Assistant Commissioner of Income tax, Satara V. M/s. Hindustan Feeds Mfg. Co., Satara

ITA 507/PUN/2017

• Counselvise Citation: [2019] 115 COUNSELVISE.COM (IT) 8735 (ITAT-PUNE)
• Duration Of Justice: 2 year(s) 6 month(s) 12 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 12-09-2019
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: B
• Next Hearing Date: 06-03-2019
• Assessment Year: 2012-2013
• Appeal Filed On: 01-03-2017
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: D G KURUNDWADKAR
• Keywords: Earning of tax free income; Rule 8D
• Section: 143(3); 14A

Judgement Text

] IN THE INCOME TAX APPELLATE TRIBUNAL PUNE BENCH B , PUNE BEFORE MS. SUSHMA CHOWLA, JM AND SHRI ANIL CHATURVEDI, AM . / ITA NO.507/PUN/2017 / ASSESSMENT YEAR : 2012-13 THE ASST. COMMISSIONER OF INCOME TAX, SATARA CIRCLE, SATARA. . / APPELLANT. V/S M/S. HINDUSTAN FEEDS MFG. CO., L-4, ADDITIONAL MIDC, SATARA 415004. PAN : AABFH6485P. . / RESPONDENT ASSESSEE BY : SHRI D.G. KURUNDWADKAR REVENUE BY : SHRI SUDHENDU DAS. / ORDER PER ANIL CHATURVEDI, AM : 1. THIS APPEAL FILED BY THE REVENUE IS EMANATING OUT OF THE O RDER OF COMMISSIONER OF INCOME TAX (A) 8, PUNE DATED 29.12.2016 FOR THE ASSESSMENT YEAR 2012-13. 2. THE RELEVANT FACTS AS CULLED OUT FROM THE MATERIAL ON R ECORD ARE AS UNDER :- ASSESSEE IS A PARTNERSHIP FIRM STATED TO BE ENGAGED IN T HE BUSINESS OF PROCESSING OF CATTLE FEED. ASSESSEE FILED ITS RE TURN OF INCOME FOR A.Y. 2012-13 ON 22.09.2012 DECLARING TOTAL TAXABLE INCOM E OF RS.5,49,30,013/-. THE CASE WAS SELECTED FOR SCRUTINY A ND THEREAFTER / DATE OF HEARING : 02.08.2019 / DATE OF PRONOUNCEMENT: 12.09.2019 2 ASSESSMENT WAS FRAMED U/S 143(3) OF THE ACT VIDE ORDER D ATED 27.03.2015 AND THE TOTAL INCOME WAS DETERMINED AT RS.6,38 ,07,290/-. AGGRIEVED BY THE ORDER OF AO, ASSESSEE CARRIED THE MATT ER BEFORE LD.CIT(A), WHO VIDE ORDER DATED 29.12.2016 (IN APPEAL NO.PN/ CIT(A)- 8/ACIT, SATARA CIRCLE/83/2015-16/198) GRANTED PARTIAL RE LIEF TO THE ASSESSEE. AGGRIEVED BY THE ORDER OF LD.CIT(A), REVENUE IS NOW IN APPEAL BEFORE US AND HAS RAISED THE FOLLOWING EFFECTIVE GROUND. : WHETHER ON THE FACT AND IN THE CIRCUMSTANCES OF TH E CASE AND IN LAW, THE LD. CIT(A) IS CORRECT IN REDUCING THE DISALLOWANCE U/S. 14A R.W. RULE 8D OF RS. 88,77,276/- TO RS. 1,98,410/- WITHOUT APPRECIAT ING THE FACT THAT RNTEREST BEARING FUND WAS UTILIZED BY THE ASSESSEE FIRM TO EARN EXEMPT INCOME AND HENCE INTEREST PAID BY THE ASSESSEE FIRM ON BORROWED FUND IS REQUIRED TO BE DISALLOWED AS PER SECTION 14A OF IT ACT, 1961 READ WITH RULE 80 IT RULES 1962 ? 3. DURING THE COURSE OF ASSESSMENT PROCEEDINGS, AO NOTICED THAT ASSESSEE HAD SHOWN RS.39,77,585/- AS EXEMPT INCOME WH ICH INCLUDED DIVIDEND INCOME FROM INVESTMENTS IN MUTUAL FUNDS. THE ASSES SEE WAS ASKED TO SHOW CAUSE AS TO WHY THE PROPORTIONATE EXPE NDITURE HAS NOT BEEN DISALLOWED U/S 14A OF THE ACT, TO WHICH ASSESSEE INTE R-ALIA SUBMITTED THAT ASSESSEE HAS NOT INCURRED ANY EXPENDITU RE FOR EARNING EXEMPT INCOME. THE SUBMISSIONS OF THE ASSESSEE WERE NO T FOUND ACCEPTABLE TO THE AO. AO NOTICED THAT ASSESSEE HAD INV ESTMENTS OF RS.6,06,45,545/- IN MUTUAL FUNDS. HE ALSO NOTICED THAT THE PARTNERS OF THE ASSESSEE HAD BROUGHT HUGE CAPITAL TO THE EXTENT OF RS.22.90 CRORES AND ASSESSEE FIRM HAD PAID INTEREST ON THE CAPITAL TO THE PARTNERS. HE NOTED THAT THE TOTAL INTEREST ON CAPITAL PAID BY THE FIRM WAS TO THE EXTENT OF RS.2.09 CRORES. AO WAS OF THE VIEW THAT ASSESSEE HAD DIVERTED INTEREST BEARING FUNDS FOR MAKING INVESTMENTS. HE WAS ALSO OF THE VIEW THAT APART FROM DIRECT EXPENDITURE, INDIRECT EXPENDITURE WAS ALSO INCURRED FOR RUNNING EXEMPT INCOME. HE THUS, WORKED OUT THE INTEREST 3 EXPENSES AT RS.55,34,939/- AND THEREAFTER HE WORKED OUT THE DISALLOWANCE U/S 14A R.W. RULE 8D OF I.T. RULES AND MADE ITS ADDITION. AGGRIEVED BY THE ORDER OF AO, ASSESSEE CARRIED THE MAT TER BEFORE LD.CIT(A). 4. LD.CIT(A) WHILE GRANTING PARTIAL RELIEF TO THE ASSESSEE HAS NOTED THAT THE AOS FINDING THAT THE CAPITAL OF THE PARTNERS WHICH HAS BEEN DIVERTED FOR MAKING INVESTMENTS IN MUTUAL FUNDS AND ON IT PAYING INTEREST IS NOT EQUIVALENT TO BORROWED FUNDS AND FOR WHICH LD.CIT(A) HAS RELIED ON THE DECISION IN THE CASE OF QUALITY INDUSTRIES VS . JCIT REPORTED IN (2016) 161 ITD 0217 (PUNE). SHE ALSO NOTED THAT THE TRIBUNAL HAS HELD THAT THE CAPITAL OF THE PARTNERS IN A FIRM DOES NOT AMOUNT TO BORROWED FUNDS AND THE INTEREST PAID THEREON IS NOT THE INTEREST AS ENVISAGED U/S 36(1)(III) OF THE ACT. SHE HAS FURT HER NOTED THAT THE TRIBUNAL HAS ALSO HELD THAT THE INTEREST PAID BY PARTNERSHIP FIRMS TOWARDS USE OF THE PARTNERS CAPITAL DOES NOT AMOU NT TO EXPENDITURE FOR THE PURPOSE OF SEC.14A OF THE ACT AND ACCORDINGLY SUCH INTEREST ON PARTNERS CAPITAL CANNOT BE CONSIDERED FOR MAKING DISALLOWANCE U/S 14A R.W.S R 8D OF I.T. RULES. WITH RESPEC T TO DISALLOWANCE UNDER 8D(2)(I) OF I.T. RULES SHE HAS GIVEN A FINDING THAT THE INTEREST OF RS.2,199,989/- AND COMMISSION OF RS.1,48,686/- CA NNOT BE CONSIDERED FOR EARNING EXEMPT INCOME UNDER RULE 8D(2)(II) OF I .T. RULES. SHE HOWEVER UPHELD THE DISALLOWANCE ON ACCOUNT OF ADMIN ISTRATIVE EXPENSES AND THUS UPHELD THE DISALLOWANCE TO THE EXTENT OF RS.1,98,410/-. AGGRIEVED BY THE ORDER OF LD.CIT(A), REVENUE IS NOW IN APPE AL BEFORE US. 4 5. BEFORE US, LD. D.R. SUPPORTED THE ORDER OF AO. LD.A.R. ON THE OTHER HAND REITERATED THE SUBMISSIONS MADE BEFORE LOWER AUTHORITIES AND SUPPORTED THE ORDER OF LD.CIT(A). 6. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL ON RECORD. THE ISSUE IN THE PRESENT CASE IS WITH RESPECT T O THE DISALLOWANCE U/S 14A R.W. RULE 8D OF I.T. RULES. WE FIND THAT LD.CIT(A) WHILE GRANTING PARTIAL RELIEF TO THE ASSESSEE AFTER RELYING ON T HE DECISION OF PUNE TRIBUNAL IN QUALITY INDUSTRIES VS. JCIT (SUPRA) HAS HE LD THAT INTEREST PAID ON PARTNERS CAPITAL ACCOUNT CANNOT BE CO NSIDERED AS INTEREST FOR THE PURPOSE OF DISALLOWANCE U/S 14A OF THE AC T. SHE HAS ALSO GIVEN A FINDING THAT INTEREST AND COMMISSION EXPENSES CANNOT BE CONSIDERED TO HAVE BEEN INCURRED FOR EARNING EXEMPT INCO ME. BEFORE US, REVENUE HAS NEITHER PLACED ANY CONTRARY BINDING DECISION IN ITS SUPPORT NOR HAS POINTED OUT ANY FALLACY IN THE FINDINGS OF LD.CIT(A). I N SUCH A SITUATION, WE FIND NO REASON TO INTERFERE WITH THE ORDER O F LD.CIT(A). THUS, THE GROUND OF THE REVENUE IS DISMISSED. 7. IN THE RESULT, THE APPEAL OF REVENUE IS DISMISSED. ORDER PRONOUNCED ON 12 TH DAY OF SEPTEMBER, 2019. SD/- SD/- ( SUSHMA CHOWLA ) ( ANIL CHATURVEDI ) ! / JUDICIAL MEMBER '! / ACCOUNTANT MEMBER PUNE; DATED : 12 TH SEPTEMBER, 2019. YAMINI 5 #$%&'('% / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT 2. / THE RESPONDENT 3. 4. 5 6. CIT(A)-8, PUNE. PR. CIT-3, PUNE. '#$ %%&',) &', / DR, ITAT, B PUNE; $*+,/ GUARD FILE. / BY ORDER // TRUE COPY // -./%0&1 / SR. PRIVATE SECRETARY ) &', / ITAT, PUNE.