DCIT, New Delhi V. M/s. Pasupati Fabrics Ltd., New Delhi

ITA 1035/DEL/2010

• Counselvise Citation: [2015] 140 COUNSELVISE.COM (IT) 86584 (ITAT-DELHI)
• Duration Of Justice: 4 year(s) 10 month(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 09-01-2015
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: F
• Next Hearing Date: 07-01-2015
• Assessment Year: 2006-2007
• Appeal Filed On: 09-03-2010
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: VIKRAM SAHAY
• Assessee Lawyers: O P MODY
• Keywords: Depreciation; Revenue expenditure; Capital expenditure
• Section: 143(3)

Judgement Text

ITA NO. 1035/ DEL/ 2010 1 IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH F , NEW DELHI BEFORE SHRI S.V. MEHROTRA, ACCOUNTANT MEMBER AND SHRI H.S. SIDHU, JUDICIAL MEMBER I.T.A. N O. 1035 /DEL/20 1 0 A.Y. : 200 6 - 0 7 DY. COMMISSIONER OF INCOME TAX, CENTRAL CIRCLE - 09, NEW DELHI ROOM NO. 357, ARA CENTRE, JHANDEWALAN, NEW DELHI VS. M/S PASUPATI FABRICS LTD., D - 20, CONNAUGHT PLACE, NEW DELHI (PAN: AAACP1338B) (APPELLANT) (RESPONDENT) DEPARTMENT BY : SH. VIKRAM SAHAY, SR. D.R. ASSESSEE BY : SH. O.P. MODY, ADV. DATE OF HEARING : 0 7 - 0 1 - 201 5 DATE OF ORDER : 0 9 - 01 - 201 5 ORDER PER H.S. SIDHU : J M THE REVENUE HAS FILED THE PRESENT APPEAL AGAINST THE IMPUGNED ORDER DATED 10 / 12 /2009 PASSED BY THE COMMISSIONER OF INCOME TAX (APPEALS) - II, NEW DELHI ON THE FOLLOWING GROUNDS: - 1(A) ON THE FACTS AND UNDER THE CIRCUMSTANCES OF THIS CASE, THE LD. CIT(A) HAS ERRED IN DELETING THE ADDITION OF RS. 1.40 CRORE ON THE BASIS THAT THE TRANSACTIONS WITH AN ENTRY PROVIDER HAD NO REVENUE EFFECT IN THIS CASE. 1(B) ON THE FACTS AND UNDER THE CIRC UMSTANCES OF THE CASE, THE LD. CIT(A) HAS ERRED IN DELETING THE ITA NO. 1035/ DEL/ 2010 2 ADDITION OF RS. 1.40 CRORE WITHOUT FULLY APPRECIATING THE FACT THAT THE MD/CHAIRMAN OF THE ASSESSEE COMPANY, SURRENDERED THIS AMOUNT OF RS. 1.40 CRORE AS UNDISCLOSED INCOME. 2. THE ORDER OF T HE LD. CIT(A) IS ERRONEOUS AND NOT TENABLE IN LAW AND ON FACTS. 3. THE APPELLANT CRAVES LEAVE TO ADD, ALTER OR AMEND ANY / ALL OF THE GROUNDS OF APPEAL BEFORE OR DURING THE COURSE OF THE HEARING OF THE APPEAL. 2. THE FACTS IN BRIEF ARE THAT T HE ASSE SSEE COMPANY FILED RETURN OF INCOME DECLARING LOSS OF RS. 46,88,8401/ - ON 28.1.2006. IT WAS FURTHER REVISED AND DECLARED NIL INCOME. STATUTORY NOTICES WERE SENT AND ASSESSEE S RESPONSE WERE FILED. AFTER GOING THROUGH THE FACTS RECORDS, AO COMPLETED THE A SSESSMENT U/S 143(3) OF THE INCOME TAX ACT, 1961 AND MADE THE ADDITION OF RS. 1,40,00,000/ - AND FOR DOING SO HE OBSERVED AS UNDER: - (I) INSPITE OF THE FACT THAT ASSESSES HAD BEEN ISSUED SALE BILL OF RS. 1.4 CRORE AND ON 24.6.2005, THE ASSESE HAS FAILED TO T AKE ANY LEGAL STEPS FOR RECOVERY, AS CLAIMED BY ASSESSEE IN HIS REPLY. (II) THE ASSESSEE HAS MADE PAYMENT AGAINST THE SALE BILL THROUGH SIX DIFFERENT CHEQUES ISSUED BETWEEN 1.7.2005 TO 13.7.2005 ON WHICH TDS HAS BEEN DEDUCTED. (III) IT IS ONLY DUE TO SURVEY IN THIS CASE THAT ASSESSEE HAS COME UP WITH EXCUSE THAT THE PAYMENT WAS MADE AS ADVANCE AND NO GOODS HAVE BEEN DELIVERED. IN FACT THE SALE BILL WAS ALLEGED SALE OF RS. 1.40 CRORE IS TREATED AS ACCOMMODATION ENTRY TAKEN BY THE ASSESSEE FROM M/S B.T. TECHNET L TD. ITA NO. 1035/ DEL/ 2010 3 3 . AGAINST THE ORDER OF THE AO AS AFORESAID ASSESSEE FILED AN APPEAL BEFORE THE ID. FIRST APPELLATE AUTHORITY WHO VIDE IMPUGNED ORDER DATED 1 0 / 12 /2009 PARTLY ALLOWED THE APPEAL OF THE ASSESSEE. NOW THE REVENUE IS AGGRIEVED AGAINST THE IMPUGNED ORDE R AND FILED THE PRESENT APPEAL BEFORE US. 4 . AT THE TIME OF HEARING LD. DR RELIED UPON THE ORDER OF THE AO AND REITERATED THE CONTENTIONS RAISED BY THE REVENUE IN THE GROUNDS OF APPEAL. 5 . ON THE CONTRARY, LD. COUNSEL OF THE ASSESSEE RELIED UPON THE ORD ER OF THE LD. FIRST APPELLATE AUTHORITY. 6 . WE HAVE HEARD THE BOTH PARTIES AND PERUSED THE RELEVANT RECORD AVAILABLE WITH US SPECIALLY THE IMPUGNED ORDER S PASSED BY THE REVENUE AUTHORITIES AND WE ARE OF THE CONSIDERED VIEW THAT LD. FIRST APPELLATE AUT HORITY HAS CONCLUDED THE FINDING ON THE ISSUE IN DISPUTE IN PARA NO S . 3.3 TO 3.3.2 OF THE IMPUGNED ORDER AND FOR THE SAKE OF CONVENIENCE WE REPRODUCE THE SAME AS UNDER: - 3.3 I HAVE CONSIDERED THE FACTS OF THE CASE. IT IS SEEN THAT AO HAS ONLY TRIED TO JUSTIFY IN THIS ORDER HIS STAND THAT THE INVOICE OF RS. 1.40 CRORES FROM M/S B.T.TECHNET LTD TO THE APPELLANT IS IN THE NATURE OF ACCOMMODATION ENTRY BASED ON THE STATEMENT OF S H. S.K.GUPTA. THOUGH HE HAS NOT BEEN ABLE TO REBUT TOTALLY THE CLAIM OF THE APPELLANT THAT IN ITS. CASE IT IS NOT THE CASE OF ACCOMMODATION ENTRY BUT THERE WAS A REAL TRANSACTION, BUT EVEN IF AN INVOICE IS ESTABLISHED TO BE IN THE NATURE OF ACCOMMODATION E NTRY, STRAIGHTWAY IT CANNOT BE ITA NO. 1035/ DEL/ 2010 4 DISALLOWED AND ADDED BACK TO THE INCOME OF THE ASSESSEE. IT HAS TO BE SEEN AS TO WHETHER THIS AMOUNT HAS BEEN CLAIMED AS REVENUE EXPENDITURE OR CAPITAL EXPENDITURE BY THE ASSESSEE. IF IT IS CLAIMED AS REVENUE EXPENDITURE AND DEBITED IN THE PROFIT AND LOSS ACCOUNT THEN IT MAY BE CONSIDERED FOR DISALLOWANCE. IF CLAIMED AS CAPITAL EXPENDITURE THEN IT IS TO BE SEEN AS TO WHETHER THE SAME HAS BEEN CAPITALISED OR NOT DURING THE YEAR AND IF CAPITALISED THEN CLAIM OF DEPRECIATION ON S UCH CAPITALISATION ONLY IS LIABLE TO BE DISALLOWED. THE A O HAS TOTALLY MISSED THIS ASPECT IN THIS ORDER. AS REPRODUCED IN PARA 3.1.2. OF THIS ORDER, IN THE STATEMENT OF ACCOUNTS MANAGER, IT HAS BEEN CLEARLY MENTIONED THAT THIS AMOUNT HAS NOT , BEEN PASSED THROUGH THE BOOKS OF ACCOUNTS. AT THE TIME OF SURVEY IT WA S CLEARLY NOTED BY THE I.T. AUTHORITY CONDUCTING SURVEY THAT THE AMOUNT OF RS.1,40,00,000/ - WAS NOT REFLECTED IN THE BOOKS OF ACCOUNT ALTHOUGH THE CHEQUE PAYMENT HAS BEEN MADE BY THE APPELLANT COMPANY. THIS FACT HAS BEEN MENTIONED BY THE A O IN THE ORDER IT SELF. TIME AND AGAIN IT HAS BEEN REITERATED BY THE APPELLANT, ITS ACCOUNTS MANAGER AND IT'S CHAIRMAN/MD DURING THE TIME OF SURVEY AND DURING ASSESSMENT PROCEEDINGS ALSO THAT THE PAYMENT UNDER REFERENCE MADE TO B.T.TECHNET LTD IS ADVANCE ONLY. THIS CLEARLY MEANS THAT THE SAME HAS NOT BEEN DEBITED IN THE PROFIT AND LOSS ACCOUNT. (FROM PERUSAL OF THE ASSESSMENT ORDER IT APPEARS THAT AO HAS NOT BOTHERED TO SEE THE P&L ACCOUNT AND B/S OF THE APPELLANT.) EVEN FINAL PRINTED BALANCE SHEET HAS ALSO BEEN PRODUCED BEF ORE THE UNDERSIGNED AND ON GOING THROUGH THE P&L ACCOUNT, IT IS SEEN THAT AMOUNT OF RS. 1.40 CRORES HAS NOT BEEN DEBITED IN THE P&L ACCOUNT; RATHER THE SAME HAS BEEN SHOWN AS ADVANCE IN THE BALANCE SHEET AND GROUPED ITA NO. 1035/ DEL/ 2010 5 UNDER THE SUB HEAD 'LOANS AND ADVANCES' IN THE ASSET SIDE. [THUS AS PER PRINCIPLE OF ACCOUNTANCY ALSO AN AMOUNT WHICH IS APPEARING AS ADVANCE COULD NOT HAVE BEEN DEBITED IN THE P&L ACCOUNT.] THUS, THOUGH ON THE DAY OF SURVEY THIS INVOICE WAS NOT RECORDED IN THE BOOKS OF THE APPELLANT COMPANY (TH E INTENTION OF THE APPELLANT MIGHT BE TO CLAIM THIS SUM AS BOGUS EXPENDITURE BUT IN VIEW OF THE SURVEY CONDUCTED BY THE DEPARTMENT ON 27.12.2006, IN THE FINAL BOOKS OF ACCOUNTS WHICH IS FINALISED AS ON 31;10.2007, THIS AMOUNT HAS NOT BEEN CLAIMED AS AN EXP ENDITURE AND THEREFORE SHOWN AS ADVANCE) BUT SUBSEQUENTLY WHEN THE BOOKS ARE FINALISED, THE PAYMENT MADE AGAINST THIS INVOICE HAS BEEN SHOWN AS ADVANCE. THE REASONS FOR THE SAME MAY BE THE SURVEY CONDUCTED BY THE DEPARTMENT, AS OBSERVED BY THE AO [PARA 3.1 .7(III) ABOVE] BUT THE FACTS REMAINS THAT THIS AMOUNT HAS NOT BEEN DEBITED IN THE P&L ACCOUNT; RATHER IT HAS BEEN DIRECTLY SHOWN AS ADVANCE. (BASED ON THIS P&L ACCOUNT AND BALANCE SHEET THE APPELLANT HAS RE - REVISED ITS RETURN ON 29TH MARCH 2008.) THEREFORE , AN AMOUNT WHICH HAS NOT BEEN DEBITED IN THE P&L ACCOUNT AND THEREFORE NOT CLAIMED AS EXPENDITURE CANNOT BE DISALLOWED EVEN THOUGH THE INVOICE MAY BE IN THE NATURE OF ACCOMMODATION ENTRY. THEREFORE WITHOUT COMMENTING ON THE CORRECTNESS OR OTHERWISE OF THE CONCLUSION OF THE AO THAT THIS INVOICE IS IN THE NATURE OF ACCOMMODATION ENTRY, THE ADDITION MADE BY THE AO. CANNOT BE UPHELD. 3.3.1. IT IS ALSO SEEN THAT THIS AMOUNT HAS NOT BEEN CAPITALISED ALSO AS IF IT IS CAPITALISED THEN IT WILL NOT APPEAR IN THE BA LANCE SHEET AS 'ADVANCES'. EVEN OTHERWISE NO ADDITION IS FOUND IN THE SCHEDULE OF FIXED ITA NO. 1035/ DEL/ 2010 6 ASSETS DURING THE YEAR CORRESPONDING TO THIS PAYMENT. THUS NO DEPRECIATION HAS ALSO BEEN CLAIMED. THUS THERE IS NO CASE OF ANY DISALLOWANCE OF DEPRECIATION ALSO. 3.3.2 . THUS, IN ANY WAY, THERE IS NO REVENUE EFFECT IN THE CASE OF THE APPELLANT BASED ON THIS INVOICE. THE ADDITION SO MADE BY THE AO IS, THEREFORE, DIRECTED TO BE DELETED. 7 . AFTER GOING THROUGH THE AFORESAID IMPUGNED ORDER PASSED BY THE ID FIRST APPE LLATE AUTHORITY, WE ARE OF THE VIEW THAT FIRST APPELLATE AUTHORITY CONSIDERED THE FACTS OF THE CASE AND OBSERVED THAT AO HAS ONLY TRIED TO JUSTIFY IN THIS ORDER HIS STAND THAT THE INVOICE OF RS. 1.40 CRORES FROM M/S B.T.TECHNET LTD TO THE ASSESSEE IS IN TH E NATURE OF ACCOMMODATION ENTRY BASED ON THE STATEMENT OF SH. S.K.GUPTA. THOUGH HE HAS NOT BEEN ABLE TO REBUT TOTALLY THE CLAIM OF THE APPELLANT THAT IN ITS CASE IT IS NOT THE CASE OF ACCOMMODATION ENTRY BUT THERE WAS A REAL TRANSACTION, BUT EVEN IF AN INV OICE IS ESTABLISHED TO BE IN THE NATURE OF ACCOMMODATION ENTRY, STRAIGHTWAY IT CANNOT BE DISALLOWED AND ADDED BACK TO THE INCOME OF THE ASSESSEE. IT HAS TO BE SEEN AS TO WHETHER THIS AMOUNT HAS BEEN CLAIMED AS REVENUE EXPENDITURE OR CAPITAL EXPENDITURE BY THE ASSESSEE. IF IT IS CLAIMED AS REVENUE EXPENDITURE AND DEBITED IN THE PROFIT AND LOSS ACCOUNT THEN IT MAY BE CONSIDERED FOR DISALLOWANCE. IF CLAIMED AS CAPITAL EXPENDITURE THEN IT IS TO BE SEEN AS TO WHETHER THE SAME HAS BEEN CAPITALISED OR NOT DURING T HE YEAR AND IF CAPITALISED THEN CLAIM OF DEPRECIATION ON SUCH CAPITALISATION ONLY IS LIABLE TO BE DISALLOWED. WE FIND THAT LD. CIT(A) HAS OBSERVED THAT THE AO HAS TOTALLY MISSED THIS ASPECT IN ITA NO. 1035/ DEL/ 2010 7 THIS ORDER. AT THE TIME OF SURVEY IT WAS CLEARLY NOTED BY THE I.T. AUTHORITY CONDUCTING SURVEY THAT THE AMOUNT OF RS.1 ,40,00,000/ - WAS NOT REFLECTED IN THE BOOKS OF ACCOUNT ALTHOUGH THE CHEQUE PAYMENT HAS BEEN MADE BY THE APPELLANT COMPANY. THIS FACT HAS BEEN MENTIONED BY THE AO IN THE ORDER ITSELF. TIME AND AGAIN I T HAS BEEN REITERATED BY THE APPELLANT, ITS ACCOUNTS MANAGER AND IT'S CHAIRMAN/MD DURING THE TIME OF SURVEY AND DURING ASSESSMENT PROCEEDINGS ALSO THAT THE PAYMENT UNDER REFERENCE MADE TO B.T.TECHNET LTD IS ADVANCE ONLY. THIS CLEARLY MEANS THAT THE SAME HA S NOT BEEN DEBITED IN THE PROFIT AND LOSS ACCOUNT. (FROM PERUSAL OF THE ASSESSMENT ORDER IT APPEARS THAT AO HAS NOT BOTHERED TO SEE THE P&L ACCOUNT AND B/S OF THE APPELLANT.) EVEN FINAL PRINTED BALANCE SHEET HAS ALSO BEEN PRODUCED BEFORE THE UNDERSIGNED AN D ON GOING THROUGH THE P&L ACCOUNT, IT IS SEEN THAT AMOUNT OF RS. 1.40 CRORES HAS NOT BEEN DEBITED IN THE P&L ACCOUNT; RATHER THE SAME HAS BEEN SHOWN AS ADVANCE IN THE BALANCE SHEET AND GROUPED UNDER THE SUB HEAD 'LOANS AND ADVANCES' IN THE ASSET SIDE. [TH US AS PER PRINCIPLE OF ACCOUNTANCY ALSO AN AMOUNT WHICH IS APPEARING AS ADVANCE COULD NOT HAVE BEEN DEBITED IN THE P&L ACCOUNT.] THUS, THOUGH ON THE DAY OF SURVEY THIS INVOICE WAS NOT RECORDED IN THE BOOKS OF THE APPELLANT COMPANY (THE INTENTION OF THE APP ELLANT MIGHT BE TO CLAIM THIS SUM AS BOGUS EXPENDITURE BUT IN VIEW OF THE SURVEY CONDUCTED BY THE DEPARTMENT ON 27.12.2006, IN THE FINAL BOOKS OF ACCOUNTS WHICH IS FINALISED AS ON 31;10.2007, THIS AMOUNT HAS NOT BEEN CLAIMED AS AN EXPENDITURE AND THEREFORE SHOWN AS ADVANCE) BUT SUBSEQUENTLY WHEN THE BOOKS ARE FINALISED, THE PAYMENT MADE AGAINST THIS INVOICE HAS BEEN SHOWN AS ADVANCE. THE REASONS FOR THE SAME MAY BE ITA NO. 1035/ DEL/ 2010 8 THE SURVEY CONDUCTED BY THE DEPARTMENT, BUT THE FACTS REMAINS THAT THIS AMOUNT HAS NOT BEEN DEBITED IN THE P&L ACCOUNT; RATHER IT HAS BEEN DIRECTLY SHOWN AS ADVANCE. (BASED ON THIS P&L ACCOUNT AND BALANCE SHEET THE APPELLANT HAS RE - REVISED ITS RETURN ON 29TH MARCH 2008.) THEREFORE, AN AMOUNT WHICH HAS NOT BEEN DEBITED IN THE P&L ACCOUNT AND THER EFORE NOT CLAIMED AS EXPENDITURE CANNOT BE DISALLOWED EVEN THOUGH THE INVOICE MAY BE IN THE NATURE OF ACCOMMODATION ENTRY. THEREFORE WITHOUT COMMENTING ON THE CORRECTNESS OR OTHERWISE OF THE CONCLUSION OF THE AO THAT THIS INVOICE IS IN THE NATURE OF ACCOMM ODATION ENTRY, THE ADDITION MADE BY THE AO CANNOT BE UPHELD. WE FURTHER FIND THAT LD. CIT(A) HAS FURTHER OBSERVED THAT THIS AMOUNT HAS NOT BEEN CAPITALISED ALSO AS IF IT IS CAPITALISED THEN IT WILL NOT APPEAR IN THE BALANCE SHEET AS 'ADVANCES'. EVEN OT HERWISE NO ADDITION IS FOUND IN THE SCHEDULE OF FIXED ASSETS DURING THE YEAR CORRESPONDING TO THIS PAYMENT. THUS NO DEPRECIATION HAS ALSO BEEN CLAIMED. THUS THERE IS NO CASE OF ANY DISALLOWANCE OF DEPRECIATION ALSO. WE FIND THAT LD. CIT(A) HAS OBSERVED TH AT THERE IS NO REVENUE EFFECT IN THE CASE OF THE ASSESSEE BASED ON THIS INVOICE. THEREFORE, HE RIGHTLY HELD THAT THE ADDITION SO MADE BY THE AO IS, THEREFORE, DIRECTED TO BE DELETED. ITA NO. 1035/ DEL/ 2010 9 IN VIEW OF THE ABOVE, WE ARE OF THE VIEW THAT NO INTERFERENCE IS CALL ED FOR IN THE WELL REASONED ORDER PASSED BY THE LD. CIT(A), HENCE, WE UPHOLD THE SAME BY DISMISSING THE APPEAL FILED BY THE REVENUE. 8 . IN THE RESULT, THE APPEAL OF THE REVENUE IS DISMISSED. ORDER PRONOUNCED IN THE O PEN C OURT ON 0 9 / 0 1 /20 1 5 . SD / - S D / - [ S.V. MEHROTRA ] [ H.S. SIDHU ] ACCOUNTANT MEMBER JUDICIAL MEMBER DATE 0 9 / 0 1 /201 5 SRBHATNAGAR COPY FORWARDED TO: - 1. APPELLANT - 2. RESPONDENT - 3. CIT 4. CIT (A) 5. DR, ITAT TRUE COPY BY ORDER, ASSISTANT REGISTRAR, ITAT, DELHI BENCHES ITA NO. 1035/ DEL/ 2010 10