Income Tax Appellate Tribunal - Pune
Pudumjee Pulp & Paper Mills Ltd,, Pune vs Deputy Commissioner Of Income-Tax, ... on 5 December, 2018
आयकर अपील�य अ�धकरण, पुणे �यायपीठ "एक-सद�य मामला" पुणे म�
IN THE INCOME TAX APPELLATE TRIBUNAL
PUNE BENCH "SMC", PUNE
�ी डी. क�णाकरा राव, लेखा सद�य के सम�
BEFORE SHRI D. KARUNAKARA RAO, AM
आयकर अपील सं. / ITA No.2831/PUN/2017
�नधा�रण वष� / Assessment Year : 2013-14
Pudumjee Pulp & Paper Mills Ltd.,
Thergaon Chinnchwad,
Pune - 411 033.
PAN : AABCP0310Q .... अपीलाथ�/Appellant
Vs.
DCIT, Circle-10,
Pune. .... ��यथ� / Respondent
अपीलाथ� क� ओर से / Appellant by : Shri Nikhil Pathak
��यथ� क� ओर से / Respondent by : Shri Rajesh Gawali
सुनवाई क� तार�ख / घोषणा क� तार�ख /
Date of Hearing : 01.11.2018 Date of Pronouncement: 05.12.2018
आदे श / ORDER
PER D. KARUNAKARA RAO, AM :
This appeal is filed by the assessee against the order of CIT(A)-6, Pune dated 27.10.2017 for the Assessment Year 2013-14.
2. The grounds raised by the assessee are extracted hereunder :-
"Dis-allowance under section 14A read with Rule 8D:
(a) On the facts and in the circumstances of the case, the Commissioner of Income Tax (Appeals) legally erred in upholding the dis-allowance of Rs.12,38,000 made by the Assessing Officer under section 14A read with rule 8D of the Income Tax Act ignoring the submissions made by your Appellant without appreciating the fact that the Overdraft Account from which the investments were made was merely used as a medium of investment rather than the source of investment and without considering the fact that interest free Owned funds of the Appellant were many times higher than the aggregate amount of investments made and the submission that the no borrowed funds have been used for making the investments.
(b) On the facts and in the circumstances of the case, the CIT(Appeals) further erred in observing that the Case Laws relied upon -2- ITA No.2831/PUN/2017 by the Appellant and placed before him relate to the assessment years prior to the introduction of Rule 8D in the Statute. He should have appreciated the principles arising out the decisions of the case law and should have deleted the disallowance made by the Assessing Officer. The Disallowance confirmed by him be deleted.
2. Your Appellant craves leave to add, alter or amend the Grounds of Appeal on or before the hearing of this appeal."
3. Further, the assessee also filed an additional ground and the same is as under :-
"1] The assessee submits that the investments which did not yield any taxable income should be reduced for the purposes of computing the disallowance u/s 14A r.w.r. 8D.
The assessee submits that the additional ground raised is legal in nature and as all the facts are on record, the assessee requests for admission of the above ground."
4. From the above, it is evident that both the grounds and additional ground involves the provisions of section 14A of the I.T. Act, 1961 read with Rule 8D of the I.T. Rules, 1962.
5. Briefly stated relevant facts include that the assessee is engaged in the business of manufacturing and sale of Pulp & Paper. Assessee filed the return of income on 28.09.2013 declaring loss of Rs.(-)56,73,097/-. At the end of the assessment order, the Assessing Officer made addition of Rs.12,38,000/- u/s 14A of the Act. This amount consists of two segments i.e. the amount of Rs.7.60 lakhs under clause (ii) of Rule 8D(2) of the Rules and Rs.4.78 lakhs under clause (iii) of Rule 8D(2) of the Rules. The CIT(A) confirmed the said disallowance made by the Assessing Officer and, therefore, assessee is in appeal before me with grounds/additional ground extracted above.
6. We shall take each of the above two segments for adjudication. With reference to the addition of Rs.7.60 lakhs made under clause (ii) of Rule 8D(2) of the Rules, the facts include that the assessee reported the "surplus -3- ITA No.2831/PUN/2017 and reserves" which is undisputedly more than the investments made by the assessee. Ignoring the facts that the investment made is lesser than the interest free reserves/interest free funds and also ignoring the jurisdictional and binding judgments in the case of CIT vs. Reliance Utilities and Power Ltd., 313 ITR 340 and judgment in the case of CIT vs. HDFC Bank Ltd. (ITA No.330 of 2012 dated 23.07.2014), the Assessing Officer made addition. Further, finding fault with the order of the CIT(A) ld. Counsel for the assessee brought my attention to the contents of para 5.2 of the order of the CIT(A). The same reads as under :-
"5.2 The appellant had admitted that the investments have been made out of the OD account. There has been over-drawl for making this investment. It is a clear case where the immediate source of investment is a bank overdraft. It is specifically for this purposes, where there is a mix of own and borrowed funds, the parliament has brought in Rule- 8D to determine the interest attributable to the such investments. The case laws relied upon by the appellant relate to the assessment years prior to the introduction of Rule- 8D in the statute. Further in those cases, the presumption is that the investments are to be treated as arising out of own funds when such investments are to be treated as arising out of own funds when such investments are less than the own funds. However, such presumption is only when it is not directly established by one to one relation between the investment and the source of fund. In the present case, the appellant himself and admitted that the immediate source for making investment is out of borrowed funds. In view of such clear evidence the decisions of the case laws relied upon the appellant are not applicable on the facts of this case. Once it is established that the claim of the appellant is not as per books of accounts. The AO is within his rights to invoke Rule- 8D for declaring the disallowance amount."
7. The CIT(A) held the establishing the nexus of funds invested prevails are the principle of presumption underlined in the said binding judgement. It is evident from the argument raised by the assessee before me vide his written submissions which extracted in para 5.1 of the impugned order, the lower authorities did not consider the said judgement in their true spirit/ratio. The CIT(A) ignored the principle of presumption pronounced by the jurisdictional High Court. The Assessing Officer merely in mechanically followed the provisions of Rule 8D(2) of the Rules without going into judgemental laws of the jurisdictional High Court. In my opinion, the investment made by the assessee is lesser than the interest -4- ITA No.2831/PUN/2017 free funds available in the form of equity, reserves or surplus. Therefore, I find this part of the addition made by the Assessing Officer under Rule 8D(2)(i) is required to be allowed in favour of the assessee.
8. Coming to the second segment of addition of Rs.4.78 lakhs made by the Assessing Officer under clause (iii) of Rule 8D(2) of the Rules, I find this issue raised by the assessee relates to the average investments with reference to the investments made by the assessee in the sister concerns. Such investments never yielded as 'exempt income' in the form of dividends. In this regard, ld. Counsel for the assessee relied on the decision of Pune Bench of the Tribunal in the case of Kumar Urban Development Pvt. Ltd. vs. DCIT vide ITA No.66/PUN/2015 dated 28.06.2017.
9. On hearing both sides on this issue, I find the contents of para 7 of the decision of the Tribunal in the case of Kumar Urban Development Pvt. Ltd. (supra) are relevant. For the completeness, the said para 7 is extracted hereunder :-
"7. In additional ground of appeal the assessee has assailed disallowance made by the Assessing Officer u/s. 14A r.w.r. 8D in respect of investments made in group concerns on which no dividend income is received by the assessee. This issue has also been dealt with by the Coordinate Bench of the Tribunal in assessee's own case in assessment year 2009-10. The Tribunal decided the issue in favour of the assessee by holding as under :
"26. We find merit in the above arguments of the Ld. Counsel for the assessee. It is an admitted fact that no dividend has been received by the assessee from the shares invested in the group companies which has been considered by the Assessing Officer for the purpose of computing disallowance u/s.14A. From page 46 of the paper book we find whatever dividend the assessee has received is on account of dividend from mutual funds. We find the Pune Bench of the Tribunal in the case of M/s. Kolte Patil Developers Ltd. (Supra) while adjudicating the issue of disallowance u/s.14A on account of investment in shares on which no dividend has been received has held that no disallowance u/s.14A can be made in a case where the assessee has not received any dividend out of the shares held as investment. The relevant observation of the Tribunal at Para 25 of the order reads as under :
"25. We find merit in the submission of the Ld. Counsel for the assessee that when no dividend is received on investment in -5- ITA No.2831/PUN/2017 shares worth Rs.117,85,71,206/- in subsidiary/associate companies no disallowance u/s.14A is called for. We find the Pune Bench of the Tribunal in the case of Goyal Ishwarchand Kishorilal (Supra) has held that when assessee has not received any dividend out of the shares held as investment, then no disallowance u/s.14A can be made. Similar view has been taken by the Hon‟ble Delhi High Court in the case of CIT Vs.Holsim India Pvt. Ltd. vide ITA No. 486 and 299/2014 and various other decisions Therefore, we find merit in the argument of the Ld. Counsel for the assessee that disallowance u/s.14A is not warranted on account of investment of Rs.117,85,71,206/- in shares in subsidiary/associate companies."
27. We find before the Hon‟ble Delhi High Court in the case of cheminvest Ltd. the following substantial question of law was raised :
"Whether disallowance u/s.14A of the Act can be made in a year in which no exempt income has been earned or received by the assessee."
28. The Hon‟ble High Court in ITA No.749/2014 order dated 02-09- 2015 reversed the decision of Special Bench of the Tribunal in the case of ACIT Vs. Cheminvest Limited Vs. CIT reported in (2009) 317 ITR (AT) 86 (Delhi) (SB) and observed as under :
"19. In light of the clear exposition of the law in Holcim India (P) Ltd. (supra) and in view of the admitted factual position in this case that the assessee has made strategic investment in shares of Max India Ltd., that no exempted income was earned by the assessee in the relevant AY and since the genuineness of the expenditure incurred by the assessee is not in doubt, the question framed is required to be answered in favour of the assessee and against the revenue.
...........
. . . . . . . . .... .
23. In the context of the facts enumerated hereinbefore the court answers the question framed by holding that the expression „does not form part of the total income‟ in section 14 A of the envisages that there should be an actual receipt of income, which is not includible in the total income, during the relevant previous year for the purpose of disallowing any expenditure incurred in relation to the said income. In other words, section 14A will not apply if no exempt income is received or receivable during the relevant previous year."
29. Since in the instant case the assessee has not received any dividend on the investment made in shares of group companies, therefore, the investment made in the group companies should be excluded from the investments for the purpose of computing disallowance u/s.14A r.w. Rule 8D."
10. From the above, it is evident that Pune Bench of the Tribunal following its earlier decision of Co-ordinate Bench in the case of M/s. Kolte Patil Developers Ltd. and also following the judgement of Hon'ble Delhi High Court in the case of ACIT vs. Cheminvest Limited vs. CIT, 317 ITR 86 decided similar issue in favour of the assessee. Therefore, considering the above settled legal preposition, I am of the opinion that the assessee is -6- ITA No.2831/PUN/2017 entitled to relief on this count. The Assessing Officer is directed to reduce the investments made by the assessee in the sister concern while calculating the disallowable expenditure under Rule 8D(2)(iii) of the Rules. The Assessing Officer needs to downsize the average investment accordingly. The Assessing Officer is also directed to compute the disallowance under clause (iii) of Rule 8D(2) of the Rules after granting reasonable opportunity of being heard to the assessee in accordance with the settled principle of law. Accordingly, this part of the issue is allowed in principle.
11. In the result, the appeal of the assessee is allowed for statistical purposes.
Order pronounced on this 5th day of December, 2018.
Sd/-
(D. KARUNAKARA RAO) लेखा सद�य / ACCOUNTANT MEMBER पुणे / Pune; �दनांक Dated : 5th December, 2018.
Sujeet आदे श क� ��त�ल�प अ�े�षत/Copy of the Order is forwarded to :
1. अपीलाथ� / The Appellant;
2. ��यथ� / The Respondent;
3. The CIT(A)-6, Pune;
4. The Pr.CIT-5, Pune;
5. �वभागीय ��त�न�ध, आयकर अपील�य अ�धकरण, पुणे "एक-सद�य मामला" / DR 'SMC', ITAT, Pune;
6. गाड� फाईल / Guard file.
आदे शानुसार/ BY ORDER, स�या�पत ��त //True Copy// Senior Private Secretary आयकर अपील�य अ�धकरण ,पुणे / ITAT, Pune