M/s. Ravi Seeds And Research P. Ltd., Indore V. THE ACIT 4(1), Indore

ITA 978/IND/2016

• Counselvise Citation: [2018] 125 COUNSELVISE.COM (IT) 6520 (ITAT-INDORE)
• Duration Of Justice: 1 year(s) 9 month(s) 25 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 18-07-2018
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: DB
• Assessment Year: 2011-2012
• Appeal Filed On: 23-09-2016
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: SHRI V K BORICHA
• Keywords: Earning of tax free income; Fair market value
• Section: 14A

Judgement Text

RAVI SEEDS ITA 978 & 976/IND/2016 1 IN THE INCOME TAX APPELLATE TRIBUNAL INDORE BENCH, INDORE BEFORE SHRI KUL BHARAT, HONBLE JUDICIAL MEM BER AND SHRI MANISH BORAD, HONBLE ACCOUNTANT ME MBER ITA NOS. 976 & 978/IND/2016 A.YS. 2012-13 & 2011-12 RAVI SEEDS & RESEARCH PRIVATE LIMITED INDORE ::: APPELLANT VS. ACIT 4(1) INDORE ::: RESPONDENT APPELLANT BY SHRI PANKAJ SHAH RESPONDENT BY SHRI SHRI V.K. BORICHA DATE OF HEARING 3.7.2018 DATE OF PRONOUNCEMENT .7.2018 O R D E R PER SHRI MANISH BORAD, AM THESE APPEALS BY THE ASSESSEE RELATING TO THE ASS ESSMENT YEARS 2011-12 & 2012-13 ARE DIRECTED AGAINST DIFFER ENT ORDERS DATED 18.7.2016 OF THE COMMISSIONER OF INCOME TAX ( APPEALS)-II, INDORE, WHICH ARE ARISING OUT OF THE ORDER U/S 143( 3) OF THE ACT DATED 27.3.2015 FRAMED BY ACIT, CIRCLE 4(1), INDOR E. RAVI SEEDS ITA 978 & 976/IND/2016 2 ITA NO. 978/IND/2016 2. GROUND NO. 1 OF THE ASSESSEE RELATES TO DISALLOW ANCE OF INTEREST EXPENDITURE AMOUNTING TO RS. 3,66,259/- U/S 14A OF THE IT ACT, 1961. 3. THE FACTS, IN NUTSHELL, ARE THAT THE ASSESSEE MA DE AN INVESTMENT OF RS. 1,38,11,181/- TOWARDS PURCHASE OF AGRICULTURAL LAND. THEREFORE, THE ASSESSING OFFICER TOOK A VIEW THAT THE ASSESSEE HAS OR WILL EARN EXEMPT INCOME ON ACCOUNT OF AGRICU LTURE PRODUCE. HE, THEREFORE, INVOKING THE PROVISIONS OF SECTION 1 4A OF THE ACT, MADE DISALLOWANCE OF RS.3,66,259/-. ON APPEAL, THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) CONFIRMED THE ACTION OF THE ASSESSING OFFICER. NOW THE ASSESSEE IS IN APPEAL BE FORE THE TRIBUNAL. 4. BEFORE US, THE LEARNED COUNSEL FOR THE ASSESSEE RELIED UPON THE DECISION OF THE HON'BLE HIGH COURT OF DELHI IN THE CASE OF CHEMINVEST VS. CIT; (2015) 61 TAXMANN.COM 118 (DEL) AND SUBMITTED THAT SINCE THE HON'BLE HIGH COURT HAS HEL D THAT AS NO EXEMPT INCOME HAS BEEN EARNED DURING THE YEAR UNDER CONSIDERATION, NO DISALLOWANCE WAS CALLED FOR U/S 1 4A OF THE ACT. RAVI SEEDS ITA 978 & 976/IND/2016 3 5. ON THE OTHER HAND, THE LEARNED DR RELIED UPON TH E ORDERS OF THE AUTHORITIES BELOW WITH THE SUBMISSION THAT IT W AS ONLY AFTER CONSIDERING EACH AND EVERY ASPECT OF THE ISSUE THAT THE ASSESSING OFFICER AND THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) HAVE RIGHTLY MADE AND CONFIRMED THE DISALLOWANCE U/S 14A AND AS SUCH NO INTERFERENCE IS CALLED FOR. 6. WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE M ATERIAL AVAILABLE ON RECORD. AFTER GOING THROUGH THE JUDGME NT OF THE HON'BLE HIGH COURT OF DELHI IN THE CASE OF CHEMINVEST LIMIT ED (SUPRA), WE FIND THAT THE HON'BLE HIGH COURT HAS CATEGORICALLY HELD THAT THE EXPRESSION DOES NOT FORM PART OF THE TOTAL INCOME IN SECTION 14A OF THE ACT ENVISAGES THAT THERE SHOULD BE AN ACTUAL RE CEIPT OF INCOME, WHICH IS NOT INCLUDIBLE IN THE TOTAL INCOME, DURING THE RELEVANT PREVIOUS YEAR FOR THE PURPOSE OF DISALLOWING ANY EX PENDITURE INCURRED IN RELATION TO THE SAID INCOME. IN OTHER WORDS, SE CTION 14A WILL NOT APPLY IF NO EXEMPT INCOME IS RECEIVED OR RECEIVABLE DURING THE RELEVANT PREVIOUS YEAR. WE, THEREFORE, RESPECTFULLY FOLLOWING THE JUDGMENT OF THE HON'BLE HIGH COURT OF DELHI (SUPRA) HOLD THAT SINCE DURING THE YEAR, UNDER CONSIDERATION, NO EXEMPT INC OME HAS BEEN RAVI SEEDS ITA 978 & 976/IND/2016 4 EARNED BY THE ASSESSEE, NO DISALLOWANCE U/S 14A OF THE ACT WAS CALLED FOR. IN THIS VIEW OF THE MATTER, THE ORDERS OF THE AUTHORITIES BELOW ARE SET ASIDE AND THE GROUND OF APPEAL TAKEN BY THE ASSESSEE IS ALLOWED. 5. GROUND NO. 2 RELATING TO LEVY OF INTEREST U/S 23 4B AND 234C OF THE ACT IS CONSEQUENTIAL IN NATURE AND, THEREFORE, IT REQUIRES NO ADJUDICATION. ITA NO. 976/IND/2016 6. IN THIS APPEAL, GROUND NO. 1 RELATES TO DISALLOW ANCE OF INTEREST AMOUNTING TO RS.1,38,128/-ON ADVANCES MADE TO DIREC TORS. 7. BRIEF FACTS OF THE CASE ARE THAT THE ASSESSING O FFICER OBSERVED THAT ON ONE HAND THE ASSESSEE DURING THE RELEVANT A SSESSMENT YEAR HAD TAKEN LOANS FROM ONE OF THE DIRECTORS, SHRI PRA DEEP KAKNI AND PAID INTEREST @ 14% AMOUNTING TO RS. 3,86,758/- AND ON THE OTHER HAND GAVE LOAN TO ITS ANOTHER DIRECTOR @ 9%. THE A SSESSING OFFICER, THEREFORE, WAS OF THE VIEW THAT THIS DIFFERENCE IN RATE OF INTEREST BEING NOT BENEFICIAL TO THE REVENUE, HE COMPUTED TH E DISALLOWANCE OF INTEREST AT RS. 1,38,128/-. ON APPEAL, THE LEAR NED COMMISSIONER RAVI SEEDS ITA 978 & 976/IND/2016 5 OF INCOME TAX (APPEALS) CONFIRMED THE DISALLOWANCE. NOW THE ASSESSEE IS IN APPEAL BEFORE THE TRIBUNAL. 8. ON THE OTHER HAND, THE LEARNED DR RELIED UPON TH E ORDERS OF THE AUTHORITIES BELOW. 9. WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE M ATERIAL AVAILABLE ON RECORD. FROM A PERUSAL OF RECORD WE FI ND THAT THE ASSESSING OFFICER HAS NOT BROUGHT OUT ANY SPECIFIC DETAILS WHICH COULD SHOW THAT THE INTEREST BEARING FUNDS HAVE BEE N APPLIED TO BE GIVEN TO THE LOAN GIVEN TO ANOTHER DIRECTOR @ 9%. R EASONABLENESS OF THE EXPENDITURE NEEDS TO BE PROVED WITH RESPECT TO FAIR MARKET VALUE. IT IS ALSO BROUGHT TO OUR NOTICE THAT THE A SSESSEE WAS HAVING INTEREST FREE SHARE CAPITAL, SECURITY PREMIUM AND R ESERVES AND SURPLUS AMOUNTING TO RS.71,96,934/-. THAT THE ALLEG ED SUNDRY ADVANCES GIVEN TO THE DIRECTOR @ 9% ARE LESSER THAN THE INTEREST FREE FUNDS AVAILABLE WITH THE ASSESSEE. WE OBSERVE THAT THE HON'BLE HIGH COURT OF BOMBAY IN THE CASE OF RELIANCE UTILITIES & POWER LIMITED; 313 ITR 340 HAS HELD AS UNDER :- RAVI SEEDS ITA 978 & 976/IND/2016 6 THE HON'BLE BOMBAY HIGH COURT IN CASE OF CIT VS. RELIANCE UTILITIES & POWER LIMITED (313 ITR 340) HA S CATEGORICALLY HELD AS UNDER :- IF THERE ARE FUNDS AVAILABLE BOTH, INTEREST FREE A ND OVER DRAFT AND/OR LOANS ARE TAKEN, THEN A PRESUMPTI ON WOULD ARISE THAT INVESTMENTS WOULD BE OUT OF THE IN TY FREE FUND GENERATED OR AVAILABLE WITH THE COMPANY, IF THE INTEREST FREE FUNDS ARE SUFFICIENT TO MEET THE INVESTMENTS. IN THE INSTANT CASE SAID PRESUMPTION W AS ESTABLISHED CONSIDERING THE FINDINGS OF FACT, BOTH BY THE COMMISSIONER (APPEALS) AND THE TRIBUNAL (PARA 10) : 10. WE, THEREFORE, IN THE GIVEN FACTS AND CIRCUMSTANC ES OF THE CASE AND IN VIEW OF THE JUDGMENT REFERRED TO ABOVE , ARE OF THE CONSIDERED VIEW THAT THE ASSESSING OFFICER HAS NOT BROUGHT OUT SUFFICIENT DETAILS ON RECORD FOR ALLEGED INTEREST DISALLOWANCE WHEREAS THE ASSESSEE HAS BEEN SUCCESSFUL IN DEMONSTRATING THAT IN VIEW OF HAVING SUFFICIENT INTERE ST FREE CAPITAL AND RESERVE, DISALLOWANCE OF INTEREST EXPENDITUR E RAVI SEEDS ITA 978 & 976/IND/2016 7 WAS NOT CALLED FOR. WE ACCORDINGLY DELETE THE INTEREST DISALLOWANCE OF RS. 1,38,128/- AND ALLOW GROUND NO. 1 I N FAVOUR OF THE ASSESSEE. 10. GROUND NO. 2 RAISED BY THE ASSESSEE RELATES TO CONFIRMATION OF DISALLOWANCE OF RS. 4,58,363/- BY INVOKING PROVISIO NS OF SECTION 14A READ WITH RULE 8D ON THE PURCHASE OF AGRICULTUR E LAND. 11. THE ASSESSING OFFICER OBSERVED THAT THE ASSESSE E HAS EARNED EXEMPTED INCOME OF RS. 2,02,340/- AND, THEREFORE, A PPLYING THE PROVISIONS OF SECTION 14A OF THE ACT COMPUTED THE D ISALLOWANCE OF RS. 4,58,363/- WHICH COMPRISED OF INTEREST DISALLOW ANCE OF RS.3,89,307/- AND ADMINISTRATIVE EXPENDITURE DISALL OWANCE OF RS.69,056/-. 12. WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE MATERIAL AVAILABLE ON RECORD. FROM PERUSAL OF AUDITED BALANC E SHEET WE OBSERVE THAT THE INTEREST IN AGRICULTURAL LAND IS S HOWN AT RS.13,81,181/-. THERE IS NO INVESTMENT IN EQUITY SH ARES DURING THE YEAR. EXEMPT AGRICULTURAL INCOME OF RS. 2,02,340/- WAS EARNED DURING THE YEAR. AGAINST THE INVESTMENT IN LAND AT RS. 13,81,181/- RAVI SEEDS ITA 978 & 976/IND/2016 8 THE TOTAL INTEREST FREE FUNDS IN THE SHAPE OF CAPIT AL AND RESERVE AND SURPLUS AMOUNTS TO RS. 8,49,69,034/-. THIS IS NOT THE CASE OF THE REVENUE THAT THE INTEREST BEARING FUNDS HAVE BEEN A PPLIED TO THE INVESTMENT IN AGRICULTURAL LAND WHICH IS BROUGHT FO RWARD FROM THE PREVIOUS YEAR. IN THESE FACTS, WE AGAIN INTEND TO R ELY ON THE FOLLOWING JUDGMENT :- THE HON'BLE BOMBAY HIGH COURT IN CASE OF CIT VS. RE LIANCE UTILITIES & POWER LIMITED (313 ITR 340) HAS CATEGORICALLY HEL D AS UNDER :- IF THERE ARE FUNDS AVAILABLE BOTH, INTEREST FREE A ND OVER DRAFT AND/OR LOANS ARE TAKEN, THEN A PRESUMPTION WOULD AR ISE THAT INVESTMENTS WOULD BE OUT OF THE INTY FREE FUND GENE RATED OR AVAILABLE WITH THE COMPANY, IF THE INTEREST FREE FU NDS ARE SUFFICIENT TO MEET THE INVESTMENTS. IN THE INSTANT CASE SAID PRESUMPTION WAS ESTABLISHED CONSIDERING THE FINDING S OF FACT, BOTH BY THE COMMISSIONER (APPEALS) AND THE TRIBUNAL (PARA 10) FURTHER IN CASE OF CIT VS. HDFC BANK 366 ITR 505(BO M) IT IS HELD THAT WHERE ASSESSEES OWN FUNDS AND OTHER NON INTER EST BEARING FUNDS WERE MORE THAN INVESTMENT IN TAX FREE SECURIT IES, IMPUGNED ORDER PASSED BY ASSESSING OFFICER DISALLOWING APART OF INTEREST PAYMENTS UNDER SECTION 14A WAS TO BE SET ASIDE. RAVI SEEDS ITA 978 & 976/IND/2016 9 ALSO HON'BLE GUJARAT HIGH COURT IN CASE OF CIT VS. UTI BANK LIMITED (2013) 215 TAXMAN 8 (GUJARAT) MAG ) HAS HEL D THAT IF THERE ARE SUFFICIENT INTEREST FREE FUNDS TO MEET TAX FREE INVESTMENTS THEY ARE PRESUMED TO BE MADE FROM INTEREST FREE FUNDS AN D NOT LOANED FUNDS AND NO DISALLOWANCE CAN BE MADE UNDER SECTION 14A. IN CASE OF CIT VS. BOMBAY OIL INDUSTRIES (222 TAXMA N 38) (BOM) IT IS HELD THAT WHERE INTEREST FREE FUNDS ARE AVAILABL E WITH AN ASSESSEE SUFFICIENT TO MEET ITS INVESTMENTS AND AT SAME TIME LOANS ARE TAKEN, THEN A PRESUMPTION WOULD ARISE THAT INVESTMENT HAS BEENB MADE OUT OF INTEREST FREE FUNDS AVAILABLE WITH COMPANY A ND NOT OUT OF LOANS. ATTENTION IS ALSO INVITED TO THE DECISION OF DELHI HIGH COURT IN CIT VS. TIN BOX CO. (2003) 260 ITR 637 TO HOLD THAT WHE N THE ASSESSEE HAD SUFFICIENT FUNDS AND NON INTEREST FUNDS WERE AD VANCED TO A SISTER CONCERN, NO DISALLOWANCE OF INTEREST WAS JUS TIFIED. THE AFORESAID PRINCIPLE THAT IF OWN FUNDS ARE MORE THAN INVESTMENTS THEN NO DISALLOWANCE ON ACCOUNT OF INTEREST CAN BE MADE UNDER SECTION 14A HAS BEEN UPHELD BY THE JURISDICTIONAL I NDORE BENCH OF INCOME TAX APPELLATE TRIBUNAL IN FOLLOWING CASES :- RAVI SEEDS ITA 978 & 976/IND/2016 10 A. DCIT VS. D&H SECHERON ELECTRODES PVT. LTD.(ITA 313/IND/2013) B. DCIT VS. ARUN NAHAR (ITA 117/IND/2012) WE, THEREFORE, ARE OF THE VIEW THAT NO INTEREST DIS ALLOWANCE WAS CALLED FOR. WE, HOWEVER, CONFIRM THE DISALLOWANCE OF RS. 69,056/- BEING 0.5% OF THE INVESTMENT IN AGRICULTURAL LAND A S THERE ARE CERTAIN EXPENDITURE WHICH GETS INTER-MINGLED WITH A DMINISTRATIVE EXPENDITURE INCURRED BY THE ASSESSEE DURING THE YEA R ARE FOR THE PURPOSE OF EARNING AGRICULTURAL INCOME. THIS GROUN D OF THE ASSESSEE IS, THEREFORE, PARTLY ALLOWED. 13. FINALLY, ITA NO. 978/IND/2016 IS ALLOWED AND IT A NO. 976/IND/2016 IS PARTLY ALLOWED. PRONOUNCED IN OPEN COURT ON 18 JULY, 2018. SD/- SD/- (KUL BHARAT) (MANISH BORAD) JUDICIAL MEMBER ACCOUNTANT MEMBER 18 JULY, 2018 DN/-