Lumax Auto Technologies Limited., Pune V. Deputy Commissioner of Income tax,

ITA 2642/PUN/2016

• Counselvise Citation: [2019] 118 COUNSELVISE.COM (IT) 4933 (ITAT-PUNE)
• Duration Of Justice: 2 year(s) 2 month(s) 21 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 12-02-2019
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: B
• Assessment Year: 2010-2011
• Appeal Filed On: 21-11-2016
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: D R BARVE
• Keywords: Earning of tax free income; Wholly owned subsidiary
• Section: 143(3); 14A

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL PUNE BENCH B , PUNE , , BEFORE MS. SUSHMA CHOWLA, JM AND SHRI ANIL CHATURVEDI, AM . / ITA NO. 26 42 /P U N/20 1 6 / ASSESSMENT YEAR : 20 1 0 - 1 1 LUMAX AUTO TECHNOLOGIES LIMITED, PLOT NO.70, SECTOR 10, PCNTDA, BHOSARI, PUNE 411026 . / APPELLANT PAN: A A ACD4090Q VS. THE DY . COMMISSIONER OF INCOME TAX , CIR CLE 9 , PUNE . / RESPONDENT / APPELLANT BY : SHRI D.R. BARVE / RESPONDENT BY : SHRI PANKAJ GARG / DATE OF HEARING : 04 . 02 .201 9 / DATE OF PRONOUNCEMENT: 12 . 02 .201 9 / ORDER PER SUSHMA CHOWLA, J M : TH E APPEAL FILED BY ASSESSEE IS AGAINST THE ORDER OF CIT (A) - 6 , PUNE , DATED 1 0 .0 2 .20 1 6 RELATING TO ASSESSMENT YEAR 20 1 0 - 1 1 AGAINST ORDER PASSED UNDER SECTION 143(3) OF THE INCOME - TAX ACT , 1961 (IN SHORT THE ACT) . 2. THE ASSESSEE HAS RAISED THE FOLLOWING GROUNDS OF APPEAL: - 1) THE LEARNED CIT(A) ERRED IN CONFIRMING THE DISALLOWANCE OF RS.2 , 93 , 933/ - OUT OF TOTAL DISALLOWANCE OF RS.4,35,192/ - RELATED TO THE PROVISIONS OF SECTION 14A READ WITH RULE 8D. ITA NO. 2642 /P U N/20 1 6 M/S. LUMAX AUTO TECHNOLOGIES LTD. 2 2) THE LEARNED CIT(A) ERRED IN IGNORING THE FACTS THAT ALL THE INVESTMENTS BY THE ASSESSEE COMPANY WERE EITHER FROM OWN FUNDS OR FROM NON - INTEREST BEARING SOURCES AND NO ANY BORROWED FUNDS ARE USED. 3) THE LEARNED CIT(A) HAS ERRED IN DISREGARDING THE SUBMISS ION THAT THE A.O. HAS NOT RECORDED HIS SATISFACTION OR OTHERWISE REGARDING THE DISALLOWANCE OF RS.1,95,974/ - MADE BY THE APPELLANT. THEREFORE, INVOKING RULE 8D IS BAD IN LAW AND HENCE THE WRONG DISALLOWANCE NEEDS CANCELLATION. 4) THE LEARNED CIT(A) ERRED IN NOT FOLLOWING THE RATIO OF THE HIGH COURT ITAT DECISION(S) IN THE CASE OF: A ) GUJARAT NARMADA VALLEY FERTILIZERS CO. LTD. [TS - 17 - HC - 2014(GUJ.)] B ) JOINT INVESTMENTS P. LTD. [TS - 92 - HC - 2015 (DEL)] C ) GODREJ & BOYCE MFG CO. [2010] 328 ITR 81 (BOM.) D ) SUBRAMANYA CONS TR. & DEV. CO. LTD [TS - 100 - ITAT - 2015(BANG)] E ) RAJSHRI PRODUCTION PVT. LTD. [TS - 570 - ITAT - 2013(MUM)] F ) EIH ASSOCIATED HOTELS LTD. V. DCIT - CHENNAI TRIBUNAL G ) PIEM HOTELS LIMITED (TS - 162 - ITAT - 2015(MUM)] MUMBAI ITAT H ) ITO V. PIONEER RADIO TRAINING SERVICES PVT. LT D. (ITA NO.4448/DEL/2013) DELHI ITAT I ) REI AGRO LTD. V. DCIT ITAT KOLKATA 3. THE ISSUE RAISED IN THE PRESENT APPEAL IS AGAINST DISALLOWANCE MADE UNDER SECTION 14A OF THE ACT. THE ASSESSING OFFICER HAD DISALLOWED SUM OF 4,35,192/ - WHICH WAS RESTRICTED TO 2,93,933/ - . 4. BRIEFLY, IN THE FACTS OF THE CASE, THE ASSESSEE WAS ENGAGED IN MANUFACTURING OF AUTOMOTIVE COMPONENTS. DURING THE YEAR UNDER CONSIDERATION, THE ASSESSEE HAD RECEIVED DIVIDEND FROM ITS 100% SUBSIDIARY COMPANY LUMAX DK AUTO INDUSTRIES LTD. THE SAID SHARES WERE ACQUIRED DURING FINANCIAL YEAR 2006 - 07. THE ASSESSEE HAD ISSUED ITS OWN SHARES TO THE THEN EXISTING SHAREHOLDERS OF THE SAID COMPANY FOR FIXED SWAP RATIO IN ACQUIRING SHARES OF THE COMPANY. FURT HER, ADDITIONAL SHARES SO ISSUED TO THE EQUITY SHAREHOLDERS OF M/S. LUMAX DK AUTO INDUSTRIES LTD. WERE CREATED BY CAPITALIZATION OF RESERVES OF M/S. LUMAX AUTO TECHNOLOGIES LTD. THE PLEA OF ASSESSEE THUS, WAS THAT NO INTEREST BEARING FUNDS WERE UTILIZED F OR PURCHASE OF SHARES OF M/S. LUMAX DK AUTO INDUSTRIES LTD. THE ASSESSEE POINTED OUT THAT NO INTEREST WAS INCURRED IN RESPECT OF INVESTMENTS MADE TO THE TUNE OF 1.27 CRORES. AS REGARDS BALANCE INVESTMENT OF 2.64 CRORES, THERE WAS NO EVIDENCE ITA NO. 2642 /P U N/20 1 6 M/S. LUMAX AUTO TECHNOLOGIES LTD. 3 THAT INV ESTMENTS WERE MADE OUT OF INTEREST FREE AMOUNTS, WAS THE OBSERVATION OF ASSESSING OFFICER. THE ASSESSING OFFICER HOWEVER, DISALLOWED INTEREST RELATABLE TO THE SAID INVESTMENTS UNDER RULE 8D(II) OF THE INCOME TAX RULES, 1962 (IN SHORT THE RULES) AT 4,3 5,172/ - . IN RESPECT OF INDIRECT ADMINISTRATIVE EXPENSES, UNDER RULE 8D(III) OF THE RULES, THE ASSESSEE DISALLOWED SUM OF 1,95,974/ - WHICH WAS ACCEPTED BY THE ASSESSING OFFICER. 5. THE CIT(A) ACCEPTED THE CONTENTION OF ASSESSEE AND WAS OF THE VIEW THAT PROVISIONS OF RULE 8D(II) OF THE RULES WERE APPLICABLE ONLY TO THE INVESTMENT YIELDING EXEMPT INCOME TO THE EXTENT OF 2.64 CRORES. HENCE, DISALLOWANCE WAS RESTRICTED TO 2,93,933/ - . 6. THE ASSESSEE IS IN APPEAL AGAINST THE ORDER OF CIT(A) AND POINTED OUT THAT THE ASSESSEE HAD SUFFICIENT OWN FUNDS TO THE EXTENT OF 4.50 CRORES, FROM WHICH INVESTMENT WAS MADE TOTALING 2.64 CRORES. HE FURTHER POINTED OUT THAT THE SAID INVESTMENT WAS MADE IN THE JOINT VENTURE COMPANY, FROM WHICH THE ASSESSEE HAD NOT RE CEIVED ANY DIVIDEND BUT DISALLOWANCE UNDER SECTION 14A OF THE ACT READ WITH RULE 8D OF THE RULES HAS BEEN UPHELD IN THIS REGARD. WITH REGARD TO INVESTMENT IN 100% SUBSIDIARY, WHEREIN THE ASSESSEE HAD MADE INVESTMENT BY ISSUING OWN SHARES, THE CIT(A) HAD D ELETED THE ADDITION. 7. THE LEARNED DEPARTMENTAL REPRESENTATIVE FOR THE REVENUE PLACED RELIANCE ON THE ORDERS OF AUTHORITIES BELOW. 8 . WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE RECORD. THE LIMITED ISSUE WHICH IS ARISING IN THE PRESENT APPEAL I S IN RESPECT OF INVESTMENT IN JV COMPANY MADE BY THE ASSESSEE. THE CLAIM OF ASSESSEE THAT IT HAD SUFFICIENT OWN FUNDS TO THE EXTENT OF 4.50 CRORES AS AGAINST INVESTMENT OF 2.64 CRORES STANDS ESTABLISHED BY THE COPY OF FINANCIAL STATEMENT PLACED ON ITA NO. 2642 /P U N/20 1 6 M/S. LUMAX AUTO TECHNOLOGIES LTD. 4 RE CORD. IN SUCH CIRCUMSTANCES, WHERE OWN FUNDS WERE MORE THAN THE INVESTMENT IN YIELDING TAX FREE INCOME, NO DISALLOWANCE IS WARRANTED UNDER RULE 8D(II) OF THE RULES. SUCH IS THE PROPOSITION LAID DOWN BY THE HONBLE BOMBAY HIGH COURT IN CIT VS. HDFC BANK L TD. (2014) 366 ITR 505 (BOM). IT MAY FURTHER BE POINTED OUT THAT ON SUCH INVESTMENT WITH JV COMPANY, THE ASSESSEE HAD NOT RECEIVED ANY DIVIDEND AND CONSEQUENTLY, WHERE NO INCOME HAD ACCRUED TO THE INCOME, THERE IS NO QUESTION OF MAKING ANY DISALLOWANCE UN DER SECTION 14A OF THE ACT READ WITH RULE 8D OF THE RULES. ACCORDINGLY, THE ISSUE RAISED BY THE ASSESSEE IS ALLOWED. THE GROUNDS OF APPEAL RAISED BY THE ASSESSEE ARE ALLOWED. 9 . IN THE RESULT, APPEAL OF ASSESSEE IS ALLOWED. ORDER PRONOUNCED ON THIS 12 TH DAY OF FEBRUARY , 201 9 . SD/ - SD/ - ( ANIL CHATURVEDI ) (SUSHMA CHOWLA) / ACCOUNTANT MEMBER / JUDICIAL MEMBER / PUNE ; DATED : 12 TH FEBRUARY , 2 01 9 . G G C C V V S S R R / COPY OF THE ORDER IS FORWARDED TO : 1. / THE APPELLANT ; 2. / THE RESPONDENT; 3. ( ) / THE CIT(A) - 6 , PUNE ; 4. THE PR. CIT - 5 , PUNE ; 5. 6. , , / DR B , ITAT, PUNE ; / GUARD FILE . / BY ORDER , // TRUE COPY // / SR. PRIVATE SECRETARY , / ITAT, PUNE