The ITO, Ward-2(1)(3), Ahmedabad V. M/s. Firefly Energy Limited, Ahmedabad

ITA 3520/AHD/2016

• Counselvise Citation: [2018] 112 COUNSELVISE.COM (IT) 5484 (ITAT-AHMEDABAD)
• Duration Of Justice: 1 year(s) 10 month(s) 4 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 01-11-2018
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: Not Allotted
• Assessment Year: 2012-2013
• Appeal Filed On: 27-12-2016
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: LALIT P JAIN
• Assessee Lawyers: P D SHAH; SAMMIT JAIN
• Keywords: Depreciation; Earning of tax free income
• Section: 14A; 201

Judgement Text

, IN THE INCOME TAX APPELLATE TRIBUNAL, D BENCH, AHMEDABAD BEFORE SHRI AMARJIT SINGH , ACCOUNTANT MEMBER AND MS MADHUMITA ROY, JUDICIAL MEMBER ./ ITA NO. 3520 / AHD/ 2016 / ASSTT. YEAR: 2012 - 2013 INCOME TAX OFFICER, WARD - 1(1)(3 ), AHMEDABAD - 380 009. VS M/S.FIREFLY ENERGY LIMITED, 14, PAHELGAON BUNGALOW, JUDGES BUNGALOW ROAD, VASTRAPUR, AHMEDABAD PAN: AABCA6692E (APPLICANT) (RESPONENT) REVENUE BY : SHRI LALIT P. JAIN, SR. DR ASSESSEE BY : SHRI SAMMIT JAIN & P . D SHAH, AR S / DATE OF HEARING : 06 / 08 /201 8 / DATE OF PRONOUNCEMENT: 01 / 11 /201 8 / O R D E R PER MS MADHUMITA ROY, JUDICIAL MEMBER : THE INSTANT APPEAL HAS BEEN PREFERRED BY THE REVENUE BEFORE THE TRIBUNAL, AGAINST ORDER OF THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) - 2, DATED 10/10 /2016 , FOR THE ASSESSMENT YEAR 2012 - 2013, VIDE WHICH THE LD.CIT (A) , HAS DELETED THE DISALLOWANCE OF RS.1,33,24,875/ - MADE BY THE L EARNED AS SESSING OFFICER, UNDER SECTION ITA NO.3520/AHD/2016 FOR A.Y.2012 - 2013 2 14A R.W.R 8D OF THE ACT, IN AN ASSESSMENT ORDER PASSED U/S.143 OF THE INCOME TAX ACT 1961 . 2. DURING THE ASSESSMENT PROCEEDINGS, UPON THE VERIFICATION OF THE BALANCE SHEET, IT WAS FOUND THAT THE ASSESSEE S COMPANY HAS MADE IN INVESTMENT S IN SHARES, INCOME FROM WHICH IS EXEMPT FROM TAX. THE ASSESSEE HAS F URTHER CLAIMED INTEREST PAYMENT ON THE LOANS AND INCURRED OTHER EXPENSES ALSO, BUT THE ASSESSEE HAS NOT DEDUCTED SUCH INTEREST PAYMEN T S/EXPENSES RELATING TO THE INVESTMENT IN SHARES FOR EARING INTEREST , A S IT APPEARS FROM THE PROFIT & LOSS ACCOUNT. ACCORDING TO THE LEARNED ASSESSING OFFICER SUCH EXPENDITURE RELATABLE TO INVESTMENT IN SHARES AND SECURITIES REQUIRED TO BE DISALLOWED U/S.14A OF THE ACT, R.W.S 8 D OF THE INCOME TAX RULE 1962. A SHOW CAUSE NOTICE TO THAT EFFECT WAS SERVED UPON THE ASSESSEE BY AND UNDER A LETTER DATED 20/03 /2015. IN REPLY, THE ASSESSEE SUBMITTED THAT HE HAS MADE INVESTMENT IN SHARES TO THE TUNE OF RS.12 , 55 , 63 , 600/ - ; SUCH INVESTMENT WAS MADE FROM IT S OWN SOURCES OF FUND I.E CAPITAL AND SURPLUS, INCREASED UNSECURED LOAN S AND LIABILITY WITHOUT INTEREST PAID DURING THE FINANCIAL YEAR 2001 - 2012. 3. FURTHER, THE ASSESSEE SPECIFICALLY SUBMITTED THAT THE COMPANY HAS NOT EARNED EXEMPT INCOME DURING THE YEAR UNDER CONSIDERATION NEITHER THE COMPANY HAS TAKEN LOAN AND INTEREST PAID FOR THE SAID INVESTMENT S DURING THE FINANCIAL YEAR . ASSESSEE FURTHER CLARIF IED THAT THE COMPANY HAS NO INTEREST EXPENDITURE FOR THE PURPOSE OF EARING TAX FREE INCOME AND THEREFORE, THE PROVISION OF SECTION 14A DOES NOT APPLY, S INCE NO DIVIDEND INCOME WAS RECEIVED , THE QUESTION OF DISALLOWANCES U/S.14A OF THE ACT , DOES NOT AND CAN NOT ARISE AT ALL. IN SUPPORT OF HIS CONTENTIONS THE ASSESSEE RELIED UPON THE JUDGMENT PASSED BY THE ITAT, CHENNAI, IN THE MATTER OF SIVA INDUSTRIES AND HOLDING LIMITED. FURTHER, THE JUDGMENT OF ITA NO.3520/AHD/2016 FOR A.Y.2012 - 2013 3 HON BLE PUNJAB & HARYANA HIGH COURT IN THE CASE OF CIT VS CI T WINSOM TEXTILE INDUSTRI ES LIMITED IN WHICH THE HIGH COURT WAS PLEASED TO HOLD THAT SECTION 14A OF THE ACT, CANNOT APPLY WHEN THE TAX - PAYERS DIDN T MAKE AND CLAIM FOR EXE MPTION IN ITS RETURN OF INCOME AS ALSO SUBMITTED BY THE ASSESSEE BEFOR E THE LEARNED AS SESSING OFFICER, W HILE REPLYING TO THE SHOW CAUSE NOTICE ISSUED TO HIM. SINCE, THE SUBMISSIONS MADE BY THE ASSESSEE THAT IT H AS MADE INVESTMENT S IN SHARES OUT OF INTEREST FREE FUNDS, NOT SUPPORTED BY ANY EVIDENCE , THE SAME WAS REJECTED B Y THE LEARNED ASSESSING OFFICER. B BEFORE THE APPELLATE AUTHORITIES IN THE APPEAL PREFERRED BY THE ASSESSEE AGAINST THE SAID ASSESSMENT ORDER, T HE ASSESSEE CATEGORICALLY MENTIONED THAT THE INVESTMENT S MADE BY THE COMPANY ARE WITH FOREIGN COM PANIES INCOME OF WHICH IS TAX ABLE IN INDIA, AND THUS THE PROVISIONS OF SECTION 14A OF THE ACT, ARE NOT APPLICABLE TO THE ASSESSEE AS CONTENTED BY THE APPELLANT. THE ASSESSEE FURTHER SUBMITTED BEFORE THE FIRST APPELLATE AUTHORITY THAT THE ASSESSEE S COMPANY HAS SUFFICIENT INTER EST FREE FUNDS OF HIS OWN IN THE FORM OF (I) SHARE CAPITAL OF RS.470.65LACS (II) RESERVES & SURPLUS OF RS.3825 LACS (III) NON - INTEREST BEARING UNSECURED LOAN OF RS1821.39 LACS (IV) ACCUMULATED DEPRECIATION OF RS.570.74 LACS AGGREGATING TO RS. 6687.78 LACS WHICH HAS BEEN UTILIZED FOR THE PURPOSE OF INVESTMENT S IN THE SHARES OF THE FOREIGN COMPANIES TO THE TUNE OF RS.1254.85 LACS. SINCE THE ASSESSEE HAS INTEREST FREE FUNDS TO ME E T IT TAX FREE INVESTMENTS YIELDING EXEMPT INCOME, IT COULD BE PRESUMED THAT SUCH INVESTMEN T S WERE MADE FROM THE INTEREST FREE FUNDS AND N OT LOANED FUNDS AND THEREFORE DISALLOWANCE U/S.14A OF THE ACT, IS NOT JUSTIFIED. 4. FURTHERMORE, IN THE APPEAL THE ASSESSEE HAS QUESTIONED THE ASSESSMENT ORDER ON THE PREMISE THAT WHILE DISALLOWING THE CLAIM OF THE ASSESSEE, THE LEARNED ASSESSING OF FICER, HAS FAILED TO ESTABLISH DIRECT NEXUS OF BORROWING BEIN G UTILIZED FOR EARNING TAX FREE INCOME. APART FROM ITA NO.3520/AHD/2016 FOR A.Y.2012 - 2013 4 THAT THE APPELLANT HAS NOT CLAIMED THE DIVIDEND INCOME AND THEREFORE DISALLOWANCE U/S. 14A OF THE ACT, IS REQUIRED TO BE DELETED BY THE FIRST APPELLATE AUTHORITY. 5. LD.CIT(A), UPON CONSIDERING THE ENTIRE ASPECT OF THE MATTER P ARTICULARLY THE SUBMISSION S MADE BY THE ASSESSEE DELETED SUCH DISALLOWANCE MADE U/S.14A OF T HE ACT. HENCE, THE INSTANT APPEAL. A T THE TIME OF HEARING OF INSTANT APPEAL LEARNED REPRESENTATIVE OF THE ASSESSEE ARGUED AT LENGTH IN SUPPORT OF HIS CLAIM THAT THE INVESTMENTS MADE BY THE ASSESSEE IN THE SHARES OF THE COMPANIES IS FROM INTEREST FREE FUNDS AND NOT LOANED FUNDS. FURTHER THAT T HE ASSESSEE HAS NOT DERIVED ANY EXEMPTED INCOME ON THE INVESTMENT SO MADE NEITHER THE ASSESSEE MADE ANY CLAIM FOR EXEMPTION OF ANY INCOME FROM PAYMENT OF TAX . M ORESO , THE INCOME RECEIVED ON THE INVESTMENT OF SHARES WITH FOREIGN COMPANIES SINCE TAXABLE THE PROVISIONS OF SECTION 14A IS NOT APPLICABLE. 6. THE APPELLANT HAS CLAIMED THE INTEREST EXPENSES OF RS.403,49,414/ - PAID TO THE PARTIES FROM WHOM UNSECURED LOANS WERE TAKEN AND ON LOAN FROM BANK, WHEREAS THE LEARNED ASSESSING OFFICER, HAS OBSERVED THAT THE INTEREST BEARING BORROWED FUNDS HAVE BEEN UTILIZED FOR THE PURPOSE OF INVESTMENT IN THE SHARES OF THE COMPANIES AND THE APPELLANT HAS FAILED TO PROVE THE CONTRARY . THE APPELLANT HAS NOT DERIVED ANY EXEMPTED INCOME ON THE INVESTMENTS SO MADE NEITHER THE AP PELLANT CLAIMED FOR EXEMPTION OF ANY INCOME FROM PAYMENT OF TAX AND THEREFORE, PROVISION U/S.14A OF THE ACT, IS NOT APPLICABLE. HE FURTHER RELIED ON THE JUDGMENT PASSED BY THE JURISDICTIONAL HIGH COURT IN THE CASE OF CIT VS. CORRTECH ENERGY PVT. LTD.[(2012)] 223 TAXMANN 130. IN THAT PARTICULAR JUDGMENT IT WAS HELD THAT SECTION 14A(1) OF THE ACT, PROVIDES THAT FOR THE PURPOSE OF COMPUTING TOTAL INCOME UNDER CHAPTER IV NO DEDUCTION SHALL BE ALLOWED IN RESPECT OF EXPENDITURE INCURRED BY THE ASSESSEE IN RE L A TION TO INCOME ITA NO.3520/AHD/2016 FOR A.Y.2012 - 2013 5 WHICH DOES NOT FORM A PART OF THE TOTAL INCOME UNDER THE ACT. SINCE, IN THE INSTANT CASE, THE ASSESSEE DID NOT MAKE ANY CLAIM OF EXEMPTION OF ANY INCOME F ROM PAYMENT OF TAX, T HE PROVISIONS U/S.14A ARE NOT APPLICABLE . T HE INCOME FROM THE INVESTMENT IN SHARES MADE BY THE ASSESSEE IN FOREIGN COMPANIES SINCE TAXABLE , THE QUESTION OF DERIVING ANY EXEMPTED INCOME DOES NOT ARISE AT ALL. 7. THE LD.CIT(A) WAS SATISFIED WITH THE FACTS THAT THE APPELLANT HAD SUFFICIENT INTEREST FREE FUNDS IN THE FORM OF SH ARES CAPITAL AND PREMIUM AT RS. 470.65 LACS A ND RS.3825 LACS AND BESIDES NON - INTEREST BEARING UNSECURED LOANS OF RS.1821.39 LACS WERE AVAILABLE FOR INVESTMENT IN THE COMPANIES , DETAILS WHEREOF WERE FURNISHED BY THE ASSESSEE BEF ORE FIRST APPELLATE AUTHORITY. HE CAME TO THE FINDINGS THAT APPELLANT HAD THE NON - BEARING INTEREST FUNDS WHICH WERE MORE THAN THE I NVESTMENT IN THE SHARES OF THE COMPANIES. THERE WAS NO DIVERSION OF INTEREST BEARING FUNDS FOR NON EARNING EXEMPTED INVESTMENTS BUT FROM THE INTEREST FREE FUNDS AND ADVANCES. HE FURTHER RELIED UPON THE JUDGMENT PASSED BY THE LEARNED TRIBUNAL OF THE CALCUTTA, HIGH COURT, IN ITA NO.1331/KOL/2011 , ON THE RATIO THAT IF THERE IS NO DIVIDEND INCOME, THEN THE SAME WI LL NOT COME UND ER THE PURVIEW OF SECTION 14A OF THE ACT , WHEN THE SUFFICIENT INTEREST FUND IS AVAILABLE . T HERE COULD BE NO PRESUMPTION THAT THE AVAILABLE SUFFICIENT INTEREST FREE FUNDS HAVE NOT BEEN UTILIZED FOR THE PURPOSE OF INVESTMENT AS HAS BEEN HELD BY THE JURISDICTIONAL HIGH COURT, IN THE CASE OF TORRENT LEASING & FINANCE IN TAX APPEAL NO.620 TO 625 OF 20 06. HE THEN ULTIMATELY RELIED UPON THE JUDGMENT PASSED BY THE CO - OR DINATE BENCH, IN THE MATTER OF AAKASH AGRO INDUSTRIES LTD. VS ACIT, CIRCLE - 1, AH MEDABAD, WHERE IN I T WAS OBSERVED THAT THE ONUS IS UPON THE AO TO ESTABLISH THE NEXUS OF THE IN TEREST BEARING FUNDS UTILIZED FOR THE PURPOSE ITA NO.3520/AHD/2016 FOR A.Y.2012 - 2013 6 OF INVESTMENTS WHICH DULY HAS BEEN FAIL ED TO BE PERFORMED BY THE ASSESSI NG OFFICER IN THE CASE IN HAND. FURTHER THAT S INCE THE APPELLANT HAS MADE THE INVESTMENT IN SHARES OF THE COMPANIES ON WHICH NO DIVIDEND INCOME HAS BEEN EARNED AS CLAIMED BY THE ASSESSEE SUPPORTED BY THE SUFFICIENT DOCUMENTS DISALLOWANCE U/S.14A OF THE ACT, IS NOT SUSTAINABLE IN VIEW OF THE JUD GMENT BY THE JURISDICTIONAL HIGH COURT IN THE MATTER OF CIT VS CORRTECH (SUPRA). IN THAT VIEW OF THE MATTER THE LD.CIT(A) DELETED TH E ADDITION MADE BY THE LD.AO . 8 . IT WAS FURTHER ARGUED THAT T HE LEARNED ASSESSING O FFICER HAS FAILED TO ESTABLISH THE DIREC T NEXUS OF BORROWING BEING UTILIZED FOR EARNING TAX FREE INCOME. HE FURTHER RELIED UPON THE ORDER PASSED BY THE LD.CIT(A) AND PRAYED FOR REJECTING OF THE APPEAL BEFORE US PREFERRED BY THE REVENUE. HE RELIED UPON THE JUDGMENT PASSED BY THE JURISDICTIONAL H IGH COURT, IN THE CASE OF CIT VS CORRTECH (S UPRA). ON THE CONTRARY, LEARNED REPRESENTATIVE OF THE REVENUE RELIED UPON THE ORDER PASSED BY THE LEARNED ASSESSING OFFICER. 9 . HAVING HEARD THE LEARNED COUNSEL FOR THE PAR T IES AND HAVING REGARD TO THE FACTS AND CIRCUMSTANCES OF THE CASE AND UPON PERUSAL O F THE RECORD PLACED BEF ORE US, WE ARE OF THE CONSIDERE D OPINION THAT THE LD.CIT(A) HAS GIVEN SUFFICIENT REASONS FOR NON APPLICABILITY OF SECTION 14A OF THE ACT, WHICH WAS SOUGHT TO BE MADE APPLICABLE BY THE LD. AO, WHILE MAKING DISALLOWANCE AMOUNTING RS.1,33,24,875/ - I N THE PRESENT FACTS AND CIRCUMSTANCES OF THE CASE . THE RATIO LAID DOWN IN THE JUDGMENT PASSED BY THE HON BLE JURISDI CTIONAL HIGH COURT HAS BEEN RIGHTLY APPLIED BY THE LD.CIT(A), WHILE ALLOWING TH E APPEAL OF THE ASSESSEE. WE, THEREFORE, FIND ITA NO.3520/AHD/2016 FOR A.Y.2012 - 2013 7 NO INFIRMITY IN THE ORDER BY THE LD.CIT(A) . THE APPEAL PREFERRED BY THE REVENUE IS THUS DISMISSED. 10 . IN THE RESULT, THE GROUND OF APPEAL PREFERRED BY THE REVENUE STANDS DISMISSED. ORDER PRONOUNCED IN THE COURT ON 01 / 10 / 201 8 AT AHMEDABAD. - SD - ( AMARJIT SINGH ) ACCOUNTANT MEMBER - SD - ( MS MADHUMITA ROY ) JUDICIAL MEMBER AHMEDABAD; DATED 01 / 11 / 201 8 MANISH / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT 2. / THE RESPONDENT. 3. / CONCERNED CIT 4. ( ) / THE CIT(A), AHMEDABAD 5. , , / DR, ITAT, AHMEDABAD 6. / GUARD FILE . / BY ORDER, / ( DY./ASSTT.REGISTRAR) , / ITAT, AHMEDABAD