Appeal Details
Counselvise Citation
[2014] 120 COUNSELVISE.COM (IT) 6180 (ITAT-CHANDIGARH)
Assessee PAN
Bench
Appeal Number
Duration Of Justice
3 year(s) 3 month(s) 20 day(s)
Appellant
Respondent
Appeal Type
Income Tax Appeal
Pronouncement Date
11-07-2014
Appeal Filed By
Department
Order Result
Partly Allowed
Bench Allotted
B
Next Hearing Date
03-07-2014
Assessment Year
2007-2008
Appeal Filed On
22-03-2011
Judgement Text
IN THE INCOME TAX APPELLATE TRIBUNAL CHANDIGARH BENCH B, CHANDIGARH BEFORE SHRI T.R. SOOD, ACCOUNTANT MEMBER AND MS. SUSHMA CHOWLA, JUDICIAL MEMBER ITA NO. 298/CHD/2011 ASSESSMENT YEARS : 2007-08 PUNJAB TRACTORS LTD V J.C.I.T. PATIALA CIRCLE (SINCE MERGED WITH PATIALA MAHINDRA & MAHINDRA LTD) MOHALI AAACP 8578 K ITA NO. 299/CHD/2011 ASSESSMENT YEARS : 2007-08 A.C.I.T. PATIALA CIRCLE V PUNJAB TRACTORS LTD PATIALA (SINCE MERGED WITH MAHINDRA & MAHINDRA LTD) MOHALI AAACP 8578 K (APPELLANT) (RESPONDENT) ASSESSEE BY: SHRI ALOK GUPTA REVENUE BY: SHRI H.C. NEGI DATE OF HEARING 3.7.2014 DATE OF PRONOUNCEMENT 1 1.7.2014 O R D E R PER T.R. SOOD, A.M THESE ARE CROSS APPEALS AND ARE DIRECTED AGAINST TH E ORDER DATED 28.1.2011 OF THE LD CIT(A), PATIALA. S OME ISSUES ARE COMMON IN THESE APPEALS WHICH WERE HEARD TOGETH ER AND ARE BEING DISPOSED OFF BY THIS COMMON ORDER. ITA NO. 298/CHD/2011 ASSESSEE APPEAL 2 IN THIS APPEAL THE ASSESSEE HAS RAISED THE FOLLOW ING GROUNDS: 1 THAT THE ORDER PASSED BY THE LEARNED CIT(A) IS BAD IN LAW BEING BASED ON CONJECTURES AND SURMISES AND WITHOUT APPRE CIATING MATERIAL ON RECORD. 2 2. THAT THE LEARNED CIT(A) HAS ERRED ON FACTS AND I N LAW IN DISALLOWING THE FOLLOWING REPAIR & MAINTENANCE EXPE NSES: REPAIRS TO BUILDING : 4,67,975/- REPAIRS TO PLANT & MACHINERY : 12,17,486/- SUCH DISALLOWANCES WERE MADE ON THE GROUND THAT THE SE EXPENSES ARE CAPITAL IN NATURE AND THEREBY ADDING A TOTAL SUM OF RS. 16,85,461/- TO THE INCOME OF THE APPELLANT BEING BASED ON CONJECTURES AND SURMISES. 3. THAT THE LEARNED CIT(A) HAS ERRED IN LAW AND ON FACTS OF THE CASE IN CHARGING INTEREST U/S 234D OF THE INCOME-TAX ACT , 1961. 4. THAT THE LEARNED CIT(A) HAS ERRED IN LAW AND ON FACTS OF THE CASE IN WITHDRAWAL OF INTEREST U/S 244A OF THE INCOME-TA X ACT, 1961. 5. THAT THE LEARNED CIT(A) HAS ERRED IN LAW AND ON FACTS OF THE CASE IN HOLDING THAT THE INITIATION OF PENALTY U/S 271(1 )(C) OF INCOME-TAX ACT, 1961 IS PREMATURE. 3 GROUND NO. 1 IS OF GENERAL NATURE AND THEREFORE N O SEPARATE ADJUDICATION IS REQUIRED. 4 GROUND NO. 2 - AFTER HEARING BOTH THE PARTIES WE FIND THAT DURING ASSESSMENT PROCEEDINGS THE ASSESSING OFFICER NOTICED THAT ASSESSEE HAD CLAIMED REPAIR EXPENSES AS UNDER: 1 REPAIR TO BUILDING RS. 69,77,485 2 REPAQIRS TO PLANT AND MACHINERY 1,13,01,554 IN RESPONSE TO THE QUERY REGARDING DETAILS THE ASSE SSEE SUBMITTED THE DETAILS OF MAJOR EXPENSES. THE ASSESS ING OFFICER LISTED OUT VARIOUS ITEMS AND OBSERVED THAT SOME OF THEM COULD NOT TREATED AS REPAIR BECAUSE THEY WERE CLEARLY OF CAPITAL NATURE. ACCORDINGLY 20% OF THE ITEMS WERE ESTIMATED ON ACCOUNT OF REPAIR AND BALANCE WAS HELD TO BE RELATA BLE TO CAPITAL EXPENSES. ON CAPITAL EXPENDITURE APPROPRIAT E DEPRECIATION WAS ALLOWED AND EXPENDITURE OF REVENUE NATURE WAS FULLY ALLOWED. 5 ON APPEAL THE DETAIL SUBMISSIONS WERE MADE AND IT WAS ALSO POINTED OUT THAT THE TRIBUNAL IN ASSESSEES CA SE FOR EARLIER YEAR HAS ALLOWED WHOLE OF EXPENSES AS REVENUE. 3 6 THE LD. CIT(A) AFTER EXAMINING THE DETAILS LISTED OUT CERTAIN ITEMS AS UNDER: REPAIRS OF BUILDING DESCRIPTION OF ITEMS AMOUNT FIBRE GLASS SHEET 53,375 MS OVERHEAD GUTTER 64,261 -DO- 25,301 FIBRE GLASS SHEET 22,500 -DO- 14,625 -DO- 30,375 -DO- 33,750 FIXING CUP BOARD 20,101 AIR COOLER 12,600 SIDE RACKS 8,559 DOOR WITH COMPLETE FILLING 40,495 WOODEN CABINET WITH SUNMICA 13,183 FIXING OF TILES 51,000 REPLACEMENT OF FIBRE SHEET 47,048 -DO 21,802 STEEL ISSUED FOR MISC JOB WORK 2,91,598 TOTAL 7,59,573 REPAIRING OF PLANT AND MACHINERY DESCRIPTION OF ITEMS AMOUNT MS OVERHEAD GUTTER 71,411/- FABRICATION WORK IN CORESHOP 5240/- -DO- 54,098/- -DO- 8800/- -DO- 54,895/- -DO- 2470/- -DO- 55095/- DRUM FOR OCE 7051 COPIER 113696/- AXIS CONTROL CARD 224235/- FABRICATION WORK IN CORESHOP 54385/- -DO- 53011/- -DO- 4200/- -DO- 3470/- MODULE 58148/- FABRICATION WORK IN CORESHOP 16000/- -DO- 52175/- TROLLEY WITH H ATTACHMENT 138529/- FABRICATION WORK IN CORESHOP 50000/- -DO- 50,388/- -DO- 4000/- -DO- 6400/- FABRICATION WORK IN CORESHOP 50007/- COMPAQ MAKE COMPUTERS 29040/- FABRICATION WORK FOR CORESHOP 6600/- -DO- 1200/- -DO- 50043/- STEEL ISSUED FOR MISC. JOBS 704273/- TOTAL 19,21,759/- HE WAS OF THE OPINION THAT THESE ITEMS ARE OF CAPIT AL NATURE AND ACCORDINGLY SUSTAINED DISALLOWANCE OF RS. 1685 461/-. 7 BEFORE US. THE LD. COUNSEL FOR THE ASSESSEE SUBMI TTED THAT IN THE EARLIER YEAR THE TRIBUNAL HAS HELD THAT ALL THE ITEMS 4 TO BE OF REVENUE NATURE AND IN THIS REGARD HE FILED COPIES OF THE ORDERS OF THE TRIBUNAL FOR ASSESSMENT YEARS 2003-04 , 2004-05 & 2006-07 IN ITAS NO. 270/CHD/2006, 49/CHD/2007, 594/CHD/2008, 626/CHD/2008 AND 107 & 102/CHD/2010. HOWEVER, WHEN THE BENCH POSED A QUERY THAT HOW ITEM S LIKE WOODEN CABINET WITH SUNMICA, AIR COOLER, CUP BOARDS , AIR FILTER, AXIS CONTROL CARD, TROLLEY WITH H ATTACHMENT WERE OF REVENUE NATURE. HE ADMITTED THAT SOME OF THE ITEMS MAY BE OF CAPITAL NATURE BUT BASICALLY THEY ARE REPLACEMENT OF OLD IT EMS. 8 ON THE OTHER HAND, THE LD. D.R. FOR THE REVENUE SUBMITTED THAT THE TRIBUNAL HAS ALREADY HELD IN ASS ESSMENT YEAR 2008-09 & 2009-10 IN ITAS NO., 599 & 600/CHD/ 2013 THAT ALL ITEMS CANNOT BE CALLED OF REVENUE NATURE AND HA S SUSTAINED DISALLOWANCE. 9 WE HAVE CONSIDERED THE RIVAL SUBMISSIONS CAREFULL Y AND FIND THAT THE HON'BLE SUPREME COURT IN CASE OF CI T V SARAVANA SPINNING MILLS P LTD. 293 ITR 201 (S.C) DI SCUSSED THE MEANING OF CURRENT REPAIR AND ALSO DISCUSSED WH ETHER THE REPLACEMENT OF CERTAIN PARTS ALSO CONSTITUTE THE RE PAIR OR NOT? ULTIMATELY IT WAS HELD AS UNDER: HELD, REVERSING THE DECISION OF THE HIGH COURT, (I ) THAT THE MANUFACTURING PROCESS IN THE TEXTILE MILL WAS NOT O NE CONTINUOUS INTEGRATED PROCESS; (II) THAT TO DECIDE THE APPLICABILITY OF SECTION 31 (I) THE TEST WAS NOT WHETHER THE EXPENDITURE WAS REVENUE OR CAPITAL IN N ATURE, BUT WHETHER THE EXPENDITURE WAS CURRENT REPAIRS. THE BASIC TE ST WAS TO FIND OUT WHETHER EXPENDITURE WAS INCURRED TO PRESERVE AND M AINTAIN AN ALREADY EXISTING ASSET, AND THE EXPENDITURE MUST NOT BE TO BRING A NEW ASSET INTO EXISTENCE OR TO OBTAIN NEW ADVANTAGE. (III) THAT EACH MACHINE INCLUDING THE RING FRAME WA S AN INDEPENDENT AND SEPARATE MACHINE CAPABLE OF INDEPENDENT AND SPECIFI C FUNCTION AND, THEREFORE, THE EXPENDITURE INCURRED FOR REPLACEMENT THEREOF WOULD NOT COME WITHIN THE MEANING OF CURRENT REPAIRS. THE R EPLACEMENT OF THE RING FRAME CONSTITUTED SUBSTITUTION OF AN OLD ASSET BY A NEW ASSET, AND , THEREFORE, THE EXPENDITURE INCURRED BY THE ASSESSEE DID NOT FALL WITHIN THE MEANING OF CURRENT REPAIRS IN SECTION 31(I). 5 UNDER SECTION 31(I) THE DEDUCTION ADMISSIBLE IS ONL Y FOR CURRENT REPAIRS. THEREFORE, THE QUESTION AS TO WHETHER THE EXPENDITU RE INCURRED BY THE ASSESSEE CONCEPTUALLY IS REVENUE OR CAPITAL IN NATU RE IS NOT RELEVANT FOR DECIDING THE QUESTION WHETHER SUCH EXPENDITURE COME S WITHIN THE ETYMOLOGICAL MEANING OF THE EXPRESSION CURRENT REP AIRS. IN OTHER WORDS, EVEN IF THE EXPENDITURE IS REVENUE IN NATURE, IT MA Y NOT FALL IN THE CONNOTATION OF CURRENT REPAIRS. N EW S HORROCK S PINNING A ND M ANUFACTURING C O . L TD . V . CIT [1956] 30 ITR 338 (BOM) RELIED ON. FURTHER THIS ISSUE CAME UP FOR CONSIDERATION IN ASS ESSMENT YEAR 2008-09 & 2009-10 IN ASSESSEES OWN CASE IN I TAS NO. 599 & 600/CHD/2013 AND THE SAME WAS ADJUDICATED VID E PARA 7 WHICH IS AS UNDER: 7 WE HAVE GONE THROUGH THE RIVAL SUBMISSIONS CAREF ULLY AND FIND FORCE IN THE SUBMISSIONS OF THE LD. D.R. FOR T HE REVENUE THAT IN SUCH MATTERS THE ISSUES CANNOT BE SAID TO BE COV ERED BY EARLIER ORDER OF THE TRIBUNAL BECAUSE IT WOULD DEPEND ON TH E NATURE OF THE ITEMS AND DEPENDING ON THE NATURE OF EACH ITEM THE SAME HAS TO BE TREATED AS CAPITAL EXPENDITURE OR REVENUE EXPEND ITURE. THE ASSESSING OFFICER HAS MENTIONED VARIOUS ITEMS AND N O DOUBT THE WOODEN PANELING, WOODEN PARTITION, SOME SMALL ITEMS OF STEEL OR PURCHASE OF CEMENT ETC. MAY FALL UNDER REPAIR BUT A T THE SAME TIME PURCHASE OF ALMIRAH IN ASSESSMENT YEAR 2008-09 AMOU NTING TO RS. 102600/-, INSTALLATION OF BOARD ETC. CAN NOT BE TER MED AS REPAIR AND MAINTENANCE. SIMILARLY THE ASSESSEE HAS SHOWN PURCHASE OF ORISSA TYPE W.C ALONG WITH G.I. FLUSH BEND, C.I PEE TRAP ETC. WHICH SHOWS CONSTRUCTION OF NEW BATH ROOM. THE LD. COUNSEL FOR THE ASSESSEE COULD NOT GIVE ANY ANSWER IN RESPECT O F THESE ITEMS. AT THE SAME TIME THERE IS NO PURPOSE IF THE ISSUE I S SET ASIDE, THEREFORE AFTER EXAMINING VARIOUS ITEMS WE ARE OF T HE OPINION IF 10% OF ITEMS LISTED BY THE ASSESSING OFFICER ARE HE LD TO BE OF CAPITAL NATURE, SAME WOULD MEET THE ENDS OF JUSTICE . ACCORDINGLY WE SET ASIDE THE ORDER OF THE LD. CIT(A) AND DIRECT THE ASSESSING OFFICER TO TREAT 10% OF THE ITEMS FROM BUILDING R EPAIR AS WELL AS PLANT & MACHINERY REPAIR AS LISTED BY THE ASSESSING OFFICER AS REVENUE EXPENDITURE. WE MAY FURTHER CLARIFY THAT O N CAPITAL PORTION OF THE ITEM REQUISITE DEPRECIATION MAY ALSO BE ALLOWED. IN THIS YEAR ALSO CERTAIN ITEMS ARE CLEARLY OF CAPI TAL NATURE AND FOLLOWING EXAMPLES CAN BE GIVEN: MS OVERHEAD GUTTER RS. 64,261/- -DO- RS. 25301/- FIXING CUP BOARD RS. 20101/- AIR COOLER RS. 12600/- FIXING OF TILES RS. 51000/- DRUM FOR OCE 7051 COPIER RS. 113696/- ASIAN MAKE ENERGY EFFICIENT RS. 79875/- AXIS CONTROL CARD RS. 224235/- MODULE RS. 58148/- TROLLEY WITH H ATTACHMENT RS. 138529/- 6 HOWEVER, AT THE SAME TIME THERE IS NO PURPOSE TO SE ND THE PROCEEDINGS BACK FOR DETAILED EXAMINATION BECAUSE A FTER LAPSE OF LONG TIME IT IS VERY DIFFICULT TO SAY THAT THE I TEM WAS NEW OR OLD. THEREFORE FOLLOWING OUR DECISION IN ASSESSMEN T YEAR 2008- 09 AND 2009-10 WE HOLD THAT IF 10% OF THE ITEMS ARE TREATED AS CAPITAL EXPENDITURE AND THAT WOULD MEET THE ENDS OF JUSTICE. ACCORDINGLY WE SET ASIDE THE ORDER OF THE CIT(A) AN D DIRECT THE ASSESSING OFFICER TO TREAT 10% OF THE EXPENSES FROM BUILDING AND PLANT AND MACHINERY REPAIR AS CAPITAL EXPENSES AND REST MAY BE ALLOWED AS REVENUE EXPENSES. NEEDLESS TO SA Y THAT DEPRECIATION MAY ALSO BE ALLOWED ON APPROPRIATE RAT E ON THE ITEMS WHICH ARE TREATED AS CAPITAL EXPENDITURE. 10 GROUNDS NO. 3 & 4 THESE GROUNDS RELATE TO CHAR GING OF INTEREST U/S 234D AND WITHDRAWAL OF INTEREST U/S 24 4A WHICH IS OF CONSEQUENTIAL NATURE AND THE ASSESSING OFFICER IS DIRECTED TO CHARGE INTEREST U/S 234D AND WITHDRAW INTEREST U /S 244A AS PER PROVISIONS OF THE ACT. 11 GROUND NO. 5 THE ISSUE REGARDING INITIATION OF PENALTY IS OF PRE-MATURE NATURE AND THIS GROUND IS DISMISSED A S INFRUCTUOUS.L 12 IN THE RESULT, ASSESSEES APPEAL IN ITA NO. 298/ CHD/2011 IS PARTLY ALLOWED. ITA NO. 299/CHD/2011 REVENUES APPEAL 13 IN THIS APPEAL THE REVENUE HAS RAISED THE FOLLOW ING GROUNDS: 1 IN THE FACTS AND CIRCUMSTANCES OF THE CASE, LD. CIT (A) HAS ERRED IN SUSTAINING THE ADDITION OF RS. 16,85,461/- OUT O F THE TOTAL OF RS. 36,05,814/-, MADE BY THE AO ON A/C OF DISALLOWANCE OF EXPENSES OF CAPITAL-IN-NATURE CLAIMED AS BEING REVENUE-IN-NATUR E, WITHOUT APPRECIATING THE FACT THAT IF THE AMOUNT HAD BEEN S PENT TOWARDS BRINGING INTO EXISTENCE A NEW ASSET / ADVANTAGE, THEN THE SA ME WOULD TANTAMOUNT TO BE CAPITAL-IN-NATURE AND HENCE NOT BEING A PERMI SSIBLE DEDUCTION U/S 10(2)(V). 7 2. IN THE FACTS AND CIRCUMSTANCES OF THE CASE, LD. CIT(A) HAS ERRED IN DELETING THE ADDITION OF RS. 2,51,14,283/-, MADE BY THE AO ON A/C OF APPORTIONMENT OF EXPENSES U/S 14A, WITHOUT APPRECIA TING THE FACT THAT THE ASSESSEE HAD NEITHER PROVIDED SEPARATE DETAILS OF EXPENSES PERTAINING TO DIVIDEND INCOME NOR ANY CONCRETE EVID ENCE IN SUPPORT OF THE DISALLOWANCE BEING UNCALLED FOR U/S 14 A. 3. IN THE FACTS AND CIRCUMSTANCES OF THE CASE, LD. CIT(A) HAS ERRED IN DELETING THE ADDITION OF RS. 2,33,85,184/-, MADE BY THE ASSESSING OFFICER ON A/C OF DISALLOWANCE OF INCENTIVE PAID TO THE DEALERS, WITHOUT APPRECIATING THE FACT THAT THE ASSESSEE HAD FAILED TO EITHER FILE CONFIRMATION OR PROVIDE PAN IN RESPECT OF ALL THE D EALERS. 14 GROUND NO. 1 THROUGH THIS GROUND THE REVENUE H AS CHALLENGED THE RELIEF GIVEN BY THE LD. CIT(A) ON AC COUNT OF REPAIR AND MAINTENANCE. THIS ISSUE HAS BEEN ADJUDI CATED BY US WHILE ADJUDICATING ASSESSEES APPEAL VIDE PARA 9 AND FOLLOWING THE SAME WE DECIDE THIS ISSUE PARTLY IN F AVOUR OF REVENUE. THEREFORE THIS GROUND OF REVENUE IS PARTLY ALLOWED. 15 GROUND NO. 2 AFTER HEARING BOTH THE PARTIES WE FIND THAT DURING ASSESSMENT PROCEEDINGS THE AO NOTICED THAT T HAT THE ASSESSEE HAS MADE CERTAIN EXPENSES FOR EARNING EXEM PT INCOME AND THEREFORE THE ASSESSEE WAS ISSUED A SHOW CAUSE NOTICE THAT WHY PROPORTIONATE EXPENSES SHOULD NOT B E DISALLOWED. IN RESPONSE IT WAS STATED AS UNDER: IN THIS REGARD WE SUBMIT THAT IT WAS ENTIRELY A BU SINESS DECISION DULY TAKEN AND APPROVED BY THE BOARD OF DIRECTORS T O INVEST IN THE SHARES OF OTHER COMPANIES. NOW JUST BECAUSE THE IN COME FROM DIVIDEND IS A TAX FREE INCOME AS PER THE ACT, THAT DOES NOT MEAN THAT THE EXPENSE HAVE NECESSARILY TO BE APPORTIONED TOWARDS EXPENSES TO EARN SUCH INCOME. AS YOU ARE AWARE OF THAT OURS IS A MANUFACTURING CONCERN AND THE INVESTMENTS ARE IN TH E SHARES OF OTHER COMPANY AND WHICH ARE MAINLY IN D-MAT ACCOUNT AND WHERE THE ECS CREDIT OF DIVIDEND IS AUTOMATICALLY DONE. WE CAN COMPARE THIS DIVIDEND INCOME WITH THE INCOME FROM DIVIDENDS FROM INVESTMENTS IN SHARES OF COMPANIES BY THE INDIVIDUA LS. ONCE THE INVESTMENT IS MADE, THERE ARE HARDLY ANY EXPENSES R EQUIRED TO BE INCURRED AFTER THAT. AND THE INVESTMENTS MADE BY T HE ASSESSEE COMPANY WERE OUT OF PROFITS OF THE COMPANY AND NOT OUT OF BORROWED FUNDS. FURTHER WE CONFIRM YOU THAT DURING THE CURRENT FY 2006-07THT COMPANY HAS NOT INVESTED IN TO THE SHARE S OF ANY OTHER COMPANY. IN ANY CASE WE INFORM YOU THAT COMMISSIONER APPEALS IN THE ASSESSMENT YEAR 2004-05 HAVE MADE AN ADHOC ADDITIO N OF RS. 25 LAKHS AGAINST THE ADDITIONS MADE BY THE ASSESSING O FFICER OF RS. 239.24 LAKHS WHICH WAS WORKED OUT ON SIMILAR BASIS AS PROPOSED BY YOUR GOOD SELF. 8 THE ASSESSING OFFICER AFTER EXAMINING THE SUBMISSIO NS OBSERVED THAT EVEN EARNING OF DIVIDEND WOULD REQUIR E SOME EFFORTS AND THEREFORE HE DISALLOWED PROPORTIONATE E XPENSES AMOUNTING TO RS. 251.14 LAKHS. 16 ON APPEAL, THE LD. CIT(A) FOLLOWING THE ORDER OF THE TRIBUNAL IN CASE OF ASSESSEE FOR ASSESSMENT YEAR 2 003-04 IN ITA NO. 49/CHD/2007 AND FOR ASSESSMENT YEAR 2004-0 5 IN ITA NO. 594/CHD/2008, DELETED THE ADDITION. 17 BEFORE US. THE LD. D.R. FOR THE REVENUE SUBMITTE D THAT IN ASSESSMENT YEAR 2008-09 AND 2009-10 THE TRIBUNAL H AS ALREADY HELD THAT PROPORTIONATE DISALLOWANCE HAS T O BE MADE AGAINST THE EXEMPT INCOME. HE FURTHER SUBMITTED TH AT IN THE EARLIER YEARS THE TRIBUNAL IN ASSESSMENT YEAR 2002 -03, 2003- 04 AND 2004-05 ORDERS WERE RENDERED WHEN THE BENEFI T OF DECISION OF HON'BLE BOMBAY HIGH COURT IN CASE OF GO DREJ & BOYCEE MFG V DCIT, 328 ITR 81 (BOM) WAS NOT AVAILAB LE. 18 ON THE OTHER HAND, THE LD. COUNSEL FOR THE ASSES SEE SUBMITTED THAT DISALLOWANCE WAS DELETED BY THE TRIB UNAL IN SIMILAR FACTS IN ASSESSMENT YEAR 2003-04 & 2004-05. FURTHER THE ASSESSING OFFICER HAS NOT POINTED OUT WHAT ARE THE EFFORTS AND EXPENSES REQUIRED TO BE INCURRED FOR EARNING TH E EXEMPT INCOME. IN ANY CASE EVEN IF THE ORDER OF THE TRIBUN AL IS CONSIDERED FOR ASSESSMENT YEAR 2008-09 AND 2009-10 THE SAME WAS RENDERED AFTER OBSERVING THAT RULE 8D WAS APPLICABLE FOR ASSESSMENT YEAR 2008-09. THEREFORE IT IS CLEA R THAT THAT DECISION CANNOT BE APPLIED BECAUSE IN THE PRESENT Y EAR IS 2007-08 WHEN RULE 8D WAS NOT APPLICABLE. 19 WE HAVE CONSIDERED THE RIVAL SUBMISSIONS CAREFUL LY. WE DO NOT AGREE WITH THE SUBMISSIONS OF THE LD. COUNSE L FOR THE 9 ASSESSEE THAT THE ASSESSING OFFICER HAS NOT GIVEN A NY REASONING THAT WHY THE EXPENSES IS ALLOCABLE AGAINS T THE EXEMPT INCOME. THE ASSESSING OFFICER HAS GIVEN FOLL OWING REASONS: (I) THE ASSESSEE HAS CONTENDED THAT IT RECEIVED TH E DIVIDEND BY ECS CREDIT AND DEPOSITED INTO BANK ACCOUNT OF THE COMPA NY AND THERE WAS NO EXPENDITURE INCURRED FOR EARNING DIVIDEND INCOME. T HIS PLEA OF THE ASSESSEE IS NOT CORRECT BECAUSE WHEN THE ASSESSEE H AS INVESTED 6 CRORES APPROX. IN DIFFERENT SECURITIES AND THE SECU RITIES ARE OF SUCH A VOLATILE NATURE THAT ONE HAS TO KEEP CONSTANT VIGIL ON THE MOMENTS OF PRICES AS WELL AS FINANCIAL GROUP VIABILITY OF THE COMPANY, MOMENT OF COMPANY, ITS SHARE PRICE ETC. HOW THE COMPANY REMAI NS CONFIDENT WITHOUT EMPLOYING A SINGLE PERSON FOR THE JOB. II) SECONDLY, IN A CORPORATE ENTITY, THE COMPANY HA S TO REMAIN VIGILANT AND HAS TO KEEP TRACK OF EACH ACTIVITY UND ERTAKEN SO THAT STAFF RESPONSIBLE HAVE TO ANSWER ANY NEGLIGENCE FOUND BY THE MANAGEMENT. III) THIRDLY, IT HAS TO KEEP SEPARATE RECORDS, FILI NG CORRESPONDENCE WITH COMPANY THEIR PORTFOLIO MANAGERS TRACK WITH ST OCK EXCHANGE, ADHERENCE TO SEBI GUIDELINES, MAINTENANCE OF STATUT ORY REGISTER HOLDING OF BOARD MEETING ETC. IV) FOURTHLY, THE ASSESSEE HAS POINTED OUT THAT IT HAS MADE THE INVESTMENTS WAY BACK. THIS PLEA OF THE ASSESSEE IS ALSO NOT TENABLE, HERE IT NEED TO BE APPRECIATED THAT IF THESE FUNDS WERE NOT BLOCKED IN THESE SECURITIES THEN THESE TO BE USED IN BUSINESS PURPOSE AND COMPANY TO THAT EXTENT MAY NOT HAVE NECESSARILY TO BORROW F ROM THE BANK AND CERTAINLY, THE INTEREST BURDEN SHALL BE REDUCED APA RT FROM OTHER ENDURING BENEFITS DERIVED BY THE COMPANY DUE TO ITS EASIER L IQUIDITY. V) FIFTHLY, THE COMPANY HAD EMPLOYING BANK FACILITY SINCE LONG AND PAYING REGULARLY HEAVY INTEREST ON THESE BORROWED F UNDS, AS SUCH, THERE IS DIRECT NEXUS BETWEEN INVESTMENT AND BORROWED FUN DS. ACCORDINGLY, SECTION 14 A CLEARLY HAS APPLICATION IN THIS CASE. 20 THE ABOVE CLEARLY SHOW THAT THE ASSESSING OFFICE R HAS GIVEN HIS REASONING. IT IS A COMMON KNOWLEDGE THAT THE INVESTMENTS IN SHARES AND MUTUAL FUND BY THE CORPOR ATE SECTOR REQUIRES BIG FINANCIAL EFFORTS AND ARE HANDLED BY A DEPARTMENT KNOWN AS TREASURY OPERATIONS. IN FACT THIS IS ONE OF THE IMPORTANT FUNCTION OF THE FINANCE DEPARTMENT TO HAN DLE SURPLUS FUNDS WITH RESPECT TO LIQUIDITY, SAFETY AND AT THE SAME TIME TO GENERATE MAXIMUM RETURNS. THEREFORE IT CANNOT BE SA ID THAT NO EXPENDITURE IS REQUIRED TO BE INCURRED FOR MAKING I NVESTMENTS AND RECEIVING DIVIDENDS. FIRSTLY THE TREASURY DEPA RTMENT HAS TO IDENTIFY THE SURPLUS FUNDS AND AVAILABILITY OF S AME AT THE 10 VARIOUS POINTS OF TIME THEN INVESTMENTS HAVE TO BE IDENTIFIED KEEPING THE LIQUIDITY REQUIREMENTS OF THE COMPANY I N MIND AND THEN THE FINANCIAL INVESTMENTS ARE MADE AND ROTATED AS PER THE LIQUIDITY AND OTHER REQUIREMENTS OF THE COMPANY. A LL THESE ACTIVITIES REQUIRE INVOLVEMENT OF VARIOUS MANAGEMEN T AND FINANCE PERSONNEL WHICH INVOLVES EXPENDITURE. THERE FORE TO SAY THAT THE ASSESSEE HAS NOT INCURRED ANY EXPENDITURE OR THE ASSESSING OFFICER HAS NOT POINTED OUT ANY REASON, I S TOTALLY INCORRECT. HOWEVER, AT THE SAME TIME THE LD. COUNSEL FOR THE ASSESSEE IS RIGHT IN POINTING OUT THAT RULE 8D CANN OT BE APPLIED IN ASSESSMENT YEAR 2007-08. HON'BLE BOMBAY HIGH CO URT OBSERVED IN CASE OF GODREJ & BOYCEE MFG V DCIT (SUP RA) THAT IN THE EARLIER YEAR WHEN RULE 8D WAS NOT APPLICABLE THE ASSESSING OFFICER COULD MAKE DISALLOWANCE ON REASON ABLE BASIS. THEREFORE CONSIDERING THE OVERALL CIRCUMSTAN CES, WE ARE OF THE OPINION THAT DISALLOWANCE OF RS. 10 LAKHS WO ULD MEET THE ENDS OF JUSTICE PARTICULARLY BECAUSE IT IS CLAIMED THAT NO NEW INVESTMENTS HAVE BEEN MADE AND ALL THE INVESTMENTS WERE MADE FROM ASSESSEES OWN FUNDS. THEREFORE ACCORDING LY WE SET ASIDE THE ORDER OF THE CIT(A) AND DIRECT THE ASSESS ING OFFICER TO MAKE DISALLOWANCE OF RS. 10 LAKHS. 21 GROUND NO. 3 AFTER HEARING BOTH THE PARTIES WE FIND THAT DURING ASSESSMENT PROCEEDINGS THE AO NOTICED THAT T HE ASSESSEE HAD PAID INCENTIVES TO THE DEALERS WHICH A CCORDING TO HIM WAS PROPORTIONATELY HIGHER. HE HAS ALSO NOTED THAT CERTAIN DEALERS HAD NO PAN AND IN SOME CASES CONFIRMATIONS WAS ALSO NOT FILED. HOWEVER, NO PARTICULAR EXAMPLE HAS BEEN GIVEN. 11 THEREFORE MAINTAINING CONSISTENCY HE DISALLOWED 1/3 OF THE INCENTIVES PAID AMOUNTING TO RS. 2,33,85,184/-. 22 ON APPEAL THE ADDITION WAS DELETED BY THE LD. CI T(A) FOLLOWING THE ORDERS OF THE TRIBUNAL IN ASSESSEES OWN CASE FOR ASSESSMENT YEAR 2003-04 AND 2004-05. 23 BEFORE US, THE LD. D.R FOR THE REVENUE STRONGLY SUPPORTED THE ORDER OF ASSESSING OFFICER. 24 ON THE OTHER HAND, THE LD. COUNSEL FOR THE ASSES SEE SUBMITTED THAT ISSUE IS SQUARELY COVERED BY THE DEC ISION OF THE TRIBUNAL IN EARLIER YEARS. 25 WE HAVE CONSIDERED THE RIVAL SUBMISSIONS CAREFUL LY AND FIND THAT THAT THE IDENTICAL ISSUE HAS COME UP FOR CONSIDERATION OF THE TRIBUNAL IN ASSESSMENT YEAR 2003-04 IN ITA NO. 270/CHD/2006 AND THE ISSUE WAS ADJUDICATED VIDE PAR A 23 WHICH IS AS UNDER: 23. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSE D THE RECORD. THE ASSESSEE IS A STATE GOVERNMENT UNDERTA KING CARRYING ON THE BUSINESS OF MANUFACTURING OF TRACTORS. THE ASSESSEE FOR ALL TRACTOR SALES EXCEPT GOVERNMENT INSTITUTION SALE, B ILLS TO RESPECTIVE DEALERS AT DEALER PRICE. THE DEALERS IN TURN SELL T HE TRACTORS AT MRP, THEREBY TAKING HIS PROFIT MARGIN. THE ASSESSE E CLAIMS THAT 99 PERCENT OF ITS TURN OVER IS DIRECTLY DEALER SALE WITH NO COMMISSION. THE GOVERNMENT INSTITUTION SALE IS ROU TED THROUGH RESPECTIVE DEALERS REGION WHERE THE GOODS ARE SOLD ON TENDER RATES AND DEALER IS PAID COMMISSION SEPARATELY. THE SAID COMMISSION IS ADDED IN THE QUOTATION AND THUS IS NOT DEBITED TO T HE PROFIT AND LOSS ACCOUNT OF THE COMPANY. HOWEVER, BECAUSE OF T OUGH MARKET CONDITIONS, DURING THE YEAR THE ASSESSEE COMPANY PR OMOTED INCENTIVE SCHEME FOR ITS DEALERS TO PROMOTE SALES A ND TO REALIZE THE SALE PROCEEDS. THE SCHEME WAS BASED ON INSTALLA TION, OFF TAKES AND PAYMENT TARGETS WHEREIN INCENTIVE WAS PAI D ON ACHIEVING CUMULATIVE MONTH END SALES OVER A CERTAIN TARGET AND ALSO MEETING THE PAYMENT TARGETS. DURING THE YEAR UNDER CONSIDERATION THE ASSESSEE PAID A SUM OF RS. 1,81,7 2,000/- AS INCENTIVE TO DEALERS WERE CLAIMED THE SAME AS BUSIN ESS EXPENDITURE. SIMILAR INCENTIVE TO DEALERS WAS PAID IN ASSESSMENT YEARS 1997-98 AND 1998-99 AND WERE ALLOWED. HOWEVER , NO INCENTIVE WAS PAID IN ASSESSMENT YEARS 1999-2000 AN D 2000-01. FROM THE PERUSAL OF DETAILS OF INCENTIVE PAID TO TH E DEALERS, IT TRANSPIRES THAT THE ASSESSEE HAD PAID THE SAID INCE NTIVE TO 186 DEALERS AS AGAINST 355 DEALERS CONNECTED TO THE ASS ESSEE. THE SAID INCENTIVE WAS PAID ON ACHIEVING CUMULATIVE MON TH END SALES AND FOR MEETING BILLING PAYMENT TARGETS. THE ASSES SEE HAS FILED THE COPY OF SPECIAL INCENTIVE SCHEME APRIL 2001 B EFORE US IN WHICH THE POLICY OF THE COMPANY FOR PAYING INCENTIV E IN RESPECT OF DIFFERENT MODELS OF TRACTOR IS INCORPORATED. THE S CHEME FURTHER 12 PROVIDES THAT THE SPECIAL INCENTIVE WOULD BE GIVEN ONLY ON THE RECEIPT OF PAYMENT FOR FULL VALUE OF MODEL AND NOT PART VALUE. THE EXPENDITURE INCURRED BY THE ASSESSEE FOR ACHIEVING TARGETS OF ITS BUSINESS ARE TO BE ALLOWED AS BUSINESS EXPENDITURE IN THE HANDS OF THE ASSESSEE KEEPING INTO CONSIDERATION THE FACT THAT THE ASSESSEE IS A STATE GOVERNMENT UNDERTAKING AND NO P ECUNIARY BENEFIT IS DERIVED BY ACHIEVING HIGHER TARGETS OF S ALE. THE THEME FORMULATED BY THE ASSESSEE WAS IN RESPECT OF THE TA RGETS BEING ACHIEVED OVER AND ABOVE A BENCHMARK ESTABLISHED BY THE ASSESSEE COMPANY. ACCORDINGLY, IN SOME CASES THE INCENTIVE WAS ALLOWED FOR SALE OF TWO TO THREE TRACTORS ONLY. THE INCEN TIVE PAID TO THE DEALERS IS IN THE NATURE OF BUSINESS EXPENDITURE AN D HENCE NO ELEMENT OF ADVERTISEMENT. IN THE ABSENCE OF ANY EV IDENCE BEING BROUGHT ON RECORD BY THE ASSESSING OFFICER THAT THE PAYMENTS BEING MADE TO THE DEALER WERE NOT GENUINE OR THE DE ALERS HAD NOT MADE THE SALES OF TRACTORS IN RESPECT OF WHICH IT W AS ALLOWED THE INCENTIVES, WE CONFIRM THE ORDER OF CIT(A) IN ALLOW ING THE CLAIM OF THE ASSESSEE IN ENTIRETY. THE GROUND NO. 3 RAISED B Y THE REVENUE IS THUS DISMISSED. FOLLOWING THE SAME WE DECIDE THIS ISSUE AGAINST THE REVENUE. 26. IN THE RESULT, APPEAL OF THE ASSESSEE AS WELL A S REVENUE ARE PARTLY ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 11.7.2014 SD/- SD/- (SUSHMA CHOWLA) (T.R. SOOD) JUDICIAL MEMBER ACCOUNTANT MEMBER DATED: 11.7.2014 SURESH COPY TO: THE APPELLANT/THE RESPONDENT/THE CIT/THE C IT(A)/THE DR
