Honeyvick Enterprises Pvt.Ltd., Baroda V. The CIT-I, Baroda

ITA 1569/AHD/2014

• Counselvise Citation: [2017] 127 COUNSELVISE.COM (IT) 7897 (ITAT-AHMEDABAD)
• Duration Of Justice: 3 year(s) 7 month(s) 10 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 29-12-2017
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: D
• Next Hearing Date: 30-06-2017
• Assessment Year: 2009-2010
• Appeal Filed On: 19-05-2014
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: V K SINGH
• Assessee Lawyers: M J SHAH
• Keywords: Retrospective amendment
• Section: 143(3); 14A; 263; 63

Judgement Text

ITA NO.1569/AHD/2014 A.Y. 2009-10 PAGE 1 OF 4 IN THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD D BENCH, AHMEDABAD BEFORE SHRI PRAMOD KUMAR, ACCOUNTANT MEMBER AND SHRI S.S. GODARA, JUDICIAL MEMBER ITA NO.1569/AHD/2014 ASSESSMENT YEAR: 2009-10 HONEYVICK ENTERPRISES PVT. LTD. VS. COMMISSION ER OF INCOME TAX-I, LANDMARK 8 TH FLOOR, BARODA. RACECOURSE CIRCLE, BARODA 390 007. [PAN AAACH 5318 R] (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI M.J. SHAH, A.R. RESPONDENT BY : SHRI V.K. SINGH, D.R. DATE OF HEARING : 20.12.2017 DATE OF PRONOUNCEMENT : 29.12.2017 O R D E R PER S.S. GODARA, J.M. THIS ASSESSEES APPEAL FOR ASSESSMENT YEAR 2009-10 ARISES AGAINST THE CIT-I BARODAS ORDER DATED 25.03.2014 SETTING ASIDE THE I MPUGNED REGULAR ASSESSMENT FRAMED IN ITS CASE ON 16.09.2011 WITH DIRECTIONS TO FRAME THE SAME AFRESH, EXERCISING JURISDICTION VESTED UNDER SECTION 263 OF THE INCOME TAX ACT 1961; IN SHORT THE ACT. 1.1 HEARD BOTH THE PARTIES. CASE FILE PERUSED. 2. WE ADVERT TO THE RELEVANT FACTS FIRST. THIS ASS ESSEE IS A COMPANY CARRYING OUT INVESTMENTS IN SHARES AND SECURITIES. IT FILED ITS RETURN ON 12.09.2009 DECLARING INCOME OF RS.9,54,490/-. THE ASSESSING OFFICER THE REAFTER FRAMED REGULAR ASSESSMENT ON 16.09.2011 ACCEPTING THE SAME. 3. CASE FILE INDICATES THAT THE CIT THEREAFTER ISSU ED SECTION 263 NOTICE DATED 20.11.2013 TO THE ASSESSEE PROPOSING TO REVISE THE ABOVE REGULAR ASSESSMENT FOR THE FOLLOWING REASONS:- ITA NO.1569/AHD/2014 A.Y. 2009-10 PAGE 2 OF 4 WHEREAS THE ASSESSMENT ORDER PASSED U/S 143(3) OF THE ACT DATED 16.09.2011 BY THE ASSESSING OFFICER, FOR A.Y. 2009- 10 WAS ERRONEOUS IN SO FAR AS IT WAS PREJUDICIAL TO THE INTEREST OF THE REVENU E ON ACCOUNT OF THE FOLLOWING: SCRUTINY OF PROFIT & LOSS ACCOUNT AND BALANCE SHEET REVEALED THAT THE COMPANY HAD TAKEN UNSECURED LOAN OF RS.64,513,8 71 AND HAD PAID INTEREST OF RS.64,55,944. IT WAS FURTHER NOTICED TH AT COMPANY HAD INVESTED RS.12,45,29,842 AS ON 31.03.2009 IN SHARES OF PANCHMAHAL STEEL LIMITED. AS THE COMPANY HAD MADE INVESTMENT IN THE SHARES AND HAD ALSO SHOWN AS SUCH IN THE BALANCE SHEET, ITS CL AIM THAT INVESTMENT WAS NOT FOR THE PURPOSE OF INVESTMENT TO EARN TAX F REE PROFIT BUT AS A BUSINESS STRATEGY IS UNSUSTAINABLE. AS SUCH, THE IN TEREST EXPENDITURE OF RS.64,55,944 WAS REQUIRED TO BE DISALLOWED U/S.37(1 ) OF THE ACT BEING EXPENDITURE NOT MADE IN ORDINARY COURSE OF BUSINESS . IN VIEW OF THE ABOVE, I AM DIRECTED TO GIVE AN OPPO RTUNITY OF BEING HEARD AND TO SHOW CAUSE AS TO WHY THE AFORESAID ASS ESSMENT MADE BY THE ASSESSING OFFICER FOR THE A.Y.2009-10, SHOULD NOT B E ENHANCED OR CANCELLED WITH A DIRECTION TO MAKE FRESH ASSESSMENT IN ACCORD ANCE WITH THE PROVISIONS OF SECTION 263 OF THE ACT. FOR THIS PURPOSE, YOU MA Y APPEAR BEFORE THE COMMISSIONER OF INCOME TAX-I, BARODA, IN PERSON OR THROUGH YOUR AUTHORIZED REPRESENTATIVE ON 03.12.2013 AT 4.00 PM IN CASE OF NON-COMPLIANCE, THE MATTER WILL BE DECIDED ON MERITS. 4. THE ASSESSEE FILED REPLY THERETO ON 2 ND DECEMBER 2013 MAKING VERY ELABORATE SUBMISSIONS PLEADING THEREIN THAT THE AMO UNT IN QUESTION INVESTED IN ITS GROUP CONCERN M/S PANCHMAHAL STEEL LIMITED WAS ITS COMMERCIAL EXPEDIENCIES DULY COVERED IN HONBLE APEX COURTS LANDMARK JUDGEMENT IN S.A. BUILDERS CASE 288 ITR 1. THE CITS ORDER UNDER CHALLENGE DATED 25.03.201 4 AND MORE PARTICULARLY PARAGRAPH NO.3 READS THAT HE REITERATED ITS SOLE GR OUND INCORPORATED IN THE ABOVE SHOW CAUSE NOTICE TO SET ASIDE THE REGULAR ASSESSME NT IN QUESTION WITH DIRECTIONS TO THE ASSESSING OFFICER TO FRAME IT AFRESH AFTER CONC LUDING THAT THE ASSESSEES CLAIM OF HAVING INVESTED THE ABOVE SUM IN ITS GROUP CONCERN AS A BUSINESS STRATEGY WAS NOT ACCEPTED. HE FURTHER CONCLUDED THAT THE ASSESSEE H AD ALSO SHOWN THESE SHARES AS INVESTMENTS INSTEAD OF STOCK IN TRADE AS WELL. THI S LEAVES THE ASSESSEE AGGRIEVED. 5. WE HAVE HEARD BOTH THE PARTIES STRONGLY REITERAT ING THEIR RESPECTIVE STANDS. THE SOLE QUESTION RAISED IN THE ABOVE SECTION 63 RE VISION PROCEEDINGS AS TO WHETHER THE ASSESSEES INVESTMENTS IN ITS GROUP CONCERNS S HARES I.E. M/S PANCHMAHAL STEEL LIMITED COULD BE TAKEN AS BUSINESS STRATEGY OR NOT AS PER HONBLE APEX COURTS ABOVE JUDGEMENT. CASE FILE SUGGESTS IN PAGES 9 TO 10 PARTICULARLY THAT THE LD. CIT HIMSELF HAS DECIDED THE VERY QUESTION IN ASSESSEES FAVOUR IN SECTION 264 PROCEEDINGS PERTAINING TO ASSESSMENT YEAR 2007-08 FINALISED ON 24.02.2010 READING AS UNDER :- ITA NO.1569/AHD/2014 A.Y. 2009-10 PAGE 3 OF 4 2. THERE IS ONLY ONE ISSUE IN THE PETITION I.E. TH E ASSESSING OFFICER DENYING INTEREST PAID ON LOAN BY INVOKING THE PROVISIONS OF SECTION 14A OF RS.68,91,616/-. 2.1. THE ASSESSEE COMPANY BELONGS TO M/S. PANCHMAHA L STEEL LTD. GROUP. THE LATTER COMPANY WAS IN FINANCIAL CRISES FOR A LO NG TIME AND WITH A LOT OF EFFORTS THE BUSINESS HAS BEEN REVIVED. IT IS THE CL AIM OF THE PETITIONER THAT RAISING THE FINANCE AND INVESTING IN THE SHARES OF M/S PANCHMAHAL STEELS LTD. MAINLY TO REVIVE THE BUSINESS OF THE FLAGSHIP COMPA NY OF THE GROUP WAS A PRUDENT BUSINESS DECISION. THIS WAS SO BECAUSE M/S PANCHMAHAL STEEL WAS A MAJOR COMPANY OF THE GROUP AND HAD SUFFERED VERY BADLY BECAUSE OF THE HUGE ACCUMULATED LOSSES AND FINANCIAL PROBLEMS. NO FINANCIAL INSTITUTION WOULD LEND MONEY ON CREDIT OR WOULD INVEST IN THE C OMPANY'S SHARES. IT IS ALSO A FACT THAT REVIVAL OF M/S PANCHMAHAL STEEL WAS VER Y ESSENTIAL BECAUSE BEING THE FLAGSHIP INVESTMENT COMPANY IT HAD THE CAPABILI TY OF GENERATING GOOD BUSINESS PROSPECTIVE. THE ASSESSEE COMPANY BEING TH E INVESTMENT COMPANY OF THE GROUP, THEREFORE, DECIDED TO RAISE FINANCE A ND INVESTED IN THE SHARE CAPITAL OF M/S PANCHMAHAL STEEL. 2.2. THE ASSESSING OFFICER'S CONTENTION IS THAT SI NCE DIVIDEND INCOME IS NOT TAXABLE ANY EXPENSES INCURRED IN RESPECT OF EARNING SUCH TAX-FREE INCOME SHOULD NOT BE ALLOWED BY VIRTUE OF SECTION 14A. TH IS PROVISION WAS INTRODUCED IN THE NEW SECTION 115O W.E.F. A.Y. 1994-95. PRIOR TO THAT DIVIDEND WAS TAXABLE. THE MAJOR INVESTMENT IN SHARES OF M/S PANC HMAHAL STEEL BY THE ASSESSES COMPANY WAS PRIOR TO A.Y. 1994-95 I.E. 14, 98,000 SHARES, THE DIVIDEND FROM WHICH WAS TAXABLE AND WAS OFFERED TO TAX. SO IT WAS NOT THE CASE THAT THE ASSESSEE HAD DELIBERATELY INVESTED IN SHARES OF THE FLAGSHIP COMPANY OF THE GROUP TO ENJOY TAX FREE INCOME AND C LAIM EXPENSES. 2.3. THE NEXT MAJOR INVESTMENT OF RS.12.45 CRORES I.E. 53 LACS SHARES WHICH TRANSFERRED THE CONTROLLING INTEREST IN THE SHARE C APITAL OF M/S PANCHMAHAL STEELS OF THE ASSESSEE COMPANY WAS AFTER THE LATER HAD GONE TO THE BIFR IN 2000 AND AS PER THE REVIVAL PACKAGE WORKED OUT BEFO RE THE BIFR. AT THIS JUNCTURE, THE AFFAIRS OF M/S PANCHMAHAL STEELS WAS SUCH THAT IT WAS ON THE VERGE OF BEING WOUND UP AND THERE WAS NO QUESTION O F EARNING ANY DIVIDEND FROM ITS SHARES. INFACT, IF THE ASSESSEE HAD INVEST ED, M/S PANCHMAHAL STEELS WOULD HAVE DEFINITELY BEEN DIRECTED TO BE WOUND UP BY THE BIFR. SO IT IS NOT THE CASE THAT AT ANY STAGE THE ASSESSEE COMPANY HAS ENJOYED TAX-FREE INCOME AND HAS CLAIMED EXPENSES AGAINST IT. 3. THE ASSESSING OFFICER HAS INVOKED THE PROVISIONS OF RULE 8D FOR PROPORTIONATELY DISALLOWING EXPENSES U/S 14A. THIS RULE HAS BEEN INTRODUCED FROM THE A.Y. 2007-08 WHEREAS THE ASSESSEE'S INVEST MENT DATES BACK TO F.Y., 2000. RULE 8D IS PROSPECTIVE AND HAS NOT BEEN INTR ODUCED WITH RETROSPECTIVE EFFECT. 4. LASTLY IT HAS BEEN ARGUED THAT ON THE BASIS OF T HE SUPREME COURT'S DECISION IN THE CASE OF M/S S.A. BUILDERS, 288 ITR 1, IT HAS BEEN HELD THAT ANY EXPENSES INCURRED FOR THE PURPOSE ON ASSESSEE'S OWN BUSINESS OR THE GROUP ITA NO.1569/AHD/2014 A.Y. 2009-10 PAGE 4 OF 4 COMPANY'S BUSINESS, IS TO BE ALLOWED AS AN EXPENDIT URE AGAINST TAXABLE INCOME. 5. I HAVE GONE THROUGH THE SUBMISSIONS AND HAVE EX AMINED THE FACTS OF THE CASE IN DETAIL. THE RULING OF S.A. BUILDERS CA SE CLEARLY APPLIES HERE. IT IS FOR THE ASSESSEE TO BORROW AND INVEST FOR BUSINESS IN THE BEST MANNER FROM ITS OWN BUSINESS CONSIDERATIONS I.E. WHETHER CLEAR INTE REST FREE ADVANCE OR INVESTMENT IN SHARE CAPITAL. IT IS HELD THAT THE DI SALLOWANCE MADE BY THE ASSESSING OFFICER U/S 14A IS NOT CALLED FOR. THE AS SESSING OFFICER IS DIRECTED TO MAKE RE-ASSESSMENT AFTER ALLOWING THE SAME. 6. LEARNED DEPARTMENTAL REPRESENTATIVE FAILS TO DIS PUTE THAT THE ABOVE SECTION 264 ORDER DECIDING THAT ASSESSEES EXPENSES INCURRE D FOR ITS GROUP CONCERNS INVOLVED BUSINESS EXPEDIENCY; HAS ATTAINED FINALITY . WE THEREFORE ARE OF THE VIEW THAT THE LD. CIT HAS ERRED IN LAW AS WELL AS ON FAC TS IN EXERCISING ITS JURISDICTION VESTED UNDER SECTION 263 OF THE ACT. WE ACCORDINGL Y ACCEPT ASSESSEES ARGUMENTS ASSAILING CORRECTNESS THEREOF IN THE INSTANT APPEAL . IT IS ACCORDINGLY HELD THAT THE ABOVE REGULAR ASSESSMENT NOT DISALLOWING THE ASSESS EES SHARE INVESTMENT IN ITS GROUP CONCERNS IN QUESTION IS NEITHER ERRONEOUS NOR PREJUDICIAL TO THE INTEREST OF THE REVENUE. THE ASSESSEES SOLE SUBSTANTIVE GROUND IS ACCEPTED. 7. THIS ASSESSEES APPEAL IS ALLOWED. ORDER PRONOU NCED IN THE OPEN COURT ON THIS 29 TH DAY OF DECEMBER, 2017. SD/- SD/- PRAMOD KUMAR S.S. GODARA (ACCOUNTANT MEMBER) (JUDICIAL MEMBER) AHMEDABAD, THE 29 TH DAY OF DECEMBER, 2017 PBN/* COPIES TO: (1) THE APPELLANT (2) THE RESPONDEN T (3) CIT (4) CIT(A) (5) DEPARTMENTAL REPRESENTATIVE (6) GUARD FILE BY ORDER UE COPY ASSISTANT REGISTRAR INCOME TAX APPELLATE TRIBUNAL AHMEDABAD BENCHES, AHMEDABAD