M/S Thukral Regal Shoes, Chandigarh V. Asstt. Commissioner of Income Tax, Chandigarh

CO 7/CHANDI/2016

• Counselvise Citation: [2016] 112 COUNSELVISE.COM (IT) 4054 (ITAT-CHANDIGARH)
• Duration Of Justice: 1 month(s) 19 day(s)
• Appeal Type: Cross Objection
• Pronouncement Date: 22-06-2016
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: Not Allotted
• Assessment Year: 2011-2012
• Appeal Filed On: 03-05-2016
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Assessee Lawyers: S K MITTAL
• Keywords: Gift; Depreciation; Business expenditure; Revenue expenditure; Capital expenditure
• Section: 37(1); 145; 154

Judgement Text

1 IN THE INCOME TAX APPELLATE TRIBUNAL CHANDIGARH BENCHES, CHANDIGARH BEFORE SHRI SHAMIM YAHYA, ACCOUNTANT MEMBER AND SHRI GEORGE GEORGE K, ACOCUNTANT MEMBER ITA NO. 258/CHD/2016 ASSESSMENT YEAR: 2011-12 THE ACIT, VS. M/S THUKRAL REGAL SHOES, CIRCLE 2(1), CHANDIGARH CHANDIGARH PAN NO. AAAFT5204F & C.O. NO. 7/CHD/1016 (IN ITA NO. 258/CHD/2016) ASSESSMENT YEAR: 2011-12 M/S THUKRAL REGAL SHOES, VS. THE ACIT, CIRCLE 2(1) , CHANDIGARH CHANDIGARH PAN NO. AAAFT5204F (APPELLANT) (RESPONDENT) APPELLANT BY : SH. S.K.MITTAL RESPONDENT BY : NONE DATE OF HEARING : 22.06.2016 DATE OF PRONOUNCEMENT : 22.06.2016 ORDER PER SHAMIM YAHYA, AM THIS APPEAL BY THE REVENUE AND CROSS OBJECTION BY THE ASSESSEE EMANATE OUT OF ORDER OF LD. CIT(A) DATED 4.1.2016 AND PERTA IN TO ASSESSMENT YEAR 2011- 12. 2. REVENUES APPEAL - THE GROUNDS OF APPEAL READ AS UNDER:- 2 1. WHETHER ON THE FACTS & IN THE CIRCUMSTANCES OF THE CASE, THE LD. CIT(A) HAS ERRED IN ALLOWING APPEAL OF THE ASSESSEE WITHOUT APPRECIATING THE FACTS OF THE CASE. 2. WHETHER ON THE FACTS & IN THE CIRCUMSTANCES OF THE CASE, THE LD. CIT(A) HAS ERRED IN DELETING IN ADDITION MADE U/S 3 6(1)(III) IN VIEW OF PROVISO TO SECTION 36(1) (III) WHEN THE INTEREST WA S ATTRIBUTABLE TO ASSETS WHICH WERE NOT PUT TO USE. 3. WHETHER ON THE FACTS & IN THE CIRCUMSTANCES OF THE CASE, THE LD. CIT(A) HAS ERRED IN DELETING THE ADDITION MADE U/S 37(1) WHEN THE ASSESSEE HAD DIVERTED THE FUNDS FOR ACQUIRING PROPE RTIES IN THE NAMES OF THE WIVES OF THE PARTNER OF THE FIRM. 4. IT IS PRAYED THAT THE ORDER OF THE LD.CIT(A) BE CAN CELLED AND THAT OF THE ASSESSING OFFICER MAY BE RESTORED. 3. WE HAVE HEARD THE LD. DR. NONE APPEARED ON BEHAL F OF THE ASSESSEE. HOWEVER, UPON PERUSING THE RECORDS AND HEARING LD. DR, WE FIND THAT THE ISSUE IS COVERED IN FAVOUR OF THE ASSESSEE BY THE ITAT DE CISION IN ASSESSEES OWN CASE FOR ASSESSMENT YEAR 2007-08. IN THE SAID ORDER IN ITA NO. 650/CHD/2011, THE ITAT VIDE ORDER DATED 27.04.2012 HAS DECIDED THE ID ENTICAL ISSUE IN FAVOUR OF THE ASSESSEE. IN THIS REGARD, WE MAY GAINFULLY REFE R TO THE LD. CIT(A)S ORDER ON THIS ISSUE, WHICH READS AS UNDER:- 6.1 DISALLOWANCE ON ACCOUNT OF INTEREST U/S 36(1)(I II) AND 37(1) OF THE ACT BRIEF FACTS OF THE CASE ON THIS ISSUE ARE THAT THE APPELLANT HAD CLAIMED BANK INTEREST OF RS. 69,39,478/- IN ITS P ROFIT & LOSS ACCOUNT. THE APPELLANT HAD RAISED LOAN WHICH WERE U TILIZED FOR THE PURCHASE OF THE PROPERTIES WHICH HAD NOT BEEN PUT T O USE. THE ASSESSING OFFICER APPLIED PROVISO TO SECTION 36(1)( III) OF THE ACT FOR DISALLOWING OF THE INTEREST. FURTHER, IT WAS HELD B Y THE ASSESSING OFFICER THAT THE ACCOUNT OF INTEREST WHICH IS ATTRI BUTABLE TO THE ACQUISITION OF PROPERTIES WHICH ARE IN THE NAME OF THE WIVES OF THE 3 PARTNERS AND ARE BEING USED BY THEM FOR THEIR BUSIN ESS CANNOT BE ALLOWED AS BUSINESS EXPENDITURE OF THE ASSESSEE U/S 37(1) OF THE ACT. THE ASSESSING OFFICER HAS ALSO RELIED UPON THE DECI SION OF CIT (A), CHANDIGARH IN THE CASE OF THE APPELLANT ITSELF FOR A.Y. 2009-10 WHEREIN ADDITION ON SAME GROUND WAS CONFIRMED. 6.2 A SUBMISSION WAS FILED DURING THE PRESENT PROCE EDINGS. IT IS SUBMITTED THAT THE SIMILAR ADDITION WAS MADE IN THE A.Y. 2007-08 IN THE CASE OF THE APPELLANT WHICH WAS SUBJECTED TO AP PEAL BEFORE THE CIT (A), CHANDIGARH AND SUBSEQUENTLY TO HONBLE ITA T, CHANDIGARH. A COPY OF THE ORDER OF HONBLE ITAT, CH ANDIGARH IN ITA, NO. 650/CHD/2011 WAS SUBMITTED DURING THE PROC EEDINGS. ON PERUSAL OF THE SAME, IT IS FOUND THAT VIDE LD. ITAT ORDER DATED 27 TH APRIL, 2012, THE IDENTICAL ISSUE WAS DECIDED IN FAV OUR OF THE APPELLANT WHEREIN THE CLAIM OF INTEREST EXPENDITURE IN THE HANDS APPELLANT FIRM WAS ALLOWED. BY RESPECTFULLY EXPENDI TURE IN THE HANDS APPELLANT FIRM WAS ALLOWED. BY RESPECTFULLY FOLLOWI NG THE DECISION OF HONBLE TRIBUNAL, THE ADDITION OF RS. 69,39,478/- I S DELETED. GROUND OF APPEAL AGAINST THIS ADDITION IS ALLOWED. 4. CONSIDERING THE ABOVE, WE ARE OF THE OPINION THA T ISSUE IS COVERED IN FAVOUR OF THE ASSESSEE BY THE DECISION OF THE TRIBU NAL, AS ABOVE. THE LD. DR FAIRLY AGREED TO THE ABOVE PROPOSITION. ACCORDINGL Y, WE UPHOLD THE ORDER OF CIT(A). 7. IN THE RESULT, THE APPEAL FILED BY THE REVENUE S TANDS DISMISSED. 8. ASSESSEES C.O. THE GROUNDS RAISED IN THIS CROSS OBJECTIONS ARE AS UNDER:- 1. FOR DELETING THE FOLLOWING ADDITIONAL THE CIT(A) HA S EXAMINED IN DETAIL OUR VIEW, CITATIONS AND LEGAL POSITION THE I MPUGNED ORDER DATED 4.1. 2016. AFTER APPLICATION OF HIS MIND HE HAS DECIDED THESE ISSUES IN OUR FAVOUR, COPY OF THE SUBMISSIONS SUBMI TTED TO THE CIT(A) IS ATTACHED AS ANNEXURE A-1. 4 I) FOR THE ADDITION U/S 36(1)(III) IN VIEW OF THE PROV ISO TO SECTION 36(1)(III) ATTRIBUTABLE TO ASSETS WHICH WERE NOT PU T TO USE HAS RELIED UPON THE PRINCIPLE THAT WHENEVER ANY EXPENDI TURE IS INCURRED IN CONNECTION WITH THE RUNNING OF BUSINESS AND IS INCIDENT TO BE BUSINESS, IN THE INCOME-TAX ACT, IS NECESSARY TO BE TREATED EITHER AS CAPITAL EXPENDITURE OR REVENUE EXPENDITURE. IF ANY OF THESE IS NOT OF REVENUE NATU RE, THE ASSESSING OFFICER WAS BOUND TO ACCEPT THE SAME AS CAPITAL EXPENDITURE. II) FOR ADDITION MADE U/S 37(1) WHEN THE ASSESSEE HAD A LLEGEDLY DIVERTED THE FOUND FOR ACQUIRING PROPERTIES IN THE NAMES OF THE (RESPECTIVE) WIVES OF THE PARTNER(S) OF THE FIR M, THE CIT(A) HAS FOLLOWED THE ORDER OF THIS HONBLE BRANCH IN IT A NO. 650/CHD/2011 FOR ASSESSMENT YEAR 2007-08. COPY OF T HE ORDER IS ATTACHED HEREWITH AS ANNEXURE A-2. THIS CO NTROVERSY AT LAST HAS ALSO BEEN SETTLED BY THE SUPREME COURT IN HERO CYCLE (P) LTD. V. COMMISSIONER OF INCOME TAX (CENTR AL), LUDHIANA (SC), 2015 AIR (SCW) 6590. 2. THIS HONBLE BENCH IS THE FINAL FACT FINDING AUTHOR ITY IN VIEW OF 2001(248) ITR 181, MADANLAL PATODIA V. COMMISSIONER OF GIFT-TAX (SC) AND 2002(256) ITR 351, COMMISSIONER OF INCOME TAX, ANDHRA PRADESH-III, HYDERABAD V. G.V RATTAIAH AND COMPANY, GUNTUR. (ANDHRA PRADESH)(D.B.). AUTHORITIES BELOW CAN NOT D ENY THE RELIEF ON THE GROUND THAT THE ASSESSEE DID NOT RAISE THE G ROUND BEFORE THE ASSESSING OFFICER. TO MEET THE ENDS OF JUSTICE THE CIT(A) COULD ALSO REFER THE MATTER TO A.O. FOR HER COMMENTS. 3. THE ASSESSING OFFICER HAVE PASSED ORDER U/S 154 DAT ED 22.2.2016, WHICH IS BAD IN LAW AS THERE WAS NO SPECIFIC ORDER FOR CHARGING INTEREST U/S 234(A) & 234(B) OF INCOME-TAX ACT. THE REFORE NO INTEREST CAN BE CHARGED UNDER THE LAW. FOR THIS POI NT AN APPLICATION U/S 154 HAVE BEEN FILED BEFORE THE ASSESSING OFFICE R ON 3.5.2016 AND ORDER OF THE A.O. IS AWAITED. COPY OF THE APPLICATI ON U/S 154 DATED 3.5.2016 IS ATTACHED AS ANNEXURE A-3. 5 4. WHILE PASSING THE ORDER DATED 27.1.2016 THE ASSESSI NG OFFICER HAVE TAKEN THE RETURNED LOSS OF RS.4,61,999/-, WHEREAS T HE SAME IS WITH A LOSS OF RS. 28,46,192/-. IN THIS REGARD A COPY OF C OMPUTATION IS ATTACHED HEREWITH FOR READY REFERENCE AS ANNEXURE A -04. FOR THIS POINT AN APPLICATION U/S 154 HAVE BEEN FIELD BEFORE THE ASSESSING OFFICER ON 3.5.2016 AND ORDER OF THE A.O. IS AWAITE D. 5. ANOTHER ERROR HAVE CREPT IN THE ASSESSMENT ORDER DA TED 29.9.2014 THAT THE METHOD OF ACCOUNTING HAS BEEN TAKEN AS MER CANTILE WHEREAS THE SAME IS CASH SINCE INCEPTION. WE HAVE NEVER MAD E OUR BOOKS OF ACCOUNT IN MERCANTILE SYSTEM, BUT HAVE FOLLOWED CAS H SYSTEM OF ACCOUNTING. WE PRODUCED OUR BOOKS OF ACCOUNT AND HA VE NOT TAKEN EVEN A SINGLE PENNY IN OUR PROFIT & LOSS OF ACCOUNT AS EXPENDITURE WHICH WAS PAYABLE, BUT NOT PAID. FOR THIS POINT AN APPLICATION U/S 154 HAVE BEEN FILED BEFORE THE ASSESSING OFFICER ON 3.5.2016 AND ORDER OF THE A.O. IS AWAITED. 6. IN VIEW OF PARA NO. 5. ABOVE, THE DISALLOWING PROVI DENT FUND CLAIM ID INCORRECT AS WE ARE FOLLOWING CASH SYSTEM AND EXPEN DITURE OF RS. 29,77,600/- WHICH IS INCIDENTAL OF THE BUSINESS DUR ING THIS YEAR HAVE BEEN CORRECTLY CLAIMED IN THIS YEAR. HENCE THIS ADD ITION IS NECESSARY TO BE DELETED IN VIEW OF THE ERROR APARTMENT ON FAC E OF THE RECORD. FOR POINT AN APPLICATION U/S 145 HAVE BEEN FILED BE FORE THE ASSESSING OFFICER ON 3.5.2016 AND ORDER OF THE A.O. IS AWAITE D. 7. THE CIT(A) HAS ALSO NOT APPRECIATED THE FACT THAT T HE DEPRECIATION OF RS. 250000/- HAS CLAIMED UPON THE BUILDING PORTION OF THE ASSETS ALLOWED BY THIS HONBLE ITAT IN A.Y. 2007-08 AS STA TED IN PARA 1.II) ABOVE. THEREFORE THIS IS NECESSARY TO BE ALLOWED. 8. THE A.O. HAS NOT GIVEN ANY FINDING THAT ANY OF THE EXPENDITURE CLAIMED IS ILLEGAL AND NOT INCIDENTAL TO THE BUSINE SS. 9. THEREFORE, THE APPEAL IS THE DEPARTMENT IS LIABLE T O BE DISMISSED AND THE CROSS OBJECTIONS ARE NECESSARY TO ALLOWED. 6 9. NONE APPEARED ON BEHALF OF THE ASSESSEE. THOUGH A SUBSTANTIAL PART OF THE CROSS OBJECTION IS IN SUPPORT OF THE CIT(A)S ORDER ON THE ISSUE IN THE REVENUES APPEAL, WHICH WE HAVE ALREADY DECIDED IN FAVOUR OF THE ASSESSEE. 10. NEVERTHELESS, SINCE NOBODY HAS REPRESENTED THE ASSESSEE, DESPITE SERVICE OF NOTICE IN THIS REGARD, WE DEEM IT APPROPRIATE TO DISMISS THE ASSESSEES CROSS OBJECTION FOR NON-PROSECUTION FOLLOWING THE DECISIO N OF THE ITAT DELHI BENCH IN CIT VS. MULTIPLAN INDIA LTD., (38 ITD 320)(DEL). 11. IN THE RESULT, THE CROSS OBJECTION STANDS DISMI SSED. 12. IN THE RESULT, T THE APPEAL OF THE REVENUE AS W ELL AS CROSS OBJECTION OF THE ASSESSEE ARE DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 22-06-2016 SD/- SD/- (GEORGE GEORGE K) (SHAMIM YAHYA) JUDICIAL MEMBER ACCOUNTANT MEMBER DATED :22 ND JUNE, 2016 RKK COPY TO: 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT 4. THE CIT(A) 5. THE DR 7