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Income Tax Appellate Tribunal, ‘A’ BENCH, CHENNAI
Before: SHRI CHANDRA POOJARI & SHRI G. PAVAN KUMAR
आदेश / O R D E R PER G. PAVAN KUMAR, JUDICIAL MEMBER:
The appeal filed by the assessee is directed against order of the Commissioner of Income-tax (Appeals)-I, Coimbatore in ITA No.198/13-14, dt 13.08.2014 for the assessment year 2010-2011 passed u/s.143(3) and 250 of the Income Tax Act, 1961 (herein after referred to as ‘the Act’).
ITA No. 320/16. :- 2 -:
There is a delay of 10 days in filing the appeal by the assessee. At the time of hearing, the ld. Counsel has filed an affidavit explaining the reasons for delay and the ld. DR has no serious objections for condonation of delay. After hearing the submissions, we are satisfied with sufficient and reasonable cause for filing the appeal belatedly and we, therefore condone the delay and admit the appeal.
The assessee has raised only one substantial ground were Commissioner of Income Tax (Appeals) erred in confirming the findings of the Assessing Officer in disallowing �25,99,473/- under provisions of Sec. 14A of the Act.
The Brief facts of the case are that the assessee is a firm 4. engaged in manufacturing of pumpset, motors and generation of power from windmills and filed its Return of income on 26.09.2010 with total income of �39,73,96,360/- and the case was selected for scrutiny and notice u/s.143(2) of the Act was issued. In compliance to notice, the ld. Authorised Representative appeared from time to time and submitted copy of income tax return, bank statements, TDS reconciliation statement, purchase and sale deed documents, statement of computation of deduction u/s.80IA of the Act and capital gain exemption REC 54EC bonds, profit and loss account of the windmill division and statement of IREDA loans etc. The ld.
ITA No. 320/16. :- 3 -:
Assessing Officer found that the assessee firm has made investments in mutual funds in the said financial year �27,10,99,435/- and has not offered any income from the mutual funds. The ld. Assessing Officer applying the provisions of Sec.14A of the Act worked out the disallowance under Rule 8D(2)(i)(ii) (iii) of the Act �25,99,473/- as no expenditure was disallowed in respect of tax free dividend income on investments in mutual funds and completed assessment u/s.143(3) of the Act on 27.03.2013 with assessed income of � 39,99,95,833/-. Aggrieved by the order, the assessee filed an appeal before Commissioner of Income Tax (Appeals).
In the appellate proceedings, the ld. Authorised 5.
Representative of the assessee argued the grounds and submitted that the ld. Assessing Officer has erred in disallowing �25,99,473/- under provisions of Sec. 14A of the Act and further �8,06,685/- was disallowed under proceedings of u/Sec. 154 of the Act on 06.06.2013.
The main contention of the ld. Authorised Representative being, the assessee had invested in mutual funds out of own funds and no Borrowed funds were utilized for investments and supported with evidence of the partners current account balance as on 31.03.2010 being �132.77 and filed copy of Audited Balance sheet and relied on the judicial decisions:-
ITA No. 320/16. :- 4 -:
(i) CIT vs. L and T Infrastructure Development Projects Ltd (2013) 357 ITR 763 (Mad). (ii) CIT vs. Winsome Textile Industries Ltd 319 ITR 204 (P& H) (iii) Director of Income Tax (IT)-II vs. BNP Paribas SA- 32 Taxmann.com 276 (Bombay) (iv) Munjal Sales Corporation vs. CIT (2008) 168 Taxman 43 (SC). (v) Asst. CIT vs Keshav Shares & Stocks Ltd in decided on 26.04.2013.
The ld. Authorised Representative further argued that the assessee has used borrowed funds for regular Business activities/working capital and prayed for deletion of addition. The ld. Commissioner of Income Tax (Appeals) considered the grounds of appeal, judicial decisions and considered the provisions of evoking Rule 8D (2)(ii) and 8D(2)(iii) of the Act and upheld the order of the ld. Assessing Officer and observed at para 6 of his order as under:-
‘’During the course of appellate proceedings, the appellant submitted that the investments made in mutual funds is only from out f the own funds of the assessee. The learned Authorised Representative submitted that the current account balance of the partners as on 31.03.2010 is ₹132.77 Crores., The Authorised Representative was asked to furnish flow of funds to prove that the investments made in the mutual funds was from the own funds of the appellant, The ld. Authorised Representative could not furnish the details and also could not prove that the interest expenditure was not on account of investments made in mutual funds. In view of this, the disallowance made by the Assessing Officer invoking the provisions of Sec. 14A r.w. Rule 8D of the Income Tax Act, 1961 is confirmed. The grounds of appeal are dismissed’’. Aggrieved by the Commissioner of Income Tax (Appeals) order, the assessee assailed an appeal before Tribunal.
ITA No. 320/16. :- 5 -:
Before us, the ld. Authorised Representative of assessee argued the grounds and reiterated the submissions made in assessment and appellate proceedings. The main crux of the issue being disallowances expenditure under Sec. 14A r.w.s. Rule 8D(2) were the assessee firm has made investments in mutual funds out of own/ surplus funds and no expenditure was incurred on said investments. Borrowed funds were utilized for business operation, the ld. Authorised Representative submitted that the investments are out of internal accruals of the business represented by current account balance of the partners as on 31.03.2010 and income/profits of the assessee firm and substantiated the arguments relying on the judicial decisions were no disallowance is effected on investments made out of own funds and filed copy of Audited profit and loss account and Balance Sheet as on 31.03.2010 alongwith ledger account of investments in liquid funds for the period from 01.04.2009 to 31.03.2010 and also filed written submissions and prayed for allowing the appeal.
Contra, the ld. Departmental Representative relied on the 7. orders of Commissioner of Income Tax (Appeals) and opposed the grounds.
We heard the rival submissions, perused the material on 8. record and judicial decisions cited. The ld. Authorised Representative
ITA No. 320/16. :- 6 -: contention that the assessee company made investments in liquid funds out of funds generated in the business. Even though loans were obtained they were not utilized for the purpose of investments in tax tree liquid funds. We on perusal of profit and loss account found the assessee has claimed interest charges on secured loans from bank as per Schedule –V �2,19,82,076/-. Further, the ld. Authorised Representative demonstrated the partners current account balance as on 31.03.2010 �132.77 crores. On comparing the opening and closing balance of partners current account of the previous year there is incremental increase of �22.53 crores. Similarly, the investments of the assessee firm as on 31.03.2009 are �10.18 crores which includes fixed deposits in the Bank, REC bonds and liquid fund investments and on comparing the investments as on 31.03.2010 the incremental increase is only �27.11 crores. The ld. Authorised Representative demonstrated that the assessee has made investments out of internal accruals of Business operation and produced ledger account of liquid funds. We found the analogy adopted by the assessee firm relying on the partners current account balance were incremental increase in balance is �22.53 crores on comparing the incremental investment value of � 27.11 crores is not realistic and further the assessee firm could not substantiate the investments in liquid funds with cash flow statement and bank account with direct nexus and the ld. Assessing
ITA No. 320/16. :- 7 -:
Officer has relied on provisions of Sec.14A r.w.s. 8D(2) and calculated disallowance. Considering the apparent facts, financial statements and incremental values, the disputed issue has to be re-examined by the ld. Assessing Officer as there is no findings by the ld. Assessing Officer in the assessment order. In respect of submissions of ld. Authorised Representative with evidence demonstrated in the Tribunal. Therefore, we remit the entire disputed issue to the file of Assessing Officer to consider afresh and the assessee shall be provided with adequate opportunity of hearing before passing the order. The ground appeal of the assessee is allowed for statistical purpose.
In the result, the appeal of the assessee is allowed for statistical purpose. Order pronounced on Tuesday, the 14th day of June, 2016, at Chennai.