The Sarvodaya Sahakari Bank Limited, Surat V. The ACIT, Circle-3(3), Surat

ITA 350/AHD/2015

• Counselvise Citation: [2018] 118 COUNSELVISE.COM (IT) 2144 (ITAT-SURAT)
• Duration Of Justice: 3 year(s) 4 month(s) 18 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 06-07-2018
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: DB
• Assessment Year: 2010-2011
• Appeal Filed On: 17-02-2015
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Keywords: Earning of tax free income; Rule 8D
• Section: 143(3); 14A

Judgement Text

THE SARVODAYA SAHAKARI BANK LTD V. ACIT. CIR.3(3)/SRT/I.T.A. NO. 350/AHD/20115/A.Y. 10-11 PAGE 1 OF 6 , , IN THE INCOME TAX APPELLATE TRIBUNAL SURAT BENCH, SURAT . . , . . , BEFORE SHRI C.M.GARG, JUDICIAL MEMBER AND SHRI O.P.MEENA, ACCOUNTANT MEMBER . . ./ I.T.A NO. 350/AHD/2015/SRT / A.Y.:2010-11 THE SARVODAYA SAHAKARI BANK LTD, SHRI NIDHI KHAND BAZAR, VARACHHA ROAD, SURAT. PAN:AABAT1407E VS. ACIT, CIRCLE.3(3), SURAT. APPELLANT /RESPONDENT /ASSESSEE BY SHRI ANKUR A. SHAH, CA /REVENUE BY SHRI DILEEP KUMAR, SR. D.R. / DATE OF HEARING: 06.07. 2018 /PRONOUNCEMENT ON 11.07.2018 /O R D E R PER O. P. MEENA, ACCOUTANT MEMBER: THIS APPEAL HAS BEEN FILED BY THE ASSESSEE IS DIRECTED AGAINST THE ORDER OF COMMISSIONER OF INCOME TAX (APPEALS)3, SURAT (CIT(A) FOR SHORT) DATED 16.12.2014 FOR THE A.Y. 2010-11 WHICH IN TURN HAS ARISEN FROM THE ORDER DATED 19.03.2013 PASSED BY ASSTT. COMMISSIONER OF INCOME TAX, CIRCLE-9, SURAT (IN SHORT THE AO) UNDER SECTION 143(3) OF THE INCOME TAX ACT, 1961 (FOR SHORT THE ACT). THE SARVODAYA SAHAKARI BANK LTD V. ACIT. CIR.3(3)/SRT/I.T.A. NO. 350/AHD/20115/A.Y. 10-11 PAGE 2 OF 6 2. THE SOLE GROUND OF APPEAL READ AS UNDER :- (I) THAT ON FACTS AND CIRCUMSTANCES OF THE CASE, THE LEARNED CIT(A) HAS ERRED IN SUSTAINING THE DISALLOWANCE OF EXPENDITURE OF RS.70,31,716/- U/S.14A OF THE I.T.ACT R.W.R. 8D OF I.T. RULES, MADE BY THE LEARNED ACIT, ALLEGING THAT APPELLANT MUST HAVE INCURRED SOME EXPENSES FOR EARNING TAX FREE INTEREST INCOME AMOUNTING TO RS.57,37,198/- , WITHOUT APPRECIATING THE WRITTEN SUBMISSION AND DIRECTLY APPLICABLE JUDICIAL PRONOUNCEMENTS AND THEREFORE, THE ENTIRE ADDITION NEEDS TO BE DELETED. 3. THE ASSESSEE HAS EARNED DIVIDEND INCOME OF RS.57,37,198/- BUT NO EXPENDITURE FOR EARNING SUCH INCOME WAS DISALLOWED. THEREFORE, THE A.O. HAS WORKED OUT THE DISALLOWANCE AT RS.70,31,716/- U/S.14A R.W. RULE 8D WHICH INTER ALIA INCLUDED DISALLOWANCE OF RS.64,22,204/- OF INTEREST AND 0.5% OF VALUE OF INVESTMENT AT RS.6,09,512/- . SINCE, THE TOTAL DIVIDEND INCOME WAS ONLY AT RS.57,37,198/- AND DISALLOWANCES WERE RESTRICTED TO THAT AMOUNT. 4. BEING AGGRIEVED, THE ASSESSEE CARRIED THE MATTER BEFORE CIT(A). DURING THE COURSE OF APPELLATE PROCEEDINGS, THE A.O. HAS WRITTEN LETTER TO CIT(A) THAT DISALLOWANCE SHOULD BE ENHANCED TO RS.70,31,716/- AS WORKED OUT AS PER RULE 8D AS THERE IS NO PROVISION IN THE ACT TO RESTRICT THE DISALLOWANCE TO THE EXEMPT DIVIDEND INCOME. CONSEQUENTLY, CIT(A) HAS ISSUED AN ENHANCEMENT NOTICE ON 11.04.2014 AS AGAINST WHICH IT WAS CONTENDED THAT THE ISSUE IS COVERED BY THE ITAT IN A.Y. 2007-08 AND VIDE ORDER OF CIT(A) FOR A.Y. 2008-09 TO A.Y. 2009-10. HOWEVER, THE SARVODAYA SAHAKARI BANK LTD V. ACIT. CIR.3(3)/SRT/I.T.A. NO. 350/AHD/20115/A.Y. 10-11 PAGE 3 OF 6 THE LEARNED CIT(A) WAS OF THE VIEW THAT THERE IS NO PROVISION IN THE ACT FOR LIMITING THE DISALLOWANCES TO QUANTUM OF INCOME OR ANY ESTIMATED FIGURE. THE DIVIDEND INCOME MAY OR MAY NOT ARISE IN A PARTICULAR YEAR. THE QUANTUM OF DISALLOWANCE UNDER RULE 8 HAS BEEN PRESCRIBED KEEPING IN MIND THAT THE QUANTUM OF INVESTMENT AND NOT THE QUANTUM OF DIVIDEND INCOME IN A PARTICULAR YEAR. REGARDING INTEREST EXPENDITURE ALSO. SINCE, THE INTEREST FREE FUND AND INTEREST BEARING FUND FOR COMMON HOTCH POT OF FUNDS. IT IS IMPOSSIBLE TO IDENTIFY THE INDIVIDUAL ENTITY OF THE FUND IS LOST IN THE HOTCH POT . IN VIEW OF THESE FACTS, THE ADDITION MADE BY THE A. O. OF RS.57,37,198/- WAS ENHANCED TO RS.70,31,716/- . 5. BEING AGGRIEVED, THE ASSESSEE HAS FILED THIS APPEAL BEFORE US. AT THE OUTSET, THE LEARNED COUNSEL OF THE ASSESSEE SUBMITTED THAT THE ISSUE IS COVERED BY THE DECISION OF TRIBUNAL IN A.Y. 2009-10 IN ITA NO.2269/AHD/2012 DTD.25.10.2016 IN FAVOUR OF THE ASSESSEE. 6. ON THE OTHER HAND, THE LEARNED DR SUPPORTED THE ORDERS OF THE AUTHORITIES BELOW. HOWEVER, IT WAS ACCEPTED THAT THE ISSUE IS COVERED BY THE DECISION OF TRIBUNAL IN THE CASE OF THE ASSESSEE FOR A.Y.2009-10. 7. WE HAVE HEARD THE RIVAL SUBMISSION AND PERUSED THE MATERIAL ON RECORD. WE FIND THAT THE ISSUE IS COVERED BY THE DECISION OF TRIBUNAL IN THE ASSESSEES OWN CASE IN ITA NO.2269/AHD/2012 A.Y.2009-10 THE SARVODAYA SAHAKARI BANK LTD V. ACIT. CIR.3(3)/SRT/I.T.A. NO. 350/AHD/20115/A.Y. 10-11 PAGE 4 OF 6 DTD.25.10.2016 WHEREIN THE TRIBUNAL VIDE PARA NO.8,9 AND 10 HAS HELD AS UNDER :- (8) WE HAVE HEARD THE LD. DR AND GONE THROUGH THE SUBMISSIONS AND VARIOUS JUDGEMENTS/DECISIONS REFERRED AND RELIED ON BY THE ASSSESSEE. SOLITARY GRIEVANCE OF THE REVENUE IS AGAINST THE ORDER OF LD. CIT(A) DELETING THE DISALLOWANCE U/S.14A OF THE ACT AT RS.46,93,682/- . WE FIND THAT ASSESSEE IS ENGAGED IN THE BUSINESS OF BANKING. A TOTAL FUND OF RS.9.97 CRORES HAS BEEN INVESTED IN ORDER TO COMPLY WITH THE RBI GUIDELINES. ASSESSEE HAD FREE RESERVE TO THE TUNE OF RS.31.30 CRORES. REVENUE HAS BEEN UNABLE TO BRING OUT ANY SPECIFIC EXPENDITURE DIRECTLY CO- RELATED TO INVESTMENT IN MUTUAL FUNDS. (9) WE OBSERVE THAT THE PROVISIONS OF SECTION 14A ARE APPLICABLE TO THE ASSESSEE AND CALCULATION OF DISALLOWANCE IS PROVIDED UNDER RULE 8D OF THE I.T.RULES, 1962 (IN SHORT THE RULES). AS PER THE RULE 8D OF THE RULES TOTAL OF FOLLOWING THREE ITEMS IS TAKEN AS DISALLOWANCE U/S.14A OF THE ACT :- (I) AMOUNT OF EXPENSES DIRECTLY ATTRIBUTABLE TO EXEMPT INCOME. (II) DISALLOWANCE TOWARDS INTEREST OF FUNDS USED FOR INVESTMENT INTO TAX FREE INVESTMENT. (III) ADMINISTRATIVE COST @ 0.5% OF AVERAGE VALUE OF INVESTMENT. WE WILL NOT ADJUDICATE THE FACTS OF THE CASE ON THESE THREE ITEMS ONE BY ONE. (I) AMOUNT OF EXPENSES DIRECTLY ATTRIBUTABLE TO EXEMPT INCOME- NO SUCH EXPENDITURE HAS BEEN BROUGHT ON RECORD BY THE REVENUE SO THE AMOUNT UNDER THIS PART IS NIL. (II) DISALLOWANCE TOWARDS INTEREST ON FUNDS USED FOR INVESTMENT INTO TAX FREE INVESTMENT. THE SARVODAYA SAHAKARI BANK LTD V. ACIT. CIR.3(3)/SRT/I.T.A. NO. 350/AHD/20115/A.Y. 10-11 PAGE 5 OF 6 WE FIND THAT ASSESSEE HAS SUFFICIENT TAX FREE RESERVE IN ORDER TO COVER THE INVESTMENT IN MUTUAL FUNDS DURING THE YEAR. JUDGEMENT OF HON. JURISDICTIONAL HIGH COURT IN THE CASE OF CIT VS. GUJARAT POWER CORPORATION LTD. (2013) 353 ITR 583 IS SQUARELY APPLICABLE TO THE CASE OF ASSESSEE WHEREIN IT HAS BEEN HELD THAT NO DISALLOWANCE OF EXPENDITURE CAN BE MADE IF ASSESSEE USES ITS OWN FUNDS FOR INVESTMENT IN SHARES. RESPECTFULLY FOLLOWING THE SAME WE ARE OF THE VIEW THAT NO DISALLOWANCE OUT OF INTEREST EXPENDITURE CAN BE MADE IN THIS PART (II) OF RULE 8D. (III) ADMINISTRATIVE COST @ 0.5% OF AVERAGE VALUE OF INVESTMENT. WE FIND THAT IN THE WRITTEN SUBMISSIONS ASSESSEE HAS SUO MOTO REQUESTED FOR A REASONABLE DISALLOWANCE IN THE GIVEN FACTS AND CIRCUMSTANCES. WE FIND THAT THERE IS REGULAR PURCHASE AND SALE OF VARIOUS MUTUAL FUNDS ROUND THE YEAR. CERTAIN ADMINISTRATIVE COST IS INCURRED IN THE FORM OF SALARY OF STAFF AND OTHER RELATED EXPENDITURE INCURRED FOR INVESTMENTS IN THE FUNDS FOR SWITCHING IN AND SWITCHING OUT OF THE FUNDS, FOR GETTING OPTIMUM INCOME FROM THE INVESTMENTS. COST FOR USE OF BANKING FACILITIES FOR INVESTING THE FUNDS AS WELL AS TO DEAL WITH INCOME EARNED DURING THE YEAR. LOOKING TO THESE PRACTICAL ASPECTS WE ARE OF THE VIEW THAT IT WOULD BE REASONABLE TO DISALLOW A SUM OF RS.4,07,826/- BEING 0.5% OF AVERAGE INVESTMENT AND THE SAME IS SUSTAINED UNDER PART (III) OF RULE 8D OF THE RULES. 10. THEREFORE, WE ARE OF THE VIEW THAT TOTAL DISALLOWANCE U/S.124A OF THE ACT IS REQUIRED TO BE SUSTAINED AT RS.4,07,826/- AND WE DO SO. 8. IN THE LIGHT OF ABOVE DECISION, WE FIND THAT THE ISSUE IS COVERED IN FAVOUR OF THE ASSESSEE AND WE FIND THAT THE FACTS ARE IDENTICAL HENCE, THE FINDINGS RECORDED THEREIN ARE SQUARELY APPLICABLE TO THE PRESENT ASSESSMENT YEAR ALSO. THEREFORE, ON THE BASIS OF FINDINGS GIVEN THEREIN, WE ARE OF THE VIEW THAT IT WOULD BE REASONABLE TO DISALLOW THE SUM OF THE SARVODAYA SAHAKARI BANK LTD V. ACIT. CIR.3(3)/SRT/I.T.A. NO. 350/AHD/20115/A.Y. 10-11 PAGE 6 OF 6 RS.6,09,512/- BEING 0.5% OF AVERAGE INVESTMENT OF RS.12,19,02,532/- AND SAME IS SUSTAINED AS PER PART (III) OF RULE 8D OF I.T.RULES AND BALANCE IS DELETED. ACCORDINGLY THIS GROUND OF APPEAL IS PARTLY ALLOWED. 9. IN THE RESULT, APPEAL OF THE ASSESSEE IS PARTLY ALLOWED. 8. ORDERED PRONOUNCED IN THE OPEN COURT ON 11-07-2018. SD/- SD/- ( . . /C.M. GARG) ( . . /O.P.MEENA) /JUDICIAL MEMBER /ACCOUNTANT MEMBER SURAT, DATED: 11 TH JULY, 2018. / COPY OF THE ORDER IS FORWARDED TO : 1. / THE APPELLANT; 2. / THE RESPONDENT; 3. ( ) / THE CIT(A), 4. PR. CIT 5. , , / DR, ITAT, SURAT; 6. / GUARD FILE. BVC BY ORDER / / TRUE COPY / / ASSISTANT REGISTRAR, SURAT