Mahavir Steel Industries Ltd, Pune V. Addl CIT, Pune

ITA 1106/PUN/2012

• Counselvise Citation: 110624514 RSA 2012
• Duration Of Justice: 1 year(s) 3 month(s) 29 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 27-09-2013
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: A
• Assessment Year: 2008-2009
• Appeal Filed On: 29-05-2012
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: Y K BHASKAR
• Assessee Lawyers: R G NAHAR
• Keywords: Rectification of order; Earning of tax free income
• Section: 143(3); 14A; 154

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL PUNE BENCHES A, PUNE BEFORE SHRI G.S. PANNU, ACCOUNTANT MEMBER AND SHRI R.S. PADVEKAR, JUDICIAL MEMBER ITA NO.1106/PN/2012 (ASSESSMENT YEAR : 2008-09) MAHAVIR STEEL INDUSTRIES LTD., E/4/24, MIDC, BHOSARI, PUNE 411 018 PAN : AABCMI1744K . APPELLANT VS. ADDL. COMMISSIONER OF INCOME TAX RANGE 9, PUNE . RESPONDENT APPELLANT BY : MR. R.G. NAHAR RESPONDENT BY : MR. Y. K. BHASKAR DATE OF HEARING : 22-08-2013 DATE OF PRONOUNCEMENT : 27-09-2013 ORDER PER G. S. PANNU, AM THIS APPEAL BY THE ASSESSEE IS DIRECTED AGAINST AN ORDER OF THE COMMISSIONER OF INCOME TAX (APPEALS)-V, PUNE DATED 25.04.2012 WHICH, IN TURN, HAS ARISEN FROM AN ORDER DATED 29.11.2010 PAS SED BY THE ASSESSING OFFICER, UNDER SECTION 143(3) OF THE INCOME TAX ACT , 1961 (IN SHORT THE ACT), PERTAINING TO THE ASSESSMENT YEAR 2008-09. 2. IN THIS APPEAL, THE SOLITARY ISSUE IS WITH REGAR D TO A DISALLOWANCE OF RS.3,67,748/- MADE BY THE INCOME-TAX AUTHORITIES IN VOKING THE PROVISIONS OF SECTION 14A OF THE ACT READ WITH RULE 8D OF THE INC OME TAX RULES, 1962 (IN SHORT THE RULES). IN BRIEF, THE RELEVANT FACT S ARE THAT ASSESSEE IS A COMPANY ENGAGED IN THE BUSINESS OF MANUFACTURING OF ROLLED STRUCTURAL STEEL PRODUCTS AND FOR THE ASSESSMENT YEAR 2008-09 FILED A RETURN OF INCOME DECLARING TOTAL INCOME AT RS.22,68,89,720/-. IT WAS NOTICED THAT ASSESSEE HAD EARNED DIVIDEND INCOME OF RS.1,39,718/- WHICH WAS E XEMPT FROM TAX. THE ITA NO.1106/PN/2012 A.Y. 2008-09 ASSESSING OFFICER SHOW-CAUSED THE ASSESSEE AS TO WH Y AN APPROPRIATE AMOUNT SHOULD NOT BE DISALLOWED WITH REFERENCE TO S ECTION 14A OF THE ACT READ WITH RULE 8D OF THE RULES SINCE THE ASSESSEE HAD EA RNED AN EXEMPTED INCOME. THE ASSESSING OFFICER COMPUTED THE DISALLOW ANCE OUT OF INTEREST EXPENDITURE AS WELL AS OUT OF OTHER EXPENDITURE IN TERMS OF RULE 8D(2)(II) AND RULE 8D(2)(III) OF THE RULES WHICH AMOUNTED TO RS.3 ,67,748/-, (AFTER RECTIFICATION ORDER UNDER SECTION 154 OF THE ACT DA TED 20.01.2011). THE AFORESAID DISALLOWANCE WAS ALSO UNSUCCESSFULLY CARR IED IN APPEAL BEFORE THE CIT(A). 3. BEFORE THE CIT(A), THE MAIN PLEA RAISED WAS THAT THE ASSESSEE IS HAVING BOTH INTEREST-BEARING AS WELL AS INTEREST-FREE FUND S AND THEREFORE FOLLOWING THE RATIO OF THE JUDGEMENT OF THE HONBLE BOMBAY HIGH C OURT IN THE CASE OF CIT VS. RELIANCE UTILITIES & POWER LTD., 313 ITR 340 (BOM) WHEREBY THE INTEREST-FREE FUNDS WERE SUFFICIENT TO COVER THE INVESTMENT, THER E WOULD BE A PRESUMPTION THAT SUCH INVESTMENTS HAVE ARISEN OUT OF INTEREST-F REE FUNDS AND NOT OUT OF INTEREST-BEARING FUNDS. THE LEARNED COUNSEL SUBMITT ED THAT IF THE AFORESAID PROPOSITION IS APPLIED TO THE PRESENT CASE, NO INTE REST EXPENDITURE RELATABLE TO THE EXEMPT INCOME AS THE INTEREST-FREE FUNDS ARE EN OUGH TO COVER THE INVESTMENTS, WHICH HAVE YIELDED THE EXEMPT DIVIDEND INCOME. LEARNED COUNSEL ALSO SUBMITTED THAT IN THE EARLIER ASSESSME NT YEARS 2005-06 AND 2006-07 FOLLOWING THE AFORESAID PRESUMPTION THE DIS ALLOWANCE MADE UNDER SECTION 14A OF THE ACT WAS DELETED BY THE TRIBUNAL VIDE ORDER DATED 31.05.2011. SIMILARLY, WITH REGARD TO DISALLOWANCE MADE OUT OF EXPENSES IN TERMS OF RULE 8D(2)(III) OF THE RULES IT IS CONTEND ED THAT ONLY SUCH EXPENDITURE COULD BE DISALLOWED, WHICH COULD NOT BE RELATABLE T O THE TAXABLE INCOME, AS OBSERVED BY THE KOLKATA BENCH OF THE TRIBUNAL IN TH E CASE OF JCIT VS. M/S. PILANI INVESTMENT & INDUSTRIES CORPN. LTD., ITA NO. 653/KOL/2012 DATED 04.02.2013, A COPY OF WHICH HAS BEEN PLACED ON RECO RD. IT WAS POINTED OUT THAT IN THE PRESENT CASE, THE AFORESAID ASPECT HAS NOT BEEN APPROPRIATELY ITA NO.1106/PN/2012 A.Y. 2008-09 APPRECIATED BY THE LOWER AUTHORITIES AND THEREFORE THE DISALLOWANCE HAS BEEN WRONGLY MADE. 4. ON THE OTHER HAND, THE LEARNED DEPARTMENTAL REPR ESENTATIVE APPEARING FOR THE REVENUE HAS DEFENDED THE DISALLOWANCE BY PO INTING OUT THAT IN THE PRECEDING ASSESSMENT YEARS OF 2005-06 AND 2006-07, RULE 8D OF THE RULES WAS NOT ON THE STATUTE WHEREAS IN THE ASSESSMENT YE AR UNDER CONSIDERATION, THE DISALLOWANCE HAS BEEN COMPUTED BY INVOKING THE PROVISIONS OF RULE 8D OF THE RULES. 5. WE HAVE CAREFULLY CONSIDERED THE RIVAL SUBMISSIO N. IN OUR CONSIDERED OPINION, THE INCOME-TAX AUTHORITIES IN THE PRESENT CASE HAVE PROCEEDED TO INVOKE RULE 8D OF THE RULES AND COMPUTE THE DISALLO WANCE ENVISAGED UNDER SECTION 14A OF THE ACT WITHOUT RECORDING THE SATISF ACTION REQUIRED AS PER SECTION 14A(2) OF THE ACT. NO DOUBT SECTION 14A(1) OF THE ACT PRESCRIBES THAT WHILE COMPUTING THE TOTAL INCOME NO DEDUCTION SHALL BE ALLOWED IN RESPECT OF EXPENDITURE INCURRED BY THE ASSESSEE IN RELATION TO INCOME WHICH DOES NOT FORM PART OF THE TOTAL INCOME UNDER THE ACT. SUB-SE CTION (2) OF SECTION 14A OF THE ACT PRESCRIBES THAT THE AMOUNT OF EXPENDITURE S O DISALLOWABLE SHALL BE DETERMINED IN ACCORDANCE WITH THE METHOD AS MAY BE PRESCRIBED, WHICH IS RULE 8D OF THE RULES. SO, HOWEVER, BEFORE PROCEEDIN G TO DETERMINE THE AMOUNT OF EXPENDITURE DISALLOWABLE AS PER RULE 8D O F THE RULES, THE ASSESSING OFFICER IS OBLIGATED TO RECORD A SATISFAC TION THAT HAVING REGARD TO THE ACCOUNTS OF THE ASSESSEE HE IS NOT SATISFIED WITH T HE CORRECTNESS TO THE CLAIM OF THE ASSESSEE IN RESPECT OF THE EXPENDITURE IN RE LATION TO INCOME WHICH DOES NOT FORM PART OF THE TOTAL INCOME UNDER THE ACT. PE RTINENTLY, IN THE PRESENT CASE, ASSESSEE HAD POINTED OUT THAT NO PART OF THE EXPENDITURE IS INCURRED IN RELATION TO EARNING OF THE EXEMPT INCOME. THEREFORE , IT WAS INCUMBENT ON THE PART OF THE INCOME-TAX AUTHORITIES TO RECORD THE SA TISFACTION, AS REQUIRED BY SUB-SECTION (2) OF SECTION 14A OF THE ACT AND ALSO THE BASIS OF SUCH ITA NO.1106/PN/2012 A.Y. 2008-09 SATISFACTION, BEFORE PROCEEDING TO DETERMINE THE EX PENDITURE INCURRED IN RELATION TO AN INCOME WHICH DOES NOT FORM PART OF T HE TOTAL INCOME AS PER RULE 8D OF THE RULES. 6. IN THIS VIEW OF THE MATTER, WE DEEM IF FIT AND P ROPER THAT THE IMPUGNED ISSUE BE RE-VISITED BY THE ASSESSING OFFICER. THE A SSESSING OFFICER SHALL RE- EXAMINE THE APPLICABILITY OF SECTION 14A OF THE ACT ON THE BASIS OF THE SUBMISSION PUT-FORTH BY THE ASSESSEE AND THEREFORE PASS AN ORDER AFRESH ON THE LIMITED ASPECT OF APPLICATION OF SECTION 14A OF THE ACT AS PER LAW. 7. BEFORE PARTING, WE MAY MAKE A REFERENCE TO THE O RDER OF THE TRIBUNAL DATED 31.05.2011 IN THE CASE OF ASSESSEE VIDE ITA N O.15132/PN/2008 AND ITA NO. 1222/PN/2010 FOR ASSESSMENT YEARS 2005-06 A ND 2006-07 WITH RESPECT TO THE DISALLOWANCE MADE UNDER SECTION 14A OF THE ACT FOR THOSE YEARS. THE DISALLOWANCE, MADE IN THE SAID ASSESSMEN T YEARS, WAS DELETED BY THE TRIBUNAL BY NOTICING THE FACTS OF THE RESPECTIV E YEARS. THEREFORE, THE AFORESAID DECISION CAN BE APPLIED IN THE PRESENT CA SE ONLY IN-CASE, THE FACTS ARE AS WELL AS LAW APPLICABLE IN THE PRESENT YEAR, IS SIMILAR TO THOSE PREVALENT IN ASSESSMENT YEARS 2005-06 AND 2006-07. THUS, IN T HE ENSUING REMAND PROCEEDINGS THE ASSESSING OFFICER SHALL ALSO CONSID ER THE DECISION OF THE TRIBUNAL IN THE ASSESSEES OWN CASE DATED 31.05.201 1 FOR ASSESSMENT YEARS 2005-06 AND 2006-07 AND ALSO THE DECISION OF THE KO LKATA BENCH OF THE TRIBUNAL IN THE CASE OF M/S. PILANI INVESTMENT & IN DUSTRIES CORPN. LTD. (SUPRA). 8. IN THE RESULT, THE MATTER IS REMANDED BACK TO TH E FILE OF THE ASSESSING OFFICER FOR THE PURPOSES OF ADJUDICATING AFRESH THE APPLICABILITY OF SECTION 14A OF THE ACT IN THE INSTANT CASE HAVING REGARD TO OUR AFORESAID DISCUSSION AND AS PER LAW. 9. IN THE RESULT, APPEAL OF THE ASSESSEE IS ALLOWED FOR STATISTICAL PURPOSES. ITA NO.1106/PN/2012 A.Y. 2008-09 ORDER PRONOUNCED IN THE OPEN COURT ON 27 TH SEPTEMBER, 2013. SD/- SD/- (R.S. PADVEKAR) (G.S. PANNU) JUDICIAL MEMBER ACCOUNTANT MEMBER PUNE, DATED: 27 TH SEPTEMBER, 2013 SUJEET COPY OF THE ORDER IS FORWARDED TO : - 1) THE ASSESSEE; 2) THE DEPARTMENT; 3) THE CIT(A)-V, PUNE; 4) THE CIT-V, PUNE; 5) THE DR, A BENCH, I.T.A.T., PUNE; 6) GUARD FILE. BY ORDER //TRUE COPY// SR. PRIVATE SECRETARY I.T.A.T., PUNE