The DCIT, Circle-5, Ahmedabad V. Nirma Industries Ltd., Ahmedabad

ITA 1390/AHD/2011

• Counselvise Citation: [2017] 127 COUNSELVISE.COM (IT) 8609 (ITAT-AHMEDABAD)
• Duration Of Justice: 6 year(s) 3 month(s) 17 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 30-08-2017
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: A
• Next Hearing Date: 12-06-2017
• Assessment Year: 2006-2007
• Appeal Filed On: 13-05-2011
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Capital asset; Avoidance of tax; Onus to prove; Revised return; Revenue expenditure; Capital expenditure
• Section: 143(3)

Judgement Text

, IN THE INCOME TAX APPELLATE TRIBUNAL A BENCH, AHMEDABAD BEFORE SHRI N.K. BILLAIYA, ACCOUNTANT MEMBER AND SHRI MAHAVIR PRASAD, JUDICIAL MEMBER !# I.T.A. NO. 1390/AHD/2011 ( / ASSESSMENT YEAR : 2006-07) DY.CIT CIRCLE 5, AHMEDABAD. # VS. NIRMA INDUSTRIES LTD. 2 ND FLOOR, C.U. SHAH CHAMBERS ASHRAM ROAD, AHMEDABAD - 380009 $ # % & # PAN/GIR NO. : AAACN 5352 M ( !$' / APPELLANT ) .. ( ($' # RESPONDENT ) !$') # APPELLANT BY : SHRI MUDIT NAGPAL, SR. D.R. ($'*) / RESPONDENT BY : SHRI S. N. SOPARKAR, A.R. + ,*-. / DATE OF HEARING 14/06/2017 /012*-. / DATE OF PRONOUNCEMENT 30/08/2017 3# O R D E R PER SHRI MAHAVIR PRASAD, JUDICIAL MEMBER : THIS IS AN APPEAL BY THE DEPARTMENT AGAINST THE ORDER OF THE COMMISSIONER OF INCOME TAX(APPEALS)-XI, ASHRAM ROAD , AHMEDABAD DATED 11/03/2011, IN THE MATTER OF ASSESSMENT UNDER SECTION 143(3) OF THE INCOME TAX ACT, 1961 (THE ACT HEREINAFTER) FOR TH E ASSESSMENT YEAR (AY) 2006-07, ON THE FOLLOWING GROUNDS: I. THE LEARNED CIT(A) HAS ERRED IN LAW AND ON FACTS IN DELETING THE DISALLOWANCE OF RS.2,25,28,895/- BEING INTEREST ON OFCPN. ITA NO.1390/AHD /2011 DCIT VS. NIRMA INDUSTRIES LTD. ASST.YEAR 2006-07 - 2 - II. THE LD. COMMISSIONER OF INCOME TAX (A) HAS ERRE D IN LAW AND ON FACTS IN DELETING THE DISALLOWANCE OF EXPENSES OF R S.9 ; 38,860/- U/S.14A OF THE INCOME TAX ACT, 1961. III. THE LD. COMMISSIONER OF INCOME TAX (A) HAS ERR ED IN LAW AND ON FACTS IN DIRECTING THE AO TO VERIFY THE CONTENTIONS OF THE ASSESSEE, IN THE ISSUE OF ADDITION OF RS.18,060/- BEING DIVID END INCOME, IN CONTRAVENTION OF SEC. 251. 2. THE RELEVANT FACTS AS CULLED OUT FROM THE MATERI ALS ON RECORD ARE AS UNDER:- IN THIS CASE, THE ORIGINAL RETURN OF INCOME WAS FI LED ON 30/12/2006, ELECTRONICALLY, DECLARING LOSS AT RS.7,11,95,412/-. THEREAFTER A REVISED RETURN HAS BEEN FILED ON 31/10/2007, DECLARING LOSS AT RS.6,16,43,551/-. THE RETURN WAS PROCESSED U/S.143(1) OF THE ACT ON 2 7/11/2007. THE CASE WAS PICKED UP FOR SCRUTINY ASSESSMENT AND NOTICE U/ S.143(2) WAS ISSUED AND DULY SERVED UPON THE ASSESSEE. 2.2 IN RESPONSE TO THE NOTICES ISSUED, FOLLOWING IS SUES WERE DISCUSSED WITH THE ASSESSEE AS UNDER:- 3. CLAIM OF INTEREST EXP. ON DDB/OFCPN ISSUED BY T HE ASSESSEE: FROM THE RETURN OF INCOME AND FROM THE DETAILS FURN ISHED BY THE ASSESSEE, IT HAS BEEN FOUND THAT THE ASSESSE E HAS CLAIMED INTEREST EXP. OF RS.2,25,28,895/- ON OFCPN. IN CASE OF THESE DDB/OFCPN, THE LIABILITY TO PAY THE INTEREST DID NO T ARISE, SINCE THE INTEREST ON THE SAME WAS REQUIRED TO BE PAID AT THE TIME OF MATURITY AND IN CASE OF REPURCHASE OF SOME OFCPN, T HE AMOUNT CLAIMED WAS A CAPITAL LOSS AND THE SAME CANNOT BE C LAIMED. THE ASSESSEE WAS ASKED TO SHOW CAUSE WHY THE CLAIM SHOU LD NOT BE DISALLOWED AND ADDED TO THE TOTAL INCOME IN VIEW OF REJECTION OF ITA NO.1390/AHD /2011 DCIT VS. NIRMA INDUSTRIES LTD. ASST.YEAR 2006-07 - 3 - SIMILAR CLAIM, WHICH WAS REJECTED VIDE DETAILED DIS CUSSION MADE IN THE CASE OF THE ASSESSEE FOR A.Y.2004-05 & 2005- 06. IN THIS CONNECTION, THE ASSESSEE HAS STATED THAT THE CLAIM IS AN ALLOWABLE EXPENSE. IT HAS GIVEN SUBMISSION VIDE PARA-23 OF LE TTER DATED 13.10.2008 AND IT HAS BEEN CONTENDED THAT THE ASSES SEE HAS RIGHTLY CLAIMED ACCRUED EXPENDITURE OF THE ABOVE AM OUNT. 3.1 THE SUBMISSION OF THE ASSESSEE IS CONSIDERED. HOWEVER, THE SAME IS NOT ACCEPTABLE FOR THE FOLLOWING REASON S:- (I) THE SUBMISSION IS MADE ON IDENTICAL LINE, WHICH WAS MADE DURING ASSESSMENT PROCEEDINGS FOR A.Y.2004-05 & 200 5- 06. THE SAME WAS FOUND NOT ACCEPTABLE FOR THE REASO NS DISCUSSED IN DETAIL IN THE RESPECTIVE ASSESSMENT OR DERS FOR A.Y.2004-05 & 2005-06. (II) IT IS PERTINENT TO NOTE THAT THE REJECTION OF CLAIM OF EXPENDITURE IN A.Y.2004-05 AND 2005-06 HAS BEEN CONFIRMED BY CIT(A) IN HIS ORDER IN APPEAL NO.CIT(A)/CC-L(1)/465/2007-08 DATED 16.10.2008 AND NO.CIT(A)/CC-L(1)/464/2007-08 DATED 17/10/2008, RESPECTIVELY. WHILE CONFIRMING THE DISALLOWANCE, TH E CIT(A), IN HIS ORDER FOR A.Y.2004-05, HAS OBSERVED AS UNDER:- '2.4. I HAVE CONSIDERED THE FACTS AND SUBMISSIONS. I DO NOT AGREE WITH THE APPELLANT'S VIEW FOR THE FOLLOWING R EASONS. 1) THE APPELLANT COMPANY, AS RECORDED BY THE AO IN THE ASSESSMENT ORDER, IS A CASH- RICH COMPANY. YET EVEN THEN, IN SPITE OF BEING A CASH RICH COMPANY, IT HAS STILL ISSUED BONDS. NO PLAUSIBLE REASON FOR ISSUING THESE BONDS HAS BEEN GIVEN. 2) THE APPELLANT COMPANY HAS ISSUED THESE BONDS ONLY T O THE PERSONS BELONGING TO THE NIRMA GROUP OF ENTITIE S. THIS FACTOR NEEDS TO BE TAKEN INTO CONSIDERATION WH ILE VIEWING THE ISSUE IN PROPER PERSPECTIVE. 3) EARLIER, THE NIRMA GROUP OF ENTITIES HAD ALSO ISSU ED SPN (SPECIAL PROMISSORY NOTES) ON A SIMILAR PATTERN ITA NO.1390/AHD /2011 DCIT VS. NIRMA INDUSTRIES LTD. ASST.YEAR 2006-07 - 4 - TO ITS RELATED ENTITIES. IN THOSE CASES ALSO, THE IT AUTHORITIES HAD VIEWED SUCH TAX AVOIDANCE TECHNIQUE S ADVERSELY. 4) ALTHOUGH IN THE HANDS OF THE APPELLANT COMPANY NIRM A LTD., THE INTEREST HAS BEEN CLAIMED AS AN EXPENSE O N ANNUAL ACCRUAL BASIS, YET IN THE HANDS OF THE HOLDE RS OF THE OFCPNS/DDB'S NO INTEREST HAS BEEN SHOWN AS ACCRUAL BASIS ALTHOUGH THEY ARE FOLLOWING THE MERCANTILE METHOD OF ACCOUNTING. THE SAME MANAGEMENT IS INTERPRETING THE LAW IN CASE OF NIRMA LTD., THAT THE EXPENSES CAN BE CLAIMED ON ACCRUAL B ASIS BUT THE INCOME CORRESPONDING TO THIS INTEREST EXPEN SE, IS NOT OFFERED ON ACCRUAL BASIS. 5) THE APPELLANT'S ARGUMENT THAT THE APPELLANT WAS UND ER CONTRACTUAL OBLIGATION TO PAY THE PRE DETERMINED AMOUNT OF THE PREMIUM ON MATURITY AS PER THE INFORMATION MEMORANDUM, IS NOT CORRECT. THE LIABILI TY TO INCUR THE INTEREST EXPENSES ACCRUES AND ARISES O NLY WHEN THE MATURITY PERIOD ENDS. THIS FINDING OF THE AO HAS NOT BEEN REBUTTED BY THE APPELLANT SATISFACTORI LY. 6) THE APPELLANT COMPANY HAS ALSO NOT DEDUCTED THE TDS ON ALL THE ACCRUED INTEREST. EVEN BY THE APPELLANT' S OWN VERSION OF THE ACCRUAL OF INTEREST EXPENSES ON THESE OFCPNS/DDB'S, OR ON ANNUAL ACCRUAL BASIS, EVEN BY THAT VERSION, THE APPELLANT COMPANY SHOULD HAVE DEDUCTED TDS. AS PER EXPLANATION TO S.193, WHICH IS GIVEN BELOW, SINCE TDS HAS NOT BEEN DEDUCTED, THEREFORE DEDUCTION OF THE INTEREST LIABI LITY IN THE HANDS OF THE COMPANY CANNOT BE STATUTORILY BE ALLOWED. THE APPELLANT'S ARGUMENT THAT THE BENEFICIARIES WERE NOT KNOWN UNTIL MATURITY IS OF N O AVAIL TO THE APPELLANT, BECAUSE THE IDENTIFICATION OF SUCH BENEFICIARIES IS NOT A PRE CONDITION FOR TDS DEDUCTION. IF SUCH AN INTERPRETATION IS ACCEPTED, I T WOULD DEFEAT THE VERY PURPOSE OF S.193 AND TDS SCHEME. ITA NO.1390/AHD /2011 DCIT VS. NIRMA INDUSTRIES LTD. ASST.YEAR 2006-07 - 5 - 'EXPLANATION.-FOR THE PURPOSES OF THIS SECTION, WHE RE ANY INCOME BY WAY OF INTEREST ON SECURITIES IS CRED ITED TO ANY ACCOUNT, WHETHER CALLED 'INTEREST PAYABLE ACCOUNT' OR 'SUSPENSE ACCOUNT' OR BY ANY OTHER NAME, IN THE BOOKS OF ACCOUNT OF THE PERSON LIABLE TO PAY SUCH INCOME, SUCH CREDITING SHALL BE DEEMED TO BE CREDIT OF SUCH INCOME TO THE ACCOUNT OF THE PAYEE AND THE PROVISIONS OF THIS SECTION SHALL APPLY ACCORDINGLY. 7) THE SUPREME COURT IN CWS (INDIA) LTD. VS. CIT IN 20 8 ITR 649 HAS RULED THAT WHEN A LITERAL INTERPRETATION LEADS TO AN ABSURD OR UNINTENDED RES ULT, EVEN THE LANGUAGE OF THE STATUTE CAN BE MODIFIED TO AVOID SUCH AN ABSURDITY. 8) SIMILARLY, IN THE CASE OF INDIAN HOTELS VS. ITO IN 245 ITR, THE SUPREME COURT HAS AFFIRMED THE VIEW OF AVOIDING SUCH AN ABSURD INTERPRETATION. THE SUPREME COURT HAS SIMILARLY HELD IN THE CASE OF GOVINDAN (K ) & SONS VS. CIT IN 247 ITR 192 AND IN THE CASE OF OXFO RD UNIVERSITY PRESS VS. CIT IN 247 ITR 658. 9) THE ASSESSEE HAS RELIED ON VARIOUS DECISIONS OF HIG HER JUDICIAL AUTHORITIES INCLUDING MADRES INDUSTRIAL INVESTMENT CORP. V. CIT (1997) 225 ITR 802 (SC). BU T THIS RELIANCE IS NOT CORRECT AFTER THE INDICATION O F INTENTION OF LEGISLATURE IN FINANCE BILL 2005 IN WH ICH SUCH FACILITY HAS BEEN PROVIDED ONLY TO INFRASTRUCT URE AND PUBLIC SECTOR COMPANY. THE JUDICIAL PRONOUNCEMENTS UPTO THIS FINANCE BILL HAD READ THE INTENTION OF THE LEGISLATURE SO FAR BECAUSE THIS WA S A GREY AREA BUT NOW AFTER THIS FINANCE BILL IT IS CLE AR THAT THIS FACILITY IS NOT AVAILABLE TO ALL COMPANIES, AN D NOW THE JUDICIAL PRONOUNCEMENTS CANNOT BE RESORTED TO AVAIL THIS CLAIM. 10) ALL THE DEDUCTIONS U/S.36 ARE SUCH DEDUCTIONS WHICH ARE BENEFICIAL TO THE ASSESSEES. THESE DEDUCTIONS A RE SUCH DEDUCTIONS WHICH MAY NOT BE ALLOWED AS REVENUE EXPENDITURE UNLESS SPECIFICALLY PROVIDED U/S.36 OF THE ITA NO.1390/AHD /2011 DCIT VS. NIRMA INDUSTRIES LTD. ASST.YEAR 2006-07 - 6 - ACT. THEREFORE, IF ANY DEDUCTION IS ALLOWED U/S.36 OF THE ACT FROM A PARTICULAR ASSESSMENT YEAR, IT MEANS THAT IT WAS NOT ALLOWABLE EARLIER BUT SHALL BE ALLO WABLE FROM THE YEAR OF INTRODUCTION. FURTHER, IF SUCH DEDUCTION IS AVAILABLE ONLY TO A CLASS OF ASSESSEES FROM A SPECIFIC DATE ONLY THEN ALLOWING THE SAME DEDUCTI ON TO OTHER ASSESSEES COULD DEFEAT THE PURPOSE AND INTENTION OF THE LEGISLATURE. IT IS NECESSARY TO ME NTION THAT COURTS INTERPRET THE LAW, THEY DO NOT MAKE THE LAW. BY INTRODUCING THE PROVISIONS OF 36(1)(IIIA) THROUG H FINANCE BILL 2005, LEGISLATURE HAS MADE THE INTENTI ON OF ALLOWING PRORATA DEDUCTION OF INTEREST ONLY TO INFRASTRUCTURE COMPANIES AND PUBLIC SECTOR COMPANIE S FROM A.Y.2006-07. THIS IS EVIDENT AND VERY CLEAR. T HIS AUTOMATICALLY PROHIBITS OTHER ASSESSEES TO CLAIM PRORATA DEDUCTION IN RESPECT OF OFCPNS/DDBS. 11) AO HAS RECORDED A SPECIFIC FINDING THAT THE GROUP ENTITIES OF THE NRIMA GROUP HAVE DELIBERATELY MADE THE AVOIDANCE OF TAX BY CLAIMING THE INTEREST EXPEN SES ON ACCRUAL BASIS IN THE APPELLANT'S HANDS WHILE NOT DEDUCTING TDS ON THE SCHEME, AND EVEN PAYING THE DUE TAX IN THE HANDS OF THE HOLDERS (BENEFICIARIES) OF THESE OFCPNS DDB'S. SUCH AN ARRANGEMENT AS THE PRESENT ONE UNDER REVIEW CANNOT BE TERMED AS EITHER AN ARMS- LENGTH TRANSACTION OR BEING A TRANSACTION NOT MEANT TO AVOID TAX. 12) THE LIABILITY OF INCUR THE EXPENSES AS PER INFORMAT ION MEMORANDUM ACCRUES AND ARISES ONLY WHEN THE MATURITY PERIOD ENDS. THIS CLAIM OF THE ASSESSEE IS A NOTIONAL CLAIM OF INTEREST SINCE THE SAME HAS NOT B EEN ACTUALLY PAID BY IT. WHENEVER THERE IS POSSIBILITY OF VARIATION IN THE DATES OF REDEMPTION AND CORRESPOND ING QUANTUM OF PREMIUM ALONG WITH THE PRIME AMOUNT, THE DECISION IN CASE OF MADRAS IND. INVESTMENT CORPORATION 225 ITR 802 (SC) BECOMES INAPPLICABLE. 13) THIS SECTION ALLOWS THE CLAIM OF LOSS AT THE TIME O F REDEMPTION OF OFCPNS DDBS ONLY TO THE ITA NO.1390/AHD /2011 DCIT VS. NIRMA INDUSTRIES LTD. ASST.YEAR 2006-07 - 7 - INFRASTRUCTURE COMPANIES. IT ALREADY MEANS THAT THE LOSS ON ACCOUNT OF REDEMPTION IS NOT AVAILABLE TO O THER PERSONS. IT ALSO MEANS THAT THE CLAIM OF SUCH LOSS WAS NEVER AVAILABLE TO ANY OTHER PERSONS PRIOR TO 1-4- 2006. THIS VIEW IS SUPPORTED BY THE DECISION OF HON'BLE MADRAS HIGH COURT REPORTED IN 260 ITR 571 IN CASE OF RELIANCE MOTOR CO. LTD. THEREFORE, THE PREMIUM PAID BY ASSESSEE IS A CAPITAL EXPENDITURE WHETHER THE DDBS ARE REDEEMED OR REPURCHASED AND IT CANNOT BE CLAIMED AS REVENUE EXPENDITURE BY APPLYIN G 225 ITR 802. 14) THE ASSESSEE HAS CLAIMED THAT AS PER THE COMPANIES ACT 1956, THE COMPANY IS REQUIRED TO MAINTAIN ITS BOOKS OF ACCOUNTS ON ACCRUAL BASIS, THEREFORE IT IS OBLIGATORY ON THE PART OF THE ASSESSEE TO CLAIM THE INTEREST EXPENSE ON ACCRUAL BASIS EVERY YEAR. BUT T HIS IS NOTHING BUT THE DISTORTION OF THE FACTS BECAUSE THE LIABILITY TO PAY THE EXPENSES ACCRUES AND ARISES ON LY WHEN MATURITY PERIOD ENDS. THE ACCRUAL OF THE LIABI LITY IN CASE OF THESE BONDS IS DEFINITELY AFTER THE END OF MATURITY PERIOD AND CLAIMING THE LIABILITIES ON ANN UAL BASIS IS ARTIFICIALLY PRE-PONING THE ACCRUAL OF LIA BILITIES TO AVOID THE TAX. 15) THE REVENUE DEPARTMENT'S SUBMISSION ABOUT DISALLOWING THE DEBENTURE INTEREST EXPENDITURE AND RELATED EXPENSES AS CAPITAL EXPENDITURE, IN CASE TH E APPELLANT'S SUBMISSION ABOUT REPURCHASE OF THE DEBENTURES IS ACCEPTED, IS ALSO A VALID SUBMISSION. THE DELHI HIGH COURT RULING IN THE CASE OF DALMIA DADRI CEMENT LTD. IN 126 ITR 851 IS ON THE SAME RELEVANT GROUND: THE MUMBAI HIGH COURT RULING IN THE CASE OF SCINDIA STEAM NAVIGATION CO. LTD. IN 125 ITR 118 AL SO SUPPORTS THE DEPARTMENT'S STAND. 2.5 FURTHER, SECTION 2(47)(IVA) HAS BEEN INSERTED I N I.T. ACT FROM 1.4.2006. THIS SECTION ALLOWS THE CLAIM OF LOSS AT THE TIME OF REDEMPTION OF DDBS ONLY TO THE INFRASTR UCTURE COMPANIES/PUBLIC COMPANIES. IT ALREADY MEANS THAT T HE ITA NO.1390/AHD /2011 DCIT VS. NIRMA INDUSTRIES LTD. ASST.YEAR 2006-07 - 8 - LOSS ON ACCOUNT OF REDEMPTION IS NOT AVAILABLE TO O THER PERSONS. IT ALSO MEANS THAT THE CLAIM OF SUCH LOSS WAS NEVER AVAILABLE TO ANY OTHER PERSONS PRIOR TO 1.4.2 006. THIS VIEW IS SUPPORTED BY THE DECISION OF HON'BLE M ADRAS HIGH COURT REPORTED IN 260 ITR 571 IN THE CASE OF RELIANCE MOTOR CO. LTD. THEREFORE, THE PREMIUM PAID BY THE ASSESSEE IS A CAPITAL EXPENDITURE WHETHER THE D DBS ARE REDEEMED OR REPURCHASED AND IT CANNOT BE CLAIME D AS REVENUE EXPENDITURE BY APPLYING 225 ITR 802. 2.6 ALL THE DEDUCTIONS U/S.36 ARE SUCH DEDUCTIONS WHICH ARE BENEFICIAL TO THE ASSESSEE. THESE DEDUCTIONS ARE SUCH DEDUCTIONS WHICH MAY NOT BE ALLOWED AS REVENUE EXPENDITURE UNLESS SPECIFICALLY PROVIDED U/S.36 OF THE ACT. THEREFORE, IF ANY DEDUCTION IS ALLOWED U/S.36 OF TH E ACT FROM A PARTICULAR ASSESSMENT YEAR, IT MEANS THAT IT WAS NOT ALLOWABLE EARLIER BUT SHALL BE ALLOWABLE FROM THE Y EAR OF INTRODUCTION. FURTHER, IF SUCH DEDUCTION IS AVAILAB LE ONLY TO A CLASS OF ASSESSEE FROM A SPECIFIC DATE ONLY TH EN ALLOWING THE SAME DEDUCTION TO OTHER ASSESSEE COULD DEFEAT THE PURPOSE AND INTENTION OF THE LEGISLATURE . IT IS NECESSARY TO MENTION THAT COURTS INTERPRET THE LAW, THEY DO NOT MAKE THE LAW. BY INTRODUCING THE PROVISIONS OF 36(1)(IIIA) THROUGH FINANCE ACT, 2005, LEGISLATURE HAS MADE THE INTENTION OF ALLOWING PRO-RATA DEDUCTION O F INTEREST ON OFCPNS/DDBS ONLY TO INFRASTRUCTURE COMPANIES AND PUBLIC SECTOR COMPANIES FROM A.Y. 200 6- 07, THIS IS TOO EVIDENT AND VERY CLEAR. THIS AUTOMA TICALLY PROHIBITS OTHER ASSESSES TO CLAIM PRO-RATA DEDUCTION IN RESPECT OF OFCPNS/DDBS. THE DECISION OF MADRAS HIGH COURT REPORTED IN 260 ITR 571 SUPPORTS THIS VIEW. 2.7 IN VIEW OF THE ABOVE OBSERVATIONS, IT IS HELD T HAT THE ASSESSING OFFICER WAS JUSTIFIED IN DISALLOWING THE CLAIM OF RS.10,98,50,704/-. HENCE, THIS GROUND OF APPEAL IS REJECTED. 3.2 ACCORDINGLY, THE CLAIM OF INTEREST EXPENDITURE OF RS.2,25,28,895/-, CLAIMED ON ACCRUAL BASIS, BY THE ASSESSEE IS DISALLOWED AND ADDED TO THE TOTAL INCOME OF THE ASSESSEE COMPA NY. PENALTY ITA NO.1390/AHD /2011 DCIT VS. NIRMA INDUSTRIES LTD. ASST.YEAR 2006-07 - 9 - PROCEEDINGS U/S. 271(1)(C) OF THE ACT IS INITIATED SEPARATELY FOR FURNISHING INACCURATE PARTICULARS OF INCOME. (DISALLOWANCE - RS.2,25,28,895/-) 4. DISALLOWANCE U/S.14A OF THE ACT: ON PERUSAL OF SCHEDULE-XIII TO THE PROFIT & LOSS AC COUNT IT IS NOTICED THAT THE OTHER INCOME OF THE ASSESSEE WAS T O THE EXTENT OF RS.11,12,85,372/-, WHICH INCLUDED DIVIDEND INCOME O F RS.59,15,003/-. FURTHER ON PERUSAL OF SCHEDULE-17 IT IS NOTICED THA T THE ASSESSEE HAS INCURRED ADMINISTRATIVE AND OTHER EXPENSES AS UNDER - ACCOUNTING CHARGES - RS.11,02, 000 RATES & TAXES - RS. 28,810 PAYMENT TO AUDITORS - RS. 6,61 ,200 CONSULTATION EXPENSES - RS.13,68,45 0 OTHER EXPENSES - RS. 6, 77,991 TOTAL - RS. 38,38,451 4.1 THIS APART THE ASSESSEE HAS ALSO INCURRED PAYME NTS TO AND PROVISIONS FOR EMPLOYEES AMOUNTING TO RS.3,788/-. I N THIS REGARD, DURING THE COURSE OF ASSESSMENT PROCEEDINGS THE ASSESSEE W AS REQUIRED TO SHOW CAUSE AS TO HOW THE ADMINISTRATIVE EXPENSES AND EXP ENSES FOR EMPLOYEES WERE EXCLUSIVELY INCURRED FOR EARNING TAX ABLE INCOME AND WHY PROPORTIONATE EXPENDITURE SHOULD NOT BE DISALLO WED AS PER THE PROVISIONS OF SECTION 14-A. THIS IS BECAUSE, AS PER SETTLED LAW, THE ONUS TO PROVE THAT NO PART OF EXPENDITURE ATTRIBUTABLE T O SUCH INCOME WAS DIRECTLY OR INDIRECTLY INCURRED, LIES WITH THE ASSE SSEE. IN RESPONSE THERETO THE ASSESSEE VIDE ITS SUBMISSION DATED 25.11.2008, SUBMITTED THAT THESE EXPENSES WERE WHOLLY AND EXCLUSIVELY INCURRED FOR T HE PURPOSE OF EARNING INCOME. THE ASSESSEES SUBMISSION IS NOT FO UND CONVINCING BECAUSE DURING THE YEAR THE ASSESSEE HAS EARNED INC OME UNDER THE HEAD OTHER INCOME TO THE EXTENT OF RS.11,12,85,372/-, WHICH INCLUDES DIVIDEND INCOME OF RS.59,15,003/-, AGRICULTURE INCO ME OF RS.9,36,458/- AND SHARE OF PROFIT FORM AOP AT RS.11,99,993/-, WHI CH HAVE BEEN CLAIMED EXEMPTED. THE ASSESSEE HAS ALSO EARNED PROF IT ON SALE OF SECURITIES TO THE EXTENT OF RS.1,91,59,452/-, WHICH WAS EXCLUDED FROM COMPUTATION OF TOTAL INCOME ON ACCOUNT OF SEPARATE TAX TREATMENT UNDER THE HEAD CAPITAL GAINS. THE EXPENDITURE INCURRED UN DER THE HEAD ADMINISTRATIVE & OTHER EXPENSES AS WELL AS UNDER THE HEAD PAYMENTS AND PROVISIONS FOR EMPLOYEES WERE IN RES PECT OF EARNING ALL ITA NO.1390/AHD /2011 DCIT VS. NIRMA INDUSTRIES LTD. ASST.YEAR 2006-07 - 10 - TYPES OF INCOME VIZ. DIVIDEND INCOME, AGRICULTURAL INCOME, SHARE OR PROFIT FROM AOP AND PROFIT ON SALE OF SECURITIES. T HEREFORE, FOR EARNING SUCH EXEMPTED INCOMES ALSO, THE ASSESSEE HAS INDIRE CTLY INCURRED EXPENDITURE TOWARDS 'ADMINISTRATIVE & OTHER EXPENSE S' AND FOR 'PAYMENTS TO AND PROVISIONS FOR EMPLOYEES'. SINCE T HE ABOVE MENTIONED INCOMES ARE NON-TAXABLE OR HAVE BEEN GIVEN DIFFEREN T TREATMENT FOR TAXATION, THE EXPENDITURE INCURRED FOR EARNING THES E INCOME CANNOT BE ALLOWED AS DEDUCTIBLE EXPENDITURE AS PER THE PROVIS IONS OF SECTION 14-A. IT IS MENTIONED HERE THAT THE ASSESSEE'S CLAIM FOR EXEMPTION U/S. 10(34) IN RESPECT OF DIVIDEND RECEIVED FROM THE KALUPUR CO MMERCIAL CO-OP. BANK LTD. OF RS.18,060/- HAS BEEN REJECTED VIDE PAR A-5 OF THIS ORDER. THEREFORE, THE AMOUNT OF RS.18,060/- IS NOT TAKEN W HILE CALCULATING THE PROPORTIONATE EXPENSES. THE PROPORTIONATE EXPENDITU RE IS WORKED OUT AS UNDER:- RS.3842239 X RS.27192846 = RS.9,38,860/- RS.111285372 4.2 THUS, THE PROPORTIONATE EXPENDITURE ATTRIBUTABL E TO EXEMPTED INCOME, WHICH WORKS OUT TO RS.9,38,860/-, IS DISALL OWED AS PER THE PROVISIONS OF SECTION 14-A OF THE IT ACT. DISALLOWANCE - RS.9,38,860/-) 5. DIVIDEND RECEIVED FROM THE KALUPUR COMMERC IAL CO-OP. BANK LTD.: ON PERUSAL OF STATEMENT OF INCOME, IT IS SEEN THAT THE ASSESSEE HAS SHOWN DIVIDEND INCOME OF RS.58,81,943/-. THE SAME H AS BEEN CLAIMED EXEMPT U/S.10(34) OF THE ACT. THE ASSESSEE WAS REQU ESTED TO FURNISH BREAK-UP OF THE SAME AND THE SAME HAS BEEN FURNISHE D VIDE ANNEXURE-H TO LETTER DATED 13.10.2008. ON PERUSAL OF THE SAID ANNEXURE, IT IS SEEN THAT THE ASSESSEE HAS RECEIVED DIVIDEND INCOME OF R S.18,060/- FROM HOLDINGS OF 6020 SHARES OF THE KALUPUR COMMERCIAL C O-OP. BANK LTD. THE DIVIDEND INCOME CAN BE CLAIMED EXEMPT U/S.10(34 ) ONLY IF THE SAME IS RECEIVED FROM A COMPANY AS PER SECTION 115O OF T HE IT ACT, 1961. SINCE THE KALUPUR COMMERCIAL CO-OP. BANK LTD. IS NO T A COMPANY BUT A CO-OPERATIVE SOCIETY, CLAIMING EXEMPTION U/S.80-P , THE DIVIDEND RECEIVED FROM THE BANK IS NOT EXEMPT U/S.10(34). DU RING THE COURSE OF HEARING, THE ASSESSEE WAS REQUESTED TO SHOW-CAUSE W HY THE SAME SHOULD NOT BE ADDED CONSIDERING THE DIVIDEND RECEIVED FROM THE BANK AS TAXABLE. IN THIS CONNECTION, IT WAS SUBMITTED BY AR THAT THE ISSUE MAY BE DECIDED IN THE LIGHT OF PROVISIONS OF THE ACT. I N VIEW OF ABOVE, SINCE ITA NO.1390/AHD /2011 DCIT VS. NIRMA INDUSTRIES LTD. ASST.YEAR 2006-07 - 11 - THE DIVIDEND OF RS.18,060/- IS RECEIVED FROM THE KA LUPUR COMMERCIAL CO-OP. BANK LTD., WHICH IS A CO-OP, SOCIETY AND NOT A COMPANY, THE ASSESSEE IS NOT ELIGIBLE FOR DEDUCTION U/S.10(34). THEREFORE, THE AMOUNT IS ADDED TO THE TOTAL INCOME OF THE ASSESSEE COMPAN Y. (ADDITION RS.18,060/-) SUBJECT TO THE ABOVE, TOTAL INCOME OF THE ASSESSEE IS ASSESSED AS UNDER: LOSS AS PER RETURN OF INCOME (-) RS.6,16,4 3,551/- ADD: 1. DISALLOWANCE OF ACCRUED INTEREST ON OFCPNS (AS PER PARA-3 ABOVE) 2,25,28,895/- 2. DISALLOWANCE U/S.14A OF THE ACT (AS PER PARA-4 ABOVE) 9,38,86 0/- 3. ADDITION ON ACCOUNT OF DIVIDEND INCOME FROM THE KALUPUR COMMERCIAL CO-OP. BANK. (AS PER PARA-5 ABOVE) 18,060/- 2,34,8 5,815/- ASSESSED LOSS(-) RS.3,81,57,736/- ROUNDED OFF TO (-) RS.3,81,57,740/- 4. AGAINST THE SAID ORDER ASSESSEE PREFERRED FIRST STATUTORY APPEAL BEFORE THE LEARNED CIT(A). LEARNED CIT(A) PARTLY AL LOWED THE APPEAL OF THE ASSESSEE. 5. NOW APPELLANTS APPEAL IS BEFORE US. 6. WE HAVE GONE THROUGH THE RELEVANT RECORD AND IMP UGNED ORDER AND HEARD THE LEARNED AR AND DR. SO FAR DISALLOWANCE OF RS.2,25,28,895/- BEING INTEREST ON OFCPN IS CONCERNED. LEARNED AR SU BMITTED THAT THE SAID ISSUE IS COVERED IN THE APPELLANTS OWN CASE F OR EARLIER ASST. YEAR 2004-05 AND 2005-06 VIDE APPEAL NOS.3946 AND 3947/A HD/2008 DATED ITA NO.1390/AHD /2011 DCIT VS. NIRMA INDUSTRIES LTD. ASST.YEAR 2006-07 - 12 - 13/07/2009. THE DISALLOWANCE WAS DELETED VIDE PARA- 166 OF TRIBUNALS ORDER AND SAME IS REPRODUCED HEREUNDER: 166. GROUND NO.2 IS TAKEN BY THE ASSESSEE READ AS UNDER: 2. IN LAW AND IN THE FACTS AND CIRCUMSTANCES OF THE APPELLANTS CASE, THE LEARNED CIT(A) HAS GROSSLY ERRED IN CONFI RMED DISALLOWANCE OF ACCRUED INTEREST ON OFCPNS FOR RS.2,12,16,470/-. 167. WE HAVE HEARD THE PARTIES, IDENTICAL ISSUE HAS BEEN CONSIDERED AND DECIDED BY US IN FAVOUR OF THE ASSESSEE IN NIRM A LTDS APPEAL FOR ASSESSMENT YEAR 2002-03. FOLLOWING THE SAME, GROUND NO.2 IS ALLOWED WITH SIMILAR DIRECTIONS AS GIVEN THEREIN. RELYING ON THE SAME, WE CONFIRM THE RELIEF GRANTED BY COMMISSIONER OF INCOME-TAX(APPEALS) AND THE SAME IS DECIDED IN FAVO UR OF THE ASSESSEE COMPANY. 6.2 SO GAR GROUND NO.2 IS REGARDING DELETION OF DIS ALLOWANCE OF EXPENSES OF RS.9,38,860/- U/S.14A OF INCOME-TAX ACT IS CONCERNED. IT WAS SUBMITTED THAT THERE WAS NO EXPENSE INCURRED FO R EARNING TAX FREE INCOME. THE SIMILAR DISALLOWANCE WAS DELETED IN THE APPELLANTS OWN CASE FOR EARLIER ASSESSMENT YEAR 2004-05 AND 2005-06 VID E ITA NO.54 & 55/AHD/2009 DATED 01/02/2016. THE TRIBUNAL DELETED THE SAME AFTER OBSERVING AS UNDER: 5.2 MATTER WAS CARRIED BEFORE THE FIRST APPELLATE AUTHORITY, WHEREIN VARIOUS CONTENTIONS WERE RAISED ON BEHALF OF THE AS SESSEE AND HAVING CONSIDERED THE SAME THE CIT(A) OBSERVED THAT THERE WAS NO DIRECT EXPENSES RELATABLE TO EARNING OF DIVIDEND INCOME, A GRICULTURAL INCOME AND OTHER INCOMES AND THEREFORE, THE DISALLOWANCE U /S.14A WAS NOT JUSTIFIED AND ACCORDINGLY THE ADDITION WAS DELETED. TAKING ALL THE FACTS AND CIRCUMSTANCES INTO CONSIDERATION, WE ARE INCLIN ED TO CONCUR WITH THE FINDINGS OF THE CIT(A) WHO HAS RIGHTLY DELETED THE DISALLOWANCE IN QUESTION, BECAUSE THE DIVIDEND INCOME, AGRICULTURAL INCOME AND OTHER INCOMES OF THE ASSESSEE HAVING FOUND NO NEXUS WITH THE EXPENSES ITA NO.1390/AHD /2011 DCIT VS. NIRMA INDUSTRIES LTD. ASST.YEAR 2006-07 - 13 - INCURRED BY THE ASSESSEE COMPANY. THE ASSESSEE-COMP ANY IS A MEMBER OF ASSOCIATION OF PERSONS (AOP) AN AOP IS A SEPARAT E LEGAL ENTITY. THE ASSESSEE-COMPANY RECEIVED SHARE OF PROFIT FROM AOP. THE EXPENSES INCURRED BY THE ASSESSEE-COMPANY HAVE NO DIRECT OR INDIRECT NEXUS OR RECEIPT OF SHARE OF PROFIT FROM AOP AND THE PROFIT ON SALE OF SECURITY THE INCOME ASSESSABLE TO TAX UNDER THE HEAD CAPITAL GAI N. THE ASSESSEE- COMPANY HAD OFFERED SHORT TERM CAPITAL GAIN OF RS.2 ,79,33,377/- AND LONG TERM CAPITAL GAIN OF RS.88,68,072/- WHICH WAS CONSIDERED FOR TAXATION IN THE RETURN OF INCOME AND THE SAME WAS A LSO ASSESSED IN THE ASSESSMENT ORDER PASSED U/S.143(3) OF THE ACT. IN V IEW OF THE ABOVE CIT(A) WAS RIGHTLY DELETED THE ADDITION IN QU ESTION RS.3,64,050/- MADE U/S.14A OF THE ACT. THEREFORE, THE ORDER OF TH E CIT(A) ON THIS ISSUE DOES NOT REQUIRE ANY INTERFERENCE FROM OUR SIDE. WE UPHOLD THE SAME.' IT WAS FURTHER SUBMITTED THAT TAX FREE INVESTMENT I S RS.18,11,37,139/- WHEREAS THE COMPANY HAD SHARE CAP ITAL AND RESERVES AGGREGATING TO RS.26,23,63,233/- AS ON 31/03/2006. ON PERUSAL OF FACTS, WE FIND THAT IT SHOULD BE COVE RED IN FAVOUR OF ASSESSEE-COMPANY FOLLOWING ORDER OF TRIBUNAL, THE A PPELLANT COMPANYS OWN CASE IN ASSESSMENT IN ITA NOS.54 & 55/AHD/2009 DATED 01/02/2016 FOR ASSESSMENT YEAR 2004-05 AND 2005-06, THE COMPAN Y HAD CAPITAL AND RESERVE MORE THAN INVESTMENTS. WE CONFIRM THE RELIE F GRANTED BY COMMISSIONER OF INCOME-TAX AND DISMISSED GROUND OF THE REVENUE. 6.3 GROUND NO.3 IS REGARDING ADDITION OF RS.18,060/ - BEING TAXABLE DIVIDEND FROM KALUPUR COMMERCIAL CO-OPERATIVE BANK LTD. IT WAS SUBMITTED THAT THE SAME IS ALREADY OFFERED F OR TAXATION THE SAME CANNOT BE TAXED AGAIN. WE HAVE VERIFIED IN THE COMPUTATION OF ITA NO.1390/AHD /2011 DCIT VS. NIRMA INDUSTRIES LTD. ASST.YEAR 2006-07 - 14 - INCOME. IT STARTED COMPUTATION INCOME FROM BUSINESS RS.44,897,381/- FROM WHICH DIVIDEND INCOME OF RS.58,81,943/- IS EXC LUDED WHEREAS PROFIT AND LOSS ACCOUNT DIVIDEND INCOME IS RS.59,15 ,003/-. HENCE RESULTANT INCOME RS.36,060/- IS ALREADY OFFERED FOR TAXATION. IT IS NOT THE CASE THAT WHOLE OF THE DIVIDEND IS DEDUCTED IN THE COMPUTATION OF INCOME. WE FIND THE SAID DIRECTION IS IN ACCORDINGLY WITH T HE LAW AND WE DO NOT INTERFERE THE SAID DIRECTION. 7. IN THE RESULT, APPEAL FILED BY THE DEPARTMENT IS DISMISSED. THIS ORDER PRONOUNCED IN OPEN COURT ON 30 / 08 /201 7 SD/- SD/- ( ) 4 5 ( N.K. BILLAIYA ) ( MAHAVIR PRASAD ) ACCOUNTANT MEMBER JUDICIAL MEMBER AHMEDABAD; DATED 30/08/2017 PRITI YADAV, SR.PS !'#$ %$' # COPY OF THE ORDER FORWARDED TO : 1. !$' / THE APPELLANT 2. ($' / THE RESPONDENT. 3. 67- + 8- / CONCERNED CIT 4. + 8- 4!5 / THE CIT(A)- 5. 9:;-67 !.!672 ! / DR, ITAT, AHMEDABAD 6. ;<=, # GUARD FILE. & ' / BY ORDER, (9-- //TRUE COPY// (/' )* ( DY./ASSTT.REGISTRAR) , / ITAT, AHMEDABAD TRUE COPY 1. DATE OF DICTATION 22/08/2017 (DICTATION-PAD 4 PA GES ATTACHED AT THE END OF THIS APPEAL-FILE) 2. DATE ON WHICH THE TYPED DRAFT IS PLACED BEFORE THE DICTATING MEMBER 29/08/2017