DCIT, CHENNAI V. Dadha Pharma Private Ltd., CHENNAI

ITA 1256/CHNY/2016

• Counselvise Citation: [2016] 131 COUNSELVISE.COM (IT) 8072 (ITAT-CHENNAI)
• Duration Of Justice: 6 month(s) 4 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 10-11-2016
• Appeal Filed By: Department
• Bench Allotted: C
• Next Hearing Date: 24-10-2016
• Assessment Year: misc
• Appeal Filed On: 06-05-2016
• Court: TRIBUNAL
• Department Lawyers: A V SREEKANTH
• Assessee Lawyers: D ANAND
• Keywords: Capital asset; Depreciation; Business expenditure; Earning of tax free income; Initiation of penalty proceedings; Revenue expenditure; Capital expenditure
• Section: 14A

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL C BENCH : CHENNAI . . . , . . ' # $ , % &' ( [ BEFORE SHRI N.R.S. GANESAN, JUDICIAL MEMBER AND SHRI D. S. SUNDER SINGH, ACCOUNTANT MEMBER ] ./ I.T.A.NO.1256/MDS/2016 / ASSESSMENT YEAR : 2010-11 THE DY. COMMISSIONER OF INCOME TAX CORPORATE CIRCLE 1(1) CHENNAI VS. M/S DADHA PHARMA PVT. LTD 250, LLOYDS ROAD ROYAPETTAH CHENNAI 600 014 [PAN AAACD 1265 F ] ( )* / APPELLANT) ( +,)* /RESPONDENT) / APPELLANT BY : SHRI A.V. SREEKANTH, JCIT /RESPONDENT BY : SHRI D. ANAND, ADVOCATE / DATE OF HEARING : 24 - 10 - 2016 ! / DATE OF PRONOUNCEMENT : 10 - 11 - 2016 / O R D E R PER D.S. SUNDER SINGH, ACCOUNTANT MEMBER THIS APPEAL OF THE REVENUE IS DIRECTED AGAINST THE ORDER OF THE COMMISSIONER OF INCOME-TAX (APPEALS)-I, CHENNA I, DATED 26.2.2016 FOR ASSESSMENT YEAR 2010-11. 2. GROUND NO.1 AND 3 ARE GENERAL IN NATURE REQUIRING N O SPECIFIC ADJUDICATION. ITA NO. 1256/16 :- 2 -: 3. GROUND NO.2 IS RELATING TO DISALLOWANCE OF BUSINESS EXPENDITURE UNDER THE HEAD REPAIRS & MAINTENANCE . 4. THE ASSESSING OFFICER DISALLOWED AN AMOUNT OF ` 44,74,992/- AS CAPITAL EXPENDITURE AND ALLOWED 10% DEPRECIATION ON THE SAID AMOUNT AND ADDED BACK THE REMAINING AMOUNT OF ` 40,00,002/- TO THE RETURNED INCOME. 5. AGGRIEVED BY THE ORDER OF THE ASSESSING OFFICER, TH E ASSESSEE WENT ON APPEAL BEFORE THE CIT(A). THE LD. CIT(A) DELETED THE ADDITION MADE BY THE ASSESSING OFFICER HOLDING THE SAME AS REVENUE EXPENDITURE. THE LD. CIT(A) IN HIS ORDER H AS MADE AN OBSERVATION THAT THE EXPENSES WERE INCURRED TOWARDS REPAIR AND MAINTENANCE IN RESPECT OF FOUR OF ITS PREMISES IN CHENNAI, ERNAKULAM, MADURANTAKAM AND PHALODI. THE PREMISES AT ERNAKULA M WAS A RENTED PREMISES WHICH REQUIRE CERTAIN MINOR REPAIRS TO BE CARRIED OUT. BESIDES, THE EXPENDITURE INCLUDED SALARY AND OTHER INCIDENTAL EX PENSES. THESE EXPENSES INCLUDED REPAIR AND MAINTENANCE OF COMPUTERS, AMC C HARGES, DIESEL FOR GENERATOR, ETC. SIMILARLY, THE EXPENSES ATTRIBUTA BLE TO CHENNAI OFFICE WERE TOWARDS REPAIR AND MAINTENANCE WORK OF THE BUILDING , AMC, ELECTRICAL ITEMS, COST OF DIESEL FOR GENERATOR SETS, ETC. THE PLEA O F THE ASSESSEE THAT THE EXPENDITURE DID NOT RESULT IN BRINGING INTO EXISTEN CE OF ANY ASSET OR THAT IT RESULTED IN A ADVANTAGE OF ENDURING NATURE IS FOUND TO HAVE MERIT BY THE LD. CIT(A). BEFORE THE CIT(A) THE ASSESSEE ALSO RELIED ON THE DECISION OF ITA NO. 1256/16 :- 3 -: ITAT,CHENNAI IN ITS OWN CASE FOR A.Y. 2008-09 IN IT A NO.1293/MDS/2013 AND ITA NO.1297/MDS/2013 DATED 17.12.2015 ON IDENTICAL ISSUES. THE CIT (A) HELD THAT EXPENDITURE INCURRED WAS RELATED TO MAIN TAINING AND MAKING THE FACILITIES AVAILABLE USABLE MORE EFFICIENTLY AND CO ULD D NOT BE SAID TO HAVE RESULTED IN CREATION OF ANY NEW ASSET BUT WAS INCUR RED FOR MAINTAINING THE BUSINESS OF THE ASSESSEE-COMPANY AND ALLOWED BY THE LD.CIT(A). 6. AGGRIEVED, THE REVENUE IS IN APPEAL BEFORE THE TRI BUNAL AND THE LD. DR RELIED ON THE ORDER OF THE ASSESSING OFF ICER. 7. ON THE OTHER HAND, THE LD. AR SUPPORTED THE ORDER O F THE CIT(A). 8. AFTER HEARING THE RIVAL CONTENTIONS, WE FIND THAT O N SIMILAR FACTS IN ASSESSEES OWN CASE FOR ASSESSMENT YEAR 2 008-09 IN I.T.A.NO. 1297/MDS/2013, VIDE ORDER DATED 17.12.2015 RELIED U P ON BY THE A.R, THE TRIBUNAL HAS DISMISSED THE REVENUES APPEAL BY HOLDING AS UNDER: 16. AFTER HEARING RIVAL CONTENTIONS, WE FIND THAT THE ASSESSEE HAS FURNISHED DETAILED SUBMISSION, WHEREIN IT WAS STATE D THAT THE ASSESSEE IS RUNNING A HOTEL INDUSTRY AT PHALODI, RA JASTHAN, WHICH IS A HERITAGE BUILDING. TO STRENGTHEN THE 250 YEARS OLD STRUCTURES OF HAVELIS AND PRESERVING ITS ANCIENT APPEARANCE, B EFORE THE ASSESSING OFFICER, THE ASSESSEE HAS STRONGLY CONTES TED THAT WITHOUT MAKING ANY ADDITION TO THE NUMBERS OF ROOMS OF THE HOTEL, THE SIZE OF THE RESTAURANT, ETC., RENOVATION, REPAI RS, ETC. WERE CARRIED OUT IN THE EXISTING BUILDING. IT WAS ALSO C ONTENDED THAT WHEN THERE WAS NO ENHANCEMENT OF THE ROOMS OF THE H OTEL OR THE SIZE OF THE RESTAURANT, THERE IS NO ENHANCEMENT OF THE EARNING CAPACITY OF THE ASSESSEE TO BE CONSIDERED THE EXPEN DITURE AS CAPITAL IN NATURE. THE ASSESSEE HAS FURNISHED DETAI LS OF REPAIR WORKS CARRIED OUT IN THE FIRST AND SECOND FLOOR, DE TAILS OF BILLS FOR THE MATERIALS PURCHASED AND USED FOR THE REPAIR WOR K, ETC. BEFORE THE ASSESSING OFFICER. IT IS NOT THE CASE OF THE AS SESSING OFFICER THAT HE HAS DOUBTED THE REPAIRING WORKS CARRIED OUT BY THE ASSESSEE. THE ASSESSING OFFICER HAS NOT FOUND THAT THE ASSESSEE HAS ENHANCED THE EXISTING ROOMS/RESTAURANT. THE ONL Y OBJECTION OF THE ASSESSING OFFICER IS THAT THE ASSESSEE HAS PROC URED BULK ITA NO. 1256/16 :- 4 -: QUANTITY OF BUILDING MATERIALS LIKE CEMENT, BRICKS, IRON & STEEL, FLOORING MATERIALS, ETC. AND TO CARRY OUT SUCH BULK QUANTITY OF BUILDING MATERIALS ARE NOT REQUIRED TO CARRY OUT MI NOR REPAIRS. IT HAS TO BE SEEN THE BUILDING CONDITION IN WHICH THE MATERIALS SO PURCHASED WERE USED FOR REPAIRING WORK. BEFORE THE LD. CIT(A), THE ASSESSEE HAS SUBMITTED THAT THE REPAIR WORKS WERE C ARRIED OUT IN A HERITAGE BUILDING, WHICH IS MORE THAN 250 YEARS OLD AND ALSO SUBMITTED THAT THE ASSESSEE HAS INCURRED THE EXPEND ITURE TOWARDS REPAIR OF THE BUILDING VIZ., IN THE GROUND FLOOR : (I) RENOVATE THE WALLS/FLOOR OF THE EXISTING LOBBY RED STONE, BAJRI & GITTY, (II) CENTRAL COURTYARDS TO BE OPENED UP TO ALLOW FO R AIR CIRCULATION, (III) ACCOUNTS & ADMINISTRATION DEPARTMENT WAS SHIF TED BEHIND THE RECEPTION, (IV) FLOORING OF THE STAIRCASE TO BE REP LACED, (V) PASSAGE BETWEEN KITCHEN AND RESTAURANT WALLS AND FLOORING TO BE REPLACED, (VI) OPEN UP THE WALLS OF THE RESTAURANT TOWARDS TH E SWIMMING POOL, (VII) TERMITE INFESTED WOODEN DOORS TO BE REPLACED AND IN THE FIRST FLOOR (I) TOILETS TO BE RENOVATED TILES TOOKAL & (II) ROOF OF FIVE EXISTING ROOMS ROOF TO BE PATCH ED. OVER AND ABOVE, THE ASSESSEE HAS NOT CONSTRUCTED A NY ANNEXE TO THE EXISTING BUILDING. FURTHER, THE REVENUE COULD NOT P ROVE THAT THERE IS AN ADDITION TO THE ROOMS/RESTAURANT OF THE EXISTING BU ILDING OR CREATED ANY ANNEXE TO THE BUILDING AS CONTENDED BY THE LD. DR. UNDER THE ABOVE FACTS AND CIRCUMSTANCES, WE FIND THAT THE LD. CIT(A) HAS RIGHTLY FOLLOWED THE DECISION OF THE HONBLE JURISDICTIONAL HIGH COURT I N THE CASE OF CIT V. OOTY DASAPRAKASH (SUPRA), WHEREIN THE HONBLE HIGH COURT HAS OBSERVED THAT THE EXPENDITURE INCURRED BY THE ASSESSEE FOR THE RELE VANT ASSESSMENT YEARS IN REPAIRING AND MODERNISING THE HO TEL AND REPLACING THE EXISTING COMPONENTS OF A PORTION OF T HE BUILDING, FURNITURE AND FITTINGS COULD NOT AT ALL BE STATED TO BE OF ENDURING IN NATURE, IN THE NATURE OF BEING A CAPITAL EXPENDIT URE; BUT, DEFINITELY SUCH AN EXPENDITURE WOULD FALL UNDER THE C ATEGORY OF REVENUE EXPENDITURE IN NATURE TO BE ALLOWED. IN VIEW OF THE ABOVE FACTS AND CIRCUMSTANCES AND THE DECISION OF THE HON BLE JURISDICTIONAL HIGH COURT (SUPRA), WE FIND NO INFIRMITY IN THE ORD ER PASSED BY THE LD. CIT(A) AND ACCORDINGLY, THE GROUND RAISED BY THE RE VENUE IS DISMISSED. THUS, THE APPEAL FILED BY THE REVENUE IS DISMISSED. FOR THE ASSESSMENT YEAR UNDER CONSIDERATION THOUGH THE ASSESSING OFFICER HELD IT AS CAPITAL EXPENDITURE, HE HAS NOT MADE OUT CASE THAT A NEW CAPITAL ASSET HAS COME INTO EXISTENCE. THE LD C IT(A) VERIFIED THE ACCOUNT COPIES AND INVOICES AND GIVEN FINDING THAT NO CAPITAL ASSET ITA NO. 1256/16 :- 5 -: HAS COME INTO EXISTENCE AND THE EXPENSES WERE INCUR RED FOR MAINTAINING AND MAKING THE FACILITIES AVAILABLE, US ABLE MORE EFFICIENTLY AND ALLOWED THE APPEAL. THE LD CIT(A) ALSO CONSIDER ED THE DECISION OF THIS TRIBUNAL FOR ASSESSMENT YEAR 2008-09 IN I.T.A. NO. 1297/MDS/2013, VIDE ORDER DATED 17.12.2015, IN ASSESSEES OWN CASE ON SIMILAR FACTS. DURING THE APPEAL THE LD. D.R. DID NOT BRING ANY NE W FACTS CONTROVERTING THE OBSERVATION OF THE LD.CIT(A) AND NO OTHER DECISION OF THE HIGHER COURT HAS BEEN BROUGHT TO OUR NOTICE TO SUPPORT THE REVENUES CONTENTIONS. THEREFORE, WE DO NOT FIND AN Y INFIRMITY IN THE ORDER OF THE LD.CIT(A) AND UPHOLD THE SAME AND THE REVENUES APPEAL ON THIS GROUND IS DISMISSED. 9. THE NEXT ISSUE IS RELATED TO THE DISALLOWANCE MADE BY THE ASSESSING OFFICER U/S 14A R.W.RULE 8D(II) AND (III ) TO THE EXTENT OF EXEMPT INCOME EARNED BY THE ASSESSEE. 10. THE ASSESSING OFFICER DISALLOWED AN AMOUNT OF ` 3,02,703/- AGAINST THE DIVIDEND INCOME OF ` 1,39,794/-. THE LD. AR REQUESTED TO RESTRICT THE DISALLOWANCE TO THE EXTENT OF EXEMPT I NCOME EARNED BY THE ASSESSEE. THE LD. AR SUBMITTED THAT THE ISSUE IS CO VERED IN FAVOUR OF THE ASSESSEE BY THE ORDER OF THIS TRIBUNAL. ITA NO. 1256/16 :- 6 -: 11. WE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATE RIAL PLACED BEFORE US. WE FIND THAT THE ISSUE IS COVERE D IN FAVOUR OF THE ASSESSEE BY THE ORDER OF THIS TRIBUNAL IN ASSESSEE S OWN CASE FOR ASSESSMENT YEAR 2008-09 IN I.T.A.NO.1293/MDS/2013, DATED 17.12.2015, WHEREIN THE TRIBUNAL HELD THAT THE DISA LLOWANCE U/S 14A R.W.RULE 8D TO BE RESTRICTED TO THE EXTENT OF EXEMP T INCOME EARNED BY THE ASSESSEE. IN FACT, THE TRIBUNAL IN PARA 7 & 8 OF ITS ORDER HAS HELD AS UNDER: 7. WE HAVE HEARD BOTH SIDES, PERUSED THE MATERIAL S ON RECORD AND GONE THROUGH THE ORDERS OF AUTHORITIES B ELOW. IT IS A FACT THAT THE ASSESSEE HAS EARNED DIVID END OF .2715/-. BEFORE THE ASSESSING OFFICER, THE ASSES SEE HAS SUBMITTED THAT THE ENTIRE INVESTMENT MADE IS OU T OF ITS SURPLUS GENERATED FROM BUSINESS AND THAT IT WAS NOT OUT OF ANY BORROWALS. IT WAS ALSO SUBMITTED THAT NO EXPEND ITURE ATTRIBUTED TO EARN THE EXEMPT INCOME. SINCE IT CAN NOT BE RULED OUT THAT THE ASSESSEE HAS NOT UTILIZED ITS OF FICE ESTABLISHMENT AND STAFF, A PROPORTIONATE DISALLOWAN CE BASED ON THE INVESTMENTS VALUED IN TERMS OF THIRD L IMB OF RULE 8D REQUIRES TO BE DONE. ACCORDINGLY, THE ASSES SING OFFICER WORKED OUT THE DISALLOWANCE UNDER SECTION 1 4A R.W.R. 8D OF .2,33,324/-. THE ABOVE DISALLOWANCE WAS CONFIRMED BY THE LD. CIT(A). BEFORE US, THE LD. COU NSEL FOR THE ASSESSEE STRONGLY CONTENDED THAT THE DISALLOWAN CE SHOULD NOT BE MORE THAN THE DIVIDEND EARNED BY THE ASSESSEE THE DISALLOWANCE SHOULD BE RESTRICTED TO T HE AMOUNT OF EXEMPT INCOME. WE FIND FORCE IN THE CONTE NTION OF THE LD. COUNSEL FOR THE ASSESSEE. THE HONBLE DE LHI HIGH COURT IN THE CASE OF JOINT INVESTMENTS PVT. LT D. V. CIT 372 ITR 694 HAS HELD AS UNDER: HELD, ALLOWING THE APPEAL PARTLY, THAT THE ASSESSI NG OFFICER HAD NOT DISCLOSED WHY THE ASSESSEE'S CLAIM FOR ATTRIBUTING RS. 2,97,440 AS A DISALLOWANCE UNDER SE CTION 14A HAD TO BE REJECTED. THE JURISDICTION TO PROCEED FURTHER AND DETERMINE AMOUNTS IS DERIVED AFTER ITA NO. 1256/16 :- 7 -: EXAMINATION OF THE ACCOUNTS AND REJECTION IF ANY, O F THE ASSESSEE'S CLAIM OR EXPLANATION. THERE WAS NO SCRUT INY OF THE ACCOUNTS BY THE ASSESSING OFFICER. THIS ASPECT WENT COMPLETELY UNNOTICED BY THE COMMISSIONER (APPEALS) AND THE TRIBUNAL. THE ENTIRE EXEMPT INCOME WAS RS. 48,90,000, WHEREAS THE DISALLOWANCE ULTIMATELY DIRE CTED WORKED OUT TO NEARLY 110 PER CENT. OF THAT SUM, I. E., RS. 52,56,197. SECTION 14A OR RULE 8D OF THE INCOME-TAX RULES, 1962, CANNOT BE INTERPRETED SO AS TO MEAN TH AT THE ENTIRE EXEMPT INCOME IS TO BE DISALLOWED. THE WINDO W FOR DISALLOWANCE WAS INDICATED IN SECTION 14A AND WAS O NLY TO THE EXTENT OF DISALLOWING EXPENDITURE 'INCURRED BY THE ASSESSEE IN RELATION TO THE TAX EXEMPT INCOME'. THI S PROPORTION OR PORTION OF THE EXEMPT INCOME SURELY C ANNOT SWALLOW THE ENTIRE AMOUNT. THE ORDER OF THE ASSESSI NG OFFICER WAS SET ASIDE. THE INITIATION OF PENALTY PROCEEDINGS ALSO WAS SET ASIDE. THE MATTER WAS REMI TTED TO THE ASSESSING OFFICER FOR FRESH CONSIDERATION. 8. IN THE PRESENT CASE, THE ASSESSEE HAS EARNED EX EMPT DIVIDEND INCOME OF .2,715/-. THE ASSESSEE HAS NOT ADMITTED ANY EXPENSES TO EARN THE ABOVE DIVIDEND INCOME. THE ASSESSING OFFICER DISALLOWED THE EXPENSES TO THE TU NE OF .2,33,324/- BY INVOKING SECTION 14A R.W.R. 8D. BY T AKING INTO CONSIDERATION OF THE FACTS AND CIRCUMSTANCES OF THE PRESENT CASE AND KEEPING IN VIEW OF THE ABOVE DECISION OF T HE HONBLE DELHI HIGH COURT, WE ARE OF THE OPINION THA T THE ASSESSING OFFICER IS NOT JUSTIFIED IN MAKING EXCESS IVE DISALLOWANCE. THEREFORE, WE RESTRICT THE DISALLOWAN CE MADE BY THE ASSESSING OFFICER TO THE EXTENT OF EXEMPT IN COME EARNED BY THE ASSESSEE AND ACCORDINGLY, THE GROUND RAISED BY THE ASSESSEE IS ALLOWED.: 12. RESPECTFULLY FOLLOWING THE ABOVE ORDER OF THE TRIBU NAL IN ASSESSEES OWN CASE FOR ASSESSMENT YEAR 2008-09, WE DIRECT THE ASSESSING OFFICER TO RESTRICT THE DISALLOWANCE TO THE EXTENT OF EXEMPT INCOME EARNED BY THE ASSESSEE. ITA NO. 1256/16 :- 8 -: 13. IN THE RESULT, THE APPEAL OF THE REVENUE IS PARTLY ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 10 TH NOVEMBER, 2016, AT CHENNAI. SD/- SD/- ( . . . ' ) (N.R.S. GANESAN) / JUDICIAL MEMBER ( . . ' # $ ) (D.S. SUNDER SINGH) % / ACCOUNTANT MEMBER #$ / CHENNAI %& / DATED: 10 TH NOVEMBER, 2016 RD &' ()*) / COPY TO: 1 . / APPELLANT 4. + / CIT 2. / RESPONDENT 5. ),- . / DR 3. +/' / CIT(A) 6. -01 / GF