Delhi High Court
Cit vs Galileo India Pvt Ltd on 19 December, 2011
Author: Sanjiv Khanna
18
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* IN THE HIGH COURT OF DELHI AT NEW DELHI
Date of decision : December 19th, 2011
+ ITA 1074/2011
CIT ..... Appellant
Through: Mr. N.P.Sahni and
Mr. Ruchesh Sinha, Advs.
versus
GALILEO INDIA PVT LTD ..... Respondent
Through: Mr. Tapas Ram Misra and
Mr. Ashu Kansal, Advs.
CORAM:
HON'BLE MR. JUSTICE SANJIV KHANNA
HON'BLE MR. JUSTICE R.V. EASWAR
1. Whether Reporters of local papers may be allowed to see the judgment?
2. To be referred to the Reporters or not ?
3. Whether the judgment should be reported in the Digest?
SANJIV KHANNA,J: (ORAL)
This appeal under Section 260A of the Income Tax Act, 1961 is directed
against the order of the Income Tax Appellate Tribunal dated 16.12.2010 in the
case of M/s. Galileo India Pvt. Ltd. and relates to assessment year 2005-06. By
the impugned order the Tribunal has quashed the order passed by the
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Commissioner of Income Tax, Delhi under Section 263 of the Income Tax Act.
2. After hearing counsel for the parties the following substantial question of
law is framed:-
"Whether the Income Tax Appellate Tribunal was right
in law in quashing the order under Section 263 of the
Income Tax Act, 1961?"
3. With the consent of the counsels, the appeal is taken up for hearing and
disposal.
4. The respondent is a company and for the assessment year in question had
filed its return of income on 25.10.2005 declaring income of Rs. 4,42,56,640/-.
The case was taken up for scrutiny and vide regular assessment order under
Section 143(3) dated 27.11.2008 income was determined at Rs.4,42,66,940/-.
Addition of Rs.10,300/- was made on the ground that the fee paid to the
Registrar of Companies for increase in authorized capital was capital in nature.
5. The Commissioner issued notice under Section 263 of the Act on two
grounds: firstly, the respondent had earned dividend income of Rs.28,20,145/-
which was exempt from tax but no disallowance of expenditure under Section
14A of the Act was made. Secondly, the respondent-assessee has claimed
depreciation on computer software, printers, hub, ticket printers, routers and
scanners etc. amounting to Rs.2,49,60,633/- @ 60%, which was allowed by the
Assessing Officer without examining whether the said peripherals/items were
used for more than 180 days.
6. The Commissioner passed an order directing the Assessing Officer to
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examine the said aspects and after affording opportunity to the respondent to
pass an order (i) whether any deduction under Section 14A should be made and
the amount which should be disallowed as expenditure and (ii) whether or not
the assessee had rightly claimed depreciation on the computer peripherals and
whether the respondent was entitled to depreciation @ 60% or 30%.
7. The Tribunal has quashed the said order, inter alia, holding that Bombay
High Court in the case of Godrej and Boyce Mfg. Co. Ltd. v. Deputy
Commissioner of Income Tax, (2010) 328 ITR 81 has held that Rule 8D was
not retrospective. With regard to depreciation, it has been held that same is
admissible @ 60%.
8. Rule 8D has been held to be prospective in nature and applicable from
assessment year 2008-09 by this Court in Maxopp Investment Ltd. v. CIT,
New Delhi in ITA No.687/2009 dated 18.11.2011. However, in the said
decision it has been observed that direct and indirect expenses have to be
disallowed under Section 14A, when an assessee earns exempt income. In the
present case no disallowance was made under Section 14A. In these
circumstances, the CIT was justified in invoking supervisory jurisdiction under
Section 263 of the Act. The said jurisdiction can be invoked when two
conditions are satisfied. If the order by the Assessing Officer is erroneous and
prejudicial to the interests of the revenue. An order is erroneous, when the
Assessing Officer does not correctly apply a provision or does not make
enquiries which are required. When the order passed is contrary to law and not
in conformity with the Act, it is erroneous and can be revised by the
Commissioner. In the present case Section 14A was not applied and no
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disallowance was made by the Assessing Officer, though the assessee is a
company and has admittedly earned exempt income of Rs.28,20,145/-.
Secondly, in the present case the Assessing Officer had not examined whether
the computer peripherals were used for more than 180 days or not.
9. In the case of Maxopp Investment Ltd. it has been held that Rule 8D
cannot be applied to the assessment year 2005-06. The Assessing Officer will
keep the said judgment and the ratio in mind, while dealing with the directions
issued by the CIT. This Court has also held that computer peripherals are
entitled to depreciation @ 60%. The said judgment will be also kept in mind by
the Assessing Officer. The only question, the Assessing Officer is required to
consider is whether or not the computer peripherals were used for more than
180 days. This is the limited scrutiny and the enquiry which the Assessing
Officer will inquire and examine.
10. We have been informed at the Bar by counsel for the respondent that in
spite of the order of the Tribunal dated 16.12.2010, the Assessing Officer had
passed an order on 24.12.2010. Learned counsel for the respondent further
states that the said order has been quashed by the CIT (A) as it was passed after
the order dated 16.12.2010. The revenue has however preferred an appeal
before the Tribunal. In these circumstances, counsel for the respondent-
assessee states that the Assessing Officer should pass a fresh order in terms of
the directions given by this Court and as this Court has set aside the order of the
Tribunal. Learned counsel for the revenue in view of the facts stated by the
respondent-assessee states that he has no objection in case the Assessing Officer
is directed to pass a fresh order. In view of the statements, which are taken on
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record, it is directed that the Assessing Officer will pass a fresh order.
11. Accordingly the question of law is answered in negative and against the
Assessee and in favour of the Revenue but subject to the directions/observations
made above. The appeal is disposed of.
SANJIV KHANNA, J.
R.V.EASWAR, J.
DECEMBER 19, 2011
Mm/Bisht
