Pudumjee Pulp & Paper Mills Ltd., Pune V. Addl. CIT, Pune

ITA 298/PUN/2009

• Counselvise Citation: [2010] 135 COUNSELVISE.COM (IT) 3292 (ITAT-PUNE)
• Duration Of Justice: 1 year(s) 7 month(s) 5 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 08-10-2010
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: B
• Assessment Year: 2005-2006
• Appeal Filed On: 03-03-2009
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: HEMANTKUMAR C LEUVA
• Assessee Lawyers: C A GULARIKAR
• Keywords: Opportunity of being heard; Source of fund
• Section: 14A

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL PUNE BENCH B, PUNE BEFORE SHRI I.C. SUDHIR AND SHRI D. KARUNAKARA RAO ITA NO. 298/PN/09 (ASSTT. YEAR 2005-06) PUDUMJEE PULP & PAPER MILLS LTD. THERGAON, PUNE 411033 PAN NO. AABCP0310Q .... APPELLANT VS. ADDL. CIT, RANGE 10, PUNE 411044 . RESPONDENT APPELLANT BY : SHRI C.A. GULARIKAR RESPONDENT BY : SHRI HEMANTKUMAR C. LEUVA ORDER PER D. KARUNAKARA RAO AM THIS IS AN APPEAL BY THE ASSESSEE AGAINST THE ORDER O F THE CIT(A) DATED 01/12/2008. GROUNDS READS AS UNDER:- 1. DIS-ALLOWANCE U/S 14A : RS. 3,02,000 (A) ON THE FACTS AND IN THE CIRCUMSTANCES, NAMELY, THE OVER DRAFT BANK ACCOUNT CONTAINED CREDITS FOR S ALES AND OTHER RECEIPT OF INCOMINGS FROM WHICH DISBURSEM ENT WERE MADE FOR OUTGOINGS AND PURCHASE OF SHARES, IN THE YEAR OF PURCHASE OF SHARES AND ALL SUBSEQUEN T YEAR THE CURRENT CASH PROFITS AND RESERVES AND SURP LUSES, AT THE BEGINNING AND AT THE END OF THE YEAR, FAR EX CEEDED THE INVESTMENT IN SHARES, THE LEARNED CIT(APPEALS) ERRED IN REJECTING THE SUB MISSIONS OF YOUR APPELLANT THAT THE INVESTMENT IN SHARES HAVE COME OUT OF OWN FUNDS AND DRAWING CONCLUSION THAT INVEST MENT IN SHARES OF RS. 211.84 LAKHS HAS COME OUT OF BORROWED FUNDS AND CALLS FOR DISALLOWANCE OF PROPORTIONATE INTERES T U/S. 14A OF THE ACT. (B) HAVING REGARD TO THE FACTS AND CIRCUMSTANCES OF THE CASE IT MAY BE HELD THAT THE INVESTMENTS IN SHARES ON WHICH DIVIDED ITA NO. 298/PN/09 A.Y: 2005-06 PAGE 2 OF 4 WAS RECEIVED OR RECEIVABLE HAS COME OUT OF OWN FUND S AND NOT BORROWED FUNDS. (C) SO HOLDING DISALLOWANCE OF RS. 3,02,000 MADE U/S. 14A MAY BE DELETED. 2. RELEVANT FACTS UNDER THE DECISIONS OF THE ABOVE AND THE CIT(A) ARE GIVEN IN PARA 3 OF THE IMPUGNED ORDER WHICH READS AS UNDER:- 3 . GROUND NO. 1 IS AGAINST ADDITION OF RS. 3.02 LAKH S U/S. 14A. 3.1 THE ASSESSING OFFICER FOUND THAT THE ASSESSEE H AS CLAIMED AN EXPENDITURE OF RS. 200.46 LAKHS ON ACCOUNT OF INTER EST ON FINANCIAL CHARGES. HE FURTHER OBSERVED THAT THE ASSESSEE HAS MADE LONG TERM INVESTMENTS TO THE TUNE OF RS. 211.84 LAKHS. HE WAS OF THE VIEW THAT SOME PORTION OF INTEREST COULD BE ATTRIBUTABLE TO T HE LONG TERM INVESTMENTS WHICH THE ASSESSEE WAS HOLDING. ON BEIN G REQUIRED BY THE ASSESSING OFFICER TO EXPLAIN AS TO WHY THE INTEREST ATTRIBUTABLE TO SUCH INVESTMENTS BE NOT DISALLOWED UNDER THE PROVISIONS OF SEC. 14A, IT WAS EXPLAINED BY THE ASSESSEE THAT NO NEW LONG TERM INV ESTMENTS WERE MADE DURING THE RELEVANT YEAR AND THAT ALL THE INVESTMEN TS HAD BEEN MADE QUITE SOME TIME BACK. IT WAS ALSO EXPLAINED THAT NO DIVID END HAS ARISEN FROM THESE INVESTMENTS DURING RELEVANT YEAR AND THEREFORE , NO DISALLOWANCE U/S. 14A WAS CALLED FOR, MORE SO WHEN THE INTEREST FREE LONG TERM FUNDS WERE ALWAYS USED FOR THE PURPOSE OF SUCH INVESTMENT S. 3.2 THE CONTENTION SO MADE BY THE ASSESSEE WAS NOT ACCEPTED BY THE ASSESSING OFFICER. HE OBSERVED THAT THE ASSESSEE HA D COMMON POOL OF FUNDS AND HAD NOT MAINTAINED SEPARATE FUNDS FOR TH E LONG TERM INVESTMENTS AND THEREFORE, THE ASSESSEES CONTENTIO N THAT ONLY INTEREST FREE FUNDS HAVE BEEN UTILIZED FOR THE PURPOSE OF MA KING INVESTMENTS WAS NOT ACCEPTABLE. HE WORKED OUT AVERAGE RATE OF INTER EST ON TOTAL FUNDS AT 1.43% AND APPLYING THE SAME TO THE LONG TERM INVEST MENTS OF RS. 211.84 LAKHS, CALCULATED INTEREST ATTRIBUTABLE TO LONG TER M INVESTMENTS AT RS. 3.02 LAKHS AND ACCORDINGLY, MADE DISALLOWANCE U/S. 14A. 3.3 DURING APPELLATE PROCEEDINGS, THE APPELLANT CON TENDED THAT THE ASSESSING OFFICER HAS ERRED IN HOLDING THAT THE INV ESTMENT IN SHARES OF RS. 211.84 LAKHS HAS NOT COME OUT OF ASSESSEES OWN FUN DS AGGREGATING TO RS. 14,030.69 LAKHS. THE APPELLANT ALSO FILED BEFOR E ME STATEMENT SHOWING DETAILS OF OWN FUNDS AND INVESTMENT IN SHAR ES FOR THE YEARS ENDED 31.3.1999 TO 31.3.2005. AND CONTENDED THAT HA VING REGARD TO THE FACTS AND CIRCUMSTANCES PLACED ON RECORD, IT BE HEL D THAT THE INVESTMENT IN SHARE HAS COME OUT OF OWN FUNDS OF THE APPELLANT AND NOT OUT OF BORROWED FUNDS. THE APPELLANT PLEADED THAT THE DISA LLOWANCE OF INTEREST OF RS. 3.02 LAKHS U/S. 14A SHOULD BE DELETED. 3.4 THE SUBMISSION HAS BEEN CONSIDERED. A PERUSAL O F THE STATEMENT FILED BY THE APPELLANT REFERRED TO ABOVE SHOWS THA T IT CONTAINS YEARWISE DETAILS OF DIVIDEND RECEIVED, INVESTMENT IN SHARES, POSITION OF OWN FUNDS OF THE COMPANY AND THE CASH PROFIT FOR THE YEARS EN DING ON 31.3.1999 TO 31.3.2005. HOWEVER, THESE DETAILS IMPART NO STRENGT H TO THE CONTENTION OF THE APPELLANT THAT THE INVESTMENT IN SHARES HAVE BE EN MADE BY THE ASSESSEE OUT OF ITS OWN FUNDS AND THEREFORE, NO INT EREST EXPENDITURE IS ATTRIBUTABLE TO EARNING OF THE DIVIDEND INCOME. ON THE OTHER HAND, I FIND MERIT IN THE OBSERVATION OF THE ASSESSING OFFICER T HAT THE ASSESSEES CONTENTION IS NOT ACCEPTABLE IN VIEW OF THE FACT TH AT THE ASSESSEE ITA NO. 298/PN/09 A.Y: 2005-06 PAGE 3 OF 4 MAINTAINS COMMON POOL OF FUNDS AND NO SEPARATE FUND S FOR LONG TERM INVESTMENTS HAVE BEEN MAINTAINED BY THE ASSESSEE. S INCE THE APPELLANT HAD FAILED TO SUBSTANTIATE ITS CLAIM REGARDING INVE STMENT IN SHARES OUT OF ITS OWN FUNDS, I FIND NO REASON TO MAKE ANY INTERFE RENCE IN THE ACTION OF THE ASSESSING OFFICER IN HOLDING PART OF THE INTERE ST ATTRIBUTABLE TO EARNING OF DIVIDEND INCOME AND MAKING DISALLOWANCE U/S. 14A ACCORDINGLY. THIS GROUND OF APPEAL FAILS. 3. AGGRIEVED WITH THE ABOVE ASSESSEE FILED AN APPEAL BEFORE US. DURING THE PROCEEDINGS, LD. COUNSEL FOR THE ASSESSEE ARGUED STATI NG THAT THE ASSESSEE HAS ADEQUATE OWN FUNDS FOR MAKING THE LONG TERM INVESTMEN T AND THE SOURCES FOR THE INVESTMENTS ARE NOT OUT OF THE BORROWED FUNDS AND THEREFORE, THEY HAVE NO CONNECTION WITH THE INTEREST OF RS. 200.46 LAKHS DEB ITED TO THE P&L ACCOUNT ON ACCOUNT OF FINANCIAL CHARGES. FURTHER, IT IS BROUGHT TO OUR NOTICE THAT THE INVESTMENT IN QUESTION WAS NEVER MADE DURING THE YEAR UNDER CONSIDERATION AND IN FACT, THEY WERE INVESTED IN THE EARLIER YEARS. ASSE SSEE RELIED ON VARIOUS JUDGEMENTS IN HIS SUPPORT FOR THE CONTENTION THAT UND ER THESE CIRCUMSTANCES, THERE IS NO NEED FOR DISALLOWANCE U/S. 14A OF THE AC T. THEY ARE ONGC VS. CIT 262 ITR 648, 655 AND MARUTI UDYOG LTD. VS. DY. CIT 9 2 ITD 119, 168 (PARAS 55 TO 62). FURTHER, THE COUNSEL RELIED ON THE JUDGMENT I N THE CASE OF RELIANCE UTILITIES AND POWER LTD. 313 ITR 340(BOM) FOR THE FOL LOWING PROPOSITION IF THERE WERE FUNDS AVAILABLE BOTH INTEREST-FREE AND OVERDRA FT AND/OR LOANS TAKEN, THEN A PRESUMPTION WOULD ARISE THAT INVESTMENTS WOULD BE O UT OF THE INTEREST-FREE FUNDS GENERATED OR AVAILABLE WITH THE COMPANY, IF THE INT EREST-FREE FUNDS WERE SUFFICIENT TO MEET THE INVESTMENTS. IN THIS CASE, T HIS PRESUMPTION WAS ESTABLISHED CONSIDERING THE FINDING OF FACT BOTH BY THE COMMISSIONER (APPEALS) AND THE TRIBUNAL. THE INTEREST WAS DEDUCTIBLE. 4. ON THE OTHER HAND LD. DR FOR THE REVENUE RELIED ON THE ORDERS OF THE REVENUE. FURTHER, THE DR ARGUED STATING THAT ASSESSEE FAILED TO FILE THE DETAILS AS TO IF THE ASSESSEE HAS ADEQUATE FUNDS AS ON THE DAT E OF THE INVESTMENT. THE DETAILS FILED RELATES TO THE FIGURES AS ON 31.3.2005. FURTHER, THERE ARE NO DETAILS ON FILE TO DEMONSTRATE THE IMMEDIATE SOURCE OF FUNDS FOR THE IMPUGNED INVESTMENT OF RS. 211.84 LAKHS. DURING THE PROCEEDING S, THE BENCH ASKED LD COUNSEL ABOUT THE POSITION OF THE ASSESSEES OWN FU NDS VIS A VIS THE BORROWED FUNDS AS ON THE DATE OF INVESTMENT. LD. COUNSEL COU LD NOT REPLY TO THE SAME. THUS, THERE IS NO BASIC DATA TO KNOW THE POSITION OF OWN FUNDS VIS--VIS BORROWED FUNDS AS ON THE DATE OF IMPUGNED INVESTMENT OF RS. 211.84 LAKHS. IN FACT, THIS ASPECT WAS NEVER ADJUDICATED BY THE AUTHO RITIES OF THE REVENUE. WE ITA NO. 298/PN/09 A.Y: 2005-06 PAGE 4 OF 4 HAVE NOTED THAT THE ISSUE IN QUESTION, BEING RECURRING IN NATURE, WE ARE OF THE OPINION THAT THE MATTER SHOULD BE SET TO REST BY BRING ING RELEVANT ADDITIONAL FACTS ON THE RECORDS AS DISCUSSED ABOVE AND FOR THIS PURPOSE , THE ISSUE SHOULD BE REFERRED TO THE FILES OF THE A.O FOR DECIDING THE ISSUE AFRESH. DURING THE PROCEEDINGS, BOMBAY HIGH COURT JUDGMENT IN THE CASE O F GODREJ & BOYCE MANUFACTURING CO. LTD. VS. DCIT ITXA NO. 626/10 AND WRIT PETITION NO. 758/10 SHOULD ALSO BE CONSIDERED BY THE AO AS THE SAID JUDG MENT HAS CONSIDERED THE DECISION OF THE SPECIAL BENCH DECISION IN THE CASE OF DAGA CAPITAL MANAGEMENT PVT. LTD. [2009] 117 ITD 169 (MUM)(SB). ACCORDINGL Y, ALL THE GROUNDS ARE SET ASIDE FOR EXAMINING THE ISSUE AFRESH IN THE LIGHT OF THE ABOVE REFERRED DECISIONS. A.O IS DIRECTED TO PASS AN ORDER AFTER GIVING REASONABLE OPPORTUNITY OF BEING HEARD. ACCORDINGLY, THE GROUNDS ARE SET ASIDE. 5. IN THE RESULT, APPEAL FILED BY THE ASSESSEE IS ALLOWED FOR STATISTICAL PURPOSE. ORDER PRONOUNCED ON 08 TH OCTOBER, 2010. SD/- SD/- (I.C. SUDHIR) (D.KARUNAKARA RAO) JUDICIAL MEMBER ACCOUNTANT MEMBE R PUNE DATED THE 08 TH OCTOBER, 2010 R COPY OF THE ORDER IS FORWARDED TO : 1. ASSESSEE 2. ITO, WARD 8(3), PUNE 3 CIT-(A)-III, PUNE 4 CIT-V, PUNE 5 D.R. ITAT B BENCH BY ORDER ASSISTANT REGISTRAR I.T.A.T PUNE