M/s Hangya Ice Cream Pvt ltd , Hubbali V. Assistant Commissioner of Income TAx Circle-3(1), Hubbali

ITA 1447/BANG/2018

• Counselvise Citation: [2020] 111 COUNSELVISE.COM (IT) 9246 (ITAT-BANGALORE)
• Duration Of Justice: 1 year(s) 8 month(s) 4 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 08-01-2020
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: A
• Next Hearing Date: 28-11-2019
• Assessment Year: 2013-2014
• Appeal Filed On: 04-05-2018
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Keywords: Depreciation; Additional depreciation; Rule 8D
• Section: 143(3); 142(1); 14A; 40(a)(ia); 250; 201; 143(2); 139(1); 32

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL BANGALORE BENCHES A BENCH: BANGALORE BEFORE SHRI A.K. GARODIA, ACCOUNTANT MEMBER AND SHRI PAVAN KUMAR GADALE, JUDICIAL MEMBER ITA NO. 1447 /BANG/2018 (ASSESSMENT YEAR: 201 3 - 14 ) M/S. HANGYO ICE CREAMS (P) LTD. NO.38, II FLOOR, EUREKA JUNCTION, T B ROAD, HUBBALLI - 580 029 .APPELLANT PAN AAHCS 6664E VS. ASST. COMMISSIONER OF INCOME TAX, CIRCLE 3(1), HUBBALLI. RESPONDENT. ASSESSEE BY: SHRI PRANAV KRISHNA, ADVOCATE. REVENUE BY: SHRI SUNIL KUMAR AGARWAL, ADDL. CIT (D.R) DATE OF HEARING : 28.11 .2019 DATE OF PRONOUNCEMENT : 08 . 0 1 .20 20 O R D E R PER SHRI PAVAN KUMAR GADALE, JM : THE ASSESSEE HAS FILED AN APPEAL AGAINST THE ORDER OF COMMISSIONER OF INCOME TAX, HUBLI PASSED UNDER SECTION 143(3) AND 250 OF THE INCOME TAX ACT, 1961 ('THE ACT'). 2 ITA NO.1447/BANG/2018 2. AT THE TIME OF HEARING, THE LEARNED AUTHORISED R EPRESENTATIVE HAS PRAYED FOR ADMISSION OF ADDITIONAL GROUND OF APPEAL WHICH IS AS UNDER : 3. THE LEARNED AUTHORISED REPRESENTATIVE SUBMITTED THE REASONS FOR FILING THE ADDITIONAL G ROUNDS OF APPEAL FOR WHICH REVENUE HAS NO SERIOUS OBJECTION S . HENCE THE ADDITIONAL GROUNDS OF APPEAL OF ASSESSEE ARE ADMITTED AND THE ASSESSEE HAS RAISED FOLLOWING THE GROUNDS OF APPEAL AS UNDER : 3 ITA NO.1447/BANG/2018 4 ITA NO.1447/BANG/2018 4. THE BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE IS ENGAGED IN MANUFACTURE AND SALE OF ICE CREAMS AN D MILK PRODUCTS AND FILED THE RETURN OF INCOME ON 29.09.2013 WITH LOSS OF RS.20,68,678. THE CASE WAS SELECTED FOR SCRUTINY UNDER CASS AND NOTICE UNDER SECTION 143(2) AND 142(1) OF THE ACT WERE ISSUED. IN COMPLIANCE, THE LEARN ED AUTHORISED REPRESENTATIVE APPEARED FROM TIME TO TIME AND FURNISHED THE DETAILS. THE ASSESSING OFFICER FOUND THAT THE ASSESSEES HAS CLAIM ED ADDITIONAL DEPRECIATION ON COMPUTERS , WHEREAS AS PER THE P ROVISIONS OF SECTION 32 OF THE ACT, THE ADDITIONAL DEPRECIATION IS ALLOWED ONLY ON BLOC K OF PLANT AND MACHINERY AND DISALLOWED THE CLAIM . SIMILARLY, THE ASSESSING OFFICER MADE DISALLOWANCE OF DELAYED PAYMENT OF PF AND ALSO MADE DISALLOWANCE UNDER SECTION 14A R.W. RULE 8D(2). WHEREAS T HE ASSESSING OFFICER HAS FOUND TH AT THE ASSESSEE HAS MADE INVESTMENT , IN SHARES AND RECEIVED DIVIDEND OF RS.2,04,708. T HE ASSESSING OFFICER HAS NOT ACCEPTED THE CLAIM OF NON - INCURRING OF EXPENDITURE FOR EARNING TAX FREE INCOME AND CALCULATED THE DISALLOWANCE UNDER SECTION 14A R.W. RULE 8D(2) OF RS.5,38,069 I N C L U D I N G A D M I N I S T R A T I V E E X P E N S E S O F RS. 3 8 , 8 5 7 . SIMILARLY, THE ASSESSEE HAS MADE INTEREST PAYMENT TO TATA CAPITAL OF RS.80,016 WITHOUT DEDUCTION OF TAX AT SOURCE. HENCE THE ASSESSING OFFICER A PPLYING THE PROVISIONS OF SECTION 40(A)(IA) OF THE ACT MADE DISALLOWANCE. T HE ASSESS EE HAS PROVIDED INTEREST FREE LOANS TO SISTER CONCERN S AND SINCE THE INTEREST PAID ON MONEY BORROWED IS 12% P.A. . THE ASSESSING OFFICER OBSERVED THAT THERE IS NO BUSINESS 5 ITA NO.1447/BANG/2018 CONNECTION ON ADVANCING OF INTEREST FREE LOANS AND DISALLOWED RS. 5,17,058 UNDER SECTI ON 36(1)(III) OF THE ACT AND ASESSED THE TOTAL LOSS OF RS.8,38,875 AND PASSED ORDER UNDER SECTION 143(3) DT.25.2.2016. AGGRIEVED BY THE ORDER, THE ASSESSEE HAS FILED AN APPEAL WITH THE CIT(APPEALS) WHEREAS THE CIT(APPEALS) CONSIDERING THE SUBMISSIONS OF THE ASSESSEE AND FINDINGS OF THE A.O. AND THE GROUNDS OF APPEAL OF ASSESSEE, CONFIRM ED THE ADDITION O F DISPUTED ISSUES AND PARTLY ALLOWED THE APPEAL. AGGRIEVED BY THE ORDER, THE ASSESSEE HAS FILED AN APPEAL WITH THE TRIBUNAL. 5. AT THE TIME OF H EARING, THE LEARNED AUTHORISED REPRESENTATIVE SUBMITTED THAT THE GROUND NOS.1 AND 2 ARE GENERAL IN NATURE AND GROUND NO.3 IS IN RESPECT OF CLAIM OF ADDITIONAL DEPRECIATION AND SUBMITTED THAT THE ASSESSEE DID NOT PRODUCE EVIDENCES AND EMPHSISED THAT THE ADD ITIONAL DEPRECIATION ON COMPUTERS FALL UNDER THE CATEGORY OF PLANT AND MACHINERY. SIMILARLY, FOR DISALLOWANCE UNDER RULE 14A, THE LEARNED AUTHORISED REPRESENTATIVE REFERRED TO THE OBSERVATIONS OF THE CIT(APPEALS) AT PARA 6.2, W E R E THE CIT(APPEALS) HAS RE STRICTED THE DISALLOWANCE OF EXPENDITURE TO THE EXTENT OF DIVIDEND INCOME AND WHEREAS T HE ASSESSEE HAS SUFFICIENT SURPLUS FUNDS I N C L U D I N G SHAREHOLDERS FUNDS AND THE ASSESSEE'S INVESTMENTS ARE COMPARATIVELY LOWER AND RELIED ON DECISIONS OF HIGH COURT . 6. ON THE DISPUTED ISSUE OF DISALLOWANCE OF INTEREST UNDER SECTION 40(A)(IA) OF TH E ACT, THE ASSESSEE HAS PAID INTEREST TO THE TATA CAPITAL LTD BUT THE TAX HAS NOT BEEN DEDUCTED AT SOURCE. THE LEARNED AUTHORISED REPRESENTATIVE SUBMITTED THAT 6 ITA NO.1447/BANG/2018 THE I NTEREST PAYMENTS AR E OFFERED IN THE HANDS OF TATA CAPITAL LTD. FOR INCOME TAX PURPOSE AND HENCE CANNOT BE ADDED TO THE ASSESSEE'S INCOME. WHEREAS IN RESPECT OF DISALLOWANCE OF INTEREST OF RS.5,17,058, THE CONTENTIONS OF THE LEARNED AUTHORISED REPRESENTATI VE THAT THE ASSESSEE HAS SURPLUS FUNDS AND THEREFORE OUT OF OWN FUNDS, THE ADVANCES HAVE BEEN PROVIDED TO SISTER CONCERNS AND NO DISALLOWANCE OF INTEREST IS WARRANTED. FURTHER IN RESPECT OF ADDITIONAL GROUND OF APPEAL, ;THE LEARNED AUTHORISED REPRESENTATI VE SUBMITTED THAT THE DELAYED PAYMENT OF EMPLOYEES CONTRIBUTION TO THE PROVIDENT FUND, THE PAYMENTS HAVE BEEN MADE WITHIN THE TIME ALLOWED UNDER SECTION 139(1) OF THE ACT AND PRAYED FOR ALLOWING THE APPEAL. CONTRA, THE LD. DR SUPPORTED THE ORDERS OF CIT(APPEALS). 7. WE HEARD THE RIVAL CONTENTIONS AND PERUSED THE MATERIAL ON RECORD. PRIMA FACIE, THE ASSESSEE HAS CHALLENGED THE DISALLOWANCES MADE BY T HE ASSESSING OFFICER FOR IRREGULARITIES AND NON - PRODUCTION OF EVIDENCES. FIRST WE SHALL TAKE UP THE ADDITIONAL GROUND OF APPEAL IN RESPECT OF DELAYED PAYMENTS OF EMPLOYEES CONTRIBUTION TO PROVIDENT FUND. WE FOUND THAT THE ASSESSEE HAS MADE DEPOSITS WITHIN THE FINANCIAL YEAR BUT THE FACT REMAINS THAT THIS GROUND OF APPEAL WAS NOT RAISED BEFORE THE CIT (APPEALS). ACCORDINGLY, WE RESTORE THIS GROUND OF APPEAL TO THE FILE OF CIT (APPEALS) TO ADJUDICATE ON MERITS AND ALLOW ALLOW ADDITIONAL GROUND OF APPEAL FOR STATISTICAL PURPOSES. WHEREAS IN RESPECT OF CLAIM OF ADDITIONAL DEPRECIATION, THE LEARNED AUTHORISED REPRESENTATIVE SUBMITTED THAT THE 7 ITA NO.1447/BANG/2018 ASSESSEE HAS EVIDENCE S AND PROOF THAT THE COMPUTER IS AN ESSENTIAL PART OF PLANT AND MACHINERY INSTALLED AT THE FACTORY PREMISES. WE FOUND THE ASSESSEE HAS NOT PRODUCED ANY EVIDENC E IN THE APPELLATE PROCEEDINGS . HENCE WE CONSIDER IT PROPER TO REMIT THE DISPUTED ISSUE TO THE FILE OF CIT (APPEALS) FOR ADJUDICATION CONSIDERING THE EVIDENCES FILED BY THE ASSESSEE. ON NEXT ISSUE OF DISALLOWANCE UNDER SECTION 14A R.W. RULE 8D(2) OF RESTRICTING THE DISALLOWANCE OF E XPENDITURE TO THE EXTENT OF DIVIDEND INCOME, THE LEARNED AUTHORISED REPRESENTATIVE CONTENTION , ARE THE ASSESSEE HAS OWN FUNDS AND REFERRED TO THE PAPER BOOK AT PAGE 59 WHERE THE SHAREHOLDERS FUNDS AS ON 31.3.2013 ARE RS.5,78,67,588 WHEREAS THE INVESTMENT MADE BY THE ASSESSEE ARE RS.7 7,90,900. THE LEARNED AUTHORISED REPRESENTATIVE EMPHASIZED THAT THE INVESTMENTS ARE LESS THAN THE SHAREHOLDERS FUNDS AND SUCH INVESTMENTS ARE ROUTED THROUGH OWN FUNDS HENCE THERE CANNOT BE ANY DISALLOWANCE OF EXPENDITURE AS BORROWED FUNDS ARE NOT UTILIZED FOR THIS PURPOSE AND RELIED ON THE DECISION OF THE CO - ORDINATE BENCH OF TRIBUNAL IN THE CASE OF DCIT VS. SUBRAMANYA CONSTRUCTION S & DEVELOPMENT CO. LTD. (2015) 58 TAXMAN.COM 219 WHERE IT WAS OBSERVED THAT THE ASSESSEE HAS SURPLUS FUNDS TO MAKE MAJOR PART OF INVESTMENT IN THE INTEREST FREE SECURITIES AND THERE IS NEGLIGIBLE INCREASE IN TH E INVESTMENT DURING THE YEAR AND ADDITION CANNOT BE MADE UNDER RULE 8D(2) (II) AND (III) AND FURTHER LEARNED AUTHORISED REPRESENTATIVE REL IED ON THE DECISION OF JURISDICTIONAL HIGH COURT IN THE CASE OF CIT VS. MICRO LABS LIMITED (2017) 79 8 ITA NO.1447/BANG/2018 TAXMAN.COM 3 65. WE FOUND THE ASSESSEE HAS SURPLUS FUNDS AND RELIED ON THE DECISION OF CIT VS. MICROLAB S LIMITED (SUPRA) WHERE THE HON'BLE HIGH COURT HAS O BSERVED AT PARAS 41 & 42 WHICH IS READ AS UNDER : 41. THE HON'BLE BOMBAY HIGH COURT IN CIT V. RELIANCE UTILITIES AND POWER LTD. [2009] 313 ITR 340 (BOM) HAS HELD THAT WHERE THE INTEREST - FREE FUNDS FAR EXCEED THE VALUE OF INVESTMENTS, IT SHOULD BE CONSID ERED THAT INVESTMENTS HAVE BEEN MADE OUT OF INTEREST - FREE FUNDS AND NO DISALLOWANCE UNDER SECTION 14A TOWARDS ANY INTEREST EXPENDITURE CAN BE MADE. THIS VIEW WAS AGAIN CONFIRMED BY THE HON'BLE BOMBAY HIGH COURT IN CIT V. HDFC BANK LTD., I.T.A. NO. 330 OF 2 012, JUDGMENT DATED JULY 23, 2014 - [2014] 366 UR 505 (BOM) WHEREIN IT WAS HELD THAT WHEN INVESTMENTS ARE MADE OUT OF COMMON POOL OF FUNDS AND NON - INTEREST BEARING FUNDS WERE MORE THAN THE INVESTMENTS IN TAX - FREE SECURITIES, NO DISALLOWANCE OF INTEREST EXP ENDITURE UNDER SECTION 14A CAN BE MADE. 42. IN THE LIGHT OF THE ABOVE SAID DECISIONS, WE ARE OF THE VIEW THAT DISALLOWANCE OF INTEREST EXPENSES IN THE PRESENT CASE OF RS. 49,42,473 MADE UNDER RULE 8D(2)(II) OF THE INCOME - TAX RULES SHOULD BE DELETED. WE ORDER ACCORDINGLY.' ACCORDINGLY, WE FOLLOWING THE JUDICIAL DECISIONS , RESTRICT THE ADDITION TO THE EXTENT OF RS.38,857. 8. ON THE ISSUE OF DISALLOWANCE UNDER SECTION 40(A)(IA) OF THE ACT WITH RESPECT TO INTEREST PAID TO TATA CAPITAL LTD., T HE LEARNED AUTHORISED REPRESENTATIVE SUBMITTED THAT THE RECIPIENT HAS OFFERED INCOME IN THEIR ASSESSMENT, THEREFORE, THERE IS NO REQUIREMENT TO MAKE ADDITION. WHEN A QUERY WAS RAISED TO THE LEARNED AUTHORISED REPRESENTATIVE REGARDING OBTAINING OF CERTIFICATE FROM A UDITOR IN FORM 26A THAT THE RECIPIENT HAS OFFERED THE INCOME IN THEIR ASSESSMENT. THE LEARNED AUTHORISED REPRESENTATIVE SUBMITTED THAT THE INFORMATION IS AVAILABLE WITH THE ASSESSEE AND PRAYED FOR AN OPPORTUNITY TO SUBSTANTIATE BEFORE LOWER AUTHORITIES . ACCORDINGLY TO MEET THE ENDS OF JUSTICE, WE RESTORE THIS ISSUE TO THE FILE OF CIT(APPEALS) TO 9 ITA NO.1447/BANG/2018 CONSIDER THE SUBMISSIONS OF THE ASSESSEE DULY SUPPORT WITH EVIDENCE OF FORM 26A AND ADJUDICATE ON MERITS. 9. ON T HE LAST DISPUTED ISSUE , IN RESPECT OF DISAL LOWANCE OF INTEREST ON ADVANCES PROVIDED TO THE SISTER CONCERN. THE LEARNED AUTHORISED REPRESENTATIVE SUBMITTED THAT THE ASSESSEE HAS ADEQUATE FUNDS AND OUT OF SURPLUS FUNDS , THE ADVANCES ARE PROVIDED TO THE SISTER CONCERNS DUE TO BUSINESS CONNECTION. BUT THE ASSESSING OFFICER HAS DISALLOWED INTEREST @ 12% P.A. THE CONTENTION OF THE LEARNED AUTHORISED REPRESENTATIVE THAT THE ADVANCES PROVIDED TO THE SISTER CONCERN ARE COMPARATIVELY LOWER THAN THE ASSESSEE'S OWN FUNDS AND SUCH ADVANCES ARE OUT OF NON - INTER EST BEARING FUNDS AND ALSO THERE EXISTS BUSINESS CONNECTION WITH ACTIVIT IES OF SISTER CONCERNS . WE FOUND FROM THE FINANCIAL STATEMENTS THE ASSESSE E HAS SUFFICIENT OWN FUNDS IN COMPARISON TO THE ADVANCES PROVIDED TO THE SISTER CONCERN S , FURTHER OUT OF SURP LUS FUNDS OF RS.5,78,67,588 AS ON 31.03.2013, THE ADVANCES TO SISTER CONCERNS ARE TO THE EXTENT OF RS.39.91 LAKHS AND INVESTMENTS OF RS.77.74 LAKHS AND BOTH AGGREGATING TO RS.117.65 LAKHS WHICH IS COMPARATIVELY LOWER THAN SURPLUS FUNDS AS ON 31.3.2013. HENCE THE PRESUMPTION WOULD ARISE THAT THE ADVANCES TO SISTER CONCERN AND INVESTMENTS ARE OUT OF INTEREST FREE FUNDS/SURPLUS FUNDS. WE SUPPORT O U R VIEW RELYING ON THE DECISION OF HON'BLE BOMBAY HIGH COURT IN THE DECISION OF CIT VS. RELIANCE UTILITIES AND POWER LT D. (2009) 313 ITR 340 (BOM) , WHERE IT WAS HELD AS UNDER : 10 ITA NO.1447/BANG/2018 HELD , DISMISSING THE APPEAL, THAT IF THERE WERE FUNDS AVAILABLE BOTH INTEREST FREE AND OVERDRAFT AND/OR LOANS TAKEN, THEN A PRESUMPTION WOULD ARISE THAT INVESTMENTS WOULD BE OUT OF THE INTEREST FREE FUNDS GENERATED OR AVAILABLE WITH THE COMPANY, IF THE INTEREST FREE FUNDS WERE SUFFICIENT TO MEET THE INVESTMENTS. IN THIS CASE THIS PRESUMPTIO N WAS ESTABLISHED CONSIDERING THE FINDING OF FACT BOTH BY THE COMMISSIONER (APPEALS) AND THE TRIBUNAL. THE INTEREST WAS DEDUCTIBLE. WE RESPECTFULLY FOLLOW THE RATIO OF JUDICIAL DECISION AND THE PRESUMPTION THAT ADVANCES TO SISTER CONCERNS ARE OUT OF I N T E R E S T F R E E FUNDS AND ACCORDINGLY DIRECT THE ASSESSING OFFICER TO DELETE THE I N T E R E S T DISALLOWANCE OF RS.5,19,058. 10. IN THE RESULT, THE ASSESSEE'S APPEAL IS PARTLY ALLOWED FOR STATISTICAL PURPOSES . ORDER PRONOUNCED IN THE OPEN COURT ON 8 T H JAN., 2020. S D / - S D / - (A.K. GARODIA) (PAVAN KUMAR GADALE) ACCOUNTANT MEMBER JUDICIAL MEMBER DATED: 0 8 . 0 1. 20 20 . *REDDY GP COPY TO 1. THE APPELLANT 2. THE RESPONDENT 3. CIT (A) 4. PR. CIT 5. DR, ITAT, BANGALORE. 6. GUARD FILE BY ORDER ASSISTANT REGISTRAR INCOME - TAX APPELLATE TRIBUNAL BANGALORE