ADDL CIT RG 4(2), MUMBAI vs. MUTHA FOUNDERS P.LTD, MUMBAI
What did the Tribunal hold?
The Tribunal held that no disallowance under Section 14A was required as the assessee had sufficient non-interest bearing funds. Regarding purchases from related parties, the Tribunal upheld the CIT(A)'s deletion, noting it was covered by previous decisions in the assessee's own case.
What were the facts?
The assessee claimed expenses to earn exempt income, and the Assessing Officer disallowed a portion. The revenue also disallowed purchases from related parties, alleging inflated prices. The CIT(A) deleted both disallowances.
What were the issues?
Whether expenses incurred to earn exempt income are disallowable when sufficient own funds are available, and whether purchases from related parties were at inflated prices.
Which sections of the Income-tax Act were involved?
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- CIT v. Reliance Utilities & Power Ltd.2,118 citing313 ITR 340 · 2009 · HC
Income Tax Appellate Tribunal, “B” BENCH, MUMBAI
Before: SHRI G.S.PANNU, AM & SHRI AMARJIT SINGH, JM
Heard together (2 matters)
Read from the judgment's own cause title. This page is filed under one of them.
Assessee by: Shri G. P. Mehta Department by: Shri M. Rajan सुनवाईकीतारीख / Date of Hearing:26.09.2016 घोषणाकीतारीख /Date of Pronouncement:25.01.2017 आदेश / O R D E R PER AMARJIT SINGH, JM: &2270/M/12 A.Y. 2008-09 The assessee as well as revenue have filed the above mentioned appeal against the order dated 17.01.2012 passed by the Commissioner of Income Tax (Appeals)8, Mumbai [hereinafter referred to as the “CIT(A)”] relevant to the assessment year 2008-09. Since the parties are the same and the assessment year is also the same, therefore, both the appeals are being taken up together for adjudication for the sake of convenience.
ITA NO.2385/MUM/2012:-
The assessee has raised the following grounds:-
“1. The orders passed by the learned lower authorities are bad in law and in facts.
2. The learned lower authorities have grossly erred in disallowing a sum of Rs.10,81,498/- out of the expenses claimed by recourse to section 14A of the I.T.Act, 1961. Reasons given for the impugned disallowance are contrary to the facts on record, provisions of law and judicial precedents.
The learned lower authorized have grossly erred in making impugned disallowance of Rs.10,81,498/- in clear disregard of the mandatory requirements of sec.14A(2) of the I. T. Act, 1961, inasmuch as, no satisfaction with regard to disallowance with regard to disallowance was recorded prior to making of said disallowance.
3. The brief facts of the case are that the assessee filed the return of income on 30.09.2008 declaring total income to the tune of Rs.2,42,43,437/- for the A.Y.2008-09. The return was processed u/s.143(1) of the Income Tax Act, 1961( in short “the Act”). The case A.Y. 2008-09 was taken up for scrutiny, therefore, the statutory notice u/s.143(2) of the Act was issued on 29.09.2009. Subsequently, the case was assigned to the present charge vide order of CIT-4 bearing No. CIT- 4/Scrutiny cases / 2010-11 dated 31.08.2010. Thereafter, notice u/s.142(1) of the Act dated 06.09.2010 was issued and duly served upon the assessee. The assessee company is engaged in the business of manufacturing and selling of various types of raw material, castings, cylinder blocks, automobile parts and spare, engine parts. The Assessing Officer disallowed the purchase finding difference from the market to the extent of 10% of the total purchase and disallowed an amount of Rs.9,19,83,863/-. The Assessing Officer also disallowed the expenditure to earn the exempt income to the tune Rs.10,81,498/- and assessed the total income to the tune of Rs.3,44,98,070/-. Thereafter, the assessee filed an appeal before the CIT(A) who accepted the purchases, therefore, the revenue has filed the present appeal before us. ISSUE NO. 1 TO 3:- 4. Issue no.1 to 3 are interconnected, therefore are being taken up together for adjudication. Under these issue the assessee has raised the sole point in connection with the disallowance of expenditure to the tune of Rs.10,81,498/- to earn the exempt income in view of the section 14A of the Act. The learned representative of the assessee has argued that the total investment in share and security for the relevant A.Y. 2008-09 assessment year was Rs.22,32,976/- as against the total paid up capital was to the tune of Rs.43,52,400/-, free reserved and surplus was Rs.2,09,58,411/- and accumulated profit in profit and loss account was Rs.4,85,77,294/-, therefore total non interest bearing funds was available with the appellant company to the tune of Rs.7,38,88,105/-, hence in view of the law settled in the decision of Hon’ble Bombay High Court in the case of CIT Vs. Reliance Utilities & Power Ltd., 313 ITR 340, no disallowance is required u/s.14A of the Act. On the other hand, the learned representative of the department has relied upon the order passed by the CIT(A) in question. It is not in dispute that the dividend income is to the tune of Rs.25,254/- whereas disallowance u/s.14A of the Act has been made to the tune of Rs.10,81,498/-. No disallowance more than the dividend income is required in accordance with law. In the instant case non interest bearing funds is available to the tune of Rs.7,38,88,105/-. In view of the law settled in the decision of Hon’ble Bombay High Court in the case of CIT Vs. Reliance Utilities & Power Ltd., 313 ITR 340, it is specifically held that if there were funds available both interest free and interest bearing then presumption would arise that interest free funds have been generated for investments. Therefore, the interest could not have been disallowed u/s.14A of the Act. Moreover, it also came into notice that the exempt income was not claimed by the assessee. Anyhow in view of the above mentioned law we are of the view that the assessee was having A.Y. 2008-09 non interest bearing funds more than the investment, therefore, the provision u/s.14A of the Act is not applicable to the case of the assessee, accordingly we set aside the finding of the CIT(A) on this issue and claim of the assessee is hereby allowed. Accordingly, all the issues are decided in favour of the assessee against the revenue.
The revenue has raised the following grounds:- “
1. On the facts and in the circumstances of the case and in law, the Ld. CIT(A) erred in deleting the addition of Rs.91,98,386/- u/s.40A(2)(b) when the purchases from related parties are made at inflated price.
2. On the facts and in the circumstances of the case, the impugned order of the Ld. CIT(A) is contrary to law to be set aside and that of the Assessing Officer be restored.
The facts of the present case are quite similar to the facts of the above mentioned case. In appeal the revenue has raised the above said ground wherein the CIT(A) has deleted the addition to the tune of Rs.91,98,386/- u/s.40A(2)(b) of the Act. ISSUE NO.1 & 2:- 6. Under these issues the revenue has challenged the deletion of addition of Rs.91,98,386/- u/s.40A(2)(b) of the Act. Before going further it is necessary to advert the finding of the CIT(A) on this issue:- A.Y. 2008-09 “3.12 I have considered the contention of the AO as well as of the Ld. AR. From the submissions and details filed, I find that the appellant could explain the reasons of purchases of goods from the sister / associate concerns. The appellant is in the business of manufacture of spare parts suitable for certain auto vehicles manufactured by different parties. These spare parts are specialty parts and are not generally available in the open market, in the sense that specification, design, process, size and quality of material differ for each auto vehicle and same are required tobe produced as per purchaser’s specifications. The appellant has not purchased these goods from any unrelated party and hence, there are no comparable figures available. In the absence of comparable figures, it is difficult to hold that the appellant has paid higher prices for the goods purchased from the related parties. 3.13 It is also seen, that most of the related parties from whom large purchases are made, are also paying income tax at the same rate of 30% which is applicable in the appellant’s case as well. Copies of relevant acknowledgments of return of income of related parties has also been filed. Thus, the finding of the Assessing A.Y. 2008-09
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