EMCO LTD, THANE V. JCIT CIR 1, THANE

ITA 2439/MUM/2014

• Counselvise Citation: [2017] 126 COUNSELVISE.COM (IT) 9856 (ITAT-MUMBAI)
• Duration Of Justice: 3 year(s) 4 month(s) 26 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 06-09-2017
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: E
• Assessment Year: 2009-2010
• Appeal Filed On: 10-04-2014
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: V JUSTEIN
• Keywords: Earning of tax free income
• Section: 143(3); 14A

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL E BENCH, MUMBAI BEFORE SRI MAHAVIR SINGH, JM AND SRI M.K. AGGARWAL , AM ITA NO. 2439 /MUM/201 4 (A.Y: 2009 - 10 ) EMCO LIMITED PLOT NO.F - 5, ROAD, NO. 28, WAGLE INDUSTRIAL ESTATE, THANE - 400 064 PAN NO. AAACE2764Q VS . JT. COMMISSIONER OF INCOME TAX, RANGE - 1, THANE 6 TH ASHAR IT PARK, ROAD NO. 16Z, WAGLE INDUSTRIAL ESTATE, THANE APPELLANT .. RESPONDENT ASSESSEE BY .. NONE REVENUE BY .. SHRI V. JUSTEIN, DR DATE OF HEARING .. 2 8 - 08 - 2017 DATE OF PRONOUNCEMENT . . 06 - 0 9 - 2017 O R D E R PER MAHAVIR SINGH , JM : TH IS APPEAL BY THE ASSESSEE IS ARISING OUT OF THE ORDER OF CIT(A) - II THANE , IN APPEAL NO. THN/CIT(A) - II/JCIT.RNG - 1/THN/740/2011 - 12 DATED 11 - 02 - 2014 . THE ASSESSMENT WAS FRAMED BY JCIT RANGE - 1, THANE FOR THE A . Y . 2009 - 10 VIDE ORDER DATED 28 - 12 - 2 0 11 UNDER SECTION 143(3) OF THE INCOME TAX ACT, 1961(HEREINAFTER THE ACT ). 2. THE ONLY ISSUE IN THIS APPEAL OF ASSESSEE IS AGAINST THE ORDER OF CIT(A) IN CONFIRMING THE DISALLOWANCE MADE BY AO OF EXPENSES RELATABLE TO EXEMPT INCOME BY INVOKING THE PROVISIONS OF SECTION 14A OF THE ACT READ WITH RUE 8D OF THE IT RULES 62 HEREINAFTER THE RULES. FOR THIS ASSESSEE HAS RAISED FOLLOWING GROUND NO.1 : - 2 ITA NO. 2439/MUM/2014 EMCO LIMITED ; A.Y:2009 - 10 1. THE LEARNED AO HAS ERRED IN LAW AND FACTS IN MAKING ADDITIONS AMOUNTI NG TO RS. 11,24,688/ - AND THE LEARNED CIT(A) HAS ERRED IN LAW AND FACTS IN CONFIRMING DISALLOWANCE FOR RS.11,24,688/ - U/S 14A. 3. AT THE OUTSET, IT IS NOTICED THAT DESPITE SERVICE OF ALL NOTICE S, NONE IS PRESENT FOR M ASSESSEES SIDE AND EVEN IN EARLIER HEARI NG, NONE WAS PRESENT. AFTER GOING THROUGH THE FILES WE NOTICED THAT THE ISSUE IS SIMPLE, HENCE, WE TAKE UP THE CASE AND DECIDE THE SAME AFTER HEARING THE LEARNED SR. DR. 4. BRIEFLY STATED FACTS ARE THAT THE ASSESSEE CLAIMED EXEMPTED INCOME IN THE FORM OF DIVI DEND ACCOUNTING TO RS. 91,622/ - RECEIVED FROM INVESTMENT IN MUTUAL FUNDS AND RS. 2,06,531/ - FROM INVESTMENT IN SHARES AND RS. 6,858/ - AS TAX FREE INTEREST FROM UTI BONDS IN TOTAL AMOUNTING TO RS. 3,05,011/ - . THE AO NOTED THAT THE ASSESSEE HAS INCURRED EXPE NSES BY WAY OF INTEREST AMOUNTING TO RS. 41,52,19,998/ - AND ON THE BASIS OF THE SAME, THE AO AFTER GOING THROUGH THE FORMULA UNDER RULE 8D2(II) DISALLOWED THE SUM OF RS. 9,88,325/ - . SIMILARLY, THE AO ALSO DISALLOWED HALF PERCENT OF THE AVERAGE VALUE OF IN VESTMENT UNDER RULE 8D2(III) OF RS. 1,36,363/ - . THEREBY, HE DISALLOWED A SUM OF RS.11,04,668/ - . AGGRIEVED, ASSESSEE PREFERRED THE APPEAL BEFORE CIT(A), WHO CONFIRMED THE ACTION OF THE AO BY STATING THAT THE ASSESSEE COULD NOT ESTABLISH THE AVAILABILITY OF INTEREST FREE FUNDS AND INVESTMENT IN THE INSTRUMENTS GIVING EXEMPTED INCOME AND ITS NEXUS. AGGRIEVED, NOW ASSESSEE IS IN SECOND APPEAL BEFORE TRIBUNAL. 5. WE HAVE HEARD THE RIVAL CONTENTIONS AND GONE THROUGH THE FACTS AND CIRCUMSTANCES OF THE CASE. WE FIND T HAT THE ASSESSEES MAIN CONTENTION BEFORE THE AO WAS THAT THE COMPANY INVESTED OUT OF THE SURPLUS FUNDS OR OWN FUNDS IN THE SHARES AND OTHER INSTRUMENTS GIVING RISE TO TAX EXEMPT INCOME. ACCORDING TO ASSESSEE , ALL INVESTMENT S WERE 3 ITA NO. 2439/MUM/2014 EMCO LIMITED ; A.Y:2009 - 10 MADE OUT OF OWN FUNDS AND NOT FROM INTEREST BEARING FUND S AND INVESTMENT WERE PRIMARILY MADE PRIOR TO FINANCIAL YEAR 2002 - 03. THE ASSESSEE FILED COMPLETE DETAILS OF AVAILABILITY OF FUND S IN ITS ACCOUNT WHICH CLEARLY PROVES THAT THE ASSESSEE HAS INTEREST FREE FUNDS AVAILABLE. EVEN OTHERWISE, IN EARLIER YEARS NO SUCH DISALLOWANCE WAS MADE, WHEREAS THE IN VESTMENT WAS MADE IN FY 2002 - 03 TO 2007 - 08. SOME OF THE INVESTMENT S ARE EVEN DURING AY 1979 - 80 TO 2002 - 03. THE ASSESSEE EXPLAINED THAT THE TOTAL INVESTMENT TIN SHARES AS ON 31 - 03 - 2009 WAS RS.2,07,18,806/ - AND FRESH INVESTMENT DURING YEAR UNDER CONSIDERATION WAS ONLY RS. 9001/ - . WE FIND FROM THE DETAILS THAT THE ASSESSEES OWN FUNDS ARE MORE THAN THE INVESTMENT IN TAX FREE INSTRUMENTS AS CLAIMED BY THE ASSESSEE AND NOT DENIED BY REVENUE . ACCORDINGLY, THE PRESUMPTION IS THAT THE ASSESSEE HAS INVESTED IN THE TAX - FREE INSTRUMENTS OUT OF OWN FUNDS BECAUSE ASSESSEES RETURNED INCOME IN THIS YEAR IS RS. 58,77,00,807/ - . FOLLOWING THE RATIO LAID BY THE HONBLE BOMBAY HIGH COURT IN THE CASE OF CI T VS. HDFC LTD. (2014) 366 ITR 505 (BOM), WE DIRECT THE AO TO DELETE THE DISALLOWANCE OF EXPENSES ON ACCOUNT OF INTEREST MADE UNDER RULE 8D(2)(II) OF THE RULES AMOUNTING TO RS. 9,88,325/ - . HOWEVER, AS REGARDS TO DISALLOWANCE OF 0.5% OF THE AVERAGE VALUE OF INVESTMENT I.E. THE DISALLOWANCE IN REGARD TO ADMINISTRATIVE EXPENSES , THE AO HAS DISALLOWED A SUM OF RS. 1,36,363/ - , WE FIND NO REASON TO DELETE THIS DISALLOWANCE. ACCORDINGLY, THIS APPEAL OF ASSESSEE IS PARTLY ALLOWED. 6. I N THE RESULT, THE APPEAL OF ASSES SEE IS PARTLY ALLOWED . ORDER PRONOUNCED IN THE OPEN COURT ON 06 - 0 9 - 2017. SD/ - SD/ - ( M.K. AGGARWAL ) (MAHAVIR SINGH) ACCOUNTANT MEMBER JUDICIAL MEMBER MUMBAI, DATED: 06 - 09 - 2017 SUDIP SARKAR /SR.PS 4 ITA NO. 2439/MUM/2014 EMCO LIMITED ; A.Y:2009 - 10 COPY OF THE ORDER FORWARDED TO : //TRUE COPY// BY ORDER , ASSISTANT REGISTRAR ITAT, MUMBAI 1. THE APPELLANT 2. THE RESPONDENT. 3. THE CIT (A), MUMBAI. 4. CIT 5. DR, ITAT, MUMBAI 6. GUARD FILE.