M/s. Raajratna Metal Industries Ltd., Ahmedabad V. The Addl.CIT.,Range-5, Ahmedabad

ITA 542/AHD/2012

• Counselvise Citation: [2015] 120 COUNSELVISE.COM (IT) 9599 (ITAT-AHMEDABAD)
• Duration Of Justice: 3 year(s) 3 month(s) 9 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 11-06-2015
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: B
• Next Hearing Date: 29-05-2015
• Assessment Year: 2009-2010
• Appeal Filed On: 02-03-2012
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: ITA NO AHD
• Assessee Lawyers: AND ITA NO AHD ACIT VS RA
• Keywords: Capital asset; Depreciation; Earning of tax free income
• Section: 14A

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL B BENCH, AHMEDABAD .. , ( .) , ! BEFORE SHRI BEFORE SHRI G.D. AGARWAL,VICE PRESIDEN T (AZ) AND SHRI KUL BHARAT, JUDICIAL MEMBER 1. ./ I.T.A. NO.540/AHD/2012 A.Y. 2009-10 2. ./ I.T.A. NO.542/AHD/2012 A.Y. 2009-10 1.ASST.CIT CIRCLE-5, AHMEDABAD 2.RAAJRATNA METAL INDUSTRIES LTD., AHMEDABAD / VS. 1. RAAJRATNA METAL INDUSTRIES LTD. 909, SAKAR-III NR.INCOME-TAX CIRCLE ASHRAM ROAD, AHMEDABAD 2. ASST.CIT CIRCLE-5 AHMEDABAD % & ./ ./ PAN/GIR NO. AAACR 9980 M ( %( / APPELLANTS ) .. ( )*%( / RESPONDENTS ) REVENUE B Y : SHRI NIMESH YADAV,SR.D.R. ASSESSEE B Y : SHRI PRAKASH D.SHAH, A.R. + ,- .& / DATE OF HEARING 29/05/2015 /012 - .& / DATE OF PRONOUNCEMENT 11/06/2015 / O R D E R PER SHRI KUL BHARAT, JUDICIAL MEMBER : THESE CROSS-APPEALS BY THE REVENUE AND THE ASSESSEE ARE DIRECTED AGAINST THE ORDER OF THE LD.COMMISSIONER OF INCOME TAX(APPEALS)-XI, AHMEDABAD (CIT(A) IN SHORT) DATED 30/12/2011 PER TAINING TO ASSESSMENT YEAR (AY) 2009-10. THESE APPEALS WERE HEARD TOGETHER AND ITA NO.540/AHD/2012 (BY REVENUE) AND ITA NO.542/AHD/2012 (BY ASSESSEE) ACIT VS. RAAJRATNA METAL INDUSTRIES LTD. ASST.YEAR 2009-10 - 2 - ARE BEING DISPOSED OF BY WAY OF THIS CONSOLIDATED O RDER FOR THE SAKE OF CONVENIENCE. 2. FIRST, WE TAKE UP THE REVENUES APPEAL IN ITA NO .540/AHD/2012 FOR AY 2009-10. THE REVENUE HAS RAISED THE FOLLOW ING GROUNDS OF APPEAL:- I) THE LD.CIT(A) HAS ERRED IN LAW AND ON FACTS IN DELETING THE INTEREST OF RS.3,49,522/- ADDED UNDER THE PROVISO T O SECTION 36(1)(III) OF THE I.T.ACT. II) THE LD.CIT(A) HAS ERRED IN LAW AND ON FACTS IN DELETING THE ADDITION ON ACCOUNT OF DEPRECIATION OF RS.13,56,853 /-. III) ON THE FACTS AND CIRCUMSTANCES OF THE CASE, TH E LD.COMMISSIONER OF INCOME TAX (A) OUGHT TO HAVE UPHELD THE ORDER OF THE ASSESSING OFFICER. IV) IT IS, THEREFORE, PRAYED THAT THE ORDER OF THE LD.COMMISSIONER OF INCOME TAX (A) MAY BE SET-ASIDE AND THAT OF THE ASS ESSING OFFICER BE RESTORED. 2. GROUND NOS.(III) & (IV) ARE GENERAL IN NATURE W HICH REQUIRE NO INDEPENDENT ADJUDICATION. 3. BRIEFLY STATED FACTS ARE THAT THE CASE OF THE AS SESSEE WAS PICKED UP FOR SCRUTINY ASSESSMENT AND THE ASSESSMENT U/S.143( 3) OF THE INCOME TAX ACT,1961 (HEREINAFTER REFERRED TO AS THE ACT) WAS FRAMED VIDE ORDER DATED 24/12/2010, THEREBY THE ASSESSING OFFICER (AO IN SHORT) MADE DISALLOWANCE OF INTEREST UNDER PROVISO TO SEC.36(1) (III) OF THE ACT ITA NO.540/AHD/2012 (BY REVENUE) AND ITA NO.542/AHD/2012 (BY ASSESSEE) ACIT VS. RAAJRATNA METAL INDUSTRIES LTD. ASST.YEAR 2009-10 - 3 - AMOUNTING TO RS.3,49,522/-, DISALLOWANCE BY INVOKIN G THE PROVISIONS OF SECTION 14A OF THE ACT AMOUNTING TO RS.5,01,209/- A ND DISALLOWANCE OF EXCESS DEPRECIATION AMOUNTING TO RS.13,56,853/-. T HE AO HAS ALSO MADE ADDITION ON EXPENSES RELATABLE TO EXEMPT INCOME U/S .10 (DISALLOWANCE MADE U/S.14A OF THE ACT) FOR THE PURPOSE OF COMPUTI NG BOOK PROFIT. AGAINST THE SAID ASSESSMENT ORDER, THE ASSESSEE FIL ED AN APPEAL BEFORE THE LD.CIT(A), WHO AFTER CONSIDERING THE SUBMISSIONS OF THE ASSESSEE, PARTLY ALLOWED THE APPEAL. WHILE PARTLY ALLOWING THE APPE AL, THE LD.CIT(A) DELETED THE DISALLOWANCE OF THE INTEREST EXPENDITUR E OF RS.3,49,522/-, DELETED THE DISALLOWANCE OF EXCESS DEPRECIATION OF RS.13,56,853/- AND DIRECTED THE AO TO ALLOW THE DEPRECIATION. THE LD. CIT(A) FURTHER REDUCED THE DISALLOWANCE MADE BY INVOKING THE PROVISIONS OF SECTION 14A OF THE ACT. THE LD.CIT(A) DIRECTED THE AO TO EXCLUDE THE INVESTMENTS AMOUNTING TO RS.1,23,58,165/- [INVESTMENT OF RS.1,2 2,73,180/- IN THE SHARES OF ERRE INOX SPA AND RS.84,985/- IN THE SHAR ES OF STAINLESS WIRE LTD. (WOS) FOREIGN CONCERNS) AND CONFIRMED T HE DISALLOWANCE IN RESPECT OF THE INVESTMENT OF RS.30,43,125/-. THE LD.CIT(A) FOLLOWED THE JUDGEMENT OF THE HONBLE SUPREME COURT RENDERED IN THE CASE OF APOLLO TYRES REPORTED AT 255 ITR 273(SC) AND THE DE CISION OF ITAT IN ITA NO.1777/AHD/2009 FOR THE AY 2006-07 IN THE CASE OF ACIT- GANDHINAGAR VS. GUJARAT STATE ENERGY GENERATION LTD . THE LD.CIT(A) OBSERVED THAT DISALLOWANCE MADE U/S.14A SHOULD NOT BE ADDED WHILE ITA NO.540/AHD/2012 (BY REVENUE) AND ITA NO.542/AHD/2012 (BY ASSESSEE) ACIT VS. RAAJRATNA METAL INDUSTRIES LTD. ASST.YEAR 2009-10 - 4 - COMPUTING BOOK PROFIT. AGAINST THE ORDER OF THE LD .CIT(A), NOW THE REVENUE AND THE ASSESSEE BOTH ARE IN CROSS-APPEALS BEFORE US. 4. FIRST GROUND OF REVENUES APPEAL IS AGAINST DELE TION OF DISALLOWANCE OF INTEREST OF RS.3,49,522/-. THE LD .SR.DR SHRI NIMESH YADAV VEHEMENTLY ARGUED AND SUBMITTED THAT THE LD.C IT(A) WAS NOT JUSTIFIED IN DELETING THE ADDITION. HE STRONGLY SU PPORTED THE ORDER OF THE AO. 4.1. ON THE CONTRARY, LD.COUNSEL FOR THE ASSESSEE S UPPORTED THE ORDER OF THE LD.CIT(A) AND SUBMITTED THAT THE COMPANY HAS SU FFICIENT INTEREST-FREE FUNDS OF ITS OWN IN THE FORM OF CURRENT YEAR CASH P ROFIT OF RS.978.52 LACS (PROFIT AFTER TAX OF RS.248.25 LACS AND DEPRECIATIO N OF RS.730.27 LACS) AND THE SAME HAS BEEN UTILIZED FOR THE PURPOSE OF I MPUGNED ADDITION CAPITAL WORK-IN-PROGRESS OF RS.32.96 LACS. 5. WE HAVE HEARD THE RIVAL SUBMISSIONS, PERUSED THE MATERIAL AVAILABLE ON RECORD AND GONE THROUGH THE ORDERS OF THE AUTHORITIES BELOW. WE FIND THAT THE LD.CIT(A) HAS DECIDED THIS ISSUE I N PARA-3.4 OF HIS ORDER AS UNDER:- 3.4. I HAVE CONSIDERED THE RIVAL SUBMISSION. I HA VE ALSO PERUSED THE ASSESSMENT ORDER, REMAND REPORT AND THE SUBMISS ION MADE BY THE LD.A.R. IT IS SEEN THAT FOR CAPITALIZING INTERE ST AS PER THE ITA NO.540/AHD/2012 (BY REVENUE) AND ITA NO.542/AHD/2012 (BY ASSESSEE) ACIT VS. RAAJRATNA METAL INDUSTRIES LTD. ASST.YEAR 2009-10 - 5 - PROVISIONS OF PROVISO TO SECTION 36(1)(III) FOLLOWI NG CONDITIONS SHOULD BE FULFILLED. 1. CAPITAL BORROWED FOR ACQUIRING CAPITAL ASSETS. 2. INTEREST IS PAID IN RESPECT OF CAPITAL BORROWED. 3. THE ACQUISITION OF ASSETS SHOULD BE FOR THE PURPOSE OF EXPANSION OF AN EXISTING BUSINESS OR PROFESSION. 4. INTEREST LIABILITY MAY OR MAY NOT BE CAPITALIZED. IN THE INSTANT CASE, THE LD.A.O. HAS NOT BROUGHT AN YTHING ON RECORD TO INDICATE THAT CAPITAL WAS BORROWED FOR CAPITAL W ORK-IN-PROGRESS. SECONDLY, NO EVIDENCE IS THERE ON RECORD TO INDICAT E THAT ANY INTEREST WAS PAID TO CREATE THIS CAPITAL WORK-IN-PR OGRESS. THIS WAY, THE FIRST AND SECOND CONDITIONS FOR CAPITALIZI NG INTEREST ARE NOT FULFILLED. ACCORDINGLY, INTEREST CANNOT BE CAP ITALIZED AS PER THE PROVISIONS OF PROVISO TO SECTION 36(1)(III). THIRD LY, PROVISIONS OF PROVISO TO SECTION 36(1)(III) DOES NOT PROVIDE FOR PROPORTIONATE CAPITALIZATION OF INTEREST. IN VIEW OF ABOVE, CAPI TALIZATION OF INTEREST OF RS.3,49,522 IS DELETED. THIS GROUND OF APPEAL IS ALLOWED. 5.1. FROM THE ABOVE FINDING ON FACT, IT REVEALED TH AT THE AO HAS NOT BROUGHT ANYTHING ON RECORD TO INDICATE THAT CAPITAL WAS BORROWED FOR CAPITAL WORK-IN-PROGRESS. THIS FINDING ON FACT IS NOT REBUTTED BY THE REVENUE BY PLACING ANY MATERIAL ON RECORD. THEREFO RE, WE DO NOT SEE ANY INFIRMITY IN THE ORDER OF THE LD.CIT(A), SAME I S HEREBY UPHELD. THUS, THIS GROUND OF REVENUES APPEAL IS REJECTED. 5.2. GROUND NO.2 OF REVENUES APPEAL IS AGAINST DEL ETION OF ADDITION MADE ON ACCOUNT OF DEPRECIATION OF RS.13,56,853/-. THE LD.SR.DR ITA NO.540/AHD/2012 (BY REVENUE) AND ITA NO.542/AHD/2012 (BY ASSESSEE) ACIT VS. RAAJRATNA METAL INDUSTRIES LTD. ASST.YEAR 2009-10 - 6 - SUPPORTED THE ORDER OF THE AO AND SUBMITTED THAT TH E LD.CIT(A) WAS NOT JUSTIFIED IN DELETING THE ADDITION. 5.3. ON THE CONTRARY, LD.COUNSEL FOR THE ASSESSEE S UPPORTED THE ORDER OF THE LD.CIT(A) ON THIS ISSUE AND SUBMITTED THAT THE LD.CIT(A) HAS FOLLOWED THE DECISION OF HIS PREDECESSOR IN THE AY 2008-09. 6. WE HAVE HEARD THE RIVAL SUBMISSIONS, PERUSED THE MATERIAL AVAILABLE ON RECORD AND GONE THROUGH THE ORDERS OF THE AUTHORITIES BELOW. WE FIND THAT THE LD.CIT(A) HAS RECORDED HIS FINDING IN PARAS-5.2 & 5.3 WHICH READ AS UNDER:- 5.2 I HAVE CONSIDERED THE RIVAL SUBMISSIONS. IT I S SEEN THAT THIS ISSUE HAS BEEN DECIDED IN FAVOUR OF THE APPELLANT I N THE EARLIER YEARS. I THE A.Y. 2008-09 MY PREDECESSOR HAD ALLOW ED THE APPEAL OF THE APPELLANT ON THIS ISSUE. FOR THE SAKE OF BR EVITY, THE CONCLUDING PARA IS REPRODUCED AS UNDER: I HAVE CONSIDERED THE SUBMISSIONS MADE BY THE A.R. OF THE APPELLANT AND THE OBSERVATIONS OF THE ASSESSING OFF ICER IN THE ASSESSMENT ORDER. SIMILAR ISSUE AROSE IN THE APPE LLANTS OWN CASE FOR EARLIER ASSESSMENT YEARS. THE SAID IS SUE WAS DECIDED IN FAVOUR OF THE APPELLANT BY MY PREDECESSO R FOR EARLIER ASSESSMENT YEARS AND BY THE UNDERSIGNED FOR A.Y. 2007-08. FOLLOWING THE DECISIONS FOR EARLIER ASSES SMENTS, THE A.O. IS DIRECTED TO ALLOW DEPRECIATION IN CONSO NANCE WITH THE ORDER GIVING EFFECT TO APPELLATE ORDER IN THE IMMEDIATELY PRECEDING YEAR I.E. A.Y. 2007-08. THIS GROUND OF APPEAL IS ALLOWED. ITA NO.540/AHD/2012 (BY REVENUE) AND ITA NO.542/AHD/2012 (BY ASSESSEE) ACIT VS. RAAJRATNA METAL INDUSTRIES LTD. ASST.YEAR 2009-10 - 7 - 5.3. SINCE THE FACTS ARE IDENTICAL IN THIS YEAR AS IT WAS IN THE A.Y. 2008-09, ACCORDINGLY RESPECTFULLY FOLLOWING ORDER O F MY LD.PREDECESSOR, THE A.O. IS DIRECTED TO ALLOW DEPRE CIATION AS PER THE APPELLATE ORDERS IN THE IMMEDIATELY PRECEDING Y EARS. IN VIEW OF ABOVE, THIS GROUND OF APPEAL IS ALLOWED. 6.1. THE REVENUE HAS NOT BROUGHT ANY MATERIAL ON RE CORD AS TO HOW THE FACTS IN THE PRESENT CASE ARE DIFFERENT FROM THE FA CTS IN THE EARLIER YEARS. THE REVENUE HAS NOT PLACED ANY MATERIAL ON RECORD S UGGESTING THAT THE ORDER OF THE LD.CIT(A) IN THE EARLIER ASSESSMENT YE AR HAS BEEN REVERSED BY THIS TRIBUNAL OR BY THE HONBLE JURISDICTIONAL HIGH COURT. UNDER THESE FACTS, WE DO NOT SEE ANY REASON TO INTERFERE WITH T HE ORDER OF THE LD.CIT(A), SAME IS HEREBY UPHELD. THUS, REVENUES THIS GROUND IS REJECTED. AS A RESULT, REVENUES APPEAL IS DISMISS ED. 7. NOW, WE TAKE UP THE ASSESSEES APPEAL IN ITA NO. 542/AHD/2012, FOR AY 2009-10, WHEREIN THE FOLLOWING GROUNDS HAVE BEEN RAISED:- 1. THAT THE LEARNED CIT(A) HAS ERRED IN LAW AND FACTS BY CONFIRMING DISALLOWANCES U/S.14A OF THE ACT ON INVE STMENT IN SHARES OF COMPANIES OTHER THAN 2 FOREIGN SUBSIDIARY COMPANIES AND THEREFORE THE LEARNED AO SHOULD BE DIRECTED TO DELETE THE SAME WHILE COMPUTING THE TOTAL INCOME. 2. THAT THE APPELLANT CRAVES LIBERTY TO ADD, MEND, ALT ER AND DELETE ANY GROUNDS OF APPEAL BEFORE THE FINAL HEARING. ITA NO.540/AHD/2012 (BY REVENUE) AND ITA NO.542/AHD/2012 (BY ASSESSEE) ACIT VS. RAAJRATNA METAL INDUSTRIES LTD. ASST.YEAR 2009-10 - 8 - 7.1. THE ONLY EFFECTIVE GROUND NO.1 IS AGAINST CONF IRMATION OF DISALLOWANCE U/S.14A OF THE ACT IN RESPECT OF INVES TMENT IN SHARES OF COMPANIES OTHER THAN 2 FOREIGN SUBSIDIARY COMPANIES . THE LD.COUNSEL FOR THE ASSESSEE SUBMITTED THAT THE LD.CIT(A) WAS NOT J USTIFIED IN CONFIRMING THE DISALLOWANCE. 7.2. ON THE CONTRARY, LD.SR.DR SUPPORTED THE ORDER OF THE LD.CIT(A). 8. WE HAVE HEARD THE RIVAL SUBMISSIONS, PERUSED THE MATERIAL AVAILABLE ON RECORD AND GONE THROUGH THE ORDERS OF THE AUTHORITIES BELOW. WE FIND THAT THE LD.CIT(A) HAS DECIDED THIS ISSUE A S UNDER:- A.5. I HAVE CAREFULLY CONSIDERED THE SUBMISSIONS O F THE LD.A.R. AND IS NOT INCLINED TO AGREE WITH IT. IT IS A MATT ER OF FACT THAT PROVISIONS OF RULE 8D OF THE I.T.RULES, 1962 ARE OP ERATIONAL FROM 28-3-2008 AND THE SAME IS APPLICABLE FROM A.Y. 2008 -09 ONWARDS. THESE PROVISIONS ARE APPLICABLE FOR THE ASSESSMENT UNDER CONSIDERATION I.E. A.Y. 2009-10. SINCE PROVISIONS OF RULE 8D R.W.S. 14A ARE MANDATORY IN NATURE, ACCORDINGLY, DISALLOWA NCE U/S.14A ON AN INVESTMENTS OF RS.30,43,125/- CAN BE CONSIDER ED FOR DISALLOWANCE. THE A.O. IS DIRECTED TO WORK OUT DIS ALLOWANCE OF INTEREST AND ADMINISTRATIVE EXPENSES AS PER THE PRO VISIONS OF RULE 8D OF I.T. RULES, 1962 ON AN INVESTMENT OF RS.30,43 ,125/- AND GIVE THE CONSEQUENTIAL RELIEF TO THE APPELLANT. THIS GR OUND OF APPEAL IS PARTLY ALLOWED. 8.1. THERE IS NO DISPUTE WITH REGARD TO THE FACT TH AT THE PROVISIONS OF RULE 8D WOULD BE APPLICABLE IN THE YEAR UNDER CONSI DERATION. THE LD.CIT(A) HAS DECIDED THIS ISSUE IN ACCORDANCE WITH RULE 8D OF THE IT ITA NO.540/AHD/2012 (BY REVENUE) AND ITA NO.542/AHD/2012 (BY ASSESSEE) ACIT VS. RAAJRATNA METAL INDUSTRIES LTD. ASST.YEAR 2009-10 - 9 - RULES, 1962, THEREFORE WE DO NOT SEE ANY REASON TO INTERFERE WITH THE ORDER OF THE LD.CIT(A), SAME IS HEREBY UPHELD. THU S, THIS GROUND OF ASSESSEES APPEAL IS REJECTED AND THE APPEAL OF THE ASSESSEE IS DISMISSED. 9. IN THE COMBINED RESULT, REVENUES APPEAL AS WEL L AS ASSESSEES APPEAL BOTH ARE DISMISSED. ORDER PRONOUNCED IN THE COURT ON THURSDAY, THE 11 TH DAY OF JUNE, 2015 AT AHMEDABAD. SD/- SD/- ( .. ) ( ) ( .) ( G.D. AGARWAL ) ( KUL BHARAT ) VICE PRESIDENT (AZ) JUDICIAL MEMBER AHMEDABAD; DATED 11/ 06 /2015 5...+ , .+../ T.C. NAIR, SR. PS !'#$#%! / COPY OF THE ORDER FORWARDED TO : 1. %( / THE APPELLANT 2. )*%( / THE RESPONDENT. 3. 678 9 / CONCERNED CIT 4. 9 ( ) / THE CIT(A)-XI, AHMEDABAD 5. : ;)+78 , .782 , 6 / DR, ITAT, AHMEDABAD 6. ; < , / GUARD FILE. / BY ORDER, * :) //TRUE COPY// / ( DY./ASSTT.REGISTRAR) , / ITAT, AHMEDABAD