JTCIT 23(1), MUMBAI V. PRACHI EXPORTS, MUMBAI

ITA 859/MUM/2013

• Counselvise Citation: [2014] 140 COUNSELVISE.COM (IT) 84149 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 9 month(s) 18 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 19-11-2014
• Appeal Filed By: Department
• Order Result: Allowed
• Bench Allotted: C
• Next Hearing Date: 31-07-2014
• Assessment Year: 2009-2010
• Appeal Filed On: 01-02-2013
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Keywords: Earning of tax free income
• Section: 14A

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL C BENCH, MUM BAI , , BEFORE SHRI SANJAY ARORA, AM AND SHRI AMIT SHUKLA, JM ./ I.T.A. NO. 859/MUM/2013 ( / ASSESSMENT YEAR: 2009-10) JT. CIT-23(1), ROOM NO. 108, C-10, 1 ST FLOOR, B. K. C., BANDRA (E), MUMBAI-400 051 / VS. PRACHI EXPORTS 82, VISHAL INDUSTRIAL ESTATE, BHANDUP VILLAGE ROAD, BHANDUP (W), MUMBAI-400 078 ! ./' ./PAN/GIR NO. AAAAFP 2513 P ( !# /APPELLANT ) : ( $%!# / RESPONDENT ) !# & ' / APPELLANT BY : SHRI V. K. BORA $%!# & ' / RESPONDENT BY : SHRI NISHIT GANDHI () * & + / DATE OF HEARING : 11.11.2014 ,-. & + / DATE OF PRONOUNCEMENT : 19.11.2014 / O R D E R PER SANJAY ARORA, A. M.: THIS IS AN APPEAL BY THE REVENUE DIRECTED AGAINST T HE ORDER BY THE COMMISSIONER OF INCOME TAX (APPEALS)-33, MUMBAI (CIT(A) FOR SH ORT) DATED 09.11.2012, ALLOWING THE ASSESSEES APPEAL CONTESTING ITS ASSESSMENT U/S .143(3) OF THE INCOME TAX ACT, 1961 (THE ACT HEREINAFTER) FOR THE ASSESSMENT YEAR (A. Y.) 2009-10 VIDE ORDER DATED 28.12.2011. 2. THE BRIEF FACTS OF THE CASE ARE THAT THE ASSESSI NG OFFICER (A.O.) MADE A DISALLOWANCE U/S.14A, APPLYING RULE 8D, MANDATORY F OR THE CURRENT YEAR. THE ASSESSEE, WHO HAD NOT MADE ANY DISALLOWANCE U/S.14A PER ITS R ETURN OF INCOME, CONTENDED BEFORE 2 ITA NO.859/MUM/2013 (A.Y. 2009-10) JT. CIT VS. PRACHI EXPORTS THE LD. CIT(A) IN APPEAL THAT THE A.O. HAD NOT EXPR ESSED ANY DISSATISFACTION WITH REGARD TO THE ASSESSEES CLAIM QUA DISALLOWANCE U/S.14A, AND WHICH FOUND FAVOUR WITH H IM; HIS FINDING/DECISION BEING AS UNDER: 3.3 I HAVE DULY CONSIDERED THIS PLEA OF APPELLANT AND I AM IN AGREEMENT WITH THE APPELLANT THAT HAVING NOT EXPRESSED ANY IS DISPUTE ON THE SAME, MEANING THEREBY THE ASSESSING OFFICER HAS BYPASSED SEC.14A (2) OF THE ACT WHICH HE COULD NOT HAVE DONE. AS PER THE AMENDED PR OVISIONS. THE AO COULD NOT GO TO SEC. 14A (3) OF THE ACT TO DISALLOW THE EXPENSES TILL HE IS NOT SATISFIED ABOUT THE CORRECTNESS OF THE CLAIM OF THE ASSESSEE. IN THE INSTANT CASE, THIS HAS NOT BEEN DONE AND HENCE DISALLOWANCE MADE ARE NOT SUSTAINABLE AND HAVE TO BE DELETED. ACCORDINGLY, TH E AIR DISALLOWANCES MADE UNDER SECTION 14 A FOR AN AMOUNT RS.1,5,60,977/- AR E DELETED. THE GROUND NO.1 IS ALLOWED. AGGRIEVED, THE REVENUE IS IN APPEAL. 3. BEFORE US, THE REVENUES CASE WAS THAT THE QUEST ION OF THE A.O. BEING DISSATISFIED WITH THE CORRECTNESS OF THE ASSESSEES CLAIM DOES N OT ARISE IN THE FACTS OF THE CASE AS THE ASSESSEE HAD NOT FURNISHED ANY BASIS FOR CLAIMING T HAT NO EXPENDITURE, ATTRIBUTABLE TO THE TAX EXEMPT INCOME, STANDS INCURRED BY IT IN THE FIR ST PLACE. THE IMPUGNED ORDER, WHICH ALSO REPRODUCES THE ASSESSEES SUBMISSIONS BEFORE T HE LD. CIT(A), BEING SILENT ON THIS ASPECT, I.E., BASIS ON WHICH THE ASSESSEE CLAIMS TO HAVE NOT INCURRED ANY EXPENDITURE ATTRIBUTABLE TO THE INCOME NOT FORMING PART OF ITS TOTAL INCOME, THE LD. AUTHORIZED REPRESENTATIVE (AR) WAS QUESTIONED IN THE MATTER. H E WOULD PRODUCE BEFORE US THE COPY OF A LETTER DATED 16.12.2011 BY THE ASSESSEE TO THE A.O., CLAIMING TO HAVE BEEN FURNISHED DURING THE COURSE OF THE ASSESSMENT PROCEEDINGS, RE ADING OUT ITS CONTENTS, WHICH, BEING RELEVANT, ARE REPRODUCED AS UNDER: ASSESSEE HAS NOT INCURRED ANY EXPENDITURE FOR EARN ING THE INCOME WHICH IS EXEMPT FROM INCOME TAX. FIRM HAS NOT BORROWED ANY F UNDS FOR INVESTMENTS IN THE TAX FREE SECURITIES ETC. THE FIRM HAS OBTAIN ED CREDIT FACILITIES FROM BANKS. THESE CREDITS ARE PROVIDED FOR THE EXPORT BU SINESS OF THE FIRM. IT MAY BE NOTED THAT BANKS HAVE PROVIDED FUNDS EXCLUSIVELY FOR UTILIZING THE SAME FOR EXPORT BUSINESS. THE FIRM HAS NOT UTILIZED BORR OWED FUNDS FOR ACQUIRING ASSETS ETC. GENERATING INCOME WHICH IS EXEMPT FROM TAX. THEREFORE INTEREST PAID TO BANK IS NOT ATTRIBUTABLE TO TAX FREE INCOME . IT MAY BE APPRECIATED THAT THE INCOME BY WAY OF DIVIDEND, AND CAPITAL GAI N DO NOT ENTAIL ANY EXPENDITURE. THUS NO EXPENDITURE IS INCURRED FOR EA RNING INCOME WHICH IS 3 ITA NO.859/MUM/2013 (A.Y. 2009-10) JT. CIT VS. PRACHI EXPORTS EXEMPT FROM TAX. IT ALSO MAY BE SEEN THAT CAPITAL O F THE PARTNERS IS ADEQUATE FOR INVESTMENTS IN EQUITY SHARES AND MUTUAL FUNDS A FTER MEETING ALL THE NEEDS OF BUSINESS. THUS QUESTION OF BORROWED FUNDS HAVING BEEN USED TOWARDS EARNING EXEMPT INCOME DOES NOT ARISE AT ALL . NO OTHER EXPENDITURE IS INCURRED FOR EARNING SUCH INCOME. THE ASSESSEE HAD, HE WOULD SUBMIT, CLEARLY STATED A S TO WHY NO PART OF THE INTEREST EXPENDITURE, BEING IN RESPECT OF BANK BORROWINGS FO R EXPORT PURPOSES, COULD THEREFORE BE DISALLOWED U/S.14A(1). QUA INDIRECT ADMINISTRATIVE EXPENDITURE ALSO, THE ASSES SEE HAD MADE A CATEGORICAL DENIAL OF HAVING NOT INCURRED AN Y EXPENDITURE FOR EARNING THE TAX EXEMPT INCOME, AND WHICH SHOULD, HE CONTINUED, BE S UFFICIENT, I.E., FOR THE DISCHARGE OF THE ONUS ON THE ASSESSEE. THE LD. DR, IN REJOINDER, OBJECTED TO THE ASSESSEE S RELIANCE ON THE SAID LETTER, FURTHER RELYING ON THE ORDERS BY THE AUTHORITIES BE LOW. 4. WE HAVE HEARD THE PARTIES, AND PERUSED THE MATER IAL ON RECORD. THE PROVISION OF SECTION 14A(2) (R/W S. 14A(3)) IS SPECIFIC, PROVIDING THE PROCEDURAL LAW TO BE OBSERVED FOR EFFECTING ANY DIS ALLOWANCE U/S.14A(1). THERE IS ACCORDINGLY NO AMBIGUITY IN LAW OR ITS UNDERSTANDIN G, EXPLAINED AT LENGTH, AMONG OTHERS, BY THE HONBLE JURISDICTIONAL HIGH COURT IN GODREJ & BOYCE MFG. CO. LTD. V. DY. CIT [2010] 328 ITR 81 (BOM). HOWEVER, THE FULL FACTS OF ITS CASE AS WELL AS ITS ACCOUNTS BEING ONLY IN THE ASSESSEES KNOWLEDGE/POSSESSION, IT IS ONLY WHERE THE ASSESSEE MAKES A CLAIM AND, FURTHER, WITH REFERENCE TO ITS ACCOUNTS, BEARI NG THE EXPENDITURE, THE WHOLE OR PART OF WHICH MAY STAND TO BE DISALLOWED, THAT THE A.O. COU LD POSSIBLY EXPRESS HIS SATISFACTION OR DISSATISFACTION, AS THE CASE MAY BE, WITH THE CORRE CTNESS OF THE ASSESSEES CLAIM/S. THIS ASPECT STANDS DISCUSSED BY THE TRIBUNAL IN DETAIL V IDE ITS ORDER IN AFL P. LTD. VS. ASST. CIT [2013] 28 ITR (TRIB) 263 (MUM). FURTHER, THE PRIMAR Y ONUS TO SUBSTANTIATE ITS RETURN, OR THE CLAIMS PREFERRED THEREBY, IS ONLY ON THE ASSESS EE (REFER: CIT VS. CALCUTTA AGENCY LIMITED [1951] 19 ITR 191 (SC); CIT VS. PARAKH AND CO. (INDIA) LTD . [1956] 29 ITR 661 (SC); CIT VS. IMPERIAL CHEMICAL INDUSTRIES (INDIA) (P.) L TD. [1969] 74 ITR 17 (SC)). IT IS ONLY WHEN THE SAME STANDS DISCHARGED BY THE ASSESSE E, AT LEAST PRIMA FACIE, THAT IT WOULD STAND SHIFTED TO THE A.O. 4 ITA NO.859/MUM/2013 (A.Y. 2009-10) JT. CIT VS. PRACHI EXPORTS COMING TO THE FACTS OF THE CASE, THE ASSESSEES EXP LANATION QUA INTEREST IS BORNE OUT BY ITS ACCOUNTS. THE INTEREST EXPENDITURE BEING ON SECURED LOANS FROM BANKS IN THE FORM OF EXPORT CREDIT (REFER: BALANCE-SHEET AND THE PROFIT AND LOSS ACCOUNT, PLACED BY THE ASSESSEE ON RECORD). THE A.O. HAVING PROCEEDED IN D ISREGARD OF THE ASSESSEES EXPLANATION, I.E., ASSUMING THE ASSESSEE TO HAVE SU BMITTED THE LETTER DATED 16.12.2011 (SUPRA) TO THE A.O., WE ARE IN FULL AGREEMENT WITH THE LD. CIT(A) THAT THE A.O. COULD NOT HAVE, WITHOUT DISPUTING OR REPUDIATING THE ASSESSEE S CLAIMS, PROCEEDED TO MAKE ANY DISALLOWANCE IN RESPECT THEREOF. THE SAID LETTER BE ING NEITHER ON RECORD NOR REFERRED TO IN THE ORDERS OF THE AUTHORITIES BELOW, THE LD. AR, PL ACING RELIANCE THEREON, WAS REQUIRED BY THE BENCH TO PLACE A COPY THEREOF ON RECORD, AND TH E HEARING CLOSED. THE SAME, SUBMITTED SUBSEQUENTLY, IS HOWEVER SANS ANY COVERING LETTER; UNATTESTED; AND WITHOUT THE ACCOMPANYING CERTIFICATE TO THE EFFECT THAT IT STOO D FURNISHED BEFORE THE A.O., I.E., AS REQUIRED BY THE APPELLATE TRIBUNAL RULES. WE ARE, T HEREFORE, NOT OBLIGED TO TAKE ANY COGNIZANCE THEREOF. WE, HOWEVER, ONLY CONSIDER IT P ROPER, IN THE INTEREST OF JUSTICE AND FAIRNESS, TO DIRECT THE A.O. TO DELETE THE SAID DIS ALLOWANCE IF THE SAID LETTER DATED 16.12.2011 STANDS INDEED FURNISHED BY THE ASSESSEE DURING THE ASSESSMENT PROCEEDINGS. WITH REGARD TO THE ASSESSEES EXPLANATION QUA INDIRECT, ADMINISTRATIVE EXPENDITURE, WE CONSIDER THE ASSESSEE AS HAVING NOT FURNISHED ANY BASIS FOR ITS CLAIM, MUCH LESS WITH REFERENCE TO ITS ACCOUNTS, WHICH IT IS OBLIGED TO U/S.14A(2) R/W S. 14A(3). A BALD STATEMENT CANNOT, BY ANY STRETCH OF IMAGINAT ION, BE CONSIDERED AS IN DISCHARGE OF THE ONUS CAST ON THE ASSESSEE BY LAW. THE MAKING OF A CLAIM BY THE ASSESSEE PER ITS RETURN CANNOT BY ITSELF BE CONSIDERED AS FURNISHING OR EST ABLISHING A VALID BASIS THEREOF. SIMILARLY, WHERE A VALID BASIS STANDS FURNISHED, TH E AO MERELY STATING OF BEING NOT SATISFIED THEREWITH, WOULD NOT OPERATE TO DISCHARGE THE ONUS ON HIM. WE, THEREFORE, VACATE THE FINDINGS BY THE LD. CIT(A) ON THIS ASPECT OF TH E MATTER. WE ACCORDINGLY CONFIRM THE DISALLOWANCE OF THE SAID EXPENDITURE U/S.14A(1); TH E ASSESSEE HAVING EVEN BEFORE HIM NOT FURNISHED ANY REPLY ON MERITS OF ITS CLAIM. WE DECIDE ACCORDINGLY. 5 ITA NO.859/MUM/2013 (A.Y. 2009-10) JT. CIT VS. PRACHI EXPORTS 5. IN THE RESULT, THE REVENUES APPEAL IS DISPOSED OF ON THE AFORE-SAID TERMS. ORDER PRONOUNCED IN THE OPEN COURT ON NOVEMBER 19, 2014 SD/- SD/- (AMIT SHUKLA) (SANJAY ARORA) / JUDICIAL MEMBER / ACCOUNTANT MEMBER /* MUMBAI; 0( DATED : 19.11.2014 ).(../ ROSHANI , SR. PS !' # $%&' (!'% / COPY OF THE ORDER FORWARDED TO : 1. !# / THE APPELLANT 2. $%!# / THE RESPONDENT 3. ( ) / THE CIT(A) 4. / CIT - CONCERNED 5. 3)4 5 $(67 , + 67. , /* / DR, ITAT, MUMBAI 6. 5 9: ; * / GUARD FILE !' / BY ORDER, )/* + (DY./ASSTT. REGISTRAR) , /* / ITAT, MUMBAI