APL Apollo Tubes Ltd., New Delhi V. ACIT, Circle-3(1), New Delhi

CO 223/DEL/2017

• Counselvise Citation: [2021] 107 COUNSELVISE.COM (IT) 9256 (ITAT-DELHI)
• Duration Of Justice: 3 year(s) 7 month(s) 24 day(s)
• Appeal Type: Cross Objection
• Pronouncement Date: 30-07-2021
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: A
• Assessment Year: 2013-2014
• Appeal Filed On: 06-12-2017
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: SATPAL GULATI
• Assessee Lawyers: RAKESH GUPTA
• Keywords: Gift; Depreciation; Principle of natural justice; Additional depreciation; Earning of tax free income; TDS; Rule 8D
• Section: 14A; 80G; 251

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH E, NEW DELHI BEFORE SH. AMIT SHUKLA, JUDICIAL MEMBER DR. B. R. R. KUMAR, ACCOUNTANT MEMBER ITA NO. 4553/DEL/2017 : ASSTT. YEAR: 2013-14 ACIT, CIRCLE-3(1), NEW DELHI-110002 VS APL APOLLO TUBES LTD., D-28, SOUTH EXTENSION, PART-I, NEW DELHI-110049 (APPELLANTT (RESPONDENT) PAN NO. AAACB0960D WITH CO NO. 223/DEL/2017 : ASSTT. YEAR: 2013-14 APL APOLLO TUBES LTD., D-28, SOUTH EXTENSION, PART-I, NEW DELHI-110049 VS ACIT, CIRCLE-3(1), NEW DELHI-110002 (APPELLANTT (RESPONDENT) PAN NO. AAACB0960D ITA NO. 9395/DEL/2019 : ASSTT. YEAR: 2014-15 APL APOLLO TUBES LTD., D-28, SOUTH EXTENSION, PART-I, NEW DELHI-110049 VS ACIT, CIRCLE-3(1), NEW DELHI-110002 (APPELLANT T (RESPONDENT) PAN NO. AA ACB0960D ASSESSEE BY : SH. RAKESH GUPTA, ADV. REVENUE BY : SH. SATPAL GULATI, CIT DR DATE OF HEAR ING: 30 . 06 .20 21 DATE OF PRONOUNCEMENT: 30 .0 7 .20 2 1 ITA NO. 9395/DEL/2017 ITA NO. 4553/DEL/2017 & CO NO. 223/DEL/2017 APL APOLLO TUBES LTD. 2 ORDER PER DR. B. R. R. KUMAR, ACCOUNTANT MEMBER: THE PRESENT APPEALS HAVE BEEN FILED BY THE ASSESSEE AND THE REVENUE AGAINST THE ORDERS OF LD. CIT (A)-I, NE W DELHI DATED 11.11.2019 & 20.04.2017. 2. IN ITA NO. 4553/DEL/2017, FOLLOWING GROUNDS HAVE BEEN RAISED BY THE REVENUE: 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE, THE LD. CIT(A) HAS ERRE IN RESTRICTING THE ADDITION TO RS. 20,48,705/- AS AGAINST RS. 4,13,42,756/- MADE BY TH E AO ON ACCOUNT OF THE BRAND IMAGE EXPENSES. 2. THE LD. CIT(A) ERRED IN LAW AND ON FACTS IN DEL ETING ADDITION OF RS.1,04,34,368/- MADE BY THE A.O. ON ACCOUNT OF THE DISALLOWANCE OF EXPENSES U/S 14ALNCO ME TAX ACT, 1961 READ WITH RULE 8D. 3. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE, THE LD. CIT(A) HAS ERRED IN DELETING ADDITION OF RS . 2,32,976/- MADE BY THE A.O. ON ACCOUNT OF PROVISION TOWARDS COMMISSION. 3. IN ITA NO. 9395/DEL/2017, FOLLOWING GROUNDS HAVE BEEN RAISED BY THE ASSESSEE: 1. THAT HAVING REGARD TO THE FACTS AND CIRCUMSTANC ES OF THE CASE, LD. CIT(A) HAS ERRED IN LAW AND ON FACTS IN CONFIRMING THE ACTION OF LD. AO IN MAKING DISALLOWA NCE OF RS.8,73,86,301/- ON ACCOUNT OF BRAND IMAGE EXPENSE S CLAIMED BY THE ASSESSEE IN THE COMPUTATION OF INCOM E BY TREATING IT AS UNJUSTIFIED AND UNREASONABLE AND THA T TOO WITHOUT ANY BASIS AND BY RECORDING INCORRECT FACTS AND FINDINGS AND WITHOUT APPRECIATING THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN VIOLATION OF PRINC IPLES OF NATURAL JUSTICE AND WITHOUT CONSIDERING THE SUBMISS IONS FILED BY THE ASSESSEE. ITA NO. 9395/DEL/2017 ITA NO. 4553/DEL/2017 & CO NO. 223/DEL/2017 APL APOLLO TUBES LTD. 3 2. THAT IN ANY CASE AND IN ANY VIEW OF THE MATTER, ACTION OF LD. CIT(A) IN CONFIRMING THE ACTION OF LD . AO IN MAKING DISALLOWANCE OF RS.8,73,86,301/- ON ACCOUNT OF BRAND IMAGE EXPENSES, IS BAD IN LAW AND AGAINST T HE FACTS AND CIRCUMSTANCES OF THE CASE. 3. THAT HAVING REGARD TO THE FACTS AND CIRCUMSTANC ES OF THE CASE, LD. CIT(A) HAS ERRED IN LAW AND ON FAC TS IN SUSTAINING THE ACTION OF LD. AO IN MAKING DISALLOWA NCE RS. 2,65,74,425/- AND THAT TOO BY RECORDING INCORRE CT FACTS AND FINDINGS AND WITH< APPRECIATING THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN VIOLATION OF PRINC IPLE.' NATURAL JUSTICE. 4. THAT IN ANY CASE AND IN ANY VIEW OF THE MATTER, ACTION OF LD. CIT(A) IN SUSTAINING THE ACTION OF LD . AO IN MAKING DISALLOWANCE OF RS.2,65,74,425/- U/S 14A R.W .R. 8D, IS BAD IN LAW AND AGAINST THE FACTS AND CIRCUMS TANCES OF THE CASE. 5. THAT HAVING REGARD TO THE FACTS AND CIRCUMSTANCE S OF THE CASE, LD. CIT(A) HAS ERRED LAW AND ON FACTS IN CONFIRMING THE ACTION OF LD. AO IN NOT ALLOWING THE BENEFIT OF ADDITIONAL DEPRECIATION OF RS. 1,70,00,4 85/- CLAIMED BY THE ASSESSEE UNDER THE HEAD PLANT AND MACHINERY AND THAT TOO BY RECORDING INCORRECT FACT S AND FINDINGS AND IN VIOLATION OF PRINCIPLES OF NATURAL JUSTICE AND IN NOT CONSIDERING THE LATEST LAW IN HIS REGARD . 6. THAT HAVING REGARD TO THE FACTS AND CIRCUMSTANC ES OF THE CASE, LD. CIT(A) HAS ERRED IN LAW AND ON FAC TS IN CONFIRMING THE ACTION OF LD. AO IN NOT ALLOWING THE BENEFIT OF DEDUCTION OF RS. 21,00,000/- AS CLAIMED BY THE ASSESSEE U/S 35AC AND THAT TOO BY RECORDING INCORRE CT FACTS AND FINDINGS AND IN VIOLATION OF PRINCIPLES O F NATURAL JUSTICE AND IN NOT CONSIDERING THE LATEST LAW IN TH IS REGARD. 7. WITHOUT PREJUDICE TO ABOVE GROUND, LD. CIT(A) H AS ERRED IN LAW AND ON FACTS IN CONFIRMING THE ACTION OF LD. AO IN NOT ALLOWING THE BENEFIT OF DEDUCTION OF RS. 10,50,000/- AS CLAIMED BY THE ASSESSEE U/S 80G AND THAT TOO BY RECORDING INCORRECT FACTS AND FINDINGS AND I N VIOLATION OF PRINCIPLES OF NATURAL JUSTICE AND IN CONSIDERING THE LATEST LAW IN THIS REGARD. ITA NO. 9395/DEL/2017 ITA NO. 4553/DEL/2017 & CO NO. 223/DEL/2017 APL APOLLO TUBES LTD. 4 ITA NO. 4553/DEL/2017 A.Y. 2013-14: 4. HEARD THE ARGUMENTS OF BOTH THE PARTIES AND PERU SED THE MATERIAL AVAILABLE ON RECORD. 5. CULLING THE RELEVANT FACTS, WE FIND THAT: THE ASSESSEE COMPANY IS ENGAGED IN THE BUSINESS OF MANUFACTURING OF STEEL TUBES HAVING DISTRIBUTORS TH ROUGHOUT INDIA. DURING THE YEAR, THE ASSESSEE ACHIEVED A SA LES OF RS. 1753.17 CRORE AS COMPARED TO RS. 1165.8 CRORE IN TH E A.Y. 2012-13. TO ACHIEVE THE TARGET, THE ASSESSEE FLOATE D DIFFERENT SCHEMES TO INCENTIVIZE THE DEALERS. AS PER THE SCHE ME, ANY DEALER ACHIEVING SALES TARGET OF 150 METRIC TONNE, WILL BE ENTITLED FOR 1 AIR TICKET TO AND FRO TO MALAYSIA AN D IF ACHIEVES A SALES TARGET OF 500 METRIC TONNE OF STEEL TUBES, SU CH DEALER WOULD BE ENTITLED FOR ONE TICKET TO PARIS. IN CASE, A DEALER ACHIEVES TARGET OF 750 METRIC TONNE SUCH DEALER IS ENTITLED FOR ONE TICKET TO AUSTRALIA AND TWO TICKETS IN CASE OF 1500 M.T. OF THE STEEL TUBES. . AS PER THE SCHEME, THREE GROUPS CONSISTING OF 272 PERSONS, 251 PERSONS AND 157 PERSONS WERE TAKEN TO MALAYSIA AND 20 PERSONS WHO HAVE BEEN TAKEN TO AUST RALIA. THE ASSESSEE HAS INCURRED AN EXPENDITURE OF RS.6,54,32, 452/-. 6. THE LD. CIT (A) EXAMINED THE BILLS RAISED BY THE ASSESSEE OF DEWAN TRAVELS PVT. LTD. WHICH ARE AS UNDER: SL. NO. DATE AMOUNT 1. 17.09.2011 RS.20,48,705/- 2. 04.04.2012 RS.2,53,17,202/- 3. 26.05.2012 RS.1,46,54,700/- 4. 19.07.2012 RS.2,34,11,845/- ITA NO. 9395/DEL/2017 ITA NO. 4553/DEL/2017 & CO NO. 223/DEL/2017 APL APOLLO TUBES LTD. 5 7. THE LD. CIT (A) FOUND THAT THE BILL DATED 17.09. 2011 FOR AN AMOUNT OF RS.20,48,705/- PERTAIN TO THE ASSESSMENT YEAR 2012- 13, HENCE, DISALLOWED THE EXPENDITURE TO THAT EXTEN T AND ALLOWED THE REMAINING EXPENDITURE BEING THE AMOUNT SPENT DURING THE YEAR. THE DISALLOWANCE OF RS.20,48,705/- HAS NOT BEEN CONTESTED BY THE ASSESSEE. THE LD. CIT (A) HAS ALSO VERIFIED THE LIST OF DEALERS AND THEIR PERSONS WHO WERE TAKEN FOR THE FOREIGN JUNKETS IN SUPPORT OF THE CLAIM OF THE EXPENDITURE WHILE DELETING THE ADDITION. 8. SINCE, THE FACTS COULD NOT BE REBUTTED BY ANY CO GENT MATERIAL BY THE REVENUE BEFORE US, WE HEREBY DECLIN E TO INTERFERE WITH THE ORDER OF THE LD. CIT (A). DISALLOWANCE U/S 14A OF RS.1,04,34,368 : 9. DURING THE YEAR, AS PER THE RECORDS, THE ASSESSE E HAS NOT EARNED ANY DIVIDEND INCOME. HOWEVER, THE ASSESSING OFFICER CHOSE TO DISALLOW AN AMOUNT OF RS.1,04,34,368/- BAS ED ON THE INVESTMENT SHOWN IN THE BALANCE SHEET OF RS.77.9 CR ORES. 10. SINCE, NO DISALLOWANCE IS CALLED FOR IN THE ABS ENCE OF ANY EXEMPT INCOME EARNED AND CLAIMED BY THE ASSESSEE, W E HEREBY DECLINE TO INTERFERE WITH THE ORDER OF THE LD. CIT (A). COMMISSION PAYMENT OF RS.2,32,976 : 11. THE ASSESSING OFFICER DISALLOWED THE AMOUNT HOL DING THAT IT WAS THE PROVISION TOWARDS COMMISSION AND THEREFOR E NOT AN ASCERTAINED LIABILITY. THE LD. CIT (A) FOUND THAT THE COMMISSION PAYMENT WAS NOT A PROVISION BUT PAID O N THE BASIS ITA NO. 9395/DEL/2017 ITA NO. 4553/DEL/2017 & CO NO. 223/DEL/2017 APL APOLLO TUBES LTD. 6 OF BILLS DATED 02.04.2013 RECEIVED FROM ONE M/S PAR IKH STEEL PVT. LTD. THE LD. CIT (A) HAS ALSO GAVE A CATEGORIC AL FINDING THAT THE PAYMENT HAS BEEN MADE ON 18.04.2013 FOR THE SER VICES RENDERED OF THE SALES PERTAINING TO THE INVOICE NO . 163 & 177 DATED 24.01.2013 AND 07.02.2013. SINCE, THE COMMISS ION AMOUNT WAS AN ASCERTAINED LIABILITY AND PAID FOR THE SERVICES RENDERED. TDS WAS ALSO DEDUCTED ON THE COMMISSION P AYMENT AND HENCE THE LD. CIT (A) TAKING INTO CONSIDERATION , THE ENTIRE FACTS ALLOWED THE DEDUCTION. SINCE, NO CONTRARY MAT ERIAL HAS BEEN BROUGHT BEFORE US, WE DECLINE TO INTERFERE WIT H ORDER OF THE LD. CIT (A). 12. IN THE RESULT, THE APPEAL OF THE REVENUE IS DIS MISSED. CO NO. 223/DEL/2017: 13. IN VIEW OF THE ABOVE ADJUDICATION, THE CO OF TH E ASSESSEE IS TREATED AS SUPERFLUOUS AND HENCE DISMISSED. ITA NO. 9395/DEL/2017 A.Y. 2014-15: DISALLOWANCE U/S 14A: 14. THE ASSESSEE RECEIVED DIVIDEND OF RS.2,69,77,70 0/- WHICH WAS CLAIMED EXEMPT U/S 10(34) OF THE INCOME TAX ACT , 1961. THE ASSESSEE MADE DISALLOWANCE OF RS. 4,03,275/- U/ S 14A R.W.R. 8D. THE ASSESSING OFFICER MADE DISALLOWANCE OF RS.4,93,31,099/- UNDER RULE 8D(II) AND 8D(III). THE LD. CIT (A) RESTRICTED THE AMOUNT TO RS.2,65,74,425/- TAKING IN TO CONSIDERATION, THE AMOUNT OF RS.4,03,275/- DISALLOW ED SUO MOTO ITA NO. 9395/DEL/2017 ITA NO. 4553/DEL/2017 & CO NO. 223/DEL/2017 APL APOLLO TUBES LTD. 7 BY THE ASSESSEE THUS RESTRICTING THE TOTAL DISALLOW ANCE TO THE EXEMPT INCOME EARNED. 15. THE RELEVANT FACTS: ASSESSMENT YEAR: 2014-15 DATE OF ASSESSMENT ORDER: 31.12.2017 DATE OF AMENDMENT IN RULE 8D(2) W.E.F.: 02.06.2016 16. THE HONBLE SUPREME COURT IN THE CASE OF MAXOPP INVESTMENTS LTD. VS CIT 91 TAXMAN 154 HAS OBLITERAT ED THE DISTINCTION BETWEEN INVESTMENT IN THE SUBSIDIARIES OR OTHERWISE. 17. HENCE, THE MATTER IS REFERRED BACK TO THE ASSES SING OFFICER FOR RE-COMPUTATION OF THE DISALLOWANCE U/S 14A, KEE PING IN VIEW THE JUDGMENT OF HONBLE APEX COURT AND THE AMENDED PROVISIONS OF THE ACT EXISTING AT THE TIME OF COMPLETION OF AS SESSMENT. BRAND IMAGE EXPENSES: 18. THE AO HAS COMPUTED THE BREAKUP OF BRAND IMAGE EXPENSES AS UNDER:- S. NO. EXPENDITURE INCURRED (NATURE) AMOUNT (RS.) 1. SINGAPORE STAR CRUISE TRIPS (DEALERS & DISTRIBUTORS) OF 100 PERSONS 8,81,98,856.00 2. TOUR AND TRAVEL PACKAGE FOR DEALERS AND DISTRIBUTORS UNDER VARIOUS SCHEMES 80,18,675.00 3. SALES PROMOTION SCHEME FOR DEALERS MEET EXPENSES 51,87,439.00 4. MARKETING TOUR & TRAVEL, SALARY OF MARKETING DEPARTMENT (BRANDING), PRINTING AND DESIGNING OF FLEX BOARDS, WALL PAINTING, T-SHIRTS AND OTHER GIFTS 3,86,52,965.00 TOTAL 14,00,57,935/- ITA NO. 9395/DEL/2017 ITA NO. 4553/DEL/2017 & CO NO. 223/DEL/2017 APL APOLLO TUBES LTD. 8 19. OUT OF THE AMOUNT OF RS.14,00,57,935/-, AN AMOU NT OF RS.5,21,71,634/- WAS DEBITED TO BRAND IMAGE EXPENSE S IN THE P&L ACCOUNT AND RS.8,73,86,300/- IN THE COMPUTATION OF INCOME. 20. THE AO DISALLOWED AN AMOUNT OF RS.8,73,86,301/- CLAIMED IN THE COMPUTATION OF INCOME ON THE GROUNDS THAT TH E ASSESSEE FAILED TO PROVE THE FOLLOWING POINTS: (I) TO WHOM THE FREEBIES GIFTS HAD BEEN DISTRIBUTED ? (II) WHAT ADVANTAGE THAT PERSON HAD GIVEN TO THE CO MPANY OBJECTIVELY? (III) WHETHER WITHOUT DISTRIBUTION OF GIFTS, FOREIG N JUNKETS THE SALE OF THE APPELLANT COMPANY WOULD HAVE DIPPED? (IV) WHO HAD TRAVELLED, WHAT IS THE RELATIONSHIP OF THE PERSON TRAVELLED TO THE APPELLANT COMPANY, WHETHER THE EMP LOYEE OF THE COMPANY, OR THE DISTRIBUTORS OF THE COMPANY OR THEIR FAMILY MEMBERS HAD TRAVELLED? (V) WHETHER THE BENEFIT VALUE HAD BEEN AFFECTED TO INCOME BY THAT PERSON WHO HAD BEEN GIVEN THE FREEBIES/S, FREE TOUR? (VI) WHETHER THERE IS SUBSTANTIAL INCREASE IN NET P ROFIT OF COMPANY? (VII) FOR WHICH PURPOSE THE JEWELLERY OF RS. 1,34,8 5,975/- WAS PURCHASED, TO WHOM DISTRIBUTED, THEIR NAMES AND REC EIPTS. ITA NO. 9395/DEL/2017 ITA NO. 4553/DEL/2017 & CO NO. 223/DEL/2017 APL APOLLO TUBES LTD. 9 21. THE LD. CIT (A) CONFIRMED THE ADDITION HOLDING THAT THE ASSESSEE COMPANY CLAIMED EXPENSES OF RS. 8,73,86,30 1/- IS UNREASONABLE AND EXCESSIVE AND HAS BEEN CLAIMED IN ORDER TO REDUCE ITS TAXABLE INCOME FOR THE ASSESSMENT YEAR 2 014-15. THE LD. CIT(A) HELD THAT THE APL GOLD KHAZANA SCHEME DO NOT RELATE TO THE CURRENT ASSESSMENT YEAR 2014-15. 22. FROM THE FACTS ON RECORD, WE FIND THAT GOLD OF 5000 GM WORTH RS.1,34,85,900/- HAS BEEN PURCHASED ON 01.04. 2013, 22.04.2013, 21.12.2013 PERTAINING TO THE ASSESSMENT YEAR 2014-15. THE GOLD HAS BEEN PURCHASED FROM GR TANGAM ALIGAI JEWELLERS PVT. LTD. WHICH HAS NOT BEEN DISPUTED BY THE REVENUE. THE LIST OF GOLD DISTRIBUTION HAS BEEN GIVEN AT PAG E NO. 15 OF THE ORDER OF THE LD. CIT (A) MENTIONING THE SALES V OLUME IN METRIC TONNES AND THE QUANTITY OF GOLD IN GRAMS GIV EN AS INCENTIVE. THE REVENUE OUGHT TO HAVE ENQUIRED WHETH ER THE INCENTIVE OF GOLD VARYING FROM 1073 TO 1500 GMS HAS INDEED BEEN BESTOWED AS INCENTIVE, IF SO, WHAT IS THE TREA TMENT GIVEN IN THE HANDS OF RECIPIENTS BOOKS OF ACCOUNTS. THE ASSESSEE HAS PROVIDED DETAILS OF ALL THE DEALERS WHO HAVE BEEN G IVEN TICKETS TO CRUISE TRIPS WHICH WERE NOT INQUIRED BY THE REVE NUE TO PROVE ANY DEFORMATION IN THE INFORMATION PROVIDED. INSTEA D OF DOING SO, THE REVENUE HELD THAT THE EXPENSES OF RS.8.73 C RORES ARE UNREASONABLE AND EXCESSIVE WHICH IS BEYOND THE PURV IEW OF THE REVENUE. SINCE, THE FACT OF INCURRING OF EXPENSES A ND ITS GENUINENESS HAS NOT BEEN IN DISPUTE, WE HEREBY DECL INE TO ACCEPT THE REASONING OF THE LD. CIT (A). ITA NO. 9395/DEL/2017 ITA NO. 4553/DEL/2017 & CO NO. 223/DEL/2017 APL APOLLO TUBES LTD. 10 ADDITIONAL DEPRECIATION OF RS.1,70,00,485: CLAIM U/S 35AC & 80G: 23. WITH REGARD TO ABOVE GROUNDS, BOTH THE PARTIES AGREED TO REFER THE MATTER TO THE FILE OF THE AO. HENCE, THE AO IS DIRECTED TO EXAMINE THE MATTER ON FACTUAL AND LEGAL ASPECTS AND TAKE A DECISION IN ACCORDANCE WITH THE PROVISIONS OF THE A CT. 24. IN THE RESULT, THE APPEAL OF THE REVENUE A.Y. 2013-14 IS DISMISSED THE CO OF THE ASSESSEE A.Y. 2013-14 IS DISMISSED. THE APPEAL OF THE ASSESSEE FOR THE A.Y. 2014-15 IS ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 30/07/2021. SD/- SD/- (AMIT SHUKLA) (D R. B. R. R. KUMAR) JUDICIAL MEMBER ACCOU NTANT MEMBER DATED: 30/07/2021 *SUBODH* COPY FORWARDED TO: 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(APPEALS) 5. DR: ITAT ASSISTANT REGISTRAR