ACIT Central Circle, Bareilly V. M/s Dhampur Sugar Mills Ltd., Bijnor

ITA 542/LKW/2011

• Counselvise Citation: [2014] 140 COUNSELVISE.COM (IT) 75142 (ITAT-LUCKNOW)
• Duration Of Justice: 2 year(s) 4 month(s) 14 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 31-01-2014
• Appeal Filed By: Department
• Order Result: Partly Allowed
• Bench Allotted: B
• Next Hearing Date: 06-01-2014
• Assessment Year: misc
• Appeal Filed On: 16-09-2011
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: VIVEK MISHRA
• Assessee Lawyers: AKSHAY KUMAR GUPTA
• Keywords: Revenue expenditure
• Section: 14A; 115JB; 37(1); 12

Judgement Text

1 IN THE INCOME TAX APPELLATE TRIBUNAL LUCKNOW BENCH B, LUCKNOW BEFORE SHRI SUNIL KUMAR YADAV, JUDICIAL MEMBER AND SHRI A.K. GARODIA, ACCOUNTANT MEMBER ITA NO.542/LKW/2011 A.Y.:2008 - 2009 A.C.I.T., CENTRAL CIRCLE, BAREILLY. VS. M/S DHAMPUR SUGAR MILLS (P) LTD., DHAMPUR, DISTT. BIJNOR. PAN:AABGT2827N (APPELLANT) (RESPONDENT) APPELLANT BY SHRI VIVEK MISHRA, CIT, D.R. RESPONDENT BY SHRI AKSHAY KUMAR GUPTA DATE OF HEARING 06/01/2014 DATE OF PRONOUNCEMENT 3 1 /01/2014 O R D E R PER A. K. GARODIA, A.M. THIS IS REVENUES APPEAL DIRECTED AGAINST THE ORDER OF LEARNED CIT ( A) - , BAREILLY DATED 26/05/2011 FOR ASSESSMENT YEAR 2008 - 2009. 2. GROUND NO. 1 & 2 ARE INTERCONNECTED, WHICH ARE AS UNDER: 1. THE LD. CIT ( A) WAS NOT JUSTIFIED IN LAW AND ON FACTS IN DELETING THE ADDITION OF RS.67,75,000/ - MADE ON ACCOUNT OF DISALLOWANCE U/S 14A OF THE ACT, WITHOUT APPRECIATING THE FACT THAT THE DISALLOWANCE OF EXPENDITURE WAS MADE BY THE A.O. WITH RESPECT TO AMOUNT OF INTERE ST EXPENSES WHICH WERE DIRECTLY ATTRIBUTABLE TO DIVIDEND INCOME, WHICH DID NOT FORM PART OF TOTAL INCOME. 2. THE LD. CIT (A) WAS NOT JUSTIFIED IN LAW AND ON FACTS IN DELETING THE ADDITION OF RS.67,75,000/ - MADE ON ACCOUNT OF DISALLOWANCE U/S 14 OF THE AC T, WITHOUT APPRECIATING THE FACT THAT THE A.O. HAS RIGHTLY DISALLOWED THE EXPENDITURE 2 U/S 14A OF THE ACT, ON THE BASIS OF COMPUTATION OF DISALLOWANCE MADE UNDER RULE 8D OF THE I.T. RULES. 1962. 3. LEARNED D.R. OF THE REVENUE SUPPORTED THE ASSESSMENT ORDE R. HE ALSO PLACED RELIANCE ON THE JUDGMENT OF HON'BLE CALCUTTA HIGH COURT RENDERED IN THE CASE OF DHANUKA AND SONS VS COMMISSIONER OF INCOME - TAX [2011] 339 ITR 319 (CAL) . HE ALSO PLACED RELIANCE ON THE TRIBUNAL DECISION RENDERED IN THE CASE OF R G P MOUL DS PVT. LTD. VS. DY. CIT IN I.T.A. NO.555/LKW/2011 DATED 27 TH AUGUST, 2013. HE SUBMITTED A COPY OF THE TRIBUNAL DECISION AND DRAWN OUR ATTENTION TO PARA 8 OF THE TRIBUNAL ORDER AND POINTED OUT THAT AS PER THIS TRIBUNAL ORDER, THE TRIBUNAL CONFIRMED THE DI SALLOWANCE TO THE EXTENT OF % OF THE ASSETS HELD AS PER MANDATE OF RULE 8D. 4. AS AGAINST THIS, LEARNED A.R. OF THE ASSESSEE SUPPORTED THE ORDER OF LEARNED CIT(A). 5. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS, PERUSED THE MATERIAL AVAILABLE ON RECORD, GONE THROUGH THE ORDERS OF THE AUTHORITIES BELOW AND THE JUDGMENTS CITED BY LEARNED D.R. OF THE REVENUE. ON PAGE NO. 11 OF HIS ORDER , THIS FINDING IS GIVEN BY LEARNED CIT(A) THAT THE INVESTMENT WAS MADE IN 1993 IN SUBSIDIARIES FOR ACQUIRING THEIR SHARES A ND SUCH INVESTMENT WAS MADE OUT OF OWN FUNDS OF THE ASSESSEE. HE HAS ALSO GIVEN FINDING THAT EXISTING TERM LOANS ON WHICH INTEREST WAS PAID DURING THE YEAR UNDER CONSIDERATION WERE RECEIVED FOR SPECIFIC PURPOSES AFTER 1993 AND THE CASH CREDIT ACCOUNT WAS USED FOR WORKING CAPITAL OF THE BUSINESS. HE HAS FURTHER GIVEN A FINDING THAT THE INTEREST PAID ON THESE LOANS IS NOT DISALLOWABLE U/S 14A OF THE ACT READ WITH RULE 8D. REGARDING THE INVESTMENTS IN SUBSIDIARIES AND OTHER COMPANIES PROMOTED BY THE ASSESSE E IN THE NATURE OF PROMOTION, THIS FINDING IS GIVEN BY LEARNED CIT(A) THAT THESE INVESTMENTS WERE MADE OUT OF OWN 3 FUNDS OF THE ASSESSEE COMPANY. T HESE FINDING OF FACTS GIVEN BY LEARNED CIT(A) COULD NOT BE CONTROVERTED BY LEARNED D.R. OF THE REVENUE. ONCE IT IS ESTABLISHED THAT NO BORROWED FUNDS ON WHICH INTEREST WAS PAID HAS BEEN INVESTED FOR EARNING TAX FREE INCOME, NO DISALLOWANCE OF ANY AMOUNT OUT OF INTEREST CAN BE MADE U/S 14A EVEN AFTER INSERTION OF RULE 8D. AS PER CLAUSE (II) OF SUB RULE (2) OF RU LE 8D, PROPORTIONATE DISALLOWANCE OUT OF INTEREST EXPENDITURE IS TO BE MADE IN RESPECT OF THOSE INTEREST EXPENDITURES WHICH ARE NOT DIRECTLY ATTRIBUTABLE TO ANY PARTICULAR INCOME OR RECEIPT. WHEN IN THE FACTS OF A GIVEN CASE, THE ENTIRE INTEREST EXPENDITU RE IS ATTRIBUTABLE TO BUSINESS IN WHICH THE INCOME IS ASSESSABLE TO TAX, SUCH INTEREST EXPENDITURE CANNOT BE CONSIDERED FOR THE PURPOSE OF PROPORTIONATE DISALLOWANCE AS PER RULE 8D. IN THE LIGHT OF THESE FINDINGS OF LEARNED CIT(A) THAT ENTIRE BORROWED FUN DS ON WHICH INTEREST WAS PAID WERE USED FOR BUSINESS PURPOSE AND NO PORTION WAS USED FOR MAKING INVESTMENT, THE AMOUNT OF INTEREST EXPENDITURE CANNOT BE CONSIDERED FOR P ROPORTIONATE DISALLOWANCE UNDER RULE 8D. OUT OF TOTAL DISALLOWANCE MADE BY THE ASSESSI NG OFFICER U/S 14A OF RS.67.75 LAC, THE DISALLOWANCE OF RS.66.79 LAC IS OUT OF INTEREST EXPENDITURE AND THEREFORE, TO THIS EXTENT, THE DISALLOWANCE IS DELETED. THE REMAINING DISALLOWANCE OF RS.0.96 LAC IS ON ACCOUNT OF OTHER EXPENDITURE TO THE EXTENT OF 0.5% OF AVERAGE VALUE OF INVESTMENT AND BY RESPECTFULLY FOLLOWING THE TRIBUNAL DECISION RENDERED IN THE CASE OF R G P MOULDS PVT. LTD. VS. DY. CIT (SUPRA), THIS PART DISALLOWANCE OF RS.0.96 LAC IS CONFIRMED. GROUND NO. 1 & 2 ARE PARTLY ALLOWED. 6. GROUND NO. 3 & 4 ARE INTERCONNECTED, WHICH ARE AS UNDER: 1. THE LEARNED CIT(A) WAS NOT JUSTIFIED IN LAW AND ON FACT IN DELETING THE ADDITION OF RS.1,50,62,605/ - MADE BY THE A.O. AS DISALLOWANCE OF INTEREST CLAIMED U/S 36(1)(III) OF THE ACT, WITHOUT APPRECIATING THE FACT THAT A.O. HAD RIGHTLY 4 DISALLOWED THE PROPORTI ONATE INTEREST ON ACCOUNT OF ASSESSEE NOT CHARGING INTEREST ON INTEREST BEARING FUNDS GIVEN AS LOANS AND ADVANCES TO ITS SISTER CONCERNS/SUBSIDIARIES. 2. THE LD. CIT(A) WAS NOT JUSTIFIED IN LAW AND ON FACT IN DELETING THE ADDITION OF RS.1,50,62,605/ - MADE BY THE A.O. AS DISALLOWANCE OF INTEREST CLAIMED U/S 36 (1) (III) OF THE ACT, WITHOUT APPRECIATING THE FACT THAT THE ASSESSEE FAILED TO EXPLAIN THE SPECIFIC BUSINESS PURPOSE FOR WHICH THE LOANS AND ADVANCES WERE GIVEN TO ITS SISTER CONCERNS/ SUBSIDIARIES WITHOUT CHARGING INTEREST FROM THEM. 7. LEARNED D.R. OF THE REVENUE SUPPORTED THE ASSESSMENT ORDER WHEREAS LEARNED A.R. OF THE ASSESSEE SUPPORTED THE ORDER OF LEARNED CIT(A). HE ALSO SUBMITTED THAT THIS ISSUE IS COVERED IN FAVOUR OF THE ASSESSEE BY THE TRIBUNAL ORDER IN ASSESSEES OWN CASE FOR ASSESSMENT YEAR 2003 - 04, 2004 - 05 & 2005 - 06 IN I.T.A. NO.1187, 1188 & 1189/DEL/2009 DATED 11 TH SEPT. 2009. HE FURTHER SUBMITTED THAT THE COPY OF THE TRIBUNAL ORDER IS AVAILABLE IN THE PAPER BOOK ON PAGES 104 TO 11 3. IN PARTICULAR , OUR ATTENTION WAS DRAWN TO PARA 11 OF THIS TRIBUNAL ORDER. 8. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS, PERUSED THE MATERIAL AVAILABLE ON RECORD AND GONE THROUGH THE ORDER OF THE TRIBUNAL CITED BY LEARNED A.R. OF THE ASSESSEE. WE FIND THAT IN ASSESSMENT YEAR 2003 - 04, 2004 - 05 AND 2005 - 06 , THIS VERY ISSUE WAS BEFORE THE TRIBUNAL REGARDING DISALLOWANCE MADE BY THE ASSESSING OFFICER OF INTEREST PAID ON BORROWED FUND. THE TRIBUNAL IN THE SE YEARS, FOLLOWED ANOTHER TRIBUNAL ORDER IN ASSESSEE S OWN CASE FOR ASSESSMENT YEAR 2001 - 2002 AND 2002 - 2003 AND CONFIRMED THE ORDER OF CIT(A) AND DISMISSED THE GROUND RAISED BY THE REVENUE. IN THE PRESENT YEAR, NO DIFFERENCE IN FACT S COULD BE POINTED OUT BY LEARNED D.R. OF THE REVENUE AND THEREFORE, WE DO NOT FIND ANY REASON TO TAKE A CONTRARY VIEW 5 IN THE PRESENT YEAR. THEREFORE, RESPECTFULLY FOLLOWING THE EARLIER TRIBUNAL ORDER IN ASSESSEES OWN CASE, WE DECIDE THIS ISSUE IN FAVOUR OF THE ASSESSEE AND AGAINST THE REVENUE. ACCORDINGLY, GROUND NO. 3 & 4 ARE REJECTED. 9. GROUND NO. 5 & 6 ARE ALSO INTERCONNECTED, WHICH ARE AS UNDER: 5. THE LD. CIT (A) WAS NOT JUSTIFIED IN LAW AND ON FACTS IN DELETING THE ADDITION OF RS.41,63, 50,331/ - MADE ON ACCOUNT OF VALUATION OF CLOSING STOCK, WITHOUT APPRECIATING THE FACT THAT THE ASSESSEE HAD NOT INCLUDED THE INTEREST AND ADMINISTRATIVE EXPENSES IN THE COST OF SUGAR WHILE WORKING OUT THE VALUE OF CLOSING STOCK. 6. THE LD. CIT (A) WAS NOT JUSTIFIED IN LAW AND ON FACTS IN DELETING THE ADDITION OF RS.41,63,50,331/ - MADE ON ACCOUNT OF VALUATION OF CLOSING STOCK DUE TO CHANGE IN THE METHOD OF COMPUTATION OF COST OF SUGAR, WITHOUT APPRECIATING THE FACT THAT THE ASSESSEE CHANGED ITS METHOD OF VA LUATION OF STOCK FROM A.Y. 1989 - 90 AS PER WHICH ONLY DIRECT EXPENSES WERE INCLUDED, WHEREAS PRIOR TO A.Y. 1989 - 90 METHOD OF ACCOUNT FOLLOWED BY THE ASSESSEE INCLUDED THE COST OF DIRECT AS WELL AS INDIRECT EXPENSES WHILE VALUING THE CLOSING STOCK. 10. LEA RNED D.R. OF THE REVENUE SUPPORTED THE ASSESSMENT ORDER WHEREAS LEARNED A.R. OF THE ASSESSEE SUPPORTED THE ORDER OF LEARNED CIT(A). HE ALSO SUBMITTED THAT THIS ISSUE IS ALSO COVERED IN FAVOUR OF THE ASSESSEE BY THE SAME TRIBUNAL ORDER IN ASSESSEES OWN CA SE FOR ASSESSMENT YEAR 2003 - 2004, 2004 - 2005 AND 2005 - 06 IN I.T.A. NO.1187, 1188 & 1189/DEL/2009 DATED 11 TH SEPT. 2009, COPY OF WHICH IS AVAILABLE ON PAGES 104 TO 114 OF THE PAPER BOOK. HE DRAWN OUR ATTENTION TO PARA 10 OF THIS TRIBUNAL ORDER. 11. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS, PERUSED THE MATERIAL AVAILABLE ON RECORD AND GONE THROUGH THE ORDER OF THE TRIBUNAL CITED BY LEARNED A.R. OF THE ASSESSEE. SINCE NO DIFFERENCE IN FACTS COULD BE POINTED 6 OUT BY LEARNED D.R. OF THE REVENUE, WE DO N OT FIND ANY REASON TO INTERFERE IN THE ORDER OF LEARNED CIT(A) ON THIS ISSUE BECAUSE THE SAME IS IN LINE WITH THE EARLIER TRIBUNAL ORDER. ACCORDINGLY, THESE GROUNDS ARE REJECTED. 12. GROUND NO. 7 OF THE APPEAL IS AS UNDER: 1. THE LD. CIT (A) WAS NOT JU STIFIED IN LAW AND ON FACT IN DELETING THE DISALLOWANCE OF RS.8,48,62,924/ - MADE BY THE A.O. ON ACCOUNT OF EXPENSES INCURRED ON TRANSMISSION LINE AND CONTRIBUTION PAID TO UPPCL, WITHOUT APPRECIATING THE FACT THAT THESE EXPENSES WERE IN THE NATURE OF CAPITA L EXPENDITURE AND NOT IN THE NATURE OF REVENUE EXPENDITURE., HENCE RIGHTLY DISALLOWED BY THE A.O. AS THEY WERE NOT DEDUCTIBLE AS PER PROVISION OF SECTION 37(1) OF THE L.T. ACT. 1961. 13. LEARNED D.R. OF THE REVENUE SUPPORTED THE ASSESSMENT ORDER WHEREAS LEARNED A.R. OF THE ASSESSEE SUPPORTED THE ORDER OF LEARNED CIT(A). 14. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS, PERUSED THE MATERIAL AVAILABLE ON RECORD AND GONE THROUGH THE ORDERS OF THE AUTHORITIES BELOW. WE FIND THAT THE DISALLOWANCE WAS MADE BY T HE ASSESSING OFFICER ON THE BASIS THAT THE EXPENDITURE INCURRED BY THE ASSESSEE IS OF CAPITAL NATURE. AS AGAINST THIS, THE FINDING GIVEN BY LEARNED CIT(A) IS THAT THE ASSESSEE HAS RIGHT TO USE THE POWER LINE FOR TRANSMITTING POWER GENERATED IN ITS FACTORY TO UPPCL BUT IT WOULD NOT ENJOY OWNERSHIP RIGHT ON THE ASSET. HE HAS ALSO GIVEN A FINDING THAT THE OWNERSHIP ON THE ASSET WOULD BE WITH UPPCL IN FUTURE. HE HAS ALSO GIVEN A FINDING THAT THE ASSESSEE ACQUIRED RIGHT TO MAKE USE OF THE ASSET FOR FACILITATIN G EFFICIENT CONDUCT OF ITS BUSINESS AND MAKING IT MORE PROFITABLE BUT WITHOUT GETTING ANY ADVANTAGE OF ENDURING BENEFIT TO ITSELF AND, THEREFORE, THE ASSESSEE DID NOT ACQUIRE ANY ASSET. ON THE BASIS OF THESE FINDINGS, IT WAS HELD BY LEARNED CIT(A) THAT TH E EXPENDITURE WAS OF REVENUE NATURE. 7 THEREAFTER HE HAS REFERRED TO SEVERAL JUDGMENTS I.E. L. H. SUGAR FACTORY PVT. LTD. 125 ITR 293 (SC), HINDUSTAN ZINC LTD. 221 CTR 637 (RAJ.), COATES VIYELLA INDIA LTD. 253 ITR 667 (MAD) AND GUJARAT MINERAL DEVELOPMENT C ORPORATION 132 ITR 377 (GUJ.). HE HAS ALSO GIVEN A FINDING THAT THE FACTS OF THESE CASES ARE SIMILAR TO THE FACTS OF THE PRESENT CASE AND THEREAFTER , HE HAS HELD THAT THE DISALLOWANCE IS NOT JUSTIFIED AND HE HAS DELETED THE SAME. 15. LEARNED D.R. OF THE REVENUE COULD NOT CONTROVERT THESE FINDINGS OF LEARNED CIT(A). HE COULD NOT SHOW THAT THESE JUDGMENTS FOLLOWED BY LEARNED CIT(A) ARE NOT APPLICABLE IN THE FACTS OF THE PRESENT CASE. HENCE, WE DO NOT FIND ANY REASON TO INTERFERE IN THE ORDER OF CIT(A) ON THIS ISSUE . THIS GROUND IS REJECTED. 16. GROUND NO. 8 OF THE APPEAL IS AS UNDER: 8. THE LD. CIT(A) WAS NOT JUSTIFIED IN LAW AND ON FACTS IN ALLOWING ASSESSEE'S APPEAL WITH RESPECT TO COMPUTATION OF BOOK PROFIT U/S 115JB OF THE ACT MADE BY THE A.O. AS A RESULT OF DISALLOWANCE OF INTEREST AND OTHER EXPENSES U7S 14A OF THE ACT. AMOUNTING TO RS.67,75,000/ - IN COMPUTATION OF BOOK PROFIT U/S 115JB. 17. LEARNED D.R. OF THE REVENUE SUPPORTED THE ASSESSMENT ORDER WHEREAS IT IS SUBMITTED BY LEARNED A.R. OF THE ASSESSEE THAT RULE 8D IS NOT APPLICABLE IN RESPECT OF COMPUTATION OF BOOK PROFIT U/S 115JB AND, THEREFORE, DISALLOWANCE MADE BY THE ASSESSING OFFICER U/S 14A CANNOT BE CONSIDERED FOR THE PURPOSE OF COMPUTING BOOK PROFIT U/S 115JB OF THE ACT. 18. WE HAVE C ONSIDERED THE RIVAL SUBMISSIONS, PERUSED THE MATERIAL AVAILABLE ON RECORD AND GONE THROUGH THE ORDERS OF THE AUTHORITIES BELOW. IN OUR CONSIDERED OPINION, AS PER CLAUSE (F) OF EXPLANATION 1 TO SECTION 115JB, THE AMOUNT O R EXPENDITURE RELATABLE TO ANY INCOM E TO WHICH SECTION 10 OR 8 SECTION 11 OR SECTION 12 APPLY (EXCLUDING SECTION 10 ( 38), SUCH EXPENDITURE HAS TO BE ADDED BACK. HENCE, WE DO NOT FIND ANY FORCE IN THIS CONTENTION OF LEARNED A.R. OF THE ASSESSEE THAT THE DISALLOWANCE MADE BY THE ASSESSING OFFICE R U/S 14A CANNOT BE ADDED FOR COMPUTING BOOK PROFIT. HOWEVER, REGARDING THE AMOUNT OF SUCH DISALLOWANCE TO BE ADDED INTO BOOK PROFIT U/S 115JB, WE FIND THAT SINCE THE DISALLOWANCE U/S 14A HAS BEEN UPHELD BY US ONLY TO THE EXTENT OF RS.0.96 LAC , FOR THE PU RPOSE OF COMPUTING BOOK PROFIT U/S 115JB ALSO, ONLY THIS MUCH AMOUNT SHOULD BE ADDED ON ACCOUNT OF DISALLOWANCE U/S 14A. W E HOLD ACCORDINGLY. THIS GROUND IS PARTLY ALLOWED. 19. IN THE RESULT, THE APPEAL OF THE REVENUE STANDS PARTLY ALLOWED. (ORDER WAS PRONOUNCED IN THE OPEN COURT ON THE DATE MENTIONED ON THE CAPTION PAGE) SD/. SD/. (SUNIL KUMAR YADAV) ( A. K. GARODIA ) JUDICIAL MEMBER ACCOUNTANT MEMBER DATED: 3 1 S T JANUARY, 2014. *C.L.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 ASSTT. REGISTRAR