M/s Kapsons Associates Investments (P) Ltd., Ludhiana V. DCIT, C-I, Ludhiana

CO 14/CHANDI/2018

• Counselvise Citation: [2019] 117 COUNSELVISE.COM (IT) 4276 (ITAT-CHANDIGARH)
• Duration Of Justice: 1 year(s) 1 month(s) 7 day(s)
• Appeal Type: Cross Objection
• Pronouncement Date: 10-05-2019
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: Chandigarh
• Assessment Year: 2014-2015
• Appeal Filed On: 02-04-2018
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: ASHISH GUPTA
• Assessee Lawyers: VIPIN GUPTA
• Keywords: Retrospective amendment; Rule 8D; Set aside
• Section: 14A; 115JB

Judgement Text

1 , , IN THE INCOME TAX APPELLATE TRIBUNAL, CHANDIGARH BEN CH A, CHANDIGARH , . '.., # $, %& BEFORE: SH. SANJAY GARG, JUDICIAL MEMBER & DR. B.R. R. KUMAR, ACCOUNTANT MEMBER ITA NO. 89/CHD/2018 ASSESSMENT YEAR : 2014-15 THE DCIT CIRCLE-I, LUDHIANA M/S KAPSONS ASSOCIATES INVESTMENTS PVT. LTD. B-26, FOCAL POINT, LUDHIANA PAN NO: AAACK7243A APPELLANT RESPONDENT CROSS OBJECTION NO. 14/CHD/2018 (IN ITA NO. 89/CHD/2018) ASSESSMENT YEAR : 2014-15 M/S KAPSONS ASSOCIATES INVESTMENTS PVT. LTD. B-26, FOCAL POINT, LUDHIANA THE DCIT CIRCLE-I, LUDHIANA PAN NO: AAACK7243A APPELLANT RESPONDENT !' ASSESSEE BY : SHRI VIPIN GUPTA #!' REVENUE BY : SHRI ASHISH GUPTA $ %! & DATE OF HEARING : 11/02/2019 '()*! & DATE OF PRONOUNCEMENT : 10/05/2019 %'/ ORDER PER BENCH THE PRESENT APPEAL HAS BEEN FILED BY THE REVENUE AN D CROSS OBJECTION FILED BY THE ASSESSEE AGAINST THE ORDER OF THE LD. CIT(A)-1, LUDHIANA DT. 01/11/2017. 2. REVENUE HAS RAISED THE FOLLOWING GROUNDS IN ITS APPEAL: 1. WHETHER UPON FACTS AND CIRCUMSTANCES OF THE CASE, T HE LD. CIT(A) WAS JUSTIFIED IN LAW AND ON FACTS IN DIRECTING THE AO T O RECALCULATE THE ADDITION MADE ON ACCOUNT OF DISALLOWANCE U/S. 14A OF THE INCOME TAX ACT, 1961 BY APPLYING THE AMENDED PROVISIONS OF RULE 8D(2)(II) @1% OF THE ANN UAL AVERAGE OF MONTHLY AVERAGE OF THE OPENING AND CLOSING BALANCES OF THE VALUE OF IN VESTMENTS, WHEREAS THE SAME AMENDMENT WAS INTRODUCED W.E.F. 02 .06.2016 AND DOES NOT HAVE RETROSPECTIVE EFFECT? 2. THAT THE ORDER OF THE LD. CIT (A) BE SET ASIDE AND THAT OF THE ASSESSING OFFICER BE RESTORED. 2 3. THAT THE APPELLANT CRAVES LEAVE TO ADD OR AMEND ANY GROUND OF APPEAL BEFORE IT IS FINALLY DISPOSED OFF. 3. ASSESSEE HAS RAISED THE FOLLOWING GROUNDS IN ITS APPEAL: 1. THAT THE WORTHY COMMISSIONER OF INCOME TAX (APP EALS)-1, LUDHIANA HAS ERRED IN ENHANCING THE DISALLOWANCE UNDER SECTION 14A REA D WITH RULE 8D(2)(III) TO RS. 32,90,775/- FROM RS. 16,45,616/-. 2.THAT THE WORTHY COMMISSIONER OF INCOME TAX (APPEA LS)-1, LUDHIANA HAS ERRED IN THE EYES OF LAW BY APPLYING THE AMENDED RULE 8D(2)( II) RETROSPECTIVELY. 3. THAT THE ASSESSEE CRAVES FOR PERMISSION TO ADD, AMEND OR ALTER ANY CROSS- OBJECTION AT THE TIME OF HEARING. 4. HENCE THE CROSS-OBJECTIONS. 4. BRIEF FACTS OF THE CASE TAKEN FROM THE ORDER OF THE LD. CIT(A) ARE THAT THE APPELLANT IS AN INVESTMENT COMPANY. FOR THE A.Y.201 4-15, THE RETURN OF INCOME DECLARED A LOSS OF RS.1,38,00,876/- AND WITH THE BR OUGHT FORWARD LOSSES OF RS.2,96,16,107/- FROM THE IMMEDIATELY PRECEDING A.Y .2013-14, THE TOTAL LOSS WAS SHOWN AT RS.4,34,16,983/-. HOWEVER, BOOK PROFITS OF RS.3,14,70,762/- WAS DECLARED UNDER THE PROVISIONS OF SECTION 115JB OF THE INCOME TAX ACT, 1961 [HENCEFORTH AND FOR SHORT, 'THE ACT']. THE SAID RETURN WAS, THE REAFTER, SELECTED FOR SCRUTINY UNDER THE COMPUTER-ASSISTED SCRUTINY SELECTION MODU LE, PURSUANT TO WHICH THE ORDER OF ASSESSMENT DATED 28/11/2016 WAS PASSED UND ER THE PROVISIONS OF SECTION 143 (3) OF THE ACT. IN THE SAID ASSESSMENT, THE RETURNED LOSS WAS REDUCED BY AN AMOUNT OF RS.2,80,54,709/- WHICH WAS DISALLOW ED UNDER THE PROVISIONS OF SECTION 14 A OF THE ACT. THE AO INVOKED THE MACHINE RY PROVISION CONTAINED IN RULE 8D FOR MAKING THE DISALLOWANCE UNDER SECTION 1 4A OF THE ACT. IT WAS REASONED BY THE AO THAT THE APPELLANT, EVEN THOUGH INSISTED THAT IT HAD SUFFICIENT NON-INTEREST-BEARING FUNDS TO MEET THE I NVESTMENTS, COULD NOT SUBMIT ANY DOCUMENTARY PROOF TO SHOW THAT ONLY NON-INTERES T-BEARING FUNDS WERE USED FOR MAKING INVESTMENTS. UNDERSTANDABLY, IT WAS CONS IDERED DIFFICULT TO MAKE SUCH A DISTINCTION IN THE FINANCIALS OF SUCH A BIG COMPANY AND HENCE THE CONCEPT OF 'MIXED FUNDS'. IT WAS FURTHER ARGUED BY THE AO IN THE ASSESSMENT ORDER THAT RULE 8D HAS BEEN DRAFTED KEEPING THE CON CEPT OF 'MIXED FUNDS' IN MIND AND HENCE THE PROVISION FOR 'INDIRECT EXPENDIT URE' HAS BEEN ENSHRINED AND RULES FRAMED FOR ESTIMATING THE DISALLOWANCE. RELIA NCE WAS PLACED ON THE DECISION OF THE JURISDICTIONAL ITAT IN THE CASE OF SH. AVTAR SINGH IN ITA NO.948/CHD/2011 TO CANVASS THE PROPOSITION THAT THE PRIMARY ONUS OF PROOF LIES ON THE ASSESSEE AS IT IS HE WHO HAS MADE THE CLAIM IN HIS RETURN OF INCOME. THE 3 THEORY OF APPORTIONMENT OF EXPENDITURE BETWEEN TAXA BLE AND NON-TAXABLE INCOME WAS STATED TO HAVE BEEN CLARIFIED BY SECTION 14A, WHICH ACCORDING TO THE AO, WAS APPROVED BY THE APEX COURT IN THE CASES OF WALFORT SHARE BROKERS PRIVATE LIMITED AND GODREJ & BOYCE MFG. CO. LTD AND FOLLOWED BY THE JURISDICTIONAL HIGH COURT OF PUNJAB AND HARYANA IN THE CASE OF PUNJAB STATE INDUSTRIAL DEVELOPMENT CORPORATION LTD. RELIANCE WA S ALSO PLACED ON THE DECISION OF THE HON'BLE ITAT CHANDIGARH IN THE CASE S OF CHADHA SUPER CARS PRIVATE LIMITED AND SIGMA CARTONS (P.) LTD. THE RAT IONALE FOR MAKING THE DISALLOWANCE AS PER THE PROVISIONS OF RULE 8D (2)(I I) & (III) WAS THAT THE APPELLANT HAD MIXED FUNDS AND HENCE IT COULD NOT BE SAID AS T O WHICH FUND WAS USED FOR WHICH PURPOSES EVEN IF THE INVESTMENT WAS MUCH MORE THAN THE BORROWED FUNDS BECAUSE THERE COULD BE A CASE WHEN THE APPELLANT SU PPORTS ITS BUSINESS FROM ITS OWN FUNDS AND BORROWED FUNDS ARE USED FOR MAKING IN VESTMENTS. 5. THE LD. CIT(A) HELD THAT THE OUTLAY IN TERMS OF INT EREST ON BORROWED CAPITAL IS ALSO A FACT ON RECORD. THAT THE APPELLANT COMPANY M AINTAINS COMMON AND UN- DEMARCATED FUNDS IS ALSO NOT DISPUTED. IT IS ALSO F AIRLY UNDERSTANDABLE THAT THE APPELLANT COULD NOT IDENTIFY OR DEMARCATE THE UTILI ZATION OF NON-INTEREST-BEARING FUNDS FOR MAKING INVESTMENTS BECAUSE OF THE COMMON POOL OF FUNDS AS ALSO ON ACCOUNT OF THE ENORMITY OF THE SAME. SIMILARLY, IN VIEW OF THE MASSIVE TURNOVER OF THE APPELLANT COMPANY AND ITS COMPLICATED FUND FLOW , THE DIFFICULTY IN IDENTIFYING AS TO WHICH FUNDS HAVE BEEN USED FOR WH AT PURPOSES ALSO CANNOT BE EMPHASIZED MORE. THERE IS NO DOUBT ABOUT THE UNITY OF CONTROL AND COMMONALITY OF FUNDS AND MANAGEMENT IN RELATION TO THE 'BUSINESS ACTIVITY' AND 'INVESTMENT ACTIVITY, INCOME FROM WHICH DOES NOT OR SHALL NOT FORM PART OF THE TOTAL INCOME'. IN THE CIRCUMSTANCES, THE ALLEGATION AGAINST THE AO IN NOT RECORDING HIS SATISFACTION BEFORE REJECTING THE APP ELLANT'S CALCULATION RINGS HOLLOW AND AN ARTIFICE TO TURN THE TABLES AND EXPEC T FROM THE AO, WHAT SHOULD HAVE BEEN KNOWN AND POINTED OUT BY THE APPELLANT IT SELF. IT IS SEEN THAT THE AO HAS DEALT WITH THE MATTER WHILE REJECTING THE APPEL LANT'S CALCULATIONS AND INVOKING THE MACHINERY PROVISION OF RULE 8D AND HIS SATISFACTION CAN BE EASILY AND CLEARLY DISCERNED FROM THE ASSESSMENT ORDER. 6. SINCE NO DIRECT EXPENSES ARE PURPORTED TO HAVE BEEN MADE BY THE APPELLANT IN ACQUIRING THE INVESTMENTS OR NOTICED B Y THE AO, NO DISALLOWANCE HAS BEEN MADE UNDER RULE 8D (2)(I). TO TAKE CARE OF A SITUATION WHERE THERE IS A MIXED USE OF BORROWED FUNDS, APPORTIONMENT OF INTER EST EXPENDITURE IS MANDATED AS PER THE PROVISIONS OF RULE 8D, WHICH ST ANDS SUBSTITUTED BY THE IT 4 (14TH AMDT.) RULES, 2016, W.E.F. 02/06/2016. THE SA ID RULE PROVIDES THAT THE EXPENDITURE IN RELATION TO INCOME WHICH DOES NOT FO RM PART OF THE TOTAL INCOME SHALL BE THE AGGREGATE OF FOLLOWING AMOUNTS, NAMELY : (I) THE AMOUNT OF EXPENDITURE AN AMOUNT EQUAL TO ONE PERCENT OF THE A NNUAL AVERAGE OF THE MONTHLY AVERAGES OF THE OPENING AND CLOSING BALANCE S OF THE VALUE OF INVESTMENT, INCOME FROM WHICH DOES NOT OR SHALL NOT FORM PART OF TOTAL INCOME, PROVIDED THAT THE AMOUNT REFERRED TO IN CLAUSE (I) & CLAUSE (II) SHALL NOT EXCEED THE TOTAL EXPENDITURE CLAIMED BY THE ASSESSEE. 6.1 THIS ISSUE HAS BEEN EARLIER ADJUDICATED BY THE ORDER OF THIS TRIBUNAL IN THE ASSESSEES OWN CASE IN ITA NO. 1434/CHD/2017 DT. 15 /11/2018 FOR THE ASSESSMENT YEAR 2013-14 WHEREIN THE DISALLOWANCE @ 0.5% UNDER RULE 8D(2)(III) HAS BEEN DIRECTED. IN THE ABSENCE OF ANY MATERIAL CHANGE IN THE FACTS OF THE CASE WE HEREBY ALLOW THE DISALLOWANCE @ 0.5% AS PER RULE 8D (2)(III). 7. AS A RESULT, THE APPEAL OF THE REVENUE REGARDING THE RULE 8D(2)(II) AND THE APPEAL OF THE ASSESSEE PERTAINING TO RULE 8D(2)(III ) STANDS DISPOSED OFF. SD/- SD/- . '.., # $, (SANJAY GARG ) ( DR. B.R.R. KUM AR, AM) / JUDICIAL MEMBER %& / ACCOUNTANT MEMBER AG DATE: 10/05/2019 (+! ,-.- COPY OF THE ORDER FORWARDED TO : 1. THE APPELLANT 2. THE RESPONDENT 3. $ / CIT 4. $ / 01 THE CIT(A) 5. -2 45&456789 DR, ITAT, CHANDIGARH 6. 8:% GUARD FILE (+ $ BY ORDER, ; # ASSISTANT REGISTRAR