M/s. Aakash Agro Industries Ltd., Ahmedabad V. The ACIT.,Circle-1, Ahmedabad

ITA 3247/AHD/2011

• Counselvise Citation: [2013] 120 COUNSELVISE.COM (IT) 0480 (ITAT-AHMEDABAD)
• Duration Of Justice: 1 year(s) 2 month(s) 15 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 08-03-2013
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: B
• Next Hearing Date: 23-01-2013
• Assessment Year: 2008-2009
• Appeal Filed On: 23-12-2011
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: Y P VERMA
• Assessee Lawyers: S N DIVETIA
• Keywords: Earning of tax free income
• Section: 14A

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD B BENCH AHMEDABAD BEFORE SHRI G.C.GUPTA , VICE PRESIDENT AND SHRI T.R. MEENA, ACCOUNTANT MEMBER ITA NO. 3247/AHD/2011 ASSESSMENT YEAR :2008-09 M/S. AAKASH AGRO INDUSTRIES LTD. 603, 6 TH FLOOR, SUPATH APT. NR. VIJAY 4 ROADS, MEMNAGAR, AHMEDABAD V/S . ACIT, CIRCLE-1, AHMEDABAD PAN NO. AA A C A9833C (APPELLANT) .. (RESPONDENT) BY APPELLANT SHRI S.N. DIVETIA, A.R. /BY RESPONDENT SHRI Y. P. VERMA, SR. D.R. /DATE OF HEARING 23.01.2013 /DATE OF PRONOUNCEMENT 08.03.2013 O R D E R PER : T.R.MEENA, ACCOUNTANT MEMBER THIS IS AN APPEAL AT THE BEHEST OF THE ASSESSEE WHI CH HAS EMANATED FROM THE ORDER OF CIT(A)-6, AHMEDABAD, DATED 20.10. 2011 FOR ASSESSMENT YEAR 2008-09. THE SOLE GROUND OF APPEAL IS AGAINST NOT ALLOWING EXPENDITURE OF RS.3,68,933/- U/S. 14A R.W. RULE 8D. 2. THE ASSESSEE IS ENGAGED IN THE BUSINESS OF MANUF ACTURING AND TRADING OF EDIBLE OIL. THE ASSESSEE HAD MADE INVESTMENT IN MUTUAL FUNDS AND SHARES OF VARIOUS COMPANIES TO THE TUNE OF RS. 1,17,28,250 /- AS ON 31.03.2007. THE ASSESSEE HAD NOT INCURRED ANY EXPENSES ON DIVIDEND INCOME U/S.14A OF THE IT ACT R.W. RULE 8D. THE APPELLANT CONTENDED BEFORE T HE A.O. AT THE TIME OF ITA NO. 3247/AHD/2011 A.Y. 08-09 PAGE 2 ASSESSMENT THAT INVESTMENT WAS PERTAINED TO EARLI ER YEAR OUT OF INTEREST FREE FUND BUT A.O. DID NOT SATISFY WITH THE REPLY OF THE APPELLANT. HE FURTHER HELD THAT THE ASSESSEE MUST HAVE INCURRED ADMINISTRATIVE EXPENSES SUCH AS DOCUMENTATION, SALARIES OF EMPLOYEES, HANDLING THE INVESTMENT PORT FOLIO, ADMINISTRATIVE OVER HEADS LIKE STATIONERY, TELEPHON E, COMPUTER, OFFICE EQUIPMENTS, VEHICLES ETC. EVERY YEAR, A PART OF WHI CH CAN BE ATTRIBUTED TO THE INVESTMENT PORT FOLIO. HE FURTHER PLACED RELIANCE UPON FOLLOWING CASES: (1) RAJASTHAN STATE WAREHOUSING CORP. LTD. V/S. CIT (242 ITR 450) (RAJ.) (2) MARUTI UDYOG LTD. VS. DEP. COMM. (DELHI) 92 TTJ 987 (3) WIPRO INFORMATION TECHNOLOGY VS. DEP. CIT (BANG ) 88 TTJ 378 (4) DEP. COMM. OF I. TAX VS. SHREE SYNTHETICS LTD. (INDORE) 88 TTJ 717. (5) HARISH K. BHATT VS. ITO 85 TTJ 872. HE FURTHER RELIED IN CASE OF ITO VS. M/S. DAGA CAPITAL MANAGEMENT PVT. LTD. VIDE ITA NO.8057/MUM/03 FOR A.Y. 2001-02, WHEREIN IT WAS HELD THAT IN RELATION TO INCOME WHICH DOES NOT FORM PART OF TOTA L INCOME AND IN ORDER FOR THE EXPENDITURE TO BE DISALLOWED, ACTUAL INCOME NEED NO T BE EARNED. THIS VIEW HAS BEEN CONFIRMED IN THE CASE OF CHEMINVEST LTD. ITO (ITAT, DELHI (SB)) IN ITA NO. 87/DEL/2008. AFTER DETAILED ANALYSIS, THE A.O. MADE DISALLOWANCE U/S. 14A R.W. RULE 8D AT RS. 3,68,933/-. 3. BEING AGGRIEVED BY THE ORDER OF THE A.O., THE AS SESSEE CARRIED THE MATTER BEFORE THE CIT(A), WHO HAD CONFIRMED THE ADD ITION. THE OPERATIVE PORTION OF THE ORDER IS AS UNDER: 2.3 I HAVE CONSIDERED THE FACTS OF THE CASE; ASSES SMENT ORDER AND APPELLANTS SUBMISSION. ASSESSING OFFICER MADE DIS ALLOWANCE OF EXPENSE RELATING TO EXEMPT INCOME. SUCH DISALLOWAN CE WAS ITA NO. 3247/AHD/2011 A.Y. 08-09 PAGE 3 CONSIDERED NECESSARY SINCE APPELLANT DID NOT DISALL OW ANY PART OF INTEREST AND OTHER EXPENSES TREATING THE SAME AS RE LATING TO INVESTMENT RESULTING IN EXEMPT INCOME. NOW RULE 8D IS HELD TO BE APPLICABLE WITH EFFECT FROM ASSESSMENT YEAR 2008-09 BY BOMBAY HIGH COURT THE DISALLOWANCE OF EXPENSES RELATING TO EXEMPT INCOME ARE TO BE MADE BY THE METHOD PRESCRIBED IN THE SAID RULE. IT IS NOT IN DISPUTE THAT APPELLANT EARNED EXEMPT INCOME IN THE FORM OF DIVIDEND ON INVESTMENT OF MORE THAN RS.117 LACS. APPELLANT PAID INTEREST OF RS.23.34 LACS ON BORROWED FUNDS USED FOR BUSINESS P URPOSES AS WELL AS MAKING INVESTMENTS. APPELLANT INCURRED SUBSTANT IAL EMPLOYEES REMUNERATION AND OTHER ADMINISTRATIVE EXPENSES, PAR T OF WHICH MAY RELATE TO INVESTMENT RESULTING IN EXEMPT INCOME. S IMILARLY PAYMENT OF INTEREST WILL ALSO PARTLY RELATE TO INVESTMENT R ESULTING IN EXEMPT INCOME THEREFORE DISALLOWANCE UNDER SECTION 14 A ON ACCOUNT OF INTEREST AND OTHER EXPENSES ARE NECESSARY. COMING TO THE METHOD OF COMPUTATION OF DISALLOWANC E UNDER SECTION 14 A, ASSESSING OFFICER DISALLOWED EXPENSES RELATABLE TO EXEMPT INCOME AS PER RULE 8D WHICH IS MANDATORY FRO M ASSESSMENT YEAR 2008-09. FOR INTEREST, PROPORTIONATE EXPENSE IS DISALLOWABLE WHEREAS FOR OTHER EXPENSES .5% OF INVESTMENT VALUE IS DISALLOWABLE. CONSIDERING THE FACT THOSE APPELLANT CLAIMED HUGE A DMINISTRATIVE AND OTHER EXPENSES, THE DISALLOWANCE OF ADMINISTRAT IVE EXPENSES MADE BY THE ASSESSING OFFICER @ .5% OF INVESTMENT R ESULTING IN EXEMPT INCOME IS REASONABLE. FROM THE SIZE OF THE BALANCE SHEET AND APPLICATION OF FUNDS, IT IS CLEAR THAT PART OF EXPENSES IS RELATABLE TO INVESTMENT RESULTING IN EXEMPT INCOME. THE FORM ULA GIVEN IN RULE 8D IS ADOPTED FOR MAKING DISALLOWANCE. IN VIEW OF THIS THE ADDITION @ .5% OF INVESTMENT RESULTING IN EXEMPT INCOME MADE BY THE ASSESSING OFFICER IS CONFIRMED. AS REGARDS INTEREST, APPELLANT HAD BORROWED FUNDS ON WHICH INTEREST WAS PAID. WHILE MAKING INVESTMENTS, BOTH BORROWED FUNDS ITA NO. 3247/AHD/2011 A.Y. 08-09 PAGE 4 AS WELL AS OWN FUNDS WERE USED HENCE ONE CANNOT SAY THAT BORROWED FUNDS WERE USED ONLY FOR BUSINESS PURPOSE AND OWNED CAPITAL WAS ONLY USED FOR INVESTMENT. ADMITTEDLY N O SEPARATE ACCOUNTS ARE MAINTAINED FOR BUSINESS AND INVESTMENT ACTIVITIES THEREFORE APPELLANTS CLAIM IS NOT JUSTIFIED THAT B ORROWED FUNDS WERE NOT USED IN MAKING INVESTMENT. THEREFORE IN THE AB SENCE OF CLEAR CUT DETAILS OF UTILIZATION OF FUNDS, THE FORMULA GI VEN IN RULE 8D WHICH IS MANDATORY FROM THIS YEAR ONWARD. SINCE ASSESSIN G OFFICER WORKED OUT INTEREST DISALLOWANCE ON THE SAME BASIS, THE IN TEREST DISALLOWANCE IS CONFIRMED. 4. NOW THE ASSESSEE IS BEFORE US. LD. COUNSEL FOR THE APPELLANT CONTENDED THAT THERE IS NO EXEMPTED INCOME. THE IN VESTMENT IN SHARES WAS MADE IN A.Y. 1996-97 FOR WHICH HE HAD FILED PAPER B OOK. PAGE NO.4 IS A BALANCE SHEET FOR A.Y. 96-97 AND IT WAS ARGUED THAT AS PER SCHEDULE B INVESTMENT IN SHARES WAS RS. 1.74 CRORE, OUT OF SHA RE CAPITAL OF RS.4.09 CRORE IN A.Y. 96-97. THE PARTIAL INVESTMENT CARRY FORWAR DED AND HAD BEEN SHOWN INVESTMENT IN SHARES IN YEAR UNDER CONSIDERATION AT RS.1.17 CRORE. THE INVESTMENT HAD BEEN REDUCED TO SOME EXTENT BUT WHAT EVER BALANCE IN INVESTMENT IN SHARE WAS COMING FROM A.Y. 96-97. HE FURTHER ARGUED THAT THE ASSESSEE COMPANY ALSO HAVE RESERVE AND SURPLUS AT R S. 2.51 CRORE. THEREFORE, NO ADDITION CAN BE MADE U/S. 14A R.W. RU LE 8D. AT THE OUTSET, LD. SR. D.R. RELIED UPON THE ORDER OF CIT(A) AND REQUES TED TO CONFIRM THE ADDITION. 5. WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE MATERIAL ON RECORD. THE INVESTMENT MADE BY THE APPELLANT FROM A.Y. 96-97, DURING THE YEAR, NO INVESTIGATION FROM THE BORROWED FUND HAD B EEN MADE BY THE ITA NO. 3247/AHD/2011 A.Y. 08-09 PAGE 5 APPELLANT. IT IS ALSO FOUND THAT OTHER INCOME DOES NOT INCLUDE DIVIDEND INCOME DURING THE YEAR UNDER CONSIDERATION. THE LD. A.O. HAD NOT ESTABLISHED ANY RELATION WITH INTEREST BEARING FUND AND UTILIZED FO R NON-TAXABLE INCOME EARNING. THE RULE 8D IS EFFECTIVE FORM A.Y. 08-09 BUT BEFORE APPLYING THE RULE 8D, OTHER CONDITION OF SECTION 14A IS TO BE FULFILLED F OR DISALLOWANCE UNDER RULE 8D. THUS, WE ALLOW THE ASSESSEES APPEAL. 6. IN THE RESULT, THE ASSESSEES APPEAL IS ALLOWED. THIS ORDER PRONOUNCED IN OPEN COURT ON 08.03.2013 SD/- SD/- (G.C.GUPTA) (T.R. MEENA) VICE PRESIDENT ACCOUNTANT MEMBER TRUE COPY S.K.SINHA ! ! ! ! '! '! '! '! / COPY OF ORDER FORWARDED TO:- 1. / APPELLANT 2. / RESPONDENT 3. '(' ) * / CONCERNED CIT 4. *- / CIT (A) 5. !./ ), ) , 12( / DR, ITAT, AHMEDABAD 6. /45 67 / GUARD FILE. BY ORDER/ , 8/ 1 ': ) , 12( ;