The Dy. Commissioner of Income Tax, Circle-1(1)(2), Ahmedabad V. M/s. Dcom Systems Pvt. Ltd., Ahmedabad

ITA 43/AHD/2017

• Counselvise Citation: [2018] 125 COUNSELVISE.COM (IT) 8227 (ITAT-AHMEDABAD)
• Duration Of Justice: 1 year(s) 4 month(s) 26 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 31-05-2018
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: SMC
• Assessment Year: 2013-2014
• Appeal Filed On: 05-01-2017
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: V K SINGH
• Assessee Lawyers: D K PARIKHAR
• Keywords: Principle of natural justice; Earning of tax free income
• Section: 14A

Judgement Text

, ,LK ,LK,LK ,LK- -- -,E ,E,E ,E- -- -LH LHLH LH IN THE INCOME TAX APPELLATE TRIBUNAL SMC BENCH, AHMEDABAD OLHE VGEN] OLHE VGEN] OLHE VGEN] OLHE VGEN] YS[KK LNL; YS[KK LNL; YS[KK LNL; YS[KK LNL; , BEFORE SHRI RAJPAL YADAV, JUDICIAL MEMBER AND SHRI WASEEM AHMED, ACCOUNTANT MEMBER ./ I.T.A. NO.43/AHD/2017 ( / ASSESSMENT YEAR : 2013-14) DCIT, CIR 1(1)(2), AHMEDABAD. / VS. DCOM SYSTEM LTD., NO.28, VRAJ VIHAR 6, SATELLITE, AHMEDABAD. ./ ./ PAN/GIR NO. : AACCD 4827 H ( / APPELLANT ) .. ( !' / RESPONDENT ) # / APPELLANT BY : SHRI V. K. SINGH, SR.D.R. !' $ # / RESPONDENT BY : SHRI D. K. PARIKH, A.R. % &' $ () / DATE OF HEARING 25/05/2018 *+,- $ () / DATE OF PRONOUNCEMENT 31/05/2018 . / O R D E R PER WASEEM AHMED, ACCOUNTANT MEMBER: THE CAPTIONED APPEAL HAS BEEN FILED AT THE INSTANCE OF THE REVENUE AGAINST THE APPELLATE ORDER OF THE COMMISSIONER OF INCOME TAX(APPEALS)-1, AHMEDABAD [CIT(A) IN SHORT] VIDE APPEAL NO.CIT(A)- 1/DCIT, CIRCLE-1(1)(2)/290/2015-16 DATED 27/10/2016 ARISING IN THE ASSESSMENT ORDER PASSED UNDER S.143(3) OF THE INCOM E TAX ACT, 1961 (HEREINAFTER REFERRED TO AS 'THE ACT') DATED 29/01 /2016 RELEVANT TO ASSESSMENT YEAR (AY) 2013-14. ITA NO.43/AHD/2017 DCIT VS. DCOM SYS TMES LTD. ASST.YEAR 2013-14 - 2 - 2. THE GROUNDS RAISED BY THE REVENUE PER ITS APPEAL ARE AS UNDER: THAT THE LD. CIT(A) ERRED IN LAW AND ON FACTS IN D ELETING THE ADDITION OF RS.92,52,234/- MADE ON ACCOUNT OF DISALLOWANCE U /S. 14A R.W.R. 8D OF THE ACT. ON THE FACT AND IN THE CIRCUMSTANCES OF THE CASE AN D IN LAW, THE CIT(A) OUGHT TO HAVE UPHELD THE ORDER OF THE ASSESSING OFF ICER TO THE EXTENT MENTIONED ABOVE SINCE THE ASSESSEE HAS FAILED TO DI SCLOSE HIS TRUE INCOME/BOOK PROFIT. THE APPELLANT PRAYS THAT THE ORDER OF CIT(A) ON THE ABOVE GROUNDS BE SET ASIDE AND THAT OF THE ASSESSING OFFICER BE REST ORED TO THE ABOVE EXTENT. THE APPELLANT CRAVES, TO LEAVE, TO AMEND OR ALTER ANY GROUND OR ADD A NEW GROUND WHICH MAY BE NECESSARY. 3. THE SOLITARY ISSUE RAISED BY THE REVENUE IN THIS APPEAL IS THAT LD. CIT(A) ERRED IN CONFIRMING THE ADDITION MADE BY THE AO FOR RS.92,52,234/- UNDER THE PROVISION OF SECTION 14A R .W.R 8D OF THE INCOME TAX RULES. 4. BRIEFLY STATED FACTS ARE THAT THE ASSESSEE IS A LIMITED COMPANY AND ENGAGED IN THE BUSINESS OF CONTRACT, SUB-CONTRACT A ND TRADING OF EQUIPMENTS. THE ASSESSEE DURING THE YEAR HAS EARNED DIVIDEND INCOME OF RS.5,28,843/- ONLY, WHICH WAS CLAIMED AS EXEMPTED I NCOME U/S 10(34) OF THE ACT. THE ASSESSEE IN ITS COMPUTATION OF INCOME HAS DISALLOWED THE ENTIRE AMOUNT OF DIVIDEND INCOME UNDER THE PROVISIO NS OF SECTION 14A OF THE ACT. THE ASSESSEE BEFORE THE AO ALSO CLAIMED THAT THE DI SALLOWANCE U/S 14A R.W.R. 8D CANNOT EXCEED THE AMOUNT OF DIVIDEND INCO ME. THE ASSESSEE IN ITA NO.43/AHD/2017 DCIT VS. DCOM SYS TMES LTD. ASST.YEAR 2013-14 - 3 - SUPPORT OF HIS CLAIM INTER ALIA RELIED ON THE ORDER OF THIS HONBLE TRIBUNAL, AHMEDABAD IN THE CASE OF CHUDGAR RANCHHOD LAL JETHALAL VS. DCIT IN ITA NO.245/AHD/2013. HOWEVER, THE AO WAS OF THE VIEW, DISALLOWANCES SHOU LD BE MADE IN PURSUANCE TO THE PROVISION OF SECTION 14A R.W.R. 8D OF THE INCOME TAX RULES AND SAME CAN EXCEED THE AMOUNT OF DIVIDEND IN COME. ACCORDINGLY, THE AO INVOKED THE PROVISION OF RULE 8D OF THE INCO ME TAX RULE AND WORKED OUT THE DISALLOWANCE AS UNDER: SR. NO. PARTICULARS AMOUNTS 1. DIRECT EXPENSES NIL 2. INTEREST EXPENSES 68,52,853/- 3. ADMINISTRATIVE EXPENSES 29,28,224/- TOTAL 97,81,077/- ACCORDINGLY, THE AO DISALLOWED THE REMAINING AMOUNT OF RS.92,52,234/- AFTER ADJUSTING THE AMOUNT OF RS.5,28,843/-, WHICH WAS ALREADY DISALLOWED BY THE ASSESSEE IN ITS COMPUTATION OF IN COME. THE AMOUNT DISALLOWED U/S 14A R.W.R. 8D FOR RS.92,52,234/- WAS ADDED TO THE TOTAL INCOME OF THE ASSESSEE. 5. AGGRIEVED ASSESSEE PREFERRED AN APPEAL TO LD. CI T(A) WHO HAS DELETED THE ADDITION MADE BY THE AO BY OBSERVING AS UNDER: 2.3. I HAVE CAREFULLY CONSIDERED THE ASSESSMENT OR DER AND THE SUBMISSION FILED BY THE APPELLANT. THE ASSESSING OF FICER HAS MADE DISALLOWANCE UNDER SECTION 14A R.W.R. 3D OF THE I.T . ACT AND SIMILAR ITA NO.43/AHD/2017 DCIT VS. DCOM SYS TMES LTD. ASST.YEAR 2013-14 - 4 - DISALLOWANCE WAS MADE IN A.Y. 2012-13 WHEREIN CIT(A )-1 VIDE ORDER DATED 26 !H MAY, 2016 HAS HELD AS UNDER:- 6.4. I HAVE CAREFULLY CONSIDERED THE ASSESSMENT O RDER AND SUBMISSION FILED BY THE APPELLANT. THE BRIEF FACTS OF THE ISSUE ARE THAT THE APPELLANT HAD EARNED DIVIDEND OF RS.29,90, 000/- WHICH WAS CLAIMED AS AN EXEMPT INCOME BUT ADDED TO THE TO TAL INCOME WHILE CALCULATING THE TOTAL INCOME IN THE COMPUTATI ON OF INCOME FILED WITH THE RETURN OF INCOME BY THE APPELLANT. T HE ASSESSING OFFICER HAS OBSERVED THAT APPELLANT HAS MADE HUGE I NVESTMENTS AND FOLLOWING THE DECISION OF HON'BLE BOMBAY HIGH C OURT IN CASE OF GODREJ & BOYCE MFG. CO. LTD., DISALLOWANCE U/S 14A R.W. RULE 8D IS REQUIRED TO BE MADE. HE FURTHER OBSERVED THAT APPELLANT MUST HAVE INCURRED ADMINISTRATIVE EXPENDI TURE WHICH IS ATTRIBUTABLE TO INVESTMENT PORTFOLIO. HE FURTHER RETTED UPON DECISION OF DELHI SPECIAL BENCH IN CASE OF CHEMINVE ST LTD. AND OBSERVED THAT FOR THE PURPOSE OF DISALLOWANCE U/S 1 4A, THERE IS NO REQUIREMENT THAT ACTUAL INCOME NEED TO BE EARNED . THEREFORE, INVOKING THE PROVISIONS OF SECTION 14A, THE AO AFTE R CONSIDERING THE ASSESSEE'S DISALLOWANCE OF RS. 29,90,000/- MADE IN THE STATEMENT OF INCOME, THE TOTAL DISALLOWANCE OF RS.6 5,54,398/- [9544398 - 2990000] IS DISALLOWED U/S. 14A OF THE A CT. DURING THE COURSE OF APPELLANT PROCEEDINGS, THE AR OF THE APPELLANT VEHEMENTLY ARGUED THAT THE DISALLOWANCE U /S 14A SHOULD BE RESTRICTED TO THE EXEMPT INCOME EARNED DU RING THE YEAR. THE APPELLANT HAS CITED MANY DECISIONS IN HIS FAVOUR (SUPRA) TO SUBSTANTIATE HIS STAND. I FOUND CONSIDER ABLE FORCE IN THIS CONTENTION OF THE APPELLANT NEITHER THE AO NOR THE APPELLANT HAS ESTABLISHED THE NEXUS BETWEEN THE FUNDS AND THE INVESTMENTS, IN THESE CIRCUMSTANCES, IN THE INTEREST OF NATURAL JUSTICE AND IN ABSENCE OF CLEAR CUT FINDING BY AO WITH REGARD TO T HE NEXUS, THE DISALLOWANCE SHOULD BE RESTRICTED TO THE EXEMPT INC OME. HON'BLE ITAT, MUMBAI HAD AN OCCASION TO DEAL WITH SUCH AN I SSUE IN CASE OF DAGA GLOBAL CHEMICALS PVT. LTD. VS. ACIT (I TA NO.5592/AHD/2012)(DTD.01.01.2015) IN WHICH IT WAS H ELD THAT THE DISALLOWANCE U/S 14A R. W. R. 8D CANNOT BE MADE IN EXCESS OF EXEMPT INCOME. HONBLE AHMEDABAD ITAT IN THE CASE O F CHUDGAR RANCHODLAL JETHALAL V/S DCIT IN ITA.245/AHD /2013 AND HON'BLE DELHI HIGH COURT IN THE CASE OF JOINT I NVESTMENTS ITA NO.43/AHD/2017 DCIT VS. DCOM SYS TMES LTD. ASST.YEAR 2013-14 - 5 - PVT. LTD. V/S CIT IN ITA 117/2015 HAS ALSO HELD THA T DISALLOWANCE U/S 14A R.W.R. 8D CANNOT BE MADE IN EXCESS OF EXEMP T INCOME- FOLLOWING THE ABOVE DECISIONS, THE DISALLOWANCE IS RESTRICTED TO THE DIVIDEND INCOME EARNED BY THE APPELLANT AS THE APPELLANT HAS HIMSELF HAS DISALLOWED RS.29,90,000/-(TOTAL TAX FRE E INCOME) WHILE FILING THE RETURN OF INCOME, THE ADDITIONAL R S.65,54,398/- IN EXCESS OF RS.29,90,000/- DISALLOWED BY THE A.O. IS HEREBY DELETED. ACCORDINGLY, THE GROUND OF APPELLANT IS AL LOWED'. AFTER GOING THROUGH THE FACTS OF THE CASE, IT IS SE EN THAT THE FACTS DURING THE YEAR IS IDENTICAL TO THE PREVIOUS YEAR IN THE C ASE OF DISALLOWANCE UNDER SECT/ON 14A R. W.R 8D OF THE I.T. ACT, THE A. O. IS DIRECTED TO DELETE THE ADDITION SO MADE OF RS.92,52,234/-. THIS GROUND OF APPEAL IS ALLOWED. BEING AGGRIEVED BY THE ORDER OF THE LD. CIT(A) REVE NUE IS IN SECOND APPEAL BEFORE US. LD. DR AND AR BEFORE US RELIED ON THE ORDER OF THE AUTHORITIES BELOW AS FAVORABLE TO THEM. 6. WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE MATERIALS AVAILABLE ON RECORD. AT THE OUTSET, WE FIND THAT TH E ISSUE ON HAND HAS ALREADY BEEN DECIDED BY THIS TRIBUNAL IN FAVOUR OF THE ASSESSEE IN THE CASE OF CHUDGAR RANCHODLAL JETHALAL (SUPRA) , WHEREIN, IT WAS HELD AS UNDER: 7. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED TH E MATERIAL ON RECORD. WE FIND THAT THE CLAIM OF WEIGHT SHORTAGE E XPENSES WAS DISALLOWED BY THE A.O AND THE DISALLOWANCE WAS CONF IRMED BY LD. CIT(A) BY FOLLOWING HIS PREDECESSOR ORDER FOR A.Y. 07-08. AGAINST THE ORDER OF CIT(A) FOR A.Y. 07-08, ASSESSEE HAD PREFER RED APPEAL BEFORE HONBLE ITAT. WE FIND THAT THE CO-ORDINATE BENCH OF TRIBUNAL IN ITA ITA NO.43/AHD/2017 DCIT VS. DCOM SYS TMES LTD. ASST.YEAR 2013-14 - 6 - NO. 1008/AHD/2011 FOR A.Y. 07-08 (ORDER DATED 04.04 .2014) DECIDED THE ISSUE IN FAVOUR OF ASSESSEE BY HOLDING AS UNDER :- 1. LEARNED CIT(A) HAS ERRED IN LAW AND IN FACTS IN CON FIRMING ACTION OF AO IN DISALLOWING RS.5,38,121/-, BEING WEIGHT SHORT AGE EXPENSES. BOTH THE LOWER AUTHORITIES ERRED IN IGNORING THE EV IDENCES PRODUCED BY THE APPELLANT IN THE FORM OF CORRESPONDENCES WIT H THE PARTIES AND DEBIT NOTES ISSUED BY THE PARTIES. LD. CIT(A) OUGHT TO HAVE DELETED THE DISALLOWANCE. 3. APROPOS TO GROUND NO.L, THE ID.COUNSEL FOR THE A SSESSEE SUBMITTED THAT THE ASSESSEE IS ENGAGED IN TRADING OF READY CO TTON BALES SINCE LAST MORE THAN 21 YEARS AND THE DEBIT NOTES WERE RA ISED BY THE CONCERNED PARTIES. THE ID.COUNSEL FOR THE ASSESSEE FURTHER SUBMITTED THAT THERE IS NO DISPUTE THAT THE MATERIAL WAS WEIG HED AND TRANSPORTED AND DURING THE COURSE OF TRANSIT, THERE WAS WEIGHT LOSS. THE ID.COUNSEL FOR THE ASSESSEE SUBMITTED THAT THE AUTHORITIES BELOW WERE NOT JUSTIFIED IN DISALLOWING THE GENUINE EXPEN SES. 3.1. THE LD.SR.DR SUBMITTED THAT THE ASSESSEE HAS B EEN ENGAGED IN THIS LINE OF BUSINESS FOR MANY YEARS AND THE ASSESS EE HAS NEVER CLAIMED THIS KIND OF EXPENSES IN EARLIER YEARS. HE FURTHER SUBMITTED THAT THE ASSESSEE HAS NOT GIVEN ANY EVIDENCE IN SUP PORT OF ITS CLAIM THAT THERE WAS LOSS OF WEIGHT. 3.2. IN REJOINDER, THE LD.COUNSEL FOR THE ASSESSEE SUBMITTED THAT THE EVIDENCES WERE PLACED ON RECORD; NAMELY, THE LEDGER ACCOUNT OF WEIGHT SHORTAGE EXPENSES, THE DEBIT NOTES RAISED BY THE CONCERNED PARTIES. THE LD.COUNSEL FOR THE ASSESSEE SUBMITTED THAT MERELY BECAUSE THE ASSESSEE HAS CLAIMED THIS KIND OF EXPEN DITURE FOR THE FIRST TIME AND IT CANNOT BE THE SOLE GROUND FOR MAK ING DISALLOWANCE. 4. WE HAVE HEARD THE RIVAL SUBMISSIONS, PERUSED THE MATERIAL AVAILABLE ON RECORD AND GONE THROUGH THE ORDERS OF THE AUTHORITIES BELOW. WE FIND THAT THE AO AS WELL AS THE ID.CIT(A) HAS DISALLOWED THE EXPENDITURE ON THE BASIS THAT IN EARLIER YEAR T HE ASSESSEE HAS NOT CLAIMED SUCH KIND OF EXPENDITURE. IN OUR CONSIDERED VIEW, SINCE THE ASSESSEE HAS PLACED ON RECORD THE DEBIT NOTES RAISE D BY VARIOUS PARTIES TO WHOM THE MATERIAL WAS SUPPLIED, THEREFOR E THE AUTHORITIES BELOW WERE NOT JUSTIFIED IN DISALLOWING THE EXPENSE S CLAIMED BY THE ASSESSEE. WE THEREFORE DIRECT THE AO TO DELETE THIS ADDITION. ACCORDINGLY, GROUND RAISED BY THE ASSESSEE IS ALLOW ED. 8. BEFORE US, REVENUE HAS NOT BROUGHT ON RECORD ANY MA TERIAL TO DEMONSTRATE AS TO HOW THE DECISION OF HONBLE TRIBU NAL FOR A.Y. 07-08 ITA NO.43/AHD/2017 DCIT VS. DCOM SYS TMES LTD. ASST.YEAR 2013-14 - 7 - IN ASSESSEES OWN CASE WOULD NOT BE APPLICABLE TO T HE FACTS OF THE CASE FOR THE YEAR UNDER APPEAL MORE SO WHEN LD. CIT(A) H IMSELF HAS NOTED THAT IDENTICAL ISSUE AROSE IN A.Y. 07-08 AND HAD FO LLOWED THE ORDER OF HIS PREDECESSOR. IN VIEW OF THE AFORESAID FACTS AND RESPECTFULLY FOLLOWING THE DECISION OF THE CO-ORDINATE BENCH OF THE TRIBUN AL, THIS GROUND OF ASSESSEE IS ALLOWED. RESPECTFULLY FOLLOWING THE SAME, WE DO NOT FIND ANY REASON TO INTERFERE IN THE ORDER OF LD. CIT(A) HENCE, GROUND OF APPEAL OF THE REVENUE IS DISMISSED. 7. IN THE RESULT, REVENUES APPEAL IS DISMISSED. THIS ORDER PRONOUNCED IN OPEN COURT ON 31/05/2018 SD/- SD/- JKTIKY ;KNO JKTIKY ;KNO JKTIKY ;KNO JKTIKY ;KNO OLHE VGEN OLHE VGEN OLHE VGEN OLHE VGEN U;KF;D LNL; U;KF;D LNL; U;KF;D LNL; U;KF;D LNL; YKS[KK LN YKS[KK LN YKS[KK LN YKS[KK LN L; L; L; L; (RAJPAL YADAV) (WASEEM AHMED) JUDICIAL MEMBER ACCOUNTANT MEMBER AHMEDABAD; DATED 31/05/2018 PRITI YADAV, SR.PS !'# $#! / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT 2. !' / THE RESPONDENT. 3. /01( % 2( / CONCERNED CIT 4. % 2( ( ) / THE CIT(A)-1, AHMEDABAD. 5. 567 !(&01 , ) 01- , 8 / / DR, ITAT, AHMEDABAD 6. 79 :' / GUARD FILE. % & / BY ORDER, ' 5( !( //TRUE COPY// '/& () ( DY./ASSTT.REGISTRAR) , / ITAT, AHMEDABAD