Auchlite Chemical Private Limited, Kanpur V. DCIT, Kanpur

ITA 74/LKW/2011

• Counselvise Citation: 7423714 RSA 2011
• Duration Of Justice: 1 month(s) 27 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 07-04-2011
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: A
• Next Hearing Date: 24-02-2014
• Assessment Year: 2006-2007
• Appeal Filed On: 10-02-2011
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Section: 14A

Judgement Text

1 IN THE INCOME TAX APPELLATE TRIBUNAL LUCKNOW BENCH A, LUCKNOW BEFORE SHRI SUNIL KUMAR YADAV, JUDICIAL MEMBER AND SHRI A.K. GARODIA, ACCOUNTANT MEMBER ITA NOS.74 & 75/LKW/2011 A.YRS.:2006 - 07 & 2007 - 08 M/S AUCHLITE CHEMICAL PVT. LTD., 3/64, VISHNU PURI, KANPUR. PAN:AABCA6854G VS. DCIT - VI, KANPUR. (APPELLANT) (RESPONDENT) I.T.A. NO. 149 & 150/LKW/2011 A.YRS.:2006 - 07 & 2007 - 08 DCIT - VI, KANPUR. VS. M/S AUCHLITE CHEMICAL PVT. LTD., 3/64, VISHNU PURI, KANPUR. PAN:AABCA6854G (OBJECTOR) (RESPONDENT) ASSESSEE BY SHRI RAKESH GARG, ADVOCATE REVENUE BY SHRI AJAY KUMAR, D.R. DATE OF HEARING 27/02/2014 DATE OF PRONOUNCEMENT 1 1 /04/2014 O R D E R PER A. K. GARODIA, A.M. THESE ARE THE CROSS APPEALS FILED BY THE REVENUE AND THE ASSESSEE, WHICH ARE DIRECTED AGAINST TWO SEPARATE ORDERS OF CIT(A) - II, KANPUR BOTH DATED 29/10/2010 FOR ASSESSMENT YEARS 2006 - 2007 AND 2007 - 2008. 2. FIRST WE TAKE UP THE APPEAL OF THE REVENUE AND ASSESSEE FOR ASSESSM ENT YEAR 2006 - 2007 . THE GROUNDS RAISED BY THE ASSESSEE IN I.T.A. NO.74/LKW/2011 ARE AS UNDER: 2 1. BECAUSE THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) - II, KANPUR ERRED IN APPLYING THE PROVISIONS OF SECTION 14A OF THE INCOME TAX ACT, 1961 WHEREAS THER E WAS NO EXPENDITURE INCURRED BY THE APPELLANT TO EARN TAX - FREE INCOME. 2. BECAUSE WITHOUT PREJUDICE TO GROUND OF APPEAL NO. 1 ABOVE THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) - II, KANPUR ERRED IN MAKING ARBITRARY, UNREASONABLE AND UNJUSTIFIED ESTIMA TES IN APPORTIONING THE INTEREST PAID AND ADMINISTRATIVE EXPENSES TOWARDS EARNING TAXABLE AND TAX - FREE INCOME. 3. BECAUSE WITHOUT PREJUDICE TO GROUND OF APPEAL NO. 1 ABOVE, THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) II, KANPUR ERRED IN ENHANCING THE AMOUNT OF DISALLOWANCE OF ADMINISTRATIVE EXPENSES FROM RS.128967.00 AS DISALLOWED BY THE LEARNED DEPUTY COMMISSIONER OF INCOME TAX TO RS.226744.00 WITHOUT PROVIDING THE APPELLANT AN OPPORTUNITY TO SHOW CAUSE AGAINST SUCH ENHANCEMENT. 4. BECAUSE WITHOUT P REJUDICE TO GROUND OF APPEAL NO. 1 ABOVE, THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) II, KANPUR ERRED IN DISALLOWING AN AMOUNT OF RS.516552.00 OUT OF INTEREST PAID WHEREAS THE AMOUNT OF INTEREST DISALLOWANCE EVEN WHEN CALCULATED BY APPLYING RULE 8D W OULD HAVE BEEN ONLY RS.398506.00 5. BECAUSE THE FINDINGS OF THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS)II ARE ARBITRARY, ILLEGAL, UNLAWFUL, BAD IN LAW AND CONTRARY TO THE FACTS AND CIRCUMSTANCES OF THE CASE. 3. THE GROUNDS RAISED BY THE REVENUE IN ITS APPEAL NO.149/LKW/2011 ARE AS UNDER: 1. THAT THE LD COMMISSIONER OF INCOME TAX (A) HAS ERRED IN LAW ON FACTS IN DELETING THE ADDITION OF RULE 8D READ WITH SECTION 14 - A OF THE INCOME TAX ACT, 1961 ON ESTIMATE BASIS WITHOUT APPRECIATING THE FACTS AND CIRCUMSTANCES OF THE CASE THAT THE ASSESSEE HAS NOT FURNISHED THE DETAILS OF SOURCE OF INVESTMENT IN SHARES AND MUTUAL FUNDS. 3 2. THAT THE ORDER OF LD COMMISSIONER OF INCOME TAX (A) - I, KANPUR BEING ERRONEOUS IN LAW AND ON THE FACTS DESERVES TO BE VACATED AND THAT THE ORDER OF ASSESSING OFFICER BE RESTORED. 3. THAT THE APPELLANT CRAVES LEAVE TO MODIFY ANY OF THE GROUNDS OF APPEAL GIVEN ABOVE AND/OR ADD ANY FRESH GROUND AS AND WHEN IT IS CONSIDERED NECESSARY TO DO SO. 4. LE ARNED D.R. OF THE REVENUE SUPPORTED THE ASSESSMENT ORDER WHEREAS THE LEARNED A.R. OF THE ASSESSEE SUPPORTED THE ORDER OF LEARNED CIT(A) IN RESPECT OF THE APPEAL OF THE REVENUE . HE ALSO SUBMITTED THAT THE DISALLOWANCE WAS MADE BY THE ASSESSING OFFICER BY I NVOKING THE PROVISIONS OF RULE 8D BUT AS PER THE JUDGMENT OF HON'BLE BOMBAY HIGH COURT RENDERED IN THE CASE OF GODREJ & BOYCE, RULE 8D IS NOT APPLICABLE PRIOR TO ASSESSMENT YEAR 2008 - 09 AND THEREFORE , THE SAME IS NOT APPLICABLE IN THE PRESENT YEAR. HE ALS O SUBMITTED THAT SO FAR THE DISALLOWANCE OUT OF INTEREST EXPENDITURE IS CONCERNED, NO SUCH DISALLOWANCE IS JUSTIFIED BECAUSE THE ASSESSEE WAS HAVING SUFFICIENT INTEREST FREE FUNDS TO MAKE INVESTMENT AND UNDER THESE FACTS , IT HAS TO BE PRESUMED THAT THE INV ESTMENT WAS MADE OUT OF INTEREST FREE FUNDS. IN SUPPORT OF THIS CONTENTION , HE PLACED RELIANCE ON THE JUDGMENT OF HON'BLE BOMBAY HIGH COURT RENDERED IN THE CASE OF CIT VS. RELIANCE UTILITIES & POWER LTD. [2009] 178 TAXMAN 0135. HE ALSO SUBMITTED THAT BA LANCE SHEET OF THE ASSESSEE COMPANY AS ON 31/03/2006 AND 31/03/2007 IS AVAILABLE ON PAGE NO. 40 OF THE PAPER BOOK AND FROM THE SAME , IT CAN BE SEEN THAT THE ASSESSEES OWN FUNDS WERE OF RS.857.44 LAC AS ON 31/03/2006 AND RS.1065.50 LAC AS ON 31/03/2007 AND THE INVESTMENT OF THE ASSESSEES COMPANY ON THESE DATES WAS MUCH LESS OF RS.346.45 LAC ON 31/03/2006 AND RS.565.98 LAC AS ON 31/03/2007. HE SUBMITTED THAT AS PER THESE FIGURES, IT IS SEEN THAT THE OWN INTEREST FREE FUNDS WERE MORE THAN INVESTMENT IN BOTH THE YEARS. HE SUBMITTED THAT UNDER THESE FACTS AND IN THE LIGHT OF HON'BLE BOMBAY HIGH COURT DECISION, NO DISALLOWANCE IS JUSTIFIED OUT OF INTEREST EXPENDITURE BECAUSE 4 IT HAS TO BE PRESUMED THAT THE ENTIRE INVESTMENT WAS OUT OF INTEREST FREE FUNDS AVAILA BLE WITH THE ASSESSEE. REGARDING THE DISALLOWANCE OUT OF THE ADMINISTRATIVE EXPENSES, HE SUBMITTED THAT ALTHOUGH IN HIS OPINION, NO SUCH DISALLOWANCE IS JUSTIFIED BECAUSE THE ASSESSEE HAS NOT INCURRED SUCH EXPENDITURE FOR MAKING INVESTMENT BUT EVEN IF IT IS HELD THAT SOME DISALLOWANCE IS TO BE MADE, A TOKEN DISALLOWANCE MAY BE MADE. 5. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS, PERUSED THE MATERIAL AVAILABLE ON RECORD AND THE JUDGMENT CITED BY LEARNED A.R. OF THE ASSESSEE. WE FIND THAT AS PER THE JUDGMEN T OF HON'BLE BOMBAY HIGH COURT RENDERED IN THE CASE OF RELIANCE UTILITIES (SUPRA), IT WAS HELD THAT WHERE FUNDS AVAILABLE ARE BOTH INTEREST FREE AND BORROWED FUNDS, THEN PRESUMPTION WOULD ARISE THAT INVESTMENT IS MADE OUT OF INTEREST FREE FUNDS PROVIDED SU CH INTEREST FREE FUNDS ARE SUFFICIENT TO MEET INVESTMENT. IN THE LIGHT OF THIS JUDGMENT OF HON'BLE BOMBAY HIGH COURT, WE FIND THAT IN THE PRESENT CASE, NO DISALLOWANCE IS CALLED FOR U/S 14A OUT OF INTEREST EXPENDITURE BECAUSE WE HAVE SEEN THAT OWN FUND AV AILABLE IS MORE THAN THE INVESTMENT. WE, THEREFORE, DELETE THE ENTIRE DISALLOWANCE OF INTEREST EXPENDITURE. 6. REGARDING THE DISALLOWANCE OUT OF ADMINISTRATIVE EXPENSES MADE BY THE ASSESSING OFFICER OF RS.1,28,967/ - BY INVOKING THE PROVISIONS OF RULE 8D, WE ARE OF THE CONSIDERED OPINION THAT SINCE RULE 8D IS NOT APPLICABLE IN THE PRESENT YEAR, THE DISALLOWANCE MADE BY THE ASSESSING OFFICER IS NOT SUSTAINABLE IN ENTIRETY BUT STILL AS PER THE JUDGMENT OF HON'BLE BOMBAY HIGH COURT RENDERED IN THE CASE OF GOD REJ & BOYCE, SOME REASONABLE DISALLOWANCE IS JUSTIFIED. CONSIDERING THE FACTS OF THE PRESENT CASE, IN OUR CONSIDERED OPINION, DISALLOWANCE OF RS.25,000/ - OUT OF ADMINISTRATIVE & OTHER EXPENSES WILL MEET THE ENDS OF JUSTICE. WE HOLD ACCORDINGLY. IN THE RESULT, THE APPEAL OF THE REVENUE STANDS DISMISSED AND THE APPEAL OF THE ASSESSEE IS PARTLY ALLOWED. 5 7. NOW WE TAKE UP THE APPEAL OF THE ASSESSEE AND REVENUE FOR THE ASSESSMENT YEAR 2007 - 2008. 8. IT WAS AGREED BY BOTH THE SIDES THAT THE ISSUE INVOLVED IN BOTH THE YEARS ARE IDENTICAL AND BOTH THE APPEAL FOR THE ASSESSMENT YEAR 2007 - 08 MAY BE DECIDED ON SIMILAR LINE AS IN ASSESSMENT YEAR 2006 - 07. WE HAVE ALSO SEEN THAT IN THIS YEAR ALSO, THE OWN FUN DS AVAILABLE WITH THE ASSESSEE WAS MORE THAN THE AMOUNT OF INVESTMENT. HENCE, WE HOLD THAT NO DISALLOWANCE IS CALLED FOR OUT OF INTEREST EXPENDITURE AND OUT OF ADMINISTRATIVE EXPENSES, WE UPHOLD THE DISALLOWANCE OF RS.25,000/ - AND DELETE THE BALANCE DISAL LOWANCE. IN THE RESULT, THE APPEAL OF THE REVENUE STANDS DISMISSED AND THE APPEAL OF THE ASSESSEE IS PARTLY ALLOWED. 9. IN THE COMBINED RESULT, BOTH THE APPEALS OF THE REVENUE ARE DISMISSED AND BOTH THE APPEAL OF THE ASSESSEE ARE PARTLY ALLOWED. (ORDER WAS PRONOUNCED IN THE OPEN COURT ON THE DATE MENTIONED ON THE CAPTION PAGE) SD/. SD/. (SUNIL KUMAR YADAV) ( A. K. GARODIA ) JUDICIAL MEMBER ACCOUNTANT MEMBER DATED: 1 1 /04/2014. *C.L.SINGH COPY OF THE ORDER FORWARDED TO : 1. THE APPELLANT 2. THE RESPONDENT. 3. CONCERNED CIT 4. THE CIT(A) 5. DR, ITAT, LUCKNOW