ITO, CHENNAI V. M/s. Mansa Entech Services P. Ltd., CHENNAI

ITA 115/CHNY/2011

• Counselvise Citation: [2012] 140 COUNSELVISE.COM (IT) 58037 (ITAT-CHENNAI)
• Duration Of Justice: 1 year(s) 1 month(s) 19 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 13-03-2012
• Appeal Filed By: Department
• Bench Allotted: C
• Next Hearing Date: 13-03-2012
• Assessment Year: 2004-2005
• Appeal Filed On: 25-01-2011
• Court: TRIBUNAL
• Department Lawyers: DR YOGESH KAMATH
• Assessee Lawyers: V S IVARAMAN
• Keywords: Capital asset; Business expenditure; Revenue expenditure
• Section: 143(3); 37(1); 148

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL C BENCH, CHENNAI BEFORE SHRI ABRAHAM P. GEORGE, ACCOUNTANT MEMBER AND SHRI VIKAS AWASTHY, JUDICIAL MEMBER I.T.A. NO. 115/MDS/2011 (ASSESSMENT YEAR : 2004-05) THE INCOME TAX OFFICER, COMPANY WARD IV(1), CHENNAI - 600 034 . (APPELLANT) V. M/S MANSA ENTECH SERVICES P. LTD., 66/OLD NO.44, III MAIN ROAD, KASTURBA NAGAR, ADYAR, CHENNAI - 600 020. PAN : AABCM1214E (RESPONDENT) APPELLANT BY : DR. YOGESH KAMATH RESPONDENT BY : SHRI V. S IVARAMAN DATE OF HEARING : 13.03.2012 DATE OF PRONOUNCEMENT : 13.03.2012 O R D E R PER ABRAHAM P. GEORGE, ACCOUNTANT MEMBER : THIS APPEAL FILED BY THE REVENUE IS DIRECTED AGAI NST AN ORDER DATED 4.11.2010 OF COMMISSIONER OF INCOME TAX (APPE ALS)-V, CHENNAI. GRIEVANCE RAISED BY THE REVENUE IS THAT L D. CIT(APPEALS) DELETED AN ADDITION OF ` 6.5 LAKHS MADE BY THE A.O. BY DISALLOWING A CLAIM OF ASSESSEE FOR ADVANCE FORFEITED. I.T.A. NO. 115/MDS/11 2 2. SHORT FACTS APROPOS ARE THAT ASSESSEE ENGAGED IN THE BUSINESS OF CONSULTANCY, HAD FILED ITS RETURN FOR THE IMPUGN ED ASSESSMENT YEAR ADMITTING AN INCOME OF ` 20,88,510/-. ORIGINAL ASSESSMENT WAS COMPLETED UNDER SECTION 143(3) OF INCOME-TAX ACT, 1 962 (IN SHORT 'THE ACT') AND THE CASE WAS REOPENED BY ISSUING A NOTICE UNDER SECTION 148 OF THE ACT. DURING THE RE-ASSESSMENT PROCEEDIN GS, THE A.O. NOTED THAT ASSESSEE HAD CLAIMED AN EXPENDITURE OF ` 6,50,000/- UNDER THE HEAD FORFEITED ADVANCE. AS PER THE A.O ., RECORDS FOR THE PRECEDING ASSESSMENT YEAR 2003-04 SHOWED THAT ASSES SEE HAD NOT SHOWN ANY AMOUNT UNDER THE HEAD LOANS AND ADVANCES IN ITS BALANCE SHEET. THEREFORE, ACCORDING TO HER, ANY CL AIM OF FORFEITING AN ADVANCE COULD NOT BE CONSIDERED. ASSESSEE WAS PUT ON NOTICE IN THIS REGARD. REPLY OF THE ASSESSEE WAS THAT IT WAS NOT HAVING ANY CAPITAL ASSET UNDER THE HEAD MACHINERY. AS PER THE ASSES SEE, IT WAS ONLY BUYING AND SELLING MACHINERY AND COMPONENTS WITH VA LUE ADDITIONS. SUBMISSION OF THE ASSESSEE WAS THAT ONE CLIENT, NAM ELY, M/S THAI PULP INDUSTRIES HAD PLACED AN ORDER WITH ASSESSEE F OR CERTAIN MACHINERY AGAINST WHICH ADVANCES WERE PAID BY THE S AID COMPANY. ASSESSEE HAD, IN TURN, PLACED AN ORDER FOR A PARTIC ULAR MACHINERY WITH M/S YOKOGWA BLUE STAR LTD., BANGALORE. HOWEVER, L ATER, ASSESSEES I.T.A. NO. 115/MDS/11 3 CLIENT HAD INSISTED THAT THE MACHINERY CONCERNED SH OULD BE PROCURED FROM A DIFFERENT MANUFACTURER AND ACCORDINGLY, ASSE SSEE WAS FORCED TO PLACE AN ORDER WITH ANOTHER CONCERN. THE END RE SULT WAS THAT THE ADVANCE GIVEN BY IT TO M/S YOKOGWA BLUE STAR LTD., BANGALORE WAS FORFEITED BY THE SAID COMPANY. HENCE, ARGUMENT OF THE ASSESSEE WAS THAT THE SUM OF ` 6,50,000/- WAS AN ALLOWABLE EXPENDITURE. HOWEVER, THE A.O. WAS NOT IMPRESSED. ACCORDING TO HER, ASSESSEE HAD ABANDONED ITS EARLIER PROJECT GIVEN BY ITS CLIE NT AND ADVANCE GIVEN BY THE ASSESSEE WAS NOT REFLECTED IN ITS BALA NCE SHEET AT ANY TIME. IN ANY CASE, ACCORDING TO A.O., THE DEDUCTIO N CLAIMED WAS FOR A CAPITAL OUTGO. SHE, THEREFORE, DISALLOWED THE CLAI M OF THE ASSESSEE. 3. IN ITS APPEAL BEFORE LD. CIT(APPEALS), ARGUMENT OF THE ASSESSEE WAS THAT THE SUM OF ` 6,50,000/- THOUGH NOT SHOWN UNDER THE HEAD LOANS AND ADVANCES WAS NEVERTHELESS REFLECTED UN DER THE HEAD SUNDRY CREDITOR. AS PER THE ASSESSEE, AN ORDER W AS PLACED BY THE THAILAND PARTY M/S THAI PULP INDUSTRIES AND IT HAD GIVEN AN ADVANCE OF ` 40,26,000/- TO ASSESSEE. AGAINST ` 40,26,000/- CREDITED TO THE ACCOUNT OF M/S THAI PULP INDUSTRIES IN ITS LEDGER, IT HAD EFFECTED VARIOUS PAYMENTS WHICH, INTER ALIA, INCLUDED ` 6,50,000/- PAID TO THE SUPPLIER, NAMELY, M/S YOKOGWA BLUE STAR LTD. THUS, ACCORDING TO I.T.A. NO. 115/MDS/11 4 ASSESSEE, THE AMOUNT WAS REFLECTED IN THE ACCOUNT O F M/S THAI PULP INDUSTRIES. WHEN THE SAID CONCERN WHICH HAD PLACED THE ORDER, INSISTED THAT THE MACHINERY BE PROCURED FROM SOME O THER SUPPLIER, ASSESSEE WAS FORCED TO CANCEL THE ORDER PLACED WITH M/S YOKOGWA BLUE STAR LTD. AS PER THE ASSESSEE, IT WAS A PURE TRADER IN MACHINERY AND WAS NOT PURCHASING ANY MACHINERY FOR ITS OWN US E AS A CAPITAL ASSET. WHEN THE ORDER WAS CANCELLED, M/S YOKOGWA B LUE STAR LTD. REFUSED THE PAYMENT OF ADVANCE AND INSTEAD CONFIRME D FORFEITURE OF ADVANCE VIDE THEIR LETTER DATED 30.3.2010. HENCE, ACCORDING TO ASSESSEE, ITS CLAIM HAD TO BE ALLOWED. LD. CIT(APP EALS) WAS APPRECIATIVE OF THE CONTENTION OF THE ASSESSEE. HE , THEREFORE, DELETED THE DISALLOWANCE MADE BY THE A.O. 4. NOW BEFORE US, LEARNED D.R., STRONGLY ASSAILING THE ORDER OF LD. CIT(APPEALS), SUBMITTED THAT IN THE FIRST PLACE, OR DER WAS PLACED FOR A MACHINERY AND IN THE SECOND PLACE, LOANS AND ADVANC ES ACCOUNT OF THE ASSESSEE DID NOT SHOW ANY AMOUNT PAID TO M/S YO KOGWA BLUE STAR LTD. AS AN ADVANCE. 5. PER CONTRA, LEARNED A.R. SUPPORTED THE ORDER OF LD. CIT(APPEALS). I.T.A. NO. 115/MDS/11 5 6. WE HAVE PERUSED THE ORDERS AND HEARD THE RIVAL SUBMISSIONS. THERE ARE TWO REASONS ON WHICH THE AMOUNT WAS DISAL LOWED BY THE A.O. FIRST ONE WAS THAT THE FORFEITED AMOUNT OF ` 6,50,000/-, PAID AS ADVANCE TO M/S YOKOGWA BLUE STAR LTD. WAS NOT REFLE CTED IN THE BALANCE SHEET AS ON 31.3.2010. AGAINST THIS VIEW O F THE A.O., ASSESSEE HAD PRODUCED A COPY OF CREDIT ACCOUNT FROM M/S THAI PULP INDUSTRIES BEFORE LD. CIT(APPEALS). THE SAID ACCOU NT RUNS AS UNDER:- DEBITS CREDITS A - > AMOUNT OF ADVANCE RECEIVED FROM THAI PULP INDUSTRIES 40,26,000.00 LESS: B-> ENGINEERING CONSULTANCY CHARGES PAID ON THIS OR DER 16,00,000.00 C - > TRAVEL EXPENSES ON THIS ORDER 2,73,592.00 D - > EXPORT COMMISSION 10,06,500.00 E - > ADVANCE PAID TO LOCAL SUPPLIER OF MACHINERY 6,50,000.00 SUB TOTAL 35,30,092.00 40,26,000.00 NET BALANC E 4,95,908.00 THERE IS NO CASE FOR THE REVENUE THAT BOOKS WERE NO T PRODUCED BY THE ASSESSEE. MAY BE, ADVANCE PAID TO M/S YOKOGWA BLUE STAR LTD. OUGHT HAVE BEEN SHOWN IN A SEPARATE LEDGER FOLIO AS AN ADVANCE. INSTEAD OF THIS, ASSESSEE DEBITED SUCH AMOUNT AGAIN ST THE RECEIPT FROM M/S THAI PULP INDUSTRIES. THIS AT THE BEST CA N BE CALLED AN ERROR IN ACCOUNTING BUT, WILL NOT IN ANY WAY DILUTE THE C LAIM OF THE ASSESSEE. LOSS OF ADVANCE WAS A BUSINESS LOSS IN THE ORDINARY COURSE OF BUSINESS. THE ABOVE ACCOUNT CLEARLY SHOWS THAT THE AMOUNT OF I.T.A. NO. 115/MDS/11 6 ADVANCE WAS PAID TO A LOCAL SUPPLIER OF MACHINERY. IT IS NOT DISPUTED THAT THE CONCERNED PARTY WAS M/S YOKOGWA BLUE STAR LTD. THUS, WITHOUT DOUBT THE PAYMENT OF ADVANCE WAS DONE BY TH E ASSESSEE IN ITS BOOKS THOUGH CHARGED IN AN INAPPROPRIATE HEAD. IT IS ALSO NOT DISPUTED BY THE REVENUE THAT M/S YOKOGWA BLUE STAR LTD. HAD CONFIRMED FORFEITURE OF ADVANCE. SECOND REASON CIT ED BY THE A.O. WAS THAT THE PAYMENT WAS ON A CAPITAL FIELD. ASSES SEE ADMITTEDLY WAS IN THE BUSINESS OF BUYING AND SELLING MACHINERY AFTER EFFECTING MODIFICATIONS. IN THE BUSINESS OF BUYING AND SELLI NG OF MACHINERY, PURCHASE OF STOCK IN TRADE CANNOT BE CONSIDERED AS A PURCHASE OF PLANT AND MACHINERY FOR OWN USE, AS A PART OF FIXED ASSETS. ANY ADVANCE GIVEN FOR PURCHASE OF A MACHINERY FOR TRADI NG CAN BE CONSIDERED ONLY AS A TRADING ADVANCE. WHEN A TRADI NG ADVANCE IS FORFEITED IT RESULTS ONLY IN A REVENUE LOSS. AS HE LD BY HONBLE APEX COURT IN THE CASE OF CIT V. WOODWARD GOVERNOR INDIA PVT. LTD. (312 ITR 254), SECTION 37(1) OF THE ACT DEALS NOT ONLY W ITH BUSINESS EXPENDITURE BUT ALSO ON BUSINESS LOSS. ASSESSEE WA S WELL ELIGIBLE FOR CLAIMING THE AMOUNT OF ` 6,50,000/- AS REVENUE EXPENDITURE. LD. CIT(APPEALS) DELETED THE ADDITION AFTER PROPERLY AP PRECIATING THE FACTS. WE DO NOT FIND ANY REASON TO INTERFERE WITH THE ORDER OF LD. CIT(APPEALS). I.T.A. NO. 115/MDS/11 7 7. IN THE RESULT, APPEAL FILED BY THE REVENUE IS DI SMISSED. ORDER PRONOUNCED IN THE OPEN COURT AFTER CONCLUSION OF HEARING ON 13 TH MARCH, 2012. SD/- SD/- (VIKAS AWASTHY) (ABRAHAM P. GEORGE) JUDICIAL MEMBER ACCOUNTANT MEMBER CHENNAI, DATED THE 13 TH MARCH, 2012. KRI. COPY TO: (1) APPELLANT (2) RESPONDENT (3) CIT(A)-V, CHENNAI-34 (4) CIT, CHENNAI-III, CHENNAI (5) D.R. (6) GUARD FILE