M/s. Alidhara Texspin Engineers, Dadra & Nagar Haveli V. The Addl. CIT., Vapi Range, Vapi

ITA 963/AHD/2015

• Counselvise Citation: [2018] 118 COUNSELVISE.COM (IT) 2077 (ITAT-SURAT)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 08-06-2018
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: DB
• Assessment Year: 2011-2012
• Appeal Filed On: 17-04-2015
• Court: TRIBUNAL

Judgement Text

ALIDHRA TEXSPIN ENGINEERING V. ADDL. CIT- RANGE-VAPI1/I.T.A. NO.963/AHD/2015/A.Y.11-12 PAGE 1 OF 5 INCOM TAX APPELLATE TRIBUNAL SURAT-BENCH-SURAT BEFORE SHRI C .M. GARG, JUDICIAL MEMBER AND SHRI O. P. MEENA, ACCOUNTANT MEMBER I.T.A. NO.963/AHD/2015 : ASSESSMENT YEAR:2011-12 M/S. ALIDHRA TEX SPIN ENGINEERS PLOT NO.2, SURVEY NO. 122 GROUND FLOOR VAGDHARA ROAD , DADRA NAGAR HAVELI 396240, PAN: AAIFA 2434 N V S . ADDITIONAL COMMISSIONER OF INCOME TAX, VAPI RANGE, VAPI APPELLANT RESPONDENT ASSESSEE BY SHRI RASESH SHAH, CA REVENUE BY SHRI J. K. CHANDNANI, SR. D.R. DATE OF HEARING 08.06.2018 DATE OF PRONOUNCEMENT 18.06 .2018 ORDER PER O. P. MEENA, AM 1. THIS APPEAL BY THE REVENUE IS DIRECTED AGAINST THE ORDER OF LEARNED OF COMMISSIONER OF INCOME TAX (APPEALS)- VALSAD(IN SHORT THE CIT (A)) DATED 16.02.2015 FOR THE ASSESSMENT YEAR 2011-12, WHICH IN TURN HAS ARISEN FROM THE ORDER PASSED BY THE ADDL. CIT RANGE- VAPI (IN SHORT THE AO) DATED 20.02.2014 UNDER SECTION 143 (3) OF INCOME TAX ACT,1961 (IN SHORT THE ACT). 2. GROUND NO. 1: STATES THAT LD. CIT (A) HAS ERRED IN CONFIRMING ADDITION OF RS. 7,88,883 ON ACCOUNT OF DISALLOWANCE U/S. 14A OF THE ACT READ WITH RULE 8D OF INCOME-TAX RULES, 1962. 3. BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE HAS MADE INVESTMENT IN SHARES OF INDIAN COMPANIES AMOUNTING TO RS. 17,18,57,684 AND EARNED DIVIDEND INCOME ALIDHRA TEXSPIN ENGINEERING V. ADDL. CIT- RANGE-VAPI1/I.T.A. NO.963/AHD/2015/A.Y.11-12 PAGE 2 OF 5 OF RS.16,20,497, WHICH IS EXEMPTED FROM TAX UNDER THE ACT. HOWEVER, THE ASSESSEE HAS NOT BIFURCATED EXPENDITURE RELATING TO EXEMPT INCOME. IT WAS CLAIMED THAT NO EXPENDITURE HAS BEEN INCURRED IN RELATION TO EXEMPT INCOME AS INVESTMENT IN SHARES WAS MADE THROUGH BROKER WHO HAVE PROVIDED DOOR STEP PRE SERVICES FOR INVESTMENT RELATED ACTIVITIES AND AL INVESTMENT HAS BEEN MADE DIRECTLY FROM BANK ACCOUNT BY TRANSFERRING SURPLUS FUND FROM TIME TO TIME. INVESTMENT ACTIVITY WERE CARRIED ON DURING NORMAL OFFICE ACTIVITIES AND NO PERSONAL EFFORTS AND SPECIFIC STAFF DEPLOYMENT WAS REQUIRED FOR CARRYING OUT THESE ACTIVITIES. HENCE, NO EXPENDITURE IS TO BE DISALLOWED BY THE ASSESSEE IN RELATION TO EXEMPT INCOME. HOWEVER, THIS EXPLANATION GIVEN BY THE ASSESSEE WAS NOT FOUND TO BE ACCEPTABLE BY THE AO. THE AO OBSERVED THAT THE ASSESSEE HAS UNDERTAKEN SUBSTANTIAL NUMBER OF TRANSACTION INVOLVING PURCHASE AND SALE OF SHARES OF RS. 64,12,92,446 DURING THE YEAR AS PER BROKER`S ACCOUNT FILED ON RECORD. THE TOTAL INVESTMENT IN SHARES IS AT RS. 17,18,57,684 AS PER BALANCE SHEET. AS PER SECTION 14A (3), WHERE AN ASSESSEE CLAIMS THAT NO EXPENDITURE HAS BEEN INCURRED, THEN THE AO CAN DETERMINE THE AMOUNT OF EXPENDITURE INCURRED IN RELATION TO EXEMPT INCOME. THERE IS NO DISPUTE THE RULE 8D IS APPLICABLE. THE FORMULA OF RULE 8D STATES THAT AMOUNT EQUAL TO 0.5% OF AVERAGE VALUE OF INVESTMENT, INCOME FROM WHICH IS EXEMPT FOR TAX SHOULD ALSO BE DISALLOWED U/S. 14A OF THE ACT. HENCE, THE DISALLOWANCE AS TO BE MADE UNDER SECTION 14A OF THE ACT READ WITH RULE 8D. IT IS NOT IN DISPUTE THAT THE ASSESSEE HAS MADE INVESTMENT ALIDHRA TEXSPIN ENGINEERING V. ADDL. CIT- RANGE-VAPI1/I.T.A. NO.963/AHD/2015/A.Y.11-12 PAGE 3 OF 5 OF RS. 17.18 CRORES WHICH CAN RESULT IN EXEMPT INCOME IN THE FORM OF DIVIDEND. THE ASSESSEE HAS FILED WORKING OF DISALLOWANCE U/S. 14A OF THE ACT AT RS. 7,88,883. ACCORDINGLY, THE AO MADE DISALLOWANCE OF RS. 7,88,883 UNDER SECTION 14A READ WITH RULE 8D. 4. BEING AGGRIEVED WITH THE ORDER OF THE AO, THE ASSESSEE FILED APPEAL BEFORE THE CIT(A). IT WAS CLAIMED BEFORE THE CIT (A) THAT THE INVESTMENT IN THE SHARES HAS BEEN MADE THROUGH BANK ACCOUNT BY TRANSFERRING SURPLUS FUND DIRECTLY. THUS, THE ASSESSEE HAS NOT INCURRED ANY EXPENDITURE ON INVESTMENT, THEREFORE, NO DISALLOWANCE UNDER SECTION 14A CAN BE MADE. IT WAS ALSO SUBMITTED THAT SINCE THE AO HAS NOT RECORDED ANY SATISFACTION IN CONNECTION WITH THE CORRECTNESS OF THE CLAIM OF ASSESSEE, NO EXPENDITURE CAN BE DISALLOWED. IN IN SUPPORT OF HIS CONTENTION, THE APPELLANT RELIED ON VARIOUS DECISIONS AS MENTIONED IN HIS SUBMISSIONS. LD. CIT (A) OBSERVED THAT THE AO WAS RIGHT IN APPLYING THE SECTION 14A R. W. RULE 8D. IT WAS NECESSITATED BECAUSE THE APPELLANT WAS NOT MAINTAINING SEPARATE ACCOUNT OF EXPENDITURE FOR EARNING EXEMPT INCOME. HENCE, THE APPELLANT WAS NOT ABLE TO FIND IT ACCEPTABLE OR NOT ACCEPTABLE. THEREFORE, THE CONTENTION OF THE APPELLANT THAT NO EXPENDITURE HAS BEEN INCURRED IS NOT ACCEPTABLE. ACCORDINGLY, DISALLOWANCE OF RS. 7,88,883 WERE CONFIRMED. 5. BEING NOT SATISFIED, THE ASSESSEE HAS FILED THIS APPEAL BEFORE THE TRIBUNAL. THE LEARNED COUNSEL FOR THE ASSESSEE SUBMITTED THE ASSESSEE HAS NOT INCURRED ANY INTEREST EXPENDITURE AND INVESTMENT HAS BEEN MADE THROUGH BROKER WHO ALIDHRA TEXSPIN ENGINEERING V. ADDL. CIT- RANGE-VAPI1/I.T.A. NO.963/AHD/2015/A.Y.11-12 PAGE 4 OF 5 PROVIDED DOOR STEP PRE SERVICE AND SURPLUS FUND WAS TRANSFERRED THROUGH BANK ACCOUNT DIRECTLY. HOWEVER, THE ASSESSING OFFICER WITHOUT BRINGING ANY EVIDENCE ON RECORD THAT ANY EXPENDITURE HAS BEEN INCURRED BY THE ASSESSEE IN RELATION TO DIVIDEND INCOME, SIMPLY REJECTED ASSESSEES EXPLANATION AND PROCEEDED TO MAKE DISALLOWANCE AT RS.7,88,883 UNDER SECTION 14A OF THE ACT READ WITH RULE 8D. THE CIT (A) HAS ALSO UPHELD THE SAME. THE LEARNED COUNSEL FOR THE ASSESSEE ALSO CITED DECISION OF SPECIAL BENCH IN THE CASE OF ACIT VS. VIREET INVESTMENT (P.) LTD (2017) 82 TAXMANN.COM 415 (DELHI-TRIB.)(SB) WHEREIN IT WAS HELD THAT ONLY THOSE INVESTMENTS ARE TO BE CONSIDERED FOR COMPUTING AVERAGE VALUE OF INVESTMENT WHICH YIELDED EXEMPT INCOME DURING THE YEAR. 6. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND GONE THROUGH THE ORDERS OF THE LOWER AUTHORITIES. IT IS NOTED THAT THE ASSESSEE HAS NOT EARNED DIVIDEND INCOME OF RS. 7,88,883 DURING THE YEAR UNDER CONSIDERATION. THE LEARNED COUNSEL FOR THE ASSESSEE SUBMITTED THAT THE ASSESSEE HAS MADE TOTAL INVESTMENT OF RS. 17.8 CRORES IN SHARES BUT ALL THE SHARES HAVE NOT YIELDED DIVIDEND INCOME DURING THE YEAR UNDER CONSIDERATION. THE AO HAS, HOWEVER HAS NOT QUANTIFIED THE EXPENDITURE INCURRED IN RELATION TO EARNING, SUCH EXEMPT INCOME DURING THE COURSE OF ASSESSMENT PROCEEDINGS. THE AO INVOKED THE PROVISIONS OF SECTION 14A READ WITH RULES 8D AND DISALLOWED RS.7,88,883 ON THE BASIS OF WORKING OF DISALLOWANCE AS PER SECTION 14A READ WITH RULE 8D FILED BY THE ASSESSEE. THEREFORE, CONSIDERING THE TOTALITY OF THE FACTS, WE ARE OF THE OPINION THAT THE ALIDHRA TEXSPIN ENGINEERING V. ADDL. CIT- RANGE-VAPI1/I.T.A. NO.963/AHD/2015/A.Y.11-12 PAGE 5 OF 5 DISALLOWANCES MAY BE COMPUTED ONLY IN RESPECT OF THOSE INVESTMENTS, WHICH YIELDED EXEMPTED INCOME DURING THE YEAR AS HELD BY SPECIAL BENCH IN THE CASE OF ACIT VS. VIREET INVESTMENT (P.) LTD (2017) 82 TAXMANN.COM 415 (DELHI- TRIB.)(SB) THEREFORE, THIS ISSUE IS SET ASIDE TO THE FILE OF THE AO TO COMPUTE THE DISALLOWANCE IN THE LIGHT OF RATIO AS LAID DOWN IN ABOVE DECISION. 7. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS ALLOWED FOR STATISTICAL PURPOSES. 8. THE ORDER PRONOUNCED IN THE OPEN COURT ON 18.06.2018. SD/ - SD/ - ( . . /C.M. GARG) ( . . /O.P.MEENA) /JUDICIAL MEMBER /ACCOUNTANT MEMBER / SURAT, DATED: 18 TH JUNE , 2018 COPY OF ORDER SENT TO- ASSESSEE/AO/PR. CIT/ CIT (A)/ ITAT (DR)/GUARD FILE OF ITAT. BY ORDER / / TRUE COPY / / ASSISTANT REGISTRAR, SURAT