M/s. The Kangra Co-operative Bank Ltd., New Delhi V. ACIT, New Delhi

ITA 6796/DEL/2014

• Counselvise Citation: [2018] 126 COUNSELVISE.COM (IT) 2865 (ITAT-DELHI)
• Duration Of Justice: 3 year(s) 3 month(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 16-03-2018
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: D
• Assessment Year: 2010-2011
• Appeal Filed On: 16-12-2014
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: SL GUPTA
• Keywords: Business income; Earning of tax free income
• Section: 143(3); 14A

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH : D , NEW DELHI BEFORE SH. BHAVNESH SAINI , JUDICIAL M EMBER AND SH. O.P. KANT , ACCOUNTANT MEMBER ITA NO . 6796 /DE L/ 2014 ASSESSMENT YEAR: 2010 - 11 THE KANGRA CO - OPERATIVE BANK LTD., C/O - JAIN KHANDELWAL & CO., CAS, 510, NEW DELHI HOUSE, 27, BARAKHAMBA ROAD, NEW DELHI VS. ACIT, CIRCLE - 38(1), NEW DELHI PAN : AAATT0361M ( APPELLANT ) (RESPONDENT) APPELLANT BY SH. S.L. GUPTA, CA RESPONDENT BY SH. AMIT JAIN, SR.DR DATE OF HEARING 15.02.2018 DATE OF PRONOUNCEMENT 16.03.2018 ORDER PER O.P. KANT , A. M. : THIS APPEAL BY THE ASSESSEE IS DIRECTED AGAINST ORDER DATED 14/10/2014 PASSED BY THE LD. COMMISSIONER OF INCOME - TA X (APPEALS) - XXVIII, NEW DELHI [ IN SHORT THE LD. CIT(A) ] FOR ASSESSMENT YEAR 2010 - 11 RAISING FOLLOWING GROUNDS: 1. ON THE FACTS AND CIRCUMSTANCES OF THE CASE, THE ORDER DATED 14.10.2014 PASSED BY THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) - XXVIII NEW DELHI [CIT - (A)] IS BAD BO TH IN THE EYES OF LAW AND ON FACTS. 2 2.(I) ON THE FACTS AND CIRCUMSTANCES OF THE CASE, LEARNED CIT (A) HAS ERRED BOTH ON FACTS AND IN LAW IN CONFIRMING THE ORDER OF THE ASSESSING OFFICER REJECTING THE CONTENTION OF THE ASSESSEE THAT THE APPELLANT HAS INVESTED IN TAX FREE SECURITIES OUT OF THEIR OWN INTEREST FREE CAPITAL/FUNDS AND EARNED TAX FREE INTEREST. (II) ON THE FACTS AND CIRCUMSTANCES OF THE CASE, LEARNED CIT (A) HAS ERRED BOTH ON FACTS AND IN LAW IN CONFIRMING THE ORDER OF THE ASSESSING OFFICER REJECTING THE CONTENTION OF THE ASSESSEE THAT IN THE ABSENCE OF ANY LIVE NEXUS BETWEEN THE EXPENDITURE INCURRED AND THE TAX FREE INCOME NOT FORMING PART OF TOTAL INCOME, THE ASSESSMENT IS BAD IN LAW AND AS SUCH THE ASSESSMENT IS ILLEGAL AND LIABLE TO BE Q UASHED SO 3.(I) ON THE FACTS AND CIRCUMSTANCES OF THE CASE, LEARNED CIT (A) HAS ERRED BOTH ON FACTS AND IN LAW IN CONFIRMING THE ADDITIONS OF RS. 15,11,370/ - MADE BY AO ON ACCOUNT OF DISALLOWANCE OF EXPENSES U/S 14A TO EARN TAX FREE INCOME (II) THAT THE ABOVE SAID ADDITIONS HAS BEEN CONFIRMED IGNORING THE FACT THAT NO OPPORTUNITY WAS PROVIDED TO THE APPELLANT BEFORE MAKING THE DISALLOWANCE. 4. THAT THE APPELLANT CRAVES LEAVE FOR RESERVING THE RIGHT TO AMEND, MODIFY, ALTER AND/OR FOREGO ANY GROUND(S) OF APPEAL AT ANY TIME BEFORE OR DURING THE HEARING OF THIS APPEAL . 2. B RIEFLY STATED FACTS OF THE CASE ARE THAT THE ASSESSEE IS A CO - OPERATIVE SOCIETY REGISTERED WITH THE REGISTRAR OF CO - OPERATIVE SOCIETY OF DELHI AND CARRYING ON BUSINESS OF BANKING UNDER THE LICENSE FROM R ESERVE B ANK OF INDIA. THE ASSESSEE FILED RETURN OF I NCOME FOR THE YEAR UN DER CONSIDERATION ON 08/09/2010, DECLARING TOTAL INCOME OF RS. 5, 12,05,678/ - WHICH WAS REVISED TO RS. 5,43,74,441/ - . THE CASE WAS SELECTED FOR SCRUTINY AND NOTI CE UNDER SECTION 143(2) OF THE INCOME - TAX A CT, 1961 (IN SHORT THE A CT ) WAS ISSUED AND COMPLIED WITH. THE ASSESSING OFFICER 3 OBSERVED THAT THE ASSESSEE EARNED TAX - FREE INTEREST AMOUNTING TO RS.15,11, 370/ - FROM INVESTMENT IN IIFCL AND IRFC BONDS. THE CONTENTION OF THE ASSESSEE WAS THAT INVESTMENT IN THE BONDS IS MADE OUT OF OWN SHA RE CAPITAL AND RESERVE AND SURPLUSE AND NO INTEREST OR ANY OTHER EXPENDITURE WAS INCURRED TOWARDS THE INVESTMENT IN BONDS. THE ASSESSING OFFICER DID NOT AGREE WITH THE CONTENTION OF THE ASSESSEE AND ACCORDING TO HIM THE ASSESSEE MUST HAVE INCURRED CERTAIN EXPENSES LIKE INTEREST PAID AND SALARY AND ALLOWANCES TO STAFF IN ORDER TO EARN THE TAX - FREE INCOME. IN THE ASSESSMENT COMPLET ED UNDER SECTION 143(3) OF THE A CT ON 28/03/2013, THE ASSESSING OFFICER THOUGH DID NOT INVOKE RULE 8D OF INCOME TAX R ULES, BUT HE MAD E DISALLOWANCE AMOUNTING TO RS. 15,11,370/ - TOWARDS EXPENSES TO EARN TAX - FREE INTEREST I NCOME UNDER SECTION 14A OF THE A CT. THE LD. CIT(A) DIRECTED THE ASSESSING OFFICER TO RE - COMPUTE THE DISALLOWANCE UNDER CLAUSE (II) AND (III) OF R ULE 8D BY COMPUTING THE AMOUNT OF DISALLOWANCE OF ON AVERAGE INVESTMENT OF RS. 3 CRORE. AGGRIEVED, THE ASSESSEE IS IN APPEAL BEFORE THE T RIBUNAL RAISING THE GROUNDS A S REPRODUCED ABOVE. 3. IN THE GROUNDS RAISED, THE ASSESSEE IS AGGRIEVED WITH THE DISALLOWANCE UNDER SECT ION 1 4A OF THE A CT BY THE LOWER AUTHORITIES. 4. THE LD. COUNSEL OF THE ASSESSEE SUBMITTED TH AT IN ASSESSMENT YEAR 2011 - 12 I N IDENTICAL SET OF CIRCUMSTANCES , THE T RIBUNAL IN THE CASE OF THE ASSESSEE ITSELF IN ITA NO. 5508/DEL/2015 HAS DELETED THE DISALLOWANCE AN D, THUS , THE DISALLOWANCE IN THE YEAR UNDER CONSIDERATION ALSO DESERVE TO BE DELETED. 4 4. ON THE CONTRARY, THE LD. SR. DR RELIED ON THE ORDER OF THE LOWER AUTHORITIES. 5. WE HAVE HEARD THE RIVAL SUBMISSION AND PERUSED THE RELEVANT MATERIAL ON RECORD. IN THE ASSESSMENT YEAR 2011 - 12, ALSO THE ASSESSING OFFICER DISALLOWED THE EXPENDITURE TOWARDS EARNING THE TAX - FREE INTEREST INCOME FROM INVESTMENT IN BONDS. THE T RIBUNAL IN ITA NO. 5508/DEL/2015 IN THE CASE OF THE ASSESSEE, DELETED THE DISALLOWANCE WITH FOLLOWIN G OBSERVATIONS: 5. AFTER HEARING BOTH THE PARTIES AND PERUSING THE MATERIAL AVAILABLE ON RECORD, WE FIND THAT THE APPELLANT HAS NOT MADE ANY FRESH INVESTMENT DURING THE YEAR. HE HAS RECEIVED INTEREST ONLY ON THE INVESTMENTS MADE IN EARLIER YEARS. THE APP ELLANT IS ENGAGED IN THE BANKING BUSINESS ACTIVITIES. THE INVESTMENTS HELD BY THE BANKING CONCERNS ARE TREATED AS A PART OF ITS BUSINESS INCOME. THEREFORE, INCOME ARISING FROM SUCH INVESTMENTS IS TREATED AS PART OF BUSINESS INCOME FALLING UNDER THE HEAD PR OFIT AND GAINS OF BUSINESS. THE APPELLANT CONTENDED THAT NO EXPENDITURE WAS INCURRED FOR EARNING ABOVE EXEMPT INCOME WHICH DOES NOT FORM PART OF THE TOTAL INCOME. THE ASSESSING OFFICER HAS DISALLOWED TOTAL EXEMPTED INTEREST EARNED WITHOUT ANY BASIS. IT IS UNDISPUTED FACT THAT THE ASSESSEE COMPANY HAS EARNED TAX EXEMPT INCOME. THE PROVISIONS OF SECTION 14A STATES THAT NO DEDUCTION 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. THE AO HAS NOT GIVEN ANY FINDING AS TO HOW THE CLAIM OF THE ASSESSEE BANK THAT NO EXPENDITURE WAS INCURRED TO EARN EXEMPT INCOME WAS INCORRECT. FURTHERMORE, IT IS UNDISPUTED FACT THAT EXEMPT INCOME IS EARNED FROM SECURITIES, WHICH WER E INVESTED IN THE EARLIER YEARS. NO ANY FRESH INVESTMENTS HAVE BEEN MADE. THE CASE LAWS RELIED BY THE ASSESSEE ARE SQUARELY APPLICABLE TO THE PRESENT CASE. IN VIEW OF THE ABOVE, THE APPEAL OF THE ASSESSEE IS FOUND TO HAVE MERIT AND DESERVES TO BE ALLOWED. 5 6. S INCE IN THE YEAR UNDER CONSIDERATION ALSO THE ASSESSEE HAS EARNED INTEREST INCOME FROM THE SAME INVESTMENTS, RESPECTFULL Y FOLLOWING THE FINDING OF THE T RIBUNAL, WE DIRECT THE ASSESSING OFFICER TO DELETE THE DISALLOWANCES UNDER SECTION 14A OF THE A CT AND ACCORDINGLY , ALLOW THE GROUNDS OF THE APPEAL. 7. IN THE RESULT, APPEAL OF THE ASSESSEE IS ALLOWED. THE DECISION IS PRONOUN CED IN THE OPEN COURT ON 1 6 T H MARCH . , 201 8 . S D / - S D / - ( BHAVNESH SAINI ) ( O.P. KANT ) JUDICIAL MEMBER ACCOUNTANT MEMBER DATED: 1 6 T H MARCH , 201 8 . RK / - (D.T.D) COPY FORWARDED TO: 1 . APPELLANT 2 . RESPONDENT 3 . CIT 4 . CIT(A) 5 . DR ASST. REGISTRAR, ITAT, NEW DELHI