M/s Advanced Micro Devices Pvt. Ltd., Ambala Cantt. V. Addl. CIT, Ambala

ITA 194/CHANDI/2016

• Counselvise Citation: [2017] 127 COUNSELVISE.COM (IT) 6950 (ITAT-CHANDIGARH)
• Duration Of Justice: 1 year(s) 5 month(s) 22 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 30-08-2017
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: Not Allotted
• Next Hearing Date: 28-02-2017
• Assessment Year: 2010-2011
• Appeal Filed On: 08-03-2016
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: MANJIT SINGH
• Keywords: Proportionate interest
• Section: 143(3); 14A

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL CHANDIGARH A BENCH, CHANDIGARH BEFORE SMT. DIVA SINGH, JUDICIAL MEMBER & DR. B.R.R. KUMAR, ACCOUNTANT MEMBER ITA NO. 194/CHD/2016 ASSESSMENT YEARS: 2010-11 M/S ADVANCED MICRO DEVICES VS. THE ADDITIONAL CIT PVT. LTD. 21, INDUSTRIAL AREA AMBALA AMBALA CANTT PAN NO. AABCA0652J (APPELLANT) (RESPONDENT) APPELLANT BY : SH. SUDHIR SEHGAL RESPONDENT BY : SH. MANJIT SINGH DATE OF HEARING : 10.08.2017 DATE OF PRONOUNCEMENT : 30.08.2017 ORDER PER DR. B.R.R. KUMAR, AM: THE PRESENT APPEAL HAS BEEN FILED BY THE ASSESSEE A GAINST THE ORDER OF THE LD. CIT(A), PANCHKULA DT. 12/01/2016. 2. IN THIS APPEAL ASSESSEE HAS RAISED THE FOLLOWING GROUNDS: 1. THE LD. CIT(A), PANCHKULA HAS ERRED IN LAW AND FACT S IN PARTIALLY CONFIRMING THE DISALLOWANCE MADE UNDER SECTION 14A BY THE LD. ACIT, AMBALA IN HIS ORDER UNDER SECTION 143(3) OF THE INCOME TAX ACT 1961. 2. THE LD. CIT(A) HAS ERRED IN LAW & FACTS IS IGNORING THE FACT THAT AO HAS MADE THE DISALLOWANCE WITHOUT CONSIDERING WHETHER T HE CLAIM MADE BY THE ASSESSEE IN RESPECT OF EXPENDITURE INCURRED IN RELA TION TO INCOME WHICH DOES NOT FORM PART OF THE TOTAL INCOME IS CORRECT. WHEREAS S UB SECTION (2) DOES NOT IPSO FACT ENABLE THE ASSESSING OFFICER TO APPLY THE METH OD PRESCRIBED BY THE RULE 8D STRAIGHTWAY. 3. BRIEF FACTS OF THE CASE ARE AS UNDER: DISALLOWANCE OF INTEREST UNDER SECTION 14A: AS PER COMPUTATION OF INCOME, THE ASSESSEE H AS SHOWN TOTAL INCOME OF RS.40,71,75,229/-. THE ASSESSEE H AS SHOWN LONG TERM CAPITAL LOSS OF RS.10,73,472/-, SHORT TERM CA PITAL LOSS (NET) 2 RS.2,843/-. THE ASSESSEE HAS SHOWN DIVIDEND INCOME OF RS.2,50,377/-WHICH HAS BEEN CLAIMED AS EXEMPT U/S 1 0(32) OF THE I.T. ACT. A PERUSAL OF THE DETAILS FILED REVEALS TH AT THE ASSESSEE HAS PAID INTEREST ON LOANS AT RS.7,65,620/-. AS PER BALANCE SHEET FILED BY THE ASSESSEE, TOTAL OF THE ASSETS SIDE IS RS.L,24,01,48,938/- AND VALUE OF 'INVESTMENTS' IS AT RS.15,00,46,344/- 4. THE ASSESSING OFFICER FELT THAT OUT OF INTEREST PAID ON LOANS, PROPORTIONATE INTEREST NEEDS TO BE DISALLOWED U/S14 A. SIMILARLY, DISALLOWANCE, OUT OF OTHER EXPENSES ALSO NEEDS TO B E MADE AS PER THE PROVISIONS OF SECTION 14A READ WITH RULE 8D . 5. THE ASSESSING OFFICER INVOKED THE PROVISIONS OF SECTION 14A OF THE INCOME-TAX ACT, 1961 WHICH READS, ' FOR THE PURPOSES OF COMPUTING THE TOTAL INCOME UNDE R THIS CHAPTER, NO DEDUCTION SHALL BE ALLOWED IN RESPECT OF EXPENDI TURE INCURRED BY THE ASSESSEE IN RELATION TO INCOME WHICH DOES NOT F ORM PART OF THE TOTAL INCOME UNDER THIS ACT.' THE ASSESSING OFFICER HELD THAT IN THE PREVIOUS ASS ESSMENT YEAR ALSO, A DISALLOWANCE HAD BEEN MADE UNDER THIS HEAD. THE ASSESSEE'S WAS ASKED TO EXPLAIN THE BASIS ON WHICH DISALLOWANCE WAS MADE IN THE PRECEDING YEAR AND WHY THE SAME SHO ULD NOT BE DISALLOWED DURING THE YEAR UNDER CONSIDERATION. THE ASSESSEE'S EXPLANATION DATED 12.02.2013 IN THIS REGARD IS AS U NDER: 'WE WISH TO SUBMIT THAT COMPANY HAD MADE SAME INVES TMENTS IN SHARES OF COMPANIES, PARTNERSHIP FIRMS AND IN HD FC PORTFOLIO. COMPANY IS GETTING HARDLY ANY DIVIDEND INCOME FR OM SHARES AND FOR WHICH NO SPECIFIC EXPENSES HAD BEEN INCURRE D. FURTHER, WE WISH TO SUBMIT THAT COMPANY IS GETTING BOTH TAX FREE AND TAXABLE INCOME FROM INVESTMENT IN PARTNERSHIP FIRM M/S MICRO INSTRUMENTS CO. AND HDFC PORTFOLIO. THE ASSESSEE CO MPANY WHILE CALCULATED TAXABLE INCOME HAD ADDED BACK RS.2,70,86 2/- WHICH IS DIRECT EXPENDITURE TOWARDS EXEMPTED INCOME. DURI NG THE PRECEDING YEAR DISALLOWANCE U/S 14A HAD BEEN MADE B Y AO FOR RS.9,77,023/- WHICH IN OUR OPINION IS NOT CORRECT A ND ACCORDINGLY WE HAVE PREFERRED A APPEAL BEFORE HON'BLE CIT(A) WH ICH IS YET TO BE HEARD. IN FACT EVEN DURING PRECEDING YEAR ALS O ASSESSEE COMPANY HAD ADDED BACK RS.250194/- WHICH WAS DIRECT EXPENDITURE TOWARDS EXEMPTED INCOME. THE ASSESSING OFFICER AFTER CONSIDERING THE REPLY O F THE ASSESSEE FOUND TO BE UNACCEPTABLE, THE ASSESSES CLAIM THAT IT HAD RIGHTLY ADDED BACK RS.2,70,862/- IN THE COMPUTATION. 3 6. THE ASSESSEE COMPANY SUBMITTEDITS COMPUTATION A S UNDER: THE ASSESSEE COMPANY WHILE CALCULATED TAXABLE INC OME HAD ADDED BACK RS.2,70,862/- WHICH IS DIRECT EXPENDITUR E TOWARDS EXEMPTED INCOME AS DETAILED BELOW: EXPENSES DEBITED IN PROFIT & LOSS BEING DIRECT EXP. ATTRIBUTABLE TO INVESTMENTS (ADDED BACK WHILE CALCULATING ASSESSABLE INCOME) RS.4,85,964/- LLESS: EXPENSES CLAIMED AGAINST INTEREST INCOME WHILE CALCULATING ASSESSABLE INCOME RS.2,15,102/- BALANCE EXPENSES ADDED BACK (THIS IS EQUIVALENT TO DISALLOWANCE OF EXPENDITURE AS PER RULE 8D AFTER CONSIDERING INVESTMENT IN PNB SHARE AND HDFC PORTFOLIO AS INVESTMENT YIELDING TAX FREE INCOME) RS.2,70,862/- THE ASSESSING OFFICER HELD THAT WORKING IS NOT COR RECT, BECAUSE IN FACT THE DISALLOWANCE IN THIS REGARD IS TO BE MADE AS PER SECTION 14A READ WITH RULE 8D OF I.T. RULES. FU RTHER, THE ASSESSEES SUBMISSION THAT IS GETTING BOTH TAX FREE AND TAXABLE INCOME FROM INVESTMENT IN PARTNERSHIP FIRM M/S MICR O INSTRUMENTS CO. IS NOT TENABLE, SINCE THERE IS NO PROVISION IN THE ACT WHICH MAKES SUCH A DISTINCTION, OR WHICH ALLOWS THE A.O. TO CONSIDER PROPORTIONATE INVESTMENT. THEREFORE, THE ENTIRE INV ESTMENT IS TO BE CONSIDERED FOR DISALLOWANCE OF INTEREST U/S 14A READ WITH RULE 8D. THEREFORE, THE ASSESSING OFFICER HAS RE-WORKED THE DISALLOWANCE U/S 14A READ WITH RULE 8D TO RS. 6,89,866/- (ADDITI ON OF RS. 4,19,004/- WHICH EXCLUDES RS. 2,70,862/- ADDED BACK BY THE ASSESSEE). 7. THE LD. CIT(A) HAS CONFIRMED THE ADDITION TO THE TUNE OF RS. 2,03,262/- BASED ON THE DECISION IN ASSESSES OWN C ASE FOR THE AY 2009-10 WHEREIN THE INVESTMENT WAS PROPORTIONATELY DIVIDED WHILE WORKING THE DISALLOWANCE. THE RELEVANT PARA IS AS U NDER: ON THE IDENTICAL FACTS, THE ISSUE OF DISALLOWANCE U /S 14A R.W. RULE 8D WAS CONSIDERED IN THE APPELLANT'S OWN CASE IN A.Y. 2009- 10 AND THE DECISION WAS GIVEN AS IN PRECEDING PARA. DURING THE YEAR UNDER CONSIDERATION, THE AO HAS COMPUTED THE DISALLOWANCE U/S 14A R.W. RULE 8D AFTER CONSIDERING THE TOTAL INVESTMENTS MADE FOR EARNING TAX FREE AS WELL AS TA XABLE INCOME. ON THE OTHER HAND, THE APPELLANT HAS S UBMITTED THAT AO WHILE WORKING THE DISALLOWANCE HAD PROPORTIONATELY APPORTIONED THE INCOME ARISING FROM INVESTMENT IN TAX FREE AND TAXABLE INCOME. SO, THE INVESTMENT SHOULD ALSO 4 BE PROPORTIONATELY DIVIDED WHILE WORKING THE DISAL LOWANCE. DURING THE APPELLATE PROCEEDINGS THE APPELLANT HAD SUBMITTED A CALCULATION AS PER RULE 8D ALONGWITH DETAILS OF I NVESTMENTS AND EXPENSES AS PER BALANCE SHEET. I AM IN AGREEMEN T WITH THE APPELLANT'S COMPUTATION WHERE THE AVERAGE VALUE OF INVESTMENTS MADE TO EARN TAX FREE INCOME HAS BEEN C ONSIDERED AS PER BALANCE SHEET RATHER THAN THE AVERAGE OF TOT AL INVESTMENTS COVERING TAX FREE AS WELL AS TAXABLE IN COME. THE DISALLOWANCE U/S 14A R.W. RULE 8D WORKS OUT TO RS.4 ,74,124/-. SINCE, THE APPELLANT HAS ALREADY ADDED BACK THE DIS ALLOWANCE OF RS.2,70,862/- IN ITS COMPUTATION, THEREFORE, THE FURTHER DISALLOWANCE TO THE EXTENT OF RS.2,03,262/- IS CONF IRMED. THIS GROUND OF APPEAL IS PARTLY ALLOWED . 8. BEFORE US LD. AR ARGUED THAT SUB SECTION (2) DOE S NOT IPSO FACT O ENABLE THE ASSESSING OFFICER TO APPLY THE METHOD PRESCRIBED BY THE RULE 8D STRAIGHT AWAY. 9. LD. DR STRONGLY SUPPORTED THE ORDER OF THE ASSES SING OFFICER . 10. WE HAVE PERUSED THE MATTER BEFORE US. 11. SUB SECTION (2) TO SECTION 14A READS AS UNDER: THE ASSESSING OFFICER SHALL DETERMINE THE AMOUNT OF EXPENDITURE INCURRED IN RELATION TO SUCH INCOME WHI CH DOES NOT FORM PART OF THE TOTAL INCOME UNDER THIS ACT IN ACC ORDANCE WITH SUCH METHOD AS MAY BE PRESCRIBED, IF THE ASSESSING OFFICER, HAVING REGARD TO THE ACCOUNTS OF THE ASSESSEE, IS N OT SATISFIED WITH THE CORRECTNESS OF THE CLAIM OF THE ASSESSEE I N RESPECT OF SUCH EXPENDITURE IN RELATION TO INCOME WHICH DOES N OT FORM PART OF THE TOTAL INCOME UNDER THIS ACT. WHILE THE ASSESSING OFFICER HAS DUTIFULLY INVOKED S UB SECTION (1) HAS OMITTED FOLLOWING THE CONDITIONS MENTIONED UND ER SUB- SECTION (2) I.E; OF NOT RECORDING THE SATISFACTION REGARDING THE CORRECTNESS OF THE CLAIM OF THE ASSESSEE. 12. THERE IS ABSOLUTELY NO SATISFACTION OF THE AO V IS-A-VIS THE INCORRECTNESS OF THE CLAIM OF THE ASSESSEE REGARDIN G QUANTUM OF EXPENSES INCURRED IN RESPECT OF THE IMPUGNED INVEST MENTS. BESIDES WE FIND THAT THE ASSESSEE HAD SUFFICIENT OW N FUNDS FOR MAKING THE INVESTMENTS. THIS FACT COUPLED WITH THE FAILURE TO HOLD AND RECORD SATISFACTION BY THE AO TAKES THE ISSUE I N FAVOUR OF THE ASSESSEE. 13. THE HON'BLE PUNJAB & HARYANA HIGH COURT IN AN N UMBER FO DECISIONS CIT VS. DEEPAK MITTAL 361 ITR 131 (P&H), CIT VS. ABHISHEK INDUSTRIES 380 ITR 652 (P&H) & CIT VS. KAPSONS ASSO CIATES 381 ITR 204 (P&H) HAS REITERATED THE PROPOSITION THAT SECTI ON 14A REQUIRES 5 THE ASSESSING OFFICER TO RECORD SATISFACTION THAT I NTEREST BEARING FUNDS HAVE BEEN USED TO EARN TAX FREE INCOME. THE S ATISFACTION MUST BE BASED 'ON CREDIBLE AND RELEVANT EVIDENCE. T HE ASSESSING OFFICER CANNOT RECORD A GENERAL OBSERVATION AND PRO CEED TO INFER THAT INTEREST BEARING FUNDS MUST HAVE BEEN USED TO EARN EXEMPTED INCOME. 14. IN VIEW OF THE ABOVE, WE HOLD THAT NO DISALLOWA NCE U/S 14A CAN BE MADE IN THE PRESENT FACTS OF THE CASE. THE D ISALLOWANCE U/S 14A OF RS. 2,03,262/- IS THEREFORE DELETED. 15. IN THE RESULT APPEAL OF THE ASSESSEE IS ALLOWED . SD/- SD/- (DIVA SINGH) (DR.B.R.R.KUMAR) JUDICIAL MEMBER ACCOUNTANT MEMBER DATED : 30.08.2017 RKK COPY TO: 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT 4. THE CIT(A) 5. THE DR