ACIT, New Delhi V. M/s. Comviva Technologies Ltd., New Delhi

ITA 2846/DEL/2012

• Counselvise Citation: [2015] 140 COUNSELVISE.COM (IT) 87128 (ITAT-DELHI)
• Duration Of Justice: 2 year(s) 9 month(s) 15 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 23-03-2015
• Appeal Filed By: Department
• Order Result: Partly Allowed
• Bench Allotted: B
• Next Hearing Date: 05-11-2014
• Assessment Year: 2007-2008
• Appeal Filed On: 08-06-2012
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Keywords: Depreciation; Rule of consistency
• Section: 143(3); 14A

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH: B NEW DELHI BEFORE SHRI J. S. REDDY, ACCOUNTANT MEMBER AND SHRI C. M. GARG, JUDICIAL MEMBER I.T.A .NO. - 2846/DEL/2012 (ASSESSMENT YEAR - 200 7 - 0 8 ) ACIT VS. CONVIVA TECHNOLOGIES LTD. CIRCLE - 3(1) ARAVAIL CRESCENT, 1 NEW DELHI. N E LSON MANDELA ROAD, NEW DELHI. PAN: AABCB0102A (APPELLANT) (RESPONDENT) REVENUE BY: - SMT. POONAM KHAIRA SIDHU , CIT . DR SMT. PARWINDER KAUR, SR. DR ASSESSEE BY: - SH. ANIL BHALLA, CA DATE OF HEARING: 16 /02/2015 DATE OF PRONOUNCEMENT: 23 /0 3 /2015 ORDER PER C. M. GARG, JM. THIS APPEAL HAS BEEN HAS BEEN PREFERRED BY THE REVENUE AGAINST THE ORDER OF CIT (APPEALS) - VI , NEW DELHI VIDE DATED 14 .0 3.2012 IN APPEAL NO.307/09 - 10 FOR ASSESSMENT YEAR 200 7 - 0 8 . 2. THE REVENUE HAS RAISED FOLLOWING GROUNDS IN THIS APPEAL READ AS UNDER: 1. THE LD. CIT(A) HAS ERRED ON FACTS AND IN LAW IN DELETING THE DISALLOWANCE OF PROVISION FOR WARRANTY EXPENSES AMOUNTING TO RS.4,00,978/ - ON THE GROUND THAT THE SAME IS UNASCERTAINED LIABILITY. I.T.A .NO. - 2846/DEL/2012 2 2. THE LD. CIT(A) HAS ERRED ON FACTS AND IN LAW IN DELETING THE DISALLOWANCE OF SOFTWARE SERVICE CHARGE AMOUNTING TO RS.12,38,26,881/ - AS NO DETAILS WERE PROVIDED. 3. THE LD. CIT(A) HAS ERRED ON FACTS AND IN LAW IN DELETING THE DISALLOWANCE OF DEPRECIATION ON COMPUTER PERIPHERALS/ACCESSORIES @ 15% INSTEAD OF RATE OF 60% AMOUNTING TO RS.10,80,230/ - . 4. THE LD. CIT(A) HAS ERRED ON FACTS AND IN LAW IN DELETING THE DISALLOWANCE OF RS.30,99,289/ - BY APPLYING PROVISIONS OF SECTION 14A OF THE I.T. ACT, 1961. 3. BRIEFLY STATED THE FACTS GIVING RISE TO THIS APPEAL ARE THAT THE ASSESSEE COMPANY IS ENGAGED IN THE BUSINESS OF COMPUTER SOFTWARE DEVELOPMENT AND TRADING OF BOUGHT OUT PRODUCTS. THE ASSESSEE COMPANY FILED ITS RETURN OF INCOME ON 31.10.2007 DECLARING AN INCOME OF RS.19,03,01,880/ - AND THE CASE WAS SELECTED FOR SCRUTI NY. DURING THE COURSE OF ASSESSMENT PROCEEDINGS THE AO MADE DISALLOWANCES AND ADDITIONS ON ACCOUNT OF DISALLOWANCE U/S 14A OF THE ACT, PROVISIONS FOR WARRANTY EXPENSES, SOFTWARE SERVICES CHARGES, GRATUITY U/S 40A(7) OF THE ACT AND DEPRECIATION ON COMPUTER PERIPHERALS AND FINALIZE THE ASSESSMENT AT RS.31, 90,62,670/ - AS AGAINST THE RETURNED INCOME OF RS.19,03,01,880/ - . I.T.A .NO. - 2846/DEL/2012 3 4. BEING AGGRIEVED BY THE ABOVE ASSESSMENT ORDER THE ASSESSEE PREFERRED AN APPEAL BEFORE LD. CIT(A) WHICH WAS ALLOWED ON ALL THE COUNTS DELE TING THE DISALLOWANCE AND ADDITIONS MADE BY THE AO. 5. NOW, THE AGGRIEVED REVENUE IS BEFORE THIS TRIBUNAL WITH THE MAIN FOUR GROUNDS AS REPRODUCED HEREINABOVE. GROUND NO.1 6. APROPOS GROUND NO. 1 THE LD. DR SUBMITTED THAT THE LD. CIT(A) HAS ERRED ON FACTS AND IN LAW IN DELETING THE DISALLOWANCE OF PROVISION FOR WARRANTY EXPENSES AMOUNTING TO RS.4,00,978/ - ON THE GROUND THAT THE SAME IS UNASCERTAINED LIABILITY. THE LD. DR PRAYED THAT THE IMPUGNED ORDER MAY BE SET ASIDE AND RESTORING BY THE AO ON THIS ISSUE. 7. REPLYING TO THE ABOVE, THE LD. AR SUPPORTING THE IMPUGNED ORDER, SUBMITTED THAT DURING EARLIER ASSESSMENT ORDER VIZ., 2005 - 06 AND 2006 - 07 THE WARRANTY EXPENSES CLAIMED BY THE ASSESSEE HAS BEEN ALLOWED BY THE DEPARTMENT IN THE ASSESSMENT ORDER PASSED U/S 143(3) OF THE ACT INCOME TAX ACT, 1961 ( FOR SHORT THE ACT ) . THE LD. AR FURTHER SUBMITTED A COPY OF THE DECISION OF ITAT DELHI B BENCH DATED 30.04.2013 IN ITA NO.28 0 4/DE L/2012 FOR SUBSEQUENT ASSESSMENT YEAR 2008 - 09 IN ASSESSEE S OWN CASE AND CONTENDED THAT THE ISSUE IS SQUARELY COVERED IN FAVOUR OF THE ASSESSEE BY THE DECISION OF THE TRIBUNAL IN ASSESSEE S OWN CASE. I.T.A .NO. - 2846/DEL/2012 4 8 . ON CAREFUL CONSIDERATION OF ABOVE SUBMISSIONS FROM THE ORDER OF THE TRIBUNAL FOR AY 2008 - 09 DATED 30.4.2013 (SUPRA) WE NOTE THAT THE SIMILAR CLAIM OF THE ASSESSEE ALLOWED BY THE LD. CIT(A) , HAS BEEN UPHELD BY THE TRIBUNAL WITH FOLLOWING OBSERVATIONS AND FINDINGS: 7. THE GROUND NO.2 IS AGAINST THE DELETION OF ADDITION MADE BY ASSESSING OFFICER OF RS.23,25,339/ - ON ACCOUNT OF PROVISION FOR WARRANTY EXPENSES. 8. LD. DR RELIED ON THE ORDER OF THE ASSESSING OFFICER AND ALSO SUBMITTED THAT THE PROVISION HAS BEEN MADE FOR UNASCERTAINED LIABILITY. THE ASSESSEE WAS FAILED TO PROVE THE ACTUAL INCURRENCE OF LIABILITY UNDER THE WARRANTY CLAUSES ON 6 ITA NO.2804/DEL./2012 THE BASIS OF FIXING THE PERCENTAGE OF THE TURNOVER. IN ABSENCE OF SUCH DEDUCTIONS, THE CLAIM OF THE ASSESSEE ON THE BASIS OF PERCENTAGE OF THE TURNOVER SHOULD NOT HAVE BEEN ALLOWED. HE ALSO RELIED ON THE ORDER OF HON'BLE MADRAS HIGH COURT IN THE CASE OF CIT VS. TOTORK CONTROLS INDIA LIMITED 293 ITR 311. 9. ON THE OTHER HAND, THE LD. AR RELIED ON THE ORDER OF T HE CIT (A) AND PLEADED THAT THE COMPANY IS DOING THE BUSINESS OF COMPUTER SOFTWARE DEVELOPMENT AND TRADING OF BOUGHT OUT PRODUCT. THE COMPANY DEVELOPS SOFTWARE FOR THE CUSTOMER ACCORDING TO THEIR SPECIFICATIONS. SUCH SOFTWARES NEED TO HAVE A PERFORMANCE GU ARANTEE. IN VIEW OF THESE FACTS, THERE WAS A WARRANTY CLAUSE IN THE COMMERCIAL TRANSACTIONS AS THE SOFTWARE SUPPLIED TO THE CUSTOMERS MIGHT HAVE BUGS/ISSUES, THUS, THE SALE OF THE SOFTWARE AND WARRANTY ARE INEXTRICABLY BOUND BY EACH OTHER. IN VIEW OF THESE FACTS, ONCE THE SALE I.T.A .NO. - 2846/DEL/2012 5 HAS BEEN RECORDED. THEN THE LIABILITY IN RESPECT OF THE WARRANTY HAS ALSO TO BE CONSIDERED AS COST AGAINST THE SALES. SUCH COST FOR WARRANTY IS NOT CONTINGENT LIABILITY. THE QUANTIFICATION OF THE WARRANTY HAS BEEN MADE ON TECHNICAL ES TIMATES BASED ON PAST EXPERIENCE AND THE WARRANTY CLAUSES S CONTAINED IN THE AGREEMENTS OF SALES WITH THE CUSTOMER. LD. AR FURTHER SUBMITTED THAT WARRANTY CLAUSES IMPOSED A LIABILITY ON THE COMPANY TO DISCHARGE ITS OBLIGATION UNDER THE CLAUSES OF THE AGREE MENT FOR THE PERIOD OF WARRANTY. THUS, THE LIABILITY IS CAPABLE OF BEING CONSTRUED IN DEFINITE TERMS AND HAS 7 ITA NO.2804/DEL./2012 ARISEN ON THE SALES EFFECTED IN THE ACCOUNTING YEAR. SINCE THE ASSESSEE IS MAINTAINING BOOKS OF ACCOUNTS ON THE MERCANTILE SYSTEM BASIS, THIS LIABILITY HAS BEEN ACCRUED THOUGH IT SHALL BE DISCHARGED AT A FUTURE DATE. THEREFORE, SUCH CLAIM HAS TO BE CONSIDERED WHILE WORKING OUT THE PROFIT AND GAIN OF THE BUSINESS FOR THE YEAR UNDER CONSIDERATION. HE RELIED ON THE DECISION OF CI T (A). 10. WE HAVE HEARD BOTH THE SIDES ON THE ISSUE. THE ASSESSEE COMPANY IS DOING THE BUSINESS OF COMPUTER SOFTWARE AND TRADING OF BOUGHT OUT PRODUCTS. THE COMPANY ALSO PRODUCES SOFTWARES TO ITS CUSTOMERS AS PER THEIR SPECIFICATIONS. THUS, THE ASSESSEE H AS TO PROVIDE PERFORMANCE GUARANTEE AND FOR THE SAME, THE CLAUSES FOR WARRANTY IS PROVIDED. THUS, THE SALES AND WARRANTY WERE INEXTRICABLY RELATED TO EACH OTHER. THE WORKING OF THE WARRANTY IS BASED ON TECHNICAL ESTIMATES AND PAST EXPERIENCE. THE ASSESSEE COMPANY IS MAINTAINING THE ACCOUNTS ON THE MERCANTILE SYSTEM. THE LIABILITY FOR WARRANTY EXPENSES IS A COMMITTED LIABILITY AT THE VERY INITIAL I.T.A .NO. - 2846/DEL/2012 6 STAGE OF THE SALES. THE AMOUNT OF PROVISION BASED ON PAST EXPERIENCE EXHIBITS A DIRECT NEXUS BETWEEN THE CLAIM FO R PROVISION AND OBLIGATION ARISING UNDER THE WARRANTY CLAUSE. IN VIEW OF THIS, IT CAN BE SAID THAT IT IS A LIABILITY WHICH HAS ARISEN IN THE RELEVANT YEAR THOUGH ITS ACTUAL QUANTIFICATION AND DISCHARGE IS DEFERRED TO A FUTURE DATE. THE FACTS ON THE RECORD ALSO DO NOT SHOW THAT SUCH PROVISION HAS BEEN MADE FOR EVADING THE TAX. IN VIEW OF THESE FACTS, WE FIND 8 ITA NO.2804/DEL./2012 NO FAULT IN THE ORDER OF CIT (A) AND WE SUSTAIN THE SAME ON THIS ISSUE. THIS GROUND OF REVENUE IS DISMISSED. 9 . IN VIEW OF ABOV E, WE ARE UNABLE TO SEE ANY VALID REASON TO INTERFERE WITH THE CONCLUSION OF THE LD. CIT(A) FOR AY 2007 - 08 WHEN THE SAME CLAIM OF EXPENDITURE HAS BEEN ALLOWED BY THE AO IN THE PRECEDING ASSESSMENT YEAR 2005 - 06 AND 2006 - 07 IN THE ORDER PASSED U/S 143(3) OF THE ACT . W E ALSO NOTE THAT THE SAME CLAIM OF THE ASSESSEE IN AY 2008 - 09 WAS ALSO ALLOWED BY THE LD. CIT(A) VI VIDE HIS ORDER DATED 15.3.2012 WHICH HAS BEEN UPHELD BY THE ITAT DELHI B BENCH BY THE ORDER DATED 30.4.2013 (SUPRA). HENCE, WE HOLD THAT THE ISS UE IS S QUARELY COVERED IN FAVOUR OF THE ASSESSEE BY EARLIER AND SUBSEQUENT ORDERS, THEREFORE, SAME CLAIM OF WARRANTY EXPENSES WAS RIGHTLY ALLOWED BY THE LD. CIT(A) FOR THE YEAR UNDER CONSIDERATION. WE ARE UNABLE TO SEE ANY INFIRMITY OR ANY OTHER VALID REAS ON TO INTERFERE WITH THE SAME. ACCORDINGLY, GROUND NO. 1 OF THE REVENUE , BEING DEVOID OF MERIT, IS DISMISSED. GROUND NO.2 I.T.A .NO. - 2846/DEL/2012 7 1 0 . APROPOS GROUND NO. 2 THE LD. DR SUBMITTED THAT THE LD. CIT(A) HAS ERRED ON FACTS AND IN LAW IN DELETING THE DISALLOWANCES OF SOFTWARE SERVICES CHARGES AMOUNTING TO RS.12,38,26,881/ - AS NO DETAILS OR EXPLANATION WERE PROVIDED BY THE ASSESSEE TO THE AO DURING THE ASSESSMENT PROCEEDINGS. THE LD. DR FURTHER CONTENDED THAT THE AO WAS QUITE JUSTIFIED IN DISALLOWING THE 50% OF SOFTWAR E SERVICES CHARGES CLAIMED BY THE ASSESSEE BECAUSE THE ASSESSEE COULD NOT DISCHARGED ITS ONUS OF SUBSTANTIATING THE CLAIM. THE LD. DR ALSO POINTED OUT THAT DURING THE IMMEDIATE PRECEDING YEAR THE ASSESSEE HAS ALSO NOT FURNISHED SIMILAR DETAILS WHICH LE D O UT TO THE ADDITION ON THIS COUNT . THE LD. DR SUBMITTED THAT THE IMPUGNED ORDER MAY BE SET ASIDE BY RESTORING THAT OF THE AO ON THIS ISSUE. 1 1 . REPLYING TO THE ABOVE, THE LD. AR SUPPORTING THE IMPUGNED ORDER SUBMITTED THAT THERE WAS NO BASIS FOR THE AO FOR AD HOC DISALLOWANCE OF 50% OF SOFTWARE SERVICES CHARGES AS THERE IS NO CONCEPT OF AD HOC DISALLOWANCES IN THIS REGARD. THE LD. AR FURTHER DRAWN OUR ATTENTION TOWARDS THIS FACT THAT DURING AY 2005 - 06 T HE AO MADE SIMILAR DISALLOWANCE WHICH WAS ALLOWED BY TH E LD. CIT(A) DISMISSING THE ACTION OF THE AO, VIDE ORDER DATED 30.9.2009 WHICH IS AVAILABLE ON PAPER BOOK PAGE NOS. 22 TO 30. THE LD. AR FURTHER CONTENDED THAT AS PER INFORMATION GATHERED BY THE ASSESSEE THE DEPARTMENT HAS NOT GONE I N APPEAL TO THE ITAT AGAINST THE SAID ORDER OF THE LD. CIT(A) W HICH GRANTED RELIEF FOR THE ASSESSEE FOR AY 2005 - 06. I.T.A .NO. - 2846/DEL/2012 8 1 2 . ON CAREFUL CONSIDERATION OF ABOVE SUBMISSIONS AND VIGILANT PERUSAL OF THE IMPUGNED ORDER AS WELL AS ORDER OF THE CIT(A) DATED 30.9.2009 FOR AY 2005 - 06 , WE NOTE THAT THE LD. CIT(A) GRANTED RELIEF TO THE ASSESSEE FOR THE ASSESSMENT YEAR UNDER CONSIDERATION WITH FOLLOWING OBSERVATIONS AND CONCLUSION: 5.4 I HAVE CAREFULLY CONSIDERED THE SUBMISSIONS MADE BY THE LD. AR AND GONE THROUGH THE ASSESSMENT ORDER. THE DISALLOWANCE WAS MADE BY THE AO ON THE ACCOUNT OF SOFTWARE SERVICE CHARGES MAINLY BECAUSE THE APPELLANT COMPANY FAILED TO FURNISH THE DETAILS IN THIS REGARD. IT IS SEEN THAT THE AO REQUESTED THE APPELLANT COMPANY TO FURNISH THE DETAILS REGARDING THE SO FTWARE SERVICE CHARGES ON 18.11.2009. IN RESPONSE, THE DETAILS WERE SUBMITTED BY THE APPELLANT COMPANY ON 9.12.2009 AND AS PER THE APPELLANT COMPANY THE AO DID NOT RAISE ANY FURTHER QUERY REGARDING THE SOFTWARE SERVICE CHARGES. DURING THE COURSE OF APPELLA TE PROCEEDINGS THE LD. AR FURNISHED THE COPY OF LEDGER ACCOUNT ALONGWITH THE BILLS AND VOUCHERS REGARDING THE SOFTWARE SERVICE CHARGES WHICH WERE FORWARDED TO THE AO FOR VERIFICATION VIDE THIS OFFICE LETTER DT. 29.10.2010. THE AO IN HIS REMAND REPORT DT. 2 .2.2011 REITERATED THAT THE DOCUMENTS WERE NEVER PRODUCED BEFORE HIM DURING THE COURSE OF ASSESSMENT PROCEEDINGS. HOWEVER, HE DID NOT PREFER TO GIVE HIS COMMENTS REGARDING THE GENUINENESS OF THESE DOCUMENTS. THE AO HAS NOT DID NOT DISPUTE THAT THE LEDGER A CCOUNT OF THE SOFTWARE SERVICE CHARGED WERE NOT PRODUCED BEFORE HIM. HIS ONLY OBJECTION WAS REGARDING THE NON PRODUCTION OF BILLS AND VOUCHERS. SINCE THESE ARE THE I.T.A .NO. - 2846/DEL/2012 9 IMPORTANT DOCUMENTS FOR DECIDING THE ISSUE IN QUESTION, THE SAME ARE BEING ADMITTED UNDER RU LE 46A OF THE IT RULES AND EXAMINED IN DETAIL. IT IS SEEN THAT THE APPELLANT COMPANY HAS PAID TO THE SOFTWARE SERVICE CHARGES IN THE FORM OF ROYALTY AMOUNTING TO RS.24,72,91,063/ - TO A KOREAN COMPANY NAMELY WIDER THEN ON ACCOUNT OF BHARTI AIR TEL MOBILIT Y (RING BACK TONE AGREEMENT) THROUGH BANKING CHANNELS AND AFTER THE PAYMENTS WERE MADE AFTER DEDUCTING TAX ON SOURCE (TDS) ON IT. FURTHER, AN AMOUNT OF RS.3,62,669/ - HAS BEEN PAID BY THE APPELLANT COMPANY ON ACCOUNT OF REVENUE SHARING PROFESSIONAL CHARGES THROUGH THE BANKING CHANNELS. IN VIEW OF THESE EVIDENCES, IT CANNOT BE SAID THAT THE EXPENSES WERE NOT INCURRED GENUINELY BY THE APPELLANT COMPANY. THEREFORE, IN MY OPINION THERE IS NO BASIS FOR DISALLOWING 50% OF THE EXPENDITURE ON ACCOUNT OF SOFTWARE SER VICE CHARGES AS CLAIMED BY THE APPELLANT COMPANY IN ITS PROFIT AND LOSS ACCOUNT THEREFORE, THE AO IS DIRECTED TO DELETE THE ADDITION ON ACCOUNT. 1 3 . THE ONLY OBJECTION OF THE AO WAS THAT THE ASSESSEE DID NOT PRODUCE BILLS AND VOUCHERS RELATED TO THE CLAIM ED EXPENDITURE OF SOFTWARE SERVICES CHARGES. DURING THE FIRST APPELLATE PROCEEDINGS THE LD. CIT(A) ADMITTED THE RELEVANT DOCUMENT ON THE ISSUE UNDER RULE 46A OF THE IT RULES 1962 AND T HE AO ALSO SUBMITTED REMAND REPORT DATED 2.2.2011 TO THE CIT(A) . IN THE REMAND REPORT THE AO REITERATED THIS CONTENTION THAT THE ASSESSEE DID NOT PRODUCE RELEVANT DOCUMENTS BEFORE HIM DURING THE COURSE OF ASSESSMENT PROCEEDINGS . I.T.A .NO. - 2846/DEL/2012 10 1 4 . THE LD. DR HAS NOT DISPUTED THIS FACT THAT THE ASSESSEE COMPANY HAS PAID THE SOFTWARE S ERVICES CHARGES IN THE FORM OF ROYALTY AMOUNTING TO RS. 24,72,91,063/ - TO A KOREAN COMPANY ON ACCOUNT OF BHARTI AIRTEL MOBILITY THROUGH BANKING CHANNELS AND THE PAYMENTS WERE MADE AFTER DUE DEDUCTION OF TAX AT SOURCE (TDS) THEREON. 15 . IN VIEW OF AFORESAI D FACTUAL MATRIX OF THE CASE AS NOTED BY THE LD. CIT(A) AND NOT DISPUTED BY THE AO , W E ARE IN AGREEMENT WITH THE CONCLUSION OF THE LD. CIT(A) THAT IT CANNOT BE PRESUMED THAT THE EXPENSES WERE NOT INCURRED BY THE ASSESSEE COMPANY IN ABSENCE OF ANY ADVERSE M ATERIAL OR EVIDENCE . AT THE SAME TIME, WE ARE OF THE CONSIDERED OPINION THAT THERE WAS NO GOOD CAUSE FOR THE AO FOR MAKING 50% AD HOC DISALLOWANCE OF THE SOFTWARE SERVICES CHARGES CLAIMED BY THE ASSESSEE AS IF, THE AO WAS OF THE OPINION THAT PAYMENT WERE N OT GENUINE THAT THE ENTIRE EXPENSES SHOULD HAVE BEEN DISALLOWED. WE ARE UNABLE TO SEE ANY VALID REASON OR GROUND FOR MAKING 50% DISALLOWANCE BY THE AO. WE CANNOT IGNORE THAT THE LD. CIT(A) FOR AY 2005 - 06 HAS ALSO ALLOWED SIMILAR CLAIM OF THE ASSESSEE AND ON SPECIFIC QUERY FROM THE BENCH THE LD. DR WAS UNABLE TO GUIDE US WHETHER THE DEPARTMENT FURTHER AGITATED THE ISS UE BEFORE THE TRIBUNAL AND HENCE, WE MAY SAFELY PRESUMED THAT THE ORDER OF THE LD. CIT(A) FOR AY 2005 - 06 HAS BEEN ACCEPTED BY THE DEPARTMENT. ON THE RULE OF CONSISTENCY IT IS A WELL ACCEPTED PROPOSITION THAT ALTHOUGH THE PRINCIPLE OF RES JUDICATA DOES NOT APPLY TO THE TAXATION MATTER BUT THE RULE OF CONSISTENCY HAS TO BE FOLLOWED BY THE REVENUE AUTHORITIES AND FLIP FL O P APPROACH ON THE SIMILAR ISSUE IS NOT I.T.A .NO. - 2846/DEL/2012 11 PERMISSIBLE UNLESS AND UNTIL ANY SUBSTANTIAL CHANGE IN THE FACTS AND CIRCUMSTANCES OF THE CASE IS BROU GHT OUT . THUS, WE HOLD THAT IN THE PRESENT CASE THE CIT(A) WAS RIGHT IN DELETING THE AD HOC ADDITION WHICH WAS MADE BY THE AO WITHOUT ANY BASIS. HENCE, WE UNABLE TO SEE ANY AMBIGUITY OR PERVERSITY OR ANY OTHER VALID REASON TO INTERFERE WITH THE SAME AND TH EREFORE, GROUND NO. 2 OF THE REVENUE IS ALSO DISMISSED. GROUND NO. 3 16 . AT THE OUTSET THE LD. DR FAIRLY ACCEPTED THAT THE ISSUE IS SQUARELY COVERED IN FAVOUR OF THE ASSESSEE BY THE DECISION OF HON BLE JURISDICTIONAL HIGH COURT OF DELHI IN THE CASE OF CIT VS. BSES RAJDHANI POWERS LTD. DATED 31.08.2010 IN ITA NO.1266/2010 THEREFORE, WE ARE OF THE CONSIDERED VIEW THAT THE LD. CIT(A) HAS RIGHTLY GRANTED RELIEF FOR THE ASSESSEE ON THIS ISSUE AND WE UPHELD THE SAME. ACCORDINGLY, GROUND NO. 3 OF THE REVENUE IS ALSO DISMISSED. GROUND NO.4 17 . THE LD. DR SUBMITTED THAT THE LD. CI T(A) HAS ERRED ON FACTS AND IN LAW IN DELETING THE DISALLOWANCE BY APPLYING PROVISIONS OF SECTION 14A OF THE ACT. ON THIS ISSUE T HE LD. AR DRAWN OUR ATTENTION TOWARDS ORDER OF THE ITAT DELHI B BENCH IN ASSESSEE S OWN CASE FOR AY 2008 - 09 (SUPRA) AND SUB MITTED THAT THE ISSUE MAY BE SET ASIDE TO THE FILE OF AO FOR FRESH ADJUDICATION IN THE SAME LINE WHICH WAS DONE FOR AY 2008 - 09. I.T.A .NO. - 2846/DEL/2012 12 18 . THE LD. DR SUBMITTED THAT THE DEPARTMENT HAS NO SERIOUS OBJECTION IF THE MATTER IS RESTORED BACK TO THE FILE OF THE AO FOR FRESH ADJUDICATION IN THE LIGHT OF DECISION OF THE TRIBUNAL DATED 30.4.2013 FOR AY 2008 - 09 (SUPRA). 19 . ON CAREFUL CONSIDERATION OF ABOVE SUBMISSIONS , WE NOTE THAT THE ITAT HAS RESTORED THE ISSUE TO THE FILE OF THE AO WITH FOLLOWING OBSERVATIONS AND CONCL USION: 6. WE HAVE HEARD BOTH THE SIDES ON THIS ISSUE. HON'BLE DELHI HIGH COURT IN THE CASE OF MAXOPP INVESTMENT LTD. VS. CIT [2011] 203 TAXMANN 364 (DELHI) IN PARAS 41 & 42 HAS HELD AS UNDER : - 41. SUB - SECTION (2) OF SECTION 14A, AS WE HAVE SEEN, STIPULATES THAT THE ASSESSING OFFICER SHALL DETERMINE THE AMOUNT OF EXPENDITURE INCURRED IN RELATION TO INCOME WHICH DOES NOT FORM PART OF THE TOTAL INCOME IN ACCORDANCE WITH S UCH METHOD AS MAY BE PRESCRIBED . OF COURSE, THIS DETERMINATION CAN ONLY BE UNDERTAKEN IF THE ASSESSING OFFICER IS NOT SATISFIED WITH THE 4 ITA NO.2804/DEL./2012 CORRECTNESS OF THE CLAIM OF THE ASSESSEE IN RESPECT OF SUCH EXPENDITURE. THIS PART OF SECTION 14A(2) WHICH EXPLICITLY REQUIRES THE FULFILLMENT OF A CONDITION PRECEDENT IS ALSO IMPLICIT IN SECTION 14A(1) [AS IT NOW STANDS] AS ALSO IN ITS INITIAL AVATAR AS SECTION 14A. IT IS ONLY THE PRESCRIPTION WITH REGARD TO THE METHOD OF DETERMINING SUCH EXPENDIT URE WHICH IS NEW AND WHICH WILL OPERATE PROSPECTIVELY. IN OTHER WORDS, SECTION 14A, EVEN PRIOR TO THE INTRODUCTION OF SUB - SECTIONS (2) & (3) WOULD REQUIRE THE ASSESSING OFFICER TO FIRST REJECT THE CLAIM OF THE ASSESSEE WITH REGARD TO THE EXTENT OF SUCH EXP ENDITURE AND SUCH REJECTION MUST BE FOR DISCLOSED COGENT REASONS. IT IS THEN THAT THE I.T.A .NO. - 2846/DEL/2012 13 QUESTION OF DETERMINATION OF SUCH EXPENDITURE BY THE ASSESSING OFFICER WOULD ARISE. THE REQUIREMENT OF ADOPTING A SPECIFIC METHOD OF DETERMINING SUCH EXPENDITURE HAS BEEN INTRODUCED BY VIRTUE OF SUB - SECTION (2) OF SECTION 14A. PRIOR TO THAT, THE ASSESSING WAS FREE TO ADOPT ANY REASONABLE AND ACCEPTABLE METHOD. 42. THUS, THE FACT THAT WE HAVE HELD THAT SUB - SECTIONS (2) & (3) OF SECTION 14A AND RULE 8D WOULD OPERATE PROSPECT IVELY (AND, NOT RETROSPECTIVELY) DOES NOT MEAN THAT THE ASSESSING OFFICER IS NOT TO SATISFY HIMSELF WITH THE CORRECTNESS OF THE CLAIM OF THE ASSESSEE WITH REGARD TO SUCH EXPENDITURE. IF HE IS SATISFIED THAT THE ASSESSEE HAS CORRECTLY REFLECTED THE AMOUNT O F SUCH EXPENDITURE, HE HAS TO DO NOTHING FURTHER. ON THE OTHER HAND, IF HE IS SATISFIED ON AN OBJECTIVE ANALYSIS AND FOR COGENT REASONS THAT THE AMOUNT OF SUCH EXPENDITURE AS CLAIMED BY THE ASSESSEE IS NOT CORRECT, HE IS REQUIRED TO DETERMINE THE AMOUNT OF SUCH EXPENDITURE ON THE BASIS OF A REASONABLE AND ACCEPTABLE METHOD OF APPORTIONMENT. IT WOULD BE APPROPRIATE TO RECALL THE WORDS OF THE SUPREME COURT IN WALFORT (SUPRA) TO THE FOLLOWING EFFECT: - THE THEORY OF APPORTIONMENT OF EXPENDITURE BETWEEN TAXABLE AND NON - TAXABLE HAS, IN PRINCIPLE, BEEN NOW WIDENED UNDER SECTION 14A.' SO, EVEN FOR THE PRE - RULE8D PERIOD, WHENEVER THE ISSUE OF SECTION 14A ARISES BEFORE AN ASSESSING OFFICER, HE HAS, FIRST OF ALL, TO ASCERTAIN THE CORRECTNESS OF THE CLAIM OF THE ASSESS EE IN RESPECT OF THE EXPENDITURE INCURRED IN RELATION TO INCOME WHICH DOES NOT FORM PART OF THE TOTAL INCOME UNDER THE SAID ACT. EVEN WHERE THE ASSESSEE CLAIMS THAT NO EXPENDITURE HAS BEEN INCURRED IN RELATION TO INCOME WHICH DOES NOT FORM PART OF TOTAL IN COME, 5 ITA NO.2804/DEL./2012 THE ASSESSING OFFICER WILL HAVE TO VERIFY THE CORRECTNESS OF SUCH CLAIM. IN CASE, THE I.T.A .NO. - 2846/DEL/2012 14 ASSESSING OFFICER IS SATISFIED WITH THE CLAIM OF THE ASSESSEE WITH REGARD TO THE EXPENDITURE OR NO EXPENDITURE, AS THE CASE MAY BE, THE ASSE SSING OFFICER IS TO ACCEPT THE CLAIM OF THE ASSESSEE INSOFAR AS THE QUANTUM OF DISALLOWANCE UNDER SECTION 14A IS CONCERNED. IN SUCH EVENTUALITY, THE ASSESSING OFFICER CANNOT EMBARK UPON A DETERMINATION OF THE AMOUNT OF EXPENDITURE FOR THE PURPOSES OF SECTI ON 14A(1). IN CASE, THE ASSESSING OFFICER IS NOT, ON THE BASIS OF OBJECTIVE CRITERIA AND AFTER GIVING THE ASSESSEE A REASONABLE OPPORTUNITY, SATISFIED WITH THE CORRECTNESS OF THE CLAIM OF THE ASSESSEE, HE SHALL HAVE TO REJECT THE CLAIM AND STATE THE REASON S FOR DOING SO. HAVING DONE SO, THE ASSESSING OFFICER WILL HAVE TO DETERMINE THE AMOUNT OF EXPENDITURE INCURRED IN RELATION TO INCOME WHICH DOES NOT FORM PART OF THE TOTAL INCOME UNDER THE SAID ACT. HE IS REQUIRED TO DO SO ON THE BASIS OF A REASONABLE AND ACCEPTABLE METHOD OF APPORTIONMENT. HERE, ON THE ONE HAND, ASSESSEE CLAIMS THAT NO EXPENDITURE WAS INCURRED FOR EARNING DIVIDEND INCOME AND ON THE OTHER HAND, DISALLOWS SUO MOTO RS.1 LAC TOWARDS EARNING SUCH INCOME. THE ASSESSING OFFICER HAS TO REJECT THE CLAIM OF ASSESSEE AND APPORTION THE EXPENDITURE ON REASONABLE AND ACCEPTABLE METHOD. IN OUR CONSIDERED VIEW, THIS ISSUE REQUIRED TO BE RESTORED TO THE FILE OF THE ASSESSING OFFICER TO DECIDE AFRESH. WE ORDER ACCORDINGLY. IN THE RESULT, THIS GROUND OF REVE NUE S APPEAL IS ALLOWED FOR STATISTICAL PURPOSES. 2 0 . IN VIEW OF ABOVE, WE OBSERVE THAT THE TRIBUNAL HAS RESTORED THE ISSUE TO THE FILE AO BY FOLLOWING THE DECISION OF HON BLE HIGH COURT OF DELHI IN THE CASE OF MAXOPP INVESTMENT LTD. (SUPRA) , WHEREIN THEIR LORDSHIP HAS HELD THAT EVEN IF FOR THE PRE RULE 8D PERIOD THE PROCEDURE FOR MAKING DISALLOWANCE U/S I.T.A .NO. - 2846/DEL/2012 15 14A OF THE ACT HAS BEEN GIVEN . R ESPECTFULLY FOLLOWING THE DECISION OF HON BLE HIGH COURT (SUPRA) AND THE TRIBUNAL FOR AY 2008 - 09 (SUPRA), WE HOLD THAT THE SIMILAR ISSUE IN THE SIMILAR SET OF FACTS AND CIRCUMSTANCES OF THE PRESENT CASE ALSO DESERVE TO BE RESTORED TO THE FILE OF AO FOR FRESH ADJUDICATION BY FOLLOWING THE DECISION OF HON BLE HIGH COURT OF DELHI IN THE CASE OF MAXOPP INVESTMENT LTD. VS. CIT (SUPRA) IN THE SIMILAR LINE WHICH HAS BEEN ORDERED BY THE TRIBUNAL ORDER FOR AY 2008 - 09 (SUPRA). ACCORDINGLY, GROUND NO. 4 OF THE REVENUE IS DEEMED TO BE ALLOWED FOR STATISTICAL PURPOSES IN THE MANNER AS INDICATED ABOVE. 2 1 . IN THE RESULT, APPEAL OF THE REVENUE ON GROUND NOS. 1, 2 & 3 IS DISALLOWED AND APPEAL OF THE REVENUE ON GROUND NO. 4 IS DEEMED TO BE PARTLY ALLOWED FOR STATISTICAL PURPOSES. ORDER PRONOU NCED IN THE OPEN COURT O N 23 /0 3 /2015. SD/ - SD/ - ( J. S. REDDY ) (C. M. GARG) ACCOUNTANT MEMBER JUDICIAL MEMBER DATED: 23 /02/2015 *AK VERMA* COPY FORWARDED TO: 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(APPEALS) 5. DR: ITAT ASSISTANT REGISTRAR