ACIT, New Delhi V. M/s. Bharti Teletech Ltd., New Delhi

ITA 4958/DEL/2012

• Counselvise Citation: [2014] 140 COUNSELVISE.COM (IT) 74282 (ITAT-DELHI)
• Duration Of Justice: 1 year(s) 5 month(s) 18 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 07-03-2014
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: A
• Next Hearing Date: 05-03-2014
• Assessment Year: 2006-2007
• Appeal Filed On: 19-09-2012
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: H G SEMA
• Keywords: Depreciation; Earning of tax free income
• Section: 43B; 14A; 32

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH A NEW DELHI BEFORE SHRI R.P. TOLANI AND SHRI SHAMIM YAHYA ITA NO. 4958/DEL/2012 ASSTT. YR: 2006-07 ACIT, CIRCLE 2(1), VS. M/S BHARTI TELETECH LTD. , NEW DELHI. D-195, OKHLA INDUSTRIAL AREA, PHASE-I, NEW DELHI. PAN: AABCB 3989 M AND ITA NO. 5220/DEL/2012 ASSTT. YR: 2006-07 BEETEL TELETECH LTD., VS. ACIT, CIRCLE 2(1), ( FORMERLY KNOWN AS NEW DELHI. M/S BHARTI TELETECH LTD., PHASE-I, NEW DELHI. ( APPELLANT ) ( RESPONDENT ) REVENUE BY : SHRI H.G. SEMA SR. DR ASSESSEE BY : SHRI ANIL BHALLA CA O R D E R PER R.P. TOLANI, J.M: : THESE ARE CROSS APPEALS FILED BY THE ASSESSEE AS WE LL AS THE REVENUE AGAINST THE ORDER OF CIT(A)-V, NEW DELHI DATED 30 -07-2011 RELATING TO A.Y. 2006-07. RESPECTIVE GROUNDS ARE AS UNDER: REVENUES APPEAL (ITA NO. 4958/DEL/12): THE LD. CIT(A) ERRED ON FACTS AND IN LAW IN DELETI NG THE ADDITION MADE ON ACCOUNT OF DEPRECIATION ON GOODWIL L AMOUNTING TO RS. 53,39,256/-. 2 ASSESSEES APPEAL ( ITA NO. 5220/DEL/12) : 1. THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS ) HAS ERRED BOTH ON FACTS AND IN LAW IN CONFIRMING AND IN FURTHER ENHANCING THE DISALLOWANCE U/S 14A MADE BY THE LEARNED ASSESSING OFFICER FROM RS. 12,31,562 TO RS. 15,88,450 AND THEREBY MAKING A FURTHER DISALLOWANCE OF RS. 3,56,888/- ON ESTIMATE BASIS (IN ADDITION TO RS . 3,95,321/- SURRENDERED BY APPELLANT COMPANY IN THE RETURN OF INCOME) BEING EXPENDITURE INCURRED IN REL ATION TO EXEMPT INCOME U/S 10(34) BY WRONGLY INVOKING THE PROVISIONS OF SEC. 14A OF INCOME TAX ACT, 1961 AND THEREBY NOT FOLLOWING THE DECISION OF THE JURISDICT IONAL HIGH COURT IN THE CASE OF MAX OPP INVESTMENT LTD. V S. CIT 203 TAXMAN 364 (DEL.) 1.1. THE LEARNED COMMISSIONER OF INCOME TAX (APPEAL S) HAS ERRED BOTH ON FACTS AND IN LAW IN ENHANCING THE DISALLOWANCE MADE BY THE LEARNED ASSESSING OFFICER U/S 14A FROM RS. 12,31,562/- UNDER RULE 8D TO RS. 15,88,450/- ON ESTIMATE BASIS WITHOUT PROVIDING THE APPELLANT COMPANY A REASONABLE OPPORTUNITY OF SHOWI NG CAUSE AGAINST SUCH ENHANCEMENT IN TERMS OF SUB SECT ION (2) OF SECTION 251 OF INCOME TAX ACT, 1961. 2. THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) HAS ERRED BOTH ON FACTS AND IN LAW IN UPHOLDING THE LEA RNED ASSESSING OFFICERS ACTION IN DISALLOWING RS. 4,08, 000 BEING PRIOR PERIOD EXPENSES ALLEGEDLY ON THE GROUND THAT THE SAME ARE NOT ALLOWABLE. 2. LD. COUNSEL FOR THE ASSESSEE AT THE OUT SET CONT ENDS THAT ITAT DELHI BENCH A IN PARA 4 OF ITS ORDER DATED 14-1-2013, RENDERED IN ASSESSEES OWN CASE IN ITA NO. 5730/DEL/2012 FOR A.Y. 2007-08, ACCEDED TO THE PLEADING OF THE ASSESSEE IN A.Y. 2008-09 & 2009-10 ( ITA NOS. 5321 & 5322/DEL/2012 ORDER DATED 19-12-2012), AS UNDER: 3 AT THE OUTSET OF THE HEARING, THE LD. AR SUBMITTED THAT THIS ISSUE IS COVERED BY THE ORDER OF ITAT IN ASSESSEES OWN CASE IN ITA NO. 5321 & 5322/DEL/2012 FOR ASSESSMENT YEARS 2 008-09 AND 2009-10 RESPECTIVELY. IN THESE APPEALS, THE ISS UE HAS BEEN DECIDED IN FAVOUR OF THE ASSESSEE IN VIEW OF THE D ECISION OF HONBLE SUPREME COURT IN THE CASE OF CIT VS. SMIFS SECURITIES LTD. REPORTED IN 348 ITR 302. THE HONBLE SUPREME C OURT HAS HELD THAT GOODWILL IS AN ASSET WITHIN THE MEANING O F SECTION 32 OF THE INCOME-TAX ACT, 1961 AND THE DEPRECIATION IS ADMISSIBLE. 2.1. AFTER WORKING THESE RELEVANT AND OTHER OBSERVA TIONS, ITAT DISMISSED THE REVENUES APPEAL BY FOLLOWING OBSERVATIONS: AFTER HEARING BOTH SIDES AND RESPECTFULLY FOLLOWIN G THE DECISION OF HONBLE SUPREME COURT AND ALSO THE DECI SION OF THE ITAT IN ASSESSEES OWN CASE FOR ASSESSMENT YEARS 20 08-09 & 2009-10 (SUPRA), WE DISMISS THE REVENUES APPEAL. 2.2. IT IS PLEADED THAT FACTS AND CIRCUMSTANCES FOR THE ASSESSMENT YEAR IN QUESTION REMAINING THE SAME, THE SAME COURSE MAY BE ADOPTED. 3. LD. DR RELIED ON THE ORDER OF A.O. 4. WE HAVE HERD RIVAL CONTENTIONS AND PERUSED THE M ATERIAL AVAILABLE ON RECORD. SINCE THE ISSUE ABOUT ALLOWABILITY OF DEPRE CIATION ON GOODWILL AS CLAIMED BY THE ASSESSEE HAS BEEN ALLOWED BY ITAT I N A SERIES OF EARLIER YEARS JUDGMENT AND IS ALSO COVERED BY HONBLE SUPRE ME COURTS JUDGMENT IN THE CASE OF CIT VS. SMIFS SECURITIES LTD. REPORT ED IN 348 ITR 302, RESPECTFULLY FOLLOWING THE SAME, REVENUES APPEAL DISMISSED. ASSESSEES APPEA L: 5. APROPOS FIRST ISSUE OF ASSESSEES APPEAL, THE LD COUNSEL FOR THE ASSESSEE CONTENDS THAT RULE 8D WAS NOT APPLICABLE I N THIS YEAR AS IT IS APPLICABLE FROM A.Y. 2008-09. THE ASSESSEE FURNISH ED A DETAILED WORKING IN 4 RESPECT OF INDIRECT EXPENSES AT RS. 3,95,321/- WHIC H WAS SUO MOTU ADDED BACK AS DISALLOWABLE EXPENDITURE U/S 14ATO THE COMP UTATION OF INCOME. LD. AO HAS NO WHERE RECORDED ANY SATISFACTION THAT THE WORKING OF 14A DISALLOWANCE PROVIDED BY THE ASSESSEE WAS NOT PROPE R. A.O. MADE HUGE ADDITION U/S 14A HAS BEEN MADE BY OBSERVING THE INVOCATION OF SECTION 14A IS AUTOMATIC AND COMES INTO OPERATION WITHOUT A NY EXCEPTION AS SOON AS DIVIDEND INCOME IS CLAIMED EXEMPT . THUS, THE ORDER OF LD. A.O. IS ERRONEOUS ON FOLLOWING COUNTS: (I) THERE IS NO RECORDING OF ANY SATISFACTION ABOUT THE ASSESSEES SUO MOTU WORKING FOR DISALLOWANCE U/S 14BEING NOT PROPE R; AND (II) RULE 8D WAS NOT APPLICABLE AT ALL IN THIS YEAR, WHI CH HAS BEEN WRONGLY APPLIED. LD. CIT(A) HAS THOUGH REPRODUCED ASSESSEES CONTEN TIONS IN PARA 5.1 OF HIS ORDER INCLUDING THE ISSUE THAT THERE IS NO RECORDIN G OF A.OS SATISFACTION, WHICH IS A MANDATORY CONDITION. THE ASSESSEE SUPPOR TED ITS SUBMISSIONS BY A CATENA OF JUDGMENTS INCLUDING HONBLE DELHI HIGH COURT JUDGMENT IN THE CASE OF MAX OPP INVESTMENT LTD. VS. CIT 203 TAXMAN 364 (DEL); AND HONBLE BOMBAY HIGH COURT DECISION IN THE CASE OF G ODREJ & BOYCE MANUFACTURING CO. LTD. VS. DCIT 328 ITR 81. HOWEVER, DESPITE COPIOUS EXPLANATION LD. CIT(A) HAS NOT GIVEN ANY EFFECTIVE FINDING IN THIS REGARD HAS BEEN MADE. THU S, AO'S ERROR OF NOT RECORDING SATISFACTION HAS NOT BEEN PROPERLY ADJUD ICATED BY THE LD. CIT(A). THESE JUDGMENTS CATEGORICALLY LAY DOWN THAT UNLESS THE AO RECORDS A SATISFACTION ABOUT ASSESSEES WORKING BEING WRONG, THE ASSESSEES WORKING U/S 14A CANNOT BE DISTURBED. BESIDES, ON MERITS ALS O CIT(A) HAS MERELY ATTRIBUTED PART DIRECTORS SALARY AND MADE AD HOC E STIMATE OF ADMINISTRATIVE AND OTHER EXPENSES TOWARDS DISALLOWANCE WITHOUT GIV ING ANY COGENT BASIS. 5 THUS, ASSESSEES WORKING HAS BEEN SUBSTITUTED BY CI T(A) WITH A FURTHER AD HOC ESTIMATE WITHOUT GIVING ANY COGENT BASIS. SINCE ORDERS OF BOTH THE LOWER AUTHORITIES I.E. A.O. AND CIT(A) SUFFER FROM THESE DEFECTS I.E. NOT RECORDING SATISFACTION BY A.O. AND AD HOC ESTIMATE BY CIT(A), THE ASSESSEES WORKING DESERVES TO BE UPHELD. 5.2. APROPOS SECOND ISSUE I.E. ALLEGED PRIOR PERIOD EXPENSES, LD. COUNSEL CONTENDS THAT ISSUE HAS BEEN MISCONCEIVED BY AUTHOR ITIES BELOW. SOME OF THE EMPLOYEES OF THE ASSESSEE COMPANY WERE TRANSFERRED TO ASSOCIATED CONCERNS, THEIR LEAVE ENCASHMENT PERTAINING TO EARLIER YEAR WERE PAID. NEITHER PROVISION IN THIS BEHALF WAS MADE IN EARLIER YEAR N OR EXPENSES WERE CLAIMED IN EARLIER YEAR. SINCE THE EMPLOYEES WERE BEING TRA NSFERRED IT WAS IMPERATIVE TO WORK OUT THEIR LEAVE ENCASHMENT CLAIM AND PAY TH EM. THE LEAVE ENCASHMENT EXPENSES ARE ALLOWABLE ON PAYMENT BASIS AS PROVIDED BY FIRST PROVISO TO SEC. 43B. IN THESE CIRCUMSTANCES, THESE LEAVE ENCASHMENT EXPENSES PERTAINING TO EARLIER YEAR HAVE BEEN ACTUA LLY PAID IN THIS YEAR. LEAVE ENCASHMENT PAYMENT IS AN ALLOWABLE EXPENDITU RE ON ACTUAL PAYMENT. IT HAS BEEN ERRONEOUSLY HELD TO BE A PRIOR PERIOD E XPENDITURE OVERLOOKING SEC. 43B PROVISO AND RELEVANT FACTS. 6. LD. DR SUPPORTED THE ORDERS OF LOWER AUTHORITIES . 7. WE HAVE HEARD RIVAL CONTENTIONS AND PERUSED THE RELEVANT MATERIAL AVAILABLE ON RECORD. APROPOS DISALLOWANCE OF EXPENS ES U/S 14A THE ASSESSEE HAS GIVEN A DETAILED WORKING OF SUO MOTU DISALLOWAN CE U/S 14A. A.O. HAS NO WHERE COMMENTED ABOUT THIS WORKING BEING UNSATISFAC TORY OR QUESTIONABLE. THE ADDITION HAS BEEN MADE BY SUMMARILY APPLYING R ULE 8D WHICH WAS NOT APPLICABLE IN THIS YEAR. THUS, THE ASSESSEES WORKI NG REMAINS UNCHALLENGED IN EFFECTIVE TERMS. BESIDES, ON MERITS ALSO CIT(A) HAS MERELY MADE SOME FURTHER AD HOC ESTIMATE OUT OF DIRECTORS REMUNERAT ION, ADMINISTRATIVE 6 EXPENSE AND OTHER HEADS. THUS, A PARTIAL ADDITION H AS BEEN SUSTAINED NOT ON ANY COGENT REASONS BUT ON AD HOC ESTIMATE. IN OUR C ONSIDERED VIEW, THE ADDITION DESERVES TO BE DELETED ON BOTH COUNTS I.E. NON RECORDING OF SATISFACTION AND ON MERITS ALSO. IN VIEW THEREOF TH E PARTIAL ADDITION U/S 14A RETAINED BY THE CIT(A) IS DELETED. 7.1. APROPOS SECOND ISSUE I.E. LEAVE ENCASHMENT EXP ENSES, THE FACTS HAVE BEEN NARRATED ABOVE. WE FIND MERIT IN THE ARGUMENT OF LD. COUNSEL FOR THE ASSESSEE THAT THE LEAVE ENCASHMENT THOUGH PERTAININ G TO EARLIER YEAR IS ALLOWABLE ON ACTUAL PAYMENT BASIS IN THE YEAR OF PA YMENT I.E. ASSESSMENT YEAR IN QUESTION. IT HAS NOT BEEN DISPUTED THAT AS SESSEE AHS NOT CLAIMED THIS EXPENDITURE IN EARLIER YEAR. THIS BEING SO, WE HOLD THAT ASSESSEE IS ELIGIBLE FOR DEDUCTION OF LEAVE ENCASHMENT PAYMENT U/S 43B. THIS GROUND OF THE ASSESSEE IS ALLOWED. 8. IN THE RESULT, REVENUES APPEAL IS DISMISSED AND THAT OF THE ASSESSEE IS ALLOWED. ORDER PRONOUNCED IN OPEN COURT ON 07-03-2014. SD/- SD/- ( SHAMIM YAHYA) ( R.P. TOLANI ) ACCOUNTANT MEMBER JUDICIAL MEMBER DATED: 07-03-2014. MP COPY TO : 1. ASSESSEE 2. AO 3. CIT 4. CIT(A) 5. DR 7