Mahagun India Pvt. Ltd., New Delhi V. DCIT, New Delhi

ITA 1976/DEL/2015

• Counselvise Citation: [2019] 118 COUNSELVISE.COM (IT) 0725 (ITAT-DELHI)
• Duration Of Justice: 3 year(s) 11 month(s) 22 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 28-03-2019
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: E
• Assessment Year: 2011-2012
• Appeal Filed On: 06-04-2015
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Depreciation; Earning of tax free income; Rule 8D; Set aside
• Section: 14A; 37(1)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH : E : NEW DELHI BEFORE SHRI R.K. PANDA, ACCOUNTANT MEMBER AND SHRI KULDIP SINGH, JUDICIAL MEMBER ITA NO.1976/DEL/2015 ASSESSMENT YEAR: 2011-12 MAHAGUN INDIA PVT. LTD., C/O PRAKASH K. PRAKASH, B-1, SAGAR APARTMENTS, 6, TILAK MARG, NEW DELHI. PAN: AAACM6572A VS. DCIT, CENTRAL CIRCLE-13, NEW DELHI. (APPELLANT) (RESPONDENT) ASSESSEE BY : SHRI SAUBHAGYA AGARWAL, ADVOCAT E MS SUMAN JAIN, CA REVENUE BY : MS RINKU SINGH, SR. DR DATE OF HEARING : 14.03.2019 DATE OF PRONOUNCEMENT : 28.03.2019 ORDER PER R.K. PANDA, AM : THIS APPEAL BY THE ASSESSEE IS DIRECTED AGAINST THE ORDER DATED 19 TH JANUARY, 2015 OF THE CIT(A)-26, NEW DELHI, RELATING TO ASSES SMENT YEAR 2011-12. 2. THE FIRST ISSUE RAISED BY THE ASSESSEE IN THE GR OUNDS OF APPEAL RELATES TO THE PART RELIEF GRANTED BY THE CIT(A) ON THE DISALLOWANCE MA DE BY THE ASSESSING OFFICER U/S 14A OF THE ACT READ WITH RULE 8D OF IT RULES, 1962. ITA NO.1976/DEL/2015 2 3. FACTS OF THE CASE, IN BRIEF, ARE THAT THE ASSESS EE IS A PRIVATE LIMITED COMPANY ENGAGED IN REAL ESTATE DEVELOPING. THE ASSESSEE FI LED ITS RETURN OF INCOME DECLARING THE TOTAL INCOME AT RS.13,41,32,900/-. DURING THE A SSESSMENT PROCEEDINGS, THE ASSESSING OFFICER OBSERVED THAT THE ASSESSEE HAS SH OWN EXEMPT INCOME OF RS.16,83,923/- U/S 10(38) OF THE ACT AS PER COMPUT ATION OF INCOME FILED ALONG WITH THE INCOME-TAX RETURN. THE ASSESSING OFFICER ASKED THE ASSESSEE TO EXPLAIN AS TO WHY THE PROVISIONS OF SECTION 14A READ WITH RULE 8D SHO ULD NOT BE APPLIED. IT WAS EXPLAINED BY THE ASSESSEE THAT NO AMOUNT OF BORROWE D FUNDS HAVE BEEN UTILIZED FOR MAKING INVESTMENT GENERATING TAX FREE INCOME. IT W AS FURTHER CONTENDED THAT THE ASSESSEE HAS NOT INCURRED ANY EXPENDITURE DIRECTLY OR INDIRECTLY FOR EARNING ANY TAX FREE INCOME. 4. HOWEVER, THE ASSESSING OFFICER WAS NOT SATISFIED WITH THE EXPLANATION GIVEN BY THE ASSESSEE. ACCORDING TO HIM, HAD THE COMPANY NO T MADE SUCH INVESTMENT, THE FUNDS COULD HAVE BEEN UTILIZED FOR REDUCING ITS LOAN LIAB ILITY IN THE CONTEXT OF FINANCIAL CHARGES. REJECTING THE VARIOUS EXPLANATIONS GIVEN BY THE ASSESSEE AND INVOKING THE PROVISIONS OF SECTION 14A READ WITH RULE 8D, THE AS SESSING OFFICER MADE DISALLOWANCE OF RS.51,00,215/- AND ACCORDINGLY MADE ADDITION OF THE SAME TO THE TOTAL INCOME OF THE ASSESSEE. 5. IN APPEAL, THE LD.CIT(A) DIRECTED THE ASSESSING OFFICER TO REDUCE THE INVESTMENT IN SHARE APPLICATION MONEY TO THE EXTENT OF RS.1 CR ORE FROM THE FIGURE OF INVESTMENT ITA NO.1976/DEL/2015 3 YIELDING TAX FREE INCOME WHILE COMPUTING THE DISALL OWANCE UNDER RULE 8D(2). HE, HOWEVER, IN PRINCIPLE UPHELD THE ACTION OF THE ASSE SSING OFFICER. 6. AGGRIEVED WITH SUCH ORDER OF THE CIT(A), THE ASS ESSEE IS IN APPEAL BEFORE THE TRIBUNAL. 7. THE LD. COUNSEL FOR THE ASSESSEE, AT THE OUTSET, REFERRED TO THE COMPUTATION OF INCOME AND SUBMITTED THAT THE ASSESSEE HAS RECEIVED ONLY RS.2,19,536/- AS DIVIDEND INCOME WHICH HAS BEEN CLAIMED AS EXEMPT. RELYING O N VARIOUS DECISIONS, IT WAS SUBMITTED THAT THE DISALLOWANCE U/S 14A COULD NOT E XCEED THE ACTUAL DIVIDEND INCOME RECEIVED. HE ACCORDINGLY SUBMITTED THAT HE HAS NO OBJECTION IF THE SAME IS RESTRICTED TO THE ACTUAL DIVIDEND INCOME RECEIVED. 8. THE LD. DR, ON THE OTHER HAND, HEAVILY RELIED ON THE ORDER OF THE CIT(A). 9. WE HAVE CONSIDERED THE RIVAL ARGUMENTS MADE BY B OTH THE SIDES AND PERUSED THE ORDERS OF THE AUTHORITIES BELOW. A PERUSAL OF THE COMPUTATION OF INCOME FILED BY THE ASSESSEE DURING THE COURSE OF HEARING SHOWS THAT TH E ACTUAL DIVIDEND INCOME RECEIVED BY THE ASSESSEE DURING THE YEAR IS ONLY RS.2,19,536 /- THE COORDINATE BENCHES OF THE TRIBUNAL, FOLLOWING THE DECISIONS OF THE HON'BLE DE LHI HIGH COURT IN THE CASE OF JOINT INVESTMENTS PVT. LTD. VS. CIT REPORTED IN 372 ITR 6 94 (DEL) AND IN THE CASE OF CIT VS. HOLCIM (INDIA) PVT. LTD. REPORTED IN 272 CTR 282 (DEL) ARE CONSISTENTLY TAKING THE VIEW THAT THE DISALLOWANCE U/S 14A READ WITH RULE 8 D CANNOT EXCEED THE ACTUAL DIVIDEND INCOME RECEIVED BY THE ASSESSEE WHICH IS C LAIMED AS EXEMPT. SINCE THE ITA NO.1976/DEL/2015 4 ASSESSEE IN THE INSTANT CASE HAS RECEIVED ONLY AN A MOUNT OF RS.2,19,536/- WHICH HAS BEEN CLAIMED AS EXEMPT, THEREFORE, WE ARE OF THE CO NSIDERED OPINION THAT THE DISALLOWANCE U/S 14A READ WITH RULE 8D CANNOT EXCEE D THE ACTUAL EXEMPT INCOME RECEIVED BY THE ASSESSEE DURING THE YEAR. WE, THER EFORE, SET ASIDE THE ORDER OF THE CIT(A) AND DIRECT THE ASSESSING OFFICER TO RESTRICT THE DISALLOWANCE TO THE ACTUAL EXEMPT INCOME RECEIVED BY THE ASSESSEE AMOUNTING TO RS.2,19,536/- SUBJECT TO VERIFICATION. THE FIRST ISSUE RAISED BY THE ASSESS EE IN THE GROUNDS OF APPEAL IS ACCORDINGLY ALLOWED. 10. THE SECOND ISSUE RAISED BY THE ASSESSEE RELATES TO AD HOC DISALLOWANCE OF 10% OUT OF VEHICLE REPAIR AND MAINTENANCE AND DEPRECIAT ION ON MOTOR CAR. 11. FACTS OF THE CASE, IN BRIEF, ARE THAT THE ASSES SING OFFICER, DURING THE COURSE OF ASSESSMENT PROCEEDINGS, OBSERVED THAT THE ASSESSEE HAS DEBITED AN AMOUNT OF RS.18,45,361/- AND RS.36,51,155/- ON ACCOUNT OF REP AIR & MAINTENANCE EXPENSES AND DEPRECIATION ON MOTOR CAR, RESPECTIVELY. REJECTING THE VARIOUS EXPLANATIONS GIVEN BY THE ASSESSEE AND OBSERVING THAT PERSONAL USE OF VEH ICLES BY THE DIRECTORS CANNOT BE RULED OUT, THE ASSESSING OFFICER DISALLOWED AN AMOU NT OF RS.5,49,651/- BEING 10% OF THE VEHICLE REPAIR AND MAINTENANCE EXPENSES AND DEP RECIATION ON ESTIMATE BASIS. IN APPEAL, THE LD.CIT(A) UPHELD THE ACTION OF THE ASSE SSING OFFICER. 12. AGGRIEVED WITH SUCH ORDER OF THE CIT(A), THE AS SESSEE IS IN APPEAL BEFORE THE TRIBUNAL. ITA NO.1976/DEL/2015 5 13. THE LD. COUNSEL FOR THE ASSESSEE, AT THE OUTSET , SUBMITTED THAT IDENTICAL ISSUE HAS BEEN DECIDED IN FAVOUR OF THE ASSESSEE BY THE TRIBU NAL IN THE ASSESSEES OWN CASE FOR ASSESSMENT YEAR 2012-13 VIDE ITA NO.1977/DEL/2015, ORDER DATED 16.07.2018. THEREFORE, THIS BEING A COVERED MATTER IN FAVOUR OF THE ASSESSEE, THE GROUND RAISED BY THE ASSESSEE SHOULD BE ALLOWED. 14. THE LD. DR, ON THE OTHER HAND, HEAVILY RELIED O N THE ORDER OF THE CIT(A). 15. AFTER HEARING BOTH THE SIDES, WE FIND THE ASSES SING OFFICER, IN THE INSTANT CASE, HAS DISALLOWED 10% OF THE VEHICLE REPAIR AND MAINTE NANCE EXPENSES AND DEPRECIATION ON AD HOC BASIS ON THE GROUND THAT PERSONAL USE OF VEHICLES BY THE DIRECTORS CANNOT BE RULED OUT SINCE THE DIRECTORS DO NOT OWN ANY VEHICL ES. WE FIND, THE LD.CIT(A) UPHELD THE ACTION OF THE ASSESSING OFFICER FOR WHICH THE A SSESSEE IS IN APPEAL BEFORE THE TRIBUNAL. WE FIND AN IDENTICAL ISSUE HAD COME UP B EFORE THE TRIBUNAL IN ASSESSEES OWN CASE IN THE SUBSEQUENT YEAR. THE TRIBUNAL VIDE ITA NO.1977/DEL/2015, ORDER DATED 16.07.2018 FOR A.Y. 2012-13 AT PARA 6 OF THE ORDER HAS DECIDED THE ISSUE IN FAVOUR OF THE ASSESSEE BY OBSERVING AS UNDER:- 6. GROUND NO. 3 OF THE APPEAL IS WITH RESPECT TO D ISALLOWANCE OF 10% OF VEHICLE REPAIR MAINTENANCE AND DEPRECIATION EXPENDITURE. WE HAVE NOTED THAT THE ASSESSEE IS A COMPANY AND, THEREFORE, IT CANNOT HAV E ANY PERSONAL EXPENDITURE. THOUGH THE DIRECTORS DO NOT OWN ANY VEHICLE AND IF THE SAME IS USED BY THEM FOR THEIR PERSONAL PURPOSES, SAME IS CHARGEABLE TO TAX IN THE HANDS OF THOSE ITA. 1977 (DEL) OF 2015. MAHAGUN INDIA P. LTD. 5 DIRECTO RS UNDER THE HEAD 'SALARY'. THE DISALLOWANCE MADE BY THE LEARNED ASSESSING OFFI CER IS AN AD-HOC DISALLOWANCE WITHOUT POINTING OUT ANY INSTANCES OR USE OF THOSE VEHICLES FOR PERSONAL PURPOSES OF THE DIRECTORS. THE PROVISIONS OF SECTION 37(1) BARS THE ALLOWANCE OF ANY EXPENDITURE WHICH IS PERSONAL EXPE NSES OF THE ASSESSEE. IN THE PRESENT CASE, THE ASSESSEE IS A COMPANY WHICH DOES NOT HAVE ANY PERSONAL IDENTITY. FURTHERMORE, WITH RESPECT TO THE DISALLOW ANCE OF THE DEPRECIATION ON ITA NO.1976/DEL/2015 6 MOTOR CAR, IT COULD NOT BE SAID BY THE LEARNED ASSE SSING OFFICER THAT SAME ARE NOT USED FOR THE PURPOSES OF THE BUSINESS OF THE ASSESS EE. IN VIEW OF THIS, WE REVERSE THE FINDING OF THE LOWER AUTHORITIES IN DISALLOWING THE VEHICLE EXPENDITURE. ACCORDINGLY, GROUND NO. 3 OF THE APPEAL IS ALLOWED. 16. SINCE THE ISSUE HAS ALREADY BEEN DECIDED BY THE TRIBUNAL IN ASSESSEES OWN CASE IN THE SUBSEQUENT YEAR, THEREFORE, IN ABSENCE OF AN Y DISTINGUISHABLE FEATURE BROUGHT BEFORE US BY THE REVENUE, WE SET ASIDE THE ORDER OF THE CIT(A) AND DIRECT THE ASSESSING OFFICER TO DELETE THE ADDITION. THE SEC OND ISSUE RAISED BY THE ASSESSEE IS ACCORDINGLY ALLOWED. 17. IN THE RESULT, THE APPEAL FILED BY THE AS SESSEE IS ALLOWED. PRONOUNCED IN THE OPEN COURT ON 28.03.2019. SD/- SD/- (KULDIP SINGH) (R.K. PANDA) JUDICIAL MEMBER ACCOUNTAN T MEMFBER DATED: 28 TH MARCH, 2019 DK COPY FORWARDED TO 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(A) 5. DR ASSTT. REGISTRAR, ITAT, NEW DELHI