Amway India Enterprises Pvt. Ltd., New Delhi V. Addl. CIT, New Delhi

ITA 318/DEL/2010

• Counselvise Citation: [2011] 140 COUNSELVISE.COM (IT) 53007 (ITAT-DELHI)
• Duration Of Justice: 1 year(s) 9 month(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 21-10-2011
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: A
• Next Hearing Date: 12-10-2011
• Assessment Year: 2005-2006
• Appeal Filed On: 21-01-2010
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: MRS ANUSHA KHURANA
• Assessee Lawyers: MANEESH UPREJA
• Keywords: Capital expenditure
• Section: 14A

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH : A : NEW DELHI BEFORE SHRI I.P. BANSAL, JUDICIAL MEMBER AND SHRI A.N. PAHUJA, ACCOUNTANT MEMBER ITA NO.318/DEL/2010 ASSESSMENT YEAR : 2005-06 AMWAY INDIA ENTERPRISES PVT. LTD., 1 ST FLOOR, ELEGANCE TOWER, PLOT NO.8, NON HIERARCHIAL COMMUNITY CENTRE, JASOLA VIHAR, NEW DELHI 110 025. PAN : AAACA5603Q VS. ADDL. CIT, RANGE-1, NEW DELHI. (APPELLANT) (RESPONDENT) ASSESSEE BY : SHRI TARANDEEP SINGH & SHRI MANEESH UPREJA REVENUE BY : MRS. ANUSHA KHURANA, SR. DR ORDER PER I.P. BANSAL, JUDICIAL MEMBER THIS IS AN APPEAL FILED BY THE ASSESSEE. IT IS DIRECTED AGAINST THE ORDER PASSED BY THE CIT (A) DATED 29 TH OCTOBER, 2009 FOR ASSESSMENT YEAR 2005-06. THE GROUNDS OF APPEAL READ AS UNDER:- 1. THAT ON FACTS AND IN LAW THE CIT (A) ERRED IN UPHO LDING THE DISALLOWANCE OF FOLLOWING EXPENDITURES INCURRED BY TH E APPELLANT AS CAPITAL IN NATURE. (A) WOODEN FURNITURE RS.5,04,376. (B) PANEL WORK RS.4,14,029 (C) NEONSIGN BOARD RS. 60,400 1.1 THAT THE REASONING GIVE BY CIT (A) FOR UPHOLDING THE SAID DISALLOWANCES AS CAPITAL IN NATURE ARE BOTH FACTUALLY A ND LEGALLY UNTENABLE. ITA NO.318/DEL/2010 2 2. THAT ON FACTS AND IN LAW, THE CIT (A) ERRED IN UPHO LDING THE DISALLOWANCE OF RS.31,44,177/- MADE BY THE A.O. U /S 14A OF THE ACT. 2.1 THAT ON FACTS AND IN LAW THE CIT (A) ERRED IN NOT APPRECIATING THAT: - THE PROVISIONS OF SUB-SECTION (2) AND (3) OF SECTION 1 4A INSERTED BY THE FINANCE ACT 2006, W.E.F. 1 ST APRIL, 2007 ARE NOT APPLICABLE TO ASSESSMENT YEAR 2005-06 I.E., ASSESSMENT YEAR UNDER CONSIDERATION. - THE PROVISIONS OF RULE 8D OF THE INCOME TAX RULES, 1962 INSERTED BY IT (FILE AMENDMENT) RULES 2008 W.E.F . 24 TH MARCH, 2008 ARE NOT RETROSPECTIVE IN NATURE. 2.2 THAT ON FACTS AND IN LAW THE CIT (A) ERRED IN NOT APPRECIATING THAT CONDITIONS STIPULATED UNDER SUB-SECTION (2) AND (3) OF SECTION 14A READ WITH RULE 8D ARE NOT SATISFIED IN THE CASE UNDER CONSIDERATION. 3. THAT ON FATS AND IN LAW TO THE EXTENT THE ORDERS PASSED BY THE CIT (A) IS PREJUDICIAL TO THE ASSESSEE IT IS BAD IN LAW AND VOID AB INITIO IN WHOLE AND IN PART. THAT THE APPELLANT PRAYS FOR LEAVE TO ADD, ALTER, AMEND AND/OR VARY THE GROUND(S) OF APPEAL AT OR BEFORE THE TI ME OF HEARING. 2. AT THE OUTSET, IT WAS SUBMITTED BY THE LEARNED AR T HAT TWO MAIN ISSUES HAVE BEEN RAISED IN THE PRESENT APPEAL; ONE IS REG ARDING TREATMENT OF EXPENDITURE STATED IN THE GROUNDS AS CAPI TAL IN NATURE. HE SUBMITTED THAT THIS ISSUE HAS TO BE DECIDED AGAINST TH E ASSESSEE IN VIEW OF THE DECISION RENDERED BY THE TRIBUNAL FOR TH E SAME YEAR IN DEPARTMENTAL APPEAL WHEREIN THE ORDER OF THE CIT (A ) ON THIS ISSUE WAS UPHELD. HE SUBMITTED THAT THE TOTAL DISALLOWANCE MAD E BY THE ASSESSING OFFICER ON ACCOUNT OF CAPITAL EXPENDITURE IN RESPECT OF VARIOUS WORK CARRIED OUT BY THE ASSESSEE WAS A SUM OF ` 38 ,56,075/-. THE DETAILS OF THESE EXPENDITURES HAVE BEEN GIVEN AT P AGE 3 OF THE ORDER OF THE CIT (A) OUT OF WHICH THE CIT (A) HAD U PHELD THE DISALLOWANCE ONLY TO THE EXTENT OF ` 9,78,805/- BEIN G AGGREGATE AMOUNT OF EXPENDITURE INCURRED UNDER THREE HEADS, NA MELY, WOODEN ITA NO.318/DEL/2010 3 FURNITURE, PANEL WORK, AND NEON SIGN BOARD. IN THIS REGARD HE REFERRED TO THE COPY OF THE DECISION OF THE TRIBUNAL WHICH IS DATED 23 RD JULY, 2010 IN ITA NO.23/D/2010. THEREFORE, HE PLEADED TH AT IN VIEW OF THE AFOREMENTIONED DECISION OF THE TRIBUNAL, THIS ISSUE HAS TO BE DECIDED AGAINST THE ASSESSEE. 3. IN THIS VIEW OF THE SITUATION, AFTER HEARING BOTH THE PARTIES, WE DECIDE THE GROUND NO.1 AGAINST THE ASSESSEE. 4. IN THE SECOND GROUND, THE ASSESSEE HAS CHALLENGED THE SUSTENANCE OF ADDITION OF ` 31,44,177/- UNDER THE PR OVISIONS OF SECTION 14A OF THE ACT. DURING THE COURSE OF ASSESSMENT PROCEED INGS, IT WAS NOTICED BY THE ASSESSING OFFICER THAT THE ASSESSEE HAD CLAI MED EXEMPTED INCOME IN THE NATURE OF DIVIDEND OF ` 1,79 ,44,969/-. REFERRING TO THE PROVISIONS OF SECTION 14A READ WITH RULE 8D OF IT RULES, 1962, HE COMPUTED THE DISALLOWANCE AS ` 31,44,1 77/- AND THE SAME WAS ADDED TO THE INCOME OF THE ASSESSEE. LEARNED CI T (A) HAS UPHELD THE DISALLOWANCE FOLLOWING THE SPECIAL BENCH DECISION OF THE TRIBUNAL IN THE CASE OF ITO VS. DAGA CAPITAL MANAGEME NT PVT. LTD. 117 ITD 169 IN WHICH IT WAS HELD THAT RULE 8D HAS RETROSPE CTIVE OPERATION. THE ASSESSEE IS AGGRIEVED WITH THE SUSTENANCE OF DISALLOWAN CE, HENCE, HAS FILED THE AFOREMENTIONED APPEAL. THE LEARNED AR AFTER NARRATING THE FACTS AND REFERRING TO THE ASSESSMENT ORDER PLEADED THAT UNDER RULE 8D (2) THE METHOD OF COMPUTING THE DISALLOWANCE IS PRESCRIBED WITH RESPECT TO: (I) THE AMOUNT OF EXPENDITURE DIREC TLY RELATING TO THE INCOME WHICH DOES NOT FORM PART OF THE TOTAL INCOME; (II) IN RESPECT OF INTEREST RELATING TO THE EARNING OF THE INCOME; AND (III) AMOUNT RELATED TO ONE HALF PERCENT OF THE AVERAGE VALUE OF THE INV ESTMENT. REFERRING TO THESE PROVISIONS HE DREW OUR ATTENTION TO THE ASSESSMEN T ORDER AND CONTENDED THAT WHILE COMPUTING DISALLOWANCE UNDER RU LE 8D, THE ASSESSING OFFICER HAS TAKEN INTO CONSIDERATION ONLY ONE F ACTOR WHICH IS WITH RESPECT TO ONE HALF PERCENTAGE OF THE AVERAGE V ALUE OF THE ITA NO.318/DEL/2010 4 INVESTMENT. THUS, HE PLEADED THAT EVEN THE ASSESSING OF FICER HAS NOT FOUND ANY EXPENDITURE RELATABLE TO THE EARNING OF D IVIDEND INCOME WHICH HAS DIRECT NEXUS WITH THE INCOME AND ALSO NO INT EREST HAS BEEN RELATED TO EARNING OF THAT INCOME. THEREFORE, HE P LEADED THAT IMPLIEDLY THE ASSESSING OFFICER HAS ACCEPTED THE CLAIM OF THE ASSESSEE THAT NO DIRECT EXPENSES HAVE BEEN INCURRED BY THE ASSESSEE TO EAR N DIVIDEND INCOME AND NO INTEREST EXPENDITURE IS RELATABLE TO TH E EARNING OF DIVIDEND INCOME. THEREFORE, HE PLEADED THAT DISALLO WANCE COULD NOT BE MADE AS RULE 8D IS NOT APPLICABLE FOR THE YEAR UNDER CONSIDERATION AS PER THE DECISION OF HONBLE BOMBAY HIGH COURT IN THE CASE OF GODREJ & BOYCE MFG. PVT. LTD. VS. DCIT 328 ITR 81 (BOM). 5. ON THE OTHER HAND, RELYING UPON THE ORDER OF ASSESSI NG OFFICER AND CIT (A), IT IS THE CASE OF THE LEARNED DR THAT TH E DISALLOWANCE HAS RIGHTLY BEEN SUSTAINED AND THIS GROUND OF THE ASSESSEE SHOU LD BE DISMISSED. 6. WE HAVE CAREFULLY CONSIDERED THE RIVAL SUBMISSIONS IN TH E LIGHT OF THE MATERIAL PLACED BEFORE US. THE DISALLOWANCE HAS BEEN COMPUTED BY THE ASSESSING OFFICER UNDER RULE 8D OF INCOME-TAX RU LES, 1962. THE LEARNED CIT (A) HAS ALSO UPHELD THE DISALLOWANCE ON TH E GROUND THAT THE AFOREMENTIONED SPECIAL BENCH DECISION OF THE TRI BUNAL HAS HELD THAT RULE 8D HAS RETROSPECTIVE OPERATION. THE AFOREM ENTIONED DECISION OF THE SPECIAL BENCH HAS BEEN OVER-RULED BY THE HONBLE BOMBAY HIGH COURT IN THE CASE OF GODREJ & BOYCE MFG. PVT. LTD. (SUPRA). THEREFORE, THE VERY BASIS ON WHICH THE DISALL OWANCE HAS BEEN MADE DOES NOT EXIST. HOWEVER, IT IS SEEN THAT THOUGH R ULE 8D IS NOT APPLICABLE, BUT THE ASSESSING OFFICER IS DUTY BOUND TO M AKE THE DISALLOWANCE UNDER SECTION 14A AFTER CONSIDERING ALL THE FACTS AND CIRCUMSTANCES OF THE CASE AS OBSERVED BY HONBLE BOMBAY HIGH COURT IN THE AFOREMENTIONED CASE OF GODREJ & BOYCE MFG. PV T. LTD. (SUPRA). THEREFORE, KEEPING IN VIEW THE FACTS AND CIRCUMSTANCE S OF THE CASE, WE ITA NO.318/DEL/2010 5 CONSIDER IT JUST AND PROPER TO RESTORE THIS ISSUE TO THE FILE OF ASSESSING OFFICER TO CONSIDER THE ISSUE RAISED IN THE PRESENT APPE AL DENOVO AS PER THE PROVISIONS OF LAW AFTER GIVING THE ASSESSEE A REASONAB LE OPPORTUNITY OF HEARING. THEREFORE, WE RESTORE THIS I SSUE TO THE FILE OF ASSESSING OFFICER TO RECONSIDER AND RE-ADJUDICATE THE SAM E AFTER GIVING THE ASSESSEE A REASONABLE OPPORTUNITY OF HEARING. WE DI RECT ACCORDINGLY. IN THE RESULT, THE GROUND NO.2 RAISED BY THE ASSESSEE IS ALLOWED FOR STATISTICAL PURPOSES IN THE MANNER AFORESAID . 7. IN THE RESULT, THE APPEAL IS PARTLY ALLOWED FOR STA TISTICAL PURPOSES IN THE MANNER AFORESAID. THE ORDER PRONOUNCED IN THE OPEN COURT ON 21.10.20 11. SD/- SD/- [A.N. PAHUJA] [I.P. BANSAL] ACCOUNTANT MEMBER JUDICIAL MEMBER DATED, 21.10.2011. DK COPY FORWARDED TO: - 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(A) 5. DR, ITAT TRUE COPY BY ORDER, DEPUTY REGISTRAR, ITAT, DELHI BENCHES