Shri Vinay Bhasin, New Delhi V. JCIT, New Delhi

ITA 5822/DEL/2015

• Counselvise Citation: [2019] 117 COUNSELVISE.COM (IT) 7935 (ITAT-DELHI)
• Duration Of Justice: 3 year(s) 5 month(s) 28 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 23-04-2019
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: H
• Assessment Year: 2011-2012
• Appeal Filed On: 26-10-2015
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: P V GUPTA
• Keywords: Gift; Depreciation; Opportunity of being heard; Principle of natural justice; Earning of tax free income; Revenue expenditure; Capital expenditure; Rule 8D; Set aside
• Section: 14A; 37(1); 143(1)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH: A NEW DELHI BEFORE SHRI BHAVNESH SAINI, JUDICIAL MEMBER & SHRI L.P. SAHU, ACCOUNTANT MEMBER ITA NO. 5822/DEL/2015 ASSESSMENT YEAR: 2011-12 MR. VINAY BHASIN C-14, SOUTH EXTENSION, PART-II, NEW DELHI. PAN NO. AAAPB3445J VS JCIT RANGE-37 NEW DELHI. APPELLANT RESPONDENT ASSESSEE BY SH. SALIL AGGARWAL, ADV. SH. SHAILESH AGGARWAL REVENUE BY SH. P.V. GUPTA, SR. DR ORDER PER SHRI BHAVNESH SAINI, J.M. THIS APPEAL BY ASSESSEE HAS BEEN DIRECTED AGAINST THE ORDER OF LD.CIT(APPEALS)-20, NEW DELHI DATED 18.09.2015 F OR AY 2011- 12. 2. WE HAVE HEARD LD. REPRESENTATIVES OF BOTH THE PA RTIES AND PERUSED THE MATERIAL AVAILABLE ON RECORD. 3. THE FACTS OF THE CASE ARE THAT ASSESSEE IS AN AD VOCATE. DURING THE YEAR UNDER CONSIDERATION, ASSESSEE DERIV ED INCOME DATE OF HEARING 15.04.2019 DATE OF PRONOUNCEMENT 23.04.2019 2 ITA NO . 5822/DEL/2015 FROM PROFESSION, HOUSE PROPERTY, CAPITAL GAINS AND OTHER SOURCES. THE ASSESSEE FILED RETURN OF INCOME DECLARING INCOM E OF RS. 7,18,74,160/- WHICH WAS PROCESSED U/S 143(1) OF THE ACT. THE CASE WAS SELECTED FOR SCRUTINY. THE AO AFTER GIVIN G OPPORTUNITY OF BEING HEARD TO THE ASSESSEE MADE CERTAIN ADDITIONS/ DISALLOWANCES TO THE TUNE OF RS. 20,37,664/- WHICH WAS CHALLENGED BEFORE LD. CIT(A). THE LD. CIT(A) PARTLY ALLOWED THE APPEAL O F ASSESSEE. 4. IN THE BACKGROUND OF THESE FACTS, WE PROCEED TO DECIDE THE GROUNDS OF APPEAL AS UNDER: 1. THAT THE LD. CIT(APPEALS) HAS GROSSLY ERRED BOTH I N LAW AND ON FACTS IN PARTIALLY SUSTAINING THE ADDITIONS/DISALLOWANCES MADE BY THE LD. ASSISTANT COMMISSIONER OF INCOME TAX, SINCE SUCH ADDITIONS/DISALLOWANCES MADE ARE WHOLLY UNWARRANTED ON FACTS AND IN LAW. 2. THAT THE LD. CIT(A) HAS GROSSLY ERRED IN SUSTAINING THE DISALLOWANCE OF INTEREST DEBITED IN THE PROFIT AND LOSS ACCOUNT OF RS. 1,42,376/-, FAILING TO APPRECIATE TH AT AFORESAID INTEREST HAS BEEN PAID IN RESPET OF LOAN TAKEN FOR THE PURCHASE OF CAR, AND SUCH CAR HAS BEEN USED FOR THE PROFESSION OF THE APPELLANT AND IN RESPECT OF SUCH CAR DEPRECIATION HAS ALSO BEEN ALLOWED. 2.1 THAT THE LD. CIT(A) HAS ERRED IN FAILING TO APPRECI ATE THAT LD. ACIT HAS DISALLOWED THE AFORESAID INTEREST MERELY ON THE GROUND THAT APPELLANT HAS GIVEN INTER EST FREE LOANS OF RS. 1,16,25,000/- AND ADVANCE FOR PROPERTY OF RS. 1,60,04,301/- FAILING TO APPRECIATE THAT AFORESAID ADVANCES HAS BEEN MADE BY THE APPELLANT O UT OF AVAILABLE INTEREST FREE FUND OF RS. 24,89,60,889 /- AVAILABLE WITH THE ASSESSEE. 2.2 THAT THE LD. CIT(A) HAS ERRED IN FAILING TO APPRECI ATE THAT LOAN HAS BEEN TAKEN FOR THE PURCHASE OF CAR AN D IT HAS NOT EVEN BEEN ALLEGED IN THE ORDER OF ASSESSMEN T THAT AFORESAID CAR LOAN HAS NOT BEEN UTILIZED FOR T HE 3 ITA NO . 5822/DEL/2015 PURCHASE OF CAR, AS SUCH, DISALLOWANCE MADE BY THE LD. ACIT AND SUSTAINED BY THE LD. CIT(APPEALS) DESERVES TO BE DELETED. 3. THAT THE LD. CIT(A) HAS ERRED IN SUSTAINING THE DISALLOWANCE OF RS. 6,08,180/- FAILING TO APPRECIAT E THAT AFORESAID DISALLOWANCE HAS BEEN MADE MECHANICALLY APPLYING THE PROVISIONS OF RULE 8D(2)(III) OF THE I NCOME TAX RULES, 1962 AND WITHOUT RECORDING A SATISFACTION VI S--VIS BOOKS OF THE ACCOUNTS OF THE ASSESSEE AS ENVISAGED UNDER THE PROVISIONS OF SUB-SECTIONS (2) AND (3) OF SECTI ON 14A OF THE ACT AND HENCE THE DISALLOWANCE MADE OF RS. 6,08,180/- IS WHOLLY UNSUSTAINABLE IN LAW AND DESER VES TO BE DELETED. 3.1 THAT THE LD. CIT(A) HAS ERRED IN SUSTAINING THE DISALLOWANCE FAILING TO APPRECIATE THAT WHILE MAKIN G THE AFORESAID DISALLOWANCE LD. ACIT HAS NOT ESTABLISHED THE NEXUS BETWEEN THE SPECIFIC EXPENDITURE AND THE INCOME WHICH DOES NOT FORM PART OF THE TOTAL INCOME DESPITE THE FACT THAT THE APPELLANT HAS SPECIFICALL Y SUBMITTED THAT NO EXPENDITURE HAS BEEN EARNED FOR EARNING THE EXEMPT INCOME. 4. THAT THE LD. CIT(A) HAS ERRED IN LAW AND ON FACTS B Y PARTIALLY SUSTAINING THE ADHOC DISALLOWANCE OF RS. 2,00,538/- AS AGAIN THE DISALLOWANCE ORIGINALLY MAD E BY LD.AO OF RS. 2,50,674/- ON ACCOUNT OF TELEPHONE AND VEHICLE EXPENSES. 5. THAT THE LD. CIT(A) HAS ERRED IN LAW AND ON FACTS B Y PARTIALLY SUSTAINING THE ADHOC DISALLOWANCE OF RS. 74,438/- AS AGAIN THE DISALLOWANCE ORIGINALLY MADE BY LD. AO OF RS. 80,010/- ON ACCOUNT OF ELECTRICITY AND WA TER EXPENSES. 6. THAT THE LD. CIT(A) HAS ERRED IN LAW AND ON FACTS I N DISALLOWING THE REVENUE EXPENDITURE CLAIMED ON ACCO UNT OF UPGRADATION/SUBSCRIPTION OF SOFTWARE AMOUNTING TO R S. 9,56,424/- AND HOLDING THE SAME TO BE CAPITAL EXPENDITURE. 6.1 THAT IN DOING SO, THE LD. CIT(A) HAS FAILED TO APPR ECIATE THE JUDICIAL MANDATE OF HONBLE JURISDICTIONAL HIGH 4 ITA NO . 5822/DEL/2015 COURT IN THE CASE OF CIT VS. ASAHI INDIA SAFETY GLA SS LTD. ALLOWED AS REVENUE EXPENDITURE. 6.2 THAT THE LD. CIT(A) WHILE SUSTAINING THE INSTANT ASSESSMENT HAS PROCEEDED ON IRRELEVANT AND EXTRANEOUS CONSIDERATIONS, BY DISREGARDING THE SUBMISSIONS/MATERIAL/EVIDENCE FURNISHED BY THE ASSESSEE APPELLANT IN SHAPE OF DETAILED REPLIES A ND INFORMATIONS AND AS SUCH, THE ADDITION SO SUSTAINE D, IS WHOLLY UNTENABLE ON FACTS AND ALSO IN LAW. 7. THAT THE LD. CIT(A) HAS GROSSLY ERRED IN RECORDING ADVERSE FINDINGS WHICH ARE PERVERSE AND HAVE BEEN RECORDED WITHOUT CONSIDERING THE FACTUAL SUBSTRATUM OF THE C ASE AND HENCE SUCH FINDINGS ARE VITIATED AND DESERVES TO BE DELETED. 8. THAT THE LD. CIT(A) HAS GROSSLY ERRED IN SUSTAINING THE ASSESSMENT WITHOUT PROVIDING TO THE ASSESSEE, A FAI R AND PROPER AND MEANINGFUL OPPORTUNITY OF BEING HEARD, T HEREBY VIOLATING THE PRINCIPLES OF NATURAL JUSTICE AND THU S SUCH AN ORDER IS VITIATED BOTH ON FACT AND IN LAW. 5. GROUND NO. 1 IS GENERAL AND NEED NO ADJUDICATION . 6. ON GROUND NO. 2 ASSESSEE CHALLENGED THE DISALLOW ANCE OF INTEREST OF RS. 1,42,376/-. THE AO ON PERUSAL OF T HE INCOME AND EXPENDITURE ACCOUNT OF THE ASSESSEE FOR THE YEAR UN DER CONSIDERATION NOTED THAT ASSESSEE HAS DEBITED INTER EST CHARGES OF RS. 1,42,375.80 ON ACCOUNT OF CAR LOAN. FURTHER, I T WAS OBSERVED THAT ASSESSEE HAD ADVANCED LOANS AND ADVANCES TO VA RIOUS PARTIES INCLUDING RELATED PARTIES AND NO INTEREST IS CHARGE D. THE AO ASKED THE ASSESSEE TO EXPLAIN WHY INTEREST PAID ON LOANS SHOULD NOT BE DISALLOWED WHEN THE ASSESSEE WAS NOT CHARGIN G ANY INTEREST ON LOANS OR ADVANCES ADVANCED BY HIM TO THE OTHER P ARTIES. THE ASSESSEE SUBMITTED THAT HE HAS MADE ADVANCES TO VAR IOUS PERSONS 5 ITA NO . 5822/DEL/2015 AS PER LIST FILED ON RECORD. THE ADVANCES TO MR. R ITU BHASIN AND VINAY BHASIN & SONS (HUF) ARE TWO FAMILY MEMBERS AN D HAVE BEEN GIVEN OUT OF HIS OWN CAPITAL. THE ASSESSEE HA S NOT CHARGED ANY INTEREST FROM THESE BLOOD RELATIONS. OTHERWISE ALSO THE ASSESSEE COULD HAVE EVEN GIFTED THESE AMOUNTS TO TH EM WITHOUT INCURRING ANY TAX LIABILITY. ADVANCES OF RS. 6,22, 000/- AND RS. 5 LAKHS TO MR. SANDEEP SETHI AND MR. N.P. SINGH ARE A GAINST THE PURCHASE OF PROPERTIES. THE DEALS OF WHICH COULD N OT BE FINALIZED DURING THE YEAR. THE ASSESSEE HAS OWN SUBSTANTIAL PROPERTIES AND IS EARNING HUGE RENTAL INCOME. THE AO, HOWEVER, DI D NOT ACCEPT THE CONTENTION OF THE ASSESSEE AND NOTED THAT ISSUE IS SAME AS HAS BEEN DECIDED IN EARLIER AY 2009-10, ACCORDINGLY, DI SALLOWED THE AMOUNT IN QUESTION I.E. RS. 1,42,376/-. 7. THE ASSESSEE CHALLENGED THE ADDITION BEFORE LD. CIT(A). THE ASSESSEE REITERATED THE SUBMISSIONS MADE BEFORE AO. IT WAS ALSO SUBMITTED THAT ASSESSEE HAS BALANCE OF CAPITAL OF R S. 24.90 CRORES APPROXIMATELY AND FURTHER INTEREST FREE FUNDS OF RS . 50 LAKHS ARE AVAILABLE, THEN, IN ANY CASE, INTEREST FREE FUNDS G IVEN SHOULD BE DEEMED TO BE OUT OF CAPITAL BALANCE AND INTEREST FR EE FUNDS AVAILABLE WITH THE ASSESSEE. THE ASSESSEE RELIED U PON THE JUDGMENT OF BOMBAY HIGH COURT IN THE CASE OF CIT VS . RELIANCE UTILITIES AND POWER LTD. 178 TAXMAN 135 ETC. THE L D. CIT(A), HOWEVER, CONFIRM THE ADDITION AND DISMISS THE APPEA L OF THE ASSESSEE. 6 ITA NO . 5822/DEL/2015 8. AFTER CONSIDERING THE RIVAL SUBMISSION, WE ARE O F THE VIEW THAT ADDITION IS WHOLLY UNJUSTIFIED. 9. LD. COUNSEL FOR ASSESSEE POINTED OUT THAT THE AO NOTED IN THE ASSESSMENT ORDER THAT ISSUE IS SIMILAR AS HAS BEEN CONSIDERED IN AY 2009-10. HE HAS SUBMITTED THAT ASSESSEE PREFERR ED APPEAL BEFORE ITAT D BENCH IN AY 2009-10 AND APPEAL OF A SSESSEE HAS BEEN ALLOWED ON THE SIMILAR GROUND, VIDE ORDER DATE D 15.11.2018 IN WHICH THE TRIBUNAL IN PARA 6 HELD AS UNDER: 6. LD. AR SUBMITTED THAT THIS CAR LOAN WAS THE ON LY INTEREST-BEARING LOAN THAT WAS TAKEN BY THE ASSESSE E DURING THE YEAR AND ALL THE OTHER FUNDS ARE EITHER INTEREST FREE LOANS OR THE BALANCE OF CAPITAL ACCOUNT AVAILA BLE WITH HIM. WE FIND FORCE IN THE SUBMISSION OF LD. AR THA T THE CAR LOAN OF RS. 50 LACS IS NO MATCH AGAINST THE AMOUNTS ADVANCED DURING THE YEAR UNDER CONSIDERATION WHICH ARE TO THE TUNE OF RS. 2.98 CRORES BY THE ASSESSEE. FU RTHER, IT IS NOT THE CASE OF THE LD. ASSESSING OFFICER THAT T HE CAR LOAN WAS DIVERTED FOR ANY OTHER PURPOSE, BECAUSE TH ERE ISNO DENIAL OF THE STATEMENT OF THE ASSESSEE THAT T HE LOAN AMOUNT WAS DIRECTLY DISBURSED TO THE SELLER OF THE CAR. INASMUCH AS THE LOAN WAS FOR THE PURPOSE OF BUSINES S AND NO QUESTION OF DIVERSION OF SUCH FUNDS HAD TAKEN PL ACE, MERELY BECAUSE THE ASSESSEE PLACED HIS OWN FUNDS AN D ALSO THE INTEREST FREE LOANS FOR SOME OTHER PURPOSE S, IS NOT OPEN FOR THE LD. ASSESSING OFFICER TO DISALLOW THE INTEREST ON THE AMOUNT TAKEN FOR BUSINESS PURPOSE. WE, THER EFORE, DIRECT THE ASSESSING OFFICER TO DELETE THIS ADDITIO N. 10. COPY OF THE ABOVE ORDER IS PROVIDED TO THE LD. DR WHO DID NOT DISPUTE THE SAME. 11. IN VIEW OF THE ABOVE, IT IS CLEAR THAT AO DISAL LOWED THE INTEREST BECAUSE THE ISSUE IS SIMILAR AS HAS BEEN C ONSIDERED IN AY 7 ITA NO . 5822/DEL/2015 2009-10. IN AY 2009-10 THE TRIBUNAL DELETED THE SI MILAR ADDITIONS. WE, THEREFORE, FOLLOWING THE REASONS FO R DECISION FOR AY 2009-10 (SUPRA) FOUND THAT ISSUE IS COVERED IN FAVO UR OF THE ASSESSEE. WE, ACCORDINGLY, SET ASIDE THE ORDERS OF THE AUTHORITIES BELOW AND DELETE THE ADDITION. 12. IN THE RESULT, THE GROUND NO. 2 OF APPEAL OF AS SESSEE IS ALLOWED. 13. ON GROUND NO. 3 ASSESSEE CHALLENGED THE DISALLO WANCE OF RS. 6,08,180/- U/S 14A OF THE ACT READ WITH RULE 8D(2)( III) OF THE ACT. THE AO NOTED THAT ASSESSEE HAS EARNED INCOME EXEMPT FROM TAX AMOUNTING TO RS. 21,26,012/- FROM DIVIDENDS. THE A SSESSEE WAS ASKED TO GIVE DETAILS AND JUSTIFY THE CLAIM IN VIEW OF SECTION 14A READ WITH RULE 8D WITH REFERENCE TO THE DIVIDEND IN COME. THE ASSESSEE SUBMITTED THAT HE HAS NOT CLAIMED ANY EXPE NSES AGAINST EARNING OF THE SAID INCOME. THEREFORE, ABOVE PROVI SIONS ARE NOT APPLICABLE IN THE CASE OF THE ASSESSEE. THE ASSESS EE RELIED UPON THE FOLLOWING DECISIONS: 1. CIT VS. WIMCO SEEDLINGS ITA NO. 1367/2008, 1368/2008 & ITA NO. 1391/2008; 2. ACIT VS. SUN INVESTMENTS PVT. LTD. (2011) 48 SOT 15 9 (DELHI); 3. RELAXO FOOTWEAR LTD. VS. ADDL. CIT, RANGE-15, NEW D ELHI (2012) 50 SOT 102 (DELHI). 14. THE AO, HOWEVER, NOTED THAT THE BASIC OBJECT OF SECTION 14A IS TO DISALLOW THE DIRECT AND INDIRECT EXPENDITURE INCURRED IN RELATION TO INCOME WHICH DOES NOT FORM PART OF THE TOTAL INCOME. AO REFERRED TO JUDGMENT OF THE SUPREME COURT IN THE CASE OF CIT 8 ITA NO . 5822/DEL/2015 VS WALFORT SHARE AND STOCK BROKERS P. LTD. 326 ITR 1. THE AO ALSO NOTED THAT AO HAS TO ADOPT A REASONABLE BASIS OR METHOD CONSISTENT WITH ALL THE RELEVANT FACTS AND CIRCUMST ANCES FOR MAKING A DISALLOWANCE. THE ASSESSEE HAS NOT PROVID ED ANY SEPARATE AMOUNT FOR EARNING OF EXEMPT INCOME. THE ASSESSEE HAS MADE VERY HEAVY INVESTMENTS FOR EARNING EXEMPT INCO ME THROUGHOUT THE YEAR. THE AO, THEREFORE, FOLLOWING SECTION 14A READ WITH RULE 8D DISALLOWED EXPENDITURE OF RS. 6,0 8,180/- WHICH IS ATTRIBUTED TO THE EARNING OF EXEMPT INCOME. 15. THE ADDITION WAS CHALLENGED BEFORE LD. CIT(A). THE WRITTEN SUBMISSION OF THE ASSESSEE IS REPRODUCED IN THE APP ELLATE ORDER IN WHICH IT WAS STATED THAT AO HAS NOT SPECIFIED OR PO INTED OUT ANY EXPENSES, WHATSOEVER CLAIMED BY ASSESSEE FOR EARNIN G THE SAID DIVIDEND INCOME. THE ASSESSEE RELIED UPON THE DECI SIONS OF DELHI HIGH COURT IN THE CASES OF CIT VS. TAIKISHA ENGINEE RING INDIA LTD. 275 CTR (DEL.) 316 AND JOINT INVESTMENTS (P) LTD. V S. CIT 275 CTR 471. THE LD. CIT(A), HOWEVER, CONFIRM THE ADDITION AND DISMISS THE APPEAL OF ASSESSEE. 16. AFTER CONSIDERING THE RIVAL SUBMISSIONS, WE ARE OF THE VIEW THAT ADDITION IS WHOLLY UNJUSTIFIED. LD. COUNSEL F OR ASSESSEE SUBMITTED THAT SIMILAR ISSUE WAS CONSIDERED BY ITAT DELHI D BENCH IN THE CASE OF ASSESSEE FOR AY 2009-10 VIDE O RDER DATED 15.11.2018 (SUPRA) AND SIMILAR ADDITION HAS BEEN DE LETED. THE FINDINGS OF THE TRIBUNAL IN PARA 8 OF THE ORDER ABO VE IS REPRODUCED AS UNDER: 9 ITA NO . 5822/DEL/2015 8. WE HAVE GONE THROUGH THE FINDINGS OF THE LD. ASSESSING OFFICER ON THIS ASPECT. LD. ASSESSING OF FICER RECORDED THAT THE ASSESSEE MADE HEAVY INVESTMENTS F OR EARNING OF EXEMPT INCOME AND BEING A BUSY PROFESSIO NAL, HE REQUIRES THE MANAGEMENT OF SUCH A PORTFOLIO BY INCURRING EXPENSES, DIVERSION OF MAN-POWER/STAFF FO R INDULGING IN INVESTMENT ACTIVITIES TO VARIOUS ACTIV ITIES LIKE VISITING BANKS, USE OF VEHICLE AND TELEPHONE, USE O F INTERNET IF PORTFOLIO MANAGEMENT IS WEB-BASED, COST OF COMPUTER AND ITS DEPRECIATION, COMPUTER OPERATOR, CONSEQUENT ELECTRICITY, USE OF OFFICE PREMISES, FEE CHARGED BY MUTUAL FUND AGENTS/BANKERS (ANNUAL FEE), PORTFOL IO RECORD MAINTENANCE AND ITS TRACKING TO ENSURE TIMEL Y SALE/PURCHASE OF MUTUAL FUND UNITS ETC. EXCEPT MAK ING THIS STATEMENT AND READING ALL THE POSSIBLE EXPENSE S THAT INVOLVE IN INVESTMENT PROCESS, LD. ASSESSING OFFICE R IS NOT SPECIFIC AS TO WHAT EXACTLY THE PROBABLE EXPENDITUR E IN THIS MATTER THE ASSESSEE COULD HAVE INCURRED. ACCORDING TO THE ASSESSEE THE INVESTMENT WAS MADE IN MUTUAL FUNDS AN D THE EXPENSES WERE ALREADY DIRECTED BY THE OPERATORS AND A CERTIFICATE TO THAT EXTENT WAS SUBMITTED BEFORE T HE LD. ASSESSING OFFICER. FURTHER, THE INSTRUCTIONS ARE T HAT THE DIVIDEND INCOME WILL BE DIRECTLY CREDITED TO THE BA NK ACCOUNT OF THE ASSESSEE SO THAT NO PROBABLE EXPENDI TURE AT THE END OF THE ASSESSEE FOR DEPOSIT OF THE DIVIDEND IN BANK COULD HAVE OCCURRED. HAVING REGARD TO THIS SET OF FACTS AND CIRCUMSTANCES INVOLVED IN THIS MATTER, WE ARE O F THE CONSIDERED OPINION THAT INSTEAD OF MAKING A SWEEPIN G ENUMERATION OF THE PROBABLE EXPENSES INVOLVED IN INVESTMENT PROCESS, LD. ASSESSING OFFICER COULD HAV E TAKEN LEGAL EXERCISE TO VERIFY THE CORRECTNESS OR O THERWISE OF THE CERTIFICATE THAT WAS ISSUED BY THE ASSET MANAGEMENT COMPANIES OR THE CITIBANK IN THIS RESPEC T. WE, THEREFORE, FIND THAT THERE IS NO PROPER RECORD OF SATISFACTION AS TO THE EXPENSES INCURRED BY THE ASS ESSEE FOR EARNING THE EXEMPT INCOME. BY FOLLOWING THE DE CISION REPORTED IN CIT VS. TAIKISHA ENGINEERING INDIA LTD. 275 CTR (DEL.) 316 AND JOINT INVESTMENTS (P) LTD. VS. C IT 372 ITR 694 (DEL.), WE ARE OF THE OPINION THAT THE AO A T THE FIRST 10 ITA NO . 5822/DEL/2015 INSTANCE SHOULD HAVE EXAMINED THE CORRECTNESS OF TH E STATEMENT MADE BY THE ASSESSEE THAT NO EXPENSES WER E INCURRED FOR EARNING THE EXEMPT INCOME DURING THE Y EAR AND IF AND ONLY IF THE LD. AO IS NOT SATISFIED ON T HIS ACCOUNT AFTER MAKING REFERENCE TO THE ACCOUNTS, HE IS ENTITLED TO ADOPT THE METHOD UNDER RULE 8D OF THE R ULES. WE, THEREFORE, WHILE ALLOWING THE PLEA OF THE ASSES SEE DIRECT THE LD. ASSESSING OFFICER TO DELETE THE ADDI TION MADE ON THIS SCORE ALSO. COPY OF THE ORDER IS PROVIDED TO THE LD. DR WHO DID NOT DISPUTE THE SAME. 17. CONSIDERING THE FACTS OF THE CASE, IN THE LIGHT OF THE FINDINGS OF THE TRIBUNAL IN AY 2009-10 (SUPRA), WE ARE OF TH E VIEW THAT ISSUE IS COVERED IN FAVOUR OF THE ASSESSEE BY ABOVE ORDER OF THE TRIBUNAL IN THE CASE OF THE SAME ASSESSEE. FOLLOWI NG THE REASONS FOR THE DECISION OF THE SAME, WE SET ASIDE THE ORDE RS OF THE AUTHORITIES BELOW AND DELETE THE ADDITION. 18. GROUND NO. 3 OF APPEAL OF ASSESSEE IS ALLOWED. 19. ON GROUND NO. 4 ASSESSEE CHALLENGED THE AD HOC DISALLOWANCE OF RS. 2,00,538/- ON ACCOUNT OF TELEPHONE AND VEHIC LE EXPENSES. THE AO REFERRED TO AUDIT REPORT WHICH STATED THAT P ERSONAL ELEMENT OF AMOUNT DEBITED TO THE PROFIT AND LOSS ACCOUNT CO ULD NOT BE ASCERTAINED. AO NOTED THAT ASSESSEE HAS CLAIMED TE LEPHONE AND TELEX, VEHICLE RUNNING AND MAINTENANCE EXPENSES AND DEPRECIATION ON VEHICLE IN PROFIT AND LOSS ACCOUNT. THE TOTAL E XPENSES ARE AMOUNTING TO RS. 20,05,388/-. THE AO NOTED THAT TH E PERSONAL ELEMENT OF THESE EXPENSES CANNOT BE RULED OUT. HEN CE, 1/8 TH OF 11 ITA NO . 5822/DEL/2015 THESE EXPENSES WAS DISALLOWED U/S 37(1) BEING OF PE RSONAL NATURE. THE AO, THEREFORE, MADE ADDITION OF RS. 2,50,674/-. THE LD. CIT(A) RESTRICTED THE ADDITION TO 1/10 TH OF THE EXPENSES CLAIMED. 20. AFTER CONSIDERING THE RIVAL SUBMISSION, WE ARE OF THE VIEW THAT THE ENTIRE ADDITION IS WHOLLY UNJUSTIFIED. TH E AO HAS NOT POINTED OUT ON WHICH ITEMS PERSONAL ELEMENT WAS INV OLVED IN CLAIMING THE AFORESAID EXPENSES. AO HAS NOT POINTE D OUT ANY SPECIFIC ITEM WHICH IS USED BY THE ASSESSEE FOR PER SONAL PURPOSES. IT IS AD HOC ADDITION MADE BY THE AO BY DISALLOWING 1/8 TH OUT OF THESE EXPENDITURES. IT IS WELL SETTLED LAW THAT AD HOC ADDITION CANNOT BE SUSTAINED UNLESS AO HAS POINTED OUT ANY S PECIFIC ITEM IN WHICH PERSONAL ELEMENT IS INVOLVED. THERE WAS T HUS, NO JUSTIFICATION TO MAKE ANY DISALLOWANCE OUT OF THESE EXPENDITURES. WE, ACCORDINGLY, SET ASIDE THE ORDERS OF THE AUTHOR ITIES BELOW AND DELETE THE ENTIRE ADDITION. 21. GROUND NO. 4 OF APPEAL OF ASSESSEE IS ALLOWED. 22. ON GROUND NO. 5 ASSESSEE CHALLENGED THE ADDITIO N OF RS. 74,438/- ON ACCOUNT OF ELECTRICITY AND WATER EXPENS ES. THE AO NOTED THAT ASSESSEE HAS FURNISHED DETAILS OF ELECTR ICITY AND WATER EXPENSES AMOUNTING TO RS. 2,40,029/-. THE ASSESSEE HAS NOT APPORTIONED THE EXPENSES HAVING PERSONAL ELEMENT IN VIEW OF RESIDENCE-CUM-OFFICE NATURE OF PREMISES. THE ASSES SEE HAS NOT INSTALLED SEPARATE ELECTRICITY METER FOR RESIDENCE AND OFFICE. THE ASSESSEE HAS ALSO NOT SHOWN SUCH EXPENSES IN DRAWIN G ACCOUNT. AS EXPENDITURE PRIMARILY RELATES TO RESIDENTIAL ACC OMMODATION 12 ITA NO . 5822/DEL/2015 (OFFICE CUM RESIDENCE), THE AO CONSIDER IT REASONAB LE TO DISALLOW 1/3 RD OF ELECTRICITY AND WATER EXPENSES. THE AO, ACCORD INGLY, MADE ADDITION OF RS. 80,010/-. THE ASSESSEE CHALLE NGED THE ADDITION BEFORE LD. CIT(A). THE EXPLANATION OF ASS ESSEE IS NOTED IN THE APPELLATE ORDER IN WHICH ASSESSEE SUBMITTED THA T COMPLETE DETAILS OF THESE EXPENDITURES FOR OFFICE PREMISES A ND RESIDENCE- CUM-OFFICE HAVE BEEN PLACED ON RECORD. THE EXPENSE S ARE ALLOWABLE. THE ASSESSEE ALSO PLEADED THAT 1/3 RD EXPENSES OF RESIDENCE-CUM-OFFICE AT 109, NAVJEEVAN VIHAR, NEW D ELHI MAY BE DISALLOWED. FURTHER, THE EXPENSES OF FARM HOUSE MA Y BE FULLY DISALLOWED. THE ASSESSEE PLEADED THAT SECURITY EXP ENSES OF NDSE OFFICE ARE ALLOWABLE. 23. LD. CIT(A) CONSIDERING THE BILLS AND EXPLANATIO N OF THE ASSESSEE PARTLY ALLOWED THE CLAIM OF THE ASSESSEE. THE LD.CIT(A), HOWEVER, DISALLOWED THE FOLLOWING EXPENSES: 1. RS. 13,700/- ON ACCOUNT OF ELECTRICITY AND WATER FO R FARM HOUSE AT SATBARI, MEHRAULI. 2. RS. 37,858/- WERE DISALLOWED AS 1/3 RD OF THE ELECTRICITY AND WATER CHARGES OF RESIDENCE-CUM-OFFICE AT NAVJEEVAN VIHAR, NEW DELHI. 3. RS. 22,880/- WERE DISALLOWED FOR RESIDENCE AT PANCH SHEEL PARK, NEW DELHI. 24. AFTER CONSIDERING THE RIVAL SUBMISSION, WE ARE OF THE VIEW THAT NO INTERFERENCE IS CALLED FOR IN THE MATTER. THE ASSESSEE PLEADED THAT BILLS OF SATBARI, MEHRAULI FARM HOUSE MAY BE DISALLOWED WHICH CIT(A) DISALLOWED. THE ASSESSEE A LSO PLEADED THAT 1/3 RD OF THE EXPENSES OF RESIDENCE-CUM-OFFICE AT NAVJEEV AN 13 ITA NO . 5822/DEL/2015 VIHAR, DELHI MAY BE DISALLOWED WHICH LD. CIT(A) DIS ALLOWED. THE LD. CIT(A) ALSO DISALLOWED ELECTRICITY EXPENSES OF RESIDENCE OF THE ASSESSEE FOR WHICH LD. COUNSEL FOR ASSESSEE COULD N OT MAKE ANY SUBMISSION AS TO WHY THE DISALLOWANCE WAS NOT JUSTI FIED. CONSIDERING THE ABOVE FINDINGS OF LD. CIT(A) AND IN THE ABSENCE OF ANY CHALLENGE TO THE DISALLOWANCES BEFORE CIT(A) AS WELL, WE DO NOT FIND ANY JUSTIFICATION TO INTERFERE WITH THE ORDER OF LD. CIT(A) IN SUSTAINING THE PART ADDITION OF RS. 74,438/-. THIS GROUND IS ACCORDINGLY, DISMISSED. 25. ON GROUND NO. 6 ASSESSEE CHALLENGED THE ORDER O F LD. CIT(A) IN DISALLOWING THE REVENUE EXPENSES CLAIMED ON ACCO UNT OF UP- GRADATION/SUBSCRIPTION OF SOFTWARE AMOUNTING TO RS. 9,56,424/-. THE AO NOTED THAT ASSESSEE HAS DEBITED RS. 23,91,06 0/- AS SOFTWARE EXPENSES IN INCOME AND EXPENDITURE ACCOUNT . THE ASSESSEE EXPLAINED THAT THE ASSESSEE INCURRED SOFTW ARE EXPENSES DURING THE YEAR FOR UPGRADING INTEGRATED SOFTWARE A T CHAMBER AT DELHI HIGH COURT OFFICE, SOUTH EXTENSION OFFICE-CUM -RESIDENCE. FURTHER, THE SOFTWARE OF LATEST CASE LAWS, POSTING OF JUDGES, BENCHES OF VARIOUS COURTS, DATABASE, APPOINTMENT AN D TRANSFER OF JUDGES, FUNCTIONING OF VARIOUS BENCHES, CLIENTS DA TABASE HAD ALSO BEEN UPDATED. THESE SOFTWARE ARE FREQUENTLY UPDATE D AND RENEWED AND ARE NOT OF AN ENDURING NATURE OR BENEFI T. THE AO, HOWEVER, DID NOT ACCEPT THE CONTENTION OF THE ASSES SEE AND CONSIDERED THE EXPENDITURE IS OF ENDURING NATURE. THEREFORE, AFTER GRANTING DEPRECIATION AT 60% DISALLOWED RS. 9,56,42 4/-. THE ASSESSEE CHALLENGED THE ADDITION BEFORE LD. CIT(A), SAME 14 ITA NO . 5822/DEL/2015 SUBMISSIONS WERE REITERATED. THE LD.CIT(A), HOWEVE R, CONFIRM THE ADDITION AND DISMISS THE APPEAL OF THE ASSESSEE. 26. LD. COUNSEL FOR ASSESSEE REITERATED THE SUBMISS IONS MADE BEFORE AUTHORITIES BELOW AND SUBMITTED THAT EXPENSE S WERE INCURRED ON ACCOUNT OF UPGRADATION/SUBSCRIPTION OF SOFTWARE WHICH IS NOT CAPITAL IN NATURE. HE HAS RELIED UPON THE JUDGMENT OF THE DELHI HIGH COURT IN THE CASE OF CIT VS. ASAHI I NDIA SAFETY GLASS LTD. 346 ITR 329 IN WHICH IT WAS HELD AS UNDER: SOFTWARE IS NOTHING BUT ANOTHER WORD FOR COMPUTER PROGRAMMES, I.E. INSTRUCTIONS THAT MAKE THE HARDWAR E WORK. SOFTWARE IS BROADLY OF TWO TYPES, I.E. THE S YSTEMS SOFTWARE, WHICH IS ALSO KNOWN AS THE OPERATING SYST EM WHICH CONTROLS THE WORKING OF THE COMPUTER; WHILE T HE OTHER BEING APPLICATIONS SUCH AS WORD PROCESSING PROGRAMS, SPREAD SHEETS AND DATABASE WHICH PERFORM THE TASKS FOR WHICH PEOPLE USE COMPUTERS. BESIDE THESE , THERE ARE TWO OTHER CATEGORIES OF SOFTWARE, THESE BEING; NETWORK SOFTWARE AND LANGUAGE SOFTWARE. THE NETWORK SOFTWA RE ENABLES GROUPS OF COMPUTERS TO COMMUNICATE WITH EAC H OTHER, WHILE LANGUAGE SOFTWARE PROVIDES WITH TOOLS REQUIRED TO WRITE PROGRAMMES. THE AFORESAID WOULD SHOW THAT WHAT THE ASSESSEE ACQUIRED THROUGH A WAS AN APPLICATION SOFTWARE WHIC H ENABLED IT TO EXECUTE TASKS IN THE FIELD OF ACCOUNT ING, PURCHASES AND INVENTORY MAINTENANCE. THE FACT THAT THE APPLICATION SOFTWARE WOULD HAVE TO BE UPDATED FROM TIME TO TIME BASED ON THE REQUIREMENTS OF THE ASSESSEE I N THE CONTEXT OF THE ADVANCEMENT OF ITS BUSINESS AND/OR I TS DIVERSIFICATION, IF ANY; THE CHANGES BROUGHT ABOUT DUE TO STATUTORY AMENDMENTS BY LAW OR BY PROFESSIONAL BODI ES LIKE THE INSTITUTE OF CHARTERED ACCOUNTANTS OF INDI A, WHICH ARE GIVEN THE RESPONSIBILITY OF CONCEIVING AND FORM ULATING THE ACCOUNTING STANDARDS FROM TIME TO TIME, AND PER HAPS ALSO, BY REASON OF THE FACT THAT EXPENSES MAY HAVE TO BE 15 ITA NO . 5822/DEL/2015 INCURRED ON ACCOUNT OF CORRUPTION OF THE SOFTWARE D UE TO UNINTENDED OR INTENDED INGRESS INTO THE SYSTEM OUGH T NOT GIVE A COLOUR TO THE EXPENDITURE INCURRED AS ONE EX PENDED ON CAPITAL ACCOUNT. GIVEN THE FACT THAT THERE ARE MYRIAD FACTORS WHICH MAY CALL FOR EXPENSES TO BE INCURRED IN THE FIELD OF SOFTWARE APPLICATIONS, IT CANNOT BE SAID T HAT EITHER THE EXTENT OF THE EXPENSE OR THE EXPENSE BEING INCU RRED IN CLOSE PROXIMITY, IN THE SUBSEQUENT YEARS, WOULD BE CONCLUSIVELY DETERMINATIVE OF ITS NATURE. THE ASSE SSING OFFICER HAS ERRED PRECISELY FOR THESE VERY REASONS. 27. HE HAS ALSO RELIED UPON THE JUDGMENT OF DELHI H IGH COURT IN THE CASE OF CIT VS. AMWAY INDIA ENTERPRISES 346 ITR 341 (DELHI) IN WHICH IT WAS HELD AS UNDER: IT : EXPENDITURE ON PURCHASE OF SOFTWARE APPLICATI ON IS REVENUE EXPENDITURE. 28. LD. COUNSEL FOR ASSESSEE ALSO REFERRED TO DETAI LS OF SOFTWARE EXPENSES WHICH ARE BILLS, COPIES OF THE SAME ARE FI LED AT PAGES 48 TO 52 OF THE PAPER BOOK. LD. COUNSEL FOR ASSESSEE SUBMITTED THAT THE AUTHORITIES BELOW HAVE FAILED TO APPRECIATE THE CONTENTS OF THE BILLS WHICH SHOW THAT EXPENSES HAVE BEEN INCURRED F OR UPGRADATION OF THE SOFTWARE ONLY. THE AUTHORITIES BELOW HAVE FAILED TO CONSIDER THE TERMINOLOGY USED IN THE AFOR ESAID BILLS. 29. LD. DR, HOWEVER, RELIED UPON THE ORDERS OF THE AUTHORITIES BELOW. 30. AFTER CONSIDERING THE RIVAL SUBMISSIONS, WE ARE OF THE VIEW THAT MATTER REQUIRES RECONSIDERATION AT THE LEVEL O F THE AO. THE AO HAS NOT POINTED OUT AS TO WHICH CAPITAL HAS BEEN GENERATED OUT OF THE AFORESAID EXPENSES INCURRED BY THE ASSESSEE FOR THE PURPOSE 16 ITA NO . 5822/DEL/2015 OF PROFESSION OF THE ASSESSEE. AO HAS ALSO NOT POI NTED OUT THAT AFTER INCURRING THE EXPENDITURE HOW THE SAME COULD BE CONSIDERED ENDURING IN NATURE. LD. COUNSEL FOR ASSESSEE POINT ED OUT THE DETAILS NOTED IN THE BILLS/VOUCHERS OF THESE EXPENS ES SHOWS THAT THE MATTER REQUIRES RECONSIDERATION AT THE LEVEL OF THE AO. WE, ACCORDINGLY, SET ASIDE THE ORDERS OF THE AUTHORITIE S BELOW AND RESTORE THIS ISSUE TO THE FILE OF AO WITH DIRECTION TO RE-DECIDE THE ISSUE AFTER GIVING AN OPPORTUNITY OF BEING HEARD TO THE ASSESSEE, AFTER VERIFYING THE BILLS AND VOUCHERS PRODUCED ON THIS ISSUE. THIS GROUND IS ALLOWED FOR STATISTICAL PURPOSES. 31. IN THE RESULT, THE APPEAL OF ASSESSEE IS PARTLY ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT. SD/- SD/- (L.P. SAHU) (BHA VNESH SAINI) ACCOUNTANT MEMBER JUDICIAL MEMBER DATED: 23/04/2019 *KAVITA ARORA COPY FORWARDED TO: 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(APPEALS) 5. DR: ITAT TRUE COPY ASSISTANT REGISTRAR ITAT NEW DELHI 17 ITA NO . 5822/DEL/2015 DATE OF DICTATION 16/04/2019 DATE ON WHICH THE TYPED DRAFT IS PLACED BEFORE THE DICTATING MEMBER 18/04/19 23.04.19 DATE ON WHICH THE TYPED DRAFT IS PLACED BEFORE THE OTHER MEMBER DATE ON WHICH THE APPROVED DRAFT COMES TO THE SR. P S/PS DATE ON WHICH THE FAIR ORDER IS PLACED BEFORE THE D ICTATING MEMBER FOR PRONOUNCEMENT 23.4.19 DATE ON WHICH THE FAIR ORDER COMES BACK TO THE SR. PS/PS 23.4.19 DATE ON WHICH THE FINAL ORDER IS UPLOADED ON THE WE BSITE OF ITAT 23.4.19 DATE ON WHICH THE FILE GOES TO THE BENCH CLERK 23.4 .19 DATE ON WHICH THE FILE GOES TO THE HEAD CLERK THE DATE ON WHICH THE FILE GOES TO THE ASSISTANT RE GISTRAR FOR SIGNATURE ON THE ORDER DATE OF DISPATCH OF THE ORDER