KARAMTARA ENGINEERING P. LTD, MUMBAI V. ACIT (OSD) RG-8(1), MUMBAI

ITA 1262/MUM/2013

• Counselvise Citation: [2016] 132 COUNSELVISE.COM (IT) 2961 (ITAT-MUMBAI)
• Duration Of Justice: 3 year(s) 4 month(s) 14 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 29-06-2016
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: A
• Next Hearing Date: 18-05-2016
• Assessment Year: 2009-2010
• Appeal Filed On: 14-02-2013
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: MOHD JAVED
• Assessee Lawyers: M K PATEL
• Section: 14A; 6

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL A BENCH, MUMBAI BEFORE SHRI SANJAY ARORA , A M AND SHRI PAWAN SINGH, JM ./ I.T.A. NO. 1262/MUM/2013 ( / ASSESSMENT YEAR: 2009 - 10 ) KARAMTARA EN GINEERING PVT. LTD. 705, MORYA LANDMARK II, NEW LINK ROAD, ANDHERI (W), MUMBAI - 400 053 / VS. ASST. CIT, RANGE 8(1) (OSD), AAYKAR BHAVAN, 2 ND FLOOR, R. NO. 204, M. K. ROAD, MUMBAI - 400 020 ./ ./ PAN/GIR NO. AABCK 1921 F ( A SSESSEE ) : ( RE VENUE ) & ./ I.T.A. NO. 1707/MUM/2013 ( / ASSESSMENT YEAR: 2009 - 10 ) DY. CIT - 8(2), ROOM NO. 209/216A, 2 ND FLOOR, AAYKAR BHAVAN, M. K. ROAD, MUMBAI - 400 020 / VS. KARAMTARA ENGINEERING PVT. LTD. 705, MORYA LANDM ARK II, NEW LINK ROAD, ANDHERI (W), MUMBAI - 400 053 ./ ./ PAN/GIR NO. AABCK 1921 F ( RE VENUE ) : ( A SSESSEE ) ASSESSEE BY : SHRI M. K. PATEL RE VENUE BY : SHRI MOHD. JAVED / DATE OF HEARING : 18.5.2016 / DATE OF PRONOUNCEMENT : 29 .6 .2016 / O R D E R PER SANJAY ARORA, A. M.: THIS IS AN A PPEAL BY THE ASSESSEE AND THE REVENUE DIRECTED AGAINST THE ORDER BY THE COMMISSIONER OF INCOME TAX (APPEALS) - 17 , MUMBAI (CIT(A) FOR SHORT) DATED 20.12. 2012 , PARTLY ALLOWING THE A SSESSEES APPEAL S CONTESTING ITS ASSESSMENT 2 ITA NO S . 1262/M/2013 & 1707/M/2013 (A.Y. 2009 - 10) KARAMTARA ENGINEERING PVT. LTD. U/S.143(3) OF THE INCOME TAX ACT, 1961 (THE ACT HEREINAFTER) FOR THE ASSESSMENT YEAR (A.Y.) 2009 - 10 VIDE ORDER DATED 22.12.2011 . 2. THE ONLY ISSUE AGITATE D PER THE INSTANT APPEAL BY THE ASSESSEE AND THE REVENUE IS THE DEDUCTION U/S. 14A, DISALLOWANCE QUA WHICH STANDS REDUCED BY THE LD. CIT(A) FR OM RS.2,86,93,216/ - TO RS.13,27,979/ - ; BOTH SIDES CONTESTING THE SAME QUA THE DIFFERENT ASPECTS OR COMPONENTS THEREOF. 3. WE MAY BEGIN BY REP RODUCING THE WORKING OF BOTH THE ASSESSEE AND THE A.O., I.E., QUA THE SAID IMPUGNED DISALLOWANCE: WORKING OF DISALLOWANCE U/S. 14A (CONSIDERING INTEREST PAID ON O/D TERM LOAN TO PUNJAB & SIND BANK ONLY) AS PER ASSESSING OFFICER AS PER ASSESSEE DIFFERE NCE REASON FOR DIFFERENCE PARTICULARS AMOUNT (RS.) AMOUNT (RS.) AMOUNT (RS.) AMOUNT (RS.) AMOUNT (RS.) AMOUNT (RS.) I) AMOUNT OF EXPENDITURE DIRECTLY RELATING TO INCOME WHICH DOES NOT FORM PART OF TOTAL INCOME THE WORKING FOR INTEREST EXCLUDES , BANK CHARGES, BROKERAGE & COMMISSION, LC/BILL DISCOUNTING, INTEREST ON LOANS & OD ACCOUNT FROM OTHER THAN PUNJAB & SIND BANK SINCE THE INVESTMENTS IN KARAMTARA STEEL PVT. LTD. WAS MADE BY USING THE OD FACILITY OF PUNJAB & SIND BANK, THE INTEREST F ROM PUNJAB & SIND BANK SHOULD ONLY BE CONSIDERED FOR COMPUTING DISALLOWANCE U/S. 14A. II) A) AMT OF EXPENDITURE BY WAY OF INTEREST AS PER AO 102457283 102457283 LESS: BANK CHARGES 8802143 LESS: INTEREST & BANK CHARGES 4846497 LESS: BROKERAGE & COMMISSION 2514630 LESS: ROUNDING OFF (87) LESS: LC/BILL DISCOUNTING 60925960 25368053 LESS: INTEREST FROM O/D OBC 3567769 LESS: INTEREST FROM LOAN 8058127 LESS: INTEREST FROM TE RM LOAN (OTHER THAN PSB) 3339378 LESS: INTEREST FROM OTHERS 3930680 102457283 6472099 95985184 B) AVERAGE VALUE OF INVESTMENTS OPENING INVESTMENTS 7700700 7700000 CLOSING INVESTMENTS 159101400 159 100000 TOTAL INVESTMENTS 166802100 166800000 AVERAGE INVESTMENTS = TOTAL INVESTMENTS/2 83401050 83400000 1050 INVESTMENTS IN SHARES OF THE SOCIETY ARE TO BE EXCLUDED WHILE COMPUTING DISALLOWANCE U/S. 14A AS THESE INVESTMENTS ARE ONLY TO CONFIRM THE MEMBERSHIP OF THE 3 ITA NO S . 1262/M/2013 & 1707/M/2013 (A.Y. 2009 - 10) KARAMTARA ENGINEERING PVT. LTD. PREMISES HELD. C) AVERAGE VALUE OF ASSETS APPEARING IN THE BALANCE SHEET OF THE ASSESSEE ON THE FIRST DAY & LAST DAY OF THE PREVIOUS YEAR OPENING ASSETS FIXED ASSETS 121236096 121236096 INVESTMENTS 7700700 7700700 CURRENT ASSETS 564390547 564390547 693327343 693327343 LESS: CURRENT LIABILITIES 495107560 (495107560) 198219783 693327343 CLOSING ASSETS FIXED ASSETS 182910024 18 2 910024 INVES TMENTS 159101400 159101400 CURRENT ASSETS 1077362062 1077362062 1419373486 1419373486 LESS: CURRENT LIABILITIES 1013195118 (1013195118) 406178368 1419373486 AVERAGE INVESTMENTS = TOTAL ASSETS/2 302199076 1056 350415 A X B C 28276212 510979 III) AMOUNT EQUAL TO ONE - HALF PERCENT OF THE AVERAGE VALUE OF INVESTMENT, INCOME FROM WHICH DOES NOT OR SHALL NOT FORM PART OF THE TOTAL INCOME, AS APPEARING IN THE BALANCE SHEET OF THE ASSESSEE O THE FIRST AND THE LAST DAY OF THE PREVIOUS YEAR 417005 417000 TOTAL DISALLOWANCE U/S. 14A 28693217 927979 THE LD. CIT(A) ACCEPTED THE WORKING BY THE ASSESSEE , ADDING ANOTHER RS.4 LACS TOWARDS PROCESSING CHARGES (FORMING PART OF THE BANK CHARGES) ; TH E RELEVANT PART OF HIS ORDER READING AS UNDER: 3.6 I HAVE PERUSED THE ABOVE WORKING. THE BANK CHARGES INCLUDE PROCESSING CHARGES OF RS.11,01,128/ - TOWARDS WORKING CAPITAL LIMIT PAID TO PUNJAB & SIND BANK, MUMBAI. FROM THIS ACCOUNT, THE APPELLANT HAD MADE INVESTMENT IN THE SUBSIDIARIES. THEREFORE THE DIRECT EXPENSE WILL HAVE TO BE INCREASED. IT WAS GATHERED FROM THE APPELLANT THAT ABOUT RS.4,00,000/ - OUT OF THE SOURCE COULD BE ALLOCATED TOWARDS DISALLOWANCE U/S.14A. HENCE, THE DISALLOWANCE U/S. 14A MADE BY THE APPELLANT ABOVE OF RS.9,27,979/ - IS INCREASED BY RS.4,00,000/ - TO COVER SAID EXPENSES ALLOCATED. HENCE, THE GROUND OF APPEAL OF THE APPELLANT IS PARTLY ALLOWED. 4 ITA NO S . 1262/M/2013 & 1707/M/2013 (A.Y. 2009 - 10) KARAMTARA ENGINEERING PVT. LTD. AS APPARENT, THE ORDER BY THE LD. CIT(A) IS NOT A SPEAKING ORDER ; HE DRAWING HIS CONCLUSI ONS ON THE BASIS OF HIS GATHERINGS, AN UNDEFINED, UNSPECIFIED SOURCE/S. H OWEVER, AS ARGUED BY THE LD. AUTHORIZED REPRESENTATIVE (AR), THE ASSESSEES COUNSEL, THE PROCESSING CHARGES ARE ONLY FOR WORKING CAPITAL LOAN. THE MATTER IS PRINCIPALLY FACTUAL. W HE RE A N D TO THE EXTENT THE WORKING CAPITAL ADVANCE D IS DEPLOYED FOR AND TOWARD FINANCING THE WORKING CAPITAL, AS EVIDENCED BY THE ASSESSEES ACCOUNTS, REFLECTING MAINTENANCE OF A N ADEQUATE MARGIN (ON WORKING CAPITAL), NO PART OF THE WORKING CAPITAL FACILITY CAN BE SAID TO HAVE BEEN DIVERTED BY THE ASSESSEE TOWARD FINANCING INVESTMENTS, SO AS TO BE CONSIDERED AS FORMING PART OF THE GENERAL POOL OF FUNDS AND, ACCORDINGLY, LIABLE TO BE SUITABLY AP PORTIONED, INCLUDING THE PROCESSING CHARGES THEREON. LIKEWISE, WHE R E THE TERM LOAN FINANCE S A BUSINESS ( CAPITAL ) ASSET/S , AND IN FACT, FOR ALL OTHER DEDICATED FUNDS. THE BREAK - UP OF THE PROCESSING CHARGES (RS.11.01 LACS) IS NOT ON RECORD. THE LD. D R WOULD POINT OUT THAT THE ASSESSEE HAS CLAIMED DEDUCTION ON ACCOUNT OF C URRENT LIABILITIES, REDUCING THE SAME FROM THE ASSETS IN RECKONING THE ASSETS , AND WHICH I S IN VIOLATION OF R ULE 8D, WHICH SPEAKS OF TOTAL ASSETS AS PER THE ASSESSEES BALANCE - SHEET (ACCOUNTS) . I N THIS REGARD, WE OBSERVE THE CURRENT LIABILITIES TO BE BELOW THE VOLUME OF CURRENT ASSETS, BOTH AS AT THE BEGINNING AND AT THE END OF THE YEAR. AS EXPLAINED BY THE T RIBUNAL IN KREDENCE MULTI TRADING LTD. VS. ASST. CIT (IN ITA NO. 7798/MUM/2012 DATED 17.02.2016 ) , THE CURRENT LIABILITIE S ARE ONLY SPONTANEOUS LABILIT I ES , WHICH GO TO FUND THE CORRESPONDING CURRENT ASSETS. AS LONG AS , THEREFORE, THE I R VOLUME IS LESS THAN THE CURRENT ASSETS, THEY HAVE TO BE NECESSARILY REGARDED AS FUNDING THE CURRENT ASSETS AND NO PART THEREOF COULD BE CONSIDERED AS FORMING PART OF THE GE NERAL POOL OF FUNDS, LIABLE FOR APPORTIONMENT . WE, THEREFORE, FIND NO INFIRMITY IN THE ASSESSEES COMPUTATION OF THE TOTAL ASSETS, WHEREBY ONLY THE NET WORKING CAPITAL ( I.E., CURRENT ASSETS LESS CURRENT LIABILITIES, WHICH IS POSITIVE AT ALL TIMES ) IS INCLU DED IN THE WORKING OF THE TOTAL ASSETS, I.E., AS AGAINST THE FIGURE AS AT THE BALANCE - SHEET . T HE MATTER , BEING FACTUAL , OUR FINDING IS C ONSISTENT WITH THE RATIONAL E OF R ULE 8D, WHICH , AS 5 ITA NO S . 1262/M/2013 & 1707/M/2013 (A.Y. 2009 - 10) KARAMTARA ENGINEERING PVT. LTD. AFOR E - EXPLAINED , AS ALSO PER THE CITED DECISION BY THE TRIBUNAL , IS O NLY TOWARD ALLOCATING , ON A PROPORTIONATE BASIS, THE FUNDS FROM AL L SOURCES ON THE BASIS THAT THE ALL THE ASSETS ARE FUNDED FROM A COMMON GENERAL POOL OF FUNDS. THE LD. AR WOULD FURTHER CONTEN D THAT THE INVESTMENTS MADE BY THE ASSESSEE - COMPANY ARE IN SUB SIDIAR Y COMPANIES, MADE NOT WITH A VIEW FOR INVESTMENT, BUT FOR BUSINESS AS A PART OF BUSINESS STRATEGY, HAVING IN FACT MERGE D WITH THE ASSESSEE - COMPANY SUBSEQUENTLY BY THE ORDERS BY THE HIGH COURT (PB PGS. 43 - 64 , THOUGH NOT A PART OF THE RECORD , BEING NOT FURNISHED BEFORE THE REVENUE AUTHORITIES ) . WE FIND THIS CONTENTION , THOUGH CANN OT BE SAID TO BE IN VALID , AS WITHOUT SUBSTANCE IN THE FACTS OF THE PRESENT CASE IN - AS - MUCH AS WE OBSERVE NO DIFFERENCE IN THE WORKING OF THE AVERAGE VALUE OF INVESTMENTS BY THE ASSESSEE AND THE AO , SO THAT, SAVE FOR A MINOR DIFFERENCE OF RS.1 , 050/ - , THE AO HAS ACCEPTED THE ASSESSEES WORKING (I.E., OF DEDUCTION U/S. 14A R/W R ULE 8D) IN THIS REGARD. NO SUCH PLEA WAS RAISED AT ANY STAGE, SO THAT THERE IS NO FINDING BY ANY OF THE AU THORITIES BELOW QUA THE SAME. THE ASSESSEES PLEA, INCONSISTENT WITH ITS OWN STAND, AND BASED ON MATERIAL NOT ON RECORD , IS THEREFORE NOT MAINTAINABLE . THE ASSESSEE HAS ALSO CLAIMED DEDUCTION ON ACCOUNT OF EXPENDITURE ON BANK CHARGES, INTEREST ON BANK CHAR GE S, BROKERAGE AND COMMISSION, LC/ BILL DISCOUNT ING, ET C . THE AO H AS I N THE SAID TABLE ITSELF RE CORDED HI S REASONS FOR THE DIFFERENCE, WHICH HAVE NOT BEEN RESPONDED TO OR MET BY THE LD. CIT (A) IN ANY MANNER. WE HAVE ALREADY O BSERVED HIS ORDER TO BE N OT A SP EAKING ORDER. THE MATTER, UNDER THE CIRCUMSTANCES, IN OUR VIEW WOULD WARRANT BEING RESTORED BACK TO THE FILE OF THE LD. CIT(A) TO DECIDE THE SAME AFRESH IN ACCORDANCE WITH LAW, ISSUING DEFINITE FINDINGS OF FACT. HE SHALL BE AT LIBERTY TO ; RATHER OBLIGED TO , W HERE THE CLAIMS MADE BY THE ASSESSEE AND THE REASONS AS RECORDED BY THE AO APPEAR TO BE, OR ARE FOUND TO BE , INCONSISTENT OR CONTRARY TO THAT CLAIMED BY THE ASSESSEE , TO OBTAIN THE AOS COMMENTS THEREON, GIVING HIM LIBERTY TO VERIFY THE SAME WHERE FRESH MATERIALS ARE RELIED UPON . A S REGARDS THE DECISION IN THE CASE OF PUNJAB STATE C OOPERATIVE AND M ARKETING FEDERATION LTD . (STATED AS ITA NO. 548/CHD/2012) BY THE TRIBUNAL, WHICH FINDS 6 ITA NO S . 1262/M/2013 & 1707/M/2013 (A.Y. 2009 - 10) KARAMTARA ENGINEERING PVT. LTD. MENTION IN THE ASSESSEES G ROUND # 2 , THE SAME WAS NOT REFERRED TO DURIN G HEARING NOR DO WE FIND THE SAME ON RECORD. T HE MATTER IS, IN OUR VIEW, PURELY FACTUAL, AND BEING FACTUA L L Y IN DETERMINATE , MERITS BEING RESTORED BACK , WHICH IN FACT WAS THE COMMON CONTENTION OF THE PARTIES BEFORE US. R ATHER , IN THIS CONTEXT IT MAY NOT BE OUT OF PLACE TO MENTION THAT THE ASSESSEE THAT THE LD. AR DURING HEARING CONCEDED TO THE DISALLOWANCE U /S. 14 A AT RS. 9,2 7,979 / - , I.E., AGAINST THE SUO MOTO DISALLOWANCE OF RS.1 8,514/ - , EVEN AS IT CONTEST S THE ENTIRE DISALLOWANCE AS SUSTAINED BY THE LD. CI T(A) . WE DECIDE ACCORDINGLY. 4. IN THE RESULT, THE ASSESSEES APPEAL IS ALLOWED FOR STATISTICAL PURPOSES AND THE REVENUES APPEAL IS DISMISSED . ORDER PRONOUNCED IN THE OPEN COURT ON JUNE 29 , 201 6 SD/ - SD/ - ( PAWAN SINGH ) (S ANJAY ARORA) / J UDICIAL MEMBER / A CCOUNTANT MEMBER MUMBAI ; DATED : 29 . 0 6 .201 6 . . ./ ROSHANI , SR. PS / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT 2. / THE RESPONDENT 3. ( ) / THE CIT(A) 4. / CIT - CONCERNED 5. , , / DR, IT AT, MUMBAI 6. / GUARD F ILE / BY ORDER, / (DY./ASSTT. REGISTRAR) , / ITAT, MUMBAI