Dhariwal Industrial Ltd., Pune V. DCIT, Central Circle 1(1), Pune

ITA 298/PUN/2022

AI Insights

The case involves two appeals by Dhariwal Industries Pvt. Ltd. against the orders of the CIT(A), Pune-11 for the assessment years 2017-18 and 2003-04. The primary issues in the appeals were the additional disallowance under section 14A read with Rule 8D concerning exempt dividend income, the adoption of a gross profit rate of 59.01% in revision proceedings, and an addition of Rs. 24,35,000 on account of seed capital. The Tribunal referenced its earlier decisions in the assessee's own case for A.Ys. 2004-05 to 2010-11, where similar issues were resolved in favor of the assessee, leading to the decision to allow the current appeals.

• Counselvise Citation: [2023] 140 COUNSELVISE.COM (IT) 134171 (ITAT-PUNE)
• Duration Of Justice: 10 month(s) 10 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 13-03-2023
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: A
• Next Hearing Date: 09-03-2023
• Assessment Year: 2017-2018
• Appeal Filed On: 03-05-2022
• Other Referred Cases: Pune Tribunal in assessee's own case for A.Ys. 2004-05 to 2010-11
• Laws Referred To: Income Tax Act
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Revision of order; Rule 8D
• Section: 263; 143(3); 14A

Judgement Text

आयकर अपीलीय अिधकरण “ए” ᭠यायपीठ पुणे मᱶ । IN THE INCOME TAX APPELLATE TRIBUNAL “A” BENCH, PUNE BEFORE SHRI R. S. SYAL, VICE PRESIDENT AND SHRI S. S. VISWANETHRA RAVI, JUDICIAL MEMBER आयकर अपील सं. / ITA Nos.238 & 298/PUN/2022 िनधाᭅरण वषᭅ / Assessment Years : 2017-18 & 2003-04 Dhariwal Industries Pvt. Ltd., Manikchand House, Plot No.:100/101, D. Kennedy Road, Behind Hotel Sheraton Grand, Pune- 411001. PAN: AAACD5896L ........... आवेदक/Applicant बनाम / V/s. DCIT, Central Circle-1(1), Pune. ........ᮧ᭜यथᱮ / Respondent Assessee by : Shri Sanjay N. Kapadiaa & Shri Vilesh Dalya Revenue by : Shri Ramnath P. Murkunde सुनवाई कᳱ तारीख / Date of Hearing : 10.03.2023 घोषणा कᳱ तारीख / Date of Pronouncement : 14.03.2023 आदेश / ORDER PER S. S. VISWANETHRA RAVI, JM: Both these appeals by the assessee against a common order dated 08.03.2022 passed by the CIT(A), Pune-11 for assessment years 2017-18 and 2003-04. 2. We note that the facts and circumstances relating to the issues raised in both the appeals are similar basing on same identical facts, upon hearing both 2 ITA Nos.238 & 298/PUN/2022 the parties, we proceed to hear both the cases together and pass a consolidated order for the sake of convenience. 3. First, we shall take up appeal in ITA No.238/PUN/2022 by the assessee. 4. The assessee raised two grounds of appeal amongst which only issue emanates for our consideration is as to whether the CIT(A) is justified in confirming the additional disallowance made by the Assessing Officer u/s 14A r.w. Rule 8D. 5. We note that the assessee earned dividend income to an extent of Rs.1,98,61,224/- and claimed the same as exempt. The Assessing Officer issued show cause notice seeking explanation why disallowance u/s 14A r.w. Rule 8D should not be made. The assessee contended that the issue is covered by the order of Pune Tribunal in assessee’s own case and disallowance made by it is justified. The Assessing Officer did not accept the said submission, by observing that the appeal is pending in Hon’ble High Court of Bombay against the order passed by the Tribunal in assessee’s own case and proceeded to disallow 1% of annual average investments to an extent of Rs.36,00,805/- (42,55,805 – 6,55,000). The CIT(A) confirmed the same. 6. Before us, ld. AR drew our attention to the consolidated order of this Tribunal in assessee’s own case for assessment years 2004-05 to 2010-11 and submitted that in the similar circumstances this Tribunal confirmed the disallowance made by the assessee on its own and deleted the additional disallowance made by the authorities. The ld. DR submits that the 3 ITA Nos.238 & 298/PUN/2022 respondent-revenue preferred an appeal before the Hon’ble High Court of Bombay and placed reliance on the order of the CIT(A). On perusal of the balance sheet as on 31.03.2017 relevant to year under consideration, we note that the assessee made investments to an extent of Rs.82,04,30,022/- and admittedly the said investments were made in mutual funds similar to the earlier years. On examination of the consolidated order dated 02.05.2016 passed by this Tribunal in assessee’s own case for A.Ys. 2004-05 to 2010-11 which is on record, deleted the additional disallowance made by the Assessing Officer by holding that the additional disallowance made by the Assessing Officer is highly excessive and unreasonable and confirmed the disallowance made by the assessee on its own. The ld. DR did not bring on record any order contrary to the view taken by the Pune Tribunal in assessee’s own case. Therefore, following the finding of this Tribunal in assessee’s own case for A.Ys. 2004-05 to 2010-11, we confirm the disallowance made by the assessee on its own to an extent of Rs.6,55,000/- and delete the additional disallowance confirmed by the CIT(A). 7. No arguments advanced by the ld. AR in modified grounds and same are treated as not pressed. Thus, only grounds raised by the assessee are allowed. 8. In the result, the appeal of the assessee in ITA No.238/PUN/2022 is allowed. 9. Now, we shall take up the appeal in ITA No.298/PUN/2022. 4 ITA Nos.238 & 298/PUN/2022 10. The ground nos.1 to 4 raised by the assessee challenging the action of the CIT(A) in confirming the order of the Assessing Officer in adopting GP rate at 59.01% in the facts and circumstances of the case. 11. We note that the original assessment made u/s 143(3) r.w.s. 147 of the Act, was revised by an order of CIT, Central, Pune u/s 263 of the Act. The said revision order passed by the CIT, Central, Pune u/s 263 of the Act was confirmed by the ITAT, Pune Benches. In view of the same, the original assessment passed u/s 143(3) r.w.s. 147 was revised. On perusal of the assessment order, we note that the Assessing Officer estimated the GP rate at 26.93% in the assessment proceedings which was revised the profit rate at 59.01% in the revision proceedings and made addition of Rs.1,56,20,175/-. The CIT(A) confirmed the same. Before us, the ld. AR drew our attention to the order passed by this Tribunal in assessee’s own case for A.Ys. 2004-05 to 2010-11 and also drew our attention to para no.140 of the said order. On perusal of the same, we note that this Tribunal confirmed the addition made by the Assessing Officer for A.Ys. 2004-05 to 2008-09 to an extent of Rs.20 crores. The Tribunal clearly held that the said addition to be spread equally from A.Ys. 2004-05 to 2008-09. The ld. AR placed on record a chart shown where profit rate as adopted in view of finding of this Tribunal from A.Ys. 2004-05 to 2008- 09. On perusal of the same, we note that the profit rate comes to 5.78% if the order of ITAT is considered for the year under consideration. Therefore, the profit rate as adopted by the authorities at 59.01% is highly excessive and Assessing Officer is directed to adopt the profit rate at the rate of 5.78% on the 5 ITA Nos.238 & 298/PUN/2022 alleged unaccounted sale. Thus, ground nos.1 to 4 raised by the assessee are allowed. 12. Ground no.5 raised by the assessee challenging the action of the CIT(A) in sustaining the addition of Rs.24,35,000/- on seed capital. The Assessing Officer made addition on account of seed capital by holding that the assessee was engaged in unaccounted production of finished goods utilized seed capital. The assessee was contended that it works in the same business for the last several years and having ample funds for undertaking the said business, no seed capital is required. The Assessing Officer did not accept the same. According to the Assessing Officer, the assessee had an unaccounted sale to an extent of Rs.486.93 lakhs and by dividing by 20 made addition of Rs.24,35,000/- on account of undisclosed income. On perusal of the order passed by this Tribunal in assessee’s own case for A.Ys. 2004-05 to 2010-11, we note that this Tribunal held that the estimation of huge unaccounted production and sale by the Assessing Officer and as upheld by the CIT(A) is not justified. The relevant portion at para no.132 of the said order is reproduced herein below :- “132. As mentioned earlier, no incriminating documents in shape of any unaccounted purchase, unaccounted sale, unaccounted transport receipt was found either during the course of search at the place of Shri Sohanraj Mehta/Shri Mithulal or at the premises of the assessee. If the extent of unaccounted production and unaccounted turnover as computed by the AO is believed, then atleast 700 to 800 trucks are required, a finding given by the Commissioner, Central Excise. Therefore, we find force in the submission of the Ld. Counsel for the assessee that if the assessee was indulging in the clandestine manufacturing of Gutkha, then atleast some evidence could have been found which is not in the instant case. Even the Commissioner, Central Excise has also given his findings that there was no unaccounted production. In our opinion, the question of unaccounted turnover will arise only when there is unaccounted production. Since one Government authority, after thorough investigation, has given a finding that there is no unaccounted production and clearance of such unaccounted Gutkha to 6 ITA Nos.238 & 298/PUN/2022 the C&F Agent, therefore, estimation of huge unaccounted production and sale thereof as determined by the AO in the body of the assessment order and upheld by the CIT(A), in our opinion is uncalled for.” 13. In the light of the above, the order of the Assessing Officer in making addition on account of seed capital and as confirmed by the CIT(A) is not justified and the same is deleted. Thus, the ground no.5 raised by the assessee is allowed. 14. In the result, the appeal of the assessee in ITA No.298/PUN/2022 is allowed. 15. To sum up, both the appeals of the assessee are allowed. Order pronounced on this 14 th day of March, 2023. Sd/- Sd/- (R. S. SYAL) (S. S. VISWANETHRA RAVI) VICE PRESIDENT JUDICIAL MEMBER पुणे / Pune; ᳰदनांक / Dated : 14 th March, 2023 Sujeet आदेश कᳱ ᮧितिलिप अᮕेिषत / Copy of the Order forwarded to : 1. अपीलाथᱮ / The Appellant. 2. ᮧ᭜यथᱮ / The Respondent. 3. The CIT(A)-11, Pune. 4. The Pr. CIT (Central), Pune. 5. िवभागीय ᮧितिनिध, आयकर अपीलीय अिधकरण, “ए” बᱶच, पुणे / DR, ITAT, “A” Bench, Pune. 6. गाडᭅ फ़ाइल / Guard File. आदेशानुसार / BY ORDER, // True Copy // Senior Private Secretary आयकर अपीलीय अिधकरण, पुणे / ITAT, Pune.