Megatherm Electronics Pvt. Ltd., Kolkata V. ACIT, RG-2, KOLKATA, Kolkata

ITA 1376/KOL/2015

• Counselvise Citation: [2018] 126 COUNSELVISE.COM (IT) 1908 (ITAT-KOLKATA)
• Duration Of Justice: 2 year(s) 1 month(s) 25 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 05-01-2018
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: B
• Assessment Year: 2008-2009
• Appeal Filed On: 10-11-2015
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: SOUMYAJIT DASGUPTA
• Assessee Lawyers: AMIT GANATRA
• Keywords: Business expenditure; Earning of tax free income; Additional evidence
• Section: 143(3); 14A; 6

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL D BENCH : KOLKATA [BEFORE HONBLE SHRI M.BALAGANESH, AM & SHRI S.S. VISWANETHRA RAVI, JM] I.T.A NO. 1376/KOL/20 15 ASSESSMENT YEAR : 2008-0 9 MEGATHERM ELECTRONICS PVT. LTD. -VS- ACI T, RANGE-2, KOLKATA [PAN: AACCM 0633 N] (APPELLANT) (RESPONDENT) FOR THE APPELLANT : SHRI AMIT GANATRA, CA FOR THE RESPONDENT : SHRI SOUMYAJIT DASGUPTA, ADDL.CIT. DATE OF HEARING : 26.12.2017 DATE OF PRONOUNCEMENT : 05.01.2018 ORDER PER M.BALAGANESH, AM 1. THIS APPEAL BY THE ASSESSEE ARISES OUT OF THE O RDER OF THE LEARNED COMMISSIONER OF INCOME TAX(APPEALS)-1, KOLKATA [IN SHORT THE LD CIT(A)] IN APPEAL NO.962/CIT(A)-1/C-2(1)/2014-15 DATED 28.08.2 015 AGAINST THE ORDER PASSED BY THE ACIT, CIRCLE-2, KOLKATA [ IN SHORT TH E LD AO] UNDER SECTION 143(3) OF THE INCOME TAX ACT, 1961 (IN SHORT THE ACT) D ATED 31.12.2010 FOR THE ASSESSMENT YEAR 2008-09. 2. THOUGH THE ASSESSEE HAS RAISED SEVERAL GROUNDS B EFORE US, WE FIND THAT THE ONLY EFFECTIVE GROUND TO BE DECIDED IN THIS APPEAL IS AS TO WHETHER THE LD. CIT(A) WAS JUSTIFIED IN UPHOLDING THE DISALLOWANCE MADE U/S 14 A OF THE ACT READ WITH RULE 2 ITA NO.1376/KOL/2015 MEGATHERM ELECTRONICS PVT. LTD. A.YR. 2008-09 2 8D OF THE RULES AFTER GIVING PARTIAL RELIEF TO THE ASSESSEE IN THE FACTS AND CIRCUMSTANCES OF THE CASE. 3. THE BRIEF FACTS OF THIS ISSUE IS THAT THE ASSESS EE IS ENGAGED IN THE BUSINESS OF MANUFACTURING AND EXPORT OF ELECTROTHERMIC AND ENTR OTHERMIC FURNACE, TRANSFORMERS AND ACCESSORIES. THE ASSESSEE COMPANY HAD FILED ITS RETURN OF INCOME FOR THE ASSESSMENT YEAR 2008-09 ON 24.10.200 8. THE LD. AO IN THE COURSE OF ASSESSMENT PROCEEDINGS PROCEEDED TO MAKE DISALLO WANCE U/S 14A OF THE ACT READ WITH RULE 8D OF THE RULES UNDER THE SECOND AND THIRD LIMB OF RULE 8D(2) AMOUNTING TO RS. 3,26,937/-. THE ASSESSEE RECEIVED DIVIDEND INCOME OF RS. 7,51,600/- AND CLAIMED THE SAME AS EXEMPT IN THE RE TURN OF INCOME. THIS DIVIDEND WAS RECEIVED FROM ITS SUBSIDIARY COMPANY M/S ENGEL MACHINE TOOLS LTD. (PRESENTLY KNOWN AS EMT MEGATHERM PVT. LTD.). THE A SSESSEE PAID A SUM OF RS. 1,05,66,696/- TOWARDS INTEREST WHICH WAS DEBITED IN THE PROFIT AND LOSS ACCOUNT. THE ASSESSEE HAD NOT DISALLOWED ANY SUM U/S 14A OF THE ACT IN THE RETURN OF INCOME. THE LD. AO MADE DISALLOWANCE U/S 14A BY APP LYING THE PROVISION OF RULE 8D OF THE RULES AMOUNTING TO RS. 3,26,937/-. T HE LD. CIT(A) OBSERVED THAT THE ASSESSEE IS ENTITLED FOR PARTIAL RELIEF IN THE FOLLOWING MANNER: (A) ONLY THE NET INTEREST I.E. INTEREST PAID MINUS INTEREST RECEIPT SHOULD BE CONSIDERED FOR THE PURPOSE OF WORKING OUT DISALLOWA NCE UNDER RULE 8D(2)(II) OF THE RULES. (B) ONLY DIVIDEND BEARING INVESTMENT SHOULD BE CONS IDERED FOR WORKING OUT THE DISALLOWANCES UNDER RULE 8D(2)(II) AND 8D(2)(III). 4. AGGRIEVED, THE ASSESSEE IS IN APPEAL BEFORE US ON THE FOLLOWING GROUNDS: 3 ITA NO.1376/KOL/2015 MEGATHERM ELECTRONICS PVT. LTD. A.YR. 2008-09 3 1.0 GROUND NO. 1 1.1 THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS)-1 [LD. CIT(APP EALS)] ERRED IN UPHOLDING THE ACTION OF THE LEARNED ADDITIONAL COMM ISSIONER OF INCOME TAX, RANGE-2, [LD. AO] IN DISALLOWING PROPORTIONATE BUSINESS EXPENDITURE AMOUNTING TO INR 326,937 BY APPLYING THE PROVISIONS OF SECTION 14A OF THE INCOME TAX ACT, 1961 (THE ACT) READ WITH RULE 8D OF THE INCOME TAX RULES, 1962 (THE RULES). 1.2 THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE ACTION OF THE LD. CIT(A) IS GROSSLY ERRONEOUS AND UNJUSTIFIED IN UPHOLDING THE DISALLOWANCE OF BUSINESS EXPENDITURE MADE BY LD. AO BY MECHANICALLY APPLYING SECTION 14A OF THE ACT READ WITH THE RULE 8 OF THE RULES WITHOUT RECORDING A FINDING THAT SUCH EXPENDITURE WAS INCUR RED FOR EARNING THE EXEMPT DIVIDEND INCOME. 1.3 THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE ACTION OF THE LD. CIT(A) IS GROSSLY ERRONEOUS AND UNJUSTIFIED IN UPHOLDING THE DISALLOWANCE OF BUSINESS EXPENDITURE MADE BY LD. AO WITHOUT APPRECIATING THE FACT THAT THE INVESTMENTS WERE MADE OUT OF OWNE D FUNDS AND NOT BORROWED FUNDS. 1.4 THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE ACTION OF THE LD. CIT(A) IS GROSSLY ERRONEOUS AND UNJUSTIFIED IN UPHOLDING THE DISALLOWANCE OF BUSINESS EXPENDITURE MADE BY LD. AO WITHOUT APPRECIATING THE FACT THAT THE INVESTMENTS HAVE BEEN MADE FOR ST RATEGIC PURPOSES AND NOT FOR EARNING EXEMPT INCOME. 2.0. GROUND NO. 2 2.1 WITHOUT PREJUDICE TO GROUND NO. 1, THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE ACTION OF THE LD. AO IN CALCUL ATING THE DISALLOWANCE UNDER RULE 8D(II) AND RULE 8D(III) OF THE RULES BY CONSID ERING THE VALUE OF THE NET CURRENT ASSETS INSTEAD OF TOTAL ASSETS IS GROSSLY U NJUSTIFIED AND ERRONEOUS IN LAW. THE APPELLANT CRAVES LEAVE TO ADD TO/ALTER/AMEND/SU BSTITUTE ANY OF THE ABOVE GROUNDS OF APPEAL, AT THE TIME, BEFORE OR AT THE TI ME OF HEARING OF THE APPEAL, SO AS TO ENABLE THE APPELLATE AUTHORITY TO DECIDE THE APPEAL ACCORDING TO LAW. 4 ITA NO.1376/KOL/2015 MEGATHERM ELECTRONICS PVT. LTD. A.YR. 2008-09 4 5. THE LD. AR AT THE TIME OF HEARING FILED A PETITI ON IN TERMS OF RULE 18(4) READ WITH RULE 29 OF THE ITAT RULES BY FILING AN ADDITIO NAL EVIDENCE WHEREIN HE SOUGHT TO PROVE THAT THE INVESTMENT IN SUBSIDIARY C OMPANY WAS MADE OUT OF OWN FUNDS. THE AR ALSO PRODUCED THE COPY OF THE BANK ST ATEMENT OF CASH CREDIT ACCOUNT TO PROVE THAT INVESTMENTS WERE MADE ONLY OU T OF OWN FUNDS. HE FURTHER ARGUED THAT THE INVESTMENT MADE ON 21.10.2005 AMOUN TING TO RS. 30,60,000/- THOUGH ON THE DATE OF MAKING INVESTMENT, THE ASSES SEE HAD UTILIZED THE BORROWED FUNDS WHICH IS EVIDENT FROM THE CASH CREDIT ACCOUNT , THE SAID BORROWINGS HAD BEEN DULY REPAID BY THE ASSESSEE WITHIN 14.11.2005 BY WA Y OF MAKING FREQUENT DEPOSIT OF OWN FUNDS OF THE ASSESSEE TO THE TUNE OF RS. 4,1 0,66,325/-. HE ARGUED THAT SINCE THE ENTIRE BORROWED FUNDS HAVE BEEN REPAID BY THE A SSESSEE WITHIN A SHORT SPAN OF TIME, THE RATIO LAID DOWN BY THE HONBLE CALCUTTA H IGH COURT IN THE CASE OF DHANUKA & SONS REPORTED IN 339 ITR 319 (CAL), WOULD COME TO THE RESCUE OF THE ASSESSEE. IN RESPECT OF OTHER INVESTMENT MADE IN SU BSIDIARY COMPANY ON 28.01.2005 AMOUNTING TO RS 25,50,000/-, HE ARGUED T HAT THE SAME WAS MADE ONLY OUT OF OWN FUNDS WHICH IS EVIDENT FROM THE BANK STA TEMENT OF CASH CREDIT ACCOUNT. IN VIEW OF THESE ARGUMENTS HE STATED THAT NO DISALL OWANCES NEED TO BE MADE ON ACCOUNT OF INTEREST UNDER RULE 8D(2)(II) OF THE RUL ES. WITH REGARD TO THE DISALLOWANCE MADE UNDER THIRD LIMB OF RULE 8D(2) HE ARGUED THAT THE LD. CIT(A) HAD RELIED ON THE DECISION OF THIS TRIBUNAL AND HAD DIRECTED TO CONSIDER ONLY DIVIDEND BEARING INVESTMENT FOR THE PURPOSE OF MAKI NG DISALLOWANCE UNDER RULE 8D(2) OF THE RULES. 6. WE HAVE HEARD THE RIVAL SUBMISSIONS. AT THE OUTS ET, WE FIND THAT THE ASSESSEE HAD FILED ADDITIONAL EVIDENCE BEFORE US POINTING OU T VARIOUS FACTUAL ASPECTS WITH 5 ITA NO.1376/KOL/2015 MEGATHERM ELECTRONICS PVT. LTD. A.YR. 2008-09 5 REGARD TO AVAILABILITY OF OWN FUNDS FOR MAKING INVE STMENTS. HOWEVER, WE FIND THAT THESE PAPERS WERE NOT FURNISHED BEFORE THE LD. AO. WE ALSO FIND THAT THESE PAPERS ARE CRUCIAL FOR ADJUDICATION OF THE ISSUE BE FORE US AND HENCE DEEM IT FIT TO ADMIT THESE ADDITIONAL EVIDENCES IN TERMS OF RULE 1 8(4) READ WITH RULE 29 OF THE ITAT RULES. HENCE, WE DIRECT THE LD. AO TO CONSIDER THESE ADDITIONAL EVIDENCES FILED BEFORE US AND REWORK THE DISALLOWANCES TO BE MADE U/S 14A OF THE ACT READ WITH RULE 8D OF THE RULES AFRESH IN ACCORDANCE WITH LAW. ACCORDINGLY, GROUNDS RAISED BY THE ASSESSEE ARE ALLOWED FOR STATISTICAL PURPOSES. 7. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS ALL OWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED IN THE COURT ON 05.01.2018 SD/- SD/- [S.S. VISWANETHRA RAVI] [ M.BAL AGANESH ] JUDICIAL MEMBER ACCOUNTANT MEM BER DATED : 05.01.2018 SB, SR. PS COPY OF THE ORDER FORWARDED TO: 1. MEGATHERM ELECTRONICS PVT. LTD., 123, SDF BUILDI NG, BLOCK-GP, SECTOR-V, SALT LAKE CITY, KOLKATA-700091. 2. ACIT, RANGE-2, KOLKATA, AAYAKAR BHAWAN, FLOOR, P -7, CHOWRINGHEE SQUARE, KOLKATA- 700069. 3..C.I.T.- 4. C.I.T.- KOLKATA. 5. CIT(DR), KOLKATA BENCHES, KOLKATA. TRUE COPY BY ORDER SENIOR PRIVAT E SECRETARY HEAD OF OFFICE/D.D.O., ITAT, KOLKATA BENCHE S 6 ITA NO.1376/KOL/2015 MEGATHERM ELECTRONICS PVT. LTD. A.YR. 2008-09 6