M/s. Balakrishna Flour Mills, Bangalore V. Income-Tax Officer, Bangalore

ITA 1324/BANG/2016

• Counselvise Citation: [2017] 127 COUNSELVISE.COM (IT) 7210 (ITAT-BANGALORE)
• Duration Of Justice: 1 year(s) 4 month(s) 3 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 17-11-2017
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: C
• Next Hearing Date: 24-07-2017
• Assessment Year: 2012-2013
• Appeal Filed On: 14-07-2016
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Keywords: Depreciation; Bad and doubtful debts
• Section: 14A

Judgement Text

ITA.1324/BANG/2016 PAGE - 1 IN THE INCOME TAX APPELLATE TRIBUNAL BENGALURU BENCH 'C', BENGALURU BEFORE SHRI. INTURI RAMA RAO, ACCOUNTANT MEMBER AND SHRI. LALIT KUMAR, JUDICIAL MEMBER I.T.A NO.1324/BANG/2016 (ASSESSMENT YEAR : 2012-13) M/S. BALAKRISHNA FLOUR MILLS, NO.172, KAVI LAKSHMISHA ROAD, V. V. PURAM, BENGALURU 560 004 .. APPELLANT PAN : AALFS4690R V. ASST. COMMISSIONER OF INCOME-TAX, CIRCLE -2(2)(1), BENGALURU .. RESPONDENT ASSESSEE BY : NONE REVENUE BY : SHRI. M. K. BIJU, JCIT HEARD ON : 09.11.2017 PRONOUNCED ON : 17.11.2017 O R D E R PER LALIT KUMAR, JUDICIAL MEMBER : THE PRESENT APPEAL IS FILED BY THE ASSESSEE AGAINS T THE ORDER OF THE CIT (A)-5, BENGALURU, DT.22.06.2016, FOR THE ASSESS MENT YEAR 2012-13, ON THE GROUND PERTAINING TO DISALLOWANCE U/S.14A R.W.R 8D, OF AN AMOUNT OF RS.20.88 LAKHS. ITA.1324/BANG/2016 PAGE - 2 02. BRIEF FACTS ARE, THE ASSESSEE IS A PARTNERSHIP FIRM CARRYING ON THE BUSINESS OF FLOUR MILL AND LATER ON STARTED DOING T HE BUSINESS IN FINANCE AND COMMODITY TRADING AND UTILISING THE CAPITAL AVA ILABLE. IT OFFERED INCOME FROM BUSINESS TO TAXATION. THE ASSESSEE WAS SUBJECTED TO SCRUTINY ASSESSMENT WHEREIN THE AO HAD DISALLOWED T HE EXPENDITURE TO THE TUNE OF RS.4,30,473/- ON ACCOUNT OF TELEPHONE, ELECTRICITY AND RENT, ON THE PREMISE THAT THESE ARE NOT DIRECTLY RELATABL E TO THE BUSINESS CARRIED OUT BY THE ASSESSEE. AGGRIEVED, ASSESSEE F ILED AN APPEAL BEFORE THE CIT (A). 03. THE CIT (A) CONFIRMED THE DISALLOWANCE MADE BY THE AO. BEING AGGRIEVED THE ASSESSEE IS IN APPEAL BEFORE TH IS TRIBUNAL. 04. BEFORE US THE LD. AR SUBMITTED THAT THE AUTHORI TIES BELOW HAD ALLOWED THE DEPRECIATION ON ASSETS AND ADMINISTRATI VE EXPENSES BUT HAVE NOT ALLOWED THE DIRECT EXPENSES STATING THAT T HEY HAVE NO DIRECT NEXUS WITH THE BUSINESS OF THE ASSESSEE. IT WAS SU BMITTED THAT THE AUTHORITIES BELOW HAD NOT DISPUTED THAT THE INCOME WAS RECEIVED FROM RENT AND INTEREST HAVE BEEN OFFERED TO TAX AND THEY HAVE ALLOWED THE EXPENSES WHICH ARE IN THE NATURE OF ADMINISTRATIVE EXPENSES AND DEPRECIATION. 05. THE LD. DR SUBMITTED THAT BAD DEBTS, SECURITY C HARGES, CONVEYANCE, POWER CHARGES, TELEPHONE CHARGES CANNOT BE ALLOWED BEING NOT RELATED TO THE BUSINESS OF THE ASSESSEE. ITA.1324/BANG/2016 PAGE - 3 06. WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE MATERIAL ON RECORD. IN OUR VIEW, THE BAD DEBTS OF RS.20,379/-, SECURITY CHARGES OF RS.2,14,752/-, AND POWER CHARGES OF RS.25,808/- T ELEPHONE CHARGES OF RS.9,367/- ARE REQUIRED TO BE ALLOWED AS THE ASS ESSEE WAS USING THE PREMISES FOR THE PURPOSE OF CARRYING OUT THE BUSINE SS ACTIVITIES FOR WHICH THE ASSESSEE HAS OFFERED THE INCOME GENERATED FROM THE ACTIVITIES CARRIED OUT BY IT. HOWEVER, TRAVELLING AND CONVEYANCE CHARGES OF RS.49 ,008/- COULD NOT BE ALLOWED AS THE ASSESSEE HAS NOT BEEN ABLE TO ESTABLISH THE NEXUS OF THE FOREIGN TRAVEL TO THE BUSINESS CARRIED OUT BY THE ASSESSEE. NO EVIDENCE OR DOCUMENT HAS BEEN PRODUCED BEFORE US TO SHOW THAT THE FOREIGN TRAVEL WAS IN RESPECT OF THE BUSINESS. IN VIEW THEREOF WE GRANT THE BENEFIT OF (RS.4,30,474 RS.49,008) RS.3 ,81,465/- AND CONFIRM THE ADDITION OF RS.49,008/-. 07. THE NEXT GROUND IS WITH RESPECT TO DISALLOWANCE U/S.14A. IT WAS THE CASE OF THE ASSESSEE BEFORE THE LOWER AUTHORITI ES THAT THE ASSESSEE HAS EARNED DIVIDEND INCOME OF RS.6,46,947/- DURING THE ASSESSMENT YEAR UNDER CONSIDERATION AND THE AO WHILE INVOKING THE PROVISIONS OF 14A R.W.R 8D HAS WRONGLY CALCULATED THE AVERAGE AMO UNT OF TOTAL INVESTMENT AT RS.1,30,99,563/- WHICH SHOULD HAVE BE EN RS.13,09,95,630/-. ON THE BASIS OF THIS AMOUNT, WR ONG CALCULATION OF DISALLOWANCE TO THE TUNE OF RS.24,69,235/- WAS COM PUTED BY LOWER AUTHORITIES. IT WAS SUBMITTED BY THE ASSESSEE BEFO RE US THAT IF THE ITA.1324/BANG/2016 PAGE - 4 CORRECT AVERAGE AMOUNT OF ASSETS WAS TAKEN THEN THE DISALLOWANCE UNDER RULE 8D WOULD COME TO RS.2,46,923/-. 08. THE LD. DR RELIES UPON THE ORDER OF THE LOWER A UTHORITIES. 09. WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE MATERIAL ON RECORD. THE AO IN PARA 6 HAS GIVEN A TABLE DEPICTI NG THE DISALLOWANCE U/S.14A R.W.R 8D, WHICH IS AS UNDER : FROM A PERUSAL OF THE ABOVE TABLE IT IS CLEAR THAT THE AO HAS WRONGLY TAKEN THE AVERAGE VALUE OF TOTAL ASSETS AS RS.1,30, 99,563/- WHICH SHOULD HAVE BEEN RS.13,09,95,630/-. THUS IF THE AO TOOK THE CORRECT DENOMINATOR AT RS.13,09,95,630/- AT THE TIME APPLYI NG THE FORMULA IN COLUMN E (SUPRA) IN THE TABLE THEN THE TOTAL DI SALLOWANCE WOULD COME TO RS.2,46,923/-. THEREFORE IN OUR CONSIDERED OPINION THE CIT (A) AND THE AO BOTH WERE WRONG IN DISALLOWING THE A MOUNT OF ITA.1324/BANG/2016 PAGE - 5 RS.24,69,235/-. IN VIEW OF THE ABOVE, WE PARTLY AL LOW THE GROUND OF THE ASSESSEE AND RESTRICT THE DISALLOWANCE TO THE T UNE OF RS.2,46,923/-. 10. FURTHER IN VIEW OF THE ABOVE SAID FINDING , TH E ADJUDICATION OF THE OTHER ARGUMENT RAISED BEFORE US THAT THE DISALL OWANCE CANNOT EXCEED THE DIVIDEND INCOME EARNED BY THE ASSESSEE B ECOMES ACADEMIC AS THE DISALLOWANCE IN PRESENT CASE IS LESS THAN THE DIVIDEND INCOME EARNED BY THE ASSESSEE. THEREFORE THIS ISSUE IS KE PT OPEN AND NOT ADJUDICATED. 11. IN THE RESULT, APPEAL OF THE ASSESSEE IS PARTLY ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 17TH DAY OF N OVEMBER, 2017. SD/- SD/- (INTURI RAMA RAO) (LALIT KUMAR) ACCOUNTANT MEMBER JUDICIAL M EMBER BENGALURU DATED : 17.11.2017 MCN* COPY TO: 1. THE ASSESSEE 2. THE ASSESSING OFFICER 3. THE COMMISSIONER OF INCOME-TAX 4. COMMISSIONER OF INCOME-TAX(A) 5. DR 6. GF, ITAT, BANGALORE BY ORDER SENIOR PRIVATE SECRETARY