9911796707
TMI Blog2012 (8) TMI 62X X X X Extracts X X X X X X X X Extracts X X X X ..... sessing Officer without examining or discussing the case on merits and by ignoring that, the UPS is a separate electrical device attached to a computer to provide battery back up only and does not constitute an integral part of the computer system. 3 The learned CIT(A) has erred on facts and in law by deleting 50% of the disallowance of Rs.25,48,492/- comprising legal and professional expenses of capital nature on the basis of the Hon'ble Delhi High Court order in the case of CIT Vs. OCL India Ltd., 2010-TIOL-808-HC-Del-IT wherein it was held that when the purpose of services rendered is partly related to trading activity, then the payment made for such services has to be bifurcated suitably, ignoring that, i) In the case under consideration the purpose of services rendered was almost entirely related to benefit of enduring nature as apparent from submissions of the assessee itself during appellate proceeding cited at para 5.1 (i) on page 4 of the learned CIT(A) order. ii) The assessee has not been able to satisfactorily establish that the said legal and professional expenses incurred chiefly in connection with drafting, revising and amending of Articles of Association, Investme ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... letter dated 23rd May, 2012 signed by one Shri Manu K Giri, Advocate, power of attorney of the signatory or of shri Anoop Sharma, having not been filed . Earlier on 16.5.2012 also , the Bench adjourned the hearing for want of power of attorney of the ld. AR. Considering the nature of issues, the Bench proceeded to dispose of these appeals after hearing the ld. DR. 3. Adverting first to ground no.1 in the appeal, facts, in brief, as per relevant orders are that e-return declaring loss of Rs.25,21,37,436/- filed on 28.10.2007 by the assessee, engaged in the business of Digital Cinema System, after being processed u/s 143(1) of the Income-tax Act, 1961 (hereinafter referred to as the Act) was selected for scrutiny with the service of a notice u/s 143(2) of the Act issued on 23.09.2008. During the course of assessment proceedings, the Assessing Officer (A.O. in short) noticed that the assessee claimed exemption of dividend income of Rs.97,153/- u/s 10(34) of the Act. On perusal of details, the AO noticed that the assessee incurred an expenditure of Rs.27,98,84,089/- for earning gross income of Rs.7,92,48,938/-. Accordingly, the AO disallowed proportionate expenditure of Rs.3,43,116/- ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... asi-judicial authority deals with alis, it is obligatory on its part to ascribe cogent and germane reasons as the same is the heart and soul of the matter and further, the same also facilitates appreciation when the order is called in question before the superior forum. We may point out that a 'decision' does not merely mean the 'conclusion'. I t embraces within its fold the reasons forming basis for the conclusion. [Mukhtiar Singh Vs. State of Punjab,(1995)1SCC 760(SC)] . 6.1. Hon'ble Bombay High Court in the case of Godrej & Boyce Manufacturing Company Ltd. (supra) while adjudicating a similar issue in the context of provisions of sec. 14A of the Act and Rule 8D of the IT Rules,1962 concluded that Rule 8D, inserted w.e. f 24.3.2008 cannot be regarded as retrospective because i t enacts an artificial method of estimating expenditure relatable to tax-free income. I t applies only w.e. f AY 2008-09. For the assessment years where Rule 8D does not apply, the AO will have to determine the quantum of disallowable expenditure by a reasonable method having regard to all the facts and circumstances, the Hon'ble High Court concluded. 6.2 Hon'ble Supreme Court in their decision dated 6.7. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ment will take effect from 1st April, 2007 and will, accordingly, apply in relation to the assessment year 2007-08 and subsequent years." 37. Furthermore, in the Memorandum explaining the provisions in the Finance Bill, 2006 [281 ITR (ST) at pages 281-281], it is once again stated with reference to clause 7 which pertains to the amendment to Section 14A of the said Act that:- "This amendment will take effect from 1st April, 2007 and will, accordingly, apply in relation to the assessment year 2007-08 and subsequent years." 38. We may also refer to the CBDT Circular No.14/2006 dated 28.12.2006 and to paragraphs 11 to 11.3 thereof. Paragraph 11 dealt with the method for allocating expenditure in relation to exempt income and paragraphs 11.1 and 11.2 explained the basis and logic behind the introduction of sub-section (2) of Section 14A of the said Act. Paragraph 11.3 specifically provided for applicability of the provisions of subsection (2) and it clearly indicated that it would be applicable "from the assessment year 2007-08 onwards". 39. It is, therefore, clear that sub-sections (2) and (3) of Section 14A were introduced with prospective effect from the assessment year 2007-08 o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rm an integral part of the computer system. In fact, the computer accessories and peripherals cannot be used without the computer. Consequently, as they are the part of the computer system, they are entitled to depreciation at the higher rate of 60 per cent." 11.1 Following the said decision, ITAT in ITO vs.v.Omni Globe Information Technologies India (P.) Ltd., 131 ITD 280(Delhi) held that if peripherals such as printers, scanners and servers etc. form integral part of the computer system, UPS will also be an integral part of the computer system, entitled for deduction of depreciation at the rate of 60 per cent. In another decision dated 9.11.2010, Hon'ble Delhi High Court in CIT vs. Citycorp Maruti Finance Ltd. in ITA nos. 1712& 1714/2010 followed their own decision in BSES Yamuna Powers Ltd.(supra) and upheld the view of the ITAT, allowing depreciation @60% on computer accessories and peripherals like printers etc. .A similar view was taken in CIT Vs. M/s Bonanza Portfolio Ltd.: I.T.A. no.833 of 2011 by the Hon'ble jurisdictional High Court in their decision dated 10.8.2011. In the light of view taken in the aforesaid decisions, especially when the Revenue have not placed before ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... said principles, we are of the view that the Tribunal has rightly held that the scope of study was the mixture of both the areas namely part of it related to the study from which benefit of enduring nature was sought to be achieved and part thereof related to the trading activities. Therefore, the expenditure incurred was required to be apportioned between the two viz capital and revenue expenditure. When we come to the allocation of this expenditure, the reason for allocating 20% of the expenses towards capital expenditure is not discernible from the order of the Tribunal. According to the Tribunal itself, out of the five aspects on which report to the consultant was sought, two related to expansion or starting of new projects. On this observation of the Tribunal there is no dispute. This is correct as areas No.4 & 5 relate to possible acquisition in southern region and expansion of existing cement plant and from these studies benefit of enduring nature was sought to be derived at. Then the obvious fallout would be to allocate 40% of the total expenditure and not 20% to the head "capital expenditure. We, therefore, answer the question by holding that the Tribunal was not correct ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the assessee and the Consultant, which delineated the scope of study as mentioned in para 7 of the said order and in the light of broad principles governing nature of expenditure mention in para 13 of the order in the light of decision in CIT Vs. J K Synthetics Ltd., 222 CTR 339(SC) ,attributed 40% of the amount as capital in nature. In the instant case before us, the ld. CIT(A) did not make elaborate discussion on the scope of study undertaken by the consultants nor the ld. DR submitted a copy of the agreement with consultants, if any, before us. In these circumstances ,especially when complete facts in relation to scope of study are not available before us nor the basis of allocation of the amount towards each of the job undertaken by the consultant and nor even as to whether portion of expenditure was attributed to other entities in the group covered in the study, we consider it fair and appropriate to vacate the findings of the ld. CIT(A) and restore the matter to his file for deciding the issue raised in the ground no.3 in the appeal of the Revenue and ground no.1 in the CO, afresh in accordance with law in the light of our aforesaid observations, after allowing sufficient opp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the expenditure comprised in the amount of Rs.6,29,435/- crystallised in the year under consideration . There is nothing to suggest as to whether or not any details or reply was filed before the AO and the assessment order is silent on this aspect. The ld. CIT(A) accepted the submissions of the assessee, without having any report from the AO on the written submissions/documents filed by the assessee and concluded that the liability for the aforesaid expenses comprising the amount of Rs.6,29,435/-, crystallized in the year under consideration . Admittedly, the assessee is following mercantile system of accounting. It is well settled that accrual of a statutory liability depends upon the terms of the relevant statute. The quantification or ascertainment cannot postpone its accrual to the extent of admitted liability. On the other hand, contractual liability accrues when the basis for its quantification is settled by an agreement or otherwise. As held by the Hon'ble Gujrat High Court in their decision in Saurashtra Cement & Chemical Industries Ltd. vs. CIT, 213 ITR 523(Guj) ,merely because an expense relates to a transaction of an earlier year it does not become a liability payable in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... evidence, entail an element of discretion which is required to be exercised in a judicious manner. The powers of the CIT(A) to admit additional evidence are not only in situations where the evidence could not be produced before lower authorities owing to lack of adequate opportunity but also in situations where the fresh evidence would enable the CIT(A) to dispose of the appeal or for any other substantial cause. Of course, the power is to be exercised judiciously and for reasons to be recorded. Here we may point out that the Hon'ble jurisdictional High Court in CIT vs. Manish Build Well (P.) Ltd.,16 Taxmann.com27(Delhi) held that that the conditions prescribed in Rule 46A must be shown to exist before additional evidence is admitted and every procedural requirement mentioned in the Rule has to be strictly complied with so that the Rule is meaningfully exercised . Once the assessee invokes Rule 46A and prays for admission of additional evidence before the CIT (A), then the procedure prescribed in the said rule has to be scrupulously followed. A distinction should be recognized and maintained between a case where the assessee invokes Rule 46A to adduce additional evidence before the ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
