Amareswari Cements Limited (Now merged with Sagar Cements Limited), Hyd, Secunderabad V. DCIT, Circle-1(1), Hyd, Hyderabad

ITA 1268/HYD/2016

• Counselvise Citation: [2017] 127 COUNSELVISE.COM (IT) 2490 (ITAT-HYDERABAD)
• Duration Of Justice: 1 year(s) 22 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 25-10-2017
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: A
• Assessment Year: 2008-2009
• Appeal Filed On: 03-10-2016
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: V SREEKAR
• Assessee Lawyers: K RANGANATHAN
• Keywords: Earning of tax free income
• Section: 143(3); 14A

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL HYDERABAD BENCH A, HYDERABAD BEFORE SMT. P. MADHAVI DEVI, JUDICIAL MEMBER AND SHRI S. RIFAUR RAHMAN, ACCOUNTANT MEMBER ITA NO. 1268/HYD/2016 ASSESSMENT YEAR: 2008-09 AMARESWARI CEMENTS LTD., (NOW MERGED WITH SAGAR CEMENTS LTD.), HYDERABAD. PAN AABCA 7372 F VS. DY. COMMISSIONER OF INCOME- TAX, CIRCLE 1(1), HYDERABAD. (APPELLANT) (RESPONDENT) ASSESSEE BY : SHRI K. RANGANATHAN REVENUE BY : SHRI V. SREEKAR DATE OF HEARING : 12-10-2017 DATE OF PRONOUNCEMENT : 25-10-2017 O R D E R PER S. RIFAUR RAHMAN, A.M.: THIS APPEAL FILED BY THE ASSESSEE IS DIRECTED AGAI NST THE ORDER OF THE LEARNED COMMISSIONER OF INCOME-TAX (A) - I, HYDERABAD, DATED 17-06-2016 FOR AY 2008-09. 2. BRIEFLY THE FACTS OF THE CASE ARE THAT THE ASSES SEE FILED ITS RETURN OF INCOME ON 26/09/2008 FOR THE AY 2008-09 D ECLARING INCOME OF RS. 1,43,59,100/-. SUBSEQUENTLY, THE CASE WAS SE LECTED FOR SCRUTINY AND NOTICES U/S 143(2) WERE ISSUED. THE AO COMPLETE D THE SCRUTINY ASSESSMENT U/S 143(3) ON 28/12/2010 DETERMINING THE TOTAL INCOME AT RS. 1,61,08,660/- BY MAKING DISALLOWANCE TOWARDS IN TEREST ON TERM LOAN U/S 14A AMOUNTING TO RS. 17,49,560/-. 2.1 IT WAS NOTICED BY THE AO THAT IN THE BALANCE SH EET, THE SHARE INVESTMENT IN M/S SAGAR CEMENT LTD. (TAX EXEMPTED A SSETS) AS ON 31/03/2007 WERE RS. 2.71 CRORES AND AS ON 31/03/200 8 WERE RS. 4.68 2 ITA NO. 1268/H/16 AMARESWARI CEMENTS LTD. CRORES. THE AO OPINED THAT THERE WAS AN INCREASE OF INVESTMENT BY RS. 1.97 CRORE AND INTEREST EXPENDITURE WAS INCREAS ED TO RS. 89,25,183/- AS AGAINST RS. 48,85,975/- IN THE LAST YEAR. ON VERIFICATION OF THE BANK ACCOUNT, THE AO NOTICED THAT THE ASSESS EE OBTAINED A LOAN OF RS. 2.90 CRORES FROM AXIS BANK ON 28/09/200 7 AND RS. 2.10 CRORES ON 08/11/2007, @ 12.5%. OUT OF THE LOAN AMOU NT, THE ASSESSEE INVESTED IN THE SHARES OF M/S SAGAR CEMENT S LTD. ON 01/10/07 RS. 1,97,46,519/- AND ON 03/10/2007 RS. 42 ,00,000/- AND ON 12/11/2007 RS. 2,00,00,000/-. THE AO, THUS, COMPUT ED DISALLOWANCE U/S 14A READ WITH RULE 8D AS UNDER: I) THE AMOUNT OF EXPENDITURE DIRECTLY RELATING TO E XEMPTED INCOME - NIL II) INTEREST EXPENDITURE WHICH IS NOT DIRECTLY ATTR IBUTABLE TO PARTICULAR RECEIPT IS WORKED OUT AS BELOW: A) INTEREST EXPENDITURE DURING THE YEAR (EXCLUSIVE BANK CHARGES) RS. 72,06,489 INVESTMENTS AS ON 01/04/2008 IS RS. 4,68,73 ,037 INVESTMENTS AS ON 31/03/2007 IS RS. 2,71,28 ,518 B) THE AVERAGE VALUE OF INVESTMENT IS RS. 3,69,99,5 85 C) THE AVERAGE VALUE OF TOTAL ASSETS RS. 17,04,2 3,787 AXB = 72,06,489 X 3,69,99,585 RS. 15,64,561 C 17,04,23,787 III) ONE-HALF PERCENT OF AVERAGE VALUE OF INVESTM ENT IS (RS. 271.26 X 0.5%) RS. 1,84,998 TOTAL DISALLOWANCE RS. 17,49,560 TO COME TO THE SAID CONCLUSION, AO RELIED ON FEW CA SE LAWS INCLUDING THE DECISION IN THE CASE OF CHEMINVEST LTD. VS. ITO , 317 ITR (AT) 86 WHEREIN IT WAS HELD THAT EVEN IF NO DIVIDEND WAS RE CEIVED, THE EXPENDITURE INCURRED ON INVESTMENT ON SHARE IS NOT ALLOWABLE AS EXPENDITURE. 3. WHEN THE ASSESSEE CARRIED THE MATTER IN APPEAL B EFORE THE CIT(A) AGAINST THE ACTION OF THE AO, THE CIT(A) CON FIRMED THE DISALLOWANCE BY OBSERVING THAT IT WAS NOTICED IN TH E BANK STATEMENT THAT WHENEVER THE TERM LOANS WERE DISBURSED TO THE ASSESSEE, THE 3 ITA NO. 1268/H/16 AMARESWARI CEMENTS LTD. VERY NEXT TRANSACTION WAS TRANSFER OF FUNDS FROM AS SESSEE COMPANY TO SAGAR CEMENTS. HE REFUSED THE SUBMISSIONS OF THE AS SESSEE THAT THE INVESTMENT MADE WAS OUT OF OWN FUNDS. 4. AGGRIEVED BY THE ORDER OF CIT(A), THE ASSESSEE I S IN APPEAL BEFORE US RAISING THE FOLLOWING GROUNDS OF APPEAL: 1. THE ORDER OF THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS)-I, IS PREJUDICIAL TO THE INTEREST OF APPE LLATE IS BAD AND ERRONEOUS IN LAW. 2. THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) -I HAS ERRED IN LAW IN UPHOLDING THE ORDER OF DY. COMMISSI ONER OF INCOME TAX CIRCIE-1(1), HYDERABAD DISALLOWING INTER EST ON TERM LOAN U/S 14A OF THE INCOME TAX ACT, 1961 TREATING T HAT THE INVESTMENT WAS MADE OUT OF LOAN TAKEN FROM AXIS BAN K. 3. THE APPELLANT HEREBY PRAYS THAT THE HONOURABLE T RIBUNAL MAY BE PLEASED TO MODIFY THE ORDER OF THE COMMISSIONER OF INCOME TAX (APPEALS)-I, HYDERABAD. 4. THE APPELLANT PRAYS FOR PERMISSION TO FILE ADDIT IONAL GROUNDS AND SUPPORTING DOCUMENTS AT TIME OF HEARING. 5. LD. AR SUBMITTED THAT AO HAS NOT CONSIDERED THE FACTS AND CIRCUMSTANCES OF THE CASE IN THE PRESENT ISSUE SINC E HE HAS NOT FOUND THAT THE ACCOUNTS OF ASSESSEE INCLUDES ANY COMMON I NTEREST CHARGE IN RESPECT OF SAGAR CEMENTS LTD AND AMARESWARI CEME NTS LTD. HE HAS NOT FOUND OUT A CASE OF ANY OTHER COMMON EXPEND ITURE. HE SUBMITTED THAT THE AO HAS JUST ARBITRARILY APPLIED THE PROVISION OF SEC.14A AND RULE 8D. FURTHER, HE SUBMITTED THAT HE HAS NOT EXAMINED THE FACT THAT THE AXIS BANK LOAN IS FOR TAKE OVER O F LOAN OF APSFC WHICH WAS ALREADY EXISTING LOAN TAKEN FOR ACQUIRING THE FIXED ASSETS LIKE BUILDINGS, PLANT AND MACHINERY ETC. OF THE ORI GINAL PLANT/ PROJECT. HE SUBMITTED THAT THE INVESTMENT MADE BY THE ASSESS EE ARE TOTALLY OUT OF ITS OWN INTEREST FREE FUNDS LIKE DEPRECIATIO N AND NET PROFITS. THERE IS NO LINK BETWEEN THE INVESTMENT IN SAGAR CE MENTS LTD. AND THE BORROWINGS FOR WHICH INTEREST IS PAID. 4 ITA NO. 1268/H/16 AMARESWARI CEMENTS LTD. 5.1 LD. AR CONTENDED THAT THE AO WAS UNDER WRONG P RESUMPTION THAT THE ASSESSEE HAS INVESTED FUNDS IN SAGAR CEMEN TS LTD TO HAVE/TO INCREASE THE PROMOTERS CONTROL. THE SAGAR CEMENTS L TD IS LISTED COMPANY SUBJECT TO REGULATION OF SEBI, STOCK EXCHAN GES, LISTING AGREEMENTS ETC. THE COMPANY CANNOT INCREASE ITS PRO MOTERS SHARES AS THEY LIKE. HE SUBMITTED THAT THE AO HAS NOT OBSE RVED THAT THE ASSESSEE IS AN INDEPENDENT COMPANY HAVING NOMINEES FROM FINANCING INSTITUTIONS AND TILL IT WAS OUT OF BIFR A NOMINEE FROM BIFR ETC. THE COMPANY HAD ITS OWN IDENTITY, SEPARATE ACCOUNTS DEP ARTMENT, SEPARATE SET OF BOOKS, SEPARATE BANK ACCOUNTS. THER E IS NO COMMON FACILITIES WITH ANY OTHER COMPANY WHAT SO EVER. 5.2 THE LD. AR SUBMITTED THAT THE AO HAS NOT FOLLOW ED THE ESSENTIALS OF THE REQUIREMENT OF LAW AS LAID OUT IN SECTION 14A, RULE 8D OR THE IMPORTANT LEGAL ISSUES AND STEPS PRESCRIB ED BY THE JUDICIARY IN THE FOLLOWING CASES: 1. M/S BALARAMPUR CHINI MILLS LTD. VS. DCIT, ITA NO . 504/H/2011, FOR AY 2008-09, DTD. 29/07/2011. 2. GODREJ & BOYCE MFG. CO. LTD. VS. DCIT., 328 ITR 81 3. SPANDANA SPHOORTY FINANCE LTD., ITA NO. 1653/H/1 2, DTD. 10/10/2014. 6. LD. DR, ON THE OTHER HAND, RELIED ON THE ORDERS OF REVENUE AUTHORITIES. 7. CONSIDERED THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL FACTS ON RECORD. THE ASSESSEE HAS INVESTED IN EQUITY SHAR ES OF SAGAR CEMENTS LTD. RS. 271.26 IN FY 2006-07 AND RS. 197.4 7 IN FY 2007- 08. AS SEEN FROM THE AUDITED BALANCE SHEET AND PROF IT AND LOSS ACCOUNT OF THE ASSESSEE FOR FYS 2005-06 TO 2007-08, WHICH ARE PLACED FROM PAGES 15 TO 43 OF PAPER BOOK. FURTHER, THE BENCH ENQUIRED ABOUT THE EXEMPT INCOME DECLARED BY THE AS SESSEE DURING THIS AY, FOR WHICH, THE LD. AR SUBMITTED THAT IT IS NIL. IT IS SETTLED POSITION OF LAW THAT THE PROVISIONS OF SECTION 14A CAN BE APPLIED TO 5 ITA NO. 1268/H/16 AMARESWARI CEMENTS LTD. QUANTIFY THE EXPENSES IN RELATION TO EXEMPT INCOME. SINCE THE EXEMPT INCOME IS NIL, SECTION 14A WILL NOT APPLY. THE RULE 8D CAN BE APPLIED ONLY WHEN THERE IS DIFFICULTY IN FINDING THE EXPEND ITURE RELATING TO EXEMPT INCOME. THE PROVISIONS OF SECTION 14A AND RU LE 8D WILL NOT APPLY TO THE PRESENT CASE. IT IS THE CONSISTENT VIE W OF THE HYDERABAD BENCHES AND ACCORDINGLY THE GROUND RAISED BY THE AS SESSEE, IN PARTICULAR GROUND NO. 3 IS ALLOWED. 8. IN THE RESULT, APPEAL OF THE ASSESSEE IS ALLOWED . PRONOUNCED IN THE OPEN COURT ON 25 TH OCTOBER, 2017. SD/- SD/- (P. MADHAVI DEVI) (S. RIFAUR RA HMAN) JUDICIAL MEMBER A CCOUNTANT MEMBER HYDERABAD, DATED: 25 TH OCTOBER, 2017. KV COPY TO:- 1) AMARESWARI CEMENTS LTD., C/O P. SRINIVASAN & CO. , CAS., 12-13-424, STREET NO. 1, TARNAKA, SECUNDERABAD 500 017 2) DCIT, CIRCLE 1(1), , HYDERABAD 3)CIT(A) 1, HYDERABAD 4) PR. CIT 1, HYD. 5) THE DEPARTMENTAL REPRESENTATIVE, I.T.A.T., HYDE RABAD. 6) GUARD FILE