M/s. Central Warehousing Corporation, New Delhi V. ACIT, New Delhi

ITA 2918/DEL/2009

• Counselvise Citation: [2011] 134 COUNSELVISE.COM (IT) 3996 (ITAT-DELHI)
• Duration Of Justice: 1 year(s) 11 month(s) 3 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 20-05-2011
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: B
• Next Hearing Date: 18-05-2011
• Assessment Year: 2005-2006
• Appeal Filed On: 17-06-2009
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: JAYANT MISHRA
• Assessee Lawyers: PROF S SAMPATH
• Keywords: Depreciation; Business expenditure; Opportunity of being heard; Revenue expenditure; Capital expenditure
• Section: 14A

Judgement Text

ITA NO. 2918/DEL/2009 1 IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH B NEW DELHI BEFORE SHRI A.D. JAIN, JUDICIAL MEMBER AND SHRI SHAMIM YAHYA, ACCOUNTANT MEMBER I.T.A. NO. 2918/DEL/2009 A.Y. : 2005-06 M/S CENTRAL WAREHOUSING CORPORATION, WAREHOUSING BHAVAN, 4/1, SIRI INSTITUTIONAL AREA, AUGUST KRANTI MARG, HAUZ KHAS, NEW DELHI- 110 016 (PAN/GIR NO. : AAACC1206D) VS. THE ASSTT. COMMISSIONER OF INCOME TAX, CIRCLE 3(1), C.R. BLDG., NEW DELHI 110 002 (APPELLANT ) (APPELLANT ) (APPELLANT ) (APPELLANT ) (RESPONDENT ) (RESPONDENT ) (RESPONDENT ) (RESPONDENT ) ASSEESSEE BY : PROF. S. SAMPATH DEPARTMENT BY : SH. JAYANT MISHRA, C.I.T.(D.R. ) ORDER ORDER ORDER ORDER PER SHAMIM YAHYA: AM PER SHAMIM YAHYA: AM PER SHAMIM YAHYA: AM PER SHAMIM YAHYA: AM THIS APPEAL BY THE ASSESSEE IS DIRECTED AGAINST T HE ORDER OF THE LD. COMMISSIONER OF INCOME TAX (APPEALS) DATED 26.3.2 009 PERTAINING TO ASSESSMENT YEAR 2005-06. 2. THE FIRST ISSUE RAISED READS AS UNDER:- BOTH ON LAW AND ON FACTS AND CIRCUMSTANCES OF THE C ASE, IT IS CONTENDED THAT DISALLOWANCE U/S 14A OF THE INCOM E TAX ACT HAS BEEN WRONGLY WORKED OUT AS PER RULE 8D OF T HE IT RULES. IT IS CONTENDED THAT THE DISALLOWANCE U/S 14A TO TH E EXTENT OF ` 62,73,165/- IS WRONG AND BAD IN LAW. ITA NO. 2918/DEL/2009 2 WITHOUT PREJUDICE IT IS CONTENDED THAT THE DISALLOW ANCE U/S 14A IS HIGH AND EXCESSIVE. PROVISION OF SECTION 14A IS NOT APPLICABLE IN THE INSTANT CASE. 3. ON THIS ISSUE ASSESSING OFFICER NOTED THAT DUR ING THE YEAR THE ASSESSEE COMPANY HAS CLAIMED DIVIDEND INCOME OF ` 3,8 8,06,395/- AS EXEMPTED INCOME U/S 10. BUT THE ASSESSING OFFICER NOTED THAT ASSESSEE HAS NOT DISALLOWED THE PROPORTIONATE MANAGE MENT AND ADMINISTRATIVE EXPENSES ATTRIBUTABLE TO THE EXEMPT IN COME. ASSESSING OFFICER PROCEEDED TO DISALLOW THE PROPORTIONATE AMO UNT U/S 14A AMOUNTING TO ` 1,33,07,219/-. 4. UPON ASSESSEES APPEAL LD. COMMISSIONER OF INCOME TAX (APPEALS) REFERRED TO THE ITAT SPECIAL BENCH DECISI ON IN THE CASE OF DAGA CAPITAL MANAGEMENT 119 TTJ 289. HE NOTED THAT ITAT SPECIAL BENCH HAS HELD THAT SUB-SECTION (2) AND (3) OF SECT ION 14A ARE RETROSPECTIVE IN NATURE AND THE RESULTANT RULE 8D W OULD ALSO FALL ON THE SAME LINE. LD. COMMISSIONER OF INCOME TAX (APPE ALS) FURTHER NOTED THAT A.R. OF THE ASSESSEE HAS SUBMITTED THAT THE CORRECT WORKING IS ATTACHED WITH THE WRITTEN SUBMISSION. HOWEVE R, NO SUCH WORKING WAS GIVEN. ASSESSEE HAS SUBMITTED THAT DISALLOWANCE UNDER RULE 8D COMES TO ` 28,14,376/-. LD. COMMISSIONER OF INCOME TAX (APPEALS) HAS OBTAINED THE REMAND REPORT FROM THE ASSESSING OFFICER WHO HAS MENTIONED THAT ON APPLICATION OF RULE 8D, DISALLOWAN CE SHOULD BE ` 62,73,165/-. IN THE ABSENCE OF ANY CLARIFICATION I N THIS REGARD, HE HELD THAT THE CALCULATION DONE BY THE ASSESSING OFFICER IS UPHELD AND DISALLOWANCE U/S 14A IS RESTRICTED TO ` 62,73,165/ -. 5. AGAINST THE ABOVE ORDER THE ASSESSEE IS IN APPEA L BEFORE US. ITA NO. 2918/DEL/2009 3 6. WE HAVE HEARD BOTH THE COUNSEL AND PERUSED THE R ECORDS. WE FIND THAT HONBLE MUMBAI HIGH COURT IN THE CASE OF GODREJ BOYCE MFG. CO. LTD. VS. DCIT IN ITA NO. 626 OF 2010 234 CTR 1 H AS OVERRULED THE ITAT DECISION OF DAGA CAPITAL MANAGEMENT (SUPRA) AND HELD THAT RULE 8D HAS BEEN NOTIFIED ON 24.3.2008 AND WILL BE A PPLICABLE ONLY FROM ASSESSMENT YEAR 2008-09. 6.1 FROM THE ABOVE, WE FIND THAT RULE 8D WOULD NOT BE APPLICABLE. HOWEVER, THE HONBLE MUMBAI HIGH COURT HAS HELD THAT THE REASONABLE DISALLOWANCE HAS TO BE MADE. HENCE, WE REMIT THIS IS SUE TO THE FILES OF THE ASSESSING OFFICER TO CONSIDER THE SAME AFRESH A ND DECIDE AS PER THE LAW, IN LIGHT OF THE ABOVE CITED HONBLE MUMBAI HIGH COURT DECISION. NEEDLESS TO ADD THAT THE ASSESSEE SHOULD BE GIVEN ADEQUATE OPPORTUNITY OF BEING HEARD. 7. THE NEXT ISSUE RAISED READS AS UNDER:- BOTH ON LAW AND ON FACTS, THE ASSESSING OFFICER HAS GROSSLY ERRED IN DISALLOWING OF ` 5,53,65,006/- TOW ARDS UNABSORBED ENGINEERING OVERHEADS, WHICH WERE ROUTI NE BUSINESS EXPENDITURE. IT IS CONTENDED THAT SIMILAR NATURE OF DISALLOWANCE AS PER GROUND ABOVE IN THE PAST YEARS HAVE BEEN ALLOWED AT THE 1 ST APPELLATE STAGE AND THE INCOME TAX DEPARTMENT WHO HAD GONE IN FOR APPEAL BEFORE ITAT WAS NOT GIVEN PERMIS SION BY COD TO PURSUE THE APPEALS IN RESPECT OF THE EARLI ER YEARS. ACCORDINGLY, THE LD. COMMISSIONER OF INCOME TAX (APPEA LS) HAS NOT FOLLOWED THE COD INSTRUCTION WHICH IS BINDI NG. ITA NO. 2918/DEL/2009 4 8. ON THIS ISSUE ASSESSING OFFICER NOTED THAT ASSE SSEE COMPANY HAS CLAIMED UNABSORBED OVERHEAD ON CAPITAL WORKS EX PENDITURE OF ` 5,53,65,006/- AS REVENUE EXPENDITURE. THE ASSESSEE WAS ASKED TO EXPLAIN THE NATURE OF THESE EXPENSE AND ASKED TO EX PLAIN WHY THE SAME SHOULD NOT BE TREATED AS CAPITAL EXPENDITURE. ASSESSING OFFICER NOTED THAT ASSESSEE HAD MADE A TOTAL CAPITAL EXPEND ITURE OF ` 11,78,77,000/- OUT OF WHICH AN AMOUNT OF ` 63,76,000 /- HAS BEEN DEBITED TO THE P&L A/C AS REPAIRS AND MAINTENANCE, ` 5,61,36,000/- HAS BEEN CAPITALIZED AND CLAIMED AN AMOUNT OF ` 5,53,65, 000/- AS DEDUCTION IN THE P&L ACCOUNT UNDER THE HEAD UNABSOR BED OVERHEAD ON CAPITAL WORKS. THE ASSESSING OFFICER PROCEEDED TO HOLD THE SAME AMOUNT OF ` 5,53,65,006/- CANNOT BE ALLOWED AS REVEN UE EXPENDITURE. HOWEVER, THE DEPRECIATION @ 10% WAS ALLOWED BY THE ASSESSING OFFICER THEREBY MAKING THE ADDITION OF ` 4,98,28,500/-. 9. BEFORE THE LD. COMMISSIONER OF INCOME TAX (APPEALS) , ASSESSEE SUBMITTED THAT THE ACTION OF THE ASSESSEE WAS AS P ER THE ACCOUNTING POLICY NO. 20 OF THE ASSESSEE COMPANY. THE OVERHEADS OF VARIOUS CONSTRUCTION, AFTER TRANSFER OF A FIXED PERCENTAGE TO THE REPAIRS AND MAINTENANCE, IN EXCESS OF THE AVERAGE PERCENTAGE OF THE CORPORATION, ARE TREATED AS UNABSORBED AND CHARGED TO REVENUE WH ICH HAS BEEN CLAIMED AS A NORMAL BUSINESS EXPENDITURE. UPON ASSES SEES APPEAL LD. COMMISSIONER OF INCOME TAX (APPEALS) CAREFULLY C ONSIDERED THE SUBMISSIONS. HE HELD AS UNDER:- ON CAREFUL CONSIDERATION OF THE FACTS OF THE CASE, I FIND THAT THE CONSTRUCTION OVERHEADS FOR THE YEAR UNDER APPEAL AMOUNTS TO ` 1178.77 LACS. OUT OF THIS, ` 63.76 LACS WAS TAKEN TO REPAIRS AND MAINTENANCE, BEING 15% OF THE DIRECT EXPENDITURE ON REPAIRS AND ITA NO. 2918/DEL/2009 5 MAINTENANCE. ` 531.36 LACS IS STATED TO BE CAPITALIZ ED TO THE RESPECTIVE ASSET IN PROPORTION TO THE RESPECTIVE CA PITAL COST AND THE BALANCE ` 553.65 WAS CHARGED TO P&L A/C AS UNAB SORBED CONSTRUCTION OVERHEAD. DURING THE APPEAL PROCEEDI NGS, THE LD. AUTHORISED REPRESENTATIVE WAS SPECIFICALLY ASKED T O FILE DETAILS AND DOCUMENTS SO AS JUSTIFY HIS CLAIM OF ` 5,53,65, 006/-. THE ASSESSING OFFICER WAS REQUIRED TO EXAMINE THE SAME. AS PER THE REPORT OF THE ASSESSING OFFICER A COPY OF OPINION RECEIVED FROM ICAI WAS FILED. HOWEVER, THIS OPINION DOES NOT HAVE ANY HEAD NOTE SPECIFYING THE PERSON TO WHOM IT HAS BEEN ADDRESSED NOR THERE IS ANY FOOT NOTE OR SEAL BELOW THE PAGE. IT WAS FURTHE R ADDED BY THE ASSESSING OFFICER THAT AS PER ACCOUNTING STANDARD 10 ALSO, ALL DIRECT AND RELEVANT INDIRECT COST SHOULD BE INCLUD ED FOR ARRIVING AT THE COST OF CONSTRUCTION OF THE SELF CONSTRUCTE D WAREHOUSES. NO COMMENTS HAVE BEEN OFFERED BY THE LD. AUTHORISED REPRESENTATIVE ON THIS CRUCIAL ASPECT. I FURTHER FIND THAT THE APPELLANT HAS ONLY GIVEN UNIT WISE STATEMENT OF C APITALIZATION OF CONSTRUCTION OVERHEADS AND THE COMPUTATION OF UNABSO RBED OVERHEADS CHARGED TO THE P&L A/C. FOR CLAIMING ANY EXPENDITURE, THE ONUS IS ON THE APPELLANT TO PROVE THAT THE AMOUNT IS ADMISSIBLE AS A DEDUCTION. THE APPELLANT HAS BEEN SPECIFICALLY REQUIRED TO GIVE THE COMPLETE DETAILS AND DOCUMENTS IN SUPPORT OF HIS CLAIM. HOWEVER, THE SAME HAVE NOT BEEN PRODUCED. IN THE ABSENCE OF PROPER DETAILS, IT IS NOT POSSIBLE TO ASCERTAIN AS TO WHETHER THE EXPENDITURE IS OF REVE NUE NATURE OR NOT. THE APPELLANT HAS SIMPLY CAPITALIZED EXPENSES AMOUNTING TO ` 561.36 LACS AND THE BALANCE (AFTER DEBITING ` 63. 76 LACS TO P&L A/C) IS CLAIMED AS REVENUE EXPENDITURE. HOWEVER, T HE CLAIM IS ITA NO. 2918/DEL/2009 6 NOT SUBSTANTIATED BY PROPER DETAILS AND DOCUMENTS. AS REGARDS APPELLANTS RELIANCE ON THE APPELLATE ORDERS OF EA RLIER YEARS, I FIND FROM THE READING OF THESE ORDERS THAT THE DETAI LS IN THIS REGARD, WERE NOT SOUGHT FOR. WHILE GRANTING THE RE LIEF, THE LD. COMMISSIONER OF INCOME TAX (APPEALS) HAS OBSERVED TH AT THERE IS NEITHER ANY EVIDENCE NOR ANY CONCRETE FINDING AS TO HOW SUCH OVERHEAD EXPENSES WAS CAPITAL IN NATURE. HOWEVER, FACTS AND CIRCUMSTANCES ARE DIFFERENT FOR THE YEAR UNDER APPEA L. IN THE PRESENT APPEAL, SPECIFIC QUERIES HAVE BEEN RAISED I N THIS REGARD AND THE ASSESSING OFFICER HAS ALSO EXAMINED THE ISS UE. THE APPELLANT HAS NOT GIVEN COMMENTS ON THE SPECIFIC OB JECTIONS RAISED BY THE ASSESSING OFFICER, NOR THE PROPER DE TAILS AND DOCUMENTS HAVE BEEN FILED. IN SUCH CIRCUMSTANCES, T HE CLAIM OF THE APPELLANT IS NOT ALLOWABLE, AND HENCE, ADDITION MADE BY THE ASSESSING OFFICER IN THIS REGARD IS UPHELD. 10. AGAINST THIS ORDER THE ASSESSEE IS IN APPEAL B EFORE US. 11. WE HAVE HEARD BOTH THE COUNSEL AND PERUSED THE RECORDS. LD. COUNSEL OF THE ASSESSEE CLAIMED THAT THIS HAS BEEN A SYSTEM OF ACCOUNTING OF THE ASSESSEE FOR THE PAST NUMBER OF YE ARS AND ACCEPTED BY THE REVENUE ALSO. 11.1 LD. DEPARTMENTAL REPRESENTATIVE ON THE OTHER HA ND SUBMITTED THAT THIS WAS AN ADHOC SYSTEM ADOPTED BY THE ASSESS EE WHICH WAS NOT ENQUIRED EARLIER. HENCE, HE CLAIMED THAT THERE WAS NO BAR IN MAKING ENQUIRY IN THIS REGARD. 11.2 WE HAVE HEARD THE RIVAL CONTENTIONS IN LIGHT OF THE MATERIAL PRODUCED AND PRECEDENT RELIED UPON. WE NOTE THAT LD . COMMISSIONER OF INCOME TAX (APPEALS) HAS NOTED THAT ASSESSEE WAS ASKED TO GIVE ITA NO. 2918/DEL/2009 7 COMPLETE DETAILS OF THE EXPENDITURE, BUT THE SAME H AVE NOT BEEN PRODUCED BEFORE THE LD. COMMISSIONER OF INCOME TAX ( APPEALS). IN OUR CONSIDERED OPINION, IF THE MATTER IS NOT ENQUIRE D EARLIER, THE SAME CANNOT ACT AS AN ESTOPPEL FOR THE REVENUE AUTHORITI ES THAT THE SAME CANNOT BE ENQUIRED IN THE CONCERNED ASSESSMENT YEAR. HOWEVER, AS NOTED BY THE LD. COMMISSIONER OF INCOME TAX (APPEALS) , PROPER DETAILS IN THIS REGARD, HAS NOT BEEN SUBMITTED. THE LD. C OUNSEL OF THE ASSESSEE ALSO DID NOT ELABORATE ON THE SYSTEM ADOPT ED IN THIS REGARD WITH COGENT MATERIAL, EXCEPT ASSERTING THAT THIS SYS TEM WAS FOLLOWED FOR A LONG PERIOD. HENCE, IN THE INTEREST OF JUSTICE , WE REMIT THIS ISSUE TO THE FILES OF THE ASSESSING OFFICER TO CONSIDER THE SAME AFRESH. NEEDLESS TO ADD THAT THE ASSESSEE SHOULD BE GIVEN A DEQUATE OPPORTUNITY OF BEING HEARD. HOWEVER, THE ASSESSEE IS DIRECTED TO PROVIDE NECESSARY DETAILS IN THIS REGARD BEFORE THE AUTHORITIES BELOW. 12. IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE IS ALLOWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED IN THE OPEN COURT ON 20/5/2011. SD/- SD/- [ [[ [A.D. JAIN A.D. JAIN A.D. JAIN A.D. JAIN] ]] ] [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 20/5/2011 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, DEPUTY REGISTRAR, ITAT, DELHI BENCHES