Power Build Limited, Anand V. The ACIT., Anand Circle, Anand

ITA 2119/AHD/2012

• Counselvise Citation: [2015] 140 COUNSELVISE.COM (IT) 94378 (ITAT-AHMEDABAD)
• Duration Of Justice: 2 year(s) 11 month(s) 15 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 10-09-2015
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: B
• Next Hearing Date: 28-08-2015
• Assessment Year: 2008-2009
• Appeal Filed On: 25-09-2012
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: NARENDRA SINGH
• Section: 143(3); 234B; 14A

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL B BENCH, AHMEDABAD (BEFORE SHRI ANIL CHATURVEDI, A.M. & SHRI KUL BHARA T, J.M.) I.T. A. NO. 2119/AHD/2012 (ASSESSME NT YEAR: 2008-09) POWER BUILD LTD., POST BOX NO. 28, ANAND SOJITRA ROAD, V.V. NAGAR, ANAND-388121 V/S THE A.C.I.T., ANAND CIRCLE, ANAND (APPELLANT) (RESPONDENT) PAN: AABCP 2464K APPELLANT BY : SHRI SUNIL TALATI, A.R. RESPONDENT BY : SHRI NARENDRA SINGH, SR. D.R . ( )/ ORDER DATE OF HEARING : 28-08-2015 DATE OF PRONOUNCEMENT : 10 -09-2015 PER ANIL CHATURVEDI, ACCOUNTANT MEMBER 1. THIS APPEAL FILED BY THE ASSESSEE IS AGAINST THE OR DER OF CIT(A)-IV, BARODA DATED 16.07.2012 FOR A.Y. 2008-09. 2. THE RELEVANT FACTS AS CULLED OUT FROM THE MATERIAL ON RECORD ARE AS UNDER. 3. ASSESSEE IS A COMPANY STATED TO BE ENGAGED IN THE B USINESS OF MANUFACTURING OF VARIOUS TYPES OF GEARED MOTORS AND GEARED COMPON ENTS. ASSESSEE ITA NO 2119/ AHD/2012 . A.Y. 2008-09 2 ELECTRONICALLY FILED ITS RETURN OF INCOME FOR A.Y. 2008-09 ON 20.09.2008 DECLARING TOTAL INCOME OF RS. 5,74,39,342/-. THE CA SE WAS SELECTED FOR SCRUTINY AND THEREAFTER THE ASSESSMENT WAS FRAMED U NDER SECTION 143(3) VIDE ORDER DATED 14.12.2010 AND THE TOTAL INCOME WAS DET ERMINED AT RS. 5,95,60,010/-. AGGRIEVED BY THE ORDER OF A.O., ASS ESSEE CARRIED THE MATTER BEFORE LD. CIT(A) WHO VIDE ORDER DATED 16.07.2012 D ISMISSED THE APPEAL OF THE ASSESSEE. AGGRIEVED BY THE AFORESAID ORDER OF L D. CIT(A), ASSESSEE IS NOW IN APPEAL BEFORE US AND HAS RAISED THE FOLLOWIN G GROUNDS:- 1. THE ORDER PASSED BY THE HON'BLE COMMISSIONER OF INC OME TAX (APPEAL) - IV, BARODA, IS BAD IN LAW AND BE QUASHED. IT BE HEL D SO NOW AND RETURNED INCOME BE ACCEPTED BY DELETING VARIOUS DISALLOWANCE S/ADDITIONS MADE BY HIM. 2. THE LEARNED CIT(A)-IV, BARODA HAS ERRED IN DISALLOW ING THE EXPENSES OF RS.1100000 INCURRED FOR INCREASE IN AUTHORISED SHAR E CAPITAL. YOUR APPELLANT SUBMITS THAT THE SAME BEING INCURRED FOR THE PURPOSE OF BUSINESS AND INCURRED IN THE ORDINARY COURSE OF BUS INESS WAS RIGHTLY CLAIMED BY YOUR APPELLANT. IT BE HELD SO NOW AND TH E CLAIM BE ALLOWED. 3. THE LEARNED CIT(A)-IV, BARODA HAS ERRED IN DISALLOW ING RS.10,20,670/- BY INVOKING THE PROVISIONS OF SECTION 14A OF THE AC T. YOUR APPELLANT SUBMITS THAT THE PROVISIONS OF SECTION 14A ARE NOT APPLICABLE AND HENCE THE DISALLOWANCE IS NOT JUSTIFIED. IT BE HELD SO NO W AND ADDITION MADE BY THE AO BE DELETED. 4. THE LEARNED ACIT HAS ERRED IN CHARGING INTEREST U/S 234B OF THE ACT. THE SAME BE DELETED NOW. 1 ST GROUND IS GENERAL AND REQUIRES NO ADJUDICATION AND THEREFORE IT IS DISMISSED AS NOT PRESSED. ITA NO 2119/ AHD/2012 . A.Y. 2008-09 3 2 ND GROUND IS WITH RESPECT TO DISALLOWING EXPENSES OF RS. 11 LAC INCURRED FOR INCREASING THE AUTHORIZED SHARE CAPITAL OF THE ASSESSEE. 4. AT THE OUTSET, LD. A.R. SUBMITTED THAT THIS GROUND OF THE ASSESSEE HAS TO BE DECIDED AGAINST IT IN VIEW OF THE DECISION OF HONB LE SUPREME COURT IN THE CASE OF BROOKE BOND INDIA LTD. VS. CIT 225 ITR 798 (SC). CONSIDERING THE AFORESAID SUBMISSION OF LD. A.R. THIS GROUND OF ASS ESSEE IS DISMISSED. 3 RD GROUND IS WITH RESPECT TO DISALLOWANCE MADE U/S. 1 4A OF THE ACT. 5. DURING THE COURSE OF ASSESSMENT PROCEEDINGS, A.O NO TICED THAT ASSESSEE WAS HAVING INVESTMENTS OF RS. 3.56 CRORES, HAD EARNED T AX FREE INCOME COMPRISING OF DIVIDEND OF RS. 1,90,450/-, AND SHARE OF PROFITS FROM PARTNERSHIP FIRM OF RS. 6,55,694/- AND THUS EARNED AGGREGATE TAX FREE INCOME OF RS. 8,46,144/- AND HAD ALSO PAID INTEREST OF RS. 21.87 CRORES. HE WAS THEREFORE OF THE VIEW THAT IN VIEW OF THE TAX FREE INCOME RECEIVED, DISALLOWANCE U/S. 14A WAS REQUIRED TO BE MADE. HE A CCORDINGLY WORKED OUT THE DISALLOWANCE U/S. 14A BY FOLLOWING THE METHOD P RESCRIBED UNDER RULE 8D AND WORKED OUT THE TOTAL DISALLOWANCE AT RS. 10, 20,670/- WHICH COMPRISED OF DISALLOWANCE OF INTEREST OF RS. 8,42,4 95/- AND ADMINISTRATIVE EXPENSES OF RS. 1,78,175/-. AGGRIEVED BY THE ORDER OF A.O., ASSESSEE CARRIED THE MATTER BEFORE LD. CIT(A) WHO CONFIRMED THE ACTI ON BY A.O AND UPHELD THE DISALLOWANCE BY HOLDING AS UNDER:- 4.2 I HAVE PERUSED THE ASSESSMENT ORDER PASSED BY T HE A.O AS WELL AS CONSIDERED THE SUBMISSIONS OF THE LD. A.R IN THIS R EGARD. THE AR IN ITS ABOVE SUBMISSION HAS MAINLY STATED THAT THE AO HAS ERRED IN DISALLOWING RS. ITA NO 2119/ AHD/2012 . A.Y. 2008-09 4 10,20,670/- U/S 14A RWR 8D. AS PER THE AR NO EXPENS ES WERE INCURRED IN RELATION TO EARNING TAX FREE INCOME. WITHOUT PREJUD ICE TO THIS, THE AR HAS FURTHER SUBMITTED THAT THE DISALLOWANCE, IF ANY, BE RESTRICTED TO 0.5% OF AVERAGE INVESTMENT SINCE NO INVESTMENT HAVE BEEN MA DE IN THE PAST OUT OF BORROWED FUND. BUT THE VERY FACT IS THAT THERE IS I NVESTMENT OF RS. 3,56,34,924/-IN THE CASE OF APPELLANT. THE A.R SUB MITTED THAT NO EXPENSES WERE INCURRED IN RELATION TO EARNING TAX FREE INCOME ON SUCH INVESTMENT. THE AR HAS NOT FURNISHED RELEVANT DETAILS AS WELL AS EV IDENCES PROVING THAT THE ABOVE INVESTMENT OF RS. 3,56,34,924/- WAS MADE IN E ARLIER YEAR OR YEARS FROM THE PERSONAL FUNDS OF THE APPELLANT AND NOT FR OM BORROWED FUNDS. THE APPELLANT IS PAYING HUGE INTEREST ON BORROWING AND THEREFORE IT WAS VERY MUCH NECESSARY FOR THE APPELLANT TO PROVE BEFORE TH E AO BY FILING NECESSARY DETAILS AND EVIDENCES THAT SUCH ABOVE INVESTMENT OF RS. 3,56,34,924/- WAS NOT OUT OF BORROWED FUNDS. THUS IT CAN BE SAID THAT THE APPELLANT HAS FAILED TO OFFER SATISFACTORY EXPLANATION ABOUT THE CORRECT NESS OF THE CLAIM TO THE ASSESSING OFFICER. EVEN DURING THE COURSE OF APPELL ATE PROCEEDINGS ALSO SUCH DETAILS AND EVIDENCES HAVE NOT BEEN FILED BY THE AP PELLANT BEFORE THE UNDERSIGNED. IN VIEW OF THESE FACTS THE ABOVE VARIO US DECISIONS AS CITED BY THE AR IN SUPPORT OF HIS SUBMISSION ARE NOT APPLICA BLE TO THE CASE OF THE APPELLANT. THUS IN MY OPINION THE AO HAS CORRECTLY CALCULATED DISALLOWANCE OF RS. 10,20,670/- U/S 40A OF THE IT ACT AND THEREF ORE THE SAME IS CONFIRMED. 6. AGGRIEVED BY THE AFORESAID ORDER OF LD. CIT(A), ASS ESSEE IS NOW IN APPEAL BEFORE US. 7. BEFORE US, LD. A.R. REITERATED THE SUBMISSIONS MADE BEFORE A.O AND LD. CIT(A) AND FURTHER SUBMITTED THAT A.O HAS NOT PROV ED NEXUS OF THE INTEREST ITA NO 2119/ AHD/2012 . A.Y. 2008-09 5 BEARING FUNDS BEING UTILIZED FOR THE PURPOSE OF MAK ING INVESTMENTS. HE FURTHER SUBMITTED THAT THE INVESTMENTS OF RS. 3.56 CRORE ARE CARRIED FORWARD SINCE A.Y. 2005-06 AND NO FRESH INVESTMENTS HAVE BE EN MADE DURING THE YEAR UNDER REVIEW. HE ALSO PLACED ON RECORD THE SCH EDULE OF INVESTMENTS AS SHOWN IN THE AUDITED BALANCE SHEET, AS ON 31 ST MARCH 2004 TO 31 ST MARCH, 2008 AND POINTED OUT THAT THERE IS NO CHANGE IN THE INVESTMENTS IN ANY OF THOSE YEARS EXCEPT FOR A MARGINAL INCREASE OF INVES TMENTS OF RS. 5,000/- ON 31.03.2005 AND FURTHER ALL THESE INVESTMENTS HAVE B EEN MADE OUT OF INTEREST FREE FUNDS. HE FURTHER SUBMITTED THAT THAT ON IDENT ICAL FACTS FOR A.Y. 07-08 IN C.O NO. 198/A/2010 (IN ITA NO. 1945/A/2010), THE HO NBLE ITAT AFTER CONSIDERING THAT THE INVESTMENTS WERE SAME ON THE F IRST DAY AND THE LAST DAY OF THE FINANCIAL YEAR AND THERE BEING NO SALE OR PU RCHASE OF INVESTMENTS CONSIDERING THE ADMINISTRATIVE EXPENSES, CONFIRMED THE DISALLOWANCE U/S. 14A OF RS. 50,000/-. HE PLACED ON RECORD THE COPY O F THE AFORESAID ORDER OF TRIBUNAL AND FURTHER SUBMITTED THAT THE FACTS OF TH E CASE IN THE YEAR UNDER APPEAL ARE IDENTICAL TO THAT OF EARLIER YEARS. HE T HEREFORE SUBMITTED THAT THE NO DISALLOWANCE IS CALLED FOR AND IN THE ALTERNATE SUBMITTED THAT SIMILAR DISALLOWANCE AS DIRECTED BY TRIBUNAL IN A.Y. 2007-0 8 BE MADE. THE LD. D.R. ON THE OTHER HAND SUPPORTED THE ORDER OF A.O AND LD . CIT(A) AND FURTHER SUBMITTED THAT A.O IS NOT REQUIRED TO PROVE THE NEX US OF INTEREST BEARING FUNDS BEING USED FOR THE PURPOSE OF INVESTMENT AND A.O HAS RIGHTLY APPLIED RULE 8D FOR WORKING OUT THE DISALLOWANCE. 8. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL ON RECORD. THE ISSUE IN THE PRESENT GROUND IS WITH RESPECT TO DISA LLOWANCE U/S. 14A. FROM THE COPIES OF THE INVESTMENT SCHEDULE FOR EARLIER Y EARS THAT HAS BEEN PLACED ON RECORD, IT IS SEEN THAT THE TOTAL INVESTMENTS AS ON 31 ST MARCH, 2004 WAS RS. ITA NO 2119/ AHD/2012 . A.Y. 2008-09 6 3,56,29,924/- AND AS ON 31 ST MARCH, 2005, THE INVESTMENT MARGINALLY INCREASED BY RS. 5,000/- AND THE TOTAL INVESTMENTS AS ON 31 ST MARCH 2005 WAS RS. 3,56,34,924/- AND THAT THE SAME BALANCE OF INVE STMENTS HAVE CONTINUED FROM 31 ST MARCH 2005 TO 31 ST MARCH, 2008 WITH NO CHANGE IN THE VALUE OF INVESTMENTS NOR ITS COMPOSITION MEANING THEREBY THA T ASSESSEE HAS NOT MADE ANY NEW INVESTMENTS DURING THE PERIOD 31 ST MARCH 2005 TO 31 ST MARCH 2008. THE AFORESAID FACTS HAVE NOT BEEN DISPUTED BY REVEN UE. IT IS ALSO A FACT THAT IN ASSESSEES C.O (C.O NO. 198/A/2010 ORDER DATED 3 1.08.2012) FOR A.Y. 2007-08, THE CO-ORDINATE BENCH OF TRIBUNAL HAD ACCE PTED THE CONTENTION OF ASSESSEE THAT NO BORROWED FUNDS HAVE BEEN USED FOR MAKING INVESTMENTS AND THEREFORE DELETED THE ADDITION OF THE INTEREST PORTION. IN SUCH A SITUATION, WHEN THERE IS NO CHANGE IN THE VALUE OF INVESTMENTS OR ITS COMPOSITION FROM THAT OF EARLIER YEARS AND WHEN IN EARLIER YEAR THE FACT OF NON UTILIZATION OF INTEREST BEARING FUNDS HAVING BEEN ACCEPTED, WE ARE OF THE VIEW THAT NO DISALLOWANCE ON ACCOUNT OF INTEREST IN THE YEAR UND ER CONSIDERATION IS CALLED FOR. AS FAR AS DISALLOWANCE OF ADMINISTRATIVE EXPEN SES IS CONCERNED, WE FIND THAT THAT IN APPEAL FOR A.Y. 07-08, THE DISALLOWANC E WAS RESTRICTED TO RS. 50,000/- BY THE CO-ORDINATE BENCH BUT HOWEVER FOR T HE YEAR UNDER CONSIDERATION BEING A.Y. 2008-09 AND SINCE PROVISIO NS OF RULE 8D ARE HELD TO BE MANDATORY, WE ARE OF THE VIEW THAT THE DISALL OWANCE ON ACCOUNT OF ADMINISTRATIVE EXPENSES BE MADE AS PER THE FORMULA PRESCRIBED I.E. 0.5% OF AVERAGE INVESTMENTS MEANING THEREBY THAT THE DISALL OWANCE U/S.14A BE RESTRICTED TO RS. 1,78,175/- AS AGAINST RS. 10,20,6 70/- MADE BY A.O. WE THUS DIRECT ACCORDINGLY. IN THE RESULT, THIS GROUND IS P ARTLY ALLOWED. 9. GROUND NO. 4 IS WITH RESPECT TO CHARGING OF INTERES T U/S. 234B.THIS GROUND BEING CONSEQUENTIAL IN NATURE AND THEREFORE WE DIRE CT THE A.O TO RE-COMPUTE ITA NO 2119/ AHD/2012 . A.Y. 2008-09 7 THE INTEREST ON THE INCOME AS MAY BE FINALLY DETERM INED IN CONSEQUENCE OF THIS ORDER. 10. IN THE RESULT, THE APPEAL OF ASSESSEE IS PARTLY ALL OWED. ORDER PRONOUNCED IN OPEN COURT ON 10 - 09- 2015. SD/- SD/- (KUL BHARAT) (ANIL CHATURVEDI) JUDICIAL MEMBER ACCOUNTANT MEMBER AHMEDABAD. TRUE COPY 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,A HMEDABAD