M/s Juhi Alloys Ltd., Kanpur V. DY. Commissioner of Income Tax-VI, Kanpur

ITA 410/LKW/2016

• Counselvise Citation: [2018] 125 COUNSELVISE.COM (IT) 1877 (ITAT-LUCKNOW)
• Duration Of Justice: 2 year(s) 1 month(s) 23 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 07-09-2018
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: A
• Assessment Year: 2008-2009
• Appeal Filed On: 15-07-2016
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Section: 14A

Judgement Text

I.T.A. NO.410 & 411/LKW/2016 ASSESSMENT YEAR:2008-09 & 10-11 1 IN THE INCOME TAX APPELLATE TRIBUNAL LUCKNOW BENCH A LUCKNOW BEFORE SHRI T. S. KAPOOR, ACCOUNTANT MEMBER AND SHRI PARTHA SARATHI CHAUDHURY, JUDICIAL MEMBER ITA NO.410 & 411/LKW/2016 ASSESSMENT YEAR:2008-09 & 10-11 M/S JUHI ALLOYS LTD., 123/360, FAZALGANJ, KANPUR. PAN:AAACJ 3420 A VS. DY.C.I.T.-VI, KANPUR. (APPELLANT) (RESPONDENT) O R D E R PER T. S. KAPOOR, A.M. THESE TWO APPEALS HAVE BEEN FILED BY THE ASSESSEE AGAINST THE SEPARATE ORDERS OF LEARNED CIT(A)-II, KANPUR DATED 15/03/2016 AND 08/03/2016 RESPECTIVELY. 2. THE COMMON ISSUE INVOLVED IN THESE APPEALS IS TH E ACTION OF LEARNED CIT(A) BY WHICH HE HAS CONFIRMED THE DISALLOWANCE O F RS.2,87,618/- AND RS.5,88,778/- U/S 14A OF THE I.T. ACT. THESE APPEA LS WERE HEARD TOGETHER AND THEREFORE, FOR THE SAKE OF CONVENIENCE A COMMON AND CONSOLIDATED ORDER IS BEING PASSED. 3. AT THE OUTSET, LEARNED A. R. SUBMITTED THAT THE ASSESSING OFFICER WHILE MAKING DISALLOWANCE U/S 14A OF THE ACT HAS NO T RECORDED PROPER APPELLANT BY SHRI ASHISH JAISWAL, ADVOCATE RESPONDENT BY SHRI J. S. MINHAS, CIT (D.R.) DATE OF HEARING 04/09/2018 DATE OF PRONOUNCEMENT 07 / 09 /2018 I.T.A. NO.410 & 411/LKW/2016 ASSESSMENT YEAR:2008-09 & 10-11 2 SATISFACTION AS REQUIRED BY THE PROVISIONS OF THE L AW AND AS REQUIRED BY THE JUDGMENT OF HON'BLE SUPREME COURT IN THE CASE OF MA XOPP INVESTMENT LTD. VS. CIT [2018] 91 TAXMANN.COM 154 (SC). OUR ATTENT ION WAS INVITED TO THE COPY OF ASSESSMENT ORDER WHERE SUCH DISALLOWANCE U/ S 14A WERE MADE. LEARNED A. R. SUBMITTED THAT AFTER RELYING ON A FEW JUDGMENTS THE ASSESSING OFFICER HAS MADE THE DISALLOWANCE BY FOLLOWING RULE 8D WITHOUT RECORDING NECESSARY SATISFACTION AS REQUIRED. LEARNED A. R. IN THIS RESPECT INVITED OUR ATTENTION TO PARA 41 OF ORDER OF HON'BLE SUPREME CO URT IN THE CASE OF MAXOPP INVESTMENT LTD. (SUPRA). LEARNED A. R. FURTH ER RELIED ON THE JUDGMENT OF HON'BLE ALLAHABAD HIGH COURT IN THE CAS E OF CIT VS. UP ELECTRONICS CORPORATION LIMITED [2017] 397 ITR 113 (ALL) WHERE THE HON'BLE ALLAHABAD HIGH COURT HAS ALSO HELD THAT CONDITION P RECEDENT FOR MAKING DISALLOWANCE U/S 14A IS THAT ASSESSING OFFICER MUST NOT BE SATISFIED WITH THE CORRECTNESS OF THE CLAIM OF THE ASSESSEE IN RESPECT OF EXPENDITURE IN RELATION TO INCOME WHICH DOES NOT FORM PART OF THE TOTAL INC OME. ON MERITS LEARNED A. R. SUBMITTED THAT ON MERITS ALSO THE DISALLOWANC E U/S 14A WAS NOT WARRANTED AS THE ASSESSEE HAD SUFFICIENT SURPLUS FU NDS WHICH WAS FAR EXCESS THAN THE INVESTMENT AND IN THIS RESPECT OUR ATTENTI ON WAS INVITED TO A CHART SHOWING THE AVAILABILITY OF SURPLUS FUNDS AS WELL A S THE INVESTMENT DURING THESE YEARS. LEARNED A. R. SUBMITTED THAT THE INTE REST BEARING FUNDS WERE FOR TERM LOAN FOR VEHICLE AND CASH CREDIT LIMITS FO R STOCK AND BOOK DEBTS. IT WAS SUBMITTED THAT DURING ASSESSMENT YEAR 2008-09 T HE VALUE OF INVESTMENT IN SHARE WAS RS.88,85,839/- WHEREAS THE INTEREST FR EE FUNDS IN THE FORM OF SHARE CAPITAL, RESERVE AND SURPLUS AND UNSECURED LO ANS WERE TO THE TUNE OF RS.15,73,84,719/-. SIMILARLY OUR ATTENTION WAS INV ITED TO ASSESSMENT YEAR 2010-11 WHEREIN THE VALUE OF INVESTMENTS REMAINED S AME WHEREAS THE INTEREST FREE FUNDS INCREASED TO RS.18,04,30,423/-. LEARNED A. R. IN THIS RESPECT RELIED ON CASE LAW OF PCIT VS. SINTEX INDUS TRIES LTD. DECIDED BY HON'BLE DELHI HIGH COURT WHERE THE HON'BLE COURT HA S HELD THAT WHERE I.T.A. NO.410 & 411/LKW/2016 ASSESSMENT YEAR:2008-09 & 10-11 3 ASSESSEE HAD SURPLUS FUNDS AGAINST WHICH MINOR INVE STMENT WAS MADE, NO QUESTION OF MAKING ANY DISALLOWANCE OR EXPENDITURE IN RESPECT OF INTEREST AND ADMINISTRATIVE EXPENSES U/S 14A AROSE. IT WAS SUBMITTED THAT SUCH ORDER OF HON'BLE COURT HAS BEEN CONFIRMED BY HON'BL E SUPREME COURT AND IS REPORTED AT 255 TAXMAN 171 (SC). 4. LEARNED D. R. PLACED HIS RELIANCE ON THE ORDERS OF THE AUTHORITIES BELOW. 5. WE HAVE HEARD THE RIVAL PARTIES AND HAVE GONE TH ROUGH THE MATERIAL PLACED ON RECORD. WE FIND THAT ASSESSING OFFICER HAS MADE THE DISALLOWANCE U/S 14A BY HOLDING SIMILAR FINDINGS. WHILE MAKING DISALLOWANCE THE ASSESSING OFFICER FIRSTLY RELIED ON A FEW JUDGM ENTS AND AFTER THAT HE MADE SIMILAR FINDINGS AND MADE DISALLOWANCES FOLLOW ING THE PROVISIONS IN RULE 8D. FOR THE SAKE OF COMPLETENESS THE FINDINGS MADE BY ASSESSING OFFICER FOR THE ASSESSMENT YEAR 2008-09 ARE REPRODU CED BELOW: FURTHER, IT IS OBSERVED THAT THE ASSESSEE HAS MADE PAYMENT OF INTEREST OF RS.1,24,18,650/- ON THE VARIOUS LOANS A ND ADVANCES TAKEN BY IT. HENCE, THE EXPENDITURE BY WAY OF INTER EST DURING THE PREVIOUS YEAR WHICH IS NOT DIRECTLY ATTRIBUTABL E TO ANY PARTICULAR INCOME OR RECEIPT WILL HAVE TO BE COMPUT ED AS PER RULE 8D(2)(II) I.E. AXB/C WHERE 'A' STANDS FOR AMOU NT OF EXPENDITURE BY WAY OF INTEREST. 'B' STANDS FOR THE AVERAGE OF VALUE OF INVESTMENT, INCOME FROM WHICH DOES NOT FRO M PART OF THE TOTAL INCOME AND 'C' STANDS FOR THE AVERAGE OF TOTAL ASSETS AS APPEARING IN THE BALANCE SHEET OF THE ASSESSEE O N THE FIRST DAY AND THE LAST DAY OF THE PREVIOUS YEAR. THE TOTA L EXPENDITURE OF INTEREST WHICH IS NOT DIRECTLY ATTRIBUTABLE TO A NY PARTICULAR INCOME IN THE CASE OF THE ASSESSEE COMES TO RS.1,24 ,18,650/- (A) WHEREAS AVERAGE INVESTMENT IS RS.52,96,410/- (B ) AVERAGE OF TOTAL ASSETS COMES TO RS. 25,18,77,8377- (27,14, 86,776+ 23,22,68,898/2). BY APPLYING THE FORMULA AS PROVIDE D IN RULE 8D(2)(II), THE DISALLOWABLE AMOUNT OF INTEREST COME S TO RS.2,61,136/- WHICH WOULD BE DISALLOWED AND ADDED T O THE TOTAL I.T.A. NO.410 & 411/LKW/2016 ASSESSMENT YEAR:2008-09 & 10-11 4 INCOME OF THE ASSESSEE COMPANY. HENCE THE TOTAL DIS ALLOWANCE U/S 14A READ WITH RULE 8D (2) WOULD BE OF RS.2,87,6 18/- (RS.26,482/- + RS.2,61,136/-). THIS WOULD BE ADDED TO THE TOTAL INCOME. SINCE, THE ASSESSEE HAS FILED INACCURATE PA RTICULARS ON THIS ISSUE, THEREFORE, PENALTY PROCEEDING U/S 271(1 )(C) OF THE INCOME TAX ARE BEING INITIATED. 5.1 THE ABOVE FINDINGS MADE BY THE ASSESSING OFFICE R DO NOT SUGGEST THAT HE HAD MADE ANY SATISFACTION WITH RESPECT TO THE CL AIM OF THE ASSESSEE THAT NO EXPENDITURE WAS INCURRED FOR EARNING OF EXEMPT I NCOME. HON'BLE SUPREME COURT IN THE CASE OF MAXOPP INVESTMENT LTD. (SUPRA) VIDE PARA 41 HAS CATEGORICALLY HELD THAT BEFORE APPLYING THE PRO VISIONS OF SECTION 14A READ WITH RULE 8D, THE ASSESSING OFFICER NEEDS TO R ECORD SATISFACTION AS TO HOW THE SUO MOTU DISALLOWANCE, IF ANY, MADE BY THE ASSESSEE WAS NOT CORRECT. THE FINDINGS OF HON'BLE COURT, AS CONTAIN ED IN PARA 41, ARE REPRODUCED BELOW: HAVING REGARD TO THE LANGUAGE OF SECTION 14A(2) OF THE ACT, READ WITH RULE 8D OF THE RULES, WE ALSO MAKE IT CLE AR THAT BEFORE APPLYING THE THEORY OF APPORTIONMENT, THE AO NEEDS TO RECORD SATISFACTION THAT HAVING REGARD TO THE KIND OF THE ASSESSEE, SUO MOTO DISALLOWANCE UNDER SECTION 14A W AS NOT CORRECT. IT WILL BE IN THOSE CASES WHERE THE ASSESS EE IN HIS RETURN HAS HIMSELF APPORTIONED BUT THE AO WAS NOT A CCEPTING THE SAID APPORTIONMENT. IN THAT EVENTUALITY, IT WIL L HAVE TO RECORD ITS SATISFACTION TO THIS EFFECT. FURTHER, WH ILE RECORDING SUCH A SATISFACTION, NATURE OF LOAN TAKEN BY THE AS SESSEE FOR PURCHASING THE SHARES/MAKING THE INVESTMENT IN SHAR ES IS TO BE EXAMINED BY THE ASSESSING OFFICER. 5.2 WE FURTHER FIND THAT HON'BLE ALLAHABAD HIGH COU RT IN THE CASE OF CIT VS. UP ELECTRONICS CORPORATION LTD. [2017] 397 ITR 113 (ALL) HAS MADE THE FOLLOWING OBSERVATIONS: THERE IS A MANDATE UNDER SUB-SECTION (2) OF SECTIO N 14 THAT DETERMINATION BY THE ASSESSING OFFICER IS SUBJECT T O CONDITION PRECEDENT THAT HAVING REGARD TO ACCOUNTS OF THE ASS ESSEE, HE I.T.A. NO.410 & 411/LKW/2016 ASSESSMENT YEAR:2008-09 & 10-11 5 MUST NOT BE SATISFIED WITH THE CORRECTNESS OF CLAIM OF THE ASSESSEE IN RESPECT OF SUCH EXPENDITURE IN RELATION TO INCOME WHICH DOES NOT FORM PART OF THE TOTAL INCOME. RULE 8D(1)(6) WILL COME INTO THE PICTURE ONLY WHEN THE ASSESSING OFFIC ER RECORDED HIS NON-SATISFACTION WITH REGARD TO CLAIM OF THE AS SESSEE THAT NO EXPENDITURE HAS BEEN INCURRED OR ABOUT THE CORRECTN ESS OF CLAIM OF EXPENDITURE BY THE ASSESSEE. THEREFORE, THE DISA LLOWANCE MADE BY THE ASSESSING OFFICER UNDER SECTION 14A WAS HELD TO BE NOT JUSTIFIED WHERE HE HAD SIMPLY OBSERVED THAT SECTION 14A WAS APPLICABLE AND THAT ASSESSEE'S CONTENTION THAT NO EXPENDITURE HAD BEEN INCURRED WAS NOT ACCEPTABLE WI THOUT SAYING ANYTHING FURTHER. 5.3 ON MERITS ALSO WE FIND THAT INTEREST FREE FUNDS AVAILABLE WITH THE ASSESSEE FOR ASSESSMENT YEAR 2008-09 WERE RS.15.74 CRORE WHEREAS IN ASSESSMENT YEAR 2010-11 THE FIGURE OF INTEREST FREE FUNDS IS RS.18.04 CRORE. AS AGAINST THESE INTEREST FREE FUNDS, THE VALUE OF INVESTMENTS IN SHARES IS ONLY RS.88,85,839/-. THESE FIGURES ARE VERIFIABLE FROM THE COPY OF BALANCE SHEET OF THE ASSESSEE FOR THE ASSESSMENT YEARS AS P LACED FROM PAGES 30 TO 57 OF THE PAPER BOOK. HON'BLE DELHI HIGH COURT IN THE CASE OF PCIT VS. SINTEX INDUSTRIES LTD. (SUPRA) VIDE ORDER DATED 4 TH MAY 2017 HAS HELD THAT WHERE ASSESSEE HAD SURPLUS FUNDS AGAINST WHICH MINO R INVESTMENT WAS MADE, NO QUESTION OF MAKING ANY DISALLOWANCE OR EXP ENDITURE IN RESPECT OF INTEREST AND ADMINISTRATIVE EXPENSES U/S 14A AROSE. THE RELEVANT FINDINGS OF HON'BLE HIGH COURT ARE REPRODUCED BELOW: 9. CONSIDERING THE AFORESAID FACTS AND CIRCUMSTANC ES, MORE PARTICULARLY THE FACT THAT THE ASSESSEE WAS ALREADY HAVING ITS OWN SURPLUS FUND AND THAT TOO TO THE EXTENT OF RS.2319. 17 CRORES AGAINST WHICH INVESTMENT WAS MADE OF RS. 111.09 CRORES, THE RE WAS NO QUESTION OF MAKING ANY DISALLOWANCE OF EXPENDITURE IN RESPECT OF INTEREST AND ADMINISTRATIVE EXPENSES UNDER SECTION 14A OF THE ACT, THEREFORE, THERE WAS NO QUESTION OF ANY ESTIMATION OF EXPENDITURE IN RESPECT OF INTEREST AND ADMINISTRATIVE EXPENSES OF RS.54,39,916/- UNDER RULE 8D OF THE RULES. UNDER THE CIRCUMSTANCES AND IN THE FACTS OF THE CASE, NARRATED HEREINABOVE, IT CANNOT BE SAI D THAT THE LEARNED TRIBUNAL HAS COMMITTED ANY ERROR IN DELETING THE DI SALLOWANCE OF I.T.A. NO.410 & 411/LKW/2016 ASSESSMENT YEAR:2008-09 & 10-11 6 EXPENDITURE OF RS.54,39,916/- INCURRED IN RESPECT O F INTEREST AND ADMINISTRATIVE EXPENSES UNDER SECTION 14A OF THE AC T. WE ARE IN COMPLETE AGREEMENT WITH THE VIEW TAKEN BY THE LEARN ED TRIBUNAL. AT THIS STAGE, DECISION OF DIVISION BENCH OF THIS COUR T IN THE CASE OF PR. CIT V. INDIA GELATINE & CHEMICALS LTD. [2015] 376 I TR 553/[2016] 66 TAXMANN.COM 356 NEEDS A REFERENCE. IN THE SAID DECI SION, IT IS OBSERVED AND HELD BY THE DIVISION BENCH OF THIS COU RT THAT WHEN THE ASSESSEE HAD SUFFICIENT INTEREST-FREE FUNDS OUT OF WHICH CONCERNED INVESTMENTS HAD BEEN MADE, DISALLOWANCE UNDER SECTI ON 14A IS NOT JUSTIFIED. 6. IN VIEW OF THE ABOVE FACTS AND CIRCUMSTANCES AND IN VIEW OF THE JUDICIAL PRECEDENTS RELIED ON BY LEARNED A. R., THE APPEALS OF THE ASSESSEE ARE ALLOWED. 7. IN THE RESULT, BOTH THE APPEALS OF THE ASSESSEE ARE ALLOWED. (ORDER PRONOUNCED IN THE OPEN COURT ON 07/09/2018) SD/. SD/. (PARTHA SARATHI CHAUDHURY) ( T. S . KAPOOR ) JUDICIAL MEMBER A CCOUNTANT MEMBER DATED:07/09/2018 *SINGH COPY OF THE ORDER FORWARDED TO : 1. THE APPELLANT 2. THE RESPONDENT. 3. CONCERNED CIT 4. THE CIT(A) 5. D.R., I.T.A.T., LUCKNOW