M/s Amco Batteries Ltd., Bangalore V. ACIT, Bangalore

ITA 142/BANG/2010

• Counselvise Citation: [2011] 135 COUNSELVISE.COM (IT) 1494 (ITAT-BANGALORE)
• Duration Of Justice: 1 year(s) 1 month(s) 17 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 21-03-2011
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: A
• Next Hearing Date: 17-03-2011
• Assessment Year: 2005-2006
• Appeal Filed On: 04-02-2010
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Assessee Lawyers: SHEETAL BORKER SMT JACINTA
• Keywords: Capital asset; Revenue expenditure; Capital expenditure
• Section: 143(3)

Judgement Text

PAGE 1 OF 5 ITA NO.142 & 352/BANG/2010 1 IN THE INOME TAX APPELLATE TRIBUNAL, BANGALORE BENCH A BEFORE DR. O K NARAYANAN, VICE PRESIDENT AND SMT. P MADHAVI DEVI, J.M. ITA NO.142/BANG/2010 (ASST. YEAR 2005-06) M/S AMCO BATTERIES LTD., 3 RD FLOOR, TOWER BLOCK, UNITY BUILDING, J C ROAD, N R SQUARE, BANGALORE-2. -APPELLANT VS THE ASST. COMMISSIONER OF INCOME-TAX, CIRCLE-11(1), BANGALORE. - RESPONDENT ITA NO.352/BANG/2010 (ASST. YEAR 2005-06) (BY REVENUE) ASSESSEE BY : SMT. SHEETAL BORKER, ADVOCATE REVENUE BY : SMT. JACINTA ZIMIK VASHAI, ADDL. CIT O R D E R PER P MADHAVI DEVI : THESE ARE THE APPEALS FILED BY THE ASSESSEE AND T HE REVENUE FOR THE ASST. YEAR 2005-06 AGAINST THE ORDER OF THE CIT(A)-I, BANGALORE DATED 01.12.2009. 2. BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE C OMPANY IS ENGAGED IN THE BUSINESS OF MANUFACTURING BATTERI ES. IT FILED ITS RETURN OF INCOME FOR THE ASST. YEAR 2005-06 DECLARIN G A LOSS OF PAGE 2 OF 5 ITA NO.142 & 352/BANG/2010 2 RS.6,41,595/-. DURING THE ASSESSMENT PROCEEDINGS U /S 143(3) OF THE I T ACT, THE AO OBSERVED THAT THE ASSESSEE COMP ANY HAD OWNED AN IMMOVABLE PROPERTY AT HEBBAL, BANGALORE, WH EREIN IT WAS CARRYING ON ITS BUSINESS/MANUFACTURING ACTIVITIES. IT WAS FOUND THAT THIS LAND WAS SOLD TO M/S GODREJ PROPERTIES AN D INVESTMENTS PVT. LTD. AND THE INCOME WAS OFFERED UNDER THE HEAD LONG TERM CAPITAL GAIN. HOWEVER, THE ASSESSEE COMPANY HAD IN CURRED CERTAIN EXPENDITURES SUCH AS, SEARCH AND VERIFICATION OF LA ND DOCUMENTS, SUBMISSION OF REPORT TO POLLUTION CONTROL, OBTAININ G OF LEGAL OPINIONS, DOCUMENTATION CHARGES, RECLASSIFICATION OF LAND USA GE CHARGES, PREPARATION OF DRAWINGS, SURVEYING OF THE LAND, LEVE LING OF THE LAND AND DEVELOPMENT OF LAND UNDER VARIOUS HEADS TOTALIN G TO RS.50,47,650/- AND CLAIMED THE SAME AS REVENUE EXPE NDITURE. THE AO ASKED THE ASSESSEE TO EXPLAIN AS TO WHY THE SAME SHOULD NOT BE TREATED AS CAPITAL EXPENDITURE. 3. THE LEARNED COUNSEL FOR THE ASSESSEE SUBMITTED BEFORE THE AO THAT THE LAND WAS CONVERTED INTO STOCK-IN-TR ADE PRIOR TO SALE OF THE LAND AND THEREFORE THIS EXPENDITURE SHOULD B E ALLOWED AS REVENUE EXPENDITURE. HOWEVER, THE AO HELD IT TO BE CAPITAL EXPENDITURE AND DISALLOWED THE SAME. FURTHER, HE A LSO OBSERVED THAT THE ASSESSEE HAS MADE A PROVISION OF RS.27,20, 647/- FOR WARRANTY ON 31.3.2005. HE HELD THAT THIS IS A PROVI SION MADE AGAINST THE FUTURE LIABILITY AND THEREFORE, IT IS LIABLE TO BE BROUGHT TO TAX. PAGE 3 OF 5 ITA NO.142 & 352/BANG/2010 3 4. AGGRIEVED, THE ASSESSEE PREFERRED AN APPEAL BEF ORE THE CIT(A) AND THE CIT(A) CONFIRMED THE ORDER OF TH E AO AS REGARDS THE HOLDING OF EXPENDITURE AS CAPITAL EXPEN DITURE WHILE HE DELETED THE ADDITION MADE ON ACCOUNT OF PROVISION F OR WARRANTY. 5. AGAINST THE RELIEF GIVEN BY THE CIT(A), THE REVE NUE IS IN APPEAL BEFORE US AND AGAINST THE CONFIRMATION OF TH E ADDITION, THE ASSESSEE IS IN APPEAL BEFORE US. 6. BOTH THE PARTIES REITERATED THE SUBMISSIONS MAD E BEFORE THE AUTHORITIES BELOW AND HAVING GONE THROUG H THE MATERIAL ON RECORD, WE FIND THAT WITH REGARD TO THE ISSUE OF LAND DEVELOPMENT EXPENSES, THE ASSESSEE HAS ALL ALONG TREATED THE LA ND AS ITS CAPITAL ASSET AND ACCORDING TO THE ASSESSEE, IT IS ONLY ON 1 /4/2004 THAT THE SAID CAPITAL ASSET HAS BEEN CONVERTED INTO STOCK-IN -TRADE. HOWEVER, WE ALSO FOUND THAT THE ASSESSEE HAS ITSELF OFFERED THE INCOME FROM THE SALE OF THE LAND AS INCOME FROM LONG TERM CAPIT AL GAIN. THE ASSESSEE CANNOT TAKE TWO DIFFERENT AND CONTRADICTOR Y STANDS IN TWO DIFFERENT TRANSACTIONS WITH REGARD TO THE NATURE OF SAME PROPERTY. THE FACT THAT THE ASSESSEE IS OFFERING THE LONG TER M CAPITAL GAIN ITSELF SHOWS THAT IT IS TREATING THE ASSET AS A CAP ITAL ASSET. HOWEVER, AS SEEN FROM THE ORDERS OF THE AUTHORITIES BELOW AND NOT REFUTED BY THE ASSESSEE BEFORE US, THE ASSESSEE IS I N THE BUSINESS OF MANUFACTURING OF BATTERIES AND THERE IS NO PROVI SION IN THE MEMORANDUM OF ASSOCIATION ABOUT ALSO CARRYING ON OF THE BUSINESS OF DEVELOPMENT AND SALE OF PROPERTY. THEREFORE, TH E ASSESSEE PAGE 4 OF 5 ITA NO.142 & 352/BANG/2010 4 CANNOT CHANGE THE NATURE OF ITS LAND FOR A PARTICUL AR PERIOD AND THEN TREAT IT AS CAPITAL ASSET FOR THE PURPOSE OF SALE O F LAND. IN VIEW OF THE SAME, WE CONFIRM THE ADDITION MADE BY THE CIT(A) . 7. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS DI SMISSED. 8. AS REGARDS THE PROVISION FOR WARRANTY IS CONCERN ED, WE FIND THAT AS ON 1/4/2004 THE AVAILABLE PROVISION WA S RS.19,24,354/- AND THE WARRANTY EXPENSES INCURRED IN 2004-05 WERE RS.1,15,50,719/- AND THE WARRANTY FOR THE YEAR IS RS. 96,26,365/- AND THE DIFFERENCE BETWEEN THESE TWO IS RS.19,24,35 4/-. THE ASSESSEE HAS MADE A PROVISION OF RS.27,20,647/- DUR ING THE RELEVANT ASST. YEAR FOR THE CLAIMS ACCEPTED BUT NOT SETTLED A S ON 31.3.2005. AS HELD BY THE CIT(A), THE ANALYSIS OF THIS FACT DEMO NSTRATES THAT A SCIENTIFIC BASIS IS ADOPTED TO MEASURE THE FUTURE L IABILITY ON ACCOUNT OF WARRANTY AND THE EXPENSES ACTUALLY INCURRED IS COR RESPONDING TO THE PROVISION MADE. THEREFORE, WE CONFIRM THE ORDE R OF THE CIT(A) THAT THE ESTIMATION IS FAIR AND REASONABLE AND NO I NTERFERENCE IN THE SAID ORDER IS CALLED FOR. 9. IN THE RESULT, THE APPEAL FILED BY THE REVENUE I S ALSO DISMISSED. THE ORDER PRONOUNCED ON MONDAY, THE 21 ST DAY OF MARCH, 2011 AT BANGALORE. SD/- SD/- (DR. O K NARAYANAN) (P MADHAVI DE VI) VICE PRESIDENT JUDICIAL MEMBER PAGE 5 OF 5 ITA NO.142 & 352/BANG/2010 5 COPY TO : 1) THE ASSESSEE (2) THE REVENUE (3) THE CIT(A) CONCERNED. (4) THE CIT CONCERNED. (5) THE DR (6) GUARD FILE. MSP/21.3. BY ORDER ASST. REGISTRAR, ITAT, BANGALORE.