Assistant Commissioner of Income-tax, V. Premium Transmission Ltd., Pune

ITA 1355/PUN/2014

• Counselvise Citation: [2018] 119 COUNSELVISE.COM (IT) 1408 (ITAT-PUNE)
• Duration Of Justice: 4 year(s) 5 month(s) 2 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 29-11-2018
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: B
• Next Hearing Date: 03-10-2018
• Assessment Year: 2007-2008
• Appeal Filed On: 26-06-2014
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Depreciation; Earning of tax free income; Revenue expenditure; Capital expenditure
• Section: 14A

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL PUNE BENCH B, PUNE BEFORE SHRI R.S. SYAL, VICE PRESIDENT AND SHRI VIKAS AWASTHY, JUDICIAL MEMBER . / ITA NO.1355/PUN/14 / ASSESSMENT YEARS : 2007-08 ACIT, CIRCLE-10, PUNE VS. PREMIUM TRANSMISSION LTD., PREMIUM HOUSE, MUMBAI PUNE ROAD, CHINCHWAD, PUNE 411 019 PAN : AADCP2916N (APPELLANT) (RESPONDENT) . / ITA NO.1121/DEL/14 / ASSESSMENT YEARS : 2007-08 PREMIUM TRANSMISSION LTD., PREMIUM HOUSE, MUMBAI PUNE ROAD, CHINCHWAD, PUNE 411 019 PAN : AADCP2916N VS. ACIT, RANGE-14, NEW DELHI (APPELLANT) (RESPONDENT) ASSESSEE BY SHRI ABHAY AVCHAT REVENUE BY SHRI SUDHENDU DAS DATE OF HEARING 28-11-2018 DATE OF PRONOUNCEMENT 29-11-2018 ITA NOS.1355/PUN/2014 & 1121/DEL/2014 PREMIUM TRANSMISSION LTD., 2 / ORDER PER R.S.SYAL, VP : THESE TWO CROSS APPEALS - ONE BY THE ASSESSEE AND OTHE R BY THE REVENUE ARISE OUT OF THE ORDER PASSED BY THE CIT( A)- XVII, DELHI ON 03-12-2013 IN RELATION TO THE ASSESSMENT YEAR 2007-08. ITA NO.1355/PUN/2014 - BY REVENUE : 2. FIRST TWO GROUNDS OF THE REVENUES APPEAL ARE AGAINST DELETION OF ADDITION MADE BY THE ASSESSING OFFICER (AO) ON ACCOUNT OF PROVISION FOR WARRANTY. 3. BRIEFLY STATED, THE FACTS OF THE CASE ARE THAT THE ASSESS EE IS ENGAGED IN THE BUSINESS OF MANUFACTURING OF AUTO COMPONENTS. PROVISION OF RS.71.12 LAKHS WAS MADE FOR WARRANTIES. ON BEING CALLED UPON TO SUBSTANTIATE THE CALCULATION OF SUCH PROVISION, THE ASSESSEE FURNISHED YEAR- WISE CHART WHICH HAS BEEN CAPTURED ON PAGE 6 OF THE ASSESSME NT ORDER. IT WAS EXPLAINED THAT THE PROVISION FOR WARRANTIES W AS MADE CONSISTENTLY AT 0.30% OF GROSS SALES AND THE PERIOD OF WARRANTY EXTENDED FROM ONE YEAR TO 30 MONTHS. THE AO OBSERVED THAT AS AGAINST THE OPENING BALANCE OF PROVISION A T ITA NOS.1355/PUN/2014 & 1121/DEL/2014 PREMIUM TRANSMISSION LTD., 3 RS.50.95 LAKHS, THE ASSESSEE INCURRED ACTUAL EXPENSES O F RS.54.40 LAKHS, MEANING THEREBY THE EXCESS EXPENSES WER E TO THE TUNE OF RS.3.44 LAKHS (RS.54.40 RS.50.95). HE, THEREFORE, HELD THAT THE EXCESS PROVISION MADE DURING THE YEAR FOR A SUM OF RS.67,67,752/- (RS.71,12,571 MINUS RS.3,44,819) W AS LIABLE TO BE DISALLOWED. THE LD. CIT(A) DELETED THE ADDITION. 4. WE HAVE HEARD BOTH THE SIDES AND GONE THROUGH THE RELEVANT MATERIAL ON RECORD. IT IS SEEN THAT THE ASSESSEE HA S BEEN CONSISTENTLY MAKING PROVISION AT THE RATE OF 0.30% OF GROSS SALES OVER THE YEARS. CREATION OF SIMILAR PROVISION FOR THE PRECEDING YEARS AT THE SAME RATE HAS BEEN ACCEPTED BY THE DEPARTMENT. THE AO HAS SIMPLY GONE BY THE FIGURE OF TH E EXPENSES ACTUALLY INCURRED FOR THE CURRENT YEAR BY IGNORI NG THAT THERE WAS UTILIZATION OF SUCH PROVISION IN THE SUCCEEDING YEAR S. TAKING INTO CONSIDERATION THE MANDATE OF THE JUDGMENT OF THE HONBLE SUPREME COURT IN THE CASE OF ROTORK CONTROLS INDIA (P) LTD., VS. CIT (2009) 314 ITR 62 (SC) , WE ARE OF THE CONSIDERED OPINION THAT NO FAULT CAN BE FOUND WITH THE LD. CIT(A) IN DELETING THIS ADDITION. THE IMPUGNED ORDER IS UPHELD AND THE GROUND IS DISMISSED. ITA NOS.1355/PUN/2014 & 1121/DEL/2014 PREMIUM TRANSMISSION LTD., 4 5. THE ONLY OTHER ISSUE RAISED BY THE DEPARTMENT IN ITS APPEAL IS AGAINST TREATING RS.1,40,000/- AS REVENUE EXPENDITURE, WHICH WAS CONSIDERED BY THE AO AS CAPITAL IN NATURE. THE ASSESSEE IN ITS GROUND NO. 2 IS AGGRIEVED BY THE CONFIRMATION OF DISALLOWANCE OF RS.45,26,115/- TREATING CERTAIN AMOUNTS AS CAPITAL EXPENDITURE. 6. FACTS RELATING TO THESE TWO GROUNDS ARE THAT THE ASSESSEE DEBITED CERTAIN SUMS AS REPAIRS OF BUILDINGS, PLANT AND MACHINERY AND OTHERS. ON VERIFICATION, THE AO FOUND THAT SOME EXPENSES OUT OF SUCH AN AMOUNT WERE CAPITAL IN NATURE . HE, THEREFORE, HELD THE AMOUNT OF RS.7,83,904/- FOR CN C SYSTEM; RS.2,80,857/- FOR STABILIZER; RS.28,40,127/- AND RS.1,87,442/- FOR COMPUTER FITTING EXPENSES; RS.1,98,840/ - TOWARDS MACHINE SHIFTING & CONCRETE WORK; RS.1,40,000/- TOWARDS CONSTRUCTION OF POWER COATING ROOM; RS.1,33,187/- TOWARDS MACHINERY FOUNDATION & ERECTION; AND RS.4,33,785/ - FOR SERVO STABILIZER, AS CAPITAL IN NATURE. AFTER ALLOWING DEPRECIATION @15%, 10% AND 10% ON SUCH AMOUNTS FALLING IN THE BLOCKS OF MACHINERY AND PLANT, BUILDING AND FURNITURE AND FITTING, THE AO MADE TOTAL DISALLOWANCE OF RS.44,06,808/-. THE ITA NOS.1355/PUN/2014 & 1121/DEL/2014 PREMIUM TRANSMISSION LTD., 5 LD. CIT(A) EXAMINED THE NATURE OF EACH EXPENDITURE AS WA S STATED BEFORE THE AO AND THEREAFTER UPHELD THE ACTION OF THE AO IN RELATION TO CNC SYSTEM - RS.7,83,904/-; STABILIZER - RS.2,80,857/-; COMPUTER FITTING EXPENSES - RS.28,41,027/- & RS.1,87,442/-; AND SERVO STABILIZER - RS.4,33,785/-. THE REMAINING AMOUNTS WERE HELD TO BE REVENUE IN NATURE. BOTH THE SIDES ARE IN APPEAL ON THEIR RESPECTIVE STANDS. 7. WE HAVE HEARD BOTH THE SIDES AND GONE THROUGH THE RELEVANT MATERIAL ON RECORD. IN SO FAR AS THE DEPARTMENT AL GROUND IS CONCERNED, THE SAME IS CONFINED TO CONSTRUCTION OF POWER COATING ROOM. THE ASSESSEE SUBMITTED BEFORE THE AO THAT THIS `EXPENDITURE REPRESENTS COST OF PURELY TEMPORARY STRUCTURE (WEATHER SHED) CREATED TO PROTECT THE MACHINE FRO M LIKELY DAMAGES OF OTHER WORK CARRIED OUT NEAR THE MACHINE. IT IS THUS EVIDENT FROM THE NATURE OF EXPENDITURE GIVEN BY THE ASSESSEE THAT THE SAME IS NOT IN THE CAPITAL FIELD AS IT WAS INCURRED ON PURELY TEMPORARY STRUCTURES. WE, THEREFORE, COUNTENANCE THE VIEW TAKEN BY THE LD. CIT(A) IN TREATING THIS AMOUNT AS THAT OF REVENUE NATURE. ITA NOS.1355/PUN/2014 & 1121/DEL/2014 PREMIUM TRANSMISSION LTD., 6 8. COMING TO THE GRIEVANCE OF THE ASSESSEE, IT IS SEEN THAT THE FIRST ITEM IS EXPENDITURE OF RS.7,83,904/- ON CNC SYSTEM . THE ASSESSEE SUBMITTED BEFORE THE LD. AO THAT `THE SAID SYSTE M WAS REPLACED TO KEEP THE MACHINE IN WORKING CONDITION. OBVIOUSLY, WHEN AN OLD ASSET IS REPLACED WITH A NEW ASSET, IT GIVES AN ADVANTAGE OF ENDURING NATURE AND THE ASSUMES THE CHARACTER OF CAPITAL EXPENDITURE. WE, THEREFORE, HOLD THAT TH E LD. CIT(A) WAS JUSTIFIED IN TREATING THIS AMOUNT AS CAPITAL EXPENDITURE. 9. THE SECOND ITEM IS `PURCHASE OF NEW STABILIZER AMOUNTING TO RS.2,80,857/-. PURCHASE OF AN ASSET CANNO T BE CHARACTERIZED AS A REVENUE EXPENDITURE. IT IS THE CASE O F PURCHASE OF NEW ASSET AND NOT THAT OF REPAIR OF AN EXISTIN G ASSET. WE, THEREFORE, HOLD THAT THE LD. CIT(A) WAS RIGHT IN NOT ACCEPTING THE ASSESSEES CLAIM ON THIS AMOUNT. 10. THE NEXT TWO ITEMS OF RS.28,40,127/- AND RS.1,87,44 2/- ARE IN RESPECT OF `COMPUTER FITTING EXPENSES. THE ASSESS EE SUBMITTED BEFORE THE AO THAT THIS EXPENDITURE WAS ON COMPUTING PERIPHERALS, SUCH AS CABLING, NETWORKING, SWITCHE S, PORTS, SOCKETS, PRINTER RIBBONS ETC. A PERUSAL OF THE ITEMS ON ITA NOS.1355/PUN/2014 & 1121/DEL/2014 PREMIUM TRANSMISSION LTD., 7 WHICH SUCH AMOUNT WAS SPENT, CLEARLY DECIPHERS THE SAME TO BE OF CAPITAL NATURE AS IT IS FOR INSTALLATION OF NEW COMPUTERS AND NOT FOR REPAIRS ETC. WE, THEREFORE, UPHOLD THE IMPUGNED ORDER ON THIS SCORE. 11. THE LAST ITEM IS `PURCHASE OF A NEW STABILIZER AMOUNTING TO RS.4,33,785/-. THIS AMOUNT AGAIN FALLS WITHIN THE DOMAIN OF CAPITAL EXPENDITURE AS IT IS PURCHASE OF A NEW ASSET. WE, THEREFORE, UPHOLD THE IMPUGNED ON THIS SCORE AS WELL. 12. THE GROUNDS TAKEN BY THE ASSESSEE AS WELL AS THE REVENUE ARE, THEREFORE, DISMISSED. 13. THE ONLY OTHER ISSUE WHICH SURVIVES IN THE APPEAL OF THE ASSESSEE IS AGAINST CONFIRMATION OF DISALLOWANCE OF EXPENSE S U/S 14A OF THE ACT AT RS.5.19 LAKH BASED ON 0.5% OF THE TOTAL INVESTMENT. THE AO APPLYING THE PROVISIONS OF RULE 8D OF THE INCOME-TAX RULES, 1962 WORKED OUT THE DISALLOWANCE AT RS.35,42,000/-. THE LD. CIT(A) DELETED A PART OF ADDI TION ON ACCOUNT OF DISALLOWANCE OF INTEREST AND SUSTAINED THE DISALLOWANCE AT 0.5% IN TERMS OF RULE 8D(2)(III). THE ASSESSEE IS AGGRIEVED BY SUCH SUSTENANCE. ITA NOS.1355/PUN/2014 & 1121/DEL/2014 PREMIUM TRANSMISSION LTD., 8 14. WE HAVE HEARD BOTH THE SIDES AND GONE THROUGH THE RELEVANT MATERIAL ON RECORD. THE ASSESSMENT YEAR UNDER CONSIDERATION IS A.Y. 2007-08. THE HONBLE SUPREME COURT IN CIT VS. ESSAR TELEHOLDINGS LTD. (2014) 401 ITR 435 (SC) HAS HELD THAT RULE 8D IS PROSPECTIVE AND ACCORDINGLY APPLIES ONLY FROM A.Y. 2008-09. IN VIEW OF THIS PRECEDENT, THE MANDATE OF RULE 8D CANNOT BE APPLIED TO A.Y. 2007-08 UND ER CONSIDERATION. HOWEVER, THE DISALLOWANCE U/S 14A IS CALLED FOR IN THE PRESENT CIRCUMSTANCES ON SOME REASONABLE BASIS , IF NOT UNDER RULE 8D. THE LD. AR SUBMITTED THAT THE ASSESSEE EARNED EXEMPT INCOME OF RS.37,320/-. HE, HOWEVER, CO ULD NOT POINT OUT SUCH FIGURE AS RECORDED IN THE ASSESSMENT ORDE R OR THE IMPUGNED ORDER. 15. T HE HON'BLE DELHI HIGH COURT IN THE CASE CHEMINVEST LTD. VS. CIT (2015) 378 ITR 33 (DEL) HAS HELD THAT IF THERE IS NO EXEMPT INCOME, THERE CAN BE NO QUESTION OF MAKING ANY DISALLOWANCE U/S 14A OF THE ACT. SIMILAR VIEW HAS BEEN TAKE N BY THE HON'BLE DELHI HIGH COURT IN CIT VS. HOLCIM INDIA P. LTD. (2014) 90CCH 081-DEL-HC . THE NET EFFECT OF THESE DECISIONS IS THAT THE DISALLOWANCE U/S 14A GETS RESTRICTED TO THE ITA NOS.1355/PUN/2014 & 1121/DEL/2014 PREMIUM TRANSMISSION LTD., 9 EXTENT OF EXEMPT INCOME, EVEN IF THE PROVISIONS OF THE SECTIO N 14A ARE ATTRACTED. IN VIEW OF THE ABOVE PRECEDENTS, WE DIR ECT TO LIMIT THE DISALLOWANCE TO THE EXTENT OF EXEMPT INCOME, AS CLAIMED BY THE LD. AR, AFTER VERIFICATION. 16. IN THE RESULT, APPEAL OF THE REVENUE IS DISMISSED AND THAT OF THE ASSESSEE IS PARTLY ALLOWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED IN THE OPEN COURT ON 29 TH NOVEMBER, 2018. SD/- SD/- (VIKAS AWASTHY) (R.S.SYAL) JUDICIAL MEMBER VICE PRESID ENT PUNE; DATED : 29 TH NOVEMBER, 2018 / COPY OF THE ORDER IS FORWARDED TO : 1. / THE APPELLANT; 2. / THE RESPONDENT; 3. ( ) / THE CIT (APPEALS)-XVII, DELHI 4. 5. THE CIT-V, NEW DELHI , , / DR B, ITAT, PUNE; 6. / GUARD FILE. // TRUE COPY // / BY ORDER, // TRUE COPY // SENIOR PRIVATE SECRETARY , / ITAT, PUNE ITA NOS.1355/PUN/2014 & 1121/DEL/2014 PREMIUM TRANSMISSION LTD., 10 DATE 1. DRAFT DICTATED ON 28-11-18 SR.PS 2. DRAFT PLACED BEFORE AUTHOR 28-11-18 3. DRAFT PROPOSED & PLACED BEFORE THE SECOND MEMBER 4. DRAFT DISCUSSED/APPROVED BY SECOND MEMBER. 5. APPROVED DRAFT COMES TO THE SR.PS/PS 6. KEPT FOR PRONOUNCEMENT ON 7. FILE SENT TO THE BENCH CLERK 8. DATE ON WHICH FILE GOES TO THE AR 9. DATE ON WHICH FILE GOES TO THE HEAD CLERK. 10. DATE OF DISPATCH OF ORDER. *