Yarlagadda Chandra Sekhar, Vizianagaram V. Assistant Commissioner of Income Tax, Circle-3(1), Visakhapatnam

ITA 329/VIZ/2018

• Counselvise Citation: [2018] 121 COUNSELVISE.COM (IT) 9940 (ITAT-VISAKHAPATNAM)
• Duration Of Justice: 3 month(s) 6 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 26-09-2018
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: SMC
• Assessment Year: 2014-2015
• Appeal Filed On: 19-06-2018
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: K C DAS
• Keywords: Revision of order; Earning of tax free income
• Section: 143(3); 14A; 263

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. 3 29 /VIZ/ 201 8 ( / ASSESSMENT YEAR: 20 1 4 - 1 5 ) YARLAGADDA CHANDRA SEKHAR D.NO.8 - 12 - 72, BALAJI NAGAR NEAR SP BUNG A LOW VIZIANAGARAM [PAN : A BFPC0495B ] VS. ACIT, CIRCLE - 3(1) VISAKHAPATNAM ( / APPELLANT) ( / RESPONDENT) / APPELLANT BY : SHRI G.V.N.HARI , AR / RESPONDENT BY : SHRI K.C.DAS , DR / DATE OF HEARING : 20 . 0 9 .201 8 / DATE OF PRONOUNCEMENT : 26 . 0 9 .201 8 / O R D E R PER 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) ] - 1 0 , HYDERABAD VIDE I.T.A .NO. 0175/CIT(A) - 10 /201 7 - 1 8/CIT(A),HYD - 10/10154/2017 - 18 DATED 15 . 0 5 .201 8 FOR THE ASSESSMENT YEAR 201 4 - 1 5 . 2 ITA NO . 3 29 /VIZ/201 8 YARLAGADDA CHANDRA SEKHAR , VIZIANAGARAM 2. ALL THE GROUNDS OF APPEAL ARE RELATED TO THE DISALLOWANCE OF EXPENDITURE RELATING TO THE EARNING OF DIVIDEND INCOME. DURING THE ASSESSMENT PROCEEDINGS, THE ASSESSING OFFICER (AO) FOUND THAT THE ASSESSEE HAD MADE THE INVESTMENTS IN COMPANIES TO THE EXTENT OF RS. 44,43,408/ - WHICH YIELDS EXEMPT INCOME BUT DID NOT MAKE THE DISALLOWANCE AS REQUIRED U/S 14A R.W.RULE 8D OF INCOME TAX RULES. THEREFORE, THE AO MADE THE DISALLOWANCE OF RS.1,89,829/ - AS PER RULE 8D OF INCOME TAX RULES. 3. AGGRIEVED BY THE ORDER OF THE AO, THE ASSESSEE FILED APPEAL BEFORE THE CIT(A) AND THE LD.CIT(A) CONFIRMED THE ORDER OF THE AO PLACING RELIANCE ON THE DECISION OF HONBLE BOMBAY HIGH COURT IN THE CASE OF GODREJ & BOYCE MANUFACTURING CO. LTD. [328 ITR 81]. 4. AGGRIEVED BY THE ORDER OF THE LD.CIT(A), THE ASSESSEE CARRIED THE MATTER BEFORE THE TRIBUNAL. 5. WE HAVE HEARD B OTH THE PARTIES AND PERUSED THE MATERIAL PLACED ON RECORD. IN THIS CASE, THE LD.AR BROUGHT TO OUR NOTICE THAT THERE WAS NO DIVIDEND INCOME EARNED BY THE ASSESSEE DURING THE YEAR UNDER CONSIDERATION , T HEREFORE, THE QUESTION OF DISALLOWANCE DOES NOT ARISE. THE 3 ITA NO . 3 29 /VIZ/201 8 YARLAGADDA CHANDRA SEKHAR , VIZIANAGARAM ASSESSEE RELIED ON THE DECISION OF THIS TRIBUNAL IN THE CASE OF M/S RASHTRIYA ISPATH NIGAM LIMITED (RINL), VISAKHAPATNAM IN I . T . A . NO.13/VIZ/2013, 664/VIZ/2013 & 57 & 64/VIZ/2014 DATED 22.11.2017 AND ARGUED THAT THE ASSESSEES CASE IS SQUARELY COVERED BY THE DECISION CITED SUPRA. THERE IS NO DISPUTE WITH REGARD TO THE FACT THAT THE ASSESSEE DID NOT EARN THE DIVIDEND INCOME. THIS TRIBUNAL CO NSIDERED HAD AN OCCASION TO CONSIDER THE IDENTICAL ISSUE WITH REGARD T O THE DISALLOWANCE REQUIRED TO BE MADE U/S 14A R.W.RULE 8D IN THE ABSENCE OF DIVIDEND INCOME IN THE CITED CASE AND HELD THAT NO DISALLOWANCE IS REQUI R ED TO BE MADE U/S 14A IN CASE OF NOT EARNING THE DIVIDEND INCOME. THIS TRIBUNAL HAS FOLLOWED THE DECISION OF HONBLE MADRAS HIGH COURT IN THE CAS E OF REDINGTON INDIA PRIVATE LIMITED VS. ACIT [77 TAXMANN.COM 257]. FOR READY REFERENCE, WE EXTRACT RELEVANT PART OF THE ORDER OF THIS TRIBUNAL IN THE CASE OF RINL DATED 22.11.2017 (SUPRA) WHICH READS AS UNDER : 36. WE HAVE HEARD BOTH THE PARTIES, PERUSED THE MATERIALS AVAILABLE ON RECORD AND GONE THROUGH THE ORDERS OF THE AUTHORITIES BELOW. THERE IS NO DISPUTE WITH REGARD TO THE LD. A.RS CONTENTION THAT THE ASSESSEE COMPANY HAS NO EXEMPT INCOME IN THE YEAR UNDER CONSIDERATION. THIS TRIBUNAL FOLLO WING THE JUDGMENT OF HONBLE MADRAS HIGH COURT IN THE CASE OF REDINGTON INDIA PRIVATE LIMITED VS. ACIT 77 TAXMANN.COM 257 HELD IN THE CASE RELIED UPON BY THE ASSESSEE THAT WHEN THERE IS NO EXEMPT INCOME, THERE IS NO CASE FOR MAKING THE DISALLOWANCE U/S 14A R.W.R 8D OF THE ACT. FOR READY REFERENCE WE EXTRACT THE RELEVANT PARAGRAPH OF THE ORDER OF THE ORDER OF THE TRIBUNAL CITED (SUPRA) WHICH READS AS UNDER: 6. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL ON RECORD. THE ASSESSEE HAS RENTAL IN COME FROM GODOWNS AND THE 4 ITA NO . 3 29 /VIZ/201 8 YARLAGADDA CHANDRA SEKHAR , VIZIANAGARAM BUSINESS LOSS. THE ASSESSING OFFICER HAS COMPLETED THE ASSESSMENT U/S 143(3) BY ORDER DATED 04.11.2011. THE LD.CIT HAS CALLED FOR THE RECORD U/S 263 AND ISSUED THE NOTICE FOR REVISION FOR INCORRECT SET OFF OF BUSINESS LOSS AGAINS T THE RENTAL INCOME. AFTER VERIFICATION OF THE MATERIAL ON RECORD, THE LD.CIT HAS DROPPED THE ISSUE WITH REGARD TO INCORRECT SET OFF OF BUSINESS LOSS AGAINST THE INCOME FROM PROPERTY WHICH WAS EXAMINED BY THE ASSESSING OFFICER. DURING THE COURSE OF REVIS ION PROCEEDINGS, IT HAS COME TO THE NOTICE OF LD.CIT THAT THE ASSESSEE HAS MADE INVESTMENTS IN SHARES AND BONDS AND DID NOT MAKE DISALLOWANCE WHICH WAS REQUIRED TO BE MADE U/S14A OF IT ACT. THE ASSESSEE EXPLAINED THAT THERE WERE NO EXPENSES INCURRED IN RE LATION TO THE EXEMPT INCOME WHICH WAS CLAIMED AS DEDUCTION FOR THE ASSESSMENT YEAR 2009 - 10. HENCE, THE ASSESSEE ARGUED BEFORE THE LD.CIT THAT SECTION 14A IS NOT APPLICABLE IN ASSESSEES CASE. AS PER THE OBSERVATION OF THE LD.CIT, THE ASSESSEE MADE THE IN VESTMENTS TO THE TUNE OF RS.19,90,625/ - IN SHARES AND BONDS FROM THE BORROWED FUNDS AND THE INTEREST EXPENDITURE RELATING TO THE EARNING OF DIVIDEND INCOME IS REQUIRED TO BE DISALLOWED U/S 14A. THOUGH CIT OPINED THAT THE EXPENDITURE RELATING TO THE EARNIN G OF DIVIDEND INCOME REQUIRED TO BE DISALLOWED, THERE WAS NO FINDING GIVEN BY THE CIT IN HIS ORDER WITH REGARD TO EARNING OF DIVIDEND INCOME. THE CIT ALSO DID NOT REBUT THE EXPLANATION OFFERED BY THE ASSESSEE STATING THAT NO EXPENDITURE WAS INCURRED FOR M AKING THE INVESTMENTS. THE LD.DR DID NOT MAKE ANY CLARIFICATION WITH REGARD TO THE QUANTUM OF DIVIDEND INCOME EARNED BY THE ASSESSEE. THE LD.AR SUBMITTED PAPER BOOK ENCLOSING THE COPY OF STATEMENT OF COMPUTATION, RETURN OF INCOME, BALANCE SHEET AND PROFIT AND LOSS ACCOUNT. IT IS SEEN FROM THE PROFIT AND LOSS ACCOUNT AND THE STATEMENT OF COMPUTATION OF INCOME THAT THE ASSESSEE HAS NOT DERIVED ANY DIVIDEND INCOME. WHEN THE ASSESSEE HAS NO EXEMPT INCOME, THE QUESTION OF DISALLOWANCE U/S14A R.W.RULE 8D IS NO T CALLED FOR. THE SAME VIEW IS EXPRESSED BY THE DECISION OF HONBLE MADRAS HIGH COURT IN REDINGTON (INDIA) LTD. VS. ADDL.CIT, 77 TAXMAN.COM 257, HONBLE DELHI HIGH COURT IN CHEM INVESTMENTS VS. CIT, 61 TAXMAN.COM 118 AND THE HONBLE GUJARAT HIGH COURT IN PRINCIPAL CIT VS. SINTEX INDUSTRIES LTD., 82 TAXMAN.COM 171 HELD THAT NO DISALLOWANCE IS CALLED FOR WHEN ASSESSEE MAKES SMALL INVESTMENT FROM THE SURPLUS FUNDS. THERE WAS NO DIVIDEND INCOME EARNED BY THE ASSESSEE AND THE CASE WAS TAKEN FOR REVISION TO DIS ALLOW THE BUSINESS LOSS CLAIMED AGAINST THE PROPERTY INCOME WHICH WAS EXAMINED BY THE AO AND DROPPED THE ASSESSMENT PROCEEDINGS AND THE LD.CIT ALSO SATISFIED THAT THERE IS NO CASE FOR REVISION ON ACCOUNT OF INCORRECT SET OFF OF BUSINESS LOSS. WITH REGARD TO THE ISSUE OF DISALLOWANCE U/S 14A AS PER THE JUDICIAL PRONOUNCEMENTS NO DISALLOWANCE IS CALLED FOR WHEN THERE IS NO EXEMPT INCOME. THEREFORE, WE ARE OF THE CONSIDERED OPINION THAT THERE IS NO CASE FOR REVISION OF ORDER U/S 263 AND 5 ITA NO . 3 29 /VIZ/201 8 YARLAGADDA CHANDRA SEKHAR , VIZIANAGARAM ACCORDINGLY WE SET A SIDE THE ORDERS OF THE CIT AND ALLOW THE APPEAL OF THE ASSESSEE. 37. RESPECTFULLY FOLLOWING THE VIEW TAKEN BY THIS TRIBUNAL IN THE ORDER CITED (SUPRA), WE SET ASIDE THE ORDERS OF THE LOWER AUTHORITIES AND ALLOW THE APPEAL OF THE ASSESSEE ON THIS GROUND. 5.1. SINCE THE FACTS ARE IDENTICAL, RESPECTFULLY FOLLOWING THE VIEW TAKEN BY THE COORDINATE BENCH, WE HOLD THAT NO DISALLOWANCE IS REQUIRED TO BE MADE IN THE ABSENCE OF DIVIDEND INCOME. ACCORDINGLY WE SET ASIDE THE ORDERS OF THE LOWER AUTHORITIES AND ALL OW THE APPEAL OF THE ASSESSEE. 6 . IN THE RESULT, APPEAL OF THE ASSESSEE IS ALLOWED . THE ABOVE ORDER WAS PRONOUNCED IN THE OPEN COURT ON 26 TH SEPTEMBER , 20 1 8 . S D/ - S D/ - ( . ) ( . . ) (V. DURGA RAO) ( D.S. SUNDER SINGH ) /JUDICIAL MEMBER /ACCOUNTANT MEMBER /VISAKHAPATNAM /DATED : 26 .0 9 .2018 L.RAMA, SPS 6 ITA NO . 3 29 /VIZ/201 8 YARLAGADDA CHANDRA SEKHAR , VIZIANAGARAM / COPY OF THE ORDER FORWARDED TO: - 1. / THE APPELLANT - YARLAGADDA CHANDRA SEKHAR, D.NO.8 - 12 - 72, BALAJI NAGAR, NEAR SP BUNGALOW, VIZIANAGARAM 2 . / THE RESPONDENT THE ACIT, CIRCLE - 3(1), VISAKHAPATNAM 3 . THE PR. COMMISSIONER OF INCOME TAX - 1 , VISAKHAPATNAM 4. THE COMMISSIONER OF INCOME TAX (APPEALS) - 10, HYDERABAD 5 . , , / DR, ITAT, VISAKHAPATNAM 6 . / GUARD FILE / BY ORDER // TRUE COPY // SR. PRIVATE SECRETARY ITAT, VISAKHAPATNAM