LITEL INFRARED SYSTEMS P.LTD, MUMBAI V. ACIT 6(3), MUMBAI

ITA 284/MUM/2015

• Counselvise Citation: [2017] 126 COUNSELVISE.COM (IT) 9776 (ITAT-MUMBAI)
• Duration Of Justice: 2 year(s) 7 month(s) 11 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 23-08-2017
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: A
• Next Hearing Date: 21-02-2017
• Assessment Year: 2007-2008
• Appeal Filed On: 12-01-2015
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: V JANARDHANAN
• Keywords: Earning of tax free income; Revenue expenditure
• Section: 14A

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL A , BENCH MUMBAI BEFORE SHRI R.C.SHARMA, AM & SHRI AMARJIT SINGH , JM ITA NO. 284 / MUM/20 1 5 ( ASSESSMENT YEAR : 2007 - 08 ) M/S. LITEL INFRARED SYSTEMS PVT. LTD., 96, DHIRAJ, 23, DUNCAN CAUSEWAY ROAD SION, MUMBAI 400 022 VS. ACIT 6 (3), MUMBAI PAN/GIR NO. AAACL4298G APPELLANT ) .. RESPONDENT ) ASSESSEE BY SHRI MANDAR VAIDYA REVENUE BY SHRI V. JANARDHANAN DATE OF HEARING 11 / 07 /201 7 DATE OF PRONOUNCEME NT 23 / 08 /201 7 / O R D E R PER R.C.SHARMA (A.M) : THIS IS AN APPEAL FILED BY THE ASSESSEE AGAINST THE ORDER OF CIT(A) - 12, MUMBAI DATED 08/09/2014 FOR THE A.Y. 2007 - 08 IN THE MATTER OF ORDER PASSED U/S.143(3) OF THE IT ACT. 2. THE FOLLOWING GROUNDS HAVE BEEN TAKEN BY THE ASSESSEE: - 1. THE LEARNED CIT(APPEALS) WAS NOT JUSTIFIED IN DECLINING TO CONSIDER A LEGAL CLAIM FOR DEDUCTION, ON THE GROUND THAT THE ASSESSEE HAD AGREED TO THE ADDITION DURING THE SCRUTINY PROCEEDINGS. THE LEARNED CIT(A) FAILED TO APPRECIATE THAT T HE POWERS OF THE CIT(APPEALS) ARE COTERMINOUS WITH THE LEARNED AO. 2. THE LEARNED CIT(A) FAILED TO APPR ECIATE THAT THERE IS NO ESTOPPEL BY CONDUCT AGAINST LAW NOR IS THERE ANY WAIVER OF THE LEGAL RIGHT AS MUCH AS THE LEGAL LIABILITY TO BE ASSESSED OTHERW ISE THAN ACCORDING TO THE MANDATE OF THE LAW. 3. WITH GREAT RESPECT, THE LEARNED CIT(A) MISDIRECTED HIMSELF IN NOT APPRECIATING THAT THE LEGAL CLAIM FOR DEDUCTION OF SHARE ISSUE EXPENSES ITA NO. 284/MUM/2015 M/S. LITEL INFRARED SYSTEM S PVT. LTD., 2 FOR ISSUE OF BONUS SHARES, IS A REVENUE EXPENDITURE BY VIRTUE OF TH E DECISION OF THE HON'BLE APEX COURT IN CASE OF GENERAL INSURANCE CORPORATION 286 ITR 232 (SC). 4. ON FACTS, THE LD. CIT(A) FAILED TO APPRECIATE THAT THE SHARE ISSUE EXPENSES, IN THE NATURE OF ROC FEES, HAD ACCRUED IN THE YEAR UNDER CONSIDERATION AND WER E HENCE ELIGIBLE FOR .DEDUCTION IN THE YEAR UNDER CONSIDERATION . 5. THE LEARNED CIT(A) ERRED IN UPHOLDING THE DISALLOWANCE U/S. 14A OF THE ACT. 3. RIVAL CONTENTIONS HAVE BEEN HEARD AND RECORD PERUSED. 4. FACTS IN BRIEF ARE THAT ASSESSEE IS ENGAGED IN MA NUFACTURING OF INFRARED HEATING SYSTEMS. ASSESSEES CLAIM OF SHARE ISSUE EXPENSES AMOUNTING TO RS.4,94,718/ - WAS DECLINED BY AO IN VIEW OF THE PROVISIONS OF SECTION 35D OF THE ACT, AND THE HONBLE SUPREME COURT DECISION IN THE CASE OF BROOKE BOND INDIA LTD ., AND PUNJAB STATE INDUSTRIAL DEVELOPMENT CORPORATION. 5. BY THE IMPUGNED ORDER, CIT(A) CONFIRMED THE DISALLOWANCE BY OBSERVING THAT ASSESSEE ITSELF HAS AGREED FOR THE DISALLOWANCE DURING THE COURSE OF ASSESSMENT PROCEEDINGS, THEREFORE, AT THIS STAGE, ASS ESSEES REQUEST FOR ALLOWING THE SAME BY FOLLOWING THE DECISION OF HONBLE SUPREME COURT IN CASE OF GENERAL INSURANCE CORPORATION 286 ITR 232 CANNOT BE ENTERTAINED . 6. WE HAVE CONSIDERED RIVAL CONTENTIONS AND CAREFULLY GONE THROUGH THE ORDERS OF THE AUTHO RITIES BELOW AND FOUND FROM RECORD THAT INADVERTENTLY DURING THE COURSE OF ASSESSMENT PROCEEDINGS, THE ASSESSEE AGREED FOR DISALLOWANCE OF SHARE ISSUE EX PENSES. HOWEVER, SUBSEQUENTLY, ASSESSEE ITA NO. 284/MUM/2015 M/S. LITEL INFRARED SYSTEM S PVT. LTD., 3 FOUND THAT SHARE ISSUE EXPENSES WERE PERTAINING TO BONUS SHARES WHICH IS REQUIRED TO BE ALLOWED AS PER THE DECISION OF HONBLE SUPREME COURT IN THE CASE OF GENERAL INSURANCE CORPORATION 286 ITR 232 , WHEREIN HONBLE SUPREME COURT OBSERVED THAT EXPENDITURE INCURRED IN CONNECTION WITH ISSUE OF BONUS SHARES CONSTITUTE REV ENUE EXPENDITURE IN SO FAR AS ISSUE OF BONUS SHARES DOES NOT RESULT IN ANY INFLOW OF FRESH FUNDS OR INCREASE IN THE CAPITAL EMPLOYED, THE CAPITAL EMPLOYED REMAINS THE SAME. IT WAS FURTHER OBSERVED THAT ISSUANCE OF BONUS SHARES BY CAPITALISATION OF RESERVE S IS MERELY A REALLOCATION OF COMPANYS FUNDS . IF THAT BE SO, IT CANNOT BE HELD THAT COMPANY HAS ACQUIRED A BENEFIT OR ADVANTAGE OF ENDURING NATURE. WHILE DECIDING SO, THE HONBLE SUPREME COURT HAS ALREADY CONSIDERED THE EARLIER DECISION WITH REGARD TO EXPE NDITURE OF ISSUE OF SHARES. H OWEVER, THE CIT(A) DECLINED THE SAME. IT APPEARS THAT INADVERTENTLY CONSIDERING THE NATURE OF EXPENSES BEING SHARE ISSUE, THE ASSESSEES CLAIM WAS DECLINED. THE ASSESSEE WAS ALSO OF THE VIEW THAT THE SAME I S NOT ALLOWABLE IN VI EW OF THE DECISION OF HONBLE SUPREME COURT IN CASE OF BROOKE BOND INDIA LTD., AND PUNJAB STATE INDUSTRIAL DEVELOPMENT CORPORATION. HOWEVER, SUBSEQUENTLY IT WAS FOUND THAT SHARE ISSUE EXPENSES WERE PERTAINING TO ISSUE OF BONUS SHARES WHICH ARE TO BE ALLOWE D AS REVENUE EXPENSES IN VIEW OF THE DECISION OF HONBLE SUPREME COURT IN CASE OF GENERAL INSURANCE CORPORATION (SUPRA). ACCORDINGLY WE RESTORE THE MATTER BACK TO THE FILE OF T HE AO TO VERIFY ASSESSEES CLAIM OF SHARE ISSUE EXPENSES PERTAINING TO AND ATTRI BUTABLE TO ISSUE OF BONUS ITA NO. 284/MUM/2015 M/S. LITEL INFRARED SYSTEM S PVT. LTD., 4 SHARES, AND TO ALLOW THE SAME IN VIEW OF DECISION OF HONBLE SUPREME COURT IN THE CASE OF GENERAL INSURANCE CORPORATION. 7. IT IS PERTINENT TO MENTION HERE THAT SINCE THE EXPENSES WERE CRYSTAL DURING THE YEAR UNDER CONSIDERATION NOTWITHSTANDING THE FACT THAT THESE WERE PERTAINING TO EARLIER YEAR, THE SAME IS TO BE ALLOWED ONLY DURING THE YEAR OF INCURRENCE ON THE BASIS OF ITS CRYSTALLISATION. WE DIRECT ACCORDINGLY. 8. AO HAS ALSO DISALLOWED EXPENSES CLAIM ED U/S.14A AMOUNTING TO RS .21,955/ - . WE FOUND THAT DISALLOWANCE HAS BEEN MADE AS PER RULE 8D WHICH IS APPLICABLE FROM A.Y.2008 - 09, WHEREAS RELEVANT ASSESSMENT YEAR UNDER CONSIDERATION ARE A.Y.2007 - 08. KEEPING IN VIEW THE TOTALITY OF FACTS AND CIRCUMSTANCES OF THE CASE, WE DIRECT TH E AO TO RESTRICT THE DISALLOWANCE TO THE EXTENT OF 10% OF EXEMPT INCOME. WE DIRECT ACCORDINGLY. 9. IN THE RESULT, APPEAL OF THE ASSESSEE IS ALLOWED IN PART IN TERMS INDICATED HEREINABOVE. O RDER PRONOUNCED IN THE OPEN COURT ON THIS 23 / 08 /201 7 S D/ - ( AMARJIT SINGH ) S D/ - ( R.C.SHARMA ) JUDICIAL MEMBER ACCOUNTANT MEMBER MUMBAI ; DATED 23 / 08 /201 7 KARUNA SR. PS ITA NO. 284/MUM/2015 M/S. LITEL INFRARED SYSTEM S PVT. LTD., 5 COPY OF THE ORDER FORWARDED TO : BY ORDER, ( ASSTT. REGISTRAR) ITAT, MUMBAI 1. THE APPELLANT 2. THE RESPONDENT. 3. THE CIT(A), MUMBAI. 4. CIT 5. DR, ITAT, MUMBAI 6. GUARD FILE. //TRUE COPY//