ACIT, Coimbatore V. Texmo Industries, Coimbatore

ITA 395/CHNY/2016

• Counselvise Citation: [2017] 130 COUNSELVISE.COM (IT) 8077 (ITAT-CHENNAI)
• Duration Of Justice: 11 month(s) 3 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 25-01-2017
• Appeal Filed By: Department
• Order Result: Allowed
• Bench Allotted: C
• Next Hearing Date: 29-11-2016
• Assessment Year: 2011-2012
• Appeal Filed On: 22-02-2016
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: A.DHANANJAYAN
• Assessee Lawyers: H.KABILA
• Keywords: Earning of tax free income; Rule 8D; Set aside
• Section: 32; 147; 131; 68; 246; 69; 145; 27; 148; 54; 37; 6; 56; 263; 63; 132; 12; 28; 144; 10; 90; 154; 2; 11; 15; 271(1)(b); 139; 143(3); 92; 14A; 43

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL BENCH C, CHENNAI , !' . ' $ %, & %' BEFORE SHRI SANJAY ARORA, ACCOUNTANT MEMBER AND SHRI G. PAVAN KUMAR, JUDICIAL MEMBER ./ ITA NO. 395/MDS/2016 & ) '*) / ASSESSMENT YEAR : 2011-12 ASST. COMMISSIONER OF INCOME TAX, NON CORPORATE CIRCLE-4, COIMBATORE. (,-/ APPELLANT ) VS. TEXMO INDUSTRIES, METTUPALAYM ROAD, G.N.MILLS (PO), COIMBATORE 641 029. [PAN: AABFT 1899B ] (./,-/ RESPONDENT) ,- 0 1 / APPELLANT BY : SHRI A.DHANANJAYAN, CA ./,- 0 1 /RESPONDENT BY : SHRI H.KABILA, JT. CIT $ ' 0 2 /DATE OF HEARING : 29.11.2016 3* 0 2 /DATE OF PRONOUNCEMENT : 25.01.2017 / O R D E R PER SANJAY ARORA, AM : THIS IS AN APPEAL BY THE REVENUE DIRECTED AGAINST T HE ORDER BY THE COMMISSIONER OF INCOME TAX (APPEALS)-3, COIMBATORE ( CIT(A) FOR SHORT) DATED 26.11.2015, ALLOWING THE ASSESSEES APPEAL CONTESTI NG ITS ASSESSMENT U/S. 143(3) OF THE INCOME TAX ACT, 1961 (THE ACT HEREINAFTER) DAT ED 17.03.2014 FOR THE ASSESSMENT YEAR (AY) 2011-12. 2 ITA NO.395 /MDS/2016 (AY 2011-12) ACIT V. TEXMO INDUSTRIES 2. THE SOLE ISSUE ARISING IN THIS APPEAL BY THE REVE NUE IS THE DISALLOWANCE U/S. 14A, SINCE DELETED BY THE LD. CIT(A). THE ASSESSING OFFICER (AO) OBSERVED THE ASSESSEE TO HAVE EARNED DIVIDEND INCOME AT . 145.52 LACS DURING THE YEAR ON INVESTMENT IN MUTUAL FUNDS (MFS). THE SAME NOT FORM ING PART OF THE TOTAL INCOME, THE ASSESSEE, ON BEING SHOW CAUSED IN THE MATTER QU A S. 14A, STATED THAT NO EXPENDITURE HAD BEEN INCURRED IN RELATION TO THE SA ID EXEMPT INCOME. THE AO, ACCORDINGLY, PROCEEDED TO ESTIMATE THE SAME, APPLYI NG RULE 8D, AND EFFECTED THE DISALLOWANCE AT . 63,97,565/-, OF WHICH . 49,71,174/- IS UNDER RULE 8D(2)(II) AND THE BALANCE TOWARDS INDIRECT, ADMINISTRATIVE EXPEND ITURE U/R. 8D(2)(III). THE CIT(A), IN APPEAL, OPINED THAT NO DISALLOWANCE WAS, UNDER THE FACTS AND CIRCUMSTANCED, CALLED FOR. THE AO HAD, FIRSTLY, NO T EXPRESSED HIS DISSATISFACTION WITH THE ASSESSEES CLAIM OF HAVING NOT INCURRED AN Y EXPENDITURE IN RELATION TO THE DIVIDEND INCOME. TWO, THERE HAD BEEN IN FACT A DECLI NE IN THE INVESTMENT DURING THE CURRENT YEAR BY . 14.29 CR., EVEN AS THE ASSESSEE HAD ADMITTEDLY EA RNED A SURPLUS OF . 66.74 CR., RETURNING INCOME FOR THE YEAR AT . 1876.66 LACS. THE BALANCE IN THE PARTNERS CURRENT ACCOUNTS AS ON 31.03.2011, WHICH WAS AVAILABLE FOR INVESTMENT IN MFS (OUTSTANDING AT . 21.38 CR. AS ON 31.03.2011), WAS AT . 148.14 CR. THE DISALLOWANCE BEING DIRECTED FOR DELETION THUS, THE REVENUE IS IN APPEAL. 3. WE HAVE HEARD BOTH THE PARTIES, AND PERUSED THE MATERIAL ON RECORD. IT IS CLEAR THAT THE FIRST APPELLATE AUTHORITY HAS ALLOWED THE ASSESSEES APPEAL ON TWO ASPECTS, I.E., THE JURISDICTIONAL ASPECT AS WELL AS ON MERITS. QUA THE FORMER, WITHOUT DOUBT, THE DISSATISFACTION OF THE AO, WHICH IS TO BE WITH REFERENCE TO THE ASSESSEES ACCOUNTS, WOULD HOLD EVEN WHERE THE ASSE SSEE, AS IN THE INSTANT CASE, CLAIMS TO HAVE NOT INCURRED ANY EXPENDITURE IN RELA TION TO THE TAX EXEMPT INCOME (S. 14A(3)). THE ASSESSEES CLAIM, HOWEVER, AS EXPL AINED BY THE TRIBUNAL IN AFL PVT. LTD. V. ASST. CIT [2013] 28 ITR (TRIB) 263 (MUM) AND KUNAL CORPORATION V. ASST. CIT [2013] 28 ITR (TRIB) 277 (MUM), IS TO BE ON SOME BAS IS WHICH COULD BE VERIFIED, AND NOT A BALD CLAIM, DE HORS ITS ACCOUNTS OR ANY OTHER MATERIAL. IT IS ONLY 3 ITA NO.395 /MDS/2016 (AY 2011-12) ACIT V. TEXMO INDUSTRIES WHERE THE CLAIM IS SO MADE THAT THE ASSESSING OFFIC ER IS OBLIGED UNDER LAW TO SATISFY HIMSELF AND PROCEED FURTHER ONLY ON THE BAS IS OF, AND TO THE EXTENT OF, HIS DISSATISFACTION (WITH THE ASSESSEES CLAIM/S). THAT IS, HIS SATISFACTION OR, AS THE CASE MAY BE, DISSATISFACTION, IS TO BE OBJECTIVELY ARRIV ED AT. THE CLAIMS ON MERITS BY THE ASSESSEE HAVE BEEN MADE IN THE INSTANT CASE ONLY BE FORE THE LD. CIT(A). THE SAID OBJECTION THUS IS TO NO AVAIL. ON MERITS, WE FIND THAT THE ASSESSEES APPEAL FOR THE IMMEDIATELY PRECEDING YEAR, I.E., AY 2010-11, TRAVELLED TO THE TRIBUNAL ( IN ITA NO.320/MDS/2016 DATED 14.06.2016 / COPY ON RECORD), WHICH SET ASIDE THE M ATTER BACK TO THE FILE OF THE AO. CLEARLY, CONSIDERATION OF CONSISTENCY IN APPROACH W OULD DICTATE THE SAME COURSE FOR THE CURRENT YEAR AS WELL. TRUE, THERE HAS BEEN A DECLINE IN INVESTMENT, AS WELL AS INFLATION IN OWN (INTEREST-FREE) FUNDS DURING THE C URRENT YEAR. BOTH ASPECTS, HOWEVER, GET CAPTURED IN THE WORKING UNDER RULE 8D( 2)(II). IF THE OPENING INVESTMENT IN MUTUAL FUNDS ( . 35.68 CR) IS FOUND AS FINANCED PROPORTIONATELY BY BORROWED AND OWN FUNDS, THE SAME WOULD PREVAIL FOR THE CURRENT YEAR AS WELL, EVEN AS THE QUANTUM OF INTEREST AND THE PROPORTION AFORE -SAID WOULD, ON ACCOUNT OF THE AFORESAID FACTORS, VARY IN FAVOUR OF THE ASSESSEE. WHAT WOULD, AGAIN, BE OF RELEVANCE IS IF THE BORROWED FUNDS ARE DEDICATED FU NDS, AS FOR EXAMPLE, FOR WORKING CAPITAL; FIXED ASSETS, ETC., IN WHICH CASE, WHERE A DEQUATE LEVEL OF ASSETS IS AVAILABLE DURING THE YEAR, THE SAME SHALL GET EXCLUDED WHILE RECKONING BOTH THE INTEREST COST (TO BE ALLOCATED) AS WELL AS CORRESPONDING ASSETS. THERE IS NO FINDING BY THE LD. CIT(A) QUA INDIRECT, ADMINISTRATIVE EXPENDITURE, ALSO DISALLO WED AT . 14.26 LACS, EVEN AS HIS ORDER DELETES THE SAME AS WELL. THE DECISION IN INDIAN SMELTING AND REFINING COMPANY LTD. V. ASST. CI T [2015] 43 CCH 200 (MUM)(TRIB) WOULD BE OF LITTLE ASS ISTANCE TO THE ASSESSEE. IN THE FACTS OF THAT CASE, THE TRIBUNAL, ON THE BASIS OF ACCOUNTS AND CASH FLOW STATEMENT, ARRIVED AT A FINDING OF FACT AS TO THE INVESTMENT I N TAX-EXEMPT ASSETS BEING BY THE APPELLANTS OWN CAPITAL. THE ASSESSEES CASE IN THE INSTANT CASE IS BEREFT OF ANY 4 ITA NO.395 /MDS/2016 (AY 2011-12) ACIT V. TEXMO INDUSTRIES MATERIAL ON RECORD, WITH, RATHER, THE TRIBUNAL REST ORING THE MATTER BACK TO THE FILE OF THE AO FOR THE IMMEDIATELY PRECEDING YEAR. WE, ACCORDINGLY, ONLY CONSIDER IT PROPER TO RESTOR E THE ASSESSMENT WITH REGARD TO THE DISALLOWANCE UNDER 14A BACK TO THE FILE OF T HE AO FOR ITS CONSIDERATION AFRESH AND A DECISION IN ACCORDANCE WITH LAW, ISSUI NG DEFINITE FINDINGS OF FACT, AFTER ALLOWING THE ASSESSEE A REASONABLE OPPORTUNITY TO P RESENT ITS CASE AND ESTABLISH ITS CLAIMS. WE DECIDE ACCORDINGLY. 4. IN THE RESULT, THE REVENUES APPEAL IS ALLO WED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED ON JANUARY 25, 2017 AT CHENNAI . SD/- SD/- ( . ' $ %) ( ) ( G. PAVAN KUMAR ) ( SANJAY ARORA ) & / JUDICIAL MEMBER / ACCOUNTANT MEMBER / CHENNAI, 5 / DATED, JANUARY 25, 2017 . EDN. 6 0 .&278 98*2 / COPY TO: 1. ,- / APPELLANT 2. ./,- / RESPONDENT 3. $ :2 () / CIT(A) 4. $ :2 / CIT 5. 8';< .&2& / DR 6. <=) > / GF