INTEREST ON FIXED DEPOSIT. THE ASSESSEE CLAIMED SET OFF OF THE SAID INTEREST FROM THE INTEREST EXPENDITURE. THE LD. ASSESSING OFFICER OBSERVED TH AT INTEREST EARNED ON DEPOSIT CANNOT BE CONSIDERED AS PROFIT OUT OF EL IGIBLE BUSINESS OF THE ASSESSEE AND NOT ELIGIBLE FOR DEDUCTION U/S.36( I)(VIII) OF THE ACT. FOR THIS PURPOSE, HE PLACED RELIANCE IN THE JUDGEME NT OF SUPREME COURT IN THE CASE OF CAMBAY ELECTRIC SUPPLY INDUSTR IAL CO. LTD VS. CIT IN 113 ITR 84(SC) AND IN THE CASE OF CIT VS. STERL ING FOODS IN 237 ITR 579(SC) AND JUDGEMENT OF JURISDICTIONAL HIGH COURT IN THE CASE OF CIT VS. MENON IMPEX P LTD., IN 259 ITR 403 (MAD.). FURT HER, LD. ASSESSING OFFICER WAS OF THE OPINION THAT THERE WAS NO DIRECT NEXUS BETWEEN THE INTEREST INCOME AND INTEREST PAID BY THE ASSESSEE F OR WHICH THE ASSESSEE ALSO NOT OBJECTED. THEREFORE, THE AO DISA LLOWED 20% OF THE ITA NOS.2732 & 2733/16 :- 12 - : INTEREST EARNED ON DEPOSIT OF ` 63,52,015/-. AGGRIEVED BY THE ORDER OF LD. ASSESSING OFFICER, THE ASSESSEE CARRIED THE APP EAL BEFORE THE LD.CIT(A). ON APPEAL, LD.CIT(A) FOLLOWING THE JUDG EMENT OF JURISDICTIONAL HIGH COURT IN THE CASE OF SOUTH INDI A SHIPPING CORPN. LTD. IN 240 ITR 24 (MAD.), ENDORSED THE VIEW OF THE LD. ASSESSING OFFICER. AGAINST THE ORDER OF LD.CIT(A), NOW THE AS SESSEE IS IN APPEAL BEFORE US. 12. WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE MATERIAL ON RECORD. THE MAIN PLEA OF ASSESSEE IS THAT THE ASSES SEE AVAILED LOAN FOR THE PURPOSE OF ADVANCING THE SAME FOR HOME FINANCE AND DURING THE TIME GAP BETWEEN BORROWING AND ADVANCING, IT WAS MA DE DEPOSIT IN BANK AND EARNED INTEREST INCOME AND THE SAME TO BE SET OFF AGAINST THE INTEREST PAID BY THE ASSESSEE. THOUGH THE ASSE SSEE TOOK SUCH A PLEA, THERE WAS NO IOTA OF EVIDENCE BROUGHT ON RECO RD TO SHOW THAT THE ASSESSEE USED THE LOAN FUND, WHICH WAS AVAILED FOR THE PURPOSE OF ADVANCING HOME LOAN TO MAKE DEPOSIT AND TO EARN INT EREST THEREON. IN OUR OPINION, THE INTEREST INCOME EARNED ON DEPOSIT OF SURPLUS MONEY WOULD BE ASSESSABLE AS INCOME FROM OTHER SOURCES. I F THE INTEREST INCOME IS FROM A FUND, WHICH HAS BEEN KEPT AS DEPOS IT FROM SURPLUS CAPITAL, IT WOULD BE ASSESSABLE AS INCOME FROM OTHE R SOURCES ONLY. HENCE, IN OUR OPINION, IF THE SURPLUS FUNDS ARE INV ESTED INSTEAD OF ITA NOS.2732 & 2733/16 :- 13 - : KEEPING THEM IDLE, THE INCOME BY WAY OF INTEREST SH OULD BE TREATED AS INCOME FROM OTHER SOURCES. IN THE PRESENT CASE, IN OUR OPINION, SINCE THERE IS NO EVIDENCE TO SHOW THAT THE BORROWED FUND WAS USED FOR MAKING FIXED DEPOSIT, IT IS TO BE CONSIDERED AS ASS ESSEE HAS DEPOSITED ITS SURPLUS FUND AS FIXED DEPOSIT INSTEAD OF KEEPIN G THEM IDLE, THE INCOME BY WAY OF INTEREST SHOULD BE TREATED AS INCO ME FROM OTHER SOURCES. MORE, SO THE ASSESSEE BEFORE THE AO ACCEPT ED THIS DISALLOWANCE AND AT THIS STAGE, THE ASSESSEE CANNOT HAVE ANY GRIEVANCE. HENCE, THIS GROUND OF APPEAL OF ASSESSEE STANDS REJECTED. 13. IN THE RESULT, THE APPEAL OF ASSESSEE IN ITA NO.2732/MDS./2016 STANDS DISMISSED. 14. NEXT WE TAKE ITA NO.2733/MDS./16 (A.Y2009-10) THE SOLE GRIEVANCE OF THE ASSESSEE IN THIS APPEAL I S WITH REGARD TO DISALLOWANCE U/S.14A R.W.RULE 8D. 15. THE FACTS OF THE ISSUE ARE THAT THE ASSESSEE HAS EARNED DIVIDEND INCOME FOR FINANCIAL YEAR 2011-12. HOWEVER, THE AO INVOKED PROVISIONS OF THE SECTION 14A R.W.RULE 8D AND DISALLOWED ` 43,82,057/-. AGGRIEVED BY THE ORDER OF LD. ASSESSING OFFICER, TH E ASSESSEE CARRIED THE APPEAL BEFORE THE LD.CIT(A). ON APPEAL, LD.CIT (A) CONFIRMED THE DISALLOWANCE MADE BY THE AO AMOUNTING TO ` 43,82,057/-. AGAINST THE ORDER OF LD.CIT(A), NOW THE ASSESSEE IS IN APPEAL B EFORE US. ITA NOS.2732 & 2733/16 :- 14 - : 16. BEFORE US, LD.A.R PLEADED THAT THERE IS NO EXE MPTED INCOME EARNED BY THE ASSESSEE AND PLACED RELIANCE IN THE J UDGEMENT OF JURISDICTIONAL HIGH COURT IN THE CASE OF CIT VS.CHE TTINAD LOGISTICS (P.) LTD., IN 92017) 80 TAXMANN.COM 221 (MAD.) WHEREIN H ELD THAT:- IN OUR OPINION SECTION 14A, CAN ONLY BE TRIGGERED, IF, THE ASSESSEE SEEKS TO SQUARE OFF EXPENDITURE AGAINST IN COME WHICH DOES NOT FORM PART OF THE TOTAL INCOME UNDER THE AC T. THE LEGISLATURE, IN ORDER TO DO AWAY WITH THE PERNICIOU S PRACTICE ADOPTED BY THE ASSESSEES', TO CLAIM EXPENDITURE, AG AINST INCOME EXEMPT FROM TAX, INTRODUCED THE SAID PROVISION. IN THE INSTANT CASE, THERE IS NO DISPUTE THAT NO INCOME I.E., DIVI DEND, WHICH DID NOT FORM PART OF TOTAL INCOME OF THE ASSESSEE WAS E ARNED IN THE RELEVANT ASSESSMENT YEAR. THEREFORE, TO OUR MINDS, THE ADDITION MADE BY THE AO BY RELYING UPON SECTION 14 A OF THE ACT, WAS COMPLETELY CONTRARY TO THE PROVISIONS OF THE SAID S ECTION. IT WAS SUBMITTED THAT THE REVENUE COULD DISALLOW THE EXPEN DITURE EVEN IN SUCH A CIRCUMSTANCE BY TAKING RECOURSE TO RULE 8 D. ACCORDING TO US, RULE 8D, ONLY PROVIDES FOR A METHOD TO DETER MINE THE AMOUNT OF EXPENDITURE INCURRED IN RELATION TO INCOM E, WHICH DOES NOT FORM PART OF THE TOTAL INCOME OF THE ASSES SEE. RULE 8 D, IN OUR VIEW, CANNOT GO BEYOND WHAT IS PROVIDED I N SECTION 14A OF THE ACT. 17. WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE MATERIAL ON RECORD. SIMILAR ISSUE CAME FOR CONSIDERATION BEFOR E THE JUDGEMENT OF JURISDICTIONAL HIGH COURT IN THE CASE OF REDINGTON (INDIA) LTD., IN T.C NO.520/16 DATED 23.12.2016 WHEREIN HELD THAT:- ITA NOS.2732 & 2733/16 :- 15 - : 13. RELIANCE IS ALSO PLACED ON A DECISION OF THE JU RISDICTIONAL HIGH COURT IN THE CASE OF BEACH MINERALS COMPANY PVT. LT D. VS. ASSISTANT COMMISSIONER OF INCOME TAX IN TCA NO.681 OF 2013, DATED 2.12.2013. IN THAT CASE, PAYMENTS OF INTEREST BY TH E ASSESSEE WERE SOUGHT TO BE DISALLOWED INVOKING THE PROVISIONS OF S.14A ON THE PREMISE THAT THE SAME RELATED TO BORROWINGS THAT HAD BEEN I NVESTED AND WOULD YIELD EXEMPT RETURNS. THE ASSESSEE CONTESTED THE DI SALLOWANCE U/S 14A ON MULTIPLE GROUNDS. IT WAS CONTENDED THAT THERE WE RE SUFFICIENT RESERVES AND SURPLUSES AVAILABLE FOR THE PURPOSE OF INVESTME NTS, AND BORROWED FUNDS, FOR WHICH THE PAYMENT OF INTEREST HAD BEEN I NCURRED, HAD NOT BEEN INVESTED. THE ASSESSEE SOUGHT TO DRAW A NEXUS BETWE EN THE BORROWED FUNDS AND THE INTEREST PAYMENTS, HIGHLIGHTING THE P OSITION THAT THE QUANTUM OF AVAILABLE FREE FUNDS WAS FAR IN EXCESS O F THE INVESTMENTS MADE. THE BENCH, IN THE LIGHT OF THE ABOVE SUBMISSI ONS, REMANDED THE ISSUE TO THE FILE OF THE ASSESSING OFFICER TO BE CO NSIDERED DE NOVO AND AFTER CONDUCTING A PROPER ENQUIRY. INTER ALIA A DIR ECTION WAS ISSUED TO THE ASSESSEE TO TENDER A PROPER EXPLANATION FOR THE INT EREST PAYMENTS. THE OPEN REMAND WAS MADE IN THE FACTS AND CIRCUMSTANCES OF THAT CASE AND NO CONCLUSION WAS DRAWN BY THE BENCH ON THE POSITIO N OF LAW INVOLVED. IN FACT, THE SUBSTANTIAL QUESTION OF LAW RAISED IN THA T CASE FOR THE CONSIDERATION OF THE COURT WAS COUCHED IN GENERAL T ERMS AS FOLLOWS WHETHER ON THE FACTS AND IN THE CIRCUMSTANCES OF T HE CASE, THE INCOME TAR APPELLATE TRIBUNAL IS RIGHT IN LAW IN CO NFIRMING THE DISALLOWANCE UNDER SECTION 11.1 OF THE INCOME TAX A CT, OF AN AMOUNT OF RS.55,00.000/- IN RELATION TO ASSESSMENT YEAR 2007- 2008? 14. NOTHING MUCH TURNS ON THE USE OF THE WORD INCL UDABLE AND THE PHRASE UNDER THE ACT IN S. 14A AND WE ARE NOT PERSUADED TO ACCEPT THE EMPHASIS LAID OR THE INTERPRETATION OF THE SAME BY THE REVENUE. AN ASSESSMENT IN TERMS OF THE INCOME TAX ACT IS SPECIF IC TO AN ASSESSMENT YEAR AND THE RELATED PREVIOUS YEAR. S.4 OF THE ACT, WHICH IMPOSES THE CHARGE TO TAX READS THUS : CHARGE OF INCOME-TAX 4. (1) WHERE ANY CENTRAL ACT ENACTS THAT INCOME TA X SHALL BE CHARGED FOR ANY ASSESSMENT YEAR AT ANY RATE OR RATE S, INCOME- ITA NOS.2732 & 2733/16 :- 16 - : TAX AT THAT RATE OR THOSE RATES SHALL BE CHARGED FO R THAT YEAR IN ACCORDANCE WITH AND SUBJECT TO THE PROVISIONS (INCL UDING PROVISIONS FOR THE LEVY OF ADDITIONAL INCOME-TAX) O F, THIS ACT IN RESPECT OF THE TOTAL INCOME OF THE PREVIOUS YEAR OF EVERY PERSON: PROVIDED THAT WHERE BY VIRTUE OF ANY PROVISION OF T HIS ACT INCOME-TAX IS TO BE CHARGED IN RESPECT OF THE INCOM E OF A PERIOD OTHER THAN THE PREVIOUS YEAR, INCOME TAX SHALL BE C HARGED ACCORDINGLY. THUS, WHERE THE STATUTE INDENTED THAT INCOME SHALL BE RECOGNIZED FOR TAXATION IN RESPECT OF ANY PREVIOUS OTHER THAN THAT IMMEDIATELY PRECEDING THE RELEVANT ASSESSMENT YEAR, THE PROVISION SHALL E XPRESSLY STATE SO. THE PROVISIONS OF S.1O IN CHAPTER III OF THE ACT DEALIN G WITH INCOMES NOT INCLUDED IN TOTAL INCOME COMMENCES WITH THE PHRASE IN COMPUTING THE TOTAL INCOME OF A PREVIOUS YEAR, ANY INCOME FALLING WITHIN ANY OF THE FOLLOWING CLAUSES SHALL NOT BE INCLUDED. 15. THE EXEMPTION EXTENDED TO DIVIDEND INCOME WOULD RELATE ONLY TO THE PREVIOUS YEAR WHEN THE INCOME WAS EARNED AND NONE O THER AND CONSEQUENTLY THE EXPENDITURE INCURRED IN CONNECTION THEREWITH SHOULD ALSO BE DEALT WITH IN THE SAME PREVIOUS YEAR. THUS, BY APPLICATION OF THE MATCHING CONCEPT, IN A YEAR WHERE THERE IS NO EXEMP T INCOME, THERE CANNOT BE A DISALLOWANCE OF EXPENDITURE IN RELATION TO SUCH ASSUMED INCOME. (MADRAS INDUSTRIAL INVESTMENT CORPORATION L TD. VS. CIT (225 ITR 802). HE LANGUAE OF S.14A(1) SHOULD BE READ IN TH E CONTEXT AND SUCH THAT IT ADVANCES THE SCHEME OF THE ACT RATHER THAN DISTORT IT. 18. THE SAME VIEW WAS TAKEN BY JURISDICTIONAL HI GH COURT IN THE CASE OF CHETTINADU LOGISTICS IN TAX CASE NO.24 OF 2017 V IDE ORDER DATED 13.03.2017. SINCE THE INVESTMENT DOES NOT YIELD AN Y EXEMPTED INCOME, THERE CANNOT BE ANY APPLICABILITY OF SEC.14 A R.W. RULE 8D OF THE INCOME TAX RULES, 1962. ACCORDINGLY, THIS GROU ND OF THE ASSESSEE IN THIS APPEAL IS ALLOWED. ITA NOS.2732 & 2733/16 :- 17 - : 19. IN THE RESULT, THE APPEAL OF ASSESSEE IN ITA NO.2732/MDS./2016 IS DISMISSED AND ITA NO.2733/MDS./2016 IS ALLOWED. ORDER PRONOUNCED ON 20 TH SEPTEMBER, 2017, AT CHENNAI. SD/ - SD/ - ( . . . ! ) (N.R.S. GANESAN) / JUDICIAL MEMBER ( ! ' ) (CHANDRA POOJARI) # / ACCOUNTANT MEMBER '# / CHENNAI $% / DATED: 20 TH SEPTEMBER, 2017. K S SUNDARAM %&'' ()'*) / COPY TO: ' 1 . / APPELLANT 3. ' +',! / CIT(A) 5. )-.' / / DR 2. / RESPONDENT 4. ' + / CIT 6. .0'1 / GF