The ACIT,(OSD)Circle-8, Ahmedabad V. Safal Infrastructure Pvt.Ltd., Ahmedabad

ITA 900/AHD/2011

• Counselvise Citation: [2014] 140 COUNSELVISE.COM (IT) 80487 (ITAT-AHMEDABAD)
• Duration Of Justice: 3 year(s) 7 month(s) 6 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 31-10-2014
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: A
• Next Hearing Date: 16-10-2014
• Assessment Year: 2007-2008
• Appeal Filed On: 25-03-2011
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: B L YADAV
• Assessee Lawyers: P M MEHTA WITH G M THAKKAR
• Keywords: Earning of tax free income
• Section: 143(3); 14A

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL A BENCH, AHMEDABAD (BEFO RE SHRI SHAILENDRA KUMAR YADAV, J.M & SHRI ANIL CHATURVEDI , A.M.) I. T. A. NO. 900/AHD/2011 & C.O NO. 112 / AHD/ 20 1 1 (A SSESSMENT YEAR: 2007 - 08) THE ACIT (OSD) CIRCLE - 8, AHMEDABAD V/S SAFAL INFRASTRUCTURE PVT. LTD. TOP FLOOR, SARTHIK ANNEX, NR. FUN REPUBLIC, SATELITE, AHMEDABAD (APPELLANT) (RESPONDENT) SAFAL INFRASTRUCTURE PVT. LTD. TOP FLOOR, SARTHIK ANNEX, NR. FUN REPUBLIC, SATELITE, AHMEDABAD V/S THE ACIT (OSD) CIRCLE - 8, AHMEDABAD (APPELLANT) (RESPONDENT) PAN: AABCH 1848M APPELLANT BY : SHRI B. L. YADAV, SR. D.R. RESPONDENT BY : SHRI P.M. MEHTA WITH G.M. THAKKAR, A.R. ( )/ ORDER DATE OF HEARING : 16 - 10 - 2014 DATE OF PRONOUNCEMENT : 31 - 10 - 2014 PER SHRI ANIL CHATURVEDI,A.M. 1. THIS APPEAL OF THE REVENUE AND C.O OF THE ASSESSEE ARE AGAINST THE ORDER OF CIT(A) - XIV, AHMEDABAD DATED 18. 1.2011 FOR A.Y. 2007 - 08. ITA NO 900 & 112/AHD/2011 . A.Y. 2007 - 08 2 2. THE FACTS AS CULLED OUT FROM THE MATERIAL ON RECORD ARE AS UNDER. 1. ASSESSEE IS A COMPANY STATED TO BE ENGAGED IN THE BUSINESS OF CONSTRUCTION, PROJECT DEVELOPMENT, SUPERVISION AND BOOKING ACTIVITIES. ASSESSEE FILED ITS RETURN OF INCOME FOR A.Y. 07 - 0 8 ON 25.10.2007 DECLARING TOTAL INCOME AT RS. 8,42,49,907/ - . THE CASE WAS SELECTED FOR SCRUTINY AND THEREAFTER THE ASSESSMENT WAS FRAMED U/S. 143(3) VIDE ORDER DATED 30 .12.200 9 AND TOTAL INCOME WAS DETERMINED AT RS. 8,59,30,740 / - . AGGR IEVED BY THE ORDER OF A.O, ASSESSEE CARRIED THE MATTER BEFORE CIT(A) WHO VIDE ORDER DATED 8.1.2011 PARTLY ALLOWED THE APPEAL OF THE ASSESSEE. AGGRIEVE D BY THE ORDER CIT(A), REVENUE IS NOW IN APPEAL BEFORE US AND ASSESSEE HAS ALSO FILED C.O. THE GROUNDS RAI SED THE REVENUE READS AS UNDER: - 1. THE LD. CIT(A) - XIV, AHMEDABAD HAS ERRED IN LAW AND ON FACTS IN DELETING THE DISALLOWANCE OF INTEREST AS PER SECTION 14A R.W.S. RULE 8D MADE BY THE ASSESSING OFFICER AMOUNTING TO RS. 10,33,062/ - . 2. THE LD. CIT(A) - XIV, AHMEDABA D HAS ERRED IN LAW AND ON FACTS IN RESTRICTING THE DISALLOWANCE TO RS.2,00,000/ - OUT OF TOTAL DISALLOWANCES OF RS.6,46,210/ - BY OBSERVING THAT IT CAN'T DENY THE INVOLVEMENT OF ADMINISTRATIVE EXPENSES. THE SAID ADDITION MADE BY THE ASSESSING OFFICER AS 0.5% OF AVERAGE INVESTMENT AS PER SECT/CRI 14A R.W.S. RULE 8D. 3. THE GROUND RAISED BY C.O READS AS UNDER: - 1. ON FACTS AND IN CIRCUMSTANCES OF THE CASE, THE CIT(A) HAS ERRED IN LAW IN MAKING UPHOLDING THE DISALLOWANCE U/S 14A, WITH REGARD TO ADMINISTRATIVE EXPENSES , TO RS. 2,00,000/ - OUT OF THE TOTAL DISALLOWANCE OF RS. 6,46,210/ - MADE BY THE LEARNED ASSESSING OFFICER. WHEN IT IS AXIOMATIC THAT NO SPECIFIC ADMINISTRATIVE EFFORTS ARE REQUIRED TO EARN DIVIDEND INCOME MORE SO, AS IN THE PRESENT TIMES OF AUTOMATION THE DIVIDENDS ARE DIRECTLY CREDITED TO ASSESSEE'S BANK ACCOUNT VIA ECS. 2. ON FACTS AND IN CIRCUMSTANCES OF THE CASE, THE CIT (A) HAS ERRED IN LAW IN NOT DEALING WITH THE DECIDED CASE LAWS, THAT ASSESSEE HAD QUOTED IN ITS SUBMISSION, WHILE PASSING THE APPELLATE O RDER. THE CIT(A) HAS NOT EVEN SUMMARILY DEALT WITH THE CASE LAWS THAT JUSTIFIED THAT NO ADDITION WITH REGARD TO ADMINISTRATIVE EXPENSES IS REQUIRED. ITA NO 900 & 112/AHD/2011 . A.Y. 2007 - 08 3 4. SINCE THE GROUNDS RAISED BY REVENUE AND C.O OF THE ASSESSEE ARE INTERCONNECTED BOTH ARE CONSIDERED TOGETHE R. FURTHER,T HOUGH THE REVENUE HAS RAISED TWO GROUNDS , BUT THE ISSUE IS ONLY WITH RESPECT TO DELETION OF ADDITION MADE U/S 14A. 5. DURING THE COURSE OF ASSESSMENT PROCEEDINGS, A.O NOTICED THAT ASSESSEE HAS EARNED DIVIDEND INCOME TO THE TUNE OF RS. 3,06,696/ - WHICH WAS CLAIMED AS EXEMPT FROM TAX. HE ALSO NOTICED THAT ASSESSEE HAD INVESTMENT OF RS. 14.64 CRORES AS ON 31.03.2007 AND HAD ALSO TAKEN LOAN OF RS. 5.65 CRORE ON WHICH IT HAD PAID INTEREST OF RS. 28.53 LAKHS. HE WAS OF THE VIEW THAT THERE WAS INTERMIN GLING OF OWN FUNDS AND BORROWED FUNDS AND THEREFORE DISALLOWANCE U/S 14A WAS WARRANTED. THE SUBMISSION OF THE ASSESSEE THAT MOST OF THE INVESTMENTS HAVE BEEN MADE OUT OF INTEREST FREE FUNDS AND THEREFORE NO DISALLOWANCE U/S 14A WAS CALLED FOR WAS NOT FOUND ACCEPTABLE TO THE A.O. HE THEREAFTER WORKED OUT THE DISALLOWANCE AS PER SECTION 14A READ WITH RULE 8D AND WORKED OUT THE DISALLOWANCE OF RS. 16,79,272/ - U/S 14A. AGGRIEVED BY THE ORDER OF A.O, ASSESSEE CARRIED THE MATTER BEFORE CIT(A) WHO AFTER CONSIDERI NG THE SUBMISSIONS OF THE ASSESSEE GRANTED SUBSTANTIAL RELIEF TO THE ASSESSEE BY HOLDING AS UNDER: - 4I HAVE CAREFULLY CONSIDERED THE ASSESSMENT ORDER AND THE ABOVE CONTENTIONS. IN SO FAR AS THE DISALLOWANCE OF INTEREST IS CONCERNED, THE ASSESSING OFFICER HAS MADE PROPORTIONATE DISALLOWANCE WITHOUT ESTABLISHING THAT DIVIDEND EARNING ACTIVITY IS FROM THE BORROWED FUND FROM WHICH INTEREST IS PAID. NO NEXUS BETWEEN THE BORROWED FUND AND AMOUNT UTILIZED FOR MAKING INVESTMENT HAS BEEN ESTABLISHED BY THE ASSESSIN G OFFICER FOR THE PURPOSE. THAT APART, THE APPELLANT HAS CLEARLY POINTED OUT THAT AS AGAINST THE INVESTMENT OF RS.14,64,44,621/ - , THE APPELLANT'S OWN FUNDS BY WAY OF CAPITAL AND RESERVES WOULD AGGREGATE TO RS. 38,21 ,24,591/ - THEREFORE, CONSIDERING THE RATI O OF VARIOUS DECISIONS AND IN PARTICULAR THE DECISION OF MUMBAI HIGH COURT IN CASE OF RELIANCE UTILITIES AND POWER LTD (313 ITR 340) WHICH IS DIRECTLY ON THIS ISSUE, THE APPELLANT HAVING SUFFICIENT INTEREST FREE FUNDS WHICH COVERS THE INVESTMENT RESULTING INTO TAX FREE INCOMES THERE IS NO JUSTIFICATION FOR DISALLOWANCE OF INTEREST. IT IS NOTICED THAT THE HONORABLE AHMEDABAD INCOME - ITA NO 900 & 112/AHD/2011 . A.Y. 2007 - 08 4 TAX APPELLATE TRIBUNAL IN CASE OF HIPOLIN LTD (ITA NO.4259/AHD/2007) AFTER CONSIDERING THE DECISION OF THE MUMBAI HIGH COURT REF ERRED SUPRA, HAS DECIDED SIMILAR ISSUE IN FAVOUR OF THE ASSESSEE. THUS, RESPECTFULLY FOLLOWING THE DECISION OF THE HONORABLE MUMBAI HIGH COURT AS WELL AS THE AHMEDABAD ITAT, THE DISALLOWANCE INTEREST FOR RS. 10,33,062/ - IS DELETED. IN SO FAR AS THE DISALL OWANCE OF ADMINISTRATIVE EXPENSES IS CONCERNED, THE ASSESSING OFFICER HAS DISALLOWED 0.5% OF THE AVERAGE VALUE OF INVESTMENT. IT IS NOTICED THAT RULE 8D HAS BEEN INTRODUCED ONLY FROM 29 TH MARCH, 2008 AND THEREFORE, THERE WAS NO REASON FOR MAKING THE DISALL OWANCE UNDER RULE 8D FOR ASSESSMENT YEAR 2007 - 08. THIS VIEW IS SUPPORTED BY THE DECISION OF MUMBAI HIGH COURT IN CASE OF GODREJ & BOYCE VS. DCIT (INCOME - TAX APPEAL NO.626 OF 2010 AND WRIT PETITION NO.758 OF 2010). HOWEVER, ONE CANNOT DENY THE INVOLVEMENT O F ADMINISTRATIVE EXPENSES FOR MAKING INVESTMENT AND EARNING TAX FREE INCOME WHICH IS EXEMPT FROM TAX AND CONSIDERING THE ENTIRE FACT THE DISALLOWANCE OF ADMINISTRATIVE EXPENSES IS RESTRICTED TO RS.2,00,000/ - AND BALANCE AMOUNT OF RS.4,46,210/ - STANDS DELET ED. IN THE RESULT, THIS GROUND IS PARTLY ALLOWED. 6. AGGRIEVED B Y THE ORDER OF CIT(A), REVENUE IS NOW IN APPEAL BEFORE US. 7. BEFORE US, LD. D.R. SUBMITTED THAT ASSESSEE HAS NOT PROVED THAT THE OWN FUNDS HAVE BEEN USED FOR MAKING INVESTMENTS AND THE BURDEN OF PROVING THA T NO INTEREST FREE FUNDS HAVE BEEN USED FOR MAKING INVESTMENT WAS ON THE ASSESSEE. HE THUS SUPPORTED THE ORDER OF A.O. LD. A.R. ON THE OTHER HAND REITERATED THE SUBMISSIONS MADE BEFORE A.O AND CIT(A) AND FURTHER SUBMITTED THAT PROVISIONS OF RULE 8D ARE NOT APPLICABLE FOR THE YEAR UNDER CONSIDERATION IN VIEW OF THE DECISION OF GODREJ & BOYCE MFG. CO. LTD. VS. DCIT 328 ITR 81 (BOM) . HE FUR T HER PLACED RELIANCE ON THE DECISION OF HON BLE GUJARAT HIGH COURT IN THE CASE OF CIT VS. UTI BANK LTD (2013) 32 TAXMANN.COM 370 (GUJ) FOR THE PROPOSITION THAT WHEN ASSESSEE HAS SUFFICIENT INTEREST FREE FUNDS , IT COULD BE PRESUMED THAT INVESTMENTS WERE MADE OUT OF INTEREST FREE FUNDS AND NOT BORROWED FUNDS. WITH RESPECT TO THE DISALLOWANCE OF ADMINISTRATIVE EXPEN SES THAT WAS RESTRICTED AT RS. 2 LAC S BY CIT(A) , T HE LD. A.R. SUBMITTED THAT THE DISALLOWANCE WAS A HIGHER SIDE ITA NO 900 & 112/AHD/2011 . A.Y. 2007 - 08 5 CONSIDERING THAT THE DIVIDEND INCOME WAS ONLY RS. 3 LAC S . HE THEREFORE SUBMITTED THAT THE DISALLOWANCE CONFIRMED BY CIT(A) WAS NOT CALLED FOR. 8. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL ON RECORD . WE FIND THAT CIT(A) WHILE GRANTING RELIEF TO THE ASSESSEE HAS NOTED THAT ASS ESSEE S INTEREST FREE FUNDS BY WAY OF CAPITAL AND RESERVES AGGREGATED TO RS. 38.21 CRORE AS AGAINST THE INVE STMENT OF RS . 14.65 CRORES AND THUS THE INTEREST FREE FUNDS WERE FAR IN EXCESS OF THE INVESTMENTS. WE FIND THAT HON BLE GUJARAT HIGH COURT IN THE CASE OF CIT VS. UTI BANK LTD. (SUPRA) HAS HELD THAT WHERE ASSESSEE HAD SUFFICIENT INTEREST FREE FUNDS TO MEET ITS TAX FREE INV E STMENTS YIELDING EXEMPT INCOME, IT COULD BE PRESUMED THAT SUCH INVESTMENTS WERE MADE FROM INTEREST FREE FUNDS AND NOT LOA NED FUNDS AND THEREFORE NO DISALLOWANCE U/S 14A WAS WARRANTED. 9. BEFORE US REVENUE HAS NOT BROUGHT ANY CONTRARY BINDIN G DECISION IN ITS SUPPORT. WE THEREFORE FIND NO REASON TO INTERFERE WITH THE ORDER OF CIT(A) WITH RESPECT TO DISALLOWANCE ON ACCOUNT OF INTEREST . WITH RESPECT TO THE DISALLOWANCE OF ADMINISTRATIVE EXP ENSES RESTRICTED AT RS. 2 LAC, W E FIND THAT DURING THE Y EAR ASSESSEE HAS EARNED DIVID END INCOME OF RS. 3 LAC AND ON WHICH DISALLOWANCE U/S 14A HAS BEEN MADE OF RS. 2 LAC. WE FIND THAT HON BLE BOMBAY HIGH COURT IN THE CASE OF GODREJ AND BOYCE (SUPRA) HAS HELD THAT PROVISIONS OF RULE 8D ARE APPLICAB LE FOR ASSESSMENT YEAR 08 - 09 BUT IN THE YEARS PRIOR TO A.Y. 08 - 09 , REASONABLE DISALLOWANCE CAN BE MADE BY THE A.O. CONSIDERING THE TOTALITY OF THE FACTS, WE ARE OF THE VIEW THAT IN THE PRESENT CASE, THE ENDS OF JUSTICE SHALL BE MET IF THE ADDITION ON ACCOUNT OF ADMINISTRATIVE E XP ENSES IS RESTRICTED TO RS. 75,000/ - . WE DIRECT ACCORDINGLY. ITA NO 900 & 112/AHD/2011 . A.Y. 2007 - 08 6 10. IN THE RESULT, THE APPEAL OF REVENUE IS DISMISSED AND C.O OF THE ASSESSEE IS PARTLY ALLOWED. ORDER PRONOUNCED IN OPEN COURT ON 31 - 10 - 201 4 . SD/ - SD/ - (SHAILENDRA KUMAR YADAV ) (ANIL CHATURVEDI) JUDICIAL MEMBER ACCOUNTANT MEMBER AHMEDABAD. TRUE COPY RAJESH COPY OF THE ORDER FORWARDED TO: - 1. THE APPELLANT. 2. THE RES PONDENT. 3. THE CIT (APPEALS) 4. THE CIT CONCERNED. 5. THE DR., ITAT, AHMEDABAD. 6. GUARD FILE. BY ORDER DEPUTY/ASSTT.REGISTRAR ITAT,AHMEDABAD