M/s Vijayawada Bottling Co. Ltd., Vijayawada V. The ACIT, Circle-2(1), Vijayawada

ITA 170/VIZ/2011

• Counselvise Citation: [2011] 140 COUNSELVISE.COM (IT) 50239 (ITAT-VISAKHAPATNAM)
• Duration Of Justice: 1 month(s) 18 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 03-06-2011
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: DB
• Assessment Year: 2006-2007
• Appeal Filed On: 15-04-2011
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: D S SUNDER SINGH; N RAUL
• Assessee Lawyers: C S SUBRAMANYAM
• Keywords: Tax effect; Capital expenditure
• Section: 263

Judgement Text

ITA NO 170 OF 2011 VIJAYAWADA BOTTLING CO LTD VIJAY AWADA PAGE 1 OF 6 IN THE INCOME TAX APPELLATE TRIBUNAL VISAKHAPATNAM BENCH, VISAKHAPATNAM BEFORE: SHRI SUNIL KUMAR YADAV, JUDICIAL MEMBER AND SHRI BR BASKARAN, ACCOUNTANT MEMBER ITA NO.170/VIZAG/2011 ASSESSMENT YEAR:2006-07 VIJAYAWADA BOTTLING CO. LTD.,VIJAYAWADA VS. ACIT, CIRCLE-2(1) VIJAYAWADA (APPELLANT) PAN NO: AABCV 5165 F (RESPONDENT) APPELLANT BY: SHRI C.S. SUBRAMANYAM, CA RESPONDENT BY: SHRI N. RAUL, CIT & SHRI D.S. SUNDER SINGH, SR.DR ORDER PER SHRI B. R. BASKARAN, ACCOUNTANT MEMBER: IN THIS APPEAL, THE ASSESSEE IS ASSAILING THE ORDER DATED 15-02-2011 PASSED BY LEARNED CIT VIJAYAWADA UNDER SECTION 263 OF THE ACT FOR THE ASSESSMENT YEAR 2006-07. 2. THE FACTS RELATING TO THE CASE ARE STATED IN BRI EF. THE ASSESSEE FILED ITS RETURN OF INCOME FOR THE YEAR UNDER CONSIDERATI ON ON 22.11.2006 DECLARING A TOTAL INCOME OF RS.1,24,420/-. IN THE RE TURN OF INCOME THE NATURE OF BUSINESS OF THE ASSESSEE WAS SHOWN AS RE AL ESTATE AND FINANCE. THE ASSESSING OFFICER COMPLETED THE ASSESSMENT BY A CCEPTING THE INCOME DECLARED BY THE ASSESSEE. THE LEARNED CIT CONSIDERE D THE ASSESSMENT AS ERRONEOUS AND PREJUDICIAL TO THE INTEREST OF THE RE VENUE FOR THE FOLLOWING REASONS AND ACCORDINGLY ISSUED A SHOW CAUSE NOTICE TO THE ASSESSEE. IT WAS OBSERVED FROM THE P&L ACCOUNT FOR THE YEAR ENDED 31.3.2006 THAT THE ASSESSEE HAD INCOME FROM INTERES T RECEIPTS AND OTHER INCOME ONLY DURING THE YEAR. THE REAL ESTATE BUSINESS WAS NOT YET COMMENCED. HOWEVER, AS PER SCHEDULE-K FORMING PART OF P&L ACCOUNT, THE ASSESSE E DEBITED RS.7,76,262/- TOWARDS MAINTENANCE. AS PER THE DETAI LS GIVEN TO MAINTENANCE, THE EXPENDITURE IS TOWARDS SITE DEV ELOPMENT CHARGES. AS PER REAL ESTATE BUSINESS IS NOT YET CO MMENCED, THE SITE DEVELOPMENT CHARGES IS A PRE-OPERATIVE EXP ENDITURE AND NEEDS TO BE CAPITALIZED. OMISSION TO DO SO, RES ULTED IN UNDER ASSESSMENT OF INCOME TO THE TUNE OF RS.7,76,2 62/- WITH ITA NO 170 OF 2011 VIJAYAWADA BOTTLING CO LTD VIJAY AWADA PAGE 2 OF 6 A CONSEQUENTIAL TAX EFFECT OF RS.3,42,289/- INCLUDI NG SURCHARGE, EDUCATION CESS AND INTEREST CHARGEABLE U NDER SECTION 234-B. IN REPLY THE ASSESSEE SUBMITTED THAT IT DID NOT CARR Y OUT ANY REAL ESTATE BUSINESS. IT WAS SUBMITTED THAT THE IMPUGNED AMOUNT OF RS.7,76,262/- WAS SPENT TOWARDS REPAIR OF ITS OWN PREMISES AND ALSO T HE PREMISES TAKEN ON LEASE. THE PREMISES TAKEN ON LEASE WAS LOCATED AT A PLACED CALLED RAMAVARAPPADU AND THE SAME WAS CLAIMED TO HAVE BEEN LET OUT TO M/S TATA TELE SERVICES LTD. THE OWN PREMISES WAS LOCATE D AT GOSALA, VIJAYAWADA AND THE SAME WAS CLAIMED TO HAVE BEEN LE T OUT TO M/S PADMA CREAMS PVT. LTD. ACCORDINGLY IT WAS SUBMITTED THAT THE IMPUGNED REPAIR EXPENSES ARE ALLOWABLE AS EXPENDITURE UNDER SECTION 30(A)(I) OF THE ACT. ACCORDINGLY THE ASSESSEE PRAYED THE LEARNED CIT TO DROP THE REVISION PROCEEDINGS INITIATED BY HIM. 2.1 THE LEARNED CIT WAS NOT CONVINCED WITH THE EXPL ANATIONS OF THE ASSESSEE AS HE WAS OF THE VIEW THAT THE HUGE REPAIR S ON COMPOUND WALL AND SHED CARRIED OUT BY THE ASSESSEE HAS BROUGHT ENDURI NG BENEFIT TO THE ASSESSEE AND HENCE THE IMPUGNED EXPENDITURE FALLS I N THE REALM OF CAPITAL EXPENDITURE. IN THIS REGARD THE LEARNED CIT FOLLOWE D THE DECISION OF HON'BLE ITAT MUMBAI (D) BENCH IN THE CASE OF ACIT VS. RABO INDIA FINANCE (P) LTD., IN ITA NO. 33251/MUM/2009. ACCORDINGLY THE LEARNED CIT HELD THAT THE IMPUGNED EXPENDITURE CANNOT BE ALLOWED UNDER SECTIO N 30(A)(I) OF THE ACT AND DIRECTED THE ASSESSING OFFICER TO DISALLOW THE IMPUGNED EXPENSES OF RS.7,76,262/- AND PASS THE ASSESSMENT ORDER ACCORDI NGLY. AGGRIEVED BY THE ORDER OF THE LEARNED CIT, THE ASSESSEE IS IN APPEAL BEFORE US. 3. THE LEARNED COUNSEL FOR THE ASSESSEE ASSAILED TH E ORDER OF THE LEARNED CIT ON THE FOLLOWING POINTS: (A) THE LEARNED CIT HAS ISSUED THE SHOW CAUSE NOTIC E ON THE WRONG PREMISE THAT THE ASSESSEE IS ENGAGED IN REAL ESTATE BUSINESS AND THE IMPUGNED EXPENSES ARE IN THE NATUR E OF PRE- OPERATIVE EXPENDITURE. HOWEVER, WHILE FINALIZING TH E PROCEEDINGS, THE LEARNED CIT HAS CHANGED HIS STAND AND CONSIDERED THE EXPENDITURE AS CAPITAL IN NATURE. AS THE LEARNED CIT HAS PASSED THE IMPUGNED ORDER ON THE REASONS OT HER THAN ITA NO 170 OF 2011 VIJAYAWADA BOTTLING CO LTD VIJAY AWADA PAGE 3 OF 6 THOSE SHOWN IN THE SHOW CAUSE NOTICE, THE SAID ORDE R IS LIABLE TO BE QUASHED. IN THIS REGARD THE LEARNED COUNSEL TO OK SUPPORT OF THE DECISION OF THE ITAT MUMBAI (E) BENC H IN THE CASE OF COLOR CRAFT VS. ITO (2007) (105 ITD 599). (B) THE ASSESSING OFFICER HAS EXAMINED THE CLAIM OF THE ASSESSEE TOWARDS REPAIR EXPENSES AND HAS TAKEN A POSSIBLE VI EW. IN THAT CASE THE IMPUGNED ASSESSMENT ORDER CANNOT BE T AKEN AS ERRONEOUS OR PREJUDICIAL IN NATURE. IN THIS REGARD THE LEARNED COUNSEL FOR THE ASSESSEE TOOK SUPPORT OF THE DECISI ON OF THE HON'BLE SUPREME COURT IN THE CASE OF MALABAR INDUSTR IAL COMPANY LTD REPORTED IN (2000) (243 ITR 83). (C) THOUGH THE ASSESSING OFFICER DID NOT DISCUSS THE IM PUGNED ISSUE IN THE ASSESSMENT ORDER, NO ADVERSE INFERENCE CAN BE DRAWN IF THE ASSESSING OFFICER HAD EXAMINED THE ISS UE DURING THE COURSE OF ASSESSMENT PROCEEDINGS. IN THIS CONNE CTION THE LEARNED AUTHORISED REPRESENTATIVE RELIED UPON THE D ECISION OF THE MUMBAI HIGH COURT REPORTED IN 203 ITR 108. (D) THE IMPUGNED EXPENSES INCURRED TOWARDS THE REPAIR O F THE LEASED PREMISES ARE TO BE ALLOWED UNDER SECTION 30 OF THE ACT. IN THIS REGARD THE LEARNED COUNSEL RELIED UPON THE D ECISION OF DELHI HIGH COURT IN THE CASE OF CIT VS. HI LINE PEN S (P) LTD., REPORTED IN (2008) (306 ITR 182), PUNJAB & HARYANA HIGH COURT IN THE CASE OF CIT VS. BHAGAT INDUSTRIES CORP ORATION LTD., REPORTED IN (1980) (126 ITR 645) AND THE DECI SION OF THE HON'BLE SUPREME COURT IN THE CASE OF CIT VS. MADRAS AUTO SERVICE (P) LTD REPORTED IN (1998) (233 ITR 468). 4. ON THE CONTRARY, THE LEARNED DEPARTMENTAL REPRES ENTATIVE SUBMITTED THAT THE ASSESSEE ITSELF HAS STATED IN ITS RETURN O F INCOME THAT THE NATURE OF BUSINESS CARRIED ON BY IT IS REAL ESTATE & FINANCE . FURTHER IT IS NOT CLEAR FROM THE ASSESSMENT ORDER AS TO WHETHER THE ASSESSI NG OFFICER HAS EXAMINED THE IMPUGNED CLAIM OF RS. 7,76,262/- MADE BY THE ASSESSEE. IN THESE CIRCUMSTANCES, THE IMPUGNED ASSESSMENT ORDER IS REQUIRED TO BE CONSIDERED AS ERRONEOUS AND PREJUDICIAL TO THE INTE RESTS OF THE REVENUE. HENCE THE LEARNED CIT IS WELL WITHIN HIS JURISDICTI ON TO INVOKE THE PROVISIONS OF SEC. 263 IN THE INSTANT CASE. 5. WE HAVE HEARD THE RIVAL CONTENTIONS AND CARE FULLY PERUSED THE RECORD. THE DISPUTE IN THE INSTANT CASE REVOLVES AROUND THE CLAIM OF RS.7,76,262/- MADE BY THE ASSESSEE IN ITS RETURN OF INCOME UNDER THE HEAD ITA NO 170 OF 2011 VIJAYAWADA BOTTLING CO LTD VIJAY AWADA PAGE 4 OF 6 MAINTENANCE. ACCORDING TO THE SHOW CAUSE NOTICE ISSUED BY LEARNED CIT, THE ASSESSEE SEEMS TO HAVE GIVEN DETAILS OF MAINTE NANCE EXPENSES CITED ABOVE AND IN THAT IT WAS STATED AS EXPENDITURE TOWA RDS SITE DEVELOPMENT. SINCE THE ASSESSEE HAD MENTIONED ITS NATURE OF BUSI NESS AS REAL ESTATE AND FINANCE, THE LEARNED CIT WAS PROMPTED TO INVOK E THE PROCEEDINGS UNDER SECTION 263 OF THE ACT, AS HE TOOK THE VIEW T HAT THE IMPUGNED EXPENDITURE CANNOT BE ALLOWED AS REVENUE EXPENDITUR E. HOWEVER, ON EXAMINATION OF REPLIES GIVEN BY THE ASSESSEE, THE L EARNED CIT STICK TO HIS VIEW THAT THESE EXPENSES CANNOT BE ALLOWED AS REVEN UE EXPENDITURE. THUS, IN ESSENCE THE VIEW OF THE LEARNED CIT, BOTH AT THE TIME OF ISSUING SHOW CAUSE NOTICE AS WELL AS AT THE TIME OF PASSING ORDE R UNDER SECTION 263, WAS THAT THE IMPUGNED EXPENSES CANNOT BE ALLOWED AS REV ENUE EXPENDITURE. HENCE, IN OUR VIEW, IT CANNOT BE HELD THAT THE LEAR NED CIT HAS FINALIZED THE REVISION PROCEEDINGS ON A DIFFERENT REASON THAN THA T SPECIFIED IN THE SHOW CAUSE NOTICE. 6. IN SO FAR AS REVISION PROCEEDINGS UNDER SECTI ON 263 OF THE ACT IS CONCERNED, IT HAS TO BE SEEN WHETHER THE ASSESSING OFFICER HAS EXAMINED THE IMPUGNED ISSUE AND WHETHER THE VIEW OF THE ASSE SSING OFFICER IS ONE OF THE PLAUSIBLE VIEWS. THE CONTENTION OF THE ASSESSE E IS THAT THE ASSESSING OFFICER HAS EXAMINED THE CLAIM OF RS.7,76,262/- MAD E BY THE ASSESSEE AND HENCE HIS VIEW HAS TO BE TAKEN AS A POSSIBLE VIEW. IN SUPPORT OF HIS CONTENTIONS, THE LEARNED AUTHORISED REPRESENTATIVE BROUGHT TO OUR NOTICE THE REPLY DATED 02-09-2008 GIVEN BY THE ASSESSEE TO THE ASSESSING OFFICER. THE SAID REPLY IS PLACED AT PAGES 2 AND 3 OF THE PA PER BOOK COMPILED BY THE ASSESSEE. THE RELEVANT PART OF THE REPLY IS EXTRAC TED BELOW: 2. DETAILS OF LEASEHOLD PROPERTY ACQUIRED: WE ACQUIRED VACANT LAND OF A1-53 CENTS OF VACANT LAN D ALONG WITH DILAPIDATED SHEDS FROM M/S ANDHRA PHARMACEUTIC AL WORKS LTD., VIJAYAWADA IN THE YEAR 2003 AND WE SPEN T CERTAIN AMOUNTS FOR LAND FILLING AND IMPROVING THE SHEDS. D URING THE PREVIOUS YEAR RELEVANT TO THE ASSESSMENT YEAR 2006- 07 WE PAID LEASE AMOUNT OF RS.1,20,000/- AS AGREED UPON. IN THIS CONNECTION WE ARE HEREWITH ENCLOSING COPY OF THE LE ASE DEED DT. 22.09.2003. ITA NO 170 OF 2011 VIJAYAWADA BOTTLING CO LTD VIJAY AWADA PAGE 5 OF 6 IT IS TO BE NOTED THAT THE ASSESSEE DID NOT FILE A C OPY OF LETTER ISSUED BY THE ASSESSING OFFICER SEEKING INFORMATION IN CONNECTION WITH THE FINALIZATION OF THE ASSESSMENT. THE LEARNED AUTHORISED REPRESENTAT IVE WAS NOT SURE WHETHER ANY LETTER WAS ISSUED BY THE ASSESSING OFFI CER IN THIS REGARD. HENCE, IT IS NOT CLEAR WHETHER THE ABOVE SAID REPLY IS ACTUALLY IN RELATION TO THE IMPUGNED EXPENSES UNDER DISPUTE. ON A PLAIN RE ADING OF THE REPLY GIVEN BY THE ASSESSEE TO THE ASSESSING OFFICER, WHI CH IS EXTRACTED ABOVE, IT APPEARS THAT THE SAME IS RELATED TO THE LEASE HOLD PROPERTY TAKEN BY THE ASSESSEE. FURTHER, AS CONTENDED BY LEARNED DEPARTM ENTAL REPRESENTATIVE, THE ASSESSING OFFICER DID NOT DISCUSS ANY THING ABO UT THE EXAMINATION MADE BY HIM ON THE IMPUGNED CLAIM OF MAINTENANCE EXPENSE S MADE BY THE ASSESSEE. THOUGH WE ARE IN AGREEMENT WITH THE CLAI M OF AUTHORISED REPRESENTATIVE THAT IT IS ALWAYS NOT NECESSARY FOR THE ASSESSING OFFICER TO RECORD THE RESULT OF EACH AND EVERY TYPE OF EXAMINA TION, YET WE ARE OF THE VIEW THAT THE ASSESSEE HAS FAILED TO SHOW THAT THE ASSESSING OFFICER HAS ACTUALLY EXAMINED THE ALLOWABILITY OF IMPUGNED EXPE NSES. HENCE, WE ARE UNABLE TO COMMENT WHETHER THE ASSESSING OFFICER HAS TAKEN ANY PARTICULAR VIEW IN THIS MATTER. 7. THE LEARNED AUTHORISED REPRESENTATIVE FURTHE R CONTENDED THAT THE IMPUGNED EXPENSES ARE IN THE NATURE OF REPAIRS AN D CANNOT BE TAKEN AS CAPITAL EXPENDITURE AND IN THAT CONNECTION; HE RELI ED UPON SEVERAL CASE LAW. WE DECLINE OURSELVES TO INTERFERE WITH THE SAID CLA IM OF THE ASSESSEE, AS WE ARE CONCERNED WITH THE LEGALITY OF ACTION TAKEN BY LEARNED CIT UNDER SECTION 263 OF THE ACT. ON A CAREFUL EXAMINATION O F THE ORDER OF LEARNED CIT, WE NOTICE THAT THE LEARNED CIT HAS TAKEN THE V IEW THAT THE IMPUGNED EXPENSES ARE IN THE NATURE OF CAPITAL EXPENDITURE A ND HAS ACCORDINGLY DIRECTED THE ASSESSING OFFICER TO DISALLOW THE SAME . WE ARE OF THE VIEW THAT THE CLAIM OF THE ASSESSEE WITH REGARD TO THESE EXPENSES REQUIRES PROPER EXAMINATION AFTER HEARING THE VIEWS OF THE A SSESSEE, THE NATURE OF EXPENSES INCURRED AND FURTHER BY TAKING INTO CONSID ERATION THE PRINCIPLES LAID DOWN BY VARIOUS COURTS IN THIS REGARD. HENCE WE ARE NOT IN AGREEMENT WITH THE DECISION OF THE LEARNED CIT IN DIRECTING T HE ASSESSING OFFICER TO DISALLOW THE IMPUGNED EXPENDITURE. IN OUR VIEW, THE LEARNED CIT SHOULD ITA NO 170 OF 2011 VIJAYAWADA BOTTLING CO LTD VIJAY AWADA PAGE 6 OF 6 HAVE DIRECTED THE ASSESSING OFFICER TO EXAMINE THE NATURE OF CLAIM OF IMPUGNED EXPENSES AND TO TAKE APPROPRIATE DECISION IN ACCORDANCE WITH LAW. 8. IN VIEW OF THE FOREGOING DISCUSSIONS, WE MODI FY THE ORDER OF LEARNED CIT AND DIRECT THE ASSESSING OFFICER TO EXAMINE THE CLAIM OF THE ASSESSEE AFTER SEEKING EXPLANATIONS AND NECESSARY DETAILS FR OM THE ASSESSEE AND THEN TO TAKE APPROPRIATE DECISION IN ACCORDANCE WIT H LAW. 9. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS TREA TED AS PARTLY ALLOWED FOR STATISTICAL PURPOSES. PRONOUNCED IN THE OPEN COURT ON 3/6/2011. SD/- SD/- (SUNIL KUMAR YADAV) (B R BASKARAN) JUDICIAL MEMBER ACCOUNTANT MEMBER PVV/SPS VISAKHAPATNAM, DATE: 3 RD JUNE, 2011 COPY TO 1 M/S VIJAYAWADA BOTTLING COMPANY LTD., 40-15-14/A- 5 SUDARSAN APARTMENTS, BRINDAVAN COLONY, LABBIPET, VIJAYAWADA - 10 2 THE ASSTT. COMMISSIONER OF INCOME TAX, CIRCLE-2(1 ) VIJAYAWADA 3 THE CIT VIJAYAWADA 4 THE DR, ITAT, VISAKHAPATNAM. 5 GUARD FILE. BY ORDER SENIOR PRIVATE SECRETARY INCOME TAX APPELLATE TRIBUNAL VISAKHAPATNAM