DCIT, CIRCLE-1(1), CUTTACK vs. JITENDRA NATH PATNAIK, KEONJHAR

IN THE INCOME TAX APPELLATE TRIBUNAL, CUTTACK BENCH, CUTTACK

BEFORE S/SHRI N.S SAINI, ACCOUNTANT MEMBER AND PAVAN KUMAR GADALE, JUDICIAL MEMBER

ITA No.13/CTK/2016 Assessment Year :2011-12

DCIT, Circle 1(1), Cuttack Vs. Jitendra Nath Patnaik, Boneikela, Joda, Keonjhar PAN/GIR No. ABFPP 3817 J (Appellant) .. ( Respondent)

Assessee by : Shri S.C.Bhadra, AR Revenue by : Shri Subhendu Dutta, DR

Date of Hearing : 27/07/ 2017 Date of Pronouncement : 28 /07/ 2017

O R D E R Per N.S.Saini, AM

This is an appeal filed by the Revenue against the order of CIT(A)-

Cuttack, dated 30.10.2015, for the assessment year 2011-12.

the CIT(A) erred in deleting disallowance of expenditure of Rs.14,09,386/-

relating to income which does not form part of total income computed by

the Assessing Officer u/s.14A of the Act.

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that the assessee has made investments in assets which yield income not

chargeable to tax. Considering the provisions of Section 14A of the Act read

with Rule 8D, the Assessing Officer felt that there has to be disallowance of

estimated expenditure for such investments and the corresponding income

whether earned or expected to earn. Hence, he made disallowance of

Rs.14,09,306/- and added the same to the total income of the assessee.

holding share as a promoter in Pattnaik Steel & Alloys Limited of Rs.29.78

Crores, from where he has not received any dividend from inception. The

assessee temporarily parked Rs.2.69 Crores in mutual fund which was

redeemed from year to year. It was further submitted that during the year,

the assessee has earned short term capital gain as well as long term capital

gain and also dividend from mutual fund. Tax was offered on short term

capital gain. Major portion of the portfolio is investment in share in Pattnaik

Steel & Alloys Ltd. made from inception. Regarding Mutual Fund the agent

of the fund handled the same and no expenses are incurred for the same.

That is why, there is no expenditure against exempted income. The

Assessing Officer without giving any finding that the assessee incurred

certain expenditure against exempted income directly applied rule 8D to

compute disallowance under 14A. It was submitted that the investments

were made from the cash generated from operation and has not been made

out of borrowed money for which interest been paid by him. To corroborate

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his statement the assessee had furnished his cashflow statement for the

financial year. The assessee also pointed out that it has been decided in the

case of CIT v. Gujurat Power Corporation Ltd. (Tax appeal No.1587 of 2009)

that the assessee had demonstrated that it had other sources of investment

and that, therefore, according to the assessee no part of the borrowed fund

could be stated to have been diverted to earn tax free income. When the

CIT (A) and the Tribunal both on facts in the present case found that the

assessee did not investment borrowed fund for earning free income, not

applying provision of section 14A of the Act for taxing such interest was

justified. Further, he relied on the decision of Hon’ble P&H High Court in

the case of CIT vs. Deepak Mittal,( 86 CCH 51) 2013 wherein, it was held

that disallowance u/s.14A requires finding of incurring expenditure where

it is found that for earning exempted income, no expenditure has been

incurred, disallowance u/s.14A cannot stand.

the appeal of the assessee by observing as under:

” I have perused the assessment order framed by the AO and the submissions of the appellant and particularly the ratio of case laws submitted by the appellant. The genesis of computation of disallowable expenditure U/S.14A of the Act is that the AO having regard to . the accounts of the assessee, is not satisfied with the correctness of the claim of the assessee in respect of such expenditure in relation to income which docs not form part of the total income. Moreover the AO can determine the disallowable expenditure also in relation to a case where the assessee claims that no expenditure has been incurred by it iii relation to income which does not form part of the total income. While computing the disallowable expenditure the AO has to put the above two tests to the accounts of the assessee. The AO should record his dissatisfaction regarding the amount already shown by the assessee as disallowance or AO can compute the same where assessee itself shows no disallowance of expenditure under this head. In the instant case the AO has not recorded the reason for dissatisfaction

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regarding the same and the appellant had produced cashflow statement which shows that he had adequate fund to invest in assets earning tax free income and borrowed money have not been invested in the same. Considering these I do not see any reason for disallowing expenditure as computed by the AO U/S.14A of the Act read with Rule 8D. The AO is directed to delete the addition.”

error in the above quoted order of the CIT(A). Ld D.R. relied on the CBDT

Circular No.5/2014/F.No.225/182/2013-ITA-II) dated 11.2.2014 and

submitted that according to the said Circular, even if no exempt income is

earned by the assessee, disallowance of expenditure can still be made

u/s.14A of the Act.

Court in the case of Cheminvest Limited vs CIT (2015) 378 ITR 33 (Del),

wherein, it has been held that the expression 'does not form part of the

total income' in Section 14A of the Act envisages that there should be an

actual receipt of income, which was not includible in the total income,

during the relevant previous year for the purpose of disallowing any

expenditure incurred in relation to the said income. In other words, Section

14A will not apply if no exempt income is received or receivable during the

relevant previous year. He also relied on the decision of Hon’ble Gujarat

High Court in the case of CIT vs. Corrtech Energy Pvt Ltd., (2014) 272 CTR

0252 (Guj), wherein, it was held that sub-section (1) of section 14A

provides that for the purpose of computing total income under Chapter IV

of the Act, no deduction shall be allowed in respect of expenditure incurred

by the assessee in relation to income which does not form part of the total

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income under the Act. In the present case, admittedly, the assessee did

not make any claim for exemption. In such a situation section 14A could

have no application. Further, he relied on the decision of Hon’ble Allahabad

High Court in the case of CIT vs. Shivam Motors (P) Ltd., (2014) 89 CCH

0059 (All), wherein, it was held that in absence of any tax free income,

corresponding expenditure could not be worked out for disallowance

u/s.14A.

available on record, we find that no specific mistake in the order of the

CIT(A) was pointed by the ld D.R. No material was brought on record by

the ld D.R. to controvert the finding of the CIT(A) that no expenditure was

incurred by the assessee on tax free dividend income earned by the

assessee from mutual fund. Hence, we find no good reason to interfere

with the order of the CIT(A), which is hereby confirmed and the ground of

appeal of the revenue is dismissed.

the CIT(A) erred in deleting the additions on account of depreciation as the

partial disallowance was made for personal use of the vehicles u/s.38(2) of

the Act.

cannot be denied that the vehicles of the assessee could have been used

for personal purposes and, therefore, disallowed 20% of the depreciation

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claimed by the assessee thereby making addition of Rs.4,82,964/- to the

total income of the assessee.

statutory allowance and the assessee is entitled to depreciation even if he

uses the asset for one day for the purpose of his business. No vehicle is

purchased during the year. He relied on the decision of the Mumbai

Benches of the Tribunal in the case of Mukesh K. Shah v. ITO, 303 ITR 409

(MUM) where it was stated that "depreciation is a statutory allowance. The

statutory allowance cannot be restricted on the basis of volume of business

use and volume of personal use. The condition to be satisfied is that the

asset should be owned by the assessee and it should be used for the

business or profession. Both the conditions are satisfied here. Personal use

of the car cannot be fetter for the granting of statutory allowance.

Therefore, the disallowance made on account of depreciation was deleted.

the Mumbai Benches of the Tribunal in the case of Mukesh K. Shah (supra),

the CIT(A) directed the Assessing Officer to allow depreciation as claimed

by the assessee.

Assessing Officer but could not point out any specific error in the order of

the CIT(A). He also could not cite any contrary decision to that relied by

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the CIT(A) while allowing the claim of depreciation. Therefore, we find no

reason to interfere with the order of the CIT(A), which is hereby confirmed

and ground of appeal of revenue is dismissed.

the CIT(A) erred in deleting the peripheral development expenses as

allowable deductions as business expenditure u/s.37(1) of the Act.

the assessee has claimed Rs.45,92,088/- as expenditure towards periphery

development. The Assessing Officer further noted that although the

expenditure was made towards social causes yet it was not an expenditure

which could be safely classified as business expenditure. The Assessing

Officer considered it as "non-business expenditure" and disallowed the

amount thereby adding the same to the total income of the assessee.

during the year for peripheral development are incurred only on the

direction of Block Development Officer as well as local Panchayat Officer.

The assessee further submitted vouchers in support of the expenditures

along with order of local authority. The assessee submitted that the

ClT(A),Cuttack vide order No.3275 dated 2009-10 for AY 2007-08 deleted

the addition made by the Assessing Officer for peripheral development

expenditures relying upon the order of the Cuttack Bench of the Tribunal in

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the case of Mahanadi Coalfields Ltd., in ITA No.275/CTK/2004 for

assessment year 1999-2000. As per his observation, the amount has been

spent on the direction of Block Development Officer and the decision taken

by the Panchayat Samiti Office..

under:

“” I have perused the order of the Hon'ble ITAT,Cuttack and the order of the CIT(A), Cuttack supra. The Hon'ble ITAT.Cuttack in the case of Mahanadi Coalfields Ltd. (ITA No.275/CTK/2004 for assessment year 1999- 2000; ITA No.276/CTK/2004 for the assessment year 2000-01; ITA No.750/CTK/2004 for the assessment year 2001-02 & ITA No.97/CTK/2006 for the assessment year 2002-03 passed on 02.01.08 held the following:

"In our considered view that whenever the assessee is able to establish that the assessee company has incurred the expenditure on the directions/instructions of the Central/State Government and other Govt, organizations which are having direct control over the business of the assessee company then the same are allowable as deductions as business expenditure u/s.37(l) of the Income Tax Act,1961."

Incidentally the appellant had claimed an amount of Rs.1,91,062/- regarding construction of borewell under peripheral development expenses. The appellant had produced the copy of the letter recording meeting in the chamber of Sub-Collector, Bonai regarding repairs of Kaleposh Chowk to Barsuan road. As per the letter the appellant had paid Rs.10,00,000/- on this account and had produced the evidence of payment of the same. Besides through letter dated 14.12.2010 of the Block Development Officer, Koira, the appellant had undertaken setting up borewell at four places, construction of community centre, construction of AWC and boundary wall for which the appellant had spent Rs.2,19,816/- and Rs.9,46,739/-. The AO is directed to allow the amount of Rs.21,66,555/-(Rs.10,00,000 + Rs.2,19,816 + Rs.9,46,739). Regarding the rest of the amount as claimed by the appellant under this head, the appellant submitted that he had constructed CC Road at Koira Bhanja Palli as per the letter of BDO.Koira dated 28.07.2010 for which the appellant had submitted details of expenditure amounting to Rs.34,25,533/- for the impugned financial year.”

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point out any specific error in the order of the CIT(A). Hence, we confirm

the order of the CIT(A) and dismiss the ground of appeal of the revenue.

Order pronounced on 28 /07/2017.

Sd/- sd/-

(Pavan Kumar Gadale) (N.S Saini) JUDICIALMEMBER ACCOUNTANT MEMBER Cuttack; Dated 28 /07/2017

B.K.Parida, SPS Copy of the Order forwarded to : 1. The Appellant : DCIT, Circle 1(1), Cuttack 2. The Respondent. Jitendra Nath Patnaik, Boneikela, Joda, Keonjhar 3. The CIT(A) Cuttack 4. Pr.CIT, Cuttack 5. DR, ITAT, Cuttack 6. Guard file. //True Copy// BY ORDER,

SR.PRIVATE SECRETARY ITAT, Cuttack