The DCIT, Circle-4, Ahmedabad V. M/s. Modern Construction Co.P.Ltd., Ahmedabad

ITA 2350/AHD/2008

• Counselvise Citation: [2013] 140 COUNSELVISE.COM (IT) 68005 (ITAT-AHMEDABAD)
• Duration Of Justice: 5 year(s) 5 month(s) 9 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 29-11-2013
• Appeal Filed By: Department
• Order Result: Partly Allowed
• Bench Allotted: A
• Next Hearing Date: 24-10-2013
• Assessment Year: 2003-2004
• Appeal Filed On: 20-06-2008
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: O P BATHEJA
• Assessee Lawyers: M G PATEL
• Keywords: Proportionate interest; Corroborative evidences
• Section: 14A; 133(6)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL A BENCH, AHMEDABAD BEFORE SHRI MUKUL KR. SHRAWAT, JUDICIAL MEMBER AND SHRI T.R. MEENA, ACCOUNTANT MEMBER ITA NO.1465 & 1466/AHD/2008 A.YS. 2003-04 & 2004-05 MODERN CONSTRUCTION CO. P. LTD., 5 TH FLOOR, H.K. HOUSE ASHRAM ROAD AHMEDABAD. PAN: AAACM 5823E VS DCIT CIRCLE-4, AHMEDABAD. (APPELLANT) (RESPONDENT) ITA NO.2350 & 2351/AHD/2008 A.YS. 2003-04 & 2004-05 DCIT CIRCLE-4, AHMEDABAD. VS MODERN CONSTRUCTION CO. P. LTD., 5 TH FLOOR, H.K. HOUSE ASHRAM ROAD AHMEDABAD. PAN: AAACM 5823E (APPELLANT) (RESPONDENT) REVENUE BY : S/SHRI O.P. BATHEJA, SR.D.R. ASSESSEE(S) BY : SHRI M.G. PATEL, A.R. / DATE OF HEARING : 24/10/2013 / DATE OF PRONOUNCEMENT: 29/11/2013 / O R D E R PER SHRI MUKUL KUMAR SHRAWAT, JUDICIAL MEMBER THESE FOUR APPEALS ARE RESPECTIVELY FILED BY THE AS SESSEE AS WELL AS BY THE REVENUE FOR A.YS. 2003-04 AND 2004-05. FACTS BEING IDENTICAL, HENCE, CONSOLIDATED AND HEREBY DECIDED BY THIS COMM ON ORDER. ITA NOS.1465, 1466, 2350 & 2351/AHD/2008 MODERN CONSTRUCTION CO. P. LT.D VS. DCIT AHMEDABAD . FOR A.YS. 2003-04 & 2004-05 - 2 - 2. FOR A.YS. 2003-04 AND 2004-05, LEARNED CIT(A)-VI II, AHMEDABAD HAS PASSED THE ORDER ON 31.03.2008. FOR A.Y. 2003-0 4, REVENUE HAS RAISED GROUND NO.1, REPRODUCED BELOW: THE LD. CIT(A) HAS ERRED IN LAW AND ON THE FACTS OF THE CASE IN HOLDING THAT THE ASSESSEE IS ELIGIBLE FOR DEDUCTION U/S. 80IA(4) OF RS.43,92,616/-. 3. WHILE DECIDING ASSESSEES APPEAL FOR A.Y. 2002-0 3 BEARING ITA NO.264/AHD/2008 AND ITA NO.572/AHD/2008 ORDER EVEN DATED 29.11.2013, WE HAVE RESTORED THE ISSUE OF ADMISSIBI LITY OF CLAIM OF DEDUCTION U/S.80IA BACK TO THE FILE OF THE AO FOR F RESH RE-ADJUDICATION AS PER LAW. SINCE, THE FACTS ARE IDENTICAL, THEREFORE, ON THE SAME LINES FOR THIS YEAR A WELL THIS GROUND OF THE REVENUE IS HEREBY RE STORED BACK TO THE FILE OF THE AO FOR DE NOVO CONSIDERATION AS PER THE DIRE CTIONS ALREADY GIVEN IN THE ORDER CITED SUPRA. 4. IN THE RESULT, THIS GROUND OF THE REVENUE MAY BE TREATED AS ALLOWED FOR STATISTICAL PURPOSE ONLY. 5. GROUND NO.2 IS REPRODUCED BELOW: THE LD. CIT(A) HAS ERRED IN LAW AND ON THE FACTS O F THE CASE IN DIRECTING THE AO TO REDUCE ONLY THE PROFIT IN RESPECT OF THE CONT RACT FROM GUJARAT INDUSTRIAL POWER CO. LTD., WHICH IS NOT ELIGIBLE FOR DEDUCTION U/S.80IA, AND NOT THE ENTIRE RECEIPTS OF RS.17,34,670/- RECEIVED FROM THE AFORESAID COMPANY. 6. FACTS IN BRIEF ARE THAT THE GROSS RECEIPTS FROM GUJARAT INDUSTRIAL POWER COMPANY WERE SHOWN AT RS.17,34,670/-. IT WAS AGREED UPON DURING THE COURSE OF ASSESSMENT PROCEEDINGS THAT TH E ASSESSEE IS NOT ELIGIBLE FOR DEDUCTION U/S.80IA IN RESPECT OF RECEI PTS FROM GUJARAT INDUSTRIAL POWER CO. HOWEVER, IT WAS CONTENDED T HAT THE GROSS RECEIPTS SHOULD NOT BE DEDUCTED BUT ONLY PROFIT OF RS.2,41,4 93/- IS REQUIRED TO BE EXCLUDED. THE AO HAS NOT ACCEPTED THE ABOVE CONTENT ION, HENCE THE ITA NOS.1465, 1466, 2350 & 2351/AHD/2008 MODERN CONSTRUCTION CO. P. LT.D VS. DCIT AHMEDABAD . FOR A.YS. 2003-04 & 2004-05 - 3 - MATTER WAS CARRIED BEFORE THE FIRST APPELLATE AUTHO RITY WHO HAS HELD AS UNDER:- 4.1. BEFORE ME, THE A.R. SUBMITTED THAT IN RESPECT OF CONTRACT RECEIPT OF RS.17,34,670/- FROM GUJARAT INDUSTRIAL POWER CO.LTD ., ONLY NET PROFIT OF RS.2,41,493/- AFTER CONSIDERING OPENING WORK-IN-PRO GRESS OF RS.14,93,177/- EARNED BY THE APPELLANT IN RESPECT OF THE SAID PROJ ECT IS NOT ADMISSIBLE FOR DEDUCTION U/S.80IA AND ENTIRE GROSS RECEIPT CANNOT BE EXCLUDED FOR THE PURPOSE OF DEDUCTION U/S.80IA. 4.2. I HAVE CONSIDERED THE SUBMISSIONS OF THE A.R. CAREFULLY. I FIND FORCE IN THE CONTENTION OF THE A.R. AS PROFIT IS CONSIDERE D FOR DEDUCTION U/S.80IA, THE PROFIT IN RESPECT OF THE PARTICULAR CONTRACT FROM G UJARAT INDUSTRIAL POWER CO.LTD. IS DIRECTED TO BE DEDUCTED AND NOT ENTIRE R ECEIPTS. THIS GROUND IS ALLOWED. 7. HAVING HEARD THE SUBMISSIONS OF BOTH THE SIDES, IT APPEARS THAT THERE IS NO FALLACY IN THE VIEW TAKEN BY THE LD.CIT (A) SPECIALLY WHEN THE ASSESSEE HAS FORGONE HIS RIGHT OF CLAIM OF DEDUCTIO N U/S.80IA IN RESPECT OF GROSS RECEIPT FROM GUJARAT INDUSTRIAL POWER CO. AND CONFINED THE CLAIM TO THE PROFIT OF THE BUSINESS TO BE EXCLUDED FROM THE DEDUCTION U/S.80IA. WE THEREFORE DISMISS THIS GROUND OF THE REVENUE. 8. GROUND NO.3 & 4 FOR A.Y. 2003-04 ARE REPRODUCED BELOW: 3. THE LD. CIT(A) HAS ERRED IN LAW AND ON THE FACT S OF THE CASE IN DELETING THE ADDITION OF RS.12,96,893/- ON ACCOUNT OF UNACCOUNTE D PAYMENTS. 4. THE LD. CIT(A) HAS ERRED IN LAW AND ON THE FACT S OF THE CASE IN DELETING THE DISALLOWANCE OF EXCESS EXPENSES DEBITED OF RS.5,25, 435/-. 9. GROUND NO.1, FOR A.Y. 2004-05 IS CONNECTED, HENC E REPRODUCED BELOW: THE LD. CIT(A) HAS ERRED IN LAW AND ON THE FACTS O F THE CASE IN DELETING THE ADDITION OF RS.12,90,739/- ON ACCOUNT OF UNACCOUNTE D PAYMENTS. 10. IT WAS OBSERVED BY THE AO THAT THE ASSESSEE HAS SHOWN SUNDRY CREDITORS OUTSTANDING AS ON 31.3.2003 AT RS.4,33,63 ,264/-. THE AO HAS ITA NOS.1465, 1466, 2350 & 2351/AHD/2008 MODERN CONSTRUCTION CO. P. LT.D VS. DCIT AHMEDABAD . FOR A.YS. 2003-04 & 2004-05 - 4 - ISSUED LETTERS U/S.133(6) OF THE ACT TO TWENTY SEV EN (27) CREDITORS. OUT OF THE SAID LIST OF CREDITORS, ONLY 17 PARTIES HAVE REPLIED. IN SOME OF THE CASES, THE NOTICES COULD NOT BE SERVED AND IN SOME OF THE CASES THE REPLY WAS RECEIVED. THE ASSESSEE HAS EXPLAINED THAT ALL T HOSE PARTIES WERE HAVING REGULAR BUSINESS WITH THE ASSESSEE SINCE LON G. IT WAS ALSO INFORMED THAT TDS HAD ALSO BEEN DEDUCTED FROM THE P AYMENTS. EXCEPT IN ONE CASE, IT WAS INFORMED TO AO THAT THE PAYMENT HAD BEEN MADE THROUGH A/C.PAYEE CHEQUE. THE AO HAS PREPARED A CH ART AND POINTED OUT A DISCREPANCY IN THE BALANCES AS PER THE BOOKS OF T HE APPELLANT AS AGAINST THAT THE BALANCES AS PER THE BOOKS OF THOSE PARTIES . SOME OF THE FIGURES WERE IN MINUS AND FEW OF THEM WERE SHOWING POSITIVE DIFFERENCE. THE AO HAS THUS OBSERVED THAT IN THE CASE OF SOME OF TH E PARTIES THE AMOUNTS AS PER THE BOOKS OF ACCOUNT OF THE ASSESSEE WERE MO RE THAN THE AMOUNTS SHOWN IN THE BOOKS OF ACCOUNTS OF THOSE PARTIES. I N THOSE CASES, IT WAS CONCLUDED BY THE AO THAT THE ASSESSEE HAD DEBITED E XCESS EXPENSE IN ITS BOOKS OF ACCOUNT. FURTHER, IN SOME OF THE CASES, T HE AMOUNTS AS PER THE BOOKS OF THE PARTIES WERE MORE THAN THE AMOUNTS SHO WN IN THE BOOKS OF THE ASSESSEE. FOR SUCH CASES, IT WAS CONCLUDED BY THE AO THAT THE APPELLANT HAD MADE CASH PAYMENTS TO THOSE PARTIES W HICH WERE NOT RECORDED IN THE BOOKS OF ACCOUNT. SUCH CASH PAYMEN T WAS CALCULATED AT RS.12,96,893/- AS CONTESTED IN GROUND NO.3(SUPRA). LIKEWISE, EXCESS EXPENSES DEBITED BY THE ASSESSEE WAS WORKED OUT AT RS.5,25,435/- AS RAISED IN GROUND NO.4 (SUPRA). 10.1. WHEN THE MATTER WAS CARRIED BEFORE THE FIRST APPELLATE AUTHORITY, IT WAS EXPLAINED THAT IN MAJORITY OF THE CASES, THE TR ANSACTION AS PER THE ASSESSEES BOOK OF ACCOUNT WAS LESS THAN THE TRANSA CTIONS RECORDED IN ITA NOS.1465, 1466, 2350 & 2351/AHD/2008 MODERN CONSTRUCTION CO. P. LT.D VS. DCIT AHMEDABAD . FOR A.YS. 2003-04 & 2004-05 - 5 - THEIR BOOKS BY THE PARTIES. MEANING THEREBY, IT WAS EXPLAINED TO LD.CIT(A) THAT THE ASSESSEE HAD MADE LESS PAYMENT T O THOSE CONCERNED PARTIES. IT WAS FURTHER EXPLAINED THAT OUT OF THE BILL AMOUNTS, SOME OF THE AMOUNT WAS DEDUCTED EITHER BECAUSE OF SOME DISPUTE OR BECAUSE OF SOME INFERIOR QUALITY OF WORK DONE. TO THAT EXTENT, LES S EXPENDITURE WAS INCURREDBY THE ASSESSEE. THE ASSESSEE HAS PRODUCED SOME OF THE ACCOUNTS AND RELATED EVIDENCES, THEREFORE AO WAS DIRECTED TO EXAMINE THE SAME AND SUBMIT A REMAND REPORT. AFTER DUE VERIFICATION OF THE ACCOUNTS AND DETAILED DISCUSSION, LD.CIT(A) HAS DISCUSSED THE PO SITION OF ACCOUNT OF EACH PARTY AND THEREAFTER DELETED BOTH THE ADDITION S AS FOLLOWS:- 5.4. I HAVE CONSIDERED THE SUBMISSIONS OF THE A.R. CAREFULLY AND THE REMAND REPORT OF THE A.O. AND THE COUNTER REPLY OF THE A.R. AS IN THE CASE OF THE APPELLANT, THE AMOUNT CREDITED TO SAHYOG FIELD SERVICES IS LESS I.E. THE APPELLANT HAS PAID LESS AMOUNT TO THE SAID PARTY TH AN WHAT HAS BEEN CLAIMED BY THE PARTY FOR EXCAVATION WORK, O ADDITION IS REQ UIRED. SO THE ADDITION OF RS.87,501/- IN RESPECT OF THIS PARTY IS DELETED. A S REGARDS THE CASH PAYMENTS, THE A.R. HAS SUBMITTED THAT THE APPELLANT HAS MADE CASH PAYMENTS ON VARIOUS DATES TO THE SAID PARTY BUT THE SAID PARTY HAS ACCO UNTED THE SAME IN LUMPSUM. HOWEVER, EACH PAYMENT MADE BY THE APPELLANT DOES NO T EXCEED RS.20,000/- AND DOES NOT CALL FOR DISALLOWANCE U/S.40A(3) OF TH E ACT. IN RESPECT OF V.V.PANKHANIYA, THE A.R. HAS POINTED OUT THAT THE S AID PARTY IS A LABOURER WHO WAS NOT MAINTAINING ANY BOOKS OF ACCOUNTS AND T HE CONFIRMATION HAS BEEN GIVEN BY HIM ON ESTIMATED RECEIPTS WHICH CANNO T BE TAKEN AS BASIS FOR MAKING AN ADDITION. AS THE APPELLANT HAS PAID LESS AMOUNT TO THIS PARTY AS RECORDED IN ITS BOOKS, NO ADDITION IS REQUIRED TO B E MADE. CONSIDE3RING THE SAID SUBMISSIONS, THE ADDITION MADE IN RESPECT OF T HIS PARTY IS HELD TO BE NOT JUSTIFIED AND THE SAME IS DELETED. AS REGARDS SHRI MANSUKH SURMAL, THE APPELLANT HAS ACCOUNTED LESS PAYMENT IN ITS BOOKS T HAT WHAT THE PARTY HAS CLAIMED AND FURTHER THE PARTY HAS NOT MAINTAINED AN Y ACCOUNTS, THEREFORE, THE SMALL DIFFERENCE NEED NOT BE ADDED AND THE ADDITION IS THEREFORE, DELETED. IN RESPECT OF ALABHAI RATHOD, THE A.R. HAS SUBMITTED T HAT THE SAID PARTY HAS NOT MAINTAINED ANY BOOKS OF ACCOUNTS AND HE HAS FILED R ETURN ON ESTIMATE BASIS AFTER TAKING NET PROFIT @ 8%, THE A.O. TOOK RETURNE D INCOME AND WORKED HIS GROSS RECEIPTS AND CALCULATED THE DIFFERENCE, THERE FORE, THE PAYMENTS AS CLAIMED BY THE SAID PARTY CANNOT BE ACCEPTED TO BE CORRECT AND THEREFORE, THE RECEIPTS OF THE SAID PARTY CANNOT BE TAKEN FOR COMP ARISON, MORE SO WHEN THE APPELLANT HAS GOT THE BILLS SIGNED BY THE SAID PART Y, THEREFORE, NO ADDITION IS REQUIRED TO BE MADE. CONSIDERING THE SAID SUBMISSI ONS, THE ADDITION MADE IN RESPECT OF THIS PARTY IS HELD TO BE NOT JUSTIFIED A ND THE SAME IS DELETED. AS REGARDS SHRI KANTILAL BHIKHABHAI SHAH, THE A.O. HAS WORKED OUT THE ITA NOS.1465, 1466, 2350 & 2351/AHD/2008 MODERN CONSTRUCTION CO. P. LT.D VS. DCIT AHMEDABAD . FOR A.YS. 2003-04 & 2004-05 - 6 - DIFFERENCE OF RS.9,712/-. IT IS THE CONTENTION OF THE A.R. THAT THE SAID DIFFERENCE IS BECAUSE OF MINOR DEDUCTION FROM THE B ILLS RAISED BY THE PARTY DUE TO QUANTITY VARIATION, THIS CONTENTION APPEARS TO B E CORRECT AND THEREFORE, THE ADDITION IN RESPECT OF THIS PARTY IS DELETED. IN R ESPECT OF SHAH MEHTA & CO., THE DIFFERENCE IS ONLY OF RS.859/-, WHICH IS LIKE K ASAR, THEREFORE THE ADDITION OF THE SAME IS DELETED. IN RESPECT OF LIFT & CARRY CO , AS PER THE REMAND REPORT OF THE A.O., THE DIFFERENCE WORKS OUT TO RS.21,163/ -. ACCORDING TO THE APPELLANT, THE DIFFERENCE IS IN RESPECT OF DEDUCTIO N MADE BY THE APPELLANT FROM THE BILLS IN RESPECT OF EXTRA CHARGES LIKE CRANE HI RE CHARGES AND THE APPELLANT HAS CLAIMED LESS EXPENSES IN RESPECT OF THIS PARTY. HENCE THE ADDITION IN RESPECT OF THIS PART IS DELETED. 11. HAVING HEARD THE SUBMISSIONS OF BOTH THE SIDES AND CONSIDERING THE REMAND REPORT OF THE AO, WE HAVE FOUND THAT THE EXP LANATION IN RESPECT OF EACH PARTY WAS MORE OR LESS ACCEPTABLE TO THE RE VENUE-DEPARTMENT. THE ASSESSEE HAS FURNISHED RECONCILIATION STATEMENT AND ON THAT BASIS THE DIFFERENCE WAS EXPLAINED. CONSIDERING THE TOTALIT Y OF THE CIRCUMSTANCES OF THE CASE AND THE CORROBORATIVE EVIDENCES PLACED ON RECORD, WE FIND NO FALLACY IN THE VIEW TAKEN BY THE LD.CIT(A), HENCE C ONFIRM THE SAME. IN THE RESULT, BOTH THE GROUNDS OF THE REVENUE FOR BOT H THE YEARS ARE DISMISSED. 12. GROUND NO.5 FOR A.Y. 2003-04 IS REPRODUCED BELO W: THE LD. CIT(A) HAS ERRED IN LAW AND ON THE FACTS O F THE CASE IN DELETING THE DISALLOWANCE OF RS.89,26,709/-, BEING EXPENDITURE C LAIMED BY THE ASSESSEE. 13. GROUND NO.3 FOR A.Y.2004-05 IS REPRODUCED BELOW : THE LD. CIT(A) HAS ERRED IN LAW AND ON THE FACTS O F THE CASE IN DELETING THE DISALLOWANCE OF RS.16,29,280/-, BEING EXPENDITURE C LAIMED BY THE ASSESSEE. 14. IN RESPECT OF THESE GROUNDS, THE REASON GIVEN BY THE AO WAS THAT FOUR PARTIES WERE NOT TRACEABLE AND SIX PARTIES TO WHOM LETTERS WERE ISSUED U/S. 133(6) WERE SERVED, HOWEVER NO REPLY OR CONFIRMATION WAS FURNISHED. THEREFORE, THE AO HAS CONCLUDED THAT THE ASSESSEE HAD FAILED ITA NOS.1465, 1466, 2350 & 2351/AHD/2008 MODERN CONSTRUCTION CO. P. LT.D VS. DCIT AHMEDABAD . FOR A.YS. 2003-04 & 2004-05 - 7 - TO PROVE THE GENUINENESS OF THE TRANSACTION. THE EN TIRE AMOUNT PERTAINING TO THOSE PARTIES TOTALLING TO RS.89,26,709/- WAS TA XED. 15. WHEN THE MATTER WAS CARRIED BEFORE THE FIRST A PPELLATE AUTHORITY, IT WAS EXPLAINED THAT THE PARTIES WERE LABOUR CONTRACT ORS AND PROVIDING LABOURERS AT VARIOUS SITES. BEFORE THE APPELLATE AU THORITY, ACCOUNTS WERE FILED. IT WAS ALSO PLEADED THAT THE PAYMENTS WERE DULY SUPPORTED BY THE RECEIPTS WHICH WERE CLAIMED TO BE VERIFIABLE. IT WA S ALSO PLEADED THAT THE BOOKS OF ACCOUNT OF THE ASSESSEE WERE AUDITED AND T HE AUDITOR HAD NOT MADE ANY ADVERSE REMARKS. PARTY-WISE EXPLANATION WA S GIVEN TO LD.CIT(A). SINCE THE ASSESSEE HAS FURNISHED FRESH EVIDENCES, THEREFORE THE MATTER WAS GIVEN TO AO TO EXAMINE AND FURNISH A REMAND REPORT. ON THE BASIS OF THE REMAND REPORT AND CONSIDERING THE EXPLANATION OFFERED LD.CIT(A) HAS HELD THAT DISALLOWANCE UPTO THE EXTEN T OF 10% OF THE EXPENDITURE CLAIMED IN RESPECT OF THREE PARTIES WOU LD BE PROPER. FOR REST OF THE PARTIES, THE ADDITION WAS DELETED. 16. HAVING HEARD THE SUBMISSIONS OF BOTH THE SIDES, WE ARE OF THE VIEW THAT LD.CIT(A) HAS TAKEN A REASONABLE VIEW. DURING REMAND PROCEEDINGS, THE AO HAS BY AND LARGE ACCEPTED THE EXPLANATION OF THE ASSESSEE AS ALSO THE RECONCILIATION OF THE ACCOUNTS. THE ACCOUNTS O F THE PARTIES WHICH REMAINED UNSUBSTANTIATED, IN RESPECT OF THOSE PARTI ES LD. CIT(A) HAS TAKEN A VIEW THAT DISALLOWANCE UPTO THE EXTENT OF 10% OF THE EXPENDITURE WOULD BE REASONABLE. THE SUSTENANCE OF ADDITION UPTO THA T PERCENTAGE APPEARS TO BE FAIR AND REASONABLE CONSIDERING NATURE OF BUS INESS ACTIVITY OF THE ASSESSEE, I.E. CIVIL CONSTRUCTION WORK, HENCE, NO D ISTURBANCE IS REQUIRED ITA NOS.1465, 1466, 2350 & 2351/AHD/2008 MODERN CONSTRUCTION CO. P. LT.D VS. DCIT AHMEDABAD . FOR A.YS. 2003-04 & 2004-05 - 8 - AND CONFIRM THE SAME. IN THE RESULT, PART RELIEF G IVEN BY THE LD.CIT(A) IS CONFIRMED AND THIS GROUND OF THE REVENUE IS DISMISS ED. 17. GROUND NO.4 FOR A.Y. 2004-05 IS REPRODUCED BELO W: THE LD. CIT(A) ERRED IN LAW AND ON THE FACTGS OF T HE CASE IN DELETING THE DISALLOWANCE OUT OF INTEREST EXPENSES U/S 14A AND I N RESTRICTING DISALLOWANCE U/S. 14A OF RS.3,309/- OUT OF ADMINISTRATIVE EXPENS ES TO RS.1,407/- 18. IN RESPECT OF DISALLOWANCE U/S.14A, A DISALLOWA NCE OF RS.4,15,570/- WAS MADE BY THE AO. IT WAS NOTED BY T HE AO THAT THE ASSESSEE HAS EARNED DIVIDEND INCOME OF RS.75,072/-. THE ASSESSEE HAD SHOWN AN INVESTMENT OF RS.10,65,655/-. A QUERY WAS RAISED AS TO WHY THE PROPORTIONATE INTEREST AND ADMINISTRATIVE EXPENSES FOR EARNING THE DIVIDEND INCOME BE NOT DISALLOWED. AS PER AO, THE A SSESSEE HAS NOT MAINTAINED SEPARATE ACCOUNT OF INTEREST BEARING FUN DS AND NON-INTEREST BEARING FUNDS, THEREFORE PROPORTIONATE INTEREST EXP ENDITURE OF RS.4,12,261/- AND PROPORTIONATE ADMINISTRATIVE EXPE NSES OF RS.3,309/- WERE DISALLOWED BY INVOKING THE PROVISIONS OF SECTI ON 14A OF IT ACT. 19. AFTER HEARING THE SUBMISSIONS OF BOTH THE SIDES AND AFTER CONSIDERING THE FACTUAL MATRIX OF THE CASE, WE ARE NOT INCLINED TO INTERFERE WITH THE FINDINGS OF THE LD.CIT(A). LD.CIT(A) HAS E XAMINED THE POSITION OF THE ACCOUNTS AND THEREUPON HELD THAT THE ASSESSE E HAD INTEREST FREE FUNDS AND NO PART OF THE BORROWED FUNDS WERE UTILIZ ED FOR SUCH INVESTMENT ON WHICH EXEMPT DIVIDEND WAS EARNED. IN RESPECT OF ADMINISTRATIVE EXPENSES, THE AO IS DIRECTED TO WORK OUT THE PROPORTIONATE EXPENSES. THE VIEW EXPRESSED BY THE LD.CIT(A) AND D IRECTIONS GIVEN TO AO ARE HEREBY CONFIRMED. THIS GROUND OF THE REVENU E IS DISMISSED. ITA NOS.1465, 1466, 2350 & 2351/AHD/2008 MODERN CONSTRUCTION CO. P. LT.D VS. DCIT AHMEDABAD . FOR A.YS. 2003-04 & 2004-05 - 9 - 20. IN THE RESULT, APPEALS FOR A.Y. 2003-04 AND 200 4-05 OF THE REVENUE IS HEREBY PARTLY ALLOWED. 21. FOR A.YS.2003-04 AND 2004-05, THE ASSESSEE IS I N APPEAL AND THE GROUNDS RAISED ARE RESPECTIVELY AS UNDER: 21.1 GROUNDS OF A.Y. 2003-04 ARE REPRODUCED BELOW: 1. THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS )- VIII, AHMEDABAD HAS ERRED IN LAW AND ON FACTS OF THE CASE BY HOLDIN G THAT DEDUCTION U/S 80IA CANNOT BE ALLOWED ON INTEREST INCOME AND ON MISCELL ANEOUS RECEIPTS AS THE SAME ARE NOT DERIVED FROM INDUSTRIAL UNDERTAKING AN D ACCORDINGLY HAS ERRED IN CONFIRMING THE ACTION OF THE ASSESSING OFFICER I N NOT ALLOWING DEDUCTION U/S 80IA INTEREST INCOME OF RS.28,09,761/-. AND MISCELL ANEOUS RECEIPTS OF RS.2,62,363/- 2. THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) -VIII, AHMEDABAD HAS ALSO ERRED IN NOT CONSIDERING THE CONTENTION OF THE APPEALLANT THAT IN REPECT OF INTEREST INCOME, THE SAME HAS TO BE NET OFF AGAINST THE INTEREST PAYMENT AND IN THAT CASE, THERE IS NET CREDIT OF INTEREST OF RS.2, 84,736/- ONLY. 3. THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) VIII, AHMEDABAD HAS ERRED IN LAW AND ON FACTS OF THE CASE BY CONFIR MING THE ADDITION MADE BY ASSESSING OFFICER IN RESPECT OF LABOUR CHARGES TO T HE EXTENT OF 10% OF TOTAL LABOUR EXPENSES OF RS.29,09,844/-. 4. THE APPEALANT PRAYS FOR THE FOLLOWING : (I)TO ALLOW DEDUCTION U/S 80IA (4) OF THE INCOME T AX ACT, 1961 AS CLAIMED BY THE APPELLANT. (II) TO DELETE ADDITION OF 10% OF LABOUR EXPENSES O F RS.29,09,844/- . 21.2 GROUNDS OF A.Y. 2004-05 ARE REPRODUCED BELOW: 1. T HE LEARNED COMMISSIONER OF INCOME TAX (APPEALS)-VII I, AHMEDABAD HAS ERRED IN LAW AND ON FACTS OF THE CASE BY CONFIR MING THE ADDITION MADE BY ASSESSING OFFICER IN RESPECT OF LABOUR CHARGES TO T HE EXTENT OF 10% OF TOTAL LABOUR EXPENSES OF RS.16,29,288/-. 2. THE APPELLANT PRAYS TO DELETE ADDITION OF 10% OF LABOUR EXPENSES OF RS.16,29,288/-. 22. AT THE OUTSET, WE WANT TO MAKE IT CLEAR THAT TH E ISSUE OF CLAIM OF DEDUCTION U/S.80IA(4) HAS ALREADY BEEN SENT BACK TO THE FILE OF THE AO FOR DE NOVO CONSIDERATION AS PER THE DIRECTIONS. SUBJECT TO TH E RESULT OF THE ITA NOS.1465, 1466, 2350 & 2351/AHD/2008 MODERN CONSTRUCTION CO. P. LT.D VS. DCIT AHMEDABAD . FOR A.YS. 2003-04 & 2004-05 - 10 - AOS FINDING, WE HEREBY PROCEED TO ADJUDICATE THE G ROUND AS RAISED BY THE ASSESSEE. 22.1. THE AO HAS NOT CONSIDERED THE INTEREST INCOME AND THE MISCELLANEOUS RECEIPTS WHILE COMPUTING THE DEDUCTIO N U/S.80IA. INTEREST INCOME CONSISTED OF INTEREST ON FDR, ETC. THE AO HAS TAKEN A VIEW THAT SUCH INCOME DID NOT HAVE ANY DIRECT NEXUS WITH THE BUSINESS OF THE INDUSTRIAL UNDERTAKING OF THE ASSESSEE. THE A O HAS PLACED RELIANCE ON HINDUSTAN LEVER 239 ITR 297 (SC), STERLING FOODS 237 ITR 579(SC) AND PANDIAN CHEMICALS 262 ITR 278(SC). LD.CIT(A) HAS EXAMINED THE FACTS AS WELL AS THE CASE LAWS AND UPHELD THE ACTIO N OF THE AO. 23. AFTER HEARING THE SUBMISSIONS OF BOTH THE SIDE S, WE ARE ALSO OF THE VIEW THAT THE ASSESSEE HAS NOT ESTABLISHED THAT TH E INCOME IN QUESTION HAS IN FACT HAS ANY NEXUS WITH THE UNDERTAKING OF THE A SSESSEE. THE ASSESSEE HAS TO ESTABLISH THAT THE PROFITS AND GAINS SHOULD BE DERIVED BY SUCH AN UNDERTAKING ENGAGED IN INFRASTRUCTURE DEVELOPMENT. SINCE THE ASSESSEE HAS FAILED TO DO SO, IN RESPECT OF THE RECEIPTS IN QUESTION, THEREFORE WE HEREBY UPHELD THE REJECTION. THIS GROUND OF THE ASS ESSEE FOR BOTH THE YEARS DISMISSED. 24. THE ONLY ISSUE AS RAISED BY THE ASSESSEE FOR BO TH THE YEARS IN THE GROUND IS ABOUT THE COMPUTATION OF DISALLOWANCE. TH E PRINCIPLE OF NETTING OF DISALLOWANCE IS NOW AN ACCEPTED PRINCIPLE. THERE ARE NUMBER OF DECISIONS ON THIS ISSUE WHEREIN IT WAS CONSISTENTLY HELD THAT ONLY THE NET AMOUNT IS TO BE CONSIDERED FOR DISALLOWANCE INSTEAD OF THE GROSS RECEIPTS. THEREFORE, THE ASSESSEE HAS TO PLACE ON RECORD THE RECEIPTS AS WELL AS THE ITA NOS.1465, 1466, 2350 & 2351/AHD/2008 MODERN CONSTRUCTION CO. P. LT.D VS. DCIT AHMEDABAD . FOR A.YS. 2003-04 & 2004-05 - 11 - PAYMENTS OF THE DISALLOWANCE AND ON DUE EXAMINATION OF THE FACTS IF FOUND CORRECT ONLY THE NET AMOUNT HAS TO BE TAKEN I NTO ACCOUNT FOR EXCLUDING FROM THE DEDUCTION. WE DIRECT ACCORDINGLY . THIS GROUND IS THEREFORE MAY BE TREATED AS ALLOWED BUT FOR STATIST ICAL PURPOSES ONLY. 25. A PROPOS TO GROUND NO.3 FOR A.Y. 2003-04 AND GR OUND NO.1 AND 2 FOR A.Y. 2004-05, IT IS WORTH TO MENTION THAT WHILE DEALING GROUND NO.5 FOR A.Y. 2003-04 OF REVENUES APPEAL, WE HAVE ALREA DY UPHELD THAT THE RESTRICTION OF DISALLOWANCE OF LABOUR EXPENSES AT 1 0% BY CIT(A) WAS FAIR AND REASONABLE. ONCE WE HAVE ALREADY TAKEN A VIEW I N THIS REGARD AND CONFIRMED THE PART RELIEF GRANTED BY THE LD. CIT(A) , THEREFORE THIS GROUND OF THE ASSESSEE NEEDS NO SEPARATE ADJUDICATION, HEN CE, THIS GROUND FOR AYS. 2003-04 & 2004-05 ARE DISMISSED. 27. IN THE RESULT, APPEALS OF THE REVENUE AS WELL A PPEALS OF THE ASSESSEE BOTH ARE PARTLY ALLOWED. SD/- SD/- (T.R. MEENA) (MUKUL KR. SHRAWAT) ACCOUNTANT MEMBER JUD ICIAL MEMBER AHMEDABAD; DATED 29/11/2013 PRABHAT KR. KESARWANI, SR. P.S. / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT 2. / THE RESPONDENT. 3. / CONCERNED CIT 4. ( ) / THE CIT(A)-III, AHMEDABAD 5. , , / DR, ITAT, AHMEDABAD 6. / GUARD FILE. / BY ORDER, / ( DY./ASSTT.REGISTRAR)