ITO, Trivandrum V. M/s Muthoot Financiers, Trivandrum

ITA 787/COCH/2008

• Counselvise Citation: [2011] 134 COUNSELVISE.COM (IT) 4531 (ITAT-COCHIN)
• Duration Of Justice: 2 year(s) 11 month(s) 26 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 22-06-2011
• Appeal Filed By: Department
• Bench Allotted: DB
• Next Hearing Date: 16-06-2011
• Assessment Year: 2004-2005
• Appeal Filed On: 26-06-2008
• Court: TRIBUNAL
• Department Lawyers: VIJAYAPRABHA
• Assessee Lawyers: R SREENIVASAN CAAR
• Keywords: Earning of tax free income
• Section: 14A

Judgement Text

IN THE INCOME TAX APPELLAT E TRIBUNAL COCHIN BEN CH, COCHIN BEFORE S/SHRI N.VIJAYAKUMARAN, JM AND SANJAY AR ORA, AM I.T.A. NO. 787/COCH/2008 ASSESSMENT YEAR:2004-05 THE I.T.O., WARD-1(2), TRIVANDRUM. VS. M/S. MUTHOOT FINANCIERS (SI), MUTHOOT BUILDINGS, PUNNEN ROAD, TRIVANDRUM. [PAN:AADFM 6220H] (REVENUE -APPELLANT) (ASSESSEE - RESPONDENT) REVENUE BY MS. VIJAYAPRABHA, JR. DR ASSESSEE BY SHRI R.SREENIVASAN, CA-AR O R D E R PER SANJAY ARORA, AM: THIS APPEAL BY THE REVENUE IS DIRECTED AGAINST THE ORDER BY THE COMMISSIONER OF INCOME-TAX (APPEALS)-I, TRIVANDRUM (CIT(A) FOR SH ORT) DATED 18.2.2008, AND THE ASSESSMENT YEAR UNDER REFERENCE IS 2004-05. 2. THE APPEAL RAISES A SINGLE ISSUE, I.E., THE MAIN TAINABILITY OF THE DISALLOWANCE IN THE SUM OF ` 333647/- EFFECTED U/S. 14A OF THE ACT QUA THE DISCLOSED DIVIDEND INCOME OF ` 368283/-, CLAIMED EXEMPT BY THE ASSESSEE. IT WAS, ON BEING SHOW CAUSED IN THE MATTER, EXPLAIN ED BY THE ASSESSEE, A FIRM IN THE BUSINESS OF FINANCING, THAT IT HAD NOT INCURRED ANY EXPENDITURE IN RELATION TO THE EARNING OF THE SAID DIVIDEND INCOME . FURTHER, THE MONEY ITSELF BEING ITS STOCK- IN-TRADE, THE CORRESPONDING INVESTMENT IN SHARES WA S MADE IN THE REGULAR COURSE OF ITS BUSINESS, SO THAT THE SAME ONLY CONSTITUTED ITS TRA DING (BUSINESS) ASSETS, AND THAT THERE WAS NO DIVERSION OF RESOURCES FOR NON-BUSINESS PURPOSES. I N THE VIEW OF THE ASSESSING OFFICER (AO), HOWEVER, THE ASSESSEE WOULD HAVE DEFINITELY INCURRE D SOME EXPENDITURE FOR EARNING THE DIVIDEND INCOME, AS ON MARKET SURVEY, MADE TO ANALY SE AND IDENTIFY THE BEST INVESTMENT OPPORTUNITIES, AND WHICH ENTAILS EXPENDITURE ON MAN POWER, BESIDES OTHER ADMINISTRATIVE EXPENSES. HE, ACCORDINGLY, DISALLOWED THE PROPORTI ONATE EXPENDITURE, I.E., BY APPORTIONING THE ITA NO. 787/COCH/2008 2 TOTAL EXPENDITURE AS CLAIMED ( ` 63.59 LAKHS) IN THE RATIO OF THE EXEMPT INCOME TO T HE GROSS RECEIPTS ( ` 70.19 LAKHS). IN APPEAL, THE SAME STOOD DELETED BY THE CIT(A), FOLLOWING THE DECISIONS BY THE TRIBUNAL, AS IN THE CASE OF CITY CORP. FINANCE LTD . (MUMBAI BENCH C), TO THE EFFECT THAT THE AO WAS U/S. 14A NOT EMPOWERED TO EF FECT A PROPORTIONATE AND ADHOC DISALLOWANCE. 3. WE HAVE HEARD THE PARTIES, AND PERUSED THE MATER IAL ON RECORD. THE REVENUES CASE IS THAT THE INCOME HAVING BEEN CLAIMED EXEMPT, DISALLO WANCE UNDER SECTION 14A WOULD ENSUE, AND FOR WHICH THE AO IS FULLY COMPETENT TO MAKE A R EASONABLE ESTIMATION TOWARD THE SAME. WITH REGARD TO THE JURISDICTIONAL ASPECT, WE CONFIR M THE STAND OF THE REVENUE; THE HONBLE JURISDICTIONAL HIGH COURT HAVING SINCE (VIDE ITS DE CISION IN THE CASE OF CIT V. DHANLAKSHMI BANK LTD. & OTHRS ., IN ITA NO. 1324/COCH/2009 DTD. 21.10.2010) CLARI FIED THAT WHERE SEPARATE ACCOUNTS ARE NOT MAINTAINED BY THE ASSESSEE, THE RE VENUE WOULD BE FULLY JUSTIFIED, I.E., FOR EFFECTING A DISALLOWANCE U/S. 14A, IN MAKING AN EST IMATION OF THE EXPENDITURE INCURRED TOWARD THE EARNING THE EXEMPT INCOME. AS REGARDS THE ESTIM ATION PART, WE FIND SUBSTANCE IN THE ASSESSEES CLAIM OF THE ESTIMATION BEING UNREASLIST IC AND HIGH-PITCHED, THOUGH, ON THE BASIS OF THE LIMITED MATERIAL ON RECORD, WE DO NOT FIND ANY INFIRMITY IN THE METHOD ADOPTED BY THE AO. IN FACT, THIS IS FURTHER REINFORCED BY THE ASSESSEE S ADMISSION AND STAND OF THE INVESTMENT IN SHARES AS REPRESENTING ITS STOCK-IN-TRADE, SO THAT NO DIFFERENCE, I.E., QUALITATIVELY, ATTENDS THE SAID INVESTMENTS WITH REFERENCE TO OTHER BUSINESS/T RADE INVESTMENTS ON WHICH FINANCING INCOME IS EARNED. THE APPARENTLY EXCESSIVE RATIO (O F OVER 90% (OF THE INCOME)), AS BROUGHT TO OUR NOTICE BY THE LD. AR, ARISES ONLY ON ACCOUNT OF THE EXPENDITURE TO THAT EXTENT HAVING BEEN INCURRED AND CLAIMED BY THE ASSESSEE AGAINST ITS BU SINESS RECEIPTS IN THE FIRST PLACE. SO, HOWEVER, THE TWO INVESTMENTS, I.E., `LOANS AND ADVA NCES, BEARING INTEREST INCOME, AND THE `SHARES, YIELDING DIVIDEND INCOME, CANNOT BE CONSI DERED AT PAR, AND FOR THE SIMPLE REASON THAT WHILE DIVIDEND IS MORE IN THE NATURE OF A PASSIVE I NCOME, FINANCING MAY ENTAIL CANVASSING AS WELL AS EXPENDITURE ON RECOVERY, ETC. AT THE SAME TIME, EVEN DIVIDEND INCOME MAY HAVE ITS PECULIAR FEATURES AND INCIDENTS, AS SOUGHT TO BE HI GHLIGHTED BY THE AO. THE MATTER IS PURELY FACTUAL, AND THE ONUS TO ESTABLISH THE SAME IS ON T HE ASSESSEE. WE, THEREFORE, ONLY CONSIDER AND DEEM IT FIT IN THE FACTS AND CIRCUMSTANCES OF THE C ASE, AS WELL AS IN THE INTEREST OF JUSTICE, THAT THE MATTER IS RESTORED BACK TO THE FILE OF THE ASSE SSING AUTHORITY TO ALLOW ANOTHER OPPORTUNITY TO ITA NO. 787/COCH/2008 3 THE ASSESSEE TO ESTABLISH ITS CASE ON FACTS WITH RE GARD TO THE ESTIMATION OF THE DISALLOWANCE U/S. 14A WITH MATERIALS. THE AO, IN THE ABSENCE OF THE ASSESSEE LEADING ANY SATISFACTORY EVIDENCE TOWARD THE SAME, WOULD BE AT LIBERTY TO MAKE ANY RE ASONABLE ESTIMATION, CONSIDERING ALL THE FACTS AND MATERIALS ON RECORD, PER A SPEAKING ORDER I.E., ON MERITS, IN ACCORDANCE WITH LAW. WE DECIDE ACCORDINGLY. 4. IN THE RESULT, THE REVENUES APPEAL IS ALLOWED F OR STATISTICAL PURPOSES. SD/- . SD/- (N.VIJAYAKUMARAN) (SANJAY ARORA) JUDICIAL MEMBER ACCOUNTANT MEMBER PLACE: ERNAKULAM DATED: JUNE 22, 2011 GJ COPY TO: 1. M/S. MUTHOOT FINANCIERS (SI), MUTHOOT BUILDINGS, PUNNEN ROAD, TRIVANDRUM. 2. THE INCOME TAX OFFICER, WARD-1(2), TRIVANDRUM. 3. THE COMMISSIONER OF INCOME-TAX (APPEALS)-I, TRIV ANDRUM. 4. THE COMMISSIONER OF INCOME-TAX, TRIVANDRUM. 5. D.R., I.T.A.T., COCHIN BENCH, COCHIN. 6. GUARD FILE. // TRUE COPY // ITA NO. 787/COCH/2008 4