Hinduja Export Pvt.Ltd., Ahmedabad V. The Income tax Officer, Ward-4(3), Ahmedabad

ITA 991/AHD/2012

• Counselvise Citation: [2012] 140 COUNSELVISE.COM (IT) 63165 (ITAT-AHMEDABAD)
• Duration Of Justice: 7 month(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 07-12-2012
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: B
• Next Hearing Date: 12-10-2012
• Assessment Year: 2007-2008
• Appeal Filed On: 07-05-2012
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: B K
• Assessee Lawyers: V R CHOKSHI
• Keywords: Earning of tax free income
• Section: 14A; 263

Judgement Text

, , , , IN THE INCOME TAX APPELLATE TRIBUNAL B BENCH, AHMEDABAD BEFORE SHRI MUKUL KR.SHRAWAT, JUDICIAL MEMBER AND SHRI T.R.MEENA, ACCOUNTANT MEMBER ./ I.T.A. NO.991/AHD/2012 ( / / / / ASSESSMENT YEAR : 2007-08) HINDUJA EXPORTS PVT.LTD. A-1011, 10 TH FLOOR NARNARAYAN COMPLEX NAVRANGPURA AHMEDABAD / VS. THE ITO WARD-4(3) AHMEDABAD ! ./ '# ./ PAN/GIR NO. : AABCH 4708 E ( $ / // / APPELLANT ) .. ( %&$ / RESPONDENT ) $ ' / APPELLANT BY : SHRI V.R. CHOKSHI %&$ ( ' / RESPONDENT BY : SHRI B.K.S. PANDYA, CIT-D.R. )* ( +,! / / / / DATE OF HEARING : 12.10.12 -. ( +,! / DATE OF PRONOUNCEMENT : 07.12.12 / / O R D E R PER SHRI T.R.MEENA, AM: THIS IS AN APPEAL ASSESSEES APPEAL AGAINST THE O RDER OF THE CIT- AHMEDABAD-II PASSED U/S.263 OF THE I.T.ACT DATED 2 7.3.2012 FOR A.Y. 2007-08. 2. IN THIS CASE, ORIGINAL ASSESSMENT WAS COMPLETED BY THE ASSESSING OFFICER U/S.143(3) ON 24/12/2009, WHEREIN THE DISAL LOWANCE OF INTEREST WAS WORKED OUT AT RS.4,76,438/- ON ACCOUNT OF SHORT -CHARGING OF INTEREST ITA NO.991/AHD/ 2012 HINDUJA EXPORTS PVT. VS. ITO ASST.YEAR - 2007-08 - 2 - BY THE APPELLANT. THE CIT AHMEDABAD-II, HAS GIVEN SHOW-CAUSE NOTICE FOR NOT MAKING ANY ADDITION U/S.14A OF THE I.T.ACT. THE SHOW-CAUSE NOTICE MENTIONED IN THE ORDER OF SECTION 263 IS AS UNDER:- THE ASSESSMENT U/S.143(3) OF THE ACT WAS FINALIZED ON 24/12/2009 BY THE ITO, WARD-4(3), AHMEDABAD DETERMINING TOTAL LOS S AT RS.7,29,53,023/- IN YOUR CASE. SUBSEQUENTLY, ON VE RIFICATION OF RECORDS IT IS FOUND THAT THE A.O. HAS NOT MADE DISALLOWANCE U/S.14A OF THE ACT THOUGH THE ASSESSEE HAD ON EXEMPT INCOME OF RS.1,67 ,94,600/- (DIVIDEND) DURING THE YEAR. AS PER SECTION 14A OF THE I.T. ACT, 1961, DEDUCTION IS NOT ADMISSIBLE IN RESPECT OF EXPENDITU RE INCURRED BY THE ASSESSEE IN RELATION TO INCOME WHICH DOES NOT FORM PART OF THE TOTAL INCOME. THE ASSESSEE HAD INCURRED INTEREST EXPEND ITURE OF RS.43,30,55,065 DURING THE YEAR AND AS PER RULE 8D THE EXPENDITURE OF RS.5,31,92,915/- SHOULD HAVE BEEN DISALLOWED. NON OBSERVANCE OF FINANCE PROVISION BY THE A.O. RESULTED IN UNDER ASS ESSMENT OF INCOME OF RS.5,31,92,915/-. CONSIDERING THE FACTS AND CIRCUMSTANCES AS MENTIONE D ABOVE, IT APPEARS THAT THE ORDER DATED 24/12/2009 PASSED BY THE ITO, WARD-4(3), AHMEDABAD IS ERRONEOUS IN SO FAR AS IT IS PREJUDICI AL TO THE INTEREST OF REVENUE. 3. AFTER CONSIDERING THE ASSESSEES REPLY AND ANALY ZING THE LEGAL POSITION ON THIS ISSUE AND BOMBAY HIGH COURT DECISI ON PRONOUNCED IN THE CASE OF GODREJ & BOYCE MFG.CO.LTD. VS. DY.CIT [ 2010] 194 TAXMAN 203 HAS HELD THE ORDER DATED 24.12.2009 PASSED BY T HE ASSESSING OFFICER IS ERRONEOUS AND PREJUDICIAL TO THE INTEREST OF THE REVENUE AS NO ENQUIRY HAVE BEEN MADE BY THE ASSESSING OFFICER FOR DISALLO WANCE U/S.14A OF THE I.T.ACT. NOW THE MATTER IS BEFORE US. 4. THE LD.COUNSEL FOR THE APPELLANT CONTENTED THAT THE ASSESSING OFFICER HAS GIVEN SHOW-CAUSE NOTICE TO THE ASSESSEE VIDE LETTER DATED 6/7/2009 AND CONSIDERED THIS ISSUE AT THE TIME OF O RIGINAL ASSESSMENT. ITA NO.991/AHD/ 2012 HINDUJA EXPORTS PVT. VS. ITO ASST.YEAR - 2007-08 - 3 - THE ASSESSEE ALSO COMPLIED WITH THE SHOW-CAUSE NOTI CE VIDE LETTER DATED 12/8/2009. IT IS SUBMITTED THAT INVESTMENT IN SHAR E AGGREGATING TO RS.72.38 CORES WERE MADE FROM OUT OF INTEREST-FREE FUND AVAILABLE WITH THE APPELLANT-COMPANY, AMOUNTING TO RS.332.66 CRORE S. THUS, IT WAS CONTENDED BEFORE THE ASSESSING OFFICER THAT SECTION 14A OF THE I.T.ACT R.W.RULE 8D IS NOT APPLICABLE IN THE CASE OF APPELL ANT. THE APPELLANT ALSO RELIED ON FOLLOWING DECISIONS:- SL.NO(S) DECISION IN THE CASE OF REPORTED IN 1. MALABAR INDUSTRIES LTD. VS. CIT 243 ITR 83 (SC) 2. CIT VS. GABRIEL INDIA LTD. 203 ITR 108(MUM) 3. CIT VS. MAHENDRA KUMAR BANSAL 297 ITR 99(ALL.) 4. CIT VS. GANPAT RAM BISHNOI 296 ITR 292(RAJ.) 5. B AND A PLANTATION AND INDUSTRIES LTD. VS. CIT 290 ITR 395 (GAU.) 6. CIT VS. ANIL KUMAR SHAR 335 ITR 83(DEL) 7. CIT VS. SUNBEAM AUTO LTD. 332 ITR 167 (DEL) 8. CIT VS. HERO CYCLES LTD. 323 ITR 518 (P&H) 9. CIT VS. RELIANCE INDUSTRIES LTD. 339 ITR 632(BOM.) 10. MUNJAL SALES CORPORATION VS. CIT 298 ITR 298 (SC) 11. CIT VS. RELIANCE UTILITIES AND POWER LTD. 313 ITR 340 (BOM) 4.1. THEREFORE, IT WAS CLAIMED THAT NO INTEREST EXP ENDITURE OF ANY OTHER EXPENDITURE WAS INCURRED BY THE APPELLANT-COMPANY I N RELATION TO EARNING OF DIVIDEND INCOME AND THE APPELLANT-COMPANY WAS HA VING SUFFICIENT INTEREST-FREE FUNDS FOR MAKING INVESTMENT IN SHARES . HE ALSO RELIED UPON THE DECISION OF CO-ORDINATE BENCH C AHMEDABAD IN THE CASE OF GUJARAT ITA NO.991/AHD/ 2012 HINDUJA EXPORTS PVT. VS. ITO ASST.YEAR - 2007-08 - 4 - TEA DEPOT CO. VS. CIT IN ITA NO.2864/AHD/2009 FOR A .Y. 2006-07 AND CLAIMED THAT THE ORDER PASSED BY THE CIT-AHMEDABAD U/S.263 IS NOT JUSTIFIED. FROM THE SIDE OF THE REVENUE, LD.CIT-LE ARNED DEPARTMENTAL REPRESENTATIVE VEHEMENTLY RELIED UPON THE ORDER FO THE CIT AND ARGUED THAT THE DISALLOWANCE MADE BY THE ASSESSING OFFICER UNDER THE HEAD DISALLOWANCE OF INTEREST ON ACCOUNT OF SHORT-CHAR GING OF INTEREST ON LOAN AMOUNT TAKEN AND INTEREST CHARGED. THUS, THE ASSESSING OFFICER MADE DISALLOWANCE U/S.36(III) OF THE I.T.ACT AND NO T U/S.14A OF THE I.T.ACT. THE SHOW-CAUSE NOTICE GIVEN BY THE ASSESS ING OFFICER WAS TO EXPLAIN THE INVESTMENT IN SHARES AND TO ESTABLISH T HE NEXUS OF THE FUNDS USED FOR THE INVESTMENT. THE APPELLANT ALSO REPLIE D BEFORE THE ASSESSING OFFICER ABOUT THE SOURCE OF INVESTMENT OF THE SHARE S. THEREFORE, CIT WAS RIGHT IN SETTING ASIDE THE ORDER DATED 24/12/2009 P ASSED BY THE ASSESSING OFFICER U/S.263 BECAUSE IT WAS ERRONEOUS AND PREJUD ICIAL TO THE INTEREST OF THE REVENUE. 5. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS OF THE CASE AND GONE THROUGH THE PAPER-BOOK SUBMITTED BY THE APPELLANT A ND HEARD THE ARGUMENT. THE SHOW-CAUSE NOTICE DATED 06.07.2009 I SSUED BY THE ASSESSING OFFICER IS REPRODUCED AS UNDER: (XXVIII) ON VERIFICATION OF THE BALANCE SHEET, IT IS SEEN THAT THERE IS AN INVESTMENT IN THE SHARES. PLEASE GIVE THE DETAILS OF THE SOURCES OF INVESTMENTS. THE INVESTMENTS WOULD GENER ATE TAX FREE INCOMES (I.E. DIVIDEND). SO, YOU ARE SHOW CAUSE AS WHY THE PROVISIONS OF SECTION 14A OF THE I.T. ACT SHOULD NO T BE APPLIED AND PROPORTIONATE EXPANSE SHOULD NOT BE DISALLOWED AS P ER THE RULE ITA NO.991/AHD/ 2012 HINDUJA EXPORTS PVT. VS. ITO ASST.YEAR - 2007-08 - 5 - 8D OF THE I.T. RULE 1961. IF SUCH INVESTMENTS ARE OUT OF INTEREST FREE FUNDS, PLEASE ESTABLISH THE NEXUS OF THE FUNDS USED FOR THE INVESTMENTS. THE APPELLANT FILED REPLY VIDE LETTER DATED 12/08/2 009 WHICH IS ALSO REPRODUCED AS UNDER: 2(XXVIII) THE DETAILS IN RESPECT OF INVESTMENT IN SHARES HAS BEEN SHOWN IN SCHEDULE-6 OF THE BALANCE SHEET. FROM THE ABOVE DETAILS, YOUR HONOUR WILL APPRECIATE THAT THERE IS NO FRESH INVESTMENT IN THE SHARES IN THE YEAR UNDER CONSIDERATION. FURTHER, Y OUR WILL APPRECIATE THAT IN THE PRECEDING A.Y. 2006-07, IN W HICH THE MAJORITY INVESTMENTS MADE AGGREGATING RS.72.38 CROR ES FROM INTEREST FREE FUNDS AVAILABLE WITH THE COMPANY OF R S.332.66 CRORES FROM AMBITIOUS TRADELINKS PVT. LTD. WHICH IS A HOLD ING (CONTROLLING) COMPANY. IN VIEW OF THE ABOVE, THE P ROVISIONS OF SEC.14A R.W. RULE-8D OF THE I.T.ACT AND RULES ARE N OT APPLICABLE TO THE ASSESSEE. THE APPELLANT ALSO FILED THE COPY OF SCRUTINY ASSES SMENT ORDER FOR A.Y. 06-07 PASSED U/S.143(3) BY THE A.O. WHERE NO ADDITI ON U/S. 14A HAD BEEN MADE BY THE A.O. IN THAT YEAR. THE INVESTMENT IN S HARES WAS MADE BY THE APPELLANT IN A.Y. 06-07. THE LD. A.O. SPECIFICALLY RAISED THE QUERY ON DISALLOWANCE U/S.14A VIDE QUERY LETTER DATED 06.07. 2009, WHICH HAS BEEN EXPLAINED BY THE APPELLANT VIDE HIS LETTER DATED 12 .08.2009 AT SERIAL NO. 2(XXVIII). IN ASSESSMENT YEAR 06-07, NO ADDITION H AD BEEN MADE BY THE A.O., ALSO SUPPORT THE ASSESSEES CALIM. THUS, WE HAVE CONSIDERED VIEW THAT WHEN THE AO HAD RAISED QUERY ON THIS ISSUE SPE CIFICALLY AND NO ADDITION HAD BEEN MADE BY THE A.O. IN ASSESSMENT O RDER AFTER MAKING ITA NO.991/AHD/ 2012 HINDUJA EXPORTS PVT. VS. ITO ASST.YEAR - 2007-08 - 6 - INQUIRY, THE ORDER OF THE A.O. IS NOT TANTAMOUNT TO ERRONEOUS AND PREJUDICIAL TO THE INTEREST OF REVENUE. THUS, WE A LLOW THE APPEAL OF THE ASSESSEE. 6. IN THE RESULT, ASSESSEES APPEAL IS ALLOWED. SD/- SD/- ( MUKUL KR.SHRAWAT ) ( T.R. MEENA ) JUDICIAL MEMBER ACCOUNT ANT MEMBER AHMEDABAD; DATED 07/ 12 /2012 TRUE COPY 0,.., .../ T.C. NAIR, SR. PS / ( %+1 2 1+ / ( %+1 2 1+ / ( %+1 2 1+ / ( %+1 2 1+/ COPY OF THE ORDER FORWARDED TO : 1. $ / THE APPELLANT 2. %&$ / THE RESPONDENT. 3. + )3 / CONCERNED CIT 4. )3 ( ) / THE CIT(A)-CONCERNED 5. 167 %+ , , / DR, ITAT, AHMEDABAD 6. 78 9* / GUARD FILE. /) /) /) /) / BY ORDER, : :: :/ // / ' ' ' ' ( DY./ASSTT.REGISTRAR) , , , , / ITAT, AHMEDABAD 1. DATE OF DICTATION ON 27/11/12 & 5/12/12 (DICTATION- PAD 11+2 PAGES ATTACHED) 2. DATE ON WHICH THE TYPED DRAFT IS PLACED BEFORE THE DICTATING MEMBER 29/11/12 & 06/12/12 OTHER MEMBER 3. DATE ON WHICH THE APPROVED DRAFT COMES TO THE SR.P. S./P.S 06/12/12 4. DATE ON WHICH THE FAIR ORDER IS PLACED BEFORE THE D ICTATING MEMBER FOR PRONOUNCEMENT 07/12/12 5. DATE ON WHICH THE FAIR ORDER COMES BACK TO THE SR.P .S./P.S 07/12/12 6. DATE ON WHICH THE FILE GOES TO THE BENCH CLERK 10/1 2/12 7. DATE ON WHICH THE FILE GOES TO THE HEAD CLERK . 8. THE DATE ON WHICH THE FILE GOES TO THE ASSISTANT RE GISTRAR FOR SIGNATURE ON THE ORDER.. 9. DATE OF DESPATCH OF THE ORDER