The ACIT.(OSD), Circle-5, Ahmedabad V. PBM Polytex Ltd., Ahmedabad

ITA 100/AHD/2011

• Counselvise Citation: [2011] 119 COUNSELVISE.COM (IT) 6880 (ITAT-AHMEDABAD)
• Duration Of Justice: 10 month(s) 27 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 09-12-2011
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: D
• Assessment Year: 2006-2007
• Appeal Filed On: 13-01-2011
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: JAMES KURAIR
• Assessee Lawyers: M J SHAH
• Keywords: Gift; Depreciation; Capital expenditure
• Section: 14A

Judgement Text

, , , , IN THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD BENCH D AHMEDABAD .., .. , ! BEFORE SHRI D.K. TYAGI, HONBLE JUDICIAL MEMBER AND SHRI A.K.GARODIA, HONBLE ACCOUNTANT MEMBER ITA NO.100/AHD/2011 ASSESSMENT YEAR:2006-07 ACIT(OSD), CIRCLE-5, C.U. SHAH BUILDING, ASHRAM ROAD, AHMEDABAD V/S. PBM POLYTEX LTD., JAISINGH BHAVAN, N. BODIWALA COLLEGE, KALPUR TANKSHAL, AHMEDABAD -380 001 PAN NO.AAACP927H (APPELLANT) .. (RESPONDENT) APPELLANT BY :- SHRI JAMES KURAIR, DR RESPONDENT BY:- SHRI M.J.SHAH, AR DATE OF HEARING 02-12-2011 DATE OF PRONOUNCEMENT 09-12-2011 ' ' ' ' /O R D E R PER A.K. GARODIA, ACCOUNTANT MEMBER:- THIS IS REVENUES APPEAL AGAINST THE ORDER OF LD. COMMISSIONER OF INCOME-TAX (APPEALS)-XI, AHMEDABAD DATED 04-11-2010 FOR ASSESSMENT YEAR 2006-07. THE GROUND NO.1 OF APPEAL IS RAISED BY REV ENUE AS UNDER:- 1. THE LD. COMMISSIONER OF INCOME TAX (A) HAS ERRE D IN LAW AND ON FACTS IN DELETING THE ADDITION OF RS.6,98,313/- BEI NG DISALLOWANCE OF INTEREST EXPENSES U/S.14A OF THE ACT. 2. THE BRIEF FACTS ARE THAT IT IS NOTED BY ASSESSIN G OFFICER IN PARA-4 OF ASSESSMENT ORDER THAT ASSESSEE-COMPANY HAS EARNED B USINESS INCOME OF ITA NO.100/AHD/2011 A. Y.2006-07 ACIT(OSD), CIR-5, ABD V. PBM POLYTEX LTD. PAGE 2 RS.13,58,500/- FROM TRADE INVESTMENT IN EQUITY SHAR ES OF EUROTEX INDUSTRIES & EXPORTS LTD. AND ALSO DIVIDEND INCOME OF RS.9,01,70 0/- FROM THE TEMPORARY INVESTMENT MADE IN VARIOUS MUTUAL FUND AND DATE-WIS E DETAILS OF INVESTMENT IN MUTUAL FUND AND REDEMPTION THEREAFTER IS NOTED BY T HE AO AS PER WHICH THESE MUTUAL FUNDS WERE HELD FOR MINIMUM 8 DAYS IN ONE CA SE AND MAXIMUM 110 DAYS IN ONE CASE AND THE HOLDING IN REMAINING CASES IS FOR PERIOD IN BETWEEN. HE FURTHER NOTED THAT APPARENTLY, THE INVESTMENT IN MUTUAL FUND DURING THIS YEAR WAS MADE OUT OF INTEREST BEARING BUSINESS FUND AND THEREFORE, THE PROVISION OF SECTION 14A ARE APPLICABLE. HE FURTHER NOTED THAT ASSESSEE HAS MADE A DISALLOWANCE OF RS.40,000/- ON ITS OWN, BUT ASSESSEE COULD NOT EXPLAIN AS TO HOW AND ON WHAT BASIS, AN AD HOC DISA LLOWANCE OF RS.40,000/- IS WORKED OUT U/S.14A. THE AO WORKED OUT THE DISALLOWA NCE AT RS.6,58,313/- ON AVERAGE INVESTMENT OF RS.208.06 LAKH IN MUTUAL FUND . HE ALSO CONSIDERED TOTAL AVERAGE ASSETS AND WORKED OUT THAT INVESTMENT IN MU TUAL FUND IS TO THE EXTENT OF RS.208.06 LAKHS. HE ALSO CONSIDERED THAT ASSESSE E HAS MADE PAYMENT OF INTEREST OF RS.295.74 LAKH AND HE WORKED OUT THE DI SALLOWANCE OF RS.5,94,279/- ON PROPORTIONATE BASIS AND ALSO WORKE D OUT, FURTHER DISALLOWANCE OF RS.1,04,034/- @ 0.5% OF AVERAGE INV ESTMENT IN MUTUAL FUND. BEING AGGRIEVED, THE ASSESSEE CARRIED THE MATTER IN APPEAL BEFORE LD. CIT(A), WHO HAS DELETED THIS DISALLOWANCE AND NOW, THE REVE NUE IS IN APPEAL BEFORE US. 3. LD. DR OF THE REVENUE SUPPORTED THE ASSESSMENT O RDER WHEREAS LD. AR OF THE ASSESSEE HAS SUPPORTED THE ORDER OF LD. C IT(A). IT WAS ALSO SUBMITTED THAT ASSESSEE HAD SUFFICIENT OWN FUNDS AN D HE ALSO SUBMITTED THAT THIS ISSUE IS SQUARELY COVERED IN FAVOUR OF ASSESSE E BY THE TRIBUNAL ORDER IN ASSESSEES OWN CASE FOR A.Y. 2004-05 IN ITA NO.2972/AHD/2007 DATED 13- 01-2011, COPY OF WHICH IS AVAILABLE ON PAGE 68-74 O F ASSESSEES PAPER BOOK. IT WAS SUBMITTED THAT IN THAT YEAR, IT IS NOTED BY THE TRIBUNAL THAT FROM THE AUDITED BALANCE-SHEET OF ASSESSEE-COMPANY AND CASH FLOW STATEMENT, THE AMOUNT GENERATED FROM OPERATION WAS AT RS.8.06 CROR ES AND CASH FLOW FROM ITA NO.100/AHD/2011 A. Y.2006-07 ACIT(OSD), CIR-5, ABD V. PBM POLYTEX LTD. PAGE 3 OPERATING ACTIVITIES IS RS.1.94 CRORES IN ADDITION TO INCREASE OF RS.2.32 CRORES IN CURRENT LIABILITIES AND PROVISIONS. IT IS ALSO N OTED BY THE TRIBUNAL IN THAT YEAR, THAT THE ASSESSEE-COMPANYS NET PROFIT WAS OF RS.4. 84 CRORES AFTER PROVIDING FOR DEPRECIATION OF RS.6.36 CRORES AND THUS CASH PR OFIT WAS OF RS.11.20 CROES. IN THAT YEAR, THE ASSESSEE HAD MADE DISALLOWANCE OF RS.50,000/- ON ESTIMATE BASIS. IT IS SUBMITTED THAT IN THE PRESENT YEAR ALS O, NET PROFIT AFTER TAX IS RS.384.03 LAKH AND DEPRECIATION IS AT RS.614.34 LAK H AND HENCE, TOTAL CASH PROFIT IN THIS YEAR ALSO IS OF RS.998.37 LAKH, WHER EAS AVERAGE INVESTMENT IN THE PRESENT YEAR HAS BEEN WORKED OUT BY THE AO AT RS.20 8.06 LAKH ONLY AND HENCE NO PART OF THE INVESTMENT IS OUT OF INTEREST BEARING BORROWED FUNDS AND THEREFORE. THERE IS NO CASE OF DISALLOWANCE OUT OF INTEREST EXPENSES AND OUT OF ADMINISTRATIVE EXPENSES, ASSESSEE HAS ALREADY MADE SUM MOTU DISALLOWANCE OF RS.40,000/- AND THEREFORE, THE ORDER OF LD. CIT( A) SHOULD BE CONFIRMED. 4. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS PERUSIN G THE RECORD AND GONE THROUGH THE ORDER OF AUTHORITIES BELOW AND TRI BUNAL DECISION IN ASSESSEES OWN CASE FOR A.Y. 2004-05. IN THE PRESEN T CASE, WE FIND THAT NO PART OF THE INVESTMENT OF THE PRESENT YEAR CAN BE S AID TO BE OUT OF INTEREST BEARING BORROWED FUNDS BECAUSE THE CASH PROFIT OF T HE PRESENT YEAR IS MUCH MORE THAN THE AVERAGE INVESTMENT IN THE PRESENT YEA R WORKED OUT BY THE ASSESSING OFFICER. THEREFORE, NO DISALLOWANCE IS CA LLED FOR U/S.14A OUT OF INTEREST EXPENDITURE AND OUT OF ADMINISTRATIVE EXPE NSES, THE ASSESSEE HIMSELF HAS MADE SUM MOTU DISALLOWANCE OF RS.40,000/-. IN T HE EARLIER YEAR I.E. A.Y. 2004-05 IN ASSESSEES OWN CASE, THE ISSUE WAS DECID ED IN FAVOUR OF ASSESSEE BY THE TRIBUNAL UNDER SIMILAR SET OF FACTS AND HENC E WE DO NOT FIND ANY REASON TO TAKE A CONTRARY VIEW IN THE PRESENT YEAR AND THE REFORE BY RESPECTFULLY FOLLOWING THE TRIBUNALS DECISION, WE DECLINE TO IN TERFERE IN THE ORDER OF LD. CIT(A) ON THIS ISSUE. GROUND NO.1 OF REVENUES APPE AL IS REJECTED. 5. GROUND NO.2 OF REVENUES APPEAL IS AS UNDER:- ITA NO.100/AHD/2011 A. Y.2006-07 ACIT(OSD), CIR-5, ABD V. PBM POLYTEX LTD. PAGE 4 2. THE LD. COMMISSIONER OF INCOME TAX (A) HAS ERRE D IN LAW AND ON FACTS IN DELETING THE ADDITION OF RS.27,621/- BEING REPAIRS TO BUILDING. 6. LD. DR OF THE REVENUE SUPPORTED THE ASSESSMENT O RDER AND LD. AR OF THE ASSESSEE SUPPORTED THE ORDER OF LD. CIT(A). IT WAS ALSO POINTED OUT THAT THIS ISSUE HAS BEEN DECIDED BY LD. CIT(A) AT PARA-4 OF HIS ORDER. 7. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND PER USED THE MATERIALS ON RECORD AND GONE THROUGH THE ORDERS OF AUTHORITIES B ELOW. WE FIND THAT IT WAS SUBMITTED BY ASSESSEE BEFORE LD. CIT(A) THAT THE CO MPANY IS IN EXISTENCE FOR MORE THAN 85 YEARS AND THE BLOCK OF FACTORY AND OFF ICE BUILDING INCLUDING COMPOUND WALL IS OF RS.14.62 CRORES AND AREA IS MOR E THAN 40000 SQ.YD. AND HENCE, BY INCURRING EXPENSES OF RS.29,000/-, THE CO MPANY COULD NOT CONSTRUCT OR ERECT NEW COMPOUND WALL. IT IS PURELY AND ONLY F OR THE PURPOSE OF REPAIR OF A PART OF COMPOUND WALL IN CASE OF OLD BROKEN BRICKS WALL. ON THE BASIS OF THIS SUBMISSION OF ASSESSEE, IT WAS DECIDED BY LD. CIT(A ) THAT NO DISALLOWANCE IS CALLED FOR. THE DISALLOWANCE IS MADE BY ASSESSING O FFICER ON THE BASIS THAT THIS AMOUNT OF RS.29,000/- WAS INCURRED BY ASSESSEE TOWARDS CONSTRUCTING THE COMPOUND WALL. CONSIDERING THE FACTS OF THE PRESENT CASE AND AREA OF FACTORY BEING 40,000 SQ.YD., WE FEEL THAT THIS EXPENDITURE CANNOT BE FOR CONSTRUCTING A NEW COMPOUND WALL AND IT IS DEFINITELY REPAIR FOR T HE SAME AND THEREFORE, NO INTERFERENCE IS CALLED FOR IN THE ORDER OF LD. CIT( A) ON THIS ISSUE ALSO. GROUND NO.2 OF THE REVENUES APPEAL IS ALSO REJECTED. 8. GROUND NO.3 OF REVENUES APPEAL IS AS UNDER;- 3. THE LD. COMMISSIONER OF INCOME TAX (A) HAS ERRE D IN LAW AND ON FACTS IN DELETING THE ADDITION OF RS.51,960/- BEING OTHER REPAIRS. 9. LD. DR OF THE REVENUE SUPPORTED THE ORDER OF ASS ESSMENT AND LD. AR OF ASSESSEE SUPPORTED THE ORDER OF LD. CIT(A). HE A LSO SUBMITTED THAT THIS ISSUE HAS BEEN DECIDED BY LD. CIT(A) IN PARA-5 OF H IS ORDER. ITA NO.100/AHD/2011 A. Y.2006-07 ACIT(OSD), CIR-5, ABD V. PBM POLYTEX LTD. PAGE 5 10. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND PE RUSED THE MATERIALS ON RECORD AND GONE THROUGH THE ORDERS OF AUTHORITIES B ELOW. WE FIND THAT THE DISPUTE IS REGARDING EXPENDITURE OF RS.54,695/- WHI CH IS CLAIMED BY ASSESSEE AS HAS BEEN INCURRED TOWARDS REPAIR OF EXISTING OFF ICE FURNITURE WHEREAS THE SAME WAS DISALLOWED BY ASSESSING OFFICER BY OBSERVI NG THAT THEY ARE IN NATURE OF CAPITAL EXPENDITURE. WE FIND THAT IN PARA -7 OF ASSESSMENT ORDER, IT IS NOTED BY AO THAT ON 15-10-2005, THE ASSESSEE HAS IN CURRED EXPENDITURE ON FURNITURE FOR PREPARATION OF DOORS, TABLES, PARTITI ON ETC. BEFORE LD. CIT(A), FURTHER DETAILS WERE SUBMITTED THAT THIS EXPENSES W AS PERTAINING TO REPLACEMENT OF WINDOWS, DOORS, EXCHANGE OF TOP OF T ABLE AND REPLACING THE OTHER BASE OR LEGS OF TABLE AND REPAIR OF CHAIRS ET C. AND THERE IS NO NEW FURNITURE CREATED. THE LD. CIT(A) HAS DECIDED THIS ISSUE IN THE LIGHT OF THESE FACTS, THE AO HAS ALSO NOT BROUGHT ON RECORD ANY EV IDENCE TO SHOW THAT THERE WAS ANY NEW FURNITURE PURCHASED OR CREATED AND HENC E, WE DO NOT FIND ANY REASON TO INTERFERE IN THE ORDER OF LD. CIT(A) ON T HIS ISSUE ALSO. GROUND NO.3 OF REVENUES APPEAL IS ALSO REJECTED. 11. GROUND NO.4 OF THE APPEAL OF REVENUE IS AS UNDE R:- 4. THE LD. COMMISSIONER OF INCOME TAX (A) HAS ERRE D IN LAW AND ON FACTS IN DELETING THE ADDITION OF RS.47,601/- BEING STAFF WELFARE EXPENSES. 12. LD. DR OF THE REVENUE SUPPORTED THE ASSESSMENT ORDER WHEREAS LD AR OF THE ASSESSEE SUPPORTED THE ORDER OF LD. CIT(A). 13. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND PE RUSED THE MATERIALS ON RECORD AND GONE THROUGH THE ORDERS OF AUTHORITIES B ELOW. WE FIND THAT THIS ISSUE HAS BEEN DECIDED BY LD. CIT(A) BY FOLLOWING T HE TRIBUNALS DECISION RENDERED IN THE CASE OF UDAIPUR DISTILLERY CO. LTD. AS REPORTED IN 45 TTJ 377 (JI), WHEREIN IT WAS HELD THAT EXPENDITURE ON DINNE R AND LUNCH TO STAFF, MARRIAGE PRESENTATION TO EMPLOYEES CHILDREN AND RE IMBURSEMENT OF TUITION FEE FOR HIGHER EDUCATION OF AN EMPLOYEES SON ARE EXPEN DITURE INCURRED WHOLLY AND ITA NO.100/AHD/2011 A. Y.2006-07 ACIT(OSD), CIR-5, ABD V. PBM POLYTEX LTD. PAGE 6 EXCLUSIVELY FOR BUSINESS AND HENCE ALLOWABLE. IN TH E PRESENT CASE, IT IS SUBMITTED BY THE ASSESSEE THAT THIS EXPENDITURE OF RS.47,501/- WAS INCURRED ON ACCOUNT OF GIFTS ON THE OCCASION OF MARRIAGE OF CHILDREN OF THE EMPLOYEE. UNDER THESE FACTS, WE FEEL THAT THIS ISSUE IS SQUAR ELY COVERED BY THIS TRIBUNAL DECISION AND HENCE, NO INTERFERENCE IS CALLED FOR I N THE ORDER OF LD. CIT(A). GROUND NO.4 OF REVENUES APPEAL IS REJECTED. 14. IN THE RESULT, APPEAL OF REVENUE IS DISMISSED. ORDER PRONOUNCED IN OPEN COURT ON 09/12/2011 # ' $ %& '() 09 / 12 / 2011 !+ , $ - . SD/- SD/- ( .. ) ( .. ) (D.K.TYAGI) (A.K. GARODIA) ( ) ( ! ) (JUDICIAL MEMBER) (ACCOUNTANT MEMBER) AHMEDABAD, *DKP '()- 09/12/2011 . ' ' ' ' $ $$ $ 012 012 012 012 32&1 32&1 32&1 32&1 / COPY OF ORDER FORWARDED TO:- 1. 56 / APPELLANT 2. 056 / RESPONDENT 3. (( 1 +9 / CONCERNED CIT 4. +9- / CIT (A) 5. 2<= 01' , , / DR, ITAT, AHMEDABAD 6. ? @# / GUARD FILE. BY ORDER/ ' , /TRUE COPY/ A/ (B , .