SHANKAR PACKAGINGS LTD, MUMBAI V. DCIT 5(3), MUMBAI

ITA 2473/MUM/2013

• Counselvise Citation: [2015] 140 COUNSELVISE.COM (IT) 87910 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 9 month(s) 11 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 13-01-2015
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: E
• Next Hearing Date: 13-01-2015
• Assessment Year: 2006-2007
• Appeal Filed On: 01-04-2013
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: NEIL PHILIPDR
• Section: 143(3); 14A

Judgement Text

, , , , , ,, , , IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCHES E, MUMBAI , , BEFORE SHRI JOGINDER SINGH, JUDICIAL MEMBER, AND SHRI SANJAY ARORA, ACCOUNTANT MEMBER ITA NO.2473/MUM/2013 ASSESSMENT YEAR: 2006-07 M/S SHANKAR PACKAGING LTD. 303, TURF ESTATE, OFF. DR. E. MOSES ROAD, SHAKTI MILL LANE, MAHALAXMI(WEST) MUMBAI-400011 / VS. DY. COMMISSIONER OF INCOME-TAX-5(3) ROOM NO.573, 5 TH FLOOR, AAYAKAR BHAWAN, M.K.ROAD, MUMBAI-400020 ( # / REVENUE) ( $%& /ASSESSEE) P.A. NO.AAACS8076P $%& ' ( ' ( ' ( ' ( / // / ASSESSEE BY) APURVA SHAH # ' ( ' ( ' ( ' ( / REVENUE BY : SHRI NEIL PHILIP - DR ' &) / / / / DATE OF HEARING : 13/01/2015 *+, ' &) / DATE OF PRONOUNCEMENT : 13/01/2015 DATE OF ORDER : - - - - ' &) / 14/01/2015 - - - - / / / / O R D E R PER JOGINDER SINGH (JUDICIAL MEMBER) : THE ASSESSEE IS AGGRIEVED BY THE IMPUGNED ORDER DAT ED 08/02/2013 OF THE LD. FIRST APPELLATE AUTHORITY, MU MBAI . THE ASSESSEE HAS RAISED THE FOLLOWING GROUNDS: THE COMMISSIONER OF INCOME-TAX (APPEALS)-9 MUMBAI HAS ERRED:- M/S SHANKAR PACKAGING LTD. 2 1. IN CONFIRMING A DISALLOWANCE U/S14A. 2. IN MAKING A DISALLOWANCE OF INTEREST NOTWITHSTANDING THAT THE APPELLANT HAD ADEQUATE RESERVES AND INTEREST FREE FUNDS FAR IN EXCESS OF INVESTMENTS MADE. 3. IN NOT RESTRICTING THE DISALLOWANCE TO THE CALCU LATION DONE BY THE APPELLANT. 2. AT THE TIME OF HEARING, LD. COUNSEL FOR THE ASSE SSEE, APURVA SHAH, CONTENDED THAT THIS SECOND ROUND OF APPEAL AND THE ASSESSEE HAD ADEQUATE INTEREST FREE FUNDS/RESERVES FAR IN EXCESS OF INVESTMENT MADE BY THE ASSESSEE, THEREFORE, THE DISALLOWANCE U/S 14A WAS WRONGLY MADE/CONFIRMED. RELIANCE WAS PLACED UPON THE DECISION IN 258 ITR 601, 244 ITR 627 AND 313 IT R 340 (BOM.). ON THE OTHER HAND, SHRI NEIL PHILIP, L D. DR, DEFENDED THE CONCLUSION ARRIVED AT IN THE IMPUGNED ORDER BY CONTENDING THAT THE ASSESSEE COULD NOT ESTABLISH THE NEXUS BETWEEN THE ENTIRE CAPITAL INVE STED IN SECURITIES AND THE INVESTMENT WAS MADE OUT OF TH E COMMON HOTCH POTCH OF THE FUNDS. 2.1. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL AVAILABLE ON RECORD. THE FACT S, IN BRIEF, ARE THAT THE ASSESSEE COMPANY IS ENGAGED IN MANUFACTURING OF HDPE/PP/WOVEN SACKS/FABRIC. THE ASSESSEE EARNED AN AMOUNT OF RS.19,04,764/- AS DIVIDEND AND CLAIMED THE SAME AS EXEMPT. THE LD. ASSESSING OFFICER WHILE FRAMING THE ASSESSMENT U/S 143(3) OF THE INCOME TAX ACT, 1961 (HEREINAFTER THE ACT) M/S SHANKAR PACKAGING LTD. 3 BY APPLYING THE PROVISION OF RULE 8D, MADE DISALLOWANCE U/S 14A OF THE ACT AMOUNTING TO RS.33,99,737/-. THE MATTER TRAVELLED TO THE TRIBUN AL, WHEREIN VIDE ORDER DATED 29/09/2011, THE ISSUE WAS SET-ASIDE FOR FRESH ADJUDICATION. DURING PROCEEDIN GS U/S 143(3) R.W.S. 254, THE ASSESSEE PROVIDES ITS REASONING. HOWEVER, THE LD. ASSESSING OFFICER MADE DISALLOWANCE OF RS.24,80,913/- U/S 14A OF THE ACT. THE WHOLE CASE OF THE REVENUE IS THAT THE ASSESSEE COUL D NOT ESTABLISH THE NEXUS BETWEEN THE INVESTMENT MADE IN SECURITIES/SHARES AND THE FUNDS AVAILABLE WITH T HE ASSESSEE WHEREAS THE CASE OF THE ASSESSEE IS THAT SUFFICIENT NONINTEREST BEARING FUNDS WERE AVAILABLE FOR MAKING THE INVESTMENT. HOWEVER, THERE IS NO DISPUT E THAT ADEQUATE FUNDS WERE AVAILABLE WITH THE ASSESSE E FOR MAKING INVESTMENT IN SHARES. IN SUCH A SITUATI ON THE RATIO LAID DOWN BY HONBLE JURISDICTIONAL HIGH COURT IN CIT VS RELIANCE UTILITIES AND POWER LTD. (2009) 313 ITR 340 (BOM.), WHEREIN INVESTMENT WAS MADE BY THE ASSESSEE FROM INTEREST FREE FUNDS AND BORROWED FUND S WERE USED FOR THE PURPOSES OF BUSINESS. THE HONBL E HIGH COURT HELD THAT INTEREST IS DEDUCTABLE, COMES TO THE RESCUE OF THE ASSESSEE. WHILE COMING TO THIS CONCLUSION, THE HONBLE COURT RELIED UPON THE DECIS ION IN EAST INDIA PHARMACEUTICALS WORKS LTD. VS CIT 224 ITR 627 (SC) AND WOOL COMBERS OF INDIA LTD. VS CIT 134 ITR 219 (CAL.). AT THE SAME TIME, THE HONBLE JURISDICTIONAL HIGH COURT IN GODREJ & BOYCE MANUFACTURING COMPANY LTD. (2010) 328 ITR 81 (BOM.) HELD AS UNDER:- M/S SHANKAR PACKAGING LTD. 4 THAT THE PROVISIONS OF RULE 8D OF THE RULES WHICH HAVE BEEN NOTIFIED WITH EFFECT FROM MARCH 24, 2008, WOULD APPLY WITH EFFECT FROM ASSESSMENT YEAR 2008-09. EVEN PRIOR TO ASSESSMENT YEAR 2008-09, WHEN RULE 8D WAS NOT APPLICABLE, THE AO HAD TO ENFORCE THE PROVISIONS OF SUB-SECTION (1) OF SECTIO N 14A. FOR THAT PURPOSE, THE AO IS DUTY BOUND TO DETERMINE THE EXPENDITURE WHICH HAS BEEN INCURRED IN RELATION TO INCOME WHICH DOES NOT FORM PART OF T HE TOTAL INCOME UNDER THE ACT. THE AO MUST ADOPT A REASONABLE BASIS OR METHOD CONSISTENT WITH ALL THE RELEVANT FACTS AND CIRCUMSTANCES AFTER FURNISHING A REASONABLE OPPORTUNITY TO THE ASSESSEE TO PLACE ALL GERMANE MATERIAL ON THE RECORD. THE PROCEEDINGS FOR ASSESSMENT YEAR 2002-03 WOULD STAND REMANDED TO THE AO. THE AO SHOULD DETERMINE AS TO WHETHER THE ASSESSEE HAD INCURRED ANY EXPENDITURE (DIRECT OR INDIRECT) IN RELATION TO DIVIDEND INCOME/INCOME FROM MUTUAL FUNDS WHICH DOES NOT FORM PART OF THE TOTAL INCOME AS CONTEMPLATED UNDER SECTION 14A. THE AO CAN ADOPT A REASONABLE BASIS FOR EFFECTING THE APPORTIONMENT. WHILE MAKING THAT DETERMINATION, THE AO SHOULD PROVIDE A REASONABLE OPPORTUNITY TO THE ASSESSEE OF PRODUCING ITS ACCOUNTS AND RELEVANT OR GERMANE MATERIAL HAVING A BEARING ON THE FACT AND CIRCUMSTANCES OF THE CASE. 2.2. HOWEVER, WE NOTE THAT IN A LATER DECISION BY T HE HONBLE JURISDICTIONAL HIGH COURT 23 RD JULY, 2014 IN THE CASE OF CIT VS HDFC BANK LTD. (ITA NO.330 OF 2012), WHEREIN, OWN FUNDS OF THE ASSESSEE WERE MORE THAN T HE INVESTMENT MADE IN TAX FREE SECURITIES, UPHELD THE DECISION OF THE TRIBUNAL BY FOLLOWING THE DECISION IN RELIANCE UTILITIES AND POWER LTD. (2009) 313ITR 340 (BOM). IN THE PRESENT CASE ALSO, SURPLUS INTEREST FREE FUNDS WERE AVAILABLE WITH THE ASSESSEE WHICH WERE SUFFICI ENT TO MEET THE INVESTMENT MADE IN SECURITIES, THUS, A M/S SHANKAR PACKAGING LTD. 5 PRESUMPTION WOULD ARISE THAT INVESTMENT WOULD BE OU T OF INTEREST FREE FUNDS AVAILABLE WITH THE ASSESSEE. RELIANCE ALSO CAN BE PLACED UPON THE RATIO LAID DOW N IN AMERICAN EXPRESS INTERNATIONAL BANKING CORPORATION VS CIT (258 ITR 601). THUS, THERE IS FORCE IN THE CONTENTION OF THE LD. COUNSEL FOR THE ASSESSEE. SO FAR AS, MAKING DISALLOWANCE U/S 14A OF THE ACT IS CONCERNED IT CAN BE MADE ON THE BASIS OF PRINCIPLE OF APPORTIONM ENT OF EXPENSES INCURRED TO EARN TAXABLE OR NONTAXABLE INCOME. THE ASSESSING OFFICER IS DIRECTED TO MAKE A REASONABLE DISALLOWANCE U/S 14A BY CONSIDERING THE DECISION FROM HONBLE JURISDICTION HIGH COURT IN GO DREJ & BOYCE (SUPRA). THUS, THE APPEAL OF THE ASSESSEE IS DISPOSED OFF IN TERMS INDICATED HEREINABOVE. FINALLY, APPEAL OF THE ASSESSEE IS DISPOSED OFF IN TERMS INDICATED HEREINABOVE. THIS ORDER WAS PRONOUNCED IN THE OPEN COURT IN THE PRESENCE OF LD. REPRESENTATIVES FROM BOTH SIDES AT THE CONCLUSION OF THE HEARING ON 13/01/2015. SD/ - (SANJAY ARORA) SD/ - (JOGINDER SINGH) / ACCOUNTANT MEMBER / JUDICIAL MEMBER MUMBAI; . DATED : 14/01/201 5 F{X~{T? P.S/. .. - ' 0&1 21,& - ' 0&1 21,& - ' 0&1 21,& - ' 0&1 21,&/ COPY OF THE ORDER FORWARDED TO : 1. 34 / THE APPELLANT 2. 0534 / THE RESPONDENT. 3. 6 ( ) / THE CIT, MUMBAI. 4. 6 / CIT(A)- , MUMBAI 5. 189 0& , , / DR, ITAT, MUMBAI M/S SHANKAR PACKAGING LTD. 6 6. 9:$ ; / GUARD FILE. - - - - / BY ORDER, 51& 0& //TRUE COPY// < <<