Loading judgment…
No AI summary yet for this case.
1/9 IN THE HIGH COURT OF KARNATAKA, BENGALURU
DATED THIS THE 12th DAY OF JUNE 2018
PRESENT
THE HON'BLE Dr.JUSTICE VINEET KOTHARI
AND
THE HON’BLE Mrs.JUSTICE S.SUJATHA
I.T.A.No.342/2016
BETWEEN:
THE PR. COMMISSIONER OF INCOME TAX CIT(A), 5TH FLOOR, BMTC BUILDING 80 FEET ROAD, KORAMANGALA BANGALORE-560 095.
THE DEPUTY COMMISSIONER OF INCOME-TAX CIRCLE-1(1)(1), 2ND FLOOR BMTC BUILDING, 80 FEET ROAD KORMANGALA, BANGALORE-560 095.
…APPELLANTS (By Mr. K.V. ARAVIND, ADV.)
AND:
M/S. ADVAITH MOTORS PVT. LTD., No.12, SHAMRAO COMPOUND MISSION ROAD, BANGALORE-560 027 PAN: AADCA 2399A.
…RESPONDENT (By Mr. A. SHANKAR & Mr. M. LAVA, ADVS.)
THIS I.T.A IS FILED UNDER SECTION 260-A OF INCOME TAX ACT 1961, PRAYING TO FORMULATE THE SUBSTANTIAL QUESTIONS OF LAW STATED ABOVE. ALLOW THE APPEAL AND
Date of Judgment 12-06-2018 I.T.A.No.342/2016 The Pr. Commissioner of Income-Tax, CIT (A) & Anr. Vs. M/s. Advaith Motors Pvt. Ltd.,
2/9
SET ASIDE THE ORDERS PASSED BY THE ITAT, BENGALURU IN ITA No.525/BANG/2015 DATED 30/10/2015 CONFIRMING THE ORDER OF THE APPELLATE COMMISSIONER AND CONFIRM THE ORDER PASSED BY THE DEPUTY COMMISSIONER OF INCOME TAX, CIRCLE-1(1)(1), BENGALURU & ETC.
THIS I.T.A. COMING ON FOR ADMISSION, THIS DAY Dr. VINEET KOTHARI, J., DELIVERED THE FOLLOWING:-
JUDGMENT
Mr. K.V. Aravind, Adv. for Appellants Mr. A. Shankar & Mr. M. Lava, Advs. for Respondent
The Revenue has filed this Appeal u/S.260A of the Income Tax Act, 1961, purportedly raising the substantial questions of law arising from the order passed by the ITAT, Bangalore Bench ‘A’, Bangalore, deciding I.T.A.No.525(B)/2015 (The Deputy Commissioner of Income Tax vs. M/s.Advaith Motors Pvt. Ltd.,) for the A.Y.2011-12 on 30.10.2015.
The questions involved before the learned Tribunal was regarding the disallowance of expenditure in the form of expenses incurred by the assessee for
Date of Judgment 12-06-2018 I.T.A.No.342/2016 The Pr. Commissioner of Income-Tax, CIT (A) & Anr. Vs. M/s. Advaith Motors Pvt. Ltd.,
3/9
earning the income by way of Dividends, which is exempt from tax to the extent of Rs.3,90,135/-. The question whether disallowance in terms of Section 14A of the Act r/w 8D of the Rules could exceed the expenditure computed under Rule-8D of the Rules by the assessee to the extent of Rs.56,55,867/-.
The Assessing Authority disallowed the expenditure to the extent of Rs.1,27,36,398/- but the learned Tribunal upheld the order of the 1st Appellate Authority namely, Commissioner of Income – Tax (Appeals) -1, who held in favour of assessee that the disallowance has to be restricted to the extent of proportionate amount of Rs.18,90,931/- as the expenditure of interest incurred by the assessee under Rule - 8D(2)(ii) of the IT Rules.
Learned counsels at the bar brought to our notice that the said controversy is no longer res integra and the Division Bench of this Court in two matters has
Date of Judgment 12-06-2018 I.T.A.No.342/2016 The Pr. Commissioner of Income-Tax, CIT (A) & Anr. Vs. M/s. Advaith Motors Pvt. Ltd.,
4/9
already held in favour of the assessee that the disallowance under Rule-8D of the Rules r/w Section 14A of the Act cannot exceed the expenditure directly relatable to earn the exempted income in the form of ‘Dividend’ as computed in accordance with Rule-8D of the Rules.
The relevant portions of the following two judgments are quoted below for ready reference:-
(i) Commissioner of Income Tax & Anr. Vs. Microlabs Ltd., [2016] 383 ITR 490 (Karn).
“39. Aggrieved by the order of CIT(A), the assessee has raised ground No.2.
We have heard the rival submissions. A copy of the availability of funds and investments made was filed before us which is at pages 38 to 42 of the assessee’s paperbook and the same is enclosed as ANNEXURE-III to this order. It is clear from the said statement that the availability of profit, share capital and reserves & surplus was much more
Date of Judgment 12-06-2018 I.T.A.No.342/2016 The Pr. Commissioner of Income-Tax, CIT (A) & Anr. Vs. M/s. Advaith Motors Pvt. Ltd.,
5/9
than investments made by the assessee which could yield tax free income.
The Hon’ble Bombay High Court in Reliance Utilities & Power Ltd. 313 ITR 340 (Bom) has held that where the interest free funds far exceed the value of investments, it should be considered that investments have been made out of interest free funds and no disallowance u/s. 14A towards any interest expenditure can be made. This view was again confirmed by the Hon’ble Bombay High Court in CIT v. HDFC Bank Ltd., ITA No.330 of 2012, judgment dated 23.7.14, wherein it was held that when investments are made out of common pool of funds and non-interest bearing funds were more than the investments in tax free securities, no disallowance of interest expenditure u/s. 14A can be made.
In the light of above said decisions, we are of the view that disallowance of interest expenses in the present case of Rs.49,42,473 made under Rule 8D(2)(ii) of the I.T. Rules should be deleted. We order accordingly.”
Date of Judgment 12-06-2018 I.T.A.No.342/2016 The Pr. Commissioner of Income-Tax, CIT (A) & Anr. Vs. M/s. Advaith Motors Pvt. Ltd.,
6/9
The aforesaid shows that the Tribunal has followed a decision of the Bombay High Court in the case of CIT v. HDFC Bank Ltd., (ITA No.330/2012 disposed of on 23/7/2014). When the issue is already covered by a decision of the High Court of Bombay with which we concur, we do not find any substantial question of law would arise for consideration as canvassed.
In view of the above observations, the appeal is dismissed.”
(ii) M/s.Pragathi Krishna Gramin Bank vs. Joint Commissioner of Income Tax (ITA Nos.100001/2018 & 100002/2018 decided by the Division Bench of this Court at Dharwad Bench (in which, one of us, Justice Vineet Kothari was a party) also, the Court held in favour of the assessee in the following terms:- “13. The manner in which the aforesaid disallowance has been made by the assessing authority and has been upheld by the appellate authorities leaves much to the desired and the same cannot be sustained and therefore the
Date of Judgment 12-06-2018 I.T.A.No.342/2016 The Pr. Commissioner of Income-Tax, CIT (A) & Anr. Vs. M/s. Advaith Motors Pvt. Ltd.,
7/9
matter deserves to be remanded back to the Assessing Authority.
We make it clear that the expenditure for earning exempted income has to have a reasonable proportion to the income, so earned, going by the common financial prudence. Therefore, even if the Assessing Authority has to make an estimate of such an expenditure incurred to earn exempted income, it has to have a rational nexus with the amount of income earned itself. Disallowance under Section 14A of Rs.2,48,85,000/- as expenses to earn exempted Dividend income of Rs.1,80,30,965/- is per se absurd and hypothetical. The disallowance under Section 8D cannot exceed the expenses claimed by assessee under the Proviso to Rule 8D. Therefore, where the assessee claimed that assessee did not incur any such expenditure during the year in question to earn Dividends of Rs.1,80,30,965/-, the burden was upon the assessing authority to compute the interest on such borrowed funds which were dedicatedly used for investment in securities to earn such exempted Dividend income. The disallowance under Section 14A cannot be a wild guesswork bereft of ground realities. It has to have a reasonable and close nexus with the factually
Date of Judgment 12-06-2018 I.T.A.No.342/2016 The Pr. Commissioner of Income-Tax, CIT (A) & Anr. Vs. M/s. Advaith Motors Pvt. Ltd.,
8/9
incurred expenses. It is not deemed disallowance under Section 14A of the Act but an enabling provision for assessing authority to compute the same on the given facts and figures in the regularly maintained Books of Accounts. The assessing authority also could not have called upon the Assessee himself to undertake the exercise of computing the disallowance under Section 8D of the Rules. Such abdication of duty in not permissible in law. Since no such exercise has been undertaken by the assessing authority, the case calls for a remand.
In this view of the matter, the findings of all the three authorities below for Section 14A of the Act are set aside and the matter is remanded back to the Assessing Authority for re-computing the disallowance of expenditure, if any, under Section 14A of the Act, in accordance with law.”
In view of the aforesaid two decisions, we do not find any substantial questions of law arising in the present appeal requiring our further consideration. The order passed by the learned Tribunal in this regard is therefore confirmed.
Date of Judgment 12-06-2018 I.T.A.No.342/2016 The Pr. Commissioner of Income-Tax, CIT (A) & Anr. Vs. M/s. Advaith Motors Pvt. Ltd.,
9/9
The appeal filed by the Revenue is liable to be dismissed and accordingly, it is dismissed. No costs.
Sd/- JUDGE
Sd/-
JUDGE
Srl.