Prayas Engineering Limited(Formerly known as Prayas Castings Ltd.), Anand V. The ACIT.,Anand Range, Anand

ITA 1146/AHD/2014

• Counselvise Citation: [2017] 127 COUNSELVISE.COM (IT) 8454 (ITAT-AHMEDABAD)
• Duration Of Justice: 3 year(s) 4 month(s) 25 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 12-09-2017
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: D
• Next Hearing Date: 17-07-2017
• Assessment Year: 2006-2007
• Appeal Filed On: 17-04-2014
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: JAYANT JAVERI
• Assessee Lawyers: M K PATEL
• Keywords: Earning of tax free income; Proportionate interest
• Section: 14A

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD D BENCH (BEFORE SHRI RAJPAL YADAV, JUDICIAL MEMBER & SHRI N.K. BILLAIYA, ACCOUNTANT MEMBER ITA. NOS: 1145 & 1146/AHD/2014 (ASSESSMENT YEAR: 2006-07) PRAYAS ENGINEERING LTD. (FORMERLY KNOWN VVN MFG & INV LTD) PAN NO. AAACV9671P AND PRAYAS ENGINEERING LTD. (FORMERLY KNOWN PRAYAS CASTINGS LTD.) PAN NO. AABCP5134E ANAND-SOJITRA ROAD V.V.NAGAR 388120 V/S ASST. COMMISSIONER OF INCOME TAX, ANAND CIRCLE, ANAND (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI M.K. PATEL, A.R. RESPONDENT BY : SHRI JAYANT JAVERI, SR. D.R. ( )/ ORDER DATE OF HEARING : 06 -09-201 7 DATE OF PRONOUNCEMENT : 12 -09-2017 PER N.K. BILLAIYA, ACCOUNTANT MEMBER: ITA NO. 1145 & 1146/AHD/2014 . A.Y.2006-07 2 1. ITA NOS. 1145 & 1146/AHD/2014 ARE TWO APPEALS BY TW O DIFFERENT ASSESSEES PREFERRED AGAINST TWO SEPARATE ORDERS OF THE LD. CIT(A)-II, BARODA DATED 12.12.2013 PERTAINING TO A.Y. 2006-07. 2. SINCE COMMON ISSUES ARE INVOLVED IN THESE APPEALS, THEREFORE, THEY WERE HEARD TOGETHER AND ARE DISPOSED OF BY THIS COMMON O RDER FOR THE SAKE OF CONVENIENCE AND BREVITY. 3. THE COMMON GRIEVANCE IN BOTH THESE APPEALS RELATES TO THE DISALLOWANCE U/S. 14A READ WITH RULE 8D. 4. DURING THE COURSE OF THE SCRUTINY ASSESSMENT PROCEE DINGS, THE A.O. NOTICED THAT THE ASSESSEE HAS EARNED DIVIDEND INCOME AND HA S CLAIMED THE SAME EXEMPT FROM TAX. THE ASSESSEE WAS ASKED TO EXPLAIN WHY DISALLOWANCE U/S. 14A READ WITH RULE 8D SHOULD NOT BE MADE. THE ASSES SEE OBJECTED TO THIS PROPOSITION MADE BY THE A.O. STATING THAT IT HAS NO T INCURRED ANY EXPENDITURE FOR EARNING THE EXEMPT INCOME. 5. THE A.O. WAS NOT CONVINCED WITH THE CONTENTION OF T HE ASSESSEE AND FOUND THAT THE ASSESSEE HAS BORROWED FUNDS ON WHICH IT HA S CLAIMED INTEREST EXPENDITURE. THE A.O. FORMED A BELIEF THAT PART OF THE BORROWED FUNDS MUST HAVE BEEN USED FOR MAKING THE INVESTMENT FROM WHICH THE ASSESSEE HAS EARNED EXEMPT INCOME. THE A.O. PROCEEDED BY COMPUTI NG THE DISALLOWANCE OF PROPORTIONATE INTEREST AND MADE THE IMPUGNED ADD ITIONS. ITA NO. 1145 & 1146/AHD/2014 . A.Y.2006-07 3 6. THE ASSESSEE ASSAILED THE ASSESSMENT BEFORE THE LD. CIT(A) BUT WITHOUT ANY SUCCESS. 7. BEFORE US, THE LD. COUNSEL FOR THE ASSESSEE VEHEMEN TLY STATED THAT THE ACTION OF THE A.O. IS NOT IN ACCORDANCE WITH LAW AS RULE 8D HAS BEEN HELD TO BE APPLICABLE WITH EFFECT FROM A.Y. 2008-09. THE L D. COUNSEL FURTHER STATED THAT THE A.O. ERRED IN NOT APPRECIATING THE FACTS I N TRUE PERSPECTIVE. IT IS THE SAY OF THE LD. COUNSEL THAT THE INTEREST FREE RESER VE AND SURPLUS OF THE ASSESSEE ARE FAR MORE IN EXCESS OF THE INVESTMENTS. THEREFORE, DISALLOWANCE OF PROPORTIONATE INTEREST IS UNCALLED FOR. 8. PER CONTRA, THE LD. D.R. STRONGLY SUPPORTED THE FIN DINGS OF THE REVENUE AUTHORITIES. 9. WE HAVE GIVEN A THOUGHTFUL CONSIDERATION TO THE ORD ERS OF THE AUTHORITIES BELOW. WE HAVE ALSO CONSIDERED THE FINANCIAL STATEM ENTS OF THE ASSESSEE. WE FIND THAT THE INTEREST FREE RESERVE AND SURPLUS OF THE APPELLANTS ARE IN EXCESS OF THE INVESTMENTS. THEREFORE, WE DO NOT FIN D ANY MERIT IN MAKING THE DISALLOWANCE ON ACCOUNT OF PROPORTIONATE EXPENS ES. FOR THIS PROPOSITION, WE DRAW SUPPORT FROM THE DECISION OF T HE HONBLE HIGH COURT OF BOMBAY IN THE CASE OF RELIANCE UTILITIES AND POW ER LTD. 313 ITR 340 FOLLOWED BY HDFC BANK IN 366 ITR 505. 10. HOWEVER, AT THE SAME TIME, WE ARE OF THE OPINION TH AT SOME REASONABLE DISALLOWANCE OUGHT TO BE MADE IN RESPECT OF EARNING OF THE EXEMPT INCOME. ITA NO. 1145 & 1146/AHD/2014 . A.Y.2006-07 4 IN OUR CONSIDERED OPINION, DISALLOWANCE OF RS. 50,0 00/- SHOULD MEET THE ENDS OF JUSTICE. WE, ACCORDINGLY, DIRECT THE A.O. T O RESTRICT THE DISALLOWANCE TO RS. 50,000/- ONLY. 11. IN THE RESULT, BOTH THESE APPEALS ARE PARTLY ALLOWE D. ORDER PRONOUNCED IN OPEN COURT ON 12 - 0 9 - 2017 SD/- SD/- (RAJPAL YADAV) (N. K. BILLAIYA) JUDICIAL MEMBER TRUE COPY ACCOUNTANT MEMBER AHMEDABAD DATED: 12/09/2017 RAJESH COPY OF THE ORDER FORWARDED TO: - 1. THE APPELLANT. 2. THE RESPONDENT. 3. THE CIT (APPEALS) 4. THE CIT CONCERNED. 5. THE DR., ITAT, AHMEDABAD. 6. GUARD FILE. BY ORDER DEPUTY/ASSTT.REGISTRAR ITAT,AHME DABAD