ACIT CEN CIR 20, MUMBAI V. EVEREST KANTO CYLINDERS LTD, MUMBAI

ITA 5985/MUM/2010

• Counselvise Citation: [2011] 140 COUNSELVISE.COM (IT) 55667 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 2 month(s) 21 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 21-10-2011
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: H
• Next Hearing Date: 18-10-2011
• Assessment Year: 2006-2007
• Appeal Filed On: 30-07-2010
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: SHEKAR GUPTA
• Keywords: Additional evidence
• Section: 14A

Judgement Text

1 EVEREST KANTO CYLINDERS LTD IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI H BENCH MUMBAI BENCHES, MUMBAI BEFORE SHRIJ SUDHAKAR REDDY, AM & SHRI VIJAY PAL R AO, JM ITA NO. 5985/MUM/2010 (ASST YEAR 2006-07) THE ASST COMMR OF INCOME TAX CEN,CIR 20, MUMBAI VS M/S EVEREST KANTO CYLINDERS LTD RAHEJA CENTRE 5 TH FLOOR NARIMAN POINT, MUMBAI (APPELLANT) (RESPONDENT) PAN NO. AAACE0836F ASSESSEE BY SHRI SHEKAR GUPTA REVENUE BY SHRI V V SHASTRI DT.OF HEARING 18 TH OCT 2011 DT OF PRONOUNCEMENT 21 ST , OCT 2011 PER VIJAY PAL RAO, JM THIS APPEAL BY THE REVENUE IS DIRECTED AGAINST THE ORDER DATED 7.5.2010 FOR THE CIT(A) FOR THE AY 2006-07. 2 THE REVENUE HAS RAISED THE FOLLOWING EFFECTIVE GR OUNDS IN THIS APPEAL: I) ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND I N LAW, THE LD CIT(A) HAS ERRED IN DIRECTING THE ASSESSING OFFICER TO DELETE T HE TAX FREE INVESTMENTS MADE DURING THE YEAR FOR THE PURPOSE OF CALCULATION OF DISALLOWANCE U/R 8D(2)(II) OF I T RULES. IN THIS RESPECT, THE LD CIT (A) HAD FAILED TO TAKE INTO ACCOUNT THAT THE ASSESSEE HAD FAILED TO FURNISH ANY PROOF SHOWING THE NEXUS BETWEEN THE OWN FUNDS AND THE INVESTMENT. II) ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND I N LAW, THE LD CIT(A) HAS ERRED IN VIOLATING THE RULE 46A (3) BY ACCEPTING AD DITIONAL EVIDENCE FOR ARRIVING AT THE CONCLUSION THAT THE INVESTMENT IN T HE TAX FREE INVESTMENT IN THIS YEAR WERE MADE OUT OF PROCEEDS OF THE PUBLIC ISSUES. III) ON THE FACTS AND CIRCUMSTANCES OF THE CASE TH E CONCLUSION ARRIVED AT BY THE LD CIT(A) THAT THE INVESTMENTS WERE MADE ENTIR E OUT OF THE PROCEEDS FROM 2 EVEREST KANTO CYLINDERS LTD THE PUBLIC ISSUE IS PREMATURE AND UNCALLED FOR WHEN NO SUCH EVIDENCE WAS BEFORE THE ASSESSING OFFICER 3 WE HAVE HEARD THE LD DR AS WELL AS THE LD AR OF T HE ASSESSEE AND CONSIDERED THE RELEVANT MATERIAL ON RECORD. THE LD DR HAS SUB MITTED THAT THE CIT(A) WHILE DECIDING THE APPEAL OF THE ASSESSEE HAS ACCEPTED TH E ADDITIONAL EVIDENCE IN RESPECT OF THE FUNDS AVAILABLE WITH THE ASSESSEE F ROM PUBLIC ISSUE, WHICH WAS NOT FILED BY THE ASSESSEE BEFORE THE ASSESSING OFFICER. THEREFORE, THERE IS VIOLATION OF RULE 46A BY THE CIT(A) WHILE ACCEPTING THE ADDITIONAL EV IDENCE. 3.1 ON THE OTHER HAND, THE LD AR OF THE ASSESSEE HA S SUBMITTED THAT THE ENTIRE RECORDS WERE AVAILABLE BEFORE THE ASSESSING OFFICER WHICH SHOWS THAT THE ADDITIONAL FUNDS AVAILABLE WITH THE ASSESSEE FROM THE SHARE CA PITAL AND SALE PREMIUM ON THE PUBLIC ISSUE IS ABOUT RS. 90 CRORES WHEREAS THE INC REMENTAL INVESTMENT MADE BY THE ASSESSEE DURING THE YEAR IS ONLY ABOUT RS. 11 CRORE S. THE LD AR HAS REFERRED THE BALANCE SHEET AND THE SCHEDULE B IN SUPPORT OF HIS CONTENTION AND SUBMITTED THAT DURING THE YEAR, THE ASSESSEE HAS ISSUED ADDITIONAL SHARE CAPITAL WHEREBY THE ASSESSEE HAS GENERATED FUNDS OF ABOUT RS. 90 CRORE S COMPRISING OF RS. 9.62 CRORES TOWARDS SHARE CAPITAL AND RS. 84 CRORES AS SHARE PR EMIUM. THUS, THE ASSESSEE WAS HAVING MORE THAN SUFFICIENT FUNDS AVAILABLE FOR INV ESTMENTS DURING THE YEAR. HE HAS SUPPORTED THE ORDER OF THE LD CIT(A). 4 HAVING CONSIDERED THE RIVAL CONTENTION AND CAREFU LLY PERUSED THE RELEVANT MATERIAL ON RECORD, WE NOTE THAT THE ASSESSEE HAS G ENERATED ABOUT RS. 90 CRORES BY WAY OF ADDITIONAL SHARE CAPITAL THROUGH IPO DURING THE YEAR UNDER CONSIDERATION WHEREAS THE ADDITIONAL INVESTMENTS DURING THE YEAR IS ONLY ABOUT RS. 11 CRORES. THEREFORE, THERE IS SUFFICIENT NON-INTEREST BEARING FUNDS WERE AVAILABLE WITH THE ASSESSEE FOR INVESTMENT DURING THE YEAR. THE CIT (A) ANALYSED THE FUNDS AVAILABLE WITH THE ASSESSEE AND INVESTMENTS MADE BY THE ASSES SEE DURING THE YEAR AND THEN 3 EVEREST KANTO CYLINDERS LTD DIRECTED THE ASSESSING OFFICER TO DELETE THE DISALL OWANCE OF INTEREST UNDER RULE 8D IN RESPECT OF TAX FREE INVESTMENTS MADE DURING THE YEA R. HOWEVER, THE DISALLOWANCE OF INTEREST WITH REGARD TO THE TAX FREE INVESTMENTS MA DE UPTO THE LAST YEAR WAS UPHELD IN PARA 13 OF HIS ORDER AS UNDER: 13. DURING THIS YEAR, THE ASSESSEE HAS GONE FOR A PU BLIC ISSUE OFFERING 50.25 LAKHS OF EQUITY SHARES AT THE PRICE OF RS. 160/- EACH . SO, THE ADDITIONAL SHARE CAPITAL IS RS. 5,62,50,000/- AND THE PREMIUM IS RS. 84,37,54,650/-. THE IPO WAS CLOSED ON 25.11.2005. THE APPELLANT COULD PROVE THAT THE INVESTMENTS MADE IN THE TAX FREE INVESTMENT IN THIS YEAR WERE MADE OUT OF THE PROCEEDS OF THE PUBLIC ISSUE. IN THE CIRCUMSTANCES, I DIRECT THE AS SESSING OFFICER TO DELETE THE TAX FREE INVESTMENTS MADE DURING THIS YEAR FOR THE PU RPOSE OF CALCULATION OF DISALLOWANCE OF INTEREST UNDER RULE 8D 2(II) OF THE I T RULES. THE DISALLOWANCE OF INTEREST HAS TO BE MADE WITH REGARD TO TAX FREE INVEST MENTS MADE UP TO THE LAST YEAR. THE ASSESSING OFFICER IS DIRECTED TO REWORK THE DISALLOWANCE OF INTEREST U/S 14A OF THE ACT. 4.1 THUS, IT IS CLEAR FROM THE FACTS OF THE CASE TH AT WHEN THE ASSESSEE WAS HAVING SUFFICIENT NON-INTEREST BEARING FUNDS FOR MAKING INVESTMENTS DURING THE YEAR, THEN, WE FIND NO REASON TO INTERFERE WITH THE ORDER OF TH E LD CIT(A), QUA THIS ISSUE. 5 IN THE RESULT, THE APPEAL FILED BY THE REVENUE IS DISMISSED. ORDER PRONOUNCED ON THE 21 ST ,DAY OF OCT 2011. SD/ SD/- (J SUDHAKAR REDDY ) ACCOUNTANT MEMBER ( VIJAY PAL RAO ) JUDICIAL MEMBER PLACE: MUMBAI : DATED: 21 ST ,OCT2011 RAJ* 4 EVEREST KANTO CYLINDERS LTD COPY FORWARDED TO: 1 APPELLANT 2 RESPONDENT 3 CIT 4 CIT(A) 5 DR /TRUE COPY/ BY ORDER DY /AR, ITAT, MUMBAI