The ACIT, 1 (2), V. Smt Namrita Choudhry, Bhopal

ITA 164/IND/2006

• Counselvise Citation: [2009] 115 COUNSELVISE.COM (IT) 2426 (ITAT-INDORE)
• Duration Of Justice: 3 year(s) 8 month(s) 30 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 17-12-2009
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: DB
• Next Hearing Date: 17-12-2009
• Assessment Year: misc
• Appeal Filed On: 18-03-2006
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: K K SINGH
• Assessee Lawyers: AJAY K CHHAJED
• Keywords: Capital expenditure; Liquidation
• Section: 37(1); 148; 37

Judgement Text

1 1 IN THE INCOME TAX APPELATE TRIBUNAL, SMC-I BENCH, INDORE BEFORE SHRI JOGINDER SINGH, JUDICIAL MEMBER ITA NO 164/IND/06 A.Y.2001-02 ASSTT. COMMR. OF INCOME TAX 1(2) BHOPAL APPELLANT VS SMT. NAMRITA CHOUDHARY, LIQUIDATOR M/S EASTERN AIR PRODUCTS PVT. LTD.] 14, NADIR COLONY, SHAMLA HILLA BHOPAL RESPONDENT PAN AAACB 7063J C.O. NO. 57/IND/06 (ARISING OUT OF ITA NO. 57/IND/06) A.Y. 2001-02 SMT. NAMRITA CHOUDHARY, LIQUIDATOR M/S EASTERN AIR PRODUCTS PVT. LTD.] 14, NADIR COLONY, SHAMLA HILLA BHOPAL APPELLANT 2 2 VS ASSTT. COMMR. OF INCOME TAX 1(2) BHOPAL BHOPAL APPELLANT BY SHRI K.K. SINGH, CIT DR RESPONDENT BY SHRI AJAY K. CHHAJED, CA O R D E R PER JOGINDER SINGH, JM THE REVENUE HAS PREFERRED THE APPEAL AND CROSS OBJECTION BY THE ASSESSEE AGAINST THE ORDER OF THE LEARNED CIT(A) DATED 3.1.2006. DURING HEARING, WE HAVE HEA RD SHRI K.K. SINGH, LEARNED CIT DR AND SHRI AJAY CHHAJED, L EARNED COUNSEL FOR THE ASSESSEE. AT THE OUTSET THE LEARNE D COUNSEL FOR THE ASSESSEE DID NOT PRESS THE CROSS OBJECTION, CON SEQUENTLY, THE CROSS OBJECTION OF THE ASSESSEE IS DISMISSED AS NOT PRESSED. 2. NOW WE SHALL TAKE UP APPEAL OF THE REVENUE WHERE IN THE FIRST GROUND RAISED IS THAT THE ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE LEARNED FIRST APPELL ATE AUTHORITY 3 3 ERRED IN GIVING RELIEF OF 4/5 TH OF RS.76,88,795/- (VRS) RIGHTLY DISALLOWED BY THE AO UNDER SECTION 35DDA OF THE ACT IGNORING THE FACT THAT THE PROVISIONS OF SECTION 35DDA CAME INTO EFFECT FROM 1.4.2001 I.E. ASSESSMENT YEAR 2001-02. THE LEA RNED CIT DR SUPPORTED THE ASSESSMENT ORDER BY CONTENDING THA T RELIEF HAS BEEN GRANTED TO THE ASSESSEE WITHOUT ASSIGNING ANY VALID REASON. ON THE OTHER HAND, THE LEARNED COUNSEL FOR THE ASSESSEE STRONGLY DEFENDED THE IMPUGNED ORDER BY CO NTENDING THAT THE FACTS AND THE PROVISIONS OF LAW HAVE BEEN DULY CONSIDERED BY THE LEARNED CIT(A). 3. WE HAVE CONSIDERED THE SUBMISSIONS PUT FORTH BY THE LEARNED RESPECTIVE COUNSELS AND PERUSED THE MATERIA L AVAILABLE ON FILE. BRIEF FACTS ARE THAT THE ASSESSEE COMPANY WENT INTO VOLUNTARY LIQUIDATION ON 18 TH MAY, 2002 OF WHICH THE NECESSARY INTIMATION WAS GIVEN TO THE AO ON 14 TH JUNE, 2002. NOTICE U/S 148 WAS ISSUED ON 12 TH JANUARY, 2004 TO WHICH THE LIQUIDATOR OF THE ASSESSEE COMPANY VIDE LETTER DATED 5 TH FEBRUARY, 2004 REQUESTED THE LEARNED AO TO GIVE REASON FOR REOPENI NG OF ASSESSMENT BY FURTHER SUBMITTING THAT THE RETURN AL READY FILED BY 4 4 THE ASSESSEE MAY BE TREATED AS RETURN IN COMPLIANCE WITH THE ABOVE NOTICE. THE STAND OF THE ASSESSEE IS THAT TH E NOTICE DATED 12.1.2004 SHOULD HAVE BEEN ISSUED IN THE NAME OF THE ASSESSEE COMPANY WHICH IS MANDATORY THEREFORE THE N OTICE IS ILLEGAL AND ALSO NOT SERVED ON THE PROPER PERSON AN D ALSO NOT ON THE PROPER ADDRESS. IN ITS PROFIT AND LOSS ACCOU NT AS ON 31.3.2001 A SUM OF RS.76,88,795/- WAS DEBITED AS VR S COMPENSATION. THE LEARNED AO WAS OF THE VIEW THAT AS PER SECTION 35DDA OF THE ACT ONLY 1/5 TH OF THE EXPENDITURE WAS TO BE DEBITED, CONSEQUENTLY, HE OPINED THAT INCOME OF RS.61,51,036/- (RS.76,88,795/- (-) RS. 15,37,759/-) HAS ESCAPED THE ASSESSMENT. ON QUESTIONING BY THE AO THE ASSESSEE VIDE REPLY DATED 24.3.2005 CLAIMED THAT SE CTION 35DDA WAS INTRODUCED BY FINANCE ACT,. 2001 AND WILL TAKE EFFECT FROM 1.4.2002. THIS ASSERTION OF THE ASSESS EE WAS NOT ACCEPTED BY THE REVENUE CONSEQUENTLY THE AMOUNT OF RS. 61,51,036/- WAS ADDED BACK TO THE INCOME OF THE ASS ESSEE. ON APPEAL, THE LEARNED CIT(A) WAS OF THE VIEW THAT SINCE SECTION 35DDA WAS NOT OPERATIVE FOR THE RELEVANT AS SESSMENT 5 5 YEAR, THEREFORE, THE CLAIMED DEDUCTION IN RESPECT O F VRS WAS PAID DURING THE ACCOUNTING YEAR CONSEQUENTLY THE AD DITION OF RS.61,51,036/- WAS DELETED. WE HAVE PERUSED THE PR OVISIONS OF LAW AND FOUND THAT THE PROVISIONS OF AMORTIZATIO N OF EXPENDITURE INCURRED UNDER VOLUNTARY RETIREMENT SCH EME, AS DETAILED U/S 35DDA, WAS INSERTED BY THE FINANCE ACT , 2001 W.E.F. 1.4.2001,THEREFORE, THE PROVISION IS EFFECTI VE ONLY FROM THE ASSESSMENT YEAR 2002-03 ONWARDS, CONSEQUENTLY, WE H AVE NOT FOUND ANY INFIRMITY IN THE IMPUGNED ORDER AND UPHOL D THE SAME. CONSEQUENTLY, THIS GROUND OF THE REVENUE IS HAVING NO MERIT, THEREFORE, DISMISSED. 4. THE NEXT GROUND RAISED IS THAT THE LEARNED CIT(A ) ERRED IN DELETING THE ADDITION OF RS.59,08,644/- ON ACCOUNT OF GRATUITY PAYMENT. THE STAND OF THE LEARNED CIT DR IS THAT I T WAS RIGHTLY DISALLOWED BY THE AO. ON THE OTHER HAND, THE LEARN ED COUNSEL FOR THE ASSESSEE DEFENDED THE IMPUGNED ORDER. ON CONSIDERATION OF RIVAL SUBMISSIONS AND PERUSAL OF RECORD, IT IS SEEN THAT THE ASSESSEE CLAIMED THE AM OUNT OF RS.59,08,644/- ON ACCOUNT OF GRATUITY PAYMENT AFTER PLACING 6 6 RELIANCE UPON THE DECISION IN P.N. GANESHAN PVT. LT D. V. CIT; 52 TAXMAN 461 (MAD.) AND CIT V. ART PRESS 53 TAXMA N 157 (MAD.). ON QUERY BY THE AO, THE ASSESSEE PREFERRED REPLY THROUGH ITS LETTER DATED 24.3.2005. THE LD. AO WAS OF THE VIEW THAT THE PAYMENT OF COMPENSATION AND GRATUITY REFER S TO CLOSURE OF BUSINESS , THEREFORE, NOT ALLOWABLE DEDUCTION U/ S 37(1), CONSEQUENTLY, THE AMOUNT OF RS.59,06,644/- WAS DISA LLOWED AND ADDED BACK TO THE INCOME OF THE ASSESSEE. ON AP PEAL, THE LEARNED FIRST APPELLATE AUTHORITY BY PLACING RELIAN CE ON THE DECISIONS OF THE HONBLE KERALA HIGH COURT IN CIT V . UNION SAW MILLS; 203 ITR 581, DECISION OF THE HONBLE APEX CO URT IN W.T. SUREN & COMPANY LIMITED V. CIT; 230 ITR 643, SASSON J. DAVID & CO. PVT.LTD.V. CIT; 118 ITR 261 (SC) AND K. RAVINDRANATHAN NAIR V. CIT; 247 ITR 178, HELD THAT SINCE IT WAS NOT A CASE OF CLOSURE OF BUSINESS AS THE BUSINESS W AS CLOSED ON 18.5.2002, THEREFORE, IT WAS AN ALLOWABLE DEDUCT ION. IN VIEW OF THESE FACTS, THE LEARNED FIRST APPELLATE AUTHORI TY IS QUITE JUSTIFIED IN DELETING THE ADDITION BECAUSE AS PER T HE PROVISIONS OF SECTION 37(1) ANY EXPENDITURE (NOT BEING EXPEN DITURE OF 7 7 NATURE DESCRIBED IN SECTION 30 TO 36 AND NOT BEING IN THE NATURE OF CAPITAL EXPENDITURE OR PERSONAL EXPENSES OF THE ASSESSEE) LAID OUT OR EXPANDED WHOLLY AND EXCLUSIVELY FOR THE PURPOSES OF BUSINESS OR PROFESSION SHALL BE ALLOWED IN COMPUTIN G THE INCOME CHARTABLE UNDER THE HEAD PROFITS AND GAINS OF BUSINESS OR PROFESSION. AN EXPLANATION TO THE SECTION WAS INSERTED BY THE FINANCE ACT (NO. 2), 1998 WITH RETROSPECTIVE EF FECT FROM 1.4.1962 BY DECLARING THAT ANY EXPENDITURE INCURRED BY AN ASSESSEE FOR ANY PURPOSES WHICH IS AN OFFENCE OR WH ICH IS PROHIBITED BY LAW, SHALL NOT BE DEEMED TO HAVE BEEN INCURRED FOR THE PURPOSES OF BUSINESS OR PROFESSION AND NO D EDUCTION OR ALLOWANCE SHALL BE MADE IN RESPECT OF SUCH EXPENDIT URE. ON THE PRESENT FACTS, SINCE THE EXPENDITURE WAS INCURRED W HOLLY AND EXCLUSIVELY FOR THE PURPOSE OF BUSINESS, CONSEQUENT LY, THE SAME CANNOT BE DENIED AS THE DEDUCTION WAS CLAIMED IN RESPECT OF PAYMENT OF GRATUITY. THEREFORE, IT IS AN ALLOWABLE DEDUCTION U/S 37 OF THE ACT. IN VIEW OF THESE FACT S, THERE IS NO INFIRMITY IN THE IMPUGNED ORDER ON THIS ISSUE, THER EFORE, IT IS UPHELD. 8 8 IN THE RESULT, THE APPEAL OF THE REVENUE IS DISMIS SED, FINALLY, THE CROSS OBJECTION OF THE ASSESSEE AS WE LL AS THE APPEAL OF THE REVENUE ARE DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT IN THE PRESENCE OF LEARNED REPRESENTATIVES OF BOTH THE SIDES AT THE CO NCLUSION OF THE HEARING ON 17 TH DECEMBER, 2009. SD SD (V.K. GUPTA) (JOGINDER SINGH) ACCOUNTANT MEMBER JUDICIAL MEMBER 17 TH DECEMBER, 2009 COPY TO APPELLANT, RESPONDENT, CIT, CIT(A), DR, GUA RD FILE *DBN/-