TGV Projects & Investments (P) Ltd., Hyd, Hyderabad V. ACIT, Circle-2(3), Hyd, Hyderabad

ITA 846/HYD/2016

• Counselvise Citation: [2017] 130 COUNSELVISE.COM (IT) 6120 (ITAT-HYDERABAD)
• Duration Of Justice: 8 month(s) 21 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 28-02-2017
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: A
• Assessment Year: 2009-2010
• Appeal Filed On: 06-06-2016
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Assessee Lawyers: K.K. GUPTA
• Keywords: Earning of tax free income; Rule 8D
• Section: 32; 147; 131; 68; 246; 69; 145; 27; 148; 54; 37; 6; 56; 263; 63; 132; 12; 28; 144; 10; 90; 154; 2; 11; 15; 271(1)(b); 139; 92; 14A

Judgement Text

1 ITA.NO.846/HYD/2016 M/S. TGV PROJECTS & INVESTMENTS (P.) LTD., HYDERABAD. IN THE INCOME TAX APPELLATE TRIBUNAL HYDERABAD BENCHES A (SMC) : HYDERABAD BEFORE SHRI D. MANMOHAN, VICE PRESIDENT ITA.NO.846/HYD/2016 ASSESSMENT YEAR 2009-2010 M/S. TGV PROJECTS & INVESTMENTS (P) LTD., HYDERABAD. PAN AAACT8340H VS. THE ACIT, CIRCLE-2(3) HYDERABAD. (APPELLANT) (RESPONDENT) FOR ASSESSEE : SHRI K.K. GUPTA FOR REVENUE : SHRI A. SITARAMA RAO DATE OF HEARING : 11.01.2017 DATE OF PRONOUNCEMENT : 28.02.2017 ORDER THIS APPEAL BY THE ASSESSEE IS DIRECTED AGAINST THE O RDER PASSED BY CIT(A)-2, HYDERABAD AND IT PERTAINS TO THE A. Y. 2009-2010. THE FOLLOWING GROUNDS WERE URGED BEFORE THE TRIBUNAL . 1. THE CIT(A) ERRED IN CONFIRMING THE ADDITION OF RS. 14,90,799 U/S14A OF THE INCOME ACT,1961 READ WITH RULE 8D (2) I.E., 0.5 % OF THE AVERAGE INVESTMENT. THE ASSESSEE MADE INVESTMENT IN GROUP C OMPANIES AND MOST OF THE SAME ARE BROUGHT FORWARD FROM EARLIER Y EARS. NO ACTIVITY FOR THE SAME IS REQUIRED. HENCE, NO EXPENSES CAN BE ATTRIBUTABLE TO THE SAME. AS SUCH, ADDITION CONFIRMED BY CIT(A) NEE D TO BE DELETED. (ITAT, KOLKATA BENCH IN THE CASE OF M/S FORUM PROJE CTS (P) LTD., VS DCIT, C.C-II) 2. THE DISALLOWANCE OF EXPENDITURE SHOULD NOT EXCEED T HE EXEMPTED INCOME. IN THE APPELLANT'S CASE THE EXEMPTED INCOME I.E., DIVIDEND IS RS.2,86,655/- AND THE DISALLOWANCE IS RS.14,90,799/ -. 2 ITA.NO.846/HYD/2016 M/S. TGV PROJECTS & INVESTMENTS (P.) LTD., HYDERABAD. (ITAT, MUMBAI BENCH IN THE CASE OF DAGA GLOBAL CHEM ICALS LTD., VS. ITO) 3. ON THE ABOVE AND OTHER GROUNDS THAT MAY ARISE DURIN G THE COURSE OF APPEAL, THE APPELLANT PREFERS THIS APPEAL. 2. FACTS OF THE CASE ARE STATED IN BRIEF. THE ASSESSE E IS ENGAGED IN THE BUSINESS OF HOTEL, LEASING-OUT PROPERTY AND FR ANCHISE OF IDEA CELLULAR. FOR THE YEAR UNDER CONSIDERATION, IT DECLARE D TOTAL INCOME OF RS.1.04 CRORES. DURING THE COURSE OF ASSESSMENT PROC EEDINGS, THE A.O. NOTICED THAT THE ASSESSEE MADE SOME INVESTMENTS IN QUOTED AND UNQUOTED SHARES AND EARNED DIVIDEND INCOME. ACCORDIN G TO HIM, PROVISIONS OF SECTION 14A WOULD BE APPLICABLE AND SO ME EXPENDITURE HAS TO BE DISALLOWED UNDER RULE 8D OF I.T. RULES RE AD WITH SECTION 14A OF THE I.T. ACT. IN RESPONSE THERETO, THE ASSESSEE SUBM ITTED THAT INVESTMENTS WERE MADE OUT OF ASSESSEES OWN FUNDS (RES ERVES). IN THE ABSENCE OF DETAILS, THE A.O. INVOKED RULE 8D AND DETE RMINED THE AMOUNT DISALLOWABLE AT RS.14,90,799 (UNDER RULE 8D ( 2)(III) AND RS.1,70,205 (UNDER RULE 8D (2)(II). 3. AGGRIEVED, ASSESSEE CONTENDED BEFORE THE CIT(A) TH AT OWN FUNDS WERE UTILISED FOR INVESTMENT IN SHARES AND THEREF ORE, NO DISALLOWANCE CAN BE MADE. LD. CIT(A) ACCEPTED THE CON TENTION OF THE ASSESSEE AND OBSERVED THAT THE ASSESSEE HAD OWN FUNDS OF RS.39,75,46,901 WHICH IS MORE THAN THE INVESTMENTS OF RS.29,52,35,776 IN SHARES. THEREFORE, DISALLOWANCE UNDER RULE 8D(2)(II) WAS DELETED. HOWEVER, HE ASSUMED THAT THE ASSESSEE WOU LD HAVE INCURRED ADMINISTRATIVE EXPENDITURE FOR EARNING EXEMP T INCOME AND THEREFORE, DISALLOWANCE OF RS.14,90,799 AS PER RULE 8D(2)(III) IS IN ACCORDANCE WITH LAW. 3 ITA.NO.846/HYD/2016 M/S. TGV PROJECTS & INVESTMENTS (P.) LTD., HYDERABAD. 4. AGGRIEVED, ASSESSEE IS IN APPEAL BEFORE THE TRIB UNAL. LEARNED COUNSEL FOR THE ASSESSEE SUBMITTED THAT THE INVESTMENTS IN GROUP COMPANIES WAS MADE IN EARLIER YEARS AND MOST OF SUCH INVESTMENTS WERE BROUGHT FORWARD FROM EARLIER YEARS AND NO ACTIVI TY WAS INVOLVED IN THIS YEAR AND HENCE NO EXPENDITURE IS ATTRIBUTABLE TO THE SAME. HE FURTHER CONTENDED THAT THE DISALLOWANCE CAN AT BEST BE E QUIVALENT TO THE DIVIDEND INCOME SINCE THE ACTIVITY, IF ANY, FOR EARNI NG DIVIDEND CANNOT BE MORE THAN THE INCOME; IN THIS YEAR THE DIVIDEND IS R S.2,86,655 AND THEREFORE THE DISALLOWANCE OF RS.14,90,799 IS NOT IN A CCORDANCE WITH LAW. IN THIS REGARD, HE RELIED UPON THE DECISION OF I TAT, MUMBAI BENCH IN THE CASE OF M/S. DAGA GLOBAL CHEMICALS PVT. LTD., M UMBAI VS. ACIT- 9(1), MUMBAI (ITA.NO.5592/MUM/2012 DATED 01.01.2015) . 5. ON THE OTHER HAND, THE LD. D.R. STRONGLY RELIED U PON THE ORDER PASSED BY THE CIT(A). 6. I HAVE CAREFULLY CONSIDERED THE RIVAL SUBMISSION S AND PERUSED THE RECORD. LD. CIT(A) VERIFIED THE BOOKS BEF ORE GIVING A FINDING THAT INVESTMENTS WERE MADE IN THE EARLIER YEARS OUT OF OW N FUNDS. NO MATERIAL WAS PLACED BY REVENUE TO CONTRADICT THE FINDIN GS OF CIT(A). THEREFORE, WE HOLD THAT DISALLOWANCE ON THAT COUNT IS NO T WARRANTED. THIS LEAVES US WITH THE SUBSIDIARY ISSUE I.E., ADMIN ISTRATIVE EXPENDITURE. IN THE CASE OF M/S. DAGA GLOBAL CHEMICAL S PVT. LTD., (SUPRA), THE ITAT, MUMBAI BENCH OBSERVED THAT DISALLOW ANCE UNDER SECTION 14A READ WITH RULE 8D CANNOT EXCEED THE EXEMP T INCOME. NO OTHER CASE LAW WAS PLACED BEFORE ME WHEREIN A DIFFER ENT VIEW WAS TAKEN. EVEN IF THERE IS A DIFFERENT VIEW, THE ONE WHICH IS IN FAVOUR OF THE ASSESSEE DESERVES TO BE ACCEPTED. I, THEREFORE, FOLL OW THE DECISION OF THE ITAT, MUMBAI BENCH IN THE CASE OF M/S. DAGA GLOBAL CHEMICALS PVT. LTD., (SUPRA) AND HOLD THAT THE DISALLOWANCE IF ANY, S HOULD NOT EXCEED RS.2,86,655. LEARNED COUNSEL FOR THE ASSESSEE, FAIRL Y ADMITTED THAT IF 4 ITA.NO.846/HYD/2016 M/S. TGV PROJECTS & INVESTMENTS (P.) LTD., HYDERABAD. THE DISALLOWANCE IS RESTRICTED TO THE EXEMPT INCOME HE WO ULD NOT SERIOUSLY PRESS OTHER GROUNDS. THE APPEAL IS ACCORDI NGLY DISPOSED OF BY RESTRICTING THE DISALLOWANCE TO RS.2,86,655. 7. IN THE RESULT, APPEAL OF THE ASSESSEE IS PARTLY ALL OWED. ORDER PRONOUNCED IN THE OPEN COURT ON 28.02.2017. SD/- (D.MANMOHAN) VICE PRESIDENT HYDERABAD, DATED 28 TH FEBRUARY, 2017. VBP/- COPY TO 1. M/S. TGV PROJECTS & INVESTMENTS (P.) LTD., HYDERABAD. C/O. SRI K.K. GUPTA, CHARTERED ACCOUNTANT, 3464, DUND OO VIHAR, R.P. ROAD, SECUNDERABAD 500 003. 2. THE ACIT, CIRCLE-2(3), HYDERABAD. 3. CIT(A)-2, HYDERABAD. 4. PR. CIT-2, HYDERABAD. 5. D.R. ITAT A (SMC) BENCH, HYDERABAD. 6. 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