THE PERIA KARAMALAI TEA AND PRODUCE CO. LTD.,COIMBATORE V. ACIT, CC-1, COIMBATORE

ITA 1386/CHNY/2024

AI Insights

The case involves The Peria Karamalai Tea and Produce Col Ltd., which appealed against the order of the Learned Commissioner of Income Tax, National Faceless Appeal Centre, Delhi. The dispute centered on the inclusion of investments in HDFC Medium Term Opportunity Fund and HDFC Capital Builder Fund in the average value of investments for the purpose of disallowances under section 14A of the Income Tax Act, 1961, as per Rule 8D(2)(ii) of the Income Tax Rules, 1963. The AO had included these investments, leading to a disallowance of Rs.45,68,180. The assessee contended that these were growth funds and the income was taxable, thus should not be included in the computation. The CIT(A) upheld the AO's decision, leading to the current appeal.

• Counselvise Citation: [2025] 140 COUNSELVISE.COM (IT) 29861 (ITAT-CHENNAI)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 03-01-2025
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: A
• Assessment Year: 2017-2018
• Laws Referred To: Income-tax Act, 1961, Income Tax Rules, 1963
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: BABITHA
• Assessee Lawyers: R. VIJAYARAGHAVAN
• Keywords: Capital Gains; Rule 8D
• Section: 143(3); 14A

Judgement Text

" आयकर अपीलीय अिधकरण, ‘ए’ \u0011ा यपीठ, चे\u0016ई। IN THE INCOME TAX APPELLATE TRIBUNAL ‘A’ BENCH: CHENNAI \u0019ी एबी टी. वक , \u0011ा ियक सद! एवं \u0019ी जगदीश, लेखा सद! क े सम( BEFORE SHRI ABY T. VARKEY, JUDICIAL MEMBER AND SHRI JAGADISH, ACCOUNTANT MEMBER आयकर अपील सं./ITA No.1386/Chny/2024 िनधा;रण वष; /Assessment Year: 2017-18 The Peria Karamalai Tea and Produce Col Ltd., ‘PANCHRATN’, No.286, Race Course Road, Coimbatore – 641 018. Vs. The Asst. Commissioner of Income Tax, Corporate Circle-1, Coimbatore. [PAN: AAACT 7928H] (अपीलाथ\u0007/Appellant) (\b यथ\u0007/Respondent) अपीलाथ की ओर से/ Appellant by : Shri R. Vijayaraghavan, Advocate IJथ की ओर से /Respondent by : Ms. Babitha, JCIT सुनवाई की तारीख/Date of Hearing : 10.10.2024 घोषणा की तारीख /Date of Pronouncement : 03.01.2025 आदेश / O R D E R PER JAGADISH, A.M : Aforesaid appeal filed by the assessee for Assessment Year (AY) 2017-18 arises out of the order of Learned Commissioner of Income Tax, National Faceless Appeal Centre (NFAC), Delhi [hereinafter “CIT(A)”] dated 14.03.2024 in the matter of assessment framed by the Assessing Officer [AO] u/s. 143(3) of the Income-tax Act,1961 (hereinafter “the Act”) on 05.12.2019. ITA No.1386/Chny/2024 :- 2 -: 2. The effective ground of appeal in this appeal of assessee is against confirming the order of A.O holding that the investments made by the assessee in HDFC Medium Term Opportunity Fund and HDFC Capital Builder Fund are to be included in computing average value of investments for the purpose of disallowances under section 14A as per Rule 8D(2)(ii) of the Income Tax Rules, 1963 (hereinafter “the Rules “). 3. The assessee is a company engaged in the business of manufacturing of tea, growing of cardamom and pepper and generation of wind energy and filed its return of income on 27.10.2017 admitting total income of Rs.1,76,51,000/-. The A.O has passed assessment order making disallowance u/s. 14A of the Act as per Rule 8D of the Rules of Rs.45,68,180/-. The A.O while computing the disallowance as per Rule 8D(2)(ii) of the Rules has taken the average value of investment at Rs.61,01,07,796/- and computed 1% of average investment as disallowance u/s. 14A of the Act. The assessee has objected to adopt the investment value at Rs.61,01,07,796/- as the investment made in the equity share and tax free bonds, would only be considered for computing average investment, while making 1% of disallowance as per Rule 8D of the Rules u/s. 14A of the Act. The assessee has contended that the investment which is in mutual funds ITA No.1386/Chny/2024 :- 3 -: both current investments and the non current investments namely Medium Term Opportunity Fund and HDFC Capital Builder Fund growth will not be included in the investment. The Ld. CIT(A) did not accept the contention of the assessee and held that Medium Term Opportunity Fund and HDFC Capital Builder Fund are growth funds and may not yield any dividend, but sale of the same results in long term capital gains, which is exempt u/s. 10(38) of the Act and therefore should be included in the computation of average value of investment for making disallowance under Rule 8D of the Rules. Aggrieved, the assessee is in appeal before us. 4. The Ld. Authorized Representative (A.R) of the assessee has argued that the name of HDFC Capital Builder Fund has been changed as HDFC Capital Builder Value fund and HDFC Medium Term Opportunities fund has been changed as HDFC Corporate Bond Fund and these two funds are growth funds income of which is not exempt from tax and therefore, the A.O and Ld. CIT(A) was not justified to include the above investment for the purpose of computation of average value of investment while making disallowance under rule 8D(2) of the Rules. ITA No.1386/Chny/2024 :- 4 -: 5. The Ld. Departmental Representative (DR), on the other hand, has relied on the orders of lower authorities. 6. We have heard the rival submissions, and perused the materials available on record. The A.O while computing the disallowance under Rule 8D(2) of the Rules has taken average value of investment at Rs.61,01,07,796/-. The A.O has included all the investment including HDFC Medium Term Opportunity Fund and HDFC Capital Builder Fund, income from which is claimed to be taxable and forms part of income. The Ld CIT(A) has held that there is no scheme by the name of HDFC Medium Term Opportunity Fund and the assessee has not submitted any details. The Ld CIT(A) therefore , considered this fund as HDFC Mid Cap Opportunity Fund which is equity oriented fund, and income of which as long term capital gain is exempt u/s 10(38) of the Act. The Ld CIT(A), similarly in the case of HDFC Capital Builder Fund held it equity oriented fund, income of which is exempt u/s 10(38) of the Act. The Ld. AR before us has submitted that name of HDFC Capital Builder Fund has been changed as HDFC Capital Builder Value fund and HDFC Medium Term Opportunities Fund has been changed as HDFC Corporate Bond Fund and these two funds are growth funds income of which is not exempt. The ITA No.1386/Chny/2024 :- 5 -: assessee has not provided these details before A.O or Ld CIT(A). We therefore, restore the matter to the file of AO to examine, whether these funds are debt fund or equity oriented fund and whether income from these funds form part of total income. In case income from these funds form part of total income, the investments are to be excluded in computing average value of investment as per Rule 8D(2)(iii) of the Rules. The assessee is directed to submit all the details in support of its contentions before the A.O. 7. In the result, the appeal filed by the assessee is allowed for statistical purposes. Order pronounced on 03rd January, 2025. Sd/- Sd/- (एबी टी. वक ) (ABY. T. Varkey) \u0011ाियक सद! / Judicial Member (जगदीश) (Jagadish) लेखा सद! /Accountant Member चे\u0010नई/Chennai, \u0013दनांक/Dated: 03rd January, 2025. EDN/- आदेश क\u0016 \bितिल\u0019प अ\u001aे\u0019षत/Copy to: 1. अपीलाथ\b/Appellant 2. थ\b/Respondent 3. आयकर आयु\u0010/CIT, Chennai 4. िवभागीय ितिनिध/DR 5. गाड\u0019 फाईल/GF "