ACIT, Nainital V. M/s. The Nainital Bank Ltd., Nainital

ITA 5056/DEL/2015

• Counselvise Citation: [2017] 127 COUNSELVISE.COM (IT) 3896 (ITAT-DELHI)
• Duration Of Justice: 2 year(s) 2 month(s) 19 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 27-10-2017
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: B
• Assessment Year: 2012-2013
• Appeal Filed On: 07-08-2015
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: F R MEENA SENIOR
• Assessee Lawyers: K R RASTOGI
• Section: 14A

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL IN THE INCOME TAX APPELLATE TRIBUNAL IN THE INCOME TAX APPELLATE TRIBUNAL IN THE INCOME TAX APPELLATE TRIBUNAL DELHI DELHI DELHI DELHI BENCH BENCH BENCH BENCH B BB B : NEW DELHI : NEW DELHI : NEW DELHI : NEW DELHI BEFORE SHRI BEFORE SHRI BEFORE SHRI BEFORE SHRI G.D. AGRAWAL, G.D. AGRAWAL, G.D. AGRAWAL, G.D. AGRAWAL, PRESIDENT PRESIDENT PRESIDENT PRESIDENT AND AND AND AND SHRI SUDHANSHU SRIVASTAVA SHRI SUDHANSHU SRIVASTAVA SHRI SUDHANSHU SRIVASTAVA SHRI SUDHANSHU SRIVASTAVA, JUDICIAL MEMBER , JUDICIAL MEMBER , JUDICIAL MEMBER , JUDICIAL MEMBER ITA ITAITA ITA NO NONO NO . .. . 5056/DEL/2015 5056/DEL/2015 5056/DEL/2015 5056/DEL/2015 ASSESSMENT YEAR : ASSESSMENT YEAR : ASSESSMENT YEAR : ASSESSMENT YEAR : 2012 2012 2012 2012 - -- - 13 1313 13 ASSISTANT COMMISSIONER OF ASSISTANT COMMISSIONER OF ASSISTANT COMMISSIONER OF ASSISTANT COMMISSIONER OF INCOME TAX, INCOME TAX, INCOME TAX, INCOME TAX, GOLGHAR, BARA B GOLGHAR, BARA B GOLGHAR, BARA B GOLGHAR, BARA BAZAR, AZAR, AZAR, AZAR, NAINITAL. NAINITAL. NAINITAL. NAINITAL. VS. VS. VS. VS. M/S THE NAINITAL BANK LIMITED, M/S THE NAINITAL BANK LIMITED, M/S THE NAINITAL BANK LIMITED, M/S THE NAINITAL BANK LIMITED, HEAD OFFICE, SEVEN OAKS, HEAD OFFICE, SEVEN OAKS, HEAD OFFICE, SEVEN OAKS, HEAD OFFICE, SEVEN OAKS, MALLITAL, MALLITAL, MALLITAL, MALLITAL, NAINITAL, NAINITAL, NAINITAL, NAINITAL, PIN PIN PIN PIN 263 001. 263 001. 263 001. 263 001. PAN : AAACT5714D. PAN : AAACT5714D. PAN : AAACT5714D. PAN : AAACT5714D. (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI F.R. MEENA, SENIOR DR. RESPONDENT BY : SHRI K.R. RASTOGI, CA. DATE OF HEARING : 24.10.2017 24.10.2017 24.10.2017 24.10.2017 DATE OF PRONOUNCEMENT : 27.10.2017 27.10.2017 27.10.2017 27.10.2017 ORDER ORDER ORDER ORDER PER G.D. AGRAWAL, PER G.D. AGRAWAL, PER G.D. AGRAWAL, PER G.D. AGRAWAL, PRESIDENT PRESIDENT PRESIDENT PRESIDENT : :: :- -- - THIS APPEAL BY THE REVENUE FOR THE ASSESSMENT YEAR 201 2-13 IS DIRECTED AGAINST THE ORDER OF LEARNED CIT(A), HALDWA NI DATED 12 TH MAY, 2015. 2. THE ONLY GROUND RAISED BY THE REVENUE READS AS UNDE R :- THE LD.CIT(A) HAS ERRED IN LAW AND FACTS IN RESTRICTI NG THE DISALLOWANCE U/S 14A ITSELF MADE BY THE ASSESSEE WHEREAS THE DISALLOWANCE U/S 14A READ WITH RULE 8D(2)(II) MAD E BY THE A.O. UNDER THE OBSERVATION THAT THE INTEREST FREE FUNDS WERE MADE OUT OF COMMON POOL OF FUNDS HAVING MORE TH AN 90% OF THE INTEREST BEARING FUNDS. ITA-5056/DEL/2015 2 3. AT THE TIME OF HEARING BEFORE US, AT THE OUTSET, I T WAS STATED BY THE LEARNED COUNSEL FOR THE ASSESSEE THAT THE ISSUE IS SQUA RELY COVERED IN FAVOUR OF THE ASSESSEE BY THE DECISION OF ITAT DATED 2 ND JUNE, 2009 IN ASSESSEES OWN CASE FOR THE ASSESSMENT YEAR 2005-06 VIDE I TA NO.3495/DEL/2008. HE FURTHER STATED THAT THE ABOVE DECISION OF ITAT HAS BEEN UPHELD BY HON'BLE JURISDICTIONAL HIGH COURT. 4. LEARNED SENIOR DR, ON THE OTHER HAND, STATED THAT THE ABOVE DECISION OF ITAT AND HON'BLE JURISDICTIONAL HIGH COU RT WAS FOR ASSESSMENT YEAR 2005-06 WHEN RULE 8D WAS NOT IN EXISTENCE . NOW, SINCE 2008-09, RULE 8D HAS COME INTO EXISTENCE, THEREF ORE, THE DECISION OF EARLIER YEARS WOULD NOT BE APPLICABLE. 5. IN THE REJOINDER, IT WAS STATED BY THE LEARNED COU NSEL THAT LEARNED CIT(A) HAS CONSIDERED THE APPLICABILITY OF R ULE 8D AND HAS SUSTAINED THE DISALLOWANCE TO THE EXTENT OF 0.5% OF AV ERAGE INVESTMENT. HE HAS ALLOWED THE RELIEF ONLY IN RESPECT OF DISALLOWANCE OF INTEREST ACCEPTING THE FINDING OF THE EARLIER YEA R OF THE ITAT, WHICH IS UPHELD BY HON'BLE JURISDICTIONAL HIGH COURT THAT THE INTEREST FREE FUNDS AVAILABLE WITH THE ASSESSEE ARE MUCH MORE THAN THE INVE STMENT IN INTEREST FREE SECURITIES. THE INVESTMENT IN INTEREST FR EE SECURITIES IS ONLY 4.16% OF THE INTEREST FREE FUNDS AVAILABLE. 6. WE HAVE CAREFULLY CONSIDERED THE SUBMISSIONS OF BOTH THE SIDES AND PERUSED THE MATERIAL PLACED BEFORE US. WE FIND T HAT THE ITAT IN ASSESSEES OWN CASE FOR ASSESSMENT YEAR 2003-04 AND 2004-05 I N ITA NO.258 & 4987/DEL/2007 HAS DELETED THE DISALLOWANCE U /S 14A HOLDING THAT THE INVESTMENT IN TAX FREE BONDS WAS OUT OF OWN F UNDS. SIMILAR VIEW WAS FOLLOWED BY THE ITAT IN ASSESSMENT YEAR 2005-06 . BOTH THE ABOVE DECISIONS OF ITAT WERE UPHELD BY HON'BLE JURISDI CTIONAL HIGH COURT. THAT FOR THE YEAR UNDER CONSIDERATION, LEARN ED CIT(A) ITA-5056/DEL/2015 3 CONSIDERED THE EARLIER DECISIONS OF THE ITAT AND HON'B LE JURISDICTIONAL HIGH COURT AND ALSO RULE 8D. AFTER CONSIDERING THE E ARLIER YEARS POSITION AS WELL AS RULE 8D, HE HELD AS UNDER :- 3.2 THE FINDINGS OF LD.AO AND THE AVERMENTS OF LD.AR HAVE BEEN CONSIDERED. IT IS CLEAR THAT THE APPELLANT HAD SUBSTANTIAL INTEREST FREE FUNDS OUT OF WHICH THERE CAN BE A VALID PRESUMPTION THAT THE IMPUGNED INVESTMENTS COULD HAVE BEEN MADE SINCE THE SAID INVESTMENTS ARE DEMONSTRABLY ONLY 4.16% OF THE INTEREST FREE FUNDS AVAILABLE. THIS FACT ITSELF WOULD COVER THIS ISSUE IN F AVOUR OF THE APPELLANT THROUGH THE CASES ALREADY DECIDED IN IT AT AND THEREAFTER THE HON'BLE JURISDICTIONAL HIGH COURT . IT WOULD BE RELEVANT TO MENTION THAT THOUGH RULE 8D WA S INTRODUCED ONLY FROM AY 2008-09, IT MERELY REPRESENT ED A MECHANISM FOR WORKING OUT THE INADMISSIBLE EXPENSES. SINCE SECTION 14A WAS ALREADY ON THE STATUTE BOOK MU CH BEFORE THE INSERTION OF RULE 8D, THE PRINCIPLES OF DISALLOWANCE WERE ALWAYS THERE AND RULE 8D MERELY CRYSTALLIZED THE METHOD OF CALCULATION. THUS THE ORD ERS OF ITAT AND THE HONBLE HIGH COURT OF UTTARAKHAND HAVE BINDING FORCE WHEN IT COMES TO THE FACT SURROUNDING WHETHER OR NOT INTEREST BEARING FUNDS WERE USED TO MAK E THE IMPUGNED INVESTMENTS. THUS JUST LIKE IN THOSE PREV IOUS YEARS, IT HAS BEEN DEMONSTRATED THAT THIS YEAR ALSO THE RE WERE INTEREST FREE FUNDS AVAILABLE IN ABUNDANCE TO CO VER UP FOR ANY INVESTMENTS YIELDING TAX FREE INCOME. NOT O NLY THE HON'BLE JURISDICTIONAL HIGH COURT IN THE APPELLANTS OWN CASE (SUPRA) BUT OTHER HIGH COURTS HAVE ALSO AFFIRMED T HIS PRINCIPLE: 1. DHAMPUR SUGAR MILLS LTD REPORTED IN 370 ITR 184 (ALL). 2. HDFC BANK LTD REPORTED IN 366 ITR 505 (BOMBAY). 3. UTI BANK LTD REPORTED IN 215 TAXMAN 8 (GUJARAT). FOLLOWING THIS SETTLED POSITION OF LAW AND THE ADMITTED FACT THAT OF THE TOTAL INTEREST FREE FUNDS A VAILABLE WITH THE APPELLANT, ONLY 4.16% HAS BEEN INVESTED TO Y IELD THE TAX FREE INCOME, THE ADDITION MADE IS DELETED IN FULL. ONCE THE INTEREST COMPONENT IS REMOVED THEN THERE COU LD BE NO ADDITION AS THE REMAINING VALUES ADOPTED BY THE LD.AO DO NOT EVEN AMOUNT TO RS.15. ITA-5056/DEL/2015 4 3.3 BEFORE PARTING WITH THIS ISSUE, IT NEEDS TO BE MENTIONED THAT THERE ARE A PLETHORA OF CASE LAWS WHIC H MANDATE THE DISALLOWANCE OF ADMINISTRATIVE EXPENSES (FO R EG CASE OF TELECTRONICS DEALING SYSTEMS (P) LTD REPORTE D IN 228 TAXMAN 194 (BOMBAY). SINCE THE APPELLANT HAS ALREADY DISALLOWED AN AMOUNT REPRESENTING 0.5% OF AVERAGE INVESTMENT INCOME (EXEMPT), THERE IS NO NEED FELT TO DISALLOW ANY FURTHER AMOUNT. 7. FROM THE ABOVE, IT IS EVIDENT THAT LEARNED CIT(A) , AFTER REFERRING TO THE EARLIER DECISIONS OF ITAT AS WELL AS HONBLE HIG H COURT, HAS ARRIVED AT THE CONCLUSION THAT NO BORROWED MONEY WAS UTILIZED FOR INVESTMENT, YIELDING TAX FREE INCOME. THE INTEREST F REE FUNDS AVAILABLE WITH THE ASSESSEE WERE MUCH MORE THAN THE INVESTMENT IN TAX FREE SECURITIES. THE INVESTMENT IN TAX FREE SECURITIES WAS ON LY 4.16% OF THE INTEREST FREE FUNDS AVAILABLE. THE ABOVE FACTUAL FIN DING HAS NOT BEEN DISPUTED BEFORE US AND, THEREFORE, THE DECISION OF ITA T AS WELL AS HON'BLE JURISDICTIONAL HIGH COURT WOULD BE SQUARELY APPLICABLE TO THE EXTENT OF DISALLOWANCE OF INTEREST UNDER RULE 8D. TH E OTHER PART OF DISALLOWANCE UNDER RULE 8D I.E., 0.5% OF AVERAGE INV ESTMENT HAS NOT BEEN DELETED BY THE LEARNED CIT(A). IN VIEW OF THE ABOVE, WE DO NOT FIND ANY INFIRMITY IN THE ORDER OF LEARNED CIT(A). THE SAME IS SUSTAINED AND REVENUES APPEAL IS DISMISSED. 8. IN THE RESULT, THE APPEAL OF THE REVENUE IS DISMISSED . DECISION PRONOUNCED IN THE OPEN COURT ON 27.10.2017. SD/- SD/- (SUDHANSHU SR (SUDHANSHU SR (SUDHANSHU SR (SUDHANSHU SR IVASTAVA IVASTAVA IVASTAVA IVASTAVA ) )) ) ( (( ( G.D. AGRAWAL G.D. AGRAWAL G.D. AGRAWAL G.D. AGRAWAL ) )) ) JUDICIAL MEMBER JUDICIAL MEMBER JUDICIAL MEMBER JUDICIAL MEMBER PRESIDENT PRESIDENT PRESIDENT PRESIDENT VK. ITA-5056/DEL/2015 5 COPY FORWARDED TO: - 1. APPELLANT : ASSISTANT COMMISSIONER OF INCOME TAX, ASSISTANT COMMISSIONER OF INCOME TAX, ASSISTANT COMMISSIONER OF INCOME TAX, ASSISTANT COMMISSIONER OF INCOME TAX, GOLGHAR, BARA BAZAR, NAINITAL. GOLGHAR, BARA BAZAR, NAINITAL. GOLGHAR, BARA BAZAR, NAINITAL. GOLGHAR, BARA BAZAR, NAINITAL. 2. RESPONDENT : M/S THE NAINITAL BANK LIMITED M/S THE NAINITAL BANK LIMITED M/S THE NAINITAL BANK LIMITED M/S THE NAINITAL BANK LIMITED, ,, , HEAD OFFICE, SEVEN OAKS, MALLITAL, HEAD OFFICE, SEVEN OAKS, MALLITAL, HEAD OFFICE, SEVEN OAKS, MALLITAL, HEAD OFFICE, SEVEN OAKS, MALLITAL, NAINITAL, PIN NAINITAL, PIN NAINITAL, PIN NAINITAL, PIN 263 001. 263 001. 263 001. 263 001. 3. CIT 4. CIT(A) 5. DR, ITAT ASSISTANT REGISTRAR