Iit).Haryana Sanitaryware Inds. (P)Ltd v. Ito : Ita

IN THR HIGH COURT OF KARNATAKA AT BENGALURU DATED THIS THE 24[TH|]DAY OF AUGUST 2016) PRESENT THE HON’BLE MR.JUSTICE JAYANT PATEL AN D THR HON’BLE MR.JUSTICEK S.N.SATYANARAYANA INCOME TAX APPEAL NO.16/2016(TIT) BETWEEN: M/S. BHARATH BEEDI WORKS PVT LTD15-17-366/1, BHARATH BAGH|KADRI ROAD, MANGALORE-9375003RBEPRBSBNTRBD BY ITS BXBCUTIVE DIRECTOSRI ANANTH PALAGED ABOUT 42 YBARSSON OF SRI G.GANAPATHI PAI) _ APPBLLANT| (BY SRI.S PARTHASARATHI, ADVOCATE) AND: THR ADDL. COMMISSIONER OF INCOME-TAX| RANGE-2> MANGALORE-5/75003 ~_ RBSPONDENT| (BY SRI.K V ARAVIND, ADVOCATE) THIS APPEAL IS FILED UNDER SEC.260-A OF INCOME TAXACT 1961, ARISING OUT OF ORDER DATED:07/08/2015 PASSEDIN ITA NO.752/BANG/2014, FOR THE ASSESSMENT YEAR 2010-11 PRAYING TO FORMULATE THE SUBSTANTIAL QUESTIONS OF)LAW STATED ABOVE, ALLOW THE APPEAL AND SET ASIDE THEORDER OF THE ITAT DATED:07/08/2015 BEARING ITA NO.) 192/BANG/2014 FOR THE ASSESSMENT YEAR 2010-11 AND.PASS SUCH QOTHRBR SUITABLE ORDERS AS THIS HON'BLCOURTDEEMSRITTO.GRANTON|THEFACTSANTCIRCUMSTANCES OF THR CASK IN THR INTBRBST OF JUSTICE|AND EQUITY. THIS ITA COMING ON FOR ADMISSION THIS DAY,JAYANTPATEL J.,DELIVBERED THR FOLLOWING: JUDGMENT| The appellant-assessee has preferred the present appeal byraising the following substantial questions of law: “1.WhetherOTlthefactsandcircumstances of the case, the Tribunal isjustified in confirming the addition undersection 14A r.w.s.Rule 8D(2)(i1) of the Ruleswhen no expenditure is incurred for earningthe exempt income and assessing officer also’not recorded satisfaction with regard to thecorrectness of the claim of the Appellant in|respect of such expenditure? 2. Whether the provisions of Rule 8Dread with Section 14A of the Act would applyto the relevant assessment year?” 2 |Wehaveheard.Mr.Parthasarathi, learnedcounsel appearing for the appellant-assessee and Mr.K.V.Aravind, learnedcounsel for the respondent-revenue. 3. AS such, we may not refer to the order of the AssessingOfficer because the relevant portion of the reasoning of theassessing officer are already considered in the order of the CIT.(Appeals). We may record that, the CIT (Appeals) has examined therejection of the claim of the assessee for disallowance of theexpenses to the extent of Rs.4 lakhs towards exempted income andhas further observed at para.3.1(D) to 3.2(A) which reads as under: “3.1(D) I have considered the rivalcontentionscarefully.iafindthat.theargument of the appellant is vague in asmuch as when the AO has asked to prove|that the appellant has own funds to|substantiate the investment as and when theinvestments are made the appellant is onlytrying to explain the opening and cl figuresof the current year share capital andreserves and surplus. I find strength it theargument of the AO. Further, since theappellant could not explain the connected|expenditure to the satisfaction of the AO is|clearlyforthcoming1n arrivingaT|the| estimation. Hence, I am inclined to confirmthe addition and the grounds aredismissed, 3.2(11).Prior Period expenses:|t isnoticed by the AO that the appellant hasbooked vehicle expenditure pertaining toearlier period during the previous year. —When pointed out it was argued before theAO that these expenses are crystallizedduring the previous year and hence claimedaccordingly. The appellant was asked to.prove the same and the appellant filed letterfrom the recipient based on which the AO|has duly allowed what was substantiatedand added Rs.67,090/- which was notsubstantiated. 3.2(A). In appeal proceedings the appellantraised the following grounds AIlDISALLOWANCE OF RS.67,090/ 0(Is not justified in disallowing a sum of Rs.67,090 as prior period expenseseven though the liability crystallizedduring the previous year.even though the liability crystallizedduring the previous year. 9(Has overlooked the following decisions, which are relied up on and applicableto the Appellant’s case.to the Appellant’s case. 3.2(A). In appeal proceedings the appellantraised the following grounds AIlDISALLOWANCE OF RS.67,090/ 0(Is not justified in disallowing a sum of Rs.67,090 as prior period expenseseven though the liability crystallizedduring the previous year.even though the liability crystallizedduring the previous year. 9(Has overlooked the following decisions, which are relied up on and applicableto the Appellant’s case.to the Appellant’s case. I).MarudharaConductors(P)Ltd.v.Assistant CIT (2001) 21 DTC002 (Jod-Trib) (2001) 70 TTJ (Jod-Trib) 661..Ltd.v.Assistant CIT (2001) 21 DTC002 (Jod-Trib) (2001) 70 TTJ (Jod-Trib) 661.. II).CIT.VUH.P.|StateHorestCorporation (2010) 33 (I) ITCL 38l(HP-HC) : (2010) 320 ITR 170 (HP): (2010)Corporation (2010) 33 (I) ITCL 38l(HP-HC) : (2010) 320 ITR 170 (HP): (2010) IIT).Haryana Sanitaryware Inds. (P)Ltd. V. ITO : ITA No.2028 (Del) of2008,Ltd. V. ITO : ITA No.2028 (Del) of2008, IV).Apollo Textiles Agency (2006) 283ITR 991 (All) ITR 991 (All) V).Goetze (India) Ltd. V. Dy. CIT(2008) 1195 ITD 119 (Del-Trib).(2008) 1195 ITD 119 (Del-Trib). VI).CIT v. Swadeshi Cotton & FloorMills (P) Ltd. (1964) 53 ITR 134(SC).Mills (P) Ltd. (1964) 53 ITR 134(SC). B(is not justified in law by overlookingthe decisions in the following caseswhere it was held that the year ofallowance is not material when the taxrate is the same.the decisions in the following caseswhere it was held that the year ofallowance is not material when the taxrate is the same. I).CIT v. Nagri Mills Co. Ltd. [1958]33 ITR 681 (Bom.), 33 ITR 681 (Bom.), II).CIT vs. Bilahari Investment (P.) Ltd(2010) 299 ITR 1 (SC).(2010) 299 ITR 1 (SC). IIT).CIT vs. Dinesh Kumar Goel (2011)331 ITR 10 (Delhi H)331 ITR 10 (Delhi H) 8(The Appellant craves leave to add, toamend.and/oralterany|ot the|foregoing grounds and such _ otheerounds as may be urged at the time ofhearing.amend.and/oralterany|ot the|foregoing grounds and such _ otheerounds as may be urged at the time ofhearing. 4. When the matter was carried before the Tribunal, theTribunal, at paragraph.9 to 11 has observed thus: | “QO We have heard the submissions ofthe Ild.Counsel for the assessee, who reliedon the order of Tribunal in assessee’s own|case for AYs 2JOO8-09 & 2OO9-10 in ITANos.914 & 915/Bang/2014, order dated22.3.2013. We have perused the said orderand find that in that case the issue was!remanded to the AQ for fresh consideration|for the reason that the claim of assessee thatno amount should be disallowed u/s.14A ofthe Act was not considered and objectivelyrejected by the revenue authorities. TheRevenueAuthoritiesWeETEdirectedCO consider the claim of assessee and if the!same is found to be not acceptable, then|apply the provisions of Rule 8D(2)(i11) of theRules. 10. In the present assessment year, theClIT(Appeals) after considering the order ofTribunal referred to above, called for aremand report and the AO in the remandreport highlighted as to why the claim ofassessee for disallowance of only Rs.4 lakhs—is not acceptable. In our view, therefore, theearlier order of Tribunal will not be of anyassistance to the plea of the assessee beforeUS. 11. Even before us, the ld.counsel forthe assessee was unable to explain as to whyonly a sum of Rs.4 lakhs should bedisallowed under Rule 8D(2)(i11) of the Rules.as against a sum of Rs.14,00,530. In ourview, therefore, the addition sustained by theCIT(A) has to be upheld. Accordingly groundNo.II raised by the assessee is dismissed.”| o. In our view, when the quantification of the amount ofexpenses of Rs.4 lakhs is towards exempted income is not accepted|by the assessing officer, he is required to follow the procedure and|calculate the amount for the purpose of disallowance as per Rule-8D(2)(111) and accordingly, the figure is arrived at Rs.14,00,530/-.|Further out of the said amount, Rs.4 lakhs has been deducted and 11. Even before us, the ld.counsel forthe assessee was unable to explain as to whyonly a sum of Rs.4 lakhs should bedisallowed under Rule 8D(2)(i11) of the Rules.as against a sum of Rs.14,00,530. In ourview, therefore, the addition sustained by theCIT(A) has to be upheld. Accordingly groundNo.II raised by the assessee is dismissed.”| o. In our view, when the quantification of the amount ofexpenses of Rs.4 lakhs is towards exempted income is not accepted|by the assessing officer, he is required to follow the procedure and|calculate the amount for the purpose of disallowance as per Rule-8D(2)(111) and accordingly, the figure is arrived at Rs.14,00,530/-.|Further out of the said amount, Rs.4 lakhs has been deducted and the only the net additional amount is added for disallowancetowards expenses of exempted income.6. However, the learned counsel appearing for the appellantby relying upon the decision of this Court in ITA 471/2015 decidedon 11.33.2016 contended that when the interest free fund exceedsthe value of investment, it should be considered and the investmentof fund and any disallowance under Section 14-A towards anyinterest expenditure can be made. He submitted that, in respect ofthe previous year i.e. assessment year 2008-09 and 2009-10,matters were remanded by the Tribunal vide order dated 22.3.2013in ITA 914 & 915/BANG/2014 and therefore, in his submission,when the figures of interest free fund and investment was not|finalized, the formula ought not to have been applied as availableunder Rule 8D(2)(i11) and hence, in his submission, substantialquestions of law would arise for consideration by this Court. © 7. In our view, the burden is upon the assessee to show andprove that interest free fund far exceeds the value of investment.and thereaiter, to justify the quantification of amount of Rs.4 lakhs_towards disallowance for the exempted income. In the present case,the said burden has not been discharged satisfactorily and. thereaiter, the assessing officer has proceeded to apply the formulaprovided under Section 8D(2)(i11) read with Section 14-A of the Act. © 8. Discharge of the burden is essentially a question of fact.|The authority up to the level of Tribunal has recorded finding offact for non-discharge of burden by appellant-assessee. So far as_applicability of Section 14-A read Rule 8D(2)(i1) is concerned whenthe assessee has failed to discharge the burden of provingquantification of the amount for disallowance towards exemptedincome, there would be hardly any scope for consideration of the.matter as any substantial questions of law. The aforesaid is—coupled with the aspects as referred by us hereinabove that thefinding of fact for non-discharge of the burden which is upto thelevel of the Tribunal which is the ultimate fact finding authority,has remained final. The finding of fact in our view is outside thescope of judicial scrutiny in the present appeal. 9. Considering the facts and circumstances, we find that the|decision upon which the reliance has been placed is of no help.because the assessee in the present case has not been able to provethat the interest free fund tar exceeded the value of investment andfurther if such was the position, there was no question of disallowance but in the present case, even as per the assessee, theamount of Rs.4 lakhs was quantified. Hence, the decision in case of ITA 471/2015 is of no help to the learned counsel for the appellant. 10. In view of the above, we do not find that any substantialquestions of law would arise for consideration. 11. Hence, the appeal is dismissed. Sk/- Sd/-. JU DGE Sd/-. JU DGE