DCIT 7(2), MUMBAI V. R.R. KABEL LTD, MUMBAI

ITA 3380/MUM/2013

• Counselvise Citation: 338019914 RSA 2013
• Duration Of Justice: 1 year(s) 3 month(s) 18 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 20-08-2014
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: D
• Assessment Year: 2009-2010
• Appeal Filed On: 02-05-2013
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: RAHUL K HAKANI
• Section: 143(3); 14A

Judgement Text

, MH MHMH MH INCOME TAX APPELLATE TRIBUNAL,MUMBAI - D BENCH. , MK0 ,L VH ,E IKOYU MK0 ,L VH ,E IKOYU MK0 ,L VH ,E IKOYU MK0 ,L VH ,E IKOYU BEFORE S/SH. RAJENDRA,ACCOUNTANT MEMBER & DR. S.T.M . PAVALAN,JUDICIAL MEMBER /. ITA NO.3380/MUM/2013, ! ! ! ! / ASSESSMENT YEAR-2009-2010 DCIT-7(2), ROOM NO. 624, M.K. ROAD, MUMBAI-400020 VS M/S R.R. KABEL LTD. RAM RATNA HOUSE, VICTORIA MILL COMPOUND, PANDURANG BUDHKAR MARG, WORLI, MUMBAI-400013 PAN:AABCR3352C ( '# / APPELLANT) ( $%'# / RESPONDENT) & ' / REVENUE BY : SMT. C. TRIPURA SUND ARI A/W DR. K.SHIVARAM () & ' / ASSESSEE BY : SHRI RAHUL K. HAKANI & && & )* )* )* )* / DATE OF HEARING : 07-08-2014 +,! & )* / DATE OF PRONOUNCEMENT : 20-08-2014 , 1961 1961 1961 1961 & & & & 245 245 245 245( (( (1 11 1) )) ) )6) 7 )6) 7 )6) 7 )6) 7 ORDER U/S.254(1)OF THE INCOME-TAX ACT,1961(ACT) PER RAJENDRA,AM : CHALLENGING THE ORDER DT.27.02.2013 OF THE CIT(A)-1 3,MUMBAI,ASSESSING OFFICER(AO)HAS RAISED FOLLOWING GROUNDS OF APPEAL: (I)THE LEARNED CIT(A) HAS ERRED ON FACTS AND IN LAW IN RESTRICTING THE DISALLOWANCE OF RS.1,68, 621/-OFFERED BY THE ASSESSEE UNDER SECTION 14A R.W, RULE 8D(2)(II) OF THE INCOME-TAX ACT, WITHOUT PROPERLY APPRECIATING THE FACTUAL AND LEGAL MATRIX AS CLEARLY BROUGHT OUT BY THE ASSESSING OFFICER. (II)THE LEARNED CIT(A) HAS ERRED ON FACTS AND IN LA W IN RESTRICTING THE DISALLOWANCE OF RS, 1,68,621/- OFFERED BY THE ASSESSEE UNDER SECTION 14 A R.W. RULE 8D(2)(II) OF THE INCOME-TAX ACT, IGNORING THE FACTS THAT THE ASSESSING OFFICER HAS C ALCULATED DISALLOWANCE UNDER SECTION 14A R.W. RULE 8D OF THE ACT. (III)THE LEARNED CIT (A) HAS ERRED ON FACTS AND IN LAW IN NOT APPRECIATING THE FACT THAT THE HONBLE BOMBAY HIGH IN THE CASE OF GODREJ & BOYCE M FG.CO. LTD. VS DCIT REPORTED IN (2010) 328 ITR 81 (BORN) HAS HELD THAT THE RULE 8D IS APPL ICABLE FROM A.Y. 2008-09 ONWARDS AND THEREFORE THE DISALLOWANCE MADE BY THE ASSESSING OF FICER IS JUSTIFIED. (IV)THE LD.CIT (A) ORDER IS CONTRARY IN LAW AND ON FACTS AND DESERVES TO BE SET ASIDE. (V)THE APPELLANT PRAYS THAT THE ORDER OF CIT(A) ON THE ABOVE GROUNDS BE SET ASIDE AND THAT OF THE AO RESTORED. THE APPELLANT CRAVES LEAVE TO AMEND OR ALTER ANY GROUND OR ADD A NEW GROUND THAT MAY BE NECESSARY. 2. ASSESSEE-COMPANY,ENGAGED IN THE BUSINESS OF MANUFAC TURING OF WIRES AND CABLES,FILED ITS RETURN OF INCOME ON 28.09.2009 DECLARING TOTAL INCOME OF R S.12,19,35,820/-.ASSESSING OFFICER (AO) FINALISED THE ASSESSMENT U/S.143(3) OF THE ACT,ON 2 6.12.2011,DETERMINING THE TOTAL INCOME AT RS. 123,209,612/-. 2 ITA NO.3390/MUM/2013 DEVIDAYAL ROLLING & REFINERIES PVT. LTD. 2.1. EFFECTIVE GROUND OF APPEAL PERTAINS TO DISALLOWANCE MADE U/S.14 A OF THE ACT.DURING THE ASSESSMENT PROCEEDINGS AO FOUND THAT THE ASSESSEE H AD RECEIVED DIVIDEND INCOME OF RS.16.01 LAKHS WHICH WAS CLAIMED EXEMPT U/S.10(35)OF THE ACT ,THAT THE ASSESSEE ITSELF HAD MADE A DISALLOWANCE OF RS.1.68 LAKHS IN COMPUTATION OF INC OME.HE DIRECTED THE ASSESSEE TO FILE WORKING OF DISALLOWANCE U/S.14A.HE HELD THAT THE ASSESSEE H AD NOT DISALLOWANCE AS PER LAW.INVOKING THE PROVISIONS OF RULE 8D OF THE INCOME-TAX RULES,1962( RULES),HE MADE A DISALLOWANCE OF 12.73 LAKHS. 2.2. AGAINST THE ORDER OF THE AO ASSESSEE PREFERRED AN A PPEAL BEFORE THE FIRST APPEAL AUTHORITY (FAA).BEFORE HIM IT WAS ARGUED THAT THE BANK INTERE ST OF RS. 8,1,94,576/ WAS INCURRED ON SECURED LOANS TAKEN FOR THE PURPOSE OF BUSINESS,THAT THE IN TEREST OF RS.1,81,07,045/-WAS INCURRED ON LOANS UTILISED FOR KEEPING FIXED DEPOSIT ON WHICH INTERES T INCOME HAS BEEN EARNED,THAT THE INTEREST OF RS.25,72,288/ WAS INCURRED ON ACCOUNT OF PURCHASES, THAT THE INTEREST EXPENDITURE OF RS.70,57346/ COULD ONLY BE CONSIDERED IN THE WORKING OF RULE 8D( 2)(II). AFTER CONSIDERING THE SUBMISSIONS OF THE ASSESSEE A ND THE ASSESSMENT ORDER HE HELD THAT DURING THE YEAR THE ASSESSEE HAS RECEIVED DIVIDEND OF RS.16,01 ,82/- AND HAD INCURRED INTEREST EXPENDITURE OF RS.10,90,31,255/-,THAT IT WAS HAVING OPENING BALANC E OF INVESTMENT AT RS.9,58,000/-,THAT THE ENTIRE INVESTMENTS WAS IN EQUITY SHARES OF RAM RATAN WIRE LTD.(41.58 LAKHS) AND EQUITY SHARES OF NEW ELECTRICALS (50 LAKHS),THAT THE INVESTMENT WAS IN T HE COMPANY UNDER THE SAME MANAGEMENT,THAT THE ASSESSEES RETURN OF FOR AY 2008-09 WAS SCRUTIN ISED BY THE SAME AO U/S. 143(3) OF THE ACT,THAT THE AO HAD NOT MADE ANY ADDITION TO THE IN COME OF THE ASSESSEE FOR THAT YEAR IN THAT YEAR,THE HE HAD ACCEPTED THAT THE INVESTMENTS OF RS .9.58 LAKHS WERE NOT ATTRIBUTABLE TO INTEREST BEARING FUNDS,THAT THE ONLY QUESTION REMAINED WAS T HAT AS TO WHETHER THE FRESH INVESTMENTS AT RS. 185.69 LAKHS MADE DURING THE YEAR WAS HAVING ANY NE XUS WITH THE INTEREST BEARING LOANS AND CONSEQUENTLY, IF SO, ANY DISALLOWANCE OF INTEREST U NDER RULE 8D(2)(II) WAS REQUIRED.HE FURTHER HELD THAT THE OPENING BALANCE OF SECURED LOANS WAS 73 CRORES AND CLOSING BALANCE WAS RS.63.39 CRORES,THAT .SIMILARLY, THE OPENING BALANCE AND CLO SING BALANCE OF UNSECURED LOANS WAS 35.56 CRORES AND 25.57 CRORES RESPECTIVLELY,THAT SECURED AS WELL AS UNSECURED LOANS HAD DECREASED DURING THE YEAR,THAT IN THE ASSESSMENT ORDER OF AY.2008-09 ,THE OPENING BALANCE OF SECURED LOANS AND UNSECURED LOANS WERE NOT CONSIDERED BY THE AO AS HA VING NEXUS WITH THE INVESTMENT ACTIVITY,THAT THE OPENING BALANCES OF THOSE LOANS WERE CLOSING BA LANCE OF AY 2008-09,THAT THE INTEREST BEARING LOANS WERE UTILISED BY THE ASSESSEE FOR THE PURPOSE OF MAKING FRESH INVESTMENTS OF RS.185.69 LAKHS,THAT THE OPENING BALANCE OF LOANS WAS HELD BY AO AS HAVING NO NEXUS WITH THE INVESTMENTS ACTIVITY AND THERE WERE NO FRESH LOANS TAKEN BY IT, THAT NO INTEREST EXPENDITURE WAS ATTRIBUTABLE INVESTMENTS ACTIVITY AND CONSEQUENTLY TO THE EXEMPT DIVIDEND INCOME,THAT THE PROFITS EARNED DURING THE YEAR WERE MUCH MORE AND SUFFICIENT TO TA KE CARE OF FRESH INVESTMENT,THAT NO INTEREST EXPENDITURE WAS ATTRIBUTABLE TO THE EARNING OF EXEM PT DIVIDEND INCOME,THAT THE DISALLOWANCE OF INDIRECT INTEREST EXPENDITURE AT RS.11,81,579/- MAD E BY THE AO UNDER RULE 8D(2)(II)WAS NOT CORRECT. HE UPHELD THE DISALLOWANCE OF RS.92,213/- MADE BY THE AO U/S14A R.W. RULE 8D (2) (III).FINALLY,THE DISALLOWANCE U/S. 14A OF THE ACT WAS RETAINED AT RS. 1,68,621/- OFFERED BY THE ASSESSEE ITSELF IN THE RETURN OF INCOME. 2.2. BEFORE US,DEPARTMENTAL REPRESENTATIVE(DR)SUPPORTED THE ORDER OF THE AO AND ARGUED THAT THE AO HAD NO OCCASION TO VERIFY THE FACTS MENTIONED BY THE FAA IN HIS ORDER.AUTHORISED REPRESENTATIVE(AR)STATED THAT THE ASSESSEE ITSELF HAD MADE A DISALLOWANCES,THAT THE FAA HAD DISCUSSED THE ISSUE AT LENGTH,THAT HE HAD CONSIDERE D THE FACTS THAT WERE RELEVANT FOR DECIDING THE 3 ITA NO.3390/MUM/2013 DEVIDAYAL ROLLING & REFINERIES PVT. LTD. ISSUE AND HAD TAKEN A DECISION ACCORDINGLY,THAT THE AO DID NOT CONSIDER THE FACTS OF INVESTMENT MADE WITH GROUP CONCERNS. 2.3. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL BEFORE US.WE FIND THAT WHILE MAKING THE DISALLOWANCE U/S.14A R.W.R.8D OF THE RUL ES,THE AO HAS APPLIED THE RULE IN A MECHANICAL MANNER,WHEREAS THE FAA HAS CONSIDERED TH E ISSUE FROM ALL ANGLES.HE HAD TAKEN IN TO CONSIDERATION THE FACTORS LIKE INTEREST PAID FOR BU SINESS ACITIVITIES,OPENING AND CLOSING BALANCES OF INVESTMENTS,DECREASE IN INVESTMENT MADE BY THE ASSE SSEE DURING THE YEAR UNDER CONSIDERATION, INVESTMENT MADE BY THE ASSESSEE IN GROUP CONCERNS,F ACTS OF THE MATTER OF SUBSEQUENT ASSESSMENT YEAR.IN OUR OPINION,THE ORDER OF THE FAA IS BASED O N SOUND REASONING AND DOES NOT REQUIRE ANY INTERFERENCE, AS IT DOES NOT SUFFER FROM ANY LEGAL OR FACTUAL INFIRMITY.THEREFORE,CONFIRMING HIS ORDER,WE DECIDE THE EFFECTIVE GROUND OF APPEAL AGAI NST THE AO. AS A RESULT, APPEAL FILED BY THE AO STANDS DISMISSED. 8)9 () VF/KDKJH VF/KDKJH VF/KDKJH VF/KDKJH : ; & 6 UK UKUK UK < & ) => . ORDER PRONOUNCED IN THE OPEN COURT ON 20TH AUGUST,2014 . 7 & +,! ? @ 20 VXLR VXLR VXLR VXLR , 201 4 , & 6 A SD/- SD/- ( MK0 ,L VH ,E MK0 ,L VH ,E MK0 ,L VH ,E MK0 ,L VH ,E IKOYU IKOYU IKOYU IKOYU / DR. S.T.M.PAVALAN) ( / RAJENDRA) / JUDICIAL MEMBER /ACCOUNTANT MEMBER / MUMBAI, @ /DATE:20.08.2014. SK 7 7 7 7 & && & $)B $)B $)B $)B CB!) CB!) CB!) CB!) / COPY OF THE ORDER FORWARDED TO : 1. ASSESSEE / '# 2. RESPONDENT / $%'# 22 3. THE CONCERNED CIT(A)/ D E , 4. THE CONCERNED CIT / D E 5. DR D BENCH, ITAT, MUMBAI / BF6 $) MH MHMH MH , . . . 6. GUARD FILE/ 6 8 %B) %B) %B) %B) $) $)$) $) //TRUE COPY// 7 / BY ORDER, G / = DY./ASST. REGISTRAR , /ITAT, MUMBAI