Paushak Limited, Baroda V. The Dy.CIT.,Circle-4, Baroda

ITA 1040/AHD/2013

• Counselvise Citation: [2016] 133 COUNSELVISE.COM (IT) 1729 (ITAT-AHMEDABAD)
• Duration Of Justice: 3 year(s) 17 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 02-05-2016
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: C
• Assessment Year: 2009-2010
• Appeal Filed On: 15-04-2013
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Earning of tax free income
• Section: 143(3); 14A

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD C BENCH BEFORE: S H RI PRAMOD KUMAR , ACCOUNTANT MEMBER AND SHR I S. S. GODARA , JUDICIAL MEMBER PAUSHAK LIMITED, 5 TH FLOOR, ADMINISTRATIVE BUILDING ACCOUNTS DEPARTMENT, ALEMBIC ROAD, BARODA - 400063 PAN: AAACD5006G (APPELLANT) VS THE DCIT, CIRCLE - 4, BARODA (RESPONDENT) REVENUE BY : S H RI RAJDEEP SINGH , SR . D . R. ASSESSEE BY: MS. URVASHI SHODHAN , A.R. DATE OF HEARING : 11 - 03 - 2 016 DATE OF PRONOUNCEMENT : 02 - 0 5 - 2 016 / ORDER P ER : S. S. GODARA , JUDICIAL ME MBER : - THIS ASSESSEE S APPEAL FOR A.Y. 2009 - 10 , AR ISES FROM ORDER OF THE CIT(A) - III, BARODA DATED 04 - 01 - 2013 IN APPEAL NO. CAB//II - I T A NO . 1040 / A HD/20 13 A SSESSMENT YEAR 200 9 - 10 I.T.A NO.1040 /AHD/20 13 A.Y. 2009 - 10 PAGE NO PAUSHAK LTD VS. DCIT 2 191/11 - 12 , IN PROCEEDINGS UNDER SECTION 143(3) OF THE INCOME TAX ACT, 1961; IN SHORT THE ACT . 2. THE ASSESSEE S SOLE SU BSTANTIVE ASSAILS CORRECTNESS OF ADMINISTRATIVE EXPENDITURE DISALLOWANCE OF RS. 6,94,097/ - MADE BY THE ASSESSING OFFICER UNDER RULE 8D(2)(III) R.W.S. 14A OF THE ACT IN ASSESSMENT ORDER DATED 30 - 11 - 2011 AND AFFIRMED BY THE CIT(A). 3. THIS ASSESSEE - COMPAN Y MANUFACTURES AND TRADES IN CHEMICALS. IT FILED ITS RETURN ON 22 - 09 - 2009 ADMITTING INCOME OF RS. 4,14,19,128/ - . THE SAME WAS SUMMARILY PROCESSED. THE ASSESSING OFFICER THEREAFTER TOOK UP SCRUTINY . HE NOTICED ASSE SSEE S EXEMPT INCOME FROM DIVIDENDS AMOU NTING TO RS. 8,17,506/ - . THERE IS NO DISPUTE THAT THE IMPUGNED ASSESSMENT YEAR IS 2009 - 10 AND RULE 8D FOR COMPUTING DISALLOWANCE OF EXPENSE S RELATABLE TO SUCH AN EXEMPT INCOME IS APPLICABLE FROM ASSESSMENT YEAR 2008 - 09. THE ASSESSING OFFICER SOUGHT TO AP PLY THIS STATUTORY PROVISION FOR DISALLOWING ASSESSEE S EXPENDITURE RELATABLE TO EARNING OF ITS EXEMPT INCOME IN QUESTION. THE ASSESSEE INTER ALIA PLEADED SUFFICIENT INTEREST FREE FUNDS , EXPLAINED SOURCE OF ITS INVESTMENTS IN 9% CONVERTIBLE PREFERENTIAL S HARES OF M/S. WHITEFIELD CHEMTEK PVT. LTD. OF RS.8 CRORES TO REPAYMENT OF INTER CORPORATE/INTEREST FREE DEPOSITS AND ATTRIBUTED THE SAME SOURCE OF INVESTMENTS MADE IN 12% CONVERTIBLE PREFERENCE SHARES OF M/S. SIERRA INVESTMENTS. SIMILAR PLEA WAS TAKEN FOR INVESTMENT FOR OTHER SECURITIES OF VARIOUS COMPANIES TO THE TUNE OF RS. 87,93,506/ - . WE FIND THAT THE ASSESSEE HAD PURCHASED THESE I.T.A NO.1040 /AHD/20 13 A.Y. 2009 - 10 PAGE NO PAUSHAK LTD VS. DCIT 3 INVESTMENTS IN PRECEDING ASSESSMENT YEARS. THE ASSESSING OFFICER IN ASSESSMENT ORDER PARTLY ACCEPTED THE ABOVE STATED CONT ENTIONS QUA THE DIRECT EXPENDITURE RELATING TO TAX FREE INVESTMENTS AS WELL AS ON THE ISSUE OF PROPORTION INTEREST DISALLOWANCE UNDER RULE 8D(2)(I) & (II) RESPECTIVELY. HOWEVER , HE WENT ON TO COMPUTE ADMINISTRATIVE EXPENDITURE DISALLOWANCE IN QUESTION OF RS. 6,94,047/ - UNDER CLAUSE III OF THE ABOVE STATED RULE. 4. THE ASSESSEE PREFERRED APPEAL. THE CIT(A) UPHOLDS ASSESSING OFFICER S ACTION AS UNDER: - 4.3 I HAVE CONSIDERED THE ASSESSMENT ORDER AND THE SUBMISSIONS MADE BY THE APPELLANT. THE APPELLANT H AD NOT MADE ANY DISALLOWANCE OUT OF EXPENDITURES U/S 14AA. HENCE THE AO RAISE THE ISSUE BEFORE THE APPELLANT AS TO WHY CERTAIN EXPENDITURE SHOULD NOT BE ALLOCATED TOWARDS THE EXEMPTED DIVIDEND INCOME AND WHY THE DISALLOWANCE U/S 14A SHOULD NOT BE MADE AS P ER RULE 8D OF THE INCOME TAX RULES, 1962. THE APPELLANT MADE THE DETAILED SUBMISSION WHICH HAS BEEN REPRODUCED IN THE ASSESSMENT ORDER. THE AO PARTIALLY ACCEPTED THE EXPLANATION AS RELATING TO THE UTILIZATION OF BORROWED CAPITAL FOR MAKING INVESTMENTS IN S HARES FOR THE PURPOSES OF EARNING OF DIVIDEND INCOME AND ACCORDINGLY DID NOT MAKE ANY DISALLOWANCE OUT OF INTEREST PAID ON BORROWED CAPITAL. BUT HE MADE DISALLOWANCES OUT OF ADMINISTRATIVE EXPENSES AS P ER RULE 8D. THIS SHOWS THAT THE AO WAS SATISFIED THAT THE APPELLANT'S CLAIM THAT NO EXPENDITURE HAS BEEN INC URRED FOR EARNING THE DIVIDEND INCOME IS NOT ACCEPTABLE. IT MAY BE MENTIONED HERE THAT SUCH SATISFACTION NEED NOT TO BE EXPLICITLY MENTIONED IN THE ASSESSMENT ORDER BUT IT CAN BE DEDUCED FROM THE ORDER ITSELF. HENCE, THIS CONTENTION OF APPELLANT IS REJECTED. 4.3.1 THE APPELLANT'S CONTENTION THAT NO EXPENDITURE HAS BEEN INCURRED FOR EARNING THE DIVIDEND INCOME IS NOT ACCEPTABLE IN VIEW OF THE FACT THAT CERTAIN ACTIVITIES HAVE TAKEN PLACE AS REGARDS TO I NVESTMENT IN SHARES DURING THE CURRENT YEAR AS ACCEPTED BY THE I.T.A NO.1040 /AHD/20 13 A.Y. 2009 - 10 PAGE NO PAUSHAK LTD VS. DCIT 4 APPELLANT. THE APPELLANT HAS NOT MAINTAINED ANY SEPARATE ACCOUNT OF THE EXPENSES MADE FOR THE PURPOSES OF EARNING THE DIVIDEND INCOME. SO FAR AS APPELLANT S CLAIM REGARDING APPELLATE ORDER FOR ASSESSMENT YEAR 2007 - 08 IS CONCERNED, IT MAY BE MENTIONED HERE THAT RULE 8D WAS NOT APPLICABLE FOR THAT YEAR AND HENCE A REASONABLE AMOUNT WAS HELD AS DISALLOWED. BUT FOR THE CURRENT YEAR, RULE 8D IS APPLICABLE AS HELD BY OWNER BOMBAY HIGH COURT IN THE CA SE OF GODREJ AND BOYCE MFG. CO. LTD. (SUPRA). UNDER SUCH CIRCUMSTANCES, DISALLOWANCE HAS TO BE MADE AS PER RULE 8D AS HAS BEEN DONE BY THE ASSESSING OFFICER. HENCE, THE ACTION OF AO IS UPHELD AND THIS GROUND OF APPEAL IS DISMISSED. 5. WE HAVE HEARD RIV AL CONTENTIONS. CASE FILE PERUSED. THE SOLE DISPUTE BETWEEN BOTH THE PARTIES IS ABOUT CORRECTNESS OF THE IMPUGNED ADMINISTRATIVE EXPENDITURE DISALLOWANCE OF RS. 6,94,047/ - MADE BY BOTH THE LOWER AUTHORITIES. THE ASSESSEE S CASE INTER ALIA IS THAT IT HAS NOT INCURRED ANY EXPENDITURE QUA EARNING OF ITS EXEMPT INCOME, BOTH THE LOWER AUTHORITIES HAVE NOT REJECTED ITS BOOKS OF ACCOUNTS BEFORE INVOKING THE IMPUGN ED DISALLOWANCE AS HELD MANDATORY UNDER SECTION 14A(2) BY HON BLE DELHI HIGH COURT IN MAXOPP INVEST MENTS VS. CIT (2012) 247 CTR (DELHI) (162) AND FURTHER QUOTES A CO - ORDINATE BENCH DECISION IN ITA NO. 1362 & 1032/DEL/2013 INTERGLOBE ENTERPRISES LTD VS. DCIT DECIDED ON 04 - 04 - 2014 HOLDING THAT STRATEGIC INVESTMENTS MADE IN GROUP ENTITY ARE NOT FOR EARNING EXEMPT INCOME SO AS TO INVOKE SUCH A DISALLOWANCE IN QUESTION. THE ASSESSEE ALSO CITES HON BLE JURISDICTIONAL HIGH COURT DECISION IN (2015) 376 ITR 553 (GUJ) PCIT VS. INDIA GELATINE CHEMICAL LTD AS WELL AS (2015) 370 ITR 338 (DELHI) CIT VS. TAIKISHA ENGI NEERING INDIA LTD TO BUTTRESS ITS ABOVE STATED ARGUMENT CHALLENGING NO SATISFACTION ARRIVED AT BY THE LOWER AUTHORITIES THAT ITS I.T.A NO.1040 /AHD/20 13 A.Y. 2009 - 10 PAGE NO PAUSHAK LTD VS. DCIT 5 BOOKS OF ACCOUNTS STATING NO EXPENDITURE TO HAVE BEEN INCURRED EARNING OF ITS EXEMPT INCOME ARE NOT CORRECT. THE REVENUE STRON GLY SUPPORTS THE CIT(A) S REASONING EXTRACTED HEREINABOVE. WE HAVE GIVEN OUR THOUGHTFUL CONSIDERATION TO RIVAL CONTENTIONS. WE COME TO SATISFACTION ASPECT AS MANDATED UNDER SECTION 14A(2) R.W. RULE 8D OF THE INCOME TAX RULES. THERE IS NO DISPUTE THAT THE ASSESSING OFFICER IN HIS ASSESSMENT ORDER DOES NOT RECORD THE SAME SO AS TO DISPUTE ASSESSEE S BOOKS OF ACCOUNTS RECORDING NO EXPENDITURE INCURRED FOR EXEMPT INCOME. THE CIT(A) UPHOLDS ASSESSING OFFICER S FINDINGS BY OBSERVING THAT SUCH A SATISFACTIO N NEED NOT BE EXPLICITLY MENTIONED IN ASSESSMENT ORDER AS IT CAN BE DEDUCED FROM THE ORDER ITSELF. WE FIND IT TO BE NOT IN TUNE WITH THE SPECIFIC PROVISION IN THE ACT UNDER SECTION 14A(2). THE LEGISLATURE IN ITS WISDOM SPECIFICALLY ENVISAGES ASSESSING OF FICER S SATISFACTION BEFORE INVOKING EXPEND IT URE DISALLOWANCE THAT AN ASSESSEE S BOOKS ARE NOT CORRECT SO FAR AS THEY DO NOT RECORD ANY EXPENDITURE. WE QUOTE THIS STATUTORY PROVISION AS WELL AS THE ABOVE STATED CASE LAW THAT THERE HAS TO BE AN EXPLICIT SA TISFACTION AND AN ASSESSI NG OFFICER CANNOT SIMPLY BRUSH ASIDE THE RELEVANT BOOKS OF ACCOUNTS. ANY VIOLATION THEREOF, IN OUR CONSIDERED OPINION, WOULD VIOLATE THE LEGISLATIVE INTENT AS WELL THE LEGISLATION ITSELF. WE ARE ACCORDINGLY OF THE OPINION THA T THE CIT(A) S REASONING GOES CONTRARY TO SECTION 14A(2) AS INTERPRETED BY VARIOUS HIGH COURTS HEREINABOVE. THE IMPUGNED ADMINISTRATIVE EXPENDITURE DISALLOWANCE OF RS. 6,94,047/ - MADE BY BOTH THE LOWER AUTHORITIES UNDER RULE 8D(III) IS ACCORDINGLY DELETED . I.T.A NO.1040 /AHD/20 13 A.Y. 2009 - 10 PAGE NO PAUSHAK LTD VS. DCIT 6 6. TH IS ASSESSEE S APPEAL IS ALLOWED. ORDER PR ONOUNCED IN THE OPEN C OURT ON 02 - 0 5 - 201 6 SD/ - SD/ - ( PRAMOD KUMAR ) ( S. S. GODARA ) ACCOUNTANT MEMBER JUDICIAL MEMBER AHMEDABAD : DATED 02 /0 5 /2016 AK / COPY OF ORDER FORWARDED TO: - 1. ASSESSEE 2. REVENUE 3. CONCERNED CIT 4. CIT (A) 5. DR, ITAT, AHMEDABAD 6. GUARD FILE. BY ORDER/ , / ,