M/s. Buildmet Pvt. Ltd, Bengaluru V. Deputy Commissioner of Income Tax, Circle-11(2), Bengaluru

ITA 168/BANG/2018

• Counselvise Citation: [2020] 110 COUNSELVISE.COM (IT) 2193 (ITAT-BANGALORE)
• Duration Of Justice: 2 year(s) 10 month(s) 15 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 02-12-2020
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: C
• Next Hearing Date: 01-12-2020
• Assessment Year: 2011-2012
• Appeal Filed On: 17-01-2018
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: R PREMI
• Keywords: Rule 8D; Set aside
• Section: 14A

Judgement Text

ITA NO.168/BANG/2018 M/S. BUILDMET PVT. LTD., BANGALORE IN THE INCOME TAX APPELLATE TRIBUNAL CBENCH: BANGALORE BEFORE SHRI B. R. BASKARAN, ACCOUNTANT MEMBER AND SMT. BEENA PILLAI, JUDICIAL MEMBER ITA NO.168/BANG/2018 ASSESSMENT YEAR: 2010-12 M/S. BUILDMET PVT. LTD. NO.45, 1 ST FLOOR, YAMUNA BAI ROAD MADHAVANAGAR BANGALORE-560 001. PAN NO :AAACB7376F VS. DEPUTY COMMISSIONER OF INCOME-TAX CIRCLE-11(2) BANGALORE APPELLANT RESPONDENT APPELLANT BY : SMT. PRATIBHA R., A.R. RESPONDENT BY : SMT. R. PREMI, D.R. DATE OF H EARING : 01.12.2020 DATE OF PRONOUNCEMENT : 02.12.2020 O R D E R PER B.R. BASKARAN, ACCOUNTANT MEMBER: THE ASSESSEE HAS FILED THIS APPEAL CHALLENGING THE ORDER DATED 30.10.2017 PASSED BY LD. CIT(A)-1, BENGALURU AND IT RELATES TO THE ASSESSMENT YEAR 2011-12. THE GROUNDS URGED BY THE ASSESSEE RELATE TO THE FOLLOWING 3 ISSUES: A. DISALLOWANCE MADE U/S 14 A OF THE INCOME-TAX ACT,1961 ['THE ACT' FOR SHORT]. B. DISALLOWANCE OF PROVISION FOR LABOUR CHARGES AND PURCHASES C. DISALLOWANCE OF PROFESSIONAL CHARGES. ITA NO.168/BANG/2018 M/S. BUILDMET PVT. LTD., BANGALORE PAGE 2 OF 6 2. THE ASSESSEE IS ENGAGED IN THE BUSINESS OF INDUS TRIAL CONSTRUCTION. 3. THE FIRST ISSUE RELATES TO DISALLOWANCE MADE U/S 14A OF THE ACT. THE ASSESSEE DERIVED DIVIDEND INCOME OF RS.36 .60 LAKHS AND CLAIMED THE SAME AS EXEMPT. THE A.O. NOTICED THAT THE ASSESSEE HAD MADE INVESTMENTS TO THE TUNE OF RS.2.60 CRORES AND RS.5.25 CRORES AS AT THE END AND BEGINNING OF THE YEAR RESP ECTIVELY. HENCE, THE A.O. ASKED THE ASSESSEE AS TO WHY DISALLOWANCE U/S 14A OF THE ACT SHOULD NOT BE MADE. THE ASSESSEE SUBMITTED THA T IT HAD MADE INVESTMENTS IN MAINLY MUTUAL FUNDS AND HAS UTILIZED OWN FUNDS FOR MAKING INVESTMENTS. ACCORDINGLY, THE A.O. MADE DIS ALLOWANCE OUT OF ADMINISTRATIVE EXPENSES AS PER RULE 8D(2)(III) O F THE I.T. RULES, WHICH WORKED OUT TO RS.1,96,250/-. THE LD. CIT(A) CONFIRMED THE ABOVE SAID DISALLOWANCE. 4. WE HEARD THE PARTIES ON THIS ISSUE. THE LD A.R SUBMITTED THAT THE ASSESSEE HAS USED ITS OWN FUNDS FOR MAKING INVESTMENTS. HOWEVER, THE QUESTION OF USAGE OF OWN FUNDS WOULD A RISE ONLY IN RESPECT OF INTEREST DISALLOWANCE. WE NOTICE THAT T HE A.O. HAS NOT MADE ANY DISALLOWANCE OUT OF INTEREST EXPENDITURE. WE HAVE NOTICED THAT THE DISALLOWANCE HAS BEEN MADE BY THE A.O. OUT OF ADMINISTRATIVE EXPENSES UNDER RULE 8D(2)(III) OF TH E I.T. RULES. THE ASSESSEE DID NOT FURNISH ANY MATERIAL BEFORE US TO SHOW THAT THE ABOVE SAID DISALLOWANCE IS NOT CALLED FOR. ACCORDI NGLY, WE CONFIRM THE ORDER PASSED BY LD. CIT(A) ON THIS ISSUE. 5. THE NEXT ISSUE RELATES TO DISALLOWANCE OF PROVI SION FOR LABOUR CHARGES AND PURCHASES. THE ASSESSEE HAD CREATED A PROVISION OF RS.46,77,214/- AS AT THE YEAREND TOWARDS LABOUR CHA RGES AND PURCHASES. THE A.O. WAS OF THE VIEW THAT THE ASSES SEE IS MAKING ITA NO.168/BANG/2018 M/S. BUILDMET PVT. LTD., BANGALORE PAGE 3 OF 6 THIS KIND OF PROVISION FOR THE FIRST TIME AND FURTH ER, THE ASSESSEE COULD NOT FURNISH ANY MATERIAL TO SUBSTANTIATE THE CLAIM. ACCORDINGLY, HE DISALLOWED THE CLAIM OF PROVISION F OR LABOUR CHARGES AND PURCHASES. THE LD. CIT(A) ALSO CONFIRMED THE S AME. 6. WE HEARD THE PARTIES AND PERUSED THE RECORD. TH E LD. A.R. INVITED OUR ATTENTION TO PAGE NOS.13 TO 17 OF THE P APER BOOK AND SUBMITTED THAT THE ASSESSEE HAS BEEN MAKING PROVISI ON FOR OUTSTANDING LABOUR CHARGES AND PURCHASES IN THE PAS T YEARS ALSO. THE PROVISION SO MADE ARE PAID IN THE SUBSEQUENT YE ARS. ACCORDINGLY, THE LD. A.R. SUBMITTED THAT THE A.O. W AS NOT CORRECT ON FACTS IN OBSERVING THAT PROVISION HAS BEEN MADE FOR THE FIRST TIME DURING THE YEAR UNDER CONSIDERATION. 7. ON PERUSAL OF THE DETAILS FURNISHED BY THE ASSES SEE IS PAGE NOS.13 TO 17 OF THE PAPER BOOK, WE NOTICE THAT THE ASSESSEE HAD CREATED PROVISION OF RS.87.18 LAKHS FOR LABOUR CHAR GES AND OTHER EXPENSES AS ON 31.3.2010 I.E. IN THE YEAR IMMEDIATE LY PRECEDING THE YEAR UNDER CONSIDERATION. DURING THE YEAR UNDER CO NSIDERATION, THE ASSESSEE HAS CREATED THE PROVISION OF RS.46.77 LAKH S. AT PAGE NO.15 OF THE PAPER BOOK, THE ASSESSEE HAS SHOWN THE DETAILS OF PAYMENT MADE OUT OF THE ABOVE SAID PROVISIONS. THE ASSESSEE IS FOLLOWING MERCANTILE SYSTEM OF ACCOUNTING. UNDER MERCANTILE SYSTEM OF ACCOUNTING, THE ASSESSEE IS REQUIRED TO P ROVIDE FOR KNOWN LOSSES AND EXPENSES. UNDER MATCHING PRINCIPLE AL SO, CORRESPONDING EXPENSES ARE REQUIRED TO BE PROVIDED FOR. SINCE THE ASSESSEE IS FOLLOWING MERCANTILE SYSTEM OF ACCOUNTI NG, THE ASSESSEE HAS PROVIDED FOR LABOUR CHARGES, PURCHASES AND OTHE R EXPENSES, WHICH WERE OUTSTANDING AS ON 31.3.2011. WE NOTICE THAT THE DETAILS OF EXPENSES HAVE BEEN FURNISHED BY THE ASSE SSEE BEFORE THE TAX AUTHORITIES AND THEY ARE PLACED FROM PAGE NOS.1 3 TO 17 OF THE ITA NO.168/BANG/2018 M/S. BUILDMET PVT. LTD., BANGALORE PAGE 4 OF 6 PAPER BOOK. THE ASSESSEE HAS ALSO FURNISHED THE DE TAILS OF PAYMENTS MADE IN THE SUBSEQUENT YEAR OUT OF THE PRO VISION SO CREATED. ACCORDINGLY, WE ARE OF THE VIEW THAT THE TAX AUTHORITIES ARE NOT JUSTIFIED IN DISALLOWING THE PROVISIONS FOR EXP ENSES SO CREATED BY THE ASSESSEE. ACCORDINGLY, WE SET ASIDE THE ORDER PASSED BY LD. CIT(A) AND DIRECT THE A.O. TO DELETE THE DISALLOWAN CE OF PROVISION FOR LABOUR CHARGES AND PURCHASES. 8. THE NEXT ISSUE RELATES TO DISALLOWANCE OF PROFES SIONAL CHARGES OF RS.25 LAKHS CLAIMED BY THE ASSESSEE. THE A.O. N OTICED THAT THE ASSESSEE HAS CLAIMED PROFESSIONAL CHARGES OF RS.25 LAKHS DURING THE YEAR UNDER CONSIDERATION. THE A.O. NOTICED THA T THE ASSESSEE HAD CLAIMED PROFESSIONAL EXPENSES OF RS.1.82 LAKHS ONLY IN THE IMMEDIATELY PRECEDING YEAR, WHEN THE TURNOVER WAS R S.48.73 CRORES. HOWEVER, DURING THE YEAR UNDER CONSIDERATI ON, THE TURNOVER HAS FALLEN DOWN TO RS.20.65 CRORES BUT THE ASSESSEE HAD CLAIMED PROFESSIONAL EXPENDITURE OF RS.25 LAKHS. THE AO AL SO EXPRESSED THE VIEW THAT THE ASSESSEE HAS NOT PROVED THE EXPENSES. ACCORDINGLY, HE DISALLOWED THE ABOVE SAID CLAIM. THE LD. CIT(A) ALSO CONFIRMED THE SAME. THE LD CIT(A) ALSO EXPRESSED THE VIEW TH AT THE PROFESSIONAL CHARGES MAY RELATE TO ANY NEW BUSINESS THAT MAY BE STARTED BY THE ASSESSEE OR IT MAY RELATE TO CAPITAL ACTIVITY OF THE ASSESSEE. 9. WE HEARD THE PARTIES ON THIS ISSUE. THE LD. A.R . SUBMITTED THAT THE ABOVE SAID AMOUNT OF RS.25 LAKHS WAS PAID TO M/S. DELOITTE TOUCHE TOHMATSU INDIA PVT. LTD., FOR CARRY ING OUT FOLLOWING WORKS:- 1. REVIEW OF THE BUSINESS PLAN OF BUILDMET LTD. 2. PREPARATION OF A DETAILED INFORMATION MEMORANDUM ABOUT BUILDMET LTD. ITA NO.168/BANG/2018 M/S. BUILDMET PVT. LTD., BANGALORE PAGE 5 OF 6 3. ASSISTANCE IN PRICE/VALUE ANALYSIS BUILDMET LTD. 4. SUGGEST CHANGES IN THE FINANCIAL STRUCTURE OF THE COMPANY, IF ANY. 5. IDENTIFICATION AND DISCUSSIONS WITH POTENTIAL STRAT EGIC PARTNERS FOR BUILDMET LTD. THE LD A.R SUBMITTED THAT THE ABOVE SAID ANALYSIS C ARRIED OUT BY THE CONSULTANT RELATED TO THE BUSINESS CARRIED ON B Y THE ASSESSEE AND HENCE IT IS EXPENDITURE HAS BEEN INCURRED FOR T HE PURPOSE OF BUSINESS CARRIED ON BY THE ASSESSEE. ACCORDINGLY, THE LD A.R SUBMITTED THAT THE AMOUNT OF RS.25.00 LAKHS IS ALLO WABLE AS DEDUCTION. 10. ON THE CONTRARY, LD. D.R. SUBMITTED THAT THE AS SESSEE DID NOT FURNISH PROPER DETAILS BEFORE THE TAX AUTHORITIES. FURTHER, THE LD. CIT(A) HAS ALSO EXPRESSED THE VIEW THAT THE PROFESS IONAL CHARGES MAY RELATE TO ANY NEW BUSINESS THAT MAY BE STARTED BY THE ASSESSEE OR IT MAY RELATE TO CAPITAL ACTIVITY OF THE ASSESSE E. SHE SUBMITTED THAT A PROPER EXAMINATION OF THE REPORT, IF ANY, GI VEN BY THE CONSULTANT WOULD HELP TO DECIDE THE NATURE OF EXPEN SES. ACCORDINGLY, THE LD. D.R. SUBMITTED THAT THIS MATTE R MAY BE RESTORED TO THE FILE OF THE A.O. FOR EXAMINING THE SAME AFRESH. 11. HAVING HEARD THE RIVAL SUBMISSIONS, WE ARE OF T HE VIE THAT THIS ISSUE REQUIRES FRESH EXAMINATION AT THE END OF THE A.O. FOR EXAMINING THE NATURE OF PROFESSIONAL SERVICES RENDE RED BY M/S. DELOITTE. WE NOTICE THAT THE ASSESSEE HAS NOT FURN ISHED THE COPIES OF REPORT FURNISHED BY THE CONSULTANT TO THE AO. W HEN IT WAS POINTED OUT, THE LD. A.R. ALSO AGREED FOR RESTORING THIS ISSUE TO THE FILE OF THE A.O. ACCORDINGLY, WE SET ASIDE THE ORD ER PASSED BY LD. CIT(A) ON THIS ISSUE AND RESTORE THE SAME TO THE FI LE OF THE A.O. FOR ITA NO.168/BANG/2018 M/S. BUILDMET PVT. LTD., BANGALORE PAGE 6 OF 6 EXAMINING IT AFRESH. THE ASSESSEE IS DIRECTED TO F URNISH ALL THE DETAILS IN SUPPORT OF THIS CLAIM. 12. IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE IS TREATED AS ALLOWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED IN THE OPEN COURT ON 2 ND DEC, 2020 SD/- (BEENA PILLAI) JUDICIAL MEMBER SD/- (B.R. BASKARAN) ACCOUNTANT MEMBER BANGALORE, DATED 2 ND DEC, 2020. VG/SPS COPY TO: 1. THE APPLICANT 2. THE RESPONDENT 3. THE CIT 4. THE CIT(A) 5. THE DR, ITAT, BANGALORE. 6. GUARD FILE BY ORDER ASST. REGISTRAR, ITAT, BANGALORE.