D.B. Corp.Ltd., Ahmedabad V. The ACIT.,(OSD) Range-1, Ahmedabad

ITA 1850/AHD/2012

• Counselvise Citation: 185020514 RSA 2012
• Duration Of Justice: 3 year(s) 1 month(s) 5 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 29-09-2015
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: B
• Next Hearing Date: 11-09-2015
• Assessment Year: 2009-2010
• Appeal Filed On: 24-08-2012
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: JAGDISH
• Keywords: Depreciation; Earning of tax free income; Question of law
• Section: 14A; 32

Judgement Text

, IN THE INCOME TAX APPELLATE TRIBUNAL B BENCH, AHMEDABAD BEFORE SHRI G.D. AGRAWAL, VICE PRESIDENT AND SHRI RAJPAL YADAV, JUDICIAL MEMBER ./ ITA NO. 1850/AHD/2012 / ASSESSMENT YEAR: 2009-10 DB CORP LIMITED 280, SARKHEJ GANDHINAGAR HIGHWAY, NR. YMCA CLUB, MAKARBA, AHMEDABAD PAN : AACCM 5772 G VS. ASSISTANT COMMISSIONER OF INCOME-TAX (OSD), RANGE-1, AHMEDABAD / (APPELLANT) / (RESPONDENT) ASSESSEE(S) BY : SHRI DHINAL SHAH, AR REVENUE BY : SHRI JAGDISH, CIT-DR !'#$ / DATE OF HEARING : 11/09/2015 %& '#$ / DATE OF PRONOUNCEMENT: 29/09/2015 / O R D E R PER G.D. AGRAWAL, VICE PRESIDENT: THIS APPEAL BY THE ASSESSEE IS DIRECTED AGAINST THE ORDER OF THE LEARNED COMMISSIONER OF INCOME-TAX (APPEALS)-6, AHM EDABAD, DATED 13.06.2012 FOR ASSESSMENT YEAR 2009-10. 2. THE FIRST GROUND OF THE ASSESSEES APPEAL READS AS UNDER: GROUND NO.1 DISALLOWANCE OF DEPRECIATION ON INTAN GIBLE ASSETS (A) THE LEARNED CIT(A) HAS ERRED IN UPHOLDING THE DISAL LOWANCE OF RS.37,22,156/- MADE BY THE ASSESSING OFFICER IN REL ATION TO DEPRECIATION CLAIMED BY THE APPELLANT ON INTANGIBLE ASSETS. (B) THE LEARNED CIT(A) HAS ERRED IN CONSIDERING THE TRAN SACTION OF PURCHASE OF BUSINESS RIGHTS AS SHAM TRANSACTION DIS REGARDING THE FACTS AND THE COMMERCIAL RATIONALE OF THE TRANSACTI ON. ITA NO. 1850/AHD/2012 DB CORPN LTD VS. ACIT AY 2009-10 2 YOUR APPELLANT PRAYS THAT NO DISALLOWANCE SHOULD BE MADE IN RELATION TO DEPRECIATION CLAIMED BY IT ON INTANGIBL E ASSETS. 3. WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE M ATERIAL PLACED BEFORE US. WE FIND THIS ISSUE TO BE COVERED IN FAV OUR OF THE ASSESSEE BY THE DECISION OF ITAT IN ASSESSEES OWN CASE FOR ASSESSMENT YEAR 2007-08 VIDE ITA NO.1113/AHD/2011, WHEREIN THE ITAT HELD AS UNDER:- 5. IN THE LIGHT OF VARIOUS CASE-LAWS RELIED UPON B Y THE LD. COUNSEL FOR THE ASSESSEE, WE ARE OF THE CONSIDERED VIEW THAT TH E DEPRECIATION ON GOODWILL IS ALLOWABLE. THE OBJECTIONS OF AUTHORITIE S BELOW ARE NOT FOUNDED ON SOUND LEGAL PRINCIPLES. THE AUTHORITIES HAVE MISCONSTRUED THE PROVISIONS OF SECTION 32 OF THE ACT, WHILE REJE CTING THE CLAIM OF THE ASSESSEE. IN THE CASE IN HAND, THE AUTHORITIES BELO W HAVE DOUBTED THE TRANSACTIONS EFFECTED BY THE ASSESSEE-COMPANY. MORE PARTICULARLY, THE LD.CIT(A) IN THE CASE OF RKIT, TO WHOM THE ASSESSEE HAS PAID A SUM OF RS.2 CRORES FOR ACQUIRING THE OVERSEAS RIGHTS. THE LD.CIT(A) HAS PROCEEDED ON THE ASSUMPTION THAT THE CONTRACTS AS E NTERED INTO BY THE ASSESSEE-COMPANY WERE NOT GENUINE. SUCH ASSUMPTION WAS ON THE BASIS THAT THE ASSIGNMENT AGREEMENT WAS EXECUTED ON A PLA IN-PAPER AND TERMINATION AGREEMENT WAS EXECUTED ON A STAMP-PAPER . UNDER THE CONTRACT ACT, THERE IS NO DISTINCTION BETWEEN A CON TRACT EXECUTED ON PLAIN-PAPER AND EXECUTED ON A STAMP-PAPER. BOTH THE CONTRACTS ARE ENFORCEABLE UNDER THE CONTRACT ACT. ANY NON-PAYMENT OF THE STAMP DUTY ATTRACTS THE PROVISIONS OF THE RESPECTIVE STAM P ACT. THE AUTHORITIES HAVE NOT GIVEN ANY FINDING AS TO HOW TH IS CONTRACT IS THE SHAM TRANSACTION WITHOUT EVEN EXAMINING THE PERSONS WHO HAVE EXECUTED THE SAME. UNDER THESE FACTS, WE ARE UNABLE TO AGREE WITH THE VIEW OF THE AUTHORITIES BELOW THAT THE TRANSACTIONS WERE SHAM OR OTHERWISE NOT FOR BUSINESS PURPOSE. THEREFORE, RESP ECTFULLY FOLLOWING THE RATIO LAID DOWN BY THE HON'BLE APEX COURT IN THE CA SE OF CIT VS. SMIFS SECURITIES LTD.(SUPRA) AND THE HON'BLE DELHI HIGH CO URT IN THE CASE OF AVERA T & D INDIA LTD. VS. DCIT(SUPRA), WE ARE OF T HE VIEW THAT THE ASSESSEE IS ELIGIBLE FOR DEPRECIATION ON GOODWILL A S CLAIMED AND THIS ADDITION MADE ON THIS COUNT IS HEREBY DIRECTED TO B E DELETED. THUS, THIS GROUND OF ASSESSEE'S APPEAL IS ALLOWED. ITA NO. 1850/AHD/2012 DB CORPN LTD VS. ACIT AY 2009-10 3 4. ADMITTEDLY, THE FACTS OF THE YEAR UNDER CONSIDER ATION ARE IDENTICAL. IN FACT, THE ASSESSING OFFICER HIMSELF IN THE ASSESSMENT ORDER FOLLOWED HIS OWN DECISION IN THE PRECEDING ASSESSME NT YEAR 2007-08. IN VIEW OF ABOVE, WE RESPECTFULLY FOLLOWING THE DEC ISION OF ITAT IN ASSESSEES OWN CASE, ALLOW THE GROUND NO.1 OF THE A SSESSEES APPEAL AND DIRECT THE ASSESSING OFFICER TO ALLOW DEPRECIAT ION ON GOODWILL. 5. GROUND NO.2 OF THE ASSESSEES APPEAL READS AS UN DER:- GROUND NO.2 DISALLOWANCE UNDER SECTION 14A (A) THE LEARNED CIT(A) HAS ERRED IN UPHOLDING THE DISA LLOWANCE UNDER SECTION 14A OF THE ACT COMPUTED AS PER RULE 8D OF T HE INCOME-TAX RULES, 1962 BY THE ASSESSING OFFICER AMOUNTING TO R S.6,56,78,598/- WITHOUT APPRECIATING THAT: (I) THE APPELLANT HAS NOT INCURRED ANY EXPENSES IN RELA TION TO EARNING EXEMPT INCOME DURING THE SUBJECT AY; (II) THE INTEREST EXPENSE CONSIDERED FOR THE PURPOSE OF SECTION 14A OF THE ACT IS IN RESPECT OF THE BORROWED FUNDS WHICH H AVE BEEN DIRECTLY USED FOR THE PURPOSE OF EXPANSION OF THE A PPELLANTS BUSINESS, IE, PURCHASE OF FIXED ASSETS, SETTING UP OF NEW UNITS, ETC AND NOT FOR THE PURPOSE OF MAKING INVESTMENTS; (III) THE APPELLANT HAD SUFFICIENT OWN FUNDS FOR THE PURP OSE OF MAKING INVESTMENTS (IV) ONLY THOSE INVESTMENTS ON WHICH INCOME IS EXEMPT FR OM TAX ARE TO BE CONSIDERED AND NOT THE VALUE OF ALL INVESTMEN TS WHICH ARE ELIGIBLE FOR EARNING TAX FREE INCOME (B) THE LEARNED CIT(A) HAS ERRED IN DIRECTING THE ASSESS ING OFFICER TO CONSIDER ALL THE INVESTMENTS INCLUDING INVESTMENT I N PRIVATE COMPANIES AND GROUP COMPANIES FOR THE PURPOSE OF DI SALLOWANCE UNDER SECTION 14A WITHOUT APPRECIATING THE FACT THA T SALE OF SUCH INVESTMENTS DOES NOT RESULT IN TAX FREE INCOME. (C) THE LEARNED CIT(A) HAS ERRED IN CONFIRMING THE DISAL LOWANCE OF GENERAL AND ADMINISTRATIVE EXPENSES AMOUNTING TO RS .42,91,818/- ITA NO. 1850/AHD/2012 DB CORPN LTD VS. ACIT AY 2009-10 4 WITHOUT APPRECIATING THE FACT THAT THE APPELLANT HA S NOT INCURRED ANY OF SUCH EXPENSES FOR MAKING INVESTMENTS. 6. WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE M ATERIAL PLACED BEFORE US. WE FIND THIS ISSUE ALSO TO BE COVERED IN FAVOUR OF THE ASSESSEE BY THE DECISION OF HONBLE JURISDICTIONAL HIGH COURT IN THE CASE OF CIT VS. CORRTECH ENERGY (P.) LTD., REPORTED IN [2014] 45 TAXMANN.COM 116 (GUJ.), WHEREIN THE HONBLE JURISDI CTIONAL HIGH COURT HELD AS UNDER:- SECTION 14A(1) PROVIDES THAT FOR THE PURPOSE OF CO MPUTING TOTAL INCOME UNDER CHAPTER IV, NO DEDUCTION SHALL BE ALLO WED IN RESPECT OF EXPENDITURE INCURRED BY THE ASSESSEE IN RELATION TO INCOME WHICH DOES NOT FORM PART OF THE TOTAL INCOME UNDER THE ACT. I N THE INSTANT CASE, THE TRIBUNAL HAS RECORDED THE FINDING OF FACT THAT THE ASSESSEE DID NOT MADE ANY CLAIM FOR EXEMPTION OF ANY INCOME FROM PAYMENT OF TAX. IT WAS ON THIS BASIS THAT THE TRIBUNAL HELD THAT DISALLOWANCE UNDER SECTION 14A COULD NOT BE MADE. IN THE PROCESS TRIBUNAL RELIED O N THE DECISION OF DIVISION BENCH OF PUNJAB AND HARYANA HIGH COURT IN CASE OF CIT V. WINSOME TEXTILE INDUSTRIES LTD. [2009] 319 ITR 204 I N WHICH ALSO THE COURT HAD OBSERVED THAT WHERE THE ASSESSEE DID NOT MAKE ANY CLAIM FOR EXEMPTION, SECTION 14A COULD HAVE NO APPLICATION. THUS, NO QUESTION OF LAW AROSE. 7. IT WAS STATED BY THE LEARNED COUNSEL FOR THE ASS ESSEE THAT IN THE CASE OF THE ASSESSEE ALSO FOR THE YEAR UNDER CONSID ERATION THERE IS NO EXEMPT INCOME AND THEREFORE, NO DISALLOWANCE U/S 14 A CAN BE MADE. 8. THE LEARNED DEPARTMENTAL REPRESENTATIVE, ON THE OTHER HAND, STATED THAT THERE IS NO FINDING BY THE LOWER AUTHOR ITIES THAT THERE WAS NO EXEMPT INCOME. HE, THEREFORE, STATED THAT THE D ISALLOWANCE MADE ITA NO. 1850/AHD/2012 DB CORPN LTD VS. ACIT AY 2009-10 5 BY THE ASSESSING OFFICER AND SUSTAINED BY THE CIT(A ) U/S 14A SHOULD BE UPHELD. 9. WE HAVE CAREFULLY CONSIDERED THE ARGUMENTS OF BO TH THE SIDES AND PERUSED THE MATERIAL PLACED BEFORE US. THE HON BLE JURISDICTIONAL HIGH COURT HAS HELD WHERE THE ASSESSEE DID NOT MAKE ANY CLAIM FOR EXEMPTION OF ANY INCOME FROM PAYMENT OF TAX, DISALL OWANCE U/S 14A COULD NOT BE MADE. IT IS THE CONTENTION OF THE LEA RNED COUNSEL THAT IT DID NOT CLAIM ANY INCOME TO BE EXEMPT FROM THE PAYM ENT OF INCOME- TAX. IN SUPPORT OF THIS CONTENTION, HE REFERRED TO THE COMPUTATION OF INCOME FILED BY THE ASSESSEE. HOWEVER, WE DEEM IT PROPER TO SET ASIDE THIS ISSUE BACK TO THE FILE OF THE ASSESSING OFFICE R AND WE DIRECT HIM TO VERIFY WHETHER THE ASSESSEE HAS CLAIMED FOR EXEMPTI ON OF ANY INCOME FROM PAYMENT OF TAX. IF THE ASSESSEE DID NOT CLAIM ANY INCOME TO BE EXEMPT FROM THE PAYMENT OF TAX, THEN NO DISALLOWANC E U/S 14A COULD BE MADE. HOWEVER, IF ANY INCOME IS CLAIMED TO BE EX EMPT, THEN THE DISALLOWANCE SHOULD BE RESTRICTED TO SUCH INCOME. WITH THIS DIRECTION, WE RESTORE THIS MATTER BACK TO THE FILE OF THE ASSE SSING OFFICER. 10. IN THE RESULT, ASSESSEES APPEAL IS DEEMED TO B E ALLOWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED IN THE COURT ON 29 TH SEPTEMBER, 2015 AT AHMEDABAD. SD/- SD/- (RAJPAL YADAV) JUDICIAL MEMBER (G.D. AGRAWAL) VICE-PRESIDENT AHMEDABAD; DATED 29/09/2015 BIJU T., PS ITA NO. 1850/AHD/2012 DB CORPN LTD VS. ACIT AY 2009-10 6 / COPY OF THE ORDER FORWARDED TO : 1. '( / THE APPELLANT 2. )*'( / THE RESPONDENT. 3. # +# / CONCERNED CIT 4. +# ( ) / THE CIT(A) 5. ./0 )# , , / DR, ITAT, AHMEDABAD 6. 012! / GUARD FILE . / BY ORDER, TRUE COPY / ( DY./ASSTT.REGISTRAR) ! '#$, / ITAT, AHMEDABAD