M/s. Kalpana Precipitates Pvt. Ltd., UDAIPUR V. ACIT, UDAIPUR

ITA 141/JODH/2011

• Counselvise Citation: 14123314 RSA 2011
• Duration Of Justice: 2 year(s) 7 month(s) 14 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 29-11-2013
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: DB
• Next Hearing Date: 19-11-2013
• Assessment Year: 2007-2008
• Appeal Filed On: 15-04-2011
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: N A JOSHI
• Assessee Lawyers: SHRAVAN GUPTA
• Keywords: Business income; Depreciation; Cost of acquisition; Bad and doubtful debts; Competent authority
• Section: 32

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL JODHPUR BENCH, JODHPUR BEFORE SHRI HARI OM MARATHA, JUDICIAL MEMBER AND SHRI N.K. SAINI, ACCOUNTANT MEMBER ITA NO.141/JODH/2011 ASSESSMENT YEAR: 2007-08 M/S KALPANA PRECIPITATES PVT. LTD. VS. ASSTT. COMMI SSIONER OF INCOME TAX, C/O. BANSILAL SHAH &CO. CIRCLE-2, UDAIPUR. CHARTERED ACCOUNTANTS, 1-SARDARPURA, MEERA COMPLEX, 2 ND FLOOR, UDAIPUR. (PAN: AABCK 0189 Q). (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI SHRAVAN GUPTA RESPONDENT BY : SHRI N.A. JOSHI, D.R. DATE OF HEARING : 19.11.2013 DATE OF PRONOUNCEMENT : 29 .11.2013 ORDER PER HARI OM MARATHA, JUDICIAL MEMBER: THIS APPEAL OF THE ASSESSEE FOR ASSESSMENT YEAR 200 7-08 IS DIRECTED AGAINST THE ORDER OF LD. CIT(A), UDAIPUR DATED 20.01.2011. 2. BRIEFLY STATED, THE FACTS OF THE CASE ARE THAT T HE ASSESSEE COMPANY IS ENGAGED IN THE MANUFACTURING OF HYDRADED LIME & PCC. FOR A .Y. 2007-08 THE ASSESSEE FILED ITS RETURN ON 11.10.2007 DECLARING TOTAL INCO ME OF RS. NIL. DURING THE YEAR 2 ITA NO.141/JODH/2011 A.Y. 2007-08 THE ASSESSEE COMPANY HAS DECLARED N.P. RATE OF 55% ON GROSS RECEIPTS OF RS.63,56,835/-. IT WAS NOTICED THAT AS PER COPY O F AWARD ISSUED BY LAND ACQUISITION AUTHORITY THE ASSESSEE COMPANY HAS RECE IVED COMPENSATION AGAINST ACQUISITION OF LAND AND BUILDING WHICH IS AS UNDER :- COMPENSATION AGAINST LAND RS.50,18,868/- COMPENSATION AGAINST BUILDING & OTHER STRUCTURES R S.30,12,724/- TOTAL COMPENSATION RS.80,31,53/- 10% KSHATHI PURTHI RECEIVED RS.8,03,153/- TOTAL AMOUNT RECEIVED RS.88,34,682/- THE COMPETENT AUTHORITY HAS GIVEN THE AMOUNT OF RS. 78,43,431/- TO THE ASSESSEE COMPANY AFTER DEDUCTING TDS OF RS.9,91,251 /- WHICH IS ALSO EVIDENT FROM THE TDS CERTIFICATE ISSUED WHICH IS AL SO PLACED ON RECORD. IN VIEW OF THE ABOVE THE ASSESSEE HAS TO PAY TAX ON CAPITAL GAIN ON THE ABOVE RECEIPTS BUT FROM THE PERUSAL OF ASSESSMENT R ECORD THE ASSESSEE HAS NOT PAID ANY CAPITAL GAIN ON SALE OF ASSETS I.E . LAND AND BUILDING/ACCORDINGLY THE A/R OF THE ASSESSEE VIDE S HOW CAUSE NOTICE DATED 27.11.2009 WAS SPECIFICALLY ASKED TO EXPLAIN AS TO WHY THE CAPITAL MAY NOT BE CHARGED ON THE ABOVE RECEIVED ON THE BAS IS OF COST OF THE ABOVE ASSETS APPEARING IN THE BALANCE SHEET/ DEPREC IATION CHART. 3. THE A.O. WANTED TO TREAT THIS RECEIPT AS CAPITAL BUT THE ASSESSEE EXPLAINED THAT THE COMPENSATION WAS RECEIVED TOWARDS ACQUISIT ION OF RUNNING BUSINESS AS GOING CONCERN TOWARDS DAMAGES CAUSES INJURY TO THE ASSESSEE IN ITS TRADE CONSTITUTES A TRADING RECEIPT OF THE ASSESSEE AND H ENCE SUCH COMPENSATION AMOUNT IS TREATED AS BUSINESS PROFIT ONLY. IT WAS ALSO EX PLAINED THAT ANY ADHOC LUMP SUM PAYMENT MADE TOWARDS ACQUISITION OF ASSETS OF AN UN DERTAKING IS BUSINESS PROFIT 3 ITA NO.141/JODH/2011 A.Y. 2007-08 UNDER THE PROVISIONS OF SECTION 41(2) OF THE INCOME TAX ACT, 1961, THE ACT FOR SHORT. IT WAS FURTHER STATED THAT THE WHOLE BUSINE SS AS GOING CONCERN WAS ACQUIRED AND THE INDIVIDUAL ASSETS HAVE ONLY BEEN CONSIDERED BY THE RELEVANT GOVERNMENT AUTHORITY AS PER THE REQUIREMENT OF NATIONAL HIGHWA Y AUTHORITY. AS PER THE ASSESSEE, THE LAND IN QUESTION WAS ACQUIRED BY THE COMPANY IN THE YEAR 1996 THROUGH AUCTION BY RAJASTHAN FINANCE CORPORATION (R FC). ORIGINALLY THE LAND WAS IN THE NAME OF M/S DEVKI MINICHEM PVT. LTD, UDAIPUR AND THE ASSESSEE COMPANY PURCHASED ENTIRE FIXED ASSETS ON THE PRINCIPLE OF AS IT WHERE IT IS BY RFC ON 14.11.1996 BASED ON THE BID AND NEGOTIATION. THE TO TAL PRICE OF ALL FIXED ASSETS WAS RS.11,11,000/-. ACCORDING TO THE ASSESSEE, THERE W AS NO SEPARATE PURCHASE IN THE CASE OF LAND AND BUILDING OR ASSETS. IT WAS ONLY F OR ACCOUNTING PURPOSE THAT THE ASSESSEE BIFURCATED THE RECEIPTS. THEREAFTER THE A SSESSEE HAS CLAIMED TO HAVE INCURRED CERTAIN EXPENSES TOWARDS OBTAINING PATTA F OR THE LAND ETC. WHICH ARE DULY ACCOUNTED FOR BY THE ASSESSEE. AFTER CONSIDERING T HE REPLY OF THE ASSESSEE, THE A.O. WAS NOT SATISFIED. HE WAS OF THE OPINION THAT THIS COMPENSATION RELATES TO ONLY LAND AND BUILDING. ACCORDING TO THE A.O. NO PART OF THE MACHINERY HAS BEEN ACQUIRED BY THE COMPETENT AUTHORITY. THEREFORE, THE WRITTEN SUBMISSIONS REFUTED THE CONTENTION OF THE ASSESSEE THAT WITHOUT RUNNING BUS INESS HAS BEEN ACQUIRED ON THE PREMISE THAT ANY RECEIPT AGAINST SALE OF CAPITAL AS SET HAS TO BE CHARGED UNDER THE HEAD CAPITAL GAIN. HE HAS COMPUTED CAPITAL GAIN ON SALE OF LAND AS UNDER :- 4 ITA NO.141/JODH/2011 A.Y. 2007-08 SALE CONSIDERATION OF THE LAND (COMPENSATION) RS.5 5,20,755/- LESS: INDEX COST OF ACQUISITION RS. 7,86,582/- COST OF ACQUISITION YEAR 1996-97 RS.4,62,250/- INDEX COST OF ACQUISITION 4,62,250 X 519/305 = 7,86,582/- LONG TERM CAPITAL GAIN ON SALE OF LAND RS.47,34,17 3/- 4. ACCORDINGLY, HE HAS MADE AN ADDITION OF RS.47,34 ,173/- AS LONG TERM CAPITAL GAIN. 5. SIMILARLY, IN RESPECT OF COMPENSATION RECEIVED A GAINST ACQUISITION OF BUILDING RS.30,12,724/- + 10% = RS.33,13,996/- AN D HAS REDUCED THE COST OF THIS BUILDING AS SHOWN BY THE ASSESSEE AT RS.4,71,711/- IT ITS BOOKS OF ACCOUNT AND HAS ARRIVED AT PROFIT ON SALE OF BUILDING AT RS.28,42,2 85/-, BUT THE ASSESSEE WANTED THAT THE COST OF LAND AND MACHINERY BEING RS.14,59,160/- SHOULD ALSO BE CONSIDERED AS PART OF COST OF DEPRECIABLE ASSETS. IN THIS REGARD , THE A.O. HAS CONSIDERED AND HELD AS UNDER :- I HAVE CONSIDERED THE SUBMISSION AS WELL AS FACT S OF THE CASE BUT IT IS VERY CLEARLY DISCUSSED IN THE ABOVE WHILE CAL CULATING LONG TERM CAPITAL GAIN ON SALE THAT THE COMPETENT AUTHORITY H AS GRANTED COMPENSATION ONLY ON LAND ON WHICH LONG TERM CAPITA L GAIN HAS ALREADY BEEN COMPUTED AND ADDED, SECONDLY COMPENSATION IS G RANTED ON BUILDING AND OTHER CONSTRUCTED PART FOR WHICH PROFI T IS BEING COMPUTED IN THIS PARA. THERE IS NO SUCH DISCUSSION IS AVAILABL E IN RESPECT OF ACQUISITION OF PLANT AND MACHINERY IN THE AWARD ISS UED BY COMPETENT AUTHORITY AND THE ASSESSEE IS ALSO FAILED TO BRING ANY EVIDENTIARY PROOF IN SUPPORT OF HIS CLAIM HENCE NO BENEFIT ON THIS ACCOU NT IS AVAILABLE TO THE 5 ITA NO.141/JODH/2011 A.Y. 2007-08 ASSESSEE. ACCORDINGLY THE COST OF BUILDING AS APPE ARING IN THE DEPRECIATION CHAR IS ONLY AVAILABLE COST FOR THE AS SET (BUILDING) ACQUIRED, WHICH CAN BE CONSIDERED AS COST OF ASSET HENCE PROFIT IS COMPUTED ON THE BASIS OF SUCH COST. AS FAR AS THE APPLICABILITY OF SECTION 41(2) IS CONCERNED IT IS ACCEPTABLE FACT RAISED BY THE A/R. I THEREFORE HOLD THAT THE ASSESSEE HAS EARNED PROFIT ON SALE OF BUILDING AT RS.28,42,285/- WHICH HE DID NOT DISCLOSE IN ITS RET URN OF INCOME. IN VIEW OF THE ABOVE DISCUSSION AN ADDITION OF RS.28,42,285 /- IS MADE TO THE TOTAL INCOME OF THE ASSESSEE ON ACCOUNT OF SHORT PROFIT O N SALE OF BUILDING. 6. IT WAS ALSO OBSERVED THAT THE ASSESSEE HAS DEBIT ED A SUM OF RS.7,17,189/- AS BAD DEBTS WRITTEN OFF. WHEN ASKED TO FURNISH THE N ATURE OF DEBTS, THE ASSESSEE FAILED TO PRODUCE ANY DOCUMENTARY EVIDENCE TO ESTAB LISH THE GENUINENESS OF THE TRANSACTIONS. IT WAS EXPLAINED THAT THE ASSESSEE H AS WRITTEN OFF RS.7,00,000/- AS BAD DEBT BEING IRRECOVERABLE FROM THE DEBTORS. IT WAS FURTHER SUBMITTED THAT THE DEBT WAS INCIDENTAL TO THE BUSINESS CARRIED ON BY THE AS SESSEE. IT ARISES ON SALE OF GOODS ON CREDIT AND ON ADVANCING MONEY TO THE DEBTORS. A S PER THE ASSESSEE, THE CLAIM OF BAD DEBT BECOMES ALLOWABLE IN THE YEAR IN WHICH THE SAME IS WRITTEN OFF UNDER THE PROVISIONS OF SECTION 36(1)(VII) OF THE ACT BUT THE A.O. WAS OF THE OPINION THAT THE ASSESSEE HAS NOT GIVEN PROOF THAT THE DEBIT HAD REA LLY BECAME BAD AND ACCORDINGLY HE HAS MADE THE ADDITION OF RS.7,17,189/-. 7. BEING AGGRIEVED, THE ASSESSEE FILED APPEAL AND T HE LD. CIT(A) HAS GIVEN A PART RELIEF. HE HAS ALLOWED THE GROUND REGARDING B AD DEBTS PARTLY. HE HAS ALSO GIVEN SOME RELIEF OUT OF COMPENSATION RECEIVED BUT THE ASSESSEE IS FURTHER 6 ITA NO.141/JODH/2011 A.Y. 2007-08 AGGRIEVED AND HAS RAISED THE MAIN GROUND AS GROUND NO.2 CHALLENGING THE FINDING OF LD. CIT(A) THAT COMPENSATION RECEIVED ON ACQUISI TION OF BUSINESS BY COMPETENT AUTHORITY HAS TO BE TAXED UNDER THE HEAD CAPITAL G AIN AS AGAINST CLAIMED AS INCOME FROM BUSINESS. 8. ORIGINALLY THE ASSESSEE HAS RAISED 3 GROUNDS. G ROUND NOS.1 & 3 BEING GENERAL IN NATURE, DO NOT REQUIRE ANY SPECIFIC ADJU DICATION. 9. THE ASSESSEE HAS RAISED ONE MORE GROUND BY FILIN G REVISED ADDITIONAL GROUND WHICH BEING LEGAL AND CONNECTED GROUND HAS BEEN ADM ITTED. THIS GROUND SAYS THAT IN CASE ADDITION OF RS.3,00,000/- IS NOT ALLOWABLE UNDER SECTION 36(1)(VII), IT CAN BE SET OFF AGAINST THE CAPITAL LOSS OF THE ASSESSEE. THEREFORE, IN FACT, THERE IS ONLY ONE CONNECTED GROUND INVOLVED IN THIS APPEAL. 10. WE HAVE HEARD RIVAL SUBMISSIONS AND HAVE GONE T HROUGH THE ENTIRE RECORDS AVAILABLE BEFORE US INCLUDING THE LENGTHY PAPER BOO K FILED ON RECORD. THE LD. AUTHORIZED REPRESENTATIVE SHRI SWARAN KUMAR GUPTA, ADVOCATE APPEARING FOR THE APPELLANT HAS ALSO FILED A WRITTEN SUBMISSION. ON THE OTHER HAND, LD. DEPARTMENTAL REPRESENTATIVE HAS HEAVILY RELIED ON THE ORDERS OF THE AUTHORITIES BELOW. 11. AFTER CONSIDERING THE RIVAL SUBMISSIONS, WE HAV E FOUND THAT THE BUSINESS OF THE ASSESSEE COMPANY WAS CLOSED DUE TO ACQUISITION OF LAND AND BUILDING BY THE GOVERNMENT. THE NATURE OF BUSINESS OF LAND, BUILDI NG AND MACHINERY IS ENTWINED IN SUCH WAY THAT THE PLANT & MACHINERY WOULD WORN O UT AND WOULD BECOME USELESS 7 ITA NO.141/JODH/2011 A.Y. 2007-08 DUE TO CHEMICAL PROCESS AND WAS NOT IN A POSITION T O BE SOLD OR SHIFTED FROM THE EXISTING PREMISES. THE MACHINERIES WERE NOT IN A P OSITION TO BE USED BY ANYONE ELSE. THE ASSESSEE HAS WRITTEN OFF ALL THE MACHINE RY ALONG WITH ALL THE ASSETS IN LIEU OF COMPENSATION RECEIVED FROM NATIONAL HIGHWAY AUTH ORITY OF INDIA. THE ASSESSEE IS IN THE BUSINESS OF CHEMICAL PRODUCTION WHICH HAS BEEN STOPPED AFTER ACQUISITION OF LAND BUILDING AND OTHER ASSETS. THE ASSESSEE COMPANY HAS TREATED THE ENTIRE COMPENSATION AS REVENUE RECEIPT BEING CO ST OF RUNNING BUSINESS WHEREAS THE DEPARTMENT HAS TREATED IT AS A CAPITAL LOSS. IN FACT, THE GIST OF SUBMISSION OF LD. AUTHORIZED REPRESENTATIVE IS THAT IT IS THE ACQ UISITION OF THE LAND AND BUILDING BY THE GOVERNMENT WHICH HAS FORCED IT TO CLOSE DOWN ITS BUSINESS. SECTION 41(2) OF THE ACT READS AS UNDER :- 41 (2) WHERE ANY BUILDING, MACHINERY, PLANT OR FURNITU RE, (A) WHICH IS OWNED BY THE ASSESSEE; (B) IN RESPECT OF WHICH DEPRECIATION IS CLAIMED UN DER CLAUSE (I) OF SUB- SECTION (1) OF SECTION 32 ; AND (C) WHICH WAS OR HAS BEEN USED FOR THE PURPOSES OF BUSINESS, IS SOLD, DISCARDED, DEMOLISHED OR DESTROYED AND THE MONEYS PAYABLE IN RESPECT OF SUCH BUILDING, MACHINERY, PLANT OR FURNI TURE, AS THE CASE MAY BE, TOGETHER WITH THE AMOUNT OF SCRAP VALUE, IF ANY , EXCEEDS THE WRITTEN DOWN VALUE, SO MUCH OF THE EXCESS AS DOES NOT EXCEE D THE DIFFERENCE BETWEEN THE ACTUAL COST AND THE WRITTEN DOWN VALUE SHALL BE CHARGEABLE TO INCOME-TAX AS INCOME OF THE BUSINESS OF THE PREV IOUS YEAR IN WHICH THE MONEYS PAYABLE FOR THE BUILDING, MACHINERY, PLANT O R FURNITURE BECAME DUE. 8 ITA NO.141/JODH/2011 A.Y. 2007-08 EXPLANATION.WHERE THE MONEYS PAYABLE IN RESPECT OF THE BUILDING, MACHINERY, PLANT OR FURNITURE REFERRED TO IN THIS S UB-SECTION BECOME DUE IN A PREVIOUS YEAR IN WHICH THE BUSINESS FOR THE PU RPOSE OF WHICH THE BUILDING, MACHINERY, PLANT OR FURNITURE WAS BEING U SED IS NO LONGER IN EXISTENCE, THE PROVISION OF THIS SUB-SECTION SHALL APPLY AS IF THE BUSINESS IS IN EXISTENCE IN THAT PREVIOUS YEAR.] 12. THE LAND/BUILDING ACQUAIRED WERE BEING USED FOR THE PURPOSE OF THE BUSINESS OF MANUFACTURING OF HYDRATED LIME AND PCC ETC. THE MACHINES HAVE NOT BEEN ACQUIRED BY THE AUTHORITY. HOWEVER, THE LAND/BUILD ING AND MACHINERY WERE BEING USED FOR ASSESSEES BUSINESS. AFTER THE ACQUISITIO N OF THE LAND AND BUILDING, THE MACHINERY HAS BEEN RENDERED USELESS. WHEN THE ASSE SSEE HAS CLAIMED THAT DUE TO SHUT DOWN OF MACHINERY IN WHICH LOT OF CHEMICALS WE RE BEING USED HAS BECOME ROTTEN AND UNUSABLE, THE DEPARTMENT HAS TO CONSIDER THIS ASPECT FOR TAX PURPOSES. THE PLANT AND MACHINERY WERE SUBJECTED TO DEPRECIAT ION. THIS FACT HAS NOT BEEN DENIED BY THE A.O. IT IS TRUE THAT THE AUTHORITY H AS NOT PURCHASED THE MACHINERY. IN FACT IT IS A CASE OF COMPULSORY SALE VIA ACQUISI TION. WHEN THE LAND AND BUILDING HAS BEEN ACQUIRED (COMPULSORILY SOLD), THE ASSESSEE HAS GOT NO OPTION BUT TO LEAVE THE MACHINERY AS IS WHERE IS ESPECIALLY BECAUSE THE ASSESSEE HAD ITSELF PURCHASED THE SAME FROM RICO ON THAT BASIS ONLY. THEREFORE, THE CLAIM OF THE ASSESSEE REGARDING MACHINERY BECOMES VALID IN THE GIVEN FACT S AND THE CIRCUMSTANCES OF THIS CASE. SECTION 41(2) SAYS THAT THE DIFFERENCE BETWE EN THE WDV AND THE ACTUAL COST QUA THE MONEYS PAYABLE, AS PRESCRIBED IN THIS SEC TION SHALL BE TREATED AS INCOME 9 ITA NO.141/JODH/2011 A.Y. 2007-08 OF THE ASSESSEE. PLAINLY SPEAKING, A PIQUANT SITUA TION HAS ARISEN IN THIS CASE. THE COMPULSORY ACQUISITION OF THE LAND AND BUILDING HAS , IN A WAY, ALSO RESULTED IN THE STOPPAGE OF ASSESSEES BUSINESS AND IT CAN REMOTELY BE TREATED AS AN ACQUISITION OF MACHINERY WITHOUT PAYING ANY COMPENSATION FOR THE S AME AS THE RATES TAKEN FOR THE LAND AND BUILDING WOULD TAKE CARE OF LOSS WHICH WOU LD ARISE ON ACCOUNT OF STOPPAGE OF BUSINESS AS WELL AS ON ACCOUNT OF MACHI NERY. IN THAT VIEW OF THE MATTER, WHATEVER RECEIPT COMES IN THE HANDS OF THE ASSESSEE CAN ALSO BE TREATED AS A TRADING RECEIPT AS HAS BEEN CANVASSED BY THE ASSESS EE. BE THAT AS IT MAY, THIS RECEIPT CAN BE TREATED QUA THE BUSINESS OF THE ASSE SSEE AND ANY LOSS ARISING IN RUNNING, CARRYING OR SHUTTING OF THE BUSINESS HAS T O BE SET-OFF AGAINST THE BUSINESS RECEIPT. ACCORDINGLY, WE ALLOW THE GROUND NO.(2) O F THIS APPEAL. IN THAT VIEW OF THE MATTER, THE BAD-DEBT HAS TO BE ALLOWED. IT IS NOT REQUIRED FROM THE ASSESSEE THAT THE DEBT SHOULD BE PROVED TO HAVE BECOME REALLY BAD . ACCORDINGLY, GROUND NO.(3) RAISED VIDE ADDITIONAL GROUND IS ALSO ALLOWED. 13. IN THE RESULT, APPEAL OF THE ASSESSEE STANDS AL LOWED. (ORDER PRONOUNCED IN THE OPEN COURT ON 29.11.2013) SD/- SD/- (N.K. SAINI) (HARI OM MARATHA) ACCOUNTANT MEMBER JUDICIAL MEMBER DATED: 29 TH NOVEMBER, 2013 10 ITA NO.141/JODH/2011 A.Y. 2007-08 PBN/* COPY OF THE ORDER FORWARDED TO: 1. APPELLANT 2. RESPONDENT 3. CIT (APPEALS) CONCERNED 4. CIT CONCERNED 5. D.R., ITAT, JODHPUR BENCH, JODHPUR 6. GUARD FILE. BY ORDER ASSISTANT REGISTRAR INCOME-TAX APPELLATE T RIBUNAL, JODHPUR