DCIT, Circle-17(1),Hyderabad, Hyderabad V. Divyasree NSL Infrastructure Pvt Ltd.,Hyd, Hyderabad

ITA 657/HYD/2015

• Counselvise Citation: [2016] 133 COUNSELVISE.COM (IT) 5974 (ITAT-HYDERABAD)
• Duration Of Justice: 9 month(s) 19 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 04-03-2016
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: A
• Next Hearing Date: 01-03-2016
• Assessment Year: 2010-2011
• Appeal Filed On: 15-05-2015
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: M SITARAM
• Assessee Lawyers: V RAGHAVENDRA RAO
• Keywords: Search and seizure; Source of fund
• Section: 143(3); 14A

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL HYDERABAD BENCHES A : HYDERABAD BEFORE SMT. P. MADHAVI DEVI, JUDICIAL MEMBER AND SHRI B. RAMAKOTAIAH, ACCOUNTANT MEMBER ITA.NO.657/HYD/2015 ASSESSMENT YEAR 2010-2011 THE DCIT, CIRCLE-17(1) HYDERABAD. VS. M/S. DIVYASREE NSL INFRASTRUCTURE P. LTD., RAIDURGA VILLAGE, SERILINGAMPALLY MANDAL, HYDERABAD. PAN AACCD3662N (APPELLANT) (RESPONDENT) FOR REVENUE : MR. M. SITARAM FOR ASSESSEE : MR. V. RAGHAVENDRA RAO DATE OF HEARING : 01 .0 3 .2016 DATE OF PRONOUNCEMENT : 04 .03.2016 ORDER PER SMT. P. MADHAVI DEVI, J.M. THIS IS REVENUES APPEAL FOR THE A.Y. 2010- 2011. IN THIS APPEAL, THE REVENUE IS AGGRIEVED BY T HE ORDER OF THE LD. CIT(A) IN DELETING THE DISALLOWANC E MADE BY THE A.O. UNDER SECTION 14A READ WITH RULE 8D OF THE I.T. ACT AND RULES RESPECTIVELY. 2. BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE COMPANY, WHICH IS ENGAGED IN THE BUSINESS OF INFRASTRUCTURE DEVELOPMENT, FILED ITS RETURN OF INC OME FOR THE A.Y. 2010-2011 ON 27.09.2009 ADMITTING TOTAL IN COME 2 ITA.NO.657/HYD/2015 M/S. DIVYASREE NSL INFRASTRUCTU RE P. LTD., RAIDURGA (V), SERILINGAMPALLY (M), HYDERA BAD. AT RS.NIL. DURING THE ASSESSMENT PROCEEDINGS UND ER SECTION 143(3) OF THE ACT, THE A.O. NOTICED THAT TH E ASSESSEE HAD INVESTED AN AMOUNT OF RS.22 CRORES IN THE MUTUAL FUNDS ON WHICH HE HAS RECEIVED DIVIDEND INCO ME WHICH IS EXEMPT FROM TAX. HE OBSERVED THAT THE ASSE SSEE HAS NOT MADE ANY DISALLOWANCE UNDER SECTION 14A OF THE I.T. ACT IN THIS COUNT. HE FURTHER OBSERVED THAT TH E ASSESSEE HAD INITIALLY WORKED OUT THE DISALLOWANCE UNDER SECTION 14A AT RS.1.41 CRORES DURING THE ASSESSMENT PROCEEDINGS AND SUBSEQUENTLY, THE SAME WAS REVISED AND WORKED OUT TO RS.27 LAKHS. DURING THE COURSE OF ASSESSMENT PROCEEDINGS ON 19.03.2013, THE ASSESSEE HAD ALSO SUBMITTED THAT THE SOURCE OF FUNDS FOR THE INV ESTMENT IN THE MUTUAL FUNDS IS FROM THE DEBENTURES RAISED. IN VIEW OF THESE SUBMISSIONS, THE A.O. OBSERVED THAT THE IN TEREST RATE ON THE DEBENTURES WAS @ 10% AND AS THERE IS A DIRECT NEXUS BETWEEN THE INVESTMENT IN THE MUTUAL FUNDS OF RS.22,61,29,005 OUT OF THE DEBENTURES PROCEEDS, THE DISALLOWANCE UNDER SECTION 14A IS CALLED FOR. THUS, HE WORKED OUT THE DISALLOWANCE UNDER RULE 8D OF THE I. T. ACT. HE, ACCORDINGLY, MADE DISALLOWANCE OF RS.2,36, 09,230 UNDER SECTION 14A OF THE I.T. ACT AND BROUGHT IT TO TAX. 3. AGGRIEVED BY THE SAME, ASSESSEE PREFERRED AN APPEAL BEFORE THE LD. CIT(A) STATING THAT THE ASSES SEE HAD EARNED A SUM OF RS.1,10,18,482 AS DIVIDEND ON THE TEMPORARY INVESTMENTS IN MUTUAL FUNDS WHICH STOOD A T RS.22.61 CRORES AS ON 31.03.2009 AND RS.17.20 CRORE S AS ON 31.03.2010 WHICH WAS INVESTED OUT OF THE BORROWE D 3 ITA.NO.657/HYD/2015 M/S. DIVYASREE NSL INFRASTRUCTU RE P. LTD., RAIDURGA (V), SERILINGAMPALLY (M), HYDERA BAD. FUNDS BUT NO EXEMPTION WAS CLAIMED AS AGAINST THE S AID INCOME BUT THE SAID INCOME WAS REDUCED FROM THE TOT AL INTEREST PAYMENT OF RS.32,15,44,440 ALONG WITH THE INTEREST RECEIVED ON TEMPORARY DEPOSITS TO THE EXTE NT OF RS.1.49 CRORES TO ARRIVE AT THE NET INTEREST EXPENS ES OF RS.29.56 CRORES AGAINST WHICH RS.26.81 CRORES WAS CAPITALIZED BY TAKING INTO ACCOUNT THE WORK-IN-PROG RESS OF THE PROJECT AND RS.2.70 CRORES WAS CLAIMED AS EXPENDITURE AGAINST THE REVENUE GENERATED FOR THE Y EAR. IT WAS SUBMITTED THAT THIS WAS EXPENDITURE THROUGH SCHEDULE-18 FORMING PART OF THE BALANCE SHEET FOR T HE A.Y. 2010-2011 AND THEREFORE, THE ASSESSEE HAS NOT MADE ANY DISALLOWANCE UNDER SECTION 14A OF THE I.T. ACT. IT WAS SUBMITTED THAT, IT WAS AT THE INSTANCE OF THE A.O., THAT THE ASSESSEE HAD WORKED OUT THE DISALLOWANCE AT RS.21,23,250 AS PER RULE 8D OF THE I.T. ACT DURING THE COURSE OF ASSESSMENT PROCEEDINGS. TAKING DUE NOTE O F THESE SUBMISSIONS, THE LD. CIT(A) RESTRICTED THE DISALLOWANCE AT RS.21,23,250 AS AGAINST THE DISALLO WANCE OF RS.2,36,09,230 MADE BY THE A.O. AGAINST THE RELI EF GRANTED BY THE LD. CIT(A), THE REVENUE IS IN APPEAL BEFORE US. 4. LD. COUNSEL FOR THE ASSESSEE REITERATED THE SUBMISSIONS MADE BY THE ASSESSEE BEFORE THE AUTHORI TIES BELOW, WHILE THE LD. D.R. SUPPORTED THE ORDERS OF T HE A.O. 5. HAVING REGARD TO THE RIVAL CONTENTIONS AND THE MATERIAL ON RECORD, WE FIND THAT SECTION 14A OF THE I.T. ACT 4 ITA.NO.657/HYD/2015 M/S. DIVYASREE NSL INFRASTRUCTU RE P. LTD., RAIDURGA (V), SERILINGAMPALLY (M), HYDERA BAD. PROVIDES THAT, FOR THE PURPOSE OF COMPUTING THE TOT AL INCOME UNDER CHAPTER-4 OF THE I.T. ACT, NO DEDUCTIO N SHALL BE ALLOWED IN RESPECT OF EXPENDITURE INCURRED BY THE ASSESSEE IN RELATION TO INCOME WHICH DOES NOT FORM PART OF THE TOTAL INCOME UNDER THE ACT. THUS, IT IS CLEAR T HAT THE ASSESSEE SHOULD HAVE EARNED INCOME WHICH IS NOT FOR MING PART OF THE TOTAL INCOME UNDER THE PROVISIONS OF TH E INCOME TAX ACT TO DISALLOW EXPENDITURE INCURRED BY THE ASSESSEE FOR EARNING OF SUCH INCOME. IN THE CASE BE FORE US, UNDOUBTEDLY, THE ASSESSEE HAS EARNED DIVIDEND INCOME FROM MUTUAL FUNDS WHICH IS NOT CHARGEABLE TO INCOME TAX. IF THE ASSESSEE HAD CLAIMED THE DIVIDEN D INCOME AS EXEMPT FROM TAX, THEN THE ASSESSEE WOULD HAVE TO MAKE A DISALLOWANCE UNDER SECTION 14A OF THE ACT THE EXPENDITURE RELATABLE TO EARNING OF SUCH INCOME AND ON FAILURE OF THE ASSESSEE TO DO SO, THE A.O. WOULD HA VE TO MAKE SUCH DISALLOWANCE UNDER SECTION 14A READ WITH RULE 8D OF THE I.T. ACT. 6. IN THE CASE BEFORE US, IT IS THE CONTENTION OF THE ASSESSEE THAT IT HAS NOT CLAIMED THE DIVIDEND I NCOME AS EXEMPT FROM TAX, BUT HAS SET IT OFF AGAINST THE INTEREST PAYABLE AND HENCE, THERE IS NO CAUSE FOR MAKING ANY DISALLOWANCE UNDER SECTION 14A OF THE I.T. ACT. THE LD. CIT(A) HAS APPRECIATED THE CONTENTIONS OF THE ASSES SEE AND ON VERIFICATION, FOUND THAT THE ASSESSEE HAS NO T CLAIMED THE DIVIDEND INCOME AS EXEMPT FROM TAX AND IN SUCH CIRCUMSTANCES, THE DISALLOWANCE UNDER SECTION 14A IS NOT CALLED FOR. HOWEVER, TAKING INTO CONSIDERATI ON THE 5 ITA.NO.657/HYD/2015 M/S. DIVYASREE NSL INFRASTRUCTU RE P. LTD., RAIDURGA (V), SERILINGAMPALLY (M), HYDERA BAD. FACT THAT THE ASSESSEE ITSELF HAS WORKED OUT THE DISALLOWANCE AT RS.21,23,250, THE LD. CIT(A) HAS RESTRICTED THE DISALLOWANCE TO SUCH AN AMOUNT. THE LD. D.R. HAS NOT BEEN ABLE TO REBUT THIS FINDING OF THE CIT(A) WITH ANY EVIDENCE TO THE CONTRARY. IN VIEW OF THE SAME, WE DO NOT SEE ANY REASON TO INTERFERE WITH THE ORDER O F THE LD. CIT(A). 7. IN THE RESULT, APPEAL OF THE REVENUE IS DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 04.03.2016 SD/- SD/- (B. RAMAKOTAIAH) (SMT. P. MADHAVI DEVI) ACCOUNTANT MEMBER JUDICIAL MEMBER HYDERABAD, DATED 04 TH MARCH, 2016 VBP/- COPY TO 1. THE DCIT, CIRCLE 17(1), 6 TH FLOOR, B BLOCK, I.T. TOWERS, A.C.GUARDS, HYDERABAD. 2. M/S. DIVYASREE NSL INFRASTRUCTURE P. LTD., S.NO.66/14, RAIDURGA VILLAGE, SERILINGAMPALLY MANDAL, HYDERABAD. 3. CIT(A) - 5 , HYDERABAD. 4. CIT - 5 , HYDERABAD. 5. D.R. ITAT A BENCH, HYDERABAD 6. GUARD FILE.