The DCIT(OSD) Circle-8, Ahmedabad V. Voltamp Transformers Ltd., Ahmedabad

ITA 2084/AHD/2014

• Counselvise Citation: [2017] 127 COUNSELVISE.COM (IT) 8504 (ITAT-AHMEDABAD)
• Duration Of Justice: 3 year(s) 2 month(s) 16 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 26-09-2017
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: C
• Next Hearing Date: 03-05-2017
• Assessment Year: 2010-2011
• Appeal Filed On: 10-07-2014
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Capital asset; Depreciation; Earning of tax free income; Proportionate interest
• Section: 14A; 145

Judgement Text

, IN THE INCOME TAX APPELLATE TRIBUNAL C BENCH, AHMEDABAD BEFORE SHRI N.K. BILLAIYA, ACCOUNTANT MEMBER AND SHRI MAHAVIR PRASAD, JUDICIAL MEMBER !# I.T.A. NO. 2084/AHD/2014 ( / ASSESSMENT YEAR : 2010-11) DY. COMMISSIONER OF INCOME TAX(OSD) CIRCLE 8, AHMEDABAD - 380015 # VS. VOLTAMP TRANSFORMERS LTD. 312 SANMAN II, OPP RELIANCE PETROL PUMP, PRAHLADNAGAR, SATELLITE, AHMEDABAD - 380054 $ # % & # PAN/GIR NO. : AAACV 5048 G ( !$' / APPELLANT ) .. ( ($' # RESPONDENT ) !$') # APPELLANT BY : SHRI PRASOON KABRA, SR.D.R. ($'*) / RESPONDENT BY : SHRI ASHWIN SHAH, C.A. + ,*-. / DATE OF HEARING 12/09/2017 /012*-. / DATE OF PRONOUNCEMENT 26/09/2017 3# O R D E R PER SHRI MAHAVIR PRASAD, JUDICIAL MEMBER : THIS IS AN APPEAL BY THE DEPARTMENT AGAINST THE ORDER OF THE COMMISSIONER OF INCOME TAX(APPEALS)-XIV, AHMEDABAD, DATED 19/04/2014 FOR THE ASSESSMENT YEAR (AY) 2010-11, ON THE FOLLOWING GROUNDS: I. THE LD. CIT(A)-XIV, AHMEDABAD HAS ERRED IN LAW AND ON FACTS IN DELETING THE ADDITION OF RS.2,744/- MADE ON ACCOUNT OF DISALLOWANCE OF INTEREST U/S.36(1)(III) OF THE ACT. ITA NO.2084/AHD /2014 DCIT VS. VOLTAMP TRANSFORMERS LTD. ASST.YEAR 2010-11 - 2 - II. THE LD. COMMISSIONER OF INCOME-TAX (APPEALS)-XIV, AHMEDABAD HAS ERRED IN LAW AND ON FACTS IN DELETING THE ADDITION OF RS.4,11,74,780/- MADE ON ACCOUNT OF DISALLOWANCE OF CENVAT RECEIVABLE. III. THE LD. COMMISSIONER OF INCOME-TAX (APPEALS)-XIV, AHMEDABAD HAS ERRED IN LAW AND ON FACTS IN DELETING THE DISALLOWANCE OF EXCESS DEPRECIATION AMOUNTING TO RS .19,21,243/- ON NEW VEHICLES, NOT REGISTERED WITH RTO AS COMMERC IAL VEHICLE & HENCE, NOT ELIGIBLE FOR HIGHER RATE OF DEPRECIATI ON. IV. THE LD. COMMISSIONER OF INCOME-TAX (APPEALS)-XIV, AHMEDABAD HAS ERRED IN LAW AND ON FACTS IN DELETING THE ADDITION OF RS.8,27,707/- MADE ON ACCOUNT OF DISALLOWANCE OF DEPRECIATION ON COMPUTER SOFTWARE PART & PARCEL OF COMPUTER & HENCE, LIABLE TO BE TREATED AS CAPITAL ASSETS ELIGI BLE TO CLAIM ONLY DEPRECIATION. V. THE LD. COMMISSIONER OF INCOME-TAX (APPEALS)-XIV, AHMEDABAD HAS ERRED IN LAW AND ON FACTS IN DELETING THE ADDITION OF RS.69,48,260/- MADE ON ACCOUNT OF DISALLOWANCE U /S.14A OF THE ACT, R.W.R. 8D WHEN ASSESSEE HAD FAILED TO PROV E NEXUS OF UTILIZATION OF FUNDS FOR MAKING INVESTMENTS TO EARN EXEMPT INCOME. VI. THE LD. COMMISSIONER OF INCOME-TAX (APPEALS)-XIV, AHMEDABAD HAS ERRED IN LAW AND ON FACTS IN DELETING THE ADDITION OF RS.32,215/- MADE ON ACCOUNT OF DISALLOWANCE U/S. 14A OF THE ACT, R.W.R. 8D., AND RS.32,215/- BEING INTEREST ON TDS TO THE BOOK PROFIT COMPUTED U/S.115JB OF THE ACT. 2. THE RELEVANT FACTS AS CULLED OUT FROM THE MATERI ALS ON RECORD ARE AS UNDER:- IN THIS CASE, ASSESSEES COMPANY IS ENGAGED IN THE BUSINESS OF MANUFACTURING OF TRANSFORMERS. FROM THE RECORDS IT WAS OBSERVED THAT THE ASSESSEE HAD SHOWN THE CAPITAL WIP AT RS.3,53,2 2,706/-. THEN ITA NO.2084/AHD /2014 DCIT VS. VOLTAMP TRANSFORMERS LTD. ASST.YEAR 2010-11 - 3 - ASSESSEE WAS REQUESTED TO SHOW-CAUSE AS TO WHY THE PROPORTIONATE INTEREST EXPENSE RELATED TO SOURCE OF SUCH CAPITAL WIP SHOULD NOT BE DISALLOWED? 2.2 IN RESPONSE TO THE SAME THE ASSESSEE SUBMITTED HIS REPLY AS UNDER: 'THE FUNDING FOR CAPITAL WORK IN PROGRESS INCLUDING CAPITAL ADVANCES OF RS.3.53 CRORES IS MADE FROM OWNED FUNDS AND NOT FRO M BORROWED FUNDS. THE COMPANY HAS NOT AVAILED ANY TERM LOANS OR THE C LOSING BALANCE OF WORKING CAPITAL LOANS IS NIL AS ON 31 ST MARCH,2010. THE COMPANY HAS NET WORTH OF RS.332. 45 CRORES AND THE CURRENT YEAR PROFIT AFTER TAX IS RS.82.53 CRORES. FURTHER THE INTEREST PAYMENT OF WO RKING CAPITAL LOAN IS ONLY RS.2.58 LACS, THUS, THE ENTIRE PAYMENTS FOR NE W ASSETS IS MADE FROM OWNED FUNDS AND NOT FROM BORROWED FUNDS AND TH EREFORE QUESTION OF CAPITALIZATION OF INTEREST OR DISALLOW OF INTERE ST DOES NOT ARISE' THE REPLY OF THE ASSESSEE WAS NOT TENABLE IN THE EY ES OF THE ASSESSING OFFICER. 3 HENCE, THE PROPORTIONATE INTEREST U/S.36(1)(III) IS DISALLOWED AT RS.2,744/- BEING CAPITALIZED AND ADDED BACK TO THE TOTAL INCOME OF THE ASSESSEE. 3.2 LD. CIT(A) HELD THAT THE APPELLANT CONTENDED TH AT ON SIMILAR FACTS AND SIMILAR CONTENTION BY BOTH AO AS WELL AS APPELL ANT, LEARNED CIT(A)- XIV, AHMEDABAD IN APPELLANTS OWN CASE FOR ASST. YE AR 2009-10 IN APPEAL NO.CIT(A)-XIV/JT.CIT R.8/238/2011-12 VIDE OR DER DATED 21/05/2012 VIDE PARA 2.3 ALLOWED SUCH INTEREST CLAI M AND DELETED THE ADDITION. FURTHER, HONBLE ITAT, AHMEDABAD B BENC H IN ORDER DATED 22/03/2013 ON REVENUE APPEAL AGAINST LEARNED CIT(A) -XIV, AHMEDABAD ITA NO.2084/AHD /2014 DCIT VS. VOLTAMP TRANSFORMERS LTD. ASST.YEAR 2010-11 - 4 - ORDER DATED 21/05/2012 ON THIS ISSUE VIDE PARA 3.1 DISMISSED REVENUE APPEAL. 3.3 IN OUR CONSIDERED OPINION FINDINGS OF THE ITAT MUST BE FOLLOWED. THEREFORE, WE DO NOT WANT TO INTERFERE IN THE ORDER PASSED BY THE LEARNED CIT(A). IN THE RESULT, THIS GROUND OF DEPARTMENT IS DISMISSED. 4 DURING THE COURSE OF ASST. PROCEEDINGS, IT WAS OB SERVED THAT THE ASSESSEE HAD SHOWN THE AMOUNT RECEIVABLE ON ACCOUNT OF UNUTILIZED/CLOSING BALANCE ON ACCOUNT OF MODVAT/CEN VAT CREDIT UNDER LOANS AND ADVANCES AND THE SAME WAS NOT INC LUDED IN THE VALUE OF CLOSING STOCK. SINCE THE PROVISIONS OF SECTION 1 45A OF THE ACT REQUIRES THAT THE TAXES/DUTY/CESS/FEES RELATED TO STOCK NEED TO BE INCLUDED IN THE VALUE OF CLOSING STOCK, SO ASSESSEE WAS REQUESTED T O EXPLAIN THE REASONS FOR EXCLUSION OF MODVAT/CENVAT FROM CLOSING STOCK A ND SHOW- CAUSE WHY THE SAME SHOULD NOT BE INCLUDED IN THE VA LUE OF CLOSING STOCK AS PER PROVISIONS OF SECTION 145A OF THE ACT. IN RE SPONSE TO THE SAME ASSESSEE VIDE ITS LETTER DATED 30/01/2013 HAS SUBMI TTED AS UNDER: 'YOU ARE INQUIRED ABOVE THE INCLUSION OF THE CENVAT BALANCE IN THE VALUATION OF CLOSING STOCK AND COMPLIANCE TO SECTIO N 145A. IN THIS CONNECTION IT MAY BE PLEASE NOTED THAT AS P ER AS-2 ON VALUATION ON INVENTORY, THE PURCHASES ARE DEBITED NET OFF CEN VAT AND THE CLOSING STOCK OF RAW MATERIAL AND WIP IS VALUED NET OFF CEN VAT, SINCE THE COST OF PURCHASES DOES NOT INCLUDE CENVAT PAID AND THEREFORE, THE CLOSING STOCK IS ALSO VALUED NET OFF CENVAT. THE CO MPANY DOES NOT HAVE ANY STOCK OF FINISHED GOODS AS ON 31 ST MARCH, 2009 AND THEREFORE; THERE IS NO QUESTION OF INCLUSION OF CENVAT IN THE STOCK OF FINISHED ITA NO.2084/AHD /2014 DCIT VS. VOLTAMP TRANSFORMERS LTD. ASST.YEAR 2010-11 - 5 - GOODS. FURTHER, THE UNUTILIZED BALANCE OF CENVAT IS NOT A INCOME AND IS USED AGAINST EXCISE DUTY PAYABLE IN THE SUBSEQUE NT YEAR, AND THEREFORE THE SAME CANNOT BE TREATED AS INCOME, THE DETAILS OF THE CENVAT CREDIT UTILIZED IS GIVE IN SCHEDULE - 8 TO T HE TAX AUDIT REPORT. IT MAY ALSO BE NOTED THAT THE COST OF RAW MATERIAL DEBITED TO PROFIT AND LOSS ACCOUNT DOES NOT INCLUDE EXCISE DUTY PAID ON P URCHASES AND THEREFORE THE QUESTION OF INCLUSION OF UNUTILIZED E XCISE DUTY IN THE CLOSING STOCK DOES NOT ARISE. THIS PRINCIPLE IS SET TLED BY SUPREME COURT IN THE CASE OF CHAINROOP SAMPATRAM. FURTHER THE UNU TILIZED BALANCE OF CENVAT CREDIT CANNOT BE INCLUDED IN THE CLOSING STO CK IS ALSO TAKEN BY GUJARAT HC IN CASE OF NARMADA CHEMATUR PRIVATE LIMI TED. THE SUOREME COURT ALSO CONFIRMED THE PRINCIPLE SETTLED IN CHAINROOP SAMPATRAM IN CIT VS. DYNAVISION LTD. CIVIL APPEAL N O.197 OF 2005. THE CIT(A) HAS DELETED THE ADDITION. 4.2 THE ASSESSEES SUBMISSIONS WERE NOT ACCEPTABLE BY THE ASSESSING OFFICER AND THE SUM OF RS.4,11,74,780/- BEING THE A MOUNT OF UNUTILIZED BALANCE OF TAXES WERE ADDED BACK TO THE TOTAL INCOM E. 4.3 LD. CIT HELD THAT APPELLANTS APPEAL GROUND IS COVERED BY HONBLE JURISDICTIONAL HIGH COURT IN THE MATTER OF NARMADA CHEMATURE PETOROCHEMICALS LTD. (SUPRA), HONBLE SUPREME COURT DECISION IN THE CASE OF DYNAVISION LTD. (SUPRA), FOLLOWS AN EXCLUSI VE METHOD OF ACCOUNTING CENVAT AND AS PER TAX AUDIT REPORT A REC ONCILIATION STATEMENT REFLECT THAT SUCH METHOD IS REVENUE NEUTR AL. THE APPELLANT CONTENDED THAT IN VIEW OF HONBLE SUPREME COURT DEC ISION IN THE CASE OF INDO NIPPON CHEMICALS LTD. (SUPRA), CENVAT RECEIVAB LE IS NOT AN INCOME. ITA NO.2084/AHD /2014 DCIT VS. VOLTAMP TRANSFORMERS LTD. ASST.YEAR 2010-11 - 6 - 4.4 IN OUR CONSIDERED OPINION, THIS ISSUE IS COVERE D BY THE ITAT ORDER DATED 22/03/2013 IN ITA NO.1676/AHD/2012 PARA NO.7. 1 ON PAGE NO.8 IN ASST. ORDER. AO HAS VERIFIED THE REVENUE NEUTRAL STATEMENT AND HONBLE SUPREME COURT HAS HELD IN THE CASE OF CIT VS. INDO NIPPON CHEMICALS LTD., AS UNDER: IT IS NOT OPEN TO THE ASSESSING OFFICER TO TREAT O UTGOINGS AS INCOME UNDER SECTION 145 OF THE INCOME TAX ACT, 1961. WHATEVER METHOD THE ASSESSING OFFICER ADOPTS AFTER INVOKING SECTION 145, IT HAS TO BE CONSISTENT WITH ACCEPTED PRINCIPL ES OF ACCOUNTANCY. THE ASSESSEE, WHICH WERE MANUFACTURING UNITS, WERE LIABLE TO EXCISE DUTY ON THE GOODS MANUFACTURED BY THEM. UNDER THE M ODVAT SCHEME THE ASSESSEE GOT CREDIT FOR THE EXCISE DUTY ALREADY PAI D ON THE RAW MATERIALS PURCHASED BY THEM AND UTILIZED IN THE MANUFACTURE O F EXCISABLE GOODS. WHEN THEY MANUFACTURED THE GOODS AND SOLD THEM THE PROPORTIONATE PART OF THE MODVAT CREDIT WAS SET OFF AGAINST THEIR DUTY LIABILITY. THE ASSESSEE HAD, IN VALUING THEIR STOCK, UNIFORMLY ADO PTED THE NET METHOD, VIZ., VALUING THE RAW MATERIALS AT THE PUR CHASES PRICE MINUS THE MODVAT CREDIT. THIS METHOD WAS ALSO ADOPTED WHI LE VALUING THE UNCONSUMED RAW MATERIALS AND THE WORK IN PROGRESS A T THE END OF THE YEAR. THE ASSESSING OFFICER TOOK THE VIEW THAT THE MODVAT CREDIT SHOULD BE TREATED AS AN INCOME OR ADVANTAGE IN THE NATURE OF INCOME AND ADDED BACK THE MODVAT CREDIT. THE TRIBUNAL HELD THA T THE MODVAT CREDIT COULD NOT BE ADDED BACK TO THE INCOME OF THE ASSESSEE. 4.5 THEREFORE, WE DO NOT WANT TO INTERFERE IN THE O RDER PASSED BY THE LEARNED CIT(A). IN THE RESULT, THIS GROUND OF DEPAR TMENT IS DISMISSED. 5 FROM THE RECORD IT WAS OBSERVED BY THE AO THAT TH E ASSESSEE HAD CLAIMED DEPRECIATION @50% ON CERTAIN VEHICLES ACQUI RED BY IT. SINCE THE SAID VEHICLE WAS NOT REGISTERED BY THE RTO AS COMM ERCIAL VEHICLE, SO ITA NO.2084/AHD /2014 DCIT VS. VOLTAMP TRANSFORMERS LTD. ASST.YEAR 2010-11 - 7 - THE ASSESSEE WAS REQUESTED TO JUSTIFY THE SAID CLAI M. IN RESPONSE TO THE SAME, ASSESSEE SUBMITTED AS UNDER: ' THE CLAIM OF DEPRECIATION ON VEHICLES @50% IS TAKEN ON BASIS OF NOTIFICATION NUMBER 10/2009 DATED 2009 WHICH MAY AL SO BE SEEN FROM NOTE NUMBER 2 OF ANNEXURE 3 OF 3CD REPORT. THIS NOT IFICATION IS ALSO INCLUDED IN THE DEPRECIATION APPENDIX UNDER IT RULE S AT ENTRY NUMBER III (3) (VIA) UNDER PART A. THE APPENDIX 1 OF DEPRECIATION UNDER INCOME TAX RUL ES AT ENTRY NUMBER III (3)(VIA) UNDER PART A PROVIDES FOR RATE OF DEPR ECATION IN RESPECT OF NEW COMMERCIAL VEHICLES ACQUIRED BETWEEN 1 ST JANUARY 2009 TO 30 TH SEPTEMBER 2009. FURTHER THE DEFINITION OF COMMERCIA L VEHICLES IS GIVEN AS SERIAL NO.6 TO THE NOTES IN THE SAID DEPRECIATIO N APPENDIX. THE VEHICLES PURCHASED BY THE ASSESSEE COMPANY FALLS WI THIN THE DEFINITION OF COMMERCIAL VEHICLES AND ACCORDINGLY THE COMPANY HAS RIGHTLY CLAIMED DEPRECIATION AT THE RATE OF 50% ON SUCH VEH ICLES.' 5.2 ASSESSEES SUBMISSIONS WERE CONSIDERED CAREFULLY BU T NOT FOUND ACCEPTABLE BY THE LEARNED AO. 5.3 THE DISALLOWANCE OF EXCESS DEPRECIATION AMOUNTI NG TO RS.19,21,243/- WERE ADDED TO THE TOTAL INCOME. 5.4 THE APPELLANT CONTENDED BEFORE THE CIT(A) THAT SIMILAR ISSUE ON SIMILAR FACTS AND CONTENTION HAD ALREADY BEEN DECID ED IN FAVOUR OF THE ASSESSEE BY THE CIT(A)-XIV, AHMEDABAD IN ITS OWN CA SE FOR ASST. YEAR 2009-10 VIDE ORDER DATED 21/05/2012 AND REVENUE APP EAL AGAINST THIS WAS DISMISSED BY HONBLE ITAT, AHMEDABAD IN ITA NO.1676 /AHD/2012, VIDE ORDER DATED 22/03/2013., IN THIS CASE, HONBLE ITAT HELD THAT AS UNDER: ITA NO.2084/AHD /2014 DCIT VS. VOLTAMP TRANSFORMERS LTD. ASST.YEAR 2010-11 - 8 - ON HEARING OF THE SUBMISSION, WE ARE NOT INCLINED TO INTERFERE WITH THE LEGAL FINDINGS OF LEARNED CIT(A). IN OUR OPINION, H E HAS CORRECTLY INTERPRETED THE APPENDIX. THEREFORE, THIS GROUND OF THE REVENUE IS DISMISSED. 5.5 RESPECTFULLY, FOLLOWING THE DECISION OF COORDIN ATE BENCH, WE DISMISS THIS GROUND OF DEPARTMENT. 6 FROM THE SCHEDULE OF FIXED ASSET IT WAS OBSERVED BY THE AO THAT THE ASSESSEE HAS SHOWN COMPUTER SOFTWARE UNDER TH E HEAD INTANGIBLE ASSETS. HOWEVER THE ASSESSEE HAD CLAIMED DEPRECIAT ION ON SAME @60%. HENCE, ASSESSEE WAS REQUESTED TO EXPLAIN AS TO WHY THE HIGHER RATE OF DEPRECIATION ON COMPUTER SOFTWARE SHOULD NOT BE DIS ALLOWED. IN RESPONSE TO THE SAME ASSESSEE SUBMITTED AS UNDER: 'THE COMPUTER SOFTWARE HAS BEEN CLASSIFIED AS INTAN GIBLE ASSETS IN THE BOOKS OF ACCOUNT AS PER THE REQUIREMENT OF AS-26 ON INTANGIBLE ASSETS. THE COMPUTER SOFTWARE IS INCLUDED IN THE ENTRY OF C OMPUTERS AT ENTRY NO.5 OF PARA III OF PART A OF THE DEPRECIATION APPE NDIX IN THE INCOME TAX RULES. THE SOFTWARE HAS ALSO BEEN DEFINED IN NOTE N O.7 TO THE SAID APPENDIX. THE DEPREDATION APPENDIX SPECIFICALLY INC LUDES COMPUTER SOFTWARE AS PART OF COMPUTERS ELIGIBLE FOR DEPRECIA TION AT 60% AND THE SAME IS NOT A PART ON INTANGIBLE ASSETS IN THE DEPR ECIATION APPENDIX. THEREFORE, THE COMPANY HAS RIGHTLY CLAIMED DEPRECIA TION ON SOFTWARE AT THE RATE OF 60%. THE CIT APPEALS HAS DELETED THE ADDITION. THE ADDIT ION OF RS 352764/- DURING THE YEAR IS OF APPLICATION SOFTWARE.' 6.2 THE ASSESSEE'S SUBMISSIONS HAVE BEEN CONSIDERED CAREFULLY BUT NOT FOUND ACCEPTABLE BY THE LD. AO. 6.3 THE LEARNED CIT(A) HELD THAT THE CONTENTION OF THE APPELLANT THAT SINCE THERE IS NO DIFFERENCE BETWEEN SYSTEM SOFTWA RE AND APPLICATION ITA NO.2084/AHD /2014 DCIT VS. VOLTAMP TRANSFORMERS LTD. ASST.YEAR 2010-11 - 9 - SOFTWARE AS PER THE DEFINITION PROVIDED AT NOTE NO .7 WITH APPENDEX-1 FOR DEPRECIATION RATE, SUCH UNIFORM RATE OF DEPRECI ATION AT 60% IS APPLICABLE TO ALL TYPE OF COMPUTER SOFTWARE. 6.4 WE HAVE GONE THROUGH THE RECORD AND IN OUR CONS IDERED OPINION, THIS ISSUE IS COVERED IN ASSESSEES OWN CASE IN ITA NO.1676/AHD/2012 FOR A.Y.2009-10. HONBLE COORDINATE BENCH OF ITAT H ELD THIS ISSUE IN FAVOUR OF THE ASSESSEE. RESPECTFULLY FOLLOWING THE ORDER OF THE ITAT BENCH, WE DO NOT WANT TO INTERFERE IN THE ORDER PAS SED BY THE LEARNED CIT(A). THEREFORE, WE DISMISS THIS GROUND OF DEPART MENT. 7. DURING THE COURSE OF ASSESSMENT PROCEEDINGS, IT WAS FOUND THAT THE ASSESSEE HAD CLAIMED RS.3,03,05,146/- AS DIVIDEND I NCOME WHICH IS EXEMPT. THE ASSESSEE WAS REQUESTED TO EXPLAIN WHETH ER ANY EXPENSE HAS BEEN INCURRED FOR EARNING OF EXEMPT INCOME, I.E. WH ETHER ANY EXPENSE IS DISALLOWABLE U/S.14A OF THE ACT R.W.R. 8D OF THE IN COME TAX RULE. IN RESPONSE TO THE SAME THE ASSESSEE HAD EXPLAINED EXP ENSE INCURRED FOR EARNING EXEMPT INCOME HAS ALREADY BEEN DISALLOWED. HOWEVER IT WAS FOUND THAT THE DISALLOWANCE WAS NOT MADE AS PER RUL E 8D. ACCORDINGLY, ASSESSEE WAS GIVEN A SHOW CAUSE AS TO WHY DISALLOWA NCE SHOULD NOT BE MADE U/S.14A OF THE ACT R.W.R. 8D OF THE I.T. RULES . 7.2 IN RESPONSE TO THE SAME THE ASSESSEE SUBMITTED AS FOLLOWS: IN THIS CONNECTION IT MAY PLEASE BE NOTED THAT INVE STMENT IN MUTUAL FUNDS AS ON 31/03/2010 STANDS AT RS.69.84 CRORES AS COMPARED TO ITA NO.2084/AHD /2014 DCIT VS. VOLTAMP TRANSFORMERS LTD. ASST.YEAR 2010-11 - 10 - RS.88.38 CRORES AS ON 31/03/2009. THE COMPANY HAS N OT AVAILED BORROWED FUNDS WHICH MAY BE SEEN FROM THE RESERVES. THE RESERVES AS ON 31/03/2010 STOOD AT RS.322.34 WHICH IS SUBSTANTI AL. THE COMPANY HAS KEPT A PERSON TO KEEP TRACK OF ALL MUTUAL FUNDS SALARY OF WHICH IS DISALLOWED U/S.14A AS MAY BE SEEN FROM COMPUTATION OF INCOME. THUS NO NEW INVESTMENT IS MADE DURING THE YEAR AND NET R ESULT IS REDEMPTION OF THE FUNDS INSTEAD OF NEW INVESTMENT. THE COMPANY HAS NOT INCURRED ANY EXPENDITURE WHATSOEVER OTHER THAN THAT ALREADY DISALLOWED ON THE INVESTMENT OUTSTANDING AS ON THE BALANCE SHEET DATE . HENCE, NO FURTHER DISALLOWANCE MAY BE MADE. 7.3 THE ASSESSEES CONTENTION WAS CONSIDERED CAREFU LLY BUT NOT FOUND ACCEPTABLE BY THE AO AND STATED THAT ASSESSEE HAS G IVEN ONLY GENERAL EXPLANATION THAT IT HAS NOT INCURRED ANY EXPENSES, OTHER THAN WHAT HAS BEEN DISALLOWED SUO MOTTO, RELATED TO THE EXEMPT IN COME CLAIMED BY IT. HOWEVER, THE ASSESSEE HAS NOT SUBMITTED ANY PROOF O R SPECIFIC EXPLANATION OTHER THAN THE SAID GENERAL EXPLANATION . NO DAY TO DAY FUND FLOW HAS BEEN SUBMITTED. IN ABSENCE OF SUCH FUND FL OW THE ASSESSEES CLAIM THAT NO INTEREST BEARING FUNDS WERE DIVERTED FOR THE INVESTMENT IN SAID SHARES/SECURITIES REMAINS UNSUBSTANTIATED. 7.4 IN FIRST STATUTORY APPEAL BEFORE THE LEARNED CI T(A) CITING FOLLOWING JUDGMENT AS UNDER: SL. NO.(S) DECISION IN THE CASE OF . ITA NO(S).. 1. M/S. ESSAR TELEHOLDINGS LTD. VS. DCIT VS. DCIT MUMBAI IN ITA NO.3850/MUM/2010 FOR ASST. YEAR 2005-06 ORDER DATED 29/07/2011. 2. QUIPPO TELECOM INFRASTRUCTURE LTD. VS. ASST. CIT ITAT F BENCH NEW DELHI IN ITA NO.4931/DEL/2010 FOR A.Y.2007 - 08 ORDER DATED ITA NO.2084/AHD /2014 DCIT VS. VOLTAMP TRANSFORMERS LTD. ASST.YEAR 2010-11 - 11 - 18/02/2011 3. ACIT VS. JK PAPER LTD. AND JK PAPER LTD. VS. ACIT (CROSS APPEALS) ITAT D BENCH AHMEDABAD IN ITA NOS.979/AHD/2006 FOR A.Y. 2002-03, ITA NOS.578&738/AHD/07 (A.Y.2003- 04) AND ITA NOS.346 & 390/AHD/2008 (A.Y. 2004-05) ORDER DATED 04/09/2009. RESPECTFULLY FOLLOWING THE AFOREMENTIONED ORDERS AS ALSO THE DECISION OF HONBLE APEX COURT IN THE CASE OF APOLLO TYRES LTD. VS. CIT REPORTED AT [2002] 255 ITR 273(SC) DULY REFERRED IN THE CITED P RECEDENTS, WE HEREBY DIRECT THE ASSESSING OFFICER NOT TO MAKE ANY ADJUSTMENT IN RESPECT OF DISALLOWANCE MADE U/S.14A OF THE I.T. AC T WHILE COMPUTING THE BOOK PROFIT U/S.115JB OF THE I.T. ACT. WE ORDER ACCORDINGLY AND THE SUBSTANTIAL GROUND IS HEREBY ALLOWED. 7.5 IN OUR CONSIDERED OPINION, THIS CASE IS COVERED BY THE JUDGMENT OF THE JURISDICTIONAL HIGH COURT, CIT VS. GUJARAT STAT E FERTILIZERS & CHEMICALS LTD. [2013] 36 TAXMANN.COM 230 (GUJARAT). HONBLE HIGH COURT HELD THAT WHEN THE EMPLOYMENT OF SECTION 14A IS NOT FOUND CORRECT, THERE DOES NOT ARISE ANY QUESTION OF DETER MINING THE AMOUNT OF EXPENDITURE IN ABSENCE OF RULE 8D, ON THE BASIS OF REASONABLE AND ACCEPTABLE METHOD OF APPORTIONMENT. IN THIS CASE, A SSESSING OFFICER DISALLOWED THE SUM OF RS.1,14,43,040/- U/S.14A OF T HE ACT TOWARDS INTEREST AND OTHER EXPENSES INCURRED IN RELATION TO EXEMPTED INCOME OF DIVIDEND. THE ASSESSING OFFICER ON THE GROUND THAT THE ASSESSEE UTILIZED THE INTEREST BEARING BORROWED FUNDS FOR NON-BUSINES S PURPOSE DISALLOWED SUCH EXPENSES TO THE TUNE OF 10% OF THE DIVIDEND IN COME. THE ASSESSING OFFICER WAS OF THE OPINION THAT THE ONUS WAS NOT DI SCHARGED BY THE RESPONDENT-ASSESSEE TO ESTABLISH THAT THE INVESTMEN T FROM WHERE DIVIDEND ITA NO.2084/AHD /2014 DCIT VS. VOLTAMP TRANSFORMERS LTD. ASST.YEAR 2010-11 - 12 - HAS BEEN RECEIVED DURING THE ASSESSMENT YEAR 2004-0 5, WAS OUT OF ITS OWN FUNDS AND NO BORROWED FUNDS HAVE BEEN UTILIZED FOR MAKING SUCH INVESTMENT ON THE BASIS OF CASH/FUND FLOWS STATEMEN T AND, THEREFORE, ON ESTIMATED BASIS IT DEDUCTED 10% OF THE TOTAL DIVIDE ND INCOME AS EXPENDITURE INCLUDING THE INTEREST IN RELATION TO E ARNING OF EXEMPT INCOME. CIT(A) HELD THAT ASSESSING OFFICER HAD FAIL ED TO CLEARLY SHOW THAT ANY PARTICULAR EXPENDITURE WAS INCURRED BY THE ASSESSEE TO EARN EXEMPT DIVIDEND INCOME AND DELETED AD HOC DISALLOWA NCE. THE TRIBUNAL WAS OF THE FIRM OPINION THAT THE RESPONDENT-ASSESSE ES OWN FUNDS WERE HIGHER THAN THE INVESTMENT MADE BY THE ASSESSEE AND , THEREFORE, INTEREST BEARING FUNDS WERE DIVERTED FOR MAKING INVESTMENT I N SHARES AND, THEREFORE, UNDER SECTION 14A OF THE ACT, IT HELD TH AT THERE IS NO QUESTION OF DISALLOWANCE UNDER SECTION 14A OF THE ACT IN RES PECT OF INTEREST EXPENDITURE. 7.6 RESPECTFULLY FOLLOWING THE JURISDICTIONAL HIGH COURT JUDGMENT, WE DISMISS THIS GROUND OF APPEAL. 8. THE LEARNED AO HAS DISALLOWED 0.5% EXPENDITURE O F RS.72,83,252/- WHICH IS REDUCED TO EXTENT OF RS.3,3 4,992/- BEING THE EXPENDITURE DISALLOWED BY THE ASSESSEE AMOUNTING TO NET DISALLOWANCE OF RS.69,48,260/-. IN THE PRESENT CASE, ASSESSEE HAS E ARNED DIVIDEND INCOME OF RS.3,03,05,146/- FROM MUTUAL FUNDS. THE OPENING BALANCE OF MUTUAL FUND OF RS.88.38 CRORE AND THE CLOSING BALANCE IS R S.69.84 CRORE. IT FOLLOWS THAT THE ASSESSEE HAS NOT PURCHASED ANY NEW MUTUAL FUND AND THAT ITA NO.2084/AHD /2014 DCIT VS. VOLTAMP TRANSFORMERS LTD. ASST.YEAR 2010-11 - 13 - ONLY SOME MUTUAL FUND ARE REDEEMED. THE ASSESSEE EM PLOYED ONE OFFICER TO DEAL WITH THE MUTUAL FUND. HIS SALARY IS DISALLO WED BY THE ASSESSEE HIMSELF. THE COLLECTION OF MUTUAL FUND DIVIDEND IS RECEIVED BY EC AND THEREFORE THE QUESTION OF INCURRING ANY EXPENDITURE ON THAT ACCOUNT DOES NOT ARISE. THEREFORE, THE ACTUAL EXPENDITURE INCURR ED IS DISALLOWED. IT IS NOT CORRECT TO DISALLOW 0.5% AS PER RULE 8D IN THE ABSENCE OF ANY SPECIFIC FINDING BY THE AO. THIS ISSUE PARTLY ALLOW ED BY THE LEARNED CIT(A). 8.2 WE HAVE GONE THROUGH THE RECORD, LEARNED CIT(A) ADDED INTEREST ON TDS OF RS.32,215/-, ADDITION IS ACCEPTED TO THE BOOK PROFIT COMPUTED U/S.115JB. HOWEVER, NO ADDITION U/S.14A IN THE REGU LAR ASSESSMENT CAN BE MADE WHILE COMPUTING BOOK PROFIT U/S.115J. THIS GROUND IS ALSO COVERED BY THE DECISION OF JURISDICTIONAL HIGH COUR T IN THE MATTER OF CIT VS. GUJARAT STATE FERTILIZERS AND CHEMICALS LTD. [2 013] 358 ITR 323 (GUJ), WHEREIN IT IS HELD THAT: DISALLOWANCE IN RESPECT OF INTEREST EXPENDITURE NOT PERMISSIBLE WHERE ON FACTS SECTION 14A NOT APPLICABLE NO QUESTI ON OF DETERMINING EXPENDITURE ON REASONABLE BASIS AND PAYMENT TO FINA NCIAL CONSULTANTS FOR PROFESSIONAL SERVICES IN CONNECTION WITH CORPOR ATE DEBT RESTRUCTURING BY NEGOTIATING WITH BANKS AND FINANCI AL INSTITUTIONS EXPENDITURE FOR PURPOSE OF BUSINESS AND ALLOWABLE I N ENTIRELY IN YEAR IN WHICH INCURRED. IN SUCH CASE, DEPARTMENT IS NOT ENT ITLED TO OBSERVE. 8.3 RESPECTFULLY FOLLOWING THE JURISDICTIONAL HIGH COURTS ORDER, WE DISMISS THIS GROUND OF DEPARTMENT. ITA NO.2084/AHD /2014 DCIT VS. VOLTAMP TRANSFORMERS LTD. ASST.YEAR 2010-11 - 14 - 9. IN THE RESULT, APPEAL FILED BY THE DEPARTMENT IS DISMISSED. THIS ORDER PRONOUNCED IN OPEN COURT ON 26 / 09 /201 7 SD/- SD/- ( ) 4 5 ( N.K. BILLAIYA ) ( MAHAVIR PRASAD ) ACCOUNTANT MEMBER JUDICIAL MEMBER AHMEDABAD; DATED 26/09/2017 PRITI YADAV, SR.PS !'#$ %$' # COPY OF THE ORDER FORWARDED TO : 1. !$' / THE APPELLANT 2. ($' / THE RESPONDENT. 3. 67- + 8- / CONCERNED CIT 4. + 8- 4!5 / THE CIT(A)-XIV, AHMEDABAD. 5. 9:;-67 !.!672 ! / DR, ITAT, AHMEDABAD 6. ;<=, # GUARD FILE. & / BY ORDER, (9-- //TRUE COPY// '/ () ( DY./ASSTT.REGISTRAR) , / ITAT, AHMEDABAD TRUE COPY 1. DATE OF DICTATION 18-09-2017 (DICTATION-PAD 14 P AGES ATTACHED AT THE END OF THIS APPEAL-FILE) 2. DATE ON WHICH THE TYPED DRAFT IS PLACED BEFORE THE DICTATING MEMBER 25/09/2017 3. OTHER MEMBER 4. DATE ON WHICH THE APPROVED DRAFT COMES TO THE SR.P. S./P.S.. 5. DATE ON WHICH THE FAIR ORDER IS PLACED BEFORE THE D ICTATING MEMBER FOR PRONOUNCEMENT 6. DATE ON WHICH THE FAIR ORDER COMES BACK TO THE SR.P .S./P.S. 7. DATE ON WHICH THE FILE GOES TO THE BENCH CLERK 8. DATE ON WHICH THE FILE GOES TO THE HEAD CLERK ... 9. THE DATE ON WHICH THE FILE GOES TO THE ASSISTANT RE GISTRAR FOR SIGNATURE ON THE ORDER.. 10. DATE OF DESPATCH OF THE ORDER