Income Tax Appellate Tribunal - Ahmedabad
Dy.Cit.,Circle-4,, Ahmedabad vs Gujarat Apollo Industries Ltd.,, ... on 16 January, 2017
IN THE INCOME TAX APPELLATE TRIBUNAL
AHMEDABAD "D" BENCH
(BEFORE SHRI N.K. BILLAIYA, ACCOUNTANT MEMBER
& SHRI MAHAVIR PRASAD, JUDICIAL MEMBER)
ITA. No: 199 & 241/AHD/2013
(Assessment Year: 2008-09)
The D.C.I.T., Circle-4, V/S Gujarat Apollo Industries
Ahmedabad Ltd. Apollo House, Nr.
Mithakali Circle,
Navrangpura, Ahmedabad
Gujarat Apollo Industries V/S The A.C.I.T., Circle-4,
Ltd. Apollo House, Nr. Ahmedabad
Mithakali Circle,
Navrangpura, Ahmedabad
(Appellant) (Respondent)
ITA. No: 200 & 242/AHD/2013
(Assessment Year: 2009-10)
The D.C.I.T., Circle-4, V/S Gujarat Apollo Industries
Ahmedabad Ltd. Apollo House, Nr.
Mithakali Circle,
Navrangpura, Ahmedabad
Gujarat Apollo Industries V/S The A.C.I.T., Circle-4,
Ltd. Apollo House, Nr. Ahmedabad
Mithakali Circle,
Navrangpura, Ahmedabad
(Appellant) (Respondent)
PAN: AAACG 7248P
2 ITA Nos. 199 & 241/Ahd/2013 and Ors.
. A.Ys. 2008-09 & 2009-2010
Appellant by : Shri Pravin Kumar, Sr. D.R.
Respondent by : Shri U. S. Bhatti, A.R.
(आदे श)/ORDER
Date of hearing : 12 -01-2017
Date of Pronouncement : 16 -01-2017
PER N.K. BILLAIYA, ACCOUNTANT MEMBER:
1. ITA Nos. 199 & 241/Ahd/2013 are cross appeals by the revenue and the assessee preferred against the order of the ld. CIT(A)-VIII, Ahmedabad dated 26.10.2012 pertaining to A.Y. 2008-09 and ITA Nos. 200 & 242/Ahd/2013 are cross appeals by the revenue and the assessee preferred against the order of the ld. CIT(A)-VIII, Ahmedabad dated 26.10.2012 pertaining to A.Y. 2009-10.
2. The impugned appeals involve common issues; therefore, they were heard together and are disposed of by this common order for the sake of convenience.
ITA No. 199/Ahd/2013 for A.Y. 2008-09 Revenue's appeal3. The first ground relates to the deletion of the disallowance of expenses incurred in connection with issue of bonus share of Rs. 2,10,168/-.
3 ITA Nos. 199 & 241/Ahd/2013 and Ors.. A.Ys. 2008-09 & 2009-2010
4. The A.O. has discussed this issue at para 5 on page 7 of his order wherein he has mentioned that on perusal of legal and professional charges, it is found that the assessee has debited expenses pertaining to issue of bonus shares in its revenue expenses. The A.O. was of the firm belief that such expenses are of capital in nature but does not fall within the ambit of section 35D of the Act since these expenditures have been incurred in relation to the issue of share capital (bonus share). The A.O. disallowed Rs. 2,10,168/-.
5. Assessee carried the matter before the ld. CIT(A) and explained that there was no issue of bonus share during the year under consideration, the A.O. has disallowed the expenditure totally on the wrong facts.
6. After considering the facts and the submissions, the First Appellate Authority observed that there is no mention of Rs. 2,10,168/- under head "Legal, duties, professional and legal charges". The First Appellate Authority found that the impugned expense was a routine yearly payment to National Depository Services Ltd., Central Depository Services Ltd., Bombay Stock Exchange Ltd. and National Stock Exchange Ltd. for the continuance of the listing of the shares. The ld. CIT(A) was of the opinion that such expenditure is of revenue in nature and deleted the same. Before us. The ld. D.R. could not point out any factual error in the findings of the ld. CIT(A).
7. After giving a thoughtful consideration to the facts in issue, we find force in the factual findings of the First Appellate Authority. The entire expenditure 4 ITA Nos. 199 & 241/Ahd/2013 and Ors. . A.Ys. 2008-09 & 2009-2010 has been incurred for the continuance of the listing of the shares with the various authorities as mentioned hereinabove. We, therefore, do not find any error or infirmity in the findings of the ld. CIT(A) Ground no. 1 is accordingly dismissed.
8. Ground no. 2 relates to the deletion of the addition of Rs. 85,18,830/- made on account of unrealized sales relying on assessee's own case for A.Y. 2005-
06.
9. The A.O. has discussed this issue at para 6 on page 7 of his order, the A.O. found that the assessee is not including portion of sales effected by it in its Profit and Loss account totaling to Rs. 85,18,830/-. The assessee was asked to explain its rationale for not including these amounts in its Profit and Loss account as sales. The assessee filed a detailed reply vide letter dated 16.11.2010 explaining its method of accounting. It was explained that the impugned amount is payable only after fulfillment of certain terms and conditions of the equipment supplied which may not be in the year of supplier. The Assessee furnished the details of such unaccrued sales.
10.The assessee's submission did not find any favour with the A.O. The A.O. was of the firm belief that since the method of accounting of the assessee is mercantile system; the assessee cannot be allowed to maintain its books of accounts on mixed system of accounting. The A.O. added Rs. 85,18,830/- as unrealized sales to the total income of the assessee.
5 ITA Nos. 199 & 241/Ahd/2013 and Ors.. A.Ys. 2008-09 & 2009-2010
11.Assessee carried the matter before the ld. CIT(A) and reiterated its contention.
12.After considering the facts and the submissions, the ld. CIT(A) found that the impugned issue in dispute has been finally settled by the Hon'ble Gujarat High Court in the case of assessee's sister concern namely Apollo Industries and Projects Ltd. in A.Y. 1989-90. The ld. CIT(A) further found that this practice is being followed regularly year after year and the same is also found as per the prescribed Accounting Standard. The ld. CIT(A) accordingly directed to delete this addition of Rs. 85,18,830/-
13.Before us, the ld. D.R. heavily relied upon the assessment order. Per contra, the ld. counsel for the assessee reiterated what has been stated before the lower authority. We find that an identical issue was considered by the Bench in ITA No. 198/Ahd/2013 for A.Y. 2005-06 qua ground no. 1 of that appeal. The relevant findings of the Bench read as under:-
6. After hearing both the parties and perusing the record, we find that Hon'ble ITAT in the first inning has observed that Ld. CIT(A) without analyzing the relevant terms and conditions of various contracts in relation to the retention money and without recording his specific finding as to the method of accounting regularly followed by assessee upheld the order of the AO making the addition of Rs. 40,32,955/-. Hon'ble ITAT therefore restored the matter back to the file of Ld. CIT(A) with specific direction to decide the issue after analyzing the relevant terms and conditions of the contracts in relation to the retention money as to whether or not any amount retained by the respective customers actually accrued to the assessee in the year under consideration and whether this action of the assessee is in conformity with the method of accounting regularly followed 6 ITA Nos. 199 & 241/Ahd/2013 and Ors. . A.Ys. 2008-09 & 2009-2010 by him. In compliance of this, Ld. CIT(A) after analyzing the terms of payments of purchase orders in respect of various parties has given a categorical finding that the retention of 10% money of total sales was due to specific terms and conditions for final payment mentioned in the customer purchase order. It was further held by Ld. CIT(A) that assessee-company has been following this system of accounting for the last several years and was accepted by the department. Not only this he also examined as to whether the assessee has made any deviation from the usual practice followed by it in the earlier years with an intention to evade tax and found that there was no such change during the year under appeal and whatever retention money has not been shown in this year and realized in the subsequent year has been shown as sale proceeds in that year and offered for tax. He therefore was of the view that there was no need to disturb the method of accounting followed by assessee-company and also found no discrepancy in terms and conditions of purchase orders. Ld. CIT(A) has also analyzed the case laws relied by the AO and also that of assessee and found that reliance placed by AO on certain case laws was misplaced as they do not apply to the facts of assessee's case. On the other hand, he followed Hon'ble Supreme Court decision in assessee's sister concern, namely Apollo Industrial Products P. Ltd for assessment year 1989-90 in which identical issue was decided in favour of assessee and against the revenue. We are therefore not inclined to interfere with the order passed Ld. CIT(A) on this issue and the same is hereby upheld. This ground of revenue's appeal is dismissed.
14.We also find that the issue travelled up to the Hon'ble High Court and the Hon'ble High Court was seized with the following substantial question of law:-
"[A] Whether the Appellate Tribunal is right in law and facts of the case to delete the disallowance of claim on account of retention money of Rs. 40,32,955/-?7 ITA Nos. 199 & 241/Ahd/2013 and Ors.
. A.Ys. 2008-09 & 2009-2010
15.And the Hon'ble High Court held as under:-
5. Insofar as the first question is concerned, a perusal of the order passed by the Commissioner (Appeals) shows that after analyzing the terms of payments of purchase orders in respect of various parties, has given categorical finding that the retention of 10% money of total sales was due to specific terms and conditions for final payment mentioned in the customer purchase order, it was further held that the assessee - company had been following this system of accounting for the last several years and was accepted by the department. The Commissioner (Appeals) further examined as to whether the assessee had made any deviation from the usual practice followed by it in the earlier years with an intention to evade tax and found that there was no such change during the year under appeal and whatever retention money had not been shown in that year and realized in the subsequent year had been shown as sale proceeds in that year and offered for tax. It is in these circumstances that the Commissioner (Appeals) was of the view that there was no need to disturb the method of accounting followed by the assessee - company and also found no discrepancy in terms and conditions of purchase orders. The Tribunal has concurred with the findings recorded by the Commissioner (Appeals).
6. From the facts and contentions noted hereinabove, it is amply clear that the controversy involved in this case stands concluded in favour of the assessee and against the revenue by the above decision of this court. Under the circumstances, no question of law can be stated to arise as/proposed. This ground of appeal is, therefore, dismissed.
16. Respectfully following the decision of the Co-ordinate Bench and the Hon'ble High Court (supra), we do not find any reason to interfere with the findings of the ld. CIT(A). Ground no. 2 is accordingly dismissed.8 ITA Nos. 199 & 241/Ahd/2013 and Ors.
. A.Ys. 2008-09 & 2009-2010
17. Ground no. 3 relates to the deletion of the addition of Rs. 21,82,933/- out of disallowance of Rs. 33,39,824/- u/s. 14A of the Act r.w. Rule 8D.
18.The A.O. has considered this issue at para 7 on page 10 of his order wherein he has observed that the assessee has total investment at Rs. 29.65 crores out of which Rs. 15.01 crores has been invested in mutual fund units of various funds and Rs. 14.45 crores in equity share capital of mostly group companies and Rs. 13.16 lacs in Sardar Sarovar Narmada Bonds. The A.O. was of the opinion that the assessee has diverted interest bearing funds for non-business purposes. The assessee was asked to justify its claim. Assessee filed a detailed submissions which did not find any favour with the A.O. who computed the disallowance u/s. 14A r.w.r 8D at Rs. 33,39,824/-.
19.Assessee carried the matter before the ld. CIT(A) and stated that no new investment in shares was made during the year under consideration. The investment in shares of various group companies were made out of interest free funds mainly during the financial year 1999-2000. It was further explained that the investments in the shares of group companies were not made with a view to earn dividends, the decisions were prompted because of strategic business consideration only. It was strongly contended that there is no case for the disallowance of interest u/s. 14A r.w.r 8D and if at all any disallowance need to be made, it should be by way of 0.5% of the average investment generating exempt income.9 ITA Nos. 199 & 241/Ahd/2013 and Ors.
. A.Ys. 2008-09 & 2009-2010
20.After considering the facts and the submissions, the ld. CIT(A) was convinced with the factual details brought on record by the assessee and directed the A.O. to restrict the disallowance to Rs. 7,82,500/-. Before us, the ld. D.R. strongly relied upon the findings of the A.O. Per contra, the ld. counsel for the assessee stated that the issue has been decided in favour of the assessee and against the revenue by the Hon'ble jurisdictional High Court in assessee's own case in Tax Appeal No. 928 of 2014.
21.We have given a thoughtful consideration to the orders of the authorities below. It is true that the investments have been made by the assessee in earlier financial years. This can be understood from the following chart:-
Basic financial details from1998-99 to 2009-2010 Sr. Financial Net Turnover Profit Tax % inc.in Total debt Inc/Dec. Total Fixed year worth(Capital + Reserve before turnover as on last dt. in debt investm assets surplus) ta ent 1 1998-99 1735.34 (350 4544.13 475.28 101 10% 1306.0 - 456.85 1050 capital) 2 1999- 194 1.28 (350 6440.55 512.68 200 42% 1321.49 15.4 1217.8 1121 2000 capital) 3 2000- 2166.81 (350 6822.2 482.96 161 7% 1636.21 285 1216.3 1279 2001 capital) 4 2001- 2270.2 (350 6403.34 512.35 178 -7% 2378.11 742 1251 2002 capital) 1595 5 2002- 2744.54 (350 9858.7 932.62 340 52% 2584.4 206 705.1 1583 2003 capital) 6 2003- 33 18.83 (350 9336 1157 390 -5% 3358 772 683 1688 2004 capital) 7 2004- 3541 (350 6952.73 753 260 -25% 2968.07 -390 1819 1764 2005 capital) 8 2005- 4428.94 (700 11354.51 1606.91 560 60% 3216.58 248 1819 2008 2006 capital) 9 2006- 5994.69 (1050 15634.34 2769.52 931 35% 3122.56 -94 1661.6 2227 10 ITA Nos. 199 & 241/Ahd/2013 and Ors. . A.Ys. 2008-09 & 2009-2010 2007 capital) 10 2007- 9461. 86 (1050 18638.41 5629.94 1532.5 20% 3051.16 -71 2965.96 3505 2008 capital) 11 2008- 1 1255.48 18124.24 3236.13 1074 -3% 1946.34 52°/ 1466 4612 2009 (1575 capital 12 2009- 14355. 1(1575 21416.33 4142.87 1449 20% 3793.91 90% 1540 7074 2010 capital) * Rs. 1 5 crore was deposited on 3 1 -03-2008 which was received on sale of investment
22.We find that the Hon'ble High Court was seized with the following substantial question of law in Tax Appeal No. 928 of 2014:-
"[B] Whether the Appellate Tribunal is right in law and on facts in upholding the order of the ld. CIT(A) to delete the disallowance u/s. 14A of the Act Rs. 28,36,668/- on account of interest and administrative expenses when assessee had failed to discharge its onus to prove the nexus of interest free funds utilized for the purpose of making investments earning exempt income?"
23.And the Hon'ble High Court held as under:-
7. Insofar as the second question which relates to addition of Rs. 28,36,668/- under section 14A of the Act on account of interest and administrative expenses is concerned, the Tribunal has taken note of the fact that the matter had initially been restored to the file of the Commissioner (Appeals) with a specific direction to bring out clearly as to whether the borrowed fund had indeed been utilized in investment in shares/mutual funds for earning exempt income. The Commissioner (Appeals), with a view to carry out this direction analyzed the financial chart showing the financial summary of the assessee of the last seven years and found that the assessee was having sufficient surplus funds at its disposal for making any investment in share and for business purposes and therefore, no nexus could be established with the expenditure incurred by the assessee for earning the exempt income. There was no increase in borrowing rather there was reduction in total debts. Having regard to the above findings recorded by the Commissioner (Appeals), the Tribunal observed that it is now well settled that no disallowance under section 14A of the Act can be made of interest expenses until there is finding of Assessing 11 ITA Nos. 199 & 241/Ahd/2013 and Ors. . A.Ys. 2008-09 & 2009-2010 Officer that borrowed funds were utilized by assessee to earn exempt income. It is in these circumstances, that the Tribunal did not find any infirmity in the order passed by the Commissioner (Appeals) in deleting the addition made by the Assessing Officer out of interest payment under section 14A of the Act.
8. From the facts noted hereinabove, it is apparent that the Commissioner (Appeals) has, after analyzing the material on record, found as a matter of fact that the assessee had sufficient surplus funds at its disposal for making any investment in share and for business purpose and therefore, there was no nexus that could be established with the expenditure incurred by the assessee for earning the exempt income. Thus, the conclusion arrived at by the Tribunal is based upon concurrent findings of fact recorded by it after appreciating the evidence on record. On behalf of the appellant, nothing contrary has been pointed out so as to dislodge the findings of fact recorded by the Tribunal, nor is it the case of the assessee that the Tribunal has taken into consideration any irrelevant material or that any relevant material has been ignored. In the absence of any perversity in the findings of fact recorded by the Tribunal, the impugned order does not give rise to any question of law, much less, a substantial question of law, so as to warrant interference.
24.Respectfully following the decision of the Hon'ble High Court, we decline to interfere.
25.In the result, appeal filed by the Revenue is dismissed.
ITA No. 241/Ahd/2013 for A.Y. 2008-09 Assessee's appeal26.The first grievance of the assessee relates to the confirmation of the addition to the extent of Rs. 7,82,500/- out of the total disallowance of Rs. 33,39,824/- made u/s. 14A of the Act.
12 ITA Nos. 199 & 241/Ahd/2013 and Ors.. A.Ys. 2008-09 & 2009-2010
27. We find that from our record that on 09.12.2015, the assessee did not press this ground of appeal and the same is dismissed as not pressed.
28.Ground no. 2 relates to the disallowance of loss on sale of shares amounting to Rs. 46,34,375/-.
29.The A.O. has considered this issue at para 4 of page 2 of his order wherein he has observed that the assessee has sold shares held as investment in its subsidiary companies. The following chart explains the factual matrix:-
Sr Particulars Qty Purchase Sale date Sale value Cost/ FMV Indexed cost Transf Total cost LTCG date cost No 1 Johson 2371600 1/3/05 31/3A38 258504400 94864000 108895967 266450 109162417 149341983 Screens India Ltd 2 Apollo 149700 26/6/02 31/3/08 3742500 2994000 3690591 0 3690591 51909 Construction Proj Pvt Ltd 3 Kamavati 100000 1/3/02 1/3//08 100000 1000000 1293427 0 1293427 -1193427 Infra Pvt Ltd 4 Apollo 155000 25/3/02 1/3/08 155000 1557800 2014901 2014901 -1859901 Industries and Projects Ltd 5 Apollo 172698 31/3/03 1/3//08 172698 3850050 4745811 0 4745811 -4573113 Industries and Projects Ltd 6 Apollo 413802 30/3/05 1/3//08 413802 3000000 3443750 0 3443750 -3029948 Industries and Projects Ltd Total 263088400 107265850 124084447 266450 124350897 138737503
30.The A.O. was of the opinion that the loss shown by the assessee from sale of shares of Apollo Industries and Projects Ltd. is a manipulated loss. The 13 ITA Nos. 199 & 241/Ahd/2013 and Ors. . A.Ys. 2008-09 & 2009-2010 A.O. did not believe the sale of shares below its face value and accordingly treated the losses from the sale of shares as inflated on account of mutually arranged transaction. The A.O. accordingly disallowed the excess loss of shares amounting to Rs. 46,34,375/-.
31.Assessee carried the matter before the ld. CIT(A) but without any success.
32.Before us, the ld. counsel for the assessee drew our attention to the valuation certificate given by a Chartered Accountant who has done the valuation of the shares of Apollo Industries and Projects Ltd. It is the say of the ld. counsel that on the basis of this valuation certificate, the assessee sold the shares @ Rs. 1 per share. It was explained that the valuer has valued the nominal value of Rs. 10 at Rs. - 1.28 per share. The ld. counsel concluded by saying that the A.O. has not given any basis for rejecting this valuation. Per contra, the ld. D.R. strongly relied upon the findings of the revenue authorities.
33.We have given a thoughtful consideration to the orders of the authorities below. It is true that the impugned shares were of unlisted companies; therefore, there is no data available for the prevailing market rate on the date of sale from the stock exchanges. All that has to be seen is whether the valuation of the shares is scientific and based upon facts and figures. We find that the valuation of shares is back by the certificate of Chartered Accountant which is exhibited from pages 119 to 123 of the paper book. A perusal of the same show that the C.A. has done a scientific valuation as 14 ITA Nos. 199 & 241/Ahd/2013 and Ors. . A.Ys. 2008-09 & 2009-2010 per the prescribed norms. Therefore, in our considered opinion, we do not find any error in the valuation so made. The Co-ordinate Bench of ITAT Delhi Bench in the case of Ashok Soni in ITA No. 4574/Del/2002 had the occasion to consider a similar issue. The relevant head note reads as under:-
Capital gains--Computation--Actual sale consideration vis-a-vis fair market value-No material was available with the AO to show that the assessee has received more amount than the consideration shown in the registered document--After deletion of s. 52 it is not possible for the AO to adopt the market value or any other value other than the apparent consideration for sale--Therefore, the action of the AO in substituting the full value of consideration by the fair market value as stated by the DVO in his report was not valid
34.In Another decision given in the case of Jindal Equipment Leasing & Consultancy Services Ltd. in ITA No. 4474/Del/2009, the Co-ordinate Bench decided a similar issue in favour of the assessee. The head note reads as under:-
Capital gains--Valuation--Assessee had purchased shares of NSIL @ Rs. 10 per share whereas book value of the share on the date of purchase was Rs. 31.80-- Shares of this company were sold in this year to certain persons @ Rs. 12 per share when book value of the share was estimated to be around Rs. 254.50--AO contended that the transactions of sale were a devise to pass on undue monetary benefit to the aforesaid persons, who were related persons--There is no evidence on record that the transferees were related to the directors of the company-Impugned transactions can not be said to be are a colourable devise to pass undue benefit to the buyers directly or indirectly related to the company-- CIT(A) justified in deleting the addition of Rs. 6,06,27,500, being undisclosed sale consideration of shares
35.As no distinguishing decision has been brought on record by the ld. D.R. Respectfully following the findings of the Co-ordinate Bench (supra) in the 15 ITA Nos. 199 & 241/Ahd/2013 and Ors. . A.Ys. 2008-09 & 2009-2010 light of the valuation report mentioned hereinabove. We set aside the findings of the ld. CIT(A) and direct the A.O. to allow the loss of Rs. 46,34,375/-. Ground no. 2 is allowed.
36.In the result, the appeal filed by the Assessee is allowed in part for statistical purpose.
ITA No. 200/Ahd/2013 for A.Y. 2009-10 Revenue's appeal37. The first ground relates to the deletion of the addition of Rs. 99,82,800/- made on account of unrealized sales.
38.An identical issue has been decided by us in ITA No. 199/Ahd/2013 (supra) qua ground no. 2 of that appeal. For our detailed discussion therein, this ground is dismissed.
39.Ground no. 2 relates to the restriction of the addition of Rs. 7,00,000/- out of Rs. 11,08,067/- disallow u/s. 14A r.w.r 8D .
40.An identical issue has been considered by us in ITA no. 199/Ahd/2013 qua ground no. 3 of that appeal. For out detailed discussion therein, this ground is dismissed.
41.In the result, the appeal filed by the Revenue is dismissed.
16 ITA Nos. 199 & 241/Ahd/2013 and Ors.. A.Ys. 2008-09 & 2009-2010 ITA No. 242/Ahd/2013 for A.Y. 2009-10 Assessee's appeal
42.The only grievance of the assessee relates to the disallowance to the extent of Rs. 7,00,000/- out of Rs. 11,08,067/- made u/s. 14A r.w.r 8D of the Act. We find from our record that on 09.12.2015, the assessee did not press this ground of appeal and the same is dismissed as not pressed.
43.In the result, the appeal filed by the Assessee is accordingly dismissed.
Order pronounced in Open Court on 16 - 01- 2017
Sd/- Sd/-
(MAHAVIR PRASAD) (N. K. BILLAIYA)
JUDICIAL MEMBER True Copy ACCOUNTANT MEMBER
Ahmedabad: Dated 16/01/2017
Rajesh
Copy of the Order forwarded to:-
1. The Appellant.
2. The Respondent.
3. The CIT (Appeals) -
4. The CIT concerned.
5. The DR., ITAT, Ahmedabad.
6. Guard File.
By ORDER
Deputy/Asstt.Registrar
ITAT,Ahmedabad