Assistant Commissioner of Income Tax, Circle - 4(1)(1), Bangalore V. M/s. Karnataka State Financial Corporation Ltd., Bangalore

ITA 888/BANG/2017

• Counselvise Citation: [2018] 126 COUNSELVISE.COM (IT) 5597 (ITAT-BANGALORE)
• Duration Of Justice: 9 month(s) 9 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 31-01-2018
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: C
• Assessment Year: misc
• Appeal Filed On: 21-04-2017
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: A C RAJU
• Keywords: Revenue expenditure

Judgement Text

ITA .888 & 889/BANG/2017 PAGE - 1 IN THE INCOME TAX APPELLATE TRIBUNAL BENGALURU BENCH 'C', BENGALURU BEFORE SHRI. JASON P. BOAZ, ACCOUNTANT MEMBER AND SHRI. LALIET KUMAR, JUDICIAL MEMBER I.T.A NOS.888 & 889/BANG/2017 (ASSESSMENT YEARS : 2012-13 & 2013-14) ASST. COMMISSIONER OF INCOME-TAX, CIRCLE - 4(1)(1), BENGALURU .. APPELLANT V. M/S. KARNATAKA STATE FINANCIAL CORPORATION LTD, KSFC BHAVAN, NO.1/1, THIMMAIAH ROAD, NEAR CANTONMENT RAILWAY STATION, BENGALURU 560 052 .. RESPONDENT PAN : AAACK9480H ASSESSEE BY : SHRI. A. C. RAJU, CA REVENUE BY : SHRI. HARINDER KUMAR, CIT-DR-III HEARD ON : 13.12.2017 PRONOUNCED ON : 31.01.2018 O R D E R PER LALIET KUMAR, JUDICIAL MEMBER : THESE ARE APPEALS FILED BY THE REVENUE AGAINST THE SEPARATE ORDERS PASSED BY THE CIT (A), DT.31.01.2017, FOR TH E ASSESSMENT YEARS 2012-13 AND 2013-14, ON THE FOLLOWING EFFECTIVE GRO UNDS WHICH ARE COMMON TO BOTH THE YEARS: ITA .888 & 889/BANG/2017 PAGE - 2 ITA NO.888/BANG/2017 - AY. 2012-13 : 02. GROUND NO2 & 3 DEAL WITH DISALLOWANCE U/S.14A O F THE ACT. IN THIS REGARD THE AO OBSERVED IN PARA 3 THAT THE ASSE SSEE COMPANY MADE INVESTMENT IN EQUITY SHARES AND WORKED OUT THE DISA LLOWANCE AT RS.82,58,623/-. IT WAS MENTIONED BY THE AO THAT TH E DISALLOWANCE WAS MADE ONLY IN RESPECT OF RULE 8D(2)(III). HOWEV ER, NO DISALLOWANCE WAS MADE UNDER RULE 8D(2)(I). THEREFO RE IT WAS OBSERVED BY THE AO THAT THE INVESTMENT OF RS.1,43,8 3,46,000/- WAS MADE FROM BORROWED FUNDS AND INVOKED THE PROVISIONS OF RULE 8D BY CALCULATING THE TOTAL DISALLOWANCE AT RS.15,87,76,3 38/- AS MENTIONED IN PARA 3.8, AS UNDER : ITA .888 & 889/BANG/2017 PAGE - 3 AGAINST THIS THE ASSESSEE FILED AN APPEAL BEFORE TH E CIT (A). 03. THE CIT (A) RELYING UPON THE EARLIER ORDER OF T HE BANGALORE BENCH OF THE TRIBUNAL IN ITA NO.2068/BANG/2016, DT. 28.06.2017, HAS ALLOWED THE GROUND RAISED BY THE ASSESSEE. 04. BEFORE US THE LD. AR HAS SUBMITTED THAT THE ISS UE IS COVERED IN FAVOUR OF THE ASSESSEE BY THE ORDER OF THE TRIBUNAL IN WHICH THE AUTHOR OF THIS ORDER IS ALSO THE AUTHOR THERE, AND THEREFO RE THE ISSUE SHOULD BE DECIDED IN FAVOUR OF THE ASSESSEE. 05. ON THE OTHER HAND THE LD. DR RELIES UPON THE OR DER PASSED BY THE AO. ITA .888 & 889/BANG/2017 PAGE - 4 06. WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE MATERIAL ON RECORD. THE TRIBUNAL VIDE ITS ORDER DT.28.06.2017 (SUPRA), IN PARA 6 HAD HELD AS UNDER : 06. WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE MATERIAL ON RECORD. IT IS THE CASE OF THE AO THAT THE ASSES SEE HAS INVESTED IN EQUITY SHARES AND THEREFORE THE AO HAS WORKED OUT T HE DISALLOWANCE U/S.14A. DURING THE COURSE OF ARGUMEN T, WE ENQUIRED WHETHER THE SHARES WERE ALLOTTED AND IF ALLOTTED, A NY DIVIDEND INCOME WAS ACCRUED TO THE ASSESSEE OR NOT. IN RESP ONSE TO THAT, IT WAS SUBMITTED BY BOTH THE PARTIES THAT NEITHER THE SHARES WERE ALLOTTED DURING THE YEAR UNDER CONSIDERATION, NOR A NY DIVIDEND INCOME HAD ACCRUED TO THE ASSESSEE AGAINST PROPOSED ALLOTMENT. IN OUR VIEW, THERE IS A FINDING BY THE KOLKATA TRIBUN AL TO THE EFFECT THAT THE SHARE APPLICATION MONEY INVESTED BY THE AS SESSEE WAS MERELY IN THE NATURE OF OFFER TO BUY THE SHARES BY THE ASSESSEE AND IT CANNOT BE AID BE CONCLUDED CONTRACT ENTERED BY THE ASSESSEE AND THE COMPANY. IN OUR VIEW THE COORDINATE BENCH HAS TAKEN THE CORRECT VIEW IN THE DECISION OF LGW LTD (SUPRA) AND THE CASE OF THE ASSESSEE IS COVERED BY THE SAID JUDGMENT. THEREFORE WE FIND NO MERIT IN THE APPEAL OF THE REVENUE. THERE IS NO CHANGE IN FACTS. THEREFORE FOLLOWING T HE DECISION OF THE COORDINATE BENCH OF THE TRIBUNAL, WE DISMISS THE GR OUND NOS.2 AND 3 RAISED BY THE REVENUE. 07. THE NEXT GROUND RAISED BY THE REVENUE IS WITH R ESPECT TO THE EXPENDITURE ON ISSUANCE OF BONDS FOR RS.25,00,000/- . THE ASSESSEE CLAIMED STAMP DUTY EXPENSES AMOUNTING TO RS.2500000 /- UNDER THE HEAD CONTINGENCIES. IT WAS CLARIFIED TO THE AO THA T THESE ARE ONE-TIME STATUTORY EXPENSES PAYABLE AT FIXED PERCENTAGE OF T HE VALUE OF THE BOND ISSUED TO THE PUBLIC. THE EXPENDITURE WAS MEA GRE COMPARED TO ITA .888 & 889/BANG/2017 PAGE - 5 THE CAPITAL RAISED BY THE BANK AND THE EXPENDITURE WAS DEBITED TO THE P & L ACCOUNT. IT WAS ALSO MENTIONED THAT THE EXPEND ITURE WAS NOT CAPITAL IN NATURE AND IS THEREFORE REQUIRED TO BE A LLOWED AS REVENUE. FOR THIS PURPOSE RELIANCE WAS PLACED ON THE JUDGMEN T OF THE HONBLE SUPREME COURT IN THE MATTER OF INDIA CEMENTS V. CIT [60 ITR 52] AND THE DECISION OF THE HONBLE JURISDICTIONAL HIGH COU RT IN CIT V. ITC HOTELS 334ITR 109. 08. THE LD. DR RELIES UPON THE JUDGMENT OF THE HON BLE SUPREME COURT IN BROOKE BOND INDIA LTD V. CIT [(1997) 225 I TR 798]. 09. WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE MATERIAL ON RECORD. IN OUR VIEW, THE ISSUE IS SQUARELY COVERED IN FAVOUR OF THE ASSESSEE BY THE HONBLE SUPREME COURT IN THE MATTER OF INDIA CEMENTS (SUPRA) HAD HELD THAT THE DEBENTURE WHEN IS SUED IS A LOAN AND THEREFORE THE EXPENDITURE INCURRED FOR ISSUANCE OF DEBENTURE WOULD BE ADMISSIBLE AS REVENUE EXPENDITURE. SIMILARLY IN TH E PRESENT CASE, THE BONDS ISSUED BY THE ASSESSEE WERE IN THE NATURE OF A DEBT INSTRUMENT AND THE STAMP DUTY PAID TO GOVERNMENT OF KARNATAKA BY THE ASSESSEE WOULD BE ELIGIBLE AS REVENUE EXPENDITURE AS IT WILL NOT ENHANCE THE CAPITAL BASE OF THE ASSESSEE. THERE IS A DISTINCTI ON BETWEEN THE EXPENDITURE INCURRED FOR RAISING THE LOAN AND THE I NSTRUMENT WHICH HAD AN EFFECT OF INCREASING THE SHARE CAPITAL. IN THE MATTER OF BROOKE BOND INDIA LTD (SUPRA), THE CASE BEFORE THE HONBLE SC WAS OF INCREASING THE SHARE CAPITAL, BUT WHEREAS IN INDIA CEMENTS (SU PRA), CIT V. INSTRUMENTATION LTD [(2013) 37 TAXMANN.COM 271], AS WELL AS IN ITA .888 & 889/BANG/2017 PAGE - 6 SECURED METERS LTD 321 ITR611 THE CASE WAS OF ALLOW ING THE EXPENDITURE FOR OBTAINING THE LOAN. IN VIEW OF THE ABOVE, WE DO NOT FIND ANY MERIT IN THE APPEAL OF THE REVENUE AND THE REFORE THE SAME IS DISMISSED. ITA.889/BANG/2017 AY 2013-14 : 10. THE FACTS AND CIRCUMSTANCES AS EXISTING IN ITA. 888/BANG/2017 FOR AY 2012-13, ARE SIMILAR TO THE FACTS OF THE PRE SENT CASE. THEREFORE FOLLOWING THE REASONING GIVEN THEREIN, WE DISMISS T HE APPEAL OF THE REVENUE IN ITA.889/BANG/2017. 11. IN THE RESULT, APPEALS FILED BY THE REVENUE ARE DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 31 DAY OF JAN UARY 2018. SD/- SD/- (JASON P. BOAZ) (LALIET KUMAR) ACCOUNTANT MEMBER JUDICIAL M EMBER MCN* COPY TO: 1. THE ASSESSEE 2. THE ASSESSING OFFICER 3. THE COMMISSIONER OF INCOME-TAX 4. COMMISSIONER OF INCOME-TAX(A) 5. DR 6. GF, ITAT, BANGALORE BY ORDER SENIOR PRIVATE SECRETARY, INCOME TAX APPELLATE TRIBUNAL, BANGALORE. ITA .888 & 889/BANG/2017 PAGE - 7