Kiri Industries Ltd., Ahmedabad V. The ACIT.,Circle-4, Ahmedabad

ITA 3085/AHD/2013

• Counselvise Citation: [2019] 112 COUNSELVISE.COM (IT) 2030 (ITAT-AHMEDABAD)
• Duration Of Justice: 5 year(s) 11 month(s) 9 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 04-12-2019
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: D
• Next Hearing Date: 22-11-2019
• Assessment Year: 2009-2010
• Appeal Filed On: 26-12-2013
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: SANTOSH KARNANI
• Assessee Lawyers: MOHIT R BALANI; T P HEMANI SHRI P B PARMAR
• Keywords: Principle of natural justice; Earning of tax free income; Rule 8D
• Section: 14A; 201; 143(2); 13

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD D BENCH BEFORE: SHR I AMARJIT SINGH , ACCOUNTANT MEMBER AND MS. MADHUMITA ROY , JUDICIAL MEMBER KIRI INDUSTRIES LTD.(FORMERLY KNOWN AS KIRI DYES & CHEMICAL LTD.), 53, MANEKBAUG SOCIETY, AMBAWADI, AHMEDABAD PAN: AAACK9025C (APPELLANT) VS THE ACIT , RANGE - 4 , AHMEDABAD (RESPONDENT) REVENUE BY : S H RI SANTOSH KARNANI , SR. D . R. ASSESSEE BY: SHRI T.P. HEMANI, SHRI P.B. PARMAR & SHRI MOHIT R. BALANI , A.R S . DATE OF HEARING : 22 - 11 - 2 019 DATE OF PRONOUNCEMENT : 04 - 12 - 2 019 / ORDER P ER : AMARJIT SINGH, ACCOUNTANT MEMBER : - THIS ASSESSEE S APPEAL FOR A.Y. 2009 - 10 , ARI SES FROM ORDER OF THE CIT(A) - VIII, AHMEDABAD DATED 04 - 10 - 2 013 , IN PROCEEDINGS UNDER SECTION 1 4 3(3) OF THE INCOME TAX ACT, 1961; IN SHORT THE ACT . 2. THE ASSESSEE HAS RAISED FOLLOWING GROUNDS OF APPEAL: - I T A NO . 3085 / A HD/20 13 A SS E SSMENT YEAR 2009 - 10 I.T.A NO. 3 085 /AHD/20 13 A.Y. 2009 - 10 PAGE NO KIRI INDUSTRIES LTD.(FORMERLY KNOWN AS KIRI DYES & CHEMICAL LTD VS. ACIT 2 1. THE ID. C1T(A) HAS ERRED IN LAW AND ON THE FACTS OF THE CASE IN CONFIRMING THE DISALLOWANCE OF RS.14,75,119/ - U/S 14A OF THE ACT OUT OF TOTAL DISALLOWANCE OF RS.54,52,529/ - MADE BY THE ID. AO BY I NVOKING RULE 8D OF THE INCOME TAX RULES. 2. BOTH THE LOWER AUTHORITIES HAVE PASSED THE ORDERS WITHOUT PROPERLY APPRECIATING THE FACT AND THAT THEY FURTHER ERRED IN GROSSLY IGNORING VARIOUS SUBMISSIONS, EXPLANATIONS AND INFORMATION SUBMITTED BY THE AP PELLANT FROM TIME TO TIME WHICH OUGHT TO HAVE BEEN CONSIDERED BEFORE PASSING THE IMPUGNED ORDER. THIS ACTION OF THE LOWER AUTHORITIES IS IN CLEAR BREACH OF LAW AND PRINCIPLES OF NATURAL JUSTICE AND THEREFORE DESERVES TO BE QUASHED. 3. THE ID. C1T(A) HAS ERRED IN LAW AND ON FACTS IN CONFIRMING THE ACTION OF LD. AO IN CHARGING INTEREST U/S 234B/C/D OF THE ACT. 4. THE LD. CIT(A) HAS ERRED IN LAW AND ON FACTS IN CONFIRMING THE ACTION OF LD. A.O. IN INITIATING PENALTY PROCEEDINGS U/S. 271(1)(1) OF THE ACT . 2. BOTH THE GROUNDS OF APPEAL OF THE ASSESSEE ARE PERTAINED TO TH E SOLITARY ISSUE OF SUSTAINING THE DISALLOWANCE OF RS. 14 , 75 , 119/ - U/S. 14A OF THE ACT OF THE OUT OF TOTAL DISALLOWANCE OF RS. 54 , 52 , 129/ - MADE BY THE ASSESSING OFFICER. 3. THE FACT IN B RIEF IS THAT RETURN OF INCOME OF RS. 7,41,19,360/ - WAS FILED ON 29 TH SEP, 2009. THE CASE WAS SUBJECT TO SCRUTINY ASSESSMENT AND NOTICE U/S. 143(2) OF THE ACT WAS ISSUED ON 27 TH AUGUST, 2010. AT THE TIME OF ASSESSMENT, THE ASSESSING OFFIC ER NOTICED THAT ASSESSEE HAS EARNED EXEMPT INCOME AS DIVIDEND FROM MUTUAL FUND AT RS. 104 , 77 , 942/ - AND CLAIMED AS EXEMPT INCOME. DURING THE COURSE OF ASSESSMENT THE ASSESSEE HAS SUBMITTED THAT IT HAS MADE INVESTMENT OUT OF INTEREST FREE FUND THEREFORE NO DISALLOWANCE U/S . 14A BE MADE. HOWEVER, THE ASSESSING OFFICER HAS NOT ACCEPTED THE SUBMISSION OF THE ASSESSEE STATING THAT ASSESSEE HAS FAILED TO PROVE THE NEXUS FROM WHICH IT CAN BE ESTABLISHED THAT T H E INVESTMENT IN SHARES WAS MADE OUT OF INTEREST BEARING FUND. CONSE QUENTLY , THE ASSESSING OFFICER HAS COMPUTED DISALLOWANCE U/S. 14A R.W RULE 8D TO THE AMOUNT OF RS. 54 , 52 , 529/ - AND ADDED TO TH E TOTAL INCOME OF THE ASSESSEE. I.T.A NO. 3 085 /AHD/20 13 A.Y. 2009 - 10 PAGE NO KIRI INDUSTRIES LTD.(FORMERLY KNOWN AS KIRI DYES & CHEMICAL LTD VS. ACIT 3 4. AGGRIEVED ASSESSEE FILED APPEAL BEFORE THE LD. CIT(A) . THE LD. CIT(A) HAS PARTLY ALLOWED THE APPEAL OF T HE ASSSSEE RESTRICTING THE ADDITION TO THE EXTENT OF RS. 14 , 75 , 119/ - . 5. DURING THE COURSE OF APPELLATE PROCEEDINGS BEFORE US, THE LD. COUNSEL HAS FURNISHED PAPER BOOK COMPRISING DETAIL AND COPIES OF DOCUMENT FURNISHED BEFORE TH E ASSESSING O FFICER AND CIT(A) AT THE TIME OF ASSESSMENT AND APPELLATE PROCEEDINGS AND CONTENDED THAT ASSESSEE HAD SUFFICIENT INTEREST FREE FUNDS TO COVER THE INVESTMENT . THE LD. COUNSEL HAS ALSO PLACED RELIANCE ON THE FOLLOWING DECISIONS: - CIT VS. RELIANCE INDUSTRIE S LTD. 410 ITR 466. CIT VS. TORRENT POWER LTD. - 363 ITR 474 (GUJ) CIT VS. SUZLAN ENERGY LTD. - 354 ITR 630 (GUJ) CIT VS. RELIANCE UTILITIES & POWER LTD. 313 ITR 340 (BOM) CIT VS. MUNJAL SALES CORPORATION 298 ITR 298 (SC) ON THE OTHER HAND, THE LD. DEPARTM ENTAL REPRESENTATIVE HAS SUPPORTED THE ORDER OF LD. CIT(A). 5. HEARD BOTH THE SIDES AND PERUSED THE MATERIAL ON RECORD. IT IS NOTICED THAT AS PER BALANCE SHEET OF THE ASSESSEE AS ON 31 ST MARCH, 2009 , THE POSITION OF INTEREST FREE FUND AND INVESTMENT WA S AS UNDER: - PARTICULARS BALANCE AS AT 31.03.09 PAGE NO OF THE P/B A) INTEREST FREE FUNDS: > SHARE CAPITAL > RESERVES & SURPLUS (B) INVESTMENTS: > INVESTMENTS (C) RATIO OF INTEREST FREE FUNDS AND INVESTMENTS [A/B] 15.00 107.96 122.96 16.60 7.4 T IMES 19 I.T.A NO. 3 085 /AHD/20 13 A.Y. 2009 - 10 PAGE NO KIRI INDUSTRIES LTD.(FORMERLY KNOWN AS KIRI DYES & CHEMICAL LTD VS. ACIT 4 IN THE LIGHT OF THE FACT OF THE CASE, WE NOTICE THAT HON BLE MUMBAI HIGH COURT IN THE CASE OF CIT VS. RELIANCE UTILITIES AND PO WER LTD 313 ITR 340 (MUMBAI) HAS HELD THAT WHERE AN ASSESSEE HAS HIS OWN FUNDS AS WELL AS BORROWED FUNDS A PRESUMPTION CAN BE MADE THAT ADVANCES FOR NON - BUSINESS PURPOSES HAVE BEEN MADE OUT OF THE OWN FUNDS AND THAT THE BORROWED FUNDS HAVE NOT BEEN USED FOR THIS PURPOSE AND THE HON BLE SUPREME COURT IN THE CASE OF CIT VS. RELIANCE INDUSTRIES LTD. 410 ITR 466 HA S HELD THAT INTEREST FRE E FUNDS AVAILABLE WITH THE ASSESSEE IS SUFFICIENT TO MEET INVESTMENT AND PRESUMPTION IS THAT INVESTMENT IN SUBSIDIARIES WERE OUT INTEREST FREE FUNDS. AFTER CONSIDERING THE ABOVE FACTS AND JUDICIAL FINDINGS, W E FIND THAT ASSESSEE W AS HAVING SUFFICIENT INTEREST FREE FUND TO COVER THE INVESTMENT MADE IN THE SHARES FROM WHICH IT HAS EARNED INTEREST FREE FUND AND THEREFORE THE DECISION OF LD. CIT(A) IS NOT JUSTIFIED. HOWEVER, AFTER LOOKING TO THE SIZE OF THE INVESTMENT MADE IN THE SHAR ES, WE ARE OF THE VIEW THAT IT CANNOT BE RULED OUT THAT NO ADMINISTRATIVE EXPENDITURE HAS BEEN INCURRED FOR MANAGEMENT AND ADMINISTRATION OF THE INVESTMENT MADE BY THE ASSESSEE , THEREFORE, WE RESTRICT THE DISALLOWANCE TO THE EXTENT OF ADMINISTRATIVE EXPEN DITURE AS REPORTED AT PAGE 18 OF THE CIT(A) TO THE AMOUNT OF RS. 5 , 17 , 605/ - . ACCORDINGLY, THE APPEAL OF THE ASSESSEE IS PARTLY ALLOWED. 6. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS PARTLY ALLOWED. ORDER PR ONOUNCED IN THE OPEN C OURT ON 04 - 12 - 201 9 SD/ - SD/ - ( MAD HUMITA ROY ) ( AMARJIT SINGH ) JUDICIAL MEMBER ACCOUNTANT MEMBER AHMEDABAD : DATED 04 /12 /2019 I.T.A NO. 3 085 /AHD/20 13 A.Y. 2009 - 10 PAGE NO KIRI INDUSTRIES LTD.(FORMERLY KNOWN AS KIRI DYES & CHEMICAL LTD VS. ACIT 5 / COPY OF ORDER FORWARDED TO: - 1. ASSESSEE 2. REVENUE 3. CONCERNED CIT 4. CIT (A) 5. DR, ITAT, AHMEDABAD 6. GUARD FILE. BY ORDER/ , / ,