Income Tax Appellate Tribunal - Ahmedabad
Gayatri Dairy Products Pvt.Ltd., ... vs Department Of Income Tax on 15 July, 2013
IN THE INCOME TAX APPELLATE TRIBUNAL
AHMEDABAD "B" BENCH
Before: Sri D.K Tyagi, Judicial Member
and Shri Anil Chaturvedi, Accountant Member
ITA No. 2714 /Ahd/2012
Assessment Year 2008-09
The Income-tax Officer, Gayatri Dairy Pvt. Ltd
Ward-4(1), Ahmedabad Besides Central Bank
Navjivan Trust Building, Vs of India,
Off. Ashram Road, Khokhra, Ahmedabad-
Ahmedabad 380008
(Appellant) (Respondent)
Revenue by: Sri P.L. Kureel, Sr.D.R.
Assessee by: Sri M.G. Patel, A.R.
Date of hearing : 15-07-2013
Date of pronouncement : 31-07-2013
आदे श/ORDER
PER : D.K. TYAGI, JUDICIAL MEMBER:-
This is the revenue's appeal against the order of Ld. CIT(A)-VIII Ahmedabad dated 27-09-2012.
2. The revenue has taken following effective ground:-
I.T.A No. 2714 /Ahd/2012 A.Y. 2008-09 Page No 2 ITO vs. Gayatri Dairy Products Pvt. Ltd "1. The Ld. CIT(A) has erred in law and on facts in deleting the disallowance of Rs. 11,06,808/- made by the AO u/s. 14A of the I.T. Act without appreciating the fact that the assessee had made investment in shares income from which is exempt from tax and Ld. CIT(A) over looked the clause(b) of Sub-Rule (1) of Rule 8D of the Income Tax Rule 1962."
3. Brief facts of the case are that assessee-company is engaged in the business of process of milk and milk products. On verification of balance sheet, it was seen by the assessing officer during the assessment proceedings that the assessee-company had made investment in shares and has earned dividend income of Rs. 12,46,871/- which is exempt from income tax. Further, as per profit and loss account, the assessee has claimed interest payment of Rs. 27,56,794/-. However, the assessee has not deducted such interest payment/expenses relating to the investment in shares for earning exempt dividend income. Therefore, assessee was requested to show cause as to why the expenses incurred for earning such exempted income should not be disallowed u/s 14A of the Act r.w. Rule 8D of the Income Tax Rules.
3.1 In response to this notice assessee filed the following reply:
"4.1 "In the profit & loss account in Schedule "K" of Other income, profit on ales of Mutual Funds (Short Term) has been shown at Rs. 10,65,535/- whereas in Schedule "O" of Administrative expenses, loss on sale of Mutual Funds of Rs. 6,57,830/- has been mentioned. In the computation of income, the same has been treated separately and net short term capital gain is worked out at Rs. 4,06,81/- which is also shown in computation of income under the head of Capital Gain. Detailed statement of such short term capital gain is also enclosed with the return of income.
I.T.A No. 2714 /Ahd/2012 A.Y. 2008-09 Page No 3 ITO vs. Gayatri Dairy Products Pvt. Ltd In addition of this, in Schedule "K" of other income, long term profit on sale of shares has been mentioned at Rs, 1,31,575/- which has not been treated separately and entire profit has been offered to tax.
In the computation of income, approximate disallowance of Rs, 70,000/- u/s 14A has been made. It may kindly be noted that no direct expenditure has been incurred for earning the exempt income. Details of opening and closing investments have been given in Schedule "G" of balance-sheet which is as under:
Opening balance Rs. 1,93,67,072
Closing balance Rs. 81,40,460
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Rs. 2,75,07,532
Average investment Rs. 1,37,53,766
0.5% of average investment comes to Rs. 68,768 whereas we have disallowed Rs. 70,000/- u/s. 14A."
3.2 However the explanation offered by the assessee was not acceptable to the AO on the ground that incurring expenses such as interest and other expenses for the investment of huge amount in shares cannot be ruled out. Therefore, the expenditure/interest incurred for earning exempt dividend income was disallowed u/s 14A of the Act. The amount of disallowance was worked out as per criteria laid down in rule 8D of the Income Tax Rules which came to Rs. 11,76,808/- (Rs. 11,08,040+Rs. 68,768). As the assessee had already disallowed the sum of Rs. 70,0000/-, the same was considered by the assessing officer while calculating disallowance u/s 14A of the Act. I.T.A No. 2714 /Ahd/2012 A.Y. 2008-09 Page No 4 ITO vs. Gayatri Dairy Products Pvt. Ltd 4 In appeal, Ld. CIT(A) after taking into consideration this submission of the assessee which have been reproduced by him in his order deleted this disallowance by observing as under:-
"2.4. I have gone through the assessment order and the submission of the appellant very carefully. The AO has disallowed Rs l1,06,808/- u/s 14A of the Act r.w. Rule 8D of the Income Tax Rules 1962. The appellant has submitted that the investment has been reduced by Rs. 1,12,26,612/- from Rs. 1,93,67,072/- of previous year to Rs. 81,40,460/- of current year and new investments made are out of sales proceeds of shares and internal accrual of income. The appellant has submitted that the Reserves & Share Capita has been increased by Rs.37,68,391/- from Rs.2,48,53,263/- of previous year to Rs.2,86,26,654/- of current year and on the other hand borrowed funds have been reduced by Rs.2,70,33,135/-.from Rs.7,41,78,142/-of previous year to Rs.4,7l,45,007/- in the current year. The appellant has further submitted that the AO merely on doubts and suspicions regarding the source of investment in shares and presuming that interest and other expenses are associated with funds utilized in share investments has proceeded to make the disallowance u/s 14A of the Act and further the AO has not brought any material on record on the basis of which an adverse inference can be drawn against the appellant company that interest bearing funds have been utilized for making shares investments.
2.5 After going through the facts of the case as well as decisions referred as above which are relied upon by the A.R. of the appellant, I am inclined to accept the submission of the A. R. of the appellant. Therefore, in light of the above discussion I am of the opinion that when the appellant is having sufficient surplus funds at its disposal for making investment in shares and for non business purpose, there was no nexus that could be established with the expenditure incurred by the assesses for earning the dividend income. It is also seen that in previous year's provisions of section 14A of the Act has not been applied, though the facts of the case remained the same. In the backdrop of the above, the appellant states that no disallowance computed as per Rule 8D can be made in the case of the appellant as I.T.A No. 2714 /Ahd/2012 A.Y. 2008-09 Page No 5 ITO vs. Gayatri Dairy Products Pvt. Ltd the assessment year under consideration is 2007-08 and application of Rule 8D to the said Assessment Year is unjustified in the case of appellant. In view of the facts of the case and the decisions in the cases (supra) the disallowance made by the AO u/s 14A of the I.T. Act, 1961 cannot be sustained. In these circumstances, the AO is directed to delete the disallowance made by him of Rs. 11,06,808/- under section 14A of the Act."
5 After hearing both the parties and perusing the record and in view of the fact that assessee was having sufficient surplus funds at its disposal for making investment in shares and for non-business purposes and there was no nexus that could be established that the expenditure was incurred by the assessee for earning dividend income, we are of the opinion that Ld. CIT(A) has rightly directed AO to delete the disallowance made by him Rs.11,06,808/- u/s 14A of the Act. This view of ours gets support from the jurisdictional High Court decision in the case of CIT vs. Gujarat Power Corporation Ltd dated 28/03/2011 wherein on similar facts Hon'ble High Court has held as under:
"Having thus heard learned counsel for both sides and having perused the orders on record, we find that in the present case assessee had sufficiently explained its investment for borrowed funds pointing out that loan was obtained in assessment year 1997-1996 and its majority of the investment for tax free security were made before the said period. Only a small portion of investment was made subsequently. Assessee had demonstrated that it had other sources of investment and that therefore, according to assessee no part of the borrowed fund could be stated to have been diverted to earn tax free income. When CIT(Appeals) and tribunal both on facts in the present case found that the assessee did not invest borrowed fund for earning interest free income, we are of the view that not applying provision of Section 14A of the Act for taxing such interest was justified. No question of law therefore, is arising for our consideration."I.T.A No. 2714 /Ahd/2012 A.Y. 2008-09 Page No 6
ITO vs. Gayatri Dairy Products Pvt. Ltd In view of the above, we feel no need to interfere with the order passed by Ld. CIT(A) and the same is hereby upheld.
6 In the result, revenue's appeal is dismissed.
Order pronounced in open court on the date mentioned hereinabove at caption page Sd/- Sd/-
(ANIL CHATURVEDI) ( D.K. TYAGI) ACCOUNTANT MEMBER JUDICIAL MEMBER Ahmedabad : Dated 31/07/2013 ak
आदे श कȧ ूितिलǒप अमेǒषत / Copy of Order Forwarded to:-
1. अपीलाथȸ / Appellant
2. ू×यथȸ / Respondent
3. संबंिधत आयकर आयुƠ / Concerned CIT
4. आयकर आयुƠ- अपील / CIT (A)
5. ǒवभागीय ूितिनिध, आयकर अपीलीय अिधकरण, अहमदाबाद / DR, ITAT, Ahmedabad
6. गाड[ फाइल / Guard file.
By order/आदे श से, उप/सहायक पंजीकार आयकर अपीलीय अिधकरण, अहमदाबाद