Dy.CIT, Circle-3(3), Hyderabad V. M/s Victory Electricals Limited, Hyderabad

ITA 620/HYD/2013

• Counselvise Citation: 62022514 RSA 2013
• Duration Of Justice: 1 year(s) 5 month(s) 17 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 17-10-2014
• Appeal Filed By: Department
• Order Result: Partly Allowed
• Bench Allotted: A
• Assessment Year: 2008-2009
• Appeal Filed On: 30-04-2013
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: B RAMA KRISHNA
• Assessee Lawyers: ROPALI
• Keywords: Business expenditure; Earning of tax free income

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL HYDERABAD BENCH A', HYDERABAD BEFORE SHRI P.M.JAGTAP, ACCOUNTANT MEMBER AND SHRI SAKTIJIT DEY, JUDICIAL MEMBER ITA NO.620/HYD/13 : ASSESSMENT YEAR 2008 - 09 DY. COMMISSIONER OF INCOME - TAX CIRCLE 3(3), HYDERABAD V/S. M/S. VICTORY ELECTRICALS LIMITED, HYDERABAD (PAN - AABCV 3115 H) (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI B.RAMAKRISHNA, DR RESPONDENT BY : SMT. ROPALI DATE OF HEARING 14 . 1 0.2014 DATE OF PRONOUNCEMENT 17.10.2014 O R D E R PER P.M.JAGTAP, ACCOUNTANT MEMBER : THIS APPEAL IS PREFERRED BY THE R EV ENUE AGAINST THE O R DER OF THE LEARNED COMMISSIONER OF INCOME - TAX(APPEALS) IV, HYDERABAD DATED 13.2.2013. 2. GROUNDS NO.1 AND 4 R AISED BY THE REVENUE IN THIS APPEAL ARE GENERAL IN NA T U R E SEEKING NO SPECIFIC ADJUDICATION. 3. IN G ROU N D N O .2 , THE REVENUE HAS CHALLENGED THE RELI E F GIVEN BY THE LEARNED CIT(A) ON THE ISSUE OF DISALLOWANCE MADE BY TH E ASSESSING OFFICE R UNDER S.14A OF THE ACT. 4. THE ASSESSEE IN THE PRESENT CASE IS A COMPANY WHICH IS ENGAGED IN THE BUSINESS O F MANUFACTURE AND SAL E OF ELECTRICAL DISTRIBUTION TRANSFORMERS (DOMESTIC), LIGHTNING ARRESTERS, POWER TRANSFORMERS AND TRANSFORMER OIL. THE RETURN O F INCOM E FO R THE Y E AR UNDER CONSIDERATION WAS ORIGINALLY FIL E D BY IT ON 30.9.2008, I TA NO. 620/H YD/20 13 M/S. VICTORY ELECTRICALS LIMITED, HYDERABAD 2 DECL A RING TOTAL IN C OM E O F RS .14,59,48,0 0 6. SUB S EQUENTLY, R E VI S ED RETURN WAS FILE D BY THE ASSESSEE ON 6.1.2009 DECL A RING TOTAL INC O M E OF RS .9,95,20,558. DURIN G THE CO U R SE OF ASSESSMENT PROCEEDINGS, IT WAS NOTICED BY THE ASSESSING OFFICER THAT THE ASSESSEE HAS MADE INVESTMENT OF R S .32.62 C R ORES IN THE EQUITY SHARE CAPITAL OF HACKBRIDGE HEWATTIC EASUM LIMITED ( HHEL IN SHORT), THE IN C OM E FROM WHICH IS EXEMPT FROM TAX. IT WAS ALSO NO T I C ED BY THE ASSESSING OFFICER THAT THE ASSESSEE HAS CLAIMED A HU G E EXPENDITURE OF RS .3,47,79,474 ON ACCOUN T OF IN T ER E ST AND FIANC CHARGES. ACCORDING TO THE ASSESSING OFFICER, THE DISALLO W AN C E ON ACCOUN T OF EXPENDITURE INCURRED IN RELATION T O THE EARNIN G OF EXEMPT INC O M E , THEREFORE, WAS REQUIRED TO BE MADE IN TH E FACTS AND CIRCUMSTANCES O F THE C A S E AND SIN C E NO SUCH DISALLOWANCE WAS OFFERED BY THE ASSESSEE AS REQUIRED BY THE PROVI S ION S OF S.14A, HE APPLIED RULE 8D OF THE INCOM E - TAX RUL E S, 1962 AND MADE A DISALLOWANCE OF RS.67,23,310 UNDER S.14A OF THE ACT. 5. THE DISALLOWANCE MADE BY THE ASSESSING OFFICER UNDER S.14A READ WITH RULE 8D WAS DISPUTED BY TH E ASSESSEE IN THE APPEAL FILED BEFORE THE LEARNED CIT(A) AND DURING TH E COU R SE OF AP PELLATE PROCEEDINGS, IT WAS SUBMITTED ON BEHALF OF THE ASSESSEE THAT INVESTMENT OF RS.32.62 CRORES IN THE SHARES OF HHEL WAS MADE OUT OF THE SHARE APPLICATION MONEY OF RS.29.52 CRORES F R OM M /S. VTSL, WHICH WAS DIRECTLY PAID BY THE SAID PARTY TO HHEL . I T WAS ALSO SUBMITTED THAT SIMILARLY A SUM OF RS.0.70 CRORES ON ACCOUNT OF LOAN FROM V.MAHINDRA WHICH WAS DIRECTLY PAID TO HHEL. AS REGARDS THE BALANCE AMOUNT OF RS .2.40 CRORES, I T WAS SUBMITTED THAT THE SAID AMOUN T WAS DIRECTLY PAID BY THE ASSESSEE O UT O F ITS INTERNAL ACC R UAL S . TAKING INTO CON S I D ERATION THIS E X PLANATION OFF E RED BY TH E ASSESSEE, THE LEARNED CIT(A) HELD THAT THE SHARE APPLI C ATION MONEY OF RS.29.52 CRORES AND UNSECURED LOAN O F R S .0.70 CRORES REPRESENT ED INTEREST FREE FUNDS AVAILABLE WITH TH E ASSESSEE I TA NO. 620/H YD/20 13 M/S. VICTORY ELECTRICALS LIMITED, HYDERABAD 3 COMPANY AND TH E R E FORE, NO DISALLOWANCE UNDER S.14A REL A TABLE TO THE INVESTMENT MA D E IN SHARES OF HHEL TO THAT EXTENT COULD BE MAD E UNDER S.14A. AS REGARDS THE BALANCE AMOUNT OF RS .2.40 C R ORES, THE LEARNED CIT(A) DID NO T ACCEPT THE EXPLANATION OF THE ASSESSEE THAT TH E S AME W A S DIRECTLY PAID OUT O F ITS INTERNAL ACCRUALS, AS THE ASSESSEE COULD NOT SUBSTANTIATE THE SAM E . ACCOR D INGLY, H E DIRE C TED THE ASSESSING OFFICER TO RESTRI C T THE DISALLOWANCE UNDER S.14A ONL Y TO THE EXTENT OF EXPENSES ATTRIBUTABLE TO THE I NVE S TMENT MADE IN THE SHARES OF HHEL OF R S .2.40 C R ORES. 6 THE LEARNED DEPARTMENTAL REPRESENTATIVE , AT THE OUTSET , SUBMITTED THAT RULE 8D IS APPLICABLE FOR THE Y E AR INVOL V ED IN THE PRESENT C A S E, I.E. ASSESS MENT YEAR 2008 - 09, AND THE ASSESSING OFFICER THEREFORE, WAS FULLY JU S TIFIED IN APPLYING THE SAID RULE TO COMPU T E THE DISALLOWANCE TO BE MADE UND E R S.14A. RELYING ON TH E DECISION OF THE CALCUTTA BENCH OF THE TRIBUNAL IN TH E CASE OF ACIT V/S. CHAMPION COMME RCIAL CO. LTD. ( 139 ITD 108 ) , HE CONTENDED THAT IF THE ASSESSEE DOES NO T OFFER ANY DISALLOWANCE UNDER S.14A, THE ASSESSING OFFICER IS ENTITLED TO INVOKE RUL E 8D WITHOUT RECORDING ANY SATISFACTION. HE ALSO RELIED ON THE DECISION OF THE SP E CIAL BEN C H OF THE T RIBUNAL IN THE CA S E OF CHEMINVEST LTD. V/S. ITO(121 ITD 318)(DEL)(SB) AS WELL AS CBDT CIRCULA R NO.5 OF 2014 DATED 11.2.2014 TO CONTEND THAT THE DISALLOWANCE UNDER S.14A IS REQUIRED TO BE MADE E VEN IF THERE IS NO EXEMPT INCOME ACTUALLY R ECEIVED BY TH E ASSESSEE . 7. THE LEARNED COUNSEL FO R THE ASSESSEE, ON T H E O T H E R HAND, SUBMITTED THAT EVEN AFTER INTRODUCTION OF RULE 8D, THE SATISFACTION AS ENVISAGED UNDER S.14A IS REQUIRED TO BE RECORDE D BY THE ASSESSING OFFICER. HE CONTENDED THAT MAJOR AMOUN T OF INVESTMENT MADE BY THE ASSESSEE IN THE SHARES OF HHEL WAS I TA NO. 620/H YD/20 13 M/S. VICTORY ELECTRICALS LIMITED, HYDERABAD 4 FINANCED BY INT E R E ST FREE FUN D S, AS EXPLAINED BEFORE THE LEARNED CIT(A) AND THERE W A S THUS NO CASE F OR MAKING DISALLOWANCE UNDER S.14A BY APPLYING RULE 8D. 8. WE HAVE HEARD THE ARGUMENTS OF BOTH THE SIDES AND ALSO PERUSED THE RELEVANT MATERIAL ON RECORD. I T IS OB SE RV E D THAT NO DISALLOWANCE WHATSOEVER WAS OFFERED BY THE ASSESSEE ON ACCOUNT OF EXPENSE INCURRED IN RE L ATION TO TH E EX E MPT INCOME AS REQUIRED BY TH E P R OVISION S O F S.14A IN SPI T E OF THE FACT THAT HUGE INVE S TMENT OF RS.32.62 CRORES WAS MADE BY IT IN THE SHARES OF HHEL , THE DIVIDEND INCOME FROM WHICH WAS EXEMPT FROM TAX. I N TH E ABSENCE OF ANY SUCH DISALLOWANCE OFF E RED BY TH E ASSESSEE , WE ARE O F THE VIEW THAT THERE WAS NO REQUIREMENT O N THE PART OF THE ASSESSING OFFICER TO RE CO RD ANY DISSATI S F A CTION ABOUT TH E CORRECTNESS OF TH E DISALLOWANCE OFFERED BY THE ASSESSEE AS ENVISAGED IN S.14A AND HE WAS ENTITLE D TO MAKE A DISALLOWANCE UNDER S.14A BY APPLYING RULE 8D. H OWEVER, E V EN WHILE APPLY IN G RULE 8D, THE ASSESSING OFFICER SHOULD HAVE TAKEN INTO CON S I D ERATION, THE EXPLANATION OF THE ASSESSEE OF HAVING MADE THE IN VE STMENT IN EQUITY SHARES OUT O F IN T ER E ST FRE E FUN D S BECAUSE IF THE INVESTMENT IN SHARES IS FOUND TO BE MADE BY THE ASSESSEE OU T O F ITS OWN FUN D S OR INTEREST FREE FUNDS, THE DISALLOWANCE UNDER S.14A TO THAT EXTENT CANNOT BE MADE EVEN AS P E R THE METHOD PRESCRIBED IN RULE 8D. SIN C E THE INVESTMENT IN THE SHARES TO TH E EXTENT OF RS. 3 0.22 CRORES WAS MADE BY THE ASSESSEE OUT OF IN T ER E ST FREE FUN D S, SUCH AS SHARE APPLICATION MONEY RECEIVED FORM VTCL A N D UNSECURED LOAN RECEIVED FR OM SHRI V.MAHINDRA, WE FIND NO INFIRMITY IN THE IMPUGNED ORDER OF THE LEARNED CIT(A), DELETING THE DISALLOWANCE MADE UNDER S. 1 4A TO THE E X TENT IT WAS RELATABLE TO THE INVESTMENT OF RS.3 0 . 22 CRORES MADE IN THE SHARES OF HHEL. WE TH ERE FORE, FIND NO MERIT IN GROUND N O .2 RAISED BY THE REVENUE AND DISMISS THE SAME ACCORDINGLY. I TA NO. 620/H YD/20 13 M/S. VICTORY ELECTRICALS LIMITED, HYDERABAD 5 9. IN GROUND NO.3, REVENUE HAS CHALLENGED THE ACTION OF LEARNED CIT(A) IN DELE T ING THE DI SALLOWANCE MADE BY THE ASSESSING OFFICER ON ACCOUNT OF SUNDRY BALANCES WRITTEN OFF TO THE FULL EXTENT, IN S T E AD OF SUSTAINING THE SAME TO TH E E X TENT OF RS.51,79,590. 10. IN THE PROFIT & LOSS ACCOUNT FILED ALONGWITH THE RETURN OF INCOME, SUNDRY BALANCES AMOUNTING TO RS.2,30,41,697 WERE WRITTEN OFF BY THE ASSESSEE. BEFORE THE ASSESSING OFFICER, IT WAS E X PL A IN E D BY THE ASSESSEE THAT THERE WAS A DELAY IN SUPPLY OF TRANSFORMERS TO THE DISTRIBU T ION C OMPANIES ( DISCOMS ), RESULTING IN LEVY OF PENALTY TO THAT E X T ENT. IT WAS SUBMITTED THAT THIS PENALTY AMOUN T WAS DEDUCTED BY THE D ISCOMS FORM THE BILL S RAISED BY TH E ASSESSEE , WHICH RESULTED INTO SUNDRY DEBI T BALANCES APPEARING IN TH E ACCOUNTS OF THE SAID D I S COMS. IT WAS CONTENDED THAT THESE SUNDRY BALANCES WERE WR ITTEN OFF IN THE BOOK S OF ACCOUN T O F THE ASSESSEE COMPANY IN THE Y E AR UNDER CON S I D ERATION, AND THE SAM E WAS CLAIMED AS BUSINESS EXPENDITURE. THIS E X PLAN A TION OF THE ASSESSEE WAS NO T FOUND ACCEPTABLE BY THE ASSESSING OFFICER, IN THE ABSENCE OF THE RELEVANT DETAILS AND DOCU M EN TS FURNISHED BY THE ASSESSEE TO SUBSTANTIATE THE SAME. HE ALSO HELD THAT THE DEDUCTION MADE BY THE DISCOMS FOR LATE DELIVERY OF TRAN S FO R MERS W AS IN THE NATURE OF PENALTY AND THE SAME WAS NO T ALLOWABLE AS PER EXPLANATION TO S.37(1). ACCOR D INGLY, THE CLAIM O F TH E ASSESSEE FOR DEDUCTION ON ACCOUNT OF SUNDRY BALANCES WRITTEN OFF WAS DISALLOWED BY THE ASSESSING OFFICER. 11. THE DISALLOWANCE MADE BY TH E ASSESSING OF FICER ON ACCOUNT OF SUNDRY BALANCES WRITTEN OFF WAS ALSO CH A LLENGED BY THE ASSESSEE IN TH E APP EA L FILED BEFORE THE LEARNED CIT(A) AND THE REL E VANT DET A ILS AND DOCUM E N T S SHOWING THE DEDUCTIONS MADE BY THE D I S COMS FROM THE BILLS ON AC C OUN T OF DELAY IN DELIV ERY O F TRANSFO R MERS WERE FURNISHED BY THE ASSESSEE BEFORE THE LEARNED I TA NO. 620/H YD/20 13 M/S. VICTORY ELECTRICALS LIMITED, HYDERABAD 6 CIT(A). THE SAID DETAILS AND DO CU M E N T S FURNISHED BY TH E ASSESSEE WERE FORWARDED BY TH E LEARNED CIT(A) TO THE ASSESSING OFFICER FOR HIS VERIFICATION AND COMM E N T S. ON VERIFICATION, TH E ASSESSING OFFICER SUBMITTED HIS REMAND REPORT TO THE LEARNED CIT(A) ACCEPTING THAT THE CLAIM O F TH E ASSESSEE FOR DEDUCTION BY THE D I S COMS ON ACCOUNT OF LATE DELIVERY WAS DULY ESTABLISHED TO THE EXTENT OF RS.1,78,62,107. AS R E GARDS THE BALANCE OF RS.5 1 , 79 , 590, THE ASSESSING OFFICER OBSERVED THAT ALTHOU G H THE ASSESSEE HAS FURNI S H E D THE DETAIL S O F RELEVANT INVOICES, THE CORRESPO ND IN G DETAILS O F PAYM E N T S BY THE DISCOMS WERE NO T FURNI S H E D SO AS TO ESTABLISH THE DEDUCTIONS MADE ON ACCOUNT OF L A TE DELIVERY. 12 . AFTER CON S I D ERING THE REMAND REPORT SUBMITTED BY THE ASSESSING OFFICER AS WELL AS THE SUBMI S SION S MADE BY THE ASSESSEE, THE LEARNED CIT(A) DELETED THE E N T IRE DISALLOWANCE OF R S .2,30 ,41,697 MADE BY TH E ASSESSING OFFICER ON ACCOUNT OF SUNDRY BALANCES WRITTEN OFF FOR THE FOLLO W IN G REASON S GIVEN IN PARAGRAPH 8.3 OF HER IMPUGNED OR D ER. 8.3 I H AVE CON SIDERED THE FACTS ON RECORD AND THE SUBMI S SION S OF TH E ASSESSING OFFICER AND THE AR. THE PENALTY WHICH HAV E EVENTUALLY HAVE DEBITED AS SUNDRY BALAN C ES WRITTEN OFF WAS LEVIED FOR DELAY IN DELIVERY OF TRAN S FORMERS BY TH E APP E LLAN T TO THE DISCOMS. THE DELAY IN DELIVERY O F GOO D S CANNOT B E CON S I D ERED TO BE AN INFRACTION OF LAW, MERELY B E CAU S E THE CUSTOMER HAPPENED TO BE GOVERNM E N T ORGANIZATIONS. AS POINTED OUT BY THE APPELLANT, THE ASSESSING OFFICER HAS ALSO ACCEPTED THE CLAIM IN PRINCIPLE. THAT BEING SO THE CLAIM CANNOT B DISALLOWED MERELY B E CAU S E THE APPELLAN T HAS NO T FURNI S H E D THE DETAILS O F P A YM E N T S AGAINST THE BILLS I TA NO. 620/H YD/20 13 M/S. VICTORY ELECTRICALS LIMITED, HYDERABAD 7 RAISED BY IT. THE DISALLOWANCE IS TH E REFORE DIRECTED TO BE DELETED. 1 3 . WE HAVE HEARD THE ARGUMENTS OF BOTH THE SIDES AND ALSO PERUSED THE RELEVANT MATERIAL ON RECORD. IT IS OB S ERV E D THA T THE DISALLOWANCE ON ACCOUNT OF SUN D RY BALANCES WRITTEN OFF WAS MADE BY THE ASSESSING OFFICER ON THE BASIS THAT THE RELE V ANT DETAILS AND DOCUM E N T S SHOWING THE DEDUCTION CLAIMED TO BE MADE BY D I S COMS ON ACCOUNT OF PE N ALTY FOR LATE DELIVERY, WERE NOT FURNISHED BY THE ASSESSEE AND ALSO RELYING ON EXPLANATION TO S.37( 1) OF THE ACT . ALTHOUGH THE PENALTY LEVIED BY THE DISCOMS FOR LATE DELIVERY WAS NO T FOR INFRA C TION OF ANY LAW, AS ENVISAGED IN EXPLANATION TO S.37(1 ) , AND THIS POSITION WAS ALSO AC C EPTE D BY THE ASSESSING OFFICER IN PRINCIPL E , WE FIND MERIT IN TH E CON T ENTI ON OF THE LEARNED DEPARTMENTAL REPRESENTATIVE THAT THE CL A IM O F TH E ASSESSEE FOR DEDUC T ION ON ACCOUNT OF SUNDRY BALANCES WRITTEN OFF WAS ALSO DISALLO W ED BY THE ASSESSING OFFICER FOR WANT OF DETAILS AND DOCUMENTS TO ESTABLISH THE DEDUCTION S CLAIMED TO BE M ADE BY TH E D ISCOMS ON ACCOUNT OF LATE DELIVERY CHARGES. NO DO U BT, THE ASSESSEE FURNISHED SUCH DETAILS AND DOCUM E N T S B E FORE THE LEARNED CIT(A). BUT ON VERIFI C ATION OF THE SAID DETAILS AND DOCUMENTS, THE ASSESSING OFFICER FOUND THAT THE CLAIM O F TH E ASSESSEE FOR DEDUC T ION ON ACCOUNT OF LATE DELIVERY CHARGES WAS ESTABLISHED ONLY TO THE E X TENT OF RS.1,78,62,107 . A S REGARDS THE BALAN C E AMOUNT OF RS .51,79, 590, TH E R E QUIRED DETAIL S AND DO C UM E N TS , HOWEVER, WERE NO T FURNI S H E D TO SUBSTANTIATE ITS CLAIM, A S SPECIFICALLY NO T ED BY THE ASSESSING OFFICER IN THE REMAND REPO R T. CON S I D ERIN G THE S AME, WE ARE OF THE V I E W THAT THE LEARNED CIT(A) SHOULD NOT HAVE DELETED THE ENTIRE DISALLOWANCE MADE BY TH E ASSESSING OFFICER ON ACC O UNT OF SUNDRY BALANCES WRITTEN OFF. I N OUR OPINION, THE ONUS IN THIS REGARD IS ON THE ASSESSEE TO ESTABLISH I T S CLAIM FOR THE DEDUCTION MADE BY THE DI S COMS ON ACCOUNT OF LATE DELI V ERY CH A RGES, EVEN FOR THE I TA NO. 620/H YD/20 13 M/S. VICTORY ELECTRICALS LIMITED, HYDERABAD 8 BALANCE AMOUNT OF R S .51 ,79, 590. WE TH E R E FORE, RESTORE T HIS ISSUE TO THE FIL E O F THE ASS ESSING OFFICER FOR GIVIN G THE ASSESSEE ON E MORE OPPORTUNITY TO FILE THE RELEVANT DETAILS AND DOCUM E N T S TO SUB STANTIATE ITS CLAIM FOR DEDUC T I O N ON ACCOUNT O F L A TE DELIVERY CHARGES CLAIMED TO BE LEVIED BY DISCOM S TO THE EXTENT OF BALANCE AMOUNT O F RS .51 ,79,590. THE ASSESSING OFFICER I S DIRECTED TO VERIFY THE S AME AND GIVE APPROPRIATE RELIEF TO THE ASSESSEE ON SUCH VERI F I C ATION. GROUND NO.4 OF THE R E VENUE S APPEAL IS ACCORDINGLY TREATED AS ALLOWED FOR STATISTICAL PURPOSES. 1 4 . IN THE RESULT, APPEAL O F THE REVENUE IS TREATED AS PARTLY ALLOWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED IN THE COURT ON 17 TH OCTOBER, 2014 SD/ - SD/ - ( SAKTIJIT DEY ) ( P.M.JAGTAP ) JUDICIAL MEMBER ACCOUNTANT MEMBER DT/ - 17 TH OCTOBER, 2014 COPY FORWARDED TO: 1. M/S. VICTORY ELECTRICALS LIMITED, D - 52, PHASE IV EXTN, IDA JEEDIMETALA, HYDERABAD 500 055. 2 . DY. COMMISSIONER OF INCOME - TAX CIRCLE 3(3), HYDERABAD 3. 4. COMMISSIONER OF INCOME - TAX(APPEALS) IV, HYDERABAD COMMISSIONER OF INCOME - TAX III, HYDERABAD 5. DEPARTMENTAL REPRESENTATIVE, ITAT, HYDERABAD. B.V.S