M/s MSK Projects (India) Ltd., Baroda V. The ACIT, Central Circle -1(2), Ahmedabad

ITA 1384/AHD/2006

• Counselvise Citation: [2009] 115 COUNSELVISE.COM (IT) 1936 (ITAT-AHMEDABAD)
• Duration Of Justice: 3 year(s) 7 month(s) 1 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 31-12-2009
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: A
• Next Hearing Date: 14-12-2009
• Assessment Year: 1999-2000
• Appeal Filed On: 29-05-2006
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: GOVIND SINGHAL
• Assessee Lawyers: S N SOPARKAR
• Keywords: Depreciation; Rule of consistency
• Section: 80IA

Judgement Text

1 IN THE INCOME TAX APPELLATE TRIBUNAL, A-BENCH, AHMEDABAD. BEFORE: SHRI T K SHARMA, JUDICIAL MEMBER, AND SHRI D.C.AGRAWAL, ACCOUNTANT MEMBER. ITA NO.1384/AHD/2006 ITA NO.1385/AHD/2006 (ASSESSMENT YEAR 1999-2000 & ASSESSMENT YEAR 2001-2002) M/S. MSK PROJECTS (INDIA) LTD. 707-708 STERLING CENTRE, R.C. DUTT ROAD, BARODA. VERSUS THE ASST. COMMISSIONER OF INCOME TAX CENTRAL CIRCLE 1(2), AHMEDABAD. (APPELLANT) (RESPONDENT) PAN: FOR THE APPELLANT: SHRI. S.N. SOPARKAR, SR. ADVOCAT E FOR THE RESPONDENT SHRI. GOVIND SINGHAL, SR. DR ORDER PER D C AGRAWAL (ACCOUNTANT MEMBER): THIS ARE THE TWO APPEALS FOR THE ASSESSMENT YEARS 1999-2000 AND 2000-2001 FILED BY T HE ASSESSEE AGAINST THE ORDER OF LD. COMMISSIONER OF INCOME TAX(APPEALS ) RAISING SEVERAL GROUNDS. EACH ISSUE COVERED IN THESE GROUNDS ARE A DJUDICATED BELOW. ITA NO.1384/AHD/2006; ASSESSMENT YEAR 1999-2000 2. GROUND NO. 1 TO 3 COVERED THE ISSUE RELATING TO CONFIRMATION OF REDUCTION OF PROFITS BY RS.1,97,157/- OF ELIGIBLE P ROJECTS FOR CLAIMING DEDUCTION UNDER SECTION 80IA BEING INTEREST EXPENDI TURE CLAIMED UNDER SECTION 36(1)(III). THIS IS DESCRIBED BY THE ASSES SING OFFICER IN PARA 2 OF HIS ORDER AT PAGE 1 TO 4 AND BY LD. COMMISSIONER OF INCOME TAX(APPEALS) IN PARA 3 TO 6 AT PAGES 1 TO 12. WHIL E SO DECIDING LD. ITA NO.1384/AHD/2006 ITA NO.1385/AHD/2006 (ASSESSMENT YEAR 1999-2000 & ASSESSMENT YEAR 2001-2002) COMMISSIONER OF INCOME TAX(APPEALS) HAS FOLLOWED HI S ORDER FOR ASSESSMENT YEAR 2001-2002. 3. WE HAVE HEARD THE LEARNED AR OF THE ASSESSEE AND LEARNED DR. THIS ISSUE IS COVERED BY A DECISION OF THE TRIBUNAL IN ITA NO.3518/AHMEDABAD/2004. ISSUE HAS BEEN RESTORED TO THE FILE OF THE ASSESSING OFFICER IN PARA 11 OF THE ABOVE REFERRED ORDER OF THE TRIBUNAL DATED 07-08-2009. THE TRIBUNAL HAS OBSERVED AS UND ER: 11. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND P ERUSED THE MATERIAL ON RECORD. IN OUR CONSIDERED VIEW, THE ONU S FOR ESTABLISHING THAT IT WAS INTEREST FREE FUNDS WHICH WERE GIVEN TO INFRASTRUCTURE DIVISION IS ON THE ASSESSEE. MERELY BECAUSE BALANCE SHEET INDICATED THAT THE ASSESSEE HAD SHARE CAPITAL RESERVE, IT COULD NOT BE SAID THAT IT HAD ACTUALLY INTEREST FREE LIQU ID FUNDS TO BE TRANSFERRED TO INFRASTRUCTURE DIVISION. THERE IS NO DISPUTE WITH THE PROPOSITION THAT WHERE THE ASSESSEE HAS INTEREST FR EE FUNDS AVAILABLE THEN TRANSFER TO SISTER CONCERN OR TO A S OURCE EVEN WHOSE INCOME IS EXEMPT CAN COME OUT OF SUCH INTEREST FREE FUNDS BUT THIS HAS TO BE SHOWN BY THE ASSESSEE. A FUND FLOW STATEM ENT SHOWING INTEREST BEARING FUNDS AND, THEIR UTILIZATION HAS T O BE GIVEN THEREBY PROVING THAT INTEREST BEARING FUNDS WERE UTILIZED F OR THE BUSINESS OF CONSTRUCTION DIVISION AND WERE NOT TRANSFERRED TO I NFRASTRUCTURE DIVISION. IN THIS REGARD WE MAY NOTICE THAT ASSESSI NG OFFICER HAS NOT TAKEN ANY ACTION FOR DISALLOWING INTEREST IN CO NSTRUCTION DIVISION IN EARLIER YEARS EVEN THOUGH THERE WERE IN TEREST BEARING FUNDS BORROWED BY THE ASSESSEE AND INTEREST THEREON WAS PAID. IF NO INTEREST PAYMENT BY CONSTRUCTION DIVISION HAS BE EN DISALLOWED FOR TRANSFER OF FUNDS FROM CONSTRUCTION DIVISION TO INFRASTRUCTURE ITA NO.1384/AHD/2006 ITA NO.1385/AHD/2006 (ASSESSMENT YEAR 1999-2000 & ASSESSMENT YEAR 2001-2002) DIVISION THEN, IT IS PRESUMED THAT TRANSFER OF FUND S IN EARLIER YEARS WAS OUT OF INTEREST FREE FUNDS AND TO THAT EXTENT P AYMENT OF INTEREST THIS YEAR CANNOT BE DISALLOWED. FOLLOWING THE RULE OF CONSISTENCY, AS DESCRIBED IN 1. CIT V. H.P.COTTON TEXTILES MILLS LTD. (2009) 311 ITR 436 (P&H); 2. CIT V. MALBOROUGH POLYCHEM. PVT. LTD. (2009) 309 ITR 43 (RAJ.); 3.CIT V. MOONLIGHT BUILDERS AND DEVELOPERS (2008) 307 ITR 197 (DEL.) AND OTHERS., WE HOLD THAT THE A.O. SHOULD NOT DISALLOW INTEREST IN RESPECT OF THE FUND S ALREADY CONSIDERED IN EARLIER ASSESSMENT YEARS. THE ASSESSE E HAS TRANSFERRED FRESH FUNDS THIS YEAR TO THE EXTENT OF RS.3,84,81,967/- LESS RS.2,72,98,401 = RS.1,61,83,566/-. IT HAS TO B E SHOWN BY THE ASSESSEE THAT THESE FUNDS WERE TRANSFERRED OUT OF I NTEREST FREE FUNDS AND TO THAT EXTENT LIQUID INTEREST FREE FUNDS WERE AVAILABLE WITH HIM. HE HAS TO SHOW NEXUS. HE HAS TO SHOW THAT NO I NTEREST BEARING FUNDS WERE TRANSFERRED TO INFRASTRUCTURE DIVISION. WE, THEREFORE, RESTORE THE MATTER TO THE FILE OF THE ASSESSING OFF ICER TO GIVE AN OPPORTUNITY TO THE ASSESSEE TO SHOW THAT INTEREST B EARING FUNDS WERE NOT UTILIZED FOR INVESTING INTO INFRASTRUCTURE DIVISION THIS YEAR THEREBY CLEARLY CREATING AN INFERENCE THAT IT WAS I NTEREST FREE FUNDS WHICH WERE GIVEN TO INFRASTRUCTURE DIVISION. IN ANY CASE, IT IS ONLY TO THE EXTENT OF INTEREST BEARING FUNDS ARE PROVED TO HAVE GONE TO INFRASTRUCTURE DIVISION THE INTEREST RELATABLE TO S UCH TRANSFER OF INTEREST BEARING FUNDS THIS YEAR TO INFRASTRUCTURE DIVISION WILL ALONE TO BE CONSIDERED FOR DISALLOWANCE IN CONSTRUC TION DIVISION. RESPECTFULLY FOLLOWING ABOVE ORDER, WE RESTORE THIS ISSUE TO THE FILE OF THE ASSESSING OFFICER FOR DECIDING THE ISSUE IN ACCORDA NCE WITH THE DECISION HE TAKES FOR THE ASSESSMENT YEAR 2001-2002. ITA NO.1384/AHD/2006 ITA NO.1385/AHD/2006 (ASSESSMENT YEAR 1999-2000 & ASSESSMENT YEAR 2001-2002) 4. THESE GROUNDS OF THE ASSESSEE ARE ALLOWED, BUT F OR STATISTICAL PURPOSE. 5. GROUND NO. 4 AND GROUND NO.6 RELATES TO CONFIRM ING DISALLOWANCE OF RS.1,42,812/- BEING 5% OF STAFF WELFARE EXPENSES AND OF RS.74988/- OUT OF TELEPHONE EXPENSES RESPECTIVELY AFTER HEARIN G THE PARTIES, WE FIND THAT ISSUE IS COVERED AGAINST THE ASSESSEE IN ITA N O. 1230/A/2002 FOR THE ASSESSMENT YEAR 1998-1999, WHEREIN SUCH DISALLOWANC E AT A RATE OF 10% WAS CONFIRMED BY THE TRIBUNAL. FOR THE SAKE OF CON VENIENCE PARA 5 AND 6 FROM THEIR ORDER AS UNDER: 3 . THE FIRST GROUND OF THE APPEAL RELATES TO RESTRIC TION OF THE DISALLOWANCE MADE BY THE A.O. IN RESPECT OF THE ASS ESSEES CLAIM FOR STAFF WELFARE EXPENSES AT RS.1,42,545, TO RS.54 ,402. THE BRIEF FACTS ARE THAT THE ASSESSEE CONTENDED THESE EXPENSE S WERE IN RESPECT OF ITS LABOUR, ENGAGED AT ITS VARIOUS SITES , AS WELL AS ITS STAFF, AND INCLUDES MESS EXPENSES THEREOF IN THE MA IN. THE A.O. FOUND THE ASSESSEES CLAIM UNDER THIS HEAD, AT RS.2 8.51 LAKHS, AS INCLUSIVE OF PERSONAL EXPENSES AS WELL AS INADMISSI BLE EXPENSES, NOT RELATING TO THE REGULAR REQUIREMENT OF THE BUSI NESS VIZ., ENTERTAINMENT OF GUESTS OF SENIOR EMPLOYEES AND DIR ECTORS, ETC. ACCORDINGLY, HE MADE AN ADHOC DISALLOWANCE FOR THE SAME AS WELL AS OTHER PETTY EXPENSES AS BEING UNVERIFIABLE, AT 5 % OF THE TOTAL CLAIM, I.E. RS.1,42,545. IN APPEAL, THE LEARNED CI T(A), AFTER EXAMINING THE DETAILED BREAK-UP OF THE ASSESSEES C LAIM OF RS.28,50,900/- FOUND THAT ONLY AN EXPENDITURE OF RS .5,44,019/- AS BEING ONE WHICH COULD INCLUDE EXPENDITURE WHICH IS DISALLOWABLE. HE, ACCORDINGLY, ESTIMATING THE SAME AT 10% THEREOF (RS.54,402), ALLOWED THE ASSESSEES CLAIM FOR THE BALANCE RS.88, 143 (1,42,545 54,402). AGGRIEVED, THE REVENUE IS IN APPEAL BEFOR E US. ITA NO.1384/AHD/2006 ITA NO.1385/AHD/2006 (ASSESSMENT YEAR 1999-2000 & ASSESSMENT YEAR 2001-2002) 4. WE HAVE HEARD THE PARTIES. WE FIND THAT THE LEA RNED CIT(A) HAS, AFTER APPRECIATION OF THE FACTS, GIVEN A FINDI NG WHICH HAS NOT BEEN CONTROVERTED BY THE REVENUE, I.E., OF EXPENSES TO THE EXTENT OF RS.23,06,881/- AS BEING ON LABOUR AND STAFF SO THAT THE SAME COULD NOT INCLUDE THEREIN EXPENSES THAT ARE LIABLE FOR DI SALLOWANCE. IN THIS VIEW OF THE MATTER, WE DO NOT FIND ANY REASON FOR INTERFERENCE WITH HIS ORDER AND, ACCORDINGLY, UPHOLD THE SAME. RESPECTFULLY FOLLOWING ABOVE ORDER, WE CONFIRM THE ORDER OF LEARNED CIT(A) ON THIS ISSUE. THESE GROUNDS ARE REJECTED. 6. THE 5 TH GROUND RELATES TO DISALLOWANCE OF RS.38,993/- BEIN G 5% OF CONVEYANCE EXPENSES. THE LEARNED AUTHORISED REPRES ENTATIVE SUBMITTED THAT ISSUE IS COVERED IN ITS FAVOUR BY THE DECISION OF HON'BLE GUJARAT HIGH COURT IN SAYAJI IRON AND ENGINEERING COMPANY VS. CI T, WHEREIN IT IS HELD THAT PARTIAL DISALLOWANCE OF EXPENDITURE CONSI DERING IT FOR PERSONAL NATURE IS NOT PERMISSIBLE. FOLLOWING ABOVE DECISIO N, WE DELETE THE ADDITION. THIS GROUND OF THE ASSESSEE IS ALLOWED. 7. GROUND NO.7 RELATES TO DEPRECIATION ON OFFICE EQ UIPMENTS AT 25% IN RESPECT OF 10%. THIS ISSUE IS COVERED IN FAVOUR OF THE ASSESSEE IN PARA 29 OF THE ORDER OF THE TRIBUNAL FOR THE ASSESSMENT YEAR 2001-2002 AS UNDER: 29. GROUND NO.4 RELATES TO DISALLOWANCE OUT OF DEP RECIATION WHICH WAS RESTRICTED TO RS.15,110/- AS AGAINST ADDI TION OF RS.37,776/- MADE BY THE ASSESSING OFFICER. THE LD. CIT(A) ALLOWED THE CLAIM OF THE ASSESSEE AT 25% AS AGAINST 10% APP LIED BY THE ASSESSING OFFICER FOLLOWING THE DECISION OF JURISDI CTIONAL HIGH COURT IN TARUN CHEMICALS LTD. 151 ITR 75. SINCE, T HE ISSUE HAS BEEN DECIDED BY THE LD.CIT(A) ON THE BASIS OF DECIS ION OF HON'BLE ITA NO.1384/AHD/2006 ITA NO.1385/AHD/2006 (ASSESSMENT YEAR 1999-2000 & ASSESSMENT YEAR 2001-2002) GUJARAT HIGH COURT, WE DO NOT FIND ANY INFIRMITY IN HER ORDER. ACCORDINGLY, THIS GROUND IS ALSO REJECTED. RESPECTFULLY FOLLOWING ABOVE DECISION, WE DELETE TH E ADDITION. THIS GROUND OF THE ASSESSEE IS ALLOWED. 8. GROUND NO.8 RELATES TO CONFIRMING DISALLOWANCE I N RESPECT MEMBERSHIP AND SUBSCRIPTION EXPENSES, PUJA AND DIWA LI EXPENSES ETC. THIS ISSUE IS DECIDED IN FAVOUR OF THE ASSESSEE FOL LOWING THE DECISION OF HON'BLE GUJARAT HIGH COURT IN GUJARAT STATE EXPORT CORPORATION LIMITED VS. CIT [1994] 209 ITR 649 (GUJARAT) AND IN THE ORD ER OF THE TRIBUNAL FOR THE ASSESSMENT YEAR 2001-2002 VIDE PARA 21-22 THERE OF, WHICH READS AS UNDER: 21. THE SIXTH GROUND RELATES TO CLAIM OF EXPENSES O N MEMBERSHIP OF CLUB. THE LD. ASSESSING OFFICER DISALLOWED A SU M OF RS.25,105/- OUT OF WHICH THE LD.CIT(A) CONFIRMED A PART OF THE EXPENSES ON THE GROUND THAT A SPECIFIC CONTRIBUTION IN THE NAME OF COMPANY AND SUBSCRIPTION IN THE NAME OF THE COMPANY WOULD ALONE BE PERMISSIBLE EXPENDITURE. THE LD. A.R. SUBMITTED TH AT EVEN THE CLUB MEMBERSHIP IN INDIVIDUAL NAME WOULD BE ALLOWABLE EX PENSES AS PURPOSE OF THE BUSINESS REMAINED THE COMMON FACTOR IN BOTH THE SITUATIONS I.E. THERE IS NO DIFFERENCE IN BUSINESS PURPOSE OF THE COMPANY ONE IN A CARD HAVING MEMBERSHIP IN THE NAME OF THE COMPANY AND OTHER HAVING MEMBERSHIP IN THE NAME OF INDIVIDUAL. HE REFERRED TO A DECISION OF HON'BLE GUJARAT HIGH C OURT IN GUJARAT STATE EXPORT CORPORATION LTD. V. CIT (1994) 209 ITR 649 (GUJ.) AND OF HON'BLE MADRAS HIGH COURT, IN CIT V. SUNDARAM INDUSTRIES (1999) 240 ITR 335 (MADRAS) FOR THE PROP OSITION THAT ITA NO.1384/AHD/2006 ITA NO.1385/AHD/2006 (ASSESSMENT YEAR 1999-2000 & ASSESSMENT YEAR 2001-2002) CLUB MEMBERSHIP ARE ALLOWABLE EXPENDITURE. THE LD. D.R. ON THE OTHER HAND, RELIED ON THE ORDER OF AUTHORITIES BELO W. 22. AFTER CONSIDERING THE RIVAL SUBMISSIONS WE ARE OF THE VIEW THAT THE ISSUE IS COVERED BY THE DECISION OF THE HO N'BLE GUJARAT HIGH COURT IN GUJARAT EXPORT CORPORATION (SUPRA), A S SUCH, ADDITIONS SO RETAINED BY THE LD. CIT(A) IS DELETED. THIS GROUND OF ASSESSEE IS ALLOWED. THIS GROUND OF THE ASSESSEE IS THEREFORE ALLOWED. 9. GROUND NO. 9 & 12 IS GENERAL IN NATURE AND DO NO T REQUIRE ANY SPECIFIC ADJUDICATION. THEREFORE THEY ARE REJECTED . 10. GROUND NO.10 RELATES TO LEVY OF INTEREST UNDER SECTION 234A, 234B, 234C. CHARGING OF INTEREST IS CONSEQUENTIAL AND TH EREFORE DO NOT REQUIRE ANY SPECIFIC ADJUDICATION. THIS GROUND IS ACCORDIN GLY REJECTED. 11. GROUND NO.11 RELATES TO INITIATION OF PENALTY U NDER SECTION 271(C) IT IS PREMATURE AND THUS REJECTED. 12. APPEAL OF THE ASSESSEE IS PARTLY ALLOWED AND PA RTLY ALLOWED FOR STATISTICAL PURPOSE. THIS ORDER IS PRONOUNCED IN OPEN COURT ON DATED 31 ST DECEMBER, 2009. SD/- SD/- (T.K. SHARMA) (D.C. AGRAWAL) JUDICIAL MEMBER ACCOUNTA NT MEMBER AHMEDABAD; DATED: 31/12/2009 ANKIT* COPY OF THE ORDER FORWARDED TO: 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT(A) CONCERNED 4. THE CIT, ITA NO.1384/AHD/2006 ITA NO.1385/AHD/2006 (ASSESSMENT YEAR 1999-2000 & ASSESSMENT YEAR 2001-2002) 5. THE DR, AHMEDABAD BENCH 6. THE GUARD FILE. BY ORDER, ASSTT. REGISTRAR/ DEPUTY REGISTRAR ITAT, AHMEDABAD BENCHES, AHMEDABAD.