DEPUTY COMMISSIONER OF INCOME TAX. CENTRAL CIRCLE-6(2), MUMBAI V. M/S. GANNON DUNKERLEY & CO. LTD, MUMBAI

ITA 5243/MUM/2019

• Counselvise Citation: [2022] 106 COUNSELVISE.COM (IT) 0096 (ITAT-MUMBAI)
• Duration Of Justice: 2 year(s) 5 month(s) 7 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 16-01-2022
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: G
• Assessment Year: 2015-2016
• Appeal Filed On: 08-08-2019
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Depreciation; Additional depreciation; Earning of tax free income; Capital expenditure; Rule 8D
• Section: 14A

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH “G” MUMBAI BEFORE SHRI PROMOD KUMAR (VICE PRESIDENT)AND MS. SUCHITRA KAMBLE (JUDICIAL MEMBER) ITA No. 5243/MUM/2019 Assessment Year: 2015-16 & ITA No. 7332/MUM/2019 Assessment Year: 2016-17 Dy. Commissioner of Income Tax, Central Circle-6(2), Room No. 1903, 19 th floor, Air India Building, Nariman Point, Mumbai-400021. Vs. M/s Gannon Dunkerley & Co. Ltd., 3 rd floor, New Excelsior Building, A.K. Nayak Marg, Fort, Mumbai-400 001 PAN No. AAACG 1846 P Appellant Respondent Revenue by : Mr. Hoshang B. Irani, DR Assessee by : Mr. Bharat Kumar, AR D a t e o f H e a r i n g : 11/01/2022 D a t e o f p ro n o u n c e m e n t : 17/01/2022 ORDER PER MS. SUCHITRA KAMBLE, JM These two appeals are filed by the Revenue against the orders dated 22.05.2019 and 27.09.2019 passed by the Ld. CIT(A)-54, Mumbai for assessment year 2015-16 & 2016-17 respectively. 2. The following grounds raised by the assessee are as under: ITA No. 5243/MUM/2019 Assessment Year: 2015-16 M/s Gannon Dunkerley ITA Nos. 5243 & 7332/M/2019 2 1. "1. Whether on the facts and in the circumstances of the case and in law, the CIT(A) was right in allowing the additional depreciation of Rs.2,40,48,473/- when Hon'ble Supreme Court in the case of CIT vs. N.C. Buddharaja & Co. (204 ITR 412)and Builders Association of India (2069 TR 877) has held that the construction of buildings, bridges or quarters etc. cannot be construed to mean manufacture or production of any article or thing? 2. Whether on the facts and in the circumstances of the case and in law, the CIT(A) was right in allowing the Club Entrance fees of Rs.13,28,714/- when the Bombay High Court in the case of CIT vs. Diners Business Services Put Ltd. reported in 263 ITR 1 (Bom) has held that Non refundable service fees paid to a service organization does not have revenue character?" 3. Whether on the facts and in the circumstances of the case and in law, the CIT(A) was right in deleting disallowance made u/s 14A r.w. Rule 8D by the AO?" ITA No. 7332/MUM/2019 Assessment Year: 2016-17 1. "Whether on the facts and in circumstances of the case and in law, the Ld.CIT(A) has erred in restricting the disallowance of Rs.1,44,96,999/- u/s.14Aof the Income Tax Act,1961 to Rs.17,64,390/- by ignoring that thedisallowance as per provisions of section 14Ar.W. Rule 8D which apply evenif there is no exempt income earned or received during the year, therefore,disallowance cannot be restricted to the extent of exempt income" 2. 2."Whether on the facts and circumstances of the case and in law, the Ld.CIT(A) has erred in restricting the disallowance u/s 14A r.w. Rule 8D of theIncome Tax Rule, 1962 by ignoring that the Circular of CBDT no. 5/2014dated 11.02.2014 wherein, it has been clarified that the rule 8D r.w.s 14Aprovides for disallowance of expenditure even where the assessee has notearned exempt income, therefore, disallowance cannot be restricted to theextent of exempt income?" 3. Whether on the facts and in the circumstances of the case and in law, theCIT(A) was right in allowing the additional depreciation of Rs. 5,77,18,818/-when Hon'ble Supreme Court in the case of CIT vs. N.C. Buddharaja & Co.(204 ITR 412) and Builders Association of India (2069 ITR 877) has heldthat the construction of buildings, bridges or quarters etc. cannot beconstrued to mean manufacture or production of any article or thing? 4. Whether on the facts and in the circumstances of the case and in law, theCIT(A) was right in allowing the Club Entrance fees of Rs.3,59,748/- whenthe Bombay High Court in the case of CIT vs. Diners Business Services PutLtd, reported in 263 ITR 1 (Bom) has held that Non refundable service feespaid to a service organization does not have revenue character? M/s Gannon Dunkerley ITA Nos. 5243 & 7332/M/2019 3 3. Since all the three issues contested by the Revenue are common in both the appeals, we are taking up brief facts for assessment year 2015-16. The assessee-company filed return of income on 30.10.2015 declaring total income of ₹62,05,82,180/-. The Assessing Officer made disallowance u/s 14A r.w.r. 8D amounting to ₹19,31,061/-. The Assessing Officer also disallowed additional depreciation to the extent of ₹2,40,48,473/-. The Assessing Officer further observed that the value of closing stock and opening stocks were increased by ₹53,38,000/- and ₹24,21,724/-, therefore, an amount of ₹29,16,900/- being the difference between the two was added as taxable income of the assessee towards the unutilized MODVAT credit. The Assessing Officer also disallowed ₹13,28,714/- on club entrance fees. Thus the Assessing Officer assessed the total income at ₹66,04,76,900/-. 4. Being aggrieved by the assessment order, the assessee filed appeal before the Ld. CIT(A). The Ld. CIT(A) partly allowed the appeal of the assessee. 5. The Ld. DR as regards ground No. 1, submitted that the Assessing Officer has rightly made disallowance on additional deprecation as the assessee in assessment year 2006-07 had claimed only 15% of additional depreciation but in later years including the present assessment year claimed the entire additional depreciation from assessment year 2007-08 onwards. The Ld. DR submitted that the decision of the Hon’ble Supreme Court in case of N.C. Buddharaja & Co. (supra) will not be applicable in the present case. 5.1 As regards the ground No. 2, the Ld. DR submitted that the decision of the Hon’ble Kerala High Court in the case of Franatone Connector OEN Ltd. v. M/s Gannon Dunkerley ITA Nos. 5243 & 7332/M/2019 4 DCIT 294 ITR 559 wherein it is held that the entrance fees paid to the club is in the nature of capital expenditure as it yields enduring benefits. 5.2 As regards ground No. 3, the Ld. DR has rightly made disallowance u/s 14A r.w.r. 8D. The Ld. DR relied on the assessment order. 6. The Ld. AR submitted that as regards ground No. 1, the Ld. CIT(A) was right in allowing the additional depreciation as held in case of CIT vs. N.C. Buddharaja & Co. (204 ITR 412) and Builders Association of India (206 ITR 877) wherein it was held that the construction of buildings, bridges or quarters etc. cannot be construed as manufacture or production of any article or thing. The Ld. AR further submitted that the issue is also covered in assessee’s own case for assessment year 2006-07 to 2008-09 as well as 2010- 11 by the Tribunal. 6.1 As regards ground No. 2, the Ld. AR submitted that the Ld. CIT(A) was right in allowing the club entrance fees of ₹13,28,740/- and relied upon the decision of the Hon’ble High Court in the case of CIT v. Diners Business Services Pvt. Ltd. 263 ITR 1 (Bom), wherein it is held that non-refundable service fees paid to the service organization does not have revenue character. 6.2 As regards ground No. 3, the Ld. AR submitted that the Ld. CIT(A) has rightly deleted the disallowance made u/s 14A r.w.r. 8D as the assessee itself has made suo moto disallowance of ₹19,31,061. The assessee has an exempt income of ₹6,72,120/-. 7. We have heard both the parties and perused all relevant materials available on record. As regards Ground No. 1 relating to additional M/s Gannon Dunkerley ITA Nos. 5243 & 7332/M/2019 5 depreciation in assessee’s own case for assessment year 2006-07, 2007-08 and 2008-09 as well as assessment year 2010-11, the Tribunal has decided this issue in favour of the assessee which was followed by the Ld. CIT(A) in the light of the decision of Hon’ble Supreme Court in the case of N.C. Buddharaja & Co. (supra). The Ld. DR could not point out any distinguishing facts for the present assessment year, therefore, the issue is identical to that of earlier year. Hence, there is no need to interfere with the findings of Ld. CIT(A). Ground No. 1 of the Revenue’s appeal is dismissed. 7.1 As regards ground No. 2 related to club entrance fees for assessment year 2009-10, the Revenue in assessee’s own case before the Ld. CIT(A) has allowed the claim of the assessee thereby relying upon the decision of the Hon’ble Bombay High Court in the case of Otis Elevator Co. (India) Ltd. [(1992) ITR 682] held that payment of club fees made with a view to enable the assessee to improve business relational-ship and prospect must be allowed as business expenditure not falling within the meaning of section 40(a)(v) of the Act. Thus the facts are identical in the present case and no distinguishing facts were pointed out by the Ld. DR. Hence, Ground No. 2 of the Revenue’s appeal is dismissed. 7.2 As regards ground No. 2, the disallowance u/s 14A in various decisions of the Hon’ble Jurisdictional High Court as well as Co-ordinate Benches it is held that disallowance u/s 14A cannot be in excess of exempt income earned by the assessee during the assessment year. The assessee has made suo moto disallowance of ₹19,31,061/-. The Assessing Officer has not made out the case that the expenditure incurred by the assessee was more than the suo moto disallowance. Besides that, the record shows that quantification done by the M/s Gannon Dunkerley ITA Nos. 5243 & 7332/M/2019 6 assessee was as per the procedure prescribed under Rule 8D and therefore, the Ld. CIT(A) has rightly directed the Assessing Officer to restrict the disallowance to ₹19,31,061/- instead of exempt income on of ₹6,71,120/-. Thus the ground No. 3 of the Revenue’s appeal is dismissed. 8. As regards ITA No. 7332/M/2019 related to Ground No. 1 & 2 the same are identical to Ground No. 3 of the assessment year 2015-16. Only difference is that the disallowance made by the assessee is that of ₹17,64,390/- was the suo moto disallowance made by the assessee in this assessment year. There is no need to interfere with the findings of the Ld. CIT(A), hence, ground No. 1 & 2 of Revenue’s appeal for assessment year 2016-17 is dismissed. 8.1 As regards ground No. 3 & 4 the same are identical to ground No. 1 & 2 of the assessment year 2015-16, the Ld. DR of cannot point out any distinguishing facts. Hence, ground No. 3 & 4 of Revenue’s appeal are dismissed. 9. In the result, both the appeals of the Revenue are dismissed. Order pronounced in the open Court on 17/01/2022. Sd/- Sd/- (PRAMOD KUMAR) (SUCHITRA KAMBLE) VICE PRESIDENT JUDICIAL MEMBER Mumbai; Dated: 17/01/2022 Rahul Sharma, Sr. P.S. Copy of the Order forwarded to : 1. The Appellant 2. The Respondent. 3. The CIT(A)- 4. CIT M/s Gannon Dunkerley ITA Nos. 5243 & 7332/M/2019 7 5. DR, ITAT, Mumbai 6. Guard file. BY ORDER, //True Copy// (Sr. Private Secretary) ITAT, Mumbai