Amazon Textiles Pvt. Ltd., Ahmedabad V. ITO, Ward-1(1)(4), Ahmedabad

ITA 1179/AHD/2018

• Counselvise Citation: [2019] 112 COUNSELVISE.COM (IT) 2456 (ITAT-AHMEDABAD)
• Duration Of Justice: 1 year(s) 6 month(s) 27 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 04-12-2019
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: B
• Next Hearing Date: 24-09-2019
• Assessment Year: 2013-2014
• Appeal Filed On: 08-05-2018
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: BIREN SHAH
• Keywords: Depreciation; Opportunity of being heard; Earning of tax free income; Tax effect; Unabsorbed depreciation; Rule 8D; Set aside
• Section: 143(3); 14A; 263

Judgement Text

, IN THE INCOME TAX APPELLATE TRIBUNAL B BENCH, AHMEDABAD BEFORE SHRI RAJPAL YADAV, JUDICIAL MEMBER AND SHRI AMARJIT SINGH, ACCOUNTANT MEMBER ./ ITA NO. 1179/AHD/2018 / ASSESSMENT YEAR: 2013-14 AMAZON TEXTILES PVT. LTD., 105, SAKAR-1, NR. NEHRU BRIDGE, ASHRAM ROAD, AHMEDABAD-380006 PAN : AABCB 6914 E VS. THE INCOME-TAX OFFICER, WARD 1(1)(4), AHMEDABAD / (APPELLANT) / (RESPONDENT) ASSESSEE BY : SHRI BIREN SHAH, AR REVENUE BY : SHRI MUDIT NAGPAL, SR DR / DATE OF HEARING : 24/09/2019 / DATE OF PRONOUNCEMENT: 04/12/2019 / O R D E R PER RAJPAL YADAV, JUDICIAL MEMBER: THE PRESENT APPEAL IS DIRECTED AT THE INSTANCE OF T HE ASSESSEE AGAINST THE ORDER OF LEARNED PRINCIPAL COMMISSIONER OF INCO ME-TAX-1, AHMEDABAD [IN SHORT THE CIT] DATED 23.03.2018 PASSED UNDER SECTION 263 OF THE INCOME-TAX ACT, 1961 FOR ASSESSMENT YEAR 2013-14. 2. THE SOLITARY GRIEVANCE OF THE ASSESSEE IS THAT T HE LEARNED CIT HAS ERRED IN TAKING COGNIZANCE UNDER SECTION 263 OF THE ACT A ND THEREBY SETTING ASIDE THE ASSESSMENT ORDER DATED 21.03.2016. 3. THE BRIEF FACTS OF THE CASE ARE THAT THE ASSESSE E HAS FILED ITS RETURN OF INCOME ON 26.09.2013 DECLARING TOTAL INCOME OF RS. NIL AFTER CLAIMING SET OFF OF CARRIED FORWARD BUSINESS LOSS OF RS.1,75,02,151/ - AND UNABSORBED DEPRECIATION OF RS.6,61,97,912/-. ON SCRUTINY OF THE ACCOUNTS, IT REVEALED TO ITA NO. 1179/AHD/2018 AMAZON TEXTILES PVT LTD VS. ITO FOR AY: 2013-14 2 THE ASSESSING OFFICER THAT THE ASSESSEE HAS MADE IN VESTMENT OF RS.13,50,71,049/- IN ADI TAXFAB LLP. HE CONFRONTED THE ASSESSEE TO DEMONSTRATE THE EXPENSES ATTRIBUTABLE TO THE EARNIN G OF EXEMPT INCOME. IN RESPONSE TO THE QUERY OF THE LEARNED ASSESSING OFFI CER, THE ASSESSEE HAS FILED A DETAILED WRITTEN SUBMISSION. THE LEARNED ASSESSI NG OFFICER, THEREAFTER, WORKED OUT THE DISALLOWANCE REQUIRED TO BE MADE UND ER SECTION 14A R.W. RULE 8D OF INCOME-TAX RULES, 1962. THE COMPUTATION MADE BY THE ASSESSING OFFICER READS AS UNDER:- THUS, I PROCEED TO COMPUTE THE EXPENDITURE INCURRE D IN RELATION TO EARNING DIVIDEND INCOME AS PER THE PROVISIONS OF SECTION 14 A OF THE ACT IN THE MANNER AS PRESCRIBED UNDER RULE 8D OF THE ACT. 8.5 THE WORKING OF DISALLOWANCE U/S 14A R.W.R. 8D I S AS UNDER:- RULE 8D(2)(I) THE AMOUNT OF EXPENDITURE DIRECTLY RELATING TO INCO ME WHICH DOES NOT FORM PART OF TOTAL INCOME 0 RULE 8D(2)(II) EXPENDITURE INCURRED BY WAY OF INTEREST DURING THE PREVIOUS YEAR WHICH IS NOT DIRECTLY ATTRIBUTABLE TO ANY PART ICULAR INCOME OF RECEIPT AS PER THE FORMULA NAMELY:- A X B/C WHERE A= EXPENDITURE BY WAY OF INTEREST OTHER THAN AMOUNT OF INTEREST INCLUDED IN (I) B= AVERAGE VALUE OF INVESTMENT INCOME FROM WHICH DO ES NOT FORM PART OF THE TOTAL INCOME C = AVERAGE VALUE OF TOTAL ASSETS AS APPEARING IN T HE BALANCE SHEET HERE, A= = 90,03,976/- B= 135071049 + 120330349 =12,77,00,699/- 2 C= 625244621 + 755678236 =69,04,61,428/- 2 ITA NO. 1179/AHD/2018 AMAZON TEXTILES PVT LTD VS. ITO FOR AY: 2013-14 3 A X B/C 9003976 + 127700699 690461428 =16,65,284 RULE 8 D(2)(III) HALF PERCENT OF THE AVERAGE VALUE OF INVESTMENT INC OME FROM WHICH DOES NOT FORM PART OF THE TOTAL INCOME 12,77,00,699 X 0.5 = = 6,38,503 TOTAL 23,03,787 IN VIEW OF THE ABOVE, THE DISALLOWANCE U/S 14A R.W. RULE 8D IS COMPUTED AT RS.23,03,787/-. (DISALLOWANCE OF RS.23,03,787/-) 4. DISSATISFIED WITH THE DISALLOWANCE OF RS.23,03,7 87/-, APART FROM OTHER DISALLOWANCES, THE ASSESSEE CARRIED THE MATTER IN A PPEAL BEFORE THE LEARNED COMMISSIONER OF INCOME-TAX (APPEALS) [IN SHORT THE CIT(A)]. THE APPEAL WAS INSTITUTED ON 15.04.2016 AND IT WAS DECIDED ON 27.04.2017. THE LEARNED CIT(A) HAS DELETED THE DISALLOWANCE OF RS.23,03,787 /-. AGAINST THE ORDER OF LEARNED CIT(A), REVENUE CAME UP IN APPEAL BEFORE TH E TRIBUNAL VIDE ITA NO. 1648/AHD/2017. THIS APPEAL OF THE REVENUE HAS BEEN DISMISSED BY THE TRIBUNAL VIDE ORDER DATED 19.06.2019 ON THE GROUND THAT THE TAX EFFECT INVOLVED IN THE APPEAL BY VIRTUE OF RELIEF GIVEN BY THE LEARNED CIT(A) IS LESS THAN THE MONETARY LIMIT SPECIFIED IN THE CBDT INSTR UCTION BEARING NO.3 OF 2018 DATED 11.08.2018. 5. LEARNED CIT TOOK COGNIZANCE UNDER SECTION 263 OF THE INCOME-TAX ACT. A SHOW-CAUSE NOTICE WAS ISSUED ON 08.11.2017. HE WAS OF THE OPINION THAT THE LEARNED ASSESSING OFFICER HAS TAKEN NET IN TEREST EXPENSES WHILE WORKING OUT THE DISALLOWANCE AS PER THE FORMULA AVA ILABLE IN RULE 8D. THIS NET INTEREST EXPENSE HAS BEEN WORKED OUT AT RS.90,0 3,976/-. ACCORDING TO LEARNED CIT, THE TOTAL INTEREST EXPENDITURE OF RS.5 ,69,99,510/- OUGHT TO HAVE BEEN TAKEN AND THEREAFTER FORMULA SHOULD HAVE BEEN APPLIED. IN RESPONSE TO THE SHOW-CAUSE NOTICE, IT WAS CONTENDED BEFORE HIM THAT ONLY NET INTEREST ITA NO. 1179/AHD/2018 AMAZON TEXTILES PVT LTD VS. ITO FOR AY: 2013-14 4 INCOME HAS TO BE TAKEN INTO CONSIDERATION; BUT, SOM EHOW IT WAS NOT ACCEPTED BY THE LEARNED CIT; AND, VIDE IMPUGNED ORD ER DATED 23.03.2018, HE HAS SET ASIDE THE ASSESSMENT ORDER BY OBSERVING AS UNDER:- IN THE INSTANT EASE THE AO WHILE WORKING OUT THE D ISALLOWANCE U/S 14A HAD TAKEN THE INTEREST EXPENDITURE OF RS.90,03,976/- IN STEAD OF THE INTEREST EXPENDITURE SHOWN AT RS.5,69,99,510/- IN THE P&L A/ C. OF THE ASSESSEE. THEREFORE, ON FACTS OF THE CASE, THE REPLY OF THE A SSESSEE IS NOT ACCEPTABLE SO FAR AS THE ERROR IN COMPUTATION OF DISALLOWANCE U/S 14A OF THE IT ACT IS CONCERNED. IN ITS REPLY DATED 07.12.2018, THE ASSE SSEE HAD ARGUED THAT THE DISALLOWANCE U/S 14A OF THE ACT MADE BY THE AO WAS CHALLENGED BEFORE THE CIT(A), AHMEDABAD AND WORTHY CIT(A) HAD ALLOWED THE APPEAL OF THE ASSESSEE AND DELETED THE DISALLOWANCE MADE BY AO. HERE IT IS TO MENTION THAT AGAINST THE SAID ORDER OF CIT(A), AHMEDABAD, T HE REVENUE HAD PREFERRED APPEAL BEFORE THE ITAT NOT ACCEPTING THE ORDER OF T HE CIT(A), AHMEDABAD. 5.2 IT HAS BEEN OBSERVED THAT WHILE FINALIZING THE ORDER U/S 143(3) OF THE IT ACT DATED 21.03.2016 THE TOTAL ASSESSED INCOME WAS ASSESSED AT RS. NIL AFTER ADDITION ON VARIOUS ISSUED AND AFTER ALLOWING SET O FF OF UNABSORBED DEPRECIATION FOR AY 2008-09 OF RS.6,16,61,873/- AND UNABSORBED DEPRECIATION FOR AY 2009-10 OF RS.2,89,20,754/-. F URTHER, IT WAS NOTICED THAT WHILE WORKING OUT THE DISALLOWANCE U/S 14A R.W .R. 8D, THE AO HAD TAKEN RS.90,03,976/- AS INTEREST EXPENDITURE WHEREA S THE CORRECT AMOUNT IS RS.5,69,99,510/- AS SHOWN IN THE P&L ACCOUNT AS ON 31.03.2013. THUS THE DISALLOWANCES U/S 14A R.W.R. 8D IS LESS WORKED OUT BY RS.88,76,618/- RESULTING INTO UNDERASSESSMENT OF MAT TAX PAYABLE T O RS.24,15,375/- WITH INTEREST AS APPLICABLE. 6. IN VIEW OF THE ABOVE FACTS OF THE CASE, IT I S CLEAR THAT THE AO HAS FAILED TO APPLY CORRECTLY THE PROVISIONS OF SEC. 14A R.W.R. 8 D OF THE IT RULES WHILE COMPUTING THE AMOUNT TO BE DISALLOWED U/S 14A OF TH E IT ACT AT THE TIME OF ASSESSMENT. THE MANNER IN WHICH SCRUTINY OF THE CA SE HAS BEEN CARRIED OUT CLEARLY SHOWS THAT THE ORDER U/S 143(3) OF THE IT A CT IS ERRONEOUS AND PREJUDICIAL TO THE INTEREST OF REVENUE. THEREFORE THE PROVISION OF SEC. 263 OF THE IT ACT IS CLEARLY APPLICABLE IN THIS CASE. ACC ORDINGLY, PROVISIONS OF SEC. 263 OF THE IT ACT ARE INVOKED AND THE SAID ASSESSME NT IS HEREBY SET ASIDE AND THE AO IS DIRECTED TO MAKE FRESH ASSESSMENT IN THE RIGHT OF THE ABOVE DISCUSSION IN ACCORDANCE WITH LAW AND AFTER GIVING PROPER OPPORTUNITY OF BEING HEARD TO THE ASSESSEE. ITA NO. 1179/AHD/2018 AMAZON TEXTILES PVT LTD VS. ITO FOR AY: 2013-14 5 6. BEFORE US, LEARNED COUNSEL FOR THE ASSESSEE RAIS ED TWO FOLD SUBMISSIONS. IN HIS FIRST FOLD SUBMISSION, HE CONT ENDED THAT SUB-CLAUSE (C) OF EXPLANATION 1 APPENDED TO SECTION 263 (1) CONTEMPLATES THAT IF A N ISSUE HAS BEEN AGITATED IN AN APPEAL BEFORE THE LEARNED C IT(A), THEN THE LEARNED CIT HAS NO JURISDICTION UNDER SECTION 263 OF THE IN COME-TAX ACT TO ENTERTAIN SUCH ISSUE. IN THE SECOND FOLD SUBMISSION, HE CONT ENDED THAT THE HONBLE JURISDICTIONAL HIGH COURT, VIDE ITS JUDGMENT DATED 31.08.2017, IN THE CASE OF PRINCIPAL COMMISSIONER OF INCOME-TAX VS. NIRMA CRED IT & CAPITAL (P.) LTD., REPORTED IN [2017] 85 TAXMANN.COM 72 (GUJ.), HAS LA ID DOWN THAT FOR THE PURPOSE OF CONSIDERING THE AMOUNT REQUIRED TO BE DI SALLOWED UNDER SECTION 14A AND IN THE FORMULA PROVIDED UNDER RULE 8D, ONLY NET INTEREST EXPENDITURE HAS TO BE TAKEN INTO CONSIDERATION. HE PLACED ON RECORD COPY OF THIS JUDGMENT. HE THEREAFTER TOOK US THROUGH PAGE NO. 19 OF THE ASSESSMENT ORDER, WHEREIN LEARNED ASSESSING OFFICER HAS NOTICE D THAT THE NET INTEREST EXPENSE OF RS.90,03,976/-. A PERUSAL OF THESE DETA ILS WOULD INDICATE THAT THERE WAS INTEREST INCOME OF MORE THAN RS.3.04 CROR ES. THE INTEREST EXPENSES RELATED TO UNSECURED LOANS WERE ALSO WORKED OUT AT RS.3.94 CRORES. THUS, THE NET INTEREST EXPENSE WAS WORKED OUT AT RS.90,03,976 /-. THE OTHER EXPENSES WERE FOR THE BUSINESS PURPOSES AND NO CONNECTION WI TH THE INVESTMENTS. THE LEARNED CIT-DR, ON THE OTHER HAND, RELIED UPON THE ORDER OF THE LEARNED CIT. 7. WE HAVE DULY CONSIDERED THE RIVAL CONTENTIONS AN D GONE THROUGH THE RECORD CAREFULLY. SECTION 263 HAS A DIRECT BEARING ON THE CONTROVERSY; THEREFORE, IT IS PERTINENT TO NOTE SUB-CLAUSE (C) O F EXPLANATION 1 APPENDED TO SECTION 263(1) WHICH READS AS UNDER:- 263 (1). EXPLANATION 1.FOR THE REMOVAL OF DOUBTS, IT IS HER EBY DECLARED THAT, FOR THE PURPOSES OF THIS SUB-SECTION, ITA NO. 1179/AHD/2018 AMAZON TEXTILES PVT LTD VS. ITO FOR AY: 2013-14 6 . . . (C) WHERE ANY ORDER REFERRED TO IN THIS SUB-SECTIO N AND PASSED BY THE ASSESSING OFFICER HAD BEEN THE SUBJECT MATTER OF AN Y APPEAL FILED ON OR BEFORE OR AFTER THE 1ST DAY OF JUNE, 1988, THE POWERS OF T HE PRINCIPAL COMMISSIONER OR COMMISSIONER UNDER THIS SUB-SECTION SHALL EXTEND AND SHALL BE DEEMED ALWAYS TO HAVE EXTENDED TO SUCH MATTERS AS HAD NOT BEEN CONSIDERED AND DECIDED IN SUCH APPEAL. 8. A PERUSAL OF THE ABOVE EXPLANATION WOULD INDICAT E THAT THE ISSUES WHICH HAVE BEEN TAKEN INTO CONSIDERATION BY THE FIR ST APPELLATE AUTHORITY, THOSE ISSUES CANNOT BE CONSIDERED UNDER SECTION 263 OF THE ACT. IN THE PRESENT CASE, EVEN IF AFTER TAKING NET INTEREST EXP ENSE, A DISALLOWANCE OF RS.23,03,787/- WAS MADE WHICH CONTAINS INTEREST COM PONENT AS WELL AS ADMINISTRATIVE EXPENSES. ACCORDING TO LEARNED CIT( A) THIS DISALLOWANCE IS NOT SUSTAINABLE AND, THEREFORE, IT HAS BEEN DELETED . THE ISSUE ATTAINED FINALITY. HAD A HIGHER DISALLOWANCE WAS REQUIRED T O BE MADE, THEN THAT COULD HAVE BEEN MADE BY THE LEARNED CIT(A) BY ISSUI NG A NOTICE FOR ENHANCEMENT. IF NO DISALLOWANCE IS REQUIRED TO BE MADE UNDER SECTION 14A OF THE ACT AS HELD BY THE LEARNED CIT(A), THEN CAN BY ENTERTAINING ISSUE UNDER SECTION 263 SOME MORE AMOUNT BE DISALLOWED. THUS IT IS DISCERNIBLE THAT THE SAME ISSUE WAS AGITATED BEFORE THE LEARNED CIT(A) ON WHICH A HIGHER AMOUNT COULD BE DISALLOWED. THE LEARNED CIT IS NOT JUSTIFIED IN TAKING ACTION ON THIS ISSUE UNDER SECTION 263 OF TH E ACT. APART FROM THIS PRELIMINARY ASPECT ON JURISDICTION OF THE LEARNED C IT, WE FIND THAT THE VERY BASIS FOR TREATING THE ASSESSMENT ORDER AS ERRONEOU S IS NOT SUSTAINABLE IN VIEW OF THE DECISION OF HONBLE GUJARAT HIGH COURT IN THE CASE OF NIRMA CREDIT & CAPITAL (P) LTD (SUPRA). THE HONBLE HIGH COURT HAS SPECIFICALLY LAID DOWN THAT ONLY NET INTEREST EXPENSES IS TO BE CONSIDERED IN THE FORMULA FOR WORKING OUT THE DISALLOWANCE REQUIRED TO BE MAD E UNDER SECTION 14A OF ITA NO. 1179/AHD/2018 AMAZON TEXTILES PVT LTD VS. ITO FOR AY: 2013-14 7 THE ACT. THIS JUDGMENT WAS PRIOR TO THE ACTION TAK EN BY THE LEARNED CIT. IT WAS AVAILABLE TO HIM AND SHOULD HAVE BEEN FOLLOWED. IF FACTS ARE BEING LOOKED INTO IN THE LIGHT OF THIS JUDGMENT, THEN IT WOULD REVEAL THAT THE ASSESSING OFFICER HAS NOT COMMITTED ANY ERROR WHICH IS REQUIRED TO BE RECTIFIED BY EXERCISING POWERS UNDER SECTION 263 OF THE ACT. THEREFORE, ON BOTH COUNTS, THE ORDER OF THE LEARNED CIT IS NOT SU STAINABLE. WE THUS ALLOW THE APPEAL OF THE ASSESSEE AND QUASH THE IMPUGNED O RDER DATED 23.03.2018 PASSED UNDER SECTION 263 OF THE ACT FOR ASSESSMENT YEAR 2013-14. 9. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS ALL OWED. ORDER PRONOUNCED IN THE COURT ON 4 TH DECEMBER, 2019 AT AHMEDABAD. SD/- SD/- (AMARJIT SINGH) ACCOUNTANT MEMBER (RAJPAL YADAV) JUDICIAL MEMBER AHMEDABAD; DATED 04/12/2019 BIJU T., SR.PS ! / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT 2. / THE RESPONDENT. 3. ! # / CONCERNED CIT 4. # ( ) / THE CIT(A) 5. & ! , ! , / DR, ITAT, AHMEDABAD 6. / GUARD FILE . / BY ORDER, TRUE COPY / ( DY./ASSTT.REGISTRAR) ', / ITAT, AHMEDABAD 1. DATE OF DICTATION- ..03.12.2019. 2. DATE ON WHICH THE TYPED DRAFT IS PLACED BEFORE THE DICTATING MEMBER 03.12.2019 OTHER MEMBER 04.12.2019. 3. DATE ON WHICH THE APPROVED DRAFT COMES TO THE SR.P. S./P.S. - 04.12.2019. 4. DATE ON WHICH THE FAIR ORDER IS PLACED BEFORE THE D ICTATING MEMBER FOR PRONOUNCEMENT 04.12.2019.. 5. DATE ON WHICH THE FILE GOES TO THE BENCH CLERK04. 12.2019 6. DATE ON WHICH THE FILE GOES TO THE HEAD CLERK . 7. THE DATE ON WHICH THE FILE GOES TO THE ASSISTANT RE GISTRAR FOR SIGNATURE ON THE ORDER.. 8. DATE OF DESPATCH OF THE ORDER