Bajaj Resources Limited, Hyd, V. DCIT, Circle-1(2), Hyderabad, Hyderabad

ITA 768/HYD/2017

• Counselvise Citation: [2017] 127 COUNSELVISE.COM (IT) 2276 (ITAT-HYDERABAD)
• Duration Of Justice: 7 month(s) 18 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 22-12-2017
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: B
• Assessment Year: 2012-2013
• Appeal Filed On: 04-05-2017
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: RAJ EEV RANKA
• Keywords: Earning of tax free income
• Section: 143(3); 14A; 263

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL HYDERABAD BENCHES B, HYDERABAD BEFORE SHRI D. MANMOHAN, VICE PRESIDENT AND SHRI B. RAMAKOTAIAH, ACCOUNTANT MEMBER I.T.A. NO. 768/HYD/2017 ASSESSMENT YEAR: 2012-13 BAJAJ RESOURCES LIMITED, HYDERABAD [PAN: AAACD8001D] VS DY. COMMISSIONER OF INCOME TAX, CIRCLE-1(2), HYDERABAD (APPELLANT) (RESPONDENT) FOR ASSESSEE : SHRI SANDEEP JHANWAR, AR FOR REVENUE : SHRI RAJEEV RANKA, DR DATE OF HEARING : 11-12-2017 DATE OF PRONOUNCEMENT : 22-12-2017 O R D E R PER B. RAMAKOTAIAH, A.M. : THIS IS AN APPEAL BY ASSESSEE AGAINST THE ORDER OF TH E PRINCIPAL COMMISSIONER OF INCOME TAX-1, HYDERABAD U /S. 263 OF THE INCOME TAX ACT [ACT] DIRECTING THE ASSESSING OFFICE R (AO) TO MAKE CERTAIN DISALLOWANCES U/S. 14A OF THE ACT. ASS ESSEE IS CONTESTING THE ORDER AND RAISED THE FOLLOWING GROUNDS: 1. UNDER THE FACTS AND CIRCUMSTANCES OF THE CASE, THE LD. PRINCIPAL COMMISSIONER OF INCOME TAX-I, HYDERABAD HAS ERRED I N LAW AND FACTS IN PASSING THE ORDER U/S. 263 OF THE INCOME TAX ACT, 1 961 DATED 28.03.2017 AND TREATING THE ASSESSMENT ORDER PASSED BY DY. COM MISSIONER OF INCOME TAX, CIRCLE-1(2), HYDERABAD U/S. 143(3) DATED 24.02 .2015 AS ERRONEOUS AND PREJUDICIAL TO THE INTEREST OF REVENUE. I.T.A. NO. 768/HYD/2017 :- 2 - : 2. UNDER THE FACTS AND CIRCUMSTANCES OF THE CASE, T HE LD. PRINCIPAL COMMISSIONER OF INCOME TAX-I, HYDERABAD HAS ERRED I N DIRECTING THE LD.AO TO MAKE DISALLOWANCE OF RS. 1,14,69,684/- U/S. 14A IN RESPECT OF EXEMPT DIVIDEND INCOME OF RS. 77,02,77,782/- EARNED BY THE ASSESSEE. THE SAID DISALLOWANCE IS BAD IN LAW AND ON FACTS OF THE CASE AS NO EXPENSES HAVE BEEN INCURRED BY THE ASSESSEE FOR EARNING THE SAID DIVIDEND INCOME. 2. BRIEFLY STATED, ASSESSEE HAS EARNED A DIVIDEND INC OME OF RS. 77,02,77,782/- AND CLAIMED EXEMPTION. LD.CIT WAS OF THE OPINION THAT THERE ARE NON-CURRENT INVESTMENTS AS ON 31-03-2011 TO THE EXTENT OF RS. 3322.51 LAKHS AND AS ON 31-03-2012, RS . 38,840.24 LAKHS. SINCE THE RESERVES AND SURPLUS ARE ONLY RS. 11,347.59 LAKHS, HE WAS OF THE OPINION THAT ASSESSEE WOULD HAVE DIVERTED ITS BORROWED FUNDS FOR INVESTMENTS ON WHICH EXEMPT INCOME WAS EARNED. BY GIVING SHOW CAUSE NOTICE AND OBTAINING RE PLY FROM ASSESSEE, LD.CIT IN HIS 16 PAGE ORDER HAS CONSIDER ED VARIOUS ASPECTS AND DIRECTED THE AO TO DISALLOW THE EXPENDITURE OF RS. 1,14,69,684/- U/S. 14A. ASSESSEE IS CONTESTING THE SA ME. 3. LD. COUNSEL IN HIS ARGUMENTS REFERRED TO THE DETAILE D SUBMISSIONS MADE BEFORE THE LD.CIT THAT NO PART OF THE BORROWED FUNDS HAVE BEEN DIVERTED AND THERE WAS NO EXPENDITURE INCURRED FOR EARNING DIVIDEND INCOME. HE HAS QUESTIONED THE WO RKING GIVEN BY THE LD.CIT. IT WAS FURTHER SUBMITTED THAT LD.CIT FOLLO WED THE ORDER OF AO IN LATER YEAR VERBATIM,WHICH MATTER IS PEND ING BEFORE THE LD.CIT(A) AND THAT ORDER PASSED BY THE AO U/S. 143 (3) IS THE BASIS FOR THE PRESENT 263 PROCEEDINGS. IT WAS HIS SUB MISSION THAT ON FACTS, THERE IS NO NEED FOR ANY ADDITION/DISALLOWA NCE U/S. 14A OF THE ACT. I.T.A. NO. 768/HYD/2017 :- 3 - : 4. LD.DR, HOWEVER, REITERATED THE ARGUMENTS OF THE CIT IN JUSTIFYING THE DISALLOWANCES. 5. WE HAVE CONSIDERED THE RIVAL CONTENTIONS AND PERUSE D THE ORDER OF PR.CIT-I, HYDERABAD. SINCE THE VERY ISSUE OF ADDITION U/S. 14A WAS PENDING BEFORE THE LD.CIT(A), BASED ON THE F INDINGS OF THE AO IN EARLIER YEAR, WE ARE OF THE OPINION THAT THE PRE SENT ORDER, DIRECTING THE AO TO MAKE DISALLOWANCE U/S. 14A, WITH OUT BEING EXAMINED BY THE AO IN THIS ASSESSMENT YEAR, MAY RESUL T IN PREVENTING LD.CIT(A) TAKING INDEPENDENT DECISION IN TH E APPEAL OF LATER YEAR. SINCE THE FACTS ARE TO BE EXAMINED BEFORE MAKING ANY DISALLOWANCE, WE ARE OF THE OPINION THAT THE DIRECTION OF CIT TO AO IS NOT APPROPRIATE IN THE CIRCUMSTANCES. ACCORDINGLY, WE, WITHOUT GOING TO THE MERITS OF VARIOUS CONTENTIONS BY ASSESSEE, MODIFY THE ORDER OF CIT AND DIRECT THE AO TO EXAMINE THE FACTS AND TO ESTABLISH WHETHER ASSESSEE HAS DIVERTED ANY OF THE B ORROWED FUNDS AND WHETHER THE PROVISIONS OF SECTION 36(1)(III) WILL APPLY AND ALSO GIVE A FINDING WHETHER THERE IS ANY EXPENDITURE INCURR ED BY ASSESSEE IN EARNING THE DIVIDEND INCOME. IN FACT, ASS ESSEE IS IN THE FINANCE BUSINESS, THEREFORE, THERE ARE OTHER EXPENDITU RES ALSO WHICH MAY BE DIRECTLY RELATED TO THE INCOME EARNED WHI CH WAS TAXABLE. THEREFORE, AO SHOULD EXAMINE VARIOUS EXPEND ITURES NECESSARY FOR THAT BUSINESS, BEFORE COMING TO A CONCLU SION WHETHER ANY ADHOC DISALLOWANCE UNDER RULE 8D RWS.14A IS REQ UIRED TO BE MADE. IT IS ALSO FACT THAT AO HAS NOT CONSIDERED DISAL LOWANCE U/S. 14A IN THE ORIGINAL ASSESSMENT, COMPLETED U/S. 143(3) , MAY BE THAT AO HAS ACCEPTED ASSESSEES CONTENTIONS. KEEPING THAT A LSO IN MIND, WE MODIFY THE DIRECTION OF CIT IN PARA 5.3.3, DIRECTIN G THE AO TO EXAMINE THE ISSUE OF DISALLOWANCE U/S. 14A AFRESH. I F ANY I.T.A. NO. 768/HYD/2017 :- 4 - : CONSEQUENTIAL ORDER IS PASSED SUBSEQUENT TO THIS ORDER, THAT STANDS CANCELLED. THE ENTIRE ISSUE OF 14A IS RESTORED TO THE FILE OF AO FOR FRESH EXAMINATION, AFTER GIVING DUE OPPORTUNITY TO ASSESSEE. ASSESSEE IS FREE TO RAISE OBJECTIONS IN THE REVISED PR OCEEDINGS AND ALL ISSUES ARE OPEN FOR CONSIDERATION/CONTEST. ORDERE D ACCORDINGLY. IN THE RESULT, APPEAL IS ALLOWED FOR STATISTICAL PURPOS ES. ORDER PRONOUNCED IN THE OPEN COURT ON 22 ND DECEMBER, 2017 SD/- SD/- (D. MANMOHAN) (B. RAMAKOTAIAH) VICE PRESIDENT ACCOUNTANT MEMB ER HYDERABAD, DATED 22 ND DECEMBER, 2017 TNMM I.T.A. NO. 768/HYD/2017 :- 5 - : COPY TO : 1. BAJAJ RESOURCES LIMITED, C/O. SHRI SANDEEP JHANW AR, M/S. MGB&CO, LLP, B-144A, 1 ST FLOOR, MANGAL MARG, BAPU NAGAR, JAIPUR. 2. THE DY. COMMISSIONER OF INCOME TAX, CIRCLE-1(2), HYDERABAD. 3. PR.CIT-I, HYDERABAD. 4. D.R. ITAT, HYDERABAD. 5. GUARD FILE.