M/s Modern Steels Ltd., Chandigarh V. ACIT, Chandigarh

ITA 290/CHANDI/2013

• Counselvise Citation: [2017] 130 COUNSELVISE.COM (IT) 8257 (ITAT-CHANDIGARH)
• Duration Of Justice: 3 year(s) 11 month(s) 25 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 09-03-2017
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: A
• Next Hearing Date: 25-07-2016
• Assessment Year: 2009-2010
• Appeal Filed On: 14-03-2013
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Keywords: Earning of tax free income
• Section: 14A

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DIVISION BENCH, CHANDIGARH BEFORE SHRI C.M. GARG, JUDICIAL MEMBER AND MS. ANNAPURNA GUPTA, ACCOUNTANT MEMBER ITA NOS.290 & 291/CHD/2013 (ASSESSMENT YEARS : 2009-10 & 2010-11) M/S MODERN STEELS LTD., VS. THE A.C.I.T., SCO 98-99, SUB CITY CENTRE, CENTRAL CIRCLE-II, SECTOR 34, CHANDIGARH. CHANDIGARH. PAN: AABCM1871F (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI ASHOK GOYAL RESPONDENT BY : SHRI SUSHIL KUMAR, CIT DR DATE OF HEARING : 24.01.2017 DATE OF PRONOUNCEMENT : 09.03.2017 O R D E R PER ANNAPURNA GUPTA, A.M . : BOTH THE ABOVE APPEALS RELATE TO THE SAME ASSESSEE AND HAVE BEEN FILED AGAINST SEPARATE ORDER S OF THE COMMISSIONER OF INCOME TAX (APPEALS) (CENTRAL), GURGAON DATED 9.1.2013 RELATING TO ASSESSMENT YEARS 2009-10 AND 2010-11. 2. IT WAS COMMON GROUND BETWEEN BOTH THE PARTIES THAT THE ISSUE RAISED IN BOTH THE APPEALS WAS COMMO N AND IDENTICAL. THEREFORE BOTH THE CASES WERE HEARD TOGE THER AND ARE BEEN DISPOSED OFF BY WAY OF THIS COMMON ORD ER. 2 3. FOR THE SAKE OF CONVENIENCE WE SHALL BE DEALING WITH THE FACTS IN THE CASE OF ITA NO. 290/CHD/2013 PERTAINING TO ASSESSMENT YEAR 2009-10. ITA NO.290/CHD/2013 : 4. THE ASSESSEE HAS RAISED THE FOLLOWING GROUNDS I N THE PRESENT APPEAL: 1. THAT THE LEARNED CIT(A) HAS ERRED IN UPHOLDING THE ADDITION ON ACCOUNT INTEREST ON THE GROUND THAT ASSESSEE HAS NO T GIVEN ANY WORKING REGARDING INTEREST WHICH CAN BE ATTRIBUTIVE S FOR EARNING THE EXEMPT INCOME & NO WORKING REGARDING LI NKING EACH INVESTMENT MADE WITH THE FUNDS HAVE BEEN GIVEN , WHILE COMPLETE DETAILS WERE FILED THAT IT IS NIL INTEREST & CIT(A) HAS ALSO ACCEPTED THAT ASSESSEE HAS ELUCIDATED THE DETA IL WORKING AS REGARD INTEREST & NO DEFECT HAS BEEN POINTED OUT IN THE SAID WORKING. 2. THAT THE LEARNED CIT(A) HAS ERRED IN UPHOLDING T HE ADDITION THAT NO DETAILS WERE FILED IN RESPONSE TO QUERY WHY NO DISALLOWANCE HAS BEEN MADE U/S 14A, WHEN NO SUCH SP ECIFIC QUERY WAS RAISED BY A.O. & THIS WAS BROUGHT TO THE KNOWLEDGE OF CIT(A) IN THE WRITTEN SUBMISSION ALSO & DETAILS WERE FILED BEFORE CIT(A). 3. THAT THE LEARNED CIT(A) HAS ERRED IN UPHOLDING T HE ADDITION ON ACCOUNT OF INTEREST AS PER RULE 8D WITHOUT ANY S ATISFACTION OF THE A.O./CIT(A) ABOUT THE CORRECTNESS OF CLAIM O F THE APPELLATE AS PER SEC. 14A(2) OF THE I.T. ACT. WHEN THE COMPLETE DETAIL AS WELL AS THE WORKING HAVE BEEN SUBMITTED T HAT NO INTEREST BEARING FUNDS HAVE BEEN UTILIZED FOR PURPO SE OF INVESTMENT AND THERE WERE SUFFICIENT PROFIT AVAILAB LE FOR THE INVESTMENT MADE, HENCE DISALLOWANCE ON THE BASIS OF RULE 8D NOT CALLED FOR, HENCE RELIEF BE ALLOWED. 4. THAT THE LEARNED CIT(A) HAS ERRED IN UPHOLDING T HE ADDITION OF RS. 100895/- AS ADM. EXPENSES AS PER RULE 8D W HEN THE 3 SAME IS NOT APPLICABLE, FURTHER WITHOUT POINTING EX PENSES ACTUALLY BEEN INCURRED AND FURTHER WHEN NO NEXUS OF EXPENSES HAVE BEEN PROVED BY A.O/CIT (A). 5. THAT THE APPELLANT CRAVES LEAVE TO ADD DELETE OR MODIFY ANY GROUND OF APPEAL BEFORE THE SAME IS HEARD OR DISPOS ED OFF. 5. AT THE OUTSET WE MAY STATE THAT DURING THE COURSE OF HEARING THE LD.COUNSEL FOR THE ASSESSEE R AISED AN ADDITIONAL GROUND OF APPEAL VIDE ITS APPLICATION DATED 31/12/2013, WHICH WAS LATER ON WITHDRAWN BY THE ASSESSEE. THE SAME IS THEREFORE NOT BEING DEALT WI TH IN THE PRESENT APPEAL 6. ALL THE REMAINING GROUNDS RAISED BY THE ASSESSE E IN THE PRESENT APPEAL PERTAIN TO DISALLOWANCE MADE UNDER SECTION 14A OF THE INCOME TAX ACT, 1961. BRIEF FAC TS RELATING TO THE SAME ARE THAT DURING THE IMPUGNED Y EAR THE ASSESSEE HAD EARNED DIVIDEND INCOME OF RS.95,26 2/- WHICH WAS EXEMPT FROM TAX. THE AO COMPUTED THE DISALLOWANCE TO BE MADE ON ACCOUNT OF EXPENSES INCU RRED FOR EARNING THE EXEMPT INCOME AT RS.2,10,409/-, AS PER SECTION 14A OF THE INCOME TAX ACT,1961,BY APPLYING THE PROVISIONS OF RULE 8D OF THE INCOME TAX RULES, 1962 AND ADDED THE SAME TO THE INCOME OF THE ASSESSEE. LD.CIT(APPEALS) UPHELD THE DISALLOWANCE MADE STATIN G THAT IT WAS THE ONLY REASONABLE METHOD OF CALCULATING TH E EXPENSES INCURRED ON EARNING EXEMPT INCOME, IN THE ABSENCE OF ANY WORKING FURNISHED BY THE ASSESSEE AN D THEREFORE DISMISSED THE GROUND RAISED BY THE ASSESS EE. 4 7. AGGRIEVED BY THE SAME THE ASSESSEE HAS COME UP IN APPEAL BEFORE US. 8. DURING THE COURSE OF HEARING BEFORE US LD.COUNSEL FOR THE ASSESSEE REITERATED THE CONTENTI ON RAISED BEFORE THE LD. CIT (APPEALS) THAT NO INTERE ST- BEARING FUNDS HAD BEEN USED FOR THE PURPOSE OF MAKI NG THE IMPUGNED INVESTMENTS AND THEREFORE THERE WAS NO REASON FOR MAKING ANY DISALLOWANCE OF INTEREST UNDE R SECTION 14A READ WITH RULE 8D OF THE INCOME TAX RUL ES. LD.COUNSEL FOR THE ASSESSEE ARGUED THAT ALL THE INVESTMENTS MADE WERE OLD, MADE IN PRECEDING YEARS AND IN EACH OF THE YEARS WHEN THE INVESTMENTS WERE MADE , THE ASSESSEE HAD ITS OWN INTEREST-FREE FUNDS WHICH WERE ENOUGH TO MAKE THE IMPUGNED INVESTMENTS. LD.COUNSEL FOR THE ASSESSEE THEREAFTER STATED THAT IN SUCH SITUATI ON IT SHOULD BE PRESUMED THAT THE INVESTMENTS HAD BEEN MA DE OUT OF THE INTEREST-FREE FUNDS. LD.COUNSEL FOR THE ASSESSEE RELIED UPON THE DECISION OF THE HONBLE JURISDICTIO NAL HIGH COURT IN THE CASE OF COMMISSIONER OF INCOME TAX, JALANDHAR-I VS M/S MAX INDIA LTD IN INCOME TAX APPE AL NO. 186 OF 2013 DATED 06/09/2016 IN THIS REGARD. 9. LD.DR ON THE OTHER HAND RELIED UPON THE ORDER OF THE JURISDICTIONAL HIGH COURT IN THE CASE OF AVO N CYCLES REPORTED IN 53 TAXMANN.COM297 AND STATED THAT THE C OURT HAD CATEGORICALLY HELD THAT IN THE CASE OF MIXED F UNDS THE 5 DISALLOWANCE UNDER SECTION 14A HAD TO BE MADE AS PE R RULE 8D. 10. WE HAVE HEARD THE CONTENTIONS OF BOTH THE PARTIES, PERUSED THE ORDERS OF THE AUTHORITIES BELO W AND GONE THROUGH THE DOCUMENTS PLACED BEFORE US. 11. THE ONLY ISSUE TO BE ADJUDICATED IN THE PRESEN T APPEAL IS REGARDING THE DISALLOWANCE MADE UNDER SEC TION 14A OF THE INCOME TAX ACT. 12. THE FACTS WHICH EMERGE ARE THAT THE AO ,WHILE APPLYING RULE 8D OF THE RULES, MADE DISALLOWANCE ON ACCOUNT OF INTEREST U/R 8D(II )AMOUNTING TO RS.1,0 9,514/- AND DISALLOWANCE ON ACCOUNT OF OTHER EXPENSES U/R 8 D(III), AMOUNTING TO RS.1,00,895/-, AGGREGATING IN ALL TO T OTAL DISALLOWANCE OF RS.2,10,409/-. THE ONLY CONTENTION RAISED BY THE LD.COUNSEL FOR THE ASSESSEE BEFORE US IS THA T NO DISALLOWANCE ON ACCOUNT OF INTEREST COULD BE MADE S INCE ALL THE INVESTMENTS HAD BEEN MADE OUT OF INTEREST-F REE OWN FUNDS OF THE ASSESSEE AND NO EXPENDITURE ON AC COUNT OF INTEREST AS SUCH HAD BEEN INCURRED BY THE ASSESS EE. THEREFORE IN VIEW OF THE AFORESTATED PLEADINGS OF T HE ASSESSEE, WE FIND THAT THE LD. COUNSEL FOR THE ASSE SSEE HAS RAISED ARGUMENTS ONLY AGAINST THE DISALLOWANCE OF RS.1,09,514/- MADE BY APPLYING RULE 8D(II) OF THE INCOME TAX RULES, 1962, WHILE IT HAS NOT CONTE STED THE 6 DISALLOWANCE MADE UNDER RULE 8D(III), ON ACCOUNT OF THE OTHER EXPENSES INCURRED BY THE ASSESSEE AMOUNTING T O RS.1,00,895/-. THEREFORE, AT THE OUTSET, WE MAY STA TE THAT THE DISALLOWANCE MADE ON ACCOUNT OF OTHER EXPENSES INCURRED OF RS. 1,00,895/- U/S 14A R.W.R 8D(III) I S UPHELD. 13. COMING TO THE ISSUE OF DISALLOWANCE MADE OF INTEREST, WE HAVE GONE THROUGH THE ORDER OF THE HO NBLE JURISDICTIONAL HIGH COURT IN THE CASE OF M/S MAX IN DIA LTD (SUPRA). THE HONBLE HIGH COURT IN THE IMPUGNED CASE DEALT WITH THE ISSUE OF PRESUMPTION TO BE MADE WHER E THERE WAS A POOL OF FUNDS WHICH INCLUDED BOTH INTER EST- BEARING FUNDS AND INTEREST-FREE FUNDS AND INVESTMEN TS WERE MADE OUT OF THIS COMMON POOL FOR THE PURPOSE O F MAKING DISALLOWANCE U/S 14A OF THE ACT. THE HONBL E HIGH COURT REFERRED TO THE JUDGEMENT OF THE HONBLE SUPREME COURT IN THE CASE OF EAST INDIA PHARMACEUTI CAL WORKS LTD. VS COMMISSIONER OF INCOME TAX (1997) INC OME TAX REPORTS 224 (SC) AND HELD THAT THE PRESUMPTION IN SUCH CIRCUMSTANCES WOULD BE THAT THE INTEREST-FREE FUNDS HAD BEEN USED FOR THE PURPOSE OF MAKING THE INVESTM ENTS. THE HONBLE HIGH COURT FURTHER REFERRED TO THE JUDG EMENT OF THE BOMBAY HIGH COURT IN THE CASE OF CIT VS RELI ANCE UTILITIES AND POWER LIMITED (2009) 313 ITR(BOM) AND STATED THAT THERE WAS NO REASON TO RESTRICT THE PRESUMPTION TO CASES WHERE THE FUNDS FROM DIFFERENT 7 SOURCES ARE MIXED IN A COMMON POOL. THE HONBL E HIGH COURT STATED THAT THE RATIONALE FOR THE PRESUMPTION IS THAT AN ASSESSEE WOULD UTILISE ITS FUNDS PRUDENTLY, ENSU RING THAT IT DERIVES THE GREATEST FINANCIAL ADVANTAGE. I T FURTHER HELD THAT IF THAT BE THE RATIONALE THERE WAS NO RE ASON FOR THE PRESUMPTION TO BE RESTRICTED TO CASES WHERE THE DIFFERENT FUNDS ARE MIXED IN A COMMON POOL. THE HON BLE HIGH COURT THEREAFTER REFERRED TO THE DECISION OF T HE BOMBAY HIGH COURT IN THE CASE OF HDFC BANK LTD. VS DEPUTY COMMISSIONER OF INCOME TAX AND OTHERS (2016) 383 ITR 529, AGREEING WITH THE OBSERVATIONS MADE TH EREIN, THAT ONCE AN ASSESSEE IS POSSESSED OF INTEREST-FREE FUNDS SUFFICIENT TO MAKE INVESTMENT IN TAX-FREE SECURITIE S, IT IS PRESUMED THAT IT HAS BEEN PAID FOR OUT OF INTEREST- FREE FUNDS. THUS IN EFFECT THE HONBLE HIGH COURT LAID DOWN THE PROPOSITION THAT IN CASES WHERE THERE ARE MIXED FUNDS AVAILABLE, BOTH INTEREST-FREE AND INTEREST-BEARING, THE PRESUMPTION IN SUCH CASES VIS A VIS THE INVESTMENT MADE IN TAX-FREE SECURITIES WOULD BE THAT THE SAME HAD B EEN MADE OUT OF THE INTEREST-FREE FUNDS. 14. FURTHER WE FIND THAT THE LD. DR RELIED UPON TH E JUDGEMENT OF THE JURISDICTIONAL HIGH COURT IN THE C ASE OF AVON CYCLE (SUPRA) DATED 20.8.2014 WHICH WE FIND IS AN EARLIER JUDGMENT, WHILE THE ORDER IN THE CASE OF M AX INDIA LTD. (SUPRA) IS DATED 6.9.2011 AND IS A LATER DECIS ION WHICH WOULD, THEREFORE, PREVAIL OVER THE EARLIER JU DGMENT. IN VIEW OF THE SAME WE HOLD THAT THE JUDGEMENT OF T HE 8 JURISDICTIONAL HIGH COURT IN THE CASE OF M/S MAX INDIA LTD. WOULD PREVAIL, CONSIDERING WHICH WE HOLD THAT IN THE CASE OF MIXED FUNDS THE PRESUMPTION WOULD BE THAT INVESTMENT HAS BEEN MADE OUT OF INTEREST FREE FUNDS OF THE ASSESSEE. 15. HAVING SAID SO WE FIND THAT THERE IS NO FINDIN G OF FACT IN THIS REGARD BY THE LOWER AUTHORITIES. THE CONTENTION OF THE ASSESSEE HAS BEEN THAT THE INVEST MENTS MADE WERE ALL OLD PERTAINING TO PRECEDING YEARS WHE N THERE WERE ENOUGH OWN FUNDS AVAILABLE WITH THE ASSE SSEE. THE ASSESSEE HAD FURNISHED DETAILS OF THE AVAILABIL ITY OF ITS OWN INTEREST-FREE FUNDS, AS ALSO THE INVESTMENT S MADE IN EACH YEAR. BUT WE FIND THAT THE SAME WERE NOT EXAMINED AND CONSIDERED BY THE LOWER AUTHORITIES. I N VIEW OF THE SAME WE RESTORE THE ISSUE BACK TO THE FILE O F THE ASSESSING OFFICER TO ADJUDICATE UPON THE ISSUE IN T HE LIGHT OF THE JUDGEMENT OF THE HONBLE JURISDICTIONAL HIGH COURT IN THE CASE OF M/S MAX INDIA LTD AND TO DETERMINE THE AVAILABILITY OF INTEREST-FREE FUNDS IN EACH OF THE YEARS IN WHICH THE INVESTMENTS WAS MADE AND THEREAFTER DECID E THE ISSUE IN ACCORDANCE WITH LAW. WE MAY ADD THAT THE ASSESSEE BE GIVEN DUE OPPORTUNITY OF HEARING IN THI S BEHALF. 16. IN VIEW OF THE ABOVE THE APPEAL OF THE ASSESSE E STANDS PARTLY ALLOWED FOR STATISTICAL PURPOSES. 9 ITA NO. 291/CHD/2013 17. IT IS RELEVANT TO OBSERVE HERE THAT THE FACTS AND CIRCUMSTANCES OF THIS APPEAL ARE SIMILAR TO THE FAC TS AND CIRCUMSTANCES IN ITA NO.290/CHD/2013 AND THE FINDIN GS GIVEN IN ITA NO.290/CHD/2013 SHALL APPLY TO THIS AP PEAL ALSO WITH EQUAL FORCE. THE APPEAL OF THE ASSESSEE IS ALLOWED FOR STATISTICAL PURPOSES. 18. IN THE RESULT, BOTH THE APPEALS OF THE ASSESSE E ARE PARTLY ALLOWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED IN THE OPEN COURT. SD/- SD/- (C.M. GARG) (ANNAPURNA GUPTA) JUDICIAL MEMBER ACCOUNTANT MEMBER DATED : 9 TH MARCH, 2017 *RATI* COPY TO: 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT(A) 4. THE CIT 5. THE DR ASSISTANT REGISTRAR, ITAT, CHANDIGARH