M/s. Alpanil Industries, Ahmedabad V. The ACIT.,Circle-6, Ahmedabad

ITA 2708/AHD/2010

• Counselvise Citation: [2014] 140 COUNSELVISE.COM (IT) 80445 (ITAT-AHMEDABAD)
• Duration Of Justice: 4 year(s) 1 month(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 17-10-2014
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: D
• Next Hearing Date: 26-09-2014
• Assessment Year: 2006-2007
• Appeal Filed On: 17-09-2010
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: ROOP CHAND
• Keywords: Depreciation; Earning of tax free income; Proportionate interest
• Section: 143(3); 14A; 32

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD D BENCH BEFORE: SRI ANIL CHATURVEDI, ACCOUNTANT MEMBER AND SHRI KUL BHARAT, JU DICIAL MEMBER M/S. ALPANIL INDUSTRIES, PLOT NO. 81-82, PHASE II, GIDC ESTATE, VATVA, AHMEDABAD PAN: AAEFA 4803 D (APPELLANT) VS ACIT, CIRCLE-6, AHMEDABAD (RESPONDENT) ASSESSEE BY: SRI S.N. SOPARKAR, A.R. REVENUE BY: SRI ROOP CHAND, SR.D.R. DATE OF HEARING : 26-09-2014 DATE OF PRONOUNCEMENT : 17-10-20 14 / ORDER PER : ANIL CHATURVEDI, ACCOUNTANT MEMBER:- THIS IS THE ASSESSES APPEAL AGAINST THE ORDER OF LD. CIT(A)-XVI, AHMEDABAD DATED 07-07-2010 FOR A.Y. 2006-07. 2. THE FACTS AS CULLED OUT FROM THE MATERIAL ON REC ORD ARE AS UNDER. ITA NO. 2708/AHD/2010 ASSESSMENT YEAR 2006-07 I.T.A NO. 2708/AHD/2010 A.Y. 2006-07 PAGE NO M/S. ALPANIL INDUSTRIES VS. ACIT 2 3. ASSESSEE IS A PARTNERSHIP FIRM STATED TO BE ENGA GED IN THE BUSINESS OF MANUFACTURING, TRADING AND EXPORT OF SYNTHETICS ORGANIC PIGMENT DYES AND CHEMICALS. ASSESSEE FILED ITS RETURN OF INCOME FOR A.Y. 2006-07 ON 16-10-2006 DECLARING TOTAL INCOME OF RS. 18,49,330/ -. THE CASE WAS SELECTED FOR SCRUTINY AND THEREAFTER THE ASSESSMENT WAS FRAMED U/S. 143(3) VIDE ORDER DATED 28-03-2008 AND THE TOTAL INCOME WA S DETERMINED AT RS. 22,67,789/-. AGGRIEVED BY THE ORDER OF AO, ASSESSE E CARRIED THE MATTER BEFORE LD. CIT(A) WHO VIDE ORDER DATED 07-07-2010 G RANTED PARTIAL RELIEF TO THE ASSESSEE. AGGRIEVED BY THE AFORESAID ORDER OF LD. CIT(A), ASSESSEE IS NOW IN APPEAL BEFORE AND HAS RAISED FOLLOWING GROUN DS:- 1. LD. CIT (A) ERRED IN LAW AND ON FACTS IN CONFIR MING DISALLOWANCE MADE BY AO U/S 14A OF THE ACT OF RS. 63,455/- BEING PROPORTIONATE INTEREST EXPENSES FOR EARNING TAX FREE INCOME IGNOR ING THE FACT THAT APPELLANT MADE INVESTMENT FROM SUFFICIENT INTEREST FREE FUNDS AVAILABLE FOR A SHORT PERIOD OF 35 DAYS ONLY. LD. CIT (A) OUGHT TO HAVE DELETED THE ADDITION OF INTEREST EXPENSES. IT BE SO HELD NOW. 2. LD CIT (A) ERRED IN LAW AND ON FACTS IN CONFIR MING DISALLOWANCE MADE BY AO OF RS. 2,31,100/- TOWARDS DEPRECIATION CLAIME D ON MOTORCAR OWNED BY THE APPELLANT USED WHOLLY AND EXCLUSIVELY FOR BU SINESS OF THE APPELLANT. LD. CIT (A) FACTUALLY ERRED IN HOLDING THAT MOTORCA R REGISTERED IN THE NAME OF THE PARTNER WAS ALSO OWNED BY THE PARTNER AND NO T THE APPELLANT FIRM. LD. CIT (A) OUGHT TO HAVE DELETED DISALLOWANCE OF D EPRECIATION ON ASSET OWNED AND USED WHOLLY AND EXCLUSIVELY FOR THE BUSIN ESS OF THE APPELLANT. IT BE SO HELD NOW. FIRST GROUND IS WITH RESPECT TO DISALLOWANCE U/S. 1 4A. 4. DURING THE COURSE OF ASSESSMENT PROCEEDINGS, AO NOTICED THAT ASSESSEE HAS EARNED DIVIDEND FROM THE INVESTMENTS M ADE IN MUTUAL FUNDS. ASSESSEE WAS ASKED TO EXPLAIN AS TO WHY PRO PORTIONATE INTEREST PAID NOT BE DISALLOWED U/S. 14A TO WHICH ASSESSEE I NTER ALIA SUBMITTED THAT ASSESSEE HAD INVESTED SURPLUS FUND FOR SHORT PERIOD OF ABOUT 35 DAYS AND I.T.A NO. 2708/AHD/2010 A.Y. 2006-07 PAGE NO M/S. ALPANIL INDUSTRIES VS. ACIT 3 IT DID NOT BORROW ANY INTEREST BEARING FUNDS FOR MA KING INVESTMENTS AND FURTHER IT HAS NOT INCURRED ANY EXPENDITURE TO EARN EXEMPT INCOME. THE SUBMISSIONS OF THE ASSESSEE WAS NOT FOUND ACCEPTABL E TO THE AO. AO WAS OF THE VIEW THAT INTEREST BEARING BUSINESS FUND S WERE UTILIZED FOR 35 DAYS FOR EARNING EXEMPT DIVIDEND INCOME. HE THEREFO RE WORKED THE DISALLOWANCE ON ACCOUNT OF INTEREST ON THE BASIS OF INTEREST RATE OF 9% THAT WAS PAID BY THE ASSESSEE AND WORKED OUT THE DISALLO WANCE AT RS. 63,450/- . AGGRIEVED BY THE ORDER OF AO, ASSESSEE CARRIED T HE MATTER BEFORE LD. CIT(A). LD. CIT(A) UPHELD THE ORDER OF AO BY HOLDI NG AS UNDER:- 3. THE FIRST GROUND IS REGARDING DISALLOWANCE OF R S. 63,455/- U/S. 14A OF THE I T ACT. THE AO NOTICED THAT THE APPELLANT HAS CLAIMED EXEMPTED DIVIDEND INCOME OF RS 95,757/- FROM INVESTMENT OF R S. 2,63,25,080/- IN DSPML FUND. THE CONTENTION OF THE APPELLANT IS THA T THE APPELLANT HAD SUFFICIENT OWN FUNDS AND NON INTEREST BEARING FUNDS TO MAKE INVESTMENT IN MUTUAL FUNDS THEREFORE THE AO WAS NOT JUSTIFIED IN MAKING DISALLOWANCE OF INTEREST EXPENDITURE U/S. 14A OF THE I T ACT. DURIN G THE COURSE OF APPELLATE PROCEEDINGS THE AR WAS ASKED TO PROVE FROM THE BANK STATEMENT AND THE BANK BOOK OF THE APPELLANT THAT NO BORROWED FUNDS H AS BEEN UTILIZED IN ACQUIRING THE UNITS OF DSPML FUNDS. HOWEVER THE AR DID NOT FURNISH OR PROVE SUCH NEXUS BETWEEN THE BORROWED FUNDS AND ITS UTILIZATION IN THE DSPML FUNDS. IT IS THE DUTY OF THE APPELLANT TO PRO VE THAT NO PART OF INTEREST BEARING FUNDS IS UTILIZED IN ACQUIRING THE UNITS OF THE MUTUAL FUNDS. MERELY SAYING THAT HE HAD SUFFICIENT NON INTEREST B EARING FUNDS AT HIS DISPOSAL IS NOT SUFFICIENT. AS THE APPELLANT FAILED TO PROVE THE UTILIZATION OF BORROWED FUNDS AS PER BANK STATEMENT & BANK BOOK, I N THE ABSENCE THEREOF IT WILL BE PRESUMED THAT SOME OF THE BORRO WED FUNDS HAS BEEN UTILIZED BY THE APPELLANT ,IN PURCHASING THE UNITS OF MUTUAL FUNDS. THE AO IS THEREFORE JUSTIFIED IN MAKING DISALLOWANCE U/S. 14A IN VIEW OF THE DECISION OF DAGA CAPITAL MANAGEMENT PVT LTD 119 TTJ 289 (MUMBAI)(SB). THIS GROUND OF THE APPELLANT IS REJECTED. 5. AGGRIEVED BY THE ORDER OF LD. CIT(A), ASSESSEE I S NOW IN APPEAL BEFORE US. 6. BEFORE US, LD. AR REITERATED THE SUBMISSIONS MAD E BEFORE AO AND LD. CIT(A) AND FURTHER SUBMITTED THAT ASSESSEE WAS HAVING SUFFICIENT I.T.A NO. 2708/AHD/2010 A.Y. 2006-07 PAGE NO M/S. ALPANIL INDUSTRIES VS. ACIT 4 INTEREST FREE FUNDS IN THE FORM OF CAPITAL AND THER EFORE IT CANNOT BE PRESUMED THAT INTEREST BEARING FUNDS HAVE BEEN USED FOR THE PURPOSE OF MAKING INVESTMENTS. HE POINTED TO PAGE NO. 5 OF TH E PAPER BOOK WHICH IS THE BALANCE SHEET AS ON 31 ST MARCH, 2006 WHEREIN THE PARTNERS CAPITAL WAS RS. 11.86 CRORES AGAINST WHICH THE INVESTMENT WAS S TATED TO BE RS. 2.63 CRORES. HE THEREFORE SUBMITTED THAT NO INTEREST BE ARING FUNDS HAVE BEEN USED FOR THE PURPOSE OF MAKING INVESTMENTS POINTED OUT THAT THE INTEREST FREE FUNDS WERE FAR IN EXCESS OF THE INVESTMENTS. HE ALSO PLACED RELIANCE ON THE DECISION IN THE CASE OF CIT VS. RAGHUVEER SY NTHETICS 354 ITR 222. LD. DR ON THE OTHER RELIED ON THE ORDER OF AO AND L D. CIT(A). 7. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL ON RECORD. WE FIND THAT THE AO HAS NOTED THAT ASSESSE E HAD MADE INVESTMENTS OF RS. 2.63 CORES IN DSPMC FUND. BEFOR E US, LD. AR HAS POINTED TO THE BALANCE SHEET AS AT 31 ST MARCH, 2006 AND POINTED TO THE FACT THAT THE SHARE CAPITAL OF THE PARTNERS AS ON 31 ST MARCH, 2006 WAS IN EXCESS OF RS. 11.86 CORES AS AGAINST THE INVESTMENTS OF RS . 2.63 CRORE. HONBLE BOMBAY HIGH COURT IN THE CASE OF RELIANCE AND POWER LTD VS. CIT (2009) 313 ITR 340 (BOMBAY) HAS HELD THAT IF THERE ARE INT EREST FREE FUNDS AVAILABLE TO A ASSESSEE SUFFICIENT TO MEET ITS INVE STMENT AND AT THE SAME TIME THE ASSESSEE HAS RAISED A LOAN IT CAN BE PRESU MED THAT THE INVESTMENTS WERE FROM INTEREST FREE FUNDS AVAILABLE . BEFORE US REVENUE HAS NOT PLACED ANY MATERIAL ON RECORD TO CONTROVERT THE SUBMISSIONS MADE BY THE ASSESSEE AND HAD ALSO NOT BROUGHT ON RECORD ANY BINDING CONTRARY DECISION IN ITS SUPPORT. IN SUCH CIRCUMSTANCES, WE ARE OF THE VIEW THAT NO DISALLOWANCE U/S. 14A ON ACCOUNT OF INTEREST CAN BE MADE IN THE PRESENT CASE. THUS, THIS GROUND OF ASSESSEE IS ALLOWED. I.T.A NO. 2708/AHD/2010 A.Y. 2006-07 PAGE NO M/S. ALPANIL INDUSTRIES VS. ACIT 5 GROUND NO. 2 WITH RESPECT TO DISALLOWANCE OF DEPREC IATION OF MOTOR CAR 8. ON VERIFICATION OF THE DETAILS SUBMITTED BY THE ASSESSEE, AO NOTICED THAT ASSESSEE HAS CLAIMED DEPRECIATION OF RS. 2,31, 100/- ON A MOTOR CAR WHICH WAS BROUGHT AND REGISTERED IN THE NAME OF ONE OF THE PARTNERS OF THE FIRM AND HE THEREFORE DISALLOWED THE CLAIM OF DEPRE CIATION. AGGRIEVED BY THE ORDER OF AO, ASSESSEE CARRIED THE MATTER BEFORE LD. CIT(A). THE ACTION OF AO WAS CONFIRMED BY LD. CIT(A) BY HOLDING AS UNDER. 5.1 I HAVE CONSIDERED THE SUBMISSIONS. THE AR WAS SPECIFICALLY ASKED AS TO WHOSE FUNDS WERE USED FOR THE PURCHASE OF CAR, IT WAS REPORTED BY HIM THAT THE PARTNERS FUND HAS BEEN US ED IN THIS CASE FOR PURCHASING OF THE CAR. BUT SINCE THE CAR HAS B EEN USED BY THE FIRM FOR 1/3 BUSINESS, THE FIRM IS ENTITLED TO DEPR ECIATION U/S. 32 AS HELD BY THE HONBLE SUPREME COURT IN THE CASE OF MY SORE CEMENTS IN 239 ITR 775. IN MY VIEW THE INTERPRETATION OF D ECISION OF HONBLE SUPREME COURT BY THE AR IS MISPLACED. SECTION 32 O F FOR A.Y. 2006- 07 IS REPRODUCED AS UNDER:- 32 (I) IN RESPECT OF DEPRECIATION OF- (I) BUILDING, MACHINERY, PLANT OR FURNITURE, BEING TANGIBLE ASSETS (II) KNOW HOW, PATENTS, COPYRIGHTS, TRADE MARKS, LICENSES, FRANCHISES OR ANY OTHER BUSINESS OR COMMERCIAL RIGHTS OF SIMILAR NATURE, BEING INTANGIBLE ASSETS ACQUIRED ON OR AFTER THE 1 ST DAY OF APRIL, 1998 OWNED WHOLLY OR PARTLY BY THE ASSESSEE AND USED FOR THE PURPOSES OF THE BUSINESS OR PROFESSION, THE FOLLOWING DEDUCTIONS SHALL BE ALLOWED- (I) (IN THE CASE OF ASSETS OF AN UNDERTAKING ENGAGED IN GENERATION OR GENERATION AND DISTRIBUTION OF POWER, SUCH PERCENTAGE OFN THE ACTUAL COST THEREOF TO THE ASSESSEE AS MY BE PRESCRIBED) (II) (IN THE CASE OF ANY BLOCK OF ASSETS, SUCH PERCENTAGE ON THE WRITTEN DOWN VALUE THEREOF AS MY BE PRESCRIBED) I.T.A NO. 2708/AHD/2010 A.Y. 2006-07 PAGE NO M/S. ALPANIL INDUSTRIES VS. ACIT 6 5.2 IN OTHER WORDS, THE APPELLANT HAS NECESSARY TO BE OWNER (WHOLLY OR PARTLY) OF THE ASSET IN RESPECT OF WHICH DEPRECIATION HAS BEEN CLAIMED. IN THIS CASE THE FUNDS HAS BEEN USED BY THE PARTNERS AND NOT BY THE APPELLANT FIRM. THE REGISTRATION IS ALSO IN THE NAME OF THE PARTNERS AND NOT FIRM. THE HONBLE SUPREME COU RT IN THE CASE OF MYSORE CEMENT 239 ITR 775 HAD HELD THAT THE REGISTR ATION OF THE ASSETS IN THE NAME OF THE APPELLANT IS NOT NECESSAR Y TO CLAIM DEPRECIATION U/S. 32 OF THE I.T. ACT. IT WAS SAID IN THE CONTEXT OF DEJURE OWNER VS. DEFECTO OWNER. FOR EXAMPLE A FIRM HAS PURCHASED THE CAR FROM ITS FUNDS BUT DUE TO SOME REASON IT WA S NOT REGISTERED IN THE NAME OF THE FIRM BUT IN THE NAME OF THE PARTNER S, THEN IN THAT IF THE CAR WAS USED BY THE FIRM FOR ITS BUSINESS, THE FIRM IS ENTITLED TO DEPRECIATION IRRESPECTIVE OF THE FACT WHETHER THE C AR WAS REGISTERED IN THE NAME OF PARTNERS OR FIRM. IN THIS CASE THE CAR IS ALSO OWNED BY THE PARTNER AND IS ALSO REGISTERED IN THE NAME OF T HE PARTNER THEREFORE THERE CANNOT BE ANY QUESTION OF ALLOWING DEPRECIATION U/S. 32 OF THE ACT IN THE HANDS OF THE FIRM. IF THE INT ERPRETATION OF THE APPELLANT IS CONSIDERED TO BE CORRECT LAW THEN ON A LL THE CARS TAKEN ON LEASE BY ANY ASSESSEE, DEPRECIATION CAN BE CLAIM ED BY SUCH ASSESSEE BECAUSE SUCH CARS ARE BEING USED BY HIM FO R THE PURPOSE OF HIS BUSINESS. IT IS THEREFORE NECESSARY FOR THE APPELLANT TO BE THE OWNER OF THE CAR WHOLLY OR PARTLY. AS IN THIS CASE THE FIRM IS NEITHER THE DE JURE OWNER NOR DE FACTO OWNER, DEPRECIATION U/S. 32 CANNOT BE ALLOWED TO THE APPELLANT FIRM. IN FACT IN ALL THE DECISIONS RELIED BY THE AUTHORISED REPRESENTATIVE THE OWNERSHIP VESTED WITH THE ASSESSEE AS THE FUNDS WERE EMPLOYED BY THE ASSESSEE FOR THE PURPOSE OF CLAIM OF DEPRECIATION U/S. 32 OF THE IT ACT. ACTIO N OF THE AO IN DENYING THE DEPRECIATION IS THEREFORE CONFIRMED. 9. AGGRIEVED BY THE ORDER OF LD. CIT(A), ASSSESSEE IS NOW IN APPEAL BEFORE US. 10. BEFORE US, LD. AR SUBMITTED THAT THE MOTOR CAR ON WHICH THE DEPRECIATION HAS BEEN DISALLOWED WAS PURCHASED IN F INANCIAL YEAR 2004-05 AND THE CLAIM OF DEPRECIATION THOUGH DISALLOWED BY THE AO, BUT LD. CIT(A) VIDE ORDER DATED 06-06-2008 HAD ALLOWED THE CLAIM O F DEPRECIATION AND AGAINST THE AFORESAID ORDER OF LD. CIT(A), NO APPEA L HAS BEEN PREFERRED BY I.T.A NO. 2708/AHD/2010 A.Y. 2006-07 PAGE NO M/S. ALPANIL INDUSTRIES VS. ACIT 7 REVENUE. HE FURTHER SUBMITTED THAT THE MOTOR CAR I S REFLECTED IN THE BALANCE SHEET OF THE FIRM AND HAS BEEN PURCHASED FR OM FUNDS OF THE FIRM. HE POINTED TO THE COPY OF THE BANK STATEMENT OF THE FIRM TO DEMONSTRATE THAT THE FUNDS OF THE FIRM HAS BEEN USED FOR THE PU RCHASE OF CAR. HE FURTHER SUBMITTED THAT THAT WHEN THE DEPRECIATION ON THE MO TOR CAR HAS BEEN ALLOWED IN EARLIER ASSESSMENT YEAR AND SINCE THERE ARE NO CHANGE IN THE FACTS, THE CLAIM OF ASSESSEE CANNOT BE DISALLOWED. HE FURTHER SUBMITTED THAT SECTION 32 REQUIRES THAT FOR CLAIMING DEPRECIA TION THE ASSESSEE MUST USE THE ASSET FOR THE PURPOSE OF BUSINESS AND THE S ECTION DOES NOT MANDATE THE USAGE OF THE ASSET BY THE ASSESSE ITSEL F AND FOR THE AFORESAID PROPOSITION HE PLACED RELIANCE ON THE DECISION OF H ONBLE APEX COURT IN THE CASE OF ICDS LTD VS. CIT (2013) 250 ITR 527 (SC). LD. DR ON THE OTHER HAND RELIED ON THE ORDER OF AO AND LD. CIT(A). 11. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL ON RECORD. THE ISSUE IN THE PRESENT CASE IS ABOUT THE ALLOWABILITY OF DEPRECIATION OF MOTOR CAR IN THE NAME OF THE PARTNE R OF THE ASSESSEE. BEFORE US, ASSESSEE HAS SUBMITTED THAT ASSESSEE WAS ALLOWED DEPRECIATION ON THE SAME CAR IN IMMEDIATELY PRECEDI NG FINANCIAL YEAR BY LD. CIT(A) AND REVENUE HAS NOT PREFERRED APPEAL AGA INST THE ORDER OF LD. CIT(A). BEFORE US, ASSESSEE FROM THE BANK STATEMEN T OF THE FIRM HAS ALSO DEMONSTRATED THAT THE FUNDS OF THE FIRM HAS BEEN US ED FOR THE PURPOSE OF PURCHASE OF CAR AND FURTHER THE CAR IS ALSO REFLECT ED IN THE BALANCE SHEET OF THE FIRM. BEFORE US, REVENUE HAS NOT PLACED ANY MA TERIAL ON RECORD TO CONTROVERT THE SUBMISSIONS OF THE ASSESSEE. IN VIE W OF THESE FACTS, WE ARE OF THE VIEW THAT THE CLAIM OF THE DEPRECIATION CANN OT BE DENIED TO THE ASSESSEE. WE DIRECT ACCORDINGLY. THUS, THIS GROUN D IS ALLOWED. I.T.A NO. 2708/AHD/2010 A.Y. 2006-07 PAGE NO M/S. ALPANIL INDUSTRIES VS. ACIT 8 12. IN THE RESULT, APPEAL OF THE ASSESSEE IS ALLOWE D. ORDER PRONOUNCED IN OPEN COURT ON THE DATE MENTIONE D HEREINABOVE AT CAPTION PAGE SD/- SD/- (KUL BHARAT) (ANIL CHATURVEDI) JUDICIAL MEMBER ACCOUNTANT MEMBER AHMEDABAD: DATED 17/10/2014 AK / COPY OF ORDER FORWARDED TO:- 1. ASSESSEE 2. REVENUE 3. CONCERNED CIT 4. CIT (A) 5. DR, ITAT, AHMEDABAD 6. GUARD FILE. BY ORDER/ , / ,