BINAYAK TEX PROCESSORS LTD., MUMBAI V. ACIT ,CC- 38, MUMBAI

ITA 1635/MUM/2015

• Counselvise Citation: [2017] 128 COUNSELVISE.COM (IT) 9106 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 9 month(s) 18 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 06-01-2017
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: B
• Assessment Year: 2011-2012
• Appeal Filed On: 19-03-2015
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: K V VISPUTE
• Keywords: Depreciation; Earning of tax free income
• Section: 69C

Judgement Text

, INCOME-TAX APPELLATE TRIBUNAL -IBENCH MUMBAI , . . , BEFORE S/SH.RAJENDRA,ACCOUNTANT MEMBER AND C. N. PRASAD,JUDICIAL MEMBER ./I.T.A./1635/MUM/2015 , /ASSESSMENT YEAR:2011-12 BINAYALE TEX PROCESSORS LTD. C/O. SHANKARLAL JAIN & ASSOCIATES 12, ENGINEER BUILDING, 265, PRINCESS STREET,MUMBAI-400 002. PAN:AAACB 1554 D VS. ACIT-CC-38 GROUND FLOOR, AAYAKAR BHAVAN MUMBAI-440 020. ( /APPELLANT) ( / RESPONDENT) / REVENUE BY: SHRI K.V. VISPUTE- DR /ASSESSEE BY: SHRI SATISH JAIN / DATE OF HEARING: 16/11/2016 / DATE OF PRONOUNCEMENT: 06/01/2017 , / PER RAJENDRA A.M. - CHALLENGING THE ORDER,DATED 19/01/2015 OF THE CIT(A )-54,MUMBAI THE ASSESSEE HAS FILED THE PRESENT APPEAL.ASSESSEE-COMPANY, ENGAGED IN THE BUS INESS OF TEXTILE MANUFACTURING,FILED ITS RETURN OF INCOME ON 27/09/2011,DECLARING TOTAL INCO ME AT RS.6.27CRORES.THE ASSESSING OFFICER (AO)COMPLETED THE ASSESSMENT U/S.143(3)OF T HE ACT,ON 31/12/2013,DETERMINING ITS INCOME AT RS. 6.66CRORES. 2. FIRST GROUND OF APPEAL IS ABOUT CONFIRMING THE DISA LLOWANCE U/S. 14 A READ WITH RULE 8D 2 (III) OF THE INCOME TAX RULES,1962(RULES),AMOUNTING RS.3.68 LAKHS.DURING THE ASSESSMENT PROCEED -INGS,THE AO FOUND THAT ASSESSEE HAD EARNED DIVIDEND INCOME OF RS.2,000/-,THAT IT HAD NOT CLAIMED IT AS EXEMPT INCOME,THAT IT HAD NOT MADE ANY DISALLOWANCE U/S.14A WHILE COMPUTING THE TOTAL INCOME.ACCORDINGLY,HE DIRECTED THE ASSESSEE TO EXPLAIN AS TO WHY THE EXPENSES ATTRIBUTABLE TO EARNING OF EXEMPT INCOME S HOULD NOT BE DISALLOWED U/S.14 A R.W.R.8D OF THE RULES. AFTER CONSIDERING THE SUBMIS SIONS OF THE ASSESSEE THE AO MADE DISALLOWANCE UNDER THE HEADS INTEREST EXPENDITURE ( RS.30.49 LAKHS) UNDER RULE 8D (2)(II) AND ADMINISTRATIVE EXPENSES (RS.3.68 LAKHS) UNDER RULE 8D(2)(III)OF THE RULES. 2.1. AGGRIEVED BY THE ORDER OF THE AO, THE ASSESSEE PREF ERRED AN APPEAL BEFORE THE FIRST APPELLATE AUTHORITY(FAA).BEFORE HIM, IT WAS ARGUED THAT THE AO COMPUTED DISALLOWANCE OF INTEREST BY TAKING THE INVESTMENT AT RS. 7.37 CRORE S AND COST OF INTEREST AT RS. 1.66 CRORES, THAT WHILE CALCULATING THE AVERAGE ASSETS HELD BY IT THE AO HAD ADOPTED THE TOTAL OF BALANCE SHEET OF BOTH THE YEARS AND ARRIVED AT THE AVERAGE FIGURE OF ASSETS BY TAKING THE NET FIGURE OF ASSETS 1635/M/15-BINAYALE 2 AND THAT SAME WAS NETTED OUT BY CURRENT LIABILITIE S,THAT THE FIGURES ADOPTED BY THE AO WERE NOT CORRECT, THAT IF THE AO HAD ADOPTED CORRECT FIG URES THE DISALLOWANCE UNDER THE HEAD INTEREST EXPENDITURE WOULD HAVE BEEN RS. 12.88 LAKH S AS AGAINST RS.30.49 LAKHS, THAT NO DISALLOWANCE U/S. 14 A WAS APPLICABLE, THAT IT HAD RECEIVED DIVIDEND OF RS. 2,000/- ON SHARES OF A COOPERATIVE BANK, THAT THE DIVIDEND INCOME WAS EXEMPT U/S.10 (34) OF THE ACT,THAT DIVIDEND EARNED BY IT WAS NOT EXEMPT, THAT THE ASSE SSEE WAS NOT HAVING ANY EXEMPT INCOME.IT RELIED UPON THE CASE OF REVIAN INTERNATIONAL PRIVAT E LTD.AND ARGUED THAT THE IDENTICAL ISSUE WAS DEALT BY THE TRIBUNAL IN THE CASE OF THE ASSESS EE FOR THE AY.2009-10,THAT THE TRIBUNAL HAD HELD THAT NO PART OF INVESTMENT HAD BEEN FINANCED O UT OF BORROWED FUNDS,THAT THE TRIBUNAL HAD DELETED THE DISALLOWANCE MADE OUT OF INTEREST UNDER RULE 8D(2)(II)OF THE RULES. AFTER CONSIDERING THE ORDER OF THE TRIBUNAL,FOR THE AY. 2 009-10,THE FAA DELETED THE DISALLOWANCE MADE BY THE AO UNDER THE HEAD INTEREST EXPENDITURE. WITH REGARD TO THE ADMINISTRATIVE EXPENSES OF RS. 3.68 LAKHS,THE FAA HELD THAT THE TR IBUNAL HAD UPHELD THE SAID DISALLOWANCE WHILE DECIDING THE APPEAL FOR THE AY.2009-10. 2.2. DURING THE COURSE OF HEARING BEFORE US,THE AUTHORIS ED REPRESENTATIVE(AR)STATED THAT THERE WAS NO JUSTIFICATION FOR UPHOLDING THE ADMINI STRATIVE EXPENDITURE,THAT THE ASSESSEE HAD OFFERED THE SAID DISALLOWANCE WHILE FILING THE RETU RN FOR THE AY.2009-10,THAT NO EXPENDITURE WAS INCURRED OR CLAIMED BY THE ASSESSEE FOR THE EXE MPT INCOME DURING THE YEAR UNDER CONSIDERATION,THAT CONFIRMA -TION OF DISALLOWANCE B Y THE FAA SHOULD BE DELETED.THE DEPARTMENTAL REPRESENTATIVE(DR) SUPPORTED THE ORDER OF THE F AA. 2.3. WE FIND THAT ASSESSEE HAD EARNED DIVIDEND IN THE OF RS.2,000/-DURING THE YEAR UNDER APPEAL,THAT IT HAD NOT CLAIM ANY EXPENDITURE AGAINS T THE SAID INCOME,THAT THE AO HAD MADE DISALLOWANCE OF RS. 3.68 LAKHS UNDER THE HEAD ADMIN ISTRATIVE EXPENDITURE.IN OUR OPINION,THE DEPARTMENTAL AUTHORITIES WERE NOT JUSTIFIED IN INVO KING THE PROVISIONS OF SECTION 14 A R.W.R.8D OF THE RULES. THE FUNDAMENTAL PRINCIPLE FO R MAKING DISALLOWANCE AGAINST THE EXEMPT INCOME IS THAT THE ASSESSEE SHOULD HAVE CLAIMED SOM E EXPENDITURE AGAINST THE SUCH INCOME AND THUS SHOULD HAVE AVAILED DOUBLE DEDUCTIONS.IN T HE CASE UNDER CONSIDERATION,THE ASSESSEE HAD NOT CLAIMED ANY EXPENDITURE AGAINST THE DIVIDEN D INCOME OF RS.2,000/-.THEREFORE,THERE WAS NO JUSTIFICATION FOR MAKING ANY DISALLOWANCES U NDER ANY OF THE HEADS UNDER RULE 8D(2)OF THE RULES.THE TRIBUNAL HAD,IN THE AY.2009-10,UPHELD THE DISALLOWANCE BECAUSE THE ASSESSEE ITSELF HAD OFFERED FOR IT. CONSIDERING THE PECULIAR FACTS AND CIRCUMSTANCES OF THE MATTER,WE REVERSE THE ORDER OF THE FAA. FIRST GROUND OF APPEA L IS DECIDED IN FAVOUR OF THE ASSESSEE. 1635/M/15-BINAYALE 3 3. NEXT GROUND IS ABOUT CONFIRMING THE ADDITION OF RS. 2.76 LAKHS. DURING THE ASSESSMENT PROCEED -INGS,THE AO DIRECTED THE ASSESSEE TO SUBMI T PROOF BILLS IN RESPECT OF WHICH PURCHASES WERE MADE FROM M/S. VAKHARIA ENTERPRISES (VE).IN IT S REPLY, THE ASSESSEE SUBMITTED THAT THE ABOVE PARTY HAD SUPPLIED CERTAIN ITEMS OF FURNITURE DURING THE YEAR UNDER CONSIDERATION, THAT THE SAID EXPENDITURE HAD BEEN CAPITALISED UNDER THE HEAD FURNITURE AND FIXTURES,THAT THE PAYMENT FOR THE SAID PURCHASES WERE MADE TO BANKING CHANNELS,THAT THE TRANSACTIONS WERE CARRIED IN NORMAL COURSE OF BUSINESS AND THE QUANTU M OF TRANSACTION WAS NEGLIGIBLE HAVING REGARD TO THE TURNOVER OF THE ASSESSEE. IN VIEW OF THE SMALLNESS OF THE TRANSACTION AND WITH THE VIEW TO CURTAIL LETIGATION AND COST TO BE INCURRED ON LITIGATION IT AGREED TO OFFER DEPRECIATION OF RS.14,098/- FOR TAXATION PROVIDED THAT NO PENALTY PROCEEDINGS WOULD BE INITIATED BY THE DEPARTMENT.THE AO OBSERVED THAT VE HAD BEEN DECLARE D AS HAWALA DEALER BY THE DEPARTMENT OF VAT,GOVERNMENT OF MAHARASHTRA,THAT THE NAME OF THE SAID PARTY WAS APPEARING IN THE WEBSITE OF THE VAT DEPARTMENT,THAT VE HAD ADMITTED IN ITS STATEMENT THAT THE SALES MADE BY IT WERE NOT GENUINE.THE AO HELD THAT EXPENDITURE TO THE EXTENT OF RS. 2.76 LAKHS WAS NOT GENUINE.HE ADDED THE DISPUTED AMOUNT TO THE TOTAL I NCOME OF THE ASSESSEE INVOKING THE PROVISIONS OF SECTION 69C OF THE ACT AND ALSO DISAL LOWED THE DEPRECIATION CLAIMED BY THE ASSESSEE. 3.1. DURING THE APPELLATE PROCEEDINGS BEFORE THE FAA,THE ASSESSEE ARGUED THAT WITHOUT MAKING AVAILABLE THE VENDOR FOR CROSS EXAMINATION THE AO H AD INCORRECTLY REJECTED THE WRITTEN DOCUMENTARY EVIDENCES FILED BY THE ASSESSEE, THAT T HE STATEMENT MADE BY THE VENDOR BEFORE THE VAT AUTHORITIES HAD NO SUBSTANCE,THAT IT HAD CL AIMED ONLY DEPRECIATION IN ITS P&L ACCOUNT, THAT THE PROVISIONS OF SECTION 69C WERE NO T APPLICABLE, THAT ALL THE PAYMENTS WERE MADE BY ACCOUNT PAYEE CHEQUES,THAT THERE WAS NO EVI DENCE TO SHOW THAT ASSESSEE HAD MADE ANY CASH PAYMENT TO THE PURCHASERS,THAT THE ONUS WA S ON THE AO TO PROVE THAT THE EXPENDITURE INCURRED BY THE ASSESSEE WAS NOT SATISFACTORILY EXP LAINED. 3.2. AFTER CONSIDERING THE SUBMISSION OF THE ASSESSEE AN D THE ASSESSMENT ORDER,THE FAA HELD THAT ASSESSEE HAD SHOWN PURCHASE OF RS. 2.76 LAKHS FROM VE, THAT MERE PAYMENT BY ACCOUNT PAYEE CHEQUES WOULD NOT MAKE A NON-JAIN TRANSACTION GENUINE, THAT THE PURCHASERS GIVEN A STATEMENT TO THE VAT AUTHORITIES AND HAD ADMITTED T HAT SALES MADE BY IT WERE NON- GENUINE,THAT THE COPY OF THE STATEMENT WERE MADE AV AILABLE TO THE ASSESSEE,THAT IT HAD NOT PROVED THE PURCHASE OF FURNITURE AND FIXTURES, THAT CONFIRMATION LETTER FROM THE SAID PARTY HAD NOT BEEN PLACED ON RECORD. FINALLY, HE UPHELD THE O RDER OF THE AO. 1635/M/15-BINAYALE 4 3.3. DURING THE COURSE OF HEARING BEFORE US,THE AR STATE D THAT THE ASSESSEE HAD PURCHASED GOODS FROM VE,THAT IT HAD MADE PAYMENTS BY ISSUING ACCOUNT PAYEE CHEQUES, THAT THE ASSESSEE HAD ASKED FOR CROSS-EXAMINATION OF THE SUP PLIER OF THE GOODS, THAT THE AO DID NOT ALLOW CROSS-EXAMINATION IN SPITE OF THE REQUEST MAD E,THAT THERE WAS NO ALLEGATION OF RECEIVING THAT THE MONEY BY THE ASSESSEE FROM THE PURCHASERS, THAT PROVISIONS OF SECTION 69C WERE WRONGLY INVOKED,THAT THE FAA HAD IGNORED THE BILLS ISSUED BY THE SUPPLIER AND THE BANK STATEMENT OF THE ASSESSEE WHILE DECIDING THE APPEAL .THE DR SUPPORTED THE ORDER OF THE FAA AND STATED THAT THE NAME OF THE SUPPLIER WAS APPEAR ING IN THE NAME OF THE HAWALA DEALERS, THAT OF THE SUPPLIER OF THE GOODS WAS HANDED OVER TO THE ASSESSEE. 3.4. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL AVAILABLE ON RECORD. WE FIND THAT THE ASSESSEE HAD MADE PAYMENT OF RS. 2.76 LAKHS TO VE, THAT IN THE STATEMENT BEFORE THE VAT AUTHORITIES IT HAD ADMITTED TO HAVE ISSUED BOGUS BILLS,THAT THE ASSESSEE HAD PRODUCED THE PURCHASE BILLS AND COPIES OF THE BANK STATEMENT SHOWING THE PAYMENTS MADE BY IT TO VE,THAT CROSS EXAMINATION OF VE WAS NOT ALLOWED TO THE ASSESSEE THOUGH IT HAD MADE A SPECIFIC REQUEST FOR IT.THE ISSUE CAN BE DECIDED AG AINST THE AO AND IN FAVOUR OF THE ASSESSEE ONLY ON THIS COUNT,AS THE PRINCIPLES OF NATURAL JUS TICE WERE VIOLATED.THE SETTLED PRINCIPLES OF TAXATION ENVISAGE THAT NO ADVERSE MATERIAL SHOULD B E USED AGAINST AN ASSESSEE WITHOUT AFFORDING IT AN OPPORTUNITY TO REBUT IT.BUT,WE WOUL D LIKE TO DECIDE THE ISSUE ON MERITS ALSO.THE AO OR THE FAA HAS RELIED UPON THE STATEMEN T MADE BY VE,BUT HAS NOT MENTIONED THAT IT HAD SPECIFICALLY NAMED THE ASSESSEE IN ITS STATEMENT.A GENERAL STATEMENT OF ISSUING OF BOGUS BILLS BY AN ALLEGED HAWALA DEALER CANNOT BE U SED AGAINST A PARTICULAR ASSESSEE TO ESTABLISH THE FACT THAT THE PURCHASE BILLS OBTAINED BY IT WERE NOT GENUINE.IT IS TO BE NOTED THAT ALL THE PAYMENTS WERE MADE BY CHEQUES AND THERE IS NO EVIDENCE OF MONEY COMING BACK TO THE ASSESSEE.SECONDLY,THE PROVISIONS OF SECTION 69C OF THE ACT ARE NOT APPLICABLE TO THE FACTS OF THE CASE.THE ASSESSEE HAD NOT MADE CASH PURCHASE S.CONSIDERING THE PECULIAR FACTS AND CIRCUMSTANCES OF THE CASE,GROUND NO.2 IS DECIDED IN FAVOUR OF THE ASSESSEE. AS A RESULT,APPEAL FILED BY THE ASSESSEE STANDS ALL OWED. ! ' # $% &'( )* . ORDER PRONOUNCED IN THE OPEN COURT ON 06 TH JANUARY, 2017. &+ , ' 06 , 2017 SD/- SD/- ( . . / C.N. PRASAD ) ( / RAJENDRA ) / JUDICIAL MEMBER / ACCOUNTANT MEMBER MUMBAI; DATED : 06 .01.2017. JV.SR.PS. 1635/M/15-BINAYALE 5 / COPY OF THE ORDER FORWARDED TO : 1. APPELLANT / 2. RESPONDENT / 3. THE CONCERNED CIT(A)/ , 4. THE CONCERNED CIT / 5. DR A BENCH, ITAT, MUMBAI / , , . . . 6. GUARD FILE/ //TRUE COPY// / BY ORDER, / DY./ASST. REGISTRAR , /ITAT, MUMBAI.