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Income Tax Appellate Tribunal, AHMEDABAD “D” BENCH, AHMEDABAD
Before: SHRI PRAMOD KUMAR & SHRI S.S. GODARA
ITA No.1569/Ahd/2014 A.Y. 2009-10 Page 1 of 4 IN THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD “D” BENCH, AHMEDABAD
BEFORE SHRI PRAMOD KUMAR, ACCOUNTANT MEMBER AND SHRI S.S. GODARA, JUDICIAL MEMBER
ITA No.1569/Ahd/2014 Assessment Year: 2009-10
Honeyvick Enterprises Pvt. Ltd. vs. Commissioner of Income Tax-I, Landmark 8th Floor, Baroda. Racecourse Circle, Baroda – 390 007. [PAN – AAACH 5318 R] (Appellant) (Respondent)
Appellant by : Shri M.J. Shah, A.R. Respondent by : Shri V.K. Singh, D.R.
Date of hearing : 20.12.2017 Date of pronouncement : 29.12.2017
O R D E R PER S.S. GODARA, J.M.
This assessee’s appeal for assessment year 2009-10 arises against the CIT-I Baroda’s order dated 25.03.2014 setting aside the impugned regular assessment framed in its case on 16.09.2011 with directions to frame the same afresh, exercising jurisdiction vested under section 263 of the Income Tax Act 1961; in short “the Act”.
1.1 Heard both the parties. Case file perused.
We advert to the relevant facts first. This assessee is a company carrying out investments in shares and securities. It filed its return on 12.09.2009 declaring income of Rs.9,54,490/-. The Assessing Officer thereafter framed regular assessment on 16.09.2011 accepting the same.
Case file indicates that the CIT thereafter issued section 263 notice dated 20.11.2013 to the assessee proposing to revise the above regular assessment for the following reasons:-
ITA No.1569/Ahd/2014 A.Y. 2009-10 Page 2 of 4 “Whereas the assessment order passed u/s 143(3) of the Act dated 16.09.2011 by the Assessing Officer, for A.Y. 2009-10 was erroneous in so far as it was prejudicial to the interest of the revenue on account of the following: Scrutiny of profit & loss account and balance sheet revealed that the company had taken unsecured loan of Rs.64,513,871 and had paid interest of Rs.64,55,944. It was further noticed that company had invested Rs.12,45,29,842 as on 31.03.2009 in shares of Panchmahal Steel Limited. As the company had made investment in the shares and had also shown as such in the balance sheet, its claim that investment was not for the purpose of investment to earn tax free profit but as a business strategy is unsustainable. As such, the interest expenditure of Rs.64,55,944 was required to be disallowed u/s.37(1) of the Act being expenditure not made in ordinary course of business. In view of the above, I am directed to give an opportunity of being heard and to show cause as to why the aforesaid assessment made by the Assessing Officer for the A.Y.2009-10, should not be enhanced or cancelled with a direction to make fresh assessment in accordance with the provisions of section 263 of the Act. For this purpose, you may appear before the Commissioner of Income Tax-I, Baroda, in person or through your authorized representative on 03.12.2013 at 4.00 PM In case of non-compliance, the matter will be decided on merits. The assessee filed reply thereto on 2nd December 2013 making very 4. elaborate submissions pleading therein that the amount in question invested in its group concern M/s Panchmahal Steel Limited was its commercial expediencies duly covered in Hon’ble apex court’s landmark judgement in S.A. Builders’ case 288 ITR 1. The CIT’s order under challenge dated 25.03.2014 and more particularly paragraph no.3 reads that he reiterated its sole ground incorporated in the above show cause notice to set aside the regular assessment in question with directions to the Assessing Officer to frame it afresh after concluding that the assessee’s claim of having invested the above sum in its group concern as a business strategy was not accepted. He further concluded that the assessee had also shown these shares as investments instead of stock in trade as well. This leaves the assessee aggrieved.
We have heard both the parties strongly reiterating their respective stands. The sole question raised in the above section 63 revision proceedings as to whether the assessee’s investments in its group concern’s shares i.e. M/s Panchmahal Steel Limited could be taken as business strategy or not as per Hon’ble apex court’s above judgement. Case file suggests in pages 9 to 10 particularly that the ld. CIT himself has decided the very question in assessee’s favour in section 264 proceedings pertaining to assessment year 2007-08 finalised on 24.02.2010 reading as under :-
ITA No.1569/Ahd/2014 A.Y. 2009-10 Page 3 of 4 “2. There is only one issue in the petition i.e. the assessing officer denying interest paid on loan by invoking the provisions of section 14A of Rs.68,91,616/-.
2.1. The assessee company belongs to M/s. Panchmahal Steel Ltd. Group. The latter company was in financial crises for a long time and with a lot of efforts the business has been revived. It is the claim of the petitioner that raising the finance and investing in the shares of M/s Panchmahal Steels Ltd. mainly to revive the business of the flagship company of the group was a prudent business decision. This was so because M/s Panchmahal Steel was a major company of the group and had suffered very badly because of the huge accumulated losses and financial problems. No financial Institution would lend money on credit or would invest in the company's shares. It is also a fact that revival of M/s Panchmahal Steel was very essential because being the flagship Investment Company it had the capability of generating good business prospective. The assessee company being the investment company of the group, therefore, decided to raise finance and invested in the share capital of M/s Panchmahal Steel.
2.2. The assessing officer's contention is that since dividend income is not taxable any expenses incurred in respect of earning such tax-free income should not be allowed by virtue of section 14A. This provision was introduced in the new section 115O w.e.f. A.Y. 1994-95. Prior to that dividend was taxable. The major investment in shares of M/s Panchmahal Steel by the assesses company was prior to A.Y. 1994-95 i.e. 14,98,000 shares, the dividend from which was taxable and was offered to tax. So it was not the case that the assessee had deliberately invested in shares of the flagship company of the group to enjoy tax free income and claim expenses.
2.3. The next major investment of Rs.12.45 crores i.e. 53 lacs shares which transferred the controlling interest in the share capital of M/s Panchmahal Steels of the assessee company was after the later had gone to the BIFR in 2000 and as per the revival package worked out before the BIFR. At this juncture, the affairs of M/s Panchmahal Steels was such that it was on the verge of being wound up and there was no question of earning any dividend from its shares. Infact, if the assessee had invested, M/s Panchmahal Steels would have definitely been directed to be wound up by the BIFR. So it is not the case that at any stage the assessee company has enjoyed tax-free income and has claimed expenses against it.
The assessing officer has invoked the provisions of Rule 8D for proportionately disallowing expenses u/s 14A. This Rule has been introduced from the A.Y. 2007-08 whereas the assessee's investment dates back to F.Y., 2000. Rule 8D is prospective and has not been introduced with retrospective effect.
Lastly it has been argued that on the basis of the Supreme Court's decision in the case of M/s S.A. Builders, 288 ITR 1, it has been held that any expenses incurred for the purpose on assessee's own business or the group
ITA No.1569/Ahd/2014 A.Y. 2009-10 Page 4 of 4 company's business, is to be allowed as an expenditure against taxable income.
I have gone through the submissions and have examined the facts of the case in detail. The ruling of S.A. Builder’s case clearly applies here. It is for the assessee to borrow and invest for business in the best manner from its own business considerations i.e. whether clear interest free advance or investment in share capital. It is held that the disallowance made by the assessing officer u/s 14A is not called for. The assessing officer is directed to make re-assessment after allowing the same.”
Learned Departmental Representative fails to dispute that the above section 264 order deciding that assessee’s expenses incurred for its group concerns involved business expediency; has attained finality. We therefore are of the view that the ld. CIT has erred in law as well as on facts in exercising its jurisdiction vested under section 263 of the Act. We accordingly accept assessee’s arguments assailing correctness thereof in the instant appeal. It is accordingly held that the above regular assessment not disallowing the assessee’s share investment in its group concerns in question is neither erroneous nor prejudicial to the interest of the Revenue. The assessee’s sole substantive ground is accepted.
This assessee’s appeal is allowed. Order pronounced in the open Court on this 29th day of December, 2017.
Sd/- Sd/- PRAMOD KUMAR S.S. GODARA (Accountant Member) (Judicial Member) Ahmedabad, the 29th day of December, 2017 PBN/* Copies to: (1) The appellant (2) The respondent (3) CIT (4) CIT(A) (5) Departmental Representative (6) Guard File
By order UE COPY
Assistant Registrar Income Tax Appellate Tribunal Ahmedabad benches, Ahmedabad