HI-TECH ENGINEERS, MUMBAI V. ITO 25(3)(2), MUMBAI

ITA 3349/MUM/2016

• Counselvise Citation: [2017] 128 COUNSELVISE.COM (IT) 7790 (ITAT-MUMBAI)
• Duration Of Justice: 10 month(s) 5 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 17-03-2017
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: SMC
• Assessment Year: 2010-2011
• Appeal Filed On: 12-05-2016
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: B S BIST
• Assessee Lawyers: HARSH P SHAH
• Keywords: Opportunity of being heard; Principle of natural justice; Earning of tax free income
• Section: 143(3); 14A; 133(6)

Judgement Text

H IN THE INCOME TAX APPELLATE TRIBUNAL H BENCH, MUMBAI BEFORE SHRI C.N. PRASAD, JUDICIAL MEMBER AND SHRI RAMIT KOCHAR, ACCOUNTANT MEMBER ./ I.T.A. NO.3349/ MUM/2016 ( / ASSESSMENT YEAR : 2010-11) M/S HI-TECH ENGINEERS, 26, JANSUKH NIWAS, KASTURBA ROAD, KANDIVALI (WEST), MUMBAI 400 067. / V. INCOME TAX OFFICER 25(3)(2), MUMBAI. ./ PAN : AAAFH3990C ( / APPELLANT ) .. ( / RESPONDENT ) ASSESSEE BY : SHRI HARSH P. SHAH REVENUE BY : SHRI B.S. BIST, DR / DATE OF HEARING : 07-03-2017 / DATE OF PRONOUNCEMENT : `17-03-2017 / O R D E R PER RAMIT KOCHAR, ACCOUNTANT MEMBER THIS APPEAL, FILED BY THE ASSESSEE, BEING ITA NO. 3349/MUM/2016, IS DIRECTED AGAINST THE APPELLATE ORDER DATED 29 TH JANUARY, 2016 PASSED BY LEARNED COMMISSIONER OF INCOME TAX (APPEALS)- 45, M UMBAI (HEREINAFTER CALLED THE CIT(A)), FOR ASSESSMENT YEAR 2010-11, THE APPELLATE PROCEEDINGS BEFORE THE LEARNED CIT(A) ARISING FROM ASSESSMENT O RDER DATED 20 TH MARCH, 2013 PASSED BY LEARNED ASSESSING OFFICER (HEREINAFT ER CALLED THE AO) U/S 143(3) OF THE INCOME-TAX ACT,1961 (HEREINAFTER CALL ED THE ACT). ITA 3349/MUM/2016 2 2. THE GROUNDS OF APPEAL RAISED BY THE ASSESSEE IN MEMO OF APPEAL FILED WITH THE INCOME-TAX APPELLATE TRIBUNAL, MUMBAI (HER EINAFTER CALLED THE TRIBUNAL) READ AS UNDER:- 1. THE LD. CIT (A) ERRED IN CONFIRMING ADDITION OF RS 2,28,424 (GROUND NO. 4) BY IGNORING THE SUBMISSIONS OF AR (LE TTER DT. 18.01.2016) PAGE 7 - 1ST PARA THAT TOTAL LABOUR CHARGES RECEIVED (RS. 500 LACS) WAS MORE THAN AMOUNT IN 26 AS / AIR OF RS . 452 LACS AND MAJOR AMOUNT WAS RECONCILED EXCEPT A SMALL AMOUNT OF RS. 2,28,424, HENCE JUDGEMENT OF HON'BLE MUMBAI TRIBUNAL IN THE CAS E OF A.F. FURGUSON VIDE ORDER DT. 17.10.2014 WAS APPLICABLE. 2. THE LD. CIT (A) ERRED CONFIRMING INTEREST DISALLO WANCE OF RS. 22,687 (GROUND NO. 5) U/S. 14A EVEN THOUGH THE LD. CIT (A) HAS DELETED ADDITION MADE BY AO U/S. 36 (1) (III) OF INTEREST RS . 50,113 (GROUND NO. 1) BECAUSE THERE WAS SURPLUS INTEREST FREE FUND OF RS . 134 LACS AGAINST INVESTMENT IN PROPERTIES RS. 5,45,000 & SHARES RS. 3 ,53,838. 3. BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE IS A PARTNERSHIP FIRM IN THE BUSINESS OF LABOUR JOB WORK OF HEAT TREATMENT ON FE RROUS METAL ITEMS OF VARIOUS SIZES. DURING THE COURSE OF ASSESSMENT PROC EEDINGS U/S 143(3) R.W.S. 143(2) OF 1961 ACT, THE A.O. OBSERVED THAT THERE WA S A DIFFERENCE BETWEEN THE FIGURES OF INCOME OF LABOUR CHARGES AS PER FIGURES AS APPEARING IN AIR INFORMATION VIDE 26AS AND INCOME AS REPORTED IN THE ASSESEES BOOKS OF ACCOUNTS, WHEREIN INCOME OF RS,231,849/- WAS NOT OF FERED BY THE ASSESSEE FOR TAXATION AND HENCE THE INCOME WAS UNDER-REPORTED BY THE ASSESSEE. THE CHART SHOWING THE AFORE-STATED DIFFERENCE IN INCOME IS AS UNDER:- NAME OF THE COMPANY AS PER AIR AMOUNT (RS) AS PER BOOKS OF ACCOUNT SAL ES(RS) DIFFERENCE (RS) VORA INDUSTRIES 4,846,072 4,846,071 1 M.P.SHAH BRIGHT BAR P. LTD. 32,248 32,241 7 JYOTI STEEL 1,804,937 1,804,802 135 ITA 3349/MUM/2016 3 INDUSTRIES SUNRAJ PLASTICS 598,927 597,928 999 A TO Z STEELLOYS PVT LTD 674,832 673,686 1,146 GAJANAN ISPAT P. LTD 19,340 16,973 2,367 J. J. IND.(PROP. ASHOKBHAI B DOSHI) 58,420 51,620 6,800 VIPRAS CASTING LTD & GORADIA 1,342,014 1,334,243 7,771 PARAGON TRADING COMPANY 270,367 260,178 10,189 HINDUSTAN INOX LTD 284,821 266,258 18,563 SYNDICATE ENGG. INDUSTRIES. 31,585 1,158 30,427 K.J.STEELS (PROP: ANIL KANTILAL SHAH) 189,591 148,050 41,541 APAR ALLOYS 1,125,182 1,076,704 48,478 MUKAND LTD. 236,606 176,606 60,000 TOTAL 11,514,942 11,286,518 228,424 DIFFERENCE IN ITS DATA VS. BOOKS- U/S. 193 MAHARASHTRA STATE ELECTRICITY 15,096 11,671 3,425 GRAND TOTAL 2,31,849 ITA 3349/MUM/2016 4 SINCE , THE ASSESSEE COULD NOT RECONCILE DIFFERENCE AMOUNT OF RS. 2,31,849/- IN THE INCOME BETWEEN INCOME AS REFLECTED IN AIR IN FORMATION DATA BASE VIDE 26AS AND INCOME AS REFLECTED IN ITS BOOKS OF ACCOUN TS, THE A.O. ADDED THE SAME TO THE INCOME OF THE ASSESSEE , VIDE ASSESSMEN T ORDER DATED 20-03-2013 PASSED BY THE AO U/S 143(3) OF 1961 ACT. 4. THE A.O. FURTHER OBSERVED THAT THE ASSESSEE INVE STED AN AMOUNT OF RS. 3,53,838/- IN SHARES AND EARNED DIVIDEND INCOME OF RS. 15,001/- , WHICH WAS CLAIMED AS EXEMPT. AN AMOUNT OF RS. 32,09,641/- WA S ALSO CLAIMED AS INTEREST EXPENSES IN P&L A/C . THE AO OBSERVED THA T AS PER THE COMPUTATION OF INCOME FILED FOR ASSESSMENT YEAR 2010-11, NO DIS ALLOWANCE OF EXPENDITURE INCURRED IN RELATION TO THE EARNING OF EXEMPT INCOM E AS CONTEMPLATED U/S 14A OF 1961 ACT WAS OFFERED FOR TAXATION BY THE ASSESSE E. THE A.O. ACCORDINGLY CALCULATED FOLLOWING DISALLOWANCE OF EXPENDITURE IN CURRED IN RELATION TO THE EARNING OF EXEMPT INCOME AS CONTEMPLATED U/S 14A OF 1961 ACT READ WITH RULE 8D OF THE INCOME-TAX RULES, 1962:- 1 AMOUNT OF EXPENDITURE DIRECTLY RELATED TO INCOME WHICH DOES NOT FORM PART OF TOTAL INCOME. NIL II A= AMOUNT OF EXPENDITURE BY WAY OF INTEREST NOT INCLUDED IN I ABOVE = 3209641 B= AVERAGE VALUE OF INVESTMENT WHICH DOES NOT FORM PART OF TOTAL INCOME (335337 +353838)/2 = 344588 C= AVERAGE VALUE OF TOTAL ASSETS AS APPEARING IN BALANCE SHEET OF THE ASSESSEE AS ON 1ST DAY AND LAST DAY OF PREVIOUS YEAR = (45447434+52054970)/2 = 48751202 DISALLOWANCE = AXB/C 22687 III 0.5% OF AVERAGE VALUE OF INVESTMENT WHICH DOES N OT FORM PART OF TOTAL INCOME AS REFERRED IN B ABOVE (0.5% OF 344588 1723 TOTAL DISALLOWANCE 24410 THUS, A.O. WORKED OUT DISALLOWANCE OF EXPENDITURE TO THE TUNE OF RS. 24,410/- INCURRED IN RELATION TO EARNING OF INCOME WHICH DOES NOT FORM PART ITA 3349/MUM/2016 5 OF TOTAL INCOME AS MANDATED U/S 14A OF 1961 ACT R EAD WITH RULE 8D(2)(II) AND 8D(2)(III) OF INCOME-TAX RULES, 1962, VIDE ASSE SSMENT ORDER DATED 20-03- 2013 PASSED BY THE AO U/S 143(3) OF 1961 ACT. 5. AGGRIEVED BY THE ADDITIONS MADE TO INCOME BY THE A.O. VIDE ASSESSMENT ORDER DATED 20-03-2013 PASSED BY THE AO U/S 143(3) OF 1961 ACT, THE ASSESSEE CARRIED THE MATTER FURTHER BY FILING FIRST APPEAL BEFORE LD. CIT(A). 6. THE ASSESSEE SUBMITTED BEFORE LEARNED CIT(A) THA T THERE WERE LARGE NUMBER OF TRANSACTIONS EXCEEDING 900 AND IT WAS A BIG EXE RCISE TO RECONCILE ALL TRANSACTIONS AS APPEARING IN AIR INFORMATION WITH T RANSACTIONS AS APPEARING IN BOOKS OF ACCOUNTS. THE ASSESSEE SUBMITTED RECON CILIATION CHARTS AND FINALLY SUBMITTED BEFORE LEARNED CIT(A) THAT BALANC E REMAINING TRANSACTIONS OF RS. 2,28,424/- COULD NOT BE RECONCILED. THE ASSESS EE RELIED ON THE DECISION OF THE TRIBUNAL IN THE CASE OF M/S A.F. FERGUSON & CO. V. JCIT IN ITA NO. 5037/MUM/2012 AND ITA NO. 437/MUM/2013 DATED 17-10- 2014 AS WELL AS DECISION OF THE BANGALORE BENCH OF THE TRIBUNAL IN THE CASE OF DCIT V. SHREE SELVA KUMAR IN ITA NO. 868/BANG/2009 DATED 22-10-20 10 AND ANOTHER DECISION IN THE CASE OF MRS. ARATI RAMAN V. DCIT IN ITA NO. 245/BANG/12 DATED 05-10-2012. RELIANCE WAS ALSO PLACED BY THE ASSESSEE TO THE DECISION IN THE CASE OF SHRI S. GANESH V. ACIT IN ITA NO. 52 7/MUM/2010 DATED 08- 12-2010 , WHEREIN THE ASSESSEE CONTENDED THAT ADDIT IONS MADE TO THE INCOME OF THE ASSESSEE BY A.O. SOLELY BASED ON THE AIR INF ORMATION ARE NOT SUSTAINABLE AND SHOULD BE DELETED. THE LD. CIT(A) AFTER CONSIDERING SUBMISSIONS OF THE ASSESSEE OBSERVED THAT THE ASSESSEE IS IN THE BUSINESS OF LABOUR JOB WORK OF H EAT TREATMENT ON FERROUS METAL ITEMS OF VARIOUS SIZES. THE LEARNED CIT(A) OB SERVED THAT THE ASSESSEE HAD SHOWN SALES FIGURE OF RS. 11,286,518/- WHILE AS PER AIR INFORMATION IT WAS RS.11,514,942/-. THE LD. CIT(A) OBSERVED THAT T HE AMOUNT SHOWN BY THE ITA 3349/MUM/2016 6 ASSESSEE IN ITS P&L ACCOUNT WAS LESS THAN THAT RECE IVED AS PER AIR INFORMATION. THE LD. CIT(A) HELD THAT SINCE THE ASS ESSEE WAS NOT ABLE TO RECONCILE THE DIFFERENCE BETWEEN INCOME AS SHOWN IN AIR DATA BASE WITH INCOME AS RECORDED IN BOOKS OF ACCOUNTS, ADDITION O F DIFFERENCE IN RECEIPT BETWEEN AIR AND THE P&L A/C AMOUNTING TO RS. 2,31,8 49/- WAS CONFIRMED BY LEARNED CIT(A) , VIDE APPELLATE ORDER DATED 29-01-2 016 PASSED BY LEARNED CIT(A). WITH RESPECT TO THE DISALLOWANCE OF RS. 24,410/- M ADE U/S 14A OF 1961 ACT READ WITH RULE 8D OF 1962 RULES, THE ASSESSEE RELIE D UPON DECISION OF HONBLE BOMBAY HIGH COURT IN THE CASE OF RELIANCE UTILITIES AND POWER LTD. (2009) 313 ITR 340 (BOM.) AND ALSO DECISION OF MUMBAI-TRIB UNAL IN THE CASE OF RELIANCE INDUSTRIES LIMITED V. ADDL. CIT IN ITA NO 3082/MUM/2006 AND 3420/MUM/2006 , VIDE ORDERS DATED 28-05-2012 (REPOR TED IN 2012(5) TMI 504 ITAT MUMBAI) , WHICH CONTENTIONS WAS REJECTED BY THE LD. CIT(A) WHO CONFIRMED THE ADDITIONS MADE BY THE A.O. TO THE TUN E OF RS. 24,410/- TOWARDS DISALLOWANCE OF EXPENDITURE INCURRED IN RELATION TO EARNING OF INCOME WHICH DOES NOT FORM PART OF TOTAL INCOME AS CONTEMPLATED U/S 14A OF 1961 ACT READ WITH RULE 8D(2)(II) AND 8D(2)(III) OF 1962 RULES , BY HOLDING THAT THE ASSESSEE MUST HAVE INCURRED SOME EXPENSES TO EARN EXEMPT INC OME, VIDE APPELLATE ORDER DATED 29-01-2016 PASSED BY LEARNED CIT(A). 7. AGGRIEVED BY THE APPELLATE ORDER DATED 29-01-201 6 PASSED BY LD. CIT(A), THE ASSESSEE FILED SECOND APPEAL BEFORE THE TRIBUNAL. 8. WITH RESPECT TO THE FIRST ISSUE, THE LD. COUNSEL FOR THE ASSESSEE SUBMITTED THAT THE RECONCILIATION STATEMENT RECONCI LING THE DIFFERENCE BETWEEN INCOME AS REPORTED IN AIR INFORMATION WITH INCOME A S REPORTED IN BOOKS OF ACCOUNTS , WAS DULY SUBMITTED BEFORE THE REVENUE. THE DIFFERENCE OF RS. 2,28,424/- COULD NOT BE RECONCILED BECAUSE OF MAGNI TUDE OF TRANSACTIONS. ITA 3349/MUM/2016 7 THE ASSESSEE CONTENDED THAT SINCE IT IS SMALL DIFFE RENCE , ADDITIONS MADE SHOULD BE DELETED. THE LD. COUNSEL ALSO RELIED ON D ECISION OF THE TRIBUNAL IN THE CASE OF M/S A.F. FERGUSON & CO. V. JCIT IN ITA NO. 5037/MUM/2012 AND ITA NO. 437/MUM/2013 DATED 17-10-2014 AND CONTENDED THAT ADDITIONS BE DELETED. IT WAS SUBMITTED THAT INFORMATION AS APPEA RING IN AIR INFORMATION DATA BASE IS NOT SUFFICIENT TO FASTEN LIABILITY TO TAX ON THE ASSESSE. IT WAS FURTHER SUBMITTED THAT THE AO HAS NOT ISSUED ANY NO TICES U/S 133(6) OF 1961 ACT TO THESE PARTIES WHEREIN THERE IS DIFFERENCE BE TWEEN INCOME AS REPORTED IN AIR INFORMATION DATA BASE AND INCOME AS REPORTED IN BOOKS OF ACCOUNTS. 9. THE LD. D.R. SUBMITTED THAT THE ASSESSEE HAS NOT RECONCILED THE DIFFERENCE IN THE INCOME REPORTED IN AIR INFORMATIO N AND INCOME REPORTED IN THE P&L ACCOUNT , WHICH LED TO THE ADDITION TO THE INCOME TO THE TUNE OF RS.2,28,424/- AS FINALLY SUSTAINED BY LEARNED CIT(A ) . THE ONUS IS ON THE ASSESSEE TO RECONCILE THE DIFFERENCE BETWEEN INCOME AS REPORTED IN AIR DATA BASE WITH INCOME AS REFLECTED IN BOOKS OF ACCOUNTS , WHICH HAS NOT BEEN DISCHARGED BY THE ASSESSEE IN THE INSTANT CASE. TH E ASSESSEE MERELY RELIED ON THE DECISIONS OF THE TRIBUNAL IN THE CASE OF A F FE RGUSON & CO. (SUPRA) WHICH IS NOT APPLICABLE IN THE INSTANT CASE AS THE INCOME REPORTED IN BOOKS OF ACCOUNTS OF THE ASSESSEE IS LOWER THAN THE INCOME A S REPORTED IN AIR INFORMATION DATA BASE WHICH HAS LED TO UNDER-ASSESS MENT OF INCOME TO TAX IN THE INSTANT CASE , WHILE IN THE CASE LAW RELIED UPO N BY THE ASSESSE, IT WAS JUST THE REVERSE AS INCOME OFFERED FOR TAXATION AS REPOR TED IN BOOKS OF ACCOUNTS WAS MUCH HIGHER THAN INCOME AS APPEARING IN AIR INF ORMATION DATA BASE. FURTHER IN THE CASE LAW RELIED UPON BY THE ASSESSEE , THE TAX-PAYER IN THE SAID CASE HAD SUBMITTED THAT FULL AND COMPLETE DETAILS O F PARTIES WERE NOT AVAILABLE IN AIR DATA BASE. 10. WE HAVE CONSIDERED RIVAL CONTENTIONS AND ALSO P ERUSED THE MATERIAL AVAILABLE ON RECORD INCLUDING CASE LAWS CITED BY TH E ASSESSEE. WE HAVE ITA 3349/MUM/2016 8 OBSERVED THAT THE ASSESSEE IS A PARTNERSHIP FIRM IN THE BUSINESS OF LABOUR JOB WORK OF HEAT TREATMENT ON FERROUS METAL ITEMS OF VA RIOUS SIZES. IT WAS OBSERVED BY THE LEARNED CIT(A) THAT SALES FIGURE SH OWN BY THE ASSESSEE IN ITS BOOKS OF ACCOUNTS WAS RS. 1,12,86,518/- WHICH WAS L ESS THAN THE FIGURES OF SALE OF RS. 1,15,14,942/- REPORTED IN AIR INFORMATI ON DATA BASE. THUS, THERE WAS A DIFFERENCE BETWEEN THE INCOME AS REPORTED IN AIR DATA BASE INFORMATION FIGURE AND INCOME AS REFLECTED IN ASSESEES BOOKS O F ACCOUNT , WHICH WAS LESS BY RS. 2,28,424/- AS REFLECTED IN ASSESSEES BOOKS OF ACCOUNTS WHICH LED TO UNDER-REPORTING OF INCOME OFFERED TO TAX AS WAS CON TENDED BY AUTHORITIES BELOW LEADING TO ADDITIONS BEING MADE IN THE HANDS OF THE ASSESSEE. WE FIND THAT THE ASSESSEE HAS PRODUCED THE COPIES OF LEDGER ACCOUNT AS WELL AIR DATA BASE INFORMATION AS REFLECTED IN 26AS , WHEREIN THE RE IS DIFFERENCE BETWEEN THE INCOME REPORTED BETWEEN BOOKS OF ACCOUNTS AND 2 6AS, TO THE TUNE OF RS.2,28,424/- LEADING TO UNDER-REPORTING IN THE INC OME OFFERED FOR TAXATION. THE DECISION OF A F FERGUSON AND CO. (SUPRA) RELIED UPON BY THE ASSESSEE IS DISTINGUISHABLE AS THE INCOME REPORTED IN THAT CASE IN BOOKS OF ACCOUNTS WHICH WAS OFFERED FOR TAXATION WAS HIGHER THAN INCO ME AS REPORTED IN AIR INFORMATION DATA BASE, WHEREIN THERE WAS NO UNDER-R EPORTING TO INCOME OFFERED FOR TAXATION BY THE SAID TAX-PAYER. FURTHER , IN THE SAID CASE, THE TAX- PAYER HAD CONTENDED THAT FULL AND COMPLETE DETAILS OF PARTIES AS WERE APPEARING IN AIR INFORMATION DATA BASE IS NOT AVAIL ABLE, WHILE IN THE INSTANT APPEAL BEFORE US, THE INCOME REPORTED IN BOOKS OF A CCOUNTS WHICH WAS OFFERED FOR TAXATION TO REVENUE WAS LOWER THAN INCOME AS IS APPEARING IN 26AS. FURTHER, THE ASSESSEE IN THE INSTANT APPEAL IS NOT CONTENDING THAT FULL AND COMPLETE DETAILS OF THE PARTIES WHO ARE APPEARING I N AIR INFORMATION REFLECTED IN 26AS ARE NOT AVAILABLE WHICH COULD HANDICAP ASSE SSEE FROM RECONCILING THE DIFFERENCE . THE ASSESSEE HAS ALSO ADMITTED THAT IT DEALT WITH ALL THE PARTIES AS ARE APPEARING IN 26AS. THE REVENUE HAS VIDE ITS AIR INFORMATION DATA BASE AS REFLECTED IN 26AS HAS CONFRONTED ASSESSEE THAT HIS INCOME AS IS REFLECTED IN ITS BOOKS OF ACCOUNTS IS UNDER-REPORTED TO REVENUE AND THE ASSESSEE WAS ASKED ITA 3349/MUM/2016 9 TO RECONCILE THE DIFFERENCE AS THE INCOME AS REPORT ED IN AIR INFORMATION VIDE 26AS IS HIGHER THAN INCOME AS REPORTED IN BOOKS OF ACCOUNTS. THUS, AIR INFORMATION AS REFLECTED IN 26AS INCRIMINATES ASSES SEE WHICH IS A CREDIBLE INCRIMINATING INFORMATION TO SHIFT THE ONUS BACK TO THE ASSESSEE AND IS NOW FOR THE ASSESSEE TO RECONCILE THE DIFFERENCE BETWEE N THE FIGURES AS ARE APPEARING IN ITS BOOKS OF ACCOUNTS AND IN AIR INFOR MATION REFLECTED IN 26AS IS ON ASSESSEE. THE ASSESSEE HAS NOT IN THE INSTANT CA SE CONTENDED THAT IT HAS NO DEALINGS WITH THE PARTIES AS ARE APPEARING IN AI R INFORMATION DATA BASE AS REFLECTED IN 26AS AS THE ASSESSEE HAS ADMITTED DEAL ING WITH ALL THESE PARTIES RATHER ONLY CONTENTION IS THE MAGNITUDE OF TRANSACT IONS EXCEEDING 900 IN NUMBERS HANDICAPPING ASSESSEE TO RECONCILE THE DIFF ERENCE WHICH IS NOT A SATISFACTORY EXPLANATION OFFERED BY THE ASSESSEE TO DISCHARGE ITS ONUS. UNTIL THE ASSESSEE COMES OUT WITH SATISFACTORY AND PLAUSI BLE EXPLANATION, THIS ONUS WILL NOT STOOD DISCHARGED . THE ASSESSEE IN THE INS TANT CASE HAS STATED THAT THERE ARE LARGE NUMBER OF TRANSACTIONS EXCEEDING 90 0 AND HENCE IT IS NOT POSSIBLE TO RECONCILE THE DIFFERENCE OF RS. 2,28,42 4/- IS NOT A SATISFACTORY EXPLANATION TO DISCHARGE ONUS CAST ON THE ASSESSEE. IN OUR CONSIDERED VIEW KEEPING IN VIEW FACTS AND CIRCUMSTANCES OF THE CASE AS WELL MAGNITUDE OF TRANSACTIONS , WE ARE OF THE CONSIDERED VIEW THAT O NE MORE OPPORTUNITY NEED TO BE GRANTED TO THE ASSESSEE TO RECONCILE THE DIFF ERENCE IN THE INCOME AS REFLECTED IN AIR INFORMATION DATA BASE VIDE 26AS AN D INCOME AS REFLECTED IN BOOKS OF ACCOUNTS WHEREIN THE ASSESSEE CAN ALSO RES ORT TO CALLING ACCOUNT STATEMENTS FROM THE SAID PARTIES WHEREIN THE AMOUNT S WERE NOT RECONCILED , TO RECONCILE THE DIFFERENCE WHEREVER THE SAID DIFFEREN CE EXCEEDED RS.10,000/-. WE ARE INCLINED TO ACCEPT DIFFERENCE OF RS. 10,000/ - AND LESS BETWEEN THE INCOME AS REPORTED IN BOOKS OF ACCOUNTS AND INCOME AS REPORTED IN FORM NO 26AS KEEPING IN VIEW SMALLNESS OF DIFFERENCE AND DI FFICULTIES FACED IN RECONCILING THE SAME. THUS, THIS ISSUE NEEDS TO BE SET ASIDE AND RESTORED BACK TO THE FILE OF THE A.O. FOR DE-NOVO DETERMINAT ION OF THE ISSUE ON MERITS. THE ASSESSEE IS DIRECTED TO PRODUCE ALL DETAILS AN D COGENT EVIDENCES RELEVANT ITA 3349/MUM/2016 10 TO THE MATTER BEFORE THE A.O. IN ITS DEFENSE. THE A O SHALL GRANT OPPORTUNITY OF BEING HEARD TO THE ASSESSEE IN ACCORDANCE WITH PRIN CIPLES OF NATURAL JUSTICE IN ACCORDANCE WITH LAW. WE ORDER ACCORDINGLY. 11. WITH RESPECT TO THE SECOND ISSUE, THE LD. COUNS EL SUBMITTED THAT THE GROUNDS RAISED BY THE ASSESSE IS RESTRICTED TO DISA LLOWANCE OF EXPENDITURE TOWARDS INTEREST OF RS. 22,687/- INCURRED IN RELATI ON TO EARNING OF EXEMPT INCOME AS WAS DISALLOWED BY THE AO U/S 14A OF 1961 ACT READ WITH RULE 8D(2)(II) OF 1962 RULES , WHICH DISALLOWANCE WAS C ONFIRMED BY LD. CIT(A). IT WAS SUBMITTED THAT THE INVESTMENT IN SHARES WAS MAD E BY THE ASSESSEE OUT OF ITS OWN FUNDS WHICH WERE INTEREST-FREE FUNDS AVAILA BLE TO THE ASSESSEE. THE LD. COUNSEL INVITED OUR ATTENTION TO THE ASSESSMENT ORDER DATED 20-03-2013 PASSED BY THE AO U/S 143(3) OF 1961 ACT , PAGE NO. 2 , WHEREIN THE A.O. HAS REFLECTED THE INTEREST FREE CAPITAL OF THE ASSESSEE OF RS. 32,68,881/- . IT WAS SUBMITTED THAT INVESTMENTS IN SHARES HELD BY THE AS SESSEE ARE ONLY TO THE TUNE OF RS. 3,53,838/- AS AT YEAR END , WHILE AVERA GE INVESTMENT HELD BY THE ASSESSEE DURING THE PREVIOUS YEAR RELEVANT TO IMPUG NED ASSESSMENT YEAR WAS ONLY RS. 3,44,588/- IN SHARES WHICH WERE CAPABLE OF YIELDING TAX-FREE INCOME. IT WAS SUBMITTED THAT DISALLOWANCE OF RS. 22,687/- U/R 8D(2)(II) OF 1962 RULES R.W.S. 14A OF 1961 ACT IS NOT SUSTAINABLE IN LAW AS ASSESSEES OWN FUND OF RS. 32,68,881/- ARE MUCH HIGHER THAN INVESTMENT OF RS. 3,53,838/- HELD BY THE ASSESSEE IN SHARES WHICH ARE CAPABLE OF YIELDING EX EMPT INCOME AND PRESUMPTION SHALL APPLY THAT THE ASSESSEE HAS INVES TED HIS OWN FUNDS IN MAKING INVESTMENTS IN SHARES FROM WHERE THE EXEMPT INCOME WAS EARNED. THE ASSESSEE RELIED ON DECISIONS OF HONBLE BOMBAY HIGH COURT IN THE CASE OF RELIANCE UTILITIES AND POWER LIMITED(SUPRA) AND CIT V HDFC BANK LIMITED IN ITA NO. 330 OF 2012 REPORTED IN (2014) 366 ITR 505( BOM. HC) TO CONTEND THAT NO DISALLOWANCE OF INTEREST EXPENSES OF RS. 22,687/ - U/R 8D(2)(II) OF 1962 RULES R.W.S 14A OF 1961 COULD BE SUSTAINED. ITA 3349/MUM/2016 11 12. THE LD. D.R. RELIED ON THE ORDER OF THE AUTHORI TIES BELOW 13. WE HAVE CONSIDERED RIVAL CONTENTIONS AND ALSO P ERUSED THE MATERIAL AVAILABLE ON RECORD INCLUDING CASE LAWS CITED BEFOR E US. WE HAVE OBSERVED THAT THE ASSESSEE IS A PARTNERSHIP FIRM IN THE BUSINESS OF LABOUR JOB WORK OF HEAT TREATMENT ON FERROUS METAL ITEMS OF VARIOUS SIZES. THE ASSESSEE HAS MADE INVESTMENT IN SHARES TO THE TUNE OF OF RS. 3,53,838 /- AS AT YEAR END WHICH WERE CAPABLE OF YIELDING EXEMPT INCOME AND EARNED D IVIDEND INCOME OF RS. 15,001/- WHICH WAS CLAIMED AS EXEMPT FROM TAX. THE ASSESSEES OWN CAPITAL WHICH ARE INTEREST FREE FUNDS AVAILABLE WITH THE AS SESSEE ARE UNDISPUTEDLY TO THE TUNE OF RS. 3,268,881/-, WHICH ARE REFLECTED IN THE ASSESSMENT ORDER DATED 20-03-2013 /PAGE 2 PASSED BY THE AO U/S 143(3 ) OF 1961 ACT. THE REVENUE COULD NOT CONTROVERT THE SAID FINANCIAL DET AILS OF ASSESEES OWN CAPITAL WHICH WAS INTEREST-FREE AND INVESTMENT IN SHARES WH ICH ARE CAPABLE OF YIELDING EXEMPT INCOME. THE A.O. DISALLOWED AN AMOU NT OF RS. 22,687/- TOWARDS INTEREST EXPENSES FOR EARNING DIVIDEND INCO ME OF RS.15,001/- CLAIMED AS AN EXEMPT FROM TAX BY INVOKING SECTION 14A OF 1961 ACT R.W.R. 8D(2)(II) OF 1962 RULES. THE FIGURE OF INVESTMENTS IN SHARES WHI CH ARE CAPABLE OF YIELDING EXEMPT INCOME WAS UNDISPUTEDLY ADOPTED BY THE AO AS RS. 3,35,337 AS AT BEGINNING OF YEAR AND RS. 3,53,838/- AS AT YEAR EN D WHILE COMPUTING DISALLOWANCE U/R 8D(2)(II) OF 1962 RULES R.W.S. 14A OF 1961 ACT. THERE IS NO AVERMENT/FINDING ON RECORD BROUGHT BY AUTHORITIES B ELOW THAT INTEREST BEARING FUNDS WERE SPECIFICALLY INVESTED IN ASSETS BEING SH ARES CAPABLE OF YIELDING EXEMPT INCOME AND IN THE ABSENCE THEREOF , THE PRES UMPTION SHALL APPLY THAT THE ASSESSEE HAS USED ITS OWN INTEREST FREE CAPITAL WHICH UNDISPUTEDLY WAS OF RS. 32,68,881/- AND THE SAME WAS UTILIZED FOR MAKIN G INVESTMENTS OF RS. 3,53,838/- IN SHARES WHICH WERE CAPABLE OF YIELDING EXEMPT INCOME. THE ASSESSEE HAD RIGHTLY RELIED ON THE JUDGMENT OF HON BLE BOMBAY HIGH COURT IN THE CASE OF RELIANCE UTILITIES AND POWER LTD. (200 9) 313 ITR 340 (BOM) AND IN THE CASE OF CIT V. HDFC BANK LTD. (IT APPEAL NO. 3 30 OF 2012 VIDE ORDERS ITA 3349/MUM/2016 12 DATED 23 RD JULY, 2014 ( REPORTED IN (2014) 366 ITR 505(BOM.)) . IN OUR CONSIDERED VIEW, THE ADDITIONS TO THE TUNE OF RS. 2 2,687/- MADE BY THE AO W.R.T. INTEREST EXPENSES INCURRED IN RELATION TO EA RNING OF EXEMPT INCOME U/S 14A OF 1961 ACT R.W.R. 8D(2)(II) OF 1962 RULES CANN OT BE SUSTAINED IN VIEW OF PRESUMPTION AS CONTEMPLATED UNDER THE AFORESAID JUD GMENTS OF JURISDICTIONAL HIGH COURT WHICH IS BINDING ON US AND HENCE ADDITIO N OF RS.22,687/- MADE BY INVOKING SECTION 14A OF 1961 ACT R.W.R. 8D(2)(II ) OF 1962 RULE IS HEREBY ORDERED TO BE DELETED. WE ORDER ACCORDINGLY 14. IN THE RESULT, APPEAL FILED BY THE ASSESSEE IN ITA NO. 3349/MUM/2016 FOR ASSESSMENT YEAR 2010-11 IS ALLOWED IN THE MANNE R AS INDICATED ABOVE. ORDER PRONOUNCED IN THE OPEN COURT ON 17 TH MARCH, 2017. # $% &' 17-03-2017 ( ) SD/- SD/- (C.N. PRASAD) (RAMIT KOCHAR) JUDICIAL MEMBER ACCOUNTANT MEMBER $ MUMBAI ; & DATED 17-03-2017 .9../ R.K. R.K. R.K. R.K. , EX. SR. PS !'#$%&%# / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT 2. / THE RESPONDENT. 3. : ( ) / THE CIT(A)- CONCERNED, MUMBAI 4. : / CIT- CONCERNED, MUMBAI 5. =>( 99?@ , ?@ , $ / DR, ITAT, MUMBAI H BENCH 6. (BC D / GUARD FILE. / BY ORDER, = 9 //TRUE COPY// / ( DY./ASSTT. REGISTRAR) , $ / ITAT, MUMBAI