MAHARAJA SHREE UMAID MILLS LTD, Jaipur V. DCIT, Jaipur

ITA 364/JPR/2013

• Counselvise Citation: [2016] 133 COUNSELVISE.COM (IT) 5602 (ITAT-JAIPUR)
• Duration Of Justice: 2 year(s) 9 month(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 08-01-2016
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: A
• Assessment Year: 2009-2010
• Appeal Filed On: 08-04-2013
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Capital asset; Business income; Depreciation; Opportunity of being heard; Additional depreciation; Earning of tax free income; Additional evidence; Revenue expenditure; Capital expenditure
• Section: 143(3); 14A; 37(1)

Judgement Text

VK;DJ VIHYH; VF/KDJ.K] T;IQJ U;K;IHB] T;IQJ IN THE INCOME TAX APPELLATE TRIBUNAL, JAIPUR BENCHES, JAIPUR JH VKJ-IH-RKSYKUH] U;KF;D LNL; ,OA JH VH-VKJ-EHUK] YS[KK LNL; DS LE{K BEFORE: SHRI R.P. TOLANI, JM & SHRI T.R. MEENA, AM VK;DJ VIHY LA- @ ITA NO. 364/JP/2013 FU/KZKJ.K O'K Z @ ASSESSMENT YEAR : 2009-10 MAHARAJA SHREE UMAID MILLS LTD., A-2, PRITHVIRAJ ROAD, C-SCHEME, JAIPUR. CUKE VS. D.C.I.T. CIRCLE-6, JAIPUR. LFKK;H YS[KK LA-@THVKBZVKJ L A-@ PAN/GIR NO.: AABCM 1849 B VIHYKFKHZ @ APPELLANT IZR;FKHZ @ RESPONDENT FU/KZKFJRH DH VKSJ LS @ ASSESSEE BY : SHRI P.C. PARWAL (C.A.) JKTLO DH VKSJ LS @ REVENUE BY : SHRI KAILASH MANGAL (JCIT) LQUOKBZ DH RKJH[ K@ DATE OF HEARING : 23/10/2015 MN~?KKS'K .KK DH RKJH[ K @ DATE OF PRONOUNCEMENT : 08/01/2016 VKNS'K @ ORDER PER: T.R. MEENA, A.M. THIS IS AN APPEAL FILED BY THE ASSESSEE AGAINST THE ORDER DATED 07/03/2013 PASSED BY THE LEARNED CIT (A)-II, JAIPUR FOR A.Y. 2009-10. THE EFFECTIVE GROUNDS OF APPEAL ARE AS UNDER:- 1 THE LD CIT(A) HAS ERRED ON FACTS AND IN LAW CONFIRMING THE ACTION OF A.O. IN MAKING DISALLOWANCE OF RS. 52,28,066/- BY HOLDING THAT EXPENDITURE INCURRED BY ASSESSEE ON REPLACEMENT OF A PART OF OL D ITA 364/JP/2013_MAHARAJA SHREE UMAID MILLS LTD. VS DCIT 2 MACHINE IS A CAPITAL EXPENDITURE NOT ALLOWABLE U/S 37(1) OF THE IT ACT. 1.1 THE LD CIT(A) HAS ERRED ON FACTS AND IN LAW IN NO T ALLOWING ADDITIONAL DEPRECIATION U/S 32(IIA) OF RS. 12,30,133/- EVEN WHEN EXPENDITURE IS HELD TO BE CAPITAL IN NATURE BY INCORRECTLY HOLDING THAT ASSES SEE IS NOT ENGAGED IN MANUFACTURING OF ANY ARTICLE OR THING. 2. THE LD CIT(A) HAS ERRED ON FACTS AND IN LAW CONFIRMING THE ACTION OF A.O. IN MAKING DISALLOWANCE OF RS. 21,12,000/- BY APPLYING PROVISIONS OF SECTIO N 14A READ WITH SECTION 8D. 2. THE ASSESSEE MADE AN APPLICATION UNDER RULE 29 OF THE INCOME TAX RULES, 1962 (IN SHORT THE RULES) FOR ADMITTING T HE ADDITIONAL EVIDENCE. THE LD AR OF THE ASSESSEE HAS ARGUED THAT THE ASSESSEE COMPANY IS AN OLD COMPANY AND TO PROVE THE MACHINER Y WAS OLD AND TO SEARCH THE OLD BILLS, IT TOOK TIME AS THE EVIDENCE WAS RELATED TO FINANCIAL YEAR 1965-66, THE SAME COULD NOT BE PRODUCED BEFORE THE LOWER AUTHORITIES. THEREFORE, APPLICATION FOR ADMITTING O F THE ADDITIONAL EVIDENCE MAY PLEASE BE ALLOWED. 2.1 AT THE OUTSET, THE LD DR HAS VEHEMENTLY OPPOSED THE ADMISSION OF ADDITIONAL EVIDENCE AS THESE EVIDENCES WERE AVAIL ABLE WITH THE ASSESSEE AT THE TIME OF ASSESSMENT PROCEEDINGS BUT THE ASSESSEE INTENTIONALLY HAD NOT PRODUCED THE SAME, THEREFORE, THE SAME MAY BE REJECTED. ITA 364/JP/2013_MAHARAJA SHREE UMAID MILLS LTD. VS DCIT 3 2.2 AFTER CONSIDERING BOTH SIDES ARGUMENT, IT IS NE CESSARY IN THE INTEREST OF JUSTICE THAT THE ADDITIONAL EVIDENCE FI LED BY THE ASSESSEE ARE ALLOWED TO BE ADMITTED AS BEING AN OLD BILL, WHICH CO ULD NOT BE PRODUCED BY THE ASSESSEE BEFORE THE LOWER AUTHORITIE S. ACCORDINGLY, WE ADMIT THE ADDITIONAL EVIDENCE. 3. THE FIRST GROUND OF APPEAL IS AGAINST CONFIRMING THE ADDITION OF RS. 52,28,066/- INCURRED ON REPLACEMENT OF A PART O F OLD MACHINE AS CAPITAL EXPENDITURE AND NOT ALLOWING ADDITIONAL DEPR ECIATION U/S 32(IIA) OF THE INCOME TAX ACT, 1961 (IN SHORT THE ACT) OF RS . 12,30,133/-. THE ASSESSEE COMPANY IS ENGAGED IN THE BUSINESS OF MANU FACTURING AND SELLING OF TEXTILES (YARN AND FABRICS) AND GENERATI ON AND SUPPLY OF POWER. THE ASSESSEE FILED ITS RETURN ON 26/09/2009 DE CLARING TOTAL INCOME OF RS. 10,28,76,190/-, WHICH WAS REVISED SUBS EQUENTLY ON 09/11/2009 AT RS. 10,15,66,250/-. THE CASE WAS SCRUTI NIZED U/S 143(3) OF THE ACT. THE LD ASSESSING OFFICER OBSERVED THAT D URING THE YEAR THE ASSESSEE HAD CLAIMED EXPENSES OF RS. 61,50,666/- AS REVENUE EXPENDITURE IN THE COMPUTATION OF INCOME WHEREAS SAM E HAD BEEN CAPITALIZED IN THE BOOKS OF ACCOUNT. THEREFORE, THE LD ASSESSING OFFICER GAVE REASONABLE OPPORTUNITY OF BEING HEARD ON THIS ISSUE. AFTER CONSIDERING THE ASSESSEES REPLY, THE LD ASSESSING OFFICER HELD THAT THE ITA 364/JP/2013_MAHARAJA SHREE UMAID MILLS LTD. VS DCIT 4 ASSESSEE HAD REPLACED PART OF OLD MACHINE, WHICH IS AN INDEPENDENT MACHINE AND CANNOT BE CATEGORIZED AS REPLACEMENT OF COMPONENT OF THE EXISTING MACHINE. NEW MACHINE HAD COME INTO EXIS TENCE. THIS CONTENTION IS ALSO JUSTIFIED FROM ASSESSEES ACTION THAT IN BOOKS OF ACCOUNT SAME HAD BEEN TREATED AS CAPITAL ASSETS AND DEPRECIATION HAD BEEN CLAIMED. THUS THE ASSESSING OFFICER FOUND THIS EXPENSE OF INSTALLATION OF NEW PLANT AND MACHINERY, THEREFORE, HE CAPITALIZED THE EXPENDITURE AT RS. 61,50,666/- BUT ALLOWED THE DEPRE CIATION OF RS. 9,22,600/- ON IT AND REMAINING AMOUNT OF RS. 52,28, 066/- WAS ADDED IN THE INCOME OF THE ASSESSEE. 4. BEING AGGRIEVED BY THE ORDER OF THE ASSESSING OF FICER, THE ASSESSEE CARRIED THE MATTER BEFORE THE LEARNED CIT(A ), WHO HAD CONFIRMED THE ADDITION MADE BY THE ASSESSING OFFICE R BY OBSERVING THAT THE ASSESSEE HAD ITSELF CAPITALIZED THE EXPENSES AN D CLAIMED DEPRECIATION ON IT BUT IN THE RETURN, IT HAS BEEN C LAIMED AS REVENUE EXPENDITURE. THE ASSESSEE STATED THAT THE NEW MERCER IZING MACHINE HAD BEEN INSTALLED TO MAINTAIN PRODUCTION LEVEL. THE LD AR RELIED UPON THE DECISION IN THE CASE OF SHRI MANGAYARKARSI MILL S (P) LTD. 315 ITR 114 WHEREIN REPLACEMENT OF OLD PART COULD AMOUNT TO CURR ENT REPAIR BUT THE HONBLE COURT FOUND THAT IF OLD PARTS ARE NOT AVAIL ABLE IN THE MARKET. ITA 364/JP/2013_MAHARAJA SHREE UMAID MILLS LTD. VS DCIT 5 ANOTHER DECISION IN THE CASE OF CIT VS. MAHALAKSHMI TEXTILES MILLS LTD. 66 ITR 710 (SC) WHEREIN OLD PARTS ARE 50-60 YEARS OL D AND WOULD AMOUNT TO CURRENT REPAIR. IT WAS CLAIMED BY THE AR B EFORE THE LD CIT(A) THAT PARTS WERE REPLACED BY THE COMPANY WERE MORE THA N 40 YEARS OLD AND ARE NOT AVAILABLE IN THE MARKET. THEREFORE, THE REVENUE EXPENDITURE OF RS. 61,50,666/- HAD BEEN CLAIMED. THE LD CIT(A) HA S HELD THAT THE APPELLANT HAD NOT SUBMITTED ANY PROOF THAT THE PART OF THE MERCERIZING MACHINE WERE NOT AVAILABLE IN THE MARKET OR THAT THE MACHINE WAS 40 YEARS OLD. AS THE MACHINE IS NEW IS NOT DISPUTED AND IT BEING PART OF FABRIC PROCESS OF THE APPELLANT BUSINESS. THE EXPEND ITURES WERE NOT REVENUE EXPENDITURES. THE LD ASSESSING OFFICER HAD A LLOWED NORMAL DEPRECIATION AT RS. 9,22,600/- WHEREAS THE ASSESSEE HAD CLAIMED AT THE TIME OF APPELLATE PROCEEDINGS DEPRECIATION U/S 32(I IA) OF THE ACT @ 20% OF THE ACTUAL COST OF SUCH MACHINE, WHICH WAS WORKED OUT TO RS. 12,30,135/- BUT THE LD CIT(A) REJECTED THE ASSESSEE S CLAIM ON THE GROUND THAT THE ASSESSEE WAS NOT ENGAGED IN THE BUSI NESS OF MANUFACTURING AND SALE OF ARTICLE OR THING. SHE FUR THER HELD THAT THE ADDITIONAL DEPRECIATION IS ALSO ALLOWED IN CASE OF G ENERATION AND DISTRIBUTION OF POWER, WHICH IS THE APPELLANT ALSO EN GAGED IN IT BUT ADDITIONAL DEPRECIATION IS AVAILABLE ONLY FROM 01/3 /2013 BUT DURING THE ITA 364/JP/2013_MAHARAJA SHREE UMAID MILLS LTD. VS DCIT 6 YEAR UNDER CONSIDERATION, THE ASSESSEE IS NOT ENTIT LED TO GET THE ADDITION DEPRECIATION U/S 32(IIA) OF THE ACT. ACCOR DINGLY, SHE UPHELD THE ORDER OF THE LD ASSESSING OFFICER. 5. NOW THE ASSESSEE IS IN APPEAL BEFORE US. THE LD AR OF THE ASSESSEE HAS SUBMITTED THAT THE VARIOUS OBSERVATION S MADE BY THE LOWER AUTHORITIES IN HOLDING THAT EXPENDITURE INCURR ED BY ASSESSEE ON REPLACEMENT OF A PART OF OLD MACHINE IS A CAPITAL E XPENDITURE NOT ALLOWABLE U/S 37(1) OF THE IT ACT IS INCORRECT AS UND ER:- (I) IT IS A SETTLED LAW THAT ENTRIES IN THE BOOKS O F ACCOUNTS ARE NOT DETERMINATIVE OR CONCLUSIVE AND THE MATTER IS T O BE EXAMINED ON THE TOUCHSTONE OF PROVISIONS CONTAINED IN ACT. RECENTLY, SUPREME COURT IN CASE OF TAPARIA TOOLS LTD. VS. JCIT 372 ITR 605 DECISION DATED 23.03.2015 HELD THAT THE FACT THAT A DIFFERENT TREATMENT WAS GIVEN IN THE BOO KS OF ACCOUNTS COULD NOT BE A FACTOR TO BAR THE ASSESSEE FROM CLAIMING THE ENTIRE EXPENDITURE AS DEDUCTION. THE AO IS BOUND TO CARRY OUT THE ASSESSMENT APPLYING THE PROV ISIONS OF THE ACT AND NOT TO GO BEYOND THE RETURN. THERE IS NO ESTOPPEL AGAINST THE STATUTE. (II) THE OBSERVATION OF THE AO THAT MERCERIZING MACH INE IS AN ITA 364/JP/2013_MAHARAJA SHREE UMAID MILLS LTD. VS DCIT 7 INDEPENDENT MACHINE AND THUS ITS REPLACEMENT CANNOT BE CATEGORIZED AS REPLACEMENT OF PART OF AN EXISTING M ACHINE IS INCORRECT. IN MERCERIZING MACHINE, GREY CLOTH IS PROCESSED WITH CHEMICAL TO HAVE LUSTER WITH WIDTH ELONGATION. IT CANNOT FUNCTION INDEPENDENTLY BUT IS ONLY A PART OF THE CLUSTER OF MACHINE AS IS EVIDENT FROM T HE FLOW CHART. THE LD. CIT(A) AT PAGE 4 OF THE ORDER HAS ALSO ACCEPTED THAT THE MERCERIZING MACHINE IS A PART OF THE FABRIC PROCESSING PROCESS OF THE APPELLANTS BUSINE SS. THEREFORE, IT IS ONLY A CASE OF REPLACEMENT OF ONE O F THE COMPONENT OF THE TEXTILE PLANT AND IS ALLOWABLE AS R EVENUE EXPENDITURE. THE ALLAHABAD HIGH COURT IN CASE OF CI T VS. RENU SAGAR POWER CO. LTD. (2008) 298 ITR 94 HAS HELD THAT TURBINE ROTOR IS AN ESSENTIAL PART OF TURBO GEN ERATOR SET. IT IS NOT AN INDEPENDENT MACHINERY OR PLANT. TU RBINE ROTOR ON ITS OWN INDEPENDENT FUNCTIONING CANNOT GENE RATE ELECTRICITY AND IT IS BEING USED IN THE TURBO GENERA TOR SET AS ITS AN ESSENTIAL PART. THUS, THE EXPENDITURE ON REPLACEMENT OF TURBINE ROTOR WAS ON ACCOUNT OF CURRE NT REPAIRS AND AS SUCH WAS REVENUE EXPENDITURE. ITA 364/JP/2013_MAHARAJA SHREE UMAID MILLS LTD. VS DCIT 8 (III) THE LD. CIT(A) IN HOLDING THE EXPENDITURE AS CA PITAL IN NATURE HAS RELIED ON THE DECISION OF SUPREME COURT IN CASE OF SRI MANGAYARKARASI MILLS PVT. LTD. 315 ITR 114. O N THIS DECISION, ASSESSEE HAS ALSO RELIED. IN THIS DECISIO N, THE DECISION OF SUPREME COURT IN CASE OF CIT VS. SARAVAN A SPINNING MILLS PVT. LTD. 293 ITR 201 HAS BEEN REFERR ED. IN THIS DECISION, IT HAS BEEN HIGHLIGHTED THAT THE SUP REME COURT IN CASE OF SARAVANA SPINNING MILL MENTIONS TWO EXCEPTIONS IN WHICH REPLACEMENT COULD AMOUNT TO CURR ENT REPAIRS, NAMELY WHERE OLD PANS ARE NOT AVAILABLE IN MARKET [AS SEEN IN THE CASE OF CIT VS. MAHALAKSHMI TEXTILE M ILLS LTD. 66 ITR 710 (SC)] OR WHERE OLD PARTS HAVE WORKED F OR 50-60 YEARS. IN SRI MANGAYARKARASIS CASE, THE ASSE SSEE HAS NOT CLAIMED ANY OF THESE EXCEPTIONS AND HENCE, REPLACEMENT OF MACHINES WAS HELD TO BE CAPITAL EXPENDITURE AND NOT REVENUE EXPENDITURE. HE FURTHER STATED THAT IN THE PRESENT CASE THE MERC ERIZING MACHINE IS A PART OF THE FABRIC PROCESSING PROCESS OF THE APPELL ANTS BUSINESS. THE OLD MACHINE HAS WORKED FOR MORE THAN 40 YEARS AND HA S BECOME NON- FUNCTIONAL DUE TO NON-AVAILABILITY OF PARTS AND COM PONENTS NEEDED FOR ITA 364/JP/2013_MAHARAJA SHREE UMAID MILLS LTD. VS DCIT 9 OVERHAULING. THEREFORE, THE ASSESSEE PLACED ORDER FO R PURCHASE OF NEW MACHINE IN REPLACEMENT OF THE OLD MACHINE. HOWEVER, THERE IS NO INCREASE IN THE PRODUCTION EFFICIENCY/CAPACITY OR I N THE PROFIT EARNING CAPACITY. THE PURCHASE OF THE MACHINE IS THEREFORE A REVENUE EXPENDITURE U/S 37(1) AS IT HAS NOT RESULTED IN INC REASE IN THE PRODUCTION CAPACITY/PROFIT EARNING CAPACITY. HE REL IED ON THE DECISION OF THE HONBLE MADRAS HIGH COURT IN CASE OF SUPER SPIN NING MILLS LTD. VS. ACIT (2013) 357 ITR 720. HE FURTHER OBSERVED THAT WI THOUT PREJUDICE TO ABOVE, IF THE EXPENDITURE INCURRED ON REPLACEMEN T OF MACHINE IS CONSIDERED AS CAPITAL EXPENDITURE, THE AO BE DIRECT ED TO ALLOW ADDITIONAL DEPRECIATION OF RS.12,30,133/- U/S 32(L) (IIA) APART FROM THE DEPRECIATION OF RS.9,22,600/- U/S 32(1) ALREADY ALL OWED BY HIM. THE FINDINGS OF THE LD. CIT(A) THAT THE APPELLANT IS NOT ENTITLED TO ADDITIONAL DEPRECIATION BECAUSE IT IS AVAILABLE TO THE ASSESSE ES ENGAGED IN THE BUSINESS OF MANUFACTURE OR PRODUCTION OF ANY ARTICL E OR THING AND THE APPELLANT IS ENGAGED IN THE BUSINESS OF MANUFACTURI NG AND SALE OF TEXTILES (YAM AND FABRIC) WHICH IS NOT AN ARTICLE O R THING IS INCORRECT. IT MAY BE NOTED THAT THE WORDS ARTICLE OR THING IS NO T DEFINED IN THE INCOME TAX ACT BUT IN THE ABSENCE, DEFINITION OF WORD S ARTICLE OR THING SHOULD BE GIVEN A MEANING AS UNDERSTOOD IN COMMON P ARLANCE. ARTICLE ITA 364/JP/2013_MAHARAJA SHREE UMAID MILLS LTD. VS DCIT 10 OR THING IN COMMON PARLANCE IS KNOWN AS SOMETHING T ANGIBLE AND MOVEABLE ETC. [NTPC LTD. VS. CIT (2014) 106 DTR 73 (DE L.) (HC)]. THERE IS NO DISPUTE AS TO THE FACT THAT THE ASSESSEE IS ENGAGED IN THE BUSINESS OF MANUFACTURING AND SALE OF TEXTILES (YAM & FABRICS). THIS IS ARTICLE OR THING ON WHICH ADDITIONAL DEPRECIATION IS ALLOWABLE. 6. AT THE OUTSET, THE LD DR HAS VEHEMENTLY SUPPORTE D THE ORDER OF THE LD CIT(A) 7. WE HAVE HEARD THE RIVAL CONTENTIONS OF BOTH THE PARTIES AND PERUSED THE MATERIAL AVAILABLE ON THE RECORD. THE AS SESSEE IS IN THE BUSINESS OF MANUFACTURING AND SELLING OF TEXTILE (YA RN AND FABRICS) AND GENERATION AND SUPPLY OF POWER. THE ASSESSEE HAS CLAI MED EXPENSES ON REPAIR AND MAINTENANCE OF OLD PART, HOWEVER, THE SAME WAS NOT FOUND TO THE ASSESSING OFFICER AS REPLACEMENT OF OL D PART. THE LD CIT(A) HAD ALSO NOT FOUND THE ASSESSEES SUBMISSIONS CONVINCING TO HER ON THE GROUND THAT THE ASSESSEE HAS NOT ABLE TO SUB STANTIATE ITS CLAIM THAT MACHINERY WAS OLD AND SPARE PART IS NOT AVAILAB LE IN THE MARKET. THE ASSESSEE ALSO CLAIMED ADDITIONAL DEPRECIATION U/ S 32(IIA) OF THE ACT AND CLAIMED THAT THE ASSESSEE HAS BEEN MANUFACTURIN G ARTICLE AND THING. AS NEW EVIDENCE HAS BEEN FURNISHED BY THE AS SESSEE, IT REQUIRES ITA 364/JP/2013_MAHARAJA SHREE UMAID MILLS LTD. VS DCIT 11 TO BE VERIFIED FROM THE RECORD AND NECESSARY INQUIR Y FROM THE MARKET IS REQUIRED TO BE MADE BY THE ASSESSING OFFICER AND DE CIDE THE CASE ON MERIT AS PER LAW. ACCORDINGLY, THIS ISSUE IS SET ASI DE TO THE ASSESSING OFFICER FOR DENOVO. THE LD ASSESSING OFFICER IS DIR ECTED TO CONSIDER THE ADDITIONAL EVIDENCE FURNISHED BY THE ASSESSEE WITH R EGARD TO MACHINERY WAS OLD AND SPARE PARTS ARE NOT AVAILABLE IN THE MAR KET. ACCORDINGLY, GROUND NO. 1 OF THE APPEAL IS SET ASIDE TO THE ASSE SSING OFFICER. 8. THE SECOND GROUND OF THE APPEAL IS AGAINST CONFIR MING THE ADDITION OF RS. 21,12,000/- U/S 14A READ WITH RULE 8 D OF THE RULES. THE LD ASSESSING OFFICER OBSERVED THAT THE ASSESSEE HAD CLAIMED DIVIDEND INCOME OF RS. 39,50,784/- AS EXEMPT INCOME . THE LD ASSESSING OFFICER GAVE REASONABLE OPPORTUNITY OF BE ING HEARD ON THIS ISSUE FOR DISALLOWANCE U/S 14A OF THE ACT. THE ASSESS EE FILED REPLY VIDE LETTER DATED 21/12/2011, WHICH HAS BEEN REPRODUCED B Y THE ASSESSING OFFICER ON PAGE 2,3,4 OF THE ASSESSMENT ORDER. AFT ER CONSIDERING THE ASSESSEES REPLY, THE LD ASSESSING OFFICER HAS HELD THAT THE DIVIDEND WARRANT IS REQUIRED TO BE DEPOSITED IN BANK, ACCOUNT STAFF FOR ACCOUNTING OF INCOME, TELEPHONE IS REQUIRED AND CON VEYANCE EXPENSES IS REQUIRED TO BE INCURRED. SINCE THE COMPANY HAD I NCURRED SOME EXPENSES ON EARNING OF DIVIDEND INCOME AS PER RULE 8D OF THE RULES, ITA 364/JP/2013_MAHARAJA SHREE UMAID MILLS LTD. VS DCIT 12 DISALLOWANCE U/S 14A IS TO BE MADE. AS PER RULE 8D, THIS DISALLOWANCE WAS CALCULATED BY THE ASSESSING OFFICER AT RS. 21,12 ,000/-. 9. BEING AGGRIEVED BY THE ORDER OF THE ASSESSING OF FICER, THE ASSESSEE CARRIED THE MATTER BEFORE THE LD CIT(A), WHO HAD CONFIRMED THE ORDER OF THE LD ASSESSING OFFICER BY OBSERVING AS UNDER:- 8. THE AO COULD NOT HAVE APPLIED RULE 8D(I) BECAUSE SEPARATE DETAILS OF EXPENDITURE INCURRED FOR EARNING EXEMPT INCOME ARE NOT AVAILABLE WITH THE APPELLANT. THE AO COULD NO T HAVE APPLIED RULE 8D(II) BECAUSE HE FOUND NO INTEREST EXPENDITURE DIRECTLY ATTRIBUTABLE TO EXEMPT INCOME, THEREFORE THE AO WAS LEFT WITH RULE 8D(III) WHICH STAT ES AN AMOUNT EQUAL TO 1/2% OF THE AVERAGE OF THE VALUE OF INVESTMENT. 9. THUS FOLLOWING POINTS EMERGE : (I) THE APPELLANT DID MAKE INVESTMENT IN SHARES OF R S 4464.17 LACS IN 7 COMPANIES AS REFLECTED IN SCHEDUL E- 6 OF THE BALANCE SHEET, ON WHICH THE APPELLANT EARNE D DIVIDEND INCOME OF RS 39.51 LACS. (II) IT IS NOT MATERIAL THAT FROM HOW MANY COMPANIE S THE APPELLANT RECEIVED DIVIDEND. WHAT IS IMPORTANT IS T HE RECEIPT OF EXEMPT INCOME. WHAT IS IMPORTANT IS THE PURPOSE OF INVESTMENT. WHETHER THE INVESTMENTS YIELDED DIVIDEND INCOME OR NOT IS IMMATERIAL. (III) IT IS ALSO NOT DISPUTED THAT THE EXPENDITURE IS MIXED ITA 364/JP/2013_MAHARAJA SHREE UMAID MILLS LTD. VS DCIT 13 OR COMMON WHICH THE APPELLANT INCURRED FOR EARNING BUSINESS INCOME OR FOR EARNING EXEMPT INCOME. (IV) ONCE EXEMPT INCOME IS FOUND EARNED OF WHATEVER QUANTUM AND THE EXPENDITURE IS FOUND MIXED FOR EARNING BUSINESS AND FOR EARNING EXEMPT INCOME, THEN THERE IS NO ALTERNATIVE BEFORE THE AO BUT TO APPLY RULE 8D, SPECIALLY WHEN THE APPELLANT IS ITSEL F CALCULATING EXPENDITURE DISALLOWABLE AT RS 55,097, B UT THE AMOUNT OF TOTAL ADMINISTRATIVE EXPENDITURE TAKE N AT JUST RS 4 CRORE ODD IS NOT SUPPORTED BY THE FIGU RES GIVEN IN DIFFERENT SCHEDULES OF THE P & L ACCOUNT. EVEN IF WAGES EXPENSES ARE EXCLUDED FROM MANPOWER COST EXPENSES THE TOTAL OF MANPOWER COST AND OTHER EXPENSES COMES TO RS 2065.52 LACS AND NOT 415 LACS AS STATED BY THE APPELLANT. (V) THE AOS APPLICATION OF RULE 8D IS UPHELD BECAUS E PROPORTIONATE EXPENSES OF RS 55,097 PROPOSED TO BE DISALLOWED BY THE APPELLANT ITSELF IS NOT BASED ON CORRECT FIGURES RATHER ALL ADMINISTRATIVE AND MANPOWER EXPENSES WHICH SHOULD HAVE BEEN TAKEN INTO ACCOUNT BY THE APPELLANT HAVE NOT BEEN TAKEN INTO ACCOUNT WHILE WORKING OUT PROPORTIONATE EXPENSES DISALLOWABLE U/S 14 A. IN VIEW OF THE ABOVE DETAILED DISCUSSION, POINTS SU MMARIZED IN PARA 9 ABOVE THE DISALLOWANCE OF RS 21,12,000/- IS UPHELD. 10. NOW THE ASSESSEE IS IN APPEAL BEFORE US. ITA 364/JP/2013_MAHARAJA SHREE UMAID MILLS LTD. VS DCIT 14 11. THE LD AR OF THE ASSESSEE HAS DRAWN OUR ATTENTIO N ON RULE 8D OF THE RULES AND SECTION 14A OF THE ACT AND FURTHER AR GUED THAT THE AO CAN APPLY RULE 8D(2) ONLY WHEN HAVING REGARD TO THE ACCOUNTS OF THE ASSESSEE HE IS NOT SATISFIED WITH THE CORRECTNESS OF THE CLAIM OF EXPENDITURE MADE BY THE ASSESSEE IN RELATION TO THE INCOME NOT INCLUDIBLE IN THE TOTAL INCOME. IN THE PRESENT CASE , AO HAS NOT SPECIFIED AS TO HOW THE CLAIM OF THE ASSESSEE THAT IT HAS INCU RRED ONLY AN EXPENDITURE OF RS.55,097/- FOR EARNING THE DIVIDEND INCOME IS NOT CORRECT. HE IGNORED THE FACT THAT DIVIDEND RECEIVED ON SHARES OF LISTED COMPANIES IS DIRECTLY CREDITED TO THE BANK ACCOUNT BY WAY OF ELECTRONIC CREDIT FOR WHICH NO SEPARATE EXPENSES IS INCURRED. I N A.Y. 07-08 AND 08-09, AO HIMSELF HAS DISALLOWED RS.1,71,000/- AND 5 4,986/- RESPECTIVELY U/S 14A WITH REFERENCE TO THE EXPENDITU RE INCURRED IN RELATION TO THE DIVIDEND INCOME. THERE IS NO DIFFERE NCE IN THE FACTS FOR A.Y. 07-08 AND 08-09 VIS-A-VIS IN THE YEAR UNDER CO NSIDERATION. IN THESE CIRCUMSTANCES, DISALLOWANCE COMPUTED BY THE AO UNDER RULE 8D(2)(III) WITHOUT SPECIFYING AS TO HOW THE DISALLOWANCE WORKED OU T BY THE ASSESSEE IS LEGALLY INCORRECT IN TERMS OF RULE 8D(1 ) IS UNJUSTIFIED AND UNCALLED FOR. RELIANCE IN THIS CONNECTION IS PLACED ON THE FOLLOWING CASES:- ITA 364/JP/2013_MAHARAJA SHREE UMAID MILLS LTD. VS DCIT 15 1. CIT VS. TAIKISHA ENGINEERING INDIA LTD. (2015) 370 ITR 338 (DEL.) (HC) 2. JOINT INVESTMENTS PVT. LTD. VS. CIT (2015) 116 DTR 289 (DEL) (HC) 3. CELLICA DEVELOPERS (P.) LTD. VS. DCIT (2014) 63 S OT 255 (KOL) (TRIB.) 4. DEN NETWORKS LTD. VS. ACIT (2014) 39 CCH 86 (DEL.) (TRIB.) 5. AUCHTEL PRODUCTS LIMITED V. ACIT 52 SOT 39 (MUM.)( TRIB.) 6. DCIT VS. JINDAL PHOTO LIMITED ITA NO 814/DEL/201 1 DATED 23-9-2011 (DEL)(TRIB.) 7. RAJ SHIPPING AGENCIES LTD. VS. ADDNL. CIT (2013) 24 ITR (TRIB.) 249 (MUM.) (TRIB.) 8. ACIT VS. SIL INVESTMENT LTD. (2012) 73 DTR 233 (DEL.)(TRIB.) 9. ACIT VS. IQBAL M CHAGALA (2014) 34 ITR (TRIB.) 636 (MUM.) 10. PRIYA EXHIBITORS PVT. LTD. VS. ASSTT. CIT 54 SOT 356 (DELHI). HE FURTHER ARGUED THAT THE LD CIT(A) WITHOUT ANALYZIN G THE NATURE OF EXPENDITURE INCURRED UNDER THE HEAD MANPOWER COST AN D OTHER EXPENSES OBSERVED THAT THE ASSESSEES WORKING IS IN CORRECT AS HE HAS NOT CONSIDERED THE ENTIRE EXPENDITURE UNDER THESE H EADS. IN DOING SO, HE IGNORED THE FACT THAT MANPOWER COST CONSIDERED BY ASSESSEE HIMSELF HAS CONSIDERED THE EXPENSES WHICH HAS PROXIMITY WITH EARNING THE EXEMPT INCOME IN WHICH NO SPECIFIC FAULT IS FOUND B Y HER. FURTHER, THE CIT(A) HIMSELF HAS WORKED OUT THE DISALLOWANCE AT RS.2 .73 LACS BY CONSIDERING THE METHOD AT WHICH DISALLOWANCE IS WORKE D OUT BY THE ITA 364/JP/2013_MAHARAJA SHREE UMAID MILLS LTD. VS DCIT 16 ASSESSEE BUT STILL SHE HAS CONFIRMED THE DISALLOWANC E MADE BY AO AT RS.21,12,000/- WITHOUT ANY FINDING AS TO HOW THE DISA LLOWANCE MADE BY THE AO IS CORRECT. IN VIEW OF ABOVE, DISALLOWANCE U/S 14A SHOULD BE RESTRICTED TO RS.55,097/- AS AGAINST RS.21,12,000/- MADE BY THE AO. 12. AT THE OUTSET THE LD DR HAS VEHEMENTLY SUPPORTE D THE ORDER OF THE ASSESSING OFFICER. 13. WE HAVE HEARD THE RIVAL CONTENTIONS OF BOTH THE PARTIES AND PERUSED THE MATERIAL AVAILABLE ON THE RECORD. RULE 8D OF THE RULES IS SQUARELY APPLICABLE ON THE CASE OF ASSESSEE. THE ASS ESSEE HAS DIVIDEND INCOME. THE ASSESSEE HAD INVESTED RS. 4464.17 LACS I N SHARES AND HAVE DIVIDEND INCOME OF RS. 39.51 LACS DURING THE Y EAR UNDER CONSIDERATION. AS PER SECTION 14A READ WITH RULE 8D, THE CERTAIN DISALLOWANCE IS TO BE MADE BY THE ASSESSING OFFICER BUT WHATEVER CALCULATION MADE BY THE ASSESSING OFFICER IS NOT JU STIFIED EVEN THE ASSESSEE HAS MIXED COMMON FUND. IN PAST, THE ASSESS ING OFFICER HAD DISALLOWED U/S 14A REASONABLE I.E. IN A.Y. 2007-08 I T WAS RS. 1,71,000/- AND IN A.Y. 2008-09 IT WAS RS. 54,986/- AS PER PAPER BOOK FILED BY THE ASSESSEE. THEREFORE, THE ASSESSING OFFI CER IS DIRECTED TO RECOMPUTE THE DISALLOWANCE AFTER CONSIDERING ALL THE FACTS MENTIONED ITA 364/JP/2013_MAHARAJA SHREE UMAID MILLS LTD. VS DCIT 17 BY THE ASSESSEE IN HIS SUBMISSION BEFORE US. ACCORD INGLY, THIS ISSUE IS ALSO SET ASIDE TO THE ASSESSING OFFICER TO DECIDE T HE DISALLOWANCE U/S 14A OF THE ACT. 14. IN THE RESULT, THE ASSESSEES APPEAL IS ALLOWED FOR STATISTICAL PURPOSES ONLY. ORDER PRONOUNCED IN THE OPEN COURT ON 08/01/2016. SD/- SD/- VKJ-IH-RKSYKUH VH-VKJ-EHUK (R.P.TOLANI) (T.R. MEENA) U;KF;D LNL;@ JUDICIAL MEMBER YS[KK LNL;@ ACCOUNTANT MEMBER TK;IQJ @ JAIPUR FNUKAD @ DATED:- 08 TH JANUARY, 2016 *RANJAN VKNS'K DH IZFRFYFI VXZSFKR @ COPY OF THE ORDER FORWARDED TO: 1. VIHYKFKHZ @ THE APPELLANT- MAHARAJA SHREE UMAID MILLS LTD., JAIP UR 2. IZR;FKHZ @ THE RESPONDENT- THE D.C.I.T., CIRCLE-6, JAIPUR 3. VK;DJ VK;QDR @ CIT 4. VK;DJ VK;QDRVIHY @ THE CIT(A) 5. FOHKKXH; IZFRFUF/K] VK;DJ VIHYH; VF/KDJ.K] T;IQJ @ DR, ITAT, JAIPUR 6. XKMZ QKBZY @ GUARD FILE (ITA NO. 364/JP/2013) VKNS'KKUQLKJ @ BY ORDER, LGK;D IATHDKJ @ ASST. REGISTRAR