Kulgam Holdings Pvt. Ltd., Ahmedabad V. The ACIT., Cent.Circle-1(1), Ahmedabad

ITA 2990/AHD/2011

• Counselvise Citation: [2015] 140 COUNSELVISE.COM (IT) 89611 (ITAT-AHMEDABAD)
• Duration Of Justice: 3 year(s) 6 month(s) 18 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 19-06-2015
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: A
• Next Hearing Date: 15-06-2015
• Assessment Year: 2007-2008
• Appeal Filed On: 01-12-2011
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: DINESH SINGH
• Assessee Lawyers: S N SOPARKAR
• Keywords: Earning of tax free income
• Section: 14A; 10

Judgement Text

, A IN THE INCOME TAX APPELLATE TRIBUNAL A BENCH, AHMEDABAD BEFORE SHRI N.S. SAINI, ACCOUNTANT MEMBER AND SHRI S.S. GODARA, JUDICIAL MEMBER ./ ITA NO.2990/AHD/2011 / ASSESSMENT YEAR: 2007-2008 KULGAM HOLDINGS P. LTD. NIRMA HOUSE ASHRAM ROAD AHMEDABAD 380 009. PAN : AAACK 6575 F VS ACIT, RANGE-4 AHMEDABAD. ! / (APPELLANT) '# ! / (RESPONDENT) ASSESSEE(S) BY : SHRI S.N. SOPARKAR REVENUE BY : SHRI D INESH SINGH, SR.DR / DATE OF HEARING : 15/06/2015 / DATE OF PRONOUNCEMENT: 19/06/2015 $%/ O R D E R PER N.S. SAINI, ACCOUNTANT MEMBER: THIS IS AN APPEAL FILED BY THE ASSESSEE AGAINST THE ORDER OF THE CIT( A)-VIII, AHMEDABAD DATED 22.9.2011. 2. THE SOLE GROUND OF APPEAL TAKEN BY THE ASSESSEE IS THAT THE CIT(A) ERRED IN CONFIRMING THE DISALLOWANCE OF RS.1 ,06,372/- UNDER SECTION 14A OF THE I.T.ACT. 3. BRIEF FACTS OF THE CASE ARE THAT THE AO OBSERVED THAT DURING THE YEAR THE ASSESSEE HAS RECEIVED DIVIDEND INCOME OF ITA NO.2990/AHD/2011 2 RS.3,10,10,076/-, WHICH IS EXEMPT UNDER SECTION 10 OF THE ACT. THE AO OBSERVED THAT THE ASSESSEE IS IN RECEIPT OF CONSIDERABLE AMOUNT OF EXEMPT INCOME, AND NO SEPARATE ACCOUNTS H AVE BEEN MAINTAINED WITH REGARD TO THE EARNING OF EXEMPT INC OME. THE AO OBSERVED THAT THE MANAGEMENT AND MAINTENANCE OF SUC H INVESTMENTS ALWAYS ENTAIL CERTAIN ADMINISTRATIVE EX PENDITURE, SUCH AS, TELEPHONE EXPENDITURE ETC. THEREFORE, HE DISA LLOWED THE PROPORTIONATE AMOUNT OF EXPENDITURE INCURRED OUT OF THE TOTAL EXPENDITURE INCURRED BY THE ASSESSEE DURING THE YEA R, BY TAKING THE PROPORTION OF DIVIDEND INCOME TO TOTAL EXEMPT I NCOME AND WORKED OUT THE SAME AT RS.5,01,024/-. 4. ON APPEAL, THE CIT(A) OBSERVED THAT IT WAS HARD TO ACCEPT THE SUBMISSIONS OF AUTHORIZED REPRESENTATIVE OF THE ASSESSEE THAT THERE ARE NO EXPENSES INCURRED FOR EARNING EXEMPT I NCOME. ACCORDING TO THE CIT(A) RULE 8D ITSELF SAYS THAT WH ERE THE AO HAVING REGARD TO THE ACCOUNTS OF THE ASSESSEE OF A PREVIOUS YEAR, IS NOT SATISFIED WITH THE CORRECTNESS OF THE CLAIM OF EXPENDITURE MADE BY THE ASSESSEE, OR THE CLAIM MADE BY THE ASSE SSEE THAT NO EXPENDITURE HAS BEEN INCURRED IN RELATION TO INCOME WHICH DOES NOT FORM PART OF THE TOTAL INCOME UNDER THE ACT FOR SUCH PREVIOUS YEAR, HE SHALL DETERMINE THE AMOUNT OF EXPENDITURE IN RELATION TO SUCH INCOME IN ACCORDANCE WITH THE PROVISIONS OF SU B-RULE (2) OF RULE 8D. IN VIEW OF THE ABOVE, THE CALCULATION DON E BY THE AO AT RS.1,06,372/-, WHICH PROVIDES FOR AN AMOUNT EQUAL T O ONE-HALF PERCENT OF THE AVERAGE OF THE VALUE OF INVESTMENT, THE INCOME FROM WHICH DOES NOT OR SHALL NOT FORM PART OF THE T OTAL INCOME, AS APPEARING IN THE BALANCE SHEET OF THE ASSESSEE, ON THE FIRST DAY AND THE LAST DAY OF THE PREVIOUS YEAR, IS MORE LOGI CAL AND APT, ITA NO.2990/AHD/2011 3 CONSIDERING THE FACTS AND CIRCUMSTANCES OF THE CASE . THE CIT(A), THEREFORE, RESTRICTED THE DISALLOWANCE TO RS.1,06,3 72/-. 5. BEING AGGRIEVED BY THIS ORDER OF THE CIT(A), THE ASSESSEE IS IN APPEAL BEFORE US. 6. THE AR OF THE ASSESSEE ARGUED THAT THE ASSESSEE- COMPANY EARNED DIVIDEND INCOME OF RS.3,10,10,076/-, WHICH I S EXEMPT UNDER SECTION 10 OF THE ACT. FOR EARNING DIVIDEND INCOME, THE ASSESSEE-COMPANY HAD NOT INCURRED ANY EXPENDITURE. HENCE, NO DISALLOWANCE UNDER SECTION 14A SHOULD BE MADE OR MU CH LESS, THE DISALLOWANCE AS PER RULE 8D OF THE IT RULES. HE SU BMITTED THAT THE DIVIDEND IS RECEIVED FROM NIRMA LTD. OF RS.3,10,10, 076/- WHICH IS DIRECTLY CREDITED IN THE BANK ACCOUNT OF THE ASSESS EE THROUGH ECS. THIS SHOWS THAT THERE IS NO EXPENDITURE INCURRED FO R EARNING DIVIDEND INCOME. HE RELIED ON THE DECISION OF THE HONBLE GUJARAT HIGH COURT IN THE CASE OF CIT VS. TORRENT POWER LTD ., (2014) 363 ITR 474 (GUJ) AND SUBMITTED THAT THE HONBLE JURISD ICTIONAL HIGH COURT HAS HELD THAT WHERE THERE IS NOTHING ON RECOR D TO INDICATE THAT THERE HAS BEEN IN FACT ANY ACTUAL EXPENDITURE INCURRED BY THE ASSESSEE FOR EARNING TAX FREE INCOME, AND THAT BEIN G QUESTION OF FACT, NO DISALLOWANCE OF EXPENDITURE ARTIFICIALLY O R ON THE BASIS OF ASSUMPTION CAN BE MADE. 7. ON THE OTHER HAND, THE DR OPPOSED THE SUBMISSION S OF THE AR OF THE ASSESSEE BY POINTING OUT FROM THE BALANCE SHEET OF THE ASSESSEE IN SCHEDULE 4 THAT THE OPENING BALANCE OF THE ASSESSEES QUOTED INVESTMENT WERE OF RS.200.01 LAKHS WHICH INC REASED TO RS.225.47 LAKHS DURING THE YEAR. FURTHER, THE UNQU OTED INVESTMENT OF THE ASSESSEE AT OPENING BALANCE OF RS .760.03 LAKHS ITA NO.2990/AHD/2011 4 WHICH WERE REDUCED TO RS.560.03 LAKHS WHICH WERE RE DUCED TO RS.3,000/- DURING THE YEAR. THUS, THERE WAS A FLUC TUATION IN THE INVESTMENT OF THE ASSESSEE, FOR WHICH, MANAGEMENT, TIME AND COST ARE INCURRED, AND THEREFORE TO SAY THAT NO EXP ENDITURE FOR EARNING TAX FREE INCOME WAS INCURRED BY THE ASSESSE E FOR EARNING EXEMPT DIVIDEND INCOME OF RS.3,10,10,076/-, CANNOT BE ACCEPTED. IT WAS FURTHER ARGUED THAT OUT OF THE TOTAL INCOME SHOWN IN THE PROFIT & LOSS ACCOUNT FOR THE YEAR AT RS.6.32 CRORE S, DIVIDEND INCOME WAS RS.3.10 CRORES, WHICH WAS APPROXIMATELY 50% OF THE TOTAL INCOME OF THE ASSESSEE, AND THEREFORE, SUBSTA NTIAL AMOUNT OF INCOME OF THE ASSESSEE, WHICH WAS EXEMPT FROM TAX. HENCE, THE ARGUMENT OF THE ASSESSEE THAT NO EXPENDITURE WAS IN CURRED FOR EARNING OF SUCH DIVIDEND INCOME CANNOT BE ACCEPTED. HE, THEREFORE, PRAYED THAT THE ORDER OF THE CIT(A) SHOU LD BE UPHELD. 8. WE HAVE HEARD RIVAL SUBMISSIONS AND PERUSED THE ORDERS OF THE LOWER AUTHORITIES AND THE MATERIAL AVAILABLE ON RECORD. IN THE INSTANT CASE, THE CIT(A) RESTRICTED THE DISALLOWANC E MADE UNDER SECTION 14A OF THE ACT TO RS.1,06,372/- BEING 0.5% OF THE AVERAGE INVESTMENT IN SHARES ON ACCOUNT OF WHICH THE ADMINI STRATIVE CHARGES INCURRED IN RELATION TO INVESTMENT ACTIVITI ES, WHICH GAVE RISE TO EXEMPT DIVIDEND OF RS.3,10,10,076/-. THE A SSESSEE AGGRIEVED BY THIS SUSTENANCE OF DISALLOWANCE OF RS. 1,06,372/- IS IN APPEAL BEFORE US. 9. THE CONTENTION OF THE ASSESSEE IS THAT NO EXPEND ITURE WAS INCURRED IN RELATION TO EXEMPT INCOME AND NO MATERI AL HAS BEEN BROUGHT ON RECORD TO SHOW THAT ANY ACTUAL EXPENDITU RE WAS INCURRED IN RELATION TO EARNING OF EXEMPT INCOME, A ND THEREFORE, THE DISALLOWANCE OF RS.1,06,372/- MADE ON CONJECTUR E AND ITA NO.2990/AHD/2011 5 SURMISES IS UNTENABLE. THE ASSESSEE PLACED RELIANC E ON THE DECISION OF HONBLE GUJARAT HIGH COURT IN THE CASE OF TORRENT POWER LTD. (SUPRA), WHEREIN THE ASSESSEE EARNED TAX FREE INTEREST OF RS.14 CRORES AND THE HONBLE HIGH COURT HAS HELD AS UNDER: WITH REGARD TO DISALLOWANCE OF 1% OF ADMINISTRATIVE EXPENSES AVERRED TO HAVE INCURRED ON ACCOUNT OF THE EARNING OF INTEREST, THERE IS NOTHING ON RECORD TO INDICATE THAT THERE HAS BEEN IN FEET ANY ACTUAL EXPENDITURE INCURRED BY THE ASSESSEE FOR EARNING TAX FREE INCOME OF RS. 14 CROR ES. IT IS ALSO TO BE NOTED THAT OUT OF THE TOTAL AMOUNT OF EX EMPT INCOME OF RS. 14 CRORES, THE ASSESSEE COULD POINT O UT THAT 6.12 CRORES (ROUNDED OFF) WAS EARNED BY 'S' PROJECT WHICH WAS UNDER CONSTRUCTION FOR WHICH NO EXPENDITURE HAD BEEN CLAIMED AND FOR THE REMAINING INCOME OF RS.7.88 CRO RES WHICH CONSISTS OF DIVIDEND AND TAX FREE INTEREST, N O PART OF EXPENDITURE APPEARS TO HAVE BEEN MADE TOWARDS THE INVESTMENT ACTIVITY AS EMERGING FROM THE MATERIAL. ACCORDING TO THE RESPONDENT, THE TOTAL INVESTMENT FROM THE HU GE SURPLUS IS COMPARATIVELY SMALL AND INVESTMENT MADE WAS EFFORTLESS, WITHOUT ANY BURDEN OF ADMINISTRATIVE EX PENSES. [PARA 8] IN VIEW OF FEET THAT NO EXPENDITURE WAS INCURRED FO R EARNING EXEMPTED INCOME AND THAT BEING THE QUESTION OF FACT , DISALLOWANCE OF 1% OF INTEREST EXPENDITURE ARTIFICI ALLY OR ON THE BASIS OF ASSUMPTION RIGHTLY HAS NOT BEEN SUSTAI NED BY THE TRIBUNAL. 10. WE FIND THAT IN THE INSTANT CASE, THE REVENUE H AS NOT BROUGHT ANY POSITIVE MATERIAL ON RECORD TO SHOW THA T THE ASSESSEE ACTUALLY INCURRED ANY EXPENSES IN RELATION TO EARNI NG OF EXEMPT INCOME. IN OUR CONSIDERED VIEW, BEFORE MAKING DISA LLOWANCE UNDER SECTION 14A, IT WAS IMPERATIVE ON THE PART OF THE REVENUE TO BRING SOME MATERIAL ON RECORD TO SHOW THAT THE ASSE SSEE ACTUALLY INCURRED ANY EXPENDITURE IN RELATION TO EXEMPT INCO ME. IN THE ABSENCE OF THE SAME, IN VIEW OF THE ABOVE CITED DEC ISION OF THE ITA NO.2990/AHD/2011 6 HONBLE GUJARAT HIGH COURT, THE DISALLOWANCE OF RS. 1,06,372/- CONFIRMED BY THE CIT(A) IS NOT SUSTAINABLE. WE, TH EREFORE, DELETE THE DISALLOWANCE OF RS.1,06,372/- MADE UNDER SECTIO N 14A AND ALLOW THE GROUND OF APPEAL OF THE ASSESSEE. 11. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS AL LOWED. ORDER PRONOUNCED IN THE COURT ON FRIDAY THE 19 TH JUNE, 2015 AT AHMEDABAD. SD/- SD/- (S.S. GODARA) JUDICIAL MEMBER ( N.S. SAINI) ACCOUNTANT MEMBER AHMEDABAD; DATED 19 /06/2015 $% & ''() *$)' / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT 2. / THE RESPONDENT. 3. ! / CONCERNED CIT 4. ! ( ) / THE CIT(A)-III 5. $%& '' , / DR, ITAT, 6. &)* + / GUARD FILE. $% + / BY ORDER, ,/ - ( DY./ASSTT.REGISTRAR) , / ITAT, AHMEDABAD