M/s Cottage Industries Exposition Limited, Jammu & Kashmir V. Assistant commissioner of Income Tax, Srinagar

ITA 7/ASR/2017

• Counselvise Citation: [2019] 117 COUNSELVISE.COM (IT) 3294 (ITAT-AMRITSAR)
• Duration Of Justice: 2 year(s) 3 month(s) 16 day(s)
• Appeal Type: Income Tax (International Taxation) Appeal
• Pronouncement Date: 20-04-2019
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: DB
• Next Hearing Date: 07-02-2019
• Assessment Year: 2011-2012
• Appeal Filed On: 03-01-2017
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: K K MEHRA
• Keywords: Earning of tax free income; Rule 8D
• Section: 14A

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL AMRITSAR BENCH, AMRITSAR BEFORE SH. SANJAY ARORA, ACCOUNTANT MEMBER AND SH. N. K. CHOUDHRY, JUDICIAL MEMBER I.T.A. NOS. 05 & 07/ASR/2017 ASSESSMENT YEARS: 2009-10 & 2011-12 COTTAGE INDUSTRIES EXPOSITION LIMITED, SHALIMAR, SRINAGAR [PAN: AAACC 6815A] VS. ASST.C.I.T., RANGE 3, SRINAGAR (APPELLANT) (RESPONDENT) I.T.A. NO.06/ASR/2017 ASSESSMENT YEAR: 2010-11 COTTAGE INDUSTRIES EXPOSITION LIMITED, SHALIMAR, SRINAGAR [PAN: AAACC 6815A] VS. JT.CIT, RANGE 3, SRINAGAR (APPELLANT) (RESPONDENT) APPELLANT BY : SH. K. K. MEHRA (C.A.) RESPONDENT BY: SH. CHARAN DASS (D.R.) DATE OF HEARING: 07.02.2019 DATE OF PRONOUNCEMENT: 28.02.201 9 ORDER PER SANJAY ARORA, AM: THIS IS THE SET OF THREE APPEALS BY THE ASSESSEE, I .E., FOR THREE CONSECUTIVE YEARS, BEING ASSESSMENT YEARS (AYS.) 2009-10 TO 201 1-12. THE SAME RAISING COMMON ISSUE/S, WERE FIXED FOR HEARING, AND ACCORDI NGLY HEARD, TOGETHER, AND ARE ALSO BEING FOR THE SAKE OF CONVENIENCE DISPOSED OF PER A COMMON ORDER. THE ITA NO. 05 TO 07/ASR/2017 (AYS: 2009-10 TO 2011-12 ) COTTAGE INDUSTRIES EXPOSITION LTD. V. ASST.CIT/JT. CIT 2 FIGURES MENTIONED, WHICH ARE FOR THE SAKE OF REFERE NCE, HOWEVER, ARE FOR A.Y.2009- 10, I.E., TO WHICH REFERENCE MADE DURING HEARING. 2. AT THE OUTSET, IT WAS OBSERVED BY THE BENCH THAT THE APPEALS, PRESENTED ON 03/11/2017, ARE DELAYED BY 86 DAYS. THE SAME STANDS EXPLAINED BY THE LD. COUNSEL FOR THE ASSESSEE-APPELLANT, SH. MEHRA, WITH REFEREN CE TO THE POSTAL RECORD, TO BE IN FACT AT ONE DAY ONLY; THE IMPUGNED ORDER HAVING BEE N IN FACT RECEIVED ONLY ON 03.11.2016. THE DELAY IN ITS RECEIPT BY THE ASSESS EE WAS ON ACCOUNT OF A SHUT- DOWN IN THE VALLEY, BEGINNING JULY, 8, 2016, FOR FO UR MONTHS. THE DELAY STANDS SATISFACTORILY EXPLAINED AND, ACCORDINGLY, CONDONED , AND THE HEARING IN THE MATTER WAS ACCORDINGLY PROCEEDED WITH. 3. THE ONLY ISSUE IN THE INSTANT APPEALS IS THE DIS ALLOWANCE U/S. 14A, MADE IN THE SUM OF RS.9,75,160/- COMPRISING INTEREST EXPEND ITURE IN THE MAIN, REJECTING THE ASSESSEES EXPLANATION THAT NO INTEREST BEARING FUN DS HAVE BEEN USED FOR ACQUIRING THE SHARES IN INDIAN COMPANIES (AT RS.342.95 LACS), I.E., INVESTMENT IN WHICH ATTRACTED SECTION 14A AS INCOME DERIVED THEREFROM, WHERE SO, WAS EXEMPT FROM TAX. THE REJECTION, HOWEVER, SH. MEHRA WOULD ARGUE, IS NOT BASED ON FACTS, BUT ONLY ON THE BASIS OF A SURMISE THAT AS THE ASSESSEE HAD BORROWED FUNDS WHICH ARE IN FACT FOR BUSINESS PURPOSES, PAYING INTEREST THEREON , DISALLOWANCE U/S. 14A WOULD FOLLOW. THE ASSESSEE, IN RESPECT OF ITS CLAIM, HAD ENCLOSED BALANCE-SHEETS FOR THE RELEVANT YEARS, BEING YEAR/S-ENDING 31/3/91, 31/3/9 9, 31/3/2002 TO 31/3/2006, I.E., THE YEARS DURING WHICH THE SAID INVESTMENT WAS MADE , CUMULATING TO RS.343.45 LACS AS ON 31/3/2006, AND WHICH QUANTUM OBTAINS TO UP TO THE RELEVANT YEAR/S. THE FUND POSITION, SHOWING SUFFICIENCY OWN/INTEREST-FRE E FUNDS I.E., WITH REFERENCE TO THE SAID INVESTMENT, STANDS TABULATED (PB PAGE 28) FOR EACH YEAR. IT WAS STATED THAT THE PROFIT ITSELF EXCEEDED THE INVESTMENT MADE FOR THE SAID YEARS. THE BORROWED ITA NO. 05 TO 07/ASR/2017 (AYS: 2009-10 TO 2011-12 ) COTTAGE INDUSTRIES EXPOSITION LTD. V. ASST.CIT/JT. CIT 3 FUNDS, WHICH ARE FROM BANK, ARE FOR FINANCING WORKI NG CAPITAL. FOR EACH YEAR, HE WOULD SUBMIT, THE CURRENT ASSETS (AT NET OF CURRENT LIABILITIES) EXCEED THE BORROWED FUNDS BY FAR. THE TERM LOANS, ON THE OTHER HAND, AR E FOR FINANCING FIXED ASSETS AND, ACCORDINGLY, APPLIED THUS IN THE TERMS OF THE RELEV ANT CONTRACT/S. HOW COULD, UNDER THE CIRCUMSTANCES, THE SAME BE INFERRED FOR BEING A PPLIED FOR INVESTMENT IN SHARES, EVEN ON A PRO-RATA BASIS, AS RULE 8D PRESUMES, WHIC H WOULD HOLD ONLY IN THE ABSENCE OF THE RELEVANT FUND POSITION BEING SHOWN B Y THE ASSESEE. THE ASSESSING OFFICER (AO) AS WELL AS THE LD. CIT(A) HAVE NOT MET THE ASSESEES CASE IN ANY MANNER. THE LD. DEPARTMENTAL REPRESENTATIVE (DR), SH. CHARAN DASS, COULD NOT REBUT ANY OF THE SUBMISSIONS BY SH. MEHRA. 4. WE HAVE HEARD THE PARTIES AND PERUSED THE MATERI AL ON RECORD. TRUE, THE ONUS QUA A DISALLOWANCE U/S. 14A, IT IS WELL-SETTLED, IS ON THE ASSESSEE. HOWEVER, WHEN THE ASSESSEE MAKES A CLAIM, BASED ON FACTS AND FIGURES, EVEN AS IN THE INSTANT CASE, THE SAME HAS TO BE REB UTTED BY THE AO BEFORE APPLYING SECTION 14A R/W RULE 8D. SECTION 14A(2) ITSELF MAKE S THIS ABUNDANTLY CLEAR. THE FACT OF THE BORROWED FUNDS BEING FOR WORKING CAPITA L NEEDS, WITH THE NET CURRENT ASSETS EXCEEDING, ON EACH VALUE DATE, THE BANK BORR OWING, ON WHICH INTEREST HAS BEEN PAID AND, IS CONSEQUENTLY DISALLOWED, HAS BEEN VERIFIED BY US. THERE COULD NOT BE ANY ADVERSE INFERENCE QUA APPLICATION OF TERM LO ANS, SECURED AGAINST THE ASSETS FINANCED, AS WELL. THERE IS, UNDER THE CIRCUMSTANCE S, NO OCCASION FOR INVOKING S. 14A, WHICH CANNOT BE APPLIED MECHANICALLY. IN OUR V IEW, THEREFORE, NO CASE FOR DISALLOWANCE U/S. 14A IS MADE OUT. THE ASSESSEE HAS BEFORE US ALSO RAISED ANOTHER GRO UND, I.E., OF HAVING NOT EARNED ANY EXEMPT INCOME DURING THE RELEVANT YEARS, SO THAT SECTION 14A WOULD NOT APPLY. THERE IS NO FINDING QUA THE SAME ON RECORD. WE HAVE IN ANY CASE OPINED OF NO DISALLOWANCE U/S. 14A BEING WARRANTED IN VIEW OF SUFFICIENCY OF INTEREST-FREE ITA NO. 05 TO 07/ASR/2017 (AYS: 2009-10 TO 2011-12 ) COTTAGE INDUSTRIES EXPOSITION LTD. V. ASST.CIT/JT. CIT 4 FUNDS WITH THE ASSESSEE AND WHICH POSITION CONTIN UES TO DATE (CURRENT YEARS), I.E., QUA THE RELEVANT INVESTMENT, FOR SECTION 14A TO BE ATT RACTED. IN FACT, WHERE NOT SO, DISALLOWANCE U/S. 36(1)(III) COULD EQUALLY VALIDLY BE MADE. WE THEREFORE DO NOT CONSIDER IT NECESSARY TO THE TRAVEL TO THE ASSESSEE S OTHER GROUND. WE DECIDE ACCORDINGLY. 5. IN THE RESULT, THE ASSESSEES APPEALS ARE ALLOWE D. ORDER PRONOUNCED IN THE OPEN COURT ON FEBRUARY 28, 2019 SD/- SD/- (N. K. CHOUDHRY) (SANJAY ARORA) JUDICIAL MEMBER ACCOUNTANT MEMBER DATE: 28.02.2019 /GP/SR PS. COPY OF THE ORDER FORWARDED TO: (1) THE APPELLANT: COTTAGE INDUSTRIES EXPOSITIO N LIMITED, SHALIMAR, SRINAGAR (2) THE RESPONDENT: ASST CIT & JT.CIT, RANGE 3, SRINAGAR (3) THE CIT(APPEALS), JAMMU (4) THE CIT CONCERNED (5) THE SR. DR, I.T.A.T. TRUE COPY BY ORDER