The Alidhara Texpro Engineers Pvt.Ltd., Surat V. The Dy.CIT(Hq)- I, Surat

ITA 2081/AHD/2014

• Counselvise Citation: [2018] 118 COUNSELVISE.COM (IT) 2324 (ITAT-SURAT)
• Duration Of Justice: 3 year(s) 8 month(s) 9 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 19-03-2018
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: DB
• Next Hearing Date: 25-04-2017
• Assessment Year: 2010-2011
• Appeal Filed On: 10-07-2014
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: R P RASTOGI
• Assessee Lawyers: MEHUL R SHAH
• Keywords: Depreciation; Earning of tax free income; Rule 8D
• Section: 14A

Judgement Text

ALIDHARA TEXPRO ENGINEERS PVT. LTD. V. DCIT- HQ SURAT /I.T.A. NO. /AHD/2081/A.Y.:10-11 PAGE 1 OF 4 , , IN THE INCOME TAX APPELLATE TRIBUNAL SURAT BENCH, SURAT . . , . . , BEFORE SHRI C.M.GARG, JUDICIAL MEMBER AND SHRI O.P.MEENA, ACCOUNTANT MEMBER . . ./ I.T.A NO. 2081/AHD/2014 / A.Y.:2010-11 M/S. ALIDHARA TEXPRO ENGINEERS PVT. LTD. B-52, UDYOG NAGAR UDHNA, SURAT 394210 PAN: AACCA 0256 D V S . DEPUTY COMMISSIONER OF INCOME - TAX HQ- SURAT APPELLANT /RESPONDENT /ASSESSEE BY SHRI MEHUL R. SHAH, CA /REVENUE BY SHRI R. P. RASTOGI, SR. D.R. / DATE OF HEARING: 19.03.2018 /PRONOUNCEMENT ON 26.04.2018 /O R D E R PER O. P. MEENA, ACCOUTANT MEMBER: 1. THIS APPEAL BY THE REVENUE IS DIRECTED AGAINST THE ORDER OF LEARNED OF COMMISSIONER OF INCOME TAX (APPEALS)-1, SURAT (IN SHORT THE CIT (A)) DATED 20.05.2014 PERTAINING TO ASSESSMENT YEAR 2010-11, WHICH IN TURN HAS ARISEN FROM THE ORDER PASSED BY THE DCIT-HQ , SURAT (IN SHORT THE AO) DATED 30.03.2013 UNDER SECTION 143 (3) OF INCOME TAX ACT,1961 (IN SHORT THE ACT). 2. GROUND NO. 1 : RELATES TO ADDITION OF RS. OF RS. 3,46,393 OUT OF RS. 6,17,008 ON ACCOUNT OF DISALLOWANCE U/S. 14A OF THE ACT READ WITH RULE 8D OF INCOME-TAX RULES, 1962. 3. BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE HAS MADE INVESTMENT IN SHARES OF INDIAN COMPANIES, THE DIVIDEND INCOME FROM WHICH IS EXEMPTED UNDER SECTION 10(34) OF THE ACT. BUT NO EXPENDITURE HAS BEEN DISALLOWED BY THE ASSESSEE IN RELATION TO EXEMPT INCOME. IT WAS EXPLAINED THAT NO EXPENDITURE HAS BEEN INCURRED IN RELATION TO SUCH INVESTMENT IN SHARES OF INDIAN COMPANIES. HOWEVER THIS EXPLANATION GIVEN BY THE ASSESSEE WAS NOT FOUND TO BE ACCEPTABLE. THE AO NOTED ALIDHARA TEXPRO ENGINEERS PVT. LTD. V. DCIT- HQ SURAT /I.T.A. NO. /AHD/2081/A.Y.:10-11 PAGE 2 OF 4 THAT THE ASSESSEE HAS CLAIMED INTEREST EXPENDITURE OF RS. NIL ON BORROWED FUNDS. THE INVESTMENT IN SHARES HAVING MADE OUT OF THE COMMON FUNDS OF THE ASSESSEE COMPANY. HENCE THE DISALLOWANCE AS TO BE MADE UNDER SECTION 14A OF THE ACT READ WITH RULE 8D. ACCORDINGLY, THE AO ACCOUNT OF DISALLOWANCE AT THE RATE OF .5% OF AMOUNT THE TOTAL ONE HALF PERCENT OF THE AVERAGE VALUE OF INVESTMENT RS. 12, 34, 01, 530, WHICH WORKED OUT TO RS. 6,17,008 IN ACCORDANCE WITH PROVISIONS OF SECTION 14A (3) OF THE ACT. 4. BEING AGGRIEVED WITH THE ORDER OF THE AO, THE ASSESSEE FILED APPEAL BEFORE THE CIT(A). IT WAS CLAIMED BEFORE THE CIT (A) THAT THE INVESTMENT IN THE SHARES HAS BEEN MADE BY THE ASSESSEE OUT OF THIS ON FUNDS AND THUS, NO POST IS ASSOCIATED IN MAKING THE SAID INVESTMENT. AS PER ASSESSEE, DID NOT EXPENDITURE HAVE BEEN INCURRED FOR EARNING EXEMPTED INCOME, DISALLOWANCE UNDER SECTION 14A CANNOT BE MADE. IT WAS ALSO SUBMITTED THAT SINCE THE AO HAS NOT RECORDED ANY SATISFACTION IN CONNECTION WITH THE CORRECTNESS OF THE CLAIM OF ASSESSEE, NO EXPENDITURE CAN BE DISALLOWED. IN IN SUPPORT OF HIS CONTENTION, THE APPELLANT RELIED ON VARIOUS DECISIONS AS MENTIONED IN HIS SUBMISSIONS. HOWEVER, THE CIT(A) ON THE DECISION OF THE AHMEDABAD TRIBUNAL IN THE CASE OF GUJARAT GAS FINANCIAL SERVICES V. ACIT 115 ITD 218/119 TTJ 73 HELD THAT WHERE NO SEPARATE RECORDS ARE MAINTAINED AND WHEN THE EXEMPTED INCOME WAS LESS THAN 1% OF TOTAL RECEIPTS THAN DISALLOWANCE OF 10% OF EXPENSES WAS REASONABLE WHEN THE BASIS OF THIS LOANS WERE NOT AVAILABLE. ACCORDINGLY, THE AO IS DIRECTED TO THE COMPUTE THE QUANTUM OF THE EXEMPTED RECEIPTS AND DISALLOWANCE 10% OF EXEMPT RECEIPTS AS EXPENDITURE UNDER SECTION 14 A OF THE ACT READ WITH RULE 8D OF THE INCOME-TAX RULES, 1962. 5. BEING NOT SATISFIED, THE ASSESSEE HAS FILED THIS APPEAL BEFORE THE TRIBUNAL. 6. THE LEARNED COUNSEL FOR THE ASSESSEE SUBMITTED THE ASSESSEE HAS NOT INCURRED ANY INTEREST EXPENDITURE AND INVESTMENT HAS BEEN MADE OUT OF ITS OWN FUNDS. HOWEVER, THE ASSESSING OFFICER WITHOUT BRINGING ANY EVIDENCE ON RECORD ALIDHARA TEXPRO ENGINEERS PVT. LTD. V. DCIT- HQ SURAT /I.T.A. NO. /AHD/2081/A.Y.:10-11 PAGE 3 OF 4 THAT ANY EXPENDITURE HAS BEEN INCURRED BY THE ASSESSEE IN RELATION TO DIVIDEND INCOME, SIMPLY REJECTED ASSESSEES EXPLANATION AND PROCEEDED TO MAKE DISALLOWANCE AT RS. 6, 17, 008 UNDER SECTION 14A OF THE ACT READ WITH RULE 8D. IT WAS FURTHER POINTED OUT THAT IN ASSESSMENT YEAR 2013 14 (PAPER BOOK PAGE NUMBER 37) WHEREIN THE CIT (A) HAS RESTRICTED THE DISALLOWANCE TO 2% OF DIVIDEND INCOME FOLLOWING THE RATIO OF HON`BLE DELHI HIGH COURT IN THE CASE OF CIT V. ORIENTAL STRUCTURAL PVT. LTD. AS AGAINST THIS YEARS 10% OF EXEMPT INVESTMENT /ASSETS. THE LEARNED COUNSEL FOR THE ASSESSEE ALSO CITED DECISION OF SPECIAL BENCH IN THE CASE OF ACIT VS. VIREET INVESTMENT (P.) LTD (2017) 82 TAXMANN.COM 415 (DELHI-TRIB.)(SB) WHEREIN IT WAS HELD THAT ONLY THOSE INVESTMENTS ARE TO BE CONSIDERED FOR COMPUTING AVERAGE VALUE OF INVESTMENT WHICH YIELDED EXEMPT INCOME DURING THE YEAR. 7. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND GONE THROUGH THE ORDERS OF THE LOWER AUTHORITIES. IT IS NOTED THAT THE ASSESSEE HAS NOT EARNED DIVIDEND INCOME OF RS. 34,63,930 DURING THE YEAR UNDER CONSIDERATION-.HOWEVER, THE EXPENDITURE INCURRED IN RELATION TO EARNING, SUCH EXEMPT INCOME HAS NOT QUANTIFIED DURING THE COURSE OF ASSESSMENT PROCEEDINGS. THE AO INVOKED THE PROVISIONS OF RULE 8D AND WORKED OUT THE DISALLOWANCE OF RS.6,17,008/- BEING 0.5% OF AVERAGE INVESTMENT. THEREFORE, CONSIDERING THE TOTALITY OF THE FACTS, WE ARE OF THE OPINION THAT THE DISALLOWANCES BE COMPUTED ONLY IN RESPECT OF THOSE INVESTMENT, WHICH YIELDED EXEMPTED INCOME DURING THE YEAR AS HELD BY SPECIAL BENCH IN THE CASE OF ACIT VS. VIREET INVESTMENT PVT. LTD. (SUPRA). THEREFORE, THIS ISSUE IS SET ASIDE TO THE FILE OF THE AO TO COMPUTE THE DISALLOWANCE IN THE LIGHT OF RATIO AS LAID DOWN IN ABOVE DECISION. ALIDHARA TEXPRO ENGINEERS PVT. LTD. V. DCIT- HQ SURAT /I.T.A. NO. /AHD/2081/A.Y.:10-11 PAGE 4 OF 4 8. GROUND NO. 2 RELATES PARTLY CONFIRMING THE ACTION OF THE AO IN MAKING DISALLOWANCE OF RS. 70,300 @10% OUT OF RS. 1,40,592@ 20% ON ACCOUNT OF VARIOUS EXPENSES. 9. WE HAVE HEARD THE PARTIES AND PERUSED THE MATERIAL ON RECORD. IT IS SEEN THAT THE ASSESSEE HAS CLAIMED EXPENSES TOTALING TO RS.7, 02, 990 ON ACCOUNT OF TELEPHONE, OFFICE, MOTORCAR AND DEPRECIATION ON VEHICLES OF WHICH COPY OF LEDGER ACCOUNT WAS ONLY FILED. THEREFORE, THE AO MADE DISALLOWANCE @ 20% OF SUCH EXPENSES. IN APPEAL THE LD. CIT (A) HAS SCALE DOWN THE SAME TO 10% OF EXPENSES. CONSIDERING THE FACTS, THAT EXPENSES/CLAIMED ARE ONLY 0.18% OF TURNOVER, HENCE IT WOULD BE REASONABLE TO RESTRICT THE DISALLOWANCES TO 5 % OF THE CLAIM. THIS GROUND OF APPEAL IS THEREFORE PARTLY ALLOWED. 10. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS PARTLY ALLOWED. 11. THE ORDER PRONOUNCED IN THE OPEN COURT ON 26 TH APRIL 2018. SD/ - ) . . ( SD/ - ) . . ) ( C.M. GARG) (O.P.MEENA) JUDICIAL MEMBER ACCOUNTANT MEMBER / SURAT: / DATED : 26 TH APRIL, 2018/OPM COPY SENT TO- ASSESSEE/AO/PR. CIT/ CIT (A)/ ITAT (DR)/GUARD FILE OF ITAT. BY ORDER / / TRUE COPY / / ASSISTANT REGISTRAR, SURAT