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Income Tax Appellate Tribunal, “ D ” BENCH, AHMEDABAD
Before: SHRI WASEEM AHMED & SMT. MADHUMITA ROY
PER MADHUMITA ROY, JUDICIAL MEMBER:
This appeal filed by the Assessee is directed against the order of Learned Commissioner of Income-Tax (Appeals), National Faceless Appeal Centre, Delhi [hereinafter referred to as “Ld. CIT(A)” for short] dated 09/06/2023 arising out of the assessment made u/s.143(3) of the Income Tax Act, 1961 (hereinafter referred to as “the Act”) relating to the Assessment Year (AY) 2015-16.
Turakhia Overseas Pvt.Ltd. vs. ACIT Asst.Year – 2015-16 - 2 -
The assessee has raised the following grounds of appeal:-
“The learned Commissioner of Income Tax Appeals has erred both in law & on facts in confirming the additions made by learned AO while passing an order u / s (3) of the 1. T. Act for AY 2015-2016 dated 15.12.2017. The learned CIT(A) has erred in confirming disallowance of Depreciation Rs.3,370/- without appreciating the law and facts of the case properly. (u/s.32) The learned CIT(A) has erred in confirming disallowance of Interest Rs.6,22,500/- without appreciating the law and facts of the case properly. (u/s.36(1)(iii) The learned CIT(A) has erred in confirming addition in stock value Rs.12,52,238/- without appreciating the law and facts of the case properly. (u/s.145A) The learned CIT(A) has erred in Confirming disallowance u/s 14A Rs.2,73,643/- without appreciating the law and facts of the case properly.” (u/s.14A r.w.r.8D) Your appellant craves leave to add, alter, amend and omit all or any of the grounds of appeal before the appeal is finally heard and decided.”
At the outset, the ld.counsel for the assessee submitted that the appeal was filed late by 29 days. The reasons submitted in the Affidavit dated 02/02/2024 by the assessee is that the delay occurred due to some technical glitches for downloading of appellate order from the designated website of the Income Tax Department. The assessee filed the said Affidavit duly signed by the Director of the company, wherein it is requested to condone the delay by observing principle of natural
Turakhia Overseas Pvt.Ltd. vs. ACIT Asst.Year – 2015-16 - 3 - justice. The DR has not raised any objection in condoning the delay. Hence, we condone the delay.
The brief facts of the case are that the assessee is a company engaged in the business of manufacturing of decorative veneers and ply- woods and other related products and also dealing in finance & trading in shares and securities since last many years. The assessee filed its return of income on 09/09/2015 for AY 2015-16 declaring total income of Rs.14,75,75,170/- for the year under consideration. Notice u/s.143(2) of the Act was issued on 22/03/2016 and due to change of incumbent, a notice u/s.143(2) r.w.s.129 and notice u/s.142(1) along with detailed questionnaire were issued on 09/06/2017 providing another opportunity to the assessee to represent its case. During the course of assessment proceedings, the Assessing Officer issued show-cause notice asking for justification of expenditures as claimed by the assessee. While making the assessment u/s.143(3) of the Act, the Assessing Officer has made disallowance of interest expenditures as under:
(1) Interest Expenses : Rs. 6,22,500.00 (2) Investment balance of taxes value of stock : Rs.12,52,238.00 (3) Exp.claimed in earned exempt Income u/s.14A of the Act r.w.r.8D : Rs. 2,73,643.00 Accordingly, made total addition in the income of the assessee to the tune of Rs.21,51,750/- vide assessment order dated 15/12/2017. That the Turakhia Overseas Pvt.Ltd. vs. ACIT Asst.Year – 2015-16 - 4 - assessee filed an appeal before CIT(A) against the order of assessment and the same was heard and disposed of the appeal vide order dated 09/06/2023. During the year under consideration, the CIT(A) confirmed the addition made by the Assessing Officer.
Ground No.1 of assessee’s appeal is general in nature needs no adjudication.
Ground No.2 relates to the disallowance of depreciation of Rs.3,370/- u/s.32 of the Act. This ground has not been pressed by the Ld.counsel for the assessee and, therefore, the same is dismissed due to above reason.
Ground No.3 relates to confirmation of disallowance of interest Rs.6,22,500/- u/s.36(1)(iii) of the Act by the Ld.CIT(A). We have heard both the parties and perused the material available on record. We find that the similar issue was before the ITAT Ahmedabad Bench in assessee’s own case for AY 2014-15 in wherein the ITAT held as under:
“Ground No.1 (Disallowance of Interest expenses of Rs.6,59,425/-. During the course of assessment, on verification of the details of interest paid and interest received on loan and advances, the Assessing Officer noticed that assessee has not charged any interest in respect of advances of Rs. 41,50,000/- given to Ami Bhargav Shah. On query, the assessee explained that this loan was given to the wife of the one of the key personnel of the company Mr. Bhargav Shah who was associated
Turakhia Overseas Pvt.Ltd. vs. ACIT Asst.Year – 2015-16 - 5 - with the company for the last 20 years and this loan was given as a part of business expediency of the assessee company. The Assessing Officer was of the view that advance given to the wife of an employee cannot be considered for the purposes of business expediency. Therefore, the Assessing Officer has charged interest @ 15% on such advance and added an amount of Rs. 6,59,425/-.
5. The assessee preferred appeal before the Id. CIT(A) The Id. CIT(A) has dismissed this ground of appeal
of the assessee. The Id. CIT(A) held that the impugned advance was given to the wife of the employees out of the overdraft account having credit balance frequently resulting into payment of interest on which the assessee has paid interest @ 11.5%. Accordingly, the ld. CIT(A) has restricted the disallowance of interest on loan given to the employee of the wife to the extent of 11.5% as against disallowance of 15% made by the Assessing Officer.
6. During the course of appellate proceedings before us, the Id. counsel has submitted that this issue is covered by the decision of Co-ordinate Bench of the ITAT in the case of the assessee itself for A.Y. 2009-10 vide dated 16/12/2016. It is also contended that small amount of loan of Rs. 41.05 lacs was advanced out of substantial amount of interest free funds of Rs. 25.6 crore available with the assessee. On the other hand, the Id. Departmental Representative has supported the order of the lower authorities.
7. Heard both the sides and perused the material on record. It is undisputed facts that assessee was having substantial amount of interest free funds of Rs. 25.6 crore as against amount of loan advanced of Rs. 41.05 lacs. With the assistance of the Ld. representatives, we have gone through the decision of the Co-ordinate Bench placed in the paper book on the identical issue and facts adjudicated in the case of the assessee vide ITA No. 1563/Ahd/2013 dated 16/12/2016.”
7.1. We find that the issue is covered by the aforesaid decision of the Coordinate Bench and respectfully following the same, Ground No.3 of assessee’s appeal is allowed and Turakhia Overseas Pvt.Ltd. vs. ACIT Asst.Year – 2015-16 - 6 - 8. Ground No.4 relates to confirmation of addition of Rs.12,52,238/- u/s.145A of the Act by the Ld.CIT(A). In the AY 2013-14, in assessee’s own case [CIT(A)-8/251/15-16 dated 18/09/2017], the Ld.CIT(A) has observed in Paragraph No.6.2 of his order, as under:
“6.2. I have considered facts of the case. Firstly, I notice that debit balance of CENVAT is created by crediting the raw material cost and debiting this account and thus it is already credited in profit and loss account due to reduction in cost of raw material. Hence, it cannot be added to the income again. Rather than making addition for taxes or duties relatable to closing stock and also considering the exact impact of this excise on the method of accounting being followed by the appellant, the Assessing Officer wrongly added that debit balances of various duties created by reducing the cost of raw material. Thus, the addition of debit balances made by the Assessing Officer has no legs to stand. He should have gone through TAX Audit Report where comparative P & L account based on both exclusive method and inclusive one was available.
6.3. The taxes paid on purchases are not booked as expenditure since the set off credit is available for the same. Since these items have not been debited to profit & loss account, these cannot be added to the value of closing stock of Raw material. Hon'ble ITAT Bench of Ahmedabad's decision in the case of Alpanil Industries vs. ACIT in held that if the assessee has paid excise duty on closing stock of finished goods before due date of filing of the return, the excess deduction u/s.43B available to the assessee on payment of the same will make effect revenue neutral where the inclusive method and exclusive method is followed.
The same issue was also elaborately discussed in the guidelines issued by the ICAI in para-23 of the Guidance Note issued in Section 145A r.w.s. 44AB of the Act. In case of the appellant, it is shown by it that excise duty payable on closing stock of finished
Turakhia Overseas Pvt.Ltd. vs. ACIT Asst.Year – 2015-16 - 7 - goods (amounting to Rs. 1632566) was duly paid before the due date of filing return. As appellant had paid excise from deposit/CENVATbalance/MODVAT balance at Rs.77,54,886/- till 30/09/2013. Thus, no addition is possible under the provisions of Section 43B.
The addition made by Assessing Officer is hereby deleted and ground is allowed.”
We have heard both the sides and perused the material available on record. We find that the Ld.CIT(A) has deleted the addition in assessee’s case for the AYs 2013-14 & 2014-15. Before us, neither the Ld.DR has placed any material on record nor controverted the findings of the ld.CIT(A). The CIT(A) while passing the aforesaid order relied upon the decision(s) of Hon’ble Supreme Court in the case of CIT vs. Indo Nippon Chemicals Co.Ltd. reported at 261 ITR 275 (SC) and CIT vs. M/s.Dynavision Ltd.(SC). In view of the aforesaid facts, we are of the opinion to approve the findings of Ld.CIT(A) and delete the addition. Thus, this ground of Assessee’s appeal is allowed.
Ground No.5 relates to confirmation of disallowance of Rs.2,73,643/- u/s.14A of the Act by the Ld.CIT(A). A similar issue has come up before the ITAT in assessee’s own case in for AY 2014- 15, wherein the Tribunal vide order dated 09/10/2020 has restricted the disallowance of the claim of the assessee, by observing as under:
“11. Heard both the sides and perused the material on record. During the course of assessment, the Assessing Officer has Turakhia Overseas Pvt.Ltd. vs. ACIT Asst.Year – 2015-16 - 8 - computed the disallowance u/s. 14A as per method prescribed in Rule 8D of the I. T. Rule, 1962 to the amount for Rs. 1,54,816/-. However, the ld. CIT(A) has enhanced the disallowance stating that borrowed funds were directly related to the investment made for earning exempt income.
The assessee was having own interest free funds of Rs. 25.67 crore as against investment of Rs. 2.70 crore as per copies of annual accounts placed in the paper book submitted during the course of appellate proceedings. We have perused the decision of Hon'ble Court of Bombay in the case of CIT vs. Reliance Utilities Power Ltd (2009) 178 taxman 135 (Bombay) wherein it is held that if there be interest free funds available to an assessee sufficient to meet its investment and at the same time the assessee had raised a loan it can be presumed that the investment were from the interest free funds available. The assessee had demonstrated from the above referred copies of annual accounts that it was having substantial amount of interest free funds of Rs. 25.67 crores as against investment of Rs. 2.70 crore. Considering the above facts and findings, we are not inclined with the decision of Ld. CIT(A) however, we consider that incurring of administrative expenses i.e. cost of employee, office expenses etc. to manage the investment cannot be ruled out therefore we restrict the disallowance to the extent of administrative expenses of Rs.85,923/- as computed by the Assessing Officer. Accordingly, this ground of appeal of the assessee is partly allowed.”
We have heard both the sides and perused the material available on record. The assessee has claimed Rs.27,22,464/- as exempt income being earned as dividend income. The Assessing Officer held that the indirect expenses were involved in earning this exempt income. The Assessing Officer accordingly worked out disallowance u/s.14 r.w.Rule 8D and made disallowance of Rs.2,73,643/- and the same was upheld by Turakhia Overseas Pvt.Ltd. vs. ACIT Asst.Year – 2015-16 - 9 - Ld.CIT(A) vide order dated 09/06/2023. Accordingly, we approve the findings of the Ld.CIT(A) and accordingly ground No.5 of assessee’s appeal is rejected.
In the result, the appeal of the assessee is partly allowed.