APCOTEX INDUSTRIES LTD., RAIGAD V. DCIT (OSD) - 10(3), MUMBAI

ITA 3031/MUM/2016

• Counselvise Citation: [2017] 128 COUNSELVISE.COM (IT) 8019 (ITAT-MUMBAI)
• Duration Of Justice: 10 month(s) 1 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 28-02-2017
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: C
• Assessment Year: 2011-2012
• Appeal Filed On: 26-04-2016
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: ARJU GARODIA
• Assessee Lawyers: PIYUSH CHHAJEEL
• Keywords: Earning of tax free income
• Section: 14A; 10

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL C BENCH, MUMBAI BEFORE SHRI SHAMIM YAHYA , ACCOUNTANT MEMBER AND SHRI SANJAY GARG, JUDICIAL MEMBER ITA NO.3031/MUM./2016 ( ASSESSMENT YEAR : 2011 - 12 ) APCOTEX INDUSTRIES LTD. PLOT NO. 3/1, MIDC INDUSTRIAL AREA, TALOJA, RAIGAD 410 208 PAN AAACA3427G . APPELLANT V/S DCIT (OSD) - 10(3) MUMBAI . RESPONDENT ASSESSEE BY : SHRI. PIYUSH CHHAJEEL REVENUE BY : MS. ARJU GARODIA DATE OF HEARING 15.02.2017 DATE OF ORDER 28.02.2017 O R D E R PER: SHAMIM YAHYA THIS APPEAL BY THE ASSESSEE IS DIRECTED AGAINST ORDER OF LEARNED CIT - A DATED 22/01/2016, AND PERTAINS TO ASSESSMENT YEAR 2011 12. 2. THE GROUNDS OF APPEAL READ AS UNDER; ON THE FACTS AND CIRCUMSTANCES OF THE CASE, THE LD. CIT - A ERRED IN CONFIRMING THE ADDITION U/S. 14A AMOUNTING TO RS.62,91,848/ - APCOTEX INDUSTRIES LTD. ITA NO.3031/MUM./2016 2 WITHOUT APPRECIATING THE FACT THAT THERE WAS NO EXPENDITURE INCURRED TO EARN THE EXEMPT INCOME. THE APPELLANT COMPANY CRAVES THE LEAVE TO ADD, AMEND, ALTER AND/OR DELETE THE ABOVE GROUND OF APPEAL AT OR BEFORE THE TIME OF HEARING. 3. BRIEF FACTS OF THE CASE ARE AS UNDER: THE ASSESSING OFFICER OBSERVED FROM THE COMPUTATION OF INCOME THAT THE APPELLANT COM PANY HAD SHOWN AN AMOUNT OF RS. 28,09,6 06/ - AS DIVIDEND INCOME AND RS. 20126289/ - AS LONG TERM CAPITAL GAIN WHICH WAS CLAIMED EXEMPT U/ S. 10 OF THE ACT. THE APPELLANT COMPANY CONTENDED THAT NO EXPENSES WERE DIRECTLY INCURRED FOR THE PURPOSE OF EARNING OF EXEMPT INCOME, AND HENCE, IT WAS NOT INCLUDED IN THE DISALLOWANCE U/S. 14A OF THE INCOME TAX ACT, 1961. THEREFORE, IN THE COMPUTATION OF INCOME ONLY AN AMOUNT OF RS. 25,77,913/ - HAD BEEN DISALLOWED U/S. 14A OF THE INCOME TAX ACT, 1961. THE A.O. OPI NED THAT T HE APPELLANT COMPANY FAILED TO FURNISH ANY EVIDENCE TO PROVE THE NO DIRECT EXPENSES WERE INCURRED FOR EARNING OF EXEMPT INCOME. FURTHER THE APPELLANT COMPANY HAD ACCEPTED THE PORTFOLIO M ANAGEMENT FEES AMOUNTING TO RS. 36,37,963/ - WERE DIRECTLY ATTRIBUTABLE TO THE EXEMPT INCOME. THERE FORE, LD. AO FELT THAT HE DISALLOWANCE OF U NDER SECTION 14A OF THE INCOME T AX ACT 1961 HAD TO BE COMPUTED UNDER THE PRO VISIONS OF RULE 8D IS AT RS.88, 69 , 76 1/ - 4. BEFORE THE LD. CIT - A A SSESSEE MADE FOLLOWING SUBMISSION : APCOTEX INDUSTRIES LTD. ITA NO.3031/MUM./2016 3 DISALLOWANCE OF PS. 62,91,8481 - U/S . 14A: THE LD. ASSESSING OFFICER IN THE ASSESSMENT ORDER APPLYING RULE 8 D COMPUTED TOTAL D ISALLOWANCE @ RS.88,69,761/ - . SINCE THE APPELLANT COMPAN Y HAD ALREADY DISALLOWED RS.25, 77,913/ - U/S 14A IN RETURN OF INCOME FILED, THE AO MADE THE NET DISALLOWANCE OF RS.62,91,848/ - U/S 14A. ON PERUSAL OF PARA 6.3.2 OF THE ASSESSMENT ORDER, IT WILL BE APPRECIATED THAT DISALLOWANCE TOWARDS INTEREST HAS BEEN MADE TO THE EXTENT OF RS. 77,47,653/ - AND FURTHER 0.5% TOWARDS THE ADMINISTR ATIVE EXPENDITURE AMOUNTING TO R S.11 ,22,1081 - . THUS TOTALING TO RS. 88,69,761/ - . THE LD. ASSESSING OFFICER FAILED TO APPRECIATE THAT THERE CAN BE NO DISALLOWANCE OF INTEREST SINCE THE APPELLANT COMPANY WAS HAVING SHARE CAPITA L AND RESERVES AMOUNTING TO RS.6419.42 L ACS AS AT 31 - 3 - 2011 AG AINST THE INVESTMENTS OF RS. 2550.04 LACS AS AT 31 - 3 - 2011. THUS IT WOULD BE APPRECIATED THAT THE INVESTMENTS WERE MADE OUT OF FREE RESERVES OF THE COMPANY AND HENCE NO DISALLOWANCES IS WARRANTED ON ACCOUNT OF INTEREST U/S 14A. THE APPELLANT COMPANY PLAC ES RELIANCE ON THE JUDGMENT RENDERED BY JURISDICTIONAL HONBLE BOMBAY HIGH COURT IN CASE OF HDFC BANK LTD, 366 ITR 505 AND RELIANCE UTILITI ES& POWER LTD, 313 ITR 340 (BOM ), WHERE IN IT HAS BEEN HELD THAT; APCOTEX INDUSTRIES LTD. ITA NO.3031/MUM./2016 4 'THE PRESUMPTION NEEDS TO BE DRAWN THAT INTEREST FR EE FUNDS HAVE BEEN UTILIZED FOR THE PURPOSE OF INVESTMENTS AND THEREFORE THERE COULD NOT HAVE BEEN ANY DISALLOWANCE. 'WHERE OWN FUNDS ARE MORE THAN THE INVESTED FUNDS, NO DISALLOWANCE OF INTEREST IS WARRANTED.' THE AVERAGE EXPENDITURE UNDER RULE 8D HAS BEEN WORKED OUT AT RS. 11,22,108/ - WHICH IS LESS THAN THE DISALLOWANCE MADE BY THE ASSESSEE HIMSELF AT RS. 25,77,9131 - . IN VIEW OF THE ABOVE DECISION RENDERED BY HONBLE BOMBAY HIGH COURT THE AMOUNT OF THE DISALLOWANCE DONE BY THE ASSESSE COMPANY OF EXPENS ES U/S 14A OF RS.25,77,913 IS JUST AND PROPER AND NO FURTHER INTERFERENCE ON THE SAME IS WARRANTED. IN VIEW OF THE ABOVE FACTS THE APPELLANT COMPANY PRAYS THAT THE ADDITION OF RS.621,91,848/ - MADE BY THE LD. AO NEEDS TO BE DELETED. 5. HOWEVER LEARNED C IT - A WAS NOT CONVINCED. LD. CIT - A HELD AS UNDER: I) HAVING CONSIDERED THE ENTIRE GAMUT OF FACTS, I DO NOT FIND ANY FALLACY IN TH E COMPUTATION MADE BY THE LD. AO . AS THE APPELLANT HAS NOT CHALLENGED THE DIRECT EXPENDITURE OF RS.36.37 LACS. HOWEVER, WHILE CHALLENGING THE INTEREST DISALLOWANCE, THE APPELLANT HAS WRONGLY TAKEN THE FIGURE AT RS.25.77 LACS IN ITS PLEADINGS AS AGAINST THE APCOTEX INDUSTRIES LTD. ITA NO.3031/MUM./2016 5 DISALLOWANCE OF RS. 41.09 LACS M ADE BY THE LD. AO AT PAGE 5 OF THE ASSESSMENT ORDER. II) AS REGARD THE APPELLANT'S RELIANCE ON HDFC BANK & RELIANCE UTILITIES (SUPRA), REFERENCE IS MADE TO THE DECISION OF HON'BLE MUMBAI BENCH OF ITAT IN THE CASE OF HDFC BANK LTD. IN ITA NO. 374/MUM/20 12 DATED 23.09.2015 WHERE IT WAS HELD THAT THE DECISION OF HON'BLE BOMBAY HIGH IN THE CASE OF GODREJ & BOYCE 328 ITR 81 HAD TO BE GIVEN PRECEDENCE. IT IS FURTHER HELD THEREIN THAT THE CASE OF RELIANCE UTILITIES POWER LTD., 313 ITR 340(BOM) WAS IN THE CONTE XT OF SEC. 36(1)(III) AND WAS EVEN CONSIDERED IN THE DECISION IN THE CASE OF GODREJ & BOYCE (SUPRA). ACCORDINGLY, BOTH THESE DECISIONS CITED BY THE LD. AR WERE CONSIDERED BY THE HONBLE TRIBUNAL IN A LATER DECISION IN HDFC (ORDER DATED 23.09.2015), AND HEN CE, RESPECTFULLY FOLLOWING THE SAME, THE PLEADING MADE BY THE A.R MUST BE REJECTED. ACCORDINGLY , GROUND NO. 3 IS DISMISSED. 6. AG AINST THE ABOVE ORDER ASSESSEE IS I N APPEAL BEFORE US WE HAVE HEARD BOTH THE COUNSEL AND PERUSED THE RECORDS. LD. COUNSEL OF T HE ASSESSEE CONTENDED THAT ASSESSEE HAS SUFFICIENT INTEREST FREE FUND TO MAKE THE INVESTMENT. HENCE NO DISALLOWANCE ON ACCOUNT OF INTEREST SHOULD BE MADE. LD. COUNSEL FURTHER CONTENDED THAT ASSESSEE HAS ONLY INCURRED P.M.S. EXPANSES WHICH HAS ALREADY BEEN DEDUCTED BY THE ASSESSEE IN THE COMPUTATION. IN LIGHT OF THE ASSESSEES SUOMOTO APCOTEX INDUSTRIES LTD. ITA NO.3031/MUM./2016 6 DISALLOWANCE NO FURTHER DISALLOWANCE NEEDS TO BE MADE. IN THIS REGARD LD. COUNSEL PLACE RELIANCE UPON JURISDICTION HIGH COURT DECISION IN THE CASE OF CIT VS SHARADA ERECTORS PV T. LTD. IN I.T APPEAL NO. 680 OF 2014 VIDE ORDER DATED. OCT 3 RD , 2016. 76 TAXMAN.COM 107. IN THIS CASE IT WAS HELD THAT : IT: WHERE INTEREST - FREE FUNDS AVAILABLE WITH AN ASSESSEE WERE SUFFICIENT TO MEET ITS INVESTMENT, IT SHOULD BE PRESUMED THAT INVESTMENTS WERE MADE OUT OF INTEREST - FREE FUNDS AVAILABLE AND NOT OUT OF BORROWED FUND; THEREFORE, PARTIAL DISALLOWANCE OF INTEREST PAID ON LOAN WOULD NOT BE JUSTIFIED. 7. FURTHER LD. CO UNSEL SUBMITTED THAT THE DECISION OF ITAT MUMBAI IN THE CASE HDFC BANK LTD. IN ITA 374/MUM/2012 DATED 23.09.2015. RELIED BY THE LD. CIT - A HAS ALREADY BEEN SET ASIDE BY HONBLE HIGH COURT. LD. COUNSEL SUBMITTED THAT IN VIEW OF HONBLE BOMBAY HIGH COURT DEC ISION IN THE CASE HDFC BANK LTD. 366 ITR 505 AND RELIANCE UTILITY IN POWER LIMITED 313 ITR 340 NO DISALLOWANCE SHOULD HAVE BEEN MADE IN THIS CASE. PER CONTRA LD. DR RELIED UPON THE ORDERS OF AUTHORITIES BELOW. 8. UPON CAREFUL CONSIDERATION WE FIND THAT AU THORITIES BELOW HAVE NO T FOLLOWED THE MANDATE OF HONBLE JURISDICTION AL HIGH COURT AS MENTIONED ABOVE. IT HAS BEEN EXPOUNDED BY HONBLE JURISDICTION AL HIGH COURT THAT WHEN INTEREST FREE FUND OF THE ASSESSEE ARE SUFFICIENT APCOTEX INDUSTRIES LTD. ITA NO.3031/MUM./2016 7 TO MAKE THE INVESTMENT FOR EARNING EXEMPT INCOME NO DISALLOWANCE ON ACCOUNT OF INTEREST IS CALLED FOR. F URTHER ASSESSE HAS CLAIMED THAT THE ONLY EXPENSES INCURRED IS THE P.M.S FEE WHICH HAS ALREADY BEEN DISALLOWED BY THE ASSESSEE HIMSELF. HOWEVER, WE NOTE THAT IN THE ASSESSMENT ORDER AO HA S MADE ADVE RSE INTERFERENCE IN THIS REGARD, WHICH APPEARS TO BE A NOT PROPER APPRECIATION OF FACTS. IN LIGHT OF ABOVE IN OUR CONSIDER OPIN ION THE ISSUE NEEDS TO BE REMITTED TO THE FILE OF THE ASSESSING OFFICER. 9. THE ASSESSING OFFICER SHALL EXAMINE THE FA CTUAL VERACITY OF THE ASSESSEE SUBMISSION AND DECIDE AS PER THE EXPOSITION OF HONBLE JURISDICTION HIGH COURT AS ABOVE. IN THE RESULT THIS APPEAL BY THE ASSESSEE STANDS ALLOWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED IN THE OPEN COURT ON 28 .02.201 7 SD/ - SD/ - SANJAY GARG SHAMIM YAHIYA JUDICIAL MEMBER ACCOUNTANT MEMBER MUMBAI, DATED: 28 .02.2017 APCOTEX INDUSTRIES LTD. ITA NO.3031/MUM./2016 8 COPY OF THE ORDER FORWARDED TO : (1) THE ASSESSEE; (2) THE REVENUE; (3) THE CIT(A); (4) THE CIT, MUMBAI CITY CONCERNED; (5) THE DR, ITAT, MUMBAI; (6) GUARD FILE . TRUE COPY BY ORDER NISHANT VERMA SR. PRIVATE SECRETARY (DY./ASSTT.REGISTRAR) ITAT, MUMBAI