M/s Avon Bicycle Components P. Ltd., Ludhiana V. ACIT, Ludhiana

CO 13/CHANDI/2012

• Counselvise Citation: [2012] 122 COUNSELVISE.COM (IT) 7634 (ITAT-CHANDIGARH)
• Duration Of Justice: 5 month(s) 2 day(s)
• Appeal Type: Cross Objection
• Pronouncement Date: 30-08-2012
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: B
• Next Hearing Date: 28-08-2012
• Assessment Year: 2007-2008
• Appeal Filed On: 28-03-2012
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: MANJEET SINGH
• Keywords: Earning of tax free income
• Section: 143(3); 14A

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL CHANDIGARH BENCH B, CHANDIGARH BEFORE MS. SUSHMA CHOWLA, JUDICIAL MEMBER AND SHRI MEHAR SINGH, ACCOUNTANT MEMBER ITA NO.182/CHD/2012 (ASSESSMENT YEAR : 2007-08) THE A.C.I.T., VS. AVON BICYCLE COMPONENTS P. LT D. CIRCLE-V, 9-11-R, INDUSTRIAL AREA B, LUDHIANA. LUDHIANA. PAN: AADCA1848A AND C.O.NO.13/CHD/2012 ARISING OUT OF ITA NO.182/CHD/2012 (ASSESSMENT YEAR : 2007-08) AVON BICYCLE COMPONENTS P. LTD. VS. THE A.C.I.T., 9-11-R, INDUSTRIAL AREA B, CIRCLE-V, LUDHIANA. LUDHIANA. PAN: AADCA1848A (APPELLANT) (RESPONDENT) ASSESSEE BY : NONE DEPARTMENT BY : SHRI MANJEET SINGH, DR DATE OF HEARING : 28.08.2012 DATE OF PRONOUNCEMENT : 30.08.2012 O R D E R PER SUSHMA CHOWLA, J.M, : THE APPEAL FILED BY THE REVENUE IS AGAINST THE ORD ER OF THE COMMISSIONER OF INCOME-TAX(APPEALS), CHANDIGARH DAT ED 01.12.2011 RELATING TO ASSESSMENT YEAR 2007-08 AGAINST THE ORD ER PASSED U/S 143(3) OF THE INCOME TAX ACT, 1961 (IN SHORT THE ACT). THE ASSESSEE HAS FILED CROSS OBJECTIONS AGAINST THE APPEAL FILED BY THE RE VENUE. 2. BOTH THE APPEAL OF THE REVENUE AND THE CROSS OBJ ECTIONS FILED BY THE ASSESSEE ON THE SIMILAR ISSUE WERE HEARD TOGETH ER AND ARE BEING DISPOSED OFF BY THIS CONSOLIDATED ORDER FOR THE SAK E OF CONVENIENCE. 2 3. THE LEARNED A.R. FOR THE ASSESSEE MOVED AN APPLI CATION FOR ADJOURNMENT WHICH WAS REFUSED IN VIEW OF THE ISSUE RAISED IN THE PRESENT APPEAL. 4. GROUND NO.1 OF APPEAL RAISED BY THE REVENUE IN I TA NO.182/CHD/2012 READS AS UNDER: 1. (A) THE LD. CIT(A)-II, LUDHIANA, ON FACTS AS WELL AS IN LAW, HAS ERRED IN REDUCING THE DISALLOWANCE MADE BY THE A.O. U/S 14A OF I.T. ACT, 1961 FROM RS.15,49,533/- TO 4,00,000/-. (B) THE LD. CIT(A)-II, LUDHIANA HAS FAILED TO APPRECIATE THAT ONCE IT IS HELD THAT DISALLOWANCE U/S 14A IS CALLED FOR, IT HAS TO BE COMPUTED IN ACCORDANCE WITH RULE 8D OF I.T.RULES AND NOT OTHERWISE. 4. GROUND NO.1 RAISED BY THE ASSESSEE IN ITS CROSS OBJECTIONS IS AS UNDER: 1. THE LD. CIT(A)-II, LUDHIANA, HAS ERRED IN CONFIRMING THE DISALLOWANCE OF RS.4,00,000/- U/S 14A OF THE INCOME TAX ACT, 1961 R.W. RULE 8D OF THE INCOME TAX RULES 5. THE BRIEF FACTS OF THE CASE ARE THAT DURING THE YEAR UNDER CONSIDERATION THE ASSESSEE HAD CLAIMED LONG TERM CA PITAL GAINS AMOUNTING TO RS.25,69,222/- AS EXEMPT UNDER SECTION 10(38) OF THE ACT AND DIVIDEND INCOME AMOUNTING TO RS.72,087/- AS EXE MPT UNDER SECTION 10(34) OF THE ACT. DURING THE COURSE OF ASSESSMENT PROCEEDINGS THE ASSESSING OFFICER SHOW CAUSED THE ASSESSEE TO EXPLA IN AS TO WHY INTEREST ATTRIBUTABLE TO SUCH FUNDS PARKED IN TAX FREE INVES TMENT BE NOT DISALLOWED. THE ASSESSEE DURING THE YEAR UNDER CON SIDERATION HAD PAID INTEREST OF RS.41.15 LACS ON INTEREST BEARING FUNDS . THE EXPLANATION OF 3 THE ASSESSEE WAS THAT IT HAD OVER DRAWN AGAINST THE FDRS AND THE INTEREST EARNED ON THE FDRS WAS RS.12,67,447/- AND THE INTER EST PAID THEREON WAS RS.13,33,574/- THE NET INTEREST PAID DURING THE YE AR WAS ONLY RS.66,127/-. THE DIVIDEND INCOME EARNED DURING THE YEAR WAS RS.72,087/-. IT IS ALSO EXPLAINED BY THE ASSESSEE T HAT THE LEVEL OF INVESTMENT HAD FALLEN AS COMPARED TO THE EARLIER YE ARS. THE ASSESSING OFFICER NOTED THE ASSESSEE TO HAVE PAID INTEREST OF RS.38,13,835/- TO THE BANKS AS PER THE PROFIT & LOSS ACCOUNT FINANCIAL YE AR ENDING 31.3.2007. THE ASSESSING OFFICER ALSO NOTED THE ASSESSEE TO HA VE BOUGHT AND SOLD SHARES FROM WHICH IT HAD EARNED EXEMPT INCOME. THE ASSESSING OFFICER IN APPLYING THE PROVISIONS OF RULE 8D OF THE INCOME TAX RULES WAS OF THE VIEW THAT THE AMOUNT OF EXPENDITURE TOTALING RS .15,49,533/- OUT OF TOTAL INTEREST PAYMENTS OF RS.38,13,835/- WAS TO BE DISALLOWED UNDER SECTION 14A OF THE ACT. THE CIT (APPEALS) ON THE O THER HAND, IN ORDER TO COVER UP IN INVESTMENT AND OTHER ADMINISTRATIVE EXPENSES ESTIMATED THE DISALLOWANCE UNDER SECTION 14A AT RS.4 LACS. 6. THE REVENUE IS IN APPEAL AGAINST THE SAID ALLOWA NCE OF RS.11,49,533/- AND THE ASSESSEE HAS FILED CROSS OBJ ECTIONS AGAINST THE ADDITION OF RS.4 LACS. 7. WE FIND THAT THE ADDITION WAS MADE BY THE ASSESS ING OFFICER ON ACCOUNT OF DISALLOWANCE OF INTEREST IN VIEW OF THE PROVISIONS OF RULE 8D OF THE INCOME TAX RULES. THE YEAR UNDER APPEAL BEF ORE US IS ASSESSMENT YEAR 2007-08. THE HON'BLE BOMBAY HIGH COURT IN THE CASE OF GODREJ & BOYCE MFG. CO. LTD. VS. DCIT [328 ITR 81 (BOM) HAVE HELD THAT THE PROVISIONS OF RULE 8D ARE PROSPECTIVE IN NATURE AND ARE APPLICABLE FROM ASSESSMENT YEAR 2008-09. IT HAS BEEN FURTHER HELD THAT CERTAIN DISALLOWANCE OUT OF ADMINISTRATIVE EXPENDITURE ON R EASONABLE BASIS IS WARRANTED. FOLLOWING THE ABOVE SAID RATIO LAID DOW N BY THE BOMBAY 4 HIGH COURT IN GODREJ & BOYCE MFG. CO. LTD. (SUPRA) WE HOLD THAT THE PROVISIONS OF RULE 8D OF THE INCOME TAX RULES ARE N OT APPLICABLE TO THE CAPTIONED ASSESSMENT YEAR I.E. ASSESSMENT YEAR 2007 -08. CONSEQUENTLY, NO DISALLOWANCE IS WARRANTED OUT OF THE INTEREST EX PENDITURE. HOWEVER, CERTAIN DISALLOWANCE OUT OF ADMI9NISTRATIVE EXPENSE S IS WARRANTED IN THE HANDS OF THE ASSESSEE AND WE RESTRICT THE SAME TO R S.50,000/-. THUS GROUND OF APPEAL RAISED BY THE REVENUE IS REJECTED AND THE GROUND OF APPEAL RAISED BY THE ASSESSEE IN CROSS OBJECTION IS PARTLY ALLOWED. 8. IN THE RESULT, THE APPEAL OF THE REVENUE IS DISM ISSED AND THE CROSS OBJECTIONS FILED BY ASSESSEE ARE PARTLY ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 30 TH DAY OF AUGUST, 2012. SD/- SD/- (MEHAR SINGH) (SUSHMA CHOWLA) ACCOUNTANT MEMBER JUDICIAL MEMBER DATED : 30 TH AUGUST, 2012 *RATI* COPY TO: THE APPELLANT/THE RESPONDENT/THE CIT(A)/TH E CIT/THE DR. ASSISTANT REGISTRAR, ITAT, CHANDIGARH 5