APURVA NATVAR PARIKH & CO. P. LTD., MUMBAI V. THE DY CIT CC-7(1), MUMBAI

ITA 1704/MUM/2020

• Counselvise Citation: [2021] 107 COUNSELVISE.COM (IT) 4504 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 2 month(s) 1 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 01-10-2021
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: A
• Assessment Year: 2016-2017
• Appeal Filed On: 30-07-2020
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Assessee Lawyers: MADHUR AGARWALLD
• Keywords: Depreciation; Earning of tax free income; Capital receipt; Revenue expenditure; Capital expenditure; Rule 8D
• Section: 143(3); 14A; 20

Judgement Text

1 IN THE INCOME TAX APPELLATE TRIBUNAL A BENCH, MUMBAI , , BEFORE HONBLE SHRI C.N. PRASAD , JM AND HONBLE SHRI MANOJ KUMAR AGGARWAL, AM (HEARING THROUGH VIDEO CONFERENCING MODE) 1. ./ I.T.A. NO. 1704 /MUM/2020 ( / ASSESSMENT YEAR: 2016 - 17 ) APURVA NATVAR PARIKH & CO. PVT. LTD. 411B, HEMU KALANI MARG NEAR BHAKTI BHAVAN, CHEMBUR, MUMBAI - 400 071 / VS. DCIT CEN CIR 7(1), R. NO. 657, 6 TH FLOOR AAY KAR BHAVAN, M. K. ROAD, MUMBAI - 400 020 ./ ./ PAN/GIR NO. AA AC N - 2937 - Q ( / APPELLANT ) : ( / RESPONDENT ) / APPELLANT BY : SHRI MADHUR AGARWA L LD. AR / RESPONDENT BY : SHRI BRAJENDRA KUMAR - LD. SR. DR / DATE OF HEARING : 23 /09/2021 / DATE OF PRONOUNCEMENT : 01/10/2021 / O R D E R MANOJ KUMAR AGGARWAL (ACCOUNTANT MEMBER) 1. AFORESAID APPEAL BY ASSESSEE FOR ASSESSMENT YEAR (AY) 20 1 6 - 17 ARISES OUT OF THE ORDER LEARNED COMMISSIONER OF INCOME - TAX (APPEALS) - 49 , MUMBAI [CIT(A)], DATED 24/01 / 20 20 IN THE MATTER OF ASSESSMENT FRAMED BY LD. ASSESSING OFFICER (AO) U/S 143(3) R.W.S. 147 ON 28/12/2018 . THE EFFECTIVE GROUND S READ AS UNDER : - 1. THE LD. COMMISSIONER OF INCOME - TAX (APPEALS) ('CIT(A)') HAS ERRED IN MAKING DISALLOWANCE UNDER SECTION 14A READ WITH RULE 8D OF THE INCOME - TAX RULES, 1962 2. THE LD. COMMISSIONER OF INCOME - TAX (APPEALS) ERRED IN NOT TREATING THE ONE TIME MEMBERSHIP ENTRANCE FEES AS CAPITAL RECEIPT. 2 3. THE LEARNED COMMISSIONER OF INCOME - TAX (APPEALS) ERRED IN CONFIRMING THE ADDITION MADE BY ASSESSING OFFICER TREATING THE AMOUNT SPENT ON REPAIRS AND MAINTENANCE AS CAPITAL EXPENDITURE. IT IS ADMITTED POSITION BEFORE US THAT GROUND NO.2 IS TO BE DECIDED AGAINST THE ASSESSEE KEEPING IN VIEW THE ORDERS OF TRIBUNAL IN EARLIER YEARS. THEREFORE, GROUND NO.2 STAND DISMISSED. THE FACTS AS WELL AS ADJUDICATION TO GROUND NOS. 1 & 3 WOULD BE AS FOLLOWS: - 2. DISALLOWANCE U/S 14A 2.1 THE ASSESSEE IS STATED TO BE ENGAGED IN SERVICE SECTOR AND ENTERTAINMENT INDUSTRY. THE ASSESSEE EARNED EXEMPT DIVIDEND INCOME OF RS.96.29 LACS AND OFFERED SUO - MOTO DISALLOWANCE OF DIRECT EXPENSES FOR RS.0.07 LACS IN THE RETUR N OF INCOME. HOWEVER, LD. AO MAKING A CONTRARY OBSERVATION THAT THE ASSESSEE DID NOT OFFER ANY DISALLOWANCE, COMPUTED AGGREGATE DISALLOWANCE OF RS. 11.88 LACS AS PER RULE 8D WHICH IS DIRECT EXPENSE DISALLOWANCE U/R 8D ( 2 ) (I) FOR RS.0 .07 LACS AND DISALLOWANCE U/R 8D(2)(II) BEING 1% OF THE ANNUAL AVERAGE OF THE MONTHLY AVERAGES VALUE OF INVESTMENTS , INCOME FROM WHICH DOES NOT OR SHALL NOT FORM PART OF TOTAL INCOME. THE ACTION OF LD. AO, UPON CONFIRMATION BY LD. CIT(A) , IS IN FURTHER CHALLENGE BEFORE US. 2.2 ON E OF THE ARGUMENTS RAISED BY LD. AR IS THAT LD. AO DID NOT CONSIDER THE SUO - MOTO DISALLOWANCE MADE BY THE ASSESSEE AND DID NOT RECORDED OBJECTIVE SATISFACTION BEFORE APPLYING RULE 8D. UPON PERUSAL OF ASSESSMENT ORDER, WE FIND THAT THOUGH SUO - MOTO DISALLOWA NCE H AS NOT BEEN CONSIDERED BY LD. AO, HOWEVER, IN PARA 7.3, THE LD. AO HAS RECORDED SUCH SATISFACTION AND THEREAFTER COMPUTED THE DISALLOWANCE U/R 8D. THEREFORE, THIS PLEA IS TO BE REJECTED. 3 2.3 ANOTHER ARGUMENT IS THAT WHILE COMPUTING THE DISALLOWANCE, O NLY THOSE INVESTMENTS ARE TO BE CONSIDERED WHICH HAVE YIELDED EXEMPT INCOME DURING THE YEAR. THIS PLEA IS ALSO TO BE REJECTED SINCE AFTER AMENDMENT TO RULE 8D W.E. F. 02/06/2016, THE COMPUTATION U/R 8D HAS UNDERGONE CHANGE AND IT HAS BEEN MADE CLEAR THAT TH E AMOUNT EQUAL TO 1% OF THE ANNUAL AVERAGE OF THE MONTHLY AVERAGES OF THE OPENING AND CLOSING BALANCES OF THE VALUE OF INVESTMENT, INCOME FROM WHICH DOES NOT OR SHALL NOT FORM PART OF TOTAL INCOME , SHALL BE DISALLOWED . THEREFORE, POST 02/06/2016, THE PLEA TO EXCLUDE THE NON - INCOME YIELDING INVESTMENT IS TO BE REJECTED. 2.4 PROCEEDING FURTHER, WE FIND THAT THOUGH THE ASSESSEE HAS IDENTIFIED DIRECT EXPENSES TOWARDS EARNING OF EXEMPT INCOME BUT IT HAS NOT MADE ANY DISALLOWANCE OF INDIRECT EXPENDITURE. IN OUR OPINION, THE APPLICATION OF RULE 8D WOULD NOT BE AUTOMATIC OR MECHANICAL AND THE DISALLOWANCE HAS TO BE COMPUTED HAVING REGARDS TO THE ACCOUNTS OF THE ASSESSEE. THEREFORE, CONSIDERING THE FACTS AND CIRCUMSTANCES OF THE CASE, THE MATTER OF DISALLOWANCE U/S 14A R.W.R. 8D STAND RESTORED TO THE FILE OF LD. AO FOR DE NOVO ADJUDICATION IN THE LIGHT OF OUR ABOVE OBSERVATIONS. THIS GROUND STAND PARTLY ALLOWED FOR STATISTICAL PURPOSES. 3. REPAIR & MAINTENANCE 3.1 UPON PERUSAL OF PROFIT & LOSS ACCOUNT, IT TRANSPIR ED THAT THE ASSESSEE INCURRED EXPENDITURE OF RS.53.12 LACS WHICH WAS IN THE NATURE OF INSTALLATION OF LAWN TENNIS COURT , REPAIRS OF BOUNDARY WALL, SUPPLY OF ALUMINUM SHEETS, ELECTRICAL WORKS, PURCHASE OF WATER CLOSET, FABRICATION CHARGES, HARDWARE ITEMS ET C. THE SAME WAS CLAIMED BY THE ASSESSEE AS REVENUE EXPENDITURE. HOWEVER, LD. AO, TREATING THE SAME AS CAPITAL 4 EXPENDITURE, ALLOWED DEPRECIATION ON THE SAME. THE ACTION OF LD. AO, UPON CONFIRMATION BY LD. CIT(A) , IS IN FURTHER CHALLENGE BEFORE US. 3.2 UPON PERUSAL OF RELEVANT MATERIAL ON RECORD, WE FIND THAT THE EXPENDITURE ON INSTALLATION OF TENNIS COURT IS NOTHING BUT RE - LAYING OF THE SURFACE OF THE COURTS . THE REPAIRS TO BOUNDARY WALL IS ON ACCOUNT OF PLASTERING, PAINTING, WATER PROOFING, STONE FIXING, CH EMICAL COATING ETC. THE ALUMINUM SHEETS ARE FOR THE PURPOSE OF WINDOW REPLACEMENT ETC. SIMILAR IS THE NATURE OF OTHER EXPENSES. ALL THESE EXPENSES, IN OUR OPINION, ARE NOT CAPITAL EXPENDITURE BY WHICH THE ASSESSEE HAS ACQUIRED ANY NEW ASSETS BUT THE SAME A RE MORE IN THE NATURE OF REPAIR & RENOVATION EXPENSES . THE BENEFIT MAY BE ENDURING IN NATURE BUT NEVERTHELESS, THE EXPENDITURE COULD NOT BE TERMED AS CAPITAL EXPENDITURE. SIMILAR IS THE VIEW OF TRIBUNAL IN ASSESSEES OWN CASE FOR AY 2009 - 10, ITA NO.2093/MU M/2013 ORDER DATED 21/12/2017. THEREFORE, WE DIRECT LD. AO TO ALLOW THE SAME AS REVENUE EXPENDITURE AND REVERSE THE DEPRECIATION GRANTED ON THESE ITEMS. THIS GROUND STAND ALLOWED. 4. THE APPEAL STAND PARTLY ALLOWED IN TERMS OF OUR ABOVE ORDER. ORDER PRON OUNCED ON 1 ST OCTOBER, 2021. SD/ - SD/ - ( C. N. PRASAD ) (MANOJ KUMAR AGGARWAL) / JUDICIAL MEMBER / ACCOUNTANT MEMBER MUMBAI; DATED : 01/10/2021 SR.PS, DHANANJAY / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT 2. / THE RESPONDENT 3. ( ) / THE CIT(A) 4. / CIT CONCERNED 5. , , / DR, ITAT, MUMBAI 6. / GUARD FILE 5 / BY ORDER, / (DY./ASSTT.REGISTRAR) , / ITAT, MUMBAI.