M/s. Madhur Cold Storage Ltd, Jalandhar V. The Asstt. Commissioner of Income-tax, Jalandhar

ITA 65/ASR/2013

• Counselvise Citation: 6520914 RSA 2013
• Duration Of Justice: 6 month(s) 28 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 26-08-2013
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: DB
• Next Hearing Date: 21-08-2013
• Assessment Year: 2001-2002
• Appeal Filed On: 29-01-2013
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Opportunity of being heard; Retrospective amendment
• Section: 14A

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL AMRITSAR BENCH; AMRITSAR. BEFORE SH. H.S. SIDHU, JUDICIAL MEMBER AND SH. B.P.JAIN, ACCOUNTANT MEMBER I.T.A. NO.65(ASR)/2013 ASSESSMENT YEAR:2001-02 PAN :AABCM2163L M/S. MADHUR COLD STORAGE LTD. VS. ASSTT. COMMR. OF INCOME TAX, VILL. KHAMBRA, JALANDHAR. CENTRAL CIRCLE-II, JALAN DHAR. (APPELLANT) (RESPONDENT) APPELLANT BY:SH.SURINDER MAHAJAN, CA RESPONDENT BY:SH. MAHAVIR SINGH, DR DATE OF HEARING:21/08/2013 DATE OF PRONOUNCEMENT:26/08/2013 ORDER PER BENCH ; THIS APPEAL OF THE ASSESSEE ARISES FROM THE ORDER OF THE CIT(A), JALANDHAR DATED 06.11.2012 FOR THE ASSESSMENT YEAR 2001-02. THE ASSESSEE HAS RAISED FOLLOWING GROUNDS OF APPEAL: 1. THAT ON THE FACTS & CIRCUMSTANCES OF THE CASE, LD. CIT(A) JALANDHAR HAS GROSSLY ERRED IN LAW IN CONFIRMING ADDITION OF RS.4,63,394/- U/S 14A OF ACT BEING TOTAL EXPENSES CLAIMED UNDER THEHEAD INTEREST BY THE ASSESSEE. ADDITION CONFIRMED IS ILLEGAL & BAD IN LAW. ITA NO.65(ASR)/2013 2 2. THAT ON THE FACTS & CIRCUMSTANCES OF THE CASE, ADDI TION OF RS.4,63,394/- CONFIRMED BY THE LD. CIT(A) IS OPPOSE D TO JUDGMENT OF HONBLE MUMBAI HIGH COURT IN THE CASE O F GODREJ & BOYCE MFG. CO. VS. DCIT 328 ITR 81 WHEREIN HONBL E MUMBAI HIGH COURT HAVE HELD THAT PROVISIONS OF SUBS ECTION 2 OF SECTION 14A OF THE ACT ARE APPLICABLE FROM AY 20 07-08 ONWARDS. 3. THAT ON THE FACTS & CIRCUMSTANCES OF THE CASE, ADDI TION OF RS.4,63,394/- CONFIRMED BY THE LD. CIT(A) JALANDHAR IS OPPOSED TO JUDGMENT OF HONBLE PUNJAB & HARYANA HIG H COURT IN THE CASE OF CIT VS. HERO CYCLES LTD. 323 ITR 518 WHEREIN HONBLE PUNJAB & HARYANA HIGH COURT IN THE CASE OF CIT VS. HERO CYCLES LTD. 323 ITR 518 WHEREIN THE HONBLE PU NJAB & HARYANA HIGH COURT HAVE HELD THAT DISALLOWANCE U/S 14A REQUIRES FINDING OF INCURRING OF EXPENDITURE. 4. THAT ASSESSEE REQUESTS FOR LEAVE TO ADD OR ANNEX AN Y OTHER GROUNDS OF APPEAL BEFORE APPEAL IS HEARD OR DISPOSE D OFF.. 2. THE BRIEF FACTS OF THE CASE ARE THAT THE ASSESSM ENT WAS MADE IN THIS CASE MAKING AN ADDITION OF RS.8,10,000/- WHICH IS T HE SUBJECT MATTER OF THIS APPEAL ON ACCOUNT OF DISALLOWANCE OF INTEREST ON LO ANS TAKEN FOR THE PURPOSE OF INVESTMENT IN SHARE CAPITAL OF CERTAIN PRIVATE L TD. COMPANIES WHEN DIVIDEND WAS EXEMPTED U/S 10(33) OF I.T. ACT AND AS PER SECTION 14A NO DEDUCTION WAS TO BE ALLOWED IN RESPECT OF EXPENSES INCURRED BY THE ASSESSEE IN RELATION TO EXEMPTION INCOME. THE MATTER WAS CA RRIED BY ASSESSEE TO THE LD. CIT(A) WHO DELETED THE DISALLOWANCE BY OBSERVIN G AS UNDER: ITA NO.65(ASR)/2013 3 I HAVE HEARD BOTH THE SIDES AND HAVE ALSO GONE TH ROUGH THE INFORMATION LYING ON THE CASE RECORDS. THE CASE OF THE AO IS THAT THE INTEREST BEARING FUNDS WERE DIVERTED FOR T HE PURPOSE OF EFFECTING INVESTMENT IN THE EQUITY SHARES AND INTE REST BEING CHARGED TO THE PROFITS, INTEREST @ 18% ON INVESTMEN T OF RS. 45 LACS WAS DISALLOWED BY THE AO. BUT IT IS TO BE SEEN WHETHER THE INVESTMENT IN THE EQUITY SHARES WAS EFFECTED BY THE APPELLANT DURING THE RELEVANT YEAR WHEN THE BALANCE SHEET CLE ARLY REVEALS THAT IN THE FOUR COMPANIES I.E. ASHA BUILDERS (P) L TD; ASHA SHOPPERS (P) LTD; M/S. ASHA CANDEL INDS. (P) LTD AN D M/S. J & K WAXOFIELD (P) LTD; THE INVESTMENT OF RS. 45 LACS WAS EFFECTED IN THE EARLIER YEARS AND IT WAS GATHERED THAT THE S AME WAS MADE IN THE PERIOD RELEVANT TO ASSESSMENT YEAR 1999-2000 . THE INVESTMENT HAVING BEEN EFFECTED IN THE PREVIOUS YE ARS AND NO ADDITION MADE IN THE PAST, I AGREE WITH THE APPELLA NT TAT IN VIEW OF THE DECISION OF HONBLE ITAT, CHANDIGARH BENCH I N THE CASE REPORTED AT (2004) 83 TTJ CHD. (TM) 72 (SUPRA), IF NO DISALLOWANCE WAS MADE IN THE EARLIER YEAR THE ADDIT ION COULD NOT BE MADE IN THE SUBSEQUENT YEAR. IT WAS CASE OF THE AO THAT THE SCRUTINY TOOK PLACE ONLY IN THE YEAR UNDER CON SIDERATION AND THE EARLIER RETURNS WERE ACCEPTED AS SUCH. BUT NOT WITHSTANDING THE SAID CONTENTION THERE BEING ALSO N O NEXUS BETWEEN BORROWED FUNDS AND THE INVESTMENT IN THE RE LEVANT YEAR THE ADDITION WAS NOT WARRANTED. MOREOVER, THE INVES TMENT EFFECTED BY THE APPELLANT WAS NOT IN EXCESS OF THE INTEREST FREE FUNDS AVAILABLE WITH THE APPELLANT. FURTHER, THE IN VESTMENT WAS IN SHARES AND INTEREST ON BORROWINGS INVESTED IN SH ARE IS DEDUCTIBLE U/S 57(III) OF I.T.ACT EVEN THOUGH NO IN COME WAS RECEIVED ON THESE SHARES. IN THIS REGARD, I FIND TH AT THE CLAIM OF THE APPELLANT ON THIS ISSUE GETS COVERED BY VARIOU S CASE LAWS RELIED IN SUPPORT. IN VIEW OF THESE FACTS, THE DECI SION IN THE CASE OF MCDOWELL & CO. (SUPRA) RELIED UPON BY THE AO DOE S NOT HELP THE CASE OF THE AO. ACCORDINGLY, ADDITION OF R S. 8,10,000/- MADE BY THE AO IS DELETED. ITA NO.65(ASR)/2013 4 2.1 THE MATTER WENT TO ITAT, AMRITSAR WHO VIDE THEI R ORDER IN ITA NO.501(ASR)/2005 DATED 11.05.2007 SET ASIDE THE ISS UE TO THE FILE OF CIT(A) WITH FOLLOWING OBSERVATIONS: 6. WE HAVE HEARD BOTH THE PARTIES AND CAREFULLY CONSIDERED THE RIVAL SUBMISSIONS, EXAMINED THE FACTS, EVIDENCE AN D MATERIAL PLACED ON RECORD. FROM THE FACTS DISCUSSED ABOVE, IT IS C LEAR THAT THE LD. CIT(A) HAS NOT ALLOWED THE APPEAL ON THE GROUND TH AT INVESTMENT IN SHARES WERE MADE OUT OF INTEREST FREE FUNDS. THE M AIN REASON GIVEN BY THE CIT(A) IS THAT SINCE INVESTMENT IN SHARES WAS MADE IN THE YEAR 1999 AND NO DISALLOWANCE OF INTEREST WAS MADE IN T HE ASSTT. YEAR UNDER CONSIDERATION. HOWEVER, WHILE DECIDING THE A PPEAL, THE LD. CIT(A) OVER-LOOKED THE PROVISIONS OF SECTION 14A I NSERTED IN THE ACT BY THE FINANCE ACT, 2001 WITH RETROSPECTIVE EFFECT FROM 1.4.1962 WHERE NO DEDUCTION FOR EXPENSES INCURRED IN RELATI ON TO INCOME WHICH DOES NOT FORM PART OF THE TOTAL INCOME COULD BE AL LOWED. ADMITTEDLY, IN THIS CASE, THE DIVIDEND INCOME ON INVESTMENT MA DE IN SHARES WAS EXEMPT U/S 10(33) OF THE ACT AND THE SAME DID NOT FORM PART OF THE TOTAL INCOME UNDER THIS ACT. THEREFORE, THE ASSES SEE WAS NOT ENTITLED TO DEDUCTION OF INTEREST ON THE INVESTMENT MADE IN SHARES EVEN THOUGH IN THE PAST, THE ASSESSEE WAS ENTITLED TO DEDUCTIO N U/S 57(III) OF THE ACT. THE DECISION OF ITAT, DELHI BENCH IN THE CASE OF EVERPLUS SECURITIES & FINANCE LTD; VS. DY.CIT, CIR. II(1) (2006)101 ITD 151 SUPPORTS THIS VIEW. NONE OF THE DECISIONS RELIED UPON BY THE CIT(A) CONSIDERED THE PROVISIONS OF SECTION 14A VIS--VIS INCOME EXEMPT UNDER THE ACT AND WHICH DID NOT FORM PART OF THE T OTAL INCOME UNDER THE ACT. ALTHOUGH THE AO HAD CLEARLY GIVEN THIS AS REASON WHILE MAKING THE DISALLOWANCE OF INTEREST YET THE LD. C IT(A) TOTALLY IGNORED THIS ASPECT. THEREFORE, THE DECISION OF THE CIT(A) IS NOT IN ACCORDANCE WITH THE PROVISIONS OF THE ACT. IN THIS VIEW OF TH E MATTER, WE CONSIDER IT FAIR AND APPROPRIATE TO SET ASIDE THE ORDER OF TH E CIT(A) AND RESTORED THIS ISSUE TO HIS FILE WITH A VIEW DIRECTION TO RE DECIDE THE SAME AFRESH AS PER LAW AFTER TAKING INTO ACCOUNT THE PROVISION S OF SECTION 14A. WHILE DOING SO, THE CIT(A) SHALL ALLOW REASONABLE OPPORTUNITY OF BEING HEARD TO BOTH THE PARTIES. WE ORDER ACCORDIN GLY. THE GROUND OF APPEAL OF THE REVENUE IS ALLOWED FOR STATISTICAL P URPOSES. ITA NO.65(ASR)/2013 5 3. THE LD. CIT(A) VIDE HIS ORDER DATED 06/11/2012 H AS CONFIRMED THE ADDITION OF RS.4,63,394/- BEING INTEREST PAID BY TH E ASSESSEE I.E. TOTAL INTEREST PAID RS.10,58,498/- LESS INTEREST RECEIVED RS.5,88 ,104/- VIDE HIS OBSERVATIONS IN PARAS 13 TO 15 OF HIS ORDER. 4. THE LD. COUNSEL FOR THE ASSESSEE, MR. SURINDER M AHAJAN,CA SUBMITTED THAT THE ASSESSEE HAS MADE INVESTMENT IN SHARES AMO UNTING TO RS.45,00,000/- OUT OF THE FIXED DEPOSITS ENCASHED. SUCH FIXED DEPO SITS WERE MADE MUCH EARLIER WHICH WERE ENCASHED ONLY TO MAKE INVESTMEN T. THEREFORE, THE ASSESSEE WAS HAVING INTEREST FREE LOANS AND NO MONE Y WHICH HAS BEEN TAKEN AS LOAN HAS BEEN UTILIZED TO PURCHASE SHARES. MORE OVER, THE ASSESSEE WAS HAVING SHARE CAPITAL, RESERVES AND SURPLUS AND INTE REST FREE LOANS OF RS.1,85,78,500/-, RS.7,36,826/- AND RS.10,50,000/- RESPECTIVELY AND INTEREST FREE FUNDS AVAILABLE WITH THE ASSESSEE AS ON 31.03 .1999 AMOUNTED TO RS.80,13,978/- AS AGAINST INVESTMENT MADE IN SHARES AT RS.53,70,000/-. THE INTEREST FREE FUNDS AVAILABLE WITH THE COMPANY FOR THE YEARS ENDING 31.03.1998, 31.03.1999, 31.03.2000 AND 31.03.2011 W ERE RS.1,25,73,205/-, RS.80,13,978/-, RS.1,03,63,769/- & RS.1,17,63,671/- RESPECTIVELY. THEREFORE, WHEN THE INVESTMENT IN SHARES HAVE BEEN MADE IN THE SISTER CONCERN OUT OF THE INTEREST FREE FUNDS, WHICH FACT IS AVAILABLE ON RECORD WHERE THE ITA NO.65(ASR)/2013 6 ENCASHMENT OF FIXED DEPOSITS MADE ON 18.12.1998 AN D INVESTMENT IN SHARES IN VARIOUS CONCERNS IN FEBRUARY, 1999 AND MARCH, 1 999 IS MATTER OF RECORD AND WAS AVAILABLE WITH BOTH THE AUTHORITIES BELOW. THEREFORE, NO EXPENSES HAVE BEEN INCURRED OUT OF INTEREST BEARING FUNDS A ND THEREFORE, IN THE FACTS AND CIRCUMSTANCES OF THE CASE, NO DISALLOWANCE OF I NTEREST WHICH HAS BEEN PAID AND INCURRED FOR ACQUIRING FIXED ASSETS OR FOR ANY OTHER PURPOSE OF THE COMPANY CANNOT BE DISALLOWED. HE RELIED UPON THE DE CISIONS OF VARIOUS COURTS OF LAW AS UNDER: I) CIT VS. WINSOME TEXTILE INDUSTRIES LTD. (2009) 319 ITR 204 (P&H). II) CIT VS. HERO CYCLES LTD. (2010) 323 ITR 518 (P &H) III) ACIT VS. EICHER LTD. (2006) 101 TTJ (ITAT DEL) 369 IV) CIT VS. WALFORT SHARE & STOCK BROKERS (P) LTD. (200 9) 310 ITR 421 (BOM.) V) ACIT VS. SIL INVESTMENT LTD. 73 DTR (DEL)(TRIB) 23 3 VI) WIMCO SEEDLINGS LTD. VS. DCIT (2007) 107 ITD 267 (DEL)(TM). VII) MARUTI UDHYOG LTD. VS. DCIT, ITAT, DELHI (2005) 92 ITD 119 (DEL) VIII) ESCORTS LTD. VS. ACIT, ITAT DELHI (2007) 104 ITD 42 7 4.1. FINALLY, THE LD. COUNSEL FOR THE ASSESSEE, INV ITED OUR ATTENTION TO PAGE 3 OF THE REMAND REPORT WHICH IS REPRODUCED AS UNDER : IN PARA 3(B), THE ASSESSEE HAS REITERATED HIS STAN D THAT INVESTMENT IN SHARES IS OUT OF INTEREST FREE FUNDS. THIS FACT IS NOT DENIED, BUT THIS IS NOT THE ISSUE WHICH IS BEING DEALT WITH, ISSUE BEI NG DEALT WITH IS ALLOWANCE OR OTHERWISE OF THE EXPENSES INCURRED A GAINST THE EXEMPT DIVIDEND INCOME. THE ASSESSEE IS THEREFORE, PUTTIN G FORTH FACTS WHICH ITA NO.65(ASR)/2013 7 ARE NOT RELEVANT AND OBVIOUSLY OUT OF CONTEXT OF T HE ISSUE BE DECIDED BY THE LD. CIT(A). 5. THE LD. DR, ON THE OTHER HAND, RELIED UPON THE O RDERS OF BOTH THE AUTHORITIES BELOW. 6. WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE FACTS OF THE CASE. THERE IS NO DISPUTE TO THE FACT THAT THE ASSESSEE H AS ENCASHED FIXED DEPOSITS MADE EARLIER ON 18.12.1998 OUT OF WHICH SAID SHARES HAVE BEEN INVESTED IN THE SISTER CONCERN IN FEBRUARY AND MARCH, 1999. NOT HING HAS BEEN BROUGHT ON RECORD BY THE LD. CIT(A) THAT INTEREST BEARING F UNDS HAVE BEEN UTILIZED BY THE ASSESSEE FOR PURCHASING SHARES IN THE SISTER CO NCERN. MOREOVER, THE ASSESSEE IS HAVING SURPLUS FUNDS WHICH ARE HAVING I NTEREST BEARING ON WHICH DEFECT HAS BEEN POINTED OUT BY THE LD. CIT(A). THER EFORE, NO ESTIMATION CAN BE MADE IN THE FACTS AND CIRCUMSTANCES OF THE CASE FOR THE EXPENSES WHICH HAS ACTUALLY NOT BEEN INCURRED BY THE ASSESSEE. THE INTEREST EXPENDITURE INCURRED IS ON THE LOANS RAISED WHICH HAVE BEEN USE D EITHER FOR ACQUIRING FIXED ASSETS OR FOR ANY OTHER PURPOSE OF THE COMPAN Y. NOTHING HAS BEEN BROUGHT ON RECORD THAT SUCH LOANS WHICH ARE INTERES T BEARING HAVE BEEN USED TO PURCHASE THESE SHARES. AS AFORESAID ON THE BASIS OF MATERIAL AVAILABLE ON RECORD AND EXPLANATION SUBMITTED, THE ASSESSEE HAVI NG PURCHASED SHARES OUT OF FIXED DEPOSITS PURCHASED EARLIER AND HAS NOT USE D THE INTEREST BEARING FUNDS AND THEREFORE, WITHOUT INCURRING ANY EXPENDIT URE, NO DISALLOWANCE CAN ITA NO.65(ASR)/2013 8 BE MADE. THEREFORE, THE LD. CIT(A) IS NOT JUSTIFIED IN SUSTAINING THE ADDITION AND THE SAME IS DIRECTED TO BE DELETED. THUS, ALL T HE GROUNDS OF THE ASSESSEE ARE ALLOWED. 7. IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE IN ITA NO.65(ASR)/2013 IS ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 26TH A UGUST, 2013. SD/- SD/- (H.S. SIDHU) (B.P. JAIN) JUDICIAL MEMBER ACCOUNTANT MEMBER DATED: 26 TH AUGUST, 2013 /SKR/ COPY OF THE ORDER FORWARDED TO: 1. THE ASSESSEE:M/S. MADHUR COLD STORAGE, JALANDHAR 2. THE ACIT, CIR.II, JALANDHAR. 3. THE CIT(A), JALANDHAR 4. THE CIT, JALANDHAR. 5. THE SR DR, ITAT, AMRITSAR. TRUE COPY BY ORDER (ASSISTANT REGISTRAR) INCOME TAX APPELLATE TRIBUNAL, AMRITSAR BENCH: AMRITSAR.