JCIT (OSD), New Delhi V. M/s. Rimjhim Ispat Ltd., Uttar Pradesh

ITA 3983/DEL/2016

• Counselvise Citation: [2018] 126 COUNSELVISE.COM (IT) 3050 (ITAT-DELHI)
• Duration Of Justice: 1 year(s) 8 month(s) 15 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 23-03-2018
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: F
• Assessment Year: 2013-2014
• Appeal Filed On: 08-07-2016
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: ATIQ AHMAD SENIOR
• Keywords: Depreciation; Earning of tax free income
• Section: 14A

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL (DELHI BENCH F : NEW DELHI) BEFORE SHRI R.K. PANDA, ACCOUNTANT MEMBER AND SHRI KULDIP SINGH, JUDICIAL MEMBER ITA NO.3983/DEL./2016 (ASSESSMENT YEAR : 2013-14) JCIT, CC 31, VS. M/S. RIMJHIM ISPAT LTD., NEW DELHI. 123/360, FAZALGANJ, KANPUR. (PAN : AAACR6582K) (APPELLANT) (RESPONDENT) ASSESSEE BY : NONE REVENUE BY : SHRI ATIQ AHMAD, SENIOR DR DATE OF HEARING : 21.03.2018 DATE OF ORDER : 23.03.2018 O R D E R PER KULDIP SINGH, JUDICIAL MEMBER : APPELLANT, JOINT COMMISSIONER OF INCOME-TAX, CC 31 , NEW DELHI (HEREINAFTER REFERRED TO AS THE REVENUE), B Y FILING THE PRESENT APPEAL SOUGHT TO SET ASIDE THE IMPUGNED ORD ER DATED 29.04.2016 PASSED BY THE COMMISSIONER OF INCOME-TA X (APPEALS)- 30, NEW DELHI QUA THE ASSESSMENT YEAR 2013-14 ON TH E GROUNDS INTER ALIA THAT :- 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE, THE LD. CIT(A) HAS ERRED IN LAW AND ON FACTS IN DEL ETING THE DISALLOWANCE U/S 14A READ WITH RULE 80 OF THE ITA NO.3983/DEL./2016 2 INCOME TAX RULES IGNORING THE FACT THAT THE PROVISI ONS OF SECTION 14A ARE MANDATORY. 2. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E, THE LD. CIT(A) HAS ERRED IN LAW AND ON FACTS IS NOT APPRECIATING THE CONTENT OF CBDT CIRCULAR NO.05/201 4 DATED 11.02.2014 WHICH CLARIFIES THAT RULE 8D READ WITH SECTION 14A OF THE ACT PROVIDES FOR DISALLOWANCE OF THE EXPENDITURE EVEN WHERE TAXPAYER IN PARTICULAR YEAR HAS NOT EARNED ANY EXEMPT INCOME. 3. ON THE FACTS AND IN THE IN THE CIRCUMSTANCES OF THE CASE, THE LD. CIT(A) HAS ERRED IN LAW AND ON FA CTS IN DELETING THE DISALLOWANCE ON ACCOUNT OF CLAIM OF EXCESS DEPRECIATION AT RS.56,71,130/- WHEREAS RECEI PT OF HIRE CHARGES IS NOT BASED ON THE MATERIAL FACTS AVA ILABLE ON RECORD. 4. THAT THE ORDER OF THE CIT(A) IS PERVERSE, ERRONEOUS AND IS NOT TENABLE ON FACTS AND IN LAW. 5. THAT THE GROUNDS OF APPEAL ARE WITHOUT PREJUDICE TO EACH OTHER. 2. BRIEFLY STATED THE FACTS NECESSARY FOR ADJUDICAT ION OF THE CONTROVERSY AT HAND ARE : ASSESSEE COMPANY IS IN TH E BUSINESS OF TRADING AND MANUFACTURING IRON/STEEL ITEMS, SUCH AS , MS BILLETS, MS FLATS, MS WIRE, WIRE ROD ETC. ASSESSING OFFICER COMPLETED THE ASSESSMENT UNDER SECTION 143 (3) OF THE INCOME- TAX ACT, 1961 (FOR SHORT THE ACT) AT THE TOTAL INCOME OF RS.9,5 0,54,780/- BY MAKING ADDITION OF RS.2,63,745/- ON ACCOUNT OF DISA LLOWANCE U/S 14A OF THE ACT AND MADE FURTHER ADDITION OF RS.56,7 1,130/- ON ACCOUNT OF DISALLOWANCE OF DEPRECIATION CLAIMED BY THE ASSESSEE COMPANY ON COMMERCIAL VEHICLES I.E. TRUCKS AND LORR IES BY REDUCING ITA NO.3983/DEL./2016 3 THE DISALLOWANCE TO 15% AS AGAINST 30% CLAIMED BY T HE ASSESSEE COMPANY. 3. ASSESSEE CARRIED THE MATTER BY WAY OF FILING AN APPEAL BEFORE THE LD. CIT (A) WHO HAS DELETED BOTH THE ADDITIONS OF RS.2,63,745/- AND RS.56,71,130/- MADE BY THE AO BY PARTLY ALLOWIN G THE APPEAL. FEELING AGGRIEVED, THE REVENUE HAS COME UP BEFORE T HE TRIBUNAL BY FILING THE PRESENT APPEAL. 4. ON THE LAST DATE OF HEARING I.E. 03.01.2018, THE MATTER WAS ADJOURNED TO 21.03.2018 ON THE WRITTEN REQUEST OF T HE LD. AR FOR THE ASSESSEE. BUT, ASSESSEE HAS NOT PREFERRED TO PUT I N APPEARANCE ON 21.03.2018 AND CONSEQUENTLY, WE PROCEEDED TO DECIDE THE PRESENT APPEAL WITH THE ASSISTANCE OF THE LD. DR AS WELL AS ON THE BASIS OF DOCUMENTS AVAILABLE ON THE FILE. 5. WE HAVE HEARD THE LD. DEPARTMENTAL REPRESENTATIV E FOR THE REVENUE TO THE APPEAL, GONE THROUGH THE DOCUMENTS R ELIED UPON AND ORDERS PASSED BY THE REVENUE AUTHORITIES BELOW IN T HE LIGHT OF THE FACTS AND CIRCUMSTANCES OF THE CASE. GROUNDS NO.1 & 2 6. UNDISPUTEDLY, THE ASSESSEE COMPANY HAS NOT EARNE D ANY DIVIDEND AND MADE INVESTMENT OF RS.7,00,70,200/-DUR ING THE YEAR UNDER ASSESSMENT AND AS SUCH, IT IS THE CLAIM OF TH E ASSESSEE COMPANY THAT NO EXPENDITURE HAS BEEN INCURRED BY TH E ASSESSEE ITA NO.3983/DEL./2016 4 COMPANY. IT IS ALSO NOT IN DISPUTE THAT THE ASSESS EE COMPANY HAS MADE INVESTMENT IN SHARES FROM SURPLUS FUNDS FOR ST RATEGIC PURPOSES IN ORDER TO HAVE SUBSTANTIALITY OF BUSINES S AND NOT FOR EARNING ANY INCOME. ALL THESE ARGUMENTS HAVE BEEN ADDRESSED BY WAY OF SUBMISSIONS BY THE ASSESSEE COMPANY BEFORE A O ALSO. 7. UNDISPUTEDLY, THE AO, WITHOUT RECORDING DIS-SATI SFACTION, AS TO THE WORKING OUT MADE BY THE ASSESSEE THAT NO EXP ENSES HAVE BEEN INCURRED NOR EARNED ANY DIVIDEND INCOME, PROCE EDED TO INVOKE THE PROVISIONS CONTAINED U/S 14A READ WITH R ULE 8D IN A MECHANICAL MANNER WHICH IS NOT PERMISSIBLE. 8. HONBLE DELHI HIGH COURT IN JUDGMENT CITED AS MAXOPP INVESTMENT LTD. (SUPRA) WHILE DECIDING THE IDENTICAL ISSUE HELD AS UNDER :- SECTION 14A EVEN PRIOR TO THE INTRODUCTION OF SUB- SECTIONS (2) AND (3) WOULD REQUIRE THE ASSESSING OF FICER TO FIRST REJECT THE CLAIM OF THE ASSESSEE WITH REGA RD TO THE EXTENT OF SUCH EXPENDITURE AND SUCH REJECTION MUST BE FOR DISCLOSED COGENT REASONS. IT IS THEN THAT THE Q UESTION OF DETERMINATION OF SUCH EXPENDITURE BY THE ASSESSI NG OFFICER WOULD ARISE. THE REQUIREMENT OF ADOPTING A SPECIFIC METHOD OF DETERMINING SUCH EXPENDITURE HAS BEEN INTRODUCED BY VIRTUE OF .SUB-SECTION (2) OF SE CTION 14A . PRIOR TO THAT, THE ASSESSEE WAS FREE TO ADOPT ANY REASONABLE AND ACCEPTABLE METHOD. SO, EVEN FOR THE PRE- RULE 80 PERIOD, WHENEVER THE ISSUE OF SECTION 14A A RISES BEFORE AN ASSESSING OFFICER, HE HAS, FIRST OF ALL, TO ASCERTAIN THE CORRECTNESS OF THE CLAIM OF THE ASSES SEE IN RESPECT OF THE EXPENDITURE INCURRED IN RELATION TO INCOME WHICH DOES NOT FORM PART OF THE TOTAL INCOME UNDER THE ACT. EVEN WHERE THE ASSESSEE CLAIMS THAT NO EXPENDI TURE HAS BEEN INCURRED IN' RELATION TO INCOME WHICH DOES NOT ITA NO.3983/DEL./2016 5 FORM PART OF THE TOTAL INCOME, THE ASSESSING OFFICE R WILL HAVE TO VERIFY THE CORRECTNESS OF SUCH CLAIM. IN CA SE, THE ASSESSING OFFICER IS SATISFIED WITH THE CLAIM OF TH E ASSESSEE WITH REGARD TO THE EXPENDITURE OR NO EXPENDITURE, AS THE CASE MAY BE, THE ASSESSING OFFI CER IS TO ACCEPT THE CLAIM OF THE ASSESSEE IN SO FAR AS TH E QUANTUM OF DISALLOWANCE UNDER SECTION 14A IS CONCERNED. IN SUCH EVENTUALITY, THE ASSESSING OFFIC ER CANNOT EMBARK UPON A DETERMINATION OF THE AMOUNT OF EXPENDITURE FOR THE PURPOSES OF SECTION 14A(1). IN CASE, THE ASSESSING OFFICER IS NOT, ON THE BASIS OF THE O BJECTIVE CRITERIA AND AFTER GIVING THE ASSESSEE A REASONABLE OPPORTUNITY, SATISFIED WITH THE CORRECTNESS OF THE CLAIM OF THE ASSESSEE, HE SHALL HAVE TO REJECT THE CLAIM AND STATE THE REASONS FOR DOING SO. HAVING DONE SO, THE ASSES SING OFFICER WILL HAVE TO DETERMINE THE AMOUNT OF EXPEND ITURE INCURRED IN RELATION TO INCOME WHICH DOES NOT FORM PART OF THE TOTAL INCOME UNDER THE ACT. HE IS REQUIRED T O DO SO ON THE BASIS OF A REASONABLE AND ACCEPTABLE METHOD OF APPORTIONMENT. 9. IN VIEW OF WHAT HAS BEEN DISCUSSED ABOVE, WE AR E OF THE CONSIDERED VIEW THAT WHEN ASSESSEE COMPANY HAS MADE INVESTMENT OF RS.7,00,70,200/- IN SHARES OUT OF ITS SURPLUS FU NDS FOR STRATEGIC PURPOSES AND HAS NOT EARNED ANY DIVIDEND DURING THE YEAR UNDER ASSESSMENT, THE LD. CIT (A) HAS RIGHTLY DELETED THE ADDITION MADE U/S 14A READ WITH RULE 8D OF RS.2,63,745/-. CONSEQ UENTLY, GROUNDS NO.1 & 2 ARE DETERMINED AGAINST THE REVENUE . GROUND NO.3 10. THE LD. CIT (A) DELETED THE DISALLOWANCE OF RS. 56,71,130/- ON ACCOUNT OF CLAIM OF EXCESS DEPRECIATION MADE BY THE AO. IT IS THE CONTENTION OF THE ASSESSEE COMPANY THAT THE TRU CKS AND LORRIES ITA NO.3983/DEL./2016 6 PURCHASED DURING THE PREVIOUS YEAR AND USED FOR HIR E BUSINESS AND SOMETIMES FOR ITS OWN BUSINESS AND HAS SPECIFICALLY SHOWN THE HIRE CHARGES OF RS.47,30,893/- IN THE P&L ACCOUNT WITH T RUCK-WISE DETAILS AND RECEIPTS ON ACCOUNT OF HIRE CHARGES, WH ICH HAS NOT BEEN DISPUTED BY THE AO, THE RATE OF DEPRECIATION @ 30% CLAIMED BY THE ASSESSEE COMPANY CANNOT BE CURTAILED. SO, I N THESE CIRCUMSTANCES, WE ARE OF THE CONSIDERED VIEW THAT L D. CIT (A) HAS DELETED THE ADDITION AFTER APPRECIATING THE P&L ACC OUNT SHOWING HIRE CHANGES MADE BY THE ASSESSEE COMPANY TO THE TU NE OF RS.47,30,893/- WITH TRUCK-WISE DETAILS OF RECEIPT O N ACCOUNT OF HIRE CHARGES TO WHICH DEPRECATION @ 30% IS APPLICABLE AN D AS SUCH, NEEDS NO INTERFERENCE, HENCE GROUND NO.3 IS ALSO DE TERMINED AGAINST THE REVENUE. 11. IN THE RESULT, THE APPEAL OF THE REVENUE IS HER EBY DISMISSED. ORDER PRONOUNCED IN OPEN COURT ON THIS 23 RD DAY OF MARCH, 2018. SD/- SD/- (R.K. PANDA) (KULDIP SINGH) ACCOUNTANT MEMBER JUDICIAL MEMBER DATED THE 23 RD DAY OF MARCH, 2018 TS ITA NO.3983/DEL./2016 7 COPY FORWARDED TO: 1.APPELLANT 2.RESPONDENT 3.CIT 4.CIT(A)-30, NEW DELHI. 5.CIT(ITAT), NEW DELHI. AR, ITAT NEW DELHI.