The Deputy Commissioner of Income Tax, Circle-3(1), Visakhapatnam V. Devi Fisheries Limited, Visakhapatnam

ITA 39/VIZ/2021

• Counselvise Citation: [2021] 107 COUNSELVISE.COM (IT) 6799 (ITAT-VISAKHAPATNAM)
• Duration Of Justice: 5 month(s) 17 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 08-09-2021
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: DB
• Assessment Year: 2017-2018
• Appeal Filed On: 22-03-2021
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: B SATYANARAYANA RAJU
• Keywords: Earning of tax free income; Deemed to accrue or arise in india; Rule 8D
• Section: 14A; 201

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL VISAKHAPATNAM BENCH, VISAKHAPATNAM (T HROUGH WEB - BASED VIDEO CONFERENCING PLATFORM) BEFORE SHRI N.K. CHOUDHRY, HONBLE JUDICIAL MEMBER & SHRI D.S. SUNDER SINGH, HON'BLE ACCOUNTANT MEMBER I.T.A. NO. 3 9 /VIZ/2021 (ASST. YEAR : 201 7 - 1 8 ) DCIT, CIRCLE - 3(1), VISAKHAPATNAM. VS. M/S. DEVI FISHERIES LTD., D.NO. 6 - 21 - 7, EAST POINT COLONY, NEAR VUDA PARK, VISAKHAPATNAM . (APPELLANT) PAN NO. AAACD 7852 Q (RESPONDENT) ASSESSEE BY : NONE . DEPARTMENT BY : SHRI B.SATYANARAYANA RAJU , SR. DR DATE OF HEARING : 1 8 / 08 /2021 . DATE OF PRONOUNCEMENT : 08 / 0 9 /2021 . O R D E R PER D.S. SUNDER SINGH , ACCOUNTANT MEMBER THIS APPEAL BY THE REVENUE IS DIRECTED AGAINST THE ORDER OF LD.COMMISSIONER OF INCOME TAX (APPEALS) - 1 , DATED 16 / 0 9 /20 20 FOR THE A.Y. 20 1 7 - 1 8. 2. THE ASSESSEE IS A COMPANY , ENGAGED IN PROCESSING, PRESERVING AND EXPORT OF SHRIMP AND FILED ITS RETURN OF INCOME ON 27/09/2017 . THE CASE WAS TAKEN UP FOR SCRUTINY AND DURING THE COURSE OF ASSESSMENT PROCEEDINGS , THE AO FOUND THAT ASSESSEE HAS MADE THE INVESTMENTS OF RS. 71,10,76,228/ - AND THE INCOME 2 ITA NO. 39 /VIZ/2021 ( M/S. DEVI FISHERIES LTD. ) DERIVED FROM SUCH INVESTMENT I S EXEMPT U/SEC. 10(34) OF THE ACT AND THE ASSESSEE DID NOT MA KE ANY DISALLOWANCE REPRESENTING THE EXPENDITURE RELATED TO THE EXEMPT INCOME . THEREFORE, THE AO ISSUED SHOW - CAUSE NOTICE PROPOSING THE DISALLOWANCE AND IN RESPON S E TO WHICH THE ASSESSEE SUBMITTED ITS EXPLANATION OBJECTING THE DISALLOWA NCE STATING THAT ASSESSEE HA D INTEREST FREE FUNDS OF RS. 2 04,96,09,683/ - IN RESERVES, W HICH THE ASSESSEE IS FREE TO UTILISE FOR INVESTMENTS. THE ASSESSEE ALSO SUBMITTED THAT NO EXEMPT INCOME WAS RECEIVED BY THE ASSESSEE IN THE YEAR UNDER CONSIDERATION, HENCE REQUESTED NOT TO MAKE ANY DISALLOWANCE . NOT BEING SATISFIED WITH THE EXPLANATION, THE A O HELD THAT EVEN THOUGH THERE I S NO EXEMPT INCOME DISALLOWANCE IS REQUIRED TO BE MADE U/SEC. 14A R.W.R. 8D OF THE ACT, AS PER BOARD CIRCULAR NO. 05/2014 DATED 11/02/2014 AND A CCORDINGLY, MADE THE DISALLOWANCE OF RS. 1,49,12,838/ - APPLYING THE PROVI SI ONS OF SECTION 14A R.W.R 8D . 3 . T HE ASSESSEE WENT ON APPEAL BEFORE THE LD. CIT(A) AND THE LD. CIT(A) DELETED THE ADDITION PLACING RELIANCE ON THE ORDER OF THIS TRIBUNAL IN THE CASE OF RADHAKRISHNA AUTOMOBILES PVT. LTD. IN ITA NO. 511/VIZ/2017 AND ALSO THE DECISION IN THE CASE OF D. VEERABHAD RA REDDY IN ITA NO. 263/VIZ/2014 DATED 23/06/2017 AND HELD THAT IN ORDER TO INVOKE PROVISION OF SECTION 14A R.W.R. 8D, THE DEEMED INCOME WHICH IS EXEMPT FROM TAX MUST BE EARNED BY THE ASSESSEE. 4 . WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE MATERIAL PLACED ON REC O RD. IN THE INSTANT CASE, THERE IS NO DISPUTE THAT THE ASSESSEE HAS NOT EARNED ANY DIVIDEND INCOME WHICH IS EXEMPT FROM TAX . THE AO HAS NOT MADE OUT A CASE THAT IT HA D EARNED THE 3 ITA NO. 39 /VIZ/2021 ( M/S. DEVI FISHERIES LTD. ) DIVIDEND INCOME, BUT NOT MADE THE DISALLOWANCE. THIS TRIBUNAL HAS TAKEN A CONSISTENT VIEW THAT IN THE ABSENCE OF EXEMPT INCOME THERE IS NO CASE FOR MAKING THE DISALLOWANCE U/SEC. 14A. THE LD.CIT(A) FOLLOWED THE ORDER OF THIS TRIBUNAL AND DELETED THE ADDITION. FOR THE SAKE OF CLARITY AND CONVENIENCE, WE EXTRACT THE RELEVANT PART OF THE ORDER OF LD.CIT(A) WHICH READ S AS UNDER: - 4.1.2 I HAVE CAREFULLY CONSIDERED THE ISSUE AND FACTS OF THE CASE. PRIMARILY, THE APPELLANT ARGUES THAT THE INVESTMENTS ARE NON - CURRENT AND THEY ARE NOT MADE OUT OF BORROWED FUNDS AS THERE WERE SURPLUS FUNDS IN THE FORM OF RESERVES AT RS.204 C RORES. ON THE OTHER HAND THE APPELLANT'S INVESTMENT IS TO THE EXTENT OF RS.7 1.10 CRORES. IT IS ALSO ARGUED THAT THERE IS NO EXEMPT INCOME EARNED OUT OF THE INVESTMENT AND THERE IS NO EXPENDITURE INCURRED TOWARDS THE INVESTMENT. 4.1.3 ON THE OTHER HAND, THE ASSESSING OFFICER IS OF THE OPINION THAT THE ACCOUNTS ARE COMPOSITE AND INDIVIDUAL AND THE P&L ACCOUNT IS A SOLITARY STATEMENT REPRESENTING EXPENDITURE OF ALL ACTIVITIES. HE IS ALSO OF THE OPINION THAT THE APPELLANT HAD NOT FURNISHED CASH FLOW STATEMEN T. THE ASSESSING OFFICER IS ALSO OF THE OPINION THAT THE APPELLANT FAILED TO DEMONSTRATE THAT INTEREST BEARING FUNDS WERE NOT USED FOR INVESTMENT. FINALLY, THE ASSESSING OFFICER RELIED ON THE CIRCULAR OF CBDT NO. 5/2014 AND COMPUTED DISALLOWANCE OF INTERES T OF RS. 1,49,12,838/ - U/S. 14A R.W.RULE 8 D IN THE ABSENCE OF EXEMPT INCOME. 4.1 .4 I HAVE CONSIDERED THE ISSUE CAREFULLY AND THE JUDICIAL PRONOUNCEMENTS IN THIS REGARD, BOTH HON'BLE HIGH COURT AND JURISDICTIONAL ITAT (VIZAG). BEFORE DEALING INTO THESE DECISIONS, IT IS WORTHWHILE TO EXAMINE THE FACTS TO AN EXTENT POSSIBLE. IN THE FIRST PLACE, THE APPELLANT ARGUED THAT THERE IS NO EXEMPT INCOME EARNED OUT OF IN VESTMENTS. THE ASSESSING OFFICER HAS NOT DISPROVED THIS FACT . SECONDLY , THE APPELLANT ARGUED THAT THE INVESTMENTS ARE MADE OUT OF RESERVES . THE ASSESSING OFFICER HAS NO T CONTROVE RT ED THE ARGUMENTS, IT IS FOR THE ASSESSING OFFICER TO ESTABLISH THAT THE INT EREST BEARING FUNDS ARE INVESTED BY THE APPELLANT. THERE IS NO SUCH EVIDENCE ON RECORD. NOT FORMING CASH FLOW STATEMENT CAN'T BE A GROUND TO DISPROVE ALL THE FACTS OF THE CASE. THIS CAN'T BE A GROUND FOR DISALLOWANCE WITHOUT ESTABLISHING NEXUS WITH THE INV ESTMENT AND EXEMPT INCOME, THERE CAN'T BE A NY DISALLOWANCE U/S.14A R.W.RULE 8D OF THE RULES. 4.1.5 THE HON'BLE MADRAS HIGH COURT IN THE CASE OF R EDINGTON (INDIA) LIMITED (392 ITR 633) HELD THAT 'EARNING EXEMPT INCOME IS A S INE QUO N ON IN 14A.' THE HON'BLE COURT ALSO HELD THAT 'WHEREVER DEEMED INCOME IS EA R N E D THEN ONLY THE PROVISION OF SECTION 14A IS APPLICABLE ON THE BASIS OF 'MATCHING CONCEPT' 4.1.6 IN THE CASE OF CHETTINAD LOGISTICS (P.) LTD (80 TAXM ANN. C OM 221), THE HON'BLE COURT HA S HELD THAT 'RULE 8D 4 ITA NO. 39 /VIZ/2021 ( M/S. DEVI FISHERIES LTD. ) CAN'T BE READ IN A MANNER IN WHICH IT TAKES THE SCOPE BEYOND THE PROVISIONS OF SECTION 1 4A '. 4.1.7 THE HON'BLE ITAT, VISAKHAPATNAM IN THE CASE OF RADHAKRISHNA AUTOMOBILES PVT.LTD. (ITA NO.511/ VIZAG/2017) AND D.V E ERABHADRA REDDY (ITA NO.263/VIZAG/ 2017) HAVE HELD THAT 'IN ORDER TO INVOKE PROVISION OF SECTION 14A R.W.RULE 8D, THE DEEMED INCOME EXEMPT INCOME MUST BE EARNED BY THE APPELLANT'. FOLLOWING THE DECISION OF HON'BLE ITAT AND THE HON'BLE HIGH COURT OF MADRAS, THE DISALLOWANCE MADE BY ASSESSING OFFICER IS DELETED AS THERE IS NO EXEMPT INCOME IN THIS CASE. 5. SINCE , THE LD. CIT(A) FOLLOWED THE ORDER OF HON'BLE HIGH COURT AND THIS TRI B UNAL AND THE LD. DR DID NOT PLACE ANY DECISION TO CONTROVERT THE DECISION RELIED UPON BY THE LD. CIT(A) , WE FIND NO ERR OR IN THE ORDER OF THE LD. CIT(A) AND THE SAME IS UPHELD. APPEAL OF THE R EV E NUE IS DISMISSED. 6. IN THE RESULT, APPEAL OF THE REVENUE STANDS DISMISSED. ORDER PRONOUNCED IN OPEN COURT ON TH IS 0 8 T H DAY OF SEP . , 2021 . S D / - S D / - (N.K. CHOUDHRY) (D.S. SUNDER SINGH) JUDICIAL MEMBER ACCOUNTANT MEMBER DATED : 0 8 T H SEPTEMBER , 20 2 1 . VR/ - COPY TO: 1. THE ASSESSEE - M/S. DEVI FISHERIES LTD., D.NO. 6 - 21 - 7, EAST POINT COLONY, NEAR VUDA PARK, VISAKHAPATNAM. 2. THE REVENUE DCIT, CIRCLE - 3(1), VISAKHAPATNAM. 3. THE PR. CIT - 1 , VISAKHAPATNAM. 4. THE CIT(A) - 1 , VISAKHAPATNAM. 5. THE D.R . , VISAKHAPATNAM. 6. GUARD FILE. BY ORDER (VUKKEM RAMBABU) SR. PRIVATE SECRETARY, ITAT, VISAKHAPATNAM.