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Income Tax Appellate Tribunal, “B” BENCH: KOLKATA
Before: Shri M. Balaganesh, AM & Shri S. S. Viswanethra Ravi, JM]
ORDER Per Shri M. Balaganesh, AM:
This appeal by revenue is arising out of order of CIT(A)-IV, Kolkata vide Appeal No. 06/CIT(A)-IV/2012-13 dated 18.07.2013. Assessment was framed by DCIT, Circle-4, Kolkata u/s. 143(3) of the Income tax Act, 1961 (hereinafter referred to as the “Act”) for AY 2008-09 vide his order dated 24.12.2010.
At the outset, there is a delay in filing the appeal before us by the revenue by 26 days, for which a condonation petition was filed by the revenue explaining the reasons for the delay. The ld AR fairly conceded to condone the delay. In view of the same, the delay in filing the appeal by the revenue is hereby condoned and the appeal is hereby admitted for adjudication.
The only issue to be decided in this appeal is as to whether the ld CITA is justified in deleting the disallowance made u/s 14A of the Act in the sum of Rs. 92,89,825/- made in the proceedings initiated u/s 154 of the Act in the facts and circumstances of the case.
2 Jay shree Tea & Ind. Ltd. AY 2008-09 4. The brief facts of this issue is that the assessee is a public limited company engaged in various businesses viz. growing and manufacturing of tea, manufacturing of fertilizers and chemicals, tea trading, warehousing, development of real estate, call centre and educational activities. The assessee in its return of income made disallowance u/s 14A of the Act voluntarily to the tune of Rs. 45,28,096/-. In the original assessment, the ld AO felt that the disallowance made by the assessee is sufficient and accordingly did not make any disallowance in this regard. However, disallowances were made on other issues. The ld AO during the course of giving effect proceedings to ld CITA order, issued a notice u/s 154 of the Act to make disallowance u/s 14A read with Rule 8D of the Rules and accordingly made disallowance of Rs. 92,89,825/- in addition to disallowance already made by the assessee in the sum of Rs. 45,28,096/-. The assessee preferred an appeal before the ld CITA on the disallowance made u/s 14A of the Act in the sum of Rs. 92,89,825/- among other additions. The ld CITA deleted the addition of Rs. 92,89,825/- u/s 14A of the Act on the ground that the assessee had made investments out of its own funds and not from the borrowed funds. Aggrieved, the revenue is in appeal before us on the following ground:- “1. The Ld. CIT(A) erred in holding that the disallowance u/s. 14A is not applicable in this case, ignoring the fact that the assessee failed to prove that borrowed fund was not used for investment through fund flow statement with date of transactions.”
5. The ld DR argued that the assessee had failed to prove that whether the loan borrowed were utilized only for fixed assets or investments and this aspect requires examination and accordingly prayed for setting aside to the file of the ld AO. In response to this, the ld AR argued that the assessee had borrowed only term loan and the same could not be utilized other than the intended purpose and admittedly the intended purpose is not for making investments. Moreover the availability of own funds with the assessee company is not in dispute and hence, the ld CITA had rightly appreciated the contentions of the assessee and deleted the addition. He further argued that the ld AO did not even reduce the disallowance already made by the assessee voluntarily in the return to the tune of Rs. 45,28,096/- while making the disallowance u/s 14A read with Rule 8D of the Rules.
3 Jay shree Tea & Ind. Ltd. AY 2008-09 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 Rs. 105.86 crores and as on 31.3.2008 was Rs. 94.68 crores. We find that the ld CITA 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 used for purposes of business – interest deductible under Income Tax Act , 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)
4 Jay shree Tea & Ind. Ltd. AY 2008-09 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 presumd 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 :-
Woolcombers of India Ltd vs CIT reported in 134 ITR 219 (Cal) East India Pharmaceutical 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.
In view of the aforesaid facts and findings and respectfully following the judicial precedents relied upon hereinabove, we hold that the ld CITA 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.
The next ground raised by the revenue is as to whether the disallowance u/s 14A of the Act read with Rule 8D of the Rules could be made in the proceedings u/s 154 of the Act. We find that the revenue had come on appeal before us on this ground on the pretext that the ld CITA had held that the issue of disallowance u/s 14A read with Rule 8D is a debatable issue and hence cannot be made in the proceedings u/s 154 of the Act. But we find from the ld CITA’s order that this aspect has been dismissed and in fact had been held in favour of the revenue. Hence the revenue cannot have any grievance on the same. We
5 Jay shree Tea & Ind. Ltd. AY 2008-09 also find that the assessee had not preferred any appeal before us against this finding of the ld CITA. Accordingly the ground no.2 raised by the revenue is dismissed as infructuous.
In the result, the appeal of the revenue is dismissed.