Muthoot Bankers Vs. ACIT (ITAT Cochin)
The issue under consideration is whether the interest on bank deposit earned by assessee engaged in money lending covered under head of Business Income or Income from Other Sources?
ITAT states that, the assessee is engaged in the business of money lending and investments. The ‘money’ is the stock in trade of the assessee and any income earned by the assessee by rotating that money, i.e. stock in trade is nothing but income from business only and it cannot be considered as income from other sources. Being so, ITAT decide this issue in favour of the assessee.
FULL TEXT OF THE ITAT JUDGEMENT
These two appeals by the assessee are directed against the different orders of the CIT(A)-II, Kochi dated 23/11/2014 and pertain to the assessment years 2010-11 and 2011-12.
2. The assessee has raised the following common grounds of appeals:
1. The Officers below are not justified in invoking the provisions of section 14A r.w.s Rule 8D for the reason that the appellant had not incurred assessment year expenditure to earn the exempted income.
2. The Officers below failed to establish that the appellant had incurred any expenditure to earn such exempted income.
3. The Officers below having accepted the system of accounting to be cash, assessment of deemed interest on the overdrawing of the partners is opposed to the cannons of taxation.
4. The Officers below went wrong in not appreciating the fact that the loan from bank has been reduced, so much so, the partners have compensated such borrowed funds.
5. Treatment of interest earned from bank under other sources was not in order as these are in the nature of investment in trade and to be charactered as income from business.
3. The first ground, Ground Nos. 1 & 2 in ITA Nos. 92 & 93/Coch/2019 is with regard to addition of Rs.18,36,878/- on account of disallowance u/s. 14A r.w.s. Rule 8D of the Act.
4. The facts of the case as narrated in ITA No. 92/Coch/2015 are that during the course of verification it was found that in the computation of income, the dividend earned during the year was Rs.40,51,846.68/- which is exempt u/s. 10 of the I.T. Act. While going through the accounts and other details, the Assessing Officer noticed that the assessee has not segregated the expenditure in respect of dividend income. On verification of balance sheet, it was noticed that the assessee had made investments to the tune of Rs.19,17,67,946.92 as on 31.03.2010 and during preceding assessment year the total investment was Rs.19,22,23,220/-. Section 14A of the I.T. Act specifies the methodology to be adopted for computation of expenditure in respect of exempted income which cannot be allowed and Rule 8D gives the guidelines on the method of working.
4.1 I.T.A. Nos.92 & 93/Coch/2015 4.1 The Assessing Officer relied on the judgment of the Jurisdictional High court in assessee’s own case in ITA No. 296/2010 for the assessment year 2004-05 wherein it was held that even if investments in shares yields dividends which mean nontaxable, interest on borrowed fund, diverted for acquisition of such shares will not be eligible for deduction u/s. 14A of the Act. Thus, according to the Assessing Officer, these investments does not form part of the primary business of money lending of the assessee. Rule 8D gives guidelines on the method to be adopted for computing the expenditures attributable to such non-taxable income shall be the aggregate of the following:
i) Expenditure directly related to the income.
ii) In a case where expenditure have been incurred by way of interest during the previous year which is not directly attributable to any particular income or receipt an amount computed in accordance with the formula suggested.
