SHRADDHA SYNTHIETICS P; LTD, MUMBAI V. ITO WD 8(3)-1, MUMBAI

ITA 7950/MUM/2010

• Counselvise Citation: 795019914 RSA 2010
• Duration Of Justice: 2 year(s) 11 month(s) 24 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 12-11-2013
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: E
• Next Hearing Date: 12-11-2013
• Assessment Year: 2006-2007
• Appeal Filed On: 18-11-2010
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: ASHOK SURI
• Assessee Lawyers: MAHESH SABOO
• Keywords: Earning of tax free income
• Section: 14A

Judgement Text

, IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCHES E MUMBAI . . , / BEFORE SHRI I.P. BANSAL, JUDICIAL MEMBER /AND . , SHRI D.KARUNAKARA RAO, ACCOUNTANT MEMBER . / ITA NO.7950/MUM/2010 ! ! ! ! / ASSESSMENT YEAR 2006-07 SHRADDHA SYNTHETICS PRIVATE LIMITED, 17/AB/120, SAMHITA COMPLEX, ANDHERI KURLA ROAD, OFF SAKI NAKA ROAD, MUMBAI 400 072 / VS. THE INCOME TAX OFFICER, WARD 8(3)(1) AAYKAR BHAVAN, MK ROAD, MUMBAI 400020 # ./ $% ./ PAN/GIR NO. : AACCS 1513M ( #& / APPELLANT ) .. ( '(#& / RESPONDENT ) #& ) / APPELLANT BY: SHRI MAHESH SABOO '(#& * ) / RESPONDENT BY : SHRI ASHOK SURI * + / DATE OF HEARING : 12/11/2013 ,-! * + / DATE OF PRONOUNCEMENT : 12/11/2013 . / O R D E R PER I.P.BANSAL, J.M: THIS IS AN APPEAL FILED BY THE ASSESSEE. IT IS DI RECTED AGAINST THE ORDER PASSED BY LD. CIT(A)-18, MUMBAI DATED 18/10/2010 FOR ASSE SSMENT YEAR 2006-07. GROUNDS OF APPEAL READ AS UNDER: 1. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW THE AUTHORITIES BELOW, HAVE ERRED IN ADDING/SUSTAINING A SUM OF RS.91,149/ - U/S. 14A OF THE INCOME TAX ACT, 1961 WHICH IS NOT IN ACCORDANCE WITH THE P ROVISIONS OF INCOME TAX ACT AND RULES MADE THEREUNDER AND THUS APPELLANT PRAYS THAT SUCH ADDITION BE DELETED FULLY. . / ITA NO.7950/MUM/2010 ! ! ! ! / ASSESSMENT YEAR 2006-07 2 2. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW THE AUTHORITIES BELOW HAVE FURTHER ERRED /CONFIRMING THE DISALLOWANCE OF A SUM OF RS. 68,888/- BEING 10% OF THE TOTAL FREIGHT AND FORWARDING EXPENSES ON ADHOC BASIS. 2. APROPOS GROUND NO.1, DURING THE COURSE OF ASSESS MENT PROCEEDINGS IT WAS NOTICED BY THE AO THAT ASSESSEE HAS EARNED EXEMPT I NCOME OF RS.2,11,418/- AND LONG TERM CAPITAL GAIN OF RS. 1,83,011/-. HE, THER EFORE, REQUIRED THE ASSESSEE TO SHOW CAUSE AS TO WHY DISALLOWANCE UNDER SECTION 14 A OF THE INCOME TAX ACT, 1961(THE ACT) SHOULD NOT BE MADE. IT WAS PLEADED T HAT NO DISALLOWANCE UNDER SECTION 14A IS REQUIRED AS NET OWN FUNDS OF THE COM PANY ARE RS.50.71 LACS AS ON 31/3/2006. THE INVESTMENT MADE BY THE COMPANY IS O UT OF ITS OWN FUNDS. AS THE ASSESSEE IS NOT PAYING ANY INTEREST ON THIS FUND DI SALLOWANCE UNDER SECTION 14A IS NOT CALLED FOR. HOWEVER, AO CALCULATED THE DISALLO WANCE OF RS. 91,149/- AS PER RULE 8D. AN APPEAL WAS FILED BEFORE LD. CIT(A). I T WAS PLEADED BEFORE LD. CIT(A) THAT THE DISALLOWANCE HAS WRONGLY BEEN MADE. REFERENCE WAS MADE TO THE DECISION OF HONBLE BOMBAY HIGH COURT IN THE CASE OF GODREJ & BOYCE MFG.CO.LTD. MUMBAI. VS. DCIT, 328 ITR 81 (BOM) AND PLEADED THAT DISALLOWAN CE SHOULD NOT BE MADE WITH REFERENCE TO RULE 8D AS THE IMPUGNED ASSESSMENT YEA R IS 2006-07. LD. CIT(A) HAS ACCEPTED SUCH SUBMISSION OF THE ASSESSEE AND HE H AS HELD THAT AO IS REQUIRED TO COMPUTE DISALLOWANCE UNDER SECTION 14A ON REASONAB LE ESTIMATE BASIS AND HE DIRECTED THE AO TO TAKE ACTION AS PER AFOREMENTION ED DECISION OF HONBLE BOMBAY HIGH COURT. 3. AFTER NARRATING THE FACTS, IT WAS SUBMITTED BY LD. AR THAT NO DISALLOWANCE WHATSOEVER IS CALLED FOR ON ACCOUNT OF INTEREST AS ASSESSEE DID NOT UTILIZE ANY INTEREST BEARING BORROWED FUNDS TO MAKE INVESTMENT IN THE SHARES FROM WHERE THE ASSESSEE HAS EARNED DIVIDEND INCOME. IT WAS FURTHE R PLEADED THAT DISALLOWANCE, IF ANY, SHOULD HAVE BEEN RESTRICTED TO OTHER EXPENSES IN THE NATURE OF DIRECTORS SALARY ETC. 4. ON THE OTHER HAND, IT WAS SUBMITTED BY LD. DR TH AT LD. CIT(A) HAS RIGHTLY DIRECTED THE AO TO MAKE DISALLOWANCE ON REASONABL E ESTIMATE BASIS AND SUCH . / ITA NO.7950/MUM/2010 ! ! ! ! / ASSESSMENT YEAR 2006-07 3 DIRECTIONS OF LD. CIT(A)ARE IN ACCORDANCE WITH THE DECISION OF HONBLE BOMBAY HIGH COURT IN THE CASE OF GODREJ & BOYCE MFG. CO.(SUPRA) . 5. WE HAVE HEARD BOTH THE PARTIES ON THIS ISSUE AND THEIR CONTENTIONS HAVE CAREFULLY BEEN CONSIDERED. IF ASSESSEE IS ABLE TO PROVE THAT NO PART OF THE INTEREST BEARING BORROWED FUNDS WAS UTILIZED FOR THE PURPOSE OF MAKING INVESTMENT IN THE SHARES AND SECURITIES FROM WHERE THE ASSESSEE HAS E ARNED EXEMPT INCOME, THEN DISALLOWANCE ON ACCOUNT OF INTEREST IS NOT CALLED FOR. HOWEVER, ACCORDING TO THE AFOREMENTIONED DECISION OF HONBLE BOMBAY HIGH COUR T IN THE CASE OF GODREJ & BOYCE MFG. CO.(SUPRA), REASONABLE ESTIMATED DISALLO WANCE IS TO BE MADE. IN OUR VIEW, LD. CIT(A) HAS RIGHTLY GIVEN THE DIRECTION TO THE AO TO MAKE DISALLOWANCE ON REASONABLE ESTIMATE BASIS AS PER AFOREMENTIONED D ECISION OF HONBLE JURISDICTIONAL HIGH COURT. HOWEVER, IN VIEW OF APPREHENSION EXPRE SSED BY LD. AR THAT AO MAY NOT DISALLOW ANY PART OF THE INTEREST, WE DIRECT T HE AO TO VERIFY THE CONTENTION OF THE ASSESSEE THAT NO PART OF THE INTEREST BEARING BORRO WED FUND WAS UTILIZED FOR THE PURPOSE OF MAKING INVESTMENT IN THE ASSETS FROM WH ERE THE ASSESSEE HAS EARNED EXEMPT INCOME. IF IT IS SO, THE AO WILL NOT MAKE ANY DISALLOWANCE ON ACCOUNT OF INTEREST RELATING TO INVESTMENT IN THOSE ASSETS. H OWEVER, AS MENTIONED EARLIER THAT THE AO HAS TO MAKE REASONABLE DISALLOWANCE WITH RE GARD TO OTHER EXPENSES AS PER AFOREMENTIONED DECISION OF HONBLE JURISDICTIONAL HIGH COURT. ACCORDINGLY, THE DIRECTION OF LD. CIT(A) TO THAT EXTENT IS UPHELD. G ROUND NO.1 IS PARTLY ALLOWED FOR STATISTICAL PURPOSES IN THE MANNER AFORESAID. 6. APROPOS GROUND NO.2, THE ASSESSEE IS ENGAGED IN THE BUSINESS OF MANUFACTURING OF TEXTILE CLOTH AND GARMENT AND EXPO RTING THE SAME. FOR THIS PURPOSE IT HAS TO INCUR FREIGHT AND FORWARDING EXPE NSES TO THE TUNE TO RS.6,88,885/- THE ASSESSEE WAS REQUIRED TO PRODUCE BOOKS OF ACCOU NT ALONGWITH NECESSARY SUPPORTING BILLS AND VOUCHERS ETC. WHICH WERE PROD UCED. HOWEVER, AO OBSERVED THAT THE ASSESSEE HAS PRODUCED SELF MADE VOUCHER S, THEREFORE, HE DISALLOWED 10% OF THESE EXPENDITURE AND DISALLOWANCE WAS COMPUTED AT RS.68,888/-. THE . / ITA NO.7950/MUM/2010 ! ! ! ! / ASSESSMENT YEAR 2006-07 4 DISALLOWANCE HAS BEEN UPHELD BY LD. CIT(A). THE AS SESSEE IS AGGRIEVED AND HAS FILED AFOREMENTIONED GROUND. 7. LD. AR OF THE ASSESSEE HAS PRODUCED BEFORE US T HE DETAILS OF SUCH EXPENDITURE, COPY OF WHICH WAS ALSO GIVEN TO LD. DR . IT WAS SUBMITTED THAT ALL THE EXPENDITURE ARE THROUGH ACCOUNT PAYEE CHEQUES TO TH E PARTIES MENTIONED IN THE BILLS AND VOUCHERS. HE SUBMITTED THAT ONLY A SUM OF RS.1 ,24,275/- WAS INCURRED BY THE ASSESSEE IN CASH ON ACCOUNT OF PETTY EXPENSES FOR W HICH IT CAN BE SAID THAT THEY ARE THROUGH SELF MADE VOUCHERS. IT WAS SUBMITTED T HAT DISALLOWANCE, IF ANY, SHOULD BE RESTRICTED TO 10% OF THE AFOREMENTIONED AMOUNT O F RS.1,24,275/-. 8. ON THE OTHER HAND, LD. DR SUBMITTED THAT DISALLO WANCE HAS RIGHTLY BEEN MADE BY THE AO AND IT HAS RIGHTLY BEEN CONFIRMED B Y LD. CIT(A). 9. WE HAVE HEARD BOTH THE PARTIES ON THIS ISSUE AN D THEIR CONTENTIONS HAVE CAREFULLY BEEN CONSIDERED. WE FOUND FORCE IN THE CONTENTION OF LD. AR THAT THE DISALLOWANCE ON ACCOUNT OF SELF MADE VOUCHERS SHOUL D BE RESTRICTED TO THE CASH PAYMENTS MADE BY THE ASSESSEE FOR WHICH THE SELF MA DE VOUCHERS ARE MAINTAINED. THE AMOUNT STATED BY LD. AR IS RS. 1,24,275/-. TH E AO WILL VERIFY THIS AMOUNT AND RESTRICT THE DISALLOWANCE TO 10% OF SUCH AMOUNT. W E DIRECT ACCORDINGLY. THIS GROUND IS PARTLY ALLOWED FOR STATISTICAL PURPOSES. 10. IN THE RESULT, THE APPEAL IS PARTLY ALLOWED FOR STATISTICAL PURPOSES IN THE MANNER AFORESAID. ORDER PRONOUNCED IN THE OPEN COURT ON 12/11/2013 . * ,-! / 0 1 12/11/2013 - * 2 3 SD/- SD/- ( . / D.KARUNAKARA RAO ) ( . . / I.P. BANSAL ) / ACCOUNTANT MEMBER / JUDICIAL MEMBER MUMBAI; 0 DATED 12/11/2013 . / ITA NO.7950/MUM/2010 ! ! ! ! / ASSESSMENT YEAR 2006-07 5 . . . . * ** * '+45 '+45 '+45 '+45 65!+ 65!+ 65!+ 65!+ / COPY OF THE ORDER FORWARDED TO : 1. #& / THE APPELLANT 2. '(#& / THE RESPONDENT. 3. 7 ( ) / THE CIT(A)- 4. 7 / CIT 5. 582 '+ , , / DR, ITAT, MUMBAI 6. 2 9 / GUARD FILE. . . . . / BY ORDER, (5+ '+ //TRUE COPY// : :: : / ; ; ; ; $ $ $ $ (DY./ASSTT. REGISTRAR) , / ITAT, MUMBAI . . ./ VM , SR. PS