JYOTI CERAMIC INDUSTRIES P.LTD, MUMBAI V. ADDL CIT 5(2), MUMBAI

ITA 352/MUM/2013

• Counselvise Citation: [2015] 140 COUNSELVISE.COM (IT) 92954 (ITAT-MUMBAI)
• Duration Of Justice: 2 year(s) 5 month(s) 11 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 22-06-2015
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: J
• Next Hearing Date: 02-02-2015
• Assessment Year: 2009-2010
• Appeal Filed On: 11-01-2013
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Keywords: Earning of tax free income
• Section: 14A

Judgement Text

, IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCHES J MUMBAI . . , , BEFORE SHRI I.P. BANSAL, JUDICIAL MEMBER AND SHRI N.K.BILLAIYA, ACCOUNTANT MEMBER . / ITA NO. 352/MUM/2013 / ASSESSMENT YEAR 2009-10 JYOTI CERAMIC INDUSTRIES PVT. LTD., B-603, PARLE UDYAN CO-OP. HSG. SOC. LTD., 25, PARK ROAD, VILE PARLE (EAST), MUMBAI 400 057. / VS. THE ACIT 5(2), 5 TH FLOOR, AAYKAR BHAVAN, MK ROAD, MUMBAI -400 020. ! ./ ./ PAN/GIR NO. : AAACJ 0247P ( !$ / APPELLANT ) .. ( %&!$ / RESPONDENT ) . / ITA NO. 66/MUM/2013 / ASSESSMENT YEAR 2009-10 THE ACIT 5(2), 5 TH FLOOR, AAYKAR BHAVAN, MK ROAD, MUMBAI -400 020. / VS. JYOTI CERAMIC INDUSTRIES PVT. LTD., B-603, PARLE UDYAN CO-OP. HSG. SOC. LTD., 25, PARK ROAD, VILE PARLE (EAST), MUMBAI 400 057. ! ./ ./ PAN/GIR NO. : AACPK 1951Q ( !$ / APPELLANT ) .. ( %&!$ / RESPONDENT ) ASSESSEE BY SHRI K.GOPAL RE VENUE BY : SHRI PAWAN KUMAR BEERLA ( ) * / DATE OF HEARING : 22/06/2015 ( ) * / DATE OF PRONOUNCEMENT : 22/06/2015 / O R D E R . / ITA NO. 352&66/MUM/2013 / ASSESSMENT YEAR 2009-10 2 PER I.P.BANSAL, JM: THESE ARE CROSS APPEALS AND ARE DIRECTED AGAINST ORDER PASSED BY LD. CIT(A)-9, MUMBAI DATED 16/10/2012 FOR ASSESSMENT YE AR 2009-10. GROUNDS OF APPEAL READ AS UNDER: ASSESSEES GROUNDS OF APPEAL: THE FOLLOWING GROUNDS OF APPEAL ARE DISTINCT AND SEPAR ATE AND WITHOUT PREJUDICE TO EACH OTHER: 1. THE LEARNED CIT(A) HAS ERRED IN LAW AND FACTS I N CONFIRMING THE DISALLOWANCE UNDER SECTION 14A OF THE INCOME TAX ACT, 1961 ('THE A CT') READ WITH RULE 80 OF THE INCOME TAX RULES, 1962 ('THE RULES') AS EXPENSES IN CURRED IN RELATION TO EARN EXEMPT INCOME. THE LEARNED CIT(A) HAS ERRED IN NOT CONSIDERI NG THE FOLLOWING: I. THE LEARNED AO HAS NOT RECORDED DIS-SATISFACTION ON RECORDS THAT DISALLOWANCE MADE BY THE APPELLANT WAS INCORRECT HAVING REGARD TO THE ACCOUNTS. II. RULE 80 CAN BE INVOKED ONLY WHEN THE ASSESSING OFFICER IS NOT SATISFIED WITH THE CORRECTNESS OF THE CLAIM OF EXPENDITURE MADE BY THE AS SESSEE. III. INVESTMENTS IN EQUITY SHARES AND MUTUAL FUNDS ARE MADE FROM OWNED FUNDS AND NO EXPENDITURE CAN BE ATTRIBUTED IN RELATION TO EAR N EXEMPT INCOME IN TERMS OF SECTION 14A OF THE ACT. THERE IS NO NEXUS BETWEEN T HE BORROWED FUNDS AND THE INVESTMENTS. THE USE OF OVERDRAFT / CREDIT FACILITIE S IS RESTRICTED BY THE BANKS FOR BUSINESS PURPOSES ONLY. 2. WITHOUT PREJUDICE TO GROUND NO. 1, THE LEARNED CIT (A) HAS ERRED IN LAW AND FACTS IN NOT APPRECIATING THE FACT THAT THE INVESTMENTS I N EQUITY SHARES AND MUTUAL FUNDS ARE MADE FROM OWNED FUNDS AND THEREFORE, NO DISALLOWANCE OF INTEREST EXPENDITURE CAN BE ATTRIBUTED TO EXEMPT INCOME. HENCE, PROPORTIO NATE INTEREST UNDER SECTION 14A OF THE ACT IS UNWARRANTED. REVENUES GROUNDS OF APPEAL: 1. 'WHETHER, ON THE FACTS AND IN THE CIRCUMSTANCES O F THE CASE AND IN LAW, THE LD. CIT(A) HAS ERRED IN DIRECTING THE ASSESSING OFFICER TO REDUCE THE INTEREST RECEIVED OUT OF INTEREST PAYMENT FOR COMPUTATION OF DISALLOWANCE UND ER RULE 8D OF THE I.T. RULES, 1962?' 2. 'WHETHER, ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT(A) HAS ERRED IN GRANTING RELIEF OF RS.8,43,050/- BEING LAND LEVELING CHARGES FOLLOWING THE DECISION OF THE JURISDICTIONAL HIGH COUR T IN THE CASE OF M/S. TEKSONS (P) LTD., 120 ITR 745, WHERE THE FACTS OF THE CASE ARE D IFFERENT AS THERE THE LAND WAS BEING USED AND HERE IT IS KEPT AS VACANT AND ACQUIR ED PARTLY IN PREVIOUS YEAR RELEVANT TO ASSESSMENT YEAR?' . / ITA NO. 352&66/MUM/2013 / ASSESSMENT YEAR 2009-10 3 2. IT WAS SUBMITTED BY LD. AR THAT ASSESSEE IN THE PRESENT APPEAL IS CONTESTING DISALLOWANCE UNDER SECTION 14A OF THE IN COME TAX ACT, 1961 (THE ACT) ONLY TO THE EXTENT IT RELATES TO INTEREST ON T HE GROUND THAT ASSESSEE DID NOT UTILIZE BORROWED FUNDS FOR THE PURPOSE OF MAKING IN VESTMENT IN THE SHARES FROM WHICH THE ASSESSEE HAS EARNED TAX FREE INCOME. DIS ALLOWANCE WAS MADE WITH REFERENCE TO RULE 8D AT A SUM OF RS.1,07,05,235/- A ND AFTER REDUCING THE DISALLOWANCE SUO-MOTO MADE BY THE ASSESSEE AT A SUM OF RS.10,65,556/-, BALANCE ADDITION OF RS.96,39,679/- WAS MADE. THE CALCULATION OF RULE 8D IS AS UNDER: WORKING OF DISALLOWANCE U/S.14A-READ WITH RULE 8D( 2). 1. UNDER RULE 8D(I) NIL 2. UNDER RULE 8D(II) A) INTEREST PAID B)AVERAGE OF INVESTMENT I) INVESTMENTS AS ON 31/3/2009 II) INVESTMENTS AS ON 31/03/2008 TOTAL AVERAGE OF INVESTMENTS RS.91,47,572/- (A) RS.96,85,68,048/- RS. 83,57,96,331/- RS.180,43,64,379 RS. 902182190/- C) AVERAGE OF ASSETS I) ASSETS AS ON 31/03/2009 II) ASSETS AS ON 31/03/2008 TOTAL AVERAGE OF ASSETS DISALLOWANCE IS A X B C I.E. 91,47,572 X 9021821190 = 133,23,12,655 RS. 137,65,38,640/- RS.128,80,86,670/- RS.266,46,25,310/- RS.133,23,12,655/- RS. 61,94,324/- 3) UNDER RULE 8D (III) 0.5% OF AVERAGE OF INVESTMENTS 90,21,82,190/- TOTAL DISALLOWANCE UNDER SECTION 14A RS. 45,10,911/- RS. 107,05,235/- =============== THE DISALLOWANCE WAS CONTESTED BEFORE LD. CIT(A) AN D PART RELIEF HAS BEEN GIVEN BY LD.CIT(A) ON THE GROUND THAT ONLY NET INTEREST D EBITED TO P&L ACCOUNT SHOULD BE CONSIDERED FOR DISALLOWANCE UNDER SECTION 14A R.W. RULE 8-D. WITH THESE FINDINGS RECORDED BY LD. CIT(A), BOTH THE PA RTIES ARE AGGRIEVED AND HAVE . / ITA NO. 352&66/MUM/2013 / ASSESSMENT YEAR 2009-10 4 RAISED AFOREMENTIONED GROUNDS IN ASSESSEES APPEAL AND GROUND NO.1 IN DEPARTMENTAL APPEAL. 3. IT WAS SUBMITTED BY LD. AR THAT ON SIMILAR FACTS AND CIRCUMSTANCES OF THE CASE, THE TRIBUNAL IN ASSESSMENT YEAR 2008-09 V IDE ITS ORDER DATED 15/6/2015 IN CROSS APPEALS, ITA NO. 3005/MUM/2013 ( ASSESSEES APPEAL) AND ITA NO.1981/MUM/2013 (REVENUES APPEAL) HAS SET ASI DE THE ADDITION AND RESTORED BACK THIS ISSUE TO THE FILE OF AO WITH THE FOLLOWING OBSERVATIONS: HAVING HEARD THE RIVAL SUBMISSIONS, WE ARE OF THE VIEW THAT THE DISALLOWANCE MADE U/S.14A OF THE ACT BY THE AO REQU IRES FRESH EXAMINATION BY DULY CONSIDERING THE SUBMISSIONS OF THE ASSESSEE IN THE LIGHT OF DECISION OF HONBLE JURISDICTIONAL HIGH CO URT RENDERED IN THE CASE OF HDFC LTD.(SUPRA). ACCORDINGLY, WE SET ASIDE TH E ORDER OF LD. CIT(A) ON THIS ISSUE AND RESTORE THE SAME TO THE FILE OF THE AO WITH A DIRECTION FOR FRESH EXAMINATION IN THE LIGHT OF THE AFORESAID DIS CUSSION. IT WAS SUBMITTED THAT THE MATTER MAY BE RESTORED BA CK TO THE FILE OF AO WITH SIMILAR DIRECTIONS. 4. ON THE OTHER HAND, LD. DR RELIED UPON THE ORDER PASSED BY THE AO. 5. WE HAVE HEARD BOTH THE PARTIES AND THEIR CONTENT IONS HAVE CAREFULLY BEEN CONSIDERED. FOLLOWING THE AFOREMENTIONED DECISION OF TRIBUNAL IN RESPECT OF ASSESSMENT YEAR 2008-09 IN THE CASE OF ASSESSEE I TSELF, WE RESTORE THIS ISSUE TO THE FILE OF AO WITH SIMILAR DIRECTIONS. SINCE W E ARE RESTORING BACK THIS ISSUE TO THE FILE OF AO AND THE GROUNDS OF APPEAL NO.1 RA ISED BY THE REVENUE IS ALSO ON ACCOUNT OF INCLUSION OR OTHERWISE OF INTEREST F OR THE PURPOSE OF DISALLOWANCE, BOTH THE APPEALS ON THIS ISSUE ARE CO NSIDERED TO BE ALLOWED FOR STATISTICAL PURPOSES IN THE MANNER AFORESAID. 6. NOW WE ARE LEFT WITH GROUND NO.2 OF REVENUES AP PEAL. THIS DISALLOWANCE RELATES TO EXPENDITURE INCURRED BY THE ASSESSEE ON THE LAND OWNED BY IT AND IS FOR THE PURPOSE OF LAND LEVELING CHARGES. IT IS THE CASE OF THE . / ITA NO. 352&66/MUM/2013 / ASSESSMENT YEAR 2009-10 5 ASSESSEE THAT EVERY YEAR AFTER RAINS THE ASSESSEE H AS TO LEVEL THE LAND, THEREFORE, EXPENDITURE INCURRED ON LEVELING OF THE LAND IS REVENUE IN NATURE. LD. CIT(A) HAS ACCEPTED SUCH CONTENTION ON THE BAS IS OF DECISION OF HONBLE BOMBAY HIGH COURT IN THE CASE OF TEKSONS PVT. LTD. VS. CIT, 120 ITR 745 ON THE GROUND THAT BY LEVELING THE LAND NO CAPITAL ASS ET COMES INTO EXISTENCE AND SUCH EXPENDITURE CANNOT BE HELD TO BE CAPITAL IN NA TURE. THE REVENUE IS AGGRIEVED BY SUCH FINDING RECORDED BY LD. CIT(A) AN D HAS FILED AFOREMENTIONED GROUND. 7. WE HAVE HEARD BOTH THE PARTIES AND THEIR CONTENT IONS HAVE CAREFULLY BEEN CONSIDERED. NO MATERIAL HAS BEEN BROUGHT ON RECORD BY THE REVENUE TO CONTRADICT THE CONTENTION OF THE ASSESSEE THAT LAND LEVELING EXPENSES PAID BY THE ASSESSEE WERE NOT USUAL EXPENDITURE INCURRED IN THE COURSE OF BUSINESS AS IT IS THE CONTENTION OF THE ASSESSEE THAT THESE ARE RECURRING EXPENDITURE TO BE MADE AFTER RAINY SEASON TO LEVEL THE LAND. IN ABS ENCE OF SUCH MATERIAL, WE FIND THAT LD. CIT(A) DID NOT COMMIT ANY ERROR IN ACCEPTI NG THE CLAIM OF THE ASSESSEE. WE DECLINE TO INTERFERE. THIS GROUND OF THE REVENU E IS DISMISSED. 8. IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE IS ALLOWED FOR STATISTICAL PURPOSES AND APPEAL FILED BY THE REVENUE IS PARTLY ALLOWED FOR STATISTICAL PURPOSES IN THE MANNER AFORESAID. ORDER PRONOUNCED IN THE OPEN COURT ON 22/06/2015 ( 0 1 2 22/06/2015 ( SD/- SD/- ( / N.K.BILLAIYA ) ( . . / I.P. BANSAL ) / ACCOUNTANT MEMBER / JUDICIAL MEMBER MUMBAI; 1 DATED 22/06/2015 . / ITA NO. 352&66/MUM/2013 / ASSESSMENT YEAR 2009-10 6 / COPY OF THE ORDER FORWARDED TO : 1. !$ / THE APPELLANT 2. %&!$ / THE RESPONDENT. 3. 4) ( ) / THE CIT(A)- 4. 4) / CIT 5. 56 % )78 , * 78 , / DR, ITAT, MUMBAI 6. 9 / GUARD FILE. / BY ORDER, & 5) %) //TRUE COPY// / (DY./ASSTT. REGISTRAR) , / ITAT, MUMBAI . . ./ VM , SR. PS