The Suvarna nagari Sahakari Patsanstha ltd., Nashik V. Income-tax Officer,

ITA 520/PUN/2014

• Counselvise Citation: [2015] 134 COUNSELVISE.COM (IT) 0998 (ITAT-PUNE)
• Duration Of Justice: 1 year(s) 6 month(s) 28 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 16-10-2015
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: A
• Assessment Year: 2010-2011
• Appeal Filed On: 18-03-2014
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: DHEERAJ KUMAR JAIN
• Keywords: Business income; Earning of tax free income
• Section: 14A

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL A BENCH, PUN E , , !'!! # , $ % BEFORE SHRI R.K. PANDA, AM AND SHRI VIKAS AWASTHY, JM / ITA NO. 520/PN/2014 $& ' !(' / ASSESSMENT YEAR : 2010-11 THE SUVARNA NAGARI SAHAKARI PATSANSTHA LTD., 555, RATHI MARKET, RAVIWAR PETH, NASHIK PAN : AAAAT4786F ....... / APPELLANT )& / V/S. INCOME TAX OFFICER, WARD 1(4), NASHIK / RESPONDENT ASSESSEE BY : SHRI PRAMOD SHINGTE REVENUE BY : SHRI DHEERAJ KUMAR JAIN / DATE OF HEARING : 20-08-2015 / DATE OF PRONOUNCEMENT : 16-10-2015 * / ORDER PER VIKAS AWASTHY, JM : THE APPEAL HAS BEEN FILED BY THE ASSESSEE AGAINST THE OR DER OF COMMISSIONER OF INCOME TAX (APPEALS)-I, NASHIK DATED 28-01 -2014 FOR THE ASSESSMENT YEAR 2010-11. 2. IN APPEAL, THE ASSESSEE HAS RAISED THE FOLLOWING GROUNDS: 2 ITA NO. 520/PN/2014, A.Y. 2010-11 (1) ON THE FACTS AND IN THE CIRCUMSTANCES OF THE C ASE, THE LD. COMMISSIONER (APPEALS) HAS ERRED IN CONFIRMING THE D ISALLOWANCE OF RS.4,26,258/- UNDER SECTION 14A IN RESPECT OF DIVID END INCOME OF RS.3,78,251/- WITHOUT CONSIDERING THAT NO NEXUS HAS BEEN ESTABLISHED BETWEEN THE EXPENDITURE AND THE EARNING OF DIVIDEND INCOME. (2) ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE, THE LD. COMMISSIONER (APPEALS) HAS ERRED IN CONFIRMING THE D ISALLOWANCE OF RS.4,26,258/- UNDER SECTION 14A IN RESPECT OF DIVID END INCOME OF RS.3,78,251/- WITHOUT CONSIDERING THAT NEITHER ANY EXPENDITURE WAS INCURRED FOR EARNING SAID INCOME NOR FOR MAKING INV ESTMENT IN MUTUAL FUNDS AS SAID INVESTMENT WAS MADE BY APPELLANT OUT OF ITS OWN INTEREST FREE FUNDS. (3) ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE, THE LD. COMMISSIONER (APPEALS) HAS ERRED IN CONFIRMING THE D ISALLOWANCE OF RS.4,26,258/- UNDER SECTION 14A WITHOUT CONSIDERING THAT THE ADDITION TO THE BUSINESS INCOME FOR SUCH DISALLOWANCE IS ALSO E LIGIBLE FOR DEDUCTION U/S 80P. (4) ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE, THE LD. COMMISSIONER (APPEALS) HAS ERRED IN CONFIRMING THE D ISALLOWANCE OF RS.4,26,258/- UNDER SECTION 14A IN RESPECT OF DIVID END INCOME OF RS.3,78,251/- WITHOUT CONSIDERING THAT THE INTEREST INCOME WAS MORE THAN INTEREST EXPENSE AND THAT THERE WAS NET POSITIVE INTEREST INCOME AND THEREFORE THE SAME CANNOT BE CONSIDERED FOR DIS ALLOWANCE. (5) THE APPELLANT MAY BE ALLOWED TO ADD, ALTER OR A MEND GROUNDS OF APPEAL. 3. THE BRIEF FACTS OF THE CASE ARE : THE ASSESSEE IS A CO-OPERATIVE SOCIETY AND IS PROVIDING CREDIT FACILITIES TO ITS MEMBERS. THE ASSESSEE FILED ITS RETURN OF INCOME ON 22-09-2010 FOR THE IMPUGNED A SSESSMENT YEAR DECLARING NIL INCOME AFTER CLAIMING THE EXEMPTION U/S. 80 P OF THE INCOME TAX ACT, 1961 (HEREINAFTER REFERRED TO AS THE AC T). THE CASE OF THE ASSESSEE WAS SELECTED FOR SCRUTINY. ACCORDINGLY, NO TICE U/S. 143(2) WAS ISSUED TO THE ASSESSEE ON 24-08-2011. DURING THE COURSE OF SCRUTINY ASSESSMENT, THE ASSESSING OFFICER OBSERVED THAT THE ASSESSEE HAS EARNED DIVIDEND INCOME OF RS.3,78,251/- FROM MUTUAL FUN DS. THE ASSESSING OFFICER MADE DISALLOWANCE OF RS.4,26,258/- U/S. 14A R .W. 3 ITA NO. 520/PN/2014, A.Y. 2010-11 RULE 8D IN RESPECT OF THE AFORESAID TAX FREE INCOME EARNED BY THE ASSESSEE. AGGRIEVED BY THE ASSESSMENT ORDER DATED 02-01-2013, T HE ASSESSEE PREFERRED AN APPEAL BEFORE THE COMMISSIONER OF I NCOME TAX (APPEALS). THE COMMISSIONER OF INCOME TAX (APPEALS) VIDE IMPUG NED ORDER REJECTED THE CONTENTIONS OF THE ASSESSEE AND CO NFIRMED THE DISALLOWANCE OF RS.4,26,258/- U/S. 14A R.W. RULE 8D. AGAINST, T HE FINDINGS OF THE COMMISSIONER OF INCOME TAX (APPEALS) THE ASSE SSEE IS IN SECOND APPEAL BEFORE THE TRIBUNAL. 4. SHRI PRAMOD SHINGTE APPEARING ON BEHALF OF THE ASSESSEE SUBMITTED, THAT THE ASSESSEE HAS EARNED DIVIDEND INCOME OF RS.3,78,251/- DURING THE IMPUGNED ASSESSMENT YEAR FROM TH E INVESTMENT MADE IN THE MUTUAL FUNDS. NO FRESH INVESTMENT WAS MADE BY THE ASSESSEE DURING THE ASSESSMENT YEAR UNDER APP EAL. THE AUTHORITIES BELOW HAVE ERRED IN MAKING DISALLOWANCE U/S. 14A R.W. RULE 8D WITHOUT REJECTING THE BOOKS OF ACCOUNT OF THE ASSES SEE OR BY RECORDING ANY SATISFACTION. THE LD. AR SUBMITTED, THAT SINCE THE ASSESSING OFFICER HAS FAILED TO RECORD REASONS FOR INVOKING T HE PROVISIONS OF RULE 8D, THE DISALLOWANCE MADE U/S. 14A R.W. R ULE 8D ARE LIABLE TO BE SET ASIDE. TO SUPPORT HIS SUBMISSIONS, TH E LD. AR PLACED RELIANCE ON THE DECISION RENDERED IN THE CASE OF AC IT VS. MAGARPATTA TOWNSHIP DEVELOPMENT & CONSTRUCTION CO. LTD . REPORTED AS 46 TAXMANN.COM 284 (PUNE-TRIB). THE LD. AR FURTHER SUBMITTE D THAT THE ASSESSEE IS HAVING BOTH, INTEREST BEARING FUNDS, AS WE LL AS OWN FUNDS. EVEN THE INVESTMENT MADE IN THE EARLIER YEARS WAS OUT OF OWN FUNDS. THEREFORE, DISALLOWANCE U/S. 14A R.W. RULE 8D IS NOT JUSTIFIED. IN SUPPORT OF HIS SECOND SUBMISSIONS, THE LD. AR PLACED RELIA NCE ON THE 4 ITA NO. 520/PN/2014, A.Y. 2010-11 DECISION OF HON'BLE BOMBAY HIGH COURT IN THE CASE OF CIT V S. HDFC BANK REPORTED AS 89 CCH 185 (BOM). THE THIRD ARGUMENT RAISED BY THE ASSESSEE AGAINST THE DISALLOWANCE IS, THAT EVEN IF THE DISALLO WANCE IS MADE, THE ASSESSEE IS A CO-OPERATIVE SOCIETY AND IS ELIGIBLE FOR DEDUCTION U/S. 80P. IN SUPPORT OF HIS THIRD SUBMISSIONS, T HE LD. AR DRAWS SUPPORT FROM THE DECISION OF THE CO-ORDINATE BENCH IN THE CASE OF SHRI MAHAVIR NAGARI SAHAKARI PAT SANSTHA LTD. VS. DY. CI T REPORTED AS 74 TTJ 793 (PUNE-TRIB). THE LD. AR PRAYED FOR SETTING ASIDE THE IMPUGNED ORDER AND ACCEPTING THE APPEAL OF THE ASSESSEE. 5. ON THE OTHER HAND SHRI DHEERAJ KUMAR JAIN REPRESENT ING THE DEPARTMENT VEHEMENTLY SUPPORTED THE FINDINGS OF THE CO MMISSIONER OF INCOME TAX (APPEALS). THE LD. DR SUBMITTED THAT DISALLOWANCE U/S. 14A R.W. RULE 8D HAVE BEEN RIGHTLY MADE BY THE AUTHORIT IES BELOW. THE CONTENTION OF THE ASSESSEE THAT EVEN IF DISALLOWANCE IS MAD E, THE ASSESSEE IS ELIGIBLE FOR DEDUCTION U/S. 80P IS NOT SUSTAINABLE IN THE LIG HT OF DECISION BY THE CHANDIGARH BENCH OF THE TRIBUNAL IN THE CASE OF PUNJAB STATE CO-OPERATIVE MILK PRODUCER FEDERATION LTD. VS. INCOME TAX OFFICER REPORTED AS 104 ITD 408 (CHD). 6. WE HAVE HEARD THE SUBMISSIONS MADE BY THE REPRESENT ATIVES OF RIVAL SIDES AND HAVE PERUSED THE ORDERS OF THE AUTHORITIE S BELOW. WE HAVE ALSO CONSIDERED THE DECISIONS ON WHICH THE RIVAL SIDES HAVE PLACED RELIANCE. THE ASSESSEE DURING THE PERIOD RELEVANT TO THE ASSESSMENT YEAR UNDER APPEAL HAS EARNED TAX FREE DIVIDEND INCOME OF RS.3,78,251/- FROM INVESTMENT MADE IN MUTUAL FUNDS. IT IS AN UNDISPUTED FACT THAT THE ASSESSEE HAS MADE INVESTMENT OF RS.49,99,999/- IN MUTUAL FUNDS IN THE EARLIER ASSESSMENT YEA R AND NO 5 ITA NO. 520/PN/2014, A.Y. 2010-11 FRESH INVESTMENT HAS BEEN MADE IN THE PERIOD RELEVANT TO THE IMPUGNED ASSESSMENT YEAR. THE ASSESSEE HAS NOT MADE ANY DISA LLOWANCE ON TAX FREE INCOME U/S. 14A ON THE GROUND THAT THE ENTIRE INCOM E OF THE ASSESSEE IS FULLY EXEMPT U/S. 80P OF THE ACT. THE ASSES SING OFFICER BY INVOKING THE PROVISIONS OF RULE 8D HAVE MADE DISALLOWANCE OF RS.4,26,258/- U/S. 14A OF THE ACT. 7. A PERUSAL OF THE RECORDS SHOW THAT THE ASSESSING OFFICE R HAS MADE DISALLOWANCE OF RS.4,26,258/- U/S. 14A R.W. RULE 8D WHE REAS THE ASSESSEE HAS EARNED TAX FREE DIVIDEND INCOME OF RS.3,78,251 /- ONLY. THUS, THE DISALLOWANCE U/S. 14A IS MUCH MORE THAN THE TAX FREE DIVIDEND INCOME EARNED BY THE ASSESSEE. THE LD. AR OF TH E ASSESSEE HAS SUBMITTED THAT THE INVESTMENT IN MUTUAL FUNDS HAVE B EEN MADE FROM OWN FUNDS AND BORROWED FUNDS WERE NOT USED FOR MAK ING SUCH INVESTMENT. WE ARE OF THE CONSIDERED VIEW THAT DISALLOWAN CES U/S. 14A R.W. RULE 8D CANNOT EXCEED THE EXEMPT INCOME EARNED B Y THE ASSESSEE. OUR VIEW IS FURTHER FORTIFIED BY THE DECISION RENDERED BY TH E MUMBAI BENCH OF THE TRIBUNAL IN ITA NO. 5592/MUM/2012 IN THE CAS E OF M/S. DAGA GLOBAL CHEMICALS PVT. LTD. VS. ACIT FOR THE ASSESSMENT YEAR 2009-10 DECIDED ON 01-01-2015. 8. ONE OF THE OBJECTION RAISED BY LD. AR IS THAT THE ASSE SSING OFFICER HAS NOT RECORDED ANY REASON FOR INVOKING RULE 8D. AFTER PERUSAL OF THE ASSESSMENT ORDER, WE ARE SATISFIED THAT THE ASSESSING OFFIC ER HAS INVOKED THE PROVISIONS OF SECTION 14A R. W. RULE 8D IN AN A RBITRARY MANNER AND IN VIOLATION OF PROVISIONS OF SUB-SECTION (2) OF S ECTION 14A OF THE ACT. SECTION 14A(2) REQUIRES THAT FOR DETERMINING TH E AMOUNT OF EXPENDITURE INCURRED IN RELATION TO EXEMPT INCOME THE ASS ESSING OFFICER 6 ITA NO. 520/PN/2014, A.Y. 2010-11 HAS TO RECORD SATISFACTION. IT IS A WELL SETTLED LAW THAT TH E ASSESSING OFFICER CANNOT STRAIGHTAWAY PROCEED TO APPLY RULE 8D, WITH OUT CONSIDERING THE CORRECTNESS OF THE CLAIM MADE BY THE ASS ESSEE, IN RESPECT OF THE EXPENDITURE INCURRED IN RELATION TO THE EX EMPT INCOME. THE HONBLE BOMBAY HIGH COURT IN THE CASE OF GODREJ AND BOYCE MFG.CO.LTD VS DY.CIT REPORTED AS 328 ITR 81 (BOM) HAS HELD : HENCE, SUB-SECTION (2) DOES NOT IPSO FACTO ENABLE T HE ASSESSING OFFICER TO APPLY THE METHOD PRESCRIBED BY THE RULES STRAIGH TAWAY WITHOUT CONSIDERING WHETHER THE CLAIM MADE BY THE ASSESSEE IN RESPECT OF THE EXPENDITURE INCURRED IN RELATION TO INCOME WHICH DO ES NOT FORM PART OF THE TOTAL INCOME IS CORRECT. THE ASSESSING OFFICER MUST , IN THE FIRST INSTANCE, DETERMINE WHETHER THE CLAIM OF THE ASSESSEE IN THAT REGARD IS CORRECT AND THE DETERMINATION MUST BE MADE HAVING REGARD TO THE ACCOUNTS OF THE ASSESSEE. THE SATISFACTION OF THE ASSESSING OFFICER MUST BE ARRIVED AT ON AN OBJECTIVE BASIS. IT IS ONLY WHEN THE ASSESSING O FFICER IS NOT SATISFIED WITH THE CLAIM OF THE ASSESSEE, THAT THE LEGISLATUR E DIRECTS HIM TO FOLLOW THE METHOD THAT MAY BE PRESCRIBED. IN A SITUATION W HERE THE ACCOUNTS OF THE ASSESSEE FURNISH AN OBJECTIVE BASIS FOR THE ASS ESSING OFFICER TO ARRIVE AT A SATISFACTION IN REGARD TO THE CORRECTNESS OF T HE CLAIM OF THE ASSESSEE OF THE EXPENDITURE WHICH HAS BEEN INCURRED IN RELAT ION TO INCOME WHICH DOES NOT FORM PART OF THE TOTAL INCOME, THERE WOULD BE NO WARRANT FOR TAKING RECOURSE TO THE METHOD PRESCRIBED BY THE RUL ES. FOR, IT IS ONLY IN THE EVENT OF THE ASSESSING OFFICER NOT BEING SO SAT ISFIED THAT RECOURSE TO THE PRESCRIBED METHOD IS MANDATED BY LAW. SUB-SECTI ON (3) OF SECTION 14A PROVIDES FOR THE APPLICATION OF SUB-SECTION (2) ALSO TO A SITUATION WHERE THE ASSESSEE CLAIMS THAT NO EXPENDITURE HAS B EEN INCURRED BY HIM IN RELATION TO INCOME WHICH DOES NOT FORM PART OF T HE TOTAL INCOME UNDER THE ACT. THE SATISFACTION OF THE ASSESSING OFFICER IN THIS REGARD MUST BE ARRIVED AT ON AN OBJECTIVE BASIS. THE ASSESSING OFFICER CANNOT STR AIGHT AWAY PROCEED TO APPLY RULE 8D, WITHOUT EXAMINING THE MERITS OF THE ASSESSEES CLAIM, IN RESPECT OF THE EXPENDITURE DISALLOWED B Y IT UNDER SECTION 14A OF THE ACT. FOR REJECTING THE CORRECTNESS O F THE CLAIM OF THE ASSESSEE, THE ASSESSING OFFICER IS REQUIRED TO GIVE A REASO NED FINDING 7 ITA NO. 520/PN/2014, A.Y. 2010-11 THAT THE EXPENDITURE OR NO EXPENDITURE DISALLOWED BY THE ASSESSEE, IS INCORRECT. WE OBSERVE THAT IN THE PRESENT CASE THE REQ UIRED EXERCISE HAS NOT BEEN DONE BY THE ASSESSING OFFICER BEFORE MAKING DISALL OWANCE BY INVOKING THE PROVISIONS OF SECTION 14A R.W. RULE 8D. 9. THE ASSESSEE HAS FURTHER CONTENDED THAT THE ASSES SEE IS HAVING BOTH INTEREST BEARING FUNDS AS WELL AS OWN FUNDS. HOWEVER, THE INVESTMENT HAS BEEN MADE FROM OWN FUNDS. IN CASE ASSE SSEES OWN FUNDS ARE IN EXCESS OF THE INVESTMENT MADE, THEN IT HAS T O BE PRESUMED THAT THE INVESTMENTS HAVE COME FROM THE INTEREST-FREE FU NDS AVAILABLE WITH THE ASSESSEE. THIS VIEW IS SUPPORTED BY THE DECISION RENDERED BY THE HONBLE BOMBAY HIGH COURT, IN THE CASE OF CIT VS HDFC BANK LTD. (SUPRA). IN THE INSTANT CASE, THE ASSESSING OFFICER HAS MECHANICALLY APPLIED THE PROVISIONS OF SECTION 14A READ WITH RULE 8D WITH OUT RECORDING SATISFACTION OR REJECTING THE CLAIM OF THE ASSES SEE BY GIVING ANY COGENT REASON. THE ASSESSING OFFICER HAS FAILED TO ASC ERTAIN FROM RECORDS THE SOURCE OF INVESTMENT MADE IN THE MUTUAL FUND S BY THE ASSESSEE. 10. IN VIEW OF THE AFORESAID FACTS, WE FIND MERIT IN THE CLAIM OF THE ASSESSEE. THE IMPUGNED ORDER IS SET ASIDE AND THE APPE AL OF THE ASSESSEE IS ALLOWED. ORDER PRONOUNCED ON FRIDAY, THE 16 TH DAY OF OCTOBER, 2015. SD/- SD/- ( . . / R.K. PANDA) ( ! ' / VIKAS AWASTHY) #' / ACCOUNTANT MEMBER $ % #' / JUDICIAL MEMBER / PUNE; &# / DATED : 16 TH OCTOBER, 2015 RK/SUJEET 8 ITA NO. 520/PN/2014, A.Y. 2010-11 *+,$-.'/'(- / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT. 2. / THE RESPONDENT. 3. ' () / THE CIT(A)-I, NASHIK 4. ' / THE CIT-I, NASHIK 5. !*+ %%,- , ,- , . /01 , / DR, ITAT, A BENCH, PUNE. 6. + 2 34 / GUARD FILE. // ! % // TRUE COPY// #5 / BY ORDER, //TRUE COPY// %6 ,1 / PRIVATE SECRETARY, ,- , / ITAT, PUNE