Weikfield Products Co (I) Pvt. Ltd., Pune V. DCIT, Cir.-7, Pune

ITA 655/PUN/2009

• Counselvise Citation: [2011] 140 COUNSELVISE.COM (IT) 49909 (ITAT-PUNE)
• Duration Of Justice: 2 year(s) 28 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 30-06-2011
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: A
• Assessment Year: 2005-2006
• Appeal Filed On: 01-06-2009
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: ABHAY DAMLE
• Assessee Lawyers: R G NAHAR
• Keywords: Depreciation; Business expenditure; Opportunity of being heard; Revenue expenditure; Capital expenditure
• Section: 14A

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL PUNE BENCH A , PUNE BEFORE SHRI I.C. SUDHIR (JM) AND SHRI D. KARUNAKARA RAO (AM) ITA NOS. 655 & 656/PN/2009 (ASSTT. YEARS : 2005-06 & 2006-07) WEIKFIELD PRODUCTS CO.(I)PVT. LTD., C/O SHAH KHANDELWAL JAIN & ASSOCIATES CHARTERED ACCOUNTANTS, 1 ST FLOOR, ALANKAR CINEMA BUILDING, PUNE-411001 PAN :AAACW1865A .. APP ELLANT V. DCIT CIR 7, PUNE/ ITO(TECH & JUD) - IV, PUNE . RESPONDENT ITA NOS. 786 & 833/PN/2009 (ASSTT. YEARS : 2005-06 & 2006-07) ACIT CIR 7, PUNE . APPELLANT V. WEIKFIELD PRODUCTS CO.(I)PVT. LTD., RESPONDENT C/O SHAH KHANDELWAL JAIN & ASSOCIATES CHARTERED ACCOUNTANTS, 1 ST FLOOR, ALANKAR CINEMA BUILDING, PUNE-411001 PAN :AAACW1865A ASSESSEE BY : SHRI R.G. NAHAR DEPARTMENT BY : SHRI ABHAY DAMLE ORDER PER I.C. SUDHIR JM ASSTT. YEAR : 2005-06 THE ASSESSEE HAS QUESTIONNED FIRST APPELLATE ORDE R ON THE FOLLOWING GROUNDS : 1. ON FACTS & CIRCUMSTANCES PREVAILING IN THE CASE & AS PER PROVISIONS OF LAW, IT BE HELD THAT DISALLOWANCE / A DDITION OF RS. 16,95,102/- SUSTAINED BY THE CIT(A) OUT OF THE DISA LLOWANCE OF RS. 72,88,204/- MADE BY THE ASSESSING OFFICER ON ACCOUN T OF INTEREST PAID BY THE APPELLANT COMPANY U/S 36(1)(III)/ 14A I S IMPROPER & CONTRARY TO THE PROVISIONS OF LAW & FACTS PREVAILIN G IN THE CASE. IT ITA . NO 655, 656, 833 & 786/PN/2009 WEIKFIELD PRODUCTS CO. (I) LTD. A.YS.2005-06 , 2006-07 ETC., PAGE OF 16 2 FURTHER BE HELD THAT NO DISALLOWANCE IS JUSTIFIED & WARRANTED PERTAINING TO CLAIM OF INTEREST. THE PART OF ADDIT ION/ DISALLOWANCE SUSTAINED BY THE 1 ST APPELLATE AUTHORITY BE DELETED. THE APPELLANT BE GRANTED JUST & PROPER RELIEF IN THIS RESPECT. 2. ON FACTS & CIRCUMSTANCES PREVAILING IN THE CASE & AS PER PROVISIONS OF LAW, IT BE HELD THAT ADDITION/ DISALL OWANCE OF RS. 3,85,000/- ON ACCOUNT OF ADVERTISEMENT EXPENDITURE IS UNJUSTIFIED & CONTRARY TO THE PROVISIONS OF LAW & FACTS PREVAILIN G IN THE CASE. THE CLAIM OF ADVERTISEMENT EXPENDITURE BE ALLOWED. TH E APPELLANT BE GRANTED JUST & PROPER RELIEF IN THIS RESPECT. 3. ON FACTS & CIRCUMSTANCES PREVAILING IN THE CASE & AS PER PROVISIONS OF LAW, IT BE HELD THAT THE DISALLOWANCE OF RS. 3,31,730/- & RS. 3,69,796/- OUT OF VEHICLE EXPENSES & TELEPHON E EXPENSES RESPECTIVELY IS NOT IN ACCORDANCE WITH PROVISIONS O F THE ACT. THE DISALLOWANCE SO MADE BE DELETED. THE APPELLANT BE GRANTED JUST & PROPER RELIEF IN THIS RESPECT. 4. ON FACTS & CIRCUMSTANCES PREVAILING IN THE CASE & AS PER PROVISIONS OF LAW, IT BE HELD THAT DISALLOWANCE OF RS. 7,97,902/- ON ACCOUNT OF DEPRECIATION ON CARS IS CONTRARY TO THE PROVISIONS OF THE ACT & FACTS PREVAILING IN THE CASE. THE DISALLOWAN CE SO MADE BE DELETED. THE APPELLANT BE GRANTED JUST & PROPER REL IEF IN THIS RESPECT. 5. ON FACTS & CIRCUMSTANCES PREVAILING IN THE CASE & AS PER PROVISIONS OF LAW, IT BE HELD THAT DISALLOWANCE OF RS. 11,58,461/- MADE BY INVOKING THE PROVISIONS OF SECTION 40(IA) O N ACCOUNT OF NON DEDUCTION OF THE ACT & SUCH DISALLOWANCE BEING UNWA RRANTED BE DELETED. THE APPELLANT BE GRANTED JUST & PROPER RE LIEF IN THIS RESPECT. 2. THE REVENUE, ON THE OTHER HAND, QUESTIONNED FIRS T APPELLATE ORDER ON THE FOLLOWING GROUNDS : ITA . NO 655, 656, 833 & 786/PN/2009 WEIKFIELD PRODUCTS CO. (I) LTD. A.YS.2005-06 , 2006-07 ETC., PAGE OF 16 3 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE AND IN LAW, THE LEARNED CIT(A) ERRED IN RESTRICTING DISALLOWANC E MADE BY A.O U/S 14A AND 36(I)(III) 02 ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E AND IN LAW THE LEARNED CIT(A) ERRED IN IGNORING THE FACT THAT THE INTEREST FREE ADVANCES TO SISTER CONCERNS HAVE NO CONCERN WITH TH E BUSINESS OF THE ASSESSEE AND SAME SARE LIABLE TO PROPORTIONATE DISALLOWANCE OF INTEREST OUT OF INTEREST COST. 03 ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E AND IN LAW THE LEARNED CIT(A) ERRED IN RESTRICTING THE DISALLO WANCE MADE U/S 14A AND 36(I)(III) FROM 72,88,204/- TO RS. 16,95,10 2/- 3. WE HAVE HEARSD AND CONSIDERED THE ARGUMENTS ADVA NCED BY THE PARTIES IN VIEW OF ORDERS OF THE AUTHORITIES BELOW, MATERIAL AVAILABLE ON RECORD AND THE DECISIONS RELIED UPON. GROUND NO. 1 (ASSESSEE) AND GROUND NOS. 1 TO 3 (REV ENUE) 4. AT THE OUTSET OF HEARING, THE LD. A.R. POINTED OUT THAT THE ISSUE RAISED IN THE GROUNDS OF THE APPEAL IS FULLY COVERE D BY THE DECISION OF PUNE BENCH OF THE TRIBUNAL IN THE CASE OF ASSESSEE ITSELF FOR THE A.Y. 2000-01 TO 2003-04 VIDE ITA NO. 1053/PN/2007 AND O THERS, ORDER DATED 30 TH JUNE 2009. THE LD. A.R. POINTED OUT FURTHER THAT SIMILAR DECISION ON THE ISSUE HAS BEEN FOLLOWED BY THE PUNE BENCH OF THE TRIBUNAL IN THE CASE OF ASSESSEE FOR THE A.Y. 2004-05 IN ITA NO. 1462/PN/2007 AND OTHERS VIDE ORDER DATED 11 SEPTEMBER 2009. TH E LD. A.R. SUBMITTED THAT NO INTEREST WAS CHARGED ON ADVANCE GIVEN TO TH E SISTER CONCERNS BUT SOME INTEREST WAS DEBITED. HE SUBMITTED THAT IT W AS IN BUSINESS EXPEDIENCY AND PLACED RELIANCE ON THE DECISION OF H ONBLE SUPREME COURT IN THE CASE OF S.A. BUILDERS LTD. VS. CIT(2007) 288 ITR 1(SC). HE REFERRED PAGE NO. 18 & 19 OF THE PAPER BOOK FILED O N BEHALF OF THE ITA . NO 655, 656, 833 & 786/PN/2009 WEIKFIELD PRODUCTS CO. (I) LTD. A.YS.2005-06 , 2006-07 ETC., PAGE OF 16 4 ASSESSEE TO SUPPORT HIS SUBMISSION THAT SUM ADVANCE D WAS GIVEN DURING THE YEAR. HE SUBMITTED THAT UNDER SIMILAR FACTS, THE TRIBUNAL HAD ALLOWED THE CLAIMED INTEREST U/S. 36(1)(III) OF THE ACT IN EARLIER FIVE YEARS. THE A.O DISALLOWED THE ENTIRE INTEREST WHEREAS LD CIT(A) HAS WORKED OUT SOME FORMULA TO DISTINGUISH BUSINESS REQUIREMENT. THE LD. A.R. DREW OUR ATTENTION TO PAGE NO. 19 OF THE PAPER BOOK WITH THIS SUBMISSION THAT THERE WAS INVESTMENT IN MUTUAL FUND SHOWN IN ITEM-D IN THE SCHEDULE F REGARDING INVESTMENTS. THE LD. A.R. SUBMITTED THAT THE ISSUE RELATING TO PROVISIONS U/S. 14A IN CASE OF MUTUAL FUNDS IS ALSO COVERED BY THE RECENT DECISION OF HONBLE JURISDICTIONAL BOMBAY HIGH COU RT IN THE CASE OF CIT VS. RELIANCE UTILITIES AND POWER LTD. 313 ITR 340 ( BOM.) AND GODREJ & BOYCE MFG. CO. LTD., V/S. DCIT 328 ITR 81 (BOM.) 5. THE LD. D.R. DID NOT DISPUTE THE ABOVE SUBMISSIO N OF THE LD. A.R., BUT HE TRIED TO JUSTIFY THE ASSESSMENT ORDER IN THI S REGARD. HE SUBMITTED FURTHER THAT A.O HAS MADE DISALLOWANCE OF INTEREST SEPARATING THE SAME IN VIEW OF THE PROVISIONS LAID DOWN U/S. 14A AND OTHER S AND LD CIT(A) HAS MADE DISALLOWANCE AS PER RULE 8D OF I.T. RULES. 6. THE RELEVANT FACTS ARE THAT A.O MADE DISALLOWANC E OF RS. 72,88,204/- U/S. 36(1)(III) AND 14A. HE OBSERVED T HAT INTEREST BEARING FUND TO THE EXTENT OF RS. 5,83,34,802/- WERE DEPLOY ED IN INVESTMENTS, INCOME WHEREOF IS NOT INCLUDIBLE IN THE TOTAL INCOM E. AFTER CALCULATING AVERAGE COST OF BORROWING AT 10.75%, HE WORKED OUT INTEREST ATTRIBUTABLE TO INVESTMENTS OUT OF BORROWED CAPITAL AT RS. 62,70 ,991/- AND DISALLOWED THE SAME BY INVOKING THE PROVISIONS OF SECTION 14A. THE A.O. OBSERVED FURTHER THAT AS THE INTEREST FREE FUNDS WERE EXHAUS TED BY INVESTMENTS, NO INTEREST FREE FUNDS WERE AVAILABLE TO COVER THE INT EREST-FREE ADVANCES GRANTED TO SISTER CONCERNS, THEREFORE, ASSESSEES A CT OF MAKING INTEREST ITA . NO 655, 656, 833 & 786/PN/2009 WEIKFIELD PRODUCTS CO. (I) LTD. A.YS.2005-06 , 2006-07 ETC., PAGE OF 16 5 FREE ADVANCES TO SISTER CONCERNS OUT OF INTEREST BE ARING FUNDS CALLED FOR DISALLOWANCE U/S. 36(1)(III) OF THE ACT. HE, ACCO RDINGLY, AFTER EXCLUDING THE AMOUNT OF RS. 5,83,34,802/- (ALREADY CONSIDERED FOR DISALLOWANCE U/S. 14A) FROM THE INTEREST BEARING FUNDS OF RS. 6, 78,22,983/- WORKED OUT INTEREST DISALLOWABLE U/S. 36(1)(III) AT RS. 10 ,19,982/-. AS THE TOTAL DISALLOWANCE OF INTEREST U/S. 14A AND U/S. 36(1)(II I) EXCEEDED THE INTEREST DEBITED IN THE PROFIT & LOSS ACCOUNT OF RS. 72,88,2 04/-, THE A.O RESTRICTED THE TOTAL DISALLOWANCE AT RS. 72,88,204/-. 7. BEFORE THE LD CIT(A), THE ASSESSEE CONTENDED TH AT THE ISSUE HAS BEEN DECIDED BY THE FIRST APPELLATE AUTHORITY IN FAVOUR OF IT IN A.YS. 2000-01 TO 2004-05 AND THERE IS NO CHANGE IN THE FA CTS DURING THE YEAR ON THE ISSUE OF INTEREST DISALLOWANCE U/S. 36(1)(II I) OF THE ACT. 7.1. IN RESPECT OF DISALLOWANCE U/S. 14A, THE ASSES SEE CONTENDED THAT PROVISIONS OF SECTION 14A APPLIES TO THE SITUATION , WHERE THERE HAS BEEN CERTAIN EXPENDITURE INCURRED IN RELATION TO THE INC OME WHICH HAS NOT BEEN INCLUDED IN THE TOTAL INCOME FOR THE PURPOSE OF COM PUTATION OF INCOME TAX. IN THE PRESENT CASE SUCH AMOUNT IS RS. 1,71, 605/- WHICH IS BY WAY OF DIVIDEND ON MUTUAL FUNDS. THE TOTAL INVESTMENTS APPORTIONED FOR THE PURPOSE OF DISALLOWANCE IS RS. 5,83,34,802/- AS AGA INST THE TOTAL INVESTMENT IN THE THE MUTUAL FUND OF RS. 2,51, 10,0 00/-. IT IS ABSURED AND NOT IN ACCORDANCE WITH THE FACTS AND CIRCUMSTAN CES PREVAILING IN THE CASE. IT WAS CONTENDED FURTHER THAT THE ADDITIONAL INVESTMENT IN THE MUTUAL FUND IS RS. 41,98,725/- WHICH HAS BEEN FINAN CED OUT OF THE INTEREST FREE ADVANCES RECEIVED FROM IT CITI INFO PARK PVT. LTD. AMOUNTING TO RS. 50,00,000/- AND INCOME EARNED BY T HE COMPANY AS THERE IS DIRECT NEXUS AS CAN BE SEEN FROM THE BAN K STATEMENT. IT WAS POINTED OUT THAT THIS BANK STATEMENT WAS NOT SUBMIT TED AT THE TIME OF ITA . NO 655, 656, 833 & 786/PN/2009 WEIKFIELD PRODUCTS CO. (I) LTD. A.YS.2005-06 , 2006-07 ETC., PAGE OF 16 6 ASSESSMENT SINCE QUESTION RAISED BY THE A.O WAS GEN ERAL ONE AND NO SPECIFIC ISSUE PERTAINING TO INVESTMENT IN MUTUAL F UND IN GENERAL AND THE INCREASE IN THE INVESTMENT IN MUTUAL FUND IN PARTIC ULAR WAS RAISED. 8. IT WAS SUBMITTED THAT THE AVAILABLE INTEREST FRE E FUNDS WITH THE ASSESSEE WAS ALREADY EXPLAINED IN THEIR LETTERS BY THE ASSESSEE BEFORE THE A.O. THOSE WERE IN MUCH EXCESS OF THE INVESTMENT M ADE BY THE ASSESSEE YIELDING TAX FREE INCOME. IT WAS REQUIRED TO BE CON SIDERED WHILE WORKING OUT THE DISALLOWANCE, IF ANY. IT WAS CONTENDED THA T THE WORD INCURRED USED IN SECTION 14A REQUIRES FACTUAL FINDING THAT INTEREST BEARING FUNDS HAVE REALLY GONE INTO FINANCING THE ASSET GENERATIN G TAX FREE INCOME. THE ASSESSEE ALSO MADE FOLLOWING SUBMISSIONS ON RELEVAN T FACTS : III) THE INVESTMENT IN WEIKFIELD OVERSEAS LTD. OF RS.26,69,747/- HAS DIRECTLY RESULTED INTO THE INCOME BY WAY OF ROY ALTY FROM WEIKFIELD INTERNATIONAL (UAE) OF RS. 7,21,535/-. W EIKFIELD OVERSEAS LTD IT A JOINT VENTURE ALONGWITH DABAR WHO MARKET T HE PRODUCTS BY USING THE TRADE NAME OF WEIKFIELD. THE JOINT VEN TURE IS KNOWN AS WEIKFIELD INTERNATIONAL (UAE). IT IS FOR THE USE R OF THE NAME THE COMPANY GETS THE ROYALTY. THEREFORE THIS INVESTMEN T IS A BUSINESS INVESTMENT & CANNOT QUALIFIED FOR DISALLOWANCE OF ANY U/S. 36(1)(III)/SECTION 14A. IV) THE INTEREST PAID TO THE BANK OF RS.28,95,382/- IS ON ACCOUNT OF CASH CREDIT / OVERDRAFT FACILITIES TAKEN FROM ST ATE BANK/DENA BANK WHICH IS SECURED AGAINST THE HYPOTHECATION OF STOCKS & DEBTORS. THE TOTAL LIMIT SANCTIONED BY THE BANK AGA INST SUCH HYPOTHECATION IS RS. 1,50,00,000/-. THE WITHDRAWAL S FROM SUCH ACCOUNT HOWEVER ARE GOVERNED BY THE DRAWING POWER W HICH IS ASCERTAINED WITH REFERENCE TO THE LEVELS OF STOCKS & DEBTORS ON MONTHLY / QUARTERLY BASIS. THEREFORE THERE IS DIRE CT NEXUS BETWEEN THE UTILIZATION OF SUCH LOANS & THE BUSINESS CARRIE D OUT BY THE ASSESSEE. THE STOCKS AT THE END OF THE YEAR WERE R S.5,24,57,467/- & THE DEBTORS AT RS. 68,11,529/- AS AGAINST THIS TH E LOANS AVAILED OUTSTANDING AT THE END OF THE YEAR WERE JUST RS. 3, 30,27,850/-. ITA . NO 655, 656, 833 & 786/PN/2009 WEIKFIELD PRODUCTS CO. (I) LTD. A.YS.2005-06 , 2006-07 ETC., PAGE OF 16 7 VERY STRONG GROUND THEREFORE ARISES IN FAVOUR OF TH E ASSESSEE THAT ENTIRE CASH CREDIT LIMITS WERE UTILIZED PERTAINING TO STOCKS & DEBTORS & THEREFORE NO PART OF THE INTEREST PAID ON THIS AC COUNT SHOULD BECOME LIABLE FOR DISALLOWANCE. THE SUBMISSIONS MA DE IN THIS RESPECT MAY KINDLY BE CONSIDERED IN PROPER PERSPECT IVE. 9. CONSIDERING THE ABOVE SUBMISSIONS AND IN VIEW O F FIRST APPELLATE ORDER IN THE CASE OF ASSESSEE ON THE ISSUE FOR THE A.YS. 2003-04 AND 2004-05, THE LD CIT(A) HELD THAT INTEREST EXPENSES TO THE EXTENT OF RS. 16,95,102/- ARE TO BE DISALLOWED U/S. 36(1)(III) OF THE ACT. 10. WITH REGARD TO DISALLOWANCE U/S. 14A, THE LD CI T(A) WORKED OUT THE AMOUNT DISALLOWABLE U/S. 14A READ WITH RULE 8D AT RS. 2,50,448/-. HE, HOWEVER, OBSERVED THAT AFTER DISALLOWANCE OF AN AMO UNT OF RS. 16,95,102/-, NO AMOUNT OUT OF INTEREST DEBITED TO T HE PROFIT & LOSS ACCOUNT IS AVAILABLE FOR DISALLOWANCE U/S. 14A AS P ER HIS WORKING IN PARA NO. 5.7 OF THE FIRST APPELLATE ORDER. FOR A READY REFERENCE, THE RELEVANT EXTRACT OF PARA 5.7 OF THE FIRST APPELLATE ORDER IS REPRODUCED HEREUNDER : THE BIFURCATION OF THE INTEREST DEBITED TO THE PRO FIT AND LOSS IS AS UNDER : INTEREST ON CC ACCOUNT WITH DENA BANK RS.16,98,569 /- INTEREST ON CC ACCOUNT WITH STANDARD CHARTERED BANK RS. 3,40,875/- INTEREST ON PACKING CREDIT(EXPORT ACCOUNT) AND BILL DISCOUNTING CHARGES RS. 8,55,938/- INTEREST ON UNSECURED LOANS RS.36,36,478/- INTEREST ON SECURITY DEPOSIT RS. 3,68,763/- VEHICLE LOAN INTEREST RS.3,05,224/- INTEREST ON ICD RS. 82,357/- ITA . NO 655, 656, 833 & 786/PN/2009 WEIKFIELD PRODUCTS CO. (I) LTD. A.YS.2005-06 , 2006-07 ETC., PAGE OF 16 8 TOTAL RS.72,88,204/- OUT OF THE ABOVE, INTEREST ON CC ACCOUNT WITH DENA BANK AND STANDARD CHARTERED BANK, INTEREST ON UNSECURED LOAN S AND INTEREST ON ICD HAS ALREADY BEEN CONSIDERED FOR DISALLOWANC E U/S 36(1)(III). THE OTHER ITEMS VIZ. INTEREST ON PACKING CREDIT AND BILL DISCOUNTING CHARGES, INTEREST ON SECURITY DEPOSIT AND VEHICLE L OAN INTEREST ARE NOT RELATABLE TO THE INVESTMENTS, THE INCOME FROM W HICH IS NOT INCLUDIBLE IN THE TAXABLE INCOME OF THE ASSESSEE. THEREFORE, SINCE INTEREST EXPENSES OF RS. 16,95,102 HAVE ALREADY BEE N DISALLOWED, NO FURTHER DISALLOWANCE U/S 14A IS CALLED FOR. ACC ORDINGLY, THE TOTAL DISALLOWANCE OF RS.72,88,204/- IS REDUCED AND RESTR ICTED TO RS.16,95,102. THE PARTIES ARE ACCORDINGLY IN CROSS APPEALS. 11. CONSIDERING THE ABOVE SUBMISSIONS, WE FIND THAT THE ISSUE RAISED IN THE ABOVE GROUNDS OF THE APPEALS PREFERRED BY THE P ARTIES IN RELATION TO THE DISALLOWANCE MADE UNDER SECTIONS 36(1)(III)/14A OF THE ACT ARE FULLY COVERED BY THE DECISION OF PUNE BENCH OF THE TRIBUN AL IN THE CASE OF ASSESSEE ITSELF FOR A.YS. 2000-01 TO 2004-05 (SUPRA ) VIDE ORDERS DATED 30 TH JUNE 2009 AND 11 TH SEPTEMBER 2009. THE TRIBUNAL HAS FOLLOWED THE DECISION OF HONBLE JURISDICTIONAL BOMBAY HIGH COU RT IN THE CASE OF CIT V/S. RELIANCE UTILITIES AND POWER LTD. (2009), 313 ITR 340 (BOM.). THE LD. A.R. ALSO PLACED RELIANCE ON SOME OTHER DECISIO NS REFERRED TO HEREINABOVE ON THE ISSUES. WE THUS SET ASIDE THE M ATTER TO THE FILE OF THE A.O TO DECIDE THE SAME AFRESH AS PER ABOVE CITED DE CISION OF THE TRIBUNAL IN THE CASE OF THE ASSESSEE ITSELF FOR THE A.YS. 20 00-01 TO 2004-05 AND IN VIEW OF THE DECISIONS RELIED UPON BY THE LD. A.R. THE A.O IS DIRECTED TO AFFORD ADEQUATE OPPORTUNITY OF BEING HEARD TO THE A SSESSEE WHILE DECIDING THE ISSUES. THE GROUNDS ARE THUS ALLOWED FOR STATI STICAL PURPOSES. ITA . NO 655, 656, 833 & 786/PN/2009 WEIKFIELD PRODUCTS CO. (I) LTD. A.YS.2005-06 , 2006-07 ETC., PAGE OF 16 9 GROUND NO. 2 (ASSESSEE) 12. THE A.O DISALLOWED THE CLAIMED EXPENDITURE OF R S. 3,85,000/- FOR CONSTRUCTION OF DOME TYPE STRUCTURE IN JOGGING PARK FOR ADVERTISEMENT OF ITS PRODUCTS ON THE BASIS THAT, IT IS OF ENDURING N ATURE, HENCE CAPITAL EXPENDITURE. BEFORE THE CIT(A), THE ASSESSEE CONT ENDED THAT COMPANY HAD CONSTRUCTED THE DOME AND HANDED IT OVER TO PMC . THUS, IT HAD NOT RETAINED PROPERTY IN ITS STRUCTURE. BY THE SAID C ONSTRUCTION OF DOME, THE ASSESSEE HAD ACHIEVED THE TWIN OBJECT OF ADVERTISE MENT AND MEETING THE SOCIAL COMMITMENT AS WELL. NO BENEFIT OF ENDURING NATURE WAS CREATED OUT OF THIS STRUCTURE, HENCE EXPENSES SO INCURRED DESERVES TO BE ALLOWED AS REVENUE EXPENDITURE U/S. 37 OF THE ACT. THE LD CIT(A) DID NOT AGREE AND UPHELD THE ACTION OF THE A.O. 13. SIMILAR ARGUMENT HAS BEEN ADVANCED BY THE LD. A .R. IN SUPPORT OF THE GROUND. WE FIND SUBSTANCE IN THE CONTENTION OF THE LD A.R. THAT NO BENEFIT OF ENDURING NATURE WAS CREATED OUT OF THE S TRUCTURE SINCE AFTER CONSTRUCTION OF IT, THE SAME WAS DONATED TO THE PMC . THUS EXPENSES INCURRED ON THE CONSTRUCTION IS REVENUE IN NATURE W ITHIN THE MEANING OF SECTION 37 OF THE ACT. THE A.O IS DIRECTED TO ALLO W THE SAME AS SUCH. GROUND NO. 2 IS ACCORDINGLY ALLOWED. GROUND NO. 3 (ASSESSEE) 14. IN ABSENCE OF LOG BOOK AND TELEPHONE CALLS REC ORDS THE A.O. DISALLOWED 20% OF THE EXPENSES CLAIMED ON ACCOUNT OF MOTOR VEHICLES AND TELEPHONES. IT RESULTED INTO DISALLOWANCE OF R S.3,31,730/- OUT OF THE CLAIMED VEHICLE EXPENSES AND RS.3,69,796/- OUT OF T HE CLAIMED TELEPHONE ITA . NO 655, 656, 833 & 786/PN/2009 WEIKFIELD PRODUCTS CO. (I) LTD. A.YS.2005-06 , 2006-07 ETC., PAGE OF 16 10 EXPENSES. THE ASSESSEE CONTENDED THE SAME BEFORE T HE LD CIT(A) RELYING UPON THE DECISION OF HONBLE GUJARAT HIGH C OURT IN THE CASE OF SAYAJI IRON AND STEEL CO., 253 ITR 749 (GUJ.) THAT THE COMPANY BEING AN INANIMATE OBJECT CANNOT INCUR ANY PERSONAL EXPENDIT URE. THE LD CIT(A) HAS UPHLED THE DISALLOWANCE ON THE BASIS THAT POSSI BILITY OF DEBITING NON- BUSINESS EXPENDITURE UNDER THE HEADS OF VEHICLE AND TELEPHONE EXPENSES IN ABSENCE OF MAINTENANCE OF PROPER DETAILS CANNOT BE RULED OUT. 15. SIMILAR ARGUMENTS HAVE BEEN ADVANCED BY THE LD. A.R. BEFORE US IN SUPPORT OF THE GROUND. HE HAS ADVANCED AN ALTERNATI VE ARGUMENT THAT DISALLOWANCES IN QUESTION IS ON HIGHER SIDE AND REQ UESTED RESTRICTION THEREOF UPTO 5%. LD. D.R., ON THE OTHER HAND, PLAC ED RELIANCE ON THE ORDERS OF THE AUTHORITIES BELOW. 16. CONSIDERING THE ABOVE SUBMISSIONS, WE DO NOT FI ND REASON TO INTERFERE WITH THE ORDERS OF THE AUTHORITIES BELOW SINCE IN ABSENCE OF MAINTENANCE OF LOG BOOK FOR VEHICLES MOVEMENT AND R EGISTER FOR TELEPHONE CALLS, THE POSSIBILITY OF PERSONAL USER O F THESE FACILITIES CANNOT BE RULED OUT. THE GROUND NO. 3 (ASSESSEE) IS ACCORD INGLY PARTLY ALLOWED. SECONDLY THE CLAIMED EXPENDITURE CAN BE ALLOWED IF THE ASSESSEE COMPANY IS ABLE TO ESTABLISH THAT THESE FACILITIES OF VEHICLE AND TELEPHONE WERE ALLOWED TO ITS EMPLOYEES AS PERQUISITES AS PER TERMS OF THE AGREEMENT WITH THEM. IN THE ABOVE CITED DECISION TH E FACT WAS DIFFERENT AS IN THAT CASE THE FACILITIES WERE INCLUDED IN THE REMUNERATION OF THE DIRECTORS. WE, HOWEVER, RESTRICT THE DISALLOWANCES TO 10% OF THE CLAIMED AMOUNT UNDER THE FACTS OF THE PRESENT CASE. IT IS ORDERED ACCORDINGLY. GROUND 4 (ASSESSEE) ITA . NO 655, 656, 833 & 786/PN/2009 WEIKFIELD PRODUCTS CO. (I) LTD. A.YS.2005-06 , 2006-07 ETC., PAGE OF 16 11 17. THE ASSESSEE CLAIMED DEPRECIATION OF RS. 7,97,9 02/- ON 5 CARS PURCHASED IN THE NAMES OF THE DIRECTORS OF THE ASSE SSEE COMPANY. THE A.O. RELYING UPON THE ORDER DATED 31 ST AUGUST 2007 OF PUNE BENCH OF THE TRIBUNAL IN THE CASE OF (NAME OF THE CASE NOT REFERRED IN THE ASSESSMENT ORDER) ITA NO. 778/PN/2004 DISALLOWED T HE CLAIM OF DEPRECIATION ON THE CARS ON THE BASIS THAT THE BAS IC CONDITION U/S. 32 OF THE ACT FOR CLAIMING DEPRECIATION IS THAT THE ASSET SHOULD BE OWNED BY THE CLAIMANT. THE DISALLOWANCE HAS RESULTED INTO AN AD DITION OF RS. 7,97,902/- TO THE INCOME OF THE ASSESSEE. LD CIT(A ) HAS UPHELD THE SAME. 18. IN SUPPORT OF THE GROUND, THE LD. D.R. POINTED OUT THAT THE ISSUE RAISED IS COVERED IN FAVOUR OF THE ASSESSEE IN VIEW OF THE DECISION OF HONBLE BOMBAY HIGH COURT IN THE CASE OF DILIP SIN GH SARDAR SINGH BAGGA, 201 ITR 995 (BOM.). HE SUBMITTED FURTHER TH AT THE ISSUE IS ALSO COVERED BY THE DECISION OF PUNE BENCH OF THE TRIBUN AL IN THE CASE OF ROHAN BUILDERS AND DEVELOPERS (P.) LTD. V/S. ACIT I N ITA NO. 942/PN/2006, A.Y. 2004-05, ORDER DATED 29 TH AUGUST 2008. LD. D.R., ON THE OTHER HAND, TRIED TO JUSTIFY THE ORDERS OF THE AUTHORITIES BELOW. CONSIDERING THE ABOVE SUBMISSIONS, WE FIND THAT TH E HONBLE BOMBAY HIGH COURT IN THE CASE OF DILIP SINGH SARDAR SINGH BAGGA ( SUPRA) HAS BEEN PLEASED TO HOLD THAT WHERE AN ASSESSEE HAS PUR CHASED A MOTOR VEHICLE FOR VALUABLE CONSIDERATION AND USED THE SAM E FOR ITS BUSINESS CANNOT BE DENIED THE BENEFIT OF DEPRECIATION ON TH E GROUND THAT THE TRANSFER WAS NOT RECORDED UNDER THE MOTOR VEHICLES ACT OR THAT THE VEHICLE STOOD IN THE NAME OF THE VENDOR ON THE RECORDS OF T HE AUTHORITIES UNDER THE MOTOR VEHICLE ACT. FOLLOWING THE RATIO LAID DO WN THEREIN BY THE HONBLE JURISDICTIONAL HIGH COURT, THE PUNE BENCH O F THE TRIBUNAL HAS DECIDED AN IDENTICAL ISSUE IN CASE OF ROHAN BUILDER S AND DEVELOPERS (P.) LTD. V. ACIT (SUPRA). FOLLOWING THIS CITED DECISI ON, WE DIRECT THE A.O. TO ITA . NO 655, 656, 833 & 786/PN/2009 WEIKFIELD PRODUCTS CO. (I) LTD. A.YS.2005-06 , 2006-07 ETC., PAGE OF 16 12 ALLOW THE CLAIMED DEPRECIATION ON THE VEHICLES UNDI SPUTEDLY PURCHASED FROM THE FUNDS OF THE ASSESSEE COMPANY FOR ITS BUSI NESS PURPOSES. GROUND NO. 4 IS ACCORDINGLY ALLOWED. GROUND NO.5 (ASSESSEE) 19. INVOKING THE PROVISIONS OF SECTION 40(IA), THE A.O. DISALLOWED THE EXPENSES TO THE EXTENT OF RS.11,58,261/- ON THE BAS IS THAT TDS WAS NOT MADE IN RESPECT OF SURCHARGE AND EDUCATION CESS. B EFORE THE LD CIT(A), ASSESSEE SUBMITTED THAT ENTIRE TDS AS APPLICABLE HA S BEEN DEDUCTED AND PAID. THUS, THERE WAS NO DEFAULT ON ACCOUNT OF DED UCTION OR PAYMENT OF TDS EITHER IN AMOUNT OR TIME. IT WAS ONLY THE SURCH ARGE AND EDUCATION CESS THAT HAS NEITHER BEEN DEDUCTED NOR PAID. IT WAS CONTENDED THAT THERE IS NO ENABLING PROVISION REQUIRING THE ASSESS EE TO CONSIDER THE SURCHARGE AND EDUCATION CESS FOR THE PURPOSES OF DE DUCTING TAX AT SOURCE, IN ABSENCE OF GUIDANCE, MANDATE OR PROVISIO N MADE IN THE ACT IN THAT RESPECT. LD CIT(A) DID NOT AGREE WITH THE ASS ESSEE AND UPHELD THE ACTION OF THE A.O. 20. BEFORE US, THE LD. A.R. REFERRED PAGE NO. 34 AN D 35 OF THE PAPER BOOK I.E. THE DETAILS OF DISALLOWANCE DUE TO NON-PA YMENT OF SURCHARGE AND EDUCATION CESS REFERRED IN TAX AUDIT REPORT. HE SUBMITTED THAT RS.47,380/- WAS PAID ON 15.3.2009 ON ACCOUNT OF TDS . THE ASSESSEE DID NOT CLAIM RS. 11,58,461/- AS EXPENSES IN ANY SUBSE QUENT ASSESSMENT YEAR. HE ALSO PLACED RELIANCE ON THE DECISION OF JAIPUR BENCH OF THE TRIBUNAL IN THE CASE OF JAIPUR VIDYUT VITARAN LTD . (2009) 123 TTJ (JP. ) 888 AS WELL AS DECISION OF HYDERABAD BENCH OF THE T RIBUNAL IN THE CASE OF TEJA CONSTRUCTIONS VS. ACIT (2010), 129 TTJ (HYD.) 57 TO SUPPORT HIS CONTENTION THAT S. 40(A)(IA) APPLIES ONLY WHEN THE AMOUNT IS PAYABLE AND ITA . NO 655, 656, 833 & 786/PN/2009 WEIKFIELD PRODUCTS CO. (I) LTD. A.YS.2005-06 , 2006-07 ETC., PAGE OF 16 13 NOT WHEN THE EXPENDITURE IS PAID.. THE LD. AR ALSO POINTED OUT THAT EVEN PUNE BENCH OF THE TRIBUNAL HAS FOLLOWED THESE DECIS IONS IN SEVERAL CASES. HE SUBMITTED FURTHER THAT SUBSEQUENTLY TDS WAS PAID ALONGWITH INTEREST U/S. 201 OF THE ACT. 21. THE LD. D.R., ON THE OTHER HAND, TRIED TO JUSTI FY THE ORDERS OF THE AUTHORITIES BELOW. HE POINTED OUT THAT THE ISSUE DECIDED IN THE ABOVE CITED DECISIONS OF JAIPUR AND HYDERABAD BENCHES OF THE TRIBUNAL IS NOW PENDING ADJUDICATION BEFORE THE SPECIAL BENCH. HE HOWEVER DID NOT CITE ANY REFERENCE IN SUPPORT. 22. CONSIDERING THE ABOVE SUBMISSIONS, ESPECIALLY T HE CLAIM OF THE ASSESSEE THAT IT HAD SUBSEQUENTLY PAID THE TDS ALO NGWITH INTEREST U/S 201 OF THE ACT, WE ARE OF THE VIEW THAT THE ISSUE NEEDS FRESH CONSIDERATION AFTER VERIFICATION OF CERTAIN BASIC F ACT. THIS VERIFIABLE MATERIAL FACT IS, AS TO WHETHER THE TDS WAS PAID B EFORE THE FILING OF THE RETURN U/S. 139(1) FOR THE YEAR UNDER CONSIDERATION . WE THUS SET ASIDE THE MATTER TO THE FILE OF THE LD. CIT(A) TO GET VE RIFIED THE ABOVE STATED MATERIAL FACT AND DECIDE THE ISSUE AFRESH IN VIEW OF THE DECISION OF MUMBAI BENCH OF THE TRIBUNAL IN THE CASE OF BANSAL PARIVAHAN (INDIA) (P) LTD VS. ITO (2011) 53 DTR (MUM) (TRIB) 40 AFTER HE ARING THE PARTIES. WE HAVE OCCASION TO GO THROUGH THIS DECISION OF M UMBAI BENCH WHEREIN IT HAS BEEN HELD THAT AMENDMENTS MADE BY THE FINANC E ACT, 2010 W.E.F. 1.4.10 TO THE PROVISIONS OF S. 40(A)(IA) BEING CURA TIVE/REMEDIAL NATURE ARE APPLICABLE RETROSPECTIVELY. AS PER THE AMENDME NTS IF THE TAX HAS BEEN DEDUCTED IN THE RELEVANT PREVIOUS YEAR AND THE SAME HAS BEEN PAID ON OR BEFORE THE DUE DATE OF FILING RETURN OF INCOM E FOR THE SAID PREVIOUS YEAR AS SPECIFIED IN S. 139(1), THE CORRESPONDING A MOUNT FROM WHICH SUCH TAX HAS BEEN DEDUCTED SHALL BE ALLOWED AS DEDUCTIO N. IN VIEW OF THE ABOVE ACTION ON THE BASIC FACT, THE CONTENTION OF THE ASSESSEE THAT ITA . NO 655, 656, 833 & 786/PN/2009 WEIKFIELD PRODUCTS CO. (I) LTD. A.YS.2005-06 , 2006-07 ETC., PAGE OF 16 14 S.40(A)(IA) APPLIES ONLY WHEN THE AMOUNT IS PAYABLE AND NOT WHERE THE EXPENDITURE IS PAID AND OTHER CONTENTIONS ON THE IS SUE HAS BECOME ACADEMIC, HENCE DO NOT NEED ADJUDICATION. THE GROUN D NO. 5 (ASSESSEE) IS THUS ALLOWED FOR STATISTICAL PURPOSES. 23. IN RESULT, APPEAL PREFERRED BY THE REVENUE IS D ISMISSED AND THAT BY THE ASSESSEE IS PARTLY ALLOWED. ASSTT. YEAR 2006-07 (REVENUE) 24. THE REVENUE HAS QUESTIONED THE FIRST APPELLATE ORDER ON THE FOLLOWING GROUNDS : 01. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE C ASE AND IN LAW, THE LEARNED CIT(A) ERRED IN RESTRICTING DISALLOWANC E MADE BY A O U/S 14A AND DELETING THE ADDITION MADE U/S 36(I)(II I) 02. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE AND IN LAW THE LEARNED CIT(A) ERRED IN IGNORING THE FACT THAT THE INTEREST FREE ADVANCES TO SISTER CONCERNS HAVE NO CONCERN WITH TH E BUSINESS OF THE ASSESSEE AND SAME ARE LIABLE TO PROPORTIONATE D ISALLOWANCE OF INTEREST OUT OF INTEREST COST. 03. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE AND IN LAW THE LEARNED CIT(A) ERRED IN RESTRICTING THE DISALL OWANCE MADE U/S 14A AND 36(I)(III) FROM 32,44,356/- TO 07,29,485/- AND DELETED THE ADDITION OF RS 42,42,218/- MADE U/S. 36(I)(III) OF THE I T ACT 1961. ASSTT. YEAR 2006-07(ASSESSEE) 25. THE ASSESSEE HAS QUESTIONED FIRST APPELLATE ORD ER ON THE FOLLOWING GROUNDS : 1. ON FACTS & CIRCUMSTANCES PREVAILING IN THE CASE & AS PER PROVISIONS OF LAW, IT BE HELD THAT DISALLOWANCE /AD DITION OF RS.7,29,485/- SUSTAINED BY THE CIT(A) OUT OF THE DI SALLOWANCE OF ITA . NO 655, 656, 833 & 786/PN/2009 WEIKFIELD PRODUCTS CO. (I) LTD. A.YS.2005-06 , 2006-07 ETC., PAGE OF 16 15 RS.32,44,356/- MADE BY THE ASSESSING OFFICER BY APP LYING THE PROVISIONS OF SECTION 14A IS IMPROPER & CONTRARY TO THE PROVISIONS OF LAW & FACTS PREVAILING IN THE CASE. IT FURTHER BE HELD THAT NO DISALLOWANCE IS JUSTIFIED & WARRANTED ON APPLICATI ON OF RULE 8D OF THE INCOME TAX RULES. THE PART OF ADDITION/DISALLOW ANCE SUSTAINED BY THE 1 ST APPELLATE AUTHORITY BE DELETED. THE APPELLANT BE GRANTED JUST & PROPER RELIEF IN THIS RESPECT. 2. ON FACTS & CIRCUMSTANCES PREVAILING IN THE CASE & AS PER PROVISIONS OF LAW, IT BE HELD THAT DISALLOWANCE OF RS.9,52,790/- ON ACCOUNT OF DEPRECIATION ON CARS IS CONTRARY TO THE PROVISIONS OF THE ACT & FACTS PREVAILING IN THE CASE. THE DISALLOWANC E SO MADE BE DELETED. THE APPELLANT BE GRANTED JUST & PROPER RE LIEF IN THIS RESPECT. 26. SIMILAR ISSUES HAVE BEEN RAISED IN THE ABOVE GR OUNDS FOR THE A.Y. 2006-07. THE PARTIES HAVE ADOPTED SIMILAR ARGUMENT S AS ADVANCED BY THEM HEREINABOVE ON IDENTICAL ISSUES RAISED IN TH E APPEALS FOR A.Y. 2005-06 GROUND NO. 1 TO 3 (REVENUE) AND GROUND NO.1(ASSESSE E) 27. WE HAVE ADJUDICATED UPON AN IDENTICAL ISSUE RA ISED IN THIS GROUND HEREINABOVE FOR THE A.Y. 2005-06. FOLLOWING THE SA ME, WE SET ASIDE THE MATTER TO THE FILE OF THE A.O. AS DIRECTED HEREINAB OVE IN PARA NO. 11, TO DECIDE THE ISSUE AFRESH. THE GROUNDS ARE THUS ALLO WED FOR STATISTICAL PURPOSES. GROUND NO. 2 (ASSESSEE) 28. THE A.O DISALLOWED THE CLAIMED DEPRECIATION OF RS.9,52,790/- ON CARS ON THE BASIS THAT THE CARS WERE NOT PURCHASED IN THE NAME OF THE ITA . NO 655, 656, 833 & 786/PN/2009 WEIKFIELD PRODUCTS CO. (I) LTD. A.YS.2005-06 , 2006-07 ETC., PAGE OF 16 16 ASSESSEE BUT THE DIRECTORS. LD CIT(A) HAS UPHELD T HE ACTION OF THE A.O. AN IDENTICAL ISSUE HAS BEEN DECIDED HEREINABOVE IN THE APPEAL OF THE ASSESSEE FOR THE A.Y. 2005-06 IN GROUND NO. 4. FOL LOWING THE DECISION TAKEN THEREIN UNDER SIMILAR FACTS, WE DIRECT THE A. O TO ALLOW THE CLAIMED DEPRECIATION. THE GROUND NO.2 IS ACCORDINGLY ALLOW ED. 29. IN RESULT, APPEAL PREFERRED BY THE REVENUE IS A LLOWED FOR STATISTICAL PURPOSES AND THAT PREFERRED BY THE ASSESSEE IS PART LY ALLOWED. 30. IN SUMMARY, APPEALS PREFERRED BY REVENUE ARE AL LOWED FOR STATISTICAL PURPOSES AND THOSE BY THE ASSESSEE ARE PARTLY ALLOWED. THE ORDER IS PRONOUNCED IN THE OPEN COURT ON 30 TH JUNE 2011. SD/- SD/- ( D. KARUNAKARA RAO ) ACCOUNTANT MEMBER ( I.C. SUDHIR ) JUDICIAL MEMBER PUNE, DATED THE 30TH JUNE, 2011 US COPY OF THE ORDER IS FORWARDED TO : 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT CONCERNED, PUNE 4. THE CIT(A)- III, PUNE 5. THE D.R. A BENCH, PUNE 6. GUARD FILE BY ORDER ASSISTANT REGISTRAR INCOME TAX APPELLATE TRIBUNAL PUNE