Asst. Commissioner of Income tax Cir. 1(1), Panaji V. M/s. D. S. Contractors Pvt. Ltd., Goa

ITA 77/PAN/2014

• Counselvise Citation: 7724114 RSA 2014
• Duration Of Justice: 6 month(s) 28 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 26-09-2014
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: DB
• Next Hearing Date: 14-08-2014
• Assessment Year: 2009-2010
• Appeal Filed On: 28-02-2014
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: SONAL LAXMIDAS LD
• Assessee Lawyers: D E ROBINSON
• Keywords: Earning of tax free income
• Section: 14A; 6

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL PANAJI BENCH, PANAJI BEFORE SHRI P. K. BANSAL, HONBLE ACCOUNTANT MEMBER AND SHRI D.T. GARASIA, HONBLE JUDICIAL MEMBER ITA NO.77/PNJ/2014 (ASSESSMENT YEAR - 2009 - 10) THE ASSISTANT COMMISSIONER OF INCOME TAX, CIRCLE - 1(1), PANAJI - GOA. (APPELLANT) VS. M/S . D.S. CONSTRUCTION (P) LTD. PLOT NO. 22/111, VILLA FALLY BAY VIEW, NEAR NIO CIRCLE, DONA PAULA, NORTH - GOA. PAN: AAACD6528P (RESPONDENT) CROSS OBJECTION NO. 23 /PNJ/2014 ARISING OUT OF ITA NO.77 /PNJ/2014 (ASSESSMENT YEAR - 2009 - 10 ) M/S. D.S. CONSTRUCTION (P) LTD. PLOT NO. 22/111, VILLA FALLY BAY VIEW, NEAR NIO CIRCLE, DONA PAULA, NORTH - GOA. PAN:AAACD6528P (OBJECTOR) VS. THE ASSISTANT COMMISSIONER OF INCOME TAX, CIRCLE - 1(1), PANAJI - GOA. (RESPONDENT) AP PELLANT BY : SHRI SONAL LAXMIDAS , LD. DR. RESPONDENT BY : SHRI D.E. ROBINSON, ADV. DATE OF HEARING : 14/08 /2014 DAT E OF P RONOUNCEMENT : 26 /09 /2014 O R D E R PER: D.T. GARASIA (JM) THIS APPEAL HAS BEEN FILED BY THE DEPARTMENT AGAINST TH E ORDER OF CIT(A) - PANAJI, DATED 28.11 . 2 013 FOR THE ASSESSMENT YEAR 2009 - 10 AND CROSS OBJECTION HAS BEEN FILED BY THE ASSESSEE. 2 . ITA NO.77/PNJ/2014 & C.O. 23/PNJ/2014 ACIT VS. M/S. D.S. CONTRACTORS (P) LTD. 2. THE FOLLOWING GROUNDS ARE RAISED BY THE DEPARTMENT. 1.THE ORDER OF THE LEARNED CIT(A) IS OPPOSED TO LAW AND FACTS OF THE CASE. 2. THE LD. CIT(A) HAS ERRED IN DELETING PART OF ADDITIONS ON ACCOUNT OF DISALLOWANCE U/S.14A READ WITH RULE 8D AND IN HOLDING THAT THE ASSESSEE MADE INVESTMENT OUT OF HIS OWN INTEREST FREE FUNDS WHEN IN FACT THE ASSESSEE COULD NOT PROVE WITH EVIDENCE THAT NO INTEREST PAID ON THE MONEY UTILIZED FOR PURCHASE OF INVESTMENT, AS PROVIDED IN THE MUMBAI SPECIAL BENCH OF 1TAT IN THE CASE OF ITO VS. DAGA CAPITAL MANAGEMENT PVT. LTD. (2009) 117 ITD 169. 3. THE LD. CIT(A) HAS ERRED IN DELETING ADDITIONS ON ACCOUNT OF OUTSTANDING CREDITORS BY ADMITTING FRESH EVIDENCE WHICH THE ASSESSEE COULD NOT PROVE WITH EVIDENCE TILL THE COMPLETION OF ASSESSMENT NOR COULD PROVIDE ANY CONFIRMATION FROM THE CREDITORS. 2.1. GROUND NO.1: - THIS GROUND RELATES TO THE DISALLOWANCE OF AN AMOUNT OF RS.3,19,000/ - MADE U/S. 14A R.W. RULE 8D. T HE AO HAS VER IFIED THE BALANCE SHEE T. ON THE BASIS OF BALANCE SHEET, THE ASSESSEE WAS HAVING INVESTMENT AND THE SAID INVESTMENTS WOULD EARN DIVIDEND INCOME WHICH IS EXEMPT FROM TAX. THE ASSESSEE WAS REQUESTED TO EXPLAIN, WHY DISALLOWANCE U/S. 14A R.W.R 8D SHOULD NOT BE MADE FOR THE EXPENSES INCURRED. THE ASSESSEE EXPLAINED THAT DISALLOWANCE U/S. 14A IS NOT APPLICABLE TO THE FACTS OF THE ASSESSEES CASE SINCE, NO LOANS HAVE BEEN TAKEN FOR THE INVESTMENTS AND NO INTEREST EXPENSES ARE INCURRED ON PURCHASE OF THESE INVESTME NTS. THE ASSESSEE HAS MADE INVESTMENT FROM THE RESERVES OR PROFITS OF THE COMPANY. THE ASSESSEE COMPANY WAS HAVING SUBSTANTIAL BORROWINGS FOR THE WORKING CAPITAL AND THEREFORE, USE OF THE BORROWED FUNDS FOR PURCHASE OF INVESTMENT CANNOT BE RULED OUT. THERE FORE, CONSIDERING THE REPLY THE AO HAS WORKED OUT DISALLOWANCE U/S. 14A UNDER RULE 8D AS UNDER: (I) AMOUNT OF EXPENDITURE DIRECTLY RELATING TO INCOME WHICH DOES NOT FORM PART OF TOTAL INCOME - NIL (II) IN A CASE WHERE THE ASSESSEE HAS INCURRED EXPENDITURE BY WAY OF INTEREST DURING THE PREVIOUS YEAR WHICH IS NOT DIRECTLY ATTRIBUTABLE TO ANY PARTICULAR INCOME OR RECEIPT, AN AMOUNT COMPUTED IN ACCORDANCE WITH THE FOLLOWING FORMULA, NAMELY: - [AXB]/C= A AMOUNT OF EXPENDITURE BY WAY OF INTEREST OTHER THAN THE AM OUNT OF INTEREST INCLUDING IN CLAUSE (I) INCURRED DURING THE PREVIOUS YEAR - RS. 1,57,82,608/ - 3 . ITA NO.77/PNJ/2014 & C.O. 23/PNJ/2014 ACIT VS. M/S. D.S. CONTRACTORS (P) LTD. B THE AVERAGE OF VALUE OF INVESTMENT, INCOME FROM WHICH DOES NOT OR SHALL NOT FORM PART OF THE TOTAL INCOME APPEARING IN THE BALANCE SHEET OF THE ASSESSEE ON T HE FIRST DAY AND THE LAST DAY OF THE PREVIOUS YEAR. RS. 29,00,000 + RS. 29,00,000 = RS. 58,00,000/ - AVERAGE OF THE ABOVE = RS. 29,00,000/ - C THE AVERAGE OF TOTAL ASSETS AS APPEARING IN THE BALANCE SHEET OF THE ASSESSEE, ON THE FIRST DAY AND THE LAST DAY OF THE PREVIOUS YEAR; RS.12,72,22,310+RS. 16,61,25,089/ - =RS. 29,33,47,399/ - AVERAGE OF THE ABOVE = RS. 14,66,73,699/ - ACCORDINGLY : - [AXB]/C = RS.1,57,82,608 X RS. 29,00,000 = RS. 3,19,000/ - RS. 14,66,73,699 (III) AN AMOUNT EQUAL TO O NE - HALF PER CENT OF THE AVERAGE OF THE VALUE OF INVESTMENT, INCOME FROM WHICH DOES NOT OR SHALL NOT FORM PART OF THE TOTAL INCOME, AS APPEARING IN THE BALANCE SHEET OF THE ASSESSEE, ON THE FIRST DAY AND THE LAST DAY OF THE PREVIOUS YEAR. = RS. 29,00,000/ - X .005 = RS. 14,500/ - ACCORDINGLY , A SUM OF RS. 3,33,500/ - ( RS. 3,19,000 + RS. 14,500) IS DISALLOWED U/S 14A READ WITH RULE 8D AS EXPENDITURE INCURRED FOR EARNING THE EXEMPT INCOME AND SAME IS ADDED TO THE TOTAL INCOME. 2.3. THE MATTER CARRIED TO CIT(A) AND CIT(A) HAS DELETED THE ADDITION BY OBSERVING AS UNDER: 4.4. I HAVE GONE THROUGH THE ASSESSMENT ORDER AND THE CONTENTS OF THE SUBMISSION OF THE APPELLANT. IT CAN BE SEEN THAT THE LAST INVESTMENT WAS MADE BY THE APPELLANT DU RING FINANCIAL YEAR 2004 - 05. NO FRESH INVESTMENT HAS BEEN MADE DURING THE YEAR UNDER CONSIDERATION. TOTAL INVESTMENT MADE AMOUNTS TO RS.29,00,000/ - AND THE APPELLANT HAS CONSISTENTLY DISCLOSED MUCH HIGHER INCOME THAN THE AMOUNT OF INVESTMENTS DURING VARIOU S FINANCIAL YEARS. IT IS CLEAR, AND DOES NOT REQUIRE ANY FURTHER EVIDENCE TO PROVE THAT INVESTMENTS HAVE BEEN MADE FROM ASSESSEES OWN INTEREST - FREE FUNDS AS THE APPELLANT HAS A RESERVE OF RS.3,59,21,950/ - AS ON 31.03.2005 AND RS.6,14,99,269/ - AS ON 31.03. 2009 AGAINST A TOTAL INVESTMENT AMOUNTING TO RS.29,00,000/ - . IN VIEW OF THE FACTS OF THIS CASE, IN MY OPINION, THE A.O. WAS NOT JUSTIFIED IN DISALLOWING INTEREST ON ACCOUNT OF INVESTMENT. THE A.O. IS DIRECTED TO DELETE THE ADDITION OF RS.3,19,000/ - MADE O N THIS ACCOUNT. THIS GROUND OF THE APPEAL OF THE APPELLANT IS ALLOWED. 2.4. WE HAVE HEARD THE RIVAL CONTENTION OF BOTH THE PARTIES. LOOKING TO THE FACTS AND CIRCUMSTANCES OF THE CASE, WE FIND THAT THE ASSESSEE HAS EXPLAINED THAT HE HAD NOT MADE ANY INVES TMENT AND THE OPENING BALANCE OF INVESTMENT OF 4 . ITA NO.77/PNJ/2014 & C.O. 23/PNJ/2014 ACIT VS. M/S. D.S. CONTRACTORS (P) LTD. RS.29,00,000/ - AS ON 1/4/2008 WAS CARRIED FORWARD. THE ASSESSEE HAS MADE INVESTMENT BEYOND THE ASSESSMENT YEAR IN QUESTION. THE ASSESSEE HAS ALWAYS INVESTED OUT OF ITS INTERNAL ACCRUALS AND NEVER OUT OF BORROW ED FUNDS. THE ASSESSEE HAS RESERVE AND SURPLUS AS ON 31.3.2007 BEING LAST PERIOD OF INVESTMENT WAS RS.3,59,21,950/ - AND THE COMPANY HAS SUFFICIENT RESERVE FOR INVESTMENT, THEREFORE, THE CIT(A) HAS DELETED THE ADDITION RELYING UPON THE DECISION OF CIT VS. R ELIANCE UTILITIES AND POWER LTD. (BOM) 313 ITR 340. WE FIND THAT THE ASSESSEE HAS NOT MADE FRESH INVESTMENT DURING THE YEAR UNDER CONSIDERATION. THEREFORE, THE CIT(A) IS JUSTIFIED IN DELETING THE SAME AND OUR INTERFERENCE IS NOT REQUIRED. 3. GROUND NO.2 : - THIS GROUND OF APPEAL IS RELATES TO DELETING THE ADDITION OF RS. 44,96,275/ - U/S. 41(1) OF THE IT ACT. ON THE BASIS OF DETAIL FURNISHED BY THE ASSESSEE IT WAS NOTICED THAT AMOUNT OF RS.44,96,275/ - REPRESENTING VARIOUS CREDITORS WHICH ARE OUTSTANDING AS ON 31.03.2009 ARE NOT PAID TILL DATE AND THE ASSESSEE HAS NOT FILED ANY CONFIRMATIONS FROM THE ABOVE CREDITORS. THE ASSESSEE SUBMITTED THAT AMOUNTS INVOLVED ARE SMALL IN AMOUNT AND THE CREDITORS ARE LARGE IN NUMBER THEREFORE, IT IS DIFFICULT TO OBTAIN C ONFIRMATION FROM ALL THE CREDITORS. THE AMOUNTS WERE ACTUALLY PAYABLE TO THE ABOVE PARTIES AND THE AMOUNTS ARE NOT PAID DUE TO DISPUTE IN QUALITY OR QUANTITY OR SHORTAGE OF FUNDS THEREFORE, IT CANNOT BE ADDED U/S. 41(1) OF THE ACT. THE AO DID NOT ACCEPT TH E CONTENTION OF THE ASSESSEE AND HE HAS ADDED T HIS AMOUNT AS SUNDRY CREDITORS U/S.41(1) OF THE ACT. 3.1. WE HAVE HEARD THE RIVAL CONTENTION OF BOTH THE PARTIES. LOOKING TO THE FACTS AND CIRCUMSTANCES OF THE CASE, WE FIND THAT THE ASSESSEE HAS SUBMITTED THE DETAILS OF PAYMENTS MADE DURING TH E SUBSEQUENT YEARS AGAINST RS. 44,96,275/ - BEING RETENTION AMOUNT ADDED U/S 41(1) BY THE LEARNED ASSESSING OFFICER. THE ASSESSEE HAS MADE TOWARDS RETENTION MONEY OF RS.9,39,621/ - DURING THE FINANCIAL YEAR 11 - 12 AND RS. 18,35,967/ - PAID DURING THE FINANCIAL YEAR 12 - 13 AS 5 . ITA NO.77/PNJ/2014 & C.O. 23/PNJ/2014 ACIT VS. M/S. D.S. CONTRACTORS (P) LTD. SUCH OUT OF RS. 44,96,275/ - AND AMOUNT OF RS. 27,75,588/ - (RS. 9,39,621/ - + RS.18,35,967/ - ) HAS BEEN SUBSE QUENTLY PAID AND BALANCE OF RS. 17,20,687/ - WHICH WAS ADMITTED LIABILITY U/S. 41(1) OF THE ACT. WE FIND THAT THE CIT(A) HAS ALSO RELIED UPON THE DECISION OF HONBLE SUPREME COURT IN THE CASE OF CIT VS. SUGAUTI SUGAR WORKS PVT. LTD. 266 ITR 518 (SC). WE FIND THAT THE CIT(A) IS JUSTIFIED IN HIS ACTION AND OUR INTERFERENCE IS NOT REQUIRED. THE C.O IS SUPPORT IVE TO THE ORDER OF THE CIT(A). 6. IN THE RES ULT, APP EAL FILED BY THE DEPARTMENT A N D C . O A R E DISMISSED. ORDER PRONOUNCED IN TH E OPEN COURT ON 2 6 .09 .2014. S D / - S D / - ( P.K. BANSAL) (D.T. GARASIA) ACCOUNTANT MEMBER JUDICIAL MEMBER PLACE : PANAJI / GOA DATED : 2 6 .09 .2014 P.S. - *PK* COPY TO : ( 1 ) APPELLANT ( 2 ) RESPONDENT ( 3 ) CIT CONCERNED ( 4 ) CIT(A) CONCERNED ( 5 ) D.R ( 6 ) GUARD FILE TRUE COPY, BY ORDER