Bhagwati Spherocast Ltd., Ahmedabad V. The ACIT., Range-1, Ahmedabad

ITA 904/AHD/2011

• Counselvise Citation: [2014] 120 COUNSELVISE.COM (IT) 6017 (ITAT-AHMEDABAD)
• Duration Of Justice: 3 year(s) 3 month(s) 28 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 25-07-2014
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: A
• Next Hearing Date: 15-07-2014
• Assessment Year: 2007-2008
• Appeal Filed On: 28-03-2011
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: B L YADAV
• Keywords: Earning of tax free income
• Section: 43B; 143(3); 14A

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL A BENCH, AHMEDABAD (BEFORE SHRI MUKUL KR. SHRAWAT, J.M. & SHRI ANIL C HATURVEDI, A.M.) I.T. A. NO. 904 /AHD/2011 (ASSESSMENT Y EAR: 2007-08) BHAGWATI SPHEROCAST PVT. LTD. 1, KRISHNA SOCIETY, OPP. GAJJAR HALL, NR. LAW GARDEN, ELLISBRIDGE, AHMEDABAD 380006 V/S THE ACIT, RANGE-1, AHMEDABAD (APPELLANT) (RESPONDENT) PAN: AAACB 7709 G APPELLANT BY : MS. URVASHI SHODHAN, A.R. RESPONDENT BY : SHRI B.L. YADAV, SR. D.R. ( )/ ORDER DATE OF HEARING : 15-07-2014 DATE OF PRONOUNCEMENT : 25 -07-2014 PER SHRI ANIL CHATURVEDI,A.M. 1. THIS APPEAL IS FILED BY THE ASSESSEE AGAINST THE ORDER OF CIT(A)-VI, AHMEDABAD DATED 02.02.2011 FOR A.Y. 2007-08. 2. THE FACTS AS CULLED OUT FROM THE MATERIAL ON REC ORD ARE AS UNDER. 3. ASSESSEE IS A COMPANY STATED TO BE ENGAGED IN TH E BUSINESS OF MANUFACTURING OF S.G. IRON AND ALLOYED AND HIGH DUT Y CAST IRON CASTING. ASSESSEE ELECTRONICALLY FILED ITS RETURN OF INCOME FOR .AY. 07-08 ON 27.10.2007 DECLARING TOTAL INCOME OF RS. 5,09,50,120/-. THE CA SE WAS SELECTED FOR SCRUTINY AND THEREAFTER THE ASSESSMENT WAS FRAMED U /S. 143(3) VIDE ORDER ITA NO 904/AHD/2011 . A.Y. 2007- 08 2 DATED 11.12.2009 AND THE TOTAL INCOME WAS DETERMINE D AT RS. 5,13,37,044/-. AGGRIEVED BY THE ORDER OF A.O, ASSESSEE CARRIED THE MATTER BEFORE CIT(A). CIT(A) VIDE ORDER DATED 02.02.2011 DISMISSED THE AP PEAL OF THE ASSESSEE. AGGRIEVED BY THE ORDER OF CIT(A), ASSESSEE IS NOW I N APPEAL BEFORE US AND HAS RAISED THE FOLLOWING GROUNDS:- 1. LD. CIT (A) HAS ERRED IN LAW AND ON FACTS IN CONFIR MING DISALLOWANCE OF RS. 2, 72, 587/- MADE BY AO U/S 14A OF THE ACT. LD. CIT (A) FURTHER ERRED IN CONFIRMING THE COMPUTATION OF DISALLOWANCE BY AO MAKING APPLICABLE THE PROVISIONS OF RULE 8D NOT APPRECIATING THE CONTENTION OF THE APPELLANT THAT THE RULE WAS MADE APPLICABLE FROM THE ASSESSME NT YEAR 2008/09 AND WAS NOT APPLICABLE TO THE YEAR UNDER CO NSIDERATION. UNDER THE FACTS OF THE CASE ID. CIT (A) OUGHT TO HAVE ACCEPTED THE VOLUNTA RY DISALLOWANCE OFFERED BY THE APPELLANT FOR TAXATION U/S 14A OF THE ACT. 2. LD. CIT (A) HAS ERRED IN LAW AND ON FACTS IN CONFIR MING DISALLOWANCE OF RS. 47, 403/- MADE BY AO U/S 43B OF THE ACT. BOTH THE LOWER AUTHO RITIES FAILED TO APPRECIATE THAT THE EMPLOYEES CONTRIBUTION TO ESIC THOUGH PAID BEYOND T HE DATES PRESCRIBED, WAS PAID BEFORE THE DUE DATE OF FILING OF RETURN. LD. CIT (A ) OUGHT TO HAVE DELETED THE DISALLOWANCE IN LIGHT OF VARIOUS JUDICIAL AUTHORITIES CITED BEFO RE HIM. 1 ST GROUND IS WITH RESPECT TO CONFIRMING DISALLOWANCE OF RS. 2,72,587/- U/S. 14A 4. DURING THE COURSE OF ASSESSMENT PROCEEDINGS, A.O NOTICED THAT ASSESSEE HAS CLAIMED EXEMPT DIVIDEND INCOME OF RS. 2,08,945/ - AGAINST WHICH AN ADHOC DISALLOWANCE OF RS. 25,000/- WAS OFFERED U/S. 14A OF THE ACT. A.O WAS OF THE VIEW THAT THE AMOUNT PROPOSED FOR DISALLOWAN CE BY THE ASSESSEE WAS EXTREMELY LOW. HE THEREFORE FOLLOWING THE METHOD PR ESCRIBED UNDER RULE 8D OF THE INCOME TAX RULES, WORKED OUT THE DISALLOWANCE A T RS. 2,97,587/- AND AFTER GIVING THE CREDIT OF RS. 25,000/- WHICH WAS S UO MOTO DISALLOWED BY THE ASSESSEE, MADE A FURTHER DISALLOWANCE OF RS.. 2,72, 587/-. AGGRIEVED BY THE ORDER OF A.O, ASSESSEE CARRIED THE MATTER BEFORE CI T(A). CIT(A) CONFIRMED THE ORDER OF A.O BY HOLDING AS UNDER:- 2.3 I HAVE CONSIDERED THE FACTS OF THE CASE, ASSESS MENT ORDER AND APPELLANT'S SUBMISSION. IT IS NOT IN DISPUTE THAT APPELLANT EARNED EXEMPT INCO ME IN THE FORM OF DIVIDEND ON INVESTMENT OF MORE THAN RS 1.15 CRORES. IT IS ALSO NOT IN DISP UTE THAT APPELLANT BORROWED FUNDS ON WHICH INTEREST TO THE EXTENT OF RS 50.76 LAKHS WERE PAID. APART FROM THIS SUBSTANTIAL ADMINISTRATIVE EXPENSES WERE INCURRED, PART OF WHICH MAY RELATE TO INVESTMENT RESULTING IN EXEMPT INCOME. CONSIDERING THESE FACTS IT IS CLEAR THAT THERE ARE EXPENSES IN THE FORM OF INTEREST AND OTHER ADMINISTRATIVE EXPENSES RELATABLE TO EARNING OF EXE MPT INCOME WHICH ARE TO BE DISALLOWED UNDER SECTION 14 A. THEREFORE DISALLOWANCE UNDER SE CTION 14 A IS NECESSARY. ITA NO 904/AHD/2011 . A.Y. 2007- 08 3 COMING TO THE METHOD OF COMPUTING DISALLOWANCE UNDE R SECTION 14 A, ASSESSING OFFICER DISALLOWED EXPENSES RELATABLE TO EXEMPT INCOME AS P ER RULE 8D. UP TO 2007-08 THE METHOD TO ARRIVE AT DISALLOWABLE EXPENSE WAS ESTIMATION. THER EAFTER RULE 8D WAS FRAMED WHICH GIVES FORMULA TO DISALLOWANCE OF EXPENSES RELATING TO EXE MPT INCOME. FOR INTEREST, PROPORTIONATE EXPENSE IS DISALLOWABLE WHEREAS FOR OTHER EXPENSES .5% OF INVESTMENT VALUE IS DISALLOWABLE. APPELLANT DISALLOWED RS 25,000 UNDER SECTION 14 A W ITHOUT ANY BASIS. CONSIDERING THE FACT THAT APPELLANT CLAIMED MORE THAN RS 16 CRORES ADMIN ISTRATIVE AND OTHER EXPENSES, THE DISALLOWANCE OF ADMINISTRATIVE EXPENSES MADE BY THE ASSESSING OFFICER RUPEES 57288 IS QUITE REASONABLE AND THEREFORE THE SAME IS CONFIRMED. AS REGARDS INTEREST, APPELLANT SUBMITTED THAT IT WA S HAVING INTEREST FREE FUNDS AND PROFIT THEREFORE NO INTEREST IS RELATABLE TO INVESTMENT RE SULTING IN EXEMPT INCOME. HOWEVER IT IS SEEN THAT APPELLANT BORROWED MORE THAN RS 1.7 CRORES WHI CH WAS USED IN BUSINESS PURPOSE AS WELL AS INVESTMENT SINCE COMMON FUNDS ARE MAINTAINE D AND APPELLANT COULD NOT IDENTIFY THE IMMEDIATE SOURCE OF INVESTMENT. IN VIEW OF THIS THE DECISIONS RELIED UPON BY THE APPELLANT ARE NOT APPLICABLE. CONSIDERING THE FACT THAT EXPENSES RELATING TO EXEMPT INCOME ARE TO BE ESTIMATED AND RULE 8D GIVES BASIS FOR COMPUTING SUC H DISALLOWANCE, THEREFORE THE DISALLOWANCE UNDER SECTION 14 A MADE BY THE ASSESSI NG OFFICER AS PER RULE 8D IS CONFIRMED. 5. AGGRIEVED BY THE ORDER OF CIT(A), ASSESSEE IS NO W IN APPEAL BEFORE US. 6. BEFORE US, LD. A.R. SUBMITTED THAT THE PROVISION S OF RULE 8D ARE NOT APPLICABLE FOR THE YEAR UNDER CONSIDERATION IN VIEW OF THE DEC ISION OF HONBLE BOMBAY HIGH COURT IN THE CASE OF GODREJ & BOYCE LTD. 328 I TR 81 (BOM). SHE FURTHER SUBMITTED THAT ASSESSEE WAS HAVING SUFFICIENT INTER EST FREE FUNDS IN THE FORM OF SHARE CAPITAL AND RESERVES AND SURPLUS AND THE S AME WERE FAR IN EXCESS OF THE INVESTMENTS AND THEREFORE THE PRESUMPTION WAS T HAT NO INTEREST BEARING FUNDS HAVE BEEN USED FOR MAKING INVESTMENT. SHE PLA CED RELIANCE ON THE DECISION OF HONBLE GUJARAT HIGH COURT IN THE CASE OF CIT VS. AMOD STAMPING PVT. LTD. (2014) 45 TAXMAN.COM. 427 (GUJ.). SHE ALS O POINTED TO THE BALANCE SHEET PLACED AT PAGE 17 OF THE PAPER BOOK TO DEMONS TRATE THE AVAILABILITY OF FUNDS. SHE THEREFORE SUBMITTED THAT NO DISALLOWANCE U/S. 14A WAS CALLED FOR. THE LD. D.R. ON THE OTHER HAND RELIED ON THE ORDER OF A.O AND CIT(A). 7. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL ON RECORD. IT IS AN UNDISPUTED FACT THAT ASSESSEE HAD EARNED TAX FRE E INCOME IN THE FORM OF DIVIDEND TO THE TUNE OF RS 2,08,945/-. BEFORE US, ASSESSEE HAS SUBMITTED THAT THE INTEREST FREE FUNDS AVAILABLE WITH THE ASS ESSEE ARE IN EXCESS OF INVESTMENTS. THIS FACT HAS NOT BEEN CONTROVERTED BY REVENUE BY BRINGING ANY CONTRARY MATERIAL ON RECORD. WE FIND THAT HONBLE G UJARAT HIGH COURT IN THE ITA NO 904/AHD/2011 . A.Y. 2007- 08 4 CASE OF CIT VS. AMOD STAMPING P. LTD. 2014 45 TAXMA N. COM 427 (GUJ.) RELYING ON THE DECISION IN THE CASE OF RELIANCE UTI LITIES AND POWER LTD. (SUPRA) AND IN THE CASE OF CIT VS. GUJARAT STATE FERTILIZER S AND CHEMICALS LTD. 2013 358 ITR 323 HAS HELD THAT WHEN ASSESSEE WAS HAVING INTEREST FREE FUNDS FAR IN EXCESS OF INVESTMENT IT CAN BE SAID THAT THE INV ESTMENTS ARE MADE OUT OF INTEREST FREE FUNDS. FURTHER THE YEAR UNDER APPEAL BEFORE US IS A.Y. 2007-08 AND IN THE YEAR UNDER APPEAL THE PROVISIONS OF RULE 8D ARE NOT APPLICABLE IN VIEW OF THE DECISION OF HONBLE BOMBAY HIGH COURT I N THE CASE OF GODREJ & BOYCE LTD. (SUPRA). CONSIDERING THE AFORESAID FACTS AND IN VIEW OF THE FACT THAT THE ASSESSEE HAS SUO MOTO DISALLOWED RS. 25,000/- U /S. 14A AND AGAINST WHICH ASSESSEE IS NOT AN APPEAL, WE ARE OF THE VIEW THAT IN THE PRESENT CASE NO FURTHER DISALLOWANCE OVER AND ABOVE THEN WHAT IS MADE BY THE ASSESSEE U/S. 14A READ WITH RULE 8D IS CALLED FOR. IN THE RE SULT, THE APPEAL OF ASSESSEE IS ALLOWED. GROUND NO. 2 IS WITH RESPECT TO DISALLOWANCE OF RS. 47,403/- 8. BEFORE US, LD. A.R. AT THE OUTSET SUBMITTED THAT ON ACCOUNT OF DELAY IN PAYMENT OF EMPLOYEES SHARE OF CONTRIBUTION TO ESIC, THE AMOUNT WAS CONSIDERED AS TAXABLE U/S. 2 (24)(X) READ WITH EXPL ANATION TO SECTION 36(1)(VA) BY THE A.O. SHE FAIRLY CONCEDED THAT THIS GROUND HAS TO BE DECIDED AGAINST THE ASSESSEE IN VIEW OF THE DECISION OF HON BLE GUJARAT HIGH COURT IN THE CASE OF GUJARAT STATE ROAD TRANSPORT CORPORATIO N. THE LD. D.R. DID NOT OBJECT TO THE SUBMISSION OF LD. A.R. 9. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL ON RECORD. IN THE PRESENT CASE, IT IS AN ADMITTED FACT THAT THE A MOUNT OF EMPLOYEES CONTRIBUTION TOWARDS ESIC HAS BEEN DEPOSITED BEYOND THE DUE DATES PRESCRIBED UNDER THE RELEVANT ACT. THE HONBLE GUJA RAT HIGH COURT IN THE CASE OF GUJARAT STATE ROAD TRANSPORT CORPORATION IN ITA NO 637/AHD/2013 HAS HELD AS UNDER:- ITA NO 904/AHD/2011 . A.Y. 2007- 08 5 'ANY SUM WITH RESPECT TO THE EMPLOYEES CONTRIBUTION AS MENTIONED IN S. 36(L)(VA), ASSESSEE SHALL BE ENTITLED TO THE DEDUCT ION OF SUCH SUM TOWARDS THE EMPLOYEES CONTRIBUTION IF THE SAME IS DEPOSITED IN THE ACCOUNTS OF THE CONCERNED EMPLOYEES AND IN THE CONCERNED FUND SUCH AS PROVIDENT FUND, ESI CONTRIBUTION FUND, ETC PROVIDED THE SAID SUM IS CREDITED BY THE ASSESSEE TO THE EMPLOYEES ACCOUNTS IN THE RELEVANT FUND OR FUNDS ON OR BEFORE THE 'DUE DATE' UNDER THE PROVIDENT FUND ACT, ESI ACT, RULE, ORDER OR NOTIFICATION ISSUED THEREUNDER OR UNDER ANY STAN DING ORDER, AWARD, CONTRACT OR SERVICE OR OTHERWISE. ..' 10. IN VIEW OF THE UNDISPUTED FACT THAT THE EMPLOYE ES SHARE OF CONTRIBUTION OF ESIC WAS PAID AFTER THE PRESCRIBED DUE DATE, AND RE LYING ON THE AFORESAID DECISION OF HON'BLE GUJARAT HIGH COURT, WE FIND NO REASON TO INTERFERE WITH THE ORDER OF CIT(A) AND THUS THIS GROUND OF ASSESSEE IS DISMISSED. 11. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS PARTLY ALLOWED. ORDER PRONOUNCED IN OPEN COURT ON 25 -07 - 2014. SD/- SD/- (MUKUL KR. SHRAWAT) (ANIL CHATURVEDI) JUDICIAL MEMBER ACCOUNTANT MEMBER AHMEDABAD. TRUE COPY RAJESH COPY OF THE ORDER FORWARDED TO: - 1. THE APPELLANT. 2. THE RESPONDENT. 3. THE CIT (APPEALS) 4. THE CIT CONCERNED. 5. THE DR., ITAT, AHMEDABAD. 6. GUARD FILE. BY ORDER DEPUTY/ASSTT.REGISTRAR ITAT, AHMEDABAD