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ITA 5860/DEL/2011

• Counselvise Citation: [2012] 140 COUNSELVISE.COM (IT) 61769 (ITAT-DELHI)
• Duration Of Justice: 6 month(s) 15 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 13-07-2012
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: B
• Next Hearing Date: 04-07-2012
• Assessment Year: 2007-2008
• Appeal Filed On: 29-12-2011
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: K V K SINGH
• Keywords: Business income; Depreciation; Earning of tax free income
• Section: 143(3); 14A

Judgement Text

I.T.A. NO. 5860/DEL/2011 1 IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH B, NEW DELHI BEFORE SHRI U.B.S. BEDI, JUDICIAL MEMBER AND SHRI SHAMIM YAHYA, ACCOUNTANT MEMBER I.T.A. NO. 5860/DEL/2011 A.Y. : 2007-08 ASSTT. COMMISSIONER OF INCOME TAX, CIRCLE 3(1), CR BUILDING, NEW DELHI VS. M/S CENTRAL NEWS AGENCY PVT. LTD., 23/90, CONNAUGHT CIRCUS, NEW DELHI (PAN/GIR NO. : AAACC4233C) (APPELLANT ) (APPELLANT ) (APPELLANT ) (APPELLANT ) (RESPONDENT ) (RESPONDENT ) (RESPONDENT ) (RESPONDENT ) ASSESSEE BY : SH. RANJAN CHOPRA, CA DEPARTMENT BY : SH. K.V.K. SINGH, SR. D.R. ORDER ORDER ORDER ORDER PER PER PER PER SHAMIM YAHYA: AM SHAMIM YAHYA: AM SHAMIM YAHYA: AM SHAMIM YAHYA: AM THIS APPEAL BY THE REVENUE IS DIRECTED AGAINST TH E ORDER OF THE LD. COMMISSIONER OF INCOME TAX (APPEALS)-VII, NEW D ELHI DATED 27.10.2011 PERTAINING TO ASSESSMENT YEAR 2007-08. 2. THE GROUNDS RAISED READ AS UNDER:- I) LD. CIT(A) ERRED ON FACTS AND IN LAW IN DELET ING ADDITION OF ` 9,63,407/- MADE ON ACCOUNT OF INTEREST EXPENSES. II) THE LD. COMMISSIONER OF INCOME TAX (A) HAS ERRED I N REDUCING THE DISALLOWANCE MADE BY THE ASSESSING OFFICER U/S. 14A OF THE I.T. ACT TO ` 35,000/- WI THOUT GIVING ANY SPECIFIC REASONS. I.T.A. NO. 5860/DEL/2011 2 III) THE LD. COMMISSIONER OF INCOME TAX (A) HAS ERRED ON FACTS AND IN LAW IN HOLDING THAT INCOME OF ` 12,27,527/- BE TREATED AS INCOME UNDER THE HEAD SHORT TERM CAPITAL GAINS INSTEAD OF BUSINESS INCOM E. IV) THE LD. COMMISSIONER OF INCOME TAX (A) HAS ERRE D IN DIRECTING THAT DEPRECIATION BE ALLOWED @ 60% ON COMPUTER PERIPHERALS. V) THE APPELLANT CRAVES LEAVE TO AMEND, MODIFY, ALT ER, ADD OR FOREGO ANY GROUNDS OF APPEAL AT ANY TIME BEFORE OR DURING THE HEARING OF THIS APPEAL. 3. APROPOS ISSUE OF DELETION OF ADDITION OF ` 9,63 ,407/- ON THIS ISSUE ASSESSING OFFICER NOTED THAT DURING THE YEAR UNDER CONSIDERATION THE COMPANY HAS GRANTED UNSECURED LOAN OF ` 1,29,40,418/- TO M/S SUPREME KNITTERS PVT. LTD. ( A COMPANY IN WHICH THE DIRECTORS ARE SUBSTANTIALLY INTERESTED). HOWE VER, NO INTEREST WAS CHARGED ON THIS AMOUNT BY THE ASSESSEE COMPANY. ON THE OTHER HAND, THE COMPANY WAS FOUND PAYING INTEREST TO THE TUNE OF ` 9,63,407/- UNDER VARIOUS HEADS INCLUDING INTEREST T O DIRECTORS OF ` 5,76,979/-. ASSESSING OFFICER ASKED THE ASSESSE E AS TO WHY INTEREST PAID TO THE EXTENT CHARGEABLE AND RECEIVABLE FROM M/ S SUPREME KNITTERS NOT BE DISALLOWED. ASSESSEE REPLIED TH AT THE LOAN TO M/S SUPREME KNITTERS PVT. LTD. WAS OUT OF ASSESSEES OWN FUNDS AND INTEREST FREE LOAN WAS GIVEN BECAUSE OF FINANCIAL D IFFICULTY FACED BY THAT COMPANY. ASSESSING OFFICER WAS NOT SATISFIED WITH THIS EXPLANATION. ASSESSING OFFICER DISALLOWED THE INTEREST EXPENSES TO THE TUNE OF ` 9,63,407/- ON THIS ACCOUNT. I.T.A. NO. 5860/DEL/2011 3 4. UPON ASSESSEES APPEAL LD. COMMISSIONER OF INCOME TAX (A) NOTED THAT SIMILAR ADDITIONS WERE MADE IN A.Y. 2005-0 6 AND 2006-07 AND THE SAME WAS DELETED BY THE LD. COMMISSIONER OF INCOME TAX (A). CONSIDERING THE ABOVE LD. COMMISSIONER OF INCOME TAX (A) NOTED THAT LD. COMMISSIONER OF INCOME TAX (A) IN EARLIER YEAR WHI LE DELETING THE ADDITION HAS HELD AS UNDER:- I HAVE CAREFULLY CONSIDERED THE ARGUMENTS OF THE LD. A.R. AND HAVE GONE THROUGH VARIOUS DECISIONS OF HONBLE COURTS AS RELIED UPON BY HIM. IT WAS SUBMITTED BEFORE THE ASSESSING OFFICER THAT THE LOAN HAS BEEN ADVANCED TO M/S SUPREME KNITTERS PVT. LTD. OUT OF SURPLUS FUNDS. TH IS HAS NOT BEEN CONTRAVERTED BY THE ASSESSING OFFICER. IN SUCH CIRCUMSTANCES, WHERE THERE IS NO NEXUS BETWEEN INT EREST BEARING FUNDS AND INTEREST FREE LOAN AND THE AMOUNT HAS BEEN ADVANCED OUT OF SURPLUS FUNDS OF THE APPELLAN T, I HOLD THAT THE ASSESSING OFFICER WAS NOT JUSTIFIED IN MA KING DISALLOWANCE OF THE INTEREST. THE ADDITION MADE BY HIM IS, THEREFORE, DIRECTED TO BE DELETED. 5. CONSIDERING THE ABOVE LD. COMMISSIONER OF INCOME TAX (A) NOTED THAT FACTS AND CIRCUMSTANCES OF THE CASE ARE PARI MA TERIA WITH THE CASE OF THE ASSESSEE IN A.Y.(S) 2005-06 AND 2006-07, AN D ACCORDINGLY, FOR THE REASONS IN THE ABOVE AFORESAID ORDERS OF LD. C OMMISSIONER OF INCOME TAX (A), DELETED THE ADDITION. 6. AGAINST THE ABOVE ORDER THE REVENUE IS IN APPEAL BEFORE US. 7. WE HAVE HEARD THE RIVAL CONTENTIONS IN LIGHT OF THE MATERIAL PRODUCED AND PRECEDENT RELIED UPON. WE FIND THAT IT IS THE CLAIM OF THE ASSESSEE THAT INTEREST FREE LOAN WAS GIVEN OUT OF ASSESSEES I.T.A. NO. 5860/DEL/2011 4 COMPANY OWN SURPLUS FUNDS WHICH DO NOT CARRY INTERES T. SIMILAR ADDITIONS WERE MADE FOR A.Y. 2005-06 AND 2006-07. I N THESE YEARS, LD. COMMISSIONER OF INCOME TAX (A) HAS ACCEPTED THE SUBM ISSIONS THAT AMOUNT HAS BEEN ADVANCED TO M/S SUPREME KNITTERS PVT. LTD. OUT THE SURPLUS FUNDS AND THERE IS NO NEXUS BETWEEN INTERES T BEARING FUNDS AND INTEREST FREE LOAN AND THE AMOUNT HAS BEEN ADVAN CED OUT OF SURPLUS FUNDS OF THE ASSESSEE. UNDER THESE CIRC UMSTANCES, THE ADDITIONS ON ACCOUNT OF INTEREST WAS DELETED. LD . COUNSEL OF THE ASSESSEE SUBMITTED BEFORE US THAT THE AFORESAID ORDE R OF THE LD. COMMISSIONER OF INCOME TAX (A) HAS NOT BEEN CHALLENG ED BY THE REVENUE IN APPEAL PROCEEDINGS. ACCORDINGLY, WE DO NOT FIND ANY INFIRMITY IN THE ORDER OF THE LD. COMMISSIONER OF INCO ME TAX (A) AND HENCE, WE UPHOLD THE SAME. 8. APROPOS ISSUE OF REDUCING THE DISALLOWANCE MADE B Y THE ASSESSING OFFICER U/S. 14A. IN THIS CASE ASSESSING OFFICER NOTED THAT ASSESS EE COMPANY HAS CLAIMED DIVIDEND INCOME OF ` 1,48,840/-. ASSESSING OFFICER ASKED THE ASSESSEE AS TO WHY DISALLOWANCE U/S. 14A SHOULD NOT BE MADE AS PER RULE 8D AS PER THE NOTIFICATION NO. 45/2008 DATED 24 .3.2008 BY THE CBDT. ASSESSEE REPLIED THAT ASSESSEE HAD NOT INCU RRED ANY EXPENSES TO EARN EXEMPT INCOME. THIS EXPLANATION WAS NOT AC CEPTED BY THE ASSESSING OFFICER AND HE PROCEEDED TO INVOKE RULE 8D AND MADE DISALLOWANCE U/S. 14A AMOUNTING TO ` 66,430/-. 9. UPON ASSESSEES APPEAL LD. COMMISSIONER OF INCOME TAX (A) NOTED THAT SEVERAL CASE LAWS INCLUDING THAT FROM HO NBLE MUMBAI HIGH COURT DECISION IN THE CASE OF GODREJ & BOYCE MANUFACT URING CO. LTD. MUMBAI VS. DCIT 328 ITR 81. LD. COMMISSIONER OF INCOM E TAX (A) I.T.A. NO. 5860/DEL/2011 5 NOTED IN THIS CONNECTION THAT IT HAS BEEN HELD BY THE COURTS THAT RULE 8D WILL APPLY ONLY W.E.F. A.Y. 2008-09. LD. C OMMISSIONER OF INCOME TAX (A) FURTHER NOTED THAT EVEN PRIOR TO A.Y . 2008-09, WHEN RULE 8D WAS NOT APPLICABLE, THE ASSESSING OFFICER HAS TO ENFORCE THE PROVISIONS OF SUB SECTION (1) OF SECTION 14A. FOR THAT PURPOSE, THE ASSESSING OFFICER IS DUTY BOUND TO DETERMINE THE EX PENDITURE WHICH HAS BEEN INCURRED IN RELATION TO INCOME WHICH DOES NOT FROM PART OF THE TOTAL INCOME UNDER THE ACT. LD. COMMISSIONER OF INCOME TAX (A) FURTHER NOTED THAT ASSESSING OFFICER MUST ADOPT A REASONABLE BASIS OR METHOD CONSISTENT WITH ALL THE RELEVANT FACTS AND CI RCUMSTANCES AFTER FURNISHING A REASONABLE OPPORTUNITY TO THE ASSESSEE TO PLACE ALL GERMANE MATERIAL ON THE RECORD. ACCORDINGLY, LD. COMMISSIONER OF INCOME TAX (A) HELD THAT THE PROPORTIONATE DISALLOW ANCE UNDER SECTION 14A OF THE ACT IS RESTRICTED TO ` 35,000/-. ACCORD INGLY, ASSESSEE GOT A RELIEF OF ` 31,430/-. 10. AGAINST THE ABOVE ORDER THE REVENUE IS IN APPEA L BEFORE US. 11. WE HAVE HEARD THE RIVAL CONTENTIONS IN LIGHT OF THE MATERIAL PRODUCED AND PRECEDENT RELIED UPON. WE FIND THAT LD. COMMISSIONER OF INCOME TAX (A) IS CORRECT IN HOLDING THAT RULE 8D IS NOT APPLICABLE IN THIS ASSESSMENT YEAR. UNDER SUCH CIRCUMSTANCES, D ISALLOWANCE HAS TO BE MADE ON A REASONABLE BASIS AND OR METHOD CONSIST ENT WITH ALL THE RELEVANT FACTS AND CIRCUMSTANCES OF THE CASE. WE F IND THAT THERE IS NO INFIRMITY IN THE ORDER OF THE LD. COMMISSIONER OF INC OME TAX (A) IN RESTRICTING THE DISALLOWANCE U/S. 14A OF THE ACT. ACCORDINGLY, WE AFFIRM THE ORDER OF THE LD. COMMISSIONER OF INCOME TAX (A) AN D DECIDE THE ISSUE IN FAVOUR OF THE ASSESSEE. I.T.A. NO. 5860/DEL/2011 6 12. APROPOS ISSUE OF TREATMENT OF INCOME UNDER THE HEAD SHORT TERM CAPITAL GAINS OF ` 12,27,527/-. ON THIS ISSUE ASSESSING OFFICER NOTED THAT TOTAL INCOME SHOWN BY THE ASSESSEE INCLUDE SHORT TERM CAPITAL GAINS OF ` 12,27,527/-. ASSESSING OFFICER HAS OPINED THAT THE AFORESAID I NCOME IS TO BE ASSESSED UNDER THE HEAD INCOME FROM BUSINESS OR P ROFESSION AND NOT UNDER THE HEAD INCOME FROM CAPITAL GAINS. 13. BEFORE THE LD. COMMISSIONER OF INCOME TAX (A) AS SESSEE SUBMITTED THAT IN A.Y. 2006-07 ADDITION ON SIMILAR GROUND WAS MADE BY THE ASSESSING OFFICER U/S. 143(3) OF THE I.T. ACT. AGAINST THE ABOVE ORDER THE ASSESSEE HAD FILED THE APPEAL BEFORE THE LD. COMMISSIONER OF INCOME TAX (A) AND THEN BEFORE THE ITAT, WHO WAS PL EASED TO ALLOW THE APPEAL IN FAVOUR OF THE ASSESSEE. 14. CONSIDERING THE ABOVE, LD. COMMISSIONER OF INCOM E TAX (A) HELD THAT HE HAS PERUSED THE ORDER OF THE LD. COMMISSIONE R OF INCOME TAX (A) AND ITAT, DELHI IN ASSESSEES OWN CASE WHEREIN I T WAS HELD THAT PROFITS ON SALE OF UNITS OF MUTUAL FUNDS WILL BE AS SESSABLE UNDER THE HEAD CAPITAL GAINS AND NOT AS BUSINESS INCOME. ACC ORDINGLY, FOLLOWING THE DECISION OF THE ITAT, LD. COMMISSIONER OF INCOME TAX (A) HELD THAT PROFITS ON SALE OF UNITS OF MUTUAL FUNDS WILL BE AS SESSABLE UNDER THE HEAD CAPITAL GAINS. 15. AGAINST THE ABOVE ORDER THE REVENUE IS IN APPEA L BEFORE US. 16. WE HAVE HEARD THE RIVAL CONTENTIONS IN LIGHT OF THE MATERIAL PRODUCED AND PRECEDENT RELIED UPON. WE FIND THAT SIMILAR ADDITION IN ASSESSEES OWN CASE FOR A.Y. 2006-07 HAS BEEN DELE TED BY THE ITAT. I.T.A. NO. 5860/DEL/2011 7 ACCORDINGLY WE DO NOT FIND ANY INFIRMITY IN THE ORDER OF THE LD. COMMISSIONER OF INCOME TAX (A), HENCE, WE UPHOLD THE SAME. 17. AROPOS ISSUE OF DEPRECIATION ON COMPUTER PERIP HERALS. ON THIS ISSUE ASSESSING OFFICER NOTED THAT ASSESS EE HAS MADE THE ADDITIONS TO FIXED ASSETS UNDER THE HEAD COMPU TER AND CLAIMED DEPRECIATION @ 60%. ASSESSING OFFICER FURTHER FO UND FROM THE DETAILS SUBMITTED IN THIS REGARD THAT ASSESSEE HAS MADE PUR CHASE ON COMPUTER PERIPHERALS & ACCESSORIES AMOUNTING TO ` 3 0,620/-. ASSESSING OFFICER OPINED THAT DEPRECIATION ON COMPU TER ACCESSORIES AND PERIPHERALS SHOULD BE RESTRICTED TO 15% AS AGAI NST 60% CLAIMED. 18. UPON ASSESSEES APPEAL LD. COMMISSIONER OF INCOME TAX (A) NOTED THAT THE HONBLE DELHI HIGH COURT IN THE CASE OF C.I.T. VS. BSES YAMUNA POWERS LTD. 2010-TIOL-636-H.C.DEL-IT HAS H ELD THAT COMPUTER PERIPHERALS ARE INTEGRAL PART OF THE COMPUTE R AND THUS ELIGIBLE FOR DEPRECIATION @ 60%. ACCORDINGLY, L D. COMMISSIONER OF INCOME TAX (A) HELD THAT THE DEPRECIATION IS TO BE CALCULATED IN THIS REGARD @ 60%. 19. AGAINST THE ABOVE ORDER THE REVENUE IS IN APPEA L BEFORE US. 20. WE HAVE HEARD THE RIVAL CONTENTIONS IN LIGHT OF THE MATERIAL PRODUCED AND PRECEDENT RELIED UPON. WE FIND THAT LD. COMMISSIONER OF INCOME TAX (A) HAS DELETED THE ADDITION IN THIS C ASE, AFTER NOTING THE HONBLE JURISDICTIONAL HIGH COURT DECISION CITED A BOVE. RESPECTFULLY, FOLLOWING THE AFORESAID DECISION FROM THE HONBLE D ELHI HIGH COURT, WE I.T.A. NO. 5860/DEL/2011 8 DO NOT FIND ANY INFIRMITY IN THE ORDER OF THE LD. CO MMISSIONER OF INCOME TAX (A) AND HENCE, WE UPHOLD THE SAME. 21. IN THE RESULT, THE APPEAL FILED BY THE REVENUE STANDS DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 13/7/2012. SD/- SD/- [ [[ [U.B.S. BEDI U.B.S. BEDI U.B.S. BEDI U.B.S. BEDI] ]] ] [SHAMIM YAHYA] [SHAMIM YAHYA] [SHAMIM YAHYA] [SHAMIM YAHYA] JUDICIAL MEMBER JUDICIAL MEMBER JUDICIAL MEMBER JUDICIAL MEMBER ACCOUNTANT MEMBER ACCOUNTANT MEMBER ACCOUNTANT MEMBER ACCOUNTANT MEMBER DATE 13/7/2012 SRBHATNAGAR SRBHATNAGAR SRBHATNAGAR SRBHATNAGAR COPY FORWARDED TO: COPY FORWARDED TO: COPY FORWARDED TO: COPY FORWARDED TO: - -- - 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT (A) 5. DR, ITAT TRUE COPY BY ORDER, ASSISTANT REGISTRAR, ITAT, DELHI BENCHES