BINAYAK TEX PROCESSORS LTD.,MUMBAI vs. ACIT ,CC- 38, MUMBAI

order ,dated 19/01/2015 of the CIT(A)-54,Mumbai the assessee has filed the present appeal.Assessee-company, engaged in the business of textile manufacturing,filed its return of income on 27/09/2011,declaring total income at Rs.6.27crores.The Assessing Officer (AO)completed the assessment u/s.143(3)of the Act,on 31/12/2013,determining its income at Rs. 6.66crores. 2.First ground of appeal

is about confirming the disallowance u/s. 14. A read with Rule 8D

2. (iii) of the Income Tax Rules,1962(Rules),amounting Rs.3.68 lakhs.During the assessment proceed -ings,the AO found that assessee had earned dividend income of Rs.2,000/-,that it had not claimed it as exempt income,that it had not made any disallowance u/s.14A while computing the total income.Accordingly,he directed the assessee to explain as to why the expenses attributable to earning of exempt income should not be disallowed u/s.14 A R.w.r.8D of the Rules. After considering the submissions of the assessee the AO made disallowance under the heads interest expenditure (Rs.30.49 lakhs) under rule 8D (2)(ii) and administrative expenses (Rs.3.68 lakhs) under rule 8D(2)(iii)of the Rules. 2.1.Aggrieved by the order of the AO, the assessee preferred an appeal before the First Appellate Authority(FAA).Before him, it was argued that the AO computed disallowance of interest by taking the investment at Rs. 7.37 crores and cost of interest at Rs. 1.66 crores, that while calculating the average assets held by it the AO had adopted the total of balance sheet of both the years and arrived at the average figure of assets by taking the net figure of assets 1635/M/15-Binayale and that same was netted out by current liabilities,that the figures adopted by the AO were not correct, that if the AO had adopted correct figures the disallowance under the head interest expenditure would have been Rs. 12.88 lakhs as against Rs.30.49 lakhs, that no disallowance u/s. 14 A was applicable, that it had received dividend of Rs. 2,000/- on shares of a cooperative bank, that the dividend income was exempt u/s.10 (34) of the Act,that dividend earned by it was not exempt, that the assessee was not having any exempt income.It relied upon the case of Revian International Private Ltd.and argued that the identical issue was dealt by the Tribunal in the case of the assessee for the AY.2009-10,that the Tribunal had held that no part of investment had been financed out of borrowed funds,that the Tribunal had deleted the disallowance made out of interest under rule 8D(2)(ii)of the Rules. After considering the order of the Tribunal,for the AY. 2009-10,the FAA deleted the disallowance made by the AO under the head interest expenditure. With regard to the administrative expenses of Rs. 3.68 lakhs,the FAA held that the Tribunal had upheld the said disallowance while deciding the appeal for the AY.2009-10. 2.2.During the course of hearing before us,the Authorised Representative(AR)stated that there was no justification for upholding the administrative expenditure,that the assessee had offered the said disallowance while filing the return for the AY.2009-10,that no expenditure was incurred or claimed by the assessee for the exempt income during the year under consideration,that confirma -tion of disallowance by the FAA should be deleted.The Departmental Representative(DR) supported the order of the F AA.

2.3.We find that assessee had earned dividend in the of Rs.2,000/-during the year under appeal,that it had not claim any expenditure against the said income,that the AO had made disallowance of Rs. 3.68 lakhs under the head administrative expenditure.In our opinion,the departmental authorities were not justified in invoking the provisions of section 14 A r.w.r.8D of the Rules. The fundamental principle for making disallowance against the exempt income is that the assessee should have claimed some expenditure against the such income and thus should have availed double deductions.In the case under consideration,the assessee had not claimed any expenditure against the dividend income of Rs.2,000/-.Therefore,there was no justification for making any disallowances under any of the heads under rule 8D(2)of the Rules.The Tribunal had,in the AY.2009-10,upheld the disallowance because the assessee itself had offered for it. Considering the peculiar facts and circumstances of the matter,we reverse the order of the FAA. First ground of appeal is decided in favour of the assessee.

1635/M/15-Binayale 3.Next ground is about confirming the addition of Rs. 2.76 lakhs. During the assessment proceed -ings,the AO directed the assessee to submit proof bills in respect of which purchases were made from M/s. Vakharia Enterprises (VE).In its reply, the assessee submitted that the above party had supplied certain items of furniture during the year under consideration, that the said expenditure had been capitalised under the head furniture and fixtures,that the payment for the said purchases were made to banking channels,that the transactions were carried in normal course of business and the quantum of transaction was negligible having regard to the turnover of the assessee. In view of the smallness of the transaction and with the view to curtail letigation and cost to be incurred on litigation it agreed to offer depreciation of Rs.14,098/- for taxation provided that no penalty proceedings would be initiated by the Department.The AO observed that VE had been declared as hawala dealer by the Department of VAT,Government of Maharashtra,that the name of the said party was appearing in the website of the VAT Department,that VE had admitted in its statement that the sales made by it were not genuine.The AO held that expenditure to the extent of Rs. 2.76 lakhs was not genuine.He added the disputed amount to the total income of the assessee invoking the provisions of section 69C of the Act and also disallowed the depreciation claimed by the assessee.

3.1.During the appellate proceedings before the FAA,the assessee argued that without making available the vendor for cross examination the AO had incorrectly rejected the written documentary evidences filed by the assessee, that the statement made by the vendor before the VAT authorities had no substance,that it had claimed only depreciation in its P&L account, that the provisions of section 69C were not applicable, that all the payments were made by account payee cheques,that there was no evidence to show that assessee had made any cash payment to the purchasers,that the onus was on the AO to prove that the expenditure incurred by the assessee was not satisfactorily explained.

3.2.After considering the submission of the assessee and the assessment order,the FAA held that assessee had shown purchase of Rs. 2.76 lakhs from VE, that mere payment by account payee cheques would not make a non-Jain transaction genuine, that the purchasers given a statement to the VAT authorities and had admitted that sales made by it were non- genuine,that the copy of the statement were made available to the assessee,that it had not proved the purchase of furniture and fixtures, that confirmation letter from the said party had not been placed on record. Finally, he upheld the order of the AO.

1635/M/15-Binayale 3.3.During the course of hearing before us,the AR stated that the assessee had purchased goods from VE,that it had made payments by issuing account payee cheques, that the assessee had asked for cross-examination of the supplier of the goods, that the AO did not allow cross-examination in spite of the request made,that there was no allegation of receiving that the money by the assessee from the purchasers, that provisions of section 69C were wrongly invoked,that the FAA had ignored the bills issued by the supplier and the bank statement of the assessee while deciding the appeal.The DR supported the order of the FAA and stated that the name of the supplier was appearing in the name of the hawala dealers, that of the supplier of the goods was handed over to the assessee.