KGK ENTERPRISES(NOW KNOWN AS KGK DIAMONDA (I) PVT. LTD.), MUMBAI V. ACIT, Jaipur

ITA 797/JPR/2015

• Counselvise Citation: [2016] 131 COUNSELVISE.COM (IT) 5173 (ITAT-JAIPUR)
• Duration Of Justice: 8 month(s) 21 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 11-08-2016
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: Not Allotted
• Assessment Year: 2010-2011
• Appeal Filed On: 20-11-2015
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: D S KOTHARI CIT DHK
• Assessee Lawyers: G G MUNDRA
• Section: 14A

Judgement Text

VK;DJ VIHYH; VF/KDJ.K] T;IQJ U;K;IHB] T;IQJ IN THE INCOME TAX APPELLATE TRIBUNAL, JAIPUR BENCHE S, JAIPUR JH DQY HKKJR] U;KF;D LNL; ,OA JH FOE FLAG ;KNO] YS [KK LNL; DS LE{K BEFORE: SHRI KUL BHARAT, JM & SHRI VIKRAM SINGH YAD AV, AM VK;DJ VIHY LA-@ ITA NO.797/JP/15 FU/KZKJ.K O'K Z@ ASSESSMENT YEAR : 2010-11 M /S KGK ENTERPRISES (NOW KNOWN AS KGK DIAMONDS (I) PVT. LTD. DE 4011-16, TOWER-D,4TH FLOOR, BHARAT DIAMOND BOURSE, BANDRA KURLA, BANDRA (EAST) MUMBAI-400051 CUKE VS. THE ACIT, CENTRAL CIRCLE-2, JAIPUR LFKK;H YS[KK LA-@THVKBZVKJ LA-@ PAN NO. AADFK 7821 L VIHYKFKHZ@ APPELLANT IZR;FKHZ@ RESPONDENT FU/KZKFJRH DH VKSJ LS@ ASSESSEE BY : SHRI G.G. MUNDRA (CA) JKTLO DH VKSJ LS@ REVENUE BY : SHRI D.S. KOTHARI( CIT ) LQUOKBZ DH RKJH[K@ DATE OF HEARING : 04.08.2016 ?KKS'K .KK DH RKJH[K @ DATE OF PRONOUNCEMENT : 11/08/2016. VKNS'K@ ORDER PER SHRI VIKRAM SINGH YADAV, A.M. THIS IS AN APPEAL FILED BY THE ASSESSEE AGAINST THE ORDER OF LD. CIT(A)-4, JAIPUR DATED 18.09.2015 WHEREIN THE ASSESSEE HAS T AKEN FOLLOWING GROUNDS OF APPEAL: (1) THE LD. CIT(A) HAS ERRED IN LAW AND ON FACTS AND I N THE CIRCUMSTANCES OF THE CASE IN CONFIRMING DISALLOWANCE U/S 14A R.W.R.8 D TO THE EXTENT OF RS. 5,21,464/-. (2) THE LD. CIT(A) HAS ERRED IN LAW AND ON FACTS A ND IN THE CIRCUMSTANCES OF THE CASE IN CONFIRMING DISALLOWANCE OF RS. 51,077/- BEING 10% OF ITA NO.797/JP/15 M/S KGK ENTERPRISES, MUMBAI VS. ACIT, CENTRAL CIRCL E-2, JAIPUR. 2 BUSINESS PROMOTION EXPENSES ON ESTIMATION BASIS WIT HOUT APPRECIATING THE FACT THAT THESE EXPENSES WERE INCURRED WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF BUSINESS. 2 . THE BRIEF FACTS OF THE CASE ARE THAT DURING THE YEA R UNDER CONSIDERATION, THE ASSESSEE HAS SHOWN INVESTMENT OF RS 3,40,26,925 AS ON 31.03.2009 AND RS 3,37,16,325 AS ON 30.09.2009. THE ASSESSING OFFICER HAS HELD THAT, ACCORDINGLY, AN AMOUNT OF RS 7,89,006 WAS DISALLOWED U/S 14A OF THE ACT. THE LD. CIT(A) STATED THAT THE AO WHILE COMPUTING THE DISALLOWANC E UNDER RULE 8D OF IT RULES 1962 HAS TAKEN INTO ACCOUNT ONLY GROSS INTEREST EXP ENSES OF RS.8,05,39,990/- WITHOUT GIVING ANY SETTING OFF INTEREST RECEIVED RS . 1,27,61,580/-. IT IS A FACT THAT DISALLOWANCE OF EXPENDITURE U/S 14A R.W.R.8D H AVE TO BE CALCULATED ON NET INTEREST EXPENSE OF RS.6,77,78,410/- WHICH IS ALSO ENDORSED BY HONBLE ITAT BENCH DELHI IN CASE OF KESHAV SHARES & STOCKS LTD. (SUPRA). THEREFORE, HE DISALLOWANCE U/S 14A R.W.R 8D WAS CONFIRMED TO THE EXTENT OF RS.5,21,464/- AND BALANCE AMOUNT (7,89,006 5,21,464)= RS. 2,67, 542/- WAS DELETED. THE ASSESSEE IS IN APPEAL AGAINST THE DISALLOWANCE OF R S 5,21,464. 2.2 DURING THE COURSE OF HEARING, THE LD. AR SUBMIT TED THAT INVESTMENT MADE IS ONLY RS. 3.37 CRORE WHEREAS THE NET WORTH O F THE ASSESSEE IS RS. 115.70 CRORES. RELIANCE IS PLACED ON CIT VS. RELIANCE UTI LITIES & POWER LTD. (2009) 313 ITR 340 (BOM) WHEREIN IT WAS HELD THAT IF THERE BE INTEREST FREE FUNDS AVAILABLE TO THE ASSESSEE SUFFICIENT TO MEET ITS IN VESTMENT AND AT THE SAME TIME LOAN IS RAISED IT CAN BE PRESUMED THAT INVESTM ENT WERE MADE FROM INTEREST FREE FUNDS. ALSO RELIANCE WAS PLACED ON T HE FOLLOWING DECISIONS : (I) CIT VS. HDFC BANK LTD. (2014) 366 ITR 505 (BOM HC) (II) CIT VS. GUJARAT NARMADA VALLEY FERTILIZER CO. LTD. (2014)221 TAXMAN 479 (GUJ.HC) ( III) CIT VS. INDIAN SUGAR EXIM CORPN LTD. (2012) 20 6 TAXMAN 242 (DELHI HC) 2.3 THE LD AR FURTHER SUBMITTED THAT THE APPELLANT HAS MADE STRATEGIC INVESTMENT IN ITS GROUP CONCERN FOR THE SAKE OF CON TROLLING STAKE (REFER PAGE 3 OF CIT(A) ORDER). HENCE NO DISALLOWANCE U/S 14A CA N BE MADE, IF PRIMARY OBJECT OF INVESTMENT IS TO HOLD CONTROLLING STAKE I N GROUP CONCERN AND NOT TO EARN TAX FREE INCOME. ALSO RELIANCE WAS PLACED ON THE FOLLOWING DECISIONS: ITA NO.797/JP/15 M/S KGK ENTERPRISES, MUMBAI VS. ACIT, CENTRAL CIRCL E-2, JAIPUR. 3 (I) GARWARE WALL ROPES LTD. VS. ADDL.CIT (MUM TRIB) (2014) 46 TAXMANN.COM 18. (II) PIEM HOTELS LIMITED VS. DCIT (TS-162-ITAT-2015 )(MUM) (III) INTERGLOBE ENTERPRISES LTD. VS. DCIT (ITA NO. 1362 & 1032/DEL/2013 (IV) EIH ASSOCIATED HOTELS LTD. VS. DCIT (2009)126 TTJ 246 (KOL) 2.4 THE LD AR FURTHER SUBMITTED THAT THE APPELLANT HAS INCURRED 8.05 CRORE INTEREST AND THE SAID INTEREST IS PAID FOR BORROWI NG FACILITY USED IN FOREIGN CURRENCY LOAN I.E PACKING CREDIT LIMIT (PCL) AND P OST SHIPMENT EXPORT FINANCE (PSEF)OBTAINED FROM VARIOUS BANK AND PCL AND PSEF G IVEN BY BANK ARE EXCLUSIVELY FOR THE PURPOSE OF PURCHASE OF RAW MAT ERIAL, PAYMENT OF LABOUR CHARGES AND DIRECT EXPENSES WHICH ARE RELATED TO M ANUFACTURING ACTIVITY AND APPELLANT CAN NEVER USE THESE FUNDS FOR INVESTMENT PURPOSE. RELIANCE WAS PLACED ON DECISION OF COORDINATE BENCH IN CASE OF S EVEN SEAS PETROLEUM P. LTD. VS. DCIT (2015) 61 TAXMANN.COM 890 (CHENNAI TRIBUNA L) WHEREIN IT WAS HELD THAT WHERE ASSESSEES CLAIM THAT INTEREST ON OVERD RAFT FACILITY WHICH WAS AVAILED FOR EXPORTING GOODS FOR BUSINESS PURPOSES C OULD NOT BE CONSIDERED FOR DISALLOWANCE UNDER RULE 8D. 2.5 THE LD AR FURTHER SUBMITTED THAT REASON FOR DIS ALLOWANCE U/S 14A GIVEN BY AO IS VERY GENERAL AND NO COGENT REASON WAS GIVE N, HENCE DISALLOWANCE U/S 14A CANNOT BE MADE AND RELIANCE WAS PLACED ON THE F OLLOWING DECISIONS: (I) CIT VS. REI AGRO LTD. 35 TAXMANN.COM 404 (KOL. TRIBUNAL) (II) ABHISHEK INDUSTRIES LTD.(2015) 56 TAXMAN.COM 3 91 (P&H) (III) RAJSHRI PRODUCTION PVT. LTD. (TS-57ITAT-013) (MUM) (IV) JINDAL PHOTO LTD. (TS-405-ITAT-2012-DEL) (V) HERO MANAGEMENT SERVICE LTD. (2014) 220 TAXMAN 107 (DELHI HC) ITA NO.797/JP/15 M/S KGK ENTERPRISES, MUMBAI VS. ACIT, CENTRAL CIRCL E-2, JAIPUR. 4 2.3 THE LD CIT DR IS HEARD WHO HAS RELIED ON THE OR DER OF LOWER AUTHORITIES. 2.4 WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE MATERIAL AVAILABLE ON RECORD. IT IS NOTED THAT THE INVESTMENT WORTH R S 3. 37 CRORES HAVE BEEN MADE BY THE ASSESSEE IN THE EARLIER YEARS AND NOT I N THE YEAR UNDER CONSIDERATION. EVEN IF ONE WERE TO CONSIDER THE AVA ILABILITY OF INTEREST FREE FUNDS DURING THE YEAR, IT IS NOTED THAT PARTNERS C APITAL ACCOUNT IS WORTH RS. 115.70 CRORES. FURTHER, THE SECURED LOANS AVAIL ED BY THE ASSESSEE IN FORM OF PACKING CREDIT LIMIT (PCL) AND POST SHIPMENT EXPORT FINANCE (PSEF) FROM VARIOUS BANK ARE EXCLUSIVELY FOR THE PURPOSE OF PUR CHASE OF RAW MATERIAL, PAYMENT OF LABOUR CHARGES AND OTHER DIRECT EXPENSES AND WHICH THUS HAVE A END-USE RESTRICTION AND MONITORING BY THE BANKS TOW ARDS THE MANUFACTURING AND EXPORT ACTIVITY OF THE APPELLANT. IN LIGHT OF ABOVE, WE AGREE WITH THE CONTENTION OF THE ASSESSEE THAT GIVING THE AVAILABI LITY OF INTEREST FREE FUNDS OVER AND ABOVE THE SECURED LOANS AND ALSO THE FACT THAT THE SECURED LOANS HAD A SPECIFIC END-USE RESTRICTION, THE INVESTMENTS HAV E BEEN MADE FROM ITS INTERNAL ACCRUALS IN THE EARLIER YEARS AND GIVEN TH AT NO EXPENDITURE HAS BEEN INCURRED, NO DISALLOWANCE U/S 14A IS WARRANTED. FUR THER, THE DECISION OF HONBLE BOMBAY HIGH COURT IN CASE OF HDFC BANK LTD. (SUPRA) AND HONBLE GUJARAT HIGH COURT IN CASE OF GUJARAT NARMADA VALLE Y FERTILIZERS (SUPRA) ALSO SUPPORTS THE CASE OF THE ASSESSEE. IN LIGHT OF ABO VE, GROUND NO. 1 OF THE ASSESSEE IS ALLOWED. 2.5 DURING THE COURSE OF HEARING, THE LD AR DIDNT PRESS FOR THE GROUND NO. 2. HENCE, THE SAME IS DISMISSED AS NOT PRESSED. IN THE RESULT THE APPEAL FILED BY THE ASSESSEE IS PARTLY ALLOWED. ITA NO.797/JP/15 M/S KGK ENTERPRISES, MUMBAI VS. ACIT, CENTRAL CIRCL E-2, JAIPUR. 5 ORDER PRONOUNCED IN THE OPEN COURT ON 11/0 8/2016. SD/- SD/- ( KUL BHARAT ) (VIKRAM SINGH YADAV) U;KF;D LNL;@ JUDICIAL MEMBER YS[KK LNL;@ ACCOUNTANT MEMBER JAIPUR DATED:- 11/ 08/2016 PILLAI VKNS'K DH IZFRFYFI VXZSF'KR@ COPY OF THE ORDER FORWARDED TO: 1. VIHYKFKHZ@ THE APPELLANT- M/S KGK ENTERPRISES, MUMBAI 2. IZR;FKHZ@ THE RESPONDENT- THE ACIT, CENTRAL CIRCLE-2, JAIPUR 3. VK;DJ VK;QDR@ CIT (CENTRAL), JAIPUR 4. VK;DJ VK;QDRVIHY@ THE CIT(A)-4, JAIPUR 5. FOHKKXH; IZFRFUF/K] VK;DJ VIHYH; VF/KDJ.K] T;IQJ@ DR, ITAT, JAIPUR 6. XKMZ QKBZY@ GUARD FILE (ITA NO.797 /JP/2015) VKNS'KKUQLKJ@ BY ORDER, LGK;D IATHDKJ@ ASSISTANT. REGISTRAR