M/s Besto Ice creams Pvt Ltd , Bangalore V. Deputy Commissioner of Income Tax Circle-1(1)(2), Bangalore

ITA 88/BANG/2018

• Counselvise Citation: [2019] 117 COUNSELVISE.COM (IT) 7912 (ITAT-BANGALORE)
• Duration Of Justice: 1 year(s) 3 month(s) 5 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 15-04-2019
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: A
• Next Hearing Date: 09-04-2019
• Assessment Year: 2013-2014
• Appeal Filed On: 09-01-2018
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: RENUGADEVI
• Assessee Lawyers: B S BALACHANDRAN
• Keywords: Rule 8D
• Section: 143(3); 142(1); 14A; 250

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL BANGALORE BENCHES A BENCH: BANGALORE BEFORE SHRI A.K. GARODIA, ACCOUNTANT MEMBER AND SHRI PAVAN KUMAR GADALE, JUDICIAL MEMBER ITA. NO.88/BANG/2018 ASSESSMENT YEAR: 2013 - 14 M/S. BESTO ICE CREAMS PVT LTD., NO. 1143, BASEMENT FLOOR, 22 ND CROSS, BANASHANKARI, BANGALORE 560 070. PAN: AACCB 1972 F VS. DCIT, CIRCLE - 1(1)(2), BENGALURU. (APPELLANT) (RESPONDENT) FOR ASSESSEE: SRI B.S. BALACHANDRAN FOR REVENUE : SMT RENUGA DEVI, JCIT DATE OF HEARING : 09.04.2019 DATE OF PRONOUNCEMENT : 15 .04.2019 ORDER PER PAVAN KUMAR GADALE, JM . THE ASSESSEE HAS FILED AN APPEAL AG AINST THE ORDER OF THE CIT (A) - 1 , BANGALORE, DATED 26/09/2017 PASSED U/S 143(3) AND U/S 250 OF THE IT ACT, 1961 FOR THE ASSESSMENT YEA R 2013 - 14 . THE ASSESSEE HAS RAISED THE FOLLOWING GROUNDS OF APPEAL: 1. THE ORDER OF THE CIT (A) IS BAD AND UNSUSTAINABLE IN THE EYE OF LAW AS THE SAME IS PASSED CONTRARY TO THE SETTLED POSITION OF LAW & WITHOUT PROPER APPLICATION OF MIND. 2. THE LD CIT (A) OUGHT TO HAVE APPRECIATED THAT THE AO HAVING NOT RECORDED SATISFACTION BEFORE INVOKING PROVISIONS OF SECTION 14A AND RULE 8D, THE DISALLOWANCE IS UNSUSTAINABLE IN LAW. 2 3. WITHOUT PREJUDICE, THE CIT (A) OUGHT TO HAVE APPRECIATED THAT THE DISALLOWANCE, IF AT ALL, COULD NEVER BE MORE THAN THE ALLEGED EXEMPTED INCOME OF RS. 12,44,250/ - ; AND HENCE THE IMPUGNED ORDERS SUFFER FROM SERIOUS LEGAL INFIRMITIES. 4. WITHOUT PREJUDICE, THE CIT (A) GROSSLY ERRED IN SUSTAINING THE DISALLOWANCE WITHOUT APPRECIATING TH E CRUCIAL FACT THAT THE APPELLANT HAD MADE BORROWINGS ON WHICH INTEREST WAS PAID, WAS FOR EARNING SHORT TERM CAPITAL GAINS ON WHICH STT WAS PAID AND HENCE THAT STCG COULD NEVER BE HELD AS AN EXEMPTED INCOME. TO THAT EXTENT AT LEAST, THE ORDER OF THE AO CO ULD NOT HAVE BEEN SUSTAINED. 2. BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE IS ENGAGED IN THE BUSINESS OF MANUFACTURING OF ICE CREAM A ND SHARE TRADING AND FILED ITS R ETURN OF INCOME FOR THE ASSESSMENT YEAR 2013 - 14 ON 28/09/2013 DISCLOSING TOTAL INCOME OF RS. 2,78,98,208/ - . SUBSEQUENTLY, THE CASE WAS SELECTED FOR SCRUTINY UNDER CASS AND NOTICES U/S 143(2) AND 142(1) OF THE ACT WERE ISSUED. IN COMPLIANCE, THE LD AR OF THE ASSESSEE APPEARED FROM TIME TO TIME AND FURNISHED THE DETAILS. THE ASSESSING OFFICER ON PERUSAL OF THE FINANCIAL S TATEMENTS OF THE ASSESSEE OBSERVED THAT THE ASSESSEE HAS RECEIVED A DIVIDEND INCOME OF RS.12,44,250/ - A ND CLAIMED EXEMPTION U/S 10(34) OF THE ACT. HO WEVER, THE ASSESSEE HAS NOT DISALLOWED ANY AMOUN T AS EXPENDITURE ATTRIBUTABLE FOR EARNING EXEMPT E D INCOME. HENCE ASSESSING OFFICER APPLIED THE PROVISIONS OF SECTION 14A R.W.S 8D AND HAS WORKED OUT THE DISALLOWANCE OF RS. 54,95,074/ - REFERRED A T PARA 4.4 OF THE OF THE ASSESSMENT ORDER A ND D ETERMINED THE TOTAL INCOME OF RS. 3,33,93,284/ - AND PASSED ORDER U/S 143(3) OF THE ACT ON 30/11/2015. 3 3. AGGRIEVED BY THE ORDER, ASSESSEE HAS FILED AN APPEAL BEFORE THE CIT (A) AND CIT (A) HAS UPHELD THE ACTIO N OF THE ASSESSING OFFICER AND DISMISSED THE ASSESSEES APPEAL. AGGRIEVED BY THE CIT (A) ORDER, ASSESSEE HAS FILED AN APPEAL BEFORE THE TRIBUNAL. 4. BEFORE US, THE LD AR SUBMITTED THAT THE ASSESSING OFFICER HAS ERRED IN MAKING DISALLOWANCE U/S 14A R.W. R ULE 8D WHERE AS THE ASSESSEE HAS OBTAINED LOAN AND PAYING INTEREST ON BORROWINGS AND BORROWED FUNDS WERE UTILIZED FOR THE PURPOSE OF PURCHASE OF SHARES AND AR E SOLD AND INCOME FROM SALE OF SHARES IS OFFERED A S SHORT TERM CAPITAL GAINS TAX . THE CONTENTION O F THE LD AR THAT OUT OF TOTAL CLAIM OF FINANCE CHARGES OF RS. 68,70,431/ - , RS. 50,02,234/ - IS ATTRIBUTABLE TO THE EARNING OF SHORT TERM CAPITAL GAINS AND IS OUTSIDE THE PURVIEW OF SECTION 14A OF THE ACT . THE LD AR SUBSTANTIATED THE CLAIM WITH JUDICIAL DECISIONS AND . CONTRA, LD DR RELIED ON THE ORDER OF THE CIT(A). 5 . WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL ON RECORD. THE SOLE DISPUTED ISSUE BEING THE DISALLOWANCE MADE BY THE ASSESSING OFFICER APPLYING PROVISIONS OF SECT ION 14A R.W. RULE 8D. THE LD AR SUBMITTED THAT THE ASSESSEE HAS OBTAINED LOAN AND PAYING INTEREST AND SUCH LOAN WAS UTILIZED FOR MAKING INVESTMENT IN BUYING SHARES OF M/S. MIND TREE LTD . THE LD AR SUPPORTED HIS SUBMISSION WITH THE COPY 4 OF LEDGER ACCOUNT, CONTRACT NOTE AT PAGE 10 TO 13 OF THE PAPER BOOK . T HE LD AR FURTHER ENVISAGED THAT OUT OF THE TOTAL PAYMENT OF RS. 68.70 LAKHS, M/S. JM FINANCIAL SERVICES PVT LTD WAS PAID RS 50.02 LAKHS OF INTEREST AND VEHICLE LOAN INTEREST IS RS. 00.09 LAKHS AND WAY2W EALTH WAS PAID RS. 18.59 LAKHS. THEREFORE, THE ASSE SSEE HAS HELD THE SHARES FOR SHORT TERM PURPOSE AND ACCORDINGLY SHORT TERM CAPITAL GAINS WERE OFFERED FOR TAXATION. WE FOUND THAT THE ASSESSEE NO DOUBT HAS TRADED IN SHARES OF PARTICULAR COMPANY AND HAS OBTAINED BORROWED FUNDS AND PAID INTEREST TO M/S. JM FINANCIALS OF RS. 50.02 LAKHS WHICH IS NOT DISPUTED BY THE REVENUE AND THE ASSESSEE HAS OFFERED TO TAX THE SHORT TERM CAPITAL GAINS . WE ARE OF THE OPINION THAT WHEN TH E DISALLOWANCE HAS TO BE MADE A S P E R THE PROVISIONS OF SECTION 14A R.W. RULE 8D, EXEMPT ED INCOM E YIELDING INVESTMENTS SHOULD BE EXCLUDED FOR THE PURPOSE OF CALCULATION . W E SUPPORT OUR VIEW WITH THE DECISION OF THE SPECIAL BENCH IN THE CASE OF ACIT VS. VIREET INVESTMENTS PVT LTD IN ITA NO.50 2/DEL/2012 DATED 16/06/2017 WHERE THIS ISSU E OF EXCLUSION OF EXEMPT IN COME YIELDED INVESTMENTS ARE BEING CONSIDERED. WHEN A QUERY RAISED TO THE LD AR WHAT IS THE COMPONENT OF EXEMPTED INVESTMENTS , THE LD AR COULD NOT SUBSTANTIATE WITH EVIDENCE. WE ARE OF THE OPINION THAT THE ASSESSEE HAS OBTAINED LOAN FOR INVESTMENT PURPOSE AND PAYING INTEREST AND OFFERED SHORT TERM CAPITAL GAINS. B UT NONE OF THE PARTIES COULD EXPLAIN THE LINK 5 OF THE LOAN TRANSACTION WITH PURCHASE OF THE SHARES . W E ARE OF THE OPINION THA T THE ASSESSEE SHOULD BE PROVIDED AN OPPORTUNITY TO EXPLAIN THE LINK OF TRANSACTION S OF PURCHASE TO THE ASSESSING OFFICER WITH EVIDENCE WITH BORROWED F U N D S . ACCORDINGLY, WE REMIT THIS DISPUTED ISSUE TO THE FILE OF THE ASSESSING OFFICER TO EXAMINE AND VERIFY AND CALCULATE THE DISALLOWANCE U/S 14A R.W. RULE 8D FOLLOWING THE ITAT, SPECIAL BENCH (DELHI) DECISION IN THE CASE OF ACIT VS. VIREET INVESTMENTS PVT LTD (SUPRA) AND ACCORDINGLY ALLOW THE GROUNDS OF APPEAL FOR STATISTICAL PURPOSES. 6 . IN THE RESULT, APPEAL F ILED BY THE ASSESSEE IS ALLOWED F O R S T A T I S T I C A L P U R P O S E S . ORDER PRONOU NCED IN THE OPEN COURT ON 1 5 T H DAY OF APRIL, 2019. S D / - S D / - (A.K. GARODIA) (PAVAN KUMAR GADALE) ACCOUNTANT MEMBER JUDICIAL MEMBER DATED: 1 5 T H APRIL , 2019 . OKK, SR.PS COPY TO 1. THE APPELLANT 2. THE RESPONDENT 3. CIT (A) 4. PR. CIT 5. DR, ITAT, BANGALORE. 6. GUARD FILE