M/s. Rotomac Global (P) Ltd., Kanpur V. The Dy. Commissioner of Income Tax , Kanpur

ITA 81/LKW/2012

• Counselvise Citation: 8123714 RSA 2012
• Duration Of Justice: 2 year(s) 6 month(s) 25 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 18-09-2014
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: B
• Next Hearing Date: 08-08-2014
• Assessment Year: 2008-2009
• Appeal Filed On: 23-02-2012
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: Y P SRIVASTA VA
• Assessee Lawyers: S K GARG SHRI P K KAPOOR
• Keywords: Source of fund
• Section: 14A

Judgement Text

1 IN THE INCOME TAX APPELLATE TRIBUNAL LUCKNOW BENCH B, LUCKNOW BEFORE SHRI SUNIL KUMAR YADAV, JUDICIAL MEMBER AND SHRI A.K. GARODIA, ACCOUNTANT MEMBER ITA NO.81/LKW/2012 ASSESSMENT YEAR:2008 - 09 M/S ROTOMAC GLOBAL (P) LTD., 201, CITY CENTRE, 63/2, THE MALL, KANPUR. PAN:AABCR1441E VS. DY.C.I.T., CENTRAL CIRCLE - II, KANPUR. (APPELLANT) (RESPONDENT) APPELLANT BY SHRI S. K. GARG, ADVOCATE SHRI P. K. KAPOOR, C.A. RESPONDENT BY SHRI Y. P. SRIVASTAVA, D. R. DATE OF HEARING 08/08/2014 DATE OF PRONOUNCEMENT 1 8 /09/2014 O R D E R PER A. K. GARODIA, A.M. THIS IS AN ASSESSEES APPEAL DIRECTED AGAINST THE ORDER PASSED BY LEARNED CIT(A) - I, KANPUR DATED 23/11/2011 FOR THE ASSESSMENT YEAR 2008 - 2009. 2. THE GROUNDS RAISED BY THE ASSESSEE ARE AS UNDER: 1. THAT THE LD. C.I.T.(A) - II, KANPUR HAS ERRED IN LAW AND ON FACTS IN SUSTAINING THE DISALLOWANCE OF RS.4,82,690/ - U/S 14A OF THE INCOME TAX ACT, 1961 READ WITH RULE 8D(II) AND 8D(III) OF INCOME TAX RULES, 1962. 2. THAT WHILE SUSTAINING T HE DISALLOWANCE OF RS.4,82,690/ - U/S 14A OF THE INCOME TAX ACT, 1961, THE LD. C.I.T.(A) - II, KANPUR HAS FAILED TO CONSIDER AND APPRECIATE THAT THERE WAS NO DIRECT OR INDIRECT NEXUS BETWEEN THE INVESTMENT IN SHARES/UNITS OF MUTUAL FUNDS AND THE INTEREST BEAR ING FUNDS. 2 3. THAT THE LD. C.I.T.(A) - II, KANPUR HAS ALSO FAILED TO APPRECIATE THAT BUYING OF UNITS OF MUTUAL FUNDS WAS INCIDENTAL TO CARRYING ON OF THE BUSINESS AND IT WAS TO BE TREATED AS BUSINESS (OPERATING) ASSET AND ALL THE EXPENSES INCIDENTAL THERETO WERE ADMISSIBLE U/S 36/37 OF THE INCOME TAX ACT, 1961. 4. THAT THE DISALLOWANCE OF RS.4,82,690/ - U/S 14A OF THE INCOME TAX ACT, 1961 SUSTAINED BY THE LD. C.I.T.(A) - II, KANPUR IS WHOLLY UNJUSTIFIED AND UNSUSTAINABLE IN LAW. 5. THAT ANY OTHER RELIEF OR RE LIEFS AS YOUR HONOUR MAY DEEM FIT IN THE FACTS AND CIRCUMSTANCES OF THE CASE, BE GRANTED. 3. IT WAS SUBMITTED BY LEARNED A.R. OF THE ASSESSEE THAT NO FINDING WAS GIVEN BY THE ASSESSING OFFICER AS TO WHETHER ANY EXPENDITURE WAS INCURRED BY THE ASSESSEE O R NOT FOR EARNING THE EXEMPT DIVIDEND INCOME AND IN ABSENCE OF ANY FINDING OF THE ASSESSING OFFICER THAT ANY SUCH EXPENDITURE WAS IN FACT INCURRED BY THE ASSESSEE, THE DISALLOWANCE MADE BY THE ASSESSING OFFICER U/S 14A READ WITH RULE 8D OF INCOME TAX RULES IS NOT JUSTIFIED. HE PLACED RELIANCE ON THE FOLLOWING JUDICIAL PRONOUNCEMENTS: ( I ) CIT VS. HERO CYCLES LTD. [2010] 323 ITR 518 ( II ) CIT VS. DEEPAK MITTAL [2014] 361 ITR 131 (P&H) ( III ) BALRAMPUR CHINI MILLS LTD. VS. DCIT 140 TTJ (KOL) (UO) 73 ( IV ) MINDA INVESTMENTS LTD. VS. DCIT [2011] 138 TTJ (DEL) 240 ( V ) CIT VS. WINSOME TEXSTILES [2009] 319 ITR 204 (P&H) 4. AS AGAINST THIS, LEARNED D.R. OF THE REVENUE SUPPORTED THE ORDERS OF THE AUTHORITIES BELOW. 5. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS. WE FIND THAT IT IS NOTED BY ASSESSING OFFICER IN THE ASSESSMENT ORDER ON PAGE NO. 2 THAT THE ASSESSEE WAS ASKED TO FURNISH THE DETAILS OF INTEREST AND OTHER EXPENSES INCURRED BY THE ASSESSEE IN RESPECT OF DIVIDEND INCOME SHOWN BY THE ASSESSEE OF 3 RS.33,73,390/ - . THE ASSESSING OFFICER REPRODUCED THE REPLY OF THE ASSESSEE DATED 09/07/2010 IN WHICH THE ARGUMENT OF THE ASSESSEE WAS THAT RULE 8D WAS INSERTED WITH EFFECT FROM 24/03/2008 AND THIS RULE IS NOT RETROSPECTIVE IN OPERATION AND HENCE, CANNOT BE INVOKED IN THE PRESENT CASE. THE AS SESSING OFFICER HAS ALSO REPRODUCED A BRIEF NOTE OF THE ASSESSEE REGARDING RULE 8D. IN THIS BRIEF NOTE, IT WAS SUBMITTED BY THE ASSESSEE THAT THE FUNDS INVESTED IN MUTUAL FUNDS ARE ADVANCE RECEIPT FROM THE CUSTOMERS, WHICH ARE NOT INTEREST BEARING AND THE SAME HAVE TO BE INVESTED IN FIXED DEPOSIT OR MUTUAL FUND FOR PROVIDING LIQUID SECURITY TO THE BANK FOR ISSUE OF LETTER OF CREDIT IN FAVOUR OF THE ASSESSEES WHO GAVE THE ADVANCE. ALTHOUGH THESE REPLIES ARE GIVEN BY THE ASSESSEE BEFORE THE ASSESSING OFFICE R BUT THE ASSESSEE HAS NOT FURNISHED ANY DETAIL REGARDING THE EXPENDITURE INCURRED BY THE ASSESSEE IN RELATION TO EARNING OF DIVIDEND INCOME. SO FAR THIS CLAIM OF THE ASSESSEE IS CONCERNED THAT NO EXPENDITURE WAS INCURRED FOR EARNING DIVIDEND INCOME, WE F IND THAT THE SAME IS NEGATED BY THE ASSESSEES OWN SUBMISSION BECAUSE THE ASSESSEE IS SUBMITTING THAT THE FUNDS INVESTED IN MUTUAL FUNDS IS THE ADVANCE RECEIVED FROM THE CUSTOMERS AGAINST FURNISHING OF 100% LETTER OF GUARANTEE. IT REQUIRES NO ARGUMENT THA T BANK REALIZES BANK CHARGES FOR ISSUING LETTER OF GUARANTEE EVEN IF THE SAME IS AGAINST FULL SECURITY PROVIDED BY THE ASSESSEE. AS PER SCHEDULE - 21 OF THE AUDITED ACCOUNTS, AVAILABLE IN THE PAPER BOOK, IT IS SEEN THAT THE ASSESSEE HAS INCURRED AN EXPENDIT URE OF RS.75.54 LAC ON ACCOUNT OF BANK COMMISSION AND RS.38.16 LAC ON ACCOUNT OF BANK CHARGES. SOME P ORTION OF THESE EXPENSES ARE DEFINITELY ON ACCOUNT OF FURNISHING OF LETTER OF GUARANTEE BY THE BANK TO THE CUSTOMERS OF THE ASSESSEE FOR REALIZING ADVANCE FROM CUSTOMERS AND SINCE THOSE ADVANCES WERE ADMITTEDLY USED FOR MAKING INVESTMENT IN MUTUAL FUND, SOME PAYMENT OF SUCH BANK CHARGES PAID TO THE BANKS FOR FURNISHING BANK GUARANTEE IS NOTHING BUT EXPENSES INCURRED BY THE ASSESSEE IN RELATION 4 TO EARNING OF EXEMPT DIVIDEND INCOME. BUT NO SUCH DETAIL WAS PROVIDED BY THE ASSESSEE BEFORE THE ASSESSING OFFICER. 6. IN THE LIGHT OF THESE FACTS, NOW WE EXAMINE THE APPLICABILITY OF VARIOUS JUDGMENTS CITED BY LEARNED A.R. OF THE ASSESSEE. 6.1 THE FIRST JUDGMENT C ITED BY LEARNED A.R. OF THE ASSESSEE IS THE JUDGMENT OF HON'BLE PUNJAB & HARYANA HIGH COURT RENDERED IN THE CASE OF HERO CYCLES LTD. (SUPRA). IN THIS CASE , IT WAS HELD THAT WHERE IT IS FOUND THAT FOR EARNING EXEMPTED INCOME, NO EXPENDITURE HAS BEEN INCURR ED, THE DISALLOWANCE U/S 14A CANNOT STAND. IN THE PRESENT CASE, WE HAVE ALREADY NOTED THAT SOME PORTION OF BANK CHARGES PAID TO THE BANK FOR ISSUING BANK GUARANTEE BY THE BANK IN FAVOUR OF THE CUSTOMERS FOR OBTAINING ADVANCE FROM THEM IS TO BE TREATED AS EXPENSES INCURRED FOR EARNING EXEMPTED DIVIDEND INCOME AND THEREFORE, IN THE FACTS OF THE PRESENT CASE, IT IS SEEN THAT THIS IS NOT A CASE WHERE IT CAN BE SAID THAT NO EXPENDITURE WAS INCURRED FOR EARNING DIVIDEND INCOME. HENCE, THIS JUDGMENT OF HON'BLE P UNJAB & HARYANA HIGH COURT IS NOT APPLICABLE IN THE FACTS OF THE PRESENT CASE. 6.2 THE SECOND JUDGMENT CITED BY LEARNED A.R. OF THE ASSESSEE IS THE JUDGMENT OF HON'BLE PUNJAB & HARYANA HIGH COURT RENDERED IN THE CASE OF DEEPAK MITTAL (SUPRA). THIS JUDGME NT IS ALSO ON SIMILAR L I N E THAT WHERE IT IS FOUND THAT NO EXPENDITURE WAS INCURRED FOR EARNING DIVIDEND INCOME, NO DISALLOWANCE CAN BE MADE U/S 14A OF THE ACT. WE HAVE ALREADY SEEN THAT IN THE FACTS OF THE PRESENT CASE, IT CANNOT BE SAID THAT NO EXPENDITU RE WAS INCURRED FOR EARNING EXEMPTED DIVIDEND INCOME . HENCE, T HIS JUDGMENT OF HON'BLE PUNJAB & HARYANA HIGH COURT IS ALSO NOT APPLICABLE IN THE FACTS OF THE PRESENT CASE. 6.3 THE THIRD JUDGMENT CITED BY LEARNED A.R. OF THE ASSESSEE IS THE TRIBUNAL DECISION IN THE CASE OF BALARAMPUR CHINI MILLS LTD. (SUPRA). IN THIS 5 CASE , IT WAS HELD BY THE TRIBUNAL THAT SECTION 14A AND RULE 8D CAN BE INVOKED ONLY WHEN ASSESSING OFFICER IS NOT SATISFIED WITH REGARD TO THE ACCOUNT OF ASSESSEE THAT THE CLAIM OF EXPENDITURE MADE BY ASSESSEE IS NOT CORRECT AND THE CLAIM MADE BY THE ASSESSEE THAT NO EXPENDITURE HAS BEEN MADE IN RELATION TO INCOME WHICH DOES NOT FORM PART OF TOTAL INCOME UNDER THE ACT IS NOT ACCEPTABLE . IT WAS ALSO HELD THAT NEITHER THE ASSESSING OFFICER NOR THE CIT(A) HAS RECORDED ANY FINDING THAT HAVING REGARD TO THE ACCOUNTS OF THE ASSESSEE, THEY ARE NOT SATISFIED WITH THE CORRECTNESS OF THE CLAIM OF EXPENDITURE MADE BY THE ASSESSE E OR THE CLAIM MADE BY ASSESSEE THAT NO EXPENDITURE HAS BEEN INCURRED IN RELATION TO INCOME WHICH DOES NOT FORM PART OF THE TOTAL INCOME UNDER THE ACT. IN THIS REGARD, WE FIND THAT IN THE FACTS OF THE PRESENT CASE, IT IS SEEN THAT AT LEAST BANK CHARGES PA ID TO THE BANKS FOR ISSUING LETTER OF GUARANTEE IN FAVOUR OF THE CUSTOMERS FOR OBTAINING ADVANCE FROM THEM IS AN EXPENDITURE INCURRED FOR EARNING EXEMPTED DIVIDEND INCOME BECAUSE IT IS ADMITTED POSITION AS PER THE ASSESSEE ALSO THAT SUCH ADVANCE S WERE USED FOR MAKING INVESTMENT. IN THE PRESENT CASE, THIS CLAIM OF THE ASSESSEE THAT NO EXPENDITURE WAS INCURRED FOR EARNING EXEMPTED DIVIDEND INCOME IS NOT CORRECT. EXACT AMOUNT OF SUCH EXPENDITURE CANNOT BE DETERMINED BY THE ASSESSING OFFICER WHEN NO DETAILS W ERE FURNISHED BY THE ASSESSEE BEFORE THE ASSESSING OFFICER IN THIS REGARD. THEREFORE, THIS TRIBUNAL DECISION IS ALSO NOT APPLICABLE IN THE PRESENT CASE. 6.4 THE NEXT JUDGMENT CITED BY LEARNED A.R. OF THE ASSESSEE IS THE TRIBUNAL DECISION IN THE CASE OF MINDA INVESTMENTS LTD. (SUPRA). IN THIS CASE, THE ASSESSMENT YEAR INVOLVED WAS 2006 - 07 AND UNDER THESE FACTS, IT WAS HELD BY THE TRIBUNAL THAT RULE 8D IS NOT RETROSPECTIVE AND THEREFORE, CANNOT BE APPLIED FOR THE ASSESSMENT YEAR 2006 - 07. THIS ASPECT IS NOW COVERED BY THE JUDGMENT OF HON'BLE BOMBAY HIGH COURT RENDERED IN THE CASE OF GODREJ & BOYCE MFG. CO. LTD. VS. DY. C.I.T. & ANR. [2010] 234 CTR 6 1. SINCE IN THE PRESENT CASE , THE ASSESSMENT YEAR INVOLVED IS 2008 - 09, THIS TRIBUNAL DECISION IS NOT APPLICABLE IN THE PRESENT CASE. 6.5 THE NEXT JUDGMENT CITED BY LEARNED A.R. OF THE ASSESSEE IS THE JUDGMENT OF HON'BLE PUNJAB & HARYANA HIGH COURT RENDERED IN THE CAS E OF WINSOME TEXTILE INDUSTRIES LTD. (SUPRA). IN THAT CASE , IT WAS THE STAND OF THE REVENUE THAT EVEN IF THE ASSESSEE HAS MADE INVESTMENT IN SHARES OUT OF OWN FUNDS, THE ASSESSEE HAD TAKEN LOANS ON WHICH INTEREST WAS PAID AND ALL THE MONEY AVAILABLE WITH THE ASSESSEE WAS IN COMMON KITTY AND THEREFORE, DISALLOWANCE MADE U/S 14A WAS JUSTIFIED. UNDER THESE FACTS, IT WAS HELD THAT WHEN THE OWN FUNDS WERE USED FOR MAKING INVESTMENT, NO PORTION OF INTEREST CAN BE DISALLOWED. IN THIS REGARD, WE ALSO FIND THAT IN THE PRESENT CASE, THE INVESTMENTS BY THE ASSESSEE IN MUTUAL FUNDS AND SHARES AS ON 31/03/2008 IS OF RS.694.84 LAC S AND THE ADVANCE FROM CUSTOMERS ON THIS DATE WAS ONLY RS.122.04 LAC S AND THEREFORE, IT IS SEEN THAT THE ADVANCE FROM CUSTOMERS WAS NOT ENOU GH TO COVER THIS MUCH INVESTMENT IN SHARES AND MUTUAL FUNDS. THERE IS NO OTHER ARGUMENT OF THE ASSESSEE BEFORE ANY OF THE AUTHORITIES BELOW AS TO IN ADDITION TO ADVANCE FROM CUSTOMERS, WHICH INTEREST FREE FUND WAS AVAILABLE WITH THE ASSESSEE FOR MAKING IN VESTMENT IN SHARES/MUTUAL FUNDS. WE HAVE ALREADY DISCUSSED THAT EVEN FOR THESE ADVANCES FROM CUSTOMERS ALSO, EVEN IF INTEREST EXPENDITURE WAS NOT INCURRED BY THE ASSESSEE, THE ASSESSEE MUST HAVE INCURRED THE BANK CHARGES FOR PROVIDING BANK GUARANTEE TO TH E CUSTOMERS. THEREFORE, IN THE FACTS OF THE PRESENT CASE, IT IS SEEN THAT NEITHER THE ASSESSEE WAS HAVING SUFFICIENT INTEREST FREE FUND S AND THE ASSESSEE HAS ALSO INCURRED AT LEAST BANK CHARGES IN RELATION TO EARNING OF DIVIDEND INCOME FOR INVESTMENT OUT OF ADVANCES FROM CUSTOMERS AND THEREFORE, IN THE FACTS OF THE PRESENT CASE, NONE OF THE JUDGMENTS CITED BY THE LEARNED A.R. OF THE ASSESSEE IS RENDERING ANY HELP TO THE ASSESSEE IN THE PRESENT CASE. 7 7. AS PER ABOVE DISCUSSION, WE HAVE SEEN THAT NONE OF T HE JUDGMENTS CITED BY THE LEARNED A.R. OF THE ASSESSEE IS RENDERING ANY HELP TO THE ASSESSEE. MOREOVER, THE ONLY EXPLANATION OF THE ASSESSEE REGARDING SOURCE OF FUND USED FOR MAKING INVESTMENT WAS THAT THE SAME IS OUT OF INTEREST FREE ADVANCES RECEIVED FR OM CUSTOMERS BUT WE HAVE SEEN THAT THE ADVANCES RECEIVED FROM CUSTOMERS AS ON 31/03/2008 WERE NOT SUFFICIENT TO COVER THE ENTIRE INVESTMENT IN SHARES OF RS.694.84 LAC S BECAUSE THE ADVANCE FROM CUSTOMERS AS ON 31/03/200 8 WAS RS.122.04 LAC S ONLY . WE HAVE AL SO SEEN THAT EVEN IF THESE ADVANCES WERE RECEIVED BY THE ASSESSEE FROM THE CUSTOMERS, THE ASSESSEE MUST HAVE INCURRED BANK CHARGES FOR PROVIDING BANK GUARANTEE TO THE CUSTOMERS. HENCE, UNDER THESE FACTS, THE DISALLOWANCE MADE BY THE ASSESSING OFFICER AS P ER RULE 8D IS VERY MUCH IN ORDER AND THEREFORE, WE DO NOT FIND ANY REASON TO INTERFERE IN THE ORDER OF CIT(A) ON THIS ISSUE. 8. IN THE RESULT, THE APPEAL OF THE ASSESSEE STANDS DISMISSED. (ORDER WAS PRONOUNCED IN THE OPEN COURT ON THE DATE MENTIONED ON THE CAPTION PAGE) SD/. SD/. (SUNIL KUMAR YADAV) ( A. K. GARODIA ) JUDICIAL MEMBER ACCOUNTANT MEMBER DATED: 1 8 /09/2014. *C.L.SINGH COPY OF THE ORDER FORWARDED TO : 1. THE APPELLANT 2. THE RESPONDENT. 3. CONCERNED CIT 4. THE CIT(A) 5. D.R., I.T.A.T., LUCKNOW ASSTT. REGISTRAR