DILIP GHISALAL SHAH, MUMBAI V. ADDL CIT 13(1) NOW 17(1), MUMBAI

ITA 5/MUM/2015

• Counselvise Citation: [2016] 131 COUNSELVISE.COM (IT) 3519 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 7 month(s) 18 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 19-08-2016
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: D
• Assessment Year: 2010-2011
• Appeal Filed On: 01-01-2015
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Section: 143(3)

Judgement Text

1 IN THE INCOME TAX APPELLATE TRIBUNAL D BENCH, MUMBAI BEFORE SHRI SAKTIJIT DEY, JM AND SHRI N. K. PRADHAN , AM I.T.A. NO.5/MUM/2015 (ASSESSMENT YEAR: 2010-11) DILIP GHISALAL SHAH 46-A, 3 RD FLOOR, ROOM NO 10 ABDUL REHMAN STREET MUMBAI- 400003 VS. ADDL CIT 13(1) NOW 17(1) AAYKAR BHAVAN, R. NO. 419B. M.K. RD. MUMBAI- 400020 PAN/GIR NO. : AAEPS5231M ( APPELLANT ) .. ( RESPONDENT ) DATE OF HEARING: 08 .08.2016 DATE OF PRONOUNCEMENT: 19.08.2016 O R D E R PER N.K.PRADHAN, AM: THIS IS AN APPEAL FILED BY THE ASSESSEE. THE RELEVA NT ASSESSMENT YEAR IS 2010-11. THE APPEAL IS DIRECTED AGAINST THE ORDE R OF THE COMMISSIONER(A) 24, MUMBAI AND ARISES OUT OF THE ASSESSMENT COMPL ETED UNDER SECTION 143(3) OF THE INCOME TAX 1961, (HEREINAFTER THE AC T). 2. THE ONLY GROUND RAISED BY THE ASSESSEE IN THIS A PPEAL IS THAT THE LEARNED CIT(A) HAS ERRED IN PARTLY CONFIRMING THE ALLOCATION OF INTEREST AND EXPENSES OF THE YARN DIVISION TO INTEREST PERTAININ G TO POWER PROJECT DIVISION OF RS. 4,00,000/- OUT OF RS. 7,00,000/- ESTIMATED A ND ALLOCATED BY THE ASSESSING OFFICER(AO). 3. THE AO FOUND THAT ONLY DIRECT EXPENSES WERE CLAI MED IN RESPECT OF THE POWER PROJECT DIVISION AND ALL ADMINISTRATIVE A ND ESTABLISHMENT EXPENSES ARE CLAIMED IN THE YARN BUSINESS. ALSO THE ASSESSEE HAD TAKEN TERM LOAN FROM BANK OF BARODA (BOB) TO FINANCE THE INVESTMENT IN THE WIND ASSESSEE BY: SHRI. D.B. SANGHVI DEPARTMENT BY: SHRI. B.S. BIST 2 MILL UNIT. HE NOTICED THAT SINCE THE REPAYMENT AMOU NT IS MORE THAN THE REVENUE GENERATED FROM THE WIND MILL UNIT, FOR REPA YMENT OF LOAN, THE FUNDS OF THE YARN UNIT WERE USED. IN THE YARN UNIT, THE ASSESSEE HAD TAKEN LOANS FOR WHICH INTEREST EXPENSES WERE BEING CLAIME D IN THAT UNIT . AS PER THE AO, THE INTEREST EXPENSES ARE BEING CLAIMED IN YARN UNITS ONLY THEREBY REDUCING THE PROFIT OF YARN UNITS AND INCREASING TH E PROFIT OF WIND MILL UNIT, THEREBY MAKING MORE PROFIT ELIGIBLE FOR DEDUCTION U NDER SECTION 80I OF THE ACT. ALSO HE FOUND THAT OTHER COMMON EXPENSES LIKE AUDIT FEES AND OTHER ADMINISTRATIVE EXPENSES SHOULD ALSO HAVE BEEN ALLOC ATED TO THE WIND MILL UNIT. HOWEVER, THE ASSESSEE HAS NOT DONE SO. IN VIE W OF THE ABOVE, THE AO ESTIMATED THE EXPENSES PERTAINING TO WIND MILL UNIT BUT ACCOUNTED IN YARN UNIT AT RS. 7,00,000/-. 4. THE LEARNED CIT(A) AGREED WITH THE AO THAT THE P ART OF THE COMMON EXPENSES AND PART OF THE INTEREST EXPENSES WHICH WE RE DEBITED TO THE YARN DIVISION WERE RELATABLE TO THE POWER DIVISION AND T HE SAME SHOULD HAVE BEEN DEBITED TO IT AND PROFITS LOWERED TO THAT EXTE NT OF THE POWER DIVISION. HOWEVER, TAKING INTO ACCOUNT THE FACTS OF THE CASE, HE REDUCED THE ALLOCATION OF SUCH EXPENSES AT RS. 4,00,000/- INSTE AD OF RS. 7,00,000/- ESTIMATED BY THE AO. 5. THE LEARNED COUNSEL FOR THE ASSESSEE ARGUED ON T HIS POINT AT LENGTH. HE REFERRED TO THE PROPRIETORS CAPITAL ACCOUNT OF B OTH THE YARN DIVISION AND THE WIND MILL DIVISION. ALSO HE RELIED UPON THE TRA DING AND PROFIT &LOSS A/C OF THE ASSESSEE FOR THE YEAR ENDED 31/03/2010. IT W AS STATED THAT THE ASSESSEE MAINTAINS SEPARATE SET OF BOOKS OF ACCOUNT OF THE YARN DIVISION AND WIND MILL DIVISION. IT ALSO PREPARED SEPARATE P &L A/C FOR THE YARN DIVISION AND WIND MILL DIVISION. ALL EXPENSES PERTA INING TO YARN DIVISION AND WIND MILL DIVISION WERE DEBITED TO RESPECTIVE P&L A /C. FURTHER, TO ARRIVE AT CORRECT PROFIT OF YARN DIVISION AS WELL AS WIND MIL L DIVISION, THE ASSESSEE HAS DEBITED RS. 44,897/- TO THE P&L A/C OF WIND MILL DI VISION AND CREDITED SAME AMOUNT TO THE P&L A/C OF YARN DIVISION. SAID AMOUNT OF RS. 44,897/- 3 HAS BEEN DETERMINED BY CHARGING INTEREST @12% PER A NNUM ON THE DEBIT BALANCE (IF ANY) OF THE CAPITAL ACCOUNT OF THE ASSE SSEEE IN WIND MILL DIVISION. THUS IT WAS STATED THAT THE LEARNED CIT(A ) ERRED IN PARTLY CONFIRMING THE ALLOCATION OF INTEREST AND EXPENSES OF THE YARN DIVISION TO INTEREST PERTAINING TO POWER DIVISION A SUM OF RS. 4,00,000/ - OUT OF RS. 7,00,000/- ESTIMATED AND ALLOCATED BY THE AO. 6. THE LEARNED DR SUBMITTED THAT THE FUNDS BEING CO MMON TO BOTH UNITS WITH NO SEGREGATION IN THIS REGARD, THE INTER EST EXPENSES SHOULD HAVE BEEN ACCOUNTED IN THE WIND MILL UNIT ALSO. IT WAS S TATED THAT THE BORROWED FUNDS WERE ALSO UTILIZED IN FINANCING THE NEEDS OF THE WIND MILL UNIT. IT WAS ARGUED THAT THE ASSESSEE IS FINANCING THE FUND REQU IREMENTS OF THE WIND MILL UNIT VIDE REPAYMENT OF LOANS FROM THE FUNDS OF YARN UNIT. 7. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND PER USED THE RELEVANT RECORDS. WE FIND THAT THE ASSESSEE HAS MAINTAINED S EPARATE SET OF BOOKS OF ACCOUNT FOR THE YARN DIVISION AND WIND MILL DIVISIO N. IT HAS PREPARED SEPARATE P&L A/C FOR BOTH THE DIVISIONS. IT HAS ALL OCATED INTEREST PAYMENT OF RS. 44,897/- FROM YARN DIVISION TO THE WIND MILL DI VISION. IT HAS REPAID TERM LOAN INSTALLMENTS OF WIND MILL DIVISION OUT OF CAPI TAL ACCOUNT OF THE ASSESSEE IN YARN DIVISION. IT HAS CHARGED INTEREST TO THE WI ND MILL DIVISION FROM THE DAY THERE WAS DEBIT BALANCE IN THE CAPITAL ACCOUNT OF YARN DIVISION. INTEREST HAS BEEN CALCULATED DAY WISE @ 12% PER ANNUM. WE AL SO FIND THAT THE ASSESSEE HAD SUBMITTED BEFORE THE AO A COPY OF THE TAX AUDIT REPORT AND REPORT IN FORM 10CCB. SECTION 44 AB WAS INSERTED F ROM THE ASSESSMENT YEAR 1985-86 AND WAS PRIMARILY INTENDED TO ENSURE CREDIB ILITY OF ACCOUNTS MAINTAINED BY AN ASSESSEE. AUDIT REPORT SUBMITTED I N FORM 10CCB IS INTENDED TO ENSURE CREDIBILITY OF CLAIM OF DEDUCTIO N U/S 80-IA OF THE ACT. AS THE AO HAS NOT FOUND ANY SPECIFIC FAULTLINE IN THE AUDITED ACCOUNTS OF THE ASSESSEE, THE ADHOC DISALLOWANCE OF RS. 4,00,000/- UPHELD BY THE LEARNED CIT(A) IS HEREBY DELETED. 4 8. IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE IS ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 19/08/2016. SD/- SD/- (SAKTIJIT DEY) (N.K.PR ADHAN) JUDICIAL MEMBER ACCOUNTANT MEMBER MUMBAI; DATED : 19/08/2016 AG(ON TOUR) 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