M/s. Ankur Industrial Corporation, Ahmedabad V. The Dy.CIT.,Circle-10, Ahmedabad

ITA 703/AHD/2011

• Counselvise Citation: [2014] 120 COUNSELVISE.COM (IT) 5946 (ITAT-AHMEDABAD)
• Duration Of Justice: 3 year(s) 1 month(s) 26 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 29-04-2014
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: A
• Next Hearing Date: 28-04-2014
• Assessment Year: 2007-2008
• Appeal Filed On: 04-03-2011
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: O P BATHEJA
• Keywords: Earning of tax free income
• Section: 14A; 37

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD A BENCH BEFORE: SRI D.K TYAGI, JUDICIAL MEMBER AND SHRI ANIL CHATURVEDI, ACCOUNTAN T MEMBER M/S ANKUR INDUSTRIAL CORPORATION, D/2, BHARAT ASHRAM, RAJHANS SOCIETY, ELLISBRIDGE, AHMEDABAD PAN: AADFA 2957 M (APPELLANT) VS DY. CIT, CIRCLE-10, AHMEDABAD (RESPONDENT) ASSESSEE BY: MS. URVASHI SHODHAN, A. R. REVENUE BY: SRI O.P. BATHEJA, SR.D.R. DATE OF HEARING : 28-04-2014 DATE OF PRONOUNCEMENT : 29-04-20 14 / ORDER PER : D.K. TYAGI, JUDICIAL MEMBER:- THIS IS THE ASSESSEES APPEAL AGAINST THE ORDER OF LD. CIT(A)-XVI, AHMEDABAD DATED 20-12-2010. 2. THE ASSESSEE HAS TAKEN FOLLOWING EFFECTIVE GROUN D:- ITA NO. 703/AHD/2011 ASSESSMENT YEAR 2007-08 - 2 - ITA NO. 703/AHD/2011 A.Y. 2007-08 M/S. ANKUR INDUSTRIAL CORPORATION VS. DCIT 1. THE LD. CIT(A) ERRED IN CONFIRMING THE DISALLOW ANCE OF RS. 5,05,904/- BECAUSE THE EXPENDITURE IS DISALLOWABLE U/S. 14A, WITH RESPECT TO THE EXEMPT INCOME OR U/S. 37 AS NOT FOR THE PURPOSE OF BUSINESS. 3. DURING THE ASSESSMENT PROCEEDINGS AO OBSERVED TH AT ASSESSEE HAS EARNED COMMISSION INCOME OF RS. 4,70,305/- AND HAS CLAIMED SEVERAL EXPENSES IN THE PROFIT AND LOSS ACCOUNT. THE ASSES SEE ALSO EARNED EXEMPT INCOME OF RS. 17,82,586/- IN RESPECT OF DIVI DEND AND LONG TERM CAPITAL GAIN. THE ASSESSEE HAS ALSO SHOWN SHORT TE RM CAPITAL GAIN OF RS. 75,97,228/-. THE AO THEREFORE ASKED THE ASSESSEE AS TO WHY DISALLOWANCE BE NOT MADE IN RESPECT OF EXPENSES INCURRED FOR EAR NING EXEMPT INCOME. TOTAL EXPENSES CLAIMED IN THE PROFIT AND LOSS ACCOU NT ARE RS. 17,57,015/- WHICH CONSISTS OF PROVISION FOR TAXATION OF RS. 9,4 1,930/-, THE ASSESSEE HAS ALSO CLAIMED STT EXPENSES OF RS. 1,37,195/-, SALARY EXPENSES OF RS. 44,83,68/-, BONUS EXPENSES OF RS. 85,400/-, SALES P ROMOTION EXPENSES OF RS. 32,882/-, LEAVE ENCASHMENT EXPENSES OF RS. 22,3 21/-, EX-GRATIA SALARY OF RS. 28,545/- AND SEVERAL OTHER EXPENSES. THE AO FURTHER OBSERVED THAT ASSESSEE HIMSELF DISALLOWED PROVISION FOR TAXATION AND SOME OTHER EXPENSES AMOUNTING TO RS. 10,79,726/-. THE ASSSESS EE HAS THEREFORE CLAIMED AN EXPENDITURE OF RS. 6,74,539/- TOWARDS EA RNING OF COMMISSION INCOME OF RS. 4,70,305/- AND SHORT TERM CAPITAL GAI N AS WELL AS EXEMPT INCOME OF DIVIDEND AND LONG TERM CAPITAL GAINS AS M ENTIONED ABOVE. SINCE THE EXEMPT INCOME AND SHORT TERM CAPITAL GAIN HAVE GONE OUT OF PROFIT AND LOSS ACCOUNT, THE ASSESSEE HAS CLAIMED THE EXPENDIT URE OF RS. 6,74,539/- ONLY TOWARDS EARNING OF COMMISSION INCOME. IT WAS FURTHER OBSERVED BY AO THAT ASSESSEE HAS EARNED COMMISSION INCOME FROM ONLY THREE PARTIES AND FOR PURCHASE AND SELL OF GOODS. AO THEREFORE A SKED THE ASSESSEE AS - 3 - ITA NO. 703/AHD/2011 A.Y. 2007-08 M/S. ANKUR INDUSTRIAL CORPORATION VS. DCIT TO WHY DISALLOWANCE BE NOT MADE OF THESE EXPENSES. IN RESPONSE TO THIS, THE ASSESSEE SIMPLY GAVE DETAILS OF COMMISSION INCO ME EARNED AND DETAILS OF OTHER INCOME. THE AO, IN THE ABSENCE OF ANY SATISFACTORY EXPLANATION CONSIDERED 25% OF THESE EXPENSES TOWARD S EARNING OF COMMISSION AND DISALLOWED THE BALANCE HOLDING THAT IT WAS NOT FOR THE PURPOSE OF EARNING COMMISSION INCOME OR U/S. 14A TO WARDS EARNING OF EXEMPT INCOME. THUS, A DISALLOWANCE OF RS. 5,05,9 04/- WAS MADE BY AO. 4. BEFORE LD. CIT(A) ASSESSEES SUBMISSION WAS THAT IT HAS MAINTAINED BOOKS AND ACCOUNTS IN RESPECT OF AGENCY BUSINESS AN D ENTIRE EXPENDITURE WAS FOR THE PURPOSE OF BUSINESS. ASSESSEE STATED T HAT THE IT COULD NOT SELL THE AGENCY GOODS DURING THE YEAR AND THERE WAS NO S UCH COMMISSION INCOME OUT OF THE EFFORTS MADE DURING THE YEAR, BUT THE ASSESSEE HAD TO MAINTAIN THE ENTIRE INFRASTRUCTURE AND THEREFORE TH E EXPENDITURE WAS MORE. THE ASSSESSEE HAD TO INCUR EXPENDITURE ON SALARY, T ELEPBONE BILLS, ELECTRICITY BILLS EVEN THOUGHT THERE WAS NO FRESH C OMMISSION INCOME DURING THE YEAR. HOWEVER ASSESSEE CARRIED INVESTMENT ACTI VITIES AND HAD EARNED INCOME IN THE FORM OF DIVIDEND INCOME, LONG TERM CA PITAL GAINS AND SHORT TERM CAPITAL GAINS. IT WAS STATED BY THE ASSESSEE THAT IT HAS PAID RS. 5,84,634/- TO THE STAFF IN THE FORM OF SALARY, BONU S LEAVE ENCASHMENT AND EX-GRATIA SALARY BUT THE STAFF WAS NOT INVOLVED IN THE INVESTMENT ACTIVITIES AND HENCE NO DISALLOWANCE SHOULD BE MADE. 5. LD. CIT(A) HOWEVER AGREED WITH THE FINDINGS OF AO AND CONFIRMED THE ADDITION OF RS. 5,05,904/- BEING 75% OF EXPENSE S CLAIMED BY THE ASSESSEE TOWARDS EARNING BY COMMISSION. WE ARE HOW EVER AFTER TAKING TOTALITY OF THE CIRCUMSTANCES IN VIEW FEEL THAT END S OF JUSTICE WILL BE MET, IF - 4 - ITA NO. 703/AHD/2011 A.Y. 2007-08 M/S. ANKUR INDUSTRIAL CORPORATION VS. DCIT THIS DISALLOWANCE IS RESTRICTED TO 50% OF THE EXPEN SES CLAIMED BY THE ASSESSEE. WE HOLD ACCORDINGLY. 6. IN THE RESULT, ASSESSEES APPEAL IS PARTLY ALLOW ED. ORDER PRONOUNCED IN OPEN COURT ON THE DATE MENTIONE D HEREINABOVE AT CAPTION PAGE SD/- SD/- (ANIL CHATURVEDI) ( D.K. TYAGI) ACCOUNTANT MEMBER JUDICIAL MEMBER AHMEDABAD : DATED 29/04/2014 AK / COPY OF ORDER FORWARDED TO:- 1. ASSESSEE 2. REVENUE 3. CONCERNED CIT 4. CIT (A) 5. DR, ITAT, AHMEDABAD 6. GUARD FILE. BY ORDER/ , / ,