EVEREST KANTO CYLINDER LTD. Vs. ACIT (LTU)
LAWS(IT)-2014-9-3
INCOME TAX APPELLATE TRIBUNAL
Decided on September 25,2014

Everest Kanto Cylinder Ltd. Appellant
VERSUS
Acit (Ltu) Respondents

JUDGEMENT

R.C.Sharma, Member (A) - (1.) THIS is an appeal filed by the assessee against the order passed u/s. 143(3) r.w.s. 144C(13) of the IT Act to give effect to the direction issued by the Dispute Resolution Panel (in short the 'DRP') for the assessment year 2008 -09, wherein following grounds have been taken by the assessee : - PART I -CORPORATE TAX GROUNDS: Disallowance under section 14A of the Act of Rs. 17,33,157/ - Original ground 1. erred in disallowing an amount of Rs. 17,33,157/ - under section 14A of the Act read with Rule 8D of the Income -tax Rule, 1962; Supplementary Ground 1.1 erred in making an addition of Rs. 17,33,157/ - to Book Profits for the purpose of section 115JB on account of disallowance under section 14A of the Act; PART II -TRANSFER PRICING GROUNDS: Addition of Rs. 2,47,07,596/ - on account of adjustment in respect of guarantee commission for guarantee provided to banks in respect of loans taken by Associated Enterprises ('AEs') Original ground
(2.) ERRED in making adjustment of Rs. 2,47,07,596/ - on account of guarantee commission; Supplementary Ground 2.1 Without prejudice to above, while computing adjustment on account of arm's length price of guarantee commission, erred in applying the rate of guarantee commission to the entire amount of guarantee of USD 2.34 million, instead of restricting the adjustment only to the actual amount of loan availed by the AE from the overseas bank during the year; Addition of Rs. 63,44,901/ - on account of adjustment in respect of interest on loan given to AEs : Original ground Erred in making adjustment of Rs. 63,44,901/ - on account of interest on loan given to AE; Supplementary Ground 3.1 Without prejudice to above, Erred in not providing the benefit of the variation of 5 percent from the arithmetic mean as provided in the proviso to Section 92C(2) of the Act, while making the adjustment to the value of international transactions of the Appellant; The Appellant craves, to consider each of the above grounds of appeal without prejudice to each other and craves to leave or add, alter, delete or modify all or any of the above grounds of appeal." 2. Rival contentions have been heard and found from record that the assessee had earned dividend income of Rs. 8,57,149/ - which was claimed as exempt from tax under section 10(33). The total investment in shares and securities as on 31/3/2008 was Rs. 102.62 Cr which represented 13.81% of the total assets. The assessee had sold and purchased shares and securities during the year. The assessing officer computed disallowance under Rule 8D of Rs. 17,33,157/ -. The AO found that assessee has incurred the interest expenditure of Rs. 4.83 crores for which assessee has submitted working of disallowance u/s. 14A, which was declined by AO and he computed disallowance at Rs. 17,33,157/ - by applying Rule 8D(ii). On reference to DRP, the DRP upheld action of the AO and sustained the disallowance u/s. 14A. 3. It was contended by the learned AR that while computing disallowance u/s. 14A, the investment of the assessee company are required to be segregated in four parts i.e. i) investments upto AY 2006 -07 ii) investments in AY 2007 -08; and iii) investment in AY 2008 -09. Our attention was also invited Year -wise fund flow statement which was as under : - Learned AR also invited our attention to the investment made in UTI fixed maturity/growth plan amounting to Rs. 10 crores and contended that if it is excluded from opening and closing value of investment, disallowance under Rule 8D would work out to be Rs. 1.39 lakhs only. Accordingly, it was pleaded that even if any disallowance is to be made u/s. 14A, the same should be restricted to Rs. 1.39 lakhs.
(3.) WE have considered rival contentions and found that disallowance under Rule 8D has been worked out by the AO on the total investment, which included investment made in mutual funds with growth scheme. Such mutual fund investment is required to be excluded while calculating disallowance under Rule 8D, since it is not generating any tax free income. The assessee has also filed copy of the scheme of UTI fixed maturity plan before us, according to which it is a growth oriented fund and not eligible for dividend. If we exclude the amount invested by the assessee in the growth plan, disallowance under Rule 8D @0.5% works out to be Rs. 1.39 lakhs. However, copy of scheme of UTI Fixed Maturity Plan was first time filed before Tribunal as an additional evidence along with application for admission of additional evidence dated 27 -2 -2014. We accept the additional evidence and matter is restored back to the file of AO for deciding afresh the quantum of disallowance keeping in view our above observations.;


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