Income Tax Appellate Tribunal - Bangalore
Assistant Commissioner Of Income Tax,, ... vs M/S. Kbd Sugar & Distilleries Ltd.,, ... on 14 September, 2018
IN THE INCOME TAX APPELLATE TRIBUNAL
"C" BENCH : BANGALORE
BEFORESHRI SUNIL KUMAR YADAV, JUDICIAL MEMBER AND
SHRI ARUN KUMAR GARODIA, ACCOUNTANT MEMBER
ITA Nos.172 & 975/Bang/2017
Assessment Years :2012-13& 2013-14
M/s. KBD Sugar &
The Assistant Commissioner
Distilleries Ltd.,
of Income Tax,
Vs. No. 17, Sankey Road,
Central Circle - 2 (1),
Bangalore - 560 020.
Bangalore.
PAN: AAACK5851A
APPELLANT RESPONDENT
C.O. Nos.64/Bang/2017
(in ITA No.975/Bang/2017)
Assessment Years : 2013-14
M/s. KBD Sugar & Distilleries The Deputy
Ltd., Commissioner of Income
No. 17, Sankey Road, Vs. Tax,
Bangalore - 560 020. Circle - 4 [1] [1],
PAN: AAACK5851A Bangalore.
APPELLANT RESPONDENT
C.O. Nos.65/Bang/2017
(in ITA No. 172/Bang/2017)
Assessment Years : 2012-13
M/s. KBD Sugar & Distilleries
Ltd., The Income Tax Officer,
No. 17, Sankey Road, Vs. Ward - 4 [2] [1],
Bangalore - 560 020. Bangalore.
PAN: AAACK5851A
APPELLANT RESPONDENT
Assessee by : Shri V. Chandrasekhar, Advocate
Revenue by : Shri B. Venkateshwar Rao, CIT (DR)
Date of hearing : 23.07.2018
Date of Pronouncement : 14.09.2018
ITA Nos.975 & 172/Bang/2017&
C.O. Nos. 64 & 65/Bang/2017
Page 2 of 8
ORDER
Per Bench Both these appeals are filed by the revenue and these two Cross Objections are filed by the assessee and these are directed against two separate orders of ld. CIT(A)-4, Bangalore both dated 31.10.2016 for Assessment Years 2012-13 and 2013-14. All these appeals were heard together and are being disposed of by way of this common order for the sake of convenience.
2. The grounds raised by the revenue for Assessment Year 2012-13 in ITA No. 172/Bang/2017 are as under.
"1. Whether the CIT(A) was right while restricting the disallowance u/s.14A r.w.r.8D(2)(iii) to Rs.1,06,244/- when there is no distinct source of funds for investment.
2. Whether the CIT(A) was right while holding that the interest free funds of the assessee company exceeded the interest free advances made by it to its sister concerns so no disallowance of interest is called for u/s.36(i)(iii) as it is to be presumed that the interest free advances are made out of interest free funds available with the appellant.
For the above and any other ground that may be urged, altered, substituted at the time of hearing."
3. The grounds raised by the revenue for Assessment Year 2013-14 in ITA No. 975/Bang/2017 are as under.
"1. Whether the CIT(A) was right while restricting the disallowance u/s.14A r.w.r.8D(2)(iii) to Rs. 1,33,067/- when there is no distinct source of funds for investment.
2. Whether the CIT(A) was right while holding that the interest free funds of the assessee company exceeded the interest free advances made by it to its sister concerns so no disallowance of interest is called for u/s.36(i)(iii) as it is to be presumed that the interest free advances are made out of interest free funds available with the appellant.
For the above and any other ground that may be urged, altered, substituted at the time of hearing."
ITA Nos.975 & 172/Bang/2017& C.O. Nos. 64 & 65/Bang/2017 Page 3 of 8
4. Similarly the grounds raised by the assessee for Assessment Year 2012-13 in C.O. No. 65/Bang/2017 are as under.
"1. The order of the learned Commissioner of Income-tax [Appeals] in so far as it is against the Respondent / Cross Objector are opposed to law, weight of evidence, natural justice, facts and circumstances of the case.
2. The Respondent / Cross Objector denies itself liable to be assessed over and above the business loss reported by the Respondent / Cross Objector of Rs. 27,80,317/- on the facts and circumstances of the case.
3. The learned Commissioner of Income-tax [Appeals] is not justified in confirming the disallowance under section 14A r.w.rule 8D[2][iii] amounting to Rs. 1,06,244/- on the facts and circumstances of the case.
4. The learned Commissioner of Income-tax [Appeals] is not justified in confirming the addition made by the learned assessing officer of Rs. 2,20,37,596/- being capitalization of interest in respect of work-in- progress by invoking the provisions of section 37 of the Act on the facts and circumstances of the case.
5. Without prejudice to the right to seek waiver as per the parity of reasoning of the decision of the Hon'ble Apex Court in the case of Karanvir Singh 349 ITR 692, the Respondent / Cross Objector denies itself liable to be charged to interest under section 234 B of the Income Tax Act under the facts and circumstances of the case. Further the levy of interest under section 234 B of the Act is also bad in law as the period, rate, quantum and method of calculation adopted on which interest is levied are all not discernable and are wrong on the facts of the case.
6. The Respondent / Cross Objector craves leave of this Hon'ble Tribunal, to add, alter, delete or substitute any of the grounds urged above.
7. In view of the above and other grounds that may be urged at the time of hearing of the Cross Objection, your Respondent / Cross Objector humbly pray that the Cross Objection may be allowed in the interest of equity and justice."
5. The grounds raised by the assessee for Assessment Year 2013-14 in C.O. No. 64/Bang/2017 are as under.
"1. The order of the learned Commissioner of Income-tax [Appeals] in so far as it is against the Respondent / Cross Objector are opposed to law, weight of evidence, natural justice, facts and circumstances of the ITA Nos.975 & 172/Bang/2017& C.O. Nos. 64 & 65/Bang/2017 Page 4 of 8 case.
2.The Respondent / Cross Objector denies itself liable to be assessed over and above the business loss reported by the Respondent / Cross Objector of Rs. 68,18,283/- on the facts and circumstances of the case.
3. The learned Commissioner of Income-tax [Appeals] is not justified in confirming the disallowance made by the learned assessing officer on account of provision for diminution in the value of investments amounting to Rs. 17,88,000/- on the facts and circumstances of the case.
4. The learned Commissioner of Income-tax [Appeals] is not justified in confirming the disallowance made by the learned assessing officer on account of prior period expenses [Ex Gratia for the year 2011-12] amounting to Rs. 6,40,809/- on the facts and circumstances of the case.
5. The learned Commissioner of Income-tax [Appeals] is not justified in confirming the disallowance under section 14A r.w.rule 8D[2][iii] amounting to Rs. 1,33,067/- on the facts and circumstances of the case.
6. The learned Commissioner of Income -tax [Appeals] is not justified in confirming the addition made by the learned assessing officer of Rs. 1,20,31,970/- being capitalization of interest in respect of work-in- progress by invoking the provisions of section 37 of the Act on the facts and circumstances of the case.
7. Without prejudice to the right to seek waiver as per the parity of reasoning of the decision of the Hon'ble Apex Court in the case of Karanvir Singh 349 ITR 692, the Respondent / Cross Objector denies itself liable to be charged to interest under section 234 B of the Income Tax Act under the facts and circumstances of the case. Further the levy of interest under section 234 B of the Act is also bad in law as the period, rate, quantum and method of calculation adopted on which interest is levied are all not discernable and are wrong on the facts of the case.
8. The Respondent / Cross Objector craves leave of this Hon'ble Tribunal, to add, alter, delete or substitute any of the grounds urged above.
9. In view of the above and other grounds that may be urged at the time of hearing of the Cross Objection, your Respondent / Cross Objector humbly pray that the Cross Objection may be allowed in the interest of equity and justice."
ITA Nos.975 & 172/Bang/2017& C.O. Nos. 64 & 65/Bang/2017 Page 5 of 8
6. The ld. DR of revenue supported the assessment order in both the years whereas the ld. AR of assessee supported the orders of CIT(A) with regard to the appeals of the revenue. Regarding the assessee's cross objections, he submitted that ground nos. 1 and 2 of Cross objections are general. Regarding ground no. 3 of the CO, he reiterated the same contentions which were raised before CIT(A). Regarding ground no. 4 of the CO, he fairly conceded that this issue is covered against the assessee by the Tribunal order in assessee's own case for Assessment Year 2011-12 and CIT(A) has followed the same Tribunal order in para 7.3 of his order.
7. We have considered the rival submissions. First of all, we decide the appeals of the revenue. In the appeals of the revenue, there are two issued involved. The first issue is regarding restricting the disallowance u/s. 14A r.w.Rule 8D(2)(iii) to Rs. 1,06,244/- in Assessment Year 2012-13 and Rs. 1,33,067/- in Assessment Year 2013-14 as against higher disallowance made by the AO in both these years. In this regard, we find that as per the orders of CIT(A), he has restricted the disallowance u/s. 14A r.w.Rule 8D(2)(iii) to exempt income / dividend received by the assessee. For holding so, the ld. CIT(A) has followed the judgement of Hon'ble Gujarat High Court rendered in the case of CIT Vs. Cortech Energy Pvt. Ltd. as reported in 372 ITR 97 and the judgement of Hon'ble Punjab & Haryana High Court rendered in the case of CIT Vs. Lakhani Marketing as reported in 272 CTR 265. In view of this, we find no infirmity in the order of CIT(A) on this issue. Hence we decline to interfere in the order of CIT(A) on this issue. Accordingly ground no. 1 in both these years of revenue's appeal is rejected.
8. Regarding ground no. 2 of the revenue's appeals in both these years being disallowance made by the AO of interest u/s. 36 (1) (iii) which has been deleted by CIT(A), it is seen that the disallowance was made by the AO in respect of interest free advances given by the assessee to sister concerns and the same was deleted by CIT(A) on this basis that the assessee was having huge quantum of interest free funds of Rs. 137.76 Crores during Assessment Year 2012-13 and Rs. 183.28 Crores in Assessment Year 2013-14. As against this, ITA Nos.975 & 172/Bang/2017& C.O. Nos. 64 & 65/Bang/2017 Page 6 of 8 interest free advances was of Rs. 111.04 Crores during Assessment Year 2012-13 and Rs. 103.66 Crores during Assessment Year 2013-14. Hence it is seen that in both the years, the interest free funds available with the assessee were higher than the interest free advances given by the assessee to sister concerns and by now, it is settled position of law that if the interest free funds available with the assessee exceeds interest free advances given by assessee to sister concerns then it should be presumed that such interest free advances given by assessee is out of interest free funds available with the assessee and therefore, no disallowance is justified u/s. 36(1) (iii) of IT Act. Hence on this issue also, we find no reason to interfere in the order of CIT(A). Ground no. 2 in both the appeals of the revenue is also rejected.
9. In the result, both the appeals filed by the revenue are dismissed.
10. Now we take up the COs filed by the assessee. Ground nos. 1 and 2 of the COs are general for which no separate adjudication is called for.
11. Ground no. 3 in Assessment Year 2012-13 and ground no. 5 in Assessment Year 2013-14 is regarding confirming of disallowance u/s. 14A r.w. Rule 8D[2] [iii] to the extent of dividend income earned by the assessee in the respective year. We find that this issue was decided by CIT(A) by following two judgements of two different High Courts i.e. the judgement of Hon'ble Gujarat High Court rendered in the case of CIT Vs. Cortech Energy Pvt. Ltd. (supra) and the judgement of Hon'ble Punjab & Haryana High Court rendered in the case of CIT Vs. Lakhani Marketing (supra) and therefore, we find no infirmity in the order of CIT(A) on this issue. Accordingly this issue is decided against the assessee.
12. Ground no. 4 in Assessment Year 2012-13 and ground no. 6 in Assessment Year 2013-14 is regarding disallowance of Rs. 2,20,37,596/- and Rs. 1,20,31,970/- respectively out of interest expenditure claimed by the assessee and this disallowance was confirmed by CIT(A) on the basis of the proviso to section 36(1)(iii) because this was found by ld. CIT(A) that the money was ITA Nos.975 & 172/Bang/2017& C.O. Nos. 64 & 65/Bang/2017 Page 7 of 8 borrowed as term loans for the purpose of expansion of assessee's business and corresponding assets were part of the work-in-progress and therefore, were not to put to use and hence, as per proviso to section 36 (1) (iii), disallowance was confirmed by CIT(A). In this view of the legal position, we find no infirmity in the order of CIT(A) on this issue and this issue is also decided against the assessee. Accordingly ground no. 4 in Assessment Year 2012-13 and ground no. 6 in Assessment Year 2013-14 of assessee's cross objections is rejected.
13. There is one more ground in Assessment Year 2013-14 i.e. ground no. 3 as per which the assessee is disputing disallowance of Rs. 17.88 Lakhs confirmed by CIT(A) in respect of provision for diminution in the value of investments. This issue was decided by CIT(A) as per para 6.3 of his order in Assessment Year 2013-14 wherein categorical finding is given by CIT(A) that as rightly pointed out by the AO, the assessee has not brought anything on record to demonstrate that the assessee has indeed suffered a loss on account of diminution in the value of securities. He has also given a finding that assessee has written off the same more in anticipation of a loss than actual incurring of the loss. He has confirmed the disallowance on this basis that the write off is prematurely done and therefore, the disallowance made by the AO is sustained. Before us also, nothing is brought on record to establish that the assessee has indeed suffered a loss on this account and therefore, on this issue also, we find no reason to interfere in the order of CIT(A). There is one more issue raised by assessee in both years regarding interest u/s. 234B of IT Act. The issue of interest u/s. 234B is consequential and therefore, no separate adjudication is called for.
14. In the result, both the Cross Objections filed by the assessee are dismissed.
ITA Nos.975 & 172/Bang/2017& C.O. Nos. 64 & 65/Bang/2017 Page 8 of 8
15. In the combined result, both the appeals of the revenue and both the Cross Objections of the assessee are dismissed.
Order pronounced in the open court on the date mentioned on the caption page.
Sd/- Sd/-
(SUNIL KUMAR YADAV) (ARUN KUMAR GARODIA)
Judicial Member Accountant Member
Bangalore,
Dated, the 14th September, 2018.
/MS/
Copy to:
1. Appellant 4. CIT(A)
2. Respondent 5. DR, ITAT, Bangalore
3. CIT 6. Guard file
By order
Senior Private Secretary,
Income Tax Appellate Tribunal,
Bangalore.