M/s Bharath Beedi Works Pvt Ltd , Mangalore V. The Assistant Commissioner of Income Tax Circle-2(1), Mangalore

ITA 459/BANG/2018

• Counselvise Citation: [2018] 125 COUNSELVISE.COM (IT) 7684 (ITAT-BANGALORE)
• Duration Of Justice: 4 month(s) 24 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 13-07-2018
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: C
• Assessment Year: 2013-2014
• Appeal Filed On: 19-02-2018
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: S VENKATESH
• Keywords: Earning of tax free income
• Section: 234B; 14A

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL SMC-C BENCH : BANGALORE BEFORE SHRI ARUN KUMAR GARODIA, ACCOUNTANT MEMBER ITA NO. 459 / BANG/201 8 ASSESSMENT YEAR : 20 1 3 - 1 4 M/S. BHARATH BEEDI WORKS PVT. LTD., 15-7-366/1, BHARATH BAGH, KADRI ROAD, MANGALORE 575 003. PAN: AAACB9001B VS. THE ASSISTANT COMMISSIONER OF INCOME TAX, CIRCLE 2 (1), MANGALORE. APPELLANT RESPONDENT APPELLANT BY : SMT. SHEETAL BORKAR, ADVOCATE RESPONDENT BY : SHRI S. VENKATESH, JCIT (DR) DATE OF HEARING : 0 5 .0 7 .2018 DATE OF PRONOUNCEMENT : 13 .0 7 .2018 O R D E R PER SHRI A.K. GARODIA, ACCOUNTANT MEMBER THIS APPEAL IS FILED BY THE ASSESSEE WHICH IS DIREC TED AGAINST THE ORDER OF LD. CIT (A)-10, BANGALORE DATED 21.11.2017 FOR ASSE SSMENT YEAR 2013-14. 2. THE GROUNDS RAISED BY THE ASSESSEEARE AS UNDER. 1. THE LEARNED CIT (A) ERRED IN PASSING THE ORDER I N THE MANNER THAT HE DID. 2. THE LEARNED CIT (A) ERRED IN MAKING ADDITION TO THE TUNE OF RS. U/ S. 19,33,219/- 14A OF THE ACT. 3. THE LEARNED CIT (A) OUGHT TO HAVE APPRECIATED TH AT THE A.0 HAS NOT RECORDED SATISFACTION WITH REGARD TO CORRECTNESS OF THE CLAIM. HENCE IN ABSENCE OF SUCH RECORDING OF NON SATISFACTION, T HE DISALLOWANCE IS UNTENABLE. 4. THE LEARNED CIT (A) ERRED IN NOT FOLLOWING THE R ATIO OF JURISDICTION OF HIGH COURT DECISION IN THE CASE OF M/S. KARNATAK A STATE INDUSTRIAL AND INFRASTRUCTURE DEVELOPMENT CORP. LTD., REPORTED IN 65 TAXMANN 0295 (KARN) ITA NO.459/BANG/2018 PAGE 2 OF 4 5. THE LEARNED CIT (A) OUGHT TO HAVE APPRECIATED TH AT ALL INVESTMENTS ARE LONG TERM IN AND HENCE NO DAY TO DAY MONITORING WAS REQUIRED AND AS SUCH THERE ARE NO OTHER EXPENSES AT TRIBUTABLE TO EXEMPT INCOME, HENCE HE OUGHT TO HAVE DELETED THE A DDITION. 6. THE LEARNED A.O ERRED IN CHARGING INTEREST UNDER SECTIONS 234B AND 234C OF THE ACT. 7. FOR THESE AND OTHER SUCH GROUNDS THAT MAY BE URG ED AT THE TIME OF HEARING, THE APPELLANT PRAYS THAT THE APPEAL MAY BE ALLOWED. 3. IT WAS SUBMITTED BY LD. AR OF ASSESSEE THAT ASSE SSEE HAS SUO MOTO MADE DISALLOWANCE OF RS. 4 LAKHS U/S. 14A R.W.RULE 8D (2 )(III) BUT THE AO HAS INCREASED THE SAME WITHOUT RECORDING ANY SATISFACTI ON IN THE ASSESSMENT ORDER IN RESPECT OF THIS ASPECT THAT THERE IS ANY INFIRMI TY IN SUCH DISALLOWANCE MADE BY THE ASSESSEE SUO MOTO AND THEREFORE, THE ADDITION M ADE BY THE AO IS NOT SUSTAINABLE. IN THIS REGARD, SHE PLACED RELIANCE O N THE FOLLOWING JUDICIAL PRONOUNCEMENTS. A) CIT AND ANOTHER VS. MICROLABS LTD., [2016] 383 I TR 490 (KAR) B) CIT VS. KARNATAKA STATE INDUSTRIAL & INFRASTRUCT URE DEVELOPMENT CORPN. LTD., [2016] 65 TAXMANN.COM 295 (KARNATAKA) 4. THE LD. DR OF REVENUE SUPPORTED THE ORDERS OF AU THORITIES BELOW AND HE PLACED RELIANCE ON JUDGEMENT OF HON'BLE KARNATAKA HIGH COU RT RENDERED IN ASSESSEES OWN CASE FOR ASSESSMENT YEAR 2010-11 AS REPORTED IN 242 TAXMAN 492 (KARNATAKA). HE SUBMITTED A COPY OF THIS JUDGEMENT . 5. I HAVE CONSIDERED THE RIVAL SUBMISSIONS. I FIND THAT AO HAS NOTED ON PAGE NO. 4 OF THE ASSESSMENT ORDER THAT THE ASSESSEE HAS SUOMO TO DISALLOWED RS. 2,46,730/- UNDER RULE 8D(2)(I) AND TOWARDS INDIRECT EXPENSES, THE ASSESSEE HAS VOLUNTARILY DISALLOWED RS. 4 LAKHS. THE AO HAS NOT DISTURBED THE DISALLOWANCE UNDER RULE 8D(2)(I) BUT REGARDING DISA LLOWANCE OF INDIRECT EXPENDITURE, THE AO HAS RECOMPUTED THE SAME AS PER RULE 8D(2)(III) AND COMPUTED THE SAME AT RS. 23,33,219/- BEING % OF AV ERAGE INVESTMENT AND AFTER REDUCING RS. 4 LAKHS SUOMOTO DISALLOWED BY TH E ASSESSEE, HE HAS MADE FURTHER DISALLOWANCE OF RS. 19,33,219/-. THE VERY FACT THAT THE ASSESSEE HAS ITA NO.459/BANG/2018 PAGE 3 OF 4 ALSO MADE DISALLOWANCE OF RS. 4 LAKHS OUT OF INDIRE CT EXPENDITURE, IT STANDS ESTABLISHED THAT THE ASSESSEE HAS ALSO ACCEPTED THA T THE DISALLOWANCE HAS TO BE MADE UNDER RULE 8D(2)(III). THE ASSESSEE HAS NO T SUBMITTED THE WORKING OF THIS DISALLOWANCE OF RS. 4 LAKHS MADE BY THE ASSESS EE. THE DISALLOWANCE OF INDIRECT EXPENSES HAS TO BE MADE AS PER RULE 8D(2)( III) AND IN THE COURSE OF HEARING BEFORE ME, NO DEFECT COULD BE POINTED OUT I N THE WORKING DONE BY THE AO AND NO DETAIL HAS BEEN FURNISHED BEFORE ME ALSO REGARDING THE WORKING OF RS. 4 LAKHS MADE BY THE ASSESSEE. WHEN THIS IS ADM ITTED BY ASSESSEE ITSELF THAT DISALLOWANCE IS REQUIRED TO BE MADE OUT OF IND IRECT EXPENDITURE, THEN THE QUANTUM OF IT HAS TO BE COMPUTED AS PER RULE 8D (2) (III) AND MERELY FOR MAKING CORRECT WORKING OF THE DISALLOWANCE UNDER THAT RULE , NO SEPARATE SATISFACTION IS REQUIRED TO BE RECORDED BY AO PARTICULARLY WHEN THE ASSESSEE HAS NOT GIVEN THE WORKING OF DISALLOWANCE OF RS. 4 LAKHS MADE BY THE ASSESSEE SUOMOTO. 6. NOW I EXAMINE THE APPLICABILITY OF VARIOUS JUDGE MENTS CITED BY BOTH SIDES. THE ASSESSEE HAS PLACED RELIANCE ON A JUDGMENT OF HON'B LE KARNATAKA HIGH COURT RENDERED IN THE CASE OF CIT AND ANOTHER VS. MICROLA BS LTD. (SUPRA). I FIND THAT IN THAT CASE, THE DISPUTE WAS REGARDING THE DISALLO WANCE UNDER RULE 8D(2)(I) AND NOT UNDER RULE 8D(2)(III). IN FACT, IN PARA 5 OF THIS JUDGEMENT, IT IS SPECIFICALLY NOTED THAT THE ASSESSEE HAS MADE SUOMO TO DISALLOWANCE OF RS. 3,22,426/- AND BREAK-UP OF THIS DISALLOWANCE AMOUNT IS NOT SPECIFICALLY GIVEN BUT IT IS STATED TO BE RELATING TO MANAGEMENT FEE, LEGAL AND PROFESSIONAL CHARGES, SECURITY TRANSACTION CHARGES AND NATIONAL SECURITIES DEPOSITORY LIMITED CHARGES AND THUS IT IS CLEAR THAT ASSESSEE BY IMPLICATION HAD CLAIMED THAT THERE WAS NO EXPENDITURE INCURRED BY WAY OF IN TEREST, EITHER DIRECTLY OR INDIRECTLY WHICH IS ATTRIBUTABLE TO THE BORROWED FU NDS WHICH WERE USED FOR THE PURPOSE OF INVESTMENT WHICH YIELDED TAX-FREE INCOME . IN THE PRESENT CASE, THE ASSESSEE HAS MADE SUOMOTO DISALLOWANCE OF RS. 4 LAK HS REGARDING INDIRECT EXPENDITURE FOR WHICH THE ASSESSEE HAS NOT GIVEN TH E WORKING AND SINCE IN THIS CASE, THE DISPUTE WAS REGARDING DISALLOWANCE OF INT EREST AND NOT OF INDIRECT EXPENDITURE, THIS JUDGEMENT IS NOT RELEVANT IN THE PRESENT CASE. ITA NO.459/BANG/2018 PAGE 4 OF 4 7. THE SECOND JUDGMENT ON WHICH RELIANCE HAS BEEN P LACED BY LD. AR OF ASSESSEE IS ALSO A JUDGMENT THE HON'BLE KARNATAKA HIGH COURT RENDERED IN THE CASE OF CIT VS. KARNATAKA STATE INDUSTRIAL & INFRASTRUCTURE DEVELOPMENT CORPN. LTD. (SUPRA). IN THIS CASE ALSO, THE DISPUTE WAS REGARD ING DISALLOWANCE OF INTEREST EXPENDITURE AND NOT REGARDING DISALLOWANCE OUT OF I NDIRECT EXPENDITURE MADE UNDER RULE 8D(2)(III) AND THEREFORE, THIS JUDGMENT IS ALSO NOT APPLICABLE IN THE PRESENT CASE. 8. THE JUDGMENT ON WHICH RELIANCE HAS BEEN PLACED B Y LD. DR OF REVENUE IS THE JUDGEMENT OF HON'BLE KARNATAKA HIGH COURT IN ASSESS EES OWN CASE FOR ASSESSMENT YEAR 2010-11. I FIND THAT IN THIS YEAR ALSO, THE ASSESSEE HAS MADE SUOMOTO DISALLOWANCE OF RS. 4 LAKHS UNDER RULE 8D ( 2)(III) AND THE AO INCREASED IT TO RS. 14,00,530/-. IN THAT YEAR ALSO , THE AO HAS REDUCED THE SAID AMOUNT OF RS. 4 LAKHS FROM THE DISALLOWANCE WORKED OUT BY HIM OF RS. 14,00,530/-. UNDER THESE FACTS, THE ISSUE WAS DECI DED BY TRIBUNAL AGAINST THE ASSESSEE AND HON'BLE KARNATAKA HIGH COURT AFFIRMED THE ORDER OF TRIBUNAL IN THAT YEAR. HENCE RESPECTFULLY FOLLOWING THIS JUDGE MENT OF HON'BLE KARNATAKA HIGH COURT IN ASSESSEES OWN CASE FOR ASSESSMENT YE AR 2010-11, I CONFIRM THE ORDER OF CIT (A) IN THE PRESENT YEAR ALSO. 9. IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE IS DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON THE DA TE MENTIONED ON THE CAPTION PAGE. SD/- (ARUN KUMAR GARODIA) ACCOUNTANT MEMBER BANGALORE, DATED, THE 13 TH JULY, 2018. /MS/ COPY TO: 1. APPELLANT 4. CIT(A) 2. RESPONDENT 5. DR, ITAT, BANGALORE 3. CIT 6. GUARD FILE BY ORDER SENIOR PRIVATE SECRETARY, INCOME TAX APPELLATE TRIBUNAL, BANGALORE.