DCIT, New Delhi V. M/s. Goyal MG Pvt. Ltd., New Delhi

ITA 3854/DEL/2013

• Counselvise Citation: [2014] 140 COUNSELVISE.COM (IT) 81688 (ITAT-DELHI)
• Duration Of Justice: 1 year(s) 3 month(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 17-09-2014
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: C
• Next Hearing Date: 10-09-2014
• Assessment Year: 2005-2006
• Appeal Filed On: 17-06-2013
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: SATPAL SINGH SENIOR
• Keywords: Rule of consistency; Capital receipt; Revenue expenditure; Capital expenditure
• Section: 14A

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL (DELHI BENCH C : NEW DELHI) BEFORE SHRI I.C. SUDHIR, JUDICIAL MEMBER AND SHRI B.C. MEENA, ACCOUNTANT MEMBER ITA NO.3854/DEL./2013 (ASSESSMENT YEAR : 2005-06) DCIT, CENTRAL CIRCLE 5, VS. M/S. GOYAL MG PVT. LTD ., NEW DELHI. A 38, 1 ST FLOOR, MOHAN COOPERATIVE INDL. ESTATES, MAIN MATHURA ROAD, NEW DELHI 110 044. (PAN : AAACG6972B) (APPELLANT) (RESPONDENT) ASSESSEE BY : SHRI R.S. SINGHVI, CA REVENUE BY : SHRI SATPAL SINGH, SENIOR DR ORDER PER B.C. MEENA, ACCOUNTANT MEMBER : THIS APPEAL FILED BY THE REVENUE EMANATES FROM THE ORDER OF CIT (APPEALS)-X, NEW DELHI DATED 21.01.2013. 2. THE ASSESSEE IS A COMPANY ENGAGED IN THE BUSINES S OF MANUFACTURE AND TRADE OF INDUSTRIAL GASES. THE ASSESSING OFFIC ER MADE CERTAIN ADDITIONS WHICH HAVE BEEN DELETED BY THE CIT (A). NOW, THE REVENUE IS IN APPEAL BY TAKING THE FOLLOWING GROUNDS OF APPEAL :- 1. THAT THE COMMISSIONER OF INCOME TAX (APPEALS) E RRED IN LAW AND ON THE CASE IN DELETING THE ADDITION OF RS.10,96,917/- MADE BY THE ASSESSING OFFICER ON ACCOUNT OF DISALLO WANCE OF EXPENSES U/S 14A OF THE INCOME TAX ACT, 1961. ITA NO.3854/DEL/2013 2 2. THAT THE COMMISSIONER OF INCOME TAX (APPEALS) ER RED IN LAW AND ON THE CASE IN DELETING THE ADDITION OF RS.23,23,100/- MADE ON ACCOUNT OF CAPITAL EXPENDITURE. 3. THAT THE COMMISSIONER OF INCOME TAX (APPEALS) ER RED IN LAW AND ON THE CASE IN DELETING THE ADDITION OF RS.7,60,661/- OUT OF TOTAL ADDITION OF RS.10,10,661/- MADE ON ACC OUNT OF DISALLOWANCE OF BUILDING REPAIR EXPENSES. 4. THAT THE COMMISSIONER OF INCOME TAX (APPEALS) ER RED IN LAW AND ON THE CASE IN DELETING THE ADDITION OF RS.12,00,000/- MADE ON ACCOUNT OF DISALLOWANCE OF PLANT REPAIR EXP ENSES. 5. (A) THE ORDER OF THE CIT(A) IS ERRONEOUS AND NOT TENABLE IN LAW AND ON FACTS. (B) THE APPELLANT CRAVES LEAVE TO ADD, ALTER OR AME ND ANY/ALL OF THE GROUNDS OF APPEAL BEFORE OR DURING T HE COURSE OF THE HEARING OF THE APPEAL. 3. IN THE GROUND NO.1, THE ISSUE RAISED IS DELETING THE ADDITION OF RS.10,96,917/- MADE BY THE ASSESSING OFFICER BY INV OKING SECTION14A OF THE INCOME-TAX ACT, 1961. THE CIT (A) HAS DELETED T HIS ADDITION BY HOLDING AS UNDER :- 2.3. AFTER GOING THROUGH THE FACTS OF THE CASE, OB SERVATIONS OF THE A.O., SUBMISSIONS OF THE A.R. OF THE APPELLANT AND THE VARIOUS JUDICIAL PRONOUNCEMENTS, THIS GROUND IS BEI NG DECIDED ON THE BASIS OF THE FOLLOWING OBSERVATIONS : (I) FROM THE FACTS IT IS CLEAR THAT THE A. R. OF TH E APPELLANT HAS PROVIDED SPECIFIC DETAILS ESTABLISHING THE AMOU NT OF INVESTMENT MADE IN THE MUTUAL FUNDS OUT OF THE ICD REFUND OF THE APPELLANT. THIS ESTABLISHES THAT THE AMOUNT WAS THE APPELLANT'S OWN FUNDS AND ACCORDINGLY, NO NEXUS HAS BEEN ESTABLISHED BETWEEN THE BORROWED FUNDS AND THE AMOU NT INVESTED IN THE MUTUAL FUNDS. THE ASSESSING OFFICER HAS ALSO NOT DISPUTED THESE FACTS IN THE ASSESSMENT ORDER AND HAS ONLY MA DE THE DISALLOWANCE ON THE BASIS OF THE ASSUMPTION THAT PR OPORTIONATE DISALLOWANCE OF EXPENDITURE SHOULD BE MADE IN VIEW OF THE ITA NO.3854/DEL/2013 3 INVESTMENTS MADE BY THE APPELLANT, WHICH WOULD RESU LT IN TAX FREE INCOME. THE A.R. HAS ALSO SUBMITTED THAT NO EX EMPT INCOME HAS BEEN EARNED DURING THE YEAR. THIS ASPECT HAS AL SO NOT BEEN DISPUTED BY THE ASSESSING OFFICER. ACCORDINGLY, IN VIEW OF THE VARIOUS JUDICIAL PRONOUNCEMENTS' IT IS CLEAR THAT T HE INVESTMENTS WERE MADE BY THE APPELLANT OUT OF ITS OWN FUNDS AND A DIRECT NEXUS IN THIS REGARD HAS BEEN ESTABLISHED BY THE A. R. OF THE APPELLANT. (II) IN VIEW OF THE DECISIONS OF THE CIT V. HERO C YCLES (SUPRA), SIL INVESTMENT (SUPRA) AND THE FACTS OF TH E PRESENT CASE, THE PROPORTIONATE DISALLOWANCE MADE BY THE ASSESSIN G OFFICER WITHOUT APPRECIATING THE SPECIFIC FACTS AND CIRCUMS TANCES AND ONLY MAKING A PROPORTIONATE DISALLOWANCE ON THE BAS IS OF INVESTMENT DOES NOT APPEAR TO BE JUSTIFIED. I AM IN CLINED TO AGREE WITH THE ARGUMENTS OF THE A.R. OF THE APPELLANT THA T THIS DISALLOWANCE U/S 14A IS NOT JUSTIFIED. ACCORDINGLY, THIS GROUND OF THE APPELLANT IS TREATE D AS ALLOWED. 4. WE HAVE HEARD BOTH THE SIDES ON THE ISSUE. THE CIT (A) HAS GIVEN A CLEAR CUT FINDING THAT THERE IS NO NEXUS BETWEEN THE BORROWED FUNDS AND THE INVESTMENT IN THE MUTUAL FUNDS FROM WHERE THE A SSESSEE COULD HAVE EARNED THE EXEMPTED INCOME. MOREOVER, THERE IS NO EXEMPTED INCOME EARNED DURING THE YEAR BY THE ASSESSEE. IN VIEW OF THESE FACTS AND IN VIEW OF THE DECISION OF HON'BLE PUNJAB AND HARYANA HIGH COURT IN THE CASE OF CIT VS. HERO CYCLES LTD. REPORTED IN 323 ITR 518, W E FIND NO MERITS IN THIS GROUND OF REVENUES APPEAL AND THE SAME IS DIS MISSED. 5. IN THE GROUNDS NO.2, THE ISSUE INVOLVED IS AGAIN ST DELETING THE ADDITION OF RS.23,23,100/- MADE ON ACCOUNT OF CAPIT AL EXPENDITURE. 6. DURING THE YEAR, THE ASSESSEE CLAIMED LEGAL EXPE NSES OF RS.23,23,100/-. THE ASSESSING OFFICER TREATED THIS AMOUNT WAS CAPITAL IN ITA NO.3854/DEL/2013 4 NATURE. ONE OF THE REASONS FOR TREATING THE AMOUNT AS CAPITAL WAS THAT THE ASSESSEE HAS ENTERED INTO AN AGREEMENT WITH M/S. GM BH AND SUBSEQUENTLY, THIS AGREEMENT WAS BREACHED AND THAT RESULTED INTO SEVERAL CASES OF ARBITRATION, AFTER WHICH CERTAIN AMOUNTS W ERE RECEIVED BY ASSESSEE IN 2001 WHICH WAS CLAIMED AS CAPITAL RECEI PTS. THE ASSESSING OFFICER HELD THAT WHERE THE LEGAL EXPENSES WERE INC URRED TO BRING INTO RIGHTS OF CAPITAL NATURE ARE TO BE TREATED AS CAPIT AL. THE CIT (A) HAS DELETED THE ADDITION BY HOLDING AS UNDER :- 3.3. AFTER GOING THROUGH THE FACTS OF THE CASE, TH E A.O., SUBMISSIONS OF THE A.R. OF THE APPELLANT AND VARIOU S JUDICIAL PRONOUNCEMENTS, THIS GROUND OF THE APPELLANT IS BEI NG FINALIZED AFTER MAKING THE FOLLOWING OBSERVATIONS: (A) THE A. R. OF THE APPELLANT HAS VEHEMENTLY ARGU ED THAT ON SIMILAR FACTS SUCH LEGAL AND PROFESSIONAL EXPENS ES HAVE BEEN ALLOWED AS REVENUE EXPENDITURE IN EARLIER AS WELL A S LATER ASSESSMENT YEARS. THE ASSESSING OFFICER HAS MADE A DISALLOWANCE IN THIS YEAR BY RELYING UPON THE FACT THAT SOME AMO UNT OF RECEIPT HAD BEEN SHOWN AS A CAPITAL RECEIPT IN THE YEAR 200 1. APART FROM THIS FACT THE ASSESSING OFFICER HAS NOT STATED ANY OTHER REASON AS TO WHY THESE EXPENSES SHOULD NOT BE ALLOWED AS REVE NUE EXPENSES DURING THE YEAR. (B) THE DETAILS OF THESE EXPENSES HAD BEEN MENTIONE D ON PAGE 3 OF THE ASSESSMENT ORDER AND THESE ARE PAYMEN TS MADE TO VARIOUS LEGAL FIRMS AND INDIVIDUALS AS WELL AS INTE RNATIONAL CHAMBERS OF COMMERCE. THE A.O. HAS NOT PAINTED OUT WHETHER THE NATURE OF THESE EXPENSES ARE OF CAPITAL NATURE WHICH PROVIDE ENDURING BENEFIT TO THE APPELLANT OVER PREVIOUS YEA RS. THE ONLY ARGUMENT PROVIDED BY THE A.O. WAS THAT THE AMOUNT R ECEIVED ON ACCOUNT OF PART SETTLEMENT OF THIS DISPUTE RELATE T O RIGHTS OF CAPITAL NATURE LIKE 'RIGHT TO EXCLUSIVE OPERATION I N TERRITORY OF INDIA AND TO AVAIL NON-COMPETE BENEFITS', THE A.O. HAS, THEREFORE, OBSERVED THAT THE EXPENSES INCURRED FOR OBTAINING SUCH RIGHTS SHOULD ALSO BE TREATED AS CAPITAL EXPENSE. ITA NO.3854/DEL/2013 5 (III) FROM THE FACTS WHICH EMERGED IT APPEARS THAT THIS IS AN ISSUE GOING ON FOR SEVERAL YEARS AND IN OTHER YEAR SUCH LEGAL AND PROFESSIONAL EXPENSES ON ACCOUNT OF THIS DISPUTE MU ST HAVE BEEN INCURRED BY THE APPELLANT. THE A.R. OF THE APPELLAN T HAS ARGUED THAT SUCH EXPENSES HAD BEEN ALLOWED IN DIFFERENT YE ARS AND THE FACTS BEING SIMILAR EVEN IN THIS YEAR THERE WAS NO JUSTIFICATION FOR THE ASSESSING OFFICER TO DISALLOW THIS AMOUNT AS A CAPITAL EXPENSE, APART FROM THE PRINCIPLE OF CONSISTENCY, SINCE NO C APITAL RECEIPT OR NON-COMPETE FEE HAS EVER BEEN RECEIVED BY THE AP PELLANT FOR THE YEAR VARIOUS YEARS AFTER 2005-06, THERE WAS NO LOGIC IN THE ARGUMENT OF THE ASSESSING OFFICER TO TREAT THIS EXP ENDITURE AS A CAPITAL EXPENSE. AFTER CAREFULLY CONSIDERING THE FACTS OF THE PRESEN T CASE, VARIOUS JUDICIAL PRONOUNCEMENTS AS WELL AS THE TREA TMENT OF THE NATURE OF THESE EXPENSES IN OTHER YEARS, IT APPEARS THAT THESE LEGAL AND PROFESSIONAL EXPENSES INCURRED BY THE APP ELLANT ARE REVENUE IN NATURE. THE A.O. HAS NOWHERE ESTABLISHED ANY ENDURING BENEFITS BEING THE PAYMENTS MADE TO VARIOU S PROFESSIONALS AND PARTIES ON THIS ACCOUNT. MERELY B ECAUSE OF CERTAIN OBSERVATIONS OF SOME RECEIPT IN THE YEAR 20 01 WHICH HAVE BEEN SHOWN AS CAPITAL IN NATURE WOULD NOT JUST IFY THE DISALLOWANCE OF THESE EXPENSES AS REVENUE EXPENSE. ACCORDINGLY, AFTER CONSIDERING THE OVERALL FACTS OF THE CASE, AND THE NATURE OF PAYMENTS MADE TO SPECIFIC INDIVIDUALS , AS WELL AS THE FACT THAT SIMILAR EXPENSES HAVE BEEN ALLOWED IN OTHER YEARS, I AM IN AGREEMENT WITH THE ARGUMENTS OF THE A.R. OF THE APPELLANT THAT THIS AMOUNT SHOULD BE TREATED AS REV ENUE EXPENSE. ACCORDINGLY, THE GROUND IS TREATED AS ALL OWED. 7. WE HAVE HEARD BOTH THE SIDES ON THE ISSUE. WE H AVE ALSO CONSIDERED THE CASE LAWS RELIED UPON. THESE EXPEND ITURE WERE INCURRED WHICH HAS NOT BROUGHT ANY BENEFIT OF ENDURING NATUR E. THESE HAVE BEEN PAID TO VARIOUS PROFESSIONALS. THESE EXPENDITURE H AVE ALSO NOT BROUGHT ANY ASSET INTO EXISTENCE. IT IS ALSO NOT CLEAR WHA T TYPE OF LONG TERM ENDURING BENEFIT GIVING RIGHTS HAVE BEEN BROUGHT IN TO EXISTENCE. IN ABSENCE OF ANY SUCH FINDINGS, WE FIND NO FAULT IN T HE ORDER OF THE CIT (A) AND WE DISMISS THIS GROUND OF REVENUES APPEAL. ITA NO.3854/DEL/2013 6 8. IN THE GROUND NO.3, THE REVENUE HAS RAISED THE I SSUE REGARDING DELETING THE PART ADDITION OUT OF THE TOTAL ADDITIO N OF RS.10,10,661/- MADE ON ACCOUNT OF BUILDING REPAIR EXPENSES. 9. THE ASSESSING OFFICER DISALLOWED 50% OF THE TOTA L EXPENSES DEBITED UNDER THE HEAD BUILDING REPAIR EXPENSES A ND MADE AN ADDITION OF RS.10,10,661/-. THIS WAS BASED ON ASSESSING OFF ICERS FINDINGS THAT CERTAIN VOUCHERS WERE WITH RESPECT TO PROPERTY NO.4 , RING ROAD, LAJPAT NAGAR, NEW DELHI WHICH IS A RESIDENTIAL PREMISES OF ONE OF THE DIRECTORS OF THE COMPANY AND SOME OF THE ITEMS LIKE STONES AN D MARBLES WERE NOT RELATED TO THE REPAIRING OF THE BUILDING AND SOME O F THE EXPENDITURE WERE PERSONAL EXPENDITURE OF THE DIRECTOR. THE CIT (A) HAS GRANTED PART RELIEF TO THE ASSESSEE BY HOLDING AS UNDER :- 4.3. AFTER GOING THROUGH THE FACTS OF THE CASE, OB SERVATIONS OF THE A.O., SUBMISSIONS OF THE A.R. OF THE APPELLANT, IT IS SEEN THAT THE ASSESSING OFFICER HAD EXAMINED THE DETAILS REGA RDING BUILDING REPAIRS AND MAINTENANCE AND WAS NOT FULLY SATISFIED WITH THE SUPPORTING BILLS AND VOUCHERS WHICH COULD BE FULLY ATTRIBUTED BUILDING REPAIRS AND MAINTENANCE OF THE OFFICE OF T HE APPELLANT. IT IS ALSO A MATTER OF FACT THAT THE RESIDENTIAL BUILD ING OF ONE OF THE DIRECTORS WAS ALSO BEING BUILT AT THE SAME SITE AND SOME OF THE EXPENSES WOULD NOT BE DIRECTLY ATTRIBUTABLE TO THE OFFICE BUILDING ONLY. ALL THE EXPENSES AND VOUCHERS DO NOT APPEAR T O HAVE BEEN MAINTAINED IN A MANNER IN WHICH IT COULD BE ESTABLI SHED THAT ALL THESE EXPENSES UNDER THE HEAD OF BUILDING AND REPAI RS WAS WHOLLY AND EXCLUSIVELY FOR THE BUILDING RELATING TO THE COMPANY. WHILE ON ONE HAND THE ARGUMENT OF THE A.R. OF THE A PPELLANT IS JUSTIFIED TO THE EXTENT THAT THE ESTIMATED DISALLOW ANCE OF 50% IS NOT CALLED FOR AND IS ON THE HIGHER SIDE IN MY OPIN ION, THE CIRCUMSTANCES ALSO INDICATE THAT SOME AMOUNT OF THE SE EXPENSES HAS ALSO BEEN CLAIMED BY THE APPELLANT WITHOUT PROP ERLY ENDURING THAT THE SAME WAS WHOLLY AND EXCLUSIVELY PERTAINING TO THE BUILDING REPAIRS OF THE APPELLANT. AN AMOUNT OF RS. 1,73,000/- HAS ITA NO.3854/DEL/2013 7 BEEN CLEARLY IDENTIFIED BY THE ASSESSING OFFICER AN D NO PROPER EXPLANATION HAS BEEN PROVIDED BY THE APPELLANT WITH REGARD TO THESE EXPENSES. ACCORDINGLY, IN MY OPINION, A DISAL LOWANCE OF RS.2,50,000/- ON ACCOUNT OF EXPENSES NOT FULLY VERI FIABLE FOR BUSINESS PURPOSES NEEDS TO BE SUSTAINED. ACCORDINGL Y, THE ADDITION IS RESTRICTED TO RS.2,50,000/-. THIS GROUN D OF THE APPELLANT IS PARTLY ALLOWED. 10. WE HAVE HEARD BOTH THE SIDES ON THE ISSUE. WE FIND THAT CIT (A) HAS GRANTED PART RELIEF AFTER EXAMINATION OF THE NA TURE OF EXPENSES CLAIMED BY THE ASSESSEE. THE CIT (A) HAS SUSTAINED PART OF THE ADDITION. THE REVENUE HAS FAILED TO BRING ANY MATERIAL ON REC ORD WHICH COULD NEGATE THE FINDINGS OF THE CIT (A) ON THIS ISSUE. KEEPING ALL THESE FACTS IN VIEW, WE SUSTAIN THE ORDER OF THE CIT (A) ON THI S GROUND. THIS GROUND OF REVENUES APPEAL IS FAILED. 11. IN THE GROUND NO.4, THE REVENUE HAS RAISED THE ISSUE OF DELETING THE ADDITION OF RS.12,00,000/- MADE ON ACCOUNT OF REPAI RS FOR PLANT. 12. THE ASSESSING OFFICER MADE THE ADDITION BY FOLL OWING THE EARLIER YEAR PATTERN BY DISALLOWING 10% OF THE TOTAL EXPEND ITURE DEBITED ON ACCOUNT OF PLANT REPAIRS. IT WAS CLAIMED BEFORE US THAT ADDITION IN EARLIER YEAR WAS DELETED BY THE CIT(A) AND THE REVENUE HAS NOT GONE IN ANY FURTHER APPEAL. THE CIT (A) HAS DELETED THE ADDITI ON BY HOLDING AS UNDER:- 5.3 AFTER GOING THROUGH THE FACTS OF THE CASE, SUB MISSIONS OF THE A.R. OF THE APPELLANT AND THE OBSERVATIONS OF T HE A.O., IT IS SEEN THAT THE ADDITION MADE BY THE ASSESSING OFFICE R WAS ONLY BASED ON THE EARLIER YEAR AND EARLIER YEARS ADDITIO NS HAS BEEN DELETED BY THE CIT(A) IN A.Y. 2004-05. AFTER CONSI DERING THE ITA NO.3854/DEL/2013 8 FINDINGS OF THE CIT(A) FOR A.Y. 2004-05 AND 2006-07 AND FOLLOWING THE PRINCIPLES OF JUDICIAL CONSISTENCY AN D CONSIDERING THE ARGUMENTS OF THE A.R. OF THE APPELLANT, THIS AD DITION OF THE APPELLANT SHOULD BE DELETED. ACCORDINGLY, THIS GROU ND OF THE APPELLANT IS TREATED AS ALLOWED. 13. AFTER HEARING BOTH THE SIDES, WE FIND THAT REVE NUE HAS FAILED TO CONTROVERT THE FINDING OF THE CIT (A) ON THIS ISSUE . THEREFORE, WE SUSTAIN THE ORDER OF CIT (A) ON THIS GROUND AND DISMISS THI S GROUND OF REVENUES APPEAL. 14. GROUND NO.5 IS GENERAL IN NATURE AND DOES NOT R EQUIRE ANY ADJUDICATION, HENCE THE SAME IS DISMISSED. 15. IN THE RESULT, THE APPEAL OF THE REVENUE STANDS DISMISSED. ORDER PRONOUNCED IN OPEN COURT ON THIS 17 TH DAY OF SEPTEMBER, 2014. SD/- SD/- (I.C. SUDHIR) (B.C. MEENA) JUDICIAL MEMBER ACCOUNTANT MEMBER DATED THE 17 TH DAY OF SEPTEMBER, 2014 TS COPY FORWARDED TO: 1.APPELLANT 2.RESPONDENT 3.CIT 4.CIT(A)-X, NEW DELHI. 5.CIT(ITAT), NEW DELHI. AR/ITAT