Sri v. Chandrashekar, Adv., For

IN THE HIGH COURT OF KARNATAKA AT BENGALURUDATED THIS THE / DAY OF APRIL 20271 PRESENT| THE HON’BLE MR. JUSTICE ALOK ARADHE AND| THE HON’BLE MR. JUSTICE M.G.S. KAMAL| LT.A. NCO.398 OF 2015 C/WLT.A.NOQO.399 QF JZO LT.A. NCO.398 OF 2015BETWEEN: 1.|PR, COMMISSIONER OF | INCOME TAX C.R. BUILDING, QUEENS ROAD BANGALORE-56000 1. 2 |DEPUTY COMMISSIONER OF INCOME TAX 12(3). BENGALURU. (BY SRI. T.N.C. SRIDHAR, ADV.,) .., APPELLANTS. AND" M/S. SUBRAMANYA CONSTRUCTIONSAND DEVELOPMENT CO. LID.NO.4/1, TUMKUR ROADYESHWANTHPURBENGALURU-560022. (BY SRI. A. SHANKAR, SR. COUNSEL A/W_ SRI. V. CHANDRASHEKAR, ADV., FOR. SRI. M. LAVA, ADV.,) .., RESPONDENT THIS I.T.A. IS FILED UNDER SEC. 260-A OF INCOME TAX|ACT 1961, ARISING OUT OF ORDER DATED 20.02.2015 PASSEDIN ITA NO.404/BANG/2013 FOR THE ASSESSMENT YEAR 2009-10,PRAYING TO: | (i) DECIDE THE FOREGOING QUESTION OF LAW AND/OR-SUCH OTHER QUESTIONS OF LAW AS MAY BE FORMULATED BYTHE HON BLE COURT AS DEEMED FIT. | (ii) SET ASIDE THE APPELLATE ORDER DATED 20.02.2015)PASSED BY THE INCOME TAX APPELLATE TRIBUNAL, B BENCH,BENGALURU, IN|APPEAL|PROCEEDINGSNO. ITANO.404/BANG/2013 FOR THE ASSESSMENT YEAR 2009-10 ASSOUGHT FOR IN THIS APPEAL AND TO GRANT SUCH OTHER.RELIEF AS DEEMED FIT, IN THE INTEREST OF JUSTICE. LT.A. NCO.399 OF 2015 BETWEEN: 1.|PR, COMMISSIONER OF | INCOME TAX C.R. BUILDING, QUEENS ROAD BANGALORE-56000 1. 2 |DEPUTY COMMISSIONER OF INCOME TAX 12(3). BENGALURU. (BY SRI. T.N.C. SRIDHAR, ADV.,) .., APPELLANTS. AND" M/S. SUBRAMANYA CONSTRUCTIONSAND DEVELOPMENT CO. LTD..NO.4/1, TUMKUR ROADYESHWANTHPURBENGALURU-560022. .., RESPONDENT (BY SRI. A. SHANKAR, SR. COUNSEL A/W_ SRI. V. CHANDRASHEKAR, ADV., FOR. SRI. M. LAVA, ADV.,) THIS I.T.A. IS FILED UNDER SEC. J6O0-A OF INCOME TAXACT 1961, ARISING OUT OF ORDER DATED 20.02.2015 PASSEDTN|APPEAL|PROCEEDINGSC.0.89/BANG/2013IN|TTA! NO.404/BANG/2013 FOR THE ASSESSMENT YEAR 2009-10,PRAYING TO: | (i) DECIDE THE FOREGOING QUESTION OF LAW AND/OR-SUCH OTHER QUESTIONS OF LAW AS MAY BE FORMULATED BYTHE HON BLE COURT AS DEEMED FIT. | (ii) SET ASIDE THE APPELLATE ORDER DATED 20.02.2015)PASSED BY THE INCOME TAX APPELLATE TRIBUNAL, B BENCH,BENGALURU, IN APPEAL PROCEEDINGS C.0.89/BANG/2013 INITA NO.404/BANG/2013 FOR THE ASSESSMENT YEAR 2009-10 AS.SOUGHT FOR IN THIS APPEAL AND TO GRANT SUCH OTHER.RELIEF AS DEEMED FIT, IN THE INTEREST OF JUSTICE. THESE I.7T.As. COMING ON FOR HEARING, THIS DAY, |ALOK ARADHE J.,DELIVERED THE FOLLOWING: | JUDGMENT These appeals under Section 260A of the IncomeTax Act, 1961 (hereinafter referred to as the Act forsnort) Nave been preferred by the revenue againstcommon order dated 20.02.2015 passed by the IncomeTax Appellate Tribunal (hereinafter referred to as ‘thetribunal for short). I.T.A.No.398/2015 arises from theorder of the tribunal by whicn appeal preferred by therevenue NaspeenGiISMISSeCwhereas,I.T.A.No.399/2015 has been preferred against the orderof the tribunal by which the tribunal has allowed thecross objection preferred by the assessee. The subject|matter of the appeals pertain to the Assessment year 2009-10. The appeals were admitted on the following|substantial question of law: WhetherOf)thefactsandIn|thecircumstances of the case, the tribunal Isjustified in law in deleting the disallowancesmade under Section 14A r.w.r 8D(2)(li) and.8D(2)(ill|) of the Act, without appreciating theBoard's Circular No.5/2014 dated 11.02.2014 ,which emphasizes that the only expenditureallowable is which is relatable to earning ofincome and tnerefore, the expenses whicn are.relatable to earning of exempt income have tobe considered for disallowance, irrespective of.the fact whether any such income has beenearned during the financial year or not? 2009-10. The appeals were admitted on the following|substantial question of law: WhetherOf)thefactsandIn|thecircumstances of the case, the tribunal Isjustified in law in deleting the disallowancesmade under Section 14A r.w.r 8D(2)(li) and.8D(2)(ill|) of the Act, without appreciating theBoard's Circular No.5/2014 dated 11.02.2014 ,which emphasizes that the only expenditureallowable is which is relatable to earning ofincome and tnerefore, the expenses whicn are.relatable to earning of exempt income have tobe considered for disallowance, irrespective of.the fact whether any such income has beenearned during the financial year or not? 2.|Facts leading to filing of these appeals brieflystated are that the assessee iS a company registeredunder the provisions of the Companies Act, 1956. Theassessee is a builder as well as a developer. Theassessee filed the return of Income on 11.12.2009 for|Assessment Year 2009-10 and declared a total income|of Rs.4,06,68,720/-. The aforesaid return was processed under Section 143(1) of the Act. The case of theassessee was selected for scrutiny and the AssessingOfficer concluded the assessment by an order dated07.12.7012 and determined the total income of the'aSS@CSSC2atcRs.9,02,58,/727/-insteadofRs.4,06,68,720/- by making disallowance under Section|14A of the Act read with Rule 8D of the Rules for an/amount of Rs.4,95,90,007/-. 3The assessee thereupon filed an appealbefore the Commissioner of Income Tax (Appeals) who.by an order dated 21.12.2012 inter alia deleted thedisaliowance under Rule 8D(2)(Il) of the Rules ofRs.4,64,15,/708/- and sustained the disallowance madeby the Assessing Officer under Rule 8D(2)(Ill) of theRules made by the Assessing Officer of Rs.31,74,299/-.The appeal preferred by the assessee was _ partlallowed. The revenue filed an appeal, whereas, tneassessee filed a cross objection against the order of the.Commissioner of Income Tax (Appeals) before the tribunal. The tribunal by its common order dated20.02.2015 dismissed the appeal preferred by therevenue and allowed the cross objection preferred by the assessee. In the aforesaid factual background,|these appeals have been filed. a |Learned counsel for the revenue submittedthat the Assessing Officer has rightly added the|exempted dividend income by applying Rule 8D(2)(il)|and held that the assessee had made investment and|claimed the entire dividend income to be exempt from.tax. It is also argued that the tribunal erred in deleting|the disallowance under Section 14A read with Rule!SD(2)(ill) of the Rules on the ground that once theassessee takes a stand that it Nad not incurred anyexpenditure under Section 14A, then the Assessing|Officer is not justified in invoking the Rule 8D(2)(ili) for|disaliowances of indirect expenses unless the AssessingOfficer records adissatisfaction of tne claim. It Is alsosubmitted that interest free deposits cannot be treated to be non performing assets and they do not benefit the|receiver of such deposit by way of notional income. It is”also pointed out that Central Board of Direct Taxes(CBDT) Circular No.5/2014 dated 11.02.2014 clarifies.and emphasizes that only expenditure allowable is thatwhich are relatable to earning exempt income Nave to be considered for disallowance irrespective of whether.such income has been earned during financial year or not. 5.|On the other hand, learned Senior counsel forthe assessee submitted that Assessing Officer without|recording any satisfaction or expressing dissatisfaction|with regard to claim of the assessee tnat no expenditureNas been incurred by the assessee for earning anyportion of exempt income has mechanically applied theformula prescribed in Section 14A read with Rule 8D of.the Rules. [It is furtner submitted tnat the Commissionerof Income Tax (Appeals) as well as the tribunal has.rigntly deleted the disallowance made under Rule 5.|On the other hand, learned Senior counsel forthe assessee submitted that Assessing Officer without|recording any satisfaction or expressing dissatisfaction|with regard to claim of the assessee tnat no expenditureNas been incurred by the assessee for earning anyportion of exempt income has mechanically applied theformula prescribed in Section 14A read with Rule 8D of.the Rules. [It is furtner submitted tnat the Commissionerof Income Tax (Appeals) as well as the tribunal has.rigntly deleted the disallowance made under Rule 8D(2)(ii) of the Rules. It is further submitted that sincethe capital and reserves of the company are far inexcess of the investments made as held by the tribunalas well as the Commissioner of Income Tax (Appeals)the income therefrom, if any, is exempt under theprovisions of the Act and the presumption arises thatsuch investments have been made from capital andreserves of the company and also from other noninterest bearing funds. It is also submitted that theCircular No.5/2014 dated 11.02.2014 does not apply to.the fact situation of the case as the subject matter of the appeal pertains to Assessment Year 2009-10. In.Support of aforesaid submissions, reliance has been.placed on"CIT VS, RELIANCE UTILITIES & POWER|LTD., (2009) 313 ITR 340 (BOM.), CIT VS.MICROLABS LTD’, (2016) 383 ITR 490 (KAR.), ‘CITVS. LALSONS ENTERPRISES’, (2010) 324 ITR 426|(DEL), ‘KODAGU DISTRICT CO-OP BANK LTD. VS.|ACIT IN ITA NO.318 OF 2016 AND 'DCIT VS. M/S QUEST GLOBAL ENG. SERVICES PVT. LTD. IN ITANO.33/2015. 6.|We have considered the submissions made.by learned counsel for the parties and have perused therecord. The solitary issue involved in the appeals filed bythe revenue is whether the tribunal was justified in law|in deleting the disallowance made under Section 14A|read with Rule 8D(2)(ii) amounting to Rs.4,64,15,708/-|and under 8D(2)(iii) being 0.5% of Rs.31,74,299/-|totaling to Rs.4,95,90,007/-. The tribunal has quoted|the balance sheet of the assessee, which shows the.Snare|capital anareservesoftheaSSe@SS2EON?31.03.2008 and 31.03.2009, whicn read as under: | Share holders fund As at 31.03.2009 Asat 31.03.2008(a)Snare capital 174,001,1001,/4,001,100|(b)Reserves & Surplus|352,451,754346,701,344 7Thus, it is evident that the capital andreserves of the company are far in excess of the investment made. Therefore, the presumption arisesthat such investments have been made from capital andreserves of the company and from non interest bearing|funds and not out of borrowed funds to warrant anydisallowance.while|computingtheincome. {See:Reliance Utilities and Power Ltd. supra and Lalsonsenterprises supra]. It is also pertinent to mention herethat the Assessing Officer has not recorded the|satisfaction that assessee had incurred expenditure toearn exempt income as envisaged under Rule 8D(1) of the Rules. There is no positive material to show that theassessee had incurred such expenditure to earn exempt.income. The Commissioner of Income Tax (Appeals) and.tnetridbunaltherefore,|Nave|rigntlydeletedtnedisallowance under Section 14A read witn Rule 8D of tne|Rules. The Circular No.5/2014 dated 11.02.2014 has noapplication to the facts of the case as the Assessment.Year in question is 2009-10. | In view of preceding analysis, tne substantial question of law framed by a bench of this court is.answered against the revenue and in favour of theaSSesSsSsee In the result, we do not find any merit in theseappeals, the same fails and are hereby dismissed. Sd/-—JUDGE. SS| Sd/-—JUDGE.