N.Nagaraj Ballal , Udupi V. Income Tax Officer Ward-2 , Udupi

ITA 840/BANG/2018

• Counselvise Citation: [2019] 117 COUNSELVISE.COM (IT) 5889 (ITAT-BANGALORE)
• Duration Of Justice: 1 year(s) 1 month(s) 13 day(s)
• Appeal Type: Income Tax (Transfer Pricing) Appeal
• Pronouncement Date: 01-05-2019
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: B
• Assessment Year: 2012-2013
• Appeal Filed On: 19-03-2018
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: PADMA MEENAKSHI
• Keywords: Earning of tax free income; Rule 8D
• Section: 14A

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL SMC-B BENCH : BANGALORE BEFORE SHRI ARUN KUMAR GARODIA, ACCOUNTANT MEMBER ITA NO. 840 / BANG/201 8 ASSESSMENT YEAR : 20 1 2 - 13 SHRI N. NAGARAJ BALLAL, 7/2/35, POOJA, VADIRAJA ROAD, UDUPI 576 101. PAN: ACMPB2556L VS. THE INCOME TAX OFFICER, WARD 2, UDUPI. APPELLANT RESPONDENT APPELLANT BY : SHRI ANIL KUMAR .H, CA RESPONDENT BY : SMT. PADMA MEENAKSHI, JCIT (DR) DATE OF HEARING : 0 7 . 0 5 .2018 DATE OF PRONOUNCEMENT : 11 . 0 5 .201 8 O R D E R PER SHRI A.K. GARODIA, ACCOUNTANT MEMBER THIS APPEAL IS FILED BY THE ASSESSEE WHICH IS DIREC TED AGAINST THE ORDER OFLD. CIT(A)-10, BANGALORE DATED 26.12.2017FOR ASSESSMENT YEAR 2012-13. 2. THE GROUNDS RAISED BY THE ASSESSEE ARE AS UNDER. 1. THE ORDER OF THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) DISMISSING THE APPELLANTS APPEAL AND CONFIRMING THE ADDITION OF RS. 21,59,010 U/S 14A AS PROPERLY MADE BY A.O IS AGAINS T LAW, FACT OF THE CASE AND WEIGHT OF EVIDENCE. 2. THE LEARNED CIT (A) HAS ERRED IN DISALLOWING INT EREST EXPENDITURE FOR INVESTMENT IN THOSE SHARES WHICH HAVE NOT YIELD ED EXEMPT INCOME. 3. THE LEARNED CIT (A) HAS ERRED IN CONFIRMING THE DISALLOWANCE WHEN INVESTMENT IN DIVIDEND YIELDING SHARES IS NOT OUT O F BORROWED FUNDS. 4. THE LEARNED CIT (A) HAS FAILED TO APPRECIATE THA T THE INVESTMENT IN TWO COMPANIES AGGREGATING TO RS. 4,04,93,305 /- IS IN THE COURSE OF APPELLANTS BUSINESS OF CIVIL CONSTRUCTION AND HOTEL BUSINESS AND NOT FOR EARNING DIVIDEND AND FROM WHICH THE APPELLANT H AS EARNED TAXABLE INCOME OF RS. 13,20,000 /- (THIRTEEN LAKHS TWENTY T HOUSAND) . ITA NO. 840/BANG/2018 PAGE 2 OF 4 5. THE LEARNED CIT (A) HAS ERRED IN CONFIRMING THE DISALLOWANCE OF RS. 21,59,010 AS AGAINST EXEMPT INCOME OF ONLY RS. 14,870. 6. THE APPELLANT MAY BE PERMITTED TO RAISE FURTHER EVIDENCE AT THE TIME OF HEARING. 3. IT WAS SUBMITTED BY LD. AR OF ASSESSEE THAT IN T HE PRESENT CASE, THE ASSESSEE HAS RECEIVED DIVIDEND OF ONLY RS. 14,870/- AND SUCH DIVIDEND IS RECEIVED FROM SIX COMPANIES VIZ., SYNDICATE BANK, BANK OF BARODA, MANIPAL HOUSING, RELIANCE INDUSTRIES LTD., ANDHRA BANK AND SUNDARAM FASTENERS LTD. HE FURTHER SUBMITTED THAT INVESTMENT IN FIRST THREE CO MPANIES IS APPEARING IN THE BOOKS OF THE ASSESSEE BUT THE INVESTMENT IN THE LAS T THREE COMPANIES IS OUT OF DRAWINGS OF THE ASSESSEE IN THE RELEVANT YEAR AND I T IS NOT FINDING MENTION IN THE BOOKS OF THE ASSESSEE. HE SUBMITTED THAT AS PER TH E RECENT TRIBUNAL ORDER RENDERED IN THE CASE OF KEYMAN FINANCIAL SERVICES ( P) LTD. VS. DCIT IN ITA NO. 4043/DEL/2014 DATED 15.01.2018, IT WAS HELD THAT DI SALLOWANCE U/S. 14A CANNOT EXCEED THE EXEMPT INCOME EARNED BY THE ASSESSEE IN THE RELEVANT YEAR AND IN THIS TRIBUNAL ORDER, THE TRIBUNAL HAS FOLLOWED THE JUDGMENT OF HONBLE DELHI HIGH COURT RENDERED IN THE CASE OF CHEMINVEST PVT. LTD. VS. CIT AS REPORTED IN (2015) 378 ITR 33. HE SUBMITTED THAT AS PER THIS T RIBUNAL ORDER, DISALLOWANCE IN THE PRESENT CASE MAY BE MAXIMUM RS. 14,870/-. H E FURTHER SUBMITTED THAT EVEN THESE MUCH DISALLOWANCE IN THE PRESENT CASE IS NOT JUSTIFIED AND IN THE PRESENT CASE DISALLOWANCE SHOULD NOT EXCEED RS. 10, 554/- AS PER WORKING SUBMITTED BY HIM ALONG WITH THE SUMMARY OF SUBMISSI ONS MADE BEFORE THE TRIBUNAL. IN THIS REGARD, HE PLACED RELIANCE ON AN ORDER OF THE SPECIAL BENCH OF THE TRIBUNAL RENDERED IN THE CASE OF ACIT VS. VIREE T INVESTMENT PVT. LTD. AS REPORTED IN 165 ITD 27.HE SUBMITTED THAT AS PER THI S WORKING, ONLY THE SHARES OF THOSE THREE COMPANIES SHOULD BE CONSIDERED FROM WHO M THE ASSESSEE HAS RECEIVED DIVIDEND INCOME WHICH IS EXEMPT WHICH IS F ORMING PART OF THE BOOKS OF THE ASSESSEE. HE POINTED OUT THAT SUCH INVESTMEN T IS ONLY OF RS. 1,54,200/- AND THEREFORE, THE WORKING OF DISALLOWANCE U/S. 14A R.W.RULE 8D SHOULD BE BASED ON THIS MUCH INVESTMENT OF ONLY OF RS. 1,54,2 00/- AND IF THIS IS DONE, THEN THE DISALLOWANCE WORKS OUT TO RS. 10,554/-. THE LD . DR OF REVENUE PLACED RELIANCE ON THE JUDGMENT OF HONBLE APEX COURT REND ERED IN THE CASE OF ITA NO. 840/BANG/2018 PAGE 3 OF 4 MAXOPP INVESTMENT LTD. VS. CIT AS REPORTED IN (2018 ) TAXCORP (DT) 71260 (SC) DATED 12.02.2018. IN THE REJOINDER, THE LD. A R OF ASSESSEE DRAWN MY ATTENTION TO PARA 40 OF THIS JUDGMENT OF HONBLE AP EX COURT AND POINTED OUT THAT IN THAT PARA, IT IS NOTED BY HONBLE APEX COURT THA T IN THAT CASE, THE AO HAS HIMSELF RESTRICTED THE DISALLOWANCE U/S. 14A OF IT ACT TO THE EXTENT OF BEING THE AMOUNT OF DIVIDEND RECEIVED AND CLAIMED EXEMPT. 4. I HAVE CONSIDERED THE RIVAL SUBMISSIONS AND I FE EL THAT IN THE FACTS OF THE PRESENT CASE, THE TRIBUNAL ORDER RENDERED IN THE CA SE OF KEYMAN FINANCIAL SERVICES (P) LTD. VS. DCIT (SUPRA) SHOULD BE FOLLOW ED AND AS PER THIS TRIBUNAL ORDER, THE DISALLOWANCE U/S. 14A SHOULD BE RESTRICT ED TO THE EXTENT OF EXEMPT INCOME OF THE RELEVANT YEAR. HENCE, I DIRECT THE A O TO RESTRICT THE DISALLOWANCE U/S. 14A TO THE EXTENT OF RS. 14,870/- BEING THE EX EMPT INCOME IN THE PRESENT YEAR. REGARDING THE ORDER OF THE SPECIAL BENCH OF THE TRIBUNAL RENDERED IN THE CASE OF ACIT VS. VIREET INVESTMENT PVT. LTD. (SUPRA ), I FIND THAT AS PER THIS ORDER, THOSE INVESTMENTS WHICH YIELDED EXEMPT INCOM E SHOULD BE CONSIDERED FOR MAKING DISALLOWANCE U/S 14A. IN THE PRESENT CAS E, THE DIVIDEND INCOME IS EARNED FROM INVESTMENT IN SIX COMPANIES BUT THE ASS ESSEE IS NOT ABLE TO PROVIDE THE AMOUNT OF INVESTMENT IN THREE COMPANIES . HENCE, THE DECISION OF THIS TRIBUNAL ORDER CANNOT BE MADE APPLICABLE IN TH E PRESENT CASE IN THE ABSENCE OF THE FIGURE OF INVESTMENT IN SIX COMPANIE S WHICH YIELDED DIVIDEND. IN VIEW OF THIS DECISION, OTHER CONTENTIONS RAISED BY LD. AR OF ASSESSEE DO NOT REQUIRE ANY DISCUSSION OR SEPARATE ADJUDICATION. 5. IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE IS PARTLY ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON THE DATE MENT IONED ON THE CAPTION PAGE. SD/- (ARUN KUMAR GARODIA) ACCOUNTANT MEMBER BANGALORE, DATED, THE 11 TH MAY, 2018. /MS/ ITA NO. 840/BANG/2018 PAGE 4 OF 4 COPY TO: 1. APPELLANT 4. CIT(A) 2. RESPONDENT 5. DR, ITAT, BANGALORE 3. CIT 6. GUARD FILE BY ORDER SENIOR PRIVATE SECRETARY, INCOME TAX APPELLATE TRIBUNAL, BANGALORE.