Wel Intertrade (P) Ltd., New Delhi V. M/s DCIT, New Delhi

CO 235/DEL/2009

• Counselvise Citation: [2010] 122 COUNSELVISE.COM (IT) 4917 (ITAT-DELHI)
• Duration Of Justice: 11 month(s) 13 day(s)
• Appeal Type: Cross Objection
• Pronouncement Date: 23-07-2010
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: I
• Next Hearing Date: 19-07-2010
• Assessment Year: 2005-2006
• Appeal Filed On: 10-08-2009
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: SHEELA CHOPRA
• Assessee Lawyers: D B JAIN; C S AGARWAL
• Keywords: Depreciation; Question of law; Unabsorbed depreciation
• Section: 154

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH :I: NEW DELHI BEFORE SHRI G.E. VEERABHADRAPPA, HONBLE VICE PRESI DENT AND SHRI I.P. BANSAL, JUDICIAL MEMBER ITA NO.2778/DEL/2009 ASSESSMENT YEAR : 2005-06 DCIT, CIR. 18(1), NEW DELHI. VS. M/S WELL INTERTRADE (P) LTD., 5-E, LOCAL SHOPPING CENTRE, G.K. II, MASJID MOTH, NEW DELHI. PAN : AAACW0187F C.O. NO.235/DEL/2009 (ITA NO.2778/DEL/2009) ASSESSMENT YEAR : 2005-06 M/S WELL INTERTRADE (P) LTD., 5-E,LOCAL SHOPPING CENTRE, G.K.II MASJID MOTH, NEW DELHI. VS. DCIT, CIR. 18(1), NEW DELHI. (APPELLANT) (RESPONDENT) ASSESSEE BY : SHRI C.S. AGARWAL & SHRI D.B. JAIN,AD VOCATE REVENUE BY : MS SHEELA CHOPRA, DR ORDER PER I.P. BANSAL, JUDICIAL MEMBER THE APPEAL IS FILED BY THE DEPARTMENT AND THE CROS S OBJECTIONS BY THE ASSESSEE. BOTH ARE DIRECTED AGAINST THE ORDER OF T HE CIT (A) DATED 23 RD MARCH, 2009 FOR ASSESSMENT YEAR 2005-06. GROUNDS OF APPEA L AND GROUNDS OF CROSS OBJECTIONS READ AS UNDER:- GROUNDS OF APPEAL 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE, LD. CIT (A) HAS ERRED IN ALLOWING CARRY FORWARD OF LOSSES O N ACCOUNT OF UNABSORBED DEPRECIATION OF RS.17,57,933/-, SHORT TE RM CAPITAL LOSS OF RS.14,18,487/- AND RS.35,50,659/- ON ACCOUN T OF LONG TERM CAPITAL LOSS BY HOLDING THAT LOSS REFERRED TO IN SECTION 79 IS ONLY BUSINESS LOSS AND SECTION 79 IS NOT APPLICA BLE TO LOSSES ON ACCOUNT OF UNABSORBED DEPRECIATION AND SHORT TER M OR LONG TERM CAPITAL LOSSES. ITA NO.2778/DEL/2009 C.O. NO.235/DEL/2009 2 GROUNDS OF CROSS OBJECTION 1. THAT THE LEARNED COMMISSIONER OF INCOME TAX (AP PEAL), HAS ERRED BOTH ON FACTS AND IN LAW IN CONFIRMING TH E DISALLOWANCE MADE OF RS.31,662/- INCURRED ON THE TR AVEL OF EMPLOYEE OUT OF FOREIGN TRAVEL EXPENSES AGGREGATING TO RS.4,20,360/- INCURRED BY THE APPELLANT COMPANY. 2. THAT THE LEARNED CIT (A), HAS ERRED BOTH IN LA W AND ON FACTS, IN NOT DIRECTING TO THE LEARNED ASSESSING OF FICER, TO REFUND OR ALLOW THE CREDIT OF THE AMOUNT AT TAX DED UCTED AT SOURCE OF RS.4,32,690/-. THE FINDINGS RECORDED BY T HE LEARNED CIT (A) IN THE ORDER AT PAGE 6 PARA 7 HAVE NOT BEEN WELL AND PROPERLY REACHED AND AS SUCH THE ASSESSEE HAS NOT Y ET BEEN ALLOWED THE REFUND OR THE CREDIT THEREOF. 3. THAT THE LEARNED CIT (A) HAS FURTHER ERRED IN N OT DIRECTING THE LEARNED ASSESSING OFFICER NOT TO WITHDRAW INTER EST OF RS.31,601/-, U/S 234D WHICH HAD NEVER BEEN GRANTED TO THE ASSESSEE AND AS SUCH THERE WAS NO JUSTIFICATION TO HAVE HELD THAT THE INTEREST IS TO BE WITHDRAWN. IT IS THEREFORE PRAYED THAT, THE ADDITION SUSTAINED BE DIRECTED TO BE DELETED AND THE REFUND AND INTEREST WITHDRAWN BE ALLOWED TO THE ASSESSEE COMPANY. 2. DURING THE FINANCIAL YEAR 2004-05 THERE WAS CHAN GE IN THE SHAREHOLDING. 51% SHAREHOLDING OF THE ASSESSEE COMPANY HELD ON 31 ST MARCH, 2004 WAS TRANSFERRED TO ANOTHER COMPANY, NAMELY, M/S YOROSHI INVESTMENTS (MAURITIUS) PTE LTD.. WHEN M/S SPLENDOR EXIM PVT. LTD., A MAJO RITY SHAREHOLDER OF THE ASSESSEE COMPANY WHO ALREADY HELD 50994 SHARES OUT OF TOTAL ISSUED AND SUBSCRIBED SHAREHOLDING OF THE ASSESSEE I.E., 76600 WERE TRANSFERRED AND AS A RESULT OF SUCH TRANSFER M/S YOROSHI INVESTMENTS (MA URITIUS) PTE LTD. HAD BECOME THE MAJORITY SHAREHOLDER OWNING 99.99% SHARE AS ON 31 ST MARCH, 2005. ACCORDINGLY, THE ASSESSING OFFICER APPLIED SECTION 79 OF THE INCOME TAX ACT AND HELD THAT FOLLOWING AMOUNTS COULD NOT BE ALLOWED TO BE CARRIED FORWARD:- A. UNABSORBED DEPRECIATION (RS. 17,57,933/-) B. SHORT TERM CAPITAL LOSS BROUGHT FORWARD (RS. 14, 18,487/-) ITA NO.2778/DEL/2009 C.O. NO.235/DEL/2009 3 C. LONG TERM CAPITAL LOSS BROUGHT FORWARD (RS. 35,5 0,659/- AND, D. UNABSORBED BUSINESS LOSS (RS. 39,33,573/-). 3. BEFORE CIT (A) IT WAS CLAIMED THAT IN VIEW OF TH E DECISION OF HONBLE SUPREME COURT IN THE CASE OF CIT VS. SUBH LAKSHMI M ILLS LTD. 249 ITR 795, SECTION 79 COULD BE APPLIED ONLY TO BUSINESS LOSS T HEREBY LD. ASSESSING OFFICER WAS WRONG IN NOT ALLOWING THE CARRY FORWARD OF OTHE R ITEMS WHICH IS UNABSORBED DEPRECIATION RS.17,57,933/- SHORT-TERM CAPITAL LOSS BROUGHT FORWARD RS.14,18,487/- AND LONG-TERM CAPITAL LOSS BROUGHT F ORWARD RS.35,50,659/-. LD. CIT (A) AFTER CONSIDERING THE SUBMISSIONS HAS COME TO THE CONCLUSION THAT IN VIEW OF THE DECISION OF HONBLE SUPREME COURT IN TH E CASE OF CIT VS. SUBH LAKSHMI MILLS LTD (SUPRA), SECTION 79 COULD BE APPL IED ONLY TO BUSINESS LOSS AND SECTION 79 WAS NOT APPLICABLE TO SHORT-TERM CAPITAL LOSS OR THE LONG-TERM CAPITAL LOSS BROUGHT FORWARD FROM EARLIER YEARS. HE OBSERV ED THAT THE CLAIM OF THE APPELLANT OF RS.17,57,933/- ON ACCOUNT OF UNABSORBE D DEPRECIATION RS.14,18,487/- ON ACCOUNT OF SHORT TERM CAPITAL GAI N AND RS.35,50,659/- FOR LONG- TERM CAPITAL LOSS BROUGHT FORWARD ARE TO BE ALLOWED TO BE CARRIED FORWARD OR ADJUSTED OUT OF THE INCOME FOR THE YEAR UNDER CONSI DERATION AS THE CASE MAY BE. THE DEPARTMENT IS AGGRIEVED WITH THESE FINDINGS OF THE CIT (A) AND HAS FILED THE AFOREMENTIONED GROUNDS OF APPEAL. 4. AFTER NARRATING THE FACTS, IT WAS SUBMITTED BY L D. DR THAT AS PER SECTION 79, THE ASSESSING OFFICER WAS RIGHT IN DISALLOWING ALL THESE CLAIMS TO BE CARRIED FORWARD AND HE PLEADED THAT THE FINDINGS OF CIT (A) ON THIS ISSUE SHOULD BE SET ASIDE AND THAT OF ASSESSING OFFICER BE RESTORED. 5. ON THE OTHER HAND, IT WAS SUBMITTED BY THE LD. C OUNSEL THAT THE VERDICT OF HONBLE SUPREME COURT IN AFOREMENTIONED CASE IS THA T SECTION 79 HAS APPLICATION ONLY TO THE BUSINESS LOSS AND NO OTHER ITEM IS COVERED BY SECTION 79. HE CONTENDED THAT LD. CIT (A) HAS CORRECTLY APPRECI ATED THE LEGAL POSITION AND HAS RIGHTLY HELD THAT OTHER ITEMS COULD NOT BE DISA LLOWED FROM BEING CARRIED ITA NO.2778/DEL/2009 C.O. NO.235/DEL/2009 4 FORWARD. HE SUBMITTED THAT SO AS IT RELATES TO APP LICABILITY OF SECTION 79 ON BUSINESS LOSS THE ASSESSEE HAS NOT RAISED ANY DISPU TE AS, ACCORDING TO THE ASSESSEE, SECTION 79 IS APPLICABLE ON THE BUSINESS LOSS WHICH CANNOT BE ALLOWED TO BE CARRIED FORWARD. 6. WE HAVE CAREFULLY CONSIDERED THE RIVAL SUBMISSIO NS IN THE LIGHT OF THE MATERIAL PLACED BEFORE US. ACCORDING TO COMPUTATIO N OF INCOME WHICH IS PLACED ON RECORD THE ASSESSEE HAS SUBMITTED ASSESSABLE INC OME FOR THE YEAR UNDER CONSIDERATION UNDER THE NORMAL PROVISIONS OF A SUM OF RS.1,62,698/- FROM WHERE THE ASSESSEE HAS CLAIMED THE BROUGHT FORWARD LOSSES AND UNABSORBED DEPRECIATION, ETC. TO THE TUNE OF RS.56,91,506/- RE SULTING INTO NET LOSS TO BE CARRIED FORWARD AT A SUM OF RS.55,28,808/-. 7. UNDER THE PROVISIONS OF SECTION 115 JB, THE INCO ME IS COMPUTED AT RS.10,79,870/- UPON WHICH INCOME-TAX PAYABLE HAS BE EN WORKED OUT AT RS.80,990/-. THE ASSESSEE HAS SOUGHT CREDIT OF TDS OF RS.4,32,690/- AND, THEREFORE, REFUND FOR BALANCE AMOUNT OF RS.3,51,700 /- HAS BEEN SOUGHT BY THE ASSESSEE FROM THE REVENUE. THE BIFURCATION OF BROU GHT FORWARD CAPITAL LOSS, UNABSORBED DEPRECIATION AND UNABSORBED BUSINESS LOS S HAS ALREADY BEEN DESCRIBED IN THE ABOVE PART OF THIS ORDER AND THERE IS NO DISPUTE AS TO THE CORRECTNESS OF THIS BIFURCATION. 8. IT MAY BE MENTIONED HERE THAT FOLLOWING QUESTION S OF LAW WAS RAISED BY THE REVENUE BEFORE HONBLE SUPREME COURT IN THE AFOREME NTIONED DECISION IN THE CASE OF CIT VS. SUBH LAKSHMI MILLS LTD :- 2. WHETHER, ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE FINDING OF THE TRIBUNAL THAT IN APPLYING SECTIO N 79 OF THE ACT, ONLY THE BUSINESS LOSS SHOULD BE TAKEN INTO ACCOU NT AND NOT THE UNABSORBED DEPRECIATION OR UNABSORBED DEVELOPMENT R EBATE, IS ERRONEOUS IN LAW? ITA NO.2778/DEL/2009 C.O. NO.235/DEL/2009 5 9. THE HONBLE SUPREME COURT WHILE GIVING ANSWER TO THE AFOREMENTIONED QUESTION HAS OBSERVED AS UNDER:- SO FAR AS QUESTION NO. 2 IS CONCERNED, THE QUESTIO N IS WHETHER IN APPLYING SECTION 79 OF THE ACT, ONLY THE BUSINESS LOSS SHOULD BE TAKEN INTO ACCOUNT AND NOT THE UNABSORBED DEPRECIAT ION OR UNABSORBED DEVELOPMENT REBATE. 10. LD. COUNSEL WHILE ARGUING THE APPEAL HAD LAID S TRESS ON THE WORD ONLY IN THE AFOREMENTIONED OBSERVATIONS OF HONBLE SUPREME COURT TO CONTEND THAT WHAT IS SUBJECT MATTER OF DISALLOWANCE U/S 79 IS ONLY BU SINESS LOSS. 11. THE AFOREMENTIONED QUESTION OF LAW HAD ARISEN F ROM THE DECISION OF HONBLE GUJARAT HIGH COURT WHICH IS REPORTED AS CIT VS. SUBH LAKSHMI MILLS LTD 143 ITR 863 WHEREIN THE QUESTION NO.2 REFERRED TO T HEIR LORDSHIPS:- (2) WHETHER, ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE FINDING OF THE TRIBUNAL THAT IN APPLYING SECTIO N 79 OF THE ACT, ONLY THE BUSINESS LOSS SHOULD BE TAKEN INTO ACCOUNT AND NOT THE UNABSORBED DEVELOPMENT REBATE IS ERRONEOUS IN LAW? 12. IN THAT CASE, THE ASSESSEE HAD UNABSORBED BUSIN ESS LOSS OF RS.10,96,546/-, UNABSORBED DEPRECIATION OF RS.13,55 ,126/- AND UNABSORBED DEVELOPMENT REBATE OF RS.5,96,858. WHILE CONSIDERIN G THE QUESTION WHETHER ALL THESE DISALLOWANCES COULD BE MADE U/S 79 OF THE ACT , THEIR LORDSHIPS OF GUJARAT HIGH COURT HAD HELD AS UNDER:- UNDER THESE CIRCUMSTANCES, OUR CONCLUSIONS ARE THA T IT WAS OPEN TO THE TAXATION AUTHORITIES TO INVOKE THE PROVISION S OF S. 79 SO FAR AS THE ASSESSMENT YEAR 1965-66, WAS CONCERNED BUT THOS E PROVISIONS CAN ONLY BE APPLIED TO THE QUANTUM OF BUSINESS LOS SES WHICH HAD BEEN ALLOWED TO BE CARRIED FORWARD AFTER THE SET-O FF IN ASSESSMENT PROCEEDINGS OF THE ASSESSMENT YEAR 1964-65. OUR CON CLUSION ALSO IS THAT SO FAR AS THE DEVELOPMENT REBATE IS CONCERN ED, IN VIEW OF THE FACT THAT THE DEVELOPMENT REBATE WAS NOT CREATED IN THE YEAR OF INSTALLATION OF THE PLANT OR MACHINERY CONCERNED, I T COULD NOT BE ALLOWED IN THE ASSESSMENT YEAR 1965-66, OR ANY OF T HE ASSESSMENT ITA NO.2778/DEL/2009 C.O. NO.235/DEL/2009 6 YEARS UNDER REFERENCE BEFORE US. SO FAR AS DEPRECI ATION ALLOWANCE IS CONCERNED, THE PROVISIONS OF S. 79 CANNOT BE AP PLY TO UNABSORBED DEPRECIATION ALLOWANCE. 13. THOSE FINDINGS OF HONBLE GUJARAT WERE UPHELD B Y HONBLE SUPREME COURT IN THE AFOREMENTIONED DECISION. 14. IN THIS VIEW OF THE SITUATION, AFTER HEARING BO TH THE PARTIES AND AFTER CONSIDERING THE AVAILABLE MATERIAL ON RECORD, WE AR E OF THE OPINION THAT THE CIT (A) HAS RIGHTLY APPRECIATED THE LEGAL POSITION AND HIS FINDINGS ON THIS ISSUE ARE IN ACCORDANCE WITH THE LAW LAID DOWN BY HONBLE SUPREM E COURT IN THE AFOREMENTIONED CASE. THEREFORE, WE DECLINE TO INT ERFERE AND, THEREFORE, THE DEPARTMENTAL APPEAL IS DISMISSED. 15. NOW, COMING TO THE CROSS OBJECTIONS FILED BY TH E ASSESSEE, THE FIRST ISSUE RELATES TO DISALLOWANCE MADE BY THE ASSESSING OFFIC ER ON ACCOUNT OF FOREIGN TRAVEL EXPENSES FOR A SUM OF RS.31,662/-. THE ASSES SING OFFICER HAS DISCUSSED THIS ISSUE IN PARA 5 AT PAGE 5 OF THE ASSESSMENT OR DER. THE TOTAL EXPENSES INCURRED BY THE ASSESSEE ON THE SAID TRAVEL IS A S UM OF RS.4,20,360. THE ASSESSING OFFICER SOUGHT DETAILS FROM THE ASSESSEE. IT WAS FOUND THAT THE EXPENSES WERE IN RESPECT OF TWO VISITS BY M/S ARCHA NA JATIA TO VISIT SINGAPORE IN THE MONTH OF APRIL, 2004 AND LONDON IN THE MONTH OF MAY-JUNE, 2004. SHE IS A DIRECTOR AND ALSO WIFE OF SHRI S.K. JATIA WHO IS TH E MAIN PERSON RUNNING THE AFFAIRS OF THE COMPANY. TOTAL AMOUNT SPENT WAS RS. 2,81,830/- OUT OF WHICH THE BOARDING AND LODGING EXPENSES WERE RS.2,11,086/-. IT WAS SUBMITTED BY THE ASSESSEE THAT THESE EXPENSES WERE INCURRED ON THE M EETINGS WITH INTERNATIONAL CLIENTS FOR PROCURING NEW BUSINESS OF THE COMPANY. ACCORDING TO THE ASSESSING OFFICER, SUCH EXPLANATION OF THE ASSESSEE WAS VAGUE AND NOT BACKED BY FULL EVIDENCE. IN THE ABSENCE OF PROPER EVIDENCE ON REC ORD, THE ASSESSING OFFICER MADE ESTIMATED DISALLOWANCE OF 15% OF A SUM OF RS.2 ,11,086/- WHICH RESULTED INTO DISALLOWANCE OF RS.31,662/-. THE CIT (A) HAS UPHELD THE DISALLOWANCE ON THE GROUND THAT THERE WAS ABSENCE OF COMPLETE DETAI LS OF EXPENSES INCURRED ITA NO.2778/DEL/2009 C.O. NO.235/DEL/2009 7 DURING THE FOREIGN VISIT BY THE DIRECTOR. HE OBSER VED THAT THE ASSESSEE HAS NOT BEEN ABLE TO PROVE THAT WHETHER SUCH AMOUNT WAS EXP ENDED WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF BUSINESS. THE ASSES SEE IS AGGRIEVED, HENCE, IN APPEAL. IT WAS SUBMITTED BY LD. COUNSEL THAT BOARDI NG AND LODGING IN RESPECT OF FIRST TRIP WAS ONLY RS.87,936/- AND FOR ANOTHER TRI P RS.1,23,150/- WHICH WAS FOR SIX DAYS. IT WAS SUBMITTED THAT IN THE ABSENCE OF ANY BASIS OF ESTIMATION, THE DISALLOWANCE IS UNSUSTAINABLE, MORE PARTICULARLY WH EN THE SAID EXPENDITURE HAS BEEN INCURRED BY THE COMPANY ON THE FOREIGN TRAVEL OF ITS EMPLOYEE FOR ITS BUSINESS. RELIANCE WAS PLACED ON THE DECISION IN T HE CASE OF SAYYAJI MILLS LTD. VS. CIT 253 ITR 749 WHERE IN THE CONTEXT OF DISALLO WANCE OF CAR EXPENSES IT WAS HELD THAT SUCH AN ESTIMATION IS NOT PERMISSIBLE. 16. ON THE OTHER HAND, LD. DR SUBMITTED THAT IT HAS BEEN CLEARLY RECORDED BY THE ASSESSING OFFICER AND CIT (A) THAT PROPER DETAI LS WERE NEVER SUBMITTED. HE SUBMITTED THAT THE ASSESSING OFFICER HAD ADOPTED RI GHT COURSE TO ESTIMATE THE DISALLOWANCE WHICH IS QUITE REASONABLE AND THE CIT (A) IS WRONG IN DELETING THE DISALLOWANCE. 17. WE HAVE CAREFULLY CONSIDERED THE RIVAL SUBMISSI ONS IN THE LIGHT OF THE MATERIAL PLACED BEFORE US. IT HAS BEEN THE CASE OF THE ASSESSING OFFICER THAT THE ASSESSEE DID NOT SUBMIT COMPLETE DETAILS. LD. CIT (A) HAD CALLED FOR THE COMMENTS OF THE ASSESSING OFFICER AND IN THOSE COMM ENTS ALSO IT HAS BEEN STATED THAT THE ASSESSEE HAS NOT FILED PROPER DETAI LS. IF PROPER DETAILS ARE NOT FORTHCOMING, THEN, THERE WILL BE NO COURSE AVAILABL E WITH THE ASSESSING OFFICER EXCEPT TO MAKE DISALLOWANCE ON ESTIMATE. THE DISAL LOWANCE APPEARS TO BE VERY REASONABLE. THEREFORE, THERE IS NO SCOPE OF INTERF ERENCE IN SUCH DISALLOWANCE AND WE DECLINE TO INTERFERE IN THE DISALLOWANCE UPH ELD BY THE CIT (A). THIS GROUND OF ASSESSING OFFICER IS DISMISSED. 18. SO FAR AS IT RELATES TO GROUND NO.2 AND 3 OF CR OSS OBJECTIONS, IT MAY BE MENTIONED HERE THAT DURING THE COURSE OF HEARING OF THIS APPEAL AND CROSS ITA NO.2778/DEL/2009 C.O. NO.235/DEL/2009 8 OBJECTIONS, LD. ASSESSING OFFICER WAS REQUIRED TO B E PRESENT. HE WAS DIRECTED TO RE-COMPUTE THE TAX AND INTEREST LIABILITY OF THE AS SESSEE WHICH HAS NOW BEEN RE- COMPUTED TO THE SATISFACTION OF THE ASSESSEE VIDE O RDER DATED 16.07.10 PASSED U/S 154 OF THE ACT. SINCE THE TAX LIABILITY AS WELL AS THE INTEREST HAS BEEN RIGHTLY COMPUTED AND RIGHT REFUND HAS BEEN WORKED OUT, THES E GROUNDS DO NOT SURVIVE, HENCE, DISMISSED. IT IS EXPECTED THAT THE ASSESSIN G OFFICER WILL ISSUE NECESSARY ORDERS FOR REFUND AS EARLY AS POSSIBLE. 19. IN THE RESULT, THE APPEAL FILED BY THE DEPARTME NT AS WELL AS THE CROSS OBJECTIONS FILED BY THE ASSESSEE, BOTH ARE DISMISSE D. THE ORDER PRONOUNCED IN THE OPEN COURT ON 23.07.20 10. SD/- SD/- [G.E. VEERABHADRAPPA] [I.P. BANSAL] VICE PRESIDENT JUDICIAL MEMBER DATED, 23.07.2010. DK COPY FORWARDED TO: - 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(A) 5. DR, ITAT TRUE COPY BY ORDER, DEPUTY REGISTRAR, ITAT, DELHI BENCHES