The DCIT, Circle-1, Ahmedabad V. AIA Engineering Ltd., Ahmedabad

ITA 922/AHD/2012

• Counselvise Citation: [2015] 140 COUNSELVISE.COM (IT) 89747 (ITAT-AHMEDABAD)
• Duration Of Justice: 3 year(s) 2 month(s) 27 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 23-07-2015
• Appeal Filed By: Department
• Order Result: Partly Allowed
• Bench Allotted: C
• Next Hearing Date: 10-07-2015
• Assessment Year: 2007-2008
• Appeal Filed On: 26-04-2012
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Assessee Lawyers: VIBHA BHALLA
• Keywords: Depreciation; Earning of tax free income
• Section: 143(3); 14A

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL C BENCH, AHMEDABAD (BEFORE SHRI SHAILENDRA KR. YADAV, J.M. & SHRI ANIL CHATURVEDI, A.M.) I.T. A. NOS. 889 & 922/AHD/2012 (ASSESSMENT YEAR: 2007-08) AIA ENGINEERING LTD.. 115, G.V.M.M ESTATE, ODHAV ROAD, ODHAV, AHMEDABAD GUJARAT-382410 V/S THE ACIT, CIRCLE-1, AHMEDABAD (APPELLANT) (RESPONDENT) THE ACIT, CIRCLE-1, AHMEDABAD V/S AIA ENGINEERING LTD.. 115, G.V.M.M ESTATE, ODHAV ROAD, ODHAV, AHMEDABAD GUJARAT-382410 (APPELLANT) (RESPONDENT) PAN: AABCA 2777J APPELLANT BY : SHRI TUSHAR HEMANI RESPONDENT BY : SMT. VIBHA BHALLA, CIT/DR ( )/ ORDER DATE OF HEARING : 10-07-2015 DATE OF PRONOUNCEMENT : 23 -07-2015 PER ANIL CHATURVEDI, ACCOUNTANT MEMBER 1. THESE 2 APPEALS OF WHICH 1 IS FILED BY THE ASSESSEE AND THE OTHER IS FILED BY THE REVENUE ARE AGAINST THE ORDER OF CIT(A)-6, AHME DABAD DATED 21.02.2012 FOR A.Y. 2007-08. 2. THE RELEVANT FACTS AS CULLED OUT FROM THE MATERIAL ON RECORD ARE AS UNDER. ITA NO 889 & 922/AHD/2012 . A.Y. 2007-08 2 3. ASSESSEE IS A COMPANY STATED TO BE ENGAGED IN THE B USINESS OF MANUFACTURING AND TRADING OF ALLOY STEEL CASTING. ASSESSEE FILED ITS RETURN OF INCOME FOR A.Y. 2007-08 ON 31.10.2007 DECLARING TOTAL INCOME O F RS. 87, 17,27,190/-. THE CASE WAS SELECTED FOR SCRUTINY AND THEREAFTER T HE ASSESSMENT WAS FRAMED UNDER SECTION 143(3) R.W.S. 144C VIDE ORDER DATED 22.2.2011 AND THE TOTAL INCOME WAS DETERMINED AT RS. 109,31,16,073/-. AGGR IEVED BY THE ORDER OF A.O., ASSESSEE CARRIED THE MATTER BEFORE LD. CIT(A) WHO VIDE ORDER DATED 21.02.2012 GRANTED PARTIAL RELIEF TO THE ASSESSEE. AGGRIEVED BY THE AFORESAID ORDER OF LD. CIT(A), ASSESSEE AND REVENUE ARE NOW IN APPEAL BEFORE US. THE GROUNDS RAISED BY THE ASSESSEE READS AS UNDER:- 1.1 THE COMMISSIONER OF INCOME TAX (APPEALS) ['CIT(A)'] ERRED IN MAKING AN ADDITIONAL DISALLOWANCE OF RS. 14,65,232 UNDER SECT ION 14A OF THE ACT. 1.2 THE APPELLANT HAS NOT MADE ANY BORROWINGS FOR THE P URPOSE OF INVESTMENTS. THEREFORE, NO INTEREST EXPENSE HAS BEEN INCURRED IN RELATION TO INVESTMENTS. 1.3 THE CIT(A) ERRED IN CONFIRMING THE APPROACH OF THE ASSESSING OFFICER ('AO') TO DISALLOW THE INTEREST EXPENSE OF RS 14,65,232 ON TH E BASIS OF PRORATION OF INTEREST EXPENSES BY DIVIDING AVERAGE VALUE OF INVE STMENT TO AVERAGE VALUE OF TOTAL ASSETS. 1.4 THE ABOVE METHOD APPEARS IN RULE 8D OF THE INCOME T AX RULES, 1961 ('THE RULES') AND RULE 8D DOES NOT APPLY TO THE YEAR UNDER CONSID ERATION AS HELD IN THE APPELLANT'S OWN CASE FOR AY 2006-07 BY THE HONORABL E JURISDICTIONAL TRIBUNAL VIDE ITS ORDER DATED 19 JANUARY 2012. 1.5 THE APPELLANT SUO-MOTU OFFERED RS. 16,30,762 ON THE BASIS OF APPORTIONMENT OF INDIRECT EXPENSES IN THE RATIO OF DIVIDEND INCOME T O TOTAL INCOME. WHILE WORKING OUT THIS DISALLOWANCE OF RS. 16, 30, 762 THE APPELL ANT HAS ALREADY INCLUDED INTEREST EXPENSES OF RS. 47.45 LAKHS. 1.6 THE APPELLANT SUBMITS THAT THE APPROACH FOLLOWED BY THE CIT(A) BEING AKIN TO RULE 8D AND AS MENTIONED ABOVE RULE 8D DOES NOT APP LY TO THE YEAR UNDER CONSIDERATION, THEREFORE THE DISALLOWANCE OF RS. 14 ,65,232 SHOULD DELETED AND THE AMOUNT OF DISALLOWANCE SHOULD BE RESTRICTED TO RS 1 6,30,762. 1.7 THE APPELLANT PRAYS THAT THE DISALLOWANCE OF RS. 14 ,65,232 MADE BY THE AO AND CONFIRMED BY THE CIT(A) IS ERRONEOUS, UNWARRANTED A ND BE DELETED. 4. ON THE OTHER HAND THE GROUND RAISED BY THE REVENUE READS AS UNDER:- 1. THE ID. CIT(A) ERRED IN LAW AND ON FACTS IN DIRECTI NG THE AO TO ALLOW IF THE EMPLOYEES' CONTRIBUTION TO ESI IS PAID BEFORE THE D UE DATE OF FILING OF RETURN. EMPLOYEE CONTRIBUTIONS ARE NOT COVERED BY SECTION 4 3B OF THE ACT, BUT COVERED U/S ITA NO 889 & 922/AHD/2012 . A.Y. 2007-08 3 36(1)(V) R.W.S. 2(24)(X) OF THE ACT. PARLIAMENT HAS PROVIDED SEPARATE SECTION TO DISALLOWANCE FOR 'EMPLOYEE CONTRIBUTION' IF NOT PAI D WITHIN THE TIME ALLOWED UNDER THE RELEVANT ACT. 2. THE ID, CIT(A) ERRED IN LAW AND ON FACTS IN DELETIN G THE DISALLOWANCE OF RS.53,39,722/- U/S 14A R.W. RULE 8D OF I.T. RULES, 1962. 3. THE ID. CIT(A) ERRED IN LAW AND ON FACTS IN DELETIN G THE ADDITION OF INCOME FROM INVESTMENTS IN FREE ZONE ENTITY IN THE AJMAN FREE Z ONE AMOUNTING TO RS.21,24,75,000/-. WE FIRST TAKE UP ASSESSEES APPEAL IN ITA NO. 889/A HD/2012 5. THOUGH VARIOUS GROUNDS HAVE BEEN RAISED BUT THE ONL Y ISSUE IS WITH RESPECT TO DISALLOWANCE U/S. 14A. 6. DURING THE COURSE OF ASSESSMENT PROCEEDINGS, A.O NO TICED THAT ASSESSEE HAS EARNED DIVIDEND INCOME TO THE TUNE OF RS. 7,49,28,9 62/- WHICH WAS EXEMPT FROM TAX. HE ALSO NOTICED THAT ASSESSEE HAD INVESTM ENTS TO THE TUNE OF RS. 164 CRORES AND THE EXEMPT INCOME CONSTITUTED 11% OF THE TOTAL PROFITS EARNED BUT ASSESSEE HAD NOT DISALLOWED ANY AMOUNT AS PER T HE PROVISIONS OF SECTION 14A OF THE ACT. THE ASSESSEE WAS THEREFORE ASKED TO JUSTIFY OF NO DISALLOWANCE U/S. 14A TO WHICH ASSESSEE INTERALIA SUBMITTED THAT PROVISIONS OF RULE 8D OF THE I.T. RULES ARE APPLICABLE FROM A. Y. 08-09 AND NOT APPLICABLE TO THE YEAR UNDER CONSIDERATION AND FURT HER ASSESSEE HAD NOT UTILIZED ANY BORROWED FUNDS FOR THE PURPOSE OF INVE STMENT AND THE OWN FREE FUNDS WERE FAR IN EXCESS OF THE INVESTMENTS AND THE REFORE IN SUCH A CASE THE PRESUMPTION WAS THAT THE INVESTMENTS HAVE BEEN MADE OUT OF FREE FUNDS AND NOT BORROWED FUNDS AND THEREFORE NO DISALLOWANCE OF INTEREST WAS REQUIRED. THE ASSESSEE DURING THE COURSE OF ASSESSMENT PROCEE DINGS HOWEVER WORKED OUT THE DISALLOWANCE U/S. 14A AT RS. 16,30,762/- AN D REQUESTED THE A.O TO CONSIDER THE SAME FOR DISALLOWANCE. THE SUBMISSION OF THE ASSESSEE WAS NOT ITA NO 889 & 922/AHD/2012 . A.Y. 2007-08 4 FOUND ACCEPTABLE TO THE A.O FOR THE REASON THAT ASS ESSEE HAS NOT MAINTAINED SEPARATE ACCOUNTS IN RELATION TO THE INCOME THAT DO ES NOT FORM PART OF THE TOTAL INCOME. A.O WAS FURTHER OF THE VIEW RETURNS O N INVESTMENT IS NOT AUTOMATIC AND INVOLVES TIME, ENERGY AND RESOURCES I N TERMS OF FINANCE, ADMINISTRATION, DECISION MAKING AND MANAGING THE AC TIVITIES INVOLVING THE BUYING AND SELLING OF INVESTMENTS, RE-INVESTMENT OF DIVIDEND. HE ALSO NOTICED THAT ASSESSEE WHILE WORKING THE DISALLOWANC E DURING THE COURSE OF ASSESSMENT PROCEEDINGS HAD BIFURCATED THE INDIRECT AND COMMON EXPENSES INTO RELATED AND NON RELATED EXPENSES WHICH ACCORDI NG TO HIM WAS WITHOUT ANY RATIONALE AND THE APPORTIONMENT OF THE EXPENSES ON THE BASIS OF RATIO OF EXEMPT INCOME TO THE TOTAL TURNOVER WAS ARBITRARY. HE WAS OF THE VIEW THAT THE BETTER WAY FOR APPORTIONING THE RELATED EXPENSE S WOULD HAVE BEEN IN THE PROPORTION OF EXEMPT INCOME AND THE TAXABLE INCOME. HE WAS OF THE VIEW THAT THE METHOD PRESCRIBED IN RULE 8D OF THE I.T. R ULES WOULD BE LOGICAL METHOD FOR WORKING OUT THE DISALLOWANCE. HE ACCORDI NGLY WORKED OUT THE DISALLOWANCE U/S. 14A AT RS. 84,35,716/-. AGGRIEVED BY THE ORDER OF A.O., ASSESSEE CARRIED THE MATTER BEFORE LD. CIT(A) WHO A FTER CONSIDERING THE SUBMISSIONS OF THE ASSESSEE GRANTED PARTIAL RELIEF TO THE ASSESSEE BY HOLDING AS UNDER:- 3.3 I HAVE CONSIDERED THE FACTS OF THE CASE, ASSESS MENT ORDER AND APPELLANTS SUBMISSION. ASSESSING OFFICER MADE THE SIMILAR ADDI TION IN ASSESSMENT YEAR 2006-07 WHICH WAS CONFIRMED BY DRP AGAINST WHICH APPELLANT PREFERRED APPEAL IN ITAT. !TAT AHMEDABAD BY ORDER DATED 23RD OF JANUARY 2012 IN IT A NUMBER 530/AHD/2011 DECIDED THE ISSUE PARTLY IN FAVOUR OF THE APPELLANT. THE DE CISION OF ITAT ON THIS ISSUE IS IN PARA- 26 OF THE SAID ORDER WHICH IS QUOTED BELOW- '26. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS PERUS ED THE MATERIAL ON RECORD AND HAVE GONE THROUGH THE ORDERS OF AUTHORITIES BELOW. WE FIND THAT THIS IS NOW A SETTLED LEGAL POSITION THAT RULE 8D IS NOT APPLICABLE IN ASSESSME NT YEAR 2006-07.THE ASSESSEE HAS GIVEN WORKING REGARDING INTEREST EXPENDITURE WHICH CAN BE ATTRIBUTED FOR INVESTMENT IN SHARES/MUTUAL FUNDS ON WHICH -DI VIDEND INCOME WAS EARNED BY THE ASSESSEE AND THE SAME HAS BEEN WORKED OUT AT RS.6,9 6,609/-. THE LD. D.R. COULD NOT POINT OUT ANY MISTAKE IN THIS WORKING ON ACCOUNT OF INTER EST EXPENDITURE IN RESPECT OF ITA NO 889 & 922/AHD/2012 . A.Y. 2007-08 5 INVESTMENT IN SHARES/MUTUAL FUNDS. REGARDING INDI RECT EXPENDITURE, THE ASSESSEE HAS ALSO GIVEN WORKING AS PER WHICH ATTRIB UTABLE EXPENDITURE HAS BEEN WORKED OUT AT RS.4.52 LACS AND IN THIS WORKING ALSO, NO DEFECT COULD BE POINTED OUT BY THE LD. D.R. ON THE BASIS OF THESE TWO WORKINGS, THE TOTAL AMOUN T TO BE DISALLOWED U/S 14A COMES TO RS. 11,48,609/-. HENCE, WE CONFIRM THE DISALLOWANCE U/S 14A TO THIS EXTENT AND DELETE THE BALANCE DISALLOWANCE MADE BY THE A.O. THIS GROUND O F THE ASSESSEE IS PARTLY ALLOWED.' ASSESSING OFFICER MADE ADDITION IN RESPECT OF EXPEN SES RELATING TO EXEMPT INCOME UNDER SECTION 14A OF THE GROUND THAT APPELLANT DID NOT DI SALLOW ANY PART OF EXPENSE ALTHOUGH IT EARNED MORE THAN RS 7 CRORES EXEMPT INCOME. THE DIS ALLOWANCE WAS COMPUTED BY THE ASSESSING OFFICER AS PER RULE 8D. HOWEVER ITAT IN THE APPELLANT'S OWN CASE IN THE IMMEDIATE PRECEDING YEAR AS MENTIONED ABOVE HELD THAT RULE 8D IS APPLICABLE ONLY WITH EFFECT FROM ASSESSMENT YEAR 2008-09 AND THERE FORE DISALLOWANCE UNDER SECTION 14 A CANNOT BE MADE AS PER THE FORMULA GIVEN IN RULE 8 D FOR THIS ASSESSMENT YEAR. ACCORDINGLY RESPECTFULLY FOLLOWING THE DECISION OF JURISDICTIONAL ITAT IN THE APPELLANT'S CASE FOR ASSESSMENT YEAR 2006-07, IT IS HELD THAT DISALLOWANCE OF EXPENSES UNDER SECTION 14 A CANNOT BE MADE FOR ASSESSMENT YE AR 2007-08 AS PER RULE 8D. HOWEVER, EVEN WITHOUT APPLYING RULE 8D, DISALLOWANC E OF EXPENSES RELATING TO EXEMPT INCOME HAS TO BE MADE. APPELLANT QUANTIFIED THE DIS ALLOWANCE DURING ASSESSMENT PROCEEDING ON THE BASIS OF SALARY OF THE PERSON WORKING FOR INVESTMEN T DIVISION AND PROPORTIONATE INDIRECT EXPENSES RESULTING IN EXEMPT INCOME. THE DISALLOWANCE QUANTIFIED BY THE APPELLANT WAS RS 16,30,762. ASSESSING OFFICE R DID NOT AGREE WITH THIS DISALLOWANCE PROPOSED BY THE APPELLANT ON THE GROUND THAT APPELL ANT DID NOT CONSIDER CERTAIN EXPENSES AND AFTER CONSIDERING OF THE SAME THE INDIRECT EXPE NSES COMES TO RS 1022.68 LACS FOR MAKING THIS DISALLOWANCE. THE DIFFERENCE BETWEE N ASSESSING OFFICER AND APPELLANT'S QUANTIFICATION OF DISALLOWANCE IS ON TWO COUNTS- (1 ) ASSESSING OFFICER INCLUDED ENTIRE DEPRECIATION OF RS. 251.26 LAKHS AS AGAINST APPELLA NT'S RS 96.05 LAKHS WHICH WAS TREATED AS RELATED TO EXEMPT INCOME BY THE APPELLANT. (2) A PPELLANT CONSIDERED TOTAL INCOME AT RS. 42808,36 LAKHS AS AGAINST 8732.50 LAKHS CONSIDE RED BY THE ASSESSING OFFICER WHILE COMPUTING PROPORTIONATE DISALLOWANCE. AS FAR AS CONSIDERING THE ENTIRE DEPRECIATION AS INDIRECT EXPENSES FOR MAK ING PROPORTIONATE DISALLOWANCE, I DO NOT FIND MERIT IN ASSESSING OFFICER'S ACTION SINCE DEPR ECIATION FOR FACTORY BUILDING AND ETHER DIRECT EQUIPMENTS AND MACHINES ARE NOT RELATING TO INVESTMENT AND EARNING OF EXEMPT INCOME AND THEREFORE ENTIRE DEPRECIATION CANNOT BE CONSIDERED FOR MAKING PROPORTIONAL DISALLOWANCE. AS REGARDS DIFFERENCE IN THE FIGURE OF TOTAL INCOME ADOPTED FOR MAKING PROPORTIONAL DISALLOWANCE, ASSESSING OFFICER ADOPTED THE TAXABLE INCOME WHEREAS APPELLANT CONSIDERED TURNOVER/GROSS REVENUE AS THE BASIS OF APPORTIONMEN T. NORMALLY INDIRECT EXPENSES ARE APPORTIONED IN THE RATIO OF TURNOVER AS PER ACCOUNT ING POLICIES AND THEREFORE THERE IS MERIT IN APPELLANT'S METHOD. HOWEVER THE SAME METHOD WILL NOT BE APPLICABLE WITH REGARD TO INTEREST DISALLOWANCE WHICH IS BASED ON I NVESTMENTS, AND FUNDS UTILIZED. CONSIDERING THIS, THE DISALLOWANCE OF INDIRECT EXPE NSES MADE BY THE ASSESSING OFFICER IS RESTRICTED TO RS 16,30,762 EXCLUDING INTEREST DISAL LOWANCE. AS REGARDS INTEREST DISALLOWANCE, WHICH WAS ALS O CONFIRMED SEPARATELY BY ITAT IN ASSESSMENT YEAR 2006-07, THE DISALLOWANCE IS TO BE WORKED OUT IN PROPORTION TO FUNDS USED IN EXEMPT INVESTMENTS AS COMPARED TO TOTAL ASS ETS. SINCE FORMULA GIVEN IN RULE 8D WORKS OUT DISALLOWANCE OF INTEREST AS PER THIS METH OD ONLY, THE INTEREST DISALLOWANCE ITA NO 889 & 922/AHD/2012 . A.Y. 2007-08 6 MADE BY THE ASSESSING OFFICER RS.14,65,232 IS ABSOL UTELY CORRECT AND JUSTIFIED. SINCE APPELLANT USED COMMON BANK ACCOUNTS FOR BOTH BUSINESS AS WELL AS INVESTMENT ACTIVITY, THERE IS NO DISTINCTION AS TO WHICH FUND (WHETHER BORROWED OR OWNED) WAS USED FOR INVESTMENT RESULTING ON EXEMPT INCOME. THEREFORE DISALLOWANCE OF INTEREST RELATING TO EARNING OF EXEMPT INCOME HAS TO BE IN PROPORTION TO EXEMPT INVESTMENT WITH TOTAL ASSETS OF THE BUSINESS. CONSIDERING THIS, THE INTEREST DISALLOWANCE MADE BY THE ASSESSING OFFICER RS 14,65,232 IS CONFIRMED. THE TOTAL DISALLOWANCE UNDER SECTION 14 A IS CONFIRMED TO THE EXTENT OF RS 16,30,762 PLUS RS14,6 5,232 TOTALING TO RS 30,95.994. 7. AGGRIEVED BY THE AFORESAID ORDER OF LD. CIT(A), ASS ESSEE AND REVENUE ARE NOW IN APPEAL BEFORE US. 8. BEFORE US, LD. A.R. REITERATED THE SUBMISSIONS MADE BEFORE A.O AND LD. CIT(A) AND FURTHER SUBMITTED THAT THE INTEREST FREE FUNDS AVAILABLE WITH THE ASSESSEE WERE FAR IN EXCESS OF THE INVESTMENT AND I N SUCH A CASE THE PRESUMPTION WOULD BE THAT THE INVESTMENTS ARE OUT O F INTEREST FREE FUNDS AND THEREFORE NO DISALLOWANCE ON ACCOUNT OF INTEREST EX PENDITURE WAS CALLED FOR AND FOR THIS PROPOSITION ASSESSEE PLACED RELIANCE O N THE FOLLOWING DECISIONS. (I) CIT VS. TORRENT POWER LTD. -363 ITR 474 (GUJ.) (II) CIT VS. SUZLON ENERGY LTD. 354 ITR 630 (GUJ.) (III) CIT VS. GUJARAT POWER CORPORATION LTD. 352 ITR 583 (GUJ.) (IV) CIT VS. HITACHI HOME AND LIFE SOLUTIONS (I). LTD. (2014) 41 TAXMANN.COM 540 (GUJ.) (V) CIT VS. RELIANCE UTILITIES & POWER LTD. 313 ITR 3 40 (BOM) (VI) MUNJAL SALES CORPORATION VS. CIT 298 ITR 298 (SC) 9. LD. A.R. FURTHER SUBMITTED THAT LD. CIT(A) CONFIRME D THE DISALLOWANCE OF RS. 14,65,232/- U/S. 14A IN RESPECT OF INTEREST WHI CH WAS WORKED OUT BY THE A.O BASED ON RULE 8D. HE SUBMITTED THAT SINCE THE P ROVISIONS OF RULE 8D WERE NOT APPLICABLE FOR THE YEAR UNDER CONSIDERATIO N IT WAS NOT TENABLE IN THE ITA NO 889 & 922/AHD/2012 . A.Y. 2007-08 7 EYES OF LAW TO CONFIRM PART DISALLOWANCE U/S. 14A B Y FOLLOWING THE MENTIONED PRESCRIBED UNDER RULE 8D. HE FURTHER SUBM ITTED THAT ASSESSEE HAD SUO MOTU OFFERED RS. 16,30,762/- AS DISALLOWANC E U/S. 14A AND NO MISTAKE IN THE DISALLOWANCE THAT WAS OFFERED BY ASS ESSEE HAS BEEN POINTED OUT BY THE A.O AND IN SUCH A SITUATION, THE DISALLO WANCE U/S. 14A AT A FIGURE DIFFERENT THAN THE DISALLOWANCE SUO MOTU OFFERED BY THE ASSESSEE IS NOT PERMISSIBLE. HE FURTHER SUBMITTED THAT THE METHODOL OGY ADOPTED BY THE A.O FOR WORKING OUT DISALLOWANCE U/S. 14A WAS ALSO ERRO NEOUS SINCE FIRSTLY HE HAS CONSIDERED ENTIRE DEPRECIATION AS AGAINST THE D EPRECIATION ON ASSETS RELATED TO EXEMPT INCOME AND SECONDLY HE HAS CONSID ERED TAXABLE INCOME AS AGAINST THE TOTAL INCOME. HE THEREFORE SUBMITTED TH AT WHEN THE METHODOLOGY USED FOR WORKING OUT DISALLOWANCE U/S. 14A ITSELF I S ERRONEOUS, THE ENTIRE DISALLOWANCE U/S. 14A MADE BY THE A.O NEEDS TO BE D ELETED. THE LD. D.R ON THE OTHER HAND SUPPORTED THE ORDER OF A.O. 10. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL ON RECORD. IT IS AN UNDISPUTED FACT THAT FOR THE YEAR UNDER CONSIDER ATION THE METHOD PRESCRIBED UNDER RULE 8D FOR WORKING THE DISALLOWAN CE U/S. 14A WOULD NOT BE APPLICABLE IN VIEW OF THE DECISION OF HONBLE BO MBAY HIGH COURT IN THE CASE OF GODREJ & BOYCE 328 ITR 81 (BOM) WHEREIN THE HONBLE HIGH COURT HAS HELD THAT THE METHOD PRESCRIBED UNDER RULE 8D W OULD BE APPLICABLE TO A.Y. 08-09 AND SUBSEQUENT ASSESSMENT YEARS. WE FURT HER FIND THAT THE CO- ORDINATE BENCH OF TRIBUNAL IN ASSESSEES OWN CASE F OR A.Y. 06-07 HAD HELD THAT RULE 8D IS APPLICABLE ONLY WITH EFFECT FROM A. Y. 08-09 AND THEREFORE DISALLOWANCE U/S. 14A CANNOT BE MADE AS PER THE FOR MULA GIVEN IN RULE 8D. WITH RESPECT TO WORKING OUT THE DISALLOWANCE WHEREB Y A.O CONSIDERED THE ENTIRE DEPRECIATION, WE FIND THAT LD. CIT(A) HAS NO TED THAT DEPRECIATION FOR ITA NO 889 & 922/AHD/2012 . A.Y. 2007-08 8 FACTORY BUILDING AND OTHER DIRECT EQUIPMENTS AND MA CHINES ARE NOT RELATED TO INVESTMENTS AND EARNING OF EXEMPT INCOME AND THEREF ORE THE DEPRECIATION CANNOT BE CONSIDERED FOR MAKING PROPORTIONATE DISAL LOWANCE. BEFORE US, REVENUE HAS NOT PLACED ANY MATERIAL ON RECORD TO DE MONSTRATE AS TO HOW THE AFORESAID FINDING OF LD. CIT(A) IS WRONG. WE FURTHE R FIND THAT THE ASSESSEE HAD SUO MOTU WORKED OUT THE DISALLOWANCE U/S. 14A A T RS. 16,30,762/- AND IN THE AFORESAID WORKING OF ASSESSEE ALSO NO MISTAKE H AS BEEN POINTED OUT BY THE REVENUE. FURTHER, IN VIEW OF THE DECISION OF HO NBLE BOMBAY HIGH COURT IN THE CASE OF GODREJ & BOYCE MFG. CO. LTD.(S UPRA) WHERE THE HONBLE HIGH COURT HAS HELD THAT RULE 8D WOULD BE A PPLICABLE FROM A.Y. 08-09 AND PRIOR TO THAT REASONABLE DISALLOWANCE MAY BE WORKED OUT BY A.O AND THE YEAR UNDER CONSIDERATION BEING A.Y. 07-08, WE ARE OF THE VIEW THAT NO DISALLOWANCE IN EXCESS OF THE AMOUNT THAT HAS BE EN WORKED OUT BY THE ASSESSEE (I.E. RS. 16,30,762/-) IS CALLED FOR. WE T HUS DIRECT THE DELETION BY THE DISALLOWANCE IN EXCESS OF THE DISALLOWANCE WORK ED OUT BY THE ASSESSEE OF RS. 16,30,762/-. THUS THE GROUND OF ASSESSEE IS ALLOWED. 11. IN THE RESULT, THE APPEAL OF ASSESSEE IS ALLOWED. NOW WE TAKE UP REVENUES APPEAL IN ITA NO. 922/AHD/2012 1 ST GROUND IS WITH RESPECT TO DISALLOWANCE OF EMPLOYEE S CONTRIBUTION TO ESIC. 12. DURING THE COURSE OF ASSESSMENT PROCEEDINGS AND ON PERUSING THE TAX AUDIT REPORT, A.O NOTICED THAT THERE WERE CERTAIN INSTANC ES WHERE THE EMPLOYEES CONTRIBUTION OF ESIC WAS NOT DEPOSITED WITH THE AUT HORITIES BEFORE THE ITA NO 889 & 922/AHD/2012 . A.Y. 2007-08 9 PRESCRIBED DUE DATE AND THE AGGREGATE OF SUCH DELAY ED DEPOSITS WAS RS. 36,313. A.O WAS OF THE VIEW THAT EMPLOYEES CONTRIBU TION IS TREATED AS INCOME U/S. 2(24)(X) OF THE ACT AND THE SAME IS ALL OWED AN EXPENSE IF IT IS PAID WITHIN THE PRESCRIBED DUE DATE. IF THE PAYMENT IS NOT MADE WITHIN DUE DATE THEN THE EXPENSE IS NOT ALLOWABLE U/S. 36(1)(V A) OF THE ACT. HE ACCORDINGLY CONSIDERED THE DELAYED PAYMENT OF RS. 3 6,313/- OF EMPLOYEES CONTRIBUTION TOWARDS ESIC TO BE AS INCOME OF THE AS SESSEE. AGGRIEVED BY THE ORDER OF A.O., ASSESSEE CARRIED THE MATTER BEFO RE LD. CIT(A) WHO DECIDED THE ISSUE IN FAVOUR OF THE ASSESSEE BY HOLD ING AS UNDER:- 4.3 I HAVE CONSIDERED THE FACTS OF THE CASE; ASSESS MENT ORDER AND APPELLANT'S SUBMISSION. THIS ISSUE IS COVERED IN FAVOR OF THE APPELLANT BY THE SEVERAL DECISIONS OF JURISDICTIONAL ITAT. DELHI HIGH COURT ALSO HELD THAT IF EMPLOYEE'S CONTRIBUTION IS DEPOSITED BEFORE DUE DATE OF FILING RETURN, THE SAME IS ALLOWABLE. RESPE CTFULLY FOLLOWING THESE DECISIONS, ASSESSING OFFICER IS DIRECTED TO ALLOW EMPLOYEE'S C ONTRIBUTION TO ESI IF THE SAME IS PAID BEFORE DUE DATE OF FILING RETURN. 13. AGGRIEVED BY THE AFORESAID ORDER OF LD. CIT(A), RE VENUE IS NOW IN APPEAL BEFORE US. 14. BEFORE US, LD. D.R. SUBMITTED THAT THE DELAYED PAY MENT OF ESIC CONTRIBUTION IS NOW COVERED AGAINST THE ASSESSEE BY THE DECISION OF HONBLE GUJARAT HIGH COURT IN THE CASE OF GUJARAT STATE ROA D TRANSPORT CORPORATION 366 ITR 170. HE THEREFORE SUBMITTED THAT IN VIEW OF THE DECISION OF JURISDICTIONAL HIGH COURT THE ORDER OF A.O BE UPHEL D. THE LD. A.R DID NOT OBJECT TO THE SUBMISSION MADE BY LD. D.R. 15. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL ON RECORD. IN THE PRESENT CASE, IT IS AN UNDISPUTED FACT THAT THE EMPLOYEES CONTRIBUTION OF ITA NO 889 & 922/AHD/2012 . A.Y. 2007-08 10 ESIC WAS PAID AFTER THE DUE DATE PRESCRIBED UNDER E SI ACT. WE FIND THAT THE ISSUE OF DELAYED PAYMENT OF ESIC CONTRIBUTION HAS N OW DECIDED IN FAVOUR OF THE REVENUE BY THE DECISION OF HONBLE GUJARAT HIGH COURT IN THE CASE OF GSRTC (SUPRA) WHERE THE HONBLE HIGH COURT HAS HELD AS UNDER:- 'ANY SUM WITH RESPECT TO THE EMPLOYEES CONTRIBUTION AS MENTIONED IN S. 36(L)(VA), ASSESSEE SHALL BE ENTITLED TO THE DEDUCTION OF SUCH SUM TOWARDS THE EMPLOYEES CONTRIBUTION IF THE SAME IS DEPOSITED IN THE ACCOUN TS OF THE CONCERNED EMPLOYEES AND IN THE CONCERNED FUND SUCH AS PROVIDENT FUND, ESI CONT RIBUTION FUND, ETC PROVIDED THE SAID SUM IS CREDITED BY THE ASSESSEE TO THE EMPLOYEES AC COUNTS IN THE RELEVANT FUND OR FUNDS ON OR BEFORE THE 'DUE DATE' UNDER THE PROVIDENT FUND A CT, ESI ACT, RULE, ORDER OR NOTIFICATION ISSUED THEREUNDER OR UNDER ANY STANDIN G ORDER, AWARD, CONTRACT OR SERVICE OR OTHERWISE. ..' 16. IN VIEW OF THE AFORESAID DECISION OF HONBLE GUJARA T HIGH COURT AND IN THE ABSENCE OF ANY CONTRARY BINDING DECISION BROUGHT ON RECORD BY LD. A.R, WE ARE OF THE VIEW THAT A.O WAS JUSTIFIED IN TREATING THE DELAYED DEPOSIT OF EMPLOYEES CONTRIBUTION OF ESIC AS INCOME OF THE ASS ESSEE AND ACCORDINGLY UPHOLD THE ORDER OF A.O ON THIS GROUND. IN THE RESU LT, THE GROUND OF REVENUE IS ALLOWED. GROUND NO. 2 IS WITH RESPECT TO DISALLOWANCE U/S. 14A. 17. BEFORE US, BOTH THE PARTIES SUBMITTED THAT THE PRES ENT GROUND IS INTERCONNECTED WITH GROUND NO. 1 OF ASSESSEES APPE AL AND THE SUBMISSIONS MADE BY THEM WHILE ARGUING THE APPEAL WOULD ALSO BE APPLICABLE TO THE PRESENT GROUND. IN VIEW OF THE AFORESAID SUBMISSION OF BOTH THE PARTIES, WE FOR THE REASONS STATED HEREINABOVE WHILE DECIDING T HE APPEAL FOR ASSESSEES ITA NO 889 & 922/AHD/2012 . A.Y. 2007-08 11 APPEAL IN ITA NO. 889/AHD/2011(SUPRA) AND FOR SIMIL AR REASONS DISMISS THE GROUND OF REVENUE. GROUND NO. 3 IS WITH RESPECT TO DELETING THE ADDITI ON BY INCOME FROM INVESTMENT IN FREE TRADE ZONE. 18. ON PERUSING THE ACCOUNTS OF THE ASSESSEE, A.O NOTIC ED THAT ASSESSEE HAD MADE INVESTMENTS IN EMIRATES OF AJMAN IN THE FORM O F FREE ZONE ENTITY BY THE NAME OF VEGA INDUSTRIES (MIDDLE EAST) FZE IN AJ MAN FREE ZONE AND HAD EARNED INCOME THROUGH IT AMOUNTING TO RS. 2124.75 L ACS AND WHICH WAS NOT OFFERED TO TAX. A.O ALSO NOTICED THAT SIMILAR ISSUE WAS INVOLVED IN A.Y. 06- 07 WHERE IT WAS HELD THAT VEGA INDUSTRIES (MIDDLE E AST) FZE TO BE A PROPRIETARY CONCERN OF THE ASSESSEE AND THE WHOLE O F INCOME EARNED BY IT WAS HELD TO BE TAXABLE IN INDIA U/S. 5(1) OF THE AC T. THE A.O THEREFORE CONSIDERED THE INCOME OF RS. 21,24,75,000/- EARNED FROM AFORESAID FREE ZONE ENTITY AS INCOME OF THE ASSESSEE. AGGRIEVED BY THE ORDER OF A.O., ASSESSEE CARRIED THE MATTER BEFORE LD. CIT(A) WHO D ELETED THE ADDITION BY HOLDING AS UNDER:- FROM THE AFORESAID DECISION OF JURISDICTIONAL ITAT IN THE APPELLANT'S OWN CASE ON THE SAME ISSUE IT IS CLEAR THAT VEGA ME IS HELD TO BE AN INDEPENDENT ENTITY AND NOT A PROPRIETORSHIP CONCERN OF THE APPELLANT. ITAT HAS MET WITH ALL THE ARGUMENTS OF THE ASSESSING OFFICER AND THEREFORE THE SAME ARE NO T REPEATED HERE. SINCE HIGHEST FACT-FINDING AUTHORITY HAS HELD THAT VEGA UAE IS AN INDEPENDENT CORPORATE BODY, THE PROFIT OF VEGA UAE CANNOT BE TAXED IN THE HANDS OF APPELLANT. RESPECTFULLY FOLLOWING THE DECISION OF JURISDICTIONAL TRIBUNAL I N THE APPELLANT'S OWN CASE IN THE IMMEDIATE PRECEDING YEAR ON THE IDENTICAL FACTS, IT IS HELD THAT VEGA UAE IS A SEPARATE COMPANY AND ACCORDINGLY PROFIT OF VEGA UAE CANNOT BE ADDED TO THE ITA NO 889 & 922/AHD/2012 . A.Y. 2007-08 12 INCOME OF THE APPELLANT. AS A RESULT OF THIS, ADDIT ION MADE BY THE ASSESSING OFFICER IS DELETED. 19. AGGRIEVED BY THE AFORESAID ORDER OF LD. CIT(A), REV ENUE IS NOW IN APPEAL BEFORE US. 20. BEFORE US, AT THE OUTSET LD. A.R. SUBMITTED THAT TH E ISSUE IN THE PRESENT CASE IS IDENTICAL TO THAT OF EARLIER YEARS AND IN EARLIER Y EARS, THE ISSUE WAS DECIDED IN FAVOUR OF THE ASSESSEE BY THE HONBLE TRIBUNAL IN I TA NO. 580/A/2011. HE ALSO PLACED ON RECORD THE COPY OF THE AFORESAID DEC ISION. HE THEREFORE SUBMITTED THAT SINCE THE ISSUE IS SQUARELY COVERED IN ASSESSEES FAVOUR AND THEREFORE NO INTERFERENCE TO THE ORDER OF LD. CIT(A ) IS CALLED FOR. THE LD. D.R. ON THE OTHER HAND SUPPORTED THE ORDER OF A.O AND LD . CIT(A). 21. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED TH E MATERIAL ON RECORD. WE FIND THAT LD. CIT(A) WHILE DELETING THE ADDITION HAS FOLLOWED THE DECISION OF TRIBUNAL FOR A.Y. 06-07 IN ASSESSEES O WN CASE. BEFORE US, REVENUE HAS NOT POINTED OUT ANY DISTINGUISHING FEAT URE IN THE FACTS OF THE CASE FOR THE YEAR UNDER CONSIDERATION AS COMPARED T O THAT OF A.Y. 06-07 WHICH WAS RELIED BY LD. CIT(A) NOR HAS PLACED ANY M ATERIAL ON RECORD TO DEMONSTRATE THAT THE AFORESAID DECISION OF CO-ORDIN ATE BENCH OF TRIBUNAL FOR A.Y. 06-07 IN ASSESSEES OWN CASE HAS BEEN OVERTURN ED BY HONBLE HIGH COURT. IN VIEW OF THE AFORESAID FACTS, WE THEREFORE FIND NO REASON TO INTERFERE WITH THE ORDER OF LD. CIT(A) AND THUS THE GROUND OF REVENUE IS DISMISSED. 22. THUS THE APPEAL OF REVENUE IS PARTLY ALLOWED. ITA NO 889 & 922/AHD/2012 . A.Y. 2007-08 13 23. IN THE RESULT, ASSESSEES APPEAL IS ALLOWED AND REV ENUES APPEAL IS PARTLY ALLOWED. ORDER PRONOUNCED IN OPEN COURT ON 23- 07 - 20 15. SD/- SD/- (SHAILENDRA KR. YADAV) (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,AHM EDABAD