Mustang Trading & Investments Pvt. Ltd., CHENNAI V. DCIT, CHENNAI

ITA 3289/CHNY/2016

• Counselvise Citation: [2017] 128 COUNSELVISE.COM (IT) 5004 (ITAT-CHENNAI)
• Duration Of Justice: 4 month(s) 7 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 12-04-2017
• Appeal Filed By: Assessee
• Bench Allotted: D
• Next Hearing Date: 19-01-2017
• Assessment Year: 2012-2013
• Appeal Filed On: 05-12-2016
• Court: TRIBUNAL
• Department Lawyers: R DURAI
• Assessee Lawyers: J P GIREESH
• Keywords: Assessment record
• Section: 143(3); 14A

Judgement Text

, , IN THE INCOME - TAX APPELLATE TRIBUNAL D BENCH, CHENNAI , . , BEFORE SHRI CHANDRA POOJARI , ACCOUNTANT MEMBER & SHRI DUVVURU RL REDDY , JUDICIAL MEMBER ./ I.T.A.NO. 3289/MDS/2016 / ASSESSMENT YEAR :20 12 - 1 3 M/S. MUSTANG TRADING & INVESTMENTS PVT. LTD., ELDORADO , 5 TH FLOOR, NO. 112, NUNGAMBAKKAM HIGH ROAD, CHENNAI 600 034. [PAN: A AACM4620P ] VS. THE DEPUTY COMMIS SIONER OF INCOME TAX, CORPORATE CIRCLE 4(1 ), CHENNAI . ( / APPELLANT ) ( / RESPONDENT ) / APPELLANT BY : SHRI J.P. GIREESH, C.A. / RESPONDENT BY : SHRI R. DURAI PANDIAN , J CIT / DATE OF HEARING : 19 . 0 1 .201 7 / DATE OF P RONOUNCEMENT : 12 . 0 4 .201 7 / O R D E R PER DUVVURU RL REDDY , JUDICIAL MEMBER : THIS APPEAL FILED BY THE ASSESSEE IS DIRECTED AGAINST THE ORDER OF THE LD. COMMISSIONER OF INCOME TAX (APPEALS) 8 , C HENNAI DATED 3 0. 09 .201 6 RELEVANT TO THE ASSESSMENT YEAR 20 12 - 1 3 . THE ONLY EFFECTIVE GROUND RAISED IN THE APPEAL OF THE ASSESSEE IS THAT THE LD. CIT(A) HAS ERRED IN CONFIRMING THE DISALLOWANCE MADE UNDER SECTION 14A OF THE INCOME TAX ACT, 1961 [ ACT IN SHORT] R.W. RULE 8D OF IT RULES. I.T.A. NO . 3289 /M/ 1 6 2 2. BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE IS ENGAGED IN THE BUSINESS OF TRADING IN FERTILIZERS AND PESTICIDES AND SHARES. IT HAS FILED RETURN OF INCOME FOR THE ASSESSMENT YEAR 2012 - 13 ON 30.09.2012 A DMITTING TOTAL LOSS AT .7,20,55,055/ - . THE RETURN FILED BY THE ASSESSEE WAS SELECTED FOR SCRUTINY AND ISSUED STATUTORY NOTICES. IN RESPONSE THERETO, THE ASSESSEE FURNISHED ALL DETAILS BEFORE THE ASSESSING OFFICER. AFTER EXAMINING THE DETAILS FILED BY THE ASSESSEE AND CONSIDERING THE SUBMISSIONS OF THE ASSESSEE, THE ASSESSMENT UNDER SECTION 143(3) OF THE ACT WAS COMPLETED ON 30.03.2015 ASSESSING TOTAL LOSS OF THE ASSESSEE AT . 4,37,45,095/ - AFTER MAKING VARIOUS DISALLOWANCES. 3. THE ASSESSEE CARRIED THE MATTER IN APPEAL BEFORE THE LD. CIT(A). AFTER VERIFYING THE ASSESSMENT RECORDS AND CONSIDERING THE SUBMISSIONS OF THE ASSESSEE, THE LD. CIT(A) PARTLY ALLOWED THE APPEAL FILED BY THE ASSESSEE. 4. ON BEING AGGRIEVED, THE ASSESSEE IS IN APPEAL BEFORE THE TRIBUNAL CHALLENGING THE CONFIRMATION OF DISALLOWANCE MADE UNDER SECTION 14A R.W. RULE 8D. AT THE TIME OF HEARING, THE LD. COUNSEL FOR THE ASSESSEE HAS SUBMITTED THAT THE ISSUE IS SQUARELY COVERED IN FAVOUR OF THE ASSESSEE BY THE DECISION OF THE TRIBUNAL I N ASSESSEE S OWN CASE FOR EARLIER ASSESSMENT YEARS AND PRAYED THAT THE SAME SHOULD BE FOLLOWED FOR THE ASSESSMENT YEAR UNDER CONSIDERATION. I.T.A. NO . 3289 /M/ 1 6 3 5. PER CONTRA, THE LD. DR SUPPORTED THE ORDERS OF AUTHORITIES BELOW. 6. WE HAVE HEARD BOTH SIDES, PERUSED THE MATERIALS AVAILABLE ON RECORD AND GONE THROUGH THE ORDERS OF AUTHORITIES BELOW. WITH REGARD TO THE ISSUE OF DISALLOWANCE OF .2,47,20,914/ - MADE UNDER SECTION 14A R.W. RULE 8D, ADMITTEDLY, THE ASSESSEE HAS EARNED DIVIDEND INCOME AT .1,25,618/ - OUT OF INVESTMENT MADE DURING THE PERIOD 1994 - 95 TO 2002 - 03, WHEN THERE WAS SURPLUS FUNDS. FURTHER, THE ASSESSEE HAS RAISED THE SHARE A PPLICATION MONEY TO THE EXTENT OF .34.84 CRORES DURING THE ASSESSMENT YEARS 2006 - 07 AND 2008 - 09, WHICH ARE OF ASSESSEE S OWN FUND . DURING THE COURSE OF ASSESSMENT PROCEEDINGS, T HE ASSESSING OFFICER HAS OBSERVED THE ASSESSEE HAS MADE INVESTMENT IN NON - CURR ENT INVESTMENT IN EQUITY INSTRUMENTS (APART FROM THE SHARES HELD AS STOCK - IN - TRADE) TO EARN THE DIVIDEND WHICH IS NOT CHARGEABLE TO TAX. AS PER THE PROVISIONS OF S ECTION 14A OF THE ACT, WHEN THE ASSESSEE MAKES AN INVESTMENT , THE INCOME FROM WHICH IS NOT IN CLUDIBLE IN TAXABLE INCOME, THE EXPENDITURE RELEVANT TO THE SAID INVESTMENTS IS NOT TO BE ALLOWED AS PER THE PROVISIONS OF S ECTION 14A OF THE ACT. WHEN THE ASSESSEE WAS SHOW CAUSE D AS TO W HY THE EXPENDITURE S HOULD NOT BE DISALLOWED UNDER SECTION 14A OF THE ACT , I T WAS SUBMITTED THAT THE ASSESSEE COMPANY DID NOT INCUR ANY EXPENDITURE TO EARN THE DIVIDEND INCOME SINCE THE INVESTMENT S WERE MADE FROM SURPLUS FUNDS OF THE ASSESSEE COMPANY DURING THE RESPECTIVE PERIOD. IT WAS ALSO STATED THAT THE INTEREST CHARGES TO IL&FS I.T.A. NO . 3289 /M/ 1 6 4 FINANCIAL SERVICES LIMITED CONSTITUTE THE MAJORITY OF THE EXPENSES RELATES ONLY TO THE STOCK OF SHARES HELD AS TRADE - IN - STOCK OF THE ASSESSEE. AS HAS BEEN SUBMITTED DURING THE COURSE OF ASSESSMENT PROCEEDINGS, ATLEAST A PART OF THE FUNDS OF THE L OAN RAISED FROM IL&FS FINANCIAL SERVICES LIMITED TO MAKE FURTHER ICDS IN GROUP COMPANIES, ETC., THEREFORE, THE ASSESSING OFFICER HAS OBSERVED THAT THE SUBMISSION OF THE ASSESSEE THAT NO EXPENDITURE WAS INCURRED EITHER IN THE FORM OF INTER E ST OR OTHERWISE T OWARDS MAKING INVESTMENTS, THE INCOME FROM WHICH IS NOT CHARGEABLE TO TAX, IS NOT CORRECT. ACCORDINGLY, THE ASSESSING OFFICER HAS WORKED OUT THE EXPENDITURE COMPONENT UNDER SECTION 14A R.W. RULE 8D AND MADE DISALLOWANCE OF .2,47,20,914/ - . BY FOLLOWING THE DECISION IN THE CASE OF CIT V. RELIANCE UTILITIES & POWER LTD. 313 ITR 340, THE LD. CIT(A) CONFIRMED THE DISALLOWANCE MADE BY THE ASSESSING OFFICER. 6.1 ADMITTEDLY, THE ASSESSEE HAS EARNED DIVIDEND INCOME AND SPECIFICALL Y SUBMITTED BEFORE THE AUTHORITIES BELOW THAT IT HAS NOT INCURRED ANY EXPENDITURE IN RELATION TO THE INVESTMENTS. HOWEVER, THE ASSESSMENT ORDER DOES NOT SPEAK OR THE ASSESSING OFFICER HAS NOT VERIFIED AS TO WHETHER THE INTEREST EXPENDITURE INCURRED WAS IN RELATION TO TERM LOANS RAISED BY M/S. IL&FS, WHICH WERE USED FOR THE PURPOSES OF OTHER THAN INVESTMENTS WHICH EARNED TAX - FREE INCOME. WE ARE OF THE CONSIDERED OPINION THAT RULE 8D CAN BE INVOKED ONLY IF THE ASSESSING OFFICER WAS NOT SATISFIED WITH THE I.T.A. NO . 3289 /M/ 1 6 5 CORR ECTNESS OF THE CLAIM OF THE ASSESSEE REGARDING THE EXPENDITURE INCURRED FOR EARNING THE TAX - FREE INCOME. IN SIMILAR FACTS AND CIRCUMSTANCES ON AN IDENTICAL ISSUE, FOR THE ASSESSMENT YEAR 2010 - 11 IN ASSESSEE S OWN CASE IN I.T.A. NO. 114/MDS/2016 VIDE ORDER DATED 23.11.2016, THE COORDINATE BENCHES OF THE TRIBUNAL HAS OBSERVED AND HELD AS UNDER: 5. WE HAVE CONSIDERED THE SUBMISSIONS OF BOTH THE PARTIES AND PERUSED THE MATERIAL PLACED BEFORE US. ON IDENTICAL FACTS IN ASSESS E E S OWN CASE FOR THE ASSESSMENT YEA R 2008 - 09 AND 2009 - 10 IN ITA NO.1455 & 1456/MDS/2013, HON BLE ITAT, CHENNAI REMITTED THE ISSUE BACK TO THE FILE OF THE ASSESSING OFFICER WITH THE FOLLOWING DIRECTIONS. WE HAVE PERUSED THE ORDERS AND HEARD THE RIVAL SUBMISSIONS. IMPUGNED ASSESSMENT YEAR B EING 2009 - 10, ASSESSING OFFICER WAS ENTITLED TO INVOKE SECTION 14A READ ALONG WITH RULE 8D. NEVERTHELESS, ARGUMENT OF THE ASSESSEE BEFORE THE A.O. WAS THAT IT HAD NOT INCURRED ANY EXPENDITURE IN RELATION TO THE INVESTMENTS WHICH HAD RESULTED IN TAX - FREE IN COME. ASSESSEE HAD SPECIFICALLY MENTIONED THAT IT HAD NOT I NCURRED ANY EXPENDITURE FOR EARNING THE DIVIDEND INCOME OF RS.1,08,367/ - . ASSESSEE ALSO MENTIONED THAT INVESTMENTS MADE IN THE EARLIER YEARS WERE FROM SURPLUS FUNDS WITH IT. ASSESSING OFFICER THOUG H HE MENTIONED THAT THE CLAIM OF THE ASSESSEE WAS NOT ACCEPTABLE, HAD NOT MADE A VERIFICATION AS TO WHETHER INTEREST EXPENDITURE INCURRED WAS IN RELATION TO TERM LOANS RAISED FROM M/S IL&FS, WHICH WERE USED F OR PURPOSES OTHER THAN INVESTMENTS WHICH EARNED TAX - FREE INCOME. RULE 8D CAN BE INVOKED ONLY IF ASSESSING OFFICER WAS NOT SATISFIED WITH THE CORRECTNESS OF THE CLAIM OF THE ASSESSEE REGARDING THE EXPENDITURE INCURRED FOR EARNING THE TAX - FREE INCOME. CO - ORDINATE BENCH OF THIS TRIBUNAL IN THE CASE OF CI T V. BEST AND CROMPTON ENGINEERING (I.T.A. NO. 1603/MDS/2012 DATED 16.7.2013), AS WELL AS CALCUTTA BENCH OF THIS TRIBUNAL IN THE CASE OF ACIT V. CHAMPION COMMERCIAL COMPANY LTD. (I.T.A. N O. 644/KOL/2012) HAVE HELD THAT UNLESS AND UNTI L INTEREST EXPENDITURE WAS INCURRED BY THE ASSESSEE FOR MAKING INVESTMENTS RESULTING IN TAX - FREE INCOME, A DISALLOWANCE UNDER SUB - CLAUSE (II) TO RULE 8D(2) COULD NOT BE DONE. SINCE AN ANALYSIS OF T HE CLAIM OF ASSESSEE THAT IT HAD INCURRED NO EXPENDITURE FO R EARNING TAX - FREE INCOME WAS NOT DONE BY THE LOWER AUTHORITIES, WE ARE OF THE OPINION THAT THE MATTER REQUIRES A FRESH LOOK BY THE ASSESSING OFFICER. W E, THEREFORE, SET ASIDE THE ORDERS OF AUTHORITIES BELOW AND REMIT THE ISSUE REGARDING DISALLOWANCE UNDE R SECTION 14A BACK TO THE FILE OF THE A.O. FOR CONSIDERATION AFRESH IN ACCORDANCE WITH LAW . I.T.A. NO . 3289 /M/ 1 6 6 6. SINCE THE FACTS ARE IDENTICAL, RESPECTFULLY FOLLOWING THE DECISION OF COORDINATE BENCH, WE SET ASIDE THE ORDERS OF THE LOWER AUTHORITIES AND REMIT T HE ISSUE TO THE FILE OF THE AO WITH A DIRECTION TO ANALYZE THE CLAIM OF THE ASSESSEE THAT NO EXPENDITURE WAS INCURRED AND DECIDE THE MATTER AFRESH IN ACCORDANCE WITH LAW. 6.2 RESPECTFULLY FOLLOWING THE ABOVE DECISION OF THE COORDINATE BENCHES OF THE TRIBUNAL, FOR THE ASSESSMENT YEAR 12 - 13 ALSO, WE DIRECT THE ASSESSING OFFICER TO ANALYZE THE CLAIM OF THE ASSESSEE AND DECIDE THE ISSUE AFRESH IN ACCORDANCE WITH LAW AFTER ALLOWING OPPORTUNITY OF HEARING TO THE ASSESSEE . WHILE DOING SO, THE ASSESSING OFFICER IS DIRECTED TO KEEP IN MIND THE DECISION OF HON BLE DELHI HIGH COURT IN THE CASE OF JOINT INVESTMENTS PVT. LTD. V. CIT 372 ITR 694 TO ENSURE THAT THE DISALLOWANCE UNDER SECTION 14A R.W. RULE 8D SHOULD NOT EXCEED THE DIVIDEND INCOME EARNED BY THE ASSESSEE . 7. IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE IS ALLOWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED ON THE 12 TH APRIL, 201 7 AT CHENNAI. SD/ - SD/ - ( CHANDRA POOJARI ) ACCOUNTANT MEMBER ( DUVVURU RL REDDY ) JUDICIAL MEMBER CHENNAI, DATED, THE 12 . 0 4 .201 7 VM/ - / COPY TO: 1. / APPELLANT , 2. / RESPONDENT , 3. ( ) / CIT(A) , 4. / CIT , 5. / DR & 6. / GF.