M/s. Florind Shoes P. Ltd., CHENNAI V. The Addl. CIT, CHENNAI

ITA 55/CHNY/2014

• Counselvise Citation: [2017] 128 COUNSELVISE.COM (IT) 4022 (ITAT-CHENNAI)
• Duration Of Justice: 3 year(s) 6 month(s) 5 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 12-07-2017
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: B
• Next Hearing Date: 02-05-2017
• Assessment Year: 2008-2009
• Appeal Filed On: 07-01-2014
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: SUPRIYO PAL
• Assessee Lawyers: A S SRIRAMAN
• Keywords: Earning of tax free income
• Section: 143(3); 14A

Judgement Text

, , IN THE INCOME - TAX APPELLATE TRIBUNAL B BENCH, CHENNAI , . , BEFORE SHRI CHANDRA POOJARI , ACCOUNTANT MEMBER & SHRI DUVVURU RL REDDY , JUDICIAL MEMBER ./ I.T.A.NO. 55/MDS/2014 / ASSESSMENT YEAR :20 08 - 09 M/S. FLORIND SHOES P. LTD., 29, COLLEGE ROAD, C HENNAI 600 0 06 . [PAN: A A A C F0490J ] VS. THE A DDITIONAL COMMISSIONER OF INCOME TAX , CO MPANY CIRCLE II ( 1 ), CHENNAI ( / APPELLANT ) ( / RESPONDENT ) / APPELLANT BY : SHRI A. S. SRIRAMAN , A DVOCATE / RESPONDENT BY : SHRI SUPRIYO PAL , JCIT / DATE OF HEARING : 0 2 . 0 5 .201 7 / DAT E OF P RONOUNCEMENT : 12 . 0 7 .201 7 / O R D E R PER DUVVURU RL REDDY , JUDICIAL MEMBER : THIS APPEAL FILED BY THE ASSESSEE IS DIRECTED AGAINST THE ORDER OF THE LD. COMMISSIONER OF INCOME TAX (APPEALS) II , C HENNAI DATED 2 9 . 11 .201 3 RELEVANT TO THE AS SESSMENT YEAR 20 08 - 09 . THE ONLY EFFECTIVE GROUND RAISED IN THE APPEAL OF THE ASSESSEE IS THAT THE LD. CIT(A) HAS ERRED IN SUSTAINING THE NOTIONAL DISALLOWANCE EXPENSES AMOUNTING TO .90,74,583/ - MADE UNDER SECTION 14A OF THE INCOME TAX ACT, 1961 [ ACT IN SHORT]. I.T.A. NO. 55/M/14 2 2. BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE HAS FILED THE RETURN OF INCOME ON 29.09.2008 DECLARING THE TOTAL INCOME OF .1,22,37,531/ - . WHILE COMPLETING THE ASSESSMENT UNDER SECTION 143(3) OF THE ACT, THE ASSESSING OFFICER HAS ASSESSED THE TA XABLE INCOME AT .2,16,84,023/ - BY MAKING A DISALLOWANCE OF .90,74,583/ - UNDER SECTION 14A OF THE ACT R.W. RULE 8D. 3. THE ASSESSEE CARRIED THE MATTER IN APPEAL BEFORE THE LD. CIT(A) AND MADE VARIOUS SUBMISSIONS. AFTER CONSIDERING THE SUBMISSIONS OF TH E ASSESSEE AND BY FOLLOWING VARIOUS DECISION S THE LD. CIT(A) HAS CONFIRMED THE DISALLOWANCE MADE UNDER SECTION 14A OF THE ACT. 4. ON BEING AGGRIEVED, THE ASSESSEE IS IN APPEAL BEFORE THE TRIBUNAL. T HE LD. COUNSEL FOR THE ASSESSEE HAS SUBMITTED THAT WHEN THERE WAS NO EARNING OF EXEMPT INCOME ON THE INVESTMENTS, THE QUESTION OF DETERMINING EXPENDITURE DOES NOT ARISE. BY FILING COPY OF THE JUDGEMENT IN THE CASE OF REDINGTON (INDIA) LTD. V. ADDL. CIT IN T.C.A. NO. 520 OF 2016 DATED 23.12.2016, WHEREIN, THE HON BLE JURISDICTIONAL HIGH COURT HAS HELD THAT WHEN THERE IS NO EXEMPT INCOME , THERE CANNOT BE A DISALLOWANCE OF EXPENDITURE, THE LD. COUNSEL FOR THE ASSESSEE HAS SUBMITTED THAT THE ASSESSEE HAS NOT EARNED ANY EXEMPT INCOME OR INCURRED ANY EXPENDITURE AND PRAYED FOR DELETION OF DISALLOWANCE MADE UNDER SECTION 14A OF THE ACT. I.T.A. NO. 55/M/14 3 5. ON THE OTHER HAND, THE LD. DR STRONGLY SUPPORTED THE ORDERS OF AUTHORITIES BELOW. 6. WE HAVE HEARD BOTH SIDES, PERUSED THE MATERIALS AVAILABLE ON RECORD AND GONE THROUGH THE OR DERS OF AUTHORITIES BELOW. IN THE ASSESSMENT ORDER, THE ASSESSING OFFICER HAS OBSERVED THAT THE ASSESSEE HAS MADE INVEST MENTS TO THE TUNE OF . 12,41,44,270 / - AS ON 31.03.2008 IN SHARES AND MUTUAL FUND UNITS AND CAPABLE OF EARNING EXEMPT INCOME. IT WAS FURT HER NOTICED THAT THE ASSESSEE HAS NOT ADMITTED ANY EXPENDITURE FOR THE ABOVE INVESTMENTS. FURTHER, THE ASSESSING OFFICER HAS NOTICED THAT THE ASSESSEE HAS CLAIMED INTEREST EXPENDITURE TO THE TUNE OF . 3,44,50,626 / - . WHEN THE ASSESSING OFFICER HAS POINTED O UT THAT THE DISALLOWANCE UNDER SECTION 14A R.W. RULE 8D IS APPLICABLE, THE ASSESSEE HAS SUBMITTED THAT THE INTEREST EXPENDITURE WAS DUE TO TERM LOAN INTEREST PAID FOR THE FIXED ASSETS CREATED, PACKING CREDIT INTEREST FOR THE WORKING CAPITAL USED AND BANK C HARGES PAID FOR IMPORT LC S AND FOREIGN BILLS CONNECTIONS. MOREOVER, THE ASSESSEE HAS SUBMITTED THAT NO DIVIDEND WAS RECEIVED DURING THE YEAR AND NO DIRECT OR INDIRECT EXPENDITURE HAS BEEN INCURRED FOR THE INVESTMENTS WARRANTING DISALLOWANCE UNDER SECTION 14A OF THE ACT. HOWEVER, BY APPLYING THE PROVISIONS OF SECTION 14A R.W. RULE 8D, THE ASSESSING OFFICER HAS DETERMINED THE EXPENDITURE COMPONENT AND DISALLOWED THE SAME. BY REITERATING THE SUBMISSIONS MADE BEFORE THE ASSESSING OFFICER, ON APPEAL, I.T.A. NO. 55/M/14 4 BEFORE THE LD. CIT(A), THE ASSESSEE HAS SUBMITTED THAT NO PORTION OF THE BORROWINGS ON WHICH INTEREST WAS PAID HAS BEEN USED FOR MAKING INVESTMENTS IN SHARES AND MUTUAL FUNDS AND THE BORROWINGS HAVE BEEN USED FOR THE BUSINESS OPERATIONS OF THE ASSESSEE COMPANY. MORE OVER, IT WAS SUBMITTED THAT THE ASSESSEE HAS NOT TAKEN ANY STEPS TO REDEEM/CHANGE THE MUTUAL FUNDS AND EARNED ANY EXEMPT INCOME IN THE RELEVANT ASSESSMENT YEAR. THEREFORE, IT WAS ARGUED THAT NO DISALLOWANCE UNDER SECTION 14A OF THE ACT COULD BE MADE. BEFOR E US, THE LD. COUNSEL FOR THE ASSESSEE HAS STRONGLY CONTENDED THAT THE ASSESSEE HAS NOT EARNED ANY EXEMPT INCOME AS WELL AS NO DIRECT OR INDIRECT EXPENDITURE WAS INCURRED AND THEREFORE, THERE SHOULD NOT BE ANY DISALLOWANCE OF EXPENDITURE IN VIEW OF THE DEC ISION IN THE CASE OF REDINGTON (INDIA) LTD. V. ADDL. CIT (SUPRA) AND PRAYED FOR DELETING THE DISALLOWANCE MADE UNDER SECTION 14A OF THE ACT. WE FIND FORCE IN THE ARGUMENTS OF THE LD. COUNSEL. WE HAVE PERUSED THE CASE LAW RELIED ON BY THE LD. COUNSEL FOR TH E ASSESSEE IN THE CASE OF REDINGTON (INDIA) LTD. V. ADDL. CIT (SUPRA), WHEREIN, THE HON BLE JURISDICTIONAL HIGH COURT HAS HELD AS UNDER: 15. THE EXEMPTION EXTENDED TO DIVIDEND INCOME WOULD RELATE ONLY TO THE PREVIOUS YEAR WHEN THE INCOME WAS EARNED AND NONE OTHER AND CONSEQUENTLY THE EXPENDITURE INCURRED IN CONNECTION THEREWITH SHOULD ALSO BE DEALT WITH IN THE SAME PREVIOUS YEAR. THUS, BY APPLICATION OF THE MATCHING CONCEPT, IN A YEAR WHERE THERE IS NO EXEMPT INCOME, THERE CANNOT BE A DISALLOWANCE OF EXPENDITURE IN RELATION TO SUCH ASSUMED INCOME. (MADRAS INDUSTRIAL INVESTMENT CORPORATION LTD. V. CIT (225 ITR 802). THE LANGUAGE OF S. 14A(1 ) SHOULD BE READ IN THAT CONTEXT AND SUCH THAT IT ADVANCES THE SCHEME OF THE ACT RATHER THAN DISTORT IT. I.T.A. NO. 55/M/14 5 16. IN CONCLUSION, WE ARE OF THE VIEW THAT THE PROVISIONS OF S. 14A READ WITH RULE 8D OF THE RULES CANNOT BE MADE APPLICABLE IN A VACUUM I.E., IN THE ABSENCE OF EXEMPT INCOME. THE QUESTIONS OF LAW ARE ANSWERED IN FAVOUR OF THE ASSESSEE AND AGAINST THE DEPARTMENT AND THE APPEAL ALLOWED. NO COSTS. ADMITTEDLY, THE ASSESSEE HAS NOT EARNED ANY EXEMPT INCOME AND MOREOVER, THE ASSESSEE HAS NOT REDEEMED MUTU AL FUND UNITS AND EARNED ANY EXEMPT INCOME. WHEN THERE WAS NO EXEMPT INCOME EARNED, THE PROVISION OF SECTION 14A R.W. RULE 8D CANNOT BE MADE APPLICABLE IN A VACUUM TO DETERMINE THE EXPENDITURE IN VIEW OF THE DECISION OF THE HON BLE HIGH COURT . UNDER THE AB OVE FACTS AND CIRCUMSTANCES AND RESPECTFULLY FOLLOWING THE DECISION IN THE CASE OF REDINGTON (INDIA) LTD. V. ADDL. CIT (SUPRA), WE DELETE THE DISALLOWANCE MADE UNDER SECTION 14A OF THE ACT AND A CCORDINGLY, THE GROUND RAISED BY THE ASSESSEE IS ALLOWED . 7. IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE IS ALLOWED . ORDER PRONOUNCED ON THE 12 TH JU LY , 201 7 AT CHENNAI. SD/ - SD/ - ( CHANDRA POOJARI ) ACCOUNTANT MEMBER ( DUVVURU RL REDDY ) JUDICIAL MEMBER CHENNAI, DATED, THE 12 . 0 7 .201 7 VM/ - / COPY TO: 1. / APPELLANT , 2. / RESPONDENT , 3. ( ) / CIT(A) , 4. / CIT , 5. / DR & 6. / GF.