Assistant Commissioner of Income-tax, V. M/s. Kahdkeshwar Hatcheries Pvt. Ltd., Aurangabad

ITA 89/PUN/2014

• Counselvise Citation: [2014] 120 COUNSELVISE.COM (IT) 8533 (ITAT-PUNE)
• Duration Of Justice: 10 month(s) 29 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 09-12-2014
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: B
• Assessment Year: 2009-2010
• Appeal Filed On: 10-01-2014
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: B C MALAKAR
• Keywords: Proportionate interest; Question of law
• Section: 14A

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL PUNE BENCH B, PUNE BEFORE SHRI R.S.PADVEKAR, JUDICIAL MEMBER AND SHRI R.K. PANDA, ACCOUNTANT MEMBER ITA NO. 89/PN/2014 (ASSESSMENT YEAR : 2009-10) ACIT, CIRCLE-1, AURANGABAD .. APPELLANT VS. M/S. KHADKESHWAR HATCHERIES PVT. LTD., 2 ND FLOOR, SIDDHARTH ARCADE, STATION ROAD, AURANGABAD .. RESPONDENT PAN NO. AAACK9837G ASSESSEE BY : SHRI PRAMOD SHINGTE REVENUE BY : SHRI B.C. MALAKAR DATE OF HEARING : 04-12-2014 DATE OF PRONOUNCEMENT : 09-12-2014 ORDER PER R.K. PANDA, AM : THIS APPEAL FILED BY THE REVENUE IS DIRECTED AGAINS T THE ORDER DATED 25-10-2013 OF THE CIT(A), AURANGABAD RE LATING TO ASSESSMENT YEAR 2009-10. 2. THE ONLY EFFECTIVE GROUND RAISED BY THE REVENUE IS AS UNDER : ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD.CIT(A), AURANGABAD ERRED IN DELETING THE ADD ITION. THE CIT(A) HAS DELETED THE ADDITION MADE AT RS.13,40,598/ - AS PER PROVISIONS OF SEC14A R.W. RULE 8D OF THE RULES IN VIEW OF DECISION OF HONBLE BOMBAY HIGH COURT. 2.1 FACTS OF THE CASE, IN BRIEF, ARE THAT THE ASSES SEE IS A COMPANY ENGAGED IN THE BUSINESS OF POULTRY-CUM-PROD UCTION OF 2 BROILER AND DAY OLD CHICKS AND CONTRACT FARMING. I T FILED ITS RETURN OF INCOME ON 29-09-2009 DECLARING TOTAL INCO ME AT RS.1,16,39,120/-. DURING THE COURSE OF ASSESSMENT PROCEEDINGS, THE AO NOTED THAT THE ASSESSEE HAS MADE INVESTMENT IN SHARES OF INDIAN COMPANIES AND HAS INCURRED EXPENDITURE BY WA Y OF INTEREST DURING THE PREVIOUS YEAR WHICH IS NOT DIRE CTLY ATTRIBUTABLE TO ANY PARTICULAR INCOME OR RECEIPT. HE ASKED THE ASSESSEE TO EXPLAIN AS TO WHY RULE 8D OF THE I.T. R ULES, 1962 SHOULD NOT BE APPLIED FOR CALCULATING THE PROPORTIO NATE DISALLOWANCE U/S.14A OF THE ACT. 2.2 IT WAS EXPLAINED BY THE ASSESSEE THAT THE ASSES SEE HAS NOT MADE THE INVESTMENT IN THE EQUITY SHARES OF THESE C OMPANIES WITH A VIEW TO EARNING DIVIDEND INCOME. THE INVEST MENT WAS MADE FOR BUSINESS PURPOSE. THE ASSESSEE HAS NOT RE CEIVED ANY DIVIDEND INCOME FROM THE SAID INVESTMENT DURING THE PREVIOUS YEAR. RELYING ON VARIOUS DECISIONS, IT WAS EXPLAIN ED THAT SINCE THE ASSESSEE COMPANY HAS NOT EARNED ANY INCOME WHIC H DOES NOT FORM PART OF TOTAL INCOME, THE PROVISIONS OF SE CTION 14A R.W. RULE 8D OF THE I.T. ACT ARE NOT APPLICABLE TO THE A SSESSEE. HOWEVER, THE AO REJECTED THE EXPLANATION GIVEN BY T HE ASSESSEE. ACCORDING TO HIM, THE DISALLOWANCE U/S.1 4A HAS TO BE MADE EVEN IF ASSESSEE HAS NO TAX FREE INCOME DURING THE RELEVANT YEAR. DISTINGUISHING THE VARIOUS DECISION S CITED BEFORE HIM THE AO INVOKED THE PROVISIONS OF SECTION 14A R. W. RULE 8D AND MADE DISALLOWANCE OF RS.13,40,598/-. 3 3. BEFORE CIT(A) THE ASSESSEE SUBMITTED THAT THE IN VESTMENT IN EQUITY SHARES HAS BEEN MADE IN THE COMPANIES BEF ORE F.Y. 2007-08. THE ASSESSEE HAS NOT MADE THE INVESTMENT IN EQUITY SHARES OF THESE COMPANIES WITH A VIEW TO EARN DIVID END INCOME AND THE INVESTMENTS WERE MADE FOR BUSINESS PURPOSE. NO DIVIDEND INCOME HAS BEEN RECEIVED DURING THE YEAR. THE INVESTMENT IN THE SHARES OF THE COMPANIES HAS BEEN MADE WHO ARE ENGAGED IN THE BUSINESS OF POULTRY AND RELATED BUSINESS. IT WAS FURTHER SUBMITTED THAT THE COMPANY HAS MADE INV ESTMENTS IN SHARES OF THE INDIAN COMPANIES OUT OF ITS OWN FU NDS AND THEREFORE IN VIEW OF THE RATIO LAID DOWN BY VARIOUS DECISIONS INCLUDING THE DECISION OF THE HONBLE BOMBAY HIGH C OURT IN THE CASE OF RELIANCE UTILITIES AND POWER LTD., REPO RTED IN 313 ITR 340, THE DISALLOWANCE U/S.14A IS NOT JUSTIFIED . 4. BASED ON THE ARGUMENTS ADVANCED BY THE ASSESSEE, THE LD.CIT(A) DELETED THE DISALLOWANCE MADE BY THE AO U /S.14A R.W. RULE 8D. WHILE DOING SO, HE OBSERVED THAT THE ASSESSEE HAS NOT EARNED DIVIDEND INCOME AND HAS NOT CLAIMED EXEM PTION IN RESPECT OF DIVIDEND INCOME DURING THE IMPUGNED ASSE SSMENT YEAR. THEREFORE, IN VIEW OF THE DECISION OF HONBLE PUNJAB & HARYANA HIGH COURT IN THE CASE OF CIT VS. WINSOME T EXTILE INDUSTRIES REPORTED IN 319 ITR 204, THE PROVISIONS OF SECTION 14A OF THE ACT ARE NOT APPLICABLE. FURTHER, THE AS SESSEE COMPANY HAS INVESTED IN SHARES OF RELATED COMPANIES HAVING SIMILAR BUSINESS AND NOT FOR EARNING DIVIDEND INCOM E BUT FOR 4 HAVING SOME CONTROL ON THE SAID BUSINESS OF COMPANI ES. HE FURTHER NOTED THAT THE BALANCE SHEET AS ON 31-03-20 08 AND 31- 03-2009 OF THE ASSESSEE COMPANY SHOW THAT ITS OWN F UNDS ON ACCOUNT OF SHARE CAPITAL AND RESERVES AND SURPLUS S TOOD AT RS.8,06,84,707/- AND RS.18,53,70,868/- RESPECTIVELY . THEREFORE, THE FREE FUNDS OF THE ASSESSEE COMPANY ARE MORE THA N THE INVESTMENT MADE IN SHARES OF INDIAN COMPANIES AT RS.2,78,70,000/-. RELYING ON VARIOUS DECISIONS, HE HELD THAT SINCE THE OWN FUNDS AVAILABLE WITH THE ASSESSEE ARE FAR MORE THAN THE TAX FREE INVESTMENTS, THEREFORE, NO DISALL OWANCE OF PROPORTIONATE INTEREST IS JUSTIFIED U/S.14A R.W. RU LE 8D FOR A.Y. 2008-09 AND ONWARDS. 4.1 AGGRIEVED WITH SUCH ORDER OF THE CIT(A) THE REV ENUE IS IN APPEAL BEFORE US. 5. WE HAVE CONSIDERED THE RIVAL ARGUMENTS MADE BY B OTH THE SIDES, PERUSED THE ORDERS OF THE ASSESSING OFFICER AND THE CIT(A) AND THE PAPER BOOK FILED ON BEHALF OF THE AS SESSEE. WE HAVE ALSO CONSIDERED THE VARIOUS DECISIONS CITED BE FORE US. THE FINDING GIVEN BY THE LD.CIT(A) THAT THE INVESTMENT IN SHARES OF INDIAN COMPANIES AT RS.2,78,70,000/- IS MUCH LESS T HAN THE OWN FUNDS ON ACCOUNT OF SHARE CAPITAL AND FREE RESERVES AND SURPLUS OF THE ASSESSEE COMPANY AT RS.8,06,84,707/- AS ON 3 1-03-2008 AND RS.18,53,70,868/- AS ON 31-03-2009 COULD NOT BE CONTROVERTED BY THE LD. DEPARTMENTAL REPRESENTATIVE . WE FIND AN IDENTICAL ISSUE HAD COME UP BEFORE THE HONBLE B OMBAY 5 HIGH COURT IN THE CASE OF CIT VS. HDFC BANK LTD. RE PORTED IN 49 TAXMANN.COM 335 (BOMBAY). IN THAT CASE, DISALLO WANCE U/S.14A WAS MADE BY THE AO WHICH WAS DELETED BY THE CIT(A) AND ON FURTHER APPEAL THE TRIBUNAL ALSO DISMISSED T HE APPEAL FILED BY THE REVENUE. THE TRIBUNAL WHILE UPHOLDING THE ORDER OF THE CIT(A) HAD NOTED THAT ASSESSEES OWN FUNDS A ND OTHER NON-INTEREST BEARING FUNDS WERE MORE THAN THE INVES TMENT IN TAX FREE SECURITIES, AND THEREFORE, THERE WAS NO BASIS FOR DEEMING THAT THE ASSESSEE HAD USED THE BORROWED FUNDS FOR I NVESTMENT IN TAX FREE SECURITIES. ON FURTHER APPEAL BY THE REVE NUE AGAINST THE ORDER OF THE TRIBUNAL, THE HONBLE HIGH COURT D ISMISSED THE APPEAL FILED BY THE REVENUE BY OBSERVING AS UNDER : 5. WE FIND THAT THE FACTS OF THE PRESENT CASE ARE SQUA RELY COVERED BY THE JUDGMENT IN THE CASE OF RELIANCE UTILITIES & POWER LTD. (SUPRA). THE FINDING OF FACT GIVEN BY THE ITAT IN THE PRESENT CASE IS THAT THE ASSESSEE'S OWN FUNDS AND OTHER NON- INTEREST BEARING FUNDS WERE MORE THAN THE INVESTMENT I N THE TAX-FREE SECURITIES. THIS FACTUAL POSITION IS NOT ONE TH AT IS DISPUTED. IN THE PRESENT CASE, UNDISPUTEDLY THE ASSESSEE' S CAPITAL, PROFIT RESERVES, SURPLUS AND CURRENT ACCOUNT D EPOSITS WERE HIGHER THAN THE INVESTMENT IN THE TAX-FREE SECUR ITIES. IN VIEW OF THIS FACTUAL POSITION, AS PER THE JUDGMENT OF THIS COURT IN THE CASE OF RELIANCE UTILITIES & POWER LTD. (SUPRA), IT WOULD HAVE TO BE PRESUMED THAT THE INVESTMENT MADE BY THE A SSESSEE WOULD BE OUT OF THE INTEREST-FREE FUNDS AVAILABLE WIT H THE ASSESSEE. WE THEREFORE, ARE UNABLE TO AGREE WITH THE SUBMISSION OF MR SURESH KUMAR THAT THE TRIBUNAL HAD ERR ED IN DISMISSING THE APPEAL OF THE REVENUE ON THIS GROUND. W E DO NOT FIND THAT QUESTION (A) GIVES RISE TO ANY SUBSTANTIA L QUESTION OF LAW AND IS THEREFORE REJECTED. 5.1 RESPECTFULLY FOLLOWING THE DECISION OF THE HON BLE BOMBAY HIGH COURT IN THE CASE OF HDFC BANK LTD., (S UPRA), WE DO NOT FIND ANY INFIRMITY IN THE ORDER OF THE CI T(A) WHO HAD DELETED THE DISALLOWANCE MADE BY THE AO ON THE GROU ND THAT THE 6 CAPITAL AND FREE RESERVES OF THE ASSESSEE COMPANY A RE MUCH MORE THAN THE INVESTMENT IN SHARES OF INDIAN COMPAN IES, THE COMPANY HAS NOT EARNED ANY DIVIDEND INCOME AND CLAI MED THE SAME AS EXEMPT AND THAT THE COMPANY HAS MADE INVEST MENT IN SHARES OF RELATED COMPANIES HAVING SIMILAR BUSINESS FOR HAVING SOME CONTROL ON THE SAID BUSINESS. GROUND RAISED B Y THE REVENUE IS ACCORDINGLY DISMISSED. 6. IN THE RESULT, THE APPEAL FILED BY THE REVENUE I S DISMISSED. PRONOUNCED IN THE OPEN COURT ON 09-12-2014. SD/- SD/- (R.S.PADVEKAR) (R.K. PANDA ) JUDICIAL MEMBER ACCOUNTANT MEMBER PUNE DATED: 09 TH DECEMBER, 2014 SATISH COPY OF THE ORDER FORWARDED TO : 1. ASSESSEE 2. DEPARTMENT 3. THE CIT(A), AURANGABAD 4. THE CIT, AURANGABAD 5. THE D.R, B PUNE BENCH 6. GUARD FILE BY ORDER // TRUE COPY // ASSISTANT REGISTRAR ITAT, PUNE BENCHES, PUNE