Mahila Udyog Ltd., Pune V. Income-tax Officer,

ITA 1449/PUN/2014

• Counselvise Citation: [2016] 132 COUNSELVISE.COM (IT) 1710 (ITAT-PUNE)
• Duration Of Justice: 1 year(s) 11 month(s) 1 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 17-06-2016
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: B
• Assessment Year: 2007-2008
• Appeal Filed On: 16-07-2014
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: MUKESH JHA
• Keywords: Earning of tax free income
• Section: 14A

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL B BENCH, PUN E , , !'#'' $ , % & BEFORE SHRI R.K. PANDA, AM AND SHRI VIKAS AWASTHY, JM / ITA NO. 1449/PN/2014 %' ( ')( / ASSESSMENT YEAR : 2007-08 MAHILA UDYOG LTD., 13, KIRLOSKAR KISAN COMPOUND, KARVE ROAD, KOTHRUD, PUNE 411038 PAN : AAECM0441J ....... / APPELLANT ' / V/S. THE INCOME TAX OFFICER, WARD 11(1), PUNE / RESPONDENT ASSESSEE BY : SHRI C.H. NANIWADEKAR REVENUE BY : SHRI MUKESH JHA / DATE OF HEARING : 21-04-2016 / DATE OF PRONOUNCEMENT : 17-06-2016 * / ORDER PER VIKAS AWASTHY, JM : THE APPEAL HAS BEEN FILED BY THE ASSESSEE AGAINST THE OR DER OF COMMISSIONER OF INCOME TAX (APPEALS)-I, PUNE DATED 31-01- 2014 FOR THE ASSESSMENT YEAR 2007-08. 2 ITA NO. 1449/PN/2014, A.Y. 2007-08 2. IN APPEAL, THE ASSESSEE HAS CHALLENGED THE ORDER OF COMMISSIONER OF INCOME TAX (APPEALS) BY RAISING FOLLOWING GROUNDS: 1. THE LEARNED CIT (A) ERRED ON FACTS AND IN LAW IN U PHOLDING DISALLOWANCE U/S. 40A(2)(B) AMOUNTING TO RS.22,22,000 OUT OF ELE CTRICITY EXPENSE BEING 50% OF THE EXPENSES CLAIMED. THE LEARNED CIT (A) FU RTHER FAILED TO APPRECIATE THE ARGUMENTS AND CONTENTIONS ADVANCED I N THIS BEHALF. 2. THE LEARNED CIT (A) ERRED ON FACTS AND IN LAW IN UP HOLDING DISALLOWANCE OF RS.3,04,830 U/S. 14A OF THE ACT. HE ALSO FAILED TO APPRECIATE THAT THE AO HAD FAILED TO RECORD HER SATISFACTION AS REQUIRE D UNDER RULE 8D. THE LEARNED CIT (A) FURTHER FAILED TO APPRECIATE THE AR GUMENTS AND CONTENTIONS ADVANCED IN THIS BEHALF. 3. THE APPELLANT CRAVES LEAVE TO ADD, ALTER, DELETE OR SUBSTITUTE ALL OR ANY OF THE ABOVE GROUNDS OF APPEAL. 3. THE BRIEF FACTS OF THE CASE AS EMANATING FROM RECORDS ARE: THE ASSESSEE IS A COMPANY REGISTERED UNDER THE PROVISIONS O F COMPANIES ACT, 1956. THE ASSESSEE COMPANY WAS ALLEGEDLY INCORPORA TED FOR THE UPLIFTMENT OF DOWN TRODDEN WOMEN IN THE SOCIETY AND IS PRO MOTED BY M/S. KIRLOSKAR OIL ENGINES LTD. AS A MEASURE OF SUPPORT M /S. KIRLOSKAR OIL ENGINES LTD. HAS PROVIDED REQUIRED MACHINERY FR EE OF COST AND HAS PROVIDED SPACE AT A NOMINAL RENT. THE ASSESSEE COMPANY IS ENGAGED IN THE BUSINESS OF MANUFACTURING OF BEARINGS, BUSHE S AND THRUST WASHERS REQUIRED FOR THE ENGINES MANUFACTURED BY M/S. KIRLOSKAR OIL ENGINES LTD. THE ASSESSEE FILED ITS RETURN OF INCOME FOR THE IMPUGNED ASSESSMENT YEAR ON 31-10-2007 DECLARING T OTAL INCOME AS NIL. THE CASE OF THE ASSESSEE WAS SELECTED FOR SCRUT INY UNDER CASS AND ACCORDINGLY, NOTICE U/S. 143(2) OF THE INCOME TAX ACT, 1961 (HEREINAFTER REFERRED TO AS THE ACT) WAS ISSUED TO THE ASSESSEE ON 3 ITA NO. 1449/PN/2014, A.Y. 2007-08 17-09-2008. DURING THE COURSE OF SCRUTINY ASSESSMENT P ROCEEDINGS, THE ASSESSING OFFICER MADE CERTAIN DISALLOWANCES WHICH INTER ALIA INCLUDE DISALLOWANCE OF ELECTRICITY EXPENSES TO THE TUNE OF ` 22,22,000/- AND DISALLOWANCE OF ` 3,04,830/- U/S. 14A R.W. RULE 8D. AGGRIEVED BY THE ASSESSMENT ORDER DATED 24-12-2009, T HE ASSESSEE PREFERRED AN APPEAL BEFORE THE COMMISSIONER OF INCOME TAX (APPEALS). THE COMMISSIONER OF INCOME TAX (APPEALS) VIDE IMPU GNED ORDER REJECTED THE CONTENTIONS OF THE ASSESSEE IN RESP ECT OF DISALLOWANCE OF ELECTRICITY EXPENSES AND PARTLY ACCEPTED THE APPEAL OF THE ASSES SEE ON ACCOUNT OF DISALLOWANCE MADE U/S. 14A R.W. RULE 8D. AGAINST THE FINDINGS OF COMMISSIONER OF INCOME TAX (APPEALS), THE ASSESSE E IS IN SECOND APPEAL BEFORE THE TRIBUNAL. 4. SHRI C.H. NANIWADEKAR APPEARING ON BEHALF OF THE ASSES SEE SUBMITTED THAT THE ASSESSEE COMPANY HAS BEEN SET UP FOR UPLIFTMENT OF THE WOMEN FROM THE DOWN TRODDEN STRATA OF THE SOCIETY BY PROVIDING JOB OPPORTUNITIES. ALL THE EMPLOYEES OF THE ASSESSEE COMPANY ARE WOMEN. M/S. KIRLOSKAR OIL ENGINES LTD. HAS PROVIDED FACTORY SHED AT A VERY NOMINAL RENT TO THE ASSESSEE COMPANY. M/S. KIRLOSKAR OIL ENGINES LTD. IS ALSO SHARING ELECTRICITY EXPENSES AND HAS PROVIDED ITS O WN MACHINERY FREE OF COST TO THE ASSESSEE. THE AUTHORITIES BELOW HAVE BRUSHED ASIDE ALL THE SUBMISSIONS MADE BY THE ASSESSEE WHILE MAKING DISAL LOWANCE OF ` 22,22,000/- IN RESPECT OF ELECTRICITY EXPENSES PAID BY THE ASSESSEE. A SEPARATE METER HAS BEEN INSTALLED FOR THE FACTORY SHED FR OM WHERE THE ASSESSEE COMPANY IS OPERATING. SINCE, THE PREMISES ARE O WNED BY M/S. KIRLOSKAR OIL ENGINES LTD., THEREFORE, THE ELECTRICITY BILL IS IN T HE NAME 4 ITA NO. 1449/PN/2014, A.Y. 2007-08 OF M/S. KIRLOSKAR OIL ENGINES LTD. THE AUTHORITIES BELOW WHILE MAKING DISALLOWANCE HAS OBSERVED THAT THERE ARE NO CONNECTION BETWEEN THE CONSUMPTION OF ELECTRICITY AND THE TURNOVER OF THE ASSESS EE. THE RELATION DRAWN BY THE AUTHORITIES BELOW IN RESPECT OF TURN OVER AND ELECTRICITY CONSUMPTION IS OF NO RELEVANCE. M/S. KIRLOSKAR O IL ENGINES LTD. IN THEIR BOOKS OF ACCOUNT HAVE CLAIMED ELECTRICITY EXP ENSES ONLY TO THE EXTENT SHARED BY THEM. THEREFORE, IT IS NOT THE CAS E WHERE ELECTRICITY EXPENSES HAVE BEEN CLAIMED TWICE, ONCE IN THE H ANDS OF ASSESSEE AND AGAIN IN THE HANDS OF M/S. KIRLOSKAR OIL ENGINES LTD. IN RESPECT OF DISALLOWANCE OF ` 3,04,830/- U/S. 14A AFFIRMED BY THE COMMISSIONER OF INCOME TAX (APPEALS), THE LD. AR SUBMITT ED THAT M/S. KIRLOSKAR OIL ENGINES LTD. DOES NOT HOLD ANY SHARES IN MAHILA UDYOG LIMITED. WHEREAS MAHILA UDYOG LIMITED HOLDS PALTRY SH ARE OF M/S. KIRLOSKAR OIL ENGINES LTD. THE ASSESSEE COMPANY HAS INVESTED ` 2,04,527/- IN M/S. KIRLOSKAR OIL ENGINES LTD., KIRLOSKAR BROTHE RS LTD. AND PALUS AUDYOGIK VASAHAT SOCIETY. THE ASSESSEE HAS EARNED ` 3,56,000/- AS DIVIDEND FROM THESE INVESTMENTS AND THE COM MISSIONER OF INCOME TAX (APPEALS) HAS MADE DISALLOWANCE OF ` 3,04,830/- U/S. 14A OF THE ACT. THE ASSESSEE HAS NOT INCURRED ANY EXP ENDITURE WHATSOEVER TOWARDS THE EARNING OF EXEMPT INCOME. THE DISALLOWANCE MADE IS MUCH MORE THAN THE INVESTMENT MADE. IN SUPPOR T OF HIS SUBMISSIONS THE LD. COUNSEL FOR THE ASSESSEE PLACED RELIAN CE ON THE DECISION OF HON'BLE KARNATAKA HIGH COURT IN THE CASE OF CC I LTD. VS. JCIT REPORTED AS 71 DTR 141 (KAR.). 5 ITA NO. 1449/PN/2014, A.Y. 2007-08 5 ON THE OTHER HAND SHRI MUKESH JHA REPRESENTING THE DEPARTMENT VEHEMENTLY SUPPORTED THE FINDINGS OF COMMISSIO NER OF INCOME TAX (APPEALS) IN RESPECT OF DISALLOWANCE CONFIRMED. T HE LD. DR CONTENDED THAT THE ASSESSEE HAS FAILED TO SHOW FROM THE RECORDS THE WORK DONE BY THE ASSESSEE. SINCE, THE ASSESSEE HAS FAILE D TO SHOW THE QUANTUM OF WORK THERE IS NO QUESTION OF GRANTING ANY EX PENDITURE. THE LD. DR SUBMITTED THAT THE ASSESSEE HAS NOT SHOWN EITHER BEFORE THE AUTHORITIES BELOW OR BEFORE THE TRIBUNAL THE BASIS OR FORM ULA ON WHICH THE ELECTRICITY CHARGES ARE BIFURCATED BETWEEN THE ASSES SEE AND M/S. KIRLOSKAR OIL ENGINES LTD. THE ASSESSEE HAS SIMPLY STATED THAT THE ASSESSEE IS SHARING 40% TO 50% OF THE ELECTRICITY BILL WITH M /S. KIRLOSKAR OIL ENGINES LTD. THERE IS NO DOCUMENT ON RECORD TO SHOW ANY STATISTICS OR DETAIL OF THE COMPONENTS PRODUCED DURING T HE YEAR AND THE CORRESPONDING CONSUMPTION OF ELECTRICITY FOR MANUFACTURE OF THE COMPONENTS. IN SO FAR AS DISALLOWANCE U/S. 14A IS CONCERNED THE LD. DR SUBMITTED THAT THE ASSESSEE MUST HAVE INCURRED CERTAIN EXPENDITURE TOWARDS ADMINISTRATIVE COST OF MAINTAINING PORTFOLIO. THE LD. DR PRAYED FOR DISMISSING THE APPEAL OF THE ASSESSEE AND UPHOLDING THE FINDINGS OF COMMISSIONER OF INCOME TAX (APPEALS). 6. THE LD. AR CONROVERTING THE SUBMISSIONS ADVANCED BY THE REVENUE REFERRED TO THE ANNUAL REPORT FOR FINANCIAL YEAR 2 006-07 AT PAGE 21 ONWARDS OF THE PAPER BOOK. THE LD. AR CONTEND ED THAT A PERUSAL OF THE PROFIT AND LOSS ACCOUNT FOR THE YEAR ENDED ON 31-03-2007 6 ITA NO. 1449/PN/2014, A.Y. 2007-08 WOULD SHOW THAT THE ASSESSEE HAS INCOME FROM JOB ORDER RECEIPTS TO THE TUNE OF ` 3.68 CRORES. 7. WE HAVE HEARD THE SUBMISSIONS MADE BY THE REPRESEN TATIVES OF RIVAL SIDES AND HAVE PERUSED THE ORDERS OF THE AUTHORITIE S BELOW. THE FIRST ISSUE IN APPEAL IS WITH RESPECT TO DISALLOWANCE OF ELECTR ICITY CONSUMPTION CHARGES ` 22,22,000/-. IT HAS BEEN CONTENDED THAT THE ASSESSEE IS PERFORMING JOB WORK FOR M/S. KIRLOSKAR OIL ENGI NES LTD. IT IS AN ADMITTED FACT THAT THE ASSESSEE IS CARRYING ON ITS ACTIVITY FROM THE PREMISES/SHED OF M/S. KIRLOSKAR OIL ENGINES LTD. FOR WHICH THE ASSESSEE IS PAYING VERY NOMINAL RENT. M/S. KIRLOSKAR OIL EN GINES LTD. HAS ALSO PROVIDED MACHINERY TO THE ASSESSEE FOR PERFORMIN G JOB WORK. THE ASSESSEE HAS CLAIMED ELECTRICITY CONSUMPTION CHARGES WHICH HAVE BEEN DISALLOWED BY THE AUTHORITIES BELOW ON GROUND THAT T HERE IS NO CO- RELATION BETWEEN THE WORK PERFORMED AND THE CONSUMPTION OF ELECTRICITY. WE DO NOT CONCUR WITH THE FINDINGS OF AUTHORITIES BELOW ON THIS ISSUE. THE DEPARTMENT HAS NOT DISPUTED THE FACT THAT T HE ASSESSEE COMPANY HAS BEEN PROMOTED BY THE M/S. KIRLOSKAR OIL ENG INES LTD. FOR THE PURPOSE OF UPLIFTMENT OF WOMEN FROM THE UNDERPRIVILEGE D STRATA OF THE SOCIETY. IT IS ALSO AN UNDISPUTED FACT THAT THE ASSE SSEE IS PROVIDING JOB WORK FOR M/S. KIRLOSKAR OIL ENGINES LTD. THIS FACT IS FUR THER FORTIFIED BY THE JOB ORDER RECEIPT REFLECTED IN THE PROFIT AN D LOSS ACCOUNT OF THE ASSESSEE FOR THE YEAR ENDED ON 31-03-2007. MER ELY BECAUSE ELECTRICITY CONSUMPTION CHARGES ARE SHARED BY M/S. KIRLOSK AR OIL ENGINES LTD. SUSPICION SHOULD NOT BE RAISED ON ELECTRICITY BILLS PAID. 7 ITA NO. 1449/PN/2014, A.Y. 2007-08 THE LD. COUNSEL FOR THE ASSESSEE STATED AT THE BAR THAT M/S. KIRLOSKAR OIL ENGINES LTD. HAS NOT CLAIMED THE ENTIRE ELECTRICITY EXPEN DITURE BUT ONLY TO THE EXTENT OF EXPENDITURE BORNE BY IT IS CLAIMED IN THE BOOKS OF ACCOUNT. WE FIND NO REASON TO DISBELIEVE THE ARRANGEMENT MADE BETWEEN THE ASSESSEE AND THE M/S. KIRLOSKAR OIL ENGINES L TD. THE PROMOTER OF THE ASSESSEE COMPANY. IN SO FAR AS THE OB SERVATIONS OF THE AUTHORITIES BELOW THAT THE ELECTRICITY BILL IS IN THE NAME OF M/S. KIRLOSKAR OIL ENGINES LTD. IS CONCERNED, WE ARE OF THE VIEW THAT THE SAME ARE UNWARRANTED. SINCE, THE PREMISES FROM WHERE T HE ASSESSEE IS CARRYING ON ITS ACTIVITIES BELONG TO M/S. KIRLOSKAR OIL ENGINES LTD. THE ELECTRICITY CONNECTION WOULD OBVIOUSLY BE IN THE NAME OF M/ S. KIRLOSKAR OIL ENGINES LTD. IN VIEW OF THE ENTIRETY OF FACTS WE DO NOT FIND ANY REASON TO DISALLOW THE ELECTRICITY EXPENDITURE CLAIMED BY TH E ASSESSEE. THEREFORE, THE GROUND NO. 1 RAISED IN THE APPEAL OF THE A SSESSEE IS ALLOWED. 8. THE SECOND GROUND IN APPEAL IS WITH RESPECT TO DISALLO WANCE OF ` 3,04,830/- U/S. 14A. THE ASSESSEE HAS MADE INVESTMENT O F ` 2,04,527/- IN M/S. KIRLOSKAR OIL ENGINES LTD. AND OTHER GROUP CONCERNS. THE ASSESSEE HAS EARNED DIVIDEND OF ` 3,56,000/-. THE CONTENTION OF THE LD. AR OF THE ASSESSEE IS THAT THE ASSE SSEE HAS NOT INCURRED ANY ADMINISTRATIVE EXPENDITURE ON EARNING TAX FR EE INCOME. IT IS NOT THE CASE OF THE REVENUE THAT THE ASSESSEE HAS MADE INVESTMENT FROM THE INTEREST BEARING FUNDS. WE ARE OF THE CONSIDERED VIEW THAT THE DISALLOWANCE OF ` 3,04,830/- MADE BY THE COMMISSIONER OF INCOME TAX (APPEALS) IS VERY MUCH ON THE HIGHER SIDE. TO MEET THE E NDS OF JUSTICE 8 ITA NO. 1449/PN/2014, A.Y. 2007-08 DISALLOWANCE OF 5% OF THE EXEMPT INCOME EARNED WOULD BE FAIR AND JUSTIFIED. ACCORDINGLY, THE GROUND NO. 2 RAISED BY THE AS SESSEE IN ITS APPEAL IS PARTY ALLOWED IN THE ABOVE SAID TERMS. 9. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS PARTY ALLOWED. ORDER PRONOUNCED ON FRIDAY, THE 17 TH DAY OF JUNE, 2016. SD/- SD/- ( . . / R.K. PANDA) ( ! ' / VIKAS AWASTHY) #' / ACCOUNTANT MEMBER $ % #' / JUDICIAL MEMBER / PUNE; &# / DATED : 17 TH JUNE, 2016 RK *+,%-.#/#)- / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT. 2. / THE RESPONDENT. 3. ' () / THE CIT(A)-I, PUNE 4. ' / THE CIT-I, PUNE 5. !*+ %%,- , ,- , . ./0 , / DR, ITAT, B BENCH, PUNE. 6. + 1 23 / GUARD FILE. // ! % // TRUE COPY// #4 / BY ORDER, %5 ,0 / PRIVATE SECRETARY, ,- , / ITAT, PUNE