The DCIT, Circle-4, Ahmedabad V. Gujarat Apollo Industries Ltd., Ahmedabad

ITA 199/AHD/2013

• Counselvise Citation: [2017] 130 COUNSELVISE.COM (IT) 9411 (ITAT-AHMEDABAD)
• Duration Of Justice: 3 year(s) 11 month(s) 25 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 16-01-2017
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: D
• Next Hearing Date: 12-01-2017
• Assessment Year: 2008-2009
• Appeal Filed On: 21-01-2013
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: PRAVIN KUMAR
• Assessee Lawyers: U S BHATTI
• Keywords: Business income; Earning of tax free income; Question of law; Fair market value; Valuation report; Onus to prove
• Section: 14A

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD D BENCH (BEFORE SHRI N.K. BILLAIYA, ACCOUNTANT MEMBER & SHRI MAHAVIR PRASAD, JUDICIAL MEMBER) ITA. NO: 199 & 241/AHD/2013 (ASSESSMENT YEAR: 2008-09) THE D.C.I.T., CIRCLE-4, AHMEDABAD GUJARAT APOLLO INDUSTRIES LTD. APOLLO HOUSE, NR. MITHAKALI CIRCLE, NAVRANGPURA, AHMEDABAD V/S V/S GUJARAT APOLLO INDUSTRIES LTD. APOLLO HOUSE, NR. MITHAKALI CIRCLE, NAVRANGPURA, AHMEDABAD THE A.C.I.T., CIRCLE-4, AHMEDABAD (APPELLANT) (RESPONDENT) ITA. NO: 200 & 242/AHD/2013 (ASSESSMENT YEAR: 2009-10) THE D.C.I.T., CIRCLE-4, AHMEDABAD GUJARAT APOLLO INDUSTRIES LTD. APOLLO HOUSE, NR. MITHAKALI CIRCLE, NAVRANGPURA, AHMEDABAD V/S V/S GUJARAT APOLLO INDUSTRIES LTD. APOLLO HOUSE, NR. MITHAKALI CIRCLE, NAVRANGPURA, AHMEDABAD THE A.C.I.T., CIRCLE-4, AHMEDABAD (APPELLANT) (RESPONDENT) PAN: AAACG 7248P ITA NOS. 199 & 241/AHD/2013 AND ORS. . A.YS. 2008-0 9 & 2009-2010 2 APPELLANT BY : SHRI PRAVIN KUMAR, SR. D.R . RESPONDENT BY : SHRI U. S. BHATTI, A.R. ( )/ ORDER DATE OF HEARING : 12 -01-201 7 DATE OF PRONOUNCEMENT : 16 -01-2017 PER N.K. BILLAIYA, ACCOUNTANT MEMBER: 1. ITA NOS. 199 & 241/AHD/2013 ARE CROSS APPEALS BY TH E REVENUE AND THE ASSESSEE PREFERRED AGAINST THE ORDER OF THE LD. CIT (A)-VIII, AHMEDABAD DATED 26.10.2012 PERTAINING TO A.Y. 2008-09 AND ITA NOS. 200 & 242/AHD/2013 ARE CROSS APPEALS BY THE REVENUE AND T HE ASSESSEE PREFERRED AGAINST THE ORDER OF THE LD. CIT(A)-VIII, AHMEDABAD DATED 26.10.2012 PERTAINING TO A.Y. 2009-10. 2. THE IMPUGNED APPEALS INVOLVE COMMON ISSUES; THEREFO RE, THEY WERE HEARD TOGETHER AND ARE DISPOSED OF BY THIS COMMON ORDER F OR THE SAKE OF CONVENIENCE. ITA NO. 199/AHD/2013 FOR A.Y. 2008-09 REVENUES APP EAL 3. THE FIRST GROUND RELATES TO THE DELETION OF THE DIS ALLOWANCE OF EXPENSES INCURRED IN CONNECTION WITH ISSUE OF BONUS SHARE OF RS. 2,10,168/-. ITA NOS. 199 & 241/AHD/2013 AND ORS. . A.YS. 2008-0 9 & 2009-2010 3 4. THE A.O. HAS DISCUSSED THIS ISSUE AT PARA 5 ON PAGE 7 OF HIS ORDER WHEREIN HE HAS MENTIONED THAT ON PERUSAL OF LEGAL AND PROFE SSIONAL CHARGES, IT IS FOUND THAT THE ASSESSEE HAS DEBITED EXPENSES PERTAI NING TO ISSUE OF BONUS SHARES IN ITS REVENUE EXPENSES. THE A.O. WAS OF THE FIRM BELIEF THAT SUCH EXPENSES ARE OF CAPITAL IN NATURE BUT DOES NOT FALL WITHIN THE AMBIT OF SECTION 35D OF THE ACT SINCE THESE EXPENDITURES HAV E BEEN INCURRED IN RELATION TO THE ISSUE OF SHARE CAPITAL (BONUS SHARE ). THE A.O. DISALLOWED RS. 2,10,168/-. 5. ASSESSEE CARRIED THE MATTER BEFORE THE LD. CIT(A) A ND EXPLAINED THAT THERE WAS NO ISSUE OF BONUS SHARE DURING THE YEAR UNDER C ONSIDERATION, THE A.O. HAS DISALLOWED THE EXPENDITURE TOTALLY ON THE WRONG FACTS. 6. AFTER CONSIDERING THE FACTS AND THE SUBMISSIONS, TH E FIRST APPELLATE AUTHORITY OBSERVED THAT THERE IS NO MENTION OF RS. 2,10,168/- UNDER HEAD LEGAL, DUTIES, PROFESSIONAL AND LEGAL CHARGES. TH E FIRST APPELLATE AUTHORITY FOUND THAT THE IMPUGNED EXPENSE WAS A ROUTINE YEARL Y PAYMENT TO NATIONAL DEPOSITORY SERVICES LTD., CENTRAL DEPOSITORY SERVIC ES LTD., BOMBAY STOCK EXCHANGE LTD. AND NATIONAL STOCK EXCHANGE LTD. FOR THE CONTINUANCE OF THE LISTING OF THE SHARES. THE LD. CIT(A) WAS OF THE OP INION THAT SUCH EXPENDITURE IS OF REVENUE IN NATURE AND DELETED THE SAME. BEFOR E US. THE LD. D.R. COULD NOT POINT OUT ANY FACTUAL ERROR IN THE FINDINGS OF THE LD. CIT(A). 7. AFTER GIVING A THOUGHTFUL CONSIDERATION TO THE FACT S IN ISSUE, WE FIND FORCE IN THE FACTUAL FINDINGS OF THE FIRST APPELLATE AUTHORI TY. THE ENTIRE EXPENDITURE ITA NOS. 199 & 241/AHD/2013 AND ORS. . A.YS. 2008-0 9 & 2009-2010 4 HAS BEEN INCURRED FOR THE CONTINUANCE OF THE LISTIN G OF THE SHARES WITH THE VARIOUS AUTHORITIES AS MENTIONED HEREINABOVE. WE, T HEREFORE, DO NOT FIND ANY ERROR OR INFIRMITY IN THE FINDINGS OF THE LD. C IT(A) GROUND NO. 1 IS ACCORDINGLY DISMISSED. 8. GROUND NO. 2 RELATES TO THE DELETION OF THE ADDITIO N OF RS. 85,18,830/- MADE ON ACCOUNT OF UNREALIZED SALES RELYING ON ASSESSEE S OWN CASE FOR A.Y. 2005- 06. 9. THE A.O. HAS DISCUSSED THIS ISSUE AT PARA 6 ON PAGE 7 OF HIS ORDER, THE A.O. FOUND THAT THE ASSESSEE IS NOT INCLUDING PORTION OF SALES EFFECTED BY IT IN ITS PROFIT AND LOSS ACCOUNT TOTALING TO RS. 85,18,830/- . THE ASSESSEE WAS ASKED TO EXPLAIN ITS RATIONALE FOR NOT INCLUDING THESE AM OUNTS IN ITS PROFIT AND LOSS ACCOUNT AS SALES. THE ASSESSEE FILED A DETAILED REP LY VIDE LETTER DATED 16.11.2010 EXPLAINING ITS METHOD OF ACCOUNTING. IT WAS EXPLAINED THAT THE IMPUGNED AMOUNT IS PAYABLE ONLY AFTER FULFILLMENT O F CERTAIN TERMS AND CONDITIONS OF THE EQUIPMENT SUPPLIED WHICH MAY NOT BE IN THE YEAR OF SUPPLIER. THE ASSESSEE FURNISHED THE DETAILS OF SUC H UNACCRUED SALES. 10. THE ASSESSEES SUBMISSION DID NOT FIND ANY FAVOUR W ITH THE A.O. THE A.O. WAS OF THE FIRM BELIEF THAT SINCE THE METHOD OF ACC OUNTING OF THE ASSESSEE IS MERCANTILE SYSTEM; THE ASSESSEE CANNOT BE ALLOWE D TO MAINTAIN ITS BOOKS OF ACCOUNTS ON MIXED SYSTEM OF ACCOUNTING. THE A.O. ADDED RS. 85,18,830/- AS UNREALIZED SALES TO THE TOTAL INCOME OF THE ASSE SSEE. ITA NOS. 199 & 241/AHD/2013 AND ORS. . A.YS. 2008-0 9 & 2009-2010 5 11. ASSESSEE CARRIED THE MATTER BEFORE THE LD. CIT(A) A ND REITERATED ITS CONTENTION. 12. AFTER CONSIDERING THE FACTS AND THE SUBMISSIONS, TH E LD. CIT(A) FOUND THAT THE IMPUGNED ISSUE IN DISPUTE HAS BEEN FINALLY SETT LED BY THE HONBLE GUJARAT HIGH COURT IN THE CASE OF ASSESSEES SISTER CONCERN NAMELY APOLLO INDUSTRIES AND PROJECTS LTD. IN A.Y. 1989-90. THE L D. CIT(A) FURTHER FOUND THAT THIS PRACTICE IS BEING FOLLOWED REGULARLY YEAR AFTER YEAR AND THE SAME IS ALSO FOUND AS PER THE PRESCRIBED ACCOUNTING STANDAR D. THE LD. CIT(A) ACCORDINGLY DIRECTED TO DELETE THIS ADDITION OF RS. 85,18,830/- 13. BEFORE US, THE LD. D.R. HEAVILY RELIED UPON THE ASS ESSMENT ORDER. PER CONTRA, THE LD. COUNSEL FOR THE ASSESSEE REITERATED WHAT HA S BEEN STATED BEFORE THE LOWER AUTHORITY. WE FIND THAT AN IDENTICAL ISSUE WA S CONSIDERED BY THE BENCH IN ITA NO. 198/AHD/2013 FOR A.Y. 2005-06 QUA GROUND NO. 1 OF THAT APPEAL. THE RELEVANT FINDINGS OF THE BENCH READ AS UNDER:- 6. AFTER HEARING BOTH THE PARTIES AND PERUSING THE RECORD, WE FIND THAT HON'BLE ITAT IN THE FIRST INNING HAS OBSERVED THAT LD. CIT( A) WITHOUT ANALYZING THE RELEVANT TERMS AND CONDITIONS OF VARIOUS CONTRACTS IN RELATION TO THE RETENTION MONEY AND WITHOUT RECORDING HIS SPECIFIC FINDING AS TO THE METHOD OF ACCOUNTING REGULARLY FOLLOWED BY ASSESSEE UPHELD THE ORDER OF THE AO MAKING THE ADDITION OF RS. 40,32,955/-. HON'BLE ITAT THEREFORE RESTORED TH E MATTER BACK TO THE FILE OF LD. CIT(A) WITH SPECIFIC DIRECTION TO DECIDE THE ISSUE AFTER ANALYZING THE RELEVANT TERMS AND CONDITIONS OF THE CONTRACTS IN RELATION T O THE RETENTION MONEY AS TO WHETHER OR NOT ANY AMOUNT RETAINED BY THE RESPECTIV E CUSTOMERS ACTUALLY ACCRUED TO THE ASSESSEE IN THE YEAR UNDER CONSIDERA TION AND WHETHER THIS ACTION OF THE ASSESSEE IS IN CONFORMITY WITH THE METHOD OF ACCOUNTING REGULARLY FOLLOWED ITA NOS. 199 & 241/AHD/2013 AND ORS. . A.YS. 2008-0 9 & 2009-2010 6 BY HIM. IN COMPLIANCE OF THIS, LD. CIT(A) AFTER ANA LYZING THE TERMS OF PAYMENTS OF PURCHASE ORDERS IN RESPECT OF VARIOUS PARTIES HAS G IVEN A CATEGORICAL FINDING THAT THE RETENTION OF 10% MONEY OF TOTAL SALES WAS DUE T O SPECIFIC TERMS AND CONDITIONS FOR FINAL PAYMENT MENTIONED IN THE CUSTO MER PURCHASE ORDER. IT WAS FURTHER HELD BY LD. CIT(A) THAT ASSESSEE-COMPANY HA S BEEN FOLLOWING THIS SYSTEM OF ACCOUNTING FOR THE LAST SEVERAL YEARS AND WAS AC CEPTED BY THE DEPARTMENT. NOT ONLY THIS HE ALSO EXAMINED AS TO WHETHER THE ASSESS EE HAS MADE ANY DEVIATION FROM THE USUAL PRACTICE FOLLOWED BY IT IN THE EARLI ER YEARS WITH AN INTENTION TO EVADE TAX AND FOUND THAT THERE WAS NO SUCH CHANGE D URING THE YEAR UNDER APPEAL AND WHATEVER RETENTION MONEY HAS NOT BEEN SHOWN IN THIS YEAR AND REALIZED IN THE SUBSEQUENT YEAR HAS BEEN SHOWN AS SALE PROCEEDS IN THAT YEAR AND OFFERED FOR TAX. HE THEREFORE WAS OF THE VIEW THAT THERE WAS NO NEED TO DISTURB THE METHOD OF ACCOUNTING FOLLOWED BY ASSESSEE-COMPANY AND ALSO FOUND NO DISCREPANCY IN TERMS AND CONDITIONS OF PURCHASE ORDERS. LD. CIT(A) HAS ALSO ANALYZED THE CASE LAWS RELIED BY THE AO AND ALSO THAT OF ASSESSEE AND FOUND THAT RELIANCE PLACED BY AO ON CERTAIN CASE LAWS WAS MISPLACED AS THEY DO NO T APPLY TO THE FACTS OF ASSESSEE'S CASE. ON THE OTHER HAND, HE FOLLOWED HON 'BLE SUPREME COURT DECISION IN ASSESSEE'S SISTER CONCERN, NAMELY APOLLO INDUSTR IAL PRODUCTS P. LTD FOR ASSESSMENT YEAR 1989-90 IN WHICH IDENTICAL ISSUE WA S DECIDED IN FAVOUR OF ASSESSEE AND AGAINST THE REVENUE. WE ARE THEREFORE NOT INCLINED TO INTERFERE WITH THE ORDER PASSED LD. CIT(A) ON THIS ISSUE AND THE S AME IS HEREBY UPHELD. THIS GROUND OF REVENUE'S APPEAL IS DISMISSED. 14. WE ALSO FIND THAT THE ISSUE TRAVELLED UP TO THE HON BLE HIGH COURT AND THE HONBLE HIGH COURT WAS SEIZED WITH THE FOLLOWING SU BSTANTIAL QUESTION OF LAW:- [A] WHETHER THE APPELLATE TRIBUNAL IS RIGHT IN LAW AND FACTS OF THE CASE TO DELETE THE DISALLOWANCE OF CLAIM ON ACCOUNT OF RETENTION M ONEY OF RS. 40,32,955/-? ITA NOS. 199 & 241/AHD/2013 AND ORS. . A.YS. 2008-0 9 & 2009-2010 7 15. AND THE HONBLE HIGH COURT HELD AS UNDER:- 5. INSOFAR AS THE FIRST QUESTION IS CONCERNED, A PE RUSAL OF THE ORDER PASSED BY THE COMMISSIONER (APPEALS) SHOWS THAT AFTER ANALYZING T HE TERMS OF PAYMENTS OF PURCHASE ORDERS IN RESPECT OF VARIOUS PARTIES, HAS GIVEN CATEGORICAL FINDING THAT THE RETENTION OF 10% MONEY OF TOTAL SALES WAS DUE T O SPECIFIC TERMS AND CONDITIONS FOR FINAL PAYMENT MENTIONED IN THE CUSTO MER PURCHASE ORDER, IT WAS FURTHER HELD THAT THE ASSESSEE - COMPANY HAD BEEN F OLLOWING THIS SYSTEM OF ACCOUNTING FOR THE LAST SEVERAL YEARS AND WAS ACCEP TED BY THE DEPARTMENT. THE COMMISSIONER (APPEALS) FURTHER EXAMINED AS TO WHETH ER THE ASSESSEE HAD MADE ANY DEVIATION FROM THE USUAL PRACTICE FOLLOWED BY I T IN THE EARLIER YEARS WITH AN INTENTION TO EVADE TAX AND FOUND THAT THERE WAS NO SUCH CHANGE DURING THE YEAR UNDER APPEAL AND WHATEVER RETENTION MONEY HAD NOT B EEN SHOWN IN THAT YEAR AND REALIZED IN THE SUBSEQUENT YEAR HAD BEEN SHOWN AS SALE PROCEEDS IN THAT YEAR AND OFFERED FOR TAX. IT IS IN THESE CIRCUMSTANCES T HAT THE COMMISSIONER (APPEALS) WAS OF THE VIEW THAT THERE WAS NO NEED TO DISTURB T HE METHOD OF ACCOUNTING FOLLOWED BY THE ASSESSEE - COMPANY AND ALSO FOUND N O DISCREPANCY IN TERMS AND CONDITIONS OF PURCHASE ORDERS. THE TRIBUNAL HAS CON CURRED WITH THE FINDINGS RECORDED BY THE COMMISSIONER (APPEALS). 6. FROM THE FACTS AND CONTENTIONS NOTED HEREINABOVE , IT IS AMPLY CLEAR THAT THE CONTROVERSY INVOLVED IN THIS CASE STANDS CONCLUDED IN FAVOUR OF THE ASSESSEE AND AGAINST THE REVENUE BY THE ABOVE DECISION OF THIS C OURT. UNDER THE CIRCUMSTANCES, NO QUESTION OF LAW CAN BE STATED TO ARISE AS/PROPOS ED. THIS GROUND OF APPEAL IS, THEREFORE, DISMISSED. 16. RESPECTFULLY FOLLOWING THE DECISION OF THE CO-ORDIN ATE BENCH AND THE HONBLE HIGH COURT (SUPRA), WE DO NOT FIND ANY REAS ON TO INTERFERE WITH THE FINDINGS OF THE LD. CIT(A). GROUND NO. 2 IS ACCORDI NGLY DISMISSED. ITA NOS. 199 & 241/AHD/2013 AND ORS. . A.YS. 2008-0 9 & 2009-2010 8 17. GROUND NO. 3 RELATES TO THE DELETION OF THE ADDIT ION OF RS. 21,82,933/- OUT OF DISALLOWANCE OF RS. 33,39,824/- U/S. 14A OF THE ACT R.W. RULE 8D. 18. THE A.O. HAS CONSIDERED THIS ISSUE AT PARA 7 ON PAG E 10 OF HIS ORDER WHEREIN HE HAS OBSERVED THAT THE ASSESSEE HAS TOTAL INVESTM ENT AT RS. 29.65 CRORES OUT OF WHICH RS. 15.01 CRORES HAS BEEN INVESTED IN MUTUAL FUND UNITS OF VARIOUS FUNDS AND RS. 14.45 CRORES IN EQUITY SHARE CAPITAL OF MOSTLY GROUP COMPANIES AND RS. 13.16 LACS IN SARDAR SAROVAR NARM ADA BONDS. THE A.O. WAS OF THE OPINION THAT THE ASSESSEE HAS DIVERTED I NTEREST BEARING FUNDS FOR NON-BUSINESS PURPOSES. THE ASSESSEE WAS ASKED TO JU STIFY ITS CLAIM. ASSESSEE FILED A DETAILED SUBMISSIONS WHICH DID NOT FIND ANY FAVOUR WITH THE A.O. WHO COMPUTED THE DISALLOWANCE U/S. 14A R.W.R 8 D AT RS. 33,39,824/-. 19. ASSESSEE CARRIED THE MATTER BEFORE THE LD. CIT(A) A ND STATED THAT NO NEW INVESTMENT IN SHARES WAS MADE DURING THE YEAR UNDER CONSIDERATION. THE INVESTMENT IN SHARES OF VARIOUS GROUP COMPANIES WER E MADE OUT OF INTEREST FREE FUNDS MAINLY DURING THE FINANCIAL YEAR 1999-20 00. IT WAS FURTHER EXPLAINED THAT THE INVESTMENTS IN THE SHARES OF GRO UP COMPANIES WERE NOT MADE WITH A VIEW TO EARN DIVIDENDS, THE DECISIONS W ERE PROMPTED BECAUSE OF STRATEGIC BUSINESS CONSIDERATION ONLY. IT WAS S TRONGLY CONTENDED THAT THERE IS NO CASE FOR THE DISALLOWANCE OF INTEREST U /S. 14A R.W.R 8D AND IF AT ALL ANY DISALLOWANCE NEED TO BE MADE, IT SHOULD BE BY WAY OF 0.5% OF THE AVERAGE INVESTMENT GENERATING EXEMPT INCOME. ITA NOS. 199 & 241/AHD/2013 AND ORS. . A.YS. 2008-0 9 & 2009-2010 9 20. AFTER CONSIDERING THE FACTS AND THE SUBMISSIONS, TH E LD. CIT(A) WAS CONVINCED WITH THE FACTUAL DETAILS BROUGHT ON RECOR D BY THE ASSESSEE AND DIRECTED THE A.O. TO RESTRICT THE DISALLOWANCE TO R S. 7,82,500/-. BEFORE US, THE LD. D.R. STRONGLY RELIED UPON THE FINDINGS OF T HE A.O. PER CONTRA, THE LD. COUNSEL FOR THE ASSESSEE STATED THAT THE ISSUE HAS BEEN DECIDED IN FAVOUR OF THE ASSESSEE AND AGAINST THE REVENUE BY THE HONBLE JURISDICTIONAL HIGH COURT IN ASSESSEES OWN CASE IN TAX APPEAL NO. 928 OF 2014. 21. WE HAVE GIVEN A THOUGHTFUL CONSIDERATION TO THE ORD ERS OF THE AUTHORITIES BELOW. IT IS TRUE THAT THE INVESTMENTS HAVE BEEN MA DE BY THE ASSESSEE IN EARLIER FINANCIAL YEARS. THIS CAN BE UNDERSTOOD FRO M THE FOLLOWING CHART:- BASIC FINANCIAL DETAILS FROM1998-99 TO 2009-2010 SR. FINANCIAL YEAR NET WORTH(CAPITAL + TURNOVER PROFIT TAX % INC.IN TOTAL DEBT INC/DEC. TOTAL FIXED RESERVE SURPLUS) BEFORE TA TURNOVER AS ON LAST DT. IN DEBT INVESTM ENT ASSETS 1 1998-99 1735.34 (350 CAPITAL) 4544.13 475.28 101 10% 1306.0 - 456.85 1050 2 1999- 2000 194 1.28 (350 CAPITAL) 6440.55 512.68 200 42% 1321.49 15.4 1217.8 1121 3 2000- 2001 2166.81 (350 CAPITAL) 6822.2 482.96 161 7% 1636.21 285 1216.3 1279 4 2001- 2002 2270.2 (350 CAPITAL) 6403.34 512.35 178 -7% 2378.11 742 1251 1595 5 2002- 2003 2744.54 (350 CAPITAL) 9858.7 932.62 340 52% 2584.4 206 705.1 1583 6 2003- 2004 33 18.83 (350 CAPITAL) 9336 1157 390 -5% 3358 772 683 1688 7 2004- 2005 3541 (350 CAPITAL) 6952.73 753 260 -25% 2968.07 -390 1819 1764 8 2005- 2006 4428.94 (700 CAPITAL) 11354.51 1606.91 560 60% 3216.58 248 1819 2008 9 2006- 5994.69 (1050 15634.34 2769.52 931 35% 3122.56 -94 1661.6 2227 ITA NOS. 199 & 241/AHD/2013 AND ORS. . A.YS. 2008-0 9 & 2009-2010 10 2007 CAPITAL) 10 2007- 2008 9461. 86 (1050 CAPITAL) 18638.41 5629.94 1532.5 20% 3051.16 -71 2965.96 3505 11 2008- 2009 1 1255.48 (1575 CAPITAL 18124.24 3236.13 1074 -3% 1946.34 52/ 1466 4612 12 2009- 2010 14355. 1(1575 CAPITAL) 21416.33 4142.87 1449 20% 3793.91 90% 1540 7074 * RS. 1 5 CRORE WAS DEPOSITED ON 3 1 -03-2008 WHICH WAS RECEIVED ON SALE OF INVESTMENT 22. WE FIND THAT THE HONBLE HIGH COURT WAS SEIZED WITH THE FOLLOWING SUBSTANTIAL QUESTION OF LAW IN TAX APPEAL NO. 928 O F 2014:- [B] WHETHER THE APPELLATE TRIBUNAL IS RIGHT IN LAW AND ON FACTS IN UPHOLDING THE ORDER OF THE LD. CIT(A) TO DELETE THE DISALLOWANCE U/S. 14A OF THE ACT RS. 28,36,668/- ON ACCOUNT OF INTEREST AND ADMINISTRATI VE EXPENSES WHEN ASSESSEE HAD FAILED TO DISCHARGE ITS ONUS TO PROVE THE NEXUS OF INTEREST FREE FUNDS UTILIZED FOR THE PURPOSE OF MAKING INVESTMENTS EARNING EXEMP T INCOME? 23. AND THE HONBLE HIGH COURT HELD AS UNDER:- 7. INSOFAR AS THE SECOND QUESTION WHICH RELATES TO ADDITION OF RS. 28,36,668/- UNDER SECTION 14A OF THE ACT ON ACCOUNT OF INTEREST AND A DMINISTRATIVE EXPENSES IS CONCERNED, THE TRIBUNAL HAS TAKEN NOTE OF THE FACT THAT THE MA TTER HAD INITIALLY BEEN RESTORED TO THE FILE OF THE COMMISSIONER (APPEALS) WITH A SPECIFIC DIRECTION TO BRING OUT CLEARLY AS TO WHETHER THE BORROWED FUND HAD INDEED BEEN UTILIZED IN INVESTMENT IN SHARES/MUTUAL FUNDS FOR EARNING EXEMPT INCOME. THE COMMISSIONER ( APPEALS), WITH A VIEW TO CARRY OUT THIS DIRECTION ANALYZED THE FINANCIAL CHART SHOWING THE FINANCIAL SUMMARY OF THE ASSESSEE OF THE LAST SEVEN YEARS AND FOUND THAT THE ASSESSEE WAS HAVING SUFFICIENT SURPLUS FUNDS AT ITS DISPOSAL FOR MAKING ANY INVESTMENT IN SHARE AND FOR BUSINESS PURPOSES AND THEREFORE, NO NEXUS COULD BE ESTABLISHED WITH THE EXPENDITURE INCURRED BY THE ASSESSEE FOR EARNING THE EXEMPT INCOME. THERE WAS NO INCREASE IN BORROWI NG RATHER THERE WAS REDUCTION IN TOTAL DEBTS. HAVING REGARD TO THE ABOVE FINDINGS RE CORDED BY THE COMMISSIONER (APPEALS), THE TRIBUNAL OBSERVED THAT IT IS NOW WEL L SETTLED THAT NO DISALLOWANCE UNDER SECTION 14A OF THE ACT CAN BE MADE OF INTEREST EXPE NSES UNTIL THERE IS FINDING OF ASSESSING ITA NOS. 199 & 241/AHD/2013 AND ORS. . A.YS. 2008-0 9 & 2009-2010 11 OFFICER THAT BORROWED FUNDS WERE UTILIZED BY ASSESS EE TO EARN EXEMPT INCOME. IT IS IN THESE CIRCUMSTANCES, THAT THE TRIBUNAL DID NOT FIND ANY INFIRMITY IN THE ORDER PASSED BY THE COMMISSIONER (APPEALS) IN DELETING THE ADDITION MADE BY THE ASSESSING OFFICER OUT OF INTEREST PAYMENT UNDER SECTION 14A OF THE ACT. 8. FROM THE FACTS NOTED HEREINABOVE, IT IS APPARENT THAT THE COMMISSIONER (APPEALS) HAS, AFTER ANALYZING THE MATERIAL ON RECORD, FOUND AS A MATTER OF FACT THAT THE ASSESSEE HAD SUFFICIENT SURPLUS FUNDS AT ITS DISPOSAL FOR MAKING ANY INVESTMENT IN SHARE AND FOR BUSINESS PURPOSE AND THEREFORE, THERE WAS NO NEXUS THAT COULD BE ESTABLISHED WITH THE EXPENDITURE INCURRED BY THE ASSESSEE FOR EARNING TH E EXEMPT INCOME. THUS, THE CONCLUSION ARRIVED AT BY THE TRIBUNAL IS BASED UPON CONCURRENT FINDINGS OF FACT RECORDED BY IT AFTER APPRECIATING THE EVIDENCE ON RECORD. ON BEHALF OF THE APPELLANT, NOTHING CONTRARY HAS BEEN POINTED OUT SO AS TO DISLODGE THE FINDINGS OF FACT RECORDED BY THE TRIBUNAL, NOR IS IT THE CASE OF THE ASSESSEE THAT T HE TRIBUNAL HAS TAKEN INTO CONSIDERATION ANY IRRELEVANT MATERIAL OR THAT ANY RELEVANT MATERI AL HAS BEEN IGNORED. IN THE ABSENCE OF ANY PERVERSITY IN THE FINDINGS OF FACT RECORDED BY THE TRIBUNAL, THE IMPUGNED ORDER DOES NOT GIVE RISE TO ANY QUESTION OF LAW, MUCH LESS, A SUBSTANTIAL QUESTION OF LAW, SO AS TO WARRANT INTERFERENCE. 24. RESPECTFULLY FOLLOWING THE DECISION OF THE HONBLE HIGH COURT, WE DECLINE TO INTERFERE. 25. IN THE RESULT, APPEAL FILED BY THE REVENUE IS DISMI SSED. ITA NO. 241/AHD/2013 FOR A.Y. 2008-09 ASSESSEES AP PEAL 26. THE FIRST GRIEVANCE OF THE ASSESSEE RELATES TO THE CONFIRMATION OF THE ADDITION TO THE EXTENT OF RS. 7,82,500/- OUT OF THE TOTAL DISALLOWANCE OF RS. 33,39,824/- MADE U/S. 14A OF THE ACT. ITA NOS. 199 & 241/AHD/2013 AND ORS. . A.YS. 2008-0 9 & 2009-2010 12 27. WE FIND THAT FROM OUR RECORD THAT ON 09.12.2015, T HE ASSESSEE DID NOT PRESS THIS GROUND OF APPEAL AND THE SAME IS DISMISS ED AS NOT PRESSED. 28. GROUND NO. 2 RELATES TO THE DISALLOWANCE OF LOSS ON SALE OF SHARES AMOUNTING TO RS. 46,34,375/-. 29. THE A.O. HAS CONSIDERED THIS ISSUE AT PARA 4 OF PAG E 2 OF HIS ORDER WHEREIN HE HAS OBSERVED THAT THE ASSESSEE HAS SOLD SHARES H ELD AS INVESTMENT IN ITS SUBSIDIARY COMPANIES. THE FOLLOWING CHART EXPLAINS THE FACTUAL MATRIX:- SR NO PARTICULARS QTY PURCHASE DATE SALE DATE SALE VALUE COST/ FMV INDEXED COST TRANSF COST TOTAL COST LTCG 1 JOHSON SCREENS INDIA LTD 2371600 1/3/05 31/3A38 258504400 94864000 108895967 266450 109162417 149341983 2 APOLLO CONSTRUCTION PROJ PVT LTD 149700 26/6/02 31/3/08 3742500 2994000 3690591 0 3690591 51909 3 KAMAVATI INFRA PVT LTD 100000 1/3/02 1/3//08 100000 1000000 1293427 0 1293427 -1193427 4 APOLLO INDUSTRIES AND PROJECTS LTD 155000 25/3/02 1/3/08 155000 1557800 2014901 2014901 -1859901 5 APOLLO INDUSTRIES AND PROJECTS LTD 172698 31/3/03 1/3//08 172698 3850050 4745811 0 4745811 -4573113 6 APOLLO INDUSTRIES AND PROJECTS LTD 413802 30/3/05 1/3//08 413802 3000000 3443750 0 3443750 -3029948 TOTAL 263088400 107265850 124084447 266450 124350897 138737503 30. THE A.O. WAS OF THE OPINION THAT THE LOSS SHOWN BY THE ASSESSEE FROM SALE OF SHARES OF APOLLO INDUSTRIES AND PROJECTS LTD. IS A MANIPULATED LOSS. THE ITA NOS. 199 & 241/AHD/2013 AND ORS. . A.YS. 2008-0 9 & 2009-2010 13 A.O. DID NOT BELIEVE THE SALE OF SHARES BELOW ITS F ACE VALUE AND ACCORDINGLY TREATED THE LOSSES FROM THE SALE OF SHARES AS INFLA TED ON ACCOUNT OF MUTUALLY ARRANGED TRANSACTION. THE A.O. ACCORDINGLY DISALLOW ED THE EXCESS LOSS OF SHARES AMOUNTING TO RS. 46,34,375/-. 31. ASSESSEE CARRIED THE MATTER BEFORE THE LD. CIT(A) B UT WITHOUT ANY SUCCESS. 32. BEFORE US, THE LD. COUNSEL FOR THE ASSESSEE DREW OU R ATTENTION TO THE VALUATION CERTIFICATE GIVEN BY A CHARTERED ACCOUNTA NT WHO HAS DONE THE VALUATION OF THE SHARES OF APOLLO INDUSTRIES AND PR OJECTS LTD. IT IS THE SAY OF THE LD. COUNSEL THAT ON THE BASIS OF THIS VALUATION CERTIFICATE, THE ASSESSEE SOLD THE SHARES @ RS. 1 PER SHARE. IT WAS EXPLAINED THAT THE VALUER HAS VALUED THE NOMINAL VALUE OF RS. 10 AT RS. 1.28 PE R SHARE. THE LD. COUNSEL CONCLUDED BY SAYING THAT THE A.O. HAS NOT GIVEN ANY BASIS FOR REJECTING THIS VALUATION. PER CONTRA, THE LD. D.R. STRONGLY RELIED UPON THE FINDINGS OF THE REVENUE AUTHORITIES. 33. WE HAVE GIVEN A THOUGHTFUL CONSIDERATION TO THE ORD ERS OF THE AUTHORITIES BELOW. IT IS TRUE THAT THE IMPUGNED SHARES WERE OF UNLISTED COMPANIES; THEREFORE, THERE IS NO DATA AVAILABLE FOR THE PREVA ILING MARKET RATE ON THE DATE OF SALE FROM THE STOCK EXCHANGES. ALL THAT HAS TO BE SEEN IS WHETHER THE VALUATION OF THE SHARES IS SCIENTIFIC AND BASED UPON FACTS AND FIGURES. WE FIND THAT THE VALUATION OF SHARES IS BACK BY THE CERTIFICATE OF CHARTERED ACCOUNTANT WHICH IS EXHIBITED FROM PAGES 119 TO 123 OF THE PAPER BOOK. A PERUSAL OF THE SAME SHOW THAT THE C.A. HAS DONE A S CIENTIFIC VALUATION AS ITA NOS. 199 & 241/AHD/2013 AND ORS. . A.YS. 2008-0 9 & 2009-2010 14 PER THE PRESCRIBED NORMS. THEREFORE, IN OUR CONSIDE RED OPINION, WE DO NOT FIND ANY ERROR IN THE VALUATION SO MADE. THE CO-ORD INATE BENCH OF ITAT DELHI BENCH IN THE CASE OF ASHOK SONI IN ITA NO. 45 74/DEL/2002 HAD THE OCCASION TO CONSIDER A SIMILAR ISSUE. THE RELEVANT HEAD NOTE READS AS UNDER:- CAPITAL GAINSCOMPUTATIONACTUAL SALE CONSIDERATION VIS-A-VIS FAIR MARKET VALUE-NO MATERIAL WAS AVAILABLE WITH THE AO TO SHOW THAT THE ASSESSEE HAS RECEIVED MORE AMOUNT THAN THE CONSIDERATION SHOWN IN THE REGISTERED DOCU MENTAFTER DELETION OF S. 52 IT IS NOT POSSIBLE FOR THE AO TO ADOPT THE MARKET VALUE OR AN Y OTHER VALUE OTHER THAN THE APPARENT CONSIDERATION FOR SALETHEREFORE, THE ACTION OF THE AO IN SUBSTITUTING THE FULL VALUE OF CONSIDERATION BY THE FAIR MARKET VALUE AS STATED BY THE DVO IN HIS REPORT WAS NOT VALID 34. IN ANOTHER DECISION GIVEN IN THE CASE OF JINDAL EQU IPMENT LEASING & CONSULTANCY SERVICES LTD. IN ITA NO. 4474/DEL/2009, THE CO-ORDINATE BENCH DECIDED A SIMILAR ISSUE IN FAVOUR OF THE ASSESSEE. THE HEAD NOTE READS AS UNDER:- CAPITAL GAINSVALUATIONASSESSEE HAD PURCHASED SHAR ES OF NSIL @ RS. 10 PER SHARE WHEREAS BOOK VALUE OF THE SHARE ON THE DATE OF PURC HASE WAS RS. 31.80 SHARES OF THIS COMPANY WERE SOLD IN THIS YEAR TO CERTAIN PERSONS @ RS. 12 PER SHARE WHEN BOOK VALUE OF THE SHARE WAS ESTIMATED TO BE AROUND RS. 254.50AO CONTENDED THAT THE TRANSACTIONS OF SALE WERE A DEVISE TO PASS ON UNDUE MONETARY BENEFIT TO THE AFO RESAID PERSONS, WHO WERE RELATED PERSONSTHERE IS NO EVIDENCE ON RECORD THAT THE TRANSFEREES WERE RELATED TO THE DIRECTORS OF THE COMPANY-IMPUGNED TRANSACTIONS CAN NOT BE SAID TO BE ARE A COLOURABLE DEVISE TO PASS UNDUE BENEFIT TO THE BUYERS DIRECTLY OR INDIRECTLY RELATED TO THE COMPANY CIT(A) JUSTIFIED IN DELETING THE ADDITION OF RS. 6, 06,27,500, BEING UNDISCLOSED SALE CONSIDERATION OF SHARES 35. AS NO DISTINGUISHING DECISION HAS BEEN BROUGHT ON R ECORD BY THE LD. D.R. RESPECTFULLY FOLLOWING THE FINDINGS OF THE CO-ORDIN ATE BENCH (SUPRA) IN THE ITA NOS. 199 & 241/AHD/2013 AND ORS. . A.YS. 2008-0 9 & 2009-2010 15 LIGHT OF THE VALUATION REPORT MENTIONED HEREINABOVE . WE SET ASIDE THE FINDINGS OF THE LD. CIT(A) AND DIRECT THE A.O. TO A LLOW THE LOSS OF RS. 46,34,375/-. GROUND NO. 2 IS ALLOWED. 36. IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE IS ALLOWED IN PART FOR STATISTICAL PURPOSE. ITA NO. 200/AHD/2013 FOR A.Y. 2009-10 REVENUES AP PEAL 37. THE FIRST GROUND RELATES TO THE DELETION OF THE A DDITION OF RS. 99,82,800/- MADE ON ACCOUNT OF UNREALIZED SALES. 38. AN IDENTICAL ISSUE HAS BEEN DECIDED BY US IN ITA NO . 199/AHD/2013 (SUPRA) QUA GROUND NO. 2 OF THAT APPEAL. FOR OUR DETAILED D ISCUSSION THEREIN, THIS GROUND IS DISMISSED. 39. GROUND NO. 2 RELATES TO THE RESTRICTION OF THE ADDI TION OF RS. 7,00,000/- OUT OF RS. 11,08,067/- DISALLOW U/S. 14A R.W.R 8D . 40. AN IDENTICAL ISSUE HAS BEEN CONSIDERED BY US IN ITA NO. 199/AHD/2013 QUA GROUND NO. 3 OF THAT APPEAL. FOR OUT DETAILED DISCU SSION THEREIN, THIS GROUND IS DISMISSED. 41. IN THE RESULT, THE APPEAL FILED BY THE REVENUE IS D ISMISSED. ITA NOS. 199 & 241/AHD/2013 AND ORS. . A.YS. 2008-0 9 & 2009-2010 16 ITA NO. 242/AHD/2013 FOR A.Y. 2009-10 ASSESSEES AP PEAL 42. THE ONLY GRIEVANCE OF THE ASSESSEE RELATES TO THE D ISALLOWANCE TO THE EXTENT OF RS. 7,00,000/- OUT OF RS. 11,08,067/- MADE U/S. 14A R.W.R 8D OF THE ACT. WE FIND FROM OUR RECORD THAT ON 09.12.2015, THE ASS ESSEE DID NOT PRESS THIS GROUND OF APPEAL AND THE SAME IS DISMISSED AS NOT P RESSED. 43. IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE IS ACCORDINGLY DISMISSED. ORDER PRONOUNCED IN OPEN COURT ON 16 - 01- 20 17 SD/- SD/- (MAHAVIR PRASAD) (N. K. BILLAIYA) JUDICIAL MEMBER TRUE COPY ACCOUNTANT MEMBER AHMEDABAD: DATED 16/01/2017 RAJESH COPY OF THE ORDER FORWARDED TO: - 1. THE APPELLANT. 2. THE RESPONDENT. 3. THE CIT (APPEALS) 4. THE CIT CONCERNED. 5. THE DR., ITAT, AHMEDABAD. 6. GUARD FILE. BY ORDER DEPUTY/ASSTT.REGISTRAR ITAT,AHME DABAD