The Dy. Commissioner of Income Tax, Jalandhar V. M/s Kapsons Industries Ltd., Jalandhar

ITA 410/ASR/2016

• Counselvise Citation: [2016] 131 COUNSELVISE.COM (IT) 9529 (ITAT-AMRITSAR)
• Duration Of Justice: 2 month(s) 23 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 28-10-2016
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: DB
• Assessment Year: 2012-2013
• Appeal Filed On: 05-08-2016
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: S K VATTA
• Keywords: Depreciation; Commercial expediency
• Section: 14A

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL AMRITSAR BENCH : AMRITSAR. BEFORE SH. T. S. KAPOOR, ACCOUNTANT MEMBER AND SH. N.K. CHOUDHRY, JUDICIAL MEMBER ITA NO.410(ASR)/2016 ASSESSMENT YEAR:2013-14 PAN : AACK9887G DY. COMMR. OF INCOME TAX VS. M/S. KAPSONS INDUSTRIE S LTD., RANGE-1, JALANDHAR. G.T.ROAD, SURANUSSI, JALANDHAR. (APPELLANT) (RESPONDENT) APPELLANT BY: SH.RAHUL DHAWAN, DR RESPONDENT BY: SH. S.K. VATTA, CA DATE OF HEARING: 13/10/2016 DATE OF PRONOUNCEMENT: 28/10/2016 ORDER PER T.S. KAPOOR, AM: THIS IS AN APPEAL FILED BY THE REVENUE AGAINST THE ORDER OF THE LD. CIT(A)-1, JALANDHAR, DATED 31.05.2016, RELATING TO ASSESSMENT YEAR 2013-14. THE REVENUE IS AGGRIEVED AGAINST THE DELET ION OF ADDITIONS MADE BY THE CIT(A), WHICH THE AO HAD MADE UNDER SEC TIONS 14A & 36(1)(III) OF THE INCOME TAX ACT, 1961. 2. AT THE OUTSET, THE LD. COUNSEL FOR THE ASSESSEE INVITED OUR ATTENTION TO PB 33 TO 47, WHERE A COPY OF THE ORDER OF THE IT AT, AMRITSAR BENCH, IN THE CASE OF THE ASSESSEE ITSELF FOR THE ASSESSMENT YEAR 2012-13 WAS PLACED. THE LD. COUNSEL SUBMITTED THAT SIMILAR ADDI TIONS WERE MADE IN THE ASSESSMENT YEAR 2012-13 AND THE HONBLE TRIBUNA L VIDE ITS ORDER ITA NO. 410/ASR/2016 A.Y. 2013-14 2 DATED 12.08.2016 HAD DISMISSED THE APPEAL FILED BY THE REVENUE ON THESE POINTS. THE LD. COUNSEL IN THIS RESPECT INVIT ED OUR ATTENTION TO THE FINDINGS OF THE TRIBUNAL, AS CONTAINED IN PARA 6 & 7 OF THE ORDER. 3. THE LD. DR, ON THE OTHER HAND, HEAVILY PLACED RE LIANCE ON THE ORDER OF THE ASSESSING OFFICER. 4. THE BRIEF FACTS OF THE CASE ARE THAT DURING ASSE SSMENT PROCEEDINGS, THE AO OBSERVED THAT THE ASSESSEE HAD INVESTED SUB STANTIAL AMOUNT IN THE SHARE CAPITAL OF ITS SISTER CONCERN AND HE FURT HER OBSERVED THAT THE ASSESSEE HAD DEBITED A SUBSTANTIAL AMOUNT AS INTERE ST IN ITS PROFIT & LOSS ACCOUNT. THEREFORE, THE ASSESSEE WAS SHOW CAUSED AS TO WHY THE DISALLOWANCE UNDER SECTION 14A MAY NOT BE MADE. TH E ASSESSEE SUBMITTED VARIOUS SUBMISSIONS AND RELIED UPON VARIO US CASE LAWS FOR THE PROPOSITION THAT THE ASSESSEE HAD MORE THAN SUFFIC IENT FUNDS THAN THE AMOUNT OF INVESTMENT MADE IN SISTER CONCERN. THEREF ORE, IT WAS SUBMITTED THAT THE PROVISIONS OF SECTION 14A WERE N OT APPLICABLE. THE AO FURTHER OBSERVED THAT THE ASSESSEE HAD GIVEN INTERE ST FREE ADVANCES AND THERE WAS NO COMMERCIAL EXPEDIENCY INVOLVED IN GIV ING THESE ADVANCES AND THEREFORE, HE HELD THAT NOMINAL INTEREST ON IN TEREST FREE ADVANCES TO THE TUNE OF RS.35,00,000/- NEEDS TO BE DISALLOWED U NDER SECTION 36(1)(III) OF THE ACT AND HE ACCORDINGLY ADDED BACK THE AMOUNT OF RS.4,20,000/- BEING INTEREST @ 12% AT RS.35,00,000/-. ITA NO. 410/ASR/2016 A.Y. 2013-14 3 5. AGGRIEVED, THE ASSESSEE FILED APPEAL BEFORE THE LD. CIT(A) AND THE LD. CIT(A) BY RELYING UPON VARIOUS CASE LAWS, AS RELIE D ON BY THE ASSESSEE, DELETED BOTH THE ADDITIONS. NOW, THE REVENUE IS IN APPEAL BEFORE US AGAINST THE DELETION OF ADDITIONS. 6. WE HAVE HEARD THE RIVAL PARTIES AND HAVE GONE T HROUGH THE MATERIAL ON RECORD. WE FIND THAT THE ASSESSEE VIDE ITS SUBMISSIONS MADE BEFORE THE LD. CIT(A) HAD EXPLAINED THAT THE INVES TMENT IN THE SISTER COMPANIES WAS OUT OF INTERNAL ACCRUAL GENERATIONS T O THE TUNE OF RS.9.89 CRORES. IT WAS SUBMITTED THAT THE ASSESSEE HAD SHAR E CAPITAL AND FREE RESERVES TO THE TUNE OF RS.131.27 CRORES. IT WAS AL SO SUBMITTED BEFORE THE LD. CIT(A) THAT DISALLOWANCES MADE UNDER SECTION 14 A WERE AGAINST THE RULES OF CONSISTENCY AND AT NO STAGE, THE ADDITIONS IN THE PREVIOUS ASSESSMENT YEARS WERE MADE EXCEPT ASSESSMENT YEARS 2010-11 TO 2013- 14 AND FOR THESE YEARS ALSO, THE MATTER WAS DECIDED IN FAVOUR OF THE ASSESSEE. THE LD. CIT(A) AFTER GOING THROUGH THESE SUBMISSIONS AND AFTER RELYING UPON NUMBER OF CASE LAWS DELETED THE ADDITI ONS. WE FIND THAT THE INVESTMENTS ARE CONTINUING FROM EARLIER YEARS IN W HICH THE ISSUE HAS ALREADY BEEN DECIDED IN FAVOUR OF THE ASSESSEE BY T HE ORDER OF THE TRIBUNAL DATED 12.08.2016. FOR THE SAKE OF CONVENI ENCE, THE FINDINGS OF THE TRIBUNAL, AS CONTAINED IN PARA 6 ARE REPRODUCED BELOW: 6. WE HAVE HEARD THE RIVAL PARTIES AND HAVE GONE T HROUGH THE MATERIAL PLACED ON RECORD. WE FIND THAT THE LEARNED CIT(A) HAS DELETED THE ADDITION MADE BY ASSESSING OFFICER U/S 14A BY HOLDING THAT ASSESSEE HAD SUFFICIENT FUNDS OF ITS OWN AND L EARNED CIT(A) HAS ITA NO. 410/ASR/2016 A.Y. 2013-14 4 ALSO FOLLOWED THE ORDERS IN THE CASE OF ASSESSEE IT SELF FOR ASST. YEAR 2010-11& 2011-12, WHEREIN UNDER SIMILAR FACTS AND C IRCUMSTANCES THE ADDITION U/S 14A WAS DELETED. THE LEARNED CIT(A ) HAS RELIED UPON A NUMBER OF JUDGMENTS FOR MAKING THE DELETIONS . WE FIND THAT ASSESSEE COMPANY HAD SUBSTANTIAL OWN CAPITAL BASE B Y WAY OF SHARE CAPITAL AND BY WAY OF FREE RESERVES IN THE AS ST. YEARS: 2011- 12 & 2012-13 OF RS.77.20 CORES AND 117.39 CORES ON WHICH NO INTEREST WAS BEING PAID BY THE ASSESSEE COMPANY. TH E LEARNED CIT(A) HAS MADE A CATEGORICAL FINDING IN THIS RESPE CT. THE LEARNED CIT(A) HAS ALSO MADE A FINDING OF FACT THAT ASSESSE E COMPANY HAD EARNED NET PROFIT BEFORE DEPRECIATION TO THE EXTENT OF RS.17.73 CORES AND RS.14.32 CRORES IN ASST. YEARS: 2011-12 & 2012- 13 RESPECTIVELY. WE ARE IN AGREEMENT WITH THE FINDINGS OF LEARNED CIT(A) AND LEARNED DR WAS NOT ABLE TO CONTROVERT ANY OF TH E FINDINGS, THEREFORE, WE DO NOT FIND ANY INFIRMITY IN THE ORDE R OF LEARNED CIT(A) AS REGARDS GROUND NO.1 AND THEREFORE, THE SAME IS D ISMISSED. 7. FINDING THE ISSUE OF DISALLOWANCE U/S 14A PARI-M ATERIA TO THE FACTS AND CIRCUMSTANCES OF THE PRESENT CASE, WE HOL D THAT THE LD. CIT(A) HAS RIGHTLY DELETED THE ADDITION U/S 14A AND THERE IS NO INFIRMITY IN THE ORDER OF THE LD. CIT(A) AND THEREFORE, GROUND NO.1 OF THE APPEAL IS DISMISSED. 8. NOW COMING TO GROUND NO.2, WE FIND THAT IN THIS YEAR, THE AO HAD MADE DISALLOWANCE OF RS.4,20,000/- AS INTEREST ON I NTEREST FREE ADVANCES OF RS.35,00,000/- TO M/S. ORIEL VENTURES. WE FIND T HAT THE SIMILAR DISALLOWANCE WAS DELETED BY THE LD. CIT(A) IN EARLI ER YEAR AND THE TRIBUNAL HAD ALSO DISMISSED THE APPEAL OF THE REVEN UE. THE RELEVANT FINDINGS OF THE TRIBUNAL, AS CONTAINED IN PARA-7 OF ITS ORDER ARE REPRODUCED BELOW: 7. NOW COMING TO GROUND NO.2, WE FIND THAT LEARNED CIT(A) HAS MADE A FINDING OF FACT THAT ALL INTEREST FREE ADVAN CE MADE BY COMPANY WERE CLEARLY FOR BUSINESS PURPOSES AND FOR THE ITA NO. 410/ASR/2016 A.Y. 2013-14 5 REQUIREMENTS TO CARRY ON BUSINESS FOR ASSESSEE COMP ANY AND WERE RELATABLE TO ITS BUSINESS TRANSACTIONS IN THE COUR SE OF NORMAL BUSINESS ACTIVITIES. THE LEARNED CIT(A) HAD ALSO MA DE A FINDING OF FACT THAT ASSESSEE WAS HAVING HUGE CASH ACCRUALS. THE LEARNED CIT(A) HAS PASSED AN EXHAUSTIVE AND SPEAKING ORDER AND WE ARE IN AGREEMENT WITH HIS FINDINGS AS LEANED DR WAS NOT AB OVE TO CONTROVERT ANY OF THE FINDINGS AND THEREFORE, WE DO NOT FIND ANY INFIRMITY IN THE ORDER THE SAME. IN VIEW OF THE ABO VE, THE GROUND NO.2 OF APPEAL IS ALSO DISMISSED. THEREFORE, RESPECTFULLY FOLLOWING THE ORDER OF THE TRIBUNAL DATED 12.08.2016, IN ASSESSEES OWN CASE FOR THE ASSESSME NT YEAR 2012-13, WE HOLD THAT THE DISALLOWANCE OF RS.4,20,000/- WAS NOT WARRANTED. ACCORDINGLY, GROUND NO.2 IS ALSO DISMISSED. 9. GROUND NOS. 3 & 4 ARE GENERAL IN NATURE, HENCE, DO NOT REQUIRE ANY ADJUDICATION. 10. IN VIEW OF THE ABOVE, THE APPEAL OF THE REVENUE IS DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 28 /10 /2016. SD/- SD/- (M.K. CHOUDHRY) (T.S . KAPOOR) JUDICIAL MEMBER ACCOUNTANT MEMBER /SKR/ DATED: 28/10/2016 COPY OF THE ORDER FORWARDED TO: 1. THE ASSESSEE:M/S. KAPSONS INDUSTRIES LTD., G.T.ROAD , SURANAUSSI, JALANDHAR. 2. THE DCIT, RANGE-1, JALANDHAR 3. THE CIT(A), JALANDHAR. 4. THE CIT, JALANDHAR. 5. THE SR DR, ITAT, AMRITSAR. TRUE COPY BY ORDER INCOME TAX APPELLATE TRIBUNAL,