ASST CIT 6(2) (EARLIER CC 35), MUMBAI V. GANNON DUNKERLY & CO LTD, MUMBAI

ITA 7141/MUM/2014

• Counselvise Citation: [2016] 131 COUNSELVISE.COM (IT) 3574 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 8 month(s) 27 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 25-08-2016
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: G
• Next Hearing Date: 25-08-2016
• Assessment Year: 2010-2011
• Appeal Filed On: 28-11-2014
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: P H MARFATIAAR
• Keywords: Depreciation; Rule of consistency; Additional depreciation; Earning of tax free income
• Section: 14A; 32

Judgement Text

1 , INCOME-TAX APPELLATE TRIBUNAL -GBENCH MUMBAI , , , BEFORE S/SHRI RAJENDRA,ACCOUNTANT MEMBER AND RAM LAL NEGI,JUDICIAL MEMBER ./ITA/7141/MUM/2014, /ASSESSMENT YEARS: 2010-11 ACIT-CENT.CIR-6(2) (EARLIER CC-35) ROOM NO.104, FIRST FLOOR, AAYAKAR BHAVAN, M.K. ROAD MUMBAI-400 020. VS. M/S. GANNON DUNKERLY & CO.LTD. 3 RD FLOOR, NEW EXCELSIOR BLDG. A.K. NAYAK MARG, MUMBAI-400 001. PAN: AAACG 1846 P ( /APPELLANT ) ( / RESPONDENT) REVENUE BY: SHRI K.V. VISPUTE-DR ASSESSEE BY: SHRI P.H. MARFATIA-AR / DATE OF HEARING: 25.08.2016 / DATE OF PRONOUNCEMENT: 25.08.2016 ,1961 254(1) ORDER U/S.254(1)OF THE INCOME-TAX ACT,1961(ACT) PER RAJENDRA, AM - CHALLENGING THE ORDER DATED 02.09.2014,OF THE CIT(A )-1,MUMBAI, THE ASSESSING OFFICER (AO)HAS FILED THE PRESENT APPEAL. ASSESSEE, COMPANY ,ENGAGED IN THE BUSINESS OF CONSTRUCTION AND CIVIL ENGINEERING, FILED ITS RETURN OF INCOME O N 15/10/2007,DECLARING INCOME AT RS.148.79 CRORES.THE ASSESSING OFFICE(AO) COMPLETED THE ASSES SMENT U/S.143(3) OF THE ACT,ON 3/3/ 2013,DETERMINING THE INCOME OF THE ASSESSEE AT RS.1 60.84 CRORES. 2. EFFECTIVE GROUND OF APPEAL IS ABOUT RESTRICTING THE DISALLOWANCE TO RS.4,30,550/- U/S.14A OF THE ACT.DURING THE COURSE OF ASSESSMENT PROCEEDINGS ,THE AO FOUND THAT THE ASSESSEE HAD CLAIMED EXEMPT INCOME OF RS.1.68 LAKHS U/S. 10(34) OF THE ACT BEING DIVIDEND ON SHARES.HE , VIDE QUESTIONNAIRE DATED 29.12.2012,SOUGHT DETAILS OF INADMISSIBLE EXPENSES WITHIN THE MEANING OF SECTION 14A OF THE ACT R.W.R 8D OF THE I .T.RULES, 1962.THE ASSESSEE IN ITS REPLY STATED THAT RELEVANT INVESTMENT YIELDING EXEMPT INC OME HAS BEEN MADE OUT OF OWN SURPLUS FUNDS AND NOT FROM THE INTEREST BEARING FUNDS AND T HE INVESTMENTS WERE MADE WHEN THE DIVIDEND INCOME WAS TAXABLE, THAT IF ALL THE DISALL OWANCE U/S.14A HAD TO BE MADE, IT SHOULD BE RESTRICTED TO THE EXTENT OF EXEMPT INCOME. THE AO M ADE A DISALLOWANCE OF RS.34.29 LAKHS U/S. 14A R.W. RULE 8D OF THE RULES.AS THE ASSESSEE HAD MADE A DISALLOWANCE OF RS.5.63 LAKHS ON ITS OWN SO,HE ADDED RS.28.66 LAKHS TO THE INCOME OF THE ASSESSEE. 2.1. AGGRIEVED BY THE ORDER OF THE AO,THE ASSESSEE PREFE RRED AN APPEAL BEFORE THE FIRST APPELLATE AUTHORITY(FAA).BEFORE HIM,IT WAS ARGUED T HAT INVESTMENT IN SHARES WAS MADE IN 7141/M/14 GANNON DUNKERLEY 2 EARLIER YEARS AND NOT DURING THE YEAR,THAT THE INVE STMENTS WERE MADE PRIOR TO AY.1997-98 AND THAT OWN FUNDS WERE UTILIZED FOR MAKING INVESTMENT, THAT THE ASSESSEE HAD ADEQUATE INTEREST FREE FUNDS AND THAT NO BORROWED FUNDS WERE USED TO MAKE THE INVESTMENTS, THAT NO DIRECT EXPENDITURE WAS INCURRED BY THE ASSESSEE DURING THE YEAR UNDER APPEAL, THAT THE ASSESSEE HAD ON ITS OWN DISALLOWED RS.5.63 LAKHS. AFTER CONSIDERING THE ORDER OF THE AO AND THE SUBMI SSIONS OF THE ASSESSEE,THE FAA HELD THAT THE AO HAD NOT BROUGHT ON RECORD ANY EVIDENCE TO PR OVE THAT INTEREST BEARING FUNDS WERE DIVERTED TOWARDS THE INVESTMENT IN SHARES, THAT THE INVESTMENTS WERE MADE OUT OF OWN FUNDS IN THE EARLIER YEARS,THAT HIS PREDECESSORS,WHILE DE CIDING THE APPEASL FOR THE AY.S. 2008-09 AND 2009-10,HAD ACCEPTED THE CLAIM MADE BY THE ASSESSEE , THAT THERE WAS NO PROOF OF DIRECT NEXUS OF INTEREST BEARING FUNDS IN MAKING INVESTMENT,THAT THE AO WAS NOT JUSTIFIED IN MAKING DISALLOWANCE ON ACCOUNT OF INTEREST EXPENDITURE.HE RESTRICTED THE DISALLOWANCE TO RS.4.30, LAKHS FOLLOWING THE ORDER OF HIS PREDECESSOR FOR TH E AY 2009-10. 2.3. DURING THE COURSE OF HEARING BEFORE US,THE DEPARTME NTAL REPRESENTATIVE (DR) SUPPORTED THE ORDER OF AO THE AUTHORISED REPRESENTATIVE (AR) REFERRED TO THE CASE OF HDFC BANK LTD. (ITA NO330 OF 2012, DT.23.7.14) OF THE HONBLE BOMB AY HIGH COURT AND JOINT INVESTMENTS PVT. LTD (ITA 117/2015 ,25/2/15) OF HONBLE DELHI H IGH COURT.HE STATED THAT THE ASSESSEE HAD SUFFICIENT OWN FUND TO MAKE THE INVESTMENT AND STATED THAT INVESTMENT WAS CONSTANT FOR LAST THREE YEARS . 2.4. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL ON RECORD. WE FIND THAT INTEREST FREE FUNDS AVAILABLE TO ASSESSEE WERE MORE THAN THE INVESTMENT MADE BY ASSESSEE DURING THE YEAR, THAT BORROWED FUNDS WERE NOT USED FOR EARNING EXEMPT INCOME, THAT FAA HAD GIVEN CATEGORICAL FINDING OF FACT THAT ASSESSEE HAD SUFFICIENT OWN FUNDS FOR MAKING INVESTMENT.THEREFORE, RESPECTFULLY FOLLOWING THE CA SES RELIED UPON BY ASSESSEE,WE HOLD THAT THE ORDER OF THE FAA DOES NOT SUFFER FROM ANY LEGAL INFIRMITY.CONFIRMING HIS ORDER GROUND NO.1 IS DECIDED AGAINST THE AO. 3. SECOND GROUND OF APPEAL PERTAINS TO DEPRECIATION.RE PRESENTATIVES OF BOTH THE SIDES AGREED THAT THE ISSUE STANDS ALLOWED BY THE ORDER OF THE T RIBUNAL FOR THE AY.S. 2007-08 & 2008-09 (ITA.S/5263,6151 & 5716/M/2011 DT.6.3.2013).WE FIND THAT THE ISSUE HAS BEEN DELIBERATED AND DECIDED BY THE TRIBUNAL IN THE ABOVE APPEALS AS UNDER: 7141/M/14 GANNON DUNKERLEY 3 10. GROUND NO. 2 RELATES TO THE CLAIM OF ADDITIONA L DEPRECIATION AT RS.1,53,19,184/-. THIS ISSUE FIND S PLACE AT PARA-7 ON PAGE-10 OF THE ORDER THE LD. CIT (A) AND AT PAGE-5 OF THE ASSESSMENT ORDER. 11. DURING THE COURSE OF THE ASSESSMENT PROCEEDINGS , THE AO FOUND THAT THE ASSESSEE HAS CLAIMED ADDITIONAL DEPRECIATION OF RS.1,53,19,184/- ON PL ANT AND MACHINERY U/S. 32(2) OF THE ACT. THE AO WAS OF THE OPINION THAT SINCE THE ASSESSEE IS ENGAGED I N CONSTRUCTION AND CIVIL ENGINEERING THEREFORE IT I S NOT ENGAGED IN THE BUSINESS OF MANUFACTURE OR PRODU CTION OF ANY ARTICLE OR THING THEREFORE SOUGHT EXPLANATION FROM THE ASSESSEE TO JUSTIFY ITS CLAIM OF ADDITIONAL DEPRECIATION. 12. THE ASSESSEE FILED A DETAILED REPLY GIVING DETAILS OF VARIOUS ITEMS PURCHASED AND INSTALLED UN DER THE HEAD PLANT AND MACHINERY. IT WAS EXPLAINED TO THE AO THAT THE ASSESSEE WAS GRANTED BENEFIT U/S. 80HH AND SEC; 80-I OF THE ACT THEREFORE THE ISSUE RELATING TO THE ACTIVITIES OF THE ASSESSEE ARE SET TLED AND DECIDED IN FAVOUR OF THE ASSESSEE, HOWEVER THE AO WAS OF THE OPINION THAT THE HON'BLE SUPREME COURT IN TWO DECISIONS NAMELY CIT VS N.C. BUDDHAR AJ '& CO 204 ITR 412 AND BUILDER ASSOCIATION OF INDIA VS UNION OF INDIA 209 ITR 877 HAS HELD THA T CONSTRUCTION OF BUILDING, BRIDGES OR QUARTERS ETC . CANNOT BE CONSTRUED TO MEAN MANUFACTURE OR PRODUCTI ON OF ANY ARTICLE OR THING.THE AO FOLLOWING THE OBSERVATIONS OF THE HON'BLE SUPREME COURT DISALLOWE D THE CLAIM OF ADDITIONAL DEPRECIATION OF RS. 1,53,19,184/-. 13. THE ASSESSEE AGITATED THIS MATTER BEFORE THE LD .CIT(A) AND EXPLAINED THAT THE ISSUE HAS BEEN SETTLED IN FAVOUR OF THE ASSESSEE BY THE DECISION OF THE TRIBUNAL IN ASSESSEE'S OWN CASE IN ITA NO. 6333/BOM/1989 FOR ASSESSMENTS 1979-80,1984-85 AND 1 985-86. IT WAS POINTED OUT THAT THE DEPARTMENT HAS ACCEPTED THE DECISION OF THE TRIBUNAL EXCEPT FO R A.Y. 1988-89 WHEREIN THE DEPARTMENT IN INCOME TAX APPEAL NO. 287 OF 2002, ITA NO. 2123/M/1992 REF ERRED THE QUESTION TO THE HON'BLE JURISDICTIONAL HIGH COURT OF BOMBAY. THD ASSESSEE DREW ATTENTION O F THE LD.CIT(A) TO THE DECISION OF THE HON'BLE JURISDICTIONAL HIGH COURT AND POINTED OUT THAT HON' BLE HIGH COURT HAS DECIDED THE ISSUE IN FAVOUR OF THE ASSESSEE . 13.1 AFTER CONSIDERING THE FACTS AND SUBMISSIONS O F THE ASSESSEE, THE LD. CIT(A) WAS CONVINCED THAT T HE CLAIM OF THE ASSESSEE IS WELL SETTLED IN FAVOUR OF THE ASSESSEE BY THE DECISION OF THE TRIBUNAL AND TH E JURISDICTIONAL HIGH COURT . THE LD.CIT(A) ALSO OBSE RVED THAT WHILE DECIDING THE ISSUE IN FAVOUR OF THE ASSESSEE, THE TRIBUNAL HAS CONSIDERED THE DECISION OF THE HON'BLE SUPREME COURT RELIED UPON BY THE 7141/M/14 GANNON DUNKERLEY 4 A.O. THE LD.CIT(A) CONCLUDED THAT THE ASSESSEE COMP ANYS BUSINESS ACTIVITY TO THE EXTENT OF 15% AMOUNTS TO MANUFACTURING ACTIVITIES AND THEREFORE E LIGIBLE FOR DEDUCTION OF ADDITIONAL DEPRECIATION. 14. AGGRIEVED BY THIS FINDINGS OF THE LD. CIT(A) RE VENUE IS BEFORE US. 15. THE LD. DEPARTMENTAL REPRESENTATIVE STRONGLY SU BMITTED THAT THE ASSESSEE IS NOT ENGAGED IN PRODUCTION OR MANUFACTURE OF ANY ARTICLE OR THING T HEREFORE IT IS NOT ELIGIBLE FOR ADDITIONAL DEPRECIATION. IN ALTERNATIVE, THE LD. DR SUBMITTE D THAT SINCE THE LD. CIT(A) HIMSELF HAS POINTED 01 THAT ONLY 15% OF THE ACTIVITY OF THE ASSESSEE CAN B E CONSTRUED AS MANUFACTURING ACTIVITY, THEREFORE, THE CLAIM OF DEPRECIATION SHOULD BE RESTRICTED TO O NLY 15%. 16. REBUTTING THE ARGUMENTS OF THE LD. DR, THE LD. COUNSEL FOR THE ASSESSEE PLEADED THAT IT IS W ELL SETTLED THAT RULE OF CONSISTENCY SHOULD BE FOLLOW ED. FOR THIS PROPOSITION, THE LD. COUNSEL RELIED UP ON THE DECISION OF THE HON'BLE SUPREME COURT IN THE CASE OF RADHASOAMY SATSANG VS CIT 193 ITR 321. IT IS THE SAY OF THE COUNSEL THAT ONCE THIS ISSUE H AS BEEN DECIDED IN FAVOUR OF THE ASSESSEE IN ASSESS EE'S OWN CASE BY THE TRIBUNAL AND THE JURISDICTIONAL H IGH COURT, THE SAME VIEW SHOULD BE TAKEN FOR THE YEAR UNDER CONSIDERATION. 17. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSE D THE ORDERS OF THE ORDERS OF THE LOWER AUTHORITIE S AND THE MATERIAL EVIDENCE BROUGHT ON RECORD. IT IS NOT IN DISPUTE THAT IN ASSESSEE'S OWN CASE IN EARL IER YEARS THIS ISSUE HAS TRAVELLED UPTO JURISDICTIONAL HIGH COURT, THE LD. CIT(A) HAS RIGHTLY FOLLOWED TH E DECISION OF THE TRIBUNAL AND THE DECISION OF THE JU RISDICTIONAL 'HIGH COURT IN.ASSESSEE'S OWN CASE. THEREFORE, RULE OF CONSISTENCY SAYS THAT THE SAME V IEW SHOULD BE TAKEN WHEN NO NEW FACTS HAVE BEEN BROUGHT ON RECORD AND THE LAW BEING THE SAME. T HE ALTERNATIVE PLEA OF THE LD. DR THAT THE CLAIM SHOULD BE RESTRICTED TO 15% IS NOT ACCEPTABLE BECAU SE THERE IS NO PROVISION IN THE ACT TO RESTRICT TH E ALLOWANCE PROPORTIONATELY, WHEN EVEN IF THE ASSET IS USED FOR A LIMITED PERIOD OF TIME , FULL DEPRECIATION IS ALLOWED, EXCEPT AS PROVIDED U/S. 38(2) OF THE ACT WHERE ANY BUILDING, MACHINERY, PLANT OR FURNITURE IS NOT EXCLUSIVELY USED FOR.THE PURPOSES OF THE BUSINESS OR PROFESSION, THE DEDUC TION UNDER SUB-CLAUSE (II) OF CLAUSE (A) AND CLAUSE (C ) OF SEC. 30, CLAUSES (I) AND (II) OF SEC. 31 AND C LAUSE (II) OF SUB-SECTION (1) OF SEC. 32 SHALL BE RESTR ICTED TO A FAIR PROPORTIONATE PART THEREOF WHICH THE AO MAY DETERMINE, HAVING REGARD TO THE USER OF SUCH BUILDING, MACHINERY, PLANT OR FURNITURE FOR THE PURPOSES OF THE BUSINESS OR PROFESSION. IF THE LE GISLATIVE INTENT WAS TO ALLOW PROPORTIONATE DEPRECIATION , IT COULD HAVE PROVIDED SIMILAR RESTR ICTION FOR THE CLAIM OF DEPRECIATION WHILE INSE RTING 7141/M/14 GANNON DUNKERLEY 5 THE CLAIM OF ADDITIONAL DEPRECIATION AS PROVIDED U/S. 32(1)(IIA) OF THE ACT AND THEREFORE IN THE LIG HT OF THE PROVISIONS OF SEC. 32[1 ] (IIA), THERE IS NO MANDATE OF LAW TO RESTRICT THE ALLOWANCE OF DEPRECIATION PROPORTIONATELY, CONSIDERING ALL THE F ACTS IN, THE LIGHT OF THE PROVISIONS OF SEC. 32(I )(IIA) VIS-A-VIS 38(2). AND ALSO CONSIDERING THE DECISIO N OF THE TRIBUNAL AND THE DECISION .OF HON'BLE JURISDICTIONAL HIGH COURT IN ASSESSEE OWN CASE, WE HAVE NO HESITATION IN CONFIRMING THE FINDINGS OF THE LD.CIT(A). GROUND NO. 2 OF THE REVENUE ACCORDIN GLY DISMISSED. RESPECTFULLY FOLLOWING THE ORDER OF THE TRIBUNAL GR OUND NO.2 IS DECIDED AGAINST THE AO. AS A RESULT,APPEAL FILED BY THE AO STANDS DISMISSED . . ORDER PRONOUNCED IN THE OPEN COURT ON 25 TH AUGUST,2016. 25 TH ! , 2016 SD/- SD/- ( / R.L.NEGI ) ( '# / RAJENDRA ) $! / JUDICIAL MEMBER / ACCOUNTANT MEMBER MUMBAI; DATED :25.08.2016. JV.SR.PS. / COPY OF THE ORDER FORWARDED TO : 1. APPELLANT / 2. RESPONDENT / 3. THE CONCERNED CIT(A)/ , 4. THE CONCERNED CIT / 5. DR G BENCH, ITAT, MUMBAI / , , . . . 6. GUARD FILE/ //TRUE COPY// / BY ORDER, / DY./ASST. REGISTRAR , /ITAT, MUMBAI.