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Income Tax Appellate Tribunal, “B”, BENCH KOLKATA
Before: SHRI S.S.GODARA, JM &DR. A.L.SAINI, AM
आदेश / O R D E R Per Bench:
The captioned appeal filed by the assessee , pertaining to assessment year 2013-14, is directed against the order passed by the Commissioner of Income Tax (Appeal)-2, Kolkata in appeal no. 10081/CIT(A)-2/16-17, which in turn arises out of an assessment order passed by the Assessing Officer u/s 143(3) of the Income Tax Act, 1961 (in short the “Act”) dated 17/03/2016.
The grounds of appeal raised by the assessee are as follows:
1. For that on the facts and in the circumstances of the case, the ld. CIT(A) was unjustified in law and on facts in setting aside the disallowance as per Rule 8D(2)(ii) to the file of Assessing Officer even though it was demonstrated before the lower authorities that the appellant’s net own Hindusthan National Glass & Industries Ltd. Hindusthan National Glass & Industries Ltd. Year: Assessment Year:2013-14 funds in the form of capital & free reserves were much higher than the funds in the form of capital & free reserves were much higher than the funds in the form of capital & free reserves were much higher than the investments in shares. investments in shares.
2. For that on the facts and in the circumstances 2. For that on the facts and in the circumstances of the case, the ld. CIT(A) of the case, the ld. CIT(A) ought not to have restored the issue of quantification of disallowance under ought not to have restored the issue of quantification of disallowance under ought not to have restored the issue of quantification of disallowance under Rule 8D(2)(ii) in respect of interest paid to the A.O’s file when in the Rule 8D(2)(ii) in respect of interest paid to the A.O’s file when in the Rule 8D(2)(ii) in respect of interest paid to the A.O’s file when in the preceding and subsequent assessment years the appellate authorities, preceding and subsequent assessment years the appellate authorities, preceding and subsequent assessment years the appellate authorities, following the binding decision of the Calcutta High Court in the case of g the binding decision of the Calcutta High Court in the case of g the binding decision of the Calcutta High Court in the case of Rasoi Limited, had held that no interest was disallowable u/s 14A since Rasoi Limited, had held that no interest was disallowable u/s 14A since Rasoi Limited, had held that no interest was disallowable u/s 14A since appellant’s own funds were more than sufficient to meet the cost of appellant’s own funds were more than sufficient to meet the cost of appellant’s own funds were more than sufficient to meet the cost of investment.
3. For that the appellant craves leave 3. For that the appellant craves leave to submit additional grounds and/or to submit additional grounds and/or amend or alter the grounds already taken either at the time of hearing of amend or alter the grounds already taken either at the time of hearing of amend or alter the grounds already taken either at the time of hearing of the appeal or before. the appeal or before.
Brief facts qua the issue are that the assessee company filed its return of income 3. Brief facts qua the issue are that the assessee company filed its return of income 3. Brief facts qua the issue are that the assessee company filed its return of income on 29.09.2013 declaring total loss on 29.09.2013 declaring total loss to the tune of Rs. 663,99,40,209/ to the tune of Rs. 663,99,40,209/-. During the financial year, the assessee company engaged in the business of manufacturing financial year, the assessee company engaged in the business of manufacturing financial year, the assessee company engaged in the business of manufacturing and selling of Glass Bottles & containers, printing of bottles, manufacturing of and selling of Glass Bottles & containers, printing of bottles, manufacturing of and selling of Glass Bottles & containers, printing of bottles, manufacturing of casting and power generation. The assessee’s case casting and power generation. The assessee’s case was selected for scrutiny u/s was selected for scrutiny u/s 143(2) of the Act and the Assessing Officer computed the addition u/s 143(3) of 143(2) of the Act and the Assessing Officer computed the addition u/s 143(3) of 143(2) of the Act and the Assessing Officer computed the addition u/s 143(3) of the Act by making disallowance u/s 14A read with Rule 8D as follows: the Act by making disallowance u/s 14A read with Rule 8D as follows: the Act by making disallowance u/s 14A read with Rule 8D as follows:
3. Aggrieved by the addition made by the Assessing Officer the assessee carried the addition made by the Assessing Officer the assessee carried the addition made by the Assessing Officer the assessee carried the matter in appeal before the ld. CIT(A) who has allowed the appeal the matter in appeal before the ld. CIT(A) who has allowed the appeal the matter in appeal before the ld. CIT(A) who has allowed the appeal of the assessee for statistical purposes observing the following: assessee for statistical purposes observing the following:
“I have considered the grounds of appeal, statement of “I have considered the grounds of appeal, statement of facts and circumstances of facts and circumstances of the authorized representative of the appellate company as well as the order of the the authorized representative of the appellate company as well as the order of the the authorized representative of the appellate company as well as the order of the Assessing Officer framed in the light of the materials available on record before Assessing Officer framed in the light of the materials available on record before Assessing Officer framed in the light of the materials available on record before the Assessing Officer during the assessment proceedings. the Assessing Officer during the assessment proceedings. The AR The AR of the appellate Page | 2
Hindusthan National Glass & Industries Ltd. Assessment Year:2013-14 has submitted 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. The Interest: Expenditure was directly attributable to the business activities of the appellant and therefore no portion of interest attributable to investments/ securities. The appellant further submits that the interest expenses of Rs.20066.77 lacs pertains to interest paid to banks & financial institutions for obtaining term loans, cash credit facilities, working capital limits, packing other related export credits etc. It is submitted that all these loans were secured against the fixed assets and working capital comprising of stock, sundry debtors etc. The appellant submits that these secured loans was obtained for specific business purposes and also utilized thereof only. In the circumstances it would be appreciated that none of the interest costs incurred on these loan funds were in connection with the investments or purchase of shares made by the appellant. As regards to disallowance under rule 8D (iii), the AR of the appellate has submitted that the disallowance under Section 14A in terms of formula laid down in Rule 8D should be computed with reference to the “dividend yielding" investments. As regards to disallowance of the Interest under rule 8D(ii) the AR of the appellate before the AO as well as me had stated that the secured loans were obtained by the appellant for specified business purposes. 1 find that the interest expenses pertain to interest paid to banks & financial institutions for obtaining term loans, cash credit facilities, working capital limits, packing other related export credits etc. The all these loans were secured against the fixed assets and working capital comprising of stock, sundry debtors etc. These secured loans were obtained for specific business purposes and also utilized thereof only and none of the interest costs incurred on these loan funds were in connection with the investments or purchase of shares made by the appellant. Attention in this regard is made to the decision of the Kolkata Bench of Income- tax Appellate Tribunal in the case of ITO Vs Narain Prasad Dalmia (ITA No. 1180/Kol/2011) dated 27.01.2014. In the decided case the ITAT held that Rule 8D(2)(ii) is very clear that the expenditure on account of payment of interest would be covered in the said Rule only if it is not directly attributable to any particular income or receipt. The ITAT therefore held that if the assessee is able to demonstrate that the payment of interest is directly attributable to the assessee's business then it cannot be considered under Rule 8D (2) (ii) of the I.T. Rules. Similar view was also expressed by the Chennai Bench of Income-tax Appellate Tribunal in the case of ACIT Vs Best & Crompton Engineering Ltd (ITA No. 1603/Mds/2012) dated 16.07.2013 wherein the Tribunal categorically held that if loans have been sanctioned for specific projects/ business purposes and have been utilized towards the same, then obviously they could not have been utilized for making any investments capable of yielding tax-free income and it therefore has to be excluded from the calculation to determine the disallowance under Rule 8D(2)(ii). In both the above decisions the coordinate Benches referred to the decision of Kolkata Bench of ITAT in the case of ACIT Vs Champion Commercial Limited (139 ITD 108) wherein it was observed that Section 14A of the Income-tax Act, 1961 recognizes two categories of income which are mutually exclusive viz. 'tax exempt income' and 'taxable income'. Accordingly, while allocating interest Page | 3
Hindusthan National Glass & Industries Ltd. Assessment Year:2013-14 amongst these two categories, interest which is directly relatable to 'taxable income' is to be excluded from the purview of the disallowance & interest which is directly relatable to ‘exempt income' has to be entirely disallowed under Section 14A. It is only the remaining common interest which does not relate to any specific category of income can only be apportioned and accordingly be disallowed under Section 14A read with Rule 8D(2)(ii). The Tribunal while arriving at this conclusion referred to the Bombay High Court in the case of Godrej & Boyce Mfg Co Ltd (supra) wherein it was in principle accepted that only the remaining interest/expenditure which cannot be identified or allocated to any specific asset/purpose shall be disallowed under Rule 8D(2)(ii) & (iii). In view of above, the appellant shall furnish before the AO the details in the matter. The AO is also directed to verify the same and accordingly re-compute the disallowance u/s 14A r.w. Rule 8D. The AO shall allow the appellant an opportunity of hearing before passing any order in this regard. This ground is therefore allowed for statistical purposes. As regards to disallowance of ihe expenses under rule 8D (iii) Hon'ble jurisdictional ITAT in the case of RE1 Agro Ltd. vs. DC1T (144 ITD 141) has held that only the investments which actually yield exempt income has to be considered for the purposes of application of Rule 8D(2)(iii). The ITAT held that the investments which did not yield any tax-free income in the relevant year were not required to be considered for the purposes of application of Rule 8D. Keeping in view, of above and by following the judgement of Hon'ble jurisdictional ITAT, the AO is directed to recalculate the disallowance of those shares, which has yielded dividend income while taking the investment. In view of above, the appellant shall furnish before the AO the details in the matter. The AO is also directed to verify the same and accordingly re-compute the disallowance u/s 14A r.w. Rule 8D. The AO shall allow the appellant an opportunity of hearing before passing any order in this regard. This ground is therefore allowed for statistical purposes.”
Aggrieved by the order of the ld. CIT(A), the assessee is in appeal before us.
The ld. Counsel for the assessee relied on the submissions made before the authorities below on the other hand, the ld. DR has primarily reiterated the stand taken by the Assessing Officer which we have already noted in our earlier para and the same is not being repeated for the sake of brevity.
We heard both the parties and carefully gone through the submission put forth on behalf of the assessee along with the documents furnished and the case laws relied upon, and perused the fact of the case including the findings of the ld CIT(A) and other materials available on record. We note that the assessee is in appeal before us against the disallowance under Rule 8D(2)(ii) read with Section Page | 4
Hindusthan National Glass & Industries Ltd. Assessment Year:2013-14 14A of the Act. The ld. Counsel for the assessee submitted before us the Balance sheet of the assessee company as on 31.03.2013. On perusal of Balance sheet, we noticed that own funds of the assessee company is Rs. 1,15,771/- lakhs, which is more than the investments in shares and securities to the tune of Rs. 18,089/- lakhs. Since Company’s net owned funds in the form of equity capital and free reserves were substantially more than the cost of share investment, yielding dividend income, no part of the interest paid is disallowable because borrowed funds were not used for acquiring shares. For that we rely on the judgment of the Hon’ble Calcutta High Court decision in the case of CIT vs HDFC Bank Ltd. [49 taxmann.com 335).
Therefore, the disallowance under Rule 8D(2)(ii) read with Section 14A is not attracted in assessee’s case hence we direct the Assessing Officer to delete the disallowance under Rule 8D(2)(ii) of the IT Rules.
In the result, the appeal of the assessee is allowed.
Order pronounced in the Court on 31.12.2019