Deputy Commissioner of Income tax, Bangalore V. M/sDovetail Furniture P Ltd, Bangalore

ITA 1366/BANG/2014

• Counselvise Citation: [2015] 121 COUNSELVISE.COM (IT) 1530 (ITAT-BANGALORE)
• Duration Of Justice: 1 year(s) 3 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 10-11-2015
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: C
• Next Hearing Date: 29-10-2015
• Assessment Year: 2009-2010
• Appeal Filed On: 07-11-2014
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: SUNIL KUMAR AGARWALA JT
• Section: 14A

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL C BENCH : BANGALORE BEFORE SHRI ABRAHAM P. GEORGE, ACCOUNTANT MEMBER AND SHRI VIJAY PAL RAO, JUDICIAL MEMBER ITA NO. 1366/BANG/2014 ASSESSMENT YEAR : 2009-10 THE DEPUTY COMMISSIONER OF INCOME TAX, CIRCLE 11(1), BANGALORE. VS. M/S. DOVETAIL FURNITURE PVT. LTD., 240/B, BOMMASANDRA INDUSTRIAL ESTATE, HOSUR ROAD, ANEKAL TALUK, BANGALORE 560 099. PAN: AAACD 5139N APPELLANT RESPONDENT APPELLANT BY : SHRI SUNIL KUMAR AGARWALA, JT. CIT(DR) RESPONDENT BY : SMT. PRATIBHA R., ADVOCATE DATE OF HEARING : 29.10.2015 DATE OF PRONOUNCEMENT : 10.11.2015 O R D E R PER VIJAY PAL RAO, JUDICIAL MEMBER THIS APPEAL BY THE REVENUE IS DIRECTED AGAINST TH E ORDER DATED 21.07.2014 OF THE CIT(APPEALS)-I, BANGALORE FOR THE ASSESSMENT YEAR 2009-10. 2. THE REVENUE HAS RAISED VARIOUS GROUNDS, HOWEVER, THE ONLY ISSUE THAT ARISES FOR OUR CONSIDERATION AND ADJUDICATION IS, WHETHER IN THE FACTS ITA NO.1366/BANG/2014 PAGE 2 OF 6 AND CIRCUMSTANCES OF THE CASE, THE CIT(APPEALS) HAS ERRED IN DELETING THE DISALLOWANCE OF RS.21,42,428 U/S. 14A OF THE ACT R. W. RULE 8D(2)(II) ON ACCOUNT OF INTEREST EXPENSES. 3. DURING THE YEAR UNDER CONSIDERATION, THE ASSESSE E RECEIVED A SUM OF RS.14,56,149 AS INCOME FROM MUTUAL FUND AND SAME IS CLAIMED AS EXEMPT. 4. THE AO NOTED THAT AS ON 31.3.2008, THE INVESTMEN T APPEARS IN THE BALANCE SHEET FOR RS.4,18,40,916. FURTHER, A SUM O F RS.43,49,901 WAS DEBITED TOWARDS INTEREST PAID TO THE BANK. ACCORDI NGLY, THE AO DISALLOWED RS.21,42,428 ON ACCOUNT OF INTEREST EXPENDITURE BY INVOKING THE PROVISIONS OF SECTION 14A R.W. RULE 8D APART FROM DISALLOWANCE ON ACCOUNT OF GENERAL ADMINISTRATIVE EXPENSES AS PER RULE 8D(2)(III) BEIN G 0.5% OF THE AVERAGE VALUE OF INVESTMENT AMOUNTING TO RS.1,53,470. 5. THE ASSESSEE CHALLENGED THE ACTION OF THE ASSESS ING OFFICER BEFORE THE CIT(APPEALS) AND PLEADED THAT THE ASSESSEE HAS NOT USED ANY INTEREST BEARING BORROWED FUND FOR THE PURPOSE OF INVESTMENT IN MUTUAL FUNDS. THE CIT(A) AFTER CONSIDERING THE CONTENTIONS AS WELL AS THE RECORD SHOWING THE AVAILABILITY OF THE ASSESSEES NON-INTEREST BEARING FUND FOR THE PURPOSE OF INVESTMENT, DELETED THE DISALLOWANCE MADE BY THE AO ON ACCOUNT OF INTEREST EXPENDITURE U/S. 14A. HOWEVER, THE CIT(A) HAS CONFIRMED THE DISALLOWANCE MADE BY THE AO U/S. 14A ON ACCOUNT OF GENERAL ADMINISTRATIVE EXPENSES. ITA NO.1366/BANG/2014 PAGE 3 OF 6 6. THE REVENUE HAS CHALLENGED THE IMPUGNED ORDER OF THE CIT(APPEALS). THUS, THE ISSUE BEFORE US IS ONLY WI TH REGARD TO DISALLOWANCE MADE BY THE AO ON ACCOUNT OF INTEREST EXPENDITURE A S THE DISALLOWANCE MADE BY THE AO ON ACCOUNT OF ADMINISTRATIVE EXPENSE S HAS BEEN CONFIRMED BY THE CIT(APPEALS) AND THE ASSESSEE HAS NOT FILED ANY APPEAL. 7. THE LD. DR HAS SUBMITTED THAT THE CIT(APPEALS) W HILE DELETING THE ADDITION HAS GIVEN MUCH EMPHASIS ON THE FACT THAT D URING THE YEAR UNDER CONSIDERATION, THERE WAS A REDUCTION IN THE INVESTM ENT WHICH IS NOT RELEVANT WHEN THE INITIAL INVESTMENT WAS MADE BY THE ASSESSE E BY USING THE BORROWED FUND. HE HAS FURTHER SUBMITTED THAT THE A SSESSEE HAS FAILED TO ESTABLISH A DIRECT NEXUS BETWEEN THE ASSESSEES OWN NON-INTEREST BEARING FUND AND THE INVESTMENT IN QUESTION. HE HAS RELIED UPON THE ORDER OF THE AO. 8. ON THE OTHER HAND, THE LD. AR OF THE ASSESSEE HA S SUBMITTED THAT APART FROM THE REDUCTION IN THE INVESTMENT DURING T HE YEAR UNDER CONSIDERATION, THE ASSESSEE HAS ALSO RECEIVED SUBST ANTIAL AMOUNT OF RS.3,68,02,829 FROM ERASMIC VENTURES FUND LTD., A F OREIGN ENTITY ON ACCOUNT OF ALLOTMENT OF SHARES OF THE ASSESSEE. SI NCE THE ALLOTMENT OF SHARES WERE PENDING APPROVAL OF THE HONBLE HIGH CO URT, THEREFORE THIS AMOUNT WAS INVESTED BY THE ASSESSEE IN THE MUTUAL F UND AND THEREFORE ASSESSEE WAS HAVING MORE THAN SUFFICIENT FUND FOR M AKING INVESTMENT IN THE MUTUAL FUNDS IN QUESTION. THE LD. AR HAS REFER RED TO THE BANK ITA NO.1366/BANG/2014 PAGE 4 OF 6 STATEMENT OF THE ASSESSEE AND SUBMITTED THAT AS ON 20.08.2007, THE ASSESSEE RECEIVED THE SAID AMOUNT OF RS.3,68,02,829 , WHEREAS THE INVESTMENT WAS MADE SUBSEQUENT TO THE AMOUNT RECEIV ED. SHE HAS ALSO REFERRED TO THE LEDGER ACCOUNT SHOWING THE RECEIPT OF THE SAID AMOUNT AS WELL AS THE INVESTMENT MADE IN THE MUTUAL FUND. TH EREFORE, THERE IS A DIRECT CONNECTION BETWEEN THE INFLOW AND OUTFLOW TO THE FU ND. 9. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AS WELL AS RELEVANT MATERIAL ON RECORD. THE CIT(APPEALS) HAS DELETED T HE ADDITION BY TAKING INTO ACCOUNT THE FACT THAT DURING THE YEAR UNDER CO NSIDERATION, THE ASSESSEE HAS RAISED A LOAN FROM RS.1,46,94,595 TO RS.3,64,33 ,037, WHEREAS AT THE SAME TIME INVESTMENT WAS REDUCED FROM RS.4,18,40,91 6 TO RS.1,95,47,065. THUS, IT WAS OBSERVED BY THE CIT(A ) THAT THERE IS A SUBSTANTIAL REDUCTION IN THE INVESTMENT AND THEREFO RE THERE WAS NO FRESH INVESTMENT BY THE ASSESSEE BY USING THE BORROWED FU ND. 10. WE FURTHER NOTE THAT THE ASSESSEE HAS EXPLAINED THE AVAILABILITY OF NON-INTEREST BEARING FUND BEFORE THE CIT(APPEALS), WHICH HAS BEEN REPRODUCED IN PARA 4 OF THE IMPUGNED ORDER OF THE C IT(A), WHEREIN THE ASSESSEE HAS CLEARLY BROUGHT ON RECORD THAT THE ASS ESSEE DID NOT USE ANY BORROWED FUND FOR MAKING INVESTMENT IN QUESTION. T HE MONEY CAME FROM ABROAD SPECIFICALLY FOR THE PURPOSE OF ALLOTMENT OF SHARE. SINCE THE ISSUE OF MERGER OF THE ASSESSEE COMPANY WITH M/S. STUDIOLINE INTERIOR SYSTEMS PVT. LTD. WAS PENDING ADJUDICATION BEFORE THE HONBLE HI GH COURT, THE MONEY ITA NO.1366/BANG/2014 PAGE 5 OF 6 RECEIVED FROM ABROAD WAS AVAILABLE WITH THE ASSESSE E TILL THE MERGER HAD COME INTO FORCE. WE FIND THAT A SUM OF MORE THAN RS.3 CRORES HAS BEEN RECEIVED BY THE ASSESSEE ON 20.08.2007 AND THEREFOR E THE SAID MONEY WAS VERY MUCH AVAILABLE WITH THE ASSESSEE. KEEPING IN VIEW THE AVAILABILITY OF THE FUND WITH THE ASSESSEE WHICH IS NOT INTEREST BE ARING FUND, THE QUESTION OF DISALLOWANCE U/S. 14A ON ACCOUNT OF INTEREST EXP ENDITURE DOES NOT ARISE. IN VIEW OF THE ABOVE FACTS AND CIRCUMSTANCES OF THE CASE, WE DO NOT FIND ANY REASON TO INTERFERE WITH THE IMPUGNED ORDER OF THE CIT(APPEALS) IN DELETING THE DISALLOWANCE MADE BY THE AO U/S. 14A O N ACCOUNT OF INTEREST EXPENDITURE. 11. IN THE RESULT, THE APPEAL OF THE REVENUE IS DIS MISSED. PRONOUNCED IN THE OPEN COURT ON THIS 10 TH DAY OF NOVEMBER, 2015. SD/- SD/- ( ABRAHAM P. GEORGE ) (VIJAY PAL RAO ) ACCOUNTANT MEMBER JUDICIAL M EMBER BANGALORE, DATED, THE 10 TH NOVEMBER, 2015. /D S/ ITA NO.1366/BANG/2014 PAGE 6 OF 6 COPY TO: 1. APPELLANT 2. RESPONDENTS 3. CIT 4. CIT(A) 5. DR, ITAT, BANGALORE. 6. GUARD FILE BY ORDER ASSISTANT REGISTRAR, ITAT, BANGALORE.