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

ITA 1750/PUN/2014

• Counselvise Citation: [2016] 132 COUNSELVISE.COM (IT) 1870 (ITAT-PUNE)
• Duration Of Justice: 1 year(s) 7 month(s) 17 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 06-05-2016
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: B
• Assessment Year: 2006-2007
• Appeal Filed On: 19-09-2014
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: HITENDRA NINAWE
• Keywords: Earning of tax free income
• Section: 14A

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL B BENCH, PUN E , , !'#'' $ , % & BEFORE SHRI R.K. PANDA, AM AND SHRI VIKAS AWASTHY, JM / ITA NO. 1750/PN/2014 %' ( ')( / ASSESSMENT YEAR : 2006-07 ASSTT. COMMISSIONER OF INCOME TAX, CIRCLE 9, PUNE ....... / APPELLANT ' / V/S. KINETIC ENGINEERING LIMITED, D-1 BLOCK, PLOT NO. 18/2, CHINCHWAD, PUNE-19 PAN : AABCK1299B / RESPONDENT ASSESSEE BY : SHRI C.H. NANIWADEKAR REVENUE BY : SHRI HITENDRA NINAWE / DATE OF HEARING : 07-03-2016 / DATE OF PRONOUNCEMENT : 06-05-2016 * / ORDER PER VIKAS AWASTHY, JM : THE APPEAL HAS BEEN FILED BY THE REVENUE AGAINST THE OR DER OF COMMISSIONER OF INCOME TAX (APPEALS)-V, PUNE DATED 24-06- 2014 FOR THE ASSESSMENT YEAR 2006-07. THE ONLY ISSUE RAISED BY THE REVENUE IN APPEAL AGAINST THE ORDER OF FIRST APPELLATE AUTHORITY IS D ELETING OF DISALLOWANCE U/S. 14A OF THE INCOME TAX ACT, 1961 (HEREINA FTER REFERRED TO AS THE ACT). 2 ITA NO. 1750/PN/2014, A.Y. 2006-07 2. THE BRIEF FACTS OF THE CASE AS EMANATING FROM RECORD S ARE: THE ASSESSEE IS A DOMESTIC COMPANY ENGAGED IN THE BUSINESS OF MANUFACTURING AND SALE OF SINTERED BEARING AND PARTS, SINTE RED AUTOMOTIVE COMPONENTS AND METAL POWDERS. DURING THE CO URSE OF SCRUTINY ASSESSMENT, THE ASSESSING OFFICER OBSERVED THAT THE ASSESSEE HAS EARNED DIVIDEND INCOME OF ` 38,48,054/- EXEMPT FROM TAX. THE ASSESSING OFFICER FURTHER OBSERVED THAT DURING THE RELEVAN T PERIOD THE ASSESSEE HAS PAID INTEREST NET OF INTEREST RECEIVED ` 12,08,17,112/-. THE ASSESSING OFFICER INVOKED THE PROVISIONS OF RULE 8D AND MADE DISALLOWANCE OF ` 1,79,82,121/- U/S. 14A ON INTEREST PAID. AGGRIEVED BY THE ASSESSMENT ORDER DATED 27-12-2011, T HE ASSESSEE PREFERRED AN APPEAL BEFORE THE COMMISSIONER OF INCOME TAX (APPEALS) INTER ALIA CHALLENGING THE DISALLOWANCE MADE U/S. 14A . THE COMMISSIONER OF INCOME TAX (APPEALS) BY FOLLOWING THE DECISIONS OF HON'BLE BOMBAY HIGH COURT IN THE CASE OF GODREJ & BOYCE MFG. CO. LTD. VS. DCIT REPORTED AS 328 ITR 81 (BOM) HELD THAT THE PR OVISIONS OF RULE 8D ARE NOT APPLICABLE IN THE ASSESSMENT YEAR UNDER APPEAL AND DIREC TED THE ASSESSING OFFICER TO DELETE THE DISALLOWANCE MADE U/S. 1 4A OF THE ACT. AGAINST THE FINDINGS OF COMMISSIONER OF INCOME TAX (APP EALS) THE REVENUE IS IN APPEAL BEFORE THE TRIBUNAL. 3. SHRI HITENDRA NINAWE REPRESENTING THE DEPARTMENT SUB MITTED THAT THE ASSESSEE HAS MADE HUGE INVESTMENTS IN SHARES . THE ASSESSEE HAS EARNED DIVIDEND INCOME OF ` 38,48,054/- WHICH IS EXEMPT FROM TAX. THE LD. DR CONTENDED THAT SOME DISALLOWANCE SHOULD BE MAD E FOR MANAGING THE INVESTMENT PORTFOLIO MAINTAINED BY THE ASSESSEE. 4. ON THE OTHER HAND SHRI C.H. NANIWADEKAR APPEARING ON BEHALF OF THE ASSESSEE SUBMITTED THAT THE ASSESSEE HAS VOLUNTAR ILY MADE 3 ITA NO. 1750/PN/2014, A.Y. 2006-07 DISALLOWANCE OF 5% OF THE DIVIDEND INCOME EARNED. THE LD. AR FURTHER SUBMITTED THAT THE ASSESSEE COMPANY HAS MADE INVESTME NTS IN SHARES FROM OWN INTEREST FREE FUNDS OVER THE PERIOD OF TIME. THE ASSESSEE HAS NOT UTILIZED BORROWED FUNDS FOR MAKING INVESTMENTS IN SHARE S. THE SUBSTANTIAL INVESTMENTS ARE MADE BY THE ASSESSEE IN ITS SUBSIDIARY COMPANIES. THE INVESTMENTS MADE IN GROUP COMPANIES ARE STRATEGIC INVESTMENTS AND NOT FOR EARNING INTEREST FREE DIVIDEND INCOM E. NO FRESH INVESTMENTS WERE MADE IN THE FINANCIAL YEAR 2005-06. THE LD. AR FURTHER SUBMITTED THAT ALTHOUGH NO EXPENDITURE HAS BEEN INCURRED BY THE ASSESSEE FOR EARNING DIVIDEND INCOME YET VOLUNTARILY D ISALLOWANCE OF 5% OF THE DIVIDEND INCOME EARNED BY THE ASSESSEE WOULD TAKE CARE O F ALL THE EXPENDITURE IN RELATION TO THE EARNING OF TAX FREE INCOME. THE LD. A R IN SUPPORTS OF HIS SUBMISSIONS PLACED RELIANCE ON THE DECISIO N OF CO- ORDINATE BENCH OF THE TRIBUNAL IN THE CASE OF FINOLEX INDUST RIES LTD. VS. ADDL. CIT IN ITA NO. 1365/PN/2011 FOR THE ASSESSMENT YEA R 2000-01 DECIDED ON 29-08-2013. THE LD. AR ALSO FURNISHED A STATE MENT SHOWING DETAILS OF INVESTMENTS. 5. WE HAVE HEARD THE SUBMISSIONS MADE BY THE REPRESEN TATIVES OF RIVAL SIDES AND HAVE PERUSED THE ORDERS OF THE AUTHORITIE S BELOW. THE SOLITARY ISSUE RAISED BY THE REVENUE IN APPEAL IS WITH RESP ECT TO DELETING OF DISALLOWANCE MADE U/S. 14A OF THE ACT. THE ASSE SSEE HAS MADE INVESTMENTS IN SHARES. A PERUSAL OF STATEMENT GIVIN G THE DETAILS OF INVESTMENTS SHOW THAT SUBSTANTIAL PART OF THE INVESTME NTS ARE MADE BY THE ASSESSEE IN ITS GROUP CONCERNS. ONLY A MINUSCULE PART OF INVESTMENTS ARE IN SHARES OF UNRELATED COMPANIES. A FURTH ER PERUSAL OF THE STATEMENT SHOWS THAT MAJORITY OF INVESTMENTS WERE MADE IN THE YEAR 1994-95, NO FRESH INVESTMENTS WERE MADE BY THE AS SESSEE DURING THE PERIOD RELEVANT TO THE ASSESSMENT YEAR 2006-07. T HE ASSESSEE HAS 4 ITA NO. 1750/PN/2014, A.Y. 2006-07 ITSELF MADE DISALLOWANCE OF 5% OF THE EXEMPT INCOME EARNED DURING THE RELEVANT PERIOD. THE LD. DR HAS NOT REBUTTED THE STATE MENT FURNISHED BY THE LD. AR. THE TRIBUNAL HAS BEEN CONSISTENTLY HOLDING THAT PRIOR TO THE ASSESSMENT YEAR 2008-09 A REASONABLE DISALLOWANCE S HOULD BE MADE U/S. 14A TO TAKE CARE OF THE EXPENDITURE FOR MANAG ING THE INVESTMENT PORTFOLIO. IN OUR CONSIDERED VIEW 5% DISALLOWANC E MADE BY THE ASSESSEE IS JUST AND REASONABLE. NO FURTHER INTERFER ENCE IS CALLED FOR IN THE IMPUGNED ORDER. 6. IN THE RESULT, THE APPEAL OF THE REVENUE IS DISMISSED B EING DEVOID OF ANY MERITS. ORDER PRONOUNCED ON FRIDAY, THE 06 TH DAY OF MAY, 2016. SD/- SD/- ( . . / R.K. PANDA) ( ! ' / VIKAS AWASTHY) #' / ACCOUNTANT MEMBER $ % #' / JUDICIAL MEMBER / PUNE; &# / DATED : 06 TH MAY, 2016 RK *+,%-.#/#)- / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT. 2. / THE RESPONDENT. 3. ' () / THE CIT(A)-V, PUNE 4. ' / THE CIT-V, PUNE 5. !*+ %%,- , ,- , . ./0 , / DR, ITAT, B BENCH, PUNE. 6. + 1 23 / GUARD FILE. // ! % // TRUE COPY// #4 / BY ORDER, %5 ,0 / PRIVATE SECRETARY, ,- , / ITAT, PUNE