M/s. Pratham Realty Pvt.Ltd., Baroda V. The Income tax Officer,Ward-4(2), Baroda

ITA 473/AHD/2013

• Counselvise Citation: [2013] 140 COUNSELVISE.COM (IT) 68013 (ITAT-AHMEDABAD)
• Duration Of Justice: 9 month(s) 23 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 13-12-2013
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: D
• Next Hearing Date: 11-12-2013
• Assessment Year: 2009-2010
• Appeal Filed On: 20-02-2013
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: S K DEV
• Keywords: Business expenditure; Earning of tax free income
• Section: 143(3); 14A

Judgement Text

ITA NO 473/AHD/ 2013 . A.Y. 2009- 10 1 IN THE INCOME TAX APPELLATE TRIBUNAL D BENCH, AHMEDABAD (BEFORE SHRI ANIL CHATURVEDI, A.M. & SHRI KUL BHARA T, J.M.) I.T. A. NO. 473/AHD/2013 (ASSESSMENT YEAR:2009-10) M/S PRATHAM REALTY PVT. LTD. PRATHAM ISKCON TEMPLE ROAD, GOTRI, VADODARA 390015 V/S INCOME TAX OFFICER WARD 4(2) AAYAKAR BHAVAN, RACE COURSE VADODARA. (APPELLANT) (RESPONDENT) PAN: AACCP4084A APPELLANT BY : SHRI MILIN MEHTA A.R. RESPONDENT BY : SHRI S.K. DEV SR. D.R. ( )/ ORDER DATE OF HEARING : 11-12-201 3 DATE OF PRONOUNCEMENT : 13 -12-2013 PER SHRI ANIL CHATURVEDI,A.M. 1. THIS APPEAL IS FILED BY THE ASSESSEE AGAINST THE OR DER OF CIT(A)-III, BARODA DATED 02.11.2012 FOR A.Y. 2009-10. 2. THE RELEVANT FACTS AS CULLED OUT FROM THE MATERIAL ON RECORD ARE AS UNDER: 3. ASSESSEE IS A COMPANY WHICH DURING THE YEAR EARNED INCOME FROM DERIVATIVE TRADING AND ALSO RECEIVED INCOME FROM PA RTNERSHIP FIRM. ASSESSEE ELECTRONICALLY FILED ITS RETURN OF INCOME FOR A.Y. 09-10 ON ITA NO 473/AHD/ 2013 . A.Y. 2009- 10 2 27.09.2009 DECLARING TOTAL LOSS OF RS. 5,52,907/-. THE CASE WAS SELECTED FOR SCRUTINY AND THEREAFTER THE ASSESSMENT WAS FRAM ED UNDER SECTION 143(3) OF THE ACT VIDE ORDER DATED 12.09.2011 AND T HE LOSS WAS DETERMINED AT RS. 42,990/-. AGGRIEVED BY THE ORDER OF A.O., ASSESSEE CARRIED THE MATTER BEFORE CIT(A). CIT(A) VIDE ORDER DATED 02.11.2012 DISMISSED THE APPEAL OF THE ASSESSEE. AGGRIEVED BY THE ORDER OF CIT(A), THE ASSESSEE IS NOW IN APPEAL BEFORE US AND HAS RAI SED THE FOLLOWING GROUND:- 1. THE LEARNED CIT(A) ERRED IN FACTS AND IN LAW IN CONFIRMING THE ACTION OF A.O. IN DISALLOWING A SUM OF RS. 5,09,917/- INVOKING PROVISIONS OF SECTION 14 A OF THE ACT. 4. DURING THE COURSE OF ASSESSMENT PROCEEDINGS, A.O. N OTICED THAT ASSESSEE HAD NOT SHOWN ANY INCOME FROM REGULAR BUSINESS ACTI VITY OF CONSTRUCTION BUT HAD EARNED SUBSTANTIAL INCOME AS SHARE OF PROFI T FROM VARIOUS PARTNERSHIP FIRMS IN WHICH IT WAS PARTNER AND HAD A LSO EARNED DIVIDEND INCOME ALL OF WHICH WERE TAX FREE IN NATURE. HE ALS O NOTICED THAT ASSESSEE HAD CLAIMED BUSINESS EXPENDITURE OF RS. 6,95,599/-. ASSESSEE WAS ASKED TO SHOW CAUSE AS TO WHY DISALLOWANCE UNDER SECTION 14A OF THE ACT SHOULD NOT BE WORKED OUT. IN RESPONSE TO THE SHOW C AUSE NOTICE, THE ASSESSEE INTERALIA SUBMITTED THAT THE INVESTMENTS W ERE MADE OUT OF OWN FUNDS AND THE ASSESSEE HAS NOT INCURRED ANY EXPENDI TURE TO EARN TAX FREE INCOME. IT WAS FURTHER SUBMITTED THAT ASSESSEE HAS NOT INCURRED ANY EXPENDITURE AND THEREFORE THE PROVISIONS OF SECTION 14A OF THE ACT WAS NOT APPLICABLE. THE SUBMISSIONS OF THE ASSESSEE WAS NOT FOUND ACCEPTABLE TO THE A.O. A.O. WAS OF THE VIEW THAT SI NCE ASSESSEE HAS NOT PROVIDED ANY DOCUMENTARY EVIDENCE IN SUPPORT OF ITS CONTENTIONS OF NOT INCURRING ANY EXPENDITURE INCURRED FOR EARNING TAX FREE INCOME ITA NO 473/AHD/ 2013 . A.Y. 2009- 10 3 DISALLOWANCE U/S 14A NEEDS TO BE MADE. HE THEREAF TER APPLYING CLAUSE (III) OF RULE 8D(2) WORKED OUT THE EXPENDITURE INCU RRED TO EARN TAX FREE INCOME ON THE BASIS OF HALF PERCENT OF THE AVERAGE VALUE OF INVESTMENTS AND ACCORDINGLY WORKED OUT THE DISALLOWANCE AT RS. 5,09,917/-. AGGRIEVED BY THE ORDER OF A.O, ASSESSEE CARRIED THE MATTER BEFORE CIT(A). CIT(A) UPHELD THE ACTION OF A.O. BY HOLDING AS UNDER:- 4.1 I HAVE CONSIDERED THE SUBMISSIONS OF THE AUTHORIZE D REPRESENTATIVE AND THE ORDER OF THE ASSESSING OFFICER. FROM THE DETAILS SUBMITTED BY THE APPELLANT'S A.R., IT IS SEEN THAT THE APPELLANT'S INCOME IN THE CURRENT YEAR WAS ON ACCOU NT OF DIVIDEND AND PROFIT FROM PARTNERSHIP FIRMS TOTALING RS. 9,83,41,327/-. THESE INCOMES HAV E BEEN CLAIMED AS EXEMPT. BESIDES THIS, THE APPELLANT HAD SMALL INCOMES FROM DERATIVE AMOUN TING TO RS.1,11,.935/- AND MISCELLANEOUS INCOME OF RS.25,689/-. THUS, IT IS EV IDENT THAT ALMOST ENTIRE EXPENSES MADE BY THE APPELLANT WERE FOR EARNING EXEMPT INCOME. BESID ES OUT OF TOTAL CAPITAL OF RS. 17,52,89,395/- AN AMOUNT OF RS. 15,14,48,649/- HAS BEEN INVESTED FOR EARNING THE EXEMPT INCOME. THE TOTAL EXPENSES DEBITED IN THE PROFIT & LOSS ACCOUNT ARE RS.17,86,674/- OUT OF WHICH AN AMOUNT OF RS.10,98,901/- HAS BEEN DISALLOW ED BY THE APPELLANT ITSELF AS THESE RELATED TO EXPENSE FOR INCREASE IN AUTHORIZED CAPIT AL AMOUNTING TO RS.10,75,000/- AND OTHER DISALLOWABLE ITEMS. THUS, OUT OF THE BALANCE AMOUNT OF RS.6,87,773/-, THE A.O. HAS DISALLOWED AN AMOUNT OF RS.5,09,917/- BY INVOKING R ULE 8D RWS 14A OF THE I. T. ACT, 1961. CONSIDERING THE FACTS OF THE CASE, THE AO'S ACTION OF INVOKING RULE 8D AND MAKING THIS DISALLOWANCE IS HELD TO BE CORRECT. 5. AGGRIEVED BY THE ORDER OF CIT(A), THE ASSESSEE IS N OW IN APPEAL BEFORE US. 6. BEFORE US, THE LD. A.R. SUBMITTED THAT THE INVESTME NTS IN PARTNERSHIP FIRMS HAVE BEEN MADE OUT OF INTEREST FREE FUNDS AND NO BORROWED FUNDS HAVE BEEN UTILIZED FOR THE PURPOSE OF MAKING INVEST MENTS. HE FURTHER SUBMITTED THAT NO EXPENSES HAVE BEEN INCURRED FOR E ARNING TAX FREE INCOME AND FURTHER THERE IS NO FINDING OF THE A.O. OF ASSESSEE HAVING INCURRED EXPENDITURE TO EARN TAX FREE INCOME. THE L D. A.R. FURTHER ITA NO 473/AHD/ 2013 . A.Y. 2009- 10 4 SUBMITTED THAT WHILE WORKING OUT THE DISALLOWANCE A.O. HAS CONSIDERED THE CLOSING INVESTMENTS WHICH INCLUDED THE SHARE OF PROFIT CREDITED TO THE ASSESSEES ACCOUNT ON THE LAST DAY OF THE YEAR AND THEREFORE THERE CANNOT BE ANY EXPENDITURE INCURRED ON THE EARNING OF SHARE OF PROFIT WHICH WAS CREDITED ON THE LAST DAY OF THE YEAR. HE FURTHER P LACED RELIANCE ON THE DECISION IN THE CASE OF AUCHTEL PRODUCTS LTD. VS. A CIT (2012) 22 TAXMAN. COM 99 (MUMBAI) HE THEREFORE SUBMITTED THAT IN THE ABSENCE OF ANY FINDING OF A.O. OF INCURRING THE EXPENDITURE, T HE DISALLOWANCE MADE BY THE A.O. U/S 14A BE DELETED. THE LD. D.R. ON TH E OTHER HAND SUPPORTED THE ORDER OF A.O. 7. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL ON RECORD. FROM THE ANNUAL ACCOUNTS FOR THE PERIOD ENDED 31.03 .2009 WHICH ARE PLACED ON RECORD IT IS SEEN THAT DURING THE YEAR TH ERE WAS NO SALES AND THE TOTAL INCOME OF RS. 9.84 CRORE WHICH COMPRISED OF P ROFIT ON DERIVATE CONTRACTS OF RS. 1.11 LACS AND PROFITS FROM PARTNER SHIP FIRMS AMOUNTING TO RS. 9.83 CRORES (NET). THE TOTAL EXPENSES INCURRED BY THE ASSESSEE WAS RS. 17.87 LACS WHICH INCLUDED RS. 10.75 LACS BEING PAYMENT MADE FROM INCREASING THE AUTHORISED CAPITAL. (WHICH WAS DISAL LOWED SUO MOTU BY ASSESSEE). THE BALANCE SHEET REVEALS THAT AS ON 31 ST MARCH 2009 SUNDRY DEBTORS IS NIL AND AGAINST THE SOURCE FUNDS (COMPRI SING OF CAPITAL AND UNSECURED LOAN) OF RS. 17.52 CRORE, THE INVESTMENTS WERE RS. 15.14 CRORE. THUS IT CAN BE SEEN THAT ALMOST 86% OF INVESTMENTS IS OUT OF CAPITAL AND UNSECURED LOAN AND THE INCOME FROM EXEMPT SOURCE IS TO THE EXTENT OF ALMOST 99% OF THE TOTAL INCOME. CONSIDERING THE AF ORESAID PECULIAR FACTS AND SINCE THE ASSESSMENT YEAR INVOLVED IS A.Y. 09-1 0 TO WHICH THE PROVISIONS OF RULE 8D ARE APPLICABLE, WE ARE OF THE VIEW THAT NO ITA NO 473/AHD/ 2013 . A.Y. 2009- 10 5 INTERFERENCE IS CALLED TO THE ORDER OF A.O FURTHER THE CASE LAWS RELIED UPON BY ASSESSEE ARE DISTINGUISHABLE ON FACTS AND ARE TH EREFORE NOT APPLICABLE TO THE FACTS OF PRESENT CASE. IN THE RESULT THIS GR OUND OF ASSESSEE IS DISMISSED. 8. IN THE RESULT, THE APPEAL OF ASSESSEE IS DISMISSED. ORDER PRONOUNCED IN OPEN COURT ON 13 - 12 - 2013. SD/- SD/- (KUL BHARAT) (ANIL CHATURVEDI) JUDICIAL MEMBER ACCOUNTANT MEMBER AHMEDABAD. TRUE COPY RAJESH COPY OF THE ORDER FORWARDED TO: - 1. THE APPELLANT. 2. THE RESPONDENT. 3. THE CIT (APPEALS) 4. THE CIT CONCERNED. 5. THE DR., ITAT, AHMEDABAD. 6. GUARD FILE. BY ORDER DEPUTY/ASSTT.REGISTRAR ITAT,A HMEDABAD