M/s. Bhagyanagar India Limited, Secunderabad V. Dy.CIT, Circle-1(3), Hyderabad

MA 148/HYD/2013

• Counselvise Citation: [2013] 124 COUNSELVISE.COM (IT) 0829 (ITAT-HYDERABAD)
• Duration Of Justice: 3 month(s) 17 day(s)
• Appeal Type: Miscellaneous Application
• Pronouncement Date: 13-09-2013
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: B
• Assessment Year: 2008-2009
• Appeal Filed On: 27-05-2013
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Rectification of order; Revenue expenditure
• Section: 14A; 37; 2

Judgement Text

IN THE INCOME TAX APPELATE TRIBUNAL HYDERABAD BENCHES B : HYDERABAD BEFORE SHRI CHANDRA POOJARI, ACCOUNTANT MEMBER AND SMT. ASHA VIJAYARAGHAVAN, JUDICIAL MEMBER MA.NO.148 & 149/HYD/2013 ARISING OUT OF ITA.NO. 99 & 1435/HYD/2012 ASSESSMENT YEARS 2008-09 & 2009-2010 M/S. BHAGYANAGAR INDIA LIMITED SECUNDERABAD. PAN AAACB8963C VS. DCIT, CIRCLE 1 (3) HYDERABAD (APPLICANT) (RESPONDENT) FOR APPLICANT : SHRI K.C. DEVDAS (A.R.) FOR RESPONDENT : MS. AMISHA S. GUPT (D.R.) DATE OF HEARING : 28.06.2013 DATE OF PRONOUNCEMENT : 13.09.2013 ORDER PER SMT. ASHA VIJAYARAGHAVAN, J.M. THE ASSESSEE HAS FILED THESE TWO MISCELLANEOUS APP LICATIONS SEEKING FOR RECTIFICATION IN THE COMMON ORDER OF THE TRIBUN AL IN ITA. NO. 99 & 1435/HYD/2012 DATED 10 TH MAY, 2013. SINCE COMMON ISSUES ARE INVOLVED, BOTH THE M.AS ARE CLUBBED AND HEARD TOGETHER AND AR E BEING DISPOSED OF BY CONSOLIDATED ORDER. FIRST, WE WILL TAKE-UP M.A. NO. 148/HYD/2013 FOR A.Y. 2008-2009. 2. THE ASSESSEE HAS CLAIMED A SUM OF RS.63,32,210/- BEING 1/5 TH OF INITIAL EXPENDITURE ON THE BASIS OF AMORTIZATION UN DER SECTION 35D OF THE ACT. IN THE COURSE OF HEARING OF THE APPEAL, THE ASSESSE E DID NOT PRESS THEIR CLAIM FOR DEDUCTION UNDER SECTION 35D AND THE ASSESSEE CL AIMED BY WAY OF AN ADDITIONAL GROUND THAT IN THE ALTERNATIVE, THE AMOU NT SHOULD BE ALLOWED AT RS.63,32,610/- WHICH REPRESENTS 1/5 TH OF THE TOTAL EXPENDITURE OF RS.3,16,63,058/- UNDER SECTION 37 OF THE ACT. ACCO RDING TO A.R. THE TRIBUNAL INSTEAD OF CLEAR CUT FINDING THAT THIS EXP ENDITURE IS ALLOWABLE UNDER 2 SECTION 37 OF THE ACT, IT WAS REMITTED TO THE FILE OF THE ASSESSING OFFICER WITH THE FOLLOWING OBSERVATIONS IN PARA 11 VIDE ITA.NO.9 9 & 1435/HYD/2012 : 11. RESPECTFULLY FOLLOWING THE SAID DECISIONS, WE A CCEPT THE ALTERNATE PLEA OF THE ASSESSEE THAT THE ENTIRE EXPENDITURE OF RS.316.93 LAKHS INCURRED IN ISSUE ON DEBENTURE IS AN ALLOWABLE DEDUCTION. WE SET ASIDE T HE MATTER TO THE FILE OF THE AO FOR THE LIMITED PURPOS E TO VERIFY WHETHER THE EXPENDITURE INCURRED BY THE ASSESSEE WAS RELATABLE TO THE ISSUE OF DEBENTURES A ND THE EXPENDITURE ACCRUED THIS YEAR. IF IT IS SO, THE EXPENDITURE IS TO BE ALLOWED U/S. 37 OF THE ACT. TH IS ISSUE IS CONSIDERED AS ALLOWED FOR STATISTICAL PURP OSES. 3. THE LEARNED A.R. SUBMITTED THAT THERE IS A MISTA KE APPARENT FROM RECORD ON THE FINDINGS OF THE TRIBUNAL ON THE FOLLO WING REASONS : I) THERE IS NO DISPUTE BETWEEN THE APPELLANT AND DEPAR TMENT THAT THE EXPENDITURE WAS INCURRED BY THE APPELLANT ON IS SUE OF DEBENTURES. HE DREW OUR ATTENTION TO THE PAPER BOOK PAGES NO. 8, 38 AND 46. II) THE ASSESSING OFFICER AND THE CIT(A) HELD THAT THE EXPENDITURE WAS NOT INCURRED IN THE RELEVANT YEARS AND THAT THE RE WAS NO CONCEPT OF DEFERRED REVENUE EXPENDITURE UNDER THE A CT, (PARA II (VI) & VII OF ASSESSMENT ORDER AND PARAGRAPH 7 OF T HE CIT(A) ORDER). III) THE QUESTION OF VERIFYING THE EXPENDITURE INCURRED AS RELATABLE TO ISSUE OF DEBENTURE DOES NOT ARISE. FURTHER THE E XPENDITURE WAS INCURRED DURING THE F.Y. 2006-07 RELEVANT TO TH E A.Y.2007- 08 AT RS.3,16,63,058/-. THIS WAS SPREAD OVER A PERI OD OF FIVE YEARS AT RS.63,32,210/- FROM THE ASSESSMENT YEAR 20 07-08 TO A.Y. 2011-12. THE APPELLANT PLACED RELIANCE ON S.C. DECISION IN THE CASE OF CIT VS. INDIA CEMENTS LTD. REPORTED IN 60 ITR 52 3 AND MADRAS INDUSTRIAL INV. CORPORATION VS. CIT 225 ITR 802, THE DELHI HIGH COURT JUDGMENT IN THE CASE OF CIT VS. BH ARAT ALUMINIUM CO. LTD. REPORTED IN 187 TAXMAN 111, AND ALSO THE BOMBAY HIGH COURT IN NAGARI MILLS CO. LTD. REPORTED IN 33 ITR 681, APART FROM THE DECISIONS REFERRED TO BY THE TR IBUNAL. IV) FURTHER IN ITA.NO.1435/H/2012 THE VERY SAME GROUND RELATING TO THE ASSESSMENT YEAR 2009-10 THE DEDUCTIBILITY OF THE SUM OF RS.63,32,210/- (1/5 TH OF RS.3,16,63,058/-) AS REVENUE EXPENDITURE DEDUCTIBLE U/S. 37 WAS NOT ADJUDICATED. FOR THE REASONS STATED IN THE PRECEDING PARAGRAPH THIS GROU ND IS TO BE ADJUDICATED TO STATE THAT THE SUM OF RS.63,32,210/- IS DEDUCTIBLE U/S. 37 OF THE ACT. 4. THE LEARNED D.R. RELIED ON THE ORDER OF THE TRIB UNAL. 5. WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE M ATERIAL ON RECORD. WE FIND FORCE IN THE ARGUMENTS OF THE LEARNED COUNS EL FOR THE ASSESSEE AND ACCORDINGLY, WE INCLINED TO RECTIFY OUR ORDER BY SU BSTITUTING PARA-11 AS UNDER : PARA-11. IT WAS ALSO SUBMITTED BY THE LEARNED COUNSEL FOR THE ASSESSEE THAT THE EXPENDITURE WAS INCURRED DURING T HE FINANCIAL YEARS 2006-2007 AND 2007-2008 AT RS.3,16,63,058/- A ND THIS WAS SPREADOVER FOR A PERIOD OF 5 YEARS AT RS.63,32, 210/- FROM THE A.Y. 2007-08 TO A.Y. 2011-2012. RELYING ON THE DECISION IN THE CASE OF CIT VS. INDIA CEMENTS 60 ITR 52 (S.C.), MADRAS INDUSTRIAL INVESTMENT CORPORATION VS. CIT 225 ITR 8 02 AND DELHI HIGH COURT DECISION IN THE CASE OF CIT VS. BH ARAT ALUMINIUM CO. LTD. 187 TAXMAN 111 AND BOMBAY HIGH C OURT DECISION IN THE CASE OF NAGARI MILLS CO. LTD. 33 IT R 681, WE ARE OF THE OPINION THAT THE ALTERNATIVE PLEA OF THE ASS ESSEE THAT THE SUM OF RS.63,32,610/- WHICH IS 1/5 TH OF THE TOTAL EXPENDITURE OF RS.3,16,63,058/- INCURRED IN ISSUE OF DEBENTURES IS TO BE ACCEPTED AS AN ALLOWABLE DEDUCTION IN THE AY 2008-2 009. HENCE, 4 THE EXPENDITURE IS ALLOWED UNDER SECTION 37 OF THE INCOME TAX ACT AND THE ASSESSEES APPEAL SUCCEEDS ON THIS ADDI TIONAL GROUND IS ASSESSMENT YEAR 2008-2009. 6. ANOTHER ERROR CREPT IN THE ORDER OF THE TRIBUNAL DATED 10.5.2013 IN ITA.NO. 99 & 1435/HYD/2012 AT PARA 20 WITH RESPECT TO DISALLOWANCE UNDER SECTION 14A WHICH HAS BEEN POINTED BY THE ASSESSEE IN THIS MISCELLANEOUS APPLICATION. THE LEARNED A.R. SUBMITTED AS FOLLOWS : 8(I) YET AN ANOTHER GROUND RAISED WAS RELATING TO D ISALLOWANCE OF EXPENSES U/S.14A OF THE ACT. IT WAS DEMONSTRATED TH AT THE ENTIRE INVESTMENTS IN SHARES AND MUTUAL FUNDS WERE NOT FROM BORROWED FUNDS BUT FROM ITS OWN SHARE CAPITAL AND R ESERVES. SOME OF THE INVESTMENTS WERE MADE IN THE PAST AND A LL OTHERS WERE FROM INTERNAL ACCRUALS, SHARE CAPITAL & REVENU E. PLEASE SEE PAGE 31 & 32 OF P.B. RELIANCE WAS PLACED ON THE JUDGEMENT OF BOMBAY HIGH COURT IN CIT VS. RELIANCE SECURITIES AND POWER LTD, REPORTED IN 313 ITR 340, AND OTHER DECISIONS I N THE P .B. NEITHER THE ASSESSING OFFICER NOR THE CIT APPEALS H ELD THAT ANY OF THE BORROWED FUNDS HAVE BEEN UTILIZED FOR MAKING OF THE INVESTMENTS. RULE 8-D WAS MECHANICALLY APPLIED. [PA RA V OF AO] RELIANCE WAS ALSO PLACED ON THE ITAT JUDGEMENT KOLK ATA B BENCH IN THE CASE OF ACIT VS. CHAMPION COMMERCIAL C O. LTD TO DEMONSTRATE THAT THE ENTIRE BORROWALS WHICH WERE UT ILIZED FOR EARNING TAXABLE INCOME COULD NOT BE TAKEN INTO ACCO UNT UNDER RULE 8- D FOR THE PURPOSE OF DISALLOWANCE ON TAX FR EE INVESTMENTS. THERE IS NO DISPUTE THAT NONE OF THE B ORROWALS WERE UTILIZED FOR MAKING TAX FREE INVESTMENTS. HOWE VER, THE ITAT AT PARAGRAPH 20 & 21 HELD AS UNDER:- 20. AS REGARDS INDIRECT INTEREST EXPENDITURE, IF I T CAN BE PROVED THAT THE ENTIRE BORROWALS, ON WHICH INTEREST EXPENDITURE HAS BEEN INCURRED DURING THE YEAR, HAS BEEN APPLIED FOR THE PURPOSE OF THE BUSINESS, THEN NO PA RT OF THE BORROWALS CAN BE TAKEN TO THE INDIRECTLY APPLIED FO R INVESTMENTS. THEREFORE IF THE ENTIRETY OF BORROWALS CAN BE 5 ESTABLISHED TO HAVE BEEN UTILIZED FOR THE PURPOSE O F BUSINESS AND THEREFORE COULD NOT HAVE BEEN USED FOR THE PURPOSE OF INVESTMENT, THEN, THERE CAN BE DISALLOWA NCE EVEN IN RESPECT OF INDIRECT INTEREST EXPENDITURE. T HIS POINT HAS NOT BEEN EXAMINED BY THE LOWER AUTHORITIES. 21. WE THEREFORE SET ASIDE THIS ISSUE TO THE FILE O F THE AO TO REWORK THE DISALLOWANCE UNDER SECTION 14A AFTER EXAMINING WHETHER THE BORROWALS ON WHICH INTEREST PAYABLE IN THE CURRENT YEAR, HAS BEEN UTILIZED ONLY FOR THE PURPOSE OF BUSINESS OR COULD ANY PART OF IT HAVE BE EN UTILIZED FOR FRESH INVESTMENTS DURING THE YEAR. THE REAFTER THE AO MAY REWORK THE DISALLOWANCE OF INDIRECT EXPENDITURE INTEREST THAT MAY HAVE BEEN UTILISED FO R MAKING INVESTMENTS WHICH EARNS INTEREST FREE INCOME IN ACCORDANCE WITH LAW AFTER GIVING REASONABLE OPPORTU NITY TO THE ASSESSEE. IN THE CIRCUMSTANCES THIS GROUND OF A PPEAL REGARDING DISALLOWANCE U/S. 14A IS TREATED AS ALLOW ED FOR STATISTICAL PURPOSES. II) AT PARAGRAPH 20 AT 3 RD LINE FROM THE REAR THE WORD NO SHOULD BE ADDED BEFORE THE WORD DISALLOWANCE. III) THE LEARNED A.R. SUBMITTED THAT THERE IS AN APPARENT MISTAKE IN THE ORDER OF THE TRIBUNAL AS THE APPELLANT HAS ESTA BLISHED THAT IT HAS SUFFICIENT INTERNAL ACCRUALS SHARE CAPITAL AND RESERVES WHICH WERE FAR IN EXCESS OF TAX FREE INVESTMENTS AS EVIDE NCED BY THE FINANCIAL STATEMENT ENCLOSED IN PAPER BOOK AT PAGE NO.31 AND 32. IV) THE APPELLANT SUBMITS THAT THE MATTER BEING SET ASIDE TO THE AO FOR RE-WORKING THE DISALLOWANCE OF INDIRECT EXPENDITURE BEING INTEREST DOES NOT ARISE AS THERE IS NO FINDING BY THE AO NOR THE CIT CA) TO STATE THAT ANY PORTION OF THE BORROWALS WAS UTILIZE D FOR MAKING TAX FREE INVESTMENTS. V) THE APPELLANT PLEADS THAT HAVING REGARD TO THE FACT S STATED ABOVE THE HONOURABLE TRIBUNAL MAY BE PLEASED TO RECTIFY T HE ORDER IN THE INTEREST OF JUSTICE, AS IT THINKS FIT. 7. THE LEARNED D.R. RELIED ON THE ORDER OF THE TRIB UNAL. 6 8. WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE M ATERIAL ON RECORD. WE FIND FORCE IN THE ARGUMENT OF THE LEARNED A.R. B EING SO, WE INCLINED TO RECTIFY THE SAME BY AMENDING THE PARA 20 AND 21 OF OUR ORDER DATED 10.05.2013 AS FOLLOWS : PARA-20. AS REGARDS INDIRECT INTEREST EXPENDITURE, IF IT CA N BE PROVED THAT THE ENTIRE BORROWALS, ON WHICH INTEREST EXPENDITURE HAS BEEN INCURRED DURING THE YEAR, HAS BEEN APPLIED FOR THE PURPOSE OF THE BUSINESS, THEN NO PA RT OF THE BORROWALS CAN BE TAKEN TO THE INDIRECTLY APPLIE D FOR INVESTMENTS. THEREFORE IF THE ENTIRETY OF BORROWALS CAN BE ESTABLISHED TO HAVE BEEN UTILIZED FOR THE PURPOSE O F BUSINESS AND THEREFORE COULD NOT HAVE BEEN USED FOR THE PURPOSE OF INVESTMENT, THEN THERE CAN BE DISALLOWAN CE EVEN IN RESPECT OF INDIRECT INTEREST EXPENDITURE. F URTHER, THE LEARNED COUNSEL FOR THE ASSESSEE POINTED OUT TH AT NEITHER THE ASSESSING OFFICER NOR THE CIT(A) HELD THAT ANY OF THE BORROWED FUNDS HAVE BEEN UTILIZED FOR MAKING OF INV ESTMENTS AND RULE 8D WAS MECHANICALLY APPLIED. THE LEARNED C OUNSEL FOR THE ASSESSEE, HAD SUBMITTED BEFORE THE CIT(A) T HAT : PARA-21. HENCE, IT HAS BEEN ESTABLISHED THAT SUFFICIENT INTERNAL ACCRUALS OF THE CAPITAL RESOURCES/TAX FREE INVESTMENTS WERE AVAILABLE WHICH HAS BEEN DEMONSTRA TED BY THE LEARNED COUNSEL FOR THE ASSESSEE IN HIS PAPE R AT PAGES 31 AND 32. UNDER THESE CIRCUMSTANCES, THE ORD ER OF THE CIT(A) IN CONFIRMING THE DISALLOWANCE UNDER SEC TION 14A OF THE INCOME TAX ACT, 1961 IS UNSUSTAINABLE. THEREFORE, THE GROUNDS OF APPEAL WITH RESPECT TO IS SUE OF DISALLOWANCE UNDER SECTION 14A RAISED BY THE ASSESS EE ARE ALLOWED. 8.1. IN VIEW OF THE ABOVE, ASSESSEE APPEAL IN ITA.N O.99/HYD/2012 IS PARTLY ALLOWED. 7 8.2. IN THE RESULT, M.A. NO. 148/HYD/2013 FOR A.Y. 2008-2009 OF THE ASSESSEE IS ALLOWED. 9. M.A.NO.149/HYD/2013 A.Y. 2009-2010 : THROUGH THIS M.A. THE ASSESSEE SEEKS FOR RECTIFICATION OF MISTAKE APPAREN T ON RECORD AS CREPT IN AS THE VERY SAME GROUND AS IN ASSESSMENT YEAR 2008-09 WITH RESPECT TO DEDUCTIBILITY OF A SUM OF RS.63,32,210/- (1/5 TH OF RS.3,16,63,058/-) AS REVENUE EXPENDITURE DEDUCTIBLE UNDER SECTION 37 OF THE I.T. ACT, 1961 WAS NOT ADJUDICATED BY THE TRIBUNAL. FOR THE REASONS ST ATED IN PARAGRAPH NO.4 HEREINABOVE, THIS GROUND IS ADJUDICATED AND THEREFO RE A SUM OF RS.63,32,210/- IS DEDUCTIBLE UNDER SECTION 37 OF TH E INCOME TAX ACT, 1961 AND ACCORDINGLY, ADDITIONAL GROUND IN ITA.NO.1435/H YD/2012 IS ALLOWED. 10. REGARDING THE DISALLOWANCE UNDER 14A OF THE INC OME TAX ACT, 1961, FOR THE ASSESSMENT YEAR 2009-2010, THIS IS ALLOWABL E IN VIEW OF OUR FINDINGS IN M.A.NO.148/HYD/2013 IN PARA NO.8 OF THIS ORDER AS WE HAVE AMENDED THE PARA 20 AND 21 IN ORIGINAL ORDER DATED 10 TH MAY, 2013. ACCORDINGLY, THIS GROUND IN ITA.NO.1435/HYD/2012 IS ALLOWED. THUS, IT A.NO.1435/HYD/2012 IS PARTLY ALLOWED. 11. IN THE RESULT, M.A.NO.149/HYD/2013 OF THE ASSES SEE IS ALLOWED. 12. TO SUM-UP, M.A.NO.148/HYD/2013 AND M.A.NO.149/H YD/2013 OF THE ASSESSEE ARE ALLOWED. ORDERED ACCORDINGLY. SD/- SD/- (CHANDRA POOJARI) (ASHA VIJAYARAGHAVAN) ACCOUNTANT MEMBER JUDICIAL MEMBER HYDERABAD, DATE 13 TH SEPTEMBER, 2013. VBP/- 8 COPY TO 1. M/S. BHAGYANAGAR INDIA LIMITED, 5 TH FLOOR, SURYA TOWERS, S.P. ROAD, SECUNDERABAD. 2. ADDL. CIT, RANGE-1, HYDERABAD. 3. CIT(A)-II, HYDERABAD 4. CIT-I, HYDERABAD 5. D.R. I.T.A.T. B BENCH, HYDERABAD.