M/s. Integra India Group Company Ltd., Baroda V. The Dy.CIT., Circle-1(2), Baroda

ITA 1922/AHD/2011

• Counselvise Citation: [2016] 133 COUNSELVISE.COM (IT) 9940 (ITAT-AHMEDABAD)
• Duration Of Justice: 4 year(s) 4 month(s) 30 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 01-01-2016
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: D
• Next Hearing Date: 05-11-2015
• Assessment Year: 2005-2006
• Appeal Filed On: 02-08-2011
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: SAMIR VAHIL
• Keywords: Business expenditure; Difference of opinion; Reason to believe; Change of opinion; Capital expenditure
• Section: 37(1); 147; 148

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD D BENCH BEFORE: S H RI PRAMOD KUMAR , ACCOUNTANT MEMBER AND SHR I S. S. GODARA , JUDICIAL MEMBER M/S. INTEGRA INDIA GROUP COMPANY LIMITED (FORMERLY KNOWN AS INTEGRA HINDUSTAN CONTROL LIMITED, HALOL - CHAPANER ROAD, POST CHANDRAPURA, TAL: HALOL, DIST: PANCHMAHAL PAN: AAACI4418D (APPELLANT) VS THE DCIT, CIRCLE - 1(2), BAR ODA (RESPONDENT) REVENUE BY : S H RI SAMIR VAHIL , SR. D . R. ASSESSEE BY: S H RI SANJAY R. SHAH , A.R. DATE OF HEARING : 05 - 11 - 2 015 DATE OF PRONOUNCEMENT : 01 - 01 - 2 016 / ORDER P ER : S. S. GODARA , JUDICIAL MEMBER : - THIS ASSESSEE S APPEAL FOR A.Y. 2005 - 06 , AR ISES FROM ORDER OF THE CIT(A) - I, BARODA DATED 19 - 05 - 2011 IN APPEAL NO. CAB - I/177/10 - 11 , IN PROCEEDINGS UND ER SECTION 143(3)/147 OF THE INCOME TAX ACT, 1961; IN SHORT THE ACT . I T A NO . 1922 / A HD/20 11 A SSESSMENT YEAR 200 5 - 06 I.T.A N O. 1922 /AHD /2011 A.Y. 2005 - 06 PAGE NO M/S. INTEGRA INDIA GROUP COMPANY LTD VS. DCIT 2 2. THERE ARE TWO SUBS TANT IVE GROUNDS RAISED IN THE INSTANT APPEAL. THE FIRST ONE CHALLENGES LEGALITY OF THE IMPUGNED REOPENING TAKEN RECOURSE TO WITHIN FOUR YEARS FROM THE END OF RELEVANT ASSESSMENT YEAR. THE SECOND SUBST AN T I VE GROUND ON MERITS ASSAILS CORRECTNESS OF DISALLOWANCE/ADDITION OF SALES PROMOTION EXPENSES OF RS. 2,77,754/ - AND THAT OF RS. 10,00,131/ - PAID TO M/S. BOMBARDIER TRANSPORTATION INDIA LTD (BTIL). 3. THIS ASSESSEE - COMPANY MANUFACTURES RELAYS, AUDIO FREQUENCY TRAC K CIRCUIT, SAFETY INTERLOCKING SWITC HING SYSTEM ETC. IT FILED ITS RETURN ON 27 - 12 - 2005 ADMITTING INCOME OF RS. 1,82,86,627/ - . THE SAME WAS PROCESSED ON 14 - 02 - 2006. THE ASSESSING OFFICER THEREAFTER COMPLE TE D A REGULAR ASSESSMENT ON 27 - 12 - 2007 INTER ALIA DISALLOWING A PROVISION OF CERTAIN FACILITIES MADE IN CASE OF M/S BTIL AMOUNTING TO RS. 27,66,765/ - AS NOT INCURRED WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF THE BUSINESS , REPAIR AND MAINTENANCE OF RS. 5,23,302/ - BY HOLDING IT AS CAPITAL EXPENDITURE, CREDI TORS WRITTEN BAC K OF RS. 1,67,753/ - AND THE ONE U/S. 40(A)(IA) OF RS. 71,630/ - . THE FIRST DISALLOWANCE HEREINABOVE STOOD DELETED BEFORE THE CIT(A) IN HIS ORDER DATED 12 - 09 - 2008. REGULAR ASSESSMENT PROCEEDINGS SEEM TO HAVE ATTAINED FINALITY AT THIS STAGE. 4. WE PROCEED FURTHER AND FIND THAT THE ASSESSING O FFICER FORMED REA S ONS TO BELIEVE THAT ASSESSEE S INCOME LIABLE TO BE ASSESSED HAD ESCAPED ASSESSMENT. HE ISSUED SECTION 148 NOTICE DATED 08 - 03 - 2010 FOR THE FOLLOWING REASONS: - I.T.A N O. 1922 /AHD /2011 A.Y. 2005 - 06 PAGE NO M/S. INTEGRA INDIA GROUP COMPANY LTD VS. DCIT 3 THE ASSESSEE COMPANY I S MAINLY ENGAGED IN THE BUSINESS OF MANUFACTURE OF RAILWAY SIGNALING EQUIPMENTS SUCH AS RELAYS AND AUDIO FREQUENCY TRACK CIRCUITS (AFTC). THE END USER OF THE PRODUCTS OF THE ASSESSEE COMPANY WAS INDIAN RAILWAYS. THE CONTRACT FOR EXECUTION OF RAILWAY PROJEC TS FOR LAYING OF AFTCS AND RELAYS WERE PROCURED BY THE ASSESSEE COMPANY THOROUGH M/S BOMBARDIER TRANSPORTATION INDIA LTD. (BTIL) WITCH WAS A REGISTERED VENDOR WITH THE INDIAN RAILWAYS. AS PER THE AGREEMENT, THE ASSESSEE COMPANY SHALL EXECUTE THE WORK OF I NDIAN RAILWAYS AND BE PAID 90% OF THE CONTRACT PRICE. ON COMPLETION OF THE CONTRACT WORK, THE PRODUCED GOODS WOULD BE SOLD TO THE BTLL AND WHO SHALL SUPPLY THE PRODUCE TO THE INDIAN RAILWAYS. THE ASSESSEE HAD CLAIMED SALES PROMOTION EXPENSES OF RS.12,77,7 05/ - . THE ASSESSEE HAS UNDERTAKEN THE WORK OF MANUFACTURING THE GOODS OF 90% OF THE CONTRACT PRICE AND HAD AGREED NOT TO SELL THE GOODS TO THE END USER OF GOODS I.E R INDIA RAILWAYS. SO THERE WAS NO NECESSITY OF THE ASSESSEE COMPANY TO INCUR SALES EXPENSES O F RS. 12,77,705/ - . THIS BEING NOT BUSINESS EXPENDITURE, THE SAME WAS REQUIRED TO BE DISALLOWED U/S. 37(1) OF THE ACT. THIS HAS RESULTED INTO UNDER ASSESSMENT OF INCOME OF RS. 12,77,705/ - IN VIEW OF THE ABOVE FACTS OF THE CASE AND THE PROVISIONS OF LAW , I HAVE REASON TO BELIEVE THAT INCOME TO THE TUNE OF RS. 12,77,705/ - HAS ESCAPED ASSESSMENT. I AM SATISFIED THAT THE INCOME OF THE ASSESSEE HAS ESCAPED ASSESSMENT TO THE ABOVE EXTENT WITHIN THE MEANING OF SECTION 147 OF THE INCOME TAX ACT. THIS IS FIT CAS E TO ISSUE NOTICE U/S. 148. THEREFORE NOTICE U/S. 148 OF THE ACT IS ISSUED. 5. THE ASSESSEE FILED AN OBJECTION PETITION STATI NG THE IMPUGNED REASONS TO BE ME R E CHANGE OF OPINION ALREADY FORMED IN THE COURSE OF REGULAR ASSESSMENT FRAMED HEREINABOVE. THE ASSESSING OFFICER REJECTED THE SAME IN HIS SPEAKING ORDER PASSED ON 16 - 11 - 2010. THIS WAS FOLLOWED BY THE REASSESSMENT FRAMED ON 14 - 12 - 2010 RESULTING IN THE IMPUGNED S ALES PROMOTION EXPENSES DISALLOWANCES IN QUESTION. THE ASSESSEE S LEGAL AND FACTUAL PLE A IN THE LOWER APPELLATE I.T.A N O. 1922 /AHD /2011 A.Y. 2005 - 06 PAGE NO M/S. INTEGRA INDIA GROUP COMPANY LTD VS. DCIT 4 PROCEEDINGS SEEKING TO DELETE THE SAME HAVE FAILED TO IMPRESS UPON THE CIT(A). THIS LEAVES THE ASSESSEE AGGRIEVED. 6. WE HAVE HEARD BOTH THE PARTIES. THE ASSESEE S FIRST LEGAL ARGUMENT TERMS THE IMPUGNED REOPENING AS MERE CHANGE OF OPINION. WE COME TO PAGES 16 AND 17 OF THE PAPER BOOK COMPRISING ITS SUBMISSION S BEFORE THE ASSESSING OFFICER SPECIFICALLY PROVIDING ALL NECESSARY DETAILS OF THE IMPUGNED SALES PROMOTION EXPENSES OF RS. 12,77,705/ - ON 22 - 02 - 2007 I.E. WELL BEFORE FRAMI NG OF REGULAR ASSESSMENT O N 27 - 12 - 20007 (SUPRA) NOT RESULTING IN A NY DISALLOWANCE. THE REVENUE STRONGLY SUPPORTS TH E IMPUGNED REOPENING. THE HON BLE JURISDICTIONAL HIGH COURT IN CASE OF HEAVY METAL AND TUBES VAS DCIT (2014) 364 ITR 609 DEALT WITH A SIMILAR INSTANCE WHEREIN THE ASSESSING O FFICER HAD SOUGHT FOR SPECIFIC DETAILS, THE ASSESSEE FILED RELEVANT REC ORD FOLLOWED BY NO DISALLOWANCE BEING MADE IN REGULAR ASSESSMENT . THEIR LORDSHIPS ARE OF TH E VIEW THAT THE ASSESSING OFFICER WAS FULLY AWARE OF THE RE LEVANT ISSUE FOR NOT INVOKING THE DISALLOWANCE IN QUESTIO N DURING SCRUTINY AND REOPENING TAKEN RECOURSE TO ON THE VERY ASPECT AMOUNTS TO CHANGE OF OPINION NOT PERMISSIBLE U/S. 147 OF THE ACT. IT HAS COME ON RECORD THAT REOPENING IN QUESTION WAS WITHIN A PERIOD OF FOUR YEARS FROM THE END OF RELEVANT ASSESSMENT YEAR IN THE SAID CASE. THE CIT(A) HAS REJECTED ASSESSEE S LEGAL GROUND ON THIS PRECISE REASONING. WE HOLD IN THESE FACTS AND CIRCUMSTANCES THAT THE ASSESSING OFFICER HAD ALREADY EXAMINED THE ISSUE OF ALLOWABILITY OF IMPUGNED SALES PROMOTION DURING SCRUTINY AND THE IMPUGNED I.T.A N O. 1922 /AHD /2011 A.Y. 2005 - 06 PAGE NO M/S. INTEGRA INDIA GROUP COMPANY LTD VS. DCIT 5 REOPENING ACCORDINGLY AMOUNTS TO CHANGE OF OPINION FORMED EARLIER AT THE TIME OF FRAMING OF REGULAR ASSESSMENT. WE ACCEPT ASSESSEE S LEGAL GROUND POSING CHALLENGE TO VALIDITY O F THE IMPU GN ED REOPENING. THE SAME IS HEREBY QUASHED. SECO ND SUBSTANTIV E GROUND ON MERITS IS RENDERED INFRUCTUOUS. 7. THIS ASSESSEE S APPEAL IS ALLOWED. ORDER PR ONOUNCED IN THE OPEN C OURT ON 01 - 01 - 201 6 SD/ - SD/ - ( PRAMOD KUMAR ) ( S. S. GODARA ) ACCOUNTANT MEMBER JUDICIAL MEMBER AHMEDABAD : DATED 01/01/2016 AK / COPY OF ORDER FORWARDED TO: - 1. ASSESSEE 2. REVENUE 3. CONCERNED CIT 4. CIT (A) 5. DR, ITAT, AHMEDABAD 6. GUARD FILE. BY ORDER/ , / ,