MUTHA FOUNDERS P. LTD, MUMBAI V. ADDL CIT RG 4(2), MUMBAI

ITA 2385/MUM/2012

• Counselvise Citation: [2017] 128 COUNSELVISE.COM (IT) 8864 (ITAT-MUMBAI)
• Duration Of Justice: 4 year(s) 9 month(s) 14 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 25-01-2017
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: B
• Next Hearing Date: 03-03-2015
• Assessment Year: 2008-2009
• Appeal Filed On: 11-04-2012
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: M RAJAN ITA NO M A Y ASSE
• Assessee Lawyers: G P MEHTA
• Keywords: Earning of tax free income
• Section: 14A

Judgement Text

, IN THE INCOME TAX APPELLATE TRIBUNALB BENCH, MUMBAI . . , , , , BEFORE SHRI G.S.PANNU, AM AND SHRI AMARJIT SINGH, JM / I.T.A. NO.2385/MUM/2012 ( / ASSESSMENT YEAR: 2008-09) MUTHA FOUNDERS PVT. LTD. C/O. G.P.MEHTA & CO., CAS., 807, TULSIANI CHAMBERS, 212, NARIMAN POINT, MUMBAI 400021 / VS. THE ADDL. COMMISSIONER OF INCOME TAX RANGE 4(2) AAYAKAR BHAVAN, 6 TH FLOOR, M.K.ROAD, MUMBAI - 400020 / I.T.A. NO.2270/MUM/2012 ( / ASSESSMENT YEAR: 2008-09) THE ADDL. COMMISSIONER OF INCOME TAX RANGE 4(2) AAYAKAR BHAVAN, 6 TH FLOOR, M.K.ROAD, MUMBAI - 400020 / VS. MUTHA FOUNDERS PVT. LTD. C/O. G.P.MEHTA & CO., CAS., 807, TULSIANI CHAMBERS, 212, NARIMAN POINT, MUMBAI 400021 ./ ./ PAN/GIR NO. : AAACM3091N ( / APPELLANT ) .. ( / RESPONDENT ) / DATE OF HEARING:26.09.2016 /DATE OF PRONOUNCEMENT:25.01.2017 / O R D E R PER AMARJIT SINGH, JM: ASSESSEE BY: SHRI G. P. MEHTA DEPARTMENT BY: SHRI M. RAJAN ITA NO.2385&2270/M/12 A.Y. 2008-09 2 THE ASSESSEE AS WELL AS REVENUE HAVE FILED THE ABOVE MENTIONED APPEAL AGAINST THE ORDER DATED 17.01.2012 PASSED BY THE COMMISSIONER OF INCOME TAX (APPEALS)8, MUMBAI [HEREINAFTER REFERRED TO AS THE CIT(A)] RELEVANT TO THE ASSESSMENT YEAR 2008-09. SINCE THE PARTIES ARE THE SAME AND THE ASSESSMENT YEAR IS ALSO THE SAME, THEREFORE, BOTH THE APPEALS ARE BEING TAKEN UP TOGETHER FOR ADJUDICATION FOR THE SAKE OF CONVENIENCE. ITA NO.2385/MUM/2012:- 2. THE ASSESSEE HAS RAISED THE FOLLOWING GROUNDS:- 1. THE ORDERS PASSED BY THE LEARNED LOWER AUTHORITIES ARE BAD IN LAW AND IN FACTS. 2. THE LEARNED LOWER AUTHORITIES HAVE GROSSLY ERRED IN DISALLOWING A SUM OF RS.10,81,498/- OUT OF THE EXPENSES CLAIMED BY RECOURSE TO SECTION 14A OF THE I.T.ACT, 1961. REASONS GIVEN FOR THE IMPUGNED DISALLOWANCE ARE CONTRARY TO THE FACTS ON RECORD, PROVISIONS OF LAW AND JUDICIAL PRECEDENTS. 3. THE LEARNED LOWER AUTHORIZED HAVE GROSSLY ERRED IN MAKING IMPUGNED DISALLOWANCE OF RS.10,81,498/- IN CLEAR DISREGARD OF THE MANDATORY REQUIREMENTS OF SEC.14A(2) OF THE I. T. ACT, 1961, INASMUCH AS, NO SATISFACTION WITH REGARD TO DISALLOWANCE WITH REGARD TO DISALLOWANCE WAS RECORDED PRIOR TO MAKING OF SAID DISALLOWANCE. 3. THE BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE FILED THE RETURN OF INCOME ON 30.09.2008 DECLARING TOTAL INCOME TO THE TUNE OF RS.2,42,43,437/- FOR THE A.Y.2008-09. THE RETURN WAS PROCESSED U/S.143(1) OF THE INCOME TAX ACT, 1961( IN SHORT THE ACT). THE CASE ITA NO.2385&2270/M/12 A.Y. 2008-09 3 WAS TAKEN UP FOR SCRUTINY, THEREFORE, THE STATUTORY NOTICE U/S.143(2) OF THE ACT WAS ISSUED ON 29.09.2009. SUBSEQUENTLY, THE CASE WAS ASSIGNED TO THE PRESENT CHARGE VIDE ORDER OF CIT-4 BEARING NO. CIT- 4/SCRUTINY CASES / 2010-11 DATED 31.08.2010. THEREAFTER, NOTICE U/S.142(1) OF THE ACT DATED 06.09.2010 WAS ISSUED AND DULY SERVED UPON THE ASSESSEE. THE ASSESSEE COMPANY IS ENGAGED IN THE BUSINESS OF MANUFACTURING AND SELLING OF VARIOUS TYPES OF RAW MATERIAL, CASTINGS, CYLINDER BLOCKS, AUTOMOBILE PARTS AND SPARE, ENGINE PARTS. THE ASSESSING OFFICER DISALLOWED THE PURCHASE FINDING DIFFERENCE FROM THE MARKET TO THE EXTENT OF 10% OF THE TOTAL PURCHASE AND DISALLOWED AN AMOUNT OF RS.9,19,83,863/-. THE ASSESSING OFFICER ALSO DISALLOWED THE EXPENDITURE TO EARN THE EXEMPT INCOME TO THE TUNE RS.10,81,498/- AND ASSESSED THE TOTAL INCOME TO THE TUNE OF RS.3,44,98,070/-. THEREAFTER, THE ASSESSEE FILED AN APPEAL BEFORE THE CIT(A) WHO ACCEPTED THE PURCHASES, THEREFORE, THE REVENUE HAS FILED THE PRESENT APPEAL BEFORE US. ISSUE NO. 1 TO 3:- 4. ISSUE NO.1 TO 3 ARE INTERCONNECTED, THEREFORE ARE BEING TAKEN UP TOGETHER FOR ADJUDICATION. UNDER THESE ISSUE THE ASSESSEE HAS RAISED THE SOLE POINT IN CONNECTION WITH THE DISALLOWANCE OF EXPENDITURE TO THE TUNE OF RS.10,81,498/- TO EARN THE EXEMPT INCOME IN VIEW OF THE SECTION 14A OF THE ACT. THE LEARNED REPRESENTATIVE OF THE ASSESSEE HAS ARGUED THAT THE TOTAL INVESTMENT IN SHARE AND SECURITY FOR THE RELEVANT ITA NO.2385&2270/M/12 A.Y. 2008-09 4 ASSESSMENT YEAR WAS RS.22,32,976/- AS AGAINST THE TOTAL PAID UP CAPITAL WAS TO THE TUNE OF RS.43,52,400/-, FREE RESERVED AND SURPLUS WAS RS.2,09,58,411/- AND ACCUMULATED PROFIT IN PROFIT AND LOSS ACCOUNT WAS RS.4,85,77,294/-, THEREFORE TOTAL NON INTEREST BEARING FUNDS WAS AVAILABLE WITH THE APPELLANT COMPANY TO THE TUNE OF RS.7,38,88,105/-, HENCE IN VIEW OF THE LAW SETTLED IN THE DECISION OF HONBLE BOMBAY HIGH COURT IN THE CASE OF CIT VS. RELIANCE UTILITIES & POWER LTD., 313 ITR 340, NO DISALLOWANCE IS REQUIRED U/S.14A OF THE ACT. ON THE OTHER HAND, THE LEARNED REPRESENTATIVE OF THE DEPARTMENT HAS RELIED UPON THE ORDER PASSED BY THE CIT(A) IN QUESTION. IT IS NOT IN DISPUTE THAT THE DIVIDEND INCOME IS TO THE TUNE OF RS.25,254/- WHEREAS DISALLOWANCE U/S.14A OF THE ACT HAS BEEN MADE TO THE TUNE OF RS.10,81,498/-. NO DISALLOWANCE MORE THAN THE DIVIDEND INCOME IS REQUIRED IN ACCORDANCE WITH LAW. IN THE INSTANT CASE NON INTEREST BEARING FUNDS IS AVAILABLE TO THE TUNE OF RS.7,38,88,105/-. IN VIEW OF THE LAW SETTLED IN THE DECISION OF HONBLE BOMBAY HIGH COURT IN THE CASE OF CIT VS. RELIANCE UTILITIES & POWER LTD., 313 ITR 340, IT IS SPECIFICALLY HELD THAT IF THERE WERE FUNDS AVAILABLE BOTH INTEREST FREE AND INTEREST BEARING THEN PRESUMPTION WOULD ARISE THAT INTEREST FREE FUNDS HAVE BEEN GENERATED FOR INVESTMENTS. THEREFORE, THE INTEREST COULD NOT HAVE BEEN DISALLOWED U/S.14A OF THE ACT. MOREOVER, IT ALSO CAME INTO NOTICE THAT THE EXEMPT INCOME WAS NOT CLAIMED BY THE ASSESSEE. ANYHOW IN VIEW OF THE ABOVE MENTIONED LAW WE ARE OF THE VIEW THAT THE ASSESSEE WAS HAVING ITA NO.2385&2270/M/12 A.Y. 2008-09 5 NON INTEREST BEARING FUNDS MORE THAN THE INVESTMENT, THEREFORE, THE PROVISION U/S.14A OF THE ACT IS NOT APPLICABLE TO THE CASE OF THE ASSESSEE, ACCORDINGLY WE SET ASIDE THE FINDING OF THE CIT(A) ON THIS ISSUE AND CLAIM OF THE ASSESSEE IS HEREBY ALLOWED. ACCORDINGLY, ALL THE ISSUES ARE DECIDED IN FAVOUR OF THE ASSESSEE AGAINST THE REVENUE. ITA NO.2270/MUM/2012:- 5. THE REVENUE HAS RAISED THE FOLLOWING GROUNDS:- 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT(A) ERRED IN DELETING THE ADDITION OF RS.91,98,386/- U/S.40A(2)(B) WHEN THE PURCHASES FROM RELATED PARTIES ARE MADE AT INFLATED PRICE. 2. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE IMPUGNED ORDER OF THE LD. CIT(A) IS CONTRARY TO LAW TO BE SET ASIDE AND THAT OF THE ASSESSING OFFICER BE RESTORED. THE FACTS OF THE PRESENT CASE ARE QUITE SIMILAR TO THE FACTS OF THE ABOVE MENTIONED CASE. IN APPEAL THE REVENUE HAS RAISED THE ABOVE SAID GROUND WHEREIN THE CIT(A) HAS DELETED THE ADDITION TO THE TUNE OF RS.91,98,386/- U/S.40A(2)(B) OF THE ACT. ISSUE NO.1 & 2:- 6. UNDER THESE ISSUES THE REVENUE HAS CHALLENGED THE DELETION OF ADDITION OF RS.91,98,386/- U/S.40A(2)(B) OF THE ACT. BEFORE GOING FURTHER IT IS NECESSARY TO ADVERT THE FINDING OF THE CIT(A) ON THIS ISSUE:- ITA NO.2385&2270/M/12 A.Y. 2008-09 6 3.12 I HAVE CONSIDERED THE CONTENTION OF THE AO AS WELL AS OF THE LD. AR. FROM THE SUBMISSIONS AND DETAILS FILED, I FIND THAT THE APPELLANT COULD EXPLAIN THE REASONS OF PURCHASES OF GOODS FROM THE SISTER / ASSOCIATE CONCERNS. THE APPELLANT IS IN THE BUSINESS OF MANUFACTURE OF SPARE PARTS SUITABLE FOR CERTAIN AUTO VEHICLES MANUFACTURED BY DIFFERENT PARTIES. THESE SPARE PARTS ARE SPECIALTY PARTS AND ARE NOT GENERALLY AVAILABLE IN THE OPEN MARKET, IN THE SENSE THAT SPECIFICATION, DESIGN, PROCESS, SIZE AND QUALITY OF MATERIAL DIFFER FOR EACH AUTO VEHICLE AND SAME ARE REQUIRED TOBE PRODUCED AS PER PURCHASERS SPECIFICATIONS. THE APPELLANT HAS NOT PURCHASED THESE GOODS FROM ANY UNRELATED PARTY AND HENCE, THERE ARE NO COMPARABLE FIGURES AVAILABLE. IN THE ABSENCE OF COMPARABLE FIGURES, IT IS DIFFICULT TO HOLD THAT THE APPELLANT HAS PAID HIGHER PRICES FOR THE GOODS PURCHASED FROM THE RELATED PARTIES. 3.13 IT IS ALSO SEEN, THAT MOST OF THE RELATED PARTIES FROM WHOM LARGE PURCHASES ARE MADE, ARE ALSO PAYING INCOME TAX AT THE SAME RATE OF 30% WHICH IS APPLICABLE IN THE APPELLANTS CASE AS WELL. COPIES OF RELEVANT ACKNOWLEDGMENTS OF RETURN OF INCOME OF RELATED PARTIES HAS ALSO BEEN FILED. THUS, THE FINDING OF THE ASSESSING ITA NO.2385&2270/M/12 A.Y. 2008-09 7 OFFICER THAT THE APPELLANT IS DIVERTING ITS PROFIT TO LOSS MAKING UNITS IS NOT FOUND TO BE CORRECT. 3.14 THE LD. A.R. HAS ALSO BROUGHT TO MY NOTICE THAT ADDITIONS MADE ON THE SIMILAR COUNT FOR THE ASST. YEAR 2006-07 WAS DELETED VIDE ORDER DATED 5.5.2010 IN APPEAL NO. IT/CIT(A)8/CIR.4/246/08-09. A COPY OF THE SAID ORDER HAS ALSO BEEN FILED WHICH IS KEPT ON RECORD. IN VIEW OF THE FOREGOING DISCUSSION, I AM OF THE VIEW THAT THE ASSESSING OFFICER WAS NOT JUSTIFIED IN MAKING THE ADDITION OF RS.91,98,386/- AND SAME IS, THEREFORE, DELETED AND THE APPEAL IS ALLOWED. 7. THE LEARNED REPRESENTATIVE OF THE REVENUE HAS ARGUED THAT THE CIT(A) HAS WRONGLY DELETED THE SAID ADDITION RELYING UPON THE DECISION OF THE CIT(A) IN ASSESSEES OWN CASE FOR THE A.Y.2006-07, THEREFORE THE ORDER PASSED BY THE CIT(A) IS WRONG AGAINST LAW AND FACTS AND IS LIABLE TO BE SET ASIDE. ON THE OTHER HAND, THE LEARNED REPRESENTATIVE OF THE ASSESSEE HAS REFUTED THE SAID CONTENTIONS. UNDER THESE ISSUES, THE CIT(A) HAS ALREADY PASSED THE ORDER DATED 05.05.2010 IN APPEAL NO: IT/CIT(A)8/CIR.4/246/08-09 FOR THE A.Y.2008-09 ALLOWING THE CLAIM OF ASSESSEE. IN VIEW OF THE SAID ORDER, THE PRESENT CIT(A) HAS PASSED THE ORDER ON THIS ISSUE AND ALLOWED THE CLAIM OF THE ASSESSEE BY DELETING THE ADDITION TO THE TUNE OF RS.91,98,386/- U/S.40A(2)(B) OF THE ACT. MOREOVER, THIS ISSUE HAS ITA NO.2385&2270/M/12 A.Y. 2008-09 8 ALSO BEEN COVERED BY THE DECISION OF THE HONBLE INCOME TAX APPELLATE TRIBUNAL IN ITA NO.6085/MUM/2010 FOR THE A.Y.2006-07 IN ASSESSEES OWN CASE WHICH WAS CHALLENGED BY THE REVENUE IN THE RELEVANT ASSESSMENT YEAR. NO DISTINGUISHABLE MATERIAL HAS BEEN PLACED BEFORE US TO CONTRADICT THE FINDING OF HONBLE ITAT IN ABOVE MENTIONED CASE. SINCE THIS ISSUE HAS BEEN FULLY COVERED BY THE ABOVE MENTIONED ORDER PASSED BY THE HONBLE INCOME TAX APPELLATE TRIBUNAL IN THE ASSESSEES OWN CASE, THEREFORE, IN THE SAID CIRCUMSTANCES, WE ARE OF THE VIEW THAT THE ORDER PASSED BY THE CIT(A) IS QUITE JUSTIFIABLE AND IN ACCORDANCE WITH LAW WHICH IS NOT REQUIRED TO BE INTERFERE WITH AT THIS APPELLATE STAGE. ACCORDINGLY, THIS ISSUE IS DECIDED IN FAVOUR OF THE ASSESSEE AGAINST THE REVENUE. 8. IN THE RESULT APPEAL FILED BY THE ASSESSEE IS HEREBY ORDERED TO BE ALLOWED AND APPEAL FILED BY THE REVENUE IS HEREBY ORDERED TO BE DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 25 TH JANUARY, 2017 SD/- SD/- (G.S.PANNU) (AMARJIT SINGH) / ACCOUNTANT MEMBER /JUDICIAL MEMBER MUMBAI; DATED : 25 TH JANUARY, 2017 MP ITA NO.2385&2270/M/12 A.Y. 2008-09 9 / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT 2. / THE RESPONDENT. 3. ( ) / THE CIT(A)- 4. / CIT 5. , , / DR, ITAT, MUMBAI 6. / GUARD FILE. / BY ORDER, //TRUE COPY// / (DY./ASSTT.REGISTRAR) , / ITAT, MUMBAI