Income Tax Appellate Tribunal - Ahmedabad
Msk Projects (India) Ltd., Baroda vs Assessee on 7 August, 2009
1
IN THE INCOME TAX APPELLATE TRIBUNAL,
A-BENCH, AHMEDABAD.
Before: Shri T K SHARMA, Judicial Member, and
Shri D.C.AGRAWAL, Accountant Member.
ITA No.1384/Ahd/2006
ITA No.1385/Ahd/2006
(Assessment Year 1999-2000 &
Assessment Year 2001-2002)
M/S. MSK PROJECTS The Asst. Commissioner of
(INDIA) LTD. Income Tax
707-708 STERLING Central Circle 1(2),
CENTRE, Versus Ahmedabad.
R.C. DUTT ROAD,
BARODA.
(Appellant) (Respondent)
PAN:
For the appellant: Shri. S.N. Soparkar, Sr. Advocate
For the respondent Shri. Govind Singhal, Sr. DR
ORDER
Per D C Agrawal (Accountant Member): This are the two appeals for the Assessment Years 1999-2000 and 2000-2001 filed by the assessee against the order of Ld. Commissioner of Income Tax(Appeals) raising several grounds. Each issue covered in these grounds are adjudicated below.
ITA No.1384/Ahd/2006; Assessment Year 1999-20002. Ground No. 1 to 3 covered the issue relating to confirmation of reduction of profits by Rs.1,97,157/- of eligible projects for claiming deduction under Section 80IA being interest expenditure claimed under Section 36(1)(III). This is described by the Assessing Officer in para 2 of his order at page 1 to 4 and by Ld. Commissioner of Income Tax(Appeals) in para 3 to 6 at pages 1 to 12. While so deciding Ld. ITA No.1384/Ahd/2006 ITA No.1385/Ahd/2006 (Assessment Year 1999-2000 & Assessment Year 2001-2002) Commissioner of Income Tax(Appeals) has followed his order for Assessment Year 2001-2002.
3. We have heard the learned AR of the assessee and learned DR. This issue is covered by a decision of the Tribunal in ITA No.3518/Ahmedabad/2004. Issue has been restored to the file of the Assessing Officer in para 11 of the above referred order of the Tribunal dated 07-08-2009. The Tribunal has observed as under:
"11. We have considered the rival submissions and perused the material on record. In our considered view, the onus for establishing that it was interest free funds which were given to Infrastructure Division is on the assessee. Merely because balance sheet indicated that the assessee had share capital reserve, it could not be said that it had actually interest free liquid funds to be transferred to Infrastructure Division. There is no dispute with the proposition that where the assessee has interest free funds available then transfer to sister concern or to a source even whose income is exempt can come out of such interest free funds but this has to be shown by the assessee. A fund flow statement showing interest bearing funds and, their utilization has to be given thereby proving that interest bearing funds were utilized for the business of Construction Division and were not transferred to Infrastructure Division. In this regard we may notice that Assessing Officer has not taken any action for disallowing interest in Construction Division in earlier years even though there were interest bearing funds borrowed by the assessee and interest thereon was paid. If no interest payment by Construction Division has been disallowed for transfer of funds from Construction Division to Infrastructure ITA No.1384/Ahd/2006 ITA No.1385/Ahd/2006 (Assessment Year 1999-2000 & Assessment Year 2001-2002) Division then, it is presumed that transfer of funds in earlier years was out of interest free funds and to that extent payment of interest this year cannot be disallowed. Following the rule of consistency, as described in 1. CIT v. H.P.Cotton Textiles Mills Ltd. (2009) 311 ITR 436 (P&H); 2. CIT v. Malborough Polychem. Pvt. Ltd. (2009) 309 ITR 43 (Raj.); 3.CIT v. Moonlight Builders and Developers (2008) 307 ITR 197 (Del.) and others., we hold that the A.O. should not disallow interest in respect of the funds already considered in earlier Assessment Years. The assessee has transferred fresh funds this year to the extent of Rs.3,84,81,967/-
less Rs.2,72,98,401 = Rs.1,61,83,566/-. It has to be shown by the assessee that these funds were transferred out of interest free funds and to that extent liquid interest free funds were available with him. He has to show nexus. He has to show that no interest bearing funds were transferred to Infrastructure Division. We, therefore, restore the matter to the file of the Assessing Officer to give an opportunity to the assessee to show that interest bearing funds were not utilized for investing into Infrastructure Division this year thereby clearly creating an inference that it was interest free funds which were given to Infrastructure Division. In any case, it is only to the extent of interest bearing funds are proved to have gone to Infrastructure Division the interest relatable to such transfer of interest bearing funds this year to Infrastructure Division will alone to be considered for disallowance in Construction Division."
Respectfully following above order, we restore this issue to the file of the Assessing Officer for deciding the issue in accordance with the decision he takes for the Assessment Year 2001-2002.
ITA No.1384/Ahd/2006 ITA No.1385/Ahd/2006(Assessment Year 1999-2000 & Assessment Year 2001-2002)
4. These grounds of the assessee are allowed, but for statistical purpose.
5. Ground No. 4 and Ground No.6 relates to confirming disallowance of Rs.1,42,812/- being 5% of staff welfare expenses and of Rs.74988/- out of telephone expenses respectively After hearing the parties, we find that issue is covered against the assessee in ITA No. 1230/A/2002 for the Assessment Year 1998-1999, wherein such disallowance at a rate of 10% was confirmed by the Tribunal. For the sake of convenience para 5 and 6 from their order as under:
"3. The first ground of the appeal relates to restriction of the disallowance made by the A.O. in respect of the assessee's claim for staff welfare expenses at Rs.1,42,545, to Rs.54,402. The brief facts are that the assessee contended these expenses were in respect of its labour, engaged at its various sites, as well as its staff, and includes mess expenses thereof in the main. The A.O. found the assessee's claim under this head, at Rs.28.51 lakhs, as inclusive of personal expenses as well as inadmissible expenses, not relating to the regular requirement of the business viz., entertainment of guests of senior employees and Directors, etc. Accordingly, he made an adhoc disallowance for the same as well as other petty expenses as being unverifiable, at 5% of the total claim, i.e. Rs.1,42,545. In appeal, the learned CIT(A), after examining the detailed break-up of the assessee's claim of Rs.28,50,900/- found that only an expenditure of Rs.5,44,019/- as being one which could include expenditure which is disallowable. He, accordingly, estimating the same at 10% thereof (Rs.54,402), allowed the assessee's claim for the balance Rs.88,143 (1,42,545 - 54,402). Aggrieved, the Revenue is in appeal before us.ITA No.1384/Ahd/2006 ITA No.1385/Ahd/2006
(Assessment Year 1999-2000 & Assessment Year 2001-2002)
4. We have heard the parties. We find that the learned CIT(A) has, after appreciation of the facts, given a finding which has not been controverted by the Revenue, i.e., of expenses to the extent of Rs.23,06,881/- as being on labour and staff so that the same could not include therein expenses that are liable for disallowance. In this view of the matter, we do not find any reason for interference with his order and, accordingly, uphold the same."
Respectfully following above order, we confirm the order of learned CIT(A) on this issue. These grounds are rejected.
6. The 5th ground relates to disallowance of Rs.38,993/- being 5% of conveyance expenses. The learned Authorised Representative submitted that issue is covered in its favour by the decision of Hon'ble Gujarat High Court in Sayaji Iron and Engineering Company Vs. CIT, wherein it is held that partial disallowance of expenditure considering it for personal nature is not permissible. Following above decision, we delete the addition. This ground of the assessee is allowed.
7. Ground No.7 relates to depreciation on office equipments at 25% in respect of 10%. This issue is covered in favour of the assessee in para 29 of the order of the Tribunal for the Assessment Year 2001-2002 as under:
"29. Ground No.4 relates to disallowance out of depreciation which was restricted to Rs.15,110/- as against addition of Rs.37,776/- made by the Assessing Officer. The ld.CIT(A) allowed the claim of the assessee at 25% as against 10% applied by the Assessing Officer following the decision of jurisdictional High Court in Tarun Chemicals Ltd. 151 ITR 75. Since, the issue has been decided by the ld.CIT(A) on the basis of decision of Hon'ble ITA No.1384/Ahd/2006 ITA No.1385/Ahd/2006 (Assessment Year 1999-2000 & Assessment Year 2001-2002) Gujarat High Court, we do not find any infirmity in her order. Accordingly, this ground is also rejected."
Respectfully following above decision, we delete the addition. This ground of the assessee is allowed.
8. Ground No.8 relates to confirming disallowance in respect membership and subscription expenses, Puja and Diwali expenses etc. This issue is decided in favour of the assessee following the decision of Hon'ble Gujarat High Court in Gujarat State Export Corporation Limited Vs. CIT [1994] 209 ITR 649 (Gujarat) and in the order of the Tribunal for the Assessment Year 2001-2002 vide para 21-22 thereof, which reads as under:
"21. The sixth ground relates to claim of expenses on membership of club. The ld. Assessing Officer disallowed a sum of Rs.25,105/- out of which the ld.CIT(A) confirmed a part of the expenses on the ground that a specific contribution in the name of company and subscription in the name of the company would alone be permissible expenditure. The ld. A.R. submitted that even the club membership in individual name would be allowable expenses as purpose of the business remained the common factor in both the situations i.e. there is no difference in business purpose of the company one in a card having membership in the name of the Company and other having membership in the name of individual. He referred to a decision of Hon'ble Gujarat High Court in Gujarat State Export Corporation Ltd. v. CIT (1994) 209 ITR 649 (Guj.) and of Hon'ble Madras High Court, in CIT v. Sundaram Industries (1999) 240 ITR 335 (Madras) for the proposition that ITA No.1384/Ahd/2006 ITA No.1385/Ahd/2006 (Assessment Year 1999-2000 & Assessment Year 2001-2002) club membership are allowable expenditure. The ld. D.R. on the other hand, relied on the order of authorities below.
22. After considering the rival submissions we are of the view that the issue is covered by the decision of the Hon'ble Gujarat High Court in Gujarat Export Corporation (supra), as such, additions so retained by the ld. CIT(A) is deleted. This ground of assessee is allowed."
This ground of the assessee is therefore allowed.
9. Ground No. 9 & 12 is general in nature and do not require any specific adjudication. Therefore they are rejected.
10. Ground No.10 relates to levy of interest under Section 234A, 234B, 234C. Charging of interest is consequential and therefore do not require any specific adjudication. This ground is accordingly rejected.
11. Ground No.11 relates to initiation of penalty under Section 271(C) it is premature and thus rejected.
12. Appeal of the assessee is partly allowed and partly allowed for statistical purpose.
This order is pronounced in open Court on Dated 31st December, 2009.
Sd/- Sd/- (T.K. SHARMA) (D.C. AGRAWAL) JUDICIAL MEMBER ACCOUNTANT MEMBER Ahmedabad; Dated: 31/12/2009 Ankit* Copy of the Order forwarded to: 1. The Appellant 2. The Respondent 3. The CIT(A) Concerned 4. The CIT, ITA No.1384/Ahd/2006 ITA No.1385/Ahd/2006 (Assessment Year 1999-2000 & Assessment Year 2001-2002) 5. The DR, Ahmedabad Bench 6. The Guard File. BY ORDER, ASSTT. REGISTRAR/ DEPUTY REGISTRAR ITAT, Ahmedabad Benches, AHMEDABAD.