KARAMTARA ENGINEERING P. LTD,MUMBAI vs. ACIT (OSD) RG-8(1), MUMBAI

The only issue agitated per the instant appeal by the assessee and the Revenue is the deduction u/s. 14A, disallowance qua which stands reduced by the ld. CIT(A) from Rs.2,86,93,216/- to Rs.13,27,979/-; both sides contesting the same qua the different aspects or components thereof.

We may begin by reproducing the working of both the assessee and the A.O., i.e., qua the said impugned disallowance: Working of disallowance u/s. 14A (Considering interest paid on O/D Term Loan to Punjab & Sind Bank only) As per Assessing Officer As per Assessee Difference Reason for difference Particulars Amount Amount Amount Amount (Rs.) Amount Amount (Rs.) (Rs.) (Rs.) (Rs.) (Rs.) i) Amount of The working for expenditure directly interest excludes, relating to income Bank Charges, which does not form Brokerage & part of total income Commission, LC/Bill discounting, interest ii) Amt of expenditure 102457283 102457283 on Loans & OD by way of account from other A) Interest as per AO than Punjab & Sind Less: Bank Charges 8802143 Bank Less: Interest & 4846497 Bank charges Less: Brokerage & 2514630 Commission Less: Rounding Off (87) Less: LC/Bill Discounting 60925960 25368053 Since the investments Less: Interest from 3567769 in Karamtara Steel O/D – OBC Pvt. Ltd. was made by Less: Interest from 8058127 using the OD facility Loan of Punjab & Sind Less: Interest from 3339378 Bank, the interest from Term Loan (Other Punjab & Sind Bank than PSB) should only be Less: Interest from 3930680 considered for Others computing 102457283 6472099 95985184 disallowance u/s. 14A.

B) Average value of Investments Opening 7700700 7700000 Investments Closing Investments 159101400 159100000 Total Investments 166802100 166800000 Average 83401050 83400000 1050 Investments in Shares Investments = Total of the Society are to Investments/2 be excluded while computing disallowance u/s. 14A as these investments are only to confirm the membership of the premises held. C) Average value of Assets appearing in the Balance Sheet of the assessee on the first day & Last day of the previous year Opening Assets Fixed Assets 121236096 121236096 Investments 7700700 7700700 Current Assets 564390547 564390547 693327343 693327343 Less: Current Liabilities 495107560 (495107560) 198219783 693327343 Closing Assets Fixed Assets 182910024 182910024 Investments 159101400 159101400 Current Assets 1077362062 1077362062 1419373486 1419373486 Less: Current Liabilities 1013195118 (1013195118) 406178368 1419373486 Average 302199076 1056350415 Investments = Total Assets/2 A x B 28276212 510979 C iii) Amount equal to 417005 417000 one-half percent of the average value of investment, income from which does not or shall not form part of the total income, as appearing in the balance sheet of the assessee o the first and the last day of the previous year Total Disallowance 28693217 927979 u/s. 14A The ld. CIT(A) accepted the working by the assessee, adding another Rs.4 lacs towards processing charges (forming part of the bank charges); the relevant part of his order reading as under: ‘3.6 I have perused the above working. The Bank charges include processing charges of Rs.11,01,128/- towards working capital limit paid to Punjab & Sind Bank, Mumbai. From this account, the appellant had made investment in the subsidiaries. Therefore the direct expense will have to be increased. It was gathered from the appellant that about Rs.4,00,000/- out of the source could be allocated towards disallowance u/s.14A. Hence, the disallowance u/s. 14A made by the appellant above of Rs.9,27,979/- is increased by Rs.4,00,000/- to cover said expenses allocated. Hence, the ground of appeal of the appellant is partly allowed.’ 4 & 1707/M/2013 (A.Y. 2009-10) Karamtara Engineering Pvt. Ltd. As apparent, the order by the ld. CIT(A) is not a speaking order; he drawing his conclusions on the basis of his ‘gatherings’, an undefined, unspecified source/s. However, as argued by the ld. Authorized Representative (AR), the assessee’s counsel, the processing charges are only for working capital loan. The matter is principally factual. Where and to the extent the working capital advanced is deployed for and toward financing the working capital, as evidenced by the assessee’s accounts, reflecting maintenance of an adequate margin (on working capital), no part of the working capital facility can be said to have been diverted by the assessee toward financing investments, so as to be considered as forming part of the general pool of funds and, accordingly, liable to be suitably apportioned, including the processing charges thereon. Likewise, where the term loan finances a business (capital) asset/s, and in fact, for all other dedicated funds. The break-up of the processing charges (Rs.11.01 lacs) is not on record. The ld. DR would point out that the assessee has claimed deduction on account of current liabilities, reducing the same from the assets in reckoning the assets, and which is in violation of Rule 8D, which speaks of total assets as per the assessee’s balance-sheet (accounts). In this regard, we observe the current liabilities to be below the volume of current assets, both as at the beginning and at the end of the year. As explained by the Tribunal in Kredence Multi Trading Ltd. vs. Asst. CIT (in ITA No. 7798/Mum/2012 dated 17.02.2016), the current liabilities are only spontaneous labilities, which go to fund the corresponding current assets. As long as, therefore, their volume is less than the current assets, they have to be necessarily regarded as funding the current assets and no part thereof could be considered as forming part of the general pool of funds, liable for apportionment. We, therefore, find no infirmity in the assessee’s computation of the total assets, whereby only the net working capital (i.e., current assets less current liabilities, which is positive at all times) is included in the working of the total assets, i.e., as against the figure as at the balance-sheet. The matter, being factual, our finding is consistent with the rationale of rule 8D, which, as 5 & 1707/M/2013 (A.Y. 2009-10) Karamtara Engineering Pvt. Ltd. afore-explained, as also per the cited decision by the tribunal, is only toward allocating, on a proportionate basis, the funds from all sources on the basis that the all the assets are funded from a common general pool of funds. The ld. AR would further contend that the investments made by the assessee- company are in subsidiary companies, made not with a view for investment, but for business as a part of business strategy, having in fact merged with the assessee- company subsequently by the orders by the High Court (PB pgs.43-64, though not a part of the record, being not furnished before the Revenue authorities). We find this contention, though cannot be said to be invalid, as without substance in the facts of the present case in-as-much as we observe no difference in the working of the average value of investments by the assessee and the AO, so that, save for a minor difference of Rs.1,050/-, the AO has accepted the assessee’s working (i.e., of deduction u/s. 14A r/w rule 8D) in this regard. No such plea was raised at any stage, so that there is no finding by any of the authorities below qua the same. The assessee’s plea, inconsistent with its own stand, and based on material not on record, is therefore not maintainable. The assessee has also claimed deduction on account of expenditure on bank charges, interest on bank charges, brokerage and commission, LC/bill discounting, etc. The AO has in the said table itself recorded his reasons for the difference, which have not been responded to or met by the ld. CIT(A) in any manner. We have already observed his order to be not a speaking order. The matter, under the circumstances, in our view would warrant being restored back to the file of the ld. CIT(A) to decide the same afresh in accordance with law, issuing definite findings of fact. He shall be at liberty to; rather obliged to, where the claims made by the assessee and the reasons as recorded by the AO appear to be, or are found to be, inconsistent or contrary to that claimed by the assessee, to obtain the AO’s comments thereon, giving him liberty to verify the same where fresh materials are relied upon. As regards the decision in the case of Punjab State Cooperative and Marketing Federation Ltd. (stated as ITA No. 548/Chd/2012) by the tribunal, which finds 6 & 1707/M/2013 (A.Y. 2009-10) Karamtara Engineering Pvt. Ltd. mention in the assessee’s Ground # 2, the same was not referred to during hearing nor do we find the same on record. The matter is, in our view, purely factual, and being factually indeterminate, merits being restored back, which in fact was the common contention of the parties before us. Rather, in this context it may not be out of place to mention that the assessee that the ld. AR during hearing conceded to the disallowance u/s. 14 A at Rs.9,27,979/-, i.e., against the suo moto disallowance of Rs.18,514/-, even as it contests the entire disallowance as sustained by the ld. CIT(A). We decide accordingly.