Jain Sons Finlease Limited, Hyderabad V. Dy. Commissioner of Income Tax , Circle-2(1), Hyderabad

ITA 357/Hyd/2018

• Counselvise Citation: [2019] 116 COUNSELVISE.COM (IT) 0360 (ITAT-HYDERABAD)
• Duration Of Justice: 1 year(s) 6 month(s) 13 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 05-09-2019
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: DB-A
• Next Hearing Date: 28-08-2019
• Assessment Year: 2014-2015
• Appeal Filed On: 21-02-2018
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: NEEJU GUPTA
• Assessee Lawyers: PRASANTH AGARWAL
• Keywords: Earning of tax free income; Rule 8D; Set aside

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL HYDERABAD BENCHES A, HYDERABAD BEFORE SMT. P. MADHAVI DEVI, JUDICIAL MEMBER AND SHRI S. RIFAUR RAHMAN, ACCOUNTANT MEMBER I.T.A. NO.357/HYD/2018 ASSESSMENT YEAR: 2014-15 M/S.JAIN SONS FINLEASE LTD., HYDERABAD [PAN: AAACJ5946P] VS DY. COMMISSIONER OF INCOME TAX, CIRCLE-2(1), HYDERABAD (APPELLANT) (RESPONDENT) FOR ASSESSEE : SHRI PRASANTH AGARWAL, AR FOR REVENUE : SMT. NEEJU GUPTA, DR DATE OF HEARING : 28-08-2019 DATE OF PRONOUNCEMENT : 05-09-2019 O R D E R PER SMT. P. MADHAVI DEVI, J.M. : THIS IS ASSESSEES APPEAL FOR THE AY.2014-15, AGAINS T THE ORDER OF THE COMMISSIONER OF INCOME TAX (APPEALS)-8, HYDERABAD, DATED 11-12-2017, CONFIRMING THE DISALLOWA NCE MADE BY THE ASSESSING OFFICER (AO) U/S.14A INCOME T AX ACT [ACT]. 2. BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE, A COMP ANY, ENGAGED IN THE BUSINESS OF FINANCING, FILED ITS RETURN OF INCOME FOR THE AY.2014-15 ON 29-11-2014, ADMITTING INCOME OF RS.3,21,67,390/-. DURING THE ASSESSMENT PROCEEDINGS U/S.143(3) OF THE ACT, THE AO NOTICED THAT ASSESSEE HAS ITA NO. 357/HYD/2018 :- 2 -: CLAIMED DIVIDEND INCOME OF RS.7,60,051/- AS EXEMPT INCOME. HE FURTHER OBSERVED THAT THE ASSESSEE HAS BORROWED LOAN S OF RS.17,39,30,178/- AND HAS MADE INVESTMENTS OF RS.12,27,37,933/-. CONSIDERING THAT THE TRANSACTION OF INVESTMENTS IS CONSIDERABLY HIGH, AO WAS OF THE OPINI ON THAT THE ASSESSEE HAS TAKEN HELP OF SOME ASSISTANTS OR EMPL OYEES IN THIS REGARD AND HAS TO INCUR CERTAIN EXPENDITURE O N TELEPHONE, CONVEYANCE, STATIONERY AND INTEREST ETC. HE ALSO OBSERVED THAT ASSESSEE HAS CLAIMED INTEREST TO AN EXTEN T OF RS.1,61,08,294/- AND SINCE THE ASSESSEE HAS CLAIMED SUCH EXPENSES IN THE PROFIT AND LOSS A/C AS BUSINESS ACTIVI TY, AO WAS OF THE OPINION THAT THE DISALLOWANCE U/S.14A R.W. R ULE 8D OF INCOME TAX RULES, IS TO BE MADE. ACCORDINGLY, HE DISALLOWED THE INTEREST EXPENDITURE OF RS.28,92,235/- AND ALSO 0. 5% OF THE AVERAGE INVESTMENTS AT RS.3,79,364/-; ACCORDINGLY, TOTAL ADDITION WORKED OUT TO RS.32,71,599/-. 2.1. AGGRIEVED WITH THE ABOVE ORDER, THE ASSESSEE PR EFERRED AN APPEAL BEFORE THE CIT(A), STATING THAT THE ASSESSEE HAS INVESTED ONLY NON-INTEREST BEARING FUNDS IN THE MUTUAL FUNDS WH ICH HAS EARNED SOME EXEMPT INCOME TO THE ASSESSEE BUT THAT TH E DIVIDEND INCOME IS NOT EXEMPT INCOME AS IT HAS SUFFERE D DIVIDEND DISTRIBUTION TAX IN THE HANDS OF THE RESPECTIV E COMPANIES AND FURTHER THAT THE DISALLOWANCE OUGHT TO HAVE BEEN RESTRICTED TO THE EXEMPT INCOME EARNED DURING THE YE AR. THE LD.CIT(A), HOWEVER, CONFIRMED THE DISALLOWANCE MADE BY THE AO AND THE ASSESSEE IS IN SECOND APPEAL BEFORE U S, RAISING THE FOLLOWING GROUNDS: ITA NO. 357/HYD/2018 :- 3 -: 1. THE ORDER OF THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) - 8, IS CONTRARY TO THE FACTS AND ALSO TO THE LAW APP LICABLE TO THE FACTS OF THE CASE AND IS NOT JUSTIFIED IN CONFIRMING THE DIS ALLOWANCE OF RS.32,71,599 U/S.14A OF THE ACT. 2. THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) -8 OUGHT TO HAVE HELD THAT THE ASSESSING OFFICER INVOKED THE PR OVISIONS OF S.L4A OF THE ACT IN AN ARBITRARY MANNER WITHOUT ESTABLISHING A CONNECTION BETWEEN THE EXPENDITURE DISALLOWED AND THE EXEMPT I NCOME EARNED BY THE APPELLANT. 3. THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) -8 ALSO ERRED IN NOT CONSIDERING THE DETAILED EXPLANATIONS AND WORKI NG SUBMITTED BY THE ASSESSEE, AND AVAILABLE BEFORE HIM ON RECORD, T O SUPPORT HIS CLAIM THAT ONLY NON-INTEREST-BEARING FUNDS WERE USED IN T HE MENTIONED INVESTMENTS. 4. EVEN IF THE SUBMISSIONS ON RECORDS WERE NOT EXAM INED OR WERE NOT SUFFICIENT, THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) - 8 OUGHT TO HAVE GIVEN A REASONABLE OPPORTUNITY TO THE APPELLANT TO PRODUCE WHAT WAS REQUIRED FOR AN INFORMED DECISION BY THE COMMISSIONER (APPEALS). 5. THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) - 8 ALSO ERRED IN ASSUMING THAT INVESTED FUNDS CAME FROM THE 'COMM ON KITTY' OF THE COMPANY AND HENCE MUST HAVE AN INTEREST COST ATTACH ED TO IT. 6. ANY OTHER GROUNDS THAT MAY HE URGED AT THE TIME OF APPEAL HEARING. 3. LD.COUNSEL FOR THE ASSESSEE SUBMITTED THAT THE ASSESS EE HAD SUFFICIENT NON-INTEREST-BEARING FUNDS, WHICH WER E UTILISED FOR MAKING INVESTMENTS AND THEREFORE, NO INTEREST EXPEN DITURE COULD BE ATTRIBUTED TO THE INVESTMENTS MADE BY THE ASSESSE E. HE SUBMITTED THAT THE ASSESSEE BEING ENGAGED IN THE FIN ANCE BUSINESS, LOANS TAKEN WERE TO BE UTILIZED ONLY FOR MAK ING LOANS AND ADVANCES AND COULD NOT BE UTILIZED FOR ANY OTHER P URPOSES. HE REFERRED TO THE COPIES OF THE LOAN AGREEMENTS, WHICH WERE FILED AT PGS.15 TO 20 OF THE PAPER BOOK, FILED BEFORE THE CIT(A) ITA NO. 357/HYD/2018 :- 4 -: AND ALSO BEFORE US. THEREFORE, ACCORDING TO HIM, THE INTEREST EXPENDITURE COULD NOT HAVE BEEN DISALLOWED BY THE AO. 4. LD.DR, ON THE OTHER HAND, SUBMITTED THAT THE ASSESSEE HAS FAILED TO ESTABLISH THAT THE LOAN AMOUNTS WERE UTILI ZED FOR ANY OTHER PURPOSE OTHER THAN MAKING INVESTMENTS AND THEREFORE, THE DISALLOWANCE U/S.14A R.W. RULE 8D(2)(I I) IS TO BE CONFIRMED. 5. HAVING REGARD TO THE RIVAL CONTENTIONS AND MATERIAL ON RECORD, WE FIND THAT THE DISALLOWANCE U/S.14A R.W. RU LE 8D(2)(II) CAN BE MADE OF EXPENDITURE SUCH AS INTERE ST AND COMMISSION ETC., ONLY IF SUCH INTEREST OR COMMISSION IS NOT ATTRIBUTABLE TO ANY OTHER PURPOSE OR ACTIVITY OTHER THAN INVESTMENTS. ASSESSEE HAS CLEARLY SHOWN THE LOAN AGRE EMENTS, WHEREIN MAIN CONDITION IS THAT LOAN AMOUNT SHALL NOT BE USED FOR ANY OTHER PURPOSE . THESE LOAN AGREEMENTS AND THE CONTENTIONS OF ASSESSEE HAVE NOT BEEN CONSIDERED EITHE R BY THE AO OR BY THE LD.CIT(A). THEREFORE, WE DEEM IT FIT AND PROPER TO SET ASIDE THE ISSUE TO THE FILE OF AO WITH A DIRECTION TO VERIFY THE PURPOSE OF THE LOAN AGREEMENTS AND AS TO HOW THEY HA VE BEEN UTILIZED AND IF THE INTEREST BEARING LOANS HAVE NOT BEEN UTILISED FOR MAKING INVESTMENTS, THEN NO DISALLOWANCE UNDER RULE 8D(2)(II) SHALL BE MADE. FURTHER, UNDER RULE 8 D(2)(III), THE AVERAGE OF THE INVESTMENTS, WHICH HAVE EARNED EXEMPT I NCOME ALONE SHALL BE CONSIDERED. IT IS ALSO MADE CLEAR THAT THE DISALLOWANCE U/S.14A OF THE ACT CANNOT EXCEED THE EXEMP T INCOME EARNED BY THE ASSESSEE. AO IS DIRECTED ACCOR DINGLY. ITA NO. 357/HYD/2018 :- 5 -: 6. IN THE RESULT, THE APPEAL OF ASSESSEE IS TREATED AS A LLOWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED IN THE OPEN COURT ON 5 TH SEPTEMBER, 2019. SD/- SD/- (S. RIFAUR RAHMAN) (P. MADHAVI DEVI ) ACCOUNTANT MEMBER JUDICIAL MEMB ER HYDERABAD, DATED 5 TH SEPTEMBER, 2019 TNMM COPY TO : 1. M/S.JAIN SONS FINLEASE LTD., 1002, 10 TH FLOOR, A BLOCK PLATINA, GACHIBOWLI-MIYAPUR ROAD, GACHIBOWLI, HYDERABAD. 2. DY.COMMISSIONER OF INCOME TAX, CIRCLE-2(1), HYDE RABAD. 3. CIT(APPEALS)-8, HYDERABAD. 4. PR.CIT-2, HYDERABAD. 5. D.R. ITAT, HYDERABAD. 6. GUARD FILE.