M/s. Shanker Global Private L:imited (Formerly Hindprakash International Private Limited), Ahmedabad V. The Dy.CIT, Circle-2(1)(1), Old Circle-4, Ahmedabad

ITA 705/AHD/2015

• Counselvise Citation: [2018] 125 COUNSELVISE.COM (IT) 8483 (ITAT-AHMEDABAD)
• Duration Of Justice: 3 year(s) 20 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 19-04-2018
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: C
• Assessment Year: 2009-2010
• Appeal Filed On: 30-03-2015
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Assessee Lawyers: P K KEDIA
• Keywords: Earning of tax free income
• Section: 143(3); 14A

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD C BENCH BEFORE: SHRI S.S. GODARA , JUDICIAL MEMBER AND SHRI AMARJIT SINGH, ACCOUNTANT MEMBER M/S. SHANKER GLOBAL PVT. LTD. (FORMERLY HINDPRAKASH INTERNATIONAL PVT. LTD.) 201, HINDPRAKASH HOUSE, PLOT NO: 10/6, PHASE - I, GIDC, VATVA, AHMEDABAD - 382445 PAN: AABCH2318A (APPELLANT) VS THE DCIT, CIR - 2(2)(1)(1) [OL D DCIT - 4], AHMEDABAD (RESPONDENT) REVENUE BY : S H RI PRASOON KABRA , SR. D . R. ASSESSEE BY: SHRI P.K. KEDIA DATE OF HEARING : 15 - 03 - 2 018 DATE OF PRONOUNCEMEN T : 19 - 04 - 2 018 / ORDER P ER : AMARJIT SINGH, ACCOUNTANT MEMBER : - THIS ASSESSEE S APPEAL FOR A.Y. 2009 - 10 , AR ISES FROM ORDER OF THE CIT(A) - 2 , AHMEDABAD DATED 15 - 01 - 2015 , IN PROCEEDINGS UNDER SECTION 143(3) OF THE INCOME TAX ACT, 1961; IN SHORT THE ACT . 2. THE A SSESSEE HAS RAISED FOLLOWING GROUNDS OF APPEAL: - 1. ON FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT (APPEALS) ERRED IN UPHOLDING THE LD. AO'S ACTION OF INVOKING AUTOMATIC OPERATION OF RULE 8D OF THE IT RULES, 1962 ('THE RULES') FOR MAKING DISALLOWANCE U/S 14A OF THE 1. T. ACT, 1961 ('THE ACT'). THE LD. AO, WHILE FRAMING THE ASSESSMENT U/S 143(3) OF THE ACT, HAS CONVENIENTLY OVERLOOKED THE APPELLANT'S DETAILED CONTENTION THAT NO DISALLOWANCE (EITHER TOWARDS INTEREST OR TOWARDS OTHER EXPENSES) IS CALLED FOR IN VIEW OF THE FACTS OF THE CASE CONTAINED IN ANNEXURE - 6 TO THE WRITTEN SUBMISSION DATED 11/08/2011 AND HAS NOT REBUTTED (WITH I T A NO . 705 / A HD/20 15 A SSESSMENT YEAR 2009 - 10 I.T.A NO. 705/AHD/2015 A.Y. 2009 - 10 PAGE NO M/S. SHANKER GLOBAL PVT. LTD. VS . DCIT 2 REASONS) THE SAME. THE LD. CIT (A) OUGHT TO HAVE STRUCK DOWN THE ACTION OF THE LD. AO'S ACTION U/S 14A RWR 8D. THE APPELLANT, THEREFORE, PRAYS THAT THE LD. AO MAY PLEASE BE DIRECTED TO DELETE THE ADDITION CONFIRMED TOWARDS INTEREST AS WELL AS TOWARDS OTHER EXPENSES. 2. ON FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT (APPEALS) ERRED IN CONFIRMING THE ADDITION TOWARDS INTEREST MADE U/S 14A OF THE ACT RWR 8D OF THE RULES WITHOUT PROPERLY APPRECIATING THAT ADDITION OUGHT NOT TO HAVE BEEN MADE - A. IN VIEW OF THE FACT THAT AS THE INVESTMENTS WERE IN THE EQUITY SHARES OF UNLISTED COMPANY, ITS SALE WOULD GIVE RISE TO INCOME UNDER THE HEAD 'CAPITAL GAINS' THAT ARE NOT TAX FREE/TAX EXEMPT AND HENCE PROVISIONS OF SECTION 14A ARE NOT TRIGGERED AT ALL; B. BY PRESUMING THAT BORROWED FUNDS WERE UTILIZED IN FINANCING THE INVESTMENT S DESPITE THE FACT THAT THE APPELLANT - COMPANY HAD SUFFICIENT INTEREST FREE FUNDS MORE THAN THE AMOUNT UTILIZED FOR INVESTMENTS; C. OUT OF INTEREST EXPENDITURE WHICH IS SPECIFICALLY INCURRED FOR EARNING NON - TAX FREE INCOME - I.E. (I) OUT OF INTERES T OF RS. 1,1 1,52,443/ - PERTAINING TO CASH CREDIT FACILITIES EXTENDED BY BANKERS AND (II) OUT OF INTEREST OF RS. 38,20,056/ - PERTAINING TO UNSECURED LOANS OVERLOOKING THE AMOUNT OF INTEREST FREE FUNDS AND THE AMOUNT OF RETAINED PROFITS AVAILABLE WITH THE A PPELLANT AT THE TIME OF MAKING THE INVESTMENTS; D. WITHOUT NETTING OFF THE INTEREST EARNED OF RS. 53,24,533; WITHOUT DIRECTING THE LD. AO TO ADOPT CORRECT VALUE OF TOTAL ASSETS APPEARING IN THE BALANCE SHEET ON THE FIRST DATE AND THE LAST DATE OF THE PREV IOUS YEAR THEREFORE, APPELLANT PRAYS THAT THE LD. AO MAY PLEASE BE DIRECTED THAT ADDITION TOWARDS INTEREST CONFIRMED BY THE LD. C1T(A) MAY PLEASE BE DELETED. ALTERNATIVELY, IN ANY CASE, THE LD. AO MAY PLEASE BE DIRECTED TO EXCLUDE INTEREST EXPENDITURE TOW ARDS BANKERS' CC FACILITIES AND INTEREST EXPENDITURE TOWARDS UNSECURED LOANS ALSO AND TO NET OFF THE INTEREST EARNED FROM THE INTEREST EXPENDITURE AND TO ADOPT THE CORRECT VALUES OF TOTAL ASSETS ON THE FIRST AND THE LAST DATE OF THE PREVIOUS YEAR IN QUANTI FYING THE AMOUNT UNDER RULE 8D. 3. ON FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. C1T (APPEALS) ERRED IN CONFIRMING THE ADDITION TOWARDS OTHER EXPENSES MADE U/S 14A OF THE ACT RWR 8D OF THE RULES WITHOUT PROPERLY APPRECIATING THAT ADD ITION OUGHT NOT TO HAVE BEEN MADE A. IN VIEW OF THE FACT THAT AS THE INVESTMENTS WERE IN THE EQUITY SHARES OF UNLISTED COMPANY, ITS SALE WOULD GIVE RISE TO INCOME UNDER THE HEAD 'CAPITAL GAINS' THAT ARE NOT TAX FREE / TAX EXEMPT AND HENCE PROVISI ONS OF SECTION 14A ARE NOT TRIGGERED AT ALL; B. RELYING MERELY ON LOGIC THAT IT IS NOT POSSIBLE THAT NO EXPENDITURE MIGHT HAVE BEEN INCURRED FOR EARNING THE DIVIDEND INCOME AND MAKING GENERAL OBSERVATIONS WITHOUT PROPERLY APPRECIATING THAT NO ADMINI STRATIVE OR OTHER EXPENSES WERE INCURRED TOWARDS THE INVESTMENTS IN UNLISTED SHARES IN PHYSICAL FORMAT SPECIFICALLY WHEN IT IS NOT A CASE OF FREQUENT PURCHASES OR SALES OF INVESTMENTS; THEREFORE, APPELLANT PRAYS THAT THE LD. AO MAY PLEASE BE DIRECTED THAT ADDITION OF RS. 10,683/ - (TOWARDS OTHER EXPENSE) CONFIRMED BY THE LD. CIT(A) MAY PLEASE BE DELETED. 4. WITHOUT PREJUDICE, ON FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT (APPEALS) ERRED IN CONFIRMING THE ADDITION U/S I4A WITHOUT R ESTRICTING THE TOTAL ADDITION TO THE AMOUNT OF EXEMPT INCOME EARNED (DIVIDEND RS. 170/ - ). I.T.A NO. 705/AHD/2015 A.Y. 2009 - 10 PAGE NO M/S. SHANKER GLOBAL PVT. LTD. VS . DCIT 3 IN ANY CASE, THEREFORE, APPELLANT PRAYS THAT THE LD. AO MAY PLEASE BE DIRECTED THAT TOTAL ADDITION U/S I4A BE RESTRICTED TO THE AMOUNT OF EXEMPT INCOME EARNED DURING THE YEAR. 3. ALL THE GROUNDS OF APPEAL ARE INTER - CONNECTED, THEREFORE, FOR THE SAKE OF CONVENIENCE, IT IS ADJUDICATED BY A COMMON ORDER AS UNDER: - 4. THE BRIEF FACT OF THE CASE IS THAT DURING THE COURSE OF ASSESSMENT PROCEEDINGS, THE ASSESSING OFFICER HAS NOTICED THAT ASSESSEE HA S MADE INVESTMENT IN SHARES OF R S. 42, 68 ,3 00/ - . THE ASSESSEE WAS ASKED TO SHOW CAUS E WHY NOT THE PROVISION OF SECTION 14A APPLIED FOR DISALLOWANCE ON EXPENDITURE PERTAINING TO EARNING OF EXEMPT INCOME. THE ASSESSEE EXPLAINED THAT NO EXPENDITURE HAS BEEN INCURRED IN RELATION TO INCOME WHICH DOES NOT FORM PART OF TOTAL INCOME, THEREFORE, NO DISALLOWANCE U/S. 14A IS REQUIRED IN ITS CASE. THE ASSESSING OFFICER HAS NOT ACCEPTED THE SUBMISSION OF THE ASESSEE. HE STATED THAT ASSE SSEE WAS NOT ABLE TO PROVE NEXUS BETWEEN INTEREST FREE FUNDS AND INVESTMENT S , THEREFORE, HE HAS WORKED OUT TOTAL DISALLOWANCE OF RS. 1 , 26 , 154/ - U/S. 14A R.W.S. 8D OF THE ACT AND ADDED THE SAME TO THE TOTAL INCOME OF THE ASSESSEE. 5. AGGRIEVED ASSESSEE FILED APPEAL BEFORE THE LD. CIT(A). THE LD. CIT(A) HAS UPHELD THE DISALLOWANCE MADE BY THE AO UNDER SECTION 14 A R.W. RULE 8D SUBJECT TO THE RECALCULATION OF INTEREST DISALLOWANCE BY REDUCING THE INTEREST ON VEHICLE LOAN AND MISCELLANEOUS INTEREST OUT OF THE TOTAL INTEREST CONSIDERED FOR THAT PURPOSE. 6. DURING T HE COURSE OF APPELLATE PROCEEDINGS BEFORE US, THE LD. COUNSEL HAS PLACED RELIANCE ON THE DECISION OF T HE CO - ORDINATE BENCH OF THE ITAT IN THE CASE OF HI NDPRAKASH TRADE PVT. LTD. VS. ITO VIDE ITA NO. 2564/AHD/2013 DATED 26 - 04 - 2017. ON THE OTHER HAND THE LD.DR HAS SUPPORTED THE ORDER OF LD.CIT(A) . WE HAVE HEARD RIVAL CONTENTIONS AND PERUSED THE MATERIAL ON RECORD CAREFULLY. THE I.T.A NO. 705/AHD/2015 A.Y. 2009 - 10 PAGE NO M/S. SHANKER GLOBAL PVT. LTD. VS . DCIT 4 A SSESSING OFFICER HAS MADE DISALLOWANCE UNDER SECTION 14 A OF THE ACT AS THE A SSESSEE HAD MADE AN INVESTMENT IN MUTUAL FUNDS AND EQUITY SHARES. THE A SSESSEE HAS SUBMITTED THAT THE INTEREST FREE FUND AVAILABLE WITH IT FOR MAKING THE INVESTMENT WAS MORE THAN THE INVESTMENT MADE IN EQUITY SHARES BY IT. IT HAS ALSO BEEN SUBMITT ED THAT THE INVESTMENT IN EQUITY. SHARES WERE OF UNLISTED SHARES AND MOST OF THE INVESTMENT WILL YIELD CAPITAL GAIN BECAUSE OF INVESTMENT MADE IN THE UNLISTED SECURITIES. WE OBSERVE THAT I T IS NOW SETTLED LEGAL POSITION THAT THE DISALLOWANCE UNDER SECTIO N 14A CANNOT EXCEED THE EXEMPT INCOME. WE HAVE ALSO CONSIDERED THAT CO - ORDINATE BENCH OF THE ITAT AHMEDABAD IN THE CASE OF JIVRAJ TEA LTD. VS. DCIT ITA NO. 886/AHD/2012 ORDER DATED 28 TH AUGUST, 2014 RELATED TO ASSESSMENT YEAR 2008 - 09 RESTRICTING THE DIS ALLOWANCE TO THE EXTENT OF EXEMPT. AFTER CONSIDERING THE ABOVE FACTS AND JUDICIAL FINDINGS WE DIRECT THE ASSESSING OFFICER TO RESTRICT THE DISALLOWANCE U/S. 14A R.W RULE 8D TO THE EXTENT OF EXEMPT INCOME EARNED BY THE ASSESSEE DURING THE YEAR UNDER CONSI DERATION . THEREFORE, THE APPEAL OF THE ASSESSEE IS PARTLY ALLOWED. 7. IN THE RESULT , APPEAL OF THE ASSESSEE IS PARTLY ALLOWED. ORDER PR ONOUNCED IN THE OPEN C OURT ON 19 - 04 - 201 8 SD/ - SD/ - ( S.S. GODARA ) ( AMARJIT SINGH ) JUDICIAL MEMBER ACCOUNTANT MEMBER AHMEDABAD : DA TED 19 /04 /2018 / COPY OF ORDER FORWARDED TO: - 1. ASSESSEE 2. REVENUE 3. CONCERNED CIT 4. CIT (A) 5. DR, ITAT, AHMEDABAD 6. GUARD FILE. I.T.A NO. 705/AHD/2015 A.Y. 2009 - 10 PAGE NO M/S. SHANKER GLOBAL PVT. LTD. VS . DCIT 5 BY ORDER/ , / ,