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Income Tax Appellate Tribunal, AHMEDABAD “C” BENCH
Before: Shri Mahavir Prasad & Shri Amarjit Singh
IN THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD “C” BENCH Before: Shri Mahavir Prasad, Judicial Member And Shri Amarjit Singh, Accountant Member ITA No. 2446/Ahd/2016 Assessment Year 2012-13
The ITO, M/s. Poggen AMP Ward-3(1)(1), Nagarsheth Powertronics Ahmedabad Vs Pvt. Ltd. C-1-/B, 4402, (Appellant) GIDC Estate, Phase-IV, Vatva, Ahmedabad-382445 PAN: AAACP9130B (Respondent)
Revenue by: Shri Lalit P. Jain, Sr. D.R. Assessee by: Shri Vasant C. Tanna, A.R.
Date of hearing : 08-01-2019 Date of pronouncement : 24-01-2019 आदेश/ORDER PER : AMARJIT SINGH, ACCOUNTANT MEMBER:-
This revenue’s appeal for A.Y. 2012-13, arises from order of the CIT(A)-9, Ahmedabad dated 08-07-2016, in proceedings under section 143(3) of the Income Tax Act, 1961; in short “the Act”.
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The revenue has filed three grounds of appeal adjudicating with brief fact as under:-
Disallowance of Rs. 2490198/- u/s. 40A of the act.
During the course of assessment, the assessing officer noticed that assessee has made substantial investment in equity share and incurred interest expenditure of Rs. 6,51,68,943/- as against last year interest expenses of Rs. 5,07,54,161/-. On the basis of this informatin the assessee was asked to explain why not disallowance of interest expenses under the provision of section 14A read with rule 8D was made. The assessee explained that it had not earned any exempt income during the year under consideration, therefore, there was no question of any disallowance u/s. 14A of the act r.w. rule 8D of the I.T. Rule. However, the assessing officer was of the view that it was immaterial whether the assessee had earned exempt income during the year or not and observed that the expenditure incurred by way of interest payment on the investment made was not for earning assessable income. Connsequently, he has computed an amount of Rs. 24,90,198/- after applying section 14A r.w.rule 8D of the I.T. Rule and added to the total income of the assessee.
Addition of Rs. 22,87,852/- on account of insurance expenses at the assessment 4. The assessing officer noticed that assessee has claimed insurance expenses of Rs. 41,41,901/- during the year under consideration. The assessing officer was of the view that payment of premium was made on
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personal life insurance policies of the directors and their family members, therefore, the same was not allowable expenditure under the income tax act. Consequently, he has made addition of Rs. 22,87,852/- by treating the aforesaid explenses not incurred for the purpose of business as provided u/s. 37(1) of the act and added to the total income of the assesssee.
Deleting addition of Rs. 3659518 u/s. 40A(2)(b)
The assessing officer noticed that assessee has claimed interest expenses of Rs. 36,59,518/- on payment made for purchasing of raw material from the related concern of the assessee. He observed that the aforesaid payment was covered u/s. 40A(2)(b) of the act. On query the assessee explained that the aforesaid payment was made as per trade practices to the Posco Pune India Processing Centre Pvt. Ltd towards delayed payment for raw material purchased from them and such type of interest @ 6% were being paid since last 5 years on which due TDS u/s. 194A was duly deducted. However the assessing officer had not accepted the explanation of the assessee and he was of the view that M/s. Posco Pune Processing Pvt. Ltd. was an associated concern of the assessee covered by section 40A(2)(b) of the act and the assessee had failed to substantiate its claim with any documentary evidences, therefore, the claim of the assessee on interest payment was also disallowed u/s. 40A(2)(b) of the act and added to the total income of the assessee.
Deleting addition of Rs. 9,27,080/- made on account of disallowance u/s. 36(1)(iii) of the act
I.T.A No. 2446/Ahd/2016 A.Y. 2012-13 Page No 4 ITO vs. M/s. Poggen AMP Nagarsheth Powertronics Pvt. Ltd.
During assessment the assessing officer noticed that assessee had advanced various amounts aggregating to Rs. 1,60,37,013/- including opening debit balance of Rs. 62,88,450/- and balance as on 31st March, 2012 at Rs. 77,47,096/-. The assessee explained that these advance payments were made for the purpose of construction of new press shop at Vavdi Kheda. The assesseee explained that it had not made specific borrowing to finance the cost of factory building therefore the provisions of section 36(1)(iii) of the act was not applicable. However, the assessing officer observed that assessee has taken loan from different banks but it could not co-relate its utilization for capital expenses and for other business expenses. Therefore, the assessing officer was of the view that it cannot be said that no amount of borrowed fund were utilized for the capital expenditure. Therefore, the assessing officer has capitalized the interest amount of Rs. 9,27,080 at the 15% of interest paid to the banks by the assessee and added to the total income of the assessee.
Aggrieved assessee has filed appeal before the ld. CIT(A). The ld. CIT(A) has allowed the appeal of the assessee.
We have heard the rival contentions and perused the material on record carefully. Regarding deleting of Rs. 24,90,198/-, it is noticed that it is undisputed fact that the assesse has not earned any exempt income during the year under consideration, therefore, following the decision of the Hon’ble Jurisdictional High Court in the case of CIT s. Corrtch Energy Pvt. Ltd. TA No. 234 of 2014, we do not find any infirmity in the decision of the
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ld. CIT(A). Therefore, this ground of appeal of the Revenue stands dismissed. In respect of Rs. 22,87,852/- of insurance expenses, the assessing officer disallowed the impugned expenses by treating the said expenses incurred on the personal life insurance of the directors. After considering the facts as reported supra we oberve that it is undisputed fact that the aforesaid expenditure were incurred towards Keyman Insurance polies to be allowable as business expenses. Therefore, we do not find any infirmity in the decision of the ld. CIT(A). Accordingly, this ground of appeal of the revenue is disallowed. Regarding deleting of Rs. 3659,518/- u/s. 40A(2)(b): After considering the detailed finding of the ld. CIT(A) it is clear that PPIPCL was not an associated concern of the assessee covered by the section 40A(2)(b) . We observe that impugned expenses have been made as per the agreed terms and conditions and the Revenue has failed to contradict the material fact reported in the details findings of the ld. CIT(A) and the submission of the assessee as elaborated at page 13 to 18 in the order of the ld. CIT(A). In the light of the above facts and findings, we do not find any merit in the ground of appeal of revenue. Accordingly, this ground of appeal of the revenue is also dismissed. In respect of disallowance u/s. 36(1)(iii) it is noticed that the assessee company has generated cash accruals amounting to Rs. 4,45,85,583/- which was in excess of the amount of aggregate advance of Rs. 88,00,600/- given to M/s. NKP Infrastructure Pvt. Ltd. towards mobilization advance. The assessing officer has not disputed these facts. The Ld,CIT(A) has reinforced his findings after placing reliance upon the decision of the Hon’ble Bombay
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High Court in the case of Reliance Utilities & Power Ltd. (2009) 313 ITR 40(Mum) wherin it is held that if there are fund available both the interest free and over draft /and or loan taken then a presumption could arise that investment would be out of the interest free fund generated or available with the company. In the light of the above facts and judicial finding, we do not find any infirmity in the decision of the ld. CIT(A). Accordingly, this ground of appeal of the revenue is also dismissed.
In the result, the appeal of the revenue is dismissed.
Order pronounced in the open court on 24-01-2019
Sd/- Sd/- (MAHAVIR PRASAD) (AMARJIT SINGH) JUDICIAL MEMBER ACCOUNTANT MEMBER Ahmedabad : Dated 24/01/2019 आदेश क� ��त�ल�प अ�े�षत / Copy of Order Forwarded to:- 1. Assessee 2. Revenue 3. Concerned CIT 4. CIT (A) 5. DR, ITAT, Ahmedabad 6. Guard file. By order/आदेश से, उप/सहायक पंजीकार आयकर अपील�य अ�धकरण, अहमदाबाद