ABC BEARING LTD, MUMBAI V. ADDL CIT RG 6(1), MUMBAI

ITA 1303/MUM/2012

• Counselvise Citation: [2016] 133 COUNSELVISE.COM (IT) 4437 (ITAT-MUMBAI)
• Duration Of Justice: 3 year(s) 10 month(s) 11 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 06-01-2016
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: A
• Next Hearing Date: 06-01-2016
• Assessment Year: 2008-2009
• Appeal Filed On: 24-02-2012
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Section: 14A

Judgement Text

, IN THE INCOME TAX APPELLATE TRIBUNAL A BENCH, MUMBAI BEFORE S/SHRI B.R.BASKARAN , AM AND AMARJIT SINGH , JM ./ I.T.A. NO .1303 / MUM/20 12 ( / ASSESSMENT YEA R : 2008 - 09 ) M/S ABC BEARINGS LTD. 402 - B, POONAM CHAMBERS, DR.ANNIE BESANT ROAD, WORLI, MUMBAI - 400018 / VS. ADDL. COMMISSIONER OF INCOME TAX 6(1), ROO M NO.511, 5 TH FLOOR, AAYAKAR BHAVAN, MUMBAI - 400020 ( / APPELLANT ) .. ( / RESPONDENT ) ./ ./PAN. : AAACT5018Q / ASSESSEE BY MS.AARTI VISSANJI / REVENUE BY SHRI MANOJ KUMAR / DATE OF HEARING : 6.1.2016 / DATE OF PRONOUNCEMENT: 6. 1. 2016 / O R D E R P ER B R BASKARAN, AM : THE ASSESSEE HAS FILED THIS APPEAL CHALLENGING THE ORDER DATED 28 - 12 - 2011 PASSED BY LD CIT(A) - 14, MUMBAI FOR ASSESSMENT YEAR 2008 - 09 ON THE FOLLOWING ISSUES: - ( A ) DISALLOWANCE U/S 14A OF THE ACT. ( B ) DISALLOWA NCE OF FOREIGN TRAVEL EXPENSES. 2. WE HEARD THE PARTIES AND PERUSED THE RECORD. THE ASSESSEE IS ENGAGED IN THE BUSINESS OF MANUFACTURE OF BALL, THRUST AND ROLLER BEARINGS. THE FIRST ISSUE RELATES TO THE DISALLOWANCE MADE U/S 14A OF THE ACT. DURING THE YEAR UNDER CONSIDERATION, THE ASSESSEE HAS RECEIVED DIVIDEND INCOME OF RS.1,51,524/ - AND INTEREST INCOME OF RS.85,246/ - . BOTH THE INCOME WAS ITA NO. 1303 / MUM/ 2012 2 CLAIMED AS EXEMPT. THE ASSESSEE HELD INVESTMENTS TO THE TUNE OF RS.1271.73 LAKHS AS AT THE YEAR END. THE ASSE SSEE DID NOT MAKE ANY DISALLOWANCE U/S 14A OF THE ACT. THE AO COMPUTED THE DISALLOWANCE AT RS.17,50,563/ - AS PER RULE 8D OF THE IT RULES, WHICH CONSISTED OF INTEREST DISALLOWANCE OF RS.14,27,199/ - UNDER RULE 8D(2)(II) AND EXPENSES DISALLOWANCE OF RS.3,23, 364/ - UNDER RULE 8D(2)(III) OF THE IT RULES. THE LD CIT(A) NOTICED THAT INTEREST EXPENDITURE CONSISTED OF CERTAIN LOANS, WHICH WERE UTILIZED FOR SPECIFIC PURPOSES. ACCORDINGLY HE TOOK THE VIEW THAT THE INTEREST PERTAINING TO THOSE LOANS SHOULD NOT BE CON SIDERED FOR COMPUTING THE DISALLOWANCE UNDER RULE 8D(2)(II) OF THE IT RULES. ACCORDINGLY HE EXCLUDED THOSE TYPES OF INTEREST EXPENDITURE ACCORDINGLY COMPUTED THE DISALLOWANCE UNDER RULE 8D(2)(II) OF IT RULES AT RS.10,47,196/ - . HOWEVER, HE CONFIRMED THE D ISALLOWANCE MADE OUT OF EXPENSES UNDER RULE 8D(2)(III). 3. THE LD A.R SUBMITTED THAT THE ASSESSEE IS HAVING SUFFICIENT INTEREST FREE FUNDS, WHICH ARE VERY MUCH MORE THAN THE INVESTMENTS MADE BY THE ASSESSEE. SHE FURTHER SUBMITTED THAT THE ONLY FRES H INVESTMENT OF RS.12.50 CRORES MADE DURING THE YEAR WAS A STRATEGIC INVESTMENT MADE IN ITS SUBSIDIARY AND THE SAME WOULD NOT ATTRACT THE DISALLOWANCE U/S 14A OF THE ACT. SHE FURTHER SUBMITTED THAT THE LD CIT(A) HAS EXCLUDED ONLY PART OF INTEREST EXPENDIT URE AS RELATING TO SPECIFIC LOANS, WHERE AS THE FACT REMAINS THAT ALMOST ALL THE INTEREST EXPENDITURE WAS INCURRED IN RESPECT OF SPECIFIC LOANS AND THEY COULD NOT HAVE BEEN DIVERTED BY THE ASSESSEE FOR MAKING INVESTMENTS. ACCORDINGLY, THE LD A.R SUBMITTED THAT THERE IS NO REQUIREMENT OF MAKING ANY DISALLOWANCE OUT OF INTEREST EXPENDITURE. WITH REGARD TO THE EXPENDITURE, THE LD A.R SUBMITTED THAT ALL THE INVESTMENTS EXCEPT THE AMOUNT OF RS.12.50 CRORES INVESTED IN THE SUBSIDIARY COMPANY, HAVE BEEN BROUGHT FORWARD FROM EARLIER YEARS AND HENCE THE ASSESSEE HAS ITA NO. 1303 / MUM/ 2012 3 NOT INCURRED ANY ADMINISTRATIVE EXPENDITURE. ACCORDINGLY SHE SUBMITTED THAT NO DISALLOWANCE IS CALLED FOR OUT OF ADMINISTRATIVE EXPENSES ALSO. 4. ON THE CONTRARY, THE LD D.R SUBMITTED THAT THE DIS ALLOWANCE U/S 14A HAS TO BE WORKED OUT AS PER RULE 8D OF THE IT RULES, SINCE THE SAME IS HELD TO BE APPLICABLE FOR THE YEAR UNDER CONSIDERATION BY THE HONBLE BOMBAY HIGH COURT IN THE CASE OF GODREJ & BOYCE MFG. CO. LTD (328 ITR 81). 5. WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE RECORD. THE BALANCE SHEET OF THE COMPANY SHOWS THAT THE ASSESSEE IS HAVING OWN FUNDS TO THE TUNE OF RS.62.49 CRORES AND RS.72.80 CRORES FOR THE YEAR ENDING 31.3.2007 AND 31.3.2008 RESPECTIVELY. THE INVESTMENTS MADE B Y THE ASSESSEE STAND AT RS.0.21 CRORES AND RS.12.71 CRORES AS AT 31.3.2007 AND 31.3.2008 RESPECTIVELY. HENCE, THERE IS MERIT IN THE CONTENTIONS OF THE ASSESSEE THAT THE OWN FUNDS AVAILABLE WITH THE ASSESSEE IS SUFFICIENT ENOUGH TO COVER THE AMOUNT OF INVE STMENTS. FURTHER, THE ASSESSEE HAS ALSO CONTENDED THAT THE LOAN FUNDS HAVE BEEN OBTAINED FOR SPECIFIC PURPOSES AND THE SAME HAS BEEN USED ONLY FOR THOSE PURPOSES WITHOUT DIVERTING THE SAME FOR INVESTMENT PURPOSES. THE ASSESSEE HAS FURNISHED WORKINGS TO S HOW THAT THE OWN FUNDS AVAILABLE WITH THE ASSESSEE ON THE DATE OF MAKING INVESTMENTS WERE MORE THAN SUFFICIENT TO COVER THE AMOUNT OF INVESTMENT. THE LD A.R FURTHER SUBMITTED THAT THE BORROWINGS HAVE COME DOWN DURING THE YEAR UNDER CONSIDERATION. FURTHER INVESTMENT OF RS.12.50 CRORES APPEARS TO BE A STRATEGIC INVESTMENT MADE IN A SUBSIDIARY COMPANY. UNDER THESE SET OF FACTS, WE ARE OF THE VIEW THAT THERE IS NO REQUIREMENT TO MAKE ANY DISALLOWANCE OUT OF INTEREST EXPENDITURE U/R 8D(2)(II) OF THE IT RULES. WITH REGARD TO THE EXPENSES, WE NOTICE THAT THE ASSESSEE HAS BROUGHT FORWARD THE INVESTMENTS FROM THE PRECEDING YEAR ITA NO. 1303 / MUM/ 2012 4 AND THE ASSESSEE HAS MADE INVESTMENT IN ITS SUBSIDIARY DURING THE YEAR UNDER CONSIDERATION. HENCE, WE ARE OF THE VIEW THAT THE PROVISION S OF RULE 8D(2)(III) SHOULD NOT APPLIED UNDER THESE SET OF FACTS. THE AMOUNT OF DIVIDEND RECEIVED BY THE ASSESSEE WAS ALSO LESS. HENCE, ON A CONSPECTUS OF THE MATTER AND HAVING REGARD TO THE FACTS DISCUSSED ABOVE, WE ARE OF THE VIEW THAT THE DISALLOWANCE UNDER RULE 8D(2)(III) MAY BE MADE AT RS.5,000/ - . WE ORDER ACCORDINGLY. ACCORDINGLY, THE ORDER OF LD CIT(A) ON THIS ISSUE IS SET ASIDE AND THE AO IS DIRECTED TO RESTRICT THE ADDITION U/S 14A TO RS.5,000/ - . 6. THE NEXT ISSUE RELATES TO THE DISALLOWA NCE OF FOREIGN EXPENSES. THE AO NOTICED THAT THE FOREIGN TRAVEL EXPENSES INCURRED ON THE WIFE OF THE DIRECTOR HAS BEEN CLAIMED AS DEDUCTION AND HENCE THE AO DISALLOWED THE SAME. THE LD CIT(A) ALSO CONFIRMED THE SAME. 7. THE LD A.R SUBMITTED THAT THE DIRECTOR HAS ATTENDED A CONFERENCE OF BALL BEARINGS AND THE INVITATION WAS ALSO EXTENDED TO THE WIFE OF THE DIRECTOR. ACCORDINGLY THE LD A.R SUBMITTED THAT THE WIFE OF THE DIRECTOR REPRESENTED THE COMPANY IN THE CONFERENCE. ON THE CONTRARY, THE LD D.R SU BMITTED THAT THE ASSESSEE HAS NOT SHOWN AS TO HOW THE PRESENCE OF THE WIFE OF DIRECTOR WAS HELPFUL FOR THE COMPANY. 8. HAVING HEARD RIVAL CONTENTIONS, WE ARE OF THE VIEW THAT THE VIEW TAKEN BY LD CIT(A) DOES NOT CALL FOR ANY INTERFERENCE. IT IS NOT SH OWN THAT THE WIFE OF THE ASSESSEE IS EITHER AN EMPLOYEE OR DIRECTOR OF THE ASSESSEE. FURTHER, IT WAS NOT CLEAR AS TO HOW THE EXTENSION OF THE INVITATION TO THE WIFE OF THE DIRECTOR CAN BE CONSIDERED TO BE AN EXPENDITURE INCURRED FOR THE PURPOSE OF THE BUS INESS OF THE ASSESSEE. ACCORDINGLY, WE CONFIRM THE ORDER OF LD CIT(A) ON THIS ISSUE. ITA NO. 1303 / MUM/ 2012 5 9. IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE IS PARTLY ALLOWED. PRONOUNCED ACCORDINGLY ON 6TH JAN, 2016 . 6TH JAN, 2016 SD SD ( AMARJIT SINGH ) ( B. R. BASKARAN) JUDICIAL MEMBER ACCOUNTANT MEMBER MUMBAI: 6TH JAN, 2016 . . . ./ SRL , SR. PS / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT 2. / THE RESPONDENT. 3. ( ) / THE CIT(A) - CONCERNED 4. / CIT CONCERNED 5. , , / DR, ITAT, MUMBAI CONCERNED 6. / GUARD FILE. / BY ORDER, TRUE COPY (ASSTT. REGISTRAR) , /ITAT, MUMBAI