HINDOSTAN MILLS LTD( ERSTWHILE THE SIRDAR CARBONIC BAS CO. LTD), MUMBAI V. ITO 2(3)(3), MUMBAI

ITA 1779/MUM/2013

• Counselvise Citation: [2015] 140 COUNSELVISE.COM (IT) 100561 (ITAT-MUMBAI)
• Duration Of Justice: 2 year(s) 5 month(s) 2 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 07-08-2015
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: H
• Next Hearing Date: 12-03-2015
• Assessment Year: 2009-2010
• Appeal Filed On: 05-03-2013
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: JEETENDRA KUMAR
• Assessee Lawyers: NEHA PARANJAPE
• Keywords: Earning of tax free income

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL H BENCH, MUMBAI , , BEFORE SHRI JOGINDER SINGH , JM AND SHRI SANJAY ARORA , AM ./ I .T.A. NO. 1779/MUM/2013 ( / ASSESSMENT YEAR: 2009 - 10) HINDOOSTAN MILLS LTD. (ERSTWHILE: THE SIRDAR CARBONIC GAS CO. LTD.), SIR VITHALDAS CHAMBERS, 16 MUMBAI SAMACHAR MARG, FORT, MUMBAI - 400 001 / VS. INCOME TAX OFFICER 2(3)(3), ROOM NO. 555, 5 TH FLOOR, AAYAKAR BHAVAN, M. K. ROAD, MUMBAI - 400 020 ./ ./ PAN/GIR NO. AAACT 0173 A ( / APPELLANT ) : ( / RESPONDENT ) / APPELLANT BY : SHRI K. GOPAL & MS. NEHA PARANJAPE / RESPONDENT BY : SHRI JEETENDRA KUMAR / DATE OF HEARING : 01.07.2015 / DATE OF PRONOUNCEMENT : 07 .0 8 .2015 / O R D E R PER SANJAY ARORA, A. M.: THIS IS AN A PPEAL BY THE ASSESSEE DIRECTED AGAINST THE ORDER BY THE COMMISSIONER OF INCOME TAX (APPEALS) - 6 , MUMBAI (CIT(A) FOR SHORT) DATED 07.02.2013 , DISMISSING THE A SSESSEES APPEAL CONTESTING ITS ASSESSMENT U/S.143(3) OF THE INCOME TAX ACT, 1961 (THE ACT HEREINAFTER) FOR THE ASSESSMENT YEAR (A.Y.) 2009 - 10 VIDE ORDER DATED 26.12.2011 . 2 ITA NO. 1779/MUM/2013 (A.Y. 2009 - 10) HINDOOSTAN MILLS LTD. VS. ITO 2. THE ONLY ISSUE ARISING IN THE INSTANT APPEAL IS THE MAINTAINABILITY OR OTHERWISE IN LAW OF THE DISALLOWANCE U/S.14A, EFFECTED AND CONFIRMED IN THE SUM OF RS.25,48,941/ - , SO THAT, AGGRIEVED, THE ASSESSEE IS IN APPEAL. 3. OPENING THE ARGUMENTS FOR AND ON BEHALF OF THE ASSESSEE, IT WAS SUBMITTED BY THE LD. AUTHORIZED REPRESENTATIVE (AR), THE ASSESSEES COUNSEL , THAT THE DISALLOWANCE IS IN TWO PARTS. THE FIRST (AT RS.17,31,276/ - ) IS TOWARD INTEREST , WHICH HAS BEEN WORKED OUT IN TERMS OF RULE 8D(2)(II), I.E., BY ALLOCATING THE INTEREST COST ON PROPORTIONATE BASIS, IGNORING THE ASSESSEES CLAIM THAT THE BORROWED FUNDS, ON WHICH INTEREST HAS BEEN SUFFERED, IS TOWARD WORKING CAPITAL. THE SECOND PART ( AT RS.8,17,665/ - ) IS QUA INDI RECT, ADMINISTRATIVE EXPENDITURE, COMPUTED UNDER R ULE 8D(2)(III) , EVEN AS THE BU LK OF INVESTMENT IS IN SUBSIDIARY COMPANIES, ENTAILING NO ADMINISTRATIVE EXPENDITURE. THE LD. DEPARTMENTAL REPRESENTATIVE (DR) WOULD, ON THE OTHER HAND, SUBMIT THAT THE ARGUMEN T OF THE BORROWED CAPITAL FINANCING THE WORKING CAPITAL HAS BEEN FOUND AS FACTUALLY INCORRECT BY THE LD. CIT(A), WHILE NO PLEA QUA INVESTMENT BEING IN SUBSIDIARY COMPANIES WAS ASSUMED BEFORE THE REVENUE AUTHORITIES, FOR THEM TO HAVE CONSIDERED THE SAME. 4. WE HAVE HEARD THE PARTIES, AND PERUSED THE MATERIAL ON RECORD. OUR FIRST OBSERVATION IN THE MATTER, EVEN AS OBSERVED DURING HEARING, IS THAT THE ASSESSEE HAS BEEN ALLOWED CREDIT FOR SUO MOTU DISALLOWANCE U/S.14A AT RS.15,349/ - . THE SAME IS CLEARLY NOT IN ORDER AS THE SAME IS QUA DIRECT EXPENDITURE, COVERED UNDER R ULE 8D(2)(I) , WHILE THE DISALLOWANCE EFFECTED BY THE ASSESSING OFFICER (A.O.) IS U /R. 8D(2)(II)/(III). THOUGH THIS WAS CONCEDED TO BEFORE US BY THE LD. AR, THE A.O. SHALL YET ALLOW THE ASSESSE E AN OPPORTUNITY BEFORE REMOVING THIS ANOMALY, MAKING APPROPRIATE ADJUSTMENT, IF ANY, PER A SPEAKING ORDER , WHILE GIVING APPEAL EFFECT TO THIS ORDER. AS REGARDS THE DISALLOWANCE U /R. 8D(2)(II), THE ASSESSEE HAS RAISED A DEFINITE PLEA OF THE SECURED LOAN FR OM SICOM BEING A TERM LOAN FOR WORKING CAPITAL PURPOSE S . TRUE, THE LD. CIT(A) HAS ISSUED A FIN DING OF THE ACTUAL UTILIZATION OF THE SAID LOAN FOR 3 ITA NO. 1779/MUM/2013 (A.Y. 2009 - 10) HINDOOSTAN MILLS LTD. VS. ITO INVESTMENT IN SHARES, WHICH YIELD TAX EXEMPT INCOME IN THE FORM OF DIVIDEND. HE HAS, HOWEVER, NOT SUPPORTED T HE SAME WITH REFERENCE TO ANY SPECIFIC INSTANCE OR INFORMATION OR DATA. FURTHER, FUNDS BEING FUNGIBLE, IT WOULD BE IN ORDER TO TAKE A COMPOSITE VIEW OF THE MATTER. ONLY WHERE ANY PART OF THE INVESTMENT IS, FOR ANY PERIOD OF THE YEAR, FINANCED BY BORROWED C APITAL, TO ANY EXTENT, THAT INTEREST ATTRIBUTABLE THERETO S TANDS TO BE DISALLOWED TO THE PROPORTIONATE EXTENT, I.E., BOTH QUA THE QUANTUM OF INVESTMENT AND THE PERIOD OF FINANCING. NO SUCH DATA, AS AFORE - MENTIONED , IS SPECIFIED. A BROWSE OF THE BALANCE - SHE ET (PB PG. 32) REVEALS AD EQUATE LEVEL OF NET CURRENT ASSET S (I.E., CURRENT ASSET S CURRENT LIABILITIES) , INDICATING TOTAL ABSORPTION OF THE BORROWED FUNDS (SECURED LOAN ) TOWARD (NET) WORKING CAPITAL) , AS UNDER: (AMT IN RS.) PARTICULARS 31.03. 2009 31.03.2008 AVERAGE SECURED L OAN 166.39 334.23 250.31 NET CURRENT ASSET 263.34 305.30 284.32 HOW, GIVEN THE AFORE - STATED STATE OF AFFAIRS, COULD ONE INFER OF BORROWED FUND S (SECURED LOAN) AS FINANCING ALL THE ASSETS OF THE COMPANY PROPORTIO NATELY, FOR INTEREST TO BE DISALLOWED U/S.14A R/W R. 8D(2)(II) ON PROPORTIONATE BASIS? NO DISALLOWANCE QUA THE SAID INTEREST (AT RS.8,25,452/ - ) COULD BE MADE , AND WE DIRECT ITS DELETION. THE PLEA WITH REGARD TO THE UNSECURED LOAN, WHICH IS AT R S.320 LACS AN D RS. NIL AS ON 31.03.2009 AND 31.03.2008 RESPECTIVELY , OF BEING WHOLLY TOWARD WORKING CAPITAL , IS HOWEVER TOTALLY UNSUBSTANTIATED, SO THAT THE INTEREST QUA UNSECURED LOAN (RS.2,11,993/ - ) HAS BEEN CORRECTLY RECKONED ON PROPORTIONATE BASIS FOR DISALLOWANCE U/S.14A R/W R. 8D(2)(II), WHICH WE CONFIRM. THIS LEAVES US WITH THE DISALLOWANCE OF INDIRECT ADMINISTRATIVE EXPENDITURE UNDER RULE 8D(2)(III). NO PLEA OF THE INVESTMENT IN THE SUBSIDIARY COMPANIES, MADE FOR CONTROL PURPOSES, AS ASSUMED BEFORE US BY THE LD . AR, STANDS TAKEN BEFORE THE AUTHORITIES BELOW , EVEN AS ARGUED BY THE LD. DR . THE ASSESSEE HAS RATHER BEFORE THE LD. 4 ITA NO. 1779/MUM/2013 (A.Y. 2009 - 10) HINDOOSTAN MILLS LTD. VS. ITO CIT(A) CLARIFIED THAT OUT OF 19 PURCHASE TRANSACTIONS (OF INVESTMENTS), 9 HAVE BEEN MADE BY THE FUND MANAGER DIRECTLY, FEE TO WHOM STANDS EXCLUDED PER THE SUO MOTU DISALLOWANCE U/S.14A. SIMILARLY , OUT OF 23 SALE INSTANCES (OF INVESTMENT), 9 HAVE BEEN THROUGH THE POR TFOLIO MANAGER. THE SAME, ON THE CONTRARY, CLEARLY EXHIBIT THE ENGAGEMENT OF THE ORGANIZATIONAL RESOURCES IN INVESTMENT MANAGEME NT. EVEN GRANTING THAT THE SAME, AS AFORE - STATED, ARE HANDLED AT THE HEAD OFFICE (MUMBAI) , AND NOT AT THE FACTORY, ACTUAL EXPENSES FOR THE YEAR, EXCLUSIVE OF INTEREST, ARE AT RS. 103.52 LACS/RS. 88.46 LACS (PB PG . 30 ) ARE CLEARLY W AY BEYOND THE DISALLOWANCE OF RS.8.18 LACS EFFECTED TOWARD T HE SAME , WHICH, THUS, WOULD BE OF LITTLE ASSISTANCE TO THE ASSESSEE, SO THAT THE DISALLOWANCE STAND S CONFIRMED IN PRINCIPLE. WE DECIDE ACCORDINGLY. BEFORE PARTING WITH THIS ORDER, WE MAY ALSO STATE THAT THE ASSESSEE HAS BEF ORE US STATED OF THE FIGURE OF INVESTMENT/S, AS TAKEN BY THE A.O., TO BE INCORRECT IN - AS - MUCH AS IT INCLUDES INVESTMENT/S WHICH YIELD INCOME FORMING PART OF THE TOTAL INCOME, VIZ. I MMOVABLE P ROPERTY (RS.30,216/ - ), D EBENTURE S (RS.100 LACS), FURNISHING THE B REAK - UP OF THE SAME, SO THAT THE SAME WOULD STAND TO BE EXCLUDED IN RECKONING THE DISALLOWANCE U/S.14A R/W R. 8D(2)(II)/(III). THE A.O. IS, ACCORDINGLY, DIRECTED TO MAKE COMMEN SURA T E ADJUSTMENT AFTER VERIFICATION OF THE ASSESSEES CLAIM IN THE MATTER. WE DE CIDE ACCORDINGLY. 5 . IN THE RESULT, THE ASSESSEES APPEAL IS PARTLY ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON AUGUST 07 , 201 5 SD/ - SD/ - ( JOGINDER SINGH) (S ANJAY ARORA) / J UDICIAL MEMBER / A CCOUNTANT MEMBER MUMBAI ; DATED : 07 . 0 8 .201 5 . . ./ ROSHANI , SR. PS 5 ITA NO. 1779/MUM/2013 (A.Y. 2009 - 10) HINDOOSTAN MILLS LTD. VS. ITO / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT 2. / THE RESPONDENT 3. ( ) / THE CIT(A) 4. / CIT - CONCERNED 5. , , / DR, ITAT, MUMBAI 6. / GUARD F ILE / BY ORDER, / (DY./ASSTT. REGISTRAR) , / ITAT, MUMBAI