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TMI Blog2014 (3) TMI 887X X X X Extracts X X X X X X X X Extracts X X X X ..... expenses by the directors although the same can be considered in the hands of the concerned directors as perquisite – thus, there is no reason to interfere in the order of CIT(A) – Decided against Revenue. Deletion of disallowance of repairs and maintenance of building – Held that:- CIT(A) was of the view that the disallowance was made by the AO on the basis of his doubt that the payment of this amount to M/s Explorer Associates is capital in nature but the AO has not given any specific and definite finding that it was an expenditure on capital account – the decision in CIT vs. Hotel Control Pvt. Ltd. 2003 (10) TMI 31 - UTTARANCHAL High Court] followed – Revenue could not controvert this finding of CIT(A) – thus, there is no reason to interfere in the order of CIT(A) – Decided against Revenue. Deletion of disallowance of enhanced payment of rent – Held that:- CIT(A) was of the view that the rate of rent paid by the assessee is less than the rent paid by the bank in same vicinity - CIT(A) has given a finding that the reference of section 40A(2)(b) of the Act is totally misplaced under these circumstances – Revenue could not controvert this finding of learned CIT(A) - thus, there is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the CIT(A) – Decided against Assessee. Disallowance of electricity expenses – Electric consumption at the residence of the directors – Held that:- Electricity charges are specifically paid at the residence of a specific director and therefore, value of the same should be added by the assessee company in the perquisite of the concerned director but this was not done by the assessee company – the assessee company has not treated it as perquisite in the hands of the director – thus, it cannot be considered as a business expenditure of the assessee company – thus, there is no reason to interfere in the order CIT(A) – decided against Assessee. Deletion made u/s 14A of the Act – Subscription amount not invested in mutual funds and shares – Held that:- It is by now a settled position of law that provisions of Rule 8D are not applicable prior to assessment year 2008-09 and since the assessment year involved is 2006-2007, Rule 8D is not applicable in the present case – The decision in GODREJ AND BOYCE MFG. CO. LTD. Versus DEPUTY COMMISSIONER OF INCOME-TAX AND ANOTHER [2010 (8) TMI 77 - BOMBAY HIGH COURT] followed - in spite of this that Rule 8D is not applicable prior to AY 2008 - 09, reaso ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed of by this common order for the sake of convenience. 2. First we take up the cross appeals filed by the assessee and the Revenue for assessment year 2004-05 i.e. I.T.A. No.245/Lkw/2011 and 246/Lkw/2011 because the issue involved are inter-connected. 3. The grounds raised by the assessee are as under: "1. 1. BECAUSE the "CIT(A)" has erred in law and on facts in holding that payments of; (Rs.) (i) Repairs & Maintenance (others) 6,07,904 (ii) Insurance premia (paid on the lives of the directors) 2,01,090 (iii) Electricity expenses paid for electric Consumption at the residence of directors represented "personal expenditure", not allowable as such in the assessment of the "appellant".7,61,573 2. BECAUSE the expenses under various heads (as had been claimed as deduction under various heads) had been incurred by the "appellant" in its character as a business man and that too during the course of carrying on of its business and accordingly no part of the same could have been disallowed by holding the same was attributable to the "personal expenditure of the directors". 3. BECAUSE expenses on 'running and maintenance of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on treating it capital investment in the Building. 3. That the Ld Commissioner of Income Tax (A) has erred in law and on facts of the case in deleting the disallowance of Rs.10,00,000/- on account of enhanced payment of rent without appreciating the facts that the payment was recovered u/s 40A(2)(b) of the I.T. Act. 4. That the Ld Commissioner of Income Tax (A) has erred in law and on facts of the case in deleting the disallowance of Rs.6,19,447/- on account of circulation & Advt. Prom. Expenses without appreciating the facts that the disallowance is made in respect of expenses whereof business expediency could not be sustained. 5. That the order of Ld Commissioner of Income tax (A)-I, Kanpur being erroneous in law and on the facts deserves to be vacated and that the order of Assessing Officer be restored. 6. That the appellant craves leave to modify any of the grounds of appeal given above and/or add any fresh ground as and when it is considered necessary to do so." 5. Brief facts of the case are that the following expenses were disallowed by the Assessing Officer: (a) Out of telephone expenses 3,00,000.00 (b) Out of travelling expenses 2,47,255.00 (c) Out of repairs ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n the hands of the assessee company on alleged personal use of some expenses by the directors although the same can be considered in the hands of the concerned directors as perquisite. On this aspect also, we decline to interfere in the order of CIT(A). 7.3 The third item is regarding deletion of disallowance of Rs.12,45,952/- out of repairs & maintenance of building. This disallowance was deleted by CIT(A) as per para 8(c) of his order in which he has noted that this disallowance was made by the Assessing Officer on the basis of his doubt that the payment of this amount to M/s Explorer Associates is capital in nature but the Assessing Officer has not given any specific and definite finding that it was an expenditure on capital account. He has also noted that various case laws in respect of repairs and maintenance show that the addition/alteration made to an asset which is being used in the business, is allowable as current repairs. The CIT(A) has followed the judgment of Hon'ble Uttarakhand High Court rendered in the case of CIT vs. Hotel Control Pvt. Ltd. reported in [2004] 266 ITR 109 (Uttar). 8. Learned D.R. of the Revenue could not controvert this finding of CIT(A) and c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cles used by the directors as also the repairs and maintenance thereof. He has further noted that the disallowance has been made for personal use of vehicle by the directors. In our considered opinion, as per the judgment of Hon'ble Gujarat High Court rendered in the case of Sayaji Iron and Engg. Co. (supra), no disallowance is called for on the basis of alleged personal use of vehicle by the directors although the same may be considered as a perquisite in the hands of the concerned director. Hence, we delete this disallowance. 16. The second issued raised by the assessee is confirming the disallowance of Rs.2,01,090/- made by the Assessing Officer in respect of insurance premium paid on the life of the directors. On this issue, it is observed by CIT(A) in para 8(g) of his order that this disallowance was as per the Tax Audit Report and no specific reply has been made on this issue in the submission dated 28/10/2010. Regarding this issue, a query was raised by the Bench whether this payment of insurance premium on behalf of the directors has been included in the perquisite value of the directors and in reply, it was submitted that copy of Form-16 issued by the company of the d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... any because the assessee company is not getting any benefit from this payment of electricity and therefore, on this issue also, we do not find any reason to interfere in the order CIT(A). This disallowance is also confirmed. The appeal of the assessee is partly allowed. 18. Now we take up the cross appeal and Cross Objection for assessment year 2006-2007. The grounds raised by the assessee in its appeal for assessment year 2006-07 i.e. I.T.A. No.126/Lkw/2011 are as under: "1. BECAUSE the "CIT(A)" has erred in law and on facts in holding that claim for additional deduction of Rs.19,79,80,771/- as had been made under section 35D, in terms of letter dated 27.11.2008 filed during the course of assessment proceedings, could not be entertained in view of the principle laid down by the Hon'ble Supreme Court in the case of Goetze (India) Ltd. vs. CIT reported in (2006) 284 ITR 323. 2. BECAUSE "CIT(A)" has further erred in law and on facts in holding that : (a) the "appellant's" claim for deduction of sum of Rs.19,79,80,771/- cannot be said to be referable to the "capital employed" as envisaged in section 35D(3); and (b) at any rate ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... facts deserves to be vacated and that the order of Assessing Officer be restored. 3. That the appellant craves leave to modify any of the grounds of appeal given above and/or add any fresh ground as and when it is considered necessary to do so." 20.1 From the above grounds raised by the assessee in its appeal and Cross Objection and by the Revenue, we find that only two issues are involved. First issue is regarding disallowance made by the Assessing Officer of Rs.48,13,034/- out of administrative expenses by invoking the provisions of section 14A out of which CIT(A) has deleted the disallowance to the extent of Rs.46,13,034/- and confirmed the disallowance of Rs.2,00,000/-. The Revenue is in appeal for the disallowance deleted by CIT(A) and the assessee is in appeal for the part disallowance of Rs.2,00,000/- confirmed by CIT(A) and in the Cross Objection also, the same issue is raised by the assessee. 21. On this issue, Learned D.R. of the Revenue supported the assessment order whereas it is submitted by learned A.R. of the assessee that Rule 8D is not applicable in this year and the estimate made by CIT(A) of Rs.2,00,000/- is without any basis. Regarding the part disallow ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ee that this issue should go back to the file of the Assessing Officer for decision on merit. Hence, we set aside the order of CIT(A) on this issue and restore the entire matter back to the file of the Assessing Officer for decision as per law after providing adequate and reasonable opportunity of being heard to the assessee. 27. In the result, the appeal of the assessee and Revenue as well as Cross Objection of the assessee stand allowed partly for statistical purposes. 28. Now we take up the cross appeals of the assessee and the Revenue for assessment year 2007-08. 29. In its appeal the assessee has raised the following grounds: "1. BECAUSE notice under section 143(2) having not been issued with reference to the successive revised "returns" filed by the appellant, entire "variation" between the " returned income" and " assessed income" as made/sustained by the authorities below, as per particulars given below:- is vitiated and the same is liable to be quashed. 2. BECAUSE in any case, there is an apparent "disharmony" between the "Income-tax Authority" issuing notice under section 143(2) and the "Income-ta ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y the appellant company; (b) the payments in question, in any case, had been made by the appellant company/ in order to cover its liability to meet its obligation towards its employees/Directors; (c) the payments were governed solely by considerations of commercial expediency; and (d) and accordingly whole of the payments made by the appellant were liable to be allowed as legitimate business expenditure incurred by the appellant during the course of carrying on of its business. 5. BECAUSE expenses claimed by the appellant under various heads of expenditure including "other expenses" were fully verifiable and disallowance of Rs.1.00 lac as sustained by CIT(A) out of adhoc disallowance of Rs.5.00 lacs (as made in the assessment) is wholly arbitrary and in any case much too high and excessive. 6. BECAUSE CIT(A) has erred in law in upholding the applicability of section 14A of the Act, in the case of the appellant and in sustaining a disallowance to the extent of Rs.2.00 lacs (out of disallowance of Rs.52,32,539/- as had been made in the assessment). 7. BECAUSE no expenditure was incurred by the appellant, which could be said to be attributable to the "tax free inc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... see in its appeal, we find that these grounds are technical grounds regarding validity of the assessment proceedings but no such ground was raised by the assessee before CIT(A). Before the CIT(A), the assessee had raised only four grounds regarding merit of various additions/disallowances made by the Assessing Officer. Hence, these technical issues cannot be raised by the assessee before us by way of regular ground because this issue is not arising out of the order of CIT(A). However, it being a legal issue, the same could have been raised by the assessee before us by way of additional ground but the assessee has not done so. Moreover, the only objection of the assessee is that the Assessing Officer has not issued notice u/s 143(2) of the Act with reference to the successive revised return filed by the assessee. The learned AR of the assessee has not raised any argument during the course of hearing before us on this issue and learned A.R. of the assessee has simply submitted his arguments on merit of various issues raised in this appeals and it was agreed that these issues are identical to various issues raised by both the sides in preceding two years, which were heard together i.e ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y the assessee company on personal accident and mediclaim policies of the directors/employees. This issue is identical with the issue raised by the assessee in assessment year 2004-05 regarding confirming of the disallowance of Rs.2,01,090/- made by the Assessing Officer in respect of insurance premium paid on the life of the directors. This issue has been decided by us as per para 16 of the Tribunal order and the same disallowance was confirmed in that year. Accordingly, on the same line, in the present year also, this disallowance is confirmed. Ground No. 4(a) is rejected. 35. The next issue raised by the assessee is interconnected with ground No. 1 raised by the Revenue. In fact, the Assessing Officer made disallowance of Rs.5,00,000/- out of expenses of Rs.343.47 lacs. The learned CIT(A) upheld the disallowance to the extent of Rs.1,00,000/- only and deleted the balance disallowance of Rs.4,00,000/-. Now the Revenue is in appeal for the disallowance deleted by CIT(A) of Rs.4,00,000/- and the assessee is in appeal for the disallowance confirmed by CIT(A) of Rs.1,00,000/-. We find that this issue was decided by CIT(A) as per the following para on page 4 of his order: "From ..... X X X X Extracts X X X X X X X X Extracts X X X X
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