Galileo India Pvt. Ltd., Haryana v. CIT-IV, New Delhi

ITA 2331/DEL/2010 | 2005-2006
Pronouncement Date: 16-12-2010 | Result: Allowed

Appeal Details

RSA Number 233120114 RSA 2010
Bench Delhi
Appeal Number ITA 2331/DEL/2010
Duration Of Justice 6 month(s) 30 day(s)
Appellant Galileo India Pvt. Ltd., Haryana
Respondent CIT-IV, New Delhi
Appeal Type Income Tax Appeal
Pronouncement Date 16-12-2010
Appeal Filed By Assessee
Order Result Allowed
Bench Allotted C
Tribunal Order Date 16-12-2010
Date Of Final Hearing 01-12-2010
Next Hearing Date 01-12-2010
Assessment Year 2005-2006
Appeal Filed On 17-05-2010
Judgment Text
IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH : C NEW DELHI BEFORE SHRI G.E. VEERABHADRAPPA VICE PRESIDENT A ND SHRI RAJPAL YADAV JUDICIAL MEMBER I.T.A NO. 2331/DEL/10 ASSTT. YEAR 2005-06 GALILEO INDIA PRIVATE LIMITED. GURGAON. VS. CIT-IV NEW DELHI. (APPELLANT) (RESPONDENT) APPELLANT BY: SHRI TAPAS RAM MISHRA ADVOCATE RESPONDENT BY: SHRI A.D. MEHROTRA CIT / DR ORDER PER RAJPAL YADAV JM: THE ASSESSEE IS IN APPEAL BEFORE US AGAINST THE ORD ER OF LD. COMMISSIONER DATED 26 TH FEBRUARY 2010 PASSED U/S 263 OF THE INCOME TAX ACT IN ASSTT. YEAR 2005-06. THE GROUNDS OF APPE AL TAKEN BY THE ASSESSEE ARE NOT IN CONSONANCE WITH RULE 8 OF ITAT RULES. THEY ARE DESCRIPTIVE AND ARGUMENTATIVE IN NATURE. IN BRIEF T HE GRIEVANCE OF ITA NO. 2331/DEL/10 ASSTT. YEAR 2005-06 2 ASSESSEE IS THAT LD. CIT HAS ERRED IN TAKING COGNIZ ANCE U/S 263 OF THE INCOME TAX ACT AND THEREBY SETTING ASIDE THE WELL R EASONED ORDER OF THE AO. THE LD. COMMISSIONER FURTHER ERRED IN DIRECTING THE AO TO READJUDICATE THE TWO ISSUES I.E GRANT OF DEPRECIATI ON ON THE COMPUTERS @ 60% INSTEAD OF 25% AND WERE NOT MAKING ANY DISALLOW ANCE U/S 14A IN RESPECT OF THE EXPENSES RELATABLE TO EARNING OF DIV IDEND INCOME. 2. THE BRIEF FACTS OF THE CASE ARE THAT ASSESSEE HA S FILED ITS RETURN OF INCOME ON 25 TH OCTOBER 2005 DECLARING AN INCOME OF RS. 4 42 56 6 40/-. THE ASSESSEE COMPANY AT THE RELEVANT TIME WAS MAINL Y ENGAGED IN INFORMATION TECHNOLOGY RELATED ACTIVITIES WITH SPEC IAL EMPHASIS ON DATA PROCESSING / SOFTWARE DEVELOPMENT WITH THE USE OF C RS IN INDIA. THE CASE OF THE ASSESSEE WAS REFERRED TO THE TPO AND L D. AO HAS OBSERVED THAT AS PER THE ORDER OF THE TPO DATED 5 TH JUNE 2008 NO ADVERSE INFERENCE HAS BEEN DRAWN IN RESPECT OF THE INTERNATIONAL TRANSACTIONS UNDERTAKEN BY THE ASSESSEE DURING THE PREVIOUS YEAR RELEVANT TO ASSTT. YEAR 2005-06. HE ISSUED A NOTICE U/S 142 (1) OF THE INCOME TAX ACT ON 2 ND JULY 2008 AND CALLED FOR INFORMATIONS. THE COPY OF THIS NOTICE HAS BEEN PLACED ON PAGE 17 OF THE PA PER BOOK. AO HAS FRAMED THE ASSESSMENT U/S 143(3) ON 27.11.2008 AND HAS DETERMINED THE INCOME OF THE ASSESSEE AT RS. 4 42 66 940/-. HE MADE AN ADDITION OF ITA NO. 2331/DEL/10 ASSTT. YEAR 2005-06 3 RS. 10 300/- WHICH PERTAINS TO FEE PAID TO REGISTRA R OF COMPANIES FOR INCREASE IN ITS AUTHORISED CAPITAL. 3. LD. COMMISSIONER ON PERUSAL OF THE ASSESSMENT RE CORD FORMED AN OPINION THAT ASSESSMENT ORDER IS ERRONEOUS IN SO F AR AS IT IS PREJUDICIAL TO THE INTEREST OF THE REVENUE. HE ISSUED A SHOW CA USE NOTICE U/S 263 OF THE INCOME TAX ACT INVITING THE EXPLANATION ON OF THE ASSESSEE AS TO WHY ASSTT. ORDER BE NOT HELD AS ERRONEOUS IN SO FAR AS IT IS PREJUDICIAL TO THE INTEREST OF REVENUE AND WHY IT SHOULD NOT BE SE T ASIDE? THE COPY OF THE NOTICE IS AVAILABLE AT PAGE 14 & 15 OF THE PAP ER BOOK. IN THE SHOW CAUSE NOTICE LD. COMMISSIONER HAS ASSIGNED TWO REAS ONS FOR FORMING THE OPINION THAT ACTION U/S 263 IS REQUIRED. THE FI RST REASON IS THAT ASSESSEE HAD DIVIDEND INCOME OF RS. 28 20 145/- WHI CH IS EXEMPT FROM TAX. ACCORDING TO THE LD. COMMISSIONER THE AO HAS N OT MADE ANY DISALLOWANCE AS PER SECTION 14A OF THE ACT. IN HIS OPINION THE AO AFTER TAKING INTO CONSIDERATION THE TOTAL INVESTMENT OUGH T TO HAVE MADE DISALLOWANCE @ 0.5% AS PER RULE 8D OF THE INCOME TA X RULES 1962. HAD THIS BEEN CARRIED OUT BY THE AO? THEN THERE WOU LD HAVE BEEN DISALLOWANCE OF RS. 12 18 278/-. THE SECOND REASON ASSIGNED BY THE LD. COMMISSIONER IS THAT ASSESSEE HAS ACQUIRED COMPUTER SOFTWARE PRINTERS HUBS PRINTERS ROUTERS AND SCANNERS AMOU NTING TO RS. ITA NO. 2331/DEL/10 ASSTT. YEAR 2005-06 4 2 49 60 633/-. IT HAS CLAIMED DEPRECIATION @ 60%. A CCORDING TO THE LD. COMMISSIONER CERTAIN ITEMS WERE USED FOR MORE THAN 180 DAYS AND CERTAIN ITEMS WERE USED LESS THAN 180 DAYS. THE DEP RECIATION OUGHT TO HAVE BEEN GRANTED @ 15% AND NOT AT 60%. THUS IN HIS OPINION ASSESSEE HAS OVERCHARGED THE D EPRECIATION. LD. COMMISSIONER FURTHER OBSERVED THAT AO HAS NOT MADE ANY INQUIRY IN RESPECT OF THESE TWO ISSUES. THE NON ACTION AT THE END OF AO HAS ALSO MADE HIS ORDER AS ERRONEOUS AS WELL AS PREJUDICIAL TO THE INTEREST OF REVENUE. 4. ON RECEIPT OF NOTICE ASSESSEE HAS FILED DETAILED REPLY. IT CONTENDED THAT AO HAD ISSUED A SHOW CAUSE NOTICE U/S 142(1) A ND CALLED FOR ALL THE DETAILS. WITH REGARD TO NON DISALLOWANCE OF ANY EXP ENDITURE RELATABLE TO EARNING OF DIVIDEND INCOME U/S 14A OF THE ACT IT W AS SUBMITTED BY THE ASSESSEE THAT INVESTMENT WAS MADE FROM ITS INTERNAL ACCRUAL AND NO INTEREST BEARING FUNDS WERE USED. THESE ASPECTS HAV E DULY BEE EXAMINED BY THE AO AND ONLY THEREAFTER HE ACCEPTED THE STAND OF ASSESSEE. THE ASSESSEE HAS MADE REFERENCE TO A NUMB ER OF DECISIONS OF THE TRIBUNAL IN ITS WRITTEN SUBMISSION. IT ALSO POINTED OUT THAT RULE 8D HAS BEEN BROUGHT ON THE STATUTE BOOK W.E.F. 24 TH MARCH 2008. IT IS NOT APPLICABLE IN THIS ASSTT. YEAR. THEREFORE ON AN AVE RAGE NO DISALLOWANCE ITA NO. 2331/DEL/10 ASSTT. YEAR 2005-06 5 CAN BE MADE. WITH REGARD TO THE DEPRECIATION ON COM PUTERS SOFTWARES ETC. IT CONTENDED THAT SUCH DEPRECIATION IS ADMISSI BLE @ 60%. APART FROM EXPLAINING THE ISSUES ON MERIT THE ASSESSEE SUBMITT ED THAT ACTION U/S 263 CAN BE TAKEN ONLY ON FULFILMENT OF TWIN CONDITI ON I.E ORDER OF THE AO SHOULD BE ERRONEOUS AS WELL AS PREJUDICIAL TO THE I NTEREST OF REVENUE. IF ANY ONE OF THE CONDITION IS MISSING THEN ACTION U/S 263 CANNOT BE TAKEN. THE ASSESSEE SUBMITTED TO THE LD. COMMISSIONER THAT IT IS ENTITLED FOR 100% DEDUCTION U/S 10A OF THE INCOME TAX ACT. IT HA S AN INCOME OF RS. 59 31 57 552/-. THIS INCOME QUALIFIES FOR DEDUCTION / EXEMPTION U/S 10A THERE WAS NO DISPUTE ON THIS ISSUE. THUS EVEN IF TH ESE DISALLOWANCES ARE MADE THEN IT WILL GIVE RISE TO THE TOTAL INCOME OF ASSESSEE AND IT WOULD CLAIM DEDUCTION U/S 10A THE NET RESULT WILL BE NIL . LD. COMMISSIONER REJECTED THE CONTENTION OF ASSESSEE AND HELD THAT T HE AO HAS NOT CONDUCTED INQUIRY. THEREFORE HIS ORDER IS ERRONEOUS AND IT IS PREJUDICIAL TO THE INTEREST OF REVENUE. HE SET ASIDE THE ASSTT. ORDER AND DIRECTED THE AO TO RE CONSIDER BOTH THESE ISSUES IN A FRESH ASSE SSMENT. 5. LD. COUNSEL FOR THE ASSESSEE HAS REITERATED HIS CONTENTION AS WERE RAISED BEFORE THE LD. COMMISSIONER. HE TOOK US THRO UGH SHOW CAUSE NOTICE U/S 263 OF THE INCOME TAX ACT AS WELL AS NOT ICE ISSUED BY THE AO U/S 142 OF THE ACT. HE SUBMITTED THAT ASSESSEE HAS FILED THE COMPLETE ITA NO. 2331/DEL/10 ASSTT. YEAR 2005-06 6 DETAILS OF INVESTMENT ALONGWITH SOURCE. AO WAS SATI SFIED WITH THE EXPLANATION OF ASSESSEE AND THEREFORE DID NOT MAKE ANY DISALLOWANCE U/S 14A OF THE ACT. HE FURTHER CONTENDED THAT FOR THE SAKE OF ARGUMENT EVEN IF IT IS ACCEPTED THAT THESE DISALLOWANCES ARE DESERVES TO BE MADE THEN ALSO TAX EFFECT WOULD BE NIL AND THEREFORE THE RE IS NO PREJUDICE TO THE REVENUE BY ACCEPTING THESE CLAIMS AT THE END OF THE AO. LD. COMMISSIONER HAS NOT ASSIGNED ANY REASON FOR REJECT ING THIS ARGUMENT OF THE ASSESSEE RATHER HE HAS NOT MADE ANY ELABORAT E DISCUSSION ON THIS SECOND FOLD OF CONTENTION. 6. LD. DR ON THE OTHER HAND RELIED UPON THE ORDER OF LD. CIT. HE SUBMITTED THAT ORDER OF THE AO IS TOTALLY SILENT ON ALL THESE ISSUES. THEREFORE IN VIEW OF THE HONBLE DELHI HIGH COURTS DECISION IN THE CASE OF GEE VEE ENTERPRISES VS. ACIT REPORTED IN 99 ITR 375 ORDER OF THE AO DESERVES TO BE SET ASIDE. HE PLACED ON RECORD A SYN OPSIS OF ARGUMENTS ON THE DIFFERENT CASE LAWS DRAFTED BY THE CIT DR. IN THIS SYNOPSIS LD. DR MAINLY MADE A REFERENCE TO THE DECISION OF HONB LE SUPREME COURT IN THE CASE OF CIT VS. RALSON INDUSTRIES LTD. 288 ITR 322 TOYTA MOTOR CORPORATION VS. CIT REPORTED IN 306 ITR 52 AS WELL AS THE DECISION OF HONBLE DELHI HIGH COURT IN THIS CASE REPORTED IN 3 06 ITR 49. HE ALSO ITA NO. 2331/DEL/10 ASSTT. YEAR 2005-06 7 MADE REFERENCE TO THE DECISION OF HONBLE DELHI HIG H COURT IN THE CASE OF CIT VS. ASHISH RAJPAL REPORTED IN 320 ITR 674. 7. WE HAVE DULY CONSIDERED THE RIVAL CONTENTIONS AN D GONE THROUGH THE RECORD CAREFULLY. THE ITAT IN THE CASE OF MRS. KHATIZA S. OOMERBHOY VS. ITO MUMBAI 101 TTJ 1095 ANALYZED IN DETAIL V ARIOUS AUTHORITATIVE PRONOUNCEMENTS INCLUDING THE DECISION OF HONBLE SU PREME COURT IN THE CASE OF MALABAR INDUSTRIES 243 ITR 83 AS WELL AS HO NBLE BOMBAY HIGH COURT RENDERED IN THE CASE OF GABRIEL INDIA LTD. AN D HAS PROPOUNDED THE FOLLOWING BROADER PRINCIPLE TO JUDGE THE ACTION OF CIT TAKEN UNDER SECTION 263. THE FUNDAMENTAL PRINCIPLE WHICH EMERGE FROM THE AB OVE CASES MAY BE SUMMARIZED BELOW (I) THE CIT MUST RECORD SATISFACTION THAT THE ORDER OF THE AO IS ERRONEOUS AND PREJUDICIAL TO THE INTEREST OF THE RE VENUE. BOTH THE CONDITIONS MUST BE FULFILLED. (II) SEC. 263 CANNOT BE INVOKED TO CORRECT EACH AND EVERY TYPE OF MISTAKE OR ERROR COMMITTED BY THE AO AND IT WAS ONLY WHEN AN ORDER IS ERRONEOUS THAT THE SECTION WILL BE ATTRACTED. (III) AN INCORRECT ASSUMPTION OF FACTS OR AN INCORR ECT APPLICATION OF LAW WILL SUFFICE THE REQUIREMENT OF ORDER BEING ERR ONEOUS. (IV) IF THE ORDER IS PASSED WITHOUT APPLICATION OF MIND SUCH ORDER WILL FALL UNDER THE CATEGORY OF ERRONEOUS ORDER. (V) EVERY LOSS OF REVENUE CANNOT BE TREATED AS PREJ UDICIAL TO THE INTERESTS OF THE REVENUE AND IF THE AO HAS ADOPTED ONE OF THE COURSES PERMISSIBLE UNDER LAW OR WHERE TWO VIEW S ARE ITA NO. 2331/DEL/10 ASSTT. YEAR 2005-06 8 POSSIBLE AND THE AO HAS TAKEN ONE VIEW WITH WHICH T HE CIT DOES NOT AGREE IF CANNOT BE TREATED AS AN ERRONEOU S ORDER UNLESS THE VIEW TAKEN BY THE AO IS UNSUSTAINABLE UN DER LAW. (VI) IF WHILE MAKING THE ASSESSMENT THE AO EXAMINE S THE ACCOUNTS MAKES ENQUIRIES APPLIES HIS MIND TO THE FACTS AND CIRCUMSTANCES OF THE CASE AND DETERMINE THE INCOME THE CIT WHILE EXERCISING HIS POWER UNDER S. 263 IS NOT PERMITTED TOS SUBSTITUTE HIS ESTIMATE OF INCOME IN PLACE OF T HE INCOME ESTIMATED BY THE AO. (VII) THE AO EXERCISES QUASI-JUDICIAL POWER VESTED IN HIS AND IF HE EXERCISES SUCH POWER IN ACCORDANCE WITH LAW AND ARR IVE AT A CONCLUSION SUCH CONCLUSION CANNOT BE TERMED TO BE ERRONEOUS SIMPLY BECAUSE THE CIT DOES NOT FEEL SATI SFIED WITH THE CONCLUSION. (VIII) THE CIT BEFORE EXERCISING HIS JURISDICTION UNDER S. 263 MUST HAVE MATERIAL ON RECORD TO ARRIVE AT A SATISFACTION . (IX) IF THE AO HAS MADE ENQUIRIES DURING THE COURSE OF ASSESSMENT PROCEEDINGS ON THE RELEVANT ISSUES AND T HE ASSESSEE HAS GIVEN DETAILED EXPLANATION BY A LETTER IN WRITING AND THE AO ALLOWS THE CLAIM ON BEING SATISFIED WITH THE EXPLANATION OF THE ASSESSEE THE DECISION OF THE AO CANNOT BE HELD TO BE ERRONEOUS SIMPLY BECAUSE IN HIS ORDER HE DOES NOT MAKE AN ELABORATE DISCUSSION IN THAT REGARD. 8. IN THE LIGHT OF ABOVE PREPOSITION LET US EXAMINE THE FACTS OF THE PRESENT CASE. LD. AO HAS ISSUED A SHOW CAUSE NOTICE U/S 142 OF THE INCOME TAX ACT AND CALLED FOR A NUMBER OF INFORMATI ON. FOR THE PURPOSE OF THIS APPEAL THE INFORMATION CALLED AT SL. NO. 9 IS RELEVANT WHICH READ AS UNDER :- 9. PLEASE FURNISH DETAILS OF ALL TRANSACTIONS OF PU RCHASE / SALE OF UNITS OF MUTUAL FUNDS MADE DURING THE RELEVANT YEAR ALONG WITH THE ITA NO. 2331/DEL/10 ASSTT. YEAR 2005-06 9 SOURCE OF FUNDS WITH WHICH THE UNITS HAVE BEEN PURC HASED ALSO GIVING THE SCRIP-WISE GAIN / LOSS AND INCOME EARNED FROM SUCH UNITS 9. SIMILARLY AO HAS CALLED FOR THE DETAILS OF DEPR ECIATION. IT IS TRUE THAT DISCUSSION IN THE ASSTT. ORDER IN RESPECT OF T HESE ITEMS IS NOT DISCERNABLE BUT IT IS EQUALLY TRUE THAT AO HAS CAL LED FOR THE INFORMATION AND THESE HAVE BEEN SUPPLIED BY THE ASSESSEE. THE D ETAILS OF INVESTMENT AND SOURCE OF FUNDS HAVE ALSO BEEN PLACE D ON RECORD IN THE PAPER BOOK. THE HONBLE BOMBAY HIGH COURT IN THE CA SE OF GODREJ BOYCEE REPORTED IN 328 ITR 81 HAS HELD THAT RULE 8D OF IT RULES IS NOT APPLICABLE FROM RETROSPECTIVE EFFECT. THUS ON THE B ASIS OF AVERAGE INVESTMENT THE DISALLOWANCE CANNOT BE MADE AT 0.05% . THE DISALLOWANCE IS TO BE MADE ON ACTUAL EXPENSES WHICH LD. COMMISSIONER HAS NOT SPECIFIED EITHER IN THE SHOW CAUSE NOTICE O R ULTIMATELY IN THE ORDER. SIMILARLY DEPRECIATION ON COMPUTER AND COMPU TER PERIPHERALS IS ADMISSIBLE @ 60%. THE AO HAS ACCEPTED THIS STAND OF THE ASSESSEE. LEAVING APART ALL THESE ISSUES IT HAS BEEN DEMONST RATED BY THE ASSESSEE THAT IT IS ENTITLED FOR 100% DEDUCTION U/S 10A. FOR THE SAKE OF ARGUMENTS IT IS ASSUMED THAT THESE DISALLOWANCES W OULD BE MADE THEN THERE WILL NOT BE ANY TAX EFFECT. IT SUGGEST THAT T HERE IS NO PREJUDICE TO THE REVENUE. THERE IS NO LOSS OF TAX. IN SUCH SITUATION AN ASSESSEE SHOULD NOT BE SUBJECTED TO SECOND ROUND OF ASSESSMENT PRO CEEDING. ITA NO. 2331/DEL/10 ASSTT. YEAR 2005-06 10 CONSIDERING ALL THESE ISSUES WE ALLOW THE APPEAL OF ASSESSEE AND QUASH THE ORDER PASSED BY THE LD. COMMISSIONER. ORDER PRONOUNCED IN THE OPEN COURT ON 16.12.2010. SD/- [G.E.VEERABHADRAPPA] [RAJPAL YADAV] VICE PRESIDENT JUDICIAL MEMBER DATED: 16.12.2010 VEENA COPY FORWARDED TO: - 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT (A) 5. DR ITAT TRUE COPY BY ORDER DEPUTY REGISTRAR ITAT