M/s PTL Enterprises Ltd., Cochin V. DCIT, Ernakulam

CO 36/COCH/2007

• Counselvise Citation: [2012] 122 COUNSELVISE.COM (IT) 8107 (ITAT-COCHIN)
• Duration Of Justice: 5 year(s) 5 month(s) 4 day(s)
• Appeal Type: Cross Objection
• Pronouncement Date: 21-12-2012
• Appeal Filed By: Assessee
• Bench Allotted: DB
• Next Hearing Date: 22-10-2012
• Assessment Year: 2004-2005
• Appeal Filed On: 17-07-2007
• Court: TRIBUNAL
• Department Lawyers: SUSAN GEORGE VARGHESE
• Assessee Lawyers: V SATHYANARAYANAN
• Keywords: Business income; Business expenditure; Rectification of order; Application of stay
• Section: 143(3); 260A; 154

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL COCHIN BENCH, COCHIN BEFORE S/SHRI N.R.S.GANESAN, JM AND B.R.BASKAR AN, AM I.T.A. NO. 520/COCH/2007 ASSESSMENT YEAR: 2004-05 THE DEPUTY COMMISSIONER OF INCOME-TAX, CIRCLE-2(1), RANGE- 2, ERNAKULAM. VS. M/S. PTL ENTERPRISES LTD., 6 TH FLOOR, CHERUPUSHPAM BLDG., KOCHI-31. [PAN:AABCP 3839N] (REVENUE-APPELLANT) (ASSESSEE -R ESPONDENT) C.O. NO. 36/COCH/2007 (ARSG. OUT OF I.T.A. NO. 520/COCH/2007) ASSESSMENT YEAR: 2004-05 M/S. PTL ENTERPRISES LTD., 6 TH FLOOR, CHERUPUSHPAM BLDG., KOCHI-31. [PAN:AABCP 3839N] VS. THE DEPUTY COMMISSIONER OF INCOME-TAX, CIRCLE-2(1), ERNAKULAM. (ASSESSEE -APPELLANT) (REVENUE-R ESPONDENT) I.T.A. NO. 189/COCH/2009 ASSESSMENT YEAR: 2004-05 THE DEPUTY COMMISSIONER OF INCOME-TAX, CIRCLE-2(1), RANGE- 2, ERNAKULAM. VS. M/S. PTL ENTERPRISES LTD., 6 TH FLOOR, CHERUPUSHPAM BLDG., KOCHI-31. [PAN:AABCP 3839N] (REVENUE-APPELLANT) (ASSESSEE -R ESPONDENT) REVENUE BY SMT. SUSAN GEORGE VARGHESE, SR. DR ASSESSEE BY SHRI V.SATHYANARAYANAN, CA DATE OF HEARING 23/10/2012 DATE OF PRONOUNCEMENT 21/12/2012 I.T.A. NOS.520/COCH/2007 & 189/COCH/2009 & C.O. NO. 36/COCH/2007 2 O R D E R PER B.R.BASKARAN, ACCOUNTANT MEMBER: BOTH THE APPEALS OF THE REVENUE AND THE CROSS OBJECTION FILED BY THE ASSESSEE ARE DIRECTED AGAINST THE ORDERS PASSED BY THE LD. CIT(A )-II, KOCHI AND THEY RELATE TO THE ASSESSMENT YEAR 2004-05. THE APPEAL NUMBERED AS I. T.A. NO. 520/COCH/2007 AND THE CROSS OBJECTION ARE DIRECTED AGAINST THE APPELLANT ORDER PASSED AGAINST THE ASSESSMENT ORDER PASSED U/S. 143(3) OF THE ACT. THE APPEAL NU MBERED AS I.T.A. NO. 189/COCH/2009 IS DIRECTED AGAINST THE APPELLATE ORD ER PASSED AGAINST THE RECTIFICATION ORDER PASSED UNDER SEC. 154 OF THE ACT. 2. SINCE ALL THESE CASES RELATE TO THE SAME ASSESSM ENT YEAR, THEY WERE HEARD TOGETHER AND ARE BEING DISPOSED OF BY THIS COMMON O RDER. 3. THE FIRST ISSUE IN THE APPEAL OF THE REVENUE REL ATES TO THE ASSESSMENT OF INCOME FROM LEASE RENT RECEIVED BY THE ASSESSEE. THE ASSE SSING OFFICER ASSESSED THE LEASE RENTAL INCOME UNDER THE HEAD INCOME FROM OTHER SOU RCES. HOWEVER, THE LD. CIT(A), BY FOLLOWING THE ORDER OF THE TRIBUNAL PASSED IN TH E ASSESSEE'S OWN CASE IN I.T.A. NO. 315/COCH/2006 RELATING TO THE ASSESSMENT YEAR 2003 -04, REVERSED THE ORDER OF THE ASSESSING OFFICER AND DIRECTED HIM TO ASSESS THE LE ASE RENTAL INCOME UNDER THE HEAD INCOME FROM BUSINESS. 4. WE HAVE HEARD THE RIVAL CONTENTIONS ON THIS ISSU E. THE FACTS RELATING TO THE SAME ARE STATED IN BRIEF. THE ASSESSEES PLANT WAS TAKEN OVER BY M/S. APOLLO TYRES LTD. ON LEASE WITH EFFECT FROM 01-05-1995 FOR A PERIOD OF E IGHT YEARS AS PER THE SCHEME APPROVED BY THE BOARD OF INDUSTRIAL AND FINANCIAL R ECONSTRUCTION (BIFR). IT IS PERTINENT TO NOTE THAT, UP TO THE ASSESSMENT YEAR 2003-04, TH E TRIBUNAL HAS ACCEPTED THE CLAIM OF THE ASSESSEE THAT INCOME FROM LEASE RENT IS ASSESSA BLE UNDER THE HEAD INCOME FROM BUSINESS. DURING THE YEAR UNDER CONSIDERATION, OR IGINAL LEASE AGREEMENT EXPIRED AND IT WAS RENEWED FOR ONE MORE YEAR BY A NEW AGREEMENT OF LEASE DATED 20-06-2003 FROM I.T.A. NOS.520/COCH/2007 & 189/COCH/2009 & C.O. NO. 36/COCH/2007 3 01-04-2003 TO 31-03-2004, I.E., FOR THE YEAR UNDER CONSIDERATION. THE ASSESSING OFFICER PREFERRED TO FOLLOW THE DECISION TAKEN BY HIS PREDE CESSOR IN THE EARLIER YEARS AND ACCORDINGLY, ASSESSED THE LEASE RENTAL INCOME UNDER THE HEAD INCOME FROM OTHER SOURCES. IN SUPPORT OF HIS DECISION, THE ASSESSING OFFICER HAS NOTED VARIOUS POINTS AND THE RELEVANT OBSERVATIONS MADE BY HIM ARE EXTRACTED BELOW:- 3. (III) I HAVE CONSIDERED THE ABOVE REPLY AND T HE TOTAL FACTS OF THE CASE. IT MAY BE OBSERVED HERE THAT THE DEPARTMENT HAS FILED APPEAL U/S. 260A AGAINST THE ABOVE MENTIONED ORDER DATED 14.12.2004 AND ACC ORDINGLY, I FOLLOW THE STAND TAKEN BY THE DEPARTMENT IN THE EARLIER YEARS. IT MAY ALSO BE OBSERVED HERE THAT THE ASSESSEE DID NOT CARRY OUT ANY MANUFACTURING AC TIVITY FOR ITS BUSINESS EITHER IN THE PAST OR DURING THE PERIOD RELEVANT TO THE A .Y. 2004-05. DURING THE PERIOD RELEVANT TO THE A.Y. 2005-06 ALSO IT IS FOUND THAT IT CONTINUED TO LEASE OUT THE PLANT TO APOLLO TYRES LTD. THE ASSESSEE HAD ZERO VALUE OF PLANT AND MACHINERY AND DURING THE PERIOD RELEVANT TO THE A.Y. 2004-05 , IT HAD SOLD OUT THE PLANTS AND MACHINERY WHICH REMAINED WITH IT. ACCORDINGLY IN VIEW OF THE ABOVE DISCUSSIONS MADE IN PARA 3(I), (II) AND IN THIS PARA, LEASE RE NT RECEIVED DURING THE YEAR AT RS. 5.75 CRORES IS ASSESSED AS INCOME FROM OTHER SOURC ES. INTEREST INCOME OF RS. 6,68,000/- IS ALSO ASSESSED AS INCOME FROM OTHER S OURCES AS HAS BEEN HELD IN EARLIER YEAR. 5. ADMITTEDLY THE ORIGINAL LEASE PERIOD HAD EXPIRED BY THE YEAR ENDING 31-03-2003 AND FOR THE YEAR UNDER CONSIDERATION, A NEW LEASE R ENT AGREEMENT HAS BEEN ENTERED. THE ISSUE WHETHER THE LEASE RENT IS ASSESSABLE UNDE R THE HEAD INCOME FROM BUSINESS OR INCOME FROM OTHER SOURCES WAS CONSIDERED BY THIS BE NCH IN THE ASSESSEES OWN CASE IN I.T.A. NO. 659/COCH/2010 RELATING TO THE ASSESSMENT YEAR 2007-08, AND THIS BENCH HAS TAKEN A VIEW THAT THE ASSESSEE HAS NOT PROVED ITS C LAIM THAT IT IS TAKING STEPS TO REVIVE THE BUSINESS. THE OBSERVATIONS MADE BY THIS TRIBUNA L ARE EXTRACTED BELOW FOR THE SAKE OF CONVENIENCE:- 6. WE HAVE HEARD THE RIVAL CONTENTIONS AND CAREFULL Y PERUSED THE MATERIAL ON RECORD. THERE CANNOT BE ANY DISPUTE THAT THE QUES TION WHETHER THE ASSESSEE IS HAVING AN INTENTION TO REVIVE ITS BUSINESS ACTIVIT Y IS A QUESTION OF FACT AND THE SAME IS REQUIRED TO BE CONSIDERED EVERY YEAR ON THE BAS IS OF THE FACTS AND CIRCUMSTANCES PREVAILING IN THAT YEAR. ACCORDINGLY, WE ARE OF T HE VIEW THAT THE DECISION RENDERED BY THE TRIBUNAL IN THE EARLIER YEARS CANNOT HAVE B INDING EFFECT IN SUBSEQUENT YEARS. THE UNDISPUTED FACTS ARE THAT THE ASSESSEE HAS LEA SED OUT ITS PLANT AND MACHINERY IN I.T.A. NOS.520/COCH/2007 & 189/COCH/2009 & C.O. NO. 36/COCH/2007 4 THE YEAR 1995. HENCE, WHILE CONSIDERING THE CLAIM OF THE ASSESSEE FOR THE YEARS ENDING 31.3.1996 AND 31.3.97, THE TRIBUNAL HELD TH AT THERE IS NOTHING ON RECORD TO SHOW THAT THE ASSESSEE HAD NO PRESENT INTENTION TO REVIVE ITS BUSINESS AT APPROPRIATE TIME, AS THE GAP BETWEEN THE YEAR OF CLOSURE AND T HE YEARS UNDER CONSIDERATION AT THAT POINT OF TIME WAS VERY NARROW. HOWEVER, WE A RE CONCERNED WITH THE ASSESSMENT YEAR 2007-08 AND WE HAVE TO CONSIDER TH E FACTS AND CIRCUMSTANCES PREVAILING AS ON 31-03-2007. BY THAT DATE, ABOUT 12 YEARS HAVE PASSED AND HENCE WE ARE IN AGREEMENT WITH LD D.R THAT THE ASSESSEE HAS NOT BROUGHT ON RECORD ANY MATERIAL TO SHOW THAT IT HAS INTENTION TO REVIVE I TS BUSINESS ACTIVITIES. THOUGH THE LD. AR SUBMITTED THAT STEPS ARE BEING TAKEN TO REV IVE THE BUSINESS, YET WE ARE UNABLE TO ACCEPT HIS CONTENTION FOR WANT OF SUPPOR TING MATERIALS. ACCORDINGLY, IN OUR VIEW, THE LD. CIT(A) WAS NOT CORRECT IN PLACIN G RELIANCE ON THE DECISION OF THE TRIBUNAL WITHOUT APPRECIATING THE FACTS PREVAILING IN THE YEAR UNDER CONSIDERATION. ACCORDINGLY, WE REVERSE THE ORDER OF THE LD. CIT(A ) AND RESTORE THE VIEW OF THE ASSESSING OFFICER. 6. THE QUESTION WHETHER THE ASSESSEE IS HAVING A N INTENTION TO REVIVE ITS BUSINESS ACTIVITY IS A QUESTION OF FACT AND THE SAME IS REQU IRED TO BE CONSIDERED EVERY YEAR. THOUGH THE LD. AR CLAIMED THAT THE GOVERNMENT LICEN CES ARE STILL CONTINUING IN THE ASSESSEES OWN NAME, IT HAS NOT PROVED THE CLAIM OF THE ASSESSEE THAT IT HAD AN INTENTION TO REVIVE ITS BUSINESS ACTIVITY. ACCORDI NGLY, WE ARE OF THE VIEW THAT THE LEASE RENTAL INCOME HAS TO BE ASSESSED UNDER THE HEAD INC OME FROM OTHER SOURCES. ACCORDINGLY, WE SET ASIDE THE ORDER OF THE LD. CIT( A) ON THIS ISSUE AND RESTORE THAT OF THE ASSESSING OFFICER. 7. THE NEXT ISSUE IN THE APPEAL OF THE REVENUE RELA TES TO THE DISALLOWANCE OF RS. 52.00 LAKHS PERTAINING TO PAYMENT OF SALES TAX PENA LTY. THE LD. CIT(A) HAS DELETED THIS ADDITION ON THE GROUND THAT THE SAID PAYMENT PERTAI NS TO THE DIFFERENCE BETWEEN THE ACTUAL RATE OF SALES TAX AND THE CONCESSIONAL RATE OF SALES TAX EVEN THOUGH IT WAS TERMED AS PENALTY. HOWEVER, FROM THE ASSESSMENT OR DER, WE NOTICE THAT THE ASSESSING OFFICER HAS DISALLOWED THE CLAIM OF RS. 52.00 LAKHS , WHICH WAS CLAIMED UNDER THE HEAD SALES TAX WRITTEN OFF, FOR THE FOLLOWING REASONS. (A) THE SALES TAX DEPARTMENT HAS LEVIED A PENALTY OF RS. 75,80,772/- FOR THE YEARS 1987-88 TO 1993-94. THE SAID PENALTY WAS LE VIED IN THE YEAR 1996-97. I.T.A. NOS.520/COCH/2007 & 189/COCH/2009 & C.O. NO. 36/COCH/2007 5 (B) THE ASSESSEE PAID A SUM OF RS. 52.00 LAKHS DUR ING THE YEAR UNDER CONSIDERATION AS PER THE ORDER OF THE HONBLE KERA LA HIGH COURT ON THE STAY PETITION FILED BY THE ASSESSEE. HENCE, THE SAID P AYMENT CANNOT BE CONSIDERED AS PAYMENT TOWARDS SETTLEMENT OF THE DISPUTE. (C) THE PENALTY HAS BEEN LEVIED FOR CONTRAVENTION OF SEC. 45A OF K.G.S.T. ACT, 1963. (D) IN ANY CASE, THE PAYMENT IS NOT AN EXPENDITUR E PERTAINING TO THE YEAR UNDER CONSIDERATION. 8. BEFORE US ALSO, THE ASSESSEE SUBMITTED THAT THE PAYMENT REPRESENTS THE DIFFERENCE IN THE ACTUAL SALES TAX RATE AND THE CON CESSIONAL SALES TAX RATE. HOWEVER, THE WORKING SHEETS SHOWING COMPUTATIONS WITH REGARD TO SUCH DIFFERENCE WERE NOT FILED BEFORE US. FROM THE DISCUSSIONS MADE BY THE ASSESS ING OFFICER, WE NOTICE THAT THE ASSESSEE HAS CHALLENGED THE LEVY OF PENALTY OF RS. 75,80,772/- BEFORE THE DEPUTY COMMISSIONER OF SALES-TAX AND LATER ON BEFORE THE H ONBLE HIGH COURT OF KERALA. THE APPEALS FILED BY THE ASSESSEE WERE DISMISSED BY TH E DEPUTY COMMISSIONER OF SALES-TAX AND ALSO BY THE HONBLE HIGH COURT OF KERALA. THER EAFTER, THE ASSESSEE HAS CARRIED THE MATTER IN APPEAL BEFORE THE HONBLE SUPREME COURT A ND THE SAME WAS PENDING AS ON THE DATE OF THE ASSESSMENT ORDER. THUS, IT IS SEEN THAT THE ISSUE HAS NOT ATTAINED FINALITY DURING THE YEAR UNDER CONSIDERATION. AS R IGHTLY POINTED OUT BY THE ASSESSING OFFICER, THE ASSESSEE HAD MOVED A STAY APPLICATION BEFORE THE HONBLE HIGH COURT OF KERALA AND AS PER THE DIRECTION OF THE HIGH COURT, IT HAS MADE AN AD-HOC PAYMENT OF RS. 52.00 LAKHS DURING THE YEAR UNDER CONSIDERATION . IN OUR VIEW, IT CANNOT BE SAID THAT THE SAID PAYMENTS ARE EXPENDITURE PERTAINING TO THE YEAR UNDER CONSIDERATION. IT IS WELL-SETTLED PRINCIPLE THAT THE DISPUTED EXPENDITUR E CAN BE CONSIDERED AS EXPENDITURE OF THE YEAR IN WHICH THE DISPUTE ATTAINED FINALITY. I N THE INSTANT CASE, THE DISPUTE HAS NOT ATTAINED FINALITY DURING THE YEAR UNDER CONSIDERATI ON IN VIEW OF THE APPEAL PREFERRED BEFORE THE HONBLE SUPREME COURT. ACCORDINGLY, IN OUR VIEW, THE ASSESSING OFFICER WAS JUSTIFIED IN MAKING THE DISALLOWANCE OF AD-HOC PAYM ENT OF RS. 52.00 LAKHS DURING THE YEAR UNDER CONSIDERATION. ACCORDINGLY, WE SET ASID E THE ORDER OF THE LD. CIT(A) ON THIS ISSUE AND RESTORE THAT OF THE ASSESSING OFFICER . I.T.A. NOS.520/COCH/2007 & 189/COCH/2009 & C.O. NO. 36/COCH/2007 6 9. THE NEXT ISSUE CONTESTED BY THE REVENUE IN I.T. A. NO. 189/COCH/2009 RELATES TO THE DISALLOWANCE OF CLAIM OF DEDUCTION OF RS. 60,07 ,162/- TOWARDS STORES AND SPARES WRITTEN OFF IN THE ORIGINAL ASSESSMENT ORDER. THE ASSESSING OFFICER DISCUSSED ON THIS ISSUE AS UNDER:- 4.(VI) THE ASSESSEE HAS CLAIMED DEDUCTION OF RS . 60,07,162/- TOWARDS STORES AND SPARES WRITTEN OFF. THE ASSESSEE FILED A NOTE DATED 20-06-2003 IN THIS REGARD STATING AS UNDER:- A THOROUGH INSPECTION OF STORES AND SPARES ACQUIR ED BY PREMIER TYRES LTD. PRIOR TO THE YEAR 1995 WAS CARRIED OUT BY THE ENGINEERING DEPARTMENT DURING MAY AND JUNE 2003 AND HAVE FOUND THAT THE ITEMS MENTIONED IN THE ENCLOSED LIST VALUING RS. 20,07,162/- CAN CONSIDERED AS OBSOLETE AND WRI TTEN OFF FROM THE BOOK FROM THE BALANCE SHEET, IT IS FOUND THAT S TORES AND SPARES WERE FORMING PART OF INVENTORY WHICH AS ON 31-03-2003 WAS RS.77.98 LAKH S. AS ON 31.03.2004, THE SAME IS SHOWN AT RS.17.66 LAKHS. THE ASSESSEE DOE S NOT CARRY OUT ANY MANUFACTURING BUSINESS. IT HAS DISCONTINUED THE BU SINESS WITH EFFECT FROM 14-12- 2004 AND SINCE THIS LOSS PERTAINS TO THE DISCONTIN UED BUSINESS, THE SAME IS DISALLOWED HOWEVER, THE ASSESSING OFFICER OMITTED TO DISALLOW THE SAID CLAIM WHILE MAKING THE COMPUTATION OF TOTAL INCOME AT THE END OF THE ASSES SMENT ORDER. HENCE, THE ASSESSING OFFICER PASSED A RECTIFICATION ORDER DATED 16-10-20 08 AND MADE DISALLOWANCE OF RS.60,07,162/- DISCUSSED SUPRA. 10. ADMITTEDLY THE ABOVE SAID CLAIM OF WRITING O FF OF OBNSOLETE SPARES AND STORES ARE ADMISSIBLE AS DEDUCTION AGAINST THE BUSINESS INCOME OF THE ASSESSEE, PROVIDED THE ASSESSEE CARRY ON THE BUSINESS. EVEN THOUGH THE ASS ESSEE CLAIMED LEASE RENTAL INCOME AS ITS BUSINESS INCOME, THE ASSESSING OFFICER ASSES SED THE SAME UNDER THE HEAD INCOME I.T.A. NOS.520/COCH/2007 & 189/COCH/2009 & C.O. NO. 36/COCH/2007 7 FROM OTHER SOURCES. HENCE, THE ASSESSING OFFICER DI SALLOWED THE ABOVE SAID CLAIM OF RS.60.07 LAKHS ON THE REASONING THAT THE ASSESSEE DID NOT CARRY ON ANY MANUFACTURING OR BUSINESS ACTIVITY. WHEN THE MATTER WAS TAKEN TO THE LD. CIT(A), THE FIRST APPELLATE AUTHORITY HELD THAT THE LEASE RENTAL INCOME IS ASSE SSABLE UNDER THE HEAD INCOME FROM BUSINESS. ACCORDINGLY, HE DIRECTED THE ASSESSING O FFICER TO DELETE THE ABOVE SAID DISALLOWANCE RELATING TO THE WRITING OFF OF OBSOLET E STORES AND SPARES. 11. IN THE EARLIER PARAGRAPHS, WE HAVE HELD TH AT LEASE RENTAL INCOME RECEIVED BY THE ASSESSEE DURING THE YEAR UNDER CONSIDERATION HAS TO BE ASSESSED UNDER THE HEAD INCOME FROM OTHER SOURCES. IN THAT CASE THE ASSESS EE DOES NOT HAVE ANY BUSINESS INCOME, SINCE IT DID NOT CARRY ON ANY BUSINESS ACTI VITY. WE HAVE ALREADY NOTICED THAT THE IMPUGNED CLAIM IS ADMISSIBLE AGAINST THE BUSINE SS INCOME. HOWEVER, IN THE ABSENCE OF ANY BUSINESS INCOME, THE STORES AND SPAR ES WRITTEN OFF BY THE ASSESSEE CANNOT BE CONSIDERED AS BUSINESS EXPENDITURE. ON T HE CONTRARY, IT IS IN THE NATURE OF CAPITAL LOSS. ACCORDINGLY, IN OUR VIEW, THE ASSESSI NG OFFICER WAS RIGHT IN LAW IN DISALLOWING THE CLAIM OF RS. 60,07,162/- BEING THE VALUE OF STORES AND SPARES WRITTEN OFF BY THE ASSESSEE. IN VIEW OF THE ABOVE, WE SET ASID E THE ORDER OF THE LD. CIT(A) ON THIS ISSUE AND RESTORE THAT OF THE ASSESSING OFFICER. 12. IN THE CROSS OBJECTION FILED BY THE ASSESSEE, T HE ONLY ISSUE CONTESTED RELATES TO THE ISSUE OF CLAIM OF RS.1.25 CRORE UNDER THE HEAD QUALITY CLAIM MADE BY THE ASSESSEE. THE FACTS RELATING THERETO HAVE BEEN DISCUSSED BY T HE ASSESSING OFFICER AS UNDER:- 6. THE ASSESSEE HAS CLAIMED EXPENSES OF RS.125,1 2,348/- TOWARDS QUALITY LOSS. FROM THE DETAILS FILED IT IS FOUND THAT THE CLAIM WAS IN RESPECT OF QUALITY LOSS PAYABLE BY APOLLO TYRES LTD. TO APOLLO INTERNATION AL TRADING LLC. DUBAI TO WHOM EXPORTS WERE MADE BY APOLLO TYRES LTD. THE ASSESS EE STATES THAT THE EXPORTS MADE WERE THE TYRES MANUFACTURED USING THE INFRAST RUCTURE AND FACILITIES OF PREMIER TYRES LTD. AND THAT THE QUALITY CLAIM PERT AINS TO THE PROBLEMS IN THE INFRASTRUCTURE/MACHINERIES OF PTL AND THE EXPENSES WAS DEBITED TO THE P&L ACCOUNT AND IT WAS ACCEPTED BY THE BOARD. IN THIS REGARD IT MAY BE OBSERVED HERE THAT NO PROOF HAS BEEN FILED TO THE EFFECT TH AT THE TYRES WHICH SUFFERED DEFECTS, IF ANY, WERE MANUFACTURED BY APOLLO TYRES LTD. AT THE PLANT OF THE I.T.A. NOS.520/COCH/2007 & 189/COCH/2009 & C.O. NO. 36/COCH/2007 8 ASSESSEE COMPANY. EVEN IF, IT IS CONSIDERED THAT T HE SAID TYRES WERE MANUFACTURED AT THE PLANT OF THE ASSESSEE, THE CLA IM CANNOT BE ALLOWED IN THE HANDS OF THE ASSESSEE BECAUSE THE ASSESSEE IS THE LESSOR OF THE PLANT AND MACHINERY AND THE LEASE AGREEMENT DOES NOT PROVIDE FOR ANY SUCH CLAIM OR EVENTUALITY. THE TYRES WERE NOT MANUFACTURED OR S OLD BY THE ASSESSEE TO M/S. APOLLO TYRES LTD. APOLLO TYRES LTD. USED THE ASSE SSEES PLANT TO MANUFACTURE ITS TYRES AND IF ANY DEFECT OCCURRED, IT IS THE RESPON SIBILITY OF APOLLO TYRES LTD. AND NOT OF THE ASSESSEE COMPANY. ACCORDINGLY, CLAIM O F RS.1,25,12,348/- TOWARDS QUALITY LOSS IS DISALLOWED. 13. THE LD. CIT(A) HAS ALSO CONFIRMED THE DISALLOWA NCE MADE BY THE ASSESSING OFFICER WITH THE FOLLOWING OBSERVATIONS:- 5. I HAVE EXAMINED THIS ISSUE IN DETAIL. THIS LO SS OR EXPENDITURE HAS ARISEN DURING THE COURSE OF MANUFACTURING BUSINESS OF APO LLO TYRES WHO HAD EXPORTED THE GOODS ON THEIR ACCOUNT, NOT ON THE ACCOUNT OF THE ASSESSEE, WHO ARE ONLY OWNER OF THE PREMISES WHERE THE MANUFACTURING IS C ARRIED OUT BY APOLLO TYRES. LOSS OF SUCH NATURE IS ATTRIBUTABLE TO APOLLO TYRE S AND NOT TO THE ASSESSEE. I, THEREFORE, AGREE WITH THE ASSESSING OFFICER THAT T HIS CLAIM HAS TO BE DISALLOWED IN THE HANDS OF THE ASSESSEE. THE APPEAL ON THIS GRO UND, THEREFORE, IS DISMISSED. 14. WE HAVE CAREFULLY CONSIDERED THE RIVAL SUBMI SSIONS ON THIS ISSUE. EVEN THOUGH THE LD A.R CLAIMED THAT THE ASSESSEE IS LIABLE TO B EAR THE CLAIMS ARISING OUT OF QUALITY DEFICIENCIES FOR THE REASON THAT THE SAID DEFECTS H AVE OCCURRED DUE TO THE FAULT IN THE MACHINERY LEASE OUT, YET HE COULD NOT SUBSTANTIATE HIS CLAIM BY PRODUCING ANY AGREEMENT BETWEEN THE ASSESSEE AND M/S APOLLO TYRES LTD. NORMALLY, IT IS THE RESPONSIBILITY OF THE LESSEE TO OPERATE THE MACHINE RIES AND THE LESSOR HAS NOTHING TO DO WITH THE QUALITY OF THE PRODUCTS MANUFACTURED BY TH E LESSEE. HENCE, WE ARE OF THE VIEW THAT THE LD CIT(A) WAS RIGHT IN LAW IN CONFIRMING T HE DISALLOWANCE OF EXPENDITURE CLAIMED UNDER THE QUALITY CLAIM. I.T.A. NOS.520/COCH/2007 & 189/COCH/2009 & C.O. NO. 36/COCH/2007 9 15. IN THE RESULT, THE APPEALS FILED BY THE REVENUE ARE ALLOWED AND THE CROSS OBJECTION FILED BY THE ASSESSEE IS DISMISSED. PRONOUNCED ACCORDINGLY ON 21-12-20 12. SD/- SD/- (N.R.S.GANESAN) (B.R.BASKARAN) JUDICIAL MEMBER ACCOUNTANT MEMBER PLACE: KOCHI DATED: 21ST DECEMBER, 2012 GJ COPY TO: 1. M/S. PTL ENTERPRISES LTD., 6 TH FLOOR, CHERUPUSHPAM BLDG., KOCHI-31. 2. THE DEPUTY COMMISSIONER OF INCOME-TAX, CIRCLE-2( 1), RANGE-2, ERNAKULAM. 3. THE COMMISSIONER OF INCOME-TAX (APPEALS)-II, KOC HI. 4.THE COMMISSIONER OF INCOME-TAX, KOCHI 5. D.R., I.T.A.T., COCHIN BENCH, COCHIN. 6. GUARD FILE. BY ORDER (ASSISTANT REGISTRAR) I.T.A.T, COCHIN I.T.A. NOS.520/COCH/2007 & 189/COCH/2009 & C.O. NO. 36/COCH/2007 10