ACIT., Circle-16(3), Hyderabad V. M/s Pitti Lamination Limited, Hyderabad

ITA 1662/HYD/2013

• Counselvise Citation: 166222514 RSA 2013
• Duration Of Justice: 8 month(s) 26 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 28-08-2014
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: B
• Assessment Year: 2010-2011
• Appeal Filed On: 02-12-2013
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: LAXMINIVAS SHARMA
• Section: 37

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL HYDERABAD BENCHES B : HYDERABAD BEFORE SHRI B. RAMAKOTAIAH, ACCOUNTANT MEMBER AND SHRI SAKTIJIT DEY, JUDICAL MEMBER ITA.NO.1662/HYD/2013 ASSESSMENT YEAR 2010-2011 THE ACIT, CIRCLE 16(3) HYDERABAD. VS. M/S. PITTI LAMINATIONS LTD., HYDERABAD. PAN AADCP-2275-L (APPELLANT) (RESPONDENT) FOR REVENUE MR. SOLGY JOSE T. KOTTARAM FOR ASSESSEE MR. LAXMINIVAS SHARMA DATE OF HEARING 18.08.2014 DATE OF PRONOUNCEMENT 28.08.2014 ORDER PER B. RAMAKOTAIAH, A.M. THIS IS A REVENUE APPEAL AGAINST THE ORDER OF LD. CIT(A)-V, HYDERABAD DATED 30.08.2013 ALLOWING THE C LAIM OF RS.5,48,31,000 AS EXPENDITURE IN P & L ACCOUNT. 2. BRIEFLY STATED, ASSESSEE IS IN THE BUSINESS OF MANUFACTURING OF STEEL STAMPING AND DISCOUNT ROTORS ETC., AND MAINLY SUPPLIES TO GE TRANSPORTATION SYSTEMS. ON TH E SUPPLIES MADE BETWEEN AUGUST 2007 TO SEPTEMBER 2009 TO AN EX TENT OF RS.278 CRORES (USD 63.3M) GE OBSERVED CERTAIN NON-C ONFIRMATION IN THE PRODUCTS SUPPLIED. IN JULY, 2009 THE COMPANY INFORMED ASSESSEE AND CLAIMED DAMAGES TO AN EXTENT OF RS.91 CRORES (USD 17 MILLION TO 20 MILLION). THEN AFTER NEGOTIATIONS AND DELIBERATIONS, ASSESSEE AGREED TO REPAIR AND REWORK AT A COST OF U SD 1.2 MILLION (RS.5.48 CRORES) IN DECEMBER, 2009 AND PAID THE AMO UNTS LATER. THIS AMOUNT WAS CHARGED TO P & L A/C. 3. A.O. WAS OF THE OPINION THAT SINCE SUPPLIES WER E MADE IN 2007-08 THE EXPENDITURE PERTAIN TO EARLIER YEARS . ON INVOKING 2 ITA.NO.1662/HYD/2013 M/S. PITTI LAMINATIONS LTD., HYDERABAD. PRINCIPLES OF MATCHING CONCEPT, CRYSTALLIZATION OF EXPENDITURE HE WAS OF THE OPINION THAT THE AMOUNT CANNOT BE CLAIME D AS EXPENDITURE IN THIS YEAR. HE ACCORDINGLY DISALLOWED THE CLAIM. 4. BEFORE THE LD. CIT(A), ASSESSEE CONTENDED THAT THE SALES WERE FULLY ACCOUNTED IN EARLIER YEARS. THERE WAS NO SUCH CLAIM OF FAULTY PRODUCTION IN ANY OF THE YEAR AND F OR THE FIRST TIME GE INFORMED THE COMPANY DURING THE YEAR (JUY, 2009) AND AFTER MUTUAL NEGOTIATION ONLY AN AMOUNT OF RS.5.48 CRORES WAS PAID. IT PLACED ALL THE CORRESPONDENCE BEFORE A.O. AND LD. C IT(A) TO SUBMIT THAT THE EXPENDITURE HAS CRYSTALLIZED DURING THE YE AR. ASSESSEE PLACED RELIANCE ON VARIOUS CASE LAW ON THIS ISSUE. 5. AFTER CONSIDERING THE SUBMISSIONS OF ASSESSEE, LD. CIT(A) DELETED THE ADDITION MADE BY STATING AS UNDE R : 5.2. I HAVE CAREFULLY CONSIDERED THE SUBMISSIONS OF THE APPELLANT AND OBSERVATIONS OF THE ASSESSING OFFICER REGARDING THE DISALLOWANCE OF EXPENDITURE AMOUNTING RS.5,48,31,000. THIS AMOUNT WAS CLAIMED BY THE APPE LLANT AS AN EXCEPTIONAL ITEM, SINCE IT WAS AN EXPENDITURE INCURRED BY THE APPELLANT IN PAYING THE REPAIR CHARGES TO TH EIR CUSTOMER GE TRANSPORTATION AMOUNTING TO RS.5,48,31, 000. THE A.O. OBSERVED THAT MATERIAL WAS SUPPLIED FROM A UGUST 2007 ONWARDS UP TO THE MIDDLE OF THE YEAR 2009. SIN CE IT CANNOT BE IDENTIFIED WITH THE YEAR OF PRODUCTION/SU PPLY, THE APPELLANT WAS NOT IN A POSITION TO SEGREGATE AND PR OVIDE YEAR-WISE BREAK-UP AND THE CORRESPONDING CHARGES CL AIMED BY GE. 5.3 THE AUTHORIZED REPRESENTATIVE FIELD WRITTEN SUBMISSIONS ALONG WITH THE COPIES OF COMMUNICATION WITH GE, THE ESTIMATION OF COST FOR REPAIRS WORKED OUT B Y THE GE AND COST SHEET FOR THE EXPENDITURE AND FINAL SETTLE MENT ENTERED IN BY THE APPELLANT AND GE TRANSPORT DATED 23.12.2009 WHEREIN THE APPELLANT HAS AGREED TO PAY US $1.2 MILLION AS NON-CONFORMANCE COST. THE A.R. RELIED ON THE FOLLOWING CASE-LAWS: 3 ITA.NO.1662/HYD/2013 M/S. PITTI LAMINATIONS LTD., HYDERABAD. (I) CIT VS. SWEDESH COTTON AND FLOUR MILLS (P) LTD., (1964) 53 ITR 134 (SC) (II) NONSUCH TEA ESTATE LTD. VS. CIT (MADRAS) 98 ITR 189 (SC) (III) CIT VS. EXON MOBIL LUBRICANTS, ITA.NO.288/2010 (DELHI HIGH COURT) (IV) SAURAASHTRA CEMENT & CHEMICAL INDUSTRIES LTD., 213 ITR 523 (GUJ.) (HC) (V) ACIT VS. FARSOL LTD., 163 ITR 364 (RAJASTHAN H.C.) (VI) CIT VS. LACHHMAN DAS MATHURA DAS 124 ITR 411 (ALL) (VII) SARDAR PRIT INDER SINGH VS. CIT 160 ITR 493 (PATNA) (VIII) CIT VS. PHALTON SUGAR WORKS LTD., (162 ITR 622 (BOM.) ) (IX) ALEMBIC CHEMICAL WORKS LTD. VS. DCIT 266 ITR 47 (GUJ.) (X) CIT VS. SURAJMULL NAGARMULL 129 ITR 160 (CAL.) (XI) NAVJIVAN ROLLER FLOUR PULSE MILLS LTD. VS. DCIT 315 ITR 190 (GUJ.) 5.4. FURTHER, THE APPELLANT HAS FILED THE DETAILS ABOUT THE REMITTANCE MADE BY IT TO GE ON 26-3-2010 OF USD 9 LAKHS AND ON 30-03-2010 USD 3LAKHS. APPELLANT HAS A LSO FILED A COPY OF BANK BOOK AND JOURNAL LEDGER ALONG WITH MESSAGE REPORT OF STATE BANK OF INDIA FOR THE ABOVE REMITTANCES. THE A.O. OBSERVED THAT THE APPELLANT C ANNOT CLAIM THE EXPENDITURE FOR PAYMENTS PERTAINING TO EA RLIER YEARS AS THE SAME WERE NOT ALLOWABLE UNDER PROVISIO NS OF SECTION 37 OF INCOME TAX ACT. THE A.R. OF THE APPEL LANT STRONGLY STRESSED THAT THE ENTIRE EXPENDITURE IS RE LATED TO BUSINESS OF THE APPELLANT AND ACCRUED AND PAID DURI NG THE F.Y.2009-10 CORRESPONDING TO A.Y.2010-11 AND HENCE, IT IS ALLOWABLE IN THE CURRENT YEAR PROGRESS. * (AS PER THE ASSESSING OFFICER, IF THE APPELLANT CONSIDERS ONLY THE VALUE OF WORK COMPLETED DURING THE YEAR AND REDUCES THE VALUE OF THE BALANCE WORK, THIS BALANCE VALUE O F WORK SHOULD BE ADMITTED AS WORK-IN-PROGRESS, AS PER THE ACCOUNTING METHOD FOLLOWED BY THE APPELLANT. ON THE CONTRARY, THE APPELLANT SUBMITS THAT THEY HAVE BEEN FOLLOWING THIS METHOD OF REVENUE RECOGNITION OVER THE YEARS AND WHATEVER THE AMOUNT REDUCED BY THEM FROM THE ACTUAL DESPATCHES TO SUB-CONTRACTORS 4 ITA.NO.1662/HYD/2013 M/S. PITTI LAMINATIONS LTD., HYDERABAD. OF A PARTICULAR YEAR WAS OFFERED TO TAX IN THE SUBSEQUENT YEARS WHEN THEY REALIZED IT IN FULL AND ACCORDINGLY THERE IS NO NEED TO SHOW THE SAME AS WORK-IN-PROGRESS. FOR OFFERING ONLY A PORTION OF TH E CONTRACT VALUE AND REDUCING THE EXPENDITURE TO BE INCURRED FROM THE TOTAL VALUE, THE APPELLANT BRINGS IN THE DEVIATIONS IN THE CONTRACT AND THE OBJECTIONS T HAT MAY BE RAISED BY THE CUSTOMERS ABOUT THE EXECUTION OF THE WORK ETC. ) (7.4. PRIMA-FACIE, THE LINE OF SUBMISSIONS OF THE APPELLANT APPEAR TO BE REASONABLE. WHEN THE APPELLANT FOLLOWS A PARTICULAR METHOD OF REVENUE RECOGNITION OVER THE YEARS, THE SAME CANNOT BE DISTURBED UNDER NORMAL CIRCUMSTANCES. HOWEVER, TO MAKE THIS PROPOSITION ACCEPTABLE, THE APPELLANT SHOULD ESTABLISH THAT THE METHOD ADOPTED REFLECTS THE TRUE FINANCIAL RESULTS OF A PARTICULAR YEAR. IN THE CASE ON HAND, THE APPELLANT CLAIMS THAT WHATEVER THE FIGURE REDUCED BY THEM FROM THE ACTUAL DESPATCHES TO SUB-CONTRACTORS WAS BEING OFFERED TO THEM IN THE SUBSEQUENT YEARS, AFTER CONSIDERING THE VARIOUS PROCESSES INVOLVED IN FINALIZATION THE CONTRACT/SUB-CONTRACT. HOWEVER, EXCEPT MAKING A. ) 5 . 5. AFTER GOING THROUGH THE ABOVE DOCUMENTS, CASE-LAWS FILED BY THE APPELLANT AND THE CONTENTIONS OF THE A PPELLANT, I HOLD THAT THE EXPENDITURE INCURRED BY THE APPELLA NT IN RESPECT OF GE TRANSPORTATION IS IN RELATION TO ITS BUSINESS ACCRUED AND INCURRED IN THE F.Y.2009-10 I.E. IN THE ASSESSMENT YEAR UNDER CONSIDERATION, AND HENCE ALLOWABLE. THE A.O. IS DIRECTED TO ALLOW THE EXPEND ITURE OF RS.548.31 LAKHS. ( *MARKED PORTION DISCUSSED SEPARATELY) REVENUE IS AGGRIEVED. 6. AFTER CONSIDERING THE RIVAL CONTENTIONS, WE DO NOT SEE ANY REASON TO INTERFERE WITH THE ORDER OF LD. CIT(A ). BOTH FACTS AND LAW SUPPORT ASSESSEE CONTENTIONS THAT EXPENDITURE H AS CRYSTALLIZED DURING THE YEAR AND IS FOR THE PURPOSE OF BUSINESS. THERE IS NO MERIT IN REVENUE CONTENTIONS. 5 ITA.NO.1662/HYD/2013 M/S. PITTI LAMINATIONS LTD., HYDERABAD. 7. BEFORE PARTING WITH THE ORDER, WE WOULD LIKE TO MENTION THAT THE ORDER OF THE LD. CIT(A) ENCLOSED W ITH FORM-36 BY REVENUE IS NOT CORRECT IN THE SENSE THAT PARA 5.1 I N PAGE 7 CONTAINS UN-RELATED MATTER PERTAINING TO APHB ACT E XTRACTED IN GROUND NO.2 AND 4 AS PART OF ASSESSEES SUBMISSIONS . IN ADDITION, AFTER PARA 5.4, PARA 7.4 HAS COME WHICH IS ALSO INC OMPLETE.( ALSO * MARKED PARTLY IN THE ABOVE EXTRACTED PART IN PARA 5 ). IN VIEW OF THIS, LEARNED D.R. WAS ASKED TO FURNISH THE CORRECT COPY OF LD. CIT(A) ORDER WHICH, HOWEVER, ASSESSEE HAS FURNISHED . AS SEEN FROM THE COPY OF THE ORDER OF THE LD. CIT(A), FURNISHED BY THE ASSESSEE, THERE ARE VARIATIONS. IN FACT, THE ADDITIONAL MATER IAL IN PAGE 6 WAS FOUND DELETED AND PARA 7.4 AFTER PARA 5.4 WAS ALSO DELETED. EVEN PARA 5.4 WAS ALSO EDITED BY DELETING UNRELATED PORT ION. BOTH THE COPIES ARE SIGNED BY PRIVATE SECRETARY AS TRUE COPI ES. THE AO WOULD HAVE GOT UNCORRECTED DRAFT AS FINAL ORDER OF THE LD. CIT(A). THIS IS ONLY TO ALERT THE A.O. SO THAT HE WOULD ENC LOSE THE CORRECT COPY OF THE LD. CIT(A) ORDER TO THE HIGHER JUDICIAL FORUM IN CASE REVENUE PREFERS FURTHER APPEAL. 8. IN THE RESULT, REVENUE APPEAL IS DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 28.08.2014. SD/- SD/- (SAKTIJIT DEY) (B.RAMAKOTAIAH) JUDICIAL MEMBER ACCOUNTANT MEMBER HYDERABAD, DATED 28 TH AUGUST, 2014 VBP/- 6 ITA.NO.1662/HYD/2013 M/S. PITTI LAMINATIONS LTD., HYDERABAD. COPY TO 1. THE ACIT, CIRCLE 16(3), 6 TH FLOOR, AAYAKAR BHAVAN, BASHEERBAGH, HYDERABAD. 2. M/S. PITTI LAMINATION LTD., 6-3-648/401, 4 TH FLOOR, PADMAJA LANDMARK SOMAJIGUDA, HYDERABAD. 4. CIT(A)-V, HYDERABAD. 4. CIT-IV, HYDERABAD. 5. D.R. B BENCH, ITAT, HYDERABAD.