Jupiter Capital P. Ltd., Bangalore V. DCIT, Bangalore

ITA 721/BANG/2014

• Counselvise Citation: [2018] 126 COUNSELVISE.COM (IT) 5693 (ITAT-BANGALORE)
• Duration Of Justice: 3 year(s) 7 month(s) 13 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 05-01-2018
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: A
• Next Hearing Date: 17-08-2017
• Assessment Year: 2006-2007
• Appeal Filed On: 23-05-2014
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: B R RAMESH
• Section: 14A

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL A BENCH : BANGALORE BEFORE SHRI SUNIL KUMAR YADAV, JUDICIAL MEMBER AND SHRI JASON P BOAZ, ACCOUNTANT MEMBER ASSESSEES APPEAL ITA NO. 721/BANG/2014 ASSESSMENT YEAR : 2006-07 M/S. JUPITER CAPITAL (P) LTD., NO. 54, RICHMOND ROAD, BENGALURU-560025. PAN : AABCJ5666R VS. COMMISSIONER OF INCOME TAX, APPEALS-1, BENGALURU. APPELLANT RESPONDENT REVENUES APPEAL ITA NO. 838/BANG/2014 ASSESSMENT YEAR : 2006-07 THE DEPUTY COMMISSIONER OF INCOME TAX, CIRCLE 11(5), BENGALURU. VS. M/S. JUPITER CAPITAL (P) LTD., NO. 54, RICHMOND ROAD, BENGALURU-560025. PAN : AABCJ5666R APPELLANT RESPONDENT ASSESSEE BY : SMT. SHEETAL, ADVOCATE REVENUE BY : SHRI. B. R. RAMESH, JCIT DATE OF HEARING : 03.01.2018 DATE OF PRONOUNCEMENT : 05.01.2018 O R D E R PER SUNIL KUMAR YADAV, JUDICIAL MEMBER THESE CROSS APPEALS ARE PREFERRED BY THE ASSESSEE A S WELL AS THE REVENUE AGAINST THE ORDER OF THE CIT(A), PERTAINING TO THE ASSESSMENT YEAR ITA NOS. 721 & 838/BANG/2014 PAGE 2 OF 5 2006-07 ON COMMON ISSUES. FOR THE SAKE OF REFERENC E, WE EXTRACT THE GROUNDS RAISED IN BOTH THE APPEALS. 2. ITA NO.721/BANG/2014 GROUNDS OF APPEAL 1. THE ASSESSING OFFICER ERRED IN DISALLOWING AN AMOUN T OF RS.44,89,342 BY INVOKING THE PROVISIONS OF SECTION 14A OF THE INCOME TAX ACT. 2. THE ASSESSING OFFICER HAS ERRED IN ASSUMING THAT TH E ENTIRE EXPENDITURE OF THE APPELLANT IS INCURRED IN THE SAME RATIO OF TAX FREE INCOME BEARS TO THE TOTAL INCOME. 3. THE ASSESSING OFFICER SHOULD HAVE APPRECIATED THE F ACT THAT THE TOTAL INCOME INCLUDES EXPENDITURE WHICH HAS NO NEXU S TO EARING TAX FREE INCOME. 4. THE ASSESSING OFFICER SHOULD HAVE APPRECIATED THE F ACT THAT FINANCE CHARGES HAVE BEEN INCURRED FOR LCD AVAILED AND HAS NO LINK OR PROXIMATE CONNECTION OR NEXUS WITH EARNI NG TAX FREE INCOME. 7. THE ASSESSING OFFICER ERRED IN NOT APPRECIATING THE FACT THAT PROVISIONS OF RULE 8D WOULD NOT BE APPLICABLE FOR T HE ASSESSMENT YEAR 2006 -07. 6. FOR THESE OTHER GROUNDS THAT MAY BE URGED AT THE TI ME OF HEARING, THE APPELLANT PRAYS THAT THE HONORABLE BENCH MAY KI NDLY SET ASIDE THE ADDITION OF RS. 44,89,342 MADE BY INVOKING SECTION 14A. ITA NO.838/BANG/2014 GROUNDS OF APPEAL 1. THE ORDER OF THE CIT (A) IS OPPOSED TO LAW AND FACT S AND CIRCUMSTANCES OF THE CASE. 2. THE CIT(A) ERRED IN NOT APPRECIATING THE REASONABLE BASIS OF THE ASSESSING OFFICER FOR MAKING THE DISALLOWANCE AS TH E METHOD WAS CONSISTENT WITH THE FACTS AND CIRCUMSTANCES OF THE CASE. 3. THE CIT(A) ERRED IN ADOPTING HIS OWN FORMULA BY REL YING ON THE DECISION OF THE MUMBAI ITAT IN THE CASE OF DCIT VS TATA ITA NOS. 721 & 838/BANG/2014 PAGE 3 OF 5 INVESTMENT CORPORATION [2008]114 LTD 584 WITHOUT GI VING ANY FINDING AS TO WHY THE METHOD ADOPTED BY THE ASSESSING OFFIC ER IN CALCULATING DISALLOWANCE WAS NOT REASONABLE. 4. FOR THESE AND SUCH OTHER GROUNDS THAT MAY BE URGED AT THE TIME OF HEARING, IT IS HUMBLY PRAYED THAT THE ORDER OF THE CIT(A) BE REVERSED AND THAT OF THE ASSESSING OFFICER BE RESTORED. 5. THE APPELLATE CRAVES LEAVE TO ADD, TO ALTER, TO AME ND OR DELETE ANY OF THE GROUNDS THAT MAYBE URGED AT THE TIME OF HEAR ING OF THE APPEAL. 3. THE CONTROVERSY INVOLVES ON A ISSUE OF DISALLOWA NCE OF EXPENDITURE TO BE MADE INCURRED IN EARNING EXEMPTED INCOME. THE F ACTS IN BRIEF BORNE OUT FROM THE RECORD ARE THAT ASSESSEE HAS EARNED EXEMPT ED INCOME BY WAY OF DIVIDENDS AND DURING THE COURSE OF ASSESSMENT PROCE EDINGS, THE AO HAS INVOKED THE PROVISIONS OF SECTION 14A AND MADE THE DISALLOWANCE. THE DISALLOWANCE WAS QUESTIONED BY THE CIT(A) AND THERE AFTER THE TRIBUNAL VIDE ITS ORDER DATED 04.05.2012 RESTORED THE MATTER TO T HE AO WITH THE DIRECTION TO RECONSIDER THE ISSUE IN ACCORDANCE WITH THE GUIDELI NES LAID DOWN BY THE HONBLE BOMBAY HIGH COURT IN THE CASE OF GODREJ & B OYCE MANUFACTURING CO. CONSEQUENTLY, THE AO HAS PASSED AN ORDER AND M ADE A DISALLOWANCE UNDER SECTION 14A AT RS.80,63,179/-. THIS DISALLOW ANCE WAS CHALLENGED BEFORE THE CIT(A) AND THE CIT(A) RESTRICTED THE DIS ALLOWANCE TO RS.44,89,342/-. 4. AGGRIEVED WITH THE ORDER OF THE CIT(A), THE ASSE SSEE AS WELL AS THE REVENUE PREFERRED AN APPEAL BEFORE THE TRIBUNAL. D URING THE COURSE OF ITA NOS. 721 & 838/BANG/2014 PAGE 4 OF 5 HEARING, THE LEARNED COUNSEL FOR THE ASSESSEE INVIT ED OUR ATTENTION TO THE BALANCE SHEET WITH THE SUBMISSION THAT MOST OF THE EXPENDITURES WERE INCURRED ON PORTFOLIO MANAGEMENT. SINCE THE ASSESS EE HAS MADE THE INVESTMENT OF SURPLUS FUNDS IN SHARES ON WHICH DIVI DEND WAS EARNED, NO DISALLOWANCE IS CALLED FOR UNDER SECTION 14A OF THE ACT. IN SUPPORT OF HIS CONTENTION, HE PLACED THE RELIANCE UPON THE JUDGMEN T OF THE JURISDICTIONAL HIGH COURT IN THE CASE OF CANARA BANK VS. ACIT 52 T AXMANN.COM 162. THE LEARNED DR, ON THE OTHER HAND, CONTENDED THAT S INCE THE ASSESSEE HAS INCURRED CERTAIN EXPENDITURE TO EARN THE DIVIDEND I NCOME, CERTAIN DISALLOWANCE IS REQUIRED TO BE MADE. HE HOWEVER AD MITTED DURING THE COURSE OF HEARING THAT SINCE THE ASSESSMENT YEAR IN VOLVED IS 2006-07, THE PROVISIONS OF RULE 8D WOULD NOT BE APPLIED. BUT IN ANY CASE, REASONABLE DISALLOWANCE IS REQUIRED TO BE MADE. 5. HAVING CAREFULLY EXAMINED THE ORDERS OF AUTHORIT IES BELOW IN THE LIGHT OF RIVAL SUBMISSIONS, WE FIND THAT ASSESSEE HAS CLA IMED THE EXPENDITURES ON PORTFOLIO MANAGEMENT AT RS.42,93,566/-. IT IS NOT CLEAR FROM THE DETAILS AVAILABLE THAT HOW MUCH EXPENDITURE IS DIRECTLY OR INDIRECTLY RELATED TO THE INVESTMENT ON WHICH EXEMPTED INCOME WAS EARNED. DU RING THE COURSE OF HEARING, BOTH THE PARTIES HAVE AGREED THAT LET THE MATTER BE SENT BACK TO THE AO TO RE-EXAMINE THE ISSUE AND TO FIND OUT THE DIRE CT OR INDIRECT EXPENDITURE ITA NOS. 721 & 838/BANG/2014 PAGE 5 OF 5 INCURRED TOWARDS THE EXEMPTED INCOME. ACCORDINGLY, THE ORDER OF THE CIT(A) IS SET ASIDE AND MATTER IS RESTORED TO THE A O TO READJUDICATE THE ISSUES AS PER LAW AND ALSO TO FIND OUT AS TO HOW MU CH EXPENDITURE IS INCURRED IN EARNING THE EXEMPTED INCOME. 6. IN THE RESULT, APPEALS OF THE ASSESSEE AND REVEN UE ARE ALLOWED FOR STATISTICAL PURPOSES. PRONOUNCED IN THE OPEN COURT ON 05 TH JANUARY, 2018. SD/- SD/- (JASON P. BOAZ) (SUNIL KUMAR YADAV) ACCOUNTANT MEMBER JUDICIAL MEMBER BANGALORE. DATED: 05 TH JANUARY, 2018. /NS/* COPY TO: 1. APPELLANTS 2. RESPONDENT 3. CIT 4. CIT(A) 5. DR, ITAT, BANGALORE. 6. GUARD FILE BY ORDER SR. PRIVATE SECRETARY, ITAT, BANGALORE.