Sayaji Industries Ltd., Ahmedabad V. The Dy. Commissioner of Income Tax, Circle-4(1)(1), Ahmedabad

ITA 2993/AHD/2016

• Counselvise Citation: [2018] 118 COUNSELVISE.COM (IT) 8192 (ITAT-AHMEDABAD)
• Duration Of Justice: 2 year(s) 1 month(s) 14 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 31-12-2018
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: Not Allotted
• Assessment Year: 2012-2013
• Appeal Filed On: 16-11-2016
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: LALIT P JAIN
• Keywords: Business income; Earning of tax free income; Proportionate interest; Question of law
• Section: 143(3); 14A; 115JB

Judgement Text

, C IN THE INCOME TAX APPELLATE TRIBUNAL C BENCH, AHMEDABAD BEFORE SHRI PRADIP KUMAR KEDIA, ACCOUNTANT MEMBER & SHRI MAHAVIR PRASAD, JUDICIAL MEMEBR ./ I.T.A. NO. 2993/AHD/2016 ( ASSESSMENT YEAR : 2012-13) SAYAJI INDUSTRIES LTD. MAIZE PRODUCTS, P.O. KATHWADA, AHMEDABAD- 382430 / VS. DY. COMMISSIONER OF INCOME TAX CIRCLE 4(1)(1), ROOM NO. 208, B WING, 2 ND FLOOR, PRATYAKSHAKAR BHAVAN, PANJARPOLE, AMBAWADI, AHMEDABAD - 380015 ./ ./ PAN/GIR NO. : AADCS0861R ( APPELLANT ) .. ( / RESPONDENT ) / APPELLANT BY : SHRI SANJAY R. SHAH, A.R. / RESPONDENT BY : SHRI LALIT P. JAIN, SR.D.R. DATE OF HEARING 31/12/2018 !'# / DATE OF PRONOUNCEMENT 31/12/2018 / O R D E R PER PRADIP KUMAR KEDIA - AM: THE CAPTIONED APPEAL HAS BEEN FILED AT THE INSTANCE OF THE ASSESSEE AGAINST THE ORDER OF THE COMMISSIONER OF I NCOME TAX (APPEALS)-7, AHMEDABAD (CIT(A) IN SHORT), DATED 2 3.09.2016 ARISING IN THE ASSESSMENT ORDER DATED 18.02.2015 PASSED UND ER S. 143(3) OF THE INCOME TAX ACT, 1961 (THE ACT) CONCERNING ASSESSMEN T YEAR 2012-13. ITA NO. 2993/AHD/16 [SAYAJI INDUSTRIES LTD. VS. DCIT] AY 2012-13 - 2 - 2. THE GROUNDS OF APPEAL RAISED BY THE ASSESSEE REA D AS UNDER:- 1. THE ORDER PASSED BY THE LEARNED CIT(A) IS ERRON EOUS AND CONTRARY TO THE PROVISIONS OF LAW & FACTS OF THE CA SE AND THEREFORE NEEDS TO BE SUITABLY MODIFIED. IT IS SUBM ITTED THAT IT BE SO HELD NOW. 2. THE LEARNED CIT(A) ERRED IN CONFIRMING THE DIS ALLOWANCE MADE BY AO U/S 14A READ WITH RULE 8D OF RS.7,40,472/- NE T OF DISALLOWANCE MADE BY APPELLANT OF RS.25,000/-. IT B E SO HELD NOW. 2.1 THE CIT(A) ERRED IN NOT APPRECIATING THAT SEC TION 14A IS NOT APPLICABLE TO THE APPELLANT AS THE INVESTMENTS IN S ECURITIES YIELDING TAX FREE INCOME WERE MADE FROM OWN FUNDS O F THE APPELLANT AND NO EXPENSES WERE INCURRED IN RELATION TO THE EXEMPT INCOME. IT BE SO HELD NOW. 2.2 THE CIT(A) ERRED IN STATING THAT APPELLANT HA S NOT FURNISHED ANY EVIDENCE TO SHOW THAT INVESTMENTS WERE MADE FRO M INTEREST FREE FUNDS WITHOUT APPRECIATING THE APPELLANT'S SUB MISSION THAT THERE IS NO FRESH INVESTMENT DURING THE YEAR AND IN A.Y. 2007- 08, IT HAD BEEN ACCEPTED BY HIM INVESTMENTS ARE OUT OF OWN FUNDS AND NO EXPENDITURE FOR INTEREST HAS BEEN INCU RRED, IT IS SUBMITTED IN THE FACTS OF THE CASE THAT THE CIT(A) OUGHT TO HAVE DELETED THE DISALLOWANCE MADE. IT IS SUBMITTED IT B E SO HELD NOW. 2.3 THE CIT(A) ERRED IN NOT APPRECIATING THAT INTER EST EXPENDITURE ON LOANS ARE UTILISED FOR SPECIFIC PURPOSE AND TOWA RDS EARNING TAXABLE BUSINESS INCOME AND NOT FOR MAKING TAX FREE INVESTMENTS. IT BE SO HELD NOW. 2.4 THE CIT(A) ERRED IN NOT APPRECIATING THAT THE APPELLANT HAD MADE STRATEGIC INVESTMENT IN SUBSIDIARY COMPANY FOR THE PURPOSE OF ACQUIRING CONTROLLING INTEREST AND NOT F OR THE PURPOSE OF EARNING EXEMPT INCOME. IT BE SO HELD NOW . 2.5 THE CIT(A) ERRED IN CONFIRMING DISALLOWANCE U/ S. 14A R.W.R. 8D MADE BY THE AO WHILE COMPUTING BOOK PROFIT U/S. 115JB OF THE ACT. 2.6 THE CIT(A) HAS ERRED IN CONFIRMING THE TOTAL INVESTMENTS WHILE COMPUTING AMOUNT INADMISSIBLE UNDER RULE 8D(II) & 8 D(III) WITHOUT APPRECIATING THAT ONLY INVESTMENTS WHICH HA VE EARNED EXEMPT DIVIDEND INCOME SHOULD BE CONSIDERED IN PLAC E OF TOTAL INVESTMENTS. IT BE SO HELD NOW. ITA NO. 2993/AHD/16 [SAYAJI INDUSTRIES LTD. VS. DCIT] AY 2012-13 - 3 - 3. THE LEARNED CIT(A) ERRED IN CONFIRMING THE WORKI NGS OF AO IN SETTING OFF THE LOSSES AS PER ASSESSMENT ORDER WITH OUT APPRECIATING THAT THE DISPUTED ISSUES HAVE NOT REAC HED FINALITY. 3. GROUND NO.1 CONCERNS DISALLOWANCE OF EXPENDITURE IN TERMS OF SECTION 14A OF THE ACT IN RELATION TO INCOME WHICH DOES NOT FORM PART OF THE TOTAL INCOME UNDER THE INCOME TAX ACT. 3.1 AT THE TIME OF HEARING, THE LEARNED AR IN SUPPO RT OF ITS GRIEVANCE FOR NON-APPLICABILITY OF SECTION 14A OF T HE ACT CONTENDED THAT THE TOTAL DISALLOWANCE OF RS.7,40,472/- COMPRI SES OF (I) PROPORTIONATE INTEREST DISALLOWANCE OF RS.6,64,777/ - [AS PER RULE 8D(2)(II)] AND (II) ADMINISTRATIVE EXPENDITURE OF R S.75,695/- AS PER RULE 8D(2)(III) OF THE INCOME TAX RULES. THE LEARN ED AR SUBMITTED THAT IT IS A MATTER OF RECORD THAT OWN FUNDS OF THE ASSESSEE (RS.28.21 CRORE) ARE FAR IN EXCESS OF CORRESPONDING INVESTMEN T (RS.1.51CRORE) YIELDING TAX FREE INCOME. THEREFORE, NO DISALLOWAN CE IS WARRANTED UNDER S.14A OF THE ACT TOWARDS PROPORTIONATE DISALL OWANCE IN VIEW OF THE LONG LINE OF JUDICIAL PRECEDENTS INCLUDING SINT EX INDUSTRIES LTD. 82 TAXMANN.COM 171 (GUJ). ADVERTING TO THE SECOND LIM B OF DISALLOWANCE OF ADMINISTRATIVE EXPENSES, THE LEARNED AR INITIALL Y SUBMITTED THAT IN THE ABSENCE OF ANY SPECIFIC SATISFACTION RECORDED FOR APPLICATION OF SECTION 14A OF THE ACT, NO SUCH DISALLOWANCE IS PER MISSIBLE. HOWEVER, LATER IN THE COURSE OF HEARING, THE LEARNE D AR FOR THE ASSESSEE DID NOT PRESS THE AFORESAID ASPECT FOR ADJ UDICATION AND CONSENTED FOR DISALLOWANCE OF ADMINISTRATIVE EXPENS ES SUBJECT TO DEDUCTION OF RS.25,000/- ALREADY DISALLOWED SUO MOTO BY THE ASSESSEE. 3.2 HAVING REGARD TO THE CONCLUDED FACTS TOWARDS OW N CAPITAL IN EXCESS OF CORRESPONDING INVESTMENT, WE ARE INCLINED TO ACCEPT THE PLEA OF THE ASSESSEE FOR DELETION OF PROPORTIONATE DISAL LOWANCE OF INTEREST ITA NO. 2993/AHD/16 [SAYAJI INDUSTRIES LTD. VS. DCIT] AY 2012-13 - 4 - EXPENDITURE TO THE TUNE OF RS.6,64,777/-. THE ASSE SSEE ACCORDINGLY GETS RELIEF TO THIS EXTENT. AS REGARDS THE DISALLO WANCE UNDER SECTION 8D(2)(III) TOWARDS ADMINISTRATIVE EXPENDITURE, WE F IND MERIT IN THE PLEA OF THE ASSESSEE FOR DEDUCTION OF SUO MOTO DISALLOWANCE THEREFROM. ACCORDINGLY, DISALLOWANCE OF ADMINISTRATIVE EXPENDI TURE UNDER S.14A R.W.S. 8D(2)(III) IS SUSTAINED TO THE EXTENT OF RS. 50,695/-. 3.3 GROUND NO.1 OF THE ASSESSEES APPEAL IS ACCORDI NGLY ALLOWED IN PART. 4. GROUND NO.2 CONCERNS BOOK PROFIT UNDER S.115JB O F THE ACT. THE CONTROVERSY IS WHETHER, FOR THE PURPOSES OF THE COMPUTATION OF BOOK PROFIT UNDER S.115JB, THE AO IS ENTITLED TO INCREASE BOOK PROFIT BY THE EQUIVALENT AMOUNT OF DISALLOWANCES A S FOUND ATTRIBUTABLE TO EXEMPT INCOME UNDER NORMAL PROVISIO NS OR NOT. WITH THE ASSISTANCE OF THE LEARNED AR FOR THE ASSESSEE, WE FIND THAT THE ISSUE IS SQUARELY COVERED IN FAVOUR OF THE ASSESSEE BY THE DECISION OF HONBLE GUJARAT HIGH COURT IN ALEMBIC LTD. TAX APPE AL NO. 1249 OF 2014 (GUJ) AS WELL AS THE DECISION OF THE SPECIAL B ENCH IN VIREET INVESTMENTS 165 ITD 27 (SB). SIMILAR VIEW HAS BEEN EXPRESSED BY CO- ORDINATE BENCH IN ARVIND LTD. VS. DCIT ITA NO.1816/AHD/2011 & ANR. ORDER DATED 08.03.2018. THE RELEVANT OPERATIV E PARA OF THE ORDER OF THE CO-ORDINATE BENCH IS QUOTED HEREUNDER FOR READY REFERENCE: 5. WE HAVE CAREFULLY CONSIDERED THE RIVAL SUBMI SSIONS AND PERUSED THE ORDERS OF THE AUTHORITIES BELOW AND ALS O SEVERAL JUDICIAL PRECEDENTS CITED. IN THE PRESENT CASE, WE ARE CON CERNED WITH THE LIMITED CONTROVERSY AS TO WHETHER, FOR THE PURPOSES OF COMPUTATION OF BOOK PROFIT UNDER S.115JB, THE AO IS ENTITLED TO INCREASE BOOK PROFIT BY THE EQUIVALENT AMOUNT OF DISALLOWANCES A S FOUND ATTRIBUTABLE TO EXEMPT INCOME UNDER NORMAL PROVISIO NS OR NOT. WHILE IT IS THE CASE OF THE ASSESSEE THAT IN VIEW OF LONG LINE OF JUDICIAL PRECEDENTS, SUCH ADJUSTMENT IN BOOK PROFIT IS NOT PERMISSIBLE, IT IS ITA NO. 2993/AHD/16 [SAYAJI INDUSTRIES LTD. VS. DCIT] AY 2012-13 - 5 - THE CASE OF REVENUE THAT IN VIEW OF CODIFIED LAW IN THIS REGARD, THE BOOK PROFIT UNDER 115JB HAS BEEN RIGHTLY INCREASE D BY THE REVENUE. 6. WE NOTICE THAT ISSUE IS EVOLVED AND DEVELOPED BY CERTAIN JUDICIAL PRECEDENTS. WE FIND AT THE FIRST INSTANCE THAT THE IDENTICAL ISSUE CAME UP FOR CONSIDERATION BEFORE THE HONBLE GUJARAT HIGH COURT IN THE CASE OF ALEMBIC LTD. (SUPRA) WHERE THE SUBSTANTIAL QUESTION OF LAW ON THE POINT AS TO WHETHER ADJUSTME NT MADE ON ACCOUNT OF DISALLOWANCE UNDER S.14A OF THE CAN BE S IMILARLY MADE FOR THE PURPOSES OF COMPUTATION OF BOOK PROFIT UNDER S.115JB OF THE ACT WAS ANSWERED AGAINST THE REVENUE AND IN FAVOUR OF T HE ASSESSEE. WE ALSO TAKE NOTE OF DECISION OF THE SPECIAL BENCH RE NDERED IN ACIT VS. VIREET INVESTMENT PVT. LTD. & ANR. 165 ITD 27 (DELH I)[SB] WHERE IT WAS HELD THAT THE AO WAS NOT ENTITLED TO TINKER WIT H BOOK PROFITS CONTEMPLATED UNDER S.115JB TOWARDS DISALLOWANCE MAD E UNDER S.14A OF THE ACT. WE SIMILARLY FIND THAT JUDGEMENT OF HO NBLE BOMBAY HIGH COURT IN CIT VS. BENGAL FINANCE AND INVESTMENT S PVT. LTD. IN ITA NO.337 OF 2013 ORDER DATED 10/02/2015 ALSO COMP LEMENTS THE ISSUE. THUS, SEEN ON THE ANVIL OF THE JUDICIAL FIA T AVAILABLE SQUARELY ON THE ISSUE, WE ARE DISPOSED TO ASSIGN MERITS TO T HE CONTENTIONS ON BEHALF OF THE ASSESSEE. AT THIS JUNCTURE, WE PAUSE TO NOTE THE CONCERN OF REVENUE SEEKING TO PLEAD POSSIBLE REDUNDANCY OF CLAUSE(F) TO EXPLANATION TO S.115JB IN THE EVENT OF DISAGREEMENT WITH THE ACTION OF AO. WE ARE ALIVE TO SUCH CONCERNS. HOWEVER, AS NOTED, WE ARE GOVERNED BY THE SUPERIOR WISDOM AVAILABLE IN THIS R EGARD. HENCE, REMEDY TO REVENUE, IF ANY, PERHAPS LIES ELSEWHERE. ACCORDINGLY, RESPECTFULLY FOLLOWING THE DECISIONS GOVERNING THE FIELD, WE DIRECT THE AO TO DELETE THE ADJUSTMENTS MADE ON ACCOUNT OF EST IMATED DISALLOWANCE DETERMINED UNDER S.14A OF THE ACT WHIL E COMPUTING BOOK PROFIT UNDER U/S.115JB OF THE ACT. 5. IN THE LIGHT OF THE DECISION OF THE CO-ORDINATE BENCH ON THE IDENTICAL ISSUE, THE AO IS DIRECTED TO DELETE THE A DJUSTMENTS MADE ON ACCOUNT OF DISALLOWANCE UNDER S.14A OF THE ACT FOR THE PURPOSES OF COMPUTATION OF BOOK PROFIT UNDER S.115JB OF THE ACT . CONSEQUENTLY, GROUND NO.2 OF THE ASSESSEES APPEAL IS ALLOWED. 6. GROUND NO.3 IS DISMISSED AS NOT PRESSED. 7. AS REGARDS GROUND NO.4, THE LEARNED AR FOR THE A SSESSEE AGREED WITH THE OBSERVATION OF THE BENCH THAT NECESSARY DI RECTION IN THIS REGARD FOR VERIFICATION HAS ALREADY BEEN GIVEN BY T HE CIT(A) TO THE AO ITA NO. 2993/AHD/16 [SAYAJI INDUSTRIES LTD. VS. DCIT] AY 2012-13 - 6 - AND THEREFORE, NO FRESH DIRECTIONS ARE CALLED FOR. GROUND NO.4 OF THE ASSESSEES APPEAL IS THEREFORE DISMISSED AS UNCALLE D FOR. 8. IN THE RESULT, APPEAL OF THE ASSESSEE IS PARTLY ALLOWED. SD/- SD/- (MAHAVIR PRASAD) (PRADIP KUMA R KEDIA) JUDICIAL MEMBER ACCOUNTANT MEMBER AHMEDABAD: DATED 31/12/2018 TRUE COPY S. K. SINHA !'#' / COPY OF ORDER FORWARDED TO:- &. / REVENUE 2. / ASSESSEE (. )*+ , / CONCERNED CIT 4. ,- / CIT (A) /. 012 33*+4 *+#4 56) / DR, ITAT, AHMEDABAD 7. 289 : / GUARD FILE. BY ORDER / 4 /5 *+#4 56) THIS ORDER PRONOUNCED IN OPEN COURT ON 31/12/20 18