The Dy. Commissioner of Income Tax, Circle-5, Ahmedabad V. M/s. Nirma Industries Pvt. Limited, Ahmedabad

ITA 1121/AHD/2016

• Counselvise Citation: [2018] 126 COUNSELVISE.COM (IT) 6055 (ITAT-AHMEDABAD)
• Duration Of Justice: 1 year(s) 9 month(s) 22 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 21-02-2018
• Appeal Filed By: Department
• Order Result: Partly Allowed
• Bench Allotted: Not Allotted
• Assessment Year: 2009-2010
• Appeal Filed On: 29-04-2016
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: V K SINGH
• Keywords: Earning of tax free income; Proportionate interest
• Section: 143(3); 14A

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD D BENCH AHMEDABAD BEFORE, SHRI S. S. GODARA, JUDICIAL MEMBER AND SHRI AMARJIT SINGH, ACCOUNTANT MEMBER ITA NO. 1121/AHD/2016 (AS SESSMENT YEAR: 2009-10) DCIT, CIRCLE 5, AHMEDABAD APPELLANT VS. M/S. NIRMA INDUSTRIES PVT. LIMITED, NIRMA HOUSE, ASHRAM ROAD, AHMEDABAD -380015 RESPONDENT PAN: AAACN5352M /BY REVENUE : SHRI V. K. SINGH, SR. D.R. /BY ASSESSEE : SHRI HIMANSHU SHAH, A.R. /DATE OF HEARING : 15.02.2018 /DATE OF PRONOUNCEMENT : 21.02.2018 ORDER PER S. S. GODARA, JUDICIAL MEMBER THIS REVENUES APPEAL FOR ASSESSMENT YEAR 2009-10 A RISES AGAINST THE CIT(A)-9, AHMEDABADS ORDER DATED 09.02.2016, IN CA SE NO. CIT(A)-9/195/DCIT, CIR-5/11-12, REVERSING ASSESSING OFFICERS ACTION I NTER ALIA DISALLOWING AN AMOUNT OF RS.94,40,092/- U/S. 14A R.W. RULE 8D OF THE INCO ME TAX RULES HEREBY ADDING THE SAME IN COMPUTING BOOK PROFIT UNDER MAT PROVISION, IN PROCEEDINGS U/S. 143(3) OF THE INCOME TAX ACT, 1961; IN SHORT THE ACT. HEARD BOTH THE PARTIES. CASE FILE PERUSED. 2. THERE IS NO DISPUTE ABOUT THE ASSESSEE TO HAVE F ILED THE EXEMPT INCOME IN QUESTION FROM DIVIDEND OF RS.30,04,274/- EXEMPT U/S .10(34) OF THE ACT. THE ASSESSING OFFICER THEREFORE INVOKED RULE 8D COMPUTA TION FORMULA TO DISALLOW/ADD ITA NO. 1121/AHD/16 [DCIT VS. M/S. NIRMA INDUSTRIES PVT. LTD. ] A.Y. 2009-10 - 2 - PROPORTIONATE INTEREST COST OF RS.87,18,184/- FOLLO WED BY ADMINISTRATIVE EXPENDITURE @ 0.5% OF THE AVERAGE INVESTMENT COMING TO RS.7,21, 908/-; TOTALING TO RS.94,40,092/- IN QUESTION. HE FURTHER INCLUDE THE SAME FOR ASSESSEES MAT WORKING AS WELL. 3. THE CIT(A) REVERSES ASSESSING OFFICERS ACTION A S UNDER: 5.2 I HAVE CAREFULLY CONSIDERED THE FACTS OF THE C ASE, CONTENTIONS OF THE APPELLANT AS WELL AS THE CASE LAWS RELIED UPON BY THE APPELLANT AND THE ORDER OF A.O. THE A.O. HAS MADE AN ADDITION OF RS.94,40,092/- ON ACCOUNT OF DI SALLOWANCE U/S.14A R.W. RULE 8D OF THE I.T. RULES. THE APPELLANT HAS RECEIVED DIVIDEND OF AN AMOUNT OF RS.30,04,274/-. THE APPELLANT IS CLAIMING THAT IT HAS NOT INCURRED ANY EXPENDITURE IN ORDER TO EARN THE SAID EXEMPT INCOME. DURING THE APPELLATE PROCEEDINGS THE APPELLANT HAS ALSO SUBMITTED THAT THE DIVIDEND WHICH WAS RECEIVED WAS CREDITED DIRECTLY T O THE BANKS. THERE WAS NO NEW INVESTMENT IN SHARES DURING THE YEAR UNDER CONSIDER ATION. IT HAD MAJOR INCOME BY WAY OF INTEREST INCOME OF RS.5,92,37,366/-. THE APPELLANT IS A MEMBER OF ASSOCIATION OF PERSON (AOP). IT HAD EARNED RS, 19,19,989/- FROM SHARE OF PROFIT OF AOP. THE APPELLANT HAS ALSO SUBMITTED THAT IT HAD CAPITAL & RESERVES AMOUNTING TO RS.20.90 CRORES AS ON 31.03.2009 AS AGAINST THE INVESTMENT OF RS.13.03 CRORES. FURTH ER, THE APPELLANT HAS ALSO RELIED ON VARIOUS JUDGMENTS DISCUSSING THE AVAILABILITY OF .N ON-INTEREST BEARING FUNDS AND DISALLOWANCE U/S.14A OF THE ACT. IT IS SEEN FROM TH IS EXPLANATION THAT THESE INVESTMENTS HAVE NOT BEEN MADE OUT OF ANY BORROWED FUNDS. THE A PPELLANT HAS PLACED ITS RELIANCE ON THE JUDGMENT OF JURISDICTIONAL HIGH COURT IN THE CA SE OF UTI BANK LTD. 32 TAXMAN.COM 370 (GUJ.) AND CIT VS SUZLON ENERGY LTD. 354 ITR 630 (G UJ). IN BOTH THE CASES IT HAS. BEEN HELD THAT WHERE THE ASSESSEE HAS SUFFICIENT INTEREST FRE E FUNDS TO MEET ITS TAX FREE INVESTMENT YIELDING EXEMPT INCOME THEN IT CAN BE PRESUMED THAT THE INVESTMENTS WERE MADE FROM INTEREST FREE FUNDS AND NOT LOANED FUNDS AS WELL AS THERE EXIST NO DIRECT NEXUS BETWEEN INTEREST BEARING BORROWED FUNDS AND SUCH INVESTMENT S. THEREFORE, NO DISALLOWANCE U/S.14A IS WARRANTED. THE APPELLANT HAS ALSO RELIED UPON VA RIOUS OTHER CASE LAWS AS MENTIONED IN THE SUBMISSION OF THE APPELLANT. I AGREE WITH THE P RINCIPLES LAID DOWN IN THE CASE LAW OF UTI BANK LTD. AND SUZLON ENERGY LTD(SUPRA) AND VARI OUS OTHER JUDGMENTS OF JURISDICTIONAL HIGH COURT. CONSIDERING THE AVAILABILITY OF NON-INT EREST BEARING FUNDS IN THE HANDS OF THE APPELLANT FOR MAKING INVESTMENTS AND EARNING EXEMPT INCOME, I AM OF THE CONSIDERED OPINION THAT NO DISALLOWANCE UNDER SUB-SECTION 14A IS WARRANTED IN THIS CASE. ACCORDINGLY, THE A.O IS DIRECTED TO DELETE THE DISALLOWANCE OF R S.94,40,092/- MADE U/S.14A OF THE ACT. THUS, THIS GROUND OF APPEAL IS ALLOWED. 4. HEARD BOTH THE LEARNED REPRESENTATIVES REITERATI NG THEIR RESPECTIVE STANDS. CASE FILE PERUSED. MR. SHAH AT THE OUTSET REFERS T O TRIBUNALS ORDER IN ASSESSEES CASES ITSELF IN ASSESSMENT YEARS 2007-08 AND 2008-0 9 DATED 22.06.2016 REVERSING A SIMILAR SECTION 14A DISALLOWANCE EVEN AFTER INTRODU CTION OF THE COMPUTATION FORMULA IN QUESTION UNDER RULE 8D OF THE INCOME TAX RULES. LEARNED DEPARTMENTAL REPRESENTATIVE FAILS TO REBUT THIS FAC TUAL POSITION. WE HOWEVER NOTICED THAT THE ISSUE STANDS COVERED AS PER THE AB OVE TRIBUNALS DECISION ONLY QUA THE FORMER LIMB OF PROPORTIONATE INTEREST EXPENDITU RE DISALLOWANCE. THE LATTER LIMB OF ADMINISTRATIVE EXPENDITURE DISALLOWANCE (SUPRA) HAS NOWHERE BEEN DISCUSSED ITA NO. 1121/AHD/16 [DCIT VS. M/S. NIRMA INDUSTRIES PVT. LTD. ] A.Y. 2009-10 - 3 - EITHER IN CIT(A)S ORDER IN QUESTION OR BEFORE THE TRIBUNAL. THE CIT(A)S ABOVE EXTRACTED FINDINGS ALSO NOWHERE SPECIFICALLY DEAL W ITH THE INSTANT ADMINISTRATIVE EXPENDITURE ISSUE. THERE CAN HARDLY BE ANY DISPUTE THAT SUCH AN ADMINISTRATIVE EXPENDITURE HAS TO BE DISALLOWED POST ASSESSMENT YE AR 2008-09. WE THEREFORE ACCEPT LEARNED DEPARTMENTAL REPRESENTATIVES CORRES PONDING SUBMISSION REGARDING THIS ADMINISTRATIVE EXPENDITURE ISSUE ASPECT. THE IMPUGNED DISALLOWANCE IS THEREFORE REVIVED TO THE EXTENT OF RS.7,21,908/- ON LY. THE REVENUES FORMER SUBSTANTIVE GROUND IS THEREFORE PARTLY ACCEPTED IN ABOVE TERMS. 5. COMING TO THE LATTER ISSUE AS TO WHETHER THE IMP UGNED SECTION 14A R.W. RULE 8D DISALLOWANCE IS TO BE ADDED IN MAT COMPUTATION O R NOT, WE FIND THAT THE SAME IS NOT MORE RES INTEGRA IN VIEW OF TRIBUNALS SPECIAL BENCH DECISION IN CASE OF ACIT VS. VIREET INVESTMENT P. LTD. ITA NO.502/DEL/12 (DELHI) HOLDING THAT SUCH A DISALLOWANCE IS NOT TO BE ADDED IN MAT COMPUTATION. REVENUES INSTANT LATTER SUBSTANTIVE GROUND IS THEREFORE DECLINED. 6. THIS REVENUES APPEAL IS PARTLY ALLOWED. [PRONOUNCED IN THE OPEN COURT ON THIS T HE 21 ST DAY OF FEBRUARY, 2018.] SD/- SD/- ( AMARJIT SINGH ) (S. S. GODARA) ACCOUNTANT MEMBER JUDICIAL MEMBER AHMEDABAD: DATED 21/02/2018 TRUE COPY S.K.SINHA / COPY OF ORDER FORWARDED TO:- / REVENUE 2 / ASSESSEE ! / CONCERNED CIT 4 !- / CIT (A) ( )*+ ,--. . /0 / DR, ITAT, AHMEDABAD 1 +23 45 / GUARD FILE. BY ORDER / . // . /0