DCIT, Circle-10(1), New Delhi V. Genesis Color Pvt. Ltd., New Delhi

ITA 3688/DEL/2019

• Counselvise Citation: [2022] 106 COUNSELVISE.COM (IT) 9274 (ITAT-DELHI)
• Duration Of Justice: 3 year(s) 1 month(s) 13 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 07-06-2022
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: G
• Assessment Year: 2015-2016
• Appeal Filed On: 25-04-2019
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: ANUPAMA SINGHLA
• Keywords: Depreciation; Earning of tax free income; Rule 8D
• Section: 143(3); 14A; 143(2)

Judgement Text

Page | 1 INCOME TAX APPELLATE TRIBUNAL DELHI BENCH “H”: NEW DELHI BEFORE SHRI SHAMIM YAHYA, ACCOUNTANT MEMBER AND SHRI ANUBHAV SHARMA, JUDICIAL MEMBER ITA No. 3688/Del/2019 (Assessment Year: 2015-16) DCIT, Circle-10(1), New Delhi Vs. Genesis Color Pvt. Ltd, 3A/1, Rao Tula Ram Marg, New Delhi PAN: AABCG4825H (Appellant) (Respondent) Revenue by : Ms. Anupama Singhla, Sr. DR Assessee by: Shri Ved Jain, Adv Date of Hearing 06/06/2022 Date of pronouncement 08/06/2022 O R D E R PER ANUBHAV SHARMA, J. M.: 1. The appeal has been preferred by the revenue against the order dated 23.01.2019 of Ld Commissioner of Income Tax (Appeals)-35, New Delhi (hereinafter referred as Ld. First Appellate Authority or in short Ld. „FAA‟) in appeal No. 131/18-19 arising out of an appeal before it against the order dated 11.12.2017 u/s 143(3) of the Income Tax Act, 1961 (hereinafter referred as „the Act‟) passed by the ld. Assessing Officer, DCIT, Circle-10(1), New Delhi (hereinafter referred as the Ld. AO). 2. Facts in brief are the Assessee is engaged in the business of marketing, distribution and retailing of Neck ties, Bow ties cuff links, Button covers, Tie Pins, Cravats, Fabric, Saree, SKD & lingerie products under various brands including “Satva Paul", "Tic Rack'" &. Page | 2 "Switch" and supply of articles to other companies retailing in the above accessories for sale under various brand names including Park Avenue, Westside, Shoppers Stop, Pantaloon, Taj Khazana" etc. and the business of obtaining licenses from various brand owners. It acquired rights for manufacturing, distributing and retailing of products as an extension to the product portfolio for such brand owners. Assessee filed its return of income declaring loss of Rs. 8,96,24,343/- on 30.11,2015. The case was selected for scrutiny and notice under section 143(2) dated 19.09.2016 was issued and duly served on the Assessee. This was followed-up with notices u/s 142 (1) thereafter, in response to notices. The ld AO has raised query to furnish working of disallowances as per section 14A read with Rule 8D. In response to which the Assessee had submitted that an amount of Rs. 10,000/- has been disallowed u/s 14A. However, the ld AO being dissatisfied admitted that disallowance by following observations in para 3.4 and 3.5 as under:- “3.4 Although the assessee has not earned any dividend income during the year under consideration, disallowance ought to be made u/s 14A. In this regard, reliance is also placed on the Circular No.5/2014 dated 11.02.2014 issued by Central Board of Direct taxes. 3.5 Thus, the amount which is liable to be disallowed u/s 14A r.w Rule 8D in the case of the assessee is being worked out as under:- Particulars Amount (Rs.) Amount (Rs.) Amount (Rs.) Amount (Rs.) Expending to be aggregate to the following 1.Amount of expenditure directly to income which does not form part of total income Nil Nil 2.Where expenditure has been incurred by die way of interest which is not directly Attributable to any particular income or (A*B)/C 1,84,87,800 Page | 3 receipt, amount Calculated as follows: Where A= Amount of expenditure by way of interest other than amount included in 1 above 6,60,09,850/- B Average value of investment Income from which does not or shall not from part of the total income, as appearing in the balance sheet as on the first day & last day of the previous year 54,07,19,240/- C= Average value of total assets as appearing in the balance sheet as on the first day & last day of the previous year 1,93,06,13,490/- Amount equal to 1% of the average value of investments income from which does not or shall not form part of the total income, appearing in the balance sheet as on the first day & last day of the previous year 54,07,19,240 *1% 54,07,192 Total amount liable to be disallowed u/s 14A r/w Rule 8D 2,38,94,992/- 3. However, the ld AO was not satisfied with the claim of Rs. 4,84,90,164/- towards repairs and maintenance of following nature:- Page | 4 Date Payment to Description Amount Vouchers Narration 29/04/2014 Brand solutions India Computer repair and maintenance 22,050 Pen drive (8GB) 60 pcs 23/04/2014 Hindustan compupherals 16,010 HP Tape Data cartridge 22/07/2014 Instant Solutions 22,795 Cartridge Battery 13/06/2014 Hindustan Compupherals 47,398 Patch cord 27/08/2014 Cyberspace networking systems (P) Ltd 30,169 Mail hosting charges for Satyapaul.com from 01.08.2014 to 01.11.2014 Total 1,38,422 4. Therefore, treating them as capital expenditure and allowing depreciation @10% the Ld AO disallowed 90% of these expenses to the extent of Rs. 1,24,580/-. The ld AO had also disallowed credit card expenses to the extent of 20% or Rs. 48,10,198/- being Rs. 9,62,040/-. 5. In appeal the ld CIT(A) had deleted the disallowances u/s 14A on the basis that since there is no claim of exempt income during the year. Further, considering the earlier the ld CIT(A) had allowed disallowances in regard to similar cases of repair and maintenance the addition made by the ld AO was also disallowed. Lastly, the addition on account of ad hoc 20% disallowance of credit card expenditure was also disallowed and now the revenue is in appeal raising following grounds of appeal:- “1. Whether on the facts and in the circumstances of the case, the Ld. CIT(A) has erred in deleting the addition of Rs. 2,38,84,992/- made by the AO ignoring the provision of Section 14A r.w.r 8D of the IT Act. 1.a Whether on the facts and in the circumstances of the case and in law, the Ld. CIT(A) has erred in not upholding disallowance u/s 14A of the IT Act without considering legislative intent of introducing section 14A by the Finance Act, 2001 as clarified by CBDT Circular No. 5/2014 dated 11.02.2014. 2. Whether on the facts and in the circumstances of the case, the Ld. CIT(A) has erred in deleting the addition of Rs. 1,24,580/- Page | 5 made by the AO after elaborative discussion and mentioning of facts on account of Repairs and Maintenance^ 2. a Whether on the facts and in the circumstances of the case and in law, the Ld. CIT(A) has erred in not upholding the addition of Rs. 1,24,580/- made by the AO holding the same as Capital in nature.” 6. Heard and perused the record. 7. Ld. Counsel for the Assessee submitted that following the settled principle of law that disallowance cannot be made u/s 14A if no exempt income is earned, in Assessee‟s own case for the Assessment Year 2014-15 in ITA No. 4019/Del/2018 vide order dated 25.08.2021, the additions made by the ld AO u/s 14A of the Act read with Rule 8D were set aside and the ld CIT(A) has rightly following the same has deleted the disallowances. In regard to the addition of Rs. 1,24,580/- on account of disallowance of expenses related to repairs and maintenance it was submitted that this issue is also been decided in favor of the Assessee for Assessment Year 2011-12 in ITA No. 3731/Del/2017 vide order dated 29.04.2022. 8. The ld DR could not differentiate any change of fact or proposition of law as is regard to additions u/s 14A read with Rule 8D however, she submitted that in regard to additions made on account of disallowances of expenses related to repairs and maintenance the previous year findings are not applicable as a precedent and the onus was on the Assessee to establish that it was a same set of assets for which this expenditure was made. 9. Appreciating the matter on record it can be observed that when the revenue does not assert that the Assessee has earned any exempt income in year under consideration other than for the suo moto disallowances claimed then the issue of disallowances u/s 14A is covered by the binding precedent in case of Chemnivest Ltd Vs. CIT-IV 61 Taxmann.com 118 (Delhi ), CIT Vs. Holcim India P. Ltd 57 Taxmann.com 28 (2015) Delhi, Maxopp Investment Ltd 347 ITR 272 which have been considered in Assessee‟s own case for the Page | 6 Assessment Year 2014-15. There is no substance in the revenue‟s appeal as raised in ground No. 1. 10. As to ground No. 2 it can be observed that the description of expenditure in the form of computer repair and maintenance itself speaks of the nature of expenditure. The purchases were not of any new computer but merely the paraphernalia and accessory, which are essential for swift running and attaining efficiency of the computers. The same cannot be considered to be capital expenditure. In Assessee‟s own case similar expenditure were taken into consideration for the Assessment Year 2014-15 and were held to be revenue expenditure. There is no distinction as raised by the Ld DR. The same being followed by ld CIT(A) require no interference, therefore, there is no substance in ground No. 2 of the revenue. Consequently, the appeal of Revenue is dismissed. Order pronounced in the open court on 08/06/2022. -Sd/- -Sd/- (SHAMIM YAHYA) (ANUBHAV SHARMA) ACCOUNTANT MEMBER JUDICIAL MEMBER Dated: 08/06/2022 A K Keot Copy forwarded to 1. Applicant 2. Respondent 3. CIT 4. CIT (A) 5. DR:ITAT ASSISTANT REGISTRAR ITAT, New Delhi