M/s. Bio Med Private Limited, Ghaziabad V. Addl.CIT, Ghaziabad

ITA 6827/DEL/2014

• Counselvise Citation: [2017] 127 COUNSELVISE.COM (IT) 3391 (ITAT-DELHI)
• Duration Of Justice: 2 year(s) 11 month(s) 2 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 20-11-2017
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: A
• Assessment Year: 2009-2010
• Appeal Filed On: 18-12-2014
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: S K JAIN
• Keywords: Rule of consistency; Earning of tax free income; Capital expenditure
• Section: 14A

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL, DELHI A BENCH, NEW DELHI BEFORE SHRI B.P. JAIN, ACCOUNTANT MEMBER, AND SHRI SUDHANSHU SRIVASTAVA, JUDICIAL MEMBER ITA NO. 6827/DEL/2014 [ASSESSMENT YEAR: 2009 - 10] BIO - MED PRIVATE LTD VS. THE ADDL. CIT C - 96, SITE NO. 1, B.S. ROAD RANGE - 2 INDUSTRIAL AREA GHAZIABAD GHAZIABAD PAN : AABCB 3477 C [APPELLANT] [RESPONDENT] DATE OF HEARING : 09 .11.2017 DATE OF PRONOUNCEMENT : 20 .11.2017 ASSESSEE BY : SHRI AKHILESH KUMAR, ADV REVENUE BY : SHRI S.K. JAIN, SR. DR ORDER PER B.P. JAIN, ACCOUNTANT MEMBER, THIS APPEAL FILED BY THE ASSESSEE IS DIRECTED AGAINST THE ORDER DATED 1 8.0 9 .201 4 PASSED BY THE CIT(A) , GHAZIABAD FOR THE A . Y . 2009 - 10. 2. THE ASSESSEE HAS RAISED THE FOLLOWING GROUNDS OF APPEAL: 1. THAT THE ORDER OF LD. LOWER AUTHORITY IS BAD IN LAW AS W ELL AS IS AGAINST THE FACTS AND CIRCUMSTANCES OF THE CASE. 2. THAT, LEARNED CIT (A) FAILED TO APPRECIATE THAT NEITHER LD. AO HAS RECORDED ANY SATISFACTION ABOUT THE EXPENSES RELATED TO EXEMPTED INCOME NOR HE FOUND ANY SPECIFIC ACTUAL INCURRENCE OF SUCH ALLEGED EXPENSES AND HENCE ERRED IN SUSTAINING THE ADDITION OF RS. 8,88,490/ - MADE U/S 14A READ WITH RULE 8D. 3. THAT, IN ADDITION TO ABOVE LEARNED CIT (A) FAILED TO APPRECIATE THAT MATERIAL ON RECORD AND RELATED LAW ON THE ISSUE, HENCE ORDER IS ARBITRARY. 4. THAT LEARNED CIT (A) ERRED IN SUSTAINING THE AD - HOC DISALLOWANCE OF RS. 2,00,000/ - OUT OF BUSINESS PROMOTION EXPENSES WITHOUT APPRECIATING THAT AO HAD ACCEPTED THE BOOK OF ACCOUNTS AND HAD NOT FOUND A SINGLE INSTANCE OF EXP. NOT RELATED TO BUSINESS OR UNSUPPORTED OR BOGUS/DEFECTIVE AND IN WHOLE DISREGARD OF PREVIOUS HISTORY. 5 . THAT, IN ADDITION TO ABOVE LEARNED CIT (A) HAS WRONGLY OBSERVED THAT ASSESSEE COULD NOT CONCLUSIVELY RECONCILE DISTRIBUTION/PURCHASE OF GOLD/SILVER COINS WHILE LD. AO HAD FULLY EXAMINED SUCH DETAILS. 6 . THAT LEARNED CIT (A) ERRED IN HOLDING THAT REPLACEMENT OF COMPRESSOR OF COOLING PLANT IS A CAPITAL EXPENDITURE AND WRONGLY SUSTAINED THE DISALLOWANCE OF RS. 86,050/ - . 3. THE BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE IS ENGAGED IN THE BUSINESS OF PRODUCTION AND SALE OF ANIMAL & HUMAN VACCINE BESIDE S SHARE DEALING. FOR T HE AY 2009 - 10 , THE ASSESSEE HAS FILED RETURN OF INCOME DECLA RING AN INCOME OF RS.66458975 . THE ASSESSING OFFICER COMPLETED THE ASSESSMENT VIDE ORDER U/S. 143(3 ) OF THE INCOME TAX ACT DATED 21/12/2011 DETERMININ G TOTAL INCOME AT RS.67946510 / - . 4. FOLLOWIN G ADDITI ONS WERE MADE IN THE ASSESSMENT , WHICH ARE UNDER CONTEST : ( I ) EXPENSES ATTRIBUTABLE TO EXEMPT INCOME U/S. 14A RS.1444704/ - II) EXPENSES DISALLOWED OUT OF BUSINESS PROMOTION EXPENSES RS. 200000/ - III) EXPENSES DISALLOWED BY TREATING THEM CAPITAL IN NATURE RS. 86050/ - ( I ) DISALLOWANCE OF BRANDING EXPENSES FOR NON - DEDUCTION OF TAX 57,51,630/ - . 4. THE ASSESSMENT WAS CARRIED IN APPEAL BY THE ASSESSEE BEFORE THE LD. CIT(A) AND ALL THE ADDITIONS CONTESTED WERE CONFIRMED B Y LD. CIT(A) VIDE ORDER DATED 02/09 /2014. 5. DURING THE YEAR ASSESSEE EARNED EXEMPTED DIVIDEND INCOME RS. 46 , 64 , 773/ - . LD. AO NOTICED THAT NO EXPENSES IS INCURRED OR BOOKED AGAINST THE SAID EXEMPT DIVIDEND INCOME AND HENCE PROPOSED TO DISALLOW PART EXP. U/S 14A. EXPLANATION OF ASSESSEE THAT HE HAS NOT INCURRED ANY EXPENDITURE IS REJECTED AS BEING GENERAL/VAGUE AS ASSESSEE HAS MADE HUGE INVESTM ENT IN UTI LIQUID FUNDS AND DISALLOWANCE U/S 14A /RULE 8D IS MADE . 6 . IN THE FIRST APPEAL, ASSESSEE DEMONSTRAT ED THAT HE HAS NOT INCURRED ANY EXPENDITURE AS DIVIDEND IS ONLY CREDITED TO UTI LIQUID FUND AND SMALL DIVIDEND IS E - TRANSFER WITH ADVISE TO ASSESSEE AND CLAIMED THAT AO HAS ALSO NOT FOUND ANY EXPENDITURE RELATING TO DIVIDEND AFTER EXAMINING THE ACCOUNTS IN DETAIL. HE ALSO CONTENDED THAT LD. AO HAS NOT RECORDED ANY SATISFACTION ABOUT INCORRECT CLAIM OF ASSESSEE OR ABOUT INCURRENCE OF EXPENDITURE AGAINST DIVIDEND INCOME ETC. 7. THE L D. CIT(A) FOUND, ASSERTION OF LD. AO THAT REPLY OF ASSESSEE IS CONSIDE RED WHICH IS INCORRECT AS ASSESSEE IS REGULARLY INVESTING IN UTI LIQUID FUNDS AND IF THE INVESTMENT IS LIKE FDR THAN INTT. ON SAME IS TAXABLE , AS SUFFICIENT TO INVOKE S.14A AND HELD THAT ALLEGATION OF ASSESSEE ABOUT NOT RECORDING SATISFACTION OR NOT FIND ING INCURRENCE OF ANY ACTUAL EXPENDITURE BY ASSESSEE LACKS MERIT. IN UPHOLDING THE ADDITION HE RELIED ON DECISION OF CO - ORDINATE BENCH IN ITA NO. 3616/2012 IN CASE OF G EBR PF EIFFER P. LTD. HOLDING THAT WHERE AO IS NOT SATISFIED WITH CLAIM OF ASSESSEE OF NO EXPENDITURE AO/CIT(A) SHALL BE BOUND TO INVOKE 14A/RULE 8 D AND DISALLOWANCE IS UPHELD. HE ALSO REF. THE CASE OF MAXOPP INV. REPORTED IN 347 ITR 272 (DEL.). LD. CIT(A) ALSO REFUTED THE CLAIM OF NO EXPENDITURE AS HE FELT THAT INVESTMENT REQUIRES CONSCIOUS MANAGERIAL DECISION OR EXPERT ADVISE WITH INCURRENCE OF SALARIES AND HENCE CLAIM IS AGAINST THE PRINCIPLE OF PREPONDERANCE OF PROBABILITY. 8 . THE L D. AR DEMONSTRATED AT LENGTH BEFORE US THAT FACTUALLY NO EXPENDITURE IS INCURRED IN EARNING THE DIVIDEND INCOME. HE ALSO EMPHASIZED THAT THERE IS NO COMPLIANCE OF SEC . 14A (2)/(3) OR OF RULE 8 D WHICH IS PRECONDITION TO INVOKE THE PROVISION. HE ALSO RELIED ON THE PRINCIPLE OF CONSISTENCY AS I N EARLIER YEARS NO DISALLOWANCE WAS MADE U/S 14A. HE ALSO TOOK US TO SEVERAL DECISIONS ON THE ISSUE. LD. DR. RELIED HEAVILY ON THE DECISION OF LD. CIT(A). 9 . AFTER HEARING BOTH THE PARTIES, WE FIND THAT NONE OF THE AUTHORITIES BELOW HAS CONTROVERTED TH E FACTS PUT FORWARD BY ASSESSEE. OBVIOUSLY WHEN DIVIDEND IS DIRECTLY CREDITED TO FUND BY WAY OF CREDIT ENTRIES AND TH E N SUCH CREDIT BY FUND DOES NOT REQUIRE ANY EFFORT BY ASSESSEE WHICH IS THE MAJOR PORTION OF DIVIDEND. OTHER AMOUNT IS DIRECTLY COLLECTED BY BANK THROUGH E - TRANSFER EXAMPLE OF WHICH IS PLACED ON RECORD AT PAGES 3 - 4. BESIDE S, THE AUTHORITIES BELOW HA VE NOT INDICATED ANY SPECIFIC AMOUNT/ITEM WHICH IS CONSIDERED AS RELATED TO ABOVE INCOME. LD. CIT(A) MISDIRECTED HIMSELF IN STATING ABOUT THE DECISIONS FOR INVESTMENT THAT TOO ON A PROBABILISTIC VIEW BUT NOT FOR EXEMPT INCOME MORE SO WHEN FUNDS ETC. ITSELF PROVIDED SUFFICIENT SERVICES AS EXPLAINED BY ASSESSEE BEFORE AO. INVESTMENTS ARE ADMITTEDLY OUT OF OWN FUNDS FOR WHICH NO AD DITION IS MADE. LD. AR ALSO TOOK US TO THE ORDER FOR AY 2011 - 12 OF ASSESSEE WITH IDENTICAL FACTS ON THE ISSUE WHICH IS ON PAGES 15 TO 19 OF PAPER BOOK WHERE LD. AO HAS RECORDED IN PARA 4 THAT, . IT IS EVIDENT THAT THERE IS NO EXPENDITURE WHICH IS DIRECT LY ATTRIBUTABLE TO EXEMPT INCO ME (DIVIDEND). HOWEVER , IT CAN NOT BE RULED OUT THAT CERTAIN ELEMENT OF INDIRECT EXPENSES CAN NOT BE REMOTELY ATTRIBUTABLE TO THE EXEMPT INCOME... IT IS ALSO STATED THAT DISALLOWANCE IS MADE TO MAINTAIN CONSISTENCY AND KEEP I SSUE ALIVE. SUCH SPECIFIC FINDINGS PROVES THAT FACTUALLY NO INCURRENCE OF EXPENDITURE IS FOUND EVEN IN A SUBSEQUENT YEAR THOUGH REVENUE IS MAKING ADDITION MERELY TO KEEP ISSUE ALIVE. HENCE WE DO FIND FORCE IN THE CLA IM OF ASSESSEE ABOU T NON - INCURRENCE OF EXPENDITURE AND UPHELD SAME. 10. BESIDE ABOVE, B ASIS OF INVOKING S. 14A AS IS S TATED ABOVE IS NOT IN TERMS OF SAID PROVISION READ WITH RULE 8 D. THERE IS ABSOLUTELY NO SATISFACTION EXCEPT REJECTION OF EXPLANATION OF ASSESSEE. THE RE IS NO REFERENCE TO ANY ITEM OF EXPENSES FOUND RELATED TO EXEMPT INCOME. THERE IS NO REFERENCE TO ACCOUNTS IN RELATION TO THIS ISSUE EITHER OR EVEN ANY MATERIAL/BASIS IN AO ORDER. WITH THE DEVELOPMENT OF LAW , NOW WE HAVE SERIES OF DECISION S ON THIS ISS UE. THE LD. AR CIT ED FOLLOWING CASES ON THE ISSUE: A) H.T.MEDIA LIMITED V PCIT ITA NO 548/2015 ORDER DT. 23.08.2017 (DELHI) B) CIT V TAIKISHA ENGINEERING INDIA LTD. [2015] 54 TAXMANN.COM 109 (DELHI) C ) PRIYA EXHIBITORS (P.) LTD. V. [2012] 27 TAXMANN.COM 88 (DELHI) D ) EICHER MOTORS LTD. V CIT (2017) 86 TAXMANN.COM 49(DEL) 11. I N THE CASE OF HT MEDIA, AO HAD INVOKED 14A ALMOST ON THE SAME BASIS I.E. AFTER STATING THAT EXPLANATION ON NO EXPENDITURE IS NO ACCEPTABLE AND THAT MAKING, CONTINUING, EXITING FROM INVESTMENT ETC. ARE COORDINATED MANAGEMENT DECISION AND SO EXPENDITURE IS EMBEDDED IN I NDIRECT EXPENSES( FROM PARA 36) AND SO S.14A INVOKED. HONBLE COURT AFTER RELYING ON GODREJ & BOYCE MFG. CO. LTD. 394 ITR 449(SC) HELD THAT AO FAILED TO RECORD PROPER SATISFACTION. IN THE CASE OF TAIKISHA ENGINEERING, HONBLE COURT HAS RELIED ON HONBLE BOMBAY HC DECISION IN ABOVE CASE OF GODREJ REPORTED IN 328 ITR 81 FOR THE PROPOSITION THAT T HAT SATISFACTION HAS TO BE RECORDED WITH RESPECT TO ACCOUNTS IN TERMS OF SS. (2)/(3) OF S. 14A AND THE PROVISIONS DOES NOT IPSO FACTO ENABLE AO TO APPLY METHOD PRESCRIBED IN RULES. THIS SATISFACTION MUST BE ON A N OBJECTIVE BASIS HAVING REGARD TO CLAIM OF ASSESSEE. RULE 8 D(1) ITSELF START WITH THE WORDS, WHERE THE ASSESSING OFFICER, HAVING REGARD TO T HE ACCOUNTS OF THE ASSESSEE. I N THE ABSENCE OF PROPER SATISFACTION . 12. IN THE MOST RECENT CASE OF EICHER [ SUPRA ] IT IS HELD IN PARA 13 THAT AO MERELY CONJECTURED THAT, THERE IS INBUILT COST EVEN IN PASSIVE INVESTMENT AS ALSO INCIDENTAL EXPENDITURE LIKE COLLECTION, TELEPHONE, FOLLOW UP ETC, TH US CONCLUDING THAT EXPENSES ARE EMBEDDED IN AS INDIRECT EXPENSES. THIS IS NOT AS PER REQUIREMENT OF RULE 8D. THER E IS NO SATISFACTION RECORDED BASED ON THE ACCOUNTS OF ASSESSEE. THE AO SIMPLY PRESUMES THAT SINCE EXEMPT INCOME EXISTS .. 13. IN THE PRESENT CASE AO HAS NOT EVEN IDENTIFIED ANY SPECIFIC ITEM OF EXPENSE HE MERELY SAYS THAT EXPLANATION OF ASSESSEE IS NOT CORRECT AS HUGE INVESTMENT IS MADE. AS PER ABOVE DISCUSSION RES PECTFULLY FOLLOWING ABOVE AUTHORITIES WHICH ARE BINDING ON US IT IS HELD THAT THERE IS NO SATISFACTION OF TERMS OF S. 14A READ WITH RULE 8 D. COPY OF ORDER FOR AY 08 - 09 IS ALSO PLACED ON PAGES20 - 21 OF PAPER BOOK AS PER WHICH NO DISALLOWANCE U/S 14A WAS MADE, HENCE ASSESSEE IS RIGHT IN SUBMITTING THAT DISALLOWANCE IS ALSO AGAINST THE PRINCIPLE OF CONSISTENCY IN THE ABSENCE OF ANY FACTS. 14. GROUNDS 2 AND 3 ARE ALLOWED AND ADDITION OF RS. 8 , 88 , 490/ - IS HEREBY DELE TED. 15 . GROUNDS 4 & 5 IS AGAINST THE AD - HOC DISALLOWANCE OF RS. 2 LAKHS OUT OF BUSINESS PROMOTION EXPENSES. 16. DURING THE RELEVANT AY, THE ASSESSEE HAS DEBITED BUSINESS P ROMOTION EXPENSE OF RS.10 , 02 , 455 / - TO THE PROFIT AND LOSS A/C. ON ENQUIRY ON THE NATURE OF THE EXPENSE, IT WAS EXPLAINED TO BE FOR VARIOUS ITEMS E SPECIALLY SILVER/GOLD COINS GIVEN UNDER INCENTIVE SCHEME. THOUGH THE L D. AO FOUND CLAIM CORRECT IN PRINCIPLE TO BOOST SALE BUT HELD THAT IT CAN NO T BE SAID THEY ARE FULLY FOR BUSINESS PURPOSES AND DISALLOWED AD - HOC AMOUNT OF RS. 2 LAKHS. THE L D. CIT(A) UPHELD THE ADDITION BY OBSERVING THAT THAT ONLY FEW INSTANCES OF DISTRIBUTION OF COINS GIVEN SO IT IS NOT CLEAR HOW MANY WERE ACTUALLY DISTRIBUTED IN SCHEME. 17. LD. AR PLACED ON RECORD LEDGER A/C OF SALES PROMOT ION EXPENSES, EXAMPLE OF SCHEME, EXAMPLE OF RECEIPTS OF COINS BY PARTIES FROM PAGES 5 - 11 OF PAPER BOOK AND RELIED SUBMISSIONS MADE BEFORE AUTHORITIES BELOW. 1 8 . WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE RECORDS. IT IS ON RECORD THAT ASSESSEE HAS MADE ALL THE COMPLIANCE FROM TIME TO TIME. PURCHASES ARE FULLY VOUCHED AND ACCOUNTS ARE NOT REJECTED. IT IS ALSO A FACT THAT NO SINGLE ITEM OF EXPENSE IS IDENTIFIED BY AO WHICH HE COULD HAVE STATED AS NOT INCURRED FOR BUS INESS PURPOSES. IT IS ALSO BORNE OUT FROM ORDER THAT SUCH EXPENSES ARE ACCEPTED IN PAST WHEN EVEN % OF EXPENSES ON SALE WAS MORE IN AY 06 - 07. SALES HAVE INCREASED SUBSTANTIALLY. AR HAS RELIED ON CASES GANPATI ENTERPRISES LTD. 142 ITD 118(DELHI), NATIONAL INDUSTRIAL CORP. LTD. VS CIT 258 ITR575, ANIL KUMAR & CO. [2016] 67 TAXMANN.COM 278 (KARNATAKA) IN SUPPORT OF PROPOSITION THAT WITHOUT REJECTION OF ACCOUNTS AND WITHOUT FINDING ANY BASIS/DEFECT IN SPECIFIC EXPENSE, AD - HOC DISALLOWANCE CAN NO T BE MADE. AC CO RDINGLY, THE ADDITION OF RS. 2 , 00 , 000/ - IS HEREBY DELETED. 19. GROUND NO. 6 IS AGAINST HOLDING REPLACEMENT OF COMPRESSOR OF COLLING UNIT AS CAPITAL EXPENDITURE AND THEREBY MAKING ADDITION OF RS. 86 , 050/ - . THE AO CAPITALIZED THIS AMOUNT CONSIDERING THE LIFE OF COMPRESSOR VERY LONG AND LD. CIT(A) UPHELD THE SAME BY HOLDING THE ITEM AS AN INDEPENDENT UNIT. AGAINST THIS AS PER ONCE COMPRESSOR IS PART OF A UNIT THAN ESSENTIALLY IT IS A REPLACEMENT AND EACH PART HA S TO BE PROCURED INDEPENDENTLY. 20 . WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE ORDERS AND VARIOUS CASE LAW CITED. COMPRESSOR IS ADMITTEDLY A PART OF UNIT WHICH IS REPLACED AND IT LONGER LIFE OR IT IS PROCURED INDEPENDENTLY IS WHOLLY IRRELEVANT . ISSUE IS COVERED BY VARIOUS DECISIONS IN FAVOR OF ASSESSEE AND EXPENDITURE IS REVENUE IN NATURE. ACCORDINGLY, THE ADDITION OF RS. 86 , 050/ - IS HEREBY DELETED. 2 1. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS ALLOWED. THE ORDER IS PRONOUNCED IN THE OPEN COURT ON 20 .11.2017. SD/ - SD/ - [SUDHANSHU SRIVASTAVA] [B.P. JAIN] JUDICIAL MEMBER ACCOUNTANT MEMBER DATED: 20 TH NOVEMBER, 2017 VL/ COPY FORWARDED TO: 1 . APPELLANT 2 . RESPONDENT 3 . CIT 4 . CIT(A) ASST . REGISTRAR 5 . DR NEW DELHI