Shri Swami Samarth Shetkari Va Vinkari Sahakari Soot Girni Niyamit, Solapur V. Addl.CIT, Range-1, Solapur, Solapur

ITA 129/PUN/2011

• Counselvise Citation: 12924514 RSA 2011
• Duration Of Justice: 1 year(s) 5 month(s) 23 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 24-07-2012
• Appeal Filed By: Assessee
• Bench Allotted: A
• Assessment Year: 2006-2007
• Appeal Filed On: 01-02-2011
• Court: TRIBUNAL
• Department Lawyers: ANN KAPTHUAMA
• Keywords: Opportunity of being heard; Corroborative evidences; Revenue expenditure; Capital expenditure
• Section: 14A

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL PUNE BENCH A, PUNE BEFORE SHRI SHAILENDRA KUMAR YADAV, JUDICIAL MEMBER AND SHRI R.K. PANDA, ACCOUNTANT MEMBER ITA NO. 129/PN/2011 (ASSESSMENT YEAR 2006-07) SRI SWAMI SAMARTH SHETKARI VA VINKARI SAHAKARI SOOT GIRNI NIYAMIT, AT & POST VALSANG, TALUKA SOUTH SOLAPUR DIST SOLAPUR. .. APPELLANT PAN NO.AAAAS4481J VS. ADDL. COMMISSIONER OF INCOME TAX, RANGE-I, SOLAPUR. .. RESPONDENT ASSESSEE BY : SHRI SUNIL GANOO DEPARTMENT BY : MS. ANN KAPTHUAMA DATE OF HEARING : 19-07-2012 DATE OF PRONOUNCEMENT : 24-07-2012 ORDER PER SHAILENDRA KUMAR YADAV, JM : THIS APPEAL BY THE ASSESSEE IS DIRECTED AGAINST THE ORDER OF THE CIT(A)-III PUNE DATED 31-8-2010 FOR A.Y. 2006-07 ON THE FOLLOWING GROUNDS: 1. IN THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT(A) HAS ERRED IN CONFIRMING THE DISALLOW ANCE OF RS. 1,66,782/- MADE U/S 14A OF THE ACT THE SAID DISALLO WANCE BEING PATENTLY ILLEGAL, BAD IN LAW, ARBITRARY, PERV ERSE AND BASED ON NO EVIDENCE THE SAME MAY PLEASE BE DELETED . 2. IN THE FACTS AND CIRCUMSTANCES OF THE CASE AND I N LAW, THE LD. CIT(A) HAS ERRED IN HOLDING THAT THE EXPEND ITURE INCURRED DURING THE YEAR BY THE APPELLANT TOWARDS W ATER PROOFING OF THE BUILDING AMOUNTS TO CAPITAL EXPENDI TURE. THE AFORESAID FINDING BEING PATENTLY ILLEGAL, BAD IN LA W, ARBITRARY AND PERVERSE THE SAME MAY PLEASE BE VACATED AND IT MAY PLEASE BE HELD THAT THE SAID EXPENDITURE IS A REVEN UE EXPENDITURE AND CONSEQUENTLY THE DISALLOWANCE OF RS.20,73,532/- MADE BY THE LD. CIT(A) MAY PLEASE BE DELETED. 3. THE DISALLOWANCE OF RS. 39,315/- MADE BY THE LD. CIT(A) OUT OF GARDENING EXPENSES BE DELETED. 2 4. THE DISALLOWANCE OF RS. 21,000/- MADE BY THE LD. CIT(A) OUT OF MISCELLANEOUS EXPENSES BE DELETED. 2. FACTS OF THE CASE, IN BRIEF, ARE THAT THE ASSESS EE IS A COOPERATIVE SOCIETY RUNNING A SPINNING MILL PRODUCI NG YARNS. DURING THE ASSESSMENT PROCEEDINGS THE AO NOTED THAT ASSESSEE HAS CLAIMED DEDUCTION U/S. 80P (2)(D) IN RESPECT OF THE FOLLOWING INCOME: A. INTEREST FROM COOPERATIVE SOCIETIES RS. 15,25,5 54/- B. DIVIDEND FROM COOPERATIVE SOCIETIES RS. 1,42, 273/- IN ABSENCE OF ANY SPECIFIC DETAILS OF EXPENDITURE I NCURRED BY THE ASSESSEE FOR EARNING THE ABOVE INCOME WHICH HAS BEE N CLAIMED AS EXEMPT THE AO INVOKING THE PROVISIONS OF SECTION 14 A DISALLOWED AN AMOUNT OF RS. 4,16,957/- BEING 25% OF THE EXEMPT IN COME. 2.1. BEFORE THE CIT(A) IT WAS SUBMITTED THAT THE IN TEREST INCOME OF RS. 15,25,554/- WAS EARNED ON FIXED DEPOSITS KEPT W ITH SOLAPUR DISTRICT CENTRAL CO-OP. BANK, SOLAPUR AND DIVIDEND ON SHARES OF RS. 1,42,273/- FROM THE SAID BANK AGGREGATING TO RS. 16 ,67,827/-. THE INVESTMENTS WERE MADE OUT OF PROFITS EARNED FROM BU SINESS WITH AN INTENTION NOT TO KEEP IDLE FUNDS OR CASH IN HAND. IT WAS SUBMITTED THAT AT THE BEGINNING OF THE YEAR THE FIXED DEPOSIT S WERE AMOUNTING TO RS. 65.12 LAKHS WHICH WERE SPECIFICALLY EARMARKE D FOR THE PURPOSE OF PURCHASING MACHINERY AND DURING THE YEAR ADDITIONAL DEPOSIT TO THE TUNE OF RS. 150 LAKHS WAS MADE WITH A VIEW TO CONTRIBUTE AS MARGIN MONEY FOR THE LOAN FACILITY FO R THE ON-GOING MODERNIZATION PROGRAM. RELYING ON A COUPLE OF DECI SIONS, IT WAS ARGUED THAT THE PROVISIONS OF SECTION 14A WAS WRONG LY APPLIED TO THE ASSESSEE COMPANY. HOWEVER, THE LEARNED CIT(A) WAS NOT CONVINCED WITH THE EXPLANATION GIVEN BY THE ASSESSE E AND SUSTAINED THE DISALLOWANCE MADE BY THE AO. AGGRIEVED WITH SU CH ORDER OF THE CIT(A) THE ASSESSEE IS IN APPEAL BEFORE US. 2.2. WE HAVE CONSIDERED THE RIVAL ARGUMENTS MADE BY BOTH THE SIDES, PERUSED THE ORDERS OF THE AO AND THE CIT(A) AND THE PAPER BOOK FILED ON BEHALF OF THE ASSESSEE. WE HAVE ALSO CONSIDERED THE 3 VARIOUS DECISIONS CITED BEFORE US. FROM THE ORDER OF THE AO AND THE CIT(A) WE FIND THERE IS NO MENTION OF ANY BORROWED FUNDS UTILISED BY THE ASSESSEE FOR MAKING THE INVESTMENT IN FIXED DEP OSITS AND SHARES, THE INCOME OF WHICH HAS BEEN CLAIMED AS EXE MPT. THERE IS NO WHISPER IN THE BODY OF THE ASSESSMENT ORDER OR I N THE APPEAL ORDER AS TO WHETHER THE ASSESSEE HAS PAID ANY INTER EST ON LOAN ACCOUNT AND WHETHER THE SAME IS DEBITED TO THE P&L ACCOUNT. IN ABSENCE OF FILING OF THE P&L ACCOUNT IN THE PAPER B OOK AND SINCE THE ORDER OF THE AO AS WELL AS THE ORDER OF THE CIT (A) IS SILENT AS TO WHETHER THE ASSESSEE HAS BORROWED ANY MONEY AND CLA IMED INTEREST EXPENDITURE IN THE P&L ACCOUNT, WE DEEM IT PROPER T O RESTORE THE ISSUE TO THE FILE OF THE AO WITH A DIRECTION TO VER IFY AS TO WHETHER ANY LOAN HAS BEEN OBTAINED BY THE ASSESSEE OR NOT. IN CASE THERE IS ANY SUCH LOAN, THE AO IS DIRECTED TO VERIFY AS TO W HETHER ANY BORROWED MONEY HAS BEEN DIVERTED FOR INVESTMENT, TH E INCOME OF WHICH HAS BEEN CLAIMED AS EXEMPT FROM TAX. SINCE T HIS ASPECT WAS NOT CONSIDERED BY THE AO OR THE CIT(A), THEREFORE, WE DEEM IT PROPER TO RESTORE THE ISSUE TO THE FILE OF THE AO FOR FRES H ADJUDICATION OF THE ISSUE IN LIGHT OF OUR ABOVE OBSERVATION AND IN ACCO RDANCE WITH LAW AFTER GIVING DUE OPPORTUNITY OF BEING HEARD TO THE ASSESSEE. WE HOLD AND DIRECT ACCORDINGLY. THE GROUND RAISED BY THE ASSESSEE IS ACCORDINGLY ALLOWED FOR STATISTICAL PURPOSES. 3. THE SECOND ISSUE IN THE APPEAL IS REGARDING THE EXPENDITURE INCURRED TOWARDS WATER PROOFING OF THE BUILDING. I T WAS NOTICED BY THE ASSESSING OFFICER THAT THE ASSESSEE HAS DEBITED AN AMOUNT OF RS. 22,82,773/- UNDER THE HEAD REPAIRS AND MAINTEN ANCE OUT OF WHICH AN AMOUNT OF RS. 21,82,665/- WAS FOUND TO BE PERTAINING TO WATER PROOFING WORK. IT WAS STATED BY THE ASSESSIN G OFFICER THAT THOUGH THE DETAILS OF THE EXPENDITURE WERE CALLED F OR, EXCEPT FURNISHING LEDGER A/C EXTRACT, NO FURTHER DETAILS W ERE FURNISHED BY THE ASSESSEE. THEREFORE, IN THE ABSENCE OF ANY DE TAILS FROM THE ASSESSEE TO SHOW THAT THE SAID EXPENDITURE WAS IN T HE NATURE OF REVENUE EXPENDITURE, THE ASSESSING OFFICER TREATED THE SAME AS CAPITAL IN NATURE AS ACCORDING TO HIM, WATER PROOFI NG TO THE EXTENT 4 DONE BY THE ASSESSEE RENDERS ENDURING BENEFIT TO TH E ASSESSEE. THUS, THE EXPENDITURE TO THE EXTENT OF RS. 21,82,66 5/- WAS DISALLOWED. IN APPEAL, THE CIT(A) HELD THAT THE EX PENDITURE WAS INCURRED ON TOTAL REPLACEMENT OF THE EXISTING WATER PROOFING SYSTEM AND IT COULD NOT BE SAID THAT THE SAME WERE ROUTINE CURRENT REPAIRS TO THE BUILDING AND THEREFORE, THE SAME DID NOT QUA LIFY AS EXPENDITURE ON CURRENT REPAIRS WITHIN THE MEANING O F SECTION 30 OF THE ACT. ACCORDINGLY, THE DISALLOWANCE MADE BY THE ASSESSING OFFICER OF RS. 21,82,665/- (NET DISALLOWANCE AT RS. 2073,53 2/- AFTER ALLOWANCE OF DEPRECATION) ON THIS GROUND WAS UPHELD . 3.1 BEFORE US, THE LEARNED AR FOR THE ASSESSEE SUBM ITTED THAT THE CIT(A) WAS NOT JUSTIFIED IN HOLDING THAT THE EXPEND ITURE INCURRED DURING THE YEAR BY THE ASSESSEE TOWARDS WATER PROOF ING OF THE BUILDING AMOUNTS TO CAPITAL EXPENDITURE. THE AFORE SAID FINDING BEING PATENTLY ILLEGAL, BAD IN LAW AND THE SAME BE VACATED. ON THE OTHER HAND, THE LEARNED DR SUPPORTED THE ORDERS OF THE LOWER AUTHORITIES. 3.2 AFTER HEARING THE SUBMISSIONS OF BOTH THE PARTI ES AND PERUSING THE MATERIAL ON RECORD, WE FIND THAT THE UNDISPUTED LY THE EXPENSES IN QUESTION ARE REPAIRS OF PROOF OF EXISTING BUILDI NG. THE EXPENDITURE HAS NOT BEEN DISPUTED. THE ONLY DISPUT E IS WHETHER THIS EXPENDITURE IS REVENUE OR CAPITAL IN NATURE. THE SAID EXPENDITURE WAS INCURRED FOR WATER PROOFING OF ROOF AT FACTORY PREMISES. IT IS STRANGE TO NOTE THAT THE ASSESSING OFFICER DISALLOWED THE EXPENDITURE INITIALLY IN THE ABSENCE OF DETAILS THEREOF. THEN, HOW HE REACHED TO THE CONCLUSION THAT THE EXPENDITU RE IN QUESTION WAS NOT REVENUE BUT CAPITAL IN NATURE IN THE ABSENC E OF ANY INFORMATION AS STATED BY HIM. PRACTICALLY BY HIS CO NDUCT, HE HAS ADMITTED THE EXPENDITURE. THE WATER PROOFING IS NO RMAL REPAIRS IN THE BUILDING AND REPLACEMENT THEREOF NORMALLY SHOUL D BE TREATED AS REVENUE EXPENDITURE UNLESS THERE IS SOME CONCRETE E VIDENCE OR OTHERWISE ON RECORD. THERE IS NOTHING ON RECORD TO SUGGEST THAT THERE WAS SOME EXTRA ORDINARY WATER PROOFING DONE B Y THE ASSESSEE SO AS TO HOLD THE SAME AS CAPITAL EXPENDITURE. IT IS PRACTICALLY 5 REPAIRS WHICH IS ALLOWABLE AS REVENUE EXPENDITURE. THE ASSESSING OFFICER IS DIRECTED ACCORDINGLY. 4. THE NEXT ISSUE IS WITH REGARDS TO THE DISALLOWAN CE OF RS.39,315/- MADE BY THE CIT(A) OUT OF GARDENING EXP ENSES. THE ASSESSING OFFICER DISALLOWED RS.58,973/- OUT OF GAR DENING EXPENSES ON THE GROUND THAT SUPPORTING VOUCHERS FURNISHED WE RE SELF MADE VOUCHERS WITHOUT FULL PARTICULARS OF THE EXPENDITUR E AND DISALLOWANCE MADE OF RS. 21,000/- OUT OF MISCELLANE OUS EXPENSES STATING THAT THE SAME WAS PAID TO A.B. MARATHI SAHI TYA SAMMELAN AND THE ASSESSEE COULD NOT CONCLUSIVELY PROVE THAT THE SAME WAS INCURRED FOR THE PURPOSE OF BUSINESS OF THE ASSESSE E. THE CIT(A) CONFIRMED THE DISALLOWANCE TO THE EXTENT OF RS. 39, 315/- OUT OF GARDENING EXPENSES AND CONFIRMED THE DISALLOWANCE O F MISCELLANEOUS EXPENSES. THE STAND OF THE ASSESSEE HAS BEEN THAT THE SUPPORTING EVIDENCE IN RESPECT OF GARDENING EXP ENSES WERE PRODUCED BEFORE THE ASSESSING OFFICER WITHOUT VERIF ICATION. IT WAS CLAIMED THAT ALL NECESSARY DETAILS WERE MENTIONED I N THE SAID VOUCHERS. IT WAS CLAIMED THAT THE THERE WAS ANY IR REGULARITIES EXISTED IN THE VOUCHERS AND THERE WERE THE ONLY EVI DENCE AVAILABLE WITH THE ASSESSEE. REGARDING DISALLOWANCE OF RS. 2 1,000/- OUT OF MISCELLANEOUS EXPENSES PAID TO A.B. MARATHI SAHITYA SAMMELAN THE LEARNED AR CONTENDED THAT THE SAID EXPENDITURE WAS INCURRED WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF DEVELOPME NT OF THE BUSINESS. IT WAS CONTENDED THAT ON MOST OF THE OCC ASIONS, IT WAS INEVITABLE FOR THE ASSESSEE TO MAKE SUCH KIND OF EX PENDITURE AND GET ASSOCIATED WITH FUNCTIONS, CEREMONIES ETC. S O THE SAME SHOULD BE DELETED. ON THE OTHER HAND, THE LEARNED DR SUPP ORTED THE ORDERS OF THE AUTHORITIES BELOW. 4.1 AFTER HEARING THE SUBMISSIONS OF BOTH THE PARTI ES AND PERUSING THE MATERIAL ON RECORD, WE FIND THAT THE ASSESSING OFFICER HAS DISALLOWED RS. 58,973/- WHICH WAS RESTRICTED TO RS. 39,315/- BY THE CIT(A). IT IS NOT IN DISPUTE THAT THE ASSESSEE HAS GARDEN FOR WHICH EXPENSES HAVE BEEN CLAIMED TO BE INCURRED. IF THER E IS A GARDEN, THE EXPENDITURE HAS TO BE INCURRED ON THE SAME. THERE MAY NOT BE ANY 6 PERFECTION WITH REGARDS TO RECEIPTS BY GARDENERS BE CAUSE THEY ARE NORMALLY ILLITERATE. ONCE EXISTENCE OF GARDEN AND GARDENING THEREON IS NOT IN DISPUTE THEN THE SAME SHOULD NOT BE DISAL LOWED ON ADHOC BASIS. ACCORDINGLY, THE SAME IS DIRECTED TO BE DEL ETED. REGARDING MISCELLANEOUS EXPENSES OF RS. 21,000- PAID BY THE A SSESSEE TO A.B. MARATHI SAHITYA SAMMELAN IN THE NORMAL COURSE OF BU SINESS, THE ASSESSEE CREATED GOOD BUSINESS ATMOSPHERE AROUND HI M AND ASSESSEE SHOULD NORMALLY PARTICIPATE IN THE LOCAL F UNCTIONS AND IT IS ALSO IMPORTANT TO HAVE GOOD RELATIONS WITH THE WORK ING STAFF AND NEIGHBORING PEOPLE. SO IT CANNOT BE SAID THAT IT I S NOT OUT OF BUSINESS NECESSITY OF THE ASSESSEE. TO KEEP GOOD A TMOSPHERE IN AND AROUND THE WORKING PLACE OF THE ASSESSEE, IT I S NECESSARY TO INCUR SUCH EXPENSES. SO THIS EXPENDITURE ON ACCOUN T OF PAYMENT TO A.B. MARATHI SAHITYA SAMMELAN IS ALSO DIRECTED TO B E DELETED. 5. IN THE RESULT, THE APPEAL IS PARTLY ALLOWED AS I NDICATED ABOVE. PRONOUNCED IN THE OPEN COURT ON THIS THE 24 TH DAY OF JULY, 2012. SD/- SD/- ( R.K.PANDA ) ( SHAILENDRA KUMAR YAD AV ) ACCOUNTANT MEMBER JUDICIAL MEMBER PUNE, DATED THE 24 TH JULY, 2012. COPY OF THE ORDER IS FORWARDED TO: 1. THE ASSESSEE 2. THE ADDL.CIT, RANGE-1, SOLAPUR. 3. THE CIT(A)-III, PUNE. 4. THE CIT CONCERNED. 5. THE DR A BENCH, PUNE. 6. GUARD FILE. BY ORDER //TRUE COPY// SR.PRIVATE SECRETARY, INCOME TAX APPELLATE TRIBUNAL, PUNE.