By Jagdish D. Shah, Jagdish Punjabi, Chartered Accountants
fiogf49gjkf0d
New Page 1
Part B — Unreported Decisions
(Full texts of the following Tribunal decisions are available
at the Society’s office on written request. For members desiring that the
Society mails a copy to them, Rs.30 per decision will be charged for
photocopying and postage.)
4 Faze Three Exports Ltd. v. Addl. CIT
ITAT ‘I’ Bench, Mumbai
Before J. Sudhakar Reddy (AM) and V. D. Rao (JM)
ITA Nos. 7701 and 4677/Mum./2004 and 2005
A.Ys. : 2001-02 and 2002-03. Decided on : 28-7-2008
Counsel for assessee/revenue : Jitendra Jain/Bharat Bhushan
S. 14A of the Income-tax Act, 1961 — Disallowance of expenses
in relation to exempt income — Assessee, an exporter, had made investments in
shares of different companies, including group companies — Assessee able to show
earnings more than the amount of investment made — Whether Assessing Officer
justified in disallowing interest — Held, No.
Per J. Sudhakar Reddy :
Facts :
The assessee was in the business of exports of goods. As the
assessee had investments in equity shares, in addition to Rs.4.52 crore invested
in preference shares of a group company in the year under appeal, the Assessing
Officer disallowed part of the interest cost u/s.14A of the of the Act.
On appeal the CIT(A) held that interest paid on term loan,
discounting charges and other bank charges as well as interest on vehicles’ loan
cannot be disallowed, as the same can be held to have been utilised for specific
purposes. However, with reference to interest paid on packing credit, the CIT(A)
was of the view that the same could be subjected to S. 14A, and he accordingly,
restricted the disallowance to Rs.4.57 lacs.
Before the Tribunal the Revenue justified the orders of the
authorities below and contended that certain interest expenditure could
definitely be attributable to the investments made by the assessee. It further
relied on the Delhi High Court decision in the case of Motor General Finance
Ltd.
Held :
According to the Tribunal, the CIT(A) had erroneously
concluded that the packing credit was available for all the activities of the
assessee and that since the assessee was having only one bank account, it should
be presumed that the investment had also gone out of packing credit loan and the
same was required to be apportioned. The Tribunal noted that as per the terms of
the packing credit facility, the fund is released only against export orders.
According to the Tribunal, the presumption of the CIT(A) that the assessee would
have violated the stipulation laid down by the bank was unwarranted, especially
when there was no evidence in that regard. Further, it was noted that the
assessee was able to demonstrate that its earning during each of the years was
much more than the investment made in the particular year. It had own fund of
Rs.48.44 crore as against the borrowed fund of Rs.6.3 crore, while the
investment in equity was Rs.4.52 crore. Based on the above and also relying on
the Supreme Court decision in the case of Munjal Sales Corpn., the Tribunal
allowed the appeal of the assessee.
Cases referred to :
1. Munjal Sales Corpn. v. CIT, 298 ITR 298 (SC)
2. CIT v. Motor General Finance Ltd., 254 ITR 449
(Del.)
