Tulasi Ramachandra Prabhu, Guntur V. The CIT(A)-1, Guntur

ITA 288/VIZ/2016

• Counselvise Citation: [2019] 117 COUNSELVISE.COM (IT) 4941 (ITAT-VISAKHAPATNAM)
• Duration Of Justice: 3 year(s) 9 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 29-05-2019
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: DB
• Assessment Year: 2012-2013
• Appeal Filed On: 20-05-2016
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: D K SONOWAL
• Keywords: Earning of tax free income; Rule 8D; Set aside
• Section: 14A; 201

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL, VISAKHAPATNAM BENCH, VISAKHAPATNAM . , . . , BEFORE SHRI V. DURGA RAO, JUDICIAL MEMBER & SHRI D.S. SUNDER SINGH , ACCOUNTANT MEMBER ./ I .T.A.NO. 288 /VIZ/2016 ( / ASSESSMENT YEAR : 2012 - 13) TULASI RAMACHANDRA PRABHU D.NO.6 - 4 - 6 4/5, ARUNDELPET GUNTUR [PAN : ABCPT4938R] VS. ASST.COMMISSIONER OF INCOME TAX CIRCLE - 2(1) GUNTUR ( / APPELLANT) ( / RESPONDENT) / ASSESSEE BY : SHRI G.V.N.HARI, AR /REVENUE BY : S HRI D.K.SONOWAL, CIT DR / DATE OF HEARING : 10 . 04. 201 9 / DATE OF PRONOUNCEMENT : 29 .05. 201 9 / O R D E R P ER D.S. SUNDER SINGH, ACCOUNTANT MEMBER : THIS APPEAL IS FILED BY THE ASSESSEE AGAINST THE ORDER OF THE COMMISSIONER OF INCOME TAX (APPEALS) [CIT(A)], GUNTUR VIDE I.T.A.NO.251/CIT(A) - 1/GNT/2014 - 15 DATED 29.01.2016 FOR THE ASSESSMENT YEAR (A.Y.) 2012 - 13. 2 I.T.A. NO . 288 /VIZ/2016 TULASI RAMACHANDRA PRABHU ., GUNTUR 2. ALL THE GROUNDS OF APPEAL IN THIS CASE ARE RELATED TO THE DISALLOWANCE OF INTEREST MADE U/S 14A R.W.S. 36 OF THE INCOME TAX ACT, 1961 (IN SHORT ACT ). DURING THE ASSESSMENT PROCEEDINGS, THE ASSESSING OFFICER (AO) FOUND THAT THE ASSESSEE HA S MADE THE INVESTMENTS OF RS.29,47,66,972/ - IN SHARES OF SISTER CONCERNS AS WELL AS OTHER BUSINESS CONCERNS. THE ASSESSEE ALSO HAD BORROWED THE FUNDS OF RS.38,70,2 7,806/ - AND PAID THE INTEREST OF RS.5,62,15,618/ - FOR THE ASSESSMENT YEAR UNDER CONSIDERATION. THE AO HAS CALLED FOR EXPLANATION FROM THE ASSESSEE AS TO WHY THE INTEREST RELATING TO THE INVESTMENTS MADE SHOULD NOT BE DISALLOWED U/S 14A R.W.S. 36 OF THE AC T AND IN RESPONSE TO THE SHOW CAUSE NOTICE, THE ASSESSEE HAS FURNISHED THE EXPLANATION STATING THAT HE HA D THE OPENING CAPITAL OF RS.7,82,95,736/ - AND RECEIVED THE ADVANCES TO THE EXTENT OF RS.15,50,00,000/ - TOWARDS SALE OF AGRICULTURAL LAND AND A SUM OF R S.5,00,00,000/ - TOWARDS SALE OF GODOWN, AGGREGATING TO A SUM OF RS.28,32,95,736/ - AS OWN FUNDS WHICH DO NOT BEAR THE INTEREST, HENCE, SUBMITTED THAT THE INVESTMENTS WERE MADE OUT OF OWN FUNDS AND HENCE, NO INTEREST REQUIRED TO BE DISALLOWED EITHER U/S 14A OR U/S 36(1 ) (III) OF THE ACT. THE AO DID NOT ACCEPT THE EXPLANATION OF THE ASSESSEE IN THE ABSENCE OF ANY WRITTEN AGREEMENT FOR THE AMOUNTS RECEIVED AS ADVANCES ON ACCOUNT OF SALE OF AGRICULTURAL LAND AND GODOWN. THE AO 3 I.T.A. NO . 288 /VIZ/2016 TULASI RAMACHANDRA PRABHU ., GUNTUR ALLOWED THE CREDIT OF R S.7.83 CRORES FOR OPENING CAPITAL AND ON THE REMAINING AMOUNT OF RS.21.64 CRORES THE AO WORKED OUT THE INTEREST RELATABLE TO INVESTMENTS AT RS.2,53,70,031/ - AND ACCORDINGLY DISALLOWED U/S 14A R.W.S. 36 OF THE ACT. 3. AGAINST THE ORDER OF THE AO, THE AS SESSEE WENT ON APPEAL BEFORE THE CIT(A) AND THE LD.CIT(A) HAS CONFIRMED THE ORDER OF THE AO. 4. AGAINST THE ORDER OF THE LD.CIT(A), THE ASSESSEE FILED APPEAL BEFORE THIS TRIBUNAL. DURING THE APPEAL HEARING, THE LD.AR SUBMITTED THAT THE ASSESSEE MADE INVE STMENTS OUT OF OWN FUNDS, THEREFORE, NO DISALLOWANCE IS CALLED FOR. APART FROM THE ABOVE, THE LD.AR ALSO SUBMITTED THAT THE ASSESSEE MADE INVESTMENTS IN SHARES WHICH YIELD DIVIDEND INCOME, EXEMPT FROM SECTION 10(34) OF THE ACT. HOWEVER, DURING THE YEAR UNDER CONSIDERATION, THE ASSESSEE HAS NOT RECEIVED ANY DIVIDEND INCOME, HENCE THE QUESTION OF DISALLOWANCE U/S 14A DOES NOT ARISE. 5. WITH REGARD TO THE DISALLOWANCE MADE BY THE AO U/S 36, THE LD.AR CONTENDED THAT THERE IS NO CASE FOR DISALLOWANCE U/S 3 6 SINCE THE ENTIRE INVESTMENTS WERE MADE F OR PURCHASE OF SHARES IN THE SISTER CONCERNS OR 4 I.T.A. NO . 288 /VIZ/2016 TULASI RAMACHANDRA PRABHU ., GUNTUR OTHER BUSINESS CONCERNS OUT OF OWN FUNDS. THE LD.AR SUBMITTED THAT THE ASSESSEE HAD OWN FUNDS TO THE EXTENT OF RS.28.33 CRORES INCLUDING ADVANCES AND OPENING BALANCE. THEREFORE, THERE IS NO QUESTION FOR DISALLOWANCE U/S 36(III) , SINCE , THE OWN FUNDS ARE UTILIZED FOR THE PURPOSE OF MAKING INVESTMENTS. ACCORDINGLY, THE LD.AR ARGUED THAT THE ORDERS OF THE LOWER AUTHORITIES ARE TO BE SET ASIDE AND ALLOW THE APPEAL OF TH E ASSESSEE. 6. ON THE OTHER HAND, THE LD.DR SUPPORTED THE ORDERS OF THE LOWER AUTHORITIES. 7. WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE MATERIAL PLACED ON RECORD. DURING THE ASSESSMENT PROCEEDINGS, THE ASSESSEE SUBMITTED THAT IT HAD UTILIZED THE OWN FUNDS FOR THE PURPOSE OF MAKING INVESTMENTS. THE AO HA D ACCEPTED THE OPENING BALANCE OF RS.7.83 CRORES AND THERE IS NO DISPUTE. REGARDING THE ADVANCES RECEIVED FROM THE SALE OF AGRICULTURAL LAND AMOUNTING TO RS.15.50 CRORES AND ADVANCES RECEIVED AGAINST SALE OF GODOWN AMOUNTING TO RS.5 CRORES , THE SAME WAS REJECTED BY THE AO IN THE ABSENCE OF SPECIFIC WRITTEN AGREEMENT. HOWEVER, THE AO DID NOT MAKE ANY ADDITION TREATING THE ADVANCES AS BOGUS. THEREFORE, THE AO DID NOT SUSPECT OR DISBELI EVE THE GENUINENESS OF THE RECEIPT OF THE MONEY TO THE EXTENT OF 5 I.T.A. NO . 288 /VIZ/2016 TULASI RAMACHANDRA PRABHU ., GUNTUR RS.20.50 CRORES AND THE AO DID N O T GIVE ANY FINDING TO HOLD THAT THE SUM OF RS.20.50 CRORES CLAIMED BY THE ASSESSEE BEARS THE INTEREST. THEREFORE, THERE IS NO REASON TO DISBELIEVE THE AVAILA BILITY OF OWN FUNDS. ACCORDINGLY, THERE IS NO CASE OF DISALLOWANCE OF INTEREST U/S 36(1)(III) OF THE ACT FOR DIVERSION OF FUNDS TOWARDS BUSINESS PURPOSES. 8. THE SECOND LINE OF ARGUMENT OF THE ASSESSEE WAS THAT THERE WAS NO EXEMPT INCOME RECEIVED BY THE ASSESSEE IN THE IMPUGNED ASSESSMENT YEAR, HENCE, THERE IS NO CASE FOR DISALLOWANCE OF EXPENDITURE RELATABLE TO SECTION 14A OF THE ACT. NOW THIS ISSUE IS SETTLED AND THIS TRIBUNAL IN THE CASE OF ACN INFOTECH(INDIA) PVT. LTD., VISAKHAPATNAM VIDE I.T.A. NO.79/VIZ/2017 DATED 28.11.2018 HAS HELD THAT IN THE ABSENCE OF EXEMPT INCOME, THERE IS NO CASE FOR DISALLOWANCE U/S 14A OF THE ACT. FOR THE SAKE OF CLARITY AND CONVENIENCE, WE EXTRACT RELEVANT PART OF THE ORDER OF THIS TRIBUNAL, WHICH READS AS UNDER : 1 1. WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE MATERIAL PLACED ON RECORD. THE ASSESSEE HAS MADE THE INVESTMENTS IN THE COMPANY TOWARDS SHARE CAPITAL AND THE AU HAS DISALLOWED THE EXPENDITURE RELATING TO THE INVESTMENT MADE IN THE SHARES SINCE THE SHARES YIELD EXEMPT INCOME U/S 14A. HOWEVER, THE LD.AR SUBMITTED THAT THERE WAS NO EXEMP T I NCOM E EARNED BY THE ASSESSEE DURING THE IMPUGNED ASSESSMENT YEAR. THUS, THERE IS NO CASE FOR DISALLOWANCE UNDER RULE 8D OF IT RULES. THE FACT THAT THERE WAS NO DIVIDEND INCOME EARNED BY THE ASSESSEE IS NOT IN DISPUTE. ON THE SIMILAR FACTS, THIS TRIBUNAL IN THE CASE OF VASANTA TRADERS VS. ITO, WARD - 2( 1), GUNTUR BY AN ORDER DATED 04.05. 2018 HELD THAT NO DISALLOWANCE IS CALLED 6 I.T.A. NO . 288 /VIZ/2016 TULASI RAMACHANDRA PRABHU ., GUNTUR FOR IN THE ABSENCE OF EXEMPT INCOME. WHILE DELIVERING THE RULING, THE TRIBUNAL HAS FOLLOWED THE DECISION OF THE COORDIN ATE BENCH OF ITAT HYDERABAD AND THE DECISION OF H ON'BLE MADRAS HIGH COURT IN THE CASE OF REDINGTON ( I NDIA) LTD. VS. ACIT REPORTED IN (2017) 77 TAXMAN.COM 257 (MDS.). FOR THE SAKE OF CLARITY AND CONVENIENCE, WE EXTRACT, RELEV ANT PART OF THE ORDER OF THIS TRIBUNAL IN PARA NO.5 WHICH READS AS UNDER: '5. WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE MATERIAL PLACED ON RECORD. THE ASSESSEE MADE THE INVESTMENTS OF R S.8,02,00,000/ - IN M/S VASANTHA INDUSTRIES LTD. IT IS UNDISPUTED FACT THAT THE ASSESSEE HAS NOT EARNED ANY INCOME WHICH DOES NOT FORM PART OF THE TOTAL INCOME. DURING THE YEAR UNDER CONSIDERATION, THE ASSESSEE HAS NOT DERIVED ANY DIVIDEND INCOME. IN THE AS SESSES OWN CASE, THE COORDINATE BENCH OF ITAT, HYDERABAD CITED SUPRA FOLLOWING THE DECISION OF HON 'BLE MADRAS HIGH COURT HELD THAT NO DISALLOWANCE IS CALLED FOR U/S 14 A IN THE ABSENCE OF EXEMPT INCOME. WE FIND THAT THE FACTS OF THE CASE BEFORE US ARE SIMIL AR TO THE FACTS BEFORE THE HON 'FILE MADRAS HIGH COURT IN THE CASE OF REDINGTON (INDIA) LTD (CITED SUPRA) AND RESPECTFULLY FOLLOWING THE SAID DECISION, WE ALLOW THE ASSESSEE'S APPEAL AND DIRECT THE AU TO DELETE THE DISALLOWANCE MADE U/S 14A. THUS; ASSESSEE S GROUNDS OF APPEAL NOS.2, 3 & 5 ARE REJECTED AND GROUND OF APPEAL NO.4 IS ALLOWED' SIMILAR VIEW WAS TAKEN BY THIS TRIBUNAL IN THE CASE OF M/S RASHTRIYA I SPAT NIGAM LTD., VISAKHAPATNAM FOR THE ASSESSMENT YEAR 2004 - 05 IN ITA NO.13/VIZ/2013 IN PARA NO.36 OF THE CITED ORDER. SINCE THE FACTS ARE IDENTICAL, RESPECTFULLY FOLLOWING THE VIEW TAKEN BY COORDINATE BENCH, WE HOLD THAT NO DISALLOWANCE IS CALLED FOR U/S 14A IN THE ABSENCE OF EXEMPT INCOME. ACCORDINGLY, WE CONFIRM THE ORDER OF THE LD.CI T(A) AND DISMISS THE APPEAL OF THE REVENUE.' SINCE THE FACTS ARE IDENTICAL, RESPECTFULLY FOL LO WING THE VIEW TAKEN BY THE COORDINATE BENCH, WE HOLD THAT IN THE ABSENCE OF THE EXEMPT INCOME, THERE IS NO CASE FOR MAKING THE DISALLOWANCE U/S 14A OF THE ACT ACCORDINGLY, WE SET ASIDE THE ORDER OF THE LD.CIT(A) AND ALLOW THE APPEAL OF THE ASSESSEE. IN THE INSTANT CASE, THE ASSESSEE DID NOT EARN ANY DIVIDEND INCOME AND THIS FACT WAS NOT DISPUTED BY THE ASSESSEE. THIS TRIBUNAL IN THE CASE LAW CITED SUPRA HAS HELD THAT IN THE ABSENCE OF DIVIDEND INCOME, THERE IS NO CASE 7 I.T.A. NO . 288 /VIZ/2016 TULASI RAMACHANDRA PRABHU ., GUNTUR FOR DISALLOWANCE OF INTEREST U/S 14A AND THE DEPARTMENT DID NOT BRING ANY OTHER DECISION OF HONBLE JURISDICTIONAL HIGH COURT OR HONBLE APEX COURT TO SUPPORT THE CASE OF REVENUE . TH EREFORE, RESPECTFULLY FOLLOWING THE VIEW TAKEN BY THIS TRIBUNAL, WE HOLD THAT THERE IS NO CASE FOR DISALLOWANCE U/S 14A. ACCORDINGLY, WE SET ASIDE THE ORDERS OF THE LOWER AUTHORITIES AND ALLOW THE APPEAL OF THE ASSESSEE. 9 . IN THE RESULT, APPEAL OF THE ASSESSEE IS ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 29 TH MAY 2019. S D/ - SD/ - ( . ) ( . . ) (V. DURGA RAO) ( D.S. SUNDER SINGH ) /JUDICIAL MEMBER /ACCOUNTANT MEMBER /VISAKHAPATNAM /DATED : 2 9 .0 5 .2019 L.RAMA, SPS 8 I.T.A. NO . 288 /VIZ/2016 TULASI RAMACHANDRA PRABHU ., GUNTUR / COPY OF THE ORDER FORWARDED TO: - 1. / THE ASSESSEE - TULASI RAMACHANDRA PRABHU , D.NO.6 - 4 - 6, 4/5, ARUNDELPET, GUNTUR 2 . / THE REVENUE ASST.COMMISSIONER OF INCOME TAX, CIRCLE - 2(1), GUNTUR 3. / THE PR.COMMISSIONER OF INCOME TAX , GUNTUR 4. ( ) / THE COMMISSIONER OF INCOME - TAX (APPEALS) - 1 , GUNTUR 5 . , , / DR, ITAT, VISAKHAPATNAM 6 . / GUARD FILE / BY ORDER // TRUE COPY // SR. PRIVATE SECRETARY ITAT, VISAKHAPATNAM