Aura Securities Pvt.Ltd., Ahmedabad V. The Dy.CIT.,Circle-1, Ahmedabad

ITA 354/AHD/2011

• Counselvise Citation: [2014] 140 COUNSELVISE.COM (IT) 73096 (ITAT-AHMEDABAD)
• Duration Of Justice: 3 year(s) 18 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 28-02-2014
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: B
• Next Hearing Date: 13-02-2014
• Assessment Year: 2006-2007
• Appeal Filed On: 09-02-2011
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: O P VAISHNAV
• Keywords: Revision of order; Earning of tax free income
• Section: 143(3); 14A; 263

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD B BENCH BEFORE: SRI D.K TYAGI, JUDICIAL MEMBER AND SHRI N.S. SAINI, ACCOUNTANT MEM BER AURA SECURITIES PVT LTD JITENDRA CHAMBERS, AHRAM ROAD, AHMEDABAD PAN: AABCT4637N (APPELLANT) VS DCIT, CIRCLE-1, AHMEDABAD (RESPONDENT) REVENUE BY: SRI O.P. VAISHNAV, CIT-D.R . ASSESSEE BY: SRI VIJAY RANJAN WITH HI REN TRIVEDI, A.R. DATE OF HEARING : 13-02-2014 DATE OF PRONOUNCEMENT : 28-02-20 14 / ORDER PER : D.K. TYAGI, JUDICIAL MEMBER:- THIS IS THE ASSESSEES APPEAL AGAINST THE ORDER OF LD. CIT-I, AHMEDABAD DATED 24-12-2010 U/S. 263 OF THE ACT FOR A.Y. 2006-07. ITA NO. 354/AHD/2011 ASSESSMENT YEAR 2006-07 I.T.A NO.354/AHD/2011 A.Y. 2006-07 PAGE N O AURA SECURITIES PVT. LTD VS. DCIT 2 2. BRIEF FACTS OF THE CASE ARE THAT ASSESSEE-COMPAN Y IS ENGAGED IN THE BUSINESS OF INVESTMENT ACTIVITIES IN SHARES AND SEC URITIES, GIVING LOANS AND ADVANCES AND DEALING IN SHARES AND SECURITIES. DUR ING THE YEAR UNDER APPEAL ASSESSEE EARNED DIVIDEND INCOME OF RS. 5,42,87,601/ - WHICH WAS CLAIMED AS EXEMPT. THE ASSESSEE HAS MADE INVESTMENT OF RS. 88 ,47,47,67,168/- AND TAKEN LOANS OF RS. 10,59,78,146/- ON WHICH INTEREST OF RS. 14,24,681/- WAS PAID. DURING THE ASSESSMENT PROCEEDINGS AO ASKED T HE ASSESSEE TO SHOW CAUSE WHY DISALLOWANCE U/S 14A SHOULD NOT BE MADE T OWARDS EXPENDITURE FOR EARNING EXEMPTED DIVIDEND INCOME OF RS. 5,42,87 ,601/-. THE SUBMISSION OF THE ASSESSEE WAS THAT IT HAD INTEREST FREE FUNDS IN THE FORM OF SHARE CAPITAL AND RESERVES AMOUNTING TO RS. 85.83 CRORE. HOWEVER ASSESSEE DID NOT SUBMIT THE DEBITED FUND FLOW STATEMENT TO PROVE THA T NO INTEREST BEARING IN FUNDS HAVE BEEN DEBITED FOR INVESTMENT IN SUCH SHAR ES. REGARDING ADMINISTRATIVE EXPENDITURE THE ASSESSEE SUBMITTED T HAT EVEN THOUGH IT HAD NOT MADE NAY SPECIFIC FUNDS FOR EARNING SAID EXEMPT INCOME IT WOULD NOT OBJECT TO DISALLOWANCE MADE TO THE EXTENT OF RS. 1 LAC. THEREFORE, AFTER CONSIDERING THE ASSESSEES SUBMISSION THE AO MADE A DDITION OF RS. 12,75,912/- TOWARDS INTEREST EXPENDITURE AND RS. 1 LACS TOWARDS ADMINISTRATIVE EXPENDITURE FOR EARNING EXEMPTED DIV IDEND INCOME. 3. SUBSEQUENTLY AFTER VERIFICATION OF RECORDS OF T HE ASSESSEE, LD. CIT WAS OF THE VIEW THAT SINCE THE AO HAD FINALIZED THE ASSESSMENT WITHOUT MAKING THE DISALLOWANCE AS PRESCRIBED UNDER RULE 8D (2)(III) OF THE IT RULES THE ASSESSMENT ORDER U/S. 143(3) OF THE ACT WAS ERR ONEOUS AND PREJUDICIAL TO THE INTEREST OF REVENUE AND THEREFORE FOLLOWING SHO W CAUSE NOTICE U/S. 263 WAS ISSUED:- I.T.A NO.354/AHD/2011 A.Y. 2006-07 PAGE N O AURA SECURITIES PVT. LTD VS. DCIT 3 3. SINCE THE AO HAD FINALIZED THE ASSESSMENT WITHO UT MAKING THE DISALLOWANCE AS PRESCRIBED UNDER RULE 8D(2)(III) OF THE L.T. RULES, 1962, THE ASSESSMENT ORDER U/S 143(3) OF THE L.T. A CT, 1961 PASSED ON 24.12.200 IS ERRONEOUS AND PREJUDICIAL TO THE INTE REST OF THE REVENUE. IN VIEW OF THE ABOVE, A SHOW CAUSE NOTICE UNDER SEC TION 263(1) OF THE L.T, ACT WAS ISSUED ON 09.08.2010 AS BELOW: 'A PERUSAL OF THE RECORDS FOR THE A Y. 2006-07 IN Y OUR CASE SHOWS THAT ASSESSMENT ORDER U/S 143(3) OF THE L.T. ACT, 1961 W AS PASSED ON 24- 12-2008 DETERMINING YOUR TAXABLE AT INCOME RS 45,14 ,793/- AS AGAINST THE RETURNED OF RS. 31,38,880/- ON VERIFICATION OF THE RECORDS, IT IS NOTICED THAT WHILE PASSING THE ORDER U/S143(3), AN AMOUNT OF RS 13.75,917/- WAS DI SALLOWED U/S 14A OF THE IT. ACT (RS. 12,75,917 TIN ACCOUNT OF I NTEREST AND RS. 1,00,000 ON AMOUNT OF ADMINISTRATIVE EXPENSES) HO WEVER, AS PER RULE 8D(2)(III) OF THE I.T RULES. 1962 AN AMOUNT EQUAL TO ONE-HALF PER CENT OF THE AVERAGE OF THE VALUE OF INVESTMENTS , INCOME WHICH DOES NOT OR SHALL NOT FORM PART OF THE TOTAL INCOME, AS APPEARING IN THE BALANCE SHEET OF THE ASSESSEE, ON THE FIRST DAY AN D THE LAST DAY OF THE PREVIOUS YEAR' WAS REQUIRED TO BE DISALLOWED WHICH HAS NOT BEEN DONE. THEREFORE, IN YOUR CASE A DISALLOWANCE OF RS. 41.73,607/- BEING 0.5% OF THE AVERAGE VALUE OF INVESTMENTS (I.E., 0.5 % OF RS.83,47,21,556/-) WAS REQUIRED TO BE DISALLOWED, A S YOU WERE DERIVING EXEMPTED INCOME FROM THESE INVESTMENTS, (I .E. DIVIDEND ARNED DURING THE YEAR RS.5,42,87,601/-) HOWEVER, THE ASSE SSING OFFICER DID NOT 'TAKE ANY SUCH DISALLOWANCE WHILE COMPLETING TH E ASSESSMENT PROCEEDINGS U/S 143(3). IN VIEW OF FORGOING, THE OLDER PASSED U/S 143(3) OF THE I T ACT 1961 DATED 24-12-2008 IS ERRONEOUS IN SO FAR AS IT IS PR EJUDICIAL TO THE INTEREST OF REVENUE WITHIN THE MEANING OF SECTION 2 63(1) OF THE I.T ACT. YOU ARE, THEREFORE, REQUESTED TO SHOW CAUSE AS TO W HY AN APPROPRIATE ORDER U/S 263(1) OF THE I.T. ACT, 1961 SHOULD NOT B E PASSED IN YOUR CASE. HEARING IN YOUR CASE IS FIXED ON 23.08 2010 A T 11 A. M. AND YOU ARE REQUESTED TO ATTEND EITHER PERSONALLY OR THROUG H YOUR AUTHORIZED REPRESENTATIVE ON THE ABOVE ADDRESS ON THE APPOINTE D DATE OR FURNISH YOUR WRITTEN SUBMISSION IN THIS REGARD ON OR BEFORE THE SAID DATE, IN CASE, NOTHING IS HEARD FROM YOU BY THE SAID DATE, IT SHALL BE PRESUMED THAT YOU HAVE NOTHING TO SAY IN THE MATTER AND HAVE NO OBJECTION TO THE PROPOSED ACTION AND THE MATTER SHALL BE DECIDED ON MERITS.' I.T.A NO.354/AHD/2011 A.Y. 2006-07 PAGE N O AURA SECURITIES PVT. LTD VS. DCIT 4 4. ASSESSEE WAS GIVEN SEVERAL OPPORTUNITIES TO EXPL AIN THE POSITION BUT ASSESSEE SOMEHOW DID NOT AVAIL THOSE OPPORTUNITIES AND LD. CIT WAS LEFT WITH NO OPTION BUT TO DECIDE THE MATTER ON THE BASI S OF MATERIAL ON RECORD AND ACCORDINGLY MODIFIED THE DISALLOWANCE MADE BY AO U/ S. 14A BY OBSERVING AS UNDER:- 7. IN VIEW OF THE ABOVE REFERRED FACTS AND LEGAL P OSITION IT IS HELD THAT THE ASSESSMENT ORDER U/S 143(3) DATED 24.12.2008 PA SSED BY THE AO FOR THE A.Y. 2006-07 IN THE CASE OF THE ASSESSEE IS ERRONEOUS AND PREJUDICIAL TO THE INTEREST OF REVENUE, TO THE EXTE NT OF NON-APPLICATION OF PROVISIONS OF RULE 8D(2)(III) OF THE I.T. RULES. AS PER PROVISIONS OF RULE 8D(2)(III) OF THE I.T. RULES, 1962 ' AN AMOUNT EQUAL TO ONE-HALF PER CENT OF THE AVERAGE OF THE VALUE OF INVESTMENT, INCOME FROM WHICH DOES NOT OR SHALL NOT FORM PART OF THE TOTAL INCOME , AS APPEARING IN THE BALANCE SHEET OF THE ASSESSEE, ON THE FIRST DAY AND THE LAST DAY OF THE PREVIOUS YEAR' HAVE TO BE DISALLOWED. THEREFORE, IN THE ASSESSEE'S CASE A DISALLOWANCE OF 0.5% OF THE AVERAGE VALUE OF INVE STMENTS (I.E., RS.83,47,21,556/-) IS REQUIRED TO BE DISALLOWED AS PER RULE 8D(2)(III), AS THE ASSESSES HAD DERIVED EXEMPTED INCOME FROM TH ESE INVESTMENTS. THE ASSESSMENT ORDER DATED 18.12.2007 IS ACCORDINGL Y MODIFIED WITHIN THE MEANING OF SECTION 263(1) AND DISALLOWAN CE U/S 14A R.W.R. 8D(2)(III) IS COMPUTED AT RS. 41,73,607/-. THE A.O. IS DIRECTED TO WORK OUT THE TAX LIABILITY ALONGWITH INTEREST CHARGEABLE AS PER PROVISIONS OF LAW. 5. AGGRIEVED BY HIS ORDER OF LD. CIT(A) NOW THE ASS ESSEE IS IN APPEAL BEFORE US. 6. AT THE TIME OF HEARING LEARNED COUNSEL OF THE AS SESSEE CHALLENGED THIS ORDER ON TWO GROUNDS. THE FIRST GROUND OF THE ASS ESSEES COUNSEL WAS THAT LD. CIT WAS NOT JUSTIFIED IN INVOKING THE PROVISION S OF SECTION 263 IN THE CASE OF ASSESSEE AS DURING THE ASSESSMENT PROCEEDIN GS DISALLOWANCE U/S. 14A WAS DULY CONSIDERED AND MADE TO THE TUNE OF RS. 12, 75,912/- TOWARDS INTEREST I.T.A NO.354/AHD/2011 A.Y. 2006-07 PAGE N O AURA SECURITIES PVT. LTD VS. DCIT 5 EXPENDITURE AND RS. 1 LAC TOWARDS ADMINISTRATIVE EX PENDITURE. PLACING RELIANCE ON VARIOUS CASE LAWS, THE ARGUMENT WAS ADV ANCED THAT LAW IS NOW SETTLED THAT IF AO HAS GIVEN ITS FINDING ON SOME FA CTS AND IF ON THE SAME SET OF FACTS LD. CIT IS HAVING OTHER OPINION PROVISIONS OF SECTION 263 CANNOT BE INVOKED. SECOND GROUND ON WHICH LD. CITS ORDER WA S CHALLENGED WAS THAT RULE 8D(2)(III) OF THE IT RULES WAS NOT APPLICABLE DURING THE ASSESSMENT YEAR UNDER APPEAL AND THEREFORE LD. CIT WAS NOT JUSTIFIE D IN INVOKING THE RULE 8D(2)(III) TO HOLD THAT ORDER OF AO WAS ERRONEOUS A ND PREJUDICIAL TO THE INTEREST OF REVENUE. CONCLUDING HIS ARGUMENT LEARN ED COUNSEL OF THE ASSESSEE SUBMITTED THAT ORDER PASSED BY LD. CIT MAY KINDLY BE QUASHED. LD. DR ON THE OTHER HANDS SUBMITTED THAT ASSESSEE DID N OT AVAIL OPPORTUNITIES GIVEN BY LD. CIT TO RESPOND TO THE SHOW CAUSE ISS UED TO HIM AND THEREFORE THE MATTER SHOULD BE RESTORED BACK TO HIS FILE WITH THE DIRECTION TO THE ASSESSEE TO CO-OPERATE WITH THE PROCEEDINGS BEFORE LD. CIT. 7. AFTER HEARING BOTH THE PARTIES AND PERUSING THE RECORD, WE ARE OF THE CONSIDERED OPINION THAT SINCE ALL THE FACTS IN RESP ECT OF THE CONTROVERSY ARE ALREADY ON RECORD, NO PURPOSE WILL BE SERVED TO RES TORE THE MATTER TO THE FILE OF LD. CIT. WE FURTHER FIND THAT THERE IS NO DISPU TE THAT DURING THE ASSESSMENT PROCEEDINGS DISALLOWANCE U/S. 14A WAS SU BJECT MATTER OF INVESTIGATION BY AO AND IN THIS RESPECT SHOW CAUSE WAS ALSO ISSUED BY AO TO THE ASSESSEE AND AFTER TAKING INTO CONSIDERATION AL L ASPECTS OF THE CASE AN ADDITION OF RS. 12,75,912/- TOWARDS INTEREST EXPEND ITURE AND RS. 1 LAC TOWARDS ADMINISTRATIVE EXPENDITURE FOR EARNING EXEM PTED DIVIDEND INCOME WAS MADE BY AO. ON THESE UNDISPUTED FACTS LD. CIT CANNOT INVOKE THE PROVISIONS OF SECTION 263 SIMPLY BECAUSE HE WAS OF THE VIEW THAT AO SHOULD HAVE MADE MORE DISALLOWANCE THAN MADE BY AO. LAW I S NOW SETTLED THAT I.T.A NO.354/AHD/2011 A.Y. 2006-07 PAGE N O AURA SECURITIES PVT. LTD VS. DCIT 6 LD. CIT CANNOT EXERCISE HIS JURISDICTION UNDER 263 IF AO HAS TAKEN A VIEW ON FACTS AND LD. CIT HAS OTHER OPINION ON SAME SET OF FACTS AS IS THE POSITION IN THIS CASE. WE ALSO FIND MERIT IN THE ARGUMENT ADVA NCED BY LEARNED COUNSEL OF THE ASSESSEE THAT SINCE RULE 8D(2)(III) WAS NOT APPLICABLE FOR THE ASSESSMENT YEAR UNDER APPEAL, THE LD. CIT WAS NOT J USTIFIED TO HOLD THE ORDER PASSED BY AO TO BE ERRONEOUS AND PREJUDICIAL TO THE INTEREST OF REVENUE SIMPLY BECAUSE DISALLOWANCE U/S 14A WAS MADE WITHOU T INVOKING THIS RULE. IN VIEW OF ABOVE, THE ORDER PASSED BY LD. CIT IS HE REBY QUASHED. 8. IN THE RESULT, ASSESSEES APPEAL IS ALLOWED. ORDER PRONOUNCED IN OPEN COURT ON THE DATE MENTIONE D HEREINABOVE AT CAPTION PAGE SD/- SD/- (N.S. SAINI) ( D.K. TYAGI) ACCOUNTANT MEMBER J UDICIAL MEMBER AHMEDABAD : DATED 28/02/2014 AK / COPY OF ORDER FORWARDED TO:- 1. ASSESSEE 2. REVENUE 3. CONCERNED CIT 4. CIT (A) 5. DR, ITAT, AHMEDABAD 6. GUARD FILE. BY ORDER/ , / ,