MAFATLAL FABRICS P. LTD, MUMBAI V. ASST CIT 1(2), MUMBAI

ITA 400/MUM/2014

• Counselvise Citation: [2017] 128 COUNSELVISE.COM (IT) 7897 (ITAT-MUMBAI)
• Duration Of Justice: 3 year(s) 2 month(s) 6 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 22-03-2017
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: B
• Next Hearing Date: 15-12-2016
• Assessment Year: 2009-2010
• Appeal Filed On: 16-01-2014
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Keywords: Earning of tax free income
• Section: 142(1)

Judgement Text

, IN THE INCOME TAX APPELLATE TRIBUNAL B BENCH, MUM BAI , , , , ! BEFORE SHRI RAJENDRA, AM AND SHRI AMARJIT SINGH, JM / I.T.A. NO.400/MUM/2014 ( '# $# / ASSESSMENT YEAR:2009-10) MAFATLAL FABRICS PRIVATE LIMITED 4 TH FLOOR, MAFATLAL HOUSE, H.T.PAREKH MARG, BACKBAY RECLAMATION, MUMBAI 400 020 / VS. THE ASSTT. COMMISSIONER OF INCOME TAX 1(2) AAYAKAR BHAVAN, 5 TH FLOOR, M.K.ROAD, MUMBAI 400 020 ./ ./PAN/GIR NO. : AAACP4133C ( /APPELLANT ) .. ( / RESPONDENT ) / DATE OF HEARING: 15.12.2016 /DATE OF PRONOUNCEMENT: 22.03.2017 / O R D E R PER AMARJIT SINGH, JM: THE ASSESSEE HAS FILED THE PRESENT APPEAL AGAINST T HE ORDER DATED 03.10.2013 PASSED BY THE COMMISSIONER OF INCOME TAX (APPEALS)-20, MUMBAI [HEREINAFTER REFERRED TO AS THE CIT(A)] R ELEVANT TO THE A.Y.2009-10. 2. THE ASSESSEE HAS RAISED THE FOLLOWING GROUNDS:- ASSESSEE BY: MS. AARTI VISSANJI REVENUE BY: SHRI SUMAN KUMAR ITA NO.400/M/2014 A.Y.2009-10 2 1. RE: DISALLOWANCE U/S.14A OF THE ACT: A. IN RELATION TO INTEREST EXPENDITURE: 1.1 THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) ER RED IN CONFIRMING THE ACTION OF THE AO AS UNDER: (A) CONSIDERING INTEREST EXPENDITURE INCURRED DURING TH E YEAR IN QUANTIFYING DISALLOWANCE. WITHOUT PREJUDICE AND IN ALTERNATE (B) NOT NETTING OFF INTEREST INCOME AGAINST INTEREST EX PENDITURE FOR THE YEAR RELEVANT IN QUANTIFYING DISALLOWANCE OF IN TEREST. WITHOUT PREJUDICE AND IN ALTERNATE (C) NOT EXCLUDING INTEREST EXPENDITURE OF RS.2,98,765/- REFERABLE TO TRADING ACTIVITIES. B. IN RELATION TO DISALLOWANCE UNDER SUB-RULE 2(III): DISALLOWING RS.2,84,370/- QUANTIFIED AT 0.5% OF AVE RAGE VALUE OF INVESTMENTS. 2. THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) OU GHT TO HAVE HELD THAT: A. IN RELATION TO INTEREST EXPENDITURE: (A) NO PART OF INTEREST EXPENDITURE IS TO BE DISALLOWED IN VIEW OF INTEREST FREE FUNDS AVAILABLE WITH THE APPELLANT IN THE FORM OF PAID-UP CAPITAL AND FREE RESERVES. WITHOUT PREJUDICE AND IN ALTERNATE (B) INTEREST INCOME IS TO BE NETTED OFF AGAINST INTERES T EXPENDITURE FOR THE YEAR RELEVANT IN QUANTIFYING DI SALLOWANCE OF INTEREST. WITHOUT PREJUDICE AND IN ALTERNATE. (C) INTEREST EXPENDITURE OF RS.2,98,765/- REFERABLE TO TRADING ACTIVITIES IS TO BE EXCLUDED IN QUANTIFYING DISALLO WANCE OF INTEREST. B. IN RELATION TO DISALLOWANCE UNDER SUB-RULE (2)(III) : DISALLOWANCE, IF ANY, UNDER THIS SUB-RULE HAS TO BE RESTRICTED IN RELATION TO VARIABLE COMPONENT OF MANAGERIAL AND AD MINISTRATIVE COST INCURRED DURING THE YEAR NOT REFERABLE TO TRAD ING ACTIVITIES AS WELL AS INCURRED IN RELATION TO MAINTENANCE OF CORP ORATE ENTITY AND ACCORDINGLY, THERE IS NO WARRANT TO MAKE ANY DISALL OWANCE IN THIS REGARD. 2. IT IS HUMBLY PRAYED THAT THE RELIEFS AS PRAYED F OR HEREINABOVE AND/OR SUCH OTHER RELIEFS AS MAY BE JUSTIFIED BY THE FACTS AND CIRCUMSTANCES OF THE CASE AND AS MAY MEET THE ENDS OF JUSTICE SHO ULD BE GRANTED. 3. THE APPELLANT CRAVES LEAVE TO AMEND OR ALTER ANY GR OUND, OR ADD A NEW GROUND WHICH MAY BE NECESSARY. ITA NO.400/M/2014 A.Y.2009-10 3 3. THE BRIEF FACTS OF THE CASE ARE THAT THE ASSESSE E FILED ITS RETURN OF INCOME ON 26.09.2009 DECLARING TOTAL INCOME TO THE TUNE OF RS.1,19,81,519/-. THE CASE WAS SELECTED FOR SCRUTI NY THROUGH CASS. NOTICES U/S.143(2) AND 142(1) OF THE INCOME TAX ACT , 1961 ( IN SHORT THE ACT) WERE ISSUED AND DULY SERVED UPON THE ASSESSEE . THE RETURN WAS PROCESSED U/S.143(1) OF THE ACT ON 22.03.2011. NOT ICE U/S.143(2) OF THE ACT WAS ISSUED ON 28.08.2010 AND DULY SERVED UPON T HE ASSESSEE. FURTHER, NOTICE U/S.142(1) OF THE ACT DATED 05.07.2011 ALONG WITH QUESTIONNAIRE WAS ISSUED AND SERVED UPON THE ASSESSEE ON 11.07.2011. THE ASSESSEE WAS ENGAGED IN THE BUSINESS OF TRADING AND EXPORTS OF F ABRICS. GOODS WERE SOLD UNDER THE BRAND NAME OF MAFATLAL FABRICS. THE GO ODS WERE PURCHASED EITHER ORDER SPECIFIC OR CUSTOMER BASED AS PER THEI R EXPERIENCE. GENERALLY GOODS PURCHASED FOR THE CORPORATE CUSTOMER AND INST ITUTIONAL CUSTOMERS WERE MADE ORDER SPECIFIC. DURING THE YEAR UNDER CO NSIDERATION, THE ASSESSEE COMPANY DECLARES TURNOVER AMOUNTING TO RS. 98,32,81,405/-. UNDER THE YEAR OF ASSESSMENT THE ASSESSEE EARNED TH E DIVIDEND INCOME TO THE TUNE OF RS.22,55,809/- WHICH WAS CLAIMED U/S.10 (34) OF THE ACT. THE ASSESSEE DISALLOWED A SUM OF RS.4,04,913/- U/S.14A OF THE ACT. SINCE THE ASSESSEE DID NOT FURNISH THE PROPER WORKING, THERE FORE, THE NOTICE WAS GIVEN AND THE DISALLOWANCE WAS WORKED OUT TO THE TUNE OF RS.6,19,047/-. SINCE THE ASSESSEE WAS NOT SATISFIED, THEREFORE, FILED AN APPEAL BEFORE THE CIT(A) WHO CONFIRMED THE ORDER OF THE ASSESSING OFFICER, T HEREFORE ASSESSEE HAS FILED THE PRESENT APPEAL BEFORE US. ISSUE NO.1:- ITA NO.400/M/2014 A.Y.2009-10 4 4. UNDER THIS ISSUE THE ASSESSEE HAS CHALLENGED THE EXPENDITURE ASSESSED TO EARN THE EXEMPT INCOME U/S.14A R.W. RUL E 8D OF THE ACT TO THE TUNE OF RS.6,19,047/-. THE LEARNED REPRESENTATIVE OF THE ASSESSEE HAS ARGUED THAT THE APPELLANT WAS HAVING 12.5 CRORE INT EREST FREE FUND WHEREAS THE INVESTMENT WAS ONLY TO THE TUNE OF RS.92,93,700 /- WHICH WAS LESS THAN THE AVAILABLE NON INTEREST FREE FUNDS. THEREFORE, IN THE SAID CIRCUMSTANCES NO DISALLOWANCE IS REQUIRED U/S.14A R.W.RULE 8D OF THE ACT IN VIEW OF THE LAW SETTLED IN HONBLE BOMBAY HIGH COURT IN CASE TI TLED AS HDFC BANK VS. DCIT 366 ITR 505 (BOMBAY) AND IN CASE TITLED AS CIT VS. RELIANCE UTILITIES 313 ITR 340. HOWEVER, ON THE OTHER HAND THE LEARNED DEPARTMENTAL REPRESENTATIVE HAS STRONGLY RELIED UPO N THE ORDER PASSED BY THE CIT(A) IN QUESTION. BY GIVING THE CAREFUL THOUGHTS TO THE ARGUMENTS ADVANCED BY LD REPRESENTATIVE OF THE PARTIES AND BY GOING THROUGH THE RELEVANT RECORD CAREFULLY SPECIFICALLY BALANCE SHEE T FILED BY THE ASSESSEE LIES AT PAGE 12 TO 22 OF THE PAPER BOOK, IT CAME TO THE NOTICE THAT THE ASSESSEE WAS HAVING PAID UP CAPITAL, FREE RESERVE AND SURPLU S TO THE TUNE OF RS.11.73 CRORES AND WAS HAVING INTEREST FREE UNSECURED LOAN TO THE TUNE OF RS.0.82 CRORES, TOTAL TO THE TUNE OF RS.12.55 CRORES. THE INVESTMENT WAS ONLY TO THE TUNE OF RS.4,83,05,168/-. ON APPRAISAL OF THE ABOV E MENTIONED LAW WHEREIN IT IS SPECIFICALLY HELD THAT WHERE THE INTEREST FRE E FUNDS WERE AVAILABLE MORE THAN THE INVESTMENT THEN PRESUMPTION WOULD ARRIVE T HAT THE INVESTMENT WAS MADE OUT OF INTEREST FREE FUNDS GENERATED OR AVAILA BLE WITH THE ASSESSEE. ACCORDINGLY, IF OWN FUND IS SUFFICIENT TO MEET OUT THE INVESTMENT THEN IN THE SAID CIRCUMSTANCES NO DISALLOWANCE OF INTEREST COUL D BE MADE IN VIEW OF THE PROVISION U/S.14A OF THE ACT. THE ASSESSEE DID NOT PROVIDE DETAIL OF THE EXPENDITURE INCURRED TO EARN THE EXEMPT INCOME. IN VIEW OF THE SAID ITA NO.400/M/2014 A.Y.2009-10 5 CIRCUMSTANCES WE UPHELD THE DISALLOWANCE IN VIEW OF THE PROVISION U/S.14A R.W. RULE 8D (III) OF THE ACT I.E. 0.5%OF THE AVERA GE OF TOTAL INVESTMENT WHICH HAS BEEN ALREADY ASSESSED BY THE ASSESSING OF FICER TO THE TUNE OF RS.2,84,370. 5. IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE IS HEREBY ORDERED TO BE PARTLY ALLOWED ORDER PRONOUNCED IN THE OPEN COURT ON 22 ND MARCH, 2017 . SD/- SD/ - (RAJENDRA) (AMARJIT SINGH) / ACCOUNTANT MEMBER /JUDICIAL MEMBER MUMBAI; DATED :22 ND #$ , 2017 MP & '$ / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT 2. / THE RESPONDENT. 3. ) ( ) / THE CIT(A)- 4. ) / CIT 5. , , , , / DR, ITAT, MUMBAI 6. + -$ / GUARD FILE. / BY ORDER, ! ! //TRUE COPY// / /(DY./ASSTT. REGISTRAR) , / ITAT, MUMBAI