Essel Mining & Industries Limited, Kolkata V. D.C.I.T Cir - 5,kolkata, Kolkata

ITA 786/KOL/2013

• Counselvise Citation: [2018] 121 COUNSELVISE.COM (IT) 6428 (ITAT-KOLKATA)
• Duration Of Justice: 5 year(s) 21 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 02-05-2018
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: A
• Assessment Year: 2008-2009
• Appeal Filed On: 11-04-2013
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: G HANGSHING
• Assessee Lawyers: D S DAMLE F
• Keywords: Earning of tax free income
• Section: 14A

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL A BENCH : KOLKATA [BEFORE HONBLE SHRI S.S. GODARA, JM & SHRI M.BAL AGANESH, AM ] I.T.A NO. 786/KOL/201 3 ASSESSMENT YEAR : 2008-0 9 ESSEL MINING & INDUSTRIES LTD. -VS- DCIT, CI RCLE-5, KOLKATA [PAN: AAACE 6607 L] (APPELLANT) (RESPOND ENT) FOR THE APPELLANT : SHRI D.S. DAMLE, F CA FOR THE RESPONDENT : SHRI G. HANGSHING, CIT DATE OF HEARING : 26.04.2018 DATE OF PRONOUNCEMENT : 02.05.2018 ORDER PER M.BALAGANESH, AM 1. THIS APPEAL WAS EARLIER DISPOSED OFF BY THIS TRI BUNAL IN ITA NO. 786 & 2073/KOL/2013 (CROSS APPEALS) FOR THE ASST YEAR 200 8-09 VIDE ORDER DATED 10.3.2017. LATER A MISCELLANEOUS APPLICATION WAS PREFERRED BY THE ASSESSEE IN M.A.NO. 108/KOL/2017 FOR NON-CONSIDERATION OF THE TRIBUNAL DECISION PASSED IN ASSESSEES OWN CASE WITH REGARD TO THE ISSUE OF DISALLOWANCE U/S 1 4A OF THE ACT. THIS MISCELLANEOUS APPLICATION OF THE ASSESSEE WAS DISPOSED OFF BY THI S TRIBUNAL IN M.A.NO. 108/KOL/2017 DATED 10.11.2017 BY HOLDING AS UNDER:- 6. IN VIEW OF THE ABOVE WE HOLD THAT THE MISTAKE AP PARENT FROM THE RECORD HAS OCCURRED IN THE ORDER PASSED BY THIS HONBLE ITAT I N PURSUANCE TO THE PROVISIONS OF SECTION 254(2) OF THE ACT. WE THEREFORE RECALL THE IMPUGNED ORDER FOR THE LIMITED PURPOSE OF ADJUDICATION OF THE DISALLOWANCE MADE BY THE AO UNDER 2 ITA NO.786/KOL/2013 ESSEL MINING & INDUSTRIES LTD. A.YR. 2008-09 2 SECTION 14A OF THE ACT. ACCORDINGLY THE REGISTRY I S DIRECTED TO FIX THE CASE FOR HEARING IN DUE COURSE OF TIME. HENCE THE GROUND FIL ED BY THE ASSESSEE IN MISCELLANEOUS APPLICATION IS ALLOWED. 2. ACCORDINGLY, THIS APPEAL WAS REFIXED FOR THIS LI MITED PURPOSE OF ADJUDICATION ON THE ISSUE OF DISALLOWANCE U/S 14A OF THE ACT AND WAS HE ARD ON 26.4.2018. 3. THE BRIEF FACTS OF THE ISSUE OF DISALLOWANCE U/S 14A OF THE ACT ARE THAT THE ASSESSEE IS A LIMITED COMPANY ENGAGED IN THE MANUFACTURING BUSI NESS OF RISING OF ORE, MANUFACTURING OF NITROGEN GAS AND FERRO ALLOYS, TRA DING OF IRON ORE AND FERRO ALLOYS, GENERATION OF ELECTRICITY (WIND MILL) AND RAILWAY S IDING FOR CAPTIVE USE. THE ASSESSEE IN THE YEAR UNDER CONSIDERATION EARNED DIVIDEND INCOME OF RS 7.10 CRORES WHICH WAS CLAIMED AS EXEMPT U/S 10(34) OF THE ACT. THE LD AO QUESTIONED THE ASSESSEE FOR INVOKING THE PROVISIONS OF SECTION 14A OF THE ACT R EAD WITH RULE 8D OF THE RULES. THE ASSESSEE REPLIED AS UNDER:- A) THERE WAS NO DIRECT EXPENDITURE INCURRED IN EARN ING THE AFORESAID DIVIDEND INCOME AS THE DIVIDEND WAS RECEIVED IN THE BANK DIRECTLY. B) THERE WAS NO BORROWED FUND USED IN MAKING THE IN VESTMENT THEREFORE THE QUESTION OF INTEREST DISALLOWANCE DOES NOT ARISE. C) THE ASSESSEE FOR THE ADMINISTRATIVE EXPENSES HAS MADE THE DISALLOWANCE OF RS 5.97 LACS AND SUBMITTED THE DETAILS OF THE SAME IN SEPAR ATE ANNEXURE AND STATED THAT 4 PERSONS SALARY HAS BEEN ALLOCATED TO THIS. HOWEVER, THE LD AO REJECTED THE CONTENTION OF THE A SSESSEE BY OBSERVING THAT THE LAW DOES NOT MAKE ANY DISTINCTION FOR THE DISALLOWANCE U/S 14A OF THE ACT IN A CASE WHERE THE DIVIDEND WAS CREDITED TO THE BANK DIRECTLY. ACC ORDINGLY THE LD AO INVOKED THE PROVISIONS OF RULE 8D AND WORKED THE DISALLOWANCE A S UNDER:- (I) DIRECT EXPENSES RS NIL 3 ITA NO.786/KOL/2013 ESSEL MINING & INDUSTRIES LTD. A.YR. 2008-09 3 (II) INTEREST EXPENSES RS 1573.03 LACS (III) ADMINISTRATIVE EXPENSES RS 143.00 LACS THIS ACTION WAS CONFIRMED BY THE LD CITA. AGGRIEVED , THE ASSESSEE IS IN APPEAL BEFORE US ON THE FOLLOWING GROUNDS:- 1. FOR THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF T HE CASE, THE CIT(A) ERRED IN UPHOLDING THE DISALLOWANCE OF RS. 17,15,98,000/- MA DE BY THE AO U/S 14A OF THE INCOME TAX ACT EVEN THOUGH THE AUTHORITIES BELO W HAD NOT ESTABLISHED ANY NEXUS BETWEEN INCURRING OF THE EXPENSES OF SUCH MAG NITUDE WITH EARNING OF TAX-FREE INCOME. 2. FOR THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF T HE CASE, THERE HAVING BEEN NET REDUCTION IN THE INVESTMENTS DURING THE RELE VANT YEAR FROM WHICH THE TAX EXEMPT INCOME WAS EARNED AND IN THE YEARS OF MA KING INVESTMENT THERE BEING NO FINDING RECORDED BY THE AO THAT THE INVEST MENTS WERE MADE OUT OF BORROWED FUNDS, THE AUTHORITIES BELOW WERE UNJUSTIF IED IN LAW IN DISALLOWING PART OF THE INTEREST PAID BY INVOKING PROVISIONS OF SEC. 14A OF THE INCOME TAX ACT. 3. FOR THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF T HE CASE AND WITHOUT PREJUDICE TO GROUND NOS. 1 & 2 ABOVE, THE AUTHORITI ES BELOW WERE UNJUSTIFIED IN LAW IN NOT CONSIDERING THE INTEREST DISALLOWED B Y THE APPELLANT IN THE COMPUTATION OF TOTAL INCOME WHILE INVOKING PROVISIO NS OF SEC. 14A OF THE INCOME TAX ACT. 4. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIALS AVAILABLE ON RECORD. WE FIND FROM THE PERUSAL OF THE BALANCE SHEET OF TH E ASSESSEE THAT THE ASSESSEE IS HAVING SUFFICIENT OWN FUNDS AT ITS DISPOSAL FOR THE PURPOS E OF MAKING INVESTMENTS AND ACCORDINGLY IT COULD BE HELD THAT NO BORROWED FUNDS WERE UTILIZED FOR MAKING INVESTMENTS. WE FIND THAT THIS FACTUAL ISSUE HAD A LREADY BEEN CONSIDERED IN ASSESSEES OWN CASE BY THIS TRIBUNAL IN ITA NO. 589/KOL/2011 D ATED 20.5.2016 FOR THE ASST YEAR 2007-08 HAD CATEGORICALLY HELD THAT ALL THE INVESTM ENTS WERE MADE ONLY OUT OF OWN FUNDS OF THE ASSESSEE AND NOT OUT OF BORROWED FUNDS . HENCE THERE CANNOT BE ANY 4 ITA NO.786/KOL/2013 ESSEL MINING & INDUSTRIES LTD. A.YR. 2008-09 4 DISALLOWANCE OF INTEREST UNDER SECOND LIMB OF RULE 8D(2) OF THE RULES. WE FIND THAT DURING THE YEAR UNDER APPEAL, THE SAME OLD INVESTME NTS WERE BROUGHT FORWARD FROM EARLIER YEARS. MOREOVER, THE PROFITS OF THE ASSESS EE FOR THE YEAR ALSO HAS INCREASED DURING THIS YEAR AND INVESTMENTS HAD DECREASED DURI NG THE YEAR. WE FIND THAT THIS ISSUE IS ALSO COVERED BY THE DECISION OF THE HONBLE JURI SDICTIONAL HIGH COURT IN THE CASE OF PR.CIT VS RASOI LTD IN G.A.NO. 633 OF 2016 . THE J URISDICTIONAL HIGH COURT AFTER CONSIDERING THE JUDGEMENT OF THE CO-ORDINATE BENCH IN DHANUKA & SONS REPORTED IN 339 ITR 319 (CAL) HAD OBSERVED AS UNDER:- IT APPEARS FOR BOTH THE ASSESSMENT YEARS THE APPEL LATE AUTHORITY HELD THAT THERE WAS NO FINDING OF DIRECT NEXUS BETWEEN THE BORROWED FUND AND INVESTMENT IN SHARES. THE ASSESSEES OWN FUNDS WERE FAR IN EXCES S OF THE AVERAGE TOTAL INVESTMENTS. THERE COULD NOT BE ANY PRESUMPTION OF UTILIZATION OF BORROWED FUNDS. HENCE DISALLOWANCE UNDER SECTION 14A READ W ITH RULE 8D(2)(II) WAS DELETED WHILE DISALLOWANCE OF INDIRECT EXPENSES OF RS 1,82,346/- BY APPLICATION OF RULE 8D(2)(III) UPHELD WITH THE DIRECTION TO ALL OW RELIEF OF THE SUM ALREADY DISALLOWED BY THE APPELLANT ITSELF. ON APPEAL PREFERRED BY THE REVENUE THE TRIBUNAL HE LD AS FOLLOWS:- WE HAVE HEARD RIVAL SUBMISSIONS AND GONE THROUGH F ACTS AND CIRCUMSTANCES OF THE CASE. WE FIND THAT NOW THE REV ENUE COULD NOT ESTABLISH THAT THE INVESTMENTS MADE IN SHARES GIVIN G EXEMPTED INCOME IS OUT OF BORROWED FUNDS ON WHICH INTEREST IS PAID BY ASSESSEE. THERE IS NO NEXUS WHATSOEVER. ON SPECIFIC QUERY LD.SR.DR COULD NOT CONTROVERT THAT THE ASSESSEE HAS MADE IN INVESTMENT IN SHARES GIVIN G EXEMPT INCOME OUT OF OWN FUNDS WHICH IS AT ABOUT 2429 LACS AND INVESTMEN T IS AT RS 365 LACS ONLY. ONCE THIS FACT HAS NOT BEEN DENIED AND CIT(A ) HAS CATEGORICALLY OBSERVED THAT THE ASSESSEE HAS MADE INVESTMENT IN S HARES OUT OF ITS OWN FUNDS NO DISALLOWANCE CAN BE ATTRIBUTED QUA THE INT EREST PAID ON BORROWED FUNDS FOR INVESTING THE SAME IN INTEREST F REE FUNDS. IN VIEW OF THE ABOVE, WE CONFIRM THE ORDER OF CIT(A) ON THE CO MMON ISSUE.. WE FIND THAT THIS CASE HAS YIELDED CONCURRENT FINDI NG OF FACTS REGARDING EXPENDITURE INCURRED BY THE ASSESSEE FOR THE PURPOS E OF EARNING THE EXEMPT INCOME, BY THE APPELLATE AUTHORITY AND THE TRIBUNAL . AS SUCH THERE IS NO SCOPE FOR INTERFERENCE WITH SUCH CONCURRENT FINDINGS OF F ACTS. WE, THEREFORE, ARE NOT SATISFIED THAT THE CASE INVOLVES ANY SUBSTANTIAL QU ESTION OF LAW. THE APPLICATION AND APPEAL ARE THUS DISMISSED. 5 ITA NO.786/KOL/2013 ESSEL MINING & INDUSTRIES LTD. A.YR. 2008-09 5 4.1. WE FIND THAT THE OWN FUNDS OF THE ASSESSEE FOR VARIOUS ASST YEARS TOGETHER WITH THE VALUE OF INVESTMENTS ARE AS UNDER:- ASSESSMENT YEARS PARTICULARS 05-06 06-07 07-08 08-09 (RUPEES IN LACS) SHARE CAPITAL 0.49 0.49 0.49 0.49 GENERAL RESERVES 544.30 1105.14 1165.14 1249.15 PROFIT AND LOSS A/C 32.53 45.77 568.1 8 1319.55 TOTAL OWN FUNDS 577.32 1150.91 1733.81 2569.19 INVESTMENTS 321.02 352.15 295.73 283.46 PROFIT FOR THE YEAR 572.24 771.52 896.54 1256.55 INCREASE / (DECREASE) IN INVESTMENTS - 31.13 (56.42) (12.27) HENCE THE RATIO LAID DOWN BY THE HONBLE JURISDICTI ONAL HIGH COURT IN RASOI LTD SUPRA WOULD SQUARELY APPLY TO THE FACTS BEFORE US. RESPE CTFULLY FOLLOWING THE SAME, WE HOLD THAT NO DISALLOWANCE TOWARDS INTEREST UNDER SECOND LIMB OF RULE 8D(2) OF THE RULES IS WARRANTED IN THE FACTS OF THE INSTANT CASE. 4.2. WITH REGARD TO DISALLOWANCE UNDER RULE 8D(2)(I II) OF THE RULES, WE HOLD THAT ONLY INVESTMENTS YIELDING EXEMPT INCOME SHOULD BE CONSID ERED FOR THE PURPOSE OF WORKING OUT DISALLOWANCE THEREON, IN CONSONANCE WITH THE DE CISION RENDERED BY THIS TRIBUNAL IN THE CASE OF REI AGRO LTD REPORTED IN 144 ITD 141. ACCORDINGLY WE DIRECT THE LD AO TO RECOMPUTE THE DISALLOWANCE UNDER THE THIRD LIMB OF RULE 8D(2) OF THE RULES 6 ITA NO.786/KOL/2013 ESSEL MINING & INDUSTRIES LTD. A.YR. 2008-09 6 ACCORDINGLY. WHILE DOING SO, HE SHOULD ALSO REDUC E THE DISALLOWANCE ALREADY MADE BY THE ASSESSEE IN THE RETURN OF INCOME. 5. ACCORDINGLY, THE GROUNDS 1 TO 3 RAISED BY THE AS SESSEE ARE ALLOWED FOR STATISTICAL PURPOSES. 6. IN THE RESULT, THE APPEAL OF THE ASSESSEE ON THI S LIMITED ASPECT OF DISALLOWANCE U/S 14A OF THE ACT IS ALLOWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED IN THE COURT ON 02.05.2018 SD/- SD/- [S.S. GODARA] [ M .BALAGANESH ] JUDICIAL MEMBER ACCOUNTANT MEM BER DATED : 02.05.2018 SB, SR. PS COPY OF THE ORDER FORWARDED TO: 1. ESSEL MINING & INDUSTRIES LTD., INDUSTRY HOUSE, 18 TH FLOOR, 10, CAMAC STREET, KOLKATA-700017 2. DCIT, CIRCLE-5, KOLKATA, P-7, CHOWRINGHEE SQUARE , KOLKATA-700069. 3..C.I.T.- 4. C.I.T.- KOLKATA. 5. CIT(DR), KOLKATA BENCHES, KOLKATA. TRUE COPY BY ORDER SENIOR PRIVAT E SECRETARY HEAD OF OFFICE/D.D.O., ITAT, KOLKATA BENCHE S