Assistant Commissioner of Income-tax, Circle - 9, Pune V. Kinetic Engineering Ltd., Pune

ITA 1664/PUN/2017

• Counselvise Citation: [2019] 115 COUNSELVISE.COM (IT) 7642 (ITAT-PUNE)
• Duration Of Justice: 2 year(s) 3 month(s) 13 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 16-10-2019
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: B
• Assessment Year: 2007-2008
• Appeal Filed On: 03-07-2017
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: MADHAVAN AMK
• Keywords: Revised return; Rule 8D
• Section: 143(3); 14A; 148

Judgement Text

] IN THE INCOME TAX APPELLATE TRIBUNAL PUNE BENCH B , PUNE BEFORE SHRI ANIL CHATURVEDI, AM AND SHRI S.S. VISWANETHRA RAVI, JM . / ITA NO.1664/PUN/2017 / ASSESSMENT YEAR : 2007-08 THE ASST.COMMISSIONER OF INCOME TAX, CIRCLE 9, PUNE. . / APPELLANT. V/S KINETIC ENGINEERING LIMITED, D-1, BLOCK, PLOT NO.18/2, CHINCHWAD, PUNE 411019. PAN : AABCK1299B. . / RESPONDENT ASSESSEE BY : SHRI C.H. NANIWADEKAR. REVENUE BY : SHRI MADHAVAN AMK. / ORDER PER ANIL CHATURVEDI, AM : 1. THIS APPEAL FILED BY THE REVENUE IS EMANATING OUT OF THE O RDER OF COMMISSIONER OF INCOME TAX (A) 6, PUNE DATED 22.03.2017 FO R THE ASSESSMENT YEAR 2007-08. 2. THE RELEVANT FACTS AS CULLED OUT FROM THE MATERIAL ON R ECORD ARE AS UNDER :- ASSESSEE IS A COMPANY STATED TO BE ENGAGED IN THE BUS INESS OF MANUFACTURING OF TWO WHEELERS AND AUTO COMPONENTS. M/S. JAIHIND SCIAKY LIMITED WAS MERGED INTO THE ASSESSEE WITH EFFECT FR OM 01.04.2005 PURSUANT TO THE APPROVAL OF HONBLE BOMBAY HIG H COURT. / DATE OF HEARING : 26.09.2019 / DATE OF PRONOUNCEMENT: 16.10.2019 2 ASSESSEE CONSEQUENT TO THE APPROVAL OF THE DEMERGER AND AMALGAMATION SCHEME FILED REVISED RETURN OF INCOME. NOTICE U/S 148 OF THE ACT WAS ISSUED ON 29.12.2010 AND IN RESPONSE TO WHICH ASSESSEE S UBMITTED THAT THE RETURN FILED BY IT ON 20.12.2010 MAY BE CONSIDERED AS A RETURN IN RESPONSE TO NOTICE U/S 148 OF THE ACT. THE CASE WAS T AKEN UP FOR SCRUTINY AND THEREAFTER THE ASSESSMENT WAS FRAMED U/S 143(3) R.W.S. 147 OF THE ACT VIDE ORDER DT.27.12.2011 AND THE TOTAL IN COME WAS DETERMINED AT RS.28,90,03,680/-. AGGRIEVED BY THE ORDER O F AO, ASSESSEE CARRIED THE MATTER BEFORE LD.CIT(A), WHO VIDE ORD ER DT.22.03.2017 (IN APPEAL NO.PN/CIT(A)-V/ACIT CIR-9/657/2011- 12) GRANTED PARTIAL RELIEF TO THE ASSESSEE. AGGRIEVED BY THE ORDER OF LD.CIT(A), REVENUE IS NOW IN APPEAL BEFORE US AND HAS RAISE D THE FOLLOWING EFFECTIVE GROUND : WHETHER ON THE FACTS AND CIRCUMSTANCES OF THE CASE , THE CIT(A ) WAS JUSTIF I ED I N RESTRICTING THE DISALLOWANCE MADE U/S 14A TO ONLY 5% OF THE DIVIDEND INCOME , WHEN THE AO HAS RIGHTLY WORKED OUT THE DISALLOWANCE U/S 14A AFTER CLEARLY BRINGING ON RECO RD THAT TH E ASSESSEE COULD NOT EXPLAIN THAT THE INVESTMENT IN S HARES WAS NOT OUT OF TH E BO R ROWED FUNDS? 3. DURING THE COURSE OF RE-ASSESSMENT PROCEEDINGS, AO NOTICED THAT ASSESSEE HAD EARNED DIVIDEND INCOME OF RS.90,40,988/- WHICH WAS CLAIMED AS EXEMPT. HE ALSO NOTED THAT ASSESSEE HAD PAID NET INTEREST OF RS.17,11,81,282/- AND HAD MADE SUO MOTO DISALLOWANCE OF RS.4,52,050/- U/S 14A OF THE ACT. THE ASSESSEE WAS THE REFORE ASKED AS TO WHY THE PART OF INTEREST NOT BE DISALLOWED U/S 14A OF THE ACT. AO NOTED THAT NO SATISFACTORY EXPLANATION WAS GIVEN BY THE ASSESSEE. AO THEREAFTER WORKED OUT THE DISALLOWANCE OF INTEREST AT RS.3 ,04,45,474/- AND AFTER GIVING CREDIT OF SUO MOTO DISALLOWANCE MADE BY THE ASSESSEE, AO WORKED OUT THE DISALLOWANCE AT RS.2,99,93,424/- U/S 14A OF THE ACT. AGGRIEVED BY THE ORDER OF AO, ASSESSEE CARRIED THE MATTER BEFORE 3 LD.CIT(A) WHO WHILE DECIDING THE ISSUE IN FAVOUR OF ASSESSE E NOTED THAT THOUGH THE AO DID NOT INVOKE RULE-8D SPECIFICALLY FOR DISA LLOWING EXPENSES U/S 14A OF THE ACT BUT HAD MADE THE DISALLOW ANCE OF INTEREST ON PROPORTIONATE BASIS USING THE FORMULA PRESCRIBED UNDER RULE 8D OF THE ACT. LD.CIT(A) ALSO NOTED THAT RULE 8D WAS APPLICABL E FROM THE ASSESSMENT YEAR 2008-09 ONWARDS AND WAS NOT APPLICAB LE TO THE YEAR UNDER CONSIDERATION. HE FURTHER NOTED THAT PUNE TRIBUNA L IN VARIOUS CASES FOR THE PERIOD PRIOR TO A.Y. 2008-09 HAD RESTRICT ED DISALLOWANCE U/S 14A OF THE ACT TO 5% OF THE DIVIDEND INCOME AND FOLLOWIN G THE SAME BASIS HE DIRECTED THE AO TO RESTRICT THE DISALLOWANCE U/ S 14A OF THE ACT TO 5% OF DIVIDEND INCOME. AGGRIEVED BY THE ORDER OF LD.CI T(A), REVENUE IS NOW BEFORE US. 4. BEFORE US, LD. D.R. SUPPORTED THE ORDER OF AO HOWEV ER AT THE SAME TIME HE FAIRLY SUBMITTED THAT IN A.Y. 2006-07 THE TRIB UNAL IN ASSESSEES OWN CASE HAS HELD THE DISALLOWANCE OF 5% TO BE JUST AND REASONABLE. LD. A.R. ON THE OTHER HAND, REITERATED THE S UBMISSIONS MADE BEFORE AO AND LD.CIT(A) AND SUPPORTED THE ORDER OF LD.CIT(A). 5. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL ON RECORD. THE ISSUE IN THE PRESENT GROUND IS WITH RESPEC T TO DISALLOWANCE U/S 14A OF THE ACT MADE BY FOLLOWING THE FORMULA PRESCRIBED UNDER RULE 8D OF INCOME TAX RULES. IT IS AN UNDISPUTED FACT THAT TH E YEAR UNDER CONSIDERATION IS A.Y. 2007-08. WE FIND THAT HONBLE BOMBAY HIGH COURT IN THE CASE OF GODREJ & BOYCE MANUFACTURING CO. LTD., VS. DCIT REPORTED IN (2017) 394 ITR 449 (SC) HAS HELD THAT PROVISIONS OF RULE 8D ARE NOT APPLICABLE PRIOR TO A.Y. 2008-09. IN VIEW OF THE AFORESAID, W E ARE OF THE VIEW THAT LD.CIT(A) WAS FULLY JUSTIFIED IN HOLDING THAT NO DISA LLOWANCE U/S 14A OF THE ACT CAN BE MADE BY FOLLOWING THE FORMULA P RESCRIBED UNDER RULE 8D OF THE ACT. WE FURTHER FIND THAT LD.CIT(A) AFT ER RELYING ON 4 THE VARIOUS DECISIONS OF PUNE TRIBUNAL DIRECTED THE AO TO RESTRICT THE DISALLOWANCE U/S 14A OF THE ACT TO 5% OF THE DIVIDEND INCO ME. BEFORE US, REVENUE HAS NOT POINTED OUT ANY FALLACY IN THE FINDINGS OF LD.CIT(A). WE THEREFORE FIND NO REASON TO INTERFERE WITH THE ORDER OF LD.CIT(A). THUS, THE GROUNDS OF THE REVENUE ARE DISMISSED. 6. IN THE RESULT, THE APPEAL OF THE REVENUE IS DISMIS SED. ORDER PRONOUNCED ON 16 TH DAY OF SEPTEMBER, 2019. SD/- SD /- ( S.S. VISWANETHRA RAVI) ( ANIL CHATURVEDI ) ! / JUDICIAL MEMBER '! / ACCOUNTANT MEMBER PUNE; DATED : 16 TH SEPTEMBER, 2019. YAMINI #$%&'('% / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT 2. / THE RESPONDENT 3. 4. 5 6. CIT(A)-1, KOLHAPUR. PR. CIT-1, KOLHAPUR. '#$ %%&',) &', / DR, ITAT, B PUNE; $*+,/ GUARD FILE. / BY ORDER // TRUE COPY // -./%0&1 / SR. PRIVATE SECRETARY ) &', / ITAT, PUNE.