GITANJALI CHEMICALS P. LTD,MUMBAI vs. DCIT 7(1)(1), MUMBAI

O R D E R Per G Manjunatha, Accountant Member

This appeal filed by the assessee is directed against order of the CIT(A)-13, Mumbai, dated 27.10.2016, and it pertains to assessment year 2012-13. The assessee has raised following grounds of appeal:-

“1) On the facts and circumstances of the case and in law, the authorities below have erred in passing an ex-parte order without affording opportunity of being heard in the matter and thus denying the natural justice in the matter.

2) On the facts and circumstances of the case and in law, the authorities below have erred in confirming the addition of a sum of Rs 2,63,283/- being the interest granted to the appellant on refund for A.Y. 2010-2011 but adjusted against the other demands outstanding at the relevant time. The appellant has however offered the said amount of interest along with other interests and refunds for various assessment years granted together to the appellant in A.Y. 2014-2015. Thus this addition of interest is said to be doubly taxed which is not in accordance with the provisions of Income Tax Act 1961 and rules made there under.

3) On the facts and circumstances of the case and in law, the authorities below has erred in sustaining/disallowing a sum of Rs. 64,6977- u/s 14A r.w.r 8D of the I T Act when the appellant had invested in shares and securities from out of own funds. Thus such addition is not in accordance with the provisions of Income Tax Act 1961 and rules made there under.

4) On the facts and circumstances of the case and in law, the authorities below has erred in initiating the penalty proceedings u/s 271(l)(c) of the Income Tax Act, when the appellant has not furnished any inaccurate particulars of its income nor concealed any income. Thus such initiation of penalty proceedings are no in accordance with the provisions of Income Tax Act 1961 and rules made there under. 5) The appellant craves leave to add, alter, modify and delete all or any of the aforesaid grounds of appeal s on or before the date of hearing.”

2. The facts of the case are that the assessee company filed its return of income for A.Y. 2012-13 on 20.09.2012, declaring total income of ` 1,61,07,876/-. The case was selected for scrutiny and notices 143(2) and 142(1) were issued. In response to said notices, the Authorized Representative (AR) of the assessee appeared from time to time and filed the details as called for. The assessment was completed u/s. 143(3) on 28.01.2015, determining the income at ` 1,64,37,700/- by making the additions towards interest received on Income tax refunds ` 2,63,283/-, which was not considered by the assessee in its books of account and ` 64,697/- was disallowed u/s. 14A read with Rule 8D(2)(iii) of Income tax Rules, 1962.

3. Aggrieved by the assessment order, the assessee preferred appeal before the CIT(A). Before the CIT(A) the assessee neither appeared nor filed any details to justify its case. The CIT(A) for the detailed reasons recorded in his order dated 27.10.2016 confirmed the additions made by the Assessing Officer towards interest received on Income tax refunds and disallowance of expenses incurred in relation to exempt income. Aggrieved by the order of the CIT(A), the assessee is in appeal before us.

4. The first issue that came up for consideration is addition towards interest received on income tax refund of ` 2,63,283/-. The Assessing Officer made the addition of ` 2,63,283/- on the ground that though interest on income tax refund has accrued during A.Y. 2012-13, the assessee has failed to admit such interest in its books of account for the relevant assessment year. It is the contention of the assessee that interest on income tax refund is accrued for A.Y. 2014-15, which is evident from the fact that the refund due for earlier years has been processed vide Income tax refund order dated 28.10.2016, which falls within the financial year relevant to A.Y. 2014-15 and hence it has rightly accounted interest received on income tax refund for A.Y. 2014 -15. Therefore, the Assessing Officer was incorrect in making the additions.

5. Having heard both the sides and considered the material on record, we find merit in the arguments of the assessee for the reason that on perusal of details filed by the assessee in the form of income tax refund orders, it is very clear that the department has processed refund due to the assessee for A.Y. 2005-06, 2007-08, 2008-09 and 2010-11 on 28.10.2013 and 16.11.2013. Consequently, the assessee has credited interest received on income tax refund in its books of account for A.Y. 2014-15 and offered to tax. The Assessing Officer without appreciating the facts that such refunds have been processed only in A.Y. 2014-15 made addition of ` 2,63,283/-. Therefore, we are of the considered view that the Assessing Officer has erred in making the addition of ` 2,63,283/- in A.Y. 2012-13. However, the facts are not clear whether the assessee has offered such interest received on income tax refund to tax in the financial year relevant to A.Y. 2014-15. Therefore, we set aside the issue to the file of the Assessing Officer for the limited purpose of verification whether the assessee has offered such interest in the financial year relevant to A.Y. 2014-15. If the Assessing Officer finds that the assessee has offered the interest income in the financial year relevant to A.Y. 2014-15, then the Assessing Officer is directed to delete the addition made towards interest on income tax refund in the impugned assessment year.

6. The next issue that came up for consideration is disallowance of expenditure in relation to exempt income. The Assessing Officer disallowed 0.5% of average value of investments in respect of expenses incurred in relation to exempt income under section 14A read with Rule 8D(2)(iii) of the I.T.Rules 1962. It is the contention of the assessee that its investments are covered by its own interest free funds therefore, there is no reason for the Assessing Officer to disallow interest expenditure and other expenditure by invoking the provisions of section 14A read with Rule 8D(2)(iii) of the I.T.Rules 1962. The assessee further contended that it has not incurred any expenditure which is directly attributable to earning of exempt income.

7. Having heard both the sides and considered the material on record, we do not find any merits in the arguments of the assessee for the reason that disallowance contemplated u/s. 14A shall be worked out under the prescribed rules as per which the Assessing Officer needs to work out disallowance of expenditure in relation to exempt income @ 0.5% of average value of investments. In this case, the Assessing Officer has disallowed other expenses under Rule 8D(2)(iii). The assessee has failed to produce any evidence to justify that it does not incur any expenses in relation to exempt income. Therefore, we are of the considered view that the Assessing Officer was right in disallowing expenditure by invoking the provisions of section 14A read with Rule 8D(2)(iii). The CIT(A) after considering the relevant facts has rightly upheld the additions made by the Assessing Officer. We do not find any error or infirmity in the order of the CIT(A). We, therefore, are inclined to confirm the order of the CIT(A) on the issue.

Order pronounced in the open court on this day of 18th May 2018.