Martech Perpherals Private Limited, CHENNAI V. ACIT, CHENNAI

ITA 424/CHNY/2016

• Counselvise Citation: [2019] 115 COUNSELVISE.COM (IT) 3467 (ITAT-CHENNAI)
• Duration Of Justice: 3 year(s) 8 month(s) 12 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 08-11-2019
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: C
• Assessment Year: 2011-2012
• Appeal Filed On: 25-02-2016
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: CLEMENT RAMESH KUMARADDL
• Assessee Lawyers: S SRIDHAR
• Keywords: Earning of tax free income; Rule 8D
• Section: 14A

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL , C BENCH, CHENNAI . , , BEFORE SHRI DUVVURU RL REDDY, JUDICIAL MEMBER AND SHRI S. JAYARAMAN, ACCOUNTANT MEMBER ./ ITA NO.424/CHNY/2016 [ [ /ASSESSMENT YEAR: 2011-12 M/S. MARTECH PER I PHERALS PVT. LTD., NO.7, COLLEGE LANE, CHENNAI 600 006. VS. THE ACIT, COMPANY CIRCLE IV(1), CHENNAI 34. PAN: A ADCM 4508K ( /APPELLANT) ( /RESPONDENT) / APPELLANT BY : SHRI S. SRIDHAR, ADVOCATE /RESPONDENT BY : SHRI CLEMENT RAMESH KUMAR,ADDL.CIT /DATE OF HEARING : 19.08.2019 /DATE OF PRONOUNCEMENT : 08.11.2019 / O R D E R PER SHRI S. JAYARAMAN, ACCOUNTANT MEMBER : THE ASSESSEE FILED THIS APPEAL AGAINST THE ORDER OF THE COMMISSIONER OF INCOME TAX (APPEALS)-8, CHENNAI IN ITA NO.09/2014- 15 DATED 11.11.2015 FOR THE ASSESSMENT YEAR 2011-12. ITA NO.424/CHNY/2016 :- 2 -: 2. M/S. MARTECH PERIPHERALS PVT. LTD., THE ASSESSEE, IS IN THE BUSINESS OF FINANCING AND TRADING. WHILE MAKING THE ASSESSMENT FOR ASSESSMENT YEAR 2011-12, THE ASSESSING OFFICER INVOKING SECTION14A READ WITH RULE 8D(III) DISALLOWED RS.6,53,861/-. AGGRIEVED AGAINST THAT ORDER, THE ASSESSEE FILED AN APPEAL BEFORE THE CIT(A) AND THE LD.CIT(A) DISMISSED THE APPEAL. AGGRIEVED AGAINST THAT ORDER, THE ASSESSEE FILED THIS APPEAL. 3. THE LD.AR SUBMITTED THAT AS AGAINST RS.10,22,278/- DIVIDEND INCOME ADMITTED BY THE ASSESSEE, THE ASSESSING OFFICER INVOKING SECTION 14A R.W.R.8D(III) HAS MADE A DISALLOWANCE OF RS.6,53,861/- WHICH REPRESENTS 64% OF THE EXEMPT INCOME. THEREFORE, THE DISALLOWANCE ITSELF INDICATES THAT IT IS AN ADHOC DISALLOWANCE WITHOUT MERITS AND HENCE PLEADED THAT THE ASSESSING OFFICER MAY BE REQUIRED TO COMPUTE PROPORTIONATE DISALLOWANCE. INVITING OUR ATTENTION TO THE FINANCIAL STATEMENT ENDING 31 ST MARCH 2011, THE LD.AR SUBMITTED THAT THE ASSESSEE ADMITTED INTEREST INCOME OF RS.11,79,91,641/- AND OTHER INCOME OF RS.16,66,186/-, TOTAL RECEIPT ADMITTED FOR ASSESSMENT BEING RS.11,96,57,827/-. HE SUBMITTED THAT THE OTHER INCOME OF RS.16,66,186/- COMPRISES DIVIDEND INCOME OF RS.10,22,278/- AGAINST ITA NO.424/CHNY/2016 :- 3 -: THE TOTAL RECEIPT OF RS.11,96,57,827/-. THE ASSESSEE HAS CLAIMED PERSONAL EXPENSES, ADMINISTRATIVE AND OTHER EXPENSES AT RS.36,92,451/- ONLY. AGAINST SUCH CLAIM, THE ASSESSING OFFICER DISALLOWED RS.6,53,861/- TOWARDS EXEMPT INCOME OF RS.10,22,278/-, WHICH IS DISPROPORTIONATE AND HENCE, THE LD.AR PLEADED TO ALLOW THE APPEAL. PER CONTRA, THE LD.DR SUPPORTED THE ORDERS OF THE LOWER AUTHORITIES AND SUBMITTED THAT THE ASSESSING OFFICER HAS CORRECTLY INVOKED RULE 8D(3) AND DISALLOWED THE AMOUNT. 4. WE HEARD THE RIVAL SUBMISSIONS. SINCE THE ASSESSEE HAS MADE INVESTMENTS IN MUTUAL FUNDS, THE DIVIDEND INCOME OF WHICH IS EXEMPT FROM TAXATION, THE EXPENDITURE INCURRED BY THE ASSESSEE IN RELATION TO SUCH EXEMPT INCOME SHOULD NOT BE ALLOWED. THEREFORE, THE ASSESSING OFFICER INVOKED CORRECTLY RULE 8D(III). HOWEVER, IT APPEARS THAT THE ASSESSING OFFICER HAS COMMITTED AN ERROR IN QUANTIFYING THE AVERAGE OF INVESTMENTS WHICH IS APPARENT FROM THE FOLLOWING EXTRACT:- INVESTMENT AS ON 31/03/2010 : 8,85,27,512 INVESTMENT AS ON 31/03/2011 : 7,13,71,058 AVERAGE OF THE INVESTMENTS : 13,07,72,285 0.5% OF THE ABOVE : 6,53,861 ITA NO.424/CHNY/2016 :- 4 -: THEREFORE, WE DIRECT THE ASSESSING OFFICER TO ARRIVE THE CORRECT AVERAGE OF THE INVESTMENT AND DISALLOW 0.5% OF SUCH AVERAGE OF THE INVESTMENTS. TO THIS EXTENT, THE ASSESSEES APPEAL IS ALLOWED. 5. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS ALLOWED TO THE ABOVE EXTENT. ORDER PRONOUNCED IN THE COURT ON 8 TH NOVEMBER, 2019 IN CHENNAI. SD/- SD/- /CHENNAI, /DATED 8 TH NOVEMBER, 2019 RSR /COPY TO: 1. /APPELLANT 2. /RESPONDENT 3. ( )/CIT(A) 4. /CIT 5. /DR 6. [ /GF ( ) (DUVVURU R.L REDDY) /JUDICIAL MEMBER ( ) (S. JAYARAMAN) /ACCOUNTANT MEMBER