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Income Tax Appellate Tribunal, AHMEDABAD “A” BENCH, AHMEDABAD
Before: SHRI KUL BHARAT & SHRI MANISH BORAD
I.T.A. Nos.264 & 97/Ahd/2015 A.Y. 2004-05 Page 1 of 5 IN THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD “A” BENCH, AHMEDABAD BEFORE SHRI KUL BHARAT, JUDICIAL MEMBER AND SHRI MANISH BORAD, ACCOUNTANT MEMBER ITA No.264/Ahd/2015 Assessment Year: 2004-05 Welspun Projects Limited vs. Dy. Commissioner of Income Tax, (Formerly known as MSK Projects Circle – 1(2), Ahmedabad. (India) Limited), 707 – 708, Sterling Centre, R.C. Dutt Road, Alkapuri, Baroda – 390 007. [PAN – AABCM 4107 C] ITA No.97/Ahd/2015 Assessment Year: 2004-05 Dy. Commissioner of Income Tax, vs. Welspun Projects Limited Circle – 1(2), Ahmedabad. (Formerly known as MSK Projects (India) Limited), 707 – 708, Sterling Centre, R.C. Dutt Road, Alkapuri, Baroda – 390 007. [PAN – AABCM 4107 C] (Appellants) (Respondents) Assessee by : Shri V.R. Choksi, A.R. Revenue by : Shri T. Shankar, Sr. D.R. Date of hearing : 13.11.2017 Date of pronouncement : 15.11.2017 O R D E R PER KUL BHARAT, J.M.
These two cross appeals, one by the assessee and another by the Revenue, are directed against the order of learned CIT(A)-III, Baroda dated 16th October, 2014 for the Assessment Year 2004-05.
First we take up assessee’s appeal ITA No.264/Ahd/2015. The assessee has raised the following grounds of appeal :-
I.T.A. Nos.264 & 97/Ahd/2015 A.Y. 2004-05 Page 2 of 5 “1. In law and in facts and in the circumstances of the case, the Ld. CIT(A) has erred in holding that investment in the following shares have been made from borrowed funds. a) MSK Infrastructure & Toll Bridge Pvt. Ltd. - Rs.1,23,52,800/- b) MSK Highways Ltd. - Rs. 25,01,800/- c) MSK Finance Ltd. - Rs. 50,000/- Consequently interest disallowance u/s.14A is uncalled for and is required to be deleted. 2. Without prejudice to the above, even if the borrowed funds are utilised in making investments, interest disallowance u/s.14A needs to be restricted only to the period for which such borrowed funds are utilised for making investment during the year under consideration. 3. In law and in facts and in the circumstances of the case, the Ld. CIT(A) has erred in upholding the disallowance of Rs.74,250/- out of interest expenses on account of interest free advances made to associate concern. 4. The respondent craves leave to add, alter, amend and/or withdraw any ground or grounds of cross objections either before or during the course of hearing of the same.” 3. At the time of hearing, learned counsel for the assessee submitted that he does not wish to press ground no.3. Ground no.3 is, therefore, dismissed as not pressed.
Briefly stated facts are that this is second round of litigation. In earlier round, the Tribunal in ITA Nos.2139 & 2140/Ahd./2009 was pleased to restore the issue to the learned CIT(A) with the following directions:-
“5.3 As already pointed out, since the ld. CIT(A) have not cared to ascertain as to whether or not borrowed funds have indeed been utilised for the purpose of business of the assessee and were not utilised in acquiring the aforesaid shares nor the ld. CIT(A) recorded his specific findings on the applicability of provisions of the sec. 14A of the Act and also did not have the benefit of the view taken in the aforesaid decisions while the ld. AR has now taken a plea before us that the entire borrowings were utilised in their business, we consider it fair and appropriate to set aside the order of the ld. CIT(A) and restore the matter to his file for deciding the issue of disallowance of interest raised in the ground no.1 in the appeal of the Revenue for the AY 2004-05 in relation to investments in equity shares of MSK Infrastructure & Toll Bridge Private Ltd., MSK Highways Ltd.& MSK Finance Ltd, afresh in accordance with law in the light of various judicial pronouncements, including those referred to above, after allowing sufficient opportunity to both the parties. Needless to say that while redeciding the issue, the learned CIT(A) shall pass a speaking order, keeping in mind, inter alia, the mandate of provisions of sec. 250(6) of the Act, bringing out clearly as to whether or not borrowed funds had indeed been utilised in investment in shares for
I.T.A. Nos.264 & 97/Ahd/2015 A.Y. 2004-05 Page 3 of 5 earning exempt income. With these observations, ground no.1 in the appeal of the appeal of the Revenue for the AY 2004-05 is disposed of.” 5. In pursuance to that, by way of the impugned order, the learned CIT(A) partly allowed the appeal of the assessee. Aggrieved by this, both the assessee and Revenue are in appeal.
Apropos ground nos.1 & 2, ld. counsel for the assessee vehemently argued that the ld. CIT(A) was not justified in holding that the investment was made from the borrowed funds. Ld. counsel for the assessee submitted that in remand report the Assessing Officer has stated that out of total investment of Rs.2,48,52,800/-, investment of Rs.1,25,00,000/- is made on 13.03.2003 from Citibank Current Account. Thus there was balance in that account. Ld. Counsel further submitted that the amount was deposited in fixed deposit and the loan was availed on the said fixed deposit for making investment. Ld. Counsel submitted that the assessee has paid interest on the loan so availed. Therefore, the disallowance needs to be restricted and benefit of netting off should be granted.
On the contrary, ld. Departmental Representative opposed the submission and supported the orders of the authorities below.
We have heard the rival contentions and gone through the orders of the authorities below. There is no dispute with regard to the fact that admittedly investments have been made in respect of amount of Rs.1,75,60,000/- and Rs.62,00,000/-. This amount was deposited in fixed deposit and loan was availed on such fixed deposit out of which the investments have been made. It is argued that the benefit of netting off may be given. We find force in the contention of the learned counsel for the assessee. As per section 14A of the Act, the expenditure related to earning of exempt income can be disallowed. Where an assessee has applied his own funds for making investment, interest expenditure cannot be disallowed. The Assessing Officer is required to demonstrate that the investment so made is out of borrowed funds, and interest so paid is claimed as expenditure related to other taxable income. Therefore, we hereby direct the Assessing Officer to give benefit of netting off as prayed for by the assessee and recompute the disallowance accordingly. Ground nos.1 & 2 of the assessee’s appeal are allowed for statistical purposes.
I.T.A. Nos.264 & 97/Ahd/2015 A.Y. 2004-05 Page 4 of 5 9. Ground no.4 is general in nature which requires no adjudication.
Appeal of the assessee is partly allowed for statistical purposes.
We now take up Revenue’s appeal ITA No.97/Ahd/2015. 12. The solitary ground taken in this appeal reads as under :-
“On the facts and in the circumstances of the case the learned CIT(A) has erred in facts and in law in deleting the disallowance of interest made u/s.14A of the Act on account of investment of Rs.1,25,00,000/- in the share of MSK Infr & Toll Pvt. Ltd., ignoring the fact that money comes in a common kitty and thus interest is attributable to exempt income earning investments also on proportionate basis.” 13. Ld. Departmental Representative supported the order of the Assessing Officer. On the contrary, ld. counsel for the assessee submitted that during the remand proceedings the Assessing Officer has submitted the remand report wherein the fact that the investment was made out of own funds has been admitted. In support, he drew our attention to the remand report. We find that the Assessing Officer in remand report at page no.81 of the paper book has stated that out of total investment of Rs.2,48,52,800/-, investment of Rs.1,25,00,000/- is made out of Citibank Current account in which there was balance. Under these undisputed facts, we do not see any reason to interfere in the finding of the learned CIT(A). Ground raised by the Revenue is thus dismissed.
Appeal of the Revenue is dismissed.
In the result, appeal of the assessee is partly allowed for statistical purposes and appeal of the Revenue is dismissed. Order pronounced in the open Court on this 15th day of November, 2017.
Sd/- Sd/- Manish Borad Kul Bharat (Accountant Member) (Judicial Member) Ahmedabad, the 15th day of November, 2017 PBN/*
I.T.A. Nos.264 & 97/Ahd/2015 A.Y. 2004-05 Page 5 of 5 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