ITO, Kannur V. M/s.Dinesh Textiles, Kannur

ITA 168/COCH/2014

• Counselvise Citation: [2014] 120 COUNSELVISE.COM (IT) 7253 (ITAT-COCHIN)
• Duration Of Justice: 4 month(s) 10 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 28-08-2014
• Appeal Filed By: Department
• Bench Allotted: DB
• Next Hearing Date: 06-08-2014
• Assessment Year: 2006-2007
• Appeal Filed On: 17-04-2014
• Court: TRIBUNAL
• Department Lawyers: LATHA V KUMAR
• Keywords: Depreciation; Cost of acquisition; Bad and doubtful debts

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL COCHIN BENCH, COCHIN BEFORE S/SHRI N.R.S.GANESAN, JM AND CHANDRA POOJ ARI, AM I.T.A. NO.168/COCH/2014 ASSESSMENT YEAR : 2006-07 THE INCOME TAX OFFICER, WARD-1, KANNUR. VS. M/S. DINESH TEXTILES, P.O. CHIRAKKAL, KANNUR-670 011. [PAN:AABFD 6379E] (REVENUE -APPELLANT) (ASSESSEE-RESPONDEN T) C.O. NO.26/COCH/2014 (ARSG. OUT OF I.T.A. NO.168/COCH/2014) ASSESSMENT YEAR : 2006-07 M/S. DINESH TEXTILES, CHIRAKKAL, KANNUR. [PAN:AABFD 6379E] VS. THE INCOME TAX OFFICER, WARD-1, KANNUR. (ASSESSEE-APPELLANT) (REVENUE-RESPONDENT ) REVENUE BY SMT. LATHA V. KUMAR, JR.DR ASSESSEE BY SHRI ARUN RAJ S., ADV. DATE OF HEARING 06/08/2014 DATE OF PRONOUNCEMENT 28/08/2014 O R D E R PER CHANDRA POOJARI, ACCOUNTANT MEMBER: THIS APPEAL FILED BY THE REVENUE IS DIRECTED AGAIN ST THE ORDER DATED 28- 01-2014 PASSED BY THE CIT(A), KOZHIKODE FOR THE AS SESSMENT YEAR 2006-07. I.T.A. NO.168 /COCH/2014 & C.O. NO. 26/COCH/2014 2 2. THE BRIEF FACTS OF THE CASE ARE THAT ASSESSEE IS A FIRM ENGAGED IN THE BUSINESS OF MANUFACTURE AND SALE OF HANDLOOM FABRIC S. RETURN OF INCOME FOR THE ASSESSMENT YEAR WAS FILED ON 15-02-2007 WHICH WAS P ROCESSED U/S. 143(1) OF THE I.T. ACT. SUBSEQUENTLY, THE NOTICE WAS ISSUED U/S. 143(2) AND THE ASSESSING OFFICER COMPLETED THE ASSESSMENT BY MAKING ADDITION S. ON APPEAL, THE CIT(A) DELETED THE DISALLOWANCES MADE BY THE ASSESSING OFF ICER. AGAINST THIS, THE REVENUE IS IN APPEAL BEFORE US. 3. THE FIRST GROUND OF THE REVENUE IS WITH REGARD T O DELETION OF DISALLOWANCE OF PAYMENT OF HONORARIUM PAID TO RETIRED PARTNER MA DE BY THE ASSESSING OFFICER. THE ASSESSING OFFICER DISALLOWED RS. 60,000/- OUT O F THE HONORARIUM PAID TO THE RETIRED PARTNER SHRI C.H. RAMAN DURING THIS YEAR AN D THE PREVIOUS YEAR. THE LD. COUNSEL FOR THE ASSESSEE SUBMITTED THAT SHRI C.H. R AMAN WAS THE MANAGING PARTNER OF THE ASSESSEE-FIRM AND EVEN THOUGH HE RET IRED FROM THE FIRM W.E.F. 31- 03-2000, HE CONTINUED TO BE THE MENTOR AND GUIDING FACTOR OF THE FIRM. THE LD. COUNSEL FURTHER SUBMITTED THAT SHRI C.H. RAMAN EVEN AFTER HIS RETIREMENT FROM THE FIRM WAS ACTIVELY INVOLVED IN THE DAY TO DAY AF FAIRS OF THE FIRM AND HIS ADVICE WAS VALUABLE TO THEM, BEING A PERSON WHO HAS GOT VA ST AND WIDE EXPERIENCE IN THE INDUSTRY. THE ASSESSEE HAS BEEN PAYING THE HON ORARIUM TO SHRI C.H. RAMAN FOR THE LAST FIVE YEARS @ RS. 7000/- PER MONTH AND THE SAME WAS ENHANCED TO RS.12,000/- PER MONTH DURING THE YEAR UNDER CONSIDE RATION. THE EXTRA PAYMENT OF RS.5000/- PER MONTHS WAS DISALLOWED BY THE ASSES SING OFFICER. I.T.A. NO.168 /COCH/2014 & C.O. NO. 26/COCH/2014 3 4. WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE R ECORD. THE ASSESSING OFFICER DISALLOWED THE AMOUNT OF RS. 60,000/- PAID TOWARDS HONORARIUM TO THE RETIRED PARTNER OF THE ASSESSEE ON THE GROUND THAT HE WAS OVERWRITING THE COMPUTER ENTRIES USING A BALL POINT PEN IN THE BOOK S OF ACCOUNT. HOWEVER, WE FIND THAT THE ASSESSING OFFICER HAS NOT VERIFIED TH E DETAILS WITH THE EX-PARTNER WHO HAS RECEIVED THE HONORARIUM. THE CIT(A) HAS ALS O NOT EXAMINED THIS ISSUE. ACCORDINGLY, WE THINK IT FIT TO REMIT THE ISSUE BAC K TO THE FILE OF THE ASSESSING OFFICER TO CAUSE NECESSARY ENQUIRY AND DECIDE THE I SSUE AFRESH IN ACCORDANCE WITH LAW. THIS GROUND IS PARTLY ALLOWED FOR STATISTICAL PURPOSES. 5. THE NEXT GROUND OF THE REVENUE IS WITH REGARD TO DELETION OF DISALLOWANCE OF DEPRECIATION ON THE INCOMPLETE FACTORY BUILDING OF RS.1,99,467/- MADE BY THE ASSESSING OFFICER. THE BRIEF FACTS OF THE CASE ARE THAT DURING THE PREVIOUS YEAR, THE ASSESSEE HAD CONSTRUCTED A BUILDING IN THE PREM ISES OF THE ASSESSEE-FIRM TO ACCOMMODATE WATER TREATMENT PLANT AND CREATING ADDI TIONAL PARKING FACILITY. THE ASSESSEE APPROACHED THE CHELORA GRAMA PANCHAYATH ON 14/10/2005 TO GET THE BUILDING ASSESSED TO TAX, WHICH WAS TURNED DOWN BY THE GRAMA PANCHAYATH ON THE GROUND THAT THE DETAILS OF FAMILIES RESIDING IN 100 METRE RADIUS AND THEIR CONSENT LETTERS WERE NOT FURNISHED. THEREFORE, THE ASSESSING OFFICER WAS OF THE OPINION THAT THE CONSTRUCTION MIGHT HAVE BEEN START ED IN THE MONTH OF NOVEMBER, 2005 ONLY AND THEREFORE, THEY CANNOT COMP LETE THE CONSTRUCTION I.T.A. NO.168 /COCH/2014 & C.O. NO. 26/COCH/2014 4 WITHIN SUCH A SHORT SPAN OF TIME. DURING THE COURS E OF APPEAL PROCEEDINGS, THE LD. COUNSEL FOR THE ASSESSEE SUBMITTED THAT CHELORA GRAMA PANCHAYATH, BEING AN A GRADE PANCHAYATH, NO PERMISSION FOR CONSTRUCTI ON WAS REQUIRED AT THAT TIME FROM ANY AUTHORITIES. HENCE, THE ASSESSING OFFICER WAS NOT JUSTIFIED IN DISALLOWING THE DEPRECIATION ON COMPLETED BUILDING. ALSO HE FILED COPY OF SCHEDULE OF FIXED ASSETS AS ON 31/03/2007. CONSIDE RING THE ARGUMENTS OF THE LD. COUNSEL, THE CIT(A) WAS OF THE OPINION THAT THE CONSTRUCTION OF THE BUILDING WAS COMPLETED AND ONLY A NOMINAL ADDITION TO THE BU ILDING WAS MADE IN THE SUBSEQUENT YEAR AND THEREFORE, THE CIT(A) DELETED T HE DISALLOWANCE OF DEPRECIATION ON INCOMPLETE FACTORY BUILDING. AGAIN ST THIS, THE REVENUE IS IN APPEAL BEFORE US ON THIS ISSUE. 6. WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE R ECORD. DURING THE COURSE OF ASSESSMENT PROCEEDINGS, THE ASSESSING OFF ICER ASKED THE ASSESSEE TO FURNISH DETAILS FOR VERIFICATION SO AS TO FIND OUT WHEN THE CONSTRUCTION OF BUILDING WAS OVER. THE ASSESSING OFFICER WAS OF THE OPINION THAT THE ASSESSEE WAS REQUIRED TO GET THE APPROVAL FROM THE AUTHORITIES W HICH WAS OBTAINED IN THE FINANCIAL YEAR 2006-2007. SINCE THE ASSESSEE HAS N OT GOT THE APPROVAL FROM THE LOCAL AUTHORITIES BEFORE CONSTRUCTION, AND ALSO FRO M DIRECTOR OF FACTORIES AND BOILERS, THE ASSESSING OFFICER WAS OF THE OPINION T HAT THE CONSTRUCTION OF THE BUILDING OF THE ASSESSEE WAS NOT COMPLETED. CONTRA RY TO THIS, THE CIT(A) GAVE THE FINDING THAT MAJOR CONSTRUCTION WAS OVER AND AC CORDINGLY, HE GRANTED I.T.A. NO.168 /COCH/2014 & C.O. NO. 26/COCH/2014 5 DEPRECIATION. WE ARE NOT ABLE TO APPROVE ON WHAT B ASIS THE CIT(A) CAME TO THE CONCLUSION THAT THE CONSTRUCTION WAS COMPLETED. IN OUR OPINION, THIS ISSUE IS REMITTED BACK TO THE FILE OF THE ASSESSING OFFICER TO EXAMINE WHETHER THE CONSTRUCTION IS COMPLETE AND THE BUILDING IS PUT TO USE AND THEREAFTER DECIDE THE ISSUE IN ACCORDANCE WITH LAW. ACCORDINGLY, THIS ISS UE IS REMITTED BACK TO THE FILE OF THE ASSESSING OFFICER FOR FRESH CONSIDERATION. THIS GROUND OF THE REVENUE IS ALLOWED FOR STATISTICAL PURPOSES. 7. THE NEXT GROUND IS WITH REGARD TO DELETION OF DI SALLOWANCE OF DEPRECIATION OF RS. 6,24,459/- MADE BY THE ASSESSING OFFICER ON EFFLUENT TREATMENT PLANT WHICH WAS NOT PUT TO USE BY THE ASSESSEE DURING THE PREVIOUS YEAR. 8. WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE R ECORD. IN OUR OPINION, THIS ISSUE MAY ALSO BE REMITTED BACK TO THE FILE OF THE ASSESSING OFFICER TO EXAMINE WHETHER THE CONSTRUCTION IS COMPLETE AND TH E BUILDING IS PUT TO USE AND THEREAFTER DECIDE THE ISSUE IN ACCORDANCE WITH LAW. ACCORDINGLY, THIS ISSUE IS REMITTED BACK TO THE FILE OF THE ASSESSING OFFICER FOR FRESH CONSIDERATION. THIS GROUND OF THE REVENUE IS ALLOWED FOR STATISTICAL PU RPOSES. 9. THE NEXT GROUND RELATES TO THE ELIGIBILITY FOR D EDUCTION OF INTEREST OF RS. 1,24,241/- PAID ON CAPITAL BORROWED FOR ACQUISITION OF AN ASSET WHICH WAS NOT PUT TO USE DURING THE PREVIOUS YEAR. THIS GROUND IS AL SO AKIN TO THE EARLIER GROUND. I.T.A. NO.168 /COCH/2014 & C.O. NO. 26/COCH/2014 6 ACCORDINGLY, THIS ISSUE IS REMITTED BACK TO THE FIL E OF THE ASSESSING OFFICER TO EXAMINE WHETHER THE ASSET HAS BEEN PUT TO USE, AND IF SO, THE INTEREST IS TO BE ALLOWED. THIS GROUND OF THE REVENUE IS ALLOWED FOR STATISTICAL PURPOSES. 10. THE NEXT GROUND IS WITH REGARD TO DELETION OF D ISALLOWANCE OF BAD DEBTS WRITTEN OFF BY THE ASSESSEE AMOUNTING TO RS. 7,24,3 48/-. THE LD. DR SUBMITTED THAT THE DEBTS WERE NOT WRITTEN OFF AND THE CONDITI ON LAID DOWN UNDER SECTION 36(1)(VIIA) OF THE ACT WAS NOT COMPLIED WITH. 11. WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE RECORD. NO MATERIAL WAS PLACED BEFORE US TO SHOW THAT THE DEBTS HAVE BEEN W RITTEN OFF. IN OUR OPINION, THIS ISSUE IS REMITTED BACK TO THE FILE OF THE ASSE SSING OFFICER TO SEE WHETHER THE DEBTS HAVE BEEN WRITTEN OFF OR NOT AND IF IT IS ACT UALLY WRITTEN OFF, THE CLAIM OF THE ASSESSEE IS TO BE ALLOWED. THIS GROUND IS ALLOWED F OR STATISTICAL PURPOSES. 12. THE NEXT GROUND OF APPEAL IS WITH REGARD TO DEL ETION OF ADDITION OF RS.1,20,169/- MADE BY THE ASSESSING OFFICER U/S. 40 (A)(IA) OF THE ACT ON INTEREST PAID TO RETIRED PARTNERS WITHOUT DEDUCTION OF TAX. 13. WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE MATERIAL ON RECORD. BEFORE THE ASSESSING OFFICER NO FORM 15H WAS PRODUC ED. HOWEVER, THE CIT(A) HAS GIVEN RELIEF ON THE REASON THAT THERE WAS FORM 15H FILED BEFORE HIM. IN OUR I.T.A. NO.168 /COCH/2014 & C.O. NO. 26/COCH/2014 7 OPINION, THIS ISSUE IS REMITTED BACK TO THE FILE OF THE ASSESSING OFFICER TO EXAMINE FORM 15H, IF IT IS FILED BEFORE HIM AND DECIDE ACCO RDINGLY. ACCORDINGLY, THIS GROUND OF THE REVENUE IS ALLOWED FOR STATISTICAL PU RPOSES. 13. THE NEXT ISSUE IS WITH REGARD TO DELETION OF DI SALLOWANCE OF RS. 38,594/- MADE BY THE ASSESSING OFFICER BY REDUCING THE INVES TMENT SUBSIDY FROM THE COST OF PLANT AND MACHINERY WHILE CALCULATING DEPRECIATI ON. 14. THE LD. DR SUBMITTED THAT THIS ISSUE BY THE ASS ESSEE IS NOT RELATING TO THE ACQUISITION OF ANY ASSET. BEING SO, IT CANNOT BE D EDUCTED FROM THE COST OF ACQUISITION OF ASSETS SO AS TO COMPUTE THE WRITTEN DOWN VALUE OF THE ASSET. 15. WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE RECORD. IN OUR OPINION THIS ISSUE IS COVERED BY THE DECISION OF THE HONBL E SUPREME COURT IN THE CASE OF P.J. CHEMICALS VS. CIT (1994) (210 ITR 830) (SC). R ESPECTFULLY FOLLOWING THE ABOVE ORDER OF THE HONBLE SUPREME COURT, THIS ISSU E IS DECIDED IN FAVOUR OF THE ASSESSEE. ACCORDINGLY, THIS GROUND OF THE REVENUE IS DISMISSED. 16. THE CROSS OBJECTION FILED BY THE ASSESSEE IS WI TH REGARD TO DISALLOWANCE OF DEPRECIATION ON THE COST OF THE TRUSS WORK. SINCE W E HAVE REMITTED SIMILAR ISSUE IN THE REVENUE APPEAL BACK TO THE FILE OF THE ASSES SING OFFICER TO SEE WHETHER THE ASSET HAS BEEN PUT TO USE, THIS ISSUE IS ALSO REMIT TED BACK TO THE FILE OF THE I.T.A. NO.168 /COCH/2014 & C.O. NO. 26/COCH/2014 8 ASSESSING OFFICER FOR FRESH CONSIDERATION. ACCORDIN GLY, THIS GROUND FILED BY THE ASSESSEE IN THE CROSS OBJECTION IS ALLOWED FOR STAT ISTICAL PURPOSES. 17. IN THE RESULT, THE APPEAL FILED BY THE REVENUE AND THE CROSS OBJECTION FILED BY THE ASSESSEE ARE ALLOWED FOR STATISTICAL P URPOSES. PRONOUNCED ACCORDINGLY ON 28-08-2 014. SD/- SD/- (N.R.S.GANESAN) (CHANDRA POOJARI) JUDICIAL MEMBER ACCOUNTANT MEMBER PLACE: KOCHI DATED: 28 TH AUGUST,2014 GJ COPY TO: 1. M/S. DINESH TEXTILES, P.O. CHIRAKKAL, KANNUR-670 011. 2. THE INCOME TAX OFFICER, WARD-1, KANNUR 3. THE COMMISSIONER OF INCOME-TAX(APPEALS), KOZHIKO DE. 4. THE COMMISSIONER OF INCOME-TAX, KOZHIKODE. 5. D.R., I.T.A.T., COCHIN BENCH, COCHIN. 6. GUARD FILE. BY ORDER (ASSISTANT REGISTRAR) I.T.A.T., COCHIN