MT EDUCARE LTD, MUMBAI V. ACIT RG 10(3), MUMBAI

ITA 3302/MUM/2012

• Counselvise Citation: [2014] 140 COUNSELVISE.COM (IT) 84064 (ITAT-MUMBAI)
• Duration Of Justice: 2 year(s) 5 month(s) 24 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 05-11-2014
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: B
• Next Hearing Date: 05-11-2014
• Assessment Year: 2009-2010
• Appeal Filed On: 11-05-2012
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: RUDOLPH N DSOUZA
• Keywords: Depreciation; Earning of tax free income; Unabsorbed depreciation
• Section: 14A; 154

Judgement Text

, IN THE INCOME TAX APPELLATE TRIBUNAL B BE NCH, MUMBAI . . , !' , # $ BEFORE SHRI I.P. BANSAL, JUDICIAL MEMBER AND SHRI N.K. BILLAIYA, ACCOUNTANT MEMBER ./I .T.A. NO. 3302/MUM/2012 ( % % % % / ASSESSMENT YEAR : 2009-10 M/S. MT EDUCARE LTD., 220, 2 ND FLOOR, FLYING COLOUR, PANDIT DIN DAYAL UPADHYAY MARG, LBS MARG ROAD, MULUND (W), MUMBAI-400 080 / VS. THE ACIT, RANGE 10(3), MUMBAI & # ./ '( ./ PAN/GIR NO. : AAECM 7770Q ( &) / APPELLANT ) .. ( *+&) / RESPONDENT ) &) , / APPELLANT BY: SHRI PARESH SHAPARIA *+&) - , / RESPONDENT BY: SHRI RUDOLPH N. DSOUZA - ./# / DATE OF HEARING :05.11.2014 01% - ./# / DATE OF PRONOUNCEMENT :05.11.2014 2 / O R D E R PER N.K. BILLAIYA, AM: THIS APPEAL BY THE ASSESSEE IS PREFERRED AGAINST THE ORDER OF THE LD. CIT(A)-22, MUMBAI DT.19.3.2012 PERTAINING TO A. Y.2009-10. 2. THE ASSESSEE HAS RAISED THREE SUBSTANTIVE GROUND S OF APPEAL. GROUND NO. 1 RELATES TO THE DISALLOWANCE OF INTERES T BY CAPITALIZATION TO ITA NO. 3302/M/2012 2 WORK-IN-PROGRESS. GROUND NO. 2 RELATES TO THE ADDI TION U/S. 14A R.W. RULE 8D AND GROUND NO. 3 RELATES TO NON GRANT OF SE T OFF OF LOSS AND UNABSORBED DEPRECIATION OF A.Y. 2007-08. 3. THE ASSESSEE IS ENGAGED IN THE BUSINESS OF CONDU CTING COMMERCIAL TRAINING COACHES, TUTORIAL CLASSES AND CORPORATE T RAINING, DAY CARE CENTRES, PLAY GROUP AND NURSERY UNDER THE NAME LITTLE TIGERS . THE RETURN OF INCOME WAS FILED ON 29.9.2008 DECLARING TOTAL INCOM E AT RS. 2,70,19,370/. THE RETURN WAS SELECTED FOR SCRUTINY ASSESSMENT. D URING THE COURSE OF THE ASSESSMENT PROCEEDINGS, THE ASSESSING OFFICER NOTIC ED THAT THE ASSESSEE HAS INCURRED EXPENDITURE ON ACCOUNT OF CAPITAL WIP OF RS. 2,71,51.705/-. THE AO FURTHER NOTICED THAT THE ASSESSEE HAS PAID I NTEREST ON AVERAGE BORROWED FUNDS OF RS. 2,86,69,524/-. THE AO WAS OF THE OPINION THAT THE ASSESSEE HAS UTILIZED BORROWED FUNDS FOR CAPITAL WI P. THE AO PROCEEDED BY COMPUTING PROPORTIONATE DISALLOWANCE OUT OF TOT AL CLAIM OF INTEREST AMOUNTING TO RS. 30,39,736/- AND COMPUTED THE DISAL LOWANCE AT RS. 2,00,623/-. 3.1. PROCEEDING FURTHER, THE AO NOTICED THAT THE AS SESSEE HAS EARNED DIVIDEND INCOME OF RS. 1,06,56,490/- WHICH WAS CLAI MED EXEMPT. THE ASSESSEE WAS ASKED TO FURNISH THE DETAILS OF EXPENS ES INCURRED IN RELATION TO THE SAID EXEMPT INCOME AND WAS ALSO ASKED TO EXP LAIN WHY DISALLOWANCE U/S. 14A R.W. RULE 8D SHOULD NOT BE MA DE. THE ASSESSEE SUBMITTED A WORKING OF DISALLOWANCE U/S. 14A R.W. R ULE 8D AT RS. 5,32,704/- AND OFFERED THE SAME FOR TAXATION IN THE COMPUTATION OF INCOME. THE ASSESSEE FURTHER CONTENDED THAT THE IN TEREST EARNED BY IT IS IN EXCESS OF INTEREST PAID BY IT. SINCE THE NET INTERE ST IS POSITIVE, NO EXPENDITURE IS CLAIMED IN THE PROFIT AND LOSS ACCOU NT. THE SUBMISSIONS MADE BY THE ASSESSEE DID NOT FIND FAVOUR WITH THE A O WHO PROCEEDED BY ITA NO. 3302/M/2012 3 COMPUTING THE DISALLOWANCE U/S. 14A R.W. RULE 8D. THE DISALLOWANCE WAS COMPUTED AT RS. 11,46,707/-. 4. AGGRIEVED BY THIS, THE ASSESSEE CARRIED THE MATT ER BEFORE THE LD. CIT(A). IN SO FAR AS THE DISALLOWANCE OUT OF INTER EST IS CONCERNED, IT WAS EXPLAINED THAT THE OPENING WIP WAS RS. 1,99,66,296/ - AND THE CLOSING WIP WAS RS. 2,71,51,705/-, HENCE THE NET ADDITION T O CAPITAL WIP DURING THE YEAR WAS AT RS. 71,85,410/- ONLY. IT WAS FURTH ER CONTENDED THAT THE BORROWED LOAN WAS ADVANCED TO BOMBAY RAYON CLOTHING LTD AND THUS THERE IS A DIRECT NEXUS OF INTEREST PAYMENT OF RS. 25,31,507/- AND THE SAME CANNOT BE CONSIDERED FOR CAPITAL WIP. 4.1. AFTER CONSIDERING THE FACTS AND THE SUBMISSION S, THE LD. CIT(A) ACCEPTED THE CLAIM OF THE ASSESSEE THAT ANY DISALLO WANCE SHOULD BE RESTRICTED TO THE CAPITAL WIP FOR THE YEAR UNDER CO NSIDERATION ONLY WHICH IS RS./ 71,85,410/-. THE LD. CIT(A) ACCORDINGLY DI RECTED THE AO TO RECALCULATE THE DISALLOWANCE ON THE NET ADDITION TO CAPITAL WIP DURING THE YEAR. 5. AGGRIEVED BY THIS, THE ASSESSEE IS BEFORE US. 6. THE LD. COUNSEL FOR THE ASSESSEE STRONGLY CONTEN DED THAT IT HAS OWN CAPITAL OF RS. 36.30 CRORES. FURTHER THE BORRO WED CAPITAL WAS UTILIZED FOR GIVING LOANS AND ADVANCES. THE ASSESS EE HAS RECEIVED INTEREST AT RS. 30,63,704/- WHEREAS IT HAS PAID INTEREST AT RS. 25,31,507/-, THEREFORE THERE IS NO REASON FOR THE DISALLOWANCE O F INTEREST TOWARDS CAPITAL WIP. 7. THE LD. DEPARTMENTAL REPRESENTATIVE SUPPORTED TH E FINDINGS OF THE LOWER AUTHORITIES. ITA NO. 3302/M/2012 4 8. WE HAVE CAREFULLY PERUSED THE ORDERS OF THE AUTH ORITIES BELOW. THE UNDISPUTED FACTS ARE THAT THE ASSESSEE IS HAVING OW N FUNDS AT RS. 36.30 CRORES, BORROWED FUNDS ARE ONLY RS. 5 CRORES. FURT HER THE OPENING WIP WAS AT RS. 1,99,66,296/- AND THE CLOSING WIP WAS AT RS. 2,71,51,705/- MAKING THE ADDITION DURING THE YEAR TO CAPITAL WIP AT RS. 71,85,410/-. THE NET PROFIT FOR THE YEAR UNDER CONSIDERATION AS PER PROFIT AND LOSS ACCOUNT IS TRS. 2.72 CRORES. CONSIDERING ALL THESE FACTS IN TOTALITY, IT CAN BE SAFELY CONCLUDED THAT NO PART OF BORROWED FUNDS WAS UTILIZED FOR THE ADDITION TO CAPITAL WIP DURING THE YEAR. IN OUR CO NSIDERED OPINION, THE PROPORTIONATE DISALLOWANCE OF INTEREST IS UNWARRANT ED AND UNCALLED FOR. MODIFYING THE DIRECTION OF THE LD. CIT(A), THE AO I S DIRECTED TO DELETE THE ADDITION OF RS. 2,00,623/-. GROUND NO. 1 IS A LLOWED. 9. IN SO FAR AS DISALLOWANCE U/S. 14A IS CONCERNED, IT IS THE SAY OF THE LD. COUNSEL THAT THE ASSESSEE HAS SUFFICIENT INTERE ST FREE FUNDS AND THE INTEREST BEARING FUNDS HAVE NOT BEEN UTILIZED FOR PURCHASE OF INVESTMENT AND THERE IS NO NEXUS. BORROWED FUNDS HAVE NOT BEE N UTILISED FOR INVESTMENT IN EXEMPT ASSETS, THEREFORE, THE DISALLO WANCE OF RS. 6,14,003/- DESERVES TO BE DELETED. 10 . THE LD. DR SUPPORTED THE ORDERS OF THE AUTHORITIE S BELOW. 11. WE HAVE CAREFULLY PERUSED THE ORDERS OF THE AUT HORITIES BELOW. THE ASSESSEE IS HAVING OWN FUNDS AT RS. 36.30 CRORES WH EREAS THE INVESTMENTS ARE AT RS. 13.86 CRORES. UNDOUBTEDLY, THE OWN FUN DS ARE FAR IN EXCESS OF THE INVESTMENT MADE. THE ASSESSEE HAS SUCCESSFULLY ESTABLISHED THAT BORROWED FUNDS OF RS. 5 CRORES HAVE BEEN ADVANCED T O BOMBAY RAYON CLOTHING LTD., AND THE INTEREST EARNED BY IT IS IN EXCESS OF THE INTEREST PAID ON THE BORROWED FUNDS. DRAWING SUPPORT FROM THE DE CISION OF THE ITA NO. 3302/M/2012 5 HONBLE HIGH COURT IN THE CASE OF CIT VS RELIANCE U TILITIES & POWER LTD., 313 ITR 340, IN OUR CONSIDERED OPINION, THE S UO MOTO DISALLOWANCE OF RS. 5,32,704/- MADE BY THE ASSESSEE SHOULD SUFFI CE. THE AO IS DIRECTED TO DELETE THE ADDITION OF RS. 6,14,003/-. GROUND NO. 2 IS ACCORDINGLY ALLOWED. 12. FOR GROUND NO. 3, THE LD. COUNSEL FOR THE ASSES SEE STATED THAT THE AO HAS NOT ALLOWED SET OFF OF LOSS AND UNABSORBED D EPRECIATION WHILE COMPUTING THE TAXABLE INCOME FOR THE YEAR UNDER CON SIDERATION FOR WHICH AN APPLICATION U/S. 154 WAS FILED. THE LD. COUNSEL STATED THAT THE LD. CIT(A) INSTEAD OF ADJUDICATING THE ISSUE DIRECTED T HE AO TO CONSIDER THE CLAIM OF THE ASSESSEE QUA APPLICATION U/S. 154 OF T HE ACT. WE FIND THAT AT PARA 4.1. THE LD. CIT(A) HAS OBSERVED AS UNDER: THE AO HAS NOT DISCUSSED ANYTHING RELATING TO THIS ISSUE IN THE ASSESSMENT ORDER. HOWEVER, THE APPELLANT HAS F ILED AN APPLICATION U/S. 154 BEFORE AO ON 19.1.2012. THE A O IS DIRECTED TO EXPEDITIOUSLY DISPOSE OFF THIS PETITION . 13. SINCE THE LD. CIT(A) HAS DIRECTED THE AO TO DEC IDE THE ISSUE EXPEDITIOUSLY, WE DO NOT FIND ANY REASON TO INTERFE RE WITH THE DIRECTION OF THE LD. CIT(A). GROUND NO. 3 IS DISMISSED. 14. IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE IS PARTLY ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 5 TH NOVEMBER, 2014 SD/- SD/- (I.P. BANSAL ) (N.K. BILLAIYA) / JUDICIAL MEMBER # / ACCOUNTANT MEMBER MUMBAI; 3 DATED : 05.11.2014 . . ./ RJ , SR. PS ITA NO. 3302/M/2012 6 2 2 2 2 - -- - *. *. *. *. 4%. 4%. 4%. 4%. / COPY OF THE ORDER FORWARDED TO : 1. &) / THE APPELLANT 2. *+&) / THE RESPONDENT. 3. 5 ( ) / THE CIT(A)- 4. 5 / CIT 5. 67 *. , , / DR, ITAT, MUMBAI 6. 78 9 / GUARD FILE. 2 2 2 2 / BY ORDER, +. *. //TRUE COPY// : :: : / ; ; ; ; ' ' ' ' (DY./ASSTT. REGISTRAR) , / ITAT, MUMBAI