HINDUSTAN COMPOSITES LTD, MUMBAI V. ACIT 10(2), MUMBAI

ITA 4448/MUM/2012

• Counselvise Citation: 444819914 RSA 2012
• Duration Of Justice: 1 year(s) 9 month(s) 20 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 22-04-2014
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: H
• Next Hearing Date: 22-04-2014
• Assessment Year: 2005-2006
• Appeal Filed On: 02-07-2012
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: PITAMBER DAS
• Assessee Lawyers: R S GORADIA
• Keywords: Earning of tax free income
• Section: 234B; 14A; 115JB; 154

Judgement Text

, ,P ,P,P ,P INCOME TAX APPELLATE TRIBUNAL,MUMBAI - H BENCH. , MK0 ,L VH ,E IKOYU MK0 ,L VH ,E IKOYU MK0 ,L VH ,E IKOYU MK0 ,L VH ,E IKOYU BEFORE S/SH. RAJENDRA,ACCOUNTANT MEMBER & DR. S.T.M . PAVALAN,JUDICIAL MEMBER /. ITA NO.4448/MUM/2012, ! ! ! ! / ASSESSMENT YEAR-2005-06 HINDUSTAN COMPOSITES LTD. B-11, PARAGON CONDOMINIUM, PANDURANG BUDHKAR MARG, WORLI, MUMBAI-400013 VS ACIT 10(2), AAYAKAR BHAVAN, M.K.ROAD, MUMBAI-400020 PAN:AAACH0973N ( '# / APPELLANT) ( $%'# / RESPONDENT) /. ITA NO.4736/MUM/2012, ! ! ! ! / ASSESSMENT YEAR-2005-06 ACIT 10(2) , AAYAKAR BHAVAN, M.K.ROAD, MUMBAI-400020 VS HINDUSTAN COMPOSITES LTD. B-11, PARAGON CONDOMINIUM, PANDURANG BUDHKAR MARG, WORLI, MUMBAI-400013 PAN: AAACH0973N ( '# / APPELLANT) ( $%'# / RESPONDENT) &' ( ) / ASSESSEE BY : SHRI R.S.GORADIA ( ) / REVENUE BY : SHRI PITAMBER DAS ( (( ( '+ '+ '+ '+ / DATE OF HEARING : 22-04-2014 ,-! ( '+ / DATE OF PRONOUNCEMENT : 22-04-2014 , 1961 ( (( ( 254 )1( '.' '.' '.' '.' / / / / ORDER U/S..254(1)OF THE INCOME-TAX ACT,1961(ACT) PER RAJENDRA,AM : CROSS APPEALS HAVE BEEN FILED BY THE ASSESSEE-COMPA NY AND THE ASSESSING OFFICER (AO) FOR THE YEAR UNDER CONSIDERATION. GROUNDS OF APPEAL FILED B Y THE AO READ AS UNDER: 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE A S WELL AS IN LAW, THE LD. CIT(A) ERRED IN DELETING THE DISALLOWANCE OF INTEREST EXPENDITURE M ADE U/S. 14A OF THE ACT AND HOLDING THAT THE INVESTMENTS WERE MADE BY THE ASSESSEE OUT OF THE PR OFITS GENERATED OVER THE YEARS. 2. THE APPELLANT PRAYS THAT THE ORDER OF CIT(A) ON THE ABOVE GROUND BE SET ASIDE AND THAT OF THE ASSESSING OFFICER BE RESTORED. 3. THE APPELLANT CRAVES LEAVE TO AMEND OR ALTER ANY GR OUNDS OR ADD A NEW GROUND WHICH MAY BE NECESSARY. ASSESSEE-COMPANY HAS FILED FOLLOWING GROUNDS: 1 (A)THE LEARNED COMMISSIONER OF INCOME TAX (APPEAL S)-21, MUMBAI (HEREINAFTER REFERRED TO AS THE CIT(A)) ERRED IN CONFIRMING THE DISALLOWANCE MADE BY THE ASSESSING OFFICER U/S. 14A OF THE ACT IN RESPECT OF ADMINISTRATIVE AND MANAGERIAL EXP ENSES WITHOUT FIRST ESTABLISHING THE PROXIMATE CONNECTION BETWEEN THE SAID EXPENDITURE A ND THE EXEMPT INCOME. 2 ITA NOS. 4448 & 4736/MUM/2012 HINDUSTAN COMPOSITES LTD. (B) THE LEARNED CIT(A) ALSO ERRED IN ENHANCING T HE DISALLOWANCE IN RESPECT OF SAID EXPENDITURE FROM RS. 77,021 TO RS. 2,00,000. 2. THE LEARNED CIT(A) ERRED IN LAW AND ON FACTS IN HOLDING THAT THE DISALLOWANCE MADE, RELYING ON THE DEEMING PROVISIONS CONTAINED IN SECTION 14A OF THE INCOME TAX ACT, 1961, ARE ALSO REQUIRED TO BE ADJUSTED WHILE CALCULATING BOOK PROF IT U/S. 115JB. 3. THE LEARNED CIT(A) ERRED IN CONFIRMING THE INTER EST LEVIED BY THE ASSESSING OFFICER U/S. 234B AND 234C HOLDING THE SAME TO BE CONSEQUENTIAL IN NA TURE EVEN THOUGH THE ASSESSMENT ORDER PASSED BY THE ASSESSING OFFICER IS SILENT IN RESPEC T OF LEVY OF INTEREST. 4. THE APPELLANT CRAVES LEAVE TO ADD, AMEND, ALTER OR DELETE ANY OF THE GROUNDS OF THE APPEAL AND/OR ADDUCE SUCH FURTHER EVIDENCE TO SUBSTANTIATE ITS CASE AS MAY BE DEEMED NECESSARY. EFFECTIVE GROUND OF APPEAL FILED BY THE AO AND GROU ND 1OF THE ASSESSEES APPEAL ARE ABOUT THE DISALLOWANCE MADE BY THE AO U/S.14A.FIRST WE WOULD GIVE THE BRIEF BACK GROUND OF THE MATTER AND DECIDE THE ISSUE RAISED BY THE ASSESSEE. BRIEF HISTORY 2. ASSESSEE-COMPANY,ENGAGED IN THE BUSINESS OF MANUFAC TURING AND SELLING OF BRAKE LINING, CLUTCH FACING ETC. HAD FILED ITS RETURN OF INCOME ON 31.10 .2005, DECLARING TOTAL INCOME OF RS. 30. 73 LAKHS.AO FINALISED THE ASSESSMENT U/S.143(3) OF THE ACT, ON 12.11.2007,DETERMINING THE INCOME OF THE ASSESSEE AT RS. 50.76 LAKHS. LATER ON AN ORDER U/S. 154 OF THE ACT WAS PASSED AND INCOME OF THE ASSESSEE WAS ASSESSED AT RS. 30,73,149/- UNDER THE NORMAL PROVISIONS AND AT RS. 1. 86 CRORES U/S. 115JB OF THE ACT.MATTER TRAVELLED UP TO THE TR IBUNAL.VIDE ITS ORDER DATED 27. 04. 2011,ITAT SET-ASIDE THE ISSUE OF DISALLOWANCE U/S. 14A OF THE ACT TO THE FILE OF AO AND DIRECTED HIM TO DECIDE THE ISSUE IN LIGHT OF THE DECISION OF HONBLE JURIS DICTIONAL HIGH COURT DELIVERED IN THE CASE OF GODREJ BOYCE MFG.CO. LTD.ISSUE RELATING TO CALCULAT ION OF BOOK PROFIT U/S. 115 JB, RAISED BY THE ASSESSEE AS AN ADDITIONAL GROUND BEFORE THE FIRST A PPELLATE AUTHORITY (FAA) WAS ALSO RESTORED BACK TO THE FILE OF THE AO. 2.1 .DURING THE PROCEEDINGS U/S.143(3) R.W.S.254 OF THE ACT,AO ISSUED A SHOW CAUSE NOTICE TO THE ASSESSEE AND ASKED AS TO WHY THE DISALLOWANCE U/S.1 4A SHOULD NOT BE MADE.AS PER THE AO, THE ASSESSEE WAS GIVEN A SPECIFIC OPPORTUNITY TO FURNIS H EVIDENCE TO PROVE THE NEXUS OF OWN FUNDS WITH INVESTMENTS BUT,IN SPITE OF REPEATED OPPORTUNI TIES IT DID NOT FURNISH ANY EVIDENCE IN SUPPORT OF THE CLAIM.AO HELD THAT ONUS OF PROVING THAT BORR OWED MONEY HAD NOT BEEN UTILISED FOR INVESTMENT PURPOSES WAS ON THE ASSESSEE,THAT ASSESS EE HAD BOTH KIND OF FUNDS I.E.BORROWED AND OWN FUNDS,THAT BOTH THE FUNDS WERE PART OF COMMON P OOL, THAT FROM THE COMMON POOL OF FUNDS ASSESSEE WAS CARRYING OUT ITS BUSINESS ACTIVITIES, THAT IT HAD NOT MADE APPORTIONMENT OF COMMON EXPENDITURE,THAT THE ASSESSEE HAD FAILED TO FURNISH THE FUND FLOW STATEMENT AND TO ESTABLISH THE NEXUS OF OWN FUNDS TO INVESTMENTS.AO APPLIED THE AV ERAGE METHOD OF PERCENTAGE OF BORROWED FUNDS TO THE TOTAL FUNDS FOR ASCERTAINING THE PERCE NTAGE OF INVESTMENTS MADE FROM SUCH FUNDS.HE HELD THAT AN AMOUNT OF RS. 3.22 CRORES HAD BEEN INV ESTED FROM THE MIXED BORROWED FUNDS AS WELL AS THE ASSESSEES OWN FUNDS DURING THE YEAR UNDER A PPEAL AND OR EARLIER YEARS. FOLLOWING AVERAGE METHOD,HE MADE A DISALLOWANCE OF RS.14,03,237/- U/S .14A/36(1)(3). 2.2. HE FURTHER HELD THAT ASSESSEE HAD NOT FURNISHED ANY WORKING OF DISALLOWANCE OF ADMINISTRATI - VE EXPENSES U/S. 14A OF THE ACT.HE WAS OF THE OPINI ON THAT DISALLOWANCE HAD TO BE MADE ON PROP - ORTIONATE BASIS,THAT THE EXPENSES ATTRIBUTABLE TO D IVIDEND INCOME FELL UNDER THE HEADS SALARY TO EMPLOYEE(RS. 8.00 CRORES),RENT(RS.23.07LAKHS),TRAVE LLING AND CONVEYANCE (RS. 1.39 CRORES), THAT IT WAS THE DUTY OF THE ASSESSEE TO PROVIDE THE DETA ILS OF EMPLOYEES/PART OF THE MANAGEMENT WHO WERE DIRECTLY/INDIRECTLY IS RESPONSIBLE FOR MAKING THESE INVESTMENTS.FINALLY,HE MADE A DISALLOWANCE OF RS.77,021/- U/S.14A OF THE ACT. 3 ITA NOS. 4448 & 4736/MUM/2012 HINDUSTAN COMPOSITES LTD. 2.3. ASSESSEE PREFERRED AN APPEAL BEFORE THE FAA.AFTER C ONSIDERING THE SUBMISSIONS OF THE ASSESSEE,HE HELD THAT DURING THE YEAR UNDER CONSIDE RATION INVESTMENT AMOUNTING TO RS. 1.05 CRORES WAS MADE,THAT THERE WAS INCREASE IN SECURED AND UNS ECURED LOANS,THAT ADDITION TO FIXED ASSETS HAD ALSO TAKEN PLACE, THAT ASSESSEE HAD PROFIT OF RS. 3 96.07 LAKHS DURING THE YEAR,THAT THERE APPEARED BEFORE SOME FORCE IN ASSESSEE ARGUMENT THAT BORROWE D CAPITAL WAS UTILISED FOR THE PURPOSE OF ACQUIRING FIXED ASSET, THAT THE PROFIT EARNED DURIN G THE YEAR WAS UTILISED FOR ACQUIRING INVESTMENTS,THAT THE ASSESSEES FUNDS WERE POOL OF BORROWED AS WELL AS OWN FUNDS, THAT EXCEPT CORRELATION BETWEEN INVESTMENT AND LOAN FUNDS NEXUS COULD NOT BE ESTABLISHED, THAT IT COULD NOT BE CONCLUDED THAT INVESTMENT WERE PURELY OUT OF BORROW ED FUNDS, THAT THE PRESUMPTION WAS IN FAVOUR OF THE ASSESSEE THAT THE INVESTMENTS MADE DURING TH E YEAR WERE FROM SURPLUS GENERATED DURING THE YEAR, THAT THE ASSESSEE HAD FILED YEAR-WISE CASH PR OFIT, THAT NO INTEREST EXPENDITURE WAS ATTRIBUTABLE TO THE INVESTMENTS MADE IN THE EARLIER YEARS.AS A R ESULT,ADDITION MADE BY THE AO,OF RS. 14.03 LAKHS U/S. 14A ON ACCOUNT OF INTEREST EXPENDITURE,W AS DELETED BY HIM. 2.4. WITH REGARD TO ADMINISTRATIVE AND MANAGERIAL EXPENS ES INCURRED BY THE ASSESSEE,FAA HELD THAT THERE WAS MOVEMENT IN THE INVESTMENTS DURING THE YE AR,THAT IT REQUIRED DECISION AT MANAGERIAL LEVEL WHETHER TO HOLD BACK/SELL AND TO MAKE FRESH I NVESTMENTS,THAT MANAGEMENT OF INVESTMENTS REQUIRED MANAGERIAL AND ADMINISTRATIVE EXPENSES.CON SIDERING THE INVESTMENTS MADE AND OTHER- FACTORS,HE HELD THAT DISALLOWANCE OF RS.2 LAKHS WOU LD MEET THE ENDS OF JUSTICE.THUS, DISALLOWANCE MADE BY THE AO OF RS.77,021/- WERE ENHANCED TO RS.2 LAKHS. 2.5. BEFORE US,AUTHORISED REPRESENTATIVE (AR) SUBMITTED THAT FAA DID NOT ISSUE A NOTICE U/S. 251(2)OF THE ACT BEFORE ENHANCING THE DISALLOWANCE, THAT ORDER PASSED BY THE FAA WITHOUT NOTICE WAS AGAINST THE PROVISIONS OF THE ACT,THAT DISALLOW ANCE CONFIRMED BY THE FAA UNDER THE HEAD ADMINISTRATIVE AND MANAGERIAL EXPENSES WAS NOT JUST IFIED,THAT THE ASSESSEE HAD NOT INCURRED ANY EXPENDITURE.DEPARTMENTAL REPRESENTATIVE (DR) LEFT T HE ISSUE;OF NOT ISSUING OF NOTICE U/S.251 OF THE ACT BY THE FAA;TO THE DISCRETION OF THE BENCH.H OWEVER,ABOUT THE DISALLOWANCE MADE BY THE AO,HE STATED THAT SAME WAS MADE AS PER THE INSTRUCT IONS OF THE HONBLE HIGH COURT,THAT WITHOUT INCURRING EXPENDITURE IT WAS NOT POSSIBLE FOR THE A SSESSEE TO EARN EXEMPT INCOME. 2.6. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL BEFORE US.IN OUR OPINION, FAA IS REQUIRED TO ISSUE A NOTICE TO THE ASSESSEE,IF HE WANTS TO ENHANCE THE INCOME OF AN ASSESSEE.IT IS THE MANDATORY CONDITION, THEREFORE, WITHOUT FOLLOWI NG THE PROCEDURE AS ENVISAGED BY SECTION 251(2) OF THE ACT, FAA SHOULD NOT HAVE ENHANCED THE INCOME OF THE ASSESSEE EVEN IF, HE WAS OF THE OPINION THAT ADMINISTRATIVE/MANAGERIAL EXPENSES DISALLOWED BY THE AO WERE LESS. THEREFORE, WE ARE UNABLE TO ENDORSE HIS ORDER.REVERSING HIS OR DER,WE DECIDE GROUND NO.1(B) IN FAVOUR OF THE ASSESSEE.WE WANT TO CLARIFY THAT WE HAVE ONLY REJEC TED THE ENHANCEMENT MADE BY THE FAA,AS HE HAD NOT FOLLOWED THE PROPER PROCEDURE.BUT,IT DOES N OT MEAN THAT PRINCIPALLY WE ARE AGAINST THE DISALLOWANCE TO BE MADE U/S.14A OF THE ACT.SUCH DIS ALLOWANCE IS SUBJECT MATTER OF GROUND NO.1(A) OF THE APPEAL FILED BY THE ASSESSEE.IN THIS REGARD, WE ARE OF THE OPINION THAT DISALLOWANCE MADE BY THE AO FOR ADMINISTRATIVE AND MANAGERIAL EXPENSES W AS JUST AND REASONABLE.WHILE MAKING THE DISALLOWANCE,HE HAD TAKEN IN TO ACCOUNT VARIOUS FAC TS MENTIONED BY US AT PARAGRAPH 2.2 OF OUR ORDER.IN OUR OPINION,IT WAS NOT POSSIBLE FOR THE AS SESSEE TO EARN EXEMPT INCOME WITH OUR INCURRING SOME KIND OF EXPENSES IN THE MATTER UNDER APPEAL. T HEREFORE, CONFIRMING THE DISALLOWANCE OF RS.77,021/- UNDER SECTION 14A OF THE ACT,WE DECIDE GROUND NO.1 (A) AGAINST THE ASSESSEE. GROUND NO.1 IS PARTLY ALLOWED. 3. NEXT GROUND OF APPEAL IS ABOUT THE TREATMENT TO BE GIVEN;TO THE DISALLOWANCE MADE U/S.14A OF ACT;WHILE COMPUTING THE INCOME U/S.115JB OF THE ACT .ASSESSEE HAD ALSO MADE SUBMISSION THAT NO DISALLOWANCE OF EXPENDITURE U/S. 14A OF THE ACT WAS REQUIRED FOR CONSIDERING THE BOOK PROFIT U/S.115JB OF THE ACT.FAA DISMISSED THE SUBMISSIONS MADE BY THE ASSESSEE IN VIEW OF THE PROVISO F TO EXPL.1 TO SECTION 115JB OF THE ACT.HE FINALL Y HELD THAT EXPENDITURE ATTRIBUTABLE TO EARNING OF 4 ITA NOS. 4448 & 4736/MUM/2012 HINDUSTAN COMPOSITES LTD. EXEMPT INCOME WAS REQUIRED TO BE CONSIDERED FOR THE PURPOSE OF COMPUTING BOOK PROFIT U/S.115JB OF THE ACT. 3.1. BEFORE US,AR SUBMITTED THAT SIMILAR ISSUE WAS DECID ED IN FAVOUR OF THE ASSESSEE WHILE THE TRIBUNAL HAD ADJUDICATED THE APPEAL OF THE ASSESSEE FOR AY.2008-09. HE REFERRED TO PARA-8 OF THE ORDER (ITA/4750/MUM/2011-AY-2008-09, DATED 30.04.20 12).DR SUBMITTED THAT HONBLE HIGH COURT OF DELHI HAS DECIDED THE ISSUE AGAINST THE AS SESSEE IN THE CASE OF GOETZ INDIA LTD..HE ALSO REFERRED TO DECISION OF RBK SHARE BROKING (P.)LTD.P RONOUNCED BY THE D BENCH OF THE MUMBAI TRIBUNAL (ITA/6678/7546/MUM/2011,AY.2008-09,DATED 2 4.07.2013). 3.2. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL BEFORE US. WE FIND THAT IN THE CASE OF RBK SHARE BROKING (P.)LTD.,TO WHICH ONE OF US WAS A PARTY,HAS DECIDED THE ISSUE AS UNDER: AS PER SECTION 14A,IT TRANSPIRES THAT IT TALKS OF DISALLOWING ANY EXPENDITURE INCURRED IN RELATION TO INCOME NOT INCLUDIBLE IN THE TOTAL INCOME. THE EXPR ESSION IN RELATION TO USED FOR MAKING DISALLOWANCE UNDER SECTION 14A HAS BEEN EMPLOYED IN EXPLANATION (1) TO SECTION 115JB(2) AS EXPENDITURE RELATABLE TO, IN MORE OR LESS THE SAM E FORM. IT IS MANIFEST THAT THE AMOUNT OF DIVIDEND IS EXEMPT UNDER SECTION 10(33) [NOT SECTION 10(38)] OF THE ACT. THUS, ANY EXPENDITURE RELATABLE TO THE EXEMPT DIVIDEND INCOME WOULD FALL UNDER CLAUSE (F). THE ASSESSEE ARGUED THAT UNLESS AN AMOUNT IS SPECIFICALLY DEBITED TO THE PROFIT AND LO SS ACCOUNT IN RESPECT OF AN EXEMPT INCOME, THE SAME CANNOT BE BROUGHT WITHIN THE PURVIEW OF CLAUSE (F) OF THE EXPLANATION.] TO SECTION 115JB(2). HE STATED THAT SINCE THE DISALLOWANCE UNDER SECTION 14A IS COMPUTED AS PER RULE 8D, THE ORIGIN OF THE EXPENSES DISALLOWED CANNOT BE TRACED TO THE PRO FIT AND LOSS ACCOUNT AND HENCE IT CANNOT BE COVERED WITHIN THE MISCHIEF OF CLAUSE (1) OF THE EX PLANATION. THERE WAS NO LOGIC IN THIS SUBMISSION BECAUSE OF THE CLEAR LANGUAGE OF THE EXPLANATION 1, WHICH PROVIDES IN UNEQUIVOCAL TERMS THAT THE AMOUNT OF EXPENDITURE RELATABLE TO EXEMPT INCOME SHALL BE ADDED BACK. NEITHER THE LANGUAGE OF CLAUSE (1) EXPRESSLY REFERS TO THE AMOUNT SPECIFICA LLY DEBITED TO THE PROFIT AND LOSS ACCOUNT NOR THERE CAN BE AN IMPLICATION IN THIS REGARD. WHAT HA S BEEN CONTEMPLATED BY THE PROVISION IS THE AMOUNT OF THE EXPENDITURE RELATABLE TO EXEMPT INCOM E. RESPECTFULLY FOLLOWING THE ABOVE ORDER OF THE COORD INATING BENCH,WE DECIDE THE ISSUE AGAINST THE ASSESSEE.GROUND NO.2,FILED BY THE ASSESSEE,IS DISMI SSED. 4. LAST EFFECTIVE GROUND OF APPEAL FILED BY THE ASSESS EE IS ABOUT CHARGING OF INTEREST U/S. 234B AND 234C OF THE ACT.IN THE APPELLATE PROCEEDINGS, FAA H ELD THAT THE GROUND WITH REGARD TO 234 INTEREST WAS CONSEQUENTIAL IN NATURE.HE DID NOT ADJ UDICATE THE SAID GROUND,THOUGH THE ASSESSEE HAD TAKEN A SPECIFIC GROUND ABOUT THE LEVY OF INTERST. 4.1. BEFORE US,AR SUBMITTED THAT AO HAS NOT PASSED ANY ORDER ABOUT CHARGING THE INTEREST U/S. 234 OF THE ACT.HE REFERRED TO PARA-7 OF THE ASSESSMENT ORDER. HE RELIED UPON THE ORDER OF THE HONBLE HIGH COURT UTTARANCHAL DELIVERED IN THE CASE OF DEH RADUN CLUB (ITA NO. 15 OF 2006 DATED 14.10.2011) AND SUBMITTED THAT ASSESSMENT ORDER MUS T CONTAIN THE IMPOSITION OF INTEREST AND ONLY THEREAFTER, A NOTICE OF DEMAND COULD BE ISSUED U/S. 156 OF THE ACT. DR FAIRLY CONCEDED THAT FAA HAD NOT ADJUDICATE TO THE ISSUE ABOUT CHARGING OF I NTEREST U/S. 234 OF THE ACT, THOUGH A SPECIFIC GROUND WAS TAKEN BY THE ASSESSEE. 4.2. WE HAVE HEARD THE RIVAL SUBMISSION AND PERUSED THE MATERIAL BEFORE US.WE FIND THAT ASSESSEE HAD RAISED ISSUE OF CHARGING OF INTEREST U/S. 234 V IDE GROUND OF APPEAL NO.5. IN THE STATEMENTS OF FACTS FILED ALONG WITH FORM-35 FACTS RELATABLE OF C HARGING OF INTEREST ARE ALSO MENTIONED.WE FURTHER FIND THAT FAA HAS DECIDED THE ISSUE IN ONE LINE STATING THAT ISSUE WAS CONSEQUENTIAL IN NATURE.IN OUR OPINION, ONCE SPECIFIC GROUND WAS TAK EN BEFORE HIM, HE HAD TO DECIDE IT EITHER WAY. IN CERTAIN CIRCUMSTANCES CHARGING OF INTEREST U/S.2 34 OF THE ACT IS MANDATORY.THEREFORE, CONSIDERING THE FACTS OF THE CASE,WE ARE OF THE OPI NION THAT IN THE INTEREST OF JUSTICE,MATTER SHOULD BE RESTORED BACK TO THE FILE OF THE FAA WHO WILL DE CIDE THE ISSUE AFRESH AFTER CONSIDERING THE JUDGMENT OF HONBLE UTTARANCHAL HIGH COURT IN THE C ASE OF DEHRADUN CLUB (SUPRA). GROUND NO.3 IS ALLOWED, IN PA RT, IN FAVOUR OF THE ASSESSEE. 5 ITA NOS. 4448 & 4736/MUM/2012 HINDUSTAN COMPOSITES LTD. ITA NO. 4736/MUM/2012 5. SOLITARY ISSUE IN THE APPEAL FILED BY THE AO IS ABO UT DELETING THE DISALLOWANCE OF INTEREST EXPENDITURE AMOUNTING TO RS. 14.03 LAKHS U/S. 14A O F THE ACT.FACTS RELATING THE GROUND OF APPEAL AND THE DECISION OF THE FAA,HAVE BEEN DISCUSSED BY US,IN THE EARLIER PART OF THE ORDER(PARAGRAPHS 2.1 AND 2.3) 5.1. BEFORE US, DR SUBMITTED THAT ASSESSEE HAD NOT FILED CASH FLOW STATEMENT BEFORE THE AO, THAT IN SPITE OF AFFORDING REASONABLE OPPORTUNITIES ASSESSE E HAD NOT PRODUCED THE EVIDENCE ABOUT USING INTEREST FREE FUNDS FOR MAKING INVESTMENTS,THAT ASS ESSEE WAS HAVING COMMON FUNDS I.E. BORROWED AS WELL AS INTEREST FREE FUNDS,THAT IN ABSENCE OF E VIDENCES OF UTILISING INTEREST FREE FUNDS FOR MAKING INVESTMENT OF PROPORTIONATE DISALLOWANCE HAD TO BE MADE,THAT THE FAA HAD DECIDED THE ISSUE ON PRESUMPTION.AR SUBMITTED THAT ASSESSEE HAD SUFFICIENT INTEREST FREE FUNDS FOR MAKING INVESTMENT, THAT THE CURRENT YEAR PROFITS AND THE A CCUMULATED PROFIT WERE MORE THAN THE INVESTMENTS MADE,THAT FAA HAD TAKEN INTO CONSIDERAT ION ALL THE RELEVANT FACTS, HE RELIED UPON THE ORDER OF THE RELIANCE UTILITIES AND POWER LTD.(313I TR340)DELIVERED BY THE HONBLE HIGH COURT OF MUMBAI. 5.2. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL BEFORE US.WE FIND THAT THE ASSESSEE HAD BORROWED FUNDS AS WELL OWN FUNDS,THAT IT WAS MAKING INVESTMENT IN THE SHARES FROM THE COMMON POOL OF FUND THAT CASH FLOW STATEMENT WA S NOT SUBMITTED BY THE ASSESSEE INDICATING THAT INTEREST FREE FUNDS WERE UTILISED FOR MAKING I NVESTMENT DURING THE YEAR UNDER CONSIDERATION. WE FIND THAT WHILE DECIDING THE ISSUE IN FAVOUR OF THE ASSESSEE,FAA HAS ASSUMED CERTAIN THINGS BUT THE BASIS FOR SUCH ASSUMPTIONS HAS NOT BEEN GIV EN BY HIM.WE ARE OF THE OPINION THAT ASSESSEE HAS TO PRODUCE POSITIVE EVIDENCE OF USING OWN FUNDS IN CASE WHERE AO DIRECTS IT TO FILE CASH FLOW STATEMENT IN SUPPORT OF THE CLAIM MADE BY IT.AS IN THE CASE UNDER CONSIDERATION ASSESSEE HAS NOT LED THE EVIDENCE ABOUT MAKING INVESTMENT FROM OWN F UNDS EVEN AFTER BEING DIRECTED BY AO TO DO SO,THEREFORE,IN THE INTEREST OF JUSTICE, WE ARE REM MITING BACK THE ISSUE TO THE FILE OF THE FAA FOR FRESH ADJUDICATION.HE MAY OBTAIN REMAND REPORT IN T HIS REGARD FROM THE AO.ASSESSEE WILL BE FREE TO ADDUCE EVIDENCES BEFORE THE FAA.THE EFFECTIVE GR OUND OF APPEAL FILED BY THE AO IS ALLOWED IN HIS FAVOUR, IN PART. AS A RESULT APPEALS FILED BY THE AO AND THE ASSES SEE STAND PARTLY ALLOWED. 0'1 &' 2 &' + 3 4 ( .5 6 /'1 7 ( ' 89. ORDER PRONOUNCED IN THE OPEN COURT ON 22 ND APRIL,2014 . / ( ,-! 6 ; 22 $< 201 4 - ( . = SD/- SD/- ( MK MKMK MK0 00 0 ,L VH ,E IKOYU ,L VH ,E IKOYU ,L VH ,E IKOYU ,L VH ,E IKOYU / DR. S.T.M.PAVALAN) ( / RAJENDRA) / JUDICIAL MEMBER /ACCOUNTANT MEMBER / MUMBAI, ; /DATE:22.04.2014. SK / / / / ( (( ( $' $'$' $'> > > > ?>!' ?>!' ?>!' ?>!' / COPY OF THE ORDER FORWARDED TO : 1. ASSESSEE / '# 2. RESPONDENT / $%'# 22 3. THE CONCERNED CIT(A)/ @ A , 4. THE CONCERNED CIT / @ A 5. DR H BENCH, ITAT, MUMBAI / >B. $' ,P ,P,P ,P , . . . 6. GUARD FILE/ . 0 %>' %>' %>' %>' $' $'$' $' //TRUE COPY// / / BY ORDER, C / 8 DY./ASST. REGISTRAR , /ITAT, MUMBAI