Charterd Capital & Investment Ltd., Ahmedabad V. The ACIT.,Cent.Circle-2(2), Ahmedabad

ITSSA 255/AHD/2012

• Counselvise Citation: [2016] 122 COUNSELVISE.COM (IT) 2165 (ITAT-AHMEDABAD)
• Duration Of Justice: 4 year(s) 2 month(s) 1 day(s)
• Appeal Type: Income Tax (Search & Seizure) Appeal
• Pronouncement Date: 12-07-2016
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: A
• Next Hearing Date: 08-07-2016
• Assessment Year: 2010-2011
• Appeal Filed On: 11-05-2012
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Assessee Lawyers: JIGAR M PATEL
• Section: 14A

Judgement Text

, A IN THE INCOME TAX APPELLATE TRIBUNAL A BENCH, AHMEDABAD BEFORE SHRI RAJPAL YADAV, JUDICIAL MEMBER AND SHRI N.K. BILLAIYA, ACCOUNTANT MEMBER ./ IT(SS)A.NO.253, 254 AND 255/AHD/2012 / ASSTT. YEAR: 2008-2009, 2009-10 AND 2010-11 CHARTERED CAPITAL & INVESTMENT LTD. 711, MAHAKANT BUILDING OPP: V.S. HOSPITAL ASHRAM ROAD AHMEDBAD 380 006. PAN : AAACC 6247 L VS ACIT, CC - 2(2) AHMEDABAD. ! / (APPELLANT) '# ! / (RESPONDENT) ASSESSEE BY : SHRI JIGAR M. PATEL, AR REVENUE BY : SHRI K. MADHUSUDAN, SR.DR / DATE OF HEARING : 08/07/2016 / DATE OF PRONOUNCEMENT: 12/07/2016 $%/ O R D E R PER RAJPAL YADAV, JUDICIAL MEMBER: PRESENT THREE APPEALS ARE DIRECTED AT THE INSTANCE OF THE ASSESSEE AGAINST THE COMMON ORDER OF THE LD.CIT(A)-III, AHME DABAD DATED 6.3.2012 PASSED FOR THE ASSTT.YEARS 2008-09, 2009-1 0 AND 2010-11. 2. SOLITARY GRIEVANCE OF THE ASSESSEE IS THAT THE L D.CIT(A) HAS ERRED IN CONFIRMING THE DISALLOWANCE OF RS.7,58,415/- AND RS .8,10,108/- IT(SS)A NO.254/AHD/2012 & 2 OTHERS 2 RS.10,62,269/- MADE BY THE AO UNDER SECTION 14A OF THE INCOME TAX ACT R.W.S. RULE 8D OF THE INCOME TAX RULES, 1962 IN THE ASSTT.YEARS 2008-09, 2009-10 AND 2010-11 RESPECTIVELY. 3. WITH THE HELP OF LD.REPRESENTATIVES, WE HAVE GON E THROUGH THE RECORD CAREFULLY. AS FAR AS APPLICABILITY OF SECTI ON 14A AND RULE 8D FOR MAKING DISALLOWANCE OF EXPENDITURE, WHICH WERE INCU RRED BY AN ASSESSEE FOR EARNING TAX FREE INCOME IS CONCERNED, THERE IS NO DISPUTE BETWEEN THE PARTIES. THE DISPUTE PERTAINS TO THE COMPUTATION O F THIS DISALLOWANCE WITH THE HELP OF RULE 8D. THE LD.COUNSEL FOR THE A SSESSEE HAS POINTED OUT THAT THE DISALLOWANCE PER SE COMPUTED WITH THE HELP OF RULE 8D IS NOT BEING IN DISPUTE. THE DISPUTE IS THAT THE LD.A O HAS WORKED OUT THE INTEREST EXPENDITURE FOR DISALLOWANCE IN EACH ASSES SMENT YEAR. THE ASSESSEE HAS MORE RESERVES AND SURPLUS IN EACH YEAR , WHICH COULD BE CONSIDERED AS USED FOR MAKING INVESTMENT WHICH HAS RESULTED IN TAX FREE INCOME. THEREFORE, UNDER SUB-RULE 2(II) OF RULE 8D NO INTEREST EXPENDITURE OUGHT TO HAVE BEEN COMPUTED BY THE AO F OR DISALLOWANCE. IN ORDER TO BUTTRESS THIS CONTENTION, THE LD.COUNSE L FOR THE ASSESSEE TOOK US THROUGH WRITTEN SUBMISSIONS FILED BEFORE THE AO IN THE ASSTT.YEAR 2008-09. RELEVANT PART OF THIS SUBMISSION READS AS UNDER: IN RESPONSE, THE ASSESSEES VIDE SUBMISSION DATED 09 .11.2011 SUBMITTED AS UNDER:- 2. 'COMPANY HAS BEEN ENGAGED IN THE ACTIVITY OF INVESTMENT BANKING AND INVESTING ITS SURPLUS FUNDS IN SHARES/SECURITIES AND BANK DEP OSIT IN ALL THE ASSESSMENT YEARS REFERRED ABOVE. IT HAS BEEN EARNING DIVIDEND INCOME FROM ITS INVESTMENT IN SHARES AS WELL AS LONG TERM AND SHORT TERM CAPITAL GAIN. FROM FIXED DEPOSIT IT IS EARNING BANK INTEREST. HOWEVER, FOR MEETING ITS 'TEMPORARY REQUI REMENTS IT HAS THE FACILITY OF DRAWING LOAN AGAINST ITS OWN ON WHICH BANK CHARGES INTEREST WHICH IS 1% HIGHER THAN THE F.D. IT(SS)A NO.254/AHD/2012 & 2 OTHERS 3 3, SHORES OF COMPANY'S SHARE CAPITAL AND PRE SERVES STOOD AS UNDER: 31/3/2010 ______31/3/2009 ______31/3/2008 SHARE CAPITAL 30116000 30116000 30116000 RESERVES 117463233 ______ 92206917 _____ 82949381 14757 9233 122322917 113065381 ITS INVESTMENT IN SHARES/SECURITIES STOOD AS UNDER: 31/3/2010 ______ 31/3/2009 31/3/2008 INVESTMENTS IN SHARES/SECURITIES 94089802 65343627 51444871 4. A. SECTION 14A PROVIDES FOR DISALLOWANCE OF EXPENDITURE INCURRED BY THE ASSESSEE IN RELATION TO THE INCOME WHICH DOES NOT F ORM PART OF SUCH EXPENDITURE IS ADMINISTRATIVE EXPS. AND IN ABSENCE OF ESTABLISHING DIRECT NEXUS OF SUCH EXPENDITURE 0,5% OF VALUE OF AVERAGE INVESTMENT IS REQUIRED TO BE DISALLOWED IN VIEW OF RULE 8D. IN OUR CASE THE FIGURE OF DISALLOWANCE ON ACCOUNT OF A DMINISTRATIVE EXPENSES WORKS OUT AS UNDER - A.Y. DISALLOWABLE STATUS 2008-2009 247270 TO BE DISALLOWED 2009-2010 291971 ALREADY DISALLOWED 2010-2011 398584 ALREADY DISALLOWED B. INTEREST EXPENSES A. AS STATED IN PARA 3, COMPANY HAD SUFFICIENT CAPITAL AND RESERVE TO TAKE CARE OF INVESTMENTS MADE IN SHARES/SECURITIES. IN ALL THE Y EARS REFERRED ABOVE, COMPANY'S SHARE CAPITAL AND RESERVES HAVE BEEN MORE THAN ITS INVEST MENTS. DISALLOWANCE WAS DELETED IN THE SIMILAR CIRCUMSTANC ES IN HARRISONS MALAYALAM LTD. V. ASSTT. CIT(2008) 21 (II) ITCL 166 (COCH. TRIB.): (2008) 19 SOT 363 (COCH-TRIB) IT WAS HELD THAT NO DISALLOWANCE UNDER SECTION 14A FOR INTEREST EXPENDITURE ALLEGALLY INCURRED TO EARN INTEREST FROM TAX FREE BONDS WOULD BE MADE WHERE ASSESSEE WAS HAVING SUFFICIENT GENERAL RESERVE IN ADDITION TO OT HER RESERVES. COPY OF GIST OF JUDGEMENT ENCLOSED. B. WITHOUT PREJUDICE TO ABOVE, IN OUR CASE, INT EREST EXPENSES ARE IN RESPECT OF AMOUNTS OVERDRAWN FROM BANK AGAINST ITS OWN F.D. TO MEET SHORT TERM REQUIREMENTS OF FUNDS. THE FACT OF THE MATTER IS THAT SURPLUS FUNDS INVESTED IN F.D. ARE NOT DISTURBED PREMATURELY AND FUNDS ARE BORROWED AGAINST THE SAID F.D. ON WHICH BANK TAKES INTEREST AS WELL AS IT CONTINUES TO PAY INTEREST ON OUR F.D. SIR, IF SURPLUS FUND WERE NOT DEPLOYED IN F.D., THERE WOULD NOT HAVE BEEN ANY REQ UIREMENT OF FUNDS AND NO INTEREST EXPENSES AS WELL. SIR, WE EARN INTEREST ON F.D. AT 8%PER ANNUM WHICH IS SHOWN AS INCOME AND AGAINST THE F.D., WE HAVE O/D BORROWING ON WHICH BANK CHARG ES 1% HIGHER INTEREST THAN F.D. I.E. 9% WHICH HAS BEEN DEBITED TO INTEREST EXPENSES ALE. THUS, IF AT ALL ANY DISALLOWANCE IS CALLED FOR, THAT CAN BE ONLY ON DIF FERENCE OF 1% OF INTEREST WHICH HAS BEEN PAID HIGHER ON O.D. LOAN ACCOUNT. THUS, ENTIRE INTEREST EXPENSE CANNOT BE CONSIDERED FOR DISALLOWANCE U/S. 14A ON ANY COUNT, IT(SS)A NO.254/AHD/2012 & 2 OTHERS 4 C. NOT ONLY THAT MOST OF THE INVESTMENTS ARE OLD CO MING FROM YEAR ON YEAR. IN THE LIGHT OF ABOVE SUBMISSION, YEARWISE EXPLANAT ION IS AS UNDER:- A.Y. 2008-2009: DURING THE YEAR, COMPANY HAS INCURRED INTEREST EXPE NSES ON 0/D LOAN IS RS.1087954/- AND AS AGAINST THAT INTEREST INCOME FR OM F.D. AND OTHERS WAS RS.3516674/- THUS NET INTEREST INCOME OF RS. 242872 0/- DURING THE YEAR AS AT 31/3/2008 ITS SHARE CAPITAL, RESERVES AND INVESTMENT STOOD AS UNDER:- 31/3/2008 SHARE CAPITAL 30116000 RESERVES 82949381 113065381 INVESTMENTS IN SHARES/SECURITIES 51444871 THUS, IT IS VERY -WELL BE CONCLUDED THAT ITS INVEST MENT ARE FROM ITS CAPITAL AND RESERVES. IN VIEW OF ABOVE, NO DISALLOWANCE U/S. 14A IS CALLE D FOR TOWARDS INTEREST EXPS.' 4. ON THE STRENGTH OF HONBLE GUJARAT HIGH COURT DE CISION IN THE CASE OF CIT VS. UTI BANK LTD., 32 TAXAMNN.COM 370 (GUJAR AT), IT WAS CONTENDED THAT WHERE AN ASSESSEE WAS HAVING MIX FUN DS AND SUCH ASSESSEE HAS MORE INTEREST FREE FUNDS, AND THE INVE STMENT MADE THEREFROM HAS GIVEN RISE TO TAX FREE INCOME, THEN A N INFERENCE IS TO BE DRAWN THAT SUCH INVESTMENT WAS MADE OUT OF INTEREST FREE FUND AND NOT FROM INTEREST BEARING FUND. COPY OF THIS DECISION HAS BEEN PLACED ON RECORD BY THE LD.COUNSEL FOR THE ASSESSEE. A PER USAL OF THE WRITTEN SUBMISSIONS EXTRACTED SUPRA, IT WOULD REVEAL THAT T HE ASSESSEE HAS MORE FUNDS IN THE RESERVES AND SURPLUS FUND, THAN THE IN VESTMENT MADE BY THE ASSESSEE. WHEN, WE CONFRONTED TO THE LD.COUNSEL FO R THE ASSESSEE TO SHOW AS TO WHY THE DISALLOWANCE AT 0.5% OF INVESTME NT SHOULD NOT BE MADE AS PER RULE 8D(2)(III), THEN, HE CONTENDED THA T THE ASSESSEE HAS HIMSELF MADE SUCH DISALLOWANCE. HOWEVER, FROM PER USAL OF THE WRITTEN IT(SS)A NO.254/AHD/2012 & 2 OTHERS 5 SUBMISSION IT REVEALS THAT THOUGH THE ASSESSEE HAS WORKED OUT THE DISALLOWANCE AT 0.5% OF THE VALUE OF AVERAGE INVEST MENT AT RS.2,47,270/- , RS.2,91,971/- AND RS.3,98,584/- IN THESE ASSESSME NT YEARS RESPECTIVELY, BUT NOT DISALLOWED IN THE ASSTT.YEAR 2008-09. WE R EMIT THIS ISSUE TO THE FILE OF THE AO WITH DIRECTION THAT IF THESE AMOUNTS HAVE NOT BEEN DISALLOWED BY ITSELF IN THESE ASSESSMENT YEARS, THE N THE DISALLOWANCE TO THIS EXTENT IS UPHELD. AS FAR AS INTEREST COMPONEN T COMPUTED BY THE AO IS CONCERNED, THE DISALLOWANCE TO THAT EFFECT IS DE LETED IN ALL THESE YEARS. WITH THE ABOVE OBSERVATIONS, THE APPEALS OF THE ASS ESSEE ARE PARTLY ALLOWED. 5. IN THE RESULT, ALL THE APPEALS OF THE ASSESSEE A RE PARTLY ALLOWED. ORDER PRONOUNCED IN THE COURT ON 11 TH JULY, 2016 AT AHMEDABAD. SD/- SD/- ( N.K. BILLAIYA ) ACCOUNTANT MEMBER (RAJPAL YADAV) JUDICIAL MEMBER AHMEDABAD; DATED 12/07/2016