9911796707
TMI Blog2017 (12) TMI 60X X X X Extracts X X X X X X X X Extracts X X X X ..... acts and in the circumstances of the case the learned ITAT is justified deleting the addition of Rs. 1,00,45,602/- made by the AO on account of disallowance of claim of VAT reimbursement. Appeal No.299/2017 (i)Whether on the facts and in the circumstances of the case the learned ITAT is justified in deleting the addition of Rs. 53,27,138/- made by AO on account of disallowance under Section 14A read with Rule 8D. (ii) Whether on the facts and in the circumstances of the case the learned ITAT is justified deleting the addition of Rs. 1,63,56,577/- made by the AO on account of disallowance of claim of VAT reimbursement. 4. The facts of the case are that the assessee company is engaged manufacturing of Oil and Vegetable Ghee by crushing of oil seeds. Besides oil seed crushing, assessee company is also manufacturing the tin container, which is an incidental acitvity for the purpose of attainment of its main object. The company was also engaged in power generation from Wind Mills situated in Jaisalmer District. The company has also established a new Division at Durgawati, Bihar for manufacturing of Vanspati Ghee and production started on 6.8.2007. This nature of activities wa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f the requirements of the provisions of Subsections (2) and (3) of Section 14A of the Act which had by then been brought into force. It is on such consideration that findings have been recorded that the expenditure in question bore no relation to the earning of the dividend income and hence the Assessee was entitled to the benefit of full exemption claimed on account of dividend income. 37. We do not see how in the aforesaid fact situation a different view could have been taken for the Assessment Year 2002-2003. Sub-sections (2) and (3) of Section 14A of the Act read with Rule 8D of the Rules merely prescribe a formula for determination of expenditure incurred in relation to income which does not form part of the total income under the Act in a situation where the Assessing Officer is not satisfied with the claim of the Assessee. Whether such determination is to be made on application of the formula prescribed under Rule 8D or in the best judgment of the Assessing Officer, what the law postulates is the requirement of a satisfaction in the Assessing Officer that having regard to the accounts of the Assessee, as placed before him, it is not possible to generate the requisite sati ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ) wherein Supreme Court held as under:- 36. Section 14A as originally enacted by the Finance Act of 2001 with effect from 1.4.1962 is in the same form and language as currently appearing in Sub-section (1) of Section 14A of the Act. Sections 14A (2) and (3) of the Act were introduced by the Finance Act of 2006 with effect from 1.4.2007. The finding of the Bombay High Court in the impugned order that Sub-sections (2) and (3) of Section 14A is retrospective has been challenged by the Revenue in another appeal which is presently pending before this Court. The said question, therefore, need not and cannot be gone into. Nevertheless, irrespective of the aforesaid question, what cannot be denied is that the requirement for attracting the provisions of Section 14A(1) of the Act is proof of the fact that the expenditure sought to be disallowed/deducted had actually been incurred in earning the dividend income. Insofar as the Appellant-Assessee is concerned, the issues stand concluded in its favour in respect of the Assessment Years 1998-1999, 1999-2000 and 2001- 2002. Earlier to the introduction of Subsections (2) and (3) of Section 14A of the Act, such a determination was required to be m ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... between the expenditure disallowed and the dividend income received. That any part of the borrowings of the Assessee had been diverted to earn tax free income despite the availability of surplus or interest free funds available (Rs. 270.51 crores as on 1.4.2001 and Rs. 280.64 crores as on 31.3.2002) remains unproved by any material whatsoever. While it is true that the principle of res judicata would not apply to assessment proceedings under the Act, the need for consistency and certainty and existence of strong and compelling reasons for a departure from a settled position has to be spelt out which conspicuously is absent in the present case. In this regard we may remind ourselves of what has been observed by this Court in Radhasoami Satsang v. Commissioner of Income Tax (1992) 193 ITR (SC) 321 [At Page 329]. We are aware of the fact that strictly speaking res judicata does not apply to income tax proceedings. Again, each assessment year being a unit, what is decided in one year may not apply in the following year but where a fundamental aspect permeating through the different assessment years has been found as a fact one way or the other and parties have allowed that position to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 396.19 It was, therefore, submitted that from the analysis of balance sheet as on 31st March, 2000 the respondent had enough interest free funds at its disposal for making investment. In the light of the above material the C.I.T. (Appeals) held that it agreed with the contention advanced by the Assessee that they had enough interest free fund at its disposal for investment and accordingly deleted the addition of Rs. 4,40,00,000/- made by the Assessing Officer and directed him to allow the same under Section 36(1)(iii) of the Income Tax Act. We have heard learned Counsel for both the parties. In our opinion the very basis on which the Revenue had sought to contend or argue their case that the shareholders funds to the tune of over Rs. 172 crores was utilised for the purpose of fixed assets in terms of the balance sheet as on 31st March, 1999, is fallacious. Firstly, we are not concerned with the balance sheet as of 31st March, 1999. What would be relevant would be balance sheet as on 31st March, 2000. Apart from that, the learned Counsel has been unable to point out to us from the balance sheet that the balance sheet as on 31st March, 1999 showed that the shareholder ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oth interest free and over draft and/or loans taken, then a presumption would arise that investments would be out of the interest free fund generated or available with the company, if the interest free funds were sufficient to meet the investments. In this case this presumption is established considering the finding of fact both by the C.I.T. (Appeals) and I.T.A.T. 5.2 In Commissioner of Income Tax vs. Winsome Textile Industries Ltd (2009) 319 ITR 204 (P & H) wherein Punjab and High Court held as under:- 4. The above finding has been affirmed by the Tribunal in following terms: 20. We have given our careful consideration to the rival contentions. In this case, the Assessing Officer has presumed that the investment in shares had been made by the assessee out of borrowed funds. He has accordingly estimated the interest payable in respect of such borrowed funds to make a disallowance under Section 14A. This finding has been disputed by the assessee as, according to it, no borrowed funds have been utilised for the purpose of acquisition of shares. In our considered view, the decision in the case of CIT v.Abhishek Industries Ltd. MANU/IP/0560/ 2005 : [2006] 286 ITR 1 (P&H) rela ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed that investment in the purchase of the shares of Winsome Yarn Limited in the year 1993-94 had no nexus with the borrowed funds. The Assessing Officer as per the assessment order has not refuted the claim of the assessee but has made a disallowance on the ground that had the said funds invested in shares were available with the assessee, the assessee would not have been required to raise loans to that extent and incur expenditure on interest on such loans. In our considered view, the disallowance has got to be made under Section 14A if any expenditure relating to the earning of income which is not chargeable to tax has been debited to the accounts by the assessee. Since in this case, the assessee has not incurred any expenditure for making investment in the purchase of shares of Winsome Yarns Limited, no disallowance is warranted under Section 14A. We, therefore, find no justification to interfere with the order of the Commissioner of Income Tax (Appeals) in having deleted the disallowance. The ground of appeal raised by the Revenue in this regard in thus dismissed. 5. We have heard learned Counsel for the parties. 6. The contention raised on behalf of the Revenue is that e ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... aid interest of Rs. 17.31 lakhs to Power Finance Corporation on the sum of Rs. 3.83 crores borrowed from them during the year under appeal. The Assessee has also made investment of Rs. 30.79 crores in shares, debentures and bonds and shown tax free income of Rs. 5.68 crores earned on the investment made. The A.O. was of the view that the Assessee has made huge investment of Rs. 30.79 crores for earning tax free income and for this reason, the Assessee has to resort to borrow funds for his other business purposes. Thus, the borrowing has a nexus with the tax free investment and, therefore, he disallowed the interest paid by the Assessee. In appeal, the Ld. CIT(A) after considering the submissions of the Assessee, held that the entire borrowed funds was utilized by the Assessee for its business purposes and, therefore, the A.O. was not justified in disallowing the claim for deduction of interest for Rs. 17.31 lakhs to the Assessee. We find that in the instant case it is not in dispute that the Assessee has utilized its own funds for the purpose of making investment in shares, etc. from which tax free income were earned. It is also not in dispute that the interest bearing borrowed fun ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... an was obtained in assessment year 1997-1998 and its majority of the investment for tax free security were made before the said period. Only a small portion of investment was made subsequently. Assessee had demonstrated that it had other sources of investment and that therefore, according to Assessee no part of the borrowed fund could be stated to have been diverted to earn tax free income. When CIT(Appeals) and tribunal both on facts in the present case found that the Assessee did not invest borrowed fund for earning interest free income, we are of the view that not applying provision of Section 14A of the Act for taxing such interest was justified. No question of law therefore, is arising for our consideration. 5.4 In Director of Income Tax (IT)-II vs. BNP Paribus SA (2013) 214 Taxman 548 (Bom) wherein Bombay High Court held as under:- 2. So far as question (b) is concerned, the Tribunal in the impugned order upheld the finding of the CIT(A) wherein a finding of fact has been reached that the dividend earned on shares by the respondent assessee is from its investments in shares out of the respondentassessee's own funds. Consequently, the question of invoking Section 14A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e operations of the Assessee was Rs. 313.53 crores and with the availability of other interest free funds with the Assessee the amount available for investments out of its own funds were to the tune of Rs. 398.19 crores. In view thereof, it was submitted that from the analysis of the balance-sheet, the Assessee had enough interest free funds at its disposal for making the investments. The CIT (Appeals) on examining the said material, agreed with the contention of the Assessee and accordingly deleted the addition made by the Assessing Officer and directed him to allow the same under the provisions of the Income Tax Act, 1961. The Revenue being aggrieved by the order preferred an Appeal before the ITAT who upheld the order of the CIT (Appeals) and dismissed the Appeal of the Revenue. From the order of the ITAT, the Revenue approached this Court by way of an Appeal. After examining the entire factual matrix of the matter and the law on the subject, this Court held as under:- If there be interest-free funds available to an assessee sufficient to meet its investments and at the same time the assessee had raised a loan it can be presumed that the investments were from the interest-fre ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... estment in the tax-free securities. In view of this factual position, as per the judgment of this Court in the case of Reliance Utilities and Power Ltd. (supra), it would have to be presumed that the investment made by the Assessee would be out of the interest-free funds available with the Assessee. We therefore, are unable to agree with the submission of Mr. Suresh Kumar that the Tribunal had erred in dismissing the Appeal of the Revenue on this ground. We do not find that question (A) gives rise to any substantial question of law and is therefore rejected." 4.We have heard counsel for the parties. 4.1 In view of the circular of CBDT, for both the issues, the appeal is not pressed. Both the issues are answered in favour of the assessee and against the department. 4.2 In respect of the issue admitted on 11.12.2015, in view of the observations made by the Supreme Court as referred hereinabove, the issue is answered in favour of the assessee and against the department. It is made clear that we have not disturbed the finding of the tribunal in view of the Supreme Court judgment. 6. In view of the above, no substantial question of law arises. 7. The appeals stand dismissed. ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
