ITO, New Delhi V. M/s. Milk Food Ltd., New Delhi

ITA 3298/DEL/2013

• Counselvise Citation: [2014] 140 COUNSELVISE.COM (IT) 82183 (ITAT-DELHI)
• Duration Of Justice: 1 year(s) 6 month(s) 15 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 08-12-2014
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: E
• Next Hearing Date: 10-11-2014
• Assessment Year: 2007-2008
• Appeal Filed On: 24-05-2013
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: J P CHANDRAKAR
• Keywords: Earning of tax free income
• Section: 14A; 115JB

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH A NEW DELHI BEFORE SHRI S.V. MEHROTRA : ACCOUNTANT MEMBER AND SHRI A.T. VARKEY : JUDICIAL MEMBER ITA NO. 3298/DEL/2013 A.Y. 2007-O8 INCOME-TAX OFFICER, VS. MILK FOOD LTD., WARD 6(4), NEW DELHI. 5 TH FLOOR, BHANDARI HOUSE, 91, NEHRU PLACE, NEW DELHI. PAN: AAACM 5913 B ( APPELLANT ) ( RESPONDENT ) APPELLANT BY : SHRI J.P. CHANDRAKAR SR. DR RESPONDENT BY : SHRI R.S. SINGHVI CA & SHRI SATYAJEET GOEL CA DATE OF HEARING : 10-11-2014 DATE OF ORDER : 08-12-2014. O R D E R PER S.V. MEHROTRA, A.M:- THIS APPEAL, PREFERRED BY THE DEPARTMENT, IS DIR ECTED AGAINST THE ORDER DATED 22-03-2013, PASSED BY THE CIT(APPEALS) -IX, NEW DELHI IN APPEAL NO. 79/09-10 FOR A.Y. 2007-08. 2. BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE, A PUBLIC LIMITED COMPANY, IN THE RELEVANT ASSESSMENT YEAR, WAS CARRYING ON TH E BUSINESS OF MANUFACTURE AND SALE OF PURE GHEE, SKIMMED MILK POWDER, WHOLE M ILK POWDER ETC., UNDER THE NAME AND STYLE OF MILK FOOD THE COMPANY SUPPL IES SKIMMED MILK 2 ITA 3298/DEL/13 M/S MILK FOOD LTD. POWDER TO MAJOR INSTITUTIONS I.E. NESTLE, SKB, WOCK HART AND MOTHER DAIRY ETC. IT HAD FILED ITS RETURN OF INCOME, DECLARING NIL INCOME. IN REPLY TO AOS QUERY REGARDING DISALLOWANCE U/S 14A, THE ASSE SSEE, INTER ALIA, POINTED OUT THAT SINCE IT HAD NOT RECEIVED ANY DIVIDEND, W HAT-SO-EVER, FROM THE INVESTMENT MADE, SECTION 14A WAS NOT APPLICABLE. TH E AO, AFTER CONSIDERING THE ASSESSEES REPLY DID NOT ACCEPT THE SAME AND CO MPUTED THE DISALLOWANCE U/S 14A READ WITH RULE 8D AT RS. 15,90,440/-. 2.1. THE AO FURTHER MADE A DISALLOWANCE OF RS. 80,4 09/- UNDER THE HEAD INTEREST, FOLLOWING THE ORDER FOR AY 2006-07. 2.2. THE ASSESSEES INCOME WAS COMPUTED U/S 115JB A ND WHILE COMPUTING THE BOOK PROFIT, THE AO HAD MADE THE ADDITION OF R S. 1590440/-, BEING DISALLOWANCE MADE U/S 14A. 2.3. LD. CIT(A) PARTLY ALLOWED THE ASSESSEES APPEA L. BEING AGGRIEVED, DEPARTMENT IS IN APPEAL BEFORE US AND HAS TAKEN FOL LOWING GROUNDS OF APPEAL: 1. WHETHER ON THE FACTS AND CIRCUMSTANCES OF THE C ASE, THE LD. CIT(A) ERRED IN DELETING THE DISALLOWANCE MADE U/S 14A AMOUNTING TO RS. 15,90,440/-; 2. WHETHER ON THE FACTS AND CIRCUMSTANCES OF THE CA SE, THE LD. CIT(A) HAS ERRED IN DELETING THE DISALLOWANCE O F INTEREST EXPENSES AMOUNTING TO RS. 58,486/- BY HOLDING THAT THE ASSESSEE WAS HAVING ADEQUATE INTEREST FREE FUNDS AT ITS DISP OSAL. 3. WHETHER ON THE FACTS AND CIRCUMSTANCES OF THE CA SE, THE LD. CIT(A) HAS ERRED IN DELETING THE DISALLOWANCE O F INTEREST 3 ITA 3298/DEL/13 M/S MILK FOOD LTD. EXPENSES AMOUNTING TO RS. 58,486/- BY RELYING UPON THE JUDGMENT OF HONBLE DELHI HIGH COURT IN BHARTI TELE VENTURES 331 ITR 502 EVEN THE ASSESSEE FAILED TO PROVE ITS C OMMERCIAL EXPEDIENCY AND CIT(A) ALSO HELD THAT THERE WAS NO C OMMERCIAL EXPEDIENCY. 4. WHETHER ON THE FACTS AND CIRCUMSTANCES OF THE CA SE, THE LD. CIT(A) ERRED IN NOT CONSIDERING THE DECISION IN THE CASE OF CIT VS. ABHISHEK INDUSTRIES LTD. 286 ITR 1, IN WHIC H THE HONBLE PUNJAB AND HARYANA HIGH COURT HAS HELD THAT THE ONUS OF ESTABLISHING THE NEXUS BETWEEN THE INTEREST FREE FUNDS AND ADVANCES IS ON THE ASSESSEE AND RECEIPTS FROM A LL SOURCES GO IN COMMON KITTY? 5. WHETHER ON THE FACTS AND CIRCUMSTANCES OF THE CA SE, THE LD. CIT(A) ERRED IN HOLDING THAT THE PROPOSITION LA ID DOWN BY THE HONBLE SUPREME COURT IN THE CASE OF APOLLO TYR ES LTD. DOES NOT ALLOW THE AO TO CALCULATE TAX U/S 115JB BY MAKING ADDITIONS IN THE BOOK PROFIT, COMPLETELY IGNORING T HE PROVISION CLAUSE (F) OF EXPLANATION 1 OF SECTION 115JB WHICH CLEARLY STATES THAT BOOK PROFIT WILL BE INCREASED BY AMOUNT OF EXPENDITURE RELATABLE TO ANY EXEMPT INCOME. 6. THAT THE ORDER OF THE LD. CIT(A) IS ERRONEOUS AN D IS NOT TENABLE ON FACTS AND IN LAW. 7. THAT THE GROUNDS OF APPEAL ARE WITHOUT PREJUDICE TO EACH OTHER. 7. THAT THE APPELLANT CRAVES LEAVE TO ADD, ALTER, A MEND OR FORGO ANY GROUND(S) OF THE APPEAL RAISED ABOVE AT T HE TIME OF THE HEARING. 4. APROPOS GROUND NO.1, LD. CIT(A) DELETED THE ADDI TION, INTER ALIA, OBSERVING THAT SINCE IN VIEW OF THE DECISION OF HON BLE BOMBAY HIGH COURT IN THE CASE OF GODREJ AND BOYCE MANUFACTURING LTD. VS. DCIT 328 ITR 81 4 ITA 3298/DEL/13 M/S MILK FOOD LTD. (BOM.), RULE 8D WAS NOT APPLICABLE, THEREFORE, THE DISALLOWANCE MADE BY AO U/S 14A READ WITH RULE 8D COULD NOT BE UPHELD. 5. LD. COUNSEL FOR THE ASSESSEE SUBMITTED THAT ASSE SSEE HAD NOT EARNED ANY EXEMPT INCOME DURING THE YEAR. THEREFORE, IN AN Y VIEW OF THE MATTER, NO DISALLOWANCE COULD BE MADE U/S 14A. IN THIS REGARD, LD. COUNSEL HAS RELIED ON FOLLOWING DECISIONS: - HONBLE DELHI HIGH COURTS DECISION DATED 5-9-2014 (ITA NOS. 486/2014 & ITA NO. 299/2014) IN THE CASE OF CIT VS. HOLCIM INDIA P. LTD. - HONBLE PUNJAB & HARYANA HIGH COURTS DECISION IN C IT VS. M/S LAKHANI MARKETING INCL. (ITA NO. 970/2008 DECIDED O N 2-4-2014) - HONBLE PUNJAB & HARYANA HIGH COURTS DECISION IN C IT VS. HERO CYCLES LTD. 323 ITR 518; AND - HONBLE PUNJAB & HARYANA HIGH COURTS DECISION IN C IT VS. WINSOME TEXTILE INDUSTRIES LTD 319 ITR 204. 6. WE HAVE HEARD RIVAL CONTENTIONS AND PERUSED THE MATERIAL AVAILABLE ON RECORD. IN VIEW OF THE AFOREMENTIONED DECISIONS, RE LIED UPON BY THE ASSESSEE, WHEREIN A CONSISTENT VIEW HAS BEEN TAKEN THAT WHERE NO EXEMPT INCOME IS EARNED, THERE COULD NOT BE ANY DISALLOWANCE U/S 14A , WE FIND NO MERIT IN THE GROUND TAKEN BY THE REVENUE. ACCORDINGLY, GROUND NO . 1 IS DISMISSED. 7. GROUND NOS. 2,3 & 4: THE AO FOLLOWING THE ORDER FOR A.Y. 2006/07, DISALLOWED A SUM OF RS. 80,406/-, OUT OF INTEREST C LAIMED U/S 36(1)(III). LD. CIT(A) HAS RESTORED THE MATTER TO THE FILE OF AO, O BSERVING AS UNDER: 5 ITA 3298/DEL/13 M/S MILK FOOD LTD. 6.1. GROUNDS OF APPEAL NO. 3 & 4 RELATE TO THE SAM E ISSUE OF DISALLOWANCE OF INTEREST OF RS. 80,406/- UNDER SECT ION 36(1)(III) OF THE INCOME TAX. THIS ISSUE HAS BEEN DISCUSSED AT LENGTH IN MY APPELLATE ORDER IN THE CASE OF THE SAME ASSESSEE IN AY 2005- 06 AND 2006-07. THE APPLICABILITY OF THE HONBLE SU PREME COURT DECISION IN THE CASE OF SA BUILDERS HAS ALSO BEEN DEALT THEREIN. THEREIN, IT HAS BEEN ESTABLISHED THAT THE APPELLANT HAS FORWARDED INTEREST FREE ADVANCES TO ITS SUBSIDIARY CONCERN (M/S TRIPLEFAST INVESTMENTS PVT. LTD.) FROM ITS OVERDRAF T ACCOUNT HELD WITH STATE BANK OF PATIALA. THESE BALANCES ARE STIL L OUTSTANDING IN THIS ASSESSMENT YEAR. NO NEW BALANCES HAVE BEEN GIVEN TO THIS CONCERN FROM BORROWED FUNDS IN THIS YEAR. THIS YEAR HOWEVER, IT HAS GIVEN INTEREST FREE LOAN OF RS. 2,0 8,750/- TO ITS SISTER CONCERN ISPACE DEVELOPERS. THE AO IS DIRECTE D TO FOLLOW MY OWN ORDERS AS GIVEN IN THE CASE OF THE AP PELLANT IN AY 2005-06 AND 2006-07 AND DISALLOW INTEREST ON THE INTEREST BEARING FUNDS THAT WERE FORWARDED TO M/S FRIPLEFAST INVESTMENTS PVT. LTD. IN THE PAST YEARS AND ARE STI LL OUTSTANDING IN THIS A.Y. AS THE APPELLANT IS PAYING INTEREST TO STATE BANK OF PATIALA ON THESE BALANCES. INTEREST DISALLOWANCE ON RS. 2,08,750/- GIVEN TO ITS SISTER CONCERN I.E. IPSPACE DEVELOPERS FOR A PERIOD OF 10 DAYS TOO IS TO BE WORKED OUT @ 1 0.5% AS SUCH FUNDS WERE BEARING THIS INTEREST COST. GROUNDS OF APPEAL NOS. 3 & 4 ARE ACCORDINGLY PARTLY ALLOWED. AO IS DI RECTED TO RECALCULATE INTEREST DISALLOWANCE U/S 36(1)(III) OF THE INCOME TAX AS DISCUSSED ABOVE. 7.1. NOTHING HAS BEEN BROUGHT ON RECORD TO CONTROVE RT THE FINDINGS OF LD. CIT(A). WE FIND THAT FINDINGS OF LD. CIT(A) DO NOT SUFFER FROM ANY INFIRMITY AND, THEREFORE, WE CONFIRM HIS ACTION. 8. GROUND NO. 5: WHILE ADJUDICATING GROUND NO. 1, W E HAVE HELD THAT THE PROVISIONS OF SECTION 14A ARE NOT APPLICABLE IN THE PRESENT ASSESSMENT YEAR, 6 ITA 3298/DEL/13 M/S MILK FOOD LTD. THEREFORE, THIS GROUND IS ONLY ACADEMIC IN NATURE A ND STANDS DISMISSED ACCORDINGLY. 9. REST GROUNDS TAKEN BY THE DEPARTMENT ARE GENERAL IN NATURE AND REQUIRE NO ADJUDICATION. 10. IN THE RESULT, DEPARTMENTS APPEAL IS DISMISSED . ORDER PRONOUNCED IN OPEN COURT ON 08-12-2014. SD/- SD/- ( A.T. VARKEY ) ( S.V. MEHROTRA ) JUDICIAL MEMBER ACCOUNTANT MEMBER DATED: 08-12-2014. MP COPY TO : 1. ASSESSEE 2. AO 3. CIT 4. CIT(A) 5. DR