ACIT, Circle-2(1), Tirupathi V. M/s. Zuari Cements Ltd., Kadapa

ITA 1057/HYD/2012

• Counselvise Citation: [2012] 140 COUNSELVISE.COM (IT) 66409 (ITAT-HYDERABAD)
• Duration Of Justice: 3 month(s) 22 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 31-10-2012
• Appeal Filed By: Department
• Order Result: Allowed
• Bench Allotted: B
• Assessment Year: 2007-2008
• Appeal Filed On: 09-07-2012
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: A SUDHAKAR REDDY
• Assessee Lawyers: A C GANGAIAH
• Keywords: Depreciation
• Section: 115JB

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL HYDERABAD BENCH B, HYDERABAD BEFORE SHRI CHANDRA POOJARI, ACCOUNTANT MEMBER AND SMT. ASHA VIJAYARAGHAVAN, JUDICIAL MEMBER ITA NO. 1057/HYD/2012 ASSESSMENT YEARS: 2007-08 ASST. COMMISSIONER OF INCOME TAX, ... APPELLANT CIRCLE 2(1), TIRUPATI VS. M/S ZUARI CEMENTS LTD., RESPONDENT KRISHNA NAGAR, YERRAGUNTLA, KADAPA (DIST.) (PAN AAACZ1270E) C.O. NO. 120/HYD/2012 (IN ITA NO. 1057/HYD/2012 ASSESSMENT YEARS: 2007-08) M/S ZUARI CEMENTS LTD., CROS S OBJECTOR KRISHNA NAGAR, YERRAGUNTLA, KADAPA (DIST.) (PAN AAACZ1270E) VS. ASST. COMMISSIONER OF INCOME TAX, ... RESPONDENT CIRCLE 2(1), TIRUPATI REVENUE BY : SHRI A. SUDHAKAR REDDY ASSESSEE BY : SHRI A.C. GANGAIAH DATE OF HEARING : 15/10/2012 DATE OF PRONOUNCEMENT : 31/1 0/2012 ORDER PER ASHA VIJAYARAGHAVAN, J.M.: THIS APPEAL PREFERRED BY THE REVENUE IS DIRECTED AGAINST THE ORDER OF THE CIT(A), GUNTUR, FOR THE ASSESSMENT YEAR 2007 -08. THE ASSESSEE ALSO FILED C.O. AGAINST THE VERY SAME ORDER OF CIT( A). 2 ITA NO. 1057/HYD/2012 & C.O. HYD/12 M/S ZUARI CEMENTS LTD. 2. BRIEFLY STATED THE FACTS OF THE CASE ARE THAT TH E ASSESSEE IS A MANUFACTURER AND TRADER OF CEMENT UNDER THE NAME AN D STYLE OF M/S ZUARI CEMENTS LTD., FILED ITS RETURN OF INCOME THROUGH E -FILING FOR THE YEAR UNDER CONSIDERATION ON 31/10/2007 DECLARING NIL I NCOME, BUT, PAID TAX OF RS. 17,08,71,924/- UNDER THE PROVISIONS OF SECTI ON 115JB . THE SAID RETURN OF INCOME WAS PROCESSED U/S 143(1) UPON ISSU E OF INTIMATION DATED 18/03/2009. SUBSEQUENTLY, THE CASE WAS SELECTED FOR SCRUTINY ASSESSMENT. THE AO ISSUED A QUESTIONNAIRE CALLING F OR INFORMATION ON CERTAIN ASPECTS VIDE NOTICE U/S142(1) DATED 18/11/2 009, SERVED ON THE ASSESSEE ON 02/12/2009. IN RESPONSE TO THE SAID NOT ICE, THE ASSESSEE FILED A WRITTEN REPRESENTATION VIDE LETTER DATED 08 /12/2009. THE AO ISSUED ANOTHER NOTICE U/S 142(1), DATED 08/12/2009, CALLING FOR INFORMATION AND STATED THAT IT IS THE FINAL OPPORTU NITY TO FURNISH THE DETAILS CALLED FOR. THEREAFTER, THE AO PASSED ASSESSMENT OR DER COMPUTING TAX UNDER THE NORMAL PROVISIONS OF THE ACT AND THE MAT PROVISIONS AND RAISED A DEMAND OF RS. 70,77,340/- BY MAKING THE FOLLOWING ADDITIONS: I) DISALLOWANCE OF RS. 2,31,172/- IN RESPECT OF RE PAIRS AND MAINTENANCE CHARGES. II) DISALLOWANCE OF RS. 2,05,078/- IN RESPECT OF C OMMUNITY DEVELOPMENT EXPENSES. III) DISALLOWANCE OF RS. 3,32,698/- IN RESPECT OF CONTRIBUTION MADE TO ZUARI SCHOOL. IV) DISALLOWANCE OF RS. 3,78,84,583/- IN RESPECT O F EXPENDITURE INCURRED UNDER VARIOUS HEADS OF ACCOUNT DEBITED TO P&L A/C. V) DISALLOWANCE OF RS. 2,85,57,298/- IN RESPECT OF CONSUMPTION OF STORES AND SPARES EXPENDITURE; VI) DISALLOWANCE OF RS. 7,70,785/- IN RESPECT OF B AD DEBTS WRITTEN OFF. VII) DISALLOWANCE OF RS. 6,02,17,163/- IN RESPECT OF PURCHASE OF WET AND DRY FLY ASH. VIII) DISALLOWANCE OF RS. 17,49,850/- IN RESPECT O F LOSS ON SALE OF FIXED ASSETS. IX) DISALLOWANCE OF RS. 51,65,000/- IN RESPECT OF INVENTORY WRITE OFF. X) DISALLOWANCE OF RS. 38,59,735/- IN RESPECT OF E LECTRICITY CHARGES. XI) DISALLOWANCE OF RS. 3,18,21,143/- IN RESPECT OF PAYMENT OF TECHNICAL KNOW-HOW. 3 ITA NO. 1057/HYD/2012 & C.O. HYD/12 M/S ZUARI CEMENTS LTD. 3. FURTHER, THE AO ALSO CARRIED OUT THE FOLLOWING A DJUSTMENTS DURING THE COURSE OF ASSESSMENT: A) MANNER OF COMPUTATION OF TOTAL INCOME WHEREBY TH E AFORESAID ADDITIONS HAVE BEEN MADE TO THE NET PROFIT RATHER THAN TO THE TOTAL INCOME COMPUTED BY THE ASSESSEE RESULTING IN WRONG COMPUTATION OF TOTAL INCOME. B) MANNER OF DETERMINATION OF BOOK PROFITS FOR THE PURPOSE OF SECTION 115JB WHEREBY THE AFORESAID ADDITIONS TOTA LLING TO RS. 17,07,94,505 HAVE BEEN MADE IN CONTRAVENTION OF EX PLANATION TO THE AFORESAID SECTION. C) CONSEQUENT EXCESS DETERMINATION OF TAX LIABILITY U/S 115JB AND WRONGLY LEVYING THE INTEREST U/S 234C FOR RS. 19,5 0,051/-. D) WRONG CALCULATION OF INTEREST ON FRINGE BENEFIT TAX U/S 115WJ(3) AND U/S 115 WJ(4) RESULTING IN EXCESS INTEREST LEV IED FOR RS. 82,403/-. 4. AGGRIEVED BY THE ORDER OF THE AO, THE ASSESSEE C ARRIED THE MATTER IN APPEAL BEFORE THE CIT(A). 5. BEFORE THE CIT(A), THE ASSESSEE CONTENDED THAT T HE AO WAS NOT JUSTIFIED IN MAKING VARIOUS DISALLOWANCES AND ADDIT IONS IN RESPECT OF EXPENDITURE INCURRED BY THE ASSESSEE UNDER VARIOUS HEADS MERELY ON THE BASIS THAT THE BILLS AND VOUCHERS HAD NOT BEEN FURN ISHED AND HIS ACTION OF DISALLOWANCE WAS NOT JUSTIFIED WHEN HE HAD NOT GIVE N ADEQUATE OPPORTUNITY AND SUFFICIENT TIME TO FURNISH THE SAME . IT WAS ALSO ARGUED THAT THE AO WAS NOT JUSTIFIED IN MAKING THE ADDITIO NS TO THE NET PROFIT AS PER THE P&L A/C, INSTEAD OF MAKING SUCH ADDITION TO THE TOTAL INCOME COMPUTED BY THE ASSESSEE, WHILE DOING SO, HE OUGHT TO HAVE CONSIDERED ADJUSTMENTS CARRIED OUT BY THE ASSESSEE IN THE STAT EMENT OF COMPUTATION OF TOTAL INCOME. THE ASSESSEE SUBMITTED THAT THE AO HAD FAILED TO APPRECIATE THAT THE PROVISIONS OF SECTION 115JB WOU LD APPLY ONLY WHEN THE ASSESSEE HAS POSITIVE TAX PAYABLE UNDER THE NORMAL PROVISIONS OF THE ACT AND IF FOR ANY REASON, THE ASSESSEE HAS NO NORMAL T AX PAYABLE AT ALL; THE PROVISIONS OF SECTION 115 JB WOULD FAIL. FINALLY TH E ASSESSEE SUBMITTED THAT THE AO HAD FAILED TO APPRECIATE THAT IT DOES N OT HAVE JURISDICTION TO 4 ITA NO. 1057/HYD/2012 & C.O. HYD/12 M/S ZUARI CEMENTS LTD. MAKE ANY ADJUSTMENT TO THE BOOK PROFITS BEYOND THE LIMITS OF EXPLANATION 1 TO SECTION 115JB OF THE ACT. 6. AFTER CONSIDERING THE SUBMISSIONS OF THE ASSESSE E, THE CIT(A) HELD AS FOLLOWS:- 6.1 I HAVE GONE THROUGH THE INFORMATION FILED BY TH E APPELLANT TO THE VARIOUS DISALLOWANCES AND ADDITIONS MADE AND SE EN THE MATERIAL PRODUCED BEFORE THE UNDERSIGNED. IT IS SEEN FROM TH E RECORDS THAT THE APPELLANT COMPANY HAS RETURNED INCOME AS PER TH E PROVISIONS OF 115JB OF THE ACT AND THE INCOME COMPUTED IN THE NOR MAL COURSE WAS COMPLETELY SET OFF BY THE BROUGHT FORWARD LOSSE S AND ALLOWANCES. EVEN THOUGH THE APPELLANT HAS PREFERRED A NO OF GROUNDS, IN EFFECT THEY ARE ONE ONLY, I.E., THE AO ERRED IN DISTURBING THE COMPUTATION OF INCOME IN THE NORMAL COURSE AS W ELL AS, AS PER THE PROVISIONS OF SECTION 115JB. REGARDING THE ALLE GATIONS MADE, THE AO HAS MENTIONED IN THE BODY OF THE ASSESSMENT ORDER THAT THE APPELLANT HAS TO FILE VARIOUS DETAILS BUT THERE WAS NO COMPLETE COMPLIANCE. IT IS SEEN IN THE BODY OF THE ASSESSMEN T ORDER THAT THE PERSON ATTENDED THE ASSESSMENT PROCEEDINGS ON THE C ONCLUDING DAY HAS AGREED FOR ADDITIONS. IN COURSE OF APPELLATE PR OCEEDINGS, WHEN THIS ISSUE HAS COME UP THAT THE PERSON REPRESENTED THE CASE BEFORE THE AO ON THE LAST HEARING HAS AGREED FOR THE ADDIT IONS, THE AR HAS PROTESTED. AS PER THE AR, THE BOOKS OF THE APPELLAN T ARE SUBJECTED TO A NO OF CHECKS AND BALANCES LIKE INTERNAL AUDIT, STATUTORY AUDIT, TAX AUDIT ETC., AND THERE IS NO QUESTION OF AGREEIN G FOR ANY ADDITION. IMMEDIATELY, THEREAFTER, THE AR HAS FILED AN AFFIDA VIT NULLIFYING THE SAID AGREEING FOR ADDITIONS. THAT APART THE AR HAS POINTED OUT THAT EVEN IF THE REPRESENTATIVE AGREES FOR ADDITION, ADD ITION CANNOT BE MADE JUST LIKE THAT BY THE AO AS SUCH ADDITIONS ARE FULLY EXPLAINABLE WITH EVIDENCES. THE AR HAS PRODUCED DETAILS OF EXPE NSES AND ALSO EVIDENCES LIKE VOUCHERS, BILLS, RECEIPTS ETC., WHIC H WERE TEST CHECKED AND FOUND TO BE ACCEPTABLE. 7. THE CIT(A) CONCLUDED THAT THE EXPENSES SO DISALL OWED BY THE AO WOULD NOT STAND THE TEST OF APPEAL AND DELETED THE ADDITIONS MADE EXCEPT FOR THE ADDITION WITH RESPECT TO LOSS ON SALE OF FI XED ASSETS DEBITED TO THE P&L ACCOUNT AT RS. 17,49,850/- ON THE GROUND THAT I N THE BLOCK SYSTEM OF DEPRECIATION THERE IS NO PLACE FOR NOTIONAL PROFIT OR NOTIONAL LOSS, RESORTED TO, PRIOR TO THE INTRODUCTION OF BLOCK SYSTEM OF DE PRECIATION. 5 ITA NO. 1057/HYD/2012 & C.O. HYD/12 M/S ZUARI CEMENTS LTD. 8. THE CIT(A) FURTHER HELD THAT AS FAR AS THE RECOM PUTATION OF INCOME IN TERMS OF THE PROVISIONS OF SECTION 115JB ARE CON CERNED, TO WHATEVER HAS BEEN COMPUTED BY THE APPELLANT, THE AO HAS ADDE D THE DISALLOWANCES OF RS. 17,07,94,505/-. THIS IS THE SAME DISALLOWANC E OR ADDITION MADE BY THE AO IN RECOMPUTING THE INCOME AS PER THE NORMAL PROVISIONS (OTHER THAN 115JB PROVISIONS) OF THE IT ACT, 1961. THE CIT (A) OBSERVED THAT IT IS IMPORTANT TO NOTE HERE THAT SECTION 115JB ITSELF A SELF-CONTAINED CODE. NO ADDITIONS OR DELETIONS ARE POSSIBLE AND THUS, WHATE VER ADDITION IS MADE, BEING AGAINST THE CODE OF SECTION 115JB, THE SAME H AS TO BE DELETED. HENCE, THE CIT(A) DIRECTED THE RESTORING OF THE INC OME COMPUTED BY THE APPELLANT AS PER THE PROVISIONS OF SECTION 115JB OF THE ACT AT RS. 1,51,12,20,047/-. 9. AGGRIEVED BY THE ORDER OF THE CIT(A) THE REVENUE IS IN APPEAL BEFORE US RAISING THE FOLLOWING GROUNDS OF APPEAL: 1. THE ORDER OF THE CIT(A) IS ERRONEOUS BOTH IN LAW AND FACTS OF THE CASE. 2.1 THE CIT(A) ERRED IN ACCEPTING THE ADDITIONAL EV IDENCE PRODUCED BEFORE HIM WHICH WAS NOT PRODUCED BEFORE THE AO. 2.2 THE LEARNED CIT(A) ERRED IN DELETING THE ADDITI ON UNILATERALLY WITHOUT CALLING FOR THE REMAND FROM THE AO. 3. IT IS NOT CORRECT FOR THE CIT(A) TO IGNORE THE C ONSENT GIVEN FOR ADDITIONS BY THE AR OF THE ASSESSEE COMPANY DURING THE ASSESSMENT PROCEEDINGS. 4. THE LEARNED CIT(A) ERRED IN HIS OBSERVATION THAT TAX AUDIT REPORT U/S 44AB AS SUFFICIENT EVIDENCE FOR THE RETURN OF I NCOME FILED. 10. WE HAVE HEARD THE ARGUMENTS OF BOTH THE PARTIES , PERUSED THE RECORD AND GONE THROUGH THE ORDERS OF THE AUTHORITI ES BELOW. IT IS OBSERVED THAT THE CIT(A) GROSSLY ERRED IN NOT CALLI NG FOR REMAND REPORT FROM THE AO AS THE ASSESSEE HAD PRODUCED DETAILS OF EXPENSES AND ALSO EVIDENCES LIKE BILLS, VOUCHERS ETC., BEFORE THE CIT (A) AND THE CIT(A) OUGHT TO HAVE REMANDED THEM TO THE AO FOR HIS OPINION UND ER RULE 46A OF THE ACT. IN THESE CIRCUMSTANCES, WE REMIT THE MATTER TO THE FILE OF THE CIT(A) WITH A DIRECTION TO CALL FOR THE REMAND REPORT FROM THE AO AND DECIDE THE 6 ITA NO. 1057/HYD/2012 & C.O. HYD/12 M/S ZUARI CEMENTS LTD. ISSUE AFTER EXAMINING THE REMAND REPORT OF THE AO A ND IN ACCORDANCE WITH LAW AFTER PROVIDING REASONABLE OPPORTUNITY OF HEARI NG TO THE ASSESSEE. 11. IN THE RESULT, APPEAL OF THE REVENUE IS TREATED AS ALLOWED FOR STATISTICAL PURPOSES. C.O. NO. 120/HYD/12 BY THE ASSESSEE 12. SINCE WE HAVE SET ASIDE THE ORDER OF THE CIT(A) AND REMITTED THE ISSUES BACK TO HIM TO DECIDE THE SAME AFRESH IN REV ENUES APPEAL (SUPRA), THE CROSS OBJECTIONS RAISED BY THE ASSESSEE AGAINST THE VERY SAME ORDER OF THE CIT(A) BECOME INFRUCTUOUS, THEREFORE, THE C. O. FILED BY THE ASSESSEE IS DISMISSED AS INFRUCTUOUS. 13. IN THE RESULT, THE CO FILED BY THE ASSESSEE IS DISMISSED. 14. TO SUM UP, THE APPEAL OF THE REVENUE IS ALLOWED FOR STATISTICAL PURPOSES AND THE C.O. OF THE ASSESSEE IS DISMISSED. PRONOUNCED IN THE OPEN COURT ON 31 ST OCTOBER, 2012. SD/- SD/- ( CHANDRA POOJARI) (ASHA VIJAYARAGHAVAN) ACCOUNTANT MEMBER JUDICIAL MEMBE R HYDERABAD, DATED: 31 ST OCTOBER, 2012. KV COPY TO:- 1) ACIT, CIRCLE 2(1), D.NO. 6-1-75E, RAJASWA BHAV AN, VARADARAJA NAGAR, TIRUPATI 2) M/S ZUARI CEMENTS LTD., KRISHNA NAGAR, YERRAGUNT LA, KADAPA DT. 3) THE CIT (A), GUNTUR 4) CIT, TIRUPATHI 5) THE DEPARTMENTAL REPRESENTATIVE, I.T.A.T., HYDER ABAD.