M/s. Prime Co-Operative Bank Ltd., Surat V. The ACIT, Circle-2, Surat

ITA 670/SRT/2018

• Counselvise Citation: [2021] 108 COUNSELVISE.COM (IT) 1206 (ITAT-SURAT)
• Duration Of Justice: 2 year(s) 9 month(s) 5 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 08-07-2021
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: DB
• Assessment Year: 2014-2015
• Appeal Filed On: 03-10-2018
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: HIMANI MISTRY
• Keywords: Business income; Earning of tax free income; Proportionate interest; Rule 8D
• Section: 14A; 13

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL, SURAT BENCH, SURAT BEFORE SHRI PAWAN SINGH, JUDICIAL MEMBER AND DR. ARJUN LAL SAINI, ACCOUNTANT MEMBER ITA NO.670/SRT/2018 (AY 2014-15) (H EARING IN VIRTUAL COURT) THE PRIME CO-OPERATIVE BANK LTD., 3 RD FLOOR, TAPI VILLA, VIJAY NAGAR SOCIETY, GATE-3, MAJURAGATE, RING ROAD, SURAT-395002 PAN : AAAAP 5507 G VS. THE ASSISTANT COMMISSIONER OF INCOME TAX, CIRCLE-1(2), OPP. NEW CIVIL HOSPITAL, MAJURAGATE, SURAT. ASSESSEE/ APPELLANT REVENUE/RESPONDENT ASSESSEE BY MS. HIMANI MISTRY, CA REVENUE BY MR. RITESH MISHRA, CIT-DR DATE OF HEARING 08/07/2021 DATE OF PRONOUNCEMENT 08/07/2021 ORDER UNDER SECTION 254(1) OF INCOME TAX ACT PER PAWAN SINGH, JUDICIAL MEMBER: 1. THIS APPEAL BY THE ASSESSEE IS DIRECTED AGAINST THE ORDER OF CIT(A)-2, SURAT DATED 17.08.2018 FOR ASSESSMENT YEAR 2014-15. THE ASSESSEE HAS RAISED FOLLOWING GROUNDS OF APPEAL: I. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND AS PER LAW, THE LD. CIT(A) WAS NOT JUSTIFIED IN CONFIRMING DISALLOWANCE UNDER SECTION 14A OF RS.17,95,228/-. II. THE APPELLANT SUBMITS THAT NO INTEREST EXPENDITURE HAVING BEEN INCURRED IN RESPECT OF THE ABOVE AMOUNT, DISALLOWANCE IS NOT JUSTIFIED. 2. THE ASSESSEE, VIDE APPLICATION DATED 03.10.2018 RAISED FOLLOWING ADDITIONAL GROUNDS OF APPEAL: THE APPELLANT BY REDUCING THE EXEMPT INCOME BY WAY OF INTEREST ON GRATUITY INVESTMENT U/S 10(25) BY RS.34,95,325/- INSTEAD OF RS.52,90,552/-, HAD ALREADY REDUCED LESS EXEMPT INCOME THAN EARNED RESULTING IN DISALLOWANCE OF RS.17,95,228/-. PRIME CO. BANK ITA NO. 670/SRT/2018 2 HENCE, THE APPELLANT HAVING ALREADY DISALLOWED RS.17,95,228/-, IT CALLED FOR NO DISALLOWANCE AND NO CONFIRMATION THEREOF BY THE CIT(A). 3. BRIEF FACTS OF THE CASE ARE THAT ASSESSEE IS A CO-OPERATIVE BANK, ENGAGED IN THE BUSINESS IN PROVIDING CREDIT FACILITIES TO ITS MEMBER. THE ASSESSEE FILED ITS RETURN OF INCOME FOR ASSESSMENT YEAR 2014-15 ON 24.09.2014 DECLARING TOTAL INCOME OF RS.3,15,63,290/-. THE CASE WAS SELECTED FOR SCRUTINY. THE ASSESSING OFFICER WHILE PASSING THE ASSESSMENT ORDER BESIDES THE OTHER ADDITIONS/DISALLOWANCE MADE ADDITION UNDER SECTION 14A OF RS.17,95,228/-. BEFORE MAKING ADDITION, THE ASSESSING OFFICER NOTED THAT ASSESSEE IN ITS PROFIT AND LOSS ACCOUNT AND HAS SHOWN EXEMPT INCOME. THE ASSESSING OFFICER WAS OF THE VIEW THAT WITHOUT INCURRING CERTAIN EXPENDITURE, IT IS NOT POSSIBLE TO EARN EXEMPT INCOME. THUS, THE ASSESSING OFFICER ISSUED SHOW CAUSE NOTICE AS TO WHY DISALLOWANCE UNDER SECTION 14A BE NOT MADE IN ACCORDANCE WITH PROVISION OF RULE 8D. THE ASSESSEE FILED ITS REPLY. IN THE REPLY, THE ASSESSEE STATED THAT THE ASSESSEE EARNED EXEMPT INCOME AS INTEREST ON GRATUITY INVESTMENT WITH LIFE INSURANCE CORPORATION (LIC), EXEMPT UNDER SECTION 10(25)(4) OF THE INCOME TAX ACT, 1961. THE ASSESSEE ALSO STATED THAT INTEREST ON GRATUITY WAS NEVER MADE OUT OF BORROWED FUND. THE ASSESSEE HAS ALSO EARNED DIVIDEND INCOME. THE ASSESSEE HAS NOT UTILIZED THE BORROWED FUND. THUS, NO WORKING UNDER SECTION 14A IS REQUIRED TO BE MADE. THE CONTENTION OF ASSESSEE WAS NOT ACCEPTED BY THE ASSESSING OFFICER, THE ASSESSING OFFICER INVOKED THE PROVISION OF RULE 8D AND MADE DISALLOWANCE PRIME CO. BANK ITA NO. 670/SRT/2018 3 OF RS.16,64,684/- AS INTEREST DISALLOWANCE AND RULE 8D(2)(II) AND DISALLOWANCE OF RS.1,30,774/- UNDER RULE 8D(2)(III) BEING 0.5% OF AVERAGE VALUE OF INVESTMENT THEREBY TOTAL DISALLOWANCE OF RS.17,95,228/-. ON APPEAL BEFORE CIT(A), THE ACTION OF ASSESSING OFFICER WAS UPHELD. THE LD. CIT(A) WHILE UPHOLDING IN THE ACTION HELD THAT SIMILAR ADDITION WAS UPHELD IN AY 2010-11 AND 2011-12 AND FURTHER 2012-13. FURTHER, AGGRIEVED THE ASSESSEE HAS FILED PRESENT APPEAL BEFORE US. 4. WE HAVE HEARD THE SUBMISSION OF LD. AUTHORIZED REPRESENTATIVE (AR) OF THE ASSESSEE AND LD. DEPARTMENTAL REPRESENTATIVE (DR) FOR THE REVENUE AND PERUSED MATERIAL AVAILABLE ON RECORD. THE LD. AR OF THE ASSESSEE SUBMITS THAT THE ASSESSEE HAS RAISED ADDITIONAL GROUND OF APPEAL VIDE APPLICATION DATED 03.10.2018, THE ADDITIONAL GROUND OF APPEAL GOES TO THE ROOT OF THE MATTER. NO NEW FACTS ARE REQUIRED TO BE BROUGHT ON RECORD. FOR ADJUDICATION OF ADDITIONAL GROUND OF APPEAL, FACTS RELATING ADDITIONAL GROUND OF APPEAL ARE EMANATING FROM THE MATERIAL AVAILABLE ON RECORD. THE LD. AR SUBMITS THAT ADDITIONAL GROUND OF APPEAL IS SUM AND SUBSTANCE IS AGAINST THE DISALLOWANCE UNDER SECTION 14A. 5. THE LD. CIT-DR FOR THE REVENUE NOT SERIOUSLY OPPOSED THE ADDITIONAL GROUND OF APPEAL. 6. WE HAVE CONSIDERED SUBMISSIONS OF BOTH THE PARTIES AND CONSIDERING THE FACT THAT NO NEW FACT IS REQUIRED TO BE BROUGHT ON RECORD FOR ADJUDICATION OF THE ADDITIONAL GROUND OF APPEAL. THE ADDITIONAL GROUNDS OF APPEAL IS ALSO RELATES PRIME CO. BANK ITA NO. 670/SRT/2018 4 DISALLOWANCE UNDER SECTION 14A. THEREFORE, THE ADDITIONAL GROUNDS OF APPEAL IS ADMITTED FOR ADJUDICATION. 7. ON MERIT OF THE CASE AND ON ADDITIONAL GROUND OF APPEAL, THE LD. AR OF THE ASSESSEE SUBMITS THAT THE ASSESSING OFFICER WHILE PASSING THE ASSESSMENT ORDER MADE ADDITION OF RS.17,95,228/-. THE LD. AR FOR THE ASSESSEE FURTHER SUBMITS THAT ASSESSEE ITSELF MADE SUO MOTU DISALLOWANCE OF THE SAME AMOUNT AS WORKED OUT BY THE ASSESSING OFFICER. DURING THE ASSESSMENT AS WELL AS BEFORE LD. CIT(A) IT WAS ESCAPED FROM THE ATTENTION OF ASSESSEE THAT ASSESSEE HAS ALREADY TAKEN INTO DISALLOWANCE OF RULE 14A BY REDUCING AMOUNT FROM EXEMPT INCOME. 8. THE LD. A.R. OF THE ASSESSEE EXPLAINED THAT THE TOTAL EXEMPT INCOME EARNED DURING THE YEAR CONSIST OF INTEREST INCOME EARNED FROM GRATUITY INVESTMENT WITH LIC OF RS.15,26,892/- AND DIVIDEND OF RS.37,63,660/-. BOTH FIGURES ARE AVAILABLE AT PAGE NO. 16 AND 41 BEING A PART OF SCHEDULE 14 (OTHER INCOME) AND SCHEDULE 13 (INTEREST ON GRATUITY INVESTMENT). THUS, THE ASSESSEE EARNED TOTAL EXEMPT INCOME OF RS.52,90,552/-. THE ASSESSEE CLAIMED EXEMPT INCOME OF RS.34,95,325/- BY REDUCING THE SUO MOTU DISALLOWANCE OF RS.17,95,228/-. THUS, THE ASSESSEE OFFERED [52,90,522 - 17,95,228] RS.34,95,325/- AS EXEMPT INCOME, WHICH WAS SHOWN DUE TO LIMITATION OF SOFTWARE. THUS, THE SUO MOTU DISALLOWANCE IS AUTOMATICALLY BECOME TAXABLE. ON THE BASIS OF AFORESAID SUBMISSION, THE LD. AR SUBMITS THAT THE DISALLOWANCE MADE BY ASSESSING OFFICER AND CONFIRMED BY LD. CIT(A) RESULTED INTO DOUBLE DISALLOWANCE. THE PRIME CO. BANK ITA NO. 670/SRT/2018 5 LD. AR OF THE ASSESSEE PRAYED FOR DELETING THE ENTIRE DISALLOWANCE MADE BY ASSESSING OFFICER UNDER SECTION 14A. 9. ON THE OTHER HAND, THE DR FOR THE REVENUE SUPPORTED THE ORDER PASSED BY LOWER AUTHORITIES. THE LD. D.R. SUBMITS THAT SIMILAR DISALLOWANCE WAS MADE IN EARLIER YEARS AS NOTED BY LD. CIT(A) WHILE PASSING THE ORDER. 10. IN THE REJOINDER SUBMISSION, THE LD. A.R. FOR THE ASSESSEE SUBMITS THAT IN THOSE YEARS THERE WAS NO SUCH DOUBLE DISALLOWANCE AND THE FACTS OF THE YEAR UNDER CONSIDERATION ARE ENTIRELY DIFFERENT. 11. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS OF THE PARTIES AND GONE THROUGH THE ORDERS OF LOWER AUTHORITIES. WE HAVE ALSO DELIBERATING ON VARIOUS DOCUMENTARY EVIDENCE FURNISHED BY ASSESSEE WHICH ARE ON THE PART OF FINANCIAL STATEMENT ON OF ASSESSEES BANK AND WAS REFERRED DURING THE HEARING OF THE CASE. WE FIND THAT ASSESSING OFFICER DURING THE ASSESSMENT MADE ADDITION UNDER SECTION 14A BY INVOKING THE PROVISIONS OF RULE 8D AND MADE DISALLOWANCE OF RS.17,95,228/-. THE DISALLOWANCE UNDER RULE 8D CONSISTS OF DISALLOWANCE UNDER RULE 8D(2)(II) OF RS.16,64,884/- (BEING PROPORTIONATE INTEREST DISALLOWANCE) AND DISALLOWANCE UNDER RULE 8D(2)(III) OF RS. RS.1,30,774/-. THE LD. CIT(A) UPHELD THE ACTION OF ASSESSING OFFICER BY FOLLOWING ORDER OF EARLIER YEARS. 12. BEFORE US, THE LD. AR FOR THE ASSESSEE BY WAY OF RAISING ADDITIONAL GROUND OF APPEAL HAS EXPLAINED THE FACT THAT ASSESSEE HAS ALREADY MADE SUO MOTU DISALLOWANCE OF RS.17,95,228/- WHICH IS EXACTLY THE SAME DISALLOWANCE PRIME CO. BANK ITA NO. 670/SRT/2018 6 WHICH HAS BEEN MADE BY ASSESSING OFFICER. THE LD. AR EXPLAINED THAT THE ASSESSEE EARNED TOTAL EXEMPT INCOME OF RS.52,90,552/-, THOUGH THE ASSESSEE CLAIMED EXEMPT INCOME FROM TAXABLE BUSINESS INCOME OF RS.34,95,923/-. THIS EXEMPT INCOME WAS CLAIMED AFTER REDUCING THE SUO MOTU DISALLOWANCE OF RS. 17,95,228/-. WE HAVE ALSO SEEN PERUSED THE BALANCE SHEET OF COMPUTATION OF TOTAL INCOME WHEREIN THE ASSESSEE HAS SHOWN EXEMPT INCOME OF RS.34,95,325/-. IN FACT, THE ASSESSEE HAS EARNED TOTAL EXEMPT INCOME OF RS.52,90,552/- WHICH CONSISTS OF DIVIDEND INCOME OF RS.37,63,660/- AND INTEREST INCOME EARNED FROM GRATUITY INVESTMENT WITH LIC OF RS.15,26,892/-. IT WAS EXPLAINED BEFORE US, THAT FIGURE OF EXEMPT INCOME SHOWN IN THE COMPUTATION OF INCOME IS DERIVED BY REDUCING SUO MOTU DISALLOWANCE OF RS.17,95,228/-. AFTER CONSIDERING AND PERUSAL OF THE BREAK UP INTEREST INCOME IN SCHEDULE 13 AND OTHER INCOME IN SCHEDULE 14, WE FOUND THAT SUBMISSION OF LD. AR OF THE ASSESSEE ARE IN ORDER. ON THE BASIS OF AFORESAID OBSERVATION WE ARE OF THE VIEW THAT ASSESSEE HAS ALREADY REDUCED (SUO MOTU DISALLOWANCE) RS.17,95,228/- FROM THE EXEMPT INCOME. MEANING THEREBY THAT THE DISALLOWANCE HAS ALREADY BEEN INCLUDED IN THE TOTAL INCOME. IN OUR VIEW, ONCE SUO MOTU DISALLOWANCE OF EXPENSES FOR EARNING EXEMPT INCOME HAS BEEN TAKEN INTO ACCOUNT, NO FURTHER DISALLOWANCE WAS WARRANTED. HOWEVER, THESE FACTS WERE NOT PLEADED BEFORE ASSESSING OFFICER OR BEFORE LD. CIT(A). CIT(A). THEREFORE, WE DIRECT THE ASSESSING OFFICER TO VERIFY THE ABOVE AFORESAID FACT AND DELETE THE ADDITION/DISALLOWANCE. PRIME CO. BANK ITA NO. 670/SRT/2018 7 13. NO OTHER SUBMISSION WAS RAISED NOR ANY OTHER ALTERNATIVE SUBMISSION AS MADE IN THE WRITTEN SUBMISSION (FILED WITHOUT PERMISSION OF BENCH), WAS PRESSED DURING THE HEARING, THOUGH THE ASSESSEE HAS RAISED ALTERATIVE PLEA THAT ASSESSEE HAS SUFFICIENT INTEREST FREE FUND AVAILABLE WITH IT AND THAT NO INTEREST EXPENSES WERE TO BE DISALLOWED, THEREFORE, THOSE SUBMISSION ARE TREATED AS NOT PRESSED. CONSIDERING THE FACT THAT NO OTHER POINT WAS RAISED AND PRESSED BEFORE US. THEREFORE, WE HAVE NOT CONSIDERED THOSE FACTS. 14. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS ALLOWED WITH THE AFORESAID DIRECTIONS. 1. ORDER ANNOUNCED ON 8 TH JULY 2021 BY PLACING RESULT ON NOTICE BOARD. SD/- SD/- ( DR ARJUN LAL SAINI) (PAWAN SINGH) ACCOUNTANT MEMBER JUDICIAL MEMBER SURAT, DATED: 08/07/2021 RAHUL SHARMA SR. P.S. COPY TO: 1. APPELLANT 2. RESPONDENT 3. CIT(A) 4. CIT 5. DR 6. GUARD FILE TRUE COPY/ BY ORDER / / TRUE COPY / / ASSISTANT REGISTRAR, ITAT, SURAT