Prima Private Ltd., Pune V. Deputy Commissioner of Income-tax,

ITA 191/PUN/2015

• Counselvise Citation: [2017] 128 COUNSELVISE.COM (IT) 7206 (ITAT-PUNE)
• Duration Of Justice: 1 year(s) 11 month(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 25-01-2017
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: B
• Assessment Year: 2010-2011
• Appeal Filed On: 24-02-2015
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: P L KUREEL SHRI P L KUREEL
• Keywords: Earning of tax free income
• Section: 143(3); 14A

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL PUNE BENCH B , PUNE , , BEFORE MS. SUSHMA CHOWLA, JM AND SHRI ANIL CHATURVEDI, AM . / ITA NO. 1 91 /P U N/201 5 / ASSESSMENT YEAR : 20 1 0 - 1 1 PRIMA PRIVATE LIMITED, T - 73, MIDC, BHOSARI, PUNE 411026 . / APPELLANT PAN: AA BCP1938J VS. THE DY . COMMISSIONER OF INCOME TAX, CIRCLE 10 , PUNE . / RESPONDENT / APPELLANT BY : S HRI SHARAD SHAH / RESPONDENT BY : SHRI P.L. KUREEL / RESPONDENT BY : SHRI P.L. KUREEL / DATE OF HEARING : 0 1 . 12 .201 6 / DATE OF PRONOUNCEMENT: 25 . 0 1 .201 7 / ORDER PER SUSHMA CHOWLA, J M : TH IS APPEAL FILED BY THE ASSESSEE IS AGAINST THE ORDER OF CIT (A) - 6 , PUNE, DATED 15 . 12 .20 1 4 RELATING TO ASSESSMENT YEAR 20 1 0 - 1 1 AGAINST ORDER PASSED UNDER SECTION 143(3) OF THE INCOME - TAX ACT , 1961 (IN SHORT THE ACT) . 2. THE ASSESSEE HAS RAISED THE FOLLOWING GROUNDS OF APPEAL: - 1 ) THE LEARNED A.O. HAS ERRED (AND CIT - A ERRED IN CONFIRMING) IN APPLYING RULE 8D AND INCREASED THE DISALLOWANCE BY U/S 14A R.W. RULE 8D BY ITA NO. 1 91 /PN/20 1 5 PRIMA PVT. LTD. 2 RS.11,66,462/ - WITHOUT JUSTIFYING AS TO WHY ASSESSEE IS NOT CORRECT IN APPLYING SECTION 14A OF THE INCOME - TAX ACT, 1961. 1 . 1 ) THE LEARNED A.O. HAS ERRED IN (AND CIT - A ERRED IN CONFIRMING) NOT CONSIDERING THE FACT THAT ASSESSEE HAS HUGE RESERVES AND INTEREST FREE FUNDS. 1 . 2 ) THE LEARNED A.O. HAS ERRED IN (AND CIT - A ERRED IN CONFIRMIN G) NOT CONSIDERING THE FACT THAT THERE IS HUGE INTEREST INCOME WHICH SHOULD BE SET OFF AGAINST INTEREST INCOME WHILE APPLYING RULE 8D. 3. THE ONLY ISSUE RAISED IN THE PRESENT APPEAL IS AGAINST DISALLOWANCE MADE UNDER SECTION 14A OF THE ACT. 4. BRIEFLY, I N THE FACTS OF THE CASE, THE ASSESSEE FOR THE YEAR UNDER CONSIDERATION HAD FILED RETURN OF INCOME DECLARING TOTAL INCOME OF RS.2,20,11,490/ - . THE ASSESSEE WAS ENGAGED IN THE BUSINESS OF MANUFACTURING OF ENGINEERING AND AUTOMOBILES PARTS AND ALSO DERIVES I NCOME FROM WINDMILL. THE ASSESSING OFFICER NOTED THAT THE ASSESSEE HAD SHOWN INVESTMENT IN SHARES AND MUTUAL FUNDS AT RS. 3,55,11,127/ - . FURTHER , THE INVESTMENT IN SHARES AND MUTUAL FUNDS AT RS. 3,55,11,127/ - . FURTHER , THE ASSESSEE HAD MADE DISALLOWANCE OF RS.5,74,355/ - IN ITS COMPUTATION OF INCOME UNDER SECTION 14A OF THE ACT . THE ASSESSING OFFICER SHOW CAUSED THE ASSESSEE TO EXPLAIN AS TO WHY THE EXPENSES RELATING TO THE EXEMPT INCOME SHOULD NOT BE DISALLOWED AS PER PROVISIONS OF SECTION 14A OF THE ACT READ WITH RULE 8D OF THE INCOME TAX RULES, 1962 (IN SHORT THE RULES). THE ASSESSING OFFICER HAS WORKED OUT THE DISALLOWANCE AT RS.17,40,816/ - . SINCE THE ASSESSEE DID NOT FILE ANY OBJECTIONS TO THE SAME, THE ASSESSING OFFICER MADE DISALLOWANCE OF RS.11,66,462/ - AS THE ASSESSEE ON ITS OWN MOTION HAD DISALLOWED RS.5,74,355/ - . 5. THE CIT(A) NOTED THAT THE INVESTMENT IN SHARES / MUTUAL FUNDS WERE MADE THROUGH OD ACCOUNT O N WHICH INTEREST WAS PAID BY THE ASSESSEE. HE ITA NO. 1 91 /PN/20 1 5 PRIMA PVT. LTD. 3 FURTHER NOTES THE CONTENTION OF ASSESSEE THAT NO INTEREST BEARING FUNDS WERE USED FOR INVESTMENT IN MUTUAL FUNDS. SINCE OD ACCOUNT WAS USED TO MAKE THE PAYMENTS, THE CLAIM OF ASSESSEE WAS REJECTED BY THE CIT(A). ANOTHER CONTENTION RAISED BY THE ASSESSEE WAS THAT THE OVERDRAFT FACILITY WAS AVAILED FROM THE BANK ON THE BASIS OF FDR, WHEREIN INTEREST EXPENDITURE WAS O NLY RS.40,74,139/ - AGAINST FD INTEREST EARNED OF RS.59,16,809/ - , AND SINCE THERE WAS POSITIVE INCOME OF RS.18,42,670/ - , NO DISALLOWANCE WAS TO BE MADE ON ACCOUNT OF INTEREST. FURTHER, IN THE ABSENCE OF ANY NEXUS IN RESPECT OF INTEREST EXPENDITURE AND THE INVESTMENT IN INSTRUM ENTS YIELDING TAX FREE INCOME, THE ASSESSEE CONTENDED THAT THERE WAS NO BASIS FOR DISALLOWANCE OF INTEREST BUT THE SAME WAS NOT ACCEPTED BY THE CIT(A) AND THE DISALLOWANCE OF RS.11,66,462/ - WAS UPHELD. 6. THE ASSESSEE IS IN APPEAL AGA INST THE ORDER OF CIT(A). 7. THE LEARNED AUTHORIZED REPRESENTATIVE FOR THE ASSESSEE POINTED OUT THAT THE DISALLOWANCE MADE BY THE ASSESSING OFFICER ON ACCOUNT OF INTEREST WAS TOTALING RS.11,66,462/ - AND THE ADMINISTRATIVE EXPENSES WERE DISALLOWED TO THE E XTENT OF RS.5,47,353/ - . THE LEARNED AUTHORIZED REPRESENTATIVE FOR THE ASSESSEE FURTHER POINTED OUT THAT THE ASSESSEE ON ITS OWN MOTION HAD DISALLOWED SUM OF RS.5,74,353/ - . OUR ATTENTION WAS DRAWN TO THE COPY OF BALANCE SHEET PLACED AT PAGE 13 OF THE PAPE R BOOK, WHEREIN THE ASSESSEE HAD OWN CAPITAL AND RESERVES & SURPLUS TO THE EXTENT OF RS.25.42 CRORES AS AGAINST INVESTMENT MADE BY THE ASSESSEE IN MUTUAL FUNDS AT RS.11.62 CRORES. HE FURTHER POINTED OUT THAT THE INVESTMENT IN MUTUAL FUNDS TO THE EXTENT OF RS.11 CRORES W ERE BROUGHT FORWARD FROM EARLIER YEARS. HE FURTHER SUBMITTED THAT THE ASSESSING OFFICER HAS RECORDED NO SATISFACTION AND AT BEST THE SATISFACTION ITA NO. 1 91 /PN/20 1 5 PRIMA PVT. LTD. 4 RECORDED BY THE ASSESSING OFFICER WAS VAGUE AND IN THE ABSENCE OF THE SAME, PROVISIONS OF SECT ION 14A OF THE ACT COULD NOT BE APPLIED. REFERENCE WAS MADE TO THE RATIO LAID DOWN BY THE PUNE BENCH OF TRIBUNAL IN KALYANI STEELS LTD. VS. ADDL. CIT IN ITA NO.1733/PN/2012, RELATING TO ASSESSMENT YEAR 2008 - 09, ORDER DATED 30.01.2014. HE FURTHER POINTED OUT THAT EVEN ON MERITS, THERE IS NO CASE OF REVENUE, IN VIEW OF THE RATIO LAID DOWN BY THE HONBLE BOMBAY HIGH COURT IN CIT VS. HDFC BANK LTD. (2014) 366 ITR 505 (BOM) , WHERE IT HAS BEEN HELD THAT IN CASE THE ASSESSEES OWN FUNDS WERE MORE THAN INVESTMENT IN TAX FREE SECURITIES, THEN NO DISALLOWANCE IS TO BE MADE ON ACCOUNT OF INTEREST UNDER SECTION 14A OF THE ACT. 8. THE LEARNED DEPARTMENTAL REPRESENTATIVE FOR THE REVENUE PLACED RELIANCE ON THE ORDERS OF AUTHORITIES BELOW. 9. WE HAVE HEARD THE RIVAL CON TENTIONS AND PERUSED THE RECORD. THE ISSUE 9. WE HAVE HEARD THE RIVAL CON TENTIONS AND PERUSED THE RECORD. THE ISSUE WHICH ARISES IN THE PRESENT APPEAL IS AGAINST DISALLOWANCE MADE UNDER SECTION 14A OF THE ACT READ WITH RULE 8D OF THE RULES. THE ASSESSEE HAD MADE INVESTMENT TO THE EXTENT OF RS.11.62 CRORES IN MUTUAL FUNDS, ON WHICH ADMITTEDLY, THE INCOME EARNED WAS EXEMPT FROM TAX. THE ASSESSING OFFICER WAS OF THE VIEW THAT THE EXPENDITURE RELATING TO EARNING INCOME ON SUCH INVESTMENT WHICH WAS EXEMPT FROM TAX WAS TO BE DISALLOWED, IN VIEW OF PROVISIONS OF SECTION 14A OF THE A CT. THE CASE OF ASSESSEE ON THE OTHER HAND, WAS THAT IT HAD SUFFICIENT OWN FUNDS BY WAY OF CAPITAL AND RESERVES & SURPLUS, WHICH FAR EXCEEDED THE INVESTMENT IN TAX EXEMPT SECURITY AND HENCE, THERE WAS NO MERIT IN DISALLOWANCE OF ANY PART OF INTEREST EXPEN DITURE. THE ASSESSEE ON ITS OWN MOTION HAD DISALLOWED SUM OF RS. 5,74,353/ - BEING EXPENSES DIRECTLY ATTRIBUTABLE TO THE EARNING OF SAID EXEMPT INCOME. THE FIRST OBJECTION RAISED BY ITA NO. 1 91 /PN/20 1 5 PRIMA PVT. LTD. 5 THE ASSESSEE AGAINST THE DISALLOWANCE MADE BY THE ASSESSING OFFICER UNDER SECTION 14A OF THE ACT IS NON - RECORDING OF SATISFACTION MAKING THE SAID DISALLOWANCE. THE PERUSAL OF THE ASSESSMENT ORDER REFLECTS THAT THE ASSESSING OFFICER HAD NOTED THE DISALLOWANCE OF RS.5,74,355/ - MADE BY THE ASSESSEE IN ITS COMPUTATION OF INCOME. T HE ASSESSING OFFICER HAD ALSO NOTED THAT THE ASSESSEE HAD SHOWN INVESTMENT IN SHARES AND MUTUAL FUNDS AT RS.3.55 CRORES. THE LEARNED AUTHORIZED REPRESENTATIVE FOR THE ASSESSEE POINTED OUT THAT THE SAID FIGURE TAKEN BY THE ASSESSING OFFICER WAS WRONG AS TH E TOTAL INVESTMENT AT THE YEAREND WAS RS.11.62 CRORES. THE ASSESSING OFFICER THEREAFTER, ASKED WHETHER THE COMPUTATION OF DISALLOWANCE OF EXPENDITURE WAS AS PER PROVISIONS OF SECTION 14A OF THE ACT READ WITH RULE 8D OF THE RULES. THE ASSESSEE WAS ALSO IS SUED SHOW CAUSE NOTICE AS TO WHY EXPENSES RELATING TO EXEMPT INCOME SHOULD NOT BE DISALLOWED, IN VIEW OF PROVISIONS OF SECTION 14A OF THE ACT READ WITH RULE 8D OF THE RULES. THE ASSESSING OFFICER NOTES THAT THE ASSESSEE DID NOT OBJECT TO THE SAME AND FILE D REVISED WORKING OF DISALLOWANCE UNDER SECTION 14A OF THE ACT , AS PER WHICH THE DISALLOWANCE WORKED OUT TO RS.17,40,816/ - . SINCE THE ASSESSEE HAD NOT FILED ANY OBJECTIONS TO THE DISALLOWANCE, THE ASSESSING OFFICER MADE FURTHER DISALLOWANCE OF RS.11,66,46 2/ - . THE LEARNED AUTHORIZED REPRESENTATIVE FOR THE ASSESSEE IN THIS REGARD HAS POINTED OUT THAT THE ASSESSEE HAD NOT AGREED TO FURTHER DISALLOWANCE AND ONLY ON THE ASKING OF ASSESSING OFFICER, SUCH CALCULATION WAS FORWARDED. HE STRESSED THAT IN VIEW OF L ACK OF RECORDING OF SATISFACTION BEFORE APPLYING THE SAID PROVISIONS MAKE THE SAID DISALLOWANCE AS NOT CORRECT. RELIANCE WAS PLACED ON THE RATIO LAID DOWN BY THE PUNE BENCH OF TRIBUNAL IN KALYANI STEELS LTD. VS. ADDL. CIT (SUPRA), WHEREIN IT HAS BEEN HELD THAT RECORDING OF OBJECTIVE SATISFACTION WITH REGARD TO CORRECTNESS OF THE CLAIM OF ASSESSEE WAS MANDATORILY REQUIRED IN TERMS OF ITA NO. 1 91 /PN/20 1 5 PRIMA PVT. LTD. 6 SECTION 14A(2) OF THE ACT AND IN THE ABSENCE OF THE SAME, INVOKING OF RULE 8D OF THE RULES TO COMPUTE THE IMPUGNED DISALLOWAN CE WAS UNTENABLE. IN THE FACTS OF THE PRESENT CASE, THE ASSESSING OFFICER NOTED THE INVESTMENT MADE BY THE ASSESSEE IN MUTUAL FUNDS AND SHARES AND ALSO NOTED THE FACT THAT THE ASSESSEE HAD DISALLOWED RS.5,74,355/ - IN ITS COMPUTATION OF INCOME. THE ASSESS EE WAS ASKED WHETHER THE SAID COMPUTATION WAS AS PER PROVISIONS OF SECTION 14A OF THE ACT READ WITH RULE 8D OF THE RULES AND ALSO WAS ASKED TO GIVE WORKING OF THE SAME. SHOW CAUSE NOTICE WAS ISSUED TO THE ASSESSEE AS TO WHY EXPENSES RELATING TO EXEMPT INC OME SHOULD NOT BE DISALLOWED AS PER PROVISIONS OF SECTION 14A OF THE ACT READ WITH RULE 8D OF THE RULES. THE ASSESSING OFFICER FURTHER NOTES THAT THE ASSESSEE DID NOT OBJECT TO THE SAME AND HAS FILED REVISED WORKING. HOWEVER, THE CASE OF ASSESSEE BEFORE US IS THAT THE SAID REVISED WORKING WAS AT THE BEHEST OF THE ASSESSING OFFICER AND WAS NOT VOLUNTARILY FILED. WITHOUT GOING INTO THE SAME, WE FIND THAT WHERE THE ASSESSING OFFICER HAS NOTED THE ASPECTS OF INVESTMENT AND DISALLOWANCE MADE BY THE ASSESSEE A ND THE SAME BEING NOT IN LINE WITH THE DISALLOWANCE MADE UNDER SECTION 14A OF THE ACT READ WITH RULE 8D OF THE RULES, THEN IT CANNOT BE SAID THAT THE ASSESSING OFFICER HAS NOT RECORDED ANY SATISFACTION BEFORE INVOKING THE PROVISIONS OF SECTION 14A OF THE A CT READ WITH RULE 8D OF THE RULES. HENCE, THE FIRST ASPECT OF THE OBJECTION OF ASSESSEE IS DECIDED AGAINST THE ASSESSEE. 10. NOW, COMING TO THE MERITS OF AFORESAID DISALLOWANCE MADE IN THE HANDS OF ASSESSEE, WHEREIN SIMILAR ISSUE HAS BEEN ELABORATELY CON SIDERED BY THE HONBLE BOMBAY HIGH COURT IN CIT VS. HDFC BANK LTD. (SUPRA) AND IT HAS BEEN HELD THAT IN CASE THE INVESTMENT IN TAX FREE SECURITIES WAS MADE BY THE ITA NO. 1 91 /PN/20 1 5 PRIMA PVT. LTD. 7 ASSESSEE AND IT HAD SUFFICIENT OWN FUNDS AND OTHER NON - INTEREST BEARING FUNDS WHICH WERE MORE THAN INVESTMENT IN THE TAX FREE SECURITIES, THEN IT IS TO BE PRESUMED THAT THE INVESTMENT WAS MADE BY THE ASSESSEE OUT OF INTEREST FREE FUNDS AVAILABLE WITH THE ASSESSEE. AS POINTED OUT ABOVE, THE TOTAL OWN FUNDS AVAILABLE WITH THE ASSESSEE AS ON 31.03.2 010 ON ACCOUNT OF ITS CAPITAL AND RESERVES & SURPLUS WERE TO THE TUNE OF RS.25.42 CRORES, AS ON 31.03.2009 WERE RS.21.96 CRORES. FURTHER, INVESTMENTS IN TAX FREE SECURITIES AS ON 31.03.2010 WAS TO THE TUNE OF RS.11.62 CRORES AND RS.11 CRORES AS ON 31.03.2 009. THE ASSESSEE ADMITTEDLY, HAD OWN FUNDS MUCH MORE THAN INVESTMENTS MADE WHICH WERE EXEMPT FROM TAX. IN SUCH CIRCUMSTANCES, PRESUMPTION IS THAT INVESTMENT HAS BEEN MADE BY THE ASSESSEE OUT OF ITS OWN FUNDS WHICH WERE NON - INTEREST BEARING. THE STAND O F AUTHORITIES BELOW THAT THE SAID INVESTMENT WAS MADE OUT OF OD ACCOUNT OF THE ASSESSEE DOES NOT ESTABLISH THE NON - AVAILABILITY OF INTEREST FREE FUNDS WITH THE ASSESSEE. MERELY BECAUSE THE INVESTMENT HAS BEEN MADE OUT OF OD ACCOUNT OF THE ASSESSEE AND ALS O KEEPING IN MIND THAT THE INVESTMENTS WERE MADE IN THE PRECEDING YEAR, WE FIND NO MERIT IN THE PLEA OF CIT(A) IN THIS REGARD AND REJECTING THE SAME, WE HOLD THAT NO DISALLOWANCE IS TO BE MADE OUT OF INTEREST EXPENDITURE PAID BY THE ASSESSEE. ANOTHER ASPE CT OF THE ISSUE IS THAT THE ASSESSEE HAD EARNED INTEREST ON FDRS TO THE TUNE OF RS.59,16,809/ - AND HAD PAID INTEREST TO THE EXTENT OF RS.40,74,139/ - . THUS, THERE WAS POSITIVE INTEREST INCOME OF RS.18,42,670/ - FOR THE YEAR UNDER CONSIDERATION AND IN THE AB SENCE OF ANY INTEREST EXPENDITURE BEING DEBITED, THERE IS NO MERIT IN DISALLOWING ANY PART OF INTEREST EXPENDITURE. ACCORDINGLY, WE DIRECT THE ASSESSING OFFICER TO DELETE THE DISALLOWANCE MADE ON ACCOUNT OF INTEREST ATTRIBUTABLE TO THE FUNDS UTILIZED FOR MAKING THE TAX FREE INVESTMENTS. IN THE ABSENCE OF ANY EVIDENCE BROUGHT ON ITA NO. 1 91 /PN/20 1 5 PRIMA PVT. LTD. 8 RECORD THAT THE INTEREST FREE FUNDS WERE NOT UTILIZED FOR INVESTMENT IN TAX FREE SECURITIES, WE FIND NO MERIT IN THE ORDER OF ASSESSING OFFICER IN DISALLOWING THE INTEREST EXPENDIT URE ATTRIBUTABLE TO THE EARNING OF TAX FREE INCOME. HENCE, NO DISALLOWANCE IS TO BE MADE OF RS. 1 1 , 66 , 462 / - . HOWEVER, THE ASSESSEE ON ITS OWN MOTION HAD DISALLOWED SUM OF RS.5,74,355/ - IN ITS COMPUTATION OF INCOME, WHICH IS NOT DISTURBED. THE REFORE, THE ASSESSING OFFICER IS DIRECTED TO DELETE ADDITION OF RS.11,66,462/ - . THE GROUNDS OF APPEAL RAISED BY THE ASSESSEE ARE THUS, ALLOWED. 11 . IN THE RESULT, THE APPEAL OF THE ASSESSEE IS ALLOWED. ORDER PRONOUNCED ON THIS 25 TH DAY OF JANUARY , 201 7 . SD/ - SD/ - (ANIL CHATURVEDI ) (SUSHMA CHOWLA) (ANIL CHATURVEDI ) (SUSHMA CHOWLA) / ACCOUNTANT MEMBER / JUDICIAL MEMBER / PUNE ; DATED : 25 TH JANUARY , 201 7 . GCVSR / COPY OF THE ORDER IS FORWARDED TO : 1. / THE APPELLANT ; 2. / THE RESPONDENT; 3. ( ) / THE CIT (A) - 6 , PUNE ; 4. / THE CIT - 5 , PUNE ; 5. , , / DR B , ITAT, PUNE; 6. / GUARD FILE . / BY ORDER , // TRUE COPY // ASSISTANT REGISTRAR