Bhagwati Banquets & Hotel Ltd., Ahmedabad V. The Dy.CIT, Circle-1, Ahmedabad

CO 139/AHD/2015

• Counselvise Citation: [2018] 123 COUNSELVISE.COM (IT) 3529 (ITAT-AHMEDABAD)
• Duration Of Justice: 2 year(s) 6 month(s) 18 day(s)
• Appeal Type: Cross Objection
• Pronouncement Date: 15-02-2018
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: C
• Assessment Year: 2010-2011
• Appeal Filed On: 28-07-2015
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Assessee Lawyers: S N DIVETIA
• Keywords: Depreciation; Earning of tax free income; Source of fund
• Section: 143(3); 14A

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD C BENCH BEFORE: SHR I RAJPAL YADAV , JUDICIAL MEMBER AND SHRI AMARJIT SINGH, ACCOUNTANT MEMBER THE DCIT, CIRCLE - 1, AHMEDABAD (APPELLANT /RESPONDENT ) VS BHAGWATI BANQUETS HOTELS LTD.,301, CIRCLE - P, PRAHLADNAGAR GARDEN ROAD, S.G. ROAD, AHMEDABAD - 380015 PAN: AABCB6825A (RESPONDENT /CROSS OBJECTOR ) REVENUE BY : S H RI PR A SOON KABRA , SR. D . R. ASSESSEE BY: S H RI S.N. DIVETIA , A.R. DATE OF HEARING : 10 - 01 - 2 018 DATE OF PRONOUNCEMEN : 15 - 02 - 2 018 / ORDER P ER : AM ARJIT SINGH, ACCOUNTANT MEMBER : - THIS REVENUE S APPEAL AND ASSESSEE S CROSS OBJECTION FOR A.Y. 2010 - 11 , AR ISE FROM ORDER OF THE CIT(A) - 1 , AHM EDABAD DATED 16 - 03 - 2015 , IN PROCEEDINGS UNDER SECTION 143(3) OF THE INCOME TAX ACT, 1961; IN SHORT THE ACT . 2. THE REVENUE HAS RAISED FOLLOWING GROUNDS OF APPEAL: - 1. THE CIT(A) HAS ERRED IN LAW AND ON FACTS IN ALLOWING DISALLOWANCE OF DEPRECIATION OF RS. 61,80,821/ - FOR GOODWILL. 2. THE CIT(A) HAS ERRED IN LAW AND ON FACTS IN RESTRICTING THE DISALLOWANCE TO RS.38,983 AND DELETED THE BALANCE DISALLOWANCE OF RS.4,70,158/ - DESPITE THE FACT THAT THE ASSESSEE MUST HAVE INCURRED CERTAIN EXPENSES . 3. THE CIT(A) HAS ERRED IN LAW AND ON FACTS IN DELETING THE DISALLOWANCE OF DEPRECIATION OF RS.21,80,069/ - OUT OF TO TAL DISALLOWANCE OF RS.29,06,758/ - DESPITE THE FACT THAT THE ASSESSEE HAS CLAIMED EXCESS DEPRECIATION ON PRIVATE VEHICLE. I T A NO . 1727 & CO 139 / A HD/ 20 15 A SSESSMENT YEAR 2010 - 11 I.T.A NO. 1727 & CO NO. 139 /AHD/20 15 A.Y. 2010 - 11 PAGE NO DCIT VS. BHAGWATI BANQUETS & HOTELS 2 3. THE ASSESSEE HAS FILED RETURN OF INCOME DECLARING INCOME OF RS. 12 , 88 , 78 ,8 00/ - ON 29 TH MARCH, 2011. SUBSEQUENTLY, THE CASE WAS S ELECTED UNDER SCRUTINY BY ISSUING OF NOTICE U/S. 143(2) ON 25 TH AUGUST, 2011. THE ASSESSEE COMPANY IS ENGAGED I N THE BUSINESS OF HOTEL BOUQUET AND RESTAURANT ACTIVITIES. ON SCRUTINY , THE ASSESSING OFFICER HAS MADE ADDITIONS ON DIFFERENT ISSUES A S DISCU SSED BELOW UNDER RESPECTIVE GROUNDS OF APPEAL RAISED BY THE ASSESSEE. DISALLOWANCE ON DEPRECIATION OF RS. 61 , 80 , 821/ - FOR GOODWILL 4. THE ASSESSEE HAS CLAIMED DEPRECIATION ON GOODWILL TO THE AMOUNT OF RS. 6 1, 80 , 821/ - . THE ASSESSING OFFICER HAS DISALLOWE D THE CLAIM OF DEPRECIATION ON THE GROUND THAT THE CLAIM OF DEPRECIATION ON GOODWILL WAS NOT ALLOWED IN THE EARLIER YEARS AS PER THE REASON GIVEN IN THE ASSESSMENT ORDER FOR ASSESSMENT YEAR 2007 - 08. 5. AGGRIEVED ASSESSEE FILED APPEAL BEFORE THE LD. CIT( A). T HE LD. CIT(A) HAS ALLOWED THE CLAIM OF THE ASSESSEE FOR DEPRECIATION ON GOODWILL AFTER PLACING RELIANCE ON THE DECISION OF HON BLE ITAT AHMEDABAD C B ENCH IN THE CASE OF THE ASSESSEE ITSELF ITA NO. 1549 /AHD/201 2 FOLLOWING ITS EARLIER ORDER IN THE CAS E OF ASSESSEE FOR AY2007 - 08(ITA NO.1312/AHD/2011 DATED 28 - 02 - 2012 AS WELL AS HON BLE JURISDICTIONAL GUJARAT HIGH COURT DECISION IN THE CASE OF SMIFS SECURITIES PVT. LTD. IN CIVIL APPEAL NO. 5961 OF 2001 . 6. DURING THE COURSE OF APPELLATE PROCEEDINGS B EFORE US, THE LD. DEPARTMENTAL REPRESENTATIVE COULD NOT CONTROVERT THE ABOVE CITED JUDICIAL PRONOUNCEMENT OF JURISDICTIONAL HIGH COURT AND THE DECISION OF CO - ORDINATE BENCH OF ITAT ON THE BASIS OF WHICH CLAIM OF DEPRE CATION OF GOODWILL WAS ALLOWED. THEREF ORE, RESPECTFU LLY FOLLOWING AFORESAID JUDICIAL PRONOUNCEMENT OF JURISDIC TIONAL HIGH COURT AND T HE CO - ORDINATE BENCH DECISION, WE DISMISSED THE APPEAL OF THE REVENUE ON THIS ISSUE. I.T.A NO. 1727 & CO NO. 139 /AHD/20 15 A.Y. 2010 - 11 PAGE NO DCIT VS. BHAGWATI BANQUETS & HOTELS 3 DISALLOWANCE OF RS. 470158/ - U/S. 14A OF THE ACT. 7. DURING THE COURSE OF A SSESSMENT PROCEEDINGS, THE ASSESSING OFFICER HAS NOTICED THAT ASSESSEE HAS SHOWN EXEMPT INCOME OF RS. 38 , 983/ - AS DIVIDEND RECEIVED. THE ASSESSING OFFICER HAS FURTHER NOTICED THAT ASSESSEE HAS NOT SHOWN ANY EXPENDITURE INCURRED TOWARDS EARNING AFORESAID EXEMPT INCOME. CONSEQUENTLY , THE ASSESSING OFFICER HAS DISALLOWED RS. 5 , 09 , 141/ - AS EXPENDITURE INCURRED TOWARDS EXEMPT INCOME U/S 14A R.W. RULE 8D OF THE I.T. 1961. 8. AGGRIEVED ASSESSEE FILED APPEAL BEFORE THE LD. CIT(A). THE LD. CIT(A) HAS RESTRIC TED THE DISALLOWANCE TO THE EXTENT OF EXEMPT INCOME OF RS. 38 , 983/ - . THE LD.CIT(A) HAS PLACED RELIANCE ON THE DECI SI ON OF ITAT MUMBAI IN THE CASE OF DAGA GLOBAL CH E MICAL AND DECISION OF THE COORDINATE BENCH OF ITAT AHMEDABAD IN THE CASE OF JIVRAJ TEA LTD. VIDE ITA 866/AHD/2012 DATED 28/8/2012 AND ITAT DELHI IN THE CASE SAHARA INDIA FINANCIAL CORPORATION LTD. 148 ITD 336. 9. WE HAVE HEARD RIVAL CONTENTIONS AND PERUSED THE MATERIAL ON RECORD CAREFULLY. WE NOTICE THAT NO NEW INVESTMENT S HAVE BEEN MADE DURIN G THE YEAR . T HE DIVIDEND INCOM E WAS EARNED ON INVESTMENT IN A S E LTD. SHARES WHICH WERE PURCHASED ON 9 TH SEP, 2007 IN ASSESSMENT YEAR 2008 - 09 OUT OF INTEREST FREE FUNDS. WE HAVE ALSO CONSIDERED THAT CO - ORDINATE BENCH OF THE ITAT AHMEDABAD IN THE CASE OF JI VRAJ TEA LTD. VS. DCIT ITA NO. 886/AHD/2012 ORDER DATED 28 TH AUGUST, 2014 REL ATED TO ASSESSMENT YEAR 2008 - 09 RESTRICT ING THE DISALLOWANCE TO THE EXTENT OF EXEMPT INCOME . AFTER TAKING INTO CONSIDERATION THE DECISION OF THE COORDINATE BENCH DELIVERED ON TH E IDENTICAL ISSUE AS SUPRA AND JUDICIAL FINDINGS AS ELABORATED IN THE ORDER OF THE LT.CIT(A) WE UPHOLD THE DECISION OF LD . CIT(A) TO RESTRICT THE DISALLOWANCE ON ADMINISTRATIVE EXPENDITURE U/S. 14A R.W RULE 8D TO THE EXTENT OF EXEMPT . THEREFORE, THE APPE AL OF THE REVENUE ON THIS ISSUE IS DISMISSED. I.T.A NO. 1727 & CO NO. 139 /AHD/20 15 A.Y. 2010 - 11 PAGE NO DCIT VS. BHAGWATI BANQUETS & HOTELS 4 GROUND NO. 3 OF THE REVENUE ( DISALLOWANCE ON DEPRECIATION OF RS. 21 , 80 , 069/ - ) A ND CO NO. 139/AHD/2015 FILED BY ASSESSEE 10. THE ASSESSEE HAS RAISED FOLLOWING GROUNDS OF APPEAL IN THE CO . 1. THE LD. CIT(A) HAS GRIEVOUSLY ERRED IN LAW OR IN FACTS IN CONFIRMING DISALLOWANCE OF VEHICLE DEPRECIATION OF RS. 7,26,689/ - AS PERSONAL EXP. OF THE DIRECTORS. 2. THAT IN THE FACTS AND CIRCUMSTANCES OF THE CASE AS WELL AS IN LAW, THE LD. CIT(A) OUGHT NOT TO HAVE CONFIRMED DI SALLOWANCE OF VEHICLE DEPRECIATION OF RS. 7,26,689/ - 1 1 . DURING THE PREVIOUS YEAR UNDER CONSIDERATION T HE ASSESSEE HAS PURCHASED TWO CAR S OF RS. 47 , 39 , 752/ - AND RS. 51 , 02 , 553/ - ON WHICH DEPRECIATION @ 15% AND 50% AMOUNTING TO RS. 3 , 55 , 481/ - ( LESS THAN 1 80 DAYS ) AND RS. 25 , 51 , 277/ - (MORE THAN 180 DAYS) WAS CLAIMED. IT WAS FURTHER NOTICED THAT ASSSESSEE HAS CLAIMED DEPRECIATION OF RS . 25 , 51 , 277/ - @ 50% AND T HE SAID VEHICLE WAS NOT REGISTERED AS COMMERCIAL VEHICLE. THE ASSESSING OFFICER OBSERV ED THAT AFOR ESAID VEHICLES WERE REGISTERED IN T H E NAME OF DIRECTOR AND THERE WAS NO MATERIAL ON RECORD TO SHOW THAT THE VEHICLE WERE USED FOR T HE BUSINESS PURPOSES OF THE COMPANY. CONSEQUENTLY THE ASSESSING OFFICER HAD ALLOWED THE ENTIRE DEPRECIATION CLAIM OF THE ASSESSEE OF RS.29,06,758(RS.355481+25,51,277).THE ASSESSING OFFICER HAS ALSO STATED THAT VEHICLE ON WHICH DEPRECIATION WAS CLAIMED @ 50%WAS NOT REGISTERED AS COMMERCIAL VEHICLE WITH THE RTO THEREFORE THE DEPRECIATION @ 50% WAS NOT ALLOWABLE. HOWEVER, NO S EPARATE DISALLOWANCE WAS MADE AS THE ENTIRE DEPRECIATION HAD ALREADY BEEN DISALLOWED. 1 2 . AGGRIEVED ASSESSEE FILED APPEAL BEFORE THE LD. CIT(A). THE LD. CIT(A) HA D PARTLY ALLOWED THE APPEA L BY STATING THAT VEHICLES WERE WHOLLY AND EXCLUSIVELY NOT USED FOR THE PURPOSE OF ASSESSEE S BUSINESS . I N THE ABSENCE OF SUPPORTING DETAIL HE HAS TREATED THAT 75% OF SUCH VEHICLES ARE USED FOR ASSESSEE S BUSINESS . T HEREFORE, THE CLAIM OF DEPRECIATION TO THE EXTENT OF RS. 726689/ - WAS DISALLOWED. I.T.A NO. 1727 & CO NO. 139 /AHD/20 15 A.Y. 2010 - 11 PAGE NO DCIT VS. BHAGWATI BANQUETS & HOTELS 5 1 3 . DURING T HE COURSE OF APPELLATE PROCEEDINGS BEFORE US, WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED T HE MATERIAL ON RECORD . THE ASSES SEE HAS PURCHASED THE AFORESAID VEHICLES IN THE NAME OF THE DIRECTORS OF THE ASSESSEE COMPANY . THE SOURCE OF FUNDS FOR THE PURCHASE OF THE CARS WAS PROVIDED BY THE ASSESSEE COMPANY AND SAME WAS DULY RECORDED IN THE BOOKS OF THE COMPANY. THE PURCHASE OF CARS IN THE ABOVE MANNERS WAS AUTHORIZED BY BOARD RESOLUTION PASSED IN THE BOARD MEETING OF THE COMPANY. IN VIEW OF THE ABOVE FACTS THE DECISION OF THE ASSESSING OFFICER TO DISALLOW THE ENTIRE DEPRECIATION ON THE GROUND THAT NO LOG BOOK IS MAINTAINED IS NOT JUSTIFIED. HOWEVER, IN THE ABSENCE OF SUCH DETAIL WE ARE INCLINED WITH THE DECISION OF THE LD. CIT(A) TO ALLOW THE DEPRECIATION TO THE EXTENT OF 75% OF CLAIM BY TREATING THAT 75% OF SUCH VEHICLES WERE USED FOR BUSINESS PURPOSE. FURTHER , WE ARE ALSO INCLINED WITH DETAIL ED FINDINGS OF THE LD. CIT(A) GIVEN IN PARA (D) OF HIS OR DER DEMONSTRATING THAT ASSESSEE FULFILL S THE CONDITION OF B EING ELIGIBLE FOR HIGHER RATE OF DEPRECIATION UNDER THE CATEGORY OF COMMERCIAL VEHICLE. AS FAR AS CROSS OBJECTION OF THE ASSESSEE IS CONCERNED, LD. COUNSEL DOES NOT PRESS IT ON ACCOUNT OF SMALLNESS OF AMOUNT INVOLVED IN IT. HENCE, CO IS ALSO DISMISSED. IN VIEW OF THE ABOVE FACTS AND THE DETAIL ED FINDINGS AS ELABORATED IN THE ORDER OF THE LD. CIT(A) , WE ARE INCLINED WITH THE DECISION OF CIT(A). ACCORDINGLY , THE APPEAL OF REVENUE AND C.O. OF THE ASSESSEE O N THIS ISSUE ARE DISMISSED . 1 4 . IN THE RESULT, THE APPEAL OF THE REVENUE AN D CO OF T HE ASSESSEE ARE DISMISSED. ORDER PR ONOUNCED IN THE OPEN C OURT ON 15 - 02 - 201 8 SD/ - SD/ - ( RAJPAL YADAV ) ( AMARJIT SINGH ) JUDICIAL MEMBER ACCOUNTANT MEMBER AHMEDABAD : DATED 15 /02 /2018 I.T.A NO. 1727 & CO NO. 139 /AHD/20 15 A.Y. 2010 - 11 PAGE NO DCIT VS. BHAGWATI BANQUETS & HOTELS 6 / COPY OF ORDER FORWARDED TO: - 1. ASSESSEE 2. REVENUE 3. CONCERNED CIT 4. CIT (A) 5. DR, ITAT, AHMEDABAD 6. GUARD FILE. BY ORDER/ , / ,