RG Faith Creation Pvt. Ltd., Ahmedabad V. The Dy. CIT, Circle-3(1)(2), Ahmedabad

ITA 2615/AHD/2017

• Counselvise Citation: [2019] 117 COUNSELVISE.COM (IT) 4982 (ITAT-AHMEDABAD)
• Duration Of Justice: 1 year(s) 5 month(s) 17 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 14-05-2019
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: A
• Assessment Year: 2014-2015
• Appeal Filed On: 27-11-2017
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: S K DEV
• Keywords: Earning of tax free income; Proportionate interest; Rule 8D

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL A BENCH, AHMEDABAD , , BEFORE SHRI RAJPAL YADAV, JUDICIAL MEMBER & SHRI PRADIP KUMAR KEDIA, ACCOUNTANT MEMBER ./ I.T.A. NO.2615/AHD/2017 ( / ASSESSMENT YEAR : 2014-15) RG FAITH CREATION PVT.LTD. 506, NEW CLOTH MARKET O/S.RAIPUR GATE AHMEDABAD 380 002 / VS. THE DCIT CIRCLE-3(1)(2) AHMEDABAD # ./ ./ PAN/GIR NO. : AAACF 5964 D ( #% / APPELLANT ) .. ( &#% / RESPONDENT ) #%' / APPELLANT BY : SHRI GAURAV NAHTA, AR &#%(' / RESPONDENT BY : SHRI S.K. DEV, SR.DR )*(+ / DATE OF HEARING 08/05/2019 ,-./(+ / DATE OF PRONOUNCEMENT 14/05/2019 / O R D E R PER PRADIP KUMAR KEDIA - AM: THE CAPTIONED APPEAL HAS BEEN FILED AT THE INSTA NCE OF THE ASSESSEE AGAINST THE APPELLATE ORDER OF THE COMMISS IONER OF INCOME TAX(APPEALS)-VIII, AHMEDABAD [CIT(A) IN SHORT] DATED 31/08/2017 ARISING IN THE ASSESSMENT ORDER PASSED UNDER S.143(3) OF T HE INCOME TAX ACT, 1961 (HEREINAFTER REFERRED TO AS 'THE ACT') D ATED 02/12/2016 RELEVANT TO ASSESSMENT YEAR (AY) 2014-15. ITA NO.2615/AHD /2017 R.G. FAITH CREATION PVT.LTD. VS. DCIT ASST.YEAR 2014-15 - 2 - 2. THE GROUNDS OF APPEAL RAISED BY THE ASSESSEE READ AS UNDER:- 1. THE LD. CIT APPEALS 7 AHMEDABAD HAS ERRED IN LA W AND ON FACTS IN PASSING APPELLATE ORDER FOR A.Y. 2014-15 IN THE CAS E OF APPELLANT BY ENHANCING THE ADDITION U/S.14-A MADE BY A.O. OF RS. 20,31,584/- TO RS.29,37,219/- WITHOUT GIVING ANY NOTICE FOR ENHANC EMENT. 2. THE LD. CIT APPEALS OUGHT TO HAVE APPRECIATED T HE FACT THAT RESERVE & SURPLUS WERE MORE THAN THE INVESTMENT MADE AND TH EREFORE 14-A WAS NOT APPLICABLE. 3. WHEN THE MATTER WAS CALLED FOR HEARING, THE LD.A R FOR THE ASSESSEE SUBMITTED AT THE OUTSET THAT SOLITARY ISSU E INVOLVED IN THE CAPTIONED APPEAL RELATES TO QUANTIFICATION OF DISA LLOWANCE UNDER S.14A OF THE ACT TOWARDS EXPENDITURE ATTRIBUTABLE TO EXEMPT INCOME. 4. THE LD.AR FOR THE ASSESSEE POINTED OUT THAT THE ASSESSING OFFICER HAS COMPUTED THE DISALLOWANCE AGGREGATING TO RS.20, 31,584/- WHICH COMPRISES OF TWO LIMBS; (1) DISALLOWANCE OF PROPORT IONATE INTEREST EXPENDITURE OF RS.18,96,704/- UNDER RULE 8D(2)(II) OF THE I.T. RULES 1962 AND (2) DISALLOWANCE OF ADMINISTRATIVE AND GENERAL EXPENSES OF RS.1,34,880/- UNDER RULE 8D(2)(III) OF IT RULES. A S REGARDS, FIRST LIMB OF DISALLOWANCE OF PROPORTIONATE EXPENSES, THE LD.AR R EFERRED TO THE COMPARATIVE BALANCE-SHEET AND P&L ACCOUNT AS ON 31/ 03/2014 AND SUBMITTED THAT THE INVESTMENTS CARRYING THE POTENTI AL TO EARN EXEMPT INCOME IS NIL IN THE CURRENT YEAR, WHEREAS IT STOOD AT RS.269.75 LAKHS IN ITA NO.2615/AHD /2017 R.G. FAITH CREATION PVT.LTD. VS. DCIT ASST.YEAR 2014-15 - 3 - THE PRECEDING YEAR. AS AGAINST THE AFORESAID POSIT ION, THE OWN CAPITAL STANDS AT RS.271.07 LAKHS WHICH IS INTEREST-FREE. THEREFORE, HAVING REGARD TO THE DECISION OF THE HONBLE GUJARAT HIGH COURT IN THE CASE OF PR.CIT VS. SINTEX INDUSTRIES LTD. (2017) 82 TAXMAN N.COM 171 (GUJARAT) ENDORSED BY THE HONBLE SUPREME COURT IN (2018) 93 TAXMANN.COM 24(SC), THE DISALLOWANCE OF PROPORTIONATE EXPENDITU RE UNDER RULE 8D(2)(II) IS UNCALLED FOR WHERE THE OWN CAPITAL EXC EEDS CORRESPONDING INVESTMENTS. THE LD.AR HOWEVER DID NOT FAIRLY P RESS DISALLOWANCE UNDER RULE 8D(2)(III) SO MADE. 5. THE LD.DR FOR THE REVENUE, ON THE OTHER HAND, COULD NOT CONTROVERT THE POSITION TAKEN BY THE ASSESSEE THAT OWN FUNDS EXCEED THE CORRESPONDING INVESTMENTS AND, THEREFORE, PRESUMPTI ON WOULD ARISE IN FAVOUR OF ASSESSEE FOR INVESTMENTS OUT OF OWN FUNDS . 6. HAVING REGARDING TO THE DECISION OF THE HONBLE GUJARAT HIGH COURT IN SINTEX INDUSTRIES LTD. (SUPRA) AND ALSO CI T VS. GUJARAT STATE FERTILIZERS AND CHEMICALS LTD. (2013) 358 ITR 323 ( GUJ.), PR.CIT VS. INDIA GELATINE & CHEMICALS LTD. (2015) 376 ITR 553 (GUJ.) AND WHERE THE ISSUE HAS BEEN RENDERED IN FAVOUR OF ASSESSEE I N SIMILAR CIRCUMSTANCES, WE FIND MERIT PLEA OF THE ASSESSEE FOR DELETION OF DISALLOWANCE OF PROPORTIONATE INTEREST EXPENDITURE MADE UNDER RULE 8D(2)(II). HOWEVER, THE DISALLOWANCE UNDER S.8D(2) (III) IS JUSTIFIED IN ITA NO.2615/AHD /2017 R.G. FAITH CREATION PVT.LTD. VS. DCIT ASST.YEAR 2014-15 - 4 - VIEW OF ABSENCE OF ANY COGENT REASON. THE ASSESSEE ACCORDINGLY GETS THE RELIEF TO THE EXTENT OF RS.18,96,704/- OUT OF TOTAL DISALLOWANCE OF RS.20,31,584/- UNDER S.14A OF THE ACT. 7. IN THE RESULT, APPEAL OF THE ASSESSEE IS PARTLY ALLOWED. THIS ORDER PRONOUNCED IN OPEN COURT ON 14/ 05/2019 SD/- SD/- () ( ) (RAJPAL YADAV) ( PRADIP KUMAR KEDIA ) JUDICIAL MEMBER ACCOUNTANT MEMBER AHMEDABAD; DATED 14/ 05 /2019 3..),.)../ T.C. NAIR, SR. PS !'#$%$' / COPY OF THE ORDER FORWARDED TO : 1. #% / THE APPELLANT 2. &#% / THE RESPONDENT. 3. 456+ 7+ / CONCERNED CIT 4. 7+ ( ) / THE CIT(A)-7, AHMEDABAD 5. 89:+)56 , 56/ , 4 / DR, ITAT, AHMEDABAD 6. :<* / GUARD FILE. / BY ORDER, &8++ //TRUE COPY// / ( DY./ASSTT.REGISTRAR) , / ITAT, AHMEDABAD