ACIT, CHENNAI V. M/s. Kothari Sugars and Chemicals Ltd., CHENNAI

ITA 598/CHNY/2012

• Counselvise Citation: [2012] 140 COUNSELVISE.COM (IT) 61080 (ITAT-CHENNAI)
• Duration Of Justice: 1 month(s) 27 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 18-05-2012
• Appeal Filed By: Department
• Order Result: Allowed
• Bench Allotted: A
• Assessment Year: 2008-2009
• Appeal Filed On: 22-03-2012
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Keywords: Earning of tax free income; Proportionate interest

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL A BENCH, CHENNAI (BEFORE SHRI N.S.SAINI, ACCOUNTANT MEMBER AND SHRI VIKAS AWASTHY, JUDICIAL MEMBER ) .. I.T.A. NO.598 /MDS/2012 ASSESSMENT YEAR : 2008-09 THE ASSISTANT COMMISSIONER OF INCOME TAX, COMPANY CIRCLE II(4), 121,M.G.ROAD, CHENNAI-34. (APPELLANT) V. M/S.KOTHARI SUGARS AND CHEMICALS LTD., KOTHARI BUILDINGS, NO.115, MAHATMA GANDHI SALAI, NUNGAMBAKKAM, CHENNAI 34. PAN : AABCK 2495 F (RESPONDENT) C.O.. NO.65 /MDS/2012 ASSESSMENT YEAR : 2008-09 M/S.KOTHARI SUGARS AND CHEMICALS LTD., KOTHARI BUILDINGS, NO.115, MAHATMA GANDHI SALAI, NUNGAMBAKKAM, CHENNAI 34. PAN : AABCK 2495 F (CROSS-OBJECTOR) V. THE ASSISTANT COMMISSIONER OF INCOME TAX, COMPANY CIRCLE II(4), 121,M.G.ROAD, CHENNAI-34. (APPELLANT IN APPEAL) ITA NO.598/MDS/12 CO NO.65/MDS./12 2 REVENUE BY : SHRI SHAJI P. JACOB, ADDL. C.I.T. DR ASSESSEE BY : SHRI SAROJ KUMAR P ARIDA, ADVOCATE DATE OF HEARING : 14.05.12 DATE OF PRONOUNCEMENT : 18.05.12 O R D E R PER N.S.SAINI, ACCOUNTANT MEMBER : THIS IS AN APPEAL FILED BY THE REVENUE AGAINST TH E ORDER OF COMMISSIONER OF INCOME TAX(A)-III CHENNAI DATED 14. 12.11 AND CROSS OBJECTION FILED BY THE ASSESSEE AGAINST THE S AID ORDER. 2. THE REVENUE HAS TAKEN THE FOLLOWING GROUNDS OF APPEAL. 1. THE ORDER OF THE LD. COMMISSIONER OF INCOME TAX (APPEALS) IS CONTRARY TO THE LAW AND FACTS OF THE CASE. 2. THE LEARNED COMMISSIONER OF INCOME TAX(APPEALS) ERRED IN RESTRICTING THE DISALLOWANCE UNDER SECTION.14A READ WITH RULE 8D AT ` 17.77 LAKHS. 2.1. THE LEARNED COMMISSIONER OF INCOME TAX(APPEAL S) OUGHT TO HAVE APPRECIATED THE FACT THAT THE ASSESSEE RESE RVES AND SURPLUS WAS ` 3.58 CRORES AND THERE WAS AN INCREASE IN INVESTMENTS TO THE EXTENT OF ` 27 CRORES DURING THE FINANCIAL YEAR 207-08. ITA NO.598/MDS/12 CO NO.65/MDS./12 3 2.2. THE LEARNED COMMISSIONER OF INCOME TAX(APPEAL S) OUGHT TO HAVE APPRECIATED THE FACT THAT THE ASSESSEE DID NOT ALLOCATE ANY PORTION OF EXPENDITURE SEPARATELY FOR EARNING E XEMPT INCOME IN THE BOOKS OF ACCOUNTS. 2.3. THE LEARNED COMMISSIONER OF INCOME TAX(APPEALS ) OUGHT TO HAVE APPRECIATED THE FACT THAT THE ASSESSING OFF ICER INVOKED PROVISIONS OF RULE 8D(2) SINCE THERE WAS NO BREAK U P OF DETAILS FOR THE SOURCE OF INVESTMENTS; 2.4 THE LEARNED COMMISSIONER OF INCOME TAX(APPEALS) OUGHT TO HAVE SEEN THE FACT THAT OUT OF ` 4.87 CROES INCURRED TOWARD INTEREST EXPENDITURE, ONLY A SUM OF ` 4828 WAS PAID TOWARDS RELIGARE SECURITIES AND THE REMAINING AMOUNT PAID T OWARDS TERM LOAN TAKEN FOR BUSINESS; 3. FOR THESE AND OTHER GROUNDS THAT MAY BE ADDUCED AT THE TIME OF HEARING, IT IS PRAYED THAT THE ORDER OF THE LEARNED COMMISSIONER OF INCOME TAX(A) MAY BESET ASIDE AND T HAT OF THE ASSESSING OFFICER RESTORED. 2.1. IN THE CROSS OBJECTION, THE ASSESSEE HAS TAKE N THE FOLLOWING GROUNDS:- 1. THE ORDER OF THE LD. COMMISSIONER OF INCOME TA X(APPEALS) IS CONTRARY TO THE LAW AND FACTS OF THE CASE. ITA NO.598/MDS/12 CO NO.65/MDS./12 4 2. THE LEARNED COMMISSIONER OF INCOME TAX(APPEALS) ERRED IN CONFIRMING THE DISALLOWANCE OF ` 17,77,293/- AS 0.5% AVERAGE VALUE OF INVESTMENT, INCOME FROM WHICH DOES NOT FORM PART OF THE TOTAL INCOME UNDER SECTION.14A, AL LEGED TO BE RELATABLE TO EARNING THE DIVIDEND INCOME, BY APP LYING RULE 8D. 2.1. THE COMMISSIONER OF INCOME TAX(APPEALS) HAVING GIVEN SPECIFIC FINDING THAT AS REGARDS TO PROPORTIONATE I NTEREST, THE WHOLE INTEREST WAS ON ACCOUNT OF LOANS TAKEN FOR SP ECIFIC PURPOSE BEING TERM LOANS, SUGAR DEVELOPMENT FUND LO ANS, VEHICLE LOANS ETC. WAS NEVER UTILIZED FOR INVESTMEN T AND NO DISALLOWANCE WAS CALLED FOR UNDER RULE 8D(2)(II). THE COMMISSIONER OF INCOME TAX(A) HAS ERRED IN CONFIRMI NG THE DISALLOWANCE UNDER RULE 8D(2)(III). 2.2. THE LEARNED COMMISSIONER OF INCOME TAX(APPEAL S) OUGHT TO HAVE APPRECIATED THAT UNDER SECTION.14A ONLY THE ACTUAL EXPENDITURE INCURRED FOR THE PURPOSE OF EARNING EXE MPT INCOME SHOULD BE DISALLOWED. THE RESPONDENT HAS NOT INCUR RED ANY EXPENDITURE FOR EARNING THE DIVIDEND INCOME. 2.3. THE LEARNED COMMISSIONER OF INCOME TAX(APPEAL S) OUGHT TO HAVE APPRECIATED THE HONBLE PUNJAB & HARYANA HI GH COURT IN THE CASE OF C.I.T VS. M/S.HERO CYCLES LIMITED RE PORTED IN 323 ITR 518 HAS HELD THAT DISALLOWANCE UNDER SECTION.1 4A REQUIRES FINDING OF INCURRING OF EXPENDITURE WHERE IT IS FOUND THAT ITA NO.598/MDS/12 CO NO.65/MDS./12 5 FOR EARNING EXEMPTED INCOME, NO EXPENDITURE HAS BEE N INCURRED, AND DISALLOWANCE UNDER SECTION.14A CANNOT STAND. 2.4. IT IS SUBMITTED THAT THE DELHI TRIBUNAL IN TH E CASE OF ACIT VS. SUN INVESTMENTS REPORTED IN 8 ITR (TRI) 33 HAVE HELD THAT UNLESS THE ASSESSING OFFICER ESTABLISHED THAT SPECI FIC EXPENDITURE HAS BEEN INCURRED BY THE ASSESSEE FOR E ARNING EXEMPT INCOME THERE CAN BE NO DISALLOWANCE UNDER SECTION.14A. 3. THE RESPONDENT CRAVES LEAVE TO FILE ADDITIONAL G ROUNDS AT THE TIME OF HEARING. 3. THE ONLY ISSUE INVOLVED IN THE APPEAL OF REVEN UE IS THAT THE COMMISSIONER OF INCOME TAX(A) ERRED IN DELETING THE DISALLOWANCE OF ` 61,45,910 ON ACCOUNT OF INTEREST EXPENDITURE RELAT ING TO THE EXEMPT DIVIDEND INCOME EARNED BY THE ASSESSEE. 4. THE ONLY ISSUE INVOLVED IN CROSS OBJECTION OF T HE ASSESSEE IS THAT THE COMMISSIONER OF INCOME TAX(A) ERRED IN CON FIRMING THE DISALLOWANCE UNDER SECTION.14A OF ` 17,77,293/- BEING INDIRECT EXPENDITURE RELATABLE TO EARNING THE DIVIDEND INCOM E BY APPLYING RULE 8D. ITA NO.598/MDS/12 CO NO.65/MDS./12 6 5. THE COMMISSIONER OF INCOME TAX(APPEALS) HAS DEC IDED THE ISSUE BY OBSERVING AS UNDER:- 4. THE FIRST ISSUE PERTAINS TO ADDITION OF ` 79,23,203/- UNDER SECTION. 14A. THE ASSESSING OFFICER HAS STATED THAT THE ASSESSEE HAS SHOWN DIVIDEND INCOME OF ` 1.69,98,221/- AND CLAIMED IT AS EXEMPT BUT NOT EXPENSES HAD BEEN DEBI TED TOWARDS EARNING OF THE ABOVE INCOME. HE WORKED OUT THE DISALLOWANCE UNDER SECTION.14A R.W.RULES 8D AT ` 79,23.203/- AND ADDED BACK THE SAME TO THE TOTAL INCOME OF THE ASSESSEE. 4.1. THE LD. A.R. SUBMITTED AS UNDER:- ..AS PER COMPUTATION OF THE LD. ASSESSING OFFICER A SUM OF ` 48772000/- REPRESENTING INTEREST EXPENSES HAVE BEEN CONSIDERED FOR DISALLOWANCE. THE DETAILS OF INTERE ST PAYMENTS TOGETHER WITH THE LEDGER ACCOUNT COPIES AR E ENCLOSED. FROM THE DETAILS IT IS SUBMITTED THAT THE INTEREST HAS BEEN PAID FOR TERM LOANS, VEHICLES LOANS AND SU GAR DEVELOPMENT FUND LOANS. THESE LOANS ARE FOR SPECIFI C PURPOSES WITH END USE BEING MONITORED BY THE LENDIN G INSTITUTIONS. THE APPELLANT HAD USED THE LOANS FOR THE ITA NO.598/MDS/12 CO NO.65/MDS./12 7 RELEVANT PURPOSES AND NOT FOR INVESTMENTS. THE ADDI TION UNDER RULE 8D WHICH INCLUDES INTEREST IS THEREFORE INCORRECT AND IS TO BE DELETED. 4.2. I HAVE CAREFULLY CONSIDERED THE FACTS OF THE C ASE AND THE SUBMISSIONS OF THE LD. AUTHORISED REPRESENTATIVE OF THE ASSESSEE. I HAVE ALSO GONE THROUGH THE BREAK UP OF THE INTEREST EXPENSES OF FRS.4,87,72,000/- AND COPIES O F LEDGER ACCOUNTS. THE HONBLE BOMBAY HIGH COURT IN THE CAS E OF GODREJ & BOYCE MFG. CO. LTD. V. DCIT 328 ITR 81 (BO M.) HAS UPHELD THE VALIDITY OF RULE 8D AND FURTHER HELD THA T IT IS APPLICABLE FOR A.Y.2008-09 AND THEREAFTER. ACCORDINGLY, THE A.O. HAS RIGHTLY INVOKED PROVISIONS OF RULE 8D. AS PER RULE 8D(2), THE AMOUNT OF EXPENDITURE IN RELATION TO THE EXEMPT INCOME HAS THREE COMPONENTS I.E (I) EXPENDITURE DIR ECTLY RELATING TO THE EXEMPT INCOME, (II) PROPORTIONATE I NTEREST EXPENDITURE WHICH IS NOT DIRECTLY ATTRIBUTABLE TO A NY PARTICULAR INCOME OR RECEIPT ON THE RATIO OF AVERAGE OF VALUE OF INVESTMENTS GIVING RISE TO EXEMPT INCOME AND THE AV ERAGE OF TOTAL ASSETS AND (III) ONE-HALF PER CENT OF THE AVE RAGE OF THE ITA NO.598/MDS/12 CO NO.65/MDS./12 8 VALUE OF INVESTMENT YIELDING EXEMPT INCOME. AS REGA RDS THE FIRST COMPONENT, THERE IS NO DISPUTE. AS REGARDS TH E PROPORTIONATE INTEREST, IT IS SEEN THAT THE WHOLE O F INTEREST WAS ON ACCOUNT OF LOANS TAKEN FOR SPECIFIC PURPOSES BEI NG TERM LOANS SUGAR DEVELOPMENT LOANS, VEHICLE LOANS ETC. H ENCE, THE ABOVE LOANS WEE NOT UTILIZED FOR INVESTMENTS. ACCOR DINGLY, NO AMOUNT COULD BE DISALLOWED UNDER RULE 8D(2)(II). A S REGARDS THE THIRD COMPONENT OF DISALLOWANCE, THERE IS NO ME RIT IN THE SUBMISSION OF THE LD. AUTHORISED REPRESENTATIVE OF THE ASSESSEE. THE ASSESSING OFFICER HAS DULY WORKED OUT THE AMOUNT EQUAL TO ONE-HALF PERCENT OF AVERAGE OF THE VALUE OF INVESTMENT, INCOME FROM WHICH DOES NOT FORM PART OF THE TOTAL INCOME. ACCORDINGLY, THE SAID DISALLOWANCE OF ` 17,77,293/- IS UPHELD. IN THE RESULT, THE GROUND IS PARTLY ALLOWED . 6. DURING THE COURSE OF HEARING, DEPARTMENTAL REPR ESENTATIVE FILED A COPY OF ORDER OF CHENNAI BENCH OF TRIBUNAL IN THE CASE OF M/S.LAKSHMI RING TRAVELLERS VS. ACIT IN ITA NO.2083 (MDS,)/2011 FOR ASSESSMENT YEAR 2008-09 VIDE ORDER DATED 2 ND MARCH, 2012 AND ITA NO.598/MDS/12 CO NO.65/MDS./12 9 SUBMITTED THAT THE ISSUE AT HAND WAS COVERED IN FAV OUR OF REVENUE BY THE AFORESAID ORDER. 7. ON THE OTHER HAND, AUTHORISED REPRESENTATIVE OF THE ASSESSEE FILED BEFORE US A COPY OF ORDER OF THE MUMBAI BENCH OF TRIBUNAL IN THE CASE OF M/S.AUCHTEL PRODUCTS LTD. IN ITA NOS.3183, 2649 & 3185/MUM./2011 FOR ASSESSMENT YEARS 2003-04, 2007-0 8 & 2008-09 VIDE ORDER DATED 30.04.2012 AND SUBMITTED THAT THE ISSUE AT HAND WAS COVERED IN FAVOUR OF THE ASSESSEE BY PARA NOS. 12 TO 15 OF THE ORDER. 8. BOTH THE PARTIES BEFORE US AGREED THAT AS THE O RDERS OF TRIBUNAL ARE DATED 2 ND MARCH, 2012 AND 30 TH APRIL, 2012 AND THE ORDER OF THE ASSESSING OFFICER IS DATED 22.12.2010 AND THE ORDE R OF THE COMMISSIONER OF INCOME TAX (APPEALS) IS DATED 14.12 .2011, THEREFORE, THE LOWER AUTHORITIES DID NOT HAVE THE B ENEFIT OF THE ABOVE ORDERS WHILE DECIDING THE ISSUE AT HAND. THEREFORE , IT WAS THE SUBMISSION THAT THE ISSUE MAY BE REMANDED BACK TO T HE FILE OF THE ASSESSING OFFICER FOR ADJUDICATING THE SAME AFRESH. ITA NO.598/MDS/12 CO NO.65/MDS./12 10 9. WE THEREFORE, SET ASIDE THE ORDERS OF THE LOWER AUTHORITIES AND REMAND THE MATTER BACK TO THE FILE OF THE ASSESSING OFFICER FOR ADJUDICATION OF THE SAME AFRESH IN LIGHT OF THE ABO VE QUOTED ORDERS OF THE TRIBUNAL. THUS, THE GROUNDS OF APPEAL OF REVEN UE AS WELL AS GROUNDS OF CROSS OBJECTION OF THE ASSESSEE BOTH ARE ALLOWED FOR STATISTICAL PURPOSES. 10. IN THE RESULT, THE APPEAL OF REVENUE AND THE CR OSS OBJECTION OF THE ASSESSEE ARE ALLOWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED ON FRIDAY, THE 18 TH MAY, 2012 AT CHENNAI SD/- SD/- (VIKAS AWASTHY) (N.S.SAINI) JUDICIAL MEMBER ACCOUNTANT MEMBER CHENNAI, DATED THE 18 TH MAY, 2012. K S SUNDARAM. COPY TO: ASSESSEE/AO/CIT (A)/CIT/D.R./GUARD FILE