Aflon Engineering Pvt.Ltd., Ahmedabad V. The Income tax Officer,Ward-1(1), Ahmedabad

ITA 1828/AHD/2013

• Counselvise Citation: [2016] 132 COUNSELVISE.COM (IT) 0977 (ITAT-AHMEDABAD)
• Duration Of Justice: 3 year(s) 1 month(s) 6 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 01-08-2016
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: SMC
• Next Hearing Date: 24-06-2016
• Assessment Year: 2010-2011
• Appeal Filed On: 25-06-2013
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: DINESH SINGH
• Keywords: Depreciation
• Section: 14A

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL SMC BENCH, AHMEDABAD BEFORE SHRI RAJPAL YADAV, JUDICIAL MEMBER ./ ITA.NO.1828/AHD/2013 / ASSTT. YEAR: 2010-2011 AFLON ENGINEERING PVT.LTD. CITY MILL COMPOUND KANKARIA ROAD, KANKARIA AHMEDABAD 380 022. PAN : AABCA 9993 J VS ITO, WARD-1(1) AHMEDABAD. ! / (APPELLANT) '# ! / (RESPONDENT) ASSESSEE BY : SHRI ANIL R. SHAH WITH MS.KINJAL SHAH, AR REVENUE BY : SHRI DINESH SINGH, SR.DR / DATE OF HEARING : 24/06/2016 / DATE OF PRONOUNCEMENT: 01/08/2016 $%/ O R D E R ASSESSEE IS IN APPEAL BEFORE THE TRIBUNAL AGAINST T HE ORDER OF THE LD.CIT(A)-6, AHMEDABAD PASSED FOR THE ASSTT.YEAR 20 10-11. 2. IN THE FIRST GROUND OF APPEAL, THE ASSESSEE HAS PLEADED THAT THE LD.CIT(A) HAS ERRED IN CONFIRMING THE ADDITION OF R S.7,58,083/- WHICH WAS ADDED BY THE AO WITH THE AID OF SECTION 14A/RULE 8D OF THE INCOME TAX ACT, 1961. 3. BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE-CO MPANY AT THE RELEVANT TIME WAS ENGAGED IN MANUFACTURING AND TRADING PTF P OLYMER PRODUCTS. IT HAS FILED ITS RETURN OF INCOME ELECTRONICALLY ON 26.11. 2010 AND DECLARED INCOME OF RS.19,450/-. ON SCRUTINY OF THE ACCOUNTS, IT REVEA LED TO THE AO THAT THE ITA NO.1828/AHD/2013 2 ASSESSEE HAS EARNED DIVIDEND INCOME OF RS.7,04,310/ - WHICH IS EXEMPT FROM TAX. HE FURTHER FOUND THAT THE ASSESSEE HAS MADE I NVESTMENT IN MUTUAL FUND TO THE TUNE OF RS.57.63 LACS AND IN SHARES RS.2.71 LAC S. ACCORDING TO THE AO, THE EXPENDITURE ATTRIBUTABLE TO EARNING OF TAX FREE INC OME DESERVES TO BE DISALLOWED UNDER SECTION 14A R.W. RULE 8D OF THE IN COME TAX RULES. THE AO HAS MADE DISALLOWANCE AS PER RULE 8D. HE HAS WO RKED OUT A SUM OF RS.7,27,768/- UNDER RULE 8D(2)(II), AND FURTHER RS. 30,315/- UNDER RULE 8D(2)(III). APPEAL TO THE LD.CIT(A) DID NOT BRING ANY RELIEF TO THE ASSESSEE. 4. LD.COUNSEL FOR THE ASSESSEE, AT THE VERY OUTSET, CONTENDED THAT IDENTICAL ADDITION WAS IN THE ASSTT.YEAR 2008-09 AND THE TRIB UNAL HAS DELETED THE ADDITION QUA THE INTEREST EXPENDITURE. THE TRIBUNAL HAS RESTRI CTED THE DISALLOWANCE UNDER RULE 8D(2)(III) OR AT THE RATE O F 0.5% OF THE AVERAGE VALUE OF THE INVESTMENT. 5. WITH THE ASSISTANCE OF THE LD.REPRESENTATIVES, I HAVE GONE THROUGH THE RECORD CAREFULLY. FROM PERUSAL OF THE ORDERS OF TH E REVENUE AUTHORITIES BELOW, I DO NOT FIND ANY CO-RELATION BETWEEN THE US ER OF INTEREST BEARING FUNDS FOR THE PURPOSE OF MAKING INVESTMENT, WHICH HAS GEN ERATED TAX FREE INCOME. THE AO WITHOUT REFERRING TO ANY SUCH ASPECT STRAIGH T-WAY JUST COMPUTED THE DISALLOWANCE. THE TRIBUNAL IN THE ASSTT.YEAR 2008- 09 HAS OBSERVED THAT ONLY DISALLOWANCE AT THE RATE OF 0.5% OF THE AVERAGE VAL UE OF THE INVESTMENT IS TO BE UPHELD ON ACCOUNT OF EXPENDITURE INCURRED FOR AD MINISTRATIVE PURPOSE IN RESPECT OF SUCH INVESTMENT. CONSIDERING THE ORDER OF THE TRIBUNAL AND THE FACTS ON RECORD, I ALLOW THIS GROUND OF APPEAL PART LY, AND DIRECT THE AO TO DELETE THE ADDITION TO THE EXTENT OF RS.7,27,768/-. 6. IN THE NEXT GROUND OF APPEAL, GRIEVANCE OF THE A SSESSEE IS THAT THE LD.CIT(A) HAS ERRED IN CONFIRMING THE DISALLOWANCE OUT OF MOTOR CAR EXPENSES OF RS.3,51,571/- AND MOTOR CAR DEPRECIATION OF RS.2 ,60,667/-. ITA NO.1828/AHD/2013 3 7. IT EMERGES OUT FROM THE RECORD THAT THE MOTOR CA RS WERE PURCHASED IN THE NAME OF DIRECTORS. THE AO HAS TREATED THE DIR ECTORS AS A SEPARATE INDIVIDUAL ENTITY AND OBSERVED THAT ON THESE MOTORS EXPENSES AS WELL AS DEPRECIATION IS NOT ADMISSIBLE. APPEAL TO THE CIT (A) DID NOT BRING ANY RELIEF TO THE ASSESSEE. SIMILARLY, DISALLOWANCE WAS MADE IN THE ASSTT.YEAR 2008-09 ALSO, WHICH WAS DELETED BY THE TRIBUNAL. THE LD.CO UNSEL FOR THE ASSESSEE PLACED RELIANCE UPON THE ORDER OF THE ITAT PASSED I N THE ASSTT.YEAR 2008-09 AS WELL AS THE ORDER OF THE ITAT PASSED IN THE CASE OF AFLON ENGINEERING P.LTD., IN ITA NO.2950/AHD/2011. HE PLACED ON RECO RD COPIES OF THIS ORDER. A PERUSAL OF THIS ORDER WOULD INDICATE THAT IF THE MOTOR CARS WERE PURCHASED FROM THE FUNDS PROVIDED BY THE ASSESSEE, AND THESE WERE EXCLUSIVELY USED FOR THE PURPOSE OF BUSINESS OF THE ASSESSEE, THEN, THE EXPENSES AS WELL AS DEPRECIATION WOULD BE ADMISSIBLE TO THE ASSESSEE. THE AO HAS NOWHERE ALLEGED THAT MOTORS WERE NOT PURCHASED FROM THE FUN DS OF THE ASSESSEE. HIS ONLY GRIEVANCE IS THAT THESE WERE NOT REGISTERED IN THE NAME OF THE ASSESSEE. AO, FURTHER RELIED UPON THE FINDING RECORDED BY HIM IN THE ASSTT.YEAR 2008- 09. IN THE ASSTT.YEAR 2008-09, THE TRIBUNAL HAS DE LETED SUCH DISALLOWANCE. AFTER TAKING INTO CONSIDERATION THE ORDER OF THE IT AT PASSED IN ITA NO.2950/AHD/2011 IN THE ASSTT.YEAR 2008-09, I ALLOW THIS GROUND OF APPEAL AND DELETE THE DISALLOWANCE OF MOTOR CAR EXPENSES A S WELL AS DEPRECIATION. 8. IN THE NEXT GROUND OF APPEAL, THE GRIEVANCE OF T HE ASSESSEE IS THAT THE LD.CIT(A) HAS ERRED IN CONFIRMING THE ADDITION OF R S.18,92,038/-. 9. BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE HA S DEBITED INTEREST EXPENDITURE OF RS.37,84,065/-. ON SCRUTINY OF THE ACCOUNTS, IT REVEALED THAT THE ASSESSEE HAS PAID INTEREST AT THE RATE OF 24% T O THE PERSONS WHO ARE COVERED UNDER SECTION 40A(2)(B) OF THE INCOME TAX A CT. THE AO HAS ALLOWED THE INTEREST PAYMENT AT THE RATE OF 12%, AND ACCORD INGLY, HE WORKED OUT THE ITA NO.1828/AHD/2013 4 DISALLOWANCE AT RS.18,92,032/-. ON APPEAL, THE LD. CIT(A) HAS CONFIRMED THE DISALLOWANCE. 10. WITH THE ASSISTANCE OF THE LD.REPRESENTATIVES, I HAVE GONE THROUGH THE RECORD CAREFULLY. IN THE ASSTT.YEAR 2008-09, THE L D.AO HAS MADE DISALLOWANCE OF RS.12,77,058/- UNDER SECTION 40A(2) (B) OF THE ACT. THIS ADDITION HAS BEEN DELETED BY THE TRIBUNAL. SECTION 40A(2)(B) CONTEMPLATES THAT IF AN ASSESSEE HAS PAID EXCESSIVE CHARGES TO T HE PERSONS WHO ARE COVERED BY THIS SECTION FOR ANY SERVICES THAN THE ONE PREVA LENT IN THE OPEN MARKET, SUCH EXCESS PAYMENT WOULD NOT BE ALLOWED TO THE ASS ESSEE AS DEDUCTION. IN OTHER WORDS, IF SIMILAR SERVICES ARE AVAILABLE IN T HE OPEN MARKET AT LOWER RATE, THEN, THE ASSESSEE WILL NOT BE ENTITLED FOR THE EXC ESS EXPENDITURE. THE ASSESSEE HAS AVAILED THE LOAN AT THE RATE OF 24% IN TEREST. THE LD.AO HAS COMPARED THIS RATE WITH BANK INTEREST, WHERE VARIOU S DOCUMENTATION, SECURITY ETC. WOULD REQUIRE. THE ASSESSEE HAS TO PLEDGE SOM E OR PROVIDE SOME SURETY FOR THE LOANS TAKEN FROM THE BANK. THIS IS UNSECUR ED LOAN. FOR AVAILING UNSECURED LOAN A LITTLE HIGHER RATE OF INTEREST OUG HT TO BE PAID BY THE ASSESSEE. CONSIDERING THIS ASPECT, THE TRIBUNAL HAS DELETED T HE DISALLOWANCE. THE ORDER PASSED IN THE ASSTT.YEAR 2008-09 IS BY A DIVISION B ENCH, WHICH IS BINDING UPON ME, THEREFORE, I ALLOW THIS GROUND OF APPEAL, AND DELETE DISALLOWANCE. 11. NO OTHER GROUNDS WERE PRESSED FOR ADJUDICATION. ACCORDINGLY, THE APPEAL OF THE ASSESSEE IS ALLOWED. 12. IN THE RESULT, APPEAL OF THE ASSESSEE IS ALLOWE D. ORDER PRONOUNCED IN THE COURT ON 1 ST AUGUST, 2016 AT AHMEDABAD. SD/- (RAJPAL YADAV) JUDICIAL MEMBER AHMEDABAD; DATED 01/08/2016