M/s Teck Bond Laboratories Private Limited, Hyderabad V. DCIT., Circle-2(3), Hyderabad

ITA 1558/HYD/2014

• Counselvise Citation: [2016] 131 COUNSELVISE.COM (IT) 6220 (ITAT-HYDERABAD)
• Duration Of Justice: 1 year(s) 11 month(s) 24 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 03-10-2016
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: A
• Next Hearing Date: 07-06-2016
• Assessment Year: 2010-2011
• Appeal Filed On: 09-10-2014
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: A SITARAMA RAO
• Assessee Lawyers: A V RAGHURAM
• Keywords: Unexplained cash credit; Depreciation
• Section: 143(3); 68; 10

Judgement Text

ITA NO 1558 OF 2014 TECK BAND LAB P LTD HYDERABAD PAGE 1 OF 8 IN THE INCOME TAX APPELLATE TRIBUNAL HYDERABAD A BENCH, HYDERABAD BEFORE SMT. P.MADHAVI DEVI, JUDICIAL MEMBER & SHRI S. RIFAUR RAHMAN, ACCOUNTANT MEMBER ITA NO.1558/HYD/2014 (ASSESSMENT YEAR: 2010-11) M/S.TECK BOND LABORATORIES PVT. LTD. HYDERABAD PAN: AABCT 9977 B VS. DY. COMMISSIONER OF INCOME TAX, CIRCLE 2(3) HYDERABAD (APPELLANT) (RESPONDENT) FOR ASSESSEE : SHRI A.V. RAGHURAM FOR REVENUE : SHRI A. SITARAMA RAO, DR DATE OF HEA R ING : 04.08.2016 DAT E OF PRONOUNCEMENT : 03 . 1 0.2016 O R D E R PER SMT. P. MADHAVI DEVI, J.M. THIS IS ASSESSEES APPEAL FOR THE A.Y 2010-11 AGAIN ST THE ORDER OF THE CIT (A) DATED 22.08.2014 CONFIRMING TH E DISALLOWANCE AND THE ADDITION MADE BY THE AO U/S 14 3(3) OF THE ACT. THE ASSESSEE HAS RAISED THE FOLLOWING 7 GROUND S OF APPEAL:- 1. THE ORDER OF THE LEARNED CIT(A) IS ERRONEOUS B OTH ON FACTS AND IN LAW AND ALSO PERVERSE IN NOT FOLLOWING THE JUDICIAL PRONOUNCEMENTS. 2. THE LEARNED CIT(A) ERRED IN OBSERVING THAT THE APPELLANT HAS NOT RESPONDED TO THE AO DURING REMAND PROCEEDINGS WITHOUT GIVING AN OPPORTUNITY TO THE ASSESSEE TO FIND OUT THE REASONS FOR SUCH FAILURE. 3. THE LEARNED CIT(A) DEPRIVED THE ASSESSEE OF EXPLAINING THAT THE INVESTORS WHEN SUMMONED COULD N OT ITA NO 1558 OF 2014 TECK BAND LAB P LTD HYDERABAD PAGE 2 OF 8 ATTEND THE PROCEEDINGS DUE TO PRE OCCUPATION WITH FARMING ACTIVITIES AND FILED LETTERS TO THAT EFFECT AND THE AO WITHOUT PROVIDING ANOTHER OPPORTUNITY HAS CONCLUDED THAT THE INVESTORS HAS NOT RESPONDED AND THEREBY ARRIVED AT AN ADVERSE CONCLUSION. 4. WITHOUT PREJUDICE TO THE ABOVE GROUND, THE LEARN ED CIT(A) ERRED IN HOLDING THAT THE RATIO IN THE CASE OF LOVELY EXPORTS OF SUPREME COURT HAS NO APPLICATION, WHEN THE ASSESSEE HAS FILED ALL THE DETAILS OF THE INVESTORS INCLUDING THEIR BANK ACCOUNTS THEREBY DEMONSTRATION THEIR IDENTITY AND THE MODE OF INVEST MENT THROUGH BANKING CHANNEL DISCHARGING THE ONUS THAT L IES ON HIM AND THEREBY ERRED IN CONFIRMING THE ADDITION OF RS.53,68,000MADE U/S.68 BEING SHARE APPLICATION MONEY. 5. THE LEARNED CIT(A) ERRED IN CONFIRMING THE DISALLOWANCE OF ESI & P.F. OF RS.3,84,344 FOLLOWING THE DECISION OF GUJARAT HIGH COURT IN SPITE OF CONTRARY DECISION OF OTHER HIGH COURT WHICH IS IN FAVOUR OF ASSESSEE AND RULING OF SUPREME COURT IN VEGETABLE PRODUCTS THAT WHEN TWO VIEWS ARE POSSIBLE THE ONE I N FAVOUR OF ASSESSEE SHOULD BE FOLLOWED. 6. THE LEARNED CIT (A) ERRED IN CONFIRMING DISALLO WANCE OF DEPRECIATION INSPITE OF JUDICIAL PRONOUNCEMENT B Y MERELY STATING THAT THE FACTS ARE DIFFERENT WITHOUT EVEN REFERRING TO THE FACTS OF THE CASE RELIED UPON THE FACTS OF THE ASSESSEE CASE. 7. ANY OTHER GROUND THAT MAY BE URGED AT THE TIME O F HEARING. 2. GROUNDS NO.1 & 7 ARE GENERAL IN NATURE AND NEED NO ADJUDICATION. 3. AS REGARDS GROUNDS NO.2 & 3, THE ASSESSEES CONT ENTION IS THAT THE ASSESSEE WAS NOT GIVEN SUFFICIENT OPPORTUN ITY OF HEARING DURING THE REMAND PROCEEDINGS TO PRESENT HIS CASE. HOWEVER, ITA NO 1558 OF 2014 TECK BAND LAB P LTD HYDERABAD PAGE 3 OF 8 WHILE GOING THROUGH THE ORDER OF THE CIT (A), WE FI ND THAT THE ASSESSEE WAS GIVEN SEVERAL OPPORTUNITIES TO EXPLAIN HIS CASE AND ALSO TO PRODUCE RELEVANT PARTIES TO PROVE THE INVES TMENT MADE BY THEM IN THE ASSESSEE COMPANY. HOWEVER, THE ASSESSEE COULD NOT PRODUCE THE SAME. IN VIEW OF THE SAME, WE DO NOT FI ND ANY MERIT IN THE GROUNDS RAISED BY THE ASSESSEE AND THEY ARE ACCORDINGLY REJECTED. 4. AS REGARDS GROUND NO.4, BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE WHICH IS ENGAGED IN THE BUSINESS OF MANUFA CTURING OF PHARMACEUTICAL INTERMEDIATES, FILED ITS RETURN OF I NCOME FOR THE A.Y 2010-11 ON 10.09.2009, DECLARING TOTAL INCOME O F RS.60,66,939. DURING THE ASSESSMENT PROCEEDINGS U/S 143(3) OF THE ACT, THE AO OBSERVED THAT THE ASSESSEE HAS RECE IVED INVESTMENT FROM VARIOUS PARTIES TO THE EXTENT OF RS .1,12,94,418. THE ASSESSEE ALSO SUBMITTED COPIES OF THE CONFIRMAT ION LETTERS OF THE SHARE APPLICANTS. AO ASKED THE ASSESSEE TO FURN ISH COPY OF THE BANK A/C STATEMENTS ALONG WITH COPIES OF THE I. T. RETURNS OF THE SAID PARTIES IN ORDER TO PROVE THEIR CREDITWORT HINESS. ASSESSEE SUBMITTED THE COPIES OF THE BANK STATEMENT ALONG WI TH THE COPIES OF THE RETURNS OF INCOME IN RESPECT OF SOME OF THE SHARE APPLICANTS. HOWEVER, WITH REGARD TO 6 PARTIES, THE TOTAL OF WHOSE SHARE APPLICATION MONEY COMES TO RS.53,68,000, SOME OF THE APPLICANTS HAVE STATED THAT THEIR ONLY SOURCE OF IN COME FOR THE INVESTMENT TOWARDS SHARE APPLICATION MONEY IS AGRI CULTURAL INCOME AND THAT THEY HAVE FILED COPIES OF PATTA PA SS BOOKS AS PROOF OF THE AGRICULTURAL LAND HOLDINGS. HOLDING TH AT THE ASSESSEE COULD NOT PROVIDE ANY SUBSTANTIAL EVIDENCE TO PROVE THE NET AGRICULTURAL INCOME DERIVED BY SUCH PARTIES AND ALS O THE ITA NO 1558 OF 2014 TECK BAND LAB P LTD HYDERABAD PAGE 4 OF 8 GENUINENESS OF THE ABOVE SHARE APPLICATION, THE AO TREATED THE SAME AS UNEXPLAINED CREDITS U/S 68 OF THE ACT AND A DDED IT TO THE TOTAL INCOME AND BROUGHT IT TO TAX. FURTHER, HE ALSO OBSERVED THAT THE ASSESSEE COMPANY, DURING THE COURSE OF ASS ESSMENT PROCEEDINGS, SUBMITTED THAT IT HAS PAID P.F CONTRIB UTION TO THE EMPLOYEES BELATEDLY FOR THE MONTHS OF JUNE TO SEPTE MBER, OCTOBER, DECEMBER 2009 AND UPTO FEBRUARY, 2010, AMO UNTING TO RS.3,48,344. SINCE THE SAME WAS PAID WELL BEYOND TH E DUE DATE, THE AO ADDED IT ALSO TO THE TOTAL INCOME OF THE ASS ESSEE. ON SIMILAR GROUND, AN ADDITION OF RS.33,463 BEING BELA TED ESI PAYMENT WAS ALSO BROUGHT TO TAX. AO ALSO PERUSED TH E SCHEDULES FORMING PART OF THE BALANCE SHEET AS ON 31.03.2010 AND OBSERVED THAT THE COMPANY HAS RECEIVED STATE INVESTMENT SUBS IDY OF RS.10.00 LAKHS. ASSESSEE WAS ASKED TO FURNISH THE D ETAILS OF THE INVESTMENT SUBSIDY AND THE ASSESSEE EXPLAINED THAT THE INVESTMENT SUBSIDY OF RS.10.00 LAKHS WAS RECEIVED O N 12.07.2005 FOR THE BUILDING CONSTRUCTED AT THE FACT ORY AND IS CREDITED TO THE CAPITAL A/C WHICH IS PART AND PARCE L OF THE RESERVES. AO NOTICED THAT THE ASSESSEE HAS CLAIMED DEPRECIATION ON FACTORY BUILDING @10% WITHOUT REDUCING THE SUBSI DY RECEIVED AND CLAIMED DEPRECIATION ON THE ENTIRE VALUE OF THE ASSET. THEREFORE, HE DISALLOWED THE EXCESS CLAIM OF DEPREC IATION BY REDUCING 10% OF DEPRECIATION ON THE FACTORY BUILDIN G AND ADDED IT TO THE TOTAL INCOME OF THE ASSESSEE. AGGRIEVED B Y THIS ADDITION, ASSESSEE PREFERRED AN APPEAL BEFORE THE CIT (A), WH O CONFIRMED THE ORDER OF THE AO. FURTHER AGGRIEVED, THE ASSESSE E IS IN FURTHER APPEAL BEFORE US. ITA NO 1558 OF 2014 TECK BAND LAB P LTD HYDERABAD PAGE 5 OF 8 5. AS REGARDS UNEXPLAINED SHARE APPLICATION MONEY, THE LEARNED COUNSEL FOR THE ASSESSEE SUBMITTED THAT MOS T OF THE SHARE APPLICATION MONEY HAS BEEN RECEIVED IN THE EA RLIER A.Y AND FORMS PART OF THE OPENING BALANCE AS ON 31.03.2009. HE SUBMITTED THAT BOTH THE AUTHORITIES BELOW HAVE NOT VERIFIED THE CLAIM BUT HAVE MADE THE ADDITION OF ENTIRE SHARE AP PLICATION MONEY TO THE EXTENT THE AO WAS NOT SATISFIED. THE L EARNED DR, HOWEVER, SUPPORTED THE ORDERS OF THE AUTHORITIES BE LOW. 6. HAVING REGARD TO THE RIVAL CONTENTIONS AND THE M ATERIAL ON RECORD AS WELL AS THE DOCUMENTS FILED BY THE ASSESS EE, WE FIND THAT THE ASSESSEE HAD OPENING BALANCE OF SHARE MONE Y AND THE SHARES WERE ALLOTTED TO THE RESPECTIVE PARTIES DURI NG THE RELEVANT A.Y. THIS IS EVIDENT FROM THE BALANCE SHEET AS ON 3 1.03.2010 AT PAGE 76 OF THE PAPER BOOK WHEREIN THE CLOSING BALAN CE OF SHARE APPLICATION AS ON 31.03.2010 WAS RS.3,50,005. FURTH ER, WE ALSO FIND THAT THE AMOUNT MENTIONED AGAINST RESPECTIVE P ARTIES DID NOT MATCH THE FIGURES TAKEN BY THE CIT (A). IN VIEW OF THE SAME, WE REMAND THIS ISSUE TO THE FILE OF THE AO FOR RE-V ERIFICATION OF THE FACTS. IF IT IS FOUND THAT THESE SHARE APPLICATION MONEY WAS RECEIVED BY THE ASSESSEE IN FINANCIAL YEAR 2009-10, ONLY THEN CAN THE SAME BE BROUGHT TO TAX IN THE RELEVANT A.Y I.E. A.Y 2010-11. WITH THESE DIRECTIONS, GROUND NO.4 IS REMANDED TO T HE FILE OF THE AO. 7. AS REGARDS DISALLOWANCE OF CONTRIBUTIONS OF THE EMPLOYEES TOWARDS ESI & PF, WE FIND THAT THIS ISSUE IS COVERE D IN FAVOUR OF THE ASSESSEE BY THE DECISION OF THE HON'BLE GUJARAT HIGH COURT IN THE CASE OF CIT VS. GUJARAT STATE ROAD TRANSPORT CO RPORATION ITA NO 1558 OF 2014 TECK BAND LAB P LTD HYDERABAD PAGE 6 OF 8 (223 TAXMAN 0398 (2014). IT IS STATED BY THE LEARNE D COUNSEL FOR THE ASSESSEE THAT THE PAYMENT WAS MADE BEFORE THE D ATE OF FILING OF THE RETURN OF INCOME BY THE ASSESSEE. FURTHER, W E FIND THAT THIS ISSUE IS ALSO COVERED BY THE JUDGMENT OF THE H ON'BLE SUPREME COURT IN THE CASE OF ALOM EXTRUSION, REPORT ED IN (2009) 319 ITR 306 (S.C) WHEREIN IT HAS BEEN HELD THAT BOT H THE EMPLOYEES AS WELL AS EMPLOYERS CONTRIBUTION ARE ALL OWABLE AS DEDUCTION U/S 36(1)(VA) PROVIDED ASSESSEE MAKES THE PAYMENT BEFORE DUE DATE OF FILING OF RETURN. IN VIEW OF THE SAME, WE ALLOW GROUND NO.5 OF THE APPEAL. 8. AS REGARDS GROUND NO.6 AGAINST DISALLOWANCE OF C LAIM OF DEPRECIATION ON INVESTMENT SUBSIDY OF RS.10.00 LAKH S, WE FIND THAT THE SAME IS COVERED IN FAVOUR OF THE ASSESSEE BY THE DECISION OF THE COORDINATE BENCH OF THIS TRIBUNAL AT VISAKHA PATNAM IN THE CASE OF SASISRI EXTRACTIONS LTD. VS. ACIT (2010 ) 122 ITD 0428. THE LEARNED COUNSEL FOR THE ASSESSEE SUBMITTE D THAT THE ASSESSEE HEREIN IS ALSO GRANTED SUBSIDY BY VIRTUE O F THE SAME G.O MS. NO.117, IND. & COMM. (FR) DEPTT. DATED 17.0 3.1993 AS IN THE CASE OF SASISRI EXTRACTIONS LTD AND THEREFOR E, THE ASSESSEE IS ELIGIBLE TO CLAIM DEPRECIATION ON THE ENTIRE COS T OF FACTORY AND BUILDING. ON PERUSAL OF THE COPY OF THE ORDER OF TH E TRIBUNAL IN THE CASE OF SASISRI EXTRACTIONS LTD, WE FIND THAT T HE TRIBUNAL AT PARAS 11 & 12 OF ITS ORDER, HAS HELD AS UNDER: 11. WE HAVE CAREFULLY CONSIDERED THE RIVAL SUBMISS IONS AND PERUSED THE RECORD. IN OUR CONSIDERED OPINION, EVEN AFTER INSERTION OF EXPLN. 10 TO S. 43(1) OF THE ACT , THE BASIC PRINCIPLE UNDERLYING IN THE DECISION OF THE A PEX COURT IN THE CASE OF P.J. CHEMICALS LTD. (SUPRA) ST ILL ITA NO 1558 OF 2014 TECK BAND LAB P LTD HYDERABAD PAGE 7 OF 8 HOLDS THE FIELD. THEIR LORDSHIPS ANALYZED THE EXPRE SSION 'MET DIRECTLY OR INDIRECTLY' TO COME TO THE CONCLUS ION THAT ONLY IN A CASE WHERE A SUBSIDY OR OTHER GRANT WAS G IVEN TO OFFSET THE COST OF AN ASSET, SUCH PAYMENT/ GRANT WOULD FALL WITHIN THE EXPRESSION 'MET', WHEREAS THE SUBSIDY RECEIVED MERELY TO ACCELERATE THE INDUSTRIA L DEVELOPMENT OF THE STATE CANNOT BE CONSIDERED AS PAYMENTS MADE SPECIFICALLY TO MEET A PORTION OF THE COST OF THE ASSETS. 12. A CAREFUL PERUSAL OF 'TARGET 2000' SCHEME SHOWS THAT THE SCHEME WAS INTENDED TO ACCELERATE INDUSTRI AL DEVELOPMENT OF THE STATE AND THE INCENTIVE WAS GIVE N FOR SETTING UP OF INDUSTRIES IN ANDHRA PRADESH AND FOR THE PURPOSE OF DETERMINING THE AMOUNT OF SUBSIDY TO BE GIVEN, COST OF ELIGIBLE INVESTMENT WAS TAKEN AS THE BASIS, THOUGH IT WAS NOT SPECIFICALLY INTENDED TO SUBSIDISE THE COST OF THE CAPITAL. UNDER THE CIRCUMSTANCES, WE ARE OF THE VIEW THAT THE INCENTIV E IN THE FORM OF SUBSIDY CANNOT BE CONSIDERED AS A PAYME NT DIRECTLY OR INDIRECTLY TO MEET ANY PORTION OF THE A CTUAL COST AND THUS IT FALLS OUTSIDE THE KEN OF EXPLN. 10 TO S. 43(1) OF THE ACT. IN THE LIGHT OF THE ABOVE DISCUSS ION, WE ARE OF THE VIEW THAT FOR THE PURPOSE OF COMPUTING DEPRECIATION ALLOWABLE TO THE ASSESSEE, THE SUBSIDY AMOUNT CANNOT BE REDUCED FROM THE COST OF THE CAPIT AL ASSET. THE AO IS DIRECTED ACCORDINGLY. 9. RESPECTFULLY FOLLOWING THE SAME, WE ALLOW GROUND NO.6 OF THE ASSESSEE. 10. IN THE RESULT, ASSESSEES APPEAL IS PARTLY ALLO WED. ORDER PRONOUNCED IN THE OPEN COURT ON 3 RD OCTOBER, 2016. S D/ - SD/ - (S. RIFAUR RAHMAN) (P. MADHAVI DEVI) ACCOUNTANT MEMBER JUDICIAL MEMBER HYDERABAD, DATED 3 RD OCTOBER, 2016. VNODAN/SPS ITA NO 1558 OF 2014 TECK BAND LAB P LTD HYDERABAD PAGE 8 OF 8 COPY TO: 1. K. VASANTKUMAR, A.V.RAGHU RAM, ADVOCATES,610 BABUKH AN ESTATE, BASHEERBAGH, HYDERABAD-1 2. DY. CIT, CIRCLE 2(3) IT TOWERS, HYDERABAD 3. CIT(A) III HYDERABAD 4. CIT II HYDERABAD 5. THE DR, ITAT, HYDERABAD 6. GUARD FILE BY ORDER