Padmavati Agencies Pvt.Ltd., Ahmedabad V. The ACIT.,Circle-5, Ahmedabad

ITA 807/AHD/2012

• Counselvise Citation: [2016] 133 COUNSELVISE.COM (IT) 1735 (ITAT-AHMEDABAD)
• Duration Of Justice: 4 year(s) 20 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 02-05-2016
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: A
• Next Hearing Date: 14-03-2016
• Assessment Year: 2008-2009
• Appeal Filed On: 12-04-2012
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: DINESH SINGH
• Keywords: Earning of tax free income
• Section: 14A

Judgement Text

, A IN THE INCOME TAX APPELLATE TRIBUNAL A BENCH, AHMEDABAD BEFORE SHRI RAJPAL YADAV, JUDICIAL MEMBER AND SHRI N.K. BILLAIYA, ACCOUNTANT MEMBER ./ ITA.NO.807/AHD/2012 [ASSTT.YEAR 2008-09] AND ./ ITA.NO.1129/AHD/2012 [ASSTT.YEAR 2009-10] PADMAVATI AGENCIES P.LTD. BESIDE SHAISHYA KIDS CAMPUS SURVEY NO.154/1 NR.ARYAVRAT IV, LANE OPP: YMCA CLUB, S.G.HIGHWAY ROAD AHMEDABAD 380 058. VS ACIT, RANGE - 5 AHMEDABAD. / (APPELLANT) ! / (RESPONDENT) ASSESSEE BY : SHRI P.M.MEHTA WITH SHRI G.M. THAKORE REVENUE BY : SHRI DINESH SINGH, SR.DR / DATE OF HEARING : 14/03/2016 / DATE OF PRONOUNCEMENT: 02/05/2016 '#/ O R D E R PER RAJPAL YADAV, JUDICIAL MEMBER: THE PRESENT TWO APPEALS ARE DIRECTED AT THE INSTANC E OF THE ASSESSEE AGAINST THE ORDERS OF THE LD.CIT(A)-XI, DATED 7.2.2 012 AND 27.4.2012 PASSED IN THE ASSTT.YEAR 2008-9 AND 2009-10 RESPECT IVELY. ITA NO.807/AHD/2012 AND 1129/AHD/2012 2 2. THOUGH THE ASSESSEE HAS TAKEN THREE GROUNDS OF A PPEAL ALONG WITH SUB-GROUNDS, BUT GRIEVANCE OF THE ASSESSEE IN BOTH THE ASSESSMENT YEARS REVOLVES AROUND A SINGLE ISSUE WHEREBY, IT HAS PLEA DED THAT THE LD.CIT(A) HAS ERRED IN CONFIRMING THE DISALLOWANCE OF RS.5,57 ,369/- AND RS.3,78,711/- WHICH WAS MADE BY THE AO UNDER SECTIO N 14A R.W.S. RULE 8D OF THE INCOME TAX ACT FOR THE ASSTT.YEARS 2008-0 9 AND 2009-10 RESPECTIVELY. 3. WITH THE ASSISTANCE OF THE LD.REPRESENTATIVES, W E HAVE GONE THROUGH THE RECORD CAREFULLY. THE SHORT ISSUE IN B OTH THE YEARS IS WHETHER THE INTEREST EXPENDITURE CAN BE DISALLOWED TO THE A SSESSEE WITH THE AID OF RULE 8D ON THE GROUND THAT THE ASSESSEE HAS MADE IN VESTMENT IN THE SHARES, WHICH WOULD RESULT IN TAX FREE INCOME. THE RE IS NO DISPUTE WITH REGARD TO THE PROPOSITION THAT IF THE ASSESSEE HAS INCURRED ANY EXPENDITURE ATTRIBUTABLE TO ANY INCOME, WHICH IS EX EMPT FROM TAX, THEN THESE EXPENDITURES ARE TO BE DISALLOWED UNDER SECTI ON 14A OF THE INCOME TAX ACT. QUANTIFICATION OF EXPENDITURE AFTER ASSTT .YEAR 2008-09 IS TO BE MADE WITH THE RULE 8D. IN ORDER TO FIND OUT WHETHE R ANY EXPENDITURE CAN BE DISALLOWED TO THE ASSESSEE IN THESE TWO YEAR S, WE DEEM IT PERTINENT TO TAKE OF THE FOLLOWING DETAILS: ASSTT.YEAR 2008-09 PARTICULARS AMOUNT AS ON 31/3/2008 SHARE CAPITAL 2,09,00,000 RESERVES & SURPLUS 1,89,95,786 INTEREST FREE UNSECURED LOAN/ICD 3,66,00,000 CURRENT LIABILITIES 6,08,84,9878 TOTAL 13,73,80,764 INVESTMENT IN SHARES 59,37,417 ITA NO.807/AHD/2012 AND 1129/AHD/2012 3 ASSTT.YEAR 2009-10 PARTICULARS AMOUNT AS ON 31/3/2009 SHARE CAPITAL 6,21,58,380 RESERVES & SURPLUS 4,53,70,271 INTEREST FREE UNSECURED LOAN/ICD 4,99,04,545 CURRENT LIABILITIES 15,23,23,583 TOTAL 30,97,56,779 INVESTMENT IN SHARES 64,67,417 4. THE STAND OF THE ASSESSEE IS THAT IT HAS NOT USE D ANY INTEREST BEARING FUNDS FOR MAKING INVESTMENT. THEREFORE, THE INTERE ST EXPENDITURE CANNOT BE DISALLOWED TO THE ASSESSEE. ON THE OTHER HAND, THE STAND OF THE REVENUE IS THAT AFTER INTRODUCTION OF RULE 8D, IT I S NOT NECESSARY FOR THE REVENUE TO CROSS-EXAMINE WHETHER INTEREST BEARING F UNDS WERE USED BY THE ASSESSEE OR NOT FOR MAKING DISALLOWANCE OF INTE REST EXPENDITURE. THE INTEREST EXPENDITURE HAS TO BE DISALLOWED AS PE R FORMULA GIVEN IN THE RULE 8D. 5. ON DUE CONSIDERATIONS OF THE ABOVE FACTS AND CIR CUMSTANCES, WE ARE OF THE VIEW THAT HONBLE DELHI HIGH COURT HAS C ONSIDERED THIS ASPECTS IN THE CASE OF MAXOPP INVESTMENTS LTD. VS. CIT, 347 ITR 272. THE HONBLE HIGH COURT HAS OBSERED THAT THE AO HAS TO FIRST VERIFY THE CLAIM OF THE ASSESSEE FROM ITS ACCOUNTS, AND IF HE WAS SA TISFIED THAT THE ACCOUNTS OF THE ASSESSEE DOES NOT EXHIBIT TRUE PICTURE, ONLY TH EN, HE WILL COMPUTE THE DISALLOWNACE WITH THE HELP OF RULE 8D. THE HONBLE COURT HAS MADE REFERENCE TO SUB-SECTION (2) OF SECTION 14A. THE D ISUSSION MADE BY THE HONBLE HIGH COURT IN PARA 29 READS AS UNDER: ITA NO.807/AHD/2012 AND 1129/AHD/2012 4 SCOPE OF SUB-SECTIONS (2) AND (3) OF SECTION 14A 29. SUB-SECTION (2) OF SECTION 14A OF THE SAID ACT PROVIDES THE MANNER IN WHICH THE ASSESSING OFFICER IS TO DETERMI NE THE AMOUNT OF EXPENDITURE INCURRED IN RELATION TO INCOME WHICH DOES NOT FORM PART OF THE TOTAL INCOME. HOWEVER, IF WE EXAMINE TH E PROVISION CAREFULLY, WE WOULD FIND THAT THE ASSESSING OFFICER IS REQUIRED TO DETERMINE THE AMOUNT OF SUCH EXPENDITURE ONLY IF TH E ASSESSING OFFICER, HAVING REGARD TO THE ACCOUNTS OF THE ASSES SEE, IS NOT SATISFIED WITH THE CORRECTNESS OF THE CLAIM OF THE ASSESSEE IN RESPECT OF SUCH EXPENDITURE IN RELATION TO INCOME W HICH DOES NOT FORM PART OF THE TOTAL INCOME UNDER THE SAID ACT. I N OTHER WORDS, THE REQUIREMENT OF THE ASSESSING OFFICER EMBARKING UPON A DETERMINATION OF THE AMOUNT OF EXPENDITURE INCURRED IN RELATION TO .EXEMPT INCOME WOULD BE TRIGGERED ONLY IF THE ASSES SING OFFICER RETURNS A FINDING THAT HE IS NOT SATISFIED WITH THE CORRECTNESS OF THE CLAIM OF THE ASSESSEE IN RESPECT OF SUCH EXPEND ITURE. THEREFORE, THE CONDITION 'PRECEDENT FOR THE ASSESSI NG OFFICER ENTERING UPON A DETERMINATION OF THE AMOUNT OF THE EXPENDITURE INCURRED IN RELATION TO EXEMPT INCOME IS THAT THE A SSESSING OFFICER MUST RECORD THAT HE IS NOT SATISFIED WITH THE CORRE CTNESS OF THE CLAIM OF THE ASSESSEE IN RESPECT OF SUCH EXPENDITUR E. SUB-SECTION (3) IS NOTHING BUT AN OFFSHOOT OF SUB-SECTION (2) O F SECTION 14A. SUB-SECTION (3) APPLIES TO CASES WHERE THE ASSESSEE CLAIMS THAT NO EXPENDITURE HAS BEEN INCURRED IN RELATION TO INC OME WHICH DOES NOT FORM PART OF THE TOTAL INCOME UNDER THE SA ID ACT. IN OTHER WORDS, SUB-SECTION (2) DEALS WITH CASES WHERE THE ASSESSEE SPECIFIES A POSITIVE AMOUNT OF EXPENDITURE IN RELAT ION TO INCOME WHICH DOES NOT FORM PART OF THE TOTAL INCOME UNDER THE SAID ACT AND SUB-SECTION (3) APPLIES TO CASES WHERE THE ASSE SSEE ASSERTS THAT NO EXPENDITURE HAD BEEN INCURRED IN RELATION T O EXEMPT INCOME. IN BOTH CASES, THE ASSESSING OFFICER, IF SA TISFIED WITH THE CORRECTNESS OF THE CLAIM OF THE ASSESSEE IN RESPECT OF SUCH EXPENDITURE OR NO EXPENDITURE, AS THE CASE MAY BE, CANNOT EMBARK UPON A DETERMINATION OF THE AMOUNT OF EXPEND ITURE IN ACCORDANCE WITH ANY PRESCRIBED METHOD, AS MENTIONED IN SUB- SECTION (2) OF SECTION 14A OF THE SAID ACT. IT IS O NLY IF THE ASSESSING OFFICER IS NOT SATISFIED WITH THE CORRECT NESS OF THE CLAIM OF THE ASSESSEE, IN BOTH CASES, THAT THE ASSESSING OFFICER GETS JURISDICTION TO DETERMINE THE AMOUNT OF EXPENDITURE INCURRED IN RELATION TO SUCH INCOME WHICH DOES NOT FORM PART OF THE TOTAL INCOME UNDER THE SAID ACT IN ACCORDANCE WITH THE PR ESCRIBED METHOD. THE PRESCRIBED METHOD BEING THE METHOD STIP ULATED IN RULE 8D OF THE SAID RULES. WHILE REJECTING THE CLAI M OF THE ASSESSEE WITH REGARD TO THE EXPENDITURE OR NO EXPEN DITURE, AS THE ITA NO.807/AHD/2012 AND 1129/AHD/2012 5 CASE MAY BE, IN RELATION TO EXEMPT INCOME, THE ASSE SSING OFFICER WOULD HAVE TO INDICATE COGENT REASONS FOR THE SAME. 6. IN THE LIGHT OF THE ABOVE DECISION, IF WE EXAMIN E THE DETAILS OF THE ASSESSEE, THEN IT WOULD REVEAL THAT THE ASSESSEE HA S DEMONSTRATED AVAILABILITY OF INTEREST FREE FUNDS WITH IT. IT IS DISCERNIBLE FROM THE DETAILS EXTRACTED ABOVE. THEREFORE, IN OUR OPINION, THE AO WAS NOT JUSTIFIED TO MAKE DISALLOWNACE OUT OF INTERST EXPENDITURE ON THE GROUND THAT SUCH INTE REST EXPENDITURE ARE ATTRIBUABLE TO EARNING OF TAX FREE INCOME. THE ASS ESSEE HAS DEMONSTRATED THAT NO SUCH INTEREST EXPENDITURE HAVE BEEN INCURRED BY IT FOR THE PURPOSE OF EARNING TAX FREE INCOME. THE INVESTMENT WAS MADE O UT OF INTEREST FREE FUNDS. THEREFORE, WE ALLOW BOTH THE APPEALS AND DELETE THE DISALLOWANCE. 7. IN THE RESULT, THE APPEALS OF THE ASSESSEE ARE A LLOWED. ORDER PRONOUNCED IN THE COURT ON 2 ND MAY, 2016 AT AHMEDABAD. SD/- SD/- ( N.K. BILLAIYA ) ACCOUNTANT MEMBER (RAJPAL YADAV) JUDICIAL MEMBER