D.C.I.T., Circle-4, Kolkata, Kolkata V. M/S. Jay Shree Tea & Industries Ltd., Kolkata

ITA 2773/KOL/2013

• Counselvise Citation: [2016] 132 COUNSELVISE.COM (IT) 4605 (ITAT-KOLKATA)
• Duration Of Justice: 2 year(s) 7 month(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 13-07-2016
• Appeal Filed By: Department
• Bench Allotted: C
• Next Hearing Date: 30-06-2016
• Assessment Year: 2008-2009
• Appeal Filed On: 13-12-2013
• Court: TRIBUNAL
• Department Lawyers: MD S S ALAM
• Assessee Lawyers: B K CHATURVEDI
• Keywords: Business expenditure
• Section: 143(3); 14A; 154

Judgement Text

1 ITA NO. 2773/KOL/2013 JAY SHREE TEA & IND. LTD. AY 2008-09 IN THE INCOME TAX APPELLATE TRIBUNAL B BENCH: KOL KATA [BEFORE SHRI M. BALAGANESH, AM & SHRI S. S. VISWAN ETHRA RAVI, JM] I.T.A NO.2773/KOL/2013 ASSESSMENT YEAR: 2008-09 DEPUTY COMMISSIONER OF INCOME-TAX- VS. M/S. JAY SH REE TEA & INDUSTRIES LTD. CIRCLE-4, KOLKATA. (PAN: AAACJ7788D) ( APPELLANT ) ( RESPONDENT ) DATE OF HEARING: 30.06.2016 DATE OF PRONOUNCEMENT: 13.07.2016 FOR THE APPELLANT: MD. S. S. ALAM, JCIT, SR. D R FOR THE RESPONDENT: SHRI B. K. CHATURVEDI, AR ORDER PER SHRI M. BALAGANESH, AM: THIS APPEAL BY REVENUE IS ARISING OUT OF ORDER OF C IT(A)-IV, KOLKATA VIDE APPEAL NO. 06/CIT(A)-IV/2012-13 DATED 18.07.2013. ASSESSME NT WAS FRAMED BY DCIT, CIRCLE-4, KOLKATA U/S. 143(3) OF THE INCOME TAX ACT, 1961 (HE REINAFTER REFERRED TO AS THE ACT) FOR AY 2008-09 VIDE HIS ORDER DATED 24.12.2010. 2. AT THE OUTSET, THERE IS A DELAY IN FILING THE A PPEAL BEFORE US BY THE REVENUE BY 26 DAYS, FOR WHICH A CONDONATION PETITION WAS FILED BY THE REVENUE EXPLAINING THE REASONS FOR THE DELAY. THE LD AR FAIRLY CONCEDED TO CONDONE TH E DELAY. IN VIEW OF THE SAME, THE DELAY IN FILING THE APPEAL BY THE REVENUE IS HEREBY CONDO NED AND THE APPEAL IS HEREBY ADMITTED FOR ADJUDICATION. 3. THE ONLY ISSUE TO BE DECIDED IN THIS APPEAL IS AS TO WHETHER THE LD CITA IS JUSTIFIED IN DELETING THE DISALLOWANCE MADE U/S 14A OF THE ACT IN THE SUM OF RS. 92,89,825/- MADE IN THE PROCEEDINGS INITIATED U/S 154 OF THE ACT IN THE FACTS AND CIRCUMSTANCES OF THE CASE. 2 ITA NO. 2773/KOL/2013 JAY SHREE TEA & IND. LTD. AY 2008-09 4. THE BRIEF FACTS OF THIS ISSUE IS THAT THE ASSES SEE IS A PUBLIC LIMITED COMPANY ENGAGED IN VARIOUS BUSINESSES VIZ. GROWING AND MANUFACTURIN G OF TEA, MANUFACTURING OF FERTILIZERS AND CHEMICALS, TEA TRADING, WAREHOUSING, DEVELOPMEN T OF REAL ESTATE, CALL CENTRE AND EDUCATIONAL ACTIVITIES. THE ASSESSEE IN ITS RETURN OF INCOME MADE DISALLOWANCE U/S 14A OF THE ACT VOLUNTARILY TO THE TUNE OF RS. 45,28,096/-. IN THE ORIGINAL ASSESSMENT, THE LD AO FELT THAT THE DISALLOWANCE MADE BY THE ASSESSEE IS SUFFI CIENT AND ACCORDINGLY DID NOT MAKE ANY DISALLOWANCE IN THIS REGARD. HOWEVER, DISALLOWANC ES WERE MADE ON OTHER ISSUES. THE LD AO DURING THE COURSE OF GIVING EFFECT PROCEEDINGS T O LD CITA ORDER, ISSUED A NOTICE U/S 154 OF THE ACT TO MAKE DISALLOWANCE U/S 14A READ WITH R ULE 8D OF THE RULES AND ACCORDINGLY MADE DISALLOWANCE OF RS. 92,89,825/- IN ADDITION T O DISALLOWANCE ALREADY MADE BY THE ASSESSEE IN THE SUM OF RS. 45,28,096/-. THE ASSESS EE PREFERRED AN APPEAL BEFORE THE LD CITA ON THE DISALLOWANCE MADE U/S 14A OF THE ACT IN THE SUM OF RS. 92,89,825/- AMONG OTHER ADDITIONS. THE LD CITA DELETED THE ADDITION OF RS. 92,89,825/- U/S 14A OF THE ACT ON THE GROUND THAT THE ASSESSEE HAD MADE INVESTMENTS O UT OF ITS OWN FUNDS AND NOT FROM THE BORROWED FUNDS. AGGRIEVED, THE REVENUE IS IN APPE AL BEFORE US ON THE FOLLOWING GROUND:- 1. THE LD. CIT(A) ERRED IN HOLDING THAT THE DISAL LOWANCE U/S. 14A IS NOT APPLICABLE IN THIS CASE, IGNORING THE FACT THAT THE ASSESSEE FAILED T O PROVE THAT BORROWED FUND WAS NOT USED FOR INVESTMENT THROUGH FUND FLOW STATEMENT WITH DATE OF TRANSACTIONS. 5. THE LD DR ARGUED THAT THE ASSESSEE HAD FAILED T O PROVE THAT WHETHER THE LOAN BORROWED WERE UTILIZED ONLY FOR FIXED ASSETS OR INV ESTMENTS AND THIS ASPECT REQUIRES EXAMINATION AND ACCORDINGLY PRAYED FOR SETTING ASID E TO THE FILE OF THE LD AO. IN RESPONSE TO THIS, THE LD AR ARGUED THAT THE ASSESSEE HAD BOR ROWED ONLY TERM LOAN AND THE SAME COULD NOT BE UTILIZED OTHER THAN THE INTENDED PURPOSE AND ADMITTEDLY THE INTENDED PURPOSE IS NOT FOR MAKING INVESTMENTS. MOREOVER THE AVAILABILITY OF OWN FUNDS WITH THE ASSESSEE COMPANY IS NOT IN DISPUTE AND HENCE, THE LD CITA H AD RIGHTLY APPRECIATED THE CONTENTIONS OF THE ASSESSEE AND DELETED THE ADDITION. HE FURTH ER ARGUED THAT THE LD AO DID NOT EVEN REDUCE THE DISALLOWANCE ALREADY MADE BY THE ASSESSE E VOLUNTARILY IN THE RETURN TO THE TUNE OF RS. 45,28,096/- WHILE MAKING THE DISALLOWANCE U/ S 14A READ WITH RULE 8D OF THE RULES. 3 ITA NO. 2773/KOL/2013 JAY SHREE TEA & IND. LTD. AY 2008-09 6. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIALS AVAILABLE ON RECORD. THE FACTS STATED HEREINABOVE REMAIN UNDISPUTED AND HENCE THE SAME ARE NOT REITERATED FOR THE SAKE OF BREVITY. ADMITTEDLY THE DISALLOWANCE U /S 14A TO THE TUNE OF RS. 92,89,825/- HAVE BEEN MADE BY THE LD AO BY INVOKING THE PROVISI ONS OF RULE 8D(2)(II) OF THE RULES. WE FIND THAT THE ASSESSEE COMPANY IS HAVING SHARE C APITAL OF RS. 10.67 CRORES AND SUFFICIENT FREE RESERVES OF RS. 123.67 CRORES AS ON 31.3.2007 AND RS. 137.99 CRORES AS ON 31.3.2008 , BUT WHEREAS THE TOTAL INVESTMENTS AS ON 1.4.2007 WA S RS. 105.86 CRORES AND AS ON 31.3.2008 WAS RS. 94.68 CRORES. WE FIND THAT THE LD CITA HAD GIVEN RELIEF AFTER GOING THROUGH THE COPY OF THE AGREEMENT OF CONSORTIUM OF THE BANKS AN D SANCTION LETTERS OF THE BANKS SUBMITTED BY THE ASSESSEE THAT THE LOAN WAS SANCTIO NED FOR THE PURPOSE OF WORKING CAPITAL AND PURCHASE OF FIXED ASSETS. WE HOLD THAT THE AS SESSEE HAS GOT SUFFICIENT OWN FUNDS TO MAKE THE INVESTMENTS AND WHEN THAT POINT IS NOT IN DISPUTE, NO DISALLOWANCE COULD BE MADE U/S 14A OF THE ACT READ WITH RULE 8D(2)(II) OF THE RULES. RELIANCE IN THIS REGARD IS PLACED ON THE FOLLOWING DECISIONS:- CIT VS RELIANCE UTILITIES & POWER LTD REPORTED IN 3 13 ITR 340 (BOM) INTEREST ON BORROWED CAPITAL INVESTMENTS BY ASSE SSEE FINDING THAT INVESTMENTS WERE FROM INTEREST FREE FUNDS AVAILABLE WITH ASSESS EE BORROWED CAPITAL USED FOR PURPOSES OF BUSINESS INTEREST DEDUCTIBLE UNDER IN COME TAX ACT , S. 36(1)(III). G.D. METSTEEL PVT LTD VS ACIT REPORTED IN 142 TTJ 6 41 (MUMBAI TRIBUNAL) HELD THAT THE INVESTMENTS ARE MADE BY THE ASSESSEE S OWN FUNDS AND HAVE BEEN MADE IN THE EARLIER YEARS, NO DISALLOWANCE U/S 14A IS RE QUIRED TO BE MADE. THE HEAD NOTE READS AS UNDER:- BUSINESS EXPENDITURE DISALLOWANCE UNDER SECTION 14A APPORTIONMENT OF EXPENDITURE WHEN INVESTMENTS ARE MADE FROM OWN FU NDS, MERELY BECAUSE THE ASSESSEE HAD TO SUBSEQUENTLY BORROW THE FUNDS F OR BUSINESS USE, IT CANNOT BE SAID THAT THE BORROWED FUNDS HAVE BEEN USED FOR THE PURPOSES OF INVESTMENTS. CIT VS HDFC BANK LTD REPORTED IN 366 ITR 505 (BOM) 4 ITA NO. 2773/KOL/2013 JAY SHREE TEA & IND. LTD. AY 2008-09 HELD, DISMISSING THE APPEAL, (I) THAT THE FINDING O F FACT GIVEN BY THE TRIBUNAL WAS THAT THE ASSESSEES OWN FUNDS AND OTHER NON-INTERES T BEARING FUNDS WERE MORE THAN THE INVESTMENT IN THE TAX-FREE SECURITIES. THIS FA CTUAL POSITION WAS NOT ONE THAT WAS DISPUTED. UNDISPUTEDLY, THE ASSESSEES CAPITAL, PR OFIT RESERVES, SURPLUS AND CURRENT ACCOUNT DEPOSITS WERE HIGHER THAN THE INVESTMENT IN THE TAX-FREE SECURITIES. IN VIEW OF THIS FACTUAL POSITION, IT WOULD HAVE TO BE PRESU MD THAT THE INVESTMENT MADE BY THE ASSESSEE WOULD BE OUT OF THE INTEREST-FREE FUNDS AV AILABLE WITH THE ASSESSEE. 6.1. SIMILAR VIEWS WERE EXPRESSED IN THE FOLLOWIN G DECISIONS :- WOOLCOMBERS OF INDIA LTD VS CIT REPORTED IN 134 ITR 219 (CAL) EAST INDIA PHARMACEUTICAL WORKS LTD VS CIT REPORTED IN (1997) 224 ITR 627 (SC) 6.2. WE FIND THAT THOUGH THE DECISION IN THE CASE OF RELIANCE UTILITIES & POWER LTD WAS RENDERED IN THE CONTEXT OF ALLOWABILITY OF INTEREST U/S 36(1)(III) OF THE ACT, THE ANALOGY DRAWN THEREON WOULD APPLY WITH EQUAL FORCE FOR ADJU DICATING THE ISSUE OF DISALLOWANCE U/S 14A OF THE ACT. WE ALSO FIND THAT THE HONBLE BOMB AY HIGH COURT IN THE CASE OF CIT VS HDFC BANK LTD REPORTED IN 366 ITR 505 (BOM) HAD ALS O HELD THE SAME VIEW. 7. IN VIEW OF THE AFORESAID FACTS AND FINDINGS AN D RESPECTFULLY FOLLOWING THE JUDICIAL PRECEDENTS RELIED UPON HEREINABOVE, WE HOLD THAT TH E LD CITA HAD RIGHTLY DELETED THE DISALLOWANCE U/S 14A OF THE ACT IN THE FACTS AND CI RCUMSTANCES OF THE CASE TO THE TUNE OF RS. 92,89,825/- . ACCORDINGLY THE GROUND NO.1 RAISED B Y THE REVENUE IS DISMISSED. 8. THE NEXT GROUND RAISED BY THE REVENUE IS AS TO WHETHER THE DISALLOWANCE U/S 14A OF THE ACT READ WITH RULE 8D OF THE RULES COULD BE MAD E IN THE PROCEEDINGS U/S 154 OF THE ACT. WE FIND THAT THE REVENUE HAD COME ON APPEAL B EFORE US ON THIS GROUND ON THE PRETEXT THAT THE LD CITA HAD HELD THAT THE ISSUE OF DISALLO WANCE U/S 14A READ WITH RULE 8D IS A DEBATABLE ISSUE AND HENCE CANNOT BE MADE IN THE PRO CEEDINGS U/S 154 OF THE ACT. BUT WE FIND FROM THE LD CITAS ORDER THAT THIS ASPECT HAS BEEN DISMISSED AND IN FACT HAD BEEN HELD IN FAVOUR OF THE REVENUE. HENCE THE REVENUE CANNOT HAVE ANY GRIEVANCE ON THE SAME. WE 5 ITA NO. 2773/KOL/2013 JAY SHREE TEA & IND. LTD. AY 2008-09 ALSO FIND THAT THE ASSESSEE HAD NOT PREFERRED ANY A PPEAL BEFORE US AGAINST THIS FINDING OF THE LD CITA. ACCORDINGLY THE GROUND NO.2 RAISED BY THE REVENUE IS DISMISSED AS INFRUCTUOUS. 9. IN THE RESULT, THE APPEAL OF THE REVENUE IS DI SMISSED. ORDER IS PRONOUNCED IN THE OPEN COURT ON 13.07.201 6 SD/- SD/- (S. S. VISWANETHRA RAVI) (M. BALAGANESH) JUDICIAL MEMBER ACCOUNTAN T MEMBER DATED : 13TH JULY, 2016 JD.(SR.P.S.) COPY OF THE ORDER FORWARDED TO: 1 . APPELLANT DCIT, CIRCLE-4, KOLKATA. 2 RESPONDENT M/S. JAY SHREE TEA & INDUSTRIES LTD., 1 5 TH FLOOR, INDUSTRY HOUSE, 10, CAMAC STREET, K OLKATA - 700 017 . 3 . THE CIT(A), KOLKATA 4. 5. CIT , KOLKATA DR, KOLKATA BENCHES, KOLKATA / TRUE COPY, BY ORDER, ASSTT. REGISTRAR .