The DCIT, Circle-3(1)(1), Ahmedabad V. M/s. Oswal Extrusion Ltd., Ahmedabad

ITA 709/AHD/2017

• Counselvise Citation: [2021] 107 COUNSELVISE.COM (IT) 8190 (ITAT-AHMEDABAD)
• Duration Of Justice: 4 year(s) 4 month(s) 13 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 04-08-2021
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: C
• Next Hearing Date: 20-01-2020
• Assessment Year: 2013-2014
• Appeal Filed On: 22-03-2017
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: R R MAKWANA
• Keywords: Capital asset; Earning of tax free income; Proportionate interest; Additional evidence; Fair market value; Revenue expenditure; Capital expenditure; Rule 8D; Set aside
• Section: 143(3); 56(2); 14A; 250; 201; 143(2); 64; 13; 22

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL B BENCH, AHMEDABAD [CONDUCTED THROUGH VIRTUAL AT AHMEDABAD] BEFORE SHRI WASEEM AHMED , ACCOUNTANT MEMBER & MS. MADHUMITA ROY, JUDICIAL MEMBER I .T.A. NO . 709 /AHD/201 7 (ASSESSMENT YEAR : 201 3 - 1 4 ) DC IT, CIRCLE - 3 ( 1 ) (1) , AHMEDABAD VS. M/S. OSWAL EXTRUSION LTD. 13, H.B. JIRAWALA HOUSE, OPP. PANCHSHIL BUS STOP, ASHRAM ROAD, AHMEDABAD - 380013 [ PAN NO. AAACO7290H ] ( APPELLANT ) .. ( RESPONDENT ) I.T. A. NO . 497 /AHD/201 7 (ASSESSMENT YEAR : 2013 - 14 ) M/S. OSWAL EXTRUSION LTD. 13, H.B. JIRAWALA HOUSE, OPP. PANCHSHIL BUS STOP, ASHRAM ROAD, AHMEDABAD - 380013 VS. DCIT CIRCLE - 3(1)(2), AHMEDABAD [ PAN NO. AAACO7290H ] ( APPELLANT ) .. ( RESPONDENT ) I.T.A. NO . 115 /AHD/201 9 (ASSESSMENT YEAR : 2014 - 15 ) DCIT, CENTRAL CIRCLE - 1(2), AHMEDABAD VS. M/S. OSWAL EXTRUSION LTD. 13, H.B. JIRAWALA HOUSE, OPP. PANCHSHIL BUS STOP, ASHRAM ROAD, AHMEDABAD - 380013 [ PAN NO. AAACO7290H ] ( APPELLANT ) .. ( RESPONDENT ) ASSESSEE BY : SHRI ASTHA MANIAR, AR REVENUE BY : SHRI R. R. MAKWANA, SR. DR DATE OF HEARING 06 . 05 .20 2 1 DATE OF PRONOUNCEMENT 04 . 0 8 . 20 2 1 ITA NO. 709 /AHD/201 7 & ITA NO. 497 /AHD/201 7 & ITA NO. 115 /AHD/201 9 DCIT V S. M/S. OSWAL EXTRUSION LTD. ASST.YEAR S 20 1 3 - 1 4 & 2014 - 15 - 2 - O R D E R PER MS. MADHUMITA ROY - JM: OUT OF THESE THREE APPEALS , TWO APPEALS FILED BY THE REVENUE AND ONE APPEAL FILED BY THE ASSESSEE ARE DIRECTED AGAINST THE SEPARATE ORDERS DATED 13.01 .201 7 & 19.11.2018 PASSED BY THE LD. CIT(A) - 9 , AHMEDABAD ARISING OUT OF THE SEPARATE ORDER S DATED 26 . 02 .201 6 & 2 8.1 2.201 7 PASSED BY T HE LD. DCIT, CENTRAL CIRCLE - 1( 2 ), AHMEDABAD & DCIT, CIRCLE - 3(1)(2), AHMEDABAD PASSED UNDER SECTION 143(3) OF THE INCOME TAX ACT, 1961 (HEREINAFTER REFERRED AS TO THE ACT ) FOR THE ASSESSMENT YEAR S (A.Y S .) 201 3 - 1 4 & 2014 - 15 . IT A NO. 709 /AHD/201 7 (A.Y. 201 3 - 1 4 ): - 2. THE ASSESSEE COMPANY IS A MANUFACTURING OF HDPE/PP BAGS, AND TRADING OF HDPE GRANULES WOVEN BAGS AND IS FOLLOWING THE MERCANTILE SYSTEM OF ACCOUNTS . THE ASSESSEE FILED ITS RETURN OF INCOME ON 20.11.2013 DECLARING TOTAL INCOME OF LOSS OF RS. 3,83,50,423/ - . UNDER SCRUTINY ASSESSMENT NOTICE UNDER SECTION 143(2) DATED 04.09.2014 WAS ISSUED AND THE SAME WAS ULTIMATELY FINALIZED WITH CERTAIN ADDITION S INCLUDING THE ADDITION OF RS. 5,31,82,295/ - AS CLAIMED AS THE EXPENDITURE OF PRODUCT DEVELOPMENT EXPENSES BY THE ASSESSEE COMPANY WHICH WAS ULTIMATELY DELETED BY THE LD. CIT(A). HENCE, THE INSTANT APPEAL BY THE REVENUE BEFORE US. 3. DURING THE COURSE OF ASSESSMENT PROCEEDING UPON VERIFICATION OF AUDITED BALANCE SHEET AND PROFIT & LOSS A CCOUNTS IT WAS FOUND THAT THE ITA NO. 709 /AHD/201 7 & ITA NO. 497 /AHD/201 7 & ITA NO. 115 /AHD/201 9 DCIT V S. M/S. OSWAL EXTRUSION LTD. ASST.YEAR S 20 1 3 - 1 4 & 2014 - 15 - 3 - ASSESSEE HAS SHOWN IN ITS BALANCE SHEET UNDER THE HEAD OF LONG TERM CAPITAL LOANS AND ADVANCES PRODUCT DEVELOPMENT EXPENSES WORTH OF RS. 1,77,27,431/ - AND ALSO UNDER THE HEAD OTHER CURRENT ASSETS PRODUCT DEVELOPMENT EXPENSES W ORTH RS. 3,18,79,772/ - . THE ASSESSEE COMPANY ALSO CLAIMED AMORTIZATION ON PRODUCT DEVELOPMENT EXPENSES TO THE TUNE OF RS. 5,31,82,295/ - AS REVENUE EXPENDITURE. IT APPEARS FROM THE ORDER PASSED BY THE LD. AO THAT THE ASSESSEE DID NOT SUBMIT THE DOCUMENTAR Y EVIDENCES SHOWING THAT ANY NEW PRODUCT OR SERVICE CAME INTO EXISTENCE FROM INCURRING SUCH EXPENSES. NEITHER ANY DOCUMENTARY DETAILS AND/OR EVIDENCES WERE PRODUCED BY THE ASSESSEE AS REGARDS THE EXPENSES FROM WHICH IT COULD BE ASCERTAINED THAT THERE W OUL D BE INCREASE IN THE FUTURE MAINTAINABLE PROFIT OF THE ASSESSEE COMPANY AS OF THE OBSERVATION MADE BY THE LD. AO. THE AO FURTHER RELIED UPON THE AUDITORS VIEW THAT SUCH EXCESS WASTAGE WOULD ULTIMATELY RESULT INTO BENEFIT OF ENDURING NATURE ONCE THE COMPAN Y I S SUCCESSFUL IN DEVELOPING NEW PRODUCT. IT IS RELEVANT TO MENTION THAT THE ASSESSEE BY AND UNDER LETTER DATED 13.02.2016 WHILE REPLYING TO THE SHOW - CAUSE EXPLAINED THE GROSS ERROR COMMITTED BY THE STATUTORY AUDITOR IN TREATING THE R & D EXPENSES AS OF CAPITAL NATURE AND AS HAS SHOWN SAME UNDER THE HEAD OF CURRENT ASSE TS. IT WAS FURTHER CLARIFIED THAT ULTIMATELY WHILE PREPARING THE RETURN OF INCOME FOLLOWING THE ADVICE GIVEN BY THE TAX CONSULTANT THE SUM OF RS. 6,31,80,619/ - WAS ADDED BACK TO THE P&L AC COUNT AND THE GROSS AMOUNT OF RS. 5,31,82,295/ - WAS CLAIMED IN THE STATEMENT OF INCOME AS REVENUE EXPENDITURE. HOWEVER, SUCH PLEA OF THE ASSESSEE WAS NOT TAKEN INTO CONSIDERATION IN POSITIVE WAY RATHER THE LD. AO WAS OF THE VIEW THAT IF ANY NEW PRODUCT WI LL BE DEVELOPED THE SAME W ILL GIVE BENEFIT OF ENDURING NATURE AND, THEREFORE, THE IMPUGNED EXPENDITURE FOR ITA NO. 709 /AHD/201 7 & ITA NO. 497 /AHD/201 7 & ITA NO. 115 /AHD/201 9 DCIT V S. M/S. OSWAL EXTRUSION LTD. ASST.YEAR S 20 1 3 - 1 4 & 2014 - 15 - 4 - PRODUCT DEVELOPMENT OF THE ASSESSEE IS NOT A REVENUE EXPENDITURE BUT A CAPITAL EXPENDITURE. HENCE, THE PRODUCT DEVELOPMENT EXPENDITURE WAS DISALLOWE D AND ADDED TO THE TOTAL INCOME OF THE ASSESSEE. IN APPEAL THE FIRST APPELLATE AUTHORITY AFTER CONSIDERING THIS PARTICULAR FACT OF THE MATTER THAT THE LD. AO HAS NOT EXAMINED THESE EXPENSES DURING THE ASSESSMENT PROCEEDING UPON ADMITTING THE ADDITIONAL EV IDENCES ASKED FOR A REMAND REPORT ON 07.10.2016. MOST IMPORTANTLY THE LD. AO HAS NOT RAISED ANY DOUBT ABOUT THE GENUINENESS OF THE EXPENDITURE INCURRED FOR THE PRODUCT DEVELOPMENT AND, THEREFORE, THE LD. CIT(A) FRAMED THE ISSUE AS TO WHETHER THE EXPENDITU RE INCURRED AS OF CAPITAL IN NATURE OR REVENUE IN NATURE AS ALSO THE ISSUE RAISED BEFORE US. 4 . WHILE DEALING WITH THE ISSUE IN FAVOUR OF THE ASSESSEE THE LD. CIT(A) OBSERVED AS FOLLOWS: - 9.4 I HAVE CAREFULLY CONSIDERED THE RIVAL CONTENTION AS WELL AS THE OBSERVATION OF THE A.O. IT IS OBSERVED THAT THE A.O HAS MADE AN ADDITION OF RS. 5,31,82,295/ - ON ACCOUNT OF DISALLOWANCE OF PRODUCT DEVELOPMENT EXPENDITURE BEING TREATED AS CAPITAL EXPENDITURE. ACCORDING TO A.O THE APPELLANT HAD SHOWN IN ITS BALANCE SH EET UNDER THE HEAD LONG TERM LOANS AND ADVANCES, PRODUCT DEVELOPMENT EXPENSES OF RS.1,77,27,431/ - AND ALSO UNDER THE HEAD OTHER CURRENT ASSETS, PRODUCT DEVELOPMENT EXPENSES OF RS.3,18,79,772/ - . FURTHER ACCORDING TO A.O THE APPELLANT HAS ALSO CLAIMED AMORTI ZATION ON PRODUCT DEVELOPMENT EXPENSES WORTH RS. 5,31,82,295/ - IN ITS COMPUTATION OF INCOME. THE APPELLANT TRIED TO EXPLAIN TO THE A.O THAT RS.5,31,82,295/ - IS CAPITALIZED AND RS. 6,31,80,619/ - WAS DEBITED BACK TO P & L A/C. ACCORDINGLY, THE NET AMOUNT REM AINING IN THE BALANCE SHEET UNDER THE HEAD OTHER CURRENT ASSETS AND LONG TERM LOANS AND ADVANCES WAS RS. 3,18,79,772/ - AND RS. 1,77,27431/ - RESPECTIVELY. HOWEVER, THE A.O HAS NOT AGREED WITH THE CONTENTION OF THE APPELLANT. ON FAILURE OF THE APPELLANT TO P RODUCE ANY DOCUMENTARY DETAILS AND EVIDENCES REGARDING THESE EXPENSES AS WELL AS BY RELYING ON THE NOTE OF THE STATUTORY AUDITOR OF THE APPELLANT THAT THE EXPENSES OF RS, 5,31,82,295/ - BEING RELATED TO R & D ACTIVITIES, THE A.O HAS PROCEEDED TO DISALLOW TH E SAID AMOUNT. 9.5 DURING THE APPELLATE PROCEEDINGS THE APPELLANT HAS SUBMITTED THAT IT IS ENGAGED IN THE BUSINESS OF MANUFACTURE AND SALE OF HDPE BAGS. IT ADMITTED THAT APART FROM THE REGULAR COMMERCIAL PRODUCTION IT WAS ALSO INVOLVED IN THE R & D ACTIVI TIES. THE STATUTORY AUDITORS HAVE DETERMINED THE EXPENSES TOWARDS DEVELOPMENT ITA NO. 709 /AHD/201 7 & ITA NO. 497 /AHD/201 7 & ITA NO. 115 /AHD/201 9 DCIT V S. M/S. OSWAL EXTRUSION LTD. ASST.YEAR S 20 1 3 - 1 4 & 2014 - 15 - 5 - OF NEW PRODUCTS BY ADOPTING THE FORMULA OF YIELD AND WASTAGE. ACCORDINGLY, THE AUDITORS HAVE HYPOTHETICALLY CALCULATED THE QUANTUM OF RS.5,31,82,295/ - OUT OF THE TOTAL COST INCUR RED RELATING TO RAW MATERIAL CONSUMPTION, LABOUR COST AND POWER AND FUEL IN RESPECT OF R & D ACTIVITIES. IT IS FURTHER SUBMITTED THAT IN THE STATEMENT OF INCOME IT HAS CLAIMED THE SAID AMOUNT AS REVENUE EXPENDITURE BY DEDUCTING THE SAME FROM THE NET PROFIT AS PER AUDITED P & L A/C. AND AT THE SAME TIME ADDING BACK THE 20% OF SUCH EXPENSES RETURN BACK AGGREGATING RS.6,31,80,619/ - . THUS, ACCORDING TO APPELLANT BY TREATING THE CAPITALIZED R & D EXPENSES AS REVENUE EXPENSES AND AT THE SAME TIME ADDING BACK THE AMORTIZED AMOUNT DEBITED TO P & L A/C. IT HAS STATED ITS INCOME AT RS. 99,98,324/ - (6,31,80,619 - 5,31,82,295). ACCORDING TO APPELLANT IT HAS REGULARLY FOLLOWED THE SAID PRACTICE AND HAS NOT GONE BY THE ADVICE OF THE STATUTORY AUDITOR IN DECIDING THE CORRE CT NATURE OF EXPENDITURE. IT HAS FURTHER SUBMITTED THAT DURING THE PRECEDING A.Y I.E. A.Y. 2012 - 13 THE SAID ISSUE WAS CONSIDERED BY THE THEN A.O AND AFTER EXAMINING THE LEGAL POSITION THE A.O HAD ALLOWED THE R & D EXPENSES AS REVENUE EXPENDITURE. IT FURTHE R SUBMITTED THAT THE A.O FOR A.Y. 2013 - 14 HAS ALSO ALLOWED THE PRODUCT DEVELOPMENT EXPENSES AS REVENUE EXPENDITURE IN THE CASE OF ITS ASSOCIATE CONCERN NAMELY M/S. PLASTENE INDIA LTD. DURING THE APPELLATE PROCEEDINGS THE APPELLANT SUBMITTED THE ADDITIONAL EVIDENCES UNDER RULE 46A WITH REGARD TO THE EXPENSES THAT WERE INCURRED IN RESPECT OF PRODUCT DEVELOPMENT EXPENDITURE WHICH WERE NOT EXAMINED BY THE A.O DURING THE ASSESSMENT PROCEEDINGS. AFTER CONSIDERING THE FACTS THAT THE A.O HAS NOT EXAMINED THESE EXPE NSES DURING THE ASSESSMENT PROCEEDINGS THE SAID ADDITIONAL EVIDENCES WERE ADMITTED AND THE A.O SUBMITTED ITS REMAND REPORT ON 7TH OCTOBER, 2016. IT IS OBSERVED FROM THE REMAND REPORT OF THE A.O THAT NEITHER DURING THE ASSESSMENT PROCEEDINGS NOR DURING THE REMAND PROCEEDINGS THE A.O HAS EVER RAISED THE DOUBT ABOUT THE GENUINENESS OF EXPENDITURE INCURRED FOR THE PRODUCT DEVELOPMENT. THE ONLY ISSUE THAT REMAINS ON HAND IS WHETHER THE EXPENDITURE INCURRED IS OF CAPITAL IN NATURE OR REVENUE IN NATURES THE APPELL ANT FURTHER SUBMITTED THAT IT HAS NOT CLAIMED IN DOUBLE DEDUCTION I N RESPECT OF THE SAID EXPENSES. I ACCORDING TO APPELLANT ALTHOUGH THE AMOUNT AMORTIZED IN THE BOOKS IS DIFFERENT FROM/ THE AMOUNT CLAIMED AS DEDUCTION, IT HAS NEITHER WRITTEN OFF THE PRODUC T DEVELOP MENT EXPENSES IN A.Y.2016 - 17 NOR CLAIMED THE SAME AS DEDUCTION IN FURNISHING THE RETURN OF INCOME FOR A.Y.2016 - 17. CONSIDERING ALL THESE FACTS I DISAGREE WITH THE A.O FOR THE REASON THAT ALTHOUGH THE APPELLANT HAS TREATED THE CAPITALIZED R & D EXP ENSES AS REVENUE EXPENDITURE, BUT AT THE SAME TIME IT HAS ADDED BACK THE AMORTIZED AMOUNT DEBITED TO P & L A/C. THIS HAS RESULTED INTO THE INCOME OF RS. 99,98,324/ - . FURTHER NEITHER DURING THE REMAND PROCEEDINGS OR THE ASSESSMENT PROCEEDINGS THE A.O HAS EV ER QUESTIONED THE GENUINENESS OF THE EXPENSES. IN EARLIER ASSESSMENT YEARS AS WELL THE APPELLANT HAS BEEN ALLOWED TO CLAIM THE PRODUCT DEVELOPMENT EXPENSES AS REVENUE EXPENSES. THEREFORE, I HEREBY DELETE THE ADDITION OF RS. 5,31,82,295/ - BEING DISALLOWED O N ACCOUNT OF CAPITAL EXPENDITURE. THUS, THE GROUND OF APPEAL IS ALLOWED. 5. IT IS A FACT THAT THE APPELLANT HAS NOT CLAIMED DOUBLE DEDUCTION IN RESPECT OF THE SAID EXPEN DITURE . ALTHOUGH THE AMOUNT AMORTIZE D IN THE BOOKS IS DIFFERENT FROM THE AMOUNT CLAIMED AS DEDUCTION IT HAS NEITHER ITA NO. 709 /AHD/201 7 & ITA NO. 497 /AHD/201 7 & ITA NO. 115 /AHD/201 9 DCIT V S. M/S. OSWAL EXTRUSION LTD. ASST.YEAR S 20 1 3 - 1 4 & 2014 - 15 - 6 - WRITTEN OF F THE PRODUCT DEVELOPMENT EXPENSES IN A.Y. 2016 - 17 NOR CLAIMED THE SAME AS DEDUCTION IN FURNISHING THE RETURN OF INCOME FOR A.Y. 2016 - 16. THOUGH THE APPELLANT HAS TRE ATED THE CAPITALIZED R & D EXPENSES AS REVENUE EXPEN SES AND AT THE SAME TIME IT HAS ADDED BACK THE AMORTIZE D AMOUNT DEBITED TO P & L ACCOUNT RESULTING INTO INCOME OF RS. 99,98,324/ - AS IT APPEARS FROM THE RECORD. FURTHER THAT IN THE EARLIER ASSESSMENT YE ARS THE IDENTICAL CLAIM OF PRODUCT DEVELOPMENT EXPENSES WAS ALLOWED AS REVENUE EXPENSES . THEREFORE, TAKING INTO CONSIDERATION THE ENTIRE ASPECT OF THE MATTER THE DELETION OF SUCH ADDITION OF RS. 5,31,82,295/ - ON ACCOUNT OF CAPITAL EXPENDITURE AS MADE BY T HE LD. AO HAS BEEN RIGHTLY D ONE BY THE LD. CIT(A) WITHOUT ANY AMBIGUITY SO AS TO WARRANT INTERFERENCE. HENCE, THE GROUND OF APPEAL PREFERRED BY THE REVENUE IS FOUND TO BE DEVOID OF ANY MERIT AND, THUS, DISMISSED. IT A NO. 497 /AHD/201 7 (A.Y. 201 3 - 1 4 ): - 6. THE ASSESSEE HAS FILED THE FOLLOWING GROUNDS OF APPEAL : - 1. THE LD. CIT(A) - 9 HAS ERRED IN LAW AND ON FACTS IN CONFIRMING THE ACTION OF THE AO OF DISALLOWING A SUM OF RS. 9,41,211/ - U/S 36(1)(III) OF THE ACT. 2. THE LD. CIT(A) - 9 HAS ERRED IN LAW AND ON FACTS IN CONFIRMING THE ACTION OF THE AO OF DISALLOWING A SUM OF RS. 4,89,083/ - U/S 36(1)(VA) OF THE ACT ON ACCOUNT OF DELAYED PAYMENTS OF PF/ESIC. 3. THE LD. CIT(A) - 9 HAS ERRED IN LAW AND ON FACTS IN CONFIRMING THE ADDITION OF RS. 19,32,800/ - MADE BY TH E AO U/S 56(2)(VIIB) OF THE ACT. 7. GROUND NO.1: - THE APPELLANT HAS CHALLENGED THE ADDITION OF RS. 9,41,211/ - MADE UNDER SECTION 36(1)(III) OF THE ACT. THE ASSESSEE MADE LONG - TERM CAPITAL ADVANCES FOR PLACING ORDER FOR CONSTRUCTING BUILDING AS PER THE TERMS TO M/S. RIDDHI CONSTRUCTION TO THE TUNE OF RS. 1,11,70,827/ - . NO ITA NO. 709 /AHD/201 7 & ITA NO. 497 /AHD/201 7 & ITA NO. 115 /AHD/201 9 DCIT V S. M/S. OSWAL EXTRUSION LTD. ASST.YEAR S 20 1 3 - 1 4 & 2014 - 15 - 7 - INTEREST ATTRIBUTABLE TO THE FUNDS UTILIZED FOR PURCHASING OF THE CAPITAL ASSET HAS BEEN CAPITALIZED DURING THE YEAR UNDER CONSIDERATION. IN REPLY TO THE SHOW - CAUSE AS REGARDS PROPORT IONATE INTEREST ON CAPITAL ADVANCES TO M/S. RIDDHI CONSTRUCTION THE ASSESSEE STATED THAT THE SAME WAS ADVANCED EXCLUSIVELY FOR BUSINESS PURPOSES AND THE SAME WAS ADJUSTED AGAINST THE ITEM S RECEIVED IN SUBSEQUENT FINANCIAL YEAR 2013 - 14, THE DETAILS WHEREOF WERE ALSO SUBMITTED. HOWEVER, THE SAME WAS NOT FOUND ACCEPTABLE BY THE LD. AO AND PROPORTIONATE INTEREST OF RS. 9,41,211/ - HAS BEEN DISALLOWED AND ADDED BACK TO THE INCOME OF THE ASSESSEE ON THE PREMISE THAT THE ASSESSEE FAILED TO PROOF THAT NO INTEREST B EARING FUNDS WAS UTILIZED FOR MAKING ADVANCE FOR PURCHASE OF CAPITAL ASSET . 8. WE HAVE HEARD THE RIVAL SUBMISSIONS MADE BY THE RESPECTIVE PARTIES AND WE HAVE ALSO PERUSED THE RELEVANT MATERIALS AVAILABLE ON RECORD. 9. THE CASE OF THE ASSESSEE IS THIS THAT THE ASSESSEE HAVING SUFFICIENT OWN FUNDS OF RS. 3466.21 LAKHS WHICH IS FAR MORE THAN THE MONEY ADVANCED TO THE TUNE OF RS. 1,11,70,827/ - AND THAT TOO FOR BUSINESS PURPOSES. IF THAT BE SO, THE DISALLOWANCE AS MADE BY THE AUTHORITIES BELOW IS NOT SUSTA INABLE IN THE EYE OF LAW. WE HAVE PERUSED THE BALANCE SHEET AS ON 31.03.2013 AVAILABLE AT PAGE 26 OF THE PAPER BOOK FILED BEFORE US BY THE ASSESSEE WHICH WAS BROUGHT TO OUR NOTICE BY THE LD. AR DEPICTING THE OPENING BALANCE OF RS. 346,621,488/ - AS ON 31.0 3.2012 AS THE FUND TOWARDS SHARE CAPITAL AND RESERVES AND SURPLUS OF THE ASSESSEE. THEREFORE, THE ASSESSEE IS NOT REQUIRED TO PROOF THAT NO INTEREST BEARING FUND IS U TILIZED FOR ASSESSMENT MADE FOR PURCHASES OF CAPITAL WHEN ASSESSEE S OWN FUND OF RS. 346, 621,488/ - IS MUCH ITA NO. 709 /AHD/201 7 & ITA NO. 497 /AHD/201 7 & ITA NO. 115 /AHD/201 9 DCIT V S. M/S. OSWAL EXTRUSION LTD. ASST.YEAR S 20 1 3 - 1 4 & 2014 - 15 - 8 - MORE HIGHER THAN THE ADVANCES FOR SUCH PURCHASE OF CAPITAL ASSET PROVIDED TO THE RIDDHI SIDDHI CONSTRUCTION. IN THAT VIEW OF THE MATTER ADDITION OF PROPORTIONATE INTEREST ATTRIBUTABLE TO SUCH FUNDS ON THE BASIS OF TOTAL INTEREST PAID IS NOT PERMISSIBLE AND HENCE THE SAME IS NOT SUSTAINABLE IN THE EYE OF LAW AND ALLOWABLE TO BE DELETED. WITH THE ABOVE OBSERVATION WE ALLOW THE GROUND OF APPEAL BY DELETING THE ABOVE ADDITION. 10 . GROUND NO.2: - DISALLOWANCE OF RS. 4,89,083/ - UNDER SECTION 36(1)(VA) OF THE ACT ON ACCOUNT OF DELAYED PAYMENT OF PF/ESIC HAS BEEN CHALLENGED BEFORE US. 11 . THE BRIEF FACTS RELATING TO THE ISSUE IS THIS THAT THE AMOUNT RECEIVED BY THE ASSESSEE BY WAY OF EMPLOYEES CONTRIBUTION OF EFP HAS NOT BEEN DEPOSITED BY THE ASSESSEE IN THE EMPLOYEES ACCOUNT IN THE RELEVANT FUND ON OR BEFORE THE DUE DATE, T HE DETAILS WHEREOF IS MENTIONED IN THE ORDER PASSED BY THE LD. AO WHICH HAS BEEN PERUSED BY US. THE ASSESSEE S CASE IS THIS THAT CERTAIN PAYMENTS BEING EMPLOYEES CONTRIBU TION TOWARDS PF WAS MADE LATE BUT THE ENTIRE CONTRIBUTION OF RS. 1,91,728/ - WAS PAID DURING THE FINANCIAL YEAR ITSELF. SINCE THE SAME WAS MADE BEFORE THE DUE DATE OF FILING OF RETURN OF INCOME, THE SAME IS ALLOWABLE. RELYING UPON THE JUDGMENT PASSED BY T HE HON BLE JURISDICTIONAL HIGH COURT IN THE CASE OF CIT VS. GUJARAT STATE ROAD TRANSPORT CORPORATION, REPORTED IN 265 CTR 64 BOTH THE AUTHORITIES BELOW HAS DECLINED TO ALLOW SUCH CLAIM MADE BY THE ASSESSEE SINCE THE CONTRIBUTION OF EMPLOYEES IN PF HAS BEE N FAILED TO BE DEPOSITED IN THE CONCERNED ACCOUNT BEFORE THE DUE DATE IN TERMS OF THE PROVISION LAID DOWN IN SECTION 36(1)(VA) R.W.S. 2(24 )(X) OF THE ACT. I T IS ALLOWABLE , IF ONLY ITA NO. 709 /AHD/201 7 & ITA NO. 497 /AHD/201 7 & ITA NO. 115 /AHD/201 9 DCIT V S. M/S. OSWAL EXTRUSION LTD. ASST.YEAR S 20 1 3 - 1 4 & 2014 - 15 - 9 - SUCH EMPLOYEES CONTRIBUTION TOWARDS PROVIDENT FUND IS CREDITED BY THE ASSES SEE TO THE RELEVANT ACCOUNT ON OR BEFORE DUE DATE AS THE CRUX OF THE ORDER PASSED BY THE AUTHORITIES BELOW WHICH ACCORDING TO US IS WITHOUT ANY AMBIGUITY SO AS TO WARRANT INTERFERENCE. HENCE, WE CONFIRM THE ORDER PASSED BY THE AUTHORITIES BELOW. ASSESSEE S THIS GROUND OF APPEAL IS , THUS , FOUND TO BE DEVOID OF ANY MERIT AND HENCE DISMISSED. 1 2 . GROUND NO.3: - ADDITION OF RS. 19,32,800/ - MADE BY THE AUTHORITIES BELOW UNDER SECTION 56(2)(VIIB) OF THE ACT HAS BEEN CHALLENGED BEFORE US. 1 3 . THE APPELLANT ALLOTTED 48000 AND 3200 SHARES TO ONE M/S. PLASTENE INDIA LTD. BEING THE HOLDING COMPANY AND TO SHRI CHETAN PAREKH, DIRECTOR OF THE APPELLANT COMPANY RESPECTIVELY @ 250 PER SHARE ; THE F ACE VALUE OF EACH SHARE WHEREOF IS RS. 10/ - AND THE PREMI UM CHARGED IS RS. 240/ - PER SHARE. UPON PERUSAL OF THE VALUATION UNDER SECTION 11UA OF THE IT RULES AS FURNISHED BY THE APPELLANT IT WAS FOUND THAT THE FAIR MARKET VALUE OF EACH SHARE WAS RS. 246/ - AND THEREFORE, SHOW - CAUSE WAS ISSUED UPON THE APPELLANT A S TO WHY THE EXCESS AMOUNT OF RS. 4 / - PER SHARE SHOULD NOT BE TREATED AS INCOME OF THE APPELLANT UNDER SECTION 56(2)(VIIB) OF THE ACT. 14. WE HAVE HEARD THE RIVAL SUBMISSIONS MADE BY THE RESPECTIVE PARTIES AND WE HAVE ALSO PERUSED THE RELEVANT MATERIALS AVAILABLE ON RECORD. THE APPELLANT CONTENTION BEFORE THE REVENUE I S THIS THAT BY WAY OF INSERTION OF CLAUSE (VIIB) TO SECTION 56(2) W.E.F. 01.04.2013 WAS FOR THE PURPOSE OF PREVENTING GENERATION AND CIRCULATION OF UNACCOUNTED MONEY. THESE PARTICULAR SHARES WERE ALLOTTED TO MAINLY HOLDING COMPANY AND THE VERY SMALL DIFFERENCE WA S ONLY FOR THE PURPOSE OF ROUNDING OFF OF THE VALUE AND ITA NO. 709 /AHD/201 7 & ITA NO. 497 /AHD/201 7 & ITA NO. 115 /AHD/201 9 DCIT V S. M/S. OSWAL EXTRUSION LTD. ASST.YEAR S 20 1 3 - 1 4 & 2014 - 15 - 10 - RESULTANT CONVENIENCE IN ACCOUNT. SIMILARLY SMALL PORTION OF SHARES WAS ALSO ALLOTTED TO THE DIRECTOR OF THE APPELLANT COMPANY AND THUS THE QUESTION OF CIRCULATING ANY UNACCOUNTED MONEY DOES NOT ARISE. MORESO, THE NOMINAL DIFFERENCE IS LESS THAN 2% WHICH IS WITHIN THE STATUTORY TOLERANCE LIMIT AS RECOGNIZED UNDER SECTION 92C(2) OF THE ACT AND 50 C OF THE ACT TOO . THE ADDITION IS NOT SUSTAINABLE IN THE EYE OF LAW. IN FACT, RULE 11UA IS CLEAR IN TERMS OF QUANTIFICATION OF VALUE UNDE R SECTION 56(2)(VIIB) OF THE ACT . WHEN SHARES ARE ALLOTTED ON PREMIUM BY A COMPANY IN WHICH PUBLIC IS NOT SUBSTANTIALLY INTERESTED, I T IS CATEGORICALLY STATED THAT, ANY CONSIDERATION RECEIVED BY SUCH COMPANY FOR ISSUE OF SHARES THAT EXCEEDS THE FACE VALUE OF SUCH SHARES, THE AGGREGATE CONSIDERATION RECEIVED BY SUCH COMPANY FOR SUCH SHARES AS EXCEEDS THE FAIR MARKET VALUE OF THE SHARE. FOR CALCULATION OF THE FAIR MARKET VALUE THE METHOD HAS BEEN PRESCRIBED UNDER RULE 11UA. 15. THUS, IT REVEALS FROM THE RECORDS THAT T HE APPELLANT ITSELF HAS ADMITTED THAT IT HAS ALLOTTED SHARES AT RS. 250 WHEREAS THE FAIR MARKET VALUE OF THE SHARE IS RS . 246/ - . IN THAT VIEW OF THE MATTER THE EXCESS AMOUNT OF RS. 4 ON NUMBER OF SHARES ALLOTTED I.E. RS. 4,83,200/ - HAS RIGHTLY BEEN ADDED TO THE TOTAL INCOME OF THE APPELLANT UNDER S ECTION 56(2)( VIIB) OF THE ACT. ACCORDINGLY THE ADDITION OF RS. 19,32,800/ - AS MADE BY THE AUTHORITIES BELOW IS HEREBY CONFIRMED . ASSESSEE S THIS GROUND OF APPEAL IS THUS FOUND TO BE DEVOID OF ANY MERIT AND HENCE DISMISSED. IT A NO. 1 15/AHD/2019 (A.Y. 201 4 - 15 ): - 16 . THE REVENUE HAS FILED THE APPEAL WITH THE FOLLOWING GROUND S OF APPEAL: - ITA NO. 709 /AHD/201 7 & ITA NO. 497 /AHD/201 7 & ITA NO. 115 /AHD/201 9 DCIT V S. M/S. OSWAL EXTRUSION LTD. ASST.YEAR S 20 1 3 - 1 4 & 2014 - 15 - 11 - 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT(A) HAS ERRED IN LAW AND ON FACTS IN DELETING THE DISALLOWANCE OF RS. 21,43,976/ - MADE U/S. 14A OF THE ACT. 2. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT(A) HAS ERRED IN LAW AND ON THE FACTS IN DELETING THE DISALLOWANCE OF RS. 38,51,785/ - MADE U/S. 36(1)(III) OF THE ACT. 3. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT(A) HAS ERRED IN LAW AND ON FACTS IN DELE TING THE ADDITION OF RS. 15,31,511/ - ON ACCOUNT OF INTEREST RECEIVED ON SHORT TERM LOANS AND ADVANCES. 4. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT(A) HAS ERRED IN LAW AND ON FACTS IN DELETING THE ADDITION OF RS. 4,90,45,70 1/ - ON ACCOUNT OF PRODUCTION DEVELOPMENT EXPENSES. 5. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT(A) OUGHT TO HAVE UPHELD THE ORDER OF THE A.O. 6. IT IS, THEREFORE, PRAYED THAT THE ORDER OF THE LD. CIT(A) BE SET ASIDE AND T HAT OF THE A.O. BE RESTORED TO THE ABOVE EXTENT. 17. GROUND NO.1: - DELETION OF RS. 21,43,976/ - MADE UNDER SECTION 14A RULE 8D OF THE ACT HAS BEEN CHALLENGED BEFORE US BY THE REVENUE. 18. THE FACTS CULLED OUT FROM THE RECORDS RELATING TO THE ISSUE IS THI S THAT THE ASSESSEE MADE INVESTMENT IN SHARES OF RS. 23,36,750/ - AT THE BEGINNING OF THE YEAR AND THE ASSESSEE HAS NOT DISALLOWED ANY SUM OF AMOUNT UNDER SECTION 14A OF THE ACT. THE ASSESSEE COMPANY IS HAVING SHARE CAPITAL OF RS. 8.80 CRORES AND RESERVES AND SURPLUS OF RS. 46.12 CRORES. IT HAS NOT EARNED ANY EXEMPT INCOME IN THE FORM OF DIVIDEND FROM SUCH SHARES. ACCORDING TO THE LD. AO INVESTMENT CANNOT BE MADE WITHOUT HELP OF MANAGERIAL SKILLS AND OTHER ADMINISTRATIVE ASPECTS WHICH INVOLVES EXPENDITURE . HOWEVER, NO SUCH AMOUNT OF EXPENDITURE IS DISALLOWED BY THE ASSESSEE NEITHER DISALLOWED ANY AMOUNT ON ACCOUNT OF UNDER SECTION 14A OF THE ACT. ITA NO. 709 /AHD/201 7 & ITA NO. 497 /AHD/201 7 & ITA NO. 115 /AHD/201 9 DCIT V S. M/S. OSWAL EXTRUSION LTD. ASST.YEAR S 20 1 3 - 1 4 & 2014 - 15 - 12 - THE ASSESSEE HAS PAID INTEREST OF RS. 20,25,07,500/ - AND NOT SEGREGATED THE INTEREST FREE FUNDS AND INTERES T BEARING FUNDS B UT ONLY SUBMITTED THAT AMOUNT OF INVESTMENT IS FROM INTEREST FREE FUNDS AND THEREFORE, APPLYING RULE 8D THE SUM OF RS. 21,43,976/ - HAS BEEN DISALLOWED BY THE LD. AO. AFTER PERUSAL OF THE RECORD IT APPEARS THAT THE ASSESSEE HAS NOT EARNED ANY EXEMPT INCOME NEITHER CLAIMED ANY EXEMPT INCOME. THEREFORE, RELYING ON THE RATIO LAID BY THE HON BLE JURISDICTIONAL HIGH COURT IN THE CASE OF CORRTECH ENERGY PVT. LTD., REPORTED I N TAX APPEAL NO. 239 OF 2014 WHEREIN IT HAS HELD THAT WHEN THERE IS NO EXEMPT INCOME EARNED BY THE ASSESSEE NO ADDITION COULD BE MADE UNDER SECTION 14A OF THE ACT, D ELETION OF SUCH ADDITION MADE BY THE LD. CIT(A) IN OUR CONSIDERED OPINION , IS WITHOUT ANY A MBIGUITY SO AS TO WARRANT INTERFERENCE. THUS, REVENUE S THIS GROUND OF APPEAL IS FOUND TO BE DEVOID OF ANY MERIT AND HENCE DISMISSED. 1 9 . GROUND NO.2: - DISALLOWANCE OF RS. 38,51,785/ - MADE UNDER SECTION 36(1)(III) OF THE ACT IS THE ISSUE BEFORE US. 20 . THE ASSESSEE INVESTED SHARES AND MUTUAL FUNDS OF RS. 4,37,61,750/ - DURING THE YEAR UNDER CONSIDERATION AND PAID INTEREST OF RS. 20,25,07,50 0/ - TO VARIOUS PERSONS. THE ASSESSEE HA S NOT DISALLOWED ANY AMOUNT UNDER SECTION 14A OF THE ACT AS NO DIVIDEND IS EA RNED ON INVESTMENT MADE IN SHARES BY THE ASSESSEE . I NVESTMENT MADE BY THE ASSESSEE IS NOT FOR THE BUSINESS PURPOSES AS OF THE OPINION FORMED BY THE LD. AO. FINALLY INTEREST EXPENDITURE OF RS. 38,51,785/ - HAS BEEN WORKED OUT BY THE LD. AO WHICH ITA NO. 709 /AHD/201 7 & ITA NO. 497 /AHD/201 7 & ITA NO. 115 /AHD/201 9 DCIT V S. M/S. OSWAL EXTRUSION LTD. ASST.YEAR S 20 1 3 - 1 4 & 2014 - 15 - 13 - ACCORDING TO HIM IS NOT ATTRIBUTABLE TO THE BUSINESS OF THE ASSESSEE AND, THUS, DISALLOWED THE SAME AND ADDED TO THE TOTAL INCOME OF THE ASSESSEE. 2 1 . FACT REVEALS FROM THE BALANCE SHEET OF THE APPELLANT THAT IT HAD SHARE CAPITAL OF RS. 8.80 CRORES AND RESERVE AND SURPLUS AMOUNTING TO RS. 46.12. CRORES WHICH PROVES THAT THE ASSESSEE IS HAVING SUFFICIENT INTEREST FREE FUNDS AVAILABLE IN HIS HAND AND THEREFORE, DISALLOWANCE MADE UNDER SECTION 36(1)(III) OF THE ACT HAS BEEN RIGHTLY DELETED BY THE LD. CIT(A). IN THAT V IEW OF THE MATTER THE GROUND OF APPEAL PREFERRED BY THE REVENUE IS FOUND TO BE DEVOID OF ANY MERIT AND HENCE DISMISSED. 22 . GROUND NO.3: - DELETION OF ADDITION OF RS. 15,31,511/ - ON ACCOUNT OF INTEREST RECEIVED ON SHORT TERM LOANS AND ADVANCES HAS BEEN CHA LLENGED BEFORE US BY THE REVENUE. 2 3 . THE APPELLANT HAS GIVEN SHORT TERM LOANS AND ADVANCES FOR SUPPLY OF GOODS AND FOR RENDERING SERVICES TO VAR IOUS PERSONS AMOUNTING TO RS. 7, 74,20,262/ - . THE APPELLANT HAD ADVANCED A LOAN TO M/S. PAREKH POLYMERS WHICH IS A RELATED PARTY UNDER THE PROVISION OF SECTION 40A(2)(A) OF THE ACT AS OBSERVED BY THE LD. AO AND QUANTIFIED THE PROPORTIONATE INTEREST EXPENSES AND DISALLOWED RS. 15,31,511/ - UNDER SECTION 36(1)(III) OF THE ACT. HOWEVER, BEFORE THE FIRST APPELLATE AUT HORITY THE ASSESSEE SUBMITTED THAT THE SAID M/S. PAREKH POLYMERS IS AN ASSOCIATED CONCERN AND IT PROVIDED THIS FUND TO THE SAID CONCERN FOR BUSINESS PURPOSES TOWARDS SUPPLY OF GOODS/SERVICES. PRACTICALLY THE LD. AO HAS NOT INVOKED THE PROVISIONS OF SECTIO N 36(1)(III) FOR NON - RELATED PERSONS AS THE SAME WERE GIVEN FOR THE BUSINESS PURPOSES. IN THAT VIEW OF THE MATTER THE LD. CIT(A) HAS NOT FOUND ITA NO. 709 /AHD/201 7 & ITA NO. 497 /AHD/201 7 & ITA NO. 115 /AHD/201 9 DCIT V S. M/S. OSWAL EXTRUSION LTD. ASST.YEAR S 20 1 3 - 1 4 & 2014 - 15 - 14 - IT JUSTIFIED IN INVOKING THE PROVISIONS OF SECTION 40A(2)(A) OF THE ACT FOR DISALLOWING PROPORTIONATE INTEREST E XPENSES UNDER SECTION 36(1)(III) OF THE ACT WHICH IN OUR CONSIDERED OPINION IS JUST AND PROPER SO AS TO WARRANT INTERFERENCE. THUS, THE SAME IS HEREBY CONFIRMED , THUS, REVENUE S THIS GROUND OF APPEAL FAILS. 2 4 . THE OTHER TWO GROUNDS ARE GENERAL IN NATURE AND DO NOT REQUIRE ANY CONSIDERATION. 25 . IN THE COMBINED RESULT S , THE APPEAL S PREFERRED BY THE REVENUE ARE DISMISSED AND THE APPEAL PREFERRED BY THE ASSESSEE IS PARTLY ALLOWED. THIS ORDER PRONOUNCED IN OPEN COURT ON 04 / 0 8 /20 2 1 SD/ - SD/ - ( WASEEM AHMED ) (MS. MADHUMITA ROY ) ACCOUNTANT MEMBER JUDICIAL MEMBER (TRUE COPY) AHMEDABAD; DATED 04 / 0 8 /20 2 1 TANMAY , SR. PS TRUE COPY