Income Tax Appellate Tribunal - Chandigarh
Acit, Ludhiana vs M/S Avon Cycles Ltd., Ludhiana on 6 August, 2018
IN THE INCOME TAX APPELLATE TRIBUNAL DIVISION BENCH 'A', CHANDIGARH BEFORE MS.DIVA SINGH, JUDICIAL MEMBER AND MS. ANNAPURNA GUPTA, ACCOUNTANT MEMBER ITA No.195/Chd/2016 (Assessment Year : 2012-13) The A.C.I.T., Vs. M/s Avon Cycles Ltd., Circle-5, G.T. Road, Ludhiana. Ludhiana.
PAN: AABCA4140R & C.O.No.6/Chd/2016 In ITA No.195/Chd/2016 (Assessment Year : 2013-14) M/s Avon Cycles Ltd., Vs. The A.C.I.T., G.T. Road, Circle-5, Ludhiana. Ludhiana.
PAN: AABCA4140R
(Appellant) (Respondent)
Assessee by : Shri Subhash Aggarwal, Adv.
Department by : Shri Akhilelsh Gupta, Addl.CIT
Date of hearing : 09.05.2018
Date of Pronouncement : 06.08.2018
O RDE R
PER ANNA PURNA GUPTA, A. M. :
Th e p r e s e n t a p pe a l h a s b e e n p ref e r r e d b y t h e Rev e n u e against the o r de r of Ld. C o mm i s s i o n e r of I nc o m e Ta x (Appeals)-2, Lu d h i a n a d a t ed 7.12.2016 re l a t i n g to a s s e s s m e nt y ea r 2 0 1 2 - 13 . Th e a s s e s s e e h a s f i l e d C r o ss O b j e c t i o n a g a i nst t h e s a me .
W e s h a l l f i rs t b e t a k i n g u p t h e ap p e a l of t h e R e ve n ue i n I TA N o . 1 9 5 / Ch d / 2 0 1 6 .
2 ITA No.195/Chd/2016
& C.O.No.6/Chd/2016 A.Y.2012-13 ITA No.195/Chd/2016:
2. The Revenue has rai sed fol l o wi ng grounds of appeal :
"1. Whether on the facts and in the circumstances of the case, the Ld.CIT(A) is right in law in holding that disallowance undersection36(l)(iii) cannot be made in respect of investment in land despite the investment being not for business purpose?
2. Whether on the fact and in the circumstances of the case, the Ld.CIT(A) is right in law in deleting disallowance of interest pertaining to building under construction, ignoring that the funds utilized by the assessee are mixed funds and therefore interest is liable to be disallowed under proviso to section 36(1)(iii).
3. Whether on the facts and circumstances of the case, the Ld.CIT(A) was right in law in restriction the disallowance under section 14A to Rs.30,85,987/- instead of Rs.73,03,132/- computed as per provisions of Rules 8D(2)(ii) of the Income Tax Rules, 1962?
4. Whether on the facts and in the circumstances of the case, the Ld.CIT(A) is right in law in holding that for the purpose of computation of disallowance u/s 14A under Rule 8D, the netting off interest income out of interest expenditure is to be allowed to the assessee."
3. Ground Nos. 1 and 2 rai sed by the Revenue rel ate to di sal l o wance of i nterest made un der secti on 36( 1) ( ii i ) of the I ncome Ta x Act, 1961 ( i n short 'the Act') amounti ng to Rs.14,42,161 whi ch was del eted by the CI T ( Appeal s).
4. Bri efl y stated, duri ng assessm ent proceedi ngs the Assessi ng Offi cer noted that t he assessee ha d cl ai med fi nanci al e xpens es of Rs.6.13 cro res. He al so note d that the assessee had i nv ested i n purchas e of l and at Neel on Khurd and Aa yal i Kal an whi ch he found was not for the busi ness purposes and t hat the assessee had sho wn i nve stment i n capi tal work i n p rogress as at the end of the year amounti ng 3 ITA No.195/Chd/2016 & C.O.No.6/Chd/2016 A.Y.2012-13 to Rs.5.26 crores. Accordi ngl y i nterest attri butable to both was di sal l o wed under secti on 36( 1) ( i i i ) , amounti ng to Rs.13,56,748/- on account of i nvestment made i n l and and Rs.85,413/-on account of i nvestment i n capi tal work i n progress. Thus t otal di sal l o wance under secti on 36(1) ( i i i ) of the Act amounti ng to Rs.14,42,161/- was made. The same was del eted by the Ld.CI T ( Appeal s) fol l o wi ng the order of the I . T.A. T. i n the case of the assessee i n preceding years i .e. assessment years 2010-11 and 2011-12 whi ch the Ld.CI T ( Appeal s) observed were deci ded on i denti cal facts.
5. Before us, the Ld. DR fai rl y admi tted that the issue was covered by the deci si on of the I . T.A. T. i n the precedi ng years. He, ho wever, rel i ed upon the order of the Assessi ng Offi cer i n support of the di sal l o wance made.
6. The Ld. AR, on the other hand, rel i ed upon the order of the CI T( Appeal s) and stated that the i ssue was squarely covered by the o rder of the I . T.A . T. i n the preced ing years, wherei n i denti cal di sal l o wance m ade of i nterest o n account of l and purchase d at Vi l l age More kari ma and Shek hpura was del eted hol di ng t hat the sai d i nve stment had been made out of o wn funds. The Ld. counsel for assessee further stated that i n the i mpugned year the break up of ol d i nvestment i n l and and i nvestment made duri ng the year was as under:
Old Investment in land Rs.7,68,53,820/- Investment during the year Rs.1,21,89,190/- Interest disallowed Rs. 13,56,748/- on debt equity ratio 4 ITA No.195/Chd/2016 & C.O.No.6/Chd/2016 A.Y.2012-13
7. The Ld. counse l for assessee stated that the ol d i nvestment i n l and had al ready been deal t with by the I . T.A. T. in i ts order rel ati ng to precedi ng years and, therefore, no di s al l o wance of i nte rest under secti o n 36( 1) ( i i i ) of the Act on a ccount of the s ame was warranted havi ng been deci ded i n the precedi ng years i tsel f i n favour of the assessee. As for the i nvestment made i n the i mpugned year amounti ng to Rs.1.21 crores, the Ld. counsel for the assessee stated that i t had enough o wn funds for maki ng the sai d i nvestment. Our attenti on was dra wn to the status of avai l abi l i t y of o wn funds of the assessee as under:
Share capital as on 01.04.2011 89.64.420/- Reserves & Surpluses 207,79,63,134/-
Total 208,69,27,554/-
Income of the year 4132.84 Lakhs
Add Depreciation 1242.43 Lakhs
Total 5375.27 Lakhs
8. Referri ng to the same the Ld. counsel for assessee stated that the assessee had own funds avai l abl e to the e xtent of Rs.53.75 crores whi ch was more than the suffi ci ent for maki ng the i nvestment i n l and duri ng the year and, therefore, appl yi ng the proposi ti on appl i ed by the I . T.A. T. i n the precedi ng ye ars, no di sal l o w ance of i nterest on account of i nvestment made in l and duri ng the year, was al so warranted. Wi th regard to the investment made i n capi tal work i n progress the Ld. counsel for assessee stated that the same was al so covered by the deci si on of the I . T.A.T. i n the precedi ng year wherei n i denti cal di sal l o wance o f i nterest made on account of i nvestment in capi tal work in progress 5 ITA No.195/Chd/2016 & C.O.No.6/Chd/2016 A.Y.2012-13 was al so del eted uphol di ng the or der of the CI T( Ap peal s) that the same was not warranted si nce there was no fi ndings by the Assessi ng Offi cer that the bui l di ng bei ng so constructed was not for business purpose and even i f any disal lo wance was warranted the same coul d be made under the provi so to secti on 36( 1) ( i i i ) of the Act, wherei n the same coul d have been done onl y by sho wi ng that the assessee had borro wed funds speci fi cal l y for i nvesti ng in capi tal work in progress whi ch had not b een demonstrate d by the Revenu e. The Ld. counsel for the assessee, therefore, stated that the di sal l o wance of i nterest made un der secti on 36( 1) ( ii i ) of the Act to the e xtent of Rs.14,42,161/- had been ri gh tly done by the Ld.CI T ( Appeal s) .
9. Havi ng heard th e contenti ons of both the parti e s, we fi nd no meri t i n the present ground rai sed by the Revenue.
Undoubtedl y, the CI T( Appeal s) had del eted the di sall o wance of i nterest fol l o wi ng the order of the I . T.A. T. i n precedi ng years i .e. assessment years 2010-11 and 2011-12 fi ndi ng the facts to be i denti cal wi th the present case both with regard to i nvestment made i n l and and i nvestment i n capi tal work i n progress. The I TAT, we note, had del eted the disal l o wance for the reason that the ass essee had de monstrated avai l abi l i t y of o wn funds for t he purpose of maki ng the i nvestment. Vi s a Vi s the i nvestme nt made i n capi t al work i n progress the I TAT, we fi nd, agreed wi th the CI T( Appeal s) that for the purpose of maki ng di sal l o wance of i nterest on account of i nvestment made i n work i n progress, i t was 6 ITA No.195/Chd/2016 & C.O.No.6/Chd/2016 A.Y.2012-13 necessar y to sh o w that i nterest beari ng funds had been borro wed speci fi cal l y for the said purpose, whi ch was not done by the Reve nue. The Reven ue, i n the presen t case, we fi nd, has not br ought out to ou r noti ce any di s ti ngui shi ng facts. Even other wi se, the Ld. counsel for assessee has demonstrated the avai l abi l i t y of enough o wn funds for the purpose of maki ng i nvestment i n l and duri ng the year, whi ch fact has not bee n controverted b y the Revenue b efore us. Therefore, fol l o w i ng the pari t y of reasoni ng made in the earl i er years by the I . T.A. T., n o di sal l o wance of interest on account of i nves tment made i n l and duri ng the year, we hol d, was al so warranted.
10. In vi e w of the above we uph ol d the order of the CI T( Appeal s) i n del eti ng the di sal l o wance made of interest made under secti on 36( 1) ( i i i ) of the Act, amounti ng to Rs.14,42,161/-. Ground of appea l Nos.1 and 2 rai sed by the Revenue are, therefore, di smi ssed.
11. Ground Nos.3 and 4 rai sed by the Revenue rel ate to di sal l o wance made u/s 14A r. w.r. 8D of the Income Ta x Rul es, 1962 on account of e xpen di ture i ncurred f or earni ng e xempt i ncome amounti ng to Rs. 97,32,906/- whi ch was restri cted by the Ld.CI T( Appeal s) by di recti ng the Assessi ng Offi cer to compute the same i n accordance wi th the order of the I TAT i n earl i e r years gi vi ng part rel i ef to the assessee .
12. Bri ef facts are that the assessee had sho wn i nvestment of Rs.45.93 cror es, i ncome from whi ch di d not/ woul d not form part of the total i ncome and at the same ti me cl ai med 7 ITA No.195/Chd/2016 & C.O.No.6/Chd/2016 A.Y.2012-13 fi nanci al e xpenses of Rs.6.13 crores. The Assess i ng Offi cer hel d that the e xpenses i ncurred in rel ati on to these i nvestments was requi red to be di sal l o wed and accordi ngl y worked out the di sal l o wance under Rul e 8D of the I ncome Ta x Act, 1961 of Rs.97,32,906/-. Before the Ld.CI T(Appeal s) the assessee ra i sed several contenti ons that di sal l o wance of i nterest i f any was to be made after netti ng off i nterest recei ved, that i nterest pai d on l oans taken f or speci fi c purposes rel ated to the busi ness of the assessee was to be e xcl uded and that i n vi e w of suffi ci enc y of o wn funds no di sal l o wance u/s 14A was warr anted. The Ld.C I T( Appeal s) found that the I . T.A. T. had deci ded i denti cal i ss ue i n the case of the assessee i n assessment years 2010-11 and 2011- 12 i n I TA No.687/Chd/2014 dt27.11.2015 & i n assessment year 2008-09, gi vi ng part rel i ef to the assessee. He accordi ngl y di rected the Assess i ng Offi cer to r e work the di sal l o wance i n accordance wi th the order of the I TAT i n precedi ng years thus gi vi ng part rel i ef to the assessee.
13. At the outset ou r attenti on was dra wn to the or der of the I TAT i n asses sment years 201 0-11 & 2011-12, which was fol l o wed by the CI T( Appeal s) and copy of whi ch was pl aced before us. Dra wi ng our attenti on to pages 7-13 of the order, where the i ssue of di sal l o wance of e xpenses u/ s 14A was deal t wi th ,i t was poi nted out that the I TAT h ad granted rel i ef to the ass essee accepti ng i ts contenti on th at i nterest pai d whi ch i s di rectl y attri butabl e to earni ng ta xabl e i ncome i .e. i nterest on cash credi ts and packi ng credi t be e xcl uded 8 ITA No.195/Chd/2016 & C.O.No.6/Chd/2016 A.Y.2012-13 for computi ng di sal l o wance u/s 14A of the Act. Ld.DR stated that Revenue wa s aggri eved by th e order of the CI T(Appeal s) di recti ng the Assessi ng Offi cer to fol l o w the order of the I TAT and thus al l o w rel i ef to thi s e xtent to the assessee, whi ch has been rai sed i n Ground No.3 before us. Ground No.4 rai sed by the Revenue rel ati ng to netti ng off the i nterest, i t was admi tted before us, had been wr ongl y taken si nce the CI T( Ap peal s) had deni e d the benefi t of netti ng and the Revenue therefore had no gri evance agai nst the same.
14. Taki ng up Grou nd No.3, Ld. DR fai rl y conceded that the i ssue was covered by the order of the I. T.A. T. i n the case of the assessee i tsel f i n the prec edi ng assessment years i .e. 2010-11 and 2011-12. He ho wever rel i ed on the order of the Assessi ng Offi cer.
15. The Ld. counsel for assessee, on the other hand, rel i ed upon the order of the CI T( Appeal s) .
16. We have heard the contenti ons of both the parties. I n vi e w of the admitted fact that i n precedi ng years the I TAT had hel d the e xcl usi on of i nterest pai d on specifi c l oans taken for busi ness purposes from the i nterest di sall o wabl e u/s 14A of the Act, we fi nd no reason to i nter fere i n the order of the CI T( Appeal s) di recti ng the Assessi ng Offi cer to recompute the di sal l o wance i n accordance wi th the said di recti on of the I TA T. No di sti ngui shi ng facts have been brought to our n oti ce by the Ld. DR. Therefore t he di recti on of the CI T( Appeal s) to fol l o w the order of the I TA T i n th e precedi ng year i n thi s respect i s uphel d. 9 ITA No.195/Chd/2016
& C.O.No.6/Chd/2016 A.Y.2012-13 Grounds of appe al Nos.3 & 4 rai sed by the Reven ue are accordi ngl y di smi ssed.
17. The appeal of the Revenue i s therefore di smi ssed. C.O.No.6/Chd/2016:
18. The assessee i n thi s Cross Objecti on has rai sed the i ssue of deni al of benefi t of netti ng of i nterest recei ved by the assessee agai nst the i nterest pai d duri ng the year for the purpose of cal cul ati ng the i nterest di sal l o wabl e u/s 14A of the Act. The a ssessee has rai sed the fol l o wi ng grounds before us:
"1. That the learned CIT (A) - II, Ludhiana, has erred in sustaining a disallowance of Rs.40,19,112/- u/s 14A / Rule 8D(2)(ii) of the Income Tax Rules.
2. That the learned CIT(A) is in complete defiance of the order of the Tribunal for the A.Y. 2010-11 & 2011- 12 wherein the Hon'bje Tribunal had deleted the disallowance u/s 14A on the ground that after netting of interest nothing remained for making any disallowance on account of interest.
3. That the learned CIT(A) has ignored that the principles of judicial discipline require that the orders of the higher appellate authorities should be followed unreservedly by the subordinate authorities and non-compliance leads to initiation of contempt proceedings.
4. That in any case the conformation of disallowance of Rs.40,19,112/- is against the law and facts of the case and ignoring the submissions made by the appellant.
5. That the assessee craves for permission to add, amend or alter any cross-objection at the time of hearing."
19. Duri ng the cours e of heari ng befo re us Ld. counse l for the assessee poi nted out that the I . T.A. T. i n the precedi ng years i .e. assess ment years 2010 -11 & 2011-12, i n the case 10 ITA No.195/Chd/2016 & C.O.No.6/Chd/2016 A.Y.2012-13 of the assessee, had deci ded th i s i ssue i n favo ur of the assessee. Our a ttenti on was dra wn to the fi ndi ngs of the I . T.A. T. at para 14 of the order in I TA No. I TA No.687/Chd/2014 dt.27.11.2015 as under:
14. As regards the Cross Objection f iled by the a s s e s s e e , we h a v e n o h e s i t a t i o n i n h o l d i n g t h a t f or the pur poses of compu tation under Rule 8D of t h e I n c o me T a x R u l e s , t h e n e t t i n g o f f t h e i n t e r e s t i n c o me o u t o f i n t e r e s t e x p e n d i t u r e i s t o b e a l l o we d t o t h e a s s e s s e e . This issue has been very aptly discussed by the I.T.A.T., Chandigarh Bench in the case of Shiv Parshad A g g a r wa l ( s u p r a ) a t p a r a 9 , wh i c h r e a d s a s u n d e r :
"9. In the total ity o f the abovesaid f acts and circu mstances, where the assessee had incurred interest expenditure wh ich is set-off against the interest inco me o ff ered under the head ' inco me f rom other sources' and where no in terest expenditure is remain ing to be set off , there is no merit in the orders of the authorities belo w in mak ing the disal lo wance under section 14A of the Act in l ine wi th Rule 8D( ii) of the IT Rules.
The assessee during the year under consider ation had earned dividend inco me of Rs.305,730/- against wh ich disall o wance of Rs.39,80,707/- was made by invoking the provisions of section 14A of the Act. We delete the addition made under section 14A read with Rule 8D( ii) at Rs. 33,08,071/-. Howe ver, in vie w of the assessee having incurred various expenditures, the disallo wance warranted under Rule 8D( iii) at ½ % of the average of the value of investment at Rs.672,635/- is uphel d. The grounds of appeal No. 1 to 4 raised by the assessee are thus, partl y allo wed. "
20. The Ld. counsel for assessee, therefore, stated that the i ssue i s squarel y covered by the order of the I . T. A. T. i n the precedi ng years and fol l o wi ng the same the assessee shoul d be granted the benefi t of netti ng of i nterest.
21. The Ld. DR fai rl y conceded that the i ssue was covered i n favour of the assessee by the order of the I . T.A. T. i n the precedi ng years i.e. assessment years 2010-11 and 2011-12 11 ITA No.195/Chd/2016 & C.O.No.6/Chd/2016 A.Y.2012-13 but poi nted out t hat i n A.Y 2008- 09 i denti cal i ssue had been deci ded agai nst the assessee by the I TAT, whi ch had been di rected by the CI T( Appeal s) to fol l o w.
22. Havi ng heard both the parti es we fi nd meri t in the contenti on of th e Ld.Counsel for the assessee. Admittedl y i denti cal i ssue has been deci ded i n favour of the assessee i n the assessment y ears 2010-11 & 2 011-12, whi ch i s the l atest deci si on i n contrast to that rendered for assessment year 2008-09. The sa i d deci si on therefore wi l l appl y to the case before us. Further, No di sti ngui shi ng facts havi ng been brought to our noti ce by the L d. DR, the deci si on of the I . T.A. T. i n assessment years 2010-11 & 2011-12, squarel y appl i es i n the i m pugned year al s o, fol l o wi ng whi ch we al l o w the grounds of Cross Objecti on rai sed by the as sessee and di rect the Asses si ng Offi cer to r ecompute the di sall o wance after al l o wi ng ne tti ng of i nterest. I n vi e w of the above, the Cross Objecti on fi l ed by the assessee i s al l o wed.
23. In the result, the a p p ea l fi l e d by t he R e ve nu e is d i s m i s s e d an d th e C r o s s O b j e ct i o n f i l e d b y t h e a s s e s s e e i s allowed.
O r d e r p r on o u n c ed i n t h e O p e n Cou r t .
Sd/- Sd/- (DIVA SINGH) (ANNAPURNA GUPTA) JUDICIAL MEMBER ACCOUNTANT MEMBER Dated : 6 t h August, 2018 *Rati* Copy to: 1. The Appellant 2. The Respondent 12 ITA No.195/Chd/2016 & C.O.No.6/Chd/2016 A.Y.2012-13 3. The CIT(A) 4. The CIT 5. The DR Assistant Registrar, ITAT, Chandigarh