M/s Nadathur Estates Pvt Ltd , Bangalore V. Assistant Commissioner of Income Tax Circle-5(1)(1), Bangalore

ITA 3248/BANG/2018

• Counselvise Citation: [2019] 116 COUNSELVISE.COM (IT) 9348 (ITAT-BANGALORE)
• Duration Of Justice: 6 month(s) 24 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 28-06-2019
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: A
• Assessment Year: 2009-2010
• Appeal Filed On: 04-12-2018
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: B R SUDHEENDRA
• Keywords: Earning of tax free income; Tax effect; TDS; Rule 8D; Set aside
• Section: 234B; 14A; 32; 10; 2; 11

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL BANGALORE BENCH ES : A , BANGALORE BEFORE SHRI A.K.GARODIA, ACCOUNTANT MEMBER AND S MT.BEENA PILLAI , JUDICAL MEMBER ITA NO S . 3 2 4 7 & 3248 (BANG)/ 20 1 8 ( ASSESSMENT YEAR S : 20 10 - 11 & 2009 - 10 ) M/S NADATHUR ESTATES PVT.LTD. PLOT N O .23, 3 RD FLOOR, N A DATHUR PAL A CE, 8H MAIN ROD, JAYANAGAR, 3 RD BLOCK, BANGALORE - 560 0 11 PAN NO. A ABCN0228P APPELLANT VS THE ASST. COMMISSIONER OF INCOME TAX , CIRCLE - 5(1)(1), BANGALORE RESPONDENT APPELLANT BY : S HRI B.R.SUDHEENDRA, A DVOCATE RE VENUE BY : SHRI PRAVEEN KARANTH, ADDL. C IT DATE OF HEARING : 19 - 0 6 - 2019 DATE OF PRONOUNCEMENT : 28 - 06 - 2019 O R D E R PER BEENA PILLAI, JUDICIAL MEMBER : PRESENT APPEALS HAS BEEN FILED BY ASSESSEE AGAINST ORDER DATED 13/08/18, PASSED BY LD.CIT (A) - 5, BANGALURU, FOR ASSESSMENT YEARS 2009 - 10 AND 2010 - 11 ON FOLLOWING GROUNDS OF APPEAL: ITA NO. 3247 & 3248 /BANG/201 8 2 2. ITA NO. 3247/BANG/2018 1 . THE ORDER PASSED B Y THE CIT(A) TO TH E EXTENT PREJUDICIAL T O THE APPELLANT IS BAD IN LAW AND LIABLE TO BE QUASHED. 2 . GROUNDS RELATING TO DISALLOWANCE U/S14A TAX EFFECT (1,03,90,272 * 33.99%)=RS.35,31,653/ - . 2 . 1 THE LD. CIT(A) HAS ERRED IN CONFIRMING THE DISALLOWANCE UNDER SECTION 14A READ WITH RULE 8D(2)(III) AT RS.1,03,90,272/ - , (1,25,70,202 21,79,930). 2.2. THE LD. CIT(A) HAS ERRED IN CONCLUDING THAT SATISFACTION OF THE ASSESSING OFFICER REGARDING INCORRECTNESS OF THE DISALLOWANCE MADE U/S 14A BY THE APPELLANT IS DISCERNIBLE FROM THE ASSESSMENT ORDER. 2.3 THE LD. CIT(A) HAS ERRED IN NOT APPRECIATING THAT IN THE ABSENCE OF ANY SATISFACTION RECORDED IN THE ASSESSMENT ORDER REGARDING THE INCORRECTNESS OF THE CLAIM OF THE APPELLANT. , DISALLOWANCE COMPUTED AND MADE BY THE LD. AO U/S 14A READ WITH RULE 8D IS BAD IN LAW AND LIABLE TO BE QUASHED. 2.4 WITHOUT PREJUDICE, THE LD.CIT(A) HAS ERRED IN NOT APPRECIATING THAT IF ONLY DIVIDEND YIELDED INVESTMENTS ARE CONSIDERED FOR COMPUTING DIS ALLOWANCE U/S 14A READ WITH RULE 8D (2)(III), THE SAME WOULD BE AT RS.40,38,573/ - AND THE NET DISALLOWANCE AFTER REDUCING THE VOLUNTARY DISALLOWANCE U/S 14A BY THE APPELLANT AMOUNTING TO RS.21,79,930/ - WOULD ONLY BE RS.18,58,643/ - (40,38,574 - 21,79,930) CONS EQUENTLY, DISALLOWANCE U/S 14A READ WITH RULE 8D(2)(III), IF ANY, SHOULD BE RESTRICTED TO RS.18,58,643/ - 2.5 LEVY OF INTEREST U/S 234B AND 234C IS BAD IN LAW AND LIABLE TO BE QUASHED. ITA NO. 3247 & 3248 /BANG/201 8 3 ITA NO.3248/BANG/2018 1 . THE ORDER PASSED BY THE CIT( A) TO THE EXTENT PREJUDICIAL TO THE APPELLANT IS BAD IN LAW AND LIABLE TO BE QUASHED. 2.2 GROUNDS RELA TING TO DISALLOWANCE U/S14A TAX EFFECT 85,02,752* , 33. 99%)=RS. 28,90,085/ - . 2 . 1 THE LD. CIT(A) HAS ERRED IN CONFIRMING THE DISALLOWANCE UNDER SECTION 14A READ WITH RULE 8D(2)(III) AT RS. 85,02,752.(1,44,61,138 - 59,58,286) 2.2. THE LD. CIT(A) HAS ERRED IN CONCLUDING THAT SATISFACTION OF THE ASSESSING OFFICER REGARDING INCORRECTNESS OF THE DISALLOWANCE MADE U/S 14A BY THE APPELLANT IS DISCERNIBLE FROM THE A SSESSMENT ORDER. 2.3 THE LD. CIT(A) HAS ERRED IN NOT APPRECIATING THAT IN THE ABSENCE OF ANY SATISFACTION RECORDED IN THE ASSESSMENT ORDER REGARDING THE INCORRECTNESS OF THE CLAIM OF THE APPELLANT., DISALLOWANCE COMPUTED AND MADE BY THE LD. AO U/S 14A RE AD WITH RULE 8D IS BAD IN LAW AND LIABLE TO BE QUASHED. 2.4 WITHOUT PREJUDICE, THE LD.CIT(A) HAS ERRED IN NOT APPRECIATING THAT IF ONLY DIVIDEND YIELDED INVESTMENTS ARE CONSIDERED FOR COMPUTING DISALLOWANCE U/S14A READ WITH RULE 8D(2)(III), THE SAME WOUL D BE AT RS. 56,79,945/ - WHICH IS LESS THAN THE VOLUNTAR Y DISALLOWANCE U/S 14A BY THE APPELLANT AMOUNTING TO RS. 59,58,285/ - . CONSEQUENTLY, NO DISALLOWANCE IS WARRANTED U/S 14A READ WITH RULE 8D. 3. BOTH PARTIES SUBMITTED THAT, ONLY ISSUE FOR CONSIDERATION IS IN RESPECT OF DISALLOWANCE COMPUTED UNDER SECTION 14 A, READ WITH RULE 8D 2(III) OF INCOME TAX R ULES. IT HAS BEEN SUBMITTED THAT , THIS TRIBUNAL , EARLIER VIDE ORDER DATED 30/12/15 SET ASIDE THE IS SUE TO LD.AO, FOR RE - COMPUTING DISALLOWANCE , U/S 14A AFRESH. ITA NO. 3247 & 3248 /BANG/201 8 4 LD.COUNSEL SUBMITTED THAT ASSESSEE DURING YEARS UNDER CONSIDERATION EARNED TAX FREE INCOME FROM MUTUAL FUNDS, AND CERTAIN EQUITY SHARES. HOWEVER, LD.AO WITHOUT APPRECIATING VARIOUS JUDICIAL PRECE DENTS AGAIN COMPUTED AVERAGE INVESTMENTS UNDER RULE 8 D 2 (III) ON TOTAL INVESTMENTS, WHICH INCLUDED SUCH INVESTMENTS , WHICH DID NOT YIELD ANY EXEMPT INCOME DURING THE YEAR UNDER CONSIDERATION . IT HAS BEEN SUBMITTED THAT , FOR BOTH YEARS UNDER CONSIDERATION FACTS ARE IDENTICAL AND THIS TRIBUNAL VIDE CONSOLIDATED ORDER DATED 30/12/15 SET ASIDE BOTH YEARS BACK TO LD.AO. BASED UPON ABOVE SUBMISSIONS, WE REFER TO FACTS FOR ASSESSMENT YEAR 2009 - 10 AND WOULD DECIDE UPON ISSUE FOR ASSESSMENT YEAR 2009 - 10, WHICH SHA LL APPLY MUTATIS MUTATANDIS TO ASSESSMENT YEAR 2010 - 11. 4 . BRIEF FACTS OF THE CASE ARE AS UNDER: (AY 2009 - 10) ASSESSEE IS A PRIVATE LIMITED COMPANY, ENGAGED IN BUSINESS OF INVESTING IN REAL ESTATE PROPERTIES, SHARES OF UNLISTED COMPANIES AND UNITS OF MUTUAL FUNDS. LD.AO WHILE CONSIDERING ISSUE IN REMAND PROCEEDINGS HAD ALL DETAILS OF QUOTED EQUITY SHARES AND MUTUAL FUNDS FROM WHICH DIVI DENDS WERE RECEIVED BY ASSESSEE DURING THE YEAR. DETAILS OF DIVIDEND YIELDING INVESTMENT HAS BEEN PLACED AT PAGE 130 OF PAPER BOOK. IT IS OBSERVED THAT AT PAGE 131, ASSESSEE HAS LISTED ALL OTHER INVESTMENTS FROM WHICH NO DIVIDEND HAS BEEN RECEIVED DURING THE YEAR UNDER CONSIDERATION. THE LIST AT PAGE 131 GIVES DETAILS OF ITA NO. 3247 & 3248 /BANG/201 8 5 COMPANIES WHERE ASSESSEE HAS INVESTED IN SHARE APPLICATION . SIMILAR IS THE POSITION FOR ASSESSMENT YEAR 2010 - 11, WHEREIN DETAILS OF DIVIDEND YIELDING INVESTMENTS ARE PLACED AT PAGE 115 OF PAPER BOOK AND PAGE 116 CONSISTS OF ENTIRE LIST OF INVESTMENT INCLUDING COMPANY WHERE ASSESSEE INVESTED IN SHARE APPLICATION. 5. LD.COUNSEL , AT THE OUTSET , SUBMITTED THAT FOR PURPOSES OF COMPUTING DISALLOWANCE UNDER SECTION 14 A, INVESTMENT THAT YIELDED DIVIDEND SHOULD ONLY BE CONSIDERED FOR COMPUTING AVERAGE INVESTMENT UNDER RULE 8 D 2 (III). IN SUPPORT OF HIS SUBMISSION HE PLAC ED RELIANCE UPON DECISION OF THIS TRIBUNAL IN ASSESSEES OWN CASE FOR ASSESSMENT YEARS 2011 - 12 AND 2013 - 14 IN ASSESSEES OWN CASE WHEREIN THIS TRIBUNAL VIDE ORDER DATED 03/05/2019, HELD AS UNDER: THEREFORE, WE SUPPORT OUR VIEW RELYING ON THE DECISION OF S PECIAL BENCH IN RESTORING THIS DISPUTED ISSUE TO THE FILE OF AO TO RECALCULATE DISALLOWANCE UNDER SECTION 14 A READ WITH RULE 8 D(2) (III) BY INCLUDING THOSE INVESTMENT WHICH YIELDED EXEMPTED INCOME. LEARNED AR FURTHER SUBMITTED THAT THE DISALLOWANCE CANNO T EXCEED THE DIVIDEND INCOME AND RELIED ON THE DECISION OF CHEMINVEST LTD VS CIT (61 TAXMAN.COM 118 (DEL). ACCORDINGLY, WE RESTORE THE ENTIRE DISPUTED ISSUE TO THE FILE OF THE AO TO RECALCULATE THE DISALLOWANCE UNDER SECTION 14 A READ WITH RULE 8D (2) (III ) AND ALLOW GROUNDS OF APPEAL OF ASSESSEE FOR STATISTICAL PURPOSES. 6. LD.AR SUBMITTED THAT SPECIAL BENCH DECISION IN CASE OF ACIT VS VIREET INVESTMENTS (P) LTD REPORTED IN 82 TAXMANN.COM 415 (DEL) SUPPORTS AFORE STATED VIEW TAKEN ITA NO. 3247 & 3248 /BANG/201 8 6 BY THIS TRIBUNAL IN ASSESSEES OWN CASE FOR SUCCEEDING ASSESSMENT YEARS. HE ALSO SUBMITTED THAT DISALLOWANCE CANNOT BE MORETHAN EXEMPT INCOME BY PLACING RELIANCE UPON DECISION OF HON'BLE DELHI HIGH COURT IN THE CASE O F JOINT INVESTMENTS PVR.LTD. VS CIT (2015) 59 TAXMANN.CO M 295. 7 . LD.SR.DR THOUGH SUPPORTED ORDER IS PASSED BY AUTHORITIES BELOW BUT COULD NOT CONTROVERT THEREFORE STATED VIEWS TAKEN BY THIS TRIBUNAL WHICH HAS BEEN RELIED UPON BY LD.AR. 8. WE HAVE PERUSED SUBMISSIONS ADVANCED BY BOTH SIDES IN THE LIGHT OF THE RECORDS PLACED BEFORE US. IT IS OBSERVED THAT THE ONLY ISSUE THAT NEEDS TO BE CONSIDERED IS IN RESPECT OF INVESTMENTS THAT SHOULD BE CONSIDERED WHILE COMPUTING DISALLOWANCE UNDER SECTION 14 A READ WITH RULE 8D OF INCOME TAX RULES. IT IS A SETTLED PREP OSITION BY VARIOUS HIGH COURTS AND DECISION OF SPECIAL BENCH OF THIS TRIBUNAL RELIED UPON BY ASSESSEE THAT INVESTMENTS THAT YIELDED EXEMPT INCOME SHOULD ONLY BE CONSIDERED FOR PURPOSES OF COMPUTING AVERAGE INVESTMENT UNDER THE 3 RD LIMB OF R ULE 8D (2) OF IN COME TAX RULES 1963. FURTHER WE AGREE WITH WRITTEN SUBMISSIONS OF LD. C OUNSEL THAT DISALLOWANCE CANNOT EXCEED EXEMPT INCOME AS LAID DOWN BY HON'BLE DELHI HIGH COURT IN CASE OF JO INT INVESTMENTS PVT.LTD. VS CIT (SUPRA) RESPECTFULLY FOLLOWING THE VIEW, WE ARE OF CONSIDERED OPINION THAT WHILE COMPUTING AVERAGE INVESTMENTS UNDER THE 3 RD LIMB OF RULE 8D (2) ONLY THOSE INVESTMENTS THAT YIELDED EXEMPT INCOME SHOULD BE CONSIDERED. WE ALSO ITA NO. 3247 & 3248 /BANG/201 8 7 DIRECT LD. AO TO RESTRICT DISALLOWANCE TO THE EXEMPT INCOME, IN THE EVENT IT EXCEEDS EXEMPT INCOME. WE, THEREFORE, DIRECT LD.AO TO COMPUTE THE DISALLOWANCE UNDER SECTION 14 A, AS DIRECTED HEREINABOVE. 9. ACCORDINGLY, GROUND RAISED BY ASSESSEE STANDS ALLOWED. 10. IN THE RESULT, APPEAL S FILED BY ASSESSEE STANDS ALLOWED. O RDER PRONOUNCED IN THE OPEN COURT ON 28 TH JUNE, 2019. (A.K.GARODIA) (BEENA PILLAI) ACCOUNTANT MEMBER JUDICIAL MEMBER DATED: THE 28 TH JUNE, 2019. *AM COPY OF THE ORDER FORWARDED TO: 1.APPELLANT; 2.RESPONDENT; 3.CIT; 4.CIT(A); 5. DR 6. ITO (TDS) 7.GUARD FILE BY ORDER ASST. REGISTRAR ITA NO. 3247 & 3248 /BANG/201 8 8 DATE 1. DRAFT DICTATED DIRECTLY ON COMPUTER SYSTEM 2. DRAFT PLACED BEFORE AUTHOR 3. DRAFT PROPOSED & PLACED BEFORE THE SECOND MEMBER 4. DRAFT DISCUSSED/APPROVED BY SECOND MEMBER. 5. APPROVED DRAFT COMES TO THE SR.PS/PS 6. KEPT FOR PRONOUNCEMENT ON 7. FILE SENT TO THE BENCH CLERK 8. DATE ON WHICH FILE GOES TO THE AR 9. DATE ON WHICH FILE GOES TO THE HEAD CLERK. 10. DATE OF DISPATCH OF ORDER. 11. DRAFT DICTATION SHEETS ARE ATTACHED