M/s. Vepar Pvt.Ltd.,, Ahmedabad v. The ACIT.,Circle-8,, Ahmedabad

CO 110/AHD/2009 | 2006-2007
Pronouncement Date: 08-07-2011 | Result: Allowed

Appeal Details

RSA Number 11020523 RSA 2009
Assessee PAN AAACV3821F
Bench Ahmedabad
Appeal Number CO 110/AHD/2009
Duration Of Justice 2 year(s) 1 month(s) 4 day(s)
Appellant M/s. Vepar Pvt.Ltd.,, Ahmedabad
Respondent The ACIT.,Circle-8,, Ahmedabad
Appeal Type Cross Objection
Pronouncement Date 08-07-2011
Appeal Filed By Assessee
Order Result Allowed
Bench Allotted B
Tribunal Order Date 08-07-2011
Date Of Final Hearing 01-07-2011
Next Hearing Date 01-07-2011
Assessment Year 2006-2007
Appeal Filed On 03-06-2009
Judgment Text
IN THE INCOME TAX APPELLATE TRIBUNAL : B BENCH : AHMEDABAD (BEFORE HONBLE SHRI T.K. SHARMA J.M. & HONBL E SHRI A.K.GARODIA A.M.) I.T.A. NO. 1374/AHD./2009 : ASSESSMENT YEAR : 2006-2007 ACIT CIRCLE - 8 AHMEDABAD VS- M/S. VEPAR PVT. LTD. AHMEDABAD (PAN : AAACV 3821F) (APPELLANT) ( RESPONDENT) C.O. NO.110/AHD/2009 : ASSESSMENT YEAR : 2006-20 07 (ARISING OUT OF I.T.A. NO. 1374/AHD./2009) M/S. VEPAR PVT. LTD. AHMEDABAD -VS- ACIT CIRCLE - 8 AHMEDABAD (APPELLANT) (RESPONDENT ) DEPARTMENT BY : SHRI SAMIR TEKRIWA LA SR.D.R. ASSESSEE BY : SHRI P.M.MEHTA A.R. O R D E R PER SHRI T.K. SHARMA JUDICIAL MEMBER : THE APPEAL FILED BY THE REVENUE AND THE CROSS OBJE CTION FILED BY THE ASSESSEE ARE AGAINST THE ORDER DATED 12-02-2009 OF LEARNED C OMMISSIONER OF INCOME TAX(APPEALS)-XIV AHMEDABAD FOR THE ASSESSMENT YEAR 2006-07. 2. GROUND NO.1 OF REVENUES APPEAL IS AGAINST DELET ING THE DISALLOWANCE OF DEPRECIATION ON FACTORY BUILDING AMOUNTING TO RS.12 57 291/-. 3. THE FACTS RELATING TO CONTROVERSY INVOLVED IN TH IS GROUND ARE THAT THE AO DISALLOWED RS.12 57 291/- OUT OF DEPRECIATION ON FA CTORY BUILDING. ON APPEAL IN THE IMPUGNED ORDER THE LD. CIT(A) FOLLOWING HIS ORDER DATED 18.12.2007 FOR THE ASSESSMENT YEAR 2005-06 AND ALSO FOR EARLIER ASSESS MENT YEARS I.E. ASSESSMENT YEAR 2002-03 AND 2003-04 ALLOWED THE RELIEF TO THE ASSE SSEE ON THIS ISSUE FOR THE ASSESSMENT YEAR UNDER APPEAL. AGGRIEVED THE REVENU E IS IN APPEAL. ITA NO.1374-AHD-09 & C.O.110-AHD-09 2 4. AT THE OUTSET SHRI P.M.MEHTA APPEARING ON BEHA LF OF THE ASSESSEE PRODUCED THE COPY OF THE DECISION DATED 09.07.2010 OF THE IT AT B BENCH IN ASSESSEES OWN CASE FOR THE ASSESSMENT YEAR 2005-06 WHEREBY THE A PPEAL OF THE REVENUE AGAINST THE ORDER OF THE LD. CIT(A) WAS DISMISSED. THE LD. COUN SEL OF THE ASSESSEE EXPLAINED THAT THE VIEW TAKEN BY THE LD. CIT(A) FOR THE ASSESSMENT YEAR 2005-06 WHICH IS FOLLOWED IN THE IMPUGNED ORDER IS UPHELD BY THE ITAT IN THE ORDER DATED 09.07.2010 (SUPRA). THEREFORE THIS GROUND OF APPEAL BE DISMISSED KEEP ING IN VIEW OF THE ORDER OF THE ITAT B BENCH IN ASSESSEES OWN CASE. 5. ON THE OTHER HAND SHRI SAMIR TEKRIWAL SR. D.R. APPEARING ON BEHALF OF THE REVENUE POINTED OUT THAT THE TRIBUNAL WHILE DECID ING THE APPEAL OF THE ASSESSEE FOR THE ASSESSMENT YEAR 2005-06 HAS NOT CONSIDERED THE PROVISIONS OF SECTION 38(2) OF THE I.T. ACT. THEREFORE IT MAY BE HELD THAT THE ASSESS EE IS ENTITLED TO ONLY PROPORTIONATE DEPRECIATION ON ITS ASSETS. AS AGAINST THIS THE LD . COUNSEL OF THE ASSESSEE POINTED OUT THAT THIS ASPECT IS ALSO DULY CONSIDERED AND THE SA ME HAS BEEN REFERRED TO IN THE ORDER FOR THE ASSESSMENT YEAR 2005-06. 6. HAVING HEARD BOTH THE SIDES WE HAVE CAREFULLY G ONE THROUGH THE ORDERS OF THE AUTHORITIES BELOW. IT IS PERTINENT TO NOTE THAT FOR IDENTICAL REASONS IN THE ASSESSMENT YEAR 2005-06 DEPRECIATION ON FACTORY BUILDING AMO UNTING TO RS.13 96 990/- WAS DISALLOWED. THE ITAT B BENCH VIDE ITS ORDER DAT ED 09.07.2010 ALLOWED THE SAME FOLLOWING THE DECISION OF THE TRIBUNAL IN ASSESSEE S OWN CASE FOR THE ASSESSMENT YEARS 2002-03 AND 2003-04. THE TRIBUNAL IN EARLIER YEARS HAS DULY CONSIDERED THAT PART OF THE BUILDING WAS GIVEN TO THE SUBSIDIARY COMPANIES. THEREFORE THE OBJECTION OF THE LD. D.R. THAT PROVISIONS OF SECTION 38(2) WERE NOT CON SIDERED IS NOT MAINTAINABLE. IN VIEW OF THE FOREGOING WE FOLLOWING THE DECISION O F THE TRIBUNAL IN ASSESSEES OWN CASE FOR THE ASSESSMENT YEAR 2005-06 INCLINE TO UP HOLD THE ORDER OF THE LD. CIT(A). THIS GROUND OF REVENUES APPEAL IS REJECTED. 7. GROUND NO.2 OF REVENUES APPEAL IS THAT THE LD. CIT(A) ERRED IN REDUCING THE PERCENTAGE OF DISALLOWANCE OF ADMINISTRATIVE EXPENS ES FROM 5% TO 3%. THE ONLY GROUND RAISED IN THE CROSS-OBJECTION IS AGAINST SUS TAINING THE DISALLOWANCE OF 3% (OUT ITA NO.1374-AHD-09 & C.O.110-AHD-09 3 OF 5% OF ADMINISTRATIVE EXPENSES AGGREGATING TO RS. 47 68 596/-) BECAUSE OTHER GROUNDS OF CROSS- OBJECTION WERE NOT PRESSED BY THE LD. COUNSEL OF THE ASSESSEE AT THE TIME OF HEARING. HENCE OTHER GROUNDS OF CROSS OBJECTION EXCEPT ONE WHICH IS BEING DEALT HEREUNDER ARE DISMISSED AS NOT BEING PRESSED FOR. 8. THE FACTS IN BRIEF RELATING TO CONTROVERSY INVOL VED IN GROUND NO.2 OF REVENUES APPEAL AND THE ONLY GROUND IN CROSS-OBJECTION OF TH E ASSESSEE ARE THAT IN THE ASSESSMENT ORDER THE AO DISALLOWED 5% OF EXPENDITU RE OF RS.47 68 596/- I.E. RS.2 38 430/-. THIS EXPENDITURE WAS DISALLOWED ON T HE GROUND THAT IT HAS BEEN INCURRED FOR EARNING TAX-FREE INCOME. 9. ON APPEAL IN THE IMPUGNED ORDER THE LD. CIT(A) RESTRICTED THIS DISALLOWANCE TO 3% ON TOTAL EXPENDITURE OF RS.47 68 596/-. AGGRIEVE D THE REVENUE IS IN APPEAL VIDE GROUND NO.2 AND THE ASSESSEE HAS FILED CROSS OBJECT ION. 10. AT THE TIME OF HEARING BEFORE US THE LD. COUNS EL FOR THE ASSESSEE APPEARED AND RELYING ON THE JUDGMENT OF THE ITAT DELHI BENCH-E (TM) IN THE CASE OF WIMCO SEEDLINGS LTD. VS- DCIT REPORTED IN 107 ITD 267 C ONTENDED THAT THE EXPENDITURE INCURRED AT HEAD OFFICE CANNOT BE BROKEN UP ARTIFIC IALLY TO ATTRIBUTE OR APPORTION A PART THEREOF TO EARNING OF TAX FREE INCOME ON ASSUMPTION THAT SUCH PART OF COMMON EXPENDITURE WAS INCURRED IN RELATION TO TAX FREE IN COME BY APPLYING SECTION 14A. RELIANCE WAS ALSO PLACED ON THE FOLLOWING DECISIONS : (I) IN CIT-VS- WALFORT SHARE & STOCK BROKERS (P) L TD. 310 ITR 21 (BOM.) WHEREIN IT WAS HELD THAT WHAT SECTION 14A CONTEMPLA TES IS EXPENDITURE ACTUALLY INCURRED FOR EARNING TAX-FREE INCOME AND NOT ASSUME D EXPENDITURE OR DEEMED EXPENDITURE. (II) IN CIT-VS- HERO CYCLES LTD. REPORTED IN 323 I TR 518 WHEREIN THE HONBLE PUNJAB & HARYANA HIGH COURT AHS HELD THAT THE DISAL LOWANCE U/S.14A REQUIRES A FINDING OF EXPENDITURE HAVING BEEN INCURRED FOR E ARNING TAX EXEMPT INCOME FOR MAKING ANY DISALLOWANCE U/S.14A. (III) IN DRESDNER BANK AG-VS- ADDL. CIT REPORTED I N 108 ITD 375 (MUM.) WHEREIN IT IS HELD THAT WHEREVER EXPENSE INCURRED H AS NO RELATIONSHIP WITH INCOME NOT INCLUDIBLE IN TOTAL INCOME THERE CANNOT BE ANY OCCASION TO INVOKE DISALLOWANCE UNDER SECTION 14A; THEREFORE IT IS FO R ASSESSING OFFICER TO IDENTIFY ITA NO.1374-AHD-09 & C.O.110-AHD-09 4 EXPENDITURE WHICH CAN BE REASONABLY SAID TO HAVE BE EN INCURRED TO EARN A TAX EXEMPT INCOME BEFORE INVOKING DISALLOWANCE UNDER SE CTION 14A. (IV) IN IMPULSE (INDIA) LTD. VS- A.C.I.T. REPORTE D IN 22 SOT 368 (DEL.TRI.) WHEREIN IT IS HELD THAT PROVISIONS OF SECTION 14A D O NOT CONFER POWER UPON AO TO DEEM OR ASSUME CERTAIN EXPENDITURE TO HAVE BEEN INCURRED IN RELATION TO TAX- FREE INCOME; NOT ONLY INCURRING OF EXPENDITURE BUT ALSO ITS RELATIONSHIP WITH EXEMPTED INCOME MUST BE CLEAR AND MUST BE CAPABLE O F BEING ASCERTAINED. (V) IN A.C.I.T. VS- EICHER LTD. REPORTED IN 101 T TJ 369 (DEL) WHEREIN IT IS HELD THAT EXPENDITURE WHICH AO SEEKS TO DISALLOW UN DER SECTION 14A SHOULD BE ACTUALLY INCURRED AND SO INCURRED WITH A VIEW TO PR ODUCING NON-TAXABLE INCOME; IT FOLLOWS THAT IT IS DUTY OF AO TO PINPOIN T SUCH EXPENDITURE ON BASIS OF MATERIAL ON RECORD. 11. ON THE OTHER HAND THE LD. D.R. APPEARING ON B EHALF OF THE REVENUE POINTED OUT THAT TOTAL EXPENDITURE INCURRED BY THE ASSESSEE IS RS.47 69 596/- AS UNDER: SALARY AND BONUS RS.41 94 235/- STAFF WELFARE EXPENSES RS. 1 65 506/- OFFICE EXPENSES RS. 4 08 855/- THE AO DISALLOWED ONLY 5% OF RS.47 69 596/- I.E. RS .2 38 430/- FOR EARNING TAX FREE INCOME I.E. DIVIDEND RS.39 71 614/-. THE LD. D.R. P OINTED OUT THAT THE ASSESSEE IS A PRIVATE LIMITED COMPANY OF SARABHAI GROUP MANUFACT URING GARMENTS ACCESSORIES AND MADE-UPS ETC. LOOKING TO THE AMOUNT OF DIVIDEND 5 % OF TOTAL EXPENDITURE IS INCURRED RS.2 38 430/- IS FAIR AND REASONABLE. THEREFORE TH E ORDER OF THE LD. CIT(A) DELETING THE DISALLOWANCE OF RS.2 38 430/- BE SET MADE AND THAT OF THE AO BE RESTORED. 12. HAVING HEARD BOTH THE SIDES WE HAVE CAREFULLY GONE THROUGH THE ORDERS OF THE AUTHORITIES BELOW. IN THE ASSESSMENT ORDER THE AO DISALLOWED RS.2 38 430/- BEING 5% OF TOTAL EXPENDITURE OF RS.47 68 596/-. IN THE I MPUGNED ORDER THE LD. CIT(A) RESTRICTED THIS DISALLOWANCE TO 3%. RECENTLY THE H ONBLE BOMBAY HIGH COURT IN THE CASE OF GODREJ BOYCE & MANUFACTURING CO. VS- DCIT REPORTED IN [2010] 310 ITR 81 (BOM.) HELD THAT RULE 8D IS NOT APPLICABLE TO THE A SSESSMENT YEAR 2006-07. APART FROM THIS THERE ARE VARIOUS DECISIONS WHICH HAVE HELD THAT IF DEPARTMENT DOES NOT FIND ANY NEXUS BETWEEN EXPENDITURE SOUGHT TO BE DISALLOWED A ND ACTIVITY OF PRODUCING TAX EXEMPT INCOME NO DISALLOWANCE CAN BE MADE UNDER SE CTION 14A. RECENTLY THE ITA NO.1374-AHD-09 & C.O.110-AHD-09 5 HONBLE HIGH COURT OF KERALA VIDE JUDGEMENT DATED 21.10.2010 IN I.T. APPEAL NO.467 & ORS. OF 2010 IN THE CASE OF CIT-VS- CATHOL IC SYRIAN BANK LTD. TRISSUR HELD AS UNDER: 6. SO FAR AS THE DISALLOWANCE OF ADMINISTRATIVE EX PENDITURE IS CONCERNED WE FEEL CONSIDERING THE FACT THAT THERE IS NO PRECISE FORMULA FOR PROPORTIONATE DISALLOWANCE NO DISALLOWANCE IS CALLED FOR FOR PR OPORTIONATE ADMINISTRATIVE COST ATTRIBUTABLE TO EARNING OF LAX FREE INCOME UNT IL RULE 8D CAME INTO FORCE. WE THEREFORE DISPOSE OF THE APPEALS BY SETTING AS IDE THE ORDERS OF THE TRIBUNAL AND THAT OF THE FIRST APPELLATE AUTHORITY ON THIS I SSUE AND REMAND ALL THE ASSESSMENTS BACK TO THE ASSESSING OFFICER FOR REWOR KING DISALLOWANCE UNDER SECTION 14A IN THE CASE OF EACH ASSESSEE FOR EACH A SSESSMENT YEAR. THE PROPORTIONATE DISALLOWANCE UNDER SECTION 14A SHOULD BE LIMITED TO ONLY INTEREST LIABILITY AND NOT OVERHEADS OR ADMINISTRAT IVE EXPENDITURE; WHICH SHOULD BE CONSIDERED FOR DISALLOWANCE UNDER RULE 8D FROM 2007-2008 ONWARDS. THE ASSESSMENT YEAR INVOLVED IN THE PRESENT APPEAL IS 2006-07. WE THEREFORE FOLLOWING THE DECISION OF THE HONBLE KERALA HIGH C OURT HOLD THAT NO DISALLOWANCE CAN BE MADE PRIOR TO 2007-08. HENCE THE DISALLOWAN CE OF RS. 2 38 430/-MADE BY THE AO IS DELETED. 13. IN THE RESULT THE APPEAL FILED BY THE REVENUE IS DISMISSED WHEREAS THE CROSS- OBJECTION FILED BY THE ASSESSEE IS ALLOWED. THE ORDER PRONOUNCED IN THE COURT ON 08.07.201 1 SD/- SD/- (A.K.GARODIA) (T.K. SHARMA) ACCOUNTANT MEMBER JUDICIAL MEMBER DATED : 08/07/2011 COPY OF THE ORDER IS FORWARDED TO:- (1) THE ASSESSEE (2) THE DEPARTMENT. (3) CIT (A.) CONCERNED. (4) CIT CONCERNED. (5) D.R. ITAT AHMEDABAD. TRUE COPY BY ORDER DEPUTY REGISTRAR ITAT AH MEDABAD. TALUKDAR/ SR. P.S. ITA NO.1374-AHD-09 & C.O.110-AHD-09 6