Raajratna Metal Industries Ltd.,, ... vs Assessee

सम ी जी.डी.अ वाल, उपा य (अहम. े ) एवं ी कुल भारत, या यक सद य । BEFORE SHRI BEFORE SHRI G.D. AGARWAL,VICE PRESIDENT (AZ) And SHRI KUL BHARAT, JUDICIAL MEMBER

1. आयकर अपील सं./I.T.A.No.540/Ahd/2012 - A.Y. 2009-10 2. आयकर अपील सं./I.T.A. No.542/Ahd/2012 - A.Y. 2009-10 1.Asst.CIT 1. Raajratna Metal Industries Circle-5, Ahmedabad Ltd. 909, Sakar-III बनाम/ Nr.Income-tax Circle Vs. Ashram Road, Ahmedabad

2.Raajratna Metal 2. Asst.CIT Industries Ltd., Circle-5 Ahmedabad Ahmedabad थायी ले खा सं . /जीआइआर सं . / PAN/GIR No.AAACR 9980 M (अपीलाथ( /Appellants) .. ()*यथ( / Respondents)

Revenue by : Shri Nimesh Yadav,Sr.D.R. Assessee by : Shri Prakash D.Shah, A.R.

ु वाई क- तार.ख / सन Date of Hearing 29/05/2015 घोषणा क- तार.ख /Date of Pronounce ment 11/06/2015

आदे श / O R D E R

PER SHRI KUL BHARAT, JUDICIAL MEMBER :

These cross-appeals by the Revenue and the Assessee are directed against the order of the Ld.Commissioner of Income Tax(Appeals)-XI, Ahmedabad ('CIT(A)' in short) dated 30/12/2011 pertaining to Assessment Year (AY) 2009-10. These appeals were heard together and ITA No.540/Ahd/2012 (By Revenue) and ITA No.542/Ahd/2012 (By Assessee) ACIT vs. Raajratna Metal Industries Ltd.

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are being disposed of by way of this consolidated order for the sake of convenience.

2. First, we take up the Revenue's appeal in ITA No.540/Ahd/2012 for AY 2009-10. The Revenue has raised the following grounds of appeal:-

i) The ld.CIT(A) has erred in law and on facts in deleting the interest of Rs.3,49,522/- added under the proviso to Section 36(1)(iii) of the I.T.Act.

ii) The ld.CIT(A) has erred in law and on facts in deleting the addition on account of depreciation of Rs.13,56,853/-.

iii) On the facts and circumstances of the case, the Ld.Commissioner of Income tax (A) ought to have upheld the order of the Assessing Officer.

iv) It is, therefore, prayed that the order of the Ld.Commissioner of Income tax (A) may be set-aside and that of the Assessing Officer be restored.

2. Ground Nos.(iii) & (iv) are general in nature which require no independent adjudication.

3. Briefly stated facts are that the case of the assessee was picked up for scrutiny assessment and the assessment u/s.143(3) of the Income Tax Act,1961 (hereinafter referred to as "the Act") was framed vide order dated 24/12/2010, thereby the Assessing Officer (AO in short) made disallowance of interest under Proviso to Sec.36(1)(iii) of the Act ITA No.540/Ahd/2012 (By Revenue) and ITA No.542/Ahd/2012 (By Assessee) ACIT vs. Raajratna Metal Industries Ltd.

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amounting to Rs.3,49,522/-, disallowance by invoking the provisions of section 14A of the Act amounting to Rs.5,01,209/- and disallowance of excess depreciation amounting to Rs.13,56,853/-. The AO has also made addition on expenses relatable to exempt income u/s.10 (disallowance made u/s.14A of the Act) for the purpose of computing book profit. Against the said assessment order, the assessee filed an appeal before the ld.CIT(A), who after considering the submissions of the assessee, partly allowed the appeal. While partly allowing the appeal, the ld.CIT(A) deleted the disallowance of the interest expenditure of Rs.3,49,522/-, deleted the disallowance of excess depreciation of Rs.13,56,853/- and directed the AO to allow the depreciation. The ld.CIT(A) further reduced the disallowance made by invoking the provisions of section 14A of the Act. The ld.CIT(A) directed the AO to exclude the investments amounting to Rs.1,23,58,165/- [investment of Rs.1,22,73,180/- in the shares of ERRE INOX SPA and Rs.84,985/- in the shares of Stainless Wire Ltd. (WOS) - foreign concerns) and confirmed the disallowance in respect of the investment of Rs.30,43,125/-. The ld.CIT(A) followed the judgement of the Hon'ble Supreme Court rendered in the case of Apollo Tyres reported at 255 ITR 273(SC) and the decision of ITAT in ITA No.1777/Ahd/2009 for the AY 2006-07 in the case of ACIT- Gandhinagar vs. Gujarat State Energy Generation Ltd. The ld.CIT(A) observed that disallowance made u/s.14A should not be added while ITA No.540/Ahd/2012 (By Revenue) and ITA No.542/Ahd/2012 (By Assessee) ACIT vs. Raajratna Metal Industries Ltd.

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computing book profit. Against the order of the ld.CIT(A), now the Revenue and the Assessee both are in cross-appeals before us.

4. First ground of Revenue's appeal is against deletion of disallowance of interest of Rs.3,49,522/-. The ld.Sr.DR Shri Nimesh Yadav vehemently argued and submitted that the ld.CIT(A) was not justified in deleting the addition. He strongly supported the order of the AO.

4.1. On the contrary, ld.counsel for the assessee supported the order of the ld.CIT(A) and submitted that the company has sufficient interest-free funds of its own in the form of current year cash profit of Rs.978.52 lacs (Profit After Tax of Rs.248.25 lacs and Depreciation of Rs.730.27 lacs) and the same has been utilized for the purpose of impugned addition capital work-in-progress of Rs.32.96 lacs.

5. We have heard the rival submissions, perused the material available on record and gone through the orders of the authorities below. We find that the ld.CIT(A) has decided this issue in para-3.4 of his order as under:-

"3.4. I have considered the rival submission. I have also perused the assessment order, remand report and the submission made by the Ld.A.R. It is seen that for capitalizing interest as per the ITA No.540/Ahd/2012 (By Revenue) and ITA No.542/Ahd/2012 (By Assessee) ACIT vs. Raajratna Metal Industries Ltd.

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provisions of proviso to section 36(1)(iii) following conditions should be fulfilled.

1. Capital Borrowed for acquiring capital assets.

2. Interest is paid in respect of capital borrowed.

3. The acquisition of assets should be for the purpose of Expansion of an existing business or profession.

4. Interest Liability may or may not be capitalized.

In the instant case, the Ld.A.O. has not brought anything on record to indicate that capital was borrowed for capital work-in-progress. Secondly, no evidence is there on record to indicate that any interest was paid to create this capital work-in-progress. This way, the first and second conditions for capitalizing interest are not fulfilled. Accordingly, interest cannot be capitalized as per the provisions of proviso to section 36(1)(iii). Thirdly, provisions of proviso to section 36(1)(iii) does not provide for proportionate capitalization of interest. In view of above, capitalization of interest of Rs.3,49,522 is deleted. This ground of appeal is allowed.

5.1. From the above finding on fact, it revealed that the AO has not brought anything on record to indicate that capital was borrowed for capital work-in-progress. This finding on fact is not rebutted by the Revenue by placing any material on record. Therefore, we do not see any infirmity in the order of the ld.CIT(A), same is hereby upheld. Thus, this ground of Revenue's appeal is rejected. 5.2. Ground No.2 of Revenue's appeal is against deletion of addition made on account of depreciation of Rs.13,56,853/-. The ld.Sr.DR ITA No.540/Ahd/2012 (By Revenue) and ITA No.542/Ahd/2012 (By Assessee) ACIT vs. Raajratna Metal Industries Ltd.

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supported the order of the AO and submitted that the ld.CIT(A) was not justified in deleting the addition.

5.3. On the contrary, ld.counsel for the assessee supported the order of the ld.CIT(A) on this issue and submitted that the ld.CIT(A) has followed the decision of his predecessor in the AY 2008-09.

6. We have heard the rival submissions, perused the material available on record and gone through the orders of the authorities below. We find that the ld.CIT(A) has recorded his finding in paras-5.2 & 5.3 which read as under:-

"5.2 I have considered the rival submissions. It is seen that this issue has been decided in favour of the appellant in the earlier years. I the A.Y. 2008-09 my predecessor had allowed the appeal of the appellant on this issue. For the sake of brevity, the concluding para is reproduced as under:

"I have considered the submissions made by the A.R. of the appellant and the observations of the assessing officer in the assessment order. Similar issue arose in the appellant's own case for earlier assessment years. The said issue was decided in favour of the appellant by my predecessor for earlier assessment years and by the undersigned for A.Y. 2007-08. Following the decisions for earlier assessments, the A.O. is directed to allow depreciation in consonance with the order giving effect to appellate order in the immediately preceding year i.e. A.Y. 2007-08. This ground of appeal is allowed."

ITA No.540/Ahd/2012 (By Revenue) and ITA No.542/Ahd/2012 (By Assessee) ACIT vs. Raajratna Metal Industries Ltd.

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5.3. Since the facts are identical in this year as it was in the A.Y. 2008-09, accordingly respectfully following order of my Ld.predecessor, the A.O. is directed to allow depreciation as per the appellate orders in the immediately preceding years. In view of above, this ground of appeal is allowed."

6.1. The Revenue has not brought any material on record as to how the facts in the present case are different from the facts in the earlier years. The Revenue has not placed any material on record suggesting that the order of the ld.CIT(A) in the earlier assessment year has been reversed by this Tribunal or by the Hon'ble Jurisdictional High Court. Under these facts, we do not see any reason to interfere with the order of the ld.CIT(A), same is hereby upheld. Thus, Revenue's this ground is rejected. As a result, Revenue's appeal is dismissed.

7. Now, we take up the assessee's appeal in ITA No.542/Ahd/2012, for AY 2009-10, wherein the following grounds have been raised:-

1. That the learned CIT(A) has erred in law and facts by confirming disallowances u/s.14A of the Act on investment in shares of companies other than 2 foreign subsidiary companies and therefore the learned AO should be directed to delete the same while computing the total income.

2. That the appellant craves liberty to add, mend, alter and delete any grounds of appeal before the final hearing.

ITA No.540/Ahd/2012 (By Revenue) and ITA No.542/Ahd/2012 (By Assessee) ACIT vs. Raajratna Metal Industries Ltd.

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7.1. The only effective ground No.1 is against confirmation of disallowance u/s.14A of the Act in respect of investment in shares of companies other than 2 foreign subsidiary companies. The ld.counsel for the assessee submitted that the ld.CIT(A) was not justified in confirming the disallowance.

7.2. On the contrary, ld.Sr.DR supported the order of the ld.CIT(A).

8. We have heard the rival submissions, perused the material available on record and gone through the orders of the authorities below. We find that the ld.CIT(A) has decided this issue as under:-

"A.5. I have carefully considered the submissions of the Ld.A.R. and is not inclined to agree with it. It is a matter of fact that provisions of rule 8D of the I.T.Rules, 1962 are operational from 28-3-2008 and the same is applicable from A.Y. 2008-09 onwards. These provisions are applicable for the assessment under consideration i.e. A.Y. 2009-10. Since provisions of Rule 8D r.w.s. 14A are mandatory in nature, accordingly, disallowance u/s.14A on an investments of Rs.30,43,125/- can be considered for disallowance. The A.O. is directed to work out disallowance of interest and administrative expenses as per the provisions of Rule 8D of I.T. Rules, 1962 on an investment of Rs.30,43,125/- and give the consequential relief to the appellant. This ground of appeal is partly allowed."

8.1. There is no dispute with regard to the fact that the provisions of Rule 8D would be applicable in the year under consideration. The ld.CIT(A) has decided this issue in accordance with Rule 8D of the IT ITA No.540/Ahd/2012 (By Revenue) and ITA No.542/Ahd/2012 (By Assessee) ACIT vs. Raajratna Metal Industries Ltd.

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Rules, 1962, therefore we do not see any reason to interfere with the order of the ld.CIT(A), same is hereby upheld. Thus, this ground of assessee's appeal is rejected and the appeal of the assessee is dismissed.

9. In the combined result, Revenue's appeal as well as Assessee's appeal both are dismissed.

Order pronounced in the Court on Thursday, the 11th day of June, 2015 at Ahmedabad.

Sd/- Sd/- (जी.डी.अ वाल) (कुल भारत) उपा य (अहम. े ) या यक सद य ( G.D. AGARWAL ) ( KUL BHARAT ) VICE PRESIDENT (AZ) JUDICIAL MEMBER Ahmedabad; Dated 11/ 06 /2015 ट..सी.नायर, व. न.स./T.C. NAIR, Sr. PS आदे श क त"ल#प अ$े#षत/Copy of the Order forwarded to : 1. अपीलाथ( / The Appellant 2. )*यथ( / The Respondent. 3. संबं7धत आयकर आयु9त / Concerned CIT 4. आयकर आय9 ु त(अपील) / The CIT(A)-XI, Ahmedabad

5. :वभागीय ) त न7ध, आयकर अपील.य अ7धकरण, अहमदाबाद / DR, ITAT, Ahmedabad

6. गाड< फाईल / Guard file.

आदे शानुसार/ BY ORDER,

स*या:पत ) त //True Copy//

उप/सहायक पंजीकार (Dy./Asstt.Registrar) आयकर अपील य अ धकरण, अहमदाबाद / ITAT, Ahmedabad