Income Tax Appellate Tribunal - Pune
Sudarshan Chemical Industries Ltd.,, vs Assessee on 10 March, 2016
आयकर अपील�य अ�धकरण पुणे �यायपीठ "ऐ" पुणे म�
IN THE INCOME TAX APPELLATE TRIBUNAL
PUNE BENCH "A", PUNE
सु�ी सुषमा चावला, �या�यक सद�य एवं �ी �द�प कुमार के�डया, लेखा सद�य के सम�
BEFORE MS. SUSHMA CHOWLA, JM AND SHRI PRADIP KUMAR KEDIA, AM
आयकर अपील सं. / ITA No s.758 to 760/PN/2014
�नधा�रण वष� / Assessment Years : 2007-08 to 2009-10
Sudarshan Chemical Industries Ltd.,
162, Wellesley Road,
Pune 411001 .... अपीलाथ�/Appellant
PAN: AABCS4223P
Vs.
The Addl. Commissioner of Income Tax,
Range - 6, Pune .... ��यथ� / Respondent
अपीलाथ� क� ओर से / Appellant by : Shri C.H. Naniwadekar
��यथ� क� ओर से / Respondent by : Shri Alok Malviya, JCIT
सुनवाई क� तार�ख / घोषणा क� तार�ख /
Date of Hearing : 20.01.2016 Date of Pronouncement: 10.03.2016
आदे श / ORDER
PER SUSHMA CHOWLA, JM :
This bunch of three appeals filed by the assessee are against separate orders of CIT(A)-III, Pune, all dated 07.01.2014 relating to assessment years 2007- 08 to 2009-10 against respective orders passed under section 143(3) of the Income Tax Act, 1961 (in short 'the Act').
2
ITA No s.758 to 760/PN/2014 Sudarshan Chemical Industries Ltd
2. This bunch of three appeals relating to the same assessee were heard together and are being disposed of by this consolidated order for the sake of convenience.
3. The assessee in ITA No.758/PN/2014 has raised the following grounds of appeal:-
1. The Learned CIT(A) erred on facts and in law in upholding the disallowance of Rs.10,65,499/- u/s 14A r.w.r. 8D. He failed to appreciate contention s and arguments advanced by the assessee in this behalf.
2. The appellant craves to leave, add/amend or alter any of the above Grounds of Appeal.
4. Briefly, in the facts of the present case, the assessee was engaged in manufacturing and selling of chemicals and had three units, one located at Pune, second one located at Roha and the third one located at Mahad. For the year under consideration the assessee had declared total income of Rs.9.09 crores. The Assessing Officer noted that the assessee had made investments of Rs.4,80,30,250/- in shares and units of Unit Trust of India and dividend derived from thereof claimed as exempt under section 10(33) of the Act. The Assessing Officer show caused the assessee to explain as to why the expenses relatable to such investments should not be disallowed by invoking provisions of section 14A of the Act. The explanation of the assessee before the Assessing Officer was that all the investments were made out of own funds and no interest bearing funds were raised from external sources. Further, reliance was placed on the ratio laid down by the Hon'ble Bombay High Court in CIT Vs. Reliance Utilities & Power Ltd. (2009) 313 ITR 340 (Bom) for the proposition that where the investments were made to sister concern, the same should be presumed to be out of own funds and disallowance was not to be made. The Assessing Officer was of the view that under the provisions of section 14A of the Act, not only direct expenses but also indirect expenses attributable to exempt income were to be disallowed. 3
ITA No s.758 to 760/PN/2014 Sudarshan Chemical Industries Ltd Accordingly, he computed the disallowance under section 14A of the Act read with Rule 8D of the Income Tax Rules, 1962 (in short 'the Rules') to work out the disallowance at Rs.10,65,499/-.
5. The CIT(A) upheld the order of Assessing Officer, against which, the assessee is in appeal.
6. The contention of the learned Authorized Representative for the assessee before us was that the total exempt income earned during the year was Rs.2,93,866/- and where the assessee had sufficient interest free funds available with it, there is no merit in any disallowance. Further, plea raised by the assessee was that no disallowance was warranted since the provisions of Rule 8D of the Rules were not applicable to the instant assessment year.
7. The learned Departmental Representative for the Revenue placed reliance on the orders of authorities below.
8. We have heard the rival contentions and perused the record. The issue arising in the present appeal relating to assessment year 2007-08 is the application of provisions of section 14A of the Act read with Rule 8D of the Rules. The Hon'ble Bombay High Court in Godrej Boyce Mfg. Co. Ltd. Vs. DCIT reported in 328 ITR 81 (Bom) have held that the provisions of Rule 8D of the Rules are to be applied prospectively starting from assessment year 2008-09. The Hon'ble High Court has further held that however, in respect of the disallowance to be made under section 14A of the Act for years bef ore assessment year 2008-09, estimated disallowance can be made under section 14A of the Act.
9. Another aspect to be kept in mind is the disallowance on account of interest relatable to the investments made, income arising from which is tax-free in the 4 ITA No s.758 to 760/PN/2014 Sudarshan Chemical Industries Ltd hands of assessee. The Hon'ble Bombay High Court in CIT Vs. HDFC Bank Ltd. (2014) 366 ITR 505 (Bom) had placed reliance on the ratio laid down by the Hon'ble Bombay High Court in CIT Vs. Reliance Utilities & Power Ltd. (supra). The Hon'ble High Court had thus, held that where the assessee's own funds and other non-interest bearing funds were more than the investment in the tax-free securities, then it would be presumed that the investment made by the assessee would be out of interest free funds available with the assessee. In this regard, reliance was placed on the ratio laid down in CIT Vs. Reliance Utilities & Power Ltd. (supra) and the Hon'ble Bombay High Court in CIT Vs. HDFC Bank Ltd. (supra) held that there is no merit in disallowing any part of the interest expenditure being relatable to the investment made by the assessee in securities, income from which is exempt from tax.
10. In the facts of the present case before us, the Assessing Officer while computing disallowance under section 14A of the Act had in turn, relied on the provisions of Rule 8D of the Rules to work out the disallowance. We find no merit in the order of Assessing Officer in this regard.
11. The second aspect is whether interest relatable to the investments which are exempt from tax is to be disallowed under section 14A of the Act. During the year under consideration, the assessee had received sum of Rs.89,341/- as dividend and tax-free interest income of Rs.2,04,525/-. Both these items were claimed as exempt under section 10(33) of the Act. The case of the assessee before the authorities below was that the long term investment in quoted shares were to the tune of Rs.60,30,000/-, which was carried forward from earlier years. Further, during the year under consideration the assessee had made investments in unquoted shares to the tune of Rs.4.20 crores, that means the total value of investments was Rs.4.80 crores, against which the assessee claimed that its share 5 ITA No s.758 to 760/PN/2014 Sudarshan Chemical Industries Ltd capital was to the tune of Rs.6.92 crores and the reserves and surpluses were to the tune of Rs.89.02 crores i.e. totaling Rs.95.94 crores. The assessee further claims that the investment of Rs.4.20 crores made during the year was out of its CC account with HDFC Bank and Bank of Maharashtra. The case of the assessee before us was that since it had sufficient interest-free funds of its own, which were generated in the course of relevant financial year, apart from shareholders funds, there was no merit in disallowing any part of interest expenditure relatable to the aforesaid investments. The Assessing Officer on the other hand, worked out the disallowance at Rs.10,65,499/-. The CIT(A) upheld the aforesaid disallowance, against which the assessee is in appeal before us. Applying the ratio laid down by the Hon'ble Bombay High Court in CIT Vs. HDFC Bank Ltd. (supra), we hold that where the assessee has sufficient funds available with it, which are interest-free or the investment is made out of own generated income for the respective years, then no disallowance is to be made under section 14A of the Act with regard to the interest relatable to investment in securities, income from which is exempt from tax. The assessee for the year under consideration had declared total income of Rs.9,09,80,820/-. Further, as explained before the Assessing Officer, the assessee had share capital and reserves and surpluses to the tune of Rs.95.94 crores, against which, for the year under consideration, the total long term investment made by the assessee in quoted shares were to the tune of Rs.4.20 crores. We hold that there is no merit in disallowing any part of interest expenditure relatable to the aforesaid investment of Rs.4.20 crores made during the year.
12. The second investment is in units of Unit Trust of India totaling Rs.60,30,250/-, from which the assessee had received dividend and interest income and claimed the same as exempt under section 10(33) of the Act. The said investment is carried forward from the preceding year. The issue of disallowance under section 14A of the Act aro se before the Tribunal in respect of aforesaid 6 ITA No s.758 to 760/PN/2014 Sudarshan Chemical Industries Ltd investment made by the assessee to the tune of Rs.60,30,250/- in assessment year 2006-07. The Tribunal vide order dated 30.11.2010 in ITA No.1024/PN/2009, relating to assessment year 2006-07 had noted that the Assessing Officer had made categorical assertion that in the year of investment, there was substantial overdraft before withdrawal was made for the purposes of investments. The Tribunal in assessee's own case relating to assessment year 2002-03 in ITA No.1852/PN/2005, order dated 29.10.2008 had examined the finding of the lower authorities with respect to nexus between the investment and the borrowings from the overdraft account and had held that the assessee had not furnished any evidence to establish that the investment in shares / units were not out of borrowings from the overdraft account. In this background, the Tribunal while deciding the appeal of the assessee in assessment year 2006-07 did not interfere with the findings of the fact upheld by the Tribunal in the relevant year in which the investment was stated to have been made. The Tribunal further observed that in subsequent assessment year the finality of factual findings approved by the Tribunal in assessment year 2002-03 could not be revisited, especially in the face of submissions made by the learned Counsel at the time of hearing that the assessee has not preferred any appeal against the order of Tribunal dated 29.10.2008 for assessment year 2002-03. Therefore, following the precedent in assessee's own case and actual findings of the lower authorities, which remained un-controverted, the disallowance of Rs.6,78,403/- made under section 14A of the Act was confirmed.
13. Another aspect is to be noted with regard to disallowance under section 14A of the Act. The learned Authorized Representative for the assessee while referring to the decision of Tribunal in earlier years including assessment year 2006-07, wherein disallowance of interest relatable to investments was confirmed by the Tribunal, it was pointed out by the learned Authorized Representative for the 7 ITA No s.758 to 760/PN/2014 Sudarshan Chemical Industries Ltd assessee that the assessee is in appeal against the order of Tribunal relating to assessment year 2006-07, on observations of the Bench that the ratio laid in CIT Vs. Reliance Utilities & Power Ltd. (supra) is not applicable. We find no merit in the said plea raised by the learned Authorized Representative for the assessee. The perusal of order of the Tribunal reflects that though a reference was made to the ratio laid down in CIT Vs. Reliance Utilities & Power Ltd. (supra), but the disallowance was made in the hands of on the basis of order of Tribunal relating to assessment year 2002-03 i.e. the year of investment, wherein it was held that the investment in the tax-free securities was made out of borrowed funds. In this context, it was held that the said ratio is not applicable where there is finding of fact that investment is made out of overdraft account, the interest expenditure merits to be disallowed under section 14A of the Act, as the said expenditure is di rectly relatable to earning of exempt income. It may be pointed out that the order of Tribunal relating to assessment year 2002-03 was passed on 29.10.2008 and the decision in CIT Vs. Reliance Utilities & Power Ltd. (supra) was not available on the aforesaid date. The Tribunal in assessment year 2006-07 has followed its earlier order of 2002-03 with regard to factual findings that the investment is made out of borrowed capital. Accordingly, we find no merit in the stand of assessee in this regard. In the above said facts and circumstances, we hold that the disallowance made under section 14A of the Act with regard to investment of Rs.60,30,000/- merits to be upheld, in view of the factual findings of Tribunal in assessee's own case in the year of investment itself, which in turn, has been followed and applied in assessment year 2006-07.
14. However, with regard to fresh investments made during the year under consideration totaling Rs.4.20 crores, in view of the income earned by the assessee at Rs.9.09 crores during the year and share capital and reserves & surpluses available with the assessee to the tune of Rs.95.94 crores, which are interest-free, 8 ITA No s.758 to 760/PN/2014 Sudarshan Chemical Industries Ltd we find no merit in making any disallowance relatable to the investment totaling Rs.4.20 crores. Accordingly, we hold so. The Assessing Officer is thus, directed to re-compute the disallowance in the hands of assessee vis-à-vis long term investment totaling Rs.60,30,000/- and in respect of balance investment of Rs.4.20 crores, no disallowance is to be made under section 14A of the Act on account of interest income. The grounds of appeal raised by the assessee are thus, partly allowed.
15. Now, coming to appeal in ITA No.759/PN/2014 relating to assessment year 2008-09, we find that the assessee has raised similar issue of disallowance under section 14A of the Act read with Rule 8D of the Rules. Admittedly, the provisions of Rule 8D of the Rules are applicable from assessment year 2008-09 i.e. the year in appeal before us. However, the said Rule 8D of the Rules is not to be universally applied and recourse is to be taken only in case any disallowance is to be computed under the main provisions of section 14A of the Act. The said section provides that no deduction shall be allowed in respect of expenditure incurred by the assessee in relation to income which does not form part of total income. While explaining the ambit of provisions of section 14A of the Act read with Ru le 8D of the Rules, the Hon'ble Bombay High Court in CIT Vs. HDFC Bank Ltd. (supra) has in turn, relied on the ratio laid down by the jurisdictional High Court in CIT Vs. Reliance Utilities & Power Ltd. (supra). Though the decision in CIT Vs. Reliance Utilities & Power Ltd. (supra) was in connection with the disallowance to be computed under section 36(1)(iii) of the Act, in respect of interest expenditure being relatable to the interest-free advances made by the person, and whether the same is to be disallowed under section 36(1)(iii) of the Act, the Hon'ble Bombay High Court in CIT Vs. HDFC Bank Ltd. (supra) drew simile from the said proposition and held that the ratio laid down therein is to applied while computing disallowance under section 14A of the A ct. We have already referred to the ratio laid down by 9 ITA No s.758 to 760/PN/2014 Sudarshan Chemical Industries Ltd the Hon'ble Bombay High Court in CIT Vs. HDFC Bank Ltd. (supra) in the paras hereinabove and have held that in respect of investments made by the assessee in the preceding year of Rs.4.20 crores, in view of the income generated in the year and interest-free funds available, no disallowance is to be merited.
16. For the year under consideration the assessee had received dividend of Rs.83,987/- and tax-free interest of Rs.2,04,525/- on tax-free units of 64 bonds of UTI. The total exempt income received during the year was Rs.2,88,512/-, against which the Assessing Officer had worked out the disallowance under section 14A of the Act at Rs.23,23,348/-, against which the assessee is in appeal. The assessee had declared long term investments in quoted shares at Rs.60,30,000/-, which is as in the preceding years and further long term investment in unquoted shares declared at Rs.5,77,28,450/-, against Rs.4.20 crores declared in the preceding year. The assessee has further explained that dividend income is received on the investment of Rs.60,30,000/- and on the investment totaling Rs.5,77,28,500/-, which is on account of investment in subsidiary, no dividend was received during the year, against the same, the assessee claims to have share capital of Rs.6.92 crores and net reserves & surpluses of Rs.98.12 crores. In line with our order relating to assessment year 2007-08 where, in turn, we placed reliance on the earlier order of the Tribunal in assessment year 2006-07, wherein it has been held that the investment of Rs.60,30,000/- was made out of interest bearing funds, in view of the factual findings of the Tribunal in assessment year 2002-03, we hold that the disallowance under section 14A of the Act read with Rule 8D of the Rules, is to be computed with regard to the aforesaid investment of Rs.60,30,000/-. However, with regard to the investment of Rs.5.77 crores during the year is against Rs.4.20 crores during the preceding year and keeping in mind the income declared by the assessee for the year under consideration i.e. totaling Rs.14.46 crores and the case of the assessee being that the investment is made out of internal accruals 10 ITA No s.758 to 760/PN/2014 Sudarshan Chemical Industries Ltd and also may be out of reserves & surpluses available with it, we find merit in the claim of the assessee and hold that no part of disallowance can be made under section 14A of the Act read with Rule 8D of the Rules on account of interest relatable to the aforesaid investment, income from which is exempt from tax. The Assessing Officer is thus, directed to verify the claim of the assessee and work out the disallowance in the hands of assessee under section 14A of the Act read with Rule 8D of the Rules in respect of investment totaling Rs.60,30,000/-. The grounds of appeal raised by the assessee are thus, partly allowed.
17. Now, coming to the appeal in ITA No.760/PN/2014 relating to assessment year 2009-10. The issue in ground of appeal No.1 raised by the assessee is with regard to disallowance under section 14A of the Act read with Rule 8D of the Rules to the tune of Rs.36,85,997/-. The facts and issue of the present case are identical to the facts and issue in the earlier two years. As held by us in assessment year 2008-09, the provisions of Rule 8D of the Rules are applicable. However, the disallowance of any part is to be worked out keeping in mind the ratio laid down by the Hon'ble Bombay High Court in CIT Vs. HDFC Bank Ltd. (supra), wherein it has been held that no disallowance under section 14A of the Act is merited on account of investment in securities, income from which is exempt from tax, where aforesaid investment is made out of interest-free funds available with the concern. In the facts of the present case, the assessee for the year under consideration had received dividend income of Rs.1,73,122/-, which was claimed as exempt. Further, the disallowance worked out by the Assessing Officer under section 14A of the Act read with Rule 8D of the Rules totaled Rs.36,85,997/-. The break-up of the investment made by the assessee as on the close of year is that sum of Rs.30 lakhs is in long term investment in quoted shares, which as on 31.03.2008 was Rs.60,30,000/-. Further, the long term investment in unquoted shares is Rs.10,40,80,950/- as against Rs.5,77,28,750/- shown during the year. The 11 ITA No s.758 to 760/PN/2014 Sudarshan Chemical Industries Ltd assessee before the CIT(A) in the written submissions had clarified that no dividend is received on investment of Rs.10.40 crores and the dividend of Rs.1,73,122/- is received on the investment of Rs.30 lakhs, which as on 31.03.2008 was to the tune of Rs.60,30,000/-. As against the aforesaid, further claim was that in addition to the income of the year totaling Rs.33.24 crores, interest-free funds available with the assessee in the form of share capital and reserves & surpluses totaling Rs.117.22 crores. In view of ratio laid down in the paras hereinabove, we hold that no disallowance under section 14A of the Act is to be made with regard to investment totaling Rs.10.40 crores. However, in respect of investment totaling Rs.30 lakhs, which had a opening balance of Rs.60,30,000/-, we hold that in line with the decision of Tribunal in assessee's own case and because of the factual findings that interest bearing funds were invested in the aforesaid securities, the disallowance under section 14A of the Act is to be computed in the hands of assessee. Accordingly, we direct the Assessing Officer to compute the aforesaid disallowance under section 14A of the Act.
18. The assessee by way of ground of appeal No.2 is aggrieved by the disallowance made of Rs.1,73,723/-.
19. Briefly, in the facts relating to the issue are that for the year under consideration, the assessee had received interest from MIDC on the security deposit of Rs.1,73,723/-. However, in the books of account, the assessee during the course of assessment proceedings, could not locate the amount and sum of Rs.1,73,723/- was added as income of the assessee. Before the CIT(A), the learned Authorized Representative for the assessee explained the reasons for discrepancy. However, the CIT(A) notes that considering the smallness of amount involved, the said ground was not pressed and hence, the same was dismissed. Another addition made in the hands of assessee was of Rs.90,362/-. 12
ITA No s.758 to 760/PN/2014 Sudarshan Chemical Industries Ltd
20. The learned Authorized Representative for the assessee on the other hand, drew our attention to the written submissions filed by the assessee before the CIT(A), copy of which is placed at pages 1 to 4 of the Paper Book and it was pointed out that the interest received from MIDC was adjusted against the bill to the tune of Rs.1,34,740/- and therefore, addition, if any, is to be restricted only to Rs.38,983/-. The copy of the bill was also enclosed. The learned Authorized Representative for the assessee pointed out that the CIT(A) had dismissed the ground of appeal as not pressed without adjudicating the ground of appeal raised. He further pointed out that the smallness was on account of un-reconciled difference of Rs.38,983/-, which was not pressed. With regard to another amount of Rs.90,362/-, the assessee pointed out that it had accounted for the same in the next year, but the details were not available with the assessee.
21. The learned Departmental Representative for the Revenue placed reliance on the orders of authorities below.
22. We have heard the rival contentions and perused the record. The issue arising in the present ground appeal is the addition made on account of difference in receipt shown on the basis of ITS details as declared by the assessee. The first item which is in dispute is the interest received from Bank of Maharashtra of Rs.12,51,792/-, which is shown in ITS 26 as against the assessee had declared interest income of Rs.11,61,160/-. The assessee was unable to explain the difference of Rs.90,632/- and hence, the same was added to the income in the hands of assessee. The assessee has failed to furnish any explanation in this regard. Hence, the same is added. Further, with regard to security deposit with MIDC and interest received thereon, which as per ITS details totaling Rs.1,73,723/- as against the said interest income of Rs.1,73,723/-, there was payment on 13 ITA No s.758 to 760/PN/2014 Sudarshan Chemical Industries Ltd adjustment of water bill of Rs.1,34,740/-, which admittedly, has not been claimed as an expenditure by the assessee. However, with regard to the balance sum of Rs.38,983/-, the assessee has failed to explain the difference and in view of the concession of the learned Authorized Representative for the assessee before the CIT(A) that the said amount should be added in his hands because of smallness of the revenue, we uphold the order of CIT(A) in this regard to the tune of Rs.38,983/-. Accordingly, the disallowance in the hands of assessee is to be confirmed to the extent of Rs.90,632/- + Rs.38,983/- = Rs.1,29,615/-. The ground of appeal No.2 raised by the assessee is thus, partly allowed.
23. In the result, all the appeals of the assessee are partly allowed.
Order pronounced on this 10th day of March, 2016.
Sd/- Sd/-
(PRADIP KUMAR KEDIA) (SUSHMA CHOWLA)
लेखा सद�य / ACCOUNTANT MEMBER �या�यक सद�य / JUDICIAL MEMBER
पुणे / Pune; �दनांक Dated : 10th March, 2016.
GCVSR
आदे श क� ��त�ल�प अ�े�षत/Copy of the Order is forwarded to :
1. अपीलाथ� / The Appellant;
2. ��यथ� / The Respondent;
3. आयकर आयु�त(अपील) / The CIT(A)-III, Pune;
4. आयकर आयु�त / The CIT-III, Pune;
5. �वभागीय ��त�न�ध, आयकर अपील�य अ�धकरण, पुणे "ए"
/ DR 'A', ITAT, Pune;
6. गाड� फाईल / Guard file.
आदे शानुसार/ BY ORDER, स�या�पत ��त //True Copy // व�र�ठ �नजी स�चव / Sr. Private Secretary आयकर अपील�य अ�धकरण ,पुणे / ITAT, Pune