DEPUTY COMMISSIONER OF INCOME TAX, Jaipur V. KGK DIAMONDS (INDIA) LTD., MUMBAI

ITA 107/JPR/2018

• Counselvise Citation: [2018] 125 COUNSELVISE.COM (IT) 6356 (ITAT-JAIPUR)
• Duration Of Justice: 5 month(s) 26 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 25-07-2018
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: A
• Assessment Year: 2013-2014
• Appeal Filed On: 30-01-2018
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: SEEMA MEENA
• Assessee Lawyers: S R SHARMA; RAJNIKANT BHATRA CA DH
• Section: 14A

Judgement Text

VK;DJ VIHYH; VF/KDJ.K] T;IQJ U;K;IHB] T;IQJ IN THE INCOME TAX APPELLATE TRIBUNAL, JAIPUR BENCHE S, JAIPUR JH FOT; IKWY JKO] U;KF;D LNL; ,OA JH FOE FLAG ;KNO] YS[KK LNL; DS LE{K BEFORE: SHRI VIJAY PAL RAO, JM & SHRI VIKRAM SINGH YADAV, AM VK;DJ VIHY LA-@ ITA. NO. 107 & 108/JP/2018 FU/KZKJ.K O'K Z@ ASSESSMENT YEARS : 2013-14 & 2014-15 THE DY. COMMISSIONER OF INCOME-TAX, CENTRAL CIRCLE-2, JAIPUR CUKE VS. M/S KGK DIAMOND (INDIA) PVT LTD., E-011, TOWER D, BHARAT DIAMOND COURSE, KURLA COMPLEX, BANDRA(E), MUMBAI LFKK;H YS[KK LA-@THVKBZVKJ LA-@ PAN/GIR NO.: AADCK7579A VIHYKFKHZ@ APPELLANT IZR;FKHZ@ RESPONDENT JKTLO DH VKSJ LS @ REVENUE BY : SMT. SEEMA MEENA (JCIT) FU/KZKFJRH DH VKSJ L S@ ASSESSEE BY : SHRI S. R. SHARMA & SHRI RAJNIKANT BHATRA (CA) LQUOKBZ DH RKJH[ K@ DATE OF HEARING : 26/06/2018 MN?KKS'K.KK DH RKJH[ K@ DATE OF PRONOUNCEMENT : 25/07/2018 VKNS'K@ ORDER PER: VIKRAM SINGH YADAV, A.M. THESE ARE TWO APPEALS FILED BY THE REVENUE AGAINST THE ORDER OF LD. CIT(A), DATED 14.11.2017 FOR A.Y 2013-14 AND A. Y 2014-15 RESPECTIVELY. 2. IN ITA NO. 107-JP-2018 FOR A.Y 2013-14, THE REVE NUE HAS TAKEN THE FOLLOWING GROUNDS OF APPEAL:- ITA NO. 107 & 108/JP/2018 DCIT, JAIPUR VS. M/S KGK DIAMOND(INDIA) PVT. LTD., MUMBAI 2 1. WHETHER ON THE FACTS AND THE CIRCUMSTANCES OF THE CASE LD. CIT(A) WAS JUSTIFIED IN DELETING THE ADDITION OF RS . 23,57,834/- MADE U/S 14A R.W.R 8D OF I.T. RULE 1962 IGNORING THE FAC T THAT DIVIDEND INCOME CANT BE EARNED WITHOUT INCURRING ANY EXPEND ITURE WHATEVER INCLUDING THE MANAGEMENT AND ADMINISTRATIVE EXPENDI TURE. 2. WHETHER ON THE FACTS AND THE CIRCUMSTANCES OF TH E CASE LD. CIT(A) WAS UNVERIFIABLE EXPENSES WITHOUT APPRECIATI NG THE FACT THAT AO SPECIFICALLY POINTED OUT THE DEFICIENCIES THAT DETA ILS LIKE NAME OF PERSON WHO HAD INCURRED THE SAID EXPENSES OR DETAILS IN RE SPECT OF ITS NATURE AND PURPOSE BUSINESS OR OTHERWISE, WERE NOT MENTION ED. 3. WHETHER ON THE FACTS AND THE CIRCUMSTANCES OF TH E CASE LD. CIT(A) WAS JUSTIFIED IN DELETING THE ADDITION OF RS . 2,24,684/- MADE U/S 36(1)(VA) OF THE ACT (I.E. PF ADDITION) WITHOUT APP RECIATING THE FACT THAT IT WAS MADE AS PER PROVISIONS OF SECTION 36(1)(VA) OF THE ACT, 1961. 2. IN GROUND NO. 1, THE REVENUE HAS CHALLENGED THE DELETION OF ADDITION MADE BY THE AO U/S 14A R.W.R. 8D OF THE I. T. RULE, 1962. 3. AT THE OUTSET, THE LD. AR SUBMITTED THAT THERE A RE NO FRESH INVESTMENTS WHICH HAVE BEEN MADE DURING THE YEAR UN DER CONSIDERATION AND ALL THE INVESTMENTS HAVE BEEN CARRIED FORWARD F ROM THE EARLIER YEARS. IT WAS FURTHER SUBMITTED THAT IN THE EARLIE R YEARS, THE MATTER HAS BEEN DECIDED BY THE CO-ORDINATE BENCH IN ASSESSEES OWN FAVOUR AND SAME HAS BEEN FOLLOWED BY THE LD. CIT(A) IN THE IMP UNGED ASSESSMENT YEAR AND GIVEN THAT THERE ARE NO CHANGES IN THE FAC TS AND CIRCUMSTANCES OF THE CASE, THE SAME SHOULD BE FOLLO WED. IN THIS REGARD, ITA NO. 107 & 108/JP/2018 DCIT, JAIPUR VS. M/S KGK DIAMOND(INDIA) PVT. LTD., MUMBAI 3 OUR REFERENCE WAS DRAWN TO PARA 5 OF THE LD. CIT(A) ORDER WHICH IS REPRODUCED AS UNDER:- 5. I HAVE PERUSED THE SUBMISSIONS MADE AND THE OR DER OF THE AO. THE APPELLANT HAS POINTED OUT THAT HONBLE ITAT IN THE CASE OF APPELLANT FIRM, FOR AY 2010-11 HAS GRANTED RELIEF ON THE SIMI LAR ISSUE. SAME POSITION HAS BEEN REITERATED FOR THE AY 2010-11 AND 2011-12 VIDE ORDER NO. ITA NO. 868/16 AND ITA NO. 869/JP/2016, COPIES OF WHICH HAVE BEEN PLACED ON RECORD. UNDER THE STATED CIRCUMSTANC ES I FIND THE ISSUE IS COVERED IN FAVOUR OF APPELLANT. THE DISALLOWANCE U/S 14A THUS IS DIRECTED TO BE DELETED. THE GROUND THUS IS ALLOWED. 4. PER CONTRA, THE LD. DR RELIED ON THE FINDINGS OF THE ASSESSING OFFICER. AT THE SAME TIME, HE FAIRLY SUBMITTED THAT SIMILAR ISSUE WAS INVOLVED IN THE EARLIER YEARS WHICH HAS BEEN DECIDE D IN FAVOUR OF THE ASSESSEE BY THE COORDINATE BENCHES. 5. IN ITA NO. 868/JP/2016 FOR AY 2010-11 AND ITA N O. 869/JP/2016 FOR AY 2011-12, THE COORDINATE BENCH VIDE ITS ORDER DATED 31.10.2017 UNDER IDENTICAL SETS OF FACTS HAS HELD AS UNDER: 6. WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE MATERIAL AVAILABLE ON RECORD. THE ASSESSEE COMPANY HAS SHOWN INVESTMENT OF RS. 3,37,26,325/- AS ON 31.03.2010 WHICH IS IDENTIC AL TO THE AMOUNT OF INVESTMENT SHOWN BY THE PARTNERSHIP FIRM M/S KGK EN TERPRISES AS ON 30.09.2009. THE ASSESSING OFFICER DISALLOWED AN AMO UNT OF RS. 6,13,432 INVOKING PROVISIONS OF SECTION 14A AND RULE 8D. ON APPEAL, THE DISALLOWANCE WAS REDUCED TO RS. 2,08,456/- BY T HE LD. CIT(A) ITA NO. 107 & 108/JP/2018 DCIT, JAIPUR VS. M/S KGK DIAMOND(INDIA) PVT. LTD., MUMBAI 4 WHEREBY HE ALLOWED SETTING OFF OF INTEREST INCOME FROM GROSS INTEREST EXPENSES WHILE WORK OUT DISALLOWANCE U/S 14A. WE FI ND THAT NO FRESH INVESTMENTS HAVE BEEN MADE BY THE ASSESSEE COMPANY DURING THE YEAR AND THE SUBJECT INVESTMENTS ARE THE INVESTMENTS WHI CH HAVE BEEN MADE BY AND TAKEN OVER FROM THE PARTNERSHIP FIRM M/ S KGK ENTERPRISES. ON SIMILAR LINES, THE AO HAS MADE A DISALLOWANCE IN THE INSTANT CASE. IN CASE OF KGK ENTERPRISES FOR AY 2010-11 (IN ITA NO. 797/JP/15 DATED 11.08.2016), WE HAVE ALREADY TAKEN A VIEW THAT DISA LLOWANCE UNDER THE PROVISIONS OF SECTION 14A ARE NOT WARRANTED AND THE RELEVANT FINDINGS ARE CONTAINED AT PARA 2.4 OF OUR ORDER WHICH IS REP RODUCED AS UNDER:- 2.4 WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSE D THE MATERIAL AVAILABLE ON RECORD. IT IS NOTED THAT THE INVESTMENT WORTH RS. 3.37 CRORES HAVE BEEN MADE BY THE ASSESSEE IN T HE EARLIER YEARS AND NOT IN THE YEAR UNDER CONSIDERATION. EVEN IF ONE WERE TO CONSIDER THE AVAILABILITY OF INTEREST FREE FUNDS DURING THE YEAR, IT IS NOTED THAT PARTNERS CAPITAL ACCOUNT IS WORTH RS. 115.70 CRORES. FURTHER, THE SECURED LOANS AVAILED BY THE A SSESSEE IN FORM OF PACKING CREDIT LIMIT (PCL) AND POST SHIPMENT EXP ORT FINANCE (PSEF) FROM VARIOUS BANK ARE EXCLUSIVELY FOR THE PU RPOSE OF PURCHASE OF RAW MATERIAL, PAYMENT OF LABOUR CHARGES AND OTHER DIRECT EXPENSES AND WHICH THUS HAVE A END-USE RESTR ICTION AND MONITORING BY THE BANKS TOWARDS THE MANUFACTURING A ND EXPORT ACTIVITY OF THE APPELLANT. IN LIGHT OF ABOVE, WE AG REE WITH THE CONTENTION OF THE ASSESSEE THAT GIVING THE AVAILABI LITY OF INTEREST FREE FUNDS OVER AND ABOVE THE SECURED LOANS AND ALS O THE FACT THAT THE SECURED LOANS HAD A SPECIFIC END-USE RESTR ICTION, THE INVESTMENTS HAVE BEEN MADE FROM ITS INTERNAL ACCRUA LS IN THE EARLIER YEARS AND GIVEN THAT NO EXPENDITURE HAS BE EN INCURRED, NO DISALLOWANCE U/S 14A IS WARRANTED. FURTHER, THE DECISION OF HONBLE BOMBAY HIGH COURT IN CASE OF HDFC BANK LTD. (SUPRA) AND HONBLE GUJARAT HIGH COURT IN CASE OF GUJARAT N ARMADA VALLEY ITA NO. 107 & 108/JP/2018 DCIT, JAIPUR VS. M/S KGK DIAMOND(INDIA) PVT. LTD., MUMBAI 5 FERTILIZERS (SUPRA) ALSO SUPPORTS THE CASE OF THE A SSESSEE. IN LIGHT OF ABOVE, GROUND NO. 1 OF THE ASSESSEE IS ALLOWED. 7. IN LIGHT OF ABOVE, FOLLOWING OUR DECISION IN CA SE OF KGK ENTERPRISES REFERRED SUPRA, THE DISALLOWANCE UNDER SECTION 14A IS HEREBY DELETED. THE GROUNDS NO. 1 AND 2 OF ASSESSEE S APPEAL ARE THUS ALLOWED. 10. IN RESPECT OF GROUNDS NO. 1 & 2 RELATING TO DI SALLOWANCE U/S 14A, WE FIND THAT EARLIER INVESTMENT HAVE BEEN CARRIED F ORWARD TO THIS YEAR AND FURTHER, THE ASSESSEE COMPANY HAS MADE A FRESH INVESTMENT OF RS. 2,36,98,875 (RS 5,74,25,200/- LESS RS. 3,37,26,325/ -) DURING THE YEAR UNDER CONSIDERATION. IN THIS REGARD, THE SUBMISSIO N OF THE ASSESSEE IS THAT SUCH INVESTMENT HAS BEEN MADE FROM INTERNAL AC CRUALS AND NOT FROM ANY BORROWED FUNDS AND NO EXPENDITURE HAS BEEN INCURRED BY THE ASSESSEE COMPANY. IN THIS REGARD, THE ASSESSING OFF ICER FOLLOWING THE SAME REASONING AS GIVEN IN A.Y. 2010-11 HAS DISALLO WED AN AMOUNT OF RS. 10,66,010/- WHICH HAS BEEN SUSTAINED BY THE LD. CIT(A) TO THE EXTENT OF RS. 4,57,407/-. SIMILAR CONTENTIONS AS RA ISED IN ITA NO. 868/JP/16 HAVE BEEN MADE BEFORE US BY THE LD. AR. F OLLOWING OUR REASONING AS GIVEN IN ITA NO. 868/JP/16, OUR FINDIN GS AND DIRECTIONS CONTAINED THEREIN SHALL APPLY MUTATIS MUTANDIS TO T HIS APPEAL AS WELL. IN THE RESULT, THE DISALLOWANCE UNDER SECTION 14A I S HEREBY DELETED. THE GROUNDS NO. 1 AND 2 OF ASSESSEES APPEAL ARE THUS A LLOWED. 6. ADMITTEDLY, THERE ARE NO FRESH INVESTMENTS WHICH HAVE BEEN MADE DURING THE YEAR AND ALL THE INVESTMENTS HAVE B EEN CARRIED OVER ITA NO. 107 & 108/JP/2018 DCIT, JAIPUR VS. M/S KGK DIAMOND(INDIA) PVT. LTD., MUMBAI 6 FROM THE PREVIOUS YEARS AND IN THE PREVIOUS YEARS, THE COORDINATE BENCH HAS DELETED THE DISALLOWANCE MADE UNDER SECTI ON 14A OF THE ACT IN LIGHT OF ABOVE, RESPECTIVELY FOLLOWING THE DECIS ION OF THE CO-ORDINATE BENCH REFERRED SUPRA, THE ADDITION MADE BY THE AO U NDER SECTION 14A IS HEREBY DELETED AND THE GROUND TAKEN BY THE REVENUE IS HEREBY DISMISSED. 7. IN GROUND NO. 2, THE REVENUE HAS CHALLENGED THE DELETION OF ADDITION OF RS. 11,15,121/- MADE BY THE AO ON ACCOU NT OF UNVERIFIABLE EXPENSES. THE LD. CIT(A) HAS RETURNED A FINDING THA T AO HAS VERY SUBJECTIVELY MADE AN ADHOC DISALLOWANCE AT THE 10% OF THE TOTAL EXPENSES. THE LD. CIT(A) HAS FURTHER HELD THAT THE ACCOUNTS ARE AUDITED AND NO SPECIFIC DEFECT OR INSTANCE IS POINTED OUT W HILE MAKING THIS AD- HOC DISALLOWANCE. FOLLOWING THE DECISION OF THE CO- ORDINATE BENCH IN ASSESSEES OWN CASE FOR AY 2010-11 AND 2011-12, HE HAS DELETED THE SAID DISALLOWANCE MADE BY THE ASSESSING OFFICER. WE DO NOT SEE ANY INFIRMITY IN THE SAID FINDINGS OF THE LD. CIT(A) HE NCE THE SAME IS CONFIRMED AND GROUND TAKEN BY THE REVENUE IS HEREBY DISMISSED. 8. IN GROUND NO. 3, THE REVENUE HAS CHALLENGED THE DELETION OF ADDITION OF RS. 2,24,684/- TOWARDS THE LATE DEPOSIT OF CONTRIBUTION TO PF AND ESI. THE LD. CIT(A) HAS RETURNED A FINDING THAT THE PAYMENTS HAVE BEEN MADE BEFORE DUE DATE OF FILING OF THE RETURN O F INCOME AND FOLLOWING THE DECISION OF HONBLE RAJASTHAN HIGH CO URT IN CASE OF CIT VS. UDAIPUR DUGDH UTPADAK SAHAKARI SANGH LTD. (2013 ) 35 TAXMAN.COM 616 AND CIT VS. STATE BANK OF BIKANER AND JAIPUR 26 5 CTR 471, HE HAS DIRECTED THE DELETION OF SAID DISALLOWANCE MADE BY THE ASSESSING ITA NO. 107 & 108/JP/2018 DCIT, JAIPUR VS. M/S KGK DIAMOND(INDIA) PVT. LTD., MUMBAI 7 OFFICER. RESPECTIVELY FOLLOWING THE DECISION OF THE HONBLE RAJASTHAN HIGH COURT REFERRED SUPRA, WE DO NOT SEE ANY INFIRM ITY IN THE FINDINGS OF THE LD. CIT(A). HENCE, THE SAME IS CONFIRMED AND TH E GROUND TAKEN BY THE REVENUE IS HEREBY DISMISSED. 9. IN THE RESULT, THE APPEAL OF THE REVENUE IS DISM ISSED. ITA NO. 108/JP/2018 FOR A.Y 2014-15 10. IN ITA NO. 107-JP-2018 FOR A.Y 2014-15, THE REV ENUE HAS TAKEN THE FOLLOWING GROUNDS OF APPEAL: 1. WHETHER ON THE FACTS AND THE CIRCUMSTANCES OF T HE CASE LD. CIT(A) WAS JUSTIFIED IN DELETING THE ADDITION OF RS . 22,80,516/- MADE U/S 14A R.W.R 8D OF I.T. RULE 1962 IGNORING THE FAC T THAT DIVIDEND INCOME CANT BE EARNED WITHOUT INCURRING ANY EXPEND ITURE WHATEVER INCLUDING THE MANAGEMENT AND ADMINISTRATIVE EXPENDI TURE. 2. WHETHER ON THE FACTS AND THE CIRCUMSTANCES OF TH E CASE LD. CIT(A) WAS JUSTIFIED IN DELETING THE ADDITION OF RS . 8,24,558/- MADE ON ACCOUNT OF UNVERIFIABLE EXPENSES WITHOUT APPRECIATI NG THE FACT THAT AO SPECIFICALLY POINTED OUT THE DEFICIENCIES THAT DETA ILS LIKE NAME OF PERSON WHO HAD INCURRED THE SAID EXPENSES OR DETAILS OF IT S NATURE AND PURPOSE BUSINESS OR OTHERWISE, WERE NOT MENTIONED. 3. WHETHER ON THE FACTS AND THE CIRCUMSTANCES OF TH E CASE LD. CIT(A) WAS JUSTIFIED IN DELETING THE ADDITION OF RS . 1,17,269/- MADE U/S 36(1)(VA) OF THE ACT (I.E. PF ADDITION) WITHOUT APP RECIATING THE FACT THAT IT WAS MADE AS PER PROVISIONS OF SECTION 36(1)(VA) OF THE ACT, 1961. ITA NO. 107 & 108/JP/2018 DCIT, JAIPUR VS. M/S KGK DIAMOND(INDIA) PVT. LTD., MUMBAI 8 11. ADMITTEDLY, UNDER IDENTICAL SET OF FACTS AND CI RCUMSTANCES OF THE CASE, THE ASSESSING OFFICER HAD MADE DISALLOWANCE U /S 14A READ WITH RULE 8D, AD-HOC DISALLOWANCE OF RS. 8,24,558/- ON A CCOUNT OF UNVERIFIABLE EXPENSES AND ADDITION OF RS. 1,17,269/ - TOWARDS LATE DEPOSIT OF PF CONTRIBUTIONS. BOTH THE PARTIES FAIRL Y SUBMITTED THAT THE FACTS AND CIRCUMSTANCES OF THE CASE ARE IDENTICAL A S IN ITA NO. 107/JP/2018. OUR FINDINGS AND DIRECTIONS CONTAINED IN ITA NO. 107/JP/18 SHALL THEREFORE APPLY MUTATIS MUTANDIS TO THIS MATTER AS WELL. 12. IN THE RESULT, THE APPEAL OF THE REVENUE IS DI SMISSED. IN THE RESULT, BOTH THE APPEALS OF THE REVENUE ARE DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 25/07/2018. SD/- SD/- FOT; IKWY JKO FOE FLAG ;KNO (VIJAY PAL RAO) (VIKRAM SINGH YADAV) U;KF;D LNL;@ JUDICIAL MEMBER YS[KK LNL;@ ACCOUNTANT MEMBER TK;IQJ@ JAIPUR FNUKAD@ DATED:- 25/07/2018 * GANESH KR. VKNS'K DH IZFRFYFI VXZSFKR@ COPY OF THE ORDER FORWARDED TO: 1. VIHYKFKHZ@ THE APPELLANT- DCIT, CIRCLE-2, JAIPUR 2. IZR;FKHZ@ THE RESPONDENT- M/S KGK DIAMOND (INDIA) PVT. LTD., MUMBAI 3. VK;DJ VK;QDR@ CIT ITA NO. 107 & 108/JP/2018 DCIT, JAIPUR VS. M/S KGK DIAMOND(INDIA) PVT. LTD., MUMBAI 9 4. VK;DJ VK;QDR@ CIT(A) 5. FOHKKXH; IZFRFUF/K] VK;DJ VIHYH; VF/KDJ.K] T;IQJ@ DR, ITAT, JAIPUR. 6. XKMZ QKBZY@ GUARD FILE { ITA NO. 107 & 108/JP/2018} VKNS'KKUQLKJ@ BY ORDER, LGK;D IATHDKJ@ ASST. REGISTRAR