NEHARAJ STOCK BROKERS P.LTD, MUMBAI V. ACIT CIR 4(2), MUMBAI

CO 23/MUM/2013

• Counselvise Citation: [2014] 122 COUNSELVISE.COM (IT) 9441 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 21 day(s)
• Appeal Type: Cross Objection
• Pronouncement Date: 19-02-2014
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: Not Allotted
• Next Hearing Date: 11-02-2014
• Assessment Year: 2008-2009
• Appeal Filed On: 28-01-2013
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Keywords: Depreciation; Revenue expenditure; Capital expenditure
• Section: 14A

Judgement Text

, IN THE INCOME TAX APPELLATE TRIBUNAL B BENCH, MUMBAI BEFORE S/SHRI B.R.MITTAL,(JM) AND RAJENDRA (AM) . . , , ./I.T.A.NO.754/MUM/2012 ( / ASSESSMENT YEAR: 2008-09) ASSTT. COMMISSIONER OF INCOME TAX -4(2), ROOM NO.642, 6 TH FLOOR, AAYAKAR BHAVAN, M.K.ROAD, MUMBAI-400020 / VS. M/S NEHRAJ STOCK BROKERS PVT LTD., 12-A, GEN.J.BHOSLE MARG, NEAR Y B CHAVAN AUDITORIUM, NARIMAN POINT, MUMBAI-400021. ./ ./PAN/GIR NO. : AABCN4279C ( ' / APPELLANT) .. ( ( ' / RESPONDENT) CROSS-OBJECTION NO.23/MUM/2013 IN ./I.T.A.NO.754/MUM/2012 ( / ASSESSMENT YEAR:2008-09) M/S NEHRAJ STOCK BROKERS PVT LTD., 12-A, GEN.J.BHOSLE MARG, NEAR Y B CHAVAN AUDITORIUM, NARIMAN POINT, MUMBAI-400021. / VS. ASSTT. COMMISSIONER OF INCOME TAX - 4(2), ROOM NO.642, 6 TH FLOOR, AAYAKAR BHAVAN, M.K.ROAD, MUMBAI-400020 ./ ./PAN/GIR NO. : AABCN4279C ( ' / APPELLANT) .. ( ( ' / RESPONDENT) ' / REVENUE BY : SHRI P ITAMBAR DAS ( ' * / ASSESSEE BY SMT.N ARESH KUMAR * - / DATE OF HEARING : 11.2.2014 * - /DATE OF PRONOUNCEMENT : 19.2.2014 / O R D E R PER B.R.MITTAL, JM THE DEPARTMENT HAS FILED THIS APPEAL FOR ASSESSM ENT YEAR 2008-09 AGAINST ORDER OF LD. CIT(A) DATED 21.11.2011 ON FOLLOWING GROUNDS : 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE AND IN LAW, THE LD. CIT(A) ERRED IN ALLOWING AN AMOUNT OF RS.11,01,465 /- OUT OF TOTAL DISALLOWANCE OF RS.17,24,609/- IN RESPECT OF REPAIRS AND MAINTEN ANCE I.T.A.NO.754/MUM/2012 CONO.23/MUM/2013 2 2. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E, THE IMPUGNED ORDER OF THE LD. CIT(A) IS CONTRARY TO LAW TO BE SET ASIDE A ND THAT OF THE AO BE RESTORED 2. THE ASSESSEE HAS FILED CROSS-OBJECTION TAKING FO LLOWING GROUNDS : 1. THE LD. CIT(A) HAS ERRED IN CONFIRMING DISALLOW ANCE U/S 14A OF THE ACT OF RS.5,21,173; 2. THE LD. CIT(A) HAS ALSO ERRED IN DISALLOWANCE OF REPAIRS AND MAINTENANCE OF RS.6,23,144/-; 3. THE LD. CIT(A) HAS ALSO ERRED IN NOT ALLOWING FU LL REBATE U/S 88E OF THE ACT; 4. THE RESPONDENT CRAVES LEAVE TO AMEND OR ALTER AN Y GROUND OR ADD A NEW GROUNDS WHICH MAY BE NECESSARY 3. GROUND NO.2 OF THE CROSS-OBJECTION IS CONNECTED WITH GROUND OF APPEAL TAKEN BY DEPARTMENT. THE RELEVANT FACTS ARE THAT THE ASSESS EE IS IN THE BUSINESS OF TRADING OF SHARES AND SECURITIES BROKERAGE FROM SHARE TRADING . 4. AO OBSERVED THAT THE ASSESSEE DEBITED A SUM OF R S.41,19,865/- IN RESPECT OF REPAIRS AND MAINTENANCE. AO ASKED THE ASSESSEE TO GIVE DETAILS WITH RESPECT TO THE NATURE OF REPAIRS. THAT THE ASSESSEE SUBMITTED A COPY OF BILLS, DESCRIPTION OF WHICH IS REPRODUCED BY AO AT PAGES 3 AN 4 IN THE ASSESSMENT ORDER OF SUM OF RS.17,24,609/-. AO STATED THAT ASSESSEE HAS CARRIED OUT EXTENSIVE R ENOVATION OF THE PREMISES WHICH HAS ENDURING ADDITION. AO HAS STATED THAT THE ASSESSE E STATED THAT IT WAS VERY OLD BUILDING AND REQUIRED URGENT REPAIRS FOR SAFETY AND STABILI TY AND HENCE CIVIL AND CARPENTRY WORK WAS DONE. AO STATED THAT THE REPLY OF THE ASSESSE E IS NOT ACCEPTABLE AS THE REPAIRS CARRIED OUT BY THE ASSESSEE ARE NOT IN THE NATURE O F CURRENT REPAIRS BUT ARE IN THE NATURE OF REVENUE HAVING LONG TERM BENEFIT. THEREFORE, THE EXPENDITURE OF RS.17,24,609/- IS IN THE NATURE OF CAPITAL EXPENDITURE AND ALLOWED DEPRECIATION AT THE RATE OF 10% WHICH COME TO RS.1,72,461/- AND ADDED BALANCE AMOUNT OF RS.15,52,148/- TO THE INCOME OF THE ASSESSEE. BEING AGGRIEVED, THE ASSESSEE FILED A PPEAL BEFORE THE FIRST APPELLATE AUTHORITY. 5. LD CIT(A) AFTER CONSIDERING THE SUBMISSIONS OF A SSESSEE AND ALSO STATING IN PARA 3.1 OF THE IMPUGNED ORDER THE DESCRIPTION OF ITEMS FOR WHICH THE AO CONSIDERED THE EXPENDITURE AGGREGATING TO RS.17,24,609/- AS CAPI TAL IN NATURE HAS STATED THAT THE EXPENDITURES ARE IN THE NATURE OF ELECTRICAL FITTI NGS, WOODEN FRAMES, DECORATIVE VENEERS AND TIMBERS USED FOR DOORS AND WINDOWS, MARBLE SLAB S FOR FLOORING AND VARIOUS LAMP SHADES. THAT THE RENOVATION WAS MORE IN THE NAT URE OF INTERIOR WORKS FOR MAKING THE OFFICE PREMISES MORE SUITABLE FOR THE OFFICE RUNNIN G. THE LD.CIT(A) ACCEPTED THE I.T.A.NO.754/MUM/2012 CONO.23/MUM/2013 3 CONTENTION OF THE ASSESSEE THAT THE EXPENDITURE AGG REGATING TO RS.11,01,465/- IS REVENUE IN NATURE AND THE BALANCE OF RS.6,23,144/- IS TO BE DISALLOWED. IT IS RELEVANT TO STATE THAT THE LD. CIT(A) HAS GIVEN THE NATURE OF THE DESCRIPTION OF ITEMS FOR WHICH HE DISALLOWED THE CLAIM OF THE ASSESSEE AS REVENUE EX PENDITURE AT PAGE 5 OF THE IMPUGNED ORDER. IT IS ALSO RELEVANT TO STATE THAT THE AS SESSEE ALSO FILED A LIST GIVING DETAIL AT PAGE 3 OF THE PAPER BOOK OF ITEMS WHICH HAVE BEEN ALLOWED BY LD. CIT(A) AND ALSO ITEMS WHICH HAVE BEEN DISALLOWED BY LD. CIT(A). F OR THE SAKE OF BREVITY, WE REPRODUCE THE SAME ITEMS ALLOWED BY CIT(A) S.NO. DESCRIPTION AMOUNT LABOUR CHARG ES FOR MAKING AND FIXING D OORS, DO O R FRAMES, WINDOW FRAMES, VENEERS 1 PANELLING AND OTHER MISC. WORK 2 DECORATIVE VEENERS AND TIMBERS HALL SLAB CASTING, INTERNAL PLASTER CEILING, P/APPLYING FP, P/ APPLYING RUSTICIDE, MICRO OR INVERTED BEAM, TEMPORARY STEEL 3 PROPS ETC ELECTRICAL ITEM LIKE SOCKET, ISOLATOR, FUSE 4 SWITCH, CABLE END BOX, EXO BLADE ETC. 600,000.00 300,092.00 141,373.00 60,000.00 1,101,465.00 ITEMS DISALLOWED BY CIT(A) S.NO. DESCRIPTION AMOUNT 1 MARBLE SLABS 8,974.00 2 ELECTRICAL FITTINGS GLED, TRANSFO RMER, SMALL LAMP, MIRCHI 33,602.00 3 LAMP, ELECTRONIC TRANSFORMER ETC ELECTRICAL FITTINGS SUCH AS MIRCHI,12/20W 316,935.00 4 TRANSFORMER, ROUND CANDLE ETC. 64,206.00 5 LED 2032W, HALO LAMP, 12/30 TRANSFORMER 20,817.00 6 LBL LIGHTS, POWER SUPPLY ETC. 5 0,850.00 7 SAMSUNG FRIDGE 89,750.00 8 SAFES, STRONG BOXES AND PARTS 12,974.00 9 2/8 W CFL PANOS WITH GLASS RING 16,706.00 10 EUREKA FORBES 8,330.00 6,23,144 HENCE, LD. CIT(A) ALLOWED THE GROUNDS OF APPEAL TAK EN BY ASSESSEE IN PART BY RESTRICTING THE DISALLOWANCE OF RS.6,23,144/-. HENCE, THE DEPA RTMENT IS IN APPEAL DISPUTING THE DELETION OF AMOUNT OF RS.11,01,465/- OUT OF RS.17, 24,609/- AND THE ASSESSEE HAS FILED CROSS-OBJECTION FOR SUSTENANCE OF BALANCE AMOUNT O F RS.6,23,144/- BEFORE THE TRIBUNAL. I.T.A.NO.754/MUM/2012 CONO.23/MUM/2013 4 6. LD. DR SUBMITTED THAT ON PERUSAL OF THE DETAILS OF THE EXPENDITURES PLACED AT PAGE 3 OF THE PAPER BOOK, IT COULD BE SEEN THAT THE ASSESSEE HAS SPENT RS.6 LAKHS ON ACCOUNT OF LABOUR CHARGES AND IT PROVES THAT THE EX PENDITURE INCURRED ON ACCOUNT OF REPAIRS AND MAINTENANCE COULD NOT BE ONLY ON ACCOUN T OF RENOVATION OF THE PREMISES BUT TO RECONSTRUCT THE PREMISES. HENCE, IT IS CAPITAL IN NATURE. THE LD. DR REFERRED THE DECISION OF HONBLE APEX COURT IN THE CASE OF BALLI MAL NAVAL KISHORE V/S CIT (1997) 224 ITR 414 (SC) WHERE IT IS HELD THAT THE EXPENDITURE IF INCURRED FOR A TOTAL RENOVATION OF THE PREMISES AND TO ACQUIRE NEW MACHINERY, NEW FUR NITURE, NEW SANITARY FITTINGS AND NEW ELECTRICAL WIRING, IT WAS CAPITAL IN NATURE. 7. ON THE OTHER HAND, LD. AR WHILE SUPPORTING THE O RDER OF LD. CIT(A) TO HOLD THAT RS.11,01,465/- IS THE REVENUE EXPENDITURE, FURTHER SUBMITTED THAT OUT OF THE EXPENDITURE DISALLOWED BY LD. CIT(A) (DETAILS MENT IONED HEREINABOVE IN PARA 5), THE ITEMS AT SR.NO.1 TO 6 ARE THE EXPENDITURES TOWARDS CURRENT REPAIRS AND WHEREAS THE ITEMS MENTIONED AT SR.NO.7 TO 10 OF THE ABOVE DET AILS ARE NOT PRESSED FOR. LD.AR SUBMITTED THAT THE EXPENDITURE ARE INCURRED TO REN OVATE OFFICE PREMISES BY REPLACING THE ELECTRICAL FITTINGS AND DOOR FRAMES ETC. AS T HE BUILDING WAS OLD ONE. LD. AR RELIED ON THE DECISION OF THE HONBLE RAJASTHAN HIGH COURT IN THE CASE OF CIT V/S S. ZORASTER & CO. (1982) 133 ITR 559 (RAJ) AND SUBMITTED THAT I F THE EXPENSES ARE INCURRED MERELY TO RENOVATE THE OFFICE PREMISES, SAME ARE ALLOWABLE AS REVENUE EXPENDITURE. HE SUBMITTED THAT NO NEW ASSETS HAS BEEN CREATED BY IN CURRING THE SAID EXPENSES. 8. WE HAVE CAREFULLY CONSIDERED THE SUBMISSIONS OF LD. REPRESENTATIVES OF THE PARTIES, ORDERS OF AUTHORITIES BELOW AND THE CASE S CITED BEFORE US (SUPRA). ON PERUSAL OF THE DETAILS OF EXPENSES, PLACED AT PAGE 3 OF THE PAPER BOOK AS WELL AS GIVEN BY AO AND LD. CIT(A) IN THEIR RESPECTIVE ORDERS, WE OBSERVE THAT THE ASSESSEE HAS INCURRED THE SAID EXPENDITURES FOR NOT CREATING ANY NEW ASSET AND /OR CARRIED OUT TOTAL NEW PREMISES. THE SAID EXPENDITURES HAS BEEN INCU RRED TO, ONLY FOR RENOVATION AND TO CARRY OUT THE REPAIRS AND REPLACEMENT OF EXISTING DOOR FRAMES, ELECTRICITY WIRING ETC. THE CASE RELIED ON BY LD. DR IS OF CINEMA THEATER WHERE THE ASSESSEE HAD TOTALLY RENOVATED THEATER BY INSTALLING NEW MACHINERY, NE W FURNITURE NEW SANITARY FITTING, NEW ELECTRICAL WIRING TO A BUILDING. THE ASSESSEE PUR CHASED THE SAID PREMISES FOR RS. 17,000/- AND INCURRED AN EXPENDITURE OF RS. 1,2 0,000/- IN THAT CONTEXT, IT HAS BEEN HELD BY THEIR LORDSHIPS OF THE HONBLE APEX COURT THAT BY NO STRETCH OF IMAGINATION, COULD IT BE SAID TO BE REPAIRS QUALIFIED AS 'CURR ENT REPAIRS' WITHIN THE MEANING OF SECTION 10(2)(V ) OF THE ACT. THEREFORE, IT WAS A CASE OF TOTAL RENOVATION AND THE I.T.A.NO.754/MUM/2012 CONO.23/MUM/2013 5 EXPENSES HAD RIGHTLY BEEN HELD BY THE HONBLE HIGH COURT TO BE CAPITAL I N NATURE. HOWEVER, IN THE CASE BEFORE US, IT IS NOT A TOTAL O VERHAULING OF THE OFFICE PREMISES BUT THE EXPENDITURE HAS BEEN INCURRED TO PUT NEW WOODE N PANEL, PLASTERING WALLS, CEILING AND TO REPLACE ELECTRICAL WIRE. HOWEVER, THE EXPE NDITURES RELATING TO ITEMS MENTIONED SR.NO.7 TO 10 OUT OF THE ITEMS DISALLOWED BY LD . CIT(A) I.E. (7) SAMSUNG FRIDGE RS. 89,750/- ,(8) SAFES, STRONG BOXES AND PARTS RS. 12, 974/-, (9) 2/8 W CFL PANOS WITH GLASS RING RS. 16,706.00 AND (10) EUREKA FORBES R S. 8,330/- AGGREGATING TO RS.1,27,760/- CANNOT BE SAID TO BE AN FOR RENOVAT ION OF THE BUILDING. THEREFORE, OUT OF THE TOTAL EXPENDITURE OF RS.17,24,609/-, WE HOLD THAT SAVE AND EXCEPT THE EXPENDITURE OF RS.1,27,760/- I.E RS.15,96,849/- IS THE REVENUE IN NATURE, THE EXPENDITURE INCURRED TOWARDS CURRENT REPAIRS FOR RENOVATION AND THE RE PAIRS OF THE PREMISES IN CONNECTION WITH THE BUSINESS OF THE ASSESSEE AND THE SAME IS T O BE ALLOWED AS REVENUE EXPENDITURE. THEREFORE, THE GROUND OF APPEAL TAKEN BY THE DEPARTMENT IS REJECTED AND WHEREAS THE GROUND NO.2 OF THE CROSS-OBJECTION TAK EN BY ASSESSEE IN ITS CROSS- OBJECTION IS ALLOWED IN PART BY SUSTAINING THE DISA LLOWANCE OF RS.1,27,760/-. 9. IN RESPECT OF GROUND NO.1 OF THE CROSS-OBJECTIO N, THE RELEVANT FACTS ARE THAT THE ASSESSEE HAS EARNED TAX FREE INCOME OF RS.29,88, 190/-. THE ASSESSEE HAS NOT ALLOCATED ANY EXPENDITURE FOR EARNING THE SAID TAX FREE INCOME. THEREFORE, THE AO AFTER CONSIDERING THE AVERAGE VALUE OF INVESTMENT AND THE DECISION OF THE HONBLE JURISDICTIONAL HIGH COURT IN THE CASE OF GODREJ & BOYCE MFG CO.LTD. V/S DCIT (2010) 328 ITR 81 (BOM) HAS ALLOWED 0.5% OF THE AMOUNT UND ER RULE 8D (2)(III) OF THE INCOME TAX RULES, 1962 WHICH COMES TO RS.5,21,173/- . LD. CIT(A) HAS CONFIRMED THE SAID ACTION OF THE AO. HENCE, ASSESSEE HAS FILED TH IS CROSS-OBJECTION. 10. DURING THE COURSE OF HEARING, LD. AR SUBMITTED THAT THERE IS NO FINDING BY AO THAT THE ASSESSEE HAS INCURRED EXPENDITURE FOR EAR NING DIVIDEND INCOME WHICH IS TAX EXEMPT. HE FURTHER SUBMITTED THAT THE DISALLOWANCE MADE IS EXCESSIVE. ON THE OTHER HAND, LD. DR SUPPORTED THE ORDERS OF THE AUTHORITIE S BELOW. 11. WE HAVE CAREFULLY CONSIDERED THE ORDERS OF AUT HORITIES BELOW AND SUBMISSIONS OF LD. REPRESENTATIVE OF THE PARTIES. WE AGREE WITH L D AR THAT THE AO BEFORE INVOKING THE PROVISIONS OF RULE 8D READ WITH SECTION 14A SUB-S ECTION (2)(III) HAS TO GIVE A FINDING THAT HE IS NOT SATISFIED WITH THE CORRECTNESS OF TH E CLAIM OF THE ASSESSEE WITH REGARD TO SUCH EXPENDITURE. BE THAT AT IT MAY, WE ALSO OBSE RVE THAT THE ASSESSEE HAS NOT ON ITS OWN MADE ANY DISALLOWANCE ON ACCOUNT OF INVESTMENT MADE AND EARNING OF THE I.T.A.NO.754/MUM/2012 CONO.23/MUM/2013 6 DIVIDEND INCOME TO THE EXTENT OF RS.29,88,190/-. WE ALSO OBSERVE THAT THE AO IN THE ASSESSMENT ORDER HAS REFERRED THE PROVISION OF SEC TION 14A (2) OF THE ACT AS WELL AS CBDT NOTIFICATION DATED 24.3.2008 FOR APPLYING RU LE 8D AND TO MAKE DISALLOWANCE UNDER RULE 8D(2)(III) OF THE RULES. CONSIDERING THE FACTS OF THE CASE AND THE NATURE OF BUSINESS OF THE ASSESSEE, WE HOLD THAT THERE IS NO INFIRMITY IN THE ORDER OF LD. CIT(A) AND ACCORDINGLY THE DISALLOWANCE MADE U/S 14A OF TH E ACT OF RS.5,21,173/- IS IN ORDER. ACCORDINGLY, GROUND NO.1 OF CROSS-OBJECTION IS REJE CTED. 12. IN RESPECT OF GROUND NO.3 OF THE CROSS-OBJECT ION, THE LD. AR REFERRED THE ORDER OF LD. CIT(A) THAT LD. CIT(A) HAS MENTIONED THAT T HE AO COMPUTED REBATE U/S 88E AFTER ADJUSTING EXPENSES OF RS.60,06,300/- BEING 49% OF THE INDIRECT EXPENSES OF RS.1,22,57,755/-. HE SUBMITTED THAT NOWHERE IT HA S BEEN MENTIONED THAT HOW THESE EXPENSES ARE INCURRED UNDER INDIRECT EXPENSES OF RS.1,22,57,755/- AND HAS BEEN CONSIDERED FOR MAKING THE ADJUSTMENT WHILE MAKING REBATE U/S 88E OF THE ACT. LD. DR COULD NOT CONTROVERT THE SAID CONTENTION OF THE LD. AR. LD. REPRESENTATIVES OF BOTH THE PARTIES AGREED THAT THE MATTER BE RESTORED TO AO T O RECALCULATE THE REBATE TO BE ALLOWED TO THE ASSESSEE U/S 88E OF THE ACT AFTER GIVING OPPORTUNITY OF HEARING TO THE ASSESSEE. HENCE, GROUND NO.3 OF THE CROSS-OBJECTION TAKEN BY ASSESSEE IS ALLOWED FOR STATISTICAL PURPOSES BY RESTORING THE ISSUE TO THE AO. 13. IN THE RESULT, THE APPEAL OF THE DEPARTMENT IS DISMISSED AND CROSS-OBJECTION FILED BY ASSESSEE ALLOWED IN PART. THE ABOVE ORDER WAS PRONOUNCED IN THE OPEN COURT ON 19TH FEBRUARY, 2014. 1 2 19TH FEBRUARY, 2014 * SD SD ( / RAJENDRA) ( . . /B.R.MITTAL) / ACCOUNTANT MEMBER / JUDICIAL MEMBER MUMBAI: ON THIS 19TH DAY OF FEBRUARY, 2014 . . ./ SRL , SR. PS / COPY OF THE ORDER FORWARDED TO : 1. ' / THE APPELLANT 2. ( ' / THE RESPONDENT. 3. 9 ( ) / THE CIT(A)- CONCERNED 4. 9 / CIT CONCERNED I.T.A.NO.754/MUM/2012 CONO.23/MUM/2013 7 5. : (< , - < , / DR, ITAT, MUMBAI CONCERNED 6. / GUARD FILE. / BY ORDER, TRUE COPY (ASSTT. REGISTRAR) - < , /ITAT, MUMBAI