M/s. Exotique Exports, New Delhi V. ACIT, New Delhi

CO 66/DEL/2012

• Counselvise Citation: [2012] 122 COUNSELVISE.COM (IT) 7640 (ITAT-DELHI)
• Duration Of Justice: 5 month(s) 19 day(s)
• Appeal Type: Cross Objection
• Pronouncement Date: 14-09-2012
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: B
• Next Hearing Date: 04-09-2012
• Assessment Year: 2007-2008
• Appeal Filed On: 26-03-2012
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Assessee Lawyers: MEETA SINHA
• Section: 14A

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH B: NEW DELHI BEFORE SHRI S.V. MEHROTRA, ACCOUNTANT MEMBER AND SHRI KUL BHARAT, JUDICIAL MEMBER ITA NO. 654/DEL/2012 ASSESSMENT YEAR: 2007-2008 ACIT, CIRCLE 22(1), ROOM NO. 238-B, C.R. BLDG., I.P. ESTATE, NEW DELHI. VS. EXOTIQUE EXPORTS, Z-45, OKHLA INDUSTRIAL AREA, PHASE-II, NEW DELHI. PAN NO. AAAFE1843K (APPELLANT) (RESPONDENT) & CROSS OBJECTION NO. 66/DEL/2012 ASSESSMENT YEAR: 200 7-08 EXOTIQUE EXPORTS, Z-45, OKHLA INDUSTRIAL AREA, PHASE-II, NEW DELHI. PAN NO. AAAFE1843K VS. ACIT, CIRCLE 22(1), ROOM NO. 238-B, C.R. BLDG., I.P. ESTATE, NEW DELHI. (APPELLANT) (RESPONDENT) APPELLANT BY : MS. MEETA SINHA, SR. DR RESPONDENT BY : SH. R.S. SINGHVI, CA DATE OF HEARING : 04/09/2012 DATE OF PRONOUNCEMENT : 14/09/2012 ITA NO. 654/D/2012 & CO NO. 66/D/2012 2 O R D E R PER S.V. MEHROTRA, A.M. THE APPEAL FILED BY THE REVENUE AND CROSS OBJECTION BY THE ASSESSEE ARE DIRECTED AGAINST THE ORDER PASSED BY T HE LD. CIT(A) DATED 28.11.2011 FOR A.Y. 2007-08. 2. THE ASSESSEE FIRM, IN THE RELEVANT ASSESSMENT YE AR, WAS ENGAGED IN THE BUSINESS OF MANUFACTURING AND EXPORTS OF GARMEN TS, WHEREIN LOSS OF RS. 1,75,09,411/- HAD BEEN INCURRED. 3. THE ASSESSING OFFICER OBSERVED THAT ASSESSEE HAD EARNED INCOME UNDER THE HEAD INCOME FROM BUSINESS AND PROFESSION AND INCOME FROM OTHER SOURCES. THE AO NOTICED THAT ASSESSEE FIRM HAD BORROWED FUNDS AND DURING THE PREVIOUS YEAR RELEVANT TO THE AY 200 7-08, PAID INTEREST OF RS. 63,46,615/- THEREON. HE FURTHER NOTICED THAT A SSESSEE FIRM HAD INVESTED IN MUTUAL FUNDS ON WHICH DIVIDEND OF RS. 2 ,81,52,200/- HAD BEEN EARNED. HE REQUIRED THE ASSESSEE TO EXPLAIN WHY TH E DISALLOWANCE U/S 14A BE NOT MADE. 4. AFTER CONSIDERING THE ASSESSEES SUBMISSIONS, TH E AO COMPUTED DISALLOWANCE U/S 14A AS PER RULE 8D AND DISALLOWED RS. 32,87,651/- U/S 14A. 5. LD. CIT(A) AFTER CONSIDERING DETAILED SUBMISSION S OF ASSESSEE, RESTRICTED THE DISALLOWANCE TO RS. 7,36,931/-, INTE R-ALIA, OBSERVING THAT DISALLOWANCE IS TO BE WORKED OUT ON ACTUAL BASIS, I N THIS CASE, IT IS ONLY .5% OF INVESTMENTS WHICH COMES TO RS. 7,36,931/-. ITA NO. 654/D/2012 & CO NO. 66/D/2012 3 6. BEING AGGRIEVED WITH THE ORDER OF LD. CIT(A), TH E DEPARTMENT HAS FILED APPEAL BEFORE US AND THE ASSESSEE HAS FILED CROSS O BJECTION AGAINST THE SUSTENANCE OF DISALLOWANCE TO THE EXTENT OF RS. 7,3 6,931/-. 7. AT THE TIME OF HEARING, LD. COUNSEL FOR THE ASSE SSEE FILED BEFORE US COPY OF ITAT ORDER IN ASSESSEES OWN CASE FOR AY 20 04-05 VIDE ITA NO. 1409/D/2010 DATED 15.07.2011 AND POINTED OUT THAT T RIBUNAL DISMISSED THE REVENUES APPEAL OBSERVING IN PARA 4 AS UNDER: - 4. WITH THE ASSISTANCE OF REPRESENTATIVE, WE HAVE GON E THROUGH THE RECORD CAREFULLY. LEARNED FIRST APPELL ATE AUTHORITY HAS DELETED THE DISALLOWANCE ON THE GROUN D THAT ASSESSEE HAS MORE SURPLUS INTEREST FREE FUNDS THAN THE ADVANCES AND INVESTMENT. IN OTHER WORDS, ON TH E RECORD ASSESSING OFFICER FAILED TO ESTABLISH THAT I NTEREST BEARING FUNDS WERE USED EITHER FOR MAKING ADVANCES TO THE SISTER CONCERN OR FOR INVESTMENT IN THE MUTUAL FUNDS. IF THAT BE SO, THEN HOW DISALLOWANCE CAN BE MADE. THE STAND OF THE ASSESSING OFFICER IS THAT ASSESSEE SHO ULD HAVE USED ITS OWN FUNDS INSTEAD OF INTEREST BEARING BORROWINGS FOR RUNNING THE BUSINESS. IN OUR OPINIO N, ASSESSING OFFICER CANNOT FORCE THE ASSESSEE TO EARN INTEREST INCOME OR SAVE INTEREST EXPENSES FOR RUNNI NG THE BUSINESS. THE ASSESSING OFFICER WAS UNABLE TO DEMONSTRATE THAT INTEREST BEARING LOANS WERE USED B Y THE ASSESSEE OTHER THAN BUSINESS PURPOSE. LD. FIRST APPELLATE AUTHORITY HAS APPRECIATED THE FACTS AND CIRCUMSTANCES IN RIGHT PERSPECTIVE AND WE DO NOT SE E ANY REASON TO INTERFERE IN HIS ORDER. HENCE, THIS APPE AL OF THE REVENUE IS DISMISSED. 8. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND HAV E PERUSED THE RECORD OF THE CASE. IN THE CURRENT ASSESSMENT YEAR ALSO, THE ASSESSEES CONTENTION IS THAT, AT ALL THE TIME THE ASSESSEE HA D INTEREST FREE CASH FLOW FAR IN EXCESS OF THE INVESTMENTS MADE FOR EARNING E XEMPT INCOME AND SINCE NO SPECIFIC INSTANCE HAD BEEN POINTED OUT BY THE AO OF DIVERSION OF FUNDS FOR GIVING INTEREST FREE LOANS TO RELATED PAR TIES, NO DISALLOWANCE WAS CALLED FOR. THE ASSESSEES CONTENTIONS ARE THAT TH E AO HAS NOT POINTED OUT ITA NO. 654/D/2012 & CO NO. 66/D/2012 4 ANY NEXUS BETWEEN UTILIZATION OF INTEREST BEARING F UNDS FOR THE PURPOSE OF MAKING INVESTMENTS AS NO FRESH INVESTMENTS HAD BEEN MADE DURING THE YEAR UNDER ASSESSMENT BY WAY OF UTILIZATION OF BUSI NESS FUNDS. THEREFORE, NO DISALLOWANCE WAS CALLED OUT OF INTEREST PAYMENTS MADE BY ASSESSEE. HOWEVER, LD. CIT(A) HAS COMPUTED DISALLOWANCE ON AC TUAL BASIS BY MAKING A DISALLOWANCE OF .5% OF INVESTMENT. THIS DISALLOW ANCE WAS NOT BEFORE TRIBUNAL IN EARLIER YEAR SINCE DISALLOWANCE IS ON A CTUAL BASIS, WE DO NOT FIND ANY INFIRMITY IN THE ORDER OF LD. CIT(A). 9. IN THE RESULT, THE DEPARTMENTS APPEAL AND CROSS OBJECTION BOTH ARE DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 14/09/2012 SD/- SD/- (KUL BHARAT) JUDICIAL MEMBER (S.V. MEHROTRA) ACCOUNTANT MEMBER DATED: 14/09/12 *KAVITA COPY TO: 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(A) 5. DR, ITAT, NEW DELHI. TRUE COPY BY ORDER DEPUTY REGISTRAR