DCIT (LTU), Delhi V. M/s. Mawana Sugars Ltd., New Delhi

ITA 2259/DEL/2014

• Counselvise Citation: [2016] 132 COUNSELVISE.COM (IT) 6703 (ITAT-DELHI)
• Duration Of Justice: 2 year(s) 3 month(s) 14 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 29-07-2016
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: E
• Next Hearing Date: 19-07-2016
• Assessment Year: 2010-2011
• Appeal Filed On: 15-04-2014
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: SURENDER PAL
• Keywords: Business income; Earning of tax free income; Proportionate interest
• Section: 142(1); 14A

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH : E NEW DELHI BEFORE SH. H.S. SIDHU , JUDICIAL M EMBER AND SH. O.P. KANT , ACCOUNTANT MEMBER ITA NO. 2259 /DEL/ 2014 ASSESSMENT YEAR: 2010 - 11 DCIT (LTU), NBCC PLAZA, PUSHP VIHAR, SECTOR - 3, DELHI VS. M/S. MAWANA SUGARS LTD., 5 TH FLOOR, KIRTI MAHAL, 19, RAJENDRA PLACE, NEW DELHI GIR/PAN : AAACS4902Q (APPELLANT) (RESPONDENT) APPELLANT BY SH. SURENDER PAL, SR.DR RESPONDENT BY NONE DATE OF HEARING 19.07.2016 DATE OF PRONOUNCEMENT 29.07.2016 ORDER PER O.P. KANT , A. M. : THE PRESENT APPEAL BY THE REVENUE IS DIRECTED AGAINST THE ORDER OF LEARNED COMMISSIONER OF INCOME TAX (APPEALS) - LTU, NEW DELHI, DATED 19.02.2014, RAISING THE FOLLOWING GROUNDS OF APPEALS: 1. ON THE FACTS AND THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LEARNED , COMMISSIONER OF INCOME TAX(APPEALS) HAS , ERRED IN RESTRICTING THE DISALLOWANCE MADE U/S 14A OF THE I.T. ACT FROM 1,84,75,469/ - TO RS. 16,78,600/ - 2. THE APPELLANT CRAVES LEAVE TO ADD, TO ALTER, AMEND OR VARY FROM THE ABOVE GROUNDS OF APPEAL AT OR BEFORE THE TIME OF HEARING. 2 ITA NO. 2259/DEL/2014 AY: 2010 - 11 2. THE FACTS IN BRIEF ARE THAT THE ASSESSEE COMPANY IS ENGAGED IN THE BUSINESS OF MANUFACTURING AND SALE OF INDUSTRIAL CHEMICAL S AND MANUFACTURE AND SALE OF SUGARS AND POWER. THE ASSESSEE COMPANY FILED ITS E - RETURN DECLARING LOSS OF RS. 51,32,78,189/ - ON 29.09.2010 WHICH WAS PROCESSED U/S 143(1) OF THE INCOME - TAX ACT, 1961 (FOR SHORT THE ACT ) . SUBSEQUENTLY, NOTICES UNDER SECTION 143(2) & 142(1) OF THE ACT WERE ISSUED A ND ASSESSMENT W AS COMPLETED AT LOSS OF RS. 47,61,82, 321/ - AFTER MAKING ADDITIONS FOR DIS ALLOWANCE OF INTEREST OF RS. 1,86,20, 400/ - AN D DISALLOWANCE UNDER SECTION 14 A OF THE ACT AMOUNTING TO RS. 1,84,75, 469/ - . THE LE ARNED COMMISSIONER OF INCOME - TAX ( APPEALS), FOLLOWIN G THE ORDERS OF HIS PREDECESSOR IN ASSESSMENT YEAR S 2008 - 09 AND 2009 - 10 DELETED THE ADDITION FOR DISALLOWANCE OF INTEREST AND ALLOWED PART RELIEF TO THE ASSESSEE AGAINST THE DIS ALLOWANCE MADE UNDER SECTIO N 14 A OF THE ACT. AGGRIEVED WITH THE RELIEF GRANTED TO THE ASSESSEE AGAINST TH E DISALLOWANCE UNDER SECTION 14A OF THE ACT, THE R EVENUE IS IN APPEAL BEFORE THE TRIBUNAL RAISING THE GROUNDS AS REPRODUCED ABOVE. 3. THE LEARNED SENIOR DEPARTMENTAL R EPRESENTATIVE SUPPORTING THE ORDER OF THE ASSESSING OFFICER SUBMITTED THAT THE DIS ALLOWANCE MADE UNDER SECTION 14 A MIGHT BE SUSTAINED. 4. ON BEHALF OF THE ASSESSEE, NONE REPRESENTED. 5. WE HAVE HEARD LEARNED SR. DEPARTMENTAL R EPRESENTATIVE AND PERUSED TH E MATERIAL ON RECORD INCLUDING THE ORDERS OF THE AUTHORITIES BELOW. THE FACTS IN RESPECT OF ISSUE IN DISPUTE ARE THAT THE ASSESSING OFFICER OBSERVED INVESTMENT IN ASSETS AMOUNTING TO RS. 2,774.70 L ACS WHICH COULD GENERATE TAX 3 ITA NO. 2259/DEL/2014 AY: 2010 - 11 EXEMPT INCOME AND , THEREFORE, HE ASKED AS TO WHY TH E DISALLOWANCE UNDER SECTION 14 A OF THE ACT SHOULD NOT BE MADE IN THE CASE OF THE ASSESSEE. IT WAS SUBMITTED BY THE ASSESSEE THAT: (I) THERE WAS NO DIVIDEND INCOME DURING THE YEAR WHICH HAD BEEN CLAIMED AS EXEMPT. (II) THE ASSESSEE HAD NOT INC URRED ANY DIRECT EXPENDITURE IN CONNECTION WITH MAINTENANCE OF THE INVESTMENT. (III) ALL THE INVESTMENTS MADE WERE FROM OWN FUNDS AND NO INTEREST - BEARING FUNDS WERE UTILIZED . (IV) INVESTMENT WAS MADE IN THE SHARE OF GROUP COMPANIES. (V) THE INVESTMENTS HAVE BEEN MADE BY THE ASSESSEE PRIOR TO 30/09/2006 I.E. THE MERGER OF ERSTWHILE MAWANA SUGARS LTD WITH THE ASSESSEE COMPANY, HOWEVER THE LOANS INCREASED DUE TO MERGER AND THESE LOANS ARE NOT ANYWAY ATTRIBUTABLE TO THE INVESTMENT OF THE COMPANY. 6. THE ASSESSING OFFICER DID NOT ACCEPT THE CONTENTION OF THE ASSESSEE ON THE GROUND THAT NO SEPARATE ACCOUNT FOR EXEMPT INCOME AND THE BUSINESS INCOME WERE MAINTAINED BY THE ASSESSEE AND , THEREFORE , IT WAS NOT POSSIBLE TO ACCEPT THAT ONLY ASSESSEE S OWN FUNDS WERE UTILIZED IN INVESTM ENTS. ACCORDINGLY , INVOKING R ULE 8D OF THE INCOME T AX R ULES, HE MADE DISALLOWANCE OF RS. 1,70,86, 869/ - UNDER R ULE 8D(2)(II) FOR PROPORTIONATE INTEREST EXPENSES AND RS. 13,88,600/ - UNDER RULE 8D(2)(III) FOR ADMINISTRATIVE EXPENSES AT THE RATE OF 0.5% OF THE AVERAGE INVESTMENTS. THUS, HE MADE TOTAL DISALLOWANCE OF RS. 1,84,75, 469/ - UNDER SECTION 14 A OF THE ACT. 7. THE LEARNED COMMISSIONER OF INCOME - TAX ( APPEALS) , FOLLOWING THE FINDING S OF HIS PREDECESSOR IN ASSESSMENT YEAR S 2008 - 09 AND 2009 - 10 , HELD THAT THE INVESTMENT UNDER 4 ITA NO. 2259/DEL/2014 AY: 2010 - 11 REFERENCE WERE COMING FROM EARLIER YEARS AND THERE HAD BEEN NO FRESH INVESTMENT BY THE ASSESSEE COMPANY IN THE YEAR UNDER CONSIDERATION, THE AMOUNT OF INTEREST DISALLOWABLE WITH REFERENCE TO INVESTMENT WAS REQUIRED TO BE CALCULATED ON THE BASIS OF THE LOANS OUTSTANDING AND INTEREST LIABILITY AS ON 31/03/2007 , I.E , THE DATE ON WHICH ANOTHER COMPANY M/S MAWANA SUGARS LIMITED MERGED WITH THE ASSESSEE COMPANY. ACCORDINGLY , HE SUSTAINED A DISALLOWANCE O N ACCOUNT OF INTEREST OF RS. 2,90, 000/ - . A S REGARDS TO DISALLOWANCE ON ACCOUNT OF ADMINISTRATIVE EXPEN SES UNDER RULE 8D(2)(III) OF THE INCOME TAX R ULES, HE UPH ELD THE DISALLOWANCE OF RS. 13,88, 600/ - MADE BY THE ASSESSING OFFICER AT THE RATE OF 0.5% OF THE AVERAGE INVESTMENT. THUS, AGAINST T HE TOTAL DISALLOWANCE OF RS. 1,84,75, 469/ - MADE BY THE ASSESSING OFFICER UNDER SECTION 14A OF THE OF THE ACT, THE LEARNED COMMISSIONER OF INCOME TAX(APPEALS) RESTRICTED IT TO RS. 16,78, 600/ - (RS. 2,90, 000/ - ON ACCOUNT OF INTEREST+ RS. 13,88, 600 ON ACCOUNT OF A DMINISTRATIVE EXPENSES). 8. ON BEING ASKED BY THE BENCH, WHETHER ANY APPEALS WERE FILED IN ASSESSMENT YEAR S 2008 - 09 AND 2009 - 10 BY THE R EVENUE, AGAINST THE ORDER OF THE LEARNED COMMISSIONER OF INCOME - TAX ( APPEALS), THE LEARNED SENIOR DEPARTMENTAL R EPRESE NTATIVE AGREED THAT NO APPEALS WERE FILED AGAINST THOSE ORDERS OF THE LEARNED COMMISSIONER OF INCOME - TAX ( APPEALS) IN THOSE YEARS. WE FIND THAT LEARNED COMMISSIONER OF INCOME - TAX ( APPEALS) IN THE INSTANT ASSESSMENT YEAR HAS RELIED ON THE ORDERS OF HIS PRED ECESSORS IN ASSESSMENT YEAR S 2008 - 09 AND 2009 - 10, THUS THE RULE OF THE CON SISTENCY DEMANDS THAT ONCE 5 ITA NO. 2259/DEL/2014 AY: 2010 - 11 THE R EVENUE HAS ACCEPTED THE FINDING OF THE LEARNED COMMISSIONER OF INCOME - TAX ( APPEALS) ON THE ISSUE IN DISPUTE I N EARLIER ASSESSMENT YEAR S , THE R EVENUE S HOULD HAVE ACCEPTED THE FINDINGS IN THE INSTANT ASSESSMENT YEAR ALSO AND NO APPEAL SHOULD HAVE BEEN FILED AGAINST THE ORDER OF LEARNED COMMISSIONER OF INCOME - TAX ( APPEALS) IN THE INSTANT ASSESSMENT YEAR ON THE ISSUE IN DISPUTE. FURTHER, THE LEARNED COMMISS IONER OF INCOME - TAX ( APPEALS) HAS JUSTIFIED THE DISALLOWANCE OF PROPORTIONATE INTEREST OF RS. 2,90,000/ - IN VIEW OF THE INVESTMENTS MADE BY THE ASSESSEE PRIOR TO THE MERGER OF MAWANA SUGARS LTD. WITH THE ASSESSEE, WE DO NOT FIND ANY REASON TO INTERFERE IN THE FINDING OF LEARNED COMMISSIONER OF INCOME - TAX ( APPEALS) ON THE ISSUE IN DISPUTE AND ACCORDINGLY WE UPHOLD THE SAME. THE GROUND NO. 1 OF THE APPEAL IS DISMISSED. 9. G ROUND NO. 2 BEING GENERAL IN NATURE, IT IS NOT REQUIRED TO BE ADJUDICATED UPON AT OUR END. 10. IN THE RESULT , APPEAL OF T HE R EVENUE IS DISMISSED. THE DECISION IS PRONOUNCED IN THE OPEN COURT ON 29 TH JULY , 2016 . SD/ - SD/ - ( H.S. SIDHU ) ( O.P. KANT ) JUDICIAL MEMBER ACCOUNTANT MEMBER DATED: 29 TH JULY , 2016 . LAPTOP / - COPY FORWARDED TO: 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(A) 5. DR ASST. REGISTRAR, ITAT, NEW DELHI