SHREE CEMENT LIMITED, BEAWAR V. ACIT, Ajmer

ITA 649/JPR/2011

• Counselvise Citation: 64923114 RSA 2011
• Duration Of Justice: 3 year(s) 3 month(s) 17 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 17-10-2014
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: A
• Assessment Year: 1996-1997
• Appeal Filed On: 30-06-2011
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Assessee Lawyers: S C MAHESHWA RI
• Keywords: Opportunity of being heard; Proportionate interest
• Section: 143(3); 148; 154

Judgement Text

ITA NO. 649/JP/2011 M/S. SHREE CEMENT LTD. VS. ACIT, CIRCLE- 2, AJMER 1 IN THE INCOME TAX APPELLATE TRIBUNAL JAIPUR BENCH, JAIPUR (BEFORE SHRI R.P. TOLANI AND SHRI T.R. ME ENA) ITA NO. 649/JP/2011 ASSESSMENT YEAR : 1996-97 PAN : AACCS 8796 G M/S. SHREE CEMENT LTD. VS. THE ACIT BANGUR NAGAR, P.B. NO.33 CIRCLE- 2 BEAWAR AJMER (APPELLANT) (RESPONDENT) ASSESSEE BY: SHRI VIJAY SHAH AND SHRI S.C. MAHESHWA RI DEPARTMENT BY : MS. NEENA JEPH DATE OF HEARING: 24-09-2014 DATE OF PRONOUNCEMENT: 17-10-2014 ORDER PER T.R. MEENA, AM THIS IS AN APPEAL FILED BY THE ASSESSEE AGAINST THE ORDER OF THE LD. CIT (A), AJMER DATED 20-04-2011 FOR THE ASSESSMENT Y EAR 1996-97 WHEREIN THE ASSESSEE HAS RAISED THE FOLLOWING GROUNDS:- (1) THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE LD. CIT(A) WAS NOT JUSTIFIED IN CONFIRMING THE DISA LLOWANCE OF PROPORTIONATE INTEREST EXPENSES AT RS. 20,59,000/- FOR EARNING INCORPORATE DIVIDEND WHILE COMPUTING DEDUCTION U/S 80M OF THE ACT. ITA NO. 649/JP/2011 M/S. SHREE CEMENT LTD. VS. ACIT, CIRCLE- 2, AJMER 2 2. THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF TH E CASE AND WITHOUT PREJUDICE TO GROUND NO. 1 TAKEN HEREINABOVE , THE LD. CIT(A) HAVING HELD THAT THE ORDER PASSED BY AO IS I N CONTRAVENTION TO THE DIRECTION GIVEN BY ITAT AND TH E AO WAS NOT JUSTIFIED IN MAKING DISALLOWANCE OF RS. 47,55,0 00/- GROSSLY ERRED IN CONFIRMING THE DISALLOWANCE OF PROPORTIONA TE INTEREST EXPENSES AT RS. 20,59,000/- AND THEREBY PARTIAL REL IEF ONLY TO THE APPELLANT. 2.1 THE BRIEF FACTS OF THE CASE ARE THAT THE ASSESS EE FILED ITS RETURN OF INCOME FOR THE ASSESSMENT YEAR 1996-97 ON 30-12-199 6 DECLARING INCOME OF RS. 6,81,14,100/-. THE ASSESSEE COMPANY IS A LIMITE D COMPANY AND IS ENGAGED IN THE BUSINESS OF MANUFACTURING OF CEMENT AND CLINKER. THE ASSESSEE COMPANY DERIVES INCOME FROM MANUFACTURING AND SALE OF CEMENT AND CLINKER, INTEREST AND DIVIDEND. THE ASSESSMENT HAD BEEN COMPLETED U/S 143(3) OF THE ACT AT RS. 7,06,61,710/- ON 26-03-199 9 AGAINST WHICH THE ASSESSEE WENT IN APPEAL BEFORE THE LD. CIT(A) WHO H AD REDUCED THE TAXABLE INCOME UPTO RS. 4,60,52,760/-. THE AO AGAIN ISSUED NOTICE U/S 148 OF THE ACT IN THIS CASE ON 26-04-2001. THE ASSESSEE COMPAN Y HAD CLAIMED TO HAVE EARNED INTER-CORPORATE DIVIDEND OF RS. 3.91 CRORES, HOWEVER, PROPORTIONATE MANAGEMENT EXPENSES HAD NOT BEEN DISALLOWED OUT OF GROSS AMOUNT OF INTER- CORPORATE DIVIDENDS FOR ALLOWING DEDUCTION U/S 80M OF THE ACT. THE AO GAVE REASONABLE OPPORTUNITY OF BEING HEARD TO THE A SSESSEE AND FINALLY AN ADDITION OF RS. 49 LACS WAS MADE BY THE AO ON 17-10 -2002. HOWEVER, THE ITA NO. 649/JP/2011 M/S. SHREE CEMENT LTD. VS. ACIT, CIRCLE- 2, AJMER 3 AO NOTICED THAT PROPORTIONATE MANAGEMENT EXPENSES H AD NOT BEEN DISALLOWED OUT OF GROSS AMOUNT OF INTER-CORPORATE D IVIDENDS FOR ALLOWING DEDUCTION U/S 80M OF THE ACT. A NOTICE U/S 154(3) O F THE ACT ISSUED ON 24- 05-2002 BY THE AO AND GAVE REASONABLE OPPORTUNITY OF BEING HEARD AND THUS RECTIFIED THE APPARENT MISTAKE AVAILABLE ON RE CORD. THE ASSESSEE COMPANY OBJECTED TO RECTIFICATION PROPOSED BY THE A O ON THE GROUND THAT THERE IS NO MISTAKE EITHER OF FACTS OR APPLICATION OF LAW. HE RELIED ON SUPREME COURT JUDGEMENT IN THE CASE OF CIT VS. UNIT ED GENERAL TRUST (P) LTD. 200 ITR 488. AFTER CONSIDERING THE ASSESSEE'S REPLY, THE AO HELD THAT THE INTEREST PAID FOR THE PREVIOUS YEAR WAS AT RS. 755.85 LACS. OUT OF THIS PAYMENT OF INTEREST, THE AMOUNT OF RS. 197.43 LACS IS FREE FLOATING, IN THE SENSE THAT IT IS NOT DIRECTLY ATTRIBUTABLE TO THE L OANS RAISED AND UTILIZED IN PLANT AND MACHINERY AND FIXED ASSETS/ INVENTORIES. THE TOTAL CURRENT ASSETS AND ADVANCES WERE ALSO THE INVESTMENT AS PER SCHEDU LE -6 TOTALLING TO RS. 11,075.21 LACS. IF THE INTEREST AMOUNT OF RS. 197.4 3 LACS IS DIVIDEND BY THE FIGURE OF RS. 1075.21 LACS AND MULTIPLIED BY THE AM OUNT OF INTEREST I.E. RS. 205.81 LACS THEN THE PROPORTION OF THE MANAGEMENT E XPENSES ATTRIBUTABLE AS PRORATE EXPENSES WORKS OUT TO RS. 3.66 LACS APPROXI MATELY. ON A HOLISTIC CONSIDERATION, THE PROPORTIONATE EXPENDITURE TO BE DISALLOWED COMES TO RS. ITA NO. 649/JP/2011 M/S. SHREE CEMENT LTD. VS. ACIT, CIRCLE- 2, AJMER 4 3.66 LACS AND IT WOULD BE REASONABLE TO RESTRICT TH E ADDITION ACCORDINGLY. THE AO DISALLOWED THE PROPORTIONATE EXPENSES AT RS. 49. 00 LACS 2.2 THE ASSESSEE CHALLENGED THIS ORDER BEFORE THE L D. CIT(A) WHO HAS CONFIRMED THE ADDITION ONLY AT RS. 3.66 LACS. 2.3 BEING AGGRIEVED BY THE ORDER OF LD. CIT(A), THE DEPARTMENT PREFERRED AN APPEAL BEFORE ITAT CHALLENGING THE ORDER OF THE LD. CIT(A). VIDE ITA NO. 450/JP/2003 DATED 22-09-2006, THE ITAT ALLOWED THE APPEAL FOR STATISTICAL PURPOSES AND REMANDED THE MATTER BACK T O THE FILE OF THE AO BY HOLDING AS UNDER:- WE PRINCIPALLY AGREE WITH THE FINDINGS OF THE LD. CIT(A) THAT IN ABSENCE OF THE DETAILS OF EXPENDITURE ATTRI BUTABLE TO DIVIDEND INTEREST, THE PROPORTION OF THE MANAGEMENT , REAL FINANCIAL EXPENSES ATTRIBUTABLE AT PRORATE EXPENSES WAS RIGHTLY WORKED OUT BY THE LD. CIT(A) BUT THE CONTENTION OF THE LD. DR ALSO NEEDS VERIFICATION THAT IF PAYMENT OF INTEREST IS TAKEN FOR ONLY OTHER INVESTMENT AT RS. 197.43 LACS INSTEAD OF WHOLE INTEREST PAYMENT FOR ASSETS AND INVESTMENT AT RS. 7 55.83 LACS WHICH HAS BEEN DIVIDED BY TOTAL ASSETS+ INVESTMENT AT RS. 11075.21 LACS BY THE LD. CIT(A) THEN IF INTEREST PA YMENT IS AGGREGATED ONLY FOR INVESTMENT THEN TOTAL ASSETS AL SO TO BE TAKEN ONLY ON THE TOTAL INVESTMENT I.E. RS. 1767.44 LACS INSTEAD OF THE TOTAL RS. 11075.21 LACS. ACCORDING TO THIS P ROPORTIONATE EXPENSES FOR EARNING INTER-CORPORATE DIVIDEND AS PE R THE LD. DR WOULD BE RS. 22.98 LACS (197.43/ 167.44X205.81 LACS = 22.98 LACS) WHICH REQUIRES TO BE SUSTAINED INSTEAD OF RS. 3.66 LACS ADDED BY THE LD. CIT(A). WE THUS IN THE INTEREST OF JUSTICE REMAND THE MATER TO THE FILE OF THE AO TO VERIFY TH E CORRECTNESS OF THIS ASPECT OF THE CONTENTION OF THE LD. DR FROM THE MATERIAL AVAILABLE ON RECORD AFTER AFFORDING OPPORTUNITY OF BEING HEARD TO THE ASSESSEE ON THE ISSUE. THE GROUND AS WELL AS APPEAL IS THUS ALLOWED FOR STATISTICAL PURPOSES. ITA NO. 649/JP/2011 M/S. SHREE CEMENT LTD. VS. ACIT, CIRCLE- 2, AJMER 5 THE AO GAVE THE SUFFICIENT OPPORTUNITY AS PER DIREC TION OF THE ITAT BUT THE ASSESSEE WAS NON-COOPERATIVE BEFORE THE AO AND REQU ESTED THE AO TO KEEP THE PROCEEDINGS IN ABEYANCE TILL FINALITY OF THE WR IT PETITION FILED BEFORE THE HON'BLE HIGH COURT AGAINST THE ORDER OF THE TRIBUNA L. THE AO FOUND THIS CASE AS TIME BARRING AND THUS HE DECIDED THIS CASE ON THE BASIS OF THE RECORD AS WELL AS THE INFORMATION AVAILABLE WITH HIM. IT H AS BEEN HELD THAT DURING THE FINANCIAL YEAR THE ASSESSEE COMPANY HAD MADE IN VESTMENT AS ON 31-03- 1996 IN VARIOUS SHARES OF VARIOUS COMPANIES AS UNDE R:- INVESTMENT DIVIDEND RECEIVED MANNA KRISHNA INVESTMENT (P) LTD. RS. 2,40,00,000 RS. 1,00,80,750 SPORTS FOLIO (I) EXPORTS (P) LTD. RS. 5,80,400 RS. 1,00,10,000 SMIFS CAPITAL MARKET LTD. RS. 2,00,00,000 RS. 1 0,66,301 PRUDENTIAL CAPITAL MARKET LTD. (PURCHASE AND SOLD DURING THE YEAR). RS. (20,10,00,000) RS. 1,80,00,000 BENZ FILES EXPORTS (P) LTD. 14,57,250 NO T DECLARED BOSYPINE MAR-PACK (P) LTD. 14,82,375 NOT DECLARED GUJRAT AMBUJA CEMENT LTD. ---- RS. 124 LEASING DIVISION ---- RS. 1,475 TOTAL RS. 4,75,20,025 RS. 3,91,58,650 IT IS CLEAR FROM THIS CHART THAT THE ASSESSEE HAD D IVIDEND INCOME OF RS. 3,91,58,650/-AND IT CLAIMED DEDUCTION U/S 80M BEING A INTER-CORPORATE DIVIDENDS. IT HAS BEEN HELD THAT THE ASSESSEE HAD S UBMITTED INCORRECT INFORMATION BEFORE THE LD. CIT(A) AND ITAT. THE AO RECOMPUTED PROPORTIONATE EXPENSES FOR EARNING INTER-CORPORATE DIVIDEND AS UNDER:- ITA NO. 649/JP/2011 M/S. SHREE CEMENT LTD. VS. ACIT, CIRCLE- 2, AJMER 6 TOTAL INVESTMENT IN OTHER ASSETS AS PER SCHEDULE-6 OF THE AUDIT REPORT RS. 1973.25 LACS TOTAL INTEREST PAID RS. 951.25 LACS, OUT OF WHICH INTEREST PAID FOR OTHER INVESTMENTS RS. 197.43 LACS INVESTMENT IN SHARES WHOSE INCOME WAS CLAIMED TO EXEMPT U/S 80M AS PER SCHEDULE 6 AS CALCULATED IN ABOVE PARAS RS. 475.20 LACS THUS CALCULATION OF PROPORTIONATE INTEREST EXPENSES FOR BORROWED AMOUNT OF RS. 475.20 LACS SHOULD HAVE AS UNDER:- 197.43 X 475.20 = 47.55 LACS 1973,25 THE AO MADE AN ADDITION OF RS. 47.55 LACS ON THE AB OVE FORMULA. 2.4 BEING AGGRIEVED BY THE ORDER OF THE AO, THE ASS ESSEE CARRIED THE MATTER BEFORE THE LD. CIT(A) WHO PARTIALLY ALLOWED THE ASSESSEE'S APPEAL BY OBSERVING AS UNDER:- 4.1 FROM THE PERUSAL OF RECORDS IT IS FOUND THAT HON'BLE ITAT VIDE ITS ORDER DATED 22-09-2006IN ITA NO. 450/ JP/2003 MADE THE FOLLOWING OBSERVATION. WE PRINCIPALLY AGREE WITH THE FINDINGS OF THE LD. CIT(A) THAT IN ABSENCE OF THE DETAILS OF EXPENDITUR E ATTRIBUTABLE TO DIVIDEND, INTEREST THE PROPORTION OF THE MANAGEM ENT, REAL FINANCIAL EXPENSES ATTRIBUTABLE AT PRORATE EXPENSES WAS RIGHTLY WORKED OUT BY THE LD. CIT(A) BUT THE CONTENTION OF THE LD. DR ALSO NEEDS VERIFICATION THAT IF PAYMENT OF INTEREST IS TAKEN FOR ONLY OTHER INVESTMENT AT RS. 197.43 LACS INSTEAD OF WHOLE ITA NO. 649/JP/2011 M/S. SHREE CEMENT LTD. VS. ACIT, CIRCLE- 2, AJMER 7 INTEREST PAYMENT FOR ASSETS AND INVESTMENT AT RS. 7 55.83 LACS WHICH HAS BEEN DIVIDED BY TOTAL ASSETS+ INVESTMENT AT RS. 11075.21 LACS BY THE LD. CIT(A) THEN IF INTEREST PA YMENT IS AGGREGATED ONLY FOR INVESTMENT THEN TOTAL ASSETS AL SO TO BE TAKEN ONLY ON THE TOTAL INVESTMENT I.E. RS. 1767.44 LACS INSTEAD OF THE TOTAL RS. 11075.21 LACS. ACCORDING TO THIS P ROPORTIONATE EXPENSES FOR EARNING INTER-CORPORATE DIVIDEND AS PE R THE LD. DR WOULD BE RS. 22.98 LACS (197.43/ 167.44X205.81 LACS = 22.98 LACS) WHICH REQUIRES TO BE SUSTAINED INSTEAD OF RS. 3.66 LACS ADDED BY THE LD. CIT(A). WE THUS IN THE INTEREST OF JUSTICE REMAND THE MATER TO THE FILE OF THE AO TO VERIFY TH E CORRECTNESS OF THIS ASPECT OF THE CONTENTION OF THE LD. DR FROM THE MATERIAL AVAILABLE ON RECORD AFTER AFFORDING OPPORTUNITY OF BEING HEARD TO THE ASSESSEE ON THE ISSUE.. 4.2 OUT OF TOTAL INVESTMENT AS ON 31-03-1996, INVESTMENT IN MANNA KRISHNA INVESTMENT (P) LTD. WAS NOT MADE DURING THE YEAR, BUT IN EARLIER YEARS. MOREOVER, NO DIVIDENDS WERE RECEIVED FROM BENZ FILE EXPORT (P) LTD. AND BO SYPINE MAR-PACK (P) LTD. DURING THE YEAR. THEREFORE, THE A O IS NOT JUSTIFIED TO INCREASE THE INVESTMENTS WHOSE INCOME WAS CLAIMED AS EXEMPT U/S 80M FROM 205.81 LACS TO 475.20 LACS. HOWEVER, THE VALUE OF TOTAL INVESTMENT AS ON 31-03-1996 AS P ER SCHEDULE VI OF THE AUDITED ACCOUNTS HAS BEEN RIGHTLY TAKEN B Y AO AT RS. 1973.25 LACS. REQUEST OF APPELLANT TO CONSIDER CURR ENT ASSET OF RS. 9307.77 LACS IS NOT ACCEPTABLE. I, THEREFORE, H OLD THAT DISALLOWANCE ON ACCOUNT OF PROPORTIONATE INTEREST EXPENSES SHALL BE RESTRICTED TO RS. 20.59 LACS AS AGAINST RS . 47.55 LACS TAKEN BY AO. THE FIGURE OF RS. 20.59 LACS WORKED OU T AS UNDER:- (197.43X 205.81)/1973.25 = 20.59. 2.5 NOW THE ASSESSEE IS BEFORE US AND HAS CHALLENGE D THE PARTIAL ADDITION ON THE GROUND THAT THE LD. CIT(A) HAS CONFIRMED THE ADDITION IN CONTRAVENTION TO THE DIRECTION GIVEN BY THE ITAT. ITA NO. 649/JP/2011 M/S. SHREE CEMENT LTD. VS. ACIT, CIRCLE- 2, AJMER 8 2.6 THE LD. AR FURTHER ARGUED THAT THE ASSESSEE COM PANY HAS INTEREST FREE FUNDS IN THE FORM OF SHARE CAPITAL OF RS. 29.00 CRO RES AND RESERVE SURPLUS OF RS. 105.84 CRORES WHICH HAVE BEEN UTILIZED IN THE INTER-CORPORATE INVESTMENT OF SHARES AND EARNED DIVIDEND. THE AO HAS NOT RIGH TLY APPLIED SECTION 80M OF THE ACT AND THE DISALLOWANCE MADE IS NOT AS PER LAW. THEREFORE, THE PARTIAL DISALLOWANCE CONFIRMED BY THE LD. CIT(A) HA S NO BASIS WHICH IS LIABLE TO DELETED. 2.7 AT THE OUTSET THE LD. DR VEHEMENTLY SUPPORTED T HE ORDER OF THE LD. CIT(A) WITH REGARD TO DISALLOWANCE ON PROPORTIONATE BASIS. IT IS SUBMITTED THAT THE ASSESSEE HAS NOT DISALLOWED ANY INTEREST E XPENSES ON ACCOUNT OF EXEMPTED INCOME EARNED IN DIVIDEND. HOWEVER, ASSESS EE COMPANY HAS DEBITED WHOLLY THE INTEREST EXPENSES AS BUSINESS E XPENSES. THE ASSESSEE COMPANY HAS DIVERTED THE FUNDS IN INVESTMENT OF SHA RES. THUS THE LD. CIT(A) HAS RIGHTLY CONFIRMED THE ADDITION. 2.8 WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE MATERIALS AVAILABLE ON RECORD. DURING THE COURSE OF HEARING, WE FIND THAT THE LD. AR HAS NOT CONVTROVETED THE FINDINGS GIVEN BY THE LD. CIT(A) WHICH IS BASED ON FACTS AND FIGURES OF THE CASE. THESE FIGURES HAVE B EEN PROVIDED IN THE BALANCE SHEET AND PROFIT AND LOSS ACCOUNT. THUS IN VIEW OF THE ABOVE FACTS ITA NO. 649/JP/2011 M/S. SHREE CEMENT LTD. VS. ACIT, CIRCLE- 2, AJMER 9 AND CIRCUMSTANCES OF THE CASE, WE FIND NO REASON TO INTERFERE IN THE ORDER OF THE LD. CIT(A) WHICH IS CONFIRMED ON THIS ISSUE. 3.1 THE ASSESSEE COMPANY DURING HEARING ALSO PLACED THE ADDITIONAL GROUND VIDE ITS LETTER DATED 24-09-2014 WHICH IS RE PRODUCED AS UNDER:- 1. THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, RECTIFICATION PROCEEDINGS U/S 154 INITIATED B Y AO TO DISALLOW PROPORTIONATE EXPENSES ON NOTIONAL BASIS I N COMPUTING DEDUCTION U/S 80M IS BAD IN LAW SINCE THERE WAS NO MISTAKE APPARENT FROM RECORD WHICH REQUIRES RECTIFICATION A ND HENCE THE SAME NEEDS TO BE SUMMARILY QUASHED. 2. THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF TH E CASE, THE ACTION OF THE AO IN MAKING DISALLOWANCE O F PROPORTIONATE EXPENSES ON NOTIONAL BASIS IN COMPUTI NG DEDUCTION U/S 80IM WHEN NO ACTUAL EXPENDITURE HAS B EEN INCURRED BY THE APPELLANT IN EARNING DIVIDEND INCOM E IS BADE IN LAW AND NOT SUSTAINABLE. 3.2 BOTH THE GROUNDS WERE NOT ADMITTED AS ARGUED BY BOTH THE SIDES. AS SUCH, THERE WAS NO NOTIONAL DISALLOWANCE U/S 80M OF THE ACT. THEREFORE, THE ADDITIONAL GROUNDS RAISED BY THE ASSESSEE ARE NOT A LLOWED AND THE SAME ARE DISMISSED. ITA NO. 649/JP/2011 M/S. SHREE CEMENT LTD. VS. ACIT, CIRCLE- 2, AJMER 10 4.0 IN THE RESULT, THE APPEAL OF THE ASSESSEE IS D ISMISSED. THE ORDER PRONOUNCED IN OPEN COURT ON 17-10-2014 SD/- SD/- (R.P. TOLANI) (T.R. MEENA) JUDICIAL MEMBER ACCOUNTANT MEMBER JAIPUR DATED: 17 TH OCT , 2014 *MISHRA COPY FORWARDED TO:- 1. SHREE CEMENT LTD., BEAWAR 2. THE ACIT, CIRCLE- 2, AJMER 3. THE LD. CIT 4. THE LD. CIT(A), JAIPUR 5..THE LD. DR 6.THE GUARD FILE (IT NO. 649/JP/2011) BY ORDER A.R. , ITAT JAIPUR