ITO, New Delhi V. M/s. Indiabulls Realtech Ltd., New Delhi

ITA 4506/DEL/2014

• Counselvise Citation: 450620114 RSA 2014
• Duration Of Justice: 11 month(s) 9 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 23-07-2015
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: SMC 2
• Next Hearing Date: 09-07-2015
• Assessment Year: 2010-2011
• Appeal Filed On: 14-08-2014
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: ROBIN RAWAL
• Assessee Lawyers: ARUNA MITTAL
• Keywords: Depreciation
• Section: 143(3); 14A

Judgement Text

1 IN THE INCOME TAX APPELATE TRIBUNAL DELHI BENCH SMC - 2 : NEW DELHI BEFORE SHRI H.S. SIDHU, JUDICIAL MEMBER ITA NO. 4 506 /DEL/201 4 A.Y. : 20 10 - 11 INCOME TAX OFFICER, VS. M/S INDIABULLS REALTECH LTD., WARD - 11(4), M - 62 & 63, FIRST FLOOR, CONNAUGHT PLACE, NEW DELHI NEW DELHI 110 001 (PAN : AABCI6188D) (APPELLANT) (RESPONDENT) DEPARTMENT BY : SH. ROBIN RAWAL, SR. DR ASSESSEE BY : MS. ARUNA MITTAL, CA DATE OF HEARING : 09 - 07 - 2015 DATE OF ORDER : 23 - 07 - 2015 O R D E R PER H.S. SIDHU, JM THIS APPEAL BY THE REVENUE IS DIRECTED AGAINST THE ORDER OF THE LD. COMMISSIONER OF INCOME TAX (APPEALS) - X V , NEW DELHI DATED 30.5.2014 PERTAINING TO ASSESSMENT YEAR 20 10 - 1 1 . 2. T HE GROUNDS OF APPEAL READ AS UNDER: - I) WHETHER ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, LD. CIT(A) HAS ERRED IN DELETING THE ADDITION OF RS. 11,94,279/ - MADE ON ACCOUNT OF DISALLOWANCE U/S. 14 A READ WITH RULE 8D. (II) WHE THER ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, LD. CIT(A) HAS ERRED IN DELETING THE 2 ADDITION OF RS. 4,86,079/ - MADE ON ACCOUNT OF DEPRECIATION ALLOWANCE. (III) THE APPELLANT CRAVES LEAVE TO ADD, ALTER OR AMEND ANY GROUND OF APPEAL RA ISED ABOVE AT THE TIME OF HEARING. 3. THE BRIEF FACTS OF THE CASE ARE THAT THE A SSESSEE COMPANY FILED E - RETURN OF INCOME DECLARING LOSS OF RS. 16,80,358/ - ON 25.9.2010. THE RETURN WAS PROCESSED U/S. 143(1) OF THE ACT. THE CASE WAS SELECTED FOR SCRUTIN Y UNDER CASS. NOTICE U/S. 143(2) OF THE ACT WAS ISSUED ON 25.8.2011 WHICH WAS DULY SERVED ON THE ASSESSEE COMPANY. IN RESPONSE THERETO, THE AUTHORISED REPRESENTATIVES OF THE ASSESSEE ATTENDED THE PROCEEDINGS FROM TIME TO TIME AND FILED THE DETAILS AS ASKED FOR. THE ASSESSEE COMPANY IS ENGAGED IN THE BUSINESS OF POWER GENERATION, DISTRIBUTION, TRADING AND TRANSMISSION. DURING THE YEAR, THE APPELLANT HAD SHOWN NO RECEIPTS FROM THE OPERATION FROM THE BUSINESS OF POWER GENERATION AND DISTRIBUTION. DIVIDEND INCOME OF RS.6,39,296/ - WAS THE ONLY INCOME SHOWN DURING THE YEAR. THE AO OBSERVED THAT DESPITE THE FACT THAT COMPANY HAD NOT COMMENCED ITS BUSINESS, STILL AN AMOUNT OF RS.4,86,079/ - TOWARDS DEPRECIATION ON VEHICLE, PLANT & MACHINERY AND FURNITURE & FIXTU RE WAS CLAIMED U/S 32. THE A SSESSEE S SUBMISSION WAS THAT THE ASSETS WHICH WERE USED PRIMARILY FOR THE PURPOSE OF THE POWER PLANT, HAD BEEN CAPITALIZED, HOWEVER, OTHER ASSETS, WHICH WERE USED FOR THE BUSINESS OF THE APPELLANT WERE CONSIDERED FOR CLAIMING D EPRECIATION. THE ASSESSEE S ALTERNATIVE PLEA WAS THAT IF THE DEPRECIATION WAS NOT ALLOWABLE IN ONE YEAR, THE SAME BECOMES PART OF THE PROJECT COST, ON WHICH DEPRECIATION CAN BE GRANTED IN THE SUBSEQUENT YEAR. HOWEVER, THE A O WAS NOT SATISFIED WITH THE SAME, WHO BY APPLYING THE DECISION IN THE CASE OF ACIT VS. ASHIMA 3 SYNTEX LTD. 251 ITR 133 (GUJ.) AND DECISION OF HON'BLE KARNATAKA HIGH COURT IN THE CASE OF DCIT VS. VELLAMMA DASAPPA HOSPITAL 207 CTR {KAR.} 523, HELD THAT FOR CL AIMING DEPRECIATION, MACHINERY MUST BE ACTUALLY USED AND ALLOWANCE IS NOT AVAILABLE FOR PASSIVE USE. FURTHER, RELIANCE WAS PLACED ON THE DECISION OF GUJARAT HIGH COURT IN THE CASE OF CIT VS. SUHRID GEIGY LTD. 133 ITR 884 (GUJ.) BASED ON WHICH THE A O DISALL OWED THE DEPRECIATION OF RS.4,86,079/ - . 3 . 1 SECONDLY, THE A O OBSERVED THAT THE A SSESSEE HAD RECEIVED DIVIDEND INCOME, WHEN HE ASKED THE APPELLANT AS TO WHY THE PROVISION U/S 14A READ WITH RULE 8D MAY NOT BE INVOKED IN ITS CASE. THE ASSESSEE 'S PLEA THAT IT HAD INCURRED NO EXPENSES FOR EARNING DIVIDEND INCOME WAS NOT ACCEPTED BY THE A O , WHO INVOKED THE PROVISION OF RULE 8D AND THEREBY DISALLOWED AN AMOUNT OF RS. 1 ,39,32,880/ - . HOWEVER, THE SAME WAS RESTRICTED TO THE EXTENT OF ACTUAL EXPENDITURE CLAIMED IN THE P&L ACCOUNT OF RS. 11 ,94,279/ - (AFTER GIVING ALLOWANCE FOR ADDITION ALREADY MADE ON ACCOUNT OF DEPRECIATION OF RS.4,86,079/ - ) . THE AO COMPLETED THE ASSESSMENT U/S. 143(3) OF THE I.T. ACT, 1961 VIDE ORDER DATED 4.3.2013 AND MADE THE AFORESAID ADDITIONS. 4 . AGGRIEVED WITH THE AFORESAID ASSESSMENT ORDER, ASSESSEE APPEALED BEFORE THE LD. CIT(A), WHO VIDE IMPUGNED ORDER DATED 30.5.2014 STATISTICALLY ALLOWED THE APPEAL OF THE ASSESSEE. 5 . AGAINST THE ABOVE MENTIONED IMPUGNED ORDER DATED 30.5.2014, THE REVENUE IS IN APPEAL BEFORE THE TRIBUNAL. 6 . LD. DR RELIED UPON THE ORDER OF THE AO AND REITERATED THE CONTENTIONS RAISED IN THE GROUNDS OF APPEAL. 4 7 . ON THE OTHER HAND, LD. COUNSEL OF THE ASSESSEE RELIED UPON THE ORDER OF THE LD. CIT(A) AND REQUESTE D THAT THE SAME MAY BE UPHELD. 8 . I HAVE HEARD BOTH THE PARTIES AND PERUSED THE RECORDS, ESPECIALLY THE ORDERS OF THE REVENUE AUTHORITIES. WITH REGARD TO GROUND NO .1 RELATING TO DISALLOWANCE U/S 14A, READ WITH RULE 8D IS CONCERNED, I FIND FORCE IN THE ASSESSEE S CONTENTION THAT IN TERMS OF THE PROVISIONS OF SECTION 14A(2), PRESCRIBED METHOD U/R. 8D CAN BE APPLIED ONLY WHERE THE AO IS NOT SATISFIED WITH THE CORRECTNESS OF THE CLAIM OF THE ASSESSEE, REGARDING THE EXPENSES INCURRED FOR EARNING EXEMPT INC OME, HAVING REGARD TO THE ACCOUNTS OF THE ASSESSEE. AS HELD BY THE HON BLE DELHI HIGH COURT IN THE CASE OF CIT VS. MAXOPP INVESTMENT LTD. (ITA NO. 687/2009), SUCH A LACK OF SATISFACTION SHOULD BE ON COGENT GROUND. I FIND THAT IN THE CASE OF THE A SSESSEE THE ONLY EXPENSES CLAIMED BY THE A SSESSEE , WHICH WERE CLAIMED FOR THE PURPOSE OF COMPUTING THE TAXABLE INCOME WERE AN AMOUNT OF RS.5,OOO/ - TOWARDS RATE AND TAXES, LEGAL AND PROFESSIONAL CHARGES OF RS.79,453/ - , AUDITOR REMUNERATION OF RS. 11 ,03,OOO AND BANK CHARGES OF RS. 1 ,826/ - . THE BALANCE EXPENSES RELATING TO POWER PLANT HAVE BEEN ADDED BACK TO THE TOTAL INCOME. ON CAREFUL CONSIDERATION OF THE DETAILS OF SUCH EXPENDITURE GIVEN BY THE APPELLANT BEFORE ME, WHICH AS CLAIMED, WERE ALSO FURNISHED BEFORE THE A O , I FIND THAT NONE OF THESE EXPENSES COULD BE CONSIDERED TO HAVE ANY DIRECT NEXUS WITH EARNING OF DIVIDEND INCOME. THESE EXPENSES ARE PRIMARILY FOR THE PURPOSE OF REGULATORY COMPLIANCE AND INDEED WILL HAVE TO BE INCURRED, WHETHER OR NOT ANY INCOME, TAXABLE OR TAX EXEMPT, IS EARNED. THEREFORE, IN THE ABSENCE OF ANY NEXUS OF SUCH EXPENSES INCURRED FOR EARNING DIVIDEND INCOME, THE LACK OF SATISFACTION OF THE A O WITH THE CLAIM OF THE APPELLANT, CANNOT BE HELD TO BE ON ANY COGENT GROUND. IN VIEW OF THIS, RESPECTF ULLY FOLLOWING THE DECISION OF 5 HON'BLE DELHI HIGH COURT IN THE CASE OF CIT VS. MAXOPP (SUPRA), IT IS HELD THAT THE A O COULD NOT HAVE AUTOMATICALLY INVOKED THE PROVISION OF RULE 8D. IN VIEW OF THIS, THE DISALLOWANCE MADE U/S 14A READ WITH RULE 8D WAS RIGHTL Y BEEN DELETED BY THE LD. CIT(A). 8.1 IN THE BACKGROUND OF THE AFORESAID DISCUSSIONS AND PRECEDENT AS AFORESAID, I DO NOT SEE ANY REASON TO INTERFERE WITH THE WELL REASONED ORDER OF THE LD. CIT(A), HENCE, I UPHOLD THE SAME AND DISMISS THE GROUND NO. 1 RAISED BY THE REVENUE. 9 . WITH REGARD TO GROUND NO.2 RELATING TO DISALLOWANCE OF DEPRECIATION ALLOWANCE OF RS. 4,86,079 IS CONCERNED, I FIND THAT THE A SSESSEE IS IN THE BUSINESS OF POWER GENERATION, DISTRIBUTION, TRADING AND TRANSMISSION, HOWEVER, DURING THE YEAR THE POWER PLANT WAS NOT READY FOR OPERATION AND THEREFORE, ALL EXPENSES RELATING TO PLANT WERE CAPITALIZED BY THE A SSESSEE AS CAPITAL WORK IN PROGRESS. NEVERTHELESS, THE A SSESSEE COMPANY HAS BEEN RUNNING HIS OFFICE FOR THE PURPOSE OF ITS BUSINESS WHICH ALSO INCLUDE TRADING AND TRANSMISSION OF POWER AND NOT ONLY GENERATION OF POWER AND ACCORDINGLY, IT HAD USED ASSETS IN THE OFFICE (INCLUDING SOFTWARE) AND ALSO THE VEHICLES, ON WHICH IT HAD CLAIMED DEPRECIATION. THERE IS NO DISPUTE THAT NO DEPRECIATI ON ON THE ASSET MEANT FOR THE PURPOSE OF POWER PLANT WAS CLAIMED BY THE A SSESSEE . UNDER THE CIRCUMSTANCES, SUCH ASSETS PERTAINING TO OFFICE / VEHICLE WERE NOT REQUIRED TO BE USED FOR TRIAL, SINCE THESE ASSETS WERE NEVER USED FOR THE PURPOSE OF POWER PLANT BUT FOR USE IN THE OFFICE OF THE A SSESSEE . THE ASSESSEE BEING THE OWNER OF THESE ASSETS AND HAVING PUT THEM TO USE FOR THE PURPOSE OF THE BUSINESS HAD CLAIMED DEPRECIATION THEREON. THE A O PERHAPS MISCONCEIVED THE COMMENCEMENT OF BUSINESS ONLY FROM THE POIN T OF TIME WHEN THE 6 POWER PLANT STARTS OPERATION. HOWEVER, GENERATION OF POWER IS ONE OF THE BUSINESS ACTIVITIES OF THE A SSESSEE AND NOT THE SOLE ACTIVITY. THE A SSESSEE IS ALSO ENGAGED IN THE TRADING, TRANSMISSION OF POWER AND FOR ALL THESE ACTIVITIES, THE A SSESSEE WAS MAKING USE OF ASSETS IN THE OFFICE FOR THE PURPOSE OF BUSINESS AND THEREFORE, THE OBSERVATION OF THE AO THAT THE POWER PLANT HAD NOT STARTED OPERATION CANNOT HAVE ANY ADVERSE IMPLICATION ON THE CLAIM OF DEPRECIATION ALLOWANCE ON THE ASSETS USE D IN THE OFFICE/ VEHICLE. THE A SSESSEE HAS EVIDENTLY NOT CLAIMED DEPRECIATION ON ASSETS MEANT FOR POWER PLANT. UNDER THE CIRCUMSTANCES, THE LD. CIT(A) HAS RIGHTLY ALLOWED THIS GROUND OF APPEAL RAISED BY THE ASSESSEE. 9 .1 IN THE BACKGROUND OF THE AFORESAID DISCUSSIONS, I DO NOT SEE ANY REASON TO INTERFERE WITH THE WELL REASONED ORDER OF THE LD. CIT(A), HENCE, I UPHOLD THE SAME AND DISMISS THE GROUND NO. 2 RAISED BY THE REVENUE. 1 0 . IN THE RESULT, THE APPEAL FILED BY THE REVENUE STANDS DISMISSED. ORDER PRONOUNCED IN THE OPEN CO URT ON 23 /7/201 5 . SD/ - [ H.S. SIDHU ] JUDICIAL MEMBER DATE: 23 /7/201 5 SRBHATNAGAR COPY FORWARDED TO: - 1. APPELLANT 2. RESPONDENT 3. CIT 4.CIT (A) 5. DR, ITAT TRUE COPY BY ORDER, ASSISTANT REGISTRAR, ITAT, DELHI BENCHES 7