The ACIT, 5(1), Indore V. M/S. SWASTIK COAL CORPORATION PVT.LTD., Indore

ITA 746/IND/2014

• Counselvise Citation: [2016] 133 COUNSELVISE.COM (IT) 5738 (ITAT-INDORE)
• Duration Of Justice: 1 year(s) 3 month(s) 4 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 01-03-2016
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: DB
• Next Hearing Date: 01-03-2016
• Assessment Year: 2011-2012
• Appeal Filed On: 27-11-2014
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Earning of tax free income; Corroborative evidences
• Section: 14A

Judgement Text

ACIT 5(1),INDORE VS. SWASTIK COAL CORPORATION PRIVA TE LIMITED, INDORE- I.T.A.NO. 745 & 746/IND/2014 & C.O.NOS. 2 & 3/IND/2 015 A.YS.2010-11-2011-12 1 1 IN THE INCOME TAX APPELLATE TRIBUNAL, INDORE BENCH, INDORE BEFORE SHRI D.T. GARASIA, JUDICIAL MEMBER AND SHRI B.C.MEENA, ACCOUNTANT MEMBER I.T.A.NOS.745 & 746/IND/2014 A.Y. : 2010-11 AND 2011-12. ASSISTANT COMMISSIONER OF INCOME-TAX, M/S.SWASTIK COAL CORPOATION PVT.LTD., INDORE. 5(1), VS. INDORE APPELLANT RESPONDENT PAN NO. AABCJ3196N C.O.NOS. 2 & 3/IND/2015 (ARISING OUT OF I.T.A.NOS.745 & 746/IND/2014) A.Y. : 2010-11 AND 2011-12. M/S.SWASTIK COAL CORPOATION PVT.LTD., INDORE. VS. ACIT, 5(1), INDORE. CROSS OBJECTOR RESPONDENT DEPRTMENT BY : SHRI R. A. VERMA, DR ASSESSEE B Y : SHRI VIJAY BANSAL, CA DATE OF HEARING : 01 .0 3 .2016 DATE OF PRONOUNCEMENT : 01 .0 3 .2016 ACIT 5(1),INDORE VS. SWASTIK COAL CORPORATION PRIVA TE LIMITED, INDORE- I.T.A.NO. 745 & 746/IND/2014 & C.O.NOS. 2 & 3/IND/2 015 A.YS.2010-11-2011-12 2 2 O R D E R PER D.T.GARASIA, J.M. APPEALS BY THE DEPARTMENT AND CROSS OBJECTIONS BY T HE ASSESSEE ARE DIRECTED AGAINST THE SEPARATE ORDERS O F CIT(A)-II, INDORE, BOTH DATED 28.08.2014 AND RELATE TO ASSESSM ENT YEARS 2010-11 AND 2011-12. I.T.A.NO. 745/IND/2014 (DEPARTMENTS APPEAL): A.Y. 2010-11 : 2. IN THIS APPEAL, THE FOLLOWING GROUNDS HAVE BEEN TAK EN BY THE REVENUE :- ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE CIT(A) HAS ERRED IN :- 1. RESTRICTING THE DISALLOWANCE RIGHTLY MADE U/S 14A O F THE ACT FROM RS. 85,96,306/- TO RS. 2,70,548/- WHILE ASSESSEE HAS MADE INVESTMENT OF INTEREST BEARING FUNDS IN THE PARTNERSHIP FIRM, PROFIT OF WHICH WAS EXEMPT. 2. RESTRICTING THE DISALLOWANCE RIGHTLY MADE U/S 14A O F THE ACT FROM RS. 85,96,306/- TO RS. 2,70,548/- BY ACIT 5(1),INDORE VS. SWASTIK COAL CORPORATION PRIVA TE LIMITED, INDORE- I.T.A.NO. 745 & 746/IND/2014 & C.O.NOS. 2 & 3/IND/2 015 A.YS.2010-11-2011-12 3 3 APPLYING THE RATIO OF 1:30:85 FOR EXEMPT INCOME AND TAXABLE INCOME. WHEREAS PROVISION OF SECTION 14A R.W.R. 8D DOES NOT SPEAK ABOUT RATIO BETWEEN EXEMPT INCOME AND TAXABLE INCOME. 3. RESTRICTING THE DISALLOWANCE OF EXPENSES UNDER HEAD OFFICE & GENERAL EXPENSES FROM RS. 2,00,000/- TO RS. 50,000/- WHEREAS THE AO HAS MENTIONED THAT SOME OF THE BILLS AND SUPPORTING WERE NOT PRODUCED BY THE ASSESSEE. SOME OF THE EXPENSES HAVE BEEN PAID IN CASH DURING VERIFICATION OF BILLS AND VOUCHERS. 4. RESTRICTING THE DISALLOWANCE OF EXPENSES UNDER HEAD REPAIRS AND MAINTENANCE FROM RS. 50,000/- TO RS. 10,000/- WHEREAS THE AO HAS MENTIONED THAT BILLS AND VOUCHER FOR SUPPORTING OF SOME OF THE EXPENSES WERE MISSING, DURING VERIFICATION OF BILLS AND VOUCHERS. GROUND NOS. 1 & 2 : ACIT 5(1),INDORE VS. SWASTIK COAL CORPORATION PRIVA TE LIMITED, INDORE- I.T.A.NO. 745 & 746/IND/2014 & C.O.NOS. 2 & 3/IND/2 015 A.YS.2010-11-2011-12 4 4 3. THE BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE I S A PRIVATE LTD. COMPANY, IN THE BUSINESS TRADING OF CO AL. THE ASSESSEE COMPANY HAS FILED ITS RETURN OF INCOME DEC LARING TOTAL INCOME OF RS. 2,51,21,670/-. DURING ASSESSMEN T PROCEEDINGS, THE LEARNED AO HAS DISALLOWED RS. 85,96,306/- U/S 14A BY APPLYING CALCULATION GIVEN I N RULE 8D, ON EXEMPTED PROFIT RECEIVED FROM FIRM, IN WHICH ASSESSEE COMPANY IS A PARTNER OF 10%. THE ASSESSEE COMPANY HAS PREFERRED AN APPEAL WITH CIT(A)-2, INDO RE, AGAINST THE SAID ORDER. IN ADDITION TO THIS THE LE ARNED AO HAS ALSO DISALLOWED RS.2,00,000/- ON AD HOC BASIS O UT OF OFFICE & GENERAL EXPENSES OF RS. 16,42,333.81 AND R S. 50,000/- ON AD HOC BASIS OUT OF REPAIRS & MAINTENAN CE EXPENSES OF RS. 9,14,817/-. 4. THE MATTER CARRIED TO THE LD. CIT(A) AND THE LD. C IT(A) HAS RESTRICTED THE ADDITION TO THE RATIO OF EXEMPT INCOME TO TAXABLE INCOME. 2.1 I HAVE GONE THROUGH THE ASSESSMENT ORDER AND THE WRITTEN SUBMISSIONS FILED BY THE ACIT 5(1),INDORE VS. SWASTIK COAL CORPORATION PRIVA TE LIMITED, INDORE- I.T.A.NO. 745 & 746/IND/2014 & C.O.NOS. 2 & 3/IND/2 015 A.YS.2010-11-2011-12 5 5 APPELLANT AS REPRODUCED ABOVE. IT IS OBSERVED THAT THE IDENTICAL ISSUE OF DISALLOWANCE IS] S 14A R.W. RULE 8D HAS BEEN DECIDED BY MY PREDECESSOR IN THE ASSESSEE'S OWN CASE FOR THE A.Y. 2009-10 WHEREIN THE CIT (A), AFTER DETAILED DISCUSSION HAS HELD THAT DISALLOWANCES U/ S 14A IN THIS CASE WAS REQUIRED TO BE MADE IN THE RATIO OF EXEMPT INCOME TO TAXABLE INCOME. IT HAS BEEN BROUGHT TO MY NOTICE BY THE APPELLANT VIDE PARA-1.5 OF THE SUBMISSIONS AS REPRODUCED ABOVE THAT HON'BLE ITAT, INDORE BENCH HAS DULY APPROVED THE DECISION OF THE THEN CIT(A). FURTHER, IT HAS ALSO BEEN BROUGHT OUT THAT THE APPEAL PREFERRED BY THE DEPARTMENT AGAINST THE ORDER OF HON'BLE ITAT, INDORE BENCH IN THE M.P. HIGH COURT HAS BEEN DISMISSED. THE APPELLANT HAS FILED COPIES OF ORDER OF ITAT AND HON'BLE M.P. HIGH COURT. AFTER CONSIDERING THE ORDERS OF MY PREDECESSOR, ITAT AND M.P. HIGH COURT, I ACIT 5(1),INDORE VS. SWASTIK COAL CORPORATION PRIVA TE LIMITED, INDORE- I.T.A.NO. 745 & 746/IND/2014 & C.O.NOS. 2 & 3/IND/2 015 A.YS.2010-11-2011-12 6 6 HEREBY CONCUR WITH THE DECISION OF MY PREDECESSOR AND DIRECT AO TO FOLLOW THE RATIO LAID DOWN BY THE HIM IN THE APPEAL ORDER DATED 16.07.2012, THE RELEVANT PART OF WHICH IS AS UNDER:- '4.1.5 THUS ON CONSIDERATION OF OVERALL FACTS AND CIRCUMSTANCES OF THE CASE AND THE RELEVANT PROVISIONS OF LAW AND FOLLOWING THE DECISION OF HON'BLE SPECIAL BENCH (SUPRA) IT HAS TO BE NECESSARILY HELD THAT ONCE THE APPELLANT HAS EARNED SUBSTANTIAL TAXABLE INCOME FROM INVESTMENT IN PARTNERSHIP FIRM AND THE EXEMPT INCOME EARNED BEING MERELY 3% OF THE SUBSTANTIAL TAXABLE INCOME EARNED BY THE APPELLANT AT RS. 52.84 LACS, THE DISALLOWANCE HAS TO BE MADE IN THE RATIO OF EXEMPT/TAXABLE INCOME WHICH ACIT 5(1),INDORE VS. SWASTIK COAL CORPORATION PRIVA TE LIMITED, INDORE- I.T.A.NO. 745 & 746/IND/2014 & C.O.NOS. 2 & 3/IND/2 015 A.YS.2010-11-2011-12 7 7 COMES TO 1:30.85 AND ACCORDINGLY, DISALLOWANCE MADE UNDER RULE 8D HAS TO BE PROPORTIONATELY REDUCED TO RS. 1,81,046/- OR SAY RS. 1,81,050/-. THEREFORE, THE DISALLOWANCE MADE AT RS. 57,52,608/- IS HEREBY DIRECTED TO BE REDUCED TO RS. 1,81,050/- AND APPELLANT SHALL GET CONSEQUENTIAL RELIEF.' 2.2 IN VIEW OF THE ABOVE DISCUSSION, THE AO IS DIRECTED TO RESTRICT THE ADDITION TO THE RATIO OF EXEMPT INCOME TO TAXABLE INCOME AND ACCORDINGLY, THE BALANCE ADDITION IS DIRECTED TO BE DELETED. ALL THE GROUNDS OF APPEAL ARE PARTLY ALLOWED. 5. THE LD. DR RELIED ON THE ORDER OF THE AO. 6. THE LD. AUTHORIZED REPRESENTATIVE HAS SUBMITTED THE WRITTEN SUBMISSION BEFORE THIS BENCH, WHICH READS A S UNDER :- ACIT 5(1),INDORE VS. SWASTIK COAL CORPORATION PRIVA TE LIMITED, INDORE- I.T.A.NO. 745 & 746/IND/2014 & C.O.NOS. 2 & 3/IND/2 015 A.YS.2010-11-2011-12 8 8 THE ASSESSEE IS A PRIVATE LTD. COMPANY, IN THE BUSINESS TRADING OF COAL. THE ASSESSEE COMPANY HAS FILED ITS RETURN OF INCOME DECLARING TOTAL INCOME OF RS.2,51,21,670/-. DURING ASSESSMENT THE LEARNED AO HAS DISALLOWED RS. 85,96,306/- U/S 14A BY APPLYING CALCULATION GIVEN IN RULE 8D , ON EXEMPTED PROFIT RECEIVED FROM FIRM, IN WHICH ASSESSEE COMPANY IS A PARTNER OF 10%.THE ASSESSEE COMPANY HAS PREFERRED AN APPEAL WITH CIT(A)-2, INDORE, AGAINST THE SAID ORDER. IN ADDITION TO THIS THE LEARNED AO HAS ALSO DISALLOWED RS.2,00,000/- ON AD HOC BASIS OUT OF OFFICE & GENERAL EXPENSES OF RS. 16,42,333.81 AND RS. 50,000/- ON AD HOC BASIS OUT OF REPAIRS & MAINTENANCE EXPENSES OF RS. 9,14,817/-. THE LEARNED CIT(A)-2, INDORE HAS RESTRICTED THE ABOVE ADDITIONS TO RS. 50,000/- AND RS. 10,000/- RESPECTIVELY. THE LEARNED CIT(A)-2, BY FOLLOWING THE ORDER, OF HONBLE INDORE BENCH AND HONBLE M.P. HIGH COURT (APPEAL FILED BY DEPARTMENT ACIT 5(1),INDORE VS. SWASTIK COAL CORPORATION PRIVA TE LIMITED, INDORE- I.T.A.NO. 745 & 746/IND/2014 & C.O.NOS. 2 & 3/IND/2 015 A.YS.2010-11-2011-12 9 9 DISMISSED) IN CASE OF ASSESSEE COMPANY ITSELF FOR A.Y. 2009-10 AND BY FOLLOWING THE ORDER OF SPECIAL BENCH IN CASE OF VISHNU ANANT MAHAJAN V/S ACIT 147 ITJ 142, HAS RESTRICTED THE AMOUNT OF DISALLOWANCE U/S 14A IN THE RATIO OF EXEMPTED INCOME TO TAXABLE INCOME WHICH COME TO RS. 1,19,532/-. EXEMPTED INCOME RS. 2,20,245, TAXABLE INCOME RS. 1,58,39,200/, RATIO COMES TO 1.39%). ASSESSEE HAS FILED CROSS OBJECTION AGAINST THE APPEAL FILED BY THE DEPARTMENT AGAINST THE AFORESAID ORDER OF LEARNED CIT(A)-2, INDORE. THE ASSESSEE WOULD LIKE TO SUBMIT THAT THE CALCULATION MADE BY THE LEARNED AO BY APPLYING RULE 8D IS WRONG AND NOT AS PER THE WORDING PROVIDED IN RULE 8D. ACIT 5(1),INDORE VS. SWASTIK COAL CORPORATION PRIVA TE LIMITED, INDORE- I.T.A.NO. 745 & 746/IND/2014 & C.O.NOS. 2 & 3/IND/2 015 A.YS.2010-11-2011-12 10 10 YOUR HONOUR WE WOULD LIKE TO REPRODUCE THE RELEVANT PROVISIONS OF SECTION 14A AND RULE 8D AS BELOW : SUBSECTION (2) OF SECTION 14A READ AS UNDER:- (2) THE ASSESSING OFFICER SHALL DETERMINE THE AMOUNT OF EXPENDITURE INCURRED IN RELATION TO SUCH INCOME WHICH DOES NOT FORM PART OF THE TOTAL INCOME UNDER THIS ACT IN ACCORDANCE WITH SUCH METHOD AS MAY BE PRESCRIBED , IF THE ASSESSING OFFICER, HAVING REGARD TO THE ACCOUNTS OF THE ASSESSEE, IS NOT SATISFIED WITH THE CORRECTNESS OF THE CLAIM OF THE ASSESSEE IN RESPECT OF SUCH EXPENDITURE IN RELATION TO INCOME WHICH DOES NOT FORM PART OF THE TOTAL INCOME UNDER THIS ACT. THE METHOD AS ABOVE, IS PRESCRIBE UNDER RULE 8D , WHICH READ AS UNDER:- ACIT 5(1),INDORE VS. SWASTIK COAL CORPORATION PRIVA TE LIMITED, INDORE- I.T.A.NO. 745 & 746/IND/2014 & C.O.NOS. 2 & 3/IND/2 015 A.YS.2010-11-2011-12 11 11 2. THE EXPENDITURE IN RELATION TO INCOME WHICH DOES NOT FORM PART OF THE TOTAL INCOME SHALL BE THE AGGREGATE OF FOLLOWING AMOUNTS, NAMELY:- (I) THE AMOUNT OF EXPENDITURE DIRECTLY RELATING TO INCOME WHICH DOES NOT FORM PART OF TOTA L INCOME; (II) IN A CASE WHERE THE ASSESSEE HAS INCURRED EXPENDITURE BY WAY OF INTEREST DURING THE PREVIOUS YEAR WHICH IS NOT DIRECTLY ATTRIBUTABLE TO ANY PARTICULAR INCOME OR RECEIPT, AN AMOUNT COMPUTED I N ACCORDANCE WITH THE FOLLOWING FORMULA, NAMELY:- A* B C WHERE A = AMOUNT OF EXPENDITURE BY WAY OF INTEREST OTHER THAN THE AMOUNT OF INTEREST INCLUDED IN CLAUSE (I) INCURRED DURING THE PREVIOUS YEAR; ACIT 5(1),INDORE VS. SWASTIK COAL CORPORATION PRIVA TE LIMITED, INDORE- I.T.A.NO. 745 & 746/IND/2014 & C.O.NOS. 2 & 3/IND/2 015 A.YS.2010-11-2011-12 12 12 B= THE AVERAGE OF VALUE OF INVESTMENT, INCOME FROM WHICH DOES NOT OR SHALL FORM PART OF THE TOTAL INCOME, AS APPEARING IN THE BALANCE SHEET OF THE ASSESSEE, ON THE FIRST DAY AND THE LAST DAY OF THE PREVIOUS YEAR; C = THE AVERAGE OF TOTAL ASSETS AS APPEARING IN THE BALANCE SHEET OF THE ASSESSEE, ON THE FIRST DAY AND THE LAST DAY OF THE PREVIOUS YEAR; (III) AN AMOUNT EQUAL TO ONE-HALF PER CENT OF THE AVERAGE OF THE VALUE OF INVESTMENT, INCOME FROM WHICH DOES NOT OR SHALL NOT FORM PART OF THE TOTAL INCOME, AS APPEARING IN THE BALANCE SHEET OF THE ASSESSEE, ON THE FIRST DAY AND THE LAST DAY OF THE PREVIOUS YEAR. WE WOULD LIKE TO DRAW YOUR KIND ATTENTION TO THE B IN FORMULA AS PRESCRIBED IN RULE 8D ABOVE, WHICH STANDS FOR: ACIT 5(1),INDORE VS. SWASTIK COAL CORPORATION PRIVA TE LIMITED, INDORE- I.T.A.NO. 745 & 746/IND/2014 & C.O.NOS. 2 & 3/IND/2 015 A.YS.2010-11-2011-12 13 13 YOUR HONOUR, INVESTMENT IN FIRM HAS EARNED A TAXABLE INTEREST INCOME OF RS. 1,55,39,200/- @12% P.A. (CALCULATED ON THE BALANCE IN THE CAPITAL ACCOUNT ON DAY TO DAY BASIS) TO THE ASSESSEE COMPANY AND THEREFORE THIS INVESTMENT COULD NOT BE CONSIDERED TO BE FORMING PART OF THE FORMULAE AS PRESCRIBED IN RULE 8D. THEREFORE SINCE AO HAS SATISFIED THAT SECTION 14A(2) IS APPLICATION TO ASSESSEE COMPANY, THE MAXIMUM DISALLOWANCES SHOULD NOT BE MORE THAN RS. 831/- ONLY AS PER CALCULATION GIVEN IN SEPARATE CHART, WHICH WAS ALSO SUBMITTED TO LEARNED AO AND LEARNED CIT(A)-2 ( ENCL. 19). COPY OF THE BALANCE SHEET AND COMPUTATION OF INCOME IS ALSO ENCLOSED FOR VERIFICATION OF DATA. (4 TO 13) PLEASE NOTE THAT THE AMOUNT OF INVESTMENT BY WAY OF CAPITAL IN FIRM ON 31.03.2010 WAS RS. 6,28,05,821/- AND RS. 13,81,00,000/- HAS BEEN ACIT 5(1),INDORE VS. SWASTIK COAL CORPORATION PRIVA TE LIMITED, INDORE- I.T.A.NO. 745 & 746/IND/2014 & C.O.NOS. 2 & 3/IND/2 015 A.YS.2010-11-2011-12 14 14 CONSIDERED UNDER ADVANCES. SINCE BOTH THESE AMOUNT HAS EARNED INTEREST, THIS HAS NOT THE INVESTMENT THE INCOME FROM WHICH IS EXEMPT. IT MAY ALSO BROUGHT IN YOUR KNOWLEDGE THAT THERE IS NO COMPULSION TO HAVE ANY CAPITAL IN THE FIRM FOR BECOMING PARTNER AND ALSO FOR SHARING PROFIT. EVEN IF PARTNER HAS NOT INTRODUCED ANY CAPITAL, HE WILL RECEIVE PROFIT FROM THE FIRM. THEREFORE THE ABOVE AMOUNTS HAVE BEEN EXCLUDED FROM THE FORMULA PROVIDED IN RULE 8D. DURING THE YEAR BY FOLLOWING THE DECISION OF THE INDORE BENCH OF ITAT , IN CASE OF APPELLANT ITSELF, WHICH IS CONFIRMED BY THE JURISDICTIONAL HIGH COURT , IF THE PROPORTIONATE AMOUNT HAS BEEN CALCULATED, A MAXIMUM DISALLOWANCE COME TO RS. 1,19,532/- (RS. 2,20,245/1,58,39,200 * 85,96,306) . HOWEVER YOUR HONOUR WE WOULD LIKE TO HUMBLY SUBMIT THAT EVEN THIS DISALLOWANCE HAS BEEN BASED ON THE CALCULATION UNDER RULE 8D AND ACCORDING TO ACIT 5(1),INDORE VS. SWASTIK COAL CORPORATION PRIVA TE LIMITED, INDORE- I.T.A.NO. 745 & 746/IND/2014 & C.O.NOS. 2 & 3/IND/2 015 A.YS.2010-11-2011-12 15 15 OUR SUBMISSION (ENCL. 19) THE DISALLOWANCE AS PER RULE 8D COME TO RS. 831/- ONLY AND THEREFORE THE DISALLOWANCE BY FOLLOWING THE ABOVE DECISION SHOULD BE ONLY RS.12/- ONLY (RS. 2,20,245/1,58,39,200 * 831) NOW COMING TO THE OBJECTION OF ASSESSEE ON ADHOC ADDITION BY LEARNED AO OF RS. 2,00,000 AND RS. 50,000/-, WHICH IS RESTRICTED TO RS. 50,000/- AND RS. 10,000/- BY LEARNED CIT(A)-2, WE WOULD LIKE TO HUMBLY SUBMIT THAT THERE WERE NOT A SINGLE VOUCHER BEING POINTED OUT BY THE LEARNED AO WHICH IS MISSING, THE BOOKS OF ACCOUNTS WERE DULY AUDITED, AND THEREFORE IT IS MOST HUMBLY REQUESTED TO KINDLY DELETE THE AD HOC ADDITION OF RS. 50,000 AND RS. 10,000/- RESPECTIVELY. ASSESSEE RELIED ON THE FOLLOWING DECISIONS OF HONBLE INDORE BENCH:- 1. NAIDUNIA NEWS AND NETWORK PVT. LTD. VS. ACIT 17 ITJ 289. ACIT 5(1),INDORE VS. SWASTIK COAL CORPORATION PRIVA TE LIMITED, INDORE- I.T.A.NO. 745 & 746/IND/2014 & C.O.NOS. 2 & 3/IND/2 015 A.YS.2010-11-2011-12 16 16 2. RAJAT TRADECOM INDIA PVT. LTD. VS. DCIT 12 ITJ 589. 7. WE HAVE HEARD THE RIVAL CONTENTIONS OF BOTH THE PARTIES. WE HAVE ALSO GONE THROUGH THE ASSESSMENT ORDER AND THE WRITTEN SUBMISSIONS FILED BY THE ASSESSEE. IT IS OBSERVED THAT THE IDENTICAL ISSUE OF DISALLOWANCE U/S 14A R.W. RULE 8D HAS BEEN DECIDED BY THE THEN CIT(A) IN THE ASSESSEE'S OWN CASE FOR THE A.Y. 2009- 10 WHEREIN THE CIT (A), AFTER DETAILED DISCUSSION HAS HELD THAT DISALLOWANCES U/S 14A IN THIS CASE WAS REQUIRED TO BE MADE IN THE RATIO OF EXEMPT INCOME TO TAXABLE INCOME. IT HAS BEEN BROUGHT TO OUR NOTICE BY THE ASSESSEE THAT HON'BLE ITAT, INDORE BENCH HAS DULY APPROVED THE DECISION OF THE THEN CIT(A). FURTHER, IT HAS ALSO BEEN BROUGHT OUT THAT THE APPEAL PREFERRED BY THE DEPARTMENT AGAINST THE ORDER OF HON'BLE ITAT, INDORE ACIT 5(1),INDORE VS. SWASTIK COAL CORPORATION PRIVA TE LIMITED, INDORE- I.T.A.NO. 745 & 746/IND/2014 & C.O.NOS. 2 & 3/IND/2 015 A.YS.2010-11-2011-12 17 17 BENCH IN THE M.P. HIGH COURT HAS BEEN DISMISSED. THE ASSESSEE HAS FILED COPIES OF ORDER OF ITAT AND HON'BLE M.P. HIGH COURT. AFTER CONSIDERING THE ORDERS OF THE THEN LD. CIT(A), I.T.A.T., INDORE BENCH AND M.P. HIGH COURT, WE UPHOLD THE ACTION OF THE LD. CIT(A) IN DIRECTING THE AO TO FOLLOW THE RATIO LAID DOWN BY HIM IN THE APPEAL ORDER DATED 16.07.2012, THE RELEVANT PART OF WHICH IS REPRODUCED AS UNDER:- '4.1.5 THUS ON CONSIDERATION OF OVERALL FACTS AND CIRCUMSTANCES OF THE CASE AND THE RELEVANT PROVISIONS OF LAW AND FOLLOWING THE DECISION OF HON'BLE SPECIAL BENCH (SUPRA) IT HAS TO BE NECESSARILY HELD THAT ONCE THE APPELLANT HAS EARNED SUBSTANTIAL TAXABLE INCOME FROM INVESTMENT IN PARTNERSHIP FIRM AND THE EXEMPT ACIT 5(1),INDORE VS. SWASTIK COAL CORPORATION PRIVA TE LIMITED, INDORE- I.T.A.NO. 745 & 746/IND/2014 & C.O.NOS. 2 & 3/IND/2 015 A.YS.2010-11-2011-12 18 18 INCOME EARNED BEING MERELY 3% OF THE SUBSTANTIAL TAXABLE INCOME EARNED BY THE APPELLANT AT RS. 52.84 LACS, THE DISALLOWANCE HAS TO BE MADE IN THE RATIO OF EXEMPT/TAXABLE INCOME WHICH COMES TO 1:30.85 AND ACCORDINGLY, DISALLOWANCE MADE UNDER RULE 8D HAS TO BE PROPORTIONATELY REDUCED TO RS. 1,81,046/- OR SAY RS. 1,81,050/-. THEREFORE, THE DISALLOWANCE MADE AT RS. 57,52,608/- IS HEREBY DIRECTED TO BE REDUCED TO RS. 1,81,050/- AND APPELLANT SHALL GET CONSEQUENTIAL RELIEF.' 8. WE UPHOLD THE ACTION OF THE LD. CIT(A) IN RESTRICTING THE ADDITION TO THE RATIO OF EXEMPT INCOME TO TAXABLE INCOME. THE LD. DR COULD NOT BRING ANYTHING CONTRARY TO THE FINDING OF THE LD. CIT(A). GROUNDS NO. 1 & 2 OF THE REVENUE FAILS. ACIT 5(1),INDORE VS. SWASTIK COAL CORPORATION PRIVA TE LIMITED, INDORE- I.T.A.NO. 745 & 746/IND/2014 & C.O.NOS. 2 & 3/IND/2 015 A.YS.2010-11-2011-12 19 19 GROUND NO. 3 : 9. THE BRIEF FACTS OF THE CASE ARE THAT THE LD.AO HAS OBSERVED THAT THE ASSESSEE HAS INCURRED EXPENSES OF RS. 16,42,333/- UNDER THE HEAD OFFICE GENERAL EXPENSES. ON VERIFICATION OF THESE EXPENSES ON TEST BASIS, IT WA S FOUND BY HIM THAT BILLS AND VOUCHER FOR SUPPORTING OF SOME O F THE EXPENSES WERE MISSING. THE AO FURTHER OBSERVED THAT THERE WERE ALSO INSTANCES OF CASH PAYMENTS TO THE PARTIES . THE AO DISALLOWED RS. 2,00,000/- ON LUMP SUM BASIS OUT OF OFFICE AND GENERAL EXPENSES. HENCE, RS. 2,00,000/-. 10. THE MATTER CARRIED TO THE LD. CIT(A) AND THE LD. CIT(A)PARTLY ALLOWED THIS GROUND BY OBSERVING AS U NDER :- 3.1 I HAVE GONE THROUGH THE ASSESSMENT ORDER AND RELEVANT PARA-2 OF THE ASSESSMENT ORDER WHEREIN THE ISSUE HAS BEEN DISCUSSED BY THE AO. IT IS OBSERVED THAT THE AO HAS NOT AT ALL GIVEN ANY REASONS FOR MAKING THE AD HOC DISALLOWANCE OF RS. 2 LACS. THE ONLY ACIT 5(1),INDORE VS. SWASTIK COAL CORPORATION PRIVA TE LIMITED, INDORE- I.T.A.NO. 745 & 746/IND/2014 & C.O.NOS. 2 & 3/IND/2 015 A.YS.2010-11-2011-12 20 20 REASON BROUGHT OUT BY THE AO ARE THAT THE BILLS AND VOUCHERS OF EXPENSES WERE MISSING AND THERE WERE INSTANCES OF CASH PAYMENTS. BUT THE AO HAS FAILED TO BRING OUT ANY INSTANCES OF MISSING VOUCHERS AND CASH PAYMENTS MADE BY THE APPELLANT. AFTER CONSIDERING THE SUBMISSIONS OF THE APPELLANT AND THE SUPPORTING EVIDENCES FILED, IT SHALL BE REASONABLE TO RESTRICT THE ADDITION AT RS. 50, 000/- TO COVER ANY INFIRMITY IN MANNER OF MAINTAINING THE BILLS AND VOUCHERS. THE APPELLANT GETS RELIEF OF RS. 1.5 LACS. THIS GROUND OF APPEAL IS PARTLY ALLOWED. 11. THE LD. DR RELIED UPON THE ORDER OF THE AO. 12. THE LD. AUTHORIZED REPRESENTATIVE SUBMITTED THE WRITTEN SUBMISSION BEFORE THE CIT(A) WHICH READS A S UNDER :- 3. 'THAT THE LEARNED A.O. HAS ERRED IN ACIT 5(1),INDORE VS. SWASTIK COAL CORPORATION PRIVA TE LIMITED, INDORE- I.T.A.NO. 745 & 746/IND/2014 & C.O.NOS. 2 & 3/IND/2 015 A.YS.2010-11-2011-12 21 21 DISALLOWING AN AMOUNT OF RS. 2,00,000/- ON AD HOC BASIS OUT OF THE AMOUNT OF RS. 16,42,333/- OFFICE AND GENERAL EXPENSES, BEING ON ACCOUNT OF CERTAIN MISSING BILLS AND VOUCHERS, WHICH IS UNJUST, ILLEGAL AND AGAINST THE FACTS AND CIRCUMSTANCES OF CASES. 3.1 THE LEARNED A. O. HAS DISALLOWED THE EXPENSES UNDER HEAD OFFICE AND GENERAL EXPENSES ON LUMSUM BASIS OF RS. 2,00,000/- UPON THE REASON THAT ON VERIFICATION ON TEST BASIS, IT WAS FOUND THAT BILLS AND VOUCHER FOR SUPPORTING OF SOME OF THE EXPENSES WERE MISSING. 3.2 YOUR HONOUR THE SUB-SCHEDULE OF OFFICE & GENERAL EXPENSES OF RS. 16,42,334/- INCLUDES 9 EXPENSES ACCOUNTS OF DIFFERENT NATURE .ALL THESE EXPENSE ARE FULLY VOUCHED MAJOR EXPENSES IN THIS LIST IS SECURITY EXPENSES RS. 8,00,309/ - PAID TO SECURITY AGENCY BY CHEQUE AFTER DEDUCTING INCOME TAX ON SUCH PAYMENT, DIWALI EXPENSES RS. ACIT 5(1),INDORE VS. SWASTIK COAL CORPORATION PRIVA TE LIMITED, INDORE- I.T.A.NO. 745 & 746/IND/2014 & C.O.NOS. 2 & 3/IND/2 015 A.YS.2010-11-2011-12 22 22 1,42,605/-, STATIONERY & PRINTING RS. 3,00,650/- POSTAGE AND COURIER EXPENSES RS. 1,92,178/- HAVING COMPLETE BILLS & VOUCHERS AND ALL OTHER EXPENSES ARE FULLY VOUCHED. THE ACCOUNTS OF THE APPELLANT BEING PVT. LTD. COMPANY WERE DULY AUDITED AND THERE IS NO ADVERSE OBSERVATION IN THE AUDIT REPORT. 3.3 SIR, IN THIS LIST THERE IS ONE ITEM I.E. OFFICE & GENERAL EXPENSES RS. 1,38.299/ - CONSISTING OF PETTY ITEMS AND THAT VERY PETTY EXPENSES MAY BE MADE WITHOUT EXTERNAL SUPPORTING BILLS BUT DULY AUTHORIZED ON BEHALF OF COMPANY. WE ARE SUBMITTING COPIES OF LEDGER ACCOUNTS OF THESE EXPENSES. FURTHER THERE WAS NO SPECIFIC MISTAKE IN ANY OF THE VOUCHERS UNDER ANY OF THE HEAD HAS BEEN POINTED OUT BY THE LEARNED AO. 3.4 THEREFORE IT IS MOST HUMBLY REQUESTED TO KINDLY DELETE THE ADDITION SO MADE ON THE AD HOC DISALLOWANCE OF RS.2,00,000/-, WHICH IS WITHOUT ACIT 5(1),INDORE VS. SWASTIK COAL CORPORATION PRIVA TE LIMITED, INDORE- I.T.A.NO. 745 & 746/IND/2014 & C.O.NOS. 2 & 3/IND/2 015 A.YS.2010-11-2011-12 23 23 CONSIDERING THE FACTS AND WITHOUT POINTING OUT ANY SPECIFIC MISTAKE. 13. WE HAVE HEARD THE RIVAL CONTENTIONS OF BOTH THE PARTIES. WE HAVE GONE THROUGH THE ORDERS OF THE AU THORITIES BELOW AND ALSO WRITTEN SUBMISSION. WE FOUND THAT T HE AO HAS FAILED TO BRING OUT ANY INSTANCES OF MISSING VOUCHE RS AND THE CASH PAYMENTS MADE BY THE ASSESSEE. THE LD. DR COUL D NOT BRING ANYTHING CONTRARY TO THE FINDING OF THE LD. C IT(A). HENCE, WE UPHOLD THE ACTION OF THE LD. CIT(A) IN RESTRICTI NG THE ADDITION TO RS. 50,000/-. GROUND NO. 3 OF THE REVEN UE FAILS. GROUND NO. 4: 14. THE FACTS OF THE CASE ARE THAT THE AO OBSERVED DURI NG THE COURSE OF VERIFICATION THAT THE ASSESSEE COMPAN Y HAS INCURRED EXPENSES OF RS. 9,14,817/- UNDER THE HEAD REPAIRS AND MAINTENANCE. ON VERIFICATION OF THESE EXPENSES ON TEST BASIS, THE AO FOUND THAT THE BILLS AND VOUCHER FOR SUPPORTING OF SOME OF THE EXPENSES WERE MISSING. THE AO DISALL OWED RS. 50,000/- ON LUMP SUM BASIS OUT OF REPAIR AND MAINTE NANCE. ACIT 5(1),INDORE VS. SWASTIK COAL CORPORATION PRIVA TE LIMITED, INDORE- I.T.A.NO. 745 & 746/IND/2014 & C.O.NOS. 2 & 3/IND/2 015 A.YS.2010-11-2011-12 24 24 15. THE MATTER CARRIED TO THE LD. CIT(A) AND THE LD. C IT(A) DELETED THIS APPEAL BY OBSERVING AS UNDER :- 4.1 I HAVE GONE THROUGH THE RELEVANT PARA-3 OF THE ASSESSMENT ORDER WHEREIN THE AO HAS DISCUSSED THE ADDITION. THE ONLY REASON GIVEN BY THE AO FOR THIS DISALLOWANCE IS THE MISSING VOUCHERS AND BILLS. BUT THE AO HAS NOT BROUGHT OUT ANY INSTANCES OF ANY MISSING SUPPORTING VOUCHERS. WHEREAS THE APPELLANT DURING THE COURSE OF APPEAL PROCEEDINGS HAS CONTENDED THAT THE BILLS AND VOUCHERS WERE PROPERLY MAINTAINED. AFTER CONSIDERING THE FACTS AND CIRCUMSTANCES OF THE CASE, IT SHALL BE REASONABLE TO RESTRICT THE ADDITION AT RS. 10,000/ - TO COVER THE INFIRMITY IN THE MAINTENANCE OF VOUCHERS AND BILLS. THE APPELLANT GETS RELIEF OF RS. 40,000/- . THIS GROUND OF APPEAL IS PARTLY ALLOWED. 16. THE LD. DR RELIED UPON THE ORDER OF THE AO. ACIT 5(1),INDORE VS. SWASTIK COAL CORPORATION PRIVA TE LIMITED, INDORE- I.T.A.NO. 745 & 746/IND/2014 & C.O.NOS. 2 & 3/IND/2 015 A.YS.2010-11-2011-12 25 25 17. THE LD. AUTHORIZED REPRESENTATIVE SUBMITTED BEFORE THE CIT(A) AS UNDER :- 4.'THAT THE LEARNED A.O. HAS ERRED IN DISALLOWING AN AMOUNT OF RS. 50,000/- ON AD HOC BASIS OUT OF THE TOTAL AMOUNT OF RS. 9,14,817/- REPAIRS & MAINTENANCE, BEING ON ACCOUNT OF CERTAIN MISSING BILLS AND VOUCHERS, WHICH IS UNJUST, ILLEGAL AND AGAINST THE FACTS AND CIRCUMSTANCES OF CASES. THE LEARNED A. 0. HAS DISALLOWED THE EXPENSES UNDER HEAD REPAIR AND MAINTENANCE EXPENSES ON LUMSUM BASIS OF RS. 50,000/- MENTIONING THE REASON THAT ON VERIFICATION ON TEST BASIS, IT WAS FOUND THAT BILLS AND VOUCHER FOR SUPPORTING OF SOME OF THE EXPENSES WERE MISSING. YOUR HONOUR THE SUB-SCHEDULE OF REPAIR AND MAINTENANCE EXPENSES OF RS. 9,14,817/- INCLUDES 6 EXPENSES ACCOUNTS OF DIFFERENT NATURE. THE REPAIR AND MAINTENANCE EXPENSES WAS OF RS. 4,26,495/- ONLY. THE MAJOR EXPENSES UNDER THIS PARTICULAR HEAD WAS BECAUSE O F WATER SEEPAGE IN THE OFFICE DURING RAINS AND ASSESSEE COMPANY HAS TO GET THE WATER PROOFING DONE AND GET TO REPAIR ITS FURNITURE WHICH WAS DAMAGED DUE TO SUCH WATER SEEPAGE DURING RAINS. COPY OF LEDGER ACCOUNT IS ACIT 5(1),INDORE VS. SWASTIK COAL CORPORATION PRIVA TE LIMITED, INDORE- I.T.A.NO. 745 & 746/IND/2014 & C.O.NOS. 2 & 3/IND/2 015 A.YS.2010-11-2011-12 26 26 ENCLOSED. OTHER EXPENSES WERE ALSO FULLY VOUCHED AND IT HAS BEEN VERY MUCH CLARIFIED BY THE NARRATION MENTION AGAINST EACH OF THE ENTRY THAT THE EXPENSE WAS SUPPORTED BY THE DOCUMENTARY EVIDENCE. THE TDS HAS ALSO BEEN DEDUCTED WHEREVER IT WAS STATUTORILY REQUIRED TO DO. THE ACCOUNTS OF THE APPELLANT BEING PVT. LTD. COMPANY WERE DULY AUDITED AND THERE IS NO ADVERSE OBSERVATION IN THE AUDIT REPORT. FURTHER THERE WAS NO SPECIFIC MISTAKE IN ANY OF THE VOUCHERS UNDER ANY OF THE HEAD HAS BEEN POINTED OUT BY THE LEARNED AO. THEREFORE IT IS MOST HUMBLY REQUESTED TO KINDLY DELETE THE ADDITION SO MADE ON THE ADHOC DISALLOWANCE OF RS. 50,000/ -, WHICH IS WITHOUT CONSIDERING THE FACTS AND WITHOUT POINTING OUT ANY SPECIFIC MISTAKE. ' 18. WE HAVE HEARD THE RIVAL CONTENTIONS OF BOTH THE PARTIES. WE FOUND THAT THE REASON GIVEN BY THE ASS ESSING OFFICER FOR THIS DISALLOWANCE WAS THE MISSING VOUCH ERS AND BILLS. THE AO HAS NOT BROUGHT OUT ANY INSTANCES OF ANY MISSING SUPPORTING VOUCHERS. THE LD. DR COULD BRING ANYTHING CONTRARY TO THE FINDING OF THE LD. CIT(A). WE UPHOL D THE ACTION ACIT 5(1),INDORE VS. SWASTIK COAL CORPORATION PRIVA TE LIMITED, INDORE- I.T.A.NO. 745 & 746/IND/2014 & C.O.NOS. 2 & 3/IND/2 015 A.YS.2010-11-2011-12 27 27 OF THE LD. CIT(A) IN RESTRICTING THE ADDITION OF RS . 10,000/-. GROUND NO. 4 OF THE REVENUE IS DISMISSED. I.T.A.NO. 746/IND/2014 (DEPARTMENTS APPEAL): A.Y. 2010-11 : 19. IN THIS APPEAL, THE FOLLOWING GROUNDS HAVE BEEN TA KEN BY THE REVENUE :- ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE CIT(A) HAS ERRED IN :- 1. RESTRICTING THE DISALLOWANCE RIGHTLY MADE U/S 14A O F THE ACT FROM RS. 31,98,441/- TO RS. 1,00,663/- WHILE ASSESSEE HAS MADE INVESTMENT OF INTEREST BEARING FUNDS IN THE PARTNERSHIP FIRM, PROFIT OF WHICH WAS EXEMPT. 2. RESTRICTING THE DISALLOWANCE U/S 14A OF THE ACT FRO M RS. 31,98,441/- TO RS. 1,00,663/- BY APPLYING THE RATIO OF 1:30:85 FOR EXEMPT INCOME AND TAXABLE INCOME. WHEREAS PROVISION OF SECTION 14A R.W.R. 8D DOES NOT SPEAK ABOUT RATIO BETWEEN EXEMPT INCOME AND TAXABLE INCOME. 20. BOTH THE ABOVE GROUNDS ARE COMMON GROUNDS AS TAKEN BY THE REVENUE IN I.T.A.NO. 745/IND/2015. IN VIEW OF ACIT 5(1),INDORE VS. SWASTIK COAL CORPORATION PRIVA TE LIMITED, INDORE- I.T.A.NO. 745 & 746/IND/2014 & C.O.NOS. 2 & 3/IND/2 015 A.YS.2010-11-2011-12 28 28 THE FOREGOING DISCUSSIONS HELD FOR GROUND NOS. 1 & 2 , WE UPHOLD THE ACTION OF THE LD. CIT(A) AND DISMISS BOT H THE GROUNDS OF REVENUE. C.O.NO.2 & 3/IND/2015 : 21. SINCE WE HAVE DISMISSED THE REVENUES APPEALS, THE CROSS OBJECTIONS FILED BY THE ASSESSEE HAVE BECOME INFRUCTUOUS AND HENCE THE SAME ARE DISMISSED. 22. IN THE RESULT, BOTH THE APPEALS OF THE REVENUE AS W ELL AS CROSS OBJECTIONS ARE DISMISSED. THIS ORDER HAS BEEN PRONOUNCED IN THE OPEN COURT ON 1 ST MARCH, 2016. SD/- (B.C.MEENA) ACCOUNTANT MEMBER SD/- ( D.T.GARASIA) JUDICIAL MEMBER DATED : 1 ST MARCH, 2016. CPU* 1.3