M/S. TEXMO PIPES AND PRODUCTS LTD., Burhanpur V. The JCIT R-, Khandwa

ITA 751/IND/2014

• Counselvise Citation: [2016] 133 COUNSELVISE.COM (IT) 5741 (ITAT-INDORE)
• Duration Of Justice: 1 year(s) 3 month(s) 3 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 01-03-2016
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: DB
• Next Hearing Date: 01-03-2016
• Assessment Year: 2010-2011
• Appeal Filed On: 28-11-2014
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: R A VERMA
• Assessee Lawyers: S S DESHPANDE
• Keywords: Depreciation; Earning of tax free income
• Section: 14A

Judgement Text

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.NO.751/IND/2014 A.Y. : 2010-11. M/S.TEXMO PIPES AND PRODUCTS LIMITED, JCIT, RANGE - KHANDWA BURHANPUR VS APPELLANT RESPONDENT PAN NO. AACCT9780D APPELLANT BY : SHRI S. S. DESHPANDE, CA RESPONDENT BY : SHRI R. A. VERMA, DR O R D E R PER D.T.GARASIA, J.M. THIS APPEAL BY THE ASSESSEE IS DIRECTED AGAINST THE ORDER OF CIT(A)-II, INDORE, DATED 28.08.2014 FOR THE ASS ESSMENT YEAR 2010-11. DATE OF HEARING : 01 .0 3 .2016 DATE OF PRONOUNCEMENT : 01 .0 3 .2016 M/S.TEXMO PIPES AND PRODUCTS LIMITED, BURHANPUR, VS . JCIT RANGE, KHANDWA - I.T.A.NO. 751/IND/2014 - A.Y. 2010-11 2 2 2. FOLLOWING GROUNDS HAVE BEEN TAKEN BY THE ASSESSEE : - 1. THE LD. CIT(A) HAS ERRED IN MAINTAINING THE ADDITIO N OF RS. 54,21,090/- ON ACCOUNT OF THE CLAIM U/S 35D. 1.1 IT WAS PROVED BEFORE THE LD. CIT(A) THAT THE SH ARE PREMIUM IS REQUIRED TO BE CONSIDERED AS A CAPITAL I N VIEW OF THE PROVISIONS OF COMPANY LAW AND AS SUCH THE DEDUCTION CLAIMED SHOULD HAVE BEEN ALLOWED AS CLAIMED. 3. BOTH THESE GROUNDS RELATE TO DISALLOWANCE OF DEDUCT ION U/S 35D OF THE INCOME-TAX ACT, 1961, AMOUNTING TO R S. 54,21,090/-. THE ASSESSEE CLAIMED DEDUCTION U/S 35D AT RS. 54,21,090/- , WHICH IS ENCASHED ALONGWITH THE AUDIT REPORT. THE ACTUAL EXPENDITURE INCURRED FOR PUBLIC ISSUE UP TO MAXIMUM WHICH READS AS UNDER :- (I) ACTUAL EXPENDITURE FOR PUBLIC ISSUE(A) 6,26,86,972/ - (II) MAXIMUM ALLOWABLE EXPENDITURE 5% OF CAPITAL EMPLOYED (B) RS. 59,21,08,959X5% 2,96,05,447/- 2,96,05,447/- DEDUCTION ALLOWABLE U/S 35D WILL BE 1/5 TH OF THE ELIGIBLE AMOUNT OF CALCULATED IN (II) ABOVE 1/5 TH X 2,96,05,447 = 59,21,089/- M/S.TEXMO PIPES AND PRODUCTS LIMITED, BURHANPUR, VS . JCIT RANGE, KHANDWA - I.T.A.NO. 751/IND/2014 - A.Y. 2010-11 3 3 WORKING (A) EXPENDITURE FOR PUBLIC ISSUE 6,26,86,972/- (B) CAPITAL EMPLOYED (I) ISSUED SHARE CAPITAL 53,43,00,000/- (11,27,00,000 + 42,16,00,000) (II) LONG TERM BORROWINGS (TERM LOAN) 5,78,08,959/- 59,21,08,959/- 4. THE AO FOUND THAT THIS COMPANY WAS INCORPORATED ON 3.7.2008 AND COMMENCED BUSINESS IN THE PREVIOUS YEA R 2008- 09 AND FILED THE RETURN OF INCOME FORM FOR THE ASSE SSMENT YEAR 2009-10 AND THE AO HAS VERIFIED THE CLAIM OF THE AS SESSEE AND THE AO FOUND THAT THE ASSESSEE HAS NOT INCURRED THE EXPENDITURE FOR INSTALLATION OF NEW UNIT. THEREFORE , HE DISALLOWED THE CLAIM OF THE ASSESSEE AT RS. 54,21,0 90/-. 5. THE MATTER CARRIED TO THE LD. CIT(A) AND THE LD. C IT(A) HAS DISMISSED THE APPEAL. 6. WE HAVE HEARD THE RIVAL CONTENTIONS OF BOTH THE PARTIES. LOOKING TO THE FACTS AND CIRCUMSTANCES OF THE CASE, WE FIND THAT THE ISSUE IN CONTROVERSY IS COVERED BY THE DECISION OF HON'BLE DELHI HIGH COURT IN THE CASE OF BERGER P AINTS INDIA M/S.TEXMO PIPES AND PRODUCTS LIMITED, BURHANPUR, VS . JCIT RANGE, KHANDWA - I.T.A.NO. 751/IND/2014 - A.Y. 2010-11 4 4 LIMITED VS. CIT, (2006) 154 TAXMAN 293 : 292 ITR 65 8 (DEL), WHEREIN IT IS HELD THAT WHEN THE PREMIUM COLLECTED BY THE ASSESSEE COMPANY ON ITS OWN SUBSCRIBED SHARE CAPITA L IS NOT CAPITAL EMPLOYED IN BUSINESS OF THE COMPANY WITHI N THE MEANING OF SECTION 35D. IN THE INSTANT CASE, THE AS SESSEE HAS COLLECTED THE AMOUNT IN CONNECTION OF EXTENSION OF THE OLD BUSINESS AND WE FOUND THAT IN THIS CASE THE ASSESSE E HAS RECEIVED THE SHARE PREMIUM AND FOR THE OLD BUSINESS . THEREFORE, THE ASSESSEE WAS NOT ENTITLED FOR THE DE DUCTION U/S 35D OF THE INCOME-TAX ACT, 1961. THEREFORE, THE APP EAL IS DISMISSED ON THIS GROUND 7. NEXT GROUND IS AGAINST THE DISALLOWANCE OF DEPRECAT ION AT RS. 7,44,314/-. 8. THE ASSESSEE HAS CLAIMED THE DEPRECIATION ON SWARAJ MAZDA TRUCKS @ 30%. THE AO HAS HELD THAT WHEN THE T RUCK IS USED FOR ASSESSEES OWN BUSINESS, THE DEPRECIATION IS ALLOWABLE ONLY @ 15%. THE ASSESSEE CLAIMED THAT THE ASSESSEE IS PLYING TRUCK FOR THE CUSTOMER ALSO AND HE IS NOT MAINTAINI NG SEPARATE ACCOUNT, BUT HE IS PLYING THE TRUCK ON HIRE ALSO. T HEREFORE, M/S.TEXMO PIPES AND PRODUCTS LIMITED, BURHANPUR, VS . JCIT RANGE, KHANDWA - I.T.A.NO. 751/IND/2014 - A.Y. 2010-11 5 5 30% DEPRECIATION SHOULD BE ALLOWED, BUT THE AO HAS ALLOWED THE DEPRECIATION @ 15% AND OUT OF CLAIM OF RS. 14,8 8,629/-, DEPRECATION OF RS. 7,44,314/- IS DISALLOWED. 9. THE MATTER CARRIED TO THE LD. CIT(A) AND THE LD. CI T(A) HAS CONFIRMED THE SAME. 10. WE HAVE HEARD THE RIVAL CONTENTIONS OF BOTH THE PARTIES. WE FIND THAT DURING THE ASSESSMENT PROCEE DINGS, THE ASSESSEE HAS FURNISHED THE CHART WITH THE REPORT U/ S 44AB, WHICH INDICATES THAT THE ASSESSEE HAS CHARGED DEPRE CIATION ON SWARAJ MAZDA TRUCKS AT THE RATE OF 30%. THE ASSESSE E WAS USING HIS TRUCK IN HIS OWN BUSINESS. THE ASSESSEE H AS TRANSPORTED ITS MANUFACTURED GOODS TO THE DESTINATI ON OF CUSTOMERS AND IN FEW CASES TRANSPORT CHARGES HAVE B EEN CHARGED BY THE ASSESSEE IN BILLS RAISED FOR THE SAL E OF GOODS. THE ASSESSEE HAS NOT MAINTAINED A SEPARATE TRANSPOR T DIVISION FOR PLYING TRUCK. THE ASSESSEE DID NOT CHARGE ANY H IRING CHARGES FROM THE CUSTOMERS TO WHOM THE GOODS WERE S OLD. THE ASSESSEE IN THE ASSESSMENT YEAR 2009-10 WAS ALSO AL LOWED DEPRECIATION @ 15%. IF THE ASSESSEE WANTED HIGHER M/S.TEXMO PIPES AND PRODUCTS LIMITED, BURHANPUR, VS . JCIT RANGE, KHANDWA - I.T.A.NO. 751/IND/2014 - A.Y. 2010-11 6 6 DEPRECIATION, THE TRUCK SHOULD HAVE BEEN USED FOR TRANSPORTATION OF PUBLIC. THE ASSESSEE IS PLYING TH E TRUCKS ONLY FOR HIS BUSINESS. THEREFORE, WE ARE OF THE VIEW THA T THE AO AND THE LD. CIT(A) ARE JUSTIFIED IN THEIR ACTION AND OU R INTERFERENCE IS NOT REQUIRED. HENCE, WE DISMISS THE APPEAL ON TH IS GROUND. 11. THIRD GROUND RELATES TO SUSTAINING THE DISALLOWANCE OF RS. 3,55,467/- U/S 14A. IT WAS PROVED BEFORE THE LO WER AUTHORITIES THAT NO EXPENSES WERE INCURRED FOR EARN ING THE DIVIDENDS AND AS SUCH THE DISALLOWANCE IS UNCALLED FOR. 12. THE ASSESSEE COMPANY IS IN BUSINESS OF PIPE MANUFACTURING ON LARGE SCALE. THE ASSESSEE COMPANY IN HIS SCHEDULE 15 OF PROFIT AND LOSS ACCOUNT MEANT FOR OT HER INCOME I.E. DIVIDEND AGAINST INVESTMENT IN MUTUAL FUND OF RS. 2,75,670.94 HAS BEEN RECEIVED BY THE ASSESSEE ON NO N-TRADE INVESTMENT MADE IN PREVIOUS YEAR. THE ASSESSEE WAS GIVEN SHOW CAUSE NOTICE. THE ASSESSEE HAS TAKEN THE CONTE NTION THAT THE ASSESSEE HAS RECEIVED THE DIVIDEND INCOME DERIV ED FROM MUTUAL FUND IS EXEMPT U/S 10(38) . THUS, THE INVEST MENT IN MUTUAL FUND IS AN INVESTMENT NOT FORMING PART OF TO TAL INCOME. M/S.TEXMO PIPES AND PRODUCTS LIMITED, BURHANPUR, VS . JCIT RANGE, KHANDWA - I.T.A.NO. 751/IND/2014 - A.Y. 2010-11 7 7 THEREFORE, SECTION 14A IS NOT APPLICABLE, BUT THE A O HAS EXAMINED THE RETURN OF THE ASSESSEE AND PROFIT AND LOSS ACCOUNT AND HELD THAT A SUM OF RS. 14,21,86,618/- O UT OF SHARE CAPITAL INCLUDING PREMIUM HAS BEEN UTILIZED I N MAKING THE INVESTMENT IN MUTUAL FUND. PROVISIONS OF SECTIO N 14A ARE APPLICABLE AND HE HAS WORKED OUT AND HELD THAT THE ASSESSEE HAS INCURRED RS. 3,55,467/- FOR EARNING THIS INCOME . THEREFORE IT WAS DISALLOWED U/S 14A. 13. THE MATTER CARRIED TO THE LD. CIT(A) AND THE LD. C IT(A) HAS DISMISSED THIS GROUND. 14. WE HAVE HEARD THE RIVAL CONTENTIONS OF BOTH THE PARTIES. LOOKING TO THE FACTS AND CIRCUMSTANCES OF THE CASE, WE FIND THAT AS PER SECTION 14A OF THE ACT AND AS P ER RULE 8DD OF INCOME TAX RULES, RULE 8DD PROVIDES THE MANN ER IN WHICH THE AMOUNT OF DETERMINING THE EXPENDITURE IN RELATION TO THE INCOME NOT INCLUDED IN THE TOTAL INCOME, WHE REIN THE RULE 8DD PROVIDES THAT IF THE AO IS NOT SATISFIED W ITH THE ACCOUNTS OF THE ASSESSEE, THEN THE AO SHOULD SATISF Y HIMSELF AND THEREAFTER THE ASSESSEE SHOULD GIVE THE EXACT C LAIM OF M/S.TEXMO PIPES AND PRODUCTS LIMITED, BURHANPUR, VS . JCIT RANGE, KHANDWA - I.T.A.NO. 751/IND/2014 - A.Y. 2010-11 8 8 CALCULATION TO THE AO AND THEREAFTER THE AO SHOULD VERIFY THE CLAIM OF THE ASSESSEE. IN THE INSTANT CASE, THE ASS ESSEE HAS NOT GIVEN ANY WORKING OF THE CLAIM THAT THE ASSESSEE AH S NOT INCURRED ANY EXPENDITURE OR EARNED THE DIVIDEND INC OME FROM MUTUAL FUND AND CAPITAL GAIN. THEREFORE, THE MATTER IS RESTORED BACK TO THE FILE OF AO AND ASSESSEE SHOULD GIVE THE TOTAL WORKING OF THE EXEMPT INCOME AS PER SECTION 14A REA D WITH RULE 8DD AND THE AO SHOULD VERIFY THE CLAIM OF THE ASSESSEE AND IF HE IS NOT SATISFIED WITH THE CLAIM OF THE AS SESSEE, THEN HE IS AT LIBERTY TO CALCULATE THE EXPENDITURE INCUR RED BY THE ASSESSEE IN RELATION TO THE INCOME, WHICH DOES NOT FORM OF TOTAL INCOME U/S 14A. 15. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS ALLOWE D FOR STATISTICAL PURPOSES. 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 M/S.TEXMO PIPES AND PRODUCTS LIMITED, BURHANPUR, VS . JCIT RANGE, KHANDWA - I.T.A.NO. 751/IND/2014 - A.Y. 2010-11 9 9 DATED : 1 ST MARCH, 2016. CPU 3.3