The Addl.CIT, Range-1, Ahmedabad V. Devarsons Industries Pvt. Ltd., Ahmedabad

ITA 1130/AHD/2015

• Counselvise Citation: [2018] 126 COUNSELVISE.COM (IT) 5788 (ITAT-AHMEDABAD)
• Duration Of Justice: 2 year(s) 10 month(s) 27 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 28-03-2018
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: B
• Assessment Year: 2011-2012
• Appeal Filed On: 01-05-2015
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: G C DAXINI
• Assessee Lawyers: B T THAKKAR
• Keywords: Gift; Depreciation; Earning of tax free income; Question of law
• Section: 14A; 37(1); 32

Judgement Text

, *CK *CK*CK *CKH HH H* ** * IN THE INCOME TAX APPELLATE TRIBUNAL B BENCH, AHMEDABAD BEFORE SHRI N.K. BILLAIYA, ACCOUNTANT MEMBER AND SHRI MAHAVIR PRASAD, JUDICIAL MEMBER !# I.T.A. NO.1130/AHD/2015 ( / ASSESSMENT YEAR : 2011-12) DCIT, CIRCLE 1(1)(2), AHMEDABAD. # VS. DEVARSONS INDUSTRIES PVT. LTD., 441, GIDC INDUSTRIAL ESTATE, ODHAV, AHMEDABAD 382 415 $ # % & # PAN/GIR NO. : AAACD 9671 M ( !$' / APPELLANT ) .. ( ($' # RESPONDENT ) !$') # APPELLANT BY : SHRI G.C. DAXINI, SR.D.R. ($'*) / RESPONDENT BY : SHRI B.T. THAKKAR, A.R. + ,*-. / DATE OF HEARING 01/03/2018 /012*-. / DATE OF PRONOUNCEMENT 28/03/2018 3# O R D E R PER MAHAVIR PRASAD, JUDICIAL MEMBER : THE CAPTIONED APPEAL HAS BEEN FILED AT THE INSTAN CE OF THE REVENUE AGAINST THE APPELLATE ORDER OF THE COMMISSIONER OF INCOME TAX(APPEALS)-6, AHMEDABAD [CIT(A) IN SHORT] VIDE APPEAL NO.CIT(A)- 6/ADDIL.CIT.R.1/110/13-14 DATED 27/02/2015 ARISING IN THE ASSESSMENT ORDER PASSED UNDER S.143(3) OF THE INCOME TAX ACT, 1961 (HEREINAFTER REFERRED TO AS 'THE ACT') DATED 30/01/2014 RELEVAN T TO ASSESSMENT YEAR (AY) 2011-12. ITA NO.1130/AHD /2015 DCIT VS. DEVARSONS INDUSTRIES PVT. LTD. ASST.YEAR 2011-12 - 2 - 2. FOLLOWING GROUNDS HAVE TAKEN BY THE REVENUE: (1) THE LD.CIT(A) HAS ERRED IN DELETING THE DISALL OWANCE OF RS.76,43,540/- MADE U/S.35(2AB) OF THE ACT DESPITE THE FACT THAT THE ASSESSEE GOT APPROVAL FROM DSIR IN THE F.Y.2011 -12 I.E. RELEVANT TO A.Y.2012-13 AND ALSO THE WEIGHTED DEDUC TION WAS LIMITED TO 150% ONLY. (2) THE LD.CIT(A) WRONGLY PLACED RELIANCE ON THE D ECISION OF HON'BLE GUJARAT HIGH COURT IN THE CASE OF CIT VS. C LARIS LIFE SCIENCE LTD, 326 ITR 251 AS SAME WAS RENDERED ON DI FFERENT FACTS. (3) THE LD.CIT(A) HAS ERRED IN LAW AND ON FACTS IN DELETING THE ADDITION TO THE EXTENT OF RS.10,50,282/- OUT OF DIS ALLOWANCE OF RS.10,90,995/- U/S.14A OF THE ACT. (4) THE LD.CIT(A) HAS ERRED IN DELETING THE DISALL OWANCE OF EXCESS DEPRECIATION OF RS.12,634/~ ON OFFICE EQUIPMENT WIT HOUT APPRECIATING THE FACT THAT THE ASSESSEE HAS CLAIMED DEPRECIATION @15% ON OFFICE EQUIPMENT INSTEAD OF ALLOWABLE DEPRE CIATION OF 10%. (5) THE LD.CIT(A) HAS ERRED IN DELETING THE DISALL OWANCE OF SALES PROMOTION EXPENSES OF RS.82,555/- DESPITE THE FACT THAT THESE EXPENSES ARE NOT RELATED TO BUSINESS OF THE ASSESSE E AND PERSONAL IN NATURE. (6) THE LD.CIT(A) HAS ERRED IN LAW AND ON FACTS IN DELETING THE DISALLOWANCE OF MOTOR CAR DEPRECIATION OF RS.8,38,2 46/- WHICH WAS NOT OWNED BY THE ASSESSEE COMPANY. THE ASSESSEE WAS UNABLE TO ESTABLISH THAT THE CAR WAS USED FOR THE P URPOSE OF BUSINESS. THE PROVISIONS OF SECTION 32 AND 37(1) WE RE THEREFORE, NOT SATISFIED. 3. THE RELEVANT FACTS AS CULLED OUT FROM THE MATERI ALS ON RECORD ARE AS UNDER:- THE ASSESSEE COMPANY IS ENGAGED IN THE BUSINESS OF MANUFACTURING AND DEALER/EXPORTER IN DYES. ITA NO.1130/AHD /2015 DCIT VS. DEVARSONS INDUSTRIES PVT. LTD. ASST.YEAR 2011-12 - 3 - 3.1 ON VERIFICATION OF STATEMENT OF INCOME FILED AL ONGWITH THE RETURN OF INCOME FOR A.Y.2011-12, IT IS OBSERVED THAT THE ASSESSEE HAS DEBITED RS.76,43,540/- AS 'R&D DIVISION EXPENSES'. THIS AMO UNT HAS BEEN CALCULATED BY TAKING THE ELIGIBLE EXPENSES @200% OF THE DIVISION EXPENSES OF RS.38,21,740/-. IN THIS REGARD, THE ASS ESSEE WAS REQUESTED TO ELABORATE THE CLAIM OF THIS EXPENSE AND THE ASSESSE E REPLIED AS UNDER:- R&D DIVISION S EXPENSES RS.38.21,770/- HAS BEEN AD DED FOR TREATED SEPARATELY IN THE STATEMENT OF INCOME. R&D DIVISIO N EXPENSES ARE ALLOWABLE 200% U/S.35(2AB) - R&D DIVISION OF THE AS SESSEE COMPANY HAS BEEN GRANT APPROVAL BY AUTHORITY.' 3.2 BUT LD. AO WAS NOT SATISFIED WITH THE REPLY GIV EN BY THE ASSESSEE COMPANY AND HE MADE AN ADDITION OF RS.76,43,540/-. 4. IT IS SEEN THAT THE ASSESSEE HAS EARNED DIVIDEND INCOME TO THE TUNE OF RS.51.67,750/- BUT NO DISALLOWANCE U/S. 14A WAS MADE. IT IS FURTHER OBSERVED THAT THE ASSESSEE HAS MADE INVESTMENT OF R S.18,94,33,151/- AS ON 31.03.2011. THE ASSESSEE HAS CLAIMED INTEREST OF RS.9,440/-. IN ADDITION TO THIS, SOME ADMINISTRATIVE/OTHER EXPENSE S ARE ALSO ADMITTED TO BE INCURRED TO EARN TAX FREE INCOME. IN THIS REGARD THE ASSESSEE VIDE LETTER DATED 16.12.2013 WAS SHOW CAUSED TO EXPLAIN AS TO W HY DISALLOWANCE U/S.14A R.W. RULE 8D SHOULD NOT BE MADE. 4.1 IN REPLY TO THE SHOW CAUSE NOTICE, THE ASSESSEE HAS SUBMITTED IN THE LETTER WHICH READS AS UNDER:- 'THE ASSESSEE COMPANY HAS EARNED DIVIDEND INCOME OF RS.51,68,750/- WHICH IS CLAIMED EXEMPT U/S.10(33) OF THE I.T. ACT, 1961. THE ASSESSEE ITA NO.1130/AHD /2015 DCIT VS. DEVARSONS INDUSTRIES PVT. LTD. ASST.YEAR 2011-12 - 4 - COMPANY SUBMITS THAT NO INVESTMENT IS MADE OUT OF B ORROWED FUNDS. SHARE CAPITAL AND RESERVE FUNDS AS ON 31.03.2011 IS RS.53.54 CRORE WHEREAS TOTAL INVESTMENTS AS ON 31.03.2011 IS ONLY RS.18.92 CRORE. FURTHER, THE ASSESSEE COMPANY HAS NO INTEREST PAYME NT DURING THE YEAR UNDER ASSESSMENT EXCEPT INTEREST ON BORROWED FUNDS ON SECURITY OF MOTOR CAR AMOUNTING TO RS.9,440/- ONLY. FURTHER, THE ASSESSEE SUBMITS THAT THE INVESTMENTS ARE VERY OLD AND RARE TRANSACTION OF SALE/PURCHASE TOOK PLACE DURING THE PERIOD UNDER CONSIDERATION AND NO ADMINISTRATIVE EXPENSES HAVE B EEN INCURRED THEREFORE PROVISION OF SECTION 14A OF THE ACT REAR WITH RULE 8D OF THE I.T. RULES DOES NOT HAVE APPLICATION. HOWEVER, THE ASSESSEE COMPANY SUBMITS THAT SALARY O F ONE PERSON VIZ. MR. CLEMENT S. CHRISTIAN WHO IS OCCASIONALLY LOOKIN G AFTER THE INVESTMENTS AND DIVIDEND INCOME, ONCE IN WEEK, MAY BE CONSIDERED FOR PROPORTIONATE DISALLOWANCE U/S.L4A, GROSS SALARY PL US BONUS AMOUNTING RS.81,425/- IS PAID TO THE PERSON. EXCEPT THE ABOVE EXPENSES NO OTHER EXPENSES HAVE BEEN INCURRED BY THE ASSESSEE WHICH I S TO BE INCLUDED IN THE ADMINISTRATIVE EXPENSES. 4.2 AFTER GOING THROUGH THE REPLY SUBMITTED BY THE ASSESSEE COMPANY, LD. AO WAS NOT SATISFIED WITH THE CONTENTION OF THE ASSESSEE AND HE MADE AN ADDITION OF RS.10,90,955/- 5. DURING THE YEAR UNDER CONSIDERATION, IT IS OBSER VED THAT THE ASSESSEE HAS CLAIMED DEPRECIATION @ 15% ON 'OFFICE EQUIPMENT'. TOTAL DEPRECIATION OF RS.37,811/- HAS BEEN CLAIMED ON SUC H EQUIPMENTS, WHICH HAS BEEN CATEGORIZED UNDER THE HEAD 'OTHERS'. THESE ITEMS CLEARLY FALL UNDER 'FURNITURE & FIXTURES' INSTEAD OF PLANT & MA CHINERY ON WHICH DEPRECIATION IS AVAILABLE @15%. ACCORDINGLY, VIDE L ETTER DATED 16.12.2013, THE ASSESSEE WAS REQUESTED TO LET THIS OFFICE KNOW AS TO WHY ITA NO.1130/AHD /2015 DCIT VS. DEVARSONS INDUSTRIES PVT. LTD. ASST.YEAR 2011-12 - 5 - DEPRECIATION SHOULD NOT BE, RESTRICTED TO 10% ONLY, THE ASSESSEE, VIDE SUBMISSION DATED 31.12.2013, SUBMITTED AS UNDER:- 'DEPRECIATION ON OFFICE EQUIPMENT IS CLAIMED @15% O N WDV RS.1,67,086/- AS PER I.T. RULES, RATE OF DEPRECIATION ON OFFICE E QUIPMENT IS 15% AND NOT 10% WHICH IS PRESCRIBED FOR OFFICE FURNITURE '. 5.1 BUT LD. AO WAS NOT SATISFIED WITH THE REPLY FIL ED BY THE ASSESSEE AND HE MADE AN ADDITION OF RS.12,604/- 6. IT IS FURTHER OBSERVED FROM THE DETAILS OF SALES PROMOTION EXPENSES THAT THE ASSESSEE HAS SHOWN A TOTAL AMOUNT OF RS.1, 94,505/- UNDER THIS HEAD. THE LEDGER ACCOUNT OF THE EXPENSES IS SUBMITT ED VIDE REPLY DATED 31.12.2013. FROM THE REPLY, IT IS OBSERVED THAT THE RE ARE A NUMBER OF PAYMENTS WHICH ARE PURELY PERSONAL IN NATURE AS EVI DENT FROM THE DESCRIPTION ITSELF. 6.1 BUT LD. AO WAS NOT SATISFIED WITH THE CONTENTIO N OF THE ASSESSEE AND HE HELD SALES PROMOTION EXPENSES PERSONAL IN NA TURE AND FURTHER HELD SAME ARE NOT RELATED TO BUSINESS AND MADE AN ADDITI ON OF RS.82,255/-. 7. SO FAR DISALLOWANCE OF CAR DEPRECIATION IS CONCE RNED. ASSESSEE CLAIMED DEPRECATION @ 50% OF RS.1,52,549/- ON CAR P URCHASED IN F.Y. 2009-10 AND ALSO CLAIMED DEPRECIATION IN RESPECT OF ANOTHER CAR, DEPRECIATION HAS BEEN CLAIMED @ 15% OF RS.1,67,610/ -. IN REPLY ASSESSEE SUBMITTED THAT : ITA NO.1130/AHD /2015 DCIT VS. DEVARSONS INDUSTRIES PVT. LTD. ASST.YEAR 2011-12 - 6 - 31.12.2013: 'DEPRECIATION ON MOTOR VEHICLES IS CLAIMED @ 15% AN D 50% THE ASSESSEE HAS CLAIMED DEPRECIATION ON MOTOR CAR PURCHASED ON 28.02.2009 (A.Y.2010-11) AND CLAIMED DEPRECIATION @ 50%. DURING THE YEAR, THE ASSESSEE COMPANY HAS CLAIMED DEPRECIA TION @ 50%. DURING THE YEAR THE ASSESSEE COMPANY HAS CLAIMED DE PRECIATION ON WDV OF MOTOR CAR AT 50% AMOUNTING TO RS.1,52,549/-. THE ASSESSEE SUBMITTED THAT ITEM (VIA) IN APPENDIX I HAS BEEN INSERTED W.E.F. 01.04.2009 (A.Y.2009-10) AND ON WARDS (VIDE INCOME TAX THIRD AMENDMENT) RULES, 2009 HAS BEEN EXTENDED TO 01.10.2 009 W.E.F. 01.04.2010 (A.Y.2010-11 AND ONWARDS) VIDE INCOME-TA X (ELEVENTH AMENDMENT) RULES 2009 312 ITR(ST)330.' 7.1 BUT LD. AO WAS NOT SATISFIED WITH THE CONTENTIO N OF THE ASSESSEE AND HE MADE AND ADDITION OF RS.8,38,246/-. 8. AGAINST THE SAID ORDER ASSESSEE PREFERRED FIRST STATUTORY APPEAL BEFORE THE LD.CIT(A) WHO PARTLY ALLOWED THE APPEAL OF THE ASSESSEE. 9. WE HAVE GONE THROUGH THE RELEVANT RECORD AND IMP UGNED ORDER. SO FAR AS GROUND NO.1 RELATED TO DISALLOWANCE OF RS.76 ,43,540/- MADE U/S.35(2AB) OF THE ACT IS CONCERNED. ASSESSEE WOULD BE ENTITLED TO DEDUCTION U/S.35(2AB) IN THE YEAR UNDER CONSIDERATI ON, EVEN THOUGHT THE REGISTRATION/RECOGNITION IS ACCORDED BY THE DSIR IN THE SUBSEQUENT ASSESSMENT YEAR. HONBLE DELHI HIGH COURT HAS HELD IN THE MATTER OF CIT VS. SANDAN VIKAS (INDIA) LTD. IN ITA NO.348/2011 , IT HAS BEEN HELD AS FOLLOWS: 10. WE ARE IN FULL AGREEMENT WITH THE REASONING GI VEN BY THE TRIBUNAL AND WE ARE OF THE VIEW THAT THERE IS NO SCOPE FOR A NY OTHER INTERPRETATION AND SINCE THE APPROVAL IS GRANTED DU RING THE PREVIOUS ITA NO.1130/AHD /2015 DCIT VS. DEVARSONS INDUSTRIES PVT. LTD. ASST.YEAR 2011-12 - 7 - YEAR RELEVANT TO THE ASSESSMENT YEAR IN QUESTION, W E ARE OF THE VIEW THAT THE ASSESSEE IS ENTITLED TO CLAIM WEIGHTED DEDUCTIO N IN RESPECT OF THE ENTIRE EXPENDITURE INCURRED UNDER SECTION 35(2AB) O F THE ACT BY THE ASSESSEE.' 3. WE ARE IN FULL AGREEMENT WITH THE AFORESAID APPR OACH OF THE GUJARAT HIGH COURT. NO SUBSTANTIAL QUESTION OF LAW, THEREFO RE, ARISES. THE APPEAL IS DISMISSED. 9.1 RESPECTFULLY FOLLOWING THE ORDER OF THE DELHI H IGH, IN WHICH JUDGMENT OF JURISDICTIONAL HIGH COURT IN THE MATTER OF CIT VS. CLARIS LIFESCIENCES LTD., 326 ITR 251 HAS ALSO BEEN DISCUSSED, WE DISMISS THIS GROUND OF APPEAL OF THE DEPARTMENT. 10. SO FAR AS GROUND RELATED TO DELETING THE ADDITI ON TO THE EXTENT OF RS.10,50,282/- IS CONCERNED. THIS ISSUE HAS BEEN DI SCUSSED BY THE AO AT PARA NO.3 OF THE ASSESSMENT ORDER AND LD. CIT(A) HA S DISCUSSED THIS ISSUE AT PARA NO.4.2. 10.1 IN OUR CONSIDERED OPINION, INTEREST PAID BY TH E ASSESSEE WAS SUBSEQUENTLY AND ASSESSEE WAS HAVING SUFFICIENT INT EREST FREE FUND TO COVER UP THE INVESTMENT EARNING EXEMPT INCOME. THER EFORE, WE ARE OF THE CONSIDERED OPINION THAT PROVISIONS OF SECTION 14A A RE NOT ATTRACTED. HOWEVER, AS DECIDED BY THE LD. CIT(A) THAT SALARY P AID TO C.S. CHRISTIAN, WHICH WORKS OUT TO RS.40,713/- IS UPHELD. THEREFORE , WE UPHELD THE DECISION OF THE LD. CIT(A) AND WE ARE NOT INCLINE T O INTERFERE IN THE ORDER PASSED BY THE LD.CIT(A). THUS, THIS GROUND OF REVEN UE IS DISMISSED. ITA NO.1130/AHD /2015 DCIT VS. DEVARSONS INDUSTRIES PVT. LTD. ASST.YEAR 2011-12 - 8 - 11. SO FAR DISALLOWANCE OF EXCESS DEPRECIATION OF R S.12,634/- ON OFFICE EQUIPMENT IS CONCERNED. LD. AO HAS DISCUSSED THE SA ME IN HIS ORDER AT PARA NO.4 AND LD. CIT(A) HAS DISCUSSED IN PARA NO.6 .2. IN THIS REGARD, ASSESSEE HAD PURCHASED GIFT ITEMS AND GAVE AS MOMEN TOUS TO THE CUSTOMERS OF THE CLIENTS; AND EXPENDITURE INCURRED WAS INSIGNIFICANT AS THE TURNOVER OF THE APPELLANT IS AROUND RS.31 CRORE S; MAJORITY OF THE PAYMENT WERE MADE THROUGH CREDIT CARD AND EXPORT TU RNOVER OF THE ASSESSEE HAD GONE UP FROM RS.10.8 CRORES IN THE PRE VIOUS YEAR TO RS.12.54 CRORES IN THE CURRENT YEAR. 11.1 ON ACCOUNT OF ABOVE SAID DISCUSSION, WE ARE NO T INCLINE TO INTERFERE IN THE ORDER PASSED BY THE LD. CIT(A) HENCE, THIS G ROUND OF APPEAL IS DISMISSED. 12. SO FAR DELETING THE DISALLOWANCE OF MOTOR CAR D EPRECIATION OF RS.8,38,246/- IS CONCERNED. LD. AO HAS DISCUSSED TH E MATTER AT PARA NO.6 OF HIS ORDER AND LD. CIT(A) HAS DISCUSSED THIS MATT ER AT PARA NO.7.3. WE ARE OF THE CONSIDERED OPINION THAT SUCH DEPRECIATIO N ARE ALLOWED AS IT HAS BEEN HELD BY THE CO-ORDINATE BENCH, IN THE CASE OF AMBUJA SYNTHETICS MILLS PVT. LTD. VS. THE DCIT, RANGE-1, AHMEDABAD , THAT IT IS NOT DISPUTED THAT FUNDS FOR PURCHASES OF THE CAR WERE P ROVIDED BY THE ASSESSEE COMPANY WHICH IS ALSO REFLECTED IN THE ACC OUNTS OF THE ASSESSEE COMPANY. IN OUR OPINION, WHEN THE CAR IS ACTUALLY U SED FOR THE PURPOSE OF BUSINESS OF THE COMPANY DEPRECIATION THEREON CANNOT BE DENIED. ITA NO.1130/AHD /2015 DCIT VS. DEVARSONS INDUSTRIES PVT. LTD. ASST.YEAR 2011-12 - 9 - 13. RESPECTFULLY FOLLOWING THE AFORESAID ORDERS AND IN OUR CONSIDERED OPINION, LD. CIT(A) HAS PASSED DETAILED AND REASONE D ORDER. THEREFORE, WE ARE NOT INCLINE TO INTERFERE IN THE ORDER PASSED BY THE LD. CIT(A). 14. IN THE RESULT, APPEAL FILED BY THE DEPARTMENT I S DISMISSED. THIS ORDER PRONOUNCED IN OPEN COURT ON 28/03/2018 SD/- SD/- ( ) 4 5 ( N.K. BILLAIYA ) ( MAHAVIR PRASAD ) ACCOUNTANT MEMBER JUDICIAL MEMBER AHMEDABAD; DATED 28/03/2018 PRITI YADAV, SR.PS !'# $#! # COPY OF THE ORDER FORWARDED TO : 1. !$' / THE APPELLANT 2. ($' / THE RESPONDENT. 3. 67- + 8- / CONCERNED CIT 4. + 8- 4!5 / THE CIT(A). 5. 9:;-67 !.!672 ! / DR, ITAT, AHMEDABAD 6. ;<=, # GUARD FILE. % & / BY ORDER, (9-- //TRUE COPY// '/& () ( DY./ASSTT.REGISTRAR) , / ITAT, AHMEDABAD