Indian Seamless Enterprises Ltd., Pune V. Deputy Commissioner of Income-tax,

ITA 1640/PUN/2015

• Counselvise Citation: [2018] 125 COUNSELVISE.COM (IT) 0045 (ITAT-PUNE)
• Duration Of Justice: 2 year(s) 9 month(s) 3 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 14-09-2018
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: B
• Next Hearing Date: 12-02-2018
• Assessment Year: 2010-2011
• Appeal Filed On: 11-12-2015
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: J P CHANDRAKAR
• Assessee Lawyers: P I PATWA
• Section: 143(3); 14A

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL B BENCH, PUN E , ! , '# $ !% , ! & BEFORE SHRI ANIL CHATURVEDI, AM AND SHRI VIKAS AWAS THY, JM #. / ITA NOS.1638 TO 1641/PUN/2015 ( )( / ASSESSMENT YEARS: 2009-10 TO 2012-13 INDIAN SEAMLESS ENTERPRISES LTD. CTS NO.199, PLOT NO.03, LUNKAD TOWERS, VIMAN NAGAR, NAGAR ROAD, PUNE-411 014 PAN : AAACI3891C .... / APPELLANT / V/S. THE DEPUTY COMMISSIONER OF INCOME TAX, CENTRAL CIRCLE-2(1), PUNE. / RESPONDENT ASSESSEE BY : SHRI P.I. PATWA REVENUE BY : SHRI J.P. CHANDRAKAR / DATE OF HEARING : 06.09.2018 / DATE OF PRONOUNCEMENT : 14.09.2018 * / ORDER PER VIKAS AWASTHY, JM THESE FOUR APPEALS BY THE ASSESSEE FOR THE ASSESSMENT YEARS 2009-10 TO 2012-13 ARE DIRECTED AGAINST THE ORDER OF COMMISSIONE R OF INCOME TAX (APPEALS)-12, PUNE DATED 10.09.2015 COMMON FOR THE AFOREME NTIONED ASSESSMENT YEARS. 2 ITA NOS.1638 TO 1641/PUN/2015 A.YS.2009-10 TO 2012-13 2. SINCE IDENTICAL ISSUE HAS BEEN RAISED IN ALL THE FOUR APP EALS, THESE APPEALS ARE TAKEN UP TOGETHER FOR ADJUDICATION AND ARE BEING DISPOSED OF VIDE THIS COMMON ORDER. 3. THE ASSESSEE IN ITA NO.1638/PUN/2015 HAS RAISED FOLLOWING GROU NDS: 1.THE LEARNED ASSESSING OFFICER HAS ERRED IN APPLYI NG PROVISIONS OF RULE 8D R.W.S 14A WITHOUT PASSING ANY SPEAKING ORDER AS TO NON-SATISFACTION ABOUT WORKING OF DISALLOWANCE U/S.14A AND WITHOUT ESTABLI SHING ANY NEXUS BETWEEN BORROWED FUNDS AND INVESTMENTS. 2. THE LEARNED ASSESSING OFFICER HAS ERRED IN MAKIN G DISALLOWANCE BY APPLYING PROVISIONS OF RULE 8D R.W.S 14A IGNORING BASIS/FACTS ESTABLISHED AND DEMONSTRATED AND METHODOLOGY ADOPTED BY THE PRE DECESSOR FOR A. Y. 2005-06 WHICH FACTS CONTINUED DURING THE YEAR UNDER CONSIDERATION ALSO. THE DISALLOWANCE U/S 14A BE RESTORED AS PER BASIS ESTAB LISHED IN ORDER PASSED U/S 143(3) OF THE INCOME TAX ACT, 1961 FOR A.Y. 200 5-06. 3. THE LEARNED ASSESSING OFFICER HAS ERRED IN MAKIN G DISALLOWANCE UNDER PROVISIONS OF RULE 8D R.W.S.14A IGNORING THE FACT THAT THE INVESTMENTS MA DE BY THE COMPANY ARE OF STRATEGIC NATURE AND HENCE NO DISALLOWANCE U/S. 14A R.W.R. 8D IS WARRANTED. 4. YOUR APPELLANT PRAYS LEAVE TO ADD, SUBSTITUTE, A MEND, MODIFY OR WITHDRAW ANY OF THE GROUNDS OF THE APPEAL IF THE OCCASION AR ISES. IDENTICAL GROUNDS HAVE BEEN RAISED BY THE ASSESSEE AS SAILING THE ORDER OF COMMISSIONER OF INCOME TAX (APPEALS) FOR ASSESSMENT YEAR S 2010-11, 2011-12 AND 2012-13. 4. SHRI P.I. PATWA APPEARING ON BEHALF OF THE ASSESSEE SU BMITTED THAT ON THE BASIS OF METHOD ADOPTED FOR MAKING DISALLOWANCE IN THE ASSESSMENT YEAR 2005-06, THE ASSESSEE MADE SUO-MOTO DISALLOWANCE U /S.14A OF THE INCOME TAX ACT,1961 (HEREINAFTER REFERRED TO AS THE ACT ) IN THE IMPUGNED ASSESSMENT YEARS. THE DETAILS OF SUO-MOTO DISALLOWANCES MA DE BY ASSESSEE IN THE IMPUGNED ASSESSMENT YEARS ARE AS UNDER: 3 ITA NOS.1638 TO 1641/PUN/2015 A.YS.2009-10 TO 2012-13 HOWEVER, IN ASSESSMENT PROCEEDINGS, THE ASSESSING OFFICER INVOKED THE PROVISIONS OF RULE 8D OF THE INCOME TAX RULES, 1962 A ND ENHANCED THE DISALLOWANCES U/S. 14A OF THE ACT AS UNDER: ASSESSMENT YEAR DISALLOWANCE U/S.14A ENHANCED BY ASSESSING OFFICER. (AMOUNT) 2009 - 10 1,37,98,000/ - 2010 - 11 1,52,19,000/ - 2011 - 12 1,27,07,000/ - 2012 - 13 1,52,11,000/ - 5. THE LD. AR SUBMITTED THAT NO DISALLOWANCE UNDER RULE 8 D(2)(II) IS WARRANTED AS THE ASSESSEE HAS NOT UTILIZED BORROWED FUN DS FOR MAKING INVESTMENT. OWN FUNDS OF THE ASSESSEE ARE MUCH MORE THAN THE INVEST MENTS MADE. THE CASE OF THE ASSESSEE IS SQUARELY COVERED BY THE DECISION OF HON'BLE BOMBAY HIGH COURT IN THE CASE OF CIT VS. RELIANCE UTILITIES AND POWER LTD., REPORTED AS 313 ITR 340 AND HDFC BANK LI MITED VS. DCIT, REPORTED AS 366 ITR 505. 5.1 THE LD. AR FURTHER SUBMITTED THAT IN SO FAR AS DISALLOWAN CE UNDER RULE 8D(2)(III) IS CONCERNED, THE ASSESSING OFFICER WHILE MAKING DISA LLOWANCE ASSESSMENT YEAR AMOUNT 2009 - 10 1,04,49,268/ - 2010 - 11 51,79,590/ - 2011 - 12 1,78,09,980/ - 2012 - 13 2,31,29,018/ - 4 ITA NOS.1638 TO 1641/PUN/2015 A.YS.2009-10 TO 2012-13 HAS NOT REDUCED THE AMOUNT OF SUO-MOTO DISALLOWANCE MAD E BY THE ASSESSEE. THE LD. AR SUBMITTED THAT THE DISALLOWANCE ALREA DY MADE BY THE ASSESSEE SHOULD BE REDUCED FROM THE DISALLOWANCE MADE UN DER RULE 8D(2)(III) OF THE I.T. RULES. IN THE FIRST APPELLATE PROCEEDINGS, THE COMMISSIONER OF INCOME TAX (APPEALS) HAS CONFIRMED THE DISA LLOWANCE MADE BY ASSESSING OFFICER. 6. ON THE OTHER HAND, SHRI J.P. CHANDRAKAR REPRESENTING THE DEPARTMENT VEHEMENTLY DEFENDED THE IMPUGNED ORDER AND PRAYED FOR DISMISSING THE APPEALS OF THE ASSESSEE. 7. WE HAVE HEARD THE SUBMISSIONS MADE BY REPRESENTATIV ES OF RIVAL SIDES AND HAVE PERUSED THE ORDERS OF AUTHORITIES BELOW. THE S OLITARY ISSUE RAISED IN ALL THE FOUR APPEALS BY THE ASSESSEE IS AGAINST MAKING D ISALLOWANCE U/S.14A R.W.R 8D OVER AND ABOVE SUO-MOTO DISALLOWANCE MA DE BY THE ASSESSEE. ITA NO.1638/PUN/2015 (ASSESSMENT YEAR 2009-10) 8. THE ASSESSEE IN GROUND NO.1 OF THE APPEAL HAS ASSAILED THE MANNER OF RECORDING SATISFACTION BY ASSESSING OFFICER FOR REJECTING SUO -MOTO DISALLOWANCE BY THE ASSESSEE. DURING THE COURSE OF SUBMISS IONS BEFORE US, THE LD. AR OF THE ASSESSEE HAS FAILED TO POINT ANY INFIRMITY IN THE SATISFACTION RECORDED BY THE ASSESSING OFFICER FOR INVOKING PROVISIONS OF RULE 8D. HENCE, GROUND NO.1 IN THE APPEAL BY ASSESSEE IS DISMISSED. 9. THE ASSESSEE HAS MADE SUO-MOTO DISALLOWANCE BY ADOP TING THE METHOD AS APPLIED IN ASSESSMENT YEAR 2005-06. IT IS RELE VANT TO MENTION HERE THAT SECTION 14A WAS AMENDED BY THE FINANCE ACT, 2006 W.E.F. 5 ITA NOS.1638 TO 1641/PUN/2015 A.YS.2009-10 TO 2012-13 01.04.2007. AFTER THE AMENDMENT DISALLOWANCE IS TO BE COMPU TED IN ACCORDANCE WITH RULE 8D OF THE INCOME TAX RULES. THUS, THE METHOD OF COMPUTING DISALLOWANCE U/S.14A OF THE ACT PRIOR TO ASSESS MENT YEAR 2008- 09 AND POST AMENDMENT HAVE GONE UNDER SUBSTANTIAL CHA NGE. THUS, IN THE LIGHT OF THE AMENDED PROVISIONS OF SECTION 14A AND INTRODUC TION OF RULE 8D, THE METHOD OF COMPUTATION OF DISALLOWANCE U/S.14A HAS TO B E IN ACCORDANCE WITH RULE 8D. 10. AS PER PROVISION OF RULE 8D(2)(II), THE INTEREST PAID ON B ORROWED FUNDS UTILIZED FOR MAKING INVESTMENT IS TO BE DISALLOWED. HOWEVER, WH ERE NO INTEREST BEARING FUNDS ARE UTILIZED FOR MAKING SUCH INVESTME NT, NO DISALLOWANCE UNDER RULE 8D(2)(II) IS WARRANTED. THE HON'BLE BOMB AY HIGH COURT IN THE CASE OF CIT VS. RELIANCE UTILITIES AND POWER L TD. (SUPRA.) HAS HELD THAT WHERE BOTH INTEREST FREE FUNDS AND INTEREST BE ARING FUNDS ARE AVAILABLE AND THE INTEREST FREE FUNDS ARE MORE THAN THE IN VESTMENT MADE, THE PRESUMPTION IS THAT THE INVESTMENT IS MADE OUT OF IN TEREST FREE FUNDS AVAILABLE WITH THE ASSESSEE. THE HON'BLE JURISDICTIONAL HIGH COURT IN THE CASE OF HDFC BANK LTD. VS. DCIT (SUPRA.) FOLLOWING THE RATIO LA ID DOWN IN THE CASE OF CIT VS. RELIANCE UTILITIES AND POWER LTD.(SUPRA.) HAS HELD THAT INVESTMENT IN TAX FREE SECURITIES BY THE ASSESSEE WOULD B E PRESUMED TO HAVE BEEN MADE FROM OWN FUNDS IN CASE THEY ARE IN EXCESS OF INVESTMENT M ADE. 11. IN THE PRESENT CASE, WE FIND THAT AUTHORITIES BELOW HA VE FAILED TO CONSIDER THE DECISIONS OF HON'BLE HIGH COURT WHILE MAKING D ISALLOWANCE UNDER RULE 8D(2)(II) OF IT RULES. THE AUTHORITIES BELOW HAVE ALSO FAILED TO ASCERTAIN AVAILABILITY OF INTEREST FREE FUNDS WITH THE ASSESSE E FOR MAKING INVESTMENT DURING THE IMPUGNED ASSESSMENT YEARS. THE FAC T WHETHER SUFFICIENT INTEREST FREE FUNDS WERE AVAILABLE WITH THE ASSESSE E DURING THE 6 ITA NOS.1638 TO 1641/PUN/2015 A.YS.2009-10 TO 2012-13 ASSESSMENT YEARS UNDER APPEAL FOR MAKING INVESTMENT NEE DS VERIFICATION. UNDER SUCH CIRCUMSTANCES, WE DEEM IT APPROPRIATE TO REM IT THIS ISSUE BACK TO THE FILE OF THE ASSESSING OFFICER TO VERIFY THE AVAILABILITY OF INTEREST FREE FUNDS WITH THE ASSESSEE FOR MAKING INVESTMENT AND THEREA FTER, BY FOLLOWING THE RATIO LAID DOWN BY THE HON'BLE JURISDICTIONAL HIGH COURT IN THE CASES OF CIT VS. RELIANCE UTILITIES AND POWER LTD.(SUPRA.) AND HDFC BA NK LIMITED VS. DCIT (SUPRA.), SHALL COMPUTE DISALLOWANCE UNDER RULE 8D(2 )(II), IF REQUIRED. 12. IN SO FAR AS DISALLOWANCE UNDER RULE 8D(2)(III) IS CONCERNE D, THE ASSESSING OFFICER IS DIRECTED TO REDUCE THE AMOUNT OF SUO- MOTO DISALLOWANCE MADE BY THE ASSESSEE AND THEREAFTER, DETERMINE THE FINAL DISALLOWANCE UNDER THE PROVISIONS OF SECTION 14A R.W.R 8D. THE ASSESS ING OFFICER WHILE REVISITING THIS ISSUE SHALL GRANT REASONABLE OPPORTUNITY O F HEARING TO THE ASSESSEE, IN ACCORDANCE WITH LAW. THE GROUND NO. 2 OF THE APPEAL BY THE ASSESSEE IS PARTLY ALLOWED FOR STATISTICAL PURPOSES IN THE TERMS AFORESAID. 13. THE LD. AR OF THE ASSESSEE HAS NOT PRESSED GROUND NO. 3, ACCORDINGLY THE SAME IS DISMISSED. 14. IN THE RESULT, THE APPEAL OF THE ASSESSEE IN ITA NO.1 638/PUN/2015 FOR ASSESSMENT YEAR 2009-10 IS PARTLY ALLOWED FOR STATISTICAL PURPO SES. 15. IN APPEALS FOR ASSESSMENT YEARS 2010-11 TO 2012-1 3, THE ASSESSEE HAS ASSAILED THE FINDINGS OF COMMISSIONER OF INCOME TAX(APPEA LS) BY RAISING GROUNDS IDENTICAL TO THE GROUNDS RAISED IN THE APPEAL FOR ASSESSMENT YEAR 2009-10. IT IS AN ADMITTED FACT THAT THE ASSESSING OFFICER HAS MADE 7 ITA NOS.1638 TO 1641/PUN/2015 A.YS.2009-10 TO 2012-13 DISALLOWANCE U/S.14A R.W.R. 8D IN ALL THE FOUR IMPUGNED ASSES SMENT YEARS IN SIMILAR MANNER. THUS, THE FINDINGS GIVEN BY US WHILE ADJUDICA TING APPEAL OF THE ASSESSEE FOR ASSESSMENT YEAR 2009-10 WOULD MUTATIS-MUTANDIS APPLY TO ASSESSMENT YEARS 2010-11 TO 2012-13. ACCORDINGLY, T HE APPEALS OF THE ASSESSEE IN ITA NOS.1639 TO 1641/PUN/2015 FOR ASSESSM ENT YEARS 2010-11 TO 2012-13 ARE PARTLY ALLOWED FOR STATISTICAL PURPOSE IN SIMILAR TERM S. 16. IN THE RESULT, THE APPEALS OF THE ASSESSEE FOR ASSES SMENT YEARS 2009- 10 TO 2012-13 ARE PARTLY ALLOWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED ON FRIDAY, THE 14 TH DAY OF SEPTEMBER, 2018. SD/- SD/- ( / ANIL CHATURVEDI ) ( $ !% /VIKAS AWASTHY) / ACCOUNTANT MEMBER / JUDICIAL MEMBER / PUNE; !' / DATED : 14 TH SEPTEMBER, 2018 SB * + ,-$ .$) / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT. 2. / THE RESPONDENT. 3. THE CIT(APPEALS)-12, PUNE. 4. THE PR. CIT, CENTRAL, PUNE. 5. %&' () , * () , +,- , / DR, ITAT, B BENCH, PUNE. 6. './ 01 / GUARD FILE. // TRUE COPY // *2 / BY ORDER, 3 (- / PRIVATE SECRETARY * () , / ITAT, PUNE.