Nirma Industries Pvt.Ltd., Ahmedabad V. The Dy.CIT.,Circle-5, Ahmedabad

ITA 912/AHD/2012

• Counselvise Citation: [2016] 133 COUNSELVISE.COM (IT) 1255 (ITAT-AHMEDABAD)
• Duration Of Justice: 4 year(s) 1 month(s) 27 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 22-06-2016
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: A
• Next Hearing Date: 09-06-2016
• Assessment Year: 2007-2008
• Appeal Filed On: 25-04-2012
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Earning of tax free income; Tax effect
• Section: 14A; 115JB; 246; 11

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL A BENCH, AHMEDABAD .., , !' BEFORE SHRI R.P. TOLANI, JUDICIAL MEMBER AND SHRI ANIL CHATURVEDI, ACCOUNTANT MEMBER SL. NO(S) ITA NO(S) ASSESSMENT YEAR(S) APPEAL(S) BY APPELLANT VS. RESPONDENT APPELLANT RESPONDENT 1. 912/AHD/2012 2007 - 08 NIRMA INDUSTRIES PVT.LTD. (FORMERLY : NIRMA INDUSTRIES LTD.) NIRMA HOUSE ASHRAM ROAD AHMEDABAD PAN: AAACN 5352 M DY.CIT CIRCLE-5 AHMEDABAD 2. 913/AHD/2012 2008 - 09 - DO - - DO - 3. 1211/AHD/2012 2008 - 09 ASST.CIT CIRCLE-5, AHMEDABAD NIRMA INDUSTRIES LTD., AHMEDABAD ASSESSEE BY : SHRI S.N. SOPARKAR, AR REVENUE BY : SHRI K. MADHUSUDAN, SR.DR #$ / DATE OF HEARING 09/06/2016 %&'$ / DATE OF PRONOUNCEMENT 22 / 0 6 /201 6 / O R D E R PER BENCH : TWO APPEALS BY THE ASSESSEE IN ITA NOS.912 & 913/AH D/2012 ARE DIRECTED AGAINST SEPARATE ORDERS OF THE COMMISSIONE R OF INCOME TAX(APPEALS)-XI AHMEDABAD (CIT(A) IN SHORT) DATED 20/03/2012 & 22/03/2012 PERTAINING TO ASSESSMENT YEARS (AYS) 200 7-08 & 2008-09 ITA NOS.912 & 913/AHD/2012 (BY ASSESSEE) AND ITA NO.1211/AHD/2012 (BY REVENUE) NIRMA INDUSTRIES PVT.LTD. VS. DCIT/ACIT ASST.YEARS 2007-08, 2008-09 & 2008-09 RESPECTIVEL Y - 2 - RESPECTIVELY. REVENUE IS IN CROSS-APPEAL FOR AY 20 08-09 IN ITA NO.1211/AHD/2012. SINCE THESE APPEALS RELATE TO SAME ASSESSEE, THESE ARE BEING DISPOSED OF BY WAY OF THIS CONSOLIDATED O RDER FOR THE SAKE OF CONVENIENCE. 2. FIRST, WE TAKE UP ASSESSEES APPEAL IN ITA NO.91 2/AHD/2012 FOR AY 2007-08. 2.1. THE RELEVANT FACTS AS CULLED OUT FROM THE MATE RIALS ON RECORD ARE AS UNDER:- 2.2. ASSESSEE IS A COMPANY STATED TO BE ENGAGED IN THE BUSINESS OF MANUFACTURING OF SOAP, STONE POWDER, AGRICULTURAL P RODUCE AND TRADING IN CONSUMER GOODS. ASSESSEE ELECTRONICALLY FILED ITS RETURN OF INCOME FOR AY 2007-08 ON 31/10/2007 DECLARING LOSS OF RS.2,23, 17,606/-. THE CASE WAS SELECTED FOR SCRUTINY AND THEREAFTER THE ASSESS MENT WAS FRAMED U/S.143(3) OF THE INCOME TAX ACT, 1961 (HEREINAFTER REFERRED TO AS 'THE ACT') VIDE ORDER DATED 31/03/2009 AND THE TOTAL LOS S WAS DETERMINED AT RS.2,18,37,940/-. AGGRIEVED BY THE ORDER OF AO, A SSESSEE CARRIED THE MATTER BEFORE THE LD.CIT(A), WHO VIDE ORDER DATED 2 0/03/2012, GRANTED PARTIAL RELIEF TO THE ASSESSEE. AGGRIEVED BY THE ORDER OF LD.CIT(A), ASSESSEE IS NOW IN APPEAL BEFORE US AND HAS RAISED FOLLOWING GROUNDS;- 1) IN LAW AND IN FACTS AND CIRCUMSTANCES OF THE A PPELLANTS CASE, THE LEARNED CIT(A) HAS GROSSLY ERRED IN THE POINTS OF LAW AND FACTS. 2) IN LAW AND IN FACTS AND CIRCUMSTANCES OF THE A PPELLANTS CASE, THE LEARNED CIT(A) HAS GROSSLY ERRED IN DISMI SSING ITA NOS.912 & 913/AHD/2012 (BY ASSESSEE) AND ITA NO.1211/AHD/2012 (BY REVENUE) NIRMA INDUSTRIES PVT.LTD. VS. DCIT/ACIT ASST.YEARS 2007-08, 2008-09 & 2008-09 RESPECTIVEL Y - 3 - APPELLANTS GROUND REGARDING ALLOWING OF INTEREST E XPENSES RS.8,25,42,400 PAID DURING THE YEAR BUT PROVIDED IN EARLIER ASST.YEARS. IN EARLIER ASST.YEARS THE SAID INTERES T EXPENSE WAS DISALLOWED IN ASSESSMENT ORDER PASSED U/S.143(3 ) OF I.T.ACT. 3. BEFORE THE CIT(A), ASSESSEE PRAYED THAT THE INTE REST EXPENSES OF RS.8,25,42,400/- ON ISSUE OF OPTIONALLY FULLY CONVE RTIBLE PREMIUM NOTES (OFCPN) WHICH WAS PAID DURING THE YEAR BUT WA S PROVIDED IN EARLIER YEARS AND WAS DISALLOWED BY THE AO IN THOS E YEARS FOR THE REASON THAT THE INTEREST EXPENSES WAS CONTINGENT IN NATURE , BE ALLOWED. THE LD.CIT(A) DISMISSED THE GROUND OF THE ASSESSEE BY N OTING THAT AO HAD NOT MADE ANY DISALLOWANCE IN RESPECT OF INTEREST PA ID IN THE IMPUGNED ASSESSMENT YEAR AND THEREFORE THE ASSESSEE WAS NOT AGGRIEVED ON THAT ISSUE AND, ACCORDINGLY, AS PER THE PROVISIONS OF SE CTION 246 OF THE ACT, ASSESSEE CANNOT BE AGITATING THE ISSUE IN APPEAL AN D THAT IN MANY EARLIER YEARS, THE MATTER IN APPEAL HAS BEEN DECIDED IN ITS FAVOUR. AGGRIEVED BY THE ORDER OF LD.CIT(A), ASSESSEE IS NOW IN APPEAL B EFORE US. 3.1. BEFORE US, LD.AR REITERATED THE SUBMISSIONS MA DE BEFORE THE LD.CIT(A) AND FURTHER SUBMITTED THAT THE CLAIM OF E XPENSES WAS DISALLOWED BY THE AO IN EARLIER YEARS ON THE GROUN D THAT THE EXPENSES WAS CONTINGENT IN NATURE AND THAT IT WOULD BE ALLOW ED IN THE YEAR OF PAYMENT. HE SUBMITTED THAT ASSESSEE HAS MADE THE PAYMENT OF INTEREST IN THE IMPUGNED YEAR AND THEREFORE THE EXPENSES SHO ULD HAVE BEEN ITA NOS.912 & 913/AHD/2012 (BY ASSESSEE) AND ITA NO.1211/AHD/2012 (BY REVENUE) NIRMA INDUSTRIES PVT.LTD. VS. DCIT/ACIT ASST.YEARS 2007-08, 2008-09 & 2008-09 RESPECTIVEL Y - 4 - ALLOWED. HE FURTHER SUBMITTED THAT AGAINST THE EAR LIER YEAR ORDERS, ASSESSEE AND REVENUE HAD PREFERRED APPEALS BEFORE THE APPELLATE AUTHORITIES AND THE STATUS OF THOSE APPEALS IS REF LECTED ON PAGE NO.9 OF LD.CIT(A)S ORDER. FROM CHART WHICH IS REPRODUCED B Y THE LD.CIT(A), THE LD.AR SUBMITTED THAT AS FAR AS THE ISSUE IN AY 2003-04 IS CONCERNED, IN THE SECOND ROUND THE MATTER IS PENDING BEFORE TH E TRIBUNAL. FOR AY 2006-07 THE DEPARTMENTS APPEAL IS PENDING BEFORE THE TRIBUNAL. AS FAR AS ISSUE IN AYS 2004-05 AND 2005-06 ARE CONCERNED, HE SUBMITTED THAT THE HONBLE TRIBUNAL HAD ALLOWED THE APPEAL OF THE ASSESSEE AGAINST WHICH THE REVENUE HAS PREFERRED APPEAL BEFORE THE H ONBLE HIGH COURT AND THE MATTER IS PENDING. HE THEREFORE SUBMITTED THAT SINCE THE APPEALS OF EARLIER YEARS ARE PENDING BEFORE VARIOUS AUTHORI TIES, NECESSARY DIRECTION MAY BE GIVEN TO AO THAT ON FINALITY OF AP PEALS, THE CLAIM OF ASSESSEE BE ALLOWED EITHER IN YEARS IN WHICH THE A MOUNT WAS DEBITED OR IN THE IMPUGNED YEAR, BEING THE YEAR OF PAYMENT OF INTEREST. THE LD.SR.DR DID NOT OBJECT TO THE AFORESAID PRAYER OF LD.AR. 4. WE HAVE HEARD THE RIVAL SUBMISSIONS, PERUSED THE MATERIAL AVAILABLE ON RECORD AND GONE THROUGH THE ORDERS OF THE AUTHORITIES BELOW. THE ISSUE IN THE PRESENT APPEAL IS WITH REFERENCE T O ALLOWANCE OF INTEREST EXPENSES. IT IS ASSESSEES SUBMISSION THAT ASSESSE E HAD ISSUED OFCPN IN EARLIER YEARS AND HAD DEBITED THE INTEREST PAYABLE ON THOSE OFCPNS AS EXPENSES BUT THE CLAIM OF EXPENSES WAS NEGATED BY A O FOR THE REASON THAT THE CLAIM OF EXPENSES WAS CONTINGENT IN NATURE AS NO AMOUNT WAS ITA NOS.912 & 913/AHD/2012 (BY ASSESSEE) AND ITA NO.1211/AHD/2012 (BY REVENUE) NIRMA INDUSTRIES PVT.LTD. VS. DCIT/ACIT ASST.YEARS 2007-08, 2008-09 & 2008-09 RESPECTIVEL Y - 5 - PAID IN THOSE RESPECTIVE YEARS. AGAINST THE ORDER OF AO, MATTER WAS CARRIED IN APPELLATE PROCEEDINGS AND AS ON DATE THE STATUS OF APPEALS, AS REPRODUCED BY LD.CIT(A) IN HIS ORDER IS AS UNDER:- ACCT.YEAR ASST.YEAR AMOUNT OF INTEREST EXPENSES (RS.) AS PER THE ASSESSMENT ORDER AS PER THE CIT(A)S ORDER ALLOWED AS PER ITATS ORDER 2002-03 2003-04 1,88,16,534 DISALLOWED DISMISSED SE T ASIDE TO HONBLE CIT(A) 2003-04 2004-05 1,99,80,501 DISALLOWED DISMISSED AL LOWED 2004-05 2005-06 2,12,16,470 DISALLOWED DISMISSED AL LOWED 2005-06 2006-07 2,25,28,895 DISALLOWED ALLOWED DEP ARTMENT APPEAL PENDING 4.1. DURING THE YEAR, ASSESSEE HAD CLAIMED BEFORE L D.CIT(A) THE EXPENSES BE ALLOWED ON PAYMENT BASIS, BUT THE CLAIM OF DEDUCTION OF EXPENSE WAS DENIED FOR THE REASON THAT THE GROUND D OES NOT EMANATE FROM THE ORDER OF AO AND THAT IN MANY YEARS, THE CLAIM OF ASSESSEE WAS ALLOWED IN APPEAL. 5. FROM THE TABLE WHICH IS REPRODUCED HEREINABOVE, IT CAN BE SEEN THAT AYS 2003-04 & 2006-07, THE MATTER IS PENDING BEFORE TRIBUNAL AND FOR AYS 2004-05 & 2005-06, REVENUES APPEAL IS PENDING BEFORE THE HONBLE HIGH COURT. IN SUCH A SITUATION, WE FIND F ORCE IN THE PLEA OF THE LD.AR THAT THE CLAIM OF EXPENSE BE ALLOWED IN ONE O F THE YEAR, I.E. EITHER ITA NOS.912 & 913/AHD/2012 (BY ASSESSEE) AND ITA NO.1211/AHD/2012 (BY REVENUE) NIRMA INDUSTRIES PVT.LTD. VS. DCIT/ACIT ASST.YEARS 2007-08, 2008-09 & 2008-09 RESPECTIVEL Y - 6 - IN THE YEAR WHEN THE EXPENSE HAS BEEN BOOKED OR IN THE YEAR IN WHICH THE PAYMENT IS MADE SUBJECT TO THE FULFILLMENT OF THE R EQUIRED CONDITIONS AS PER THE PROVISIONS OF THE ACT. WE THEREFORE DIRECT THE AO TO RE-EXAMINE THE CLAIM OF ASSESSEE AFTER THE ISSUE ATTAINS FINDI NG BY THE HIGHER FORUM AND CONSIDER THE CLAIM IN ACCORDANCE WITH LAW. THU S, THIS GROUND OF ASSESSEE IS ALLOWED FOR STATISTICAL PURPOSES. 6. NOW WE TAKE UP ASSESSEES APPEAL IN ITA NO.913/A HD/2012 AND REVENUES APPEAL IN ITA NO.1211/AHD/2012 FOR AY 200 8-09. 6.1. ASSESSEE ELECTRONICALLY FILED ITS RETURN OF I NCOME FOR AY 2008-09 ON 30/09/2008 DECLARING LOSS OF RS.24,62,005/-. SU BSEQUENTLY, ASSESSEE REVISED ITS RETURN OF INCOME ON 19/03/2009 DECLARIN G LOSS OF RS.24,62,005/-. THE CASE WAS SELECTED FOR SCRUTINY AND THEREAFTER THE ASSESSMENT WAS FRAMED U/S.143(3) OF THE INCOME TAX ACT, 1961 (HEREINAFTER REFERRED TO AS 'THE ACT') VIDE ORDER D ATED 05/05/2010 AND THE TAXABLE INCOME WAS DETERMINED AT RS.18,35,470/- AND BOOK PROFITS U/S.115JB OF THE ACT WAS DETERMINED AT RS.2,36,90,5 63/- AND SINCE THE TAX PAYABLE AS PER THE NORMAL INCOME WAS LESS, THE TAX WAS WORKED OUT AS PER PROVISIONS OF MAT. AGGRIEVED BY THE ORDER OF ASSESSING OFFICER (AO), ASSESSEE CARRIED THE MATTER BEFORE THE LD.CIT (A), WHO VIDE ORDER 22/03/2012 (IN APPEAL NO.CIT(A)-XI/98/CIR.5/10-11) GRANTED PARTIAL RELIEF TO THE ASSESSEE. AGGRIEVED BY THE ORDER OF THE LD.CIT(A), ASSESSEE AND REVENUE ARE NOW IN APPEALS BEFORE US. THE GROU NDS RAISED BY THE ASSESSEE IN ITA NO.913/AHD/2012 READ AS UNDER:- ITA NOS.912 & 913/AHD/2012 (BY ASSESSEE) AND ITA NO.1211/AHD/2012 (BY REVENUE) NIRMA INDUSTRIES PVT.LTD. VS. DCIT/ACIT ASST.YEARS 2007-08, 2008-09 & 2008-09 RESPECTIVEL Y - 7 - 1) IN LAW AND IN FACTS AND CIRCUMSTANCES OF THE AP PELLANTS CASE, THE LEARNED CIT(A) HAS GROSSLY ERRED IN THE POINTS OF LAW AND FACTS. 2) IN LAW AND IN FACTS AND CIRCUMSTANCES OF THE A PPELLANTS CASE, THE LEARNED CIT(A) HAS GROSSLY ERRED IN CONFIRMING DISALLOWANCE OF RS.42,97,474 U/S.14A OF INCOME-TAX ACT. 3) IN LAW AND IN FACTS AND CIRCUMSTANCES OF THE APPELLANTS CASE, THE LEARNED CIT(A) HAS GROSSLY ERRED IN DISMISSING APPELLANTS GROUND REGARDING CHARGING OF INTEREST U/S.234B OF I .T.ACT FOR RS.26,055. 4) IN LAW AND IN FACTS AND CIRCUMSTANCES OF THE AP PELLANTS CASE, THE LEARNED CIT(A) HAS GROSSLY ERRED IN DISMISSING APPELLANTS GROUND REGARDING CHARGING OF INTEREST U/S.234D OF I .T.ACT FOR RS.54,207. 5) IN LAW AND IN FACTS AND CIRCUMSTANCES OF THE A PPELLANTS CASE, THE LEARNED CIT(A) HAS GROSSLY ERRED IN DISMISSING APPELLANTS GROUND REGARDING WITHDRAWING OF INTEREST U/S.244A O F I.T.ACT FOR RS.2,12,330. 6.2. ON THE OTHER HAND, REVENUE HAS RAISED THE FOLL OWING GROUND IN ITA NO.1211/AHD/2012:- 1. THE LD.COMMISSIONER OF INCOME TAX (A) HAS ERRED IN LAW AND ON FACTS IN DIRECTING THE ASSESSING OFFICER NOT TO MAK E ADJUSTMENT OF DISALLOWANCE OF RS.42,97,474/- U/S.14A OF THE ACT, WHILE COMPUTING MAT PROFIT U/S.115JB OF THE ACT. 6.3. WE TAKE UP THE ASSESSEES APPEAL IN ITA NO.913 /AHD/2012. 6.4. BEFORE US, LD.AR, AT THE OUTSET, SUBMITTED THA T THOUGH ASSESSEE HAS RAISED VARIOUS GROUNDS BUT THE EFFECTIVE GROUND IS GROUND NO.2 WITH ITA NOS.912 & 913/AHD/2012 (BY ASSESSEE) AND ITA NO.1211/AHD/2012 (BY REVENUE) NIRMA INDUSTRIES PVT.LTD. VS. DCIT/ACIT ASST.YEARS 2007-08, 2008-09 & 2008-09 RESPECTIVEL Y - 8 - RESPECT OF DISALLOWANCE OF U/S.14A OF THE ACT AND T HE OTHER GROUNDS ARE CONSEQUENTIAL IN NATURE. 6.5. DURING THE COURSE OF ASSESSMENT PROCEEDINGS, A O NOTICED THAT ASSESSEE HAD EARNED DIVIDEND INCOME OF RS.23,93,472 /- WHICH WAS CLAIMED AS EXEMPT. HE FURTHER OBSERVED THAT ASSESS EE HAD DISALLOWED RS.50,000/- U/S.14A OF THE ACT. ASSESSEE WAS ASKED TO FURNISH WORKING OF DISALLOWANCE U/S.14A OF THE ACT AND WAS SHOW-CAU SED AS TO WHY PROPORTIONATE DISALLOWANCE OF INTEREST EXPENDITURE NOT BE MADE TO WHICH ASSESSEE INTER ALIA SUBMITTED THAT NO DISALLOWANCE OF INTEREST WAS REQUIRED AS NO INTEREST EXPENDITURE WAS INCURRED FO R EARNING TAX-FREE INCOME. THE SUBMISSION OF THE ASSESSEE WAS NOT FOU ND ACCEPTABLE TO THE AO IN VIEW OF THE FACT THAT ASSESSEE WAS MAINTAININ G COMMON BANK ACCOUNT FROM WHICH INVESTMENTS WERE MADE. AO ALSO NOTED THAT ASSESSEE HAD NOT PROVED THAT THE INVESTMENTS WERE OUT OF INT EREST-FREE FUNDS AND THAT ASSESSEE HAD BORROWINGS IN THE FORM OF SECURED AND UNSECURED LOANS AND ON SUCH BORROWINGS ASSESSEE HAD PAID INTEREST A ND IT HAD CLAIMED INTEREST EXPENDITURE. HE THEREAFTER WORKED OUT THE DISALLOWANCE U/S.14A OF THE ACT AT RS.43,47,474/- AND SINCE ASSESSEE HAD ALREADY DISALLOWED RS.50,000/-, HE MADE ADDITION OF DIFFERENTIAL AMOUN T OF RS.42,97,474/-. AGGRIEVED BY THE ORDER OF AO, ASSESSEE CARRIED THE MATTER BEFORE LD.CIT(A), WHO CONFIRMED THE ORDER OF THE AO BY HOL DING AS UNDER:- ITA NOS.912 & 913/AHD/2012 (BY ASSESSEE) AND ITA NO.1211/AHD/2012 (BY REVENUE) NIRMA INDUSTRIES PVT.LTD. VS. DCIT/ACIT ASST.YEARS 2007-08, 2008-09 & 2008-09 RESPECTIVEL Y - 9 - 3.3. I HAVE CAREFULLY CONSIDERED RIVAL SUBMISSIO NS. I HAVE ALSO PERUSED VARIOUS CASE LAWS RELIED UPON BY THE LD.AR. IT IS A CLEAR PROPOSITION OF LAW THAT PROVISIONS OF SECTION 14A(2 ) & 14A(3) ARE EFFECTIVE W.E.F. 1-4-2007 AND PROVISIONS OF RULE 8D IS EFFECTIVE FROM 24- 3-2008. THIS WAY, PROVISIONS OF SECTION 14A(2), 14 A(3) AND RULE 8D WAS APPLICABLE IN THE CASE IN HAND AS THIS CASE PER TAINS TO A.Y.2008-09. THE APPELLANT'S MAIN CONTENTION IS THAT DISALLOWANC E U/S.14A SHOULD NOT BE MADE AS IT HAD NOT INCURRED ANY EXPENDITURE TO M AKE INVESTMENT IN EQUITY SHARES. HOWEVER, I AM NOT INCLINED TO AGREE WITH THE CONTENTIONS OF THE ID.A.R. IN VIEW OF UNAMBIGUOUS PROVISIONS OF SECTION 14A(3). FOR THE SAKE OF BREVITY PROVISIONS OF SECTION 14A(3) AR E REPRODUCED AS UNDER. '14A(3) THE PROVISIONS OF SUB SECTION (2) SHALL A/S O APPLY IN RELATION TO A CASE WHERE AN ASSESSEE CLAIMS THAT NO EXPENDITURE HAS BEEN INCURRED BY HIM IN RELATION TO INCOME WHIC H DOES NOT FORM PART OF THE TOTAL INCOME UNDER THIS ACT.' 3.4 PERUSAL OF THE ABOVE MENTIONED PROVISIONS MAKES IT VERY CLEAR THAT PROVISIONS OF SECTION 14A R.W. RULE 8D WILL BE APPL ICABLE EVEN IN THE CASE WHERE APPELLANT CLAIMS THAT NO EXPENDITURE HAS BEEN INCURRED IN INVESTMENT OF EQUITIES, INCOME FROM WHICH IS EXEMPT AS PER PROVISIONS OF IT. ACT. I HAVE PERUSED VARIOUS CASE LAWS RELIED UP ON BY THE ID.A.R. THESE CASE LAWS PERTAINS TO THE PERIOD WHEN PROVISI ONS OF SECTION 14A(2), 14A(3) AND RULE 8D WERE NOT APPLICABLE. THE RELIANCE PLACED BY THE APPELLANT ON HON'BLE CLT(A)'S ORDER FOR EARLIER A.YRS. WILL ALSO NOT HELP THE APPELLANT, SINCE, THESE CASES WERE DECIDED KEEPING IN VIEW THE PROVISIONS OF LAW AS IT WAS EXISTING BEFORE A.Y. 2008-09 WHEN PROVISIONS OF SECTION 14A(3) R.W. RULE 8D WAS NOT APPLICABLE. IN VIEW OF THE ABOVE, I AM OF THE CONSIDERED VIEW THAT THE A.O. HAD RIGHT LY APPLIED PROVISIONS OF RULE 8D AND I ENTIRELY AGREE WITH THE DISALLOWAN CE MADE BY THE A.O. U/S.14A OF I.T.ACT. IN VIEW OF ABOVE, DISALLOWANC E OF RS.42,97,474/- MADE BY THE A.O. U/S.14A IS CONFIRMED. ITA NOS.912 & 913/AHD/2012 (BY ASSESSEE) AND ITA NO.1211/AHD/2012 (BY REVENUE) NIRMA INDUSTRIES PVT.LTD. VS. DCIT/ACIT ASST.YEARS 2007-08, 2008-09 & 2008-09 RESPECTIVEL Y - 10 - 6.6. AGGRIEVED BY THE ORDER OF THE LD.CIT(A), ASSES SEE IS NOW IN APPEAL BEFORE US. 6.7. BEFORE US, LD.AR REITERATED THE SUBMISSIONS MA DE BEFORE THE AO AND LD.CIT(A) AND FURTHER SUBMITTED THAT IN ASSESSE ES OWN CASE FOR AYS 2004-05 & 2005-06, THE COORDINATE BENCH OF TRIBUNAL (ITAT A BENCH AHMEDABAD) VIDE ORDER DATED 01/02/2016 IN ITA NOS.5 4 & 55/AHD/2009 HAD DELETED THE DISALLOWANCE. HE PLACED ON RECORD THE COPY OF THE AFORESAID DECISION. HE FURTHER SUBMITTED THAT ASSE SSEE HAS SUFFICIENT INTEREST-FREE FUNDS IN THE FORM OF SHARE CAPITAL AN D RESERVES AND SURPLUS WHICH ARE MUCH MORE THAN THE INVESTMENTS AND IN SUC H A SITUATION, THE PRESUMPTION IS THAT THE INVESTMENTS ARE OUT OF INTE REST-FREE FUNDS AND NOT FROM BORROWED FUNDS. HE ALSO SUBMITTED THAT DURING THE YEAR THE INVESTMENTS HAVE REDUCED FROM THAT OF EARLIER YEARS AND IN SUPPORT OF THE AFORESAID ARGUMENTS, HE POINTED TO THE COPY OF THE BALANCE SHEET WHICH IS PLACED AT PAGE NOS.11 TO 21 OF THE PAPER-BOOK. HE FURTHER PLACED RELIANCE ON THE JUDGEMENT IN THE CASE OF INDIA GELA TINE REPORTED IN 376 ITR 553. HE THEREFORE SUBMITTED THAT NO DISALL OWANCE OTHER THAN THAT WHICH HAS BEEN OFFERED BY THE ASSESSEE IS REQU IRED IN THE PRESENT CASE. 6.8. WITH RESPECT TO REVENUES APPEAL IN ITA NO.121 1/AHD/2012 FOR AY 2008-09, LD.AR SUBMITTED THAT THE DISALLOWANCE M ADE BY THE AO ITA NOS.912 & 913/AHD/2012 (BY ASSESSEE) AND ITA NO.1211/AHD/2012 (BY REVENUE) NIRMA INDUSTRIES PVT.LTD. VS. DCIT/ACIT ASST.YEARS 2007-08, 2008-09 & 2008-09 RESPECTIVEL Y - 11 - U/S.14A WAS CONSIDERED WHILE COMPUTING THE MAT PROF ITS. HE SUBMITTED THAT IN CASE THE ASSESSEES APPEAL(SUPRA) IS DECID ED IN FAVOUR OF ASSESSEE, THEN THE REVENUES APPEAL WOULD BECOME INFRUCTUOUS. APART FROM THAT, HE SUBMITTED THAT THE REVENUES APPEAL WILL HAVE TO BE DISMISSED ON ACCOUNT OF LOW TAX EFFECT AS PER LATEST CBDT CIRCU LAR NO.21 OF 2015 DATED 10.12.2015. 6.9. THE LD.SR.DR, ON THE OTHER HAND, SUPPORTED THE ORDERS OF AO AND LD.CIT(A) AND FURTHER SUBMITTED THAT IN THE YEAR UN DER APPEAL, THE PROVISIONS OF RULE 8D OF I.T.RULES, 1962 WERE MANDA TORY AND, THEREFORE, IN VIEW OF THE FACT THAT ASSESSEE WAS HAVING COMMON POOL OF FUNDS, THE AO WAS FULLY JUSTIFIED IN MAKING THE DISALLOWANCE. AS FAR AS REVENUES APPEAL IS CONCERNED, HE SUBMITTED THAT IN VIEW OF T HE EXPLANATION-1 OF SECTION 115JB OF THE ACT, THE AO HAD RIGHTLY CONSID ERED THE DISALLOWANCE MADE U/S.14A OF THE ACT WHILE COMPUTING THE BOOK PR OFITS U/S.115JB OF THE ACT. HE THUS SUPPORTED THE ORDER OF AO. 7. WE HAVE HEARD THE RIVAL SUBMISSIONS, PERUSED T HE MATERIAL AVAILABLE ON RECORD AND GONE THROUGH THE ORDERS OF THE AUTHORITIES BELOW. THE ISSUE IN THE PRESENT IS WITH RESPECT TO DISALLO WANCE OF EXPENSES U/S.14A OF THE ACT. 7.1. IT IS AN UNDISPUTED FACT THAT DURING THE YEAR ASSESSEE HAS EARNED EXEMPT INCOME IN THE FORM OF DIVIDEND OF RS.23,93,4 72/-. IT IS ALSO ITA NOS.912 & 913/AHD/2012 (BY ASSESSEE) AND ITA NO.1211/AHD/2012 (BY REVENUE) NIRMA INDUSTRIES PVT.LTD. VS. DCIT/ACIT ASST.YEARS 2007-08, 2008-09 & 2008-09 RESPECTIVEL Y - 12 - UNDISPUTED FACT THAT FOR THE YEAR UNDER CONSIDERATI ON PROVISIONS OF SECTION 14A R.W. RULE 8D OF I.T.RULES ARE APPLICABL E. BEFORE US, IT IS ASSESSEES SUBMISSION THAT ASSESSEE HAS ENOUGH FUND S IN THE FORM OF SHARE CAPITAL AND RESERVES AND SURPLUS AND THEREFO RE NO DISALLOWANCE U/S.14A OF THE ACT IS CALLED FOR. ON PERUSING THE COPY OF THE BALANCE SHEET AS AT 31/03/2008 WHICH IS PLACED AT PAGE NO.1 1 OF THE PAPER-BOOK, IT SEEN THAT THE TOTAL INTEREST-FREE FUNDS AS AT 31 /3/2008 COMPRISING OF SHARE CAPITAL AND RESERVES AND SURPLUS IS RS.25,39, 21,834/- AS AGAINST INVESTMENT OF RS.15,84,13,764/-. FURTHER THE INVES TMENTS HAVE REDUCED FROM RS.19,10,66,009/- AS AT 31/03/2007, MEANING TH EREBY THAT THERE ARE NO NEW INVESTMENTS AT THE YEAR END AND THE INTEREST -FREE FUNDS IN THE FORM OF SHARE CAPITAL & RESERVES & SURPLUS ARE MUCH IN E XCESS OF THE INVESTMENTS.. WE FIND THAT THE HONBLE BOMBAY HIG H COURT IN THE CASE OF HDFC BANK LTD. VS. DEPUTY COMMISSIONER OF INCOM E-TAX AND OTHERS REPORTED AT [2016] 383 ITR 529 (BOM), DATED 25/02/2 016 AND AFTER REFERRING TO THE DECISION OF BOMBAY HIGH COURT IN T HE CASE OF CIT VS. RELINCE UTILITIES & POWER LTD. (2009) 313 ITR 340 ( BOM.) HAS HELD THAT WHERE INTEREST-FREE FUNDS ARE AVAILABLE WITH THE AS SESSEE WHICH ARE MORE THAT THE INVESTMENTS MADE IN THE TAX FREE SECURITIE S, THEN A PRESUMPTION ARISES THAT THE INVESTMENTS WERE MADE FROM ITS INTE REST-FREE FUNDS. BEFORE US, REVENUE HAS NOT PLACED ANY CONTRARY BIND ING DECISION IN ITS SUPPORT. IN VIEW OF THE AFORESAID FACTS AND RELYI NG ON THE DECISION OF HONBLE BOMBAY HIGH COURT REFERRED TO HEREINABOVE, WE ARE OF THE VIEW ITA NOS.912 & 913/AHD/2012 (BY ASSESSEE) AND ITA NO.1211/AHD/2012 (BY REVENUE) NIRMA INDUSTRIES PVT.LTD. VS. DCIT/ACIT ASST.YEARS 2007-08, 2008-09 & 2008-09 RESPECTIVEL Y - 13 - THAT NO DISALLOWANCE OF EXPENDITURE U/S.14A OTHER T HAN THAT OFFERED BY ASSESSEE IS CALLED FOR IN THE PRESENT CASE. THUS, THIS GROUND OF ASSESSEE IS ALLOWED. 7.2. SINCE THE ASSESSEES GROUND WITH RESPECT TO DI SALLOWANCE U/S.14A IS DECIDED IN ASSESSEES FAVOUR IN ASSESSEES APPEA L IN ITA 913/AHD/2012 FOR AY 2008-09(SUPRA), WE ARE OF THE VIEW THAT REV ENUES APPEAL IN ITA NO.1211/AHD/2012 FOR AY 2008-09 HAS BECOME INFRUCTU OUS AND THEREFORE NOT DECIDED ON MERITS. IN THE RESULT, AS SESSEES APPEAL IS ALLOWED FOR STATISTICAL PURPOSES, WHEREAS REVENUE S APPEAL IS DISMISSED. 8. IN THE COMBINED RESULT, ASSESSEES APPEALS FOR AY 2007-08 & 2008-09 ARE ALLOWED AND REVENUES APPEAL FOR AY 200 8-09 IS DISMISSED. THIS ORDER PRONOUNCED IN OPEN COURT ON 22 /06 /2016 SD/- SD/- .. () () ( R.P. TOLANI) ( ANIL CHATURVEDI ) JUDICIAL MEMBER ACCOUNTANT MEMBER AHMEDABAD; DATED 22/ 06 /2016 ,..,.../ T.C. NAIR, SR. PS ITA NOS.912 & 913/AHD/2012 (BY ASSESSEE) AND ITA NO.1211/AHD/2012 (BY REVENUE) NIRMA INDUSTRIES PVT.LTD. VS. DCIT/ACIT ASST.YEARS 2007-08, 2008-09 & 2008-09 RESPECTIVEL Y - 14 - ! ' / COPY OF THE ORDER FORWARDED TO : 1. -. / THE APPELLANT 2. /0-. / THE RESPONDENT. 3. 123 4 / CONCERNED CIT 4. 4 ( ) / THE CIT(A)-XI, AHMEDABAD 5. 567/23 , 23' , 1 / DR, ITAT, AHMEDABAD 6. 79:# / GUARD FILE. / BY ORDER, 05/ //TRUE COPY// / ( DY./ASSTT.REGISTRAR) , / ITAT, AHMEDABAD 1. DATE OF DICTATION .. 9.6.16 (DICTATION-PAD 20P AGES ATTACHED AT THE END OF THIS APPEAL-FILE) 2. DATE ON WHICH THE TYPED DRAFT IS PLACED BEFORE THE DICTATING MEMBER 15.6.16/20/6/16 3. OTHER MEMBER 4. DATE ON WHICH THE APPROVED DRAFT COMES TO THE SR.P. S./P.S.. 5. DATE ON WHICH THE FAIR ORDER IS PLACED BEFORE THE D ICTATING MEMBER FOR PRONOUNCEMENT 6. DATE ON WHICH THE FAIR ORDER COMES BACK TO THE SR.P .S./P.S.22.6.16 7. DATE ON WHICH THE FILE GOES TO THE BENCH CLERK 22.6.16 8. DATE ON WHICH THE FILE GOES TO THE HEAD CLERK ... 9. THE DATE ON WHICH THE FILE GOES TO THE ASSISTANT RE GISTRAR FOR SIGNATURE ON THE ORDER.. 10. DATE OF DESPATCH OF THE ORDER