Apollo Earthmovers Ltd., Mehsana V. Asstt.Commissioner of Income Tax, Mehsana

ITA 2574/AHD/2015

• Counselvise Citation: [2018] 119 COUNSELVISE.COM (IT) 4577 (ITAT-AHMEDABAD)
• Duration Of Justice: 3 year(s) 1 month(s) 6 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 09-10-2018
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: Not Allotted
• Assessment Year: 2012-2013
• Appeal Filed On: 03-09-2015
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Assessee Lawyers: IRA R KAPOOR
• Keywords: Gross profit estimation; Earning of tax free income
• Section: 143(3); 14A; 15

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD B BENCH BEFORE: SHR I MAHAVIR PRASAD , JUDICIAL MEMBER AND SHRI AMARJIT SINGH, ACCOUNTANT MEMBER APOLLO EARTHMOVERS LTD. MEHSANA PAN: AACCA2302A (APPELLANT) VS THE ACIT, MEHSANA CIRCLE, MEHSANA (RESPONDENT) REVENUE BY : S H RI MUDIT NAGPAL , SR. D . R. ASSESSEE BY: MS. IRA R. K APOOR, A.R. DATE OF HEARING : 01 - 10 - 2 018 DATE OF PRONOUNCEMENT : 09 - 10 - 2 018 / ORDER P ER : AMARJIT SINGH, ACCOUNTANT MEMBER : - THIS ASSESSEE S APPEAL FOR A. Y. 2012 - 13 , ARI SES FROM ORDER OF THE CIT(A) , GANDHINAGAR, AHMEDABAD DATED 09 - 06 - 2 015 , IN PROCEEDINGS UNDER SECTION 143(3) OF THE INCOME TAX ACT, 1961; IN SHORT THE ACT . 2. THE ASSESSEE HAS RAISED FOLLOWING GROUNDS OF APPEAL: - 1. IN LAW AND IN THE FACTS AND CIRCUMSTANCES OF T HE APPELLANT'S CASE, THE LEARNED CIT(A) HAS GROSSLY ERRED IN UPHOLDING THE DISALLOWANCE OF RS.7,45,693 (RS.4,59,798 ON ACCOUNT OF INTEREST EXPENSE + RS,2,85,895 ON ACCOUNT OF ADMINISTRATIVE EXPENSES @ 0.5% OF RELATED INVESTMENTS) MADE BY THE LEARNED ASSESS ING OFFICER U/S. 14A READ WITH RULE 8D. 2. IN LAW AND IN THE FACTS AND CIRCUMSTANCES OF THE APPELLANT'S CASE, THE LEARNED CIT(A) HAS GROSSLY ERRED IN UPHOLDING THE LUMP SUM ADDITION OF RS.3,00,000 MADE BY THE LEARNED ASSESSING OFFICER TO THE APPELLAN T'S RETURNED INCOME ON THE GROUND THAT THE GROSS PROFIT RATE SHOWN BY THE APPELLANT THIS YEAR WAS LOW. I T A NO . 2574 / A HD/20 1 5 A SS ESSMENT YEAR 2012 - 13 I.T.A NO. 2574 /AHD/20 15 A.Y. 2012 - 13 PAGE NO APOLLO EARTHMOVERS LTD. VS. ACIT 2 3. THE BRIEF FACT OF THE CASE IS DISCUSSED UNDER TWO GROUNDS OF APPEAL SEPARATELY. 1 ST GROUND OF APPEAL: DISALLOWANCE U/S. 14A R.W. RULE 8D 4. ASSE SSMENT U/S. 143(3) IN THE CASE OF THE ASSESSEE FOR THE YEAR UNDER CONSIDERATION WAS COMPLETED ON 28 TH JANUARY, 2015. DURING THE ASSESSMENT PROCEEDINGS, THE ASSESSING OFFICER NOTICED THAT ASSESSEE HAS EARNED EXEMPT INCOME OF RS . 11 , 12 , 109/ - , H OWEVER , THE ASSESSEE HAS NOT DISALLOWED ANY EXPENSES U/S. 14A INCURRED ON EARNING EXEMPT INCOME. DURING THE COURSE OF ASSESSMENT PROCEEDINGS, THE ASSESSING OFFICER ASKED THE ASSESSEE TO SHOW CAUSE AS TO WHY THE DISALLOWANCE U/S. 14A OF THE ACT R .W. RULE 8D OF THE IT RULES SHOULD NOT BE MADE . THE ASSESSE EXPLAINED THAT IT HAS NOT INCURRED ANY INTEREST EXPENDITURE ON EARNING THE EXEMPT INCOME , THEREFORE, NO DISALLOWANCE SHOULD BE MADE. THE ASSESSING OFFICER HAS NOT ACCEPTED THE EXPLANATION OF THE ASSESSEE AND STATED THAT THE CBDT CIRCULAR NO. 5/ 2014 DATED 11 FEB, 2014 HAS CLARIFIED THAT RULE 8D R.W. SECTION 14A OF THE ACT PROVIDES FOR DISALLOWANCE OF THE EXPENDITURE EVEN WHERE THE TAX PAYERS IN A PARTICULAR YEAR HAS NOT EARNED ANY EXEMPT INCOME. THEREFORE, THE ASSESS ING OFFICER HAS COMPUTED THE DISALLOWANCE U/S. 14A R.W. RULE 8D TO THE AMOUNT OF RS. 7 , 45 , 693/ - ( INTEREST EXPENSES RS. 4 , 59 , 798/ - + ADMINISTRATIVE EXPENSES RS. 2 , 85 , 895/ - ) AND ADDED TO THE TOTAL INCOME OF THE ASSESSEE. 5. AGGRIEVED ASSESSEE HAS FILED AP PEAL BEFORE THE LD. CIT(A). THE LD. CIT(A) HAS DISMISSED THE APPEAL OF THE ASSSESSEE HOLDING THAT DISALLOWANCE MADE BY THE ASSESSING OFFICER WERE JUSTIFIED. 6. DURING THE COURSE OF APPELLATE PROCEEDINGS BEFORE US, THE LD. COUNSEL HAS FURNISHED PAPER B OOK CONTAINING DETAIL OF INFORMATION FURNISHED BEFORE THE ASSESSING OFFICER AND CIT(A). SHE HAS CONTENDED THAT ASSESSEE WAS HAVING I.T.A NO. 2574 /AHD/20 15 A.Y. 2012 - 13 PAGE NO APOLLO EARTHMOVERS LTD. VS. ACIT 3 SUFFICIENT INTEREST FREE FUND, THEREFORE, NO DISALLOWANCE OF INTEREST U/S. 14A R.W. RULE 8D IS CALLED FOR. ON THE OTHER HAN D, THE LD. DEPARTMENTAL REPRESENTATIVE HAS SUPPORTED THE ORDER OF LD. CIT(A). 7 . WE HAVE PERUSED THE MATERI AL ON RECORD AND IT IS NOTICED THAT ASSESSEE WAS HAVING PAID UP CAPITAL OF RS. 1,20,00,000/ - AS ON 31 ST MARCH, 2011 AND ON 31 ST MARCH, 2012. THE AS SESSE WA S ALSO HAVING FREE RESERVES OF RS. 54,39,87,665/ - AS ON 31 ST MARCH , 2011 AND RS. 61 , 21 , 44 , 505/ - AS ON 31 ST MARCH, 2012 . A S A GAINST THE INTEREST FREE FUNDS , THE ASSESSEE HAS MADE INVESTMENT TO THE AMOUNT OF RS . 58 , 67 , 91 1 1/ - ONLY . THE ASSESSING OFFI CER HAS NOT DISPROVED THE CLAIM OF THE ASSESSEE THAT IT WAS HAVING SUFFICIENT INTEREST FREE FUND IN THE FORM OF SHARE CAPITAL AND FREE RESERVE AND IT HAS NOT INCURRED ANY INTEREST EXPENDITURE FOR MAKING INVESTMENT ON WHICH IT HAS EARNED EXEMPT INCOME. AFT ER CONSIDERING THE FACTS AND CIRCUMSTANCES WE CONSIDER THERE IS NO MERIT IN DISALLOWIN G THE INTEREST EXPENDITURE OF RS . 4 , 59 , 798/ - U/S 14A , THEREFORE, THE SAME IS DELETED . HOWEVER REGARDING ADMINISTRATIVE EXPENDITURE OF RS. 2 , 85 , 895/ - WE ARE OF THE VIEW T HAT INVESTMENT CANNOT BE MADE WITHOUT INCURRING ADMINISTRATIVE AND OTHER EXPENSES , T HEREFORE , WE RESTRICT THE DISALLOWANCE U/S. 14A R.W. R U LE 8D TO THE EX T E N T OF RS. 2 , 85 , 895/ - AS ADMINISTRATIVE EXPENSES, ACCORDINGLY , THIS GROUND OF APPEAL OF THE ASSESSEE IS PARTLY ALLOWED . 2 ND GROUN D OF APPEAL: ADDITION ON LOW GROSS PROFIT . 8. DURING THE COURSE OF ASSESSMENT PROCEEDINGS, THE ASSESSING OFFICER NOTICED THAT ASSESSEE HAS SHOWN GROSS RECEIPT OF RS. 62 , 10 , 03 , 045/ - AS COMPARED TO PREVIOUS YEARS GROSS RECEIPT OF RS. 78 , 70 , 04 ,292/ - . HE HAS FURTHER NOTICED THAT G ROSS PROFIT HAS BEEN SHOWN AT RS . 11 , 57 , 06 , 504/ - AS AGAINST GROSS PROFIT OF RS. 18 , 44 , 73 , 203/ - DECLARED IN THE IMMEDIATELY PRECEDING YEAR. THEREFORE, THE ASSESSEE WAS ASKED TO FURNISH THE REASON FOR LOW GROSS PROFIT DURING THE YEAR. T HE ASSESSEE HAS EXPLAINED THAT NET PROFIT FOR ASSESSME NT YEAR I.T.A NO. 2574 /AHD/20 15 A.Y. 2012 - 13 PAGE NO APOLLO EARTHMOVERS LTD. VS. ACIT 4 2011 - 12 WAS INCREASED BECA USE OF BOOK PROFIT ON SALE OF SHARES OTHERWISE THE CURRENT YEAR NET PROFIT WILL BE ON THE HIGHER SIDE . THE ASSESSING OFFICER HAS NOT AC CEPTED THE EXPLANATION OF THE ASSESSEE AND MADE LUMP SUM ADDITION OF RS. 3 LACS TO THE TOTAL INCOME ON ACCOUNT OF LOW GROSS PROFIT. 9 . THE ASSESSEE HAS PREFERRED APPEAL BEFORE THE LD. CIT(A) WHO HAS SUSTAINED THE ADDITION MADE BY THE ASSESSING OFFICER S TATING THAT ASS ESSEE HAS NOT PRODUCED ANY EVIDENCES FOR SHOWING LOW GROSS PROFIT. 10 . WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE MATERIAL ON RECORD CAREFULLY. THE ASSESSING OFFICER HAS MADE THE DISALLOWANCE ON ACCOUNT OF LOW GROSS PROFIT ON L UMP SUM BASIS WITHOUT POINTING OUT ANY DEFECT IN THE BOOKS OF ACCOUNT OF THE ASSESSEE . IT IS ALSO NOTICED THAT THE ASSESSING OFFICER HAS ALSO NOT REJECTED THE BOOKS OF ACCOUNT. IT IS FURTHER NOTICED THAT DURING THE YEAR UNDER CONSIDERATION THE ASSESSEE HAS SHOWN GROSS PROFIT @ 18.63% AS AGAINST THE OVERALL AVERAGE GROSS PROFIT RATIO FOR 4 YEARS FROM 2010 - 11 TO 2013 - 14 @ 19.74%. AFTER CONSIDERING THE ABOVE FACT THAT ASSESSING OFFICER HAS N OT DETECTED ANY DEFECTS IN THE BOO K S OF ACCOUNTS AND THE ASSESSEE HAS ALSO FAILED TO SATISFACTORY EXPLAIN THE REASON FOR FALL IN GROSS PROFIT, WE ARE OF THE OPINION THAT DISALLOWANCE TO THE EXTENT OF RS. 2 LACS IS REASONABLE & JUSTIFIABLE , THEREFORE, WE RESTRICT THE DISALLOWANCE ON ACCOUNT OF LOW GROSS PROFIT TO THE AM OUNT OF RS. 2 LACS. ACCORDINGLY, THIS GROUND OF APPEAL OF THE ASSESSEE IS PARTLY ALLOWED. 11 . IN THE RESULT, THE APPEAL OF THE ASSESSEE IS PARTLY ALLOWED. ORDER PR ONOUNCED IN THE OPEN C OURT ON 09 - 10 - 201 8 SD/ - SD/ - ( MAHAVIR PRASAD ) ( AMARJI T SINGH ) JUDICIAL MEMBER ACCOUNTANT MEMBER AHMEDABAD : DATED 09 /10 /2018 I.T.A NO. 2574 /AHD/20 15 A.Y. 2012 - 13 PAGE NO APOLLO EARTHMOVERS LTD. VS. ACIT 5 / COPY OF ORDER FORWARDED TO: - 1. ASSESSEE 2. REVENUE 3. CONCERNED CIT 4. CIT (A) 5. DR, ITAT, AHMEDABAD 6. GUARD FILE. BY ORDER/ , / ,