M/S. TEXMO PIPES & PRODUCTS LTD., Burhanpur V. THE JCIT-RANGE, Khandwa

ITA 178/IND/2016

• Counselvise Citation: [2016] 131 COUNSELVISE.COM (IT) 5704 (ITAT-INDORE)
• Duration Of Justice: 7 month(s) 23 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 17-10-2016
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: DB
• Next Hearing Date: 05-10-2016
• Assessment Year: 2011-2012
• Appeal Filed On: 24-02-2016
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: MOHD JAVED
• Assessee Lawyers: S S DESHPANDE
• Keywords: Depreciation; Earning of tax free income
• Section: 143(3); 14A

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL, INDORE BENCH, INDORE .., .., % BEFORE SHRI D.T. GARASIA, JUDICIAL MEMBER AND SHRI O.P. MEENA, ACCOUNTANT MEMBER M/S.TEXMO PIPES & PRODUCTS LIMITED, 98, BAHADARPUR ROAD, BURHANPUR .. ./ PAN: AACCT-9780D VS. JCIT, RANGE KHANDWA / APPELLANT / RESPONDENT / APPELLANT BY SHRI S.S.DESHPANDE, C. A. / RESPONDENT BY SHRI MOHD. JAVED, SR. DR DATE OF HEARING 17.10.2016 DATE OF PRONOUNCEMENT 17.10.2016 / O R D E R PER O.P. MEENA, ACCOUTANT MEMEBR. THIS APPEAL IS FILED BY THE ASSESSEE AGAINST THE OR DER OF LD. COMMISSIONER OF INCOME-TAX (APPEALS)-II, INDORE .. . / I.T.A. NO. 178/IND/2016 %' ' / ASSESSMENT YEAR: 2011-12 M/S. TEXMO PIPES & PRODUCTS LIMITED,BURHANPUR. I.T.A.NO. 178/IND/2016 A.Y.2011-12 PAGE 2 OF 9 [HEREINAFTER REFERRED TO AS THE CIT(A)] DATED 30.11 .2015 AND PERTAINS TO ASSESSMENT YEAR 2011-12 AS AGAINST APPE AL DECIDED IN ASSESSMENT ORDER PASSED U/S 143(3) DAT ED 11.03.2014 OF JT. CIT, RANGE KHANDWA. [HEREINAFTER R EFERRED TO AS THE AO]. 2. FOLLOWING GROUNDS HAVE BEEN TAKEN BY THE ASSESSEE :- 1. THE LD. CIT(A) HAS ERRED IN MAINTAINING THE ADDITIO N OF RS. 54,21,090/- ON ACCOUNT OF THE CLAIM U/S 35D. 1.1 IT WAS PROVED BEFORE THE LD. CIT(A) THAT THE SHARE PREMIUM IS REQUIRED TO BE CONSIDERED AS A CAPITAL IN VIEW OF THE PROVISIONS OF COMPANY LAW, AND AS SUCH THE DEDUCTION CLAIMED SHOULD HAVE BEEN ALLOWED AS CLAIMED. 2. THE LD. CIT(A) HAS ERRED IN MAINTAINING THE ADDITIO N OF RS. 7,50,000/- ON ACCOUNT OF THE CLAIM U/S 35D. 3. THE LD. CIT(A) HAS ERRED IN SUSTAINING THE DISALLOWANCE OF RS. 3,55,467/- U/S 14A. IT WAS PROVED BEFORE THE LOWER AUTHORITIES THAT NO EXPENSES M/S. TEXMO PIPES & PRODUCTS LIMITED,BURHANPUR. I.T.A.NO. 178/IND/2016 A.Y.2011-12 PAGE 3 OF 9 WERE INCURRED FOR EARNING THE DIVIDENDS AND AS SUCH THE DISALLOWANCE IS UNCALLED FOR. 4. THE LD. CIT(A) HAS ERRED IN NOT CONSIDERING THE GROUND ABOUT THE DISALLOWANCE OF RS. 24,52,511/- U/S 14A IN RESPECT OF INTEREST PAYMENT. IT WAS PROVED BEFORE THE LOWER AUTHORITIES THAT NO INTEREST WAS PAID FOR THE PURCHASE OF SHARES SINCE THE INVESTMENT WAS DONE FROM THE SHARE CAPITAL AND WAS CONSIDERED WHILE PASSING THE ORDER FOR THE ASSESSMENT YEAR 2010-11. SINCE NO INVESTMENT WAS MADE OUT OF BORROWED CAPITAL, THE DISALLOWANCE OF INTEREST IS UNCALLED FOR. 5. THE LD. AO HAS ERRED IN MAINTAINING THE DISALLOWANCE OF DEPRECIATION OF RS. 6,82,583/- ON THE TRUCKS. THE DEPRECIATION MAY PLEASE BE ALLOWED AS CLAIMED. 3. THE LD. COUNSEL FOR THE ASSESSEE STATED THAT THE SIMILAR CASE HAS BEEN DECIDED IN THE CASE OF ASSESS EE ITSELF BY M/S. TEXMO PIPES & PRODUCTS LIMITED,BURHANPUR. I.T.A.NO. 178/IND/2016 A.Y.2011-12 PAGE 4 OF 9 THE I.T.A.T., INDORE BENCH IN I.T.A.NO. 751/IND/20 14 FOR THE ASSESSMENT YEAR 2010-11 DATED 01.03.2016 AND THE IN STANT CASE IS ALSO COVERED BY THE DECISION OF I.T.A.T., INDORE BENCH. COPY OF THE I.T.A.TS DECISION IS FILED ON RECORD. 4. THE LD. SR. DR AGREED TO IT. 5. WE HAVE CONSIDERED THE FACTS AND MATERIALS AVAILABL E ON RECORD. WE HAVE ALSO PERUSED THE DECISION OF I. T.A.T. INDORE BENCH, PASSED IN I.T.A.NO. 751/IND/2014 FOR THE ASSESSMENT YEAR 2010-11. THE I.T.A.T. INDORE BENCH HELD AS UNDER :- 2. FOLLOWING GROUNDS HAVE BEEN TAKEN BY THE ASSESSE E :- 1. THE LD. CIT(A) HAS ERRED IN MAINTAINING THE ADDITIO N OF RS. 54,21,090/- ON ACCOUNT OF THE CLAIM U/S 35D. 1.1 IT WAS PROVED BEFORE THE LD. CIT(A) THAT THE SH ARE PREMIUM IS REQUIRED TO BE CONSIDERED AS A CAPITAL I N VIEW OF THE PROVISIONS OF COMPANY LAW AND AS SUCH T HE DEDUCTION CLAIMED SHOULD HAVE BEEN ALLOWED AS CLAIMED. 3. BOTH THESE GROUNDS RELATE TO DISALLOWANCE OF DEDUCTION U/S 35D OF THE INCOME-TAX ACT, 1961, AMOUNTING TO RS. 54,21,090/-. THE ASSESSEE CLAIMED DEDUCTION U/S 35D AT RS. 54,21,090/- , WHICH IS ENCASHED ALONGWITH THE AUDIT REPORT. THE ACTUAL EXPENDITURE INCURRED FOR PUBLIC ISSUE UP TO MAXIMUM WHICH READS AS UNDER :- M/S. TEXMO PIPES & PRODUCTS LIMITED,BURHANPUR. I.T.A.NO. 178/IND/2016 A.Y.2011-12 PAGE 5 OF 9 (I) ACTUAL EXPENDITURE FOR PUBLIC ISSUE(A) 6,26,86,972/ - (II) MAXIMUM ALLOWABLE EXPENDITURE 5% OF CAPITAL EMPLOYED (B) RS. 59,21,08,959X5% 2,96,05,447/- 2,96,05,447/- DEDUCTION ALLOWABLE U/S 35D WILL BE 1/5 TH OF THE ELIGIBLE AMOUNT OF CALCULATED IN (II) ABOVE 1/5 TH X 2,96,05,447 = 59,21,089/- WORKING (A) EXPENDITURE FOR PUBLIC ISSUE 6,26,86,972/- (B) CAPITAL EMPLOYED (I) ISSUED SHARE CAPITAL 53,43,00,000/- (11,27,00,000 + 42,16,00,000) (II) LONG TERM BORROWINGS (TERM LOAN) 5,78,08,959/- 59,21,08,959/- 4. THE AO FOUND THAT THIS COMPANY WAS INCORPORATED ON 3.7.2008 AND COMMENCED BUSINESS IN THE PREVIOUS YEAR 2008-09 AND FILED THE RETURN OF INCOME FORM FO R THE ASSESSMENT YEAR 2009-10 AND THE AO HAS VERIFIED THE CLAIM OF THE ASSESSEE AND THE AO FOUND THAT THE ASSESSEE HAS NOT INCURRED THE EXPENDITURE FOR INSTALLATION OF NEW UNIT. THEREFORE, HE DISALLO WED THE CLAIM OF THE ASSESSEE AT RS. 54,21,090/-. 5. THE MATTER CARRIED TO THE LD. CIT(A) AND THE LD. C IT(A) HAS DISMISSED THE APPEAL. 6. WE HAVE HEARD THE RIVAL CONTENTIONS OF BOTH THE PARTIES. LOOKING TO THE FACTS AND CIRCUMSTANCES OF THE M/S. TEXMO PIPES & PRODUCTS LIMITED,BURHANPUR. I.T.A.NO. 178/IND/2016 A.Y.2011-12 PAGE 6 OF 9 CASE, WE FIND THAT THE ISSUE IN CONTROVERSY IS COVE RED BY THE DECISION OF HON'BLE DELHI HIGH COURT IN THE CAS E OF BERGER PAINTS INDIA LIMITED VS. CIT, (2006) 154 TAX MAN 293 : 292 ITR 658 (DEL), WHEREIN IT IS HELD THAT WH EN THE PREMIUM COLLECTED BY THE ASSESSEE COMPANY ON ITS OW N SUBSCRIBED SHARE CAPITAL IS NOT CAPITAL EMPLOYED I N BUSINESS OF THE COMPANY WITHIN THE MEANING OF SECT ION 35D. IN THE INSTANT CASE, THE ASSESSEE HAS COLLECTE D THE AMOUNT IN CONNECTION OF EXTENSION OF THE OLD BUSINE SS AND WE FOUND THAT IN THIS CASE THE ASSESSEE HAS RECEIVED THE SHARE PREMIUM AND FOR THE OLD BUSINESS . THEREFORE, THE ASSESSEE WAS NOT ENTITLED FOR THE DEDUCTION U/S 35D OF THE INCOME-TAX ACT, 1961. THEREFORE, THE APPEAL IS DISMISSED ON THIS GROUND. 7.NEXT GROUND IS AGAINST THE DISALLOWANCE OF DEPRECATION AT RS. 7,44,314/-. 8.THE ASSESSEE HAS CLAIMED THE DEPRECIATION ON SWAR AJ MAZDA TRUCKS @ 30%. THE AO HAS HELD THAT WHEN THE TRUCK IS USED FOR ASSESSEES OWN BUSINESS, THE DEPRECIATION IS ALLOWABLE ONLY @ 15%. THE ASSESSEE CLAIMED THAT THE ASSESSEE IS PLYING TRUCK FOR THE CUSTOMER ALSO AND HE IS NOT MAINTAINING SEPARATE ACCOUNT, BUT HE IS PLYING THE TRUCK ON HIRE ALSO. THEREFORE, 30% DEPRECIATION SHOULD BE ALLOWED, BUT THE AO HAS ALLOWED THE DEPRECIATION @ 15% AND OUT OF CLAIM OF RS. 14,88,629/-, DEPRECATION OF RS. 7,44,3 14/- IS DISALLOWED. 9.THE MATTER CARRIED TO THE LD. CIT(A) AND THE LD. CIT(A) HAS CONFIRMED THE SAME. 10.WE HAVE HEARD THE RIVAL CONTENTIONS OF BOTH THE PARTIES. WE FIND THAT DURING THE ASSESSMENT PROCEEDINGS, THE ASSESSEE HAS FURNISHED THE CHART W ITH THE REPORT U/S 44AB, WHICH INDICATES THAT THE ASSES SEE HAS CHARGED DEPRECIATION ON SWARAJ MAZDA TRUCKS AT THE RATE OF 30%. THE ASSESSEE WAS USING HIS TRUCK I N HIS M/S. TEXMO PIPES & PRODUCTS LIMITED,BURHANPUR. I.T.A.NO. 178/IND/2016 A.Y.2011-12 PAGE 7 OF 9 OWN BUSINESS. THE ASSESSEE HAS TRANSPORTED ITS MANUFACTURED GOODS TO THE DESTINATION OF CUSTOMERS AND IN FEW CASES TRANSPORT CHARGES HAVE BEEN CHARGE D BY THE ASSESSEE IN BILLS RAISED FOR THE SALE OF GOO DS. THE ASSESSEE HAS NOT MAINTAINED A SEPARATE TRANSPORT DIVISION FOR PLYING TRUCK. THE ASSESSEE DID NOT CHA RGE ANY HIRING CHARGES FROM THE CUSTOMERS TO WHOM THE GOODS WERE SOLD. THE ASSESSEE IN THE ASSESSMENT YEA R 2009-10 WAS ALSO ALLOWED DEPRECIATION @ 15%. IF THE ASSESSEE WANTED HIGHER DEPRECIATION, THE TRUCK SHOU LD HAVE BEEN USED FOR TRANSPORTATION OF PUBLIC. THE ASSESSEE IS PLYING THE TRUCKS ONLY FOR HIS BUSINESS . THEREFORE, WE ARE OF THE VIEW THAT THE AO AND THE L D. CIT(A) ARE JUSTIFIED IN THEIR ACTION AND OUR INTERF ERENCE IS NOT REQUIRED. HENCE, WE DISMISS THE APPEAL ON THIS GROUND. 11. THIRD GROUND RELATES TO SUSTAINING THE DISALLOWANCE OF RS. 3,55,467/- U/S 14A. IT WAS PROV ED BEFORE THE LOWER AUTHORITIES THAT NO EXPENSES WERE INCURRED FOR EARNING THE DIVIDENDS AND AS SUCH THE DISALLOWANCE IS UNCALLED FOR. 12. THE ASSESSEE COMPANY IS IN BUSINESS OF PIPE MANUFACTURING ON LARGE SCALE. THE ASSESSEE COMPANY IN HIS SCHEDULE 15 OF PROFIT AND LOSS ACCOUNT MEANT FO R OTHER INCOME I.E. DIVIDEND AGAINST INVESTMENT IN MU TUAL FUND OF RS. 2,75,670.94 HAS BEEN RECEIVED BY THE ASSESSEE ON NON-TRADE INVESTMENT MADE IN PREVIOUS YEAR. THE ASSESSEE WAS GIVEN SHOW CAUSE NOTICE. THE ASSESSEE HAS TAKEN THE CONTENTION THAT THE ASSESSEE HAS RECEIVED THE DIVIDEND INCOME DERIVED FROM MUTUA L FUND IS EXEMPT U/S 10(38) . THUS, THE INVESTMENT IN MUTUAL FUND IS AN INVESTMENT NOT FORMING PART OF TO TAL INCOME. THEREFORE, SECTION 14A IS NOT APPLICABLE, B UT THE AO HAS EXAMINED THE RETURN OF THE ASSESSEE AND PROF IT AND LOSS ACCOUNT AND HELD THAT A SUM OF RS. 14,21,86,618/- OUT OF SHARE CAPITAL INCLUDING PREMI UM HAS BEEN UTILIZED IN MAKING THE INVESTMENT IN MUTUA L M/S. TEXMO PIPES & PRODUCTS LIMITED,BURHANPUR. I.T.A.NO. 178/IND/2016 A.Y.2011-12 PAGE 8 OF 9 FUND. PROVISIONS OF SECTION 14A ARE APPLICABLE AND HE HAS WORKED OUT AND HELD THAT THE ASSESSEE HAS INCURRED RS. 3,55,467/- FOR EARNING THIS INCOME. THEREFORE IT WAS DISALLOWED U/S 14A. 13. THE MATTER CARRIED TO THE LD. CIT(A) AND T HE LD. CIT(A) HAS DISMISSED THIS GROUND. 14. WE HAVE HEARD THE RIVAL CONTENTIONS OF BOTH THE PARTIES. LOOKING TO THE FACTS AND CIRCUMSTANCES OF THE CASE, WE FIND THAT AS PER SECTION 14A OF THE ACT AN D AS PER RULE 8DD OF INCOME TAX RULES, RULE 8DD PROVIDES THE MANNER IN WHICH THE AMOUNT OF DETERMINING THE EXPENDITURE IN RELATION TO THE INCOME NOT INCLUDED IN THE TOTAL INCOME, WHEREIN THE RULE 8DD PROVIDES THAT IF THE AO IS NOT SATISFIED WITH THE ACCOUNTS OF THE ASSESSEE, THEN THE AO SHOULD SATISFY HIMSELF AND THEREAFTER THE ASSESS EE SHOULD GIVE THE EXACT CLAIM OF CALCULATION TO THE A O AND THEREAFTER THE AO SHOULD VERIFY THE CLAIM OF THE AS SESSEE. IN THE INSTANT CASE, THE ASSESSEE HAS NOT GIVEN ANY WORKING OF THE CLAIM THAT THE ASSESSEE HAS NOT INCU RRED ANY EXPENDITURE OR EARNED THE DIVIDEND INCOME FROM MUTUAL FUND AND CAPITAL GAIN. THEREFORE, THE MATTER IS RESTORED BACK TO THE FILE OF AO AND ASSESSEE SHOULD GIVE THE TOTAL WORKING OF THE EXEMPT INCOME AS PER SECTI ON 14A READ WITH RULE 8DD AND THE AO SHOULD VERIFY THE CLA IM OF THE ASSESSEE AND IF HE IS NOT SATISFIED WITH THE CL AIM OF THE ASSESSEE, THEN HE IS AT LIBERTY TO CALCULATE THE EX PENDITURE INCURRED BY THE ASSESSEE IN RELATION TO THE INCOME, WHICH DOES NOT FORM OF TOTAL INCOME U/S 14A. 15. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS AL LOWED FOR STATISTICAL PURPOSES. 6. RESPECTFULLY FOLLOWING THE ABOVE DECISION OF I.T.A. T., INDORE BENCH, INDORE, WE ALLOW THIS APPEAL FOR STAT ISTICAL M/S. TEXMO PIPES & PRODUCTS LIMITED,BURHANPUR. I.T.A.NO. 178/IND/2016 A.Y.2011-12 PAGE 9 OF 9 PURPOSES IN VIEW OF THE OBSERVATIONS GIVEN IN THE AB OVE DECISION OF I.T.A.T. (SUPRA). 7. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS ALLOWE D FOR STATISTICAL PURPOSES. THE ORDER HAS BEEN PRONOUNCED IN OPEN COURT ON THE 17 TH OCTOBER, 2016. SD/- (..) (D.T.GARASIA) JUDICIAL MEMBER SD/- (..) (O.P.MEENA) ACCOUNTANT MEMBER * / DATED : 17 TH OCTOBER, 2016. CPU* COPY OF THE ORDER FORWARDED TO : THE ASSESSEE/ PCIT- INDORE/ CIT(A)-I, INDORE, AO/ D R- INDORE BENCH/ GUARD FILE BY ORDER ASSISTANT REGISTRAR OF ITAT, INDORE BENCH