Amin Equipments Pvt.Ltd., Ahmedabad V. The Dy.CIT.,Circle-1, Ahmedabad

ITA 1299/AHD/2011

• Counselvise Citation: [2012] 140 COUNSELVISE.COM (IT) 57220 (ITAT-AHMEDABAD)
• Duration Of Justice: 9 month(s) 26 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 28-02-2012
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: C
• Assessment Year: 2006-2007
• Appeal Filed On: 02-05-2011
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Assessee Lawyers: S N DIVATIA
• Keywords: Opportunity of being heard; Earning of tax free income; Agreed addition; Commercial expediency
• Section: 143(3); 14A

Judgement Text

, , . .. . . .. . , , , , !' ! !' ! !' ! !' !. .. .#$ '#$ #$ '#$ #$ '#$ #$ '#$ , %& ' %& ' %& ' %& ' % % % % IN THE INCOME TAX APPELLATE TRIBUNAL : C BENCH : AHMEDABAD BEFORE SHRI G.C.GUPTA, HONBLE V.P. & SHRI A.MOHAN ALANKAMONY, HONBLE A.M.) ITA NO. 1299/AHD./2011 : ASSESSMENT YEAR 2006-2007 AMIN EQUIPMENTS PVT. LTD., ABAD ( () /APPELLANT) (PAN : AABCA 5995J) -VS- DCIT, CIRCLE-1, AHMEDABAD ( *+() /RESPONDENT ) () , - % / APPELLANT BY : SHRI S.N.DIVATIA, A.R. *+() , - % / RESPONDENT BY : SHRI VINOD TANWANI, SR.D.R. $. , /0& / DATE OF HEARING : 02/12/2011 1#2 , /0& / DATE OF PRONOUNCEMENT : 28/02/2012 %3 %3 %3 %3 / ORDER PER SHRI A.MOHAN ALANKAMONY, ACCOUNTANT MEMBER : THIS APPEAL OF THE ASSESSEE IS DIRECTED AGAINST TH E IMPUGNED ORDER OF THE LD. CIT (A)-VI, AHMEDABAD IN APPEAL NO. CIT (A)-VI/DCIT CIR.1/342/08-09 DATED 01.03.2011 FOR THE ASSESSMENT YEAR 2006-07 PASSED UNDER SECTION 250 R.W.S. 143(3) OF THE I.T. ACT. 2. THE ASSESSEE COMPANY HAS RAISED, IN ITS GROUNDS OF APPEAL, FOUR GROUNDS IN A NARRATIVE MANNER. FOR THE CONVENIENCE OF CLARITY, THEY ARE REFORMULATED, IN A CONCISE MANNER, AS UNDER: (1) THIS GROUND BEING GENERAL AND NO SPECIFIC ISSUE INVOLVED, IT HAS BECOME INCONSEQUENTIAL; (2) THE CIT (A) HAD ERRED IN CONFIRMING THE FOLLOWI NG ADDITIONS/DISALLOWANCES: (I) DISALLOWANCE U/S 14A RS. 6,45,008/- ITA NO.1299-AHD-2011 2 (II) DISALLOWANCE OF INTEREST RS. 48,710/- (III) AIR INFORMATION RS. 12,500/- 3. THE FACTS OF THE ISSUES, IN BRIEF, ARE THAT THE ASSESSEE COMPANY [THE ASSESSEE HENCEFORTH] ENGAGED IN THE BUSINESS AS A DEALER OF EARTH MOVING MACHINERY, SALES, SERVICE AND SPARE PARTS. IT HAD FURNISHED ITS RETURN OF INCOME FOR THE ASSESSMENT YEAR UNDER CONS IDERATION, ADMITTING A TOTAL INCOME OF RS.1,44,76,790/-. DURING THE COURS E OF ASSESSMENT PROCEEDINGS, IT WAS NOTICED BY THE LD.AO THAT THE A SSESSEE HAD EARNED INCOME BY WAY OF DIVIDEND OF RS.8,83,211/- AND PROP OSED TO INVOKE THE PROVISIONS OF SECTION 14A OF THE ACT WHICH HAS BEEN OBJECTED TO BY THE ASSESSEE VIDE ITS SUBMISSION DT.6.12.2008. BRUSHIN G ASIDE THE ASSESSEES CONTENTION, FOR THE REASONS RECORDED IN HIS IMPUGNED ORDER UNDER CHALLENGE, THE LD.AO RESORTED TO DISALLOW RS. 6,45,008/- BY INVOKING RULE 8D. IT WAS ALSO NOTICED BY THE LD.AO THAT THO UGH THE ASSESSEE HAD PAID INTEREST ON UNSECURED LOANS, IT HAD ADVANCED I NTEREST FREE LOANS TO ITS STAFF TO THE EXTENT OF RS.4,87,096/- WHICH HAS BEEN DISALLOWED INTEREST PART TO THE EXTENT OF RS.48,710/- BEING INTEREST AT 10%. ACCORDING TO THE AO, THIS DISALLOWANCE HAS BEEN RESORTED TO WITH THE CONCURRENCE OF THE LD. A R PRESENT. FURTHER, THE LD.AO HAD STUMBLED U PON THE AIR INFORMATION WHICH HAD SHOWN THAT THE ASSESSEE HAD R ECEIVED COMMISSION OF RS.12,500/- FROM KOTAK MAHENDRA BANK LIMITED WHI CH WAS NOT DISCLOSED IN ITS RETURN OF INCOME, BUT, ACCORDING T O THE LD.AO, THE LD.AR PRESENT ACCEDED FOR THE PROPOSED ADDITION. 4. AGGRIEVED BY THE STAND OF THE LD.AO, THE ASSESSE E TOOK UP THE ISSUE WITH THE LD. CIT (A) FOR RELIEF. AFTER GIVING DUE WEIGHT-AGE TO THE ASSESSEES CONTENTIONS AND ALSO PERUSING THE RELEVA NT CASE RECORDS, THE ITA NO.1299-AHD-2011 3 ISSUES RAISED BY THE ASSESSEE HAVE BEEN DEALT WITH BY THE LD.CIT (A), THE DETAILS OF WHICH, IN ISSUE-WISE, ARE AS UNDER: (I) DISALLOWANCE U/S 14A : 3 IT IS NOT IN DISPUTE THAT APPELLANT EARNED EXEMPT INCOME IN THE FORM OF DIVIDEND ON INVESTMENT OF MORE THAN RS.333 LAKHS. IT IS ALSO NOT IN DISPUTE THAT APPELLANT BORROWED FUNDS ON WHI CH INTEREST TO THE EXTENT OF RS.L9.66 LAKHS WERE PAID. APART FROM THI S SUBSTANTIAL ADMINISTRATIVE EXPENSES WERE INCURRED, PART OF WHIC H MAY RELATE TO INVESTMENT RESULTING IN EXEMPT INCOME. CONSIDERING THESE FACTS IT IS CLEAR THAT THERE ARE EXPENSES IN THE FORM OF INTERE ST AND OTHER ADMINISTRATIVE EXPENSES RELATABLE TO EARNING OF EXE MPT INCOME WHICH ARE TO BE DISALLOWED UNDER SECTION 14A. THEREFORE, DISALLOWANCE UNDER SECTION 14A IS NECESSARY. COMING TO THE METHOD OF COMPUTING DISALLOWANCE UNDE R SECTION 14A, ASSESSING OFFICER DISALLOWED EXPENSES RELATABL E TO EXEMPT INCOME AS PER RULE 8D. UP-TO 2007-08 THE METHOD TO ARRIVE AT DISALLOWABLE EXPENSE WAS ESTIMATION. THEREAFTER RULE 8D WAS FRA MED WHICH GIVES FORMULA FOR DISALLOWANCE OF EXPENSES RELATING TO EX EMPT INCOME. FOR INTEREST, PROPORTIONATE EXPENSE IS DISALLOWABLE WHE REAS FOR OTHER EXPENSES .5% OF INVESTMENT VALUE IS DISALLOWABLE. CONSIDERING THE FACT THAT APPELLANT CLAIMED HUGE ADMINISTRATIVE AND OTHE R EXPENSES, THE DISALLOWANCE OF ADMINISTRATIVE EXPENSES MADE BY THE ASSESSING OFFICER RUPEES 104300 IS QUITE REASONABLE AND THEREFORE THE SAME IS CONFIRMED. AS REGARDS INTEREST, APPELLANT SUBMITTED THAT IT WA S HAVING INTEREST FREE FUNDS AND PROFIT THEREFORE NO INTERES T IS RELATABLE TO ITA NO.1299-AHD-2011 4 INVESTMENT RESULTING IN EXEMPT INCOME. HOWEVER, IT IS SEEN THAT APPELLANT BORROWED SUBSTANTIALLY WHICH WAS USED IN BUSINESS PURPOSE AS WELL AS INVESTMENT. SINCE COMMON FUNDS ARE MAIN TAINED AND APPELLANT COULD NOT IDENTIFY THE IMMEDIATE SOURCE O F INVESTMENT. IN VIEW OF THIS, THE DECISIONS RELIED UPON BY THE APPE LLANT ARE NOT APPLICABLE. THE DECISION OF KERALA HIGH COURT RELI ED UPON BY THE APPELLANT IS NOT APPLICABLE SINCE APPELLANT DID NOT TREAT INVESTMENT RESULTING AND EXEMPT INCOME AS STOCK IN TRADE. SIN CE ADMITTEDLY INVESTMENT WAS NOT PART OF BUSINESS HEAD, NO INCOME FROM SUCH INVESTMENT IS TAXABLE. CONSIDERING THE FACT THAT E XPENSES RELATING TO EXEMPT INCOME ARE TO BE ESTIMATED AND RULE 8D GIVES BASIS FOR COMPUTING SUCH DISALLOWANCE, THEREFORE THE DISALLOW ANCE UNDER SECTION 14A MADE BY THE ASSESSING OFFICER AS PER RULE 8D IS CONFIRMED. (II) DISALLOWANCE OF INTEREST OF RS.48,710/ AND AI R INFORMATION NOF RS.12500/-: 5. OTHER TWO SUBSTANTIVE GROUNDS OF APPEAL AT SERI AL NUMBER 2.A (INTEREST ON LOAN) AND 2.D (AIR INFORMATION) OF GRO UNDS OF APPEAL ARE AGAINST ADDITIONS WHICH WERE AGREED BY THE APPELLAN T BEFORE THE ASSESSING OFFICER. SINCE NO APPEAL LIES IN RESPECT OF AGREED ADDITIONS, THESE GROUNDS ARE NOT MAINTAINABLE. THIS WAS CLEAR LY CONVEYED TO THE APPELLANT DURING THE APPEAL HEARING AND ALSO NOTED IN ORDER SHEET. ACCORDINGLY, THESE GROUNDS ARE DISMISSED. 5. AGITATED, THE ASSESSEE HAS COME UP WITH THE PRES ENT APPEAL. IT WAS SUBMITTED THAT THE AO HAD FAILED TO PROVE THE NEXUS BETWEEN THE BORROWINGS AND INVESTMENTS AND RULE 8D WAS NOT APPL ICABLE FOR THE AY 2006-07. HOWEVER, IT WAS CONTENDED THAT, THE CIT (A ) HAD CONFIRMED THE ITA NO.1299-AHD-2011 5 DISALLOWANCE MAINLY ON THE GROUND THAT RULE 8D WAS THE BASIS FOR COMPUTING SUCH DISALLOWANCE AND CONSIDERING HUGE AD MINISTRATIVE, OTHER EXPENSES, THE DISALLOWANCE MADE BY AO WAS REASONABL E. WITH REGARD TO DISALLOWANCE OF INTEREST, IT WAS CONTENDED THAT THE IMPUGNED DISALLOWANCE WAS NOT JUSTIFIED BECAUSE THE STAFF LOANS WERE GIVE N OUT OF COMMERCIAL EXPEDIENCY INASMUCH AS THE SAME WAS NECESSARY FOR H EALTHY AND CORDIAL MANAGEMENT-LABOUR RELATIONSHIP. IT WAS FURTHER ARG UED THAT IT WAS CUSTOMARY IN EVERY ORGANIZATION TO GIVE SUCH LOAN WHICH HELPS TO INFUSE ENTHUSIASMS AMONGST EMPLOYEES WHICH INCREASES THEIR EFFICIENCY. IT WAS, FURTHER, CONTENDED THAT THE AR HAD NOT AGREED TO AN Y SUCH DISALLOWANCE. IT APPEARS THAT THE FACT OF INTEREST FREE ADVANCE G IVEN TO STAFF HAS BEEN UNDERSTOOD AS AGREEING TO THE DISALLOWANCE. IN RES PECT OF ADDITION OF RS.12,500/-, IT WAS SUBMITTED THAT THE SAID PARTY H AD MADE TDS ON ACCOUNT OF THE PROVISIONS FOR THE BROKERAGE, BUT, N O AMOUNT WAS ACTUALLY PAID AND, HENCE, IT WAS NOT ACCOUNTED FOR. FURTHER , IT WAS ASSERTED THAT THE AR HAD NOT AGREED TO THE ADDITION, BUT, HE SIMP LY STATED THAT TDS WAS CLAIMED IN RESPECT OF THE SAID COMMISSION WHICH WAS CORRECT. 5.1. THE LD. D R PRESENT WAS DULY HEARD. 6. WE HAVE DULY CONSIDERED THE RIVAL SUBMISSIONS AN D ALSO PERUSED THE RELEVANT CASE RECORDS. 6.1. AT THE OUTSET, WE WOULD LIKE TO RECALL THE FIN DINGS OF THE EARLIER BENCH IN AN IDENTICAL ISSUE IN THE CASE OF NIKHILKU MAR DHIRAJLAL SHAH V. ACIT (OSD) IN ITA NO.3159/AHD/2010 DATED 30.9.011 W HEREIN THE HONBLE BENCH WITH THE CONCURRENCE OF THE RULING O F THE HONBLE JURISDICTIONAL HIGH COURT IN THE CASE OF CIT II V. M/S. LUBI SUBMERSIBLES ITA NO.1299-AHD-2011 6 LTD., IN TAX APPEAL NO.868 OF 2010, REMITTED BACK T HE ISSUE TO THE FILE OF THE AO WITH A SPECIFIC DIRECTION TO REWORK THE DISA LLOWANCE U/S 14A R.W.S.8D OF THE ACT, KEEPING IN VIEW THE RATIO LAID BY THE HONBLE COURT CITED SUPRA. IN THE PRESENT CASE ALSO, THE ISSUE H AS NOT BEEN DEALT WITH EITHER BY THE AO OR BY THE FIRST APPELLATE AUTHORIT Y IN ACCORDANCE WITH THE RATIO LAID DOWN BY THE HONBLE COURT ON A SIMILAR I SSUE. TO FACILITATE THE AO TO LOOK INTO THE MATTER AFRESH AND TO TAKE APPRO PRIATE ACTION IN ACCORDANCE WITH THE RATIO LAID BY THE HONBLE COURT REFERRED ABOVE, THE ISSUE IS REMITTED BACK TO THE FILE OF THE AO FOR NE EDFUL. THE ASSESSEE SHALL BE AFFORDED A REASONABLE OPPORTUNITY OF BEING HEARD BY THE AO BEFORE CONTEMPLATING ANY ACTION ON THE ISSUE. IT IS ORDERE D ACCORDINGLY. 6.2. WITH REGARD TO THE DISALLOWANCE OF INTEREST OF RS.48,710/- AND ADDITION OF COMMISSION OF RS.12,500/-, THE CIT (A) HAD RECORDED IN HIS FINDING THAT (AT THE COST OF REPETITION) 5. OTHER TWO SUBSTANTIVE GROUNDS OF APPEAL AT SERIAL NUMBER 2.A AND 2.D OF GROUNDS O F APPEAL ARE AGAINST ADDITIONS WHICH WERE AGREED BY THE APPELLAN T BEFORE THE ASSESSING OFFICER. SINCE NO APPEAL LIES IN RESPECT OF AGREED ADDITIONS, THESE GROUNDS ARE NOT MAINTAINABLE. THIS WAS CLEARLY CONVEYED TO THE APPELLANT DURING THE APPEAL HEARING AND ALSO NOTED IN ORDER SHEET IN THE MEANWHILE, THE ASSESSEE, IN ITS STATEMENT OF FACTS, AVERRED THAT THE AR HAD NOT AGREED TO ANY SUCH DISALLOWANCE. HOWEVER, DURING THE COURSE OF HEARING, THIS ASPECT HAS NOT BEEN EXPRESSLY DISPUTED EITHER. THE LD CIT (A), BEING A SEMI-JUDICIAL AUTHORITY, HAD CATEGORICALLY ASSERTED THAT THE APPE LLANT HAS BEEN APPRAISED OF AND ALSO NOTED IN ORDER SHEET WHICH, I N OUR CONSIDERED VIEW, CANNOT BE BRUSHED ASIDE UNLESS WITH ANY DOCUMENTARY EVIDENCE TO THE CONTRARY. IN THE ABSENCE OF THE ANY SUCH AVERMENT, WE REJECT THE ITA NO.1299-AHD-2011 7 ASSESSEES CLAIMS ON BOTH THE ADDITIONS AS NOT MAIN TAINABLE. IT IS ORDERED ACCORDINGLY. 7. IN THE RESULT, THE ASSESSEES APPEAL IS TREATED AS PARTLY ALLOWED FOR STATISTICAL PURPOSES. 4 %3 , 1#2 5$'6 28 / 02 /201 2 # 7 , . SD/- SD/- (G.C.GUPTA) (A.MOHAN ALANKAMONY) VICE PRESIDENT ACCOUNTANT MEMBER DATED :28/02/2012 %3 %3 %3 %3 , ,, , */8 */8 */8 */8 9%82/6 9%82/6 9%82/6 9%82/6- -- - 1. () 2. *+() 3. '' / > 4. >- - 5. 8A */$ , , B 6. D E4 %3 %, / ' , B TALUKDAR/ SR. P.S.