M/s Leo Coats (India) Pvt.Ltd., Surat V. The Addl.CIT.,Range-1,Ward-3(3), Surat

ITA 2248/AHD/2011

• Counselvise Citation: [2017] 130 COUNSELVISE.COM (IT) 9466 (ITAT-AHMEDABAD)
• Duration Of Justice: 5 year(s) 4 month(s) 12 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 18-01-2017
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: D
• Next Hearing Date: 12-01-2017
• Assessment Year: 2008-2009
• Appeal Filed On: 06-09-2011
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: PRAVIN KUMAR
• Assessee Lawyers: MIHIR GANDHI
• Keywords: Opportunity of being heard; Earning of tax free income; Question of law
• Section: 14A

Judgement Text

, IN THE INCOME TAX APPELLATE TRIBUNAL D BENCH, AHMEDABAD . . , , BEFORE SHRI N.K. BILLAIYA, ACCOUNTANT MEMBER AND SHRI MAHAVIR PRASAD, JUDICIAL MEMBER ./ I.T.A. NO.2248/AHD/2011 ( / ASSESSMENT YEAR : 2008-09 ) M/S. LEO COATS (INDIA) P. LTD. / VS. ADD.CIT RANGE 1 WARD 3(3), SURAT. ./ ./ PAN/GIR NO. : AAGFG 5384 B ( / APPELLANT ) .. ( / RESPONDENT ) / APPELLANT BY : SHRI MIHIR GANDHI, A.R. / RESPONDENT BY : SHRI PRAVIN KUMAR, SR.D.R. / DATE OF HEARING 12/01/2017 / DATE OF PRONOUNCEMENT 18/01/2017 / O R D E R PER SHRI MAHAVIR PRASAD, JUDICIAL MEMBER : THIS APPEAL HAS BEEN FILED BY THE ASSESSEE AGAINST THE ORDER OF THE COMMISSIONER OF INCOME TAX(APPEALS)-I, SURAT, DATED 09/06/2011 FOR THE ASSESSMENT YEAR (AY) 2008-09 AND FOLLOWING GROUND HAS BEEN TAKEN: (I). THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE, THE LD.CIT(A) HAS ERRED IN CONFIRMING THE ADDITION OF RS.5,71,015/- ON ACCOUNT OF DISALLOWANCE OF EXPENDITURE INCURRED TO EARN EXEMPT INCOME U/S. 14A OF THE INCOME TAX ACT. 2. THE FACT OF THE CASE IS ASSESSEE COMPANY ENGAGED IN THE BUSINESS OF APPLICATION OF INDUSTRIAL COATING ON CONTRACTUAL BASIS AND SALE OF PAINTS AND OTHER MATERIALS. DURING THE YEAR UNDER CONSIDERATION THE ASSESSEE HAS SHOWN GROSS PROFIT OF RS.3,48,49,957/- ON TOTAL TURNOVER OF RS.18,98,90,760/- WHICH WAS WORKS OUT TO 18.35% AS AGAINST THE ITA NO. 2248/AHD/2011 M/S. LEO COATS (INDIA) P. LTD VS. CIT ASST.YEAR 2008-09 - 2 - G.P.17.76% ON TOTAL TURNOVER OF RS.18,94,84,141/- SHOWN IN THE IMMEDIATE PRECEDING YEAR. 3. ON THE PERUSAL OF THE CASE RECORDS, THE LD. A.O. WAS NOTICED THAT THE ASSESSEE HAS SHOWN EXEMPTED DIVIDEND INCOME OF RS.67,36,911/- AND LONG-TERM CAPITAL GAIN ON MUTUAL FUNDS AND SECURITIES OF RS.70,35,074/- DURING THE YEAR UNDER CONSIDERATION. HOWEVER, NO EXPENDITURE IN RELATION TO SUCH EXEMPTED INCOME HAS BEEN SHOWN BY THE ASSESSEE. THEREFORE, ASSESSEE WAS ASKED TO FURNISH THE DETAILS OF THE EXPENDITURE INCURRED IN RELATION TO SUCH EXEMPTED INCOME AND ALSO TO EXPLAIN AS TO WHY THE EXPENDITURE IN RELATION TO EXEMPTED INCOME SHOULD NOT BE DETERMINED IN ACCORDANCE WITH THE PROVISIONS OF SECTION 14A OF THE I.T. ACT READ WITH RULE 8D OF THE INCOME-TAX RULES. HOWEVER, THE ASSESSEE DID NOT FURNISH ANY DETAILS/EXPLANATION IN THIS REGARD. PRACTICALLY IT WAS NOT POSSIBLE TO EARN ANY INCOME (EXEMPT OR NON-EXEMPT) WITHOUT INCURRING CERTAIN EXPENDITURE. FURTHER, SUB-SECTION (1) OF SECTION 14A OF THE INCOME-TAX ACT CLEARLY ENVISAGED THAT FOR THE PURPOSE OF COMPUTING THE TOTAL INCOME, NO DEDUCTION SHALL BE ALLOWED IN RESPECT OF EXPENDITURE INCURRED BY THE ASSESSEE IN RELATION TO INCOME WHICH DOES NOT FORM PART OF TOTAL INCOME. SINCE THE EXEMPTED INCOME SHOWN BY THE ASSESSEE DOES NOT FORM PART OF TOTAL INCOME AND THE ASSESSEE HAS NOT SHOWN ANY EXPENDITURE INCURRED IN RELATION TO SUCH INCOME JUST TO INFLATE ITS EXPENDITURE AND REDUCE TAX LIABILITY TO THAT EXTENT, A.O. HAD NO OPTION IN RELATION TO THE EXEMPTED INCOME SHOWN BY THE ASSESSEE IN ACCORDANCE WITH THE METHOD PRESCRIBED UNDER RULE 8D OF THE I.T. RULES. THEREFORE ADDITION OF RS.5,71,015/- ITA NO. 2248/AHD/2011 M/S. LEO COATS (INDIA) P. LTD VS. CIT ASST.YEAR 2008-09 - 3 - 4. THEREAFTER, ASSESSEE/APPELLANT PREFERRED FIRST STATUTORY APPEAL BEFORE THE LD.CIT(A), BUT TO NO AVAIL WE HAVE HEARD THE LD.A.R., WHEREAS LD. D.R. IS RELYING ON A.O. AND LD. CIT(A) BOTH, AS WE CAN SEE THAT BEFORE THE AUTHORITIES BELOW APPELLANT COMPANY HAS NOT INCURRED ANY EXPENSES FOR EARNING EXEMPT INCOME WHICH IS EVIDENT FROM PROFIT AND LOSS ACCOUNT FOR THE YEAR ENDED 31/03/2008 AND THE ASSESSEE HAS NOT FURNISH ANY DETAIL OF THE EXPENDITURE INCURRED WITH RESPECT TO THE EXEMPTED INCOME AND WAS ALSO NOT SUBMITTED ANY EXPLANATION WITH REGARD TO EXPLANATION. 5. NOW BEFORE US ASSESSEE HAS FILED THE DETAILS WITH REGARD TO EXPENDITURE AND ALSO FINED SEVERAL JUDGMENT INCLUDING ALL OUR OWN CO- ORDINATE BENCH, WHEREAS IN SIMILAR CASES EXPENSES HAVE BEEN ALLOWED BECAUSE WITHOUT INCOME THERE CANNOT BE ANY EXPENDITURE. 6. SINCE DOCUMENTS HAVE BEEN FILED BEFORE US FOR THE FIRST TIME BY THE ASSESSEE/APPELLANT AND RESPECTIVELY FOLLOWING THE JUDGMENT OF SHRENO LIMITED VS. ASSISTANT COMMISSIONER OF INCOME-TAX IN ITA NO.1452/AHD/2012, IN THE AFORESAID CASE, THE DETAILS OF VISITS OF THE DIRECTOR WERE FINALIZED BUT SAME WERE NOT SUPPORTED BY THE VOUCHER AND OTHER DOCUMENTARY EVIDENCE, WHICH COULD SAY BUSINESS ACTIVITIES DURING THE COURSE OF VISIT BUT CONSIDERING THE ENTIRE VISIT BEFORE THE LD. ITAT. THAT APPEAL WAS ALLOWED IN FAVOUR OF THE ASSESSEE. ITA NO. 2248/AHD/2011 M/S. LEO COATS (INDIA) P. LTD VS. CIT ASST.YEAR 2008-09 - 4 - 7. LD. A.R. HAS ALSO FILED A JUDGMENT OF COMMISSIONER OF INCOME TAX VS. UTI BANK LTD. [2013] 32 TAXMANN.COM 370 (GUJARAT), IN THIS CASE, THE ENTIRE DISALLOWANCES HAS BEEN MADE ON THE BASIS OF FACTS EMERGING ON RECORD AND HONBLE ITAT ALSO RELIED ON THE DECISION OF THE BOMBAY HIGH COURT IN THE CASE OF RELIANCE UTILITIES & POWER LTD. [2009] 313 ITR 340/178 TAXMAN 135 (BOM.), WITHOUT GIVING A FINDING AS TO HOW MUCH ADMINISTRATIVE EXPENDITURE HAVE BEEN INCURRED TO EARN THE EXEMPT INCOME, HAD MADE DISALLOWANCE. IN THE EARLIER YEAR ALSO, SIMILAR POSITION OBTAINED. THAT BEING THE FACT, NO QUESTION OF LAW ARISES. ACCORDINGLY, APPEALS WERE DECIDED IN FAVOUR OF THE ASSESSEE. 8. RESPECTFULLY FOLLOWING THE JUDGMENT OF ITAT AND HONBLE GUJARAT HIGH COURT AS WELL AS CONSIDERING THE FACTS THAT DOCUMENTS HAVE BEEN FILED BEFORE US, IN THE INTEREST OF JUSTICE, WE REMAND THIS MATTER BACK TO THE FILE OF THE LD. ASSESSING OFFICER TO EXAMINE THE DOCUMENTS AGAIN AND DECIDE THE MATTER AFRESH AFTER AFFORDING REASONABLE OPPORTUNITY OF BEING HEARD TO THE ASSESSEE. 9. IN THE RESULT, APPEAL OF THE ASSESSEE IS ALLOWED. THIS ORDER PRONOUNCED IN OPEN COURT ON 18/01/2017 SD/- SD/- . . ( ) ( ) ( N.K. BILLAIYA ) ( MAHAVIR PRASAD ) ACCOUNTANT MEMBER JUDICIAL MEMBER AHMEDABAD; DATED 18/01/2017 ITA NO. 2248/AHD/2011 M/S. LEO COATS (INDIA) P. LTD VS. CIT ASST.YEAR 2008-09 - 5 - / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT 2. / THE RESPONDENT. 3. / CONCERNED CIT 4. ( ) / THE CIT(A)-I, SURAT 5. , , / DR, ITAT, AHMEDABAD 6. / GUARD FILE. / BY ORDER, //TRUE COPY// / ( DY./ASSTT.REGISTRAR) , / ITAT, AHMEDABAD TRUE COPY