LAKSHMIWADI MINES & MINERALS P. LTD, MUMBAI V. CIT 21, MUMBAI

ITA 3587/MUM/2014

• Counselvise Citation: [2016] 131 COUNSELVISE.COM (IT) 3041 (ITAT-MUMBAI)
• Duration Of Justice: 2 year(s) 4 month(s) 1 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 21-09-2016
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: A
• Assessment Year: 2009-2010
• Appeal Filed On: 20-05-2014
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: A RAMACHANDRAN
• Keywords: Revision of order; Depreciation; Opportunity of being heard; Principle of natural justice; Earning of tax free income; Proportionate interest
• Section: 143(3); 14A; 263; 12

Judgement Text

A IN THE INCOME TAX APPELLATE TRIBUNAL A BENCH, MUMBAI BEFORE SHRI MAHAVIR SINGH, JUDICIAL MEMBER AND SHRI RAMIT KOCHAR, ACCOUNTANT MEMBER ./ I.T.A. NO.3587 /MUM/2014 ( / ASSESSMENT YEAR : 2009-10) LAKSHMIWADI MINES & MINERALS PRIVATE LTD., YUSUF BUILDING, ROOM NO. 20, 43-45, M.G. ROAD, FORT, MUMBAI 400 001. / V. COMMISSIONER OF INCOME TAX 2, 3 RD FLOOR, R. NO. 344, AAYAKAR BHAVAN, MUMBAI 400 020. ./ PAN : AAACL 1756 F ( / APPELLANT ) .. ( / RESPONDENT ) ASSESSEE BY SHRI VIPUL JOSHI REVENUE BY : SHRI A. RAMACHANDRAN / DATE OF HEARING : 27-6-2016 / DATE OF PRONOUNCEMENT : 21-09-2016 / O R D E R PER RAMIT KOCHAR, ACCOUNTANT MEMBER THIS APPEAL, FILED BY THE ASSESSEE COMPANY, BEING ITA NO. 3587/MUM/2014, IS DIRECTED AGAINST THE ORDER DATED 28 TH MARCH, 2014 PASSED BY LEARNED COMMISSIONER OF INCOME TAX- 2, MU MBAI (HEREINAFTER CALLED THE CIT) U/S 263 OF THE INCOME TAX ACT, 19 61 (HEREINAFTER CALLED THE ACT), FOR THE ASSESSMENT YEAR 2009-10, THE PROCEED INGS INITIATED BY THE LEARNED CIT U/S 263 OF THE ACT IS AIMED AT EXERCISI NG REVISIONARY POWERS DIRECTED AGAINST THE ASSESSMENT ORDER DATED 21 ST DECEMBER, 2011 PASSED BY THE LEARNED ASSESSING OFFICER (HEREINAFTER CALLED THE AO) U/S 143(3) OF THE ACT. ITA 3587/MUM/2014 2 2. THE GROUNDS OF APPEAL RAISED BY THE ASSESSEE COM PANY IN THE MEMO OF APPEAL FILED WITH THE INCOME TAX APPELLATE TRIBUNAL , MUMBAI (HEREINAFTER CALLED THE TRIBUNAL) READ AS UNDER:- 1. BREACH OF THE PRINCIPLES OF NATURAL JUSTICE 1.1. THE LEARNED COMMISSIONER OF INCOME - TAX - 2, MUMBAI ['LD. CIT'], ERRED IN FRAMING THE REVISION ORDER U/S. 263 OF THE INCOME - TAX ACT, 1961 [THE ACT'] BY NOT GIVING PROPER, SUFFICIENT AND EFFECTIVE OPPORTUNITY OF BEING HEARD TO THE APPELLANT. 1.2 IT IS SUBMITTED THAT IN THE FACTS AND THE CIRCUMSTANC ES OF THE CASE, AND IN LAW, THE ORDER IS REQUIRED TO BE HELD AS BAD AND ILLEGAL IN BREACH OF THE PRINCIPLES OF NATURAL JUSTICE, AS WELL AS NON-APPLICATION OF MIND TO THE FACTS AND THE CONTENTIONS BROUGHT ON RECORD BY THE APPELLANT. 2. REVISION ILLEGAL 2.1 THE LD. CIT ERRED IN PASSING THE ORDER U/S. 263 OF THE ACT, REVISING THE ASSESSMENT ORDER PASSED BY THE A.O. U/S. 143 (3) OF THE ACT. 2.2 IT IS SUBMITTED THAT IN THE FACTS AND THE CIRCUMSTANC ES OF THE CASE, AND IN LAW, THE ORDER IS BAD, ILLEGAL AND VOI D AS NECESSARY PRE- CONDITIONS FOR INITIATING THE REVISION PROCEEDING AS WELL AS THE COMPLETION THEREOF WERE NOT FULFILLED. 2.3 WITHOUT PREJUDICE TO THE GENERALITY OF THE ABOVE, THE CIT FAILED TO APPRECIATE THAT: (I) THE ORDER WHICH HE WAS SEEKING TO REVISE HAD AL READY MERGED WITH THE APPELLATE ORDER AND, ACCORDINGLY, WAS NOT TH E 'RECORD' WITHIN THE MEANING OF SECTION 263 OF THE ACT; (II) IN ANY CASE, THE ASSESSMENT ORDER FRAMED WAS NO T 'ERRONEOUS' WITHIN THE MEANING OF SECTION 263 OF THE ACT; AND (III) THE ASSESSMENT ORDER WAS NOT 'PREJUDICIAL TO THE INTEREST OF THE REVENUE' WITHIN THE MEANING OF SECTION 263 OF THE AC T. 2.4 IT IS SUBMITTED THAT IN THE FACTS AND THE CIRCUMSTANC ES OF THE CASE, AND IN LAW, NO REVISION U/S 263 OF THE ACT WA S CALLED FOR. WITHOUT PREJUDICE TO THE ABOVE ITA 3587/MUM/2014 3 3.1 EVEN ON MERITS, IT IS SUBMITTED THAT THE ORDER OF THE LD. CIT IS BAD IN LAW AS IT IS BASED ON TOTAL MISINTERPRETATION OF SECTION 14A OF THE ACT READ WITH RULE 8D OF INCOME - TAX RULES, 1962. 3.2 IT IS SUBMITTED THAT IN THE FACTS AND THE CIRCUMSTANC ES OF THE CASE, AND IN LAW, THE COMPUTATION OF DISALLOWANCE U/S 14A AS RETURNED BY THE APPELLANT AND AS CONFIRMED BY THE CIT (A) WAS PROPER AND REASONABLE AND NO VARIATION / ENHANCEMENT WAS CALLED FOR. 3.3 IT IS SUBMITTED THAT IN THE FACTS AND THE CIRCUMSTANCE S OF THE CASE, AND IN LAW, NO SUCH REVISION WAS CALLED FOR EVEN ON MERITS ALSO. 3. THE BRIEF FACTS OF THE INSTANT CASE ARE THAT THE RETURN OF INCOME WAS FILED BY THE ASSESSEE ON 30 TH SEPTEMBER, 2009 DECLARING TOTAL LOSS OF RS. 1,00,26,688/-. THE ASSESSMENT WAS COMPLETED BY THE AO U/S 143(3) OF THE ACT ON 21 ST DECEMBER, 2011 , ASSESSING THE TOTAL LOSS AT RS. 9 5,22,971/-. ON VERIFICATION OF THE RECORDS , IT WAS OBSERVED BY TH E LEARNED CIT THAT WHILE CALCULATING DISALLOWANCE UNDER SECTION 14A OF THE A CT READ WITH RULE 8D OF INCOME TAX RULES, 1962, THE A.O. DID NOT DISALLOW T HE PROPORTIONATE INTEREST EXPENDITURE INCURRED AT RS. 98,42,238/- AS IT WAS S TATED BY THE ASSESSEE THAT THE INTEREST PAID DURING THE YEAR WAS FOR THE TERM LOAN FROM STATE BANK OF INDIA AT GANDHIDHAM. IT WAS FURTHER STATED THAT NO FUND WAS TRANSFERRED OUT OF BORROWED FUNDS TO MUMBAI WHEREIN INVESTMENTS ARE HELD. THE A.O. ACCEPTED THE EXPLANATION OF THE ASSESSEE AND DID NO T DISALLOW THE INTEREST EXPENDITURE U/S.14A OF THE ACT FOR EARNING THE EXEM PTED DIVIDEND INCOME. IT WAS OBSERVED BY THE LEARNED CIT THAT THE INTERES T PAID DURING THE YEAR FOR THE TERM LOAN FROM STATE BANK OF INDIA AT GANDHIDHA M WAS ONLY RS.13,51,398/- INSTEAD OF RS. 98,42,238/- AND HENCE , THE BALANCE INTEREST EXPENDITURE OF RS.84,90,840/- WAS REQUIRED TO BE CO NSIDERED FOR DISALLOWANCE U/S 14A OF THE ACT AGAINST THE DIVIDEND INCOME OF R S. L,16,56,557/- WHICH IS EXEMPT FROM TAX UNDER PROVISIONS OF THE ACT. ITA 3587/MUM/2014 4 THUS, IT WAS OBSERVED BY THE LEARNED CIT THAT THE A SSESSMENT ORDER U/S. 143(3) OF THE ACT PASSED BY THE AO WAS WITHOUT COND UCTING PROPER INQUIRIES AND WITHOUT PROPER APPLICATION OF MIND AND WAS AN E RRONEOUS ORDER IN AS MUCH AS THE SAME WAS PREJUDICIAL TO THE INTEREST OF REVENUE. NOTICE U/S 263 OF THE ACT WERE ISSUED TO THE ASSESSEE COMPANY ON 1 7 TH JANUARY, 2013 AND THE ASSESSEE WAS ASKED TO FILE OBJECTIONS, IF ANY, TO THE PROPOSAL TO SET ASIDE THE ASSESSMENT ORDER DATED 21-12-2011 PASSED BY THE AO U/S 143(3) OF THE ACT UNDER THE REVISIONARY POWERS OF THE LEARNED CIT U/S. 263 OF THE ACT. THE ASSESSEE WAS ALSO GIVEN OPPORTUNITY OF PERSONAL HEA RING BY THE LEARNED CIT. THE ASSESSEE FILED THE SUBMISSIONS BEFORE LEARNED C IT WHEREBY THE ASSESSEE OBJECTED TO THE NOTICE DATED 17-01-2013 ISSUED BY T HE LEARNED CIT U/S 263 OF THE ACT MAINLY ON TECHNICAL GROUNDS AND NOT ON MERI TS. THE LEARNED CIT OBSERVED THAT THE A.O. HAD ACCEPTED THE ASSESSEE'S CONTENTION REGARDING INTEREST EXPENDITURE IN THE ASSESSMENT ORDER DATED 21.12.2011 PASSED U/S. 143(3) OF THE ACT WITHOUT ANY VERIFICATION . THE LE ARNED CIT OBSERVED THAT THE AO HAD MADE THE DISALLOWANCE WITH REGARD TO RULE-8D (2)(III) OF INCOME TAX RULES,1962 ONLY AND NO DISALLOWANCE UNDER RULE 8D(2 )(I) OR (II) OF INCOME TAX RULES, 1962 WAS MADE BY THE AO WHILE FRAMING ASSESS MENT ORDER U/S. 143(3) OF THE ACT. IT WAS OBSERVED BY THE LEARNED CIT THAT IF THE ASSESSEE HAS EARNED EXEMPT INCOME , THE INTEREST EXPENSES AS ARE DEBITE D TO P&L ACCOUNT, THE EXPENDITURE TOWARDS INTEREST IS TO BE CONSIDERED FO R DISALLOWANCE FOR THE PURPOSE OF RULE 8D (2)(II) OF INCOME TAX RULES, 196 2. ON GOING THROUGH THE ASSESSMENT ORDER DATED 21-12-2011 PASSED BY THE AO U/S 143(3) OF THE ACT , IT WAS OBSERVED BY THE LEARNED CIT THAT THE A.O. HA D NOT CONDUCTED PROPER INQUIRY INTO THE ABOVE ISSUES AND THERE WAS AN ERRO R IN THE ASSESSMENT ORDER IN AS MUCH AS THE SAME IS PREJUDICIAL TO THE INTERE ST OF REVENUE . THE LEARNED CIT RELIED ON DECISION OF HONBLE ALLAHABAD HIGH CO URT IN THE CASE OF CIT V. BHAGAVANDAS , 272 ITR 267 AND P.T. LASKAR RAM V. CI T (2005)272 ITR 309(ALL.HC) AND HELD THAT ACTION U/S. 263 OF THE AC T IS VALID AS THE ITA 3587/MUM/2014 5 ASSESSMENT ORDER DATED 21-12-2011 PASSED BY THE AO U/S. 143(3) OF THE ACT IS PASSED WITHOUT APPLICATION OF MIND BY THE AO AND WITHOUT CONDUCTING PROPER ENQUIRY . IT WAS OBSERVED THAT THE SAME VIEW WAS CONFIRMED BY THE HONBLE MADRAS HIGH COURT IN THE CASE OF ASHOK LEYL AND LIMITED V. CIT (2003)260 ITR 599(MAD. HC). THE LEARNED CIT HELD T HAT THE ASSESSMENT FRAMED BY THE A.O. WAS NOT CORRECT AND IS REQUIRED TO BE REFRAMED AND ACCORDINGLY THE LEARNED CIT SET ASIDE THE ASSESSMEN T ORDER DATED 21-12-2011 PASSED BY THE AO U/S. 143(3) OF THE ACT FOR MAKING FRESH ASSESSMENTS DE- NOVO AFTER UNDERTAKING PROPER ENQUIRIES, VIDE REVIS IONARY ORDER DATED 28.03.2014 PASSED BY THE CIT U/S 263 OF THE ACT. 4.AGGRIEVED BY THE REVISIONARY ORDER DATED 28.03.20 14 PASSED BY THE LD. CIT U/S 263 OF THE ACT, THE ASSESSEE FILED FIRST APPEAL BEFORE THE TRIBUNAL. 5. THE LD. COUNSEL FOR THE ASSESSEE SUBMITTED THAT THE ASSESSEE HAS SUBMITTED THE ENTIRE DETAILS BEFORE THE A.O. DURING THE COURSE OF ASSESSMENT PROCEEDINGS U/S 143(3) READ WITH THE SECTION 143(2) OF THE ACT CONDUCTED BY THE AO WITH RESPECT TO THE DISALLOWANCE U/S 14A OF THE ACT. THE SAID DETAILS BEFORE THE AO ARE PLACED IN PAPER BOOK PAGES 43 TO 75 FILED WITH THE TRIBUNAL WHICH WERE GIVEN VIDE WRITTEN SUBMISSIONS DATED 15 -11-2011, 08-12-2011 AND 08-12-2011. THE LD. COUNSEL SUBMITTED THAT ALL THE DETAILS WERE SUBMITTED BEFORE THE A.O. WITH RESPECT TO THE DISAL LOWANCE U/S 14A OF THE ACT AND THE A.O. AFTER APPLYING HIS MIND DISALLOWED AN AMOUNT OF RS. 6,05,192/- U/S 14A READ WITH RULE 8D(2)(III) OF INCOME TAX RUL ES 1962 AND SINCE THE ASSESSEE HAS VOLUNTARILY MADE DISALLOWANCE OF RS. 1 ,20,000/- IN THE RETURN OF INCOME FILED WITH THE REVENUE, BALANCE ADDITION OF RS.4,85,192/- WAS CONFIRMED BY THE AO VIDE ASSESSMENT ORDER DATED 21- 12-2011 PASSED BY THE AO U/S. 143(3) OF THE ACT. THE LD. COUNSEL DREW OU R ATTENTION TO THE ASSESSMENT ORDER OF THE A.O. U/S 143(3) OF THE ACT DATED 21 ST DECEMBER, 2011 WHEREIN THE DETAILED OBSERVATIONS WERE GIVEN BY THE AO WITH RESPECT TO THE ITA 3587/MUM/2014 6 DISALLOWANCE U/S 14A OF THE ACT AFTER CONSIDERING T HE SUBMISSIONS OF THE ASSESSEE . IT WAS SUBMITTED THAT THE ASSESSEE CARR IED THE MATTER BEFORE THE LD. CIT(A) IN THE FIRST APPELLATE PROCEEDINGS WHO D ELETED THE ADDITIONS AS WERE MADE IN THE ASSESSMENT ORDER DATED 21.12.2011 U/S. 143(3) OF THE ACT, VIDE APPELLATE ORDERS DATED 19-12-2012 PASSED BY LEARNED CIT(A). IT WAS SUBMITTED THAT AFTER THE PASSING OF THE APPELLATE O RDER BY THE LD. CIT(A) DATED 19 TH DECEMBER, 2012, THE REVENUE INVOKED REVISIONARY PO WERS U/S. 263 OF THE ACT VIDE NOTICE DATED 17 TH JANUARY, 2013 WHICH IS CLEARLY IMPERMISSIBLE AS I S AGAINST THE LAW AS THE MATTER WAS SETTLED BY THE LD . CIT(A). AFTER THE APPELLATE ORDERS DATED 19.12.2012 PASSED BY LEARNED CIT(A) IN FAVOUR OF THE ASSESSEE BY DELETING THE ADDITION MADE BY THE AO U/S 14A OF THE ACT READ WITH RULE 8D OF INCOME TAX RULES, 1962 , THE REVENUE RAISED THE S AME ISSUE OF DISALLOWANCE U/S 14A OF THE ACT ONCE AGAIN WHICH WAS A CONCLUDED MATTER SO FAR AS THE ASSESSEE IS CONCERNED. IT WAS SUBMITTED THAT THE PO WERS OF LEARNED CIT(A) IS CO-TERMINUS WITH THE POWERS OF THE AO AND LEARNED C IT(A) COULD HAVE ENHANCED ASSESSMENT AFTER COMPLYING WITH THE PROVIS IONS AND SCHEME OF THE ACT BUT LEARNED CIT(A) CONSIDERED THE SUBMISSIONS O F THE ASSESSEE AND HELD THAT DISALLOWANCE OF RS.1,20,000/- MADE BY THE ASSE SSEE VOLUNTARILY IS REASONABLE KEEPING IN VIEW THE FACTS AND CIRCUMSTAN CES OF THE CASE. THE LD. COUNSEL DREW OUR ATTENTION TO THE APPELLATE ORDER O F THE LD. CIT(A) DATED 19.12.2012 WHICH IS PLACED IN THE FILE. IT WAS SUBM ITTED THAT THE INVESTMENTS AS PER BALANCE SHEET AS AT 31 ST MARCH, 2009 WERE OF RS. 12,31,07,108/- (RS.11,91,40,827/- AS AT 31-03-2008) AND THE ASSES SEES OWN FUNDS WERE RS. 21,14,51,971/- AS AT 31-03-2009 ( RS. 20,97,42,428/ - AS AT 31-03-2008) COMPRISING OF SHARE CAPITAL OF RS. 48,51,200/- AS A T 31-03-2009 ( RS. 48,51,200/- AS AT 31-03-2008) AND RESERVES AND SURP LUS OF RS.20,66,00,771/- AS AT 31-03-2009 ( RS. 20,48,91,2 28/- AS AT 31-03-2008) AND HENCE PRESUMPTION WILL APPLY THAT THE ASSESSEE HAS INVESTED ITS OWN FUNDS IN MAKING INVESTMENTS IN THE SECURITIES WHICH ARE CAPABLE OF YIELDING EXEMPT INCOME IN THE ABSENCE OF ANY FINDING BY THE REVENUE THAT THE ITA 3587/MUM/2014 7 ASSESSEE HAS DIVERTED INTEREST BEARING FUNDS FOR MA KING INVESTMENTS IN SECURITIES CAPABLE OF YIELDING EXEMPT INCOME. RELI ANCE WAS PLACED ON THE DECISION OF HONBLE BOMBAY HIGH COURT IN THE CASE OF CIT V. RELIANCE UTILITIES AND POWER LTD., (2009)313 ITR 340(BOM. HC) AND HDFC BANK LIMITED V. DCIT (2016) 383 ITR 529(BOM. HC) AND SUBMITTED THAT IN THE ABSENCE OF ANY COGENT MATERIAL BROUGHT ON RECORD BY THE REVENUE TH AT INTEREST BEARING FUNDS WERE DIVERTED IN MAKING THE INVESTMENT IN SECURITIE S CAPABLE OF YIELDING EXEMPT INCOME, THE PRESUMPTION SHALL APPLY THAT THE ASSESSEE HAS INVESTED OWN FUNDS IN MAKING INVESTMENT IN SECURITIES CAPABL E OF YIELDING EXEMPT INCOME AS THE ASSESSEE HAS SUFFICIENT OWN FUNDS WHI CH ARE MUCH MORE THAN THE INVESTMENTS IN SECURITIES CAPABLE OF YIELDING E XEMPT INCOME HELD BY THE ASSESSEE AS AT 31-30-2009 AND 31-03-2008 AS BORNE O UT FROM AUDITED ACCOUNTS. THE SAID AUDITED FINANCIAL STATEMENTS ARE PLACED IN PAPER BOOK /PAGE 2-22. THE ASSESSEE DREW OUR ATTENTION TO NOTI CE DATED 17-01-2013 ISSUED U/S 263 OF THE ACT BY THE LEARNED CIT , WHI CH IS PLACED IN PAPER BOOK/PAGE 91. THE LEARNED COUNSEL FOR THE ASSESSEE DREW OUR ATTENTION TO ASSESSMENT ORDER DATED 21-12-2011 PASSED BY LEARNED AO U/S 143(3) OF THE ACT, WHICH IS PLACED IN PAPER BOOK PAGE 86-90. THE ASSESSEE SUBMITTED THAT COMPLETE DETAILS WERE SUBMITTED BEFORE THE LEARNED AO WHEREBY DETAILS AS TO FINANCIALS OF HEAD OFFICE AND FACTORY AT GANDHIDHAM WERE SUBMITTED SEPARATELY REFLECTING COMPLETE BIFURCATIONS OF THES E TWO PROFIT CENTRES IN THE COMPANY FOR WHICH EVEN SEPARATE BOOKS OF ACCOUNTS A RE MAINTAINED BY THE ASSESSEE, THE SAID FINANCIALS ARE PLACED AT PAGE 70 /PAPER BOOK WHICH CLEARLY SHOWS THAT INVESTMENTS IN SECURITIES ARE REFLECTED IN PROFIT CENTRE HO AND WAS RS.12.31 CRORES AS AT 31-03-2009 WHILE OWN FUNDS OF HO IS RS.23.49 CRORES AS AT 31-03-2009, WHICH CLEARLY REFLECTS THAT THE A SSESSEES OWN FUNDS ARE MUCH HIGHER THAN INVESTMENT IN SECURITIES WHICH ARE CAPABLE OF YIELDING EXEMPT INCOME . IT WAS SUBMITTED THAT DURING THE PREVIOUS YEAR RELEVANT TO THE IMPUGNED ASSESSMENT YEAR, ONLY RS. 40 LACS SH ARE APPLICATION MONEY HAS BEEN INVESTED FOR WHICH THE SHARE HAS NOT BEEN ALLOTTED BY THE ISSUING ITA 3587/MUM/2014 8 COMPANY BY THE END OF THE YEAR. THE LEARNED COUNSEL FOR THE ASSESSEE DREW OUR ATTENTION TO PAGE 16-17/PAPER BOOK AND SUBMITTE D THAT SECURED LOANS WERE RAISED FROM THE BANKS WHICH ARE TERM LOANS AGA INST CHARGE ON FACTORY BUILDING AND PLANT AND MACHINERY , FURTHER IT WAS S UBMITTED THAT CASH CREDIT FACILITIES WERE OBTAINED AGAINST HYPOTHECATION OF S TOCK AND BOOK DEBTS AND ALSO HIRE PURCHASE LOAN WAS TAKEN FOR MOVABLE ASSET S AGAINST HYPOTHECATION OF ASSETS. THE LEARNED COUNSEL FOR THE ASSESSEE DRE W OUR ATTENTION TO PAGE 92- 109 OF PAPER BOOK BEING REPLIES SUBMITTED TO LEARNE D CIT DURING REVISIONARY PROCEEDINGS U/S 263 OF THE ACT. THE LEARNED COUNSEL DREW OUR ATTENTION TO PAGE 76-78 BEING LEDGER ACCOUNT OF INTEREST BEARING ICD RAISED BY THE ASSESSEE DURING THE YEAR. THE COMPLETE UTILIZATION OF THE ICDS RAISED DURING THE YEAR WERE ALSO SUBMITTED WHICH IS PLACED IN THE FILE WHICH REFLECTS THAT THE ASSESSEE HAS EITHER GRANTED LOANS AND ADVANCES OUT OF THE SAME OR HAVE REPAID LOANS RAISED EARLIER DURING THE YEAR. IT WA S SUBMITTED THAT THE ASSESSEE HAS DULY SUBMITTED ALL THE DETAILS BEFORE THE A.O. HENCE THE LD. CIT CANNOT INVOKE SECTION 263 OF THE ACT WHICH IS BAD I N LAW LIABLE TO BE QUASHED. THE ASSESSEE RELIED UPON FOLLOWING JUDGMENTS /ORDER S: 1 CIT V. K SERA SERA PRODUCTIONS LIMITED (ITA NO 10 27 OF 2013, ORDER DATED 18-03-2015)-HONBLE BOMBAY HIGH COURT 2. CIT V. FORTALEZA DEVELOPERS (2015) 374 ITR 510(B OM. HC) 3. CIT V. NIRMA CHEMICALS WORKS PRIVATE LIMITED (20 09) 309 ITR 67(GUJ.) 4. SONAL GARMENTS V. JCIT (2005) 95 ITD 363(MUM.TRI B.) 5. MARICO INDUSTRIES LIMITED V. ACIT (2009) 312 ITR 259(AT) (MUM)-27 SOT 73(MUM-TRIB.) ITA 3587/MUM/2014 9 6. THE LD. D.R., ON THE OTHER HAND, RELIED ON THE O RDER OF THE LD. CIT. 7. WE HAVE CONSIDERED THE RIVAL CONTENTIONS AND ALS O PERUSED THE MATERIAL PLACED ON RECORD INCLUDING THE CASE LAWS RELIED UPO N . THE CASE OF THE ASSESSEE FOR THE IMPUGNED ASSESSMENT YEAR WAS SELEC TED FOR SCRUTINY BY THE REVENUE FOR FRAMING THE ASSESSMENT U/S 143(3) OF TH E ACT READ WITH SECTION 143(2) OF THE ACT AND THE A.O. MADE ENQUIRIES WIT H RESPECT TO DISALLOWANCES U/S 14A OF THE ACT BEFORE FRAMING ASSESSMENT U/S 14 3(3) OF THE ACT , WHEREIN THE ASSESSEE SUBMITTED REPLIES WITH RESPECT TO DISA LLOWANCE U/S 14A OF THE ACT WHICH ARE PLACED IN PAPER BOOK PAGE 43-75 FILED BY THE ASSESSEE BEFORE THE TRIBUNAL VIDE WRITTEN SUBMISSIONS DATED 15-11-2 011 AND 08-12-2011 ALONG WITH ENCLOSURES/ANNEXURES. THE ASSESSEE SUBM ITTED DETAILS WITH RESPECT TO THE DISALLOWANCE U/S 14A OF THE ACT WHIC H WAS CONSIDERED BY THE A.O. BEFORE FRAMING ASSESSMENT U/S 143(3) OF THE AC T. PERUSAL OF THE WRITTEN SUBMISSION FILED BY THE ASSESSEE BEFORE THE AO, IT WAS OBSERVED THAT THE ASSESSEE SUBMITTED DETAILS OF SECURED LOANS RAISED FROM BANKS AND UTILIZATION THEREOF, RAISING OF UNSECURED LOANS BY THE ASSESSEE AND DETAILS OF INTEREST EXPENDITURE, GRANTING OF INTEREST BEARING LOANS BY THE ASSESSEE, DETAILS OF DIVIDEND RECEIVED , WORKING OF DISALLOWANCE U/S 14A OF THE ACT READ WITH RULE 8D OF INCOME TAX RULES, 1962. THE BANK STATEMENTS W ERE SUBMITTED BY THE ASSESSEE BEFORE THE AO. THE ASSESSEE ALSO SUBMITTED THAT COMPANY HAS NOT MADE INVESTMENTS DURING THE YEAR OUT OF BORROWED FU NDS . IT WAS ALSO SUBMITTED BEFORE THE AO THAT SEPARATE BOOKS OF ACCO UNTS ARE MAINTAINED FOR HEAD OFFICE(HO) AND FACTORY AT GANDHIDHAM. IT WAS S UBMITTED THAT FACTORY AT GANDHIDHAM PAID INTEREST ON TERM LOANS AND CASH CRE DIT. SEPARATE COLUMNAR PROFIT AND LOSS ACCOUNT OF HO AND FACTORY AT GANDHI DHAM WAS SUBMITTED BEFORE THE AO. THE ASSESSEE DISALLOWED AN AMOUNT O F RS. 1,20,000/- VOLUNTARILY U/S 14A OF THE ACT IN THE RETURN OF INC OME FILED WITH THE REVENUE. THE A.O. WORKED OUT DISALLOWANCE OF RS. 6,05,192/- U/S 14A OF THE ACT READ ITA 3587/MUM/2014 10 WITH RULE 8D(2)(III) OF INCOME TAX RULES, 1962 , OU T OF WHICH RS. 1,20,000/- WAS DECLARED VOLUNTARILY BY THE ASSESSEE AND THE AD DITION OF THE BALANCE AMOUNT OF RS.4,85,192/- WAS MADE BY THE AO WHILE FR AMING ASSESSMENT ORDER DATED 21-12-2011 PASSED U/S 143(3) OF THE ACT . THE AO DID NOT MADE ANY DISALLOWANCE FOR DIRECT EXPENSES INCURRED IN RE LATION TO EARNING OF EXEMPT INCOME , NOR INTEREST EXPENDITURE WAS DISALLOWED BY THE AO U/R 8D(2)(I) AND 8D(2)(II) OF INCOME TAX RULES, 1962 READ WITH SECTI ON 14A OF THE ACT, WHILE THE AO AT THE SAME TIME CHOSE TO APPLY RULE 8D(2)(III) OF INCOME TAX RULES, 1962 FOR MAKING DISALLOWANCE U/S 14A OF THE ACT OF RS.6, 05,192/- . WE HAVE OBSERVED THAT THE ASSESSEE HAS MADE INVESTMENT OF R S. 12,31,07,108/- AS ON 31 ST MARCH, 2009 ( RS. 11,91,40,827/- AS ON 31-03-2008) WHILE THE ASSESSEES OWN FUNDS ARE TO THE TUNE OF RS. 21,14,51,971/- AS ON 31-03-2009 ( RS. 20,97,42,428/- AS ON 31-03-2008) AS BORNE OUT FROM AUDITED FINANCIAL STATEMENTS WHICH IS SUFFICIENT TO COVER THE INVESTM ENTS IN SECURITIES MADE BY THE ASSESSEE AND PRESUMPTION AS CONTEMPLATED VIDE D ECISION OF HONBLE BOMBAY HIGH COURT IN THE CASE OF RELIANCE UTILITIES AND POWER LIMITED(SUPRA) SHALL APPLY IN THE ABSENCE OF COGENT EVIDENCE ON RE CORD BROUGHT BY REVENUE. THE ADDITIONS MADE BY THE A.O. WAS DELETED BY THE L D. CIT(A) IN THE APPELLATE ORDER DATED 19.12.2012 PASSED BY THE LEARNED CIT(A) .THE ASSESSEE HAD GIVEN SEPARATE BREAK UP OF FINANCIALS OF HEAD OFFICE AND FACTORY AT GANDHIDAHAM BEFORE THE AO VIDE REPLY DATED 08-12-2011 AND THE I NVESTMENTS AS REFLECTED ARE MAINLY OLD INVESTMENTS WHEREIN THIS YEAR IT IS OBSERVED THAT INVESTMENT OF RS. 40 LACS WAS MADE BY THE ASSESSEE WHICH IS HELD IN THE FORM OF SHARE APPLICATION MONEY AS AT 31-03-2009 IN ORIENTAL POWE R CABLES LIMITED. IT IS ALSO OBSERVED FROM THE FINANCIALS OF THE HO THAT NO INTEREST WAS INCURRED AS EXPENDITURE DURING THE PRECEDING YEAR, WHILE IN THI S YEAR THE INCREMENTAL INVESTMENT IS ONLY RS. 40 LACS IN THE SHARE APPLICA TION MONEY WITH ORIENTAL POWER CABLES LIMITED FOR WHICH THE ASSESSEE HAS GIV EN THE DETAILS THAT THIS INVESTMENT IS MADE OUT OF INTEREST FREE FUNDS RAISE D BY THE COMPANY FROM SAKARWADI TRADING COMPANY PRIVATE LIMITED WHICH IS PLACED AT PAPER BOOK ITA 3587/MUM/2014 11 PAGE 79-80 . THE ASSESSEE HAS ALSO SUBMITTED BANK STATEMENT TO THAT EFFECT WHICH IS PLACED AT PAPER BOOK PAGE 99. FURTHER, PRO FITS OF THE COMPANY BEFORE DEPRECIATION ARE TO THE TUNE OF RS 59.46 LACS DURIN G THE YEAR WHICH ARE ALSO MORE THAN SUFFICIENT TO COVER INCREMENTAL INVESTME NT OF RS 40 LACS MADE DURING THE YEAR. IT WAS STATED VIDE REPLY DATED 08- 12-2011 BEFORE THE AO THAT SEPARATE BOOKS OF ACCOUNTS HAVE BEEN MAINTAINED BY THE ASSESSEE FOR HEAD OFFICE AND FACTORY AT GANDHIDHAM AND SAID FACTORY H AS PAID INTEREST FOR TERM LOAN AND CASH CREDIT FACILITY. FURTHER, THE ASSESSE E HAS BROUGHT BEFORE THE AO THAT THE ASSESSEE HAS PAID INTEREST ON HO ACCOUNT F OR THE FIRST TIME THIS YEAR ON ICDS RAISED DURING THE YEAR WHICH WERE DEPLOYED TO REPAY OLD LOANS AS WELL TO GRANT INTEREST BEARING LOANS FROM WHICH INT EREST INCOME OF RS. 27.87 LACS WERE EARNED BY THE ASSESSEE . IN OUR CONSIDERE D VIEW, THE A.O. HAS TAKEN A PLAUSIBLE AND POSSIBLE VIEW WHILE FRAMING ASSESSM ENT U/S 143(3) OF THE ACT VIDE ORDERS DATED 21-12-2011 KEEPING IN VIEW THE FA CTS AND CIRCUMSTANCES OF THE CASE AND AFTER CONSIDERING THE REPLIES OF THE A SSESSEE BEFORE HIM WHEREBY NO DISALLOWANCE WAS MADE BY THE AO U/S 14A OF THE A CT READ WITH RULE 8D(2)(II) OF INCOME TAX RULES, 1962 OF INTEREST EXP ENDITURE AS THE ASSESSEE HAS GIVEN AN EXPLANATION TO THE AO WITH RESPECT TO RAISING OF INTEREST BEARING FUNDS AND SUBMITTED THAT NO INVESTMENTS HAVE BEEN M ADE OUT OF INTEREST BEARING FUNDS WHICH EXPLANATION WAS ACCEPTED BY THE AO AND IS SUPPORTED BY BOOKS OF ACCOUNTS . THE ASSESSEE CONTENTIONS OF NOT MAKING INVESTMENTS IN SECURITIES OUT OF BORROWED FUNDS IS FURTHER SUPPORT ED BY OWN FUNDS OF THE ASSESSEE OF RS. 21.14 CRORES AS AT 31-03-2009 WHILE INVESTMENTS IN SECURITIES STOOD AT RS. 12.31 CRORES WHICH OWN FUNDS ARE MUCH MORE THAN THE INVESTMENTS AND PRESUMPTION SHALL APPLY AS CONTEMPL ATED BY DECISION OF HONBLE BOMBAY HIGH COURT IN THE CASE OF CIT V. REL IANCE UTILITIES AND POWER LTD., (2009)313 ITR 340(BOM. HC) AND HDFC BANK LIMI TED V. DCIT (2016) 383 ITR 529(BOM. HC) IN THE ABSENCE OF REBUTTAL BY THE REVENUE . THERE IS NOTHING INCRIMINATING ON RECORD WHEREBY PRESUMPTION IS REBUTTED BY THE REVENUE. WE ARE OF THE CONSIDERED VIEW THAT INVOCAT ION OF PROVISIONS OF ITA 3587/MUM/2014 12 SECTION 263 OF THE ACT IS NOT WARRANTED IN THE INST ANT CASE AS THE AO TOOK A PLAUSIBLE AND POSSIBLE VIEW AFTER CONSIDERING REPLI ES OF THE ASSESSEE WHILE FRAMING ASSESSMENT ORDER U/S 143(3) OF THE ACT WHIC H , AND KEEPING IN VIEW THE DECISION OF THE HONBLE BOMBAY HIGH COURT IN TH E CASE OF CIT V. RELIANCE UTILITIES AND POWER LTD., (2009)313 ITR 340(BOM. HC ) IT CANNOT BE SAID THAT THE SAID VIEW AS TAKEN BY THE AO WAS ERRONEOUS SO F AR AS IT IS PREJUDICIAL TO THE INTEREST OF REVENUE TO ENABLE THE CIT TO EXERCI SE HIS EXTRAORDINARY REVISIONARY POWERS U/S. 263 OF THE ACT. THE ASSESSM ENT ORDER WAS SUBJECT TO CHALLENGE BEFORE THE LEARNED CIT(A) WHO HAS PASSED APPELLATE ORDER DATED 19- 12-2012 WHEREBY THE LEARNED CIT(A) DELETED THE ADDI TIONS MADE BY THE AO U/S 14A OF THE ACT READ WITH RULE 8D(2)(III) OF INC OME TAX RULES, 1962 . THE REVENUE INVOKED SECTION 263 OF THE ACT BY ISSUING N OTICE DATED 17-01-2013 U/S 263 OF THE ACT POST APPELLATE ORDER PASSED BY THE LEARNED CIT(A) ON 19- 12-2012 WHICH WAS ALSO ON THE SAME ISSUE OF DISALLO WANCE OF EXPENDITURE UNDER SECTION 14A OF THE ACT READ WITH RULE 8D OF I NCOME TAX RULES, 1962 IN RELATION TO EARNING OF INCOME WHICH DOES NOT FORM P ART OF THE TOTAL INCOME, WHICH WAS EARLIER ADJUDICATED BY LEARNED CIT(A) VID E ORDERS DATED 19-12-2012 WHICH IN OUR CONSIDERED VIEW IS NOT PERMISSIBLE WIT H RESPECT TO THE SAME ISSUE OF DISALLOWANCE U/S 14A READ WITH RULE 8D OF INCOME TAX RULES, 1962. THE LEARNED COUNSEL FOR THE ASSESSEE RIGHTLY RELIED ON THE DECISIONS/JUDGMENT IN THIS REGARD WHICH ARE CITED IN PRECEDING PARAS . KEEPING IN VIEW OUR DETAILED DISCUSSIONS AND REASONING, WE HEREBY ORDER QUASHING OF THE REVISIONARY ORDER PASSED BY LEARNED CIT DATED 28-03 -2014 U/S. 263 OF THE ACT PROPOSING TO SET ASIDE ASSESSMENT ORDER DATED 21.12 .2011 PASSED BY THE AO U/S. 143(3) OF THE ACT FOR MAKING DE-NOVO ASSESSMEN T. WE ORDER ACCORDINGLY. ITA 3587/MUM/2014 13 8. IN THE RESULT, APPEAL FILED BY THE ASSESSEE IN I TA NO. 3587/MUM/2014 FOR THE ASSESSMENT YEAR 2009-10 IS ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 21 ST SEPTEMBER, 2016. # $% &' 21-09-2016 ( ) SD/- SD/- (MAHAVIR SINGH) (RAMIT KOCHAR) JUDICIAL MEMBER ACCOUNTANT MEMBER $ MUMBAI ; & DATED 21-09-2016 [ .9../ R.K. R.K. R.K. R.K. , EX. SR. PS !'#$%&%# / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT 2. / THE RESPONDENT. 3. : ( ) / THE CIT(A)- CONCERNED, MUMBAI 4. : / CIT- CONCERNED, MUMBAI 5. =>( 99?@ , ?@ , $ / DR, ITAT, MUMBAI A BENCH 6. (BC D / GUARD FILE. / BY ORDER, = 9 //TRUE COPY// / ( DY./ASSTT. REGISTRAR) , $ / ITAT, MUMBAI