ACIT, UDAIPUR V. M/s. Sun Polytex Pvt. Ltd., UDAIPUR

ITA 150/JODH/2013

• Counselvise Citation: 15023314 RSA 2013
• Duration Of Justice: 1 year(s) 19 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 02-04-2014
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: DB
• Next Hearing Date: 03-03-2014
• Assessment Year: 2009-2010
• Appeal Filed On: 14-03-2013
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: N A JOSHI
• Keywords: Business income; Depreciation; Revenue expenditure; Capital expenditure
• Section: 143(3); 80IB

Judgement Text

IN THE INCOME TAX APPELALTE TRIBUNAL : JODHPUR BENC H : JODHPUR BEFORE SHRI HARI OM MARATHA, JUDICIAL MEMBER AND SHRI N.K. SAINI, ACCOUNTANT MEMBER. ITA NO.138/JODH/2013 (A.Y. 2009-10) SUN POLYTEX PVT. LTD., VS. ACIT, RANGE-2, 207(A), MEWAR INDUSTRIAL AREA, UDAIPUR. MADRI, UDAIPUR. PAN NO. AAECS 9347 K (APPELLANT) (RESPONDENT) ITA NO.150/JODH/2013 (A.Y. 2009-10) ACIT, CIRCLE-2, VS. M/S. SUN POLYTEX PVT. UDAIPUR. LTD., 207, ROAD NO.11 MADRI INDUSTRIAL AREA, UDAIPUR. PAN NO. AAECS 9347 K (APPELLANT) (RESPONDENT) ASSESSEE BY : SHRI AMIT KOTHARI. DEPARTMENT BY : SHRI N.A. JOSHI - D.R. DATE OF HEARING : 03/03/2014. DATE OF PRONOUNCEMENT : 02/04/2014. O R D E R PER N.K. SAINI, A.M 2 THESE CROSS APPEALS BY THE ASSESSEE AND THE DEPART MENT ARE DIRECTED AGAINST THE ORDER DATED 13/12/2012 OF LD. CIT(A), UDAIPUR. 2. FIRST WE WILL DEAL WITH THE ASSESSEES APPEAL IN I. T.A.NO. 138/JODH/2013. THE FOLLOWING GROUNDS HAVE BEEN RAI SED IN THIS APPEAL: 1. THAT ON THE FACTS AND IN THE PRESENT CIRCUMSTAN CES OF THE CASE, THE LD. CIT(A) HAS ERRED IN LAW IN CONFIRMING THE DISALLOWA NCE OF DEDUCTION OF RS. 39,30,819/- U/S 80IB OF THE I.T. ACT, 1961 MADE BY THE AO ON THE ALLEGED GROUND THAT THE APPELLANT COMPANY CANNOT BE TREATED AS SMALL SCALE INDUSTRIAL UNDERTAKING & ISSUE INVOLVED IN THE YEAR UNDER APPEAL IS THE SAME AND NO NEW FACTS HAVE BEEN BROUG HT ON RECORD BY THE APPELLANT TO SUPPORT ITS CLAIM FOR DEDUCTION U/ S 80IB, I HAVE NO REASON FOR ANY DEVIATION FROM THE DECISION OF MY PR EDECESSOR. 2. THAT ON THE FACTS AND IN THE PRESENT CIRCUMSTANC ES OF THE CASE, THE LD. CIT(A) HAS ERRED IN LAW IN CONFIRMING THE DISALLOWA NCE OF DEPRECIATION OF RS. 2,54,550/- MADE BY THE AO ON THE ALLEGED GRO UND THAT THE APPELLANT COMPANY HAS PURCHASED PLANT & MACHINERY F ROM ASSOCIATED CONCERNS ON HIGHER VALUE AS COMPARED TO THE WRITTEN DOWN VALUE IN THE BOOKS OF SELLING CONCERNS & THE ALLOWABILITY OF DEPRECIATION IS CLEARLY COVERED BY EXPLANATION 3 OF SECTION 43(1) O F THE ACT. 3. THAT THE APPELLANT RESERVES HIS RIGHTS TO ADD, T O ALTER OR TO MODIFY ANY GROUNDS OF APPEAL ON OR BEFORE HEARING OF THE SAME. 3. GROUND NO. 3 IS GENERAL IN NATURE, SO, DO NOT REQU IRE ANY COMMENTS ON OUR PART. VIDE GROUND NO. NO.1, THE ISSUE INVOLV ED RELATES TO THE CONFIRMATION OF DISALLOWANCE OF DEDUCTION UNDER SEC TION 80IB OF THE I.T. ACT, 1961 (HEREINAFTER REFERRED TO AS THE ACT IN SHORT). 3 4. AS REGARDS TO THIS ISSUE, LEARNED COUNSEL FOR THE ASSESSEE AT THE VERY OUTSET STATED THAT THIS ISSUE IS SQUARELY COVE RED IN FAVOUR OF THE ASSESSEE VIDE ORDER DATED 18/09/2012 IN I.T.A.NO. 4 39/JU/2010 IN ASSESSEES OWN CASE FOR THE A.Y. 2007-08. 5. IN HIS RIVAL SUBMISSIONS, LEARNED D.R. ALTHOUGH S UPPORTED THE ORDERS OF THE AUTHORITIES BELOW, BUT COULD NOT CONTROVERT THE AFORESAID CONTENTION OF THE LEARNED COUNSEL FOR THE ASSESSEE. 6. AFTER CONSIDERING THE SUBMISSIONS OF BOTH THE PART IES AND THE MATERIAL ON RECORD, IT IS NOTICED THAT THIS ISSUE S TANDS COVERED IN FAVOUR OF THE ASSESSEE VIDE ORDER DATED 18/09/2012 IN I.T. A. NO. 439/JU/2010 FOR THE A.Y. 2007-08 IN ASSESSEES OWN CASE, WHEREI N THE RELEVANT FINDINGS HAVE BEEN GIVEN AT PARA 4 WHICH READ AS UNDER:- WE HAVE HEARD RIVAL SUBMISSIONS AND HAVE CAREFULL Y PERUSED THE RELEVANT MATERIAL ON RECORD. WE HAVE ALSO GONE THR OUGH THE TRIBUNAL ORDER WHEREIN THIS CLAIM OF THE ASSESSEE U/S 80IB W AS ALLOWED BY THE TRIBUNAL. THEREFORE, RESPECTFULLY FOLLOWING THE TR IBUNAL ORDER IN ASSESSEES OWN CASE FOR ASSESSMENT YEAR 2006-07, WE HAVE TO ALLOW THIS CLAIM OF THE ASSESSEE U/S 80IB OF THE ACT IN T HIS YEAR ALSO. WE DO NOT FIND ANY FORCE IN THE SUBMISSION OF THE LD. COU NSEL FOR THE DEPARTMENT THAT THE DEPARTMENT HAS FILED APPEAL AGA INST THIS FINDING OF THE TRIBUNAL. WHEN ASCERTAINED FROM HIM, IT WAS STATED THAT NO STAY HAS BEEN GRANTED BY ANY HIGHER FORUM AGAINST T HE PROCEEDINGS OF THIS APPEAL. ACCORDINGLY WE DISMISS GROUND NO. 1 R AISED BY THE DEPARTMENT. 4 SO, RESPECTFULLY FOLLOWING THE AFORESAID ORDER DAT ED 18/09/2012 IN ASSESSEES OWN CASE FOR THE A.Y. 2007-08, WE SET AS IDE THE IMPUGNED ORDER PASSED BY THE LD. CIT(A) ON THIS ISSUE AND DI RECT THE ASSESSING OFFICER TO ALLOW THE CLAIM OF THE ASSESSEE UNDER SE CTION 80IB OF THE ACT. 7. VIDE GROUND NO. 2, THE GRIEVANCE OF THE ASSESSEE R ELATES TO THE CONFIRMATION OF DISALLOWANCE OF RS. 2,54,550/- MADE BY THE ASSESSING OFFICER ON ACCOUNT OF DEPRECIATION. 8 . FACTS RELATING TO THIS ISSUE, IN BRIEF, ARE THAT THE ASSESSEE PURCHASED PLANT & MACHINERY OF MAPLE INDUSTRIES FOR RS. 17 LA C, M/S. GALAXY INDUSTRIES FOR RS. 13.47 LAC AND M/S CRESCENT POLYT EX PVT. LTD. FOR RS. 16.20 LAC AND CLAIMED DEPRECIATION ON THE SAID AMOUNT. HOWEVER, THE ASSESSING OFFICER DURING THE COURSE OF ASSESSME NT PROCEEDINGS, NOTICED THAT THE PURCHASE VALUE OF THE PLANT & MACH INERY SHOWN WAS HIGHER THAN THE WRITTEN DOWN VALUE SHOWN BY THE RES PECTIVE CONCERNS IN THEIR BOOKS OF ACCOUNTS. THE ASSESSING OFFICER REQ UIRED THE ASSESSEE TO GIVE REASONS FOR PURCHASING PLANT & MACHINERY AT A HIGHER PRICE THAN SHOWN IN THE BOOKS OF ACCOUNTS. THE ASSESSING OFFI CER ALSO NOTICED THAT THE ASSESSEE CAPITALIZED RS. 36 LAC BEING PURCHASE VALUE OF SIX CIRCULAR WEAVING MACHINES SEPARATELY PURCHASED FOR RS. 12 LA C FROM EACH OF THREE 5 SELLING CONCERNS AND REST OF THE PURCHASED MACHINER Y AMOUNTING TO RS. 10.70 LAC WAS BOOKED AS REVENUE EXPENDITURE BEI NG PAYMENT MADE FOR PURCHASE OF SCRAP MACHINERY. WHEN THE ASSESSEE WAS REQUIRED TO GIVE THE BASIS OF CAPITALIZATION OF DIFFERENT CIRCULAR M ACHINES PURCHASED ON DIFFERENT DATES FOR RS. 36 LAC BY ADOPTING EQUAL PU RCHASE VALUE OF EACH CIRCULAR MACHINE AND THE BASIS FOR CLAIMING THE REM AINING AMOUNT AS REVENUE EXPENDITURE, IT WAS SUBMITTED BEFORE THE AS SESSING OFFICER THAT THE CIRCULAR MACHINES WERE IN WORKING ORDER AND ASS ESSEE USED THE SAME IN BUSINESS, THEREFORE, THESE WERE CAPITALIZED. AS REGARDS TREATING THE REMAINING AMOUNT AS REVENUE EXPENDITURE, IT WAS SUB MITTED THAT THESE WERE SCRAP AND THE ASSESSEE USED IT AS SPARE PARTS, HOWEVER, ASSESSING OFFICER DID NOT ACCEPT THE SUBMISSIONS OF THE ASSES SEE FOR THE FOLLOWING REASONS:- 1. THE PURCHASED ITEMS WERE BEING TREATED AS PLANT AND MACHINERY BY THE GROUP CONCERNS OF THE ASSESSEE COMPANY. 2. HEAVY REPAIRS WERE BEING INCURRED ON SUCH PLANT AND MACHINERY AS MENTIONED IN THE TABLE ABOVE. 3. THE PURCHASE BILL SHOWS THAT WHAT THE ASSESSEE H AS CLAIMED AS SCRAP WAS ALSO PART OF PLANT AND MACHINERY AND IT WAS ALS O BEING SHOWN AS MISCELLANEOUS FIXED ASSETS IN THE IMMEDIATELY PRECE DING YEAR IN THE CHART OF FIXED ASSETS IN THE BOOKS OF ACCOUNT. THE ASSESSING OFFICER HELD THAT EXPLANATION OF SEC TION 43(1) OF THE ACT IS CLEARLY APPLICABLE IN THE CASE OF THE ASSESS EE AND THAT THERE WAS NO REASON FOR ASSESSEE TO CLAIM THE FIXED ASSET WORTH RS. 10.70 LAC AS 6 REVENUE EXPENDITURE AS THOSE WERE ALSO MACHINES LIK E SURFACE WINDER, REWINDING MACHINE, AIR COMPRESSOR BALLING MACHINE E TC. THEREFORE, THE PAYMENT OF PURCHASE VALUE AMOUNTING TO RS. 46.70 LA C WAS HIT BY NOT ONLY THE PROVISIONS OF SECTION 40A(2)(B), BUT THE ALLOWA BILITY OF DEPRECIATION WAS COVERED BY EXPLANATION 3 OF SECTION 43(1) OF TH E ACT. THE ASSESSING OFFICER POINTED OUT THAT THE WRITTEN DOWN VALUE OF THE TOTAL PLANT AND MACHINERY IN THE BOOKS OF THREE SELLING CONCERNS WA S AT RS. 19,00,300/- (RS. 7,36,080/- + RS. 4,29,144/- + 7,37,776/-) AND ACCORDINGLY, HE ALLOWED DEPRECIATION ON THE SAID AMOUNT AND NOT ON RS. 36 LAC. IN THIS MANNER, THE DEPRECIATION @ 15% AMOUNTING TO RS. 2,5 4,550/- WAS ALLOWED IN PLACE OF RS. 5.4 LAC CLAIMED BY THE ASSESSEE. A CCORDINGLY, THE ASSESSING OFFICER DISALLOWED DEPRECIATION OF RS. 2, 85,450/- CONSIDERING THE SAME AS EXCESS CLAIM. 9 . BEING AGGRIEVED, THE ASSESSEE CARRIED THE MATTER TO THE LD. CIT(A) AND SUBMITTED AS UNDER:- THAT THE LD. ADDL. CIT HAS WRONGLY DISALLOWED DEP RECIATION RS. 2,54,550/- ON THE ALLEGED GROUND THAT THE PLANT & MACHINERY PU RCHASED FROM ASSOCIATED CONCERNS WERE ON HIGHER VALUE AS COMPARE D TO THE WRITTEN DOWN VALUE IN THE BOOKS OF SELLING CONCERNS & THE PROVIS IONS OF EXPLANATION 3 OF SECTION 43(1) & SECTION 40A(2)(B) ARE APPLICABLE. 7 10 . THE LEARNED CIT(A), AFTER CONSIDERING THE SUBMISS IONS OF THE ASSESSEE, OBSERVED THAT THE ASSESSEE HAD NOT FURNI SHED ANY EXPLANATION/ REASON FOR PURCHASE OF PLANT AND MACHINERY AT A HIG HER RATE THAN THE WDV SHOWN BY THE SELLING CONCERNS IN THEIR BOOKS OF ACC OUNTS AND THAT THE ASSESSING OFFICER HAD GIVEN SUFFICIENT REASON FOR M AKING THE DISALLOWANCE OF DEPRECIATION. THE LD. CIT(A), ACCORDINGLY, CONF IRMED THE DISALLOWANCE MADE BY THE ASSESSING OFFICER. NOW THE ASSESSEE IS IN APPEAL. 11 . LEARNED COUNSEL FOR THE ASSESSEE REITERATED THE S UBMISSIONS MADE BEFORE THE AUTHORITIES BELOW AND FURTHER SUBMITTED THAT THE ASSESSEE PURCHASED THE MACHINERY BY MAKING THE PAYMENT ON TH E PREVAILING MARKET PRICE AND NOT ON THE WRITTEN DOWN VALUE SHOW N BY THOSE CONCERNS. IT WAS FURTHER STATED THAT THE SELLING C ONCERNS HAD SHOWN CAPITAL GAIN ON THE SALE OF THESE MACHINERIES. REF ERENCE WAS MADE TO PAGES NO. 53-50 OF THE PAPER BOOK RELATING TO M/S. GLAXY INDUSTRIES, PAGES NO. 61-69 RELATING TO MAPEL INDUSTRIES & PAGES NO. 70-86 OF THE ASSESSEES PAPER BOOK RELATING TO M/S. CRESCENT POLYTEX PVT. L TD. WHICH ARE THE COPIES OF COMPUTATION OF INCOME, DEPRECIATION STATE MENTS, PROFIT & LOSS ACCOUNT AND ANNEXURES TO BALANCE SHEET AND PROFIT & LOSS ACCOUNT OF THE AFORESAID CONCERNS. IT WAS FURTHER STATED THAT THE ASSESSEE CLAIMED 8 DEPRECIATION ON THE AMOUNT WHICH WAS INVESTED. THER EFORE, THE DEPRECIATION HAS BEEN CLAIMED ON THE COST OF THE PL ANT & MACHINERY IN THE HANDS OF THE ASSESSEE. 12 . IN HIS RIVAL SUBMISSIONS, LEARNED D.R. SUPPORTED THE ORDERS OF THE AUTHORITIES BELOW. 13. WE HAVE CONSIDERED THE SUBMISSIONS OF BOTH THE PART IES AND CAREFULLY GONE THROUGH THE MATERIAL AVAILABLE ON RE CORD. IN THE PRESENT CASE, IT IS AN ADMITTED FACT THAT THE ASSESSEE PURC HASED PLANT AND MACHINERY FROM DIFFERENT CONCERNS BY MAKING THE PAY MENT OF RS. 36 LAC AND THE SELLING PARTIES HAD SHOWN THE SALE VALUE AT THE SAME PRICE WHICH HAS BEEN SHOWN BY THE ASSESSEE AS PURCHASE PRICE. THE SELLING CONCERNS ALSO PAID A SHORT TERM CAPITAL GAIN ON THE AMOUNT O F DIFFERENCE IN THE SALE VALUE AND WRITTEN DOWN VALUE OF PLANT AND MACHINERY IN THEIR BOOKS OF ACCOUNTS. THEREFORE, THE DEPRECIATION WAS RIGHTLY CLAIMED BY THE ASSESSEE ON THE COST OF PLANT & MACHINERY INCURRED BY IT AND THE DISALLOWANCE MADE BY THE ASSESSING OFFICER AND SUST AINED BY THE LD. CIT(A) WAS NOT JUSTIFIED. WE, THEREFORE, DELETE TH E IMPUGNED DISALLOWANCE. 9 14. NOW, WE WILL DEAL WITH THE APPEAL OF THE DEPARTMEN T IN I.T.A.NO. 150/JODH/2013. THE FOLLOWING GROUNDS HAVE BEEN RAI SED IN THIS APPEAL:- ON THE FACTS AND IN THE PRESENT CIRCUMSTANCES OF THE CASE, THE LD. CIT(A) HAS ERRED IN:- 1) RESTRICTING DISALLOWANCE FROM RS. 6,72,723/- TO RS. 32,160/- MADE UNDER THE HEAD BUILDING REPAIRING TREATING IT AS CA PITAL EXPENDITURE. 2) DELETING DISALLOWANCE OF RS. 15,89,752/- MADE BY TH E AO U/S 40A(2)(B) BEING EXCESS SALARY PAID TO WORKERS WITHO UT ANY BUSINESS CONSIDERATION. 3) DELETING DISALLOWANCE OF RS. 2,70,000/- MADE BY THE AO U/S 40A(2)(B) BEING RENT PAID TO SISTER CONCERN FOR NON-BUSINESS PURPOSE. THAT THE APPELLANT CRAVES TO ADDITIONAL, AMEND, ALT ER, DELETE OR MODIFY ANY OR ALL THE ABOVE GROUNDS OF APPEAL BEFORE OR AT THE TIME OF HEARING. 15. VIDE GROUND NO. 1, THE GRIEVANCE OF THE DEPARTMENT RELATES TO THE DISALLOWANCE WHICH WAS RESTRICTED TO RS. 32,160/- F ROM RS. 6,72,723/- MADE BY THE ASSESSING OFFICER UNDER THE HEAD BUILD ING REPAIR TREATING IT AS CAPITAL EXPENDITURE. 16. FACTS RELATING TO THIS ISSUE, IN BRIEF, ARE THAT TH E ASSESSING OFFICER DURING THE COURSE OF ASSESSMENT PROCEEDINGS NOTICED THAT THE ASSESSEE HAD INCURRED AN EXPENDITURE OF RS. 10,20,272/- UNDE R THE HEAD BUILDING REPAIRS. ON GOING THROUGH THE DETAILS OF THOSE EX PENSES, THE ASSESSING OFFICER NOTICED THAT SOME OF THE EXPENDITURE HAD BE EN DEBITED WITH THE NARRATION BUILDING UNDER CONSTRUCTION. ON GOING THROUGH THE VOUCHERS OF THE EXPENDITURE, THE ASSESSING OFFICER NOTED THAT T HOSE EXPENSES WERE 10 APPARENTLY IN THE NATURE OF EXPENSES INCURRED FOR N EW CONSTRUCTION. THE DETAILS OF THOSE EXPENSES OF RS. 6,72,723/- HAS BEE N GIVEN BY THE ASSESSING OFFICER AT PAGE 15 OF THE ASSESSMENT ORDE R. THE ASSESSING OFFICER TREATED THE SAID AMOUNT AS CAPITAL EXPENDIT URE INSTEAD OF REVENUE EXPENDITURE. 17. BEING AGGRIEVED, THE ASSESSEE CARRIED THE MATTER TO THE LD. CIT(A) AND SUBMITTED AS UNDER:- A) THE APPELLANT HAS PURCHASED SIX OLD CIRCULAR WEA VING MACHINES EACH FROM ASSOCIATED CONCERNS M/S GALAXY INDUSTRIES, M/S MAPLE INDUSTRIES & M/S CRESCENT POLYTEX PVT. LTD. DURING THE MONTH OF AUGUST & SEPTEMBER. NECESSARY CHANGES WERE MADE IN FACTORY SHED FOR INS TALLATION OF THESE MACHINES. ALTERATIONS WAS MADE IN SOME OF THE WALL & FACTORY SHED BY REMOVAL OF OLD WALLS IN THE FACTORY SHED. CEMENT & STONE WAS USED IN ALTERATION OF WALL, M.S. BAR, M.S ANGLE & CHANNEL W ERE USED IN ALTERATION OF FACTORY SHED. FURTHER BROKEN A.C. SHEETS WAS REPLAC ED BY NEW A.C. SHEETS. NO NEW CONSTRUCTION WAS MADE I.E. ROOM OR SHED . AS PER INVOICE NO. 1 ST R/A/SUN/08-09 DATED 22/03/2009 RAISED BY LABOUR CONTRACTOR SOHAN LAL LOHAR THE PARTICULARS OF WORK DONE BY HIM IS AS UNDER:- LABOUR CHARGES FOR REPAIRING OF FACTORY SHED, JOB I NCLUDING EXCAVATION, BACK MASONARY PLASTER WORK IN SIDE & OUTSIDE SHED, RR ST ONE SOILING , PCC, FABRICATION & ERECTION OF TRUSSES & PURLING INCLUDI NG APPLYING A PRIMARY COAT OF APPROVED STEEL GATE PRIMER & ENAMEL PAINT, FIXIN G STEEL GATE, WINDOW, VENT & PAINTING WITH ENAMEL PAINT, AC SHEET FIXING INCLUDING TWO COAT OF WHITE CEMENT ON ONE SIDE, CHITTOR STONE FLOORING WI TH CEMENT & JOINT, WHITE WASH IN SIDE & OUTSIDE SHED INCLUDES COST OF ALL MATERIAL EXCLUDING COST OF REINFORCEMENT STEEL, TRUSSES STEEL, CEMENT, AC SHEETS , FLOORING STONE . COPY OF INVOICE & LEDGER A/C ARE ENCLOSED. B) AS PER ID. ADDL. CIT THESES EXPENSES WERE INCURR ED IN A VERY SHORT SPAN, YES BUILDING REPAIRING WORK WAS CARRIED ON DURING T HE PERIOD AUGUST 2008 11 TO MARCH, 2009. THE MATERIAL WAS PURCHASED DURING T HE PERIOD AUGUST 2008 TO FEBRUARY, 2009, SINCE THE OLD CIRCULAR WEAV ING MACHINES WERE PURCHASED DURING THE MONTH OF AUGUST & SEPTEMBER. C) RS.32160/- PAID TO M/S SUPREME ENTERPRISES AGAIN ST BUILDING CONSTRUCTED DURING THE A.Y.2008-09. THE BILL OF THE CONTACTOR WAS RECEIVED AFTER CLOSE OF THE YEAR AND PROVISION WAS MADE OF RS.10,00,000/- DURING THE A.Y.2008-09 . THE BILL WAS PASSED FOR RS .10,32,160/- DURING THE A.Y.2009-10 THE SHORT PROVISION WAS BOOKED UNDER TH E HEAD BUILDING UNDER CONSTRUCTION & LATER ON TRANSFERRED IN BUILDI NG REPAIRS A/C . DEPRECIATION ON RS.32,160/- MAY BE ALLOWED AS PER I NCOME TAX RULES .' 18. THE LEARNED CIT(A), AFTER CONSIDERING THE SUBMISSIO NS OF THE ASSESSEE, OBSERVED THAT THE ASSESSEE HAD PURCHASED SIX OLD CIRCULAR WEAVING MACHINES IN THE MONTH OF SEPTEMBER AND TO I NSTALL THE MACHINE, SOME ALTERATIONS WERE MADE IN THE WALL AND FACTORY SHED BY DEMOLISHING/ REMOVING THE OLD WALLS IN THE FACTORY SHED FOR WHIC H CEMENT, STONE, M.S. BAR, M.S. ANGLE AND CHANNEL WERE PURCHASED AND THE EXPENDITURE WAS INCURRED WITHIN THE SHORT PERIOD I.E. FROM AUGUST 2 008 TO MARCH 2009. THE LD. CIT(A) WAS OF THE VIEW THAT THE ASSESSEE HA D CARRIED OUT THE REPAIRING WORK AND IT WAS NOT THE CASE OF THE ASSES SING OFFICER THAT HE HAD CONDUCTED SPOT INQUIRIES AND FOUND THAT THE ASS ESSEE HAD CONSTRUCTED NEW BUILDING, BUT SUCH EXPENDITURE HAD BEEN CLAIMED AS REVENUE EXPENDITURE AND THAT MERELY ON THE BASIS OF NARRATI ON BUILDING UNDER CONSTRUCTION IT WAS NOT SUFFICIENT TO TREAT THE EN TIRE EXPENDITURE AS CAPITAL EXPENDITURE. THE LD. CIT(A) ALSO POINTED OUT THAT THE ASSESSEE 12 ITSELF ADMITTED THAT AN EXPENDITURE OF RS. 32,160/- WAS CAPITAL EXPENDITURE. HE, THEREFORE, DIRECTED THE ASSESSING OFFICER TO ALLOW DEPRECIATION ON THE AMOUNT OF RS. 32,160/- AND THE REMAINING AMOUNT OUT OF RS. 6,72,723/- WAS DIRECTED TO BE ALLOWED AS REVENUE EXPENDITURE. NOW THE DEPARTMENT IS IN APPEAL. 19. LEARNED D.R. STRONGLY SUPPORTED THE ORDER OF THE AS SESSING OFFICER. IN HIS RIVAL SUBMISSIONS, LEARNED COUNSEL FOR THE A SSESSEE REITERATED THE SUBMISSIONS MADE BEFORE THE AUTHORITIES BELOW. 20. AFTER CONSIDERING THE SUBMISSIONS OF BOTH THE PART IES, IT APPEARS THAT THE ASSESSING OFFICER TREATED THE EXPENSES INC URRED ON REPAIR BY THE ASSESSEE AS CAPITAL IN NATURE FOR THE REASON, THAT THOSE WERE RELATED TO M.S. BAR, M.S. ANGLE AND CHANNEL ETC. BUT HAD NOT C ONSIDERED THIS FACT THAT THE ASSESSEE USED THOSE ITEMS IN ALTERATION OF THE WALL AND FACTORY SHED. THE ASSESSING OFFICER FAILED TO BRING ANY MAT ERIAL ON RECORD TO SUBSTANTIATE THAT THOSE ITEMS WERE NOT USED IN THE REPAIR OR ALTERATION MADE IN THE EXISTING WALL AND FACTORY SHED, THEREFO RE, THE ACTION OF THE ASSESSING OFFICER IN TREATING THE EXPENDITURE OF RS . 6,72,723/- AS A CAPITAL EXPENDITURE, WAS NOT JUSTIFIED AND SINCE THE ASSESS EE ITSELF HAD ADMITTED A SUM OF RS. 32,160/- WAS CAPITAL IN NATURE, THEREF ORE, LD. CIT(A) WAS 13 FULLY JUSTIFIED IN DIRECTING THE ASSESSING OFFICER TO TREAT THE SUM OF RS. 32,160/- AS CAPITAL EXPENDITURE AND NOT THE ENTIRE AMOUNT OF RS. 6,72,723/-. WE DO NOT SEE ANY INFIRMITY IN THE IMP UGNED ORDER PASSED BY THE LD. CIT(A) ON THIS ISSUE. 21. VIDE GROUND NO. 2, THE GRIEVANCE OF THE DEPARTMENT RELATES TO THE DELETION OF DISALLOWANCE OF RS. 15,89,752/- MADE BY THE ASSESSING OFFICER UNDER SECTION 40A(2)(B) OF THE ACT. 22. FACTS RELATING TO THIS ISSUE, IN BRIEF, ARE THAT T HE ASSESSING OFFICER DURING THE COURSE OF ASSESSMENT PROCEEDINGS, NOTICE D THAT THE ASSESSEE HAD PAID EXCESSIVE WAGES AND SALARY. THE ASSESSEE SUBMITTED THAT THERE WAS INCREASE IN WAGES AND SALARY DUE TO PAYMENTS MA DE TO THE EMPLOYEES OF MEWAR POLYTEX, MAPLE INDUSTRIES AND GALAXY INDUS TRIES. IT WAS FURTHER STATED THAT THE EMPLOYEES OF THESE THREE GROUPS CON CERNS WERE DEPUTED TO DO THE WORK OF ASSESSEE-COMPANY BECAUSE THE ASSE SSEE HAD PURCHASED 18 OLD LOOMS FROM THESE THREE CONCERNS DURING THE M ONTHS OF AUGUST AND SEPTEMBER 2008. THE ASSESSEE SUBMITTED TO THE ASSE SSING OFFICER AS UNDER:- A) WAGES AND SALARY TO THE EMPLOYEES OF MEWAR POL YTEX, MAPLE INDUSTRIES AND GALAXY INDUSTRIES WERE PAID ON THE BASIS OF WOR K DONE BY THEM IN CONNECTION WITH WEAVING OF FABRICS ON LOOMS AND OTH ER PRODUCTION ACTIVITIES. 14 B) THERE WAS SUBSTANTIAL INCREASE IN THE TURNOVER OF THE ASSESSEE COMPANY WHICH IS FROM RS. 16.95 CRORE TO RS. 21.15 CRORE. C) SINCE ASSESSEE COMPANY HAD PURCHASED ENTIRE PLA NT AND MACHINERY OF GALAXY INDUSTRIES AND MAPLE INDUSTRIES, THESE UNITS HAVE STOPPED MANUFACTURING ACTIVITIES. THEREFORE, IT WAS DECIDED BY THE MANAGEMENT EITHER TO RETRENCH THE WORKERS FROM THE TWO CONCERN S TO WHICH THE WORKERS BELONGS TO OR TO ABSORB THE WORKERS BY THE ASSESSEE COMPANY ITSELF. SINCE THE WORKERS REFUSED TO TAKE RETRENCHM ENT OR EVEN TO JOIN SUN POLYTEX PVT. LTD, THE MANAGEMENT OF THE ASSESSEE CO MPANY DECIDED TO RETAIN THE WORKERS OF MAPLE INDUSTRIES, GLAXY INDUS TRIES AND M/S. MEWAR POLYTEX AND USE THEM FOR THEIR OWN BUSINESS. THE ASSESSEE COMPANY HAS PURCHASED THE ENTIRE OLD PLANT AND MACHINERY OF M/S .GLAXY INDUSTRIES AND MAPLE INDUSTRIES HAS BEEN PURCHASED BY THE ASSESSEE COMPANY AND THEREFORE, THESE TWO CONCERNS OF THE GROUP OF THE A SSESSEE COMPANIES HAD NO MANUFACTURING ACTIVITY TO CARRY OUT. D) THE ASSESSEE COMPANY DECIDED WITH THE MANAGEME NT OF MAPLE INDUSTRIES, GLAXY INDUSTRIES AND M/S.MEWAR POLYTEX THAT THE ASSESSEE COMPANY WILL PAY TWICE OF MONTHLY BILL FOR WAGES, S ALARIES, ALLOWANCES PAYABLE TO THE WORKERS AND THE GRATUITY AND RETIREM ENT BENEFITS WILL BE BORNE BY BOTH THE UNIT I.E. GLAXY INDUSTRIES AND MA PLE INDUSTRIES E) THE PAYMENT OF WAGES AND SALARY WERE MADE IN LI EU OF WORK DONE BY WORKERS OF MAPLE INDUSTRIES, GLAXY INDUSTRIES AND M EWAR POLYTEX AND THAT IT WAS DONE TO AVOID LABOUR UNREST. 23. HOWEVER, THE ASSESSING OFFICER DID NOT ACCEPT THE SUBMISSIONS OF THE ASSESSEE FOR THE FOLLOWING REASONS:- 1. THE MANAGEMENT OF ASSESSEE COMPANY, M/S. MEWAR POLYTEX PVT. LTD., M/S. CRESCENENT POLYTEX PVT. LTD., M/S. MAPLE INDUS TRIES AND GLAXY INDUSTRIES BELONG TO THE SAME SET OF PERSONS AND MO ST OF THE DOCUMENTS FURNISHED ON BEHALF OF THESE CONCERNS HAVE BEEN SIG NED EITHER BY SANDEEP BAFNA OR VIJAYENDRA BAFNA. EVEN THEN, WHEN THERE I S A QUESTION OF COMPUTING INCOME OF ANY CONCERN OR ASSESSEES CONCE RN, PROVISIONS OF SECTION 40A(2)(B) CAME INTO FORCE AND AUDITOR OF TH E ASSESSEE COMPANY HAS ALSO CONSIDERED THE TRANSACTIONS BETWEEN THE GROUP CONCERNS AS THE ONE 15 COVERED BY THE PROVISIONS OF THIS SECTION. THEREFOR E ANY EXCESSIVE PAYMENT MADE BY THE ASSESSEE COMPANY ON ANY BASIS OTHER THA N THE BUSINESS CONSIDERATION WILL NOT BE ALLOWABLE EXPENDITURE. 2. AS REGARDS THE CONTENTION OF THE ASSESSEE THAT T HE WAGES AND SALARIES WERE PAID ON THE BASIS OF WORK DONE BY THE WORKERS OF MAPLE INDUSTRIES, GLAXY INDUSTRIES AND MEWEAR POLYTEX AND IT WAS ON T HE BASIS OF AGREEMENT MADE BY THE ASSESSEE AND MAPLE INDUSTRIES, GALAXY I NDUSTRIES AND MEWAR POLYTEX THAT TWICE OF THE MONTHLY BILL OF ACTUAL WA GES, SALARY AND ALLOWANCES WILL BE PAID TO MAPLE INDUSTRIES AND GLAXY INDUSTRI ES, THE ASSESSEE HAS FAILED TO FURNISH ANY REASON AS TO WHY IT NEEDED T O PAY TWICE OF THE ACTUAL WAGES AND SALARY TO MAPLE INDUSTRIES AND GALAXY IND USTRIES ESPECIALLY WHEN IT WAS ALREADY ACCOMMODATING THE WORKERS OF THESE C ONCERNS BY RAISING ITS OWN FINANCIAL BURDEN. IN VIEW OF COMMON BUSINESS A CUMEN NO CONCERN WOULD SUCCUMB TO THE HELPLESSNESS OF OTHER CONCERNS . BUT THE ASSESSEE COMPANY HAS DONE SO BEYOND ANY APPARENT BUSINESS CO NSIDERATION IN THE CASE OF PAYMENT TO THE WORKERS OF MAPLE INDUSTRIES AND GALAXY INDUSTRIES. THE ASSESSEE COMPANY ALSO FAILED TO BRING ON RECORD ANY COGENT REASON FOR MAKING DOUBLE PAYMENTS TO THESE TWO CONCERNS FOR TH E WORK OF THEIR EMPLOYEES. BOTH THESE CONCERNS HAVE SHOWN PROFITS IN THEIR BOOKS OF ACCOUNT OUT OF THE TOTAL RECEIPTS FROM THE ASSESSEE COMPANY 3. AS PER THE PARTNERSHIP DEED OF THE GALAXY INDUST RIES AND MAPLE INDUSTRIES, THERE IS NO CLAUSE TO ESTABLISH THAT HIRING THEIR EMPLOYEES COULD BE ONE OF THEIR BUSINESS ACTIVITY. THUS, THE PAYMEN T OF DOUBLE WAGES AND SALARY TO MAPLE INDUSTRIES AND GALAXY INDUSTRIES IS NOTHING BUT AN ACT TO EXTEND UNDUE BENEFIT TO THE TWO CONCERNS WHICH IS P ERFECTLY COVERED BY THE PROVISIONS OF SECTION 40A(2)(B) OF THE ACT. 4. AS REGARDS THE CONTENTION THAT THE ASSES SEE COMPANY PURCHASED THE TOTAL PLANT AND MACHINERY OF MAPLE INDUSTRIES AND G ALAXY INDUSTRIES AND THEREFORE THESE TWO CONCERNS HAD NO MANUFACTURING A CTIVITY SINCE THEN, IT SIMPLY REVEALS THAT AT THE MOST MONTHLY SALARY AND REGULAR WAGES AS PER WORK DONE BY THE WORKERS CAN BE ALLOWED SINCE THE P LANT AND MACHINERY WAS TAKEN OVER BY THE ASSESSEE AND THAT THERE WAS N O QUESTION OF GIVING TWICE OF THE WAGES AND SALARY AS STATED EARLIER. FU RTHER, AS PER THE COPY OF ACCOUNTS OF MAPLE INDUSTRIES AND GALAXY INDUSTRIES AS FURNISHED BY THE ASSESSEE, THE ASSESSEE HAD PAID NOT ONLY DOUBLE WAG ES AND SALARIES TO THESE CONCERNS BUT HAS ALSO MADE PAYMENTS OF SALARY RIGHT FROM 1.4.2008 THOUGH IN THE CASE OF MAPLE INDUSTRIES, ENTIRE PLANT AND M ACHINERY OF THIS CONCERN 16 WAS PURCHASED BY THE ASSESSEE ON 03.09.2008 AND THE INCASE OF M/S.GLAXY INDUSTRIES, THE ENTIRE PLANT AND MACHINERY OF THIS CONCERN WAS PURCHASED ON 14.08.2008. THEREFORE, TILL THE DATES OF PURCHAS E OF ENTIRE MACHINERY AND PLANT, NEITHER THE EXCESS MACHINERY AND PLANT WAS A VAILABLE WITH THE ASSESSEE NOR THE SERVICE OF EMPLOYEES OF MAPLE INDU STRIES AND GLAXY INDUSTRIES WERE REQUIRED BY THE ASSESSEE. NORMALLY, IT TAKES FEW DAYS TIME TO SHIFT THE MACHINERY FROM ONE PLACE TO ANOTHER PL ACE, FIND A SUITABLE PLACE FOR INSTALLATION AND THEN INSTALL IT WITH ELECTRIC FITTING. THEREFORE, THE PLANT AND MACHINERY PURCHASED FROM MAPLE INDUSTRIES COULD NOT BE AVAILABLE FOR PRODUCTION DURING THE MONTH OF SEPTEMBER, 2008 AND THAT OF M/S.GLAXY INDUSTRIES COULD NOT BE AVAILABLE FOR PRODUCTION DU RING THE MONTH OF AUGUST, 2008. THUS IN ANY CASE SALARY PAID TO THE W ORKERS OF M/S. MAPLE INDUSTRIES FROM APRIL, 2008 TO SEPTEMBER, 2008 AND SALARY PAID TO THE WORKERS OF M/S. GLAXY INDUSTRIES FROM APRIL, 2008 T O AUGUST, 2008 IS NOT AT ALL AN ALLOWABLE EXPENDITURE. IN VIEW OF ABOVE, EXC ESS SALARY AMOUNTING TO RS.6,50,580/- (RS.202713 WAGES/SALARY PRIOR TO THE PERIOD OF INSTALLATION OF PLANT & MACHINERY IN THE CASE OF M/S.MAPLE INDUSTRI ES AND RS.4,47,867 BEING THE AMOUNT OF DOUBLE WAGES) AND RS.5,87,858 ( RS. 167295 + RS.420563 BEING SALARY PRIOR TO THE INSTALLATION OF PLANT AND MACHINERY DOUBLE SALARY RESPECTIVELY) IN THE CASE OF GLAXY IN DUSTRIES WAS DISALLOWED. THE ASSESSING OFFICER DISALLOWED A TOTAL SUM OF RS. 15,89,752/- 24 BEING AGGRIEVED, THE ASSESSEE CARRIED THE MATTER TO THE LD. CIT(A) AND SUBMITTED AS UNDER:- THE LD. ADDL. CIT HAS RAISED OBJECTION AS UNDER:- A) THE MANAGEMENT OF ASSESSEE COMPANY, M/S MEWAR POLYTEX LTD., M/S CRESCENT POLYTEX PVT. LTD. ,M/S MAPLE INDUSTRIES & M/S GALAXY INDUSTRIES BELONGS TO THE SAME SET OF PERSONS AND MOST OF DOCU MENTS FURNISHED ON BEHALF OF THESE CONCERNS HAVE BEEN SIGNED EITHER BY SANDEEP BAFNA OR VIJENDRA BAFNA. THEREFORE, ANY EXCESSIVE PAYMENT MA DE BY THE ASSESSEE COMPANY ON ANY BASIS OTHER THAN THE BUSINESS CONSID ERATION WILL NOT BE AN ALLOWABLE EXPENDITURE. B) THE PAYMENT OF WAGES & SALARIES ARE CLAIM ED TO HAVE BEEN PAID ON THE BASIS OF THE WORK DONE BY THE WORKERS OF MAPLE INDUSTRIES, GALAXY 17 INDUSTRIES & MEWAR POLYTEX LTD. ASSESSEE HAS FAILED TO FURNISH ANY REASON AS TO WHY IT NEEDED TO PAY TWICE OF THE ACTUAL WAGES & SALARIES, BEYOND ANY APPARENT BUSINESS CONSIDERATION . THE ASSESSEE HAS FAILED TO BRING ON RECORD ANY COGENT REASON FOR MAKING DOUBLE PAYMENTS TO THE SE TWO CONCERNS FOR THE WORK OF THEIR EMPLOYEES. INTERESTINGLY, BOTH TH ESE CONCERNS HAVE SHOWN PROFITS IN THEIR BOOKS OF ACCOUNTS OUT OF THE TOTAL RECEIPTS FROM THE ASSESSEE COMPANY AS INCOME FROM OTHER RECEIPTS. C) PERUSAL OF PARTNERSHIP DEED OF M/S GALAXY INDUS TRIES & M/S MAPLE INDUSTRIES SHOWS THAT THERE IS NO CLAUSE IN THEIR D EEDS TO ESTABLISH THAT HIRING THEIR EMPLOYEES COULD BE ONE OF THEIR BUSINE SS ACTIVITY. THE PAYMENT OF DOUBLE WAGES & SALARIES TO MAPLE INDUSTRIES & GA LAXY INDUSTRIES IS NOTHING BUT AN ACT TO EXTEND UNDUE BENEFIT TO THESE S TWO CONCERNS. D) PLANT & MACHINERY OF GALAXY INDUSTRIES & MAPLE INDUSTRIES WERE PURCHASED BY THE ASSESSEE DURING THE MONTH OF AUGUS T & SEPTEMBER. IT WAS NOTICED THAT ASSESSEE HAS PAID NOT ONLY DOUBLE SALA RY TO THESE CONCERNS BUT HAS ALSO MADE PAYMENTS OF SALARY RIGHT FROM 01/04/0 8. E) SIMILARLY PAYMENT OF RS.351314/- MADE TO SHRI RA JESH CHOUDHARY AS PRODUCTION MANAGER WHO IS EMPLOYEE OF MEWAR POLYTEX LTD. WILL NOT BE ALLOWED AS MEWAR POLYTEX LTD. IN ITSELF IS HAVING B IG PRODUCTION UNIT AND THERE IS NO REASON FOR THE ASSESSEE TO USE SERVICES OF ANY EMPLOYEE OF MEWAR POLYTEX LTD. IN THIS REGARD WE SUBMIT AS UNDER:- A) ASSESSEE COMPANY, M/S MEWAR POLYTEX LTD, M/S CRE SCENT POLYTEX PVT. LTD. ,M/S MAPLE INDUSTRIES & M/S GALAXY INDUSTRIES ARE ASSOCIATED CONCERN & BELONGS TO THE BAFNA'S. MR. SANDEEP BAFNA IS DIRE CTOR OF MEWAR POLYTEX LTD. & SUN POLYTEX LTD.. B) MR. VIJENDRA BAFNA IS DIRECTOR OF SUN POLYTEX PVT. LTD. FURTHER ADMINISTRATIVE OFFICE OF ALL ASSOCIATED CONCERNS IS A-207(B), MEWAR INDUSTRIAL AREA, MADRI, UDAIPUR. GALAXY INDUSTRIES & MAPLE INDUSTRIES ARE SMALL UNITS AND BOTH MR. SANDEEP BAFNA & MR. VIJEND RA BAFNA ARE AUTHORIZED PERSONS TO APPROVE & PASS BILLS. THE PAY MENTS MADE FOR SALES / JOB WORK /INTEREST/ WAGES & SALARIES /PURCHASES ARE ON SIMILAR RATES IN ALL ASSOCIATED CONCERNS. 18 C) THE MANAGEMENT OF THE GROUP CONCERNS HAS ADOPT ED PRACTICE TO DEPUTE STAFF & LABOURS AMONG ASSOCIATED CONCERNS ON REQUIR EMENT BY ANY OF THE CONCERN & IN TURN IT WAS DECIDED TO CHARGE TWICE OF THE SALARY & WAGES CHARGEABLE. FURTHER APPELLANT COMPANY HAS DEPUTED ITS STAFF AT ASSOCIATED CONCERN HARMONY PLASTICS PVT. LTD. FROM THE YEAR 20 05-06. THE YEAR WISE SALARY CHARGED (TWICE OF SALARY PAID TO DEPUTED STA FF). YEAR AMOUNT ADDITIONAL AMOU NT TOTAL 2005-06 141856 141856 283712 2006-07 282911 282911 565822 2007-08 343152 343152 686304 2008-09 410233 410233 820466 D) AS PER DEED OF PARTNERSHIP OF BOTH THE FIRM , CL AUSE 4. BUSINESS : THAT THE BUSINESS OF FIRM SHALL BE OF MANUFACTURING & TRADIN G OF PLASTIC WOVEN FABRIC, BAGS/SACKS AND OTHER ALLIED AND RELATED BUSINESS . THE FIRM MAY CARRY ON OTHER BUSINESS OR BUSINESSES AS MAY BE MUTUALLY AGR EED UPON BY AND BETWEEN PARTNERS. BOTH THE CONCERNS HAVE EMPLOYED R EGULAR WORKERS WHO WERE LOOKING AFTER PRODUCTION OF PP FABRIC .SINCE B OTH UNITS HAS STOPPED MANUFACTURING ACTIVITIES & IT WAS DECIDED BY THE MA NAGEMENT TO RETRENCH THE WORKERS OR THEY MAY JOIN SUN POLYTEX PVT. LTD. BUT THEY REFUSED TO TAKE RETRENCHMENT OR TO JOIN SUN POLYTEX PVT. LTD.. TO A VOID LABOUR UNREST IT WAS DECIDED BETWEEN WORKERS & MANAGEMENT TO CONTINUE & RETAIN WORKERS WITH BOTH THE UNITS. IN VIEW OF ABOVE OTHER ALLIED AND RELATED BUSINESS AND THE FIRM MAY CARRY ON OTHER BUSINESS OR BUSINESSES AS MAY BE MUTUALLY AGREED UPON BY AND BETWEEN PARTNERS. BOTH THE FIRMS CAN CARRY ON ANY B USINESS AND ACCORDINGLY HIRING THEIR EMPLOYEES COULD BE ONE OF THEIR BUSINE SS ACTIVITY. E) THE EMPLOYEES OF BOTH THE CONCERNS WERE DEPUT ED AT APPELLANT'S WORKS FROM APRIL, 2008 AND ACCORDINGLY DEBIT NOTE WAS RAI SED FROM THE MONTH APRIL SINCE BOTH THE UNITS HAS STOPPED MANUFACTURING ACTI VITIES. MANAGEMENT OF BOTH THE UNITS & ASSESSEE HAS DECIDED THAT ENTIRE WORKERS WILL BE DEPUTED WITH SUN POLYTEX PVT. LTD. & SUN PO LYTEX PVT. LTD. WILL PAY TWICE OF MONTHLY BILL FOR WAGES , SALARIES & ALLOWA NCES TO THE WORKERS OF 19 BOTH THE UNITS & NO RETIREMENT BENEFITS WILL BE PAI D BY SUN POLYTEX PVT. LTD. TO THE WORKER OF BOTH THE UNITS I.E . GRATUITY & RE TIREMENT BENEFITS WILL BE BORNE BY BOTH THE UNITS. F) MEWAR POLYTEX LTD. HAS DEPUTED ITS STAFF FROM 1 ST APRIL, 2004 AT WORKS OF SUN POLYTEX PVT. LTD. THE YEAR WISE PAYMENT OF SALA RY IS AS UNDER :- YEAR AMOUNT ADDITIONAL AMOUNT TOTAL 2004-05 149901 149902 299803 2005-06 85676 085676 171352 2006-07 124638 124638 249276 2007-08 164089 164089 328178 2008-09 184057 184057 368114 IN VIEW OF ABOVE AND IN PARTICULAR THE BUSINESS PRA CTICE ADOPTED BY THE ASSOCIATED CONCERNS, THE CHARGING/ RECEIVING OF SAL ARY & WAGES TWICE ON DEPUTED STAFF FROM YEAR 2004-05 IS CONSISTENTLY FOL LOWED . THE APPELLANT HAS ALSO CHARGED TWICE FROM HARMONY PLASTICS PVT. LTD. FROM THE YEAR 2005-06. THE DISALLOWANCE SO MADE DESERVES TO BE DELETED.' 25 THE LEARNED CIT(A), AFTER CONSIDERING THE SUBMISSIO NS OF THE ASSESSEE, OBSERVED THAT M/S MEWAR POLYTEX LTD. HAD STARTED DEPUTING ITS STAFF FOR THE WORK OF THE ASSESSEE FROM 01/04/2004 I.E. FROM A.Y. 2005-06 AT THE REQUEST OF THE ASSESSEE AND THE ASSESSEE USE D TO PAY SALARY TWICE TO THE DEPUTED STAFF OF M/S MEWAR POLYTEX LTD. AS A GREED UPON BY BOTH THE CONCERNS AND THIS ISSUE HAD BEEN EXAMINED IN TH E PREVIOUS ASSESSMENT YEARS I.E. A.YS. 2005-06 TO 2008-09, THE ASSESSMENT HAD BEEN COMPLETED UNDER SECTION 143 (3) OF THE ACT AND NO D ISALLOWANCE OF SALARY/ WAGES ON THIS ACCOUNT HAD BEEN MADE. LD. CIT(A) FU RTHER OBSERVED THAT THE ASSESSEE COMPANY HAD ALSO DEPUTED ITS STAFF TO THE ASSOCIATED 20 CONCERN HARMONY PLASTICS PVT. LTD. FROM THE YEAR 2 005-06 AND TWICE OF SALARY HAD BEEN CHARGED FOR THE DEPUTED STAFF FROM THE SAID CONCERN. THEREFORE, CHARGING OF TWICE THE SALARY FOR THE DEP UTED STAFF WAS RECIPROCAL AND THIS HAD BEEN ACCEPTED BY THE DEPART MENT AS NO DISALLOWANCE OF CHARGES/SALARY HAD BEEN MADE IN THE PREVIOUS ASSESSMENT YEARS. THE LD. CIT(A) POINTED OUT THAT THE ASSESSI NG OFFICER HAD NOT BROUGHT ANYTHING NEW ON RECORD BY WAY OF ANY ENQUIR Y FOR MAKING DISALLOWANCE OF SALARY/WAGES PAID TWICE FOR THE DEP UTED STAFF OF OTHER CONCERNS AND WITHOUT ANY SUCH MATERIAL/ EVIDENCE, T HE DISALLOWANCE MADE OUT OF WAGES/SALARY PAID TO THE DEPUTED EMPLOY EES WAS LIABLE TO BE DELETED PARTICULARLY WHEN SUCH PAYMENTS HAD BEEN TR EATED FOR BUSINESS EXPEDIENCY AND NO DISALLOWANCE WERE MADE IN THE PRE VIOUS ASSESSMENT YEARS. ACCORDINGLY, DISALLOWANCE OF RS. 15,89,752/ - WAS DELETED. NOW THE DEPARTMENT IS IN APPEAL. 26 LEARNED D.R. SUPPORTED THE ORDER OF THE ASSESSING OFFICER AND FURTHER SUBMITTED THAT THE ASSESSEE PAID SALARY AT THE DOUBLE RATE TO THE EMPLOYEES OF THE SISTER CONCERN. THEREFORE, THE PA YMENT WAS HIT BY THE PROVISIONS OF SECTION 40A(2)(B) OF THE ACT AND THE DISALLOWANCE WAS RIGHTLY MADE BY THE ASSESSING OFFICER AND THE LD. CIT(A) WA S NOT JUSTIFIED IN DELETING THE DISALLOWANCE MADE BY THE ASSESSING OFF ICER. 21 27 IN HIS RIVAL SUBMISSIONS, LEARNED COUNSEL FOR THE ASSESSEE STRONGLY SUPPORTED THE IMPUGNED ORDER PASSED BY THE LD. CIT( A) AND REITERATED THE SUBMISSIONS MADE BEFORE THE AUTHORITIES BELOW A ND FURTHER SUBMITTED THAT IN THE EARLIER YEARS IN SIMILAR CIRCUMSTANCES, THE CLAIM OF THE ASSESSEE HAS BEEN ALLOWED WHILE COMPLETING THE ASSE SSMENT UNDER SECTION 143(3) OF THE ACT. THEREFORE, DISALLOWANCE MADE ON LY FOR THIS YEAR WAS NOT JUSTIFIED AND THE LD. CIT(A) RIGHTLY DELETED TH E SAME. 28. WE HAVE CONSIDERED THE SUBMISSIONS OF BOTH THE PART IES AND CAREFULLY GONE THROUGH THE MATERIAL AVAILABLE ON RE CORD. IN THE PRESENT CASE, IT IS NOTICED THAT THE ASSESSEE WAS PAYING TW ICE SALARY TO THE EMPLOYEES OF THE CONCERNS FROM WHOM OLD LOOMS WERE PURCHASED AND THE ASSESSEE WAS ALSO CHARGING TWICE OF SALARY FROM THE ASSOCIATED CONCERNS TO WHOM ITS STAFF WAS DEPUTED. THEREFORE, CHARGING OF TWICE SALARY FOR THE DEPUTED STAFF WAS RECIPROCAL AND THIS PRACTICE WAS ACCEPTED BY THE DEPARTMENT IN ALL THE PRECEDING YEARS WHERE THE ASS ESSMENTS HAD BEEN COMPLETED UNDER SECTION 143(3) OF THE ACT. IT IS A LSO NOT THE CASE OF THE ASSESSING OFFICER THAT THE PAYMENTS OF THE SALARY/W AGES WERE NOT FOR THE BUSINESS PURPOSE. HE HAS ALSO NOT BROUGHT ANY MATE RIAL ON RECORD TO SUBSTANTIATE THAT HOW AND IN WHAT MANNER THE SALARY PAID WAS EXCESSIVE TO HIT THE PROVISIONS OF SECTION 40A(2)(B) OF THE A CT. WE, THEREFORE, 22 CONSIDERING THE TOTALITY OF THE FACTS ARE OF THE VI EW THAT THE DISALLOWANCE MADE BY THE ASSESSING OFFICER WAS NOT JUSTIFIED PAR TICULARLY IN AN IDENTICAL FACTS, THE SIMILAR PAYMENTS MADE IN EARLI ER YEARS HAS BEEN ACCEPTED. WE THEREFORE, DO NOT SEE ANY MERIT IN TH IS ISSUE OF THE DEPARTMENTAL APPEAL. 29. ANOTHER ISSUE AGITATED BY THE DEPARTMENT VIDE GROU ND NO. 3 RELATES TO THE DELETION OF ADDITION RS. 2,70,000/- MADE BY THE ASSESSING OFFICER UNDER SECTION 40A(2)(B) OF THE ACT. 30. FACTS RELATING TO THIS ISSUE IN BRIEF ARE THAT THE ASSESSING OFFICER DURING THE COURSE OF ASSESSMENT PROCEEDINGS, NOTICE D THAT THE ASSESSEE HAD PAID GODOWN RENT @ RS. 30,000/- PER MONTH TO M/ S. MAPLE INDUSTRIES FROM AUGUST 2008 TO MARCH 2009. WHEN THE ASSESSEE WAS ASKED TO JUSTIFY THE PAYMENT OF THIS RENT, IT WAS SUBMITTED BEFORE T HE ASSESSING OFFICER THAT THE FACTORY SHED OF M/S. MAPLE INDUSTRIES WAS SITUATED ONLY HALF KILOMETER AWAY FROM THE FACTORY OF THE ASSESSEE. W HEN THE ASSESSING OFFICER ASKED THE ASSESSEE AS TO HOW AND FOR WHAT P URPOSE THE GODOWN WAS USED, IT WAS STATED THAT THE SHED WAS USED FOR GODOWN OF THE ASSESSEE AND TDS WAS DEDUCTED ON PAYMENT OF RENT. IT WAS FURTHER STATED THAT THE GOODS WERE TRANSPORTED TO THE GODOWN THROU GH OWN DELIVERY VAN. 23 THE ASSESSING OFFICER, HOWEVER, DID NOT ACCEPT THE SUBMISSIONS OF THE ASSESSEE FOR THE FOLLOWING REASONS:- 1. THE ASSESSEE FAILED TO EXPLAIN AS TO FOR WHAT AC TIVITY THE GODOWN WAS USED. THE ASSESSEE DID NOT PRODUCE ANY RECORD TO ES TABLISH THAT SOME OF THE GOODS OF THE ASSESSEE TRAVELLED FROM THE FACTOR Y PREMISES OF THE ASSESSEE TO THE GODOWN OF MAPLE INDUSTRIES. 2. AS PER THE COPY OF THE FINAL ACCOUNT OF M/S.MAPL E INDUSTRIES, THE FIRM HAS RECORDED A TURNOVER OFRS.710322 AND THE ENTIRE BUILDING HAS BEEN SHOWN IN THE CHART OF FIXED ASSET AS BUSINESS ASSET ON WHICH DEPRECIATION OF RS.85104 HAS BEEN CLAIMED. THIS CLEARLY INDICATE THAT THE ENTIRE BUILDING WAS BEING USED BY M/S.MAPLE INDUSTRIES FOR ITS OWN TRADING ACTIVITIES. 3. THERE IS NO RENT AGREEMENT BETWEEN THE ASSESSE E COMPANY AND M/S. MAPLE INDUSTRIES. FURTHER, THE ASSESSEE COULD NOT E STABLISH THAT GODOWN OF M/S.MAPLE INDUSTRIES WAS EVER SHOWN TO BE THE GO DOWN OF THE ASSESSEE COMPANY BEFORE ANY GOVERNMENT DEPARTMENT L IKE EXCISE DEPARTMENT ETC. 4. THERE IS NO CLAUSE IN THE PARTNERSHIP DEED OF M /S. MAPLE INDUSTRIES TO SHOW THAT LETTING GODOWN WAS ONE OF THEIR BUSINESS ACTIVITY. ACCORDINGLY, THE PAYMENT OF RENT AMOUNTING TO RS. 2,70,000/- WAS DISALLOWED CONSIDERING THE SAME FOR NON-BUSINESS PU RPOSE. 31. BEING AGGRIEVED, THE ASSESSEE CARRIED THE MATTER T O THE LD. CIT(A) AND THE FOLLOWING SUBMISSIONS WERE MADE:- A) TURNOVER OF RS.7,10,322/- AS SHOWN IN BALANCE SH EET OF MALPE INDUSTRIES WAS BEFORE JULY, 2008 FROM TRADING OF FI NISHED GOOD. DEPRECIATION HAS BEEN CLAIMED OF RS.85104/- ON BUIL DING AS PER INCOME 24 TAX RULES. THE RENTAL INCOME WAS SHOWN AS BUSINESS INCOME BY MAPLE INDUSTRIES ACCORDINGLY DEPRECIATION HAS BEEN CLAIME D ON ENTIRE BUILDING. B) THE RENT DEED WAS EXECUTED BETWEEN APPELLANT & M APLE INDUSTRIES. COPY OF THE SAME IS ENCLOSED. C) AS PER DEED OF PARTNERSHIP OF MAPLE INDUSTRIES, CLAUSE 4. BUSINESS: THAT THE BUSINESS OF FIRM SHALL BE OF MANUFACTURING & TRADING OF PLASTIC WOVEN FABRIC, BAGS/SACKS AND OTHER ALLIED AND RELAT ED BUSINESS. THE FIRM MAY CARRY ON OTHER BUSINESS OR BUSINESSES AS MAY BE MUTUALLY AGREED UPON BY AND BETWEEN PARTNERS .MAPLE INDUSTRIES STOP PED MANUFACTURING & TRADING ACTIVITIES AND ACCORDINGLY THE VACANT FAC TORY GODOWN WAS LET OUT TO APPELLANT. THUS THE RENT WAS PAID BY APPELLANT FOR GODOWN TAKE N ON RENT BY EXECUTING RENT DEED FOR IT'S BUSINESS ACTIVITIES IT SELF PROVES THE NECESSITY FOR BUSINESS PURPOSES & ACCORDINGLY THE DISALLOWANC E SO MADE DESERVES TO BE DELETED.' 32 THE LEARNED CIT(A), AFTER CONSIDERING THE SUBMISSIO NS OF THE ASSESSEE, OBSERVED THAT THERE WAS AN AGREEMENT BET WEEN THE ASSESSEE AND M/S. MAPLE INDUSTRIES WHICH WAS EXECUTED ON 01/ 07/2008 AND THE AGREEMENT REVEALED THAT M/S. MAPLE INDUSTRIES AGREE D TO GIVE THE PREMISES ON RENT TO THE ASSESSEE COMPANY FOR A MONT HLY RENT OF RS. 30,000/-. THE LD. CIT(A) THEREFORE, DID NOT ACCEPT THIS OBSERVATION OF THE ASSESSING OFFICER THAT THERE WAS NO RENT DEED. AS REGARDS TO THE OBSERVATION OF THE ASSESSING OFFICER THAT THERE WAS NO PROOF TO ESTABLISH THAT GOODS OF THE ASSESSEE HAD TRAVELLED FROM FACTO RY OF THE ASSESSEE TO THE GODOWN TAKEN ON RENT. THE LD. CIT(A) MENTIONED THAT THE ASSESSING 25 OFFICER HAD NOT MADE ANY ENQUIRY TO ESTABLISH THAT THE ASSESSEE DID NOT USE THE GODOWN FOR KEEPING THE NON-EXCISABLE GOODS AND IN THE ABSENCE OF ANY SUCH DETAILS, IT WAS UNREASONABLE TO DRAW AN ADVERSE INFERENCE AGAINST THE ASSESSEE. THE LD. CIT(A) POINTED OUT T HAT THE ASSESSEE HAD MADE THE PAYMENT OF RENT AFTER DEDUCTING THE TAX AT SOURCE AS REQUIRED UNDER SECTION 194I OF THE ACT AND THE RENT, SO RE CEIVED FROM THE ASSESSEE HAD ALREADY BEEN DECLARED BY THE RECIPIENT IN ITS RETURN OF INCOME. HE THEREFORE, DELETED THE DISALLOWANCE OF RS. 2,70,000/- MADE BY THE ASSESSING OFFICER. NOW THE DEPARTMENT IS IN APPEAL. 33 . WE HAVE CONSIDERED THE SUBMISSIONS OF BOTH THE PA RTIES AND CAREFULLY GONE THROUGH THE MATERIAL AVAILABLE ON RE CORD. IN THE PRESENT CASE, IT APPEARS THAT THE IMPUGNED DISALLOWANCE WAS MADE BY THE ASSESSING OFFICER WITHOUT ANY BASIS PARTICULARLY WH EN RENT DEED WAS EXECUTED BETWEEN THE ASSESSEE AND M/S. MAPLE INDUST RIES ON 01/07/2008 WHEREIN IT WAS MENTIONED THAT A RENT OF RS. 30,000/ - WOULD BE CHARGED. THE ASSESSEE PAID RENT FOR USING THE FACTORY SHED O F M/S. MAPLE INDUSTRIES AS GODOWN AND ALSO EXPLAINED TO THE ASSESSING OFFIC ER THAT NON-EXCISABLE GOODS WERE KEPT IN THE GODOWN WHICH WERE DELIVERED BY VAN FROM THE FACTORY OF THE ASSESSEE. THEREFORE, THE ASSESSING OFFICER WAS NOT JUSTIFIED IN DISALLOWING THE CLAIM OF THE ASSESSEE MERELY ON THIS 26 PRESUMPTION THAT THE GOODS OF THE ASSESSEE WERE NOT TRAVELLED FROM THE FACTORY TO THE GODOWN. MOREOVER IN THIS CASE, THE ASSESSEE DEDUCTED TDS UNDER SECTION 194I OF THE ACT ON THE RENT PAYMENT A ND DEPOSITED THE SAME WITH THE GOVERNMENT. THE RECIPIENT ALSO DECLA RED THE RENT FOR TAXATION PURPOSES, THEREFORE, THE DISALLOWANCE WAS MADE BY THE ASSESSING OFFICER ONLY ON THE BASIS OF PRESUMPTION, SURMISES AND CONJECTURES WHICH IS NOT TENABLE AND THE LD. CIT(A) RIGHTY DELETED TH E SAME. WE, THEREFORE, DO NOT SEE ANY MERIT IN THIS GROUND OF T HE DEPARTMENTAL APPEAL. 34 . IN THE RESULT, APPEAL OF THE ASSESSEE IS ALLOWED AND THAT OF THE DEPARTMENT IS DISMISSED. (ORDER PRONOUNCED IN THE COURT ON 02 ND APRIL, 2014). SD/- SD/- (HARI OM MARATHA) (N.K.SAINI) JUDICIAL MEMBER ACCOUNTANT MEMBER DATED : 02 ND APRIL, 2014. VR/- COPY TO: 1. THE APPELLANT 2. THE RESPONDENT 3. THE LD.CIT 4. THE CIT(A) 5. THE D.R ASSISTANT REGISTRAR, ITAT, JODHPUR.