The ITO, Ward-1(1), Ahmedabad V. Aflon Engineering Pvt.Ltd., Ahmedabad

ITA 3311/AHD/2011

• Counselvise Citation: 331120514 RSA 2011
• Duration Of Justice: 3 year(s) 11 month(s) 29 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 28-12-2015
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: B
• Next Hearing Date: 04-08-2015
• Assessment Year: 2008-2009
• Appeal Filed On: 30-12-2011
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: NARENDRA SINGH
• Assessee Lawyers: URVASHI SHODHAN
• Keywords: Depreciation; Earning of tax free income; Tax effect
• Section: 143(3); 14A

Judgement Text

I.T.A. NO S .: 295 0 AND 3311/AHD/2011 CO NO 39/AHD/12 ASSESSMENT YEARS: 2008 - 09 PAGE 1 OF 5 IN THE INCOME TAX APPELLATE TRIBUNAL, AHMEDABAD B BENCH, AHMEDABAD [CORAM : PRAMOD KUMAR AM AND KUL BHARAT JM] I.T.A. NO. : 2950 /AHD/2011 ASSESSMENT YEAR S : 2008 - 09 AFLON ENGINEERING PVT LTD .APPELLANT CITY MILL COMPUND , KANKARIA ROAD, KANKARIA A HMEDABAD [PAN: AABCA9993J VS. INCOME TAX OFFICER WARD 1(1), AHMEDABAD . RESPONDENT I.T.A. NO.: 3311/AHD/2011 ASSESSMENT YEAR S : 2008 - 09 INCOME TAX OFFICER WARD 1(1), AHMEDABAD .APPELLANT VS. AFLON ENGINEERING PVT LTD . RESPONDENT CITY MILL COMPUND, KANKARIA ROAD, KANKARIA AHMEDABAD [PAN: AABCA9993J CO NO. 39/AHD/2012 ARISING OUT OF I.T.A. NO.: 3311/AHD/2011 ASSESSMENT YEAR S : 2008 - 09 AFLON ENGINEERING PVT LTD . CROSS - OBJECTOR CITY MILL COMPUND , KANKARIA ROAD, KANKARIA AHMEDABAD [PAN: AABCA9993J VS. INCOME TAX OFFICER WARD 1(1), AHMEDABAD . RESPONDENT APPEARANCES BY: URVASHI SHODHAN , FOR THE ASSESSEE NARENDRA SINGH FOR THE REVENUE DATE OF CONCLUDING THE HEARING : NOVEMBER 18 , 2015 DATE OF PRONO UNCING THE ORDER : DECEMBER 28 , 201 5 I.T.A. NO S .: 295 0 AND 3311/AHD/2011 CO NO 39/AHD/12 ASSESSMENT YEARS: 2008 - 09 PAGE 2 OF 5 O R D E R PER PRAMOD KUMAR AM : 1. THESE CROSS APPEALS, AS ALSO THE CROSS OBJECTION, CALL INTO QUESTION CORRECTNESS OF THE ORDER DATED 4 TH NOVEMBER 2011 PASSED BY THE CIT(A) IN THE MATTER OF ASSESSMENT UND ER SECTION 143(3) OF THE INCOME TAX ACT 1961 FOR THE ASSESSMENT YEAR 2008 - 09 . AS BOTH THE APPEALS AND THE CROSS OBJECTION PERTAIN TO THE SAME ASSESSEE , ARE FOR THE SAME ASSESSMENT YEAR, AND WERE HEARD TOGETHER, AS A MATTER OF CONVENIENCE, WE ARE DISPOSING OF THESE APPEALS AND THE CROSS OBJECTION BY THIS CONSOLIDATED ORDER. 2. WE WILL FIRST TAKE UP THE APPEAL FILED BY THE ASSESSEE, I.E. ITA NO. 2950/AHD/11. 3. IN THE FIRST GROUND OF APPEAL, THE ASSESSEE IS AGGRIEVED OF LEARNED CIT(A) UPHOLDING THE DISALLO WANCE UNDER SECTION 14A R.W.R. 8D, TO THE EXTENT OF RS 6,85,687. 4. SO FAR AS THIS GRIEVANCE IS CONCERNED, ONLY A FEW MATERIAL FACTS ARE REQUIRED TO BE TAKEN NOTE OF. DURING THE COURSE OF ASSESSMENT PROCEEDINGS, THE ASSESSING OFFICER NOTICED THAT THE ASSE SSEE HAS EARNED DIVIDEND INCOME OF RS 5,01,148 BUT HAS NOT OFFERED ANY DISALLOWANCE OF EXPENSES UNDER SECTION 14A. THE ASSESSING OFFICER FURTHER NOTED THAT THE ASSESSEE HAS MADE FRESH INVESTMENTS IN THE MUTUAL FUNDS AMOUNTING TO RS 51.16 LAKHS AND SHARES W ORTH RS 2.7 LAKHS, THAT THE ASSESSEE HAS CLAIMED VARIOUS EXPENSES, INCLUDING INTEREST, AND THAT IT IS NOT POSSIBLE TO DETERMINE THE AMOUNT OF SUCH EXPENDITURE IN RELATION TO EARNING OF SUCH TAX EXEMPT INCOME . THE ASSESSING OFFICER DID NOTE THE ASSESSEE S SUBMISSION THAT NO EXPENSES WERE INCURRED IN EARNING THE DIVIDEND INCOME AND THE INVESTMENTS IN MUTUAL FUNDS AND SHARES WERE MADE OUT OF THE SALE REALIZATION OF MUTUAL FUNDS SOLD DURING THE YEAR, BUT PROCEEDED TO COMPUTE THE DISALLOWANCE ON THE BASIS OF RULE 8D, WHICH WORKED OUT TO RS I.T.A. NO S .: 295 0 AND 3311/AHD/2011 CO NO 39/AHD/12 ASSESSMENT YEARS: 2008 - 09 PAGE 3 OF 5 6,85,687. AGGRIEVED, ASSESSEE CARRIED THE MATTER IN APPEAL BEFORE THE CIT(A) BUT WITHOUT ANY SUCCESS. THE ASSESSEE IS NOT SATISFIED AND IS IN FURTHER APPEAL BEFORE US. 5. WE HAVE HEARD THE RIVAL CONTENTIONS, PERUSED THE MA TERIAL ON RECORD AND DULY CONSIDERED FACTS OF THE CASE IN THE LIGHT OF THE APPLICABLE LEGAL POSITION. 6. WE HAVE NOTED THAT IN THE PRECEDING YEARS, THERE HAS BEEN NO DISALLOWANCE UNDER SECTION 14A WHICH ESSENTIALLY PROCEEDS ON THE ACCEPTED POSITION THAT T HERE HAS BEEN NO USE OF BORROWED FUNDS IN THIS CASE. SO FAR AS FRESH INVESTMENTS MADE IN THE PRESENT YEAR ARE CONCERNED, IT IS NOT IN DISPUTE THAT THE SALE PROCEEDS OF THE MUTUAL FUND INVESTMENTS DURING THE YEAR HAS BEEN USED IN MAKING THE INVESTMENTS. IN VIEW OF THESE FINDINGS OF FACT AND HON BLE JURISDICTIONAL HIGH COURT S JUDGMENT IN THE CASE OF PCITVS INDIA GELATINE & CHEMICALS LTD (TA NOS 276 AND 277 OF 2015; JUDGMENT DATED 27 TH APRIL 2015), NO PART OF THE INTEREST CAN BE DISALLOWED BY INVOKING SECTI ON 14A. THE DISALLOWANCE EVEN UNDER RULE 8D MUST THEREFORE REMAIN RESTRICTED TO THE AMOUNT WORKED OUT UNDER RULE 8D(2)(III), 0.5% OF THE AVERAGE VALUE OF INVESTMENTS APPEARING IN THE BALANCE SHEET AS ON 31.3.2007 AND 31.3.2008, WHICH WORKS OUT TO RS 26,9 51. WE, THEREFORE, RESTRICT THE DISALLOWANCE TO RS 26,951 AND DELETE THE REMAINING DISALLOWANCE. THE ASSESSEE GETS THE RELIEF ACCORDINGLY. 7. GROUND NO. 1 IS THUS PARTY ALLOWED IN THE TERMS INDICATED ABOVE. 8. IN GROUND NO. 2, THE ASSESSEE IS AGGRIEVED O F LEARNED CIT(A) SUSTAINING THE DISALLOWANCE IN RESPECT OF MOTOR CAR EXPENSES OF RS 2,35,830 AND DEPRECIATION OF RS 2,21,304. 9. LEARNED REPRESENTATIVES FAIRLY AGREE THAT THIS ISSUE IS NOW COVERED, IN THE CASE OF ASSESSEE S GROUP AFLON ALPLAST PVT LTD FOR THE SAME ASSESSMENT YEAR AND I.T.A. NO S .: 295 0 AND 3311/AHD/2011 CO NO 39/AHD/12 ASSESSMENT YEARS: 2008 - 09 PAGE 4 OF 5 IN RESPECT OF SIMILARLY WORDED ORDERS OF THE AUTHORITIES BELOW, IN FAVOUR OF THE ASSESSEE. A COPY OF THIS ORDER DATED 30 TH JANUARY 2015 WAS ALSO PLACED BEFORE US. LEARNED DEPARTMENTAL REPRESENTATIVE, EVEN WHILE ACCEPTING THAT IT IS A COVERED ISSUE, RELIED UPON THE STAND TAKEN BY THE AUTHORITIES BELOW. WE, HOWEVER, SEE NO REASONS TO TAKE ANY OTHER VIEW OF THE MATTER THAN THE VIEW SO TAKEN BY THE COORDINATE BENCH. RESPECTFULLY FOLLOWING THE SAME, WE UPHOLD THE GRIEVANCE OF THE A SSESSEE AND DELETE THE IMPUGNED DISALLOWANCES OF MOTOR CAR EXPENSES (RS 2,35,830) AND DEPRECIATION ON MOTOR CAR (RS 2,21,304). 10. GROUND NO. 2 IS THUS ALLOWED. 11. IN GROUND NO. 3, THE ASSESSEE IS AGGRIEVED OF LEARNED CIT(A) S UPHOLDING THE DISALLOWANCE OF RS 12,77,058 UNDER SECTION 40A(2)(B) AND HOLDING THAT THE INTEREST PAYMENT TO THE SPECIFIED PERSONS, @ 24% PA, IS EXCESSIVE AND UNREASONABLE. 12. THIS IS ALSO A COVERED ISSUE. LEARNED REPRESENTATIVES FAIRLY AGREE THAT THIS ISSUE IS NOW COVERED, IN TH E CASE OF ASSESSEE S GROUP AFLON ALPLAST PVT LTD FOR THE SAME ASSESSMENT YEAR AND IN RESPECT OF SIMILARLY WORDED ORDERS OF THE AUTHORITIES BELOW, IN FAVOUR OF THE ASSESSEE. A COPY OF THIS ORDER DATED 30 TH JANUARY 2015 WAS ALSO PLACED BEFORE US. LEARNED DEP ARTMENTAL REPRESENTATIVE, EVEN WHILE ACCEPTING THAT IT IS A COVERED ISSUE, RELIED UPON THE STAND TAKEN BY THE AUTHORITIES BELOW. WE, HOWEVER, SEE NO REASONS TO TAKE ANY OTHER VIEW OF THE MATTER THAN THE VIEW SO TAKEN BY THE COORDINATE BENCH. RESPECTFULLY FOLLOWING THE SAME, WE UPHOLD THE GRIEVANCE OF THE ASSESSEE AND DELETE THE IMPUGNED DISALLOWANCE OF RS 12,77,058. 13. GROUND NO. 3 IS THUS ALLOWED. 14. IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE IS PARTLY ALLOWED AS INDICATED ABOVE. I.T.A. NO S .: 295 0 AND 3311/AHD/2011 CO NO 39/AHD/12 ASSESSMENT YEARS: 2008 - 09 PAGE 5 OF 5 15. AS REGARDS THE APPEAL FILED BY THE ASSESSING OFFICER, WE HAVE NOTED THAT THE DISALLOWANCES, WHICH WERE DELETED BY THE CIT(A) AND WHICH ARE IMPUGNED IN THIS APPEAL, ARE RS 8,39,214 AND RS 34,914. THE TAX EFFECT INVOLVED IS THUS CLEARLY LESS THAN RS 10,00,000. IN TERMS OF THE CBDT CIRCULAR DATED 10 TH DECEMBER, 2015, THIS APPEAL, THEREFORE, IS REQUIRED TO BE DISMISSED AS WITHDRAWN. WE DISMISS THE APPEAL AS WITHDRAWN. 16. THE CROSS OBJECTION FILED BY THE ASSESSEE MERELY SUPPORTS THE ORDER OF THE CIT(A) AND DOES NOT HAV E ANY GRIEVANCE WHICH IS REQUIRED TO BE ADJUDICATED ON MERITS. THE CO IS THUS DISMISSED AS INFRUCTUOUS. 17. IN THE RESULT, WHILE THE APPEAL OF THE ASSESSEE IS PARTLY ALLOWED, THE APPEAL FILED BY THE REVENUE AND THE CROSS OBJECTION FILED BY THE ASSESSEE AR E DISMISSED. PRONOUNCED IN THE OPEN COURT TODAY ON 28 TH DAY OF DECEMBER, 2015. SD/ - SD/ - KUL BHARAT PRAMOD KUMAR (JUDICIAL MEMBER) (ACCOUNTANT MEMBER) DATED: THE 28 TH DAY OF DECEMBER , 201 5 . COPIES TO : (1) THE APPELLANT (2) THE RESPONDENT (3) CIT (4) CIT(A) (5) DR (6) GUARD FILE BY ORDER ETC ASSISTANT REGISTRAR INCOME TAX APPELLATE TRIBUNAL AHMEDABAD BENCHES, AHMEDABAD