M/s. Star Investments Pvt. Ltd., CHENNAI V. ACIT, CHENNAI

MA 211/CHNY/2016

• Counselvise Citation: [2017] 124 COUNSELVISE.COM (IT) 5560 (ITAT-CHENNAI)
• Duration Of Justice: 7 month(s) 24 day(s)
• Appeal Type: Miscellaneous Application
• Pronouncement Date: 03-04-2017
• Appeal Filed By: Assessee
• Bench Allotted: C
• Next Hearing Date: 06-01-2017
• Assessment Year: 2011-2012
• Appeal Filed On: 10-08-2016
• Court: TRIBUNAL
• Department Lawyers: A V SREEKANTH
• Assessee Lawyers: SUSHMA HARINI
• Keywords: Earning of tax free income; Question of law; Initiation of penalty proceedings
• Section: 14A

Judgement Text

, , IN THE INCOME - TAX APPELLATE TRIBUNAL C BENCH, CHENNAI , . , BEFORE SHRI CHANDRA POOJARI , ACCOUNTANT MEMBER & SHRI DUVVURU RL REDDY , JUDICIAL MEMBER M.P. NO. 211/MDS/2016 [IN I.T.A.NO. 21/MDS/2015 ] & I.T.A.NO. 21/MDS/2015 ASSESSMENT YEAR : 2011 - 12 M/S. STAR INVESTMENTS PVT. LTD., NEW NO. 17/1, OLD NO. 9, BAZULLAH ROAD, T. NAGAR, CHENNAI 600 0 1 7 . [PAN: A A A CS4693J ] VS. THE ASSISTANT CO MMISSIONER OF INCOME TAX , COMPANY CIRCLE VI(4) , 121, MAHATMA GANDHI ROAD, NUNGAMBAKKAM, CHENNAI 600 0 34 . ( / APPELLANT ) ( / RESPONDENT ) / APPELLANT BY : MS. SUSHMA HARINI, ADVOCATE / RESPONDENT BY : SHRI A.V. SREEKANTH, JCIT / DATE OF HEARING : 0 6 . 0 1 .201 7 / DATE OF P RONOUNCEMENT : 03 .0 4 .201 7 / O R D E R PER DUVVURU RL REDDY , JUDICIAL MEMBER : BY MEANS OF PRESENT MISCELLANEOUS PETITION, THE ASSESSEE SEEKS TO GET RECALLED THE COMMON ORDER PASSED BY THE TRIBUNAL IN I.T.A. NO S . 20, 21 & 158/ MDS/201 5 D ATED 2 1 .06.2016 RELEVANT TO THE ASSESSMENT YEAR 20 1 0 - 11 AND 2011 - 12 . BY REFERRING TO THE PETITION, THE LD. COUNSEL FOR THE ASSESSEE HAS SUBMITTED THAT AGAINST THE APPEAL OF THE ASSESSEE IN I.T.A. NO. 21/MDS/2015 FOR THE ASSESSMENT YEAR 2011 - 12, THE TRIBUNA L HAS NOT ADJUDICATED THE SPECIFIC GROUND RAISED BY THE ASSESSEE AT GROUND NO. 6 & 7 M.P. NO. 211/M/16 & I.T.A. NO . 21 /M/ 15 2 WITH REGARD TO CONFIRMATION OF DISALLOWANCE UNDER SECTION 14A OF THE INCOME TAX ACT, 1961 [ ACT IN SHORT] , WHICH CONSTITUTE AN ERROR APPARENT ON THE FACE OF THE RECORD AN D PLEADED THAT THE ORDER AGAINST THE APPEAL FOR THE ASSESSMENT YEAR 2011 - 12 MAY BE RECALLED AND THE GROUND MAY BE ADJUDICATED. 2. THE LD. DR DID NOT OBJECT TO THE ABOVE SUBMISSIONS OF THE ASSESSEE. 3. WE HAVE HEARD BOTH SIDES, PERUSED THE ORDER OF TH E TRIBUNAL AND FIND THAT THE INADVERTENTLY, THE GROUND RAISED BY THE ASSESSEE WITH REGARD TO CONFIRMATION OF DISALLOWANCE UNDER SECTION 14A OF THE ACT HAS NOT BEEN ADJUDICATED BY THE TRIBUNAL WHILE DECIDING THE APPEAL OF THE ASSESSEE FOR THE ASSESSMENT YEA R 2011 - 12. THUS, WE HEREBY RECALL TRIBUNAL S ORDER FOR THE ASSESSMENT YEAR 2011 - 12 DATED 21.06.2016 FOR LIMITED PURPOSE FOR ADJUDICATING THE ABOVE GROUND. I.T.A. NO. 21/MDS/2015[A.Y. 2011 - 12] 4. AS PER GROUNDS OF APPEAL, THE FOLLOWING GROUNDS RAISED BY T HE ASSESSEE HAVE NOT BEEN ADJUDICATED: 6) THE COMMISSIONER OF INCOME TAX (APPEALS) ERRED IN CONFIRMING THE DISALLOWANCE OF NOTIONAL EXPENSE U/S 14A OF THE INCOME TAX ACT ON THE ERRONEOUS ASSUMPTION THAT PART OF THE EXPENDITURE IS ATTRIBUTABLE TO THE EARNIN G OF THE EXEMPT INCOME PARTICULARLY WHEN THERE IS NO JUSTIFICATION IN THIS REGARD. 7) THE COMMISSIONER OF INCOME TAX (APPEALS) ERRED IN CONFIRMING A SUM OF .2,26,382/ - AS BEING LIABLE TO BE DISALLOWED U/S. 14A OF THE IT ACT READ WITH RULE 8D OF THE IT R ULES. M.P. NO. 211/M/16 & I.T.A. NO . 21 /M/ 15 3 5. DURING THE FINANCIAL YEAR 20 1 0 - 1 1 RELEVANT TO THE ASSESSMENT YEAR 201 1 - 1 2 UNDER CONSIDERATION, THE ASSESSEE EARNED EXEMPT DIVIDEND INCOME OF . 28,440 / - . HOWEVER, THE ASSESSEE HAS NOT ADMITTED ANY EXPENSES INCURRED FOR EARNING THE ABOVE EXEMPT IN COME. AFTER CONSIDERING THE INVESTMENTS MADE BY THE ASSESSEE BY INVOKING PROVISIONS OF SECTION 14A R.W. RULE 8D , THE ASSESSING OFFICER WORKED OUT THE DISALLOWANCE TOWARDS EXPENDITURE FOR EARNING EXEMPT INCOME AT . 8,50,319/ - / - . THE LD. CIT(A) RESTRICTED TH E DISALLOWANCE AT . 2,26,382 / - UNDER SECTION 14 R.W. RULE 8D . IN SIMILAR FACTS AND CIRCUMSTANCES FOR THE EARLIER ASSESSMENT YEAR 2010 - 11 IN I.T.A. NO. 20/MDS/2015 VIDE ORDER DATED 21.06.2016 , BY FOLLOWING THE DECISION OF THE HON BLE DELHI HIGH COURT IN CAS E OF JOINT INVESTMENTS PVT. LTD. V. CIT 372 ITR 694 , THE TRIBUNAL HAS DECIDED THE ISSUE IN FAVOUR OF THE ASSESSEE AT PARA 3.3 & 3.4 BY OBSERVING AS UNDER: AND THE HEAD - NOTES ARE AS UNDER: 3.3 WE HAVE HEARD BOTH SIDES, PERUSED THE MATERIALS ON RECORD AND GONE THROUGH THE ORDERS OF AUTHORITIES BELOW. DURING THE FINANCIAL YEAR 2009 - 10 RELEVANT TO THE ASSESSMENT YEAR 2010 - 11 UNDER CONSIDERATION, THE ASSESSEE EARNED EXEMPT DIVIDEND INCOME OF .18,960/ - . HOWEVER, THE ASSESSEE HAS NOT ADMITTED ANY EXPENSES INCURRED FOR EARNING THE ABOVE EXEMPT INCOME. AFTER CONSIDERING THE INVESTMENTS MADE BY THE ASSESSEE AND SUBSEQUENTLY DECREASING THE INVESTMENTS DURING THE FINANCIAL YEAR 2009 - 10, THE ASSESSIN G OFFICER, BY INVOKING PROVISIONS OF SECTION 14A R.W. RULE 8D WORKED OUT THE DISALLOWANCE TOWARDS EXPENDITURE FOR EARNING EXEMPT INCOME AT .16,08,075/ - . THE LD. CIT(A) RESTRICTED THE DISALLOWANCE AT .54,824/ - . IN SIMILAR FACTS AND CIRCUMSTANCES, THE HON BLE DELHI HIGH COURT IN CASE OF JOINT INVESTMENTS PVT. LTD. V. CIT 372 ITR 694 DECIDED THE ISSUE IN FAVOUR OF THE ASSESSEE AND THE HEAD - NOTES ARE AS UNDER: M.P. NO. 211/M/16 & I.T.A. NO . 21 /M/ 15 4 INCOME - EXPENDITURE INCURRED IN RELATION TO INCOME NOT INCLUDIBLE IN TOTAL INCOME - DISALLOWANCE - ASSES SEE WAS ENGAGED IN DIVERSE INVESTMENT ACTIVITIES AND IN THE COURSE OF ITS BUSINESS DERIVED INCOME FROM RENT, SALE OF INVESTMENTS, DIVIDEND AND INTEREST - FOR AY 2009 - 10, ASSESSEE HAD REPORTED A LOSS OF SPECIFIED AMOUNT - ASSESSEE DECLARED TAX EXEMPT INCOME IN THE FORM OF DIVIDEND TO THE TUNE OF RS.4 8 ,90,000 - ASSESSEE VOLUNTEERED RS.2,97,440 AS ATTRIBUTABLE U/S14A FOR THE PURPOSE OF DISALLOWANCE - AO ON THE BASIS OF HIS OWN UNDERSTANDING OF RULE 8 D OF THE INCOME TAX RULES DISALLOWED THE SUM U/S 14A READ WITH RULE 8 D - ASSESSEE CLAIMED THAT THE ENTIRE TAX EXEMPT INCOME OF RS.48,90,000 WAS LOWER THAN THE DISALLOWANCE - CIT(A) AND ITAT UPHELD AO'S ORDER - HELD, IN CASE OF CIT(A) V. TAIKISHA ENGINEERING INDIA LTD., IT WAS HELD BY PRESENT COURT THAT IN VIEW OF THE PECULIAR WOR DING OF SECTION 14A (2) THAT COMPUTATION OR DISALLOWANCE OF THE ASSESSEE, OR CLAIM THAT NO EXPENDITURE WAS INCURRED FOR EARNING EXEMPT INCOME SHOULD BE EXAMINED WITH REFERENCE TO THE ACCOUNTS AND ONLY IF THE ASSESSEE'S EXPLANATION WAS UNSATISFACTORY, CAN T HE AO PROCEED FURTHER - IN THE PRESENT CASE, FIRSTLY IT WAS NOT DISCLOSED BY THE AO THAT THE APPELLANT/ASSESSEE'S CLAIM FOR ATTRIBUTING RS.2,97,440 AS A DISALLOWANCE U/S 14A HAD TO BE REJECTED - SECONDLY, THERE APPEARS TO HAVE BEEN NO SCRUTINY OF THE ACCOUNTS BY THE AO AN ASPECT WHICH WAS COMPLETELY UNNOTICED BY THE CIT(A) AND THE ITAT - THIRDLY, AN IMPORTANT ANOMALY WHICH INSTANT COURT CANNOT BE UNMINDFUL OF WAS THAT WHEREAS THE ENTIRE TAX EXEMPT INCOME WAS RS.48,90,000, THE DISALLOWANCE ULTIMATELY DIRECTED WORK S OUT TO NEARLY 110 PERCENT OF THAT SUM, THAT IS RS.52,56,197 - BY NO STRETCH OF IMAGINATION CAN SECTION 14A OR RULE 8D BE INTERPRETED SO AS TO MEAN THAT THE EN TIRE TAX EXEMPT INCOME WAS TO BE DISALLOWED - THE WINDOW FOR DISALLOWANCE WAS INDICATED IN SECTION 14A, AND WAS ONLY TO THE EXTENT OF DISALLOWING EXPENDITURE 'INCURRED BY THE ASSESSEE IN RELATION TO THE TAX EXEMPT INCOME' - THIS PROPORTION OR PORTION OF THE TA X EXEMPT INCOME SURELY CANNOT SWALLOW THE ENTIRE AMOUNT AS HAS HAPPENED IN THIS CASE - ITAT AS WELL AS THE AO AND CIT(A) HAD ESCAPED THE MANDATE OF SECTION 14A(2) - IMPUGNED ORDER OF THE ITAT WAS SET ASIDE - QUESTION OF LAW WAS ANSWERED IN FAVOUR OF THE ASSESSEE - ORDER OF THE AO WAS SET ASIDE - INITIATION OF PENALTY PROCEEDINGS ALSO WAS SET ASIDE - MATTER WAS REMITTED TO THE AO FOR FRESH CONSIDERATION IN ACCORDANCE WITH THE ABOVE DIRECTIONS ASSESSEE S APPEAL ALLOWED. M.P. NO. 211/M/16 & I.T.A. NO . 21 /M/ 15 5 3.4 IN THE PRESENT CASE, THE ASSESSEE HAS EA RNED EXEMPT DIVIDEND INCOME OF . 18,960 / - . THE ASSESSEE HAS NOT ADMITTED ANY EXPENSES TO EARN THE ABOVE DIVIDEND INCOME. THE ASSESSING OFFICER DISALLOWED THE EXPENSES TO THE TUNE OF .1 6 ,0 8 , 075 / - BY INVOKING SECTION 14A R.W.R. 8D. BY TAKING INTO CONSIDERATION OF THE FACTS AND CIRCUMSTAN CES OF THE PRESENT CASE AND KEEPING IN VIEW OF THE ABOVE DECISION OF THE HON BLE DELHI HIGH COURT, WE ARE OF THE OPINION THAT THE ASSESSING OFFICER IS NOT JUSTIFIED IN MAKING EXCESSIVE DISALLOWANCE. THEREFORE, WE RESTRICT THE DISALLOWANCE MADE BY THE ASSES SING OFFICER TO THE EXTENT OF EXEMPT INCOME EARNED BY THE ASSESSEE AND ORDERED ACCORDINGLY. 6. RESPECTFULLY FOLLOWING THE ABOVE ORDER OF THE TRIBUNAL, FOR THE ASSESSMENT YEAR 2011 - 12 ALSO, WE DIRECT THE ASSESSING OFFICER TO RESTRICT THE DISALLOWANCE UN DER SECTION 14A R.W. RULE 8D TO THE EXTENT OF EXEMPT INCOME EARNED BY THE ASSESSEE AND ORDERED ACCORDINGLY. 7 . IN THE RESULT, THE MISCELLANEOUS PETITION FILED BY THE ASSESSEE IS ALLOWED AND THE APPEAL FILED BY THE ASSESSEE FOR THE ASSESSMENT YEAR 201 1 - 1 2 IS PARTLY ALLOWED . ORDER PRONOUNCED ON THE 03 RD APRIL, 2017 AT CHENNAI. SD/ - SD/ - ( CHANDRA POOJARI ) ACCOUNTANT MEMBER ( DUVVURU RL REDDY ) JUDICIAL MEMBER CHENNAI, DATED, THE . 0 4 .201 7 VM/ - / COPY TO: 1. / APPELLANT , 2. / RESPONDENT , 3. ( ) / CIT(A) , 4. / CIT , 5. / DR & 6. / GF.