Priya Blue Industries Pvt.Ltd., Bhavnagar V. The Addl.CIT.,Range-1, Bhavnagar

ITA 629/AHD/2010

• Counselvise Citation: [2012] 140 COUNSELVISE.COM (IT) 60568 (ITAT-AHMEDABAD)
• Duration Of Justice: 2 year(s) 4 month(s) 9 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 06-07-2012
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: D
• Assessment Year: 2006-2007
• Appeal Filed On: 25-02-2010
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: B L YADAV SRDR
• Keywords: Capital asset; Earning of tax free income
• Section: 40A(3); 143(3); 14A

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD BENCH D AHMEDABAD BEFORE SHRI, A.K.GARODIA, ACCOUNTANT MEMBER AND SHRI KUL BHARAT, JUDICIAL MEMBER ITA NO.629/AHD/2010 ASSESSMENT YEAR :2006-07 PRIYA BLUE INDUSTRIES PVT. LTD., PRIYA HOUSE, WAGHAWADI ROAD, BHAVNAGAR PAN NO.AABCP2808B V/S . ADDL. COMMISSIONER OF INCOME-TAX, RANGE-I, BHAVNAGAR (APPELLANT) .. (RESPONDENT) /BY APPELLANT NONE (WRITTEN SUBMISSION) /BY RESPONDENT SHRI B.L. YADAV, SR-DR /DATE OF HEARING 17-05-2012 /DATE OF PRONOUNCEMENT 06-07-2012 O R D E R PER KUL BHARAT, JUDICIAL MEMBER:- THIS APPEAL FILED BY THE ASSESSEE IS DIRECTED AGAIN ST THE ORDER OF LD. COMMISSIONER OF INCOME-TAX (APPEALS)-XX, AHMEDA BAD DATED 17- 11-2009 FOR THE ASSESSMENT YEAR 2006-07. THE ASSESS EE HAS RAISED THE FOLLOWING GROUNDS OF APPEAL:- 1. THE ORDER PASSED BY THE CIT(A) ARE BAD IN LAW. I T IS SUBMITTED THAT IT BE SO HELD NOW. 2. THE CIT(A) HAS ERRED IN FACT AND LAW IN CONFIRMI NG THE DISALLOWANCE OF INTEREST EXPENSES OF RS.21,20,689 MADE BY THE AO BY INVOKING PROVISIONS OF SECTION 14A READ WITH RULE 8D. 2.1 THE CIT(A) HAS ERRED IN FACT AND LAW IN CONFIRM ING THE ACTION OF THE AO OF INVOKING PROVISIONS OF RULE 8D CONSIDERING THE SAME AS HAVING RETROSPECTIVE ITA NO.629/AHD/2010 A.Y. 2006-07 PRIYA BLUE INDS P. LTD. V. ACIT, RNG-1 BNG PAGE 2 EFFECT, WHEN THE SAID RULE WAS NOT APPLICABLE TO TH E YEAR UNDER CONSIDERATION AS WAS INSERTED FROM 24-03-2008. 2.2 THE CIT(A) HAS ERRED IN NOT APPRECIATING THE FA CT THAT APPELLANT HAD EARNED EXEMPTED INCOME FROM INVESTMENT MADE FROM NO N INTEREST BEARING FUND AS ON DATE. HENCE NO INTEREST EXPENSES SHOULD BE DISALLOWED DURING THE YEAR. IT BE SO HELD NOW. 2.3 THE CIT(A) HAS ERRED IN NOT APPRECIATING THE FA CT THAT BORROWED FUND ON WHICH INTEREST IS PAID HAVE BEEN USED FOR THE PURPO SE OF BUSINESS AND NOT FOR INVESTING TO EARN THE EXEMPT INCOME. HENCE NO INTER EST EXPENSES SHOULD BE DISALLOWED DURING THE YEAR. IT BE SO HELD NOW. 3. THE CIT(A) HAS ERRED IN FACT AND LAW IN CONFIRMI NG THE ADDITION MADE BY THE AO BY DISALLOWING EXPENSES OF RS.49,890 U/S. 40A(3) BEING CASH PAYMENT ALTHOUGH SUCH EXPENDITURE HAD NOT BEEN CLAIMED AS D EDUCTION. 2. THE ASSESSEE IS ENGAGED IN THE BUSINESS OF SHIP BREAKING AND MANUFACTURING OF INDUSTRIAL OXYGEN GAS. THE CASE OF THE ASSESSEE WAS SELECTED FOR SCRUTINY ASSESSMENT AND THE ASSESSMENT U/S. 143(3) OF THE INCOME-TAX ACT, 1961 (HEREINAFTER REFERRED TO AS TH E THE ACT) WAS FRAMED VIDE ORDER DATED 15-12-2008. THE ASSESSING O FFICER WHILE MAKING ASSESSMENT MADE DISALLOWANCE OF RS.21,20,689 /- U/S 14A OF THE ACT AND OF RS.48,090/- U/S. 40A(3) OF THE ACT. AGAI NST THIS, THE ASSESSEE FILED AN APPEAL BEFORE LD. CIT(A) WHO AFTER CONSIDE RING THE SUBMISSIONS AND CASE LAW CITED BY IT DISMISSED THE APPEAL. AGA INST THE ORDER OF LD. CIT(A), THE ASSESSEE FILED SECOND APPEAL BEFORE US. 3. NO ONE APPEARED ON BEHALF OF THE ASSESSEE, HOWEV ER, WRITTEN SUBMISSIONS ARE ON RECORD. THEREFORE, THIS APPEAL W AS TAKEN UP FOR HEARING IN THE ABSENCE OF ASSESSEE. 4. GROUND NO.1 TO 2.3 ARE INTER-RELATED AND RAISED AGAINST THE CONFIRMATION OF DISALLOWANCE MADE U/S. 14A OF THE A CT BY INVOKING RULE 8D OF THE IT RULE, 1962. LD. SR-DR RELIED ON THE OR DERS OF THE AUTHORITIES BELOW. ON THE OTHER HAND ASSESSEE HAS S UBMITTED THAT RULE ITA NO.629/AHD/2010 A.Y. 2006-07 PRIYA BLUE INDS P. LTD. V. ACIT, RNG-1 BNG PAGE 3 8D OF THE INCOME-TAX RULE, 1962 IS NOT APPLICABLE F OR THE YEAR UNDER CONSIDERATION. IN SUPPORT OF THIS CONTENTION ASSESS EE CITED THE JUDGMENT OF HONBLE BOMBAY HIGH COURT IN THE CASE OF GODREJ & BOYCE MFT. MUMBAI V. DCIT (2010) 328 ITR 81 (BOM). THE OTHER SUBMISSION OF T HE ASSESSEE IS THAT NO BORROWED FUND WAS USED AS IT HA D SUFFICIENT INTEREST FREE FUND, NO DIVIDEND INCOME WAS EARNED AND ALSO N O ADMINISTRATIVE EXPENSES WAS INCURRED. THEREFORE THE ORDERS OF AUTH ORITIES BELOW ARE ERRONEOUS. IN SUPPORT OF THESE CONTENTIONS, ASSESSE E RELIED UPON VARIOUS CASE LAWS. I) MUJAL SALES CORPORATION V. CIT & ANS. (2008) 29 8 ITR 298 (SC) II) CIT V. RELIANCE UTILITIES AND POWER LTD. (2009 ) 313 ITR 340 (BOM) 5. WE HAVE HEARD THE LD. SR-DR PERUSED THE MATERIAL S AVAILABLE ON RECORD AND WRITTEN SUBMISSIONS OF THE ASSESSEE. WE FIND THAT THE AUTHORITIES BELOW HAVE RELIED UPON THE DECISION OF SPECIAL BENCH ITAT MUMBAI BENCH IN THE CASE OF ITO V. DAGA CAPITAL INVESTMENT PVT. LTD. (2006) 119 TTJ (MUM) (SB). HOWEVER, THE HONBLE BOM BAY HIGH COURT IN THE CASE OF GODREJ & BOYCE MFT. MUMBAI (SUPRA) HAS RULED THAT RULE 8D OF THE IT RULE, 1962 WOULD BE APPLICABLE WI TH EFFECT FROM A.Y. 2008-09 SINCE IN THE PRESENT CASE THE ASSESSMENT YE AR INVOLVED IS 2006-07 SO RULE 8D WOULD NOT APPLY. IN THIS VIEW OF THE MATTER CONSIDERING ALL OTHER ASPECTS OF THE MATTER THIS GR OUND IS REMITTED BACK TO THE FILE OF ASSESSING OFFICER FOR FRESH ADJUDICATIO N. AO IS DIRECTED TO VERIFY THE CLAIM OF THE ASSESSEE THAT NO BORROWED C APITAL WAS UTILIZED AND ALSO NO DIVIDEND INCOME WAS EARNED. THE AO SHAL L PASS A SPEAKING ORDER AFTER GIVING SUFFICIENT OPPORTUNITY TO THE AS SESSEE TO ESTABLISH THAT THERE IS NO NEXUS BETWEEN THE BORROWED FUND AND INV ESTMENT OF ITA NO.629/AHD/2010 A.Y. 2006-07 PRIYA BLUE INDS P. LTD. V. ACIT, RNG-1 BNG PAGE 4 RS.2,27,77,800/- BY THE ASSESSEE IN ITS SUBSIDIARY COMPANY NAMELY M/S. PRIYA HOLDING PVT. LTD. 6. NEXT GROUND IS CONFIRMATION OF ADDITION OF RS.40 ,890/- MADE U/S. 40A(3) OF THE ACT. THE CONTENTION OF THE ASSESSEE I S THAT THE EXPENDITURE WAS INCURRED FOR ACQUIRING CAPITAL ASSET WHICH CAN NOT BE DISALLOWED U/S. 40A(3) OF THE ACT BEING PAYMENT MADE IN CASH FOR MO RE THAN RS.20,000/- . ON THE OTHER HAND LD. SR-DR RELIED ON THE ORDERS OF AUTHORITIES BELOW. 7. WE HAVE HEARD THE LD. DEPARTMENTAL REPRESENTATIV E PERUSED THE WRITTEN SUBMISSION OF THE ASSESSEE AND MATERIALS AV AILABLE ON RECORD. THE ONLY CONTENTION IS WHETHER SECTION 40A(3) OF TH E ACT WOULD APPLY ON THE FACTS OF THE PRESENT CASE. IT IS NOT DISPUTED B Y THE ASSESSEE THAT EXPENDITURE WAS INCURRED IN CASH EXCEEDING OF RS.20 ,000/-FOR PURCHASING CAPITAL ASSET. WE HAVE GIVEN OUR THOUGHT FUL CONSIDERATION TO THE FACTS OF THE PRESENT CASE AND THE RIVAL SUBMISS IONS. A BARE READING OF SECTION 40A(3) OF THE ACT MAKES IT ABUNDANTLY CL EAR THAT NO DEDUCTION SHALL BE ALLOWED IN RESPECT OF THE EXPENDITURE INCU RRED IN RESPECT OF WHICH A PAYMENT OR AGGREGATE OF PAYMENT MADE TO A P ERSON IN A DAY, OTHERWISE THAN AN ACCOUNT PAYEE CHEQUE DRAWN ON A B ANK OR ACCOUNT PAYEE BANK DRAFT, EXCEEDS TWENTY THOUSAND RUPEES. H OWEVER, THE PROVISIONS DOES NOT SPECIFY THE NATURE OF EXPENDITU RE, WHETHER CAPITAL OR REVENUE BUT PRESCRIBES DISALLOWANCE OF DEDUCTION OF SUCH EXPENDITURE IF THE PAYMENT OF SAME IS NOT MADE BY AN ACCOUNT PAYEE CHEQUE OR ACCOUNT PAYEE DRAFT. IT IS NOT CLEAR WHETHER THE AS SESSEE HAS CLAIMED DEDUCTION OF SUCH EXPENDITURE IN HIS PROFIT AND LOS S ACCOUNT. WE FIND THAT LD. CIT(A) HAS RECORDED THE SUBMISSIONS OF ASSESSEE THAT PAYMENT WAS MADE FOR PURCHASE OF CAPITAL ASSET AND THE AMOUNT H AS NOT BEEN DEBITED TO PROFIT AND LOSS ACCOUNT. THEREFORE, THE QUESTION OF DISALLOWANCE ITA NO.629/AHD/2010 A.Y. 2006-07 PRIYA BLUE INDS P. LTD. V. ACIT, RNG-1 BNG PAGE 5 U/S.40A(3) OF THE ACT DOES NOT ARISE. LD. CIT(A) HA S NOT GIVEN ANY REASONING AS TO HOW THIS SUBMISSION OF THE ASSESSEE IS NOT ACCEPTABLE. IN THIS VIEW OF THE MATTER, THIS ISSUE IS RESTORED BACK TO THE FILE OF ASSESSING OFFICER TO VERIFY, WHETHER THE ASSESSEE H AS CLAIMED ANY DEDUCTION AGAINST THE AFOREMENTIONED EXPENDITURE, I F IT IS FOUND THAT NO DEDUCTION HAS BEEN CLAIMED THE AO SHALL DELETE THE ADDITION OF RS.49,690/-. THIS GROUND OF ASSESSEES APPEAL IS AL LOWED FOR STATISTICAL PURPOSE AS INDICATED ABOVE. 8. IN THE RESULT, APPEAL FILED BY ASSESSEE IS ALLOWED FOR STATISTICAL PURPOSE. ORDER PRONOUNCED IN OPEN COURT ON THE DATE MENTIONE D HEREINABOVE AT CAPTION PAGE. SD/- SD/- (A.K.GARODIA) (KUL BHARAT) (ACCOUNTANT MEMBER) (JUDICIAL MEMBER) AHMEDABAD, *DKP - 06/07/2012 ()* + ,- ,- ,- ,- ../ ../ ../ ../ 0/ 0/ 0/ 0/ / COPY OF ORDER FORWARDED TO:- 1. / APPELLANT 2. / RESPONDENT 3. *.3 , ,4 / CONCERNED CIT 4. , ,4- / CIT (A) 5. /78 ...3, , .3 , ()* / DR, ITAT, AHMEDABAD 6. 8:; <= / GUARD FILE. BY ORDER/ ,- , /TRUE COPY/ >/ ( ? , .3 , ()* + STRENGTHEN PREPARATION & DELIVERY OF ORDERS IN THE ITAT 1) DATE OF TAKING DICTATION 27/06 HAND WRITTEN 2) DIRECT DICTATION BY MEMBER STRAIGHT ON COMPUTER/ LAPTOP/DRAGON DICTATE NO 3) DATE OF TYPING & DRAFT ORDER PLACE BEFORE MEMBER 27/06 4) DATE OF CORRECTION 28/06, 28/06 5) DATE OF FURTHER CORRECTION 6) DATE OF INITIAL SIGN BY MEMBERS 02/07 7) ORDER UPLOADED ON 6/07 ITA NO.629/AHD/2010 A.Y. 2006-07 PRIYA BLUE INDS P. LTD. V. ACIT, RNG-1 BNG PAGE 6 8) ORIGINAL DICTATION PAD-PART HAS BEEN ENCLOSED IN THE FILE YES 9) FINAL ORDER AND 2 ND COPY SEND TO BENCH CLERK ON 06/07