Deputy Commissioner of Income Tax Circle-4(1)(1), Bangalore V. M/s Karnataka Agro Industries Corporation Limited , Bangalore

ITA 1223/BANG/2017

• Counselvise Citation: [2018] 126 COUNSELVISE.COM (IT) 5601 (ITAT-BANGALORE)
• Duration Of Justice: 8 month(s) 1 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 31-01-2018
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: A
• Assessment Year: 2012-2013
• Appeal Filed On: 30-05-2017
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: C H SUNDAR RAO
• Assessee Lawyers: K Y NINGOJI RAO
• Keywords: Earning of tax free income; Proportionate interest; Condonation of delay
• Section: 143(3); 14A

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL BANGALORE BENCH A BEFORE S HRI SUNIL KUMAR YADAV , JUDICIAL MEMBER AND SHRI JASON P BOAZ , ACCOUNTANT MEMBER I.T . A. NO. 1223 /BANG/20 17 (ASSESSMENT YEAR : 20 12 - 13 ) DY. COMMISSIONER OF INCOME TAX, CIRCLE 4(1)(1), BANGALORE. . APPELLANT. VS. M/S. KARNATAKA AGRO INDUSTRIES CORPN. LTD., NO.24, BELLARY ROAD , HEBBAL, BANGALORE - 560 024 . .. RESPONDENT. APPELLANT BY : SHRI C. H. SUNDAR RAO, CIT - 1 (D.R) R E SPONDENT BY : SHRI K.Y. NINGOJI RAO, C.A. DATE OF H EARING : 1.1.2018. DATE OF P RONOUNCEMENT : 31. 01 .201 8 . O R D E R PER SHRI JASON P BOAZ, A .M . : THIS APPEAL BY REVENUE IS DIRECTED AGAINST THE ORDER OF THE COMMISSIONER OF INCOME TAX (APPEALS) - 4, BANGALORE DT.27.02.2017 FOR ASSESSMENT YEAR 2012 - 13. CONDONATION OF DELAY IN FILING APPEAL BEFORE ITAT. 2. A T THE OUTSET, IT WAS OBSERVED BY THE BENCH THAT THERE WAS A DELAY OF 1 DAY IN FILING THE APPEAL BY REVENUE. WE HAVE HEARD BOTH PARTIES IN 2 IT A NO. 1223 /BANG/20 17 THE MATTER, PERUSED AND CAREFULLY CONSIDERED THE REASONS CITED BY REVENUE IN ITS MEMORANDUM FOR CONDONATION OF DELAY OF 1 DAY IN FILING THIS APPEAL. TAKING INTO CONSIDERATION THE FACTS AND CIRCUMSTANCES OF THE CASE AND RESPECTFULLY FOLLOWING THE RATIO OF THE DECISION OF THE HON'BLE APEX COURT IN THE CASE OF COLLECTOR, LAND ACQUISITION VS. MST KATIJI (167 ITR 471) (SC) AND THE PRINCIPLES LAID DOWN THEREIN, WE, IN THE INTEREST OF SUBSTANTIAL JUSTICE , CONDONE THE DELAY OF 1 DAY IN FILING THIS APPEAL BEFORE THE TRIBUNAL. ACCORDINGLY, THIS APPEAL IS ADMITTED FOR HEARING AND ADJUDICATION. O R D E R 3. BRIEFLY STATED, TH E FACTS OF THE CASE RELEVANT TO THIS APPEAL ARE AS UNDER : - 3.1 THE ASSESSEE COMPANY, A GOVT. OF KARNATAKA UNDERTAKING, ENGAGED IN THE BUSINESS OF MANUFACTURE OF AGRO BASED PRODUCTS FILED ITS RETURN OF INCOME FOR ASSESSMENT YEAR 2012 - 13 ON 18.9.2012 D ECLARING LOSS OF RS.19,68,60,812. THE CASE WAS TAKEN UP FOR SCRUTINY AND THE ASSESSMENT WAS CONCLUDED UNDER SECTION 143(3) OF THE INCOME TAX ACT, 1961 (IN SHORT 'THE ACT') VIDE ORDER DT.13.2.2015 , WHEREIN THE ASSESSEE'S INCOME WAS DETERMINED AT RS.2,79,7 9,747 AS AGAINST DECLARED LOSS OF ( - ) RS.19,68,60,812 IN VIEW OF VARIOUS ADDITIONS / DISALLOWANCES, INTER ALIA, INCLUDING ADDITIONS ON ACCOUNT OF TRADE PAYABLE, ADVANCES RECEIVED AGAINST SALE / SERVICES AND DISALLOWANCE UNDER SECTION 14A R.W. RULE 8D(2) (I I) AND (III). 3 IT A NO. 1223 /BANG/20 17 3.2 AGGRIEVED BY THE ORDER OF ASSESSMENT DT.13.2.2015 FOR ASSESSMENT YEAR 2012 - 13, THE ASSESSEE FILED AN APPEAL BEFORE THE CIT (APPEALS) 4, BANGALORE WHO DISPOSED OFF THE SAME ALLOWING THE ASSESSEE PARTIAL RELIEF. 4. REVENUE, BEING AGGRIEVED BY THE ORDER OF THE CIT (APPEALS) 4, BANGALORE FOR ASSESSMENT YEAR 2012 - 13 OF THE TRIBUNAL, WHEREIN IT HAS RAISED THE FOLLOWING GROUNDS : - 4 IT A NO. 1223 /BANG/20 17 5. GROUNDS S.NOS.1, 7 & 8 BEING GENERAL IN NATURE, NO ADJUDICATION IS CALLED FOR THEREON. 6. GROUNDS AT S.NOS.2 & 3 TRADE PAYABLES . 6.1 IN THESE GROUNDS, REVENUE, CONTENDS THAT THE LEARNED CIT (APPEALS) ERRED IN DELETING THE ADDITION OF RS.6,19,50,579 ON ACCOUNT OF TRADE PAYABLES MADE BY THE ASSESSING OFFICER UNDER SECTION 41(1) OF THE AC T WITHOUT APPRECIATING THAT THE AMOUNT IS SHOWN AS OUTSTANDING LIABILITY SINCE 2003. 6.2.1 WE HAVE HEARD THE RIVAL CONTENTIONS OF THE LEARNED DEPARTMENTAL REPRESENTATIVE FOR REVENUE IN SUPPORT OF THE GROUNDS RAISED AND OF THE LEARNED AUTHORISED REPRES ENTATIVE FOR THE ASSESSEE IN SUPPORT OF THE FINDING RENDERED BY THE LEARNED CIT (APPEALS) IN THE IMPUGNED ORDER WHILE DELETING THE ADDITION MADE BY THE ASSESSING OFFICER UNDER SECTION 41(1) OF THE ACT IN RESPECT OF TRADE PAYABLES. THE LEARNED CIT (APPEALS ), WHILE DELETING THE ADDITION MADE BY THE ASSESSING OFFICER HAS HELD AS UNDER AT PARA 5.3 OF THE IMPUGNED ORDER : - 5 IT A NO. 1223 /BANG/20 17 6 IT A NO. 1223 /BANG/20 17 6.2.2 ON A PERUSAL OF THE IMPUGNED ORDER, WE FIND THAT THE LEARNED CIT (APPEALS), AFTER CONSIDERING THE FACTS OF THE CASE, VIEWS OF THE ASSESSING OFFICER, THE SUBMISSIONS OF THE ASSESSEE AND THE JUDICIAL PRONOUNCEMENTS CITED, HAS RENDERED A CLEAR FACTUAL FINDING THAT FROM THE DETAILS ON RECORD IT IS EVIDENT THAT THE TRADE PAYABLES IN QUESTION WERE LIVE CREDITS , REFLECTED IN THE ASSESSEE'S BALANCE SHEET IN RESPECT OF WHICH THE LIABILITIES REMAINED INTACT . WHILE CONCURRING WITH THE AFORESAID FACTUAL FINDING OF THE LEARNED CIT (APPEALS), WE FIND THAT THERE WAS NEITHER ANY CESSATION OR REMISSION OF THE AFORESAID LIABILITIES BY EITHER PARTY THE RETO AND THEREFORE THE TRADE PAYABLES COULD NOT BE CONSTRUED TO HAVE BEEN EXTINGUISHED AND CONSEQUENTLY WOULD NOT FALL WITHIN THE PURVIEW OF PROVISIONS OF SEC.41(1) OF THE ACT, SOUGHT TO BE INVOKED BY THE ASSESSING OFFICER; WHICH VIEW WE FIND IS BEREFT OF ANY VALID / CORROBORATIVE EVIDENTIARY SUPPORT. NO EVIDENCE WAS PLACED BEFORE US BY REVENUE TO CONTROVERT THE FACTUAL FINDINGS RENDERED BY THE LEARNED CIT (APPEALS) ON THIS ISSUE WHILE DELETING THE ADDITION MADE UNDER SECTION 41(1) OF THE ACT. 7 IT A NO. 1223 /BANG/20 17 6.2.3 IN THE LIGHT OF THE FACTS AND CIRCUMSTANCES OF THE CASE, AS EMERGE FROM THE IMPUGNED ORDER OF THE LEARNED CIT (APPEALS) (EXTRACTED SUPRA) AND IN THE LIGHT OF THE DECISION OF THE HON'BLE DELHI HIGH COURT IN THE CASE OF CIT VS. SHRI VARDHMAN OVERSEAS LTD. (343 ITR 408), WHEREIN IT WAS HELD THAT LIABILITIES APPEARING IN THE BALANCE SHEET IS TANTAMOUNT TO ACKNOWLEDGEMENT OF THE FACT THAT THERE WAS NEITHER CESSATION OF REMISSION OF LIABILITY, WE ARE OF THE CONSIDERED OPINION THAT THE PROVISIONS OF SEC.41(1) OF THE ACT WOULD NOT BE ATTRACTED IN THE CASE ON HAND IN RESPECT TO THE ISSUE OF TRADE PAYABLES AND THEREFORE UPHOLD THE ORDER OF THE LEARNED CIT (APPEALS) DELETING THE ADDITION MADE BY THE ASSESSING OFFICER UNDER SECTION 41(1) OF THE ACT. CONSEQUENTLY, GRO UNDS 2 TO 5 OF REVENUE (SUPRA) APPEAL ARE DISMISSED. 7. GROUND NO.6 DISALLOWANCE UNDER SECTION 14A R.W. RULE 8D(II). 7.1 IN THIS GROUND, REVENUE CHALLENGES THE PROPRIETARY OF THE ACTION OF THE LEARNED CIT (AP PEALS) IN DELETING THE DISALLOWANCE UNDER SECTION 14A R.W. RULE 8D(2)(II) AMOUNTING TO RS.89,70,000. THE LEARNED DEPARTMENTAL REPRESENTATIVE FOR REVENUE WAS HEARD IN SUPPORT OF THE GROUNDS RAISED. 7.2 PER CONTRA, THE LEARNED AUTHORISED REPRESENTATIVE FOR THE ASSESSEE SUPPORTED THE FINDING RENDERED BY THE LEARNED CIT (APPEALS) IN DELETING THE DISALLOWANCE MADE BY THE ASSESSING OFFICER UNDER SECTION 14A R.W. RULE 8D(2)(II). 8 IT A NO. 1223 /BANG/20 17 8.1 WE HAVE HEARD THE LEARNED AUTHORISED REPRESENTATIVE AS WELL AS LEARNED DE PARTMENTAL REPRESENTATIVE AND CONSIDERED THE RELEVANT MATERIAL ON RECORD. AT PARA 8.3 OF THE IMPUGNED ORDER THE LEARNED CIT (APPEALS) DELETED THE DISALLOWANCE UNDER SECTION 14A R.W. RULE 8D(2)(II) HOLDING AS UNDER : 9 IT A NO. 1223 /BANG/20 17 8.2 ON A PERUSAL OF THE ORD ER OF THE ASSESSMENT, IT IS SEEN THAT THE ASSESSEE HAD RECEIVED DIVIDEND OF RS.5,65,200 DURING THE YEAR UNDER CONSIDERATION. THE ASSESSING OFFICER ON EXAMINATION THEREOF COMPUTED THE DISALLOWANCE UNDER SECTION 14A R.W. RULE 8D(2)(II) AT RS.89,70,007; SAI D TO BE THE PROPORTIONATE INTEREST DEEMED TO BE ATTRIBUTABLE TO THE EARNING OF EXEMPT INCOME. ON APPEAL, THE LEARNED CIT (APPEALS) AFTER EXAMINING THE MATERIAL ON RECORD, THE ASSESSING OFFICER S VIEWS IN THE MATTER AND THE ASSESSEE'S SUBMISSIONS IN THIS REGARD OBSERVED THAT THE ASSESSING OFFICER HAS MADE THE AFORESAID DISALLOWANCE UNDER RULE 8D WITHOUT MAKING ANY ANALYSIS OF FUND FLOW, AVAILABILITY OF RESERVES AND SURPLUS OR EXAMINING THE BREAKUP OF OWN / BORROWED FUNDS TO ESTABLISH THAT THERE WAS ANY DIVERSION OF BORROWED / INTEREST BEARING FUNDS TOWARDS EXEMPT INVESTMENTS. THE LEARNED CIT (APPEALS) HAS RENDERED SPECIFIC FINDINGS THAT (A) SINCE THE IMPUGNED AMOUNT RELATE TO RS.68.98 CRORES DISBURSED TO THE ASSESSEE FROM GOVT. OF KARNATAKA FOR SETTLEM ENT OF VRS DUES AND BANK LOANS, THERE WAS NO NEXUS TO ANY EXEMPT FUNDS IN RESPECT OF WHICH THE PROVISIONS OF SEC. 14A R.W. RULE 8D(2)(II) COULD HAVE BEEN APPLIED AND (B) THAT BORROWED FUNDS WERE MAINLY USED FOR BUSINESS PURPOSES AND THAT THE ASSESSING O FFICER HAD NO CASE FOR HOLDING THAT ANY 10 IT A NO. 1223 /BANG/20 17 OF THE INTEREST PORTION IS ATTRIBUTABLE TO THE EARNING OF EXEMPT INCOME. BEFORE US, REVENUE, EX CE PT FOR RAISING THE GROUND WAS NOT ABLE TO CONTROVERT THE ABOVE FACTUAL FINDINGS RECORDED BY THE LEARNED CIT (APPEALS) . IN THIS FACTUAL MATRIX OF THE MATTER, WE UPHOLD THE FINDING OF THE LEARNED CIT (APPEALS) IN DELETING THE DISALLOWANCE OF RS.89,20,007 MADE BY THE ASSESSING OFFICER UNDER SECTION 14A R.W. RULE 8D(2)(II), FOR THE REASONS THAT THE ASSESSING OFFICER MADE T HE AFORESAID DISALLOWANCE WITHOUT PROPER EXAMINATION OF THE ASSESSEE'S ACCOUNTS OR ANALYSIS OF THE REQUISITE FUND AVAILABILITY / MOVEMENT. WE HOLD AND DIRECT ACCORDINGLY. CONSEQUENTLY, GROUND NO.6 OF REVENUE S APPEAL IS DISMISSED. 9. IN THE RESULT, REVENUE S APPEAL FOR ASSESSMENT YEAR 2012 - 13 IS DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON THE 31ST DAY OF JAN., 201 8 . SD/ - ( SUNIL KUMAR YADAV ) ACCOUNTANT MEMBER SD/ - ( JASON P BOAZ ) JUDICIAL MEMBER BANGALORE, DT. 31 .01 .2018 *REDDY GP