M/s. Rathi Bars Ltd., New Delhi V. ACIT (OSD), New Delhi

ITA 4223/DEL/2011

• Counselvise Citation: 422320114 RSA 2011
• Duration Of Justice: 1 year(s) 2 month(s) 1 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 23-11-2012
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: F
• Next Hearing Date: 26-09-2012
• Assessment Year: 2008-2009
• Appeal Filed On: 21-09-2011
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: SANJAY JAINCIT
• Keywords: Earning of tax free income
• Section: 14A

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL (DELHI BENCH F NEW DELHI) BEFORE SHRI RAJPAL YADAV, JUDICIAL MEMBER AND SHRI T.S. KAPOOR, ACCOUNTANT MEMBER I.T.A. NO.4223/DEL/2011 ASSESSMENT YEAR : 2008-09 M/S RATHI BARS LTD., ACIT(OSD), A-24/7, MOHAN COOPERATIVE CIT-V, INDL. ESTATE, MATHURA ROAD, NEW DELHI. NEW DELHI. V. (APPELLANT) (RESPONDENT) PAN /GIR/NO. PAN /GIR/NO. PAN /GIR/NO. PAN /GIR/NO.AA AAAA AAACR ACR ACR ACR- -- -0737 0737 0737 0737- -- -N NN N APPELLANT BY : SHRI GAUTAM JAIN, ADVOCATE. RESPONDENT BY : SHRI SANJAY JAIN,CIT- DR. ORDER PER TS KAPOOR, AM: THIS IS AN APPEAL FILED BY THE ASSESSEE AGAINST THE ORDER OF LD CIT(A) DATED 8.7.2011. THE GROUNDS RAISED BY THE ASSESSEE ARE AS UNDER:- 1. ON THE FACTS AND CIRCUMSTANCES OF THE CASE, THE LD CIT( A) HAS ERRED IN CONFIRMING THE DISALLOWANCE U/S 14A OF THE I NCOME TAX ACT, 1961 AMOUNTING TO ` .24,03,172/- WHEREAS THE AMOUNT INVESTED IN SECURITIES WERE NOT OUT OF BORROWED FUNDS. 2. THE APPELLANT CRAVES LEAVE FOR ADDITION, MODIFICATIO N, ALTERATION, AMENDMENT OF ANY OF THE GROUNDS OF APPEAL. ITA NO4223/DEL/2011 2 2. THE BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE IS I N THE BUSINESS OF MANUFACTURING CTD/TMT STEEL BARS AND IT FILE D ITS RETURN OF INCOME ON 30.9.2008 WHICH WAS REVISED ON 1.9.2009. T HE CASE OF THE ASSESSEE WAS SELECTED FOR SCRUTINY. DURING THE ASSESSMENT PROCEEDINGS, THE ASSESSING OFFICER NOTED THAT COMPANY HA D HUGE INVESTMENTS AND FURTHER IT HAD EARNED DIVIDEND INCOME AMOUNTING TO ` .94,48,851/- AND LONG TERM CAPITAL GAIN OF ` .17,96,991/- WHICH WERE CLAIMED AS EXEMPT U/S 10(34) & 10(38) OF THE ACT. TH E ASSESSING OFFICER FURTHER OBSERVED THAT ASSESSEE HAD NOT MADE ANY DISALLOWANCE FOR EXPENDITURE INCURRED IN RESPECT OF EARNING OF EX EMPT INCOME. WHEN CONFRONTED THE AR OF THE ASSESSEE SUBMITTED THAT ONLY 10 % OF BANK CHARGES AMOUNTING TO ` .5383/- CAN BE SAID TO BE RELATING TO EARNING OF EXEMPT INCOME AND THERE WAS NO FURTHER EXPENDITURE I NVOLVED AND THE INVESTMENTS WERE MADE OUT OF OWN FUNDS AND NO INTEREST BEARING FUNDS WERE USED FOR MAKING INVESTMENT. THE ASSESSING OFFICER F URTHER OBSERVED THAT NO SEPARATE SET OF ACCOUNTS FOR INVESTMENT ACTIVITIES AND BUSINESS ACTIVITIES WERE BEING MAINTAINED AND DUE TO HU GE INVESTMENTS AND DIVIDEND INCOME IT WAS NOT POSSIBLE THAT NO EXPENDITURE WAS INCURRED FOR EARNING EXEMPT INCOME A ND IN VIEW OF THAT THE ASSESSING OFFICER ON THE BASIS OF VARIOUS JUDGME NTS OF COURTS CALCULATED THE DISALLOWANCE U/S 14A AMOUNTING TO ` .24,03,172/- CONSISTING OF INTEREST OF ` .18,39,156/- AND OTHER EXPENDITURE OF ` .5,64,016/- CALCULATED ON THE BASIS OF 0.5% OF AVERAG E INVESTMENT AS PER RULE 8D. 3. DISSATISFIED WITH THE ORDER THE ASSESSEE FILED APPEAL BEFORE LD CIT(A) AND REITERATED ITS SUBMISSIONS. THE SUBMISSIONS OF TH E ASSESSEE WERE NOT ACCEPTED BY LD CIT(A) AND HE UPHELD THE AD DITION MADE BY THE ASSESSING OFFICER. ITA NO4223/DEL/2011 3 4. AGGRIEVED, THE ASSESSEE FILED APPEAL BEFORE THIS TRIB UNAL. 5. AT THE OUTSET, THE LD AR TOOK US TO PAGE 65 OF PAP ER BOOK AND INVITED OUR ATTENTION TO THE FACT THAT SHARE CAPITA L OF THE COMPANY HAD INCREASED DUE TO PUBLIC ISSUE AND TOTAL CAPITAL INCLUD ING RESERVES AT THE END OF RELEVANT YEAR WERE TO THE EXTENT OF ` .53.51 CRORES AGAINST WHICH THE INTEREST BEARING BORROWED FUNDS WERE ONLY TO THE EXTENT OF ` .8.49 CRORES. HE ALSO TOOK US TO PAGE 30 OF PAPER BOOK WHER EIN HE INVITED OUR ATTENTION TO THE TOTAL BORROWINGS AS ON 31.3.208 AND STATED THAT THESE LOANS WERE SPECIFIC LOANS RAISED FOR VARIOUS SPECIF IC ASSETS WHICH WERE USED TO ACQUIR THESE ASSETS ONLY AND WORKING CAPITA L LIMIT WERE ONLY TO THE EXTENT OF ` .8.49 CRORES AND THAT TO WERE INVESTED IN THE NET CURRENT ASSETS. TO HIGHLIGHT HIS POINT HE TOOK US TO PA GE 32 AND 33 OF PAPER BOOK AND SUBMITTED THAT AGAINST NET WORKING LIM IT OF ` .8.49 CRORES THERE WERE NET CURRENT ASSETS TO THE EXTENT OF ` .32.26 CRORES. THEREFORE, IT WAS ARGUED THAT NO BORROWED FUNDS WERE USED FOR MAKING INVESTMENT AND THEREFORE THE DISALLOWANCE U/S 14A WAS NOT JUSTIFIED. 6. THE LD DR, ON THE OTHER HAND, RELIED UPON THE OR DER OF ASSESSING OFFICER AND LD CIT(A). 7. WE HAVE HEARD THE RIVAL SUBMISSIONS OF BOTH THE PAR TIES AND HAVE GONE THROUGH THE MATERIAL AVAILABLE ON RECORD. WE FIND THAT FROM PAGE 30 THAT THERE WERE SPECIFIC TERM LOANS AGAINST PL ANT & MACHINERY AND AGAINST VEHICLE AND THE WORKING CAPITAL OF TOTAL LIMITS WERE ONLY TO THE EXTENT OF ` .8.49 CRORES WHICH WAS INVESTED FULLY IN THE NET CURRE NT ASSETS IN THE FORM OF INVENTORIES OF ` .12.7 CRORES, SUNDRY DEBTORS ` .24.88 CRORES, CASH AND BANK BALANCE ` .1.84 CRORES, LOANS & ADVANCES ` .13.93 CRORES. OUT OF THESE INVESTMENTS IN CURRENT ASSE TS, ` .20.46 CRORES WAS FINANCED THROUGH CURRENT LIABILITIES AND PR OVISIONS LEAVING NET INVESTMENT IN WORKING CAPITAL TO THE EXTENT OF ` .32.26 CRORES. IN ITA NO4223/DEL/2011 4 VIEW OF THE FACT THAT SPECIFIC TERM LOANS WERE OBTAIN ED FOR SPECIFIC ASSETS AND INVESTMENT IN NET WORKING CAPITAL WAS MUCH MO RE THAN WORKING CAPITAL LIMIT, IT CAN BE SAID THAT NO BORRO WED FUNDS WERE USED FOR MAKING INVESTMENT AND THEREFORE DISALLOWANCE OF I NTEREST U/S 14A WAS NOT JUSTIFIED. HOWEVER, FROM THE COMPUTATION OF INCOME PLACED AT PAGE 44, WE FIND THAT BESIDES EARNING OF LONG TERM, C APITAL GAIN AND DIVIDEND INCOME, THE ASSESSEE HAD INCURRED A SHORT TERM CAPITAL LOSS OF ` .4.80 CRORES WHICH WAS INCURRED ON SALE OF MUTUAL FUND S. THE AMOUNT OF LOSS IS QUITE HIGH THEREFORE, IT CAN BE SAID THAT ASSE SSEE HAD BEEN MAKING SIGNIFICANT INVESTMENTS IN MUTUAL FUNDS. THE IN VESTMENT AND TRADING ACTIVITY IN SHARES/MUTUAL FUNDS DEFINITELY I NVOLVE HUMAN CAPITAL AND OTHER INFRASTRUCTURE EXPENDITURE FOR WHICH THE ASSESSEE MUST HAVE SPENT CERTAIN AMOUNT. THE INCURRING OF SHORT TERM LOSS FROM MUTUAL FUNDS AND EARNING FROM LONG TERM CAPITAL GAINS ON SHAR ES PROVES THAT ASSESSEE WAS CONTINUOUSLY ENGAGED IN INVESTMENT ACTIVITIES BOTH SHORT TERM AND LONG TERM WHICH CANNOT BE DONE WITHOUT PRO PER HUMAN RESOURCES AND PROPER INFRASTRUCTURE. THEREFORE, WE ARE OF THE CONSIDERED OPINION THAT THE ASSESSING OFFICER HAD RIGHTL Y DISALLOWED 0.5% OF EXPENDITURE AS DISALLOWANCE U/S 14A OF THE ACT . IN VIEW OF THE ABOVE, WE RESTRICT THE DISALLOWANCE TO THE EXTENT OF ` .5,64,016/- AND DELETE THE ADDITION OF ` .18,39,156/- ON ACCOUNT OF DISALLOWANCE OF INTEREST U/S 14A OF THE ACT. 8. IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE IS PAR TLY ALLOWED. 9. ORDER PRONOUNCED IN THE OPEN COURT ON 23RD DAY O F NOVEMBER, 2012. SD/- SD/- (RAJPAL YADAV) (T.S. KAPOOR) JUDICIAL MEMBER ACCOUNTANT MEMBER DT. 23 .11.2012. HMS ITA NO4223/DEL/2011 5 COPY FORWARDED TO:- 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT 4. THE CIT (A)-, NEW DELHI. 5. THE DR, ITAT, LOKNAYAK BHAWAN, KHAN MARKET, NEW DEL HI. TRUE COPY. BY ORDER (ITAT, NEW DELHI). DATE OF HEARING 26.9.2012 DATE OF DICTATION 21.11.2012 DATE OF TYPING 21.11.2012 DATE OF ORDER SIGNED BY 23.11.2012 BOTH THE MEMBERS & PRONOUNCEMENT. DATE OF ORDER UPLOADED ON NET 23.11.2012 & SENT TO THE BENCH CONCERNED.