The ITO, Ward-1, Mehsana V. M/s. Apollo Techno Equipment Ltd., Mehsana

ITA 2974/AHD/2016

• Counselvise Citation: [2018] 125 COUNSELVISE.COM (IT) 8489 (ITAT-AHMEDABAD)
• Duration Of Justice: 1 year(s) 5 month(s) 3 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 19-04-2018
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: SMC
• Assessment Year: 2012-2013
• Appeal Filed On: 15-11-2016
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: SANTOSH KARNANI
• Keywords: Business income; Earning of tax free income
• Section: 14A

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD SMC BENC H (BEFORE SHRI RAJPAL YADAV, JUDICIAL MEMBER & SHRI N.K. BILLAIYA, ACCOUNTANT MEMBER) ITA. NO: 2974/AHD/2016 (ASSESSMENT YEAR: 2012-13) INCOME TAX OFFICER, WARD- 1, MEHSANA V/S APOLLO TECHNO EQUIPMENT LTD., PLOT NO. 151, 152, 162 & 163, INDUSTRIAL ESTATE, GIDC, MEHSANA-384002 (APPELLANT) (RESPONDENT) PAN: AAACR5677H APPELLANT BY : SHRI SANTOSH KARNANI, SR. D.R. RESPONDENT BY : NONE ( )/ ORDER DATE OF HEARING : 18 -04-201 8 DATE OF PRONOUNCEMENT : 19 -04-2018 PER N.K. BILLAIYA, ACCOUNTANT MEMBER: 1. THIS APPEAL BY THE REVENUE IS DIRECTED AGAINST THE ORDER OF THE LD. CIT(A), GANDHINAGAR, AHMEDABAD DATED 30.08.20016 PERTAINING TO A.Y. 2012-13. ITA NO. 2974 /AHD/2016 . A.Y. 2012-1 3 2 2. THE ONLY GRIEVANCE OF THE REVENUE IS THAT THE LD. C IT(A) ERRED IN DELETING THE ADDITION MADE BY A.O. ON DISALLOWANCE OF INTEREST E XPENSES U/S. 14A OF THE ACT AMOUNTING TO RS. 33,63,765/-. 3. BRIEFLY STATED THE FACTS OF THE CASE ARE THAT ASSES SEE IS IN THE BUSINESS OF TRADING OF ENGINEERING GOODS AND GENERAL INVESTMENT. THE RE TURN FOR THE YEAR UNDER CONSIDERATION WAS SELECTED FOR SCRUTINY ASSESSMENT AND ACCORDINGLY STATUTORY NOTICES WERE ISSUED AND SERVED UPON THE ASSESSEE. 4. DURING THE COURSE OF THE SCRUTINY ASSESSMENT PROCEE DINGS, THE A.O. FOUND THAT THE ASSESSEE HAS CLAIMED DIVIDEND INCOME OF RS. 12, 50,000/- AS EXEMPT FROM TAX. THE A.O. FOUND THAT THE ASSESSEE HAS NOT DISAL LOWED ANY AMOUNT TOWARDS EXEMPT INCOME AS PER THE PROVISIONS OF SECTION 14A READ WITH RULE 8D. THE A.O. NOTICED THAT THE ASSESSEE HAS CLAIMED INTEREST EXPENDITURE OF RS. 1.18 CRORES ON TOTAL INVESTMENT OF RS. 7.48 CRORES. 5. THE ASSESSEE WAS ASKED TO EXPLAIN WHY DISALLOWANCE SHOULD NOT BE MADE U/S. 14 READ WITH RULE 8D. ASSESSEE STRONGLY CONTENDED T HAT NO EXPENDITURE WAS INCURRED IN RELATION TO THE EXEMPT INCOME AND HENCE , THERE IS NO QUESTION OF ANY DISALLOWANCE U/S. 14A OF THE ACT. IT WAS FURTHE R EXPLAINED THAT THE INTEREST EXPENDITURE INCURRED BY THE ASSESSEE WERE TOWARDS B USINESS TRANSACTIONS. 6. THE CONTENTIONS OF THE ASSESSEE DID NOT FIND ANY FA VOUR WITH THE A.O. WHO WAS OF THE FIRM BELIEF THAT MOST OF THE INTEREST BEARIN G FUNDS AVAILABLE WITH THE ASSESSEE HAVE BEEN UTILIZED FOR MAKING INVESTMENT I N SHARES. THEREFORE, THE INTEREST EXPENDITURE CANNOT BE SAID TO BE INCURRED ONLY FOR THE PURPOSES OF TAXABLE BUSINESS INCOME OF THE ASSESSEE. THE A.O. P ROCEEDED BY COMPUTING THE ITA NO. 2974 /AHD/2016 . A.Y. 2012-1 3 3 DISALLOWANCE U/S. 14A READ WITH RULE 8D AND COMPUTE D THE DISALLOWANCE AT RS. 38,39,620/-. 7. ASSESSEE STRONGLY AGITATED THE MATTER BEFORE THE LD . CIT(A) AND POINTED OUT THAT DURING THE YEAR, THE ASSESSEE HAS EARNED INTER EST INCOME OF RS. 1,13,14,628/- AND HAS INCURRED INTEREST EXPENSE AT RS. 1,18,19,094/- WHICH TURNS TO NET INTEREST EXPENSE OF RS. 4,95,438/-. IT WAS STRONGLY CONTENDED THAT ONLY THE NET INTEREST EXPENDITURE SHOULD BE CONSIDE RED FOR THE DISALLOWANCE U/S. 14A READ WITH RULE 8D. 8. AFTER CONSIDERING THE FACTS AND THE SUBMISSIONS, TH E LD. CIT(A) WAS CONVINCED AND DIRECTED THE A.O. TO RESTRICT THE DISALLOWANCE ON ACCOUNT OF INTEREST TO RS. 1,47,143/-. HOWEVER, THE LD. CIT(A) CONFIRMED THE D ISALLOWANCE ON ACCOUNT OF ADMINISTRATIVE EXPENSES AT RS. 2,33,500/-. THE LD. CIT(A) DIRECTED THE A.O. TO RESTRICT THE TOTAL DISALLOWANCE TO RS. 4,75,855/-. 9. AGGRIEVED BY THIS, THE REVENUE IS BEFORE US. 10. THE LD. D.R. STRONGLY SUPPORTED THE FINDINGS OF THE A.O. IT IS THE SAY OF THE LD. D.R. THAT THE A.O. HAS SUCCESSFULLY DEMONSTRATED TH E NEXUS BETWEEN THE UTILIZATION OF INTEREST BEARING FUNDS FOR MAKING IN VESTMENT FOR EARNING EXEMPT INCOME. PER CONTRA, THE LD. COUNSEL FOR THE ASSESSE E STRONGLY RELIED UPON THE FINDINGS OF THE LD. CIT(A). 11. WE HAVE GIVEN A THOUGHTFUL CONSIDERATION TO THE ORD ERS OF THE AUTHORITIES BELOW. WE FIND THAT THE CO-ORDINATE BENCH IN CASE O F SAFAL REALITY P. LTD. IN ITA NO. 1842/AHD/2013 AND IN THE CASE OF ADANI INFR ASTRUCTURE SERVICES PVT. ITA NO. 2974 /AHD/2016 . A.Y. 2012-1 3 4 LTD. IN ITA NO. 1943/AHD/2012 HAS HELD THAT FOR THE PURPOSE OF DISALLOWANCE U/S. 14A OF THE ACT WHAT IS TO BE TAKEN INTO ACCOUN T IS NET AMOUNT DEBITED IN THE PROFIT AND LOSS ACCOUNT AND NOT THE GROSS INTER EST DEBITED TO THE PROFIT AND LOSS ACCOUNT. 12. THERE IS NOT DISPUTE THAT THE INTEREST INCOME EARNE D BY THE ASSESSEE IS AT RS. 1,13,14,628/- AND THE INTEREST EXPENDITURE OF THE A SSESSEE IS AT RS. 1,18,19,094/-. THIS MEANS THAT THE NET INTEREST EXP ENSE IS AT RS. 4,95,438/-. IN OUR CONSIDERED OPINION, ONLY THIS NET INTEREST EXPE NSE SHOULD BE TAKEN INTO CONSIDERATION FOR THE COMPUTATION OF DISALLOWANCE U /S. 14A READ WITH RULE 8D OF THE ACT. THEREFORE, WE DO NOT FIND ANY REASON TO INTERFERE WITH THE FINDINGS OF THE LD. CIT(A). APPEAL FILED BY THE REVENUE IS A CCORDINGLY DISMISSED. ORDER PRONOUNCED IN OPEN COURT ON 19- 04- 20 18 SD/- SD/- (RAJPAL YADAV) (N. K. BILLAIYA) JUDICIAL MEMBER TRUE COPY ACCOUNTANT MEMBER AHMEDABAD: DATED 19/04/2018 RAJESH COPY OF THE ORDER FORWARDED TO: - 1. THE APPELLANT. 2. THE RESPONDENT. 3. THE CIT (APPEALS) 4. THE CIT CONCERNED. 5. THE DR., ITAT, AHMEDABAD. 6. GUARD FILE. BY ORDER DEPUTY/ASSTT.REGISTRAR ITAT,AHME DABAD