The DCIT, Circle-3(1)(1), Ahmedabad V. M/s. Nirma Chemical Works Pvt. Ltd., Ahmedabad

ITA 750/AHD/2016

• Counselvise Citation: [2018] 112 COUNSELVISE.COM (IT) 5739 (ITAT-AHMEDABAD)
• Duration Of Justice: 2 year(s) 8 month(s) 6 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 03-12-2018
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: Not Allotted
• Assessment Year: 2012-2013
• Appeal Filed On: 28-03-2016
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Earning of tax free income; Rule 8D
• Section: 14A; 115JB

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL B BENCH, AHMEDABAD BEFORE SHRI RAJPAL YADAV, JUDICIAL MEMBER AND SHRI PRADIP KUMAR KEDIA, ACCOUNTANT MEMBER ./ I.T.A. NO.750/AHD/2016 ( / ASSESSMENT YEAR : 2012-13) THE DCIT CIR.3(1)(1) AHMEDABAD / VS. M/S.NIRMA CHEMICAL WORKS PVT.LTD. NIRMA HOUSE, ASHRAM ROAD AHMEDABAD-380 009 ./ ./ PAN/GIR NO. : AAACN 5353 L ( / APPELLANT ) .. ( / RESPONDENT ) / APPELLANT BY : SHRI MUDIT NAGPAL, SR.DR / RESPONDENT BY : SHRI HIMANSHU SHAH, AR / DATE OF HEARING 22/10/2018 !'# / DATE OF PRONOUNCEMENT 03/12/2018 / O R D E R PER SHRI RAJPAL YADAV, JUDICIAL MEMBER : THE PRESENT APPEAL IS DIRECTED AT THE INSTANCE OF T HE REVENUE AGAINST THE ORDER OF THE COMMISSIONER OF INCOME TAX(APPEALS)-9, AHMEDABAD [CIT(A) IN SHORT] DATED 28/01/2016 PASSED FOR ASSESSMENT YE AR (AY) 2012-13. ITA NO.750 /AHD /2016 DCIT VS. NIRMA CHEMICAL WORKS PVT.LTD. ASST.YEAR 2012-13 - 2 - 2. THOUGH THE REVENUE HAS TAKEN FIVE GROUNDS OF APP EAL, BUT ITS GRIEVANCES REVOLVE AROUND TWO ISSUES, NAMELY: (I) THE LD.CIT(A) HAS ERRED IN DELETING THE ADDITI ON OF RS.85,37,514/- WHICH WAS ADDED BY THE ASSESSING OFF ICER WITH THE AID OF SECTION 14A OF THE INCOME TAX ACT, 1961 (HEREINAFTER REFERRED TO AS 'THE ACT'). (II) THE LD.CIT(A) HAS ERRED IN EXCLUDING THE AMO UNT OF RS.85,37,514/- INCLUDED BY THE ASSESSING OFFICER IN THE BOOK PROFIT FOR THE PURPOSE OF SECTION 115JB OF THE ACT. 3. THE BRIEF FACTS OF THE CASE ARE THAT THE ASSESSE E HAS FILED ITS RETURN OF INCOME ON 29/09/2012 DECLARING TOTAL INCOME AT RS.2 ,66,33,320/- AND BOOK PROFIT AT RS.13,84,13,847/-. THE RETURN WAS PROCES SED U/S.143(1) OF THE ACT. THE CASE WAS SELECTED FOR SCRUTINY ASSESSMENT AND N OTICE U/S.143(2) OF THE ACT WAS ISSUED AND SERVED UPON THE ASSESSEE. 4. ON SCRUTINY OF THE ACCOUNTS, IT REVEALED TO THE ASSESSING OFFICER THAT ASSESSEE HAS DIVIDEND INCOME OF RS.63,35,308/-. TH E ASSESSEE HAS CLAIMED INTEREST EXPENSES OF RS.10,98,86,425/- IN THE PROFI T & LOSS ACCOUNT. THE ASSESSING OFFICER WAS OF THE OPINION THAT EXPENDITU RE ATTRIBUTABLE TO TAX FREE INCOME DESERVES TO BE DISALLOWED AS PER SECTION 14A OF THE ACT. WITH THE HELP OF RULE 8D OF INCOME TAX RULES, 1962, HE WORKED OUT SUCH DISALLOWANCE TO RS.91,37,514/-. HE OBSERVED THAT ASSESSEE ITSELF H AD ADDED BACK A SUM OF RS.6,00,000/- ON ACCOUNT OF EXPENDITURE ATTRIBUTABL E TO TAX-FREE INCOME. HENCE, AFTER ADOPTING THIS AMOUNT OF RS.6,00,000/-, HE WORKED OUT NET ITA NO.750 /AHD /2016 DCIT VS. NIRMA CHEMICAL WORKS PVT.LTD. ASST.YEAR 2012-13 - 3 - DISALLOWANCE OF RS.85,37,514/-. THE ASSESSING OFFI CER THEREAFTER MADE ADDITION OF ABOVE AMOUNT TO THE BOOK PROFIT DISCLOS ED BY THE ASSESSEE. 5. DISSATISFIED WITH THE DISALLOWANCE, ASSESSEE CAR RIED THE MATTER BEFORE THE LD.CIT(A). IT CONTENDED THAT IT HAS SUFFICIEN T INTEREST-FREE FUNDS WHICH CAN TAKE CARE OF THE INVESTMENT. THEREFORE, NO DIS ALLOWANCE ON ACCOUNT OF INTEREST EXPENDITURE OUGHT TO BE MADE. THE ASSESSE E THEREAFTER BROUGHT TO THE NOTICE OF LD. CIT(A) THE DETAILS OF ALL THE EXPENDI TURE DEBITED IN THE PROFIT & LOSS ACCOUNT. THE LD.CIT(A) GONE THOUGH THESE DETA ILS AND DELETED THE DISALLOWANCE. 6. BEFORE US, AT THE OUTSET, THE LD.COUNSEL FOR THE ASSESSEE CONTENDED THAT TOTAL INVESTMENT MADE BY THE ASSESSEE WAS OF RS.40. 16 CRORES. ASSESSEE HAD SHARE CAPITAL AND RESERVES OF RS.625.34 CRORES. TH E TOTAL ASSETS AS ON 31/03/2012 IS OF RS.758.06 CRORES. HE ALSO POINTED OUT THAT ASSESSEE HAD SHOWN INTEREST EXPENSES OF RS.10.99 CRORES AS AGAIN ST INTEREST INCOME OF RS.20.99 CRORES. THUS, ACCORDING TO LD.COUNSEL FO R THE ASSESSEE, THERE WAS NET INTEREST INCOME OF RS.10 CRORES. HENCE, NO INTERES T EXPENDITURE CAN BE DISALLOWED U/S.14A OF THE ACT. FOR BUTTRESSING THI S PROPOSITION, HE PUT RELIANCE UPON THE JUDGEMENT OF HONBLE GUJARAT HIGH COURT IN TAX APPEAL NO.409 OF 2017 IN THE CASE OF NIRMA CREDIT & CAPITAL PVT.LTD . REPORTED IN 85 TAXMAN.COM 72. 7. WITH REGARD TO ADMINISTRATIVE EXPENDITURE REQUI RED TO BE DISALLOWED, HE TOOK US THROUGH PAGE NO.29 OF THE PAPER-BOOK WHERE NOTES ON FINANCIAL ITA NO.750 /AHD /2016 DCIT VS. NIRMA CHEMICAL WORKS PVT.LTD. ASST.YEAR 2012-13 - 4 - STATEMENTS FORMING PART OF AUDITED ACCOUNTS ARE BEI NG PLACED ON RECORD, UNDER NOTE NO.23 ASSESSEE HAS SHOWN DETAILS OF OTHER EXPE NSES. THE LD.COUNSEL FOR THE ASSESSEE POINTED OUT THAT TOTAL EXPENDITURE OF RS.13,62,46,826/- HAVE BEEN DEBITED. OUT OF THAT ASSESSING OFFICER HAS ALLOWED RS.87,44,627/-. THE DETAILS OF EXPENDITURE CLAIMED AND ALLOWED IN THE RETURN AN D IN THE ASSESSMENT ORDER HAS BEEN PLACED WITH THE NOTE FILED BEFORE THE TRIB UNAL. HE FURTHER CONTENDED THAT ASSESSEE ITSELF HAS DISALLOWED RS.6 LAKHS WHIC H CAN TAKE CARE OF ANY ADMINISTRATIVE EXPENSES, IF INCURRED BY THE ASSESSE E ATTRIBUTABLE FOR EARNING OF EXEMPT INCOME. 8. ON THE OTHER HAND, LD. DR RELIED UPON THE ORDER OF ASSESSING OFFICER. 9. WE HAVE DULY CONSIDERED THE RIVAL CONTENTIONS AN D GONE THROUGH THE RECORD CAREFULLY. ON PERUSAL OF THE ASSESSMENT ORD ER, IT REVEALS THAT ASSESSING OFFICER HAS NOWHERE RECORDED ANY FINDING THAT NON-A TTRIBUTABLE OF INTEREST EXPENDITURE BY THE ASSESSEE FOR EARNING OF EXEMPT I NCOME WAS FACTUALLY INCORRECT. HE HAS NOT DOUBTED THE CORRECTNESS OF T HE ACCOUNTS OF THE ASSESSEE QUA THIS ISSUE. HE SIMPLY NOTICED THE DIVIDEND IN COME, QUANTUM OF INTEREST EXPENDITURE AND THEREAFTER PROCEEDED TO ADOPT THE F ORMULA PROVIDED UNDER RULE 8D OF IT RULES. THIS APPROACH OF THE ASSESSIN G OFFICER IS NOT IN CONSONANCE WITH THE RATIO LAID DOWN IN VARIOUS AUTH ORITATIVE PRONOUNCEMENTS. THE LD. ASSESSING OFFICER OUGHT T O HAVE TAKEN INTO CONSIDERATION NET INTEREST INCOME AVAILABLE WITH TH E ASSESSEE. IN SUCH SITUATION, AS PER SUB-CLAUSE(2) TO SECTION 14A OF THE ACT, HE COULD NOT ITA NO.750 /AHD /2016 DCIT VS. NIRMA CHEMICAL WORKS PVT.LTD. ASST.YEAR 2012-13 - 5 - MAKE DISALLOWANCE OUT OF INTEREST EXPENDITURE. IT IS ALSO PERTINENT TO OBSERVE THAT ASSESSEE HAS HUGE INTEREST-FREE FUNDS AVAILABLE WHICH CAN TAKE CARE OF INVESTMENT MADE BY THE ASSESSEE. AS F AR AS THE DISALLOWANCE REQUIRED FOR THE PURPOSE OF ADMINISTRATIVE EXPENSES IS CONCERNED, WE FIND THAT ASSESSEE HAS NOT DEBITED ANY EXPENDITURE SPECI FICALLY INCURRED FOR TAKING CARE OF INVESTMENT IN THE ACCOUNTS. IT HAS NOT CLAIMED ANY EXPENDITURE FOR TAKING CARE OF INVESTMENT, I.E. SAL ARY OF A PARTICULAR EMPLOYEE ETC., THEN HOW ASSESSING OFFICER CAN CALCU LATE THE AMOUNT FOR DISALLOWANCE. APART FROM ABOVE, ASSESSEE ITSELF HA S ADDED BACK A SUM OF RS.6 LAKHS ON ADHOC BASIS, WHICH CAN TAKE CARE OF A LL POSSIBLE EXPENDITURE ATTRIBUTABLE FOR EARNING TAX-FREE TOWAR DS ADMINISTRATIVE EXPENSES. THEREFORE, CONSIDERING ALL THESE DETAILS COUPLED WITH THE FINDING OF LD. CIT(A), WE ARE OF THE VIEW THAT THER E IS NO MERIT IN THE FIRST FOLD OF CONTENTION RAISED BY THE REVENUE. 9.1. AS FAR AS ANY ADJUSTMENT IN THE BOOK PROFIT ON THE BASIS OF DISALLOWANCE MADE U/S.14A OF THE ACT IS CONCERNED, ONCE WE HAVE UPHELD THE ORDER OF LD. CIT(A) DELETING THE ADDITION MADE BY THE ASSESSING OFFICER, THEN NO AMOUNT IS AVAILABLE WHICH COULD BE ADDED IN THE BOOK PROFIT. OTHERWISE ALSO, THE DECISION OF THE SPECIA L BENCH OF THE TRIBUNAL IN THE CASE OF CIT VS. VIREET INVESTMENT PVT.LTD. REPORTED IN 165 ITD 27 HAS HELD THAT DISALLOWANCE MADE WITH THE HELP OF SE CTION 14A R.W.R.8D OF IT RULES, 1962 OUGHT NOT TO BE ADDED IN THE BOOK PR OFIT. THEREFORE, LD. ITA NO.750 /AHD /2016 DCIT VS. NIRMA CHEMICAL WORKS PVT.LTD. ASST.YEAR 2012-13 - 6 - CIT(A) HAS RIGHTLY DELETED THE ADDITION AND ALSO RI GHTLY EXCLUDED THIS AMOUNT WHILE COMPUTING THE BOOK PROFIT U/S.115JB OF THE ACT. THUS, WE DO NOT FIND ANY MERIT IN THIS GROUND OF APPEAL OF T HE REVENUE, IT IS DISMISSED. 10. IN THE RESULT, REVENUES APPEAL STANDS DISMISSE D. ORDER PRONOUNCED IN THE COURT ON 3 RD DECEMBER-2018 AT AHMEDABAD. -SD- -SD- (PRADIP KUMAR KEDIA) ( RAJPAL YADAV ) ACCOUNTANT MEMBER JUDICIAL MEMBER AHMEDABAD; DATED 03/12 /2018 &.., .(../ T.C. NAIR, SR. PS !'#$#! / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT 2. / THE RESPONDENT. 3. )*+ , / CONCERNED CIT 4. , ( ) / THE CIT(A)-9, AHMEDABAD 5. /01 ((*+ , *+# , ) / DR, ITAT, AHMEDABAD 6. 145 6 / GUARD FILE. / BY ORDER, / ( //TRUE COPY// / ( DY./ASSTT.REGISTRAR) , / ITAT, AHMEDABAD 1. DATE OF DICTATION .. 29.11.2018(DICTATION-PAD 17- PAGES ATTACHED AT THE END OF THIS FILE) 2. DATE ON WHICH THE TYPED DRAFT IS PLACED BEFORE THE DICTATING MEMBER ..29.11.2018 3. OTHER MEMBER... 4. DATE ON WHICH THE APPROVED DRAFT COMES TO THE SR.P. S./P.S.. 5. DATE ON WHICH THE FAIR ORDER IS PLACED BEFORE THE D ICTATING MEMBER FOR PRONOUNCEMENT 6. DATE ON WHICH THE FAIR ORDER COMES BACK TO THE SR.P .S./P.S. 7. DATE ON WHICH THE FILE GOES TO THE BENCH CLERK 8. DATE ON WHICH THE FILE GOES TO THE HEAD CLERK ... 9. THE DATE ON WHICH THE FILE GOES TO THE ASSISTANT RE GISTRAR FOR SIGNATURE ON THE ORDER.. 10. DATE OF DESPATCH OF THE ORDER