The ACIT, Circle-5, Ahmedabad V. Prabhudas Kishordas Tobacco Products Pvt.Ltd., Ahmedabad

ITA 2723/AHD/2012

• Counselvise Citation: [2016] 133 COUNSELVISE.COM (IT) 9271 (ITAT-AHMEDABAD)
• Duration Of Justice: 3 year(s) 3 month(s) 6 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 10-03-2016
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: C
• Next Hearing Date: 09-02-2016
• Assessment Year: 2005-2006
• Appeal Filed On: 04-12-2012
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: JAMES KUREIN
• Section: 14A

Judgement Text

, C IN THE INCOME TAX APPELLATE TRIBUNAL C BENCH, AHMEDABAD BEFORE SHRI RAJPAL YADAV, JUDICIAL MEMBER AND SHRI MANISH BORAD, ACCOUNTANT MEMBER ./ ITA.NO.2723/AHD/2012 WITH CO NO.33/AHD/2013 / ASSTT. YEAR: 2005-2006 ACIT, CIR.5 AHMEDABAD. VS PRABHUDAS KISHORDAS TOBACCO PRODUCTS P.LTD. 659/1, GULBAI TEKRA, PANCHWATI AHMEDABAD 380 015. PAN : AABCP 1495 Q ! / (APPELLANT) '# ! / (RESPONDENT) REVENUE BY : SHRI JAMES KUREIN, SR.DR ASSESSEE BY : MS. URVASHI SHODHAN / DATE OF HEARING : 09/02/2016 / DATE OF PRONOUNCEMENT: 10/03/2016 $%/ O R D E R PER RAJPAL YADAV, JUDICIAL MEMBER: THE REVENUE IS IN APPEAL BEFORE US AGAINST THE ORDE R OF LD.COMMISSIONER INCOME-TAX (APPEALS)-XI, AHMEDABAD DATED 17.9.2012 PASSED FOR THE ASSTT.YEAR 2005-06 2. ON RECEIPT OF NOTICE IN THE REVENUES APPEAL, TH E ASSESSEE HAS FILED CO BEARING NO.33/AHD/2013. THE LD.COUNSEL FOR THE ASSESSEE DID NOT PRESS CO ON THE GROUND THAT IN EARLIER YEARS, THE I SSUE WAS DECIDED ITA NO.2723/AHD/2012 WITH CO 2 AGAINST THE ASSESSEE BY THE LD.CIT(A), AND THE ASSE SSEE DID NOT CHALLENGE THIS ISSUE IN FURTHER APPEAL. HENCE, CO IS BEING R EJECTED. 3. THE GRIEVANCE OF THE REVENUE IN THE APPEAL IS TH AT THE LD.CIT(A) HAS ERRED IN DELETING THE ADDITION OF RS.27,74,905/ -. 4. BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE HA S FILED ITS RETURN OF INCOME ON 24.10.2005 DECLARING TOTAL INCOME AT RS.1 994,60,380/-. THE CASE OF THE ASSESSEE WAS SELECTED FOR SCRUTINY ASSE SSMENT AND NOTICE UNDER SECTION 143(2) WAS ISSUED AND SERVED UPON THE ASSESSEE. ON SCRUTINY OF THE ACCOUNTS, IT REVEALED TO THE AO THA T THE ASSESSEE HAS MADE AN INVESTMENT OF RS.184,99,364/-. THE LD.AO HAS FU RTHER OBSERVED THAT THE ASSESSEE HAS PAID INTEREST OF RS.13.95 CRORES ON THE BORROWING. HE, THEREFORE, PRESUMED THAT THE ASSESSEE MUST HAVE UTI LIZED BORROWED FUNDS FOR THE PURPOSE OF INVESTMENT. THE LD.AO APPLIED 15 % INTEREST RATE OF THE INVESTMENT AND WORKED AN AMOUNT OF RS.27,74,905 /-. HE DISALLOWED THIS AMOUNT WITH THE HELP OF SECTION 14A OF THE INC OME TAX ACT. 5. ON APPEAL, THE LD.CIT(A) DELETED THE DISALLOWANC E. 6. AGGRIEVED WITH THE ORDER OF THE LD.CIT(A) DATED 24.3.2008, THE REVENUE CAME UP IN APPEAL BEFORE THE TRIBUNAL VIDE ITA NO.1952/AHD/2008. THIS APPEAL OF THE REVENUE WAS A LLOWED BY THE TRIBUNAL VIDE ORDER DATED 30.9.2010. THE TRIBUNAL HAS SET ASIDE THE ORDER OF THE LD.CIT(A) BY OBSERVING THAT THE LD.CIT (A) HAS NOT PASSED SPEAKING ORDER AND HAS NOT EXAMINED THE FACTS. IN THE SECOND ROUND, THE LD.CIT(A) GONE THROUGH THE DETAILS AND DELETED THE DISALLOWANCE. THE LD. ITA NO.2723/AHD/2012 WITH CO 3 COUNSEL FOR THE ASSESSEE, AT THE VERY OUTSET, SUBMI TTED THAT THE CASE OF THE ASSESSEE WAS THAT IT HAS INTEREST FREE FUNDS IN THE SHAPE OF SHARE CAPITAL AMOUNTING TO RS.48 LAKH AND RESERVES AND SURPLUS FU ND OF RS.7.50 CRORS. THE INVESTMENT OF THE ASSESSEE DURING THE YEAR IS 1 .85 CRORES. SHE TOOK US THROUGH THE BALANCE SHEET AND SUBMITTED THAT THE RESERVE AND SURPLUS AS ON 31.3.2004 WAS RS.4.60 CRORES. DURING THE YEA R IT INCREASED TO RS.7.75 CRORES. SIMILARLY, THE INVESTMENT IN THE S HARES AND MUTUAL FUND WAS RS.1.95 CRORES AS ON 31.3.2004, WHICH HAS GONE DONW TO RS.1.85 CRORES. THE RESERVE AND SURPLUS HAS BEEN INCREASED , WHEREAS, THE INVESTMENT HAS BEEN DECREASED. IN THE IMMEDIATELY PRECEDING YEAR, THE DISALLOWANCE MADE BY THE ITO WAS DELETED BY THE CIT (A), AND THIS ORDER BECOME FINAL. ON SIMILAR ANALOGY, THIS YEAR ALSO N O INTEREST BEARING FUNDS HAVE BEEN USED BY THE ASSESSEE. 7. ON THE OTHER HAND, THE LD.DR RELIED UPON THE ORD ER OF THE AO. 8. ON DUE CONSIDERATION OF THE FACTS AND CIRCUMSTAN CES OF THE CASE, IN THE LIGHT OF THE ABOVE FACTS, IT IS DISCERNIBLE THA T THE INVESTMENT OF THE ASSESSEE HAS GONE DOWN FROM IMMEDIATELY PRECEDING Y EAR. ITS RESERVE AND SURPLUS HAS BEEN INCREASED. THE INTEREST FREE FUNDS ARE MUCH HIGHER THAN THE INVESTMENT. THEREFORE, ON PROPORTIONATE B ASIS INTEREST EXPENSES CANNOT BE ALLOCATED TO THE INVESTMENT MADE BY THE A SSESSEE. THE LD.CIT(A) HAS RECORDED A FINDING OF FACTS THAT THE AO HAS NOT ESTABLISHED NEXUS EXHIBITING THE FACT THAT THE INTEREST BEARING FUNDS HAVE BEEN USED BY THE ASSESSEE FOR INVESTMENT, GENERATING TAX FREE INCOME. IN VIEW OF ITA NO.2723/AHD/2012 WITH CO 4 THE ABOVE FACTS, WE DO NOT FIND ANY MERIT IN THE AP PEAL OF THE REVENUE. CONSEQUENTLY, THE APPEAL AS WELL AS CO ARE DISMISSE D. 9. IN THE RESULT, THE APPEAL OF THE REVENUE AND CO OF THE ASSESSEE, BOTH ARE DISMISSED. ORDER PRONOUNCED IN THE COURT ON 10 TH MARCH, 2016 AT AHMEDABAD. SD/- SD/- (MANISH BORAD) ACCOUNTANT MEMBER (RAJPAL YADAV) JUDICIAL MEMBER