Sri Vinod Kumar Agarwal , Bangalore V. The Deputy Commissioner of Income TAX Circle-7(1)(2), Bangalore

ITA 850/BANG/2018

• Counselvise Citation: [2018] 125 COUNSELVISE.COM (IT) 7721 (ITAT-BANGALORE)
• Duration Of Justice: 3 month(s) 17 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 06-07-2018
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: B
• Assessment Year: 2014-2015
• Appeal Filed On: 19-03-2018
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: SWAPNA DASS
• Assessee Lawyers: LOKESH JAIN
• Keywords: Earning of tax free income
• Section: 143(3); 14A

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL BANGALORE BENCH B BEFORE S HRI N.V. VASUDEVAN , JUDICIAL MEMBER AND SHRI JASON P BOAZ , ACCOUNTANT MEMBER I.T . A. NO. 850 /BANG/20 18 (ASSESSMENT YEAR : 20 14 - 15 ) SHRI VINOD KUMAR AGARWAL, NO.952, 21 ST MAIN ROAD, B ANASHANKARI II STAGE, BANGALORE - 560 070 . . APPELLANT. VS. DY. COMMISSIONER OF INCOME TAX, CIRCLE 7(1)(2), BANGALORE. .. RESPONDENT. APPELLANT BY : SHRI LOKESH JAIN, C.A. R E SPONDENT BY : SMT. SWAPNA DASS, JCIT (D.R) DATE OF H EARING : 28.06.2018. DATE OF P RONOUNCEMENT : 06 .07 .201 8 . O R D E R PER SHRI JASON P BOAZ, A .M . : THIS APPEAL BY THE ASSESSEE IS DIRECTED AGAINST THE ORDER OF THE CIT(APPEALS) - 7 , BENGALURU DT.4.1.2018 RELATING TO ASSESSMENT YEAR 2014 - 15. 2 IT A NO. 850 /BANG/201 8 2. THE ONLY ISSUE RAISED BY THE ASSESSEE IN THIS APPEAL IS WITH REGARD TO THE DISALLOWANCE OF EXPENSES INCURRED IN EARNI NG THE EXEMPT INCOME AS PER THE GROUNDS EXTRACTED HEREUNDER : - 3 IT A NO. 850 /BANG/201 8 3. THE ASSESSEE IS A N INDIVIDUAL ENGAGED IN THE BUSINESS OF TRADING IN IRON AND STEEL. IN THE COURSE OF ASSESSMENT PROCEEDI NGS U/S. 143(3) OF THE INCOME - TAX ACT, 1961 [ THE ACT ], THE AO NOTICED THAT THE ASSESSEE HAD EARNED DIVIDEND AMOUNTING TO RS.2,572 WHICH WAS EXEMPT U/S. 10(34) OF THE ACT. IN TERMS OF SECTION 14A OF THE ACT, THE AO WANTED TO DISALLOW EXPENSES INCURRED IN EARNING EXEMPT INCOME. THE DISPUTE BEFORE THE AO WAS ONLY WITH REGARD TO DISALLOWANCE IN TERMS OF RULE 8D(2) (II) AND (III) OF THE INCOME - TAX RULES, 1962 [ THE RULES ] R.W.S. 14A OF THE ACT. ACCORDING TO THE ASSESSEE, NO EXPENSES WERE INCURRED FOR EARNING THE EXEMPT INCOME AND ALSO THAT BORROWED FUNDS WERE NOT USED FOR THAT THE INVESTMENTS IN SHARES THEREFORE NO COST CAN BE ATT RIBUTABLE TO EARNING THE EXEMPT INCOME. THE AO, HOWEVER, WAS OF THE VIEW THAT DISALLOWANCE IS CALLED FOR IN TERMS OF RULE 8D(2) (II) AND (III) OF THE RULES. ACCORDINGLY, THE AO COMPUTED THE DI SALLOWANCE UNDER RULE 8D(2) AS FOLLOWS: - 1) RULE 8D(2)(II) RS.5,68,159 2) RULE 8D(2)(III) : % OF AVERAGE VALUE OF INVESTMENT. RS.2,57,859 TOTAL DISALLOWANCE : RS.8,26,018. 4. AGGRIEVED BY TH E ORDER OF THE AO, THE ASSESSEE PREFERRED AN APPEAL BEFORE THE CIT(APPEALS). THE CIT(APPEALS) WAS OF THE VIEW THAT DISALLOWANCE OF EXPENSES U/S. 14A OF THE ACT IS MANDATORY AND THEREFORE DISALLOWANCE OF EXPENSES MADE BY THE AO WAS PROPER. AGGRIEVED BY THE ORDER OF CIT(APPEALS) DT.4.1.2018 FOR ASSESSMENT YEAR 2000, THE ASSESSEE 4 IT A NO. 850 /BANG/201 8 HAS PREFERRED THE PRESENT APPEAL BEFORE THE TRIBUNAL RAISING GROUNDS AS EXTRACTED AT PARA 2 (SUPRA). 5. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED AND CONSIDERED THE MATERIA L ON RECORD INCLUDING THE JUDICIAL PRECEDENTS CITED. IN THE CASE ON HAND THE ASSESSEE EARNED EXEMPT DIVIDEND INCOME AMOUNTING TO RS.2,572 IN THE YEAR UNDER CONSIDERATION WHEREAS THE ASSESSING OFFICER HAD DISALLOWED AN AMOUNT OF RS8,26,01 8 UNDER SECTION 14 A R.W. RULE 8D(II) & (III). T HE HON BLE DELHI HIGH COURT IN THE CASE OF JOINT INVESTMENTS (P) LTD. V. CIT, 372 ITR 694 HAS TAKEN THE VIEW THAT DISALLOWANCE U/S. 14A OF THE ACT CANNOT EXCEED THE EXEMPT INCOME. SIMILAR VIEW WAS EXPRESSED BY THE HON BLE DEL HI HIGH COURT IN THE CASE OF CIT V. HOLCIM INDIA PVT. LTD., 272 CTR 282 (DEL). THESE DECISIONS WERE CONSIDERED BY THE MUMBAI BENCH OF THE TRIBUNAL IN THE CASE OF FUTURE CORPORATE RESOURCES LTD V. ACIT, ITA NO.4658/MUM/2015 DATED 26.07.2017 RELATING TO AY 2 011 - 12 AND IT WAS HELD BY THE TRIBUNAL MUMBAI BENCH THAT DISALLOWANCE U/S. 14A OF THE ACT CANNOT EXCEED THE EXEMPT INCOME. IN THIS REGARD, THE HON'BLE KARNATAKA HIGH COURT IN ITS ORDER IN THE CASE OF SRI PRAGATI KRISHNA GRAMEENA BANK IN ITA NO.100001 & 10 0002/2018 DT.28.5.2018 HAS TAKEN A SIMILAR VIEW. FOLLOWING THE 5 IT A NO. 850 /BANG/201 8 AFORESAID DECISIONS, WE HOLD THAT DISALLOWANCE U/S. 14A OF THE ACT R.W. RULE 8D(2)(II) & (III) OF THE RULES IN THE CASE ON HAND SHOULD BE RESTRICTED TO THE EXEMPT INCOME EARNED BY THE ASSESSEE . WE HOLD AND DIRECT ACCORDINGLY. CONSEQUENTLY, GROUND N O .8 OF ASSESSEE'S APPEAL IS PARTLY ALLOWED AND THE OTHERS BEING RENDERED ACADEMIC IN NATURE DO NOT CALL FOR ADJUDICATION. 6. IN THE RESULT, THE APPEAL OF THE ASSESSEE FOR A.Y. 201 4 - 15 IS PARTLY ALLOWED . ORDER PRONOUNCED IN THE OPEN COURT ON THE 6 TH DAY OF JULY, 201 8 . SD/ - (N.V. VASUDEVAN) JUDICIAL MEMBER SD/ - (JASON P BOAZ) ACCOUNTANT MEMBER BANGALORE, DT. 06 .07.2018. *REDDY GP /EKS COPY TO : 1 APPELLANT 4 CIT(A) 2 RESPONDENT 5 DR. ITAT, BANGALORE 3 CIT 6 GUARD FILE SENIOR PRIVATE SECRETARY INCOME TAX APPELLATE TRIBUNAL DATE OF DICTATION 2/7/2 BANGALORE.