Inter Continental Infrastructure Ltd., Hyd, Hyderabad V. DCIT, Circle-2(1), Hyderabad, Hyderabad

ITA 731/HYD/2015

• Counselvise Citation: [2016] 131 COUNSELVISE.COM (IT) 6353 (ITAT-HYDERABAD)
• Duration Of Justice: 1 year(s) 2 month(s) 7 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 05-08-2016
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: A
• Next Hearing Date: 17-05-2016
• Assessment Year: 2010-2011
• Appeal Filed On: 29-05-2015
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: D SRINIVAS
• Assessee Lawyers: V RAGHAVENDRA RAO
• Keywords: Opportunity of being heard; Earning of tax free income; Assessment record; Prejudicial to interest
• Section: 143(3); 142(1); 14A; 263

Judgement Text

ITA 731 OF 2015 INTERCONTINENTAL INFRASTRUCTURE LTD HYDERABAD PAGE 1 OF 6 IN THE INCOME TAX APPELLATE TRIBUNAL HYDERABAD A BENCH, HYDERABAD BEFORE SMT. P.MADHAVI DEVI, JUDICIAL MEMBER & SHRI S. RIFAUR RAHMAN, ACCOUNTANT MEMBER ITA NO.731/HYD/2015 ( ASSESSMENT YEAR: 2010-11 ) INTERCONTINENTAL INFRASTRUCTURE LTD HYDERABAD PAN: AABCI 1167 J VS. DY. COMMISSIONER OF INCOME TAX, CIRCLE 2(1) HYDERABAD (APPELLANT) (RESPONDENT) FOR ASSESSEE : SHRI V. RAGHAVENDRA RAO FOR REVENUE : SHRI D. SRINIVAS, DR DATE OF HEARING : 17.05.2016 DAT E OF PRONOUNCEMENT : 05 .08.2016 O R D E R PER SMT. P. MADHAVI DEVI, J.M. THIS IS ASSESSEES APPEAL FOR THE A.Y 2010-11. IN T HIS APPEAL, THE ASSESSEE IS AGGRIEVED BY THE ORDER OF T HE CIT U/S 263 OF THE I.T. ACT, DATED 27.03.2015. THE ASSESSEE HAS ALSO FILED ADDITIONAL GROUNDS OF APPEAL AND HAS FILED AN APPLI CATION FOR ADMISSION OF THE SAME. 2. BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE CO MPANY, FILED ITS RETURN OF INCOME FOR THE RELEVANT A.Y ON 20.09. 10 ADMITTING TOTAL INCOME OF RS.9,06,20,465. DURING THE ASSESSME NT PROCEEDINGS U/S 143(3) OF THE ACT, THE AO CALLED FO R VARIOUS DETAILS AND THE ASSESSEES REPRESENTATIVE APPEARED FROM TIME TO TIME AND PRODUCED THE INFORMATION CALLED FOR. AFTER VERIFICATION OF ITA 731 OF 2015 INTERCONTINENTAL INFRASTRUCTURE LTD HYDERABAD PAGE 2 OF 6 THE DETAILS RECEIVED, THE AO COMPLETED THE ASSESSME NT ACCEPTING THE INCOME RETURNED BY THE ASSESSEE COMPANY. SUBSEQ UENTLY THE CIT, EXERCISING THE POWERS U/S 263 OF THE I.T. ACT, PERUSED THE ASSESSMENT RECORDS. HE OBSERVED THAT THE ASSESSMENT ORDER IS ERRONEOUS IN SO FAR AS IT IS PREJUDICIAL TO THE INT ERESTS OF THE REVENUE. HE, THEREFORE, ISSUED A SHOW CAUSE NOTICE DATED 5.11.2014 U/S 263 OF THE ACT. THE ERROR AS POINTED OUT IN A NOTICE ARE REPRODUCED HEREUNDER: ON PERUSAL OF THE ASSESSMENT RECORD, IT IS NOTICE D THAT THE ASSESSEE COMPANY CLAIMED EXEMPTION U/S 10(34) A N AMOUNT OF RS.4,48,872 BEING DIVIDEND ON SHARES. HOWEVER, IT IS SEEN THAT NO DISALLOWANCE U/S 14A OF THE ACT HAS BEEN MADE IN RESPECT OF EXPENDITURE ATTRIBU TABLE TO SUCH DIVIDEND INCOME NOT INCLUDED IN THE TAX. IF RULE 8D IS APPLIED, THE DISALLOWANCE WORKS OUT TO RS.27,42,803 WHICH IS GIVEN HEREUNDER: A EXPENDITURE DIRECTLY RELATED TO THE EXEMPTED INCOME NOT QUANTIFIABLE B AMOUNT OFG EXPENDITURE BY WAY OF INTEREST OTHER THAN THAT INCLUDED IN A (VEHICLE HIRE CHARGES NOT INCLUDED) RS. 62,51,218 C THE AVERAGE VALUE OF INVESTMENTS FROM WHICH INCOME NOT INCLUDED (RS.31,86,05,369+361785500/2) RS.34,01,95,434 D AVERAGE OF TOTAL ASSETS (AS POER BALANCE SHEET- SCH. 4+5+6+7+8+9 OF BOTH THE YEARS VIZ.2009-10 AND 2010-11 DIVIDED BY 2) RS.77,53,51,094 THE DISALLOWANCE U/S 14A (RS.6251218 ASSESSEE 340195434/775351094)= RS.27,42,803 3. IN REPLY TO THE ABOVE NOTICE, THE ASSESSEES REP RESENTATIVE APPEARED AND FURNISHED WRITTEN SUBMISSIONS STATING THAT THE ASSESSMENT RECORDS DO NOT JUSTIFY THE ASSUMPTION OF THE SUPERVISORY JURISDICTION BY THE CIT. IT WAS ALSO AR GUED THAT THE ASSESSMENT WAS COMPLETED IN ACCORDANCE WITH THE LAW AND THEREFORE, BOTH THE CONDITIONS I.E. ASSESSMENT ORDE R BEING ITA 731 OF 2015 INTERCONTINENTAL INFRASTRUCTURE LTD HYDERABAD PAGE 3 OF 6 ERRONEOUS AND PREJUDICIAL TO THE INTERESTS OF THE R EVENUE ARE NOT SATISFIED. THE CIT, HOWEVER, HELD THAT THE DIVIDEND EARNED BY THE ASSESSEE ON MUTUAL FUNDS AND SHARES IS EXEMPT I NCOME AND THEREFORE, THE INTEREST DEBITED AGAINST THE ICD LOA NS TAKEN FOR THE INVESTMENT IN SUCH FUNDS AND SHARES IS REQUIRED TO BE DISALLOWED U/S 14A R.W. RULE 8D OF THE I.T. RULES. HE, THUS, H ELD THAT THE INITIATION OF THE PROCEEDINGS U/S 263 WAS CORRECT. THE ASSESSEE APPEARED ON 18.03.2015 AND EXPLAINED THAT THOUGH, I NITIALLY THE ICD LOAN FUNDS WERE UTILISED FOR INVESTMENT IN MUTU AL FUND, SUBSEQUENTLY THE MUTUAL FUNDS WERE REDEEMED AND UTI LISED FOR THE PURPOSE OF BUSINESS TO REPAY THE SHARE APPLICAT ION MONEY. THE STATEMENT SHOWING THE DATES OF INVESTMENT IN MU TUAL FUND, DATES OF THEIR REDEMPTION AND THEIR SUBSEQUENT UTIL IZATION FOR REPAYMENT OF SHARE APPLICATION MONEY WAS ALSO FURNI SHED. IT WAS STATED THAT THOUGH THE BORROWED FUND WAS UTILISED F OR INVESTMENT IN MUTUAL FUND AND INVESTMENTS IN M/S. DANS ENERGY PRIVATE LIMITED FOR A SHORT PERIOD, THE SAME WAS SUBSEQUENT LY UTILISED FOR BUSINESS PURPOSES AND THEREFORE, THE PROPORTION ATE INTEREST ONLY CAN BE DISALLOWED U/S 14A OF THE ACT. ASSESSEE FURNISHED A STATEMENT REGARDING THE INTEREST RELATABLE TO THE F UNDS FOR THE PERIOD HELD IN MUTUAL FUNDS AND THEREAFTER IN INVES TMENTS. AFTER CONSIDERING THE SAME, THE CIT OBSERVED THAT IT IS E STABLISHED THAT THERE IS A DIRECT NEXUS BETWEEN THE ICD LOAN AND TH E INVESTMENTS IN SBI MUTUAL FUND AND THEREFORE, THE D IVIDEND EARNED ON MUTUAL FUND AND SHARES BEING EXEMPT INCOM E, THE INTEREST DEBITED AGAINST THE ICD LOAN IS REQUIRED T O BE DISALLOWED U/S 14A R.W. RULE 8D. SO HOLDING, THE CIT SET ASIDE THE ASSESSMENT ORDER AND DIRECTED THE AO TO CALCULATE T HE DISALLOWANCE U/S 14A R.W.RULE 8D AFTER PROPER EXAMI NATION OF ITA 731 OF 2015 INTERCONTINENTAL INFRASTRUCTURE LTD HYDERABAD PAGE 4 OF 6 THE LOAN AND THE INVESTMENT AND AFTER ALLOWING DUE OPPORTUNITY OF BEING HEARD TO THE ASSESSEE. AGAINST THIS REVISI ON ORDER, THE ASSESSEE IS IN APPEAL BEFORE US. 4. THE LEARNED COUNSEL FOR THE ASSESSEE SUBMITTED T HAT DURING THE ASSESSMENT PROCEEDINGS U/S 143(3) OF THE ACT, T HE AO HAD CALLED FOR VARIOUS DETAILS FROM THE ASSESSEE. HE DR EW OUR ATTENTION TO PAGES NO.39 TO 43 OF THE PAPER BOOK FI LED BY THE ASSESSEE WHICH IS THE COPY OF THE ASSESSEES REPLY TO THE NOTICE U/S 142(1) AND 143(2) OF THE I.T. ACT. ACCORDING TO THE LEARNED COUNSEL FOR THE ASSESSEE, SINCE THE AO HAS CALLED F OR VARIOUS DETAILS, IT IS TO BE PRESUMED THAT THE AO HAS CONSI DERED ALL THE RELEVANT ISSUES BEFORE COMPLETION OF THE ASSESSMENT AND THEREFORE, IS PRESUMED TO HAVE TAKEN ONE OF THE POS SIBLE VIEWS BY NOT MAKING ANY DISALLOWANCE U/S 14A OF THE ACT. THU S, ACCORDING TO HIM, THE ASSESSMENT ORDER CANNOT BE TERMED AS ER RONEOUS AND PREJUDICIAL TO THE INTERESTS OF THE REVENUE. HE HAS ALSO DRAWN OUR ATTENTIN TO THE PAGES 7 TO 9 OF THE PAPER BOOK WHICH IS THE NOTICE OF THE CIT U/S 263 OF THE I.T. ACT, WHEREIN THE DETAILS OF THE INVESTMENTS MADE BY THE ASSESSEE ARE FURNISHED IN THE TABLE. HE SUBMITTED THAT THESE DETAILS WERE TAKEN BY THE C IT FROM THE STATEMENT FURNISHED BY THE ASSESSEE AND THEREFORE, ALL THE MATERIALS WAS BEFORE THE AO AND THE PRESUMPTION DRA WN ABOVE IS JUSTIFIED. THE LEARNED COUNSEL FOR THE ASSESSEE ALT ERNATIVELY SUBMITTED THAT THE INTEREST BEARING FUND, THOUGH, W AS UTILISED FOR MAKING INVESTMENT IN MUTUAL FUNDS, THEY WERE LIMITE D TO ONLY A SHOFT DURATION AFTER WHICH THE MUTUAL FUNDS WERE RE DEEMED AND THE FUNDS WERE UTILISED FOR THE PURPOSE OF ASSESSEE S BUSINESS. THEREFORE, ACCORDING TO HIM, ONLY PROPORTIONATE INT EREST SHOULD ITA 731 OF 2015 INTERCONTINENTAL INFRASTRUCTURE LTD HYDERABAD PAGE 5 OF 6 BE DISALLOWED AND NOT THE ENTIRE INTEREST PAID BY T HE ASSESSEE. WITHOUT PREJUDICE TO THE ABOVE, THE LEARNED COUNSEL FOR THE ASSESSEE ALSO MADE AN ALTERNATE PRAYER THAT THE DIS ALLOWANCE U/S 14A SHOULD BE RESTRICTED TO THE EXEMPT INCOME. THE LEARNED DR, HOWEVER, SUPPORTED THE ORDERS OF THE AUTHORITIES BE LOW. 5. HAVING REGARD TO THE RIVAL CONTENTIONS AND THE M ATERIAL ON RECORD, WE FIND THAT THE ASSESSEE HAS FILED ITS REP LIES TO THE NOTICES ISSUED U/S 142(1) AND 143(2) OF THE ACT AND ON PERUSAL OF THE SAME, WE DO NOT FIND ANY REFERENCE TO THE DISAL LOWANCE U/S 14A OF THE ACT. THEREFORE, THE PRESUMPTION DRAWN BY THE ASSESSEE THAT THE AO HAS CONSIDERED AND HAS TAKEN O NE OF THE POSSIBLE VIEWS OF THE ISSUE CANNOT BE ACCEPTED. THO UGH IT MAY BE CORRECT THAT THE DETAILS REPRODUCED BY THE CIT IN T HE ORDER ARE CULLED OUT FROM THE INFORMATION FURNISHED BY THE AS SESSEE, SINCE THE AO HAS NOT CONSIDERED THE SAME, THE ASSESSMENT ORDER IS ERRONEOUS. UNDER THE PROVISIONS OF SECTION 14A OF T HE I.T ACT, EXPENDITURE INCURRED FOR EARNING OF EXEMPT INCOME I S TO BE DISALLOWED. UNDISPUTEDLY THE INTEREST BEARING FUND S WERE UTILISED FOR THE INVESTMENT IN MUTUAL FUND, THE DIV IDEND INCOME FROM WHICH IS EXEMPT FROM TAX. THEREFORE, THE INTER EST EXPENDITURE INCURRED FOR EARNING OF THE DIVIDEND IN COME IS TO BE DISALLOWED U/S 14A R.W. RULE 8D. THEREFORE, THE ASS ESSMENT ORDER IS ALSO CLEARLY PREJUDICIAL TO INTERESTS OF T HE REVENUE. THUS, WE UPHOLD THE ORDER OF THE CIT U/S 263 OF THE ACT, BUT WE ALSO FIND STRENGTH IN THE ARGUMENT OF THE ASSESSEE THAT SINCE THE INTEREST BEARING FUND WAS UTILISED FOR INVESTMENT I N MUTUAL FUNDS FOR A VERY SHORT PERIOD, THE PROPORTIONATE IN TEREST ONLY SHOULD BE DISALLOWED AND THE DISALLOWANCE SHOULD AL SO NOT ITA 731 OF 2015 INTERCONTINENTAL INFRASTRUCTURE LTD HYDERABAD PAGE 6 OF 6 EXCEED THE EXEMPT INCOME EARNED BY THE ASSESSEE. IN VIEW OF THE SAME, WE DIRECT THE AO TO CONSIDER AND VERIFY THESE CONTENTIONS OF THE ASSESSEE BEFORE COMPLETING THE ASSESSMENT CO NSEQUENT TO THE ORDER U/S 263 OF THE ACT. 6. IN THE RESULT, APPEAL OF THE ASSESSEE IS TREATED AS ALLOWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED IN THE OPEN COURT ON 5 TH AUGUST, 2016. S D/ - S D/ - (S.RIFAUR RAHMAN) (P. MADHAVI DEVI) ACCOUNTANT MEMBER JUDICIAL MEMBER HYDERABAD, DATED 5 TH AUGUST, 2016. VNODAN/SPS COPY TO: 1. P.R. DATLA & CO, CAS, 6-3-788/A/9, 1 ST FLOOR, DURGA NAGAR, AMEERPET, HYDERABAD 500016 2. DY. COMMISSIONER OF INCOME TAX, CIRCLE 2(1) 8 TH FLOOR, B BLOCK, IT TOWERS, AC GUARDS, HYDERABAD 3. PR.CIT-II, HYDERABAD 4. ADD. CIT, RANGE-2 HYDERABAD 5. THE DR, ITAT, HYDERABAD 6. GUARD FILE BY ORDER