M/s Deepak International Ltd., Ludhiana V. JCIT, Ludhiana

ITA 202/CHANDI/2013

• Counselvise Citation: [2014] 140 COUNSELVISE.COM (IT) 77170 (ITAT-CHANDIGARH)
• Duration Of Justice: 1 year(s) 4 month(s) 19 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 09-07-2014
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: A
• Next Hearing Date: 26-06-2014
• Assessment Year: 2008-2009
• Appeal Filed On: 19-02-2013
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: J S NAGAR
• Keywords: Earning of tax free income

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL CHANDIGARH BENCHES A CHANDIGARH BEFORE SHRI T.R. SOOD, ACCOUNTANT MEMBER AND MS. SUSHMA CHOWLA, JUDICIAL MEMBER ITA NO. 202/CHD/2013 ASSESSMENT YEAR: 2008-09 DEEPAK INTERNATIONAL LTD. VS. JCIT DEEPAK ROAD, RANGE INDUSTRIAL AREA B LUDHIANA LUDHIANA PAN NO. AAACD7980K (APPELLANT) (RESPONDENT) APPELLANT BY : SH. ASHWANI KUMAR RESPONDENT BY : SHRI J.S. NAGAR DATE OF HEARING : 26/06/2014 DATE OF PRONOUNCEMENT : 09.07.2014 ORDER PER T.R.SOOD, A.M. THE APPEAL BY THE ASSESSEE IS DIRECTED AGAINST THE ORDER PASSED BY THE LD. CIT(A)II, LUDHIANA ON 21/12/2012 2. IN THIS APPEAL ASSESSEE HAS RAISED THE FOLLOWING GROUNDS: I. THAT ORDER PASSED U/S 250(6) BY THE LD. CIT(A)- II, LUDHIANA IS AGAINST LAW AND FACTS ON THE FILE IN AS MUCH AS HE WAS NOT JUSTIFIED TO UPHOLD THE DISALLOWANCE OF RS. 5,63,344/- MADE BY THE LD. ASSESSING OFFICER BY RESORT TO PROV ISIONS OF SEC. 14A. II. THAT HE WAS ALSO NOT JUSTIFIED TO ARBITRARILY U PHOLD THE DISALLOWANCE OF RS. 1,20,000/- OUT OF INTEREST ACCO UNT BY RESORT TO PROVISIONS OF SEC.36(1)(III). GROUND NO. 1 3. AFTER HEARING BOTH THE PARTIES WE FIND THAT DURI NG THE ASSESSMENT PROCEEDING AO NOTICED THAT ASSESEE HAS MADE SOME IN VESTMENT IN SHARES AND ON WHICH DIVIDEND AMOUNTING TO RS. 2,83,989/- WAS EARN ED , FURTHER ASSESSEE HAD ALSO EARNED LONG TERM CAPITAL GAIN OF RS. 419512/-. BOTH THESE INCOMES WERE CLAIMED AS EXEMPT. ON AN ENQUIRY IT WAS STATED THAT ASSESSEE HAS NOT INCURRED ANY EXPENDITURE FOR EARNING THIS INCOME. HOWEVER A O NOTICED THAT ASSESSEE HAS PAID INTEREST AMOUNTING TO RS. 2,33,68,266/- AND HA D ALSO INCURRED OFFICE AND ADMINISTRATIVE EXPENSES TO THE TUNE OF RS. 4,29,16, 020/-. THEREFORE AO INVOKED PROVISION OF SECTION 14 (A) READ WITH RULE 8 D AND COMPUTED THE DISALLOWANCE AT RS. 5,63,344/-. 4. ON APPEAL IT WAS MAINLY SUBMITTED THAT NO EXPEND ITURE WAS INCURRED FOR EARNING EXEMPT INCOME THEREFORE NO DISALLOWANCE COU LD BE MADE. LD. CIT(A) DID NOT FIND FORCE IN THIS SUBMISSION AND FOLLOWING THE DECISION OF THE TRIBUNAL IN CASE OF DCIT CIRCLE-I, LUDHIANA VS. SUNDER FORGI NG IN ITA NO. 803/CHD/2011 CONFIRMED THE DISALLOWANCE. 5. BEFORE US LD. COUNSEL FOR THE ASSESSEE REITERATE D THE SUBMISSION MADE BEFORE LOWER AUTHORITY. 6. ON THE OTHER HAND LD. DR STRONGLY SUPPORTED THE ORDER OF CIT(A). 7. AFTER CONSIDERING THE RIVAL SUBMISSIONS WE FIND THAT RULE 8 D IS CLEARLY APPLICABLE FROM ASSESSMENT YEAR 2008-09 AS HELD BY HONBLE BOMBAY HIGH COURT IN CASE OF GODREJ & BOYCE MANUFACTURING. CO. LTD. VS. DCIT AND ANOTHER 328 ITR 81. FURTHER ADMITTEDLY ASSESSEE HAS EARNED EXEMPT INCOME IN THE FORM OF DIVIDEND AND CAPITAL GAIN. AT THE SAME TIME ASSE SSEE HAS PAID INTEREST ON BORROWED FUNDS AND HAS ALSO INCURRED ADMINISTRATIVE EXPENSES. THEREFORE AO HAD NO OPTION BUT TO ALLOCATE THE EXPENSES AGAINST SUCH EXEMPT INCOME IN TERMS OF RULE 8 D WHICH HAS BEEN DONE. THEREFORE WE FIND NOTHING WRONG IN THE ORDER OF LD. CIT(A) AND CONFIRM THE SAME. GROUND NO. 2 . 8. AFTER HEARING BOTH THE PARTIES WE FIND DURING AS SESSMENT PROCEEDING IT WAS NOTICED THAT ASSESSEE HAS GIVEN AN ADVANCE OF R S. 5 LACS EACH TO M/S CTECH INDUSTRIES AND M/S RAMESH FORGINGS. 9. AO ISSUED SHOW CAUSE NOTICE THAT WHY INTEREST SH OULD NOT BE DISALLOWED BECAUSE ABOVE ADVANCE HAVE BEEN MADE WITHOUT INTERE ST. IN RESPONSE IT WAS SUBMITTED AS UNDER : DURING F.Y. 2006-07 THESE ADVANCES WERE MADE FOR PURCHASE OF BICYCLE PARTS (CRANKS) WHICH THESE TWO PARTIES WERE MANUFACTURING. DUE TO HEART ATTACK TO MR. RAMESH KUMAR, HE COULD N OT SUPPLY THE GOODS & NOW HAS REFUNDED RS. 2 LAC DURING CURRENT Y EAR & BALANCE WILL BE ADJUSTED IN THE SUPPLY OF GOODS IN FUTURE. REGARDING CTECH INDUSTRIES DUE TO RATE DIFFERENCES THE GOODS COULD NOT BE PROCURED & NOW THE PARTY HAS AGREED TO DELIVER THE GOODS. HOWEVER, IN BOTH THESE CASES, ADVANCES WERE GIVEN B Y THE FIRM DURING F.Y. 2006-07 AND THERE WAS NO BANK LOAN OF A NY KIND IN THE FIRM. THE FIRM WAS TAKEN OVER BY M/S. DEEPAK INTERN ATIONAL LTD. ON 01.04.2007 AND COMPANY IS TRYING TO RECOVER THE SAM E BY PURCHASING GOODS. IT IS PURELY A BUSINESS TRANSACTI ON. IN EARLIER YEARS THESE PARTIES USED TO SUPPLY CYCLE PARTS TO T HE ASSESSEE AND THEY ARE NOT RELATED TO THE DIRECTORS OF THE ASSESS EE COMPANY. AFTER CONSIDERING THE ABOVE SUBMISSION ASSESSING OF FICER DID NOT AGREE WITH THE SAME AND DISALLOWED THE SUM OF RS. 1,20,00 0/- UNDER SECTION 36(1)(III). 10. ON APPEAL BEFORE LD. CIT(A) THE SUBMISSION MADE BEFORE ASSESSING OFFICER WERE REITERATED. THE LD. CIT(A) DID NOT FIN D FORCE IN THE ABOVE SUBMISSION AND FOLLOWING THE DECISION OF HONBLE PU NJAB & HARYANA HIGH COURT IN CASE OF CIT VS. ABHISHEK INDUSTRIES LTD. 2 86 ITR 1 DISALLOWED INTEREST AMOUNTING TO RS. 1,20,000/-. 11. ON APPEAL ACTION OF THE AO WAS CONFIRMED BY LD. CIT(A) . 12. BEFORE US LD. COUNSEL FOR THE ASSESSEE SUBMITTE D THAT ORIGINALLY ADVANCES WERE GIVEN BY THE FIRM WHEN NO BANK LOAN WAS TAKEN BY THE FIRM. LATER ON THE FIRM WAS TAKEN OVER BY THE ASSESSEE COMPANY. IN ANY CASE THE ADVANCE WERE GIVEN BY THE FIRM FOR BUSINESS PURPOSE. 13. ON THE OTHER HAND LD. DR STRONGLY SUPPORTED THE ORDER OF LD. CIT(A). 14. AFTER CONSIDERING THE RIVAL SUBMISSION WE FIND FORCE IN THE SUBMISSION OF LD. COUNSEL FOR THE ASSESSEE BECAUSE ADVANCES WERE MADE BY THE PARTNERSHIP FIRM AND NOT BY THE ASSESSEE COMPANY AND WERE TAKEN OVER BY THE ASSESSEE COMPANY WHEN THE FIRM WAS TAKEN OVER. MOREOVER ADVA NCES WERE MADE FOR PURCHASE OF CYCLE PARTS THEREFORE, IT CANNOT BE SAI D THAT INTEREST FREE ADVANCE HAVE BEEN MADE BY THE ASSESSEE FIRM WITHOUT ANY BUS INESS PURPOSE. ACCORDINGLY WE SETASIDE THE ORDER OF LD. CIT(A) AND DELETE THIS ADDITION. 15. IN THE RESULT ASSESSEE APPEAL IS PARTLY ALLOWED . ORDER PRONOUNCED IN THE OPEN COURT ON 09.07.2014 SD/- SD/- (SUSHMA CHOWLA) (T.R. SOOD) JUDICIAL MEMBER ACCOUNTANT MEMBER DATED : 09 TH JULY, 2014 AG COPY TO: THE APPELLANT, THE RESPONDENT, THE CIT, TH E CIT(A), THE DR