ADDL CIT RG 5(3), MUMBAI v. SAUSHISH DIAMONDS LTD, MUMBAI

ITA 3056/MUM/2010 | 2005-2006
Pronouncement Date: 09-09-2011 | Result: Partly Allowed

Appeal Details

RSA Number 305619914 RSA 2010
Assessee PAN AAACS8246H
Bench Mumbai
Appeal Number ITA 3056/MUM/2010
Duration Of Justice 1 year(s) 4 month(s) 20 day(s)
Appellant ADDL CIT RG 5(3), MUMBAI
Respondent SAUSHISH DIAMONDS LTD, MUMBAI
Appeal Type Income Tax Appeal
Pronouncement Date 09-09-2011
Appeal Filed By Department
Order Result Partly Allowed
Bench Allotted J
Tribunal Order Date 09-09-2011
Date Of Final Hearing 23-08-2011
Next Hearing Date 23-08-2011
Assessment Year 2005-2006
Appeal Filed On 19-04-2010
Judgment Text
IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH J MUMBAI BEFORE SHRI D. MANMOHA VICE PRESIDENT AND SHRI P.M JAGTAP ACCOUNTANT MEMBER I.T.A. NO. 2873/MUM/2010 ASSESSMENT YEAR : 2005-06. SUASHISH DIAMONDS LTD. ADDL. COMMISSIONER OF MEHTA MAHAL 11 TH FLOOR VS. INCOME TAX 15 MATHEW ROAD OPERA HOUSE RANGE-5(3) MUMBAI. MUMBAI 400 004. PAN AAACS8246H APPELLANT. RESPONDENT. AND I.T.A. NO.3056/MUM/2010 ASSESSM ENT YEAR : 2005-06. ADDL. COMMISSIONER OF SAUSHISH DIAMONDS LTD. INCOME TAX RANGE-5(3) VS. MUMBAI. MUMBAI. APPELLANT. RESPONDENT. ASSE SSEE BY : SHRI P.K.B. MENON. DEPART MENT BY : SHRI K. SHIVRAM. DATE OF HEARING : 23-08-2011 DATE OF PRONOUNCEMENT : 09-09-2011 O R D E R. PER P.M. JAGTAP A.M. : THESE TWO APPEALS ONE FILED BY THE ASSESSEE BEING ITA NO. 2873/MUM/2010 AND OTHER FILED BY THE REVENUE BEING ITA NO. 3056/M UM/2010 ARE CROSS APPEALS WHICH ARE DIRECTED AGAINST THE ORDER OF LEARNED CIT (APPEALS)-9 MUMBAI DATED 08- 02-2010 . 2 ITA NO.2873/MUM/2010 ITA NO.3056/MUM/2010 ASSESSMENT YEAR : 2005-06. 2. GROUND NO. 1 OF THE ASSESSEES APPEAL AS WELL AS THAT OF REVENUES APPEAL INVOLVE A COMMON ISSUE RELATING TO THE DISALLOWANC E MADE BY THE AO AND SUSTAINED BY THE LEARNED CIT(APPEALS) U/S 14A OF TH E ACT READ WITH RULE 8D. 3. THE ASSESSEE IN THE PRESENT CASE IS A COMPANY WH ICH IS MAINLY ENGAGED IN THE BUSINESS OF EXPORTING CUT AND POLISHED DIAMONDS . THE RETURN OF INCOME FOR THE YEAR UNDER CONSIDERATION WAS FILED BY IT ON 31-10-2 008 DECLARING TOTAL INCOME OF RS.18 96 17 597/-. IN THE SAID RETURN DIVIDEND INC OME EARNED DURING THE YEAR UNDER CONSIDERATION AMOUNTING TO RS.1.17 CRORES WAS CLAIM ED BY THE ASSESSEE AS EXEMPT U/S 10(33). NO DISALLOWANCE ON ACCOUNT OF EXPENSES INCURRED IN RELATION TO THE SAID INCOME HOWEVER WAS MADE BY THE ASSESSEE AS PER TH E PROVISIONS OF SECTION 14A. THE AO THEREFORE WORKED OUT SUCH EXPENSES AT RS.8 3 23 082/- BY APPLYING RULE 8D OF INCOME TAX RULES 1962 AND MADE A DISALLOWANC E TO THAT EXTENT U/S 14A. ON APPEAL THE LEARNED CIT(APPEALS) UPHELD THE ACTION OF THE AO IN MAKING THE DISALLOWANCE U/S 14A READ WITH RULE 8D IN PRINCIPLE . HE HOWEVER FOUND CERTAIN MISTAKES IN THE WORKING MADE BY THE AO AS PER RULE 8D WHILE QUANTIFYING THE AMOUNT OF EXPENSES TO BE DISALLOWED U/S 14A AND AFT ER CORRECTING THE SAID MISTAKE HE SUSTAINED THE DISALLOWANCE OF RS.83 23 082/- MAD E BY THE AO ON THIS ISSUE TO THE EXTENT OF RS.48 33 738/- GIVING RELIEF TO THE A SSESSEE OF RS.34 89 344/-. 4. WE HAVE HEARD THE ARGUMENTS OF BOTH THE SIDES AN D ALSO PERUSED THE RELEVANT MATERIAL ON RECORD. IT IS OBSERVED THAT THE DISALLO WANCE OF EXPENSES INCURRED IN RELATION TO EARNING OF EXEMPT DIVIDEND INCOME AS RE QUIRED U/S 14A HAS BEEN MADE BY THE AO AND SUSTAINED BY THE LEARNED CIT(APPEALS) IN THE PRESENT CASE BY APPLYING RULE 8D OF INCOME-TAX RULES 1962. AFTER C ONSIDERING THE SUBMISSION AND PERUSING THE RELEVANT MATERIAL ON RECORD IT IS OBSERVED THAT THE ISSUE INVOLVED IN THE PRESENT APPEALS IS SQUARELY COVERED BY THE D ECISION OF HONBLE BOMBAY HIGH 3 ITA NO.2873/MUM/2010 ITA NO.3056/MUM/2010 ASSESSMENT YEAR : 2005-06. COURT IN THE CASE OF DCIT VS. GODREJ AND BOYCE MFG . CO. LTD. 328 ITR 81WHEREIN IT WAS HELD THAT RULE 8D IS APPLICABLE ON LY FROM ASSESSMENT YEAR 2007- 08 AND PRIOR TO ASSESSMENT YEAR 2007-08 THE QUANTU M OF DISALLOWANCE TO BE MADE U/S 14A HAS TO BE DETERMINED BY ADOPTING SOME REASO NABLE METHOD. KEEPING IN VIEW THE SAID DECISION OF HONBLE JURISDICTIONAL HI GH COURT WE SET ASIDE THE IMPUGNED ORDER OF THE LEARNED CIT(APPEALS) ON THIS ISSUE AND RESTORE THE MATTER TO THE FILE OF THE AO WITH A DIRECTION TO DETERMINE TH E QUANTUM OF DISALLOWANCE OF EXPENSES TO BE MADE U/S 14A BY ADOPTING SOME REASON ABLE METHOD. 5. GROUND NO. 1 OF THE ASSESSEES APPEAL AS WELL AS THAT OF REVENUES APPEAL ACCORDINGLY IS TREATED AS ALLOWED FOR STATISTICAL P URPOSES. 6. THE ISSUE RAISED IN GROUND NO.2 OF THE ASSESSEE S APPEAL RELATES TO THE DISALLOWANCE OF RS.2 31 438/- MADE BY THE AO AND CO NFIRMED BY THE LEARNED CIT(APPEALS) ON ACCOUNT OF EMPLOYERS CONTRIBUTION TO SUPERANNUATION FUND PAID TO LIFE INSURANCE CORPORATION. 7. WE HAVE HEARD THE ARGUMENTS OF BOTH THE SIDES AN D ALSO PERUSED THE RELEVANT MATERIAL ON RECORD. IT IS OBSERVED THAT THE DISALLO WANCE IN RESPECT OF EMPLOYERS CONTRIBUTION PAID TOWARDS SUPERANNUATION FUND HAS B EEN DISALLOWED BY THE AO AND CONFIRMED BY THE LEARNED CIT(APPEALS) ON THE GROUND THAT THE SAID FUND WAS NOT AN APPROVED FUND WHICH IS A BASIC CONDITION FOR GETTIN G DEDUCTION U/S 36(1)(IV). THE LEARNED COUNSEL FOR THE ASSESSEE HAS NOT DISPUTED T HIS POSITION. RELYING ON THE DECISION OF HONBLE BOMBAY HIGH COURT IN THE CASE O F CIT VS. WESTERN INDIA PAPER & BOARD MILLS PVT. LTD. REPORTED IN 189 ITR 3 09 AS WELL AS THAT OF HONBLE 4 ITA NO.2873/MUM/2010 ITA NO.3056/MUM/2010 ASSESSMENT YEAR : 2005-06. KERALA HIGH COURT IN THE CASE OF CCIT (ADMIN.) VS. KARNATAKA ELECTRICITY BOARD REPORTED IN 197 ITR 48 HE HAS CONTENDED THAT THE C LAIM OF THE ASSESSEE FOR DEDUCTION ON ACCOUNT OF EMPLOYERS CONTRIBUTION TO SUPERANNUATION FUND HAS TO BE ALTERNATIVELY CONSIDERED U/S 37. AS HELD IN THE SAI D JUDICIAL PRONOUNCEMENT IF THE ASSESSEE IS NOT ENTITLED FOR DEDUCTION ON ACCOUNT O F PAYMENT MADE TO SUPERANNUATION FUND U/S 36(1)(IV) FOR THE REASON TH AT THE SAID FUND IS NOT AN APPROVED FUND THE CLAIM OF THE ASSESSEE FOR DEDUCT ION OF THE SAID AMOUNT CAN BE CONSIDERED U/S 37 WHICH DEALS WITH AN EXPENDITURE L AID OUT WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF BUSINESS. RESPECTFULLY FOLLOWING THE SAID JUDICIAL PRONOUNCEMENT WE SET ASIDE THE IMPUGNED ORDER OF T HE LEARNED CIT(APPEALS) ON THIS ISSUE AND RESTORE THE MATTER TO THE FILE OF TH E AO WITH A DIRECTION TO CONSIDER THE CLAIM OF THE ASSESSEE FOR DEDUCTION OF THE EXPE NSES IN QUESTION AS PER THE PROVISIONS OF SECTION 37. GROUND NO. 2 OF THE ASSES SEES APPEAL IS ACCORDINGLY TREATED AS ALLOWED. 8. IN GROUND NO.2 OF ITS APPEAL THE REVENUE HAS CH ALLENGED THE ACTION OF THE LEARNED CIT(APPEALS) IN DELETING THE DISALLOWANCE M ADE BY THE AO ON ACCOUNT OF EXPENSES INCURRED BY THE ASSESSEE ON INTERACTIVE WE BSITES. 9. THE ASSESSEE COMPANY HAD CLAIMED EXPENDITURE OF RS.6 LAKHS TOWARDS INTERACTIVE WEBSITES. DURING THE COURSE OF ASSESSME NT PROCEEDINGS THE AO NOTICED THAT THE PROFORMA INVOICE ISSUED BY THE CONCERNED P ARTY FOR RS.6 LAKHS WAS DATED 18 TH MARCH 2004 AGAINST WHICH THE ASSESSEE COMPANY HAD MADE PAYMENTS ON 9 TH APRIL 2004 AND 28 TH JULY 2004. ACCORDING TO THE AO WEBSITE EXPENSES INCURRED BY THE ASSESSEE THUS WERE PERTAINING TO EARLIER YEA R AND THE SAME WERE ALSO OF CAPITAL IN NATURE. HE THEREFORE DISALLOWED THE EX PENSES OF RS.6 LAKHS CLAIMED TO BE INCURRED BY HE ASSESSEE ON WEBSITE. BEFORE THE L EARNED CIT(APPEALS) THE 5 ITA NO.2873/MUM/2010 ITA NO.3056/MUM/2010 ASSESSMENT YEAR : 2005-06. ASSESSEE SUBMITTED THAT IT WAS ALREADY HAVING A WEB SITE AND THE EXPENDITURE WAS INCURRED FOR UPDATING THE SAID WEBSITE FOR THE SPEC IFIC SHOW. A COPY OF FINAL INVOICE DATED 15 TH JUNE 2004 ISSUED BY THE CONCERNED PARTY WAS ALSO PRODUCED BY THE ASSESSEE TO SHOW THAT THE BENEFIT FOR UPDATING THE WEBSITE OF THE COMPANY WAS ONLY FOR ONE YEAR AND FOR THE BESSEL JEWELLERY SHOW ONLY. THE ASSESSEE THEREFORE CONTENDED THAT THE EXPENDITURE OF RS.6 LAKHS INCURR ED ON WEBSITE WAS PERTAINING TO THE YEAR UNDER CONSIDERATION AND THE SAME WAS AN AL LOWABLE BUSINESS EXPENDITURE BEING REVENUE IN NATURE. THE LEARNED CIT(APPEALS) F OUND MERIT IN THE SUBMISSION OF THE ASSESSEE ON THIS ISSUE AND ALLOWED THE WEBSI TE EXPENDITURE INCURRED BY THE ASSESSEE FOR THE FOLLOWING REASONS GIVEN IN PARA NO .5.3 OF HIS IMPUGNED ORDER: I HAVE CONSIDERED THE SUBMISSIONS OF THE APPELLAN T AND PERUSED THE FACTS OF THE CASE. THE APPELLANT IS ENGAGED IN THE BUSINESS OF EXPORT OF DIAMONDS STUDDED JEWELLLERY ALONG WITH CUT AND POLI SHED DIAMONDS. EXPENDITURE INCURRED WAS TO UPDATE THE WEBSITE FOR PARTICIPATING IN BASSEL JEWELLERY SHOW. THE COMPANY HAS TO UPDATE THE WEBSI TE FOR SHOW WHICH WAS TO BE ORGANIZED IN BESSEL. HENCE IN MY VIEW THIS E XPENDITURE CANNOT BE TREATED AS CAPITAL EXPENDITURE. IN RESPECT OF A PER IOD OF EXPENSES I HAVE PERUSED THE INVOICE AND DETAILS SUBMITTED BY THE AP PELLANT AND OBSERVED THAT THE APPELLANT HAS MADE ADVANCE PAYMENT ON 9 APRIL 2 004 AND FINAL PAYMENT ON 28 JULY 2004 AGAINST INVOICE DATED 15 JUNE 2004. THUS EXPENSES ARE RELATING TO CURRENT YEAR ONLY. I FOUND THAT THE APP ELLANT WAS ALREADY HAVING A WEBSITE AND NO NEW WEBSITE WAS DEVELOPED AND ALSO T HE BENEFIT FOR UPDATING THE WEBSITE OF THE COMPANY WAS FOR ONE YEAR AND FOR THE BESSEL JEWELLERY SHOW IN PARTICULAR. THUS THE CONTENTION OF ASSESSI NG OFFICER THAT THE DEVELOPMENT OF WEBSITE IS INTENDED TO ENSURE BENEFI TS OF ENDURING NATURE TO THE APPELLANT BY CREATING A SYSTEM WHEREBY DIFFEREN T CLIENTS OF THE ASSESSEE LOCATED IN DIFFERENT QUARTERS WILL HAVE EASY ACCESS TO RELEVANT DATA FOR CONDUCTING COMMERCIAL TRANSACTIONS WITH THE APPELLA NT DOES NOT HAVE ANY MERIT. THUS THE NATURE OF EXPENSES INCURRED IS REVE NUE IN NATURE AND THERE IS NO BENEFIT IN THE CAPITAL FIELD. THIS EXPENDITURE I S TO BE ALLOWED AS DEDUCTION. THIS GROUND OF APPEAL IS ALLOWED. 6 ITA NO.2873/MUM/2010 ITA NO.3056/MUM/2010 ASSESSMENT YEAR : 2005-06. 10. WE HAVE HEARD THE ARGUMENTS OF BOTH THE SIDES A ND ALSO PERUSED THE MATERIAL ON RECORD. IT IS OBSERVED THAT THE WEBSITE EXPENSES OF RS.6 LAKHS CLAIMED BY THE ASSESSEE WERE DISALLOWED BY THE AO ON THE GROUND TH AT THE SAME DID NOT PERTAIN TO THE YEAR UNDER CONSIDERATION AND THAT THE SAME WERE IN THE NATURE OF CAPITAL EXPENDITURE. THE ALLEGATION OF THE AO THAT THE SAID EXPENSES DID NOT PERTAIN TO THE EARLIER YEAR WAS BASED ON THE INVOICE ISSUED BY THE CONCERNED PARTY ON 18 TH MARCH 2004. THE SAID INVOICE HOWEVER WAS ONLY A PROFORM A INVOICE ISSUED BY THE CONCERNED PARTY SO AS TO ENABLE THE ASSESSEE TO REL EASE ADVANCE PAYMENT. THE FINAL INVOICE WAS ISSUED BY THE SAID PARTY ONLY ON 15 TH JUNE 2004 AND FROM THE COPY OF THE SAID INVOICE PRODUCED BY THE ASSESSEE BEFORE HI M THE LEARNED CIT(APPEALS) FOUND THAT THE WEBSITE EXPENSES INCURRED BY THE ASS ESSEE WERE PERTAINING TO THE YEAR UNDER CONSIDERATION. THERE IS NOTHING BROUGHT ON RECORD BEFORE US TO DISPUTE OR CONTROVERT THIS FINDING OF FACT RECORDED BY THE LEARNED CIT(APPEALS). AS REGARDS THE NATURE OF WEBSITE EXPENSES INCURRED BY THE ASSE SSEE IT IS OBSERVED THAT ITS WEBSITE WAS ALREADY DEVELOPED BY THE ASSESSEE COMPA NY AS NOTED BY THE LEARNED CIT(APPEALS). AS FURTHER NOTED BY THE LEARNED CIT(A PPEALS) THE EXPENSES IN QUESTION WERE INCURRED ONLY TO UPDATE THE SAID WEBS ITE AND THAT TOO FOR THE PARTICULAR PURPOSE OF PARTICIPATION IN BASSEL JEWEL LERY SHOW. THE EXPENSES INCURRED THUS RESULTED IN TEMPORARY BENEFIT TO THE ASSESSEE AND THAT TOO IN THE REVENUE FIELD. HAVING REGARD TO ALL THESE FACTS OF THE CASE WE FIND OURSELVES IN AGREEMENT WITH THE LEARNED CIT(APPEALS) THAT THE WE BSITE EXPENSES OF RS.6 LAKHS INCURRED BY THE ASSESSEE DURING THE YEAR UNDER CONS IDERATION WERE REVENUE IN NATURE AND THE SAME WERE ALLOWABLE AS DEDUCTION BEI NG BUSINESS EXPENDITURE. THE IMPUGNED ORDER OF THE LEARNED CIT(APPEALS) GIVING R ELIEF TO THE ASSESSEE ON THIS ISSUE IS THEREFORE UPHELD DISMISSING GROUND NO.2 OF THE REVENUES APPEAL. 7 ITA NO.2873/MUM/2010 ITA NO.3056/MUM/2010 ASSESSMENT YEAR : 2005-06. 11. IN THE RESULT THE APPEAL OF THE ASSESSEE IS TR EATED AS ALLOWED FOR STATISTICAL PURPOSES WHEREAS THE APPEAL OF THE REVENUE IS TREAT ED AS PARTLY ALLOWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED ON THIS 9 TH DAY OF SEPTEMBER 2011. SD/- SD/- (D. MANMOHAN) (P.M. J AGTAP) VICE PRESIDENT. ACCOUNTANT MEMBER MUMBAI DATED: 9 TH SEPTEMBER 2011. COPY TO : 1. APPELLANT 2. RESPONDENT 3. C.I.T. 4. CIT(A) 5. DR J-BENCH. (TRUE COPY ) BY ORDER ASSTT. REGISTRAR ITAT MUMBAI BENC HES MUMBA I. WAKODE .