The Dy. Commissioner of Income Tax, Circle-1(1)(1), Ahmedabad V. Adani Wilmar Ltd., Ahmedabad

ITA 1947/AHD/2017

• Counselvise Citation: [2020] 111 COUNSELVISE.COM (IT) 3646 (ITAT-AHMEDABAD)
• Duration Of Justice: 2 year(s) 6 month(s) 6 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 04-03-2020
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: D
• Next Hearing Date: 03-03-2020
• Assessment Year: 2013-2014
• Appeal Filed On: 29-08-2017
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: BIREN SHAH
• Assessee Lawyers: A KHAN
• Keywords: Depreciation; Earning of tax free income; Rule 8D
• Section: 14A; 143(1); 143(2)

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL D BENCH, AHMEDABAD BEFORE SHRI RAJPAL YADAV, HONBLE VICE-PRESIDENT AND SHRI T.S. KAPOOR HONBLE ACCOUNTANT MEMBER ITA.NO.1947/AHD/2017 WITH CROSS OBJECTION NO.52/AHD/2018 / ASSTT.YEAR : 2013-14 DCIT, CIR.1(1)(1) AHMEDABAD. VS ADANI WILMAR LTD. FORTUNE HOUSE, MITHAKHALI CROSS ROAD NAVRANGPURA AHMEDABAD 380 009. PAN : AABCA 8056 G / (APPELLANT) / (RESPONDENT) REVENUE BY : SHRI BIREN SHAH, AR ASSESSEE BY : SHRI M.S.A. KHAN, CIT - DR / DATE OF HEARING : 03/03/2020 / DATE OF PRONOUNCEMENT: 04/03/2020 !'/ O R D E R PER RAJPAL YADAV, VICE-PRESIDENT REVENUE IS IN APPEAL BEFORE THE TRIBUNAL AGAINST OR DER OF LD.CIT(A)-1, AHMEDABAD DATED 26.6.2017 PASSED FOR THE ASSESSMENT YEAR 2013-14. ON RECEIPT OF NOTICE ON THE REVENUES APPEAL, THE ASSE SSEE HAS FILED CROSS OBJECTION BEARING CO NO.52/AHD/2018. WE PROCEED T O DISPOSE OF BOTH CASES BY THIS COMMON ORDER. ITA NO.1947/AHD/2017 2 2. FIRST WE TAKE REVENUES APPEAL. SOLE GRIEVANCE RAISED BY THE REVENUE IS THAT THE LD.CIT(A) HAS ERRED IN RESTRICTING THE DISALLOWANCE OF RS.7,72,41,277/- MADE UNDER SECTION 14A OF THE INCO ME TAX ACT, 1961 R.W. RULE 8D OF INCOME TAX RULES, 1962. 3. BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE HA S FILED RETURN OF INCOME ON 28.11.2013 DECLARING TOTAL LOSS OF RS.NIL. AFTE R PROCESSING THE SAME UNDER SECTION 143(1) OF THE ACT, THE CASE OF THE AS SESSEE WAS SELECTED FOR SCRUTINY ASSESSMENT AND NOTICE UNDER SECTION 143(2) WAS ISSUED AND SERVED UPON THE ASSESSEE. DURING THE SCRUTINY ASSESSMENT, IT WAS NOTICED BY THE AO THAT THE ASSESSEE HAS EARNED DIVIDEND INCOME TO THE TUNE OF RS.2,64,500/- WHICH WAS EXEMPT FROM TAX. THE AO ALSO NOTICED TH AT OPENING BALANCE INVESTMENT AS ON 1.4.2013 WAS RS.1569.02 MILLION, A ND CLOSING OF THE SAME AS ON 31.3.2014 WAS RS.1326.33 MILLION. THE LD.AO ACC ORDINGLY SOUGHT FOR DETAILS OF EXPENSES INCURRED TOWARDS EARNING OF TAX FREE INCOME, AND ALSO PROPOSED AS TO WHY PROPORTIONATE EXPENSES SHOULD NO T BE DISALLOWED. THE ASSESSEE MADE ELABORATE WRITTEN SUBMISSIONS ALONG W ITH SUPPORTING CASE LAWS. ASSESSEE HAS ALSO FURNISHED DETAILS OF INVESTMENT A S ON 31.3.2013 AND 31.3.2012 AS REFLECTED IN THE AUDITED FINANCIAL STA TEMENTS. IT WAS ACCORDINGLY SUBMITTED THAT INVESTMENT REFLECTED IN THE BOOKS OF ASSESSEE WAS DUE TO MERGER/AMALGAMATION OF COMPANIES VIZ. ACALMAR OIL & FATS LTD., AND RAJSHRI PACKAGERS LTD. WITH THE ASSESSEE COMPANY, AND THER E WAS NO CASH OUTFLOW, EXCEPT RS.10,02,68,894/- FOR PURCHASE OF 25% SHARES OF KRISHNAPATNAM OILS & FATS P.LTD., WHICH WAS MADE OUT OF INTEREST FREE FUNDS AVAILABLE WITH THE ASSESSEE-COMPANY. ASSESSEE HAD HUGE AMOUNT OF INTE REST FREE FUNDS IN THE FORM OF CASH PROFIT VIZ. PROFIT AFTER TAX OF RS.75. 42 CRORES, DEFERRED TAX LIABILITY OF RS.45.81 CRORES AND DEPRECIATION RS.54 .94 CRORES, WHICH WERE SUFFICIENT TO MAKE NEW INVESTMENT TO THE TUNE OF RS .10 CRORES, AND THEREFORE, ITA NO.1947/AHD/2017 3 SINCE INTEREST FREE OWN FUNDS WERE FAR IN EXCESS OF THE FUNDS INVESTED IN TAX FREE INCOME, NO DISALLOWANCE UNDER SECTION 14A BE M ADE IN RESPECT OF EARNING TAX FREE INCOME. DISALLOWANCE IF AT ALL TO ME MADE, THEN THE SAME SHOULD NOT EXCEED THE QUANTUM OF EXEMPT INCOME OF RS.2,64,500/ -. THE LD.AO HOWEVER DID NOT SATISFY WITH EXPLANATION OF THE ASSESSEE, H E ACCORDINGLY CALCULATED PROPORTIONATE PRESUMPTIVE EXPENDITURE FOR EARNING O F TAX FREE INCOME WITH THE AID OF SECTION 14A READ WITH RULE 8D AT RS.7,72,41, 277/- AND MADE ADDITION TO THAT EXTENT. 4. AGGRIEVED BY THE ACTION OF THE AO, ASSESSEE WENT IN APPEAL BEFORE THE LD.CIT(A). BEFORE THE LD.FIRST APPELLATE AUTHORITY , ASSESSEE REITERATED ITS SUBMISSIONS AS WERE MADE BEFORE THE LD.AO. ASSESS EE FILED SUMMARIZED POSITION OF BALANCE SHEET AS ON 31.3.2013 AND 31.3. 2012 AND SUBMITTED THAT ASSESSEES OWN FUNDS IN THE FORM OF SHARE CAPITAL A ND RESERVES WERE RS.682,01 CRORES AT THE BEGINNING OF THE YEAR, AND RS.771.39 CRORES AT THE END OF THE YEAR. IN OTHER WORDS, ASSESSEES OWN FUNDS WERE 4. 35 TIMES MORE THAN ITS INVESTMENT AT THE BEGINNING OF THE YEAR, AND 5.81 T IMES MORE THAN AT THE END OF THE YEAR. IT WAS FURTHER SUBMITTED THAT FOR EAR NING MEAGER DIVIDEND INCOME OF RS.2,64,500/- THE ASSESSEE DID NOT HAVE TO INCUR ANY EXPENDITURE, AS ALL THE EXPENDITURE WERE IN GROUP COMPANIES AND STRATEGIC I N NATURE, AND THEREFORE, THERE WAS NO QUESTION OF ANY DISALLOWANCE UNDER SEC TION 14A OF THE ACT. EVEN OTHERWISE ALSO, IN ANY CASE, THE DISALLOWANCE COULD NOT BE MORE THAN THE AMOUNT TAX FREE INCOME OF RS.2,64,500/-. THE AO HA S SIMPLY MADE THE IMPUGNED DISALLOWANCE ON THE ASSUMPTION THAT THE AS SESSEE WOULD HAVE INCURRED SOME AMOUNT TOWARDS INTEREST AND ADMINISTR ATIVE EXPENSES, AND SUCH ASSUMPTION IS WITHOUT ANY BASIS OR LACK OF APPRECIA TION OF ASSESSEES CASE. IT WAS FURTHER SUBMITTED BY THE ASSESSEE THAT THE LD.C IT(A)-1 IN THE ASSESSEES OWN CASE FOR THE ASSTT.YEAR 2011-12 VIDE ORDER NO.C ITA)-1/72/DCIT, ITA NO.1947/AHD/2017 4 CIR.1(1)(1) 2015-16 DATED 26.4.2016 SIMILAR DISALLO WANCE MADE BY THE AO WAS RESTRICTED TO THE AMOUNT OF EXEMPT INCOME EARNE D BY THE ASSESSEE. THEREFORE, AT THE MOST THE IMPUGNED DISALLOWANCE SH OULD BE RESTRICTED TO EXEMPT INCOME I.E. RS.2,64,500/-. AFTER CONSIDERING THE SUBMISSIONS OF THE ASSESSEE AND ALSO DECISION OF HIS PREDECESSOR FOR T HE ASSTT.YEAR 2011-12 IN ASSESSEES OWN CASE DISALLOWANCE WAS RESTRICTED TO RS.2,64,500/-. DISSATISFIED WITH THE ACTION OF THE LD.CIT(A), REVENUE IS NOW BE FORE THE TRIBUNAL. 5. BEFORE US, BOTH THE PARTIES HAVE SUPPORTED RESPE CTIVE ORDERS OF THE REVENUE AUTHORITIES. 6. AFTER HEARING BOTH THE SIDES AND ON PERUSAL OF M ATERIAL AVAILABLE ON THE RECORD, WE FIND SECTION 14A OF THE ACT CONTEMPLATES THAT THE EXPENDITURE INCURRED IN RELATION TO EARNING OF TAX FREE INCOME DESERVES TO BE DISALLOWED. DURING THIS YEAR, THE ASSESSEE HAS EARNED EXEMPT IN COME OF RS.2,64,500/- IN THE FORM OF DIVIDEND. ASSESSEE HAS SUBMITTED BEFORE THE REVENUE AUTHORITIES THAT IT HAS SUFFICIENT FUNDS IN THE FORM OF PAID UP SHARE CAPITAL AND RESERVES AND SURPLUS AT RS.682.01 CRORES AT THE BEGINNING OF THE YEAR, AND RS.771.39 CRORES AT THE END OF THE YEAR, WHICH IS MORE THAN F IVE TIMES OF THE INVESTMENT MADE BY THE ASSESSEE DURING THE YEAR. THERE IS NO FINDING BY THE AO THAT THE INVESTMENT MADE BY THE ASSESSEE WAS OUT OF LOAN/BOR ROWED FUNDS, AND THEREFORE, PROVISIONS OF SECTION 14A R.W.RULE 8D IS NOT APPLICABLE TO THE ASSESSEES CASE. AS THE FACTS EMERGES FROM THE REC ORD, THE INVESTMENT MADE BY THE ASSESSEE WAS STRATEGIC INVESTMENT AND NOT MA DE FOR EARNING OF DIVIDEND INCOME, THEREFORE, DISALLOWANCE CANNOT BE MORE THAN THE EXEMPT INCOME. WE ARE OF THE VIEW THAT THE LD.CIT(A) HAS APPRECIATED THE FACTS OF THE CASE, AND ALSO CONSIDERED EARLIER CLAIM OF THE ASSESSEE FOR T HE ASSTT.YEAR 2011-12, WHEREBY HE CONCURRED WITH THE DECISION OF HIS PREDE CESSOR IN RESTRICTING ITA NO.1947/AHD/2017 5 DISALLOWANCE TO THE EXTENT OF EXEMPT INCOME. IN T HE CASE OF CIT VS. CORRTECH ENERGY LTD., 372 ITR 97 (GUJ) HONBLE GUJA RAT HIGH COURT HAS HELD THAT IN THE ABSENCE OF ANY EXEMPT INCOME BEING CLAI MED BY THE ASSESSEE PROVISIONS OF SECTION 14A R.W.R 8D COULD NOT BE INV OKED. THE RATIONALE BEHIND THIS JUDGMENT IS THAT THE AMOUNT OF DISALLOW ANCE U/S 14A SHOULD NOT EXCEED THE EXEMPT INCOME. THE LD.AO WAS NOT JUSTIF IED IN INVOKING PROVISIONS OF SECTION 14A OF THE ACT IN THE PRESENT CASE. MOREOVER, THE ASSESSEE HAS EARNED A SMALL AMOUNT OF RS.2,64,500/- , WHEREAS THE LD.AO HAS CALCULATED A WHOPPING SUM OF RS.7,72,41,277/- AS PR OPORTIONATE EXPENDITURE FOR EARNING THE EXEMPT INCOME. EVEN ASSUMING THAT S OME EXPENDITURE IS REQUIRED TO BE DISALLOWED BUT SUCH DISALLOWANCE SHO ULD NOT EXCEED THE QUANTUM OF EXEMPT INCOME. THEREFORE, WE UPHOLD ORDE R OF THE LD.CIT(A) ON THIS ISSUE, AND DISMISS THE GROUND OF APPEAL OF THE REVENUE. CO NO.52/AHD/2018 7. THE LD.COUNSEL FOR THE ASSESSEE DID NOT PRESS AS SESSEES APPEAL FOR ADJUDICATION. THEREFORE, THE SAME IS DISMISSED FOR WANT OF PROSECUTION. 8. IN THE RESULT, BOTH APPEAL OF THE REVENUE AND TH E CO OF THE ASSESSEE, ARE DISMISSED. ORDER PRONOUNCED IN THE COURT ON 4 TH MARCH, 2020 AT AHMEDABAD. SD/- SD/- ( T.S. KAPOOR ) ACCOUNTANT MEMBER (RAJPAL YADAV) VICE-PRESIDENT AHMEDABAD; DATED 04/03/2020