ACIT, New Delhi V. M/s KR Securities (P) Ltd., New Delhi

ITA 849/DEL/2011

• Counselvise Citation: [2012] 140 COUNSELVISE.COM (IT) 61650 (ITAT-DELHI)
• Duration Of Justice: 1 year(s) 2 month(s) 15 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 27-04-2012
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: D
• Next Hearing Date: 12-04-2012
• Assessment Year: 2007-2008
• Appeal Filed On: 11-02-2011
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: Y K KAKKAR
• Assessee Lawyers: RAHUL KHARE
• Keywords: Capital asset; Depreciation; Earning of tax free income; Cost of acquisition
• Section: 32; 14A

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH `D: NEW DELHIA BEFORE SMT. DIVA SINGH, JUDICIAL MEMBER AND SHRI K.D. RANJAN, ACCOUNTANT MEMBER I.T. A. NO.849/DEL/2011 ASSESSMENT YEAR : 2007-08 ASSTT. COMMISSIONER OF INCOME-TAX, M/S. KR SECURIT IES (P) LTD., CIRCLE-5(1), NEW DELHI. VS. CHIMES, 55-SULTANPUR, NEW DELHI . PAN/GIR NO.AAACK3371M. (APPELLANT) (RESPONDEN T) APPELLANT BY : MS. Y.K. KAKKAR, SR. DR. RESPONDENT BY : SHRI RAHUL KHARE, ADVOCATE. O R D E R PER K.D. RANJAN, ACCOUNTAT MEMBER: THIS APPEAL BY THE REVENUE FOR ASSESSMENT YEAR 2007 -08 ARISES OUT OF THE ORDER OF THE COMMISSIONER OF INCOME-TAX (APP EALS)-VIII, NEW DELHI. THE GROUNDS OF APPEAL RAISED BY THE REVENUE ARE REP RODUCED AS UNDER:- 1. THE ORDER OF THE LEARNED CIT(APPEALS) IS ERRONE OUS & CONTRARY TO FACTS & LAW. 2. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E AND IN LAW, THE LEARNED CIT(A) HAS ERRED IN RESTRICTING THE ADD ITION U/S 14A TO RS.14,950/- AS AGAINST RS.33,109/- MADE BY THE A .O. 2.1 THE LD. CIT(A) IGNORED THE FINDING RECORDED BY THE A.O AND THE FACT THAT THE DISALLOWANCE WAS CORRECTLY MADE B Y THE A.O. IN ACCORDANCE WITH THE PROVISIONS OF RULE 8D OF I.T. R ULES. 2 3. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E AND IN LAW, THE LEARNED CIT(APPEALS) HAS ERRED IN DELEING THE A DDITION OF RS.10,01,122/- I.E. RS.7,50,602/- & RS.2,50,520/- O N ACCOUNT OF DEPRECIATION AND INTEREST ON IMPORTED VOLKSWAGEN CA R. 3.1 THE LD. CIT(A) IGNORED THE FACTS RECORDED BY TH E A.O. AND THE FACT THAT THE CAR WAS IMPORTED IN THE NAME OF T HE DIRECTOR OF THE ASSESSEE COMPANY. 4. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E AND IN LAW, THE LEARNED CIT(APPEALS) HAS ERRED IN DELEING THE A DDITION OF RS.2,10,055/- AND RS.1,91,028/- ON ACCOUNT OF ROAD TAX AND INSURANCE RESPECTIVELY PAID FOR IMPORTED VOLKSWAGEN CAR. 4.1 THE LD. CIT(A) IGNORED THE FACTS RECORDED BY TH E A.O. AND THE FACT THAT THE CAR WAS IMPORTED IN THE NAME OF T HE DIRECTOR OF THE ASSESSEE COMPANY AND ALSO THE FACT THAT THE ASSESSEE SHALL BE DERIVING LONG TERM BENEFITS. 2. THE FIRST ISSUE FOR CONSIDERATION RELATES TO RES TRICTING THE DISALLOWANCE TO RS.14,950/- AS AGAINST RS.33,109/- MADE BY THE A SSESSING OFFICER. THE ASSESSEE DURING THE YEAR UNDER CONSIDERATION DERIVE D DIVIDEND INCOME OF RS.5,77,557/- FROM EIGHT COMPANIES. HOWEVER, NO EX PENSES IN RELATION TO EXEMPT INCOME WERE ADDED BACK BY THE ASSESSEE. THE ASSESSEES MAIN BUSINESS DURING THE RELEVANT YEAR WAS INVESTMENTS I N SHARES AND OTHER FINANCIAL INSTRUMENTS. ON BEING ASKED THE ASSESSEE FILED DETAILS OF DISALLOWABLE EXPENSES UNDER SEC. 14A AS PER RULE 8D AT RS.12,968/-. HOWEVER, THE AO BY APPLYING RULE 8D COMPUTED THE DI SALLOWANCE UNDER SEC. 14A AT RS.33,109/-. 3 3. BEFORE THE CIT(A) IT WAS SUBMITTED BY THE ASSESS EE THAT DISALLOWANCE MADE BY THE ASSESSING OFFICER WAS NOT JUSTIFIED AS THE ENTIRE PAYMENT OF INTEREST OF RS.2,81,193/- WAS IN RESPECT OF LOAN OB TAINED FOR PURCHASE OF VEHICLE. THE INVESTMENT IN SHARES AND SECURITIES W AS OUT OF INTEREST-FREE LOAN OF RS.1 CRORE RECEIVED FROM SHRI UDAY PUNJ, THE DIR ECTOR OF ASSESSEE COMPANY. IN SUPPORT OF HIS CLAIM THE ASSESSEE FILE D COPY OF BANK STATEMENT DEPICTING RECEIPT OF LOAN FROM SHRI UDAY PUNJ AND U TILIZATION THEREOF FOR INVESTMENT IN SHARES AND SECURITIES. THE LEARNED C IT(A) ON THE BASIS OF ABOVE SUBMISSIONS OBSERVED THAT SHARES AND SECURITI ES WERE PURCHASED BY THE ASSESSEE OUT OF INTEREST-FEE ADVANCE OF RS.1 CRORE RECEIVED FROM SHRI UDAY PUNJ, THE DIRECTOR OF THE COMPANY. HE THEREFORE, C AME TO THE CONCLUSION THAT DISALLOWANCE OF INTEREST EXPENSES WAS NOT JUSTIFIED . HOWEVER, KEEPING IN VIEW ADMINISTRATIVE AND INDIRECT EXPENSES, WHICH MI GHT HAVE BEEN INCURRED BY THE ASSESSEE, HE RESTRICTED THE DISALLOWANCE TO THE EXTENT OF RS.14,950/-. 4. BEFORE US THE LEARNED SR. DR STRONGLY SUPPORTED THE ORDER OF THE ASSESSING OFFICER. SHE SUBMITTED THAT DISALLOWANCE OF INTEREST UNDER RULE 8D WAS JUSTIFIED. ON THE OTHER HAND, THE LEARNED A R OF THE ASSESSEE SUBMITTED THAT SINCE THE DISALLOWANCE FINALLY MADE BY THE LEARNED CIT(A) WAS SMALL, THE ASSESSEE HAD NOT PREFERRED ANY APPEA L. HE FURTHER SUBMITTED 4 THAT PROVISIONS OF RULE 8D ARE APPLICABLE WITH EFFE CT FROM ASSESSMENT YEAR 2008-09 AND NOT FOR ASSESSMENT YEAR 2007-08. 5. WE HAVE HEARD BOTH THE PARTIES AND GONE THROUGH THE MATERIAL AVAILABLE ON RECORD. FROM THE FACTS STATED ABOVE, IT IS CLEAR THAT THE ASSESSEE HAD NOT TAKEN ANY LOAN FOR INVESTMENT IN SHARES. T HE SHARES WERE PURCHASED OUT OF INTEREST-FREE LOAN TAKEN FROM SHRI UDAY PUNJ , THE DIRECTOR OF THE COMPANY. THEREFORE, NO DISALLOWANCE FROM INTEREST CAN BE MADE. FURTHER, THE HONBLE DELHI HIGH COURT IN THE CASE OF MAXOPP INVESTMENT LTD. VS. CIT, 203 TAXMAN 364 (DEL), HAS HELD THAT PROVISIONS OF RULE 8D ARE APPLICABLE FOR AND FROM ASSESSMENT YEAR 2008-09. H ONBLE DELHI HIGH COURT HAS HELD THAT PRIOR TO ASSESSMENT YEAR 2008-0 9 THE DISALLOWANCE CAN BE MADE IF THERE IS NEXUS BETWEEN THE EXEMPT INCOME AND THE EXPENDITURE INCURRED. THE LEARNED CIT(A) HAS ESTIMATED THE AMO UNT OF RS.14,950/- ON ACCOUNT OF ADMINISTRATIVE EXPENSES. SINCE THE PROV ISIONS OF RULE 8D ARE NOT APPLICABLE FOR ASSESSMENT YEAR 2007-08, THE LEARNED CIT(A) WAS JUSTIFIED IN RESTRICTING THE DISALLOWANCE TO RS.14,950/-. ACCOR DINGLY WE DO NOT FIND ANY INFIRMITY IN THE ORDER OF LD. CIT(A). 6. THE NEXT ISSUE FOR CONSIDERATION RELATES TO DELE TING THE ADDITION OF RS.10,01,122/- I.E. RS.7,50,602/- AND RS.2,50,520/- ON ACCOUNT OF DEPRECIATION AND INTEREST ON IMPORTED VOLKSWAGEN CA R RESPECTIVELY. THE 5 ASSESSING OFFICER DISALLOWED DEPRECIATION AND INTER EST ON THE GROUND THAT THE CAR WAS PURCHASED IN THE NAME OF SHRI UDAY PUNJ AND AS PER CUSTOM BILL OF ENTRY, CAR HAS BEEN IMPORTED FOR HOME CONSUMPTION . THE AO ALSO OBSERVED THAT THERE WAS NO SINGLE FUEL OR REPAIR/MA INTENANCE BILL IN RESPECT OF VOLKSWAGEN CAR IN THE WHOLE YEAR. THEREFORE, THE CAR WAS NOT USED FOR THE BUSINESS OF THE COMPANY DURING THE YEAR. THE AO TH EREFORE, DISALLOWED THE DEPRECIATION AND MAINTENANCE EXPENSES. 7. ON APPEAL, THE LEARNED CIT(A) OBSERVED THAT THE SAID VEHICLE WAS PURCHASED AND WAS REGISTERED IN THE NAME OF SHRI UD AY PUNJ, THE DIRECTOR OF THE COMPANY. THE ICICI BANK HAD SANCTIONED A LOAN OF RS.40,31,000/- ON 10.07.2006 TO THE ASSESSEE COMPANY RECOVERABLE IN 3 6 INSTALMENTS. THE CAR HAD BEEN DULY SHOWN IN THE SCHEDULE OF ASSETS ATTAC HED WITH THE AUDITED ACCOUNT AND THE BALANCE-SHEET OF THE ASSESSEE COMPA NY. SHRI UDAY PUNJS FAMILY MEMBERS ARE ONLY SHAREHOLDERS OF THE ASSESSE E AND BECAUSE OF THIS REASON THE INTEREST-FREE LOAN OF RS.1 CRORE WAS MAD E AVAILABLE BY SHRI UDAY PUNJ TO THE ASSESSEE COMPANY. SINCE THE CAR WAS SH OWN IN THE BALANCE-SHEET OF THE ASSESSEE, THE LEARNED CIT(A) CAME TO THE CON CLUSION THAT DEPRECIATION AND INTEREST CANNOT BE DISALLOWED MERELY BECAUSE TH E ASSESSEE WAS NOT A REGISTERED OWNER OF VEHICLE. THE LEARNED CIT(A) TH EREFORE, DELETED THE ADDITION OF RS.10,01,122/-. 6 8. BEFORE US THE LEARNED SR. DR SUBMITTED THAT THE VEHICLE HAS NOT BEEN USED WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF BUSI NESS. THE ASSESSEE IS NOT REGISTERED OWNER OF THE VEHICLE. THEREFORE, TH E AO WAS JUSTIFIED IN DISALLOWING THE INTEREST AND DEPRECIATION IN RESPEC T OF VOLKSWAGEN CAR. ON THE OTHER HAND, THE LEARNED AR OF THE ASSESSEE REIT ERATED THE SIMILAR ARGUMENTS, AS MADE BEFORE LD. CIT(A) AND SUPPORTED THE ORDER OF THE CIT(A). HE PLACED RELIANCE ON THE DECISIONS (1) CIT VS. PODAR CEMENT PVT. LTD., 226 ITR 625; & (2) MYSORE MINERALS LTD. VS. CIT, 239 ITR 775 FOR THE PROPOSITION THAT FOR CLAIM OF DEPRECIATION UNDER SEC. 32, THE ASSESSEE NEED NOT BE REGISTERED OWNER. 9. WE HAVE HEARD BOTH THE PARTIES AND GONE THROUGH THE MATERIAL AVAILABLE ON RECORD. FROM THE FACTS STATED ABOVE I T IS CLEAR THAT THE ASSESSEE HAD OBTAINED LOAN FROM ICICI BANK FOR PURCHASE OF T HE CAR. THE SAID CAR IS REFLECTED IN THE BOOKS OF ACCOUNT OF THE ASSESSEE. HONBLE SUPREME COURT IN THE CASE OF CIT VS. PODAR CEMENT PVT. LTD. (SUPRA) HAS HELD THAT FOR THE PURPOSE OF SECTION 22 OF THE INCOME-TAX ACT, THE OW NER IS A PERSON WHO IS ENTITLED TO RECEIVE INCOME FROM THE PROPERTY IN HIS OWN RIGHT. THE REQUIREMENT OF REGISTRATION OF SALE DEED IN THE CON TEXT OF SEC. 22 IS NOT WARRANTED. HONBLE SUPREME COURT IN THE CASE OF MY SORE MINERALS LTD. VS. CIT (SUPRA) HAS HELD THAT VERY CONCEPT OF DEPRECIAT ION SUGGESTS THAT THE TAX 7 BENEFIT ON ACCOUNT OF DEPRECIATION LEGITIMATELY BEL ONG TO ONE WHO HAS INVESTED IN THE CAPITAL ASSET AND IS UTILIZING THE CAPITAL ASSET AND THEREBY LOOSING GRADUALLY THE INVESTMENT CAUSED BY WEAR AND TEAR, AND WOULD NEED TO REPLACE THE SAME BY HAVING LOST ITS VALUE FULLY OVE R A PERIOD OF TIME. IT IS WELL SETTLED THAT THERE CANNOT BE TWO OWNERS OF THE PROPERTY SIMULTANEOUSLY AND IN THE SAME SENSE OF THE TERM. THE INTENTION O F LEGISLATURE IN ENACTING SECTION 32 OF THE ACT WOULD BE BEST FULFILLED BY AL LOWING DEDUCTION IN RESPECT OF DEPRECATION TO THE PERSON IN WHOM FOR TH E TIME-BEING VESTS THE DOMINION OVER THE BUILDING AND WHO IS ENTITLED TO U SE IN HIS OWN RIGHT AND IS USING THE SAME FOR THE PURPOSES OF HIS BUSINESS OR PROFESSION. ASSIGNING ANY DIFFERENT MEANING WOULD NOT SUBSERVE THE LEGISLATIV E INTENT. IN THE CASE OF THE ASSESSEE, THE VOLKSWAGEN CAR IS REFLECTED IN TH E BOOKS OF ACCOUNT OF THE ASSESSEE. THE ASSESSEE HAD TAKEN LOAN FROM ICICI B ANK. MERELY BECAUSE IT IS REGISTERED IN THE NAME OF DIRECTOR OF THE COMPAN Y, IT CANNOT BE SAID THAT THE VEHICLE DOES NOT BELONG TO THE ASSESSEE. SINCE THE VEHICLE IS REFLECTED IN THE BOOKS OF ACCOUNT OF THE ASSESSEE AND LOAN HAS B EEN TAKEN BY THE ASSESSEE, THE ASSESSEE WILL BE ELIGIBLE FOR DEPRECIATION AND INTEREST ON LOAN TO THE BANK. ACCORDINGLY, WE DO NOT FIND ANY INFIRMITY IN THE OR DER PASSED BY THE LEARNED CIT(A)DELETING THE ADDITION. 8 10. THE NEXT ISSUE FOR CONSIDERATION RELATES TO DEL ETING THE ADDITION OF RS.2,10,055/- AND RS.1,91,028/- ON ACCOUNT OF ROAD TAX AND INSURANCE RESPECTIVELY PAID FOR IMPORTED VOLKSWAGEN CAR. THE AO DISALLOWED THE CLAIM OF INSURANCE AND REGISTRATION CHARGES WHILE C OMPLETING THE ASSESSMENT. HOWEVER, ON APPEAL THE LEARNED CIT(A) OBSERVED THAT ROAD TAX AND INSURANCE PAYMENTS WERE MADE BEFORE THE VEHICLE WAS ACTUALLY PUT TO USE. THEREFORE, HE TREATED THE ROAD TAX AND INSURANCE AS COST OF AC QUISITION OF THE VEHICLE. THE LEARNED CIT(A) THEREFORE, UPHELD THE DISALLOWAN CE. 11. DURING THE COURSE OF HEARING THE LEARNED AR OF THE ASSESSEE SUBMITTED THAT THIS GROUND OF APPEAL IS WRONGLY TAKEN BY THE REVENUE. THE LEARNED CIT(A) HAS UPHELD THE DISALLOWANCE TREATING THE ROA D TAX AND INSURANCE AS PART OF THE COST OF ACQUISITION OF THE VEHICLE. 12. WE HAVE HEARD BOTH THE PARTIES. WE FIND THAT T HE LEARNED CIT(A) HAS SUSTAINED THE DISALLOWANCE MADE ON ACCOUNT OF ROAD TAX AND INSURANCE PAYMENTS. THEREFORE, THE GROUND TAKEN BY THE REVEN UE IS MISCONCEIVED AND IS LIABLE TO BE DISMISSED. WE ORDER ACCORDINGLY. 13. IN THE RESULT, THE APPEAL FILED BY THE REVENUE IS DISMISSED. 14. THIS DECISION IS PRONOUNCED IN THE OPEN COURT O N 27 TH APRIL, 2012. SD/- SD/- (DIVA SINGH) (K.D. RANJAN) JUDICIAL MEMBER ACOUNTANT MEMBER DATED: 27 TH APRIL, 2012. 9 ITA NO.849/DEL/2011 COPY OF THE ORDER FORWARDED TO:- 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(A) 5. DR BY ORDER *MG DEPUTY REGISTRAR, ITAT.