IN THE INCOME TAX APPELLATE TRIBUNAL
(DELHI BENCH `C' : NEW DELHI)
BEFORE SHRI I.C. SUDHIR, JUDICIAL MEMBER
and
SHRI B.C. MEENA, ACCOUNTANT MEMBER
ITA No.3854/Del./2013
(Assessment Year : 2005-06)
DCIT, Central Circle 5, vs. M/s. Goyal MG Pvt. Ltd.,
New Delhi. A 38, 1st Floor,
Mohan Cooperative Indl. Estates,
Main Mathura Road,
New Delhi 110 044.
(PAN : AAACG6972B)
(Appellant) (Respondent)
Assessee by : Shri R.S. Singhvi, CA
Revenue by : Shri Satpal Singh, Senior DR
ORDER
PER B.C. MEENA, ACCOUNTANT MEMBER :
This appeal filed by the revenue emanates from the order of CIT
(Appeals)-X, New Delhi dated 21.01.2013.
2. The assessee is a company engaged in the business of manufacture
and trade of industrial gases. The Assessing Officer made certain
additions which have been deleted by the CIT (A). Now, the revenue is
in appeal by taking the following grounds of appeal :-
"1. That the Commissioner of Income Tax (Appeals) erred
in law and on the case in deleting the addition of Rs.10,96,917/-
made by the Assessing Officer on account of disallowance of
expenses u/s 14A of the Income Tax Act, 1961.
2 ITA No.3854/Del/2013
2. That the Commissioner of Income Tax (Appeals) erred
in law and on the case in deleting the addition of Rs.23,23,100/-
made on account of capital expenditure.
3. That the Commissioner of Income Tax (Appeals) erred
in law and on the case in deleting the addition of Rs.7,60,661/-
out of total addition of Rs.10,10,661/- made on account of
disallowance of building repair expenses.
4. That the Commissioner of Income Tax (Appeals) erred
in law and on the case in deleting the addition of Rs.12,00,000/-
made on account of disallowance of plant repair expenses.
5. (a) The order of the CIT(A) is erroneous and not tenable
in law and on facts.
(b) The appellant craves leave to add, alter or amend
any/all of the grounds of appeal before or during the course of
the hearing of the appeal."
3. In the ground no.1, the issue raised is deleting the addition of
Rs.10,96,917/- made by the Assessing Officer by invoking Section14A of
the Income-tax Act, 1961. The CIT (A) has deleted this addition by
holding as under :-
"2.3. After going through the facts of the case, observations of
the A.O., submissions of the A.R. of the appellant and the
various judicial pronouncements, this ground is being decided on
the basis of the following observations :
(i) From the facts it is clear that the A. R. of the appellant
has provided specific details establishing the amount of
investment made in the mutual funds out of the ICD refund of
the appellant. This establishes that the amount was the
appellant's own funds and accordingly, no nexus has been
established between the borrowed funds and the amount invested
in the mutual funds. The assessing officer has also not disputed
these facts in the assessment order and has only made the
disallowance on the basis of the assumption that proportionate
disallowance of expenditure should be made in view of the
3 ITA No.3854/Del/2013
investments made by the appellant, which would result in tax
free income. The A.R. has also submitted that no exempt income
has been earned during the year. This aspect has also not been
disputed by the assessing officer. Accordingly, in view of the
various judicial pronouncements' it is clear that the investments
were made by the appellant out of its own funds and a direct
nexus in this regard has been established by the A.R. of the
appellant.
(ii) In view of the decisions of the CIT v. Hero Cycles
(supra), SIL Investment (supra) and the facts of the present case,
the proportionate disallowance made by the assessing officer
without appreciating the specific facts and circumstances and
only making a proportionate disallowance on the basis of
investment does not appear to be justified. I am inclined to agree
with the arguments of the A.R. of the appellant that this
disallowance u/s 14A is not justified.
Accordingly, this ground of the appellant is treated as
allowed."
4. We have heard both the sides on the issue. The CIT (A) has given
a clear cut finding that there is no nexus between the borrowed funds and
the investment in the mutual funds from where the assessee could have
earned the exempted income. Moreover, there is no exempted income
earned during the year by the assessee. In view of these facts and in view
of the decision of Hon'ble Punjab and Haryana High Court in the case of
CIT vs. Hero Cycles Ltd. Reported in 323 ITR 518, we find no merits in
this ground of revenue's appeal and the same is dismissed.
5. In the grounds no.2, the issue involved is against deleting the
addition of Rs.23,23,100/- made on account of capital expenditure.
6. During the year, the assessee claimed legal expenses of
Rs.23,23,100/-. The Assessing Officer treated this amount was capital in
4 ITA No.3854/Del/2013
nature. One of the reasons for treating the amount as capital was that the
assessee has entered into an agreement with M/s. GMBH and
subsequently, this agreement was breached and that resulted into several
cases of arbitration, after which certain amounts were received by
assessee in 2001 which was claimed as capital receipts. The Assessing
Officer held that where the legal expenses were incurred to bring into
rights of capital nature are to be treated as capital. The CIT (A) has
deleted the addition by holding as under :-
"3.3. After going through the facts of the case, the A.O.,
submissions of the A.R. of the appellant and various judicial
pronouncements, this ground of the appellant is being finalized
after making the following observations:
(a) The A. R. of the appellant has vehemently argued that
on similar facts such legal and professional expenses have been
allowed as revenue expenditure in earlier as well as later
assessment years. The assessing officer has made a disallowance
in this year by relying upon the fact that some amount of receipt
had been shown as a capital receipt in the year 2001. Apart from
this fact the assessing officer has not stated any other reason as
to why these expenses should not be allowed as revenue
expenses during the year.
(b) The details of these expenses had been mentioned on
page 3 of the assessment order and these are payments made to
various legal firms and individuals as well as International
Chambers of Commerce. The A.O. has not painted out whether
the nature of these expenses are of capital nature which provide
enduring benefit to the appellant over previous years. The only
argument provided by the A.O. was that the amount received on
account of part settlement of this dispute relate to rights of
capital nature like "right to exclusive operation in territory of
India and to avail non-compete benefits", The A.O. has,
therefore, observed that the expenses incurred for obtaining such
rights should also be treated as capital expense.
5 ITA No.3854/Del/2013
(iii) From the facts which emerged it appears that this is an
issue going on for several years and in other year such legal and
professional expenses on account of this dispute must have been
incurred by the appellant. The A.R. of the appellant has argued
that such expenses had been allowed in different years and the
facts being similar even in this year there was no justification for
the assessing officer to disallow this amount as a capital expense,
apart from the principle of consistency, since no capital receipt
or non-compete fee has ever been received by the appellant for
the year various years after 2005-06, there was no logic in the
argument of the assessing officer to treat this expenditure as a
capital expense.
After carefully considering the facts of the present case,
various judicial pronouncements as well as the treatment of the
nature of these expenses in other years, it appears that these
legal and professional expenses incurred by the appellant are
revenue in nature. The A.O. has nowhere established any
enduring benefits being the payments made to various
professionals and parties on this account. Merely because of
certain observations of some receipt in the year 2001 which
have been shown as capital in nature would not justify the
disallowance of these expenses as revenue expense.
Accordingly, after considering the overall facts of the case, and
the nature of payments made to specific individuals, as well as
the fact that similar expenses have been allowed in other years,
I am in agreement with the arguments of the A.R. of the
appellant that this amount should be treated as revenue
expense. Accordingly, the ground is treated as allowed."
7. We have heard both the sides on the issue. We have also
considered the case laws relied upon. These expenditure were incurred
which has not brought any benefit of enduring nature. These have been
paid to various professionals. These expenditure have also not brought
any asset into existence. It is also not clear what type of long term
enduring benefit giving rights have been brought into existence. In
absence of any such findings, we find no fault in the order of the CIT (A)
and we dismiss this ground of revenue's appeal.
6 ITA No.3854/Del/2013
8. In the ground no.3, the revenue has raised the issue regarding
deleting the part addition out of the total addition of Rs.10,10,661/- made
on account of building repair expenses.
9. The Assessing Officer disallowed 50% of the total expenses
debited under the head `building repair' expenses and made an addition
of Rs.10,10,661/-. This was based on Assessing Officer's findings that
certain vouchers were with respect to property no.4, Ring Road, Lajpat
Nagar, New Delhi which is a residential premises of one of the directors
of the company and some of the items like stones and marbles were not
related to the repairing of the building and some of the expenditure were
personal expenditure of the director. The CIT (A) has granted part relief
to the assessee by holding as under :-
"4.3. After going through the facts of the case, observations of
the A.O., submissions of the A.R. of the appellant, it is seen that
the assessing officer had examined the details regarding building
repairs and maintenance and was not fully satisfied with the
supporting bills and vouchers which could be fully attributed
building repairs and maintenance of the office of the appellant. It
is also a matter of fact that the residential building of one of the
directors was also being built at the same site and some of the
expenses would not be directly attributable to the office building
only. All the expenses and vouchers do not appear to have been
maintained in a manner in which it could be established that all
these expenses under the head of building and repairs was
wholly and exclusively for the building relating to the company.
While on one hand the argument of the A.R. of the appellant is
justified to the extent that the estimated disallowance of 50% is
not called for and is on the higher side in my opinion, the
circumstances also indicate that some amount of these expenses
has also been claimed by the appellant without properly enduring
that the same was wholly and exclusively pertaining to the
building repairs of the appellant. An amount of Rs.1,73,000/- has
7 ITA No.3854/Del/2013
been clearly identified by the assessing officer and no proper
explanation has been provided by the appellant with regard to
these expenses. Accordingly, in my opinion, a disallowance of
Rs.2,50,000/- on account of expenses not fully verifiable for
business purposes needs to be sustained. Accordingly, the
addition is restricted to Rs.2,50,000/-. This ground of the
appellant is partly allowed."
10. We have heard both the sides on the issue. We find that CIT (A)
has granted part relief after examination of the nature of expenses
claimed by the assessee. The CIT (A) has sustained part of the addition.
The revenue has failed to bring any material on record which could
negate the findings of the CIT (A) on this issue. Keeping all these facts
in view, we sustain the order of the CIT (A) on this ground. This ground
of revenue's appeal is failed.
11. In the ground no.4, the revenue has raised the issue of deleting the
addition of Rs.12,00,000/- made on account of repairs for plant.
12. The Assessing Officer made the addition by following the earlier
year pattern by disallowing 10% of the total expenditure debited on
account of plant repairs. It was claimed before us that addition in earlier
year was deleted by the CIT(A) and the revenue has not gone in any
further appeal. The CIT (A) has deleted the addition by holding as
under:-
"5.3 After going through the facts of the case, submissions of
the A.R. of the appellant and the observations of the A.O., it is
seen that the addition made by the assessing officer was only
based on the earlier year and earlier years additions has been
deleted by the CIT(A) in A.Y. 2004-05. After considering the
8 ITA No.3854/Del/2013
findings of the CIT(A) for A.Y. 2004-05 and 2006-07 and
following the principles of judicial consistency and considering
the arguments of the A.R. of the appellant, this addition of the
appellant should be deleted. Accordingly, this ground of the
appellant is treated as allowed."
13. After hearing both the sides, we find that revenue has failed to
controvert the finding of the CIT (A) on this issue. Therefore, we sustain
the order of CIT (A) on this ground and dismiss this ground of revenue's
appeal.
14. Ground No.5 is general in nature and does not require any
adjudication, hence the same is dismissed.
15. In the result, the appeal of the revenue stands dismissed.
Order pronounced in open court on this 17th day of September, 2014.
Sd/- sd/-
(I.C. SUDHIR) (B.C. MEENA)
JUDICIAL MEMBER ACCOUNTANT MEMBER
Dated the 17th day of September, 2014
TS
Copy forwarded to:
1.Appellant
2.Respondent
3.CIT
4.CIT(A)-X, New Delhi.
5.CIT(ITAT), New Delhi. AR/ITAT
|
