M/s. Alclad Fabrication(P)Ltd, Kolkata V. DCIT,Cir-1,Kolkata, Kolkata

ITA 1383/KOL/2012

• Counselvise Citation: [2015] 121 COUNSELVISE.COM (IT) 0496 (ITAT-KOLKATA)
• Duration Of Justice: 2 year(s) 8 month(s) 12 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 09-06-2015
• Appeal Filed By: Assessee
• Bench Allotted: A
• Assessment Year: 2009-2010
• Appeal Filed On: 27-09-2012
• Court: TRIBUNAL
• Department Lawyers: K L KANAK
• Assessee Lawyers: SOUMITRA CHOW DHURY

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL A BENCH: KOLKATA [BEFORE HON BLE SHRI MAHAVIR SINGH, JM & HON BLE SHRI B.P.JAIN, AM ] I.T.A NO.1383 /KOL/2012 ASSESSMENT YEAR: 2009 - 10 M/S. ALCL AD FABRICATION (P)LTD. VS. D.C.I.T., C IRCLE - 1 , KOLKATA KOLKATA (APPELLANT) ( RESPONDENT) (PAN: AAFCA 2783 C) FOR THE APPELLANT : SHRI SOUMITRA CHOWDHURY, ADVOCATE FOR THE RESPONDENT : SHRI K.L.K A NAK, SR.DR DATE OF HEARING : 13 .05 . 2015. DATE OF PRONOUNCEMENT: 09.06.2015. ORDER PER SHRI B.P.JAIN , AM : THIS APPEAL OF THE ASSESSEE ARISES FROM THE ORDER OF LD. CIT(A) - I , KOLKATA DATED 03.07 .2012 FOR ASSESSMENT YEAR 2009 - 10. 2. THE ASSESSEE HAS RAISED THE FOLLOWING GROUNDS OF APPEAL : 1 ) THAT YOUR APPELLANT HAS DECLARED A SUM OF R S.84,56,637/ - AS ITS NET PROFIT DURING THE YEAR AND HAS SUBMITTED RETURN OF INCOME BY DECLARING TOTAL INCOME AT RS.85,76,648/ - AND THE SAME WAS ASSESSED AT RS.97,27,701L - BY LD. DCIT BY DISALLOWING EXPENSES UNDER 3 (THREE) HEADS NAMELY 'SITE EXPENSES A MOUNTING RS. 1 0,00,0001 - , 'LATE PAYMENT OF PF & ESI' AMOUNTING RS.L,10,176/ - AND 'PRELIMINARY EXPENSES WRITTEN OFF AMOUNTING RS.18,3101 - . 2 ) BEING AGGRIEVED BY THE SAID ORDER OF LD. DCIT, YOUR APPELLANT MOVED AN APPEAL BEFORE LD. CIT(A) - I/KOL ON 02.02. 2012. IN HIS ORDER DATED 03.07.2012, LD. CIT(A) HAS ALLOWED PARTIAL RELIEF OF RS.5,00,0001 - UNDER THE HEAD OF EXPENSE OF 'SITE EXPENSES', FULL RELIEFOFRS.1,10,176/ - FOR EXPENSES OF 'LATE PAYMENT OF PF & ESI' AND FULL DISALLOWANCE OF EXPENSE UNDER THE H EAD OF 'PRELIMINARY EXPENSES WRITTEN OFF AMOUNTING RS.18,31 01 - . 3 ) YOUR APPELLANT SUBMITS THAT LD. CIT(A) GRANTED PARTIAL RELIEF UNDER THE HEAD OF EXPENSE OF 'SITE EXPENSES' ON THE REASON THAT THOUGH THE INCOME UNDER THE HEAD OF 'CONTRACT JOB' HAS INCREAS ED FROM RS.10,50,60,345/ - TO RS.16,98,5 2,2101 - BUT THE EXPENSE UNDER THE HEAD OF 'SITE EXPENSES' HAS INCREASED FROM RS.59,14,253/ - TO RS.1 ,33,28,0551 - AND MOST OF THE SUPPORTING VOUCHERS FILED DURING THE COURSE OF APPEAL HEARING ARE FOUND TO BE INCURR ED IN CASH RESULTING IN A LOWER GP / NP MARGIN. YOUR APPELLANT SUBMITS THAT THOUGH THERE HAS BEEN INCREASE IN SITE EXPENSE IN THE CURRENT ITA NO. 1383/KOL/2012 M/S.ALCLAD FABRICATION PRIVATE LIMITED A.YR. 2009 - 10 2 YEAR AS COMPARED TO LAST YEAR BUT NET PROFIT HAS GONE UP FROM RS.70,38,642/ - TO RS.84,56,637/ - DUE TO THE EFFECT OF E CONOMIES OF SCALE IN OPERATION, WHICH ULTIMATELY RESULTED IN MORE PAYMENT OF TAXES TO THE GOVERNMENT EXCHEQUER. FURTHER, LD. CIT (A) INSTEAD OF VERIFYING THE GENUINITY OF CASH PAYMENT S HAS DISALLOWED RS.5,00,000/ - ON ACCOUNT OF SITE EXPENSE SIMPLY - ON AN ESTIMATION AND ASSUMPTION. HENCE, IT IS PRAYED BY YOUR APPELLANT TO ALLOW THE EXPENSES INCURRED U ND ER THE HEAD OF SITE EXPENSES BY FURTHER RS.5,00,0001 - OVER AND ABOVE THE AMOUNT ALREADY ALLOWED BY LD. DCIT AND LD. CIT (A). [RELIEF CLAIMED - ALLOWANC E OF SITE EXPENSE BY RS.5,00,000/ - - ] . 4). THAT LD. CIT (A) CONFIRMED THE DISALLOWANCE OF EXPENSE CLAIMED UNDER THE HEAD OF PRELIMINARY EXPENSE WRITTEN OFF AMOUNTING TO RS.18,310/ - ON THE VIEW THAT SAID AMOUNT INCURRED IS CAPITAL IN NATURE. YOUR APPELLA NT SUBMITS THAT 20% (L/5TH OF COMPANY FORMATION EXPENSES) IS ALLOWABLE TO BE AMORTIZED OVER OF PERIOD OF 5 (FIVE) YEARS FROM THE YEAR OF FORMATION OF A COMPANY. BY FOLLOWING THE SAID PRINCIPLE ENUMERATED IN SECTION 35D(2) OF THE INCOME TAX ACT, 1961, Y OUR APPELLANT HAS CLAIMED SET OFF OF THE SAID AMOUNT AS CHARGE TO THE PROFIT & LOSS ACCOUNT FOR THE INSTANT YEAR OF APPEAL BEING 4TH YEAR AFTER FORMATION OF THE COMPANY. HENCE, IT IS PRAYED THAT THE SAI D DISALLOWED AMOUNT OF RS.18,31 0/ - BE DIRECTED TO B E ALLOWED. [RELIEF CLAIMED - ALLOWANCE OF PRELIMINARY EXPENSE WRITTEN OFF BY RS.18,31 0/ - ]. 3. AS REGARDS GROUND NOS. 1, 2 AND 3 THE BRIEF FACTS OF THE CASE AS ARISING FROM AO S ORDER ARE REPRODUCED HEREIN BE LOW FOR THE SAKE OF CONVENIENCE : SITE EXPEN SES ON SCRUTINY OF THE ACCOUNTS IT IS FOUND THAT A SUM OF RS.1, 33,28,055/ - HAS BEEN DEBITED IN THE PROFIT & LOSS ACCOUNT UNDER THE HEAD 'SITE EXPENSES'. IN THE IMMEDIATE PRECEDING YEAR THE SAID EXPENSES WAS INCURRED TO THE EXTENT OF RS.59, 14,253/ - . SO TH E INCREASE OF EXPENDITURE UNDER THIS HEAD HAS BEEN MORE THAN 125%. THE A/R WAS ASKED TO EXPLAIN THE REASONS OF THE INCREASE OF THE EXPENDITURE. IN REPLY THE A/R SUBMITTED THAT THE SAID INCREASE IS DUE TO MORE SITES UNDERTAKEN IN THE YEAR AND ALSO DUE TO SU B - CONTRACTORS ENGAGED IN THE YEAR. SITE EXPENSES ARE INCURRED AT VARIOUS SITES WHERE JOB WORK IS CARRIED OUT DURING THE YEAR. IT CONSISTS OF VARIOUS SMALL EXPENSES INCURRED AT THE SITES. THE SUBMISSION OF THE A/R IS NOT SUPPORTED BY ANY AUTHENTIC EVI DENCE. MOREOVER, THE REASON FOR INCREASE IS NOT SUFFICIENT ENOUGH FOR THE HUGE INCREASE OF EXPENSES UNDER THIS HEAD OF MORE THAN 125 %. THEREFORE, THE VARIOUS SMALL EXPENSES INCURRED AT THE SITES COULD NOT BE VERIFIED AND AS SUCH THE SAID EXPENSES CAN NOT BE ACCEPTED TO HAVE BEEN INCURRED FOR THE RUNNING OF THE BUSINESS ACTIVITIES. IN VIEW OF THE ABOVE A SUM OF RS. 10,00,000/ - ON ESTIMATE IS DISALLOWED UNDER THIS HEAD AND ADDED TO THE RETURNED INCOME OF THE ASSESSEE. 3.1. THE LD. CIT(A) RESTRICTED THE A DDITION TO RS.5 LAKHS VIDE PAGE NOS. 3 AND 4 OF HIS ORDER. ITA NO. 1383/KOL/2012 M/S.ALCLAD FABRICATION PRIVATE LIMITED A.YR. 2009 - 10 3 4. WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE FACTS OF THE CASE. THE AO MADE THE DISALLOWANCE MAINLY BEING INCREASE IN EXPENDITURE ON ACCOUNT OF SITE EXPENSES HIGHER THAN 125% AS AGAINST PRECEDING YEAR, TO WHICH THE ASSESSEE HAS SUBMITTED THE EXPLANATION . IT WAS OBSERVED BY THE AO THAT NO AUTHENTIC EVIDENCE FOR THE SITE EXPENSES WERE PRODUCED AND THEREFORE ON ESTIMATE BASIS , RS. 10 LAKHS WERE DISALLOWED . T HE LD. CIT(A) ALSO IN FACT , SHOWIN G NO REASONS RESTRICTED THE DISALLOWANCE TO RS.5 LAKHS. 4.1. HOWEVER, NEITHER THE AO NOR LD. CIT(A) HAS INVOKED THE PROVISION S OF SECTION 145(3) OF THE ACT . I T IS A SETTLED PRINCIPLE OF LAW THAT THE TRADING RESULTS DECLARED BY THE ASSESSEE CANNOT BE DISTU RBED WITHOUT POINTING OUT ANY SPECIFIC DEFECT OR WITHOUT INVOKING THE PROVISION OF SECTION 145(3) OF THE ACT. IN THE PRESENT FACTS AND CIRCUMSTANCES OF THE ACT NEITHER AO NOR LD. CIT(A) HAVE POINTED OUT ANY SPECIFIC DEFECT OR HAVING NOT INVOKED THE PROVISI O N OF SECTION 145(3) OF THE ACT, THE AO IS NOT JUSTIFIED IN DISALLOWING RS.10 LAKHS ON ESTIMATE BASIS. THUS DISALLOWANCE CONFIRMED BY THE LD. CIT(A) IS DIRECTED TO BE DELETED. GROUND NOS. 1,2 AND 3 OF THE ASSESSEE ARE ALLOWED. 5. AS REGARDS GROUND NO.4 TH E BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE HAD CLAIMED PRELIMINARY EXPENSES WHICH WERE WRITTEN OFF IN THE PROFIT AND LOSS ACCOUNT. THE AO HAS TREATED THE SAME AS CAPITAL IN NATURE. THE LD. CIT(A) CONFIRMED THE ACTION OF AO. 6. WE HAVE HEARD THE RIVA L CONTENTIONS AND PERUSED THE FACTS OF THE CASE. IT WAS SUBMITTED BEFORE BOTH THE AUTHORITIES BELOW THAT THE EXPENSES ON ACCOUNT OF PRELIMINARY EXPENSES WERE INCURRED IN A.YR.2005 - 06 AND PER SECTION 35D OF THE ACT , 1/5 TH OF THE SAID EXPENDITURE IS BEING C LAIMED AS AFTER WRITING THE SAME OFF AND DEBITING TO ITA NO. 1383/KOL/2012 M/S.ALCLAD FABRICATION PRIVATE LIMITED A.YR. 2009 - 10 4 PROFIT AND LOSS ACCOUNT . T HE SAID EXPENDITURE HAVE BEEN ALLOWED IN THE PRECEDING YEARS AS CLAIMED BY THE ASSESSEE. IN THE CIRCUMSTANCES AND FACTS OF THE CASE THERE IS NO REASON TO DISALLOW THE SAME IN T HE IMPUGNED YEAR. ACCORDINGLY AS REGARDS GROUND NO.4 OF THE ASSESSEE , WE DIRECT THE AO TO ALLOW THE SAME FOLLOWING THE PAST PRACTICE . GROUND NO.4 OF THE ASSESSEE IS ALLOWED. 7. IN THE RESULT THE APPEAL OF THE ASSESSEE IS ALLOWED. ORDE R PRONOUNCED IN THE COURT ON 0 9.06.2015. SD/ - SD/ - [ MAHAVIR SINGH ] [ B.P.JAIN ] JUDICIAL MEMBER ACCOUNTANT MEMBER DATE: 09.06.2015. R.G.(.P.S.) COPY OF THE ORDER FORWARDED TO: 1 . M/S.ALCLAD FABRICATION PRIVATE LIMITED, 167/4, LENIN SARANI, 3 RD FLOOR, ROOM NO.3, KOLKATA - 700072. 2 D.C.I.T., CIRCLE - 1 , KOLKATA 3 . CIT(A) - I , KOLKATA 4. CIT - KOLKATA. 5. CIT - DR, KOLKATA BENCHES, KOLKATA TRUE COPY, BY ORDER, DEP UTY /ASST. REGISTRAR , ITAT, KOLKATA BENCHES