ACIT, Circle-2 (1), Guntur V. Sri Mahalakshmi Investments, Guntur

ITA 28/VIZ/2018

• Counselvise Citation: [2018] 125 COUNSELVISE.COM (IT) 5164 (ITAT-VISAKHAPATNAM)
• Duration Of Justice: 4 month(s) 26 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 31-07-2018
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: DB
• Assessment Year: 2013-2014
• Appeal Filed On: 05-03-2018
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: D J P ANAND
• Keywords: Revision of order; Earning of tax free income
• Section: 143(3); 14A; 263

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL VISAKHAPATNAM BENCH, VISAKHAPATNAM BEFORE SHRI V. DURGA RAO , HONBLE JUDICIAL MEMBER & SHRI D.S. SUNDER SINGH , HONBLE ACCOUNTANT MEMBER ITA NO. 28 / VIZ /201 8 (ASST. YEAR : 20 13 - 14 ) ACIT, CIRCLE - 2(1), GUNTUR. V S . M/S. SRI MAHALAKSHMI INVESTMENTS, D.NO. 8 - 24 - 31, MANGALAGIRI ROAD, GUNTUR. PAN NO. ABAFS 4221 L (APPELLANT) (RESPONDENT) ASSESSEE BY : NONE . DEPARTMENT BY : SHRI D.J.P. ANAND SR. DR DATE OF HEARING : 10 / 0 7 /201 8 . DATE OF PRONOUNCEMENT : 31/ 0 7 /201 8 . O R D E R PER V. DURGA RAO, JUDICIAL MEMBER TH IS APPEAL BY THE REVENUE IS DIRECTED AGAINST THE ORDER OF COMMISSIONER OF INCOME TAX (APPEALS) - 1 , GUNTUR , DATED 10 /0 1 /201 8 FOR THE ASSESSMENT YEAR 20 13 - 14 . 2 . THE SOLE ISSUE INVOLVED IN THIS APPEAL IS DISALLOWANCE OF INTEREST EXPENDITURE UNDER SECTION 14A OF THE INCOME TAX ACT, 1961 (HEREINAFTER REFERRED TO AS 'ACT') . 2 ITA NO. 28/VIZ/2018 ( M/S. SRI MAHALAKSHMI INVESTMENTS ) 3 . FACTS OF THE CASE IN BRIEF ARE THAT THE ASSESSEE M/S. SHRI MAHALAKSHMI I NVESTMENT IS A PARTNERSHIP FIRM, ENGAGED IN TRADING OF TOBACCO, FILED ITS RETURN OF INCOME BY ADMITTING TOTAL INCOME OF RS. 91,87,948/ - . THE RETURN FILED BY THE ASSESSEE WAS PROCESSED UNDER SECTION 143(1) OF THE ACT. THEREAFTER , AFTER FOLLOWING DUE PROCEDURE ASSESSMENT IS COMPLETED UNDER SECTION 143(3) OF THE ACT. IN THE ASSESSMENT ORDER, THE ASSESSING OFFICER HA S OBSERVED THAT THE ASSESSEE HAS BORROWED SECURED LOANS OF RS.54,52,54,454/ - AND INVESTMENTS MADE IN SHARES OF JTI INTERNATIONAL PVT. LTD. T O THE TUNE OF RS. 6,06,21,404/ - . THE ASSESSEE HAS DEBITED AN AMOUNT OF RS. 5,50,81,411/ - TOWARDS BANK INTEREST TO THE PROFIT & LOSS ACCOUNT. THE ASSESSING OFFICER HAS OBSERVED THAT BORROWED FUNDS WERE USED IN INVESTMENT OF SHARES IS NON - YIELDING BUSINESS ACTIVITIES AND WORKED OUT THE DISALLOWANCE UNDER SECTION 8D(2)(II) & (III) OF THE I.T. RULES , 1962 AND DISALLOWED THE INTEREST EXPENDITURE . 4 . BEING AGGRIEVED, THE ASSESSEE CARRIED THE MATTER IN APPEAL BEFORE THE LD. CIT(A) AND SUBMITTED THAT SECTION 14A CANNOT BE INVOKED ON THE REASON THAT NO EXEMPT INCOME EARNED DURING THE YEAR. THE ASSESSEE ALSO RELIED ON THE DECISION OF THE GUJARAT HIGH COURT IN THE CASE OF CORR T EC H ENERGY PVT. LTD . (TAX APPEAL NO. 3 ITA NO. 28/VIZ/2018 ( M/S. SRI MAHALAKSHMI INVESTMENTS ) 239/2014). THE LD. CIT(A) CONSIDERED THE SUBMISSIONS MADE BY THE ASSESSEE AND OBSERVED THAT DURING THE YEAR, THE ASSESSEE HAS NOT EARNED ANY INCOME , WHICH DOES NOT FORM PART OF THE TOTAL INCOME. IN VIEW OF THIS, PROVISIONS OF SECTION 14A OF THE ACT CANNOT BE INVOKED TO DISALLOW THE INTEREST AS DONE BY THE ASSESSING OFFICER. MOREOVER, IT IS SEEN FROM THE BALANCE SHEET THAT THE CAPITAL OF THE PARTNER S ST OOD AT RS.11.56 CRORES WHERE THE INVESTMENT IN SHARES WAS ONLY AT RS. 6.6. CRORES . O N THIS COUNT ALSO, NO DISALLOWANCE OF INTEREST OR EXPENDITURE CAN BE MADE UNDER SECTION 14A OF THE ACT. TO SUPPORT HIS ABOVE VIEW, HE RELIED ON THE DECISION OF THE HON' BLE DELHI HIGH COURT IN THE CASE OF PR.CIT VS. IL & FS ENERGY DEVELOPMENT COMPANY LTD. (84 TAXMAN N .COM 186) WHEREIN THE H ON'BLE HIGH COURT HAS OBSERVED THAT THE WORDS IN RELATION TO INCOME WHICH DOES NOT FORM PART OF THE TOTAL INCOME UNDER THE ACT FOR SUC H PREVIOUS YEAR THE ABOVE RULE 8D(1) INDICATES A CORRELATION BETWEEN THE EXEMPT INCOME EARNED IN THE ASSESSMENT YEAR AND THE EXPENDITURE INCURRED TO EARN IT. IN OTHER WORDS, THE EXPENDITURE HAS CLAIMED BY THE ASSESSEE HAS TO BE IN RELATION TO THE INCOME EARNED IN SUCH PREVIOUS YEAR . THIS IMPLIES THAT THERE IS NO EXEMPT INCOME EARNED IN THE ASSESSMENT YEAR , T HE QUESTION OF DISALLOWANCE OF THE 4 ITA NO. 28/VIZ/2018 ( M/S. SRI MAHALAKSHMI INVESTMENTS ) EXPENDITURE INCURRED TO EARN EXEMPT INCOME IN TERMS OF SECTION 14A READ WITH RULE 8D WOULD NOT ARISE . 5 . ON BEING AGGRIEVED, THE REVENUE CARRIED THE MATTER IN APPEAL BEFORE THE TRIBUNAL. 6 . THE LD. DEPARTMENTAL REPRESENTATIVE STRONGLY SUPPORTED THE ORDER PASSED BY THE ASSESSING OFFICER. NONE APPEARED ON BEHALF OF THE ASSESSEE. 7 . WE HAVE HEARD LD. DR AND PER USED THE MATERIAL AVAILABLE ON RECORD. 8 . WE NOTICED THAT THE ISSUE UNDER CONSIDERATION IS SQUARELY COVERED BY THE DECISION OF THE COORDINATE BENCH OF THE TRIBUNAL IN ITA NO. 511/VIZ/2017 FOR ASSESSMENT YEAR 2013 - 14 IN THE CASE OF DCIT VS. M/S. RADHAK RISHN A AUTOM OBILES PVT. LTD ., BY ORDER DATED 22/11/2017, WHEREIN THE TRIBUNAL BY FOLLOWING THE DECISION OF THE HON'BLE MADRAS HIGH COURT IN THE CASE OF M/S. REDINGTON ( INDIA ) LTD. VS. A DDL. CIT ( 3 92 ITR 633) DIRECTED THE ASSESSING OFFICER TO DELETE THE ADDITION. ADMITTEDLY, NO EXEMPT INCOME IS EARNED BY THE ASSESSEE FOR THE RELEVANT ASSESSMENT YEAR UNDER CONSIDERATION . HOWEVER, THE ASSESSING OFFICER IS OF THE OPINION THAT WHETHER THERE IS AN EXEMPT INCOME OR NOT AS PER SECTION 14A, 5 ITA NO. 28/VIZ/2018 ( M/S. SRI MAHALAKSHMI INVESTMENTS ) THE EXPENDITURE WHICH IS RELATABLE TO EARNING EXEMPT INCOME HAS TO BE CONSIDERED FOR DISALLOWANCE, IRRESPECTIVE OF THE FACT WHETHER ANY SUCH INCOME HAS BEEN EARNED DURING THE FINANCIAL YEAR OR NOT. THE HON'BLE MADRAS HIGH COURT HAS CONSIDERED THE ISSUE IN THE CASE OF M/S. RE DINGTON (INDIA) LTD. (SUPRA) AND DIRECTED THE ASSESSING OFFICER TO DELETE THE ADDITION. A SIMILAR VIEW HAS BEEN TAKEN BY THE COORDINATE BENCH OF THE TRIBUNAL IN THE CASE OF D.VEERABHADRA REDDY (HUF) VS. DCIT IN ITA NO. 263/VIZ/2014, BY ORDER DATED 23/06/2 017 FOR THE ASSESSMENT YEAR 2009 - 10, WHEREIN THE TRIBUNAL HAS HELD THAT NO DISALLOWANCE CAN BE MADE WHEN THERE IS NO EXEMPT INCOME. THE RELEVANT PORTION OF THE ORDER IS EXTRACTED AS UNDER: - 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 FOR 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 AGAINS T THE INCOME FROM 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 REQUI RED TO BE MADE U/S14A OF IT ACT. THE ASSESSEE EXPLAINED THAT THERE WERE 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 APPLICABLE IN ASSESSEES CASE. AS PER THE OBSERVATION OF THE LD.CIT, THE 6 ITA NO. 28/VIZ/2018 ( M/S. SRI MAHALAKSHMI INVESTMENTS ) ASSESSEE MADE 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 DIVIDEND INCOME I S 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 WAS NO FINDING GIVEN BY THE CIT IN HIS ORDER WITH REGARD TO EARNING OF DIVIDEND INCOME. THE CIT ALSO D ID NOT REBUT THE 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 PA PER BOOK ENCLOSING 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 INC OME. 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 DEL HI HIGH COURT IN CHEM INVESTMENTS VS. CIT, 61 TAXMAN.COM 118 AND THE HONBLE GUJARAT HIGH COURT IN PRINCIPAL CIT VS. SINTEX INDUSTRIES LTD., 82 TAXMAN.COM 171 HELD THAT NO DISALLOWANCE IS CALLED FOR WHEN ASSESSEE MAKES SMALL INVESTMENT FROM THE SURPLUS FUN DS. THERE WAS NO DIVIDEND INCOME EARNED BY THE ASSESSEE AND THE CASE WAS TAKEN FOR REVISION TO DISALLOW THE BUSINESS LOSS CLAIMED AGAINST THE PROPERTY INCOME WHICH WAS EXAMINED BY THE AO AND DROPPED THE ASSESSMENT PROCEEDINGS AND THE 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, WE ARE OF THE CONSIDERED OPINION THAT THERE IS NO CASE FOR REVISION OF ORDER U/S 263 AND ACCORDINGLY WE SET ASIDE THE ORDERS OF THE CIT AND ALLOW THE APPEAL OF THE ASSESSEE. 9 . WE THEREFORE, RESPECTFULLY FOLLOWING T HE DECISION OF THE HON'BLE MADR AS HIGH COURT IN THE CASE OF M/S. REDINGTON (INDIA) LTD. (SUPRA) AND ALSO THE DECISION OF THE COORDINATE BENCH OF THE 7 ITA NO. 28/VIZ/2018 ( M/S. SRI MAHALAKSHMI INVESTMENTS ) TRIBUNAL IN THE CASE OF D. V EERABHADRA REDDY (HUF) (SUPRA) , THIS APPEAL FILED BY THE REVENUE IS DISMISSED. 1 0 . IN THE RESULT, APPEAL FILED BY THE REVENUE IS DISMISSED. ORDER PRONOUNCED IN OPEN COURT ON TH IS 3 1 S T DAY OF JULY , 201 8 . S D / - S D / - ( D.S. SUNDER SINGH ) ( V. DURGA RAO ) ACCOUNTANT MEMBER JUDICIAL MEMBER DATED : 3 1 S T JULY , 201 8 . VR/ - COPY TO: 1. THE ASSESSEE M/S. SRI MAHALAKSHMI INVESTMENTS, D.NO. 8 - 24 - 31, MANGALAGIRI ROAD, GUNTUR. 2. THE REVENUE ACIT, CIRCLE - 2(1), GUNTUR. 3. THE PR. CIT , GUNTUR. 4. THE CIT(A) - 1, GUNTUR. 5. THE D.R . , VISAKHAPATNAM. 6. GUARD FILE. BY ORDER (VUKKEM RAMBABU) SR. PRIVATE SECRETARY, ITAT, VISAKHAPATNAM.