Rocket Engineering Corporation Pvt. Ltd., Kolhapur V. Jt. CIT, Range-1, Kolhapur

ITA 849/PUN/2013

• Counselvise Citation: 84924514 RSA 2013
• Duration Of Justice: 1 year(s) 3 month(s) 26 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 11-08-2014
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: A
• Assessment Year: 2009-2010
• Appeal Filed On: 15-04-2013
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: B C MALAKAR
• Keywords: Earning of tax free income; Commercial expediency
• Section: 142(1); 234B; 14A

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL PUNE BENCH A, PUNE BEFORE SHRI SHAILENDRA KUMAR YADAV, JUDICIAL MEMBER , AND SHRI R.K. PANDA, ACCOUNTANT MEMBER. ITA.NO.849/PN/2013 (ASSESSMENT YEAR 2009-10) ROCKET ENGINEERING CORPORATION, PRIVATE LIMITED, D-19, MIDC, SHIROLI, KOLHAPUR 416 122 PAN NO.AADCR3595D .. APPELLANT VS. JCIT, RANGE-1, KOLHAPUR .. RESPONDENT ASSESSEE BY : SHRI M.K. KULKARNI REVENUE BY : SHRI B.C. MALAKAR DATE OF HEARING : 05-08-2014 DATE OF PRONOUNCEMENT : 11-08-2014 ORDER PER R.K. PANDA, AM : THIS APPEAL FILED BY THE ASSESSEE IS DIRECTED AGAIN ST THE ORDER DATED 09-01-2013 OF THE CIT(A), KOLHAPUR RELATING TO ASSE SSMENT YEAR 2009-10. 2. GROUNDS OF APPEAL NO.1 TO 3 BY THE ASSESSEE READ S AS UNDER : 1) ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW THE LD, CIT(A) WAS NOT JUSTIFIED IN CONFIRMING THE ADDITION M ADE BY THE A. O. INVOKING THE PROVISIONS OF S. 36(1)(III) R.W.S. 40A(2) (B) OF THE ACT, SAYING THAT THE ASSESSEE-COMPANY ITSELF OFFERED THE SAME FOR TAX ATION. THE 'OFFERING TO TAX' WAS UNDER CERTAIN MISCONCEPTION OF LAW. THE ADDITION IS NOT SUSTAINABLE AND THE SAME BE DELETED. 2) ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN L AW THE AMOUNT WAS OFFERED TO TAX WITHOUT APPRECIATING THE STATUTORY PRESUMPTION THAT THE ADVANCES/LOANS COVERED BY S. 40A(2)(B) WERE GIVEN OUT OF OWN FUNDS WHICH ARE INTEREST FREE. THE INCOME DECLARED IN THE RETURN ITSELF EXCEEDS THE AMOUNT OF LOANS PAID TO PERSONS COVERED BY S. 40A( 2)(B) OF RS.1,29,77,453/-. THE INCOME DECLARED IN THE RETURN IS RS.3,00,36,240/- WHILE ASSESSED IS 3,36,09,170/-. IN VIEW OF THE STATUTORY PRESUMPTION ADVANCES/LOANS WERE PRESUMED TO HAVE BEEN GIVEN OUT OF THE CURRENT 2 INCOME OF THE YEAR ON WHICH TAX IS ALREADY PAID THEN WHICH GOES TO BUILD UP THE INTEREST FREE FUNDS. THE ADDITION OF RS. 33,37, 059/- IS UNWARRANTED AND IT BE DELETED. 3) ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN L AW AND ON PERUSING THE BALANCE SHEET OF THE YEAR IT TRANSPIRES TH AT THE ASSESSEE-COMPANY IS HAVING INTEREST FREE FUNDS FAR IN EXC ESS OF THE LOANS ADVANCED TO 40A(2)(B) PERSONS. THE STATUTORY PRESUMPTI ON APPLIES TO THE FACTS OF THIS CASE THAT SUCH LOANS WERE OUT OF INTER EST FREE AVAILABLE FUNDS WITH THE ASSESSEE. THE LD. CIT(A) WAS NOT JUSTIFIED IN SUSTAINING THE ADDITION OF RS. 33,37,059/- BY PASSING A CRYPTIC O RDER WHICH IS NOT IN CONSONANCE WITH THE PROVISIONS OF S. 250(6) OF THE ACT . THE ADDITION BE DELETED. 2.1 FACTS OF THE CASE, IN BRIEF, ARE THAT THE ASSES SEE IS A PRIVATE LIMITED COMPANY ENGAGED IN THE BUSINESS OF MANUFACTURING OF OIL ENGINES AND DG SETS. IT FILED ITS RETURN OF INCOME ON 01-10-2009 DECLARING TOTAL INCOME AT RS.3,00,26,240/-. DURING THE COURSE OF ASSESSMENT P ROCEEDINGS, THE AO OBSERVED FROM THE DETAILS FURNISHED BY THE ASSESSEE THAT THE ASSESSEE COMPANY HAD TAKEN INTEREST BEARING LOANS AND ADVANC ES FROM STATE BANK OF INDIA, LOAN CREDITORS WHO ARE MOSTLY PERSONS COV ERED U/S.40A(2)(B) AND OTHER LOAN CREDITORS PERTAINING TO CREDITORS FOR GO ODS. 2.2 HE NOTED THAT FROM THE VARIOUS DETAILS FURNISHE D BY THE ASSESSEE THAT THE ASSESSEE HAS PAID INTEREST OF RS.15,75,188/- TO STATE BANK OF INDIA @ 14.75% P.A. SIMILARLY, IT HAS PAID INTEREST OF RS. 1,88,253/- TO CREDITORS FOR GOODS WHICH COMES TO 9% P.A. HOWEVER, THE ASSE SSEE HAS PAID INTEREST OF RS.1,29,77,453/- TO THE LOAN CREDITORS WHO ARE INTERESTED PERSONS U/S.40A(2)(B) @21% P.A. THE ASSESSEE COMPA NY HAS ALSO PAID INTEREST TO OTHER BANKS AT RS.10,27,281/- WHERE THE RATE OF INTEREST WAS BELOW 15% P.A. IN VIEW OF THE ABOVE, THE AO ASKED THE ASSESSEE TO EXPLAIN AS TO WHY THE INTEREST PAID TO THE LOAN CRE DITORS WHO ARE INTERESTED PERSONS SHOULD NOT BE RESTRICTED TO 12% P.A BEING R EASONABLE AND FAIR 3 MARKET RATE AND WHY THE BALANCE AMOUNT OF INTEREST SHOULD NOT BE DISALLOWED. 2.3 IT WAS EXPLAINED BY THE ASSESSEE THAT THE COMPA NY PAYS 14.75% INTEREST TO THE BANK CALCULATED ON A MONTHLY BASIS WHICH MAKES THE EFFECTIVE RATE OF INTEREST AT 15.86% P.A. SO FAR A S THE LOAN OBTAINED FROM DIRECTORS, MEMBERS AND RELATIVES NO SECURITY IS REQ UIRED TO BE PLEDGED, NO STAMP DUTY, PROCESSING FEES OR INSPECTION CHARGES E TC. ARE REQUIRED TO BE MADE. IT WAS FURTHER SUBMITTED THAT WHILE A NUMBER OF FORMALITIES ARE REQUIRED TO BE FOLLOWED FOR THE LOAN FROM BANK, HOW EVER, NO SUCH FORMALITIES ARE REQUIRED TO BE FOLLOWED IN CASE OF LOAN FROM DIRECTORS, MEMBERS AND RELATED PARTIES. IT WAS SUBMITTED THAT FOR LOAN FROM BANK, THE PERSONAL GUARANTEE OF THE DIRECTORS AS WELL AS COLLATERAL SECURITY ARE TO BE OFFERED TO THE BANK AND THE COMPANY IS REQUIRED TO SUBMIT MONTHLY, QUARTERLY AND HALF-YEARLY REPORTS TO THE BANK. FUR THER, THE BANK RECOVERS COMMITMENT CHARGES @1% ON UNUTILISED FUNDS AND BANK CHARGES PENAL INTEREST FEE FOR THE AMOUNT CONSIDERED AS OVERDRAWN . THE BANK ALSO TAKES MARGIN ON VALUE OF THE SECURITY. HOWEVER, NO SUCH FORMALITIES ARE TO BE FOLLOWED IN CASE OF LOAN FROM DIRECTORS WHICH IS EA SILY AVAILABLE AS AND WHEN REQUIRED WITH A SHORT NOTICE. 2.4 HOWEVER, THE ASSESSEE FINALLY SUBMITTED BEFORE THE ASSESSING OFFICER, THAT TO KEEP PEACE OF MIND, THE ASSESSEE O FFERS AN AMOUNT OF RS.33,37,059/- BEING DIFFERENCE BETWEEN 21% AND 15. 60% AS WORKED OUT BY IT IN ITS SUBMISSION DATED 03-20-2011 FOR TAXATI ON. IT WAS FURTHER SUBMITTED THAT SINCE THE ABOVE INTEREST PAID TO THE LOAN CREDITORS IS OFFERED 4 FOR TAXATION PENALTY PROCEEDINGS U/S.271(1)(C) OF T HE ACT MAY NOT BE INITIATED. THE ASSESSEE SUBMITTED A CALCULATION ST ATEMENT SHOWING THE DIFFERENTIAL INTEREST INDIVIDUALLY FOR EACH RESPECT IVE DEPOSITOR AND A LIST OF SUM SHOWING INTEREST ACTUALLY PAID, THE INTEREST TH AT SHOULD HAVE BEEN PAID @15.60% AND THE DIFFERENCE THAT HAS BEEN OFFERED FO R TAXATION. SINCE THE ASSESSEE COMPANY OFFERED FOR TAXATION THE DIFFERENT IAL AMOUNT OF INTEREST, THE ASSESSING OFFICER DISALLOWED THE AMOUNT OF RS.3 3,37,059/- BEING EXCESS INTEREST PAID TO THE PERSONS COVERED U/S.40A (2)(B) OF THE I.T. ACT. 3. IN APPEAL THE LD.CIT(A) UPHELD THE ACTION OF THE ASSESSING OFFICER. HE OBSERVED THAT ALTHOUGH CERTAIN FORMALITIES ARE T O BE OBSERVED FOR OBTAINING LOAN FROM BANK AND INSTITUTIONS WHICH ARE REQUIRED FOR RECEIVING LOAN FROM DIRECTORS AND THEIR RELATIVES, HOWEVER, T HIS DOES NOT WARRANT PAYMENT OF EXORBITANT RATE WHICH IS 6.25% OVER AND ABOVE THE INTEREST PAID TO THE BANK. THE CIT(A) DISALLOWED THE AMOUNT ON THE GROUND THAT THE ASSESSEE HIMSELF HAS OFFERED THE DIFFERENCE BET WEEN 21% AND 15.60% FOR TAXATION, THEREFORE, RAISING THE ISSUE NOW BEFO RE HIM WHICH HAS BEEN TREATED AS CLOSED BY THE ASSESSEE ITSELF CANNOT BE ACCEPTED. 3.1 AGGRIEVED WITH SUCH ORDER OF THE CIT(A) THE ASS ESSEE IS IN APPEAL BEFORE. 4. THE LD. COUNSEL FOR THE ASSESSEE STRONGLY OBJECT ED TO THE ORDER OF THE CIT(A). HE SUBMITTED THAT SINCE THE DIRECTORS, MEMBERS AND THE RELATIVES WHO HAVE RECEIVED THE INTEREST INCOME HAS OFFERED THE INTEREST INCOME TO TAX AND SINCE BOTH THE ASSESSEE AND PAYER S ARE FALLING UNDER THE 5 SAME TAX NET, THEREFORE, NO DISALLOWANCE OF INTERES T IS CALLED FOR. REFERRING TO THE DECISION OF THE CHENNAI BENCH OF T HE TRIBUNAL IN THE CASE OF DCIT VS. VISTAS WIND TECHNOLOGIES PVT. LTD. REPO RTED IN (2012) 20 ITR (TRIBUNAL) 243 HE SUBMITTED THAT THE TRIBUNAL F OLLOWING THE DECISION OF THE HONBLE SUPREME COURT IN THE CASE OF S.A. BU ILDERS LTD. REPORTED IN 280 ITR 1 (SC) HAS HELD THAT COMMERCIAL EXPEDIENCY IS AN EXPRESSION OF WIDE IMPORT AND INCLUDES SUCH EXPENDITURE AS A PRUD ENT BUSINESSMAN INCURS FOR THE PURPOSE OF HIS BUSINESS. ONCE IT IS ESTABLISHED THAT THERE WAS NEXUS BETWEEN THE EXPENDITURE AND THE PURPOSE O F BUSINESS, THE REVENUE CANNOT ASSUME THE ROLE OF THE BUSINESSMAN T O DECIDE WHAT WAS REASONABLE EXPENDITURE HAVING REGARD TO THE CIRCUMS TANCES OF THE CASE. 4.1 REFERRING TO THE DECISION OF THE HONBLE BOMBAY HIGH COURT IN THE CASE OF CIT VS. INDO SAUDI SERVICES (TRAVEL) (P) LT D. REPORTED IN 310 ITR 306, HE SUBMITTED THAT THE HONBLE HIGH COURT IN TH E SAID CASE HAS DISMISSED THE APPEAL FILED BY THE REVENUE AGAINST T HE ORDER OF THE TRIBUNAL WHERE THE PAYMENT OF EXTRA 1/2 % COMMISSION WAS ACC EPTED. IT WAS HELD THAT NO DISALLOWANCE SHOULD BE MADE U/S.40A(2) OF T HE I.T. ACT SINCE THE PURCHASE OF GOODS FROM THE SUBSIDIARY WERE NOT ESTA BLISHED TO BE VERY MUCH EXCESSIVE OR UNREASONABLE. THE SUBSIDIARY COM PANY IS NOT A RELATED PERSON AND BOTH ARE PAYING TAX AT THE SAME RATE. IN THAT CASE, THE HONBLE HIGH COURT RELIED UPON THE CIRCULAR 60-P DA TED 06-07-1968 ISSUED BY CBDT. 4.2 REFERRING TO THE DECISION OF THE HONBLE MUMBAI HIGH COURT IN THE CASE OF CIT VS. V.S. DEMPO & CO. (P) LTD. HE SUBMIT TED THAT THE HONBLE 6 COURT HAS HELD THAT NO DISALLOWANCE U/S.40A(2)(B) C AN BE MADE UNLESS THE RATE AGREED TO BE PAID IS VERY MUCH EXCESSIVE OR UN REASONABLE. WHEN BOTH PARTIES ARE PAYING TAX AT THE SAME RATE, THERE CANNOT BE EVASION OF TAX. ACCORDINGLY, THE ORDER OF THE TRIBUNAL CONFIRMING T HE DELETION OF ADDITION U/S.40A(2)(B) WAS UPHELD. REFERRING TO THE DECISIO N OF THE PUNE BENCH OF THE TRIBUNAL IN THE CASE OF DCIT VS. VIKRANT PRA KASH MATE VIDE ITA NO.965/PN/2011 ORDER DATED 31-07-2012 HE SUBMITTED THAT THE TRIBUNAL IN THE SAID CASE HAS UPHELD THE ORDER OF THE CIT(A) WHO HAD DELETED THE ADDITION OF RS.22,50,000/- MADE BY THE ASSESSING OF FICER ON ACCOUNT OF RENT PAID U/S.40A(2)(B) OF THE I.T. ACT. 4.3 REFERRING TO THE GROUNDS OF THE ASSESSEE HE SUB MITTED THAT THE ASSESSEE WAS HAVING SUFFICIENT INTEREST FREE FUNDS. HE SUBMITTED THAT THE ORDER OF THE CIT(A) IS NOT IN ACCORDANCE WITH LAW A ND CRYPTIC, THEREFORE, THE SAME SHOULD BE SET-ASIDE AND THE GROUNDS RAISED BY THE ASSESSEE SHOULD BE ALLOWED. 5. THE LD. DEPARTMENTAL REPRESENTATIVE ON THE OTHER HAND SUBMITTED THAT SINCE THE ASSESSEE HAS ADMITTED BEFORE THE ASS ESSING OFFICER FOR DISALLOWANCE OF THE EXCESS INTEREST PAID, THEREFORE , THERE IS NO JUSTIFICATION ON THE PART OF THE ASSESSEE TO RAISE THE ISSUE AGAI N BEFORE THE TRIBUNAL. HE SUBMITTED THAT THE ASSESSEE HAS ALREADY GIVEN CONCE SSION TO THE ASSESSING OFFICER FOR DISALLOWANCE OF ABOUT 6% EXCESS INTERES T PAID TO THE DIRECTORS, MEMBERS AND RELATED PARTIES. THEREFORE, THE ASSESS ING OFFICER WAS FULLY JUSTIFIED IN MAKING THE ADDITION AND THE GROUNDS RA ISED BY THE ASSESSEE SHOULD BE DISMISSED. 7 6. WE HAVE CONSIDERED THE RIVAL ARGUMENTS MADE BY B OTH THE SIDES, PERUSED THE ORDERS OF THE ASSESSING OFFICER AND THE CIT(A) AND THE PAPER BOOK FILED ON BEHALF OF THE ASSESSEE. WE HAVE ALSO CONSIDERED THE VARIOUS DECISIONS CITED BEFORE US. WE FIND THE ASS ESSING OFFICER DISALLOWED AN AMOUNT OF RS.33,37,059/- BEING EXCESS INTEREST PAID TO THE DIRECTORS, MEMBERS AND RELATED PARTIES BY INVOKING THE PROVISIONS OF SECTION 40A(2)(B) OF THE I.T. ACT. WHILE DOING SO, HE HAD ALSO CONSIDERED THE OFFER OF THE ASSESSEE FOR ADDITION OF RS.33,37, 059/- FOR TAXATION . THE ASSESSEE AFTER GIVING IN WRITING TO THE ASSESSING O FFICER REGARDING THE REASONS FOR PAYMENT OF EXCESS INTEREST @21% TO THE SPECIFIED PERSONS HAS CATEGORICALLY STATED THAT TO BUY PEACE OF MIND HE W ANTS TO OFFER THE INTEREST PAID OVER AND ABOVE THE BANK RATE FOR TAXATION. TH EREFORE, HAVING OFFERED THE SAME TO TAX IN WRITING AND BY GIVING THE INDIVI DUAL DETAILS FOR CALCULATING THE DISALLOWANCE THE ASSESSEE IS NOW AG ITATING ON THE GROUND THAT THERE WAS MISCONCEPTION OF LAW. 6.1 IN OUR OPINION, IT IS NOT A LEGAL ISSUE AND IS PURELY A FACTUAL ISSUE. THE ASSESSING OFFICER HAD CLEARLY BROUGHT ON RECORD THE RATE OF INTEREST PAID TO OUTSIDE CREDITORS AT 9%, TO THE BANKS AT 14 .75% AND 21% PAID TO THE RELATED PARTIES. SINCE THERE WAS HUGE DIFFEREN CE BETWEEN THE RATE OF INTEREST PAID TO THE BANK AND THE RATE OF INTEREST PAID TO THE RELATED PARTIES, THE ASSESSING OFFICER HAD ASKED THE ASSESSEE TO JUS TIFY THE REASONABLENESS OF SUCH HUGE INTEREST PAID TO THE DIRECTORS. THE A SSESSEE HAD GIVEN THE REASONS AND THEREAFTER TO BUY PEACE OF MIND HAD OFF ERED THE EXCESS INTEREST PAID TO TAX. THEREFORE, THERE IS NO QUESTION OF AN Y LEGAL MISCONCEPTION 8 WHICH THE ASSESSEE HAD FOREGONE BY WAY OF CONCESSIO N. IT IS PURELY A FACTUAL MATTER. THEREFORE, WE DO NOT FIND ANY MERI T IN THE GROUNDS RAISED BY THE LD. COUNSEL FOR THE ASSESSEE CHALLENGING THE DISALLOWANCE OF ADDITION OF RS.33,37,079/-. 6.2 SO FAR AS THE DECISIONS RELIED ON BY THE LD. CO UNSEL FOR THE ASSESSEE ARE CONCERNED, NONE OF THE CASE RELATES TO A SITUAT ION WHERE THE ASSESSEE HAVING OFFERED FOR TAXATION OF THE EXCESS AMOUNT OF INTEREST HAS GOT RELIEF. NO DOUBT, THE BANKS ASK LOT OF FORMALITIES FOR SANC TIONING OF LOAN WHICH ARE NOT REQUIRED FOR LOANS OBTAINED FROM PRIVATE PA RTIES. HOWEVER, IN THE INSTANT CASE, THE ASSESSEE HAS ALSO OBTAINED LOAN F ROM PRIVATE PARTIES AND HAS PAID INTEREST @9%. THE ASSESSEE ITSELF HAS CAL CULATED THE INTEREST TO BE PAID TO THE DIRECTORS AND RELATED PARTIES @15.60 % AND OFFERED THE BALANCE AMOUNT FOR TAXATION. THEREFORE, UNDER THE FACTS AND CIRCUMSTANCES OF THE CASE, THE VARIOUS CASE DECISIO NS RELIED ON BY THE LD. COUNSEL FOR THE ASSESSEE ARE NOT APPLICABLE. 6.3 WE FURTHER FIND THAT THE ASSESSEE IN THE GROUND S HAS MENTIONED THAT IT HAS SUFFICIENT INTEREST FREE FUNDS AVAILABLE WHI CH ARE FAR IN EXCESS OF THE LOANS ADVANCED TO PERSONS COVERED U/S.40A(2)(B). I N THE INSTANT CASE, THERE IS NO QUESTION OF DISALLOWANCE OF INTEREST ON ACCOUNT OF INTEREST FREE ADVANCES GIVEN TO RELATED PARTIES. IT IS A REVERSE CASE WHEREIN THE ASSESSEE HAS OBTAINED THE LOAN FROM RELATED PARTIES BY PAYING EXORBITANT RATE OF INTEREST FOR WHICH THE ASSESSING OFFICER DI SALLOWED THE EXCESS INTEREST PAID TO THE RELATED PARTIES BY INVOKING TH E PROVISIONS OF SECTION 40A(2)(B) OF THE I.T. ACT. SINCE THE ASSESSEE ITSE LF HAS AGREED FOR THE 9 ADDITION OF RS.33,37,059/- TO TAX BEING EXCESS INTE REST PAID TO THE RELATED PARTIES COVERED U/S.40A(2)(B), THEREFORE, THE CIT(A ) IN OUR OPINION WAS FULLY JUSTIFIED IN UPHOLDING THE ADDITION MADE BY T HE ASSESSING OFFICER. THE GROUNDS RAISED BY THE ASSESSEE ARE ACCORDINGLY DISMISSED. 7. GROUND OF APPEAL NO.4 BY THE ASSESSEE READS AS U NDER : 4) ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW THE LD. CIT(A) WAS NOT JUSTIFIED IN CONFIRMING THE DISALLOWANC E MADE BY A. O. OF RS. 92,410/- RESORTING TO PROVISIONS OF S. 14A R.W.R. 8 D OF THE I.T. RULES 1962. THERE IS NO FINDING TO THE EFFECT THAT ANY EXP ENDITURE WAS INCURRED FOR EARNING THE EXEMPT DIVIDEND INCOME. THE ASSESSEE-CO MPANY HAD SUFFICIENT NON-INTEREST BEARING FUNDS TO MAKE THE INVE STMENT ON WHICH THE TAX EXEMPT INCOME HAS BEEN EARNED. IN VIEW OF TH IS NO DISALLOWANCE IS CALLED FOR U/S 14A OF THE ACT R.W.R. 8D OF I. T. R ULES, 1962. THE ADDITION BE DELETED. 7.1 FACTS OF THE CASE, IN BRIEF, ARE THAT THE ASSES SING OFFICER DURING THE COURSE OF ASSESSMENT PROCEEDINGS NOTED THAT THE ASS ESSEE COMPANY HAD EARNED DIVIDEND INCOME OF RS.1,60,976/- FROM INDIAN COMPANIES AND CLAIMED THE SAME AS EXEMPT U/S.10(34) OF THE I.T. A CT. THE ASSESSING OFFICER, THEREFORE, ASKED THE ASSESSEE TO EXPLAIN A S TO WHY PROPORTIONATE EXPENDITURE OF SUCH EXEMPTED INCOME SHOULD NOT BE D ISALLOWED U/S.14A OF THE I.T. ACT. IT WAS EXPLAINED BY THE ASSESSEE THAT THE COMPANY HAS EARNED DIVIDEND OF RS.1,60,976/- AND THE EXPENDITU RE INCURRED REGARDING THE SAME IS NEGLIGIBLE AND CANNOT BE CORRECTLY ASCE RTAINED. HOWEVER, THE ASSESSING OFFICER WAS NOT SATISFIED WITH THE EXPLAN ATION GIVEN BY THE ASSESSEE. APPLYING THE PROVISIONS OF SECTION 14A R .W. RULE 8D, THE ASSESSING OFFICER DISALLOWED THE AMOUNT OF RS.92,41 0/-. 10 7.2 IN APPEAL THE LD.CIT(A) UPHELD THE ACTION OF TH E ASSESSING OFFICER. AGGRIEVED WITH SUCH ORDER OF THE CIT(A) THE ASSESSE E IS IN APPEAL BEFORE US. 8. THE LD. COUNSEL FOR THE ASSESSEE SUBMITTED THAT DURING THE COURSE OF ASSESSMENT PROCEEDINGS IT WAS CATEGORICALLY STAT ED THAT NO SPECIFIC EXPENSES HAVE BEEN DEBITED BY THE COMPANY WHICH ARE ATTRIBUTABLE TO THE EXEMPT INCOME. SINCE THE ADDITION MADE BY THE ASSES SING OFFICER AND UPHELD BY THE CIT(A) IS WITHOUT ANY SUPPORTING CLAI M IN THE BOOKS OF ACCOUNT OF THE COMPANY, THEREFORE, THE SAME SHOULD BE DELETED. HE SUBMITTED THAT ASSESSEE WAS HAVING SUFFICIENT INTER EST FREE FUNDS AVAILABLE WITH IT FOR MAKING INVESTMENT AND THE ASSESSING OFF ICER HAVING NOT IDENTIFIED ANY EXPENDITURE WHICH HAVE BEEN ACTUALLY INCURRED BY THE ASSESSEE IN EARNING THE EXEMPT INCOME, NO DISALLOWA NCE U/S.14A SHOULD BE MADE. FOR THIS PROPOSITION, HE RELIED ON THE DE CISION OF AMRITSAR BENCH OF THE TRIBUNAL IN THE CASE OF DCIT VS. JAMMU & KASHMIR BANK LTD. REPORTED IN 83 ITR 187. 9. THE LD. DEPARTMENTAL REPRESENTATIVE ON THE OTHER HAND HEAVILY RELIED ON THE ORDERS OF THE ASSESSING OFFICER AND C IT(A). 10. WE HAVE CONSIDERED THE RIVAL ARGUMENTS MADE BY BOTH THE SIDES, PERUSED THE ORDERS OF THE ASSESSING OFFICER AND THE CIT(A) AND THE PAPER BOOK FILED ON BEHALF OF THE ASSESSEE. FROM THE COP Y OF THE ASSESSMENT ORDER, WE FIND ON BEING QUESTIONED BY THE ASSESSING OFFICER TO EXPLAIN AS TO WHY PROPORTIONATE DISALLOWANCE SHOULD NOT BE MAD E FOR CLAIMING THE 11 DIVIDEND INCOME AS EXEMPT U/S.10(34), THE ASSESSEE IN ITS REPLY VIDE SUBMISSION DATED 17-08-2011 HAS REPLIED AS UNDER : ' THE COMPANY HAS EARNED A DIVIDEND OF RS.1,60,976/- FROM INDIAN COMPANIES WHICH IS CLAIMED AS EXEMPT U/S 10(34) OF THE I. T. ACT. HOWEVER, THE EXPENDITURE INCURRED REGARDING THE SAME IS NEGLIGIBLE AND CANNOT BE CORRECTLY ASCERTAINED'. 10.1 WE FURTHER FIND SIMILAR DISALLOWANCES WERE MAD E IN THE ASSESSMENT ORDERS PASSED FOR A.YRS. 2006-07 AND 2008-09 BY THE ASSESSING OFFICER AND NOTHING WAS BROUGHT TO OUR NOTICE AS TO THE OUT COME OF SUCH DISALLOWANCE MADE BY THE ASSESSING OFFICER. THE RE LEVANT OBSERVATIONS OF THE ASSESSING OFFICER AT PARA 4.2 AND 4.3 OF THE ASSESSMENT ORDER READ AS UNDER : 4.2 SINCE THE EXPLANATION OF THE ASSESSEE AS ABOVE W AS NOT ACCEPTABLE IN PURSUANCE TO THE PROVISIONS OF SECTION 1 4A OF THE ACT RWR 8D OF THE I, T. RULES, 1962, AND FURTHER THAT DISALLO WANCE WAS MADE IN THIS REGARD IN THE ASSESSMENT ORDERS PASSED FOR A. Y. 2006- 07 AND 2008-09 BY THE A.OS. ON 05/12/2008 AND 23/12/2010 RE SPECTIVELY, VIDE ANNEXURE TO THE NOTICE U/S 142(1) OF THE ACT DT. 30/ 08/2011, THE ASSESSEE COMPANY WAS ASKED TO EXPLAIN AS UNDER:- 'PLEASE REFER TO THE ASSESSMENT ORDER PASSED FOR A. Y, 200 6-07 AND 2008-09 BY THE AOS ON 05/12/2008 AND 23/12/2010. PLE ASE STATE AS TO WHY IDENTICAL VIEW SHOULD NOT BE TAKEN FOR DISALLOWAN CE OF INTEREST ON PAYMENTS S TOWARDS SHARE APPLICATION MONEY AND ALSO DISALLOWANCE OF PROPORTIONATE EXPENSES FOR EXEMPTED INCOME (I.E. DIV IDEND)'. 4.3 IN RESPONSE TO THE ABOVE, THE ASSESSEE COMPANY , VIDE SUBMISSION DT. 12/09/2011, IN SR. NO. 11, THE ASSESSEE COMPANY RE PLIED AS UNDER: '11. REGARDING THE DISALLOWANCE OF INTEREST ON SHARE A PPLICATION MONEY, I WOULD LIKE TO STATE BEFORE YOUR HONOUR THAT, THE SHAR E APPLICATION . MONEY PAID FOR IPO'S OF VARIOUS COMPANIES REMAIN WITH THOSE COMPANIES FOR A VERY SHORT PERIOD, AND DIVIDEND IF ANY RECEIVE D ON THE SHARES ALLOTTED FROM SUCH COMPANIES IS CREDITED IN THE BOOKS O F ACCOUNTS. I, THEREFORE REQUEST YOUR HONOUR, NOT TO DISALLOW OF INT EREST ON SHARE APPLICATION MONEY. I ALSO BRING TO YOUR HONORS KIND N OTICE THAT, NO HEAVY EXPENSES HAVE BEEN DEBITED TOWARDS EXEMPTED INCOME (I. E. DIVIDEND) AND THEREFORE, I REQUEST YOUR HONOUR NOT TO DISALLOW ANY EXPENSES IN THIS REGARD. 12 10.2 SINCE THE ASSESSEE ITSELF HAD ADMITTED THAT IT HAS INCURRED CERTAIN EXPENSES ALTHOUGH THE SAME IS NEGLIGIBLE WHICH CANN OT BE CORRECTLY ASCERTAINED AND SINCE CERTAIN ADDITIONS WERE MADE D URING A.Y. 2006-07 AND 2008-09 BY THE ASSESSING OFFICER U/S.14A AND NO THING HAS BEEN BROUGHT ON RECORD AS TO THE OUTCOME OF THE SAME INC LUDING THE QUANTUM, THEREFORE, WE DO NOT FIND ANY INFIRMITY IN THE ORDE R OF THE CIT(A) UPHOLDING THE DISALLOWANCE MADE U/S.14A R.W. RULE 8 D FOR THE IMPUGNED ASSESSMENT YEAR. THE CASE DECISION RELIED ON BY TH E LD. COUNSEL FOR THE ASSESSEE IS OF NO HELP TO IT IN ABSENCE OF GIVING F ULL DETAILS AND TO EXPLAIN AS TO HOW THE SAID RATIO IS APPLICABLE TO THE FACTS OF THE PRESENT CASE. THIS GROUND BY THE ASSESSEE IS ACCORDINGLY DISMISSED. 11. GROUND OF APPEAL NO.5 BY THE ASSESSEE READS AS UNDER : 5) ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW THE LD. CIT(A) WAS NOT JUSTIFIED IN CONFIRMING THE AD-HOC DISA LLOWANCE OF RS.1,24,257/- MADE BY THE A. 0. THE AD-HOC DISALLOWAN CE BE DELETED. 11.1 AFTER HEARING BOTH THE SIDES, WE FIND THE ASSE SSING OFFICER DURING THE COURSE OF ASSESSMENT PROCEEDINGS NOTED THAT THE ASSESSEE COMPANY HAS DEBITED THE FOLLOWING EXPENSES : I. POSTAGE & TELEPHONE : RS.8,13,059/- II. FURNITURE REPAIR & MAINTENANCE : RS. 87,925/- III. CARTAGE : RS.3,41,585/- ----------------- RS.12,42,569/- ----------------- 11.2 FROM THE BILLS AND VOUCHERS PRODUCED FOR HIS V ERIFICATION, HE NOTED THAT CERTAIN EXPENSES WERE SUPPORTED BY ONLY SELF-M ADE VOUCHERS FOR WHICH THOSE WERE NOT FULLY VERIFIABLE AS FAR AS BUS INESS NEXUS OF THE SAME 13 WERE CONCERNED. THE ASSESSING OFFICER FURTHER NOTE D THAT IN THE ORDER FOR A.Y. 2008-09, SIMILAR DISALLOWANCE WERE MADE BY THE ASSESSING OFFICER ON ADHOC BASIS TO WHICH THE ASSESSEE DID NOT OBJECT . THE ASSESSING OFFICER, THEREFORE, DISALLOWED AN AMOUNT OF RS.1,24 ,957/- BEING 10% OF SUCH EXPENSES ON ESTIMATE BASIS BEING INCURRED FOR NON-BUSINESS PURPOSES. IN APPEAL THE LD.CIT(A) UPHELD THE ACTIO N OF THE ASSESSING OFFICER FOR WHICH THE ASSESSEE IS IN APPEAL BEFORE US. 12. WE HAVE CONSIDERED THE RIVAL ARGUMENTS MADE BY BOTH THE SIDES. THERE IS NO DISPUTE TO THE FACT THAT CERTAIN BILLS AND VOUCHERS WERE SUPPORTED BY ONLY SELF-MADE VOUCHERS AND WERE NOT A MENABLE FOR VERIFICATION FOR WHICH THE ASSESSING OFFICER MADE A DHOC DISALLOWANCES. WE FIND SIMILAR DISALLOWANCES WERE MADE IN THE PREC EDING YEAR AND THE ASSESSEE HAS NOT OBJECTED TO THE SAME. HOWEVER, NO NE OF THE PARTIES HAS BROUGHT TO OUR NOTICE REGARDING THE AMOUNT OF DISAL LOWANCE. CONSIDERING THE TOTALITY OF THE FACTS OF THE CASE, WE ARE OF TH E CONSIDERED OPINION THAT THE DISALLOWANCE AT 10% ON ADHOC BASIS APPEARS TO B E ON THE HIGHER SIDE. WE THEREFORE DIRECT TO RESTRICT SUCH DISALLOWANCE T O 5% OF THE EXPENSES. WE HOLD AND DIRECT ACCORDINGLY. THE GROUND RAISED BY THE ASSESSEE IS ACCORDINGLY PARTLY ALLOWED. 13. GROUND OF APPEAL NO.6 RELATES TO LEVY OF INTERE ST U/S.234A, 234B AND 234C. 13.1 AFTER HEARING BOTH THE SIDES, WE ARE OF THE OP INION THAT LEVY OF INTEREST U/S.234A, 234B AND 234C IS MANDATORY AND C ONSEQUENTIAL IN 14 NATURE. THEREFORE, THIS GROUND BY THE ASSESSEE IS DISMISSED. 14. GROUND OF APPEAL NO.7 BEING GENERAL IN NATURE I S DISMISSED. 15. IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE IS PARTLY ALLOWED. PRONOUNCED IN THE OPEN COURT ON 11-08-2014. SD/- SD/- (SHAILENDRA KUMAR YADAV) ( R.K. PANDA ) JUDICIAL MEMBER ACCOUNTANT MEMBER SATISH PUNE, 11 TH AUGUST, 2014 COPY OF THE ORDER IS FORWARDED TO: 1. THE ASSESSEE 2. THE DEPARTMENT 3. THE CIT(A), KOLHAPUR 4. THE CIT, KOLHAPUR 5. THE DR A BENCH, PUNE. 6. GUARD FILE BY ORDER // TRUE COPY // SENIOR PRIVATE SECRETARY, INCOME TAX APPELLATE TRIBUNAL, PUNE