AMERICAN SPRING & PRESSING WORKS PVT LTD, MUMBAI V. A.C.I.T. 9(1), MUMBAI

ITA 4869/MUM/2012

• Counselvise Citation: [2015] 134 COUNSELVISE.COM (IT) 2084 (ITAT-MUMBAI)
• Duration Of Justice: 3 year(s) 4 month(s) 4 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 30-11-2015
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: A
• Next Hearing Date: 11-05-2015
• Assessment Year: 2009-2010
• Appeal Filed On: 26-07-2012
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: A RAMACHANDRAN
• Assessee Lawyers: B P PUROHIT
• Keywords: Opportunity of being heard
• Section: 14A; 10

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH A, MUMBAI BEORE SHRI N.K.BILLAIYA, ACCOUNTNT MEMBER AND SHRI PAWAN SINGH, JUDICIAL MEMBER ITA NO. 4869/MUM/2012 (ASSESSMENT YEAR : 2009-10) M/S. AMERICAN SPRING & PRESSING WORKS P.LTD. ASPEE HOUSE, ADARSH HOUSING SOCIETY, B.J.PATEL ROAD, MALAD (W), MUMBAI 400 064 PAN: AAACA8979P .... APPELLANT VS. THE ACIT, 9(1), MUMBAI 400 012. .... RESPONDENT APPELLANT BY : SHRI B.P.PUROHIT RESPONDENT BY : SHRI A.RAMACHANDRAN DATE OF HEARING : 24/11/2015 DATE OF PRONOUNCEMENT : 30/11/2015 ORDER PER N.K.BILLAIYA,AM: THIS APPEAL BY THE ASSESSEE IS PREFERRED AGAINST TH E ORDER OF THE CIT(A)-19, MUMBAI DATED 01/05/2012 PERTAINING TO TH E ASSESSMENT YEAR 2009-10. THE ASSESSEE HAS RAISED TWO SUBSTANTIVE G ROUNDS OF APPEAL. THE FIRST GROUND RELATES TO THE DISALLOWANCE SUSTAI NED UNDER SECTION 36(1)(III) OF THE INCOME TAX ACT, 1961 (IN SHORT THE ACT) AND SECOND GROUND RELATES TO THE DISALLOWANCE SUSTAINED UNDER SECTION 14A R.W.S. RULE 8D OF THE ACT. 2 ITA NO. 4869/MUM/2012 (ASSESSMENT YEAR : 2009-10) 2. THE ASSESSEE IS IN THE BUSINESS OF MANUFACTURI NG AND SALE OF AGRICULTURAL EQUIPMENTS AND IMPLEMENTS. WHILE SCRU TINIZING THE RETURN OF INCOME FOR THE YEAR UNDER CONSIDERATION, THE ASS ESSING OFFICER NOTICED THAT THE ASSESSEE HAS PROJECTED WORK-IN-PRO GRESS UNDER FIXED ASSETS AT RS.2,37,89,828/-. THE ASSESSING OFFICER F URTHER NOTICED THAT THE ASSESSEE HAD UNSECURED LOAN AMOUNTING TO RS.12, 02,39,475/- OF WHICH INTEREST HAS BEEN PAID. THE ASSESSEE WAS ASK ED TO EXPLAIN WHY INTEREST SHOULD NOT BE DISALLOWED UNDER SECTION 36( 1)(III) OF THE ACT AGAINST CAPITAL WORK-IN-PROGRESS. 2.1 VIDE A LETTER DATED 19/12/2011, THE ASSESSEE FURNISHED A DETAILED REPLY STRONGLY CONTENDING THAT IT HAS PURC HASED ALL THE NEW ASSETS FROM HIS OWN FUNDS AND NO LOAN LIABILITY WAS AVAILED FOR THE ASSETS ACQUIRED DURING THE YEAR. THEREFORE, THERE IS NO QUESTION OF ANY INTEREST EXPENSES TO BE ATTRIBUTED TO THE ACQUISITI ON OF NEW ASSET. 2.2 AFTER CONSIDERING THE SUBMISSION, THE ASSES SING OFFICER OBSERVED THAT THE ASSESSEE HAS NOT FURNISHED ANY DO CUMENTARY EVIDENCE TO SUBSTANTIATE THAT THE INTEREST BEARING FUNDS HAVE NOT BEEN DIVERTED OR UTILIZED TOWARDS CAPITAL WORK IN PROGRE SS. TAKING THE MEAN AVERAGE RATE OF INTEREST @12%, THE ASSESSING OFFICE R COMPUTED THE DISALLOWANCE AT RS.15,36,322/-. THE ASSESSEE CARRI ED THE MATTER BEFORE LD. CIT(A) BUT WITHOUT ANY SUCCESS. 3. BEFORE US, LD. COUNSEL FOR THE ASSESSEE TOOK AN ALTOGETHER NEW PLEA STATING THAT PROVISO TO SECTION 36(1)(III) OF THE ACT IS NOT AT ALL APPLICABLE. IT IS THE CASE OF THE LD. COUNSEL FOR THE ASSESSEE THAT THE 3 ITA NO. 4869/MUM/2012 (ASSESSMENT YEAR : 2009-10) SAID PROVISO IS APPLICABLE IN THE CASE OF EXTENSION OF BUSINESS OF THE ASSESSEE. 4. WE HAVE GIVEN THOUGHTFUL CONSIDERATION TO THIS N EW PLEA RAISED BY THE LD. COUNSEL FOR THE ASSESSEE, QUA THE FACTS IN ISSUES. IN THE INTEREST OF JUSTICE AND FAIR-PLAY, WE RESTORE THIS ISSUE TO THE FILES OF THE ASSESSING OFFICER. THE ASSESSEE IS DIRECTED TO RAI SE THIS PLEA BEFORE THE ASSESSING OFFICER WITH NECESSARY SUPPORTING EVIDE NCES AND THE ASSESSING OFFICER IS DIRECTED TO DECIDE THE SAME AF RESH AFTER GIVING A FAIR OPPORTUNITY OF BEING HEARD TO THE ASSESSEE. 5. GROUND NO.1 IS TREATED AS ALLOWED FOR STATISTICA L PURPOSES. 6. GROUND NO.2 RELATES TO THE DISALLOWANCE MADE UND ER SECTION 14A OF THE ACT. WHILE SCRUTINIZING THE RETURN OF INCOM E, THE ASSESSING OFFICER NOTICED THAT THE ASSESSEE HAS EARNED DIVIDE ND FROM MUTUAL FUNDS AT RS.29,837/-, WHICH HAS BEEN CLAIMED AS E XEMPT UNDER SECTION 10 OF THE ACT. THE ASSESSING OFFICER FURTHER FOUND THAT THE ASSESSEE HAS NOT MADE ANY DISALLOWANCE OF EXPENSES UNDER SECTION 14A OF THE ACT. THE ASSESSEE WAS ASKED TO JUSTIFY ITS STANDS. IN R ESPONSE, THE ASSESSEE FURNISHED WORKING OF DISALLOWANCE UNDER SECTION 14A AMOUNTING TO RS.60,409/-. THE ASSESSING OFFICER DID NOT ACCEPT THIS SUBMISSION MADE BY THE ASSESSEE AND PROCEEDED BY COMPUTING THE DISA LLOWANCE AS PER RULE 8D AND MADE AN ADDITION OF RS.2,54,218/-. THE ASSESSEE CARRIED THE MATTER BEFORE THE CIT(A) BUT FAILED TO CONVINCE . 4 ITA NO. 4869/MUM/2012 (ASSESSMENT YEAR : 2009-10) 7. BEFORE US, THE LD. COUNSEL FOR THE ASSESSEE DREW OUR ATTENTION TO THE CHART EXHIBITED AT PAGE-7 IN THE ORDER OF THE CIT(A). IT IS THE SAY OF THE LD. COUNSEL FOR THE ASSESSEE THAT WHEN THE INVE STMENTS WERE MADE ASSESSEE WAS HAVING SUFFICIENT OWN FUNDS, THEREFORE , THERE IS NO REASON WHY DISALLOWANCE SHOULD BE MADE AS PER RULE-8D. ST RONG RELIANCE WAS PLACED ON THE DECISION OF THE HONBLE BOMBAY HIGH C OURT IN THE CASE OF CIT VS. RELIANCE UTILITIES AND POWER LTD., 313 ITR 340(BOM). 8. PER CONTRA, LD. DR STRONGLY SUPPORTED THE FIND INGS OF THE REVENUE AUTHORITIES. 9. WE HAVE GIVEN THOUGHTFUL CONSIDERATION TO THE O RDERS OF THE AUTHORITIES BELOW. A TABLE GIVING DETAILS OF PAID UP CAPITAL, FREE RESERVES AND SURPLUS INCLUDING ACCUMULATED PROFITS FOR FOUR FINANCIAL YEARS IS AS UNDER:- F.Y A.Y PAID UP CAPITAL FREE RESERVES AND ACCUMULATED PROFITS PROFIT AFTER TAX FOR CURRENT YEAR INVESTMENT DURING THE YEAR TOTAL INVESTMENT 2005 - 06 2006 - 07 9800000 51131151 3755296 0 47120 2066 - 07 2007 - 08 9800000 52651557 9789592 100000 147120 2007 - 08 2008 - 09 9800000 59689427 14670173 3445090 3592210 2008 - 09 2009 - 10 9800000 71837188 9405295 0 3592210 9.1 A PERUSAL OF THE ABOVE CHART SHOWS THAT INVES TMENTS HAVE BEEN MADE IN FINANCIAL YEAR 2006-07 AMOUNTING TO RS.1.00 LAC WHEN THE TOTAL FREE RESERVES AND ACCUMULATED PROFITS OF THE ASSESS EE WERE AT RS.5,26,51,557/-. FURTHER, INVESTMENT OF RS.34,45, 090/- WAS MADE IN FINANCIAL YEAR 2007-08 WHEN THE FREE RESERVES AND A CCUMULATED PROFITS WERE AT RS.5,96,89,427/- THUS, IT CAN BE SEEN THAT THE ASSESSEE WAS 5 ITA NO. 4869/MUM/2012 (ASSESSMENT YEAR : 2009-10) HAVING SUFFICIENT OWN FUNDS FOR MAKING THESE INVEST MENTS. THEREFORE, THERE IS NO QUESTION OF COMPUTING DISALLOWANCE ON T HE AMOUNT OF INTEREST EXPENSES AS PER RULE 8D. OUR VIEW IS FORT IFIED BY THE DECISION OF THE HONBLE BOMBAY HIGH COURT IN THE CASE OF CIT VS. RELIANCE UTILITIES & POWER LTD.(SUPRA). HOWEVER, SOME DISAL LOWANCE NEEDS TO BE MADE. WE FIND THAT THE TOTAL DIVIDEND INCOME IS RS .29,837/-, THEREFORE, IN OUR CONSIDERED OPINION A DISALLOWANCE OF 5% OF T HE DIVIDEND INCOME AMOUNTING TO RS.1492/- SHOULD MEET THE ENDS OF JUST ICE. WE ACCORDINGLY DIRECT THE ASSESSING OFFICER TO RESTRIC T THE DISALLOWANCE TO RS.1492/-. GROUND NO.2 IS PARTLY ALLOWED. 10. IN THE RESULT, THE APPEAL BY THE ASSESSEE IS AL LOWED IN PART FOR STATISTICAL PURPOSES. ORDER PRONOUNCED IN THE OPEN COURT ON 30 TH NOVEMBER 2015. SD/- SD/- ( PAWAN SINGH) (N.K.BILLAIYA) JUDICIAL MEMBER ACCOUNTANT MEMBER MUMBAI, DATED 30/11/2015 COPY OF THE ORDER FORWARDED TO : 1. THE APPELLANT , 2. THE RESPONDENT. 3. THE CIT(A)- 4. CIT 5. DR, ITAT, MUMBAI 6. GUARD FILE. BY ORDER, //TRUE COPY// (DY./ASSTT. REGISTRAR) ITAT, MUMBAI VM , SR. PS