Shriram Investments, CHENNAI V. ACIT, CHENNAI

ITA 778/CHNY/2012

• Counselvise Citation: [2013] 120 COUNSELVISE.COM (IT) 0937 (ITAT-CHENNAI)
• Duration Of Justice: 9 month(s) 22 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 04-02-2013
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: B
• Next Hearing Date: 13-12-2012
• Assessment Year: 2008-2009
• Appeal Filed On: 12-04-2012
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: GURU BASHYAM IRS
• Assessee Lawyers: R SIVARAMAN
• Keywords: Earning of tax free income
• Section: 14A

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL B BENCH, CHENNAI BEFORE DR. O.K. NARAYANAN, VICE-PRESIDENT AND SHRI V.DURGA RAO, JUDICIAL MEMBER I.T.A.NO. 778/MDS/2012 ASSESSMENT YEAR : 2008-09 SHRIRAM INVESTMENTS, MOOKAMBIKA COMPLEX, NO.4, DESIKA ROAD,MYLAPORE, CHENNAI 600 004. PAN AAAFS2590M VS. THE ASSISTANT COMMISSIONER OF INCOME-TAX, CIRCLE-II, CHENNAI-34. (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI R. SIVARAMAN, ADVOCAT E RESPONDENT BY : SHRI GURU BASHYAM, IRS, J CIT DATE OF HEARING : 13 TH DECEMBER, 2012 DATE OF PRONOUNCEMENT : 4 TH FEBRUARY, 2013 O R D E R PER DR. O.K. NARAYANAN, VICE-PRESIDENT THIS APPEAL IS FILED BY THE ASSESSEE. THE RELEVANT ASSESSMENT YEAR IS 2008-09. THE APPEAL IS DIREC TED AGAINST THE ORDER OF THE COMMISSIONER OF INCOME-TAX(APPEALS)-VI AT CHENNAI, DATED 27.01.2012 AND ARISES OUT OF THE ASSESSMENT COMPLETED UNDER SEC.143(3) OF THE INCOME-TAX ACT, 1961. ITA 778/12 :- 2 -: 2. THE ASSESSEE IS A PARTNERSHIP FIRM ENGAGED IN FI NANCING AND INVESTMENTS. THE ASSESSEE FILED ITS RETURN OF INCOME FOR THE IMPUGNED ASSESSMENT YEAR, DECLARING NIL INCOME. TH E RETURN WAS SELECTED FOR SCRUTINY ASSESSMENT. THE ASSESSIN G OFFICER COMPLETED THE ASSESSMENT UNDER SEC.143(3) BY DISALL OWING THE INTEREST PAYMENT TO THE EXTENT OF ` 54,73,264/-. THE DISALLOWANCE HAS BEEN MADE BY THE ASSESSING OFFICER UNDER SEC.14 A ON THE GROUND THAT THE EXPENDITURE WAS INCURRED TOWARDS EA RNING INCOME EXEMPT FROM TAXATION. THUS, THE NIL INCOME RETURNE D BY THE ASSESSEE FIRM WAS CONVERTED INTO INCOME OF ` 31,14,999/-. 3. IN THE PREVIOUS YEAR RELEVANT TO THE ASSESSMENT YEAR UNDER APPEAL, THE ASSESSEE HAS CLAIMED AN INTEREST EXPEND ITURE OF ` 2,89,91,190/-. THE ASSESSING OFFICER HELD THAT THE CORRESPONDING INCOME OF THE ASSESSEE WAS CLAIMED AS EXEMPT FROM TAX, BEING DIVIDEND INCOME EARNED OUT OF INVES TMENTS. THE ASSESSING OFFICER APPLIED RULE 8D READ WITH SEC.14A , AND WORKED OUT THE DISALLOWANCE OF ` 54,73,264/-. THIS HAS BEEN CONFIRMED BY THE COMMISSIONER OF INCOME-TAX(APPEALS). THE AS SESSEE IS AGGRIEVED AND THEREFORE, THE SECOND APPEAL BEFORE T HE TRIBUNAL. ITA 778/12 :- 3 -: 4. THE GROUNDS RAISED BY THE ASSESSEE IN THE PRESEN T APPEAL READ AS BELOW : 1. THE ORDER OF CIT(A) CONFIRMING THE DISALLOWANC E MADE U/S 14A OF THE INCOME TAX ACT, 1961 READ WITH RULE 8D OF THE INCOME TAX RULES 1962 IS AGAINST LAW AND FACTS OF THE CASE. 2. THE LEARNED CIT(A) ERRED IN CONFIRMING THE DISALLOWANCE MADE OF ` 54,73,264 U/S 14A OF THE ACT, 1961 READ WITH RULE 8D OF INCOME TAX RULES 1962. 3. THE LEARNED CIT(A) OUGHT TO HAVE APPRECIATED TH AT NO DISALLOWANCE U/S 14A IS ATTRACTED IN THE APPELLA NTS CASE IN THE LIGHT OF THE HONBLE INCOME TAX APPELLA TE TRIBUNAL, A BENCH, CHENNAI DECISION IN THE CASE O F SIVA INDUSTRIES AND HOLDINGS LIMITED (46 SOT 112- CHENNAI URO). 4. THE LEARNED CIT(A) OUGHT TO HAVE APPRECIATED TH AT THE INVESTMENTS IN THE SHARES OF SHRIRAM TRANSPORT FINANCE COMPANY LIMITED HAD BEEN MADE MORE THAN 15 YEARS PRIOR TO THE ASSESSMENT YEAR IN QUESTION A ND OUT OF OWN FUNDS. 5. THE LEARNED CIT(A) ERRED IN COMPUTING THE NET OWNED FUNDS OF THE FIRM AT A NEGATIVE FIGURE. HE H AD TAKEN THE LOSSES OF THE FIRM TWICE AND HE ERRED IN PRESUMING THAT LOANS TO PARTNERS CARRIED NO INTERES T. ITA 778/12 :- 4 -: 6. THE LEARNED CIT(A) ERRED IN OBSERVING THAT THE INTEREST ATTRIBUTABLE TO INVESTMENT ARE NOT ALLOWAB LE U/S 36(1)(III) OR U/S 37. 5. THERE IS A DELAY OF TWO DAYS IN FILING THE PRESE NT APPEAL. THE DELAY IS CONDONED IN VIEW OF THE EXPLANATIONS O FFERED BY THE ASSESSEE IN THE CONDONATION PETITION FILED ALONG WI TH A SWORN AFFIDAVIT. 6. IT IS THE CASE OF THE ASSESSEE THAT THE ASSESSEE DID NOT HAVE ANY TAXABLE INCOME DURING THE IMPUGNED ASSESSM ENT YEAR AND HENCE SEC.14A IS NOT APPLICABLE. THE ASSESSEE PLACED RELIANCE ON THE DECISION OF INCOME-TAX APPELLATE TR IBUNAL, CHENNAI A BENCH IN THE CASE OF SIVA INDUSTRIES & HOLDINGS V. CIT REPORTED IN 46 SOT 112(CHENNAI)URO)11. IN THA T CASE, ACCORDING TO THE REVENUE, THE ASSESSEE HAD INVESTED IN SHARES BY USING BORROWED FUNDS AND, THEREFORE, THE EXPENDI TURE IN THE FORM OF INTEREST ON BORROWALS WAS LIABLE TO BE DISA LLOWED UNDER SEC.14A. BUT, THE TRIBUNAL HELD THAT NONE OF THE INVESTMENTS MADE BY THE ASSESSEE HAD GENERATED ANY DIVIDEND INC OME DURING THE PREVIOUS YEAR AND NO SUCH INCOME FORMED PART OF THE TOTAL INCOME AND HENCE THERE IS NO JUSTIFICATION IN MAKIN G A DISALLOWANCE UNDER SEC.14A. ITA 778/12 :- 5 -: 7. THE CASE IN HAND, IS SQUARELY COVERED BY THE SAI D DECISION OF THE TRIBUNAL RENDERED IN THE CASE OF SIVA INDUST RIES & HOLDINGS V. CIT REPORTED IN 46 SOT 112(CHENNAI)(URO)/11. IN THE PRESENT CASE ALSO, THE ASSESSEE HAD NOT EARNED ANY INCOME B Y WAY OF DIVIDEND. WITHOUT ANY SUCH INCOME HAVING BEEN EARN ED BY THE ASSESSEE, NO PART OF THE EXPENDITURE CAN BE ATTRIBU TED TO EXEMPT INCOME. 8. FOLLOWING THE ABOVE DECISION OF THE CO-ORDINATE BENCH, WE HOLD THAT THE LOWER AUTHORITIES HAVE ERRED IN CONFI RMING THE DISALLOWANCE OF ` 54,73,264/- OUT OF THE INTEREST EXPENDITURE CLAIMED BY THE ASSESSEE. 9. IN RESULT, THIS APPEAL FILED BY THE ASSESSEE IS ALLOWED. ORDER PRONOUNCED ON MONDAY , THE 4 TH OF FEBRUARY, 2013 AT CHENNAI. SD/- SD/- (V. DURGA RAO) (DR.O.K.NARAYANAN) JUDICIAL MEMBER VICE-PRESIDENT CHENNAI, DATED THE 4 TH FEBRUARY, 2013 MPO* COPY TO : APPELLANT/RESPONDENT/CIT/CIT(A)/DR