HANIL ERA TEXTILES LTD, MUMBAI V. ASST CIT CIR 6(3), MUMBAI

ITA 6460/MUM/2011

• Counselvise Citation: [2013] 140 COUNSELVISE.COM (IT) 71748 (ITAT-MUMBAI)
• Duration Of Justice: 2 year(s) 2 month(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 22-11-2013
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: H
• Next Hearing Date: 20-11-2013
• Assessment Year: 2008-2009
• Appeal Filed On: 22-09-2011
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: PITAMBER DAS
• Assessee Lawyers: VISHWAS V MEHENDALE
• Keywords: Opportunity of being heard; Earning of tax free income
• Section: 14A; 10

Judgement Text

, IN THE INCOME TAX APPELLATE TRIBUNAL H B ENCH, MUMBAI , , !' #$% , !& ! ' BEFORE SHRI VIJAY PAL RAO, JM AND SHRI N.K. BILLA IYA, AM ./ I.T.A. NO. 6460/MUM/2011 ( ( ( ( ( / ASSESSMENT YEAR : 2008-09 M/S. HANIL ERA TEXTILES LTD., NEW ERA HOUSE, NEW ERA MILL COMPOUND, MOGUL LANE, MATUNGA (W), MUMBAI-400 016 THE ACIT, CIRCLE 6(3), MUMBAI ) !& ./ * ./PAN/GIR NO. : AAACH 2154D ( )+ /APPELLANT ) .. ( ,-)+ / RESPONDENT ) )+ . ! / APPELLANT BY : ` SHRI VISHWAS V. MEHENDALE ,-)+ / . ! /RESPONDENT BY : SHRI PITAMBER DAS / 01& / DATE OF HEARING :20.11.2013 23( / 01& / DATE OF PRONOUNCEMENT : 22.11.2013 !4 / O R D E R PER N.K. BILLAIYA, AM: THIS APPEAL BY THE ASSESSEE IS DIRECTED AGAINST TH E ORDER OF THE LD. CIT(A)-12, MUMBAI DT.14.6.2011 PERTAINING TO A.Y. 2008-09. 2. THE ONLY GRIEVANCE OF THE ASSESSEE IS THAT THE L D. CIT(A) HAS ERRED IN CONFIRMING THE DISALLOWANCE OF RS. 1,63,00,538/- U/S. 14A OF THE ACT R.W. RULE 8D. ITA NO.6460/M/11 2 3. THE APPEAL IS LATE BY ONE DAY. AFFIDAVIT OF THE MANAGER OF THE ASSESSEE COMPANY IS FILED EXPLAINING THE REASON FOR DELAY IN FILING THE APPEAL BY ONE DAY. IN THIS AFFIDAVIT THE MANAGER S TATED THAT DUE TO SUDDEN ILLNESS, HE COULD NOT ATTEND THE OFFICE WHICH HAS C AUSED THE DELAY OF ONE DAY. THE LD. DEPARTMENTAL REPRESENTATIVE FAIRLY SU BMITTED HE HAS NO OBJECTION IF THE DELAY OF ONE DAY IS CONDONED. 4. WE HAVE CAREFULLY PERUSED THE FACTS AS STATED IN THE AFFIDAVIT ALONGWITH THE MEDICAL CERTIFICATE OF THE MANAGER. WE FIND THAT THE DELAY OF ONE DAY HAS BEEN SATISFACTORILY EXPLAINED. THE DELAY IS CONDONED AND THE APPEAL IS ADMITTED. 5. THE ASSESSEE IS A MANUFACTURER OF ACRYLIC COTTON BLENDED YARN, ETHANOL AND FABRICS. DURING THE COURSE OF THE SCRU TINY ASSESSMENT PROCEEDINGS, THE ASSESSING OFFICER NOTICED THAT THE ASSESSEE HAS SHOWN AN AMOUNT OF RS. 10,65,561/ AS DIVIDEND AND RS. 10,68, 145/- AS LONG TERM CAPITAL GAIN WHICH HAVE BEEN CLAIMED AS EXEMPT U/S. 10 OF THE I.T. ACT. THE ASSESSEE WAS ASKED TO EXPLAIN THE DETAILS OF EX PENDITURE INCURRED OR ATTRIBUTABLE FOR EARNING THESE EXEMPT INCOME IN V IEW OF THE PROVISIONS OF SEC. 14A OF THE ACT. 5.1. THE ASSESSEE FILED A DETAILED REPLY CONTENDING THAT NO EXPENSES WERE INCURRED FOR THE PURPOSE OF EARNING OF THESE EXEMPT INCOME AND THEREFORE NO DISALLOWANCES U/S. 14A IS CALLED FOR. THE AO OBSERVED THAT INSPITE OF REPEATED OPPORTUNITIES, THE ASSESSEE CO ULD NOT FURNISH ANY EVIDENCE TO PROVE THAT NO EXPENSES ARE INCURRED FOR EARNING DIVIDEND INCOME. THE AO NOTICED THAT THE ASSESSEE HAS BORR OWED FUNDS IN ITS BALANCE SHEET ON WHICH IT HAS PAID INTEREST AND TH E ASSESSEE COULD NOT SUBSTANTIATE ITS CLAIM THAT BORROWED FUNDS HAVE NOT BEEN UTILIZED FOR THE PURPOSE OF INVESTMENTS AND THE INVESTMENTS HAVE BEE N MADE OUT OF OWN ITA NO.6460/M/11 3 FUNDS. THE AO HAVING SATISFIED HIMSELF THAT NO DET AILS HAVE BEEN FILED, WENT ON TO COMPUTE THE DISALLOWANCE U/S 14A R.W. RU LE 8D AND COMPUTED THE SAID DISALLOWANCE AT RS. 1,63,00,538/-. 6. THE ASSESSEE CARRIED THE MATTER BEFORE THE LD. C IT(A) BUT WITHOUT ANY SUCCESS. THE LD. CIT(A) WAS OF THE OPINION TH AT THE ASSESSEE MAINTAINS A COMMON POOL OF FUNDS AND HAS NOT BEEN A BLE TO SHOW THAT THE LOANS TAKEN HAVE NOT BEEN UTILIZED FOR MAKING INVES TMENTS WHICH HAD GIVEN RISE TO EXEMPT INCOME. THE LD. CIT(A) WAS OF THE FIRM BELIEF THAT IN A COMMON POOL FUND, IT IS DIFFICULT TO ASCERTAI N WHETHER THE ASSESSEE HAS MADE THE INVESTMENTS OUT OF FUNDS AVAILABLE OR OUT OF BORROWED FUNDS. THE LD. CIT(A) WENT ON TO CONFIRM THE ACTIO N OF THE AO AND UPHELD THE DISALLOWANCE SO MADE. 7. AGGRIEVED BY THE ORDER OF THE LD. CIT(A), ASSESS EE IS BEFORE US. THE LD. COUNSEL FOR THE ASSESSEE STRONGLY ARGUED T HAT THE AO HAS NOT CONSIDERED THE SUBMISSIONS OF THE ASSESSEE FILED V IDE LETTER DT. 10.12.2010 WHEREIN THE ASSESSEE HAS FILED COMPLETE DETAILS OF EXPENSES WHICH COULD BE ATTRIBUTED FOR EARNING THE EXEMPT IN COME. THE LD. COUNSEL FURTHER STATED THAT THE ENTIRE INVESTMENTS HAVE BEEN MADE OUT OF OWN FUNDS AS THE BORROWED FUNDS ARE SECURED LOANS T AKEN FROM THE BANKS FOR SPECIFIC PURPOSE WHICH COULD NOT HAVE BEEN UTIL IZED FOR ANY OTHER PURPOSE. THE ENTIRE DETAILS OF INTEREST PAID ON TH ESE SECURED BORROWINGS WAS ALSO EXPLAINED IN THE LETTER DT. 10.12.2010 WHI CH HAS BEEN COMPLETELY IGNORED BY THE AO. IT IS THE SAY OF THE LD. COUNSE L THAT IF THERE ARE FUNDS AVAILABLE BOTH INTEREST FREE AND BORROWED, THEN A P RESUMPTION WOULD ARISE THAT INVESTMENTS WOULD BE OUT OF THE INTEREST FREE FUNDS GENERATED OR AVAILABLE WITH THE COMPANY. THE LD. COUNSEL STRONG LY RELIED UPON THE DECISION OF THE HONBLE JRISDICTIONAL HIGH COURT I N THE CASE OF CIT VS RELIANCE UTILITIES & POWER LTD 313 ITR 340. THE LD . COUNSEL ALSO RELIED ITA NO.6460/M/11 4 UPON THE DECISION OF THE HONBLE GUJARA HIGH COURT IN THE CASE OF CIT VS UTI BANK LTD 32 TAXMANN. COM 370. 8. PER CONTRA, THE LD. DEPARTMENTAL REPRESENTATIVE , STRONGLY SUPPORTING THE ORDERS OF THE LOWER AUTHORITIES, SU BMITTED THAT THE ASSESSEE HAS GROSSLY FAILED IN DISCHARGING THE ONUS CAST UPO N IT. IT IS THE SAY OF THE LD. DR THAT THE ASSESSEE SHOULD HAVE FILED DETAIL S EXPLAINING THE UTILIZATION OF OWN FUNDS FOR MAKING THE INVESTMENTS FROM WHICH EXEMPT INCOME HAS BEEN EARNED FAILING WHICH THE REVENUE AU THORITIES ARE LEFT WITH NO CHOICE BUT TO MAKE AN APPROPRIATE DISALLOW ANCES AS PER THE PROVISIONS OF SEC. 14A R.W. RULE 8D. 9. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND CAR EFULLY PERUSED THE ORDERS OF THE LOWER AUTHORITIES AND THE RELEVAN T MATERIAL EVIDENCES BROUGHT ON RECORD. THE ASSESSEE CLAIMED THAT THE EX TRACT FROM AUDITED STATEMENT OF ACCOUNTS AS EXHIBITED AT PAGE-12 OF TH E PAPER BOOK CLEARLY SHOW THAT THE ASSESSEE WAS HAVING SUFFICIENT OWN FU NDS. THE DETAILS OF BORROWED FUNDS UNDER THE HEAD SECURED LOAN IS GIV EN AT SCHEDULE-3 OF THE BALANCE SHEET WHICH IS AT PAGE-17 OF THE PAPER BOOK. A CLOSE LOOK AT THE SAID SCHEDULE SHOWS THAT BORROWINGS TO THE TUN E OF RS. 589 CRORES WAS FROM TERM LOANS FROM BANKS. ANOTHER BORROWINGS OF RS. 22 LAKHS RELATES TO VEHICLE LOAN, WORKING CAPITAL LOANS OF R S. 272 CRORES AND OTHER LOANS AT RS. 250 CRORES ARE NOT SPECIFICALLY EARMAR KED THOUGH THE WORKING CAPITAL IS USED FOR THE PURPOSE OF BUSINESS. THE D ETAILS OF INTEREST PAID ARE FOUND AT PAGE-13 OF THE PAPER BOOK. THE ENTIRE INT EREST HAS BEEN PAID ON SECURED LOANS WHICH ALSO CONTAINS CAR LOAN AND TERM LOANS WHICH COULD NOT HAVE BEEN USED FOR ANY OTHER PURPOSES. IT APPEARS THAT THE DETAILS AS MENTIONED IN LETTER DT. 10.12.2010 HAS NOT BEEN CON SIDERED BY THE AO WHILE PASSING THE ASSESSMENT ORDER ON 15.12.2010. TH EREFORE, IN THE INTEREST OF JUSTICE, WE RESTORE THIS ISSUE BACK TO THE FILES OF T HE AO. THE ASSESSEE IS DIRECTED TO ITA NO.6460/M/11 5 FILE AFRESH COMPLETE DETAILS OF OWN FUNDS AND LOAN FUNDS. THE ASSESSEE IS ALSO DIRECTED TO EXPLAIN HOW THE INVESTMENTS HAVE B EEN MADE FROM OWN FUNDS. THE AO IS DIRECTED TO VERIFY THE DETAILS OF INVESTMENTS VIS--VIS OWN FUNDS AND DECIDE THE ISSUE AFRESH AFTER GIVING A REASONABLE OPPORTUNITY OF BEING HEARD TO THE ASSESSEE IN THE L IGHT OF THE DECISION OF THE HONBLE JURISDICTIONAL HIGH COURT IN THE CASE O F RELIANCE UTILITIES & POWER LTD (SUPRA). 10. IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE IS ALLOWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED IN THE OPEN COURT ON 22 ND NOVEMBER, 2013 . !4 / 3( &! 5 6 7 22.11.20133 / = SD/- SD/- ( VIJAY PAL RAO ) ( N.K. BILLAIYA ) /JUDICIAL MEMBER !& / ACCOUNTANT MEMBER MUMBAI; 6 DATED 22/11/2013 . . ./ RJ , SR. PS ITA NO.6460/M/11 6 !4 / ,0 >!(0 !4 / ,0 >!(0 !4 / ,0 >!(0 !4 / ,0 >!(0 / COPY OF THE ORDER FORWARDED TO : 1. )+ / THE APPELLANT 2. ,-)+ / THE RESPONDENT. 3. ? ( ) / THE CIT(A)- 4. ? / CIT 5. @= ,0 , , / DR, ITAT, MUMBAI 6. =A B / GUARD FILE. !4 !4 !4 !4 / BY ORDER, -0 ,0 //TRUE COPY// C CC C / D D D D (DY./ASSTT. REGISTRAR) , / ITAT, MUMBAI