M/S CONSTRUCTIVE FINANCE P LTD., Jaipur V. DCIT, Jaipur

ITA 180/JPR/2010

• Counselvise Citation: 18023114 RSA 2010
• Duration Of Justice: 1 year(s) 3 month(s) 22 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 24-06-2011
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: A
• Next Hearing Date: 04-11-2010
• Assessment Year: 2003-2004
• Appeal Filed On: 04-03-2010
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: KRANTI MEHTA
• Section: 14A

Judgement Text

1 IN THE INCOME TAX APPELLATE TRIBUNAL JAIPUR BENCH A JAIPUR (BEFORE SHRI R.K.GUPTA AND SHRI N.L.KALRA) ITA NO.180/ JP/2010 ASSESSMENT YEAR 2002-03 PAN: AAAFC 7766K M/S. CONSTRUCTIVE FINANCE (P) LTD. VS THE DCIT 2337. RAMLAL JI KA RASTA CIRCLE- 1 JOHRI BAZAR, JAIPUR JAIPUR (APPELLANT ) (RESPONDENT) ASSESSEE BY : SHRI KRANTI MEHTA DEPARTMENT BY : SHRI SUNIL MATHUR ORDER PER N.L. KALRA, AM:- THE ASSESSEE HAS FILED AN APPEAL AGAINST THE ORDER OF THE LD. CIT(A)-1, JAIPUR DATED 12-11-2009 FOR THE ASSESSMENT YEAR 2 002-03 WHEREIN THE SOLITARY GRIEVANCE OF THE ASSESSEE IS THAT THE LD. CIT(A) HAS ERRED IN CONFIRMING THE DISALLOWANCE OF RS. 2,21,99,976/- IN CURRED BY WAY OF INTEREST ON BORROWINGS U/S 14A OF THE ACT. 2.1 THE ASSESSEE COMPANY IS A FINANCE AND INVESTMEN T COMPANY. IT DERIVES INCOME UNDER FOLLOWING HEADS. 1.DIVIDEND RS. 1,13,83,550/- 2.COMMISSION RS. 25,00,000/- 3.SALE OF SHARES RS. 17,45,000/- 4.CONVERSION OF STOCK INTO INVESTMENT RS. 11,70 ,412/- 2 5.PROFIT ON DEALING IN SHARES RS. 81,38,226/- 6.OTHER INCOME RS. 29,28,776/- 2.2 THE AO NOTICED FROM THE BALANCE SHEET THAT ASSE SSEE IS HAVING SECURE AND UNSECURED LOANS TO THE EXTENT OF AROUND RS. 19. 10 CRORES. THE ASSESSEE HAS INCURRED FINANCIAL CHARGES I.E. INTEREST PAID T O INTER CORPORATE DEPOSITS AROUND RS. 2.22 CRORES. ACCORDING TO THE AO, SUCH L OANS HAVE BEEN UTILIZED FOR INVESTMENT AND PURCHASE OF SHARES TO THE EXTENT OF RS. 16.38 CRORES. THE EXPENDITURE OF INTEREST HAS BEEN CLAIMED AGAINST EX EMPTED INCOME AND THE SAME IS DISALLOWABLE. THEREFORE, THE ASSESSEE WAS G IVEN THE SHOW CAUSE VIDE LETTER DATED 15-07-2004 TO EXPLAIN AS TO WHY INTERE ST PAYABLE SHOULD NOT BE DISALLOWED U/S 14A OF THE ACT. THE ASSESSEE FILED T HE REPLY AND REPLY IS AVAILABLE AT PAGES 2 AND 3 OF THE ASSESSMENT ORDER. IN THE REPLY, THE ASSESSEE HAS NOT REFERRED TO SECTION 14A OF THE ACT. HOWEVER , THE AO WHILE PASSING THE ASSESSMENT ORDER HELD THAT EXPENDITURE INCURRED IN RELATION TO EXEMPTED INCOME IS TO BE DISALLOWED U/S 14A OF THE ACT. THE ENTIRE INTEREST WAS DISALLOWED U/S 14A OF THE ACT. 2.3 THE LD. CIT(A) HAS UPHELD THE ACTION OF THE AO. 2.4 WE HAVE HEARD BOTH THE PARTIES. THE LD CIT, DR FILED THE COPY OF THE BALANCE SHEET OF THE ASSESSEE. THE LD. AR DURING TH E COURSE OF PROCEEDINGS BEFORE US STATED THAT THE ASSESSEE HAS SHOWN PROFIT TO THE EXTENT OF RS. 11.70 CRORES BY VALUING THE SHARES OF APOLLO TYRES LTD. F ROM RS. 2.01 CRORES OF 3 IMMEDIATELY PRECEDING YEAR TO RS. 13.71 CRORES. HOW EVER, THIS FACT IS NOT EVIDENT FROM THE ASSESSMENT ORDER AND SUCH FACT IS TO BE VERIFIED BY THE AO. WE ARE NOT AWARE AS TO WHETHER INTEREST HAS BEEN DE BITED IN RESPECT OF ENTIRE LOANS I.E. SECURED OR UNSECURED. THE ASSESSEE IS HA VING SHARE CAPITAL OF AROUND RS. 3.50 CRORES. THERE ARE LOANS AND ADVANCE S TO THE EXTENT OF AROUND RS. 18.4 CRORES. IT MEANS THAT FACTS WHICH ARE REQU IRED TO BE CONSIDERED FOR ASCERTAINING THE DISALLOWANCE U/S 14A OF THE ACT AR E NOT AVAILABLE IN THE ASSESSMENT ORDER OR IN THE ORDER OF THE LD. CIT(A). THE HON'BLE BOMBAY HIGH COURT IN THE CASE OF GODREJ & BOYCE MANUFACTUR ING COMPANY LTD. VS DCIT, 328 ITR 81 HAS HELD THAT RULE 8 D IS APPLICA BLE FROM ASSESSMENT YEAR 2008-09. PRIOR TO ASSESSMENT YEAR 2008-09, THE AO IS DUTY BO UND TO DETERMINE THE EXPENDITURE IN RELATION TO INCOME WHI CH DOES NOT FORM PART OF TOTAL INCOME. IN THE INSTANT CASE, THERE IS NO SUCH DETERMINATION. THERE ARE DECISIONS OF DIFFERENT HIGH COURTS IN WHICH IT HAS BEEN HELD THAT RESERVES SURPLUS AND CAPITAL ARE FOR TAX FREE INVESTMENT AND BALANCE INVESTMENT IS OUT OF THE BORROWED FUNDS. ONE HAS TO CONSIDER THE SOUR CE OF INVESTMENT AND ASSETS FROM WHICH ASSESSEE IS EARNING TAX FREE INCO ME. IF SUCH INVESTMENTS ARE OUT OF BORROWED FUNDS THEN INTEREST IS TO BE DI SALLOWED. IF THE ASSESSEE IS HAVING COMMON POOL THEN THE AO WILL ALLOW AN OPPORT UNITY TO THE ASSESSEE TO EXPLAIN AS TO HOW COMMON POOL IS TO BE BIFURCATE D AMONGST THE 4 INVESTMENT YIELDING TAX FREE INCOME AND THE INVESTM ENT YIELDING TAXABLE INCOME. IN THE ABSENCE OF NECESSARY FACTS, IT IS NO T POSSIBLE FOR US TO DECIDE THE QUANTUM OF DISALLOWANCE TO BE MADE U/S 14A OF T HE ACT. WE THEREFORE, RESTORE BACK THE MATTER ON THE FILE OF THE AO TO QU ANTIFY THE DISALLOWANCE OF THE EXPENDITURE U/S 14A OF THE ACT AFTER PROVIDING OPPORTUNITY TO THE ASSESSEE 3. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS ALL OWED FOR STATISTICAL PURPOSES. THE ORDER IS PRONOUNCED IN THE OPEN COURT ON 24-06 -2011. SD/- SD/- (R.K. GUPTA) (N.L. KALRA) JUDICIAL MEMBER ACCOUNTANT MEMBER JAIPUR DATED; 24 /06/2011 *MISHRA COPY FORWARDED TO :- 1. M/S. CONSTRUCTIVE FINANCE (P) LTD. , JAIPUR 2. THE DCIT, CIRCLE- 1, JAIPUR 3. THE LD CIT (A) 4. THE LD. CIT BY ORDER 5. THE LD.DR 6. THE GUARD FILE (ITA NO.180/JP /10) A.R, ITAT, JAIPUR 5 6 7