Interarch Building Products Pvt. Ltd., New Delhi V. Addl. CIT, New Delhi

ITA 4418/DEL/2012

• Counselvise Citation: [2012] 140 COUNSELVISE.COM (IT) 65759 (ITAT-DELHI)
• Duration Of Justice: 2 month(s) 24 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 09-11-2012
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: C
• Assessment Year: 2007-2008
• Appeal Filed On: 16-08-2012
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: SATPAL SINGH
• Keywords: Depreciation; Earning of tax free income
• Section: 14A

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCHES : C NEW DELHI BEFORE SHRI UBS BEDI, JM AND SHRI J.SUDHAKAR REDDY, AM ITA NO. 4418/DEL/2012 ASSESSMENT YEAR : 2007-08 M/S INTERARCH BUILDING PRODUCTS P.LTD. VS. ACIT A 1/6, VASANT VIHAR RANGE II NEW DELHI 57 NEW DELHI PAN: AAAC10106J (APPELLANT) (RESPONDENT) APPELLANT BY:- SH.M.P. RASTOGI, ADV. RESPONDENT BY:- SH.SATPAL SINGH, SR.D.R. O R D E R PER J.SUDHAKAR REDDY, AM THIS IS AN APPEAL FILED BY THE ASSESSEE DIRECTED AG AINST THE ORDER OF THE CIT(A)-XV DT. 5.6.2012 FOR THE A.Y. 2007-08 O N THE FOLLOWING GROUNDS. 1.1. THE LD.CIT(A) HAS ERRED IN CONFIRMING THE DI SALLOWANCE OF RS.33,46,523/- MADE BY THE ASSESSING OFFICER IN TERMS OF RULE 8D READ WITH S.14A OF THE INCOME TAX ACT, 1961 . 1.2. THE LD.CIT(A) HAS ERRED IN IGNORING THE DECI SION OF THE JURISDICTIONAL HIGH COURT OF DELHI (IN MAXOPP INVES TMENTS LTD.) AND THE MUMBAI HIGH COURT (IN GODREJ BOYCE MGF.CO.L TD.) ON THE APPLICABILITY OF THE RULE 8D AND ITS APPLICATIO N. 1.3. THE LD.CIT(A) HAS ERRED IN IGNORING THE DECIS ION OF VARIOUS HIGH COURTS WITH REGARD TO ALLOCATION OF IN TEREST WHEN NO BORROWINGS ARE UTILIZED FOR MAKING INVESTME NTS. 1.4. THE LD.CIT(A) HAS ERRED IN IGNORING THE ALLOC ATION OF ADMINISTRATIVE OVERHEADS SUBMITTED BY THE COMPANY. ITA NO. 4418/DEL/2012 PAGE 2 OF 5 ASSESSMENT YEAR: 2007-08 M/S INTERACRCH BUILDERS PRODUCTS P.LTD. 2. THE COMMISSIONER OF INCOME TAX (APPEALS) HAS ER RED IN CONFIRMING (BY NON-SPEAKING ORDER) THE DISALLOWANCE OF DEPRECIATION OF RS.1,19,133/- TREATING THE COMPUTER PERIPHERALS AS AN ORDINARY PLANT INSTEAD OF BEING A PART OF THE COMPUTER SYSTEMS IN DISREGARD TO THE DECISIONS OF T HE JURISDICTIONAL HIGH COURT OF DELHI. 3. THE COMMISSIONER OF INCOME TAX (APPEALS) HAS ER RED IN CONFIRMING (BY NON-SPEAKING ORDER) THE DISALLOWANCE UNDER SECTION 94, RS.4,086/- OUT OF SHORT TERM CAPITAL LO SS, WITHOUT ESTABLISHING ANY MOTIVE OF TAX AVOIDANCE DESPITE TH E COMPANY EARNING A NET SHORT TERM CAPITAL GAIN OF RS.20.97 L AKHS. 4. THE COMMISSIONER OF INCOME TAX (APPEALS) HAS ER RED IN CONFIRMING (BY NON-SPEAKING ORDER) THE ALLOWANCE OF THE DEDUCTIONS UNDER SECTION 80 IB AND 80 IC HAVE BEEN ALLOWED AS CLAIMED INSTEAD OF ALLOWING IT ON THE ENHANCED B USINESS INCOME ASSESSED. 5. THE COMMISSIONER OF INCOME TAX (APPEALS) HAS ER RED IN CONFIRMING (BY NON-SPEAKING ORDER) THE NON DETERMIN ATION OF THE MAT TAX CREDIT THAT BECOMES AVAILABLE TO THE CO MPANY AS THE TAX ON INCOME ASSESSED UNDER NORMAL PROVISIONS IS LOWER THAN THE TAX FINALLY ASSESSED UNDER SECTION MAT/SEC TION 115 JB OF THE INCOME TAX ACT, 1961. 6. THAT THE ABOVE GROUNDS ARE INDEPENDENT AND WITH OUT PREJUDICE TO EACH OTHER. 7. THAT THE APPELLANT SEEKS LEAVE TO ADD, AMEND, A LTER, ABANDON OR SUBSTITUTE ANY OF THE ABOVE GROUNDS AT T HE TIME OF HEAVY OF APPEAL. 2. WE HAVE HEARD MR.M.P.RASTOGI, ADVOCATE ON BEHALF OF THE ASSESSEE AND SHRI SATPAL SINGH, SR.D.R. REPRESENTING THE REV ENUE. 3. GROUND NOS. 1.1 TO 1.4 ARE ON THE ISSUE OF DISAL LOWANCE UNDER SECTION 14A READ WITH RULE 8D. THE HONBLE DELHI H IGH COURT IN THE CASE OF MAXOPP INVESTMENTS LTD. VS CIT, DELHI (2011 ) 203 TAX MAN 364 HELD AS FOLLOWS:- ITA NO. 4418/DEL/2012 PAGE 3 OF 5 ASSESSMENT YEAR: 2007-08 M/S INTERACRCH BUILDERS PRODUCTS P.LTD. NO S. 14A OR RULE 8D DISALLOWANCE WITHOUT SHOWING HO W ASSESSEES CALCULATION IS WRONG. ONLY REAL EXPENDITURE CAN BE DISALLOWED THE HIGH COURT HAD TO CONSIDER TWO ISSUES: (A) WHETHER INTEREST PAID ON FUNDS BORROWED TO ACQUIRE TRADING SHARES IS HIT BY S. 14A GIVEN THAT TH E PROFITS THERE FROM ARE ASSESSABLE TO TAX AS BUSINESS PROFITS AND THE DIVIDEND IS INCIDENTAL AND ( B) WHETHER RULE 8D HAS RETROSPECTIVE OPERATION. HELD BY THE COURT: (I) THE ARGUMENT THAT IF THE DOMINANT AND MAIN OBJECTIVE O F THE EXPENDITURE WAS NOT THE EARNING OF EXEMPT INCOME THEN, THE EXPENDITURE CANNOT BE DISALLOWED U/S 14A IS NOT ACCEPTABLE . THE EXPRESSION IN RELATION TO CANNOT BE GIVEN A NA RROW MEANING AND SIMPLY MEANS IN CONNECTION WITH OR PERTAINING TO. I F THE EXPENDITURE HAS A RELATION OR CONNECTION WITH OR PERTAINS TO EXEMPT INCOME, IT CANNOT BE ALLOWED AS A DEDUCTION EVEN IF IT OTHERWISE QUALIFIES UNDER THE OTHER PROVISIONS OF THE A CT; (II) THE EXPRESSION EXPENDITURE INCURRED IN S. 14A R EFERS TO ACTUAL EXPENDITURE AND NOT TO SOME IMAGINED EXPENDITURE. IF NO EXPENDITURE IS INCURRED IN RELATION TO THE EXE MPT INCOME, NO DISALLOWANCE CAN BE MADE U/S 14A ( HERO CYCLES LTD 323 ITR 518 REFERRED). (III) THE AO CANNOT PROCEED TO DETERMINE THE AMOUNT OF EXPE NDITURE INCURRED IN RELATION TO EXEMPT INCOME WITHOUT RECORDING A FINDIN G THAT HE IS NOT SATISFIED WITH THE CORRECTNESS OF THE CLAIM OF THE ASSESSEE . THIS IS A CONDITION PRECEDENT . WHILE REJECTING THE CLAIM OF THE ASSESSEE WITH REGARD TO THE EX PENDITURE OR NO EXPENDITURE IN RELATION TO EXEMPT INCOME, THE AO WILL HAVE TO INDICATE COGENT REASONS FOR THE SAME; (IV) RULE 8D COMES INTO PLAY ONLY WHEN THE AO RECORDS A FI NDING THAT HE IS NOT SATISFIED WITH THE ASSESSEES METHOD . THOUGH S. 14A(2) & (3) WERE INSERTED W.E.F. 1.4.1962, RULE 8D WAS INSERTED ON 24.03.2008. ACCORDING LY, RULE 8D WOULD OPERATE PROSPECTIVELY . ( GODREJ AND BOYCE MFG. CO. LTD 328 ITR 81 (BOM) FOLLOWED); (V) FOR PERIODS PRIOR TO RULE 8D, THE AO WILL HAVE TO ADOPT A REASONABLE METHOD ON THE BASIS OF OBJECTIVE CRITERIA TO DETERMINE THE EXPENDITURE. HOWEVER, HERE ALSO, H E WILL HAVE TO SHOW WHY HE IS NOT SATISFIED WITH THE CORRECTNESS OF THE ASSESSEES CLAIM. 4. THE LD.CIT(A) HAS NOT APPLIED THIS BINDING DECIS ION OF THE JURISDICTIONAL HIGH COURT. HENCE WE SET ASIDE THE ISSUE TO THE FILE OF THE COMMISSIONER OF INCOME TAX (APPEALS) FOR DISPOSING OF THE MATTER IN ACCORDANCE WITH LAW. GROUND NOS. 2 TO 5 HAVE NOT B EEN ADJUDICATED BY ITA NO. 4418/DEL/2012 PAGE 4 OF 5 ASSESSMENT YEAR: 2007-08 M/S INTERACRCH BUILDERS PRODUCTS P.LTD. THE LD.CIT(A). THUS WE RESTORE THESE GROUNDS BACK TO THE FILE OF COMMISSIONER OF INCOME TAX (APPEALS) FOR ADJUDICATI ON IN ACCORDANCE WITH LAW. 5. IN THE RESULT THE APPEAL OF THE ASSESSEE IS ALLO WED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED IN THE OPEN COURT ON 9 TH NOVEMBER,2012. SD/- SD/- (U.B.S. BEDI) (J.SUDH AKAR REDDY) JUDICIAL MEMBER ACCOUNTANT MEMBE R DATED: THE 9 TH NOVEMBER, 2012 *MANGA COPY OF THE ORDER FORWARDED TO: 1. APPELLANT; 2.RESPONDENT; 3.CIT; 4.CIT (A); 5.DR; 6.GUARD FILE BY ORDER DY. REGISTRAR ITA NO. 4418/DEL/2012 PAGE 5 OF 5 ASSESSMENT YEAR: 2007-08 M/S INTERACRCH BUILDERS PRODUCTS P.LTD. 1. DATE OF DICTATION: 2. DRAFT PLACED BEFORE THE AUTHOR ON: 3. DRAFT PROPOSED AND PLACED BEFORE SECOND MEMBER ON: 4. DRAFT DISCUSSED/APPROVED BY THE SECOND MEMBER ON: 5. APPROVED DRAFT CAME TO SR.P.S. ON: 6. DATE OF PRONOUNCEMENT : 7. FILE SENT TO BENCH CLERK ON : 8. DATE ON WHICH FILE GIVEN TO HEAD CLERK ON: 9. DATE OF DISPATCHING THE ORDER ON :