SPACO TECHNOLOGIES (I) P.LTD, MUMBAI V. ASST CIT 5(3)(2), MUMBAI

ITA 2592/MUM/2018

• Counselvise Citation: [2019] 116 COUNSELVISE.COM (IT) 4063 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 3 month(s) 20 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 16-08-2019
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: J
• Assessment Year: 2014-2015
• Appeal Filed On: 26-04-2018
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: CHAUDHARY ARUN KUMAR SINGH
• Keywords: Earning of tax free income; Rule 8D
• Section: 14A; 115JB

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL G BENCH, MUMBAI BEFORE SHRI SAKTIJIT DEY , JUDICIAL MEMBER AND SHR I N.K. PRADHAN , ACCOUNTANT MEMBER ITA NO. 2592 / MUM . /2018 ( ASSESSMENT YEAR : 20 14 15 ) SPACO TECHNOLOGIES INDIA PVT. LTD. 901, PRASAD CHAMBERS OPERA HOUSE, MUMBAI 400 004 PAN AABCSS5307E . APPELLANT V/S ASSTT. COMMISSIONER OF INCOME TAX CIRCLE 5(3)(2), MUMBAI . RESPONDENT REVENUE BY : SHRI CHAUDHARY ARUNKUMAR SINGH ASSESSEE BY : NONE DATE OF HEARING 01.08.2019 DATE OF ORDER 16.08.2019 O R D E R PER SAKTIJIT DEY. J.M. CAPTIONED APPEAL HAS BEEN FILED BY THE ASSESSEE CHALLENGING THE ORDER DATED 22 ND MARCH 2018, PASSED BY THE LEARNED COMMISSIONER (APPEALS) 10, MUMBAI, FOR THE ASSESSMENT YEAR 2014 15. 2 . THE GROUNDS RAISED BY THE ASSESSEE RELATE TO DISALLOWANCE OF EXPENDITURE UNDER SECTION 14A R/W RULE 8D. 2 SPACO TECHNOLOGIES INDIA PVT. LTD. 3 . WHEN THE APPEAL WAS CALLED FOR HEARING, NO ONE WAS PRESENT ON BEHALF OF THE ASSESSEE TO REPRESENT THE CASE , IN SPITE OF NOTICE OF HEARING HAVING BEEN ISSUED THROUGH REGI STERED POST WITH A/D . THER EFORE, WE PROCEED TO DISPOSE OF THE APPEAL EX PARTE QUA THE ASSESSEE AFTER HEARING THE LEARNED DEPARTMENTAL REPRESENTATIVE AND ON THE BASIS OF MATERIAL AVAILABLE ON RECORD. 4 . B RIEF FACTS ARE, THE ASSESSEE COMPANY IS ENGAGED IN THE BUSINESS OF MANUFACTURE AND SALE OF CARBURETOR COMPONENTS AND ALLIED ENGINEERING PARTS. FOR THE ASSESSMENT YEAR UNDER CONSIDERATION, THE ASSESSEE FILED ITS RETURN OF INCOME ON 29 TH NOVEMBER 2014, DECLARING TOTAL INCOME OF ` 10,85,91,970, UNDER THE NORMAL P ROVISIONS OF THE ACT AND BOOK PROFIT OF ` 12,14,13,813, UNDER SECTION 115JB OF THE ACT. DURING THE ASSESSMENT PROCEEDINGS, THE ASSESSING OFFICER NOTICED THAT IN THE YEAR UNDER CONSIDERATION THE ASSESSEE HAD RECEIVED EXEMPT INCOME BY WAY OF DIVIDEND AMOUNTI NG TO ` 6,36 ,17,047. BESIDE THE ABOVE, THE ASSESSEE HAS ALSO RECEIVED TAX FREE INTEREST INCOME OF ` 27,70,291, FROM NHAI BONDS. WHEREAS, THE ASSESSEE HAS DISALLOWED AN AMOUNT OF ` 2,53,000, ONLY TOWARDS EXPENDITURE INCURRED FOR EARNING EXEMPT INCOME. NOTIC ING THE ABOVE, THE ASSESSING OFFICER CALLED UPON THE ASSESSEE TO EXPLAIN WHY DISALLOWANCE OF EXPENDITURE SHOULD NOT BE COMPUTED AS PER RULE 8D(2). IN RESPONSE TO THE QUERY RAISED BY THE ASSESSING OFFICER, THE ASSESSEE FILED ITS EXPLANATION 3 SPACO TECHNOLOGIES INDIA PVT. LTD. OBJECTING TO THE PROPOSED DISALLOWANCE. HOWEVER, REJECTING THE SUBMISSIONS OF THE ASSESSEE, THE ASSESSING OFFICER COMPUTED DISALLOWANCE AT ` 1,06,88,187, UNDER RULE 8D(2) R/W SECTION 14A OF THE ACT COMPRISING OF THE FOLLOWING: 1 . DIRECT EXPENDITURE UNDER RULE 8D(2)(I) ` 2,53 ,000 2 . INTEREST DISALLOWANCE UNDER RULE 8D(2)(II) ` 5,34,403 3 . ADMINISTRATIVE EXPENDITURE UNDER RULE 8D(2)(III) ` 99,00,784 TOTAL: ` 1,06,88,187 5 . AFTER ADJUSTING THE DISALLOWANCE MADE BY THE ASSESSEE, THE ASSESSING OFFICER COMPUTED THE NET DISALLOWANCE OF ` 1,04,35,187, UNDER SECTION 14A OF THE ACT. THE AFORESAID AMOUNT WAS ALSO ADDED BACK TO THE BOOK PROFIT COMPUTED UNDER SECTION 115JB OF THE ACT. THE ASSESSEE CHALLENGED THE AFORESAID DISALLOWANCE BEFORE THE FIRST APPELLATE AUTHORITY. 6 . THE LEARNED COMMISSIONER (APPEALS), HOWEVER, GRANTED PARTIAL REL IEF TO THE ASSESSEE BY PARTLY REDUCING THE INTEREST EXPENDITURE DISALLOWED UNDER RULE 8D(2)(II). FURTHER, HE ALSO DIRECTED THE ASSESSING OFFICER TO EXCLU DE THE DEBT FUND LIQUIDITY FUND WITH GROWTH OPTION WHILE CALCULATING AVERAGE VALUE OF INVESTMENTS , SINCE , INCOME FROM THESE INVESTME NTS ARE NOT EXEMPT. 4 SPACO TECHNOLOGIES INDIA PVT. LTD. 7 . WE HAVE HEARD THE LEARNED DEPARTMENTAL REPRESENTATIVE AND PERUSED THE MATERIAL ON RECORD. AS COULD BE SEEN FROM THE FACTS ON RECORD , BEFO RE THE DEPARTMENTAL AUTHORITIES THE ASSESSEE HAD SUBMITTED THAT DISALLOWANCE OF INTEREST EXPENDITU RE UNDER SECTION 80(2)(II) OF THE ACT CANNOT BE MADE AS THE ASSESSEE HAD SURPLUS INTEREST FREE F UND WITH IT TO TAKE C ARE OF THE INVESTMENT MADE . FURTHER , IT WAS SUBMITTED THAT THE INTEREST COST INCURRED BY THE ASSESSEE WAS IN RESPECT OF BORROWED FUNDS WHIC H WERE EXCLUSIVELY USED FOR THE PURPOSE OF BUSINESS. AS IT APPEARS, THE CONTENTION OF THE ASSESSEE THAT IT HAS SUFFIC IENT INTEREST FREE SURPLUS FUND HAS NOT BEEN PROPERLY APPRECIATED BY THE DEPARTMENTAL AUTHORITIES. IT IS NOW FAIRLY WELL SETTLED , IF THE AS SESSEE HAS SUFFIC IENT INTEREST FREE SURPLUS FUND AVAILABLE WITH HIM, THE PRESUMPTION WOULD BE INVESTMENTS MADE WERE OUT OF SUCH FUNDS. THEREFORE, ASSESSEES CLAIM OF AVAILABILITY OF SURPLUS FUND REQUIRES EXAMINATION. AS REGARDS DISALLOWANCE OF ADMINISTRATI VE EXPENDITURE UNDER RULE 8D(2)(III), IT IS OBSERVED , LEARNED COMMISSIONER (APPEALS) HAS DIRECTED THE ASSESS ING OFFICER TO EXCLUDE DEBT/ LI QUIDITY FUND WITH GROWTH OPTION WHILE COMPUTING AVERAGE VALUE OF INVESTMENTS. IN ADDI TION TO THE AFORESAID DIRECTION O F THE LEARNED COMMISSIONER (APPEALS), WE DIRECT THE ASSESSING OFFICER TO ALSO EXCLUDE THE INVESTMENT S WHICH HAVE NOT YIELDED ANY EXEMPT INCOME DURING THE YEAR WHILE COMPUTING THE AVERAGE VALUE OF INVESTMENT. WITH THE AFORESAID OBSERVATIONS, THE ISSUE S RAIS ED IN THE PRESENT APPEAL ARE 5 SPACO TECHNOLOGIES INDIA PVT. LTD. RESTORED BACK TO THE FILE OF THE ASSESSING OFFICER FOR FRESH ADJUDICATION IN T ERMS WITH OUR DIRECTIONS HEREIN ABOVE. GROUNDS ARE ALLOWED FOR STATISTICAL PURPOSES. 8 . IN THE RESULT, APPEAL IS ALLOWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED IN THE OPEN C OURT ON 16.08.2019 SD/ - N.K. PRADHAN ACCOUNTANT MEMBER SD/ - SAKTIJIT DEY JUDICIAL MEMBER MUMBAI, DATED: 16.08.2019 COPY OF THE ORDER FORWARDED TO : ( 1 ) THE ASSESSEE; ( 2 ) THE REVENUE; ( 3 ) THE CIT(A); ( 4 ) THE CIT, MUMBAI CITY CONCERNED; ( 5 ) THE DR, ITAT, MUMBAI; ( 6 ) GUARD FILE . TRUE COPY BY ORDER PRADEEP J. CHOWDHURY SR. PRIVATE SECRETARY ASSISTANT REGISTRAR ITAT, MUMBAI