M/s Deepak International Ltd., Ludhiana V. DCIT, Ludhiana

ITA 897/CHANDI/2013

• Counselvise Citation: [2014] 120 COUNSELVISE.COM (IT) 7058 (ITAT-CHANDIGARH)
• Duration Of Justice: 1 year(s) 5 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 15-09-2014
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: B
• Next Hearing Date: 09-09-2014
• Assessment Year: 2010-2011
• Appeal Filed On: 10-09-2013
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: J S NAGAR
• Keywords: Earning of tax free income; Proportionate interest
• Section: 14A

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL CHANDIGARH BENCHES B CHANDIGARH BEFORE SHRI T.R. SOOD, ACCOUNTANT MEMBER AND MS. SUSHMA CHOWLA, JUDICIAL MEMBER ITA NO. 897/CHD/2013 ASSESSMENT YEAR: 2010-11 M/S DEEPAK INTERNATIONAL LTD. VS. THE DCIT, DEEPAK ROAD CIRCLE V INDUSTRIAL AREA B LUDHIANA LUDHIANA PAN NO. AAACD7980K (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI ASHWANI KUMAR RESPONDENT BY : SHRI J.S. NAGAR DATE OF HEARING : 09/09/2014 DATE OF PRONOUNCEMENT : 15/09/2014 ORDER PER T.R.SOOD, A.M. THIS IS AN APPEAL FILED BY THE ASSESSEE AGAINST THE ORDER DATED 15/07/2013 OF CIT(APPEALS)-II, LUDHIANA. 2. FOLLOWING GROUNDS HAVE BEEN RAISED IN THIS APPEA L:- 1. THAT ORDER PASSED U/S 250(6) BY THE LD. CIT(A)- II, LUDHIANA IS AGAINST LAW AND FACTS ON THE FILE I N AS MUCH AS HE WAS NOT JUSTIFIED TO UPHOLD THE DISALLOWANCE OF RS. 25,92,371/- MADE BY THE LD. ASSESSING OFFICER BY RESORT TO PROVISIONS OF SEC. 1 4A. 2. THAT HE WAS ALSO NOT JUSTIFIED TO ARBITRARILY UPHOLD THE DISALLOWANCE OF RS. 1,39,430/- OUT OF INTEREST ACCOUNT BY RESORT TO PROVISIONS OF SEC. 36(1)(III) GROUND NO. 1 3. THE LEARNED COUNSEL FOR THE ASSESSEE CLEARLY ADM ITTED THAT THOUGH THIS ISSUE HAS BEEN DECIDED BY THE TRIBUNAL AGAINST THE ASSESSEE IN ASSESSMENT YEAR 2008-09 IN ASSESSEES OWN CASE IN ITA NO. 202/CHD/2 013. HOWEVER, DURING THE YEAR ASSESSEE HAS EARNED DIVIDEND INCOME ONLY OF RS . 77006/- WHICH SHOULD BE CONSTRUED AS NEGLIGIBLE. HE CONTENDED THAT HONBLE PUNJAB & HARYANA HIGH COURT IN CASE OF CIT VS. LAKHANI MARKETING INCL. IN ITA NO. 970/08 HAS HELD THAT IF THERE IS NO EXEMPT INCOME DURING THE YEAR THEN DISA LLOWANCE UNDER SECTION 14A CAN NOT BE MADE. 4. ON THE OTHER HAND LD. D.R. SUBMITTED THAT ASSESS EE HAS EARNED DIVIDEND INCOME AND THEREFORE IT CANNOT BE SAID THAT ASSESSE E HAS NOT EARNED ANY INCOME OTHERWISE THE ISSUE IS COVERED AGAINST THE A SSESSEE BY THE DECISION OF TRIBUNAL IN ASSESSEES OWN CASE FOR THE ASSESSMENT YEAR 2008-09 5. AFTER CONSIDERING THE RIVAL SUBMISSION WE FIND T HAT IDENTICAL ISSUE WAS DECIDED BY THE TRIBUNAL IN ASSESSEES OWN CASE IN I TA NO. 202/CHD/2013 FOR THE ASSESSMENT YEAR 2008-09 VIDE PARA 7 WHICH IS AS UND ER: AFTER CONSIDERING THE RIVAL SUBMISSIONS WE FIND TH AT RULE 8 D IS CLEARLY APPLICABLE FROM ASSESSMENT YEAR 2008-09 AS HELD BY HONBLE BOMBAY HIGH COURT IN CASE OF GODREJ & BOYCE MANUFACTURING CO. LTD. VS. DCIT AND ANOTHER 328 ITR 81. FURTHER ADMITTEDLY ASSESSEE HAS EARNED EXEMPT INCOME IN THE FORM OF DIVIDEND AND CAPITAL GAIN. AT THE SAME TIME ASSESSE E HAS PAID INTEREST ON BORROWED FUNDS AND HAS ALSO INCURRED AD MINISTRATIVE EXPENSES. THEREFORE ASSESSING OFFICER HAD NO OPTION BUT TO ALLOCATE THE EXPENSES AGAINST SUCH EXEMPT INCOME IN TERMS OF RULE 8 D WHICH HAS BEEN DONE. THEREFORE WE FIND NOT HING WRONG IN THE ORDER OF LD. CIT(A) AND CONFIRM THE SAME. FROM THE ABOVE IT IS CLEAR THAT THE ISSUE WAS DECID ED AGAINST THE ASSESSEE IN VIEW OF THE DECISION OF HONBLE BOMBAY HIGH COURT I N CASE OF GODREJ & BOYCE MFG CO LTD. VS. DY CIT(2010) (SUPRA). SIMPLY BECAU SE ASSESSEE HAS EARNED NEGLIGIBLE INCOME DOES NOT MEAN THAT NO INCOME HAS BEEN EARNED. ONCE ASSESSEE HAS MIXED FUNDS AND HAS INCURRED SOME EXPE NDITURE FOR EARNING EXEMPT INCOME THEN RULE 8 D IS APPLICABLE. THEREFOR E FOLLOWING THE ABOVE WE DECIDE THIS ISSUE AGAINST THE ASSESSEE. GROUND NO. 2 6. AFTER HEARING BOTH THE PARTIES WE FIND THAT DURING THE ASSESSMENT PROCEEDING AO NOTICED THAT ASSESSEE HAS DIVERTED IN TEREST BEARING FUNDS TO M/S RAMESH FORGINGS, M/S CTECH INDUSTRIES, M/S MAXXIS I NFRASTRUCTURE LTD. IN RESPONSE TO THE QUERY WHILE PROPORTIONATE INTEREST SHOULD NO T BE DISALLOWED. ASSESSEE SUBMITTED THE FOLLOWING REPLY : REGARDING YOUR HONOURS QUERY RELATING AS TO WHY THE INTEREST BE NOT DISALLOWED ON ACCOUNT OF THE AMOUNT INVESTED WITH M/S MAXXIS INFRASTRUCTURE LTD., IN RE PLY IT IS RESPECTFULLY SUBMITTED THAT WHATEVER AMOUNTS HAD BE EN INVESTED WITH THE SAID CONCERN WERE OUT OF NON-INTE REST BEARING FUNDS I.E. IN THE SHAPE OF SHAPE CAPITAL TO THE TUNE OF RS. 3.85 CRORES AND THE RESERVE AND SURPLUS ACCUMUL ATED OVER THE PERIOD TO THE TUNE OF RS. 23.07 CRORES. ON THES E AMOUNTS OF SHARE CAPITAL AND RESERVES & SURPLUS, NO INTERES T WAS PAID AND WHICH WERE ALSO AVAILABLE FOR USE IN THE BUSINE SS OF THE ASSESSEE COMPANY AS WELL AS FOR FURTHER INVESTMENT FOR BUSINESS CONSIDERATION. IN THE ABSENCE OF ANY SAID CONCERN, THERE IS NO CASE OF ANY DISALLOWANCE OF EXPENDITURE ON INVESTMENT IN THE SAID CONCERN, THERE IS NO CASE OF ANY DISALLOWANCE OF EXPENDITURE ON ACCOUNT OF INTEREST. M/S FRIENDS COLONIZERS SINCE HAS BEEN TAKEN OVER BY MAX XIS, HENCE NO BALANCE SHEET WILL BE THERE FOR THE YEAR 3 1.03.2010. COPY OF AUDITED BALANCE SHEET OF MAXXIS INFRASTRUCT URE LTD. AS ON 31.03.2010 IS BEING ENCLOSED ALONGWITH COPY O F ACCOUNT OF MAXXIS IN OUR BOOKS OF ACCOUNTS MARKED ANNEXURE A. VIDE THE NEXT QUERY, YOUR HONOUR HAVE ASKED TO EXPL AIN AS TO WHY THE INTEREST ON THE AMOUNT ADVANCED TO M/S RAME SH FORGINGS AND M/S C-TECH INDUSTRIES BE NOT DISALLOWE D. BEFORE GIVING THE SUBMISSIONS WITH RESPECT TO THE QUERY RA ISED, THE FACT OF THE MATTER IS THAT THESE ADVANCES WERE GIVE N BY M/S DEEPAK INDUSTRIES WHICH HAS TAKEN OVER BY THE ASSES SEE COMPANY FORM 01.04.2007. ALL THE ASSETS AND LIABILI TIES OF THE SAID FIRM I.E. M/S DEEPAK INDUSTRIES WERE TAKEN OVE R BY THE ASSESSEE COMPANY THAT IS WHY THESE WERE OUTSTANDING IN THE BOOKS OF THE ASSESSEE COMPANY SINCE THEN. THESE ADV ANCES WERE GIVEN FOR THE PURPOSE OF PURCHASE OF CYCLE PAR TS BY THE SAID CONCERN. UNFORTUNATELY, SH. RAMESH KUMAR, THE DEALING HAND OF M/S RAMESH FORGINGS SUFFERED HEART ATTACK A ND COULD NOT SUPPLY THE GOODS IN TIME. M/S DEEPAK INDU STRIES COULD NOT PURCHASE MATERIAL FROM THE SAID PARTY. ST ILL, THE ASSESSEE COMPANY IS TRYING ITS LEVEL BEST TO GET SU PPLY FROM THEM/AMOUNT BACK. SIMILARLY, IN THE CASE OF M/S C-T ECH INDUSTRIES THERE WAS SOME DISPUTE OF RATE OF THE PR ODUCT BEING MANUFACTURED BY THE SAID CONCERN. M/S DEEPAK INDUSTRIES COULD NOT PROCURE THE MATERIAL AT THAT T IME. THE ASSESSEE COMPANY STILL PURSUING FOR RECOVERY OF ADV ANCE / MATERIAL, AS REQUIRED. AS BOTH THE ADVANCES ARE GIV EN IN THE NORMAL COURSE OF BUSINESS BY M/S DEEPAK INDUSTRIES FOR SUPPLY OF TRADING GOODS AND NONE OF THE PARTY IS IN RELATI ON TO THE DIRECTORS/ PARTNERS/ OF THE ASSESSEE COMPANY / DEEP AK INDUSTRIES. AT THE TIME OF GIVING THESE ADVANCE BY M/S DEEPAK INDUSTRIES, THE SAID FIRM HAS NO BORROWED FU NDS. IT HAS ONLY CAPITAL OF THE PARTNERS OUT OF WHICH THESE ADV ANCES WERE GIVEN. KEEPING IN VIEW THE ABOVE SUBMISSION, N O DISALLOWANCE OF INTEREST IS WARRANTED. COPIES OF AC COUNTS OF BOTH THE PARTIES ARE BEING ENCLOSED MARKED ANNEXURE B 7. THE AO DID NOT FIND FORCE IN THIS SUBMISSION AND DISALLOWED PROPORTIONATE INTEREST OF RS. 1,39,430/- WHICH IS COMPUTED AS UND ER : NAME AMOUNT OF LOAN NO. OF DAYS DISALLOWANCE OF INTEREST @12% M/S RAMESH FORGINGS 5,00,000/- 365 60,000/- M/S C-TECH INDUSTRIES 5,00,000/- 365 60,000/- 1,00,000/- 155 5,096/- 4,00,000/- 65 8,548/- M/S MAXXIS INFRASTRUCTURE LTD. 8,00,000/- 22 5,786/- TOTAL 1,39,430/- DISALLOWANCE OF INTEREST = 12% / 365 X NO. OF DAYS X AMOUNT OF LOAN 8. ON APPEAL THE ADDITION WAS CONFIRMED BY LD. CIT(A). 9. BEFORE US LD. COUNSEL FOR THE ASSESSEE SUBMITTED THAT THE IDENTICAL ISSUE WAS DECIDED BY THE TRIBUNAL IN FAVOUR OF THE ASSESS EE IN ITA NO. 202/CHD/2013. 10. ON THE OTHER HAND LD. D.R. SUPPORTED THE ORDER OF CIT(A) 11. AFTER CONSIDERING THE RIVAL SUBMISSION CAREFULL Y WE FIND THAT IDENTICAL ISSUE WAS DECIDED IN ASSESSEES OWN CASE FOR ASSESSMENT Y EAR 2008-09 IN ITA NO. 202/CHD/2013 VIDE PARA 14 WHICH IS AS UNDER: AFTER CONSIDERING THE RIVAL SUBMISSION WE FIND FO RCE IN THE SUBMISSION OF LD. COUNSEL FOR THE ASSESSEE BECAUSE ADVANCES WERE MADE BY THE PARTNERSHIP FIRM AND NOT BY THE AS SESSEE COMPANY AND WERE TAKEN OVER BY THE ASSESSEE COMPANY WHEN THE FIRM WAS TAKEN OVER. MOREOVER ADVANCES WERE MAD E FOR PURCHASE OF CYCLE PARTS THEREFORE, IT CANNOT BE SAI D THAT INTEREST FREE ADVANCE HAVE BEEN MADE BY THE ASSESSEE FIRM WI THOUT ANY BUSINESS PURPOSE. ACCORDINGLY WE SET-ASIDE THE ORDE R OF LD. CIT(A) AND DELETE THIS ADDITION. FOLLOWING THE SAME WE DELETE THIS ADDITION. 12. IN THE RESULT, ASSESSEE APPEAL IS PARTLY ALLOW ED. ORDER PRONOUNCED IN THE OPEN COURT ON THIS 15/09/20 14. SD/- SD/- (SUSHMA CHOWLA) (T.R.SOOD) JUDICIAL MEMBER ACCOUNTANT M EMBER DATED : 15 TH SEPTEMBER, 2014 AG COPY TO: 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT 4. THE CIT(A) 5. THE DR