Gujarat Mineral Development Corporation Ltd., Ahmedabad V. The ACIT.,Circle-4, Ahmedabad

ITA 944/AHD/2013

• Counselvise Citation: [2016] 133 COUNSELVISE.COM (IT) 1659 (ITAT-AHMEDABAD)
• Duration Of Justice: 3 year(s) 1 month(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 06-05-2016
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: B
• Next Hearing Date: 13-04-2016
• Assessment Year: 2009-2010
• Appeal Filed On: 05-04-2013
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: NARENDRA SINGH
• Keywords: Depreciation; Proportionate interest
• Section: 14A; 32

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD B BENCH (BEFORE SHRI N.K. BILLAIYA, ACCOUNTANT MEMBER & SHRI KUL BHARAT, JUDICIAL MEMBER) ITA. NO: 944/AHD/2013 (ASSESSMENT YEAR: 2009-10) GUJARAT MINERAL DEVELOPMENT CORPORATION LTD. KHANIJ BHAVAN, 132FT RING ROAD, UNIVERSITY GROUND, AHMEDABAD V/S ASST. CIT, CIRCLE-4, AHMEDABAD (APPELLANT) (RESPONDENT) PAN: AAACG 7987P APPELLANT BY : SHRI S.N. SOPARKAR, AR RESPONDENT BY : SHRI NARENDRA SINGH, SR. D.R . ( )/ ORDER DATE OF HEARING : 13 -04-201 6 DATE OF PRONOUNCEMENT : 06 -05-2016 PER N.K. BILLAIYA, ACCOUNTANT MEMBER: 1. THIS APPEAL BY THE ASSESSEE IS PREFERRED AGAINST TH E ORDER OF LD. CIT(A)-VIII, AHMEDABAD DATED 27.12.2012 PERTAINING TO A.Y. 2009-10. ITA NO. 944/ AHD/2013 . A.Y. 2009-1 0 2 2. THE ASSESSEE HAS RAISED THREE SUBSTANTIVE GROUNDS O F APPEAL. GROUND NO. 1 RELATES TO THE DISALLOWANCE OF 1,23,70,724/- U/S. 14A R.W.R 8D OF THE ACT, GROUND NO. 2 RELATES TO THE DISALLOWANCE O F DEPRECIATION OF RS. 42,01,773/- ON LEASED ASSETS AND GROUND NO. 3 RELAT ES TO THE ADDITION OF RS. 1,51,24,986/- MADE U/S. 36(I)(III) OF THE AC T OUT OF WHICH THE LD. CIT(A) ERRED IN UPHOLDING THE DISALLOWANCE OF INTER EST TO THE EXTENT OF RS. 48,88,672/-. 3. THE ASSESSEE COMPANY IS IN THE BUSINESS OF MINING O F MINERALS AND POWER GENERATION. THE RETURN FOR THE YEAR WAS SELEC TED FOR SCRUTINY ASSESSMENT AND ACCORDINGLY STATUTORY NOTICES WERE I SSUED AND SERVED UPON THE ASSESSEE. ON VERIFICATION OF THE BALANCE S HEET, THE A.O NOTICED THAT THE ASSESSEE COMPANY HAS MADE INVESTM ENT IN SHARES & MUTUAL FUNDS AT RS. 58,55,86,400/- . THE A.O WAS OF THE FIRM BELIEF THAT THE PROVISION OF SECTION 14A SQUARELY APPLY AN D SINCE THE ASSESSEE HAS NOT OFFERED ANY DISALLOWANCE WORKED OU T U/S. 14A OF THE ACT, THE ASSESSEE WAS ASKED TO EXPLAIN WHY THE EXPE NDITURE INCURRED SHOULD NOT BE ADDED TO ITS TOTAL INCOME AS PER SECT ION 14A R.W.R 8D. IN HIS REPLY, THE ASSESSEE STRONGLY CLAIMED THAT SINCE THE INVESTMENTS HAVE BEEN MADE OUT OF OWN FUNDS, THERE IS NO QUESTI ON OF ANY DISALLOWANCE U/S. 14A OF THE ACT. 4. THE A.O OBSERVED THAT THE ASSESSEE HAS FAILED TO PR OVE THE NEXUS FROM WHICH IT CAN BE ESTABLISHED THAT THE INVESTMENT MAD E IN SHARES ARE FROM ITS OWN FUNDS. THE A.O PROCEEDED BY COMPUTING THE DISALLOWANCE AS PROVIDED IN RULE 8D AND DISALLOWED A SUM OF RS. 1,23,70,724/-. 5. ASSESSEE CARRIED THE MATTER BEFORE THE LD. CIT(A) B UT WITHOUT ANY SUCCESS. BEFORE US, THE LD. COUNSEL FOR THE ASSESS EE REITERATED WHAT ITA NO. 944/ AHD/2013 . A.Y. 2009-1 0 3 HAS BEEN STATED BEFORE THE LOWER AUTHORITIES. IT IS THE SAY OF THE LD. COUNSEL THAT ON IDENTICAL SET OF FACTS, THE TRIBUNA L IN ASSESSEES OWN CASE IN EARLIER ASSESSMENT YEARS I.E. 2003-04 & 200 4-05 DIRECTED THE A.O NOT TO MAKE ANY DISALLOWANCE OF INTEREST EXPENS ES. PER CONTRA, THE LD. D.R. COULD NOT BRING ANY DISTINGUISHING DECISIO N IN FAVOUR OF THE REVENUE. WE HAVE CONSIDERED THE RIVAL CONTENTIONS A ND HAVE CAREFULLY PERUSED THE ORDERS OF THE AUTHORITIES BELOW. WE FIN D FORCE IN THE CONTENTION OF THE LD. COUNSEL, A SIMILAR ISSUE WAS CONSIDERED BY THE TRIBUNAL IN ITA NOS. 1185 & 1246/AHD/2007 AND 543 & 1324/AHD/2008. THE RELEVANT FINDINGS OF THE TRIBUNA L READ AS UNDER:- 6.3 AFTER GOING THROUGH RIVAL SUBMISSIONS AND MATERIAL ON RECORD, WE FIND THAT HON'BLE GUJARAT HIGH COURT GUJARAT INDUSTRIAL DEVELOPMENT C ORPN LTD. (SUPRA) HAS HELD THAT IT IS EXPECTED OF DEPARTMENT TO ESTABLISH A NEXUS BETW EEN INTEREST BEARING FUNDS BORROWED AND THOSE INVESTED BY ASSESSEE RESPONDENT ONLY WHEN IT IS SHOWN THAT INTEREST FREE FUNDS ARE NOT AVAILABLE WITH ASSESSEE, QUESTION WOULD ARI SE OF FASTENING TAX LIABILITY ON ASSESSEE. IN THE SAID CASE, RESPONDENT ASSESSEE HAD NOT USED BORROWED FUNDS, FOR THE PURPOSE O INVESTMENT IN EQUITY SHARES. FOR DEDUCTIO N CLAIMED U/S. 80M OF ACT, ON DIVIDEND INCOME OF THESE SHARES BOTH THE COMMISSION ER (APPEALS) AND THE TRIBUNAL HAVE RIGHTLY ALLOWED INTEREST FREE EXPENSES INCURRED FOR EARNING DIVIDEND AND ALLOWED DEDUCTION U/S. 80M ON NET INCOME RECEIVED AND REVEN UE HAVING FAILED TO ESTABLISH THAT RESPONDENT HAD INCURRED ANY EXPENSES FOR EARNING DI VIDEND INCOME FROM THE AMOUNT BORROWED, THEY HAVE RIGHTLY NOT ADDED SUM OF RS.6.6 2 CRORE INVOKING PROVISIONS OF SECTION 14A WHICH DOES NOT PERMIT DEDUCTION OF EXPE NDITURE INCURRED IN RELATION TO INCOME NOT INCLUDIBLE IN TOTAL INCOME SIMILAR VIEW HAS BEEN TAKEN IN AMOD STAMPING (P.) LTD. (SUPRA), TORRENT POWER LTD. (SUPRA) AND OTHER DECISIONS RELIED BY ASSESSEE. IN VIEW OF ABOVE, NO DISALLOWANCE OF INTEREST EXPENSES IS R EQUIRED BECAUSE REVENUE IS EXPECTED TO ESTABLISH A NEXUS BETWEEN INTEREST BEARING FUNDS BO RROWED AND THESE INVESTED BY THE ASSESSEE. IN SUCH SITUATION, DISALLOWANCE U/S. 14A OF ACT IS NOT JUSTIFIED. ASSESSING OFFICER IS DIRECTED ACCORDINGLY. ACCORDINGLY APPEAL OF REVE NUE ON THIS ISSUE IS DISMISSED AND THAT OF ASSESSEE IS ALLOWED A: DISCUSSED ABOVE. ITA NO. 944/ AHD/2013 . A.Y. 2009-1 0 4 6. COMING TO THE FACTS OF THE CASE, WE FIND THAT ASSES SEES OWN FUNDS ARE AT RS. 12,18,70,61,102/- AS AGAINST INVESTMENT OF R S. 58,55,86,400/-. THE ABOVE FIGURES HAVE BEEN EXTRACTED BY US FROM TH E AUDITED STATEMENT OF ACCOUNT PLACED BEFORE US AND EXHIBITED AT PAGE 36 OF THE PAPER BOOK. THUS, IT CAN BE SEEN THAT THE OWN FUNDS ARE FAR IN EXCESS OF THE INVESTMENTS MADE. 7. RESPECTFULLY FOLLOWING THE FINDINGS OF THE CO-ORDIN ATE BENCH (SUPRA) AND DRAWING SUPPORT FROM THE DECISION OF THE HONBL E HIGH COURT OF BOMBAY IN THE CASE OF RELIANCE UTILITIES & POWER LT D. 313 ITR 340 WHICH WAS FOLLOWED IN THE CASE OF HDFC BANK 366 ITR 505. WE DIRECT THE A.O TO DELETE THE DISALLOWANCE OF RS. 1,23,70,7 24/-. WE FIND THAT THE ASSESSEE HAS SUO MOTU DISALLOWED RS. 75,000/-, IN OUR CONSIDERED OPINION, THIS SHOULD MEET THE ENDS OF JUSTICE. GROU ND NO. 1 IS ACCORDINGLY ALLOWED. 8. GROUND NO. 2 RELATES TO THE DISALLOWANCE OF DEPRECI ATION. 9. THE A.O HAS DISCUSSED THIS ISSUE AT PARA 5 OF HIS O RDER ON PAGE 7. WHILE GOING THROUGH THE STATEMENT OF THE ACCOUNTS, THE A.O FOUND THAT THE ASSESSEE COMPANY HAS CLAIMED DEPRECIATION IN RE SPECT OF THE ASSETS COVERED UNDER LEASING TRANSACTIONS. THE A.O FOUND THAT THE ASSESSEE COMPANY HAS CLAIMED DEPRECIATION AT RS. 42 ,01,773/-. THE ASSESSEE WAS ASKED TO EXPLAIN WHY THE DEPRECIATION ON ASSET BUSES ON ASSET LEASED TO GSRTC. IN ITS REPLY, THE ASSESSE E STRONGLY CONTENDED THAT IT IS THE LEGAL OWNER OF THE ASSETS LEASED TO GSRTC AND THE INCOME TAX ACT DOES NOT RECOGNIZE ANY DISTINCTI ON BETWEEN OPERATING LEASE AND FINANCE LEASE. IT WAS BROUGHT T O THE NOTICE OF THE ITA NO. 944/ AHD/2013 . A.Y. 2009-1 0 5 A.O THAT SO FAR AS THE CLAIM FOR DEPRECIATION IS CO NCERNED, IT HAS TO BE CONSIDERED IN THE CONTEXT OF PROVISIONS OF SECTION 32 OF THE ACT. 10. AFTER CONSIDERING THE FACTS AND THE SUBMISSIONS, TH E A.O OBSERVED THAT IN EARLIER YEARS THE ISSUE OF DISALLO WANCE OF DEPRECIATION ON ASSETS HAS BEEN DISCUSSED AT LENGTH AND THE DISA LLOWANCES HAVE BEEN CONFIRMED BY THE FIRST APPELLATE AUTHORITY. TH E A.O ACCORDINGLY DISALLOWED THE CLAIM OF DEPRECIATION AMOUNTING TO R S. 42,01,772/-. 11. ASSESSEE CARRIED THE MATTER BEFORE THE LD. CIT(A) B UT FAILED TO CONVINCE THE CLAIM OF DEPRECIATION. BEFORE US, IT H AS BEEN BROUGHT TO THE NOTICE THAT IN EARLIER YEARS, THE DISALLOWANCE OF THE CLAIM OF DEPRECIATION HAS BEEN CONFIRMED BY THE TRIBUNAL. WE HAVE CAREFULLY GONE THROUGH THE FACTS IN ISSUES TAKEN IN THIS GROU ND OF APPEAL. NO DOUBT, IN EARLIER YEARS, THE TRIBUNAL HAS CONFIRMED THE DISALLOWANCE OF DEPRECIATION BUT MUCH WATER HAS BEEN FLOWN UNDER TH E BRIDGE SINCE THEM. THE HONBLE SUPREME COURT IN THE CASE OF ICDS 350 ITR 527 HAS UPHELD THE CLAIM OF DEPRECIATION ON THE SALE AN D LEASE BACK TRANSACTIONS. 12. THEREFORE, IN THE INTEREST OF JUSTICE, WE RESTORE T HIS ISSUE TO THE FILES OF THE A.O. THE ASSESSEE IS DIRECTED TO JUSTI FY ITS CLAIM OF DEPRECIATION IN THE LIGHT OF THE RATIO LAID DOWN BY THE HONBLE SUPREME COURT (SUPRA) AND THE A.O IS DIRECTED TO VERIFY THE CLAIM AFRESH. IN THE LIGHT OF THE AFOREMENTIONED RATIO LAID DOWN BY THE HONBLE SUPREME COURT AND AFTER GIVING A REASONABLE AND FAIR OPPORT UNITY OF BEING HEARD TO THE ASSESSEE. GROUND NO. 2 IS TREATED AS ALLOWED FOR STATISTICAL PURPOSE. ITA NO. 944/ AHD/2013 . A.Y. 2009-1 0 6 13. GROUND NO. 3 RELATES TO THE ADDITION OF RS. 48,88,6 72/- BEING DISALLOWANCE OF INTEREST OUT OF RS. 1,51,25,986/-. 14. DURING THE COURSE OF ASSESSMENT PROCEEDINGS, IT WAS NOTICED THAT THE ASSESSEE HAS ADVANCED LOANS AND MADE INVESTMENT IN GROUP COMPANIES, AS UNDER:- 1. BHAVNAGAR ENERGY CO. LTD. RS. 7,50,000/ 2. GIIC RS. 2,78,926/- 3. GMIC RS. 1,20,731/- 4. GUJARAT ALUMINUM & BAUXITE LTD. RS. 3,91,13,921 /- 5. GUJARAT MINERAL RESEARCH & DEV. SOCIETY RS. 4,75,3 60/- 6. LAND ADVANCE RS. 8,53,02,613/- RS. 12,60,41,551/- 15. THE A.O FURTHER OBSERVED THAT NO INTEREST HAS BEEN CHARGED FROM THESE SUBSIDIARIES/SISTER CONCERNS. APPLYING THE PR OVISIONS OF SECTION 36(1)(III) OF THE ACT, THE A.O WAS OF THE FIRM BELI EF THAT PROPORTIONATE INTEREST ON INVESTMENT MADE TO SUBSIDIARY COMPANIES /SISTER CONCERNS IS TO BE DISALLOWED. 16. ASSESSEE WAS ASKED TO EXPLAIN THE SAME. IN ITS REPL Y, THE ASSESSEE STATED THAT OUT OF TOTAL LOANS AND ADVANCE S OF RS. 1251.19 CRORES, RS. 7.50 LACS IS GIVEN TO BHAVNAGAR ENERGY, RS. 3.91 CRORE TO GUJARAT ALUMINA WHICH ARE NOT SISTER CONCERNS OF TH E ASSESSEE. IT WAS EXPLAINED THAT THE AMOUNTS WERE GIVEN IN THE PREVIO US YEARS AND WERE GIVEN FOR BUSINESS PURPOSE AND NO AMOUNT IS GIVEN I N THIS CURRENT YEAR. THEREFORE, THERE IS NO QUESTION OF DIVERSION OF FUNDS TO THESE CONCERNS. ITA NO. 944/ AHD/2013 . A.Y. 2009-1 0 7 17. THIS SUBMISSION OF THE ASSESSEE DID NOT FIND FAVOUR WITH THE A.O WHO WAS OF THE OPINION THAT THE ASSESSEE HAS USED I TS BORROWED FUNDS FOR NON BUSINESS PURPOSE. ACCORDINGLY PROPORTIONATE INTEREST OF RS. 15124986/- WAS DISALLOWED. 18. ASSESSEE CARRIED THE MATTER BEFORE THE LD. CIT(A). IT WAS BROUGHT TO THE NOTICE OF THE LD. CIT(A) THAT IT IS IN CORRECT TO SAY THAT THE ASSESSEE COMPANY HAS ADVANCED LOANS AND MADE IN VESTMENT IN GROUP COMPANIES FOR WHICH INTEREST IS NOT CHARGED. IT WAS BROUGHT TO THE NOTICE OF THE LD. CIT(A) THAT NOT A SINGLE ADVA NCE IS GIVEN TO SISTER CONCERNS OR GROUP COMPANY. IT WAS FURTHER EXPLAINED THAT THE MAJOR ADVANCE OF RS. 8.53 CRORE WAS FOR ACQUISITION OF LA ND GIVEN TO LAND ACQUISITION OFFICER OF BHAVNAGAR FOR MINING PURPOSE . IT WAS FURTHER BROUGHT TO THE NOTICE OF THE LD. CIT(A) THAT THE AS SESSEE HAS NOT BORROWED ANY FUNDS FROM BANKS OR OUTSIDE AGENCIES A ND THE ADVANCE WAS GIVEN IN F.Y. 2008-09 AND NOT IN THE YEAR UNDER CONSIDERATION. 19. AFTER CONSIDERING THE FACTS AND THE SUBMISSIONS, TH E LD. CIT(A) OBSERVED THAT THE ADVANCE OF RS. 8.53 CRORES WAS IN FACT GIVEN TO THE LAND ACQUISITION OFFICER TOWARDS PURCHASE OF LAND I N THE BHAVNAGAR DISTRICT TO CARRY OUT MINING ACTIVITIES. THEREFORE, THERE SHOULD NOT BE ANY ADDITION OF PROPORTIONATE INTEREST SO FAR AS TH IS ADVANCE IS CONCERNED. HOWEVER, IN RESPECT OF THE BALANCE AMOUN T WHICH WAS ADVANCED TO SISTER CONCERN/ASSOCIATED CONCERN. THE LD. CIT(A) WAS OF THE OPINION THAT THE ASSESSEE HAS NOT DEMONSTRATED THAT THESE AMOUNTS HAVE NOT BEEN ADVANCED FROM THE LOANS TAKEN BY THE ASSESSEE COMPANY AND ACCORDINGLY CONFIRMED THE ADDI TION OF RS. 48,88,672/-. ITA NO. 944/ AHD/2013 . A.Y. 2009-1 0 8 20. AGGRIEVED BY THIS, THE ASSESSEE IS BEFORE US. LD. COUNSEL FOR THE ASSESSEE REITERATED WHAT HAS BEEN STATED BEFORE THE LOWER AUTHORITIES AND IN SUPPORT OF HIS CLAIM. RELIANCE WAS PLACED ON THE DECISION OF THE HONBLE JURISDICTIONAL HIGH COURT OF GUJARAT IN THE CASE OF R.L. KALTHIA ENGINEERING & AUTOMOBILES (P.) LTD. 33 TAXMANN.COM 14. PER CONTRA, LD. D.R. STRONGLY SUPPORTED THE FINDINGS OF THE REV ENUE AUTHORITIES. 21. WE HAVE GIVEN A THOUGHTFUL CONSIDERATION TO THE ORD ERS OF THE AUTHORITIES BELOW. AS MENTIONED ELSEWHERE, THE ASSE SSEE IS HAVING OWN FUNDS OF RS. 12,18,70,61,102/-. THE DISPUTE IS ONLY ON ADVANCE OF RS. 4,07,38,938/-. IT CAN BE SEEN THAT ASSESSEES O WN FUNDS ARE FAR IN EXCESS OF THE IMPUGNED INTEREST FREE ADVANCES. THER E IS NO FINDING GIVEN BY THE A.O THAT THERE IS A DIRECT NEXUS BETWE EN BORROWED FUNDS AND THE MONEY ADVANCED BY THE ASSESSEE. THE FIRST A PPELLATE AUTHORITY HAS ALSO NOT DENIED THAT THE AMOUNTS WERE ADVANCED IN EARLIER YEARS AND NOT DURING THE YEAR UNDER CONSIDE RATION. THE ONLY REASON FOR MAKING THE DISALLOWANCE/ADDITION IS THAT THE REVENUE AUTHORITIES ARE OF THE FIRM BELIEF THAT THE ASSESSE E HAS DIVERTED BORROWED FUNDS TO NON BUSINESS PURPOSES. IN OUR CON SIDERED OPINION, SINCE SUFFICIENT INTEREST FREE FUNDS WERE AVAILABLE WITH THE ASSESSEE AND THERE WAS NO NEXUS PROVED BETWEEN BORROWED FUND S AND FUNDS LENT ANY DISALLOWANCE OF INTEREST IS NOT PERMISSIBL E. OUR VIEW IS ALSO FORTIFIED BY THE DECISION OF THE HONBLE GUJARAT HI GH COURT (SUPRA). FOR THE PURPOSES OF BUSINESS DOES NOT MEAN THE MONEY S HOULD BE USED BY THE ASSESSEE IN ITS OWN BUSINESS. IF THE PAYEE TO WHOM THE MONEY IS ADVANCED USED IT IN ITS OWN BUSINESS THE AMOUNT SO LENT WILL BE DEEMED TO HAVE BEEN UTILIZED FOR THE PURPOSES OF TH E BUSINESS. WE DRAW SUPPORT FROM THE DECISION OF THE HONBLE SUPRE ME COURT GIVEN IN THE CASE OF HERO CYCLES 379 ITR 347. ITA NO. 944/ AHD/2013 . A.Y. 2009-1 0 9 22. CONSIDERING THE FACTS OF THE CASE IN THE LIGHT OF T HE RATIO LAID DOWN BY THE HONBLE HIGH COURT OF GUJARAT (SUPRA). WE SET ASIDE THE FINDINGS OF THE LD. CIT(A) AND DIRECT THE A.O TO DE LETE THE ADDITION OF RS. 48,88,672/-. ACCORDINGLY GROUND NO. 3 IS ALLOWE D. 23. IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE IS ALLOWED IN PART FOR STATISTICAL PURPOSE. ORDER PRONOUNCED IN OPEN COURT ON 06 - 05 - 2016. SD/- SD/- (KUL BHARAT) (N. K. BILLAIYA) JUDICIAL MEMBER ACCOUNTANT MEMBER AHMEDABAD: TRUE COPY RAJESH COPY OF THE ORDER FORWARDED TO: - 1. THE APPELLANT. 2. THE RESPONDENT. 3. THE CIT (APPEALS) 4. THE CIT CONCERNED. 5. THE DR., ITAT, AHMEDABAD. 6. GUARD FILE. BY ORDER DEPUTY/ASSTT.REGISTRAR ITAT,AHME DABAD