Crystal Quinone Pvt. Ltd., Ahmedabad V. The Dy.CIT(OSD),Range-1, Ahmedabad

ITA 2081/AHD/2015

• Counselvise Citation: [2018] 125 COUNSELVISE.COM (IT) 8601 (ITAT-AHMEDABAD)
• Duration Of Justice: 2 year(s) 8 month(s) 25 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 09-04-2018
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: Not Allotted
• Assessment Year: 2010-2011
• Appeal Filed On: 14-07-2015
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Keywords: Earning of tax free income
• Section: 14A

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD B BENCH (BEFORE SHRI N.K. BILLAIYA, ACCOUNTANT MEMBER & SHRI S. S. GODARA, JUDICIAL MEMBER) ITA. NO: 2081/AHD/2015 (ASSESSMENT YEAR: 2010-11) CRYSTAL QUINONE PVT. LTD. NEAR OLD EXCISE CHOKI S.M. ROAD, AMBAVADI, AHMEDABAD-380015 V/S DEPUTY. COMM. OF INCOME TAX (OSD) RANGE-1, AHMEDABAD (APPELLANT) (RESPONDENT) PAN: AABCC1413H APPELLANT BY : MS. URVASHI SHODHAN, AR RESPONDENT BY : SHRI MUDIT NAGPAL, SR. D.R. ( )/ ORDER DATE OF HEARING : 05 -04-201 8 DATE OF PRONOUNCEMENT : 09 -04-2018 PER N.K. BILLAIYA, ACCOUNTANT MEMBER: 1. THIS APPEAL BY THE ASSESSEE IS PREFERRED AGAINST TH E ORDER OF THE LD. CIT(A)-I, AHMEDABAD DATED 07.04.2015 PERTAINING TO A.Y. 2010- 11. ITA NO. 2081 /AHD/2015 . A.Y. 2010-11 2 2. THE ASSESSEE HAS RAISED TWO SUBSTANTIVE GROUNDS OF APPEAL. THE FIRST GROUND RELATES TO THE ADDITION MADE U/S. 14A OF THE ACT AN D THE SECOND GRIEVANCE RELATES TO THE DISALLOWANCES OF RS. 5,90,230/- MADE U/S. 40(A)(IA) OF THE ACT. 3. THE ASSESSEE IS IN THE BUSINESS OF MANUFACTURING AN D TRADING OF CHEMICALS. DURING THE COURSE OF THE SCRUTINY ASSESSMENT PROCEE DINGS, THE A.O. NOTICED THAT THE ASSESSEE HAS EARNED DIVIDEND INCOME OF RS. 93,118/- WHICH WAS CLAIMED AS EXEMPT FROM TAX. THE A.O. FOUND THAT THE ASSESSEE HAS TAKEN LOANS OF RS. 7.17 CRORES ON WHICH IT HAS CLAIMED INTEREST OF RS. 54 LACS. THE A.O. WAS OF THE OPINION THAT DISALLOWANCE U/S. 14A HAS TO BE MADE AS PER RULE 8D AND THE A.O. COMPUTED THE DISALLOWANCE AT RS. 2,07,036/ -. 4. ASSESSEE CARRIED THE MATTER BEFORE THE LD. CIT(A) A ND COULD GET RELIEF OF ONLY RS. 3045/-. DISALLOWANCE OF RS. 2,03,991/- WAS CONF IRMED BY THE LD. CIT(A). 5. BEFORE US, THE LD. COUNSEL FOR THE ASSESSEE VEHEMEN TLY STATED THAT THE ASSESSEE WAS HAVING SUFFICIENT INTEREST FREE FUNDS FOR MAKIN G THE INVESTMENTS AND THEREFORE NO PART OF INTEREST SHOULD HAVE BEEN DISA LLOWED. IT IS THE SAY OF THE LD. COUNSEL THAT THE ENTIRE INTEREST EXPENDITURE HAS BE EN INCURRED FOR EARNING THE TAXABLE INCOME. PER CONTRA, THE LD. D.R. STRONGLY S UPPORTED THE FINDINGS OF THE A.O. 6. WE HAVE CAREFULLY CONSIDERED THE ORDERS OF THE AUTH ORITIES BELOW. EXHIBIT 3 IS THE BALANCE SHEET OF THE ASSESSEE WHICH SHOWS INTER EST FREE FUNDS WITH THE ASSESSEE AT RS. 71.85 LACS WHEREAS THE INVESTMENTS ARE AT RS. 64.20 LACS. WHICH MEANS THAT THE ASSESSEE WAS HAVING SUFFICIENT OWN F UNDS FOR MAKING THE INVESTMENTS. THE RATIO LAID DOWN BY THE HONBLE HIG H COURT OF BOMBAY IN THE ITA NO. 2081 /AHD/2015 . A.Y. 2010-11 3 CASE OF RELIANCE UTILITIES AND POWER LTD. 313 ITR 3 40 AND HDFC BANK 366 ITR 505 SQUARELY APPLY ON THE FACTS OF THE CASE IN HAND. 7. SINCE THE ASSESSEE WAS HAVING SUFFICIENT INTEREST F REE FUNDS, IN OUR CONSIDERED OPINION, NO DISALLOWANCE IN RESPECT OF INTEREST EXP ENDITURE NEED TO BE MADE. HOWEVER, AT THE SAME TIME, SOME DISALLOWANCE HAS TO BE MADE INSOFAR AS THE ADMINISTRATIVE EXPENSES ARE CONCERNED AND SINCE THE TOTAL EXEMPT INCOME IS RS. 93,000/-, ADDITION OF RS. 30,000/- SHOULD MEET THE ENDS OF JUSTICE. WE ACCORDINGLY DIRECT THE A.O. TO RESTRICT THE DISALLO WANCE TO RS. 30,000/-. GROUND NO. 1 IS PARTLY ALLOWED. 8. THE SECOND GRIEVANCE OF THE ASSESSEE RELATES TO THE DISALLOWANCES MADE U/S. 40(A)(IA) OF THE ACT. 9. THE A.O. FOUND THAT THE ASSESSEE HAS DEBITED RS. 7, 41,643/- AND RS. 13,60,626/- ON ACCOUNT OF FREIGHT EXPENSES UNDER TH E HEADS OF EXPORT EXPENSES. THE A.O. FOUND THAT THE ASSESSEE HAS NOT DEDUCTED TAX AT SOURCE AND ACCORDINGLY DISALLOWED RS. 21,02,269/- U/S. 40(A)(I A) OF THE ACT. 10. ASSESSEE CARRIED THE MATTER BEFORE THE LD. CIT(A) A ND POINTED OUT THAT MAJORITY OF THE PAYMENT IS REIMBURSEMENT OF EXPENSES AND BAL ANCE OF THE EXPENDITURE IS PAID TO THE AGENTS OF SHIPPING COMPANIES AND THEREF ORE THE ASSESSEE WAS NOT LIABLE TO DEDUCT TAX AT SOURCE. 11. AFTER CONSIDERING THE FACTS AND THE SUBMISSIONS, TH E LD. CIT(A) DIRECTED THE A.O. TO RESTRICT THE DISALLOWANCE TO THE EXTENT OF RS. 5,90,230/-. ITA NO. 2081 /AHD/2015 . A.Y. 2010-11 4 12. BEFORE US, THE LD. COUNSEL FOR THE ASSESSEE REITERA TED WHAT HAS BEEN STATED BEFORE THE LOWER AUTHORITIES. THE LD. D.R. STRONGLY SUPPORTED THE FINDINGS OF THE A.O. THE ASSESSEE HAS DEBITED THE FOLLOWING EX PENDITURE:- CRYSTAL QUINONE PVT. LTD. F.Y. 2009-10 CHA CHARGES PARTICULARS AMOUNT AMOUNT EXPORT EXPENSES (MER) FREIGHT/HANDLING/CCI- OCEN/ROAD/AIR (MER) 741,643 SUB TOTAL 741,643 EXPORT EXPENSES (MER) FREIGHT/HANDLING/CCI- OCEN/ROAD/AIR (MER 1,360,626 SUB TOTAL 1,360,626 GRAND TOTAL 1,102,269 13. THE COMPLETE DETAILS OF THE EXPENDITURE ARE EXHIBIT ED AT PAGES 10 TO 14 OF THE PAPER BOOK. THE CBDT VIDE CIRCULAR NO. 723 DATED 19 .09.1995 HAS CLARIFIED THAT PAYMENTS TO THE AGENTS OF THE SHIPPING COMPANI ES DO NOT ATTRACT THE PROVISIONS OF THE TDS. AN IDENTICAL ISSUE WAS CONSI DERED BY THE CO-ORDINATE BENCH IN THE CASE OF THE RAMA INDUSTRIES IN ITA NO. 783/AHD/2014 , THE RELEVANT FINDINGS OF THE TRIBUNAL IS AS UNDER:- 7. WE HAVE GIVEN A THOUGHTFUL CONSIDERATION TO TH E ORDERS OF THE AUTHORITIES BELOW. CO-ORDINATE BENCHES HAVE CONSISTENTLY HELD T HAT CIRCULAR NO. 723 DATED 19.09.1995 ISSUED BY CBDT SQUARELY APPLY ON THE IMP UGNED PAYMENTS. TO NAME A FEW ITAT AHMEDABAD BENCH IN THE CASE OF HASMUKH J . PATEL IN ITA NO. 2081/AHD/2009, IN ITA NOS. 901 & 1059/AHD/2012, HON BLE HIGH COURT OF BOMBAY IN THE CASE OF V.S. DEMPO & CO. (P.) LTD. IN TAX APPEAL NO. 948 & OTHERS OF 2015 AND ITAT MUMBAI IN KULODAY TECHNOPACK (P.) LTD. IN ITA NO. 3300/MUM/2013 & 2423/MUM/2014. ITA NO. 2081 /AHD/2015 . A.Y. 2010-11 5 14. RESPECTFULLY FOLLOWING THE FINDINGS OF THE CO-ORDIN ATE BENCH (SUPRA), WE DIRECT THE A.O. TO DELETE THE ADDITION OF RS. 5,90,230/-. GROUND NO. 2 IS ALLOWED. 15. IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE IS PARTLY ALLOWED. ORDER PRONOUNCED IN OPEN COURT ON 09- 04- 20 18 SD/- SD/- (S. S. GODARA) (N. K. BILLAIYA) JUDICIAL MEMBER TRUE COPY ACCOUNT ANT MEMBER AHMEDABAD: DATED 09/04/2018 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