Appeal details
Counselvise Citation
[2017] 127 COUNSELVISE.COM (IT) 9340 (ITAT-PUNE)
Assessee PAN
Bench
Appeal Number
Duration Of Justice
1 year(s) 9 month(s) 27 day(s)
Appellant
Respondent
Appeal Type
Income Tax Appeal
Pronouncement Date
21-06-2017
Appeal Filed By
Assessee
Order Result
Allowed
Bench Allotted
B
Assessment Year
2011-2012
Appeal Filed On
24-08-2015
Judgement Text
IN THE INCOME TAX APPELLATE TRIBUNAL B BENCH, PUNE . , , , BEFORE SHRI D. KARUNAKARA RAO, AM AND SHRI VIKAS AWASTHY, JM . / ITA NO . 1174 /PUN/2015 / ASSESSMENT YEAR : 20 1 1 - 12 M/S. JAGDISH ELECTRONICS (I) PVT. LTD., LAWALA ROAD, PIRANGUT, TAL. MULSHI, PUNE 412115 PAN : AACCJ0013D ....... / APPELLANT / V S. DEPUTY COMMISSIONER OF INCOME TAX, CIRCLE (11(1), PUNE / RESPONDENT ASSESSEE BY : SHRI KISHOR PHADKE REVENUE BY : S HRI ACHAL SHARMA / DATE OF HEARING : 2 9 - 05 - 2017 / DATE OF PRONOUNCEMENT : 21 - 0 6 - 2017 / ORDER PER VIKAS AWASTHY, JM : TH IS APPEAL BY THE ASSESSEE IS DIRECTED AGAINST THE ORDER OF COMMISSIONER OF INCOME TAX (APPEALS) - 7, PUNE DATED 20 - 05 - 2015 FOR THE ASSESSMENT YEAR 2011 - 12. THE ASSESSEE IN APPEAL HAS RAISED SOLITARY ISSUE AGAINST CONFIRMING OF DISALLOWANCE U/S. 14A R.W. RULE 8D O F THE INCOME TAX ACT, 1961 (HEREINAFTER REFERRED TO AS THE ACT ). 2 ITA NO . 1174/PUN/2015, A.Y. 2011 - 12 2. SHRI KISHOR PHADKE APPEARING ON BEHALF OF THE ASSESSEE SUBMITTED THAT THE ASSESSEE HAS EARNED TAX FREE DIVIDEND INCOME OF RS. 3,39,951/ - ON INVESTMENT S MADE IN MUTUAL FUNDS. DURING THE COURSE OF SCRUTINY ASSESSMENT PROCEEDINGS THE ASSESSING OFFICER DISALLOWED RS.5,33,226/ - BY INVOKING THE PROVISIONS OF SECTION 14A R.W. RULE 8D(2)(II) AND (III). THE ASSESSEE HAS MADE INVESTMENTS IN MUTUAL FUNDS BY USING ITS OWN FUNDS AND HAS NOT UTILIZED INTER EST BEARING BORROWED FUNDS. THE ASSESSEE OWN FUNDS ARE MUCH MORE THAN THE INVESTMENTS MADE. THE LD. AR REFERRED TO THE BALANCE SHEET OF THE ASSESSEE AS ON 31 ST MARCH, 2011 AT PAGE 9 OF THE PAPER BOOK. THE LD. AR POINTED THAT OWN FUNDS OF THE ASSESSEE AR E APPROXIMATELY RS.29.15 CRORES , WHEREAS , THE INVESTMENT MADE BY THE ASSESSEE DURING THE F INANCIAL Y EAR 2010 - 11 WAS ONLY RS.7.30 CRORES. SINCE, ASSESSEES OWN FUNDS WERE SUFFICIENT TO COVER THE INVESTMENTS MADE , THERE WAS NO REASON FOR UTILIZING BORROWED FUNDS FOR SUCH INVESTMENTS. THE LD. AR SUBMITTED THAT DISALLOWANCE UNDER RULE 8D(2)(II) CAN BE MADE WHERE BORROWED INTEREST BEARING FUNDS ARE USED FOR MAKING INVESTMENTS. IN THE CASE OF ASSESSEE SINCE NO INTEREST BEARING FUNDS WERE UTILIZED THE DISALLOWA NCE MADE BY THE ASSESSING OFFICER UNDER CLAUSE (II) OF RULE 8D WAS NOT WARRANTED. TO BUTTRESS HIS SUBMISSIONS , THE LD. AR PLACED RELIANCE ON THE DECISION OF HONBLE BOMBAY HIGH COURT IN THE CASE OF THE COMMISSIONER OF INCOME TAX VS. HDFC BANK LTD. REPORTE D AS 366 ITR 505. 2.1 THE LD. AR FURTHER SUBMITTED THAT THE ASSESSING OFFICER HAS FURTHER ERRED IN MAKING DISALLOWANCE UNDER CLAUSE (III) OF RULE 8D(2). THE ASSESSEE IS HAVING NO CLOSING BALANCE OF THE INVESTMENTS. THE OPENING BALANCE OF THE INVESTMENTS IS RS.76,373/ - ONLY. THE LD. AR REFER RED TO SCHEDULE 5 OF BALANCE S HEET GIVING DETAILS OF THE I NVESTMENTS AT PAGE 14 OF 3 ITA NO . 1174/PUN/2015, A.Y. 2011 - 12 THE PAPER BOOK. THE LD. AR CONTENDED THAT AS PER THE PROVISIONS OF RULE 8D(III) AVERAGE OF OPENING AND CLOSING INVESTMENTS HAS TO BE TAKEN , WHICH IN THE PRESENT CASE IS RS.38,187/ - . AS PER CLAUSE (III) THE AMOUNT TO BE DISALLOWED WORKS OUT TO RS. 191/ - ONLY. THE DETAILED WORKING FOR MAKING DISALLOWANCE UNDER RULE 8D WAS FURNISHED BEFORE THE ASSESSING OFFICER AND THE COMMISSI ONER OF INCOME TAX (APPEALS). HOWEVER, BOTH THE AUTHORITIES BELOW HAVE FAILED TO CONSIDER THE SAME. THE LD. AR POINTED THAT RECENTLY RULE 8D HAS BEEN AMENDED W.E.F. 02 - 06 - 2016. AS PER AMENDED RULE 8D , INSTEAD OF ADOPTING YEARLY AVERAGE INVESTMENTS AS A N UMERATOR, MONTHLY AVERAGE OF TWELVE MONTHS IS TO BE ADOPTED AS A NUMERATOR. SINCE, THE AMENDMENT IS PROSPECTIVE IN NATURE , THE SAME WOULD NOT APPLY TO THE ASSESSMENT YEAR UNDER APPEAL I.E. ASSESSMENT YEAR 2011 - 12. 3. ON THE OTHER HAND SHRI ACHAL SHAR MA REPRESENTING THE DEPARTMENT VEHEMENTLY SUPPORTED THE FINDINGS OF COMMISSIONER OF INCOME TAX (APPEALS) IN CONFIRMING THE DISALLOWANCE MADE BY ASSESSING OFFICER U/S. 14A R.W. RULE 8D. 4. W E HAVE HEARD THE SUBMISSIONS MADE BY THE REPRESENTATIVES OF RIVA L SIDES AND HAVE PERUSED THE ORDERS OF THE AUTHORITIES BELOW . WE HAVE ALSO CONSIDERED THE DOCUMENTS AND THE CASE LAWS ON WHICH THE LD. AR HAS PLACED RELIANCE DURING THE COURSE OF MAKING HIS SUBMISSIONS. THE ONLY ISSUE RAISED IN THE APPEAL BY ASSESSEE IS AGAINST CONFIRMING OF DISALLOWANCE OF RS.5,33,226/ - U/S. 14A R.W. RULE 8D OF THE ACT. UNDISPUTEDLY, THE ASSESSEE HAS RECEIVED EXEMPT INCOME OF RS.3,39,951/ - . THE ASSESSEE HAS NOT MADE ANY VOLUNTARY DISALLOWANCE. THE ASSESSING OFFICER COMPUTED DISALLOWAN CE U/S. 14A BY INVOKING THE PROVISIONS OF RULE 8D(2)(II) AND (III). THE ASSESSEE HAS MADE INVESTMENT IN MUTUAL FUNDS TO THE TUNE OF RS.7.30 4 ITA NO . 1174/PUN/2015, A.Y. 2011 - 12 CRORES DURING THE PERIOD RELEVANT TO THE ASSESSMENT YEAR 2011 - 12. A PERUSAL OF THE BALANCE SHEET AS ON 31 - 03 - 2011 AT PAGE 9 OF THE PAPER BOOK SHOWS THAT THE ASSESSEE HAS OWN FUNDS (SHARE CAPITAL + RESERVES AND SURPLUS) AGGREGATING TO RS.29,14,91,325/ - . THUS, OWN FUNDS OF THE ASSESSEE ARE MUCH MORE THAN THE INVESTMENT S MADE IN MUTUAL FUNDS. THE HONBLE BOMBAY HIGH COURT IN THE CASE OF COMMISSIONER OF INCOME TAX VS. RELIANCE UTILITIES AND POWER LTD. REPORTED AS 313 ITR 340 (BOM) HAS HELD THAT IF THERE ARE FUNDS AVAILABLE BOTH INTEREST - FREE AND OVERDRAFT /LOANS TAKEN, THEN A PRESUMPTION WOULD A RISE THAT INVESTMENTS WOULD BE OUT OF THE INTEREST - FREE FUND GENERATED OR AVAILABLE WITH THE COMPANY, IF THE INTEREST - FREE FUNDS WERE SUFFICIENT TO MEET THE INVESTMENTS. SIMILAR VIEW HAS BEEN TAKEN BY THE HONBLE JURISDICTIONAL HIGH COURT IN THE CASE OF C OMMISSIONER OF INCOME TAX VS. HDFC BANK LTD. (SUPRA). 5. THE ASSESSING OFFICER HAS MADE DISALLOWANCE BY INVOKING CLAUSE (III) OF RULE 8D(2) AS WELL. DISALLOWANCE UNDER CLAUSE 8D(2)(III) IS TO BE COMPUTED ON AVERAGE VALUE OF INVESTMENTS , (INCOME FROM WHIC H DOES NOT FORM PART OF THE TOTAL INCOME) AS APPEARING IN THE BALANCE S HEET ON THE FIRST DAY AND THE LAST DAY OF THE PREVIOUS YEAR I.E. THE OPENING BALANCES AND THE CLOSING BALANCES OF INVESTMENTS. A PERUSAL OF SCHEDULE 5 FORMING PART TO THE BALANCE S HEET INDICATING INVESTMENTS , AT PAGE 14 OF THE PAPER BOOK SHOW THAT THE VALUE OF INVESTMENT, INCOME FROM WHICH DOES NOT FORM PART OF THE TOTAL INCOME IS ONLY TO THE EXTENT OF RS.76,373/ - . T HERE IS NO CLOSING BALANCE OF SUCH INVESTMENTS. THE ASSESSEE HA D PURC HASED MUTUAL FUNDS DURING THE YEAR AND HAS LIQUIDATED THE MUTUAL FUNDS IN THE SAME FINANCIAL YEAR. THUS, THE DISALLOWANCE TO BE MADE UNDER RULE 8D(2)(III) IS ONLY ON THE OPENING BALANCE. THE ASSESSEE HAS WORKED OUT DISALLOWANCE AT RS.191 , WHICH IS MINISC ULE. 5 ITA NO . 1174/PUN/2015, A.Y. 2011 - 12 6. THUS, IN VIEW OF THE UNDISPUTED FACT OF THE CASE AND THE JUDGMENT OF JURISDICTIONAL HIGH COURT DISCUSSED ABOVE, WE FIND MERIT IN THE SUBMISSIONS OF THE ASSESSEE. NO DISALLOWANCE U/S. 14A R.W. RULE 8D(2)(II) AND (III) IS WARRANTED IN THE FACTS OF T HE PRESENT CASE. ACCORDINGLY, THE IMPUGNED ORDER IS SET ASIDE AND THE APPEAL OF THE ASSESSEE IS ALLOWED. 7. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS ALLOWED. ORDER PRONOUNCED ON WEDNESDAY, THE 21 ST DAY OF JUNE, 201 7 . SD/ - SD/ - ( . /D. KARUNAKARA RAO ) ( / VIKAS AWASTHY) / ACCOUNTANT MEMBER / JUDICIAL MEMBER / PUNE; / DATED : 21 ST JUNE, 2017 RK / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT. 2. / THE RESPONDENT. 3. ( ) / THE CIT(A) - 7 , PUNE 4. THE PR. CIT - 7, PUNE 5. , , , / DR, ITAT, B BENCH, PUNE. 6. / GUARD FILE. / / // TRUE COPY// / BY ORDER, / ASSISTANT REGISTRAR , , / ITAT, PUNE
