ACIT CIR 1, THANE V. EMCO LTD, THANE

ITA 1289/MUM/2017

• Counselvise Citation: [2018] 125 COUNSELVISE.COM (IT) 5811 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 4 month(s) 12 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 06-07-2018
• Appeal Filed By: Department
• Order Result: Allowed
• Bench Allotted: E
• Assessment Year: 2011-2012
• Appeal Filed On: 23-02-2017
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: RAM TIWARI
• Keywords: Opportunity of being heard; Principle of natural justice; Earning of tax free income; Revised return
• Section: 143(3); 14A

Judgement Text

E IN THE INCOME TAX APPELLATE TRIBUNAL E BENCH, MUMBAI BEFORE SHRI SAKTIJIT DEY, JUDICIAL MEMBER AND SHRI RAMIT KOCHAR, ACCOUNTANT MEMBER ./ I.T.A. NO. 1289 / MUM/2017 ( / ASSESSMENT YEAR : 2011 - 12 ) ACIT CIRCLE - 1 , ASHAR IT PARK 6 TH FLOOR, B WING, ROOM NO. 22, ROAD NO. 16 Z WAGLE INDL ESTATE THANE (W) - 400604 / V. EMCO LTD. PLOT NO. F - 5, WAGLE INDUSTRIAL ESTATE ROAD NO. 28, THANE WEST - 400604 ./ PAN : AAACE2764Q ( / APPELLANT ) .. ( / RESPONDENT ) REVENUE BY : SHRI RAM TIWARI ASSESSEE BY: NONE / DATE OF HEARING : 02.07.2018 / DATE OF PRONOUNCEMENT : 06 .07.2018 / O R D E R PER RAMIT KOCHAR, ACCOUNTANT MEMBER TH IS APPEAL, FILED BY THE R EVENUE, BEING ITA NO. 1289/MUM/2017 , IS DIRECTED A GAINST APPELLATE ORDER DATED 23.11.2016 PASSED BY LEARNED COMMISS IONER OF INCOME TAX (APPEALS) - 1 , THANE (HEREINAFTER CALLED THE CIT(A)), FOR ASSESSMENT YEAR 2011 - 12 , THE APPELLATE PROCEEDINGS HAD ARISEN BEFORE LEARNED CIT(A ) FROM ASSESSMENT ORDER DATED 20.03.2014 PASSED BY LEARNED A SSESSING OFFICER (HEREI NAFTER CALLED THE AO) U/S 143 (3) OF THE INCOME - TAX ACT, 1961 (HEREINAFTER CALLED THE ACT) FOR AY 2011 - 12 . 2. THE G ROUNDS OF APPEAL RAISED BY R EVENUE IN THE MEMO OF APPEAL FILED WITH THE INCOME - TAX APPELLATE TRIBUNAL, MUMBAI (HE REINAFTER CALLED THE TRIBUNAL) READ AS UNDER: - I.T.A. NO.1289/MUM/2017 2 1. WHETHER ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT(A) ERRED IN DELETING THE DISALLOWANCE MADE OF RS. 33,20,476 / - MADE BY THE A.O. U/S 14A R.W. RULE 8D(II) OF THE I.T. ACT, 1961 2. THE ORDER OF THE CIT(A) MAY BE VACATED AND THAT OF THE ASSESSING OFFICER MAY BE RESTORED. 3. THE ASSESSEE CRAVES LEAVE TO ADD, AMEND, ALTER OR DELETE ANY GROUND OF APPEAL. 3. THE BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE FILED RETURN OF INCOME SHOWING CURRENT LOSS OF RS. 68 ,93,36,051/ - WHICH LOSS WAS REV ISED BY THE ASSESSEE BY FILING REVISED RETURN OF INCOME ON 19.10.2 011 SHOWING CURRENT LOSS OF RS. 68,53,14,666/ - FOR IMPUGNED ASSESSMENT YEAR . THE ASSESSEE IS ENGAGED IN THE BUSINESS OF MANUFACTURING OF TRANSFORMERS, ELECTRONIC ENERGY METERS AND TURN KEY PROJECTS. THE ASSESSEE RECEIVED DIVIDEND INCOME RS. 3,92,298/ - WHICH WAS CLAIMED AS AN EXEMPT INCOME U/S. 10(34) OF THE ACT. 4. THE AO INVOKED PROVISION S OF S E CTION 14A R.W.R. 8D( 2 ) (II) AND 8D ( 2 ) (III) OF INCOME - TAX RULES, 1962 WHICH LED TO THE DISALLOWANCE OF RS. 38,14,044/ - U/S 14A R.W.R. 8D(2)(II) AND 8D(2)(III) OF THE 1962 RULES (32,20,476/ - ON ACCOUNT OF RULE 8D2(II) AND RS. 4,93,568/ - UNDER RULE 8D2(III) B OTH READ WITH SECTION 14A), AS UNDER: - 5.4 TO DETERMINE THE AMOUNT OF DISALLOWANCE UNDER THE PROVISION OF RULE 8D THE FOLLOWING FACTS HAVE BEEN CONSIDERED - 1. THE ASSESSES HAS INCURRED EXPENDITURE BY WAY OF INTEREST AMOUNTING TO RS. 44,11,84 ,382/ - DURING THE CONCERNED PREVIOUS YEAR (A) 2. THE AVERAGE OF VALUE OF INVESTMENT WHICH IS RESULTING INTO PAYMENT OF DIVIDEND TO THE ASSESSEE COMPANY DURING THE CONCERNED PREVIOUS YEAR IS RS.9,87,13,571/ - (B) 3 THE AVERAGE OF THE TOTAL ASS ETS AS APPEARING IN THE BALANCE SHEET OF THE ASSESSEE ON THE FIRST DAY AND THE LAST DAY OF THE PREVIOUS YEAR IS RS. 13,11,58, 72, 103/ - .(C) ON THE BASIS OF ABOVE DISCUSSION A DISALLOWANCE OF RS . 32,20,476/ - IS MADE WHICH IS COMPUTED AS THE FORMULA SUGG ES TED IN RULE 8D SUB - CLAUSE 2(II ) I.E . A XB/C. HERE A IS RS.44,11,84,882/ - AS MENTIONED IN (1) ABOVE. SIMILARLY, B IS RS. 9,87,13,571/ - AND C IS RS. 13,11, 58,72,103/ - AS MENTIONED IN (2} & (3) ABOVE RESPECTIVELY. THE CALCULATION IS AS GIVEN BELOW. 441 184882/ - X 9,87,13.571/ 13,11, 58,72,1 03= RS 32,20,476/ - . 5.5 FURTHER A DISALLOWANCE OF RS. 4,93,568/ - IS M A DE ONE HALF PERCENT OF THE OVERAGE VALUE OF INVESTMENT WHICH IS RESULTING INTO PAYMENT OF DIV IDEND TO THE ASSESSEE COMPANY AS PER SUB CLAUSE 2(III) O F THE RULE 8D . I.T.A. NO.1289/MUM/2017 3 THE ASSESSEE HAD CONTENDED BEFORE THE AO THAT IT HAS ITS OWN FUNDS WHICH WERE MORE THAN THE INVESTMENT MADE IN THE SECURITIES CAPABLE OF YIELDING EXEMPT INCOME AND HENCE RULE 8D2(II) OF THE 1962 RULES R.W.S. 14A COULD NOT BE APPLIED AS OWN F UNDS ARE MORE THAN THE INVESTMENT S MADE IN THE SAID SECURITIES . THE ASSESSEE ALSO PLEADED THAT NO BORROWED FUNDS WERE USED BY THE ASSESSEE FOR MAKING INVESTMENTS IN SECURITIES CAPABLE OF YIELDING EXEMPT INCOME. THE ASSESSEE MAINLY CONTENDED THAT IN THE YEA R IN WHICH INVESTMENTS WERE MADE IN SECURITIES CAPABLE OF YIELDING EXEMPT INCOME , THE OWN FUNDS WERE MORE THAN THE INVESTMENTS MADE AND NO BORROWED FUNDS WERE USED BY THE ASSESSEE IN MAKING SUCH INVESTMENTS IN THE YEAR OF MAKING INVESTMENTS . THE AO REJEC TED THE CONTENTIONS OF THE ASSESSEE WHICH LED TO FRAMING OF AN ASSESSMENT ORDER DATED 20 - 03 - 2014 PASSED U/S 143(3) WHEREIN ADDITIONS IN AGGREGATE TO THE TUNE OF RS. 38,14,044/ - WERE MADE U/S 14A R.W.R. 8D(2)(II) AND 8D(2)(III) OF THE 1962 RULES. 5. THE A SSESSEE BEING AGGRIEVED BY ASSESSMENT ORDER DATED 20 - 03 - 2014 PASSED BY THE AO U/S 143(3) FILED FIRST APPEAL BEFORE LEARNED CIT(A) WHICH WAS DECIDED AGAINST THE ASSESSEE BY LEARNED CIT(A) BY SO FAR AS ADDITIONS TO THE TUNE OF RS. 4,93,568/ - AS WERE MADE BY THE AO BY INVOKING RULE 8D(2)(III) R.W.S. 14A . H OWEVER SO FAR AS ADDITIONS TO TH E TUNE OF RS. 32,20,476/ - AS WERE MADE BY THE AO BY INVOKING R ULE 8D2(II) OF THE 1962 RULES R.W.S. 14A IS CONCERNED , THE SAME WAS DECIDED AGAINST THE REVENUE B Y LEARNED CIT(A) VIDE APPELLATE ORDER DATED 23.11.2016, BY HOLDING AS UNDER: - I HAVE CAREFULLY CONSIDERED THE APPELLANTS SUBMISSIONS, THE OBSERVATIONS OF THE AO IN THE ASSESSMENT AND THE FACTS OF THE CASE. I HAVE ALSO GONE THROUGH THE DECISIONS RELIED UPON BY THE APPELLANT. AS FAR AS THE INTEREST EXPENDITURE ON BORROWED LOANS IS CONCERNED, IT IS SEEN THAT THE APPELLANT HAS MADE INVESTMENTS IN EQ UITY SHARES IN THE EARLIER YEAR S AND HAS SHOWN AVAILABILITY OF FUNDS FROM INTERNAL ACCRUALS TO COVER THE INVESTMENT IN EQUITY SHARES AS CAN BE SEEN FROM THE ABOVE TABLE REPRODUCED IN THE APPELLANTS SUBMISSIONS. THEREFORE CLAUSE (I) &(II) OF RULE 8D OF THE I.T. RULES WERE NOT APPLICABLE IN THE APPELLANTS CASE. HOWEVER, CERTAIN ADMINISTRATIVE EXPENDITURE IS REQUIRED FOR M AKING AND MAINTAINING INVESTMENT IN EQUITY SHARES. THE DECISION MAKING PERSONAL OF THE COMPANY HAVE TO DEVOTE TIME AND EFFORTS TO DECIDE WHETHER THE INVESTMENT IS TO BE MADE OR NOT AND IF ALREADY MADE WHETHER TO BE CONTINUED OR NOT. THE VARIOUS REQUIREMENT S ARE TO BE FULFILLED LIKE MAINTAINING DMAT ACCOUNT AND BANK ACCOUNT FOR SAVE CUSTODY OF THE SHARES AND ENTERING INTO TRANSACTIONS OF THE PURCHASE AND SALE AND RECEIVING DIVIDENDS. THEREFORE IN RESPECT OF SUCH ADMINISTRATIVE EXPENDITURE THE DISALLOWANCE M ADE BY THE AO UNDER I.T.A. NO.1289/MUM/2017 4 CLAUSE (III) OF RULE 8D BEING 0.5% OF THE AVERAGE INVESTMENT RESULTING IN EXEMPT INCOME TO THE EXTENT OF RS.4,93,568/ - IS UPHELD. THEREFORE, THE DISALLOWANC E TO THE EXTENT OF RS. 4,93,568 - IS UPHELD AS COMPARED TO THE DISALLOWANCE MADE BY THE AO AT RS. 38,14,044/ - . THE AO IS DIRECTED ACCORDINGLY. 6. AGGRIEVED BY THE APPELLATE ORDER DATED 23.11.2016 PASSED BY LEARNED CIT(A), THE R EVENUE HAS COME IN AN APPEAL BEFORE THE TRIBUNAL . NONE APPEARED FOR THE ASSESSEE ALTHOUGH APPLICATION FOR A DJOURNMENT WAS MOVED . THE ASSESSEE HAS NOT FILED ANY POWER OF ATTORNEY/AUTHORISATION FOR APPOINTMENT OF COUNSEL BEFORE THE TRIBUNAL WHILE IN THE ADJOURNMENT APPLICATION MOVED , THE ASSESSEE WITHOUT MENTIONING THE NAME OF AUTHORISED REPRESENTATIVE HAS JUST STATED THAT THE AR IS HOSPITALISED BUT NO MEDICAL / HOSPITALISATION RECORD WAS ALSO FILED BEFORE THE BENCH. UNDER THESE CIRCUMSTANCES, THE BENCH REJECTED THE ADJOURNMENT APPLICATION FILED BY THE ASSESSEE. T HE LD. DR ON THE OTHER HAND HAS RELIED UPON THE ASSESSMENT ORDER OF THE AO . 7. WE HAVE CONSIDER ED THE CONTENTION S OF LEARNED DR AND PERUSED THE MATERIAL ON RECORD . THE ASSESSEE FILED RETURN OF INCOME SHOWING CURRENT LOSS OF RS. 68,93,36,051/ - WHICH LOSS WAS REVISED BY THE ASSESSEE BY FILING REVISED RETURN OF INCOME ON 19.10.2011 SHOWING CURRENT LOSS OF RS. 68,53,14,666/ - FOR THE IMPUGNED ASSESSMENT YEAR . THE ASSESS EE IS ENGAGED IN THE BUSINESS OF MANUFACTURING OF TRANSFORMERS, ELECTRONIC ENERGY METERS AND TURN KEY PROJECTS. THE ASSESSEE RECEIVED DIVIDEND INCOME RS. 3,92,298/ - WHICH WAS CLAIMED AS AN EXEMPT INCOME U/S. 10(34) OF THE ACT. THE WHOLE CONTROVERSY IN THIS APPEAL BEFORE THE TRIBUNAL REV OLVES AROUND DISALLOWANCE U/S. 14A R.W.R 8D( 2 ) (II) OF THE 1962 RULES WHEREIN RULE 8D(2)(II) OF THE 1962 RULES WAS INVOKED BY THE AO TO DISALLOW INTEREST EXPENDITURE TO THE TUNE OF RS. 32,20,476/ - ON THE PRETEXT MAINLY OF USE OF MIX ED FUND USED BY THE ASSESSEE FOR MAKING INVESTMENTS IN SECURITIES CAPABLE OF YIELDING EXEMPT INCOME . THE ASSESSEE H AS MAINLY CONTENDED BEFORE THE AUTHORITIES BELOW THAT IT HAS ITS OWN FUNDS WHICH ARE MORE THAN INVESTMENTS MADE IN THE SECURITIES CAPA BLE OF YIELDING EXEMPT INCOME AND HENCE NO DISALLOWANCE U/S 14A OF THE 1961 ACT CAN BE MADE. THE ASSESSEE IN ITS CONTENTIONS BEFORE THE AUTHORITIES BELOW HAS STRESSED UPON THAT OWN FUNDS WERE MORE THE INVESTMENTS MADE IN THE YEAR IN THE SECURITIES CAPABLE OF YIELDING EXEMPT INCOME AS IS EMERGING FROM MATERIAL ON RECORD . HOWEVER. NO DETAILS OF OWN I.T.A. NO.1289/MUM/2017 5 FUNDS I NCLUDING SHARE CAPITAL PLUS RESERVE AND S URPLUS MINUS ACCUMULATED LOSS FIGURES FOR THE RELEVANT YEAR UNDER CONSIDERATION CORRESPONDING TO PREVIOUS YEAR 20 10 - 11 I.E. OPENING FIGURE AS AT 01 - 04 - 2010 AND ALSO CLOSING FIGURES AS ON 31 - 03 - 2011 ARE AVAILABLE FROM RECORDS WHICH IS PLACED BEFORE US. T HE ASSESSEE HAS INCURRED LOSSES OF MORE THAN RS. 68 CORES IN THE IMPUGNED ASSESSMENT YEAR AND THE FINANCIAL POSIT ION VIS - A - VIS BOOKS OF ACCOUNTS AS WELL AUDITED FINANCIAL STATEMENTS FOR PREVIOUS YEAR 2010 - 11(AY 2011 - 12) ARE NOT AVAILABLE ON RECORD . WE ARE AGREEABLE WITH THE BASIC PRINCIPLE AS CANVASSED BY THE ASSESSEE BEFORE THE AUTHORITIES BELOW THAT IF OWN FUNDS A RE MORE THAN INVESTMENTS MADE IN SECURITIES CAPABLE OF YIELDING EXEMPT INCOME, NO DISALLOWANCE U/S. 14A R.W.R. 8D2(II) CAN BE MADE AS PRESUMPTION WILL BE THAT ASSESSEE HAS INVESTED ITS OWN FUNDS IN INVESTMENT CAPABLE OF YIELDING EXEMPT INCOME UNLESS SAID P RESUMPTION IS REBUTTED WITH COGENT EVIDENCES . THE RELIANCE IS PLACE D ON DECISION OF HONBLE BOMBAY HIGH COURT IN THE CASE OF CIT V. RELIANCE UTILITIES AND POWER LTD. (2009) 313 ITR 340(BOM. HC) AS WELL AS DECISION OF HONBLE BOMBAY HIGH COURT IN THE CASE OF HDFC BANK LTD. V. DCIT REPORTED IN (2016) 383 ITR 529(BOM) . THUS UNDER THESE CIRCUMSTANCES , WE ARE OF THE CONSIDER ED VIEW THAT NO DISALLOWANCE U/S. 14A R.W.R. 8D2(II) CAN BE MADE OF THE INTEREST EXPENDITURE AS IS CONTEMPLATED BY THE AO. H OWEVER THE FACTS AVAILABLE ON RECORDS DOES NOT REFLECT THE AVAILABILITY OF OWN FUNDS AS AT THE BEGINNING OF THE PREVIOUS YEAR AS AT 01 - 04 - 2010 AS ALSO AT THE END OF THE PREVIOUS Y EAR AS ON 31 - 03 - 2011 . THE ASSESSEE HAS STRESSED ON THE AVAILABILITY OF OWN F UNDS BEING HIGHER THAN THE INVESTMENTS MADE IN THE YEAR OF MAKING INVESTMENTS IN SECURITIES CAPABLE OF YIELDING EXEMPT INCOME BUT NO REFERENCE OR RELIANCE IS PLACED ON THE AVAILABILITY OF OWN FUNDS IN THE YEAR UNDER CONSIDERATION. F OR LIMITED VERIFICATIO N BY THE AO AS TO THE AVAILABILITY OF OWN INTEREST FREE FUNDS DURING THE YEAR UNDER CONSIDERATION VIS - A - VIS INVESTMENTS MADE BY THE ASSESSEE IN THE SECURITIES CAPABLE OF YIELDING EXEMPT INCOME IN CONTEXT WITH BOOKS OF ACCOUNTS AND AUDITED FINANCIAL STATEME NTS OF THE ASSSESSEE FOR THE YEAR UNDER CONSIDERATION , WE ARE RESTORING THE ISSUE TO FILE OF THE AO FOR NECESSARY VERIFICATION S . NEEDLESS T O SAY THAT THE AO SHALL PROVIDE THE ASSESSEE REASONABLE OPPORTUNITY OF BEING HEARD IN ACCORDANCE WITH PRINCIPLES OF NATURAL JUSTICE IN ACCORDANCE WITH LAW. THE ASSESSEE IS DIRECTED TO PRODUCE BEFORE THE AO ALL NECESSARY EVIDENCES TO SUPPORT ITS CONTENTIONS. WE ORDER ACCORDINGLY. I.T.A. NO.1289/MUM/2017 6 8. THE APPEAL OF THE REVENUE IS ALLOWED FOR STATISTICAL PURPOSES AS INDICATED ABOVE. OR DER PRONOUNC ED IN THE OPEN COURT ON 06 .07 .2018 06 .07 .2018 SD/ - SD/ - (SAKTIJIT DEY) (RAMIT KOCHAR) JUDICIAL MEMBER ACCOUNTANT MEMBER MUMBAI, DATED: 06 .07 .2018 NISHANT VERMA SR. PRIVATE SECRETARY COPY TO 1 . THE APPELLANT 2 . THE RESPONDENT 3 . THE CIT(A) CONCERNED, MUMBAI 4 . THE CIT - CONCERNED, MUMBAI 5 . THE DR BENCH, 6 . MASTER FILE // TUE COPY// BY ORDER DY/ASSTT. REGISTRAR ITAT, MUMBAI I.T.A. NO.1289/MUM/2017 7