Bhole Baba Milk Food Industries Ltd., Agra V. D.C.I.T., Circle -4(1), Agra

ITA 142/AGR/2011

• Counselvise Citation: 14220314 RSA 2011
• Duration Of Justice: 1 year(s) 1 month(s) 10 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 22-06-2012
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: DB
• Next Hearing Date: 21-06-2012
• Assessment Year: 2007-2008
• Appeal Filed On: 12-05-2011
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: E PASS ROAD AGRA PAN AAACP F
• Assessee Lawyers: SHI R M SINGHAL S RESPO
• Keywords: Rule 8D
• Section: 14A; 10

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL AGRA BENCH, AGRA BEFORE SHRI BHAVNESH SAINI, JUDICIAL MEMBER AND SHRI A.L. GEHLOT, ACCOUNTANT MEMBER ITA NO.142/AGR/2011 ASSESSMENT YEAR: 2007-08 BHOLE BABA MILK FOOD INDUSTRIES LTD., VS. DY. COMMISSIONER OF INCOME TAX, 7/52D, NAGLA JAWAHAR CIRCLE 4(1), AGRA. BYE PASS ROAD, AGRA. (PAN: AAACP 3948 F) (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI RAJENDRA SHARMA & SHI R.M. SINGHAL, ADVOCATES RESPONDENT BY : SHRI WASEEM ARSHAD, SR. D.R. DATE OF HEARING : 18.06.2012 DATE OF PRONOUNCEMENT OF ORDER : 22.06.2012 ORDER PER A.L. GEHLOT, ACCOUNTANT MEMBER: THIS IS AN APPEAL FILED BY THE ASSESSEE AGAINST THE ORDER DATED 21.03.2011 PASSED BY THE LD. CIT(A)-II, AGRA FOR THE ASSESSMEN T YEAR 2007-08. 2. THE ASSESSEE HAS RAISED EFFECTIVELY TWO GROUNDS OF APPEAL. FIRST ONE IS RELATED TO DISALLOWANCE OF RS.21,94,877/- BY INVOKI NG PROVISIONS OF SECTION 14A OF ITA NO.142/AGR/2011 A.Y. 2007-08 . 2 THE INCOME TAX ACT, 1961 (THE ACT HEREINAFTER) AN D THE SECOND ONE IS SUSTAINING OF FOLLOWING ADHOC DISALLOWANCE BY THE CIT(A) :- (I) POWER & FUEL RS.1,00,000/- (II) MANUFACTURING EXPENSES RS.1,00,000/- (III) SELLING EXPENSES RS.1,00,000/- 3. THE BRIEF FACTS OF THE FIRST GROUND ARE THAT THE ASSESSEE IS A PRIVATE LIMITED COMPANY ENGAGED IN THE BUSINESS OF MANUFACTURING AN D SALE OF DESI GHEE, MILK POWDER AND OTHER MILK PRODUCTS. DURING THE ASSESSM ENT PROCEEDINGS, THE ASSESSING OFFICER NOTICED THAT THE ASSESSEE COMPANY MADE INVESTMENT OF RS.13 CRORE FOR PURCHASE OF SHARES OF ONE OF ITS SISTER C ONCERN M/S. BHOLEY BABA DAIRY INDUSTRIES LIMITED, ALIGARH. THE ASSESSING OFFICER ASKED THE ASSESSEE WHY THE PROVISIONS OF SECTION 14A SHOULD NOT BE APPLIED AS THE DIVIDEND INCOME IS EXEMPT UNDER SECTION 10(34) OF THE ACT. THE ASSESSING OFF ICER DISALLOWED RS.21,94,877/- UNDER SECTION 14A APPLYING PROVISIONS OF RULE 8D OF THE I.T. RULES. THE CIT(A) DISMISSED THE GROUND OF THE ASSESSEE AS UNDER :- (C IT(A) PARAGRAPH NO.2.2) I HAVE ANALYSED THE MATTER AND FIND THAT IN VIEW O F THE JUDGEMENT OF GODREJ & BOYCE MFG. CO. LTD. VS. DCIT 328 ITR (BOM) RULE 8D SHALL APPLY FROM ASSESSMENT YEAR 2008-09. THEREFORE, I HOLD THAT THE ASSESSING OFFICER WAS NOT RIGHT IN APPLYIN G THE PROVISIONS OF RULE 8D FOR DISALLOWANCE U/S 14A FOR THE YEAR UNDER CONSIDERATION. BUT, THAT DOES NOT MEAN THAT NO DISALLOWANCE IS CAL LED U/S 14A IN THE ITA NO.142/AGR/2011 A.Y. 2007-08 . 3 APPELLANTS CASE. IT IS TO BE NOTED THAT THE ASSES SEE HAS INVESTED A SUM OF RS.13 CRORES FOR PURCHASING SHARES OF M/S BHOLEY BABA DAIRY INDS. LTD., ALIGARH. THE ASSESSEE HAS DEBITED SUM OF RS. 3,30,48,331/- UNDER THE HEAD BANK INTEREST, IN THE IMMEDIATELY PRECEDIN G YEAR THE EXPENSES DEBITED WERE OF RS.15228996/- ONLY. THUS, THERE IS STEEP INCREASE IN THE EXPENSES CLAIMED UNDER THE HEAD BAN K INTEREST. THEREFORE, IT CAN BE SAFELY PRESUMED THAT THE BORRO WING OF FUNDS HAS BEEN RESORTED TO BY THE ASSESSEE MAINLY FOR PURCHAS E OF SHARES OF M/S BHOLEY BABA DAIRY INDS. LTD. ALIGARH. THEREFORE, I HOLD THAT THE PROVISIONS OF SEC. 14A ARE CLEARLY APPLICABLE IN TH E APPELLANTS CASE. AS ALREADY STATED THOUGH RULE 8D CANNOT BE APPLIED FOR THE YEAR UNDER CONSIDERATION, BUT, FOR THE AFORESAID REASONS THE D ISALLOWANCE MADE BY THE ASSESSING OFFICER IS CONFIRMED. GROUND IS D ISMISSED. 4. THE LD. AUTHORISED REPRESENTATIVE REITERATED THE SUBMISSIONS WHICH WERE MADE BEFORE THE CIT(A) AND SUBMITTED THAT THE ASSES SEE COMPANY HOLDS SHARES OF VARIOUS COMPANIES. THE SHARES OF M/S BHOLEY BABA D AIRY INDUSTRIES LTD. ARE HELD WITH PRIMARY INTENTION OF ACQUIRING AND RETAINING C ONTROLLING STAKE THEREIN AS THE PRIMARY AND GUIDING MOTIVE OF THE ASSESSEE IN MAKIN G INVESTMENT IN THE SAID SHARES AND HOLDING THEM IS TO RETAIN CONTROLLING INTEREST IN THE SAID COMPANIES. LD. AUTHORISED REPRESENTATIVE SUBMITTED THAT THE INVEST MENTS MADE IN THE SHARES WERE FOR THE PURPOSE OF BUSINESS AND ACCORDINGLY THE EXP ENSES INCLUDED THE INTEREST IS ALLOWABLE UNDER SECTION 36(III) OF THE ACT. THE AL TERNATE CONTENTION OF THE ASSESSEE WAS THAT THE ASSESSEE WAS HAVING SUFFICIENT OWN FUN D OF RS.67,04,74,095/- OUT OF WHICH THE INVESTMENT OF RS.13 CRORES WAS MADE. THE LD. AUTHORISED REPRESENTATIVE DREW OUT ATTENTION ON A CHART WHICH HAS BEEN PLACED AT PAGE NO.1 OF ASSESSEES PAPER BOOK. LD. AUTHORISED REPRESENTATI VE IN SUPPORT OF HIS CONTENTION ITA NO.142/AGR/2011 A.Y. 2007-08 . 4 RELIED UPON VARIOUS DECISIONS INCLUDING THE ORDER O F I.T.A.T., AGRA BENCH IN THE CASE OF M/S LALA RAM FINANCE & INVESTMENT CO. PVT. LTD. VS. DCIT IN ITA NO.260 & 261/AGR/2011 ORDER DATED 08.06.2012. 5. THE LD. DEPARTMENTAL REPRESENTATIVE, ON THE OTHE R HAND, RELIED UPON THE ORDER OF CIT(A) AND SUBMITTED THAT THE OWN CAPITAL WHICH WAS AVAILABLE WITH THE ASSESSEE HAS ALREADY BEEN INVESTED IN THE BUSINESS. THEREFORE, THE DISALLOWANCE SUSTAINED BY THE CIT(A) MAY BE CONFIRMED. 6. WE HAVE HEARD THE LD. REPRESENTATIVES OF THE PAR TIES AND RECORDS PERUSED. WE FIND THAT THE ASSESSEE WAS HAVING OWN CAPITAL RE SERVES AND SURPLUS OF RS.64,24,17,895/-. THE CLAIM OF THE LD. AUTHORISED REPRESENTATIVE WAS THAT THE DEFERRED TAX LIABILITY OF RS.2,80,56,200/- IS ALSO ASSESSEES OWN CAPITAL OR INTEREST FREE FUND IS NOT ACCEPTABLE AS THIS LIABILITY PERTA INS TO THE BUSINESS. THE NET AVAILABLE OWN CAPITAL AVAILABLE WITH THE ASSESSEE A S ON 31.03.2007 WAS RS.64,24,17,895/- AGAINST INVESTMENT IN SHARES OF R S.13 CRORES. THE I.T.A.T., AGRA BENCH IN THE CASE OF M/S LALA RAM FINANCE & IN VESTMENT CO. PVT. LTD. VS. DCIT IN ITA NO.260 & 261/AGR/2011 ORDER DATED 08.06 .2012 HAS HELD AS UNDER :- ITA NO.142/AGR/2011 A.Y. 2007-08 . 5 8. WE HAVE HEARD THE LD. REPRESENTATIVES OF THE PA RTIES AND RECORDS PERUSED. WE FIND THAT THE CASE OF ASSESSIN G OFFICER IS DISALLOWANCE OF INTEREST. THE INTEREST EXPENSES IS ALLOWABLE UNDER SECTION 36(1)(III) OF THE ACT. SUCH DISALLOWANCE C ANNOT BE MADE IN CASE WHERE THE ASSESSEE IS HAVING SUFFICIENT INTERE ST FREE FUNDS AS HELD BY THE I.T.A.T., AGRA BENCH IN THE CASE CITED ABOVE . THIS VIEW IS ALSO FORTIFIED BY THE JUDGEMENT OF HONBLE HIGH COURT OF BOMBAY IN THE CASE OF CIT VS. RELIANCE UTILITY AND POER LIMITED, 313 ITR 340 (BOMBAY). IN THE CASE UNDER CONSIDERATION IT IS AD MITTED FACT THAT THE ASSESSEE WAS HAVING SUFFICIENT INTEREST FREE FUNDS TO COVER THE INVESTMENT MADE IN SHARES OF WHICH INCOME IS EXEMPT UNDER SECTION 10 OF THE ACT. IN CASE OF CIT VS. HERO CYCLES LIMI TED, 323 ITR 518 (P&H) WHEREIN IT HAS BEEN HELD THAT DISALLOWANCE UN DER SECTION 14A IS NOT PERMISSIBLE WHERE NO NEXUS BETWEEN THE EXPEN DITURE INCURRED AND INCOME GENERATED HAS BEEN ESTABLISHED. HONBL E HIGH COURT OF BOMBAY IN THE CASE OF INCOME TAX APPEAL NO.1260 OF 2009 IN CASE OF CIT VS. K. RAHEJA CORPORATION P. LTD. JUDGEMENT DAT ED 08.08.2011 WHILE CONFIRMING THE ORDER OF I.T.A.T. HELD THAT IF THE INVESTMENT IS MADE OUT OF THE ASSESSEES OWN INTEREST FREE FUNDS, NO DISALLOWANCE CAN BE MADE UNDER SECTION 14A OF THE ACT. SECTION 14A IS NOT A CHARGING SECTION BUT ONLY DISALLOWANCE OF EXPENDITU RE FOR A FAIR ASCERTAINING OF ALLOWING COMMON EXPENSES BETWEEN TA XABLE AND NON- TAXABLE INCOME. RULE 8D CAN BE APPLICABLE ONLY WHE RE DISALLOWANCE OF INTEREST ON BORROWED CAPITAL WARRANT FOR EXPENSE S OUT OF SUCH BORROWED CAPITAL WITH THE AMOUNT RELATING TO INVEST MENT IN SHARES AND SEARCH AND NOT ASCERTAINABLE. IN THE LIGHT OF THE ABOVE JUDGEMENT OF BOMBAY HIGH COURT AND OTHERS (SUPRA), THE DISALLOWA NCE OF INTEREST IS NOT WARRANTED UNDER THE CIRCUMSTANCES. THEREFORE, THERE IS NO QUESTION OF INVOKING RULE 8D OF THE RULES. IN THE L IGHT OF THE ABOVE DISCUSSIONS AND AFTER CONSIDERING THE ADMITTED FACT THAT THE ASSESSEE WAS HAVING SUFFICIENT OWN INTEREST FREE FUND TO COV ER THE INVESTMENT MADE IN SHARES, WE, THEREFORE, ARE OF THE VIEW THAT NO DISALLOWANCE CAN BE MADE UNDER SECTION 14A OF THE ACT. WE, THER EFORE, DELETE THE ADDITIONS OF RS.15,00,000/- MADE BY THE ASSESSING O FFICER AND SUSTAINED BY THE CIT(A) FOR EACH ASSESSMENT YEAR I. E. 2007-08 & 2006-07. ITA NO.142/AGR/2011 A.Y. 2007-08 . 6 7. WE FOLLOW THE ORDER OF I.T.A.T. WHEREIN THE CONT ENTION OF THE LD. DEPARTMENTAL REPRESENTATIVE THAT THE OWN CAPITAL HA S BEEN ALREADY INVESTED IN THE BUSINESS IS NOT ACCEPTABLE AS PER DETAILED DISCUSSI ONS MADE BY THE I.T.A.T., MUMBAI BENCH IN ITS ORDER IN THE CASE OF H.P. SHAH & CO. ITA NO.3694/MUM/2006 ORDER DATED 15.01.2009. SINCE IN THE CASE UNDER CONSIDERATION, THE ASSESSEE WAS HAVING SUFFICIENT O WN FUNDS TO MAKE INVESTMENT IN SHARES, UNDER THE CIRCUMSTANCES, THE DISALLOWANCE I S NOT WARRANTED. WE ACCORDINGLY DELETE THE ADDITION OF RS.21,94,877/-. 8. THE BRIEF FACTS OF SECOND GROUND ARE THAT THE AS SESSING OFFICER MADE THE DISALLOWANCE OF RS.5,00,000/- OUT OF POWER AND FUEL , RS.3,00,000/- OUT OF MANUFACTURING EXPENSES AND RS.2,00,000/- OUT OF SEL LING EXPENSES AFTER COMPARING THE EXPENSES WITH EARLIER YEARS AND ON THE GROUND T HAT SOME OF THE VOUCHERS WERE SELF-MADE. THE CIT(A) THOUGH OBSERVED THAT THE DIS ALLOWANCE MADE UNDER VARIOUS HEADS WERE PURELY ON ADHOC BASIS WITHOUT POINTING O UT SPECIFICALLY AS TO WHICH OF THE EXPENSES ARE NOT PROPERLY VOUCHED AND SUBJECT T O VERIFICATION. HOWEVER, THE CIT(A) HELD THAT SOME OF THE EXPENSES ARE SUPPORTED ONLY BY SELF-MADE VOUCHERS. THEREFORE, HE RESTRICTED THE DISALLOWANCE TO THE EX TENT OF RS.1,00,000/- OUT OF EACH EXPENSES. ITA NO.142/AGR/2011 A.Y. 2007-08 . 7 9. WE HAVE HEARD THE LD. REPRESENTATIVES OF THE PAR TIES AND RECORDS PERUSED. UNDER THE TAXING SYSTEM, IN OUR COUNTRY, IT IS FOR THE ASSESSEE TO CONDUCT HIS BUSINESS, AND IN HIS WISDOM OR OTHERWISE TO INCUR T HE EXPENDITURE FOR THE PURPOSE OF BUSINESS. THE INCOME TAX ACT DOES NOT CLOTH THE TAXING AUTHORITY WITH ANY POWER OR JURISDICTION TO DETERMINE THE REASONABLENE SS OF THE AMOUNT OF EXPENDITURE INCURRED BY THE ASSESSEE. THE ONLY BASIS FOR THE T AXABILITY OF SUCH EXPENSES IS WHETHER THE EXPENDITURE HAS BEEN INCURRED SOLELY AN D EXCLUSIVELY FOR THE PURPOSE OF BUSINESS. IF THE REALITY OF THE PAYMENT IS CHAL LENGED OR IS IN DISPUTE, DIFFERENT CONSIDERATION ARISE SO ALSO IN CASE WHERE THE TAX A UTHORITIES ARE ABLE TO POINT OUT TO SOME CONSIDERATION OTHER THAN THE PURPOSE OF BUSINE SS AS ACCOUNTING FOR ANY PORTION OF THE PAYMENT MADE IN SUCH CASES, OF COURS E, SUCH PORTION OF THE AMOUNT CLAIMED, WHICH IS EITHER NOT HELD TO HAVE PAID OR I S HELD TO HAVE BEEN PAID FOR REASONS OTHER THAN BUSINESS EXPEDIENCY, COULD AND S HOULD BE DISALLOWED. THE REASON FOR DISALLOWING IS BECAUSE EITHER THE PORTIO N DISALLOWED IS NOT PAID OR BECAUSE THE EXPENDITURE IS NOT SOLELY AND EXCLUSIVE LY FOR THE PURPOSE OF BUSINESS AND NOT ON THE GROUND THAT IN THE OPINION OF THE AS SESSING OFFICER THE EXPENDITURE INCURRED BY THE ASSESSEE WAS UNREASONABLE. IT IS N OT OPEN TO THE ASSESSING OFFICER TO SUBSTITUTE HIS OWN STANDARD OF REASONABLENESS OF THE EXPENDITURE FOR THAT OF THE ASSESSEE. IN THE CASE UNDER CONSIDERATION, NEITHER THE ASSESSING OFFICER NOR THE CIT(A) FOUND THAT THE EXPENDITURE INCURRED AND CLAI MED BY THE ASSESSEE WAS NOT ITA NO.142/AGR/2011 A.Y. 2007-08 . 8 FOR THE PURPOSE OF BUSINESS. THE ADHOC DISALLOWANC E WAS MADE MERELY ON THE BASIS THAT SOME OF THE VOUCHERS WERE SELF-MADE. MERELY T HAT THE ASSESSEE HAS ACCOUNTED FOR THE EXPENDITURE BY SELF-MADE VOUCHERS AUTOMATIC ALLY DOES NOT PROVE THAT THE EXPENDITURE INCURRED WAS FOR OTHER THAN BUSINESS PU RPOSES. ONCE IT IS FOUND THAT THE EXPENDITURE HAS BEEN INCURRED FOR THE PURPOSE O F BUSINESS, THE WHOLE EXPENSES ARE ALLOWABLE. IN THE LIGHT OF THE FACT OF THE CAS E UNDER CONSIDERATION, WE FIND THAT THE REVENUE AUTHORITIES HAS FAILED TO POINT OUT THA T THE EXPENDITURE INCURRED WAS FOR OTHER THAN BUSINESS PURPOSES. WE, THEREFORE, A RE OF THE CONSIDERED OPINION THAT THE EXPENDITURE CLAIM MADE BY THE ASSESSEE IS ALLOW ABLE. THEREFORE, WE DELETE THE ADDITION SUSTAINED BY THE CIT(A) OF RS.1,00,000/- E ACH OUT OF POWER AND FUEL EXPENSES, MANUFACTURING EXPENSES AND SELLING EXPENS ES. THUS, THIS GROUND OF THE ASSESSEE IS ALLOWED. 10. IN THE RESULT, APPEAL OF THE ASSESSEE IS ALLOWE D. (ORDER PRONOUNCED IN THE OPEN COURT) SD/- SD/- (BHAVNESH SAINI) (A.L. GEHLOT) JUDICIAL MEMBER ACCOUNTANT MEMBER PBN/* ITA NO.142/AGR/2011 A.Y. 2007-08 . 9 COPY OF THE ORDER FORWARDED TO: 1. APPELLANT 2. RESPONDENT 3. CIT (APPEALS) CONCERNED 4. CIT CONCERNED 5. D.R., ITAT, AGRA BENCH, AGRA 6. GUARD FILE. BY ORDER SR. PRIVATE SECRETARY INCOME-TAX APPELLATE TRIBUNAL, AGRA TRUE COPY