ACIT, Jaipur V. M/S ANIL SPECIAL STEEL INDUSTRIES LTD., Jaipur

ITA 1100/JPR/2011

• Counselvise Citation: 110023114 RSA 2011
• Duration Of Justice: 2 year(s) 8 month(s) 13 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 28-08-2014
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: B
• Next Hearing Date: 27-11-2012
• Assessment Year: 2007-2008
• Appeal Filed On: 15-12-2011
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: D C SHARMA
• Keywords: Depreciation; Business expenditure
• Section: 43B

Judgement Text

ITA NO. 1100/JP/2011 M/S. ANIL SPECIAL STEEL INDUSTRIES LTD. 1 IN THE INCOME TAX APPELLATE TRIBUNAL JAIPUR BENCH, JAIPUR (BEFORE SHRI R.P. TOLANI AND SHRI T.R. ME ENA) ITA NO. 1100/JP/2011 ASSESSMENT YEARS : 2007-08 PAN : AACCA 2038 F THE ACIT VS. M/S. ANIL SPECIAL STEEL INDUSTRIES LTD. CIRCLE- 7 KANAKPURA, P.O. MEENAWALA JAIPUR SIRSI ROAD, JAIPUR (APPELLANT) (RESPONDENT) DEPARTMENT BY: SHRI D.C. SHARMA ASSESSEE BY : SHRI HIMANSHU GOYAL DATE OF HEARING: 24-07-2014 DATE OF PRONOUNCEMENT: 28-08-2014 ORDER PER R.P. TOLANI, JM THIS IS AN APPEAL FILED BY THE REVENUE AGAINST T HE ORDER OF THE LD. CIT(A)-III, JAIPUR DATED 21-09-2011 FOR THE ASS ESSMENT YEAR 2007-08 WHEREIN THE REVENUE HAS RAISED FOLLOWING GROUND S:- (I) THE LD. CIT(A) HAS ERRED IN DIRECTING THE AO TO REDUCE THE BOOK PROFIT OF THE ASSESSEE TO THE EXTENT OF R S. 3,94,67,254/- EVEN WHEN IT WAS DISALLOWANCE U/S 43B OF THE ACT, IN THE FACTS AND CIRCUMSTANCES DISCUSSED BY TH E AO . (II) THE LD. CIT(A) HAS PASSED A PERVERSE ORDER IN ACCEPTING THE CLAIM OF THE ASSESSEE THAT THE PAYMENT OF INTER EST LIABILITY OF SASF & NICL HAD BEEN MADE BY REVERSAL ACCOUNTING EN TIRES. ITA NO. 1100/JP/2011 M/S. ANIL SPECIAL STEEL INDUSTRIES LTD. 2 (III) THE LD. CIT(A) HAS ERRED IN OVERLOOKING THE F ACT THAT THE AO HAD ALLOWED RS. 1,26,01,711/- OUT OF CLAIM OF IN TEREST OF RS. 2,46,84,514/- BEING INTEREST PAID TO SASF AND N ISL (AND NOT OUT OF RS. 3,94,67,254-), AS SPECIFIED IN PARA 3 OF THE ASSESSMENT ORDER DATED 30-12-2009. (IV) THE LD. CIT(A) HAS ERRED IN IGNORING THE FACT THAT THE DEDUCTION FOR THIS INTEREST HAD NOT BEEN CLAIMED BY THE ASSESSEE IN THE RETURN OF INCOME, AND IN FACT THE ASSESSEE H AD ITSELF DISALLOWED IT IN COMPUTING INCOME, IN THE EARLIER Y EARS. (V) THE LD. CIT(A) HAS ERRED IN DELETING THE DISALL OWANCE OF RS. 43,15,723/- U/S 43B BY OVERLOOKING THE PROVISIO N OF SECTION 36(1)(VA) OF THE I.T. ACT. (VI) THE LD. CIT(A) HAS ERRED IN DELETING THE DISAL LOWANCE ON VEHICLE/ TELEPHONE ON THE GROUND OF ABSENCE OF PERS ONAL ELEMENT, OVERLOOKING THE FACT OF NON-PRODUCTION OF DETAILS, SOUGHT IN THIS REGARD. 2. DURING THE COURSE OF HEARING THE LD. DR RELIED O N THE ORDER OF THE AO 3. THE LD. AR CONTENDS THAT GROUND NOS. (I) TO (IV) RAISES THE ISSUE ABOUT WORKING OUT OF REDUCTION OF BOOK PROFIT OF RS. 3,9 4,67,254/-. IT IS PLEADED THAT THE AO FAILED TO APPRECIATE THE CORRECT ACCOUN TING POSITION IN RESPECT OF NOTIONAL ACCOUNTING ENTRIES WHICH IN FACT WERE REVE RSAL OF ENTRIES MADE IN THE PRECEDING YEAR. THE LD. CIT(A) CORRECTLY VERIFIED T HE NATURE OF THE ACCOUNTING ENTRIES AND ALLOWED THE CLAIM OF THE ASS ESSEE BY FOLLOWING OBSERVATIONS. ITA NO. 1100/JP/2011 M/S. ANIL SPECIAL STEEL INDUSTRIES LTD. 3 2.3 I HAVE CAREFULLY EXAMINED THE OBSERVATIONS O F THE AO AND COUNTER SUBMISSIONS MADE BY THE LD. AR MADE IN THIS REGARD. WHILE JUSTIFYING HIS CLAIM THE LD. AR DISCUSSED THE FACTUAL POSITION IN THIS REGARD AN D SUBMITTED THAT THE INTEREST LIABILITY OF THE APPELLANT TOWARDS SASF AND NICL WE RE OF RS. 39467254/- PERTAINING TO ASSESSMENT YEAR 2005-06 AND 2006-07, WHICH WAS C LAIMED IN THE RESPECTIVE COMPUTATION IN THE INCOME AND SUBSEQUENTLY DISALLOW ED U/S. 43B OF THE ACT AS THE SAME WERE NOT PAID AS SUCH. ACCORDINGLY, DUE TO THE ABOVE CRESS-CROSS ENTRIES, EFFECTIVELY THERE WAS NO IMPACT ON THE TAXABLE INCO ME OF SUCH YEAR IN SUCH YEARS. IT WAS FURTHER STATED THAT DURING THE YEAR UNDER CONSI DERATION, A SETTLEMENT WAS ARRIVED WITH THE ABOVE ORIGINATIONS AND THERE WAS R EMISSION OF INTEREST LIABILITY TO THE EXTENT OF RS. 39467254/-, OUT OF TOTAL INTEREST PAYABLE TO SUCH CONCERNED. IN THE STATEMENT OF ACCOUNTS, THE APPELLANT HAS SHOWN BOOK PROFIT AT RS. 66915318/-, WHICH IS INCLUSIVE OF CREDIT ENTRY OF SUCH REMISSION OF I NTEREST. IN OTHER WORD, IT IS CLAIMED THAT SINCE THE INTEREST LIABILITY OF RS.394 67254/- WERE NEITHER CLAIMED NOR ALLOWED IN THE EARLIER ASSESSMENT YEARS, THEREFORE, DUE TO THE ABOVE ACCOUNTING TREATMENT, THE BOOK PROFIT OF THE APPELLANT HAD NOT IONALLY INCREASES BY RS. 39467254/-, WHICH WAS REQUIRED TO BE DEDUCTED, TO ARRIVE AT THE ACTUAL INCOME FOR TAXATION PURPOSE. HOWEVER, FROM THE ASSESSMENT ORDER IT IS EVIDENT THAT IN THE COMPUTATION INCOME, THE AO HAS ALSO TAKEN THE SAME BOOK PROFIT (I.E. RS. 66915318/-) AS BASE TO ARRIVE AT THE TAXABLE INCOME OF THE APPELLANT AS SU CH. HOWEVER, WHILE DOING SO, HE DID NOT REDUCE THE ABOVE BOOK PROFIT, BY THE ARTIFICIAL INCREMENT IN INCOME IN THE FORM OF REMISSION OF NTEREST, AS DISCUSSED ABOVE. AS STATED ABOVE, HE SIMPLY ALLOWED THE PAYMENT OF INTEREST TO EXTENT OF RS. 12601711/-, WHICH WAS ACTUALLY PAID BY THE APPELLANT, OUT OF THE TOTAL INTEREST LIABILITY TOWARDS SUCH CONCERNS, U/S. 43B OF THE ACT, THE LD.AR FURTHER STATED THAT IT SEEMS THAT THE AO COULD NOT UNDERSTAND/APPRECIATE THE FACT THAT THE BOOK PROFIT TAKEN AS BASE OF COMPUTATION OF INC OME, I.E. RS.66246852/-, WHICH HAS RESULTANT INTO NOTIONAL ENHANCEMENT OF IN COME TO SUCH EXTENT. AS THE APPELLANT HAS NEITHER CLAIMED THE INTEREST L IABILITY OF RS.39467254/- IN THE RESPECTIVE YEAR'S, THEREFORE, AS PER SIMPLE ACCOUNTING PRINCIPLE, THE SAME CAN NOT BE AGAIN ADDED TO TOTAL INCOME, WHEN SUCH -LIABILITY CEASES TO BE EXISTED, AS HAPPENED IN THE PRESENT CASE. THE LD, AR, IN THIS R EGARD SUBMITTED THE COMPUTATIONS OF INCOME FOR A.Y. 2005-06 TO 2007-08, ANNUAL ACCOU NTS REPORT OF A.Y. 2007-08 AND THE ARITHMETICAL WORKING OF SUCH CLAIMS ETC. TO JUS TIFY HIS CONTENTION AND FOUND IN ORDER AFTER VERIFICATION ALSO. 2.3.1 FROM THE PERUSAL OF THE ABOVE DOCUMENTS AND AFTER V ERIFICATION OF THE COMPUTATION OF INCOME FOR A.Y. 2005-06 & 2006-07 AN D ALSO OF THE CURRENT YEAR, I FOUND THE CLAIM OF THE APPELLANT IS FACTUALLY CORRE CT, AS SUCH. IN THIS REGARD IT IS NOTED THAT THE INTEREST PAYABLE TO SASF AND NICL FOR THE ABOVE PERIODS, WHICH WERE CLAIMED AND DISALLOWED U/S. 43B ARE AS UNDER:- ITA NO. 1100/JP/2011 M/S. ANIL SPECIAL STEEL INDUSTRIES LTD. 4 I. A.Y. 2005-06 INTEREST PAYABLE OF RS. 17636804/- TO SASF CLAIMED IN THE BOOKS BUT NOT PAID AND DISALLOWED U/ S. 43B OF THE ACT. II. A.Y. 2006-07 - TOTAL INTEREST OF RS. 39467254/- PAYABLE TO SASF (RS. 17663804/-) AND NICL (RS. 21803450/-), C LAIMED IN THE BOOKS BUT NOT PAID AND DISALLOWED U/S. 43B OF THE ACT. III. THE WORKING OF TOTAL INTEREST LIA BILITY, THE ACTUAL AMOUNT PAID IN THIS REGARD AND THE QUANTUM OF THE REMISSION OF INT EREST ETC., AS DISCUSSED IN THE TABULAR FORM, IN THE EARLIER PART OF THE ORDER ETC. ALSO SUBSTANTIATE THE FACTUAL AND RELEVANT FIGURES, AS CLAIMED BY THE APPELLANT IN THIS REGARD. IN VIEW OF THE ABOVE FACTUAL ACCOUNTING AND ASSESSM ENT POSITION, IT IS FOUND THAT IN REAL TERMS, THE APPELLANT WAS NOT ALLOWED T HE CLAIMS OF THE ABOVE INTEREST EXPENDITURE IN THE RESPECTIVE RETURNS OF INCOME AS SUCH. THUS, DUE TO CESSATION OF UNCLAIMED INTEREST LIABILITY OF RS. 3,94,67,254/- A ND GIVEN EFFECT THEREOF IN THE BOOKS OF ACCOUNTS HAS IN FACT RESULTED INTO ARTIFI CIAL ENHANCEMENT OF THE BOOK PROFIT OF THE APPELLANT IN THE CURRENT YEAR. I FIND FORCE IN THE LD. AR THE ARGUMENT THAT, TO NULLIFY THE ABOVE EFFECT, A CORRESPONDING REVERSAL ACCOUNTING ENTRY WAS TO BE MADE TO ARRIVE AT THE ACTUAL AND CORRECT INCOME OF THE A PPELLANT FOR THE IT PROPOSES. THE APPELLANT HAS RECOURSE TO SUCH PROCESS, WHICH IS FO UND, IN CONSONANCE WITH THE GENERAL ACCOUNTING PRINCIPLE, AS SAME HAS ALSO NOT AFFECTED THE ACTUAL INCOME OF THE APPELLANT OF THE CURRENT YEAR, IN ANY MANNER, IT SEEMS THAT THE AO HAS UNABLE TO UNDERSTAND THE COMPLETE DIMENSION OF THE ISSUE UNDER CONSIDERATION AND ALSO THE ACTUAL RAMIFICATION OF THE ACCOUNTING TREATMENT GIVEN BY THE APPELLANT IN THIS REGARD. IN MY CONSIDERED OPINION, DUE TO THE ABOVE FACTUAL POSITION, THE REV ERSAL OF THE REMISSION OF UNCLAIMED INTEREST EXPENDITURE AMOUNTS TO A BASIC ACCOUNTING ADJUSTMENT, WHICH HAS NOTHING TO DO WITH THE PROVISION OF SEC. 43B AS SUCH. IN THE LIGHT OF THE ABOVE FACTS AND CIRCUMSTANCES, I FIND THAT THE AO HAS ERRONEOUSLY OR INADVERTENTLY OVERLOOKED THE ACCOUNT ING TREATMENT GIVEN BY THE APPELLANT, (I.E. REMITTANCE OF INTEREST ENTRIES OF RS. 39467254/- OF EARLIER YEARS), WHICH HAS INCREASE THE BOOK PROFIT OF THE APPELLANT IN NO TIONAL MANNER, AS DISCUSSED ABOVE AND IGNORED THE REVERSAL ENTIRE MADE IN THIS REGARD TO NULLIFY SUCH EFFECT. ACCORDINGLY THE CLAIM OF THE APPELLANT IN THIS REGARD IS FOUND JUSTIFIED AND THE AO IS DIRECTED TO REDUCE THE BOOK PROFIT OF THE APPELLANT TO THE EXTE NT OF RS. 39467254/-. CONSEQUENTLY THIS GROUND OF APPEAL IS UPHELD. SINCE THE LD. CIT(A) HAS GIVEN DETAILED ACCOUNT OF THE NATURE OF THE ENTRIES, ITS EFFECT ON BOOK PROFITS AND AS TO HOW THE ACTION OF THE AO WAS NOT JUSTIFIED, THEREFORE, NO INTERFERENCE IS CALLED F OR IN LD. CIT(A)S ORDER. ITA NO. 1100/JP/2011 M/S. ANIL SPECIAL STEEL INDUSTRIES LTD. 5 4. COMING TO GROUND NO. (V), IT IS PLEADED THAT IN RESPECT OF PF AND ESI CONTRIBUTION OF THE EMPLOYEES WHICH WAS ACTUALLY PA ID BEFORE DUE DATE OF FILING OF RETURN. RELIANCE IS PLACED OF HON'BLE DEL HI HIGH COURT DECISION IN THE CASE OF CIT VS. AIMIL LTD. 321 ITR 508 IN WHICH IT HAS BEEN HELD THAT IF THE PF & ESI PAYMENTS ARE MADE BEFORE DUE DATE FILI NG OF RETURN, THE SAME IS ALLOWED AS BUSINESS EXPENDITURE. TO THIS EFFECT, TH E FURTHER CASE LAWS HAVE BEEN RELIED ON. 1. CIT VS. JAIPUR VIDYUT VITRAN NIGAM LTD., 263 CTR 62 (RAJ.) 2. CIT VS. STATE BANK OF BIKANER & JAIPUR, 363 ITR 70 (RAJ.) 5. APROPOS GROUND NO. (VI), IT IS PLEADED THAT THE ASSESSEE IS A CORPORATE ENTITY AND THE DISALLOWANCE CANNOT BE MADE IN THE H ANDS OF THE ASSESSEE. RELIANCE IS PLACED IN THE CASE OF SAYAJI IRON AND E NGG. COMPANY LTD., 253 ITR 749 (GUJ) AND ITS VIEW HAS CONSTANTLY BEEN ADOP TED BY VARIOUS BENCH OF ITAT. 6. WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE MATERIALS AVAILABLE ON RECORD. APROPOS FIRST ISSUE [GROUND NO S (I) TO (IV) , THE LD. COUNSEL FOR THE ASSESSEE HAS BEEN ABLE TO DEMONSTRA TE FROM THE ACCOUNTS STATEMENTS PLACED ON PAPER BOOK THAT REVERSAL OF RE MISSION OF UNCLAIMED INTEREST EXPENDITURE AMOUNTS TO A BASIC ACCOUNTING ADJUSTMENT, WHICH HAS ITA NO. 1100/JP/2011 M/S. ANIL SPECIAL STEEL INDUSTRIES LTD. 6 NOTHING TO DO WITH THE PROVISION OF SECTION 43B AS SUCH. THUS IN VIEW OF THE ABOVE FACTS AND CIRCUMSTANCES OF THE CASE, WE FIND NO INFIRMITY IN THE ORDER OF THE LD. CIT(A) WHICH IS UPHELD ON THIS ISSUE. HE NCE, GROUND NOS. (I) TO (IV) OF THE REVENUE ARE DISMISSED. 7. APROPOS SECOND GROUND RAISED AS GROUND NO. (V) I N REVENUES APPEAL, RESPECTFULLY FOLLOWING THE JUDGMENTS OF HON 'BLE RAJASTHAN HIGH COURT IN THE CASE OF CIT VS. JAIPUR VIDYUT VITRAN N IGAM LTD. AND CIT VS. STATE BANK OF BIKANER AND JAIPUR AND ALSO JUDGEMENT OF HON'BLE DELHI HIGH COURT IN THE CASE OF CIT VS. AIMI LTD. (SUPRA), THE LD. CIT(A) IS JUSTIFIED IN DELETING THE ADDITION AS THE ASSESSEE HAD ACTUALLY PAID THE PF & ESI CONTRIBUTIONS BEFORE DUE DATE OF FILING OF THE RETU RN WHICH HAS NOT BEEN DISPUTED BY THE LD. DR AT THE TIME OF HEARING. IN V IEW THEREOF, THE ISSUE RAISED IN GROUND NO. (V) IS DISMISSED. 8. ADVERTING THE LAST GROUND I.E. GROUND NO. (VI) O F THE REVENUE REGARDING ADHOC DISALLOWANCE ON VEHICLE AND TELEPHO NE EXPENSES. WE HAVE FOUND THAT THE ASSESSEE HAS PAID FBT TAX THEREON. B ESIDES, THIS ISSUE STANDS DECIDED IN FAVOUR OF THE ASSESSEE BY THE HON'BLE GU JARAT HIGH COURT IN THE CASE OF SAYAJI IRON AND ENGG. CO.VS CIT ,253 ITR 74 9 HOLDING AS UNDER:- IN THE CIRCUMSTANCES, IN OUR OPINION, THE TRIBUNA L WAS WRONG WHILE DISALLOWING 1/6TH OF THE TOTAL CAR EXPEND ITURE AND DEPRECIATION CLAIMED BY THE ASSESSEE ON ACCOUNT OF THE PERSONAL USE OF THE CARS WHICH WERE USED BY THE DIRECTORS. W E, THEREFORE, ITA NO. 1100/JP/2011 M/S. ANIL SPECIAL STEEL INDUSTRIES LTD. 7 ANSWER THE QUESTION IN THE NEGATIVE, I.E., IN FAVOU R OF THE ASSESSEE AND AGAINST THE REVENUE. THUS IN VIEW OF THE FACTS AND CIRCUMSTANCES AND BY RESPECTFULLY FOLLOWING THE JUDGMENT OF HON'BLE GUJARAT HIGH COURT IN THE C ASE OF SAYAJI IRON AND ENGG. CO.VS CIT (SUPRA) , WE UPHOLD THE ORDER OF TH E LD. CIT(A) ON THIS GROUND. 9. IN THE RESULT, THE APPEAL OF THE REVENUE IS DISM ISSED. THE ORDER IS PRONOUNCED IN THE OPEN COURT ON 28 -08-2014 SD/- SD/- (T.R. MEENA) (R.P. TOLANI) ACCOUNTANT MEMBER JUDICIAL MEMBER JAIPUR DATED: 28 TH AUG. 2014 *MISHRA COPY FORWARDED TO:- 1. THE ACIT, CIRCLE- 7, JAIPUR 2. M/S. ANIL SPECIAL STEEL INDUSTRIES LTD., JAIPUR 3. THE LD. CIT 4. THE LD. CIT(A), JAIPUR 5..THE LD. DR 6.THE GUARD FILE (IT NO. 1100/JP/2011) BY ORDER AR ITAT, JAIPUR ITA NO. 1100/JP/2011 M/S. ANIL SPECIAL STEEL INDUSTRIES LTD. 8 ITA NO. 1100/JP/2011 M/S. ANIL SPECIAL STEEL INDUSTRIES LTD. 9 ITA NO. 1100/JP/2011 M/S. ANIL SPECIAL STEEL INDUSTRIES LTD. 10