M/s Ruchira Packaging Products Pvt. Ltd., Kala Amb v. DCIT, Circle, Parwanoo

IN THE INCOME TAX APPELLATE TRIBUNAL CHANDIGARH BENCH SMC CHANDIGARH BEFORE SHRI SANJAY GARG JUDICIAL MEMBER ./ ITA NO. 736/CHD/2019 / ASSESSMENT YEAR : 2015-16 M/S RUCHIRA PACKAGING PRODUCTS PVT LTD. PLOT NO. 11 INDUSTRIAL AREA TRILOKPUR ROAD KALA AMB SIRMOUR-173030 VS. THE DCIT CIRCLE PARWANOO HIMACHAL PRADESH ./PAN NO: AABCR9711R / APPELLANT /RESPONDENT ! /ASSESSEE BY : SHRI M.L. JHAMBA ADVOCATE ' ! / REVENUE BY : SH. MANJIT SINGH CIT DR # $ % /DATE OF HEARING : 04.11.2019 &'() % / DATE OF PRONOUNCEMENT : 04.11.2019 / ORDER THE PRESENT APPEAL HAS BEEN PREFERRED BY THE ASSESS EE AGAINST THE ORDER DATED 25.03.2019 OF THE COMMISSIONER OF INCO ME TAX (APPEALS) SHIMLA [HEREINAFTER REFERRED TO AS CIT(A)]. 2. THE ASSESSEE IN THIS APPEAL HAS TAKEN FOLLOWING GROUNDS OF APPEAL:- 1. THAT THE LD. CIT(A) IS NOT JUSTIFIED IN CONFIRMING DISALLOWANCE U/S 14A R.W.S. 8D(2)(II) AMOUNTING TO RS. 3 78 402/-. 2. THAT THE LD. CIT(A) IS NOT JUSTIFIED IN CONFIRMING DISALLOWANCE U/S 14A R.W.S. 8D(2)(III) AMOUNTING TO RS. 55 315/-. ITA NO. 736-CHD-CHD-2019- M/S RUCHIRA PACKAGING PRODUCTS PVT LTD. K ALA AMB 2 3. THAT THE LD. CIT(A) IS NOT JUSTIFIED IN CONFIRMING THE ADDITION OF RS. 39 964/- ON ACCOUNT OF INTEREST ON SECURITIES. 4. THAT ANY OTHER GROUND OF APPEAL WHICH MAY BE ADVANCED AT THE TIME OF HEARING OF THE APPEAL. 3. GROUND NOS. 1 & 2 : THE ASSESSEE VIDE GROUND NOS. 1 & 2 HAS AGITATED THE DISALLOWANCE MADE BY THE ASSESSING OFF ICER UNDER SECTION 14A OF THE INCOME TAX ACT 1961 (IN SHORT 'THE ACT' ) READ WITH RULE 8D (II) & 8D (III) OF THE INCOME TAX RULES 1962. 4. THE ASSESSING OFFICER MADE THE ADDITIONS OBSERV ING THAT THE ASSESSEE EARNED TAX EXEMPT INCOME ON SALE AND PURC HASE OF SHARES. HE THEREFORE APPLIED THE PROVISIONS OF SECTION 14A OF THE ACT READ WITH RULE 8D OF THE INCOME TAX RULES AND MADE THE IMPUGN ED DISALLOWANCE OUT OF THE INTEREST EXPENDITURE AND ON ACCOUNT OF A DMINISTRATIVE EXPENSES. THE LD. CIT(A) CONFIRMED THE ADDITIONS SO MADE BY THE ASSESSING OFFICER ON THIS ISSUE. 5. BEFORE US THE LD. COUNSEL FOR THE ASSESSEE HAS PLACED RELIANCE ON THE BALANCE SHEET OF THE ASSESSEE WHICH HAS BEEN PL ACED AT PAGE 11 OF THE PAPER BOOK TO SHOW THAT THE ASSESSEE HAD ENOUGH RESERVES AND SURPLUS TO MEET THE INVESTMENTS IN QUESTION. THE LD. COUNSEL HAS FURTHER SUBMITTED THAT IN THE PREVIOUS YEAR RELEVAN T TO THE ASSESSMENT YEAR UNDER CONSIDERATION NO INVESTMENT HAS BEEN M ADE BY THE ASSESSEE. ALL THE INVESTMENTS WERE PAST INVESTMENTS WHICH HAD EVEN REDUCED FROM ITA NO. 736-CHD-CHD-2019- M/S RUCHIRA PACKAGING PRODUCTS PVT LTD. K ALA AMB 3 RS. 1.34 CRORES IN THE PREVIOUS YEAR TO RS. 87 LACS IN THE RELEVANT ASSESSMENT YEAR. THAT FOR THE YEAR UNDER CONSIDERA TION THE ASSESSEE HAD SHOWN SHARE CAPITAL OF RS. 17.43 LACS AND RESERVES AND SURPLUS OF RS. 4.34 CRORES. THAT EVEN OTHERWISE FUNDS WERE SUFFIC IENT TO MEET THE INVESTMENTS IN QUESTION. THE LD. COUNSEL FOR THE ASSESSEE IN THIS RESPECT H AS RELIED UPON VARIOUS DECISIONS OF THE HIGH COURTS INCLUDING THAT OF THE DECISION OF THE HON'BLE JURISDICTIONAL HIGH COURT IN THE CAS E OF BRIGHT ENTERPRISES PVT. LTD VS. CIT JALANDHAR(SUPRA) C IT VS. KAPSONS ASSOCIATES (2016) 381 ITR 204 (P&H) AND THE LATEST DECISION OF THE COORDINATE BENCH OF THE TRIBUNAL IN THE CASE OF AC IT VS. JANAK GLOBAL RESOURCES PVT LTD ITA NO. 470/CHD/2018 ORDER DATED 16.10.2018 HOLDING THAT THAT IF THE ASSESSEE IS POSSESSED OF SUFFICIENT OWN INTEREST FREE FUNDS TO MEET THE INVESTMENTS / INTEREST FREE ADVANCES THEN UNDER THE CIRCUMSTANCES PRESUMPTION WILL BE THAT INTERES T FREE ADVANCES / INVESTMENTS HAVE BEEN MADE BY THE ASSESSEE OUT OF O WN FUNDS / INTEREST FREE FUNDS. RELIANCE IN THIS RESPECT CAN ALSO BE PL ACED ON THE DECISION OF THE HON'BLE SUPREME COURT IN THE CASE OF HERO CYCL ES (P) LTD VS. CIT 379 ITR 347(SC). THEN IN THE LATEST DECISION OF TH E HON'BLE SUPREME COURT IN THE CASE OF CIT (LTU) VS. RELIANCE INDUS TRIES LTD. [2019] 410 ITR 466 (SC) IT HAS BEEN HELD AS UNDER:- 7. IN SO FAR AS THE FIRST QUESTION IS CONCERNED THE ISSUE RAISES A PURE QUESTION OF FACT. THE HIGH COUR T HAS NOTED THE FINDING OF THE TRIBUNAL THAT THE INTEREST FREE FUNDS AVAILABLE TO THE ASSESSEE WERE SUFFICIENT TO MEET ITS INVESTMENT. HENCE IF COULD BE ITA NO. 736-CHD-CHD-2019- M/S RUCHIRA PACKAGING PRODUCTS PVT LTD. K ALA AMB 4 PRESUMED THAT THE INVESTMENTS WERE MADE FROM THE INTEREST FREE FUNDS AVAILABLE WITH THE ASSESSEE. TH E TRIBUNAL HAS ALSO FOLLOWED ITS OWN ORDER FOR ASSESSMENT YEAR 2002-03. 8. IN VIEW OF THE ABOVE FINDINGS WE FIND NO REASON TO INTERFERE WITH THE JUDGEMENT OF THE HIGH COURT IN REGARD TO THE FIRST QUESTION. ACCORDINGLY THE APPEALS ARE DISMISSED IN REGARD TO THE FIRST QUESTION. IN VIEW OF THE ABOVE DISCUSSION THE DISALLOWANCE M ADE BY THE LOWER AUTHORITIES OF THE INTEREST EXPENDITURE UNDER RULE 8D(2)(II) OF THE I.T.RULES IS NOT JUSTIFIED AND THE SAME IS ORDERED TO BE DELETED. 8. HOWEVER SO FAR AS THE ADMINISTRATIVE EXPENSES A RE CONCERNED THE PLEA OF THE ASSESSEE IS THAT ONLY ONE TRANSACTION O F SALE OF SHARE WAS CARRIED OUT DURING THE PERIOD AND THAT NO ADMINISTR ATIVE EXPENDITURE HAVE BEEN INCURRED FOR THE YEAR UNDER CONSIDERATION . HOWEVER THE ASSESSING OFFICER APPLYING THE PROVISIONS OF RULE 8 D(2)(III) OF THE I.T. RULES HAS DISALLOWED A SUM OF RS. 55 315/- WHICH WAS NOT WARRANTED. 9. CONSIDERING THE FACTS AND CIRCUMSTANCES OF THE C ASE AND ALSO CONSIDERING THAT ONLY A SINGLE SHARE TRANSACTION HA S BEEN DONE DURING THE YEAR AND THERE IS NO REPETITIVENESS OF TRANSACTION S OF SALE AND PURCHASE OF THE SHARES THE DISALLOWANCE UNDER RULE 8D (2)( III) IS RESTRICTED TO RS. 10 000/-. 10. GROUND NO. 3 : VIDE GROUND NO.3 OF THE APPEAL THE ASSESSEE HAS AGITATED THE CONFIRMATION OF ADDITION OF RS. 39 964 /- MADE BY THE ITA NO. 736-CHD-CHD-2019- M/S RUCHIRA PACKAGING PRODUCTS PVT LTD. K ALA AMB 5 ASSESSING OFFICER ON ACCRUAL BASIS ON THE AMOUNT AD VANCED BY THE ASSESSEE SINCE THE ASSESSEE HAS BEEN FOLLOWING MERC ANTILE METHOD OF ACCOUNTING. THE LD. COUNSEL HAS SUBMITTED THAT AS PER THE INST RUCTIONS OF THIS CLINE HE IS NOT PRESSING GROUND NO.3 OF THE APPEAL THE SAME IS DISMISSED AS NOT PRESSED. 11. GROUND NO.4 : GROUND NO.4 IS GENERAL IN NATURE AND DOES NOT REQUIRE ANY SPECIFIC ADJUDICATION. IN VIEW OF THIS THE APPEAL OF THE ASSESSEE IS TREA TED AS PARTLY ALLOWED. ORDER DICTATED AND PRONOUNCED IN THE OPEN COURT IMM EDIATELY ON COMPLETION OF HEARING. SD/- ( / SANJAY GARG) / JUDICIAL MEMBER DATED : 04.11.2019 .. '+ - .- / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT 2. / THE RESPONDENT 3. # / / CIT 4. # / ( )/ THE CIT(A) 5. -01 2 % 2 34516 / DR ITAT CHANDIGARH 6. 15 7$ / GUARD FILE '+ # / BY ORDER 8 ' / ASSISTANT REGISTRAR ITA NO. 736-CHD-CHD-2019- M/S RUCHIRA PACKAGING PRODUCTS PVT LTD. K ALA AMB 6