M/s.Kormarla Feeds, Bangalore V. Asst. Commissioner of Income Tax, Bangalore

ITA 465/BANG/2017

• Counselvise Citation: [2017] 128 COUNSELVISE.COM (IT) 5399 (ITAT-BANGALORE)
• Duration Of Justice: 2 month(s) 4 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 03-05-2017
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: C
• Assessment Year: 2012-2013
• Appeal Filed On: 27-02-2017
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: A VISHNU BHARATH
• Section: 14A

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL BANGALORE BENCH - SMC C BEFORE SHRI VIJAY PAL RAO , JUDICIAL MEMBER I.T.A. NO. 465 /BANG/201 7 (ASSESSMENT YEAR : 20 12 - 13 ) M/S. KOMARLA FEEDS, NO.172, KAVILAKSHMISHA ROAD, V.V. PURAM, BENGALURU - 560 004 PAN AABF K 40 35E VS. ASST. COMMISSIONER OF INCOME TAX, CIRCLE 5(2)(1), BANGALORE. APPELLANT RESPONDENT. APPELLANT BY : SHRI A. VISHNU BHARATH, C.A. RESPONDENT BY : SHRI AR.V.SREENIVASAN, JCIT (D.R) DATE OF H EARING : 20.03.2017. DATE OF P RONOUNCE MENT : 03 .0 5 . 201 7 . O R D E R PER SHRI VIJAY P AL RAO, J. M. : THIS APPEAL BY THE ASSESSEE IS DIRECTED AGAINST THE OR DER DT.21.12.2012 OF THE COMMISSIONER OF INCOME TAX (APPEALS) FOR THE ASSESSMENT YEAR 2012 - 13. 2. THE ASSESSEE HAS RAISED THE FOLLOWING GROUNDS : 2 ITA NO. 465/BANG/2017 3. GROUND NOS.1 & 2 ARE GENERAL IN NATURE AND DOES NOT REQUIRE ANY SPECIFIC ADJUDICATION. 4. GROUND NOS.3 TO 6 ARE REGARDING DISALLOWANCE MADE UNDER SECTION 14A OF THE INCOME TAX ACT, 1961 (IN SHORT 'THE ACT'). THE ASSESSING OFFICER NOTED THAT THE ASSESSEE HAS MADE INVESTMENT IN SECURITIES YIELDING TAX FREE INCOME BUT HAS NOT DISALLOWED EXP ENDITURE ATTRIBUTABLE TO SUCH INVESTMENT S MADE SUCH AS INTEREST EXPENSES NOT DIRECTLY ATTRIBUTABLE TO ANY PARTICULAR INCOME AND 3 ITA NO. 465/BANG/2017 ADMINISTRATIVE EXPENSES. THE ASSESSEE RECEIVED DIVIDEND INCOME TO THE EXTENT OF RS.6,02,799. ACCORDINGLY, THE ASSESSING OFFI CER MADE THE DISALLOWANCE UNDER SECTION 14A OF THE ACT ON ACCOUNT OF INTEREST EXPENDITURE OF RS.3,83,500 AND ON ACCOUNT OF ADMINISTRATIVE EXPENSES OF RS.50,825 TOTAL AMOUNTING TO RS.4,34,385. THE ASSESSEE CHALLENGED THE ACTION OF THE ASSESSING OFFICER BE FORE THE CIT (APPEALS) BUT COULD NOT SUCCEED. 5. BEFORE THE TRIBUNAL, THE LEARNED AUTHORISED REPRESENTATIVE OF THE ASSESSEE HAS POINTED OUT THAT THE ASSESSING OFFICER HAS NOTED THAT OPENING BALANCE OF INVESTMENT IS RS.1,01,65,169 AND CLOSING INVEST MENT IS ZERO. HOWEVER WHILE COMPUTING THE AVERAGE INVESTMENT, THE ASSESSING OFFICER HAS WRONGLY TAKEN THE AMOUNT AS OPENING INVESTMENT. THUS HE HAS SUBMITTED THAT THERE IS AN INHERENT MISTAKE IN THE COMPUTATION OF DISALLOWANCE UNDER SECTION 14A R.W. RULE 8D OF THE ACT BY TAKING THE WRONG AMOUNT OF AVERAGE INVESTMENT. 6. ON THE OTHER HAND, THE LEARNED DEPARTMENTAL REPRESENTATIVE HAS SUBMITTED THAT SINCE THE ASSESSEE HAS SOLD THE ENTIRE INVESTMENT THEREFORE THE ASSESSING OFFICER TOOK THE AVERAGE AMOU NT AS THE OPENING INVESTMENT. FURTHER HE HAS SUBMITTED THAT SINCE THIS POINT WAS NOT RAISED BEFORE THE AUTHORITIES BELOW THEREFORE IT REQUIRES PROPER VERIFICATION. 4 ITA NO. 465/BANG/2017 7. HAVING CONSIDERED THE RIVAL SUBMISSIONS AS WELL AS THE RELEVANT MATERIAL ON RECORD, IT IS NOTED THAT THE ONLY GRIEVANCE OF THE ASSESSEE IS REGARDING THE WRONG COMPUTATION OF DEDUCTION UNDER SECTION 14A OF THE ACT DUE TO THE INCORRECT AMOUNT OF AVERAGE INVESTMENT TAKEN INTO CONSIDERATION BY THE AS SESSING OFFICER. I T IS FOUND THAT THE OP ENING BALANCE WAS NOTED BY THE ASSESSING OFFICER AS RS.1,01,55,169 AND CLOSING BALANCE AS ZERO. THEREFORE THE AVERAGE INVESTMENT FOR THE YEAR UNDER CONSIDERATION COULD HAVE BEEN AS PER THE FORMULA UNDER RULE 8D I.E. OPENING BALANCE + CLOSING BALANCE / 2. SINCE THERE IS NO CLOSING BALANCE IN THIS CASE THEREFORE THE AMOUNT OF OPENING BALANCE HAS TO BE DIVIDED BY 2 AND THE AVERAGE INVESTMENT HAS TO BE 50% OF THE OPENING BALANCE. SINCE THIS CONTENTION WAS NOT RAISED AS WELL AS NOT EXAMINED BY THE AUTHORITIES BELOW, THEREFORE FOR THE LIMITED PURPOSE OF VERIFICATION THIS ISSUE IS REMANDED TO THE ASSESSING OFFICER FOR CONSIDERING THE AMOUNT OF CORRECT AMOUNT OF COMPUTATION FOR THE PURPOSE OF DISALLOWANCE UNDER SECTION 14A OF THE ACT. NEEDLESS TO SAY THE ASSESS EE BE GIVEN A PROPER OPPORTUNITY OF HEARING. 8. GROUND NO.7 IS REGARDING THE DISALLOWANCE OF INTEREST ON THE AMOUNT GIVEN TO THE PARTNERS. 5 ITA NO. 465/BANG/2017 9. THE ASSESSING OFFICER HAS MADE A DISALLOWANCE ON ACCOUNT OF INTEREST IN RESPECT OF THE AMOUNT GIVEN TO TH E PARTNER OF THE ASSESSEE. THE ASSESSEE CHALLENGED THE ACTION OF THE ASSESSING OFFICER BEFORE THE CIT (APPEALS) BUT COULD NOT SUCCEED. BEFORE THE TRIBUNAL I T WAS CONTENDED THAT THE AMOUNT WAS GIVEN TO THE PARTNER FOR PURCHASING OF AGRICULTURE LAND AS THE ASSESSEE FIRM INTENDED TO ESTABLISH THE FACTORY. HOWEVER, SINCE THE AGRICULTURE LAND CANNOT BE ACQUIRED BY THE FIRM AS PER KARNATAKA ACQUISITION ACT THEREFORE THE AMOUNT WAS GIVEN TO THE PARTNER FOR PURCHASE OF AGRICULTURE LAND AND AFTER CONVERSION OF T HE SAME FOR NON - AGRICULTURE PURPOSE THE SAME WAS TO BE USED FOR THE PURPOSE OF BUSINESS OF THE ASSESSEE. FURTHER THE LEARNED AUTHORISED REPRESENTATIVE HAS POINTED OUT THAT THE ASSESSEE ITSELF HAS CHARGED INTEREST @ 12% ON THE SAID AMOUNT GIVEN TO THE PAR TNER WHICH HAS NOT BEEN CONSIDERED BY THE AUTHORITIES BELOW WHILE MAKING THE DISALLOWANCE OF INTEREST. THUS THE LEARNED AUTHORISED REPRESENTATIVE HAS SUBMITTED THAT SINCE THE ASSESSEE HAS ALREADY CHARGED THE INTEREST ON THE SAID AMOUNT THE QUESTION OF DIS ALLOWANCE OF INTEREST DOES NOT ARISE. 10. ON THE OTHER HAND, THE LEARNED DEPARTMENTAL REPRESENTATIVE HAS SUBMITTED THAT THE ASSESSEE HAS NOT RAISED THIS PLEA OR POINTED OUT THE SPECIFIC FACT OF CHARGING INTEREST ON THE AMOUNT GIVEN TO THE PARTNER EITH ER BEFORE THE 6 ITA NO. 465/BANG/2017 ASSESSING OFFICER OR BEFORE THE CIT (APPEALS) THEREFORE THIS CONTENTION OF THE ASSESSEE CANNOT BE ACCEPTED AT THIS STAGE. HE HAS RELIED UPON THE ORDER S OF THE AUTHORITIES BELOW. 11. I HAVE CONSIDERED THE RIVAL SUBMISSIONS AS WELL AS THE RELEVANT MATERIAL ON RECORD, IT WAS SPECIFICALLY CONTENDED BY THE LEARNED AUTHORISED REPRESENTATIVE OF THE ASSESSEE THAT THE ASSESSEE HAS CHARGED INTEREST ON THE AMOUNT GIVEN TO THE PARTNER AND THEREFORE DISALLOWANCE MADE BY THE ASSESSING OFFICER ON ACCOU NT OF INTEREST EXPENSES IS NOT JUSTIFIED. SINCE THIS FACT AND ASPECT OF THE MATTER HAS NOT BEEN EXAMINED BY THE AUTHORITIES BELOW THEREFORE IN THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN THE INTEREST OF JUSTICE, THIS ISSUE IS SET ASIDE TO THE RECORD OF THE ASSESSING OFFICER FOR PROPER VERIFICATION OF THE FACT AND THEN DECIDED THE ISSUE AS PER LAW. 12. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS ALLOWED FOR STATISTICAL PURPOSE. ORDER PRONOUNCED IN THE OPEN COURT ON 3 RD MAY , 201 7 . SD/ - (VIJAY PAL RAO) JUDICIAL MEMBER BANGALORE, DT. 03.05 .2017. *REDDY GP