Income Tax Appellate Tribunal - Kolkata
Acit, Circle Circle-2(10, Kolkata, ... vs M/S Amrit Feeds Ltd., Kolkata on 5 April, 2017
IT(SS)A.No.129/Kol/2016-M/s. Amrit Feeds Ltd. A.Y.2010-11 1
IN THE INCOME TAX APPELLATE TRIBUNAL, BENCH "C", KOLKATA
[Before Hon'ble Sri N.V.Vasudevan, JM & Hon'ble Sri M.Balaganesh, AM]
IT(SS) A No 129/Kol/2016
Assessment Year : 2010-11
A.C.I.T., Central Circle-2(1) -vs- M/s. Amrit Feeds Ltd.,
Kolkata Kolkata
(PAN AACCA 5571 D)
(Appellant) (Respondent)
For the Appellant: Shri.G.Mallikarjuna CIT DR
For the Respondent: Shri D.S.Damle, FCA
Date of Hearing : 22.3.2017
Date of Pronouncement : 05.04.2017.
ORDER
Per Shri N.V.Vasudevan, JM
This is an appeal filed by the Revenue against order dated 27.9.2016 of CIT(A)-20, Kolkata, relating to AY 2010-11.
2. The grounds of appeal raised by the revenue in this appeal read as follows:
"(i) That the Ld. CIT(A) has erred in accepting that the term 'manufacture' occurring in the context of section 80-IB does not necessarily require that the end product of the manufacturing process is to be completely different from the ingredients, as regards its chemical composition, integral structure or its use.
(ii) That the Ld. CIT(A) has erred in accepting that the process of manufacturing of poultry feeds does not amount to mere mixing together of all different ingredients, without involving any change in the chemical composition of the ingredients.
(iii) That the Ld. CIT(A) has erred in accepting that the process of preparation of poultry feeds amount to production of an article within the meaning of section 80IB.
(iv) That the Ld. CIT(A) has erred in allowing the entire amount of Rs.1,24,21,2905/- claimed as deduction U/S 80-IB.
IT(SS)A.No.129/Kol/2016-M/s. Amrit Feeds Ltd. A.Y.2010-11 2
(v) That the Ld. CIT(A) has erred in directing the A.O. to net off the interest income credited in the profit and loss account of the eligible undertaking against the interest expense debited in the said profit and loss account without the appreciating the facts and circumstances of the case supported by the decision of Hon'ble Supreme Court in the case of Pandian Chemicals Limited Vs. CIT,[2003] 129 TAXMAN 539 (SC) and the decision of High Court of Jammu and Kashmir in the case of Asian Cement Industries Vs Income Tax Appellate Tribunal, [2012] 28 TAXMAN 290(Jammu & Kashmir)
(vi) That the Ld. CIT(A) has erred in directing the A.O. to recompute the income of the eligible undertaking and re-compute the deduction u/s 80IB after netting off the interest income credited in the profit and loss account of the eligible undertaking against the interest expense debited in the said profit and loss account."
3. Grounds No.(i) to (iii) raised by the Revenue is with regard to the issue as to whether the CIT(A) was justified in allowing the claim of the Assessee for deduction u/s.80IB(5) of the Income Tax Act, 1961 (Act) on the profits derived by the Assessee from manufacture and sale of poultry feed.
4. At the time of hearing it was submitted by the learned counsel for the Assessee that the aforesaid issue regarding the eligibility of the Assessee for deduction u/s 80IB(5) of the Act has already been decided by the ITAT Kolkata bench in Assessee's own case in ITA No.1505/Kol/2007 for AY 2003-04 order dated 17.8.2007 decided the issue in favour of the Assessee holding that the profit derived from the activity of manufacture of poultry feed was entitled to deduction u/s.80IB(5) of the Act.
5. It was the plea of the Assessee that the process of producing poultry feed involved mechanical, chemical & electrical processes for which the Assessee used sophisticated Plant & Machinery. In the course of production of poultry feed raw- materials which exceeded 30 in number, lost individual identity and the emerging product was distinct and separate in shape, character and end-use. The raw- materials consumed in production of poultry feed could be individually used for different purposes, but the end product at the end of integrated production process was known to trade by its distinct commercial name as 'poultry feed'. It could only be consumed by only one class of consumer i.e. poultry & none else. It was the claim of the Assessee the end IT(SS)A.No.129/Kol/2016-M/s. Amrit Feeds Ltd. A.Y.2010-11 3 product was known as poultry feed in the trade, commerce and industry and was considered as separate and distinct from various materials consumed in the process of its production. The Assessee also pleaded that poultry feed manufacturing industry was notified by the Central Government to be eligible for claiming deduction for a consecutive period of 10 years u/s 801B(4) of the Act where the undertaking was located in any of the North Eastern States. It was the plea of the Assessee that deduction both u/s 801B (4) & (5) could be allowed only if newly set up industrial undertaking was engaged in manufacture and production of an article and if poultry feed industry was considered eligible by the Central Government for claiming deduction u/s 801B(4) then the same industry should be considered to be eligible for deduction u/s 801B(5) of the Act also on the ground at it was engaged in manufacture or production of an article.
6. The AO however was of the view that in the production process explained by the Assessee, there was no change in chemical composition of the end product and therefore there was no manufacture. However before recording such an authentic technical finding, the AO however did not refer to any scientific data or scientific experiments or technical report to support his conclusion. The AO accordingly rejected the claim of the Assessee for deduction u/s.80IB(5) of the Act.
7. On appeal by the Assessee, the CIT(A) held that the Assessee was eligible for deduction u/s.80IB(5) of the Act and in doing so relied on the decision rendered in Assessee's own case by the Tribunal referred to in the earlier part of this order.
8. Aggrieved by the order of the CIT(A), the revenue is in appeal before the Tribunal.
9. We have heard the rival submissions. The issue to be decided is as to whether the assessee is engaged in the manufacture of a production of an article to be eligible for deduction under section 80IB. This issue has duly been decided by this Bench in assessee's own case in ITA No.1505/Kol/2007 in the case of ACIT-vs- Amrit Feeds Ltd., Kolkata, in which, the similar issue has arisen. While deciding the similar issue, this Tribunal observed as under vide para 15 to 18 of its order. IT(SS)A.No.129/Kol/2016-M/s. Amrit Feeds Ltd. A.Y.2010-11 4 "15. Sec 801B (2) (iii) requires the eligible Industrial undertaking to be engaged in 'manufacture of production of an article'. The said section however, does not define the expression "manufacture or production of an article". In fact this expression is not defined in the Act also. The Ld. CIT (A) extensively analysed meaning of the said expression with reference to judicial decisions discussed in his order. The test laid down by the Courts is whether the emerging new product is known to the trade, industry and commerce by its own name having its own application use and has a market of its own. Applying the criterias laid down in these judicial decisions we find that in physical appearance, colour and shape the. Poultry feed vastly differs from the input materials. The poultry feed is manufactured in a scientific and systematic manner with the use and assistance of sophisticated plant and machinery acquired at a substantial cost. Poultry feed is recognised not only by trade and commerce but also by the statutory authorities under Central Excise, Sales Tax etc as independent products Applying the ratio laid down in judicial decisions discussed in the order of CTT(A) we have no hesitation in holding that the assessee is engaged in manufacture or production of an article, contemplated in Sec 801B (2) (iii) .
16. We also find on the identical facts the Bangalore Bench of ITAT in the case of Komrala Feeds --Vs- DCIT 74 ITD 65 held that activity of producing poultry feed amounts to manufacture and therefore eligible for deduction u/s 80 I. Sec 80I and Sec 80IB are parameteria because conditions for part of deduction are same and therefore the said decision is equally applicable in the present case.
17. Section 80IB is an incentive provision of the Income Tax Act enacted, by the Legislature to promote economic and industrial growth in backward districts and states. In the case of Bajaj Tempo Ltd --Vs. CIT (196 ITR 188) the Supreme Court has Opined that a provision of taxing statute granting incentives for promoting growth and development should be construed liberally and since a provision for promoting economic growth has to be interpreted liberally the restriction thereon too has to be construed so as to advance the objective of the provision and not to frustrate it. Conditions of Sec 801B (2) (iii) should be fulfilled by every new industrial undertaking claiming deduction either/under sub sec (3) (4) or (5) of Sec 80 IB i.e. to say the undertaking must be engaged in manufacture or production of an article. If this condition is not fulfilled no deduction is permissible under any of the sub sections of Sec 801B. The industrial undertakings notified and approved by the Central Govt. and situated in North Eastern States are eligible for tax holiday for period of 10 years' as against period of 5 years available to other backwards states. In Notification No. SO 627 (E) dated 04.08.1999 the Central Government has recognised poultry and cattle feed industry, to be an eligible industry u/s 80 IB (4). Once the Central Government notified the poultry 'feed industry u/s 80 IB (4) then there is a tacit admission that it is engaged in "manufacture or production of an IT(SS)A.No.129/Kol/2016-M/s. Amrit Feeds Ltd. A.Y.2010-11 5 article". This is so because unless poultry feed industry does not manufacture an article; no deduction can be permissible u/s 80IB. Once the Central Govt. accepted in principle that poultry feed is an eligible industry u/s 80IB(4); then the very same industry cannot be considered as non manufacturing industry under sub sections (3) and (5) ' of Sec 801B. With reference to same set of facts the revenue cannot hold the poultry .feed industry as manufacturing industry if situated in North Eastern states and a 'processing industry" if situated in any other states Such an interpretation will only lead to an absurd legal position.
18. For the reasons as set out herein before therefore we do not find any infirmity in the order of CIT(A) holding the assessee to be engaged in manufacture or production of an article We are therefore of the considered opinion that the assessee satisfies the conditions of Sec 80-IB(2) (iii) of the Act and is therefore eligible for deduction u/s 80IB We therefore uphold the order of CIT (A) directing A 0 to allow deduction u/s 80 IB to the assessee."
10. In Assessee's own case this Tribunal in ITA No.2227/Kol/2010 for AY 2007-08 by order dated 20.3.2013 allowed similar claim of the Assessee. From perusal of the said decisions of this Tribunal, it is apparent that this Tribunal has categorically held in the case that the assessee is engaged in manufacturing of poultry feeds and that the assessee is engaged in the manufacture or production of an article.
11. The learned DR however submitted that in the decisions rendered by the Tribunal, the decision rendered by the Hyderabad Bench of ITAT in the case of Venkateswara Feeds -vs- ACIT 22 Taxmann.com 234 (Hyd.) was not properly considered and therefore the decision rendered in Assessee's own case requires reconsideration. In this regard it was submitted that the Tribunal in the case of Venkateswar Feeds (supra) found that various feed ingredients such as maize, rice bran, de-oiled soya etc., along with certain feed premixes are mixed in different proportions and then ground to form a course powdered material which was called mash feed. Such feed underwent a certain kind of physical changes and was converted into small pellets. The actual process involved was that the mash feed was carried through an elevator to a pellet making machine where it got mixed with steam and then forced through a press containing small holes to convert the feed into small pellets. It was held that there was no change of composition in the mash feed and the pellet feed. Hence conversion of physical shape of the feed involves only processing and not manufacture. IT(SS)A.No.129/Kol/2016-M/s. Amrit Feeds Ltd. A.Y.2010-11 6 It was submitted by him that the raw material and end product were the same and therefore what the Assessee does is only "Processing" and not "Manufacture". For an activity to be called "Manufacture" one of the important criteria is that the end product of the manufacturing process is to be completely different from the ingredients, as regards its chemical composition, integral structure or its use and such factor is missing in the case of the Assessee. It was also submitted that the activity carried out by the Assessee was mere mixing together of different ingredients, without involving any change in the chemical composition of the ingredients and therefore, the decisions rendered on this issue have overlooked this aspect. It was submitted that the decision rendered in Assessee's own case did not consider the decision of the Hyderabad Bench of ITAT in the case of Venkateswara Feeds (supra) and therefore the decision requires reconsideration.
12 . The learned DR filed before us a chart explaining the process carried out by the Assessee, which is as follows:
Raw materials (corn, soya meal, rice bran, cassava, others ↓ Quality inspection (aflatcocin, moisture, energy, protein, etc. ↓ Hatch weighing (per formulation) ↓ Grinding of raw materials ↓ Mixing ↓ Pelleting ↓ Cooling ↓ Crumbling ↓ Quality Inspection ↓ Weighing and packaging ↓ Storage IT(SS)A.No.129/Kol/2016-M/s. Amrit Feeds Ltd. A.Y.2010-11 7
13. The learned counsel for the Assessee while relying on the order of the CIT(A) and decision of the Tribunal in Assessee's own case in AY 2005-06 also submitted that in Assessee's own case (supra), the Hon'ble ITAT had considered and distinguished the decision rendered in the case of Venkateswara Feeds (supra) by ITAT Hyderabad Bench.
14. We have given a careful consideration to the rival submissions. In the case of Amrit Feeds (supra), the Tribunal considered the decision rendered in the case of Venkateswara Feeds (supra) and held that the assessee in that case had claimed deduction under section 80IB on the activity of merely converting poultry mash feed into pellet feed and therefore that Bench has held that there was no change in the basic component or new or different article came into existence. As such, conversion was processing activity not manufacturing. The Tribunal held that the case of the assessee Amrit Feeds (supra) was entirely different. The assessee's eligible undertaking itself was independently carrying out the complete activity i.e. from mixing, grinding till the pelletisation. The raw materials once consumed could not be reconverted into the same position. Its utility gets changed. The prime raw materials such as, maize, soya oil, rice bran, etc. can no more be regarded to be the rice bran, soya oil, maize. We are of the view that the issue in the Revenue's appeal is squarely covered against the revenue by the decision of the Coordinate Bench of this Tribunal in assessee's own case for the earlier years which was based on the decision rendered in the case of Amrit Feeds (supra). Respectfully following the decision of the Coordinate Bench of this Tribunal in assessee's own case the finding of ld. CIT(A) on this issue stands confirmed and the grounds of appeal raised by the Revenue in all the appeals on this issue are dismissed.
15. As far as ground nos. (iv) to (vi) raised by the revenue is concerned the issue for consideration is as to whether interest income should be excluded from the profits of the business on which deduction u/s 80IB(5) of the Act has to be allowed. The case of the AO is that interest income had no direct nexus with the business of manufacture and sale of poultry feed and therefore the said income cannot be considered as part of IT(SS)A.No.129/Kol/2016-M/s. Amrit Feeds Ltd. A.Y.2010-11 8 profits of the eligible business for the purpose of allowing deduction u//s 80IB(5) of the Act. The CIT(A) however found that the interest income arose out of fixed deposits which were securities for availing credit facilities by the assessee in the course of its business of manufacture and sale of poultry feed. The FDs were made only for the purpose of offering them a security for credit facilities availed from the banks and such a condition was also imposed by the banks for extending credit facilities. The CIT(A) further found that the assessee had earned interest income of Rs.25,46,860/- and had paid interest on loans and credit facilities of Rs.39,22,489/-. Taking note of all these facts the CIT(A) came to the following conclusion :-
"I have considered the finding of the AO in the assessment order and the written submission filed by the AR along with different case laws on this issue. I have considered the Hon'ble Supreme Court's decision in the Pandian Chemical's case (supra) and I have also considered the decision of the Supreme Court in the case of ACG Associated Capsules (P) Ltd vs CIT (343 ITR 89. I think, even though the said decision was rendered in the context of provisions of section 80HHC, yet in my opinion the principle laid down in that decision has equal application in the assessee's case as well. I further find that on similar facts the ITAT, Kolkata in the case of DCIT vs BMW Industries Limited (ITA No.2115jKolj2007) dated 29th February 2008 had similarly held that for the purpose of computation of deduction u/s 80IB, the interest income was liable to be netted off against interest expenses and only the net interest expenditure was required to be allowed in arriving at qualifying profits of the - eligible undertaking u/s 80IB of the Act. I also find that the principle of netting off of interest income against interest expense has been upheld by jurisdictional Calcutta High Court in the case of CIT vs Warren Tea Ltd (374 ITR 6) for the purposes of interpreting & computing business income in the context of Rule 8 applicable to tea companies. Following the ratio laid down in these decisions therefore, I hold that the AO should net off the interest income credited in the profit and loss account of the eligible undertaking against the interest expense debited in the said profit and loss account. If net result thereof is expenditure, the same shall be considered to be the expenditure relatable to eligible undertaking. However if the net result after set off is income, then the assessee will not be eligible to claim deduction u/ s 80lB in respect of such net income. The AO shall accordingly re-compute the income of the eligible undertaking and re-compute the deduction u/s 80lB. Thus, assessee's appeal on grounds no 3 to 6 are allowed."
16. Aggrieved by the order of CIT(A) the revenue has preferred ground nos. (iv) to
(vi) before the tribunal.
IT(SS)A.No.129/Kol/2016-M/s. Amrit Feeds Ltd. A.Y.2010-11 9
17. The ld.DR relied on the order of AO. The ld. Counsel for the assessee reiterated the submissions made before CIT(A) and relied on the order of CIT(A). He also brought to our notice that the bank as a condition for giving credit facility insisted that the FDRs should be offered as a security and therefore interest expenditure and the interest income had a direct nexus and hence netting of interest income with the interest expenses was rightly allowed by CIT(A).
18. We have considered the rival submissions and are of the view that the interest income and the interest expenses had a direct nexus and therefore netting of interest income against the interest expenses had to be allowed. Since the interest expenses was much more than the interest income no interest income can be excluded from the profits on which deduction u/s 80IB(5) of the Act ought to be allowed. We therefore uphold the order of CIT(A) on this issue and dismiss ground nos. (iv) and (vi) raised by the revenue.
19. Ground No.(vii) raised by the revenue reads as follows :-
"(vii) That the Ld. CIT(A) has erred in directing the A.O. to compute the disallowance u/s 14A read with rule 8D(2)(ii) and 8D(2)(iii) only on the investment in the shares of Punjab National Bank amounting to Rs.34,100/-."
20. The AO disallowed a sum of Rs.66,678/- and Rs.59,170/- as expenses incurred in earning exempt income and accordingly made additions of the aforesaid sum by invoking the provision of section 14A of the Act read with Rule 8D(2)(ii) and 8d(2)(iii) of the Rules respectively. The following were the observations of the AO in this regard :-
"3.2 Assessee debited an amount of Rs.9,09,083/- on account of interest payment against unsecured loan. It is further observed that, assessee received exempt income in the form of Dividend, etc. In the light of above I am satisfied that provision of section 14A r.w.r 8D would apply in the case of assessee and to be calculated on the basis of method provided u/s 14A read with Rule 8D(2)(ii) as below. It is mentioned worthy here that assessee paid an amount of Rs.15.56 Lakh as interest on secured loan, which was utilize for specific purposes as the Term and Conditions of loan. Hence, payment of interest on secured loan not considered for calculation of disallowance u/s 14A.
IT(SS)A.No.129/Kol/2016-M/s. Amrit Feeds Ltd. A.Y.2010-11 10
(i) Amount of Direct Expenditure NIL
(ii) A Amount of Interest Expenditure 9,09,083
B Average Value of Investment 1,18,34,000
As on 01.04.2009 1,18,34,000
As on 31.03.2010 1,18,34,000
C Average of Total Assets 1,41,58,83,500
As on 01.04.2009 1,21,27,85,000
As on 31.03.2010 1,61,89,82,000
AxB/C 7,598
(iii) ½ % of Average Value of Investment i.e. B 59,170
Total (i+ii+iii) 66,768
Amount already disallowed by assessee in computation NIL
Disallowance u/s 14A r.w.s. 8D(2)(ii) 66,768
Disallowance: Rs.66,768/-
3.3 Assessee had received certain incomes during the year such as Dividend income which are exempt income in the hands of assessee. Assessee also claimed various expenses under the head Profit and Gain of Business or Profession. As, it is not possible to segregate portion of these expenses incurred for earning exempt income i.e. Dividend and others, hence it has been decided that provisions of section 14A would apply in the case of the assessee for the assessment year 2010-11. The next question that arises is the quantum of disallowance. The only basis of quantification of disallowance is the one provided in Rule 8D(2)(iii), i.e., 0.5% of the average investment. Accordingly, disallowance under Rule 8D(2)(iii) is worked at 0.5% of (B) above:
Disallowance u/s 14A r.w.r 0.5% of l,l8,34,000/- 59,170/- 8D(2)(iii) 3.4 In view of the aforesaid paragraph, an amount of Rs.59,170/- is disallowed u/s 14A read with Rule 8D. Hence Disallowance added to the total income of assessee."
21. Before CIT(A) the assessee submitted that the investments primarily comprised of investments in shares of subsidiaries and group companies. The details of investments held by the appellant at the opening & the closing of the relevant AY 2010-11 were given and the same is as follows :-
Particulars 31.03.2009 31.03.2010 Investments in Equity & Preference Shares of Group 118.00 118.00 companies IT(SS)A.No.129/Kol/2016-M/s. Amrit Feeds Ltd. A.Y.2010-11 11 Other Investments in Shares & MF 0.34 0.34 TOTAL INVESTMENTS 118.34 118.34
22. It was submitted that on perusal of the above table it can be seen that almost 99.71 percent of the Investments were in shares of its group companies. These shares were acquired with the purpose to acquire and enjoy controlling interest and finance the business activities/projects undertaken for furtherance of the business objectives of the Group of which the appellant was the flagship. The principal purpose behind making investment in shares of these group companies was to enjoy controlling interest and to finance the business activities conducted through the group companies. The presumed interest paid on such investment was therefore wholly and exclusively for business purposes. It was contended that these investments have not been made with the object to earn any tax free dividend income but with the specific purpose of achieving the business objective. It was argued that all the investments in group companies / subsidiaries are for strategic business purposes with a larger business motive and not to merely earn dividend income. The appellant substantially exercised control over the management and operations of the subsidiaries and associate companies. The investments in shares of these companies were made purely on commercial business considerations and not as an investment to earn capital appreciation and dividend income.
23. It was further submitted that the investments were made out of own funds and not out of the borrowed funds. As at 31.03.2010, the appellant's own funds in the form of share capital and free reserves were Rs. 4027.70 lacs whereas cost of investments was only RS.118.34 lacs. As such own funds were substantially higher than the cost of investments. The appellant therefore submits that the entire investments have been made out of own interest free funds and no interest bearing borrowings whatsoever has been utilized for making such investments. Reliance in this regard is placed on the decision of the Hon'ble Bombay High Court in the case of Reliance Utilities & Power Ltd (313 ITR 340) wherein the assessee made investment of RS.389.60 crs in shares on which tax free dividend income was received. It was the case of the assessee that there were sufficient funds available in the form of share capital (180 crs), reserve & IT(SS)A.No.129/Kol/2016-M/s. Amrit Feeds Ltd. A.Y.2010-11 12 surplus (215crs) for making investment in shares. On the other hand, the revenue contended that share capital and reserves etc. had already been invested in acquiring in fixed assets. On appeal, the Hon'ble High court following the decision of the Supreme Court in the case of East India Pharmaceutical Works (224 ITR 627) observed as follows:
"If there be interest free funds available to an assessee sufficient to meet its investments and at the same time the assessee had raised a loan it can be presumed that the investments were from the interest free funds available."
Attention was also drawn to the decision of the Bombay High Court in the case of CIT Vs HDFC Bank Ltd [ITA No. 330 of 2012 dated 23.07.2014 affirmed the decision of the coordinate Bench in the case of Reliance Utilities & Power Ltd (supra) and held that if the assessee has sufficient interest free funds then it will have to be presumed that the investment made by the assessee were out of such interest-free funds available with the assessee. It was pointed out that the facts involved in the present case and applying the ratio laid down in the above judicial precedents, it is submitted that the entire investments were made out of own surplus funds and accordingly the disallowance of interest was not warranted under Section 14A read with Rule 8D(2)(ii).
24. As far as disallowance under Rule 8D(2)(iii) is concerned the assessee submitted that it is only the dividend yielding investments that should be considered for the purpose of computing disallowance under Rule 8D(2)(iii) of the Rules. In this regard the assessee placed reliance on the decision of ITAT, Kolkata in the case of REI Agro Ltd. 144 ITD 141.
25. CIT(A) accepted the submissions made on behalf of the assessee and he held as follows :-
"I have considered the finding of the AO and the written submission filed by the AR during the appellate proceeding. I find that the assessee has made investments primarily in the group companies which are engaged in the same line of business. The jurisdictional Calcutta High Court in the case of CIT vs REI Agro Ltd (ITA No.220 of 2013) has held that no disallowance u/s 14A is IT(SS)A.No.129/Kol/2016-M/s. Amrit Feeds Ltd. A.Y.2010-11 13 permissible where the investments have produced any tax free income during the relevant previous year. The same view has also been expressed by the Delhi High Court in the case of CIT vs Holeim India Pvt Ltd (272 CITR 282), Gujarat High Court in the case of CIT vs Cortech Energy Pvt Ltd (223 taxman 130) & Allahabad High Court in the case of CIT vs Shivam Motors (P) Ltd (230 Taxman
63).
I further find that in some cases of this group the dividend was paid only by the associate companies. The investment in these shares was made for acquiring management control and not to earn tax free dividend. The ITAT, Kolkata in the case of DCIT vs Binani Industries Limited (ITA No.443/Kol/2013) has held that no disallowance u/s 14A is warranted where the investments are made in associate & subsidiary companies for strategic business purposes. During the appellate proceedings the AR has submitted that dividend/ exempt income received from other than own subsidiaries companies is only one script i.e. from Punjab National Bank. Total investment in the shares of the Punjab National Bank is an old investment i.e. Rs.34100/-. Accordingly, the AO is directed to compute disallowance u/s 14A read with rule 8D(2)(ii) and 8D(2)(iii) for this investment only. Thus, assessee's appeal on grounds no 7 and 8 are partly allowed."
26. Aggrieved by the order of CIT(A) the revenue has raised ground no.(vii) before the Tribunal.
27. We have heard the rival submissions. The ld. DR placed reliance on the order of AO and the ld. Counsel for the assessee apart from reiterating the submissions made before CIT(A) and the order of CIT(A) also placed reliance on the decision of the Hon'ble Bombay High Court in the case of HDFC Ltd 366 ITR 505 (Bombay) wherein it was laid down that if there is interest free funds available to an assessee sufficient to meet the investments and at the same time the assessee has also raised a loan it can be presumed that the investments were from the interest free funds. The ld. Counsel relied on the findings of CIT(A) where the CIT(A) has found that the assessee had interest free funds sufficient to meet the investments which are likely to yield tax free income.
28. We have considered the rival submissions and are of the view that order of CIT(A) on this issue does not call for any interference. As rightly held by CIT(A) disallowance under Rule 8D(2)(ii) (indirect interest expenditure) cannot be sustained IT(SS)A.No.129/Kol/2016-M/s. Amrit Feeds Ltd. A.Y.2010-11 14 in the light of the uncontroverted finding of the CIT(A) that assessee had sufficient interest free funds which were more than the value of investments which are likely to yield tax free income. As far as disallowance under Rule 8D(2)(iii) is concerned it is only the investment which yield dividend income that should be considered for the purpose of applying the formula as held by this tribunal in the case of REI Agro Ltd. (supra) which has since been affirmed by the Jurisdictional Calcutta High Court. In view of the above we find no merits in the ground raised by the revenue. Accordingly we dismiss ground no.(vii) raised by the revenue.
29. In the result the appeal of the revenue is dismissed.
Order pronounced in the open court on 05.04.2017.
Sd/- Sd/- [M.BALAGANESH] [ N.V.VASUDEVAN ] Accountant Member Judicial Member Date: 05.04.2017. R.G.(.P.S.) Copy of the order forwarded to:
1. M/s. Amrit Feeds Ltd., 158, Lenin Sarani, 2nd Floor, Kolkata-700013.
2. A.C.I.T., Central Circle-2(1), Kolkata
3. CIT(A)-20, Kolkata
4. CIT - Central-I, Kolkata.
5. CIT DR, Kolkata Benches, Kolkata True Copy, By order, Deputy /Asst. Registrar, ITAT, Kolkata Benches