GITANJALI CHEMICALS P. LTD, MUMBAI V. DCIT 7(1)(1), MUMBAI

ITA 6866/MUM/2016

• Counselvise Citation: [2018] 121 COUNSELVISE.COM (IT) 7382 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 5 month(s) 25 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 18-05-2018
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: Not Allotted
• Assessment Year: 2012-2013
• Appeal Filed On: 23-11-2016
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: V VIDHYADHAR
• Keywords: Opportunity of being heard; Principle of natural justice; Earning of tax free income; Initiation of penalty proceedings
• Section: 143(3); 142(1); 14A

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCHES G, MUMBAI BEFORE SHRI MAHAVIR SINGH, JUDICIAL MEMBER & SHRI G MANJUNATHA, ACCOUNTANT MEMBER ITA NO.6866/MUM/2016 ASSESSMENT YEAR : 2012-2013 GITANJALI CHEMICALS P LTD., 26/28 CAWASJI PATEL STREET, OPP YAZDANI BAKERY, FORT, MUMBAI 400 001 PAN AAACG1427G VS. DCIT 7(1)(1) MUMBAI (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI MAHESH SABOO RESPONDENT BY : SHRI V VIDHYADHAR DATE OF HEARING :14.05.2018 DATE OF PRONOUNCEMENT : 18.05.2018 O R D E R PER G MANJUNATHA, ACCOUNTANT MEMBER THIS APPEAL FILED BY THE ASSESSEE IS DIRECTED AGAI NST ORDER OF THE CIT(A)-13, MUMBAI, DATED 27.10.2016, AND IT PERTAINS TO ASSESS MENT YEAR 2012-13. THE ASSESSEE HAS RAISED FOLLOWING GROUNDS OF APPEAL:- 1) ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE AUTHORITIES BELOW HAVE ERRED IN PASSING AN EX-PARTE ORDER WITHOUT AFFORDING OPPORTUNITY OF BEING HEARD IN THE MATTER AND THUS DENYING THE NATURAL JUSTICE IN THE MATTER. 2) ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE AUTHORITIES BELOW HAVE ERRED IN CONFIRMING THE ADDI TION OF A SUM OF RS 2,63,283/- BEING THE INTEREST GRANTED TO THE APPELL ANT ON REFUND FOR A.Y. 2010-2011 BUT ADJUSTED AGAINST THE OTHER DEMANDS OU TSTANDING AT THE RELEVANT TIME. THE APPELLANT HAS HOWEVER OFFERED TH E SAID AMOUNT OF INTEREST ALONG WITH OTHER INTERESTS AND REFUNDS FOR VARIOUS ASSESSMENT YEARS GRANTED TOGETHER TO THE APPELLANT IN A.Y. 201 4-2015. THUS THIS ADDITION OF INTEREST IS SAID TO BE DOUBLY TAXED WHI CH IS NOT IN ACCORDANCE WITH THE PROVISIONS OF INCOME TAX ACT 1961 AND RULE S MADE THERE UNDER. ITA NO.6866/MUM/2016 GITANJALI CHEMCIALS PVT LTD. 2 3) ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND I N LAW, THE AUTHORITIES BELOW HAS ERRED IN SUSTAINING/DISALLOWING A SUM OF RS. 64,6977- U/S 14A R.W.R 8D OF THE I T ACT WHEN THE APPELLANT HAD INVESTED IN S HARES AND SECURITIES FROM OUT OF OWN FUNDS. THUS SUCH ADDITIO N IS NOT IN ACCORDANCE WITH THE PROVISIONS OF INCOME TAX ACT 1961 AND RULE S MADE THERE UNDER. 4) ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND I N LAW, THE AUTHORITIES BELOW HAS ERRED IN INITIATING THE PENALTY PROCEEDIN GS U/S 271(L)(C) OF THE INCOME TAX ACT, WHEN THE APPELLANT HAS NOT FURNISHE D ANY INACCURATE PARTICULARS OF ITS INCOME NOR CONCEALED ANY INCOME. THUS SUCH INITIATION OF PENALTY PROCEEDINGS ARE NO IN ACCORDANCE WITH TH E PROVISIONS OF INCOME TAX ACT 1961 AND RULES MADE THERE UNDER. 5) THE APPELLANT CRAVES LEAVE TO ADD, ALTER, MODIFY AND DELETE ALL OR ANY OF THE AFORESAID GROUNDS OF APPEALS ON OR BEFORE TH E DATE OF HEARING. 2. THE FACTS OF THE CASE ARE THAT THE ASSESSEE COMP ANY FILED ITS RETURN OF INCOME FOR A.Y. 2012-13 ON 20.09.2012, DECLARING TO TAL INCOME OF ` 1,61,07,876/-. THE CASE WAS SELECTED FOR SCRUTINY AND NOTICES 143( 2) AND 142(1) WERE ISSUED. IN RESPONSE TO SAID NOTICES, THE AUTHORIZED REPRESENTA TIVE (AR) OF THE ASSESSEE APPEARED FROM TIME TO TIME AND FILED THE DETAILS AS CALLED FOR. THE ASSESSMENT WAS COMPLETED U/S. 143(3) ON 28.01.2015, DETERMINING TH E INCOME AT ` 1,64,37,700/- BY MAKING THE ADDITIONS TOWARDS INTEREST RECEIVED ON I NCOME TAX REFUNDS ` 2,63,283/-, WHICH WAS NOT CONSIDERED BY THE ASSESSEE IN ITS BOO KS OF ACCOUNT AND ` 64,697/- WAS DISALLOWED U/S. 14A READ WITH RULE 8D(2)(III) O F INCOME TAX RULES, 1962. 3. AGGRIEVED BY THE ASSESSMENT ORDER, THE ASSESSEE PREFERRED APPEAL BEFORE THE CIT(A). BEFORE THE CIT(A) THE ASSESSEE NEITHER APP EARED NOR FILED ANY DETAILS TO JUSTIFY ITS CASE. THE CIT(A) FOR THE DETAILED REAS ONS RECORDED IN HIS ORDER DATED 27.10.2016 CONFIRMED THE ADDITIONS MADE BY THE ASSE SSING OFFICER TOWARDS INTEREST RECEIVED ON INCOME TAX REFUNDS AND DISALLOWANCE OF EXPENSES INCURRED IN RELATION TO EXEMPT INCOME. AGGRIEVED BY THE ORDER OF THE CIT(A ), THE ASSESSEE IS IN APPEAL BEFORE US. 4. THE FIRST ISSUE THAT CAME UP FOR CONSIDERATION I S ADDITION TOWARDS INTEREST RECEIVED ON INCOME TAX REFUND OF ` 2,63,283/-. THE ASSESSING OFFICER MADE THE ADDITION OF ` 2,63,283/- ON THE GROUND THAT THOUGH INTEREST ON I NCOME TAX REFUND HAS ACCRUED DURING A.Y. 2012-13, THE ASSESSEE HAS F AILED TO ADMIT SUCH INTEREST IN ITA NO.6866/MUM/2016 GITANJALI CHEMCIALS PVT LTD. 3 ITS BOOKS OF ACCOUNT FOR THE RELEVANT ASSESSMENT YE AR. IT IS THE CONTENTION OF THE ASSESSEE THAT INTEREST ON INCOME TAX REFUND IS ACCR UED FOR A.Y. 2014-15, WHICH IS EVIDENT FROM THE FACT THAT THE REFUND DUE FOR EARLI ER YEARS HAS BEEN PROCESSED VIDE INCOME TAX REFUND ORDER DATED 28.10.2016, WHICH FAL LS WITHIN THE FINANCIAL YEAR RELEVANT TO A.Y. 2014-15 AND HENCE IT HAS RIGHTLY A CCOUNTED INTEREST RECEIVED ON INCOME TAX REFUND FOR A.Y. 2014 -15. THEREFORE, TH E ASSESSING OFFICER WAS INCORRECT IN MAKING THE ADDITIONS. 5. HAVING HEARD BOTH THE SIDES AND CONSIDERED THE M ATERIAL ON RECORD, WE FIND MERIT IN THE ARGUMENTS OF THE ASSESSEE FOR THE REAS ON THAT ON PERUSAL OF DETAILS FILED BY THE ASSESSEE IN THE FORM OF INCOME TAX REFUND OR DERS, IT IS VERY CLEAR THAT THE DEPARTMENT HAS PROCESSED REFUND DUE TO THE ASSESSEE FOR A.Y. 2005-06, 2007-08, 2008-09 AND 2010-11 ON 28.10.2013 AND 16.11.2013. CONSEQUENTLY, THE ASSESSEE HAS CREDITED INTEREST RECEIVED ON INCOME TAX REFUND IN ITS BOOKS OF ACCOUNT FOR A.Y. 2014-15 AND OFFERED TO TAX. THE ASSESSING OFFICER WITHOUT APPRECIATING THE FACTS THAT SUCH REFUNDS HAVE BEEN PROCESSED ONLY IN A.Y. 2014-15 MADE ADDITION OF ` 2,63,283/-. THEREFORE, WE ARE OF THE CONSIDERED VI EW THAT THE ASSESSING OFFICER HAS ERRED IN MAKING THE ADDITION OF ` 2,63,283/- IN A.Y. 2012-13. HOWEVER, THE FACTS ARE NOT CLEAR WHETHER THE ASSESSEE HAS OFFERED SUCH INTEREST RECEIVED ON INCOME TAX REFUND TO TAX IN THE FINANCIAL YEAR RELEVANT TO A.Y . 2014-15. THEREFORE, WE SET ASIDE THE ISSUE TO THE FILE OF THE ASSESSING OFFICER FOR THE LIMITED PURPOSE OF VERIFICATION WHETHER THE ASSESSEE HAS OFFERED SUCH INTEREST IN T HE FINANCIAL YEAR RELEVANT TO A.Y. 2014-15. IF THE ASSESSING OFFICER FINDS THAT THE A SSESSEE HAS OFFERED THE INTEREST INCOME IN THE FINANCIAL YEAR RELEVANT TO A.Y. 2014- 15, THEN THE ASSESSING OFFICER IS DIRECTED TO DELETE THE ADDITION MADE TOWARDS INTERE ST ON INCOME TAX REFUND IN THE IMPUGNED ASSESSMENT YEAR. 6. THE NEXT ISSUE THAT CAME UP FOR CONSIDERATION IS DISALLOWANCE OF EXPENDITURE IN RELATION TO EXEMPT INCOME. THE ASSESSING OFFICE R DISALLOWED 0.5% OF AVERAGE VALUE OF INVESTMENTS IN RESPECT OF EXPENSES INCURRE D IN RELATION TO EXEMPT INCOME UNDER SECTION 14A READ WITH RULE 8D(2)(III) OF THE I.T.RULES 1962. IT IS THE CONTENTION OF THE ASSESSEE THAT ITS INVESTMENTS ARE COVERED BY ITS OWN INTEREST FREE FUNDS THEREFORE, THERE IS NO REASON FOR THE ASSESSI NG OFFICER TO DISALLOW INTEREST ITA NO.6866/MUM/2016 GITANJALI CHEMCIALS PVT LTD. 4 EXPENDITURE AND OTHER EXPENDITURE BY INVOKING THE P ROVISIONS OF SECTION 14A READ WITH RULE 8D(2)(III) OF THE I.T.RULES 1962. THE AS SESSEE FURTHER CONTENDED THAT IT HAS NOT INCURRED ANY EXPENDITURE WHICH IS DIRECTLY ATTRIBUTABLE TO EARNING OF EXEMPT INCOME. 7. HAVING HEARD BOTH THE SIDES AND CONSIDERED THE M ATERIAL ON RECORD, WE DO NOT FIND ANY MERITS IN THE ARGUMENTS OF THE ASSESSE E FOR THE REASON THAT DISALLOWANCE CONTEMPLATED U/S. 14A SHALL BE WORKED OUT UNDER THE PRESCRIBED RULES AS PER WHICH THE ASSESSING OFFICER NEEDS TO WORK OU T DISALLOWANCE OF EXPENDITURE IN RELATION TO EXEMPT INCOME @ 0.5% OF AVERAGE VALUE O F INVESTMENTS. IN THIS CASE, THE ASSESSING OFFICER HAS DISALLOWED OTHER EXPENSES UNDER RULE 8D(2)(III). THE ASSESSEE HAS FAILED TO PRODUCE ANY EVIDENCE TO JUST IFY THAT IT DOES NOT INCUR ANY EXPENSES IN RELATION TO EXEMPT INCOME. THEREFORE, WE ARE OF THE CONSIDERED VIEW THAT THE ASSESSING OFFICER WAS RIGHT IN DISALLOWING EXPENDITURE BY INVOKING THE PROVISIONS OF SECTION 14A READ WITH RULE 8D(2)(III) . THE CIT(A) AFTER CONSIDERING THE RELEVANT FACTS HAS RIGHTLY UPHELD THE ADDITIONS MAD E BY THE ASSESSING OFFICER. WE DO NOT FIND ANY ERROR OR INFIRMITY IN THE ORDER OF THE CIT(A). WE, THEREFORE, ARE INCLINED TO CONFIRM THE ORDER OF THE CIT(A) ON THE ISSUE. 8. IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE IS PARTLY ALLOWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED IN THE OPEN COURT ON THIS DAY OF 18 TH MAY 2018. SD/- SD/- (MAHAVIR SINGH) (G MANJUNATHA) JUDICIAL MEMBER ACCOUNTANT MEMBER MUMBAI, DATED :18 TH MAY, 2018. SA ITA NO.6866/MUM/2016 GITANJALI CHEMCIALS PVT LTD. 5 COPY OF THE ORDER FORWARDED TO : 1. THE APPELLANT. 2. THE RESPONDENT. 3. THE C I T(A), MUMBAI. 4. THE C I T 5. THE DR, G BENCH, ITAT, MUMBAI BY ORDER //TRUE COPY// (ASSISTANT REGISTRAR) INCOME TAX APPELLATE TRIBUNAL, MUMBAI