Anar Chemicals Pvt.Ltd., Ahmedabad V. The Income tax Officer,Ward-1(1), Ahmedabad

ITA 1781/AHD/2009

• Counselvise Citation: [2011] 135 COUNSELVISE.COM (IT) 1859 (ITAT-AHMEDABAD)
• Duration Of Justice: 1 year(s) 8 month(s) 27 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 25-02-2011
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: B
• Next Hearing Date: 21-02-2011
• Assessment Year: 2004-2005
• Appeal Filed On: 28-05-2009
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: R K DHANISTA
• Keywords: Depreciation; Opportunity of being heard; Corroborative evidences; Onus to prove; Capital expenditure
• Section: 143(3); 131

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL B BENCH AHMEDABAD (BEFORE S/SHRI BHAVNESH SAINI, JM AND A. N. PAHUJA, AM) ITA NO.1781/AHD/2009 A. Y.: 2004-05 ANAR CHEMICALS PVT. LTD., SANSKRUT, B/H HOLD HIGH COURT, ASHRAM ROAD, AHMEDABAD VS THE INCOME OFFICER, WARD- 1 (1), AHMEDABAD PA NO. AABCA 2795 G (APPELLANT) (RESPONDENT) APPELLANT BY SHRI SANJAY R. SHAH, AR RESPONDENT BY SHRI R. K. DHANISTA, SR. DR O R D E R PER BHAVNESH SAINI: THIS APPEAL BY THE ASSESSEE IS DIRECTED AGAINST THE ORDER OF THE LEARNED CIT(A)-VI , AHMEDABAD DATED 20 TH FEBRUARY, 2009 FOR ASSESSMENT YEAR 2004-05 ON THE FOLLOWING CONCISE GROUNDS: 1. THE ORDER PASSED BY THE LD. CIT (APPEALS) IS ERRONEOUS IN LAW AND FACTS AND THEREFORE REQUIRES T O BE SUITABLY MODIFIED. 2. THE LD. CIT (APPEALS) HAS ERRED IN LAW AND FACTS IN HOLDING THE DISALLOWANCE OF COMMISSION PAID TO MRS. PRITI DESAI OF RS.210015/-. 2.1 THE LD. CIT (APPEALS) HAS ERRED IN LAW AND ON F ACTS IN DISALLOWING THE DEDUCTION FOR THE COMMISSION EXPENDITURE INCURRED WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF BUSINESS. ITA NO.1781/AHD/2009 ANAR CHEMICALS PVT. LTD. VS ITO, WARD 1 (1), AHMEDA BAD 2 3. THE LD. CIT (APPEALS) HAS ERRED IN LAW AND ON FA CTS TREATING THE SCRAP SALES OF RS.4,27,000 AS AN INCOME ON ADHOC BASIS. 4. THE LD. CIT (APPEALS) HAS ERRED IN LAW AND ON FA CTS IN CONFIRMING CAPITALIZATION OF THE INSTALLATION/ERECTION EXPENSES OF PLANT & MACHINERY AT RS.3,00,078/- ON ESTIMATED BASIS. 4.1 WITHOUT PREJUDICE TO ABOVE, THE LD. CIT (APPEAL S) HAS ERRED IN LAW AND ON FACTS IN NOT ALLOWING THE DEPRECIATION ON THE ABOVE CAPITAL EXPENDITURE OF RS.3,00,078/- WHEN THE EXPENDITURE IS HELD TO BE OF CAPITAL IN NATURE. 5. THE LD. CIT (APPEALS) HAS ERRED IN LAW AND ON FA CTS IN CONFIRMING THE DISALLOWANCE OF INTEREST EXPENDITURE FOR RS.2.06,500/- ON THE ESTIMATED BASIS HOLDING THAT THE SAME ARE REQUIRED TO BE CAPITALIZED AS THE SAME HAVE INCREASED COMPARED TO EARLIER YEAR. 5.1 THE LD. CIT (APPEALS) HAS ERRED IN LAW AND ON F ACTS IN CONFIRMING THAT INCREASE IN INTEREST EXPENSES COMPARED TO LAST YEAR IS IN RESPECT OF BORROWED FUNDS UTILISED FOR ACQUISITION OF FIXED ASSETS AND HENCE REQUIRED TO BE CAPITALIZED. 5.2 WITHOUT PREJUDICE TO ABOVE, THE LD. CIT (APPEAL S) HAS ERRED IN LAW AND ON FACTS IN NOT ALLOWING DEPRECIATION THEREON WHEN THE EXPENDITURE IS HELD TO BE OF CAPITAL IN NATURE. 6. THE LD. CIT (APPEALS) HAS ERRED IN LAW AND ON FA CTS IN CONFIRMING DISALLOWANCE OF LOSS OF RS.44,23,861/ - HOLDING THAT THE APPELLANT IS DOING EXPORT BUSINESS THROUGH ITS SISTER CONCERN AND HENCE THERE IS DIVERSION OF PROFIT. ITA NO.1781/AHD/2009 ANAR CHEMICALS PVT. LTD. VS ITO, WARD 1 (1), AHMEDA BAD 3 6.1 THE LD. CIT (APPEALS) HAS ERRED IN LAW AND ON F ACTS IN NOT APPRECIATING THE FACT THAT THE APPELLANT IS HAVING LOSS WHILE M/S. ANAR INTERNATIONAL IS PAYING TAX ON SUCH INCOME EVEN AFTER CLAIMING DEDUCTION UNDER SECTION 80 HHC OF THE ACT. 6.2 THE LD. CIT (APPEALS) HAS ERRED IN LAW AND ON F ACTS IN DISALLOWING THE LOSS ON ASSUMPTION AND PRESUMPTION WITHOUT ANY BASIS. 2. BRIEFLY, THE FACTS OF THE CASE ARE THAT THE AO D ISALLOWED COMMISSION EXPENSES PAID TO MRS. PRITI DEASI, MADE ADDITION ON ACCOUNT OF SALE OF SCRAP, CAPITALIZATION OF EXPENSE S, CAPITALIZATION OF INTEREST EXPENDITURE AND ALSO DISALLOWED THE CLAIM OF LOSS. THE AO GAVE SPECIFIC FINDINGS IN THE ASSESSMENT ORDER. THE LEARNED CIT (A) REPRODUCED THE FINDINGS OF THE AO AND WRITTEN SUBMI SSION OF THE ASSESSEE IN THE APPELLATE ORDER AND ALSO REPRODUCED THE REMAND REPORT AT THE STAGE OF APPELLATE PROCEEDINGS. THE L EARNED CIT (A) ALSO REPRODUCED THE REMAND REPORT AND REPLIES OF THE ASS ESSEE AND ULTIMATELY CONFIRMED ALL THE ADDITIONS AND DISMISSE D THE APPEAL OF THE ASSESSEE. 3. THE LEARNED COUNSEL FOR THE ASSESSEE ARGUED AT L ENGTH ON EACH AND EVERY GROUND AND AT THE OUTSET SUBMITTED THAT T HE LEARNED CIT (A) DID NOT CONSIDER THE EVIDENCES AND MATERIALS ON REC ORD WHILE PASSING THE APPELLATE ORDER AND THUS IT WAS A NON-SPEAKING ORDER. THE LEARNED COUNSEL FOR THE ASSESSEE ON THE ISSUE OF DI SALLOWANCE OF COMMISSION REFERRED TO THE STATEMENT OF MRS. PRITI DESAI, HER CONFIRMATION AND ALSO SUBMITTED THAT SHE RENDERED S ERVICES FOR THE ASSESSEE COMPANY IN EARLIER YEAR FOR WHICH NO DISAL LOWANCE HAS ITA NO.1781/AHD/2009 ANAR CHEMICALS PVT. LTD. VS ITO, WARD 1 (1), AHMEDA BAD 4 BEEN MADE IN THE ASSESSMENT ORDER PASSED U/S 143(3) OF THE IT ACT. HE HAS SUBMITTED THAT SINCE SMT. PRITI WORKED FOR T HE ASSESSEE IN EARLIER YEAR ALSO AND RENDERED SIMILAR SERVICES, TH EREFORE, ADDITION SHOULD NOT HAVE BEEN MADE BY DISALLOWING THE COMMIS SION. HE HAS REFERRED TO HER STATEMENT RECORDED U/S 131 OF THE I T ACT AS WELL AS REMAND REPORT FILED BY THE AO. WITH REGARD TO THE A DDITION ON ACCOUNT OF SCRAP HE HAS SUBMITTED THAT SINCE NO SALES HAVE BEEN MADE BY THE ASSESSEE, THEREFORE, THE ASSESSEE CANNOT BE PUT TO NEGATIVE ONUS TO PROVE THAT NO SALES OF SCRAP HAVE BEEN MADE. HE HAS , THEREFORE, SUBMITTED THAT ADDITION IS MADE MERELY ON PRESUMPTI ON. WITH REGARD TO ERECTION EXPENSES, HE HAS REFERRED TO THE REPLIE S OF THE ASSESSEE FILED BEFORE THE AO ALONG WITH ANNEXURES TO SHOW TH AT WHILE INSTALLING NEW PLANT AND MACHINERIES, THE ASSESSEE SPENT ERECT ION CHARGES WHICH HAVE BEEN SEPARATELY DEBITED AND IN THIS REGA RD HE HAS REFERRED TO PB-69 WHICH IS REPLY OF THE ASSESSEE FI LED BEFORE THE AO AND IS SUPPORTED BY SEVERAL ANNEXURES STARTING FROM PAGES 73 TO 89 OF THE PAPER BOOK. HE HAS SUBMITTED THAT WHEREVER E RECTION AND INSTALLATION EXPENSES HAVE BEEN INCURRED THE SAME H AVE BEEN CAPITALIZED; THEREFORE, ADDITION IS CLEARLY UNJUSTI FIED. THE LEARNED COUNSEL FOR THE ASSESSEE WITH REGARD TO THE DISALLO WANCE OF INTEREST EXPENSES REFERRED TO PAGE 5 OF THE AUDIT REPORT TO SHOW THAT COMPLETE DETAILS WERE FILED AND, THEREFORE, ADDITION IS CLEA RLY UNJUSTIFIED. WITH REGARD TO GROUND NO.6 RELATING TO DISALLOWANCE OF L OSS, HE HAS SUBMITTED THAT THE ARTICLES WERE SOLD TO THE SISTER CONCERN WHO HAVE PAID TAXES, THEREFORE, IT IS NOT A CASE OF DIVERSIO N OF INCOME TO THE SISTER CONCERN AND SUBMITTED THAT COMPLETE DETAILS WERE FILED WHICH HAVE NOT BEEN CONSIDERED BY THE LEARNED CIT(A). IN THE ALTERNATIVE ITA NO.1781/AHD/2009 ANAR CHEMICALS PVT. LTD. VS ITO, WARD 1 (1), AHMEDA BAD 5 CONTENTION HE HAS SUBMITTED THAT IF CAPITAL EXPENDI TURE HAS BEEN CONSIDERED IN THE CASE OF THE ASSESSEE, DEPRECIATIO N MAY BE ALLOWED. 4. ON THE OTHER HAND, THE LEARNED DR RELIED UPON T HE ORDERS OF THE AUTHORITIES BELOW AND SUBMITTED THAT THE ASSESS EE DID NOT PRODUCE MRS. PRITI DESAI BEFORE THE AO IN RESPONSE TO SUMMONS ISSUED U/S 131 OF THE IT ACT. SHE HAS FILED REPLY W HICH CANNOT BE CONSIDERED AS APPEARANCE IN RESPONSE TO SUMMONS U/S 131 OF THE IT ACT. NO TDS BENEFIT HAS BEEN RECEIVED BY HER. PERMA NENT ACCOUNT NUMBER IS WRONGLY QUOTED AND NO EVIDENCES HAVE BEEN FURNISHED AS TO WHAT SERVICES HAVE BEEN RENDERED BY HER FOR THE BUSINESS OF THE ASSESSEE. THE ASSESSEE THOUGH CLAIMED NO STOCK IS S OLD BUT NO SCRAP IS SHOWN IN THE CLOSING STOCK. NO PROPER EVID ENCES HAVE BEEN FILED ON ACCOUNT OF ERECTION OF THE PLANT AND MACHI NERIES AND THERE IS A DOUBT WHETHER EVIDENCES NOW FILED IN THE PAPER BO OK WERE FILED BEFORE THE AUTHORITIES BELOW. SINCE NO EVIDENCE IS FILED ABOUT THE INTEREST CAPITALIZED, THEREFORE, IN THE ABSENCE OF EVIDENCE ADDITION ON GROUND NO.5 HAS BEEN RIGHTLY MADE. AS REGARDS ADDIT ION ON ACCOUNT OF LOSSES, THE LEARNED DR SUBMITTED THAT SISTER CON CERN HAS SIMILAR DIRECTORS ON WHICH DEDUCTION U/S 80 HHC OF THE IT A CT HAS BEEN OBTAINED AND THAT MORE OR LESS THE SALE CONSIDERATI ON OF THE GOODS IS LOWER AS COMPARED TO THE SALE CONSIDERATION SHOWN T O THE OTHER PARTIES. THE LEARNED DR, THEREFORE, SUBMITTED THAT AUTHORITIES BELOW WERE JUSTIFIED IN REJECTING THE CLAIM OF THE ASSESS EE AND WERE JUSTIFIED IN MAKING THE ADDITIONS. ITA NO.1781/AHD/2009 ANAR CHEMICALS PVT. LTD. VS ITO, WARD 1 (1), AHMEDA BAD 6 5. THE LEARNED COUNSEL FOR THE ASSESSEE IN THE REJO INDER SUBMITTED THAT THE LEARNED CIT (A) HAS FAILED TO CO NSIDER THE EVIDENCES AND MATERIAL ON RECORD AND MERELY ON PRES UMPTION MADE THE ADDITIONS. EVEN IF, THE ADDITIONS WERE MAINTAIN ED TREATING AS EXPENDITURE TO BE CAPITAL IN NATURE, NO DEPRECIATIO N HAS BEEN ALLOWED. HE HAS, THEREFORE, SUBMITTED IN ALTERNATE CONTENTIO N THAT IN CASE ADDITIONS ARE MADE ON ACCOUNT OF CAPITAL EXPENDITUR E, DEPRECIATION MAY BE ALLOWED. 6. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND TH E MATERIAL AVAILABLE ON RECORD. THE LEARNED CIT (A) REJECTED THE CLAIM OF THE ASSESSEE ON ACCOUNT OF COMMISSION PAID TO MRS. PRIT I DESAI BECAUSE SHE HAS FAILED TO FILE CORROBORATIVE EVIDENCES AND NATURE OF WORK AND THE SERVICES RENDERED BY HER FOR THE ASSESSEE. THE ASSESSEE HOWEVER, FILED DETAILED EVIDENCES IN THE PAPER BOOK TO SHOW THAT EVEN IN THE PRECEDING ASSESSMENT YEAR THE SMT. PRITI HAS RENDERED SERVICES FOR THE ASSESSEE AND SHE HAS CONFIRMED THE SAME IN HER STATEMENT. THE AO FILED REMAND REPORT (PB 50) WHI CH SUPPORT THE CLAIM OF THE ASSESSEE THAT SHE DID RENDER SERVICES FOR THE BUSINESS OF THE ASSESSEE IN THE EARLIER YEAR AND HER PERMANENT ACCOUNT NUMBER IS ALSO CORRECTLY MENTIONED. SIMILARLY, ADDITION WA S MADE ON ACCOUNT OF SCRAP AND THE ASSESSEE WAS PUT TO NEGATIVE ONUS TO PROVE THAT NO SALES OF THE SCRAP HAVE BEEN MADE. WITH REGARD TO E RECTION EXPENSES, DETAILED EVIDENCES ARE FILED IN THE PAPER BOOK TO SHOW THAT WHEREVER PLANT AND MACHINERIES WERE INSTALLED AND W HEREVER ERECTION EXPENSES WERE INCURRED, SAME HAVE BEEN SHOWN. THE D ETAILS ARE FILED FROM PB 69 TO 89. SIMILARLY, FOR INTEREST, AUDIT REPORT IS FILED TO ITA NO.1781/AHD/2009 ANAR CHEMICALS PVT. LTD. VS ITO, WARD 1 (1), AHMEDA BAD 7 SUPPORT THE CLAIM OF THE ASSESSEE. AS REGARDS BUSIN ESS LOSSES, THE ASSESSEES COUNSEL HAS BEEN ABLE TO DEMONSTRATE THR OUGH PB 134 TO 139 TO SHOW THAT THE GOODS SOLD TO SISTER CONCERN A S COMPARED TO OTHERS, IN SOME OF THE ARTICLES THE RATES ARE CHARG ED IN HIGHER AMOUNT. THEREFORE, THE EVIDENCES ON RECORD HAVE NOT BEEN PR OPERLY APPRECIATED AND CONSIDERED BY THE AUTHORITIES BELOW . CONSIDERING THE DETAILED EVIDENCES AND MATERIAL ON RECORD, WE FIND THAT THE LEARNED CIT (A) HAS FAILED TO PROPERLY ADJUDICATE THE MATTE R IN ISSUE. THE ASSESSEE SUFFERED LOSSES IN PRECEDING ASSESSMENT YE AR ALSO ON ACCOUNT OF SALES MADE TO THE SAME SISTER CONCERN AN D LOSSES HAVE BEEN CARRIED FORWARD IN THE ASSESSMENT YEAR UNDER A PPEAL. THE LEARNED CIT (A), THEREFORE, FAILED TO TAKE INTO CON SIDERATION THE RELEVANT FACTORS WHILE DECIDING THE APPEAL OF THE A SSESSEE. THE FINDINGS OF THE LEARNED CIT (A) THUS WOULD SHOW THA T THE EVIDENCES ON RECORD HAVE NOT BEEN PROPERLY APPRECIATED AND CONSI DERED. THE ASSESSEE HAS FILED CORROBORATIVE EVIDENCES TO PROVE COMMISSION PAYMENT AND FINDINGS OF THE LEARNED CIT (A) WOULD S HOW THAT ADDITION HAS BEEN MAINTAINED BY PASSING NON-SPEAKING ORDER A ND WITHOUT TAKING INTO CONSIDERATION THE EVIDENCES ON RECORD. THE LEARNED COUNSEL FOR THE ASSESSEE, THEREFORE, RIGHTLY CONTEN DED THAT THE LEARNED CIT (A) HAS NOT PROPERLY APPRECIATED THE EV IDENCES ON RECORD. THE LEARNED DR ALSO SUBMITTED THAT SOME OF THE EVIDENCES FILED IN THE PAPER BOOK CREATE DOUBT WHETHER THE SA ME WERE FILED BEFORE THE AUTHORITIES OR NOT, WOULD SHOW THAT THE EVIDENCES ON RECORD HAVE NOT BEEN PROPERLY CONSIDERED BY THE LEA RNED CIT (A). EVEN IF, THE ADDITIONS WERE CONFIRMED TREATING THE EXPENDITURE AS CAPITAL EXPENDITURE, NO DIRECTION HAS BEEN ISSUED T O ALLOW ITA NO.1781/AHD/2009 ANAR CHEMICALS PVT. LTD. VS ITO, WARD 1 (1), AHMEDA BAD 8 DEPRECIATION IN FAVOUR OF THE ASSESSEE. CONSIDERING THE FACTS AND CIRCUMSTANCES NOTED ABOVE, WE ARE OF THE VIEW THE M ATTER IN ISSUE UNDER APPEAL REQUIRES RECONSIDERATION AT THE LEVEL OF THE LEARNED CIT (A). WE ACCORDINGLY, SET ASIDE THE ORDER OF THE LEA RNED CIT (A) AND RESTORE THE APPEAL OF THE ASSESSEE TO HIS FILED ON ALL THE GROUNDS OF APPEAL NOTED ABOVE WITH DIRECTION TO RE-DECIDE ALL THE GROUNDS OF APPEAL ON MERIT CONSIDERING THE EXPLANATION OF THE ASSESSEE AND EVIDENCES AND MATERIAL ON RECORD. THE LEARNED CIT ( A) SHALL GIVE SPECIFIC FINDING ON EACH EVIDENCES AND EXPLANATION OF THE ASSESSEE AND SHALL GIVE REASONABLE SUFFICIENT OPPORTUNITY OF BEING HEARD TO THE ASSESSEE. 7. IN THE RESULT, THE APPEAL OF THE ASSESSEE ON ALL THE GROUNDS IS ALLOWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED ON 25-02-2011 SD/- SD/- (A. N. PAHUJA) ACCOUNTANT MEMBER (BHAVNESH SAINI) JUDICIAL MEMBER DATE : 25-02-2011 LAKSHMIKANT/- COPY OF THE ORDER FORWARDED TO: 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT CONCERNED 4. THE CIT(A) CONCERNED 5. THE DR, ITAT, AHMEDABAD 6. GUARD FILE BY ORDER DY. REGISTRAR, ITAT, AH MEDABAD