The DCIT, Circle-1, Bhavnagar V. Patel Salt & Marine Chemicals Pvt.Ltd., Bhavnagar

ITA 2465/AHD/2011

• Counselvise Citation: 246520514 RSA 2011
• Duration Of Justice: 4 year(s) 2 month(s) 9 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 09-12-2015
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: C
• Next Hearing Date: 10-09-2015
• Assessment Year: 2008-2009
• Appeal Filed On: 30-09-2011
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: DILIP KUMAR
• Assessee Lawyers: URVASHI SHODHAN
• Keywords: Earning of tax free income
• Section: 143(3); 14A

Judgement Text

I.T.A. NO.: 2290 AND 2465AHD/2011 ASSESSMENT YEAR: 2008 - 09 PAGE 1 OF 5 IN THE INCOME TAX APPELLATE TRIBUNAL, AHMEDABAD C BENCH, AHMEDABAD [CORAM : PRAMOD KUMAR AM AND S S GODARA JM] I.T.A. NO. : 2465 AHD/201 1 ASSESSMENT YEAR: 2008 - 09 DY COMMISSIONER OF INCOME TAX CIRCLE 1, BHAVNAGAR .APPELLANT VS. PATEL SALT AND MARINE CHEMICALS PVT LTD . RESPONDENT KHUMBHARWADA, BHAVNAGAR 364001 [PAN: AACCP1659B] I.T.A. NO.: 2290 AHD/201 1 ASSESSMENT YEAR: 2008 - 09 PATEL SALT AND MARINE CHEMICALS PVT LTD .APPELLANT KHUMBHARWADA, BHAVNAGAR 364001 [PAN: AACCP1659B] VS DY COMMISSIONER OF INCOME TAX CIRCLE 1, BHAVNAGAR . RESPONDENT APPEARANCES BY: DILIP KUMAR FOR THE REVENUE URVASHI SHODHAN FOR THE ASSESSEE DATE OF CONCLUDING THE HEARING : SEPTEMBER 10 , 201 5 DATE OF PRONOUNCING THE ORDER : DECEMBER 9 TH , 201 5 O R D E R PER PRAMOD KUMAR AM : 1 . THESE CROSS APPEALS CALL INTO QUESTION CORRECTNESS OF THE ORDER DATED 4 TH JULY 2011 PASSED BY THE LEARNED CIT(A) IN THE MATTER OF ASSESSMENT UNDER SECTION 143(3) OF THE INCOME TAX ACT, 1961, FOR THE ASSESSMENT YEAR 2008 - 09. I.T.A. NO.: 2290 AND 2465AHD/2011 ASSESSMENT YEAR: 2008 - 09 PAGE 2 OF 5 2. IN THE APPEAL FILED BY THE ASSESSING OFFICER (I.E. ITA NO. 2465/AHD/11), THE SHORT ISSUE THAT WE ARE REQUIRED TO ADJUDICATE IS WHETHER OR NOT THE LEARNED CIT(A) WAS JUSTIFIED IN DELETING THE ADDITION OF RS 39,04,654 IN RESPECT OF OUTSTANDING LIABILITIES UNDER SECTION 41(1) OF THE INCOME TAX ACT . 3. THE MATERIAL FACTS, GIVING RISE TO THIS APPEAL BEFOR E US, ARE AS FOLLOWS. DURING THE COURSE OF SCRUTINY ASSESSMENT PROCEEDINGS, THE ASSESSING OFFICER NOTICED THAT IN A NUMBER OF CASES, CERTAIN AMOUNTS , SHOWN AS OUTSTANDING LIABILITIES, ARE OUTSTANDING FOR MORE THAN THREE YEARS. HE REQUIRED THE ASSESSEE TO S HOW CAUSE AS TO WHY THESE AMOUNTS NOT BE TREATED AS INCOME UNDER SECTION 41(1) OF THE ACT. THE EXPLANATIONS GIVEN BY THE ASSESSEE, BROADLY TO THE EFFECT THAT THESE ARE GENUINE LIABILITIES EVEN THOUGH THERE ARE SOME DISPUTES RAISED BY THE ASSESSEE IN SOME OF THE CASES, WERE REJECTED. IN THIS BACKDROP, AND RELYING UPON HON BLE CALCUTTA HIGH COURT S DECISION IN THE CASE OF KESORAM INDUSTRIES & COTTON MILLS LTD VS CIT [(1992) 196 ITR 845 (CAL)], THE ASSESSING OFFICER ADDED THE AMOUNT OF RS 39,04,654 REPRESENT ING THESE CREDIT AMOUNTS SHOWN IN THE ACCOUNTS OF THE ASSESSEE. AGGRIEVED, ASSESSEE CARRIED THE MATTER IN APPEAL BEFORE THE CIT(A) WHO DELETED THE ADDITION ON THE GROUND THAT THERE WAS NEITHER THERE WAS ANYTHING ON RECORD TO SUGGEST THAT THE LIABILITY HAD CEASED ON ACCOUNT OF CESSATION OR REMISSION, NOR THE ASSESSEE HAD EVEN UNILATERALLY WRITTEN OFF THESE AMOUNTS . IT WAS ALSO NOTED THAT THE ASSESSING OFFICER HAD NOT CONDUCTED ANY INQUIRIES WITH THE CREDITORS AND THAT AS LONG AS LIABILITY IS SHOWN IN THE BOO KS OF ACCOUNTS, AND IS NOT REMITTED, IT CANNOT BE IGNORED. A LARGE NUMBER OF JUDICIAL PRECEDENTS WERE ALSO CITED IN SUPPORT OF THESE CONCLUSIONS. AGGRIEVED BY THE RELIEF SO GRANTED BY THE LEARNED CIT(A), THE ASSESSING OFFICER IS IN APPEAL BEFORE US. 4. WE HAVE HEARD THE RIVAL CONTENTIONS, PERUSED THE MATERIAL ON RECORD AND DULY CONSIDERED FACTS OF THE CASE IN THE LIGHT OF THE APPLICABLE LEGAL POSITION. 5. WE FIND THAT IT IS NOT IN DISPUTE THAT THE AMOUNTS, WHICH WERE BROUGHT TO TAX BY THE ASSESSING OFFICE R, WERE DULY SHOWN IN THE BOOKS OF ACCOUNTS, THAT THERE WAS NO WRITE OFF OF THESE LIABILITIES AND THAT THERE WAS NO REMISSION OF THESE LIABILITIES. THE I.T.A. NO.: 2290 AND 2465AHD/2011 ASSESSMENT YEAR: 2008 - 09 PAGE 3 OF 5 REASONS FOR WHICH THESE AMOUNTS WERE BROUGHT TO TAX INCLUDE THE FACT THAT THE ASSESSEE HAD NOT PAID THES E LIABILITIES FOR CONSIDERABLE TIME WHICH, ACCORDING TO THE ASSESSING OFFICER, SHOWED THAT THE ASSESSEE DID NOT ACKNOWLEDGE THESE LIABILITIES , THE FACT THAT THE ASSESSEE HAD SOME ISSUES WITH RESPECT TO THE RELATED BILLS BY THESE PARTIES AND THAT CREDITO RS WERE ADMITTEDLY NOT BOTHERED ABOUT THE PAYMENTS LEAVING THE AMOUNTS UNPAID FOR SO LONG. NONE OF THESE REASONS, IN OUR CONSIDERED VIEW, IS A LEGALLY SUSTAINABLE REASON FOR INVOKING THE PROVISIONS OF SECTION 41(1). THIS PROVISION CAN ONLY BE INVOKED IN RE SPECT OF CESSATION OR REMISSION OF A LIABILITY BUT THEN THE ASSESSING OFFICER HAS NOT MADE ANY EFFORTS TO EVEN SHOW THAT THERE HAS BEEN ANY CESSATION OF LIABILITY OR REMISSION OF LIABILITY. THE FACT THAT THE PAYMENT HAS NOT BEEN MADE SO FAR, THAT THE ASSE SSEE HAS MADE SOME CLAIMS IN RESPECT OF THESE PAYMENTS DOES NOT TRIGGER THE LIABILITY UNDER SECTION 41(1). THE ASSESSING OFFICER DID NOT EVEN ADDRESS HIMSELF TO THIS ASPECT OF THE MATTER OR BROUGHT ON RECORD ANY MATERIAL TO DEMONSTRATE THE SAME. IN VIEW O F THESE DISCUSSIONS, AS ALSO BEARING IN MIND ENTIRETY OF THE CASE, WE APPROVE THE CONCLUSIONS ARRIVED AT BY THE CIT(A) AND DECLINE TO INTERFERE IN THE MATTER ON THIS ISSUE. 6. IN THE RESULT, THE APPEAL FILED BY THE ASSESSING OFFICER ISDISMISSED. 7. COMING TO TH E APPEAL FILED BY THE ASSESSEE, THE ONLY GRIEVANCE RAISED IN THIS APPEAL IS DIRECTED AGAINST LEARNED CIT(A) S CONFIRMING THE DISALLOWANCE OF EXPENSES OF RS 5,54,395 UNDER SECTION 14A OF THE ACT . 8. THE RELEVANT MATERIAL FACTS ARE LIKE THIS. DURING THE COURSE OF THE SCRUTINY ASSESSMENT PROCEEDINGS, THE ASSESSING OFFICER NOTICED THAT THE ASSESSEE HAS EARNED TAX EXEMPT INCOME OF RS 8,69,454 . IT WAS IN THIS BACKDROP THAT THE ASSESSEE WAS REQUIRED TO SHOW CAUSE A TO WHY DISALLOWANCE UNDER SECTION 14A R.W.R. 8D NOT BE MADE. IN REPLY, IT WAS STATED THAT BY THE ASSESSEE THAT THE ASSESSEE HAS RS 3,10,28,007 AS NON INTEREST BEARING FUNDS WHICH ARE MUCH MORE THAN THE FUNDS INVESTED IN THE TAX EXEMPT INCOME YIELDING SOURCES. IT WAS SUBMITTED THAT THE ENTIRE INVESTMENT IS IN THE MUTUAL FUNDS, THAT THE INVESTMENT IS OUT OF OWN SOURCES AND NO EXPENSES IS INCURRED IN CONNECTION WITH THESE EXPENSES. ON THIS BASIS, IT WAS I.T.A. NO.: 2290 AND 2465AHD/2011 ASSESSMENT YEAR: 2008 - 09 PAGE 4 OF 5 CONTENDED THAT DISALLOWANCE UNDER SECTION 14A R.W.R. 8D IS NOT REQUIRED ON THE FACTS OF THIS CASE. THE ASSESSING OFFICER, NEVERTHELESS, PROCEEDED TO COMPUTE THE DISALLOWANCE OF RA 5,54,395, ON THE BASIS OF FORMULA SET OUT IN RULE 8D AND BY ALLOCATING INTEREST COSTS IN THE RATIO OF TAX EXEMPT INVESTMENTS TO TOTAL ASSETS, PLUS A 0.5% OF AVERAG E VALUE OF INVESTMENTS. AGGRIEVED, ASSESSEE CARRIED THE MATTER IN APPEAL BEFORE THE CIT(A) BUT WITHOUT ANY SUCCESS. THE ASSESSEE IS AGGRIEVED AND IS IN APPEAL BEFORE US. 9. HAVING HEARD THE RIVAL CONTENTIONS AND HAVING PERUSED THE MATERIAL ON RECORD, WE F IND THAT THE DISALLOWANCE CANNOT MEET OUR APPROVAL. FIRSTLY, ONCE IT IS CLEAR THAT NO PART OF INTEREST BEARING FUNDS ARE USED IN THE TAX EXEMPT YIELDING INVESTMENTS , IT CANNOT BE OPEN TO THE REVENUE AUTHORITIES TO DISALLOW ANY PORTION OF SUCH INTEREST UNDE R SECTION 14A. AS HELD BY A COORDINATE BENCH OF THE TRIBUNAL, IN THE CASE OF ACIT VS GULSHAN INVESTMENT CO LTD [(2013) 142 ITD 89 (KOL)], AN EXPENSE WHICH IS INCURRED EXCLUSIVELY FOR EARNING A TAXABLE INCOME, AS EVIDENTLY IS INTEREST INCOME IN THE LIGHT O F THE FINDING THAT IT HAS NOT BEEN AT ALL INCURRED FOR EARNING TAX EXEMPT INCOME, CANNOT BE INCLUDED IN THE DISALLOWANCE UNDER RULE 8D. THE DISALLOWANCE THUS CAN AT BEST BE MADE TO THE EXTENT OF RS 65,540. LOOKING TO THE SMALLNESS OF THIS AMOUNT, AND LOOK ING TO THE FACT THAT THE ASSESSEE HAS NOT RAISED ANY SERIOUS DISPUTE WITH REGARD TO THIS SMALL DISALLOWANCE, WE SEE NO NEED TO ADDRESS OURSELVES TO THE ARGUMENT THAT NO DISALLOWANCE UNDER SECTION 14A R.W.R. 8D CAN BE MADE AT ALL ON THE FACTS OF THIS CASE. GRIEVANCE OF THE ASSESSEE IS PARTLY UPHELD. 10. THE APPEAL FILED BY THE ASSESSEE IS THUS PARTLY ALLOWED TO THE EXTENT ABOBE. 11. IN THE RESULT, WHILE APPEAL OF THE ASSESSING OFFICER IS DISMISSED, THE APPEAL FILED BY THE ASSESSEE IS PARTLY ALLOWED IN THE TERMS INDICATED ABOVE. PRONOUNCED IN THE OPEN COURT TODAY ON 9 TH DAY OF DECEMBER, 2015. SD/ - SD/ - S S GODARA PRAMOD KUMAR (JUDICIAL MEMBER) (ACCOUNTANT MEMBER) DATED: THE 9 TH DAY OF DECEMBER , 201 5 . I.T.A. NO.: 2290 AND 2465AHD/2011 ASSESSMENT YEAR: 2008 - 09 PAGE 5 OF 5 COPIES TO : (1) THE APPELLANT (2) THE RESPONDENT (3) CIT (4) CIT(A) (5) DR (6) GUARD FILE BY ORDER ETC ASSISTANT REGISTRAR INCOME TAX APPELLATE TRIBUNAL AHMEDABAD BENCHES, AHMEDABAD