Gold Finch Jewellery Ltd., Ahmedabad V. The DCIT, Circle-2(1)(1), Ahmedabad

ITA 1075/AHD/2016

• Counselvise Citation: [2019] 118 COUNSELVISE.COM (IT) 2917 (ITAT-AHMEDABAD)
• Duration Of Justice: 2 year(s) 10 month(s) 3 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 01-03-2019
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: Not Allotted
• Assessment Year: 2009-2010
• Appeal Filed On: 28-04-2016
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Capital asset; Depreciation; Earning of tax free income; Additional evidence; Question of law; TDS
• Section: 147; 12; 10; 143(3); 14A; 194C

Judgement Text

, IN THE INCOME TAX APPELLATE TRIBUNAL , D BENCH, AHMEDABAD BEFORE SHRI WASEEM AHMED , ACCOUNTANT MEMBER AND MS MADHUMITA ROY, JUDICIAL MEMBER ./ ITA NO S.1075 - 1076/AHD/2016 / ASSTT. YEAR S : 2009 - 20 10 & 2012 - 2013 GOLD FINCH JEWELLERY LTD. , G - 5 , PARISEEMA COMPLEX, NR. SWAGAT CROSS ROADS , C.G. ROAD , AHMEDABAD - 380006 . PAN: AAACG6992L VS . D.C.I.T. CIRCLE - 2(1)(1) , AHMEDABAD - 380015 (APPLICANT) ( RESPON D ENT ) ASSESSEE BY : SHRI ASEEM THAKKAR, A.R REVENUE BY : SHRI VINODTANWANI , SR. DR / DATE OF HEARING : 04 / 0 2 / 201 9 / DATE OF PRONOUNCEMENT: 01/03 /2 01 9 / O R D E R PER WASEEM AHMED, ACCOUNTANT MEMBER: THE CAPTIONED APPEAL S HAVE BEEN FILED AT THE INSTANCE OF THE ASSESSEE AGAINST THE SEPARATE ORDER OF THE COMMISS IONER OF INCOME TAX (APPEALS) - 2 , AHMEDABAD [CIT(A) IN SHORT] OF DATED 24 / 02 / 2016 AND 26/02/2016 ARISING IN THE MATTER OF ASSESSMENT ORDER PASSED UNDER S.143(3)OF THE INCOME TAX ACT, 1961 ( HERE - IN - AFTER REFERRED TO AS 'THE ACT') DATED 22/12 / 201 1 AND 02/03/2015 RELEVANT TO A SSESSMENT YEAR S 2009 - 10 & 2012 - 13 RESPECTIVELY . 2. SINCE THE ISSUE S RAISED IN BOTH THE APPEALS ARE COMMON AND RELATED TO THE SAME ASSESSEE , THEREFORE , WE PROCEED TO ADJUDICATE THE SAME THROUGH THIS COMMON ORDER FOR THE SAKE OF CONVENIENCE AND BREVITY. ITA NOS.1075 & 1076/AHD/2016 ASSTT. YEARS 2009 - 10 & 2012 - 13 2 3. FIRST , WE TAKE ITA NO.1075/AHD/2016 FOR A.Y - 2009 - 10 . THE ASSESSEE HAS RAISED THE FOLLOWING GROUNDS OF APPEAL. 1. THE LD.CIT (A) HAS ERRED IN CONFIRMING THE DISALLOWANCE OF RS. 1, 6 1,7 39/ - MADE BY THE ASSESSING OFFICER OUT OF DEPRECIATION ON TWO WHEELER VEHICLES AND CAR. 2. THE LD.CIT (A) HAS ERRED IN CONFIRMING DISALLOWANCE OF RS. 13,45,356 / - MADE BY THE ASSESSING OUT OF LABOUR CHARGES CLAIMED BY THE APPELLANT . 3. THE APPELLANT CRAVES LEAVE TO ADD, ALTER, AMEND OR MODIFY ANY OF THE GROUNDS OF APPEAL ON OR BEFORE THE DATE OF HEARING OF APPEAL . 4 . THE 1 ST ISSUE RAISED BY THE ASSESSEE IS THAT THE LEARNED CIT (A) ERRED IN CONFIRM ING THE ADDITION OF RS. 1,61,7 39 / - ON ACCOUNT OF DEPRECIATION . 5 . BRIEFLY STATED FACTS ARE THAT ASSESSEE IS A LIMITED COMPANY AND ENGAGED IN THE BUSINESS OF TRADING AND MANUFACTURING OF GOLD AND DIAMONDS ORNAMENTS. THE ASSESSEE HAS CLAIMED DEPRECIATION IN RESPECT OF CERTAIN VEHICLES WHICH WERE REGISTERED IN THE NAME OF DIRECTO RS. THE ASSESSEE CLAIMED THAT IT IS T HE BENEFICIA L OWNER OF THE ASSET . THE ASSESSEE FURTHER CLAIMED THAT THESE ASSETS WERE USED ONLY AND EXCLUSIVELY FOR THE BUSINESS . T HEREFORE , NO ADVERSE INFERENCE CAN BE DRAWN AGAINST THE ASSESS EE MERELY ON THE GROUND THAT THE S E FIXED ASSET S W ERE NOT REGIST ER ED IN THE NAME OF THE COMPANY. 5. HOWEVER, THE AO FOUND THAT SOME OF THE TWO - WHEELERS WERE PURCHASED IN THE ASSESSMENT YEAR 2005 - 06 IN RESPECT OF WHICH THE DEPRECIATION WAS DIS ALLOWED IN THE ASSE SSMENT ORDER FRAMED U/S 143(3)/ 147 OF THE ACT VIDE DATED 28/12/2010. 5.1 THE ASSESSEE COULD NOT SUBSTANTIATE IT S CLAIM THAT THESE VEHICLES WERE USED FOR THE BUSINESS . T HEREFORE THE AO DISALLOWED THE DEPRECIATION OF RS. 1,61,739/ - AND ADDED TO THE TOTAL INCOME OF THE ASSESSEE. ITA NOS.1075 & 1076/AHD/2016 ASSTT. YEARS 2009 - 10 & 2012 - 13 3 5.2 AGGRIEVED ASSESSEE PREFERRED AN APPEAL TO L D. CIT(A). THE ASSESSEE BEFORE THE L D. CIT (A) SUBMITTED THAT THE LD. CIT - A DECIDED THE ISSUE PERTAINING TO THE ASSESSMENT YEAR 2005 - 06 IN FAVOUR OF THE ASSESSEE. THEREFORE , THE AO ERRED IN REJECTING THE CLAIM OF THE ASSESSEE AFTER HAVING A RELIANCE ON THE ORDER OF HIS PREDECESSOR PERTAINING TO THE ASSESSMENT YEAR 2005 - 06. 6. HOWEVER , THE L D. CIT (A) REJECTED THE CLAIM OF THE ASSESSEE BY OBSERVING THAT THERE WAS NO EVIDENCE AVAILABLE TO DEMONSTRATE THAT THE VEHICLE USED FOR THE BUSI NESS. 7. BE ING AGGRIEVED BY THE ORDER OF L D. CIT (A) ASSESSEE IS IN APPEAL BEFORE US. 8. THE L D. AR BEFORE US FILED A PAPER BOOK RUNNING FROM PAGES 1 TO 136 AND SUBMITTED THAT THE ASSESSEE WAS THE BENEFICIAL OWNER OF THE ASSET AS THE ASSESSEE MADE THE PAYMENT FOR THE ACQUISION OF SUCH ASSETS . THUS THE BENEFIT OF DEPRECIATION CANNOT BE DENIED MERELY ON THE GROUND THAT THE OWNERSHIP IS IN THE NAME OF DIRECTOR /EMPLOYEE OF THE COMPANY. 8.1 THE L D. AR FURTHER SUBMITTED THAT THE ASSESSEE HA D CLAIMED INTEREST ON THE CAR LOAN, INSURANCE PREMIUM OF THE CAR, PETROL EXPENSES ON THE SCOOTER AND CAR AND VEHICLE EXPENSES WHICH WERE NOT DOUBTED BY THE REVENUE. 8.2 THE L D. AR FURTHER SUBMITTED THAT THE REVENUE HA D TAKEN THE CONTRARY STAND BY ALLOW ING THE EXPENSES INCURRED IN CONNECTION WITH THE VEHICLE IN FULL. THEREFORE, THE DEPRECIATION IN RESPECT OF SUCH VEHICLE WAS DISALLOW ED ON THE BASIS OF MERE CONJECTURE AND SURMISE S . 9. ON THE OTHER HAND L D. DR RELIED ON THE ORDER OF THE AUTHORITIES BELOW. 10. WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE MATERIALS AVAILABLE ON RECORD. IN THE INSTANT CASE , THE DEPRECIATION CLAIMED ON THE VEHICLES , I.E. CARS AND ITA NOS.1075 & 1076/AHD/2016 ASSTT. YEARS 2009 - 10 & 2012 - 13 4 TWO - WHEELERS WAS DISALLOWED BY THE AO ON ACCOUNT OF TWO REASONS. FIRSTLY, THE ASSESSEE WAS NOT THE OWNER OF THE ASSETS , AND SECONDLY , THE ASSESSEE FAILED TO ESTABLISH THAT THE ASSETS WERE USED FOR THE BUSINESS. THE LEARNED CIT (A) SUBSEQUENTLY CONFIRMED THE ACTION OF THE AO. 10.1 REGARDING THE OWNERSHIP OF THE ASSETS, WE NOTE THAT THE BENEFICI AL OWNERSHIP VEST WITH THE ASSESSEE. IT IS BECAUSE THE PAYMENT WAS MADE FOR THE PURCHASE OF THE ASSETS BY THE ASSESSEE THOUGH THE ASSETS WERE REGISTERED IN THE NAME OF THE DIRECTORS OF THE COMPANY. SINCE THIS FACT HAS NOT BEEN DOUBTED BY ANY OF THE AUTHORI TIES BELOW , THEREFORE, WE CAN SAFELY PRESUME THAT THE ASSESSEE IS THE BENEFICIAL OWNER OF THE ASSETS. IN HOLDING SO WE FIND SUPPORT AND GUIDANCE FROM THE JUDGMENT OF H ON BLE SUPREME COURT IN THE CASE OF MYSORE MINERALS LTD. VS CIT REPORTED IN 239 ITR 775 WHEREIN IT WAS HELD AS UNDER: 13. AN OVERALL VIEW OF THE ABOVESAID AUTHORITIES SHOW THAT THE VERY CONCEPT OF DEPRECIATION SUGGESTS THAT THE TAX BENEFIT ON ACCOUNT OF DEPRECIATION LEGITIMATELY BELONGS TO ONE WHO HAS INVESTED IN THE CAPITAL ASSET, IS UTILIZ ING THE CAPITAL ASSET AND THEREBY LOOSING GRADUALLY INVESTMENT CAUSED BY WEAR AND TEAR, AND WOULD NEED TO REPLACE THE SAME BY HAVING LOST ITS VALUE FULLY OVER A PERIOD OF TIME. 10.2 THE 2 ND DISPUTE RELATES WHETHER THE ASSETS WERE USED FOR THE BUSINESS. I NDEED IT IS ONE OF THE PRE - CONDITION TO CLAIM THE DEPRECIATION ON THE ASSETS THAT IT SHOULD BE USED FOR THE BUSINESS. THE ALLEGATION OF THE AUTHORITIES BELOW IS THAT THE ASSESSEE FAILED TO SUBSTANTIATE ITS CASE BY FILING THE DOCUMENTARY EVIDENCE SUGGESTING THAT THESE ASSETS WERE USED FOR THE BUSINESS. IN THIS REGARD , WE NOTE THAT THE ASSESSEE HAS CLAIMED OTHER EXPENSES IN CONNECTION WITH THE VEHICLE AS DISCUSSED ABOVE. THESE EXPENSES ARE LIKE INTEREST ON A CAR LOAN, PE TROL EXPENSES, REPAIR AND MA INTENANCE EXPENSES ETC . THE NECE SSARY DETAILS OF SUCH EXPENSES A R E AVAILABLE IN THE FINANCIAL STATEMENTS PLACED ON PAGE 97 IN THE PAPER BOOK. IT IS UNDISPUTED FACT THAT THESE EXPENSES HAVE NOT BEEN DISALLOWED . THUS , IT CAN BE TRANSPIRED THAT THE REVENUE HA S ADMITTED THESE EXPENSES INCURRED BY THE ASSESSEE FOR THE BUSINESS. THUS IN OUR CONSIDERED VIEW , WE FIND THAT THE AUTHORITIES BELOW HAVE MADE THE ADDITION ON ACCOUNT OF DEPRECIATION WITHOUT THE ITA NOS.1075 & 1076/AHD/2016 ASSTT. YEARS 2009 - 10 & 2012 - 13 5 APPLICATION OF MIND. ACCORDINGLY, WE HOLD THAT THE DISALLOWAN CE ON ACCOUNT OF DEPRECIATION MADE BY THE REVENUE IS NOT SUSTAINABLE. 10.3 IT IS ALSO IMPORTANT TO NOTE THAT THE AO ALSO MADE SIMILAR DISALLOWANCE IN THE EARLIER ASSESSMENT YEAR 2005 - 06 , BUT THE LEARNED CIT (A) DELETED THE ADDITION MADE BY THE AO. THE LEA RNED DR HAS ALSO NOT BROUGHT ANYTHING ON RECORD TO DEMONSTRATE WHETHER AN APPEAL WAS PREFERRED BY THE REVENUE AGAINST THE ORDER OF LEARNED CIT - A. THUS IN THE ABSENCE OF REQUISITE INFORMATION FROM THE SIDE OF THE LEARNED DR, WE HOLD THAT THE REVENUE DID NOT CHALLENGE THE ORDER OF THE LEARNED CIT - A FOR THE ASSESSMENT YEAR 2005 - 06. 10.4 AFTER CONSIDERING THE FACTS IN TOTALITY AS DISCUSSED ABOVE, WE ARE NOT INCLINED TO UPHOLD THE FINDING OF THE AUTHORITIES BELOW. ACCORDINGLY, WE SET ASIDE THE ORDER OF LEARNED CIT - A, AND DIRECT THE AO TO DELETE THE ADDITION MADE BY HIM. HENCE THE GROUND OF APPEAL OF THE ASSESSEE IS ALLOWED. 11. THE NEXT ISSUE RAISED BY THE ASSESSEE IS THAT LD. CIT (A) ERRED IN CONFIRMING THE DISALLOWANCE OF RS. 13,45,356/ - ON ACCOUNT OF LABOUR CHARGES. 12. THE ASSESSEE IN THE YEAR UNDER CONSIDERATION HAS CLAIMED LABOUR EXPENSES OF RS. 19,29,390/ - ONLY. THE ASSESSEE IN SUPPORT OF LABOUR EXPENSES FILED THE COPIES OF THE BILLS ISSUED BY THE LABOUR ER. H OWEVER , THE AO FOUND THAT SOME OF THE BILLS F ILED BY THE ASSESSEE AMOUNTING TO RS. 13,45,356/ - PERTAINS TO THE ASSESSMENT YEAR 2006 - 07. THEREFORE , THE SAME WAS DISALLOWED AND ADDED TO THE TOTAL INCOME OF THE ASSESSEE. 13. AGGRIEVED ASSESSEE PREFERRED AN APPEAL TO LD. CIT (A). THE ASSESSEE BEFORE THE LD. CIT (A) SUBMITTED THAT IT HA D RECEIVED LABOUR CHARGES AMOUNTING TO RS. 42 , 00 , 303/ - ONLY AGAINST LABOUR EXPENSES OF RS. 19,20,390/ - ONLY. ITA NOS.1075 & 1076/AHD/2016 ASSTT. YEARS 2009 - 10 & 2012 - 13 6 13.1 THE ASSESSEE BEFORE THE LD. CIT (A) SUBMITTED THAT IT IS MAKING THE PAYMENT TO LABOUR ERS PERIODICALLY AGAI NST THE WORK CARRIED OUT BY THEM. HOWEVER, AT THE END OF THE YEAR ALL THE PAYMENT MADE TO THE LABORS ARE CLUB BED AND AGAINST SUCH PAYMENT , A SINGLE BILL IS ISSUED BY THE LABORS . THE ASSESSEE ALSO SUBMITTED THAT THE PAYMENT TO THE LABOUR ERS HA D BEEN MADE AFTER DEDUCTING TDS AND THROUGH ACCOUNT PAYEE CHEQUES. 13.2 ALL THE DETAILS OF THE LABOUR ERS WERE AVAILABLE WITH THE AO DURING THE ASSESSMENT PROCEEDING . T H US IN CASE OF ANY DOUBT THE AO WAS EMPOWERED TO VERIFY THE SAME BY ISSU ING NOTICE U/S 13 1/133( 6 ) OF THE ACT. 13.3 THERE WAS AN INA DVERT ENT ERROR IN MENTIONING THE DATE ON THE BILL ISSUED BY THE LABOUR ERS BUT THESE EXPENSES WERE NEVER CLAIMED IN THE PREVIOUS YEAR 2006 - 07 . T HEREFORE THE QUESTION OF DOUBLE DEDUCTION FOR LABOUR EXPENSES DOES NOT ARISE. 13.4 THE ASSESSEE IN SUPPORT OF HIS CONTENTIONS HAS FILED THE FRESH LABOUR BILL S , THE COPY OF ACCOUNT AND CONFIRMATION FRO M THE LABO R ERS . 13.5 THE LD. CIT (A) CALLED FOR THE REMAND REPORT ON THE ADDITIONAL EVIDENCE FILED BY THE ASSESSEE , BUT THERE WAS NO REPLY FROM THE SIDE OF THE AO . H O W EVER, THE L D . CIT (A) DIS REGARDED THE CONTENTIONS OF THE ASSESSEE BY OBSERVING THAT THE ASSESSEE FAILED TO FURNISH THE DETAILS FOR THE MOVEMENT OF JEWELRY TO THE LABOUR ERS FOR CARRYING OUT THE NECESSARY JOB WORK. 13.6 ALL THE FRESH BILLS ISSUED BY THE LABO R S WERE CONTAINING DATE AS 31/03/2009. 13.7 THE ASSESSEE HAS NOT DEDUCTED TDS IN THE MANNER AS PRESCRIBED UNDER THE PROVISION OF LAW. IN VIEW OF THE ABOVE THE LD. CIT ( A) CONFIRMED THE ORDER OF THE AO. ITA NOS.1075 & 1076/AHD/2016 ASSTT. YEARS 2009 - 10 & 2012 - 13 7 14. BEING AGGRIEVED BY THE ORDER OF LD. CIT (A) ASSESSEE IS IN APPEAL BEFORE US. 15. THE LD. AR BEFORE US SUBMITTED THAT THE AO MADE THE DISALLOWANCE WITHOUT ISSUING A SHOW CA U S E NOTICE TO THE ASSESSEE . 15.1 ALL THE NEC ESSARY DETAILS IN THE RESPONSE TO THE LABOUR EXPENSES WERE DULY FURNISHED BEFORE THE LD. CIT (A). BUT THE AO FAILED TO FIND ANY DEFECT ON THE DOCUMENTS FILED DURING THE ASSESSMENT PROCEEDINGS DESPITE SEVERAL REMINDE RS. 15.2 ALL THE DETAILS OF THE LABOUR ERS WERE AVAILABLE WITH THE AUTHORITIES BELOW BUT NONE OF THEM HAS ISSUED ANY NOTICE U/S . 133/133 (6) OF THE ACT. 15.3 THERE WAS NO DISALLOWANCE MADE BY THE REVENUE ON ACCOUNT OF LABOUR EXPENSES PERTAINING TO THE ASSESSMENT YEAR 2008 - 09 AND 2011 - 12. 16. O N THE OTHER HAND THE LD. DR SUBMITTED THAT THE LD. CIT (A) HAS CO - TERMINUS POWER ; THEREFORE , HE CAN DECIDE THE ISSUE IN THE ABSENCE OF REMAND REPORT FROM THE AO. 16.1 THE LD. DR FURTHER SUBMITTED THAT THE ASSESSEE FAILED TO FURNISH THE NECESSARY EVIDENCE TO DEMONSTRATE WHETHER ANY JOB WORK WAS CARRIED OUT ON THE JEWELRY . 16.2 THE LD. DR VEHEMENTLY SUPPORTED THE ORDER OF THE AUTHORITIES BELOW. 16.3 WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE MATERIALS AVAILABLE ON RECORD. THE ASSESSEE IN THE YEAR UNDER CONSIDERATION HAS CLAIMED LABOUR EXPENSES AMOUNTING TO RS. 19,20,390/ - . HOWEVER, THE AO FOUND THAT THE BILLS FILED BY THE ASSESSEE IN SUPPORT OF LABOUR EXPENSES FOR RS. 13,45,356/ - PERTAIN TO ITA NOS.1075 & 1076/AHD/2016 ASSTT. YEARS 2009 - 10 & 2012 - 13 8 THE FINANCIAL YEAR 2006 - 07. THEREFORE, THE SAME WAS DISALLOWED AND ADDED TO THE TOTAL INCOME OF THE ASSESSEE. 16.4 SUBSEQUENTLY, THE LEARNED CIT (A) ALSO CONFIRMED THE ACTION OF THE AO BY OBSERVING THAT THE ASSESSEE FAILED TO FURNISH SUFFICIENT DOCUMENTARY EVIDENCE TO DEMONSTRATE THAT THERE WAS AN ACTUAL TRANSFER OF JEWELRY FROM THE ASSESSEE TO THE LABO R ERS FOR CARRYING OUT THE NECESSARY WORK ON SUCH JEWELRY . 16.5 THE ASSESSEE HAS FILED REVISED BILLS O F THE CURRENT YEAR WHICH WERE RAISED BY THE LABO R ERS ON THE LAST DAY OF THE PREVIOUS YEAR. 16.6 THE ASSESSEE HAS NOT DEDUCTED THE TDS ON THE BILLS RAISED BY THE LABO R S IN THE MANNER AS PROVIDED UNDER THE PROVISIONS OF LAW. THUS THE LD. CIT (A) WAS OF THE VIEW THAT THE LABOUR EXPENSES SHOULD ALSO BE DISALLOWED ON ACCOUNT OF NON - DEDUCTION OF TDS UNDER SECTION 194C OF THE ACT R.W.S. 40(A)( IA ) OF THE ACT. 16.7 F ROM THE PRECEDING DISCUSSION WE NOTE THAT ALL THE DETAILS OF THE LABO R ERS INCLUDING THE ADDRESSES AND PAN WERE AVAILABLE WITH THE AUTHORITIES BELOW. IN CASE THERE IS ANY DOUBT ABOUT THE L ABOUR EXPENSES CLAIMED BY THE ASSESSEE, THEN THE AUTHORITIES BELOW SHOULD HAVE TAKEN THE CONFIRMATION FROM THE RESPECTIVE PARTIES. THE AUTHORITIES BELOW WERE EMPOWERED TO VERIFY WHETHER THESE LABO R S HAVE DISCLOSED THE RECEIPT FROM THE ASSESSEE IN THEIR RESPECTIVE INCOME TAX RETURN OR NOT. BUT WE FIND THAT THE AUTHORITIES BELOW HAVE NOT EXERCISED THEIR POWER PROVIDED UNDER THE STATUTE. 16.8 WE ALSO NOTE THAT TH E ASSESSEE HAS DEDUCTED THE TDS FROM THE PAYMENT OF THE LABOUR CHARGES TO THE LABO R ERS . IN CASE THE TDS HA S NOT BEEN DEDUCTED IN THE MANNER AS PROVIDED UNDER THE STATUTE, THEN THE REVENUE IS EMPOWERED TO INITIATE THE PROCEEDINGS UNDER CHAPTER X VI I OF THE TDS. HOWEVER, THE NON - COMPLIANCE ON ACCOUNT OF LATE DEDUCTION OF THE TDS PROVISIONS CANNOT BE THE BASIS OF MAKING THE DISALLOWANCE UNDER THE ASSESSMENT FRAMED UNDER SECTION 143(3) OF THE ACT. ITA NOS.1075 & 1076/AHD/2016 ASSTT. YEARS 2009 - 10 & 2012 - 13 9 16.9 ON PERUSAL OF THE LEDGERS OF THE LABO R ERS WE NOTE THAT THE PAYMENT WAS MADE BY THE ASSESSEE PERIODICALLY AFTER THE DEDUCTION OF TDS. THUS, THE ASSESSEE CANNOT BE PENALIZED IF THE LABO R ERS HAVE RAISED THE BILLS AT THE END OF THE ACCOUNTING YEAR. 16.10 WE ALSO NOTE THAT THE ASSESSEE HAS SHOWN HUGE TURNOVER FROM T HE SALE OF JEWELRY AMOUNTING TO RS 98.89 CRORES AND AGAINST SUCH SALE THE ASSESSEE HAS CLAIMED LABOUR EXPENSES ONLY FOR RS. 19,20,390/ - ONLY WHICH IS CONSTITUTING LESS THAN 1% OF THE TURNOVER. AS SUCH THE GENUINENESS OF THE LABOUR EXPENSES CANNOT BE DOUBTED CONSIDERING THE HUGE TURNOVER OF THE ASSESSEE AS DISCUSSED ABOVE. IN VIEW OF THE ABOVE , WE ARE NOT INCLINED TO UPHOLD THE FINDING OF THE AUTHORITIES BELOW. ACCORDINGLY, WE SET ASIDE THE ORDER OF LEARNED CIT (A) AND DIRECT THE AO TO DELETE THE ADD ITION MADE BY HIM. HENCE, THE GROUND OF APPEAL OF THE ASSESSEE IS ALLOWED. 17 . NOW COMING TO ITA NO . 1076/AHD/2016 FOR A.Y 2012 - 13 . THE ASSESSEE HAS RAISED THE FOLLOWING GROUNDS OF APPEAL: 1. THE LD.CIT (A) HAS ERRED IN CONFIRMING THE DISALLOWANCE OF RS. 1,84,600/ - MADE BY THE ASSESSING OFFICER U/S.14A OF THE I.T. ACT 1961 R.W.R 8D OF THE I.T. RULES 1962. 2. THE LD.CIT (A) HAS ERRED IN CONFIRMING THE DISALLOWANCE OF RS. 8,70,000/ - MADE BY THE ASSESSING OFFICER OUT OF INTEREST EXPENSES ON ESTIMATE BASIS. 3. TH E ''LD.CIT(A) HAS ERRED IN CONFIRMING DISALLOWANCE MADE BY THE ASSESSING OFFICER FOR LABOUR EXPENSES OF RS. 7,03,801/ - BEING 25% OF THE TOTAL LABOUR EXPENSES OF RS. 28,15,202/ - THE APPELLANT CRAVES LEAVE TO ADD, ALTER, AMEND OR MODIFY ANY OF THE GROUNDS O F APPEAL ON OR BEFORE THE DATE OF HEARING OF APPEAL . ITA NOS.1075 & 1076/AHD/2016 ASSTT. YEARS 2009 - 10 & 2012 - 13 10 18. THE FIRST ISSUE RAISED BY THE ASSESSEE IS THAT LD. CIT(A) ERRED IN CONFIRMING THE ADDITION MADE BY THE AO FOR RS. 1,84,600/ - UNDER THE PROVISION OF SECTION 14A R.W.R 8D OF INCOME TAX RULE. 19. THE AO DURING THE ASSESSMENT PROCEEDINGS FOUND THAT THE ASSESSEE HAS MADE THE INVESTMENT IN SHARES AND SECURITIES. BUT THE ASSESSEE FAILED TO MAKE ANY DISALLOWANCE U/S 14A R .W.R 8D , THEREFORE, THE AO MADE THE DISALLOWANCE OF RS. 1,84,600/ - U/S. 14A R.W.R 8 D AND ADDED TO THE TOTAL INCOME OF THE ASSESSEE . 20. AGGRIEVED AS SESSEE PREFERRED AN APPEAL TO L D . CIT(A) WHO HAS CONFIRMED THE ORDER OF TH E AO . 21. B EING AGGRIEVED BY THE ORDER OF L D. CIT (A) ASSESSEE IS IN APPEAL BEFORE US. 22. THE LD. AR BEFORE US SUBMITTED THAT THERE WAS NO EXEMPT INCOME EARNED BY THE ASSESSEE DURING THE YEAR UNDER CONSIDERATION. THEREFORE , THERE CANNOT BE ANY DISALLOWANCE UNDER THE PROVISION OF SECTION 14A R.W.R 8D OF INCOME TAX RULES 1963. 23. ON THE OTHER HAND LD. DR VEHEMENTLY SUPPORTED THE ORDER OF THE AUTHORITIES BELOW. 24. WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE MATERIALS AVAILABLE ON RECORD. AT THE OUTSET , WE NOTE THAT THERE WAS NO EXEMPT INCOME EARNED BY THE ASSESSEE IN THE YEAR UNDER CONSIDERATION. THEREFORE, IN OUR CONSIDERED VIEW THERE CANNOT BE ANY DISALLOWANCE UNDER SECTION 14A READ WITH RULE 8D OF THE ACT I N VIEW OF THE JUDGEMENT OF H ON BLE GUJARAT HIGH COURT IN THE CASE OF CIT VS C ORRTECH ENERGY PVT. LTD. REPORTED IN 372 ITR 97 WHEREIN IT WAS HELD AS UNDER: 4. COUNSEL FOR THE REVENUE SUBMITTED THAT THE ASSESSING OFFICER AS WELL AS CIT(APPEALS) HAD APPLIED FORMULA OF RULE 8D OF THE INCOME TAX RULES, SINCE ITA NOS.1075 & 1076/AHD/2016 ASSTT. YEARS 2009 - 10 & 2012 - 13 11 THIS CASE AROSE AFTER THE ASSESSMENT YEAR 2009 - 2010. SINCE IN THE PRESENT CASE, WE ARE CONCERNED WITH THE ASSESSMENT YEAR 2009 - 2010, SUCH FORMULA WAS CORRECTLY APPLIED BY THE REVENUE. WE HOWEVER, NOTICE THAT SUB - SECTION(1) OF SECTION 14A PROVIDES THAT FOR THE PURPOSE OF COMPUTING TOTAL INCOME UNDER CHAPTER IV OF THE ACT, NO DEDUCTION SHALL BE ALLOWED IN RESPECT OF EXPENDITURE INCURRED BY THE ASSESSEE IN RELATION TO INCOME WHICH DOES NOT FORM PART OF THE TOTAL INCOME UNDER THE ACT. IN THE PRESENT CASE, THE TRIBUNAL HAS RECORDED THE FINDING OF FACT THAT THE ASSESSEE DID NOT MAKE ANY CLAIM FOR EXEMPTION OF ANY INCOME FROM PAYMENT OF TAX. IT WAS ON THIS BASIS THAT THE TRIBUNAL HELD THAT DISALLOWANCE UNDER SECTION 14A OF THE ACT COULD NOT BE MADE. IN THE PROCESS TRIBUNAL RELIED ON THE DE CISION OF DIVISION BENCH OF PUNJAB AND HARYANA HIGH COURT IN CASE OF CIT V WINSOME TEXTILE INDUSTRIES LTD . [2009] 319 ITR 204 IN WHICH ALSO THE COURT HAD OBSERVED AS UN DER : '7. WE DO NOT FIND ANY MERIT IN THIS SUBMISSION. THE JUDGEMENT OF THIS COURT IN ABHISHEK INDUSTRIES LTD (2006) 286 ITR 1 WAS ON THE ISSUE OF ALLOWABILITY OF INTER EST PAID ON LOANS GIVEN TO SISTER CONCERNS, WITHOUT INTEREST. IT WAS HELD THAT DEDUCTION FOR INTEREST WAS PERMISSIBLE WHEN LOAN WAS TAKEN FOR BUSINESS PURPOSE AND NOT FOR DIVERTING THE SAME TO SISTER CONCERN WITHOUT HAVING NEXUS WITH THE BUSINESS. THE OBSE RVATIONS MADE THEREIN HAVE TO BE READ IN THAT CONTEXT. IN THE PRESENT CASE, ADMITTEDLY THE ASSESSEE DID NOT MAKE ANY CLAIM FOR EXEMPTION. IN SUCH A SITUATION SECTION 14A COULD HAVE NO APPLICATION.' 5. WE DO NOT FIND ANY QUESTION OF LAW ARISING, TAX APPEAL IS THEREFORE DISMISSED. IN VIEW OF THE ABOVE , WE HOLD THAT THE DISALLOWANCE UNDER SECTION 14A READ WITH RULE 8D OF THE INCOME TAX RULE IS NOT WARRANTED. 24.1 WE ALSO NOTE THAT THE CIRCULAR ISSUED BY THE CBDT AS RELIED ON BY THE AO IS NOT BINDING ON THE ITAT. AS SUCH WE ARE BOUND TO FOLLOW THE JUDGMENT OF H ON BLE JURISDICTIONAL HIGH COURT. THUS, WE DO NOT WANT TO MAKE ANY REFERENCE TO THE CIRCULAR ISSUED BY THE CBDT. 24.2 ACCORDINGLY , WE SET ASIDE THE ORDER OF LEARNED CIT (A) AND DIRECT THE AO TO DELETE THE ADDITION MADE BY HIM . H ENCE THE GROUND OF APPEAL OF THE ASSESSEE IS ALLOWED. ITA NOS.1075 & 1076/AHD/2016 ASSTT. YEARS 2009 - 10 & 2012 - 13 12 25. THE SECOND ISSUE RAISED BY THE ASSESSEE IS THAT LD. CIT (A) ERRED IN CONFIRMING THE DISALLOWANCE O F RS. 8,70,000/ - ON ACCOUNT OF DIVERSION OF INTEREST - BEARING FUND. 26. THE AO DURING THE ASSESSMENT PROCEEDINGS FOUND THAT THE ASSESSEE HAS DIVERTED ITS FUND AMOUNTING TO RS. 70,00,000/ - AS AN ADVANCE FOR CAPITAL ASSETS WHICH WAS HAVING AN OPENING BALANCE OF RS. 75,00,000/ - ONLY. A CCORDINGLY THE AO WAS OF THE VIEW THAT THE ASSESSEE HAS DIVERTED INTEREST - BEARING FUND . A CCORDINGLY , THE AO WORK ED OUT THE AMOUNT OF INTEREST ON SUCH ADVANCE PROPORTIONATELY AMOUNTING TO RS. 8,70,000/ - AND ADDED TO THE TOT AL INCOME OF THE ASSESSEE. 27. AGGRIEVED ASSESSEE PREFERRED AN APPEAL TO LD. CIT (A) WHO HAS CONFIRMED THE ORDER OF THE AO. 28. BEING AGGRIEVED BY THE ORDER OF THE LD. CIT (A) ASSESSEE IS IN APPEAL BEFORE US. 29. THE LD. A R, BEFORE US AT THE OUT SET SUBMITTED THAT OWN FUND OF ASSESSEE INCLUDING THE FREE RESERVE EXCEEDS THE AMOUNT OF SUCH ADVANCES . T HEREFORE , THERE CANNOT BE ANY DISALLOWANCE ON ACCOUNT OF INTEREST EXPENSES. 30. ON THE OTHER HAND LD. DR VEHEMENTLY SUPPORTED THE ORDER OF AUTHORITIES BELOW. 31. WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE MATERIALS AVAILABLE ON RECORD. AT THE OUTSET , WE NOTE THAT THE OWN FUND OF THE ASSESSEE EXCEEDS THE ADVANCE S GIVEN WITHOUT ANY INTEREST. THE NECESSARY DETAILS OF THE OWN FUND OF THE ASSESSEE AND THE ADVANCE WITHOUT INTEREST STANDS AS UNDER: NET OWNED FUNDS : RS. 13.33CRORES INTEREST - FREE ADVANCE : RS. 70LACS ITA NOS.1075 & 1076/AHD/2016 ASSTT. YEARS 2009 - 10 & 2012 - 13 13 THEREFORE, WE ARE OF THE VIEW THAT NO DISALLOWANCE OF INTEREST EXPENSES ON ACCOUNT OF DIVERSION OF THE FUND IS WARRANTED. IN THIS REGARD , WE FIND SUPPORT AND GUIDANCE FROM THE JUDGEMENT OF HON BLE BOMBAY HIGH COURT IN THE CASE OF RELIANCE UTILITIES AND POWER LTD. REPORTED IN 313 ITR 340 WHEREIN IT WAS HELD AS UNDER: - THE PRINCIPLE THEREFORE WOULD BE THAT IF THERE ARE FUNDS AVAILABLE BOTH INTEREST - FREE AND OVERDRAFT AND/OR LOANS TAKEN, THEN A PRESUMPTION WOULD ARISE THAT INVESTMENTS WOULD BE OUT OF THE INTEREST - FREE FUND GENERATED OR AVAILABLE WITH THE COMPANY, IF THE INTEREST - FREE FUNDS WERE SUFFICIENT TO MEET THE INVESTMENTS. IN THI S CASE THIS PRESUMPTION IS ESTABLISHED CONSIDERING THE FINDING OF FACT BOTH BY THE CIT(A) AND TRIBUNAL . 31.1 SIMILARLY, WE ALSO RELY ON THE JUDGMENT OF THE HON BLE BOMBAY HIGH COURT IN THE CASE OF CIT VS. HDFC BANK LTD REPORTED IN 366 ITR 505 (BOM ). THE RELEVANT EXTRACT OF THE ORDER IS REPRODUCED BELOW: WHERE ASSESSEE'SCAPCIT (A)L, PROFIT RESERVES, SURPLUS AND CURRENT ACCOUNT DEPOSITS WERE HIGHER THAN THE INVESTMENT IN TAX - FREE SECURITIES, IT WOULD HAVE TO BE PRESUMED THAT INVESTMENT MADE BY THE ASSESSEE WOULD BE OUT OF THE INTEREST - FREE FUNDS AVAILABLE WITH ASSESSEE AND NO DISALLOWANCE WAS WARRANTED U/S 14A. 31.2 SIMILARLY, WE ALSO FIND SUPPORT FROM THE JUDGMENT OF HON BLE GUJARAT HIGH COURT IN THE CASE OF UTI BANK LTD. REPORTED IN 32 TAXMANN.C OM 370 WHERE THE HEADNOTE READS AS UNDER : IF THERE ARE SUFFICIENT INTEREST FREE FUNDS TO MEET TAX FREE INVESTMENTS, THEY ARE PRESUMED TO BE MADE FROM INTEREST FREE FUNDS AND NOT LOANED FUNDS AND NO DISALLOWANCE CAN BE MADE UNDER SECTION 14A . IN VIEW OF THE ABOVE PROPOSITION, WE HOLD THAT NO DISALLOWANCE OF INTEREST EXPENSE CLAIMED BY THE ASSESSEE CAN BE MADE ON ACCOUNT OF INVESTMENTS AS DISCUSSED ABOVE. HENCE, WE REVERSE THE ORDER OF THE AUTHORITIES BELOW. THE AO IS ITA NOS.1075 & 1076/AHD/2016 ASSTT. YEARS 2009 - 10 & 2012 - 13 14 DIRECTED TO DELETE THE ADDITION MAD E BY HIM. HENCE THE GROUND OF APPEAL OF THE ASSESSEE IS ALLOWED. 32. THE THIRD ISSUE RAISED BY THE ASSESSEE IS THAT LD. CIT (A) ERRED IN DELETING THE ADDITION ON ACCOUNT OF LABOR EXPENSES AMOUNTING TO RS. 7,03,801/ - BEING 25% OF THE TOTAL LABOR EXPENSES OF RS. 28,15,202/ - 33. WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE MATERIALS AVAILABLE ON RECORD. AT THE OUTSET , WE NOTE THAT IN THE SIMILAR FACTS AND CIRCUMSTANCES, WE HAVE DELETED THE ADDITION MADE BY THE AUTHORITIES BELOW IN ITA NUMB ER 1075/A/16 VIDE PARAGRAPH NUMBER 16 OF THIS ORDER. THEREFORE, THE SAME REASONING WILL ALSO BE APPLIED FOR THE IMPUGNED ISSUE UNDER CONSIDERATION. 33.1 IN ADDITION TO THE ABOVE, WE ALSO NOTE THAT THE AD - HOC DISALLOWANCE IS NOT ALLOWED WHEN ASSESSEE HAS S UBMITTED ALL THE SUPPORTING DOCUMENTS RELATED TO LABOUR CHARGES SUCH AS PAN, ADDRESS, NATURE OF WORK DONE AND JUSTIFICATION OF THE RATE CHARGED . THE REVENUE WAS EXPECTED TO POINT OUT THE SPECIFIC DEFECT IN THE DETAILS FILED BY THE ASSESSEE BEFORE RESORTING TO MAK ING THE AD HOC DISALLOWANCE. ACCORDING LY, WE DIRECT THE AO TO DELETE THE ADDITION MADE BY HIM . H ENCE THE GROUND OF APPEAL OF THE ASSESSEE IS ALLOWED. 33.2 IN THE RESULT THE APPEAL OF THE ASSESSEE IS ALLOWED. 34. IN THE COMBINED RESULT BOTH THE APPEALS OF THE ASSESSEE ARE ALLOWED. O RDER PRONOUNCED IN THE COURT ON 01/03 / 2019 AT AHMEDABAD. - SD - - SD - (MS MADHUMITA ROY ) (WASEEM AHMED) JUDICIAL MEMBER ACCOUNTANT MEMBER (TRUE COPY) A HMEDABAD; DATED 01 / 03 /2019 MANISH ITA NOS.1075 & 1076/AHD/2016 ASSTT. YEARS 2009 - 10 & 2012 - 13 15 / COPY OF THE ORDER FORWARDED TO : / BY ORDER, / ( DY./ASSTT.REGISTRAR) , / ITAT, AHMEDABAD 1. / THE APPELLANT 2. / THE RESPONDENT. 3. / CONCERNED CIT 4. ( ) / THE CIT(A) 5. , / DR, ITAT, 6. / GUARD FILE .