The ITO, Ward-3(1)(1), Ahmedabad V. M/s Poggen AMP Nagarsheth Powertronics Pvt. Ltd., Ahmedabad

ITA 2446/AHD/2016

• Counselvise Citation: [2019] 118 COUNSELVISE.COM (IT) 5107 (ITAT-AHMEDABAD)
• Duration Of Justice: 2 year(s) 3 month(s) 26 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 24-01-2019
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: Not Allotted
• Assessment Year: 2012-2013
• Appeal Filed On: 28-09-2016
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: LALIT P JAIN
• Assessee Lawyers: VASANT C TANNA
• Keywords: Business expenditure; Earning of tax free income; Capital expenditure
• Section: 143(3); 14A; 37

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD C BENCH BEFORE: SHR I MAHAVIR PRASAD , JUDICIAL MEMBER AND SHRI AMARJIT SINGH, ACCOUNTANT MEMBER THE ITO, WARD - 3(1)(1), AHMEDABAD (APPELLANT) VS M/S. POGGEN AMP NAGARSHETH POWERTRONICS PVT. LTD. C - 1 - /B, 4402, GIDC ESTATE, PHASE - IV, V ATVA, AHMEDABAD - 382445 PAN: AAACP9130B (RESPONDENT) REVENUE BY : S H RI LALIT P. JAIN , SR. D . R. ASSESSEE BY: SHRI VASANT C. TANNA , A.R. DATE OF HEARING : 08 - 01 - 2 019 DATE OF PRONOUNCEMENT : 24 - 01 - 2 019 / ORDER P ER : AMARJIT SINGH, ACCOUNTANT MEMBER : - THIS REVENUE S APPEAL FOR A.Y. 2012 - 13 , ARI SES FROM ORDER OF THE CIT(A) - 9, AHMEDABAD DATED 08 - 07 - 2 016 , IN PROCEEDINGS UNDER SECTION 143(3) OF THE INCOME TAX ACT, 1961; IN SHORT THE ACT . I T A NO . 2446 / A HD/20 16 A SS ESSMENT YEAR 2012 - 13 I.T.A NO. 2 44 6 /AHD/20 16 A.Y. 2012 - 13 PAGE NO IT O VS. M/S. POGGEN AM P NAGARSHETH POWERTRONICS PVT. LTD. 2 2. THE REVENUE HAS FILED THREE GROUNDS OF APPEAL ADJUDI CATING WITH BRIEF FACT AS UNDER : - DISALLOWANCE OF RS. 2490198/ - U/S. 40A OF T HE ACT. 3. DURING THE COURSE OF ASSESSMENT, THE ASSESSING OFFICER NOTICED THAT ASSESSEE HAS MADE SUBSTANTIAL INVESTMENT IN EQUITY SHARE AND INCURRED INTEREST EXPEND ITUR E OF RS. 6 , 51 , 68 , 943/ - AS AGAINST LAST YEAR INTEREST EXPENSES OF RS. 5 , 07 , 54 , 161/ - . ON THE BASIS OF THIS INFORMATIN THE ASSESSEE WAS ASKED TO EXPLAIN WHY NOT DISALLOWANCE OF INTEREST EXPENSES UNDER THE PROVISION OF SECTION 1 4A READ WITH RULE 8D WAS MAD E. THE ASSESSEE EXPLAINED THAT IT HA D NOT EARNED ANY EXEMPT INCOME DURING THE YEAR UNDER CONSIDERATION, THEREF ORE, THERE WAS NO QUESTION OF ANY DISALLOWANCE U/S. 14 A OF T HE ACT R.W. RULE 8D OF THE I.T. RULE. HOWEVER , T HE ASSESSING OFFICER WAS OF THE VIEW THAT IT WAS IMMATERIAL WHETHER THE ASSESSEE HA D EARNED EXEMPT INCOME DURING THE YEAR OR NOT AND OBSERVED THAT THE EXPENDITURE INCURRED BY WAY OF INTEREST PAYMENT ON THE INVESTMENT MADE WAS NOT FOR EARNING ASSESSABLE INCOME. CONNSEQUENTLY , HE HAS COM PUTED AN AMOUNT OF RS. 24 , 90 , 1 98/ - A FTER APPLYING SECTION 14A R.W. RULE 8D OF THE I.T. RULE AND ADDED TO THE TOTAL INCOME OF THE ASSESSEE. ADDITION OF RS. 22 , 87 , 852/ - ON ACCOUNT OF INSURANCE EXPENSES AT THE ASSESSMENT 4. THE ASSESSING OFFICER NOTICED THAT ASSESSEE HAS CLAIMED INSURANCE EXPENSES OF RS. 41 , 41 , 901/ - DURING THE YEAR UNDER CONSIDERATION. THE ASSESSING OFFICER WAS OF THE VIEW THAT PAYMENT OF PREMIUM WAS MADE ON I.T.A NO. 2 44 6 /AHD/20 16 A.Y. 2012 - 13 PAGE NO IT O VS. M/S. POGGEN AM P NAGARSHETH POWERTRONICS PVT. LTD. 3 PERSONAL LIFE INSURANCE POLICIES OF THE DIRECTORS AND THEIR FAMILY MEMBERS, THEREFOR E, THE SAME WAS NOT ALLOWABLE EXP ENDI TU RE UNDER THE INCOME TAX ACT. CONSEQU ENTLY, HE HAS MADE ADDITION OF R S. 22 , 87 , 852/ - BY TREATING THE AFORESAID EXPLENSES NOT INCURRED FOR THE PURPOSE OF BUSINESS AS PROVIDED U /S. 37 (1) OF T HE ACT AND ADDED TO THE TOT AL INCOME OF THE ASSESSSEE. DELETING ADDITION OF RS. 3659518 U/S. 40A(2)(B) 5. THE ASSESSING OFFICER NOTICED THAT ASSESSEE HAS CLAIMED INTEREST EXPENSES OF RS. 36 , 59 , 518/ - ON PAYMENT MADE FOR PURCHASING OF RAW MATERIAL FROM THE RELATED CONCERN OF THE ASS ESSEE . HE OBSERVED THAT THE AFORESAID PAYMENT WAS COVERED U/S. 40A(2)(B) OF THE ACT. ON QUERY T HE ASSESSEE EXPLAINED THAT THE AFORESAID PAYMENT WAS MADE AS PER TRADE PRACTICES TO THE POSCO PUNE INDIA PROCESSING CENTRE PVT. LTD TOWARDS DELAYED PAYMENT F OR RAW MATERIAL PURCHASED FROM THEM AND SUCH TYPE OF INTEREST @ 6% WERE BEING PAID SINCE LAST 5 YEARS ON WHICH DUE TDS U/S. 194A WAS DULY DEDUCTED. HOWEVER T HE ASSESSING OFFICER HA D NOT ACCEPTED THE EXPLANATION OF THE ASSESSEE AND H E WAS OF THE VIEW THAT M/S. POSCO PUNE PROCESSING PVT. LTD. WAS A N ASSOCIATED CONCERN OF THE ASSESSEE COVERED BY SECTION 40A(2)(B) O F THE ACT AND THE ASSESSEE HAD FAILED TO SUBSTANTIATE ITS CLAIM WITH ANY DOCUMENTARY EVIDENCES, THEREFORE, THE CLAIM OF THE ASSESSEE ON INTEREST PA YMENT WAS ALSO DISALLOWED U/S. 40A(2)(B) OF THE ACT AN D ADDED TO THE TOTAL INCOME OF THE ASSESSEE. DELETING ADDITION OF RS. 9 , 27 , 0 8 0 / - MADE ON ACCOUNT OF DISALLOWANCE U/S. 36(1)(III) OF THE ACT I.T.A NO. 2 44 6 /AHD/20 16 A.Y. 2012 - 13 PAGE NO IT O VS. M/S. POGGEN AM P NAGARSHETH POWERTRONICS PVT. LTD. 4 6. DURING ASSESSMENT THE ASSESSING OFFICER NOTICED THAT A SSESSEE HA D ADVANCED VARIOUS AMOUNTS AGGREGATING TO RS. 1 , 60 , 37 , 013/ - INCLUDING OPENING DEBIT BALANCE OF RS. 62 , 88 , 45 0 / - AND BALANCE AS ON 31 ST MARCH, 2012 AT RS. 77 , 47 , 096/ - . THE A SSESSEE EXPLA INED THAT THESE ADVANCE PAYMENTS WERE MADE FOR THE PURPOSE O F CONSTRUCTION OF NEW PRESS SHOP A T V AVDI KHEDA. THE ASSESSEEE EXPLAINED THAT IT HA D NOT MADE SPECIFIC BORROWING TO FINANCE THE COS T OF FACTORY BUILDING THEREFORE THE PROVISION S OF SECTION 36(1)(III) OF THE ACT WAS NOT APPLICABLE . HOWEVER, THE ASSESSING OFFICER OBSERVED THAT ASSESSEE HAS TAKEN LOAN FROM DIFFERENT BANKS BUT IT COULD NOT CO - RELATE ITS UTILIZATION FOR CAPITAL EXPENSES AND FOR OTHER BUSINESS EXPENSES . THEREFORE, T HE ASSESSI NG OFFICER WAS OF THE VIEW THAT IT CANNOT BE SAID THAT NO AMOUNT OF BORROWED FUND WERE UTILIZED FOR THE CAPITAL EXPENDITURE. T HEREFORE , THE ASSESSING OFFICER HAS CAPITALIZED THE INTEREST AMOUNT OF RS. 9 , 27 , 080 AT THE 15% OF INTEREST PAID TO THE BANKS BY THE ASSESSEE AND ADDED TO THE TOTAL INCOME OF THE ASSESSEE. 7. AGGR IEVED ASSESSEE HAS FILED APPEAL BEFORE THE LD. CIT(A). THE LD. CIT(A) HAS ALLOWED THE APPEAL OF THE ASSESSEE. 8. WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE MATERIAL ON RECORD CAREFULLY . REGARDING DELETI NG OF RS. 24 , 90 , 198/ - , IT IS NOTICED THAT IT IS UNDISPUTED FACT THAT THE ASSESSE HAS NOT EARNED ANY EXEMPT INCOME DURING THE YEAR UNDER CONSIDERATION , THEREFORE , FOLLOWING THE DECISION OF THE H ON BLE J URISDICTIONAL HIGH COURT IN THE CASE OF CIT S. CORRTCH ENERGY PVT . LTD. TA NO. 234 OF 2014, WE D O NOT FIND ANY INF I RM ITY IN T H E DECISION OF THE I.T.A NO. 2 44 6 /AHD/20 16 A.Y. 2012 - 13 PAGE NO IT O VS. M/S. POGGEN AM P NAGARSHETH POWERTRONICS PVT. LTD. 5 LD. CIT(A). THEREFORE, THIS GROUND OF APPEAL OF THE REVENUE STANDS DISMISSED . IN RESPECT O F RS. 22 , 87,852/ - OF INSURANCE EXPENSES, THE ASSESSING OFFICER DISALLOWED THE IMPUGNED EXPENSES BY TR E A T ING THE SAID EXPENSES INCURRED ON THE PERSONAL LIFE INSURANCE OF TH E DIRECTOR S . AFTER CONSIDERING THE FA C TS AS REPORTED SUPRA WE OBERVE THAT IT IS UNDISPUTED FACT THAT T H E AFORESAID EXPENDITURE WERE INCURRED TOWARDS KEYM AN INSURANCE POLIES TO BE ALLOWABLE AS BUSI NESS EXPENSES. THEREFORE , WE DO NOT FIND ANY INFIRMITY IN THE DECISION OF THE LD. CIT(A) . ACCORDINGLY, THIS GROUND OF APPEAL OF THE REVENUE IS DISALLOWED . REGARDING DE LETI NG OF RS. 3659,518/ - U/S. 40A(2)(B): AFTER CONSIDERING THE DETAIL ED FINDING OF THE LD. CIT(A) IT IS CLEAR TH A T PPIPCL WAS NOT AN ASSOCIATED CO NC ERN OF THE ASSESSEE COVERED BY THE SECTION 40A(2)(B) . WE OBSERVE THAT IMPUGNED EXPENSES HAVE BEEN MADE AS PER THE AGREED TERMS AND CONDITIONS AND T H E RE V E N U E HAS F A ILED TO CONTRA DI CT THE MATER IAL FACT REPORTED IN THE DETAILS F INDINGS O F THE LD. CIT(A) AND THE SUBMISSION OF THE ASSESSEE AS ELABORATED AT PAGE 13 TO 18 IN THE ORDER OF THE LD. CIT(A). IN THE LIGHT OF T HE ABOVE FACTS AND FINDINGS, WE DO NOT FIND ANY MERIT IN THE GROUND OF APPEAL OF REVENUE. ACCORDINGLY , THIS GROUND OF APPEAL OF THE REVENUE IS ALSO DISMISSED . IN RESPECT OF D ISALLOWANCE U/S. 36(1)(III) IT IS NOTICED THAT T HE ASSESSEE COMPANY HA S GENERATED C A S H ACCRUALS AMOUNTING TO RS. 4 , 45 , 8 5 , 583/ - WHICH WAS IN EXCESS OF THE AMOUNT OF AGGREGATE ADVANCE OF R S. 88, 00,600/ - GIVEN TO M/S. NKP INFRASTRUCTURE PVT. LTD. TOWARDS MOBILIZATION ADVANCE. THE ASSESSING OFFICER HAS NOT DISPUTED THESE FACTS . THE LD,CIT(A) HAS REINFORCED HIS FINDINGS AFTER PLACING RELIANCE UPON THE DECISION OF T HE HON BLE BOMBAY I.T.A NO. 2 44 6 /AHD/20 16 A.Y. 2012 - 13 PAGE NO IT O VS. M/S. POGGEN AM P NAGARSHETH POWERTRONICS PVT. LTD. 6 HIGH COURT IN THE CASE OF RELIANCE UTILITIES & POWER LTD. (2009) 313 ITR 40(MUM) WHERIN IT IS HELD THAT IF T HERE ARE FUND AVAILABLE BOTH T HE INTEREST FREE AND OVER DRAFT /AND OR LOAN TA K EN THEN A PRESUMPTION C OULD ARIS E T HAT INVESTMENT WO ULD BE OUT OF THE INTEREST FREE FUN D GENERATED OR AVAILABLE WITH THE CO MPANY. IN THE LIGHT OF THE ABOVE FACTS AND JUDICIAL FINDING , WE DO NOT FIND ANY INFIRMITY I N THE DECISION OF THE LD . CIT(A) . A CCORDINGLY, THIS GROUND OF APPEAL OF THE REVENUE IS ALSO DISMISSED. 9. IN THE RESULT, THE APPEAL OF THE REVENUE IS DISMISSED. ORDER PR ONOUNCED IN THE OPEN C OURT ON 24 - 01 - 201 9 SD/ - SD/ - ( MAHAVIR PRASAD ) ( AMARJIT SINGH ) JUDICIAL MEMBER ACCOUNTANT MEMBER AHMEDAB AD : DATED 24 /01/2019 / COPY OF ORDER FORWARDED TO: - 1. ASSESSEE 2. REVENUE 3. CONCERNED CIT 4. CIT (A) 5. DR, ITAT, AHMEDABAD 6. GUARD FILE. BY ORDER/ , / ,