Dy. Commissioner of Income Tax -4, Kanpur V. M/s. Tread Stone .Ltd., Kanpur

ITA 215/LKW/2012

• Counselvise Citation: 21523714 RSA 2012
• Duration Of Justice: 2 year(s) 7 month(s) 24 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 18-12-2014
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: A
• Next Hearing Date: 05-11-2014
• Assessment Year: 2006-2007
• Appeal Filed On: 24-04-2012
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Retrospective amendment; Additional evidence; Deemed dividend
• Section: 14A

Judgement Text

1 IN THE INCOME TAX APPELLATE TRIBUNAL LUCKNOW BENCH B, LUCKNOW BEFORE SHRI SUNIL KUMAR YADAV, JUDICIAL MEMBER AND SHRI A.K. GARODIA, ACCOUNTANT MEMBER ITA NO.215/LKW/2012 ASSESSMENT YEAR:2006 - 07 M/S TREAD STONE LTD., 39, FACTORY AREA, FAZALGANJ, KANPUR. PAN:AAACL2544H VS DY.C.I.T. - 4, KANPUR. (RESPONDENT) (APPELLANT) SHRI P. K. DEY, D. R. APPELLANT BY SHRI RAKESH GARG, ADVOCATE RESPONDENT BY 05/11/2014 DATE OF HEARING 18 /12/2014 DATE OF PRONOUNCEMENT O R D E R PER A. K. GARODIA, A.M. THIS IS REVENUES APPEAL DIRECTED AGAINST THE ORDER PASSED BY LEARNED CIT(A) - I, KANPUR DATED 02 /0 1 /201 2 FOR THE ASSESSMENT YEAR 2006 - 2007. 2. G ROUND NO. 1 TO 3 ARE INTER - CONNECTED, WHICH READ AS UNDER: 1. THAT THE LD. COMMISSIONER OF INCOME TAX (APPEALS) KANPUR, HAS ERRED IN LAW AND ON FACTS BY REDUCING THE DISALLOWANCE U/S 14A FROM RS.3,43,793/ - TO RS.50,000/ - PER ANNUM IGNORING THE FACTS THAT THE ASSESSEE COMPANY DURING THE COURSE OF ASSESSMENT PROCEEDINGS WAS NOT ABLE TO PROVIDE THE DETAILS OF EXPENSES INCURRED IN RELATION TO EXEMPTED INCOME. 2. IN DOING SO, LD. CIT(A), KANPUR IGNORED THE FACTS THAT THE EFFECT OF INSERTING THE PROVISIONS OF RULE 8 - D IN THE I.T. RULES IS ONLY CLARIFICATORY IN NATURE AND HAS RETROSPECTIVE EFFECT. 3. TH AT THE ORDER OF CIT(A), KANPUR IS ERRONEOUS IN LAW AND ON FACTS AS HE HAS ACCEPTED THE ADDITIONAL EVIDENCES SUBMITTED BY THE APPELLANT IN CONTRAVENTION TO RULE 46A OF THE IT. RULES WITHOUT GIVING PROPER OPPORTUNITY TO THE A.O. TO REBUT THE APPELLANT'S CLAI M AS NO SUCH EVIDENCES WERE BROUGHT ON RECORD BY THE ASSESSEE DURING THE COURSE OF APPELLANT PROCEEDINGS. 2 3. LEARNED D. R. OF THE REVENUE SUPPORTED THE ASSESSMENT ORDER WHEREAS LEARNED A. R. OF THE ASSESSEE SUPPORTED THE ORDER OF LEARNED CIT(A). 4. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS. WE FIND THAT IN THE PRESENT YEAR, RULE 8D IS NOT APPLICABLE BECAUSE SAME IS APPLICABLE FROM ASSESSMENT YEAR 2008 - 09. THE CIT(A) HAS ALSO HELD THAT RULE 8D IS NOT APPLICABLE IN THE PRESENT YEAR BY FOLLOWING THE JU DGMENT OF HON'BLE BOMBAY HIGH COURT RENDERED IN THE CASE OF GODREJ & BOYCE MFG. CO. LTD. VS. DCIT 328 ITR 81. THEREAFTER, IT IS HELD BY HIM THAT IN THE PRESENT CASE, THE ASSESSEE WAS HAVING SUFFICIENT OWN FUNDS AND ASSESSING OFFICER HAS NOT ESTABLISHED AN Y NEXUS BETWEEN BORROWED FUNDS AND INVESTMENT AND THEREFORE, NO DISALLOWANCE U/S 14A CAN BE MADE IN RESPECT OF INTEREST EXPENDITURE AS PER THE JUDGMENT OF HON'BLE BOMBAY HIGH COURT IN THE CASE OF CIT VS. RELIANCE UTILITIES & POWER LTD. 313 ITR 340. IT IS NOT THE CASE OF THE REVENUE THAT INTEREST FREE FUNDS WERE NOT SUFFICIENT TO COVER THE INVESTMENT AND HENCE, HE HELD THAT NO DISALLOWANCE IS CALLED FOR U/S 14A OUT OF INTEREST EXPENDITURE. REGARDING ADMINISTRATIVE EXPENSES, HE HELD THAT DISALLOWANCE OF RS. 50,000/ - IS REASONABLE IN THE FACTS OF THE CASE. IN OUR CONSIDERED OPINION, THERE IS NO INFIRMITY IN THE ORDER OF CIT(A) ON THIS ISSUE BECAUSE BEFORE INSERTION OF RULE 8D, ONLY REASONABLE DISALLOWANCE IS TO BE MADE IN RESPECT OF EXPENSES INCURRED IN EARN ING DIVIDEND INCOME. IN THE ABSENCE OF ANY FINDING THAT BORROWED FUNDS WERE USED FOR MAKING INVESTMENT, NO DISALLOWANCE CAN BE MADE U/S 14A OUT OF INTEREST BY RESORTING TO RULE 8D FOR A PERIOD PRIOR TO ASSESSMENT YEAR 2008 - 09 WITHOUT ESTABLISHING THAT INT EREST BEARING BORROWED FUNDS WERE USED FOR INVETMENT . OUT OF ADMINISTRATIVE EXPENSES ALSO, IN OUR CONSIDERED OPINION, DISALLOWANCE OF RS.50,000/ - IS REASONABLE IN THE PRESENT CASE. HENCE, THIS ISSUE IS DECIDED IN FAVOUR OF THE ASSESSEE. GROUND NO. 1 TO 3 ARE REJECTED. 5. THE REMAINING GROUNDS ARE AS UNDER: 4. THAT THE CIT (A) ERRED IN DELETING THE ADDITION OF RS.13,99,942/ - ON ACCOUNT OF DEEMED DIVIDEND IN THE HANDS OF THE ASSESSEE WITHOUT APPRECIATING THE TACT AND WITHOUT ANY BASIS IGNORING THE FACTS BROUGHT ON RECORDS BY 3 THE A.O. AND BY SUBSTITUTING HIS OWN SATISFACTION IN PLACE OF A.O'S SATISFACTION. 5. THE ORDER OF THE LD. COMMISSIONER OF INCOME TAX (APPEALS) BEING ERRONEOUS, UNJUST AND BAD IN LAW BE VACATED AND THE ORDER OF THE ASSESSING OFFICER B E RESTORED. 6. ON THIS ISSUE ALSO, LEARNED D. R. OF THE REVENUE SUPPORTED THE ASSESSMENT ORDER WHEREAS LEARNED A. R. OF THE ASSESSEE SUPPORTED THE ORDER OF LEARNED CIT(A). 7. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS. WE FIND THAT THIS ISSUE WAS DECIDE D BY LEARNED CIT(A) AS PER PARA 6.2.1 OF HIS ORDER, WHICH IS REPRODUCED BELOW FOR THE SAKE OF READY REFERENCE: - 6.2.1 ON PERUSAL OF THE LEDGER ACCOUNT OF THE APPELLANT COMPANY (TSL) (WHICH IS THE MAJORITY SHAREHOLDER) IN THE BOOKS OF THE TISL, IT IS SEEN THAT THERE WAS AN OPENING DEBIT BALANCE (AS ON 01.04.2005) OF RS.7,01,501.50. AFTER THAT IT WAS THE APPELLANT COMPANY I.E. TSL, WHICH HAD PAID RS.12,00,000/ - , RS.39,00,000/ - AND RS.1,94,292, ON DIFFERENT DATES TO M/S. TISL, WHICH MADE THE ACCOUNT OF TSL (IN THE BOOKS OF TISL) AS THAT OF CREDITOR. IT WAS AGAINST THIS CREDIT BALANCE THAT THE TIPL HAD MADE A PAYMENT OF RS.13 ,90,000/ - + RS. 9,942/ - TO THE APPELLANT COMPANY, I.E. TSL. THUS, SUCH PAYMENT CANNOT BE CONSIDERED AS A LOAN/ADVANCE GIVEN BY THE TIPL TO TSL, SINCE THE SAME WERE MERELY RETURN OF AMOUNTS RECEIVED FROM TSL. IT IS SEEN THAT THE ACCOUNTS OF TSL (IN THE BOOK S OF TIPL) APART FROM LAST YEAR'S CARRY FORWARD DEBIT BALANCE, THERE WAS NEVER A DEBIT BALANCE. IN FACT, THE ACCOUNT HAD TURNED HEAVILY INTO CREDIT BALANCE WHEN THIS PAYMENT OF RS.13.90 LACS WAS MADE BY TISL TO TSL, WHICH SIMPLY WENT ON TO REDUCE THE AMOUN T ADVANCED BY TSL. EVEN AFTER THIS PAYMENT, THE ACCOUNT OF TSL WAS IN CREDIT BALANCE. UNDER THE FACTS AND CIRCUMSTANCES, IT CANNOT BE HELD THAT PAYMENT OF RS.13.90 LACS WAS A LOAN/ADVANCE GIVEN TO TSL. SINCE THE PRIMARY CONDITION FOR INVOKING THE PROVISION S OF SEC. 2(22)(E) IS NOT MET, THE ADDITION MADE IS, THEREFORE, DELETED. 7.1 FROM THE ABOVE PARA FROM THE ORDER OF CIT(A), WE FIND THAT A CLEAR FINDING IS GIVEN BY CIT(A) THAT AS PER THE LEDGER ACCOUNT OF THE ASSESSEE COMPANY IN THE BOOKS OF THE TISL, IT IS SEEN THAT THERE WAS AN OPENING DEBIT 4 BALANCE (AS ON 01.04.2005) OF RS.7,01,501.50. HE HAS FURTHER NOTED THAT AFTER THIS DATE , TH E ASSESSEE COMPANY HAD PAID RS.12,00,000/ - , RS.39,00,000/ - AND RS.1,94,292, ON DIFFEREN T DATES TO M/S. TISL, WHICH MADE THE ACCOUNT OF TSL IN THE BOOKS OF TISL AS THAT OF CREDITOR. HE HAS FURTHER GIVEN FINDING THAT AGAINST THIS CREDIT BALANCE , TIPL HAD MADE A PAYMENT OF RS.13,90,000/ - + RS. 9,942/ - TO THE ASSESSEE COMPANY. HENCE, THESE TWO PAYMENTS TO THE ASSESSEE COMPANY IN THE PRESENT YEAR CANNOT BE CONSIDERED AS LOAN/ADVANCE TO THE ASSESSEE COMPANY BECAUSE IT IS MERELY RECEIPT BACK OF ADVANCE GIVEN BY THE ASSESSEE COMPANY. THESE FINDINGS OF FACTS COULD NOT BE CONTROVER TED BY LEARNED D.R. OF THE REVENUE AND HENCE, WE FIND FORCE IN THE STAND OF THE CIT(A) THAT THE IMPUGNED RECEIPT OF RS.39.90 LAC AND RS.9,942/ - IS NOT A LOAN OR ADVANCE BECAUSE IT IS THE REFUND OF MONEY ADVANCED BY THE ASSESSEE FIRST TO TIPL. FOR OPENIN G DEBIT BALANCE ALSO, NO ADDITION CAN BE MADE IN THE PRESENT YEAR . CONSIDERING ALL THESE FACTS, WE DO NOT FIND ANY REASON TO INTERFERE IN THE ORDER OF CIT(A) ON THIS ISSUE ALSO. 8. IN THE RESULT, THE APPEAL OF THE REVENUE STANDS DISMISSED. (ORDER WAS P RONOUNCED IN THE OPEN COURT ON THE DATE MENTIONED ON THE CAPTION PAGE) SD/. SD/. (SUNIL KUMAR YADAV) ( A. K. GARODIA ) JUDICIAL MEMBER A CCOUNTANT MEMBER DATED: 18 /12/2014. *C.L.SINGH COPY OF THE ORDER FORWARDED T O : 1.THE APPELLANT 2.THE RESPONDENT. 3.CONCERNED CIT 4.THE CIT(A) 5.D.R., I.T.A.T., LUCKNOW ASSTT. REGISTRAR