EMBIO LTD, MUMBAI v. ACIT RG 10(3), MUMBAI

ITA 2685/MUM/2012 | 2009-2010
Pronouncement Date: 29-04-2015 | Result: Partly Allowed

Appeal Details

RSA Number 268519914 RSA 2012
Assessee PAN AAACE1154C
Bench Mumbai
Appeal Number ITA 2685/MUM/2012
Duration Of Justice 3 year(s) 8 day(s)
Appellant EMBIO LTD, MUMBAI
Respondent ACIT RG 10(3), MUMBAI
Appeal Type Income Tax Appeal
Pronouncement Date 29-04-2015
Appeal Filed By Assessee
Order Result Partly Allowed
Bench Allotted E
Tribunal Order Date 29-04-2015
Date Of Final Hearing 13-10-2014
Next Hearing Date 13-10-2014
Assessment Year 2009-2010
Appeal Filed On 20-04-2012
Judgment Text
IN THE INCOME TAX APPELLATE TRIBUNAL E BENCH MUMBAI BEFORE S/SHRI B.R.BASKARAN (AM) AND AMIT SHUKLA (JM) . . ./ I.T.A. NO. 2685 / MUM/20 12 ( / ASSESSMENT YEAR : 2009 - 10 ) M/S EMB I O LIMITED 501 5 TH FLOOR SENTINEL HIRANANDANI GARDEN POWAI MUMBAI - 400076 / VS. ASSTT. COMMISSIONER OF INCOME TAX RANCE 10(3) MUMBAI. ( / APPELLANT ) .. ( / RESPONDENT ) ./ ./PAN/GIR NO. : AAACE1154C / A PPELLANT BY SHRI PARESH SHAPARIA / RE SPONDENT BY S MT.N V NADKARNI / DATE OF HEARING : 21.4. 2015 / DATE OF PRONOUNCEMENT : 29. 4 . 201 5 / O R D E R PER B.R. BASKARAN (AM) THE ASSESSEE HAS FILED THIS APPEAL CHALLENGING THE ORDER DATED 07 - 03 - 2012 PASSED BY LD.CIT(A) - 22 MUMBAI AND IT RELATES TO THE ASSESSME NT YEAR 2009 - 10. THE ASSESSEE IS AGGRIEVED BY THE DECISION RENDERED BY LD.CIT(A) O N THE FOLLOWING ADDITIONS: A) DISALLOWANCE OF INTEREST RELATING TO C APITAL WIP . B) DISALLOWANCE OF RS.17 37 725/ - U/S 14A R.S.R.8D 2. THE ASSESSEE IS ENGAGED IN THE BUSINES S OF MANUFACTURE AND SALE OF BULK DRUGS. THE FIRST ISSUE RELATES TO INTEREST DISALLOWANCE. DURING THE YEAR UNDER CONSIDERATION THE ASSESSEE CLAIMED INTEREST EXPENDITURE OF RS.3.82 CRORES. THE AO NOTICED THAT THE ASSESSEE WAS CONSTRUCTIN G SOME CAPITAL ITA NO. 2685 / MUM/201 2 2 AS SETS AND ACCORDINGLY IT HAS SHOWN CAPITAL WIP IN ITS BOOKS OF ACCOUNT. THE AO TOOK THE VIEW THAT A PART OF INTEREST SHOULD BE ATTRIBUTED TO CAPITAL WIP AND ACCORDINGLY DISALLOWED A SUM OF RS.1 26 255/ - FROM OUT OF INTEREST EXPENDITURE. THE LD CIT(A) ALSO CONFIRMED THE SAME. 3. BEFORE US THE LD. AR SUBMITTED THAT THE OPENING BALANCE OF WORK - IN - PROGRESS AT THE BE GINN ING OF THE YEAR WAS RS.12.82 LAKHS AND THE AMOUNT SPENT DURING THE YEAR WAS RS.15.38 LAKHS. ACCORDINGLY CLOSING WORK - IN - PROGRESS WAS SHOWN AT RS.27.20 LAK HS . THE LD. AR FURTHER SUBMITTED THAT THE ASSESSEE FINANCED THIS WORK - IN - PROGRESS OUT OF ITS OWN FUNDS AND HENCE THERE WAS NO REQUIREMENT OF DISALLOWING PART OF INTEREST EXPENDITURE. THE LD.AR FURTHER SUBMITTED THAT THE ASSESSEE HAS REPAID CONSIDERABLE PART OF LOANS THAT WERE TAKEN IN THE EARLIER YEARS AND THE SAID FACT ALSO PROVES THAT THE ASSESSEE HAS USED ITS OWN FUNDS ONLY FOR FINANCING THE CAPITAL WORK IN PROGRESS . IN THIS REGARD HE INVITED OU R ATTENTION TO THE DETAILS OF SEC URED LOANS GIVEN IN SCHEDULE - 3 WHICH IS EXTRACTED BELOW: SCHEDULE - 3 SECURED LOANS 1. TERM LOANS FROM FINANCIAL INSTITUTIONS (REFER NOTE 12(B) (I) 2. CASH CREDIT FROM BANKS (REFER NOTE 12(B)(II) 3. ICICI BANK LTD 31.3.09 800.00 1126 .81 - 1926.81 31.3.08 1160.00 2156.59 0.45 3317.04 ACCORDINGLY THE LD A.R CONTENDED THAT THE LD CIT(A) WAS NOT JUSTIFIED IN CONFIRMING THE DISALLOWANCE MADE OUT OF INTEREST EXPENDITURE. ON THE CONTRARY THE LD D.R STRONGLY DEFENDED THE AD DITION CONFIRMED BY LD CIT(A). ITA NO. 2685 / MUM/201 2 3 4. A PERUSAL OF THE TABLE EXTRACTED IN THE PRECEDING PARAGRAPH WOULD SHOW THAT THE LOAN AMOUNT HAS COME DO WN FROM 33.17 CRORES FROM THE BEGINNING OF THE YEAR TO RS.19.26 CRORE S A T THE END OF THE YEAR MEANING THEREBY THERE IS MERIT IN THE CONTENTION OF THE ASSESSEE THAT THE CAPITAL WORK - IN - PROGRESS W A S FINANCED BY OWN FUNDS ONLY. IF THE LOAN FUNDS HAVE GONE UP THEN THERE MAY BE A CASE THAT THE ASSESSEE MIGHT HAVE FINANCED WORK IN PROGRESS OUT OF LOAN FUNDS. BUT THIS IS NO T THE CASE HERE. THE LD. AR FURTHER SUBMITTED THAT THE ASSESSEE AVAILED INTEREST FREE FRESH LOAN OF RS.51 LAKHS FROM THE DIRECTORS DURING THE YEAR UNDER CONSIDERATION. SINCE IT WAS INTEREST FREE THE QUESTION OF DISALLOWANCE OF INTEREST WOULD NOT ARISE E VEN IF THE SAID LOAN FUNDS WERE USED FOR FINANCING WORK IN PROGRESS. UNDER THESE SET OF FACTS WE FIND MERIT IN THE CONTENTION OF THE ASSESSEE THAT THE CAPITAL WORK - IN - PROGRESS HAS BEEN FINANCE D OUT OF INTEREST FREE FUNDS AND HENCE THERE IS NO REQUIREMENT TO MAKE ANY DISALLOWANCE OUT OF INTEREST EXPENDITURE. ACCORDINGLY WE SET ASIDE THE ORDER OF LD.CIT(A) ON THIS ISSUE AND DIRECT THE AO TO DELETE THE DISALLOWANCE MADE OUT OF INTEREST EXPENDITURE. 5. THE NEXT ISSUE RELATES TO DISALLOWANCE MADE U/S 14 A OF THE ACT. THE ASSESSEE HAD RECEIVED A DIVIDEND INCOME OF RS.10 000/ - BUT IT DID NOT MAKE ANY DISALLOWANCE U/S 14A OF T HE ACT. THE AO COMPUTED THE DISALLOWANCE U/S 14A AT RS.17.37 LAKHS BY FOLLOWING THE METHODOLOGY GIVEN IN RULE 8D OF THE INCOME TAX RULES . THE LD. CIT(A) ALSO CONFIRMED THE SAME. 4. 6. BEFORE US THE LD. AR SUBMITTED THAT THE INTEREST FREE FUND S AVAILABLE WITH THE ASSESSEE ARE IN FAR EXCESS OF INVESTMENT MADE BY IT. HE SUBMITTED THAT THE SHAREHOLDER FUND AVAILABLE WIT H THE ASSESSE E WAS RS.47.02 CRORES AS AT THE BEGINNING OF THE YEAR AND TH E SAME HAS RISEN TO RS.62.74 CRORES AS AT THE END OF THE YEAR. THE INVESTMENT AT THE ITA NO. 2685 / MUM/201 2 4 BEGINNING OF THE YEAR WAS RS.14.92 CRORES AND THE SAME HAS FALLEN DOWN TO 14.00 LAKHS AT THE END OF THE YEAR. THE LD A.R FURTHER SUBMITTED THAT THE SHARES WERE PURCHASED IN EARLIER YEARS ALSO OUT OF OWN FUNDS ONLY. TO SUPPORT THIS CONTENTION THE LD A.R INVITED OUR ATTENTION TO THE CASH FLOW STATEMENT PLACED AT PAGE 23 OF THE PAPER BOOK. ACCORDINGLY THE LD. A R SUBMITTED THAT THERE IS NO REQUIREMENT TO MAKE ANY DISALLOWANCE OUT OF INTEREST EXPENDITURE UNDER RULE 8D(2)(II) OF THE I.T RULES IN VIEW OF THE DECISION RENDERED BY THE HONBLE JURISDICTIONAL HIGH COURT IN THE CASE OF COMMISSIONER OF INCOME TAX V/S R ELIANCE UTILITIES AND POWER LTD. REPORTED IN (2009) 313 ITR 340 (BOM) . 7 . WI TH REGARD TO THE DISALLOWANCE TO BE MADE OUT OF ADMINISTRATIVE EXPENSES AS PER RULE 8D(2)(III) THE LD. AR SUBMITTED THAT THE ASSESSEE DID NOT INCUR ANY EXPENSES FOR EARNING THE DIVIDEND INCOME. IN THE ALTERNATIVE HE SUBMITTED TH AT THE SAME MAY BE RE STRICTED TO THE AMOUNT OF DIVIDEND INCOME RECEIVED BY THE ASSESSEE . 8 . WE HEARD THE LD.DR AND PERUSED THE RECORDS ON THIS ISSUE. A PERUSAL OF THE B ALANCE SHEET FILED BY THE ASSESSE E WOULD SHOW THAT THE ASSESSEE IS HAVING SUFFICIENT INTEREST FREE FUNDS TO MAKE THE INVESTMENTS. H ENCE FOLLOWING THE DECISION RENDERED BY THE HONBLE JURISDICTIONAL HIGH COURT IN THE CASE OF RELIANCE UTILITIES AND POWER LTD (SUPRA) WHICH WAS AGAIN FOLLO WED BY THE HONBLE JURISDICTIONAL HIGH COURT IN THE CASE OF CIT V. HDFC BANK LTD ( 2014) 366 ITR 505 (BOM.)(HC) WE HOLD THAT THERE IS NO REQUIREMENT TO MAKE ANY DISALLOWANCE OUT OF INTEREST EXPENDITURE. 9 . WITH REGARD TO THE DISALLOWANCE MADE UNDER RULE 8D(2)(III) OUT OF GENERAL ADMINISTRATIVE EXPENSES WE NOTICE THAT THE AO HAS COMPUTED THE DISALLOWANCE AT THE RATE OF 0.5% OF AVERAGE VALUE OF INVESTMENT S HELD BY THE ASSESSEE AND THE SAME W AS WORKED OUT AT RS.3.76 LAKHS. HOWEVER THE CONTENTION OF THE A SSESSEE IS THAT IT HAS NOT INCURRED ANY EXPENDITURE ITA NO. 2685 / MUM/201 2 5 IN REALIZING THE INTEREST INCOME AND IN THE ALTERNATIVE IT HAS BEEN PLEADED THAT THE DISALLOWANCE SHOULD BE RESTRICTED TO THE AMOUNT OF DIVIDEND RECEIVED BY THE ASSESSEE. A PERUSAL OF THE INVESTMENT PO RTFOLIO OF THE ASSESSEE GIVEN IN SCHEDULE 6 OF THE BALANCE SHEET WE NOTICE THAT THE ASSESSEE HAS SOLD EQUITY SHARES AND REDEEMABLE PREFERENTIAL SHARES OF KARNATAKA MALLADI BIOTICS LTD DURING THE YEAR UNDER CONSIDERATION . IN VIEW OF THE SAME THE AMOUNT OF INVESTMENT HAS COME DOWN DRASTICALLY FROM RS.14.92 CRORES TO RS.14 LAK HS . SINCE THERE WAS NOT MUCH MOVEMENT IN THE INVESTMENT PORTFOLIO IN OUR VIEW THE ASS ESSEE WOULD NOT HAVE INCURRED ADMINISTRATIVE EXPENDITURE TO THE TUNE OF RS.3.76 LAKHS FOR EARN ING A DIVIDEND INCOME OF RS.10 000/ - . AT THE SAME TIME WE ARE ALSO NOT ABLE TO AGREE WITH THE CONTENTION OF THE ASSESSEE THAT IT DID NOT INCUR ANY EXPENDITURE AT ALL. HENCE UNDER THE FACTS PREVAILING IN THE INSTANT CASE WE FIND MERIT IN THE ALTERNATIV E CONTENTION OF THE ASSESSEE THAT THE EXPENDITURE AMOUNT TO BE DISALLOWANCE TOWA RD S ADMINISTRATIVE EXPENSES SHOULD BE RESTRICTED TO RS.10 000/ - . ACCORDINGLY WE SET ASIDE THE ORDER OF LD. CIT(A) ON THIS ISSUE AND DIRECT THE AO TO RESTRICT THE DISALLOWAN CE TO BE MADE U/S 14A OF THE ACT TO RS.10 000/ - . 10 . IN THE RESULT THE APPEAL FILED BY THE ASSESSEE IS PARTLY ALLOWED. THE AB OVE ORDER WAS PRONOUNCED IN THE OPEN COURT ON 29TH APR 2015 . 29TH APR 2015 SD SD ( / AMIT SHUKLA ) ( . . / B.R. BASKARAN) / JUDICIAL MEMBER / ACCOUNTANT MEMBER MUMBAI: 29TH APR 2015 . . . ./ SRL SR. PS ITA NO. 2685 / MUM/201 2 6 / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT 2. / THE RESPONDENT. 3. ( ) / THE CIT(A) - CONCERNED 4. / CIT CONCERNED 5. / DR ITAT MUMBAI CONCERNED 6. / GUARD FILE. / BY ORDER TRUE COPY (ASSTT. REGISTRAR) /ITAT MUMBAI