DCIT 10(2), MUMBAI V. GELTEC P. LTD, MUMBAI

ITA 8452/MUM/2010

• Counselvise Citation: [2014] 140 COUNSELVISE.COM (IT) 79261 (ITAT-MUMBAI)
• Duration Of Justice: 3 year(s) 6 month(s) 22 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 25-06-2014
• Appeal Filed By: Department
• Order Result: Allowed
• Bench Allotted: G
• Next Hearing Date: 09-06-2014
• Assessment Year: 2007-2008
• Appeal Filed On: 03-12-2010
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: R K SAHU
• Assessee Lawyers: D V LAKHANI
• Keywords: Earning of tax free income
• Section: 14A

Judgement Text

, IN THE INCOME TAX APPELLATE TRIBUNAL G B ENCH, MUMBAI . , !'# $ $ $ $ , %& '()* , %+ ,- % # BEFORE SHRI D.MANMOHAN, VICE PRESIDENT AND SHRI N.K. BILLAIYA, ACCOUNTANT MEMBER ./ I.T.A. NO.8452/MUM/2010 ( . . . . / ASSESSMENT YEAR :2007-08 THE DCIT 10(2), AAYAKAR BHAVAN, MUMBAI-400 020 / VS. M/S. GELTEC PVT. LTD., CAPSULATION PREMISES, 1 ST FLOOR, SION TROMBAY ROAD, DEONAR, MUMBAI-400 088 -/ %+ ./ 0 ./ PAN/GIR NO. : AAACB 1782H ( /1 / APPELLANT ) .. ( 23/1 / RESPONDENT ) /1 4 % / APPELLANT BY: SHRI R.K. SAHU 23/1 5 4 % / RESPONDENT BY: SHRI D.V. LAKHANI 5 6+ / DATE OF HEARING :25.06.2014 7. 5 6+ / DATE OF PRONOUNCEMENT :25.06.2014 ,%8 / O R D E R PER N.K. BILLAIYA, AM: THIS APPEAL BY THE REVENUE IS DIRECTED AGAINST THE ORDER OF THE LD. CIT(A)-21, MUMBAI DT.15.09.2010 PERTAINING TO A.Y. 2007-08. ITA NO. 8452/M/2010 2 2. THE GRIEVANCES OF THE REVENUE READ AS UNDER: 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE AS WELL AS IN LAW, THE LD. CIT(A) HAS ERRED IN DELETIN G THE DISALLOWANCE OF INTEREST EXPENDITURE OF RS. 10,62,8 84/- U/S. 14A OF THE I.T. ACT, 1961 MADE BY THE AO. 2. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE AS WELL AS IN LAW, THE LD. CIT(A) HAS ERRED IN LAW IN HOLDING THAT THE PROVISIONS OF RULE 8D ARE NOT APPLICABLE TO THE A.Y. 2007-08 AND ARE APPLICABLE F OR AND FROM A.Y. 2008-09 ONLY. 3. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E AS WELL AS IN LAW, THE LD. CIT(A) FAILED TO APPRECIATE AND EVEN IF IT WERE TO BE ACCEPTED THAT THE PROVISIONS OF RULE 8D ARE APPLICABLE FOR AND FROM A.Y. 2008-09 ONLY, THE INVOKING OF THE PROVISIONS OF RULE 8D WAS A REASONABLE METHOD TO COMPUTE THE DISALLOWANCE OF RS . 13,37,936/- U/S. 14A OF THE I.T. ACT, 1961 OF THE EXPENDITURE INCURRED IN RELATION TO DIVIDEND INCOME OF RS. 36,27,321/- WHICH DOES NOT FORM PART OF THE TOT AL INCOME OF THE ASSESSEE FOR THE A.Y. 2007-08. 3. THE ASSESSEE COMPANY IS ENGAGED IN THE BUSINESS OF MANUFACTURING AND DEALING IN IMPORT, EXPORT, BUYING AND SELLING O F SOFT GELATIN CAPSULES AND IN ANY SUBSTANCES, DERIVATIVES OR INGREDIENTS U SED IN OR REQUIRED FOR THE MANUFACTURE OF PREPARATION OF THE SOFT GELATIN CAPSULES. 4. DURING THE COURSE OF THE SCRUTINY ASSESSMENT PRO CEEDINGS, THE ASSESSING OFFICER FOUND THAT THE ASSESSEE HAS EARNE D DIVIDEND OF RS. 36,27,321/- ON INVESTMENT IN THE UNITS OF MUTUAL FU ND, THE SAME WAS CLAIMED AS EXEMPT. THE ASSESSEE WAS ASKED TO EXPLA IN WHY THE EXPENSES INCURRED IN RELATION TO DIVIDEND SHOULD NOT BE DISA LLOWED UNDER THE PROVISIONS OF SEC. 14A OF THE I.T. ACT. THE ASSESS EE EXPLAINED THAT IT HAS ITA NO. 8452/M/2010 3 NOT INCURRED ANY DIRECT EXPENSES FOR EARNING EXEMPT INCOME THEREFORE, THERE IS NO QUESTION OF ANY DISALLOWANCE OF THE EXP ENSES. 4.1. THE AO DID NOT ACCEPT THIS EXPLANATION OF THE ASSESSEE AND WENT ON TO COMPUTE THE DISALLOWANCE U/S. 14A AS PER RULE 8D AND COMPUTED THE TOTAL DISALLOWANCE AT RS. 13,37,936/-. 5. THE ASSESSEE CARRIED THE MATTER BEFORE THE LD. C IT(A) AND CLAIMED THAT RULE 8D WAS NOT APPLICABLE FOR THE YEAR UNDER CONSIDERATION AND SECONDLY THE ASSESSEE HAS MADE INVESTMENTS OUT OF I TS OWN FUNDS AND NO BORROWED CAPITAL HAS BEEN UTILIZED FOR MAKING THE I NVESTMENTS IN MUTUAL FUND THEREFORE THERE IS NO QUESTION OF DISALLOWANCE OF INTEREST. AFTER CONSIDERING THE FACTS AND THE SUBMISSIONS, THE LD. CIT(A) WAS CONVINCED THAT PROVISIONS OF RULE 8D WERE NOT APPLICABLE IN T HE YEAR UNDER CONSIDERATION AND FURTHER THERE WAS NO NEXUS OF INT EREST EXPENDITURE AND THE EARNING OF EXEMPT INCOME. THE LD. CIT(A) ACCORD INGLY DELETED THE ADDITION ON ACCOUNT OF INTEREST AMOUNTING TO RS. 10 ,62,884/-. 6. AGGRIEVED BY THIS, THE REVENUE IS BEFORE US. 7. THE LD. DEPARTMENTAL REPRESENTATIVE SUPPORTED TH E FINDINGS OF THE AO. IT IS THE SAY OF THE LD. DR THAT THE ASSESSEE HAS MADE INVESTMENTS DURING THE YEAR ITSELF AND WHICH INVESTMENTS HAVE C OME FROM THE MATURITY OF THE INVESTMENTS MADE EARLIER. IT IS THE SAY OF THE LD. DR THAT EARLIER INVESTMENTS MUST HAVE BEEN MADE OUT OF BORROWED CAP ITAL, THEREFORE, THERE IS SOME ELEMENT OF INTEREST WHICH NEED TO BE ALLOCATED FOR EARNING THE EXEMPT INCOME. ITA NO. 8452/M/2010 4 8. PER CONTRA, THE LD. COUNSEL FOR THE ASSESSEE REB UTTING THE SUBMISSIONS OF THE LD. DR STATED THAT THE ASSESSEE HAS BORROWED FUNDS DURING THE YEAR ONLY TO REPAY THE OUTSTANDING LOAN BROUGHT FORWARD FROM EARLIER YEARS. THE INVESTMENTS IN MUTUAL FUNDS HAV E BEEN MADE DURING THE YEAR ITSELF AND ALL THE INVESTMENTS HAVE BEEN M ADE FROM ITS OWN FUNDS. TO SUBSTANTIATE ITS CLAIM, THE LD. COUNSEL FOR THE ASSESSEE FILED NECESSARY DETAILS. 9. WE HAVE CAREFULLY PERUSED THE ORDERS OF THE LOWE R AUTHORITIES AND THE RELEVANT MATERIAL EVIDENCE BROUGHT ON RECORD BE FORE US. FIRSTLY, IT IS SETTLED LAW THAT RULE 8D IS APPLICABLE FROM ASSESSM ENT YEAR 2008-09 AS LAID DOWN BY THE HONBLE JURISDICTIONAL HIGH COURT IN THE CASE OF GODREJ AND BOYCEE MANFUACTURING CO. LTD. VS DCIT 328 ITR 81. FURTHER, A PERUSAL OF THE BALANCE SHEET OF THE ASSESSEE SHOWS THAT THE ASSESSEE HAD TERM LOAN OF RS. 4 CRORES AS ON 31.3.2006 WHICH STA NDS AT RS. 12 CRORES AS ON 31.3.2007. THIS MEANS THAT THE ASSESSEE HAS BOR ROWED MONEY TO THE TUNE OF RS. 8 CRORES. HOWEVER, WE FIND THAT THE AS SESSEE HAD INTER CORPORATE LOAN AT RS. 8.90 CRORES AS ON 31.3.2006 W HICH STANDS AT RS. NIL AS ON 31.3.2007. THIS MEANS THAT THE ENTIRE BORRO WED CAPITAL HAS BEEN UTILIZED FOR THE REPAYMENT OF INTER-CORPORATE LOAN . WE, FURTHER FIND THAT THE ENTIRE INVESTMENTS IN MUTUAL FUND HAVE BEEN MAD E IN THE MONTH OF MARCH, 2007 STARTING FROM 12.3.2007 AND ENDING ON 3 1.3.2007. A FURTHER PERUSAL OF THE BANK STATEMENT OF STANDARD CHARTERED BANK SHOWS THAT THE ASSESSEE HAS MADE INVESTMENTS FROM ITS INTERNAL SOU RCES AND NO BORROWED FUNDS HAVE BEEN UTILIZED FOR MAKING THESE INVESTMEN TS. WITH THESE FACTS ON RECORD, WE DO NOT FIND ANY REASON TO INTERFERE W ITH THE FINDINGS OF THE LD. CIT(A). ITA NO. 8452/M/2010 5 10. IN THE RESULT, THE APPEAL FILED BY THE REVENUE IS DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT AT THE TIME OF H EARING ON 25 TH JUNE, 2014. . ,%8 5 . +% 9 :, ; 25.6.2014 5 < SD/- SD/- D.MANMOHAN ) (N.K. BILLAIYA) !'# /VICE PRESIDENT %+ ,- / ACCOUNTANT MEMBER MUMBAI; :, DATED 25 TH JUNE, 2014 . . ./ RJ , SR. PS ,%8 ,%8 ,%8 ,%8 5 55 5 26' 26' 26' 26' =%'.6 =%'.6 =%'.6 =%'.6 / COPY OF THE ORDER FORWARDED TO : 1. /1 / THE APPELLANT 2. 23/1 / THE RESPONDENT. 3. > ( ) / THE CIT(A)- 4. > / CIT 5. '?< 26 , , / DR, ITAT, MUMBAI 6. < @ / GUARD FILE. ,%8 ,%8 ,%8 ,%8 / BY ORDER, 3'6 26 //TRUE COPY// ! !! ! / (DY./ASSTT. REGISTRAR) , / ITAT, MUMBAI