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ITA 2136/DEL/2008

• Counselvise Citation: [2011] 140 COUNSELVISE.COM (IT) 53101 (ITAT-DELHI)
• Duration Of Justice: 3 year(s) 5 month(s) 1 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 04-11-2011
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: A
• Next Hearing Date: 01-11-2011
• Assessment Year: 2004-2005
• Appeal Filed On: 02-06-2008
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: MRS SRUJANI MOHANTY
• Keywords: Depreciation; Earning of tax free income; Retrospective amendment
• Section: 14A

Judgement Text

ITA NO. 2136/DEL/2008 1 IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH A NEW DELHI BEFORE SHRI RAJPAL YADAV, JUDICIAL MEMBER AND SHRI SHAMIM YAHYA, ACCOUNTANT MEMBER I.T.A. NO. 2136/DEL/2008 A.Y. : 2004-05 ASSTT. COMMISSIONER OF INCOME TAX, CIRCLE 3(1), NEW DELHI VS. M/S BIRD TRAVELS PVT. LTD., E - 9, CONNAUGHT HOUSE, CONNAUGHT PLACE, NEW DELHI (PAN/GIR NO. : AAACB0074G) (APPELLANT ) (APPELLANT ) (APPELLANT ) (APPELLANT ) (RESPONDENT ) (RESPONDENT ) (RESPONDENT ) (RESPONDENT ) ASSEESSEE BY : SH. TARANDEEP SINGH, CA DEPARTMENT BY : MRS. SRUJANI MOHANTY, SR. D.R. ORDER ORDER ORDER ORDER PER PER PER PER SHAMIM YAHYA: AM SHAMIM YAHYA: AM SHAMIM YAHYA: AM SHAMIM YAHYA: AM THIS APPEAL BY THE REVENUE IS DIRECTED AGAINST TH E ORDER OF THE LD. COMMISSIONER OF INCOME TAX (APPEALS) DATED 14.3.2 008 PERTAINING TO ASSESSMENT YEAR 2004-05. 2. THE FIRST ISSUE RAISED IS THAT LD. COMMISSIONER OF INCOME TAX (APPEALS) ERRED IN DELETING THE ADDITION OF ` 16692 29/- MADE BY ASSESSING OFFICER AND IN IGNORING THE PROVISIONS O F SECTION 14A(1) INSERTED WITH RETROSPECTIVE EFFECT FROM 01.04.62, W HICH EMPOWERS THE ASSESSING OFFICER TO DISALLOW THE EXPENDITURE ATTR IBUTABLE TO EXEMPT INCOME BY USING APPROPRIATE METHOD IN THE ABSENCE OF ANY PRESCRIBED METHOD. 3. ON THIS ISSUE ASSESSING OFFICER OBSERVED THAT A SSESSEE HAS CLAIMED DIVIDEND INCOME OF ` 2,52,20,000/- AS EXEMP T INCOME. THE ITA NO. 2136/DEL/2008 2 ASSESSEE WAS ASKED TO EXPLAIN WHY THE PROPORTIONATE ADMINISTRATIVE AND MANAGEMENT EXPENSES INCURRED FOR EARNING THE EXE MPT INCOME SHOULD NOT BE DISALLOWED U/S. 14A. ASSESSEE SUBMIT TED AS UNDER:- DURING THE SUBJECT ACCOUNTING YEAR DIVIDEND INCOME H AS BEEN DECLARED IN SCHEDULE P MISCELLANEOUS INCOME A T ` 2,52,20,000/-. PERUSAL OF ANNEXURE-I ATTACHED CLEAR LY DEPICTS THAT THE ENTIRE DIVIDEND INCOME HAS ARISEN F ROM THE ASSESSEE COMPANYS SHAREHOLDING IN RESERVATION DATA MAINTENANCE (INDIA) PVT. LTD., WHICH LONG TERM INVESTMENT IN 194 EQUITY SHARES AS DEPICTED IN SC HEDULE G INVESTMENTS WAS MADE ABOUT 10 YEARS BACK. OTHER SIMILAR INVESTMENTS DEPICTED UNDER LONG TERM INVESTME NT APPEAR AS 7,000 EQUITY SHARES IN TRAXON INDIA PVT. L TD. AND 10,000 EQUITY SHARES IN FIRST TRAVEL MANAGEMENT (IND IA) PVT. LTD. WHICH WERE MADE QUITE SOME YEARS BACK. TH E COMMON FACTOR IN UNDER THE SAME MANAGEMENT. EVER SINCE MAKING THESE LONG TERM INVESTMENT IN THE EQUI TY SHARES OF THESE COMPANIES NO EXPENSES HAVE BEEN OR A RE REQUIRED TO BE INCURRED IN RELATION THERETO BY THE ASSESSEE COMPANY. NO SUCH LONG TERM INVESTMENT HAS BEEN MADE DURING THE SUBJECT ACCOUNTING YEAR OR IN THE IMMEDIATELY PRECEDING ACCOUNTING YEAR. SCHEDULE K ADMISSION DEPICTS EXPENSES ON RENT, ELECTRICITY, TRAVELLING, REPAIRS, INSURANCE ETC. I NCURRED WHOLLY AND EXCLUSIVELY FOR EARNING THE INCOME ASSES SABLE UNDER THE HEAD PROFITS AND GAINS OF BUSINESS AND B Y NO STRETCH OF IMAGINATION CAN ANY OF THESE EXPENSES BE SAID TO ITA NO. 2136/DEL/2008 3 HAVE BEEN INCURRED IN RELATION TO DIVIDEND INCOME . CONSEQUENTLY THE QUESTION OF DISALLOWING PROPORTION ATE ADMINISTRATIVE EXPENSES RELATED TO DIVIDEND INCOME U /S 14A OF THE INCOME TAX DOES NOT ARISE. 3.1 HOWEVER, ASSESSING OFFICER DID NOT ACCEPT THE AFORESAID SUBMISSIONS. ASSESSING OFFICER OBSERVED THAT TO MO NITOR THE INVESTMENT MADE BY THE ASSESSEE AND EXEMPT INCOME EAR NED IN THE FORM OF DIVIDEND INCOME, UNDOUBTEDLY MANAGEMENT / ES TABLISHMENT EXPENSES AND OTHER OFFICE OVERHEADS MUST HAVE BEEN INCURRED TO TAKE CARE OF INCOME RECEIVED, INVESTMENT. SINCE NO DETAIL S WERE FILED IN THIS REGARD, ASSESSING OFFICER PROCEEDED TO MAKE THE PR OPORTIONATE DISALLOWANCE AND DISALLOWED A SUM OF ` 1,66,9229/-. 4. UPON ASSESSEES APPEAL LD. COMMISSIONER OF INCOME TAX (APPEALS) CONSIDERED THE ISSUE. ASSESSEE SUBMITTED THAT THE ENTIRE DIVIDEND INCOME HAD ARISEN FROM LONG TERM INVESTMENT IN EQUITY SHARES IN COMPANY UNDER THE SAME MANAGEMENT ABOUT 10 YEARS BACK AND TO EARN THE DIVIDEND NO EXPENSES HAS BEEN INCUR RED. THE ENTIRE INVESTMENT WAS MADE OUT OF ACCRUALS OF SURPLUS FUND S. NO PARTS OF THE MANAGEMENT REMUNERATION OR POSTAGE, TELEGRAM AND TELE PHONE, PRINTING AND STATIONERY, TRAVELLING, CONVEYANCE AND INTEREST PAYMENT HAD ANY CO-RELATION WITH THE EARNING OF DIVIDEND I NCOME. THESE EXPENSES ARE WHOLLY AND EXCLUSIVELY FOR BUSINESS P URPOSE WHICH IS VERIFIABLE FROM THE RECORDS AND BOOKS OF ACCOUNTS. T HEREFORE, NO PART OF THE EXPENSE SHOULD BE DISALLOWED AS RELATABLE TO DI VIDEND INCOME. CONSIDERING THE ABOVE, LD. COMMISSIONER OF INCOME TAX (APPEALS) HELD THAT HE AGREED WITH THE CONTENTION OF THE ASSESSEE ON THIS ISSUE AND ITA NO. 2136/DEL/2008 4 HELD THAT NO ADDITION IN THIS REGARD WAS CALLED FOR AND HE DELETED THE ADDITION. 5. AGAINST THE ABOVE ORDER THE REVENUE IS IN APPEAL BEFORE US. 6. WE HAVE HEARD THE RIVAL CONTENTIONS IN LIGHT OF THE MATERIAL PRODUCED AND PRECEDENT RELIED UPON. 6.1 LD. DEPARTMENTAL REPRESENTATIVE RELIED UPON THE ORDER OF THE ASSESSING OFFICER . 6.2 LD. COUNSEL OF THE ASSESSEE SUPPORTED THE ORDER OF THE LD. COMMISSIONER OF INCOME TAX (APPEALS) AND PLACED RELI ANCE OF THE FOLLOWING CASE LAWS:- - ITAT, DELHI BENCH ORDER DATED 13.10.2010 IN THE C ASE OF MINDA INVESTMENT LTD. ITA NO. 4046/DEL/2009 REPORTED IN 2010-TIOL-699-ITAT-DEL. - ITAT, DELHI BENCH ORDER DATED 22.12.2010 IN THE C ASE OF JINDAL PHOTO LIMITED ITA NO. 4539/DEL/2010 REPORTED IN 2011-TIOL-25-ITAT-DEL. - DELHI HIGH COURT ORDER DATED 31.8.2010 IN THE CASE OF BSES YAMUNA POWERS LTD. ITA NO. 1267/2010 REPORTED IN 2010-TIOL-636-HC-DEL-IT. - PUNJAB AND HARYANA HIGH COURT ORDER DATED 4.11.2009 IN THE CASE OF HERO CYCLES LTD. ITA NO. 331/2009 REPORTED IN 323 ITR 518. - KERALA HIGH COURT ORDER DATED 21.10.2010 IN THE C ASE OF CATHOLIC SYRIAN BANK LTD. ITA NO. 467, 479, 73 0, ITA NO. 2136/DEL/2008 5 843, 1045 AND 1324 OF 2009 AND 40 OF 2010 REPORTED IN 237 CTR 164. 6.3 WE HAVE CAREFULLY CONSIDERED THE SUBMISSIONS. WE FIND THAT IT IS THE ASSESSEES CLAIM THAT ENTIRE INCOME HAS ARISEN FROM LONG TERM INVESTMENT IN EQUITY SHARES IN COMPANY UNDER THE SAME MANAGEMENT ABOUT 10 YEARS BACK AND TO EARN THE DIVID END NO EXPENSES HAS BEEN INCURRED. ASSESSEE CLAIMED THAT ASSESSEE HAS NOT SPENT ANY EXPENSES ON EARNING THE DIVIDEND INCOME DURING THE YEAR. THE ASSESSING OFFICER HAS NOT BELIEVED THE SUBMISS IONS. HE OPINED THAT SOME EXPENDITURE ARE INEVITABLE IN THIS REGAR D AND HE HAS MADE THE PROPORTIONATE DISALLOWANCE. WE FIND THAT THER E IS ALSO NO FINDING THAT ANY EXPENSE IS RELATABLE TO EARNING THE DIVID END INCOME. IN THIS REGARD, WE REFER THE DECISION OF THIS TRIBUNAL IN ITA NO. 4046/DEL/2009 IN THE CASE OF MINDA INVESTMENT LTD. VS. DCIT. IN THIS CASE VIDE ORDER DATED 13.10.2010 THE TRIBUNAL HAS HELD AS UNDER:- WE HAVE CONSIDERED THE SUBMISSIONS CAREFULLY. WE FIND THAT IN THE CASE OF HERO CYCLES LTD., THE HONBLE PUNJAB AND HARYANA HIGH COURT HAS HELD THAT DISALLOWANCE U/S 1 4A REQUIRED FINDING OF INCURRING OF EXPENDITURE AND W HERE IT WAS FOUND THAT FOR EARNING EXEMPTED INCOME NO EXPENDITURE HAD BEEN INCURRED, DISALLOWANCE UNDER SECTION 14A COULD NOT STAND. ON THE OTHER HAND, THE HON BLE MUMBAI HIGH COURT DECISION IN THE AFORESAID CASE OF G ODREJ BOYCE MFG. CO. LTD. HAS HELD THAT ASSESSING OFFICER CAN ADOPT A REASONABLE BASIS TO IDENTIFY THE EXPENSES IN RELATION TO THE EARNING OF EXEMPT INCOME. NOW IN T HE PRESENT CASE, WE FIND THAT THE MATTER CAN NOT BE S ET ASIDE ITA NO. 2136/DEL/2008 6 TO THE FILES OF ASSESSING OFFICER TO APPLY RULE 8D AS THE SAID PROVISION CANNOT BE APPLICABLE FOR THE CURRENT ASSE SSMENT YEAR. SECONDLY, THE ASSESSEE HAS URGED THAT NO EXPENDITURE HAS BEEN IDENTIFIED TO HAVE BEEN INCURR ED TO EXEMPT INCOME. NEITHER THE ASSESSING OFFICER NOR TH E LD. COMMISSIONER OF INCOME TAX (APPEALS) HAS REBUTTED TH ESE SUBMISSION. ASSESSING OFFICER HAS GONE INTO TO MA KE THE ADHOC ESTIMATE WHICH IS NOT SUSTAINABLE IN THE LIGH T OF THE HONBLE PUNJAB AND HARYANA HIGH COURT DECISION ABO VE. UNDER SUCH CIRCUMSTANCES, WE REFER THE HONBLE APEX COURT DECISION IN THE CASE OF M/S VEGETABLE PRODUCTS LTD. 88 ITR 192 = (2002-TIOL-574-SC-IT-LB), THAT IN THE TAXING PROVISION IF TWO CONSTRUCTIONS ARE POSSIBLE, ONE FAVOURING A SSESSEE SHOULD BE ADOPTED. ACCORDINGLY, FOLLOWING THE PRECEDENT FROM THE HONB LE PUNJAB AND HARYANA HIGH COURT AS ABOVE, WE SET ASIDE THE ORDERS OF THE AUTHORITIES BELOW AND DECIDE THE ISSU E IN FAVOUR OF THE ASSESSEE. 6.4 WE FIND THAT THE RATIO FROM THE ABOVE DECISION C AN APPLY IN THIS CASE ALSO. WE FIND THAT ASSESSING OFFICER HAS NO T GIVEN ANY FINDING THAT ANY EXPENSE HAS BEEN INCURRED TO EARN THE DIVI DEND INCOME. UNDER THE CIRCUMSTANCES, THE RATIO FROM THE PUNJAB AND HARYANA HIGH COURT IN THE CASE OF C.I.T. VS. HERO CYCLES LTD. 32 3 ITR 518 IS APPLICABLE. HENCE, IN THE ABSENCE OF ANY FINDING THAT ANY EXPENSE IS DIRECTLY RELATABLE TO EARNING THE DIVIDEND INCOME, IN OUR CONSIDERED OPINION, THE ASSESSING OFFICERS ACTION IS NOT SUS TAINABLE. HENCE, IN THE BACKGROUND OF THE AFORESAID DISCUSSION AND PRE CEDENTS, WE ITA NO. 2136/DEL/2008 7 UPHOLD THE ORDER OF THE LD. COMMISSIONER OF INCOME T AX (APPEALS) AND DECIDE THE ISSUE IN FAVOUR OF THE ASSESSEE. 7. THE NEXT ISSUE RAISED IS THAT LD. COMMISSIONER OF INCOME TAX (APPEALS) ERRED IN ALLOWING THE DEPRECIATION @60% O N COMPUTER PERIPHERALS AGAINST THE ADMISSIBLE RATE OF 25% AND T HEREBY DELETING THE ADDITION OF ` 10916/- MADE BY THE ASSESSING OFF ICER. 8. ON THIS ISSUE ASSESSING OFFICER HAD POINTED THA T ADDITION IN COMPUTER ACCESSORIES AND PERIPHERALS LIKE PRINTERS, SCANNERS, LAN NETWORK CABLES ETC. HAS BEEN DONE. ASSESSEE HAD CLAIMED DEPRECIATION @ 60% AS APPLICABLE TO COMPUTERS. ASSE SSING OFFICER OPINED THAT DEPRECIATION SHOULD BE ALLOWED @ 25% AS APPLICABLE TO PLANT AND MACHINERY. 9. UPON ASSESSEES APPEAL LD. COMMISSIONER OF INCOME TAX (APPEALS) HELD THAT COMPUTER ACCESSORIES CANNOT FUNC TION INDEPENDENTLY, HENCE, HE HELD THAT DEPRECIATION @ 6 0% SHOULD BE ALLOWED. 10. AGAINST THIS ORDER THE REVENUE IS IN APPEAL BEF ORE US. 11. WE HAVE HEARD THE RIVAL CONTENTIONS IN LIGHT O F THE MATERIAL PRODUCED AND PRECEDENT RELIED UPON. WE FIND THAT HONBLE HIGH COURT IN THE CASE OF C.I.T. VS. BSES YAMUNA POWERS LTD. IN ITA NO. 1267/2010 VIDE ORDER DATED 31.8.2010 HAS HELD AS UNDER:- WE ARE IN AGREEMENT WITH THE VIEW OF THE TRIBUNAL T HAT COMPUTER ACCESSORIES AND PERIPHERALS SUCH AS, PRINTE RS, SCANNERS AND SERVER ETC. FORM AN INTEGRAL PART OF T HE COMPUTER SYSTEM. IN FACT, THE COMPUTER ACCESSORIES AND PERIPHERALS CANNOT BE USED WITHOUT THE COMPUTER. ITA NO. 2136/DEL/2008 8 CONSEQUENTLY, AS THEY ARE THE PART OF THE COMPUTER S YSTEM, THEY ARE ENTITLED TO DEPRECIATION AT THE HIGHER RAT E OF 60%. 11.1 FOLLOWING THE RATIO FROM THE ABOVE DECISION OF THE HONBLE JURISDICTIONAL HIGH COURT, WE DO NOT FIND ANY INFIR MITY IN THE ORDER OF THE LD. COMMISSIONER OF INCOME TAX (APPEALS). ACCORDINGLY , WE UPHOLD THE SAME. 12. IN THE RESULT, THE APPEAL FILED BY THE REVENUE STANDS DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 04/11/2011. SD/- SD/- [ [[ [RAJPAL YADAV RAJPAL YADAV RAJPAL YADAV RAJPAL YADAV] ]] ] [SHAMIM YAHYA] [SHAMIM YAHYA] [SHAMIM YAHYA] [SHAMIM YAHYA] JUDICIAL MEMBER JUDICIAL MEMBER JUDICIAL MEMBER JUDICIAL MEMBER ACCOUNTANT MEMBER ACCOUNTANT MEMBER ACCOUNTANT MEMBER ACCOUNTANT MEMBER DATE 04/11/2011 SRB COPY FORWARDED TO: COPY FORWARDED TO: COPY FORWARDED TO: COPY FORWARDED TO: - -- - 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT (A) 5. DR, ITAT TRUE COPY BY ORDER, ASSISTANT REGISTRAR, ITAT, DELHI BENCHES