RAJRATAN GLOBAL WIRES LTD.,INDORE vs. ASSISTANT COMMISSIONER OF INCOME TAX CIRCLE 4(1), INDORE, INDORE

PER MANISH BORAD, AM.

This appeal of Assessee pertaining to A.Y. 2013-14 is directed

against the order of Ld. Commissioner of Income Tax(Appeals)-II,

Indore (in short ‘CIT(A)’), dated 20.07.2017 which is arising out of

the order u/s 143(3) of the Income Tax Act 1961(hereinafter called

as the ‘Act’) framed on 09.10.2015 by ACIT-4(1), Indore.

Rajratan Global Wire Ltd ITA No.589/Ind/2017 “1. That the learned Commissioner of Income Tax (A) erred in confirming the disallowance u/s 14A of the Act at Rs.11,26,876/- instead of revised claim of the appellant to restrict such disallowance at Rs.3,47,930/- only. He ought to have appreciated that legal claim can be raised during assessment as well appellate proceedings for the first time having a bearing on tax liability of the assessee. Such powers are inherent for determination of correct income as held by Supreme Court in the case of M/s. National Thermal Power Company Ltd Vs. CIT (1998) 229 ITR 383, provided such omission to raise it earlier was bonafide and not willful or unreasonable. 2. That the learned Commissioner of Income Tax (A) erred in not appreciating the fact that the judgment in the case of M/s. Goetze India Ltd 284 ITR 323 (Hon'ble Supreme Court) was not applicable to the facts of the case and deduction claimed to reduce the disallowance offered for tax u/s 14A of the Act while submitting the return was justified. Confirmation of disallowance is therefore, unjustified, improper and bad in law”

issues raised in this appeal are that the assessee is a limited

company engaged in the business of steel wire like tyre beed wires

PC SR wires etc. Income of Rs.9,59,39,870/- was declared in the e-

return filed on 2.11.2013. Case selected for scrutiny. Notices u/s

143(2) and 143(1) of the Act were duly served upon the assessee.

Necessary details as called for were filed. During the course of

assessment proceedings it was submitted on behalf of the assessee

Rajratan Global Wire Ltd ITA No.589/Ind/2017 that an excessive disallowance u/s 14A of the Act has been made at

Rs.7,79,112/-. It was contended that there was a mistake in

working out the disallowance u/s 14A of the Act r.w.s. Rule 8D of

I.T Rules by virtue of which an amount of Rs.11,27,042/- was

disallowed while computing the income. Thereafter it was revealed

that as the assessee had to invest Rs.4 crores in SBI Premier Liquid

Mutual Fund in the last week of the financial year for just 7 days

inadvertently disallowance u/s 14A of the Act was calculated for

the whole year by adding the alleged investment of Rs.4 crores as a

part of average investment. Revised working was furnished before

the assessing authority for considering the correct claim of

disallowance u/s 14A of the Act and reduce the disallowance to

Rs.3,47,930/-. However this contention of the assessee did not find

any favour from the Ld. A.O and he maintained the disallowance

u/s 14A at Rs.11,26,875/-. Ld.A.O also made an addition towards

valuation of closing stock by invoking the provisions of section 145A

of the Act at Rs.55,52,139/-.

both the issues relating to valuation of closing stock as well as

Rajratan Global Wire Ltd ITA No.589/Ind/2017 disallowance u/s 14A of the Act and partly succeeded as Ld.CIT(A)

gave no relief to the ground raised against the disallowance u/s 14A

of the Act. Ld.CIT(A) dismissed the assessee’s disallowance u/s 14A

of the Act observing as follows;

“5.2 I have carefully gone through the submissions made by the appellant. However, the facts remains that the Asstt. Commissioner of Income Tax had rejected the claim on the ground that disallowance was to be work out as per provisions of Rule 8D and deviation there from cannot be accepted because in the computation of income such disallowance was made as per Rule 8D only. He followed the judgment of M/s. Goetze Indian Ltd 284 ITR 323 (SC) wherein it was held that appellant cannot amend a return filed by him for making a claim for deduction other than by filing a revised return. Keeping in mind the decision of M/s. Goetze India Ltd (Supra), the contention of the appellant cannot be accepted. Accordingly, this addition is confirmed and this ground of appeal is dismissed.”

of disallowance of the addition made u/s 14A of the Act.

of assessment proceedings it was claimed that the company had

made investment in SBI Premier Liquid Mutual Fund of Rs.4.00

Crores on 27.03.2013 which was encashed immediately after the

close of the year on 04.04.2013 i.e. within 7 days only. Such

Rajratan Global Wire Ltd ITA No.589/Ind/2017 investment was made because the lender bank i.e. State Bank of

India insisted for the same. Thus, borrowed funds of Rs.4 crores

remained invested in Mutual Fund at the most for seven days only.

It was claimed that there being direct nexus of borrowed fund,

interest on Rs.4 crores at Rs.1,05,000/- only should have been

disallowed instead of applying the formula prescribed under Rule

8D. Revised calculation of amount disallowable u/s 14A of the Act

read with Rule 8D was submitted before the assessing authority

with a request to consider the claim at the stage of assessment

proceedings and reduce the disallowance to Rs.3,47,930/- only

instead of Rs.11,27,042/- offered for tax without considering

aforesaid fact. Reliance is placed on the judgment in the case of

Bharatiya Reserve Bank Note Mudran (P) Ltd Vs. DCIT, LTU

(2014)150 ITD 678 (Bangalore) wherein it was held that no

disallowance of interest could be made under section 14A where

investment was made by assessee on last day of relevant year.

judgment in the case of M/s. Goetze India Ltd 284 ITR 323 (SC) was

on a limited issue or revised claim by submitting a letter in the

Rajratan Global Wire Ltd ITA No.589/Ind/2017 nature of rectification. In that case, assessment proceedings were

not completed u/s 143(3) of the Act but the return filed on

30.11.1995 u/s 139 of the Act was sought to be revised by a letter

dated 12.01.1998 to the Assessing Officer by claiming deduction.

That during assessment as well appellate proceedings question can

be raised for the first time having a bearing on tax liability of the

assessee. Such powers are inherent for determination of correct

income as held by Supreme Court in the case of M/s. National

Thermal Power Company Ltd vs. CIT (1998) 229 ITR 383. It is

humbly submitted that the assessee is entitled to raise the issue for

the first time at any stage if the omission to raise it earlier was bona

fide and not willful or unreasonable.

orders of lower authorities.

placed before us. The grievance of the assessee relates to the

disallowance u/s 14A of the Act. In the income Tax return assessee

made suo-moto disallowance of Rs.11,27,042/- on the basis of

method provided in Rule 8D of IT rules. Subsequently during the 6

Rajratan Global Wire Ltd ITA No.589/Ind/2017 assessment proceedings it was submitted before the assessing

authority that the average investments appearing in the method

provided in Rule 8D of IT rules, the investment made in SBI Premier

Liquid Mutual Fund at Rs.4 crores has also been included which

was actually invested for 7 days and that too at the insistence of the

banker i.e. State Bank of India. It is not disputed that there is a

nexus of borrowed fund being applied for investment in SBI Premier

Liquid Mutual Fund of Rs. 4 crores but the interest disallowance

should have been limited only for number of days for which the

funds were used rather than being spread for the whole year

proportionately. There is no dispute at the end of both the parties

that the investment made in SBI Premier Liquid Mutual Fund was

made for only 7 days i.e. from 27.3.2013 to 4.4.2013 and that too at

the request of the assessee’s banker i.e. S.B.I. Ld. Counsel for the

assessee has also provided the working of the disallowance u/s 14A

of the Act as per the tax audit report as well as the revised claim in

view of the short term investment for 7 days in SBI Premier Liquid

Mutual Fund and the same is reproduced below;

Rajratan Global Wire Ltd ITA No.589/Ind/2017

Amount inadmissible u/s 14A read with Rule 8D = A*B/C+0.5% of Avg.

investment.

Particulars As per appellant based Revised claim of the on Tax Audit Report appellant A) Interest on Borrowed Fund Interest paid (net) Rs.5,97,16,375/- Rs.5,97,16,375/- B) Average Investment Rs.2,54,96,500/-* Rs. 54,96,500/- C) Average Assets Rs.1,52,34,82,589/- Rs.1,52,34,82,589/- D)Amount 59716375x25496500 59716375x2496500 Inadmissible 1523482589 1523482589 =Rs.9,99,393/- =Rs.2,15,448/- E)Add: 0.5% towards Rs.1,27,482/- Rs.27,482/- other exp of average investment TOTAL Rs.11,26,875/- Rs.2,42,930/- Add:Interest on Rs.4 - Rs.1,05,000/- crores invested in Mutual Fund on 27.03.2013 TOTAL Rs.11,26,875/- Rs.3,47,930/-

*At the instance of State Bank of India, the lender bank, the company invested an amount of Rs.4 crores in SBI Premier Liquid Mutual Fund on 27.03.2013 for short duration, which was encashed on 04.04.2013 i.e. within 7 days only. Therefore it was claimed that for calculation of average investment, Rs.4 crores invested on 27.03.2013 should not be considered and interest for 7 day on Rs.4 crores may be added for the purpose of disallowance u/s 14A which works out to Rs.1,05,000/-

14A of the Act and observe that an apparent mistake was pointed

out by the assessee during the course of assessment proceedings

itself before the Ld.A.O by way of providing the revised calculation

of the disallowance u/s 14A r.w.s.8D of the IT rules. It has been 8

Rajratan Global Wire Ltd ITA No.589/Ind/2017 consistently held in various judgments that during the course of

assessment proceedings if any new claim or a revised claim by way

of filing a revised computation of income or placing any material

facts on record, then the Assessing Officer is duty bound to assess

the correct income of the assessee on that basis. We place reliance

on the judgment of Hon'ble Apex Court in the case of National

Thermal Power Company Ltd (Supra). The claim of the assessee

cannot be set aside merely by taking the basis that the assessee

has suo-moto made disallowance in the income tax return. We

have perused the above working given by the counsel for the

assessee and are of the considered view that the same is correct

and interest disallowance on the alleged investment in SBI Premier

Liquid Mutual Fund should have been separately calculated at

Rs.1,05,000/- rather than making it a part of average investment

because the specific details of the nexus of interest bearing funds

to the investment in the alleged mutual fund are appearing on

record. We therefore hold that the disallowance made u/s 14A of

the Act r.w.s. 8D of IT rules should be restricted to Rs.3,47,930/-

only. In the result Ground No.1 of the assessee’s appeal is allowed.

Rajratan Global Wire Ltd ITA No.589/Ind/2017 11. As far as Ground No.2 is concerned we are of the view that

the case of M/s. Goetze India Ltd 284 ITR 323 (SC) will not be

applicable in the facts of the assessee because in the instant appeal

the issue is not related to filing of revised return. Rather in the

instant appeal the issue was related only to the correct calculation

of disallowance u/s 14A of the Act. It was duly submitted by the

assessee during the course of assessment proceedings but no

weightage was given by the assessing authority to said calculation.

Therefore Ground No.2 of the assessee is also allowed.

The order pronounced in the open Court on 18.10.2018.

Sd/- Sd/-

( KUL BHARAT) (MANISH BORAD) JUDICIAL MEMBER ACCOUNTANT MEMBER �दनांक /Dated : 18 October, 2018 /Dev

Copy to: The Appellant/Respondent/CIT concerned/CIT(A) concerned/ DR, ITAT, Indore/Guard file. By order Asstt.Registrar,I.T.A.T., Indore

Rajratan Global Wire Ltd ITA No.589/Ind/2017