M/s. Amway India Enterprises Pvt. Ltd., New Delhi V. DCIT, New Delhi

CO 330/DEL/2011

• Counselvise Citation: [2011] 122 COUNSELVISE.COM (IT) 6586 (ITAT-DELHI)
• Duration Of Justice: 28 day(s)
• Appeal Type: Cross Objection
• Pronouncement Date: 21-10-2011
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: A
• Next Hearing Date: 14-10-2011
• Assessment Year: 2006-2007
• Appeal Filed On: 23-09-2011
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: SRUJANI MOHANTY
• Assessee Lawyers: MANISH UPNEJA CAS
• Keywords: Commercial expediency
• Section: 14A

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH : A : NEW DELHI BEFORE SHRI I.P. BANSAL, JUDICIAL MEMBER AND SHRI A.N. PAHUJA, ACCOUNTANT MEMBER ITA NO.3843/DEL/2011 ASSESSMENT YEAR : 2006-07 DCIT, CIRCLE 1 (1), NEW DELHI. VS. M/S AMWAY INDIA ENTERPRISES PVT. LTD., 1 ST FLOOR, PLOT NO.8, ELEGANCE TOWER, NON HIERARCHICAL COMMERCIAL CENTRE, JASOLA, NEW DELHI 110 025. PAN : AAACA5603Q CO NO.330/DEL/2011 (ITA NO.3843/DEL/2011) ASSESSMENT YEAR : 2006-07 M/S AMWAY INDIA ENTERPRISES PVT. LTD., 1 ST FLOOR, PLOT NO.8, ELEGANCE TOWER, NON HIERARCHICAL COMMERCIAL CENTRE, JASOLA, NEW DELHI 110 025. PAN : AAACA5603Q VS. DCIT, CIRCLE 1 (1), NEW DELHI. (APPELLANT) (RESPONDENT) ASSESSEE BY : SHRI TARANDEEP SINGH & MANISH UPNEJA, CAS REVENUE BY : SMT. SRUJANI MOHANTY, SR. DR ORDER PER I.P. BANSAL, JUDICIAL MEMBER THE APPEAL IS FILED BY THE REVENUE AND CO BY THE ASSE SSEE. THEY ARE DIRECTED AGAINST THE ORDER PASSED BY THE CIT (A) D ATED 1 ST JUNE, ITA NO.3843/DEL/2011 C.O. NO.330/DEL/2011 2 2011 FOR ASSESSMENT YEAR 2006-07. THE GROUNDS OF APPEAL READ AS UNDER:- 1. THE LEARNED CIT (A) HAS ERRED ON FACTS AND IN LA W IN TREATING THE EXPENSES OF RS.77,21,466/- ON LEASEHOLD IMPROVEMENT AS REVENUE IN NATURE DISREGARDING THE FACT THAT NEW ASSETS WERE PURCHASED AND INSTALLED FOR THE RENOVATION/IMPROVEMENT OF LEASEHOLD PREMISES. 2. THE LEARNED CIT (A) HAS ERRED ON FATS AND IN LAW IN RESTRICTING THE DISALLOWANCE U/S 14A READ WITH RULE 8D TO RS.15,57 ,441.75 AS AGAINST DISALLOWANCE OF RS.38,26,774/-. LEARNED CIT (A) HAS FAILED TO TAKE COGNIZANCE OF SUB-SECTION (3) OF SECTION 14A WHICH SPECIFIES THAT EVEN IF THE ASSESSEE MAKES A CLAIM THAT N O EXPENDITURE HAS BEEN INCURRED IN EARNING THE EXEMPTED INCOME, SUB-SECTION (2) OF SECTION 14A SHALL APPLY, MEANING TH EREBY, DISALLOWANCE U/S 14A(1) IS CALLED FOR. 3. THE APPELLANT RAVES LEAVE FOR RESERVING THE RIGHT TO AMEND, MODIFY, ALTER, ADD OR FOREGO ANY GROUND(S) OF APPEAL AT ANY TIME BEFORE OR DURING THE HEARING OF THIS APPEAL. 1.1 THE GROUNDS OF CROSS OBJECTIONS READ AS UNDER:- 1. THAT ON FACTS AND IN LAW THE COMMISSIONER OF INCOM E-TAX (APPEALS) ERRED IN UPHOLDING A DISALLOWANCE OF RS.1 5,57,441.75 (I.E., 0.5% OF DIVIDEND INCOME OF RS.3,11,48,835/-) UNDER SECTION 14A OF THE INCOME TAX ACT, 1961. THAT THE RESPONDENT PRAYS FOR LEAVE TO ADD, ALTER OR AMEND ANY GROUNDS OF THE CROSS OBJECTIONS RAISED ABOV E, AT OR BEFORE THE TIME OF HEARING. 2. APROPOS TO GROUND NO.1 FILED BY THE REVENUE, THE FACTS ARE THAT THE ASSESSEE HAS INCURRED A TOTAL EXPENDITURE OF ` 77,21 ,486 TOWARDS THE IMPROVEMENTS IN ITS OFFICES LOCATED AT KOLKOTA, CH ENNAI AND AT ITS HEAD OFFICE. THE ASSESSEE WAS REQUIRED TO SUBMIT AS TO WH Y SUCH EXPENDITURE SHOULD NOT BE DISALLOWED FOLLOWING THE SAM E LINE IN EARLIER YEARS. IN RESPONSE, IT WAS SUBMITTED THAT THIS ISSUE HAS BE EN DECIDED BY ITAT IN FAVOUR OF THE ASSESSEE. CONSIDERING THE SUBM ISSION OF THE ASSESSEE, THE AO OBSERVED THAT SINCE THE MATTER IS BEING L ITIGATED AT THE LEVEL OF HIGH COURT, THE CONTENTION OF THE ASSESSEE IS NOT ACCEPTABLE AND FOR THE REASON OF DISALLOWANCE BEING M ADE IN EARLIER YEAR I.E. ASSESSMENT YEAR 2005-06, THESE EXPENDITURES HAV E BEEN ITA NO.3843/DEL/2011 C.O. NO.330/DEL/2011 3 DISALLOWED IN ITS ENTIRETY. THE DETAILS OF THESE EXPEN DITURES ARE NOT GIVEN IN THE ASSESSMENT ORDER, HOWEVER, IN PARA 6 OF TH E ORDER OF CIT (A), SUCH DETAILS HAVE BEEN GIVEN WHICH ARE AS UNDER:- PARTICULARS AMOUNT (RS.) PLUMBING, SANITARY, TILING 264,410 FALSE CEILING, WOODEN PARTITIONS, STORAGE CABINETS, DOORS 2,197,120 FURNITURE 697,027 ELECTRICAL I.E., TUBE LIGHT, HALOGEN FITTINGS, SOCKETS, ET. 751,840 OTHER MISC. REPAIR WORK 290,787 LAN CABLING 813,519 TEMPORARY WOODEN PARTITIONS FOR DIVISION OF CABINS, FIXED WOODEN CUPBOARDS, WOODEN WORKTOPS 10,70,201 BARRICADE POLE 58,500 DUCTING 410,240 DAY TO DAY REPAIR/RENOVATION AT CHENNAI OFFICE 114, 233 RENOVATION OF DATA CENTRE 283,770 CABLE, RACKS MOUNTING WORK AT HEAD OFFICE 352,920 CABINS AT HEAD OFFICE 16,900 T OTAL 77,21,466 3. LD. CIT (A) OBSERVED THAT ITAT IN ASSESSEES OWN CASE W HICH IS REPORTED AT 27 SOT 304 HAS DECIDED THIS ISSUE ACCORDING TO WHICH SUCH DISALLOWANCE WAS TO BE DELETED. AFTER REPRODUCING TH E ORDER OF THE TRIBUNAL IN ASSESSEES OWN CASE, LD. CIT (A) HAS DELETED T HE ADDITION. THE DEPARTMENT IS AGGRIEVED, HENCE, IN APPEAL. 4. AFTER NARRATING THE FACTS, RELYING UPON THE ASSESSMEN T ORDER, LD. DR SUBMITTED THAT THE DISALLOWANCE WAS RIGHTLY MADE BY THE AO AND IT HAS WRONGLY BEEN DELETED BY THE CIT (A). 5. ON THE OTHER HAND, IT WAS SUBMITTED BY LD. AR THAT THE DISALLOWANCE HAS RIGHTLY BEEN DELETED BY LD. CIT (A) FOLLOWING THE ORDER OF THE TRIBUNAL IN ASSESSEES OWN CASE. HOWEVER, LD. AR FAIRLY CONCEDED THAT ACCORDING TO THE AFOREMENTIONED DECISI ON OF THE TRIBUNAL, FURNITURE CANNOT BE CONSIDERED TO BE AN AL LOWABLE ITA NO.3843/DEL/2011 C.O. NO.330/DEL/2011 4 EXPENDITURE AND HE, IN THIS REGARD, REFERRED TO THE OBSERVATIONS OF THE TRIBUNAL IN PARA 7, THE RELEVANT PORTION WHEREOF RE AD AS UNDER:- AFTER GOING THROUGH THE NATURE OF EXPENDITURE SO INCURR ED, WE FOUND THAT BY INCURRING THESE EXPENDITURE EXCEPT EXPENDI TURE AIR CONDITIONING DUCT AND FURNITURE, NO NEW ASSET HAS C OME INTO EXISTENCE AND THE EXPENDITURE SO INCURRED WAS ON ACCOU NT OF COMMERCIAL EXPEDIENCY AND FOR THE COMMERCIAL USE OF THE LEASE HOLD PREMISES AND TO GIVE PROPER OUTLOOK TO THE OFFICE AND TO CREATE INTERNATIONAL STANDARD OF GOOD WORKING ENVIRONME NT ON MULTINATIONAL WORK CULTURE. 6. HE, THEREFORE, SUBMITTED THAT FURNITURE AMOUNTING TO ` 6,97,027/- SHOULD BE EXCLUDED AND, THEREFORE, IF THE TRIBUNAL D ECISION IS FOLLOWED, THE DISALLOWANCE HAS TO BE RESTRICTED ONLY TO THE EXTE NT OF ` 6,97,027/-. 7. AFTER HEARING BOTH THE PARTIES, WE RESTRICT THE DI SALLOWANCE TO A SUM OF ` 6,97,027/- FOLLOWING THE AFOREMENTIONED DEC ISION OF THE TRIBUNAL WHICH IS REPORTED AS 27 SOT 344 IN RESPECT OF ASSESSMENT YEARS 2001-02 AND 2002-03. GROUND NO.1 OF THE REVENU E IS PARTLY ALLOWED. 8. GROUND NO.2 OF THE DEPARTMENTAL APPEAL AND GROUN D OF CROSS OBJECTIONS RAISED BY THE ASSESSEE ARE COMMON. THE FACTS R ELATING TO THIS GROUND IS THAT THE ASSESSING OFFICER FOUND THAT THE ASSESSEE HAD CLAIMED EXEMPTED INCOME IN THE SHAPE OF DIVIDEND OF A SUM OF ` 3,11,48,835/-. REFERRING TO THE PROVISIONS OF SECTIO N 14A READ WITH RULE 8D, THE ASSESSING OFFICER HAS COMPUTED THE DISALLOWA NCE BY REFERRING TO RULE 8D(2)(III) AT A SUM OF ` 38,26,774 /-. LEARNED CIT (A) HAS CONCLUDED THIS ISSUE IN PARA 12-18 OF THE IMPUGNED ORDER. HE HAS ARRIVED AT A CONCLUSION THAT IT WILL BE REASONABLE TO ADD 5% OF THE TOTAL EXEMPTED INCOME AND HE, IN THIS MANNER, HAS RESTRICTED THE DISALLOWANCE TO ` 15,57,441.75. THE REVENUE IS AGGRI EVED BY THE PART DELETION OF DISALLOWANCE OF THE ADDITION AND THE ASSESSE E IN ITS CROSS OBJECTIONS HAS AGITATED THE SUSTAINED ADDITION. ITA NO.3843/DEL/2011 C.O. NO.330/DEL/2011 5 9. RELYING UPON THE ASSESSMENT ORDER, IT WAS PLEADED BY THE LEARNED DR THAT THE ASSESSING OFFICER WAS RIGHT IN MAKIN G THE DISALLOWANCE AND IT HAS WRONGLY BEEN PARTLY DELETED B Y THE LEARNED CIT (A). 10. ON THE OTHER HAND, THE LEARNED AR OF THE ASSESSEE SU BMITTED WRITTEN SYNOPSIS IN WHICH IT HAS BEEN MENTIONED THAT F OR MAKING DISALLOWANCE U/S 14A THE ONUS IS ON THE REVENUE AND REF ERENCE IN THIS REGARD IS MADE TO THE FOLLOWING DECISIONS:- I) CIT VS. HERO CYCLES 323 ITR 518 (P&H); II) ACIT VS. EICHER LTD. 101 TTJ (DEL) 369; AND III) MARUTI UDYOG VS. DCIT 92 ITD 119 (DEL) 11. IT WAS FURTHER SUBMITTED THAT IN ASSESSEES CASE THE DI SALLOWANCE IS MADE BY THE ASSESSING OFFICER UNDER RULE 8D (2)(III) WHICH IS ONLY AS REGARDS ADMINISTRATIVE EXPENSES AND HE REFERRED TO THE DECISION OF KERALA HIGH COURT IN THE CASE OF CATHOLIC BANK AND O THERS REPORTED IN 237 CTR (KER) 164 IN WHICH IT HAS BEEN HELD THAT PR IOR TO INSERTION OF RULE 8D, NO DISALLOWANCE ON ACCOUNT OF DIRECT EXPENSE S WAS CALLED FOR. 12. FURTHER, IT WAS SUBMITTED BY HIM THAT NO DIRECT P RECEDENT OF JURISDICTIONAL HIGH COURT IS AVAILABLE, THEREFORE, TH E VIEW EXPRESSED BY PUNJAB & HARYANA HIGH COURT AND KERALA HIGH COURT SHOULD BE FOLLOWED. IT WAS FURTHER SUBMITTED THAT IN THE INSTAN T CASE SINCE THE NECESSARY FACTS ARE AVAILABLE ON RECORD, THE ISSUE SHOULD BE DECIDED ON MERITS AND IT SHOULD NOT BE REMITTED BACK TO THE ASSESSIN G OFFICER AND IF THE MATTER IS REMANDED BACK, IT WILL ONLY FACILIT ATE THE ASSESSING OFFICER TO FILL THE LOOPHOLES IN HIS ORDER AND, THUS, IT HAS BEEN PLEADED BY THE LEARNED AR THAT THE ISSUE SHOULD BE DECIDED AT THE LEVEL OF THE TRIBUNAL. ITA NO.3843/DEL/2011 C.O. NO.330/DEL/2011 6 13. WE HAVE CAREFULLY CONSIDERED THE RIVAL SUBMISSIONS I N THE LIGHT OF THE MATERIAL PLACED BEFORE US. IT MAY BE SEEN THAT F OR IMMEDIATE PRECEDING ASSESSMENT YEAR 2005-06, THIS ISSUE WAS RESTORED B ACK TO THE FILE OF ASSESSING OFFICER BY THE DELHI ITAT ONLY ON THE GROUND THAT THE DISALLOWANCE WAS MADE BY THE ASSESSING OFFICER UNDER RULE 8D AND IT WAS SUSTAINED BY LEARNED CIT (A) UNDER RULE 8D. TH OUGH IT HAS BEEN THE CONTENTION OF THE LEARNED AR THAT NECESSARY FACTS ARE AVAILABLE ON RECORD, BUT, IT HAS NOT BEEN SHOWN THAT HOW THE NECESSA RY FACTS ARE AVAILABLE ON RECORD. IN THIS CASE THE ASSESSING OFFICER HAS MADE DISALLOWANCE WITH REFERENCE TO RULE 8D ONLY AND HAS N OT DISCUSSED THIS ISSUE IN DETAIL. IF IT IS HELD THAT RULE 8D IS NOT APP LICABLE, THEN, THE ASSESSING OFFICER HAS TO BE PROVIDED WITH OPPORTUNITY TO CONSIDER THE CASE AFRESH IN THE LIGHT OF THE OBSERVATIONS OF HONBLE BOMBAY HIGH COURT IN THE CASE OF GODREJ & BOYCE MFG. CO. LTD. VS. DCIT (2010) 328 ITR 81 (BOM). HERE, IT WILL BE RELEVANT TO REPRODU CE THE OBSERVATIONS FO THE TRIBUNAL ON THIS ISSUE IN ASSESSEES OWN CASE FOR ASSESSMENT YEAR 2005-06:- 6. WE HAVE CAREFULLY CONSIDERED THE RIVAL SUBMISSIONS I N THE LIGHT OF THE MATERIAL PLACED BEFORE US. THE DISALLOW ANCE HAS BEEN COMPUTED BY THE ASSESSING OFFICER UNDER RULE 8D OF INCOME-TAX RULES, 1962. THE LEARNED CIT (A) HAS ALS O UPHELD THE DISALLOWANCE ON THE GROUND THAT THE AFOREMENTIONED SPECI AL BENCH DECISION OF THE TRIBUNAL HAS HELD THAT RULE 8D H AS RETROSPECTIVE OPERATION. THE AFOREMENTIONED DECISION O F THE SPECIAL BENCH HAS BEEN OVER-RULED BY THE HONBLE BOM BAY HIGH COURT IN THE CASE OF GODREJ & BOYCE MFG. PVT. LTD. (SUP RA). THEREFORE, THE VERY BASIS ON WHICH THE DISALLOWANCE H AS BEEN MADE DOES NOT EXIST. HOWEVER, IT IS SEEN THAT THOUGH RUL E 8D IS NOT APPLICABLE, BUT THE ASSESSING OFFICER IS DUTY BOUND TO MAKE THE DISALLOWANCE UNDER SECTION 14A AFTER CONSIDERING A LL THE FACTS AND CIRCUMSTANCES OF THE CASE AS OBSERVED BY HON BLE BOMBAY HIGH COURT IN THE AFOREMENTIONED CASE OF GODREJ & BOYCE MFG. PVT. LTD. (SUPRA). THEREFORE, KEEPING IN VIEW THE FACTS AND CIRCUMSTANCES OF THE CASE, WE CONSIDER IT JUS T AND PROPER TO RESTORE THIS ISSUE TO THE FILE OF ASSESSING OF FICER TO CONSIDER THIS ISSUE RAISED IN THE PRESENT APPEAL DENOVO AS PER THE PROVISIONS OF LAW AFTER GIVING THE ASSESSEE A REAS ONABLE OPPORTUNITY OF HEARING. THEREFORE, WE RESTORE THIS ISS UE TO THE FILE OF ASSESSING OFFICER TO RECONSIDER AND RE-ADJUD ICATE THE SAME AFTER GIVING THE ASSESSEE A REASONABLE OPPORTUNITY OF ITA NO.3843/DEL/2011 C.O. NO.330/DEL/2011 7 HEARING. WE DIRECT ACCORDINGLY. IN THE RESULT, THE G ROUND NO.2 RAISED BY THE ASSESSEE IS ALLOWED FOR STATISTICAL PURPO SES IN THE MANNER AFORESAID. 14. THEREFORE, IN OUR HUMBLE OPINION, IT WILL BE MO ST APPROPRIATE IF THE MATTER IS RESTORED BACK TO THE FILE OF ASSESSING OFFI CER. BY RESTORING THE MATTER BACK TO THE FILE OF ASSESSING OFFIC ER, NO PREJUDICE WILL BE CAUSED TO THE ASSESSEE AS WHAT IS DIRECTED BY THE TRIBUNAL IS JUST TO RE-ADJUDICATE THE ISSUE DENOVO AFTER GIVING TH E ASSESSEE A REASONABLE OPPORTUNITY OF HEARING. THE ASSESSEE WILL GE T OPPORTUNITY OF HEARING BEFORE THE ASSESSING OFFICER PARTICULARLY IN VIEW THAT SUBSTANTIAL ADDITION HAS BEEN UPHELD BY THE LEARNED CI T (A) ON THIS ISSUE AND THE CIT (A) HAS ALSO NOT GIVEN THE REASONS FOR MAKING DISALLOWANCE ONLY TO THE EXTENT OF 5%OF THE TOTAL EX EMPTED INCOME. IN VIEW OF THE ABOVE DISCUSSION, WE ARE OF THE OPINION TH AT THE MATTER SHOULD BE RESTORED BACK TO THE FILE OF ASSESSING OFFICER WITH THE SIMILAR DIRECTIONS AS HAVE BEEN GIVEN FOR ASSESSMENT YEAR 2005-06 AND THE RELEVANT OBSERVATIONS OF THE TRIBUNAL FOR THAT YEAR H AVE ALREADY BEEN REPRODUCED. WITH SIMILAR DIRECTIONS, WE RESTORE THIS I SSUE TO THE FILE OF ASSESSING OFFICER. 15. FOR STATISTICAL PURPOSES THE GROUND NO.2 OF THE REV ENUE AND THE CROSS OBJECTIONS RAISED BY THE ASSESSEE BOTH ARE ALLOWED. 16. IN THE RESULT, THE APPEAL FILED BY THE REVENUE I S PARTLY ALLOWED IN THE MANNER AFORESAID AND THE CROSS OBJECTION FILED BY THE ASSESSEE IS ALLOWED FOR STATISTICAL PURPOSES IN THE MANNER AFORESAID . THE ORDER PRONOUNCED IN THE OPEN COURT ON 21.10.201 1. SD/- SD/- [A.N. PAHUJA] [I.P. BANSAL] ACCOUNTANT MEMBER JUDICIAL MEMBER DATED, 21.10.2011. ITA NO.3843/DEL/2011 C.O. NO.330/DEL/2011 8 DK COPY FORWARDED TO: - 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(A) 5. DR, ITAT BY ORDER, DEPUTY REGISTRAR, ITAT, DELHI BENCHES