ADDL CIT 3(1), MUMBAI V. THE BARODA RAYON CORPORATION LTD, MUMBAI

ITA 2064/MUM/2012

• Counselvise Citation: 206419914 RSA 2012
• Duration Of Justice: 3 year(s) 5 month(s) 12 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 09-09-2015
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: B
• Next Hearing Date: 24-02-2015
• Assessment Year: 2008-2009
• Appeal Filed On: 28-03-2012
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: AKSHAY J SHAH AR
• Assessee Lawyers: J K GARG
• Keywords: Depreciation; Earning of tax free income; Corroborative evidences
• Section: 14A

Judgement Text

, , , IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCHES B, MUMBAI , , , BEFORE SHRI JOGINDER SINGH, JUDICIAL MEMBER, AND SHRI ASHWANI TANEJA, ACCOUNTANT MEMBER ITA NO.2064/MUM/2012 ASSESSMENT YEAR: 2008-09 DCIT 3(1), R.NO.607 AAYAKAR BHAVAN, MUMBAI-400020 / VS. THE BARODA RAYON CORPORATION LTD., 193 HOECHST HOUSE, BACKBAY RECLAMATION, NARIMAN POINT MUMBAI-400 021 (REVENUE) (RESPONDENT) P.A. NO.AAACT2647M !'# / ASSESSEE BY SHRI J.K. GARG (DR) / REVENUE BY SHRI AKSHAY J. SHAH (AR) $ % & ' / DATE OF HEARING : 29/08/2015 ! & ' / DATE OF ORDER: 09/09/2015 ! / O R D E R PER ASHWANI TANEJA (ACCOUNTANT MEMBER): THE PRESENT APPEAL HAS BEEN FILED BY THE REVENUE AG AINST THE ORDER OF LD. COMMISSIONER OF INCOME TAX (APPEALS)-7 , MUMBAI BARODA RAYON CO. LTD. . 2 DATED 21.12.2011 FOR THE ASSESSMENT YEAR 2008-09. T HE GROUNDS RAISED BY THE REVENUE ARE REPRODUCED HEREUN DER: 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE AND IN LAW, THE LD.CIT(A) ERRED IN DELETING THE ADDITION O F RS.7,13,542/- MADE U/S.14A R.W. RULE 8D(2)(II) OF T HE ACT, HOLDING THAT THE AO HAS FAILED TO ESTABLISH THAT IN TEREST IS PAID ON BORROWED FUNDS WHICH WERE INVESTED IN FUNDS FROM WHICH INCOME IS EXEMPT FROM TAX, WITHOUT APPRECIATING THE FACT THAT AS PER THE PROVISIONS OF RULE 8D, THERE IS NO DISTI NCTION BETWEEN ANY TYPE OF ASSESSEE AS TO WHETHER BORROWIN GS WERE USED FOR SHARE TRADING OR NOT AND FURTHER AS PER TH E PROVISIONS OF SECTION 14A(2) ONCE THE AO IS NOT SATISFIED WITH THE CORRECTNESS OF THE CLAIM OF THE ASSESSEE IN RESPECT OF EXPENDITURE CLAIMED, HE HAS NO OPTION BUT TO DISALL OW SUCH EXPENDITURE IN ACCORDANCE WITH METHOD PRESCRIBED UN DER RULE 8D(2)(II)'. 2. 'ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE AND IN LAW, THE LD.CIT(A) ERRED IN DELETING THE ADDITION O F RS.29,45,OOO/ - MADE BY WAY OF DISALLOWANCE OF DEPR ECIATION ON IMPORTED CAR HOLDING THAT THE DEPRECIATION HAS A LREADY BEEN ALLOWED IN EARLIER YEARS, WITHOUT APPRECIATING THE FACT THAT IN THE COURSE OF ASSESSMENT PROCEEDINGS THE AS SESSEE HAS FAILED TO FURNISH ANY EVIDENCE TO SHOW THAT THE IMP ORTED CAR WAS USED FOR THE BUSINESS PURPOSE OF THE ASSESSEE C OMPANY AND FURTHER A DISALLOWANCE CANNOT BE ALLOWED MERELY ON THE GROUND THAT NO ADDITION ON THE SAME ISSUE WAS MADE IN THE PRECEDING YEARS'. 2. AFTER HEARING BOTH THE PARTIES AND HAVING GONE T HROUGH THE ORDERS OF LD. CIT(A) AND AO, THIS APPEAL IS DEC ODED AS UNDER: 3. GROUND NO.1: IN THIS GROUND, THE REVENUE HAS CHALLENGED THE ACTION OF LD. CIT(A) IN DELETING THE ADDITION O F RS.7,13,542/- OUT OF THE TOTAL ADDITION OF RS.10,13 ,343/- MADE BY THE AO U/S 14A OF THE INCOME TAX ACT, 1961. BARODA RAYON CO. LTD. . 3 4. THE AO HAD MADE DISALLOWANCE OF AN AGGREGATE AMO UNT OF RS.10,13,343/- U/S 14A UNDER FOLLOWING HEADS: (I) DISALLOWANCE OUT OF INTEREST EXPENSES FOR RS.7,13,5 42/- (II) DISALLOWANCE OUT OF INDIRECT EXPANSES (@ 0.5% OF AV ERAGE INVESTMENT FOR RS.2,99,801/- TOTAL RS.7,13,542 + 2,99,801=10,13,343/- 5. THE ASSESSEE CONTESTED THIS BEFORE THE LD. CIT(A ). IN APPEAL ORDER, LD. CIT(A) DELETED THE DISALLOWANCE ON ACCOUNT OF INTEREST AMOUNTING TO RS.7,13,542/- BUT SUSTAIN ED THE DISALLOWANCE ON ACCOUNT OF INDIRECT EXPENSES OF RS. 2,99,801/- . THE REVENUE CHALLENGED THE ORDER OF LD. CIT(A) IN GIVING RELIEF OF RS.7,13,542/- WHEREAS THE ASSESSEE ACCEPTED THE ORDER OF LD. CIT(A). 6. WE HAVE HEARD BOTH THE PARTIES. THE ASSESSEE HAS SUBMITTED THAT THE ASSESSEE HAS EARNED ONLY RS.500 AS DIVIDEND INCOME FROM MUTUAL FUND. THE ASSESSEE COMP ANY IS A SICK COMPANY HAVING CREDIT FACILITY AND OTHER LOA NS SINCE LONG TIME WHICH REMAINED UNPAID. IT HAS BEEN FURTHE R SUBMITTED BY THE ASSESSEE COMPANY THAT IT HAS IN IT S POSSESSION HUGE AMOUNT OF OWN FUNDS WHICH ARE FAR I N EXCESS OF AMOUNT OF INVESTMENT MADE IN SHARES. IT HAS BEEN FURTHER SUBMITTED THAT INVESTMENT IN SHARES HAS NOT BEEN MA DE OUT OF BORROWED FUNDS. IT IS OBSERVED BY US THAT THE LD. CIT(A) HAS GIVEN FINDINGS AFTER APPRECIATING THE FACTS AND CIR CUMSTANCES OF THE CASE AND EVIDENCES PLACED ON RECORD BY THE A SSESSEE COMPANY THAT AS ON 31.03.2008 THE AMOUNT OF TAX FRE E BARODA RAYON CO. LTD. . 4 INVESTMENT IN THE SHARES ETC WAS TO THE TUNE OF RS. 5.99 CRORES, WHEREAS AS PER THE BALANCE SHEET OF THE ASSESSEE CO MPANY, THE SHAREHOLDERS FUNDS ( I.E., SHARE CAPITAL & RES ERVES & SURPLUS) WERE TO THE TUNE OF RS.281.30 CRORES. ON T HE OTHER HAND, NET CURRENT ASSETS CAME TO RS.123.64 CRORES. IT WAS THUS, CONCLUDED BY THE LD. CIT(A) THAT INVESTMENT O F RS.5.99 CRORES CAN VERY WELL BE ASSUMED TO HAVE BEEN INVEST ED FROM ASSESSEES OWN FUNDS. IT HAS BEEN FURTHER FOUND BY THE LD. CIT(A) THAT ASSESSEE DID NOT MAKE ANY FRESH INVESTM ENTS DURING THE FINANCIAL YEAR IN TAX FREE SECURITIES. I T WAS THUS CONCLUDED BY LD. CIT(A) THAT AO COULD NOT ESTABLISH A NEXUS BETWEEN THE INTEREST EXPENDITURE AND THE INVESTMENT S MADE IN THE ASSETS WHERE THE INCOME WAS EXEMPTED FROM TAXAT ION. LD. CIT(A), RELYING UPON THE JUDGMENT OF HONBLE JURISD ICTIONAL HIGH COURT IN THE CASE OF RELIANCE UTILITIES & POWE R VS. CIT (2009) 178 TAXMAN 135 (BOM) HELD THAT SINCE AO COUL D NOT ESTABLISH THAT INTEREST IS PAID ON THE BORROWED FUN DS WHICH WERE INVESTED IN THE TAX FREE INVESTMENTS, HE COULD NOT HAVE MADE DISALLOWANCE OUT OF INTEREST EXPENSES INCURRED BY THE ASSESSEE. FURTHER RELIANCE HAS BEEN PLACED BEFORE U S ON THE JUDGMENT OF HONBLE DELHI HIGH COURT IN THE CASE OF JOINT INVESTMENT (P.) LTD. VS. CIT 59 TAXMANN.COM 295. TH E LD. COUNSEL HAD ALSO PLACED RELIANCE UPON THE JUDGMENT OF COORDINATE BENCH OF ITAT MUMBAI IN THE CASE OF DAGA GLOBAL CHEMICALS PVT. LTD. VS. ACIT IN ITA NO.5592/MUM/20 12 DATED 01.01.2015 FOR THE PROPOSITION THAT DISALLOWA NCE U/S 14A R.W RULE 8D CANNOT EXCEED EXEMPT INCOME. BARODA RAYON CO. LTD. . 5 7. AFTER CAREFULLY CONSIDERING ALL THE SUBMISSIONS OF BOTH THE PARTIES AND FACTS AND CIRCUMSTANCES OF THE CASE AND JUDGMENT OF HONBLE BOMBAY HIGH COURT IN THE CASE OF RELIANC E UTILITIES & POWER LTD (SUPRA), WE FIND THAT THE ASSESSEE HAD SUFFICIENT FUNDS IN THE FORM OF SHARE CAPITAL AMD RESERVES & S URPLUS SO AS TO ENABLE IT TO MAKE TAX FREE INVESTMENTS. FURTH ER THE EXEMPT INCOME IS MERELY TO THE TUNE OF RS.500/-, RE CEIVED IN THE FORM OF DIVIDEND IN THE INVESTMENTS MADE IN EAR LIER YEARS. IT IS FURTHER NOTED BY US THAT THE DISALLOWANCE OF RS.2,99,801/- ON ACCOUNT OF PROPORTIONATE EXPENSES OUT OF INDIRECT EXPENSES INCURRED BY THE ASSESSEE, HAS BEE N ACCEPTED BY THE ASSESSEE. UNDER THESE FACTS AND CIRCUMSTANCE S, WE FIND THAT THE ORDER OF LD. CIT(A) IN DELETING THE DISALL OWANCE ON ACCOUNT OF INTEREST FOR RS.7,13,542/- IS JUSTIFIED AND NO INTERFERENCE IS CALLED FOR IN THE ORDER OF LD. CIT( A) ON THIS ISSUE. THUS GROUND NO.1 OF REVENUES APPEAL IS REJE CTED. 8. IN GROUND NO. 2, THE REVENUE HAS CHALLENGED THE ACTION OF LD. CIT(A) IN DELETING THE ADDITION OF RS.29,45, 000/- MADE BY WAY OF DISALLOWANCE OF DEPRECIATION ON IMPORTED CAR. 9. THE AO MADE THE DISALLOWANCE OF DEPRECIATION CLA IMED BY THE ASSESSEE ON THE WRITTEN DOWN VALUE OF THE CAR O N THE GROUND THAT THE ASSESSEE COMPANY DID NOT FURNISH AN Y SUPPORTING EVIDENCE REGARDING THE IMPORTED CAR, I.E . RC BOOK, PURCHASES DETAILS, DETAILS OF PAYMENTS ETC. IN THE APPEAL BEFORE LD. CIT(A), THE ASSESSEE MADE DETAILED SUBMI SSIONS AND LD. CIT(A) DELETED THE DISALLOWANCE MADE BY THE AO. THE REVENUE HAS FILED AN APPEAL AGAINST THE ORDER OF LD . CIT(A). BARODA RAYON CO. LTD. . 6 10. WE HAVE HEARD BOTH THE PARTIES AND HAVE GONE TH ROUGH THE ORDERS PASSED BY THE AUTHORITIES BELOW. IT HAS BEEN SUBMITTED BY THE ASSESSEE THAT THE DEPRECIATION ON IMPORTED CAR WAS CALCULATED UPON THE OPENING WDV AS PER INCOM E TAX AND NO CAR WAS PURCHASED DURING THE IMPUGNED ASSESS MENT YEAR. IT WAS FURTHER SUBMITTED THAT THE ASSESSEE CO MPANY SUFFERED HEAVY OPERATIONAL LOSSES AND THEREFORE THE ENTIRE KEY PERSONNEL HAD LEFT THE ORGANIZATION, THE MANUFACTUR ING UNIT WAS UNDER LOCK OUT AND THEREFORE, UNDER THESE CIRCU MSTANCES IT WAS NOT FEASIBLE TO FURNISH THE PAYMENT DETAILS FOR PURCHASE OF CAR. IT WAS FURTHER SUBMITTED THAT THE ACCOUNTS OF THE ASSESSEE WERE AUDITED BY THE STATUTORY AUDIT UNDER THE COMPANIES ACT 1956 AND TAX AUDIT WAS CONDUCTED U/ S 44AB OF INCOME TAX ACT 1961. THE LD. CIT(A) OBSERVED THA T THE ASSESSEE COMPANY MADE THE CLAIM OF DEPRECIATION ON WDV VALUE OF THE IMPORTED CAR WHICH WAS INCLUDED IN THE BLOCK OF ASSETS OF THE ASSESSEE COMPANY FROM EARLIER YEARS A ND IT WAS NOT CASE OF PURCHASING OF ANY CAR DURING THE IMPUGN ED YEAR. IT WAS FURTHER OBSERVED THAT SINCE THE DEPRECIATION HA D ALREADY BEEN GIVEN IN EARLIER YEARS ON THIS CAR, THERE WAS NO JUSTIFICATION ON THE PART OF THE AO FOR NOT ALLOWIN G DEPRECIATION ON OPENING VALUE OF THE WDV. 11. HAVING CONSIDERED CAREFULLY THE SUBMISSIONS OF BOTH THE PARTIES AND FINDINGS OF LD. CIT(A), WE FIND THAT TH E DISALLOWANCE MADE BY THE AO WAS NOT JUSTIFIED. IT H AS BEEN OBSERVED BY US THAT AO HAS NOT ANYWHERE MENTIONED T HAT THE SAID CAR WAS NOT USED FOR THE PURPOSE OF BUSINESS O F THE BARODA RAYON CO. LTD. . 7 ASSESSEE COMPANY. THE ACCOUNTS OF THE ASSESEE COMPA NY ARE AUDITED BY THE STATUTORY AUDITORS AS WELL AS BY THE TAX AUDITORS. NO DEFECT HAS BEEN POINTED OUT IN ANY AUD IT REPORT. THE DEPRECIATION CLAIMED ON THE CAR WAS ON ACCOUNT OF OPENING VALUE OF THE WDV. THE DEPRECIATION HAS BEEN ALLOWED ON THIS CAR IN EARLIER YEARS. THUS, IN OUR CONSIDER ED VIEW THE DISALLOWANCE MADE BY THE AO WAS NOT JUSTIFIED AND L D. CIT(A) HAS RIGHTLY DELETED THE SAME AND WE UPHOLD THE ORDE R OF LD. CIT(A) ON THIS ISSUE. THUS, GROUND NO.2 OF REVENUE S APPEAL IS DISMISSED. 12. IN THE RESULT, THE APPEAL OF THE REVENUE IS DI SMISSED. SD/- (JOGINDER SINGH ) SD/- (ASHWANI TANEJA) ' # / JUDICIAL MEMBER $ # / ACCOUNTANT MEMBER $ % MUMBAI; ( DATED : 09/09/2015 CTX? P.S/. . . ! %'&'( )(*& / COPY OF THE ORDER FORWARDED TO : 1. *+, / THE APPELLANT 2. -.+, / THE RESPONDENT. 3. / / $ 0 ( * ) / THE CIT, MUMBAI. 4. / / $ 0 / CIT(A)- , MUMBAI 5. 34 -! , / *' ! 5 , $ % / DR, ITAT, MUMBAI 6. 6' 7% / GUARD FILE. ! / BY ORDER, .3* - //TRUE COPY// +/, - (DY./ASSTT. REGISTRAR) , $ % / ITAT, MUMBAI