Parry Enginnering & Electronics Pvt.Ltd., Ahmedabad V. The Dy.CIT.,Circle-5, Ahmedabad

ITA 2043/AHD/2012

• Counselvise Citation: [2013] 120 COUNSELVISE.COM (IT) 0280 (ITAT-AHMEDABAD)
• Duration Of Justice: 5 month(s) 4 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 15-02-2013
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: A
• Next Hearing Date: 07-01-2013
• Assessment Year: 2009-2010
• Appeal Filed On: 10-09-2012
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: RAHUL KUMAR
• Assessee Lawyers: G C PIPARA
• Keywords: Unexplained investment; Earning of tax free income; Benefit of exemption
• Section: 69C; 143(3); 14A

Judgement Text

ITA NO 2043/ AHD/2012. . ASSESSMENT Y EAR 2009- 10 . 1 IN THE INCOME TAX APPELLATE TRIBUNAL A BENCH, AHMEDABAD. (BEFORE SHRI G.C.GUPTA VICE PRESIDENT & SHRI ANIL CHATURVEDI, A.M.) I.T. A. NO. 2043/AHD/2012 (ASSESSMENT Y EAR: 2009-10) PARRY ENGINEERING & ELECTRONICS PRIVATE LTD., HARKUVER HAVELI, OPP. JAIN TEMPLE, GANDHI ROAD, AHMEDABAD (APPELLANT) VS. THE DEPUTY COMMISSIONER OF INCOME TAX, CIRCLE-5, AHMEDABAD. (RESPONDENT) PAN: AAACP 6747J APPELLANT BY : SHRI G. C. PIPARA. RESPONDENT BY : SHRI RAHULKUMAR, SR. D.R. ( )/ ORDER DATE OF HEARING : 07-1- 2013 DATE OF PRONOUNCEMENT : 15-2-2013 PER: SHRI ANIL CHATURVEDI, A.M. THIS APPEAL IS FILED BY THE ASSESSEE AGAINST THE O RDER OF LD. CIT (A)- XI, AHMEDABAD DATED 10-7-2012 FOR THE ASSESSMENT YE AR 2009-10. 2. THE FACTS CULLED OUT FROM THE ORDERS OF LOWER AU THORITIES ARE AS UNDER:- ITA NO 2043/ AHD/2012. . ASSESSMENT Y EAR 2009- 10 . 2 3. THE ASSESSEE IS A COMPANY ENGAGED IN THE BUSINES S OF MANUFACTURING OF STEEL WIDOWS CHANNELS, TEES ETC, A ND ALSO TRADING IRON AND STEEL MATERIALS. THE ASSESSEE ALSO HAS INCOME F ROM WIND MILL. THE ASSESSEE ELECTRONICALLY FILED ITS RETURN OF INCOME ON 29-9-2009 DECLARING TOTAL INCOME OF RS.4,08,645/-. THE CASE WAS SELECTE D FOR SCRUTINY AND THEREAFTER THE ASSESSMENT WAS FRAMED U./S. 143(3) V IDE ORDER DATED 26-12- 2011 AND THE TOTAL INCOME WAS DETERMINED AT RS.27,7 6,930/- BY MAKING VARIOUS ADDITIONS/DISALLOWANCES. AGGRIEVED BY THE ORDER OF A.O., ASSESSEE CARRIED THE MATTER BEFORE THE CIT (A). 4. CIT (A) VIDE HIS ORDER DATED 10-7-2012, PARTLY A LLOWED THE APPEAL OF THE ASSESSEE. AGGRIEVED BY THE ORDER OF CIT (A), TH E ASSESSEE IS NOW IN APPEAL BEFORE US. 5. BEFORE US THE EFFECTIVE GROUNDS TAKEN BY THE ASS ESSEE READ AS UNDER:- 1. THE LD. CIT (A) HAS GRIEVOUSLY ERRED IN LAW AS WELL AS ON FACTS IN CONFIRMING THE ADDITION OF RS.83,549/- MADE BY T HE A.O. WHILE APPLYING THE PROVISIONS OF SEC. 14A OF THE I.T. ACT ,1961 READ WITH RULE 8D OF THE I.T.RULES,1962 ON THE GROUND THAT THE DEC ISIONS RELIED UPON BY THE APPELLANT ARE OLD AND PRIOR TO AMENDMENT. IN VIEW OF FACTS AND ELABORATE SUBMISSIONS FILED COUPLED WITH SETTLED LE GAL POSITION LAID DOWN BY VARIOUS COURTS OF LAW AFTER THE AMENDMENT O F SEC.14A(2) W.E.F. 1-4-2007, THE IMPUGNED ADDITION OF RS.83,549 /- REQUIRES TO BE DELETED. 2. THE LD. CIT(A) HAS ALSO GRIEVOUSLY ERRED IN NOT CONSIDERING/FOLLOWING THE BINDING DECISION OF THE H ONBLE SUPREME COURT IN THE CASE OF CIT VS. WALFORT SHARE & STOCK BROKERS (P) LTD. 326 ITR 1 (SC), WHEREIN INTERALIA IT IS HELD THAT S ECTION 14A CANNOT BE ITA NO 2043/ AHD/2012. . ASSESSMENT Y EAR 2009- 10 . 3 APPLIED UNLESS THERE IS A PROXIMATE CAUSE FOR DISAL LOWANCE. THE A.O. IN THE INSTANT CASE HAVING NOT ESTABLISHED ANY SUCH PROXIMATE CAUSE, THE IMPUGNED ADDITION EVEN OTHERWISE REQUIRES TO BE DELETED. 3. THE LD. CIT (A) HAS FURTHER ERRED IN NOT APPRECI ATING THE FACT THAT DURING THE YEAR UNDER CONSIDERATION NEITHER AN Y EXEMPT INCOME HAS BEEN CLAIMED NOR ANY INVESTMENT HAS BEEN MADE A ND SINCE NO BORROWED FUNDS ARE ALSO UTILIZED, NO DISALLOWANCE I S WARRANTED U/S. 14A AS HELD IN THE CASE OF CIT VS. WINSOME TEXTILE INDUSTRIES LTD. [2009] 319 ITR 204 (PUNJ & HAR.) 4. THE LD. CIT (A) HAS ERRED IN LAW AND ON FACTS IN CONFIRMING THE ADDITION OF RS.1,24,844/- MADE BY THE A.O. ON ACCOU NT OF ALLEGED DIFFERENCE IN VALUE OF CLOSING STOCK AS UNEXPLAINED INVESTMENT U/S. 69C OF THE ACT. IN VIEW OF THE FACTS AND SUBMISSION S FILED, THE IMPUGNED ADDITION OF RS.1,24,844/- REQUIRES TO BE D ELETED. 6. GROUND NO.2 AND 3 ARE ARGUMENTATIVE IN NATURE AN D THEREFORE NOT CONSIDERED. 7. AT THE OUTSET, THE LD. A.R. SUBMITTED THAT HE IS NOT PRESSING GROUND NO.4 AND THEREFORE THE SAME IS NOT ADJUDICATED AND DISMISSED AS NOT PRESSED. GROUND NO.1 IS WITH RESPECT TO DISALLOWANCE MADE U/ S. 14A OF THE ACT. 8. DURING THE COURSE OF ASSESSMENT PROCEEDINGS THE A.O. NOTICED THAT ASSESSEE HAS SHOWN INVESTMENT IN SHARES AND SECURIT IES OF RS.19,49,122/- AS AT THE END OF THE YEAR. HE ALSO OBSERVED THAT AS SESSEE HAS CLAIMED FINANCIAL CHARGES OF RS.78,13,332/-.A.O.WAS OF THE VIEW THAT THE ASSESSEE ITA NO 2043/ AHD/2012. . ASSESSMENT Y EAR 2009- 10 . 4 HAS MADE INVESTMENTS FOR EARNING INCOME IN THE FORM OF DIVIDEND AND LONG TERM CAPITAL GAIN WHICH ARE TOTALLY EXEMPT IN THE H ANDS OF THE ASSESSEE. BEFORE THE A.O. THE ASSESSEE SUBMITTED THAT OUT OF THE TOTAL INTEREST EXPENDITURE OF RS.78,13,332/-, INTEREST ON ROLLING MILL WAS RS.44,87,889/- AND THE SAME CANNOT BE CONSIDERED FOR WORKING OUT T HE DISALLOWANCE. BASED ON THE WORKING SUBMITTED BY THE ASSESSEE, THE A.O. DISALLOWED RS. 83,549/- U/S. 14A READ WITH RULE 8D. AGGRIEVED BY THE ORDER OF A.O., THE ASSESSEE CARRIED THE MATTER BEFORE THE CIT (A). 9. CIT (A) AFTER CONSIDERING THE SUBMISSIONS OF THE ASSESSEE UPHOLD THE ORDER OF THE A.O. BY HOLDING AS UNDER:- 2.2. I HAVE CAREFULLY CONSIDERED THE RIVAL SUBMI SSION. IT IS SEEN THAT PROVISIONS OF SECTION 14A (2) WAS INSERTED W.E.F. 1 -4-2007. TO MAKE DISALLOWANCE MORE SCIENTIFIC PROVISIONS OF RULE 8D WAS INSERTED W.E.F. 1-4-2008. THE CASES RELIED UPON BY THE LD. A.R. ARE OLD CASES AND THESE CASES DOES NOT TAKE INTO ACCOUNT THE AMENDMEN T AS MENTIONED ABOVE. IN VIEW OF THESE FACTS THE RELIANCE PLACED B Y THE ASSESSEE ON THESE CASES IS NOT GOING TO HELP HIS CASE. 2.3. DURING THE APPELLATE PROCEEDINGS, THE APPELL ANT HAS MADE VERY GENERAL SUBMISSION. THE APPELLANT HAS FAILED TO PRO VE WITH DOCUMENTARY EVIDENCES THAT INTEREST BEARING FUNDS W ERE NOT UTILIZED FOR THE PURPOSE OF INVESTMENT IN STOCK/MUTUAL FUNDS . THE ASSESSEES SUBMISSION THAT IT HAS NOT INCURRED ANY EXPENDITURE IN RELATION TO THE INCOME WHICH DOES NOT FORM PART OF THE TOTAL INCOME UNDER THIS ACT IS NOT ACCEPTED IN VIEW OF THE AMENDED PROVISIONS OF S ECTION 14A OF THE I.T. ACT. AS PER THE PROVISIONS OF SECTION 14A (3) OF THE I.T. ACT, THE PROVISIONS OF SEC. 14A (2) SHALL ALSO APPLY IN REL ATION TO A CASE WHERE AN ASSESSEE CLAIMS THAT NO EXPENDITURE HAS BEEN IN CURRED BY HIM IN RELATION TO INCOME WHICH DOES NOT FORM PART OF THE TOTAL INCOME UNDER THIS ACT. THE APPELLANT IS ALSO CLAIMING THAT NO E XPENDITURE HAD BEEN INCURRED IN INVESTING IN SHARES/UNITS. IN SUCH A C ASE, THE A.O. IS ITA NO 2043/ AHD/2012. . ASSESSMENT Y EAR 2009- 10 . 5 SUPPOSED TO MAKE NECESSARY DISALLOWANCE AS PER THE PROVISIONS OF SEC. 14A (2) R.W.R. 8D OF THE I.T. RULES, 1962. THE A.O. HAS FOLLOWED THE SAME PROCEDURE AND ACCORDINGLY APPLICATION OF R ULE 8D IS UPHELD. DURING THE APPELLATE PROCEEDINGS, THE APPELLANT HAS NOT CHALLENGED COMPUTATION OF DISALLOWANCE. I HAVE ALSO GONE THROU GH THE COMPUTATION MADE BY THE A.O. AND THE SAME IS AS PER THE PROVISIONS RULE 8D OF I.T. RULES, 1962. THE APPELLANT HAD PLAC ED RELIANCE ON VARIOUS CASE LAWS. THE RATIO OF THESE CASE LAWS WIL L NOT HELP THE APPELLANT AS THE HONBLE COURTS HAD CONSIDERED THE PROVISIONS OF SEC. 14A AS IT WAS EXISTING BEFORE 1-4-2007. THE WO RKING OF SECTION 14A HAS CHANGED SUBSTANTIALLY AFTER INSERTION OF SE CTION 14A (2) AND RULE 8D OF I.T. RULES, 1962. IN VIEW OF THIS, DISAL LOWANCE OF RS.83,459/- MADE BY THE A.O. U/S. 14A IS CONFIRMED. THIS GROUND OF APPEAL IS DISMISSED. 10. AGGRIEVED BY THE ORDER OF CIT (A), ASSESSEE IS NOW IN APPEAL BEFORE US. BEFORE US THE LD. A.R. SUBMITTED THAT THOUGH T HE ASSESSEE HAS EARNED DIVIDEND INCOME OF RS. 74,960/- THE SAME HAS BEEN O FFERED FOR TAX AND THE ASSESSEE HAS ALSO PAID TAX AFTER CONSIDERING THE SA ME TO BE TAXABLE. HE THEREFORE, SUBMITTED THAT SINCE THE ASSESSEE HAS NO T CLAIMED ANY TAX FREE INCOME NO DISALLOWANCE U/S. 14A CAN BE MADE IN THE HANDS OF THE ASSESSEE. HE THEREFORE, URGED THAT THE DISALLOWANCE MADE BY THE A.O. BE DELETED. 11. ON THE OTHER HAND THE LD. D.R. SUBMITTED THAT S INCE THE ASSESSEE HAS INVESTMENTS A.O. IS REQUIRED TO WORK OUT THE DI SALLOWANCE U/S. 14A AND FOR WHICH HE RELIED ON THE DECISION OF THE BOMBAY H IGH COURT IN THE CASE OF GODREJ & BOYCE MFG.CO.LTD. VS. DCIT (2010) 328 ITR 81 (BOM). HE THUS SUPPORTED THE ORDER OF A.O. AND CIT (A). ITA NO 2043/ AHD/2012. . ASSESSMENT Y EAR 2009- 10 . 6 12. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PER USED THE MATERIAL ON RECORD. FROM THE COPY OF THE COMPUTATION OF INCOME AND BALANCE SHEET PLACED BEFORE US WE FIND THAT THE ASSESSEE HAS EARN ED DIVIDEND INCOME AND THE SAME HAS BEEN CONSIDERED AS PART OF THE TOT AL INCOME FOR THE PURPOSE OF TAX. AS PER THE PROVISIONS OF SEC.10 (38 ) DIVIDEND INCOME IS EXEMPT. IT IS A SETTLED LAW THAT INCOME CAN ONLY BE TAXED AS PER THE PROVISIONS OF INCOME TAX ACT IF AN INCOME IS SPECIF ICALLY EXCLUDED FOR THE PURPOSE OF TAXATION; THE SAME CANNOT BE CONSIDERED WHILE COMPUTING THE TAX. OUR VIEW ALSO IS SUPPORTED BY THE DECISION OF HONBLE GUJARAT HIGH COURT IN THE CASE OF CHOKSHI METAL REFINERY VS. CIT (1977) 107 ITR 63 (GUJ.) WHEREIN THE HONBLE HIGH COURT RELYING ON T HE DECISION OF HONBLE APEX COURT IN THE CASE OF NAVNITLAL ZAVERI VS. K.K. SEN, AAC (1965) 56 ITR 198 (SC) HAS HELD AS UNDER:- HEAD NOTE CBDT CIRCULARS BINDING NATURE IMPL ICATIONS OF CIRCULAR NO.14 (XL-35) OF 1955 IT IS INCUMBENT ON ITOS TO FOLLOW THE ABOVESAID CIRCULAR AND DRAW THE ATTENTION OF THE AS SESSEE CONCERNED TO ALL THE RELIEFS AND REFUNDS TO WHICH THE ASSESSE E SEEMS TO BE ENTITLED ON THE FACTS OF THE CASE EVEN THOUGH THE A SSESSEE MIGHT HAVE OMITTED TO CLAIM REFUND OR RELIEF. IN THE PRESENT CASE, THOUGH THE ASSESSEE HAS CONSI DERED THE DIVIDEND INCOME AS TAXABLE AND OFFERED IT TO TAX TH OUGH THE SAME IS EXEMPT U/S.10(38), RELYING ON THE AFORESAID DECISION OF HO NBLE GUJARAT HIGH COURT WE ARE OF THE VIEW THAT ASSESSEE SHOULD BE GRANTED THE BENEFIT OF EXEMPTION. WE ACCORDINGLY DIRECT THE A.O. TO TREAT THE DIVIDEND AS EXEMPT U/S. 10(38). ITA NO 2043/ AHD/2012. . ASSESSMENT Y EAR 2009- 10 . 7 AS FAR AS THE DISALLOWANCE OF SEC. 14A IS CONCERNE D WE FIND THAT THE HONBLE HIGH COURT IN THE CASE OF GODREJ & BOYCE MF G.CO.LTD., VS. DCIT (SUPRA) HAS HELD AS UNDER:- THAT THE PROVISIONS OF RULE 8D OF THE RULES WH ICH HAVE BEEN NOTIFIED W.E.F. MARCH 24, 2008, WOULD APPLY WITH EF FECT FROM ASSESSMENT YEAR 2008-09.EVEN PRIOR TO ASSESSMENT YE AR 2008-09, WHEN RULE 8D WAS NOT APPLICABLE, THE A.O. HAD TO EN FORCE THE PROVISIONS OF SUB-SECTION (1) OF SECTION14A. FOR TH AT PURPOSE, THE A.O. IS DUTY BOUND TO DETERMINE THE EXPENDITURE WHI CH HAS BEEN INCURRED IN RELATION TO INCOME WHICH DOES NOT FORM PART OF THE TOTAL INCOME UNDER THE ACT. THE A.O. MUST ADOPT A REASONA BLE BASIS OR METHOD CONSISTENT WITH ALL THE RELEVANT FACTS AND C IRCUMSTANCES AFTER FURNISHING A REASONABLE OPPORTUNITY TO THE ASSESSEE TO PLACE ALL GERMANE MATERIAL ON THE RECORD. THE PROCEEDINGS FOR A.Y. 2002-03 WOULD STAND REMANDED TO THE A.O. THE A.O. SHOULD DE TERMINE AS TO WHETHER THE ASSESSEE HAD INCURRED ANY EXPENDITURE ( DIRECT OR INDIRECT) IN RELATION TO DIVIDEND INCOME/ INCOME FR OM MUTUAL FUNDS WHICH DOES NOT FORM PART OF THE TOTAL INCOME AS CON TEMPLATED UNDER SEC. 14A. THE ASSESSING OFFICER CAN ADOPT A REASON ABLE BASIS FOR EFFECTING THE APPORTIONMENT. WHILE MAKING THAT DETE RMINATION, THE ASSESSING OFFICER SHOULD PROVIDE A REASONABLE OPPOR TUNITY TO THE ASSESSEE OF PRODUCING ITS ACCOUNTS AND RELEVANT OR GERMANE MATERIAL HAVING A BEARING ON THE FACTS AND CIRCUMSTANCES OF THE CASE. 13. WE ARE OF THE VIEW THAT SO FAR AS TAXING OF DIV IDEND IS CONCERNED, SINCE THE ASSESSEE IS ELIGIBLE TO CLAIM THE DIVIDEN D AS EXEMPT U/S.10(38) AND FOR WHICH WE HAVE DIRECTED THE A.O. HEREINABOVE TO GRANT THE EXEMPTION TO ASSESSEE BUT SO AS FAR AS THE MATTER O F DISALLOWANCE U/S. 14A IS CONCERNED, WE REMIT BACK THE ISSUE TO THE FILE O F A.O. SO THAT HE CAN CONSIDER THE DISALLOWANCE UNDER SEC. 14A IN THE LIG HT OF THE DECISION OF HONBLE BOMBAY HIGH COURT IN THE CASE OF GODREJ & B OYCE MFG.CO.LTD. (SUPRA). THUS THE APPEAL OF THE ASSESSEE IS ALLOWED FOR STATISTICAL PURPOSES. ITA NO 2043/ AHD/2012. . ASSESSMENT Y EAR 2009- 10 . 8 13. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS AL LOWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED IN OPEN COURT ON 15 -2 - 2013. SD/- SD/- (G.C.GUPTA) (ANIL CHATURVEDI) VICE PRESIDENT ACCOUNTANT MEMBER AHMEDABAD. S.A.PATKI. COPY OF THE ORDER FORWARDED TO: - 1. THE APPELLANT. 2. THE RESPONDENT. 3. THE CIT (APPEALS) XI, AHMEDABAD. 4. THE CIT CONCERNED. 5. THE DR., ITAT, AHMEDABAD. 6. GUARD FILE. BY ORDER DEPUTY/ASSTT.REGISTRAR ITAT,AHMEDAB AD 1.DATE OF DICTATION 7 - 1 -2013 2.DATE ON WHICH THE TYPED DRAFT IS PLACED BEFORE TH E DICTATING 29 / 1 / 2013 MEMBER.OTHER MEMBER. 3.DATE ON WHICH THE APPROVED DRAFT COMES TO THE SR. P.S./P.S 30 -1 -2013. 4.DATE ON WHICH THE FAIR ORDER IS PLACED BEFORE THE DICTATING MEMBER FOR PRONOUNCEMENT 15 - 2 -2013 5.DATE ON WHICH THE FAIR ORDER COMES BACK TO THE SR .P.S./P.S 15 - 2 -2013 6.DATE ON WHICH THE FILE GOES TO THE BENCH CLERK 1 9 - 2 -2013. 7.DATE ON WHICH THE FILE GOES TO THE HEAD CLERK . 8.THE DATE ON WHICH THE FILE GOES TO THE ASSTT. REG ISTRAR FOR SIGNATURE ON THE ORDER 9.DATE OF DESPATCH OF THE ORDER