Income Tax Appellate Tribunal - Chandigarh
Dcit, C-1(1), Chandigarh vs M/S Asia Resorts Limited, Chandigarh on 19 July, 2019
आयकर अपील य अ धकरण,च डीगढ़ यायपीठ "ए", च डीगढ़
IN THE INCOME TAX APPELLATE TRIBUNAL, CHANDIGARH
BENCH 'A' CHANDIGARH
ीमती दवा संह, या"यक सद#य एवं, एवं ीमती अ नपण
ू ा& ग(ु ता, लेखा सद#य
BEFORE: SMT. DIVA SINGH, JM & SMT.ANNAPURNA GUPTA, AM
आयकर अपील सं./ ITA No. 250/CHD/2019
नधा रण वष / Assessment Year : 2015-16
The DCIT, बनाम M/s Asia Resorts Limited,
Circle - 1 (1), VS SCO 143-144,
Chandigarh. Sector 8-C, Chandigarh.
थायी लेखा सं./ PAN /TAN No. : AAABCA5300M
अपीलाथ /Appellant यथ /Respondent
राज व क ओर से/ Revenue by : Smt. Chabndrakanta, Sr.DR
नधा !रती क ओर से/Assessee by : Shri Parveen Kapoor
सन
ु वाई क तार%ख/Date of Hearing : 11.07.2019
उदघोषणा क तार%ख/Date of Pronouncement : 19.07.2019
आदे श/ORDER
PER DIVA SINGH Th e p resent ap pe al h as been filed by the Revenue whe re in the correctness of the order dated 18.12.2018 of CI T( A)-1, Chandigarh pertaining to 2015-16 assessment year is assailed on the following grounds :
(i) On the facts and circumstances of the case, the Ld. CIT (A) has erred in not upholding disallowance of Rs. 25,66,355/- u/s 14A of the Income Tax Act on the ground that disallowance made cannot exceed exempt income without appreciating the fact that there is no such restriction stipulated either in section 14A of the Income Tax Act or Rule 8D of the Income Tax Rule.
(ii) On the facts and circumstances of the case, the Ld. CIT(A) has erred in not upholding disallowance of Rs. 25,66,355/- u/s 14A of the Income Tax Act on the ground that disallowance made cannot exceed exempt income without appreciating the fact that applicability of section 14A or Rule 8D does not depend on earning of income as held by Supreme Court in the case of CIT vs. Rajender Prasad Moody (1978), 115 ITR 519.
(iii) On the facts and circumstances of the case, the Ld. CIT(A) has erred in not upholding disallowance of Rs. 25,66,355/- u/s 14A of the Income Tax Act on the ITA 250/CHD/2019 A.Y. 2015-16 Page 2 of 7 ground that disallowance made cannot exceed exempt income without appreciating the fact that there is no such restriction in section 14A or in rule 8D an further clarified by CBDT Circular No. 5 of 2014.
(iv) On the facts and circumstances of the case, the Ld. CIT(A) has erred in ignoring the legislative intent expressed in CBDT's Circular No. 5/2014 dated 11.02.2014, which explicitly states that expenses relatable to earning of exempt income have to be considered for disallowance irrespective of the fact whether any such income has been earned during the F.Y. or not as confirmed by Apex Court in Maxopp Investment Ltd. Vs. CIT, 91 Taxman.com 154(SC).
(v) On the facts and circumstances of the case, the Ld. CIT(A) has erred in holding that disallowance u/s 14A cannot be made where there is no exempt income, when Supreme Court has upheld the principles of apportionment and department is in SLP on the same issue in the cases of Moderate Leasing and Capital Services Pvt. Ltd. in ITA No. 102 of 2018, A.Y. 2009-10 and Matrix Cellullar Service (P) Ltd. in ITA No. 484 of 2017 and Nilgiri Infrastructure Development Ltd. in ITA No. 135 of 2016 and Instant Holding Ltd. in ITA No. 2168 of 2011 and SLP has also been approved against the decision of Hon'ble Jurisdictional High Court in the case of M/s Vardhman Chemtech Private Ltd. in ITA No. 322/2016.
(vi) On the facts and circumstances of the case, the Ld. CIT(A) has erred in law and fact in following the decision of Hon'ble High Courts whose facts were distinguishable from the assessee, ignoring the principal of apportionment regardless of exempt income laid down by Hon hie Supreme Court decision in CIT vs. Walfort Share and stock Brokers P Ltd., 326 ITR 1(SC), and upheld by the Hon hie Supreme Court in 91 Taxman.com 154(SC) .
(vii) On the facts and circumstances of the case, the Ld. CIT(A) has erred in deleting the addition of Rs. 25,66,355/- u/s 14A determined by the AO under rule 8D r.w.s.l4A to apportion interest expenditure incurred to invest in shares and equity instrument in view of the fact that no separate accounts are maintained by the assessee in relation to investments whose income is exempt from tax, and has large borrowed funds ignoring Apex Court decision in 91 Taxman.com 154(SC).
(viii) On the facts and circumstances of the case and in law, the Ld. CIT(A) has erred in law and fact in following the decision of Hon hie High Court In Lakhani Marketing decided following decisions in the case of Hero Cycles Ltd., 323 ITR 204 and CIT vs. Winsome Textile Industries Ltd., 319 ITR 204 whose facts are distinguishable from the assessee, ignoring the principal of apportionment laid down by Hon'ble Supreme Court decision in CIT vs. Walfort Share and stock Brokers P Ltd.,: 326 ITR 1(SC), which has been confirmed in 91 Taxman.com 154(SC) and thus legislation relying on Winsome Textiles Industries Ltd. stands superceded.
(ix) On the facts and in the circumstances of the case, the Ld. CIT(A) has erred in deleting the addition made on account of capitalization of ropeway expenses when the same were of capital nature and giving enduring benefit to the assessee.
2. Th e ld . AR i nviti ng attention to similar appeal filed by the Revenue in 2012-13 and 2013-14 assessment years submitted that the issue is covered in favour of the assessee by virtue of ITA 250/CHD/2019 A.Y. 2015-16 Page 3 of 7 the order dated 02.01.2018 in I TA 1029 & 1030/CHD/2017 wherein similar departmental appeals for 2012-13 and 2013-14 assessment years were dismissed.
3. Th e ld . DR on going thr ough the order agre ed th at there is no change in facts, circumstances or position of law.
4. We have heard the rival submissions and perused the material available on record. It is seen that the first issue addressed by the department vide ground No. (i) to (viii) has been add resse d b y the CI T(A ) i n p ar a 7 whe re in re lyi ng upon the view taken in the earlier years vide order dated 09.03.2017, the addition made by way of disallowance was deleted. Relevant finding is reproduced :
7 .2 HELD: I have perused the order of the Assessing Officer and examined the reply of the assessee. This issue on identical facts has been decided by my predecessor in favour of the appellant in App ea l No . 1 0537 /16 -17 , AY 2014-1 5 Dated 09 .01 .2 018. Relevant portion of the order are as under:
"7. Ground of appeal No. 3:The Assessing Officer disallowed Rs. 30,23,156/- u/s 14A r.w.r. 8D of the Income Tax Rule, 1962. It may be noted that appellant has not earned any exempt income during the year. In view of the decision of Jurisdictional High Court in the case of M/s Lakhani Marketing Inc. (226 Taxman
45) and the Hon'ble ITAT, Chandigarh in the case of M/s Swami Automobiles Pvt.
Ltd. in ITA No. 74/CHD/2015 quoted by the appellant, the addition is deleted. This ground of appeal is allowed."
7.3. I am in agreement with the findings of the Ld. CIT (A)-1, Chandigarh. Therefore, by respectfully following the said order addition made by the AO is deleted and the Ground of Appeal No.3 is allowed.
5. On a perusal of the order of the Co-ordinate Bench relied upon, we find that the issue is no longer res-integra which fact has been noted by the Co-ordinate Bench in the aforesaid order.
For ready reference relevant extract of the finding is reproduced he reunder :
ITA 250/CHD/2019 A.Y. 2015-16 Page 4 of 7
2. The facts relatable to the 1st issue agitated by the revenue addressed in ground numbers 1 and 2 are found addressed in the assessment order in para 6 to para 6.3 and in the impugned order in para 9. A perusal of the same shows that the assessee was required to explain as to why disallowance under section 14A read with Rule 8 should not be made in view of the fact that the assessee had investments as on 01.04.2011 amounting to Rs. 8,50,54,710/-.
The assessee in response to the same before the AO placed reliance upon the decision of the jurisdictional High Court in the case of Lakhani Marketing. The CIT(A) granted relief taking into consideration the fact that the assessee in the year under consideration had not earned any exempt income and relying upon the aforesaid decision of the jurisdictional High Court as reported in 226 Taxmann 45 and order of the Chandigarh Bench in the case of Mrs Swami Automobiles Private Limited in ITA 74/CHD/2015. The Ld. Sr.DR relies upon the assessment order and the Authorised Representative of the assessee relies upon the impugned order. We note that as far as the present issue is concerned, it is no longer res integra as consistently the jurisdictional High Court in the case of Lakhani Marketing and the Delhi High Court in the case of Cheminvest and Holcim has set the position at rest on the very same issue. Relying on the said decision, we hold that no interference in the order is warranted either on facts of on law.
6. Accordingly, on the first issue, the appeal of the Revenue fails.
7. O n t h e n e x t i s s u e , i t i s s e e n t h a t t h e C I T( A ) c o n s i d e r i n g similar disallowance made in the earlier years relies upon the view taken at the first Appellate stage in 2013-14 assessment year and deletes the addition. The relevant discussion is available in paras 8 to 8.3 of the CI T(A )'s order and is reproduced hereunder for the sake of completeness :
8. Grou nds o f Ap peal No . 4: The appellant has challenged that AO has erred in making addition on account of capitalization of expenses to the tune of Rs.4,77,242/- despite the fact that the same represents purchase of cable being revenue in nature, which is changed when ever found to be defective and has no enduring benefit. The issue is cowered by the order of the honorable CIT(A), Chandigarh-I for the AY 2013-14. Th e AO has made the follo wing obserwations:-
"6. Capitalisation of Repair and Maintenance Expenses:-
6.1 During the course of assessment proceedings, while test checking the books of accounts, it was seen that the assessee had debited an amount of Rs.5,61,461/- on 30.10.2014 under the head 'Repair & Maintenance of Plant & Machinery'. The counsel of the assessee was asked to produce billsA/ouchers of these expenses and also to explain the nature of these expenses. On perusal of these bills it is seen that these expenses were of capital nature on account of purchase of cable. Accordingly, vide order sheet entry dated 23.03.2017, the counsel of the assessee was asked to show cause as to why the expenses of Rs.
5,61,461/- debited under the head "Repair & Maintenance" be not Capitalized. In response, counsel filed reply dated 17.04.2017 which is as under:
ITA 250/CHD/2019 A.Y. 2015-16 Page 5 of 7 'The assessee company is deriving ropeway income and the main connecting cable in ropeway system is changed every year in which the ropeway system is completely shut down. Keeping in view the short life of the cable, the expenditure relating to purchase of cable has been charged to revenue. The purchase of cable is neither an asset not its purchase has any enduring benefit keeping in view of its every years replacement.' 6.2 The contention of assessee is not found to be satisfactory. This expenditure is of capital nature as the assessee will draw enduring benefits from it in the years to come. The assessee cannot claim this expenditure as revenue expenditure in one go.
Mere stating that the life span of a machinery or part of .a plant is less than one year does not mean than it is a revenue expenditure. In other terms, the assessee is trying to claim depreciation @ 100% on Plant & Machinery, which has life span of less than one year, whereas it is depreciable @ 15%.
6.3 In CIT v. Madras Auto Service (P) Ltd. (1998) 233 ITR 468 (SC), the Hon'ble apex court summarized the general principles applicable in determining whether a particular expenditure is capital or revenue expenditure as follows "(I) Outlay is deemed to be capital when it is made for the initiation of a business, for extension of a business, or for a substantial replacement of equipment. (2) Expenditure may be treated as properly attributable to capital when it is made not only once and for all, but with a view to bringing into existence an asset or an advantage for the enduring benefit of a trade... If what is got rid of by a lump sum- payment is an annual business expense chargeable against revenue, the lump sum payment should equally be regarded as a business expense, but if the lump sum payment brings in a capital asset, then that puts the business on another footing altogether.
(3) Whether for the purpose of the expenditure, any capital was withdrawn, or, in other words, whether the object of incurring the expenditure was to employ what was taken in as capital of the business. Again, it is to be seen whether the expenditure incurred- was part of the fixed capital of the business or part of its circulating capital."
6.4 From the above it is clear, if expenditure is made for bringing into existence an asset or an advantage for the enduring benefit of a business, the expenditure needs to be treated as Capital Expenditure. Therefore for amount of Rs. 4,77,242/- is disallowed and capitalized after allowing deprecation @15%. Accordingly after allowing deprecation @15% on the Purchase of Cable, the total disallowance is Rs. 4,77,242/- (Rs. 5,61,461 - Rs. 5,61,461 X 15%) which is added back to the income of the assessee. I am satisfied that the case of the assessee is fit for initiating penalty u/s 271(1)(c) for furnishing inaccurate particulars of income. 8.1 Per Contra: In appeal, the Ld. AR has submitted that the said expenditure is revenue in nature. The assessee company is deriving ropeway income and the main connecting cable in ropeway system is changed every year in which the ropeway system is completely shut down. Keeping in view the short life of the cable, the expenditure relating to purchase of cable has been charged to revenue. The purchase of cable is neither an asset not its purchase has any enduring benefit keeping in view of its every years replacement. 8.2 HELD: I have perused the order of the Assessing Officer and examined the reply of the assessee. This issue on identical facts has been decided by my predecessor in favour of the appellant in Appeal No. 10537/16-17, AY 2014-15 Dated 09.01.2018. Relevant portion of the order are as under:
ITA 250/CHD/2019 A.Y. 2015-16 Page 6 of 7 "8.2 I have examined the issue at length. Since the cable of ropeway is replaced every year, it would be a revenue expense and cannot be capitalized. The addition is therefore deleted. Ground of appeal No. 4 is allowed"
8.3 I am in agreement with the findings of the ld. CIT(A)-I Chandigarh. Therefore, by respectfully following the said order addition made by the AO is deleted and the ground of appeal No. 4 is allowed."
8. On a perusal of the assessment order, it is seen that i den tical re asoni ng as considered b y the CI T( A) and the I TA T in the earlier years has been the basis for rejection of assessee's claim in the year under consideration as is evidenced from paras 6 to 6.4 of the assessment order. Accordingly, relying upon the view taken by the Co-ordinate Bench in the i mme di ately preceding years as considered in para 5 and 5.1, the departmental appeals fails on the second issue also addressed in ground No. (viii). For the sake of completeness, relevant finding from the order of the I TA T i s extr acted he re under :
5. We have heard the rival submissions and perused the material available on record.
We find that the AO considering the maintenance expenses incurred on purchase of cable, ice cube machine and rescue mission held that it was a capital expenditure. The assessee relying on submissions advanced recorded by the CIT(A) in para 10.1 of his order prayed for relief. Since the facts relatable to this aspect have been elaborately addressed by the assessee in the submissions extracted, the same are reproduced hereunder for ready reference :
10.1 In appeal the Ld. Counsel for the appellant argued that the main cable of ropeway system was changed every year therefore no enduring benefit was enjoyed by the appellant. The appellant representation is reproduced as under:-
"The said disallowance has been made by the learned A.O. on presumptive/ estimate basis without any cogent material on record. The assessee company is deriving ropeway income and the main connecting cable in ropeway system is changed every year in which the ropeway system is completely shut down. Keeping in view the short life of the cable, the expenditure relating to purchase of cable was charged to revenue. The contention of the learned A.O. that the expenditure is made for bringing into existence an asset or an advantage for the enduring benefit of a business is completely wrong because neither the purchase of cable is an asset nor its purchase has any enduring benefit keeping in view of its every years replacement. Hence the disallowance deserved to be deleted. The fact of every years replacement is also substantiated by the fact that the addition on the same was also made in ITA 250/CHD/2019 A.Y. 2015-16 Page 7 of 7 previous assessment order and the issue was also raised in appellate proceedings and the same is not disputed by the learned A.O. Similarly the ice cube machine and rescue system also has a very short life span keeping in view of its usage in a commercial manner."
5.1 We find that considering the said submission, the CIT(A) has concluded that the expenditure in regard to the replacement is a revenue expense, since on the other 2 assets i.e. ice cube machine and rescue system, no arguments were found advanced, the same were held to be capital in nature. On considering the aforesaid conclusion on the facts as have been brought out above in the earlier part of this order, we find no good reason to vary the conclusion arrived at as the replacement of ropeways in the peculiar facts and circumstances of the present case considering the short life of the cable is definitely a revenue expenditure. The other issues are not before us. Accordingly, the conclusion of the CIT(A) thereon is also upheld."
9. Said order was pronounced in the Open Court at the time of he aring itself.
10. In the result, the appeal of the Revenue is dismisse d.
Order pronounced in the Open Court on 19th July,2019.
Sd/- Sd/-
( अ नपण
ू ा& ग(ु ता ) ( दवा संह )
(ANNAPURNA GUPTA) (DIVA SINGH)
लेखा सद#य/ Accountant Member या"यक सद#य/ Judicial Member
"पन
ू म"
आदे श क त,ल-प अ.े-षत/ Copy of the order forwarded to :
1. अपीलाथ / The Appellant -
2. यथ / The Respondent
3. आयकर आयु/त/ CIT
4. आयकर आयु/त (अपील)/ The CIT(A)
5. -वभागीय त न2ध, आयकर अपील%य आ2धकरण, च4डीगढ़/ DR, ITAT, CHANDIGARH
6. गाड फाईल/ Guard File आदे शानुसार/ By order, सहायक पंजीकार/ Assistant Registrar