Income Tax Appellate Tribunal - Indore
Acit 1(2), Bhopal vs Bhaskar Industries Ltd., Bhopal on 10 January, 2017
आयकर अपील य अ धकरण, इ दौर यायपीठ, इ दौर IN THE INCOME TAX APPELLATE TRIBUNAL, INDORE BENCH, INDORE ी डी.ट .गरा सया, या यक सद य तथा ी ओ.पी.मीना, लेखा सद य के सम% BEFORE SHRI D.T. GARASIA, JUDICIAL MEMBER AND SHRI O.P. MEENA, ACCOUNTANT MEMBER आ.अ.सं./ I.T.A. No. 68/Ind/2014 नधा रण वष /Assessment Year: 2010-11 Bhaskar Industries ACIT, Private Limited, Vs. 1(2), Bhopal (Formerly known as Bhaskar Industries Limited), Bhopal था.ले.सं./PAN: AAACB5809M अपीलाथ /Appellant यथ /Respondent आ.अ.सं./ I.T.A. No. 194/Ind/2014 नधा रण वष /Assessment Year: 2010-11 ACIT, Bhaskar Industries 1(2), Vs. Private Limited, Bhopal (Formerly known as Bhaskar Industries Limited), Bhopal था.ले.सं./PAN: AAACB5809M अपीलाथ /Appellant यथ /Respondent I.T.A.Nos.68 & 194/Ind/2014 A.Y.2010-11 Bhaskar Industries P.Ltd., Bhopal Page 2 of 11 नधा रती क ओर से/Assessee by Shri S.S.Deshpande, C. A. वभाग क ओर से/Department by Shri Lalchand, CIT DR सुनवाई क तार$ख 19.12.2016 Date of hearing उ'घोषणा क तार$ख 10.01.2017 Date of pronouncement आदे श /O R D E R PER O.P. MEENA, ACCOUTANT MEMEBR.
These cross appeals filed by the assessee and the Revenue are directed against the order of ld. Commissioner of Income-tax (Appeals)-I, Bhopal [hereinafter referred to as the CIT(A)] dated 11.12.2013 and pertain to assessment year 2010-11 as against appeal decided in assessment order passed u/s 143(3) of the Act dated 25.02.2013 of Additional CIT, Range I, Bhopal [hereinafter referred to as the AO].
2. The assessee has taken following grounds of appeal :-
1. That the ld. CIT(A) has wrongly confirmed the addition of other expenses as disallowed by the AO u/s 14A of the Act by applying Rule 8D of Income Tax Rules for Rs. 46,58,063/-.
I.T.A.Nos.68 & 194/Ind/2014 A.Y.2010-11 Bhaskar Industries P.Ltd., Bhopal Page 3 of 11
2. That the ld. CIT(A) has wrongly confirmed that the disallowing the depreciation of Rs. 3,73,721/-.
3. The Ld. Counsel for the assessee did not press ground no.2, hence, the same is dismissed as not pressed.
4. The Revenue has taken following grounds of appeal in which ground no.2 is taken as additional ground of appeal :-
1. On the facts and in the circumstances of the case whether the CIT(A) was justified in not providing the opportunity of being heard to the AO before admitting the additional evidence.
2. On the facts and in the circumstances of the case, the ld. CIT(A) has erred in deleting the amount of Rs. 3,89,68,475/- which was disallowed by the AO treating as expenditure in relation to exempt income u/s 14A.
5. As the grounds are common, we are disposing of both these appeals by this common order for the sake of convenience.
I.T.A.Nos.68 & 194/Ind/2014 A.Y.2010-11 Bhaskar Industries P.Ltd., Bhopal Page 4 of 11
6. Succinctly, facts of the case are that the assessee is a Private Limited Company engaged in the business of manufacturing of yarn, fabric and dyed fabric. The assessee had furnished its original return of income for A.Y. 2010-11 on 24.09.2010 declaring total income at Rs. 87,68,157/-. The assessee had shown business income of Rs. 2,08,38,726/- which was set off against brought forward unabsorbed depreciation and had offered long term capital gains of Rs. 87,68,157/- to tax in the return of income. The case was selected for scrutiny by issuing notice u/s 143(2) of the Act and the assessment u/s 143 was completed on 25.02.2013 determining taxable income at Rs. 4,39,57,962/-. The Assessing Officer noticed from the balance sheet that the assessee had shown investment of Rs. 93,16,12,682/- as on 31.03.2010 in equity shares of various companies. Out of this, major investment of Rs. 91,16,47,192/- had been made in the equity shares of United Textiles Mills Limited. The assessee had shown dividend of Rs. 93,42,585/- received from such companies, which was claimed as exempt from tax in view of I.T.A.Nos.68 & 194/Ind/2014 A.Y.2010-11 Bhaskar Industries P.Ltd., Bhopal Page 5 of 11 provisions of Sec 10(34/35) of the Income-tax Act, 1961. The Assessing Officer show caused the assessee as to why suitable disallowance not be made in view of the provisions of Section 14A of the I.T. Act read with Rule 8D of I. T. Rules, 1962. The assessee submitted the explanation, but the Assessing Officer did not accept the explanation of the assessee. The Assessing Officer made the disallowance to the extent of Rs. 4,36,26,358/-. However, the ld. CIT(A) confirmed the addition to the extent of Rs. 46,58,063/-.
7. The assessee has come up in appeal stating that the ld. CIT(A) has wrongly confirmed the addition of other expenses as disallowed by the Assessing Officer u/s 14A of the Act by applying Rule 8D of Income-Tax Rules for Rs. 46,58,063/-. The ld. Authorized Representative urged that the addition should be deleted.
8. The Revenue has come up in appeal stating that the ld. CIT(A) has erred in deleting the amount of Rs. 3,89,68,475/- which was disallowed by the Assessing Officer treating as expenditure in relation to exempt income u/s 14A I.T.A.Nos.68 & 194/Ind/2014 A.Y.2010-11 Bhaskar Industries P.Ltd., Bhopal Page 6 of 11 of the Act. The ld. CIT DR also contended that the proper opportunity of being heard to the Assessing Officer was not given before admitting the additional evidence. The ld. CIT DR urged that the addition may be sustained.
9. We have heard the rival submissions and have gone through the orders of the lower authorities, and perused the material available on record. The expenditure incurred in relation to earning such exempt income is not quantified during the course of assessment proceedings. We find that the claim of the assessee that no expenditure has been claimed has not been examined by the AO as he had made disallowance by applying rule 8D of Income Tax Rules, 1962 . We find that the Hon Delhi High Court in the case of ACB India (2005) 374 ITR 108 [Del.] wherein the Hon'ble High Court has laid down certain principle and procedure to be followed while calculating the disallowance u/s.14A of the Act. The relevant extract of said decision is reproduced as under:
"7. The question of law urged on behalf of the assessee is whether the decision of the Income-tax Appellate Tribunal as to the disallowance under section 14A of the Income-tax Act, 1961, is in error of I.T.A.Nos.68 & 194/Ind/2014 A.Y.2010-11 Bhaskar Industries P.Ltd., Bhopal Page 7 of 11 law in the circumstances of the case. For the assessment year 2008-09, the assessee--which is mainly engaged in the business of coal preparation, i.e., beneficiation of coal, transportation, loading of coal and related activities had reported a tax exempt income to the tune of Rs. 18,26,360 amongst other heads of income. The Assessing Officer added back Rs. 19,96,242 under section 14A. While doing so, the Assessing Officer applied rule 8D by taking into consideration the total quantum of interest other than that invested under section 14A in terms of rule 8D and arrived at the said figure after multiplying it with the result of the average value of investments and over average value of assets derived by him. He thus determined the disallowance of Rs. 19,96,242. The Commissioner of Income-tax (Appeals) went into the record and found that the amount of investment attributable to dividend as on March 31, 2008, was Rs. 3,53,26,800, which constituted less than 1 per cent. of the total scheduled funds. He, however, accepted the basis of calculation applied by the Assessing Officer and directed a disallowance of .05 per cent. of the amount determined to be average investment. The Income- tax Appellate Tribunal to which the Revenue appealed, restored the Assessing Officer's determination holding it to be a true calculation in terms of rule 8D. It is argued by the assessee that since the Commissioner of Income-tax (Appeals) correctly noted the facts as to the value of the investment in tax exempt investment and at the same time noticed that the ultimate result on an application of .05 per cent. disallowance would be the same. Counsel for the Revenue, on the other hand, submitted that given the determination of average value of investment, the Assessing Officer had no choice but to apply rule 8D(2) in view of the mandate of section 14A which required him to apply the prescribed method of determining disallowance. I.T.A.Nos.68 & 194/Ind/2014 A.Y.2010-11 Bhaskar Industries P.Ltd., Bhopal Page 8 of 11 The facts, as disclosed by the Assessing Officer, who expressed his opinion that the claim of the assessee for no disallowance was warranted since no expenditure was incurred had to be rejected. Therefore, the first condition for application of section 14A in this case was fulfilled. In such eventuality the Assessing Officer is required by the mandate of rule 8D to follow rule 8D(2). Clauses (1), (2) and (3) detail the methodology to be adopted. Clauses are of importance, they read as follows :
"8D. Method for determining amount of expenditure in relation to income not includible in total income.-(1) Where the Assessing Officer, having regard to the accounts of the assessee of a previous year, is not satisfied with-
(a) the correctness of the claim of expenditure made by the assessee ; or
(b) the claim made by the assessee that no expenditure has been incurred,in relation to income which does not form part of the total income under the Act for such previous year, he shall determine the amount of expenditure in relation to such income in accordance with the provisions of sub-rule (2).
(2) The expenditure in relation to income which does not form part of the total income shall be the aggregate of following amounts, namely :-
(i) the amount of expenditure directly relating to income which does not form part of total income ;
(ii) in a case where the assessee has incurred by way of interest during the previous year which is not directly attributable to any particular income or receipt, an amount computed in accordance with the following formula, namely :-
I.T.A.Nos.68 & 194/Ind/2014 A.Y.2010-11 Bhaskar Industries P.Ltd., Bhopal Page 9 of 11 A x B __ C Where A = amount of expenditure by way of interest other than the amount of interest included in clause (i) incurred during the previous year ;
B = the average of value of investment, income from which does not or shall not form part of the total income, as appearing in the balance-sheet of the assessee, on the first day and the last day of the previous year ;
C = the average of total assets as appearing in the balance-sheet of the assessee, on the first day and the last day of the previous year ;
(iii) an amount equal to one-half per cent. of the average of the value of investment, income from which does not or shall not form part of the total income, as appearing in the balance-sheet of the assessee, on the first day and the last day of the previous year.
(3) For the purposes of this rule, the 'total assets' shall mean, total assets as appearing in the balance-
sheet excluding the increase on account of revaluation of assets but including the decrease on account of revaluation of assets."
8. The Assessing Officer, instead of adopting the average value of investment of which income is not part of the total income, i.e., the value of tax exempt investment, chose to factor in the total investment itself. Even though the Commissioner of Income-tax (Appeals) noticed the exact value of the investment which yielded taxable income he did not correct the error but chose to apply his own equity. Given the record that had to be I.T.A.Nos.68 & 194/Ind/2014 A.Y.2010-11 Bhaskar Industries P.Ltd., Bhopal Page 10 of 11 done so to substitute the figure of Rs. 38,61,09,287 with the figure of Rs. 3,53,26,800 and, thereafter, arrive at the exact disallowance of .05 per cent.
9. In view of the above reasoning, the findings of the Income-tax Appellate Tribunal and the lower authorities are hereby set aside. The appeal is allowed and the matter is remitted to work out the tax effect to the Assessing Officer who shall do so after giving due notice to the party."
10. We find that the AO has not examined and quantified the expenditure incurred in relation to exempt income. Whether the assessee has made investment in shares out of interest bearing funds. Whether disallowance of expenses of Rs. 4,36,26,358/- is justified as against the earning of dividend income of Rs. 93,42,585/-. Therefore, we are of the opinion that the issue requires re-examination in the lines of findings of aforesaid decision. Therefore, the grounds of assessee as well as Revenue's grounds including additional ground on this issue are set-aside. Therefore, following the ratio of above decision, we remit back this issue to the file of the A.O. to find out whether any expenditure in relation to exempt income has been claimed in return of income and also work out investment relating to exempt income and rework the I.T.A.Nos.68 & 194/Ind/2014 A.Y.2010-11 Bhaskar Industries P.Ltd., Bhopal Page 11 of 11 disallowance under section 14A Read with Rule 8D if any in accordance with law in the light of above decision.
11. In the result, both the appeals of the assessee and Revenue are allowed for statistical purposes.
The order has been pronounced in open court on the 10th January, 2017.
Sd/- Sd/-
(डी.ट
.गरा सया) (ओ.पी.मीना)
या यक सद य लेखा सद य
(D.T.GARASIA) (O.P.MEENA)
JUDICIAL MEMBER ACCOUNTANT MEMBER
*दनांक /Dated : 10th January, 2017.
CPU*