Dy. Commissioner of Income Tax , Circle-2(2), Hyderabad V. Transport Corporation of India Limited, Secunderabad

ITA 976/Hyd/2018

• Counselvise Citation: [2019] 118 COUNSELVISE.COM (IT) 1302 (ITAT-HYDERABAD)
• Duration Of Justice: 10 month(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 15-03-2019
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: DB-B
• Next Hearing Date: 06-03-2019
• Assessment Year: misc
• Appeal Filed On: 15-05-2018
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: Y V S T SAI
• Keywords: Earning of tax free income; Tax effect; Rule 8D
• Section: 14A

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL HYDERABAD BENCH B, HYDERABAD BEFORE V. DURGA RAO, JUDICIAL MEMBER AND SHRI S. RIFAUR RAHMAN, ACCOUNTANT MEMBER ITA NOS. 974 & 976/ HYD/2018 (A.Y.: 2012 - 13 ) & (A.Y.: 2013 - 14 ) DCIT, CIRCLE - 2(2), HYDERABAD. VS. TRANSPORT CORPORATION OF INDIA LIMITED, SECUNDERABAD. PAN: AAACT 7966 R (APPELLANT) (RESPONDENT) ITA NO. 975/HYD/2018 (A.Y.: 2013 - 14) TRANSPORT CORPORATION OF INDIA LIMITED, SECUNDERABAD. PAN: AAACT 7966 R DCIT, CIRCLE - 2(2), HYDERABAD. ASSESSEE BY: SHRI Y. RATNAKAR REVENUE BY: SRI Y.V.S.T. SAI, CIT - DR DATE OF HEARING: 06/03/2019 DATE OF PRONOUNCEMENT: 15 /03/2019 ORDER PER V. DURGA RAO, J.M.: ALL THE THREE CAPTIONED APPEALS ARE FILED AGAINST THE DIFFERENT ORDERS OF THE CIT(A), GUNTUR - 1 COMMONLY DATED 13/03/2018 FOR THE ASSESSMENT YEARS 2012 - 13 AND 2013 - 14. ITA NOS. 974 AND 976/HYD/2018 ARE FILED BY THE REVENUE AND ITA NO.975/HYD/2018 IS FILED T HE ASSESSEE FOR THE A.Y. 2013 - 14. 2 2. AT THE TIME OF HEARING, IN SO FAR AS THE REVENUES APPEALS ARE CONCERNED (ITA NOS. 974 AND 976/HYD/2018) , LEARNED DEPARTMENTAL REPRESENTATIVE SUBMITTED THAT THE TAX EFFECT IN TH ESE APPEAL S IS LESS THAN RS. 20 LAKHS. THE CBDT VIDE ITS CIRCULAR NO.3/2018 DATED 11.07.2018 HAS DIRECTED THE REVENUE TO WITHDRAW THE APPEALS BEFORE THE TRIBUNAL WHERE THE TAX EFFECT IS LESS THAN RS. 20 LAKHS. LEARNED DEPARTMENTAL REPRESENTATIVE ACCORDINGLY SOUGHT PERMISSION OF THE BENCH TO WITHDRAW THE APPEAL OF THE REVENUE. 3. CONSIDERING THE LOW TAX EFFECT INVOLVED IN THE CASE, THE REVENUES APPEAL IS DISMISSED AS WITHDRAWN WITH A LIBERTY TO FILE A MISCELLANEOUS APPLICATION FOR RECALL OF THE ORDER IF THE CASE FALLS UNDER ANY OF THE EXCEPTIONS SET OUT IN THE SAID BOARDS CIRCULAR (SUPRA). 4. IN THE RESULT, BOTH THE REVENUES APPALS (ITA NOS. 974 AND 976/HYD/2018) ARE DISMISSED. 5. AS REGARDS THE ITA NO.975/HYD/2018 IS CONCERNED, THE ASSESSEE HAS RAISED THE FOL LOWING GROUNDS OF APPEAL: - 1. THAT THE LD. CIT(A) ERRED IN DIRECTING THE ASSESSING OFFICER TO RECALCULATE THE DISALLOWANCE UNDER RULE 8D(II) 3 INSTEAD OF GIVING FULL RELIEF AS THE APPELLANTS OWN FUNDS ARE FAR IN EXCESS OF THE AMOUNT OF INVESTMENTS MADE. 2. THAT THERE IS NO DIRECT OR EVEN REMOTE CONNECTION BETWEEN THE INVESTMENT IN SHARES AND BORROWED FUNDS. THE BORROWINGS HAVE BEEN USED FOR BUSINESS PURPOSES AND NOT FOR MAKING INVESTMENTS IN SHARES. THE INVESTMENTS IN SUBSIDIARIES HAVE ALSO BEEN MADE FOR BUSINESS PURPOSES AND NOT FOR EARNING ANY DIVIDEND INCOME OR OTHER EXEMPT INCOME. 3. THAT THE LD. CIT(A) ERRED IN NOT APPRECIATING WHERE BOTH INTEREST FREE FUNDS AND INTEREST BEARING FUNDS ARE AVAILABLE, THE PRESUMPTION SHOULD BE THAT T HE TAX EXEMPT INVESTMENTS WERE MADE OUT OF INTEREST FREE FUNDS. 4. THAT NO EXPENDITURE HAS BEEN INCURRED IN RELATION TO EARNING OF DIVIDEND INCOME OR OTHER INCOME WHICH ARE EXEMPT FROM TAX. 5. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW NO DISALLOWANCE COULD BE MADE IN UNDER RULE 8D(2)(II) . 6. THAT ON THE FACTS AND IN THE CIRCUMSTANCES THE LD. CIT(A) ERRED IN DIRECTING THE ASSESSING OFFICER TO APPORTION THE REMUNERATION OF THE EXECUTIVE DIRECTORS AND NON - EXECUTIVE DIRECTORS ARE IN CHARGE OF SPECIFIC BUSINESS DIVISIONS AND NONE OF THE EXECUTIVE DIRECTORS ARE IN CHARGE OF THE SHIPPING DIVISION AND ACCORDINGLY NO PART OF THE REMUNERATION OF EXECUTIVE DIRECTORS CAN BE APPORTIONED TO THE SHIPPING DIVISION. 7. THAT THE LD. CIT(A) ERRED IN NOT APPR ECIATING AT THE ENTIRE MANAGEMENT EXPENSES RELATING TO THE SEAWAYS DIVISIONS HAVE BEEN CHARGED IN THE ACCOUNTS OF SEAWAYS DIVISION. 6. AT THE OUTSET, LEARNED COUNSEL FOR THE ASSESSEE SUBMITTED THAT GROUNDS NO.6 AND 7 ARE NOT PRESSED AND THEREFORE, THE SAME ARE DISMISSED AS NOT PRESSED. 7. GROUNDS NO. 1 TO 5 RELATE TO DISALLOWANCE U/S 14A READ WITH RULE 8D(II) OF RS. 39,15,722/ - . BRIEF FACTS IN THIS REGARD ARE THAT THE ASSESSEE IS ENGAGED IN THE BUSINESS OF TRANSPORTATION OF GOODS, LOGISTICS AND GENERATION OF POWER. THE ASSESSEE FILED ITS RETURN OF INCOME FOR THE A.Y. 2013 - 14 DECLARING TOTAL INCOME OF RS. 63,27,55,000/ - . THE ASSESSEES CASE WAS 4 SELECTED FOR SCRUTINY UNDER CASS. DURING THE SCRUTINY PROCEEDINGS, IT WAS NOTICED THAT THE ASSESSEE MADE INVESTMENT OF RS. 33.22 CRS WHICH ARE EXE MPT FROM TAXATION. THEREFORE, THE ASSESSEE WAS ASKED AS TO WHY DISALLOWANCE U/S 14A OF THE ACT CANNOT BE MADE ON THE ABOVE INVESTMENTS. IN REPLY THE ASSESSEE SUBMITTED BEFORE THE A.O. THAT NO PART OF BORROWINGS HAVE BEEN UTILISED FOR THE PURPOSE OF ACQUI SITION OF ANY INVESTMENTS IN SHARES AND THAT THE AGGREGATE OF ASSESSEES SHARE CAPITAL AND RESERVES AND SURPLUS AMOUNT TO RS. 404.90 CRS AS AGAINST INVESTMENT IN SHARES AMOUNTS TO RS. 33.22 CRS AS ON 31/3/2013, WHICH ARE FAR LESS THAN OUR OWN FUNDS. THER EORE, THE ASSESSEE HAS NOT UTILISED ANY BORROWED FUNDS FOR ACQUISITION OF INVESTMENT IN SHARES AND THUS THE PROVISIONS OF SECTION 14A HAS NO APPLICATION. ASSESSEE RELIED ON THE DECISION OF THE BOMBAY HIGH COURT IN THE CASE OF CIT VS. RELIANCE UTILITIES AN D POWER LTD 313 ITR 340 IN SUPPORT OF ITS CONTENTION. ASSESSEE ALSO RELIED UPON THE DECISION OF THE HONBLE BOMBAY HIGH COURT IN THE CASE OF GODREJ AND BOYCE MFG. CO. LTD [2010] 328 ITR 81 (BOM.); THE DECISION OF THE ITAT, DELHI BENCH IN THE CASE OF ACIT V S. E.I. DUPONT INDIA LTD [2008] 298 ITR (AT) 296 (DELHI) AND THE DECISION OF THE ITAT, KOLKATA BENCH IN THE CASE OF M/S. BHORUKA INVESTMENT LTD VS. DCIT IN ITA NOS. 129/KOL/2016 AND OTHERS DATED 29/01/2017. ASSESSEE ALSO SUBMITTED THAT MANY OF THE 5 INVESTM ENTS IN SHARES ARE IN DEMAT FORM AND DIVIDEND THEREON IS ELECTRONICALLY CREDITED TO THE ASSESSEES BANK ACCOUNT DIRECTLY AND THEREFORE, NO EXPENDITURE WAS REQUIRED TO BE INCURRED FOR RECEIPT OF DIVIDEND INCOME. NOT SATISFIED WITH THE EXPLANATION GIVEN BY THE ASSESSEE, A.O. CAME TO THE CONCLUSION THAT WHEN THERE IS A DIRECT PROXIMATE CONNECTION BETWEEN THE INVESTMENTS AND BORROWED FUNDS, DISALLOWANCE IS WARRANTED AND ACCORDINGLY HE COMPUTED THE DISALLOWANCE U/S 14A TO THE EXTENT OF RS. 39,15,722/ - AND BROUG HT IT TO TAX. 8. AGGRIEVED, ASSESSEE CARRIED THE MATTER IN APPEAL BEFORE THE CIT(A), WHO CONFIRMED THE ORDER OF THE A.O. AGGRIEVED, ASSESSEE FILED THE PRESENT APPEAL BEFORE US BY RAISING THE ABOVE MENTIONED GROUNDS OF APPEAL. 9. LEARNED COUNSEL FOR THE ASSESSEE SUBMITTED THAT THE ASSESSEE IS HAVING SUFFICIENT OWN FUNDS FOR INVESTMENT IN SHARES AND THEREFORE, IT CAN BE EASILY PRESUMED THAT THE ASSESSEE MUST HAVE UTILISED THE OWN FUNDS AND NOT THE BORROWED FUNDS AND THEREFORE, NO DI SALLOWANCE CAN BE MADE U/S 14A. 10. ON THE OTHER HAND, LEARNED DEPARTMENTAL REPRESENTATIVE SUBMIT THAT THE ASSESSEE IS NOT ABLE TO WORKOUT WHAT ARE THE OWN FUNDS WHICH ARE AVAILABLE TO CARRY OUT THE BUSINESS AND 6 WHAT ARE THE SURPLUS FUNDS AVAILABLE TO INV EST ON SHARES AND THEREFORE, NO PRESUMPTION CAN BE DRAWN THAT THE FUNDS INVESTED BY THE ASSESSEE ARE THE OWN FUNDS. 11. WE HAVE HEARD BOTH THE PARTIES, PERUSED THE MATERIAL AVAILABLE ON RECORD AND GONE THROUGH ALL THE ABOVE CASES AND FIND THAT THEY ARE NOT APPLICABLE TO THE PRESENT CASE. IN THE INSTANT CASE, THE ASSESSEE COULD NOT ESTABLISH THAT WHAT ARE THE SURPLUS FUNDS AVAILABLE WITH THEM. THAT APART, THE ASSESSEE HAS BORROWED THE FUNDS AND THE ASSESSEE IS NOT ABLE TO ESTABLISH THAT THE FUNDS INVEST ED BY THE ASSESSEE ARE INTEREST FREE FUNDS. THE ASSESSEE HAS NOT FILED THE CASH FLOW STATEMENT TO SHOW THAT WHAT ARE THE FUNDS AVAILABLE WITH THE ASSESSEE TO CARRY - OUT THE BUSINESS AND WHAT ARE THE FUNDS AVAILABLE FOR INVESTMENT. WHEN THE BENCH SPECIFICA LLY ASKED THE LEARNED COUNSEL FOR THE ASSESSEE ABOUT THE CASH FLOW STATEMENT, HE SUBMITTED THAT THE SAME IS NOT AVAILABLE. UNDER THESE CIRCUMSTANCES OF THE CASE, NO PRESUMPTION CAN BE DRAWN IN FAVOUR OF THE ASSESSEE. WE THEREFORE, FIND NO INFIRMITY IN T HE ORDER OF THE CIT(A) AND CONFIRM THE SAME. ACCORDINGLY, THE GROUNDS OF APPEAL RAISED BY THE ASSESSEE ARE DISMISSED. 12. IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE IS DISMISSED. 7 13. CONCLUSIVELY, ITA NOS. 974 AND 976/HYD/2018 FILED BY THE REVENUE AN D ITA NO. 976/HYD/2018 FILED BY THE ASSESSEE ARE DISMISSED. PRONOUNCED IN THE OPEN COURT ON 15 TH MARCH, 2019. SD/ - SD/ - (S. RIFAUR RAHMAN) (V. DURGA RAO) ACCOUNTANT MEMBER JUDICIAL MEMBER HYDERABAD, DATED: 15 TH MARCH , 2019 OKK COPY TO: - 1) M/S. TRANSPORT CORPORATION OF INDIA LIMITED, 1 - 8 - 271 TO 273, ASHOKA BHUPAL CHAMBERS, S P ROAD, SECUNDERABAD - 500003. 2) DCIT, CIRCLE - 2(2), R.NO. 513, 5 TH FLOOR, SIGNATURE TOWERS, KONDAPUR, HYDEABAD. 3) THE CIT(A) , GUNTUR - 1. 4) TH E PR. CIT, GUNTUR - 1. 5) THE DR, ITAT, HYDERABAD 6) GUARD FILE