Kirloskar Pneumatic Co.Ltd, Pune V. Deputy Commissioner of Income-tax, Circle - 14, Pune

ITA 983/PUN/2018

• Counselvise Citation: [2022] 106 COUNSELVISE.COM (IT) 8029 (ITAT-PUNE)
• Duration Of Justice: 4 year(s) 3 month(s) 12 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 11-09-2022
• Appeal Filed By: Assessee
• Order Result: PartlyAllowed
• Bench Allotted: B
• Assessment Year: 2015-2016
• Appeal Filed On: 30-05-2018
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Gift; Question of law; Rule 8D
• Section: 143(3); 14A

Judgement Text

आयकर अपीलीय अिधकरण “बी” Ɋायपीठ पुणेमŐ। IN THE INCOME TAX APPELLATE TRIBUNAL “B” BENCH, PUNE BEFORE SHRI S.S.GODARA, JUDICIAL MEMBER AND DR. DIPAK P. RIPOTE, ACCOUNTANT MEMBER आयकरअपीलसं. / ITA No.983/PUN/2018 िनधाᭅरणवषᭅ / Assessment Year : 2015-16 Kirloskar Pneumatic Co. Ltd., Hadapsar Industrial Estate, Pune Solapur Road, Hadapsar, PUne – 411013. PAN:AAACK 2479 C Vs The DCIT, Circle-14, Pune. Appellant/ Assessee Respondent / Revenue Assessee by Shri C.H.Naniwadeker – AR Revenue by Shri M.G.Jasnani – DR Date of hearing 13/07/2022 Date of pronouncement 12/09/2022 आदेश/ ORDER PER DR. DIPAK P. RIPOTE, AM: This is an appeal filed by the appellant assessee namely Kirloskar Pneumatic Co. Ltd. Against the order of ld.Commissioner of Income Tax(Appeals)-7, Pune dated 09.04.2018 emanating from the order of Deputy Commissioner of Income Tax, Circle-14, Pune under section 143(3) of the Act, 1961. The grounds of appeal are as under: “1. The learned CIT(A) erred on facts and in law in upholding disallowance of Rs.57,44,010/- u/s 14A r.w.r. 8D without appreciating the facts and submissions made in this behalf. He also failed to appreciate that before invoking Rule 8D, the A.O. has not recorded his satisfaction as required by law. 2. The learned CIT(A) erred on facts and in law in upholding 50% ad-hoc disallowance of Gift & Present of Rs.16,06,635/- u/s ITA No.983/PUN/2018 for A.Y. 2015-16 Kirloskar Pneumatic Co. Ltd., [A] 2 37(1) without appreciating the facts and submissions made in this behalf. 3. The learned CIT(A) erred on facts and in law in upholding disallowance of Building Repairs Expense of rs.1,12,01,324/- contending the same as Capital Expenditure as against Revenue Expenditure as claimed by the assessee. He failed to appreciate the nature of expenditure and submissions made in this behalf. 4. The appellant craves leave to add, alter, delete or substitute all or any of the above grounds of appeal.” Ground No.1 – 14A : 2. The ld.Authorised Representative(ld.AR) for the assessee submitted that the Assessing Officer(AO) has not recorded any satisfaction before making the disallowance under section 14A of the Act of Rs.57,44,010/-. The ld.AR vehemently argued that jurisdictional high court has categorically held that satisfaction of the AO is prior condition. The ld.AR took us through the relevant part of the assessment order to demonstrate that there is no satisfaction recorded. 3. The ld.Departmental Representative(ld.DR) relied on the order of the AO and ld.CIT(A). 4. We have heard both the parties and perused the records. The Assessing Officer has mentioned in the assessment order as under: “4.1 During the course of hearing, it was noted that the assessee has received dividend of Rs.5,87,49,508/-. In view of the facts, it was questioned why the provisions of section 14A r w Rule 8D(2)(iii) should not be invoked. Further, on perusal of computation of income, it was observed that the assessee on his ITA No.983/PUN/2018 for A.Y. 2015-16 Kirloskar Pneumatic Co. Ltd., [A] 3 own disallowed Rs.1,61,764/- for expenses related to investment u/s 14A of the Act. 4.2 Therefore, during the assessment proceedings, the assessee was asked to submit the working of expenses related to 14A r,w.r. 8D. In response to that the assessee has given the calculation of 141A r,w.r. 8D as below: ” 4.1 On perusal of the assessment order, it is observed that not a single sentence has been mentioned by the AO that why assessee suo-moto disallowance under section 14A is inappropriate or incorrect!. It was the duty of the AO to analyse the accounts of the assessee and then arrive at the satisfaction regarding appropriateness of assessee’s suo-moto disallowance. The AO has failed to record any finding regarding assessee’s suo-moto disallowance. The Hon’ble Supreme Court in Maxopp Investment Ltd. v/s CIT 402 ITR 640 (SC) has held as under :- “41. Having regard to the language of Section 14A(2) of the Act, read with Rule 8D of the Rules, we also make it clear that before applying the theory of apportionment, the AO needs to record satisfaction that having regard to the kind of the assessee, suo moto disallowance under Section 14A was not correct. It will be in those cases where the assessee in his return has himself apportioned but the AO was not accepting the said apportionment.” 4.2 Similarly, the Hon’ble Bombay High Court in PCIT vs. Bajaj Finance Ltd., [2019] 110 taxmann.com 303 (Bom) held as under :- “Question No. (ii) pertains to disallowance made by the Assessing Officer under Section 14A of the Act read with Rule 8D. The Tribunal, however, deleted the disallowance on the ground that the ITA No.983/PUN/2018 for A.Y. 2015-16 Kirloskar Pneumatic Co. Ltd., [A] 4 Assessing Officer had not recorded the necessary satisfaction for not accepting the disallowance offered by the assessee. As is well known, sub-section (2) of Section 14A provides that the Assessing Officer shall determine the amount of expenditure incurred in relation to income which is examined for tax if he is not satisfied with the correctness of the claim of the assessee in respect of such expenditure. The satisfaction of the Assessing Officer about the correctness of the expenditure offered for disallowance by the assessee therefore is a precondition. In the present case, we have perused the order of assessment in which the Assessing Officer had called upon the assessee to justify the limited disallowances voluntarily offered. The assessee made detailed representation inter alia pointed out that the assessee had not made any expenditure in the nature of administrative expenses. However, to avoid proceedings, a suo motu disallowance was made. The Assessing Officer did not in any manner reject this explanation of the assessee but merely proceeded to make disallowance by invoking Section 14A and applied Rule 8D which the Tribunal correctly reversed. 10. No question of law arises. Income Tax Appeals are dismissed.” 4.3. Thus, the Hon’ble Supreme Court and Hon’ble jurisdictional High Court has laid down the law that satisfaction of the AO about the correctness of the expenditure offered for the disallowance by the assessee suo-moto is a pre-condition. In this case, the AO has not analysed the expenditure suo-moto disallowed by the assessee and failed to record any satisfaction about its correctness. Therefore, respectfully following the Hon’ble Supreme Court and Hon’ble Jurisdictional High Court (supra), it is held that Assessing Officer has erred in making disallowance under section 14A of the Act ITA No.983/PUN/2018 for A.Y. 2015-16 Kirloskar Pneumatic Co. Ltd., [A] 5 without recording any satisfaction regarding correctness incorrectness of the suo-moto disallowance of the assessee. Accordingly, the Assessing Officer is directed to delete the said addition. Thus, the Ground No.1 of the assessee is allowed. Ground No.2 –Gift and Present Rs.16,06,635/-: 5. The ld.Authorised Representative(ld.AR) of the assessee submitted that assessee is a limited company. During the business of the assessee on various festivals, certain gifts were given which is a business tradition. These expenditures were incurred in the course of business as business necessity. The ld.AR stated that AO has not alleged that there is any siphoning of the money. Therefore, the ld.AR stated that there is no merit in the disallowance. 5.1 The ld.DR relied on the order of the AO and ld.CIT(A). The ld.DR specifically submitted that no details have been filed by the assessee regarding these gift expenses. The ld.DR submitted that the assessee failed to submit any bills or vouchers for these expenditures. The assessee also failed submit that to whom these gifts were given. Therefore, the ld.DR submitted that the onus was on the assessee to prove the genuineness of the expenditure and to prove that it was wholly and exclusively for the purpose of business. The assessee failed to prove these by documentary evidence. ITA No.983/PUN/2018 for A.Y. 2015-16 Kirloskar Pneumatic Co. Ltd., [A] 6 6. We have heard both the parties and perused the records. It is a fact recorded by AO and ld.CIT(A) that the assessee had not submitted any bills, vouchers regarding the gifts. The assessee had not submitted specific explanation in respect of gifts/presentsto prove that it was wholly and exclusively for the purpose of business. For any expenditure, the onus is on assessee to prove that it was wholly and exclusively for the purpose of the business of the assessee. The assessee has to prove it by documentary evidence. In this case, it is a fact that assessee had not filed any documents to prove the genuineness of the expenditure and to prove that it was wholly and exclusively for the purposes of business. The ld.AR had relied on the order this Tribunal in assessee’s own case for A.Y. 1994-95, 1995-96. In ITA No.498/PN/1999, ITA No.1268/PN/2000. We have perused the said decision of this Tribunal in assessee’s case, however, it is observed that the facts are distinguishable. In the year under consideration, there is clear finding by both the lower authorities that no evidence has been filed by the assessee to prove that the said expenditure was incurred wholly and exclusively for the purposes of the business of the assessee. Before us also the Assessee has not filed any documents to prove that it was wholly and exclusively for the purpose of business of the assessee. Therefore, the earlier decision is distinguishable on facts. The onus is on assessee to prove that the expenditure was incurred wholly and ITA No.983/PUN/2018 for A.Y. 2015-16 Kirloskar Pneumatic Co. Ltd., [A] 7 exclusively for the purposeof the business of the assessee. In this case assessee failed to prove so, therefore, we uphold the order of the ld.CIT(A) in upholding the disallowance of Rs.16,06,635/-. Accordingly, Ground No.2 of the assessee is dismissed. Ground No.3 – Disallowance of Building Repair Expenses of Rs.1,12,01,324/- : 7. The ld.AR submitted that assessee had filed list of details of expenditure before the Assessing Officer and ld.CIT(A). The ld.AR explained that the said list was enclosed at page no.39 to 42 of the paper book. The ld.AR submitted that all these expenditures were for repairs and revenue expenditure. No capital asset has been created, therefore, the ld.AR stated that entire expenditure need to be allowed. 8. The ld.DR for the Revenue relied on the orders of the lower authorities. The relevant part of the assessment order is reproduced here as under: “5.5 .............The assessee has merely stated that the expenses were incurred to replace existing asset/damaged parts. However, the details of actual work done in this regard have not been given. 5.6 Perusal of the narration of the work done clearly shows that the same was not repair work in respect of some expenses as claimed. Details of such expenses are annexed with this order as annexure A. 5.7 From the narration of the mentioned in the said expenses, it is seen that the same has either been incurred for flooring or partitioning which are clearly new works. Therefore, the claim of ITA No.983/PUN/2018 for A.Y. 2015-16 Kirloskar Pneumatic Co. Ltd., [A] 8 the assessee that these expenses were of current repairs cannot be accepted. Therefore, the expenses to the extent of Rs.1,12,01,324/- are considered capital in nature.” 9. We have heard both the parties and perused the records. We have studied the list which is at page 39 to 42 of the paper book. Some of the items mentioned in the list are as under : VENDOR NAME NATURE OF EXPENSES AMOUNT KASTUBH CONSTRUCTION REPAIRING TO CONCRETE FLOORING AT CYCLE STAND 1,40,533 DINESH BHONGALE RENOVATION OF TOILET AT MAIN BUILDING 1,83,228 AQUAPROOF & ANCHORING SYSTEMS AQUAPROOF COATING TOP WATERPROOFING OF TERRACE 2,39,535 KAUSTUBH CONSTRUCTION RENOVATION OF SCRAP YARD SHED 2,90,388 KAUSTUBH CONSTRUCTION CIVIL WORK FOR IT WINDOW 1,99,853 DINESH BHONGALE RENOVATION OF TOILET AT BOARD ROOM 4,67,035 SHABBIR GLASS TRADERS REPLACING OF ALU. WINDOW FOR IT DEPT. 1,53,586 NIRMAL AUTOMATION PVT. LTD. REPLACING ROLLING SHUTTER 2,26,575 KAUSTUBH CONSTRUCTION REPLCEMENT TO BARBED WIRE FENCING at SASWAD 2,13,259 KAUSTUBH CONSTRUCTION REPLACEMENT TO BARBED WIRE FENCING at SASWAD 2,06,153 KAUSTUBH CONSTRUCTION REPLACEMENT TO BARBED WIRE FENCING at SASWAD 1,91,052 10. From the perusal of the list, it appears that certain expenditures like repairing, flooring at cycle stand, renovation of toilet, water proofing of terrace etc., apparently seems to be revenue in nature. However, there are other expenditures in the list like replacing rolling shutter, replacement of barbed wire fencing, which apparently seems to be capital in nature as it seems that a new rolling shutter has been installed. However, it is seen that the AO has stated that no details of these expenditure were produced. Before us also, other ITA No.983/PUN/2018 for A.Y. 2015-16 Kirloskar Pneumatic Co. Ltd., [A] 9 than the list, there are no other details. Mere perusal of the list will not make us understand whether the expenditure was revenue or capital in nature!. It is also observed that this Tribunal for A.Y.2008- 09 in ITA No.497/PN/2012 have set-aside the said issue to the AO. In this case also, there are inadequate facts on record. Therefore, we set-aside the issue to the AO for re-adjudication after giving opportunity to the assessee. The assessee shall produce all the relevant details before the Assessing Officer. Accordingly, the Ground No.3 is allowed for statistical purpose. 11. In the result, appeal of the assessee is partly allowed. Order pronounced in the open Court on 12 th September, 2022. Sd/- Sd/- (S.S.GODARA) (DR. DIPAK P. RIPOTE) JUDICIAL MEMBER ACCOUNTANT MEMBER पुणे / Pune; ᳰदनांक / Dated : 12 th Sep, 2022/ SGR*/Sujeet आदेशकᳱᮧितिलिपअᮕेिषत / Copy of the Order forwarded to : 1. अपीलाथᱮ / The Appellant. 2. ᮧ᭜यथᱮ / The Respondent. 3. The CIT(A), concerned. 4. The Pr. CIT, concerned. 5. िवभागीयᮧितिनिध, आयकर अपीलीय अिधकरण, “बी” बᱶच, पुणे / DR, ITAT, “B” Bench, Pune. 6. गाडᭅफ़ाइल / Guard File. आदेशानुसार / BY ORDER, // TRUE COPY // Senior Private Secretary आयकर अपीलीय अिधकरण, पुणे/ITAT, Pune.