Shriram Industrial Holdings Pvt Ltd., CHENNAI V. DCIT, CHENNAI

ITA 585/CHNY/2016

• Counselvise Citation: [2016] 131 COUNSELVISE.COM (IT) 8586 (ITAT-CHENNAI)
• Duration Of Justice: 6 month(s) 1 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 15-09-2016
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: C
• Next Hearing Date: 27-07-2016
• Assessment Year: 2012-2013
• Appeal Filed On: 14-03-2016
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: A V SREEKANTHJCIT
• Assessee Lawyers: R SIVARAMAN
• Keywords: Earning of tax free income
• Section: 14A

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL C BENCH, CHENNAI . . . , .. ' #$, & '( BEFORE SHRI N.R.S. GANESAN, JUDICIAL MEMBER AND SHRI D.S. SUNDER SINGH, ACCOUNTANT MEMBER ./ ITA NO.585/MDS/2016 * +* / ASSESSMENT YEAR : 2012-13 M/S SHRIRAM INDUSTRIAL HOLDINGS PVT. LTD., MOOKAMBIKA COMPLEX, NO.4, LADY DESIKA ROAD, MYLAPORE, CHENNAI - 600 004. PAN : AAACS 7696 D V. THE DEPUTY COMMISSIONER OF INCOME TAX, CORPORATE CIRCLE 6(1), CHENNAI. (-./ APPELLANT) (/0-./ RESPONDENT) -. 1 2 / APPELLANT BY : SHRI R. SIVARAMAN, ADVOCATE /0-. 1 2 / RESPONDENT BY : SHRI A.V. SREEKANTH, JCIT ' 1 3& / DATE OF HEARING : 27.07.2016 45+ 1 3& / DATE OF PRONOUNCEMENT : 15.09.2016 / O R D E R PER N.R.S. GANESAN, JUDICIAL MEMBER: THIS APPEAL OF THE ASSESSEE IS DIRECTED AGAINST THE ORDER OF THE COMMISSIONER OF INCOME TAX (APPEALS) -15, CHENN AI, DATED 24.09.2015 AND PERTAINS TO ASSESSMENT YEAR 2012-13. 2 I.T.A. NO.585/MDS/16 2. SHRI R. SIVARAMAN, THE LD.COUNSEL FOR THE ASSESS EE, SUBMITTED THAT THE ONLY ISSUE ARISES FOR CONSIDERAT ION IS WITH REGARD TO DISALLOWANCE MADE BY THE ASSESSING OFFICER UNDER SECTION 14A OF THE INCOME-TAX ACT, 1961 (IN SHORT 'THE ACT') IN RESPECT OF THE EXPENDITURE SAID TO BE INCURRED BY THE ASSESSEE FOR EARNING EXEMPTED INCOME. REFERRING TO THE ASSESSMENT ORDER , THE LD.COUNSEL SUBMITTED THAT THE ASSESSEE ITSELF MADE DISALLOWANCE UNDER SECTION 14A OF THE ACT IN RESPECT OF THE INCO ME WHICH DOES NOT FORM PART OF TOTAL INCOME. DURING THE YEAR UND ER CONSIDERATION, ACCORDING TO THE LD. COUNSEL, THE ASSESSEE BORROWED LOAN FROM M/S SHRIRAM CITY UNION FINANCE LIMITED AND UTILISED THE SAME FOR MAKING INVESTMENT IN EQUITY SHARES. THE ASSESSEE, IN FACT, PAID INTEREST OF ` 1,50,904/-, WHICH WAS DISALLOWED BY THE ASSESSEE WH ILE COMPUTING THE TAXABLE INCOME. THE ASSESSEE HAS ALS O DISALLOWED ANOTHER SUM OF ` 2,12,110/- TOWARDS ADMINISTRATIVE EXPENSES IN CONNECTION WITH INVESTMENTS IN EQUITY SHARES. TOTA LLY, THE ASSESSEE DISALLOWED A SUM OF ` 3,63,014/- UNDER SECTION 14A OF THE ACT, THEREFORE, ACCORDING TO THE LD. COUNSEL, ANY FURTHE R DISALLOWANCE MAY NOT BE CALLED FOR. 3 I.T.A. NO.585/MDS/16 3. THE LD.COUNSEL FOR THE ASSESSEE FURTHER SUBMITTE D THAT THE ASSESSEE PLEADED BEFORE THE CIT(APPEALS) THAT INVES TMENT IN SUBSIDIARY COMPANY CANNOT BE CONSIDERED FOR MAKING DISALLOWANCE UNDER SECTION 14A OF THE ACT. MOREOVER, THE ASSESS ING OFFICER HAS TAKEN THE ENTIRE VALUE OF INVESTMENTS INSTEAD OF TA KING THE VALUE OF INVESTMENT WHICH EARNED DIVIDEND INCOME. THE SHARE APPLICATION MONEY WAS ALSO TAKEN INTO CONSIDERATION FOR THE PUR POSE OF DISALLOWANCE. ACCORDING TO THE LD. COUNSEL, SHARE APPLICATION MONEY DOES NOT RESULT IN EARNING OF EXEMPT INCOME, THEREFORE, THE SAME HAS TO BE EXCLUDED WHILE COMPUTING THE DISALLO WANCE UNDER SECTION 14A OF THE ACT. EVEN THOUGH THE SAME WAS A RGUED BEFORE THE CIT(APPEALS), ACCORDING TO THE LD. COUNSEL, THE CIT(APPEALS) HAS NOT RECORDED ANY FINDING WITH REGARD TO INVESTM ENT, WHICH DOES NOT RESULT IN ANY INCOME, AND THE SHARE APPLICATION MONEY. THEREFORE, ACCORDING TO THE LD. COUNSEL, THE SAME H AS TO BE DISPOSED OF. ON A QUERY FROM THE BENCH, WHETHER TH E ASSESSEE HAS RAISED THE SPECIFIC GROUND BEFORE THE CIT(APPEALS), THE LD.COUNSEL SUBMITTED THAT BEFORE THE CIT(APPEALS) THE ASSESSEE CHALLENGED THE ENTIRE DISALLOWANCE OF ` 50,55,472/- WHICH INCLUDED THE DISALLOWANCE MADE BY THE ASSESSING OFFICER WITH REGARD TO INVEST MENT WHICH DOES NOT RESULT IN ANY INCOME AND ALSO THE SHARE AP PLICATION MONEY. 4 I.T.A. NO.585/MDS/16 4. ON THE CONTRARY, SHRI A.V. SREEKANTH, THE LD. DE PARTMENTAL REPRESENTATIVE, SUBMITTED THAT THE ASSESSING OFFICE R COMPUTED THE DISALLOWANCE BY APPLYING THE PROVISIONS OF RULE 8D OF THE INCOME- TAX RULES, 1962. ACCORDING TO THE LD. D.R., RULE 8 D IS MANDATORY FOR THE ASSESSMENT YEAR UNDER CONSIDERATION. THE A SSESSING OFFICER, AFTER COMPUTING EXPENDITURE UNDER ALL THE THREE LIMBS OF RULE 8D(2), DISALLOWED THE AVERAGE AMOUNT. THE CIT (APPEALS), HOWEVER, FOUND THAT THE INVESTMENT MADE IN THE SUBS IDIARY COMPANY NEEDS TO BE EXCLUDED. ACCORDING TO THE LD. D.R., T HE CIT(APPEALS) DIRECTED THE ASSESSING OFFICER TO EXCLUDE THE INVES TMENT MADE BY THE ASSESSEE IN THE SUBSIDIARY COMPANY AFTER PROPER VERIFICATION OF BOOKS OF ACCOUNT. THE CIT(APPEALS) ALSO DIRECTED T HE ASSESSING OFFICER TO DEDUCT THE CORRESPONDING EXPENDITURE ALR EADY DISALLOWED SUO MOTO BY THE ASSESSEE. THEREFORE, THE CIT(APPEALS) CONS IDERED THE CLAIM OF THE ASSESSEE AND GAVE APPROPRIATE RELI EF WHEREVER IT IS POSSIBLE. 5. ACCORDING TO THE LD. D.R., NOW THE ASSESSEE CLAI MS THAT THE INVESTMENT, WHICH DOES NOT RESULT ANY INCOME, AND S HARE APPLICATION MONEY WERE NOT ADJUDICATED BY THE CIT(A PPEALS). ACCORDING TO THE LD. D.R., FOR THE PURPOSE OF COMPU TING 5 I.T.A. NO.585/MDS/16 DISALLOWANCE UNDER RULE 8D(2)(III), THE ASSESSING O FFICER ADMITTEDLY HAS TAKEN NOTE OF THE INVESTMENTS AS ON THE LAST DA Y OF FINANCIAL YEAR AND COMPUTED THE DISALLOWANCE AT 0.5% IN RESPE CT OF THE INCOME WHICH DOES NOT FORM PART OF TOTAL INCOME. T HEREFORE, IT IS NOT CORRECT TO SAY THAT THE CIT(APPEALS) HAS NOT ADJUDI CATED THE SAME. WHEN THE ASSESSING OFFICER COMPUTED THE DISALLOWANC E IN RESPECT OF THE AVERAGE VALUE OF INVESTMENT, WHICH DOES NOT OR SHALL NOT FORM PART OF TOTAL INCOME, THERE IS NO NEED FOR REMITTIN G THE MATTER BACK TO THE CIT(APPEALS). IN OTHER WORDS, THE CIT(APPEALS) CONFIRMED THE ORDER OF THE ASSESSING OFFICER. 5. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS ON EITH ER SIDE AND PERUSED THE RELEVANT MATERIAL AVAILABLE ON RECORD. ADMITTEDLY, THE PROVISIONS OF RULE 8D IS APPLICABLE FOR THE PURPOSE OF COMPUTING DISALLOWANCE IN RESPECT OF INCOME WHICH DOES NOT FO RM PART OF TOTAL INCOME. THE ASSESSING OFFICER COMPUTED THE DISALLO WANCE AT PAGE 3 OF THE IMPUGNED ORDER. IN RESPECT OF DIRECT EXPE NDITURE, THE ASSESSING OFFICER DISALLOWED THE ENTIRE INTEREST PA ID BY THE ASSESSEE TO THE EXTENT OF ` 1,50,904/-. IN FACT, THE AMOUNT BORROWED BY THE ASSESSEE FROM SHRIRAM CITY UNION FINANCE LIM ITED AND THE PAYMENT OF INTEREST TO THE EXTENT OF ` 1,50,904/- ARE NOT IN DISPUTE. 6 I.T.A. NO.585/MDS/16 THE ENTIRE BORROWED FUNDS WERE USED IN INVESTMENT F OR EARNING THE EXEMPTED INCOME. THE ASSESSING OFFICER HAS ALSO TA KEN THE INTEREST PAYMENT OF ` 1,50,904/- AS DIRECT EXPENDITURE. THEREFORE, THERE IS NO DISPUTE WITH REGARD TO FIRST LIMB OF RU LE 8D(2). NOW COMING TO SECOND LIMB, NAMELY, RULE 8D(2)(II), THE ASSESSEE PAID INTEREST TO THE EXTENT OF ` 1,50,904/- WHICH IS DIRECTLY RELATABLE TO EARNING OF EXEMPTED INCOME. THE AVERAGE INVESTMENT WAS TO THE EXTENT OF ` 95,12,69,922/-. IT IS NOT KNOWN WHETHER THE ASSESSE E PAID ANY INTEREST ON THE BORROWED FUNDS FOR BUSINESS. I N OTHER WORDS, IT IS TO BE ASCERTAINED WHETHER THE ASSESSEE BORROWED FUNDS FOR BUSINESS. IN RESPECT OF EXPENDITURE INCURRED BY TH E ASSESSEE BY WAY OF INTEREST WHICH IS NOT DIRECTLY ATTRIBUTABLE TO ANY PARTICULAR INCOME OR RECEIPT, THE DISALLOWANCE HAS TO BE COMPU TED AS PER SECOND LIMB OF RULE 8D(2). THE ASSESSING OFFICER H AS TAKEN ONLY THE TOTAL INVESTMENT VALUE BETWEEN 01.04.2011 AND 3 1.03.2012. THE ASSESSING OFFICER HAS NOT TAKEN THE EXPENDITURE BY WAY OF INTEREST OTHER THAN DIRECT EXPENDITURE INCURRED BY THE ASSESSEE DURING THE RELEVANT PERIOD. IT IS NOT KNOWN WHETHE R THE ASSESSEE HAS BORROWED ANY FUNDS FOR THE PURPOSE OF BUSINESS OTHER THAN FOR MAKING INVESTMENT. MOREOVER, FOR THE PURPOSE OF R ULE 8D(2)(III), AN AMOUNT EQUAL TO 0.5% OF AVERAGE VALUE OF INVESTMENT INCOME, 7 I.T.A. NO.585/MDS/16 WHICH DOES NOT OR SHALL NOT FORM PART OF TOTAL INCO ME, ALSO NEEDS TO BE CONSIDERED. THEREFORE, THIS TRIBUNAL IS OF THE CONSIDERED OPINION THAT THE ASSESSING OFFICER HAS NOT TAKEN INTO CONSI DERATION THE EXPENDITURE INCURRED BY THE ASSESSEE FOR THE PURPOS E OF COMPUTING DISALLOWANCE AS PER RULE 8D(2)(II) OF THE INCOME-TA X RULES, 1962. 6. MOREOVER, THE SHARE APPLICATION MONEY, NAMELY, T HE INVESTMENT MADE BY THE ASSESSEE IN ALLOTMENT OF SHA RE WAS ALSO NOT SPECIFICALLY CONSIDERED EITHER BY THE ASSESSING OFFICER OR BY THE CIT(APPEALS). THEREFORE, THIS TRIBUNAL IS OF THE CONSIDERED OPINION THAT THE MATTER NEEDS TO BE RECONSIDERED. ACCORDIN GLY, THE ORDERS OF THE AUTHORITIES BELOW ARE SET ASIDE AND THE ENTIRE DISALLOWANCE MADE BY THE ASSESSING OFFICER UNDER SECTION 14A OF THE ACT IS REMANDED BACK TO THE FILE OF THE ASSESSING OFFICER. THE ASSESSING OFFICER SHALL COMPUTE THE DISALLOWANCE AS PER THE P ROVISIONS OF RULE 8D(2) OF THE INCOME-TAX RULES, 1962 AND THEREAFTER, DECIDE THE SAME AFRESH IN ACCORDANCE WITH LAW, AFTER GIVING A REASONABLE OPPORTUNITY TO THE ASSESSEE. 7. IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE IS ALLOWED FOR STATISTICAL PURPOSES. 8 I.T.A. NO.585/MDS/16 ORDER PRONOUNCED ON 15 TH SEPTEMBER, 2016 AT CHENNAI. SD/- SD/- ( . . ' #$ ) ( . . . ) (D.S. SUNDER SINGH) (N.R.S. GANESAN) & / ACCOUNTANT MEMBER /JUDICIAL MEMBER /CHENNAI, 7 /DATED, THE 15 TH SEPTEMBER, 2016. KRI. 1 /3#8 98+3 /COPY TO: 1. -. /APPELLANT 2. /0-. /RESPONDENT 3. ' :3 () /CIT(A)-15, CHENNAI-34 4. ' :3 /CIT-6, CHENNAI 5. 8; /3 /DR 6. * < /GF.