Kalra Overseas And Precision Engineering Ltd, Pune V. Income-tax Officer, Ward - 14(2), Pune

ITA 1328/PUN/2018

• Counselvise Citation: [2019] 118 COUNSELVISE.COM (IT) 2587 (ITAT-PUNE)
• Duration Of Justice: 6 month(s) 16 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 07-03-2019
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: SMC
• Assessment Year: 2015-2016
• Appeal Filed On: 20-08-2018
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Keywords: Earning of tax free income; Rule 8D
• Section: 143(3); 14A; 101; 20

Judgement Text

] IN THE INCOME TAX APPELLATE TRIBUNAL PUNE BENCH SMC, PUNE BEFORE SHRI ANIL CHATURVEDI, AM AND SHRI VIKAS AWASTHY, JM . / ITA NO.1328/PUN/2018 / ASSESSMENT YEAR : 2015-16 KARLA OVERSEAS AND PRECISION ENGINEERING LIMITED, 411/412, CITY POINT, DHOLE PATIL BOAT CLUB, PUNE 411 001. PAN : AABCK2406Q. . / APPELLANT V/S THE INCOME TAX OFFICER, WARD 14(2), PUNE. . / RESPONDENT ASSESSEE BY : SHRI GOPAL R. ASWANI. REVENUE BY : SHRI M.K. VERMA. / ORDER PER ANIL CHATURVEDI, AM : 1. THIS APPEAL FILED BY THE ASSESSEE IS EMANATING OUT OF THE O RDER OF THE COMMISSIONER OF INCOME TAX (APPEALS) 7, PUNE DAT ED 22.06.2018 FOR THE ASSESSMENT YEAR 2015-16. 2. THE RELEVANT FACTS AS CULLED OUT FROM THE MATERIAL ON R ECORD ARE AS UNDER :- ASSESSEE IS A COMPANY WHICH IS STATED TO BE ENGAGED I N THE BUSINESS OF MANUFACTURING OF FORGED AND CAST MACHINE CO MPONENTS. ASSESSEE ELECTRONICALLY FILED ITS RETURN OF INCOME FOR A.Y. 20 15-16 ON 03.10.2015 DECLARING TOTAL INCOME AT RS.13,67,660/-. THE C ASE WAS / DATE OF HEARING : 23.01.2019 / DATE OF PRONOUNCEMENT: 07.03.2019 2 SELECTED FOR SCRUTINY AND THEREAFTER ASSESSMENT WAS FRAM ED U/S 143(3) OF THE ACT VIDE ORDER DT.03.11.2017 AND THE TOTAL INCOME WAS DETERMINED AT RS.26,17,220/-. AGGRIEVED BY THE ORDER OF AO, ASSESSE E CARRIED THE MATTER BEFORE LD.CIT(A), WHO VIDE ORDER DT.22.06.2018 (IN APP EAL NO.PN/CIT(A)-7/WD-14(2)/10218/2017-18) DISMISSED THE APP EAL OF ASSESSEE. AGGRIEVED BY THE ORDER OF LD.CIT(A), ASSESSEE IS NOW IN APPEAL BEFORE US AND HAS RAISED THE FOLLOWING GROUNDS : 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE AND IN LAW THE HONORABLE CIT (APPEA L S) - 7 , PUNE ERRED IN CONFIRMING THE DISALLOWANCE OF INTEREST AND OTHER EXPENSES AMOUNTING TO RS. 12,49, 564/- AS DISALLOWED BY THE LEARNED AO BY APPLYING THE PROVISION OF SECT ION 14A OF THE I. T. ACT READ WITH RULE 80 OF THE I. T. RULES , 1962 WITHOUT APPRECIAT I NG THE FACTS OF THE CASE. THE APPELLANT HEREBY PRAYS THAT THE ADDITION MAY PLEASE BE DELETED. 2. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E AND IN L AW THE HONORABLE CIT (APPEA L S ) - 7, PUNE ERRED IN CONFIRMING THE DISALLOWANCE OF INTEREST AND OTHER EXPENSES AMOUNTING TO RS . 12,49,564/- MADE UNDER SECT I ON 14A OF THE I. T. ACT READ WITH RULE 80 OF THE I. T . RULES , 1962 WITHOUT APPRECIATING THE FACTS THAT A) THE APPELLANT HAS NOT MADE ANY NEW INVESTMENT DURIN G THE YEAR UNDER CONS I DERA TI O N, INCOME FROM WHICH IS EXEMPT FROM TAX . B) THE APPELLANT HAS NOT INCURRED ANY EXPENDITURE I N RELATION TO THE INCOME NOT FORM I N G PART OF TOTAL INCOME IN ORDER TO ATTRACT THE PROVISIONS OF SECTION 14A OF THE I .T. ACT C) THE INTEREST FREE FUNDS AVAILABLE WITH THE APPELLAN T IN THE FORM OF SHARE HOLDERS FUNDS (SHARE CAPITAL PLUS RESERVE AND SURPLUS) ARE MUCH MORE THAN THE INVESTMENTS MADE BY THE APPELLANT IN THE SHARES OF THE COMPANIES. 3. BEFORE US, AT THE OUTSET, LD.A.R. SUBMITTED THAT THOUGH ASSESSEE HAS RAISED VARIOUS GROUNDS BUT THE ONLY ISSUE IS WITH RE SPECT TO DISALLOWANCE U/S 14A R.W. RULE 8D OF THE INCOME TAX RULES. 4. DURING THE COURSE OF ASSESSMENT PROCEEDINGS, AO NOT ICED THAT ASSESSEE HAD MADE INVESTMENTS IN EQUITY INSTRUMENTS AN D HAD INCURRED INTEREST EXPENSES. AO WAS OF THE VIEW THAT IN V IEW OF THE FACT THAT INCOME FROM EQUITY INSTRUMENTS WAS EXEMPT FROM TAXE S, PROVISIONS 3 OF SEC.14A R.W. RULE 8D(2)(II) OF I.T. RULES ARE APPLICABLE. THE ASSESSEE WAS ASKED TO EXPLAIN AS TO WHY THE DISALLOWANCE U/S 14A R.W. RULE 8D(2)(II) OF I.T. RULES NOT BE MADE. THE SUBMISSIONS OF THE A SSESSEE WERE NOT FOUND ACCEPTABLE TO THE AO. AO ON THE BASIS OF METHOD PRESCRIBED UNDER RULE 8D(2)(II) WORKED OUT THE TOTAL DISALLOWA NCE OF INTEREST U/S 14A OF THE ACT AT RS.11,31,983/- AND ON AC COUNT OF OTHER EXPENSES AT RS.1,17,581/- UNDER RULE 8D(2)(III) OF I.T. RULES AN D THUS DISALLOWED RS.12,49,564/- U/S 14A OF THE ACT. AGGRIEVED BY THE ORDER OF AO, ASSESSEE CARRIED THE MATTER BEFORE LD.CIT(A), WHO UPHE LD THE ORDER OF AO. AGGRIEVED BY THE ORDER OF LD.CIT(A), ASSESSEE IS NOW IN APPEAL BEFORE US. 5. BEFORE US, LD.A.R. REITERATED THE SUBMISSIONS MADE BEFORE AO AND LD.CIT(A) AND FURTHER POINTING TO THE AUDITED BALANCE-SHEET PLACED AT PAGE 6 OF THE PAPER BOOK SUBMITTED THAT AS AGAINST THE INVESTMENT OF RS.86 LAKHS ASSESSEE WAS HAVING SUFFICIENT INTEREST FREE FU NDS IN THE FORM OF SHARE CAPITAL AND RESERVES AND SURPLUS AGGREGA TING TO RS.23 CRORES WHICH WERE MORE THAN THE INVESTMENTS AND IN SUC H A SITUATION, IT IS TO BE PRESUMED THAT INVESTMENTS ARE OUT OF INTEREST FREE FUNDS. LD.A.R. RELIED ON THE DECISION OF HONBLE BOMBAY HIGH COUR T IN THE CASE OF CIT VS. HDFC BANK LTD., REPORTED IN (2014) 366 ITR 505 WHEREIN IT WAS HELD THAT WHEN THE OWN FUNDS ARE MORE THAN THE INV ESTMENTS THEN NO DISALLOWANCE OF INTEREST U/S 14A OF THE ACT IS CALLED FOR . RELYING ON THE AFORESAID DECISION, HE SUBMITTED THAT NO DISALLOWANCE OF INTEREST UNDER RULE 8D(2)(II) OF I.T. RULES IS CALLED FOR IN THE PRESENT CASE. HE FURTHER SUBMITTED THAT ASSESSEE HAS EARNED EXEMPT INCO ME OF ONLY RS.3,705/- U/S 10(34) OF THE ACT AND IN SUCH AN EVENTUALIT Y, THE DISALLOWANCE U/S 14A OF THE ACT IS TO BE RESTRICTED TO TH E EXEMPT INCOME 4 EARNED. LD.D.R. ON THE OTHER HAND, SUPPORTED THE ORD ER OF LOWER AUTHORITIES. 6. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE M ATERIAL ON RECORD. THE ISSUE IN THE PRESENT GROUND IS WITH RESPEC T TO DISALLOWANCE U/S 14A R.W. RULE 8D OF THE ACT. BEFORE US, ASSESSEE FROM THE AUDITED BALANCE-SHEET HAS POINTED OUT THAT THE AVAILABILITY OF INTER EST FREE FUNDS IN THE FORM OF SHARE CAPITAL, RESERVES AND SURPLUS AGGREGA TES TO RS.23 CRORES AS AGAINST THE INVESTMENTS MADE AT RS.86 LAKHS WHICH SHOWS THAT THE AVAILABILITY OF INTEREST FREE FUNDS TO BE MUCH MORE THAN THE INVESTMENTS. WE FIND THAT HONBLE BOMBAY HIGH COURT IN THE CASE OF CIT VS. HDFC BANK LTD (SUPRA) HAS HELD THAT WHEN OWN FUN DS ARE MORE THAN THE INVESTMENTS, THEN NO DISALLOWANCE OF INTEREST U/S 14A OF THE ACT IS CALLED FOR. FOLLOWING THE AFORESAID DECISION OF HONBLE BOMBAY HIGH COURT WE HOLD THAT IN THE PRESENT CASE, NO DISALLOWAN CE OF INTEREST U/S 14A R.W 8D(2)(II) OF I.T. RULES IS CALLED FOR. AS FAR AS DISALLO WANCE OF ADMINISTRATIVE EXPENSES U/S 14A R.W. RULE 8D(2)(III) IS CONCERNE D, WE FIND THAT UNDER RULE 8D(2)(III) OF I.T. RULES, THE DISALLOWANCE O F OTHER EXPENSES HAS BEEN WORKED OUT AT RS.1,17,581/-. IT IS AS SESSEES CONTENTION THAT ASSESSEE HAS EARNED EXEMPT INCOME OF D IVIDEND ONLY OF RS.3,705/-. THE AFORESAID CONTENTION OF THE ASSESSEE HAS NOT BEEN CONTROVERTED BY REVENUE. WE FIND THAT THE HONBLE PUNJ AB AND HARYANA HIGH COURT IN THE CASE OF PCIT VS. STATE BANK OF PATIALA IN ITA NO.359 O F 2017 DT.14.11.2017 HAS HELD THAT THE AMOUNT OF DISALLOWANCE U/S 14A OF THE ACT HAS TO BE RESTRICTED TO THE AMOUNT OF EXEMP T INCOME ONLY AND NOT AT A HIGHER FIGURE. WE FIND THAT AGAINST THE AFORESAID ORDER OF PUNJAB AND HARYANA HIGH COURT, REVENUE FILED S.L.P. BEFORE T HE HONBLE APEX COURT AND THE S.L.P. WAS DISMISSED BY THE HONBLE A PEX COURT. WE FURTHER FIND THAT HONBLE DELHI HIGH COURT IN THE CASE O F PCIT VS 5 CARAF BUILDERS & CONSTRUCTION (P) LTD., (2019) 101 TAXMANN.CO M 167 (DEL) AFTER CONSIDERING THE DECISIONS OF HONBLE APEX COURT IN THE CASE OF MAXOPP INVESTMENT LTD. VS. CIT (2018) 402 ITR 640, CHEMIN VEST VS. CIT (2015) 378 ITR 33 AND OTHER DECISIONS HAS HELD THAT DISALLOWANCE U/S 14A CANNOT EXCEED EXEMPT INCOME OF THE RELEVANT YE AR. IN THE PRESENT CASE, SINCE ASSESSEE HAS EARNED EXEMPT INCOME FROM DIVIDENDS ONLY TO THE EXTENT OF RS.3,705/-, WE RELYING ON THE AFORE SAID DECISIONS DIRECT THE DISALLOWANCE U/S 14A OF THE ACT BE RESTRICTE D TO THE EXTENT OF EXEMPT INCOME I.E., RS.3,705/-. THUS, THE GROUNDS OF THE ASSESSEE ARE PARTLY ALLOWED. 7. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS PARTLY ALLOWED. ORDER PRONOUNCED ON 7 TH DAY OF MARCH, 2019. SD/- SD/- ( VIKAS AWASTHY ) ( ANIL CHATURVEDI ) / JUDICIAL MEMBER ' / ACCOUNTANT MEMBER PUNE; DATED : 7 TH MARCH, 2019. YAMINI #$%&'(' % / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT 2. / THE RESPONDENT 3. 4 5. 6. CIT(A) 7, PUNE. PR.CIT-6, PUNE. '#$ %%&',) &', *+ / DR, ITAT, SMC PUNE; $-.// GUARD FILE. / BY ORDER // TRUE COPY // 012%3&4 / SR. PRIVATE SECRETARY ) &', / ITAT, PUNE.