M/s Anand Concast Ltd., Ludhiana V. Addl. CIT, Ludhiana

ITA 1092/CHANDI/2014

• Counselvise Citation: [2016] 132 COUNSELVISE.COM (IT) 9873 (ITAT-CHANDIGARH)
• Duration Of Justice: 1 year(s) 6 month(s) 8 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 17-06-2016
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: B
• Next Hearing Date: 23-11-2015
• Assessment Year: 2011-2012
• Appeal Filed On: 09-12-2014
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Keywords: Opportunity of being heard; Earning of tax free income
• Section: 14A; 6

Judgement Text

1 IN THE INCOME TAX APPELLATE TRIBUNAL DIVISION BENCH, CHANDIGARH BEFORE SHRI BHAVNESH SAINI, JUDICIAL MEMBER AND MS. ANNAPURNA GUPTA, ACCOUNTANT MEMBER ITA NO.888/CHD/2014 ASSESSMENT YEAR: 2008-09 M/S ANAND CONCAST LTD. VS. THE ACIT, GIASPURA ROAD, CIRCLE V LUDHIANA PAN NO. AABCA2453M ITA NO.889/CHD/2014 ASSESSMENT YEAR: 2009-10 M/S ANAND CONCAST LTD. VS. THE ADDL. CIT, GIASPURA ROAD, RANGE V LUDHIANA LUDHIANA PAN NO. AABCA2453M ITA NO.207/CHD/2015 ASSESSMENT YEAR: 2010-11 M/S ANAND CONCAST LTD. VS. THE ADDL. CIT, GIASPURA ROAD, CIRCLE V LUDHIANA LUDHIANA PAN NO. AABCA2453M ITA NO.1092/CHD/2014 ASSESSMENT YEAR: 2011-12 M/S ANAND CONCAST LTD. VS. THE ADDL. CIT, GIASPURA ROAD, RANGE V LUDHIANA LUDHIANA PAN NO. AABCA2453M & ITA NO.902/CHD/2015 ASSESSMENT YEAR: 2012-13 M/S ANAND CONCAST LTD. VS. THE ADDL. CIT, GIASPURA ROAD, CIRCLE V LUDHIANA LUDHIANA PAN NO. AABCA2453M (APPELLANT) (RESPONDENT) APPELLANT BY : SH. ASHISH AGGARWAL RESPONDENT BY : SH. SUSHIL KUMAR DATE OF HEARING : 05/04/2016 DATE OF PRONOUNCEMENT : 17/06/2016 2 ORDER PER ANNAPURNA GUPTA, A.M. THESE APPEALS PREFERRED BY THE ASSESSEE ARE AGAINS T THE SEPARATE ORDERS OF LD. CIT(A)-II, LUDHIANA,. SINCE THE GROUNDS RAISED ARE SIMILAR, SO ALL THESE APPEALS WERE HEARD TOGETHER AND ARE BEING DISPOSED OFF BY T HIS COMMON ORDER. FOR THE SAKE OF CONVENIENCE WE SHALL DEAL WITH ITA NO. 888/CHD/2014 IN WHICH FOLLOWING GROUNDS HAVE BEEN RAISED: 1. THAT THE LEARNED CIT(A)-II HAS ERRED IN CONFIRMING THE DISALLOWANCE OF RS. 6,96,917/- (5,22,140 + 1,74,777) U/S 14A R.W.R 8D O F THE INCOME TAX RULES IGNORING THE FOLLOWINGS: - (I) THAT THE AO DID NOT RECORD ANY COGENT REASONS AS TO WHY HE WAS NOT SATISFIED WITH THE REPLY OF THE APPELLANT AND STRAIGHTAWAY AP PLIED THE PROVISIONS OF SECTION 14A / RULE 8D. (II) THAT ALL THE INTEREST PAID BY THE APPELLANT RELATED TO PACKING CREDIT LOAN AS THE LOANS WERE UTILIZED ONLY FOR EXPORT PURPOSES AS THE APPELLANT IS A 100% EXPORTER. (III) THAT THE MAJOR INVESTMENTS ARE OLD AND THE INVESTME NT MADE DURING THE YEAR IS OUT OF CURRENT YEAR'S INCOME. (IV) THAT EVEN THE PACKING CREDIT LIMIT STOOD REDUCED TO NIL DURING THE YEAR. (V) THAT THE INTEREST RECEIVED HAS NOT BEEN REDUCED FRO M THE INTEREST PAID. 2. THAT IN ANY CASE THE CONFIRMATION OF DISALLOWANCE I S AGAINST THE LAW AND FACTS OF THE CASE. 3. THAT THE APPELLANT CRAVES LEAVE FOR PERMISSION TO A DD, AMEND OR ALTER ANY GROUND OF APPEAL AT THE TIME OF HEARING. 2. THOUGH APPELLANT HAS RAISED SEVERAL SUB GROUNDS BUT SUM AND SUBSTANCE OF ALL THE SUB GROUNDS IS THAT THE DISALLOWANCE MAD E U/S 14A R.W.S RULE 8D WAS NOT JUSTIFIED. 3. BRIEF FACTS RELATING TO THE ISSUE ARE THAT DURIN G THE COURSE OF ASSESSMENT PROCEEDINGS AO NOTED THAT THE APPELLANT HAD SHOWN I NVESTMENTS OF RS. 7,54,57,072/- AS ON 31/03/2008 INCOME FROM WHICH WA S NOT TAXABLE. THE AO FURTHER NOTED THAT THE APPELLANT HAD CLAIMED INTERE ST EXPENDITURE OF RS. 12,46,584/-. THE EXPENDITURE INCURRED IN RELATION T O ANY EXEMPT INCOME IS NOT ALLOWABLE U/S 14A OF THE I.T. ACT. THE AO ASKED THE APPELLANT TO EXPLAIN WHY DISALLOWANCE U/S 14A IN RESPECT OF THIS INVESTMENT MAY NOT BE MADE. THE APPELLANT VIDE HIS REPLY DATED 16.12.2010 SUBMITTED A CALCULATION OF 3 DISALLOWANCE U/S 14A AMOUNTING TO RS. 5,19,426/-. T HE AO CONSIDERED THE APPELLANTS SUBMISSION BUT WAS NOT SATISFIED. THE A O REFERRED TO THE PROVISIONS OF SECTION 14A OF THE I.T. ACT AND OBSERVED THAT IN TH E APPELLANTS CASE THE PROVISIONS OF SECTION 14A WERE APPLICABLE AND THE D ISALLOWANCE WAS REQUIRED TO BE MADE. THE AO FURTHER DISCUSSED THE DISALLOWANCE OF RS. 5,19,426/- (INCORRECTLY MENTIONED AS RS. 3,80,657/- IN PARA 5. 11 OF THE ASSESSMENT ORDER) AND OBSERVED THAT THE DISALLOWANCE COMPUTED BY THE APPELLANT WAS BASED ON COMPLEX CALCULATION WHEREIN THE APPELLANT HAD TRIED TO REDUCE THE INTEREST PAYABLE WITH THE AMOUNT OF INTEREST RECEIVED DURING THE YEAR. THE AO OBSERVED THAT THIS NETTING OF INTEREST WAS NOT IN ACCORDANCE WITH RUE 8D. THE AO ACCORDINGLY RECORDED THE SATISFACTION THAT THE CALC ULATION SUBMITTED BY THE ASSESSEE WAS NOT ACCEPTABLE. THEREAFTER THE AO COMP UTED THE DISALLOWANCE UNDER RULE 8D AT RS. 6,96,917/-. THE AO OBSERVED TH AT THE APPELLANT HAD HIMSELF ADMITTED THE DISALLOWANCE OF RS. 5,22,140/-(? INCOR RECT FIGURE). THE AO ACCORDINGLY DISALLOWED AN AMOUNT OF RS. 1,74,777/- OVER AND ABOVE THE DISALLOWANCE MADE BY THE APPELLANT. 4. BEFORE THE LD. CIT(A) THE ASSESSEE PLEADED THAT THE ENTIRE INVESTMENTS WERE MADE OUT OF OWN FUNDS AND NOT OUT OF ANY INTER EST BEARING BORROWED FUNDS. FURTHER THE ASSESSEE STATED THAT IT HAD PAID INTEREST OF RS. 12,46,584/- ON PACKING CREDIT LOAN WHICH WAS UTILISED FOR EXPORT P URPOSES AND NOT FOR MAKING ANY OF THE IMPUGNED INVESTMENT. THE ASSESSEE SUBMIT TED COPY OF ITS BANK ACCOUNT TO SUBSTANTIATE ITS ARGUMENT. LD. CIT(A) RE JECTED THE CONTENTION OF THE ASSESSEE BY HOLDING THAT THE ASSESSEE HAD ITSELF SU BMITTED INCURRING EXPENSES ON EARNING EXEMPT INCOME BY WAY OF SUBMITTING COMPUTAT ION OF DISALLOWANCE U/S 14A. FURTHER THE LD. CIT(A) HELD THAT THE ONUS OF S HOWING THAT NO EXPENDITURE HAS BEEN INCURRED IS ON THE ASSESSEE AND THE ASSESSEE H AS NOT BEEN ABLE TO DEMONSTRATE THE SAME NOR HAS IT BEEN ABLE TO DEMONS TRATE THAT THE ENTIRE 4 INVESTMENT WERE ACTUALLY MADE OUT OF ITS OWN FUNDS. THE LD. CIT(A) THEREFORE HELD THAT THE APPLICABLE SECTION 14A R.W.S 8D WAS JUSTIFIED IN THE PRESENT CASE. 5. AGGRIEVED BY THE SAME THE ASSESSEE FILED THE PRE SENT APPEAL BEFORE US. 6. AT THE OUTSET IT MAY BE STATED THAT THE LD. LD. COUNSEL FOR THE ASSESSEE FOR THE ASSESSEE DID NOT PRESS THE GROUNDS RELATING TO DISALLOWANCE MADE U/S 14A R.W.S 8D(III) OF THE INCOME TAX RULE 1962. THE SAME ARE THEREFORE BEING TREATED AS DISMISSED. FURTHER, BEFORE US THE ONLY CONTENTION RAISED BY TH E LD. COUNSEL FOR THE ASSESSEE WAS THAT IT HAD ENOUGH OWN FUNDS TO MAKE THE INVEST MENTS AND IN SUCH CIRCUMSTANCES THE PRESUMPTION SHOULD BE THAT THE SA ME HAD BEEN MADE OUT OF OWN FUNDS. THE LD. COUNSEL FOR THE ASSESSEE SUBMITT ED A CHART GIVING DETAIL OF AVAILABLE OWN CAPITAL & RESERVES IN EACH OF THE IMP UGNED ASSESSMENT YEARS INVOLVED AND ALSO THE INVESTMENTS MADE AS FOLLOWS: A.Y OWN CAPITAL AND RESERVES & INCOME INVESTMENTS DISALLOWANCE BY AO AND CONFIRMED BY CIT(A) DISALLOWANCE BY ASSESSEE REMARKS 2007-08 14,58,25,505/- 5,25,04,609/- RS. 5,84,555/- NIL CIT(A) DELETED THE DISALLOWANCE ON THE GROUND THAT OWN FUNDS WERE MORE THAN THE INVESTMENTS. (NO APPEAL BY REVENUE) 2008-09 OWN CAPITAL 16,37,19,680/- INCOME 2,12,15,899/- 6,83,13,370/- RULE 8D(2)(II) RS. 3,75,904/- RULE 8D(2)(III) RS. 3,21,013/- TOTAL RS. 6,96,917/- LESS DISALL. BY ASSESSEE RS. 5,22,140/- NET ADDITION RS. 1,74,777/- 2,01,127/- 3,21,013/- 5,22,140/- UNDER APPEAL. 2009-10 OWN CAPITAL 18,75,44,865/- INCOME 3,96,17,744/- 7,88,57,296/- RULE 8D(2)(II) RS. 4,12,680/- RULE 8D(2)(III) RS. 3,89,367/- TOTAL RS. 8,02,047/- LESS DISALL. BY ASSESSEE RS. 7,25,963/- NET ADDITION RS. 76,084/- 3,36,597/- 3,89,366/- 7,25,963/- UNDER APPEAL 2010-11 OWN CAPITAL 20,70,54,001/- INCOME 2,67,41,685/- 8,82,75,632/- RULE 8D(2)(II) RS. 9,62,779/- RULE 8D(2) (III) RS. 4,28,734/- TOTAL RS. 13,91,513/- LESS DISALL. BY ASSESSEE RS. 8,75,362/- NET ADDITION RS. 5,16,151/- 4,46,628/- 4,28,734/- 8,75,362/- UNDER APPEAL 2011-12 OWN CAPITAL 22,52,89,592/- INCOME 2,69,37,310/- 9,10,57,181/- RULE 8D(2)(II) RS. 15,33,751/- RULE 8D(2)(III) RS. 4,55,653/- TOTAL RS. 19,89,404/- LESS DISALL. BY ASSESSEE RS. 6,50,288/- NET ADDITION RS. 13,39,116/- 2,01,256/- 4,48,332/- 6,50,288/- UNDER APPEAL 2012-13 OWN CAPITAL 26,11,56,358/- INCOME 5,53,38,540/- 10,47,95,333/- RULE 8D(2)(II) RS. 10,43,468/- RULE 8D(2)(III) RS. 4,89,631/- TOTAL RS. 15,33,099/- LESS DISALL. BY ASSESSEE RS. 5,04,209/- NET ADDITION RS. 10,28,890/- 14,578/- 4,89,631/- 5,04,209/- UNDER APPEAL 5 LD. COUNSEL PLACED RELIANCE ON A NUMBER OF JUDICIAL DECISION IN THIS REGARD WHICH ARE GIVEN BELOW: I). BRIGHT ENTERPRISES PVT. LTD. VS. CIT, JALANDHAR (P&H) 381 ITR 107 II). HERO CYCLES LTD. VS. AD. CIT IN ITA NO. 314/20 13 A.Y. 2009-10, 16.02.2016(CHD) III). DCIT VS. LIOL HEALTH FOODS LTD. IN ITA NO. 23 5/2015 A.Y. 2010-11 DATED 09/09/2015(CHD) 7. LD. DR ON THE OTHER HAND RELIED UPON THE ORDER O F THE LD. CIT(A). 8. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE ORDERS OF THE AUTHORITIES BELOW. 9. AT THE OUTSET IT MAY BE REITERATED THAT THE ONLY ISSUE TO BE ADJUDICATED UPON IS THE DISALLOWANCE MADE U/S 14A R.W.R 8D(II). WITH REGARD THE SAME WE FIND MERIT IN THE CONTENTIO N OF THE ASSESSEE THAT WHERE ENOUGH OWN SURPLUS FUNDS ARE AVAILABLE, THE INVESTM ENT CAN BE ATTRIBUTED TO HAVING BEEN MADE OUT OF THE SAME. WE DRAW SUPPORT F OR THE ABOVE PROPOSITION FROM THE JUDGMENT OF THE BOMBAY HIGH COURT IN THE C ASE OF CIT VS. HDFC BANK LTD. (2014) 366 ITR 505 (BOM), WHEREIN IT WAS HELD AS FOLLOWS: WE HAVE CONSIDERED THE RIVAL CONTENTIONS AND PERU SED THE RELEVANT MATERIAL ON RECORD. THERE IS NO DISPUTE ON THE POINT THAT THE A SSESSEES SHARE CAPITAL, PROFIT RESERVES AND SURPLUS AS WELL AS THE BALANCE IN THE CURRENT ACCOUNT IS MORE THAN THE INVESTMENT IN THE TAX-FREE SECURITIES. IT IS AL SO AN ACCEPTED NORMS AND BUSINESS PRACTICE THAT A PRUDENT BUSINESSMAN WOULD MAKE THE INVESTMENT OUT OF HIS OWN FUND INSTEAD OF BORROWED FUNDS AND THE BORROWED FUN DS ARE UTILIZED FOR BUSINESS / TRADING PURPOSES; HOWEVER, EXCEPTION MAY BE THERE T O THIS GENERAL PRACTICE. AS PER THE PROVISIONS OF SECTION 14A, THE EXPENDITURE INCURRED TO EARN EXEMPT INCOME CANNOT BE ALLOWED AND THE EXPENDITURE SHALL BE ALLOWED ONLY TO THE EXTENT THAT THEY ARE RELATABLE TO THE EARNING OF TA XABLE INCOME. IN OTHER WORDS, ONLY THE NET INCOME IS SUBJECTED TAX AND SIMILARLY EXEMPTION IS ALSO ALLOWED ON THE NET EXEMPTED INCOME. IF AN EXPENDITURE IS DIREC TLY OR INDIRECTLY INCURRED FOR EARNING THE EXEMPT INCOME, THEN THE SAME CANNOT BE CLAIMED AS AGAINST THE INCOME, WHICH IS TAXABLE. IN ORDER TO DISALLOW THE PROPORTIONATE EXPENDITURE UNDER SECTION 14A, THERE SHOULD BE SOME PROXIMATE COURSE AND THE NEXUS OF TH E SAID EXPENDITURE WITH THE TAX EXEMPT INCOME. WHEN IT HAS BEEN BROUGHT ON RECO RD THAT NO EXPENDITURE ACTUALLY INCURRED FOR EARNING THE EXEMPT INCOME, TH EN THE PROVISIONS OF SECTION 14A CANNOT BE INVOKED. IN THE CASE IN HAND, UNDISPUTEDLY, THE ASSESSEES O WN FUNDS AND NON-INTEREST BEARING FUNDS ARE MORE THAN THE INVESTMENT IN THE T AX-FREE SECURITIES THEN THERE IS NO BASIS FOR DEEMING THAT THE ASSESSEE HAS USED THE BORROWED FUNDS FOR INVESTMENT IN TAX-FREE SECURITIES EVERY YEAR; BUT T HE INVESTMENT IN THE EARLIER YEARS HAS BEEN CARRIED FORWARD AS IT IS EVIDENT FROM THE PARTICULARS WHERE THE BALANCE AT THE END OF THE YEAR SHOWS THAT THE INVESTMENT IS APPEARING IN ALL THE EARLIER YEARS. THEREFORE, WE DO NOT FIND ANY ERROR OR ILLEG IBILITY IN THE ORDER OF THE COMMISSIONER OF INCOM-TAX (APPEALS), QUA, THE ISSUE OF DISALLOWANCE OF INTEREST UNDER SECTION 14A. 6 ON THIS ISSUE THERE ARE RECENT JUDGMENTS OF PUNJAB & HARYANA HIGH COURT IN THE CASES OF ABHISHEK INDUSTRIES LTD. 380 ITR 652 & KAP OOR ASSOCIATION 381 ITR 204. 10. WE FIND THAT THE ASSESSEE HAS FOR THE FIRST TIM E RAISED THIS CONTENTION BEFORE US THAT IT HAD SUFFICIENT SURPLUS / OWN FUND S TO MAKE THE IMPUGNED INVESTMENTS. SINCE FACTS ARE NOT CLEAR IN THIS REG ARD AND A NEW FACTUAL CONTENTION HAS BEEN RAISED BEFORE US, WE DEEM IT PR OPER TO REMIT THE MATTER BACK TO THE FILE OF A.O. TO ADJUDICATE THE ISSUE OF DISALLOWANCE U/S 14A DENOVO AFTER GIVING ADEQUATE OPPORTUNITY OF BEING HEARD TO THE ASSESSEE. IT IS CLARIFIED THAT CALCULATION SUBMITTED BY THE ASSESSEE FOR THE PURPOSE OF DISALLOWANCE U/S 14A WOULD NOT INFLUENCE THE DECISION IN THIS REGARD . 11. IN THE RESULT, ALL THE APPEALS OF THE ASSESSEE ARE PARTLY ALLOWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED IN THE OPEN COURT. SD/- SD/- (BHAVNESH SAINI) (ANNAPURNA GUPTA) JUDICIAL MEMBER ACCOUNTANT MEMBER DATED : 17/06/2016 AG COPY TO: THE APPELLANT, THE RESPONDENT, THE CIT, TH E CIT(A), THE DR