CRESCENT CHEMSOL P.LTD, MUMBAI V. ACIT 10(1), MUMBAI

ITA 1497/MUM/2010

• Counselvise Citation: [2011] 134 COUNSELVISE.COM (IT) 8297 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 14 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 09-03-2011
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: C
• Next Hearing Date: 01-03-2011
• Assessment Year: 2006-2007
• Appeal Filed On: 24-02-2010
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: P N DEVADASAN
• Assessee Lawyers: H N MOTIWALLA
• Keywords: Depreciation; Business expenditure; Capital expenditure

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL, MUMBAI BENCH C, MUMBAI BEFORE SHRI N.V.VASUDEVAN(J.M) & SHRI RAJENDRA SIN GH (A.M) ITA NO.1497/MUM/2010(A.Y. 2006-07) M/S. CRESCENT CHEMSOL PVT. LTD. WINDSOR, 2 ND FLOOR, CST ROAD, KALINA, SANTACRUZ(E), MUMBAI 98. PAN:AACCC 3157H (APPELLANT) VS. THE ACIT 10(1), MUMBAI. (RESPONDENT) APPELLANT BY : SHRI H.N.MOTIWALLA RESPONDENT BY : SHRI P.N.DEVADASAN ORDER PER N.V.VASUDEVAN, J.M, THIS IS APPEAL BY THE ASSESSEE AGAINST THE ORDER DATED 7/1/2010 OF CIT(A) 21 MUMBAI RELATING TO ASSESSMENT YEAR 2006-0 7. GROUND NO.1 & 2 RAISED BY THE ASSESSEE READ AS FOLLOWS: 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE C ASE, THE LEARNED COMMISSIONER OF INCOME-TAX (APPEALS) ERRED IN UPHOL DING THE DISALLOWANCE OF RS.4,90,314/- TOWARDS PRIOR PERIOD EXPENSES, WITHOUT APPRECIATING THAT THE SAID LIABILITY FOR EXPENSES W AS ACTUALLY CRYSTALLIZED DURING THE CURRENT ASSESSMENT YEAR AND HENCE, WERE ALLOWABLE. 2. WITHOUT PREJUDICE TO THE ABOVE AND ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE LEARNED COMMISSIONER OF INCOME-TAX (APPEALS) ERRED IN NOT GIVING A DIRECTION THAT THE ABOVE EXPENSES SHOULD BE ALLOWED IN THE RELEVANT ASSESSMENT YEAR. ITA NO.1486/MUM/2010(A.Y. 2005-06) 2 2. THE ASSESSEE IS A COMPANY ENGAGED IN THE BUSINES S OF IMPORT AND TRADING OF CHEMICALS. THE AO NOTICED THAT CLAUSE 2 2(B) OF THE TAX AUDIT REPORT FURNISHED IN FORM NO.3CD AND FILED ALONG WIT H RETURN OF INCOME IT HAS BEEN MENTIONED THAT A SUM OF RS.4,90,314/- WAS DEBI TED TO P&L ACCOUNT ON ACCOUNT OF PRIOR PERIOD EXPENDITURE. SINCE THE EXP ENDITURE WAS NOT INCURRED DURING THE PREVIOUS YEAR THE AO DISALLOWED THE CLAI M OF THE ASSESSEE FOR DEDUCTION OF THE AFORESAID SUM AND ADDED THE SAME T O THE TOTAL INCOME OF THE ASSESSEE. 3. BEFORE CIT(A) THE ASSESSEE SUBMITTED THAT THE EX PENDITURE UNDER THE HEAD PRIOR PERIOD EXPENSES WERE IN RESPECT OF TR ANSACTION PERTAINING TO EARLIER PREVIOUS YEARS BUT THE BILLS WERE RECEIVED ONLY IN THE PREVIOUS YEAR AND, THEREFORE, THESE WERE CLAIMED AS DEDUCTION IN THE PRESENT ASSESSMENT YEAR. THE ASSESSEE SUBMITTED THAT EXPENDITURE IN Q UESTION IS A REGULAR BUSINESS EXPENDITURE AND BECAUSE THE LIABILITY CRYS TALLIZED DURING THE PREVIOUS YEAR THEY WERE CLAIMED AS DEDUCTION IN THE PRESENT ASSESSMENT YEAR. WITHOUT PREJUDICE TO THE ABOVE SUBMISSIONS T HE ASSESSEE ALSO PRAYED THAT IF THE EXPENSES ARE NOT ALLOWED IN THIS YEAR I T MAY BE DIRECTED TO BE ALLOWED IN THE ASSESSMENT TO WHICH IT PERTAINS. TH E CIT(A) HOWEVER DISMISSED THE CLAIM OF THE ASSESSEE HOLDING AS FOLL OWS:- I HAVE CAREFULLY CONSIDERED THE FACTS OF THE CASE . THE ACTUAL FACTS ARE AS UNDER: SCHEDULE 14: PRIOR PERIOD TRANSACTIONS: CREDITS: PURCHASE . 9, 42,621 COMMISSION & BROKERAGE . 3 ,40,225 12,82,846 DEBITS: SALES . 12,53,966 STORAGE CHARGES . 1,75,339 INTEREST INCOME . 1,35,692 SURVEY FEE . 76,891 TRANSPORTATION . 60,000 CLEARING CHARGES . 50,472 WHARFAGE . 20,800 4,90,314 ITA NO.1486/MUM/2010(A.Y. 2005-06) 3 PROFITS & LOSS ACCOUNT: INCOME UNDER VARIOUS HEAD 234,79,16,880 EXPENSES UNDER VARIOUS HEADS . 242,10,97,248 ------------------ PROF. OR LOSS FOR THE YEAR --- (-) 7,31,80,368 PRIOR PERIOD TRANSACTIONS 4,90,314 --------------- PROFIT/LOSS BEFORE TAXATION . (-) 7,36, 70,681 IN SCHEDULE 14, THE PRIOR PERIOD CREDITS(EXPENSES) WERE RS. 12,82,846/- WHEREAS PRIOR PERIOD DEBITS(INCOME) WER E RS. 17,73,160/- . THUS THE PRIOR PERIOD INCOME WAS MORE TO THE EXTE NT OF RS. 4,90,314/-. IT WAS THIS EXCESS [PRIOR PERIOD INCOM E RS. 17,73,160 PRIOR PERIOD EXPENSES RS. 12,82,846] INCOME OF RS. 4,90,314/- WHICH WAS DEBITED BY APPELLANT IN THE P&L ACCOUNT. IT WA S AN UNDISPUTED FACT THAT ALL THE ITEMS OF EXPENSES / INCOME (SHOWN ABOVE) WERE PERTAINING TO PREVIOUS ASSESSMENT YEAR AND WERE NOT ACCOUNTED IN THAT PREVIOUS ASSESSMENT YEAR FOR THE ADMITTED REASON TH AT THERE WERE CRYSTALLIZED DURING THE YEAR UNDER CONSIDERATION IS THAT WHEN ON THE METHOD OF CRYSTALLIZATION ALL THE PRIOR PERIOD EX PENSE OF RS. 12,82,846/- WERE CLAIMED BY APPELLANT AS EXPENSES T HEN WHY ALL THE ITEMS OF PRIOR PERIOD INCOME / RECEIPT TOTALLING TO RS. 17,73,160/- WERE NOT ASSESSABLE IN THE YEAR UNDER CONSIDERATION FOLL OWING THE METHOD OF CRYSTALLIZATION /ACCRUAL. THE APPELLANT HAD ON LY OFFERED PRIOR PERIOD INCOME / RECEIPTS AS INCOME DURING THE YEAR TO THE EXTENT OF EXPENSES OF RS.12,82,846/- AND THE EXCESS OF INCOME OF RS.4, 90,314/- HAS BEEN REDUCED IN THE P&L ACCOUNT 9DEBITED IN THE P&L ACCO UNT) BY ENHANCING THE LOSS FROM RS. 7.31 CRORE TO RS.7.36 C RORE. IN MY CONSIDERED OPINION, THE ENTIRE PRIOR PERIOD INCOME/ RECEIPT OF RS.17,73,160/- WAS ASSESSABLE AS INCOME FOR THE YEA R UNDER CONSIDERATION. SINCE, THE SAME WAS CRYSTALLIZED /A CCRUED DURING THE YEAR. THUS, THE APPELLANT WAS NOT JUSTIFIED IN DEB ITING PRIOR PERIOD INCOME OF RS.4,90,314/- IN THE P&L ACCOUNT. THE AD DITION / DISALLOWANCE OF RS.4,90,314/- MADE BY THE AO IS THE REFORE, CONFIRMED THOUGH FOR DIFFERENT REASONS. THIS GROUND OF APPEA L IS DISMISSED. 4. AGGRIEVED BY THE ORDER OF THE CIT(A) THE ASSESSE E HAS RAISED GROUND NO.1 & 2 BEFORE THE TRIBUNAL. 5. THE LD. COUNSEL FOR THE ASSESSEE SUBMITTED THAT THE CONCLUSIONS OF THE CIT(A) ARE ERRONEOUS. IN THIS REGARD HE BROUGHT TO OUR ATTENTION TO SCHEDULE 14 OF PRIOR PERIOD ITEMS OF THE P&L ACCOUNT AND SUB MITTED THAT THE EXPENSES ITA NO.1486/MUM/2010(A.Y. 2005-06) 4 WERE MORE AND THE INCOME WAS LESS AND DIFFERENCE WA S CLAIMED AS EXPENSES IN THE P&L ACCOUNT AND, THEREFORE, THE CONCLUSIONS OF THE CIT(A) THAT INCOME WAS MORE AND EXPENSES WAS LESS WAS ERRONEOUS. THE LD. D.R RELIED ON THE ORDER OF THE CIT(A). 6. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS. SCHED ULE 14 TO THE P&L ACCOUNT REGARDING PRIOR PERIOD TRANSACTIONS IS AS F OLLOWS: SCHEDULE 14: PRIOR PERIOD TRANSACTIONS: CREDITS: PURCHASE . 9, 42,621 COMMISSION & BROKERAGE . 3,40,225 12,82,846 DEBITS: SALES . 12,53,966 STORAGE CHARGES . 1,75,339 INTEREST INCOME . 1,35,692 SURVEY FEE . 76,891 TRANSPORTATION . 60,000 CLEARING CHARGES . 50,472 WHARFAGE . 20,800 ----------- 17,73,160 ----------- 4,90,314 A PERUSAL OF THE ABOVE MAKES IT CLEAR THAT THE CIT( A) HAS PROCEEDED ON AN ERRONEOUS ASSUMPTION THAT THE PRIOR PERIOD INCOME W AS MORE THAN EXPENSES. THE LD. COUNSEL FOR THE ASSESSEE MADE A PRAYER BEFO RE US THAT THE EXPENSES SHOULD BE ALLOWED IN THE RELEVANT ASSESSMENT YEAR. WE ACCEPT THIS PRAYER AND DIRECT THE AO TO ALLOW THE EXPENSES IN THE RELE VANT ASSESSMENT YEAR. GROUND NO.1 IS THEREFORE, DISMISSED WHILE GROUND NO .2 IS ALLOWED. 7. GROUND NO.3 RAISED BY THE ASSESSEE READS AS FOLL OWS: 3. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE C ASE, THE LEARNED COMMISSIONER OF INCOME-TAX (APPEALS) ERRED IN UPHOL DING THE DISALLOWANCE OF DEPRECIATION OF RS.76,300/- ON ACCO UNT OF NON- ITA NO.1486/MUM/2010(A.Y. 2005-06) 5 DEDUCTION OF TDS ON THE ADDITIONS MADE TO THE ASSET DURING THE RELEVANT ASSESSMENT YEAR, UNDER THE PROVISIONS OF S ECTION 40(A) (IA). 8. ON PERUSAL OF ANNEXURE -8 OF FORM NO.3CD, IT WA S NOTICED BY THE AO THAT A SUM OF RS. 15,26,000/- HAS BEEN REPORTED AS EXPENDITURE OF CAPITAL IN NATURE ON WHICH NO TAX HAS BEEN DEDUCTED AND RS.4,1 6,544/- IS REPORTED AS CAPITAL EXPENDITURE ON WHICH TDS HAS BEEN DEPOSITED AFTER THE DUE DATE AS PROVIDED U/S. 40(A)(IA) OF THE ACT. THE SAID SUMS HAVE NOT BEEN CONSIDERED BY THE ASSESSEE COMPANY FOR MAKING DISALLOWANCE U/S . 40(A)(IA) OF THE ACT. SECTION 40 OPENS WITH THE PHRASE NOTWITHSTANDING A NYTHING TO THE CONTRARY IN SECTION 30 TO 38, THE FOLLOWING AMOUNTS SHALL NO T BE DEDUCTED IN COMPUTING THE INCOME CHARGEABLE UNDER THE HEAD PRO FITS AND GAINS OF BUSINESS OR PROFESSION. THE CAPITAL EXPENDITURE R EPORTED IN ANNEXURE -8 OF FORM 3CD HAS BEEN CONSIDERED BY THE ASSESSEE COMPAN Y FOR CLAIMING DEPRECIATION U/S. 32 OF THE IT ACT. THEREFORE, THE PROVISIONS OF SECTION 40(A)(IA) ARE APPLICABLE IN RESPECT OF THE SAID SUM OF DEPRECIATION CLAIMED ON THE CAPITAL EXPENDITURE IN RESPECT OF WHICH THE PRO VISIONS OF CHAPTER XVII-B HAVE NOT BEEN COMPLIED WITH. CONSIDERING THE ABOVE , THE DEPRECIATION OF RS.1,07,541/- CLAIMED ON THE CAPITAL EXPENDITURE R EPORTED IN ANNEXURE -8 WAS DISALLOWED U/S. 40(A)(IA) OF THE ACT AND THE SA ME WAS ADDED TO THE TOTAL INCOME OF THE ASSESSEE COMPANY. FIXED ASSET AMOUNT PERIOD RATE P.A. DEPRECIATION FURNITURE 15,26,000 LESS THAN 180 DAYS 10% 76,300 OFFICE EQUIPJMENT 4,16,544 -DO- 15% 31,241 TOTAL 1,07,541 9. ON APPEAL BY THE ASSESSEE THE CIT(A) CONFIRMED T HE DISALLOWANCE OF DEPRECIATION TO THE EXTENT OF RS. 76,300/- BEING DE PRECIATION ON CAPITAL EXPENDITURE INCURRED BY THE ASSESSEE OF RS. 15,26,0 00/-. ITA NO.1486/MUM/2010(A.Y. 2005-06) 6 10. AGGRIEVED BY THE ORDER OF THE CIT(A) THE ASSESS EE HAS RAISED GROUND NO.3 BEFORE THE TRIBUNAL. WE HAVE HEARD THE RIVAL SUBMISSIONS. PROVISIONS OF SECTION 40(IA) OF THE INCOME TAX ACT, 1961 (THE ACT) READS AS FOLLOWS: 40. NOTWITHSTANDING ANYTHING TO THE CONTRARY IN SE CTION 30 TO[38], THE FOLLOWING AMOUNTS SHALL NOT BE DEDUCTED IN COMPUTIN G THE INCOME CHARGEABLE UNDER THE HEAD PROFITS AND GAINS OF BUS INESS OR PROFESSION, (IA) ANY INTEREST, COMMISSION OR BROKERAGE,[RENT, R OYALTY]FEES FOR PROFESSIONAL SERVICES OR FEES FOR TECHNICAL SERVICE S PAYABLE TO A RESIDENT, OR AMOUNTS PAYABLE TO A CONTRACTOR OR SUB -CONTRACTOR, BEING RESIDENT, FOR CARRYING OUT ANY WORK(INCLUDING SUPPL Y OF LABOUR FOR CARRYING OUT ANY WORK), ON WHICH TAX IS DEDUCTIBLE AT SOURCE UNDER CHAPTER XVII- BAND SUCH TAX HAS BEEN DEDUCTED OR, A FTER DEDUCTION,[HAS NOT BEEN PAID ON OR BEFORE THE DUE D ATE SPECIFIED IN SUB-SECTION(1) OF SECTION 139:] A PERUSAL OF THE ABOVE PROVISIONS SHOW THAT IT IS ONLY WHEN A DEDUCTION IS CLAIMED IN COMPUTING THE INCOME CHARGEABLE UNDER TH E HEAD PROFIT AND GAINS OF BUSINESS OR PROFESSION THAT THE ABOVE PRO VISION ARE ATTRACTED. THE DEDUCTION CLAIMED SHOULD BE OF INTEREST, COMMISSION OR BROKERAGE, RENT, ROYALTY, FEES FOR PROFESSIONAL SERVICES OR FEES FOR TECHNICAL SERVICES. THE CLAIM FOR DEPRECIATION MADE BY THE ASSESSEE DOES NOT FALL WITHIN ANY OF THE CATEGORIES MENTIONED IN THE AFORESAID PROVISION. T HEREFORE, IT IS NOT POSSIBLE TO MAKE THE IMPUGNED DISALLOWANCE BY RESORTING TO T HE PROVISIONS OF SECTION 40(IA) OF THE ACT. THE LEARNED D.R. HOWEVER SUBMIT TED THAT PROVISIONS OF SEC.40(A)(I) OF THE ACT WERE HELD TO APPLY EVEN TO CAPITAL EXPENDITURE BY THE ITAT MUMBAI IN SPACO CARBURETORS (I) LTD. VS. ACIT 2005 (3) SOT 798 (MUM). WE FIND THAT THE SAID DECISION WAS RENDERED IN THE CONTEXT OF DEDUCTION OF CAPITAL EXPENDITURE WHILE COMPUTING IN COME, CLAIMED BY AN ASSESSEE U/S.35AB OF THE ACT. WE THEREFORE DO NOT FIND ANY RELEVANCE TO THE ITA NO.1486/MUM/2010(A.Y. 2005-06) 7 SAID DECISION TO THE PRESENT CASE. IN THAT VIEW OF THE MATTER WE DIRECT THAT THE DISALLOWANCE MADE BE DELETED. GROUND NO.3 RAIS ED BY THE ASSESSEE IS ACCORDINGLY ALLOWED. 12. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS PA RTLY ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON THE 9TH DAY OF MARCH, 2011. SD/- SD/- (RAJENDRA SINGH) (N.V.VASUDEVAN) ACCOUNTANT MEMBER JUDICIAL MEMBER MUMBAI, DATED. 9 TH MARCH.2011 COPY TO: 1. THE APPELLANT 2. THE RESPONDENT 3 . THE CIT CITY CONCERNED 4. THE CIT(A)- CONCERNED 5. THE D.RC BENCH. (TRUE COPY) BY ORDER ASST. REGISTRAR, I TAT, MUMBAI BENCHES MUMBAI. VM. ITA NO.1486/MUM/2010(A.Y. 2005-06) 8 DETAILS DATE INITIALS DESIGNATION 1 DRAFT DICTATED ON 1/3/2011 SR.PS/PS 2 DRAFT PLACED BEFORE AUTHOR 2/3/2011 SR.PS/PS 3 DRAFT PROPOSED & PLACED BEFORE THE SECOND MEMBER JM/AM 4 DRAFT DISCUSSED/APPROVED BY SECOND MEMBER JM/AM 5. APPROVED DRAFT COMES TO THE SR.PS/PS SR.PS/PS 6. KEPT FOR PRONOUNCEMENT ON SR.PS/PS 7. FILE SENT TO THE BENCH CLERK SR.PS/PS 8 DATE ON WHICH THE FILE GOES TO THE HEAD CLERK 9 DATE OF DISPATCH OF ORDER