Rasiklal M. Dhariwal (HUF), Pune V. Asst. CIT, Central Circle 1(1), Pune

ITA 1195/PUN/2013

• Counselvise Citation: [2016] 132 COUNSELVISE.COM (IT) 1453 (ITAT-PUNE)
• Duration Of Justice: 3 year(s) 2 month(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 29-07-2016
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: B
• Next Hearing Date: 28-07-2016
• Assessment Year: 2007-2008
• Appeal Filed On: 29-05-2013
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: P L KUREEL
• Assessee Lawyers: SANJAY KAPADIA
• Keywords: Depreciation; Tax effect; Capital receipt
• Section: 153A; 14A; 132; 15

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL B BENCH, PUN E , ! # $% , & ' BEFORE SHRI VIKAS AWASTHY, JM AND SHRI PRADIP KUMAR KEDIA, AM ( / ITA NOS. 1180 & 1181/PN/2013 ) * +* / ASSESSMENT YEARS : 2006-07 & 2007-08 ACIT, CENTRAL CIRCLE 1(1), PUNE ....... / APPELLANT ) / V/S. M/S. RASIKLAL MANIKCHAND DHARIWAL (HUF), MANIKCHAND HOUSE, PLOT NO. 100/101, D. KENNEDY ROAD, BEHIND HOTEL LE-MERIDIAN, PUNE 411001 PAN : AABHD5583L / RESPONDENT ( / ITA NOS. 1192 TO 1196/PN/2013 ) * +* / ASSESSMENT YEARS : 2004-05 TO 2008-09 M/S. RASIKLAL MANIKCHAND DHARIWAL (HUF), MANIKCHAND HOUSE, PLOT NO. 100/101, D. KENNEDY ROAD, BEHIND HOTEL LE-MERIDIAN, PUNE 411001 PAN : AABHD5583L ....... / APPELLANT ) / V/S. ACIT, CENTRAL CIRCLE 1(1), PUNE / RESPONDENT ASSESSEE BY : SHRI SANJAY KAPADIA REVENUE BY : SHRI P.L. KUREEL / DATE OF HEARING : 28-07-2016 / DATE OF PRONOUNCEMENT : 29-07-2016 2 ITA NOS. 1180, 1181, 1192 TO 1196/PN/2013 , / ORDER PER VIKAS AWASTHY, JM : ITA NOS. 1192 TO 1196/PN/2013 HAVE BEEN FILED BY THE AS SESSEE IMPUGNING THE ORDER OF COMMISSIONER OF INCOME TAX (APPEALS )-II, FOR THE ASSESSMENT YEARS 2004-05 TO 2008-09, RESPECTIVELY . ALL THE IMPUGNED ORDERS OF COMMISSIONER OF INCOME TAX (APPEALS) ARE DATED 31-01-2013. THE REVENUE HAS FILED CROSS APPEALS IN ITA NOS. 1180 & 1181/PN/2013 FOR THE ASSESSMENT YEARS 2006-07 AND 20 07-08, RESPECTIVELY. SINCE, THE ISSUES INVOLVED IN ALL THE APPEALS ARE SIMILAR AND A RE ARISING FROM SAME SET OF FACTS, THE APPEALS ARE TAKEN UP T OGETHER FOR ADJUDICATION AND ARE DISPOSED OFF BY THIS COMMON ORDER. 2. THE BRIEF FACTS OF THE CASE AS EMANATING FROM RECORDS ARE: A SEARCH OPERATION U/S. 132 OF THE INCOME TAX ACT, 1961 ( HEREINAFTER REFERRED TO AS THE ACT) WAS CARRIED OUT AT VARIOUS P REMISES OF RASIKLAL MANIKCHAN DHARIWAL GROUP ON 20-01-2010. NOTICES U/S. 15 3A OF THE ACT WERE ISSUED TO THE ASSESSEE FOR ASSESSMENT YEARS UNDER APPEAL. THE ASSESSEE FILED RETURN OF INCOME IN RESPONSE TO NOTICE ISSUED U/S. 153A, CONSEQUENTLY, THE ASSESSMENT ORDERS WERE PASSED BY ASSESSING OFFICER FOR RESPECTIVE ASSESSMENT YEARS U/S. 153A R.W.S. 1 43(3) OF THE ACT. THE ADDITIONS/DISALLOWANCES WERE MADE BY THE ASSESS ING OFFICER ON THE INCOME RETURNED BY THE ASSESSEE FOR THE ASSESS MENT YEARS UNDER APPEAL. THE ASSESSEE FILED APPEAL BEFORE THE COMMISSIONER OF INCOME TAX (APPEALS) ASSAILING THE ADDITIONS/DISALLOWANCES MADE BY A SSESSING 3 ITA NOS. 1180, 1181, 1192 TO 1196/PN/2013 OFFICER IN THE RESPECTIVE ASSESSMENT YEARS. THE COMMISSION ER OF INCOME TAX (APPEALS) CONFIRMED SOME OF THE ADDITIONS AND GR ANTED PART RELIEF IN OTHERS. NOW, THE ASSESSEE IS IN SECOND APPEAL BE FORE THE TRIBUNAL ASSAILING THE ADDITIONS CONFIRMED BY FIRST APPELLATE A UTHORITY. FOR THE SAKE OF CONVENIENCE THE APPEALS ARE TAKEN FOR ADJUDICATION IN SERIATIM ACCORDING TO THE ASSESSMENT YEARS. ITA NO. 1192/PN/2013 (A.Y. 2004-05) 3. THE SOLITARY GROUND RAISED BY THE ASSESSEE IN ITS APP EAL IS AS UNDER : 1. THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE AN D IN LAW THE LEARNED CIT(A) HAS ERRED IN SUSTAINING THE ADDITION OF RS.6 3,74,291/- MADE BY THE LEARNED AO BY TREATING SALES TAX SUBSIDY AS REV ENUE RECEIPT INSTEAD OF CAPITAL RECEIPT. 4. THE ASSESSEE HAS SET UP WINDMILL FOR GENERATION OF POWE R. THE ASSESSEE RECEIVED ONE TIME SALES TAX SUBSIDY FROM THE ST ATE GOVERNMENT FOR SETTING UP OF WINDMILL. THE ASSESSEE CLAIME D THE SALES TAX SUBSIDY AS CAPITAL RECEIPT. THE ASSESSING OFFICER ON TH E OTHER HAND HELD THE SUBSIDY TO BE REVENUE RECEIPT. THE COMMISSIONER OF INCOME TAX (APPEALS) UPHELD THE FINDINGS OF ASSESSING OFFICER IN TREAT ING THE SALES TAX SUBSIDY AS REVENUE IN NATURE. 5. SHRI SANJAY KAPADIA APPEARING ON BEHALF OF THE ASSESS EE FAIRLY ADMITTED THAT THE CO-ORDINATE BENCH OF THE TRIBUNAL IN TH E CASE OF ASSESSEES GROUP CONCERN HAS REJECTED THE CLAIM OF THE ASSESSEE IN TREATING THE SALES TAX SUBSIDY AS CAPITAL RECEIPT. THE LD. AR PLACED ON RECORD A COPY OF THE ORDER OF TRIBUNAL IN THE CASE OF DHAR IWAL INDUSTRIES 4 ITA NOS. 1180, 1181, 1192 TO 1196/PN/2013 LIMITED VS. ACIT IN ITA NOS. 1318 TO 1324/PN/2013 FOR ASS ESSMENT YEARS 2004-05 TO 2010-11 DECIDED ON 02-05-2016. 6. SHRI P.L. KUREEL REPRESENTING THE DEPARTMENT AGREED T HAT THE ISSUE RELATING TO SALES TAX SUBSIDY HAS BEEN ADJUDICATED BY THE CO- ORDINATE BENCH OF THE TRIBUNAL AGAINST THE ASSESSEE IN T HE ASSESSEES GROUP CONCERN IN THE CASE OF DHARIWAL INDUSTRIES LIMITED VS. ACIT (SUPRA). 7. BOTH SIDES HEARD. A PERUSAL OF ORDER PASSED BY THE CO-ORDINATE BENCH IN THE CASE OF DHARIWAL INDUSTRIES LIMITED VS. ACIT (SUPRA) SHOWS THAT THE ISSUE RELATING TO TREATMENT OF SALES TAX SUBSIDY RECEIVED BY THE ASSESSEE, WHETHER TO BE TREATED AS REVENUE RE CEIPT OR CAPITAL RECEIPT WAS ADJUDICATED BY THE TRIBUNAL. THE TRIBUNAL DEC IDED THE ISSUE AGAINST THE ASSESSEE WITH FOLLOWING OBSERVATIONS: 144. IN APPEAL THE LD. CIT(A) FOLLOWING THE ORDER OF HIS PREDECESSOR IN ASSESSEES OWN CASE FOR EARLIER YEAR AND THE DECISI ON OF THE PUNE BENCH OF THE TRIBUNAL IN THE CASE OF THE SISTER CONCERN NAMELY RASIKLAL M. DHARIWAL (HUF) VIDE ITA NOS. 575/PN/2007 AND 150/PN /2008 ORDER DATED 31-03-2011 HELD THAT THE AMOUNTS RECEIVED ON TRANSFER OF THE SALES TAX INCENTIVE IS REVENUE IN NATURE. 145. AGGRIEVED WITH SUCH ORDER OF THE CIT(A) THE AS SESSEE IS IN APPEAL BEFORE US. 146. AFTER HEARING BOTH THE SIDES, WE FIND THE TRIB UNAL IN ASSESSEES OWN CASE FOR A.YRS. 2003-04 TO 2005-06 VIDE ITA NOS . 485, 1559 AND 1560/PN/2007 ORDER DATED 29-05-2015 HAS DECIDED THE ISSUE AND HELD THAT THE SALES TAX SUBSIDY RECEIVED BY THE ASSESSEE IN THE INSTANT CASE WAS IN THE COURSE OF CARRYING OF ITS TRADE MORE PRO FITABLY FOR WHICH IT CANNOT BE HELD AS CAPITAL RECEIPT AND THE ORDER OF THE CIT(A) TREATING THE SAME AS REVENUE RECEIPT HAS BEEN UPHELD. THE LD. A UTHORISED REPRESENTATIVE ALSO CONCEDED THAT THE ISSUE HAS BEE N DECIDED AGAINST THE ASSESSEE BY THE ORDER OF THE TRIBUNAL IN ASSESS EES OWN CASE. IN 5 ITA NOS. 1180, 1181, 1192 TO 1196/PN/2013 VIEW OF THE DECISION OF THE TRIBUNAL IN ASSESSEES OWN CASE THIS GROUND BY THE ASSESSEE IS DISMISSED. 8. RESPECTFULLY, FOLLOWING THE DECISION OF CO-ORDINATE BENCH, W E DECIDE THIS ISSUE AGAINST THE ASSESSEE BY HOLDING THE SALE S TAX SUBSIDY RECEIVED BY ASSESSEE AS REVENUE RECEIPT. ACCORDINGLY, THE APPEAL OF THE ASSESSEE IS DISMISSED BEING DEVOID OF ANY MERIT. ITA NO. 1193/PN/2013 (A.Y. 2005-06) 9. THE ASSESSEE IN ITS APPEAL FOR ASSESSMENT YEAR 2005- 06 HAS RAISED ONLY SINGLE ISSUE WHICH IS AS UNDER : 1. THAT ON FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW THE LEARNED CIT(A) HAS ERRED IN SUSTAINING THE ADDITION OF RS.6 8,84,235/- MADE BY THE LEARNED AO BY TREATING SALES TAX SUBSIDY AS REV ENUE RECEIPT INSTEAD OF CAPITAL RECEIPT. 10. THE ISSUE RAISED BY THE ASSESSEE IN PRESENT APPEAL IS IDENTICAL TO THE ISSUE RAISED IN ASSESSMENT YEAR 2004-05. FOR THE D ETAILED REASONS GIVEN WHILE ADJUDICATING THE ISSUE IN ASSESSMENT YEAR 2004 -05 THE PRESENT APPEAL OF ASSESSEE IS ALSO DISMISSED. ITA NOS. 1194 & 1180/PN/2013 (A.Y. 2006-07) 11. THE FIRST GROUND RAISED BY THE ASSESSEE IN APPEAL IS WITH RESPECT TO TREATMENT OF SALES TAX SUBSIDY AS REVENUE RECEIPT OR CAPITAL RECEIPT. THIS ISSUE HAS BEEN ADJUDICATED AGAINST THE ASSESSEE IN THE APPEAL BY THE ASSESSEE FOR ASSESSMENT YEAR 2004-05. THE FINDINGS GIVEN BY US IN ASSESSMENT YEAR 2004-05 WOULD MUTATIS MUTANDIS APPLY IN THE ASSESSMENT YEAR 2006-07. FOR THE DETAILED REASONS GIVE N IN APPEAL FOR ASSESSMENT YEAR 2004-05, THE GROUND NO. 1 RAISED IN THE APPEAL OF ASSESSEE FOR ASSESSMENT YEAR 2006-07 IS DISMISSED. 6 ITA NOS. 1180, 1181, 1192 TO 1196/PN/2013 12. THE GROUND NO. 2 RAISED IN THE APPEAL BY ASSESSEE IS WITH RESPECT TO DISALLOWANCE OF EXPENDITURE U/S. 14A OF THE ACT. THE R EVENUE IN ITS APPEAL HAS ALSO ASSAILED THE FINDINGS OF COMMISSIONER OF INCO ME TAX (APPEALS) ON THIS ISSUE. THE GROUNDS RAISED BY THE ASSESS EE ARE AS UNDER : 2. THAT ON FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW THE LEARNED CIT(A) HAS ERRED IN - SUSTAINING DISALLOWANCE OF RS.10,30,500/- AT ADHOC RATE OF 50%, OUT OF VARIOUS EXPENSES U/S. 14A OF THE ACT WITHOUT APP RECIATING THE WRITTEN SUBMISSION AND DIRECTLY APPLICABLE JUDICIAL PRONOUNCEMENTS. - SUSTAINING DISALLOWANCE U/S. 14A OF THE ACT WITHOUT APPRECIATING THE FACT THAT PROVISIONS OF RULE 8D IS NOT APPLICABLE D URING THE YEAR UNDER CONSIDERATION. - TREATING THE LONG TERM CAPITAL GAIN AS EXEMPT INCOM E FOR THE PURPOSE OF COMPUTING DISALLOWANCE U/S. 14A OF THE ACT. THE GROUND RAISED BY THE REVENUE IN ITS APPEAL IS AS UNDER : 1) THE LD. CIT(A) ERRED IN REDUCING THE QUANTUM OF DI SALLOWANCE U/S. 14A TO 50% WITHOUT CONSIDERING THE FACTS AND IT HE CIRCUMSTANCES OF THE CASE. 13. THE LD. AR SUBMITTED THAT PROVISIONS OF RULE 8D ARE N OT APPLICABLE IN ASSESSMENT YEAR 2006-07. THE ASSESSEE HA S MADE INVESTMENT IN SHARES AND MUTUAL FUNDS FROM ITS OWN NON-INT EREST BEARING FUNDS. THE DISALLOWANCE U/S. 14A HAS BEEN MADE ME RELY ON ACCOUNT OF ADMINISTRATIVE EXPENSES. THE LD. AR SUBMITTED T HAT SIMILAR ISSUE HAS BEEN CONSIDERED BY THE CO-ORDINATE BENCH OF T HE TRIBUNAL IN THE CASE OF DHARIWAL INDUSTRIES LIMITED VS. ACIT (SUPRA) AN D THE TRIBUNAL HAD RESTRICTED THE DISALLOWANCES TO ` 2 LAKHS. THE LD. AR FURTHER IN SUPPORT OF HIS SUBMISSIONS PLACED RELIANCE ON THE DECISION RENDERED IN THE CASE OF DESAI & GAIKWAD VS. COMMISSIONER O F INCOME TAX REPORTED AS 46 TAXMANN.COM 348 (PUNE-TRIB.). 7 ITA NOS. 1180, 1181, 1192 TO 1196/PN/2013 14. A PERUSAL OF DOCUMENTS ON RECORD SHOW THAT ASSESS EE HAS EARNED TAX FREE INCOME FROM REDEMPTION OF MUTUAL FUNDS AMOUNTING TO ` 10,47,65,925/- AND THE DIVIDEND RECEIPT OF ` 5,82,95,703/-. THE COMMISSIONER OF INCOME TAX (APPEALS) HAS OBSERVED THAT T AX FREE INCOME OF THE ASSESSEE IS MORE THAN 50% OF THE TOTAL TUR NOVER I.E. ` 32.30 CRORES DURING THE PERIOD RELEVANT TO THE ASSESSM ENT YEAR 2006-07. UNDISPUTEDLY, THE PROVISIONS OF RULE 8D ARE NOT APPLICABLE IN ASSESSMENT YEAR 2006-07. THE ASSESSING OFFICER MADE DISA LLOWANCE OF ` 20,61,095/-, THE COMMISSIONER OF INCOME TAX (APPEALS) HAS RE STRICTED THE DISALLOWANCE TO ` 10,30,500/- I.E. THE DISALLOWANCE WAS REDUCED BY 50%. THE TRIBUNAL IN THE CASE OF DHARIWAL INDUSTRIES L IMITED VS. ACIT (SUPRA) UNDER SIMILAR CIRCUMSTANCES HAS ESTIMATED THE DIS ALLOWANCE U/S. 14A ON ACCOUNT OF ADMINISTRATIVE EXPENSES TO ` 2 LAKHS. THE RELEVANT EXTRACT OF THE FINDINGS OF TRIBUNAL ARE REPRODUCED HERE-IN- UNDER : 176. SO FAR AS DISALLOWANCE OF ADMINISTRATIVE EXPE NSES IS CONCERNED, WE FIND THE AO HAS DISALLOWED AN AMOUNT OF RS.11,72 ,792/- WHICH HAS BEEN UPHELD BY THE CIT(A). DISALLOWANCE OF SUCH EX PENSES IN OUR OPINION IS HIGHLY EXCESSIVE AND UNREASONABLE UNDER THE FACTS AND CIRCUMSTANCES OF THE CASE. WE FIND FORCE IN THE SU BMISSION OF THE LD. COUNSEL FOR THE ASSESSEE THAT THE MUTUAL FUNDS ARE CHARGING ENTRY LOAD VARYING FROM 0.5% TO 2.5%. FURTHER, THE DIRECTORS ARE ALSO NOT DRAWING ANY SALARY WHO ARE IMPLEMENTING THE DECISION OF INV ESTMENT IN MUTUAL FUNDS ETC. AT THE SAME TIME, INCURRING OF SOME ADM INISTRATIVE EXPENSES FOR EARNING SUCH HUGE TAX FREE INCOME CANNOT BE RUL ED OUT. CONSIDERING THE TOTALITY OF THE FACTS OF THE CASE, WE RESTRICT THE DISALLOWANCE ON ACCOUNT OF ADMINISTRATIVE EXPENSES AT RS.2 LAKHS EA CH FOR A.YRS. 2008- 09, 2009-20 AND 2010-11 RESPECTIVELY. GROUND RAISE D BY THE ASSESSEE IS ACCORDINGLY ALLOWED FOR STATISTICAL PURPOSES. 177. IDENTICAL GROUNDS RAISED BY THE ASSESSEE IN A. YRS. 2009-10 AND 2010-11. FOLLOWING OUR DIRECTIONS GIVEN IN THE PRE CEDING PARAGRAPHS THE ISSUE RELATING TO DISALLOWANCE OF INTEREST EXPENDIT URE IS RESTORED TO THE 8 ITA NOS. 1180, 1181, 1192 TO 1196/PN/2013 FILE OF THE AO WHO SHALL DECIDE THE ISSUE IN THE LI GHT OF THE DIRECTIONS GIVEN IN THE PRECEDING PARAGRAPHS. SO FAR AS THE D ISALLOWANCE OF ADMINISTRATIVE EXPENSES IS CONCERNED, WE HAVE ALREA DY DIRECTED TO DISALLOW RS.2 LAKHS EACH FOR A.YRS. 2009-10 AND 201 0-11 RESPECTIVELY. GROUND RAISED BY THE ASSESSEE ON THIS ISSUE IS ACCO RDINGLY ALLOWED FOR STATISTICAL PURPOSES. 15. THE FACTS IN THE PRESENT CASE ARE UNDISPUTEDLY SIMILA R. RESPECTFULLY FOLLOWING THE DECISION OF CO-ORDINATE BENCH, WE RESTRICT THE DISALLOWANCE ON ACCOUNT OF ADMINISTRATIVE EXPENDITURE U/S. 1 4A TO ` 2 LAKHS IN THE PRESENT CASE AS WELL. THUS, THE GROUND NO . 2 RAISED BY THE ASSESSEE IN ITS APPEAL IS PARTLY ALLOWED AND THE APPE AL OF THE DEPARTMENT IS DISMISSED. 16. THE APPEAL OF THE DEPARTMENT IS FURTHER LIABLE TO BE DISMISSED ON ACCOUNT OF LOW TAX EFFECT. THE CBDT VIDE CIRCULAR NO. 21/2 015, DATED 10-12-2015 HAS RAISED THE MONETARY LIMIT OF TAX EFFECT FO R FILING OF APPEALS BY THE DEPARTMENT BEFORE THE TRIBUNAL TO ` 10 LAKHS. THE CIRCULAR APPLIES TO THE APPEALS TO BE FILED BY THE DEPARTME NT IN FUTURE, AS WELL AS THE APPEALS PENDING BEFORE THE TRIBUNAL. THUS, IN VIEW OF THE CBDT CIRCULAR THE PRESENT APPEAL OF THE REVENUE IS LIABLE T O BE DISMISSED ON ACCOUNT OF LOW TAX EFFECT. 17. THE THIRD GROUND RAISED BY THE ASSESSEE IS AS UNDER : 3. THAT ON FACTS AND CIRCUMSTANCES OF THE CASE THE LE ARNED CIT(A) HAS ERRED IN SUSTAINING AD-HOC DISALLOWANCE OF RS.50,00 0/- ON ACCOUNT OF POSSIBLE PERSONAL USAGE OF VEHICLES AND UNVERIFIABL E VOUCHERS WITHOUT ANY BASIS & LOGIC. 9 ITA NOS. 1180, 1181, 1192 TO 1196/PN/2013 18. THE LD. AR OF THE ASSESSEE STATED AT THE BAR THAT H E IS NOT PRESSING GROUND NO. 3 RAISED IN THE APPEAL OF THE ASSESSE E. ACCORDINGLY, THE SAME IS DISMISSED AS NOT PRESSED. 19. THE GROUND NO. 4 RAISED IN THE APPEAL BY THE ASSESSE E IS AS UNDER: 4. THAT ON FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW THE LEARNED CIT(A) HAS ERRED IN SUSTAINING DISALLOWANCE OF RS.1 0,18,132/- U/S. 38(2) OF THE ACT OUT OF DEPRECIATION ON VEHICLES. 20. THE LD. AR OF THE ASSESSEE SUBMITTED THAT THE DISALLOW ANCE HAS BEEN MADE ON MOTOR CAR WHICH HAS BEEN USED BY THE AS SESSEE FOR BUSINESS PURPOSE AND THEREFORE, NO DISALLOWANCE OF DEPRECIA TION SHOULD HAVE BEEN MADE. 21. ON THE OTHER HAND THE LD. DR VEHEMENTLY SUPPORTED THE FINDINGS OF COMMISSIONER OF INCOME TAX (APPEALS) ON THIS ISSUE. 22. BOTH SIDES HEARD. THE COMMISSIONER OF INCOME TAX (AP PEALS) HAS CONFIRMED THE DISALLOWANCE ON DEPRECIATION ON VEHICLES B Y OBSERVING AS UNDER : 8. IN GROUND OF APPEAL NO. 6 RAISED BY THE APPELLA NT IT IS CONTENDED THAT THE A.O. ERRED IN MAKING THE DISALLOWANCE OF R S.10,18,132/- U/S. 38(2) OF THE ACT OUT OF DEPRECIATION ON VEHICLES. THE NARRATION IN RESPECT OF THIS DISALLOWANCE HAS BEEN GIVEN BY THE ASSESSIN G OFFICER IN PARA 3.3 OF THE ORIGINAL ASSESSMENT ORDER DATED 19.12.2008. THE DISALLOWANCE OF RS.10,18,132/- WAS MADE OUT OF THE TOTAL CLAIM OF D EPRECIATION AT RS.1,01,81,321/- BY THE A.O. THE A.O. NOTICED THAT THERE WERE TOTAL 37 VEHICLES OUT OF WHICH, ON 24 VEHICLES DEPRECIATION WAS CLAIMED INCLUDING 7 PREMIUM VEHICLES THERE BEING PROBABILITY OF POSSI BLE PERSONAL USAGE OF PREMIUM CARS, THE A.O. MADE THE DISALLOWANCE OUT OF THE TOTAL DEPRECIATION CLAIMED U/S. 38(2) OF THE I.T. ACT. T HIS ISSUE HAS BEEN 10 ITA NOS. 1180, 1181, 1192 TO 1196/PN/2013 DECIDED BY MY PREDECESSOR AND HAD UPHELD THE DISALL OWANCE U/S. 38(2) @ 10% MADE BY THE A.O. STATING IT TO BE FAIR AND RE ASONABLE. 23. AS IS EVIDENT FROM THE OBSERVATIONS MADE BY COMMISSIO NER OF INCOME TAX (APPEALS) THE ASSESSEE HAD CLAIMED TOTAL DEPR ECIATION OF ` 1,01,81,321/-. THE ASSESSEE IS HAVING SEVERAL VEHICLES INCLUD ING PREMIUM VEHICLES. THE DISALLOWANCES HAS BEEN MADE BY THE AUTHORITIES BELOW ON THE GROUND THAT THIS IS POSSIBILITY THAT THE PRE MIUM CARS WERE USED BY THE ASSESSEE FOR PERSONAL USE. THE POSSIBILITY O F USING THE VEHICLES FOR PERSONAL USE CANNOT BE RULED OUT. HOWEVER, TO MEET THE ENDS OF JUSTICE WE RESTRICT THE DISALLOWANCE TO ` 5 LAKHS U/S. 38(2) OF THE ACT. ACCORDINGLY, THE GROUND NO. 4 RAISED IN THE APPEAL B Y THE ASSESSEE IS PARTLY ACCEPTED. 24. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS PARTLY A LLOWED AND THE APPEAL OF THE REVENUE IS DISMISSED. ITA NOS. 1195 & 1181/PN/2013 (A.Y. 2007-08) 25. THE GROUNDS RAISED BY THE ASSESSEE IN ITS APPEAL FOR ASSESSMENT YEAR 2007-08 ARE AS UNDER : 1. THAT ON FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW THE LEARNED CIT(A) HAS ERRED IN SUSTAINING THE ADDITION OF RS.5 9,49,338/- MADE BY THE LEARNED AO BY TREATING SALES TAX SUBSIDY AS REV ENUE RECEIPT INSTEAD OF CAPITAL RECEIPT. 2. THAT ON FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW THE LEARNED CIT(A) HAS ERRED IN - SUSTAINING DISALLOWANCE OF RS.9,22,374/- AT ADHOC R ATE OF 50%, OUT OF VARIOUS EXPENSES U/S. 14A OF THE ACT WITHOUT APPREC IATING THE WRITTEN SUBMISSION AND DIRECTLY APPLICABLE JUDICIAL PRONOUN CEMENTS. - SUSTAINING DISALLOWANCE U/S. 14A OF THE ACT WITHOUT APPRECIATING THE FACT THAT PROVISIONS OF RULE 8D IS NOT APPLICABLE D URING THE YEAR UNDER CONSIDERATION. 11 ITA NOS. 1180, 1181, 1192 TO 1196/PN/2013 - TREATING THE LONG TERM CAPITAL GAIN AS EXEMPT INCOM E FOR THE PURPOSE OF COMPUTING DISALLOWANCE U/S. 14A OF THE ACT. 3. THAT ON FACTS AND CIRCUMSTANCES OF THE CASE THE LEA RNED CIT(A) HAS ERRED IN SUSTAINING AD-HOC DISALLOWANCE OF RS.1,00,000/- ON ACCOUNT OF POSSIBLE PERSONAL USAGE OF VEHICLES AND UNVERIFIABL E VOUCHERS WITHOUT ANY BASIS & LOGIC. 4. THAT ON FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW THE LEARNED CIT(A) HAS ERRED IN SUSTAINING DISALLOWANCE OF RS.9 ,35,095/- U/S. 38(2) OF THE ACT OUT OF DEPRECIATION ON VEHICLES. THE SOLITARY GROUND RAISED BY THE REVENUE IN APPEAL IS : THE LD. CIT(A) ERRED IN REDUCING THE QUANTUM OF DI SALLOWANCE U/S. 14A TO 50% WITHOUT CONSIDERING THE FACTS AND IT HE CIRC UMSTANCES OF THE CASE. 26. THE GROUNDS RAISED BY THE ASSESSEE IN ITS APPEAL FOR ASSESSMENT YEAR 2007-08 ARE IDENTICAL TO THE GROUNDS RAISED IN ASSE SSMENT YEAR 2006-07. SIMILARLY, THE SOLITARY ISSUE RAISED BY THE DEPART MENT IN ITS APPEAL FOR ASSESSMENT YEAR 2007-08 IS IDENTICAL TO THE G ROUND RAISED IN APPEAL FOR ASSESSMENT YEAR 2006-07. THE FINDINGS GIVEN BY US FOR THE RESPECTIVE GROUNDS IN ASSESSMENT YEAR 2006-07 WOULD AP PLY MUTATIS MUTANDIS TO THE GROUNDS RAISED IN THE APPEALS FOR ASSESSMENT YE AR 2007-08. ACCORDINGLY, THE APPEAL OF THE ASSESSEE FOR ASS ESSMENT YEAR 2007-08 IS PARTLY ALLOWED AND THE APPEAL OF THE REVENUE FOR ASSES SMENT YEAR 2007-08 IS DISMISSED. ITA NO. 1196/PN/2013 (A.Y. 2008-09) 27. IN ASSESSMENT YEAR 2008-09 THE DEPARTMENT HAS NO T FILED ANY APPEAL. THE ASSESSEE HAS ASSAILED THE FINDINGS OF COMMISSION ER OF INCOME TAX (APPEALS) ON SINGLE ISSUE. THE GROUND OF APPE AL IS REPRODUCED AS UNDER : 12 ITA NOS. 1180, 1181, 1192 TO 1196/PN/2013 1. THAT ON FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW THE LEARNED CIT(A) HAS ERRED IN SUSTAINING DISALLOWANCE OF RS.3 3,41,769/- OUT OF VARIOUS EXPENSES U/S. 14A OF THE ACT, WITHOUT APPRE CIATING THE WRITTEN SUBMISSION AND DIRECTLY APPLICABLE JUDICIAL PRONOUN CEMENTS. 28. THE LD. AR OF THE ASSESSEE SUBMITTED THAT DISALLOWANCE U/S. 14A R.W. RULE 8D HAS BEEN MADE IN THE IMPUGNED ASSESSMENT YEAR ON ACCOUNT OF DISALLOWANCE OF INTEREST EXPENSES ` 19,39,954/- AND ON ACCOUNT OF DISALLOWANCE OF ADMINISTRATIVE EXPENSES ` 14,01,815/-. THUS, THE TOTAL DISALLOWANCE MADE U/S. 14A IS ` 33,41,769/-. THE ASSESSEE HAS MADE INVESTMENT IN MUTUAL FUNDS FROM ITS OW N INTEREST FREE FUNDS. THE LD. AR OF THE ASSESSEE SUBMITTED THAT THE ASSESSEE IS HAVING CAPITAL OF ` 193.44 CRORES, WHEREAS, THE TOTAL INVESTMENT IN SHARES AND MUTUAL FUNDS IS ONLY ` 13.65 CRORES. THE LD. AR SUBMITTED THAT THE TRIBUNAL IN THE CASE OF DESAI & GAIKWAD VS. COMM ISSIONER OF INCOME TAX (SUPRA) HAS HELD THAT WHEN THERE IS NO MATER IAL ON RECORD SHOWING THAT INTEREST PAID BY ASSESSEE WAS ATTRIBUTABLE TO FUNDS BORROWED FOR INVESTMENT, NO DISALLOWANCE IN TERMS OF CLAUSE (II) OF SUB- RULE (2) OF RULE 8D SHOULD BE MADE. THE LD. AR FURTHER PLACED RELIANCE ON THE DECISION OF HON'BLE BOMBAY HIGH COURT IN THE CASE OF COMMISSIONER OF INCOME TAX VS. HDFC BANK LIMITED REPORTED AS 366 ITR 505 (BOM). THE LD. AR SUBMITTED THAT THE INTEREST PAID BY ASSESSEE DURING THE RELEVANT PERIOD WAS TOWARDS TERM LOAN TAKEN FOR INSTALLATION OF WINDMILL. THERE IS NOTHING ON RECORD TO SHOW THAT BORRO WED FUNDS WERE DIVERTED FOR MAKING INVESTMENTS. THE LD. AR CONTENDED THAT SO FAR AS DISALLOWANCE TOWARDS ADMINISTRATIVE EXPENSES IS CONCERNED, SUBSTANTIAL INVESTMEN T WAS MADE BY THE ASSESSEE IN MUTUAL FUNDS. THE MUTUAL FUND AGENCIES DEDUCT PORTFOLIO MANAGEMENT CHARGES FROM THE INVESTMENT ITSELF AT THE 13 ITA NOS. 1180, 1181, 1192 TO 1196/PN/2013 TIME OF PURCHASE OF UNITS OR REDEMPTION OF UNITS, AS THE C ASE MAY BE. THEREFORE, NO DISALLOWANCE ON ACCOUNT OF ADMINISTRATIVE EXP ENSES SHOULD BE MADE. THE LD. AR MADE AN ALTERNATE SUBMISSION, T HAT IF AT ALL SOME DISALLOWANCE IS TO BE MADE ON ACCOUNT OF ADMINISTRA TIVE EXPENSES, THE CO-ORDINATE BENCH OF THE TRIBUNAL IN THE CA SE OF DHARIWAL INDUSTRIES LIMITED VS. ACIT (SUPRA) HAS RESTRICTED THE DISALLOWANCE ON ACCOUNT OF ADMINISTRATIVE EXPENSES TO ` 2 LAKHS. SIMILAR DISALLOWANCE MAY BE MADE IN THE CASE OF THE ASSESSEE AS WELL. 29. ON THE OTHER HAND THE LD. DR VEHEMENTLY SUPPORTED THE FINDINGS OF COMMISSIONER OF INCOME TAX (APPEALS) AND PRAYED FOR DISM ISSING THE APPEAL OF ASSESSEE. 30. BOTH SIDES HEARD. THE ONLY ISSUE IN THE APPEAL BY TH E ASSESSEE IS WITH REGARD TO DISALLOWANCE OF ` 33,41,769/- U/S. 14A R.W. RULE 8D. THE LD. AR OF THE ASSESSEE AGITATED THE AFORESAID DISALLOWAN CE ON THE GROUND THAT DISALLOWANCE UNDER RULE 8D CONSIST OF TWO COMPONENTS : I. DISALLOWANCE ON ACCOUNT OF INTEREST EXPENSES ` 19,39,954/-. II. DISALLOWANCE OF ADMINISTRATIVE EXPENSES ` 14,01,815/- TOTAL ` 33,41,769/- IN SO FAR AS THE FIRST COMPONENT OF DISALLOWANCE I.E. INTERES T EXPENSES, THE LD. AR CONTENDED THAT THE ASSESSEE HAS T AKEN TERM LOAN FOR INSTALLATION AND OPERATION OF WINDMILL AND THE INTEREST BEA RING FUNDS FOR WINDMILL WERE NOT DIVERTED FOR MAKING INVESTMENTS IN SHAR ES AND MUTUAL FUNDS. THE TOTAL INVESTMENTS MADE BY THE ASSESS EE IN SHARES AND MUTUAL FUNDS IS ` 13.65 CRORES WHEREAS THE INTEREST FREE FUNDS 14 ITA NOS. 1180, 1181, 1192 TO 1196/PN/2013 AVAILABLE WITH THE ASSESSEE I.E. CAPITAL OF THE ASSESSEE IS TO THE TUNE OF ` 193.44 CRORES. 31. THE HON'BLE BOMBAY HIGH COURT IN THE CASE OF COMMISS IONER OF INCOME-TAX V. RELIANCE UTILITIES AND POWER LTD. REPORTED AS 313 ITR 340 HAS HELD THAT WHERE THE ASSESSEE IS HAVING SUFFICIENT INTE REST-FREE FUNDS OF ITS OWN TO MEET ITS INVESTMENTS AND AT THE SAME TIME THE ASSESSEE HAD RAISED A LOAN IT CAN BE PRESUMED THAT THE INVESTMEN TS WERE FROM THE INTEREST-FREE FUNDS AVAILABLE WITH THE ASSESSEE. THE H ON'BLE HIGH COURT IN THE CASE OF CIT VS. HDFC BANK LTD. (SUPRA) HAS FOLLOWED THE DECISION LAID DOWN BY THE HON'BLE BOMBAY HIGH COURT IN THE CASE OF COMMISSIONER OF INCOME-TAX V. RELIANCE UTILITIES AND POWER LT D. (SUPRA). THE REVENUE HAS NOT CONTROVERTED THE ASSERTI ONS OF THE ASSESSEE THAT THE ASSESSEE IS HAVING SUFFICIENT INTEREST FR EE FUNDS AVAILABLE TO MATCH THE INVESTMENT IN SHARES AND MUTUAL FUNDS. THUS, IN VIEW OF UN-REBUTTED FACTS OF THE CASE AND THE LA W LAID DOWN BY THE HON'BLE JURISDICTIONAL HIGH COURT THE DISALLOWA NCE MADE U/S. 14A R.W. RULE 8D ON ACCOUNT OF USE OF INTEREST BEARIN G FUNDS FOR MAKING INVESTMENT IS DELETED. 32. THE SECOND LIMB OF DISALLOWANCE UNDER RULE 8D IS FOR ADMINISTRATIVE EXPENSES. ON THIS ISSUE IN ASSESSMENT YEAR 2006-07 WE HAVE FOLLOWED THE DECISION OF THE CO-ORDINATE BENCH OF THE TRIBUNAL IN THE CASE OF DHARIWAL INDUSTRIES LIMITED VS. ACIT (SUPRA), A GROUP CONCERN OF ASSESSEE WHEREIN DISALLOWANCE OF ` 2 LAKHS HAS BEEN MADE ON ACCOUNT OF ADMINISTRATIVE EXPENSES FOR MANAGING THE I NVESTMENT PORTFOLIO. FOR THE SIMILAR REASONS WE RESTRICT THE DISALLOWAN CE ON ACCOUNT OF ADMINISTRATIVE EXPENSES TO ` 2 LAKHS IN ASSESSMENT YEAR 15 ITA NOS. 1180, 1181, 1192 TO 1196/PN/2013 2008-09 AS WELL. ACCORDINGLY, THE APPEAL OF THE ASSESSEE IS PARTLY ALLOWED IN THE AFORESAID TERMS. 33. IN THE RESULT, THE APPEALS OF THE ASSESSEE FOR ASSES SMENT YEARS 2004-05 & 2005-06 ARE DISMISSED AND APPEALS OF THE ASSE SSEE FOR ASSESSMENT YEARS 2006-07, 2007-08 AND 2008-09 ARE PA RTLY ALLOWED AND BOTH THE APPEALS OF THE REVENUE ARE DISMISSED. ORDER PRONOUNCED ON FRIDAY, THE 29 TH DAY OF JULY, 2016. SD/- SD/- (PRADIP KUMAR KEDIA) (VIKAS AWASTHY) / ACCOUNTANT MEMBER / JUDICIAL MEMBER / PUNE; !' / DATED : 29 TH JULY, 2016 RK ,-#./0+. / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT. 2. / THE RESPONDENT. 3. # # $ () / THE CIT(A)-II, PUNE 4. # # $ / THE CIT(CENTRAL), PUNE 5. '() *+ , # *+ , , ,-. , / DR, ITAT, B BENCH, PUNE. 6. )/0 12 / GUARD FILE. // ' // TRUE COPY// #3 / BY ORDER, 4 *. / PRIVATE SECRETARY, # *+ , / ITAT, PUNE