Sudarshan Chemecal Industries Ltd., Pune V. Addl. CIT,Range-6, Pune

ITA 1024/PUN/2009

• Counselvise Citation: [2010] 135 COUNSELVISE.COM (IT) 3101 (ITAT-PUNE)
• Duration Of Justice: 1 year(s) 3 month(s) 3 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 30-11-2010
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: A
• Assessment Year: 2006-2007
• Appeal Filed On: 26-08-2009
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: ABHAY DAMLE
• Keywords: Earning of tax free income
• Section: 143(3); 14A

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL PUNE BENCH A, PUNE BEFORE SHRI SHAILENDRA KUMAR YADAV, JUDICIAL MEMBER AND SHRI G.S. PANNU, ACCOUNTANT MEMBER ITA NO. 1024/PN/2009 ASSESSMENT YEAR: 2006-07 SUDARSHAN CHEMICAL INDUSTRIES LTD., APPELLANT 162, WELLESLEY ROAD, PUNE -411 001 (PAN AABCS4223P) VS. ADDL. COMMISSIONER OF INCOME-TAX, RESPONDENT RANGE 6, PUNE. APPELLANT BY : MR. C.H. NANIWADEKAR RESPONDENT BY : MR. ABHAY DAMLE ORDER PER G.S. PANNU, A.M.: THIS APPEAL BY THE ASSESSEE PERTAINING TO THE ASSE SSMENT YEAR 2006-07 IS DIRECTED AGAINST THE ORDER OF CIT(A ) DATED 10/06/09, WHICH IN TURN, HAD ARISEN FROM THE ORDER DATED 25/11/08 PASSED BY THE ASSESSING OFFICER U/S 143(3) OF THE I NCOME TAX ACT, 1961 (IN SHORT THE ACT). 2. IN THE MEMO OF APPEAL, ASSESSEE HAS RAISED MULTI PLE GROUNDS OF APPEAL BUT THE SOLITARY ISSUE RELATES TO THE DISALLOWANCE OF RS. 6,78,403/- MADE OUT OF INTEREST EXPENDITURE BY APPLYING PROVISIONS OF SECTION 14A OF THE ACT. 3. THE ASSESSING OFFICER NOTED THAT THE ASSESSEE HA D INVESTMENTS OF RS. 60,30,250/- IN BONDS AND UNITS O F UNIT TRUST OF INDIA (IN SHORT UTI), FROM WHICH DIVIDEND AND INT EREST INCOME WAS BEING EARNED AND THE SAME WAS EXEMPT U/S 10(33) OF THE ACT. ITA NO. 1024/PN/09 SUDARSHAN CHEMICAL INDUSTRIES LTD . 2 IT WAS NOTED BY THE ASSESSING OFFICER THAT THE ASSE SSEE HAD CLAIMED INTEREST EXPENDITURE OF RS. 7,33,54,844/- I N THE PROFIT & LOSS A/C. THE ASSESSING OFFICER ALSO NOTED THAT IN THE YEAR OF INVESTMENT THERE WAS SUBSTANTIAL OVERDRAFT JUST BEF ORE THE WITHDRAWAL AMOUNT FOR SUCH PURPOSE. THE OVERDRAFT C ONTINUED TILL THE YEAR UNDER CONSIDERATION. IN THIS MANNER, THE ASSESSING OFFICER CONCLUDED THAT WHEN SUCH INVESTMENT IN SHA RES AND UNITS ARE TAKEN FROM THE OVERDRAFT ACCOUNT, INTEREST IS CHARGED ON SUCH AMOUNT BY THE BANK. HE, ACCORDINGLY, WORKED OU T THE INTEREST PERTAINING TO SUCH INVESTMENTS AS EXPENDIT URE INCURRED FOR EARNING OF SUCH INCOME AND ACCORDINGLY, A DISA LLOWANCE OF RS. 6,78,403/- WAS MADE IN TERMS OF SECTION 14A OF THE ACT. THE CIT(A) HAS UPHELD THE DISALLOWANCE AND IN THIS CON NECTION HE HAS RELIED UPON THE DECISION OF THE PUNE BENCH OF THE T RIBUNAL IN ASSESSEES OWN CASE FOR ASSESSMENT YEAR 2002-03 IN ITA NO. 1852/PN/2005 DATED 29/10/08. 4. IN THE AFORESAID BACKGROUND, THE LEARNED COUNSEL FOR THE ASSESSEE, AT THE OUTSET, CONTENDED THAT THE DISPUTE IS IDENTICAL TO THAT CONSIDERED BY THE TRIBUNAL IN ASSESSEES OWN C ASE FOR ASSESSMENT YEAR 2002-03 (SUPRA). HOWEVER, THE PRECE DENT IS SOUGHT TO BE DISTINGUISHED ON THE STRENGTH OF THE J UDGMENT OF THE HONBLE BOMBAY HIGH COURT IN THE CASE OF CIT VS. RE LIANCE UTILITIES & POWER LTD., [2009] 18 DTR (BOM)1. AS PE R THE SAID JUDGMENT IF THERE ARE INTEREST FREE FUNDS AVAILABLE TO AN ASSESSEE SUFFICIENT TO MEET ITS INVESTMENTS AND AT THE SAME TIME THE ASSESSEE HAD RAISED A LOAN, IT CAN BE PRESUMED THAT THE INVESTMENTS WERE FROM THE INTEREST-FREE FUNDS AVAIL ABLE. ON THE ITA NO. 1024/PN/09 SUDARSHAN CHEMICAL INDUSTRIES LTD . 3 BASIS OF THE AFORESAID PROPOSITION, IT IS SOUGHT TO BE CONTENDED THAT THE OVERDRAFT ACCOUNT MAINTAINED WITH BANK IS A MIXED ACCOUNT IN WHICH SALE PROCEEDS AND NON-INTEREST BEA RING FUNDS ARE ALSO CREDITED AND, THEREFORE, FOLLOWING THE AFO RESAID PROPOSITION IT RAISES A PRESUMPTION THAT THE INVEST MENTS IN QUESTION ARE OUT OF INTEREST-FREE FUNDS. 5. ON THE OTHER HAND, LEARNED DR APPEARING FOR THE REVENUE HAS DEFENDED THE ORDER OF CIT(A) WHEREIN THE DISALL OWANCE HAS BEEN SUSTAINED FOLLOWING THE PRECEDENT IN THE ASSES SEES OWN CASE. 6. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS CAREFUL LY. IN THE PRESENT CASE, IN THE COURSE OF HEARING, THE LEARNED COUNSEL SUBMITTED THAT NO FRESH INVESTMENTS HAVE BEEN MADE IN THIS YEAR. OSTENSIBLY, THE INVESTMENTS WHICH HAVE GENERATED TH E EXEMPT INCOME IN QUESTION HAS BEEN LAID OUT IN THE EARLIER ASSESSMENT YEARS. IN ORDER TO EXAMINE THE NEXUS BETWEEN THE IN VESTMENTS AND THE BORROWINGS FROM THE OVERDRAFT ACCOUNT OF TH E ASSESSEE, IT IS THE YEAR OF ACTUAL INVESTMENT, WHICH IS RELEVANT . IN THIS CONNECTION, ASSESSING OFFICER HAS MADE A CATEGORICA L ASSERTION THAT IN THE YEAR OF INVESTMENT THERE WAS A SUBSTANT IAL OVERDRAFT BEFORE THE WITHDRAWAL WAS MADE FOR THE PURPOSES OF INVESTMENT. IN FACT, THE TRIBUNAL IN ASSESSEES OWN CASE FOR AS SESSMENT YEAR 2002-03 (SUPRA) EXAMINED THE FINDING OF THE LOWER A UTHORITIES WITH RESPECT TO THE NEXUS BETWEEN THE INVESTMENTS A ND THE BORROWINGS FROM THE OVERDRAFT ACCOUNT. THE TRIBUNAL OBSERVED THAT THE ASSESSEE HAD NOT FURNISHED ANY EVIDENCE TO ESTABLISH ITA NO. 1024/PN/09 SUDARSHAN CHEMICAL INDUSTRIES LTD . 4 THAT THE INVESTMENTS IN SHARES/UNITS WERE NOT OUT O F BORROWINGS FROM THE OVERDRAFT ACCOUNT. AS PER THE ASSESSING OF FICER, THIS POSITION HAS CONTINUED THEREAFTER TILL THE YEAR UND ER CONSIDERATION ALSO. IN THIS BACKGROUND OF THE MATTER, WE, THEREFO RE, FIND NO JUSTIFICATION TO INTEREFERE WITH A FINDING OF FACT UPHELD BY THE TRIBUNAL IN THE RELEVANT YEAR IN WHICH THE INVESTME NTS STATED TO HAVE BEEN MADE. IN SO FAR AS THE RELIANCE PLACED BY THE LEARNED COUNSEL ON THE JUDGEMENT OF HONBLE BOMBAY HIGH COU RT IN THE CASE OF RELIANCE UTILITIES & POWER LTD.(SUPRA) IS C ONCERNED, THE SAME RELATES TO A CLAIM OF EXPENDITURE OF INTEREST U/S 36(1)(III) OF THE ACT. IN THIS CONTEXT, THE HONBLE HIGH COURT UP HELD THE PROPOSITION THAT IF THERE ARE INTEREST FREE FUNDS A VAILABLE, THAT ARE SUFFICIENT TO MEET INVESTMENTS AND AT THE SAME TIME THE ASSESSEE HAS RAISED A LOAN, IT CAN BE PRESUMED THAT THE INVE STMENTS WERE FROM THE INTEREST FREE FUNDS AVAILABLE, AND, THEREF ORE, IT DOES NOT CALL FOR ANY DISALLOWANCE U/S 36(1)(III) OF THE ACT . FIRSTLY, THE AFORESAID JUDGMENT IS IN RELATION TO SECTION 36(1)( III) OF THE ACT, AND NOT SECTION 14A OF THE ACT, WHICH IS THE CASE B EFORE US. IN THE CONTEXT OF SECTION 14A OF THE ACT, THE TRIBUNAL IN ASSESSEES OWN CASE DATED 29/10/08 (SUPRA) HAD FOUND THAT REVENUE HAS ESTABLISHED THE NEXUS BETWEEN THE INVESTMENTS AND T HE BORROWINGS FROM THE OVERDRAFT ACCOUNT AND ON THIS B ASIS, IT WAS FACTUALLY FOUND THAT INTEREST EXPENDITURE HAS BEEN INCURRED IN RELATION TO THE EXEMPT INCOME. THE FINALITY OF THE FACTUAL FINDING APPROVED BY THE TRIBUNAL IN 2002-03 (SUPRA) CANNOT BE REVISITED BY A SUCCEEDING BENCH OF THE TRIBUNAL AND THAT TOO IN A SUBSEQUENT ASSESSMENT YEAR, ESPECIALLY IN THE FACE OF THE SUBMISSION MADE BY THE LD. COUNSEL AT THE TIME OF H EARING THAT ITA NO. 1024/PN/09 SUDARSHAN CHEMICAL INDUSTRIES LTD . 5 THE ASSESSEE HAS NOT PREFERRED ANY APPEAL AGAINST T HE ORDER OF THE TRIBUNAL DATED 29/10/08 FOR ASSESSMENT YEAR 200 2-03 (SUPRA). SECTION 14A OF THE ACT SEEKS TO DISALLOW AN EXPENDI TURE WHICH IS INCURRED BY THE ASSESSEE IN RELATION TO INCOME WHICH DOES NOT FORM PART OF THE TOTAL INCOME . THE PRESENCE OF THE AFORESAID EXPRESSIONS IN SECTION 14A OF THE ACT IMPLIES THAT INCURRING OF EXPENDITURE IS AN ESSENTIAL CONDITION AND THE SAME HAS BEEN FOUND TO HAVE BEEN FULFILLED IN THIS CASE IN THE AS SESSMENT YEAR 2002-03, WHICH IS THE YEAR OF MAKING INVESTMENT. M OREOVER, THE MECHANICS OF SECTION 36(1)(III) OF THE ACT STAND ON A SLIGHTLY DIFFERENT FOOTING THAN THOSE OF SECTION 14A OF THE ACT. THEREFORE, FOR ALL THE ABOVE REASONS, THE PARITY OF THE REASON ING LAID DOWN BY THE HONBLE BOMBAY HIGH COURT IN THE CASE OF RELIAN CE UTILITIES & POWER LTD. (SUPRA) CANNOT BE APPLIED IN THE PRESENT CASE. THEREFORE, FOLLOWING THE PRECEDENT IN ASSESSES OWN CASE AND THE FACTUAL FINDING OF THE LOWER AUTHORITIES, WHICH REM AIN UNCONTROVERTED, WE HEREBY CONFIRM THE DISALLOWANCE OF RS. 6,78,403/- MADE U/S 14A OF THE ACT. 7. IN THE RESULT, THE ORDER OF CIT(A) IS HEREBY CON FIRMED ON THIS COUNT. 8. RESULTANTLY, APPEAL OF ASSESSEE IS DISMISSED. PRONOUNCED IN THE OPEN COURT ON THIS 30 TH DAY OF NOVEMBER, 2010. SD/- SD/- (SHAILENDRA KUMAR YADAV) (G.S. PANNU) JUDICIAL MEMBER ACCOUNTANT M EMBER PUNE, DATED: NOVEMBER, 2010 ITA NO. 1024/PN/09 SUDARSHAN CHEMICAL INDUSTRIES LTD . 6 COPY TO:- 1) THE APPELLANT. 2) THE RESPONDENT. 3) THE CIT (A) CONCERNED. 4) THE CIT CONCERNED. 5) THE DEPARTMENTAL REPRESENTATIVE, A BENCH, I.T .A.T., MUMBAI. BY ORDER //TRUE COPY// ASST. REGISTRAR, I.T.A.T., PUNE KV