M/s Advanced Micro Devices Pvt. Ltd., Ambala Cantt. V. ACIT, Ambala

ITA 738/CHANDI/2015

• Counselvise Citation: [2016] 132 COUNSELVISE.COM (IT) 9903 (ITAT-CHANDIGARH)
• Duration Of Justice: 10 month(s) 11 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 24-06-2016
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: Not Allotted
• Next Hearing Date: 08-03-2016
• Assessment Year: 2009-2010
• Appeal Filed On: 12-08-2015
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: MANJEET SINGH
• Keywords: Earning of tax free income; Proportionate interest
• Section: 143(3); 14A

Judgement Text

1 IN THE INCOME TAX APPELLATE TRIBUNAL DIVISION BENCH, CHANDIGARH BEFORE SHRI BHAVNESH SAINI, JUDICIAL MEMBER AND MS. ANNAPURNA GUPTA, ACCOUNTANT MEMBER ITA NO. 738/CHD/2015 ASSESSMENT YEAR:2009-10 M/S ADVANCED MICRO VS. THE ACIT, DEVICES PVT. LTD. AMBALA 21, INDUSTRIAL AREA, AMBALA CANTT PAN NO. AABCA06521 (APPELLANT) (RESPONDENT) APPELLANT BY : SH. SUDHIR SEHGAL RESPONDENT BY : SH. MANJEET SINGH DATE OF HEARING : 27/05/2016 DATE OF PRONOUNCEMENT : 24/06/2016 ORDER PER ANNAPURNA GUPTA A.M. THIS APPEAL HAS BEEN FILED BY THE ASSESSEE AGAINST THE ORDER OF LD. CIT(A), PANCHKULA DT. 29.05.2015. THE ONLY ISSUE IN THE PRE SENT APPEAL PERTAINS TO THE DISALLOWANCE MADE U/S 14A, IN RELATION TO WHICH THE ASSESSEE HAS RAISED THE FOLLOWING GROUND: 1. THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) , PANCHKULA HAS ERRED IN LAW AND FACTS IN PARTIALLY CONFIRMING THE DISALLOWA NCE MADE U/S 14A OF THE INCOME TAX ACT 1961 BY THE LEARNED ASSISTANT COMMIS SIONER OF INCOME TAX, AMBALA IN HIS ORDER U/S 143(3) OF THE INCOME TAX AC T 1961. 2. BRIEF FACTS RELATING TO THE ISSUE UNDER APPEAL A RE THAT DURING ASSESSMENT PROCEEDINGS THE AO FOUND THAT THE ASSESSEE HAD MADE INVESTMENT IN SHARES AND IN A PARTNERSHIP FIRM, INCOME FROM WHICH WAS EX EMPT FROM TAX, AMOUNTING IN ALL TO RS. 7,32,92,996/-. THE AO FURTHER FOUND T HAT THE ASSESSEE HAD CLAIMED INTEREST EXPENSES AMOUNTING TO RS. 5,24,364/-. APPL YING THE PROVISIONS OF SECTION 14A OF THE ACT, THE AO DISALLOWED PROPORTIONATE INT EREST AMOUNTING TO RS. 9,77,023/-. THE MATTER WAS CARRIED IN APPEAL BEFORE THE LD. CIT(A), WHERE THE 2 ASSESSEE PLEADED THAT THE ENTIRE INVESTMENTS HAD BE EN MADE OUT OF ITS OWN FUNDS AND NOT OUT OF ANY INTEREST BEARING FUNDS, TH EREFORE THERE WAS NO QUESTION OF DISALLOWING ANY INTEREST EXPENDITURE U/S 14A. TH E ASSESSEE ALSO PLEADED THAT THERE WAS NO SATISFACTION OF THE AO REGARDING THE I NCORRECTNESS OF THE CLAIM OF THE ASSESSEE THAT NO EXPENDITURE WAS INCURRED FOR M AKING THE IMPUGNED INVESTMENTS. THE ASSESSEE FURTHER PLEADED THAT EVEN AS PER RULE 8D THE DISALLOWANCE SHOULD BE RS. 4,57,892/- ONLY. LD. CIT (A) AFTER CONSIDERING THE ASSESSEES ARGUMENTS, REJECTED THE ASSESSEES CONTENT ION RELATING TO ABSENCE OF SATISFACTION AND HELD THAT DISALLOWANCE OF INTEREST U/S 14A R.W.S 8D WAS APPLICABLE TO THE FACTS OF THE CASE. THEREAFTER LD. CIT(A) REWORKED THE QUANTUM OF DISALLOWANCE AS PER RULE 8D TO RS. 4,57,882/- AN D REDUCING THEREFROM THE DIRECT EXPENSES OF RS. 2,50,194/- ALREADY DISALLOWE D BY THE ASSESSEE IN ITS RETURN OF INCOME, UPHELD THE BALANCE DISALLOWANCE OF RS. 2 ,07,688/-. 3. AGGRIEVED BY THE SAME, THE ASSESSEE FILED THE PR ESENT APPEAL BEFORE US. 4. BEFORE US, LD. AR, REITERATED THE ARGUMENTS MADE BEFORE THE LD. CIT(A) AND STATED THAT THE DISALLOWANCE MADE WAS UNJUSTIFI ED SINCE THE ASSESSEE HAD SUFFICIENT OWN FUNDS TO MAKE THE INVESTMENT AND IN SUCH FACTUAL MATRIX, THE PRESUMPTION IS THAT THE SAME HAVE BEEN USED TO MAKE THE INVESTMENTS. LD. AR DREW OUR ATTENTION TO PAPER BOOK PG. NO. 10 BEING S CHEDULE D OF THE BALANCE SHEET OF THE ASSESSEE FOR THE YEAR ENDED ON 31/03/2 009, I.E. THE YEAR UNDER CONSIDERATION, LD. AR POINTED OUT THAT THE SAME REF LECTED THE INVESTMENT OF THE ASSESSEE AND DREW OUR ATTENTION TO THE INVESTMENTS AMOUNTING TO RS. 7,32,92,996/-TAKEN INTO CONSIDERATION BY THE AO FOR THE PURPOSE OF CALCULATING DISALLOWANCE U/S 14A AS FOLLOWS: PARTICULARS AMOUNT AS ON CURRENT YEAR AMOUNT AS ON PREVIOUS YEAR 943 EQUITY SHARE OF PNB @ 390/- EACH 3,67,770/- 3, 67,770/- INVESTMENT IN THE CAPITAL OF PARTNERSHIP FIRM (MICRO INSTRUMENTS CO. A/CANTT 47,425,226.10 44,353,932.29 262 EQUITY SHARES OF LAKSHMI UDYOG MANDIR PVT. LTD. 25,500,000.00 25,500,000.00 TOTAL 73,292,996/- 70,221,702/- 3 THEREAFTER LD. AR DREW OUR ATTENTION TO PAPER BOOK PG. NO. 1, BEING BALANCE SHEET OF THE ASSESSEE AS ON 31/03/2009, SHOWING RES ERVES & SURPLUS OF RS. 96,14,11,398/- COMPRISING OF THE FOLLOWING AS PER S CHEDULE B OF THE BALANCE SHEET AT PAPER BOOK PG. NO. 7: PROFIT & LOSS ACCOUNT RS. 96,13,61,008/- INVESTMENT ALLOWANCE RESERVE UTILISED ACCOUNT RS. 50,389/- RS. 96,14,11,398/- LD. AR ALSO DREW OUR ATTENTION TO PAPER BOOK PG. NO . 4, BEING PROFIT & LOSS ACCOUNT OF THE ASSESSEE FOR THE IMPUGNED YEAR SHOWI NG PROFITS BEFORE TAXATION OF RS. 32,02,46,783/-. THUS THE LD. AR STATED THAT TO MAKE THE INVESTMENT OF RS. 7.33 CRORES APPROX, THE ASSESSEE HAD OWN ACCUMULATE D FUNDS OF RS. 96.14 CRORES APPROX INCLUDING CURRENT YEAR PROFITS OF RS. 32 CRO RES WHICH WAS MORE THAN SUFFICIENT. LD. AR ALSO POINTED OUT THE ALL THE INV ESTMENTS WERE OLD EXCEPT FOR AN AMOUNT OF RS. 30,71,294/- INVESTED DURING THE YEAR IN THE CAPITAL OF PARTNERSHIP FIRM, WHICH WAS OUT OF ITS OWN PROFITS OF RS. 32 CR ORES MADE DURING THE YEAR. LD. AR RELIED UPON A NUMBER OF JUDICIAL DECISIONS IN TH IS REGARD. 5. LD. DR ON THE OTHER HAND REBUTTED THE ABOVE CONT ENTIONS BY PLACING RELIANCE ON THE ORDER OF THE LD. CIT(A) AND STATED THAT, MIXED FUNDS, I.E; OWN INTEREST FREE FUNDS AND INTEREST BEARING FUNDS WERE AVAILABLE WITH THE ASSESSEE, AND IN SUCH CIRCUMSTANCES DISALLOWANCE U/S 14A R.W. S 8D HAS TO BE MADE. LD. AR FURTHER ARGUED THAT THE AO HAD NOT RECORDED ANY SATISFACTION WITH RESPECT TO INCURRING OF THE EXPENDITURE FOR THE PUR POSE OF EARNING EXEMPT INCOME, BEFORE MAKING DISALLOWANCE U/S 14A OF THE A CT AND THEREFORE THE DISALLOWANCE MADE WAS NOT JUSTIFIED. LD. AR RELIED UPON THE DECISION OF THE JURISDICTIONAL HIGH COURT IN THE CASE OF CIT VS DEE PAK MITTAL 361 ITR 131 (2013), CIT VS. ABHISHEK INDUSTRIES LTD. 380 ITR 652 AND CI T VS. KAPSONS ASSOCIATES 381 ITR 204, IN THIS REGARD. 4 6. LD. DR ON THE OTHER HAND RELIED UPON THE ORDER O F THE LD. CIT(A) AND STATED THAT THE AO COMPUTED DISALLOWANCE U/S 14A AF TER FINDING THAT THERE WAS INCOME EXEMPT FROM TAX AND THE ASSESSEE HAD CLAIMED INTEREST EXPENSES. THIS OBSERVATION OF THE AO, AS PER THE LD. DR, AMOUNTED TO SATISFACTION DRAWN BY HIM ABOUT THE INCORRECTNESS OF THE CLAIM OF EXPENDI TURE MADE BY THE ASSESSEE AND THEREFORE THE ARGUMENT OF THE LD. AR HAD NO FOR CE. 7. WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE ORDERS OF THE AUTHORITIES BELOW AS ALSO THE DOCUMENTS REFERRED TO BEFORE US. 8. WE FIND MERIT IN THE CONTENTION OF THE LD. AR T HAT NO SATISFACTION HAD BEEN RECORDED BY THE AO ABOUT THE INCORRECTNESS OF THE CLAIM OF THE ASSESSEE REGARDING EXPENDITURE INCURRED IN RELATION TO EARNI NG EXEMPT INCOME AND THEREFORE NO DISALLOWANCE CAN BE MADE U/S 14A OF TH E INCOME TAX ACT 1961. 9. UNDENIABLY THE ASSESSEE HAD MADE INVESTMENT OF R S. 7,32,92,996/- IN SHARES AND IN A PARTNERSHIP FIRM, INCOME FROM WHICH WAS EXEMPT FROM TAX. ALSO INTEREST EXPENSES OF RS. 5,24,364/- HAD BEEN CLAIME D BY THE ASSESSEE. WHILE COMPUTING ITS TAXABLE INCOME THE ASSESSEE HAD DISAL LOWED DIRECT EXPENSES INCURRED IN RELATION TO THE IMPUGNED INVESTMENTS AM OUNTING TO RS. 2,50,194/-. NO OTHER EXPENDITURE WAS DISALLOWED U/S 14A BY THE ASS ESSEE. THUS ADMITTEDLY THE CLAIM OF THE ASSESSEE WAS THAT OTHER THAN THE DIRECT EXPENSES OF RS. 2,50,194/- NO OTHER EXPENSES WERE I NCURRED IN RELATION TO ITS EXEMPT INCOME. THE AO WE FIND HAS PROCEEDED TO APPL Y THE PROVISIONS OF SECTION 14A R.W.S 8D WITHOUT DISLODGING THIS CLAIM OF THE ASSESSSEE. IN FACT THE AO HAS MECHANICALLY APPLIED THE PROVISION OF SECTION 1 4A R.W.S 8D, WHICH IS AMPLY EVIDENT FROM PARA 3(I) OF THE ASSESSMENT ORDER WHIC H READS AS FOLLOWS: 3. (I) ON PERUSAL, IT HAS BEEN NOTICED THAT THE ASS ESSEE HAS MADE INVESTMENT OF RS. 7,32,92,996/- IN SHARES AND IN A PARTNERSHIP FI RM NAMELY M/S MICRO INSTRUMENT CO. DIVIDEND INCOME FROM SUCH SHARES AND SHARE OF P ROFIT FROM THE PARTNERSHIP FIRM IS EXEMPT FROM TAX. THE ASSESSEE HAS CLAIMED I NTEREST EXPENSES AMOUNTING TO RS. 5,24,364/-. AS PER THE PROVISIONS OF SECTION 14 A OF THE ACT, NO DEDUCTION SHALL BE ALLOWED IN RESPECT OF EXPENDITURE INCURRED BY TH E ASSESSEE IN RELATING TO INCOME WHICH DOES NOT FORM PART OF THE TOTAL INCOME . ACCORDINGLY, PROPORTIONATE INTEREST WAS REQUIRED TO BE DISALLOWED U/S 14A OF T HE INCOME TAX ACT, 1961, WHICH 5 IS COMPUTED AMOUNTING TO RS. 9,77,023/-. ACCORDINGL Y, ADDITION AMOUNTING TO RS. 9,77,023/- IS MADE TO THE INCOME OF THE ASSESSEE. THUS THERE IS ABSOLUTELY NO SATISFACTION OF THE AO VIS--VIS THE INCORRECTNESS OF THE CLAIM OF THE ASSESSEE REGARDING QUANTUM OF EXPENSES INCURRED IN RESPECT OF THE IMPUGNED INVESTMENTS. BESIDES WE FIND THAT THE ASSE SSEE HAD SUFFICIENT OWN FUNDS FOR MAKING THE INVESTMENTS. THIS FACT COUPLED WITH THE FAILURE TO HOLD AND RECORD SATISFACTION BY THE AO CLINCHES THE ISSUE IN FAVOUR OF THE ASSESSEE. THE HONBLE PUNJAB & HARYANA HIGH COURT IN AN NUMBE R FO DECISIONS CIT VS. DEEPAK MITTAL 361 ITR 131 (P&H), CIT VS. ABHISHEK I NDUSTRIES 380 ITR 652 (P&H) & CIT VS. KAPSONS ASSOCIATES 381 ITR 204 (P&H) HAS RE ITERATED THE PROPOSITION THAT SECTION 14A REQUIRES THE ASSESSING OFFICER TO RECOR D SATISFACTION THAT INTEREST BEARING FUNDS HAVE BEEN USED TO EARN TAX FREE INCOM E. THE SATISFACTION MUST BE BASED ON CREDIBLE AND RELEVANT EVIDENCE. THE ASSESS ING OFFICER CANNOT RECORD A GENERAL OBSERVATION AND PROCEED TO INFER THAT INT EREST BEARING FUNDS MUST HAVE BEEN USED TO EARN EXEMPTED INCOME. 10. IN VIEW OF THE ABOVE, WE HOLD THAT NO DISALLOWA NCE U/S 14A CAN BE MADE IN THE PRESENT FACTS OF THE CASE. THE DISALLOWANCE U/S 14A OF RS. 2,07,688/-IS THEREFORE DELETED. 11. IN THE RESULT APPEAL OF THE ASSESSEE IS ALLOWED . ORDER PRONOUNCED IN THE OPEN COURT. SD/- SD/- (BHAVNESH SAINI) (ANNAPURNA GUPTA) JUDICIAL MEMBER ACCOUNTANT MEMBER DATED :24/06/2016 AG COPY TO: THE APPELLANT, THE RESPONDENT, THE CIT, TH E CIT(A), THE DR