Kirloskar Proprietary Ltd., Pune V. Assistant Commissioner of Income-tax,

ITA 548/PUN/2014

• Counselvise Citation: [2016] 132 COUNSELVISE.COM (IT) 1581 (ITAT-PUNE)
• Duration Of Justice: 2 year(s) 4 month(s) 6 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 27-07-2016
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: B
• Next Hearing Date: 01-06-2016
• Assessment Year: 2010-2011
• Appeal Filed On: 21-03-2014
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: MRS NISHTHA TIWARI
• Keywords: Depreciation; Earning of tax free income; Non-deduction of tax
• Section: 14A; 2

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL B BENCH, PUN E , , !'#'' $ , % & BEFORE SHRI R.K. PANDA, AM AND SHRI VIKAS AWASTHY, JM / ITA NO. 548/PN/2014 %' ( ')( / ASSESSMENT YEAR : 2010-11 KIRLOSKAR PROPRIETARY LTD., 13A, KIRLOSKAR KISAN COMPOUND, KARVE ROAD, S. NO. 52/1, KOTHRUD, PUNE-411038 PAN : AAACK7506Q ....... / APPELLANT ' / V/S. THE ASSISTANT COMMISSIONER OF INCOME TAX, CIRCLE 11(1), PUNE / RESPONDENT ASSESSEE BY : SHRI C.H. NANIWADEKAR REVENUE BY : MRS. NISHTHA TIWARI / DATE OF HEARING : 01-06-2016 / DATE OF PRONOUNCEMENT : 27-07-2016 * / ORDER PER VIKAS AWASTHY, JM : THE APPEAL HAS BEEN FILED BY THE ASSESSEE AGAINST THE OR DER OF COMMISSIONER OF INCOME TAX (APPEALS)-I, PUNE DATED 31-10- 2013 FOR THE ASSESSMENT YEAR 2010-11. 2. IN APPEAL THE ASSESSEE HAS ASSAILED THE ORDER OF CO MMISSIONER OF INCOME TAX (APPEALS) ON THREE GROUNDS : I. DISALLOWANCE OF EXPENSES U/S. 14A. 2 ITA NO. 548/PN/2014, A.Y. 2010-11 II. DISALLOWANCE OF BRAND DEVELOPMENT EXPENSES ON ACCOUNT OF NON- DEDUCTION OF TAX AT SOURCE. III. DISALLOWANCE OF EXPENSES ON ACCOUNT OF PURCHASE OF COMPUT ER SOFTWARE AND REPLACEMENT OF WALL WINDOWS CLAIMED UNDER THE HEAD REPAIRS AND MAINTENANCE. 3. THE BRIEF FACTS OF THE CASE AS EMANATING FROM RECORDS ARE: THE ASSESSEE FILED ITS RETURN OF INCOME FOR THE IMPUGNED ASSESSMENT YEA R ON 27-09-2010 DECLARING TOTAL INCOME OF ` 7,72,85,750/-. THE CASE OF THE ASSESSEE WAS SELECTED FOR SCRUTINY AND ACCORDINGLY NOTIC E U/S. 143(2) OF THE INCOME TAX ACT, 1961 (HEREINAFTER REFERRED TO AS THE ACT) WA S ISSUE TO THE ASSESSEE ON 19-09-2011. DURING THE COURSE OF S CRUTINY ASSESSMENT, THE ASSESSING OFFICER MADE ADDITIONS/DISALLOWANCE S ON THE FOLLOWING GROUNDS : I. DISALLOWANCE U/S. 14A R.W. RULE 8D ` 5,63,520/-. II. DISALLOWANCE ON ACCOUNT OF BRAND DEVELOPMENT ACTIVITY EXP ENSES OF ` 10,30,460/-. III. DISALLOWANCE ON ACCOUNT REPAIRS AND MAINTENANCE EXPENSES ` 89,406. AGGRIEVED BY THE ADDITIONS/DISALLOWANCES MADE BY THE ASSE SSING OFFICER VIDE ASSESSMENT ORDER DATED 31-01-2013, THE ASSE SSEE PREFERRED AN APPEAL BEFORE THE COMMISSIONER OF INCOME TAX (APPEALS). THE COMMISSIONER OF INCOME TAX (APPEALS) VIDE IMPUGNED ORDER CO NFIRMED THE ADDITIONS/DISALLOWANCES U/S. 14A AND ON ACCOUNT OF REP AIRS AND MAINTENANCE EXPENSES. IN RESPECT OF DISALLOWANCES ON A CCOUNT OF BRAND DEVELOPMENT EXPENSES THE COMMISSIONER OF INCOME T AX (APPEALS) RESTRICTED THE DISALLOWANCES TO ` 7,00,926/-. AGAINST THE ORDER 3 ITA NO. 548/PN/2014, A.Y. 2010-11 OF COMMISSIONER OF INCOME TAX (APPEALS), THE ASSESSEE IS IN SECOND APPEAL BEFORE THE TRIBUNAL. 4. SHRI C.H. NANIWADEKAR APPEARING ON BEHALF OF THE ASSESSE E SUBMITTED THAT THE AUTHORITIES BELOW HAVE ERRED IN MAKING DISALLOWANCES U/S. 14A R.W. RULE 8D. THE ASSESSEE HAD EAR NED EXEMPT INCOME OF ` 36,07,039/- ON ACCOUNT OF DIVIDEND AND INTEREST FROM CURRENT INVESTMENT ETC. THE ENTIRE INVESTMENT IS MADE BY THE ASSESSEE IN MUTUAL FUNDS. IN SUPPORT OF HIS SUBMISSIONS THE LD. AR R EFERRED TO PAGES 3 TO 30 OF THE PAPER BOOK WHEREIN ACCOUNT STAT EMENT OF MUTUAL FUNDS IS PLACED ON RECORD. IN ALL MUTUAL FUND INVESTMENT SCHEMES, THE DIVIDENDS ARE REINVESTED. FURTHER, THE MUTUAL FUND A GENCY RECOVERS THE PORTFOLIO MANAGEMENT EXPENSES DIRECTLY AT THE TIME OF INVESTMENT OR REDEMPTION AS THE CASE MAY BE. THE ASSE SSING OFFICER HAS MADE DISALLOWANCES OF ` 5,63,520/- ON ACCOUNT OF ADMINISTRATIVE EXPENSES. THE LD. AR SUBMITTED THAT ALTHOUGH THE ASSESS EE HAS NOT INCURRED ANY ADMINISTRATIVE EXPENSES IN MANAGING MUTUAL FU NDS, STILL SOME REASONABLE DISALLOWANCES MAY BE MADE TOWARDS THE ADMINISTRATIVE EXPENSES FOR MANAGING MUTUAL FUNDS. 5. IN RESPECT OF GROUND NO. 2 RAISED IN THE APPEAL, THE LD. AR SUBMITTED THAT THE COMMISSIONER OF INCOME TAX (APPEALS) HA S ERRED IN UPHOLDING THE DISALLOWANCES OF ` 7,00,926/- ON ACCOUNT OF NON- DEDUCTION OF TAX AT SOURCE U/S. 40(A)(IA) OF THE ACT. THE AUTHORITIES BELOW HAVE FAILED TO APPRECIATE THE FACT THAT NO TDS IS T O BE DEDUCTED ON REIMBURSEMENT OF EXPENDITURE. THE PAYMENTS ON WHICH NO TDS WAS DEDUCTED BY THE ASSESSEE WERE IN THE NATURE OF REIMBUR SEMENT OF EXPENDITURE ON PETROL, VEHICLE MAINTENANCE, TELEPHONE CHARG ES ETC., 4 ITA NO. 548/PN/2014, A.Y. 2010-11 THEREFORE, THE PROVISIONS OF SECTION 194J OF THE ACT ARE NOT ATTRACTED. IN SUPPORT OF HIS SUBMISSIONS THE LD. AR PLACED RELIANCE ON THE DECISION OF DELHI BENCH OF THE TRIBUNAL IN THE CASE OF ASSISTANT COMMISS IONER OF INCOME TAX VS. DAKSHIN HARYANA BIJLI VITRAN NIGAM LTD. REP ORTED AS 59 SOT 133 (DELHI)(URO) AND THE DECISION OF MUMBAI BENCH OF THE TRIBUNAL IN THE CASE OF ADDITIONAL COMMISSIONER OF INCOME TAX VS. INDIA INDEX SERVICES & PRODUCTS LTD. REPORTED AS 34 CC H 306 (MUM- TRIB.) 6. WITH RESPECT TO THE DISALLOWANCES OF EXPENSES ON ACCO UNT OF PURCHASE OF COMPUTER SOFTWARE AND REPLACEMENT OF WALL WIN DOWS THE LD. AR OF THE ASSESSEE CONTENDED THAT THE AUTHORITIES BELOW HAVE ERRED IN COMING TO THE CONCLUSION THAT THE EXPENDITURE IS CAPITAL IN NATURE. THE AUTHORITIES BELOW HAVE FAILED TO APPRECIATE THE FACT THAT T HE EXPENDITURE INCURRED ON WINDOWS SOFTWARE IS FOR UPGRADATION OF THE EXIS TING SOFTWARE. THE EXPENDITURE ON WALL WINDOWS IS TOWARDS THE REPLACEMENT OF EXISTING WALL WINDOWS AND AS SUCH THE EXPENDITURE WERE CLAIMED UNDER THE HEAD REPAIRS AND MAINTENANCES. 7. ON THE OTHER HAND MRS. NISHTHA TIWARI REPRESENTING T HE DEPARTMENT VEHEMENTLY SUPPORTED THE FINDINGS OF COMMISSIO NER OF INCOME TAX (APPEALS) IN CONFIRMING THE ADDITIONS. THE LD. DR SUBMITTED THAT THE ASSESSEE HAS MADE HUGE INVESTMENTS IN MUTUAL FUNDS AND HAS EARNED TAX FREE INCOME OF ` 36,07,039/-. THE ASSESSEE HAS NOT DEBITED ANY EXPENDITURE IN BOOKS OF ACCOUNT AGA INST THE EXEMPT INCOME. THE ASSESSING OFFICER HAS RIGHTLY MADE DIS ALLOWANCES U/S. 14A R.W. RULE 8D TOWARDS EARNING OF EXEMPT INCOME. T HE LD. DR VEHEMENTLY DEFENDED THE FINDINGS OF COMMISSIONER OF INCOME TAX 5 ITA NO. 548/PN/2014, A.Y. 2010-11 (APPEALS) IN UPHOLDING THE DISALLOWANCES U/S. 40(A)(IA) AS WELL AS DISALLOWANCES TOWARDS PURCHASE OF WINDOWS SOFTWARE AND RE PLACEMENT OF WALL WINDOWS. 8. WE HAVE HEARD THE SUBMISSIONS MADE BY THE REPRESEN TATIVES OF RIVAL SIDES AND HAVE PERUSED THE ORDERS OF THE AUTHORITIE S BELOW. THE ASSESSEE IS IN APPEAL ON THREE ISSUES WHICH ARE DEALT WITH BY US HERE- IN-BELOW. 9. DISALLOWANCES U/S. 14A : THE ASSESSING OFFICER HAS MADE DISALLOWANCES OF ` 5,63,520/- U/S. 14A R.W. RULE 8D ON ACCOUNT OF ADMINISTRATIVE EXPENSES INCURRED ON INVESTMENTS. THE CON TENTION OF THE ASSESSEE IS THAT THE ASSESSEE HAS MADE INVESTMENT IN MUTUAL FUNDS ALONE. TO SUBSTANTIATE HIS CONTENTIONS THE ASSESS EE HAS PLACED ON RECORD ACCOUNT STATEMENTS OF VARIOUS MUTUAL FUNDS A T PAGES 3 TO 30 OF THE PAPER BOOK. ADMITTEDLY, THE ASSESSEE HAS NOT M ADE ANY DISALLOWANCES IN RESPECT OF INTEREST FREE INCOME EARNED ON INVESTMENT MADE. THE CONTENTION OF LD. AR IS THAT IN ALL MUTUAL FUNDS WHERE THE ASSESSEE HAS MADE INVESTMENT, DIVIDEND IS REINVESTED IN THE SCHEM E. IT HAS BEEN FURTHER CONTENDED THAT MUTUAL FUND AGENCIES R ECOVER THE EXPENDITURE FOR MANAGING PORTFOLIO AT THE TIME OF INVESTMEN T OR REDEMPTION AS THE CASE MAY BE AND ACCORDINGLY ADJUST NAV OF UNITS PURCHASED. THE FACT THAT THE ASSESSEE HAS INVESTED IN MUTUAL FUNDS WHERE THE DIVIDEND INCOME IS REINVESTED IN THE SCHEME HAS NOT BEEN DISPUTED BY THE DEPARTMENT. AFTER CONSIDERING THE TOTALIT Y OF THE FACTS WE ARE OF THE VIEW THAT THE ASSESSEE MUST HAVE BEEN IN CURRING SOME ADMINISTRATIVE COST IN MANAGING THE MUTUAL FUNDS. THEREFOR E, TO MEET THE ENDS OF JUSTICE WE DISALLOW ` 75,000/- U/S. 14A OF THE ACT AS 6 ITA NO. 548/PN/2014, A.Y. 2010-11 EXPENDITURE TOWARDS EARNING OF INTEREST FREE INCOME. ACCO RDINGLY, GROUND NO. 1 RAISED IN THE APPEAL BY THE ASSESSEE IS PARTLY ACCEPTED . 10. DISALLOWANCES OF EXPENSES ON ACCOUNT OF NON-DEDUCTION OF TAX AT SOURCE U/S. 40(A)(IA) OF THE ACT : THE ASSESSEE HAS MADE PAYMENTS UNDER THE HEAD BRAND DEVELOPMENT EXPENSES WITHOUT D EDUCTION OF TAX AT SOURCE. THE ASSESSING OFFICER MADE DISALLOWANCES OF ` 10,30,460/- U/S. 40(A)(IA). IN FIRST APPEAL THE COMMISSIONER OF INC OME TAX (APPEALS) RESTRICTED THE DISALLOWANCES TO ` 7,00,926/-. THE CONTENTION OF THE LD. AR OF THE ASSESSEE IS THAT THE AFORE SAID EXPENDITURE IS TOWARDS REIMBURSEMENT OF EXPENSES IN THE NATURE OF PETROL, DIESEL, TRAVELLING EXPENSES, TELEPHONE CHARGES ETC. ON REIMBURSEMENT OF EXPENDITURE NO TDS IS LIABLE TO BE DEDUCT ED U/S. 194J OF THE ACT. THE ASSESSEE HAS PLACED ON RECORD AT PAGES 31 TO 92 OF THE PAPER BOOK BILLS/INVOICES OF EXPENDITURE WHICH HAVE ALLE GEDLY BEEN REIMBURSED TO THE ASSESSEE. A PERUSAL OF THE DOCUMENTS PLACED ON RECORD SHOW THAT THE PAYMENTS MADE BY THE ASSESSEE ARE IN THE NATURE OF REIMBURSEMENT OF OUT OF POCKET EXPENSES. ON REIMBURSE MENT OF ACTUAL EXPENSES THE ASSESSEE IS NOT REQUIRED TO DEDUCT TAX AT SOURCE UNDER THE PROVISIONS OF SECTION 194J OF THE ACT. OUR VIE W IS FURTHER FORTIFIED BY THE DECISION RENDERED BY THE DELHI BENCH OF THE TRIBUNAL IN THE CASE OF ASSISTANT COMMISSIONER OF INCOME TAX VS. DAKS HIN HARYANA BIJLI VITRAN NIGAM LTD. (SUPRA) AND THE DECISION OF MUMBAI BENCH OF THE TRIBUNAL IN THE CASE OF ADDITIONAL COMMISSIONER OF INCOME TAX VS. INDIA INDEX SERVICES & PRODUCTS LTD. (SUPRA). WE FIND MERIT IN THE SUBMISSIONS MADE BY THE LD. AR OF THE ASSESSEE. ACC ORDINGLY, THE DISALLOWANCES MADE U/S. 40(A)(IA) OF THE ACT IS DELETED. CONSEQ UENTLY, THE GROUND NO. 2 RAISED IN THE APPEAL BY ASSESSEE IS ALLOWED. 7 ITA NO. 548/PN/2014, A.Y. 2010-11 11. THE THIRD ISSUE IN APPEAL IS DISALLOWANCES OF EXPENDITURE ON COST OF COMPUTER SOFTWARE AND REPLACEMENT OF WALL WINDOWS CLAIME D UNDER THE HEAD REPAIRS AND MAINTENANCE. THE AUTHORITIES BELO W HAVE DISALLOWED THE EXPENDITURE CLAIMED BY THE ASSESSEE FOR ACQ UIRING WINDOWS 7 SOFTWARE AMOUNTING TO ` 8,500/- AND EXPENDITURE TOWARDS REPLACEMENT OF EXISTING WALL WINDOWS ` 84,304/-. THE ASSESSING OFFICER HELD THAT THE EXPENDITURE IS CAPITAL IN NATURE AND HAS A LLOWED DEPRECIATION ON THE SAME. THE COMMISSIONER OF INCOME TAX (APPEALS) HAS UPHELD THE FINDINGS OF ASSESSING OFFICER. THE CONTENTIO N OF THE LD. AR OF THE ASSESSEE IS THAT THE ASSESSEE PURCHASED WIN DOWS 7 SOFTWARE TO UPGRADE EXISTING SOFTWARE AND IN FUTURE AS WELL THE ASSESSEE W ILL HAVE TO KEEP ON UPGRADING ITS COMPUTER SYSTEM. THEREFORE, T HE ASSESSEE WOULD NOT ENJOY ENDURING BENEFIT FROM THE COMPUTER SOFTW ARE PURCHASED. WE FIND MERIT IN THE SUBMISSIONS OF THE LD. AR OF ASSESSEE. THE HON'BLE DELHI HIGH COURT IN THE CASE OF COMMISSIONER OF INCOME TAX VS. G.E. CAPITAL SERVICES LTD. REPORTED AS 300 ITR 4 20 (DEL) HAS HELD THAT THE EXPENDITURE ON ACQUIRING COMPUTER SOFTWAR E WHICH REQUIRES REGULAR UPGRADATION IS NOT CAPITAL IN NATURE. IN SO FAR AS EXPENDITURE OF REPLACEMENT OF WALL WINDOWS IS CONCERNED THE CONTENTION OF THE LD. AR OF THE ASSESSEE I S THAT THE ASSESSEE HAS REPLACED EXISTING WORN OUT WINDOWS. THE LD. AR OF THE ASSESSEE HAS ALSO PLACED ON RECORD THE COPIES OF THE B ILLS FOR REPLACING WALL WINDOWS AT PAGE 95 OF THE PAPER BOOK. AFTER CONSIDE RING MATERIAL AVAILABLE ON RECORD AND SUBMISSIONS OF RIVAL SIDES, WE ARE OF THE CONSIDERED VIEW THAT THE EXPENDITURE ON REPLACEMENT OF W ALL WINDOWS IS IN THE NATURE OF CURRENT REPAIRS AND IS NOT CAPITAL IN NA TURE. 8 ITA NO. 548/PN/2014, A.Y. 2010-11 ACCORDINGLY, GROUND NO. 3 RAISED IN THE APPEAL BY THE ASS ESSEE IS ALLOWED. 12. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS PARTLY ALLOWED IN THE AFORESAID TERMS. ORDER PRONOUNCED ON WEDNESDAY, THE 27 TH DAY OF JULY, 2016. SD/- SD/- ( . . / R.K. PANDA) ( ! ' / VIKAS AWASTHY) #' / ACCOUNTANT MEMBER $ % #' / JUDICIAL MEMBER / PUNE; &# / DATED : 27 TH JULY, 2016 RK *+,%-.#/#)- / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT. 2. / THE RESPONDENT. 3. ' () / THE CIT(A)-I, PUNE 4. ' / THE CIT-I, PUNE 5. !*+ %%,- , ,- , . ./0 , / DR, ITAT, B BENCH, PUNE. 6. + 1 23 / GUARD FILE. // ! % // TRUE COPY// #4 / BY ORDER, %5 ,0 / PRIVATE SECRETARY, ,- , / ITAT, PUNE