M/S. MADHU SILICA PVT. LTD.,BHAVNAGAR vs. THE ACIT., CIRCLE-1, BHAVNAGAR

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ITA 450/AHD/2017Status: DisposedITAT Ahmedabad18 February 2019AY 2012-134 pages
AI SummaryPartly Allowed

What did the Tribunal hold?

The Tribunal found that the assessee had substantial interest-free funds, making the disallowance of interest expenses unjustified. However, a portion of administrative expenses related to investments was sustained.

What were the facts?

The Assessing Officer disallowed Rs. 40,77,207/- under Section 14A read with Rule 8D for expenses related to exempt dividend income. The assessee argued it had sufficient interest-free funds for investments, but the AO disagreed.

What were the issues?

Whether interest expenses incurred for earning exempt income are disallowable when the assessee has sufficient interest-free funds. The allocation of administrative expenses related to investments.

Which sections of the Income-tax Act were involved?

Section 14A

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Income Tax Appellate Tribunal, AHMEDABAD “B” BENCH

Before: Shri Amarjit Singh

For Appellant: Shri Tushar Hemani, A.R
For Respondent: Shri Mudit Nagpal, Sr. D.R, Shri Tushar Hemani, A.R

IN THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD “B” BENCH Before: Shri Amarjit Singh, Accountant Member And Ms. Madhumita Roy, Judicial Member ITA No. 450/Ahd/2017 Assessment Year 2012-13

M/s. Madhu Silica Pvt. The ACIT, Ltd. Plot No. 53,55,56B, Circle-1, GIDC, Chitra, Bhavnagar Vs Bhavnagar PAN: AABCM4381J (Respondent) (Appellant)

Revenue by: Shri Mudit Nagpal, Sr. D.R. Assessee by: Shri Tushar Hemani, A.R.

Date of hearing : 06-02-2019 Date of pronouncement : 18-02-2019 आदेश/ORDER PER : AMARJIT SINGH, ACCOUNTANT MEMBER:-

This assessee’s appeal for A.Y. 2012-13, arises from order of the CIT(A)-6, Ahmedabad dated 27-01-2017, in proceedings under section 143(3) of the Income Tax Act, 1961; in short “the Act”.

2.

The solitary ground of appeal of the assessee is against the decision of ld. CIT(A) in confirming the action of the assessing officer in disallowing Rs. 40,77,207/- u/s. 14A r.w. Rule 8D of the IT Rule , 1962.

I.T.A No. 450/Ahd/2017 A.Y. 2012-13 Page No 2 M/s. Madhu Silica Pvt. Ltd. vs. ACIT

3.

The fact in brief is that during the course of assessment proceedings, the assessing officer noticed that assessee company has shown dividend of Rs. 1,70,27,593/- claiming as exempt u/s. 10(34) of the IT act and also claimed expenses on account of interest to the amount of Rs. 2,98,47,199/-. The assessee was asked to explain why the interest expenses incurred for earning exempt income should not be disallowed as per provisions of section 14A of the act. The assessee has furnished a detailed submission as produced at page number 3 to 5 of the assessment order claiming that it has not made any investment in the shares/ mutual funds by borrowing the interest bearing funds. The assessing officer has not agreed with the explanation filed by the assessee and computed the allocation of expenses in relation to exempt income for the purpose of section 14A r.w. rule 8D of the income tax rule 1962 to the amount of Rs. 40,77,207/- and added to the total income of the assessee.

4.

Aggrieved assessee filed appeal before the ld. CIT(A). The ld. CIT(A) has dismissed the appeal of the assessee..

5.

During the course of appellate proceedings before us, ld. counsel has contended that assessee company was having sufficient interest free fund for making investment and ld. CIT(A) has erred in sustaining the impugned addition made by the assessing officer. On the other hand the Ld. DR has placed reliance on the order of the lower authority.

I.T.A No. 450/Ahd/2017 A.Y. 2012-13 Page No 3 M/s. Madhu Silica Pvt. Ltd. vs. ACIT

With the assistance of ld. counsel we have gone through the material on record and it is noticed that assessee was having substantial interest free fund against investment made by it as mentioned hereunder:-

Particulars Balance as at 31.03.2012 (Rs. in Balance as at 31.03.2012 (Rs. in Lacs) Lacs) (A) Interest free funds: Share 540.00 480.00 capital Reserves & Surplus Total 14,840.41 12,075.20 ------------- ------------ 15,380.41 12,555.20 (B) Investments 2,578.01 1,759.74 (C) Ratio of interest free funds & 5.97 times 7.13 times Investments (A/B * 100)

In this connection, the ld. counsel has also placed reliance on following judicial pronouncements:- > CIT vs. Torrent Power Ltd. - 363 ITR 474 (Guj.) > CIT vs. Suzlon Energy Ltd. - 354 ITR 630 (Guj) > CIT vs. Gujarat Power Corporation Ltd. - 352 ITR 583 (Guj) > CIT vs. Hitachi Home & Life Solutions (I). Ltd. - (2014) 41 taxmann.com 540 (Guj) > CIT vs. Reliance Utilities & Power Ltd. - 313 ITR 340 (Bom) > Munjal Sales Corporation vs. < IT - 298 ITR 298 (SC). We observe that it has been demonstrated from the above material on record that the assessee was having sufficient interest free fund in the form of share capital and free reserves as against the investment made from wich exempt income was earned. After considering the decision of Hon’ble High Court in the case of CIT vs. Reliance Utilities Power Ltd, we consider that there was no merit in disallowing the interest expenses to the amount of Rs. 29,92,770/- out of the total disallowance made by the assessing officer of Rs. 40,77,207/-. However, we sustain the addition in respect of administrative expenditure to the amount of Rs. 10,84,437/- as computed by

I.T.A No. 450/Ahd/2017 A.Y. 2012-13 Page No 4 M/s. Madhu Silica Pvt. Ltd. vs. ACIT

the assessing officer under para 6 of the assessment order as investment cannot be made without incurring administrative and other expenses.. Accordingly, this appeal of the assesseee is partly allowed.

6.

In the result, the appeal of the assessee is partly allowed. Order pronounced in the open court on 18-02-2019

Sd/- Sd/- (MADHUMITA ROY) (AMARJIT SINGH) JUDICIAL MEMBER ACCOUNTANT MEMBER Ahmedabad : Dated 18/02/2019 आदेश क� ��त�ल�प अ�े�षत / Copy of Order Forwarded to:- 1. Assessee 2. Revenue 3. Concerned CIT 4. CIT (A) 5. DR, ITAT, Ahmedabad 6. Guard file. By order/आदेश से, उप/सहायक पंजीकार आयकर अपील�य अ�धकरण, अहमदाबाद

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