DCIT, CIRCLE-1(1)(2), AHMEDABAD vs. M/S. CHIRIPAL INDUSTRIES LTD, AHMEDABAD

None appeared on behalf of the assessee. Therefore, after hearing ld.DR and considering material available on record, we proceed to dispose of both the appeals ex parte qua the assessee.

First we take assessee’s appeal.

In this appeal of the assessee, effective grounds for adjudication are ground no.2 and 4. Other grounds are in support of the respective main grounds. In ground no.2, assessee is aggrieved by action of the ld.CIT(A) in confirming disallowance of Rs.18,20,951/- under section 14A of Income Tax Act, 1961; while in ground no.4, the assessee is aggrieved by order of the ld.CIT(A) in upholding addition of Rs.1,80,000/- on account of deemed house property income.

The ground no.2 of assessee’s appeal is interconnected with ground no.2 of Revenue’s appeal. The common issue involved in both the grounds relates to computation of expenditure required to be disallowed for earning tax free income.

Brief facts of the case are that the assessee has filed return of income on 30.11.2015 declaring total income at Rs.27,81,68,880/-. After processing the return, case of the assessee was taken up for scrutiny assessment by issuance of notice under section 143(2) of the Act. During the assessment proceedings, it was noticed by the AO that the assessee had made huge investments and earned dividend of Rs.1,42,19,234/-, which was claimed as exempt income. However, no suo moto disallowance was made by the assessee for earning exempt income. On further verification of the record, it was revealed to the AO that in the

Aggrieved assessee, went in appeal before the ld.first appellate authority. Before the ld.CIT(A) the assessee reiterated submissions made before the AO. It was further contended that the assessee had own funds which consisted of Rs.287.24 towards share capital and reserves & surplus, and the amount of Rs.38.80 cores in the investment so made included an amount of Rs.28.79 crores invested in Nandan Exim Ltd., which was a strategic investment wholly and exclusively necessary for the purpose of business, and for that reasons the exempt claimed by the assessee did not attract provision of section 14A of the Act. It further contended that the assessee had not utilized borrowed or

We have heard the ld.DR and gone through the material available on record and also written submissions filed by the assessee. The case of the assessee was that it has earned exempt income without incurring any expenditure, as the assessee has sufficient interest free funds available with it for making investment, and some of these investments are in the nature of strategic for the purpose of the business. The ld.CIT(A) in the impugned order has recorded a finding that investment in shares of Rs.38.9 crores against which the assessee has share capital of Rs.24.5 cores and reserves and surplus of Rs.262.6 crores, and therefore, the assessee has sufficient interest free funds available with for making this much investment. Undisputedly, before us, the ld.DR could not show that the amount of investment made by the assessee in those investments, which earned tax-free income, is higher than the amount of share capital and free reserve available with the assessee, nor could show that borrowed funds were utilised so as to invoke the provisions of section 14A of the Act, therefore, we do not find any infirmity in the

As regards disallowance of administrative expenses of Rs.18,20,951/- is concerned, the case of the assessee is that it has not incurred any expenditure for earning tax free income. It is pertinent to observe that sub-section 2 of section 14A contemplates that the AO would first examine the accounts of the assessee and find out details of expenditure incurred by the assessee for earning tax free income, and disallowed suo motto. Sub-section (3) of section 14A also provides that in case where an assessee claims that no expenditure has been incurred by him in relation to income which does not form part of the total income under this Act, provisions of sub-section (2) also apply. If the AO has not satisfied with working of the assessee, then he can take recourse to Rule 8D. In the present case, the assessee has not submitted any details exhibiting the expenditure incurred by it for earning tax free income of Rs.1,42,19,234/- though the AO’s approach was not correct while working out disallowance of Rs.1,09,67,033/-, but the ld.CIT(A) has already corrected this and deleted disallowance qua interest expenditure worked out by the AO on the ground that the assessee has sufficient interest free funds. However, at the end of the assessee, neither before the AO nor before the CIT(A) nor before the ITAT, it has been demonstrated that a particular amount of expenditure were incurred or sufficient for earning that tax free income. The assessee failed to submit details of investment and as to how those details/investments have been taken care of; whether any employees are devoted towards keeping

It is also to be observed that the assessee has relied upon the order of the Tribunal in earlier years, wherein according to it, under similar circumstances, disallowances have been deleted. It is pertinent to observe that in the written submissions, no parity of circumstances has been highlighted. The magnitude of exempt income, cost of employees in terms of tracking quantum of investment etc. have not been filed, nor is discernible from order of the Coordinate Bench cited by the assessee. In this view of the matter, we do not find any infirmity in the order of the ld.CIT(A) on this issue, which is upheld, and this ground of assessee is rejected.

As regards fourth ground no. i.e. confirmation of addition of Rs.1,80,000/- on account of deemed house property income is concerned, we have perused the written submissions filed by the assessee on this issue. On perusal of the balance sheet, it was revealed to the AO that the assessee was having four flats. When the assessee was asked to explain about the utilization of these flats for the business purpose, the assessee submitted that the flats were utilized as guest house for the purpose of business, and no income was generated, therefore, the same could not be clubbed under the head “income from

In the written submissions filed by the assessee, it was pleaded that all four flats are utilized for the purpose of the business of the assessee, and similar claim made in the assessment year 2006-07 was allowed in accordance with the direction of the ITAT, and therefore, similar claim should be allowed in this year as well.

On the other hand, the ld.DR supported orders of the Revenue authorities. He further submitted that similar claim of the assessee in the preceding two assessment years, was rejected upto Tribunal i.e. in the Asstt.Year 2011-12 to 2012-13 in the absence of supporting evidence. In this year also, the assessee has not substantiated its claim with any evidence, but simply stated that these flats were utilized for the purpose of business as guest house. Therefore, impugned order on this issue deserves to be sustained.

On due consideration of the above facts and circumstances, we find that the assessee has not filed evidence to prove its claim that the impugned flats were utilized for the purpose of business as guest house. The Revenue authorities have considered two flats out of four to be used

In the result appeal of the assessee is dismissed.

Now we take Revenue’s cross appeal. There are mainly three grounds raised in this appeal and the rest of the grounds are formal.

In the first ground, the grievance of the Revenue is that the ld.CIT(A) has erred in law and on facts in deleting the addition of Rs.8,92,30,519/- made on account of deduction claimed under section 80IA of the Act.

Shortly, we take note of facts of the case which would suffice to adjudicate the issue, which the assessee was successfully agitating from the assessment year 2009-10. Repeated fact is that one Shanti Processors Ltd. was transferred and got merged with assessee-company consequent upon order of the Hon’ble Gujarat High Court. Consequently all the

We have heard the ld.DR who supported order of the AO. We have also gone through the written submissions filed by the assessee. In the written submissions, the arguments of the assessee are more or less on similar line as were pleaded before the Revenue authorities. It further pleaded that the assessee has claimed the impugned deduction from the assessment year 2009-10, and upto 2014-15 and such claim was allowed either at the end of the first appellate authority or at the end of the Tribunal. The submissions of the assessee were not disputed by the ld.DR, however, the Revenue is constantly challenging this issue

Ground no.2 and 3 of appeal raise one issue, i.e. the Revenue is aggrieved by order of the ld.CIT(A) in restricting the disallowance made u/s.14A from Rs.1,09,67,033/- to Rs.18,20,951/-, and thereby restricting calculation of book profit under section 115JB of the Act.

Heard the ld.DR and gone through the record. We find that the issue is covered in favour of the assessee by the decision of Special Bench in the case of ACIT Vs. Vireet Investments P.Ltd., 165 ITD 27 (SB) wherein it is held that no increase or decrease can be effected in the book profit calculated under section 115JB on account of certain disallowance made under section 14A. The Special Bench of the ITAT in the case of Vireet Investment P.Ltd. (supra) has formulated following question for adjudication on this issue:

Special Bench answered this question in favour of the assessee and held that computation for the purpose of clause (f) of Explanation 1 to Section 115JB(2) is to be made without resorting to the computation as

In the result, appeals of the Revenue as well as that of assessee are dismissed.