Shree Vyankateshwar Engineering Pvt. Ltd., Ahmedabad V. The Dy. CIT, Circle-4(1)(2), Ahemdabad

ITA 2600/AHD/2017

• Counselvise Citation: [2019] 117 COUNSELVISE.COM (IT) 6366 (ITAT-AHMEDABAD)
• Duration Of Justice: 1 year(s) 5 month(s) 13 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 07-05-2019
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: A
• Assessment Year: 2014-2015
• Appeal Filed On: 24-11-2017
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Earning of tax free income; Rule 8D; Set aside
• Section: 14A

Judgement Text

, - IN THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD BENCH A BEFORE SHRI RAJPAL YADAV, JUDICIAL MEMBER AND SHRI PRADIP KUMAR KEDIA, ACCOUNTANT MEMBER ./ ITA NO. 2599 AND 2600/AHD/2017 / ASSESSMENT YEAR: 2013-14 AND 2014-15 SHREE VYANKATESHWAR ENGG. P.LTD. NR. EVEREST CINEMA NR.JAIN RAKSHABANDHAN POTALIA TALAV, BAPUNAGAR AHMEDABAD 380 024 PAN : AABCS 5531 J VS DCIT, CIR.4(1)(2) AHMEDABAD. / (APPELLANT) / (RESPONDENT) ASSESSEE BY : SHRI RAJESH C. SHAH, AR REVENUE BY : SHRI S.K. DEV, SR.DR / DATE OF HEARING : 01/05/2019 /DATE OF PRONOUNCEMENT : 07/05/2019 O R D E R PER RAJPAL YADAV, JUDICIAL MEMBER : PRESENT TWO APPEALS ARE DIRECTED AT THE INSTANCE OF THE ASSESSEE AGAINST SE PARATE ORDERS OF THE LD.CIT(A) DATED 7.9.2017 AND 16.8.2017 PASSED IN TH E ASSTT.YEAR 2013-14 AND 2014-15 RESPECTIVELY. 2. REGISTRY HAS POINTED OUT THAT ITA NO.2599/AHD/20 17 IS TIME BARRED BY 19 DAYS. IN ORDER TO EXPLAIN THE DELAY, THE ASSESSEE FILED APPLICATION FOR CONDONATION OF DELAY. THE ORDERS O F THE LD.CIT(A) FOR THE ASSTT.YEARS 2013-14 AND 2014-15 WERE RECEIVED ON 6. 9.2017 AND 27.9.2017. THE CONCERNED PERSON IN THE OFFICE OF TAX CONSULTAN T TOOK NOTE OF THE ORDER OF THE RECEIPT FOR THE ASSTT.YEAR 2014-15 WHI CH IS 27.9.2017 AND ITA NO.2599 AND 2600/AHD/2017 - 2 - CALCULATED THE LIMITATION. THIS HAS MADE THE APPEA L FOR THE ASSTT.YEAR 2013-14 TIME BARRED BY 19 DAYS. CONSIDERING THE EX PLANATION OF THE ASSESSEE, WE CONDONE THE DELAY AND PROCEED TO DECID E THE APPEAL ON MERIT. 3. AS FAR AS ASSTT.YEAR 2013-14 IS CONCERNED, THE A SSESSEE HAS FILED AN APPEAL BEFORE THE LD.CIT(A) ON 10.3.2016. THE LD.C IT(A) DISMISSED THE APPEAL BY OBSERVING THAT W.E.F. 1.3.2016, THE ASSES SEE WAS REQUIRED TO SUBMIT APPEAL ELECTRONICALLY WHEREAS HE HAS FILED I T MANUALLY. ON ACCOUNT OF THIS LAPSE WITHOUT ADJUDICATING THE APPE AL ON MERIT, THE LD.CIT(A) HAS DISMISSED THE APPEAL. THIS NEW SCHEM E HAS BEEN INTRODUCED W.E.F. 1-3-2016 AND THE ASSESSEE HAS FIL ED APPEAL ON 10.3.2016. LATER ON IT HAS COMPLIED WITH AMENDED PROVISION. T O OUR MIND, BEING A NEW SCHEME, THE LD.CIT(A) OUGHT TO HAVE ENTERTAINED THE APPEAL OF THE ASSESSEE AND DECIDED IT ON MERIT INSTEAD OF DISMISS ING IT ON TECHNICAL GROUND. THEREFORE, WE SET ASIDE THE ORDER OF THE L D.CIT(A) AND REMIT ALL THE ISSUES TO THE FILE OF THE LD.CIT(A) FOR ADJUDIC ATION ON MERIT. 4. AS FAR AS ITA NO.2600/AHD/2017 IS CONCERNED THE ONLY GRIEVANCE OF THE ASSESSEE IS THAT THE LD.CIT(A) HAS ERRED IN CONFIRMING THE ADDITION OF RS.8,21,147/- WHICH WAS ADDED BY THE AO UNDER SE CTION 14A OF THE INCOME TAX ACT READ WITH RULE 8D OF THE INCOME TAX RULES, 1962. 5. BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE HA S FIELD ITS RETURN OF INCOME ON 30.9.2014 DECLARING TOTAL LOSS AT RS.62,4 4,875/-. RETURN OF THE ASSESSEE WAS SELECTED FOR SCRUTINY ASSESSMENT AND O N SCRUTINY OF THE ACCOUNTS IT REVEALED THAT THE ASSESSEE HAS SHOWN TA X FREE INCOME UNDER SECTION 10(34) AT RS.6,16,533/-. THE LD.AO CONFRON TED THE ASSESSEE TO ITA NO.2599 AND 2600/AHD/2017 - 3 - SHOW THE EXPENDITURE DISALLOWED BY THE ASSESSEE FOR EARNING THIS TAX FREE INCOME. THE ASSESSEE CONTENDED THAT IT HAS DI SALLOWED AN AMOUNT OF RS.42,144/- UNDER SECTION 14A OF THE ACT. IN RE SPONSE TO THE QUERY OF THE AO, THE ASSESSEE HAS SUBMITTED AN EXPLANATION A ND CONTENDED THAT APPROXIMATELY 1/6 TH OF THE SALARY OF SANJAYBHAI AND SCOOTER EXPENSES I N RELATION TO THE MANAGEMENT OF INVESTMENT PORTFOLIO ARE DISALLOWED. THE LD.AO WAS NOT SATISFIED WITH THE EXPLANATION OF THE ASSESSEE. HE WORKED OUT THE DISALLOWANCE OF RS.8,21,147/- AFTER GIVING CREDIT OF EXPENDITURE DISALLOWED BY THE ASSESSEE ITSELF. NET DISALLOWANC E AT RS.8,21,147/- HAS BEEN MADE. APPEAL TO THE CIT(A) DID NOT BRING ANY RELIEF TO THE ASSESSEE. 6. WITH THE ASSISTANCE OF THE LD.REPRSENTATIVES, WE HAVE GONE THROUGH THE RECORD CAREFULLY. THE STAND OF THE ASSESSEE IS THAT NO DISALLOWANCE OUT OF INTEREST EXPENSES OUGHT TO BE MADE. IT HAS ALSO CONTENDED THAT WHILE WORKING DISALLOWANCE TOWARDS ADMINISTRATIVE E XPENSES, THE AO TOOK INTO CONSIDERATION TOTAL INVESTMENT INSTEAD OF INVESTMENT WHICH YIELDED TAX FREE INCOME. WE FIND THAT THE LD.CIT(A ) HAS OBSERVED THAT ACTIVITIES OF THE ASSESSEE ARE UNDER COMMON MANAGEM ENT, BANK ACCOUNTS ARE ALSO COMMON AND SHAREHOLDERS FUND ARE IN NEGAT IVE. HENCE, IT IS TO BE CONSTRUED THAT INTEREST BEARING FUNDS MUST HAVE BEEN USED BY THE ASSESSEE FOR EARNING TAX FREE INCOME. CONTRARY TO THIS FINDING, THE LD.COUNSEL FOR THE ASSESSEE DEMONSTRATED THAT THE A SSESSEE HAS BEEN MAINTAINING SEPARATE ACCOUNTS AND UNDER THE INVESTM ENT ACCOUNT IT HAS ACCUMULATED RESOURCES OF RS.56,28,064/- AS ON 31.3. 2014 AS AGAINST THE SHARE INVESTMENT OF RS.47,15,324/- WHOSE DETAILS AR E AVAILABLE ON PAGE ITA NO.2599 AND 2600/AHD/2017 - 4 - NO.1 OF THE PAPER BOOK. ON THE OTHER HAND, THE LD. DR RELIED UPON THE ORDER OF THE AO. 7. ON DUE CONSIDERATION OF THE ABOVE FACTS AND CIRC UMSTANCES, WE FIND THAT COMPLETE DETAILS HAVE NOT BEEN PLACED ON RECORD. THERE IS NO DISPUTE WITH REGARD TO THE PROPOSITION THAT SUB-SEC TION (2) OF SECTION 14A CONTEMPLATES THAT EXPENDITURE RELATABLE TO THE EARN ING OF TAX FREE INCOME DESERVES TO BE DISALLOWED. THE AO IS REQUIRED TO E XAMINE THE ACCOUNTS OF THE ASSESSEE, AND HOW THE ASSESSEE ITSELF HAS WO RKED OUT THE DISALLOWANCE OF EXPENDITURE RELATABLE TO EARNING OF TAX FREE INCOME. IF HE IS NOT SATISFIED WITH THE ACCOUNTING TREATMENT G IVEN BY THE ASSESSEE, THEN HE CAN PROCEED TO DISALLOW THE EXPENDITURE WIT H HELP OF FORMULA PROVIDED IN RULE 8D. IN THE PRESENT CASE, THE AO T HOUGH RECORDED HIS DISSATISFACTION , BUT FROM THE FINDING OF THE AO AS WELL AS OF THE CIT(A), IT NOWHERE REVEALS AS TO HOW THEY HAVE DEALT WITH T HE ACCUMULATED RESERVE OF RS.56,28,064/-. IF THE ASSESSEE HAS BEE N MAINTAINING SEPARATE ACCOUNTS FOR INVESTMENT AND MANUFACTURING ACTIVITIE S, THEN THESE ACCOUNTS OUGHT TO HAVE BEEN EXAMINED FOR THE PURPOS E OF IDENTIFYING ACTIVITY IN EACH YEAR. WE FIND THAT OBSERVATION OF NEGATIVE BALANCE IN RESERVE AND SURPLUS OF SHARE APPLICATION MONEY IS C ONCERNED THAT WOULD ARISE ONLY IF THE RESERVES AND SURPLUS OF BOTH THE ACTIVITIES ARE TAKEN TOGETHER FOR THE PURPOSE OF GROUPING. CONSIDERING THIS ASPECT, WE DEEM IT APPROPRIATE THAT THIS ISSUE DESERVES TO BE REMIT TED BACK TO THE FILE OF CIT(A) BECAUSE IDENTICAL ISSUE IS REQUIRED TO BE AD JUDICATED IN THE ASSTT.YEAR 2013-14 AS WELL. THE LD.CIT(A) WILL BE ABLE TO EXAMINE THE DISALLOWANCE REQUIRES TO BE WORKED OUT FOR THE PURP OSE OF 14A IN BOTH THE YEARS. IT WILL GIVE UNIFORMITY AS WELL AS CONS ISTENCY ON THE COMMON ITA NO.2599 AND 2600/AHD/2017 - 5 - ISSUE INVOLVED IN THESE TWO YEARS. THEREFORE, THE O RDER OF THE CIT(A) IS SET ASIDE AND ISSUE IS REMITTED BACK TO THE FILE OF THE LD.CIT(A) FOR RE- ADJUDICATION. 8. IN THE RESULT, BOTH APPEALS OF THE ASSESSEE ARE ALLOWED FOR STATISTICAL PURPOSE. PRONOUNCED IN THE OPEN COURT ON 7 TH MAY, 2019. SD/- SD/- (PRADIP KUMAR KEDIA) ACCOUNTANT MEMBER (RAJPAL YADAV) JUDICIAL MEMBER