Shilchar Payton Technologies Ltd., Baroda V. The Income tax Officer, Ward-4(3), Baroda

ITA 1436/AHD/2005

• Counselvise Citation: [2009] 115 COUNSELVISE.COM (IT) 0265 (ITAT-AHMEDABAD)
• Duration Of Justice: 4 year(s) 4 month(s) 30 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 16-10-2009
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: C
• Next Hearing Date: 30-09-2009
• Assessment Year: 2001-2002
• Appeal Filed On: 17-05-2005
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Assessee Lawyers: M J SHAH
• Keywords: Business income; Depreciation; Unabsorbed depreciation
• Section: 40A(3)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD BENCH C BEFORE SHRI T.K.SHARMA, JUDICIAL MEMBER AND SHRI D.C.AGRAWAL, ACCOUNTANT MEMBER DATE OF HEARING : 30/09/2009 DRAFTED ON: 13/ 10/2009 ITA NO.1436/AHD/2005 ASSESSMENT YEAR : 2001-02 M/S.SHILCHAR PAYTON TECHNOLOGIES LTD. BILL ROAD BILL DIST.BARODA VS. THE INCOME TAX OFFICER WARD-4(3) BARODA PAN/GIR NO. : AACCS 9760 Q (APPELLANT) .. (RESPONDENT) APPELLANT BY : SHRI M.J. SHAH RESPONDENT BY: SMT. SMITI SAMANT, SR.DR O R D E R PER D.C.AGRAWAL , ACCOUNTANT MEMBER :- THIS IS AN APPEAL FILED BY THE ASSESSEE AGAINST TH E ORDER OF THE LEARNED CIT(APPEALS)-I, BARODA DATED 03/03/2005 PA SSED FOR ASSESSMENT YEAR 2001-02, BY RAISING FOLLOWING GRO UNDS: 1. THE CIT(APPEALS) ERRED IN UPHOLDING THE DEDUCTION O F UNABSORBED DEPRECIATION AND UNABSORBED LOSS FROM CU RRENT YEAR BUSINESS INCOME FOR THE PURPOSE OF CALCULATING ALLOWABLE DEDUCTION U/S.80 HHC. 2. THE CIT(APPEALS) ERRED IN UPHOLDING THE DISALLOWANC E OF RS.94,105/- OF PRIOR PERIOD EXPENSES MADE BY THE AS SESSING OFFICER CONSISTING OF RS.78,088/- PAYABLE TO M/S.EX PRESS ITA NO.1436/AHD /2005 M/S.SHILCHAR PAYTON TECHNOLOGIES LTD. VS. ITO ASST.YEAR 2001-02 - 2 - TRANSPORT P.LTD. WITH WHICH THE ASSESSEE WAS UNDER THE LITIGATION AND RS.16,362/- THE CLAIM OF WHICH WAS P REFERRED BY THE PAYEE IN THE CURRENT YEAR. 3. THE CIT(APPEALS) ERRED IN UPHOLDING THE DISALLOWAN CE OF RS.50,000/- WHICH WAS THE PAYMENT MADE BY THE ASSES SEE TO ITS SISTER CONCERN M/S.SHILCHAR ELECTRONICS LTD. R EIMBURSING THE EXPENSES INCURRED BY THE LATTER RELATING TO POS TAGE, FREIGHT, ETC. FOR THE ASSESSEE. 4. THE CIT(APPEALS) ERRED IN UPHOLDING THE DISALLOWANC E OF RS.16,000/- MADE BY THE ASSESSING OFFICER BEING 1/5 TH OF THE TOTAL STAFF WELFARE EXPENSES IN SPITE OF THE GUJARA T HIGH COURT DECISION IN SAYAJI INDUSTRIES LTD. VS. CIT 253 ITR 749. 5. THE CIT(APPEALS) ERRED IN UP0HOLDING THE DISALLOWAN CE OF RS.42,000/- MADE BY THE3 ASSESSING OFFICER BEING 1/ 4 TH OF BUSINESS PROMOTION EXPENSES BY APPLYING WRONGLY PRO VISION OF SECTION 40A(3) TO RS.16,456/- AND FURTHER DISALL OWING RS.1000/- TOWARDS DONATION AND RS.24,534/- JUST ON ESTIMATE BASIS. 6. THE CIT(APPEALS) OUGHT TO HAVE ALLOWED THE APP EAL IN TOTO. 2. THE BRIEF FACTS OF THE CASE ARE THAT THE ASSESS EE-COMPANY IS ENGAGED IN THE BUSINESS OF MANUFACTURING OF TELECOM TRANSFORMERS AND ITA NO.1436/AHD /2005 M/S.SHILCHAR PAYTON TECHNOLOGIES LTD. VS. ITO ASST.YEAR 2001-02 - 3 - MOSTLY SALES WERE MADE TO AN ISRAEL COMPANY, NAMELY M/S.PAYTON TECHNOLOGY. 3. THE FIRST ISSUE RELATES TO CLAIM OF DEDUCTION OF UNABSORBED DEPRECIATION AND UNABSORBED LOSS FROM THE CURRENT YEARS BUSINESS INCOME FOR THE PURPOSE OF CALCULATING ALLOWABLE DED UCTION U/S.80HHC OF THE I.T. ACT, 1961. 4. WE HAVE HEARD THE LEARNED AUTHORISED REPRESENTAT IVE OF THE ASSESSEE AND THE LEARNED DEPARTMENTAL REPRESENTATIV E. THE ISSUE IS COVERED AGAINST THE ASSESSEE BY THE DECISION OF HON 'BLE SUPREME COURT IN THE CASE OF CIT VS. SHIRKE CONSTRUCTIONS EQUIPMENT LTD. (2007) 291 ITR 380 (SC), WHEREIN IT HAS BEEN HELD THAT PROFITS FOR THE PURPOSE OF DEDUCTION U/S.80HHC OF THE I.T. ACT, 1961 ARE THOS E WHICH ARE DETERMINED FOR THE PURPOSE OF THE ACT AND, ACCORDIN GLY, BUSINESS PROFITS CAN BE WORKED OUT AFTER ADJUSTING UNABSORBED BUSINE SS LOSS OF EARLIER YEARS AS PROVIDED U/S.72 OF THE I.T. ACT, 1961. TH IS WOULD BE IN ACCORDANCE WITH THE SECTION 80AB OF THE I.T. ACT, 1 961. AS A RESULT, THIS GROUND OF THE ASSESSEE IS REJECTED. ITA NO.1436/AHD /2005 M/S.SHILCHAR PAYTON TECHNOLOGIES LTD. VS. ITO ASST.YEAR 2001-02 - 4 - 5. GROUND NO.2 RELATES TO DISALLOWANCE OF ITEMS OF RS.95,105/-. IT CONSISTS OF 2 ITEMS; ONE OF THEM IS OF RS.78,08 8/- PAYABLE TO M/S.EXPRESS TRANSPORT P.LTD. AND OTHER ONE IS OF RS.16,362/- PAYABLE TO ANOTHER PARTY WHICH IS A PRIOR PERIOD EXPENDITU RE CLAIMED BY THE ASSESSEE ON THE GROUND THAT IT WAS CRYSTALLIZED DUR ING THE CURRENT ASSESSMENT YEAR. THE ASSESSING OFFICER DISALLOWED THE CLAIM BY HOLDING THAT THIS EXPENDITURE DOES NOT BELONG TO TH E PRESENT ASSESSMENT YEAR. 6. IN APPEAL, THE LEARNED CIT(APPEALS) CONFIRMED TH E DISALLOWANCE(S). THE LEARNED AUTHORISED REPRESENTA TIVE OF THE ASSESSEE SUBMITTED THAT NO PROVISION WAS MADE IN EA RLIER YEAR AS THE ISSUE WAS UNDER LITIGATION WITH M/S.EXPRESS TRANSPORT P.LTD. HOWEVER, THE DISPUTE WAS SETTLED IN MAY-2001 AND, T HEREFORE, CLAIM WAS MADE IN THE PRESENT ASSESSMENT YEAR. 7. THE LEARNED DEPARTMENTAL REPRESENTATIVE, ON THE OTHER HAND, SUBMITTED THAT EVEN IT IS PRESUMED THAT THE ISSUE W AS CRYSTLISED IN MAY-2001 STILL IT WILL NOT BE ALLOWABLE IN ASSESS MENT YEAR 2001- ITA NO.1436/AHD /2005 M/S.SHILCHAR PAYTON TECHNOLOGIES LTD. VS. ITO ASST.YEAR 2001-02 - 5 - 02. AT BEST IT COULD BE CONSIDERED FOR ALLOWANCE O NLY IN ASSESSMENT YEAR 2002-03. 8. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE ORDERS OF THE LOWER AUTHORITIES AND THE MATERIALS AVAILABLE O N RECORD. IT IS AN UNDISPUTED FACT THAT DISPUTE WAS DEFINITELY SETTLED IN MAY-2001 WHICH WILL FALL FOR CONSIDERATION IN ASSESSMENT YEA R 2002-03. THEREFORE, THE CLAIM IS NOT ALLOWABLE IN ASSESSMEN T YEAR 2001-02. THE ASSESSEE MAY CLAIM THIS IN ASSESSMENT YEAR 20 02-03 WHICH MAY BE CONSIDERED BY THE ASSESSING OFFICER ON MERIT S. THEREFORE, THIS GROUND IS DECIDED AGAINST THE ASSESSEE. 9. THE SECOND ITEMS WHICH IS MENTIONED IN THE GROUN D NO.2 IS OF RS.16,362/-. IT COMPRISED OF PETTY PAYMENTS WHIC H BECAME PAYABLE IN THE CURRENT YEAR AND RELATED TO DIFFEREN CE IN ACCOUNTS OF DIFFERENT PARTIES. THE ASSESSING OFFICER DISALLOWE D THE CLAIM ON THE GROUND THAT IT PERTAINED TO EARLIER YEARS AND NO BR EAK-UP HAS BEEN GIVEN. THE LEARNED CIT(APPEALS) ALSO CONFIRMED TH E SAME FOR THE SAME REASONS. ITA NO.1436/AHD /2005 M/S.SHILCHAR PAYTON TECHNOLOGIES LTD. VS. ITO ASST.YEAR 2001-02 - 6 - 10. BEFORE US, THE LEARNED AUTHORISED REPRESENTATI VE OF THE ASSESSEE SUBMITTED THAT THERE ARE PETTY ACCOUNTS DI FFERENCE SETTLED DURING THIS YEAR. HE SUBMITTED THAT DIRECTIONS MA Y BE GIVEN TO THE ASSESSING OFFICER FOR VERIFYING THE CLAIM AND IF TH E DIFFERENCES ARE FOUND TO BE SETTLED DURING THIS YEAR, THE SAME MAY BE ALLOWED. HE REFERRED TO THE DECISION OF ITAT AHMEDABAD BENCH A IN THE CASE OF PEFECT EQUIPMENT VS. DCIT REPORTED IN 85 ITD 50( AHD.) FOR THE PROPOSITION THAT THE TRIBUNAL CAN GIVE DIRECTIONS F OR ALLOWING THE CLAIM IN A SUBSEQUENT YEAR, IF IT IS FOUND ON VERIF ICATION THAT CLAIM IS ALLOWABLE IN THAT YEAR. WE NOTICE THAT NO DETAILS OF SUCH EXPENDITURE HAS BEEN GIVEN SO AS TO SHOW HOW THE DIFFERENCE HAS ARISEN AND HOW THE ASSESSEE HAS SQUARED UP THE ACCOUNTS THEREOF. IN ABSENCE OF DETAILS, THE AUTHORITIES WERE JUSTIFIED IN DISALLOW ING THE CLAIM. HENCE, THIS GROUND OF ASSESSEE IS ALSO REJECTED. 11. THE THIRD GROUND RELATES TO DISALLOWANCE OF RS. 50,000/- BEING A PAYMENT MADE TO SISTER-CONCERN, NAMELY, M/S.SHILC HAR ELECTRONICS LTD. TOWARDS REIMBURSEMENT OF CANTEEN EXPENSES, CA RTING, FREIGHT & ITA NO.1436/AHD /2005 M/S.SHILCHAR PAYTON TECHNOLOGIES LTD. VS. ITO ASST.YEAR 2001-02 - 7 - OCTROI EXPENSES, TELEPHONE & TELEGRAM, POSTAGE & CO URIER, ETC. THE DISALLOWANCE WAS MADE TO PREVENT ANY LEAKAGE OF REV ENUE THAT MAY RESULT ON THIS ACCOUNT. THE LEARNED CIT(APPEALS) NOTICED THAT THERE IS MONTHLY DEBIT BY EACH VOUCHER ISSUED BY M/ S.SHILCHAR ELECTRONICS LTD. IT WAS NOT MADE CLEAR AS TO HOW T HE FIGURES WERE WORKED OUT BY M/S.SHILCHAR ELECTRONICS LTD. REGARD ING RENT, AGAINST WHICH ALSO PAYMENT WAS DEBITED BY M/S.SHILC HAR ELECTRONICS LTD. IT WAS NOT MADE CLEAR AS TO WHAT PREMISES WERE LET OUT TO THE ASSESSEE-COMPANY AS BOTH THE COMPANIES ARE SITUATED IN A SAME PREMISES. IN ABSENCE OF ANY DETAILS SUPPLIED BY TH E ASSESSEE, THE LEARNED CIT(APPEALS) CONFIRMED THE DISALLOWANCE. 12. AGAINST THIS, LEARNED AUTHORISED REPRESENTATIVE OF THE ASSESSEE SUBMITTED THAT EXPENDITURE WAS INCURRED BY WAY OF REIMBURSEMENT TO M/S.SHILCHAR ELECTRONICS LTD. AS A PPARENTLY COMMON EXPENDITURE WERE INCURRED BY BOTH THE COMPAN IES WHICH ARE SITUATED IN THE SAME PREMISES AND TOTAL EXPENDI TURE ARE BORNE BY M/S.SHILCHAR ELECTRONICS LTD. PART OF THE EXPENDIT URE ARE DEBITED ITA NO.1436/AHD /2005 M/S.SHILCHAR PAYTON TECHNOLOGIES LTD. VS. ITO ASST.YEAR 2001-02 - 8 - AGAINST THE ASSESSEE-COMPANY. IN ANY CASE, BOTH TH E COMPANIES ARE PAYING TAX @ 35% THEREFORE, TRANSFER AS RE-IMBURSE MENT WILL NOT MAKE ANY DIFFERENCE IN THE TAX SAVINGS. 13. ON THE OTHER HAND, LEARNED DEPARTMENTAL REPRESE NTATIVE SUBMITTED THAT IT IS NECESSARY FOR THE ASSESSEE TO SHOW AS TO WHAT SERVICES IT IS RECEIVING FROM M/S.SHILCHAR ELECTRON ICS LTD. AND WHAT IS THE EVIDENCE THEREOF. IN ABSENCE OF EVIDENCE O F SERVICES HAVING BEEN RENDERED BY OTHER COMPANY, THE CLAIM AGAINST T HE ASSESSEE COULD NOT BE ALLOWED. IT IS IMMATERIAL THAT BOTH T HE COMPANIES ARE TAXED AT 35%. WHAT IS IMPORTANT IS THAT CORRECT IN COME SHOULD BE ASSESSED IN THE PROPER HANDS. THE SHARE-HOLDERS HA VE RIGHT OVER THE INCOME EARNED BY THE COMPANY AND IT CANNOT BE TRANS FERRED TO ANOTHER COMPANY MERELY FOR THE REASONS THAT TAXES A RE BORNE AT THE SAME RATE. 14. AFTER CONSIDERING THE RIVAL SUBMISSIONS, WE ARE OF THE OPINION THAT ADDITIONS ARE REQUIRED TO BE CONFIRMED. THE R EASONS ARE THAT FOR ITA NO.1436/AHD /2005 M/S.SHILCHAR PAYTON TECHNOLOGIES LTD. VS. ITO ASST.YEAR 2001-02 - 9 - MAKING CLAIM, THE ASSESSEE IS REQUIRED TO FURNISH D ETAILS AND EVIDENCE IN SUPPORT OF THE CLAIM. THE AMOUNT OF TH E CLAIM IS NOT MATERIAL IF IT IS INCURRED FOR ITS BUSINESS PURPOS ES. A BUSINESS-MAN MAY NOT BE PRUDENT ENOUGH TO AFFECT ECONOMY BUT MOR E IMPORTANT IS WHETHER THE CLAIM IS LEGALLY ALLOWABLE. ADMITTEDL Y, THE ASSESSEE HAS FAILED TO FURNISH DETAILS AS TO WHAT SERVICES T HAT COMPANY HAS FURNISHED AND HOW THE VALUATION OF THE SERVICES HAS BEEN DONE. ACCORDINGLY, WE CONFIRM THE ORDER OF THE LEARNED CI T(APPEALS) ON THIS ACCOUNT AS WELL. 15. GROUND NO.4 RELATES TO DISALLOWANCE OF RS.16,0 00/- OUT OF TOTAL STAFF WELFARE EXPENDITURE WHICH IS 1/5 TH OF THE TOTAL CLAIM AND GROUND NO.5 RELATES TO DISALLOWANCE OF RS.42,000/- WHICH IS 1/4 TH OF THE BUSINESS PROMOTION EXPENSES 16. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE ORDERS OF THE LOWER AUTHORITIES AND THE MATERIALS AVAILABLE O N RECORD. LOOKING TO THE FACTS AND CIRCUMSTANCES OF THE CASE, WE DIR ECT THAT ITA NO.1436/AHD /2005 M/S.SHILCHAR PAYTON TECHNOLOGIES LTD. VS. ITO ASST.YEAR 2001-02 - 10 - DISALLOWANCE @ 10% IS REASONABLE AND JUSTIFIABLE. ACCORDINGLY, THE ASSESSEE GETS A PARTIAL RELIEF. 17. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS PARTLY ALLOWED. ORDER SIGNED, DATED AND PRONOUNCED IN THE COURT ON 16/10/2009. SD/- SD/- ( T.K.SHARMA ) ( D.C.AGRAWAL ) JUDICIAL MEMBER ACCOUNTANT MEMBER AHMEDABAD; DATED 16/ 10 /2009 T.C. NAIR COPY OF THE ORDER FORWARDED TO : 1. THE APPELLANT. 2. THE RESPONDENT 3. THE CIT CONCERNED. 4. THE LD. CIT(APPEALS)-I, BARODA 5. THE DR, AHMEDABAD BENCH 6. THE GUARD FILE. BY ORDER, //TRUE COPY// (DY./ASSTT.REGISTRAR), ITAT, AHMEDABAD