Kirloskar Pneumatic Co.Ltd., Pune V. Addl.CIT, Range 11, Pune, Pune

ITA 497/PUN/2012

• Counselvise Citation: 49724514 RSA 2012
• Duration Of Justice: 1 year(s) 3 month(s) 13 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 25-06-2013
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: B
• Assessment Year: 2008-2009
• Appeal Filed On: 12-03-2012
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: SUNITA RAO
• Keywords: Opportunity of being heard; Earning of tax free income; Revenue expenditure; Capital expenditure
• Section: 143(3); 14A; 2

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL PUNE BENCHES B, PUNE BEFORE SHRI SHAILENDRA KUMAR YADAV, JUDICIAL MEMBER AND SHRI G.S. PANNU, ACCOUNTANT MEMBER ITA NO.497/PN/2012 (ASSESSMENT YEAR: 2008-09) KIRLOSKAR PNEUMATIC CO. LTD. HADAPSAR INDUSTRIAL ESTATE, HADAPSAR, PUNE 411 013 PAN : AAACK2479C . APPELLANT VS. ADDL. COMMISSIONER OF INCOME TAX RANGE 11, PUNE . RESPONDENT APPELLANT BY : MR. C.H. NANIWADEKAR RESPONDENT BY : MS. SUNITA RAO DATE OF HEARING : 13-06-2013 DATE OF PRONOUNCEMENT : 25-06-2013 ORDER PER G. S. PANNU, AM THIS APPEAL BY THE ASSESSEE IS DIRECTED AGAINST AN ORDER OF THE COMMISSIONER OF INCOME TAX (APPEALS)-I, PUNE DATED 21.10.2011 WHICH, IN TURN, HAS ARISEN FROM AN ORDER DATED 23.12.2010 PAS SED BY THE ASSESSING OFFICER, UNDER SECTION 143(3) OF THE INCOME TAX ACT , 1961 (IN SHORT THE ACT), PERTAINING TO THE ASSESSMENT YEAR 2008-09. 2. THE FIRST ISSUE RAISED BY THE ASSESSEE IN THIS A PPEAL IS WITH REGARD TO THE ACTION OF THE CIT(A) IN UPHOLDING THE DISALLOWA NCE OF RS.5,27,884/- UNDER SECTION 14A(1) BY APPLYING RULE 8D OF THE INCOME TA X RULES, 1962 (IN SHORT THE RULES). 3. THE ASSESSING OFFICER HAS NOTICED IN THE ASSESSM ENT ORDER THAT ASSESSEE HAS DECLARED AN INCOME OF RS.97,80,764/- W HICH WAS CLAIMED AS EXEMPT UNDER SECTION 10(34) OF THE ACT. SINCE NO DI SALLOWANCE WAS MADE BY ITA NO.497/PN/2012 KIRLOSKAR PNEUMATIC CO. LTD. A.Y. 2008-09 THE ASSESSEE ON ACCOUNT OF EXPENDITURE INCURRED IN RELATION TO SUCH EXEMPT INCOME, THE ASSESSING OFFICER MADE A DISALLOWANCE O F RS.5,27,887/- BY INVOKING SECTION 14A(1) OF THE ACT READ WITH RULE 8 D OF THE RULES. ASSESSEE EXPLAINED BEFORE THE ASSESSING OFFICER THAT ALL THE INVESTMENTS WHICH HAVE GENERATED EXEMPT INCOME WERE VERY OLD AND WERE NOT MADE OUT OF ANY BORROWED FUNDS AND NO EXPENDITURE WAS INCURRED FOR THE SAME. ASSESSEE ALSO POINTED OUT THAT MAJORITY OF THE INVESTMENTS WAS IN JOINT VENTURE COMPANIES AND WERE PURE INVESTMENTS. THE ASSESSING OFFICER HO WEVER APPLIED RULE 8D OF THE RULES BY STATING THAT THE SAME IS MANDATORY AND COMPUTED THE DISALLOWANCE AT RS.5,27,887/-. THE CIT(A) ALSO UPHE LD THE DISALLOWANCE BY RELYING ON HIS OWN ORDER FOR THE ASSESSMENT YEAR 20 06-07 IN ASSESSEES OWN CASE. 4. BEFORE US, THE LEARNED COUNSEL FOR THE ASSESSEE SUBMITTED THAT IN SO FAR AS THE ASSESSMENT YEAR 2006-07 IS CONCERNED, THE OR DER OF THE CIT(A) WAS A SUBJECT MATTER OF THE CONSIDERATION OF THE TRIBUNAL IN ITA NO. 242/PN/2011 DATED 30.04.2012 WHEREIN THE DISALLOWANCE UNDER SEC TION 14A(1) OF THE ACT WAS SENT BACK TO THE FILE OF THE ASSESSING OFFICER FOR DETERMINATION AFRESH. THE LEARNED COUNSEL POINTED OUT THAT IN THE IMPUGNED AS SESSMENT YEAR I.E. ASSESSMENT YEAR 2008-09 RULE 8D OF THE RULES WAS AP PLICABLE WHEREAS THE SAME WAS NOT APPLICABLE IN ASSESSMENT YEAR 2006-07 WHICH WAS ADJUDICATED BY THE TRIBUNAL VIDE ORDER DATED 30.04.2012 (SUPRA) . NEVERTHELESS, THE LEARNED COUNSEL POINTED OUT THAT BEFORE APPLYING RULE 8D, T HE ASSESSING OFFICER WAS REQUIRED TO SATISFY HIMSELF ABOUT THE INCORRECTNESS OF THE CLAIM OF THE ASSESSEE WHICH WAS TO THE EFFECT THAT NO EXPENDITURE HAS BEE N INCURRED WITH REGARD TO THE IMPUGNED EXEMPT INCOME. IN THIS CONNECTION, REL IANCE WAS PLACED ON THE DECISION OF THE DELHI BENCH OF THE TRIBUNAL IN THE CASE OF DCIT VS. M/S JINDAL PHOTO LIMITED, ITA NO. 814(DEL)2011 DATED 23.09.201 1. THE LEARNED COUNSEL POINTED OUT THAT IN THE ABSENCE OF ANY SATISFACTION THAT THE ASSESSEE HAS ITA NO.497/PN/2012 KIRLOSKAR PNEUMATIC CO. LTD. A.Y. 2008-09 INCURRED ANY EXPENDITURE IN RELATION TO THE EXEMPT INCOME, THE DISALLOWANCE UNDER SECTION 14A(1) OF THE ACT READ WITH RULE 8D O F THE RULES IS NOT MERITED. 5. ON THE OTHER HAND, THE LEARNED DEPARTMENTAL REPR ESENTATIVE HAS DEFENDED THE ORDERS OF THE LOWER AUTHORITIES. 6. SECTION 14A(1) OF THE ACT PRESCRIBES THAT ANY EX PENDITURE INCURRED IN RELATION TO AN INCOME WHICH DOES NOT FORM PART OF T HE TOTAL INCOME UNDER THE PROVISIONS OF THE ACT HAS TO BE DISALLOWED. IN OTHE R WORDS, THE IMPLICATION OF SECTION 14A(1) OF THE ACT IS THAT NO DEDUCTION CAN BE ALLOWED IN RESPECT OF ANY EXPENDITURE INCURRED BY AN ASSESSEE IN RELATION TO AN INCOME WHICH IS EXEMPT FROM TAX. SUB-SECTION 2 OF SECTION 14A OF THE ACT C ONTAIN PROVISIONS WHICH REQUIRE THE ASSESSING OFFICER TO DETERMINE THE AMOU NT OF EXPENDITURE INCURRED BY AN ASSESSEE IN RELATION TO EXEMPT INCOME IN ACCO RDANCE WITH METHOD PRESCRIBED. SUB-SECTION 2 OF THE ACT PROVIDES THE U NIFORM METHOD TO COMPUTE THE DISALLOWANCE, BUT IT IS APPLICABLE ONLY IN A SI TUATION WHEN THE ASSESSING OFFICER IS NOT SATISFIED WITH THE CORRECTNESS OF TH E CLAIM OF THE ASSESSEE. IN THE PRESENT CASE, RIGHT FROM THE LEVEL OF THE ASSESSING OFFICER, ASSESSEE IS CLAIMING THAT IT HAS NOT INCURRED ANY EXPENDITURE I N RELATION TO THE IMPUGNED EXEMPT INCOME. THEREFORE, THE ASSESSING OFFICER WAS BOUND TO PROCEED IN THE MANNER PRESCRIBED IN SUB-SECTION (2) OF SECTION 14A OF THE ACT. SUB-SECTION (2) OF SECTION 14A PRESCRIBES THAT ASSESSING OFFICE R OUGHT TO BE SATISFIED THAT THE CLAIM OF THE ASSESSEE WAS NOT CORRECT AND THERE AFTER PROCEED WITH THE DETERMINATION OF DISALLOWANCE AS PER THE PRESCRIBED METHOD. SUCH A SATISFACTION IS CONSPICUOUS BY ITS ABSENCE IN THE I MPUGNED ASSESSMENT ORDER AND THE ASSESSING OFFICER HAS PROCEEDED TO APPLY RU LE 8D OF THE RULES TO DETERMINE THE DISALLOWANCE UNDER SECTION 14A OF THE ACT. CONSIDERING THE AFORESAID, WE THEREFORE DEEM IT FIT AND PROPER TO R EMAND THE MATTER BACK TO THE FILE OF THE ASSESSING OFFICER WHO SHALL REVISIT THE CONTROVERSY IN THE MANNER INDICATED ABOVE. OF COURSE, THE ASSESSING OFFICER S HALL ALLOW THE ASSESSEE A ITA NO.497/PN/2012 KIRLOSKAR PNEUMATIC CO. LTD. A.Y. 2008-09 REASONABLE OPPORTUNITY TO PUTFORTH HIS SUBMISSION I N SUPPORT OF ITS STAND AND THEREAFTER THE ASSESSING OFFICER SHALL PASS AN ORDE R AFRESH ON THIS ASPECT IN ACCORDANCE WITH LAW. ON THIS ASPECT, ASSESSEE SUCCE EDS FOR STATISTICAL PURPOSES. 7. THE SECOND GROUND RAISED BY THE ASSESSEE IS WITH REGARD TO THE ACTION OF THE CIT(A) IN UPHOLDING THE DISALLOWANCE OF RS.1 ,11,50,665/- OUT OF BUILDING REPAIR EXPENDITURE WHICH HAS BEEN TREATED BY THE AS SESSING OFFICER AS A CAPITAL EXPENDITURE, AGAINST THE CLAIM OF THE ASSES SEE THAT IT WAS A REVENUE EXPENDITURE. IN THE ASSESSMENT PROCEEDINGS, THE ASS ESSING OFFICER DISALLOWED A SUM OF RS.1,11,50,665/- DETAILED IN PARA 5 OF THE ASSESSMENT ORDER, TREATING THE SAME TO BE A CAPITAL EXPENDITURE. BEFORE THE CI T(A), ASSESSEE SUBMITTED THAT DURING ASSESSMENT PROCEEDINGS, DETAILS OF BUIL DING REPAIR EXPENDITURE WAS CALLED FOR AND THE LIST OF EXPENSES WAS FURNISHED. HOWEVER, OUT OF THE ENTIRE LIST THE ASSESSING OFFICER CALLED FOR COPIES OF BILLS AN D EXPLANATION ONLY WITH REGARD TO THE THREE ITEMS NAMELY, RENOVATION OF TOILET, CO MPOUND WALL AND RAIL TRACK, WHICH WAS DULY FURNISHED. IT WAS SUBMITTED T HAT NO OTHER EXPLANATION OR QUERY WAS RAISED BY THE ASSESSING OFFICER BUT IN TH E ASSESSMENT ORDER THE ASSESSING OFFICER HAS DISALLOWED MANY ITEMS OF EXPE NDITURE WRONGLY TREATING THEM TO BE CAPITAL EXPENDITURE. THE ASSESSEE CONTEN DED BEFORE THE CIT(A) THAT AS PROPER OPPORTUNITY WAS NOT GIVEN TO EXPLAIN THE NATURE OF EXPENDITURE, THE DISALLOWANCE WAS UNJUSTIFIED. IN ANY CASE, ASSE SSEE ALSO FURNISHED BEFORE THE CIT(A) COMPLETE COPY OF DETAILS AND EXPLANATION S IN RESPECT OF EACH ITEM OF EXPENDITURE. THE CIT(A) HAS AFFIRMED THE ACTION OF THE ASSESSING OFFICER AND HAS ALSO NOT DEEMED IT FIT TO CONSIDER THE EVID ENCE SOUGHT TO BE FURNISHED BY THE ASSESSEE. AGAINST SUCH A DECISION OF THE CIT (A), ASSESSEE IS IN FURTHER APPEAL BEFORE US. 8. BEFORE US, LEARNED COUNSEL FOR THE ASSESSEE VEHE MENTLY SUBMITTED THAT IT IS A CASE WHERE NO PROPER OPPORTUNITY WAS ALLOWE D TO EXPLAIN THE NATURE OF ITA NO.497/PN/2012 KIRLOSKAR PNEUMATIC CO. LTD. A.Y. 2008-09 EXPENSES AND THAT THE ASSESSEE WOULD BE SATISFIED I F THE MATTER IS RESTORED BACK TO THE FILE OF THE ASSESSING OFFICER FOR DETER MINATION AFRESH AFTER ALLOWING THE ASSESSEE A REASONABLE OPPORTUNITY TO EXPLAIN TH E NATURE OF EXPENDITURE. 9. THE PLEA OF THE ASSESSEE FOR REMANDING THE MATTE R TO THE FILE OF THE ASSESSING OFFICER WAS NOT SERIOUSLY OPPOSED BY THE LEARNED DEPARTMENTAL REPRESENTATIVE THOUGH IT IS CONTENDED THAT THE ASSE SSEE DID NOT EXPLAIN BEFORE THE CIT(A) JUSTIFIABLE REASONS FOR ADMISSION OF FRE SH EVIDENCE. 10. WE HAVE CAREFULLY CONSIDERED THE RIVAL SUBMISSI ONS. IN OUR CONSIDERED OPINION, THE MANNER IN WHICH THE DISALLOWANCE HAS B EEN DETERMINED IN THE ORDERS OF THE AUTHORITIES BELOW IS QUITE UNJUSTIFIE D. WITHOUT REFLECTING ON THE MERITS OF THE DISALLOWANCE, IN OUR VIEW, IT WOULD B E APPROPRIATE THAT THE MATTER IS RESTORED BACK TO THE FILE OF THE ASSESSING OFFIC ER TO BE ADJUDICATED AFRESH BECAUSE THE PLEA BEFORE THE CIT(A) WAS THAT IT IS A CASE WHERE THE COMPLETE DETAILS AND EXPLANATIONS WITH REGARD TO THE ITEMS O F EXPENDITURE COULD NOT BE BROUGHT ON RECORD DURING THE ASSESSMENT PROCEEDINGS . THE CIT(A) HAS REJECTED THE PLEA WITHOUT ANY COGENT REASONS. IN TH E INTEREST OF JUSTICE WE THEREFORE SET-ASIDE THE ORDER OF THE CIT(A) AND REM AND THE ISSUE BACK TO THE ASSESSING OFFICER WHO SHALL REVISIT THE CONTROVERSY AFTER ALLOWING THE ASSESSEE IS A REASONABLE OPPORTUNITY OF BEING HEARD AND ONLY THEREAFTER THE ASSESSING OFFICER SHALL PASS AN ORDER AFRESH ON THIS ASPECT I N ACCORDANCE WITH LAW. THUS, ON THIS ASPECT ASSESSEE SUCCEEDS FOR STATISTICAL PU RPOSES. 11. BY WAY OF GROUND NO. 3, ASSESSEE HAS CHALLENGED THE ACTION OF THE CIT(A) IN UPHOLDING THE DISALLOWANCE OF RS. 4,30,35 8/- REPRESENTING PAYMENTS MADE TO CLUB AS ENTRY FEE, TREATING IT AS A CAPITAL EXPENDITURE AS AGAINST THE ASSESSEES CLAIM OF IT BEING A REVENUE EXPENDITURE. ITA NO.497/PN/2012 KIRLOSKAR PNEUMATIC CO. LTD. A.Y. 2008-09 12. ON THIS ASPECT, IT WAS A COMMON POINT BETWEEN T HE PARTIES THAT THE ISSUE IS COVERED BY THE JUDGEMENT OF THE HONBLE BO MBAY HIGH COURT IN THE CASE OF OTIS ELEVATOR CO. (INDIA) LTD. VS. CIT (199 2) 195 ITR 682 (BOM.) AS WELL AS BY THE DECISION OF THE HONBLE DELHI HIGH C OURT IN THE CASE OF CIT VS. SAMTEL COLOR LTD. (2010) 326 ITR 425 (DEL.) WHICH H AVE DEALT WITH THE ALLOWABILITY OF A SIMILAR EXPENDITURE. FOLLOWING TH E RATIO OF THE AFORESAID JUDGEMENTS, THE ORDER OF THE CIT(A) IS SET-ASIDE AN D THE ASSESSING OFFICER IS DIRECTED TO DELETE THE DISALLOWANCE. ON THIS ASPECT ASSESSEE SUCCEEDS. 13. BY WAY OF GROUND NO. 4, ASSESSEE IS AGGRIEVED W ITH THE ACTION OF THE CIT(A) IN REMITTING BACK THE ISSUE OF DISALLOWANCE OF SOFTWARE EXPENSES OF RS.8,84,011/- TO THE ASSESSING OFFICER INSTEAD OF D ECIDING THE ISSUE HIMSELF. 14. THE ASSESSEE WAS FOUND TO HAVE INCURRED AN EXPE NDITURE OF RS.8,84,011/- ON SOFTWARE CHARGES WHICH WAS TREATED AS CAPITAL EXPENDITURE BY THE ASSESSING OFFICER. THE ASSESSEE CONTENDED BE FORE THE CIT(A) THAT OUT OF THE TOTAL EXPENSES AN AMOUNT OF RS.6,60,354/- RE PRESENTED RENEWAL CHARGES FOR MICROSOFT OFFICE STANDARD EDITION LICEN SE FEE PAID TO SONATA INFORMATION TECHNOLOGY LTD. AND RS.2,23,657/- WAS P AID TO PRABHA CONSULTING ENGINEERS FOR DRAWING AND DESIGN SOFTWARE. ASSESSEE EXPLAINED THAT OUT OF THE ABOVE, THE AMOUNT PAID TO SONATA INFORMATION TE CHNOLOGY LTD. REPRESENTED RENEWAL OF LICENSE WHICH WAS TO BE PAID ON AN ANNUAL BASIS. BEING RECURRING IN NATURE THE EXPENDITURE WAS CLAIM ED AS REVENUE EXPENDITURE. THE CIT(A) NOTED THAT WHETHER IT WAS A RECURRING EXPENDITURE OR NOT, WAS NOT BEFORE THE ASSESSING OFFICER AND THERE FORE HE DIRECTED THE ASSESSING OFFICER TO ALLOW THE SAME AS REVENUE EXPE NDITURE IF THE EXPENDITURE IS FOUND TO BE IN THE NATURE OF ANNUAL AND A RECURR ING OUTGO. AGAINST SUCH DECISION OF THE CIT(A) ASSESSEE IS IN FURTHER APPEA L BEFORE US STATING THAT THE CIT(A) OUGHT TO HAVE DECIDED THE ISSUE ON HIS OWN I NSTEAD OF SENDING THE MATTER BACK TO THE FILE OF THE ASSESSING OFFICER TO DECIDE THE MATTER AFRESH. WE ITA NO.497/PN/2012 KIRLOSKAR PNEUMATIC CO. LTD. A.Y. 2008-09 FIND NO REASON TO INTERFERE WITH THE ORDER OF THE C IT(A) AS HIS FINDING WITH REGARD TO THE MERITS OF THE ISSUE IS NOT DISPUTED. WE HEREBY AFFIRM THE ORDER OF THE CIT(A). 15. THE LAST GROUND IN THIS APPEAL RAISED BY THE AS SESSEE IS WITH REGARD TO THE ACTION OF THE CIT(A) IN SUSTAINING THE DISALLOW ANCE MADE BY THE ASSESSING OFFICER OUT OF INTEREST EXPENDITURE OF RS.2,60,612/ - BY INVOKING SECTION 36(1)(III) OF THE ACT. THE ASSESSING OFFICER NOTED THAT ASSESSEE WAS PAYING INTEREST ON ADVANCES RECEIVED FROM CUSTOMERS AND AL SO TO CREDITORS ON DELAYED PAYMENTS. ASSESSING OFFICER FURTHER NOTICED THAT THE ASSESSEE HAD MADE CERTAIN ADVANCES TO TWO SUBSIDIARY COMPANIES O N WHICH NO INTEREST WAS BEING CHARGED. THEREFORE, PROPORTIONATE AMOUNT OF I NTEREST COMPUTED AT RS.2,60,612/- WAS DISALLOWED. THE CIT(A) HAS ALSO S USTAINED THE DISALLOWANCE BY NOTING THAT SIMILAR ISSUE IN THE ASSESSEES OWN CASE FOR ASSESSMENT YEAR 2006-07 WAS DECIDED AGAINST THE ASSESSEE BY THE THE N CIT(A). 16. BEFORE US, THE LEARNED COUNSEL POINTED OUT THAT THE ORDER OF THE CIT(A) FOR ASSESSMENT YEAR 2006-07 ON A SIMILAR POINT WAS BEFORE THE TRIBUNAL IN ITA NO. 242/PN/2011 (SUPRA) WHEREIN THE ISSUE WAS R EMANDED BACK TO THE FILE OF THE ASSESSING OFFICER FOR A DECISION AFRESH. IT WAS, THEREFORE, CONTENDED THAT IN THE SAME LIGHT THE MATTER BE SENT BACK TO THE FI LE OF THE ASSESSING OFFICER TO BE DECIDED AFRESH IN THE LIGHT OF THE DECISION OF T HE HONBLE BOMBAY HIGH COURT IN THE CASE OF CIT VS. RELIANCE UTILITIES AND POWER LTD. 313 ITR 340 (BOM), WHICH WAS CONSIDERED BY THE TRIBUNAL IN ITS ORDER DATED 30.04.2012 (SUPRA). THEREFORE, FOLLOWING THE PRECEDENT THE ISS UE IS REMANDED BACK TO THE FILE OF THE ASSESSING OFFICER TO BE DECIDED IN THE LIGHT OF THE DIRECTIONS OF THE TRIBUNAL IN ITS ORDER DATED 30.04.2012 AND ALSO THE PREVALENT LEGAL POSITION, ESPECIALLY THE JUDGEMENT OF THE HONBLE BOMBAY HIGH COURT IN THE CASE OF RELIANCE UTILITIES AND POWER LTD. (SUPRA). THUS, ON THIS GROUND ASSESSEE SUCCEEDS FOR STATISTICAL PURPOSES. ITA NO.497/PN/2012 KIRLOSKAR PNEUMATIC CO. LTD. A.Y. 2008-09 17. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS PA RTLY ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 25 TH JUNE, 2013. SD/- SD/- (SHAILENDRA KUMAR YADAV) (G . S. PANNU) JUDICIAL MEMBER ACCOUNT ANT MEMBER PUNE, DATED: 25 TH JUNE, 2013 SUJEET COPY OF THE ORDER IS FORWARDED TO : - 1) THE ASSESSEE; 2) THE DEPARTMENT; 3) THE CIT(A)-I, PUNE; 4) THE CIT-I, PUNE; 5) THE DR, B BENCH, I.T.A.T., PUNE; 6) GUARD FILE. BY ORDER //TRUE COPY// SR. PRIVATE SECRETARY I.T.A.T., PUNE