Electro Ferro Alloys Pvt.Ltd., Ahmedabad V. The ACIT.,Circle-4, Ahmedabad

CO 222/AHD/2011

• Counselvise Citation: [2015] 123 COUNSELVISE.COM (IT) 0462 (ITAT-AHMEDABAD)
• Duration Of Justice: 3 year(s) 6 month(s) 2 day(s)
• Appeal Type: Cross Objection
• Pronouncement Date: 22-04-2015
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: B
• Next Hearing Date: 27-03-2015
• Assessment Year: 2008-2009
• Appeal Filed On: 20-10-2011
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Keywords: Depreciation; Opportunity of being heard
• Section: 143(3); 14A; 80IB

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD B BENCH AHMEDABAD , BEFORE SHRI SHAILENDRA KUMAR YADAV, JUDICIAL MEMBER, AND SHRI ANIL CHATURVEDI, ACCOUNTANT MEMBER . ITA. NO. 2181/AHD/2011 (ASSESSMENT YEAR: 2008-09) THE ACIT, CIRCLE -4, AHMEDABAD, NAVJIVAN TRUST BLDG., OFF. ASHRAM ROAD, AHMEDABAD APPELLANT VS. ELECTRO FERRO ALLOYS PVT. LTD. 208, ADITYA BLDG., KHADAYATA COLONY, MITHAKHALI SIX ROAD, ELLISBRIDGE, AHMEDABAD-380006 RESPONDENT & C.O. NO. 222/AHD/2011 (ASSESSMENT YEAR: 2008-09) ELECTRO FERRO ALLOYS PVT. LTD. 208, ADITYA BLDG., KHADAYATA COLONY, MITHAKHALI SIX ROAD, ELLISBRIDGE, AHMEDABAD-380006 APPEL LANT ITA. NO. 2181/AHD/11 & C.O. NO. 222/AHD/11 FOR A.Y. 2008-09 (ACIT VS. ELECTRO FERRO ALLOYS PVT. LT D.) PAGE 2 VS. THE ACIT, CIRCLE -4, AHMEDABAD, NAVJIVAN TRUST BLDG., OFF. ASHRAM ROAD, AHMEDABAD RESPONDENT PAN: AAACE6380L / BY REVENUE :SHRI ROOPCHAND, SR.D.R. / BY ASSESSEE : SHRI S. N. SOPARKAR, A.R. / DATE OF HEARING :27.03.2015 !' / DATE OF PRONOUNCEMENT : 22.04.2015 ORDER PER SHAILENDRA KUMAR YADAV, J.M: SINCE, BOTH THESE REVENUES APPEAL AND ASSESSEES C ROSS OBJECTION ARE PERTAINED TO SAME ASSESSEE AND ARISIN G OUT FROM THE ORDER OF CIT(A)-VIII, AHMEDABAD, DATED 07.06.20 11 FOR A.Y. 2008-09, SO THEY ARE BEING DISPOSED OF BY WAY OF CO MMON ORDER FOR SAKE OF CONVENIENCE. 2. IN ITA NO. 2181/AHD/2011 FOR A.Y. 2008-09, REVEN UE HAS FILED THE APPEAL ON THE FOLLOWING GROUNDS: ITA. NO. 2181/AHD/11 & C.O. NO. 222/AHD/11 FOR A.Y. 2008-09 (ACIT VS. ELECTRO FERRO ALLOYS PVT. LT D.) PAGE 3 1. THE LD.CIT(A) HAS ERRED IN LAW AND ON FACTS IN DELETING THE ADDITION OF RS. 44,395/- ON ACCOUNT OF DEPRECIATION ON CAR WITHOUT APPRECIATING THE FACT THAT THE ASSESSEE FAILED TO FURNISH THE PROOF FROM WHICH IT CAN BE ESTABLISHED THAT THE CAR WAS ACTUAL LY USED BY THE COMPANY EXCLUSIVELY FOR ITS BUSINESS PURPOSE. 2. THE LD.CIT(A) HAS ERRED IN LAW AND ON FACTS IN DELETING THE DISALLOWANCE OF RS. 3,04,33,669/- ON ACCOUNT OF DEDUCTION U/S 80IB WITHOUT APPRECIATING THE FACT THAT THE EVIDENCES GATHERED BY THE A.O. WHICH ESTABLISHED THAT NO MANUFACTURING ACTIVITY HAD BEEN CARRIED OUT BY THE ASSESSEE AT DAMAN UNIT. 2.1 IN CROSS OBJECTION NO. 222/AHD/2011 FOR A.Y. 20 08-09, ASSESSEE HAS FILED THE APPEAL ON THE FOLLOWING GROU NDS: 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE, THE CIT(A) ERRED IN CONFIRMING THE DISALLOWANCE OF RS.4,65,009/- MADE BY THE ASSESSING OFFICER BY INVOKING PROVISIONS OF SECTION 14A OF THE I.T. ACT. 2. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E, THE CIT(A) ERRED IN HOLDING THAT THE ASSESSEE IS NO T ENTITLED TO DEDUCTION U/S.80-IB OF THE I.T. ACT ON THE FOLLOWING INCOMES: (I) EXCISE INCOME RS.9,83,313 (II) INSURANCE CLAIM RECEIVED RS.1,45,687 (III) INTEREST ON DELAYED PAYMENTS FROM CUSTOMERS RS.10,16,598 3. ASSESSEE IS ENGAGED IN THE BUSINESS OF PRODUCTIO N AND SALE OF FERRO MOLYBDENUM. FIRST ISSUE IN REVENUES APPEAL IS ITA. NO. 2181/AHD/11 & C.O. NO. 222/AHD/11 FOR A.Y. 2008-09 (ACIT VS. ELECTRO FERRO ALLOYS PVT. LT D.) PAGE 4 WITH REGARDS TO ADDITION OF RS.44,398/- ON ACCOUNT OF DEPRECIATION ON CAR. ASSESSING OFFICER PROPOSED TO MAKE DISALLOWANCE FOR THE REASON THAT MOTOR CAR TATA IN DIA WAS NOT OWNED BY ASSESSEE COMPANY BUT WAS PURCHASED IN THE NAME OF DIRECTOR OF COMPANY AND REJECTING THE CONTENTION ON BEHALF OF ASSESSEE MADE DISALLOWANCE OF RS.45,398/-. 3.1 MATTER WAS CARRIED BEFORE THE FIRST APPELLATE A UTHORITY, WHEREIN CERTAIN CONTENTIONS WERE RAISED ON BEHALF O F ASSESSEE. HAVING CONSIDERED THE SAME, CIT(A) GRANTED RELIEF T O THE ASSESSEE. SAME HAS BEEN OPPOSED ON BEHALF OF REVEN UE INTER ALIA SUBMITTING THAT CIT(A) WAS NOT JUSTIFIED IN DE LETING ADDITION OF RS.44,398/-. ON OTHER HAND LEARNED AUT HORIZED REPRESENTATIVE SUPPORTED THE ORDER OF CIT(A) AND SU BMITTED THAT SIMILAR ISSUE HAS BEEN DECIDED IN FAVOUR OF AS SESSEE IN A.Y. 2007-08 IN ITA NO. 3226/AHD/2010. 3.2 AFTER GOING THROUGH RIVAL SUBMISSIONS AND MATER IAL ON RECORD, WE ARE NOT INCLINED TO INTERFERE IN THE FIN DING OF CIT(A) WHO HAS DELETED THE ADDITION OF RS.44,398/- ON ACCO UNT OF DEPRECIATION ON SAME CAR BY FOLLOWING THE DECISION IN ASSESSEES OWN CASE FOR A.Y. 2007-08. NOTHING CONTR ARY HAS BEEN BROUGHT TO OUR KNOWLEDGE ON BEHALF OF REVENUE. FACTS BEING SIMILAR, SO FOLLOWING THE SAME REASONING, WE UPHOLD THE SAME. ITA. NO. 2181/AHD/11 & C.O. NO. 222/AHD/11 FOR A.Y. 2008-09 (ACIT VS. ELECTRO FERRO ALLOYS PVT. LT D.) PAGE 5 4. NEXT ISSUE IN REVENUES APPEAL IS WITH REGARDS T O DISALLOWANCE OF RS.3,04,33,699/- ON ACCOUNT OF DEDU CTION U/S. 80IB. A SURVEY ACTION U/S.133A WAS CARRIED OUT IN ASSESSEES ON CASE ON 17.01.2006 AND AFTER CONSIDERING VARIOUS EVIDENCES GATHERED DURING COURSE OF SURVEY AND STATEMENT OF S TAFF MEMBERS AND DIRECTORS RECORDED IN A.Y. 2003-04 AND 2004-05, IT WAS HELD THAT NO MANUFACTURING OR PRODUCTION ACT IVITY WAS CARRIED OUT BY ASSESSEE COMPANY AT DAMAN UNIT. ASS ESSING OFFICER RELIED ON THE ASSESSMENT ORDER FOR A.Y. 200 4-05 AND STATED THAT CLAIM FOR DEDUCTION U/S. 80IB IN RESPEC T OF DAMAN UNIT WAS REJECTED. 4.1 IN APPEAL, CIT(A) OBSERVED THAT DISALLOWANCE WA S MADE IN RESPECT OF ADDITION U/S. 80IB AGAINST INCOME FROM D AMAN UNIT. THE CLAIM WAS DISALLOWED BY RELYING UPON ASSESSMENT ORDERS FOR EARLIER YEARS I.E. A.YS. 2003-04 TO 2007-08. T HE CLAIM FOR SUCH DEDUCTION HAS BEEN ALLOWED BY CIT(A) FOR ALL T HOSE YEARS INCLUDING APPELLATE ORDER PASSED BY CIT(A) FOR A.Y. 2007-08. CIT(A) OBSERVED THAT DEPARTMENTS APPEAL FOR A.YS. 03-04 AND 04-05 AGAINST THE ORDER OF CIT(A) HAS BEEN DISMISSE D BY ITAT, ON SAME ISSUE VIDE ITS ORDER DATED 25.03.2011. NOT HING CONTRARY WAS BROUGHT TO OUR KNOWLEDGE ON BEHALF OF REVENUE. FACTS BEING SIMILAR, SO FOLLOWING THE SAME REASONIN G, WE ARE NOT INCLINED TO INTERFERE IN THE FINDING OF CIT(A) WHO HAS DELETED THE DISALLOWANCE MADE ON ACCOUNT ON DEDUCTION U/S. 80IB OF ITA. NO. 2181/AHD/11 & C.O. NO. 222/AHD/11 FOR A.Y. 2008-09 (ACIT VS. ELECTRO FERRO ALLOYS PVT. LT D.) PAGE 6 RS.3,04,33,699/- AGAINST INCOME FROM DAMAN UNIT. S AME IS UPHELD. 4.2 AS A RESULT, APPEAL FILED BY REVENUE IS DISMISS ED. 5. NOW WE TAKE UP ASSESSEES APPEAL. FIRST ISSUE I N ASSESSEES CROSS OBJECTION IS WITH REGARDS TO CONFI RMATION OF DISALLOWANCE OF RS.4,65,009/- U/S. 14A OF INCOME TA X ACT. ASSESSING OFFICER DISALLOWED RS.4,65,009/- BY INVOK ING PROVISIONS OF SECTION 14A OF THE ACT HOLDING THAT T O THE EXTENT EXPENDITURE INCURRED WAS FOR EARNING OF EXEMPT INCO ME. HE OBSERVED THAT ASSESSEE HAS MADE INVESTMENT IN SHARE S AND MUTUAL FUNDS AND EARNED DIVIDEND INCOME OF RS.65,56 ,346/- WHICH WAS CLAIMED TO BE EXEMPT. HE OBSERVED THAT A SSESSEE HAD CLAIMED INTEREST EXPENDITURE OF RS.69,54,674/-. THEREFORE, HE ISSUED SHOW CAUSE NOTICE FOR MAKING DISALLOWANCE OF EXPENDITURE RELATING TO SUCH INCOME U/S. 14A OF THE ACT READ WITH RULE 8D. IN THIS REGARD, STAND OF ASSESSEE HA S BEEN THAT AS AGAINST INTEREST EXPENDITURE OF RS.69.54 LACS, A SSESSEE WAS HAVING INTEREST INCOME OF RS.70.30 LACS. THUS, ASS ESSEE HAVING NET INTEREST INCOME OF RS.0.76 LACS. IT WAS ALSO S TATED BEFORE ASSESSING OFFICER THAT ASSESSEE HAD INTEREST FREE F UNDS AVAILABLE TO THE EXTENT OF RS.33,50,78,649/-. THER EFORE, THERE WAS NO QUESTION OF HOLDING THAT INTEREST BEARING FU NDS WERE UTILIZED FOR INVESTMENT. IT WAS ALSO STATED THAT O N SAID INVESTMENT SHORT TERM CAPITAL GAIN WAS OFFERED TO T AX. IT WAS STATED THAT BORROWED FUND WERE NOT UTILIZED FOR INV ESTMENTS ITA. NO. 2181/AHD/11 & C.O. NO. 222/AHD/11 FOR A.Y. 2008-09 (ACIT VS. ELECTRO FERRO ALLOYS PVT. LT D.) PAGE 7 AND ONE HAS TO ESTABLISH NEXUS BETWEEN EXPENSES AND INTEREST FREE INCOME. ASSESSING OFFICER DID NOT ACCEPT THE CONTENTION OF ASSESSEE AND STATED THAT INCURRING EXPENSES BY WAY OF INTEREST AND OTHER EXPENSES FOR INVESTMENT IN SHARES COULD N OT BE RULED OUT. THEREFORE, EXPENDITURE/INTEREST INCURRED FOR EARNING DIVIDEND I.E. EXEMPTED INCOME WAS TO BE DISALLOWED U/S. 14A OF THE ACT READ WITH RULE 8D. HE HAS WORKED OUT DISAL LOWANCE OF RS.4,65,009/-, WHICH WAS CONFIRMED BY CIT(A). 5.1 BEFORE US, LEARNED AUTHORIZED REPRESENTATIVE DR EW OUR ATTENTION TO PAGE NO.113 OF PAPER BOOK SHOWING THE CASH FLOW AND SUBMITTED THAT THEY HAVE SUFFICIENT FUNDS AS PE R ITS ACCOUNTS. THE STAND OF ASSESSEE HAS BEEN THAT AS A GAINST INTEREST EXPENDITURE OF RS.69.54 LACS, ASSESSEE WAS HAVING INTEREST INCOME OF RS.70.30 LACS AND THUS, ASSESSEE HAVING NET INTEREST INCOME. AS STATED ABOVE, ASSESSEE CLAIMED TO HAVE SUFFICIENT INTEREST FREE FUNDS, SO NO QUESTION OF H OLDING THAT INTEREST BEARING FUNDS WERE UTILIZED FOR INVESTMENT . NOTHING CONTRARY HAS BEEN BROUGHT TO OUR KNOWLEDGE ON BEHAL F OF REVENUE ON THIS FACTUAL ASPECT. IN THIS BACKGROUND , WE HOLD THAT ASSESSING OFFICER WAS NOT JUSTIFIED IN MAKING DISALLOWANCE OF RS.4,65,009/- U/S. 14A OF THE ACT WHEN ASSESSEE WAS HAVING SUFFICIENT FUNDS AS DISCUSSED ABOVE. THIS VIEW HAS BEEN FORTIFIED BY THE DECISION OF HONBLE GUJARAT HIGH C OURT IN CASE OF RAGHUVIR SYNTHETICS 354 ITR 222 (GUJ.) AND UTI B ANK LTD. 32 TAXMAN.COM 370 (GUJ.). ITA. NO. 2181/AHD/11 & C.O. NO. 222/AHD/11 FOR A.Y. 2008-09 (ACIT VS. ELECTRO FERRO ALLOYS PVT. LT D.) PAGE 8 6. NEXT ISSUE IN ASSESSEES CROSS OBJECTION IS WITH REGARDS TO CLAIM U/S.80IB OF ACT ON FOLLOWING INCOMES: I. EXCISE INCOME RS.9,83,313/- II. INSURANCE CLAIM RECEIVED RS.1,45,687 III. INTEREST ON DELAYED PAYMENTS FROM CUSTOMERS RS.10,16,598 6.1 REGARDING EXCISE INCOME OF RS.9,83,313/-, LEARN ED AUTHORIZED REPRESENTATIVE STATED THAT THIS ISSUE IS COVERED IN FAVOUR OF ASSESSEE IN ITA NO.2773/AHD/2009 & C.O. N O. 259/AHD/2009 FOR A.Y. 2006-07, WHEREIN MATTER WAS S ET ASIDE TO ASSESSING OFFICER WHO HAS ALLOWED THE APPEAL IN FAVOUR OF ASSESSEE VIDE ORDER PASSED U/S. 143(3) R.W.S. 254 O F THE ACT. NOTHING CONTRARY HAS BEEN BROUGHT TO OUR KNOWLEDGE, FACTS BEING SIMILAR, SO FOLLOWING THE SAME REASONING, THI S ISSUE IS RESTORED TO ASSESSING OFFICER WITH SIMILAR DIRECTIO N TO DECIDE THIS ISSUE AS PER FACT AND LAW AFTER PROVIDING DUE OPPORTUNITY OF BEING HEARD TO ASSESSEE. 6.2 REGARDING INSURANCE CLAIM RECEIVED RS.1,45,687/ -, LEARNED AUTHORIZED REPRESENTATIVE POINTED OUT THAT TRIBUNAL IN ITA NO.2773/AHD/2009 & C.O. NO. 259/AHD/2009 FOR A. Y. 2006-07 IN ASSESSEES OWN CASE HAS DECIDED THE ISSU E IN FAVOUR OF ASSESSEE BY OBSERVING AS UNDER: 21.4 THE THIRD ITEM IS ABOUT INSURANCE RECEIPT FOR DAMAGES ON GOODS. THE ISSUE IS DIRECTLY COVERED BY THE DECISION OF HON.DELHI HIGH COURT IN CIT(A) VS. SPOR TKIND ITA. NO. 2181/AHD/11 & C.O. NO. 222/AHD/11 FOR A.Y. 2008-09 (ACIT VS. ELECTRO FERRO ALLOYS PVT. LT D.) PAGE 9 INDIA LTD. (2010) 324 ITR 283 (DEL) WHEREIN IT IS H ELD THAT IF ASSESSEE RECEIVES INSURANCE ON DAMAGES THERE IS DEFINITELY A NEXUS WITH THE BUSINESS. THE COMPENSA TION AMOUNT RECEIVED BY THE ASSESSEE COMPANY FROM INSURA NCE COMPANY HAS TO BE TAKEN INTO ACCOUNT IN DETERMINING THE PROFITS AND GAINS OF INDUSTRIAL UNDERTAKING. ACCOR DINGLY THIS PART OF THE CLAIM OF ASSESSEE IS ALLOWED. NOTHING CONTRARY HAS BEEN BROUGHT TO OUR KNOWLEDGE, FACTS BEING SIMILAR, SO FOLLOWING THE SAME REASONING, THI S ISSUE IS ALLOWED IN FAVOUR OF ASSESSEE. 6.3 REGARDING INTEREST ON DELAYED PAYMENTS FROM CUS TOMERS OF RS.10,16,598/-. IT WAS POINTED OUT THAT IN INCO ME TAX ACT NO. 3226/AHD/2010 & C.O. NO. 5/AHD/2011 FOR A.Y. 20 07-08, MATTER WAS RESTORED TO ASSESSING OFFICER BY OBSERVI NG AS UNDER: 11. THIRD ISSUE IS REGARDING THE INTEREST RECEIVED FOR LATE PAYMENT BY THE PARTIES AND CREDIT FACILITY GIVEN LO THE PARTIES. THE LEARNED COUNSEL FOR THE ASSESSEE SUBMI TTED THAT THE TRIBUNAL IN EARLIER ASSESSMENT YEAR 2006-2007 H AS RESTORED THIS ISSUE TO THE FILE OF THE AO. THE LEAR NED DR HAS RELIED ON THE ORDER OF THE AO. WE HAVE CONSIDERED R IVAL SUBMISSIONS. WE BEING IN AGREEMENT WITH THE DECISIO N OF THE CO-ORDINATE BENCH OF THE TRIBUNAL IN THE CASE OF TH E ASSESSEE FOR THE EARLIER ASSESSMENT YEAR 2006-2007 (SUPRA), RESTORE THIS ISSUE TO THE FILE OF THE AO TO RECOMPU TE THE ELIGIBLE DEDUCTION UNDER SECTION 801B AS PER THE DI RECTIONS OF THE TRIBUNAL IN ASSESSEE'S OWN CASE FOR THE EARL IER ASSESSMENT YEAR 2006-2007, AFTER PROVIDING REASONAB LE OPPORTUNITY OF HEARING TO THE ASSESSEE. WE DIRECT ACCORDINGLY. ITA. NO. 2181/AHD/11 & C.O. NO. 222/AHD/11 FOR A.Y. 2008-09 (ACIT VS. ELECTRO FERRO ALLOYS PVT. LT D.) PAGE 10 FACTS BEING SIMILAR, SO FOLLOWING THE SAME REASONIN G, WE RESTORE THE ISSUE TO ASSESSING OFFICER WITH SIMILA R DIRECTION. 7. IN RESULT, REVENUES APPEAL IS DISMISSED AND CRO SS OBJECTION OF ASSESSEE IS PARTLY ALLOWED AS INDICATE D ABOVE. PRONOUNCED IN THE OPEN COURT ON THIS THE 22 ND DAY OF APRIL, 2015. SD/- SD/- (ANIL CHATURVEDI) (SHAILENDRA KUMA R YADAV) ACCOUNTANT MEMBER JUDICIAL MEMB ER AHMEDABAD: DATED 22/04/2015 TRUE COPY S.K.SINHA # # # # %& %& %& %& '&' '&' '&' '&' / COPY OF ORDER FORWARDED TO:- 1. / REVENUE 2. / ASSESSEE 3. ,, - / CONCERNED CIT 4. -- / CIT (A) 5. &12 %, , / DR, ITAT, AHMEDABAD 6. 256 78 / GUARD FILE. BY ORDER / # , 9/ , , ;