Deputy Commissioner Of Income Tax, Circle - 6(1)(2), Bengaluru V. M/s. Subramanya Constructions & Development Company Ltd., Bengaluru

ITA 410/BANG/2017

• Counselvise Citation: [2018] 126 COUNSELVISE.COM (IT) 5394 (ITAT-BANGALORE)
• Duration Of Justice: 1 year(s) 1 month(s) 1 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 23-03-2018
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: A
• Assessment Year: misc
• Appeal Filed On: 21-02-2017
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: NAMBIRAJAN S PILLAI
• Assessee Lawyers: S V RAVISHANKAR
• Keywords: Earning of tax free income
• Section: 143(3); 14A

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL BANGALORE BENCH A BEFORE S HRI SUNIL KUMAR YADAV , JUDICIAL MEMBER AND SHRI JASON P BOAZ , ACCOUNTANT MEMBER I.T . A. NO. 410 /BANG/20 17 (ASSESSMENT YEAR : 20 10 - 11 ) DY. COMMISSIONER OF INCOME TAX, CIRCLE 6(1)(2), BANGALORE. . APPELLANT. VS. M/S. SUBRAMANYA CONSTRUCTIONS & DEVELOPMENT CO. LTD., NO.4/1, TUMKUR ROAD, YESHWANTHPUR, BANGALORE - 560 022 . .. RESPONDENT. APPELLANT BY : SHRI NA MBIRAJAN S PILLAI, ADDL. CIT (D.R) R E SPONDENT BY : SHRI S. V. RAVISHANKAR, ADVOCATE. DATE OF H EARING : 01.03.2018. DATE OF P RONOUNCEMENT : 23 .03 .201 8 . O R D E R PER SHRI JASON P BOAZ, A .M . : THIS APPEAL BY REVENUE IS DIRECTED AGAINST THE ORDER OF COMMISSIONER OF INCOME TAX (APPEALS) - 6 , BANGALORE DT. 25.11.2016 FOR THE ASSESSMENT YEAR 20 10 - 11. 2. BRIEFLY STATED, THE FACTS RELEVANT FOR DISPOSAL OF THIS APPEAL ARE AS UNDER : - 2 IT A NO. 410 /BANG/20 17 2.1 THE ASSESSEE, A COMPANY ENGAGED IN BUSINESS A S BUILDER / DEVELOPER, FILED ITS RETURN OF INCOME FOR ASSESSMENT YEAR 2010 - 11 ON 15.10.2010 DECLARING INCOME OF RS.6,04,79,310. REVISED R ETURN OF INCOME WAS FILED ON 31.3.2011 WHEREIN ASSESSEE HAS CLAIMED TDS AT RS.2,15,84,463 AS AGAINST RS.2,08,00,242 ORIGINALLY CLAIMED. THE RETURN WAS PROCESSED UNDER SECTION 143(1) OF THE INCOME TAX ACT, 1961 (IN SHORT 'THE ACT') AND THE CASE WAS SUBSEQ UENTLY TAKEN UP FOR SCRUTINY. THE ASSESSMENT WAS COMPLETED UNDER SECTION 143(3) OF THE ACT VIDE ORDER DT.20.3.2013, WHEREIN THE ASSESSEE'S INCOME WAS DETERMINED AT RS.9,11,23,763 , IN VIEW OF DISALLOWANCE OF RS.3,06,44,453 UNDER SECTION 14A R.W. RULE 8D I.E . RS.2,74,71,540 UNDER RULE 8D(2)(II) AND RS.31,72,913 UNDER RULE 8D(2)(III). 2.2 AGGRIEVED BY THE ORDER OF ASSESSMENT DT.20.3.2013, THE ASSESSEE PREFERRED AN APPEAL BEFORE THE CIT (APPEALS) 6, BANGALORE. THE LEARNED CIT (APPEALS), VIDE THE IMPUGN ED ORDER DT.25.11.2016, ALLOWED THE ASSESSEE PARTIAL RELIEF BY RESTRICTING THE DISALLOWANCE UNDER SECTION 14A OF THE ACT TO THAT UNDER RULE 8D(2)(III) AT 0.5% OF THE AVERAGE INVESTMENT WHICH HAS EARNED EXEMPT INCOME AND IN DOING SO FOLLOWED THE DECISION OF THE CO - ORDINATE BENCH OF THIS TRIBUNAL IN THE CASE OF M/S. NARAYANA HRUDAYALAYA (P) LTD. IN ITA NO.1281/BANG/2014 DT.7.8.2015. 3.1 REVENUE, BEING AGGRIEVED BY THE ORDER OF THE CIT (APPEALS) 6, BANGALORE DT.25.11.2016 FOR ASSESSMENT YEAR 2010 - 11 HAS FILED THIS APPEAL, WHEREIN IT HAS RAISED THE FOLLOWING GROUNDS : 3 IT A NO. 410 /BANG/20 17 3.2 THE ONLY ISSUE RAISED IN THESE GROUNDS (SUPRA) BY REVENUE IN CHALLENGING THE CIT (APPEALS) FINDING IN RESTRICTING THE DISALLOWANCE OF RS.3,06,44,453 MADE BY THE ASSESSING OFFIC ER UNDER SECTION 14A R.W. RULE 8D(II)/(III), TO THE VALUE OF 0.5% ON SUCH INVESTMENTS WHICH HAVE EARNED EXEMPT INCOME. IN THE YEAR UNDER CONSIDERATION, THE ASSESSEE HAD EARNED EXEMPT INCOME OF RS.43,000 AS DIVIDEND FROM INVESTMENT IN SHARES OF INDIAN OVER SEAS BANK LIMITED. 3.3 THE LEARNED DEPARTMENTAL REPRESENTATIVE FOR REVENUE WAS HEARD IN SUPPORT OF THE GROUNDS RAISED (SUPRA). ACCORDING TO THE LEARNED DEPARTMENTAL REPRESENTATIVE, THE LEARNED CIT (APPEALS) ERRED IN RESTRICTING THE DISALLOWANCE U NDER SECTION 14A R.W. RULE 8D, BY DELETING THE DISALLOWANCE COMPONENT UNDER RULE 8D(2)(II) OF RS.2,74,71,540 AS 4 IT A NO. 410 /BANG/20 17 THE ASSESSEE HAD HUGE INVESTMENTS AND IN RESTRICTING THE DISALLOWANCE UNDER RULE 8D(2)(III) TO 0.5% OF THE AVERAGE VALUE OF INVESTMENT S WHICH HAS YIELDED EXEMPT DIVIDEND INCOME. IT WAS CONTENDED THAT THE LEARNED CIT (APPEALS) HAD FAILED TO APPRECIATE TH AT ONCE THE SAID SECTION WAS INVOKED, THE ASSESSING OFFICER WAS DUTY BOUND TO MAKE DISALLOWANCE UNDER EVERY CLAUSE OF RULE 8D AND COULD NOT LIMI T HIMSELF TO CLAUSE (III). STRONG RELIANCE WAS PLACED ON THE ORDER OF THE ASSESSING OFFICER IN THE MATTER. 3.4.1 PER CONTRA, THE LEARNED AUTHORISED REPRESENTATIVE FOR THE ASSESSEE SUBMITTED THAT ALL THE INVESTMENTS REFLECTED IN THE ASSESSEE'S BALANCE SHEET AS ON 31.3.2010 (I.E. THE YEAR UNDER CONSIDERATION) ARE OPENING BALANCES AND THE INVESTMENT THEREIN HAVE BEEN MADE IN THE EARLIER YEARS OUT OF OWN SOURCES AND NOT OUT OF BORROWED FUNDS. IN THIS REGARD, THE LD. AR RELIED ON THE DECISION OF A CO - ORD INATE BENCH OF THIS TRIBUNAL IN THE ASSESSEE'S OWN CASE FOR ASSESSMENT YEAR 2009 - 10 IN ITA N O .404/BANG/2013 AND C.O. NO.89/BANG/2013, WHEREIN THE TRIBUNAL AFTER CONSIDERING THE FACTS HAS UPHELD THE LEARNED CIT (APPEALS) S ACTION OF DELETION OF DISALLOWANC E UNDER RULE 8D(2)(I I), HOLDING THAT THE ASSESSEE HAD INTEREST FREE FUNDS AVAILABLE WITH IT WHICH WAS SUBS TANTIALLY HIGHER THAN THE INVESTMENT MADE. ACCORDING TO THE LEARNED AUTHORISED REPRESENTATIVE, THERE IS NO MAJOR CHANGE IN THE INVESTMENTS MADE BY TH E ASSESSEE DURING THIS YEAR WHEN COMPARED TO THE INVESTMENTS MADE IN THE PERIOD RELEVANT TO ASSESSMENT YEAR 2009 - 10, WHEREIN THE TRIBUNAL IN ITS AFORESAID ORDER (SUPRA) HAS UPHELD THE DELETION OF DISALLOWANCE UNDER 5 IT A NO. 410 /BANG/20 17 RULE 8D(2)(II) BY THE LEARNED CIT (APPEAL S). SINCE THE FACTS REMAIN SAME, IT WAS PRAYED THAT THE DELETION OF DISALLOWANCE UNDER RULE 8D(2)(II) BY THE LEARNED CIT (APPEALS), BE UPHELD. RELIANCE WAS PLACED ON THE DECISION OF CO - ORDINATE BENCH OF THIS TRIBUNAL IN THE ASSESSEE'S OWN CASE FOR ASSES SMENT YEAR 2009 - 10(SUPRA) ON THIS ISSUE. 3.4.2 IT WAS FURTHER SUBMITTED THAT THE ASSESSEE, IN THE YEAR UNDER CONSIDERATION, H A D EARNED EXEMPT DIVIDEND INCOME OF RS.43,200 FROM INVESTMENT OF RS.2,30,400 IN SHARES OF INDIAN OVERSEAS BANK. IN THIS REG ARD, IT WAS CONTENDED THAT SINCE THE AFORESAID EXEMPT INCOME WAS EARNED FROM A PARTICULAR INVESTMENT, ONLY SUCH INVESTMENT SHOULD BE CONSIDERED FOR DISALLOWANCE UNDER RULE 8D(2)(III) OF THE ACT AND IN SUPPORT OF THE AFORESAID PROPOSITION, RELIANCE WAS PLAC ED ON THE DECISION O F THE CO - ORDINATE BENCH IN THE CASE OF M/S. NARAYANA HRUDA Y A LAYA PVT. LT D . IN ITA NO.1281/BANG/2014 DT.7.8.2015. 3.5.1 WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED AND CAREFULLY CONSIDERED THE DETAILS SUBMITTED AND MATE RIAL ON RECORD, INCLUDING THE JUDICIAL PRONOUNCEMENT CITED. ADMITTEDLY, THE ASSESSEE HAD EARNED EXEMPT DIVIDEND INCOME OF RS.43,200 FROM OUT OF INVESTMENTS MADE BY IT IN SHARES OF INDIAN OVERSEAS BANK. IN THE ORDER OF ASSESSMENT, THE ASSESSING OFFICER HAS MADE A DISALLOWANCE OF RS.2,74,71,540 UNDER SECTION 14A R.W. RULE 8D(2)(II). IN THIS REGARD, OUR ATTENTION WAS DRAWN TO PARA 2 ON PAGE 2 OF THE IMPUGNED ORDER OF ASSESSMENT WHEREIN THE ASSESSING OFFICER HAS TABULATED THE INVESTMENTS MADE BY THE ASSESSEE AT RS.63,44,00,474 AND ALSO TO PARA 7 OF THE ORDER OF THE CO - ORDINATE 6 IT A NO. 410 /BANG/20 17 BENCH OF THIS TRIBUNAL IN THE ASSESSEE'S OWN CASE FOR ASSESSMENT YEAR 2009 - 10 (SUPRA) WHEREIN THE INVESTMENTS OF THE ASSESSEE AS ON 31.3.2009 IS RS.63,49,08,874; TO SHOW THAT THERE WAS HARDLY ANY CHANGE IN THE INVESTMENTS OF THE ASSESSEE IN THE ASSESSMENT YEARS 2009 - 10 AND 2010 - 11. THE CO - ORDINATE BENCH OF THIS TRIBUNAL IN THE ASSESSEE'S OWN CASE, IN SIMILAR FACTUAL SITUATION AT PARA 8 OF ITS ORDER FOR ASSESSMENT YEAR 2009 - 10 (SUPRA), CONFIRMED THE DELETION OF THE DISALLOWANCE U/R 8D(2)(II), HOLDING THAT UNDOUBTEDLY INTEREST FREE FUNDS AVAILABLE WITH THE ASSESSEE WAS SUBSTANTIALLY HIGHER THAN THE INVESTMENTS MADE BY IT IN THESE YEARS. IN OUR CONSIDERED VIEW, ON AN APPRAISAL OF THE MAT ERIAL ON RECORD, FACTUAL POSITION REMAINING THE SAME AND ALSO SINCE THERE IS NO CHANGE IN THE INVESTMENT PATTERN AND AVAILABILITY OF INTEREST FREE FUNDS, THE FINDINGS RENDERED BY THE CO - ORDINATE BENCH OF THIS TRIBUNAL IN THE ASSESSEE'S OWN CASE FOR ASSESSM ENT YEAR 2009 - 10 (SUPRA) WOULD SQUARELY APPLY TO THIS YEAR ALSO. THEREFORE, RESPECTFULLY FOLLOWING THE DECISION OF THE CO - ORDINATE BENCH OF THIS TRIBUNAL IN THE ASSESSEE'S OWN CASE FOR ASSESSMENT YEAR 2009 - 10 (SUPRA), WE UPHOLD THE ORDER OF THE LEARNED CI T (APPEALS) IN DELETING THE DISALLOWANCE OF RS.2,74,71,540 U/R 8D(2)(II) MADE BY THE ASSESSING OFFICER IN THE IMPUGNED ORDER OF ASSESSMENT. CONSEQUENTLY, GROUNDS RAISED BY REVENUE IN THIS REGARD ARE DISMISSED. 3.5.2 IN RESPECT OF THE DISALLOWANCE U /R 8D(2)(III), THE FACT IS THAT IN THE YEAR UNDER CONSIDERATION THE ASSESSEE EARNED INTEREST FREE DIVIDEND OF RS.43,200 FROM INVESTMENT IN SHARES OF INDIAN OVERSEAS BANK, WE ARE INCLINED TO CONC UR WITH THE CONTENTIONS OF THE ASSESSEE AND THE FINDINGS 7 IT A NO. 410 /BANG/20 17 RENDE RED BY THE LEARNED CIT (APPEALS) IN THE LIGHT OF THE DECISION OF THE CO - ORDINATE BENCH OF THIS TRIBUNAL IN THE CASE OF M/S. NARAYANA HRUDAYALAYA P. LTD. IN ITA NO.1281/BANG/2014 DT.7.8.2015 WHICH SQUARELY COVERS THE ISSUE BEFORE US. IN THIS VIEW OF THE MA TTER, WE FIND NO REQUIREMENT TO INTERFERE WITH OR DEVIATE THE FINDING RENDERED BY THE LEARNED CIT (APPEALS) IN THE MATTER AND CONSEQUENTLY DISMISS GROUNDS RAISED BY REVENUE. 4. IN THE RESULT, REVENUE S APPEAL FOR ASSESSMENT YEAR 2010 - 11 IS DISMISSED . ORDER PRONOUNCED IN THE OPEN COURT ON THE 23RD DAY OF MAR., 201 8 . SD/ - ( SUNIL KUMAR YADAV ) ACCOUNTANT MEMBER SD/ - ( JASON P BOAZ ) JUDICIAL MEMBER BANGALORE, DT. 23 .03 .2018 *REDDY GP COPY TO : 1 APPELLANT 4 CIT(A) 2 RESPONDENT 5 DR. ITAT, BANGALORE 3 CIT 6 GUARD FILE SENIOR PRIVATE SECRETARY INCOME TAX APPELLATE TRIBUNAL BANGALORE.