DCIT, New Delhi V. M/s. Neel Metal Products Ltd., New Delhi

ITA 6021/DEL/2015

• Counselvise Citation: [2018] 126 COUNSELVISE.COM (IT) 2913 (ITAT-DELHI)
• Duration Of Justice: 2 year(s) 4 month(s) 11 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 16-03-2018
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: D
• Assessment Year: 2010-2011
• Appeal Filed On: 05-11-2015
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: SUR ESH MALIK
• Keywords: Depreciation; Earning of tax free income
• Section: 143(3); 14A; 115JB

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH : D , NEW DELHI BEFORE SH. BHAVNESH SAINI, JUDICIAL M EMBER AND SH. O.P. KANT , ACCOUNTANT MEMBER ITA NO .6021 /DE L/ 2015 ASSESSMENT YEAR: 2010 - 11 DCIT, CIRCLE - 18(1), ROOM NO. 212, 2 ND FLOOR, C.R. BUILDING, I.P. ESTATE, NEW DELHI VS. M/S. NEEL METAL PRODUCTS LTD., 610, HEMKUNT CHAMBERS, 89, NEHRU PLACE, NEW DELHI PAN : AABCN6364Q ( APPELLANT ) (RESPONDENT) APPELLANT BY SH. AMIT JAIN, SR.DR RESPONDENT BY SH. SURESH MALIK, CA DATE OF HEARING 15.02.2018 DATE OF PRONOUNCEMENT 16.03.2018 ORDER PER O.P. KANT , A. M. : THIS APPEAL BY THE R EVENUE IS DIRECTED AGAINST ORDER DATED 24/08/2015 PASSED BY THE LD. COMMISSIONER OF I NCOME TAX (APPEALS) - 42, NEW DELHI [ IN SHORT THE LD. CIT(A) ] FOR ASSESSMENT YEAR 2010 - 11 RAISING FOLLOWING GROUNDS: 2 1. WHETHER ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW THE LD. CIT(A) IS JUSTIFIED IN DELETING DISALLOWANCE OF RS. 1,39,58,000/ - U/S 14A OF THE INCOME TAX ACT, 1961 (THE ACT) READ WITH RULE 8D OF THE INCOME TAX RULES, 1962 (THE RULES WITHOUT CONSIDERING PRINCIPLES AS LAID DOWN BY HON'BLE APEX COURT IN CASE OF CIT V WALFORT SHARE AND STOCK BROKERS PVT. LTD. (2010) 326 ITR 1 AS EXPLAINED BY H ON'BLE DELHI HIGH COURT IN CASE OF MAXOPP INVESTMENT LTD. V CIT (2012) 347 ITR 272? 2. WHETHER ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW THE LD. CIT(A) IS JUSTIFIED IN DELETING DISALLOWANCE OF RS. 1,39,58,000/ - U/S 14A OF THE ACT WITHOUT CONSIDERING CBDT CIRCULAR NO. 5 OF 2014 DATED FEBRUARY 11, 2014 WHICH HAS CLARIFIED THE SCOPE OF SECTION 14A INTRODUCED BY THE FINANCE ACT 2001 AND TERM 'INCLUDIBLE' IN HEADINGS TO SECTION 14A OF THE ACT AND TO THE RULE 8D OF THE RULE? 3. WHETHER ON THE F ACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW THE LD. CIT(A) IS JUSTIFIED IN DELETING DISALLOWANCE OF RS. 5,83,812/ - ON ACCOUNT INCORRECT CLAIM OF DEPRECIATION ON CANTEEN BUILDING WITHOUT CONSIDERING FINDINGS OF THE AO THAT THE ASSESSEE DID NOT FURNISH EVI DENCE IN SUPPORT OF ITS CLAIM? 4. WHETHER IN FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW THE LD. CIT(A) IS JUSTIFIED IN DELETING DISALLOWANCE ON ACCOUNT OF EXCESS CLAIM OF DEPRECIATION OF RS. 11,89,519/ - ON ELECTRICAL FITTINGS / INSTALLATION WITHOUT CO NSIDERING EFFECT OF AMENDMENTS W.E.F. 1.4.2004 MADE IN SECTION 143(3) OF THE ACT BY THE FINANCE ACT, 2003? 5. THAT THE ORDER OF THE LD. CIT(A) IS ERRONEOUS AND IS NOT TENABLE ON FACTS AND IN LAW. 6. THAT THE APPELLANT CRAVES LEAVE TO ADD, ALTER, AMEND OR FORGO ANY GROUND(S) OF APPEAL EITHER BEFORE OR AT THE TIME OF HEARING OF THE APPEAL. 3 2. B RIEFLY STATED FACTS OF THE CASE ARE THAT THE ASSESSEE COMPANY IS ENGAGED IN THE BUSINESS OF MANUFACTURING SHEET, METAL COM PONENTS FOR AUTOMOBILE INDUSTRY . FOR THE YE AR UNDER CONSIDERATION, THE ASSESSEE FILED RETURN OF INCOME DECLARING INCOME OF RS. 58,84,95,367/ - UNDER NORMA L PROVISIONS OF INCOME - TAX ACT, 1961 (IN SHORT THE ACT ) AND RS.64,21,22, 181/ - UNDER SECTION 115JB OF THE A CT . THE CASE WAS SELECTED FOR A SCRUTINY AND NOTICE UNDER SECTION 143( 2) OF THE A CT WAS ISSUED AND COMPLIED WITH. IN ASSESSMENT COMPLET ED UNDER SECTION 143(3) OF THE A CT ON 28/03/2013, THE ASSESSING OFFICER MADE VARIOUS ADDITIONS/DISALLOWANCE. AGGRIEVED WITH THE ADDITIONS/DISALLOWANCE MADE BY TH E ASSESSING OFFICER , THE ASSESSEE PREFERRED APPEAL BEFORE THE LD. CIT(A), WHO PARTLY ALLOWED THE APPEAL O F THE ASSESSEE. AGGRIEVED, THE R EVENUE IS IN APPEAL BEFORE THE T RIBUNAL , RAISING THE GROUNDS A S REPRODUCED ABOVE. 3. IN GROUND NO S. 1 AND 2 , THE R EVENU E HAS CHALLENGED DELETION OF DISALLOWANCE OF RS.1, 39, 58,000/ - MADE BY THE ASSESSING OFFICER UNDER SECTION 14 A OF THE ACT. 3.1 BEFORE US, THE LD. DR RELIED ON THE ORDER OF THE ASSESSING OFFICER AND SUBMITTED THAT THE DISALLOWANCE HAS BEEN MADE IN ACCOR DANCE WITH LAW UNDER SECTION 14A OF THE A CT READ WITH R ULE 8D OF INCOME - TAX R ULES, 1962 AND , THUS , THE LD. CIT(A), IS NOT JUSTIFIED IN DELETING THE SAME. 3.2 ON THE CONTRARY, THE LD. COUNSEL OF THE ASSESSEE SUBMITTED THAT DURING THE YEAR UNDER CONSIDERATIO N NO EXEMPT INCOME WAS EARNED FROM THE STRATEGIC INVESTMENT MADE IN GROUP COMPANIES. 4 HE SUBMITTED THAT IN VIEW OF NO EXEMPT INCOME EARNED DURING THE YEAR UNDER CONSIDERATION, RELYING ON THE DECISION OF THE HON BLE DELHI HIGH COURT DATED 02/09/2015 IN THE C ASE OF CHEMINVEST LTD VS. CIT IN IT A NO. 749/2014, NO ADDITION COULD HAVE BEEN MADE IN TERMS OF SECTION 14A OF THE A CT AND THUS THE LD. CIT(A) WAS JUSTIFIED IN DELETING THE ADDITION. 3.3 WE HAVE HEARD THE RIVAL SUBMISSION AND PERUSED THE RELEVANT MATERIAL ON RECORD. THE LD. CIT(A) DELETED THE ADDITION WITH FOLLOWING FINDING : 6.3 I HAVE CAREFULLY CONSIDERED THE FACTS OF THE CASE IN THE LIGHT OF THE SUBMISSIONS MADE BY THE APPELLANT. ON CAREFUL CONSIDERATION OF THE ABOVE FACTS, IT IS EVIDENT THAT THE APP ELLANT IS ENGAGED IN THE BUSINESS OF MANUFACTURING COMPONENTS FOR AUTOMOBILE INDUSTRIES. IT HAS MADE INVESTMENTS IN TWO OF ITS SUBSIDIARY COMPANIES M/S NEEL METAL FANALCA ENVIRONMENT MANAGEMENT PVT. LTD. AND M/S JBM CADMIUM PVT. LTD. FURTHER, INVESTMENT IN ARCELOR NEEL TAILORED BLANK PVT. LTD., A JOINT VENTURE COMPANY AND INVESTMENT IN TWO OTHER GROUP COMPANIES WAS MADE. ON CAREFUL PERUSAL OF THE ACTIVITIES OF SUCH COMPANIES, IT IS EVIDENT THAT ALL THESE COMPANIES ARE ENGAGED IN THE SAME LINE OF BUSINESS, I .E. MANUFACTURING OF AUTOMOBILE RELATED PARTS. THERE IS, THUS, AN INTRINSIC SYNERGY IN THE OPERATIONS OF THESE COMPANIES. THE PURPOSE OF SUCH INVESTMENT WAS TO TAKE STRATEGICAL CONTROL OVER THE RELEVANT MARKETS. THEREFORE, SUCH AN INVESTMENT CANNOT BE HELD TO HAVE BEEN MADE FOR THE PURPOSE OF EARNING DIVIDEND INCOME BUT WAS FOR THE BUSINESS PURPOSES ONLY. IT IS UNDISPUTED THAT NO DIVIDEND INCOME ON SUCH INVESTMENTS HAVE EVER BEEN EARNED BY THE APPELLANT IN THE CURRENT YEAR OR LATER. UNDER THE CIRCUMSTANCES, THE RELIANCE OF THE ID. AO ON THE PROVISIONS OF SECTION 14A IN THIS REGARD IS UNFOUNDED. IT IS ALSO SEEN THAT THE ID. AO HAS ALSO ADMITTED THAT NO AMOUNT OF INTEREST BEARING FUNDS WERE DEPLOYED IN MAKING 5 SUCH INVESTMENTS AS HE HAS NOT MADE ANY DISALLOWANC E UNDER RULE 8D(2)(II). IN VIEW OF THE ABOVE, AS NO EXEMPT INCOME WAS EARNED BY THE APPELLANT AND THE INVESTMENTS WERE MADE FOR BUSINESS PURPOSES, RELYING UPON THE DECISION OF HON'BLE DELHI HIGH COURT IN THE CASE OF M/S HOLCIM PVT. LTD. (SUPRA) AND IN THE CASE OF M/S ORIENTAL STRUCTURAL ENGINEERS PVT. LTD.(SUPRA), I HOLD THAT NO DISALLOWANCE U/S 14A WAS CALLED FOR IN THE CASE OF THE APPELLANT. IN VIEW OF THE ABOVE, THE GROUND NO. 3 IS ALLOWED IN FAVOUR OF THE APPELLANT COMPANY. 3.4 BEFORE US, THE FACT THAT NO EXEMPT INCOME WAS EARNED IS UNDISPUTED. THE HON BLE DELHI HIGH COURT IN THE CASE OF CHEMINVEST LTD . (SUPRA), HAS HELD THAT THE SECTION 14A WILL NOT APPLY IF NO EXEMPT INCOME IS RECEIVED OR RECEIVABLE DURING THE RELEVANT P REVIOUS YEAR. THUS , RESPECTFULLY FOLLOWING THE ABOVE DECISION, NO DISALLOWANCE COULD HAVE BEEN MADE UNDER SECTION 14 A OF THE A CT AND ACCORDINGLY , WE UPHOLD THE FINDING OF THE LD.CIT(A) IN DELETIN G THE ADDITION AMOUNTING TO RS.1, 39, 58,000/ - MADE BY THE ASSE SSING OFFICER UNDER SECTION 14A OF THE ACT READ WITH RULE 8D OF THE INCOME TAX R ULES. THUS , THE GROUND S NO. 1 AND 2 OF THE APPEAL ARE DISMISSED. 4. IN GROUND NO. 3, THE R EVENUE HAS CHALLENGED DELETING OF DISALLOWANCE OF RS. 5,83, 812/ - ON ACCOUNT OF CLAIM OF DEPRECIATION ON CANTEEN BUILDING. 4.1 THE LD. DR SUBMITTED THAT THE ASSESSEE FAILED TO FURNISH ANY EVIDENCE IN SUPPORT OF THE CLAIM THAT CANTEEN BUILDING WAS PUT TO USE DURING THE YEAR UNDER CONSIDERATION. ACCORDING TO HIM, THE CONSTRUCTION EXPENDITURE ON THE CANTEEN INCLUDED PROVISION OF EXPENSES OF RS. 25 LAKH AND THUS DEPRECIATION CANNOT BE ALLOWED 6 ON ESTIMATED EXPENDITURE, BILL FOR WHICH WAS SUBMITTED ON 27/04/2010 I.E. SUBSEQUENT TO THE ALLEGED COMMISSIONING OF THE BUILDING ON 02/03/2010, AND THUS A SSESSEE IS NOT ELIGIBLE FOR DEPRECIATION IN RESPECT OF THE CANTEEN BUILDING. 4.2 ON THE CONTRARY, THE LD. COUNSEL OF THE ASSESSEE RELIED ON THE FINDING OF THE LD. CIT( A) AND SUBMITTED THAT THE ASSESSEE HAD GIVEN CONTRACT TO M/S GUPTA HOSPITALITY SERVICES TO RUN THE CANTEEN W.E.F. 1 ST WEEK OF MARCH 2010, WHICH IN ITSELF IS IN EVIDENCE THAT THE CANTEEN BUILDING WAS PUT TO USE IN THE YEAR UNDER CONSIDERATION AND THAT THE D EPRECIATION WAS CLAIMED ACCORDINGLY. 4.3 WE HAVE HEARD THE RIVAL SUBMISSION AND PERUSED THE RELEVANT MATERIAL ON RECORD. THE LD. CIT(A) DELETED THE ADDITION WITH FOLLOWING FINDING: 9.2 I HAVE CAREFULLY CONSIDERED THE FACTS OF THE CASE IN THE LIGHT OF THE SUBMISSIONS MADE BY THE APPELLANT. ON CAREFUL CONSIDERATION OF THE FACTS OF THE CASE, I FIND THAT THE ID. AO HAS NOT TAKEN INTO ACCOUNT THE EVIDENCES FILED BY THE APPELLANT BEFORE HIM IN SUPPORT OF THE PROOF THAT THE CANTEEN BUILDING WAS COMPLETED IN FEBRUARY, 2010 BY DISREGARDING THE COMPLETION CERTIFICATE OF THE ARCHITECT. IT IS SEEN THAT THE ONLY REASON FOR MAKING DISALLOWANCE ON THE PART OF THE AO WAS THE FINDING THAT THE CONTRACTOR HA D ISSUED THE FINAL BILL ON 27.04.2010. HOWEVER, ISSUANCE OF FINAL BILL BY THE CONTRACTOR DOES NOT IMPLY THAT THE BUILDING MAY NOT EVEN CONSTRUCTED EARLIER AS IN ITSELF THIS ARGUMENT DOES NOT LEAD TO ANYWHERE IN THE ABSENCE OF ANY ADVERSE EVIDENCES BROUGHT ON RECORD. THE APPELLANT HAS BROUGHT MY ATTENTION TO THE FACT THAT THREE BILLS OF THE SAME CONTRACTOR HAVE BEEN ALREADY RAISED DURING THE YEAR AND THE APPELLANT HAD ALSO MADE A PROVISION FOR THE BALANCE AMOUNT IN THE BOOKS, ON WHICH TDS WAS DULY DEDUCTED. 7 THUS, IN NO WAY, THE AO COULD MAKE A CASE THAT THE BUILDING WAS NOT COMPLETED DURING THE CURRENT YEAR. WITHOUT PREJUDICE, THE ID. AO HAS HIMSELF ALLOWED CANTEEN RUNNING EXPENSES OF RS. 24,83,572/ - PAID TO M/S GUPTA HOSPITALITY SERVICES PVT. LTD. FOR RUNNIN G THE CANTEEN FOR THE MONTH OF MARCH, 2010. NO DISALLOWANCE HAS BEEN MADE BY THE ID. AO. THE APPELLANT HAS DULY DEDUCTED TDS THEREON. AS M/S GUPTA HOSPITALITY SERVICES PVT. LTD. IS NOT A RELATED PARTY, AND THE FACT THAT THE AO HAS HIMSELF ALLOWED SUCH EXPE NSES FOR RUNNING THE CANTEEN IN THE MONTH OF MARCH, 2010, IMPLIES THAT THE CANTEEN BUILDING WAS CONSTRUCTED AND WAS PUT TO USE DURING THE CURRENT YEAR. KEEPING IN VIEW THE ABOVE, THIS GROUND IS ALSO ALLOWED IN FAVOUR OF THE APPELLANT. 4.4 WE FIND THAT MAIN EVIDENCE IN SUPPORT OF THE CLAIM OF PUTTING THE CANTEEN BUILDING TO USE IS THE RUNNING EXPENSES OF RS. 24,83,572/ - PAID TO M/S GUPTA H OSPITALITY S ERVICES PRIVATE LIMITED, WHI CH IS AN UNRELATED PARTY. THE ASSESSING O FFICER HAS ALLOWED THE RUNNING EXPEN SES. THIS FACTUAL FINDING HAS NOT BE EN CONTROVERTED BY THE LD. DR. O N THE ISSUE OF PROVISION OF RS. 25 LAKH S , ALSO THE LD. CIT(A) HAS OBSERVED THAT BUILDING WAS ALREADY CONSTRUCTED IN THE MONTH OF FEBRUARY , 2010 AND LIABILITY TOWARDS CONSTRUCTION WAS ASCER TAINED AND TAX WAS ALSO DEDUCTED ON SAID PAYMENT . THE LD. DR ALSO COULD NOT CONTROVERT THIS FACTUAL FINDING OF THE LD. CIT(A). IN VIEW OF THE ABOVE FACTS, WE DO NOT FIND ANY INFIRMITY IN THE ORDER OF THE LD. CIT(A) ON THE ISSUE IN DISPUTE AND ACCORDINGLY , WE UPHOLD THE SAME. THE GROUND NO. 3 OF THE APPEAL IS ACCORDINGLY DISMISSED. 5. IN GROUND NO. 4, THE R EVENUE HAS CHALLENGED DELETION OF DISALLOWANCE ON ACCOUNT OF EXCESS CLAIM OF DEPRECIATION OF 8 RS. 11,89,519/ - ON ELECTRICAL I TEMS. ACCORDING TO THE ASSESS EE, THESE ITEMS WERE IN THE NATURE OF ELECTRIC INSTALLATION, BEING PART OF PLANT AND MACHINERY AND ELIGIBLE FOR DEPRECIATION AT THE RATE OF 15%, WHEREAS ACCORDING TO THE ASSESSING OFFICER THESE ITEMS ARE PART OF ELECTRICAL FITTINGS AND ELIGIBLE FOR DEPRECI ATION AT LOWER RATE. THE LD. CIT(A) HAS REPRODUCED THE LIST OF THE ITEMS IN THE IMPUGNED ORDER AND HELD THAT THESE ARE INTEGRAL PART OF PLANT AND MACHINERY AND , THUS , ELIGIBLE FOR DEPRECIATION AT THE RATE OF 15% AS ELECTRICAL INSTALLATIONS. 5.1 BEFORE US , THE LD. DR RELIED ON THE ORDER OF THE ASSESSING OFFICER WHEREAS THE LD. COUNSEL OF THE ASSESSEE, RELIED ON THE ORDER OF THE LD. CIT(A). 5.2 WE HAVE HEARD THE RIVAL SUBMISSION AND PERUSED THE RELEVANT MATERIAL ON RECORD. WE FIND THAT THE LD. CIT(A) IN THE IMPUGNED ORDER HAS RE - PRODUCED THE LIST OF THE ELECTRICAL ITEMS ON WHICH DEPRECIATION HAS BEEN CLAIMED AT THE RATE OF 15%. IT IS EVIDENT FROM THE ITEMS THAT THOSE ARE ELECTRICAL INSTALLATION AND IN THE NATURE OF ESSENT IAL PART OF PLANT AND MACHINERY , REQUI RED FOR FUNCTIONING OF THE MACHINERY. THE LD. DR COULD NOT CONTROVERT THAT THOSE ITEMS WERE ESSENTIAL FOR RUNNING OF THE PLANT AND MACHINERY AND THUS IN THE NATURE OF ELECTRICAL INSTALLATION. IN OUR OPINION, ORDER OF THE LD. CIT(A) ON THE ISSUE IN DISPUTE IS WELL REASONED AND WE DO NOT FIND ANY INFIRMITY IN THE SAME, AND ACCORDINGLY, WE UPHOLD THE SAME. THE GROUND NO. 4 OF THE APPEAL IS DISMISSED ACCORDINGLY. 9 6. THE GROUND NO. 5 IS GENERAL IN NATURE AND COVERED BY THE OTHER GROUNDS RAISED AND THUS WE ARE NO T REQUIRED TO ADJUDICATE UPON SPECIFICALLY. 7. THE GROUND NO. 6 OF THE APPEAL IS GENERAL IN NATURE AND DISMISSED AS INFRUCTUOUS. 8. IN THE RESULT, APPEAL OF THE R EVENUE IS DISMISSED. THE DECISION IS PRONOUN CED IN THE OPEN COURT ON 16 TH MARCH . , 201 8 . SD/ - SD/ - ( BHAVNESH SAINI ) ( O.P. KANT ) JUDICIAL MEMBER ACCOUNTANT MEMBER DATED: 16 TH MARCH , 201 8 . RK / - (D.T.D) COPY FORWARDED TO: 1 . APPELLANT 2 . RESPONDENT 3 . CIT 4 . CIT(A) 5 . DR ASST. REGISTRAR, ITAT, NEW DELHI