KUNAL PLASTICS P. LTD, MUMBAI V. ITO 8(2)(2), MUMBAI

ITA 7719/MUM/2011

• Counselvise Citation: 771919914 RSA 2011
• Duration Of Justice: 3 year(s) 9 month(s) 24 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 09-09-2015
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: A
• Next Hearing Date: 02-03-2015
• Assessment Year: 2008-2009
• Appeal Filed On: 15-11-2011
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: S P WALIMBE
• Assessee Lawyers: GOVIND JHAVERI
• Keywords: Earning of tax free income
• Section: 143(3); 14A; 10

Judgement Text

, INCOME TAX APPELLATE TRIBUNAL,MUMBAI A BENCH , , BEFORE S/SH. RAJENDRA,ACCOUNTANT MEMBER & PARTHASAR ATHY CHOUDHURY,JUDICIAL MEMBER /. ITA NO. 7719 /MUM/201 1 , / ASSESSMENT YEAR - 200 8 - 09 M/S. KUNAL PLASTICS PVT. LTD. AKKAD MEHTA & CO. CHARTEREDT ACCOUNTANTS 2, VATIKA, 14 BAPTISTA RD. VILE PARLE (E) MUMBAI - 400 0 56 . PAN: A A ACK 4312 L VS INCOME TAX OFFICER - 8(2) - 2 MUMBAI. ( / APPELLANT ) ( / RESPONDENT ) /ASSESSEE BY : SHRI GOVIND JHAVERI / REVENUE BY : SHRI S.P. WALIMBE / DATE OF HEARING : 01 - 09 - 2015 / DATE OF PRONOUNCEMENT : 09 - 0 9 - 2015 , 1961 254 ( 1 ) ORDER U/S.254(1)OF THE INCOME - TAX ACT,1961(ACT) PER RAJENDRA, AM - CHALLENGING THE ORDER D ATED 12.9.2011 OF CIT(A) - 17 , MUMBAI, THE ASSESSE, HAS RAISED FOLLOWING GROUNDS OF APPEAL : BEING AGGRIEVED BY THE ORDER OF THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) - 17, MUMBAI, THIS APPEAL PETITION IS SUBMITTED ON THE FOLLOWING GROUNDS WHICH IT IS PRAYED MAY BE CONSIDERED INDEPENDENTLY WITHOUT PREJUDICE TO ONE ANOTHER.: - 1. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW THE LEARNED COMMISSIONER OF INCOME - TAX (APPEALS) ERRED IN CONFIRMING THE DISALLOWANCE OF SUM OF RS.2,95,123/ - U/S.14A MADE BY THE ASSESSING OFFICER ON THE PLEA THAT WHILE COMPUTING THE DISALLOWA NCE, THE TOTAL AMOUNT OF INTEREST PAID ON ALL BORROWINGS HAS TO BE CONSIDERED AND SHOULD NOT BE RESTRICTED TO DISALLOWANCE IN RESPECT OF EXPENDITURE DIRECTLY ATTRIBUTED TO EXEMPT INCOME. HE FURTHER CONFIRMED THAT THE DISALLOWANCE CANNOT BE RESTRICTED TO THE EXEMPT INCOME RECEIVED. ACCORDINGLY, HE ADOPTED THE ENTIRE BORROWING COST OF RS. 52, 03,682/ - BEING INTEREST & FINANCE CHARGES FOR THE PURPOSE OF COMPUTATION OF DISALLOWANCE U/S. 14A OF THE I.T ACT, 1961, HOLDING THAT IT SHOULD FORM PART OF EXPENDI TURE NOT DIRECTLY ATTRIBUTABLE. THE LEARNED CIT(A) HAS HELD THAT WHERE NO DIRECT NEXUS CAN BE ESTABLISHED BETWEEN INTEREST PAID AND THE INCOME THEN THE DISALLOWANCE WILL HAVE TO BE MADE AS PER THE FORMULA STIPULATED IN CLAUSE (II) OF RULE 80(2) NOTWI THSTANDING THE FACT THAT ONLY PART AMOUNT HAS BEEN INVESTED FROM THE BORROWED CAPITAL. 2 THE APPELLANT CRAVES LEAVE TO ADD TO AMEND, ALTER, DELETE AND/OR MODIFY THE ABOVE GROUND OF APPEAL ON OR BEFORE THE FINAL DATE OF HEARING OF THIS APPEAL PETITIO N. ASSESSEE COMPANY, ENGAGED IN THE BUSINESS OF MANUFACTURING LDPE OR LLDPE CO - EXTRUDED FILMS AND BAGS FILED RETURN OF INCOME ON 18.9.2008 DECLARING INCOME OF RS.27.26 LACS. THE AO COMPLETED THE ASSESSMENT ON 16.12.2010 U/S. 143(3) OF THE ACT, DETERMI NING THE INCOME OF THE ASSESSE AT RS.29,99,580/ - . ITA/ 7719 /M/1 1 - KUNAL PLASTICS 2 2. EFFECTIVE GROUND OF APPEAL IS REGARDING CONFIRMING OF DISALLOWANCE OF RS.2,95,123/ - U/S. 14A OF THE ACT MADE BY THE AO.DURING ASSESSMENT PROCEEDINGS THE AO FOUND THAT THE ASSESSEE HAD EARNED DIVIDEND INCOME OF RS.54,660/ - , THAT IT HAD CLAIMED THE SAME AS EXEMPT U/S. 10 (34) OF THE ACT,THAT THE ASSESSEE ITSELF HAD DISALLOWED A SUM OF RS.22,463/ - BEING 0.5% OF THE INVESTMENT U/S.14A.HOWEVER , THE AO FOUND THAT NO DISALLOWANCE WAS MADE WITH REGARD TO AN AM OUNT OF RS.52,03,682/ - DEBITED TO P&L ACCOUNT. HE ASKED THE ASSESSEE AS TO WHY THE DISALLOWANCE U/S. 14A R.W. RULE 8D SHOULD NOT BE MADE.AFTER CONSIDERING THE SUBMISSION OF THE ASSESSEE THE AO HELD THAT IN VIEW OF JUDGMENT OF HON'BLE BOMBAY HIGH COURT IN THE CASE OF GODREJ & BOYCE MFG. CO. LTD. (234 CTR 1), IT WAS OBLIGATORY ON PART OF THE AO TO FOLLOW THE METHOD PRESCRIBED U/R 8D.FINALLY , THE AO DISALLOWED A FURTHER SUM OF RS.2,95,123/ - UNDER CLAUSE (II) OF RULE 8D(2). 3. AGGRIEVED BY THE ORDER OF THE AO T HE ASSESSEE PREFERRED AN APPEAL BEFORE THE FIRST APPELLATE AUTHORITY (FAA). BEFORE HIM, IT WAS ARGUED THAT THE ASSESSEE HAD NOT INCURRED ANY EXPENDITURE FOR EARNING DIVIDEND INCOME,THAT NO PART OF INVESTMENT WAS MADE FROM BORROWED FUNDS, THAT THE ENTIRE I NVESTMENT IN SHARES WAS MADE OUT OF ACCUMULATED RESERVES, THAT INVESTMENT OF RS.35.14 LACS IN THE SHARES OF SYNERGY FILMS PVT. LTD.(SFPL) WAS MADE OUT OF SALE PROCEEDS OF THE SHARES OF JAMPORE PRINTERS PVT. LTD.(JPPL) AND FROM CASH ACCRUALS. THE A SSESSEE PL ACE RELIANCE ON THE DECISION OF HERO CYCLES (323 ITR 528), RELIANCE UTILITY AND POWER LTD. (313 ITR 340). AFTER CONSIDERING THE SUBMISSION OF THE ASSESSEE AND THE ASSESSMENT ORDER THE FAA DIRECTED THE ASSESSEE ON 5.9.2011, TO PRODUCE THE RELEVANT BANK BOO KS FROM WHICH THE INVESTMENTS WERE MADE FOR THE CURRENT YEAR AND PAST YEARS. THE ASSESSEE FILED NECESSARY DETAILS VIDE ITS LETTER DT.10.09.2011.FROM THE DETAILS HE FOUND THAT INVESTMENT IN JPPL AND SFPL HAVE BEEN PARTLY MADE FROM CASH CREDIT ACCOUNT HAVING A DEBIT BALANCE, THAT THE INVESTMENT HAD BEEN MADE PARTLY FROM BORROWED CAPITAL, THAT PART OF THE INTEREST AND FINANCIAL CHARGES HAD A NEXUS WITH INVESTMENT IN EQUITY SHARES .HE HELD THAT THE PROVISIONS OF RULE 8D(2)(II) WERE APPLICABLE TO THE FACTS OF THE CASE, THAT THE CASES RELIED UPON BY THE ASSESSEE PERTAINED TO A . Y . S PRIOR TO A.Y. 2008 - 09 WHEN PROVISIONS OF RULE 8D WERE NOT APPLICABLE.HE REFERRED TO THE DECISION OF GODREJ AND BOYCE MFG. CO. LTD. OF HON'BLE BOMBAY HIGH COURT, THAT A PART OF THE INVESTME NT HAD BEEN MADE FROM BORROWED FUNDS, THAT THERE WAS NO ERROR IN COMPUTATION OF DISALLOWANCE UNDER RULE 8D. 4. BEFORE US, THE AUTHORISED REPRESENTATIVE (AR) ARGUED THAT INVESTMENT WAS MADE OUT OF COMMON FUNDS. HE REFERRED TO THE CASE OF HDFC LTD. (366 ITR 5 05) OF THE HON'BLE BOMBAY HIGH COURT. HE FURTHER STATED THAT THE AO, WHILE COMPLETING THE ASSESSMENT FOR THE SUBSEQUENT YEAR HAD MADE DISALLOWANCE OF RS.24,081/ - ONLY. ALTERNATIVELY IT WAS ARGUED THAT THE FAA SHOULD HAVE CONSIDERED RS.26.53 LACS ONLY FOR DISALLOWANCE. DEPARTMENTAL REPRESENTATIVE (DR) SUPPORTED THE ORDER OF THE FAA. 5. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL ON RECORD.WE FIND THAT THE FAA HAD CALLED FOR THE DETAILS OF THE SHARES SOLD AND PURCHASED ALONGWITH THE RELEVANT BANK BOOKS . H E PROVED THAT INVESTMENT IN JPPN AND SFPL HAD BEEN PARTLY MADE FROM THE CASH CREDIT ACCOUNT. AS THE ASSESSEE HAD USED PART OF THE BORROWED FUNDS FOR EARNING EXEMPT INCOME , SO , THE FAA HAD RIGHTLY HELD THAT PROVISION OF S.14A R.W.R. 8D ARE APP LICABLE TO DECIDE THE ISSUE .HOWEVER, IN OUR OPINION, THE ALTERNATE ARGUMENT OF THE AR HAS TO BE CONSIDERED FOR MAKING THE DISALLOWANCE. CONSIDERING THE PECULIAR FACTS AND CIRCUMSTANCES OF THE CASE WE ARE OF THE OPINION THAT IN THE INTEREST OF JUSTICE THE M ATTER SHOULD BE RESTORED BACK TO AO FOR VERIFICATION PURPOSES. HE IS DIRECTED TO MADE PROPORTIONATE DISALLOWANCE IN LIGHT OF THE SUBMISSION MADE BY THE ASSESSEE THAT THE SUM OF RS.26.53 LACS SHOULD HAVE BEEN TAKEN FOR 14A PURPOSES.THE AO IS DIRECTED TO AF FORD A ITA/ 7719 /M/1 1 - KUNAL PLASTICS 3 REASONABLE OPPORTUNITY TO THE ASSESSEE . EFFECTIVE GROUND OF APPEAL IS DECIDED IN FAVOUR OF THE ASSESSEE IN PART. AS A RESULT,APPEAL FILED BY THE ASSESSEE STANDS PARTLY ALLOWED. . ORDER PRONOUNCED IN THE OPEN COURT ON 9 TH SEPTEMBER,2015. 9 , 2015 SD/ - SD/ - ( / PARTHASARATHY CHOUDHURY) ( / RAJENDRA) / JUDICIAL MEMBER / ACCOUNTANT MEMBER / MUMBAI, /DATE: 09 . 0 9 . 2015 . . . JV. SR.PS. / COPY OF THE ORDER FORWARDED TO : 1. APPELLANT / 2. RESPONDENT / 3. THE CONCERNED CIT(A)/ , 4. THE CONCE RNED CIT / 5. DR A BENCH, ITAT, MUMBAI / , , . . . 6. GUARD FILE/ //TRUE COPY// / BY ORDER, / DY./ASST. REGISTRAR , / ITAT, MUMBAI.