Income Tax Appellate Tribunal - Hyderabad
Kamadhenu Sukrit Private Limited ... vs Ito, Ward-1(4), Hyderabad, Hyderabad on 22 November, 2017
IN THE INCOME TAX APPELLATE TRIBUNAL
HYDERABAD BENCHES "A" (SMC), HYDERABAD
BEFORE SHRI B. RAMAKOTAIAH, ACCOUNTANT MEMBER
I.T.A. No. 460/HYD/2017
Assessment Year: 2012-13
M/s. Kamadhenu Sukrit Pvt. Ltd., Income Tax Officer,
(Formerly Quintessentials and Corp Vs Ward-1(4),
Services Pvt Ltd) HYDERABAD
(earlier Capital Fortunes Financial
Services Ltd)
HYDERABAD
[PAN: AAACC8147K]
(Appellant) (Respondent)
For Assessee : Shri V. Siva Kumar, AR
For Revenue : Shri P.V. Subba Raju, DR
Date of Hearing : 09-11-2017
Date of Pronouncement : 22-11-2017
ORDER
The only issue in this appeal by assessee against the order of Ld.CIT(A) dated 29-11-2016 is the confirmation of an amount of Rs. 6,35,829/- u/s. 14A r.w.s. 8D(iii) of the Income Tax Act [Act] on an exempt dividend income of Rs. 8,100/-.
2. Before adverting to the merits of the issue, it is to be noted that assessee was formerly known as Capital Fortunes Financial Services Ltd., (at the time of filing of return of income). The assessment was completed on that name. The appeal before the Ld.CIT(A) was filed on 09-03-2015 in the name of Quintessentials I.T.A. No. 460/Hyd/2017 :- 2 -:
and Corp Services Pvt Ltd., after change of name (the actual date of change is not on record). However, the present appeal by assessee was filed on 09-03-2017 in the name of M/s. Kamadhenu Sukrit Pvt. Ltd., and when enquired, filed the certificate from ROC about change of name from 18-11-2014 itself. This indicates that by the time appeal was filed before Ld.CIT(A), the present name change has happened. This should have been verified by the Ld.CIT(A) before entertaining the appeal.
3. The present appeal was filed with a delay of 12 days. The delay was attributed to the Manager, who was entrusted for with the appeal work, being out of station and consequent delay in filing appeal. The affidavit of the concerned Manager was also filed. Considering the explanation, the delay of 12 days is condoned and appeal is admitted.
4. Briefly the facts are that the AO on noticing that assessee had investments to an extent of Rs. 12.71 Crores, asked assessee why provisions of 14A cannot be invoked. Even though assessee contended that it had no dividend income, the AO noted that Rs. 8,100/- was earned which was claimed exempt. As there was no claim of interest, AO gave a finding that Rule 8D(ii) does not apply. Only disallowance made was under Rule 8D(iii) i.e., 0.5% on average investment at Rs. 6,35,829/- out of total expenditure of Rs. 16.50 Lakhs considered by AO.
5. Even though it was contended before Ld.CIT(A), the CIT(A) dismissed the appeal stating the following reasons:
I.T.A. No. 460/Hyd/2017 :- 3 -:
"5.2 It is seen that the appellant made non-current Investments of Rs.12.71 crores in the equity shares of MIs. Nagarjuna Construction Company Ltd., M/s. Amrithjal Ventures Pvt. Ltd., M/s. Capital Fortune Pvt. Ltd., and M/s. Intercontinental Infrastructural lid. During the year as per computation of Income, under "Other Incomes", appellant has shown receipt of Rs.3,61,980/-, which is termed as interest income. This is also reflected in Profit & Loss Account. The assessee contended that none of the expenditures has any nexus to the Investment activity. This was not proved before me. I do not agree that no expenditure or efforts were spent to earn this Income. Returns/ Income may vary every year, hence has no relevance to the quantum of investment. Income is result of much thought and financial experiment. And it is this, that the law opines to recognize u/s 14A.
Beside, as per facts-
(1) The appellant is incorrect in showing that there is no non-taxable income during the year.
(2) The source of investment of analysis has not been submitted.
Hence, the 'Assessing Officer is correct in showing that there should be a 'cost' for 'investment. Hence, I uphold the addition made by the Assessing Officer".
6. It was the contention that assessee has own funds and also in the business of financial services and no expenditure was incurred for earning a small dividend. Moreover, relying on Co-ordinate Bench decision in the case of Sahara India Financial Corpn. Ltd., Vs. DCIT [41 taxmann.com 251 (Delhi-Trib.)], it was the submission that disallowance should not exceed the income claimed exempt. Ld. Counsel relied on various case law and the relevant amendment to the provisions that the disallowance should not exceed the income claimed exempt; as disallowance of expenditure invoking Rule 8D(iii) has resulted in absurd disallowance in some cases.
7. Ld.DR reiterated the facts and arguments of AO.
I.T.A. No. 460/Hyd/2017 :- 4 -:
8. I have considered the rival contentions and perused the record. As can be seen, assessee is in financial advisory services and investing own funds, so there is no claim of interest expenditure. As considered by AO there is no disallowance under Rule 8D(ii). The argument of 'cost' by CIT(A) is devoid of facts. It is also a fact that assessee had earned only a small amount of Rs. 8,100/- as dividend and claimed exemption. The AO took expenditure of Rs. 16.50 Lakhs for disallowing the amount. As seen from the P&L A/c, the employee cost at Rs. 3 Lakhs and finance cost at 5.7 Lakhs were also considered. Finance cost is not for investment, as the AO gave a finding about Rule 8D(ii). The only expenditure incurred by Assessee is other expenditure at Rs. 7,79,500/- in Sch. 21. The details are as under:
Particulars Figures as Figures as at
at the end of the end of the
the Current Previous
Reporting Reporting
Period Period
(Rs. in (Rs. in
Hundreds) Hundreds)
a) Business Promotion -- 11
b) Conveyance 955 743
c) Electricity Charges -- 116
d) General Expenses -- 9
e) Irrecoverable Dues written off -- 5,000
f) Miscellaneous Expenses 220 159
g) Office Maintenance 1,267 1,140
h) Rates and Taxes 1,685 48,805
i) Legal and professional 500 1,82,153
j) Payments to auditors 83 83
k) Telephone charges 193 348
l) Travelling expenses 1,093 --
m) Vehicle Hire charges 1,800 1,800
I.T.A. No. 460/Hyd/2017
:- 5 -:
8.1. As can be seen from the nature of expenditure, there is no indication even that the above expenditure is expended for earning dividend income. AO without giving any satisfactory reason, just invoked Rule 8D(iii) and disallowed the amount.
9. The Co-ordinate Bench in the case of Sahara India Financial Corpn. Ltd., Vs. DCIT (supra) has held in para 81 as under:
"We have heard the rival contentions and perused the material available on record. It has not been disputed that the administration, expenses and books of account of investment division are separately carried out and maintained by the assessee. No infirmity has been found by the department in this behalf. One of the main issue is on whom lies the onus to establish nexus of available funds with free and taxable income. Similarly courts have held that a finding in objective terms about assessee working being unsatisfactory is to be recorded by AO in the order. Chandigarh Bench of the Tribunal in the case of Punjab State Co-op. & Marketing Fed. Ltd. (supra) has held that in any case the disallowance u/s 14A cannot exceed tax free income of the assessee. If mechanical method of rule 8D is applied, it leads to manifestly absurd results in as much as for tax free income of Rs.68,37,583/- disallowance of Rs.2,16,51,917 (enhanced by CIT(A) at Rs. 2,19,47,772) is made u/s 14A which is way too much than the exempt income. As the interpretation of provisions of sec. 14A r/w rule 8D is leading to unanticipated absurdities which cannot be the intention of legislature. Under these circumstances help of external aids of construction for interpretation of statute is called for. Looking at the varying interpretation offered by various courts and benches of tribunal in relation to sec. 14A, it is quite arduous to precisely decide the issue. In given facts and circumstances without going into all the issues, in our view it is appropriate to take guidance from Chandigarh bench judgment in the case of Punjab State Co-opt Marketing Fed. Ltd. (supra) holding that the disallowance of expenditure in any case cannot exceed the income earned. In our view this judgment takes a holistic view that disallowance in terms of sec. 14A can be maximum to the extent of exempt income, there is no dispute that in this case which is at Rs.
68,37,583/-. This judgment implies that reasonable expenditure less than the exempt income can be disallowed. In our considered opinion, in the interest of justice, it will be reasonable to estimate and disallow, 50% of exempt) income (Rs.68,37,583/-) as relatable to exempt income u/s 14A r/w rule 8D. We do not go into various plea taken by both sides offering diverse views based on judicial citations. This ground of the assessee is partly allowed".
I.T.A. No. 460/Hyd/2017 :- 6 -:
10. Respectfully following the above principles, as the disallowance made by AO has resulted in absurd situation of disallowing genuine other business expenditure, on which assessee earned more than Rs. 19 Lakhs income (as against Rs. 8,100/- of dividend), I am satisfied that the disallowance u/s. 14A should be restricted to the income earned of Rs. 8,100/-. AO is directed accordingly.
11. In the result, appeal of assessee is allowed partly.
Order pronounced in the open court on 22nd November, 2017 Sd/-
(B. RAMAKOTAIAH) ACCOUNTANT MEMBER Hyderabad, Dated 22nd November, 2017 TNMM I.T.A. No. 460/Hyd/2017 :- 7 -:
Copy to :
1. M/s. Kamadhenu Sukrit Pvt. Ltd., (Formerly Quintessentials and Corp Services Pvt Ltd) (earlier Capital Fortunes Financial Services Ltd) 8-2-698, 5th Floor, M.J. Towers, Road No. 12, Banjara Hills, Hyderabad.
2. The Income Tax Officer, Ward-1(4), Hyderabad.
3. CIT (Appeals)-1, Hyderabad.
4. Pr.CIT-1, Hyderabad.
5. D.R. ITAT, Hyderabad.
6. Guard File.