The ITO, Ward-4(3), Ahmedabad V. Indian Bobbin Mfg. Co.Pvt.Ltd., Ahmedabad

ITA 2417/AHD/2012

• Counselvise Citation: [2013] 120 COUNSELVISE.COM (IT) 2069 (ITAT-AHMEDABAD)
• Duration Of Justice: 6 month(s) 10 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 10-05-2013
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: A
• Next Hearing Date: 06-05-2013
• Assessment Year: 2008-2009
• Appeal Filed On: 30-10-2012
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: RAHUL KUMAR
• Assessee Lawyers: A L THAKKAR
• Keywords: Depreciation; Earning of tax free income
• Section: 143(3); 14A

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL AT AHMEDABAD A BENCH BEFORE: SHRI D.K. TYAGI, JUDICIAL MEMBER AND SHRI A. MOHAN ALANKAMONY, ACCOUN TANT MEMBER INCOME TAX OFFICER, WARD 4(3), AHMEDABAD (APPELLANT) VS INDIAN BOBBIN MFG. CO. PVT. LTD. 1-2 AKANSHA APARTMENT, NEAR SOLA RAILWAY CROSSING GHATLODIA, AHMEDABAD-380061 PAN AAACI9660B (RESPONDENT) REVENUE BY: SRI RAHUL KUMAR, SR.D.R. ASSESSEE BY: SRI A.L. THAKKAR, A.R. DATE OF HEARING : 06-05-2013 DATE OF PRONOUNCEMENT : 10-05-20 13 / ORDER PER : D.K. TYAGI, JUDICIAL MEMBER:- THIS IS THE REVENUES APPEAL AGAINST THE ORDER OF LD. CIT(A)-VIII AHMEDABAD DATED 22-08-2012. ITA NO. 2417/AHD/2012 ASSESSMENT YEAR 2008-09 I.T.A NO. 2417/AHD/2012 A.Y. 2008-09 PAGE NO ITO VS. INDIAN BOBBIN MFT CO. PVT. LTD. 2 2. THE ONLY EFFECTIVE GROUND TAKEN BY THE REVENUE R EADS AS UNDER:- 1. THE LD. CIT(A) HAS ERRED IN LAW AND ON FACTS IN DELETING THE ADDITION OF RS. 12,31,631/- MADE BY THE AO BY APPLY ING THE PROVISIONS OF SECTION 14A READ WITH RULE 8D OF THE ACT WITHOUT APPRECIATING THE FACTS THAT THE ASSESSEE FAILED TO ESTABLISHED THE I NTEREST FREE FUNDS HAVE BEEN UTILIZED FOR THE PURPOSE OF INVESTMENT IN EXEM PTED SOURCE. 3. BRIEF FACTS OF THE CASE ARE THAT DURING THE ASSE SSMENT PROCEEDINGS ASSESSING OFFICER FOUND THAT ASSESSEE HAS SHOWN EXE MPTED INCOME OF RS. 30,000/- ON ACCOUNT OF DIVIDEND. IT WAS FURTHER NO TICED THAT THE ASSESSEE HAS CLAIMED EXPENSES WHICH INCLUDED ADMINISTRATIVE AND INTEREST. ASSESSING OFFICER SHOW CAUSED AS TO WHY THE PROVISIONS OF 14A OF THE ACT SHOULD NOT BE APPLIED AND PROPORTIONATE EXPENSES SHOULD NOT BE DISALLOWED AS PER RULE 8D OF THE IT RULE, 1961. ASSESSEE SUBMITTED EXPLAN ATION MENTIONING INTERALIA THAT ASSESSEE WAS HAVING MORE INTEREST FR EE FUNDS THEN THE INVESTMENTS MADE IN SHARES, THE SOURCE OF EXEMPTED INCOME. THIS EXPLANATION WAS NOT ACCEPTABLE TO THE ASSESSING OFF ICER ACCORDING TO HIM ASSESSEE HAS FAILED TO ESTABLISH THAT THE INTEREST FREE FUNDS WERE UTILIZED FOR THE PURPOSE OF INVESTMENT IN EXEMPTED SOURCES. HE THEREFORE DISALLOWED AN AMOUNT OF RS. 12,91,009/- BY APPLYING THE RULE 8D O F THE INCOME TAX RULES AND ADDED THE SAME TO THE INCOME OF THE ASSESSEE. THE ASSESSEE CARRIED THE MATTER BEFORE THE FIRST APPELLATE AUTHORITY AND BEF ORE LD. CIT(A) PLACED RELIANCE ON THE FOLLOWING SUBMISSION. 1. THE APPELLANT COMPANY HAD FILED THE RETURN OF I NCOME ON 27.06.2011 DECLARING TOTAL LOSS OF RS.51,305/-. THE ASSESSMENT CAME TO BE COMPLETED U/S 143(3) AND DETERMINING TOTAL IN COME AT RS I.T.A NO. 2417/AHD/2012 A.Y. 2008-09 PAGE NO ITO VS. INDIAN BOBBIN MFT CO. PVT. LTD. 3 3,28,820/-. WHILE COMPLETING THE ASSESSMENT DISALL OWANCE U/S 14A AMOUNTING TO RS. 12,91 ,009/- WAS MADE WHICH RESULT ED IN TOTAL INCOME BEING ASSESSED AT RS.3,28,880/- AFTER GIVING EFFECT TO THE CARRIED FORWARD LOSSES & DEPRECIATION. IN THE ORIGI NAL MEMO OF APPEAL, THE EFFECTIVE GROUND OF APPEAL BEING AGITAT ED BEING DISALLOWANCE U/S 14A HAS BEEN ERRONEOUSLY MENTIONED AS RS. 3,28,800/- INSTEAD OF RS.12,91,009/-. AS A CONSEQU ENCE OF THIS AMENDED GROUNDS OF APPEAL MODIFYING THE AMOUNT OF D ISALLOWANCE U/S 14A WAS FILED ON 11.04.2011, 2. THE ONLY EFFECTIVE GROUND OF APPEAL IS DISALLOW ANCE U/S 14A OF THE ACT AMOUNTING TO RS.12,91,009/-. THE AO IN PARA 3 OF THE ORDER HAS STATED THAT THE APPELLANT COMPANY HAD SHOWN EXE MPT INCOME OF RS.30,000/- ON ACCOUNT OF DIVIDEND. IT HAS ALSO BEE N STATED THAT THE APPELLANT COMPANY HAS CLAIMED EXPENSES WHICH INCLUD E THE ADMINISTRATIVE AND INTEREST EXPENSES. AS A CONSEQUE NCE OF THIS THE APPELLANT WAS ISSUED A SHOW CAUSE NOTICE AS TO WHY THE PROVISIONS U/S 14A OF THE ACT NOT BE INVOKED & DISALLOWANCE BE MAD E AS PER THE PROVISIONS OF RULE 8D OF THE IT. 3. THE CONTENTIONS OF THE APPELLANT COMPANY HAVE BEEN TAKEN COGNIZANCE OFF, ALBEIT IN A SUMMARIZED FORM. IT WAS POINTED OUT TO THE AO THAT THE APPELLANT COMPANY HAS IN FACT SHOWN INT EREST INCOME AND NOT EXPENSES. IT WAS ALSO POINTED OUT THAT THE APPELLANT COMPANY IS HAVING INTEREST FREE FUNDS OF RS.1,01,09,601/- AND THE INVESTMENT IN SHARES WAS OUT OF THE INTEREST FREE FUNDS AVAILABLE WITH THE APPELLANT COMPANY. 4. THE ONLY ON THE GROUND THAT THE APPELLANT HAD FAILED TO ESTABLISH THE NEXUS BETWEEN THE INTEREST FREE FUNDS AND IT'S UTILIZATION IN INVESTMENT IN SHARES WHICH YIELD EXEMPT INCOME H AS PROCEEDED TO MAKE A DISALLOWANCE U/S. 14AOF THE ACT AS PER THE R ULE 8D AMOUNTING TO RS.12,91,009/-. 5. AT THIS STAGE REFERENCE IS INVITED TO THE AUDIT ED ACCOUNTS WHICH ARE ENCLOSED FOR YOUR KIND REFERENCE. ATTENTION IN PARTICULAR IS DRAWN TO SCHEDULE 10 WHICH IS 'OTHER INCOME' AMOUNTING TO RS 27,79.391/-. THE BREAK-UP OF OTHER INCOME REVEALS AN INTEREST RE CEIVED INCOME IS RS.27,49,391/-. AS AGAINST THE INTEREST INCOME THE FINANCIAL CHARGES I.T.A NO. 2417/AHD/2012 A.Y. 2008-09 PAGE NO ITO VS. INDIAN BOBBIN MFT CO. PVT. LTD. 4 ARE AMOUNTING TO RS.27,46,887/-. THIS GOES TO INDIC ATE THAT THERE IS A NET SURPLUS OF INTEREST OF RS.2,504/- (RS.27,49,391 - 27,46,887/-). THE AO FOR SOME INEXPLICABLE REASON COMPLETELY IGNORED THE FACT THAT THE APPELLANT COMPANY IS HAVING NET INTEREST INCOME. T HE AO HAS COMPLETELY IGNORED THE FACT THAT OVER ALL THE APPEL LANT COMPANY HAS RECEIVED A NET INTEREST INCOME OF RS.2,504/-. THER EFORE, THE THEORY OF THE AO OF INTEREST BEARING FUNDS HAVING BEEN UTILIZ ED TOWARDS THE EARNING OF EXEMPT INCOME STAND TOTALLY DEMOLISHED. 6. AT THIS STAGE IT MAY BE POINTED OUT THAT THE AD MINISTRATIVE EXPENSES AMOUNTING TO RS 58,539/- WHICH INCLUDE AUD IT FESS, LEGAL PROFESSIONAL CHARGES, PROFESSIONAL TAX ETC. OF RS.1 8.000/-. IRRESPECTIVE OF THE NATURE AND AMOUNT OF RECEIPT OF INCOME, THES E ARE STATUTORY EXPENSES WHICH HAVE TO BE BORNE BY THE APPELLANT CO MPANY. THESE EXPENSES CAN BY NO STRETCH OF IMAGINATION BE STATED TO HAVE A DIRECT RELATIONSHIP OR NEXUS WITH THE GENERATION OF INCOME WHICH IS NOT CHARGEABLE TO TAX. WHETHER THE COMPANY PURSUES ANY COMMERCIAL ACTIVITY OR NOT THESE EXPENSES HAVE TO BE BORNE BY THE APPELLANT COMPANY AND ARE ESSENTIAL FOR THE FOR THE EXISTENC E, REGULAR CONDUCT & CONTINUANCE THEREOF. 7. AT THIS JUNCTURE IT MAY BE POINTED OUT THAT TH E INTEREST FREE FUNDS AVAILABLE WITH THE APPELLANT COMPANY ARE IDENTIFIED AS UNDER: A. SHARE CAPITAL RS, 12,50,000/- B. RESERVES AND SURPLUS RS. 16.66.220/- C.CURRENT LIABILITIES & PROVISIONS RS. 78,16,293/- D. DEFERRED TAX ASSETS RS. 3,26,896/- TOTAL RS.1,10,59, 410/- THE INVESTMENT IN SHARES HAS BEEN MADE OF RS.1,06,0 0,670/-. THEREFORE, THE INTEREST FREE FUNDS AVAILABLE WITH T HE APPELLANT COMPANY ARE IN EXCESS OF THE ALLEGED INVESTMENT MAD E IN SHARES FROM WHICH DIVIDEND INCOME, EXEMPT IN NATURE HAS BEEN RE CEIVED. EVEN IN THE EARLIER YEARS THE EVEN PRESUMING THAT THESE INV ESTMENTS HAVE BEEN MADE OUT OF THE INTEREST BEARING FUNDS IN THE EARLI ER YEARS I.E. A. Y. 2005-06 AND A.Y. 2006-07. ASSESSMENT WAS COMPLETED U/S 143(3) OF THE ACT. COPY OF ASSESSMENT ORDERS ARE ALSO ENCLOSE D FOR YOUR KIND I.T.A NO. 2417/AHD/2012 A.Y. 2008-09 PAGE NO ITO VS. INDIAN BOBBIN MFT CO. PVT. LTD. 5 REFERENCE. THE PERUSAL OF THE ASSESSMENT ORDER WOUL D INDICATE THAT THERE IS NO DISALLOWANCE OF INTEREST MADE BY THE AO IN THE EARLIER YEARS ON THE BASIS OF WHICH AN INFERENCE CAN BE DRA WN THAT THE INTEREST BEARING FUNDS OF ALL THE EARLIER YEARS HAV E BEEN UTILIZED FOR MAKING INVESTMENT IN SHARES WHICH HAVE ALLEGED TO H AVE GENERATED EXEMPT INCOME AND THEREBY RAISED THE ISSUE OF DISAL LOWANCE U/S 14A OF THE ACT. 8. THE PERUSAL OF THE AUDITED ACCOUNTS WOULD ALSO REVEAL THAT THE UNSECURED LOANS HAVE DECREASED FROM RS,3,58,57,690/ - TO RS.1,14,86,398/-. THEREFORE, THERE IS A REDUCTION I N UNSECURED LOANS OF RS.2,43,71,292/-. SIMULTANEOUSLY, THE APPELLANT COM PANY WHICH HAD GRANTED LOANS OF RS.2,54,75,324/- HAS BEEN REDUCED TO RS,1,09,10,648/-. THEREFORE, THERE IS THE REDUCTION IN LOANS AND ADVANCES TO THE EXTENT OF RS. L.46 CRORES. SIMILARL Y, THE ASSESSEE COMPANY HAS DISINVESTED IN SHARE APPLICATION MONEY TO THE EXTENT OF RS. 25,00,000/-. THE CURRENT LIABILITIES AND PROVIS IONS HAVE INCREASED FROM RS 13,40,541/- TO RS.78,16,293/-, THE INCREASE IN CREDITORS IS TO THE EXTENT OF RS 64,75,749/-. THEREFORE, THE ANALYS IS OF THE BALANCE SHEET WOULD CLEARLY INDICATE THAT DURING THE YEAR U NDER CONSIDERATION THE APPELLANT COMPANY HAS RECOVERED THE LOANS AND A DVANCES GIVEN ON INTEREST BASIS. THE LOANS RECOVERED TO THE EXTENT OF RS. 1,45,64,676 WELL AS DISINVESTMENT IN SHARE APPLICATION MONEY OF RS,25,00,000/- & INCREASE IN DRY CREDITORS OF RS 64,75,749/- TOTALIN G RS.2,35,40,425 HAVE BEEN UTILIZED TO PAY OFF UNSECURED LOANS TO TH E EXTENT OF RS.2,43,71,292/-. 9. AT THIS STAGE IT IS ESSENTIAL TO POINT OUT THAT THE INVESTMENT IN SHARES IS AS UNDER: INV ESTMENT IN SHARES A.Y.08-09 A. Y. 07-08 A.Y.06-07 10600677 13150677 10250677 THE COPIES OF THE AUDITED ACCOUNTS ARE ALSO ENCLOSE D FROM WHICH THE AFORESAID FACT CAN BE VERIFIED. AT THIS JUNCTURE IT MAY BE POINTED OUT I.T.A NO. 2417/AHD/2012 A.Y. 2008-09 PAGE NO ITO VS. INDIAN BOBBIN MFT CO. PVT. LTD. 6 THAT THE ASSESSMENT FOR A Y 2007- 08 WAS COMPLETED 143(3) OF THE ACT. COPY OF THE ORDER IS ALSO ENCLOSED FOR YOUR KIND RE FERENCE. THE PERUSAL OF THE ASSESSMENT ORDER FOR A. Y.2007-08 WO ULD REVEAL THAT THE RETURNED INCOME HAS BEEN ACCEPTED. THIS ONLY GO ES TO ESTABLISH THE FACT THAT THE DEPARTMENT HAS ACCEPTED THAT THERE IS NO DIVERSION OF INTEREST BEARING FUNDS TOWARDS THE MAKING OF INVEST MENTS YIELDING EXEMPT INCOME. DURING THE YEAR UNDER CONSIDERATION NO FRESH/ADDITIONAL INVESTMENT IN SHARES HAS BEEN MADE BY WHICH AN INFERENCE CAN BE DRAWN THAT THERE IS DIVERSION OF I NTEREST BEARING FUNDS WITH INVESTMENTS. 4. RELIANCE WAS ALSO PLACED ON VARIOUS CASE LAWS. LD. CIT(A) AFTER TAKING INTO CONSIDERATION THESE SUBMISSIONS DELETED THE DISALLOWANCE MADE BY THE ASSESSING OFFICER OF RS. 12,31,631/- U/S 14A AND CONFIRMED DISALLOWANCE TO THE EXTENT OF RS. 59,378/-. AGGRIE VED BY DELETION OF DISALLOWANCE OF RS. 12,31,631/- NOW THE REVENUE IS IN APPEAL BEFORE US. 5. AT THE TIME OF HEARING LD. D.R. VEHEMENTLY SUPPO RTED THE ORDER OF ASSESSING OFFICER WHILE LEARNED COUNSEL OF THE ASSE SSEE TOOK US TO VARIOUS PAGES OF ITS PAPER BOOK TO SUBSTANTIATE SUBMISSION MADE BY ASSESSEE BEFORE LD. CIT(A). HE ALSO PLACED RELIANCE ON THE ORDER O F LD. CIT(A). 6. AFTER HEARING BOTH THE PARTIES AND PERUSING THE RECORD, WE FIND THAT ASSESSING OFFICER DISALLOWED A SUM OF RS.12,9,009/- U/S 14A OF THE ACT. LD. CIT(A) HOWEVER AFTER PERUSAL OF THE DETAILS FILED B Y ASSESSEE BEFORE HIM FOUND THAT DURING THE RELEVANT PERIOD ASSESSEE WAS HAVING SUBSTANTIAL INTEREST FREE FUNDS AT HIS DISPOSAL TO MAKE INVESTMENTS IN S HARES. THE ASSESSEE WAS HAVING TOTAL INTEREST FREE INCOME OF 1,10,59,410/- WHEREAS THE INVESTMENT IN SHARES WAS OF RS. 1,06,00,670/-. THUS THE INTEREST FREE FUNDS AVAILABLE WITH THE ASSESSEE WERE IN EXCESS OF THE INVESTMENT MADE IN SHARES FROM WHICH I.T.A NO. 2417/AHD/2012 A.Y. 2008-09 PAGE NO ITO VS. INDIAN BOBBIN MFT CO. PVT. LTD. 7 DIVIDEND INCOME WHICH IS EXEMPT IN NATURE WERE RECE IVED. LD. CIT(A) FURTHER FOUND AFTER PERUSAL OF THE ASSESSMENT ORDER S OF EARLIER YEARS THAT THERE WAS NO DISALLOWANCE OF INTEREST BY THE ASSESSING OF FICER IN THE EARLIER YEARS ON THE BASIS OF WHICH AN INFERENCE COULD BE DRAWN T HAT THE INTEREST BEARING FUNDS OF ALL THE EARLIER YEARS HAVE BEEN UTILIZED F OR MAKING INVESTMENT IN SHARES WHICH HAS GENERATED EXEMPT INCOME AND THEREB Y RAISED THE ISSUE OF DISALLOWANCE U/S 14A OF THE ACT. IN THE LIGHT OF T HESE UNDISPUTED FACTS OF THIS CASE LD. CIT(A) HAD HELD THAT THIS WAS NOT A F IT CASE IN WHICH PROVISIONS OF SECTION 14A OF THE ACT WERE ATTRACTED. WHILE HO LDING SO LD. CIT(A) PLACED RELIANCE ON THE DECISION OF HONBLE HIGH COU RT OF GUJRAT IN THE CASE OF CIT VS. M/S LUBI SUBMERSIBLES LTD IN TAX APPEA L NO. 868 OF 2010 WHEREIN FOLLOWING WAS HELD: AS CAN BE SEEN FROM THE TREATMENT ACCORDED TO THE SAID ISSUE BY THE TRIBUNAL, THE TRIBUNAL DECIDED ON THE BASIS OF PROV ISIONS CONTAINED IN SECTION 14A OF THE INCOME-TAX ACT, 1961 ('ACT' FOR SHORT) WHICH STATES THAT NO DEDUCTION COULD BE ALLOWED IN RESPEC T OF EXPENDITURE INCURRED IN RELATION TO INCOME WHICH DOES NOT FORM PART OF THE TOTAL INCOME UNDER THE SAID ACT. IT CONCLUDED THAT THE FU NDS OF THE ASSESSEE- RESPONDENT WERE MIX FUNDS IN AS MUCH AS INVESTMENT WAS MADE IN THE PRECEDING YEARS AND THERE WAS NO FRESH INVESTMENT D URING THE YEAR UNDER CONSIDERATION. IT ALSO DID NOT AGREE WITH TH E FINDINGS OF THE ASSESSING OFFICER THAT THE INVESTMENT WAS MADE BY T HE ASSESSEE OUT OF BORROWED FUNDS. THUS, FROM THE ENTIRE GAMUT OF FACT S, THE TRIBUNAL HELD THAT THERE WAS A SUFFICIENT SURPLUS FUND AVAIL ABLE WITH THE ASSESSEE TO INVEST AND THERE WAS NO NEXUS THAT COUL D BE ESTABLISHED WITH THE EXPENDITURE INCURRED BY THE ASSESSEE FOR E ARNING THE DIVIDEND INCOME. BY DISCUSSING AT LENGTH THE SIMILAR VIEW TA KEN BY THE COGNATE BENCH IN THE CASE OF A.C.U.I.T VS. JUPITER CORPORAT E SERVICES LIMITED, IT CONCLUDED THAT IN ABSENCE OF ANY MATERIAL, IT WA S EVIDENT THAT NO EXPENDITURE HAD BEEN INCURRED BY WAY OF INTEREST WH ICH COULD BE RELATED TO DIVIDEND INCOME, NOR WAS BROUGHT ANY MAT ERIAL TO SUGGEST THAT THE BORROWED FUNDS WERE UTILIZED FOR INVESTMEN T IN SHARES. WHILE THERE WAS NO DISALLOWANCE OF INTEREST PAID ON BORRO WED FUNDS WAS I.T.A NO. 2417/AHD/2012 A.Y. 2008-09 PAGE NO ITO VS. INDIAN BOBBIN MFT CO. PVT. LTD. 8 MADE IN THE PRECEDING ASSESSMENT YEAR, THERE WAS NO MATERIAL AVAILABLE BEFORE THE TRIBUNAL TO TAKE A DIFFERENT V IEW THAN ALREADY TAKEN IN THE EARLIER ASSESSMENT YEAR. LOGIC GIVEN F OR CONCLUSION REQUIRES NO INTERFERENCE. IT WAS ON THE BASIS OF EV IDENCE WHICH WAS PRESENTED BEFORE THE TRIBUNAL THAT THE CONCLUSION H AD BEEN ARRIVED AT WITH REGARD TO AVAILABILITY OF THE FREE-FUNDS FOR I NVESTMENT, AND THEREFORE, THIS APPEAL MERITS NO CONSIDERATION. ACC ORDINGLY, THE PRESENT TAX APPEAL IS DISMISSED WITH NO ORDER AS TO COSTS. IN VIEW OF THE ABOVE WE FIND NO INFIRMITY IN THE OR DER OF LD. CIT(A) AND THE SAME IS HEREBY UPHELD. 7. IN THE RESULT, REVENUES APPEAL IS DISMISSED. ORDER PRONOUNCED IN OPEN COURT ON THE DATE MENTIONE D HEREINABOVE AT CAPTION PAGE SD/- SD/- (A.MOHAN ALANKAMONY) ( D.K.TYAGI) ACCOUNTANT MEMBER J UDICIAL MEMBER AHMEDABAD : DATED 10/05/2013 AK / COPY OF ORDER FORWARDED TO:- 1. / APPELLANT 2. / RESPONDENT 3. / CONCERNED CIT 4. - / CIT (A) 5. , ! , '# / DR, ITAT, AHMEDABAD 6. $% &' / GUARD FILE. BY ORDER/ , ( / ' ) ! , '#