ALKYL AMINES CHEMICALS LTD, NAVI MUMBAI V. ASST CIT 15(1)(2), MUMBAI

ITA 3369/MUM/2017

• Counselvise Citation: [2018] 122 COUNSELVISE.COM (IT) 4288 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 5 month(s) 2 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 10-10-2018
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: A
• Assessment Year: 2012-2013
• Appeal Filed On: 08-05-2017
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Earning of tax free income
• Section: 142(1); 234B; 14A

Judgement Text

1 ITA 3369/MUM/2017 IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH A, MUMBAI BEFORE SHRI JOGINDER SINGH(JUDICIAL MEMBER) AND SHRI G MANJUNATHA (ACCOUNTANT MEMBER) I.T.A NO.3369/MUM/2017 (ASSESSMENT YEAR: 2012-13) ALKYL AMINES CHEMICALS LTD 401-402, NIRMAN VYAPAR KENDRA, PLOT NO.10, SECTION 17, VASHI, NAVI MUMBAI- 400 703 PAN : AAACA6786F VS THE ACIT, 15(1)(2), MUMBAI APPELLANT RESPONDENT APPELLANT BY MS. MOKSHA MEHTA RESPONDENT BY SHRI NITIN WAGHMODE DATE OF HEARING 04 -10-2018 DATE OF PRONOUNCEMENT 10 -10-2018 O R D E R PER G MANJUNATHA, AM : THIS APPEAL FILED BY THE ASSESSEE IS DIRECTED AGA INST ORDER OF THE CIT(A)-24, MUMBAI DATED 19-01-2017 AND IT PERTAINS TO AY 2012-13. THE ASSESSEE HAS RAISED THE FOLLOWING GROUNDS OF AP PEAL:- 1.1 ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) - 24, MUMBAI [ 'THE CIT(A)'] ERRED IN CONFIRMING THE ACTION OF THE ASSISTANT COMMISSIONER OF INCOME TAX - 15(1)(2), MUMBAI ['THE AO'] IN DISALLOWING THE AMOUNT OF RS. 47,69,0007- U/S. 14A OF THE INCOME TAX ACT, 196IC'THE ACT') READ WITH RULE 8D O F THE INCOME TAX RULES ['THE RULES'] WITHOUT RECORDING AN OBJECTIVE SATISFACTION ON THE INCORRECTNESS OF THE SUO- MOTU DISALLOWANCE MADE BY THE APPELLANT. 1.2 THE LEARNED CIT(A) ERRED IN CONFIRMING THE A CTION OF THE AO IN DISALLOWING THE EXPENSES U/S. 14A(2) R.W.R. 8D WITHOUT APPRECIATING THE FACT THAT NO DEFICIENCY WAS SHOWN IN THE BOOKS OF ACCOUNTS OF THE APPELLANT AND AS SUCH THE GENUINENESS OF THE CLAIM MADE BY THE APPELLANT COULD NOT BE DOUBTED. 2 ITA 3369/MUM/2017 1.3 THE APPELLANT PRAYS THAT THE DISALLOWANCE TO BE RESTRICTED TO RS. 1,13,011/- WITHOUT PREJUDICE TO THE ABOVE, 2.1 ON THE FACTS AND CIRCUMSTANCES OF THE CASE A ND IN LAW, THE LEARNED CIT(A) ERRED IN CONFIRMING DISALLOWANCE OF INTEREST EXPENSES U/R . 8D(2)(II) OF THE RULES BY HOLDING THAT NO INTEREST FREE FUND WAS AVAILABLE WITH THE A PPELLANT TO MAKE INVESTMENT. 2.2 THE LEARNED CIT(A) ERRED IN NOT FOLLOWING TH E DECISION OF THE APPELLANT'S OWN CASE FOR A.Y. 2008-09 (ITA NO. 3694/MUM/201 1) AND A.Y. 2009-10 (ITA NO. ) IN WHICH IT WAS HELD THAT APPELLANT HAD SUFFICIENT OWN FUNDS AND DELETED INTEREST DISALLOWANCE MADE U/R. 8D (2)(II) OF THE RULES. WITHOUT PREJUDICE TO THE 1.1 TO 1.3 3.1 ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE LEARNED CIT(A) ALSO ERRED IN CONFIRMING THE ACTION OF THE AO ADOPTING T HE AMOUNTS FROM THE CONSOLIDATED FINANCIAL STATEMENTS OF THE APPELLANT COMPANY WHILE WORKING OUT THE AVERAGE INVESTMENT U/S 14AOFTHEACT. 3.2 THE APPELLANT PRAYS THAT THE AO BE DIRECTED TO ADOPT FIGURES FROM STAND-ALONE FINANCIALS OF THE APPELLANT AND RE-COMPUTE THE DISA LLOWANCE U/S. 14A OF THE ACT. 4.1 ON THE FACTS AND CIRCUMSTANCES OF THE CAS E AND IN LAW, THE LEARNED CIT(A) ERRED IN CONFIRMING THE ACTION OF THE AO IN NOT EXC LUDING THOSE INVESTMENTS FROM WHICH NO INCOME WAS EARNED DURING THE YEAR WHILE CA LCULATING THE 'AVERAGE VALUE OF INVESTMENTS' FOR THE PURPOSE OF MAKING DISALLOWANCE U/R. 8D(2)(III) OF THE RULES. 4.2 THE LEARNED CIT(A) ERRED IN CONFIRMING THE A CTION OF THE AO IN NOT EXCLUDING THE INVESTMENTS MADE IN GROUP COMPANIES WHICH ARE S TRATEGIC IN NATURE WHILE CALCULATING DISALLOWANCE OF DISALLOWANCE U/R. 8D(2) (III) OF THE RULES.. 4.3 THE APPELLANT PRAYS THAT THE AO BE DIRECTED TO EXCLUDE SUCH INVESTMENTS WHILE COMPUTING THE DISALLOWANCE U/R. 8D(2)(III) OF THE R ULES. 5.1 THE LEARNED CIT(A) ERRED IN CONFIRMING ACTI ON OF A.O. IN LEVYING INTEREST U/S. 234B AND234COFTHEACT. 2. THE BRIEF FACTS OF THE CASE ARE THAT THE ASSESSE E COMPANY IS ENGAGED IN THE BUSINESS OF MANUFACTURE OF AMINES AN D AMINE DERIVATIVES, FILED ITS RETURN OF INCOME FOR AY 2012 -13 ON 25-09-2012 DECLARING TOTAL INCOME OF RS.17,47,33,060. THE CAS E HAS BEEN SELECTED FOR SCRUTINY AND NOTICES U/S 143(2) AND 142(1) OF T HE ACT WERE ISSUED. IN RESPONSE TO NOTICES, THE AUTHORIZED REPRESENTATIVE OF THE ASSESSEE APPEARED FROM TIME TO TIME AND FILED VARIOUS DETAIL S, AS CALLED FOR. DURING THE COURSE OF ASSESSMENT PROCEEDINGS, THE AO NOTICED THAT THE ASSESSEE HAS RECEIVED DIVIDEND INCOME OF RS.89,34,0 17 WHICH HAS 3 ITA 3369/MUM/2017 BEEN CLAIMED EXEMPT U/S 10(34) OF THE INCOME-TAX AC T, 1961. THE AO FURTHER NOTICED THAT THE ASSESSEE HAS MADE SUO MOTO DISALLOWANCE OF RS.1,13,011 @0.5% OF THE AVERAGE VALUE OF INVESTMEN TS. IN ORDER TO ASCERTAIN THE CORRECTNESS OF CLAIM MADE BY THE ASSE SSEE TOWARDS DISALLOWANCE OF EXPENDITURE U/S 14A, THE AO CALLED UPON THE ASSESSEE TO FILE NECESSARY DETAILS. IN RESPONSE, THE ASSESS EE HAS STATED THAT IT HAS NOT INCURRED ANY EXPENSES IN RELATION TO EXEMPT INCOME AND HENCE, NO DISALLOWANCE U/S 14A IS CALLED FOR. THE AO, AFT ER CONSIDERING RELEVANT SUBMISSIONS OF THE ASSESSEE AND ALSO BY RELYING UPO N VARIOUS JUDICIAL PRECEDENTS, INVOKED PROVISIONS OF RULE 8D TO DETERM INE DISALLOWANCE CONTEMPLATED U/S 14A OF THE ACT AND ACCORDINGLY DET ERMINED TOTAL DISALLOWANCE OF RS.47,69,000. 3. AGGRIEVED BY THE ASSESSMENT ORDER, ASSESSEE PREF ERRED APPEAL BEFORE THE CIT(A). BEFORE THE CIT(A), ASSESSEE HAS FILED ELABORATE WRITTEN SUBMISSIONS WHICH HAVE BEEN REPRODUCED AT P ARA 2.3.1. TO 2.3.2 ON PAGES 6 TO 15 OF ORDER OF CIT(A). THE SUM AND S UBSTANCE OF ARGUMENTS OF THE ASSESSEE BEFORE THE LD. CIT(A) ARE THAT NO FURTHER DISALLOWANCE IS CALLED FOR OVER AND ABOVE SUO MOTO DISALLOWANCE MADE BY THE ASSESSEE TOWARDS EXPENSES IN RELATION TO EXE MPT INCOME, EITHER ON ACCOUNT OF INTEREST OR OTHER EXPENSES AS ITS INV ESTMENTS IN SHARES ARE FULLY COVERED OUT OF INTEREST FREE FUNDS BEING SHAR E, CAPITAL & RESERVES 4 ITA 3369/MUM/2017 AND ALSO THE SUO MOTO DISALLOWANCE MADE BY THE ASSE SSEE BEING 0.5% OF AVERAGE VALUE OF INVESTMENTS IS IN ACCORDANCE WI TH THE PRESCRIBED METHOD PROVIDED FOR DETERMINATION OF DISALLOWANCE. 4. THE LD.CIT(A), AFTER CONSIDERING SUBMISSIONS OF THE ASSESSEE AND ALSO ON ANALYSIS OF PROVISIONS OF SECTION 14A R.W.R . 8D HELD THAT ALTHOUGH THE ASSESSEE CLAIMS TO HAVE MADE INVESTMENTS OUT OF ITS OWN FUNDS, THE FACT REMAINS THAT MAJOR INVESTMENTS HAVE BEEN MADE IN FINANCIAL YEARS 2000-01 AND 2001-02 WHERE THE ASSESSEES OWN FUNDS IS NEGATIVE, THEREFORE, THE CONTENTION OF THE ASSESSEE THAT ITS INVESTMENTS ARE FULLY COVERED OUT OF ITS OWN FUNDS, IS DEVOID OF MERIT. THE LD.CIT(A) FURTHER HELD THAT THE PROVISIONS OF SECTION 14A R.W.R. 8D(2 ) ARE CLEARLY APPLICABLE IN ASSESSEES CASE IN VIEW OF THE DECISION OF HONB LE BOMBAY HIGH COURT IN THE CASE OF GODREJ & BOYCE MFG CO LTD 328 ITR 81 (BOM), THEREFORE, HE OPINED THAT THERE IS NO INFIRMITY IN THE FINDINGS OF THE AO AND COMPUTATION OF DISALLOWANCE U/S 14A OF THE INCO ME-TAX ACT, 1961. ACCORDINGLY, HE DISMISSED APPEAL FILED BY THE ASSES SEE. AGGRIEVED BY THE ORDER OF CIT(A), ASSESEE IS IN APPEAL BEFORE US . 5. THE LD.AR FOR THE ASSESSEE, AT THE TIME OF HEARI NG, SUBMITTED THAT THE ISSUE IS SQUARELY COVERED IN FAVOUR OF THE ASSE SSEE BY THE DECISION OF ITAT, MUMBAI BENCH A IN ASSESSEES OWN CASE F OR AY 2009-10, WHERE UNDER SIMILAR SET OF FACTS, THE ITAT HAS DIRE CTED THE AO TO RESTRICT 5 ITA 3369/MUM/2017 THE DISALLOWANCE CONTEMPLATED U/S 14A TO THE EXTENT OF SUO MOTO DISALLOWANCE MADE BY THE ASSESSEE. THE LD.AR FURTH ER SUBMITTED THAT FACTS ARE IDENTICAL AND THE INVESTMENTS ON WHICH TH E AO HAS DETERMINED DISALLOWANCE ARE SIMILAR AND THERE IS NO CHANGE IN INVESTMENTS DURING THE YEAR UNDER CONSIDERATION AND ACCORDINGLY, A SIM ILAR DIRECTION MAY BE GIVEN FOR THIS YEAR ALSO. 5. THE LD.DR, ON THE OTHER HAND, STRONGLY SUPPORTIN G THE ORDER OF THE CIT(A) SUBMITTED THAT THE LD.CIT(A) HAS NEGATED THE ARGUMENTS OF THE ASSESSEES THEORY OF OWN FUNDS BY ANALYZING THE FAC TS AND FIGURES OF OWN FUNDS AND INVESTMENTS WHICH CLEARLY ESTABLISHED THAT THE ASSESSEE HAD NO SURPLUS FUNDS IN THE YEAR IN WHICH THE INVES TMENTS IN SHARES WERE MADE, THEREFORE, THE AO HAS RIGHTLY DISALLOWED INTE REST EXPENSE U/R 8D(2)(II). INSOFAR AS DISALLOWANCE OF ADMINISTRATI VE AND OTHER EXPENSES U/R 8D(2)(II), ALTHOUGH THE ASSESSEE CLAIMS TO HAVE MADE SUO MOTO DISALLOWANCE OF RS.1,13,011 WHICH IS EQUIVALENT TO 0.5% OF AVERAGE VALUE OF INVESTMENTS, BUT THE DISALLOWANCE COMPUTED BY THE AO BY APPLYING THE PRESCRIBED METHOD PROVIDED U/R 8D(2)(I II) SHOWED , THERE IS A DIFFERENCE BETWEEN AMOUNT QUANTIFIED BY THE AO AN D THE AMOUNT QUANTIFIED BY THE ASSESSEE AND ACCORDINGLY, THE ISS UE MAY BE SENT BACK TO THE FILE OF THE AO FOR VERIFICATION. 6. WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE M ATERIAL AVAILABLE 6 ITA 3369/MUM/2017 ON RECORD. THERE IS NO DISPUTE WITH REGARD TO THE FACT THAT THE ASSESSEE HAS EARNED EXEMPT INCOME BEING DIVIDEND FROM SHARES WHICH WAS CLAIMED AS EXEMPT U/S 10(34) OF THE INCOME-TAX ACT, 1961. THERE IS ALSO NO DISPUTE IN RESPECT OF APPLICABILITY OF PROVISION S OF SECTION 14A. THE ASSESSEE HAS MADE SUO MOTO DISALLOWANCE OF RS.1,13, 011 U/S 14A. THE ONLY DISPUTE IS WITH REGARD TO QUANTIFICATION O F DISALLOWANCE CONTEMPLATED U/S 14A. INSOFAR AS INTEREST EXPENSES , THE MATTER HAS BEEN EXAMINED BY THE ITAT FOR AY 2009-10 AND HELD T HAT ONCE THE ASSESSEE PROVES THAT IT HAS SUFFICIENT OWN FUNDS TO COVER UP INVESTMENTS IN SHARES, WHICH YIELDED EXEMPT INCOME, THERE CANNO T BE ANY DISALLOWANCE TOWARDS INTEREST U/R 8D(2)(II). THE I TAT, WHILE ARRIVING AT THE CONCLUSION HAS FOLLOWED THE DECISION OF HONBLE BOMBAY HIGH COURT IN THE CASE OF CIT VS HDFC BANK LTD 366 ITR 505 (BO M) WHERE IT WAS CATEGORICALLY HELD THAT WHEN THERE IS MIXED FUNDS I NCLUDING OWN FUNDS AS WELL AS BORROWED FUNDS, A GENERAL PRESUMPTION IS DR AWN IN FAVOUR OF THE ASSESSEE THAT INVESTMENTS IN SHARES AND SECURITIES ARE MADE OUT OF INTEREST FREE FUNDS. THEREFORE, WE ARE OF THE CONS IDERED VIEW THAT THE AO WAS ERRED IN DISALLOWING INTEREST EXPENDITURE U/ R 8D(2)(II) AND ACCORDINGLY WE DIRECT THE AO TO DELETE ADDITION MAD E TOWARDS INTEREST U/R 8D(2)(II) OF I.T. RULES, 1962. 7. COMING BACK TO THE DISALLOWANCE OF OTHER EXPENSE S U/R 8D(2)(III), 7 ITA 3369/MUM/2017 THE ASSESSEE CLAIMS THAT IT HAS MADE SUO MOTO DISAL LOWANCE OF RS.1,13,011 WHICH IS EQUIVALENT TO 0.5% OF AVERAGE VALUE OF INVESTMENTS. THEREFORE, FURTHER DISALLOWANCE IN RE SPECT OF EXPENSES DOES NOT CALL FOR. THE LD.AR FOR THE ASSESSEE REFER RING TO THE FINANCIAL STATEMENTS FILED IN PAPER BOOK SUBMITTED THAT IT HA S CONSIDERED NON CURRENT INVESTMENTS SHOWN IN BALANCE-SHEET FOR THE PURPOSE OF COMPUTATION OF AVERAGE VALUE OF INVESTMENTS AND APP LIED THE FORMULA PRESCRIBED U/R 8D(2)(III) WHICH RESULTED IN DISALLO WANCE OF RS.1,13,011. WE FIND THAT THE ASSESSEE HAS SHOWN NON CURRENT INV ESTMENTS OF RS.2,34,27,000 IN ITS BALANCE-SHEET. THE ASSESEE H AS DETERMINED DISALLOWANCE OF RS.1,13,011 BY APPLYING THE PRESCRI BED METHOD PROVIDED U/R 8D(2)(III) WHEREAS THE AO DETERMINED DISALLOWAN CE OF RS.5,20,000 BEING 0.5% OF AVERAGE VALUE OF INVESTMENTS. THOUGH THE AO HAS ARRIVED AT RS.5,20,000 DISALLOWANCE, BUT NO DETAILS HAS BEEN GIVEN TO PROVE DISALLOWANCE. ALTHOUGH, BOTH PARTIES CLAIMS TO HAVE APPLIED RULE 8D(2)(III), THERE IS A DIFFERENCE BETWEEN DISALLOWA NCE QUANTIFIED BY THE ASSESSEE AND THE AO. THEREFORE, WE ARE OF THE CONS IDERED VIEW THAT THE ISSUE NEEDS TO BE RE-EXAMINED BY THE AO IN THE LIGH T OF DIVERGENT FACTS AND ACCORDINGLY, WE SET ASIDE THE ISSUE TO THE FILE OF THE AO FOR THE LIMITED PURPOSE OF VERIFICATION OF COMPUTATION OF D ISALLOWANCE QUANTIFIED U/R 8D(2)(III). IN CASE, IT IS FOUND THAT THE DISA LLOWANCE COMPUTED BY THE 8 ITA 3369/MUM/2017 ASSESSEE IS IN ACCORDANCE WITH THE PRESCRIBED METHO D, THEN THE AO IS DIRECTED TO RESTRICT THE DISALLOWANCE TO THE EXTENT OF SUO MOTO DISALLOWANCE MADE BY THE ASSESSEE OF RS.1,13,011. 8. IN THE RESULT, APPEAL FILED BY THE ASSESSEE IS A LLOWED, FOR STATISTICAL PURPOSE. ORDER PRONOUNCED IN THE OPEN COURT ON 10 TH OCTOBER, 2018. SD/- SD/- (JOGINDER SINGH) (G MANJUNATHA) JUDICIAL MEMBER ACCOUNTANT MEMBER MUMBAI, DT : 10 TH OCTOBER, 2018 PK/- COPY TO : 1. APPELLANT 2. RESPONDENT 3. CIT(A) 4. CIT 5. DR /TRUE COPY/ BY ORDER SR.PS, ITAT, MUMBAI