CASBY LOGISTICS PVT. LTC, MUMBAI V. DCIT-1(1), MUMBAI

ITA 2571/MUM/2013

• Counselvise Citation: [2016] 133 COUNSELVISE.COM (IT) 4152 (ITAT-MUMBAI)
• Duration Of Justice: 2 year(s) 9 month(s) 23 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 27-01-2016
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: C
• Next Hearing Date: 29-04-2015
• Assessment Year: 2006-2007
• Appeal Filed On: 04-04-2013
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Keywords: Principle of natural justice; Earning of tax free income; Proportionate interest; Commercial expediency
• Section: 43B; 143(3); 142(1); 14A

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL C BENCH, MUM BAI BEFORE SHRI SHAILENDRA KUMAR YADAV, JUDICIAL MEMBER AND SHRI RAMIT KOCHAR, ACCOUNTANT MEMBER ./ I.T.A. NO. 2571/MUM/2013 ( / ASSESSMENT YEAR: 2006-07 ) CASBY LOGISTICS PVT. LTD. CASSINATH BUILDING, 17, A.K. NAYAK MARG, FORT, MUMBAI 400 020. / V. DY. COMMISSIONER OF INCOME-TAX- 1(1), AAYAKAR BHAVAN, M.K. ROAD, MUMBAI 400 020. ./ ./PAN/GIR NO. AAACC8295Q ( /APPELLANT ) : ( / RESPONDENT ) / APPELLANT BY : SHRI SURENDRA MIJSURE / RESPONDENT BY : SHRI C.W. ANGOLKAR / DATE OF HEARING : 26.10.2015 !'# / DATE OF PRONOUNCEMENT : 27.01.2016 $% / O R D E R PER RAMIT KOCHAR, ACCOUNTANT MEMBER: THIS IS AN APPEAL BY THE ASSESSEE COMPANY DIRECTED AGAINST THE ORDER BY THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS)-4, MUM BAI (CIT(A) FOR SHORT) DATED 09/01/2013 FOR THE ASSESSMENT YEAR 2006-07. 2 I.T.A. NO.2571/MUM/2013(AY:2006-07) CASBY LOGISTICS PVT. LTD. V. DCIT 1(1)MUMBAI. 2. THE GROUNDS OF APPEAL RAISED BY THE ASSESSEE COM PANY IN THE MEMO OF APPEAL FILED WITH THE TRIBUNAL ARE AS UNDER:- 1) A) THE CIT(A) HAS ERRED IN CONFIRMING THE DISALLOW ANCE OF RS. 8,39,411/- BEING THE INTEREST CALCULATED AT 9% ON ALLEGED INTE REST FREE LOANS GIVEN BY THE APPELLANT MENTIONED IN THE ASSESSMENT ORDER REJ ECTING THE APPELLANTS SUBMISSION THAT THEY WERE NOT LOANS BUT ADVANCES GI VEN FOR THE PURPOSES OF BUSINESS. B) THE CIT(A) ERRED IN CONFIRMING THE AFORESAID DIS ALLOWANCE OF INTEREST IN VIEW OF THE FACT THAT SIMILAR DISALLOWANCE MADE IN ASST. YEAR 2005-06 HAS BEEN DELETED BY THE CIT(A), CENTRAL II, MUMBAI VIDE HIS ORDER DATED 23/03/2007. 2) A) THE CIT(A) ERRED IN RESTRICTING THE DISALLOW ANCE U/S. 14A TO RS. 10,05,867/- MADE BY THE ASSESSING OFFICER IN AS MUC H AS NO EVIDENCE WAS BROUGHT ON RECORD EITHER BY THE ASSESSING OFFICER O R THE CIT(A) TO SHOW THAT THE APPELLANT HAS INVESTED BORROWED FUNDS IN ASSETS , INCOME FROM WHICH WAS EXEMPT FROM TAX OR MADE ANY OTHER EXPENSES TO EARN EXEMPT INCOME. B) IN FACT, THE APPELLANTS CAPITAL AND RESERVES O F RS. 845 LAKHS WERE MUCH MORE THAT THE INVESTMENTS OF RS. 768 LAKHS AND HENC E PRIMA FACIE THERE WAS NO REASON TO MAKE THE DISALLOWANCE OUT OF INTEREST EXPENSES U/S. 14A OF THE I.T. ACT. 3) THE CIT(A) ERRED IN CONFIRMING THE DISALLOWANCE OF PAYMENT TO EMPLOYEES CONTRIBUTION TO PROVIDENT FUND AMOUNTING TO RS. 86,358 IN VIEW OF THE FACT THAT THE SAID AMOUNT HAS BEEN PAID TO PROVIDENT FUND AUTHORITY IN TIME. 3. THE BRIEF FACTS OF THE CASE ARE THAT THE ASSESSE E IS A COMPANY AND IS ENGAGED IN THE BUSINESS OF STEVEDORING. 4. DURING THE COURSE OF THE ASSESSMENT PROCEEDINGS U/S 143(3) READ WITH SECTION 143(2) OF THE INCOME TAX ACT,1961(HEREINAFTER CALLE D THE ACT) THE LEARNED ASSESSING OFFICER(HEREINAFTER CALLED THE AO) OBSE RVED THAT THE DISALLOWANCE OF 3 I.T.A. NO.2571/MUM/2013(AY:2006-07) CASBY LOGISTICS PVT. LTD. V. DCIT 1(1)MUMBAI. ASSESSEES CLAIM OF INTEREST EXPENSES WAS MADE BY T HE AO IN THE ASSESSMENT ORDER PASSED FOR THE ASSESSMENT YEAR 2005-06 ON ACCOUNT O F THE REASONS THAT THE ASSESSEE COMPANY HAS NOT CHARGED THE INTEREST ON THE LOANS A ND ADVANCES GIVEN TO VARIOUS PARTIES AND THE AO OBSERVED THAT FOR THE CURRENT Y EAR ALSO THE FACTS ARE SIMILAR WHEREBY THE ASSESSEE COMPANY HAS NOT CHARGED INTERE ST ON LOANS AND ADVANCES GIVEN TO VARIOUS PARTIES. THE AO ISSUED SHOW CAUSE NOTICE DATED 19.12.2008 U/S. 142(1) OF THE ACT TO THE ASSESSEE COMPANY WHEREBY THE ASSESS EE COMPANY WAS ASKED TO SHOW CAUSE AS UNDER:- IT IS SEEN THAT YOU HAVE TAKEN SECURED AND UNSECUR ED LOANS OF RS. 20,10,28,597/- WHEREAS YOU HAVE PAID INTEREST AMOUNTING RS. 35,51, 007/- AND CLAIMED DEDUCTION U/S. 36(1)(III) OF THE I.T. ACT AGAINST THE PROFIT. IT I S ALSO SEEN THAT YOU HAVE ADVANCED INTEREST FREE LOANS TO FOLLOWING PARTIES ON WHICH Y OU HAVE NOT CHARGED ANY INTEREST: SR. NO. NAME OF THE PARTY AMOUNT 1 AHURA TRANSPORT PVT. LTD. 11,600 2 ARADHANA TRANSPORT PVT. LTD. 11,600 3 ATLAS ORCHARDS LTD. 4,500 4 EXCELLENT MOVERS PVT. LTD. 11,100 5 JAKARI DEVELOPERS PVT. LTD. 4,500 6 JAKARI PORT MANAGEMENT PVT. LTD. 17,501 7 OCEAN EXPRESS PVT. LTD. 50,000 8 SWIFT MOVERS PVT. LTD. 11,600 9 SKY QUICK FRT 1,71,000 10 M.B. EDULJEE CASSINATH SONS 4,22,174 11 BUSINESS MATCH SERVICES PVT. LTD. 11,00,000 12 R.G. KHARE & CO. 5,18,013 13 SEA WHEELS CARRIERS PVT. LTD. 55,100 14 F.K. MODY & CO. 1,00,000 15 B. ENGINEERS & BUILDERS LTD. 14,00,000 16 LGT ASSOCIATES 7,00,000 17 S.S.S. & CO. AT KAKINADA 5,00,000 18 SADGURU FORWARDERS PVT. LTD. 3,00,000 19 DR. SAROJINI PRADHAN 3,38,069 20 EAST INDIA MINERALS LTD. 23,932 21 G.T. TRANSPORT 7,36,125 22 GREWAL ASSOCIATES PVT. LTD. 9,20,739 23 J.N. PATNAIK 31,279 24 MR. ABHAYKUMAR PANDA 3,67,938 25 NATIONAL ENTERPRISES 1,46,289 26 EDB & CO. 2,00,000 27 CONTINENTAL WAREHOUSING CORPN. 7,58,930 28 PACT SOLUTION PVT. LTD. 5,00,000 29 UNITECH AUTOMOBILES PVT. LTD. 4,800 4 I.T.A. NO.2571/MUM/2013(AY:2006-07) CASBY LOGISTICS PVT. LTD. V. DCIT 1(1)MUMBAI. THEREFORE, YOU ARE HERBY ASKED TO SHOW CAUSE AS TO WHY THE INTEREST EXPENSES CLAIMED BY YOU BE NOT DISALLOWED U/S. 36(1)(III) OF THE ACT BECAUSE INTEREST BEARING FUNDS HAVE BEEN DIVERTED BY YOU FOR NON BUSINESS P URPOSE. THE ASSESSEE COMPANY SUBMITTED THAT THE ASSESSEE CO MPANY HAS GIVEN THE INTEREST FREE ADVANCES TO PARTIES FOR BUSINESS PURPOSES WHICH ARE IN THE NATURE OF TRADING ADVANCES GIVEN TO PARTIES ON ACCOUNT OF COMMERCIAL EXPEDIENC Y. THE ASSESSEE COMPANY ALSO SUBMITTED THAT SOME OF THE PARTIES HAVE REPAID THE ADVANCES IN THE NEXT FINANCIAL YEAR OR THE ADVANCES HAVE BEEN ADJUSTED AGAINST THE BILL ING OF THOSE PARTIES. THE AO REJECTED THE CONTENTIONS OF THE ASSESSEE COMPANY AS THE ASSESSEE COMPANY DID NOT FILE ANY DOCUMENTARY EVIDENCE TO PROVE THAT THE ABOVE AD VANCES HAVE BEEN GIVEN BY THE ASSESSEE COMPANY FOR BUSINESS PURPOSES. THE AO HELD THAT THE ASSESSEE COMPANY HAD DIVERTED THE INTEREST BEARING FUNDS IN GIVING THE I NTEREST FREE ADVANCES TO THE ABOVE MENTIONED PARTIES AND HENCE, THE ASSESSEE COMPANYS CLAIM OF INTEREST EXPENDITURE WAS DISALLOWABLE IN VIEW OF THE SPECIFIC PROVISIONS OF SECTION 36(1)(III) OF THE ACT. THEREFORE, INTEREST AT THE RATE OF 9% IS CHARGED ON THE ABOVE ADVANCES TOTALING TO RS. 93,26,789/- WHICH IS WORKED OUT AT RS. 8,39,411/- W HICH WAS ADDED TO THE TOTAL INCOME OF THE ASSESSEES COMPANY INCOME VIDE ASSESS MENT ORDER DATED 24.12.2008 PASSED BY THE AO U/S 143(3) OF THE ACT. 5. AGGRIEVED BY THE ASSESSMENT ORDER DATED 24.12.20 08 PASSED BY THE AO U/S 143(3) OF THE ACT, THE ASSESSEE COMPANY FILED THE FIRST AP PEAL BEFORE THE CIT(A) AND SUBMITTED VIDE LETTER DATED 12/12/2012 AS UNDER:- DISALLOWANCE OF INTEREST AMOUNTING TO RS. 8,39,411/ -. THE ASSESSEE HAD GIVEN INTEREST FREE ADVANCES FOR BUSINESS CONSIDERATION. UTILIZATION OF MONEY BORROWED ON INTEREST INCLUDES GIVING ADVANCES FOR THE COURSE OF CARRYING BUSINESS. SUCH TRADE ADVANCES MAY OR MAY NOT CARRY INTEREST DEPENDING UPON THE PRACTICE FOLLOWED CONSISTENTLY BY THE ASSESSEE . IN THE CASE, THE TRADE ADVANCES DO NOT CARRY ANY INTEREST. HENCE, FROM TH ESE ADVANCES, NO INTEREST INCOME COULD BE EXPECTED. FURTHER THESE ARE NOT IN THE NATURE OF INTEREST FREE 5 I.T.A. NO.2571/MUM/2013(AY:2006-07) CASBY LOGISTICS PVT. LTD. V. DCIT 1(1)MUMBAI. LOANS. THESE TRADES ADVANCES WERE BEING GIVEN ON A CCOUNT OF COMMERCIAL EXPEDIENCY AND THAT SOME OF THE PARTIES HAD REPAID THE ADVANCES IN THE NEXT YEAR OR HAVE BEEN ADJUSTED AGAINST THE BILLS OF TH E PARTY. SIMILAR DISALLOWANCE WAS MADE IN A.Y. 05-06 AND TH E CIT(A) IN HIS ORDER HAS REVERSED THE DISALLOWANCE GIVEN BY THE LD. ASSESSI NG OFFICER. KINDLY FIND ENCLOSED HEREWITH COPY OF THE CIT(A) ORDER DATED 2 0/08/2007. THE CIT(A) HELD THAT THE ASSESSEE COMPANY IS TO SHO W THAT EACH AND EVERY ADVANCE HAS BEEN GIVEN FOR THE BUSINESS PURPOSE AND, THEREF ORE, EXPLANATION AND FACTS RELATING TO EACH ADVANCES SHOULD HAVE BEEN BROUGHT ON RECORD BY THE ASSESSEE COMPANY, WHEREAS THE ASSESSEE COMPANY MERELY CLAIMED THAT TH EY ARE TRADE ADVANCES GIVEN FOR BUSINESS PURPOSES BUT THE ASSESSEE COMPANY FAILED TO PROVE THAT THE ADVANCES ARE FOR THE BUSINESS PURPOSES. HENCE, THE DISALLOWANCE OF I NTEREST OF RS.8,39,411/- MADE BY THE AO WAS CONFIRMED BY THE CIT(A) VIDE ORDERS DATE D 09-01-2013. 6. AGGRIEVED BY THE ORDERS DATED 09-01-2013 PASSED BY THE CIT(A) , THE ASSESSEE COMPANY FILED AN APPEAL BEFORE THE TRIBUNAL. THE A SSESSEE COMPANY CONTENDED THAT THE MONEY HAS BEEN ADVANCED FOR THE BUSINESS PURPOS ES BEING TRADE ADVANCES AND THE ASSESSEE COMPANY SUBMITTED THAT IN THE PRECEDING AS SESSMENT YEARS 2004-05 AND 2005-06, THE ASSESSEE COMPANY HAD ADVANCED TO 16 PA RTIES WHICH WAS ACCEPTED BY THE TRIBUNAL IN ITA NO. 69/MUM/2008 & 70/MUM/2008 VIDE ORDERS DATED 13-11-2009 AS TRADE ADVANCES FOR BUSINESS PURPOSES AND THE ADDITI ONS MADE BY THE AO BY WAY OF DISALLOWANCE OF INTEREST WAS DELETED BY TRIBUNAL . THE ASSESSEE COMPANY PRODUCED BEFORE US THE COPIES OF THE ASSESSMENT ORDER, CIT(A ) ORDER AND ITAT ORDERS FOR THE ASSESSMENT YEAR 2005-06, WHICH ARE PLACED IN FILE. THE ASSESSEE COMPANY SUBMITTED THAT DURING THE COURSE OF ASSESSMENT YEAR 2006-07, IN ALL ADVANCES WERE GIVEN TO 29 PARTIES AND OUT OF WHICH 16 PARTIES ARE SAME PARTI ES AS WERE BEFORE THE TRIBUNAL IN THE PRECEDING ASSESSMENT YEAR I.E. 2005-06 AND WHICH WA S ACCEPTED BY THE TRIBUNAL TO BE TRADE ADVANCES FOR BUSINESS PURPOSES VIDE ORDERS DA TED 13-11-2009 . THUS, THE 6 I.T.A. NO.2571/MUM/2013(AY:2006-07) CASBY LOGISTICS PVT. LTD. V. DCIT 1(1)MUMBAI. ASSESSEE COMPANY CONTENDED THAT OUT OF RS. 93,26,7 89/- ADVANCES GIVEN AS ON 31/3/2006, RS. 69,23,301/- WERE IN RESPECT OF 16 P ARTIES WHICH WERE EXISTING IN THE IMMEDIATELY PRECEDING ASSESSMENT YEAR AND WHICH WA S ACCEPTED BY THE TRIBUNAL VIDE ORDERS 13-11-2009 , BEING GIVEN FOR BUSINESS PURPOS ES. THE ASSESSEE COMPANY ALSO SUBMITTED THAT IT HAS INTEREST FREE FUND OF RS. 23, 22,22,553/- AS AT 31-03-2006 , OUT OF WHICH SHARE CAPITAL AND RESERVES WERE RS. 8.45 CROR ES AND INTEREST FREE LOANS WERE RS.14.77 CRORES. THE ASSESSEE COMPANY SUBMITTED THA T IT HAS PAID INTEREST OF RS. 35,51,007/- DURING THE PREVIOUS YEAR AND SINCE THE ADVANCES WERE GIVEN FOR BUSINESS PURPOSES BEING TRADE ADVANCES, THE INTEREST EXPENDI TURE SHOULD BE ALLOWED AND THE AO ERRED IN DISALLOWING THE INTEREST OF RS. 8,39,411/- . THE ASSESSEE COMPANY RELIED ON THE DECISION OF HONBLE HIGH COURT OF BOMBAY IN REL IANCE UTILITIES AND POWER LIMITED REPORTED IN (2009) 178 TAXMAN 135(BOMBAY) AND DECISION OF HONBLE SUPREME COURT IN S.A. BUILDERS LTD, (2007)158 TAXMA N 74 (SC). 6. THE LD. DR ON THE OTHER HAND, SUBMITTED THAT THE ASSESSEE COMPANY HAS MIXED POOL OF FUNDS WHICH WERE DEPLOYED IN FIXED ASSETS A LSO. THE LD. DR SUBMITTED THAT THE CIT(A) HAS GIVEN THE CATEGORICAL FINDING THAT THE A SSESSEE COMPANY HAS NO EVIDENCE TO PROVE THAT THE ADVANCE ARE FOR BUSINESS PURPOSES AND HENCE, THE CIT(A) HAS RIGHTLY CONFIRMED AN ADDITION MADE BY THE AO. THE LD. DR SU BMITTED THAT THE DISALLOWANCE OF INTEREST OF RS.8,39,411/- AS MADE BY THE AO AND CONFIRMED/SUSTAINED BY THE CIT(A) BE UPHELD. 7. WE HAVE CONSIDERED THE RIVAL CONTENTIONS AND PER USED THE MATERIAL ON RECORD, WE HAVE OBSERVED THAT THE ASSESSEE COMPANY HAS GIVEN T HE ADVANCES TO VARIOUS PARTIES AS PER THE LIST PRODUCED IN THE PRECEDING PARAS, AGGR EGATING TO RS. 94,16,789/- AND THE ASSESSEE COMPANY HAD PAID INTEREST OF RS. 35,51,007 /- DURING THE PREVIOUS YEAR . THE ASSESSEE COMPANY HAS ALSO CLAIMED TO HAVE THE INTE REST FREE FUNDS OF RS. 23.22 CRORES. WE HAVE ALSO OBSERVED THAT THE ASSESSEE COMPANY IN THE PRECEDING ASSESSMENT YEAR 7 I.T.A. NO.2571/MUM/2013(AY:2006-07) CASBY LOGISTICS PVT. LTD. V. DCIT 1(1)MUMBAI. HAS ADVANCED MONEY TO 16 PARTIES WHICH HAS BEEN HEL D BY THE TRIBUNAL TO BE ADVANCED FOR BUSINESS PURPOSES IN ITA NO.69/MUM/2008 AND ITA NO. 70/MUM/2008 VIDE ORDERS DATED 13-11-2009. IN OUR CONSIDERED VIEW, I NTEREST OF JUSTICE WILL BE BEST SERVED IF THE MATTER IS RESTORED TO THE FILE OF THE AO FOR DE-NOVO DETERMINATION OF THE ISSUE WITH DIRECTIONS TO THE ASSESSEE COMPANY TO BR ING ON RECORD THE COGENT MATERIAL / EVIDENCES BEFORE THE AO TO SUBSTANTIATE ITS CLAIM AND CONTENTIONS THAT THE AMOUNTS HAVE BEEN ADVANCED FOR THE PURPOSE OF BUSINESS FOR COMMERCIAL EXPEDIENCY. THE AO WILL ALSO TAKE INTO ACCOUNT THE DECISION OF THE TRI BUNAL FOR THE ASSESSMENT YEAR 2004- 05 AND 2005-06 IN ITA NO. 69 &70/MUM/2008 VIDE ORDE RS DATED 13-11-2009 WHEREBY THE ADVANCES TO 16 PARTIES WERE HELD TO BE TRADING ADVANCES FOR BUSINESS PURPOSES AND DISALLOWANCE OF THE INTEREST WAS, THER EFORE, DELETED AND ALSO CASE LAWS RELIED UPON BY THE ASSESSEE COMPANY. NEEDLESS TO SA Y THAT THE AO WILL GRANT PROPER AND ADEQUATE OPPORTUNITY OF HEARING TO THE ASSESSEE COMPANY AS PER LAW IN COMPLIANCE WITH PRINCIPLES OF NATURAL JUSTICE. WE ORDER ACCORDINGLY. 8. DURING THE COURSE OF ASSESSMENT PROCEEDINGS U/S 143(3) READ WITH SECTION 143(2) OF THE ACT, THE AO OBSERVED THAT THE ASSESSEE COMPANY HAS CLAIMED THE DIVIDEND INCOME OF RS. 17,66,345/- AND LONG TERM CAPITAL GAIN OF RS . 84,41,989/- AS EXEMPT INCOME FROM TAXATION. THE AO OBSERVED THAT THE ASSESSEE CO MPANY HAS NOT ALLOCATED ANY EXPENDITURE FOR EARNING THIS INCOME WHICH HAS BEEN CLAIMED EXEMPT FROM TAXATION . THE ASSESSEE COMPANY WAS SHOW CAUSED AS TO WHY DISA LLOWANCE WAS NOT MADE U/S 14A OF THE ACT READ WITH RULE 8D OF INCOME TAX RULE S,1962. THE ASSESSEE COMPANY SUBMITTED THAT IT HAS NOT INCURRED ANY EXPENDITURE IN RELATION TO EARNING THE DIVIDEND INCOME OR LONG TERM CAPITAL GAINS AND HENCE NO AMOU NT CAN BE DISALLOWED U/S 14A OF THE ACT. THE ASSESSEE COMPANY HAS ALSO SUBMITTED TH AT RULE 8D OF INCOME TAX RULES, 1962 IS NOT APPLICABLE FOR THE RELEVANT ASSESSMENT YEAR I.E. 2006-07. THE AO REJECTED THE CONTENTIONS OF THE ASSESSEE COMPANY AND HELD TH AT ASSESSEE COMPANY HAS DERIVED INCOME FROM BUSINESS OPERATIONS AS WELL AS FROM INV ESTMENTS AND IT IS NECESSARY TO 8 I.T.A. NO.2571/MUM/2013(AY:2006-07) CASBY LOGISTICS PVT. LTD. V. DCIT 1(1)MUMBAI. APPORTION THE EXPENSES HEAD WISE ACCORDINGLY TOWARD S EXEMPT INCOME AND TAXABLE INCOME . THE AO RELIED ON THE DECISIONS OF KOLKATA TRIBUNAL IN THE CASE OF DCIT V. S.G. INVESTMENTS AND INDUSTRIES LTD.(89 ITD 44) .TH US , THE AO HELD THAT THE PRO-RATA EXPENSES HAS TO BE DISALLOWED INCURRED FOR EARNING TAX EXEMPT INCOME . THE AO HELD THAT IT CANNOT BE SAID THAT NO EXPENSES HAVE BEEN I NCURRED BY THE ASSESSEE COMPANY TO EARN EXEMPT INCOME AND HELD THAT HE IS NOT SATISFIE D WITH THE CLAIM MADE BY THE ASSESSEE THAT NO EXPENDITURE HAS BEEN INCURRED IN R ELATION TO INCOME WHICH DOES NOT FORM PART OF THE TOTAL INCOME UNDER THE ACT FOR THE PREVIOUS YEAR. THE AO HELD THAT THE CBDT VIDE ITS NOTIFICATIONS DA TED 24.03.2008 HAS PRESCRIBED THE METHOD FOR CALCULATING EXPENDITURE IN RELATION TO E XEMPT INCOME BY PROVIDING RULE 8D IN THE INCOME TAX RULES, 1962. THE AO ALSO RELIED ON THE DECISIONS OF ITAT, SPECIAL BENCH, MUMBAI IN THE CASE OF M/S. DAGA CAPITAL MANA GEMENT PVT. LTD. WHEREBY SPECIAL BENCH OF THE TRIBUNAL HELD THAT SECTION 14A OF THE ACT READ WITH RULE 8D OF INCOME TAX RULES, 1962 ARE RETROSPECTIVE IN NATURE . THUS , THE AO HELD THAT RULE 8D OF INCOME TAX RULES, 1962 IS APPLICABLE TO THE ASSE SSEE COMPANY AND DISALLOWANCE WAS MADE UNDER RULE 8D(2)(II) AND (III) OF INCOME T AX RULES, 1962 AND THE TOTAL DISALLOWANCE OF RS. 11,82,953/- U/S 14A OF THE ACT READ WITH RULE 8D (2) (II) AND (III) OF INCOME TAX RULES 1962 WAS MADE VIDE ASSESSMENT ORDER DATED 24.12.2008 PASSED BY THE AO U/S 143(3) OF THE ACT.. 9.AGGRIEVED BY THE ASSESSMENT ORDERS DATED 24.12.20 08 PASSED BY THE AO U/S 143(3) OF THE ACT, THE ASSESSEE COMPANY FILED THE FIRST AP PEAL WITH THE CIT(A) AND SUBMITTED AS UNDER:- THE AMOUNT OF INTEREST AMOUNTING TO RS. 11,82,953 /- .THE ASSESSING OFFICER DISALLOWED INTEREST AMOUNTING TO RS. 11,82,953/- BY APPLYING THE PROVISIONS OF RULE RULE 8D. HE RELIED ON THE DECISION OF HONBLE APEX COURT IN THE CASE OF GARDEN SILK WEAVING FACTORY V/S. CIT 189 ITR 517. HOWEVER, THAT CASE IS IN NO WAY APPLICABLE TO 9 I.T.A. NO.2571/MUM/2013(AY:2006-07) CASBY LOGISTICS PVT. LTD. V. DCIT 1(1)MUMBAI. OUR CASE. THE ASSESSING OFFICER HAD ASKED THE APPEL LANT TO SHOW CAUSE AS TO WHY DISALLOWANCE SHOULD NOT BE MADE U/S 14A OF THE INC OME TAX ACT AND RULE 8D. THE COMPANY HAD VIDE ITS AUTHORIZED REPRESENTATIVE LETT ER DATED 23.12.2008 SUBMITTED THAT NO EXPENDITURE HAD BEEN INCURRED ON LONG TERM CAPITAL GAINS AND DIVIDEND INCOMES. RELIANCE WAS ALSO PLACED UPON THE DECISION OF VIJAYLAXMI SUGAR MILLS LTD. V/S. CIT (1991) 191 ITR 641 (SC) WHERE IT WAS HELD THAT THERE WAS NO EVIDENCE TO SHOW THAT THE EXPENSES SOUGHT TO BE DISALLOWED WERE TO FACILITATED THE EARNING OF DIVIDEND. IT WAS ALSO SUBMITTED THAT THE FORMULA UN DER RULE 8D WAS BROUGHT IN BY NOTIFICATION NO. 45/2008 DATED 24.03.2008 AND CAN BE APPLIED IN THE CIRCUMSTANCES THEREIN ONLY AFTER THAT DATE AND THIS RULE 8D IS NO T RETROSPECTIVE APPLICATION. THE CIT(A) HELD THAT HONBLE BOMBAY HIGH COURT IN T HE CASE OF GODREJ & BOYCE MFG. CO. LTD. V. CIT 328 ITR 81(BOM.), HAS HELD THA T RULE 8D OF INCOME TAX RULES, 1962 IS APPLICABLE FROM THE ASSESSMENT YEAR 2008-09 , BUT FOR EARLIER YEARS, A REASONABLE DISALLOWANCE IS TO BE MADE. THE CIT(A) H ELD THAT NEITHER THE AO NOR THE ASSESSEE COMPANY HAS ESTABLISHED ANY NEXUS OF FUNDS WITH THE INVESTMENTS AND OTHER ACTIVITIES AND THEREFORE PROPORTIONATE INTEREST DIS ALLOWED BY THE ASSESSING OFFICER AS PER RULE 8D(2)(II) OF INCOME TAX RULES,1962 OF RS. 8,28,781/- APPEARS TO BE REASONABLE AND WAS CONFIRMED FOR THE DISALLOWANCE B Y THE CIT(A) VIDE ORDERS DATED 09-01-2013. THE CIT(A) ALSO HELD THAT DISALLOWANCE OF EXPENSES OF RS. 3,54,172/- MADE BY THE AO UNDER RULE 8D (2)(III) OF INCOME TAX RULES, 1962 WA S HELD TO BE ON HIGHER SIDE AND THE CIT(A) REDUCED THE DISALLOWANCE TO 50% AS WAS MADE BY THE AO AND GRANTED THE RELIEF TO THE ASSESSEE COMPANY OF RS. 1,77,086/- VI DE ORDERS DATED 09-01-2013 . 10.AGGRIEVED BY THE ORDERS DATED 09-01-2013 PASSED BY THE CIT(A), THE ASSESSEE COMPANY FILED THE APPEAL BEFORE THE TRIBUNAL AND CO NTENDED THAT RULE 8D OF INCOME 10 I.T.A. NO.2571/MUM/2013(AY:2006-07) CASBY LOGISTICS PVT. LTD. V. DCIT 1(1)MUMBAI. TAX RULES, 1962 IS APPLICABLE FROM THE ASSESSMENT Y EAR 2008-09 AS HELD BY THE HONBLE BOMBAY HIGH COURT IN THE CASE OF GODREJ & B OYCE MFG. CO. LTD (SUPRA), THE ASSESSEE COMPANY SUBMITTED BEFORE US THAT THE ASSES SEE COMPANY HAS ITS OWN SUFFICIENT FUNDS TO THE TUNE OF THE RS. 8.45 CRORES WHILE THE INVESTMENT WHICH ARE MADE ARE TO THE TUNE OF RS. 7.67 CRORES AND HENCE O WN FUNDS ARE UTILIZED IN MAKING INVESTMENTS AND THE INTEREST SHOULD NOT BE DISALLOW ED. THE ASSESSEE COMPANY RELIED UPON THE DECISION OF THE HONBLE BOMBAY HIGH COURT IN THE CASE OF HDFC LTD, IN ITA NO, 330 OF 2012 AND ALSO RELIED UPON DECISION O F VIDEOCON INDUSTRIES LTD V. ADDL. CIT (2015) 55 TAXMAN IN 263 (MUM TRIBUNAL) A ND IOT INFRASTRUCTURE & ENERGY SERVICES LIMITED V. ACIT 39 TAXMANN.COM 195 TO CONTEND THAT NO DISALLOWANCE CAN BE MADE. ON THE OTHER HAND, THE LD . DR SUBMITTED THAT THE ASSESSEE COMPANY HAS A MIXED POOL OF FUNDS AND THE DISALLOWA NCE HAS BEEN RIGHTLY MADE BY THE AO AND UPHELD BY THE CIT(A). 11. WE HAVE CONSIDERED THE RIVAL CONTENTIONS AND PE RUSED THE MATERIAL ON RECORD .WE HAVE OBSERVED THAT HONBLE BOMBAY HIGH COURT IN THE CASE OF GODREJ & BOYCE MFG. CO. LTD. (SUPRA) HAS HELD THAT RULE 8D OF INCOME TA X RULES, 1962 IS APPLICABLE ONLY FROM THE ASSESSMENT YEAR 2008-09 , WHILE THE RELEV ANT ASSESSMENT YEAR UNDER APPEAL IS 2006-07. SECTION U/S 14A OF THE ACT IS APPLICABL E FOR THE RELEVANT ASSESSMENT YEAR AND THE DISALLOWANCE HAS TO BE MADE IN RESPECT OF T HE INCOME WHICH DOES NOT FROM PART OF THE TOTAL INCOME . THE ASSESSEE COMPANY HAS MIXED POOL OF FUNDS WHICH ARE DEPLOYED FOR EARNING THE TAXABLE INCOME AND TAX FRE E INCOME AND IT IS FOR THE ASSESSEE COMPANY TO SHOW WITH THE COGENT MATERIAL/E VIDENCES THAT INTEREST FREE FUNDS ARE DEPLOYED IN MAKING INVESTMENTS WHICH YIELD TAX FREE INCOME . IN OUR CONSIDERED VIEW , THE INTEREST OF JUSTICE WILL BE BEST SERVED IF THE MATTER IS RESTORED TO THE FILE OF THE AO FOR DE-NOVO DETERMINATION OF THE ISSUE WITH THE DIRECTIONS TO THE ASSESSEE COMPANY TO PRODUCE ON RECORD COGENT MATERIAL/EVIDEN CES TO SUBSTANTIATE ITS CLAIM THAT THE INTEREST FREE OWN FUNDS ARE DEPLOYED FOR MAKING THE INVESTMENTS WHICH YIELD TAX 11 I.T.A. NO.2571/MUM/2013(AY:2006-07) CASBY LOGISTICS PVT. LTD. V. DCIT 1(1)MUMBAI. FREE INCOME AND THEN ACCORDINGLY THE DISALLOWANCE B E WORKED OUT . THE AO SHALL ALSO KEEP IN VIEW THE PRESUMPTION AS LAID DOWN BY HONBL E BOMBAY HIGH COURT IN THE CASE OF HDFC BANK LIMITED (SUPRA) AND ALSO OTHER CA SE LAWS RELIED UPON BY THE ASSESSEE COMPANY WHILE DE-NOVO DETERMINATION OF THE ISSUE. NEEDLESS TO SAY THAT THE AO SHALL GRANT PROPER AND ADEQUATE OPPORTUNITY OF H EARING TO THE ASSESSEE COMPANY IN ACCORDANCE WITH LAW IN COMPLIANCE WITH PRINCIPLES O F NATURAL JUSTICE. WE ORDER ACCORDINGLY. 12. THE AO DURING THE COURSE OF ASSESSMENT PROCEEDI NGS U/S 143(3) READ WITH SECTION 143(2) OF THE ACT, ON PERUSAL OF ANNEXURE 3 TO THE TAX AUDIT REPORT FILED BY THE ASSESSEE COMPANY NOTICED THAT THE ASSESSEE COMPANY HAS MADE DELAYED PAYMENTS IN RESPECT OF EMPLOYEES CONTRIBUTION TOWARDS PF AND E SIC AS UNDER:- PF AMOUNTS(RS) DUE DATE DATE OF PAYMENTS 18,485/- 15.04.2006 10.05.2006 3,042/- 15.07.2005 18.07.2005 2,984/- 15.09.2005 21.09.2005 2,984/- 15.11.2005 18.11.2005 12,497/- 15.07.2005 18.07.2015 11,565/- 15.09.2005 23.09.2005 11,810/- 15.11.2005 24.11.2005 11,507/- 15.03.2006 23.03.2006 11,784/- 15.04.2006 17.04.2006 TOTAL 86,358/- FROM THE ABOVE IT WAS OBSERVED BY THE AO THAT THE A SSESSEE COMPANY HAS MADE BELATED PAYMENTS OF RS. 86,358/- IN RESPECT OF ITS LIABILITIES TOWARDS EMPLOYEES CONTRIBUTION TO PF BEYOND THE TIME STIPULATED UNDER PF ACT AND AS PER SEC. 36(1)(VA) 12 I.T.A. NO.2571/MUM/2013(AY:2006-07) CASBY LOGISTICS PVT. LTD. V. DCIT 1(1)MUMBAI. OF THE ACT , SUCH DELAYED PAYMENT CANNOT BE ALLOWED AS DEDUCTION AND HENCE, 86,358/- BEING THE DELAYED PAYMENT TOWARDS EMPLOYEE S CONTRIBUTION TO PF, IS DISALLOWABLE AND THE SAME WAS ADDED BACK TO THE TOT AL INCOME OF THE ASSESSEE COMPANY BY THE AO VIDE ORDERS DATED 24.12.2008 PASS ED U/S 143(3) OF THE ACT. 13. AGGRIEVED BY THE ASSESSMENT ORDERS DATED 24.12. 2008 PASSED U/S 143(3) OF THE ACT BY THE AO, THE ASSESSEE COMPANY FILED THE FIRST AP PEAL BEFORE THE CIT(A) AND THE CIT(A) CONFIRMED THE ADDITION OF RS. 86,358/- AS TH E ASSESSEE COMPANY HAS NOT FILED ANY SUBMISSION IN THIS REGARD , VIDE ORDERS DATED 0 9-01-2013. 14.AGGRIEVED BY THE ORDERS OF THE CIT(A) DATED 09-0 1-2013, THE ASSESSEE COMPANY IS IN APPEAL BEFORE THE TRIBUNAL, THE ASSESSEE COMPANY SUBMITTED THAT THE ASSESSEE COMPANY HAS MADE THE PAYMENT OF EMPLOYEE CONTRIBUTI ON TO PF BEFORE THE DUE DATE OF FILING OF RETURN OF INCOME U/S. 139(1) OF THE AC T AND AS PER SEC. 43B OF THE ACT, IF THE PAYMENTS ARE MADE BEFORE THE DUE DATE OF FILING THE RETURN OF INCOME U/S. 139(1) THE ASSESSEE COMPANY IS ENTITLED FOR THE DEDUCTION OF SAID AMOUNT U/S 36(1)(VA) OF THE ACT READ WITH SECTION 43B OF THE ACT. THE ASSESSEE COMPANY RELIED UPON THE DECISION OF HONBLE BOMBAY HIGH COURT IN CIT V. GHATGE PATIL TRANSPORTS LTD. (2015) 53 TAXMAN.COM 141 (BOM). THE LD DR RELIED UPON THE ORD ER OF THE AUTHORITIES BELOW. WE HAVE CONSIDERED THE RIVAL CONTENTIONS AND PERUSE D THE MATERIAL ON RECORD. WE HAVE OBSERVED THAT THE ASSESSEE COMPANY HAS MADE PAYMEN TS TOWARDS EMPLOYEES PF CONTRIBUTION AMOUNTING TO RS. 86,358/- BEYOND THE T IME STIPULATED I.E. DUE DATE UNDER THE RELEVANT PF ACT BUT HOWEVER THE ASSESSEE COMPA NY HAS MADE THE AFORE-STATED PAYMENTS OF PF BEFORE THE DUE DATE OF FILING OF RET URN OF INCOME U/S 139(1) OF THE ACT. WE HAVE OBSERVED THAT THIS ISSUE IS SQUARELY COVERE D BY THE DECISION OF HONBLE BOMBAY HIGH COURT IN GHATGE PATIL TRANSPORT LTD (SU PRA) AND ALSO HONBLE SUPREME COURT IN ALOM EXTRUSIONS LTD. (2009) 319 ITR 306(SC ) IN FAVOUR OF THE ASSESSEE 13 I.T.A. NO.2571/MUM/2013(AY:2006-07) CASBY LOGISTICS PVT. LTD. V. DCIT 1(1)MUMBAI. COMPANY AND HENCE THE DEDUCTION IS ALLOWABLE WITH T HE RESPECT TO EMPLOYEE CONTRIBUTION TOWARDS PF IF PAYMENT ALTHOUGH MADE BE YOND THE DUE DATE AS PRESCRIBED UNDER THE PF ACT BUT ARE MADE BEFORE THE DUE DATE O F FILING OF RETURN OF INCOME U/S 139(1) OF THE ACT WHICH SHALL BE TREATED AS IN COMP LIANCE WITH SECTION 36(1)(VA) OF THE ACT READ WITH SECTION 43B OF THE ACT. WE THERE FORE ORDER DELETION OF ADDITION OF RS.86,358/- MADE BY THE AO AND AS CONFIRMED/SUSTAIN ED BY THE CIT(A) BEING EMPLOYEES CONTRIBUTION TOWARDS PF HAVING BEEN PAID TO PF AUTHORITIES BEYOND DUE DATE AS PRESCRIBED UNDER RELEVANT PF ACT BUT BEFORE THE DUE DATE OF FILING OF RETURN OF INCOME U/S 139(1) OF THE ACT. WE ORDER ACCORDINGLY. IN THE RESULT, THE ASSESSEE COMPANYS APPEAL IS PA RTLY ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON JANUARY 27 TH , 2016 SD/- SD/- (SHAILENDRA K. YADAV) (RAMIT KOCHAR) &' $ / JUDICIAL MEMBER $ / ACCOUNTANT MEMBER ( ) MUMBAI; *$ DATED : 27.01.2016 PS:- POOJA K ! '#$% &%# / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT 2. / THE RESPONDENT 3. + ( ) / THE CIT(A) 4. + / CIT - CONCERNED 5. ./0 ''12 , 12# , ( ) / DR, ITAT, MUMBAI 6. 045 6 / GUARD FILE ' / BY ORDER, 14 I.T.A. NO.2571/MUM/2013(AY:2006-07) CASBY LOGISTICS PVT. LTD. V. DCIT 1(1)MUMBAI. (/') * (DY./ASSTT. REGISTRAR) , ( ) / ITAT, MUMBAI