I.T.O.8(3)-3, MUMBAI V. R-PAC (INDIA) PVT. LTD., MUMBAI

ITA 6797/MUM/2011

• Counselvise Citation: [2013] 120 COUNSELVISE.COM (IT) 3792 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 7 month(s) 8 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 15-05-2013
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: D
• Next Hearing Date: 03-04-2013
• Assessment Year: 2008-2009
• Appeal Filed On: 07-10-2011
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: ASHUTOSH RANJHANS
• Assessee Lawyers: M SUBRAMANIYAN

Judgement Text

D IN THE INCOME TAX APPELLATE TRIBUNAL D BENC H, MUMBAI ! . '# , % &'( & BEFORE SHRI D. MANMOHAN, VICE PRESIDENT AND SHRI D. KARUNAKARA RAO, AM & ./I.T.A. NO.6797/M/2011 ( ) * +* / ASSESSMENT YEAR:2008-2009) INCOME TAX OFFICER-8(3)(3), R.NO.202, AAYAKAR BHAVAN, M.K. ROAD, MUMBAI-400020. / VS. M/S. R-PAC (INDIA) PVT. LTD., 10, PUSHPAKUNJ, NATWARNAGAR, ROAD NO.3, JOGESHWARI (EAST), MUMBAI 400 060. (, % & ./PAN :AABCR 8633 E ( ,- /APPELLANT) .. ( ./,- / RESPONDENT) ,- 0 1 & / APPELLANT BY : SHRI ASHUTOSH RANJHANS, DR ./,- 0 1 & / RESPONDENT BY : SHRI M. SUBRAMANIYAN & 0 2% /DATE OF HEARING :8.4.2013 3+ 0 2% /DATE OF PRONOUNCEMENT :15.5.2013 '4 '4 '4 '4 / O R D E R PER D. KARUNAKARA RAO, AM: THIS APPEAL FILED BY THE REVENUE ON 7.10.2011 IS AG AINST THE ORDER OF CIT (A)- 18, MUMBAI DATED 14.7.2011 FOR THE ASSESSMENT YEAR 2008-2009. 2. IN THIS APPEAL, REVENUE RAISED THE FOLLOWING GROU NDS WHICH READ AS UNDER: 1.ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE CIT (A) ERRED IN DELETING THE DISALLOWANCE MADE U/S 40(A)(IA) AMOUNTING TO RS. 5,65,692/- WITHOUT APPRECIATING THE RELEVANT FACTS AND WITHOUT CONSIDE RING THE CBDTS CIR NO. 715 DATED 8.8.1995, AS PER WHICH TDS IS APPLICABLE ON PAYMENT S OF ACTUAL REIMBURSEMENTS AS WELL. 2. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E AND IN LAW, THE CIT (A) ERRED IN DELETING THE DISALLOWANCE MADE BY THE AO ON ACCOUNT OF ELECTRICI TY EXPENSES AMOUNTING TO RS. 4,87,359/-.. 3. FIRST GROUND RELATES TO THE DISALLOWANCE OF RS. 5,65,692/- U/S 40(A)(IA) OF THE ACT. IN THIS REGARD, THE CASE OF THE AO IS THAT TH E SAID AMOUNT ATTRACTS THE PROVISION OF SECTION U/S 40(A)(IA) OF THE ACT, THOUGH THE SAI D AMOUNTS ARE MERE 2 REIMBURSEMENTS PAID BY THE ASSESSEE TO M/S. APP GRAPHICS PVT. LT D, WHO INCURRED ON ACCOUNTS OF WATER-ELECTRICITY-SECURITY CHARGES ETC ON BEHALF OF ASSESSEE. 4. DURING THE FIRST APPELLATE PROCEEDINGS, ON EXAMI NING THE NATURE OF EXPENSES, THE CIT (A) CAME TO THE CONCLUSION THAT THE SAID AM OUNTS ARE REIMBURSEMENT EXPENSES AND SUCH REIMBURSEMENT DOES NOT ATTRACT TH E PROVISIONS OF SECTION 40(A)(IA) OF THE ACT. THE JUDGMENT OF THE JURISDICT IONAL HIGH COURT IN THE CASE OF CIT VS. SIEMENS AKTIONGESELLSCHAFT (2008 TIOL 569 HC-MUM) WAS RELIED AND THE SAME IS RELEVANT FOR THE PROPOSITION THAT WHERE THERE IS NO ELEMENT OF INCOME AND THE PAYMENT BY WAY OF REIMBURSEMENT OF EXPENSES DOES NO T ATTRACT THE PROVISIONS OF SECTION 40(A)(IA) OF THE ACT. ACCORDINGLY, CIT (A) DIRECTED THE AO TO DELETE THE DISALLOWANCE. AGGRIEVED, REVENUE CARRIED THE MATTER IN APPEAL BEFORE THE TRIBUNAL BY RAISING THE GROUND NO.1 MENTIONED ABOVE. 5. DURING THE PROCEEDINGS BEFORE US, LD DR RELIED O N THE ORDER OF THE AO. 6. ON THE OTHER HAND, LD COUNSEL FOR THE ASSESSEE R ELIED ON THE ORDER OF THE CIT (A). 7. WE HAVE HEARD BOTH THE PARTIES ON THE ISSUE RAIS ED IN GROUND NO.1 AND PERUSED THE ORDERS OF THE REVENUE AUTHORITIES. NOTH ING IS BROUGHT TO OUR NOTICE THAT THE IMPUGNED PAYMENTS CONTAIN THE PROFIT ELEMENT PA SSED ON TO THE PAYEE. THERE IS NO DOUBT THAT THE CIRCULAR APPLY TO THE PAYMENTS WH ICH CONTAINS THE INCOME ELEMENT. CONSIDERING THE JUDGMENT OF THE HONBLE JURISDICTIO NAL HIGH COURT IN THE CASE OF CIT VS. SIEMENS AKTIONGESELLSCHAFT (SUPRA) FOR THE PROP OSITION THAT WHEN THERE IS NO ELEMENT OF INCOME AND THE PAYMENT IS ONLY THE REIMB URSEMENT OF EXPENSES THEN NO DISALLOWANCE CAN BE MADE U/S 40(A)(IA) OF THE ACT, WE FIND NO REASON TO INTERFERE WITH THE ORDER OF THE CIT (A). AS SUCH, NOTHING IS BROUGHT TO OUR NOTICE BY THE REVENUE THAT THE SAID EXPENSES ARE NOT CASES OF REI MBURSEMENT AND NO CONTRARY DECISION WAS ALSO BROUGHT TO OUR NOTICE BY THE REVE NUE. THEREFORE, THE ORDER OF THE CIT(A) DOES NOT CALL FOR ANY INTERFERENCE ON THIS I SSUE. ACCORDINGLY, GROUND NO.1 RAISED BY THE REVENUE IS DISMISSED . 3 8. GROUND NO.2 RELATES TO DISALLOWANCE OF EXPENSES ON ACCOUNT OF ELECTRICITY EXPENSES AMOUNTING TO RS. 4,87,359/-. DURING THE A SSESSMENT PROCEEDINGS, AO DISALLOWED RS. 4,87,359/- BEING 50% OF THE TOTAL AG GREGATE ELECTRICITY CHARGES OF RS. 9,74,718/- DEBITED TO P&L ACCOUNT. BUT THE FACT IS THAT RS. 9,74,718/- HAS TWO SEGMENTS IE (I) RS. 4,16,350/- PAID TO MSEDC LTD T OWARDS THE ELECTRICITY EXPENSES FOR ASSESSEES OFFICE PREMISES AT SURAJ HOUSE AND ( II) RS. 4,63,415/- REIMBURSED TO APP GRAPHICS PVT. LTD BEING ASSESSEES SHARE OF ELE CTRICITY EXPENSES FOR MANUFACTURING STORAGE CUM LOGISTIC SET-UP AT NAVI M UMBAI. IT IS THE CASE OF THE ASSESSEE THAT NO EXPENSES NEED TO BE DISALLOWED AS THE WHOLE OF IT WAS SPENT FOR BUSINESS PURPOSES OF THE ASSESSEE ONLY. MATTER TRA VELLED TO THE CIT(A). 9. DURING THE FIRST APPELLATE PROCEEDINGS, ON APPRE CIATING THE SUBMISSIONS MADE BY THE ASSESSEE, CIT (A) DIRECTED THE AO TO DELETE THE ADDITION ON ACCOUNT OF ELECTRICITY EXPENSES. PARA 4 AND 4.1 OF THE IMPUGN ED ORDER ARE RELEVANT IN THIS REGARD. AGGRIEVED WITH THE DECISION OF THE CIT (A) , REVENUE FILED AN APPEAL BEFORE THE TRIBUNAL BY RAISING THE GROUND NO.2 MENTIONED A BOVE. 10. DURING THE PROCEEDINGS BEFORE US, LD DR RELIED ON THE ORDER OF THE AO. 11. ON THE OTHER HAND, LD COUNSEL FOR THE ASSESSEE RELIED ON THE ORDER OF THE CIT (A) AND REITERATED THE SUBMISSIONS MADE BEFORE THE FIRST APPELLATE AUTHORITY. 12. WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE ORDERS OF THE REVENUE AUTHORITIES AS WELL AS THE MATERIAL PLACED BEFORE U S. IT IS RELEVANT TO EXTRACT PARA 4 AND 4.1 OF THE ORDER OF THE CIT (A) AND THE SAME IS AS UNDER: 4. THE LD AO VIDE PARA 8 OF THE ASSESSMENT ORDER DI SALLOWED RS. 4,87,359/- BEING 50% OF THE TOTAL ELECTRICITY CHARGES INCURRED BY THE ASSESSEE COMPANY DURING THE FINANCIAL YEAR 2007-08 UNDER THE ERRONEOUS ASSUMPTION / FINDING THAT THE AGGREGATE OF ELECTRICITY CHARGES OF RS. 9,74,718/- DEBITED TO PROFIT & LOSS ACCOUNT IS FOR OFFICE PREMISES AT SURAJ HOUSE , GHODBUNDER, THANE. THE FACTUAL POSITION IS THAT THE AGGREGATE OF ELECTRICITY CHARG ES OF RS. 9,74,718/- COMPRISE ELECTRICITY CHARGES OF RS.4,16,350/- DIRECTLY PAID TO MSEDC LTD. FOR OFFICE PREMISES AT SURAJ HOUSE (HIRED ON LEAVE AND LICENSE BASIS FROM SURAJ REALTORS). RS. 4,63,415/- REIMBURSED TO APP GRAPHICS PVT. LTD., BEING ASSESSE ES SHARE OF ELECTRICITY CHARGES FOR THE MANUFACTURING, STORAGE CUM LOGISTIC SET-UP AT MA HAPE NAVI MUMBAI (ALREADY FULLY DISALLOWED BY THE AO IN PARA 3 TO 6 OF HIS ASSESSME NT ORDER AND DISCUSSED UNDER POINT 2 ABOVE) AND RS. 94,953/- FOR BRANCH OFFICE OF THE ERRONEOUS ASSUMPTION THAT THE ELECTRICITY BILL IS FOR SHOP NO.1 TO 4 OF SURAJ REA LTORS AND THAT THE ASSESSEE OCCUPIES 4 ONLY ONE ADMINISTRATIVE OFFICE AT 2/F SURAJ HOUSE. THE FACTS ARE THAT THE ASSESSEE HAS HIRED THE ENTIRE 2 ND FLOOR (REFERRED AS 2/F) IN SURAJ HOUSE, WHICH ADME ASURED APPROX RS.5000/- SQ.FT. CARPET AREA AND WHICH HOUSES SIX E XECUTIVE CABINS, ONE DESIGN ROOM, ONE COMPUTER SERVER CABIN, ONE BIG CONFERENCE HALL, ONE CAFETERIA AND OPEN SPACE AT THE CENTRE WITH CUBICLES AND OFFICE MODULAR FURNITU RE TO ACCOMMODATE AROUND 25 EMPLOYEES. FURTHER, SEPARATE SPACE FOR DISPLAY OF PRODUCT RANGE OF THE COMPANY AND SPACE FOR STORAGE OF RECORDS IS ALSO PROVIDED WITHI N THE SAID HIRED 2 ND FLOOR OF SURAJ HOUSE. THE BUILDER HAD DESIGNED THE ENTIRE FLOOR T O HAVE FOUR DISTINCT SHOPS WITH FOUR DIFFERENT ELECTRICITY METERS AND IT WAS ONLY AT THE REQUEST OF THE ASSESSEE THAT THE PROPOSED FOUR DISTINCT SHOPS WERE CLUBBED INTO ONE PREMISES COVERING THE ENTIRE 2 ND FLOOR AND ACCORDINGLY WAS DESIGNATED AS 2/F, WHILE ENTERING INTO THE LEAVE AND LICENSE AGREEMENT WITH THE ASSESSEE. HOWEVER, THE ELECTRIC ITY BILLS CONTINUED TO BE ISSUED BY PUBLIC UTILITY AGENCY MSEDC LTD., ON THE BASIS OF F OUR ELECTRICITY METERS SEPARATELY INSTALLED ON THE SECOND FLOOR, WHICH WAS SUPPOSED T O HAVE FOUR SHOPS AS PER THE ORIGINAL PLAN ENVISAGED BY THE BUILDER SURAJ REALTO RS . SINCE, THE ENTIRE 2 ND FLOOR WAS OCCUPIED BY THE ASSESSEE, WHICH COMPRISED THE AREA OF 4 SHOPS ORIGINALLY ENVISAGED BY THE BUILDER, THE ASSESSEE HAD TO PAY THE ELECTRI CITY CHARGES FOR THE ENTIRE PREMISES USED / OCCUPIED BY THE ASSESSEE. THE LEARNED ASSES SING OFFICER DID NOT SEEK ANY CLARIFICATION ON THE UNWARRANTED ASSUMPTIONS HE HAS MADE IN THE ASSESSMENT ORDER AND IN THE PROCESS HAS LANDED UP WITH MULTIPLE DISA LLOWANCES ON ACCOUNT OF ELECTRICITY CHARGES IN THE AGGREGATE AT RS. 9,50,774/- AS AGAIN ST THE TOTAL ELECTRICITY CHARGES BOOKED AND DEBITED TO PROFIT & LOSS ACCOUNT AT RS. 9,74,718/-. FOR YOUR HONORS KIND PERUSAL WE HAVE ENCLOSED HEREWITH THE EXTRACT OF LE DGER ACCOUNT OF ELECTRICITY CHARGES INCURRED BY THE ASSESSEE FOR THE FINANCIAL YEAR 200 7-08 (PAGE NO.66 TO 70 OF THE ANNEXURE) AND 4 BILLS PER MONTH PAID BY THE ASSESSE E TO MSEDCL DURING THE 12 MONTHS OF FINANCIAL YEAR 2007-08, FOR HIRED 2 ND FLOOR PREMISES IN SURAJ HOUSE (PAGE NOS. 71 TO 128 OF THE ANNEXURE). COPY OF THE LEAVE AND LICENSE AGREEMENT ENTERED INTO WITH SURAJ REALTORS BY THE ASSESSEE FOR HIRE O F 2 ND FLOOR PREMISES IN SURAJ HOUSE IS ATTACHED (PAGE NOS. 129 TO 142 OF THE ANNEXURE). SUFFICE IS TO SAY THAT THERE IS NO REASON FOR THE ASSESSEE COMPANY TO BE IMPRUDENT TO PAY ELECTRICITY CHARGES WHICH DOES NOT BELONG TO IT. CERTIFICATE R ECEIVED FROM SURAJ REALTORS ON THE STATED POSITION OF 4 ELECTRICITY ME TERS INSTALLED ON THE 2 ND FLOOR PREMISES LET OUT TO ASSESSEE AND THE REQUIRE MENT OF PAYMENT OF THE SAID 4 BILLS BY THE ASSESSEE DUE TO THE FACT THAT T HE WHOLE OF THE 2 ND FLOOR PREMISES ARE OCCUPIED BY THE ASSESSEE IS ENCLOSED FOR YOUR KIND PERUSAL. 4.1. I HAVE CONSIDERED THE SUBMISSIONS AOF THE LEAR NED COUNSEL AND IN VIEW OF THE FACTS BROUGHT ON RECORD AND SUBMISSIONS MADE AO I S DIRECTED TO DELETE THE DISALLOWANCE. THUS, THIS GROUND OF APPEAL IS ALLOW ED. 13. THE ABOVE EXTRACTION CONTAINS BOTH THE FACTS RE LATING TO THIS GROUND AND THE CONCLUSION OF THE CIT (A). CIT (A) CONCLUDES THAT T HE IMPUGNED EXPENDITURE WAS INCURRED BY THE ASSESSEE SOLELY IN RESPECT OF THE P ROPERTIES USED BY THE ASSESSEE FOR BUSINESS PURPOSES. BEFORE US, NOTHING IS BROUGHT TO OUR NOTICE THAT THE SAID FACTS REQUIRE ANY CHANGES. CONSIDERING THE BUSINESS NATUR E OF THE EXPENDITURE, THE ASSESSEE ENTITLED TO CLAIM THE SAME AS AN ALLOWABLE DEDUCTION. NO DISALLOWANCE IS CALLED FOR. CONSIDERING THE ABOVE, WE ARE OF THE OP INION THAT THE DIRECTION GIVEN BY THE CIT (A) FOR DELETION OF THE ADDITION ON ACCOUNT OF ELECTRICITY CHARGES, DOES NOT 5 CALL FOR ANY INTERFERENCE. ACCORDINGLY, GROUND NO.2 RAISED BY THE REVENUE IS DISMISSED . 14. IN THE RESULT, APPEAL FILED BY THE REVENUE IS DISMISSED . 5 26'7( 0 '%57 0 72 8 ORDER PRONOUNCED IN THE OPEN COURT ON 15.5.2013. . '4 0 3+ % 9'6 15.5.2013 0 : SD/- SD/- (D. MANMOHAN) (D. KARUNAKARA RAO) /VICE PRESIDENT % &'( / ACCOUNTANT MEMBER MUMBAI; 9' DATED 15.5.2013. . ) . & ./ OKK , SR. PS '4 0 .)2;< =<+2 /COPY OF THE ORDER FORWARDED TO : 1. ,- / THE APPELLANT 2. ./,- / THE RESPONDENT. 3. > ( ) / THE CIT(A)- 4. > / CIT 5. < ?: .)2) , , / DR, ITAT, MUMBAI 6. :!* @ / GUARD FILE. &/<2 .)2 //TRUE COPY// ''''''''''''''''''''''''''''''''''''''''''''''''' 4 & / BY ORDER, / & 7 (DY./ASSTT. REGISTRAR) , / ITAT, MUMBAI