Appeal details
Counselvise Citation
135321114 RSA 2012
Assessee PAN
Bench
Appeal Number
Duration Of Justice
11 month(s) 15 day(s)
Appellant
Respondent
Appeal Type
Income Tax Appeal
Pronouncement Date
30-09-2013
Appeal Filed By
Department
Order Result
Allowed
Bench Allotted
C
Next Hearing Date
18-09-2013
Assessment Year
2009-2010
Appeal Filed On
15-10-2012
Judgement Text
IN THE INCOME TAX APPELLATE TRIBUNAL C BENCH : BANGALORE BEFORE SHRI N. BARATHVAJA SANKAR, VICE PRESIDENT AND SHRI N.V. VASUDEVAN, JUDICIAL MEMBER ITA NO.1353/BANG/2012 ASSESSMENT YEAR : 2009-10 THE ASSISTANT COMMISSIONER OF INCOME TAX, CIRCLE 11(1), BANGALORE. VS. M/S. AMALGAMATED BEAN COFFEE TRADING CO. LTD., NO.23/2, VITTAL MALLYA ROAD, OPP. UB CITY BUILDING, BANGALORE 560 001. PAN: AABCA 5291P APPELLANT RESPONDENT APPELLANT BY : SHRI A. SUNDARARAJAN, JT. CIT(DR) RESPONDENT BY : SHRI C. RAMESH, C.A. DATE OF HEARING : 18.09.2013 DATE OF PRONOUNCEMENT : 30.09.2013 O R D E R PER N.V. VASUDEVAN, JUDICIAL MEMBER THIS APPEAL BY THE REVENUE IS AGAINST THE ORDER DA TED 17.07.2012 OF THE CIT(APPEALS)-I, BANGALORE RELATING TO ASSESSMEN T YEAR 2009-10. ITA NO.1353/BANG/2012 PAGE 2 OF 10 2. THE REVISED GROUNDS OF APPEAL RAISED BY THE REVE NUE READS AS FOLLOWS:- 1. THE ORDER OF THE LEARNED CIT(A) IN SO FAR AS I T IS PREJUDICIAL TO THE REVENUE, IS OPPOSED TO LAW AND F ACTS AND CIRCUMSTANCES OF THE CASE. 2. THE LEARNED CIT(A) HAS ERRED IN ALLOWING RELIEF TO THE ASSESSEE ON THE ISSUE OF DISALLOWANCE U/S 14A R.W. RULE 8D WITHOUT CONSIDERING THE FACTS AND CIRCUMSTANCES OF THE CASE AND WITHOUT APPRECIATING THE PROVISIONS OF RULE 8D WHER E IN CLAUSE (II) OF SUB-RULE (2) IT IS CLEARLY LAID DOWN THAT I NTEREST EXPENSES INCURRED ON THE GENERAL POOL OF LOANS ARE TO BE PRO PORTIONATELY APPORTIONED TO EXEMPT INCOME AS PRESCRIBED. 3. THE LD. CIT(A) HAS ERRED IN HOLDING THAT INTERE ST EXPENSES OF RS 1,96,40,264/- ARE DIRECTLY ATTRIBUTABLE TO A PARTICULAR INCOME AND THEREFORE DO NOT QUALIFY TO BE APPORTIONED AS P RESCRIBED IN CLAUSE (II) OF SUB- RULE (2) OF RULE 8D, WITHOUT AP PRECIATING THAT THE INTEREST EXPENSES WERE INCURRED FOR GENERAL CAP ITAL REQUIREMENTS OF THE BUSINESS, NECESSITY OF WHICH AR OSE BECAUSE CERTAIN FUNDS OUT OF THE CAPITAL EITHER BORROWED OR SELF-GENERATED, WERE INVESTED TO EARN EXEMPT INCOME. 4. THE APPELLANT CRAVES LEAVE TO ADD, TO ALTER, TO AMEND OR TO DELETE ANY OF THE GROUNDS THAT MAY BE URGED AT THE TIME OF HEARING OF THE APPEAL. 3. THE ASSESSEE IS A COMPANY ENGAGED IN THE BUSINES S OF MANUFACTURING AND TRADING OF COFFEE AND ALLIED PROD UCTS. IN THE COURSE OF ASSESSMENT PROCEEDINGS, THE AO NOTICED THAT THE FOL LOWING INVESTMENTS HAVE BEEN MADE BY THE ASSESSEE AS ON 31.03.2008 AND 31.03.2009:- ITA NO.1353/BANG/2012 PAGE 3 OF 10 NAME OF PARTY 31.03.2009 31.03.2008 NSC INDRA VIKAS PATRA - 2,000 CLASSIC COFFEE CURING WORKS 2,52,02,305 2,52,02,305 AMALGAMATED HOLDINGS LTD. 2,29,41,330 2,29,41,330 GANGA COFFEE CURING WORKS LTD. 1,12,81,274 1,12,81,274 A.N. COFFEEDAY INTERNATIONAL LTD. 1,59,237 1,59,237 COFFEE DAY PROPERTIES INDIA (P) LTD. 1,00,000 - DEVADARSHINI INFO TECHNOLOGIES (P) LTD. (REFER NOTE BELOW) 17,50,00,000 17,50,00,000 SHARE APPLICATION MONEY PAID TO A.N. COFFEEDAY INTERNATIONAL LTD. 14,32,75,766 10,13,07,581 TOTAL 37,79,59,912 33,5893,727 4. THE AO WAS OF THE VIEW THAT THE ASSESSEE HAD UT ILIZED BORROWED FUNDS ON WHICH INTEREST WAS PAID AND CLAIMED AS EXP ENDITURE IN THE PROFIT & LOSS ACCOUNT WHILE COMPUTING INCOME FROM BUSINESS F OR MAKING THE INVESTMENTS. IN VIEW OF THE PROVISIONS OF SECTION 14A OF THE ACT, THE AO WAS OF THE VIEW THAT THE ABOVE INVESTMENTS WOULD YI ELD TAX FREE DIVIDEND INCOME AND THEREFORE EXPENSES INCURRED IN EARNING T HE TAX FREE DIVIDEND INCOME HAVE TO BE DISALLOWED. ACCORDINGLY, THE AO ISSUED SHOW CAUSE NOTICE TO THE ASSESSEE, TO WHICH THE ASSESSEE SUBMI TTED THAT IT HAD THE FOLLOWING SHARE CAPITAL AND RESERVES & SURPLUS AS P ER THE BALANCE SHEET AS ON 31.3.2009:- SHARE CAPITAL ISSUED 201,25,38,711 RESERVES & SURPLUS 181,16,07,538 SHARE HOLDERS FUND & RESERVES 382,41,46,309 5. THE ASSESSEE THUS SUBMITTED THAT IT WAS IN POSSE SSION OF INTEREST FREE FUNDS TO THE ABOVE EXTENT AND NO AMOUNT OF BOR ROWED CAPITAL CAN BE ITA NO.1353/BANG/2012 PAGE 4 OF 10 ATTRIBUTED FOR MAKING THE AFORESAID INVESTMENTS. T HE ASSESSEE ALSO SUBMITTED THAT THE FUNDS WHICH WERE BORROWED AND IN TEREST HAD BEEN PAID WERE USED FOR THE PURPOSE OF BUSINESS AND THEREFORE NO DISALLOWANCE OF INTEREST EXPENSES COULD BE MADE. THE AO HOWEVER HE LD THAT (A) IT WAS NOT NECESSARY TO INVOKE THE PROVISIONS O F SECTION 14A THAT THE ASSESSEE SHOULD HAVE EARNED DIVIDEND INCOME; (B) THE ASSESSEE HAS NOT ESTABLISHED WITH SATISFACT ORY EVIDENCE THAT THE BORROWED FUNDS ON WHICH INTEREST WAS PAID HAD BEEN USED ONLY FOR THE PURPOSE OF BUSINESS; (C) THE ASSESSEE FAILED TO EXPLAIN THE SOURCE OF F UNDS FOR MAKING THE INVESTMENTS AND MERELY STATING THAT THE ASSESSEE HA S INTEREST FREE FUNDS OF RS.382 CRORES WOULD NOT BE SUFFICIENT. 6. THE AO ACCORDINGLY MADE DISALLOWANCE U/S. 14A OF THE ACT AS FOLLOWS:- IN VIEW OF THE FOREGOING IT IS CLEAR THAT PROVISI ONS OF SEC. 14A ARE APPLICABLE TO THE ASSESSEES CASE AND ACCOR DINGLY THE DISALLOWANCE U/S. 14A IS WORKED OUT AS UNDER AS STI PULATED IN RULE 8D OF THE I.T. RULES 1962. DISALLOWANCE U/S. 14A (I) NIL (II) TOTAL INT. PAID AS PER P & L A/C RS.42,32, 06,346/- (A) ITA NO.1353/BANG/2012 PAGE 5 OF 10 AS APPEARING ON THE FIRST DAY OF THE PREVIOUS YEAR IN THE B/S (A.Y. 2008-09) AS APPEARING ON THE FIRST DAY OF THE PREVIOUS YEAR IN THE B/S (A.Y. 2009-10) AVERAGE (RS.) INVESTMENT 33,58,93,727 37,79,59,912 35,69,26,819 (B) ASSETS 695,79,25,053 842,41,18,487 769,10,21,770 (C) AXB = C (III) DISALLOWANCE OF EXPENDITURE 0.5% OF AVERAGE INVESTMENT AVERAGE INVESTMENT = AS IN (B) ABOVE 0.5% OF RS.35,69,26,819 TOTAL DISALLOWANCES (I+II+III) RS.1,96,40,264 RS. 17,84,634 RS.2,14,24,898 7. AGGRIEVED BY THE ORDER OF THE AO, THE ASSESSEE P REFERRED APPEAL BEFORE THE CIT(APPEALS). THE CIT(A) CONFIRMED THE ORDER OF THE AO WITH REGARD TO DISALLOWANCE OF OVERHEAD AND ADMINISTRATI VE EXPENSES UNDER RULE 8D(2)(III) OF THE ACT. WITH REGARD TO RULE 8D (2)(II) OF THE ACT, THE CIT(A) HELD AS FOLLOWS:- 3.14 THE SUBMISSIONS OF THE APPELLANT HAVE BEEN C ONSIDERED WITH REFERENCE TO THE DETAILS AVAILABLE ON RECORD A ND IT IS SUFFICIENTLY PROVED THAT BORROWALS ARE FOR THE BUSI NESS PURPOSE AND THEY HAD SUFFICIENT SURPLUS FUNDS FOR MAKING IN VESTMENTS. THE GROSS INVESTMENT AS ON 31/3/2009 IS RS.37,79,59 ,912/-. THE SHARE CAPITAL OF THE COMPANY AND THE RESERVES AND S URPLUS ARE AS UNDER AS ON 31/3/2009: SHARE CAPITAL RS.201,25,38,711 RESERVES & SURPLUS RS.181,67,07,538 TOTAL RS.382,41,46,309 ITA NO.1353/BANG/2012 PAGE 6 OF 10 THE APPELLANT HAS GOT RS.382.41 CRORES AS INTEREST- FREE FUNDS WHEREAS THE INVESTMENTS ARE ONLY RS.37.79 CRORES (N ET INVESTMENTS ARE SHOWN AS 22.32 CRORES AFTER PROVIDI NG FOR DIMINUTION IN THE VALUE OF INVESTMENTS). THEREFORE, IT CAN BE SAFELY STATED THAT THE APPELLANT HAD SUFFICIENT SUR PLUS FUNDS FOR MAKING INVESTMENTS AS THERE IS NO MATERIAL ON RECOR D PROVING THE NEXUS BETWEEN THE BORROWED FUNDS AND INVESTMENTS. I N VIEW OF THIS, THE AOS OBSERVATION THAT THE APPELLANT FAILE D TO PROVE THAT INTEREST-FREE FUNDS WERE UTILIZED FOR SUCH INVESTME NTS IS NOT JUSTIFIABLE. HENCE THE DISALLOWANCE OF RS.1,96,40,2 64/- UNDER RULE 8D(2)(II) OF THE I.T. RULES IS NOT SUSTAINABLE AND ACCORDINGLY DELETED. 3.15 . 3.16 IN VIEW OF THE DETAILED DISCUSSION ABOVE, THE DISALLOWANCE U/S. 14A OF THE ACT IS RESTRICTED TO THE EXTENT OF RS.17,84,634/- UNDER RULE 8D(2)(II) OF THE I.T. RULES AS AGAINST R S.2,14,24,898/- QUANTIFIED BY THE AO IN THE ORDER SUBJECT TO THE ADJUSTMENTS ORDERED IN THE FOLLOWING PARAGRAPHS . 8. AGGRIEVED BY THE ORDER OF THE CIT(APPEALS), THE REVENUE HAS PREFERRED THE PRESENT APPEAL BEFORE THE TRIBUNAL. 9. WE HAVE HEARD THE SUBMISSIONS OF THE LD. DR AND THE LD. COUNSEL FOR THE ASSESSEE. THE LD. DR SUBMITTED THAT THE CIT(A) HAS DELETED THE ADDITION MADE BY THE AO UNDER RULE 8D(2)(II) OF THE RULES WITHOUT ANY BASIS FOR COMING TO THE CONCLUSION THAT SURPLUS FUN DS HAD BEEN UTILIZED FOR MAKING INVESTMENTS. IT WAS FURTHER SUBMITTED THAT THE CIT(A) HAD CAST THE BURDEN OF PROVING NEXUS BETWEEN THE BORROWED FUNDS AND EXEMPT INVESTMENTS ON THE REVENUE, WHEREAS IT IS FOR THE A SSESSEE TO SHOW THAT BORROWED FUNDS ON WHICH INTEREST WAS PAID HAD NOT B EEN USED FOR MAKING INVESTMENTS WHICH WOULD YIELD TAX FREE INCOME. IT WAS SUBMITTED BY HIM ITA NO.1353/BANG/2012 PAGE 7 OF 10 THAT THE MATTER MAY BE REMANDED TO THE AO AND THE A SSESSEE SHOULD BE ASKED TO CORRELATE THE AVAILABILITY OF SURPLUS FUND S ON THE DATE ON WHICH INVESTMENTS WERE MADE. IT WAS ALSO SUBMITTED BY HI M THAT THERE WAS NOTHING ON RECORD BROUGHT BY THE ASSESSEE TO SHOW T HAT BORROWED FUNDS WERE USED ONLY FOR SPECIFIC PURPOSES FOR WHICH BORR OWINGS WERE MADE AND HAD NOT BEEN UTILIZED FOR MAKING INVESTMENTS, WHICH ARE LIKELY TO YIELD TAX FREE INCOME. THE LD. COUNSEL FOR THE ASSESSEE REIT ERATED THE SUBMISSIONS AS WERE MADE BEFORE THE CIT(A). 10. WE HAVE HEARD THE RIVAL SUBMISSIONS. PERUSAL O F THE ORDER OF THE AO AS WELL AS THE CIT(A) SHOWS THAT NONE OF THEM HA VE GIVEN ANY SPECIFIC FINDINGS WITH REGARD TO THE SOURCE OF FUNDS FROM WH ICH INVESTMENTS WHICH ARE LIKELY TO YIELD TAX FREE INCOME WERE MADE. WE HAVE ALSO SEEN THE DETAILS OF SECURED AND UNSECURED LOANS AS ON 31.3.2 009 WHICH ARE AS FOLLOWS:- 31.3.2008 31.3.2009 SECURED LOANS SHORT TERM CAPITAL FROM BANKS BANK OVERDRAFTS KARNATAKA BANK LTD. AXIS BANK LTD. 5,02,04,374 2,02,27,744 4,75,56,156 1,02,40,929 BILLS PURCHASED KARNATAKA BANK LTD. ORIENTAL BANK OF COMMERCE 1,32,43,790 7,34,03,648 19,28,75,732 8,70,52,825 PACKING CREDIT LOAN ACCOUNT KARNATAKA BANK LTD. ORIENTAL BANK OF COMMERCE 16,14,83,694 29,28,80,000 16,00,01,702 28,29,00,000 ITA NO.1353/BANG/2012 PAGE 8 OF 10 TERM LOANS FROM BANKS CANARA BANK INDIAN OVERSEAS BANK AXIS BANK LTD. PUNJAB NATIONAL BANK UNION BANK OF INDIA HSBC DEUTSCHE BANK FROM OTHERS DEUTSCHE BANK INTERNATIONAL FINANCE CORPN LTD. VEHICLE LOAN FROM BANKS 100,81,60,114 40,42,86,648 21,97,63,651 20,20,52,536 4,88,87,928 2,50,00,000 NIL 27,82,22,700 50,54,00,000 7,31,25,267 48,86,158 NIL NIL 27,96,42,923 NIL 11,43,98,906 NIL 40,00,00,000 30,10,95,390 40,13,00,000 8,45,00,000 82,28,904 TOTAL (A) 338,12,28,252 236,97,93,467 UNSECURED LOANS FIXED DEPOSITS FROM PUBLIC COMPULSORY CONVERTIBLE DEBENTURES FROM DAMF II SHORT TERM LOAN FROM A FINANCIAL INSTITUTION 10,26,55,000 56,78,34,400 50,00,00,000 9,40,59,719 56,78,34,400 NIL OTHER LOANS AND ADVANCES FROM BANKS FROM OTHERS 3,69,11,131 1,13,43,395 1,89,03,648 1,62,65,58,375 TOTAL (B) 121,87,43,926 69,70,56,133 TOTAL LOAN LIABILITY (A+B) 459,99,72,178 11. FROM A PERUSAL OF THE VARIOUS LOANS DETAILED AB OVE, IT APPEARS THAT LOANS WERE FOR SPECIFIC PURPOSE AND WERE NOT CAPABL E FOR BEING USED FOR MAKING INVESTMENTS. WE, HOWEVER, FIND THAT NONE OF THE AUTHORITIES HAVE GONE INTO ANY OF THESE ASPECTS WHICH ARE NECESSARY FOR INVOKING THE ITA NO.1353/BANG/2012 PAGE 9 OF 10 PROVISIONS OF SECTION 14A OF THE ACT. IN OUR VIEW, THE ISSUE REQUIRES TO BE CONSIDERED AFRESH BY THE AO. 12. THE ASSESSEE HAS TO:- (I) ESTABLISH THAT THE INVESTMENTS MADE BY IT WHICH ARE LIKELY TO YIELD TAX FREE INCOME WERE MADE OUT OF OWN FUNDS; OR IN THE ALTERNATIVE; (II) ESTABLISH THAT AS ON THAT DATE WHEN THE INVEST MENTS WERE SO MADE, THERE WERE SURPLUS FUNDS AVAILABLE; OR THIRDLY, (III) ESTABLISH THAT THE BORROWED FUNDS ON WHICH IN TEREST WAS PAID WERE USED ONLY FOR THE PURPOSE FOR WHICH THE FUNDS WERE BORROWED AND FOR NO OTHER PURPOSES. 13. WITH THESE OBSERVATIONS, THE ORDER OF THE CIT(A PPEALS) IS SET ASIDE AND THE MATTER IS REMANDED TO THE ASSESSING OFFICER FOR FRESH CONSIDERATION. THE AO WILL AFFORD REASONABLE OPPORT UNITY OF BEING HEARD TO THE ASSESSEE FOR DECIDING THIS ISSUE. 14. FOR STATISTICAL PURPOSES, THE APPEAL OF THE REV ENUE IS TREATED AS ALLOWED. PRONOUNCED IN THE OPEN COURT ON THIS 30 TH DAY OF SEPTEMBER, 2013. SD/- SD/- ( N. BARATHVAJA SANKAR ) ( N.V. VASU DEVAN ) VICE PRESIDENT JUDIC IAL MEMBER BANGALORE, DATED, THE 30 TH SEPTEMBER, 2013. /D S/ ITA NO.1353/BANG/2012 PAGE 10 OF 10 COPY TO: 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(A) 5. DR, ITAT, BANGALORE. 6. GUARD FILE BY ORDER ASSISTANT REGISTRAR, ITAT, BANGALORE.
