AES Orissa Distribution Pvt. Ltd, Bhubaneswar V. ACIT, Bhubaneswar

ITA 163/CTK/2011

• Counselvise Citation: 16322114 RSA 2011
• Duration Of Justice: 4 month(s) 13 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 12-08-2011
• Appeal Filed By: Assessee
• Bench Allotted: DB
• Next Hearing Date: 03-08-2011
• Assessment Year: 2004-2005
• Appeal Filed On: 29-03-2011
• Court: TRIBUNAL
• Department Lawyers: PARAMITA TRIPATHY
• Assessee Lawyers: B K MAHAPATRAAR
• Keywords: Business income; Depreciation
• Section: 32

Judgement Text

IN THE INCME TAX APPELLATE TRIBUNAL, CUTTACK BENCH, CUTTACK BEFORE : HONBLE SHRI K.K.GUPTA, ACCOUNTANT MEMBER, AND HONBLE SHRI K.S.S.PRASAD RAO, JUDICIAL MEMBER. ITA NO. 163 AND 164/CTK/2011 (ASSESSMENT YEAR S 2004 - 05 AND 2006 - 07) AES ORISSA DISTR IBUTION PVT.LTD., HIG 4,BDA COLONY, JAYADEV VIHAR, BHUBANESWAR 751 013. PAN: AACCA 6658 H VERSUS ASST. COMMISSIONER OF INCOME - TAX, CIRCLE 2 (1), BHUBANESWAR. (APPELLANT) (RESPONDENT) FOR THE APPELLANT: SHRI B.K.MAHAPATRA,AR FOR THE RESPONDENT SMT. P ARAMITA TRIPATHY, DR ORDER SHRI K.K.GUPTA, ACCOUNTANT MEMBER : BOTH THESE APPEALS HAVE BEEN HEARD TOGETHER AS THEY PERTAIN TO THE SAME ASSESSEE AND HAVE BEEN APPEALED AGAINST ARE BY THE ASSESSEE BY WAY OF A SEPARATE ORDERS OF THE LEARNED COMMISSIONER OF INCOME - TAX (APPEALS) FOR THE ASSESSMENT YEAR 2004 - 05 ON A SOLITARY ISSUE THAT THE ASSESSEE HA D BEEN DENIED THE CLAIM OF EXPENSES BY HOLDING A VIEW THAT THE INCOME BEING FLUCTUATION IN EXCHANGE RATE WAS NOT PART OF THE BUSINESS BUT WAS ACTUALLY INCOME FRO M OTHER SOURCES . IN RESPECT OF ASSESSMENT YEAR 2006 - 07,THE ASSESSEE IS IN APPEAL ON ISSUES WHICH HAVE NO DIRECT BEARING TO THE EARLIER ISSUE INSOFAR AS THE APPEAL FOR THE ASSESSMENT YEAR 2004 - 05 IS CONCERNED BUT HOWEVER, THE PRINCIPLES ARE THE SAME WHEN D ISALLOWANCE OF EXPENSES CLAIMED HAVE BEEN MADE ON MISPLACED INTERPRETATION OF FACTS. 2. THE LEARNED COUNSEL FOR THE ASSESSEE , INITIATING HIS ARGUMENTS SUBMITTED THAT THE ASSESSEE IS A WHOLLY OWNED COMPANY OF A FOREIGN COMPANY FILED RETURN OF INCOME DISCLO SING LOSS OF 96,00,440 FOR THE ASSESSMENT YEAR 2004 - 05. DURING THE COURSE OF PROCEEDINGS U /S.143(3), THE ASSESSING OFFICER NOTED THAT THE ASSESSEE HAD SHOWN INCOME FROM INTEREST, EXCHANGE GAIN AND MISC. INCOME WHICH HE HELD AS INCOME FROM SOURCES ITA NO.163 AND 164/CTK/2011 2 AND TH EREFORE, HELD THAT THE EXPENSES CLAIMED BY THE ASSESSEE DID NOT HAVE ANY DIRECT BEARING ON EARNING OF THIS INCOME C OULD N OT BE ALLOWED. THE ASSESSING OFFICER DISALLOWED THE SUM OF 1,05,92,084 BY CONVERTING THE LOSS RETURNED TO PROFIT OF 9,91,644. HE ADJU STED THE SAME AGAINST THE BROUGHT FORWARD LOSSES WHEN THE ISSUE WAS APPEALED BEFORE THE FIRST APPELLATE AUTHORITY. THE FIRST APPELLATE AUTHORITY CONFIRMED THE ACTION OF THE ASSESSING OFFICER. HE POINTED OUT THAT THE AUTHORITIES BELOW MISDIRECTED THEMSELVES TO HOLD THAT THE INCOME ON ACCOUNT OF EXCHANGE FLUCTUATION AND OTHERS WAS NOT PART AND PARCEL OF THE ASSESSEES BUSINESS INSOFAR AS DETAILS OF ALL THE EXPENSES CLAIMED WERE PRODUCED BEFORE THE AUTHORITIES BELOW AND WERE INCURRED FOR THE ACTIVITIES CARRIED OUT BY THE ASSESSEE BEING BUSINESS ACTIVITIES. THERE WAS NO CHANGE IN THE ACTIVITIES CARRIED OUT INSOFAR AS THE MAIN EXPENDITURE BEING SALARY TO THE EMPLOYEES WAS TO CARRY OUT THE ACTIVITIES OF THE ASSESSEE BEING A 100% OWNED COMPANY OF A FOREIGN COMPANY . IT WAS NOBODYS ENDEAVOR TO FIND OUT WHETHER THE EXCHANGE FLUCTUATION INCOME DID NOT RELATE TO THE BUSINESS ACTIVITIES OF THE ASSESSEE INSOFAR AS THE FUNCTIONING OF THE COMPANY WAS ON THE BASIS OF FUNDS PROCURED FROM ABROAD WHICH GOT INFLATED ON THE DATE OF THE BALANCE SHEET TO BE RENDERED TO TAX IN ACCORDANCE WITH THE PROVISIONS OF SECTION 43A. THE LEARNED COUNSEL FOR THE ASSESSEE VEHEMENTLY ARGUED THAT HOW THE ASSETS , INCLUDING THE HUMAN RESOURCE , CAN BE SAID TO BE NOT INVOLVED FOR GENERATING THE SAID IN COME WHEN THE ASSESSING OFFICER CHOSE TO BRING TO TAX THE SAME AS INCOME FROM OTHER SOURCES . HE POINTED OUT THAT THE ASSESSEE BEING A LIMITED COMPANY WAS EMPOWERED TO CONDUCT ANY BUSINESS IN ACCORDANCE WITH THE DIRECTION OF THE BOARD OF DIRECTORS WHICH C ANNOT BE CHALLENGED BY THE ASSESSING OFFICER FOR THE PURPOSE OF ASSESSING A PARTICULAR SOURCE OF INCOME UNDER THE RESIDUAL HEAD OF INCOME FROM OTHER SOURCES. THE LEARNED CIT(A) ITA NO.163 AND 164/CTK/2011 3 THEREFORE, MISDIRECTED HIMSELF TO HOLD THAT THE ASSESSING OFFICER ALLOWED ONL Y SUCH EXPENDITURE AS WAS REASONABLE AND ATTRIBUTABLE TO THE EARNING OF INCOME U/S.57 OF THE I.T.ACT WHEN THERE WAS NO MATERIAL BEFORE THE ASSESSING OFFICER TO CONSIDER THE EARNING S NOT GENERATED FOR THE PURPOSE OF ASSESSEES BUSINESS. HE PRAYED THAT THE LOSS SO DISALLOWED MAY KINDLY BE CONSIDERED AS BUSINESS LOSS INSOFAR AS THE ASSESSING OFFICER IN HIS OWN HAS ALLOWED OR ADJUSTED THE SAME AGAINST THE BROUGHT FORWARD LOSSES OF EARLIER YEARS , UNDER THE PROVISIONS OF THE INCOME - TAX ACT . 3. THE LEARNED DR SU PPORTED THE ORDERS OF THE AUTHORITIES BELOW. 4. WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE MATERIAL AVAILABLE ON RECORD. ON OUR CAREFUL CONSIDERATION OF THE FACTS, WE ARE INCLINED TO FIND FAVOUR IN THE CONTENTION OF THE LEARNED COUNSEL FOR THE ASS ESSEE. IT WAS NOBODYS CASE THAT THE ASSESSEE WAS REQUIRED TO RENDER THE INCOME OR LOSS ONLY FROM INCOME FROM OTHER SOURCES . THE ASSESSING OFFICER THEREFORE CHOSE TO PICK OUT ITEMS WHICH ONLY MAY HAVE BEEN INCURRED FOR THE PURPOSE OF EARNING AS INCOME FR OM OTHER SOURCES . WE ARE UNABLE TO SATISFY OURSELVES TO THIS PROPOSITION OF THE ASSESSING OFFICER IN THE LIGHT OF THE FACT THAT THE ASSESSEE WAS HO LDING ASSTS INCLUDING HUMAN RESOURCES WHICH REQUIRED IT TO INCUR THE EXPENSES FOR THE PURPOSE OF EXECUTING IT S MAIN OBJECTS AS WHOLLY OWNED UNIT OF A FOREIGN COMPANY. THE FOR EIGN COMPANY GAVE FUNDS WHICH L YING IN THE BANK EARNED INCOME ON ACCOUNT OF FOREIGN EXCHANGE RATE FLUCTUATION WHEN THE SAME HAS BEEN RENDERED AS INCOME. IN OTHER WORDS, NO CHANGE HA D TAKEN PL ACE IN THE IMPUGNED ASSESSMENT YEAR INSOFAR AS THE ASSESSEE HAD NOT CONDUCTED THE BUSINESS WHICH ULTIMATELY DID NOT RENDER ANY INCOME TO THE ASSESSEE WHEN THE ASSETS HAVE BEEN PUT TO USE INCLUDING THE HUMAN RESOURCES. THE MAJOR EXPENDITURE BEING SALARY, TH EREFORE, COULD NOT BE DISALLOW ED FOR HOLDING THAT THE ASSESSEE HAD NOT CONDUCTED ANY BUSINESS. ITA NO.163 AND 164/CTK/2011 4 THE ASSESSING OFFICER HIMSELF HAD CHOSEN TO ALLOW PART THEREOF CLEARLY INDICATES THAT THE ACTION OF THE ASSESSING OFFICER IN COMPUTING THE INCOME SO RENDERED IN THE RESIDUAL HEAD AS INCOME FROM OTHER SOURCES WAS FAULTY AND BIASED . ALL THE EXPENSES THAT WERE INCURRED BY THE ASSESSEE WERE FOR THE PURPOSE OF ITS BUSINESS AND THEREFORE HAVE TO BE ALLOWED AS BUSINESS LOSS CANNOT BE DISALLOWED AS A MATTER OF ASSUMPTIO N AND PRESUMPTIONS IN THE MINDS OF THE ASSESSING AUTHORITIES. WE ARE INCLINED TO UPHOLD THE CONTENTION OF THE LEARNED COUNSEL FOR THE ASSESSEE. WE SET ASIDE THE ORDER OF THE LEARNED CIT(A) AND DIRECT THE ASSESSING OFFICER TO CONFIRM THE RETURN SO FILED BY THE ASSESSEE CLAIMING THE LOSS AS A BUSINESS LOSS. 5. FOR THE ASSESSMENT YEAR 2006 - 07 , AFTER HEARING THE RIVAL SUBMISSIONS, WE ARE INCLINED TO HOLD THAT THE ASSESSING OFFICER IN HIS BRIEF ORDER HA S DISALLOWED THE EXPENSES WITHOUT ANY BASIS. THE LEARNED C OUNSEL FOR THE ASSESSEE HAS SUBMITTED THE DETAILS OF TRAVELLING AND CONVEYANCE, LEGAL AND PROFESSIONAL CHARGES INSOFAR AS THE ASSESSING OFFICER SOUGHT TO DISALLOW A PORTION THEREOF ON A FINDING THAT THE LEDGER ACCOUNT BALANCE MISMATCHED THE ITEMS CLAIMED I N THE PROFIT & LOSS ACCOUNT. HE CHOSE TO DOUBT THE AMOUNT GIVEN IN THE LEDGER COPY AND IN THE FINANCIAL STATEMENTS FURNISHED WITH THE RETURN. HE ALSO DISALLOWED DEPRECIATION BY HOLDING A VIEW THAT THE ASSETS BEING FURNITURE , FIXTURES, COMPUTERS AND OFFICE EQUIPMENTS ON WHICH DEPRECIATION AMOUNTING TO 67,372 WAS CLAIMED OUGHT TO HAVE BEEN USED FOR THE PURPOSE OF THE ASSESSEES BUSINESS WHEN THE ASSESSEE HAD ONLY SHOWN INCOME FROM BANK INTEREST AT 1,59,429. THE LEARNED CIT(A) CONFIRMED THE SAME BY UPHOLDING THE ORDER OF THE AO. 6. AS WE HAVE CONSIDERED IN THE CASE OF THE ASSESSEE FOR THE ASSESSMENT YEAR 2004 - 05 PART DISALLOWANCE OF EXPENSES CLAIMED AS NOT INCURRED FOR THE PURPOSE OF THE ASSESSEES BUSINESS CANNOT BE ADHERED TO INSOFAR AS THE ITA NO.163 AND 164/CTK/2011 5 ASSESSING OFFIC ER HAS IMPOSED A VIEW OF HOLDING THE INCOME NOT BELONGING TO THE BUSINESS OF THE ASSESSEE. THE NOMENCLATURE CLEARLY INDICATES THAT THE SAME HAVE BEEN INCURRED FOR THE PURPOSE OF BUSINESS OF THE ASSESSEE. THE DIFFERENCE BETWEEN THE LEDGER BALANCE AND FINAN CIAL STATEMENTS HAD BEEN EXPLAINED TO THE ASSESSING OFFICER WHEN THE GROUPING OF DIFFERENT LEDGER A CCOUNTS WERE BROUGHT UNDER THE COMMON HEAD UNDER THE PROVISIONS OF THE COMPANIES ACT WHEN EXPENSES EXCEEDING 1% OF THE TOTAL TURNOVER ARE TO BE GIVEN A SEPAR ATE HEAD. THE DISALLOWANCE OF EXPENSES CLAIMED UNDER THE HEAD TRAVELLING, CONVEYANCE, LEGAL AND PROFESSIONAL CHARGES THEREFORE WAS ON THE BASIS OF MISINTERPRETATION OF THE FACTS AS CONSIDERED BY THE ASSESSING OFFICER WHO IS DIRECTED TO DELETE THE SAME I NSO FAR AS THE S AME WERE NOT DISALLOWED BY THE ASSESSING OFFICER HOLDING A VIEW THAT THERE WAS NO BUSINESS INCOME TO THE ASSESSEE. HOWEVER, THE DEPRECIATION HAS BEEN DISALLOWED CLEARLY ON THE ASSESSING OFFICER CONSIDERING THE PROVISIONS OF SECTION 32 HELD THAT THE TANGIBLE ASSETS BEING FURNITURE, FIXTURES, COMPUTER AND OFFICE EQUIPMENTS COULD ONLY BE CONSIDERED FOR DEPRECIATION WHEN THEY WERE USED FOR THE PURPOSE OF BUSINESS OF THE ASSESSEE. HAVING INDICATED THAT THE ASSESSEE HAS EARNED INTEREST FROM BANK, THE LEARNED ASSESSING OFFICER WAS NOT ABLE TO CORRELATE WHETHER THE FURNITURE , FIXTURES, COMPUTERS AND OFFICE EQUIPMENTS COULD BE ISOLATED FOR THE PURPOSE OF PUTTING THEM TO USE FOR THE PURPOSE OF BUSINESS OF THE ASSESSEE. WE ARE UNABLE TO SATISFY OURSELVES TO THIS INTERPRETATION OF THE ASSESSING OFFICER INSOFAR AS THESE ASSETS WERE USED BY THE ASSESSEE FOR FACILITATING ITS EMPLOYEES WHO HAVE BEEN PAID SALARY AND HAVE BEEN GRANTED DEDUCTION AS SALARY. THE ASSETS HAVE BEEN PUT TO USE THEREFORE CANNOT BE HELD AGA INST THE ASSESSEE IN VIEW OF THE FACT THAT THE ASSESSING OFFICER HAS NOT HELD THE ASSESSEE NOT CONDUCTING ANY BUSINESS WHEN IT ALLOWED THE LOSS AS BUSINESS LOSS. IN VIEW THEREOF, WE ARE INCLINED TO ITA NO.163 AND 164/CTK/2011 6 DIRECT THE ASSESSING OFFICER TO DELETE THE DISALLOWANCE OF TRAVELLING AND CONVEYANCE AMOUNTING TO 85,271, DELETE THE DISALLOWANCE OF LEGAL AND PROFESSIONAL CHARGES OF 6,43,057 AND DELETE THE DISALLOWANCE AMOUNTING TO 67,772 BEING DEPRECIATION ON ASSETS . 7. IN THE RESULT, BOTH THE APPEALS FILED BY THE ASSESSE A RE ALLOWED. PRONOUNCED IN OPEN COURT ON DT. 12.08.2011 S D/ - S D/ - (K.S.S.PRASAD RAO) JUDICIAL MEMBER (K.K.GUPTA) ACCOUNTANT MEMBER DATE: 12.08.2011 H.K.PADHEE, SENIOR PRIVATE SECRETARY. COPY OF THE ORDER FORWARDED TO : 1. THE APPELLANT: AES ORISSA DISTRIBUTION PVT.LTD., HIG 4,BDA COLONY, JAYADEV VIHAR, BHUBANESWAR 751 013. 2. THE RESPONDENT: ASST. COMMISSIONER OF INCOME - TAX, CIRCLE 2 (1), BHUBANESWAR. 3. THE CIT, 4. THE CIT(A), 5. THE DR, CUTTACK 6. GUARD FILE (IN DU PLICATE) TRUE COPY, BY ORDER, SENIOR PRIVATE SECRETARY.