The ITO, Ward-4(2), Ahmedabad V. Karnavati Steel Industries Ltd., Ahmedabad

ITA 1608/AHD/2007

• Counselvise Citation: [2010] 136 COUNSELVISE.COM (IT) 0165 (ITAT-AHMEDABAD)
• Duration Of Justice: 3 year(s) 4 month(s) 5 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 25-08-2010
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: D
• Next Hearing Date: 25-08-2010
• Assessment Year: 2002-2003
• Appeal Filed On: 20-04-2007
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: VIMALENDU
• Assessee Lawyers: S N SOPARKAR
• Section: 14A; 143(1); 143(2)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD BENCH 'D' BEFORE SHRI MUKUL SHRAWAT, JM &SHRI A N PAHUJA,AM ITA NO.1608/AHD/2007 (ASSESSMENT YEAR:-2002-03) INCOME-TAX OFFICER, WARD- 4(2), ROOM NO.105,1 ST FLOOR, NAVJIVAN TRUST BUILDING, NAVJIVAN PO, AHMEDABAD V/S KARNAVATI STEEL INDUSTRIES LTD., MALHOTRA ROAD, ODHAV, AHMEDABAD [PAN: AABCM 8508 R] [APPELLANT] [RESPONDENT] REVENUE BY :- SHRI VIMALENDU, DR ASSESSEE BY:- SHRI S N SOPARKAR, AR O R D E R A N PAHUJA: THIS APPEAL BY THE REVENUE AGAINST AN ORDER DATED 15-1-2007 OF THE LD. CIT(APPEALS)-VIII, AHMEDABAD, RAISES THE FOLLOWING GROUNDS:- 1 THE LD. CIT(A) ERRED IN LAW AND ON THE FACTS OF T HE CASE IN RESTRICTING THE DISALLOWANCE OF RS.5,00,000/- U/S 14A OF THE AC T BEING THE PROPORTIONATE EXPENDITURE RELATED TO INVESTMENT MAD E IN SHARES TO THE TUNE OF RS.3.6 CRORES, WITHOUT GIVING ANY COGNATE R EASONS OR ANY BASIS. 2 THE LD. CIT(A) HAS ERRED IN LAW AND ON THE FACTS OF THE CASE IN DIRECTING THE AO TO DELETE THE DISALLOWANCE OF RS.43,03,714/- BEING 5% OF TOTAL PURCHASES, ON ACCOUNT OF UNPROVED PURCHASES, WITHOU T VERIFYING THE GENUINENESS OF THE PURCHASE IN ABSENCE OF ANY PROOF SUBMITTED BY THE ASSESSEE BEFORE HIM AND IN SPITE OF THE AUDITOR MAK ING ADVERSE COMMENTS IN THIS REGARD. 3 ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E, THE LD. CIT(A) OUGHT TO HAVE UPHELD THE ORDER OF THE ASSESS ING OFFICER. 4 IT IS, THEREFORE, PRAYED THAT THE ORDER OF THE LD . CIT(A) MAY BE CANCELLED AND THAT OF THE ASSESSING OFFICER MAY BE RESTORED TO THE ABOVE EFFECT. 2 ADVERTING TO GROUND NOS. 1 & 2 IN THE APPEAL, FAC TS, IN BRIEF, AS PER RELEVANT ORDERS ARE THAT RETURN DECLARING NIL INCOME FILED ON 30- 10-2002 BY THE ASSESSEE ,MANUFACTURING STEEL & INGO TS, AFTER BEING ITA NO.1608/AHD/2007 2 PROCESSED ON 7-02-2003 U/S 143(1) OF THE INCOME-TAX ACT, 1961 [HEREINAFTER REFERRED TO AS THE ACT],WAS SELECTED FOR SCRUTINY WITH THE SERVICE OF A NOTICE U/S 143(2) OF THE ACT ON 2 5-10-2003. THE ASSESSING OFFICER[AO IN SHORT] NOTICED THAT THE ASS ESSEE, A PUBLIC LIMITED COMPANY HAD BEEN DECLARED A SICK INDUSTR IAL COMPANY WITHIN THE MEANING OF SICK INDUSTRIAL COMPANY (SPEC IAL PROVISIONS) ACT, 1985. ON VERIFICATION OF SCHEDULE 7 OF THE BAL ANCE SHEET OF THE COMPANY ,THE AO OBSERVED THAT THE COMPANY HAS MADE INVESTMENT OF RS.15 LACS IN THE QUOTED EQUITY SHARES , RS.2,02 ,80,500/- IN UNQUOTED EQUITY SHARES AND RS.1,43,29,300/- IN N ON-CUMULATIVE REDEEMABLE PREFERENCE SHARES WHILE THE DIVIDEND INC OME, IF ANY, FROM THE AFORESAID INVESTMENTS WAS NOT TAXABLE U/S 10(33) OF THE ACT. SINCE THE ASSESSEE CLAIMED ADMINISTRATIVE EXPE NDITURE OF RS.4,29,79,329/-, THE AO HAVING RECOURSE TO PROVIS IONS OF SEC. 14A OF THE ACT, DISALLOWED A SUM OF RS. 5 LACS, IN THE ABSENCE OF SPECIFIC GUIDELINES AND SPECIFIC DETAILS OF MANAGEMENT OF TH E AFORESAID INVESTMENTS. 2.1. THE AO ALSO DISALLOWED A SUM OF RS.43,03,7 14/-, BEING 5% OF TOTAL PURCHASES OF RS.8,16,74,294/- ON THE GROUND T HAT THE AUDITORS IN PARA 3(A) OF THEIR REPORT MENTIONED THAT PURCHAS E BILLS FOR THE MONTH AUGUST, 2001 AND SALE BILLS FOR APRIL, 2001 A ND MAY 2001 WERE NOT AVAILABLE FOR VERIFICATION, HAVING BEEN SE IZED BY THE SALES 3. ON APPEAL, THE LD. CIT(A) RESTRICTED THE DISALL OWANCE TO THE EXTENT OF RS.50,000/- OUT OF ADMINISTRATIVE EXPENSE S ON THE GROUND THAT THE INVESTMENT TO THE TUNE OF RS.3.6 CRORES CO NTINUED DURING THE YEAR AND SOME EXPENSE WAS DEFINITELY ATTRIBUTABLE TO MANAGIN G THE INVESTMENT PORT FOLIO. . ITA NO.1608/AHD/2007 3 3.1 AS REGARDS DISALLOWANCE OF 5% OF THE PURCHASES , THE LEARNED CIT(A) DELETED THE DISALLOWANCE ON THE GROUND THAT NO DEFECT WAS NOTICED IN THE BOOKS OF ACCOUNTS NOR PURCHASES WER E PROVED TO BE TOTALLY BOGUS. 4. THE REVENUE IS NOW IN APPEAL BEFORE US AGAINST THE FORESAID FINDINGS OF THE LD. CIT(A).THE LEARNED DR RELIED UP ON THE ORDER OF THE AO WHILE THE LEARNED AR ON BEHALF OF THE ASSESS EE SUPPORTED THE FINDINGS OF THE LEARNED CIT(A). TO A QUERY BY T HE BENCH, THE LD. AR STATED THAT THE ASSESSEE IS NOT IN APPEAL BEFORE THE ITAT AGAINST THE FINDINGS OF THE LD. CIT(A), UPHOLDING THE DISAL LOWANCE TO THE EXTENT OF RS.50,000/-. 5. WE HAVE HEARD BOTH THE PARTIES AND GONE THROU GH THE FACTS OF THE CASE. WE FIND THAT THE LD. CIT(A) REDUCED THE D ISALLOWANCE TO RS.50,000/- MADE BY THE AO OUT OF ADMINISTRATIVE EX PENSES, HAVING RECOURSE TO PROVISIONS OF SEC.14A OF THE ACT BESIDE S DELETING DISALLOWANCE OF 5% OF THE PURCHASES. THE LD. DR D ID NOT REFER US TO ANY MATERIAL, CONTROVERTING THE AFORESAID FINDINGS OF THE LD. CIT(A) SO AS TO ENABLE US TO TAKE A DIFFERENT VIEW IN THE MATTER. IN THE ABSENCE OF ANY BASIS, WE ARE NOT INCLINED TO INTERF ERE WITH THE FINDINGS OF THE LD. CIT(A) . THEREFORE, GROUND NOS .1 &2 IN THE APPEAL ARE DISMISSED. 6. GROUND NOS.3 & 4 IN THE APPEAL ,BEING MERE P RAYER, DO NOT REQUIRE ANY SEPARATE ADJUDICATION AND ARE, THEREFORE, DISMISSED . ITA NO.1608/AHD/2007 4 7. IN THE RESULT, APPEAL IS DISMISSED. ORDER PRONOUNCED IN THE COURT TODAY ON 25-08-2010 SD/- SD/- (MUKUL SHRAWAT) JUDICIAL MEMBER (A N PAHUJA) ACCOUNTANT MEMBER DATED : 25-08-2010 COPY OF THE ORDER FORWARDED TO: 1. KARNAVATI STEEL INDUSTRIES LTD., MALHOTRA ROAD, ODHAV, AHMEDABAD 2. ITO, WARD-4(2), AHMEDABAD 3. CIT CONCERNED 4. CIT(A)-VIII, AHMEDABAD 5. DR, BENCH-D, ITAT, AHMEDABAD 6. GUARD FILE BY ORDER DEPUTY REGISTRAR ASSISTANT REGISTRAR ITAT, AHMEDABAD