Appeal details
Counselvise Citation
[2019] 118 COUNSELVISE.COM (IT) 8348 (ITAT-CHENNAI)
Assessee PAN
Bench
Appeal Number
Duration Of Justice
3 year(s) 7 month(s)
Appellant
Respondent
Appeal Type
Income Tax Appeal
Pronouncement Date
03-01-2019
Appeal Filed By
Assessee
Order Result
Partly Allowed
Bench Allotted
B
Next Hearing Date
19-07-2017
Assessment Year
2006-2007
Appeal Filed On
03-06-2015
Judgement Text
, , IN THE INCOME TAX APPELLATE TRIBUNAL B BENCH : CHENNAI . , , BEFORE SHRI ABRAHAM P.GEORGE, ACCOUNTANT MEMBER AND SHRI GEORGE MATHAN, JUDICIAL MEMBER ./I.T.A. NO.1361/CHNY/2015 / ASSESSMENT YEAR : 2006-2007. M/S. SCHWING STETTER (INDIA) PRIVATE LIMITED, PLOT NO.F-71, SIPCOT INDUSTRIAL PARK, IRUNGATTUKOTTAI, SRIPERUMBUDUR TALUK, KANCHEEPURAM DIST. PIN 602 105. VS. THE DEPUTY COMMISSIONER OF INCOME TAX, LARGE TAX PAYER UNIT, CHENNAI 600 034. PAN AADCS 5069D ( / APPELLANT) ( /RESPONDENT) ! ' # / APPELLANT BY : SHRI.R. VIJAYARAGHAVAN, ADVOCATE. $%! ' # /RESPONDENT BY : SHRI. GURU BASHYAM, IRS, JCIT. & ' ' () /DATE OF HEARING : 02-01-2019 *+ ' () /DATE OF PRONOUNCEMENT : 03-01-2019 / O R D E R PER ABRAHAM P. GEORGE, ACCOUNTANT MEMBER: ASSESSEE IN THIS APPEAL, WHICH IS DIRECTED AGAI NST AN ORDER DATED 09.01.2015 OF LD. COMMISSIONER OF INCOM E TAX (APPEALS)- VII, CHENNAI HAS TAKEN ALTOGETHER SIX GROUNDS OF WHICH GROUND NO.1 IS GENERAL NEEDING NO SPECIFIC ADJUDICATION. ITA NO. 1361CHNY/2015 :- 2 -: 2. GROUND NO.2 RAISED BY THE ASSESSEE READS AS UNDER:- 2. DISALLOWANCE OF SHARE ISSUE EXPENDITURE- RS.1,19 ,672/- A. THE LEARNED CIT(A) ERRED IN HOLDING THAT THE EXPEND ITURE INCURRED IN INCREASING THE SHARE CAPITAL IS NOT DED UCTIBLE U/S 35D OF THE INCOME TAX ACT, 1961. B. THE LEARNED CIT(A) OUGHT TO HAVE APPRECIATED THAT, FEES PAID TO REGISTRAR OF COMPANIES IS FOR THE PURPOSE OF INC REASING THE SHARE CAPITAL FOR EXTENSION OF INDUSTRIAL UNIT. C. FURTHER, THE LEARNED CIT(A) FAILED TO APPRECIATE TH E FACT THAT SEC 35D ALSO APPLIES FOR SUCH SUBSTANTIAL EXPANSION OF UNDERTAKING. D. THE LEARNED CLT(A) HAVING ADMITTED THAT THERE WAS A N EXPANSION OF INDUSTRIAL UNDERTAKING ERRED IN HOLDI NG THAT THE FEES PAID IS NOT DEDUCTIBLE U/S 35D. 3. LD. COUNSEL FOR THE ASSESSEE SUBMITTED THAT ASSESS EE HAD INCURRED SHARE ISSUE EXPENDITURE OF C5,98,360/- OF WHICH 1/5 TH WAS CLAIMED AS DEDUCTION U/S.35D OF THE INCOME TAX ACT, 1961 (IN SHORT THE ACT). AS PER THE LD. AUTHORISED REPRESENTA TIVE, LD. ASSESSING OFFICER DID NOT ALLOW THE CLAIM, TAKING A VIEW THAT ASSESSEE HAD NOT ESTABLISHED ANY NEW INDUSTRIAL UNDERTAKING NOR HAD EXPANDED ITS EXISTING INDUSTRIAL UNDERTAKING. AS PER THE LD. A UTHORISED REPRESENTATIVE, THE SAID VIEW OF THE LD. ASSESSING OFFICER WAS CONFIRMED BY THE LD. COMMISSIONER OF INCOME TAX (AP PEALS) ON ASSESSEES APPEAL. CONTENTION OF THE LD. AUTHORISE D REPRESENTATIVE ITA NO. 1361CHNY/2015 :- 3 -: WAS THAT AUDITED FINANCIAL STATEMENT OF THE ASSESS EE FOR THE YEAR ENDED 31 ST DECEMBER, 2006 PROVED SUBSTANTIAL EXPANSION OF TH E PRODUCTION CAPACITY OF THE ASSESSEE. ACCORDING TO HIM, ASSESSEE HAVING EXPANDED ITS EXISTING INDUSTRIAL UNDERTAKING , WAS ELIGIBLE FOR CLAIMING DEDUCTION U/S.35D OF THE ACT. 4. PER CONTRA, LD. DEPARTMENTAL REPRESENTATIVE STRONG LY SUPPORTED THE ORDERS OF THE LOWER AUTHORITIES. 5. WE HAVE CONSIDERED THE RIVAL CONTENTIONS AND PERUSE D THE ORDERS OF THE AUTHORITIES BELOW. FOR ITS CLAIM THA T THERE WAS SUBSTANTIAL EXPANSION OF THE INDUSTRIAL UNDERTAKING , ASSESSEE HAS RELIED ON ITS AUDITED ACCOUNTS FOR THE YEAR ENDED 31 ST DECEMBER, 2006. HOWEVER, ASSESSEE FOR ITS ACCOUNTING PURPOSE WAS FO LLOWING CALENDAR YEAR AS ITS FINANCIAL YEAR. LD. AUTHORISED REPRESEN TATIVE WAS UNABLE TO CLARIFY WHETHER THE EXPANSION CLAIMED BY THE ASSESS EE HAD HAPPENED BEFORE 1 ST APRIL, 2006 OR AFTER THE SAID DATE. ONCE THE ASSE SSEE IS CLAIMING THAT THERE WAS AN EXPANSION OF INDUSTRIAL UNDERTAKING, ONUS LIES ON THE ASSESSEE TO PROVE SUCH CLAIM. ASSESSEE HAVING FAILED TO DO SO, WE ARE OF THE OPINION THAT LOWER AUTHORITIES WE RE JUSTIFIED IN DENYING THE CLAIM U/S.35D OF THE ACT. GROUND NO.2 O F THE ASSESSEE STANDS DISMISSED. ITA NO. 1361CHNY/2015 :- 4 -: 6. GROUND NO.3 RAISED BY THE ASSESSEE READS AS UNDER:- 3. DISALLOWANCE OF EXCISE DUTY ELEMENT ON WARRANT Y - RS.18,10,764/- A. THE LEARNED CIT(A) ERRED IN WRONGLY UNDERSTANDING T HAT THE DEBIT IN RESPECT OF EXCISE DUTY FOR MATERIALS ISSUED ON W ARRANTY CONSTITUTES PROVISION AND NOT ACTUAL EXPENDITURE. B. THE LEARNED CIT(A) OUGHT TO HAVE APPRECIATED THAT T HE DETAILS AND WRITTEN SUBMISSIONS MADE BY THE APPELLANT ESTABLISH THAT THE EXCISE DUTY RELATES TO MATERIALS ISSUED ON WARRANTY , WHICH ARE REMOVED FROM THE FACTORY AND THE CLAIM RELATES TO E XPENDITURE ACTUALLY INCURRED. 7. LD. COUNSEL FOR THE ASSESSEE SUBMITTED THAT ASSESSE E HAD MANUFACTURED GOODS REQUIRED UNDER WARRANTY PROVISIO N AND HAD PAID EXCISE DUTY THEREON. ACCORDING TO HIM, BY VIRTUE O F SECTION 43B OF THE ACT, ASSESSEE COULD CLAIM SUCH EXCISE DUTY PAYMENT AS AN ALLOWABLE EXPENDITURE. AS PER THE LD. AUTHORISED REPRESENTA TIVE, LOWER AUTHORITIES HAD TAKEN A VIEW THAT WARRANTY GOODS W OULD NOT ATTRACT EXCISE DUTY TILL THE CUSTOMER INVOKED THE WARRANTY. AS PER THE LD. AUTHORISED REPRESENTATIVE, THIS VIEW TAKEN BY THE L OWER AUTHORITIES WAS INCORRECT. ACCORDING TO HIM, GOODS HAVING BEEN MANUFACTURED AND MOVED OUT TO STOCK, ASSESSEE COULD CLAIM EXCISE DUTY PAYMENT U/S.43B OF THE ACT. 8. PER CONTRA, LD. DEPARTMENTAL REPRESENTATIVE STRONG LY SUPPORTED THE ORDERS OF THE LOWER AUTHORITIES. ITA NO. 1361CHNY/2015 :- 5 -: 9. WE HAVE CONSIDERED THE RIVAL CONTENTIONS AND PERUSE D THE ORDERS OF THE AUTHORITIES BELOW. IT MIGHT BE TRUE THAT WARRANTY GOODS MANUFACTURED BY THE ASSESSEE, ON WHICH IT HAD CLAIM ED EXCISE DUTY AS ALLOWABLE U/S.43B OF THE ACT, REMAINED WITH THE ASS ESSEE TILL THE WARRANTIES WERE INVOKED BY THE CUSTOMERS. HOWEVER, IT IS NOT DISPUTED THAT WARRANTY GOODS STOOD MANUFACTURED BY THE ASSES SEE. ASSESSEE HAD ALSO PAID THE EXCISE DUTY THEREON TO THE EXCHE QUER. ONCE THE ASSESSEE HAD EFFECTED PAYMENT OF THE EXCISE TAX, IN OUR OPINION ASSESSEE COULD NOT HAVE BEEN DENIED THE CLAIM U/S.4 3B OF THE ACT. WE THEREFORE SET ASIDE THE ORDERS OF THE LOWER AUTHOR ITIES AND ALLOW THE CLAIM OF C18,10,764/-, BEING EXCISE TAX PAID ON WAR RANTY GOODS. GROUND NO.3 OF THE ASSESSEE STANDS ALLOWED. 10. WHEN GROUND NO.4 IS TAKEN, LD. COUNSEL FOR THE AS SESSEE SUBMITTED THAT HE WAS NOT PRESSING THIS GROUND. ACCORDINGLY, GROUND NO.4 IS DISMISSED AS NOT PRESSED. 11. GROUND NO.5 RAISED BY THE ASSESSEE READS AS UNDER:- 5. DISALLOWANCE OF PRIOR PERIOD ITEMS -RS.3,92,473/- A. THE PRIOR PERIOD ITEMS CONSISTS OF THE SALES TAX PA YMENT OF RS.2,23,903/- AND RS.L,68,570/- PERTAINS TO PRIOR P ERIOD EXPENSES ACCOUNTED DURING THE YEAR. B. THE LEARNED CIT(A) OUGHT TO HAVE APPRECIATED THAT, OUT OF THE PRIOR PERIOD ITEMS, AN AMOUNT OF RS.2,23,903/- RELA TE TO SALES TAX ITA NO. 1361CHNY/2015 :- 6 -: ASSESSMENT AND REPRESENTS SALES TAX ACTUALLY PAID D URING THE YEAR. C. THE LEARNED CIT(A) FAILED TO APPRECIATE THE FACT TH AT SECTION 43B PROVIDES FOR DEDUCTION OF EXPENSES ON TAX OR DUTIES ON ACTUAL PAYMENT BASIS. 12. LD. COUNSEL FOR THE ASSESSEE SUBMITTED THAT PRIOR P ERIOD EXPENDITURE CLAIMED BY THE ASSESSEE INCLUDED SALES TAX PAYMENT OF C2,23,903/-. ACCORDING TO HIM, THE SAID SALES TAX D UES AROSE OUT OF A SALES TAX ASSESSMENT COMPLETED DURING THE RELEVANT PREVIOUS YEAR. ACCORDING TO HIM, SALES TAX OF C2,23,903/- PAID BY THE ASSESSEE OUGHT HAVE BEEN ALLOWED UNDER SECTION 43B OF THE ACT. 13. PER CONTRA, LD. DEPARTMENTAL REPRESENTATIVE STRONG LY SUPPORTED THE ORDERS OF THE LOWER AUTHORITIES. 14. WE HAVE CONSIDERED THE RIVAL CONTENTIONS AND PERUSE D THE ORDERS OF THE AUTHORITIES BELOW. LD. ASSESSING OF FICER HAD DISALLOWED THE CLAIM OF PRIOR PERIOD EXPENDITURE NOTING THAT A SSESSEE HAD NOT GIVEN ANY DETAILS THEREON EXCEPT FOR STATING AS UND ER:- PRIOR YEAR EXPENSES SHOWN IN FORM 3CD CONSIST OF EXPENSES RELATED TO PRIOR YEARS DEBITED TO VARIOUS EXPENSES ACCOUNTS. THESE AMOUNTS WERE NOT TRANSFERRED FROM CONCERNED LEDGER ACCOUNTS TO PRIOR YEAR EXPENSES AC COUNT. PRIOR YEAR EXPENSES ACCOUNT COMPRISES OF AMOUNT PAI D TO SALES TAX DEPARTMENT ON COMPLETION OF ASSESSMENT . ITA NO. 1361CHNY/2015 :- 7 -: EVEN BEFORE THE LD. COMMISSIONER OF INCOME TAX (AP PEALS), IT SEEMS, ASSESSEE DID NOT PROVIDE ANY DETAILS. NOW THE CLAI M BEFORE US IS THAT PART OF THE EXPENDITURE WAS SALES TAX DUES ACTUALLY PAID DURING THE PREVIOUS YEAR RELEVANT TO THE IMPUGNED ASSESSMENT YEAR. CONSIDERING THE FACTS AND CIRCUMSTANCES, WE ARE OF THE OPINION THAT THE ISSUE CAN BE VERIFIED AFRESH BY THE LD. ASSESSING OFFICER. WE SET ASIDE THE ORDERS OF THE AUTHORITIES ON THE ISSUE OF ALLOWABILITY OF THE CLAIM OF PRIOR PERIOD EXPENDITURE OF C3,92,473/- AND REMIT IT BACK TO THE FILE OF THE LD. ASSESSING OFFICER FOR CONSIDERATION AFRESH IN A CCORDANCE WITH LAW. GROUND NO.5 OF THE ASSESSEE IS ALLOWED FOR STATISTI CAL PURPOSES. 15. GROUND NO.6 OF THE ASSESSEE READS AS UNDER:- 6. DISALLOWANCE OF EXPENDITURE TOWARDS GIFT- RS.11,20, 515/- A. THE LEARNED CIT(A) OUGHT TO HAVE APPRECIATED THAT T HE EXPENDITURE TOWARDS GIFTS PERTAINS TO MARRIAGE GIFT , DIWALI GIFTS AND FAREWELL GIFTS. B. WHILE DISMISSING THE ISSUE, THE LEARNED CIT(A) ERRE D IN NOT CONSIDERING THE DECISION GIVEN IN THE CASE OF 'CIT( A) VS AVERY CYCLE INDUSTRIES LIMITED (2006) 206 CTR P H 347, 20 08 296 ITR 393 PH' (COPY ENCLOSED), RELIED UPON BY THE APP ELLANT. C. THE LEARNED CIT(A) ERRED IN NOT NOTING THAT THE APP ELLANT HAS ALSO PAID FRINGE BENEFIT TAX ON THE EXPENDITURE. 16. LD. COUNSEL FOR THE ASSESSEE SUBMITTED THAT GIFTS WERE GIVEN TO VARIOUS CUSTOMERS AND ASSESSEE HAD FURNISHED ALL DETAILS OF SUCH ITA NO. 1361CHNY/2015 :- 8 -: GIFTS. ACCORDING TO HIM, THESE GIFTS WERE GIVEN FO R COMMERCIAL EXPEDIENCY AND THE EXPENDITURE WAS INCURRED SOLELY FOR THE BUSINESS OF THE ASSESSEE. RELIANCE WAS PLACED ON THE BREAK UP OF EXPENDITURE PLACED AT PAPER BOOK PAGES 52 TO 54. ACCORDING TO H IM, INDIVIDUAL EXPENDITURE WERE ALL SMALL EXCEPT FOR ONE ITEM OF C 1,87,380/-, WHICH WAS INCURRED IN RELATION TO SALES PROMOTION. THUS, AS PER THE LD. AUTHORISED REPRESENTATIVE, THE CLAIM OUGHT NOT HAV E BEEN DISALLOWED. 17. .. PER CONTRA, LD. DEPARTMENTAL REPRESENTATIVE STRONG LY SUPPORTED THE ORDERS OF THE LOWER AUTHORITIES. . 18. WE HAVE CONSIDERED THE RIVAL CONTENTIONS AND PERUSE D THE ORDERS OF THE AUTHORITIES BELOW. REASON WHY LD. CO MMISSIONER OF INCOME TAX (APPEALS) CONFIRMED THE DISALLOWANCE FOR EXPENDITURE TOWARDS GIFT IS REPRODUCED HEREUNDER:- I PERUSED THE LIST OF LEDGER BREAK-UP OF GIFT EXP ENSES PROVIDED BY THE APPELLANT DURING THE APPEAL PROCEED INGS IN THE PAPER BOOK. THE ENTRIES SHOW WIDE RANGE OF DEBI TS VARYING FROM RS.150/- TO RS.1,OO,OOO/- WITHOUT ANY DETAILS, EXCEPT 'TRFR TO GIFT', 'GIFT FOR CUSTOMER', 'DIWALI GIFT', TRFR FROM MISC. EXP, TRFR FROM ENTERT, GIFT EXP. DBTD TO SALES PRO-TSFRD', 'WEDDING GIFT', MARRIAGE GIFT', 'GIFT FOR VENDOR', ETC. ON 31.03.2006 ALONE AMONGST SO MANY OTHER DEBIT ENTRIE S PERTAINING TO GIFT, AMOUNTS OF RS.1,89,380/-, RS.3, 51,093/-, RS1,OO,OOO/-, RS.75,OOO/- AND RS.50,OOO/- HAVE ALS O ITA NO. 1361CHNY/2015 :- 9 -: BEEN SHOWN AS GIFT EXPENSES. THE APPELLANT HAD NOT PRODUCED ANY OTHER DETAILS AND DOCUMENTS EITHER BEF ORE ME OR THE AO, TO ELICIT CONFIDENCE IN THE VERACITY OF THE CLAIM. EXCEPT THE LIST OF DEBIT ENTRIES SAID TO BE PERTAIN ING TO GIFT EXPENSES, NOTHING WAS PRODUCED DURING THE COURSE OF APPEAL PROCEEDINGS TO ESTABLISH THAT THE AMOUNTS WERE SPEN T WHOLLY AND EXCLUSIVELY FOR THE PURPOSES OF BUSINESS OR PRO FESSION. SIMILARLY THE DETAILS AND NATURE OF THE GIFT EXPENS ES AND THEIR RELATION AND RELEVANCE WITH THE BUSINESS HAVE NOT B EEN' PROVED BY THE APPELLANT. A CURSORY LOOK AT THE INFO RMATION AVAILABLE IN THE LIST OF GIFT AMOUNT DEBIT ENTRIES SHALL NOT FAIL TO EVOKE DOUBTS AND CAST ASPERSIONS ON THE BONAFIDES O F THE CLAIM OF THE APPELLANT. THEREFORE, THE AO IS RIGHT IN TREATING THE EXPENDITURE TOWARD'S GIFTS AS NOT INCURRED WHOL LY AND EXCLUSIVELY FOR THE PURPOSE OF BUSINESS AND IN TREATING THE SAME AS EXPENDITURE OF PERSONAL IN NATURE. THUS THE GIFT EXPENDITURE OF RS.11,20,515/- DOES NO T QUALIFY TO BE ALLOWED U/S 37 OF THE ACT IN COMPUTING THE IN COME CHARGEABLE UNDER THE HEAD PROFITS AND GAINS OF BU SINESS OF PROFESSION. LD. COMMISSIONER OF INCOME TAX (APPEALS) HAS SPECIF ICALLY NOTED THAT EXCEPT FOR THE LIST OF THE DEBIT ENTRIES, ASSESSEE DID NOT PRODUCE ANY EVIDENCE TO SHOW THAT THE EXPENDITURE WAS INCURRE D WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF BUSINESS. IN OTHER W ORDS ASSESSEE COULD NOT SHOW THE BUSINESS EXPEDIENCY OF THE GIFTS, NOR COULD IDENTIFY THE RECIPIENTS. IN SUCH CIRCUMSTANCES, THE CLAIM WAS RIGHTLY DISALLOWED BY THE LD. ASSESSING OFFICER. WE DO NOT FIND ANY RE ASON TO INTERFERE WITH THE ORDERS OF THE AUTHORITIES BELOW. GROUND NO .6 OF THE ASSESSEE IS DISMISSED. ITA NO. 1361CHNY/2015 :- 10 -: 19. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS PARTL Y ALLOWED FOR STATISTICAL PURPOSE. ORDER PRONOUNCED ON THURSDAY, THE 3RD DAY OF JAN UARY, 2019, AT CHENNAI. SD/- SD/- ( ) (GEORGE MATHAN) / JUDICIAL MEMBER ( . '#'$ ) (ABRAHAM P. GEORGE) % &' / ACCOUNTANT MEMBER - ' / CHENNAI . / DATED: 03 JANUARY, 2019. KV / ' $(0 1 2 1 ( / COPY TO: 1 . ! / APPELLANT 3. & 3( ( ) / CIT(A) 5. 167 $(8 / DR 2. $%! / RESPONDENT 4. & 3( / CIT 6. 79 :' / GF
