Manali Petrochemicals Ltd., CHENNAI V. DCIT LTU-1, CHENNAI

ITA 2824/CHNY/2019

• Counselvise Citation: [2021] 107 COUNSELVISE.COM (IT) 9562 (ITAT-CHENNAI)
• Duration Of Justice: 1 year(s) 9 month(s) 24 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 28-07-2021
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: C
• Next Hearing Date: 14-07-2021
• Assessment Year: 2015-2016
• Appeal Filed On: 04-10-2019
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Earning of tax free income; Rule 8D; Set aside
• Section: 14A; 115JB

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL , C B ENCH, CHENNAI . , . , % BEFORE SHRI V.DURGA RAO , JUDICIAL MEMBER AND SHRI G.MANJUNATHA, ACCOUNTANT MEMBER ./ I.T.A.NO.2824/CHNY/2019 ( / ASSESSMENT YEAR: 2015-16) M/S. MANALI PETRO CHEMICALS LTD. SPIC HOUSE, 88 MOUNT ROAD, GUINDY, CHENNAI -600 032. VS THE DEPUTY COMMISSIONER OF INCOME TAX, LARGE TAX PAYER UNIT-1 CHENNAI. PAN: AAACM 3404D ( /APPELLANT) ( /RESPONDENT) / APPELLANT BY : MR.R.VIJAYARAGHAVAN, ADVOCATE /RESPONDENT BY : MR. G.JOHNSON, ADDL.CIT /DATE OF HEARING : 14.07.2021 /DATE OF PRONOUNCEMENT : 28.07.2021 / O R D E R PER G.MANJUNATHA, AM: THIS APPEAL FILED BY THE ASSESSEE IS DIRECTED AGAI NST ORDER OF THE LEARNED CIT(A)-9, CHENNAI DATED 24. 07.2019 AND PERTAINS TO ASSESSMENT YEAR 2015-16. 2. BRIEF FACTS OF THE CASE ARE THAT THE ASSESSE COM PANY IS ENGAGED IN THE BUSINESS OF MANUFACTURING AND TRADI NG OF PETRO CHEMICAL PRODUCTS FILED ITS RETURN OF INCOME FOR AS SESSMENT YEAR 2015-16 ON 30.11.2015 BY DECLARING TOTAL INCOME OF RS.97,97,73,029/-. THE ASSESSMENT HAS BEEN COMPLETE D U/S.143(3) OF THE INCOME TAX ACT, 1961 ON 28.12.20 17 2 ITA NO. 2824/CHNY/2019 DETERMINING TOTAL INCOME AT RS.100,62,81,904/- BY MAKING DISALLOWANCE OF EXPENDITURE IN RELATION TO EXEMPT INCOME U/S.14A R.W. RULE 8D FOR RS.28,51,669/-, DISALLOWA NCE OF SUBSIDY FOR HCFC PHASE OUT FOR RS.2,32,50,000/- AN D FURTHER DISALLOWANCE OF RENT EQUALIZATION CHARGES AT RS.4,0 7,206/-. THE ASSESSEE CARRIED THE MATTER IN APPEAL BEFORE FIRST APPELLATE AUTHORITY AND THE LEARNED CIT(A), FOR THE REASONS RECORDED IN HIS APPELLATE ORDER DATED 24.07.2019 HAS PARTLY ALL OWED APPEAL FILED BY THE ASSESSEE, WHERE HE HAS CONFIRMED DISA LLOWANCE OF EXPENSES U/S.14A READ WITH RULE 8D UNDER NORMAL PR OVISIONS OF THE ACT, HOWEVER, DELETED ADDITIONS MADE TOWARD S RECOMPUTATION OF BOOK PROFIT U/S.115JB OF THE INCOM E TAX ACT, 1961, BY HOLDING THAT COMPUTATION OF BOOK PROFIT U/S.115JB OF THE ACT TO BE MADE WITHOUT RESORTING TO CLAUSE (F) TO EXPLANATION (1) TO SECTION 115JB OF THE INCOME TAX ACT, 1961. AS REGARDS DISALLOWANCE OF SUBSIDY RECEIVED FROM HCFC, THE LEA RNED CIT(A) HAS CONFIRMED ADDITIONS MADE BY THE ASSESSIN G OFFICER BY HOLDING THAT THE ASSESSEE COULD NOT PROVIDE DET AILS OF ACTUAL UTILIZATION OF FUNDS AND FURTHER, FAILED TO COMPLY WITH RECORD KEEPING REQUIREMENTS STIPULATED IN THE MEMORANDUM OF 3 ITA NO. 2824/CHNY/2019 AGREEMENT. AGGRIEVED BY THE LEARNED CIT(A) ORDER, T HE ASSESSEE IS IN APPEAL BEFORE US. 3. THE FIRST ISSUE THAT CAME UP FOR OUR CONSIDERATI ON FROM GROUND NO.2 OF ASSESSEE APPEAL IS DISALLOWANCE OF E XPENSES U/S.14A R.W. RULE 8D OF THE INCOME TAX RULES, 1962. THE LEARNED A.R FOR THE ASSESSEE SUBMITTED THAT THE LE ARNED CIT(A) HAS ERRED IN CONFIRMING DISALLOWANCE OF EXPENSES U /S.14A R.W. RULE 8D WITHOUT APPRECIATING FACT THAT THE ASSESSEE HAS SUFFICIENT OWN FUNDS BEING SHARE CAPITAL AND RESERV ES IN EXCESS OF INVESTMENTS MADE IN SHARES AND SECURITIES AND CONSEQUENTLY, NO DISALLOWANCE CAN BE MADE TOWARDS INTEREST EXPENDITURE. HE FURTHER SUBMITTED THAT AS REGARDS DISALLOWANCE OF OTHER EXPENSES, ONLY THOSE INVESTME NTS WHICH YIELDED EXEMPT INCOME FOR RELEVANT YEAR NEEDS TO BE CONSIDERED, WHEREAS THE ASSESSING OFFICER HAS TAK EN TOTAL INVESTMENTS INCLUDING INVESTMENTS WHICH DO NOT YIEL D ANY EXEMPT INCOME. THEREFORE, MATTER MAY BE SET ASIDE TO FILE OF THE ASSESSING OFFICER FOR VERIFICATION OF AVAILA BILITY OF OWN FUNDS AND CATEGORY OF INVESTMENTS WHICH YIELD EXEMP T INCOME. 4 ITA NO. 2824/CHNY/2019 4. THE LEARNED DR, ON THE OTHER HAND, STRONGLY SUPP ORTING ORDER OF THE LEARNED CIT(A) SUBMITTED THAT DISALLO WANCE OF EXPENSES CONTEMPLATED UNDER SECTION 14A SHOULD BE COMPUTED BY INVOKING PRESCRIBED PROCEDURE PROVIDE D UNDER RULE 8D, AS PER WHICH ONCE THERE IS EXEMPT INCOME , THEN THE ASSESSING OFFICER SHALL COMPUTE DISALLOWANCE WITH OUT RESORTING INTO WHETHER THE ASSESSEE HAS INVESTED OW N FUNDS OR BORROWED FUNDS AND HENCE, THERE IS NO MERIT IN TH E ARGUMENTS OF THE ASSESSEE THAT IT HAS INVESTED OWN FUNDS AND THUS, NO DISALLOWANCE CAN BE MADE TOWARDS INTEREST AND OTHER EXPENSES. 5. WE HAVE HEARD BOTH THE PARTIES, PERUSED MATERI ALS AVAILABLE ON RECORD AND GONE THROUGH ORDERS OF THE AUTHORITIES BELOW. ADMITTEDLY, IT IS A WELL SETTLED PRINCIPLE O F LAW THAT WHEN THE ASSESSEE IS ABLE TO ESTABLISH AVAILABILITY OF M IXED FUNDS INCLUDING BORROWED FUNDS, THEN PRESUMPTION IS DRAWN IN FAVOUR OF THE ASSESSEE THAT INVESTMENTS MADE IN SHARES AND SECURITIES IS OUT OF OWN FUNDS. THIS PRINCIPLE IS SUPPORTED B Y THE DECISION OF THE HON'BLE SUPREME COURT IN THE CASE OF CIT VS . RELIANCE INDUSTRIES LTD., 307 CTR 121 (SC) . THE HONBLE BO MBAY HIGH 5 ITA NO. 2824/CHNY/2019 COURT IN THE CASE OF CIT VS. RELIANCE UTILITY POWE R LTD. (313 ITR 340) HAS TAKEN A SIMILAR VIEW. IN THIS C ASE, IT WAS CLAIM OF ASSESSEE THAT IT HAS SUFFICIENT OWN FUNDS, WHICH IS IN EXCESS OF INVESTMENTS MADE IN SHARES AND SECURIT IES, WHICH YIELD EXEMPT INCOME. IF THE ASSESSEE IS ABLE TO EST ABLISH AVAILABILITY OF SUFFICIENT OWN FUNDS IN EXCESS OF I NVESTMENTS, THEN QUESTION OF DISALLOWANCE OF INTEREST EXPENSES DOES NOT ARISE. HOWEVER, FACTS WITH REGARD TO AVAILABILITY OF OWN FUNDS WAS NOT FURNISHED BEFORE THE ASSESSING OFFICER . S IMILARLY, AS REGARDS DISALLOWANCE OF OTHER EXPENSES, IT WAS THE CLAIM OF ASSESSEE THAT ONLY INVESTMENTS WHICH HAVE ACTUALLY YIELDED EXEMPT INCOME NEEDS TO BE CONSIDERED FOR COMPUTING AVERAGE VALUE OF INVESTMENTS TO DETERMINE DISALLOWANCES UN DER RULE 8D(2)(III) OF INCOME TAX RULES, 1962 . THIS PROPOSI TION IS SUPPORTED BY THE DECISION OF HONBLE DELHI HIGH COU RT IN THE CASE OF M/S. ACB INDIA LTD. VS ACIT, REPORTED IN 37 4 ITR 108. THIS PROPOSITION IS FURTHER SUPPORTED BY THE DECIS ION OF ITAT., DELHI SPECIAL BENCH IN THE CASE OF ACIT VS. VIREET INVESTMENTS PVT.LTD., REPORTED IN 165 ITD 27 . THE REFORE, WE ARE OF THE CONSIDERED VIEW THAT ISSUE NEEDS TO BE R ECONSIDERED BY THE ASSESSING OFFICER IN LIGHT OF AVERMENTS MA DE BY THE 6 ITA NO. 2824/CHNY/2019 ASSESSEE THAT IT HAS SUFFICIENT OWN FUNDS TO COVER INVESTMENTS MADE IN SHARES AND SECURITIES AND FURTHER, THE AS SESSING OFFICER HAS CONSIDERED TOTAL INVESTMENTS INCLUDING INVESTMENTS WHICH DOES NOT YIELD EXEMPT INCOME TO COMPUTE AVERA GE VALUE OF INVESTMENTS TO DETERMINE DISALLOWANCES UNDER RUL E 8D OF INCOME TAX RULES, 1962. HENCE, WE SET ASIDE ISSUE T O THE FILE OF ASSESSING OFFICER AND DIRECT HIM TO RECONSIDER THE ISSUE IN LIGHT OF VARIOUS AVERMENTS MADE BY THE ASSESSEE AND ALSO IN LIGHT OF OUR DISCUSSIONS GIVEN HEREIN ABOVE. 6. THE NEXT ISSUE THAT CAME UP FOR OUR CONSIDERATIO N FROM GROUND NO.3 OF ASSESSEE APPEAL IS ADDITION TOWARDS SUBSIDY FROM GOVERNMENT OF INDIA UNDER MONTREAL PROTOCOL, UNITED NATIONS (MOEF), TOWARDS ENVIRONMENTAL POLLUTION CON TROL OF RS.2,32,50,000/- . THE ASSESSING OFFICER HAS DISAL LOWED A SUM OF RS.2,32,50,000/- ON THE GROUND THAT THE ASSES SEE HAS RECEIVED SUBSIDY FROM GOVERNMENT OF INDIA, MINISTRY OF ENVIRONMENT & FOREST UNDER MONTREAL PROTOCOL, UNIT ED NATIONS TOWARDS ENVIRONMENT POLLUTION CONTROL. IT WAS CLAI M OF THE ASSESSEE THAT DURING THE YEAR UNDER CONSIDERATION, IT HAS NOT RECEIVED ANY SUBSIDY FROM GOVT. OF INDIA. 7 ITA NO. 2824/CHNY/2019 7. HAVING HEARD BOTH SIDES AND CONSIDERED MATERIAL ON RECORD, WE FIND THAT ALTHOUGH THE ASSESSING OFFICE R HAS DISALLOWED RS.2,32,50,000/-, BUT HAS NOT GIVEN ANY REASON HOW HE HAS ARRIVED AT DISALLOWANCE OF RS.2,32,50,000/-, EVEN THOUGH THE ASSESSEE CLAIMED THAT IT HAS NOT RECEIVED ANY S UBSIDY FROM GOVERNMENT OF INDIA. WE FURTHER NOTED THAT THE ASS ESSEE CLAIMS IT HAS RECEIVED SUBSIDY FROM GOVERNMENT OF INDIA IN THE EARLIER FINANCIAL YEAR AND SAME HAS BEEN UTILIZ ED FOR THE PURPOSE IT WAS RECEIVED AND FURTHER, IT HAS MAINTAI NED SEPARATE BOOKS OF ACCOUNTS AS PRESCRIBED IN THE MEMORANDUM OF UNDERSTANDING WITH MINISTRY OF ENVIRONMENT & FOREST . HOWEVER, THE ASSESSING OFFICER AS WELL AS THE LEARNED CIT( A) HAVE RECORDED A FINDING THAT THE ASSESSEE HAS NOT FILED ANY DETAILS AND ALSO NOT RECORDED SEPARATE BOOKS OF ACCOUNT A S REQUIRED UNDER MEMORANDUM OF UNDERSTANDING. THE FACTS ARE NO T CLEAR AND THEREFORE, WE ARE OF THE CONSIDERED THAT THIS I SSUE ALSO NEEDS TO GO BACK TO THE FILE OF THE ASSESSING OFFI CER TO RECONSIDER AFRESH IN LIGHT OF CLAIM OF THE ASSESS EE THAT IT HAS NOT RECEIVED ANY SUBSIDY FROM GOVERNMENT OF INDIA. HENCE, WE SET ASIDE THE ISSUE TO FILE OF THE ASSESSING OFFIC ER AND DIRECT 8 ITA NO. 2824/CHNY/2019 HIM TO RECONSIDER THE ISSUE IN LIGHT OF VARIOUS AVE RMENTS MADE BY THE ASSESSEE IN ACCORDANCE WITH LAW. 8. IN THE RESULT, APPEAL FILED BY THE ASSESSEE IS TREATED AS ALLOWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED IN THE OPEN COURT ON 28 TH JULY, 2021 SD/- SD/- ( . ) ( . ) (V.DURGA RAO) ( G.MANJUNATHA ) $ & / JUDICIAL MEMBER & / ACCOUNTANT MEMBER $ /CHENNAI, ) /DATED 28 TH JULY, 2021 DS +, -, /COPY TO: 1. APPELLANT 2. RESPONDENT 3. . () /CIT(A) 4. . /CIT 5. , 2 /DR 6. /GF .