The Dy. Commissioner of Income Tax, Circle-1(1)(1), Ahmedabad V. Adani Wilmar Ltd., Ahmedabad

ITA 1696/AHD/2017

• Counselvise Citation: [2019] 115 COUNSELVISE.COM (IT) 3237 (ITAT-AHMEDABAD)
• Duration Of Justice: 2 year(s) 4 month(s) 8 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 15-11-2019
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: B
• Next Hearing Date: 24-10-2019
• Assessment Year: 2012-2013
• Appeal Filed On: 07-07-2017
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: SUMEET KUMAR VERMA
• Assessee Lawyers: BIREN SHAH A R S
• Keywords: Capital asset; Depreciation; Earning of tax free income; Revenue expenditure; Capital expenditure; Rule 8D
• Section: 14A; 250; 37

Judgement Text

, B IN THE INCOME TAX APPELLATE TRIBUNAL B BENCH, AHMEDABAD BEFORE SHRI PRADIP KUMAR KEDIA, ACCOUNTANT MEMBER & SMT. MADHUMITA ROY, JUDICIAL MEMBER . / I.T.A. NO. 1696/AHD/2017 WITH CROSS OBJECTION NO. 51/AHD/2018 ( ASSESSMENT YEAR : 2012-13) DCIT CIRCLE 1(1)(1), A WING, ROOM NO. 309, 3 RD FLOOR, PRATYAKSH KAR BHAVAN, AMBAWADI, AHMEDABAD - 380015 / VS. ADANI WILMAR LTD. FORTUNE HOUSE, NR. ADANI HOUSE, MITHAKHALI CROSS ROADS, NAVRANGPURA, AHMEDABAD 380014 ./ ./ PAN/GIR NO. : AABCA8056G ( APPELLANT / RESPONDENT ) .. ( RESPONDENT / CROSS OBJECTOR ) / REVENUE BY : SHRI SUMEET KUMAR VERMA, SR.D.R. / ASSESSEE BY : SHRI VARTIK CHOKSHI & SHRI BIREN SHAH, A.RS. DATE OF HEARING 24/10/2019 ! / DATE OF PRONOUNCEMENT 15/11/2019 / O R D E R PER PRADIP KUMAR KEDIA - AM: THE CAPTIONED APPEAL HAS BEEN FILED BY THE REVENUE CONCERNING AY 2012-13 AGAINST THE ORDER OF THE COMMISSIONER OF IN COME TAX (APPEALS)- 1, AHMEDABAD (CIT(A) IN SHORT), DATED 27.04.2017 ARISING FROM THE ITA NO. 1696/AHD/17 WITH CO NO. 51/AHD/2018 [ADANI WILMAR LTD.] A.Y. 2012-13 - 2 - ASSESSMENT ORDER DATED 30.03.2016 PASSED BY THE AO UNDER S.143(3) OF THE INCOME TAX ACT, 1961 (THE ACT). 2. THE ASSESSEE HAS ALSO FILED CROSS OBJECTION IN T HE APPEAL OF THE REVENUE. 3. WE SHALL FIRST TAKE UP REVENUES APPEAL IN ITA N O. 1696/AHD/2017 CONCERNING AY 2012-13. 4. THE GROUNDS OF APPEAL RAISED BY THE REVENUE READ AS UNDER: (A) THAT THE LD. CIT(A) ERRED IN LAW AND ON FACTS I N DELETING THE DISALLOWANCE OF RS.3,69,76,400/- U/S 14A R.W.S. 8D TO THE EXTENT OF EXEMPT INCOME I.E. RS.7,38,000/-. (B) THAT THE LD. CIT(A) ERRED IN LAW AND ON FACTS IN CONSIDERING THE AMOUNT OF RS.39,71,468/- REVENUE EXPENDITURE ON ACCOUNT OF PR OFESSIONAL AND LEGAL FEES. 5. AS PER GROUND NO.1, THE REVENUE HAS CHALLENGED T HE ACTION OF THE CIT(A) FOR GRANTING RELIEF OUT OF DISALLOWANCE OF E XPENSES UNDER S.14A READ WITH RULE 8D OF THE INCOME TAX RULES. 6. WE HAVE HEARD THE RIVAL SUBMISSION ON THE ISSUE. IT WAS POINTED OUT ON BEHALF OF THE ASSESSEE THAT THE ASSESSEE HAS EAR NED EXEMPT INCOME ONLY TO THE EXTENT OF RS.7,38,000/- DURING THE YEAR UNDE R REVIEW. IT IS THE CASE OF THE ASSESSEE THAT DISALLOWANCE UNDER S.14A OF THE A CT HAS BEEN THUS RIGHTLY RESTRICTED TO THE EXTENT OF EXEMPT INCOME. WE FIND MERIT IN THE AFORESAID PLEA OF THE ASSESSEE. VARIOUS COURTS HAVE HELD THA T SECTION 14A OF THE ACT DISALLOWANCE CANNOT BE KICKED WHEN THERE WAS NO EXE MPT INCOME EARNED BY THE ASSESSEE AS IS THE CASE IN THE PRESENT APPEALS. HONBLE DELHI HIGH COURT IN PCIT VS IL&FS ENERGY DEVELOPMENT COMPANY L TD. (2017) 84 TAXMAN.COM 186(DELHI) AND THE HONBLE MADRAS HIGH C OURT IN CIT V. CHETTINAD LOGISTICS (P.) LIMITED (2017) 80 TAXMANN. COM 221(MADRAS) HAVE EXPRESSED A CLEAR DISAGREEMENT WITH CBDT CIRCULAR A ND HELD THAT WHERE THERE IS NO EXEMPT INCOME IN RELEVANT YEAR THERE CA NNOT BE A DISALLOWANCE OF EXPENDITURE UNDER S.14A OF THE ACT. SIMILAR PRO POSITION HAS BEEN LAID ITA NO. 1696/AHD/17 WITH CO NO. 51/AHD/2018 [ADANI WILMAR LTD.] A.Y. 2012-13 - 3 - DOWN BY THE HONBLE GUJARAT HIGH COURT IN THE CASE OF CORRTECH ENERGY (P.) LTD (2014) 45 TAXMANN.COM. 116 (GUJ) AND PR.CI T VS. INDIA GELATINE AND CHEMICALS LTD. (2016) 66 TAXMANN.COM 356 (GUJ). THE AFORESAID JUDICIAL FIAT WAS REITERATED BY THE HONBLE DELHI H IGH COURT IN THE CASE OF JOINT INVESTMENTS PVT. LTD. VS. CIT REPORTED IN 372 ITR 692 (DELHI) WHEREIN HONBLE DELHI HIGH COURT HAS CATEGORICALLY RULED THAT DISALLOWANCE UNDER S.14A OF THE ACT CANNOT EXCEED T HE AMOUNT OF TAX EXEMPT INCOME. NOTABLY, THE SLP FILED AGAINST THE DECISION OF HONBLE MADRAS HIGH COURT IN CHETTINAD LOGISTICS (SUPRA) HA S BEEN DISMISSED BY HONBLE SUPREME COURT IN CIT VS. CHETTINAD LOGISTIC S (P.) LTD. (2018) 95 TAXMANN.COM 250 (SC). HENCE, IN CONFORMITY WITH TH E JUDICIAL PRECEDENTS, WE FIND SUBSTANTIAL MERIT IN THE CONCLUSION DRAWN B Y THE CIT(A) FOR LIMITING THE DISALLOWANCE TO THE EXTENT OF EXEMPT I NCOME. HENCE, WE DECLINE TO INTERFERE. 7. IN THE RESULT, GROUND NO.1 OF THE REVENUE IS DI SMISSED. 8. AS PER GROUND NO.2, THE REVENUE HAS CHALLENGED T HE ACTION OF THE CIT(A) FOR CONSIDERING THE AMOUNT OF RS.39,71,468/- REVENUE EXPENDITURE ON ACCOUNT OF PROFESSIONAL AND LEGAL FEES. 9. THE CIT(A) HAS GRANTED RELIEF TO THE ASSESSEE BY OBSERVING AS UNDER: 4.3. I HAVE CAREFULLY CONSIDERED THE ASSESSMENT OR DER AND SUBMISSION FILED BY THE APPELLANT. THE ASSESSING OFFICER HAS C ONTENDED THAT THE APPELLANT HAS MADE PAYMENT FOR GETTING ROCP REPORT TO NOTE THE MARKET SHARE OF THE COMPANY IN ROCP PRODUCT WHICH CAN HELP APPELLANT TO MAKE FUTURE BUSINESS STRATEGY HENCE SAME IS CAPITAL EXPE NDITURE. ON SUCH BASIS, THE ASSESSING OFFICER HAS TREATED SUCH THE EXPENDIT URE AS CAPITAL EXPENDITURE. ON OTHER HAND THE APPELLANT HAS ARGUED THAT DURING THE COURSE OF ASSESSMENT PROCEEDINGS, IT HAD ALREADY SU BMITTED DETAILED REPLY EXPLAINING THAT THE EXPENDITURE IN QUESTION WAS REV ENUE IN NATURE, THE ASSESSING OFFICER HAS GONE AHEAD WITH MAKING THE DI SALLOWANCE AFTER ASSUMING THAT NO MATTER THAT THE EXPENDITURE HAD NO T RESULTED INTO THE APPELLANT ACQUIRING ANY CAPITAL ASSET OR ANY BENEFI T OF AN ENDURING NATURE, IT WAS CAPITAL EXPENDITURE IN NATURE. ON CAREFUL CONSIDERATION OF OBSERVATION OF ASSESSIN G OFFICER AND CONTENTION OF APPELLANT, IT CAN BE SEEN THAT THE FA CT OF THE CASE IS SIMILAR TO THE EARLIER ASSESSMENT YEAR I.E A.Y. 2011-12 WHE REIN UNDERSIGNED VIDE ITA NO. 1696/AHD/17 WITH CO NO. 51/AHD/2018 [ADANI WILMAR LTD.] A.Y. 2012-13 - 4 - ORDER DATED 26/04/2016 IN APPEAL NO. CIT(A)-1/72/DC IT,CIR- 1(1)(1)/2015-16 HAS HELD AS UNDER:- '6.3. I HAVE CAREFULLY CONSIDERED THE ASSESSMENT OR DER AND THE SUBMISSION FILED BY THE APPELLANT, THE ASSESSING OF FICER HAS OBSERVED THAT THE APPELLANT HAS MADE PAYMENT FOR GE TTING ROCP REPORT TO NOTE THE MARKET SHARE OF THE COMPANY IN R OCP PRODUCT WHICH CAN HELP APPELLANT TO MAKE FUTURE BUSINESS ST RATEGY HENCE SAME IS CAPITAL EXPENDITURE. IT WAS ALSO ARGUED TH AT AMOUNT OF RS. 77,43,374/- HAS BEEN PAID FOR AC NIELSEN ORG MARG P VT. LIMITED FOR SUBSCRIPTION COST OF TWO YEARS HENCE SAME PROVE S THAT APPELLANT HAS BENEFIT OVER THE PERIOD. ON THIS BASIS, ASSESSI NG OFFICER TREATED THE EXPENDITURE AS CAPITAL EXPENDITURE. ON THE OTHE R HAND, APPELLANT HAS ARGUED THAT PROFESSIONAL FEES PAID BY APPELLANT HELPS IT IN OBTAINING INFORMATION REGARDING MARKET SHARE OF COMPANY IN ROCP PRODUCT AND SAME WILL HELP APPELLANT TO GET U PDATE FOR EXISTING MARKET SITUATION OF EXISTING PRODUCTS HENC E SUCH EXPENDITURE DOES NOT GIVE ANY ENDURING BENEFIT HENC E SAME CANNOT BE TREATED AS CAPITAL EXPENDITURE. THE APPELLANT HA S RELIED UPON DECISION OF MAJESTIC AUTO LIMITED (SUPRA), KJS INDI A PVT. LIMITED (SUPRA) AND ARGUED THAT SUCH EXPENDITURE IS REVENUE EXPENDITURE. IN ALTERNATE ARGUMENT, APPELLANT HAS STATED THAT EV EN THOUGH ASSESSING OFFICER HAS TREATED SUCH EXPENDITURE AS C APITAL EXPENDITURE AND OBSERVED THAT DEPRECIATION IS ALLOW ABLE @25%, SAME WAS NOT ALLOWED IN COMPUTATION OF TOTAL INCOME . ON CAREFUL CONSIDERATION OF ENTIRE FACTS IT IS OBSE RVED THAT PROFESSIONAL FEES PAID BY APPELLANT ARE FOR EXISTIN G BUSINESS AND NOT INCURRED FOR ANALYZING THE MARKET FOR NEW LINE OF BUSINESS OR IS NOT FOR DIVERSIFICATION OF ITS BUSINESS. BY INCURRI NG SUCH EXPENDITURE, APPELLANT IS CONSTANTLY GETTING UPDATE S REGARDLING MARKET SURVEY CARRIED OUT FOR EXISTING PRODUCT LIN E AND SAME DOES NOT GIVE ANY ENDURING BENEFIT OR IS NOT IN NATURE O F CAPITAL EXPENDITURE. THE EXPENSES ARE NOT INCURRED FOR EXPL ORING THE MARKET FOR A NEW PRODUCT AND RATHER EXPENSES IS IN CURRED FOR EXPLORING THE CIRCUMSTANCES AS TO HOW ASSESSEE SHO ULD MANAGE ITS EXISTING BUSINESS MORE EFFECTIVELY HENCE RELYING U PON THE DECISION OF HON'BLE DELHI ITAT IN THE CASE OF KJS INDIA PVT. LIMITED 45 SOT 17 EXPENDITURE INCURRED BY APPELLANT IS BUSINESS EX PENDITURE ALLOWABLE UNDER SECTION 37 OF THE ACT. THE HON'BLE PUNJAB AND HARYANA HIGH COURT IN THE CASE OF MAJESTIC AUTO LI MITED 178 TAXMAN 148 HAS ON SIMILAR CIRCUMSTANCES HELD THAT E XPENDITURE INCURRED FOR OBTAINING REPORT ON REORGANIZATION OF ITS CORE BUSINESS AND FOR IMPROVING MARKET SHARE AND PROFITABILITY IS ALLOWABLE AS REVENUE EXPENDITURE. CONSIDERING THESE FACTS, EXPE NDITURE INCURRED BY APPELLANT IS ALLOWABLE AS REVENUE EXPENDITURE. AS ENTIRE EXPENDITURE IS ALLOWED AS REVENUE EXPENDITURE, ALTE RNATE CLAIM OF APPELLANT REGARDING ALLOWABILITY OF DEPRECIATION ON SUCH EXPENDITURE DOES NOT SURVIVE. THE GROUND OF THE APPELLANT IS ALLOWED.' FOLLOWING THE ABOVE ORDER THE DISALLOWANCE MADE BY AO TREATING PROFESSIONAL AND LEGAL FEES AS CAPITAL EXPENDITURE IS DELETED AND APPELLANT GETS RELIEF OF RS.39,71,468/-. THUS THIS GROUND OF APPEAL IS ALLOWED . ITA NO. 1696/AHD/17 WITH CO NO. 51/AHD/2018 [ADANI WILMAR LTD.] A.Y. 2012-13 - 5 - 10. THE CIT(A), IN OUR VIEW, HAS ADJUDICATED THE IS SUE IN RIGHT PERSPECTIVE. THE EXPENDITURE CLAIMED BY THE ASSESS EE BEARS THE REVENUE CHARACTER. WE THUS FIND NO ERROR IN THE ORDER OF T HE CIT(A). HENCE, THE GROUND NO.2 OF THE REVENUE IS DISMISSED. 11. IN THE RESULT, APPEAL FILED BY THE REVENUE IS D ISMISSED. CROSS OBJECTION NO. 51/AHD/2018 12. THE GROUNDS OF APPEAL RAISED BY THE ASSESSEE RE AD AS UNDER: 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE, THE CIT(A) ERRED IN CONFIRMING DISALLOWANCE OF EXPENDITURE OF RS.1,33,5 28/- BEING EMPLOYEES CONTRIBUTION TO P.F. AND ESIC U/S.36(1)(VA) OF THE I.T. ACT ON THE GROUND THAT THE SAME WAS NOT PAID WITHIN THE TIME LIMIT PR ESCRIBED UNDER THE RELEVANT ACTS EVEN THOUGH THE PAYMENT WAS MADE WITH IN THE TIME LIMIT PRESCRIBED FOR FILING RETURN OF INCOME U/S.139(1) O F THE I.T. ACT. 2. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E, THE CIT(A) ERRED IN UPHOLDING DISALLOWANCE U/S.14A OF THE I.T. ACT TO T HE EXTENT OF EXEMPT INCOME OF RS.7,38,000. 13. THE GROUND NO.1 OF THE CROSS OBJECTION CONCERNS DISALLOWANCE OF RS.1,33,528/- TOWARDS BELATED EMPLOYEES CONTRIBUTI ON TO PF AND ESIC UNDER S.36(1)(VA). WE OBSERVE THAT CIT(A) HAS RIGH TLY CONCLUDED THE ISSUE AGAINST THE ASSESSEE IN THE LIGHT OF THE DECISION O F THE HONBLE GUJARAT HIGH COURT IN THE CASE OF GUJARAT STATE ROAD TRANSPORT CORPORATION 366 ITR 170 (GUJ). WE THUS SEE NO MERIT IN GROUND NO.1 OF THE CROSS O BJECTION RAISED ON BEHALF OF THE ASSESSEE. 14. GROUND NO.1 OF THE CROSS OBJECTION IS DISMISSED . 15. GROUND NO.2 CONCERNS DISALLOWANCE UNDER S.14A O F THE ACT TO THE EXTENT OF EXEMPT INCOME OF RS.7,38,000/-. ITA NO. 1696/AHD/17 WITH CO NO. 51/AHD/2018 [ADANI WILMAR LTD.] A.Y. 2012-13 - 6 - 16. AT THE TIME OF HEARING, LEARNED COUNSEL FOR THE ASSESSEE FAIRLY SUBMITTED THAT HE DOES NOT WANT TO PRESS THE ISSUE. THUS, GROUND NO.2 IS DISMISSED AS NOT PRESSED. 17. IN THE RESULT, CROSS OBJECTION FILED BY ASSESSE E IN CO NO. 51/AHD/2018 IS DISMISSED. 18. IN THE COMBINED RESULT, APPEAL OF THE REVENUE A ND CROSS OBJECTION OF THE ASSESSEE BOTH ARE DISMISSED. SD/- SD/- (MADHUMITA ROY) (PRADIP KUMAR KEDIA) JUDICIAL MEMBER ACCOUNTANT MEMBER AHMEDABAD: DATED 15/11/2019 TRUE COPY S. K. SINHA !'#' / COPY OF ORDER FORWARDED TO:- $. / REVENUE 2. / ASSESSEE &. '() * / CONCERNED CIT 4. *- / CIT (A) -. ./0 122()3 ()!3 45' / DR, ITAT, AHMEDABAD 6. 078 9 / GUARD FILE. BY ORDER / 3 /4 ()!3 45' THIS ORDER PRONOUNCED IN OPEN COURT ON 15/11/2019