GURMITKAUR BHASIN, THANE V. ITO 1(4), THANE

ITA 559/MUM/2014

• Counselvise Citation: [2015] 140 COUNSELVISE.COM (IT) 93043 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 5 month(s) 11 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 03-07-2015
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: G
• Assessment Year: 2009-2010
• Appeal Filed On: 23-01-2014
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: B S BIST
• Keywords: Proportionate interest
• Section: 14A

Judgement Text

, IN THE INCOME TAX APPELLATE TRIBUNAL G BENCH, MUMBAI . . , , , BEFORE SHRI A.D. JAIN , JUDICIAL MEMBER AND SHRI N.K . BILLAIYA, A CCOUNTANT M EMBER / I .T.A. NO . 559/MUM/2014 ( / ASSESSMENT YEAR : 2009 - 10 SMT. GURMITKAUR AMARJIT SINGH BHASIN, 201/202, 1 - C, SIDDHANCHAL, PHASE - 1, GLADY ALWARES ROAD, OFF. POKHRAN ROAD NO. 2, THANE / VS. THE ITO, 1(4), THANE ./ ./ PAN/GIR NO. : AAQPB 4195H ( / APPELLANT ) .. ( / RESPONDENT ) / APPELLANT BY: SHRI DEVENDRA JAIN / RESPONDENT BY : SHRI B.S. BIST / DATE OF HEARING : 01 . 0 7 .2015 / DATE OF PRONOUNCEMENT : 03 .0 7 .2015 / O R D E R PER N.K. BILLAIYA, AM: THIS APPEAL BY THE ASSESSEE IS PREFERRED AGAINST THE ORDER OF THE LD. CIT(A) - II , THANE DT. 18.11.2013 PERTAINING TO ASSESSMENT YEAR 2009 - 10. 2. THE GRIEVANCES OF THE ASSESSEE READ AS UNDER: 1. ON FACTS AND IN THE CIRCUMSTANCES OF CASE AND IN LAW, THE LD. CIT(A) HAS ERRED IN RETAINING THE DISALLOWANCE U/S 80IA(10) OF ITA. NO. 559/M/2014 2 INTEREST ON LOAN TO THE EXTENT OF RS. 8,63,535 / - MERELY ON THE SURMISE THAT THE APPELLANT HAS SHIFTED THE PROFIT FROM NON - ELIGIBLE UNIT TO ELIGIBLE UNIT UNDER SECTION 801C. 2. ON FACTS A ND IN THE CIRCUMSTANCES OF CASE AND IN LAW, THE LD. CIT(A) HAS ERRED IN NOT COMMENTING ABOUT DOUBLE DISALLOWANCE OF INTEREST EXPENSE AS THE SAME WAS DISALLOWED UNDER TWO SECTIONS I.E 80IA(10) AND 40A(IA). OUT OF TOTAL INTEREST OF RS. 14,13,335/ - , THE FOLLO WING DISALLOWANCE WAS MADE; DISALLOWANCE U/S 801A(10) - RS. 8,63,535/ - DISALLOWANCE U/S 40A(IA) - RS. 2,27,192/ - 3. ON FACTS AND IN THE CIRCUMSTANCES OF CASE AND IN LAW, THE LD. CIT(A) HAS ERRED IN RETAINING THE AD - HOC DISALLOWANCE OF TELEPHONE EXPENSES TO THE TUNE OF RS. 14,173/ - WHICH IS 10% OF TOTAL TELEPHONE EXPENSES OF RS. 1,41,735/ - . 4. ON FACTS AND IN THE CIRCUMSTANCES OF CASE AND IN LAW, THE LD. CIT(A) HAS ERRED IN RETAINING THE AD - HOC DISALLOWANCE OF TRAVELLING AND CONVEYANCE EXPENSES TO THE TUNE OF RS. 34,606/ - WHICH IS 10% OF TOTAL TRAVELLING AND CONVEYANCE EXPENSES OF RS. 3,46,067/ - . 3. THE ASSESSEE IS STATED TO BE RUNNING A FIRM WHICH MANUFACTURES ELECTRONIC FAN REGULATORS, DIMMERS, ELECTRONIC CHOKE, BALLASTS ETC. THE ASSESSEE IS ALSO CARRYING OUT LABOUR JOB WORK ON CONTRACT BASIS. IT HAS TWO UNITS ONE SITUATED AT NAVI MUMBAI AND THE OTHER SITUATED AT HARIDWAR. THE HARIDWAR UNIT IS ELIGIBLE FOR DEDUCTION U/S. 80IC OF THE ACT. THE RETURN FOR THE YEAR UNDER CONSIDERATION WAS TAKEN UP FOR SCRUTINY ASSESSMENT. WHILE SCRUTINIZING THE RETURN OF INCOME, THE ASSESSING OFFICER NOTICED THAT THE ASSESSEE HAS FILED SEPARATE MANUFACTURING, PROFIT AND LOSS ACCOUNT, BALANCE SHEET FOR BOTH UNITS. 3.1. AS MENTIONED ELSEWHERE, THE ASSESSEE HAS CLAIMED DEDUCTION U/S. 80 - IC OF THE ACT IN RESPECT OF UNIT LOCATED AT HARIDWAR. WHILE GOING THROUGH THE BALANCE SHEET, THE AO NOTICED THAT THE ASSESSEE HAS SHOWN HUGE LIABILITY ON ACCOUNT OF SECURED/UNSECURED LOAN AND HAS ITA. NO. 559/M/2014 3 SIMULTANEOUSLY DEBITED EXPEN DITURE AMOUNTING TO RS. 14,13,335/ - UNDER THE HEAD INTEREST ON LOAN. THE AO FURTHER OBSERVED THAT THE ASSESSEE HAS ADVANCED RS. 82,24,134/ - TO ITS UNIT LOCATED AT HARIDWAR. THE AO WAS OF THE OPINION THAT THE ASSESSEE HAS CHARGED INTEREST TO ITS NON EL IGIBLE UNITS THEREBY SHOWING HIGHER PROFITS IN ELIGIBLE UNITS. THE ASSESSEE WAS ASKED TO EXPLAIN WHY INTEREST PERTAINING TO THE BORROWINGS OF RS. 82,24,134/ - SHOULD NOT BE ALLOCATED TO THE HARIDWAR UNIT. 3.2. THE ASSESSEE FILED A DETAILED REPLY EXPLA INING THAT THE CASH CREDIT LIMIT AND THE TERM LOAN HAS BEEN TAKEN FOR THE UNIT AT NAVI MUMBAI THEREFORE THE INTEREST HAS BEEN CHARGED TO NAVI MUMBAI UNIT. THE ASSESSEE FURTHER CONTENDED THAT THE FUNDS HAVE BEEN USED FOR THE PURPOSE OF BUSINESS THEREFORE T HE CLAIM IS TO BE ALLOWED. 3.3. THE SUBMISSION OF THE ASSESSEE DID NOT FIND FAVOUR WITH THE AO WHO WAS OF THE OPINION THAT IF THE HARIDWAR UNIT WAS IN NEED OF FUND, THE ASSESSEE COULD HAVE OBTAINED THE LOAN FROM BANK IN THE NAME OF SAID UNIT DIRECTLY. SINCE THE LOAN HAS BEEN TAKEN IN THE NAME OF NON ELIGIBLE UNIT AND THEN TRANSFERRED SUCH FUND TO THE ELIGIBLE UNIT WHILE DEBITING THE CORRESPONDING INTEREST EXPENDITURE TO THE ACCOUNT OF THE NON ELIGIBLE UNIT WHICH HAS RESULTED INTO HIGHER CLAIM OF EXPEND ITURE IN CASE OF THE NON - ELIGIBLE UNIT AND THEREBY REDUCING THE TAXABLE PROFIT OF THE NON - ELIGIBLE UNIT AND AT THE SAME TIME HIGHER PROFITS ARE BEING SHOWN AT THE ELIGIBLE UNIT. THE AO PROCEEDED BY VERIFYING THE DATEWISE TRANSFER OF FUNDS FROM NAVI MUMBAI UNIT TO HARIDWAR UNIT AND COMPUTED THE INTEREST THEREON. THE INTEREST ATTRIBUTABLE TO SUCH ADVANCES WAS COMPUTED AT RS.8,63,535/ - . THE AO WENT ON TO REDUCE THE CLAIM OF DEDUCTION MADE U/S. 80IC BY RS. 8,63,535/ - . ITA. NO. 559/M/2014 4 4. AGGRIEVED BY THIS, THE ASSESSEE CARRI ED THE MATTER BEFORE THE LD. CIT(A) BUT WITHOUT ANY SUCCESS. 6. BEFORE US, THE LD. COUNSEL FOR THE ASSESSEE STRONGLY SUBMITTED THAT THE ALLOCATION OF EXPENDITURE IS ARBITRARY AND AGAINST THE PROVISIONS OF LAW. IN SUPPORT, THE LD. COUNSEL RELIED UPON TH E DECISION OF THE TRIBUNAL AHMEDABAD BENCH IN THE CASE OF CADILA HEALTHCARE LTD VS ACIT 29 TAXMANN.COM 229. THE LD. COUNSEL FURTHER STATED THAT ASSESSEES OWN FUND AT RS. 1,46,59,705/ - IS SUFFICIENT FOR MAKING INVESTMENT IN THE ELIGIBLE UNIT THEREFORE RA TIO LAID DOWN BY THE HONBLE HIGH COURT OF BOMBAY IN THE CASE OF CIT VS RELIANCE UTILITIES & POWER LTD. 313 ITR 340 SQUARELY APPLY. THE LD. COUNSEL FURTHER STATED THAT ALLOCATING INTEREST TO ELIGIBLE UNIT ARBITRARILY AMOUNTS TO DISALLOWANCE U/S. 14A OF THE ACT. THE LD. COUNSEL CONCLUDED BY TAKING AN ALTERNATIVE PLEA THAT IF AT ALL DISALLOWANCE ON ACCOUNT OF INTEREST IS TO BE PAID, SUCH DISALLOWANCE SHOULD BE COMPUTED AS PER THE FORMULA GIVEN UNDER RULE 8D OF THE ACT. 7. PER CONTRA, THE LD. DEPARTMENTAL REPRESENTATIVE STRONGLY SUPPORTED THE ASSESSMENT ORDER. 8. WE HAVE CAREFULLY PERUSED THE ORDERS OF THE AUTHORITIES BELOW. THE UNDISPUTED FACT IS THAT THE ASSESSEE HAS TRANSFERRED RS. 82,24,134/ - FROM NAVI MUMBAI TO HARIDWAR UNIT. IT IS ALSO AN UNDISPU TED FACT THAT THE ENTIRE INTEREST ON BORROWED FUNDS HAVE BEEN CHARGED TO THE PROFIT AND LOSS ACCOUNT OF NAVI MUMBAI UNIT. IT IS AN ADMITTED FACT THAT HARIDWAR UNIT IS ELIGIBLE FOR DEDUCTION U/S. 80 - IC OF THE ACT WHEREAS NAVI MUMBAI UNIT IS NOT ELIGIBLE F OR DEDUCTION. IN OUR CONSIDERED OPINION, THE ACTION OF THE AO IS AS PER PROVISIONS OF THE LAW. SINCE SUBSTANTIAL PART OF THE BORROWED FUND IS BEING USED BY THE ELIGIBLE UNIT, THE LOGICAL COURSE WOULD BE TO ALLOCATE INTEREST PROPORTIONATELY TO THE ELIGIBL E UNIT AND THE BEST WAY TO ITA. NO. 559/M/2014 5 COMPUTE THE ALLOCATION IS BY ALLOCATING THE INTEREST ON THE BASIS OF THE NUMBER OF DAYS THE LOAN WAS UTILIZED BY THE ELIGIBLE UNIT. SINCE THE AO HAS COMPUTED THE ALLOCATION AS PER THE WORKING GIVEN BY THE ASSESSEE AND CONFIRMED BY THE LD. CIT(A), WE DO NOT FIND ANY REASON TO INTERFERE WITH THE FINDINGS OF THE LD. CIT(A). THIS GRIEVANCE OF THE ASSESSEE IS DISMISSED. 9. BEFORE CLOSING, AS MENTIONED ELSEWHERE, THE ASSESSEE HAS RELIED UPON THE DECISION OF THE TRIBUNAL AHMEDABAD BE NCH (SUPRA) AND ALSO ON THE DECISION OF THE HONBLE HIGH COURT OF BOMBAY IN THE CASE OF RELIANCE UNITITIES (SUPRA), BOTH DECISIONS ARE ON DIFFERENT SET OF FACTS AND THEREFORE ARE OF NO HELP TO ASSESSEE. 10. THE SECOND GRIEVANCE OF THE ASSESSEE RELATES T O THE DISALLOWANCE MADE U/S. 40(A)(IA) OF THE ACT AMOUNTING TO RS. 2,27,192/ - . 10.1. WHILE SCRUTINIZING THE RETURN OF INCOME, THE AO NOTICED THAT THE ASSESSEE HAS PAID INTEREST TO FOUR PARTIES VIZ., I) G.M. CONTROLS PVT. LTD. - RS. 1,20,682/ - II) UNITED ENGINEERING CO. - RS. 65,575/ - III) MAGNA ELECTRONIC INDUSTRIES - RS. 26,393/ - IV) RANJAN DEVI JAIN - RS. 14,542/ - 10.2. THE AO FOUND THAT THE ASSESSEE HAS NOT DEDUCTED TAX AS PER THE PROVISIONS OF LAW, HE THEREFORE DISALLOWED THE INTEREST U/S. 40(A )(IA) OF THE ACT. 11. THE ASSESSEE CARRIED THE MATTER BEFORE THE LD. CIT(A) AND ACCEPTED THE APPLICABILITY OF TDS PROVISIONS. ITA. NO. 559/M/2014 6 12. BEFORE US, THE LD. COUNSEL FOR THE ASSESSEE STATED THAT THE PROPORTIONATE INTEREST HAS ALREADY BEEN DISALLOWED BY THE AO WHILE ALLOCATING THE INTEREST BETWEEN ELIGIBLE AND NON - ELIGIBLE UNIT THEREFORE FURTHER DISALLOWANCE WOULD AMOUNT TO DOUBLE ADDITION. 13. WE DO NOT SUBSCRIBE TO THIS CONTENTION OF THE LD. COUNSEL. FIRSTLY, THERE IS NO DISALLOWANCE OF INTEREST EARLIER. THE AO HAS ALLOCATED THE INTEREST BETWEEN ELIGIBLE AND NON - ELIGIBLE UNIT. HOWEVER, IN THE PRESENT CASE , THE AO HAS DISALLOWED THE INTEREST INVOKING THE PROVISIONS OF SEC. 40(A)(IA) OF THE ACT , BOTH T HE SE ACTIONS OF THE AO ARE DISTINGUISHABLE AND ARE AS PER THE PROVISIONS OF THE LAW, THERE IS NO CASE OF DOUBLE ADDITION, THEREFORE, THIS GRIEVANCE OF THE ASSESSEE IS DISMISSED. 14. THE THIRD GRIEVANCE OF THE ASSESSEE RELATES TO THE ADHOC DISALLOWANCE OF TEL EPHONE EXPENSES TO THE TUNE OF RS. 14,173, TRAVELLING AND CONVEYANCE EXPENSES OF RS. 34,606/ - BEING 10% OF THE EXPENSES CLAIMED. 14.1. THE AO FOUND THAT THE ASSESSEE HAS CHARGED TRAVELLING AND CONVEYANCE EXPENSES AT RS. 3,46,067/ - AND TELEPHONE EXPENSES AT RS. 1,41,735/ - . THE AO WITHOUT ASSIGNING ANY SPECIFIC REASON DISALLOWED 10% OUT OF THESE EXPENDITURES. 14.2. THE ASSESSEE CARRIED THE MATTER BEFORE THE LD. CIT(A) BUT WITHOUT ANY SUCCESS. 14.3. BEFORE US, THE LD. COUNSEL FOR THE ASSESSEE RELIED UP ON THE DECISION IN THE CASE OF ACIT VS ARTHUR ANDERSON & CO. 5 SOT 393 (MUM) WHEREIN IT HAS BEEN HELD THAT NO ADHOC DISALLOWANCE CAN BE MADE BY THE AO. ITA. NO. 559/M/2014 7 14.4. THE LD. DR STRONGLY SUPPORTED THE ASSESSMENT ORDER. 14.5. WE HAVE CAREFULLY PERUSED THE ORDERS OF THE AUTHORITIES BELOW. THE UNDISPUTED FACT IS THAT THE AO HAS MADE ADHOC DISALLOWANCE. IT IS ALSO AN UNDISPUTED FACT THAT NO SPECIFIC REASON HAS BEEN ASSIGNED BY THE AO FOR MAKING SUCH DISALLOWANCES NOR ANY SPECIF IC REASON HAS BEEN GIVEN BY THE LD. CIT(A) WHILE CONFIRMING SUCH DISALLOWANCES. IN OUR CONSIDERED OPINION, THE DISALLOWANCES ARE ARBITRARY, WE THEREFORE SET ASIDE THE FINDINGS OF THE LD. CIT(A) AND DIRECT THE AO TO DELETE THE ADDITION. THIS GRIEVANCE OF THE ASSESSEE IS ALLOWED. 15. IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE IS PARTLY ALLOWED. OR DER PRONOUNCED IN THE OPEN COURT ON 3 RD JU LY , 2015 SD/ - SD/ - ( A.D. JAIN ) (N.K. BILLAIYA) /JUDICIAL MEMBER / ACCOUNTANT MEMBER MUMBAI ; DATED : 3 RD JU LY , 2015 . . ./ RJ , SR. PS / 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