The ACIT,(OSD)-I, Range-4, Ahmedabad V. Mehta Parikh & Co.Pvt.Ltd., Ahmedabad

ITA 3277/AHD/2010

• Counselvise Citation: [2014] 140 COUNSELVISE.COM (IT) 72889 (ITAT-AHMEDABAD)
• Duration Of Justice: 3 year(s) 1 month(s) 14 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 24-01-2014
• Appeal Filed By: Department
• Bench Allotted: B
• Next Hearing Date: 20-01-2014
• Assessment Year: 2006-2007
• Appeal Filed On: 10-12-2010
• Court: TRIBUNAL
• Department Lawyers: P L KUREEL
• Keywords: Earning of tax free income; Bad and doubtful debts
• Section: 14A; 10

Judgement Text

, , , , IN THE INCOME TAX APPELLATE TRIBUNAL B BENCH, AHMEDABAD BEFORE SHRI N.S. SAINI, ACCOUNTANT MEMBER AND SHRI KUL BHARAT, JUDICIAL MEMBER ITA NO. 3277/AHD/2010 A.Y. 2006-07 ACIT, (OSD)-I, RANGE-4, AHMEDABAD. VS MEHTA PARIKH & COMPANY PVT. LTD. PAN: AABCM4601R (APPELLANT) (RESPONDENT) REVENUE BY : SH. P.L. KUREEL, SR.D.R. ASSESSEE(S) BY : SH. HARDIK VORA, AR / // / DATE OF HEARING : 20/01/2014 !' / DATE OF PRONOUNCEMENT : 24/01/2014 #$ #$ #$ #$/ // / O R D E R PER SHRI N.S. SAINI, ACCOUNTANT MEMBER: THIS IS AN APPEAL FILED BY THE REVENUE AGAINST THE ORDER OF THE CIT(A)-XX, AHMEDABAD DATED 21.09.2010. 2. IN GROUND NO. 1 OF THE APPEAL, THE REVENUE HAS C HALLENGED THE ORDER OF CIT(A) RESTRICTING THE DISALLOWANCE OF CLA IM OF BAD DEBTS TO RS 9,44,700/- IN PLACE OF RS 15,15,832/- T HEREBY GIVING A RELIEF OF RS 5,81,132/- TO THE ASSESSEE, 3. WE HAVE HEARD THE RIVAL SUBMISSIONS, PERUSED THE ORDERS OF LOWER AUTHORITIES AND THE MATERIAL AVAILABLE ON REC ORD. THE ITA NO.3277/AHD/2010 ACIT(OSD)-I, R-4, AHD VS. MEHTA PARIKH & CO. PVT. L TD. FOR A.Y. 2006-07 - 2 - ASSESSING OFFICER MADE DISALLOWANCE OF RS 5,81,132/ - BY DISALLOWING THE CLAIM FOR BAD DEBTS TO THE ASSESSEE ON THE GROUND THAT THE ASSESSEE FAILED TO ESTABLISH THAT T HE AMOUNTS HAVE BECOME IRRECOVERABLE AND THAT ALL STEPS HAD BE EN TAKEN TO RECOVER THE SAME. 4. ON APPEAL, THE CIT(A) VACATED THE DISALLOWANCE O BSERVING THAT THE ASSESSEE HAS FILED LEDGER ACCOUNTS OF DEBT ORS WHICH HAD BEEN WRITTEN OFF. PERUSAL OF THE SAME SHOWS TH AT THESE AMOUNTS WERE OUTSTANDING FOR VARIOUS PERIODS OF TIM E AND SOME OF THE OUTSTANDINGS WERE SINCE 1997. IN ALL C ASES, NAMES AND ADDRESSES OF THE DEBTORS ALONG WITH BILL-WISE D ETAILS WERE FURNISHED WHICH WERE ALSO FURNISHED TO THE ASSESSIN G OFFICER. THE ASSESSING OFFICER APART FROM OBSERVING THAT THE ASSESSEE HAD FAILED TO ESTABLISH THAT THESE AMOUNTS HAD BECO ME IRRECOVERABLE HAD NOT MADE ANY OTHER OBSERVATION FO R DISALLOWING THE SAME. HE OBSERVED THAT THE HONBLE SUPREME COURT IN THE CASE OF TRF LTD. VS. CIT (2010) 323 IT R 397 (SC) HAD HELD THAT FOR CLAIM OF BAD DEBTS THE ASSES SEE NEED NOT PROVE THAT THE DEBTS HAVE BECOME BAD AND WRITING OF F THE AMOUNTS IN THE BOOKS OF ACCOUNTS AS IRRECOVERABLE W AS SUFFICIENT. OBSERVING THAT THE ASSESSEE HAS WRITTE N OFF THE AMOUNTS AS IRRECOVERABLE IN HIS BOOKS OF ACCOUNT WH ICH WAS SUFFICIENT FOR CLAIM OF BAD DEBTS U/S 36(2) OF THE INCOME TAX ACT AND IN VIEW OF THE DECISION OF THE HONBLE SUPR EME COURT, VACATED THE DISALLOWANCE MADE BY THE ASSESSING OFFI CER. ITA NO.3277/AHD/2010 ACIT(OSD)-I, R-4, AHD VS. MEHTA PARIKH & CO. PVT. L TD. FOR A.Y. 2006-07 - 3 - 5. THE LD. DR SIMPLY RELIED ON THE ORDER OF THE ASS ESSING OFFICER. NO SPECIFIC ERROR COULD BE POINTED OUT DU RING THE COURSE OF HEARING IN THE ORDER OF THE CIT(A) BY THE LD. DR. THEREFORE, WE FIND NO INFIRMITY IN THE ORDER OF THE LD. CIT(A) WHICH IS CONFIRMED AND THIS GROUND OF APPEAL OF THE REVENUE IS DISMISSED. 6. IN GROUND NO. 2 OF THE APPEAL OF REVENUE, THE GR IEVANCE OF THE REVENUE IS THAT THE LD. CIT(A) ERRED IN DELETING TH E DISALLOWANCE OF RS 64,000/- MADE BY THE ASSESSING O FFICER U/S 14A OF THE ACT. 7. WE HAVE HEARD THE RIVAL SUBMISSIONS, PERUSED THE ORDERS OF LOWER AUTHORITIES AND THE MATERIAL AVAILABLE ON REC ORD. THE ASSESSING OFFICER OBSERVED THAT DURING THE YEAR UND ER CONSIDERATION THE ASSESSEE HAS RECEIVED DIVIDEND IN COME OF RS 3,71,044/- ON LONG TERM CAPITAL GAINS WHICH WAS EXE MPT U/S 10 OF THE ACT. HE ISSUED SHOW CAUSE NOTICE TO THE ASS ESSEE ON 21.11.2008, ASKING THE ASSESSEE TO SHOW CAUSE WHY DISALLOWANCE U/S 14A SHOULD NOT BE MADE. IT WAS TH E CONTENTION OF THE ASSESSEE THAT INVESTMENTS MADE BY THE ASSESSEE WERE NEGLIGIBLE AS COMPARED TO THE INTERES T FREE FUNDS AVAILABLE WITH THE COMPANY. THE ASSESSING OFFICER AFTER CONSIDERING THE SUBMISSIONS OF THE ASSESSEE OBSERVE D THAT THE EXPLANATION OF THE ASSESSEE WAS NOT ACCEPTABLE IN V IEW OF THE ITA NO.3277/AHD/2010 ACIT(OSD)-I, R-4, AHD VS. MEHTA PARIKH & CO. PVT. L TD. FOR A.Y. 2006-07 - 4 - FACT THAT THE ASSESSEE WAS IN RECEIPT OF EXEMPT INC OME AND NO SEPARATE ACCOUNT WAS MAINTAINED WITH REGARD TO EARN ING OF EXEMPT INCOME. HE ALSO OBSERVED THAT THE ARGUMENT OF THE ASSESSEE THAT HE HAD SUFFICIENT INTEREST FREE FUND FOR INVESTMENT WAS NOT ACCEPTABLE AS SUCH INVESTMENTS REDUCE THE A VAILABILITY OF LIQUIDITY FUNDS WITH THE COMPANY WHICH MANY TIME S CREATE THE NEED FOR BORROWED FUNDS. IN OTHER WORDS, HAD C ERTAIN INTEREST FREE FUNDS NOT BEEN DIVERTED FOR SUCH INVE STMENTS, NEED FOR INTEREST BEARING FUNDS WOULD HAVE BEEN LES SER. HE, THEREFORE, COMPUTED THE DISALLOWANCE U/S 14A BY APP LYING RULE 8D AND MADE PROPORTIONATE DISALLOWANCE OF INTE REST EXPENDITURE OF RS 55,360/- AND OF ADMINISTRATIVE EX PENDITURE @ 0.5% OF AVERAGE VALUE OF INVESTMENTS OF RS 20,69, 778/- WHICH WORKED OUT TO RS 10,349/-. 8. ON APPEAL, THE LD. CIT(A) OBSERVED THAT THE ASSE SSING OFFICER HAD MADE U/S 14A OF THE INCOME TAX ACT, 1961 BY APP LYING RULE 8D OF THE INCOME TAX RULES. THE DECISION OF H ONBLE BOMBAY HIGH COURT IN THE CASE OF GODREJ & BOYCE WAS APPLICABLE IN THE CASE AND HENCE THE ASSESSING OFFI CER COULD NOT HAVE APPLIED RULE 8D FOR COMPUTATION OF DISALLO WANCE TO BE MADE U/S 14A OF THE INCOME TAX ACT, 1961 AS THE ASSESSMENT YEAR INVOLVED WAS 2006-07 AND RULE 8D ACCORDING TO THE HONBLE BOMBAY HIGH COURT WAS APPL ICABLE FOR ASSESSMENT YEAR 2008-09 AND ONWARDS. HE OBSERV ED THAT THE ASSESSING OFFICE SHOULD HAVE COMPUTED THE DISAL LOWANCE ITA NO.3277/AHD/2010 ACIT(OSD)-I, R-4, AHD VS. MEHTA PARIKH & CO. PVT. L TD. FOR A.Y. 2006-07 - 5 - BASED ON THE FACTS OF THE CASE OF THE ASSESSEE. HE OBSERVED THAT THE DISALLOWANCE OF INTEREST WAS NOT WARRANTED AS IT IS SEEN THAT THE ASSESSEE HAD SUFFICIENT INTEREST FREE FUND S TO MAKE INVESTMENTS IN SHARES. HE, FOLLOWING THE DECISION OF THE HONBLE GUJARAT HIGH COURT IN THE CASE OF CIT VS. J AYESH BUDDHALAL MEHTA IN TAX APPEAL NO. 111 OF 2009, HELD THAT NO INTEREST COULD BE ATTRIBUTABLE TO THE INVESTMENTS I N SHARES AND HELD THAT NO DISALLOWANCE U/S 14A WAS CALLED FOR ON ACCOUNT OF INTEREST. HOWEVER, HE OBSERVED THAT THE ASSESSEE H AS INCURRED EXPENDITURE OF RS 4,26,409/- ON REMUNERATION OF EMP LOYEES, RS 21,43,152/- AS ADMINISTRATIVE SELLING AND OTHER EXPENSES. A PART OF THIS EXPENDITURE WAS ALLOCABLE TOWARDS DI VIDEND INCOME. HE MADE AN ESTIMATED DISALLOWANCE OF RS 2% OF THE DIVIDEND EARNED FOR ADMINISTRATIVE EXPENSES AND SUS TAINED DISALLOWANCE OF RS 1109/-. 9. THE LD. DR RELIED ON THE ORDER OF THE ASSESSING OFFICER AND THE LD. AR OF THE ASSESSEE RELIED ON THE ORDER OF T HE CIT(A). WE FIND THAT THE ASSESSING OFFICER, AFTER EXAMINING THE ACCOUNTS OF THE ASSESSEE HAS BROUGHT NO MATERIAL ON RECORD TO SHOW THAT ANY INTEREST BEARING FUNDS WERE UTILIZED BY THE ASSESSEE FOR MAKING INVESTMENTS OF RS 20,69,778/- F OR EARNING TAX FREE DIVIDEND INCOME. IN THE ABSENCE OF THE SA ME, IN OUR CONSIDERED OPINION, THE LD. CIT(A) WAS FULLY JUSTIF IED IN DELETING THE DISALLOWANCE FOR INTEREST EXPENDITURE OF RS 55,360/-. FURTHER, NO SPECIFIC ERROR COULD BE POIN TED OUT BY ITA NO.3277/AHD/2010 ACIT(OSD)-I, R-4, AHD VS. MEHTA PARIKH & CO. PVT. L TD. FOR A.Y. 2006-07 - 6 - THE LD. DR IN THE ORDER OF THE LD. CIT(A). WE, THE REFORE, DO NOT FIND ANY INFIRMITY IN THE ORDER OF CIT(A) WHICH IS CONFIRMED AND GROUND NO. 2 OF THE APPEAL OF THE REV ENUE IS DISMISSED. 10. GROUND NO. 3 AND 4 ARE GENERAL IN NATURE AND RE QUIRE NO SEPARATE ADJUDICATION BY US. 11. IN THE RESULT, THE APPEAL OF THE REVENUE IS DIS MISSED. ORDER PRONOUNCED IN THE COURT ON FRIDAY, THE 24 TH JANUARY, 2014 AT AHMEDABAD. SD/- SD/- (KUL BHARAT) JUDICIAL MEMBER ( N.S. SAINI) ACCOUNTANT MEMBER AHMEDABAD; DATED 24/01/2014 GHANSHYAM MAURYA GHANSHYAM MAURYA GHANSHYAM MAURYA GHANSHYAM MAURYA, SR. P , SR. P , SR. P , SR. P. .. .S SS S. .. . TRUE COPY #$ %& '#&' #$ %& '#&' #$ %& '#&' #$ %& '#&'/ COPY OF THE ORDER FORWARDED TO : 1. () / THE APPELLANT 2. %*() / THE RESPONDENT. 3. ++ , / CONCERNED CIT 4. ,() / THE CIT(A)-III, AHMEDABAD 5. &/0 % , , / DR, ITAT, AHMEDABAD 6. 012 3 / GUARD FILE. #$ #$ #$ #$ / BY ORDER, 4 44 4/ // / +5 +5 +5 +5 ( DY./ASSTT.REGISTRAR) , , , , / ITAT, AHMEDABAD