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Income Tax Appellate Tribunal, KOLKATA BENCH “C” KOLKATA
Before: Shri N.V.Vasudevan & Shri Waseem Ahmed
आदेश /O R D E R
PER Waseem Ahmed, Accountant Member:-
Both appeal by the Revenue are directed against the different orders of Commissioner of Income Tax (Appeals)-IV, Kolkata of even dated i.e. 11.08.2014. Assessments were framed by DCIT, Circle-4, Kolkata u/s 143(3) of the Income Tax Act, 1961 (hereinafter referred to as ‘the Act’) vide their orders dated 26.03.2013 & 04.12.2013 for assessment years 2010-11 & 2011- 12 respectively. Shri Gouten Hangshing & Md. Ghayas Uddin, Ld. Departmental Representatives represented on behalf of Revenue and Shri B.K. Chaturvedi, Ld. Authorized Representative appeared on behalf of assessee.
ITA No.2009-2010/Kol/2014 A.Ys. 2010-11 & 201-12 DCIT Cir-4 Kol. Vs. M/s Jay Shree Tea & Inds. Ltd. Page 2 2. Both the appeals are heard together and are being disposed of by way of a consolidated order for the sake of convenience. First we take up for A.Y. 10-11.
First issue raised by Revenue in this appeal is that Ld. CIT(A) erred in deleting the addition made by the Assessing Officer for ₹59,75,517/- under the provision of Sec. 14A r.w.r Rule-8D of IT Rules, 1962.
Briefly stated facts are that assessee is a limited company and engaged in production of green leaf and manufacturing of tea, chemicals and fertilizers etc. The assessee in the year under consideration has disallowed a sum of ₹45,15,400/- under the provision of Sec. 14A r.w.s. Rule 8D of the IT Rules. During the course of assessment proceedings, Assessing Officer observed that assessee has not made any disallowance on account of interest expense. Thus, AO worked out the disallowance of the interest as per the provision of Rule8D(2)(ii) which comes out for ₹59,75,517/- and the impugned amount of interest was disallowed and added to the total income of assessee.
Aggrieved, assessee preferred an appeal before Ld. CIT(A). The assessee before Ld CIT(A) submitted that no borrowed fund has been utilized in the impugned investment as there was sufficient own fund available with it. Ld. CIT(A) after considering the submission of assessee deleted the addition made by AO by observing as under:- “3.1 I have examined the Assessment Order and the written submission made by the AR of the appellant. The appellant has submitted its Balance Sheet and P&L A/c. for the year under review from where it is evident that the appellant was having sufficient reserve i.e. Rs.152.41 crores as on 31.03.2009 and Rs.206.67 crores as on 31.03.2010 whereas total investment as on 01.04.2009 was Rs.100.71 crores and on 31.03.2010 was Rs.84.85 crores. From the above facts it is clear that there is considerable force in the argument advanced by the appellant that the investment was made out of own fund and not form the borrowed fund. Therefore, the question of disallowance of proportionate interest under rule 8D(2)(ii) does not arise.”
The Revenue, being aggrieved, is in appeal before us on the following ground:- -
2010/Kol/2014 A.Ys. 2010-11 & 201
12. DCIT Cir
4. Kol. Vs. M/s Jay Shree Tea & Inds. Ltd. Page 3 “i) On the facts and circumstances of the case and also in law, the Ld. CIT(A) has erred in deleting the addition of Rs.5975517/- as disallowance made u/s. 14A r.w.r 8D overlooking the fact that the same was made in accordance with the provisions of IT Act, 1961.”
The Ld. DR submitted that it is the duty of the assessee to justify on the basis of documentary evidence whether own fund was utilized in making the investment in securities. Ld. DR in support of his claim has relied in the order of Hon'ble jurisdictional High Court in the case of Dhunka and Sons reported in 12 taxman 227. The ld. DR relied in the order of AO. On the other hand, the Ld. AR for the assessee submitted that there was sufficient own fund available with the assessee for making the investment in the securities. Therefore, there is no question of making disallowance on account of interest expense. The ld. AR vehemently supported the order of ld. CIT(A).
We have heard rival contentions of both the parties and perused and carefully considered the material on record; including the judicial pronouncements cited and placed reliance upon. At the outset, we find that issue raised by Revenue is covered in assessee’s own case in for A.Y. 2009-10 dated 03.02.2017, the relevant extract of order is reproduced below:- “It is observed that a similar disallowance on account of proportionate interest expenditure by applying Rule 8D(2)(ii) was made in assessee’s case for A.Y. 2008-09 and the order of the ld. CIT(Appeals) deleting the said disallowance was upheld by the Tribunal vide its order dated 13.07.2016 passed in ITA No. 2773/KOL/2013 for the following reasons given in paragraphs no. 6 & 7 of its order:- “6. We have heard the rival submissions and perused the materials available on record. The facts stated hereinabove remain undisputed and hence the same are not reiterated for the sake of brevity. Admittedly the disallowance u/s 14A to the tune of Rs.92,89,825/- have been made by the ld. AO by invoking the provisions of Rule 8D(2)(ii) of the Rules. We find that the assessee company is having share capital of Rs.10.67 crores and sufficient free reserves of Rs.123.67 crores as on 31.3.2007 and Rs.137.99 crores as on 31.3.2008, but whereas the total investments as on 1.4.2007 was ITA No.2009-2010/Kol/2014 A.Ys. 2010-11 & 201-12 DCIT Cir-4 Kol. Vs. M/s Jay Shree Tea & Inds. Ltd. Page 4 Rs.105.86 crores and as on 31.3.2008 was Rs.94.68 crores. We find that the ld. CIT(A) had given relief after going through the copy of the agreement of consortium of the banks and sanction letters of the banks submitted by the assessee that the loan was sanctioned for the purpose of working capital and purchase of fixed assets. We hold that the assessee has got sufficient own funds to make the investments and when that point is not in dispute, no disallowance could be made u/s 14A of the Act read with Rule 8D(2)(ii) of the Rules. Reliance in this regard is placed on the following decisions:-
CIT-vs.- Reliance Utilities & Power ltd. reported in 313 ITR 340 (Bom.) Interest on borrowed capital- investments by assessee- finding that investments were from interest free funds available with assessee-borrowed capital for the purposes of business-interest deductible under Income Tax Act u/s 36(1)(iii).
G.D. Metsteel Pvt. Ltd. –vs.- ACIT reported in 142 TTJ 641 (Mumbai Tribunal) Held that the investments are made by the assessee’s own funds and have been made in the earlier years, no disallowance u/s 14A is required to be made. The Head Note reads as under:- “Business expenditure-Disallowance under section 14A-Apportionment of expenditure- When investments are made from own funds, merely because the assessee had to subsequently borrow the funds for business use, it cannot be said that the borrowed funds have been used for the purposes of investments”.
CIT –vs.- HDFC Bank Ltd reported in 366 ITR 505 (Bom.) Held, dismissing the appeal, (i) that the finding of fact given by the Tribunal was that the assessee’s own funds and other non-interest bearing funds were more than the investment in the tax-free securities. This factual position was not one that was disputed. Undisputedly, the assessee’s capital, profit reserves, surplus and current account deposits were higher than the investment in the tax free securities. In view of this factual position, it would have to be presumed that the investment made by the assessee would be out of the interest free funds available with the assessee.
6.1. Similar views were expressed in the following decisions:-
-2010/Kol/2014 A.Ys. 2010-11 & 201-12 DCIT Cir-4 Kol. Vs. M/s Jay Shree Tea & Inds. Ltd. Page 5 Woolcombers of India Ltd. –vs.- CIT reported in 134 ITR 219 (Cal.) East India Pharmaceuticals Works Ltd. –vs.- CIT reported in (1997) 224 ITR 627 (SC). 6.2. We find that though the decision in the case of Reliance Utilities power Ltd. was rendered in the context of allowability of interest u/s 36(1)(iii) of the Act, the analogy drawn thereon would apply with equal force for adjudicating the issue of disallowance u/s 14A of the Act. We also find that the Hon’ble Bombay High Court in the case of CIT –vs.- HDFC Bank Ltd. reported in 366 ITR 505 (Bom.) had also held the same view.
7. In view of the aforesaid facts and findings and respectfully following the judicial precedents relied upon hereinabove, we hold that the ld. CIT(A) had rightly deleted the disallowance u/s 14A of the Act in the facts and circumstances of the case to the tune of Rs.92,89,825/-. Accordingly, the ground no. 1 raised by the revenue is dismissed”. As the issue involved in the year under consideration as well as all the material facts relevant thereto are similar to that of A.Y. 2008-09, we respectfully follow the decision of the Coordinate Bench rendered in A.Y. 2008-09 and uphold the impugned order of the ld. CIT(Appeals) deleting the disallowance made by the Assessing Officer on account of proportionate interest under Rule 8D(2)(ii). Ground No. 1 of the Revenue’s appeal is accordingly dismissed.”
Respectfully following the decision of co-ordinate Bench in assessee’s own case (supra) as there was no change in the facts of the case. We uphold the impugned order of the Ld. CIT(A). Hence, AO is directed accordingly. This ground of Revenue’s appeal is dismissed.
Next issue raised by Revenue in this appeal is that Ld. CIT(A) erred in deleting the addition made by the AO for ₹1,77,41,778/- on account of cess paid on green tea leaf.
At the outset, we find that similar issue is decided by this co-ordinate Bench of this Tribunal in assessee’s own case in for A.Y. 2008-09 dated 08.02.2013 wherein the necessary observation in respect of the issue involved as under:-
ITA No.2009-2010/Kol/2014 A.Ys. 2010-11 & 201-12 DCIT Cir-4 Kol. Vs. M/s Jay Shree Tea & Inds. Ltd. Page 6 “4. Ld. CIT (DR) stated that this issue is covered in favour of the assessee in assessee’s own case in for AY 2006-07 following the judgment of Hon'ble Calcutta High Court in the case of AFT Industries Ltd. Vs. CIT (2004) 270 ITR 167 but he placed reliance on assessment order. We find that the issue is as regards to disallowance of cess on green tea leaf. We find that the identical issue is covered by the judgment Hon'ble Calcutta High Court in the case of AFT Industries Ltd. (supra) and also we have a coordinate bench decision in assessee’s own case for AY 2006-07, wherein similar disallowance was deleted. Hence, we dismiss this issue of revenue’s appeal as a covered matter.”
Taking a consistent view of co-ordinate Bench in assessee’s own case, we uphold the order of Ld. CIT(A) and this ground of Revenue’s appeal is dismissed.
Next issue raised by Revenue in this appeal is that Ld. CIT(A) erred in deleting the addition made by the AO for ₹37.50 lakh on account of interest on sticky loan.
At the outset, we find that similar issue is decided by this co-ordinate Bench of this Tribunal in assessee’s own case in for A.Y. 2008-09 dated 08.02.2013 wherein the necessary observation in respect of the issue involved as under:- “5. The second issue in this appeal of revenue is as regards to the order of CIT(A) deleting the disallowance on account of notional interest on sticky loans. For this, revenue has raised following ground no.2: ‘2. That on the facts and circumstances of the case, Ld. CIT(A) erred in law in deleting the disallowance of Rs.36,25,000/- on account of notional interest on sticky loan not accounted for though the AO has added it back on the basis of note on account of 24D of the Annual report.’
6. The Ld. CIT(DR) has stated that this issue is also covered in assessee’s own case by Tribunal’s decision in ITA No.2248/K/2010 for AY 2006-07 but he placed reliance on assessment order. We have gone through the Tribunal’s decision as well as the order of CIT(A) for this assessment year and find that this issue is covered in favour of assessee and based on that the addition is deleted. Taking a consistent view, we confirm the order of CIT(A) on this issue and revenue’s ground of appeal is dismissed.”
In the background of the above discussions and precedent and respectfully following the decision of the co-ordinate Bench in assessee’s own case A.Ys. 2010-11 & 201-12 DCIT Cir-4 Kol. Vs. M/s Jay Shree Tea & Inds. Ltd. Page 7 (supra) we do not find any infirmity in the order of Ld. CIT(A) and accordingly we uphold the same. This ground of Revenue’s appeal is dismissed.
Last issue raised by Revenue in this appeal is that Ld. CIT(A) erred in deleting the addition made by the AO for ₹59,75,517/- on account of expenses retable to exempt income under the provision of Sec.115JB of the Act.
The AO during the course of assessment proceedings while determining the book profit u/s 115JB of the Act, has added the expense disallowed u/s 14A r.w.r Rule 8D of IT Rules under the provision of clause (f) to Explanation-1 of Sec. 115JB of the Act. The amount disallowed u/s. 14A r.w.s. Rule 8D of the IT Rules was determined for a sum of ₹ 59,75,517/-only. The AO has made the addition of the same amount while determining the book profit u/s. 115JB of the Act.
Aggrieved, assessee preferred an appeal before Ld. CIT(A) who deleted the addition made by AO by observing as under:- “8.1 Similar addition made earlier in the appellant’s own case was deleted by my predecessor vide order dated 23.12.2011 in appeal No.87/CIT(A)-IV/2010- 11 for the A.Y 2008-09 which was further upheld by the Hon'ble ITAT, Kolkata in ITA No. 684/Kol/2012. 8.2 Respectfully following the above, the addition made by AO in this regard is deleted.”
The Revenue, being aggrieved, is in appeal before us on the following ground:- “iv) That on the facts and circumstances of the case, the Ld. CIT(A) has erred in deleting the addition of Rs.5975517/- made in computation of income u/s. 115JB overlooking the fact that the same was made in accordance with the provisions of IT Act, 1961.”
Before us both parties relied on the order of Authorities Below as favourable to them.
We have heard rival contentions of the parties and perused the materials available on record. Issue in the instant case is with regard to the disallowance made by AO under the provision of clause (f) to Explanation-1 of A.Ys. 2010-11 & 201-12 DCIT Cir-4 Kol. Vs. M/s Jay Shree Tea & Inds. Ltd. Page 8 Sec. 115JB of the Act. The AO while determining the profit under the normal provision of the Act has disallowed the interest expenses under Sec. 14A r.w.r. 8D(2)(ii) of Income Tax Rules 1962. The AO in his assessment order at the same time, while determining the profit under the provision of MAT also added the same amount of disallowance made u/s. 14A r.w.s 8D(2)(ii) of IT Rules. In this regard, we find that various courts has held that the disallowance made under the normal provision u/s.14A of the Act cannot be imported or cannot be equated to the disallowance made u/s. 115JB of the Act. It is because the provisions of MAT are self-contained code and begins with non-obstante clause. Therefore it has no relation with other provision of the Act. Indeed, the impugned issue of assessee is covered in its favour in assessee’s own assessment in ITA No.684/Kol/2012 for AY 2008-09 dated 08.02.2013 and there is no dispute with regard to that. However subsequent to the ITAT order in the own case of the assessee, the Hon'ble jurisdictional High Court in the case of CIT Vs. Jayshree Tea Industries Ltd. in GO No.1501 of 2014 (ITAT No.47 of 2014) dated 19.11.14 has held that the disallowance in relation to exempted income needs to be made as per the clause (f) to Explanation-1 of Sec. 115JB of the Act independently. The relevant extract of the judgment is reproduced below:- “we find computation of the amount of expenditure relatable to exempted income of the assessee must be made since the assessee has not claimed such expenditure to be Nil. Such computation must be made by applying clause (f) of Explanation 1 under section 115JB of the Act. We remand the matter for such computation to be made by the learned Tribunal. We accept the submission of Mr. Khaitan, learned Senior Advocate that the provision of section 115JB in the matter of computation is a complete code in itself and resort need not and cannot be made to section 14A of the Act.”