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Income Tax Appellate Tribunal, “A” BENCH, PUNE
Before: SHRI D. KARUNAKARA RAO, AM & SHRI VIKAS AWASTHY, JM
आदेश / ORDER
PER VIKAS AWASTHY, JM :
This appeal by the assessee is directed against the order of Commissioner of Income Tax (Appeals)-II, Pune dated 27-08-2014 for the assessment year 2010-11.
The brief facts of the case as emanating from records are : The assessee is engaged in business of Event Management Service, trading of
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building material, etc. The assessee filed his return of income for the impugned assessment year on 13-10-2010 declaring total income of Rs.4,33,25,670/-. During the course of scrutiny assessment proceedings, the Assessing Officer inter alia made following additions/disallowances : i. Disallowance of expenditure on Advertisement u/s. 40(a)(ia) Rs.53,33,159/-. ii. Disallowance of depreciation Rs.12,16,496/-. iii. Disallowance u/s. 14A r.w. Rule 8D Rs.1,39,643/-.
Aggrieved by the additions made by Assessing Officer vide assessment order dated 21-03-2013, the assessee filed appeal before the Commissioner of Income Tax (Appeals). The Commissioner of Income Tax (Appeals) vide impugned order dismissed the appeal of assessee in toto. Now, the assessee is in second appeal before the Tribunal and has assailed the additions by raising following grounds of appeal : “1. The order of the Authorities below in so far as it is against the Appellant is opposed to law, equity, weight of evidence, probabilities and the facts and circumstances in the Appellant's case. 2. The appellant denies himself liable to assessed for an amount of income being Rs.5,01,41,468/ - under the facts and circumstances of the case. 3. The appellant denies himself in law and on facts to be liable to be taxed on an amount being Rs.53,33,159/- being the addition made as advertisement expenditure under provisions of section 40(a)(ia) of the Act under the facts and circumstances of the case. 4. The learned authorities below failed to appreciate that the advertisement expenditure incurred an amount being Rs.53,33,159/-, was reduced from the revised return filed by the Appellant for the previous assessment year 2009-2010 and claimed in the impugned assessment year 2010-2011, as the applicable TDS was paid during the impugned assessment year 2010-2011, under the facts and circumstances of the case. 5. The Appellant denies himself in law and on facts to be liable to be tax on an amount being Rs.12,16,496/-, being addition made as disallowance of depreciation under provision of section 32 of the Act, under the facts and circumstances of the case.
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The Appellant denies himself in law and on facts to be liable to be tax on an amount being Rs.1,39,643/-, being addition made as disallowance under section 14A of the Act, under the facts and circumstances of the case. 7. The Appellant denies himself liable to be charged to interest under section 234B & 234C of the Income-Tax Act, 1961, under the facts and circumstances of the case. 8. The Appellant craves leave to add, alter, delete or substitute any of the grounds urged above. 9. In the view of the above and other grounds that may be urged at the time of the hearing of the appeal, the Appellant prays that the appeal may be allowed in the interest of justice and equity.”
Shri B.C. Malakar appearing on behalf of the assessee submitted that Sakal Papers and the assessee are sharing profit in event management business. The ratio is 75% and 25%, respectively. In the Financial Year 2008-09 (i.e. relevant to the assessment year 2009-10) the total earnings from event managements were to the tune of Rs.1,78,63,277/-. The share of assessee from the said income was 25% i.e. Rs.44,65,819/-. The remaining amount Rs.53,33,159/-was charged by Sakal Papers. The accounting treatment to the above transaction was given in the books in Financial Year 2009-10 relevant to the assessment year 2010-11. In the books of account, the amount of Rs.44,65,819/- was shown as exhibition income and the amount paid to Sakal Papers i.e. Rs.53,33,159/- was shown as advertisement expenses. Initially, the aforesaid amounts were shown in the return of income for assessment year 2009-10, however, a revised return of income was filed and the advertisement expenses paid to Sakal Papers were disallowed as no TDS was made on the said payments. The tax at source on the said payment was deducted and credited to the Government exchequer in the period relevant to the assessment year 2010-11 and hence, the expenditure was claimed in the said assessment year. The ld. AR submitted that the authorities below have failed to
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consider this fact. The assessee has made due compliance of TDS provisions, hence, no disallowance u/s. 40(a)(ia) is called for.
3.1 In respect of ground No. 5 the ld. AR submitted that the assessee has claimed depreciation in respect of assets of Bhargavi Enterprises and Splendour Distributors. The authorities below have erred in coming to the conclusion that there is no business in the aforesaid two proprietary concerns. Undoubtedly, the volume of business was considerably reduced, but, the said firms have not completely shut down. Hence, the assessee is eligible to claim depreciation on the assets of the said firm.
3.2 In respect of ground No. 6 of the appeal the ld. AR submitted that the authorities below have erred in making disallowance u/s. 14A of the Act r.w.r. 8D. During the relevant period the assessee has not earned any dividend income. The disallowance has been made on the income from partnership firm. The ld. AR submitted that the authorities below have erred in holding that the borrowed money was used for investment in partnership firm, where the assessee has taken loan for the specific purpose of purchase of car and acquiring property. The loan was not used for the purpose of business. To support his contentions the ld. AR referred to certificates issued by HDFC Bank and City Bank annexed as Annexure B, B1 and B2.
On the other hand Shri Aseem Sharma representing the Department vehemently defended the impugned order. The ld. DR opposing ground Nos. 3 and 4 of the appeal submitted that the advertisement expenditure claimed by the assessee is a prior period expenditure and hence cannot be allowed in the Financial Year 2009-10 i.e. in the period relevant to the
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assessment year 2010-11. The expenditure can only be allowed in the year in which it is incurred.
4.1 With respect to disallowance of depreciation the ld. DR submitted that the Assessing Officer in his order has given a categoric finding that the business of assessee’s proprietary concerns Bhargavi Enterprises and Splendour Distributors has completely shut down. There is absolutely no business in the said two concerns and the said firms are defunct for the past 3 years. Since, the activities of the said concerns have been discontinued the assessee is not eligible to claim depreciation.
4.2 The ld. DR further submitted that the disallowance u/s. 14A r.w.r. 8D has been made in accordance with law. The assessee has not furnished any evidence before the authorities below to substantiate that no borrowed funds were used for making investment in the partnership firm.
We have heard the submissions made by representatives of rival sides and have perused the orders of authorities below. The assessee in appeal has raised 9 grounds. The ground Nos. 1, 2, 8 and 9 are general in nature, hence, require no adjudication.
In ground Nos. 3 and 4 of the appeal, the assessee has assailed disallowance of advertisement expenditure Rs.53,33,159/- u/s. 40(a)(ia) of the Act. The contention of the assessee is that the advertisement expenditure was not claimed by the assessee in assessment year 2009-10 and the same has been claimed in the assessment year under appeal after due compliance of provisions of Chapter XVII B of the Act. The Revenue has made disallowance on the ground that the expenditure pertains to
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assessment year 2009-10, therefore, the same cannot be allowed in the assessment year under appeal. It is not disputed by the Revenue that the assessee has not claimed expenditure in the period relevant to the assessment year 2009-10. A bare perusal of section 40 would show that disallowance under said section is independent to the provisions of section 30 to 38 of the Act. A further examination of proviso to clause (ia) makes it clear that where in respect of any expenditure tax has been deducted in subsequent year or deducted in relevant previous year but paid after the due date specified in section 139(1), such amount shall be allowed as deduction in the year in which tax has been paid. Thus, in view of specific provisions of section 40(a)(ia) the concept of disallowance of prior period expenditure will not apply. The assessee is eligible to claim expenditure in the year of payment of TDS on such expenditure/payments. However, the fact whether the assessee has complied with TDS provision has not been verified by the authorities below as the expenditure has been disallowed at the threshold itself. We are of considered view that if the assessee has complied with TDS provisions in respect of such expenditure and has not claimed the expenditure in the earlier years, the same should be allowed to the assessee in the assessment year under appeal. To verify the veracity of compliance of TDS provision we deem it appropriate to restore ground Nos. 3 and 4 of the appeal to the Assessing Officer. The Assessing Officer after verifying the facts shall allow/disallow the expenditure as the case may be, in accordance with law.
In ground No. 5 of the appeal the assessee has assailed disallowance of depreciation expenditure. The assessee has claimed depreciation to the tune of Rs.12,16,496/- in respect of assets of proprietary concerns i.e. M/s. Bhargavi Enterprises (Rs.21,276/-) and M/s. Splendour Distributors
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(Rs.11,95,220/-). The authorities below have given a categoric finding that the business operation of both the proprietary concerns have been completely shut down and the said concerns are defunct for the past 3 years. No material has been placed on record by the assessee to controvert the findings of authorities below. It is a well settled law that the assessee can claim depreciation only if the asset is put to use in the relevant period. The assessee has failed to furnish any cogent evidence to show that assets were put to use and there were some activities carried out in the said concerns in the period relevant to impugned assessment year. We do not find any infirmity in the findings of Commissioner of Income Tax (Appeals) in confirming the disallowance. Accordingly, ground No. 5 of the appeal by the assessee is dismissed.
In ground No. 6 of the appeal the assessee has assailed disallowance of Rs.1,39,643/- u/s. 14A of the Act. The contention of the assessee is that the assessee has not used borrowed funds for making the investment. The assessee has placed on record certificates from the banks to show that the funds were borrowed from Bank for specific purpose i.e. for purchase of car and investment in land. We find that this plea has been taken by the assessee for the first time before the Tribunal. The certificates from Bank Annexure B, B1 and B2 were not furnished before the authorities below. We deem it appropriate to restore this issue back to the file of Assessing Officer to examine the disallowance made under Rule 8D(2)(ii). If the borrowed funds were used for the specific purpose as has been claimed by the assessee, corresponding relief may be granted to the assessee, in accordance with law. Needless to say that before considering the issues remitted back to Assessing Officer. The Assessing Officer shall grant reasonable opportunity of hearing to the assessee, in accordance with law.
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In ground No. 7 of the appeal, the assessee has assailed charging of interest u/s. 234B and 234C of the Act. Charging of interest u/s. 234B and 234C is consequential and mandatory, hence, ground No. 7 raised in appeal by the assessee is dismissed being devoid of any merit.
In the result, the appeal of assessee is partly allowed for statistical purpose in the terms aforesaid.
Order pronounced on Thursday, the 28th day of February, 2019.
Sd/- Sd/- (डी. करुणाकरा राव/D. Karunakara Rao) (ववकास अवस्थी / Vikas Awasthy) ऱेखा सदस्य / ACCOUNTANT MEMBER न्याययक सदस्य / JUDICIAL MEMBER ऩुणे / Pune; ददनाांक / Dated : 28th February, 2019. RK आदेश की प्रयिलऱवऩ अग्रेवषि / Copy of the Order forwarded to : अऩीऱाथी / The Appellant. 1. प्रत्यथी / The Respondent. 2. आयकर आयुक्त (अऩीऱ) / The CIT(A)-II, Pune 3. आयकर आयुक्त / The CIT-II, Pune 4. ववभागीय प्रयतयनधध, आयकर अऩीऱीय अधधकरण, “ए” बेंच, 5. ऩुणे / DR, ITAT, “A” Bench, Pune. गाडड फ़ाइऱ / Guard File. 6. //सत्यावऩत प्रयत // True Copy// आदेशानुसार / BY ORDER,
यनजी सधचव / Private Secretary, आयकर अऩीऱीय अधधकरण, ऩुणे / ITAT, Pune