Kirloskar Pneumatic Co. Ltd., Pune V. Deputy Commissioner of Income-tax,

ITA 175/PUN/2014

• Counselvise Citation: [2015] 140 COUNSELVISE.COM (IT) 88802 (ITAT-PUNE)
• Duration Of Justice: 11 month(s) 21 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 19-01-2015
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: A
• Assessment Year: 2007-2008
• Appeal Filed On: 28-01-2014
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: B D SINGH
• Section: 14A

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL PUNE BENCH A, PUNE BEFORE MS. SUSHMA CHOWLA, JUDICIAL MEMBER AND SHRI R.K. PANDA, ACCOUNTANT MEMBER ITA NO. 175/PN/2014 (ASSESSMENT YEAR : 2007-08) KIRLOSKAR PNEUMATIC CO. LTD., HADAPSAR INDUSTRIAL ESTATE, PUNE SOLAPUR ROAD, HADAPSAR, PUNE - 411013 .. APPELLANT PAN NO.AAACK2479C VS. ADDL.CIT, RANGE-11, PUNE .. RESPONDENT ASSESSEE BY : SHRI C.H. NANIWADEKAR REVENUE BY : SHRI B.D. SINGH DATE OF HEARING : 12-01-2015 DATE OF PRONOUNCEMENT : 19-01-2015 ORDER PER R.K.PANDA, AM : THIS APPEAL FILED BY THE ASSESSEE IS DIRECTED AGAIN ST THE ORDER DATED 30-10-2013 OF THE CIT(A)-I, PUNE RELATI NG TO ASSESSMENT YEAR 2007-08. 2. THE ONLY EFFECTIVE GROUND RAISED BY THE ASSESSEE READS AS UNDER : THE LD.CIT(A) ERRED ON FACTS AND IN LAW IN UPHOLDIN G DISALLOWANCE OF RS.3,25,979/- U/S.14A OF THE INCOME TA X ACT. HE FAILED TO APPRECIATE THE CONTENTIONS AND ARGUMENTS A DVANCED BY THE ASSESSEE IN THIS BEHALF. 2.1 FACTS OF THE CASE, IN BRIEF, ARE THAT THE ASSES SEE IS A DOMESTIC COMPANY ENGAGED IN THE BUSINESS OF MANUFACTURING AN D SALE OF ENGINEERING GOODS AND MACHINERY, VIZ. AIR AND GAS C OMPRESSORS, 2 HIGH PRESSURE COMPRESSORS, REFRIGERATION AND AIR CO NDITIONING COMPRESSORS AND POWER & HYDRAULIC TRANSMISSION EQUI PMENTS. IT FILED ITS RETURN OF INCOME ON 25-10-2007 DECLARING TOTAL INCOME OF RS.42,20,485/-. DURING THE COURSE OF ASSESSMENT PR OCEEDINGS, THE AO NOTED THAT THE ASSESSEE COMPANY HAS DECLARED INC OME OF RS.81,51,324/- WHICH IS EXEMPT FROM TAX. THE ABOVE INCOME INCLUDES DIVIDEND INCOME OF RS.78,83,810/- AND INCO ME FROM UNITS OF UTI AMOUNTING TO RS.2,67,514/-. THE AO ASKED TH E ASSESSEE TO EXPLAIN AS TO WHY PROPORTIONATE EXPENSES SHOULD NOT BE DISALLOWED U/S.14A OF THE I.T. ACT. THE ASSESSEE REPLIED THAT THE PROVISIONS OF SECTION 14A ARE NOT ATTRACTED. HOWEVER, THE AO DID NOT ACCEPT THE CONTENTION OF THE ASSESSEE. APPLYING THE PROVISION S OF SECTION 14A R.W. RULE 8D THE AO COMPUTED THE DISALLOWANCE A T RS.3,25,979/-, I.E. RS.2,81,400/- ON ACCOUNT OF INT EREST EXPENSES UNDER RULE 8D(2)(II) AND RS.44,579/- ON ACCOUNT OF ADMINISTRATIVE EXPENSES UNDER RULE 8D(2)(III). 3. IN APPEAL THE LD.CIT(A) UPHELD THE ACTION OF THE AO. AGGRIEVED WITH SUCH ORDER OF CIT(A) THE ASSESSEE IS IN APPEAL BEFORE US. 4. THE LD. COUNSEL FOR THE ASSESSEE SUBMITTED THAT THERE WAS NO JUSTIFICATION ON THE PART OF THE REVENUE AUTHORI TIES TO DISALLOW THE INTEREST EXPENDITURE OF RS.2,81,400/-. REFERRI NG TO THE AUDITED ACCOUNTS OF THE COMPANY, HE SUBMITTED THAT THE COMP ANY HAS SUFFICIENT INTEREST FREE OWN FUNDS AND ALL THE INVE STMENTS WERE MADE OUT OF OWN FUNDS AND NO BORROWED FUNDS HAVE BE EN UTILIZED. 3 HE SUBMITTED THAT THE AVERAGE VALUE OF INVESTMENTS IS HARDLY RS.3.61 CRORES WHEREAS THE TOTAL OWN FUNDS OF THE A SSESSEE COMPANY ARE MORE THAN RS.84 CRORES. REFERRING TO T HE DECISION OF THE HONBLE BOMBAY HIGH COURT IN THE CASE OF CIT VS . RELIANCE UTILITIES AND POWER LTD. REPORTED IN 313 ITR 340 HE SUBMITTED THAT THE DISALLOWANCE OF INTEREST TO THE EXTENT OF RS.2, 81,400/- MAY BE DELETED. SO FAR AS DISALLOWANCE OF EXPENSES AMOUNT ING TO RS.44,579/- UNDER RULE 8D(2)(III) IS CONCERNED HE D ID NOT PRESS FOR THE SAME. 5. THE LD. DEPARTMENTAL REPRESENTATIVE ON THE OTHER HAND HEAVILY RELIED ON THE ORDER OF THE AO AND THE CIT(A ). 6. WE HAVE CONSIDERED THE RIVAL ARGUMENTS MADE BY B OTH THE SIDES, PERUSED THE ORDERS OF THE ASSESSING OFFICER AND THE CIT(A) AND THE PAPER BOOK FILED ON BEHALF OF THE ASSESSEE. WE HAVE ALSO CONSIDERED THE VARIOUS DECISIONS CITED BEFORE US. THERE IS NO DISPUTE TO THE FACT THAT AS AGAINST OWN CAPITAL OF ABOUT RS.84 CRORES THE AVERAGE INVESTMENT IN SHARES AND MUTUAL FUNDS, THE INCOME OF WHICH IS EXEMPT, IS HARDLY RS.3.61 CRORES. IT IS A LSO A FACT THAT NO BORROWED FUNDS HAVE BEEN UTILISED BY THE ASSESSEE, A FACT STATED BEFORE THE LOWER AUTHORITIES AND NOT CONTROVERTED B Y THE REVENUE. WE THEREFORE FIND FORCE IN THE SUBMISSION OF THE LD . COUNSEL FOR THE ASSESSEE THAT NO DISALLOWANCE ON ACCOUNT OF INT EREST IS REQUIRED U/S.14A R.W. RULE 8D IN VIEW OF THE DECISION OF THE HONBLE BOMBAY HIGH COURT IN THE CASE OF RELIANCE UTILITIES AND POWER 4 LTD. (SUPRA). THE RELEVANT OBSERVATION OF THE HON BLE HIGH COURT AT PARA 10 OF THE ORDER READS AS UNDER : 10. IF THERE BE INTEREST FREE FUNDS AVAILABLE TO AN ASSESSEE SUFFICIENT TO MEET ITS INVESTMENTS AND AT THE SAME TIME THE ASSESSEE HAD RAISED A LOAN IT CAN BE PRESUMED THAT THE I NVESTMENTS WERE FROM THE INTEREST FREE FUNDS AVAILABLE. IN OUR O PINION THE SUPREME COURT IN EAST INDIA PHARMACEUTICAL WORKS LTD. (SUPRA) HAD THE OCCASION TO CONSIDER THE DECISION OF THE CALCU TTA HIGH COURT IN WOOLCOMBERS OF INDIA LTD. (SUPRA) WHERE A SIM ILAR ISSUE HAD ARISEN.. BEFORE THE SUPREME COURT IT WAS ARGUED T HAT IT SHOULD HAVE BEEN PRESUMED THAT IN ESSENCE AND TRUE CHARACTER THE TAXES WERE PAID OUT OF THE PROFITS OF THE RELEVANT YEAR AN D NOT OUT OF THE OVERDRAFT ACCOUNT FOR THE RUNNING OF THE BUSINESS AND IN THESE CIRCUMSTANCES THE APPELLANT WAS ENTITLED TO CLAIM THE DEDUCTIONS. THE SUPREME COURT NOTED THAT THE ARGUMENT HAD CONSID ERABLE FORCE, BUT CONSIDERING THE FACT THAT THE CONTENTION HAD NOT BEEN ADVANCED EARLIER IT DID NOT REQUIRE TO BE ANSWERED. IT THEN NOTED THAT IN WOOLCOMBER'S CASE (SUPRA) THE CALCUTTA HIGH C OURT HAD COME TO THE CONCLUSION THAT THE PROFITS WERE SUFFICIEN T TO MEET THE ADVANCE TAX LIABILITY AND THE PROFITS WERE DEPOSITED IN THE OVER DRAFT ACCOUNT OF THE ASSESSEE AND IN SUCH A CASE IT SHOULD BE PRESUMED THAT THE TAXES WERE PAID OUT OF THE PROFITS O F THE YEAR AND NOT OUT OF THE OVERDRAFT ACCOUNT FOR THE RUNNIN G OF THE BUSINESS. IT NOTED THAT TO RAISE THE PRESUMPTION, THERE WAS SUFFICIENT MATERIAL AND THE ASSESSEE HAD URGED THE CONTE NTION BEFORE THE HIGH COURT. THE PRINCIPLE THEREFORE WOUL D BE THAT IF THERE ARE FUNDS AVAILABLE BOTH INTEREST FREE AND OVE R DRAFT AND/OR LOANS TAKEN, THEN A PRESUMPTION WOULD ARISE THAT INVEST MENTS WOULD BE OUT OF THE INTEREST FREE FUND GENERATED OR AVAILABLE WITH THE COMPANY, IF THE INTEREST FREE FUNDS WERE SUFFICI ENT TO MEET THE INVESTMENTS. IN THIS CASE THIS PRESUMPTION IS ESTABLISHED CONSIDERING THE FINDING OF FACT BOTH BY THE C.I.T. ( APPEALS) AND I.T.A.T. 6.1 RESPECTFULLY FOLLOWING THE DECISION OF THE HON BLE JURISDICTIONAL HIGH COURT CITED (SUPRA), WE HOLD TH AT NO DISALLOWANCE OF INTEREST UNDER RULE 8D(2)(II) IS CA LLED FOR UNDER THE FACTS AND CIRCUMSTANCES OF THE CASE. WE THEREF ORE SET ASIDE THE ORDER OF THE CIT(A) AND DIRECT THE ASSESSING OFFICE R TO DELETE THE DISALLOWANCE OF INTEREST OF RS.2,81,400/-. 6.2 SO FAR AS DISALLOWANCE OF EXPENSES UNDER RULE 8 D(2)(III) AMOUNTING TO RS.44,579/- IS CONCERNED, THE LD. COUN SEL FOR THE 5 ASSESSEE DID NOT PRESS FOR THE SAME. ACCORDINGLY, THE SAME IS SUSTAINED. 7. IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE IS PARTLY ALLOWED. PRONOUNCED IN THE OPEN COURT ON 19-01-2015. SD/- SD/- (SUSHMA CHOWLA) (R.K. PANDA) JUDICIAL MEMBER ACCOUNTANT MEMBE R PUNE DATED: 19 TH JANUARY, 2015 SATISH COPY OF THE ORDER FORWARDED TO : 1. ASSESSEE 2. DEPARTMENT 3. THE CIT(A)-I, PUNE 4. THE CIT-I, PUNE 5. THE D.R, A PUNE BENCH 6. GUARD FILE BY ORDER // TRUE COPY // ASSISTANT REGISTRAR ITAT, PUNE BENCHES, PUNE