VIJAY SOLVEX LTD., Alwar V. ACIT, Alwar

ITA 109/JPR/2014

• Counselvise Citation: [2016] 133 COUNSELVISE.COM (IT) 5607 (ITAT-JAIPUR)
• Duration Of Justice: 1 year(s) 10 month(s) 29 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 11-01-2016
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: B
• Assessment Year: 2010-2011
• Appeal Filed On: 12-02-2014
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: KAILASH MANGAL JCIT DHK
• Keywords: Earning of tax free income; Commercial expediency
• Section: 143(3); 14A; 115JB

Judgement Text

VK;DJ VIHYH; VF/KDJ.K] T;IQJ U;K;IHB] T;IQJ IN THE INCOME TAX APPELLATE TRIBUNAL, JAIPUR BENCHES, JAIPUR JH VH-VKJ-EHUK] YS[KK LNL; ,OA JH YFYR DQEKJ] U;KF; D LNL; DS LE{K BEFORE: SHRI T.R.MEENA, AM & SHRI LALIET KUMAR, JM VK;DJ VIHY LA -@ ITA NO. 109/JP/2014 FU/KZKJ.K O'K Z @ ASSESSMENT YEAR : 2010-11 VIJAY SOLVEX LTD., BHAGWATI SADAN, SWAMI DAYANAND MARG, ALWAR (RAJ.) CUKE VS. A.C.I.T. CIRCLE-2, ALWAR. LFKK;H YS[KK LA-@THVKBZVKJ LA-@ PAN/GIR NO. AAACV 6864 A VIHYKFKHZ@ APPELLANT IZR;FKHZ@ RESPONDENT FU/KZKFJRH DH VKSJ LS@ ASSESSEE BY : SHRI P.C. PARWAL (CA) JKTLO DH VKSJ LS@ REVENUE BY : SHRI KAILASH MANGAL (JCIT) LQUOKBZ DH RKJH[K@ DATE OF HEARING : 20/10/2015. MN?KKS'K .KK DH RKJH[K @ DATE OF PRONOUNCEMENT : 11/01/2016. VKNS'K@ ORDER PER T.R. MEENA, A.M. THIS IS AN APPEAL FILED BY THE ASSESSEE AGAINST THE ORDER DATED 24/12/2013 OF THE LEARNED CIT(A), ALWAR FOR A.Y. 2010 -11. THE EFFECTIVE GROUNDS OF APPEAL ARE AS UNDER:- 1. THAT THE LEARNED ASSESSING OFFICER HAS ERRED IN LAW AS WELL AS ON FACTS AND CIRCUMSTANCES OF THE CASE IN MAKING THE DISALLOWANCE OUT OF MISC. EXP OF RS. 463487.00 AND L D 2 ITA NO. 109/JP/2014 VIJAY SOLVEX LTD. VS ACIT CIT(A) HAS ERRED IN SUSTAINING OF SUM OF RS. 200000. 00 OUT OF THE SAME. 2. THAT THE LEARNED ASSESSING OFFICER HAS ERRED IN L AW AS WELL AS ON FACTS AND CIRCUMSTANCES OF THE CASE IN MAKING THE DISALLOWANCE OUT OF REPAIR AND MAINTENANCE OF RS. 296122.00 AND LD CIT(A) HAS ERRED IN SUSTAINING THE SAME. 3. THAT THE LEARNED ASSESSING OFFICER HAS ERRED IN L AW AS WELL AS ON FACTS AND CIRCUMSTANCES OF THE CASE IN MAKING THE DISALLOWANCE OUT OF TRAVELLING EXPENSES OF RS. 50000 .00 AND LD CIT(A) HAS ERRED IN SUSTAINING OF SUM OF RS. 20000.00 OUT OF THE SAME. 4. DISALLOWANCE OF INTEREST OF RS. 2384269.00.00:- 4.1 THAT THE LEARNED ASSESSING OFFICER HAS ERRED IN LAW AS WELL AS ON THE FACTS AND CIRCUMSTANCES OF THE CASE IN GIVING A FINDING THAT THE ASSESSEE COMPANY HAS INVESTED ITS INTEREST BEARING FUNDS IN THE INVESTMENT IN SHARES, WHEREAS FACTS REMAINS THAT ASSESSEE COMPANY HAS NOT INVESTED THE INTEREST BEARING FUNDS IN THE FORM OF RESERVE AND SURPLUSES HAVE BEEN INVESTED IN THE SHARES AND LD CIT(A) HAS ERRED IN SUSTAINING THE SAME. 4.2 THAT THE LEARNED ASSESSING OFFICER HAS ERRED IN LAW AS WELL AS ON FACTS AND CIRCUMSTANCES OF THE CASE IN MAKING A DISALLOWANCE OF RS. 2384269.00 BY APPLYING THE RULE 8D OF THE I TAX RULES, 1962 AND LD CIT(A) HAS ERRED IN SUSTAINING THE SAME. 2. THE ASSESSEE COMPANY IS ENGAGED IN THE MANUFACTUR ING, CRUSHING AND EXTRACTING OF OIL FROM OIL SEEDS, REFINING OF O IL, PRODUCING OF VEGETABLE 3 ITA NO. 109/JP/2014 VIJAY SOLVEX LTD. VS ACIT OIL, AND MANUFACTURING OF BONE CHINA CROCKERY, INSU LATORS AND GENERATION OF ELECTRICITY AND ALSO ENGAGED IN THE ACTIVITY ALL EGED TO ITS MAIN ACTIVITY LIKE MANUFACTURING OF TIN CONTAINER. THE ASSESSEE FI LED RETURN FOR THE YEAR UNDER CONSIDERATION ON 13/10/2010 DECLARING TOTAL I NCOME OF RS. 5,87,85,887/- (BEFORE CLAIMING DEDUCTION U/S 80IA O F RS. 1,65,35,380/-). THE ASSESSEE HAD SHOWN AGRICULTURAL INCOME OF RS. 50, 500/-. THE BOOK PROFIT U/S 115JB OF THE INCOME TAX ACT, 1961 (IN SHO RT THE ACT) HAD BEEN CALCULATED AT RS. 4,77,94,225/-. THE CASE WAS SCRUTIN IZED U/S 143(3) OF THE ACT. 2.1 THE FIRST GROUND OF APPEAL IS AGAINST THE DISALL OWANCE OUT OF MISC. EXPENSES OF RS. 2 LACS. THE LD ASSESSING OFFICER OBS ERVED THAT THE ASSESSEE HAD DEBITED RS. 36,34,872/- UNDER THE HEAD MISC. EXPENSES, WHICH WAS RS. 42,68,903/- IN PRECEDING YEAR. THE TURNO VER DURING THE YEAR HAS GONE DOWN FROM PRECEDING YEAR RS. 521.81 CRORES TO 439.62 CRORES. THE ASSESSING OFFICER FOUND THE MISC. EXPENSES UNREA SONABLE, THEREFORE, HE GAVE SHOW CAUSE NOTICE ON IT. HE HELD THAT THE AS SESSEE HAD PRODUCED DATE WISE DETAILS OF MISC. EXPENSES AND SUBMITTED TH AT THESE EXPENSES INCLUDED PAYMENT MADE FOR TEA, REFRESHMENT, SWEET AN D THANDA ETC. FOR THE CUSTOMERS BUT ADMITTED THAT THESE EXPENSES ARE NOT VOUCHED AND 4 ITA NO. 109/JP/2014 VIJAY SOLVEX LTD. VS ACIT BOOKED THROUGH SELF MADE VOUCHERS. THESE EXPENSES WE RE INCURRED TO ENTERTAIN CUSTOMERS AND INCURRED WHOLLY AND EXCLUSI VELY FOR THE BUSINESS PURPOSES. HE FURTHER HELD THAT EXCESS BOOKING OF OF FICE EXPENSES THROUGH SELF MADE VOUCHERS CANNOT BE RULED OUT. IN VIEW OF T HE ABOVE FINDINGS, HE DISALLOWED 10% AT RS. 4,63,587/- OUT OF TOTAL EXPENS ES DEBITED. 3. BEING AGGRIEVED BY THE ORDER OF THE LD ASSESSING OFFICER, THE ASSESSEE CARRIED THE MATTER BEFORE THE LD CIT(A), WHO HAD ALLOWED THE APPEAL PARTLY BY OBSERVING AS UNDER: 4.5 CONSIDERING THE SUBMISSIONS MADE, IT IS FOUND THAT THE APPELLANT HAS NOT BEEN ABLE TO COMPLETELY CONTROVER T THE FINDINGS GIVEN BY THE AO. FURTHER, IT IS NOTED THAT THE APPELLANT HAS PLACED RELIANCE ON THE ORDER PASS ED BY THE ID. CIT(A) IN THE CASE OF THE APPELLANT FOR T HE PRECEDING YEAR I.E. A.Y. 2009-10, VIDE ORDER DATED 25- 03-2013 IN APPEAL NO. 344/2011-12. MY ID. PREDECESS OR HAD UPHELD A DISALLOWANCE OF RS. 1 LAC UNDER THIS HE AD OUT OF THE TOTAL DISALLOWANCE MADE BY THE AO OF RS. 4,26,890 IN THE LAST YEAR. SINCE, DURING THE PERIOD UNDER CONSIDERATION THE TURNOVER HAS DECLINED BY 15.75% A ND THE CLAIM OF EXPENSES UNDER THIS HEAD ON THE CONTRA RY HAVE INCREASED FROM 0.08% TO 0.10% IN THE PERIOD UNDER CONSIDERATION. LOGICALLY SPEAKING, THERE IS N O FORCE IN THE ARGUMENT TAKEN BY THE APPELLANT THAT T HERE 5 ITA NO. 109/JP/2014 VIJAY SOLVEX LTD. VS ACIT IS NO CORRELATION BETWEEN THE LEVEL OF EXPENSES INCU RRED UNDER THE HEAD MISC. AND THE TURNOVER OF THE PERIOD UNDER CONSIDERATION. THUS, CONSIDERING ALL THESE FAC TORS, I FIND THAT IT WOULD BE JUST AND FAIR TO RESTRICT TH E DISALLOWANCE UNDER THIS HEAD TO RS. 2 LAC AND THE APPELLANT WOULD ACCORDINGLY GET A RELIEF OF RS. 2,63 ,487 ON THIS ACCOUNT. 4. NOW THE ASSESSEE IS IN APPEAL BEFORE US. THE LD AR OF THE ASSESSEE HAS SUBMITTED THAT THE ASSESSEE DURING THE COURSE O F ASSESSMENT PROCEEDINGS HAD SUBMITTED DATE WISE COMPLETE DETAILS OF MISC. EXPENSES. THE ASSESSING OFFICER HAD NOT POINTED OUT ANY EXPENS ES WHERE THE EXPENDITURE IS EXCESSIVELY BOOKED THROUGH SELF MADE VOUCHERS. THE TOTAL EXPENDITURE INCURRED THROUGH SELF MADE VOUCHERS IS ONLY RS. 3,59,202/-. THE LD AR HAS DRAWN OUR ATTENTION ON PAGE NO. 16 OF T HE PAPER BOOK. THERE CANNOT BE ANY CORRELATION OF THESE EXPENSES WIT H THE TURNOVER OF THE ASSESSEE. THE LD CIT(A) HAD ALSO NOT SPECIFIED A S TO HOW THE ASSESSEE HAD NOT BEEN COMPLETELY CONTROVERTED THE FINDINGS O F THE ASSESSING OFFICER, THUS, LUMP SUM ADDITION CONFIRMED BY THE L D CIT(A) DESERVED TO BE DELETED. HE FURTHER ARGUED THAT IN PRECEDING YEAR, THE HONBLE ITAT IN A.Y. 2006-07 HAS CONFIRMED THE ADDITION OF RS. ONE LAC. THE APPEAL FOR A.Y. 2007-08, 2008-09 WERE SIMILAR DISALLOWANCE HAS BEEN M ADE BY THE 6 ITA NO. 109/JP/2014 VIJAY SOLVEX LTD. VS ACIT ASSESSING OFFICER. THE LD CIT(A) HAD CONFIRMED THE A DDITION IN A.Y. 2007- 08 AT RS. 74,132/- AND IN A.Y. 2009-10 AT RS. ONE L AC AGAINST THE ADDITION MADE BY THE ASSESSING OFFICER AT RS. 2,50,313/- AND RS. 4,26,890/- RESPECTIVELY. THE APPEAL AGAINST THE CIT(A)S ORDER IS PENDING BEFORE THE HONBLE BENCH FOR BOTH THE YEARS. 5. AT THE OUTSET, THE LD DR HAS VEHEMENTLY SUPPORTE D THE ORDER OF THE LD CIT(A) AND ARGUED THAT THE LD CIT(A) WAS QUITE REAS ONABLE TO CONFIRM THE ADDITION ON THE BASIS OF EVIDENCE PRODUCED BY T HE ASSESSEE. 6. WE HAVE HEARD THE RIVAL CONTENTIONS OF BOTH THE PARTIES AND PERUSED THE MATERIAL AVAILABLE ON THE RECORD. THE ASSESSEE HIMSELF ADMITTED THAT TO THE EXTENT OF RS. 3,59,202/-, THE ASSESSEE HAD C LAIMED THESE EXPENSES ON SELF MADE VOUCHERS, WHICH CANNOT BE VERIFIED FROM THE THIRD PERSON. THEREFORE, KEEPING IN VIEW OF THE PAST HISTORY OF TH E CASE, WE CONFIRM THE DISALLOWANCE OF RS. ONE LAC AGAINST THE DISALLOWANCE CONFIRMED BY THE LD CIT(A) AT RS. 2.00 LACS. ON THIS GROUND, THE APPEAL OF THE ASSESSEE IS PARTLY ALLOWED. 7. THE SECOND GROUND OF THE APPEAL IS AGAINST DISALL OWANCE OUT OF REPAIR AND MAINTENANCE OF RS. 2,96,122/-. THE ASSESS ING OFFICER OBSERVED THAT THE ASSESSEE HAD DEBITED UNDER THIS HEAD A SUM OF RS. 29,61,229/- 7 ITA NO. 109/JP/2014 VIJAY SOLVEX LTD. VS ACIT AND IN PRECEDING YEAR, WHICH WAS AT RS. 17,14,889/-. AS MENTIONED IN THE PRECEDING PARA, THE ASSESSEES TURNOVER HAS DECLINE D. THE ASSESSING OFFICER ALSO GAVE REASONABLE OPPORTUNITY OF BEING H EARD ON THIS ISSUE. THE ASSESSEE PRODUCED THE BILLS/VOUCHERS FOR VERIFICATI ON TO THE ASSESSING OFFICER. ON EXAMINATION OF THESE DETAILS AND BILLS/ VOUCHERS, IT WAS FOUND BY HER THAT CERTAIN VOUCHERS FOR WHICH NO SUPPORTING BI LLS WERE AVAILABLE AND ALSO AT TIMES, THE BILLS FOR EXPENSES NOT PRINTED B UT SELF MADE VOUCHERS WERE MADE BY THE ASSESSEE. THE ASSESSING OFFICER HELD THAT THE ASSESSEE HAD BOOKED EXCESSIVE EXPENSES ON SELF MADE VOUCHERS , THEREFORE, SHE DISALLOWED RS. 2,96,122/- @ 10% OF TOTAL EXPENSES. 8. BEING AGGRIEVED BY THE ORDER OF THE ASSESSING OF FICER, THE ASSESSEE CARRIED THE MATTER BEFORE THE LD CIT(A), WHO HAD CO NFIRMED THE ADDITION BY OBSERVING AS UNDER:- 6.3 I HAVE PERUSED THE ASSESSMENT ORDER AS WELL AS SUBMISSION MADE BY THE AR AND FIND THAT AO HAD MADE THE DISALLOWANCE ON THE GROUND THAT THE TURNOVER DURING THE PERIOD UNDER CONSIDERATION HAS DECLINED BY 15.75% AS COMPARED TO THE TURNOVER IN THE PRECEDING YEAR, WHEREAS, THE EXPENSES UNDER THIS HEAD HAVE INCREASED FROM 17,14,889 (LAST YEAR) TO RS. 29,61,2 29 IN THIS YEAR. IT WAS FURTHER NOTED THAT COMPLETE 8 ITA NO. 109/JP/2014 VIJAY SOLVEX LTD. VS ACIT SUPPORTING BILLS WERE NOT AVAILABLE FOR THE EXPENSES CLAIMED UNDER THIS HEAD AND SOME OF THE VOUCHERS WERE FOUND TO BE SELF MADE. 6.4 THE APPELLANT HAS STATED THAT NO DISALLOWANCE IS WARRANTED AND THERE IS NO CORRELATION OF THESE EXPENSES WITH THE TURNOVER. THESE EXPENSES ARE MORE OR LESS FIXED IN NATURE. FURTHER, DUE TO INFLATION THERE HAS BEEN AN INCREASE IN THE EXPENDITURE CLAIMED. THE APPELLANT HAS FILED LEDGER ACCOUNT DETAILS OF THESE EXPENSES. IT IS FURTHER STATED THAT IN THE CASE OF THE APPELLANT, CIT(A) HAD IN THE PRECEDING YEAR UPHELD A DISALLOWANCE OF RS. 30,000 (OUT OF TOTAL DISALLOWANCE OF RS. 1 LAC) UNDER THIS HEAD. 6.5 I HAVE GONE THROUGH THE DETAILS AND FIND THAT T HE APPELLANT HAS REITERATED THE SAME SUBMISSIONS WHICH WERE FILED BEFORE THE AO AND COULD NOT PLACE ANY EVIDENCE TO CONTROVERT THE FINDINGS GIVEN BY THE AO . THE APPELLANT HAS NOT BEEN ABLE TO CONVINCE ON THE REASONS FOR INCREASE OF 72.67% IN THE EXPENSES CLAIMED UNDER THIS HEAD AS COMPARED TO THE EXPENSES CLAIMED IN THE PRECEDING YEAR. FURTHER, MY ID. PREDECESSOR HAD CONFIRMED A DISALLOWANCE OF RS. 30,000 IN THE LAST YEAR DESPITE THE FACT THAT THE EXPENSES CLAIMED AS A PERCENTAGE OF TURNOVER HAD DECLINED IN THE PERIOD UNDER CONSIDERATION AS 9 ITA NO. 109/JP/2014 VIJAY SOLVEX LTD. VS ACIT COMPARED TO THE PRECEDING YEAR. 6.6 IN THE CURRENT YEAR, IT IS A REVERSE SITUATION, WHERE THE TURNOVER HAS DECLINED BY 15.75% AS COMPARED TO THE PRECEDING YEAR AND THE EXPENSES HAVE INCREASED BY 72.67%. THESE EXPENSES IN PROPORTION TO THE TURNOVE R HAVE INCREASED FROM 0.03% (LAST YEAR) TO 0.067% IN THE PERIOD UNDER CONSIDERATION. FURTHER, I DO NOT A GREE WITH THE ARGUMENT THAT THESE EXPENSES ARE MORE OR LESS FIXED IN NATURE UNLESS SOME EVIDENCE WAS PRODUCED TO THIS EFFECT. EVEN IF THIS LOGIC WOULD HA VE BEEN FOUND TO BE TRUE THAN ALSO THE INCREASE OF 72.67% IN THE EXPENSES CLAIMED CANNOT BE EXPLAINED DESPITE FALL IN THE TURNOVER. THUS, CONSIDERING ALL THESE FACTORS, I HOLD THAT THE DISALLOWANCE OF RS. 2,96,12 2 MADE BY THE AO IS FAIR AND ACCORDINGLY CONFIRM THE SAME. 9. NOW THE ASSESSEE IS IN APPEAL BEFORE US. THE LD AR OF THE ASSESSEE HAS SUBMITTED THAT DURING THE COURSE OF ASSESSMENT PROCEEDINGS, THE ASSESSEE HAD FILED DATE WISE COMPLETE DETAILS OF REP AIR AND MAINTENANCE EXPENSES. THE LD ASSESSING OFFICER HAD NOT POINTED O UT ANY EXPENSES WHERE THE EXPENDITURE WAS EXCESSIVELY BOOKED THROUGH SELF MADE VOUCHERS WAS ONLY RS. 4,50,698/-. HE HAS DRAWN OUR AT TENTION ON PAGE NO. 17 TO 22 OF THE PAPER BOOK. THERE CANNOT BE ANY CORR ELATION OF THESE 10 ITA NO. 109/JP/2014 VIJAY SOLVEX LTD. VS ACIT EXPENSES WITH THE TURNOVER OF THE ASSESSEE. HE FURTH ER ARGUED THAT THERE WAS A DISALLOWANCE UNDER THIS HEAD IN A.Y. 2007-08 AN D 2009-10 BY THE ASSESSING OFFICER AT RS. ONE LAC EACH, WHICH WAS CONF IRMED BY THE LD CIT(A) AT RS. 47,952/- IN A.Y. 2007-08 AND RS. 30,00 0/- IN A.Y. 2009-10. THEREFORE, HE PRAYED TO DELETE THE LUMP SUM ADDITION MADE BY THE ASSESSING OFFICER AND CONFIRMED BY THE LD CIT(A). 10. AT THE OUTSET, THE LD DR HAS VEHEMENTLY SUPPORT ED THE ORDER OF THE LD CIT(A) AND ARGUED THAT THE DISCREPANCY HAS BEEN P OINTED OUT BY THE ASSESSING OFFICER IN THE ASSESSMENT ORDER. THE ASSES SEE CLAIMED THESE EXPENSES ON SELF MADE VOUCHERS, THEREFORE, REASONAB LE DISALLOWANCE MADE BY THE ASSESSING OFFICER MAY PLEASE BE CONFIRMED. 11. WE HAVE HEARD THE RIVAL CONTENTIONS OF BOTH THE PARTIES AND PERUSED THE MATERIAL AVAILABLE ON THE RECORD. THE ASSESSEE I TSELF ADMITTED THAT IT HAD CLAIMED EXPENSES ON SELF MADE VOUCHERS CLAIMED AT RS. 4,50,698/-, WHICH ARE NOT VERIFIABLE FROM THE THIRD PARTY. THE AD DITION MADE BY THE ASSESSING OFFICER APPEARS TO BE HIGHER SIDE, THEREF ORE, WE UPHOLD THE DISALLOWANCE AT RS. 1 LAC. ON THIS GROUND, THE APPEA L OF THE ASSESSEE IS PARTLY ALLOWED. 11 ITA NO. 109/JP/2014 VIJAY SOLVEX LTD. VS ACIT 12. THE THIRD GROUND OF THE APPEAL IS AGAINST CONFIR MING THE ADDITION UNDER THE HEAD DISALLOWANCE OF TRAVELLING EXPENSES A T RS. 20,000/-. THE LD ASSESSING OFFICER OBSERVED THAT UNDER THIS HEAD, TH E ASSESSEE HAD DEBITED RS. 40,23,684/-. THE ASSESSEE WAS REQUIRED TO FURNISH COMPLETE DETAILS THEREOF ALONGWITH BILLS/VOUCHERS FOR VERIFICATION, WH ICH WAS PRODUCED BY THE ASSESSEE. ON EXAMINATION OF THESE DETAILS AND B ILLS/VOUCHERS, IT IS NOTICED THAT THERE ARE CERTAIN VOUCHERS FOR WHICH NO SUPPORTING BILLS ARE AVAILABLE AND ALSO AT TIMES, THE BILLS FOR EXPENSES ARE NOT PRINTED BUT SELF MADE VOUCHERS AND THE EXPENSES HAD BEEN BOOKED ON T HE BASIS OF THESE VOUCHERS. THE ASSESSEE COMPANY HAD NOT ALSO MAINTAIN ED THE PROPER BILLS REGARDING JOURNEY CARRIED OUT BY THE STAFF AND OTHE RS. THEREFORE, EXCESS EXPENSES BOOKED CANNOT BE RULED OUT. THUS, THE LD A SSESSING OFFICER MADE LUMP SUM ADDITION OF RS. 50,000/- OUT OF TOTAL TRAV ELLING EXPENSES. 13. BEING AGGRIEVED BY THE ORDER OF THE ASSESSING O FFICER, THE ASSESSEE CARRIED THE MATTER BEFORE THE LD CIT(A), WHO HAD PART LY CONFIRMED THE ADDITION BY OBSERVING THAT THE ASSESSEE HAS NOT AB LE TO PRODUCE ALL THE BILLS/VOUCHERS BEFORE THE ASSESSING OFFICER AND PUR POSE OF TRAVELLING HAS NOT BEEN MENTIONED ON THE BILLS SUBMITTED BY THE AS SESSEE, THEREFORE, HE RESTRICTED THE ADDITION OF RS. 20,000/- AND ALLOWED THE APPEAL PARTLY. 12 ITA NO. 109/JP/2014 VIJAY SOLVEX LTD. VS ACIT 14. NOW THE ASSESSEE IS IN APPEAL BEFORE US. THE LD A R OF THE ASSESSEE HAS ARGUED THAT THE COMPLETE DETAILS WERE FILED BEFO RE THE ASSESSING OFFICER AND DISALLOWANCES WERE MADE, WHICH IS NOT JUS TIFIABLE, THEREFORE, HE PRAYED TO DELETE THE ADDITION CONFIRMED BY THE LD C IT(A). AT THE OUTSET, THE LD DR HAS VEHEMENTLY SUPPORTED THE ORDER OF THE LD CIT(A). WE FIND THAT DISALLOWANCE MADE BY THE ASSESSING OFF ICER AND CONFIRMED BY THE LD CIT(A) IS NOMINAL OUT OF TOTAL T RAVELLING EXPENSES OF RS. 40.23 LACS, ACCORDINGLY, WE DISMISS THE ASSESSEE S APPEAL ON THIS GROUND. 15. THE GROUND NO. 4 OF THE APPEAL IS AGAINST MAKING DISALLOWANCE OF RS. 23,84,269/- UNDER RULE 8D OF THE INCOME TAX RULE S, 1962 (IN SHORT THE RULES). THE LD ASSESSING OFFICER OBSERVED THAT THE A SSESSEE HAD DECLARED DIVIDEND INCOME OF RS. 54,760/-. THE ASSESSEE WAS ASK ED TO GIVE THE CALCULATION OF DISALLOWANCE U/S 14A READ WITH RULES 8 D OF THE RULES BY THE ASSESSING OFFICER. THE ASSESSEE FILED REPLY VIDE LE TTER DATED 08/12/2011. AFTER CONSIDERING THE ASSESSEES REPLY, THE ASSESSI NG OFFICER HELD THAT THE ASSESSEE FAILED TO FURNISH DATE WISE AVAILABILITY OF INTEREST FREE FUND AND OUT OF WHICH DATE WISE INVESTMENT IN SHARES OF THE COMPANIES INCLUDING 13 ITA NO. 109/JP/2014 VIJAY SOLVEX LTD. VS ACIT SHARES OF THE SISTER CONCERNS THEREBY THE ASSESSEE COULD NOT ESTABLISH THE NEXUS BETWEEN THE INTEREST FREE FUND AND INVESTMENT IN SHARES. THE ASSESSEE HAD DELIBERATELY DECLARED THE AGGREGATE IN VESTMENT OF RS. 6.65 CRORES OUT OF RESERVED AND SURPLUS OF RS. 59.88 LAC S. THE ASSESSEE ALWAYS HAD INTEREST BEARING FUND IN THE FORM OF MAKING CAP ITAL LOAN FROM BANK AND UNSECURED LOAN FOR DAY TO DAY FUNCTIONING AND DID N OT HAVE SURPLUS FUND FOR INVESTMENT IN SHARES. IN THE INSTANT CASE, NEIT HER THERE WAS QUESTION OF COMMERCIAL EXPEDIENCY NOR LOAN/ADVANCES TO ITS SIST ER CONCERNS BUT QUESTION OF PROVING THE NEXUS BETWEEN THE INTEREST S URPLUS FREE FUNDS AND INVESTMENT THEREOF IN SHARES. SHE FURTHER HELD THAT CALCULATION FOR DISALLOWANCE U/S 14A READ WITH RULE 8D STRICTLY HAD T O BE MADE WITH REFERENCE TO TOTAL INVESTMENTS. AS PER CALCULATION IN ACCORDANCE TO RULE 8D OF THE RULES, THE DISALLOWANCE CALCULATED AND MADE. SHE FURTHER RELIED ON THE DECISION OF HON'BLE SUPREME COURT IN THE CASE O F CIT VS. UNITED GENERAL TRUST LTD. 200 ITR 455 (SC). THE EXPENSES TO B E DISALLOWED IN THE SAME PROPORTION AS THE EXEMPT INCOME BEARS TO THE T OTAL INCOME OF THE COMPANY. THE LD ASSESSING OFFICER FURTHER HELD THAT EXPENDITURES WERE INCURRED BY THE ASSESSEE COMPANY ON THE EARNING OF THE DIVIDEND INCOME. SHE FURTHER HELD THAT EARNING OF DIVIDEND AND INVES TMENT IN SHARES, THE MANAGEMENT HAD UTILIZED TIME IN DECISION MAKING PRO CESS FOR SELLING THE 14 ITA NO. 109/JP/2014 VIJAY SOLVEX LTD. VS ACIT SCRIPTS FOR INVESTMENT AND OTHER FORMALITIES ALSO WE RE MADE BY THE STAFF. THERE ARE INCIDENTAL EXPENDITURES OF COLLECTION, TEL EPHONE, FOLLOW UP ETC. THEREFORE, EXPENSES IN RELATION TO EARNING OF INCOM E ARE EMBEDDED IN INDIRECT EXPENSES. THE ASSESSEE WAS HAVING COMPOSITE FUND, THEREFORE, SHE APPLIED RULE 8D FOR MAKING DISALLOWANCE. SHE REL IED ON THE DECISION OF ITAT SPECIAL BENCH B NEW DELHI IN THE CASE OF M/S C HEMINVEST LTD. VS. ITO WARD 3(3), NEW DELHI, ITAT SPECIAL BENCH MUMBAI I N THE CASE OF ITO WARD 6(2), MUMBAI VS. M/S DAGA CAPITAL MANAGEMENT P VT. LTD. AND M/S MAX OPP INVESTMENT LTD. VS ACIT CIT 6(1), NEW DELHI I N ITA NO. 8057/MUM/2003 AND ITA NO. 1372/DEL/2005 RESPECTIVEL Y AND CALCULATED THE DISALLOWANCE UNDER RULE 8D OF THE RULES AT RS. 2 3,84,269/-. 16. BEING AGGRIEVED BY THE ORDER OF THE ASSESSING O FFICER, THE ASSESSEE CARRIED THE MATTER BEFORE THE LD CIT(A), WHO HAD CO NFIRMED BY THE ADDITION BY OBSERVING AS UNDER:- 10.11 THE APPELLANT HAS NOT PROVIDED DETAILS OF THE SOURCE OF THE INVESTMENT IN SHARES ON A DAY TO DAY BASIS BEFO RE THE AO IN SUPPORT OF ITS CLAIM THAT THE INTEREST FR EE INVESTMENTS WERE OUT OF NON-INTEREST BEARING FUNDS. IN THIS REGARD REFERENCE IS MADE TO THE CASE OF THE DHANUKA & SONS VS. CIT 339 ITR 319 (CAL) WHERE IN IT WAS HELD THAT SINCE THE ASSESSEE WAS UNABLE TO 15 ITA NO. 109/JP/2014 VIJAY SOLVEX LTD. VS ACIT PRODUCE MATERIAL TO SHOW THE SOURCE OF ACQUISITION O F SHARES AND TO SHOW THAT NO INTEREST WAS PAID BY IT TH EN PROPORTIONATE DISALLOWANCE OUT OF INTEREST EXPENSES WAS JUSTIFIED. 10.12 WITH THE INTRODUCTION OF SECTION 14A IN THE STATUE THIS PROPOSITION NO LONGER HOLDS GOOD. IN THE CASE OF MAXOPP INVESTMENT LTD. & OTHERS VS. CIT 247 CTR (DEL) 162, HONBLE HIGH COURT OF DELHI HAS OBSERVED THAT PRIOR TO INTRODUCTION OF SECTION 14A, THE LAW WA S THAT IF THE ASSESSEE WAS HAVING A COMPOSITE AND INDIVIDUAL BUSINESS WHICH HAD ELEMENTS OF BOTH TAXA BLE AND NON- TAXABLE INCOME, THE ENTIRE EXPENDITURE WAS DEDUCTIBLE. WHILE INTRODUCING SECTION 14A INTENTION OF THE LEGISLATURE WAS THAT NO DEDUCTION SHALL BE MADE IN RESPECT OF ANY EXPENDITURE INCURRED BY THE ASSESSEE IN RELATION TO INCOME WHICH DOES NOT FORM PART OF THE T OTAL INCOME UNDER THE ACT. THE BASIC OBJECT OF SECTION 14 A IS TO DISALLOW THE DIRECT AND INDIRECT EXPENDITURE INCURRED IN RELATION TO INCOME WHICH DOES NOT FORM P ART OF THE TOTAL INCOME. 10.13 IN THE CASE OF MAXOPP INVESTMENT LTD. 247 CTR (DEL), IT HAS BEEN HELD BY THE HONBLE HIGH COURT THAT THE INVESTMENT IN SHARES FOR GAINING CONTROLLING INTERE ST IS HIT BY THE PROVISIONS OF SECTION 14 A. 10.14 IN THE CASE OF GODREJ & BOYCE MANUFACTURING CO. LTD . 16 ITA NO. 109/JP/2014 VIJAY SOLVEX LTD. VS ACIT VS. CIT 328 ITR 81 (BOM) THE HONBLE HIGH COURT OF BOMBAY HAS OBSERVED THAT THE FOLLOWING PRINCIPLES WOULD EMERGE FROM SECTION 14A AND THE DECISION IN CI T V. WALFORT SHARE AND STOCK BROKERS P. LTD. [2010] 326 ITR 1 (SC): (A) THE MANDATE OF SECTION 14A IS TO PREVENT CLAIM S FOR DEDUCTION OF EXPENDITURE IN RELATION TO INCOME WHIC H DOES NOT FORM PART OF THE TOTAL INCOME OF THE ASSESSEE; (B) SECTION 14A(1) IS ENACTED TO ENSURE THAT ONLY EXPENSES INCURRED IN RESPECT OF EARNING TAXABLE INCOME ARE ALLOWED; (C) THE PRINCIPLE OF APPORTIONMENT OF EXPENSES IS WIDENED BY SECTION 14A TO INCLUDE EVEN THE APPORTIONMENT OF EXPENDITURE BETWEEN TAXABLE AND NON-TAXABLE INCOME OF AN INDIVISIBLE BUSINESS ; (D) THE BASIC PRINCIPLE OF TAXATION IS TO TAX NET INCOME. THIS PRINCIPLE APPLIES EVEN FOR THE PURPOSES OF SECTION 14A AND EXPENSES TOWARDS NON-TAXABLE INCOME MUST BE EXCLUDED; (E) ONCE A PROXIMATE CAUSE FOR DISALLOWANCE IS ESTABLISHED-WHICH IS THE RELATIONSHIP OF THE EXPENDITURE WITH INCOME WHICH DOES NOT FORM PART OF THE TOTAL INCOME-A DISALLOWANCE HAS TO BE EFFECTED. 10.15 SINCE THE BUSINESS OF APPELLANT IS INDIVISIBL E AND THE FUNDS AVAILABLE IN THE BUSINESS ARE MIXED, THE PRINCIPLE OF APPORTIONMENT OF EXPENSES, WHICH STANDS WIDENED BY SECTION 14A, HAVE TO BE APPLIED AS PER RULE 8D. FURTHER, IT MAY BE MENTIONED THAT THIS ISSUE HAS ALREADY BEEN CONSIDERED IN DETAIL BY 17 ITA NO. 109/JP/2014 VIJAY SOLVEX LTD. VS ACIT MY ID. PREDECESSOR IN THE CASE OF THE APPELLANT IN A.Y. 2009-10 IN APPEAL NO. 344/2011-12 DATED 25- 03-2013. I AM INCLINED TO AGREE WITH THE FINDINGS OF MY ID. PREDECESSOR WHICH PERTAIN TO AY 2009-10. 10.16 IN VIEW OF ABOVE DISCUSSION, I AM OF THE CONSI DERED OPINION THAT THE APPELLANT HAD EXEMPT INCOME U/S. 10 AMOUNTING TO RS. 54,760 OUT OF INVESTMENTS MADE FROM THE FUNDS OF THE BUSINESS AND THE PRINCIPLE OF APPORTIONMENT OF EXPENSES HAVE TO BE APPLIED AS PER RULE 8D OF IT RULES. THE APPELLANT HAS CLAIMED NIL EXPENSES IN RELATION TO EARNING OF THE SAID EXEMPT INCOME AND THE INVESTMENT MADE THEREIN. THE AO HAS RIGHTLY COMPUTED THE DISALLOWANCE U/S. 14A READ WITH RULE 8D OF IT RULES OF RS. 23,84,269 AND THE ADDITION MADE ON THIS ACCOUNT IS CONFIRMED. 17. NOW THE ASSESSEE IN APPEAL BEFORE US. THE LD AR OF THE ASSESSEE HAS SUBMITTED THAT THE TOTAL SHARE CAPITAL, RESERVE AND SURPLUS OF THE ASSESSEE AS ON 31/3/2010 WAS AT RS. 5888.76 LACS. AS AGAINST INVESTMENT IN SHARES AT RS. 1685.20 LACS. THE ASSESSEE HAD CLAI MED THAT IT HAD NOT INCURRED ANY EXPENDITURE BY WAY OF PAYMENT OF INTERE ST FOR MAKING INVESTMENT IN SHARES. THE SOURCE OF INVESTMENT IN SH ARES IS OUT OF NON- INTEREST BEARING FUND OF RS. 5888.76 LACS IN FORM O F SHARE CAPITAL AND 18 ITA NO. 109/JP/2014 VIJAY SOLVEX LTD. VS ACIT RESERVE AND SURPLUS. THE AR HAS DRAWN OUR ATTENTION O N PAGE NO. 30 OF THE PAPER BOOK AND ARGUED THAT THE LD ASSESSING OFF ICER HAD NOT ESTABLISHED THE NEXUS BETWEEN INTEREST BEARING FUND WITH INTEREST FREE INVESTMENT. HE FURTHER ARGUED THAT VARIOUS HONBLE COURTS HAD DECIDED THAT IF THERE ARE FUND AVAILABLE BOTH INTEREST FREE AND OVERDRAFT OR LOAN TAKEN THEN A PRESUMPTION WOULD ARISE THAT INVESTMENT WOULD BE OUT OF INTEREST FREE FUND GENERATED OR AVAILABLE WITH THE C OMPANY. IF THE INTEREST FREE FUND WERE SUFFICIENT TO MEET THE INVESTMENT, NO ADDITION CAN BE MADE. HE RELIED ON THE FOLLOWING CASE LAWS:- (I) CIT VS TAILISHA ENGINEERING INDIA LTD. (2015) 370 ITR 338 (HC). (II) CIT VS. HDFC BANK LTD. (2014) 366 ITR 0505 (BOM) (HC). (III) CIT VS. UTI BANK LTD. (2013) 215 TAXMAN 8 (GUJ)( HC) (MAGZ.) (IV) CIT VS. SUZLON ENERGY LTD. (2013) 354 ITR 630 ( GUJ)(HC). (VI) CIT VS RELIANCE UTILITIES & POWER LTD. 313 ITR 34 0 (BOM)(HC). (VII) SAHARA INDIA FINANCIAL CORPORATION LTD. VS. D CIT (2014) 105 DTR 1. HE FURTHER ARGUED THAT IN ASSESSEES SISTER CONCERN M/S DEEPAK VEGPRO PVT. LTD., THE HONBLE ITAT HAS DECIDED THAT IN OUR CONSIDERED VIEW NO DISALLOWANCE U/S 14A IS POSSIBLE SINCE THE INTEREST FREE FUNDS AVAILABLE WITH THE ASSESSEE IS MUCH MORE THAN THE INVESTMENT IN SH ARES AND THIS FACT 19 ITA NO. 109/JP/2014 VIJAY SOLVEX LTD. VS ACIT COULD NOT BE CONTROVERTED BY THE LD DR. THEREFORE, HE PRAYED TO DELETE THE ADDITION. 18. AT THE OUTSET, THE LD DR HAS VEHEMENTLY SUPPORT ED THE ORDER OF THE LD CIT(A) AND ARGUED THAT AS PER LAW, THIS DISALLOWANC E IS TO BE CALCULATED ON THE BASIS OF RULE 8D OF THE RULES, WHICH IS APPLI CABLE ON THE YEAR UNDER CONSIDERATION. THEREFORE, THE SAME BE CONFIRMED. 19. WE HAVE HEARD THE RIVAL CONTENTIONS OF BOTH THE PARTIES AND PERUSED THE MATERIAL AVAILABLE ON THE RECORD. IT IS UNDISPU TED FACT THAT THE ASSESSEE HAS RESERVED AND SURPLUS SHARE CAPITAL TO THE EXTEN T OF RS.5888.76 LACS. THE ASSESSEE HAS MIXED FUND, THE PRESUMPTION FOR INT EREST FREE FUND IS ALSO APPLICABLE IN THE CASE OF ASSESSEE BUT FOLLOWIN G THE VARIOUS DECISIONS ON THIS ISSUE, SECTION 14A READ WITH RULE 8D BECOMES REDUNDANT. IT IS ALSO A FACT THAT THE MANAGEMENT AS WELL AS STAFF AND OTHE R OFFICE FACILITIES AVAILABLE WITH THE ASSESSEE ARE USED FOR MAKING INVE STMENT IN SHARES, THEREFORE, IT CANNOT BE RULED OUT THAT NO INCOME CA N BE GENERATED WITHOUT ANY EXPENDITURE. THE QUANTUM MAY BE VARIANCE AND DE PEND ON INVESTMENT MADE BY THE ASSESSEE. THEREFORE, WE , IN T HE INTEREST OF JUSTICE, UPHOLD THE DISALLOWANCE U/S 14A AT RS. 5 LA CS AGAINST THE 20 ITA NO. 109/JP/2014 VIJAY SOLVEX LTD. VS ACIT DISALLOWANCE CONFIRMED BY THE LD CIT(A) AT RS. 23,84, 269/-. ACCORDINGLY, WE ALLOW THIS GROUND OF APPEAL PARTLY. 20. IN THE RESULT, THE ASSESSEES APPEAL IS PARTLY ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 11/01/2016. SD/- SD/- YFYR DQEKJ VH-VKJ-EHUK (LALIET KUMAR) (T.R. MEENA) U;KF;D LNL;@ JUDICIAL MEMBER YS[KK LNL;@ ACCOUNTANT MEMBER TK;IQJ@ JAIPUR FNUKAD@ DATED:- 11 TH JANUARY, 2016 RANJAN* VKNS'K DH IZFRFYFI VXZSFKR @ COPY OF THE ORDER FORWARDED TO: 1. VIHYKFKHZ @ THE APPELLANT- VIJAY SOLVEX LTD., ALWAR. 2. IZR;FKHZ @ THE RESPONDENT- THE A.C.I.T., CIRCLE-2, ALWAR. 3. VK;DJ VK;QDR @ CIT 4. VK;DJ VK;QDRVIHY @ THE CIT(A) 5. FOHKKXH; IZFRFUF/K] VK;DJ VIHYH; VF/KDJ.K] T;IQJ @ DR, ITAT, JAIPUR 6. XKMZ QKBZY @ GUARD FILE (ITA NO. 109/JP/2014) VKNS'KKUQLKJ @ BY ORDER, LGK;D IATHDKJ @ ASST. REGISTRAR