M/s Hero Exports, Ludhiana V. ACIT, Ludhiana

ITA 976/CHANDI/2012

• Counselvise Citation: [2015] 140 COUNSELVISE.COM (IT) 95698 (ITAT-CHANDIGARH)
• Duration Of Justice: 3 year(s) 2 month(s) 7 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 02-12-2015
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: A
• Next Hearing Date: 06-07-2015
• Assessment Year: 2006-2007
• Appeal Filed On: 25-09-2012
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: S K MITTAL
• Assessee Lawyers: SUBHASH AGGARWAL
• Section: 14A; 147

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DIVISION BENCH, CHANDIGARH BEFORE SHRI H.L.KARWA, VICE PRESIDENT AND MS. RANO JAIN, ACCOUNTANT MEMBER ITA NO.976/CHD/2012 (ASSESSMENT YEAR : 2006-07) M/S HERO EXPORTS, VS. THE A.C.I.T., G.T. ROAD, HERO NAGAR, CIRCLE V, LUDHIANA LUDHIANA. PAN: AACFM1084E (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI SUBHASH AGGARWAL RESPONDENT BY : SHRI S.K. MITTAL, DR DATE OF HEARING : 27.10.2015 DATE OF PRONOUNCEMENT : 02.12.2015 O R D E R PER RANO JAIN, A.M . : THIS APPEAL FILED BY THE ASSESSEE IS DIRECTED AGAINST THE ORDER OF LEARNED COMMISSIONER OF INCOME TAX (APPEALS)-II, LUDHIANA DATED 23.7.2012 FOR ASSESSMENT YEAR 2006-07. 2. BRIEFLY, THE FACTS OF THE CASE ARE THAT IN PROCEEDINGS INITIATED UNDER SECTION 147 OF THE INCO ME TAX ACT, 1961 (IN SHORT THE ACT), THE ASSESSING OFFIC ER NOTED THAT THE ASSESSEE HAD MADE INVESTMENT IN VARIOUS COMPANIES AMOUNTING TO RS.7,96,84,309/-, THEREFORE, THE PROVISIONS OF SECTION 14A OF THE ACT ARE APPLICABLE . THE 2 ASSESSEE SUBMITTED THAT IT HAD MADE INVESTMENT IN S HARES IN EARLIER YEARS AND NO INVESTMENT WAS MADE DURING THE CURRENT YEAR. IT WAS ALSO SUBMITTED THAT NO LOAN WAS RAISED FOR PURCHASE OF SHARES IN ANY OF THE YEARS. THE ASSESSING OFFICER WORKED OUT THE AVERAGE RATE OF IN TEREST PAID BY THE ASSESSEE @ 6.14% AND ACCORDINGLY, DISAL LOWED RS.49,40,427/- UNDER SECTION 14A OF THE ACT BEING 6 .2% OF TOTAL INVESTMENT OF RS.7,96,84,309/-. 3. BEFORE THE LEARNED CIT (APPEALS), THE ASSESSEE MADE ELABORATE SUBMISSIONS AND STATED THAT THE ASSE SSING OFFICER HAD DISALLOWED THE INTEREST ON TOTAL INVEST MENTS APPLYING THE INTEREST RATE @ 6.20% FOR THE WHOLE YE AR IRRESPECTIVE OF THE DATE OF INVESTMENT MADE DURING THE YEAR. FURTHER, IT WAS ALSO STATED THAT DISALLOWANC E UNDER SECTION 14A OF THE ACT IS NOT TENABLE IN THIS CASE. THE LEARNED CIT (APPEALS) AFTER REFERRING TO VARIOUS CA SE LAWS HELD THAT THE DISALLOWANCE UNDER SECTION 14A OF THE ACT IS TO BE MADE IN THIS CASE AND AS REGARDS THE QUANTUM OF DISALLOWANCE, TAKING HELP FROM RULE 8D OF THE INCOM E TAX RULES, HE COMPUTED THE DISALLOWANCE AT RS.8,85,574/ -. 4. AGGRIEVED BY THE SAID ORDER, THE ASSESSEE HAS COME IN APPEAL BEFORE US. THE LEARNED COUNSEL FOR THE ASSESSEE PREFERRED NOT TO PRESS GROUND NO.1 RELATED TO REOPENING UNDER SECTION 147 OF THE ACT. AS REGARD S GROUND NO.2 RELATED TO DISALLOWANCE OF RS.8,85,574/ - SUSTAINED BY THE LEARNED CIT (APPEALS) UNDER SECTIO N 14A OF THE ACT, IT WAS SUBMITTED THAT THE LEARNED CIT ( APPEALS) 3 HAS RESORTED TO COMPUTATIONAL PROVISIONS PROVIDED B Y RULE 8D, WHICH IS NOT APPLICABLE TO ASSESSMENT YEAR 2006 -07 AS HAS BEEN HELD BY THE HON'BLE BOMBAY HIGH COURT IN T HE CASE OF GODREJ & BOYCE MFG. CO . LTD . VS. DCIT 328 ITR 81 (BOM). HOWEVER, HE ACCEPTED THE FACT THAT A REASON ABLE AMOUNT OF EXPENSES HAD TO BE DISALLOWED. PLACING RELIANCE ON THE ORDER OF THE CHANDIGARH BENCH OF TH E TRIBUNAL IN THE CASE OF M/S MUNJAL SALES CORPORATIO N VS. ADDL.CIT IN ITA NO.374/CHD/2011, DATED 21.6.2011, WHEREBY AN AMOUNT OF RS.50,000/- WAS HELD TO BE REASONABLE FOR THE SAME ASSESSMENT YEAR, IT WAS PRA YED TO RESTRICT THE DISALLOWANCE TO RS.50,000/-. 5. THE LEARNED D.R. ARGUED THAT EVEN IF RULE 8D OF THE RULES IS NOT APPLICABLE TO THIS ASSESSMENT YEAR , THE COMPUTATIONAL PROVISION BEING A SCIENTIFIC ONE, THE DISALLOWANCE COMPUTED AS PER THIS RULE MAY BE CONSI DERED AS REASONABLE. WITHOUT PREJUDICE, IT WAS SUBMITTE D THAT AT LEAST RS.1,50,000 MAY BE CONSIDERED AS REASONABL E. 6. IN REJOINDER, THE LEARNED COUNSEL FOR THE ASSESSEE STATED THAT IN THE SUCCEEDING YEAR, THE AS SESSEE HAD SUO MOTTO DISALLOWED RS.50,000/- UNDER SECTION 14A OF THE ACT, WHICH HAS BEEN ACCEPTED BY THE ASSESSIN G OFFICER IN AN ASSESSMENT FRAMED UNDER SECTION 143(3 ) OF THE ACT. 7. WE HAVE HEARD THE LEARNED REPRESENTATIVES OF BOTH THE PARTIES, PERUSED THE FINDINGS OF THE AUTHO RITIES 4 BELOW AND CONSIDERED THE MATERIAL AVAILABLE ON RECO RD. IT IS NOT IN DISPUTE THAT THE HON'BLE BOMBAY HIGH COUR T IN THE CASE OF GODREJ & BOYCE MFG. CO . LTD . (SUPRA) HAS HELD IN VERY CLEAR TERMS THAT THE PROVISIONS OF RULE 8D OF RULES ARE NOT APPLICABLE IN ANY ASSESSMENT YEAR PRIOR TO ASSESSMENT YEAR 2008-09. IN VIEW OF THIS, WE HOLD THAT THE ACTION OF THE LEARNED CIT (APPEALS) IN COMPUTIN G THE DISALLOWANCE AS PER RULE 8D OF THE RULES IS NOT AS PER LAW. AS REGARDS THE REASONABLE AMOUNT OF DISALLOW ANCE TO BE ESTIMATED, WE FIND THE SUBMISSION MADE BY THE LEARNED COUNSEL FOR THE ASSESSEE THAT IN THE NEXT Y EAR RS.50,000/- SUO MOTTO DISALLOWED BY THE ASSESSEE, H AS BEEN ACCEPTED BY THE DEPARTMENT, IS QUITE PLAUSIBLE . IN VIEW OF THE SAME, WE DIRECT THE ASSESSING OFFICER T O RESTRICT THE DISALLOWANCE UNDER SECTION 14A OF THE ACT TO RS.50,000/-. 8. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS PARTLY ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON THIS 2 ND DAY OF DECEMBER, 2015. SD/- SD/- (H.L.KARWA) (RANO JAIN) VICE PRESIDENT ACCOUNTANT MEMBER DATED : 2 ND DECEMBER, 2015 *RATI* COPY TO: THE APPELLANT/THE RESPONDENT/THE CIT(A)/THE CIT/THE DR. ASSISTANT REGISTRAR, ITAT, CHANDIGARH 5