The Sonepat Urban Co-operative Bank Ltd., Haryana V. ACIT, Haryana

ITA 3023/DEL/2015

• Counselvise Citation: [2019] 118 COUNSELVISE.COM (IT) 3085 (ITAT-DELHI)
• Duration Of Justice: 3 year(s) 9 month(s) 13 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 28-02-2019
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: H
• Assessment Year: 2010-2011
• Appeal Filed On: 15-05-2015
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Earning of tax free income
• Section: 14A

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH: A NEW DELHI BEFORE SHRI R.K.PANDA, ACCOUNTANT MEMBER & SHRI SUDHANSHU SRIVASTAVA, JUDICIAL MEMBER ITA NO.-3023/DEL/2015 ( ASSESSMENT YEAR: 2010-11) THE SONEPAT URBAN CO- OPERATIVE BANK LTD. NEW SUBJI MANDI, SONEPAT HARYANA PAN : AAAAT0374M VS . ACIT SONEPAT CIRCLE HARYANA APPELLANT RESPONDENT ASSESSEE BY: SMT. RANO JAIN, AD V. REVENUE BY: SHRI N.K.BANSAL, SR.DR ORDER PER SUDHANSHU SRIVASTAVA, J.M.: THIS APPEAL IS PREFERRED BY THE ASSESSEE AGAINST O RDER DATED 23.03.2015 PASSED BY THE LD. CIT (APPEALS)-ROHTAK F OR ASSESSMENT YEAR 2010-11 AND THE SOLE ISSUE IN DISPUTE FOR US I S THE CONFIRMATION OF DISALLOWANCE OF RS. 14,66,454/- MAD E BY THE ASSESSING OFFICER U/S 14A OF THE INCOME TAX ACT, 19 61 (HEREINAFTER CALLED THE ACT). DATE OF HEARING 13.02.2019 DATE OF PRONOUNCEMENT 28.02.2019 2 ITA N O. 3023/DEL/2015 (THE SONEPAT URBAN CO-OPERATIVE BANK LTD.) 2. THE BRIEF FACTS OF THE CASE ARE THAT THE ASSESSE E IS A CO- OPERATIVE BANKING SOCIETY AND IS ENGAGED IN THE BUS INESS OF BANKING. THE RETURN OF INCOME WAS FILED DECLARING A N INCOME OF RS. 2,41,29,787/-. THE CASE WAS SELECTED FOR SCRUTINY A ND DURING THE COURSE OF ASSESSMENT PROCEEDINGS THE AO NOTICED THA T THE ASSESSEE HAD EARNED DIVIDEND INCOME OF RS. 12,12,840/-. THE AO ASKED THE ASSESSEE TO SHOW CAUSE AS TO WHY THE ASSESSEE HAD N OT MADE ANY DISALLOWANCE U/S 14A OF THE ACT AND IN RESPONSE THE RETO IT WAS SUBMITTED BY THE ASSESSEE THAT THE DIVIDEND WAS EAR NED FROM THE INVESTMENT IN NON-SLR SECURITIES AS PER THE RBI GUI DELINES AND FURTHER THAT THE ASSESSEE WAS UNDER AN OBLIGATION T O INVEST 10% OF THE DEPOSITS IN THESE SLRS. IT WAS FURTHER CONTENDE D THAT THE ASSESSEE HAD NOT INCURRED ANY EXPENDITURE LIKE COMM ISSION OR EXTRA SALARY EXPENSES ETC. IN EARNING THE ABOVE DIV IDEND INCOME. HOWEVER, THE AO NOTED THAT THE ASSESSEE HAD BORROWE D FUNDS ON WHICH INTEREST TO THE TUNE OF RS. 5,67,91,279/- WAS PAID DURING THE YEAR. THE AO ALSO NOTED THAT ASSESSEE HAD MADE INVE STMENTS IN SHARES AND MUTUAL FUNDS DURING THE YEAR TO THE TUNE OF RS. 24,57,47,529/-. THE AO PROCEEDED TO APPLY PROVISION S OF SECTIONS 14A OF THE ACT READ WITH RULE 8D OF THE INCOME TAX RULES, 1962 AND MADE A DISALLOWANCE OF RS. 12,85,88,582/-. THE ASSESSMENT WAS COMPLETED AT AN INCOME OF RS. 3,67,18,369/-. TH E ASSESSEE 3 ITA N O. 3023/DEL/2015 (THE SONEPAT URBAN CO-OPERATIVE BANK LTD.) PREFERRED AN APPEAL BEFORE THE LD. CIT (APPEALS) WH O PARTLY ALLOWED THE ASSESSEES APPEAL. THE LD. CIT (APPEALS) NOTED THAT THE ASSESSEE HAD INVESTED ONLY RS. 1,54,82,500/- IN SHA RES AND MUTUAL FUNDS AND NOT THE AMOUNT OF RS. 24,57,47,529 /- AS HAS BEEN ADOPTED BY THE ASSESSING OFFICER FOR THE PURPO SE OF COMPUTING THE DISALLOWANCE. THEREAFTER, BY APPLICATION OF RUL E 8D, THE DISALLOWANCE WAS RECOMPUTED AT RS. 14,66,454/- BY T HE LD. CIT (APPEALS) AND, THUS, THE ASSESSEE GOT RELIEF OF RS. 1,11,22,128/-. NOW THE ASSESSEE IS IN APPEAL CHALLENGING THE ACTIO N OF THE LD. CIT (APPEALS) IN CONFIRMING THE DISALLOWANCE OF RS.14,6 6,454/-. 3. THE LD. AUTHORISED REPRESENTATIVES SUBMITTED THA T THERE WAS NO NEXUS BETWEEN THE INVESTMENT MADE BY THE ASSESSE E AND THE FUNDS BORROWED. IT WAS FURTHER SUBMITTED THAT SINCE NO BORROWED FUNDS HAD BEEN UTILIZED BY THE ASSESSEE, NO DISALLO WANCE U/S 14A COULD BE MADE. OUR ATTENTION WAS DRAWN TO PAGE 6 OF THE PAPER BOOK FILED BY THE ASSESSEE AND IT WAS DEMONSTRATED THAT AS PER THE BALANCE SHEET AS ON 31 ST MARCH, 2010, THE ASSESSEE HAD CAPITAL AND FREE RESERVES OF RS. 19,63,45,667/- AND THE EXEMPT INCOME BEARING INVESTMENTS WERE ONLY TO THE TUNE OF RS. 1,54,82,50 0/-. THE LD. AUTHORISED REPRESENTATIVE FURTHER SUBMITTED THAT IT WAS SETTLED LAW THAT AN ASSUMPTION IS TO BE MADE IN THE PRESENCE OF EXCESS OF OWNED FUNDS THAT INVESTMENTS HAVE BEEN MADE NOT OUT OF BORROWED 4 ITA N O. 3023/DEL/2015 (THE SONEPAT URBAN CO-OPERATIVE BANK LTD.) FUNDS, BUT OUT OF OWNED FUNDS. RELIANCE WAS PLACED ON THE JUDGMENT OF THE HONBLE PUNJAB & HARYANA HIGH COURT IN THE CASE OF CIT VS. MAX INDIA LTD REPORTED IN (2016) 388 ITR 81 (P & H) WHEREIN IT HAD BEEN HELD THAT IF INTEREST FREE FUND S WERE AVAILABLE, PRESUMPTION WOULD ARISE THAT INVESTMENT WOULD BE OU T OF THE INTEREST FREE FUNDS GENERATED OR AVAILABLE WITH THE COMPANY IF THE INTEREST FREE FUNDS WERE SUFFICIENT TO MADE THE INV ESTMENTS. RELIANCE WAS ALSO PLACED ANOTHER JUDGMENT OF THE HO NBLE PUNJAB AND HARYANA HIGH COURT IN THE CASE OF CIT VS. HERO CYCLES LTD. REPORTED IN (2010) 189 TAXMAN 50 (P & H). 4. IN RESPONSE, THE LD. SR. DEPARTMENTAL REPRESENTA TIVE PLACED RELIANCE ON THE CONCURRENT FINDINGS OF BOTH THE LOW ER AUTHORITIES AND IT WAS VEHEMENTLY ARGUED THAT ALL THE CONDITION S REQUIRED FOR MAKING THE DISALLOWANCE U/S 14A OF THE ACT WERE MET IN THIS CASE AND, THEREFORE, THE DISALLOWANCE AS CONFIRMED BY TH E LD. CIT (APPEALS) DESERVED TO BE UPHELD. THE SR. DEPARTMENT AL REPRESENTATIVE ALSO PLACED RELIANCE ON THE JUDGMENT OF THE HONBLE PUNJAB AND HARYANA HIGH COURT IN THE CASE OF AVON C YCLES LTD. VS. CIT REPORTED IN 228 TAXMAN 268 PUNJAB AND HARYANA I N SUPPORT OF HIS CONTENTION. 5. WE HAVE HEARD THE RIVAL SUBMISSIONS AND HAVE AL SO PERUSED THE MATERIAL ON RECORD. IT IS SEEN THAT AS PER THE BALANCE SHEET FOR 5 ITA N O. 3023/DEL/2015 (THE SONEPAT URBAN CO-OPERATIVE BANK LTD.) YEAR UNDER CONSIDERATION, THE ASSESSEE HAD FUNDS TO THE VALUE OF RS. 19,63,45,667/- IN THE FORM OF SHARE CAPITAL AND OTHER RESERVES AND SURPLUS WHEREAS THE INVESTMENTS PERTAINING TO E XEMPT INCOME WERE ONLY TO THE TUNE OF RS. 1,54,82,500/- AS IS EV IDENT FROM PAGE 30 OF THE PAPER BOOK FILED BY THE ASSESSEE. WE AGRE E WITH THE AVERMENT OF THE LD. AUTHORISED REPRESENTATIVE THAT IN CASE WHERE THE ASSESSEE HAS SURPLUS FUNDS WHICH ARE MORE THAN ENOUGH TO COVER THE INVESTMENTS, AN ASSUMPTION HAS TO BE MADE THAT SUCH INVESTMENT HAVE BEEN MADE OUT OF FREE RESERVES/SURP LUS FUNDS AND NOT OUT OF BORROWED FUNDS. THE JUDGMENT OF THE HON BLE PUNJAB AND HARYANA HIGH COURT IN THE CASE OF CIT VS. MAX I NDIA LTD. (SUPRA) SQUARELY COVERS THE ISSUE IN FAVOUR OF ASSE SSEE WHEREIN THE HONBLE PUNJAB AND HARYANA HIGH COURT OBSERVED AS U NDER :- MERELY BECAUSE THE INTEREST FREE FUNDS WITH THE AS SESSEE HAVE DECREASED DURING ANY PERIOD , IT DOES NOT FOLLOW THAT THE FUNDS BORROWED ON INTEREST WERE UTILIZED FOR TH E PURPOSE OF INVESTING IN ASSETS YIELDING EXEMPT INCO ME. IF EVEN AFTER THE DECREASE THE ASSESSEE HAS INTEREST F REE FUNDS SUFFICIENT TO MAKE THE INVESTMENT IN ASSETS Y IELDING THE EXEMPT INCOME , THE PRESUMPTION THAT IT WAS SUCH FUNDS THAT WERE UTILIZED FOR THE SAID INVESTMENT RE MAINS. THERE IS NO REASON FOR IT NOT TO. THE BASIS OF THE PRESUMPTION AS WE WILL ELABORATE LATER IS THAT AN A SSESSEE WOULD INVEST ITS FUNDS TO ITS ADVANTAGE. IT GAINS N OTHING BY 6 ITA N O. 3023/DEL/2015 (THE SONEPAT URBAN CO-OPERATIVE BANK LTD.) INVESTING INTEREST FREE FUNDS TOWARDS OTHER ASSETS MERELY ON ACCOUNT OF THE INTEREST FREE FUNDS HAVING DECREA SED. IN THAT EVENT SO LONG AS EVEN AFTER THE DECREASE THERE OF THERE ARE SUFFICIENT INTEREST FREE FUNDS THE PRESUMPTION THAT THEY WOULD BE FIRST USED TO INVEST IN ASSETS YIELDING EX EMPT INCOME APPLIES WITH EQUAL FORCE.' 5.1 WE ALSO NOTE THAT THE HONBLE PUNJAB AND HARYAN A HIGH COURT RENDERED THIS JUDGMENT AFTER CONSIDERING THE JUDGMENT OF THE HONBLE BOMBAY HIGH COURT IN THE CASE OF CIT VS. RE LIANCE UTILITIES AND POWER LTD. 2009 (313) ITR (BOMBAY) WHICH ADDRES SED AN IDENTICAL ISSUE. WE ALSO NOTE THAT ITAT CHANDIGARH BENCH IN THE CASE OF M/S HIGHWAY INDUSTRIES LTD VS. ACIT REPORTE D IN 2016 (6) TMI 737 ITAT CHANDIGARH HAS DULY NOTED THAT THE JUDGMENT OF THE HONBLE PUNJAB AND HARYANA HIGH COURT IN THE CASE OF AVON CYCLES (SUPRA), ON WHICH THE LD. SR. DR HAS RELIED, NOWHERE LAYS A PROPOSITION WITH REGARD TO QUANTUM OF EXPENDITURE I N RESPECT OF MIXED FUNDS. WE ALSO NOTE THAT IN A LATER JUDGMENT DATED 24.07.2015 IN THE CASE OF BRIGHT ENTERPRISES LTD IN ITA NO. 624 OF 2013 (O&M), THE HONBLE PUNJAB AND HARYANA HIGH COU RT HAS HELD THAT THEY ARE IN COMPLETE AGREEMENT WITH THE JUDGME NT OF THE HONBLE BOMBAY HIGH COURT IN THE CASE OF CIT VS. RE LIANCE UTILITIES AND POWER LTD. THAT IF INTEREST FREE FUNDS WERE AVA ILABLE, A PRESUMPTION WOULD ARISE THAT INVESTMENT WOULD BE OU T OF INTEREST 7 ITA N O. 3023/DEL/2015 (THE SONEPAT URBAN CO-OPERATIVE BANK LTD.) FREE FUNDS GENERATED OR AVAILABLE WITH THE COMPANY IF THE INTEREST FREE FUNDS WERE SUFFICIENT TO MEET THE INVESTMENT. THEREFORE, RESPECTFULLY FOLLOWING THE RATIO OF THE AFORESAID J UDGMENT/S OF THE HONBLE PUNJAB AND HARYANA HIGH COURT, WHICH IS THE JURISDICTIONAL HIGH COURT FOR THE ASSESSEE, WE SET ASIDE THE ORDER OF THE LD. CIT (APPEALS) AND DIRECT THAT THE DISALLOWA NCE U/S 14A BE DELETED. 6. IN THE FINAL RESULT, THE APPEAL OF THE ASSESSEE STANDS ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 28.02 .2019. SD/- SD/- (R.K.PANDA) (SUDHANSHU SR IVASTAVA) ACCOUNTANT MEMBER JUDICIAL MEMB ER DATED: 28.02.2019 *BR* COPY FORWARDED TO: 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(APPEALS) 5. DR: ITAT TRUE COPY ASSISTANT REGISTRAR ITAT NEW DELHI 8 ITA N O. 3023/DEL/2015 (THE SONEPAT URBAN CO-OPERATIVE BANK LTD.) DATE OF DICTATION 28/02/2019 DATE ON WHICH THE TYPED DRAFT IS PLACED BEFORE THE DICTATING MEMBER 28/02/2019 DATE ON WHICH THE TYPED DRAFT IS PLACED BEFORE THE OTHER MEMBER 28/02/2019 DATE ON WHICH THE APPROVED DRAFT COMES TO THE SR. PS/PS 28/02/2019 DATE ON WHICH THE FAIR ORDER IS PLACED BEFORE THE DICTATING MEMBER FOR PRONOUNCEMENT 28/02/2019 DATE ON WHICH THE FAIR ORDER COMES BACK TO THE SR. PS/PS 28/02/2019 DATE ON WHICH THE FINAL ORDER IS UPLOADED ON THE WEBSITE OF ITAT 28/02/2019 DATE ON WHICH THE FILE GOES TO THE BENCH CLERK 28/02/2019 DATE ON WHICH THE FILE GOES TO THE HEAD CLERK THE DATE ON WHICH THE FILE GOES TO THE ASSISTANT REGISTRAR FOR SIGNATURE ON THE ORDER DATE OF DISPATCH OF THE ORDER