The ACIT,(OSD)-I, Range-4, Ahmedabad V. Kalthia Engineering & Construction Ltd., Ahmedabad

ITA 728/AHD/2012

• Counselvise Citation: [2015] 120 COUNSELVISE.COM (IT) 9691 (ITAT-AHMEDABAD)
• Duration Of Justice: 3 year(s) 3 month(s) 20 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 17-07-2015
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: B
• Next Hearing Date: 14-07-2015
• Assessment Year: 2008-2009
• Appeal Filed On: 28-03-2012
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: NARENDRA SINGH
• Assessee Lawyers: M J SHAHAR
• Keywords: Earning of tax free income; Question of law
• Section: 14A

Judgement Text

, IN THE INCOME TAX APPELLATE TRIBUNAL B BENCH, AHMEDABAD BEFORE SHRI G.D. AGRAWAL, VICE PRESIDENT AND SHRI S. S. GODARA, JUDICIAL MEMBER ./ ././ ./ ITA NO. 728/AHD/2012 / ASSESSMENT YEAR: 2008-09 ACIT, (OSD)-I, RANGE-4, AHMEDABAD VS. KALTHIA ENGINEERING & CONSTRUCTION LTD 28/29, RANGIN PARK, OPP. RAJPATH CLUB, BODAKDEV, AHMEDABAD PAN : AAACK 8944 N / // / (APPELLANT) / // / (RESPONDENT) REVENUE BY : SHRI NARENDRA SINGH, SR. DR ASSESSEE(S) BY : SHRI M.J. SHAH, AR !' # $%&/ // / DATE OF HEARING : 14/07/2015 '( # $%& / // / DATE OF PRONOUNCEMENT: 17/07/2015 )* )* )* )*/ // / O R D E R PER G.D. AGRAWAL, VICE PRESIDENT: THIS IS AN APPEAL FILED BY THE REVENUE AND IS DIREC TED AGAINST THE ORDER OF THE LD. COMMISSIONER OF INCOME-TAX (APPEAL S)-VIII, AHMEDABAD DATED 03.01.2012, PERTAINING TO ASSESSMENT YEAR 200 8-09. 2. THE ONLY GROUND RAISED IN THIS APPEAL BY THE REV ENUE READS AS UNDER:- THE LD. CIT(A) HAS ERRED IN LAW AND ON FACTS IN DEL ETING ADDITION OF RS.25,45,870/- ON ACCOUNT OF INTEREST EXPENDITURE U /S 14A WITHOUT APPRECIATING THE FACT THAT THE ASSESSEE HAD MADE SU BSTANTIAL INVESTMENT IN SHARES OF THE ASSOCIATES COMPANY, FINANCING OR MONE Y LENDING AND THIS INVESTMENT HAD BEEN MADE WITH THE SOLE PURPOSE OF E ARNING DIVIDEND WHICH HAD BEEN MADE CLAIMED AS EXEMPT INCOME. ITA NO.728/AHD/2012 ACIT VS. KALTHIA ENGINEERING & CONSTRUCTION LTD. FOR AY 2008-09 2 3. THE FACTS OF THE CASE ARE THAT THE ASSESSING OFF ICER MADE THE DISALLOWANCE OF RS.29,03,300/- U/S 14A READ WITH RU LE 8D OF THE INCOME-TAX RULES. ON APPEAL, THE CIT(A) WAS OF THE OPINION T HAT NO BORROWED MONEY WAS UTILIZED FOR ACQUISITION OF SHARES AND THEREFOR E, HE DELETED THE SUM OF RS.25,45,870/- OUT OF THE DISALLOWANCE U/S 14A READ WITH RULE 8D. THE RELEVANT FINDING OF THE CIT(A) READS AS UNDER:- 11. I HAVE GONE THROUGH THE ASSESSMENT ORDER A ND THE SUBMISSION OF THE APPELLANT. THE AO HAS DISALLOWED AN AMOUNT OF RS.29 ,03,300/- UNDER SECTION 14A OF THE INCOME TAX ACT, 1961. THE ASSESSING OFFI CER HAS APPLIED RULE 8D OF THE INCOME TAX RULES, 1962 R.W.S. 14A OF THE INC OME TAX ACT, 1961. THE AR HAS SUBMITTED THAT IT IS PERTINENT TO NOTE FROM THE LANGUAGE OF SECTION 14A SUB-SECTION (2) AND SUB-SECTION (3) THAT THE PR ESCRIBED RULE 8D CAN BE INVOKED ONLY WHEN THE ASSESSING OFFICER IS NOT SATI SFIED WITH THE CORRECTNESS OF THE CLAIM OF THE ASSESSEE HAVING REGARD TO THE A CCOUNTS OF THE ASSESSEE. THE AR HAS FURTHER STATED THAT IN THE CASE OF THE ASSES SEE IT HAS NOT INCURRED ANY EXPENDITURE FOR THE PURPOSE OF INVESTING ITS FUNDS IN ITS SISTER CONCERN VIZ. SURBHI MILK FOOD AND BEVERAGES LTD. TO SUBSTANTIATE THIS CLAIM MADE BY IT, THE ASSESSEE DEMONSTRATES FROM ITS ACCOUNTS THAT IT HAS ENOUGH SPARE FUNDS AT ITS DISPOSAL FROM WHICH IT HAS LENT FUNDS TO ITS SI STER CONCERN AND THERE IS NO DIVERSIONS OF INTEREST BEARING FUNDS TO ITS SISTER CONCERN. THE ASSESSING OFFICER ACCEPTS THAT IN THE EARLIER Y EARS THE HONBLE C.I.T.(APPEALS) HAS DECIDED THE ISSUE OF SPARE FUND S BEING AVAILABLE WITH THE ASSESSEE IN FAVOUR OF THE ASSESSEE BUT HE DID NOT T AKE THAT INTO CONSIDERATION ON THE PRETEXT THAT THE DECISION OF HON'BLE C.I.T.( APPEALS) HAS NOT BEEN ACCEPTED BY THE DEPARTMENT AND A FURTHER APPEAL HAS BEEN FILED BEFORE THE HON'BLE I.T.A.T. ON THAT ISSUE. ALL THAT THE ASSESS EE IS TRYING TO STATE IS THAT THE ASSESSEE HAS ALWAYS HAD ENOUGH SPARE FUNDS AT I TS DISPOSAL AND THE SITUATION HAS NOT CHANGED IN THIS ASSESSMENT YEAR A LSO AS THE ASSESSEE HAS AMPLE SPARE FUNDS FROM WHICH IT HAS INVESTED FUNDS WITH ITS SISTER CONCERN, AS HAS BEEN DEMONSTRATED HEREIN ABOVE. THE ASSESSIN G OFFICER IS NOT IN A POSITION TO DISLODGE THIS SUBMISSION OF THE ASSESSE E NOR IS HE IN A POSITION TO STATE THAT WHAT IS CLAIMED BY THE ASSESSEE IS NOT C ORRECT HAVING REGARD TO THE ACCOUNTS OF THE ASSESSEE. AFTER GOING THROUGH THE FACTS AND THE CASE LAWS CIT ED BY THE APPELLANT, IT IS SEEN THAT AO HAS NEVER POINTED OUT AS TO HOW THE AP PELLANT HAS MADE THE INVESTMENTS FROM THE BORROWED FUNDS WHICH IS REQUIR ED AS PER THE SECTION ITA NO.728/AHD/2012 ACIT VS. KALTHIA ENGINEERING & CONSTRUCTION LTD. FOR AY 2008-09 3 14A OF THE IT ACT 1961. ON THE CONTRARY THE APPELLA NT HAS DEMONSTRATED BEFORE THE AO REGARDING THE FLOW OF FUNDS INVESTED WITH THE SISTER CONCERN. IN THE EARLIER YEAR THE C.I.T.(APPEALS) HAD DECIDED THE ISSUE OF SPARE FUNDS BEING AVAILABLE WITH THE ASSESSEE IN FAVOUR OF THE ASSESSEE. THE ABOVE FACTS POINT THAT APPELLANT HAS SUFFICIENT INTEREST-FREE F UNDS TO INVEST IN THE SHARES OF THE SISTER CONCERN. THEREFORE, INTEREST EXPENSES ARE NOT ATTRIBUTABLE TO THE INVESTMENTS. IN VIEW OF THE ABOVE, THE APPELLANT CA SE DOES NOT CALL FOR ADDITION U/S 14A R. W. RULE 8D(2)(II) OF THE ACT. T HEREFORE, THE ADDITION MADE U/S 14A R. W. RULE 8D(2)(II) OF THE ACT OF RS. 25,45,870/- IS DELETED. HOWEVER, CONSIDERING THE FACT THAT ADMINISTRATIVE E XPENSES ETC. WOULD HAVE BEEN INCURRED FOR THE ABOVE INVESTMENTS IN THE SHAR ES OF THE SISTER CONCERNS WHICH CANNOT BE DENIED BY THE APPELLANT, THE ADDITI ON MADE BY THE AO U/R 8D(2)(II) OF RS.3,57,430/- IS CONFIRMED. 4. THE REVENUE, AGGRIEVED WITH THE ORDER OF THE CIT (A) IS IN APPEAL BEFORE US. 5. WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE M ATERIAL PLACED BEFORE US. WE FIND THAT THE HONBLE JURISDICTIONAL HIGH COURT IN THE CASE OF CIT VS. UTI BANK LTD, REPORTED IN [2013] 32 TAXMANN .COM 370 (GUJARAT), HELD AS UNDER:- 3. THE ISSUE PERTAINS TO DISALLOWANCE UNDER SECTIO N 14A OF THE ACT MADE BY THE ASSESSING OFFICER WHICH WAS PARTIALLY DELETED B Y THE CIT(A). SUCH ORDER OF CIT(A) GAVE RISE TO CROSS APPEALS AT THE HANDS O F THE ASSESSEE AS WELL AS THE REVENUE. TRIBUNAL CONFIRMED THE VIEW OF THE CIT(A) MAKING FOLLOWING OBSERVATIONS: '33. WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSE D THE MATERIAL ON RECORD, THE UNDISPUTED FACTS ARE THAT DURING THE YE AR THE ASSESSEE HAS EARNED INTEREST OF RS. 17.45 CRORE ON TAX FREE BOND AND DEBENTURES AS AGAINST WHICH THE ASSESSEE HAD SUO MOTU DISALLOWED RS. 5.53 CRORE BEING THE INTEREST EXPENSES U/S. 14A AS AGAINST WHICH THE AO HAS WORKED OUT THE DISALLOWANCE OF RS. 32.76 CRORE. AFTER GIVING T HE CREDIT OF DISALLOWANCE OF RS. 5.53 CRORE MADE BY THE ASSESSEE , THE AO DISALLOWED RS. 27.23 CRORE U/S. 14A. AS ON 31ST MARCH, 2003, T HE INTEREST FREE FUNDS AVAILABLE WITH THE ASSESSEE WAS TO THE TUNE OF RS. 3404 CRORE (COMPRISING OF SHARE CAPITAL OF RS. 230 CRORE RESERVES OF RS. 6 89 CRORES AND INTEREST FREE DEMAND DEPOSITS AND RS. 2485 CRORES) AS AGAINS T WHICH THE TAX FREE ITA NO.728/AHD/2012 ACIT VS. KALTHIA ENGINEERING & CONSTRUCTION LTD. FOR AY 2008-09 4 INVESTMENTS WERE TO THE TUNE OF RS. 589 CRORE. THUS THE INTEREST FREE FUNDS WERE FAR IN EXCESS OF THE INVESTMENTS. CIT(A) HAS GIVEN A FINDING THAT THE FACTS IN AY 2003-04 ARE IDENTICAL TO THE F ACTS OF THE CASE IN AY 2002-03 AND ACCORDINGLY HE HAS FOLLOWED THE DECISIO N OF CIT(A) FOR AY 2002-03. THESE FACTS HAVE NOT BEEN CONTROVERTED BY THE LD. D.R. NOR HAVE THEY BROUGHT ON RECORD ANY FACTS TO THE CONTRARY. H ON'BLE BOMBAY HIGH COURT IN CASE OF CIT V. RELIANCE UTILITIES & POWER LTD. (SUPRA) HAS HELD THAT IF THERE ARE INTEREST FREE FUNDS AVAILABLE TO AN ASSESSEE SUFFICIENT TO MEET ITS INVESTMENTS AND AT THE SAME TIME THE ASSES SEE HAS RAISED A LOAN IT CAN BE PRESUMED THAT THE INVESTMENTS WERE FROM INTE REST FREE FUNDS AVAILABLE. IN THE PRESENT CASE, SINCE THE ASSESSEE HAS SUO MOTO DISALLOWED RS. 5.53 CRORE U/S. 14A, RESPECTFULLY FOLLOWING THE DECISION OF BOMBAY HIGH COURT, WE ARE OF THE VIEW THAT IN THE FACTS OF THE PRESENT CASE, NO FURTHER DISALLOWANCE OVER AND ABOVE THAN WHAT HAS B EEN DISALLOWED BY THE ASSESSEE IS CALLED FOR. AS FAR AS DISALLOWANCE OF O THER ADMINISTRATIVE EXPENSES IS CONCERNED, THE UNDISPUTED FACT IS THAT THE DISALLOWANCE HAS BEEN MADE BY THE AO WITHOUT GIVING A FINDING AS TO HOW MUCH ADMINISTRATIVE EXPENDITURE HAS BEEN INCURRED TO EAR N THE EXEMPT INCOME. IN THE CASE OF HERO CYCLES (SUPRA) THE HON'BLE HIGH COURT HAS HELD THAT THE CONTENTION OF THE REVENUE THAT DIRECTLY OR INDI RECTLY SOME EXPENDITURE IS ALWAYS INCURRED WHICH MUST BE DISALLOWED U/S. 14 A CANNOT BE ACCEPTED. DISALLOWANCE U/S. 14A REQUIRES FINDING OF INCURRING OF EXPENDITURE. IN THE PRESENT CASE, THE AO HAS PRESUMED THAT THE ASSE SSEE MIGHT HAVE INCURRED EXPENDITURE TO EARN THE EXEMPT INCOME. HE HAS NOT GIVEN ANY FINDING OF INCURRING OF EXPENDITURE. IN VIEW OF THE SE FACTS AND RESPECTFULLY FOLLOWING THE DECISION OF HIGH COURT, WE ARE OF THE VIEW THAT NO DISALLOWANCE OF ADMINISTRATIVE EXPENSES CAN BE MADE . WE ACCORDINGLY DIRECT FOR THE DELETION OF THE ADDITION MADE BY THE AO AND ALLOW THIS GROUND OF THE ASSESSEE.' 4. IN OUR OPINION THE TRIBUNAL HAS COMMITTED NO ERR OR. BASICALLY THE ENTIRE DISALLOWANCE HAS BEEN MADE ON THE BASIS OF FACTS EM ERGING ON RECORD. THE TRIBUNAL ALSO RELIED ON THE DECISION OF THE BOMBAY HIGH COURT IN CASE OF CIT V. RELIANCE UTILITIES & POWER LTD. [2009] 313 ITR 3 40/178 TAXMAN 135. ADDITIONALLY, WE FIND THAT THE ASSESSING OFFICER HA D, WITHOUT GIVING A FINDING AS TO HOW MUCH ADMINISTRATIVE EXPENDITURE H AVE BEEN INCURRED TO EARN THE EXEMPT INCOME, HAD MADE DISALLOWANCE. IN T HE EARLIER YEARS ALSO, SIMILAR POSITION OBTAINED. THAT BEING THE FACT, NO QUESTION OF LAW ARISES. 6. FROM THE ABOVE, IT IS EVIDENT THAT THE HONBLE J URISDICTIONAL HIGH COURT UPHELD THE VIEW OF THE ITAT, I.E., IF THERE A RE INTEREST FREE FUNDS AVAILABLE TO AN ASSESSEE, WHICH ARE SUFFICIENT TO M EET ITS INVESTMENTS, THEN IT ITA NO.728/AHD/2012 ACIT VS. KALTHIA ENGINEERING & CONSTRUCTION LTD. FOR AY 2008-09 5 CAN BE PRESUMED THAT THE INVESTMENTS WERE FROM INTE REST FREE FUNDS AVAILABLE. IN THE CASE UNDER APPEAL BEFORE US, THE ASSESSEE HAS POINTED OUT THAT THE INTEREST FREE FUNDS AVAILABLE WITH IT WERE RS.20.98 CRORES AS SHARE CAPITAL AND RESERVE & SURPLUS, WHILE THE INVESTMENT IN SHARES WERE ONLY RS.12.11 CRORES. THUS, HE POINTED OUT THAT THE INTE REST-FREE FUNDS AVAILABLE WITH THE ASSESSEE WAS MUCH MORE THAN THE INVESTMENT IN SHARES AND THEREFORE, THE ASSESSING OFFICER WAS NOT JUSTIFIED IN DISALLOWING PART OF THE INTEREST WITHOUT POINTING OUT ANY NEXUS BETWEEN THE BORROWED MONEY AND INVESTMENT IN SHARES. IN VIEW OF THESE FACTS, WE, R ESPECTFULLY FOLLOWING THE DECISION OF HONBLE JURISDICTIONAL HIGH COURT IN TH E CASE OF UTI BANK LTD (SUPRA), UPHOLD THE ORDER OF THE CIT(A) AND DISMISS THE APPEAL FILED BY THE REVENUE. 7. IN THE RESULT, REVENUES APPEAL IS DISMISSED. ORDER PRONOUNCED IN THE COURT ON 17 TH JULY, 2015 AT AHMEDABAD. SD/- SD/- (S. S. GODARA) JUDICIAL MEMBER (G.D. AGRAWAL) VICE-PRESIDENT AHMEDABAD; DATED 17/07/2015 BIJU T., PS )* # $+ ,)+$ )* # $+ ,)+$ )* # $+ ,)+$ )* # $+ ,)+$/ COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT 2. / THE RESPONDENT. 3. $ !- / CONCERNED CIT 4. !- ( ) / T HE CIT(A) 5. +01 $ , , / DR, ITAT, AHMEDABAD 6. 13 4' / GUARD FILE . )*! )*! )*! )*! / BY ORDER, TRUE COPY 5 55 5/ // / 6 6 6 6 ( DY./ASSTT.REGISTRAR) , , , , / ITAT, AHMEDABAD