THE ACIT, Circle-5, V. ROTO FLEX INDUSTRIES LTD.,

ITA 133/AHD/2003

• Counselvise Citation: [2009] 114 COUNSELVISE.COM (IT) 7779 (ITAT-AHMEDABAD)
• Duration Of Justice: 6 year(s) 6 month(s) 21 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 31-07-2009
• Appeal Filed By: Department
• Order Result: Partly Allowed
• Bench Allotted: A
• Next Hearing Date: 24-06-2009
• Assessment Year: 1995-1996
• Appeal Filed On: 09-01-2003
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: RAJEEV AGARWAL
• Keywords: Capital asset; Depreciation; Additional evidence; Revenue expenditure; Capital expenditure; Set aside
• Section: 251

Judgement Text

IN THE INC O ME TAX APPELLATE TRIBUNAL, A - BENCH, AHMEDABAD . BEFORE : SHRI T.K.SHARMA, JUDICIAL MEMBER , AND SHRI D.C.AG RAWAL , ACCOU NTANT MEMBER. ITA NOS.133 AND 134 /AHD/2003 (ASSESSMENT YEAR S 1995 - 96 AND 1996 - 97) ACIT, CIRCLE 5, AHMEDABAD VERSUS ROT OFLEX INDUSTRIES LTD., ASARPOTA CHAMBERS, C.G.ROAD, AHMEDABAD. (APPELLANT) (RESPONDENT) FOR THE APPELLANT: SHRI RAJEEV AGARWAL, DR FOR THE RESPONDENT SHRI SAKAR SHARMA, AR ORDER SHRI T.K.SHARMA, JUDICIAL MEMBER : THESE TWO APPEALS BY THE R EVENUE ARE AGAINST THE ORDERS OF EVEN DATED THE 16 TH OCTOBER,2002 OF THE COMMISSIONER OF INCOME - TAX (APPEALS) XI, AHMEDABAD FOR THE ASSESSMENT YEARS 1995 - 96 AND 1996 - 97. 2. GROUNDS NO.1,2 AND 3, WHICH ARE COMMON ARE AGAINST THE ORDER OF THE LEARNED CIT(A) HOLDING EXPENSES OF RS.7,38,496 IN THE ASSESSMENT YEAR 1995 - 96 AND RS.24,25,095 IN THE ASSESSMENT YEAR 1996 - 97 AS REVENUE EXPENDITURE. 3. THE ASSESSEE INCURRED THE EXPENDITURE OF RS.7,38,496 IN THE ASSESSMENT YEAR 1995 - 96 IS AS UNDER : SL.NO. AMOUNT OF EXPENDITURE( IN RS.) ON ACCOUNT OF 1. 25,000 FEES PAID FOR NOC FROM GUJ.POLLUTION CONT. BOARD. 2. 1,50,000 LEGAL CHARGES PAID TO GSFC 3. 4,10,706 BANK INTEREST PAID TO UBI ON BRIDGE LOAN TAKEN FOR SANTEJ PROJECT. 4. 10,000 VALUATION FEES PAID FOR ASSET VALUATION REQUIRED BY GSFC. 5. 1,42,730 LEGAL EXPENSES PAID FOR GSFC LOAN DOCUMENTATION. 7,38,496 THE EXPENDITURE OF RS.24,24,095 INCURRED IN THE ASSESSMENT YEAR 1996 - 97 IS AS UNDER : 2 SL.NO. AMOUNT OF EXPENDITURE( IN RS.) ON ACCOUNT OF 1. 5,00,000 STAMP CHARGES FOR REGN.OF DOCUMENTS 2. 21,500 LEGAL CHARGES FOR ABOVE DOCUMENTATION. 3. 70,000 SERVICE CHARGES PAID TO BANK FOR TERM LOAN. 4. 15,58,348 INT.PAID TO GSFC ON TERM LOAN. 5. 2,74,247 INT.PAID TO UBI ON TERM LOAN. 24,24,095 THE ASSESSI NG OFFICER WAS OF THE VIEW THAT THE ASSESSEE HAS BORROWED TERM LOAN FROM GSFC AND HAS INCURRED OTHER EXPENSES. AS THE PROJECT HAS N OT COMMENCED, THE INTEREST AND OTHER EXPENSES WAS TO BE CAPITALIZED AS PRE - OPERATIVE EXPENSES. THEREFORE, HE TREATED THE SAME AS CAPITAL EXPENDITURE. ON APPEAL, THE ASSESSEE CONTENDED THAT THOUGH THE ABOVE EXPENSES HAVE BEEN CAPITALIZED IN THEIR BOOKS OF ACCOUNT AS THE GUIDELINES ISSUED BY THE INSTITUTE OF CHARTERED ACCOUNTANTS OF INDIA , THEY HAVE TREATED THE SAME AS REVENUE EXP ENDITURE AS PER THE STATEMENT OF INCOME AND THEREFORE, THE SAME SHOULD BE ALLOWED AS REVENUE EXPENDITURE. RELIANCE WAS PLACED ON THE DECISION IN THE CASE OF STATE BANK OF INDIA V. CIT (49 CTR 379), KEDARNATH JUTE MANUFACTURING CO. LTD V. CIT (82ITR 363), U NITED PHOSPHOROUS LTD V JCIT (73 TTJ 404) AND TATA CHEMICALS V. DCIT (72 ITD ). CONSIDERING THE SUBMISSION OF THE ASSESSEE AND KEEPING IN VIEW THE ABOVE DECISIONS, THE LEARNED CIT(A) HELD THAT THE ENTRIES IN THE BOOKS OF ACCOUNTS AND TREATMENT GIVEN BY T HE ASSESSEE IN THE BOOKS OF ACCOUNTS IN RESPECT OF ANY PARTICULAR EXPENDITURE CANNOT BE THE BASIS TO HOLD THE EXPENSE AS EITHER REVENUE OR CAPITAL. HE, FURTHER , HELD THAT THE INTEREST ON BORROWINGS AND LOAN RELATED EXPENSES AS REVENUE EXPENDITURE AND ACCOR DINGLY, HE DIRECTED THE ASSESSING OFFICER TO ALLOW THE ABOVE EXPENSES AS REVENUE EXPENDITURE. AGGRIEVED BY THIS ORDER, THE REVENUE IS IN APPEAL BEFORE THE TRIBUNAL. 4. THE LEARNED DR SUPPORTING THE IMPUGNED ORDER OF THE ASSESSING OFFICER CONTENDED THAT SIN CE THESE EXPENSES IN QUESTION ARE PRE - OPERATIVE EXPENSES CAPITALIZED BY THE ASSESSEE, THE SAME CANNOT BE ALLOWED AS REVENUE EXPENDITURE. 3 THE LEARNED AR OF THE ASSESSEE, ON THE OTHER HAND, SUPPORTED THE IMPUGNED ORDER OF THE LEARNED CIT(A). HE CONTENDED THA T THIS ISSUE IS SQUARELY COVERED IN FAVOUR OF THE ASSESSEE BY THE DECISIONS IN INDIA CEMENTS LTD ., [ 60 ITR 52 (SC) ] , SHRI RAMA MULTITECH LTD [92 TTJ 568 (AHMEDABAD)], GSFC V. ACIT [313 ITR 244 (GUJ)], CORE HEALTHCARE LTD [298 ITR 194)(SC)], GUJARAT ALKALIE S & CHEM LTD [299 ITR 85 (SC)], CIT V. SHRI MEENAKSHI MILLS LTD [ 290 ITR 107 (MAD)] AND THE DECISION OF THE TRIBUNAL IN ASSESSEES OWN CASE FOR THE ASSESSMENT YEAR 1994 - 95 IN ITA NO.1809/AHD/1999 DT.17.11.2004. 5. HEARD BOTH THE PARTIES AND PERUSED THE IMP UGNED ORDERS OF THE AUTHORITIES BELOW. IT IS NOT DISPUTED BY THE REVENUE THAT THE EXPENDITURE IN BOTH THE ASSESSMENT YEARS UNDER CONSIDERATION RELATES TO INTEREST PAID ON TERM LOAN AND OTHER EXPENSES PERTAINING TO THE SAID LOAN. THERE IS ALSO NO DISPUTE OF THE FACT THAT THESE ARE PRE - OPERATIVE EXPENSES. THE ASSESSEE THOUGH CAPITALIZED THESE EXP ENDITURES HAS NOT CLAIMED ANY DEPRECIATION BUT CLAIMED THE SAME AS REVENUE EXPENDITURE. THE ASSESSING OFFICER REJECTED THE CLAIM OF THE ASSESSEE HOLDING THAT THE BORR OWED FUNDS WERE PRE - OPERATIVE EXPENSES CAPITALIZED BY THE ASSESSEE. THEREFORE, HE WAS OF THE VIEW THAT THE SAME ARE NOT ALLOWABLE AS REVENUE EXPENSES. IN THE CASE OF DCIT V. CORE HEALTHCARE LTD. [2001] 251 ITR 61 (GUJ). HON'BLE GUJARAT HIGH COURT HAS THE INTEREST ON BORROWING FOR ACQUISITION OF CAPITAL ASSET, THOUGH PERTAINING TO A PERIOD PRIOR TO THE COMMENCEMENT OF PRODUCTION IS ALLOWABLE UNDER SECTION 36(1)(III) OF THE ACT. THIS DECISION OF HON'BLE GUJARAT HIGH COURT HAS BEEN AFFIRMED BY THE HON'BLE SU PREME COURT IN THE CASE OF DCIT V. CORE HEALTH CARE LTD [2008] 298 ITR 194 (SC). SIMILAR VIEW HAS BEEN TAKEN IN THE CASE OF DCIT V. GUJARAT ALKALIES AND CHEMICALS LTD [299 ITR 85)(SC)] , GUJARAT STATE FERTILISER AND CHEMICALSLTD., V. ACIT [313 ITR 244 (GUJ) ] . BY FOLLOWING THE DECISION OF HONBLE GUJARAT HIGH COURT REPORTED IN 251 ITR 61, ITAT, AHMEDABAD BENCH - A IN ASSESSEES OWN CASE FOR THE ASSESSMENT YEAR 1994 - 95 HAS HELD THAT THE INTEREST ON BORROWED FUND IS ALLOWABLE U/S.36(1)(III) THOUGH PERTAINING TO A PERIOD TO THE COMMENCEMENT OF PRODUCTION OR USED FOR THE PURPOSE OF ACQUIRING ASSETS. IN THE CASE OF CIT V. SRI MEENAKSHI MILLS LTD [290 ITR 107)(MAD)], THE UPFRONT FEE I.E., BANK CHARGES FOR OBTAINING LOAN HAS BEEN HELD AS REVENUE 4 EXPENDITURE. IN THE CA SE OF INDIA CEMENTS LTD., V. CIT [60 ITR 52], HONBLE SUPREME COURT HAS HELD THAT AMOUNT SPENT TOWARDS STAMPS, REGISTRATION FEES, LAWYERS FEES ETC., IN CONNECTION WITH THE LOAN OBTAINED BY THE ASSESSEE, WAS NOT IN THE NATURE OF CAPITAL EXPENDITURE AND WAS LAID OUT OR EXPENDED WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF THE ASSESSEES BUSINESS AND THEREFORE, ALLOWABLE AS A DEDUCTION. HONBLE APEX COURT FURTHER OBSERVED THAT THE ACT OF BORROWING MONEY WAS INCIDENTAL TO THE CARRYING ON OF BUSINESS, THE LOAN OBT AINED WAS NOT AN ASSET OR AN ADVANTAGE OF ENDURING NATURE, THE EXPENDITURE WAS MADE FOR SECURING THE USE OF MONEY FOR A CERTAIN PERIOD AND IT WAS IRRELEVANT TO CONSIDER THE OBJECT WITH WHICH THE LOAN WAS OBTAINED. UNDISPUTEDLY THE EXPENDITURE IN BOTH THE A SSESSMENT YEARS UNDER CONSIDERATION RELATES TO INTEREST PAID ON TERM LOAN AND OTHER EXPENSES PERTAINING TO THE SAID LOAN. THEREFORE, IN VIEW OF THE SUCH JUDICIAL PRONOUNCEMENT S REFERRED TO ABOVE , WE HOLD THAT THE LEARNED CIT(A) IN THE PRESENT CASE IS JUSTI FIED IN ALLOWING THE CLAIM OF THE ASSESSEE TREATING THE EXPENSES AS REVENUE EXPENDITURE . WE UPHOLD THE SAME AND DISMISS THE GROUND OF THE REVENUE RAISED IN THIS REGARD. 6. GROUNDS NO.4, 5 AND 6 OF THE REVENUE IN THE ASSESSMENT YEAR 1995 - 96 READ AS UNDER : 4. THE LD. CIT(A) FURTHER ERRED IN LAW AND ON FACTS IN DIRECTING THE A.O. TO ALLOW DEDUCTION OF 1/5 TH FROM THE RENTAL INCOME BEING FOR REPAIRS. 5. THE LD. CIT(A) FURTHER ERRED IN LAW AND ON FACTS IN NOT APPRECIATING THE RENT INCOME SHOWN IS FOR THE OPEN LAND AS PER THE AGREEMENT DATED 19.9.1993. 6. THE LD. CIT(A) FURTHER ERRED IN LAW AND ON FACTS IN ENTERTAINING NEW EVIDENCE IN VIOLATION OF RULE 46A(3) OF THE I.T.RULES,1962 . 7. DURING THE COURSE OF ASSESSMENT FOR THE ASSESSMENT YEAR 1995 - 96, THE ASSESSI NG OFFICER NOTICED THAT THE ASSESSEE HAS SHOWN RENT RECEIPT OF RS.2,40,000 CLAIMED TO HAVE BEEN RECEIVED FROM UTTAM POLYFILMS PVT. LTD., AS INCOME FROM HOUSE PROPERTY AND CLAIMED DEDUCTION OF RS.48,000 BEING 1/5 TH OF RENT FOR REPAIRS. THE ASSESSING OFFICE R OBSERVED THAT IN THE ASSESSMENT YEAR 1994 - 95 THE INCOME FROM LAND RENT WAS THE SUBJECT MATTER OF ASSESSMENT, WHEREIN IT WAS CONCLUDED THAT THE RENT RECEIVED IS IN FACT GROUND RENT AND WAS TAXABLE UNDER THE RESIDUARY HEAD INCOME FROM OTHER SOURCES THE F ACTS AND 5 POSITION IN THE ASSESSMENT YEAR 1995 - 96 BEING IDENTICAL TO THAT OF ASSESSMENT YEAR 1994 - 95 ON THE ISSUE, THE ASSESSING OFFICER TREATED THE RENT RECEIPT AS INCOME FROM OTHER SOURCES AND THEREFORE, HE DISALLOWED THE 1/5 TH OF SUCH RECEIPTS AS CLAIMED BY THE ASSESSEE. IN APPEAL BEFORE THE LEARNED CIT(A), IT WAS SUBMITTED THAT THE PROPERTY WHICH HAS BEEN LET OUT ON RENT CONSISTED OF LAND OF 1000 SQ. MT. ALONGWITH BUILDING ADMEASURING 1000 SQ.FT AND THEREFORE, THE RENT RECEIVED BEING THE INCOME FROM HOUS E PROPERTY, THE CLAIM OF 1/5 TH TOWARDS REPAIRS SHOULD BE ALLOWED. IN SUPPORT OF IT, THE ASSESSEE PRODUCED A COPY OF THE AGREEMENT OF RENT DT.1.4.1994 ENTERED INTO BETWEEN M/S.EAGLE PACK PLAST PVT. LTD., WHICH WAS LATER AMALGAMATED WITH THE ASSESSEE AND M/S .UTTAM POLY FILMS PVT. LTD., AND A COPY OF THE SCHEDULE OF PROPERTY WHICH HAS BEEN LET OUT. CONSIDERING THE ABOVE SUBMISSION AND ALSO THE EVIDENCE PRODUCED , THE LEARNED CIT(A) HELD THAT THE PROPERTY THAT HAS BEEN LET OUT IS NOT AN OPEN LAND BUT IT CONSISTE D OF SHED OF 1000 SQ.FT AND THEREFORE, THE SAID INCOME SHOULD BE ASSED AS INCOME FROM HOUSE PROPER AND THE ASSESSEE IS ELIGIBLE FOR DEDUCTION OF 1/5 TH AS REPAIRS. AGGRIEVED THE REVENUE IS IN APPEAL. 8. THE LEARNED DR CONTENDED BEFORE US THAT THE ASSESSING OFFICER HAS OBSERVED IN HIS ORDER THAT THE RENT RECEIVED BY THE ASSESSEE WAS FROM LETTING OUT OPEN LAND AND THEREFORE, HE HAS HELD THE INCOME AS INCOME FROM OTHER SOURCE. BUT, CONSIDERING THE EVIDENCES PRODUCED BY THE ASSESSEE, THE LEARNED CIT(A) HAS HELD THAT THE RENT RECEIVED BY THE ASSESSEE WAS FROM NOT LETTING OUT OPEN LAND BUT IT CONSISTED OF SHED OF 100 SQ.FT AND THEREFORE, HE HAS HELD THAT THE INCOME AS INCOME FROM HOUSE PROPERTY. BUT, THE EVIDENCES PRODUCED BEFORE THE LEARNED CIT(A) WERE NOT BEFORE THE ASSESSING OFFICER. THE LEARNED CIT(A) HAS NOT GIVEN ANY OPPORTUNITY TO THE ASSESSING OFFICER BEFORE ACCEPTING AND ACTING UPON SUCH ADDITIONAL EVIDENCES WHICH IS IN VIOLATION OF RULE 46A OF THE I.T.RULES. THEREFORE, THE MATTER MAY BE RESTORED BACK TO THE FILE OF THE ASSESSING OFFICER TO EXAMINE THE EVIDENCES AND DECIDE THE ISSUE AFRESH. THE LEARNED AR OF THE ASSESSEE, ON THE OTHER HAND, SUPPORTED THE IMPUGNED ORDER OF THE LEARNED CIT(A). 9. HAVING HEARD BOTH SIDES, WE HAVE CAREFULLY GONE THROUGH THE IM PUGNED ORDERS OF THE AUTHORITIES BELOW. IT IS PERTINENT TO NOTE THAT THE LEARNED CIT(A) 6 IN SUPPORT OF HIS DECISION HAS CONSIDERED THE EVIDENCES PRODUCED BEFORE HIM FOR THE FIRST TIME WITHOUT ALLOWING ANY OPPORTUNITY TO THE ASSESSING OFFICER TO HAVE HIS SA Y IN THIS REGARD, WHICH IS IN VIOLATION OF RULE 46A OF THE I.T.RULES. THEREFORE, FOR THE INTEREST OF JUSTICE AND FAIR PLAY, WE SET ASIDE THE IMPUGNED ORDER OF THE LEARNED CIT(A) AND RESTORE THE ISSUE BACK TO THE FILE OF THE ASSESSING OFFICER TO CONSIDER T HE EVIDENCE AND DECIDE THE ISSUE AFRESH AS IN ACCORDANCE WITH LAW. 10. IN THE RESULT, THE APPEAL OF THE REVENUE FOR THE ASSESSMENT YEAR 1995 - 96 IS PARTLY ALLOWED FOR STATISTICAL PURPOSES AND THAT FOR THE ASSESSMENT YEAR 1996 - 97 IS DISMISSED. THIS ORDER IS PRONOUNCED IN OPEN COURT ON DT. 31.07.09 SD/ - SD/ - ( D.C.AG RAWAL ) ACCOUNTANT MEMBER. (T.K.SHARMA) JUDICIAL MEMBER DATE: 31.07.09 (H.K.PADHEE) SENIOR PRIVATE SECRETARY. COPY OF THE ORDER FO RWARDED TO : 1. THE ASSESSEE 2. THE ASSESSING OFFICER 3. THE CIT CONCERNED. 4. THE CIT(A) CONCERNED. 5. THE DR, AHMEDABAD 6. GUARD FILE (IN DUPLICATE) TRUE COPY, BY ORDER, DEPUTY.REGISTRAR.