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Income Tax Appellate Tribunal, “ C ” BENCH, AHMEDABAD
Before: SHRI RAJPAL YADAV & SHRI WASEEM AHMED
आदेश / O R D E R
PER WASEEM AHMED, ACCOUNTANT MEMBER:
The captioned appeal has been filed at the instance of the Revenue against the order of the Commissioner of Income Tax (Appeals)–1, Ahmedabad [CIT(A) in short] vide appeal no.CIT(A)-VI/DCIT, Cir- 1/190/2014-15 dated 18/10/2015 arising in the assessment order passed under s. 143(3) of the Income Tax Act, 1961(hereinafter referred to as "the Act") dated 28/03/2014 relevant to Assessment Year (AY) 2011-12. The Assessee has also filed Cross Objection thereof.
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First we take up the appeal of the Revenue in ITA No. 3669/Ahd/2015 for AY 2011-12, wherein the Revenue has raised the following grounds of appeal:-
The ld. CIT(A) has erred in law and on facts in holding that the Data Processing Equipment is part of computers and eligible for depreciation at 60%. 2. The ld. CIT(A) has erred in law and on facts in directing the AO to verify the facts and if the payee company has offered the interest of Rs.2,61,55,578/- as income in their return of income, disallowance u/s.40(a)(ia) shall not survive. The ld.CIT(A) further erred in observing that the amendment made in Section 40(a)(ia) with effect from 01-04-2013 is applicable for A.Y. 2011-12 also. On the fact and in the circumstances of the case and in law, the CIT(A) ought to have upheld the order of the Assessing Officer to the extent mentioned above since the assessee has failed to disclose his true income/book profit. The appellant prays that the order of CIT(A) on the above grounds be set aside and that of the Assessing Officer be restored to the above extent. The appellant craves, to leave, to amend or alter any ground or add a new ground which may be necessary.
The first raised by the Revenue in Ground No. 1 is that the learned CIT(A) erred in allowing the depreciation @ 60% on data processing equipment treating them as computer.
Brief facts are that the assessee is public company and engaged in retail business of Apparels. The assessee during the year under consideration claimed depreciation of Rs. 2,93,17,617/- @ 60% on its block of assets classified under data processing equipment which is consisting of software, laptop, desktop, printer scanner, etc.
4.1. However, the Assessing Officer held that depreciation on Data Processing Equipment should be allowable @ 15% only as the same is not
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computer. Accordingly, the AO disallowed Rs.2,19,88,212/- being excess depreciation and added to the total income of the assessee.
Aggrieved assessee preferred an appeal before learned CIT (A). The assessee before the learned CIT(A) submitted as under:
i. The AO restricted the depreciation to 15% only merely on the basis that it has classified the computers under the block of assets as Data Processing Machinery.
ii. It has filed a detailed chart of the equipments/item of assets classified under the head data processing machinery. Such equipments/item of assets include computers, laptop, desk top, printers, scanners, modems and routers as well as other items which cannot be used without the use of the computers. Accordingly, the assessee claimed that all the devices which are necessary and used in conjunction with computers are treated as part of the computers. The assessee in support of its contention placed his reliance on the explanation attached to this section 36(1)(xi) as the word computer was not defined under the Act.
iii. The assessee also claimed that it has intangible assets in the form of software, as shown in the financial statements, which cannot be used without the computers. But the AO ignored this factual aspect and treated the computer as plant and machinery.
iv. The assessee also referred to the schedule XIV of the companies Act 1956 where the rate of depreciation was prescribed with respect to certain assets which were classified as “4. Data processing machines including computers (NESD).
v. The assessee also claimed that it was allowed depreciation on data processing machinery at the rate of 60% to the same as computer in the assessment framed under section 143(3) of the Act for the assessment year 2010-11.
4.2. The learned CIT(A) after considering the submission made by the assessee and going through the assessment order observed that the items of the assets /equipments classified under the head data processing equipments are mainly representing the computers and other items which are part and parcel of the computers as these other items cannot be used without the use of the computers.
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4.3. The learned CIT(A) also observed that the assessee was allowed depreciation at the rate of 60% on the items/block of assets classified under the head data processing equipments treating them as computers in the assessment framed under section 143(3) of the Act for the assessment year 2010-11. In view of the above, the ld. CIT-A deleted the disallowance made by the AO.
Being aggrieved by the order of the learned CIT(A) the Revenue is in appeal before us.
The learned DR before us submitted that there is no clarity to the fact whether the items classified under the head data processing equipments represent computers and its connected devices. As such this fact was not verified in the assessment framed under section 143(3) of the Act for the assessment year 2010-11. Therefore, no reference can be made to the assessment order of the immediate preceding assessment while deciding the issue for the year under consideration.
On the other hand, the learned AR before us filed a paper book running from pages 1 to 249 and submitted that all the details of the items falling under the head data processing equipment were furnished which was duly considered by the learned CIT (A). Accordingly, the learned CIT (A) held that such items under the head data processing equipments are computers and other devices are connected to it. The learned AR in support of his contention drew our attention on pages 96 to 99 of the paper book where the details of the items of data processing machinery were placed. The learned AR before us reiterated the submissions as made before the authorities below.
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6.1. Both the learned DR and the AR before us relied on the order of the respective authorities below as favourable to them.
We have heard the rival contentions of both the parties and perused the materials available on record. From the preceding discussion we note that the AO in the immediate preceding assessment year has allowed the depreciation on the block of data processing equipment at the rate of 60% on the assessment framed under section 143(3) of the Act.
7.1. Similarly, we also note that there was an addition amounting to Rs. 1,18,73,028/- under the block of data processing equipments. The learned CIT (A) has given very clear-cut finding that all the addition of the items in the block represents the computers and other connected devices. Accordingly the learned CIT (A) has allowed the depreciation at the rate of 60% on the addition of such items. The relevant finding of the learned CIT (A) stands as under:
“3.3. ………. On perusal of details submitted by the Appellant it is observed that the addition made to Data Processing Equipment are pertaining to computer and computer related items such as lap tops, desk tops, printers, scanners, modems and routers. The Assessing Officer has proceeded to make disallowance solely on the ground that block contain name “Data Processing Equipment and without appreciating the true character of assets. Majority assets as stated herein above are computers only and remaining assets are part of computers only as the same cannot be used separately without the use of computer.”
7.2. The learned DR at the time of hearing has not pointed out any defect in the finding of the learned CIT(A).
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7.3. At the time of hearing, a query was raised from the Bench to the learned AR for the assessee whether the items of the addition under data processing equipments were verified by the authorities below during the assessment proceedings. The learned AR could not make any satisfactory reply. Accordingly, we in the interest of justice and fair play, expressed to set aside the finding of the learned CIT (A) to the AO to verify whether the items of addition are part and parcel of the computers. But at the time of dictation, we find that the learned CIT (A) has given very clear finding about the addition of the items under the head data processing equipments are computers/connected devices which was not controverted by the learned DR appearing for the Revenue. Therefore, we find that there is no justification to set aside the issue to the file of the AO for fresh adjudication of the items of addition for Rs. 1,18,73,028/- under data processing equipments.
7.4. We also note that the appeal was filed by the Revenue and the onus was on it to high lights the infirmities in the order of the ld. CIT-A but the ld. DR appearing on behalf of the Revenue failed to do so. In holding so we draw support and guidance from the order of the Hon’ble Delhi High Court in the case of CIT Vs. Rama Krishna Jewellers reported in 52 taxmann.com 23 wherein it was held as under:
“Further, Revenue was aggrieved by the order passed by the Commissioner of Income Tax (Appeals) and was the appellant before the Tribunal. They should have highlighted and pointed out the factual inaccuracies and the incorrect findings recorded by the first appellate authority. Even before us, except for the remand reports, which have been filed in some appeals, no other details and particulars have been filed to challenge the factual findings recorded as perverse.”
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7.5. In view of the above and after considering the facts in totality, we are of the view that the assessee is entitled for depreciation on data processing equipments at the rate of 60% for the reasons as discussed above. Accordingly, we do not find any reason to interfere in the finding of the learned CIT (A). Hence the ground of appeal of the Revenue is dismissed.
The second issues raised by the Revenue is that the learned CIT (A) erred in directing the AO to verify whether the recipients of interest income of Rs. 2,61,55,578/- has offered in its return of income and if yes, then no disallowance is warranted under section 40(a)(ia) of the Act, though the alleged amendment in the statute was not applicable for the year under consideration.
8.1. During the assessment proceedings, it was observed by the AO that the assessee has claimed certain expenses without deducting the TDS as detailed under:
i. Housekeeping Expenses amounting to Rs. 7,23,145/- under section 194C of the Act.
ii. Interest Expenses of Rs. 2,61,55,578/- to M/s Arvind Life Style Brand Limited (in short ALBL) under section 194A of the Act.
iii. Interest Expenses of Rs. 2,32,890/- to Kotak Mahindra Prime Limited (for short KMPL) under section 194A of the Act .
8.2. Accordingly, the AO disallowed the gross expenses of Rs. 2,71,11,613/- (7,23,145+2,61,55,578+2,32,890) on account of non-deduction of TDS under the relevant provisions of the Act and added to the total income of the assessee.
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Aggrieved assessee preferred an appeal before learned CIT(A). The assessee before learned CIT(A) submitted as under:
Housekeeping Expenses amounting to Rs. 7,23,145/-
8.3. The provision was made at the end of financial year 31-3-2011 with respect to housekeeping expenses but the person to whom such amounts was to be paid were not known at that point of time. Hence, it (the assessee) was not liable to deduct the tax on such provisions.
8.4. The assessee further submitted that the provisions made at end of financial year were subsequently reversed in the immediate next year and offered to tax. Therefore, there is no tax effect for the provisions made in the year under consideration.
8.5. The assessee without prejudice to the above also claimed that in case the addition is confirmed for the year under consideration then it should be allowed the benefit of deduction for the amount of housekeeping expenses offered to tax in the immediate subsequent year.
Interest Expenses of Rs. 2,61,55,578/- to M/s Arvind Life Style Brand Limited (in short ALBL).
8.6. The payee of such interest amount from the assessee has already recorded such amount in the books of accounts and offered the same to tax. Therefore, such expenses cannot be disallowed as per the amended provisions of section 40(a)(ia) of the Act.
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Interest Expenses of Rs. 2,32,890/- to Kotak Mahindra prime Limited under section 194A of the Act .
8.7. The above amount of interest expenses of Rs 2,32,890/- represents the reimbursement made by the assessee to Arvind Lifestyle Brand Limited (ALBL) on actual basis. As such, there was no element of income in the amount of interest reimbursed to the ALBL. Accordingly the assessee claimed that, the provision of TDS in case of reimbursement of expenses cannot be invoked.
8.8. The assessee alternatively also claimed that the payee ( KMPL) of such interest amount from the assessee has already recorded such amount in the books of accounts and offered the same to tax. Therefore, such expenses cannot be disallowed as per the amended provisions of section 40(a)(ia) of the Act.
8.9. The learned CIT(A) after considering the submission of the assessee and finding of the AO has observed as under:
8.10. Regarding the provision for the housekeeping expenses, the learned CIT (A) has held that these are contingent liabilities and therefore the same cannot be allowed as deduction in the year under consideration. However, the learned CIT (A) directed the AO to allow the benefit of deduction for the amount of provision in the subsequent year if it was offered to tax in the subsequent assessment year.
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8.11. Regarding the interest expenses of Rs. 2,61,55,578/- paid to ALBL, learned CIT (A) directed the AO to verify whether the payee is offered the tax in its income tax return on the amount of interest received from the assessee. If yes, allow the deduction to the assessee for the impugned amount of interest expenses despite there was no deduction under section 194A of the Act.
8.12. Regarding the interest payment of Rs. 2,32,890/- to ALBL, the learned CIT (A) found that the confirmation received from Kotak Mahindra Prime Limited does not include the amount of interest expenses paid by the assessee to ALBL. Accordingly, the learned CIT (A) confirmed the order of the AO.
8.13. Being aggrieved by the order of the learned CIT (A), the Revenue is in appeal and the assessee is in CO before us. The Revenue is in appeal for the direction issued by the learned CIT (A) to verify the fact whether the recipient of interest income has offered such income to tax. The Revenue also challenged that the amendment made under the provisions of section 40(a)(ia) of the Act, for not deducting the TDS in a situation where the recipient has offered the same to tax was not applicable for the year under consideration. As such, the same was brought by the Finance Act 2012 with effect from 01-04-2013.
On the other hand, the assessee is in CO bearing No.17/Ahd/2016 against the confirmation of addition on account of Housekeeping and interest paid to Kotak Mahindra Prime Ltd. The relevant grounds raised in the CO are reproduced as under:
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In law and in the facts and circumstances of the respondent’s case, the learned CIT(A) has grossly erred in upholding the disallowance of deduction for Rs.2,32,890 made by the learned Assessing Officer u/s.40(1)(ia). He ought to have appreciated, inter alia, that since the impugned amount had been paid by the respondent to Arvind Lifestyle Brands Ltd. in reimbursement of interest paid by it to Kotak Mahindra Primes Ltd. in respect of assets used by the respondent, it did not represent income in the hands of the payee viz., Arvind Lifestyle Brands Ltd. and, therefore, there could be no question for invoking Section 40(a)(ia) for making the impugned disallowance.
In law and in the facts and circumstances of the respondent’s case, the learned CIT(A) has grossly erred in upholding the disallowance of Rs.7,23,145 on account of provision for housekeeping expenses made by the learned Assessing Officer by invoking Section 40(a)(ia) (albeit, subject to acceptance of the respondent’s alternative Ground for not subjecting the reversal of the provision in the immediately succeeding year to tax as income). The learned CIT(A) ought to have appreciated, inter alia, that the respondent was mandated to make the impugned provision in its books of account on the last day of the accounting year pursuant to the principle of matching costs with revenue and that in accordance with the generally accepted practice for such provisions, the same had been reversed on the first day of the following year and that therefore, there could be no question for invoking Section 40(a)(ia) in respect thereof.
The learned DR before us submitted that the amendment in the provisions of section 40(a)(ia) of the Act, is not applicable for the year under consideration.
On the other hand, the learned AR before us submitted that the Hon’ble Delhi High Court in the case of Ansal Land Mark Township (P) Ltd reported in [2015] 61 taxamnn.com 45 has held that such amendment is retrospective in nature. Thus the same is applicable for the year under consideration though it was brought to statute with effect from 1st April 2013.
The learned AR for the assessee for other grounds raised by it in its CO reiterated the submissions as made before the authorities below.
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Both the learned DR and the AR vehemently supported the order of the authorities below to the extent favourable to them.
We have heard the rival contentions of both the parties and perused the materials available on record. The facts of the dispute have already been elaborated in the preceding paragraph. Therefore we are not inclined to repeat the same for the sake of brevity and convenience.
13.1. Regarding the interest expenses of Rs. 2,61,55,578/- paid to ALBL, we note that the learned CIT (A) has no power to set aside the order to the AO for the verification. As such the learned CIT (A) has to adjudicate the issue raised by the assessee after calling the remand report from the AO. However, the facts of the present case are the different. As such, the learned CIT(A) has adjudicated the issue raised by the assessee but set aside to the file of the AO only for the limited purpose of the verification. Therefore, we do not find any infirmity in the order of the learned CIT (A) so far as the direction provided to the AO.
13.2. Similarly, we also note that, the amendment made under the provisions of section 40(a)(ia) vide Finance Act, 2012 has been applicable retrospectively. In this regard we find support and guidance from the judgment of Hon’ble Delhi High Court in case of Ansal Land Mark Township (P) Limited (supra) wherein it was held as under:
“9. It is seen that the second proviso to Section 40(a)(ia) was inserted by the Finance Act, 2012 with effect from 1st April 2013. The effect of the said proviso is to introduce a legal fiction where an Assessee fails to deduct tax in accordance with the provisions of Chapter XVII B. Where such Assessee is deemed not to be an assessee in default in terms of the first proviso to sub- section (1) of Section 201 of the Act, then, in such event, "it shall be deemed
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that the assessee has deducted and paid the tax on such sum on the date of furnishing of return of income by the resident payee referred to in the said proviso".
The first proviso to Section 201(1) of the Act has been inserted to benefit the Assessee. It also states that where a person fails to deduct tax at source on the sum paid to a resident or on the sum credited to the account of a resident such person shall not be deemed to be an assessee in default in respect of such tax if such resident has furnished his return of income under Section 139 of the Act. No doubt, there is a mandatory requirement under Section 201 to deduct tax at source under certain contingencies, but the intention of the legislature is not to treat the Assessee as a person in default subject to the fulfillment of the conditions as stipulated in the first proviso to Section 201(1). The insertion of the second proviso to Section 40(a)(ia) also requires to be viewed in the same manner. This again is a proviso intended to benefit the Assessee. The effect of the legal fiction created thereby is to treat the Assessee as a person not in default of deducting tax at source under certain contingencies.
Relevant to the case in hand, what is common to both the provisos to Section 40(a)(ia) and Section 201(1) of the Act is that as long as the payee/resident (which in this case is ALIP) has filed its return of income disclosing the payment received by and in which the income earned by it is embedded and has also paid tax on such income, the Assessee would not be treated as a person in default. As far as the present case is concerned, it is not disputed by the Revenue that the payee has filed returns and offered the sum received to tax.
Turning to the decision of the Agra Bench of ITAT in Rajiv Kumar Agarwal's case (supra ), the Court finds that it has undertaken a thorough analysis of the second proviso to Section 40(a)(ia) of the Act and also sought to explain the rationale behind its insertion.
The Court is of the view that the above reasoning of the Agra Bench of ITAT as regards the rationale behind the insertion of the second proviso to Section 40(a)(ia) of the Act and its conclusion that the said proviso is declaratory and curative and has retrospective effect from 1st April 2005, merits acceptance.
In that view of the matter, the Court is unable to find any legal infirmity in the impugned order of the ITAT in adopting the ratio of the decision of the Agra Bench, ITAT in Rajiv Kumar Agarwal's case (supra).
No substantial question of law arises in the facts and circumstances of the present case. The appeal is dismissed.”
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In view of the above, we hold that such amendment under the provisions of section 40(a)(ia) of the Act though brought from the assessment year 2013-14 but it has been held applicable from retrospectively. Accordingly, we do not find any reason to interfere in the order of learned CIT (A). Hence the ground of appeal of the Revenue is dismissed.
14.1. Regarding the issue raised by the assessee for the provisions created for housekeeping expenses, we find that the assessee itself before the learned CIT (A) has admitted the fact that the parties for creating the house keeping provisions were not identifiable. Accordingly we hold that these are contingent liabilities which are not based/computed/calculated in scientific manner. Thus, we do not find any infirmity in the order of the learned CIT (A).
14.2. Regarding the interest expenses of Rs. 2,32,890/- paid to ALBL with respect to car loan from Kotak Mahindra Prime Limited, we note that the learned AR for the assessee has not produced any documentary evidence suggesting that the impugned amount paid to ALBL represents the reimbursement of the expenses. Indeed, there was the submission filed by the assessee before the authorities below claiming that the impugned amount of interest represents the reimbursement of the expenses. However, the learned CIT (A) has not given any finding on this contention of the assessee. Accordingly, in the absence of documentary evidence, we reject the contention of the assessee.
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14.3. However, we find force in the alternate contention of the assessee that the payee of such interest has offered the same to tax. Accordingly, we direct the assessee to file the requisite details showing the reconciliation for the payment made by the assessee to ALBL and the ALBL subsequently made the payment to Kotak Mahindra Prime Limited which has offered the amount of interest income in the income tax return. Hence the ground of appeal of the Revenue is dismissed whereas the grounds raised by the assessee in its CO are partly allowed for the statistical purposes.
In the result, the appeal of the Revenue is dismissed.
Coming to the CO No.17/Ahd/2016 (in ITA No.3669/Ahd/2012) for AY 2011-12 filed by the assessee
The assessee has raised the following grounds in its CO:
In law and in the facts and circumstances of the respondent's case, the learned CIT(A) has grossly erred in not adjudicating upon Ground No. 1 of the respondent's appeal challenging the very validity of the assessment order impugned before him, on the ground that it was general in nature. He ought to have appreciated, inter alia, that the Ground itself showed that the challenge to the validity of the assessment order had been made on specific grounds and that it cannot be treated as a general ground not requiring to be adjudicated upon.
In law and in the facts and circumstances of the respondent's case, the learned CIT(A) has grossly erred in upholding the disallowance of deduction for Rs.2,32,890 made by the learned Assessing Officer u/s. 40(a)(ia). He ought to have appreciated, inter alia, that since the impugned amount had been paid by the respondent to Arvind Lifestyle Brands Ltd. in reimbursement of interest paid by it to Kotak Mahindra Primes Ltd. in respect of assets used by the respondent, it did not represent income in the hands of the payee viz., Arvind Lifestyle Brands Ltd. and, therefore, there could be no question for invoking Section 40(a)(ia) for making the impugned disallowance.
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In law and in the facts and circumstances of the respondent's case, the learned CIT(A) has grossly erred in upholding the disallowance of Rs.7,23,145 on account of provision for housekeeping expenses made by the learned Assessing Officer by invoking Section 40(a)(ia) (albeit, subject to acceptance of the respondent's alternative Ground for not subjecting the reversal of the provision in the immediately succeeding year to tax as income). The learned CIT(A) ought to have appreciated, inter alia, that the respondent was mandated to make the impugned provision in its books of account on the last day of the accounting year pursuant to the principle of matching costs with revenue and that in accordance with the generally accepted practice for such provisions, the same had been reversed on the first day of the following year and that therefore, there could be no question for invoking Section 40(a)(ia) in respect thereof.
In law and in the facts and circumstances of the respondent's case, the learned CIT(A) has grossly erred in upholding the disallowance of Rs.3,61,368 made by the learned Assessing Officer by wrongly applying the provisions of Section 36(2) read with Section 36(1)(vii). He ought to have appreciated, inter alia, that the impugned amount represented a business loss (on account of irrecoverability of deposits paid to landlords of rented premises used for the purposes of the respondent's business) which was clearly deductible u/s. 37 and/or u/s. 28.
In law and in the facts and circumstances of the respondent's case, the learned CIT(A) has grossly erred in upholding the disallowance of depreciation amounting to Rs.5,58,461 on additions to motor cars made this year. He ought to have appreciated, inter alia, that the motor cars in question had been purchased with the respondent's funds and were used for the purposes of its business.
In law and in the facts and circumstances of the respondent's case, the learned CIT(A) has grossly erred in dismissing Ground No. 14 of the respondent's appeal before him on the ground that levy of interest u/s. 234B was consequential. He ought to have appreciated, inter alia, that the respondent had challenged the very levy of interest (amounting to a huge Rs.39,34,692) under that provision and, in the peculiar facts and circumstances of its case, even if any of the additions to its returned income came to be ultimately sustained, the ratio of the decision of the Gujarat High Court in Bharat Machinery and Hardware Mart's case (136 ITR 875) and of the decision of the ITAT, Delhi Bench in Haryana Warehousing Corporation v. DCIT [252 ITR (AT.) 34] was attracted and the levy deserved to be cancelled.
In law and in the facts and circumstances of the respondent's case, the learned CIT(A) has grossly erred in dismissing Ground No. 15'of the respondent's appeal before him on the ground that levy of interest u/s. 234C was consequential. He ought to have appreciated, inter alia, that the respondent had challenged the very levy of interest (amounting to Rs.28,347) under that provision and, in the peculiar facts and circumstances of its case, even if any of the additions to its
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returned income came to be ultimately sustained, the ratio of the decision of the Gujarat High Court in Bharat Machinery and Hardware Mart's case (136 ITR 875) and of the decision of the ITAT, Delhi Bench in Haryana Warehousing Corporation v. DCIT [252 ITR (AT.) 34] was attracted and the levy deserved to be cancelled.
In law and in the facts and circumstances of the respondent's case, the learned CIT(A) has grossly erred in dismissing Ground No. 16 of the respondent's appeal before him challenging the initiation of penalty proceedings u/s. 271(1)(c), on the ground that no penalty had been levied yet. He ought to have appreciated, inter alia, that in the peculiar facts and circumstances of the respondent's case, there being absolutely no warrant/justification for initiating the penalty proceedings, they deserved to be dropped, thereby saving both the appellant and the Department from long drawn unnecessary litigation.
The respondent craves leave to add, amend and/or alter the ground or grounds of Cross-objections either before or at the time of hearing.
The issue raised by the assessee in Ground No. 1 is general in nature. Therefore no separate adjudication is required for the same. Accordingly we dismiss the same.
The issue raised by the assessee in Ground Nos. 2 & 3 is against the disallowance of housekeeping expenses and interest expenses for Rs. 7,23,145/- and 2,32,890/- respectively by the AO which was subsequently confirmed by the learned CIT(A).
At the outset, we note that the issues raised by the assessee in the above grounds of CO have already been adjudicated along with the appeal of the Revenue bearing ITA No. 3369/Ahd/2015 vide paragraph numbers 13 to 14 of this order. Respectfully following the same, the grounds of CO raised by the assessee are partly allowed for statistical purposes.
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The assessee, vide ground 4 objected the confirmation of disallowances of Rs. 3,61,368/- on account of bad debts.
The assessee has entered into two lease agreements for show rooms at Ghaziabad UP w.e.f. 01-12-2000 and for show room at Pune w.e.f. 07-05- 2008. It has made security deposit of Rs. 1,00,000 for Ghaziabad showroom and for Pune showroom Rs. 2,72,880/-. However on termination of agreement it did not receive any amount from Pune showroom whereas it has received only Rs. 11,512/- from Ghaziabad showroom. Thus the assessee claimed the same as bad debt amounting to Rs. 3,61,368/- (272880+88488) during the year under consideration.
20.1. However, the AO disallowed the same by holding that the impugned amount was not offered to tax in the earlier years. Therefore the same should not be allowed in current year. Thus the AO made the addition of Rs. 3,61,368/- to the total income of the assessee under the section 36(2) r.w.s. 28 of the Act.
Aggrieved assessee preferred an appeal before the learned CIT (A).
20.2 The learned CIT (A) confirmed the addition made by the AO by holding as under:
“On careful consideration of observation of Assessing Officer and contention of Appellant, it is observed that the Appellant hasnot provided any details regarding Security deposit paid to lessor for showrooms at Ghaziabad and Pune or any correspondence with lessor for recovery of advances and accordingly in the absence of any details the Appellant’s claim of business expenses u/s.28/37 of the Act is not acceptable. Considering these facts, addition made by Assessing Officer for Rs.3,61,368 is upheld. This ground of appeal of the Appellant is dismissed.”
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Being aggrieved by the order of the learned CIT (A), the assessee is in appeal before us.
20.3. The learned AR before us submitted that the impugned amount was not offered to tax in the earlier years. But such loss was incurred in the course of the business and therefore the same should be allowed as deduction under section 37/28 of the Act.
On the other hand, the learned DR vehemently supported the order of the authorities below.
We have heard the rival contentions of both the parties and perused the materials available on record. From the preceding discussion, we note that the assessee cannot be allowed deduction for writing off such security deposit as bad debts for the reason that the conditions as specified under the provision section 36(2) have not been satisfied.
22.1. However, the fact has not been doubted by any of the authorities below that such expenses were not incurred by the assessee in the course of the business. As such, the assessee has taken two showrooms in 2 different cities for the purpose of its business. Accordingly, the security deposits were made in the course of its business activities. Therefore, any loss incurred for any activity carried out in the course of the business is eligible for deduction either under section 37 or section 28 of the Act. In this regard we find support and guidance from the judgment of Hon’ble Gujarat High Court in
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case of PCIT vs. Dishman Pharmaceuticals & Chemicals Ltd reported in 417 ITR 373 the relevant extract of the order is reproduced here as under:
“The only requirement under Section 37 of the Act is that the expenses (not capital or personal) should be incurred for the purposes of the business or profession. There is no need to demonstrate that a certain expense relates to a particular income in order to claim such expense.”
22.2. In view of the above, we hold that the loss incurred in the course of the business is eligible for deduction.
22.3. However, the controversy arises whether such loss pertains to the year under consideration or in the earlier years. In other words it is to be found out the relevant year in which such loss would be eligible for the deduction. In this regard we note that there cannot be any set of rules to determine the fact of the crystallization of the loss. We can understand this fact with the help of an example.
22.4. Supposing the assessee (Mr. X) has acquired a property on lease for a period of 3 years after making the deposit of the security amount say Rs. 1 lakh only. As per the arrangement between the assessee and the lessor, the assessee was to get the security deposit on termination of the lease period. Let us assume, the assessee was to get the refund of the security deposit in the financial year 2010-11. But the lessor, failed to do so. However, the assessee kept showing such security deposit in its balance sheet for 2 years and also chased lessor for the recovery of the security deposits. But all the force of the assessee remains unfruitful. Finally, the assessee in the financial year 14-15 lost the hope of the recovery of the impugned amount and decided to write it off in the financial statements. In our considered view, the
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action of the assessee writing it off in the financial statements suggests the year of crystallization, though the assessee was entitled to receive the amount of security deposit in the financial year 11-12. As such, in our considered view, the year in which the assessee has written off the amount of security deposit is the relevant year in which the liability has crystallized. Accordingly, we reverse the order of the learned CIT (A) and direct the AO to allow the claim of the assessee. The ground of appeal raised by the assessee in its CO is allowed.
The fifth issue raised by the assessee in CO vide ground no-5 is that the learned CIT (A) erred in upholding the disallowances of car depreciation amounting to Rs. 5,58,461/-.
24.1. During the course of assessment proceedings, the AO observed that the assessee is claiming depreciation of Rs. 5,58,461/- on a car which is owned by the director of the assessee company. Further the assessee also failed to submit any documentary evidences except copy of purchase of the car which was issued in the name of director and delivered at the residential address of the director. Thus the AO, in absence of any documentary evidence held that the car is not owned by the assessee and not used for the purpose of the business. Accordingly the AO disallowed the depreciation claimed by the assessee and added the same to the total income.
Aggrieved assessee preferred an appeal before the learned CIT (A).
The assessee before learned CIT(A) submitted that the AO has made an assumption without any basis that the impugned car is owned by its Director.
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25.1. The assessee further claimed that the impugned car has been purchased by it on hire purchase basis and also paying hire purchase installment on the same. But inadvertently the impugned car was registered in the name of Arvind Lifestyle Brand Limited (ALBL). The assessee also submitted that this fact was also furnished before the AO vide letter dated 13.03.2014.
25.2. However, the learned CIT (A) confirmed the addition made by the AO by holding as under:
“8.3. …. On careful consideration of observation of Assessing Officer and contention of Appellant, it is observed that the Assessing Officer has disallowed depreciation on the ground that conditions u/s32 of the Act. It is observed that the Appellant has not provided any details regarding instalments for car paid by it and in the absence of such details it is not clear that the car is owned by the Appellant. The Appellant has also failed to provide any details regarding use of car for the purpose of business of the Appellant and hence in the absence of such details conditions for claiming depreciation u/s.32 of the Act are not fulfilled and hence disallowance as made in the Assessment order is hereby confirmed.”
Being aggrieved by the order of the learned CIT (A), the assessee is in appeal before us.
25.3. The learned AR before us submitted that it has made the payment for the acquisition of the car though it was registered in the name of Arvind Lifestyle Brand Limited. But the assessee was the actual owner of the car and therefore the same was shown in its balance-sheet.
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The learned AR further submitted that it has not produced the evidences for the payment towards the car purchase and the details of the loan. Accordingly, he requested to set aside the file to the AO for fresh adjudication.
On the other hand, the learned DR did not raise any objection if the matter is set aside to the file of the AO for fresh adjudication as per the provisions of law.
We have heard the rival contentions and perused the materials available on record. From the preceding discussion, we note that the amount of depreciation was disallowed in the absence of documentary evidences furnished by the assessee. However the learned AR before us has undertaken the responsibility to file the necessary documents evidencing that the payment for the purchase of the car was paid by it. In this regard, we note that if the payment has been made by the assessee then the assessee shall be the owner of the vehicle despite the fact it was registered in the name of 3rd person who is closely connected with the assessee. In holding so we find support and guidance from the order of this tribunal in the case of Aura Securities Pvt Ltd bearing ITA No. 1330,1622/Ahd/2012 wherein it was held as under:
“18. We have given a thoughtful consideration to the orders of the authorities below. A perusal of the bank statement of the assessee and the copy of the ledger account show that though the vehicle is in the name of the director but all the payments have been made by the appellant company and the vehicle has been shown as an asset of the company in its balance sheet. On finding that the funds for purchase of vehicle had been invested by the appellant company and the same has been duly reflected on the
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assets side of the balance sheet of the appellant company, we do not find any reason why the claim of depreciation should not be allowed to the appellant company. For this proposition, we draw support from the decision of the Hon’ble Supreme Court in the case of Mysore Minerals Ltd. 106 taxmann.com 166. We, accordingly, direct the A.O. to allow the claim of depreciation.”
28.1. In view of the above, we are inclined to set aside the issue to the file of the AO for fresh adjudication in the light of the above stated discussion and the order reproduced above. Hence the ground of appeal of the assessee is allowed for the statistical purposes.
The issue raised by the assessee in Ground Nos. 6 and 7 is challenging the levy of interest under section 234B/C of the Act.
At the outset we note that, there is no finding of the learned CIT (A) in his order on the issues raised by the assessee as discussed above. Accordingly, we in the interest of justice and fair play are inclined to set aside the issue to the file of the AO for fresh adjudication as per the provisions of law. Accordingly, the grounds of appeal raised by the assessee in the CO are allowed for the statistical purposes.
The issue raised by the assessee in ground No. 8 is premature to decide and accordingly we dismiss the same.
In the result, the Cross Objection of the assessee is partly allowed for statistical purposes.
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In the combined result, appeal of the Revenue is dismissed, whereas Cross Objection filed by the Assessee is partly allowed for statistical purposes. This Order pronounced in Open Court on 28/01/2020
Sd/- Sd/- ( RAJPAL YADAV ) ( WASEEM AHMED ) VICE PRESIDENT ACCOUNTANT MEMBER
Ahmedabad; Dated 28/01/2020
ट�.सी.नायर, व.�न.स./T.C. NAIR, Sr. PS
आदेश क� ��त�ल�प अ�े�षत/Copy of the Order forwarded to : 1. अपीलाथ� / The Appellant 2. ��यथ� / The Respondent. 3. संबं�धत आयकर आयु�त / Concerned CIT 4. आयकर आयु�त(अपील) / The CIT(A)-1, Ahmedabad 5. �वभागीय ��त�न�ध, आयकर अपील�य अ�धकरण, अहमदाबाद / DR, ITAT, Ahmedabad 6. गाड� फाईल / Guard file. आदेशानुसार/ BY ORDER, स�या�पत ��त //True Copy// उप/सहायक पंजीकार (Dy./Asstt.Registrar) आयकर अपील�य अ�धकरण, अहमदाबाद / ITAT, Ahmedabad 1. Date of dictation 23.1.2020 (word processed by Hon’ble AM in his computer by dragon) 2. Date on which the typed draft is placed before the Dictating Member 23.1.2020/28.1.2020 3. Other Member… 4. Date on which the approved draft comes to the Sr.P.S./P.S … 5. Date on which the fair order is placed before the Dictating Member for pronouncement…… 6. Date on which the fair order comes back to the Sr.P.S./P.S…….29.1.2020 7. Date on which the file goes to the Bench Clerk………………… 29.1.2020 8. Date on which the file goes to the Head Clerk…………………………………... 9. The date on which the file goes to the Assistant Registrar for signature on the order…………………….. 10. Date of Despatch of the Order……………