VIJAY SOLVEX LIMITED, Alwar V. ACIT, Alwar

ITA 642/JPR/2014

• Counselvise Citation: [2016] 133 COUNSELVISE.COM (IT) 5355 (ITAT-JAIPUR)
• Duration Of Justice: 1 year(s) 5 month(s) 24 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 18-03-2016
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: B
• Assessment Year: 2011-2012
• Appeal Filed On: 24-09-2014
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: S L MOURYA CIT DHK
• Keywords: Earning of tax free income; Commercial expediency
• Section: 14A; 6

Judgement Text

VK;DJ VIHYH; VF/KDJ.K] T;IQJ U;K;IHB] T;IQJ IN THE INCOME TAX APPELLATE TRIBUNAL, JAIPUR BENCHE S, JAIPUR JH DQY HKKJR] U;KF;D LNL; ,OA JH FOE FLAG ;KNO] YS [KK LNL; DS LE{K BEFORE: SHRI KUL BHARAT, JM & SHRI VIKRAM SINGH YAD AV, AM VK;DJ VIHY LA-@ ITA NOS. 435/JP/2013 & 642/JP/2014 FU/KZKJ.K O'K Z@ ASSESSMENT YEARS : 2009-10 & 2011-12 VIJAY SOLVEX LTD., BHAGWATI SADAN, SWAMI DAYANAND MARG, ALWAR. CUKE VS. THE ACIT, CIRCLE-2, ALWAR. LFKK;H YS[KK LA-@THVKBZVKJ LA-@ PAN NO. AAACV 6864 A VIHYKFKHZ@ APPELLANT IZR;FKHZ@ RESPONDENT FU/KZKFJRH DH VKSJ LS@ ASSESSEE BY : SHRI P.C.PARWAL (C.A.) JKTLO DH VKSJ LS@ REVENUE BY : SHRI S.L. MOURYA (ADDL. CIT) LQUOKBZ DH RKJH[K@ DATE OF HEARING : 02.06.2017. ?KKS'K .KK DH RKJH[K@ DATE OF PRONOUNCEMENT : 05 /07/2017. VKNS'K@ ORDER PER SHRI KUL BHARAT, JM. THESE TWO APPEALS BY THE ASSESSEE PERTAINING TO AS SESSMENT YEARS 2009-10 & 2011-12, ARE DIRECTED AGAINST THE DIFFERENT ORDER OF LD. CIT (A)-22, MOTI DUNGRI, ALWAR, DATED 25/03/2013 & 21/07/2014 RESPECTIVELY. SINCE, THE COMMON GROUNDS ARE INVOLVED IN THESE APPEALS. BOTH THE APPEALS AR E TAKEN UP TOGETHER AND ARE BEING DISPOSED OFF BY WAY OF CONSOLIDATED ORDER FOR SAKE OF BREVITY. 2. THESE TWO APPEAL WERE HEARD AND DISPOSED OFF VID E ORDER DATED 18/03/2016 BY THIS TRIBUNAL. SUBSEQUENTLY, UPON THE MISCELLAN EOUS APPLICATION NO. 118/JP/2016 AND 119/JP/2016, ORDER DATED 18/03/2016 WAS MODIFIE D AND THE HEARING WAS FIXED 2 ITA NOS. 435/JP/2013 & 642/JP/2014 M/S VIJAY SOLVEX LTD., ALWAR. FOR CONSIDERING THE GROUND NO. 4 IN ITA NO. 435/JP/2013 AND 642/JP/2014 RELATED TO DISALLOWANCE U/S 14A OF THE ACT. THEREFO RE, THESE APPEALS WERE FIXED FOR HEARING TO ADJUDICATE THE GROUND NO. 4. FIRST, WE TAKE UP ASSESSEES APPEAL IN ITA NO. 435/JP/2013. THE GROUND NO. 4 OF THIS APPEAL READS AS UNDER:- 4 DISALLOWANCE OF INTEREST OF RUPEES 1970157.00:- 4.1 THAT THE LD. ASSESSING OFFICER HAS ERRED IN LA W AS WELL AS ON THE FACTS AND CIRCUMSTANCES OF THE CASE IN GIVING THAT THE AS SESSEE COMPANY HAS INVESTED ITS INTEREST BEARING FUNDS IN THE INVESTME NT IN SHARES, WHEREAS FACTS REMAINS THAT ASSESSEE COMPANY HAS NOT INVESTE D THE INTEREST BEARING FUNDS ON THE CONTRARY THE FUNDS REPRESENTIN G THE NON-INTEREST BEARING I.E. RESERVE AND SURPLUSES (ACCUMULATED PRO FITS) HAVE BEEN INVESTED IN THE SHARES. 4.2 THAT THE LD. AO HAS ERRED IN LAW AS WELL AS ON THE FACTS AND CIRCUMSTANCES OF CASE IN MAKING A DISALLOWANCE OF R S. 19,70,157.00 WITHIN THE MEANING OF SECTION 14A OF THE INCOME TAX ACT, 1961. 3. BRIEFLY, STATED THE FACTS ARE GIVING RISE TO THI S GROUND IS THAT, WHILE FRAMING THE ASSESSMENT THE AO INVOKED PROVISION OF SECTION 14A AND COMPUTED THE DISALLOWANCE BY APPLYING RULE 8D OF THE INCOME TAX RULE 1962. ON THE GROUND THAT THE ASSESSEE FAILED TO FURNISH DATE-WISE AVAILABILI TY OF INTEREST FREE FUNDS AND OUT OF WHICH DATE- WISE INVESTMENT IN SHARES OF THE COMPAN IES INCLUDING THE SHARES OF SISTER CONCERNS THEREBY ASSESSEE COULD NOT ESTABLIS H THE NEXUS BETWEEN THE INTEREST FREE FUNDS AND INVESTMENT IN SHARES. THE AO OBSERV ED THAT THE ASSESSEE TRIED TO DECLARE THE AGGREGATE INVESTMENT OF RS. 1120.98 LAK HS OUT OF RESERVE AND SURPLUS OF RS. 5655.76 LACS. THE AO OBSERVED THAT ASSESSEE HA D INTEREST BEARING FUNDS IN THE FORM OF WORKING CAPITAL LOANS FROM BANKS AND INSECU RED LOANS FOR DAY TO DAY 3 ITA NOS. 435/JP/2013 & 642/JP/2014 M/S VIJAY SOLVEX LTD., ALWAR. FUNCTIONING AND DID NOT HAVE SURPLUS FUNDS FOR INVE STMENT IN SHARES. HE OBSERVED THAT THERE IS NO COMMERCIAL EXPEDIENCY TO MAKE IN I NVESTMENT IN SISTER CONCERN. 4. AGAINST THIS THE ASSESSEE PREFERRED AN APPEAL BE FORE LD. CIT(A), WHO AFTER CONSIDERING THE SUBMISSIONS. THE LD. CIT(A) CONFIR MED THE VIEW OF THE AO ON APPEAL TO THE ITAT THE VIEW OF THE AO WAS AFFIRMED. HOWEVER, THE ORDER, ON THIS ISSUE WAS RECALLED, ON THE GROUND THAT THE SIMILAR ISSUE WAS DECIDED BY THE CO- ORDINATE BENCH OF THIS TRIBUNAL IN ASSESSEES OWN C ASE PERTAINING TO THE ASSESSMENT YEAR 2010-11 WHEREIN THE DISALLOWANCE U/S 14A OF TH E ACT WAS SUSTAINED TO THE EXTENT OF RS. 5 LACS, AND IN VIEW OF THE DECISION OF THE THIRD MEMBER IN THE CASE OF DEEPAK DALELA VS. ITO (2014) 43 TAXMAN.COM 96 . IN THIS BACKGROUND, THIS GROUND IS BEFORE US. 5. LD. COUNSEL FOR THE ASSESSEE SUBMITTED THAT SHAR ES CAPITAL, RESERVES AND SURPLUS OF THE ASSESSEE AS ON 31/03/2009 WAS AT RS . 5975.95 LACS WHEREAS THE INVESTMENT IN SHARES OF RS. 1120.98 LACS. THE SOUR CE OF INVESTMENT IN SHARES IS OUT OF NON-INTEREST BEARING FUNDS OF RS. 5975.95 LACS. THE AO HAS NOT ESTABLISHED THAT INTEREST BEARING FUNDS WERE UTILIZED FOR MAKING INV ESTMENT IN SHARES. HE SUBMITTED THAT THE LAW IS WELL SETTLED WHERE THE ASSESSEE IS HAVING BOTH INTEREST BEARING FUNDS AND INTEREST FREE FUNDS AND THE INVESTMENT IF IS NO T IN EXCESS OF AVAILABILITY OF INTEREST FREE FUNDS, THEN IT IS PRESUMED THAT THE I NVESTMENT IS MADE FROM THE INTEREST FREE FUND AND NO DISALLOWANCE IS CALLED FO R SO FAR THE INTEREST COMPONENT IS CONCERNED. 4 ITA NOS. 435/JP/2013 & 642/JP/2014 M/S VIJAY SOLVEX LTD., ALWAR. 5.1 LD. COUNSEL FOR THE ASSESSEE PLACED RELIANCE UP ON THE JUDGMENT OF THE HONBLE SUPREME COURT RENDERED IN THE CASE OF GODRE J & BOYCE MANUFACTURING COMPANY LTD VS. DEPUTY COMMISSIONER O F INCOME TAX & ANR. IN CIVIL APPEAL NO. 7020 OF 2011 DATED MAY 8, 2017 , IN SUPPORT OF THE CONTENTION THAT THE PROVISION OF SUB SECTION (2) AN D (3) OF SECTION 14A WOULD BECOME APPLICABLE ONLY WHEN THE AO HAVING REGARDS T O ACCOUNTS OF THE ASSESSEE AS PLACED BEFORE HIM WHERE FROM IT IS NOT POSSIBLE TO GENERATE THE REQUISITE SATISFACTION WITH REGARD TO CORRECTNESS OF THE CLAIM OF THE ASSE SSEE, IN RESPECT OF THE EXPENDITURE QUA THE EXEMPT INCOME. LD. COUNSEL SUBMITTED THAT THE ASSESSEE HAD SUFFICIENT INTEREST FREE FUNDS TO MAKE INVESTMENT. THE LD. CO UNSEL ALSO RELIED UPON THE DECISION OF THIS TRIBUNAL IN ASSESSEES OWN CASE PE RTAINING TO THE A.Y. 2010-11, IN SUPPORT OF THIS CONTENTION. 6. ON THE CONTRARY, THE LD. DEPARTMENTAL REPRESENTA TIVES SUPPORTED THE ORDER OF THE AO. 7. WE HAVE HEARD THE RIVAL CONTENTIONS, PERUSED THE MATERIAL AVAILABLE ON RECORD. THE CONTENTION OF THE ASSESSEE IS THAT THE PROVISION OF SECTION 14A OF THE ACT IS WRONGLY INVOKED BY THE AO. THE ASSESSEE HAS PLACED ON RECORD ANALYSIS ON SOURCE AND INVESTMENT OF FUNDS AS ON 31/3/2009. HO WEVER, WE ARE OF THE VIEW THAT THIS ANALYSIS CAN BE VERIFIED FROM THE COMPLETE BAL ANCE SHEET AS ON 31/03/2009. THEREFORE, WE DEEM IT PROPER TO RESTORE THIS ISSUE TO THE AO FOR VERIFYING THE CLAIM OF THE ASSESSEE THAT IT WAS HAVING SUFFICIENT FUNDS AVAILABLE FOR MAKING INVESTMENT TO COMPUTE THE DISALLOWANCE IF ANY U/S 14A OF THE ACT IN RESPECT OF THE INTEREST 5 ITA NOS. 435/JP/2013 & 642/JP/2014 M/S VIJAY SOLVEX LTD., ALWAR. COMPONENT. HOWEVER, SO FAR ADMINISTRATIVE EXPENSES AND OTHER EXPENSES ARE CONCERNED, THE AO MADE DISALLOWANCE OF RS. 2,38,317 /- BY APPLYING THE PROVISIONS AS PER RULE 8D, WHICH IN OUR CONSIDERED VIEW IS JU STIFIED. IN RESPECT OF INTEREST EXPENDITURE, THE AO WOULD VERIFY THE CLAIM OF THE A SSESSEE THAT WHETHER IT WAS HAVING SUFFICIENT INTEREST BEARING FUNDS, IN THE FO RM OF RESERVE AND SURPLUS AND IF IT IS FOUND THAT THE CONTENTION OF THE ASSESSEE IS CORREC T IN THAT EVENT HE WOULD DELETE THE DISALLOWANCE. THIS GROUND ALLOWED FOR STATISTIC AL PURPOSE IN THE TERMS INDICATED HEREINABOVE. 8. NOW, COMING TO ITA NO. 642/JP/2014 PERTAINING TO AY 2011-12. GROUND NO. 4 OF THIS APPEAL READS AS UNDER:- 4. THAT THE LD. AO HAS ERRED IN LAW AS WELL ON THE FACTS AND CIRCUMSTANCES OF THE CASE IN MAKING A DISALLOWANCE OF RUPEES 48,27,399.00 BY INVOKING THE PROVISION OF SECTION 1 4A OF THE INCOME- TAX ACT, 1961 AND LD. COMMISSIONER OF INCOME TAX (A PPEALS), ALWAR HAS ERRED IN SUSTAINING THE SAME. 8.1 THE PARTIES HAVE ADOPTED THE SAME ARGUMENT; THE FACTS ARE IDENTICAL AS WERE IN ITA NO. 435/JP/2013. WE HAVE DECIDED THE ISSUE BY OBSERVING AS UNDER:- 7. WE HAVE HEARD THE RIVAL CONTENTIONS, PERUSED THE MA TERIAL AVAILABLE ON RECORD. THE CONTENTION OF THE ASSESSEE IS THAT THE PROVISION OF SECTION 14A OF THE ACT IS WRONGLY INVOKED BY THE AO. THE ASSESSEE HAS PLACED ON RECORD ANALYSIS ON SOURCE AND INVESTMENT OF FUNDS AS ON 31 /3/2009. HOWEVER, WE ARE OF THE VIEW THAT THIS ANALYSIS CAN BE VERIFIED FROM THE COMPLETE BALANCE SHEET AS ON 31/03/2009. THEREFORE, WE DEEM IT PROP ER TO RESTORE THIS ISSUE TO THE AO FOR VERIFYING THE CLAIM OF THE ASSESSEE T HAT IT WAS HAVING SUFFICIENT FUNDS AVAILABLE FOR MAKING INVESTMENT TO COMPUTE TH E DISALLOWANCE IN ANY U/S 14A OF THE ACT IN RESPECT OF THE INTEREST COMPONENT . HOWEVER, SO FAR 6 ITA NOS. 435/JP/2013 & 642/JP/2014 M/S VIJAY SOLVEX LTD., ALWAR. ADMINISTRATIVE EXPENSES AND OTHER EXPENSES ARE CONC ERNED, THE AO MADE DISALLOWANCE OF RS. 2,38,317/- BY APPLYING THE PROV ISIONS AS PER RULE 8D, WHICH IN OUR CONSIDERED VIEW IS JUSTIFIED. IN RESP ECT OF INTEREST EXPENDITURE, THE AO WOULD VERIFY THE CLAIM OF THE ASSESSEE THAT WHETHER IT WAS HAVING SUFFICIENT INTEREST BEARING FUNDS, IN THE FORM OF R ESERVE AND SURPLUS AND IF IT IS FOUND THAT THE CONTENTION OF THE ASSESSEE IS CORREC T IN THAT EVENT HE WOULD DELETE THE DISALLOWANCE. THIS GROUND IS ALLOWED FO R STATISTICAL PURPOSE IN THE TERMS HEREIN ABOVE. 8.2 FOR THE SAME REASONING THIS GROUND OF THE ASSES SEES APPEAL IS ALLOWED FOR STATISTICAL PURPOSE IN TERMS INDICATED HEREINABOVE. 9. IN THE RESULT, BOTH THE APPEALS OF THE ASSESSEE IN RESPECT OF GROUND NO. 4 ARE ALLOWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED IN THE OPEN COURT ON WEDNESDAY, THE 5 TH DAY OF JULY 2017. SD/- SD/- FOE FLAG ;KNO ( DQY HKKJR ) (VIKRAM SINGH YADAV) ( KUL BHARAT ) YS[KK LNL;@ ACCOUNTANT MEMBER U;KF;D LNL;@ JUDICIAL MEMBER JAIPUR DATED:- 05/07/2017. POOJA/ VKNS'K DH IZFRFYFI VXZSF'KR@ COPY OF THE ORDER FORWARDED TO: 1. THE APPELLANT- M/S VIJAY SOLVEX LTD., ALWAR. 2. THE RESPONDENT- THE ACIT, CIRCLE-2, ALWAR. 3. THE CIT(A). 4. THE CIT, 5. THE DR, ITAT, JAIPUR 6. GUARD FILE (ITA NOS. 435/JP/2013 & 642/JP/2014) VKNS'KKUQLKJ@ BY ORDER, LGK;D IATHDKJ@ ASSISTANT. REGISTRAR 7 ITA NOS. 435/JP/2013 & 642/JP/2014 M/S VIJAY SOLVEX LTD., ALWAR.