ITO, New Delhi V. M/s. Mahendra Metplast P. Ltd., New Delhi

ITA 1956/DEL/2014

• Counselvise Citation: [2015] 140 COUNSELVISE.COM (IT) 97355 (ITAT-DELHI)
• Duration Of Justice: 1 year(s) 5 month(s) 7 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 10-09-2015
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: SMC 2
• Next Hearing Date: 03-08-2015
• Assessment Year: 2001-2002
• Appeal Filed On: 03-04-2014
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: SUDHIRANJAN SENAPATI
• Keywords: Opportunity of being heard; Capital receipt; Capital expenditure
• Section: 143(3); 68

Judgement Text

ITA NO. 1956 /DEL/2014 1 IN THE INCOME TAX APPELATE TRIBUNAL DELHI BENCH SMC - 2 : NEW DELHI BEFORE SHRI H.S. SIDHU, JUDICIAL MEMBER ITA NO. 1956 /DEL/201 4 A.Y. : 200 1 - 0 2 INCOME TAX OFFICER, VS. M/S MAHENDRA METPLAST P LTD., WARD 6( 1 ), NEW DELHI E - 128, MASJID MOTH, GK PART - II, ROOM NO. 312, CR BLDG., NEW DELHI NEW DELHI (PAN: AAACM8421C) ) (APPELLANT) (RESPONDENT) DEPARTMENT BY : SH. SUDHIRANJAN SENAPATI, SR . DR ASSESSEE BY NONE PRESENT DATE OF HEARING : 0 3 - 0 8 - 2015 DATE OF ORDER : 1 0 - 0 9 - 2015 PER H.S. SIDHU, JM: - O R D E R THIS APPEAL BY THE REVENUE IS DIRECTED AGAINST THE ORDER OF THE LD. COMMISSIONER OF INCOME TAX (APPEALS) - IX , NEW DELHI DATED 2 0 . 1 .201 4 PERTAINING TO ASSESSMENT YEAR 200 1 - 0 2 . 2. T HE GROUNDS OF APPEAL READ AS UNDER: - 1. WHETHER ON THE FACTS CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT(A) ERRED IN HOLDING THAT THERE WAS NO MANUFACTURING / COMMERCIAL ACTIVITY DURING THE YEAR? 2. THAT THE ORDER OF THE LD. CIT(A) IS ERRONEOUS AND IS NOT TENABLE ON FACTS AND IN LAW. ITA NO. 1956 /DEL/2014 2 3. THAT THE GROUNDS OF APPEAL ARE WITHOUT PREJUDICE TO EACH OTHER. 4. THAT THE APPELLANT CRAVES LEAVE TO ADD, ALTER, AMEND OR FORGO ANY GROUND(S) OF APPEAL EITHER BEFORE OR AT THE TIME OF HEARING OF THE APPEAL. 3. THE FACTS NARRATED BY THE REVENUE AUTHORITIES ARE NOT DISPUTED BY THE LD. DR , HENCE, THE SAME ARE NOT REPEATED HERE FOR THE SAKE OF CONVENIENCE. 4. IN THIS CASE THE NOTICE WAS SENT TO THE ASSESSEE FOR HEARING BY REGD. AD POST FOR 03 .0 8 .2015 AT THE ADDRESS MENTIONED IN FORM NO. 36 VIDE COLUMN NO. 10, BUT NOBODY APPEARED ON BEHALF OF THE ASSESSEE NOR ANY ADJOURNMENT APPLICATION WAS FILED. IN MY CONSIDERED OPINION, NO USEFUL PURPOSE WOULD BE SERVED TO ISSUE NOTICE AGAIN AND AGAIN ON THE SA ME ADDRESS. THEREFORE, I AM OF THE CONSIDERED VIEW THAT THE CASE MAY BE DECIDED EXPARTE QUA ASSESSEE, AFTER HEARING THE LD. DR . 5. I FIND THAT IN THIS CASE T HE A SSESSEE COMPANY IS ENGAGED IN THE BUSINESS OF MANUFACTURING OF ALUMINUM EXTRUSION. THE RETUR N OF INCOME FOR THE A.Y. 2001 - 02 WAS FILED ON 25.10.2001 DECLARING AT NIL INCOME. THIS RETURN WAS PROCESS ED U/S 143(1 ) AND SUBSEQUENTLY SELECTED FOR SCRUTINY AND THE ASSESSMENT WAS COMPLETED ON 31.03.2004 U/S 143(3) OF THE ACT AT AN INCOME OF RS.14,91,000 / - WITH AN ADDITION OF RS.9,45,000 / - SHARE APPLICATION MONEY AND RS.5,46,000 / - U/S 68 OF THE ACT BEING S HARE CAPITAL RECEIVED AND SHARE CAPITAL. 5.1 AGGRIEVED BY THE ADDITION, THE A SSESSEE PREFERRED AN APPEAL BEFORE CIT(A) - IX WHO VIDE THE ORDER DATED, 15. 11.2004 IN IT A NO. 44/2004 - 05 GIVEN RELIEF OF RS.5,01,000 / - AND CONFIRMED ADDITION OF ITA NO. 1956 /DEL/2014 3 RS.9,90,000 / - . AGAINST THIS THE A SSESSEE APP EALED BEFORE THE ITAT. AGAINST THIS APPEAL, T HE 'F' BENCH OF ITAT, DELHI VIDE ORDER DATED 07.04.2005 IN ITA NO. 5620/DEL / 2004 AY 2001 - 2002 RESTORED THE C ASE TO THE FILE OF THE ID CIT(A) FOR DECIDING AFRESH ON TWO POINTS: FIRST: IN THE ABSENCE OF BANK ACCOUNTS OF SHARE APPLICANTS, TO ALLOW AN OPPORTUNITY TO FILE THE BALANCE SHEETS OF ALL THE 15 SHARE APPLICANTS FOR SHARE APPLICATION OF RS. 9,45,000/ - AND DINESH KUMAR JAIN, WHO HAD DEPOSITED RS. 45,000/ - AS SHARE CAPITAL, AND DECIDE AGAIN. S ECOND: TO ADJUDICATE THE ALTERNATIVE CONTENTION OF THE A SSESSEE THAT THE DURING THE YEAR, THE COMPANY WAS UNDER CONSTRUCTION PERIOD, THERE WAS TOTAL ABSENCE OF ANY MANUFACTURING/COMMERCIAL ACTIVITY, THE COMPANY IS ENGAGED IN IMPLEMENTAT ION OF ITS PROJECT AND MAKING CAPITAL EXPENDITURE FINANCED BY WAY OF CAPITAL RECEIPTS, W HICH HAVE ESCAPED CONSIDERATION/DISCUSSION IN THE ORDER AND HAVE RELEVANT BEARING ON TH E POINT IN ISSUE. 5 . 2 IN THE SECOND ROUND, THE APPEAL WAS DISPOSED BY THE ID C IT (A) WITHOUT ADJUDICATING THE SECOND POINT VIDE ORDER DATED 6 - 3 - 2006 IN APPEAL NO 1/05 - 06 WHILE SUSTAINING THE ADDITION OF RS 9,90,000/ - ON POINT NO 1. HOWEVER, THE MA TTER WAS AGAIN RESTORED TO THE FILE OF THE ID CIT(A) BY THE ITAT VIDE ORDER IN, ITA N O 2148/ DEL/ 2006 DATED 30 - 04 - 2007 FOR ADJUDICATING THE SECOND AND ALTERNATIVE CONTENTION OF THE A SSESSEE . 5. 3 THE ITAT IN ITS ORDER IN ITA NO 2148/ D E1 / 2006 DATED 3 0.4.2007 VIDE PARA 7 ORDERED AS UNDER : - '7. .. WE FIND THAT INSPITE OF THE SPECIFIC DIRECTIONS OF THE ITAT IN HIS ORDER (SUPRA) FOR DISPOSING OFF THE GROUND NO. 2 ITA NO. 1956 /DEL/2014 4 RAISED BEFORE THE ITAT, THE S A ME HAS NOT BEEN DISPOSED OFF BY THE CIT(A). HENCE, WE HEREBY RESTORE THE GROUND NO 2, RAISED BEFORE THE EARLIE R TRIBUNAL BY THE ASSESSEE, TO THE FILE OF CIT(A) FOR DECIDING THE SA ME AFRESH ON MERITS BY PASSING A WELL - REASONED AND WELL - DISCUSSED ORDER AFTER AFFORDING A REASONABLE OPPORTUNITY OF BEING HEARD BY THE ASSESSEE. SINCE, WE HAVE DECIDED FIRST, GROUND NO. 1 (A) OF THE APPEAL OF THE ASSESSEE IN FAVOR OF THE ASSESSEE, AT PRESENT WE DO NOT CONSIDER IT NECESSARY TO DISPOSE OF THE APPEAL OF THE ASSESSEE ON MERITS AS AGITATED IN GROUND 1 (B) OF THE APPEAL OF THE ASSESSEE.' 5.4 IN THE THIRD ROUND , THE DISPUTED ADDITION OF RS.9,90,000/ - IS PENDING ADJUDICATION BEFORE ITAT. BUT BEFORE THE CIT(A), FOR DECIDING GROUND NO 1 (A) IN THE SECOND ROUND GROUND NO 2 IN THE FIRST ROUND OF APPEAL BEFORE THE ITAT IS PENDING WHICH ARE AS UNDER: - 1 (A). THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE, THE ID CIT(A) - IX WHILE DECIDING THE APPEAL, FAILED MISERABLY TO FOLLOW THE DIRECTION OF THE ITAT BENCH 'F' NEW DELHI ISSUED VIDE ORDER DATED 7 TH APRI L , 2005 IN ITA NO. 5620/0EL/2004 REGARDING THE CONSIDERATION OF THE MATERIAL FA CT THAT DURING THE RELEVANT Y EAR THE COMPANY WAS UNDER CONSTRUCTION PERIOD. '(2) THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE THE ID. CIT (A) - IX WAS WRONG IN IGNORING THE WRITTEN SUBMISSION DATED 24.9.2004 AND THE MATERIAL FACT THAT DURING THE Y EAR THE COMPANY IS UNDER CONSTRUCTION PERIOD, THERE IS TOTAL ABSENCE OF ANY MANUFACTURING/ COMMERCIAL ITA NO. 1956 /DEL/2014 5 ACTIVITY, THE COMP A NY IS ENGA G ED IN IMPLEMENTATION OF ITS PROJECT AND MAKING CAPITAL EXP ENDITURE FINANCED BY WAY OF CAPITAL RECEIPTS, WHICH HAVE ESCAPED CONSIDERATION / DISCUSSION IN THE ORDER AND HAVE RELEVANT BEARING ON POINT IN ISSUE. 5.5 FOR DECIDING THE ISSUE IN THE THIRD ROUND, THE DETAILED SUBMISSIONS MADE DURING THE FIRST ROUND ARE TAKEN INTO CONSIDERATION WHICH IS EXTRACTED AS UNDER: 'WE TAKE THIS OPPORTUNITY TO ANALYZE THE PROVISIONS OF SECTION 68 OF TH E IN COME TAX ACT, 1961 IN THE CONTEXT OF THE FACTS AND CIRCUMSTANCES OF THIS CASE AND THE LAW ESTABLISHED BY VARIOUS JUDICIAL PRONOUNCEMENTS. THE USE OF WORD MAY IN SECTION 68 OF THE INCOME TAX ACT, 1961 GIVES A DISCRETION TO THE AO TO TREAT A PARTICULAR SOME AS INCOME OR NOT AND THEREFORE THE ENTIRE FACTS AND CIRCUMSTANCES OF THE CASE ARE TO BE TAKEN INTO CONSIDERATION AND IT IS ALWAYS NOT NECESSARY IN ALL CASES TO TREAT THE AMOUNT AS TAXABLE I NCOME (CIT VS . SMT. P.K. NOORJAHAN 237 ITR 570 SC). THE DISCRETION U/S 68 CANNOT BE INVOKED IN THE PRESENT CASE, AS DURING THE YEAR THE COMPANY HAVE NOT COMMENCED ITS MANUFACTURING ACTIVITY AND NO EVIDENCE IS BROUGHT ON RECORD THAT THE AMOUNT ADDED REPRES ENTED THE INCOME OF THE ASSESSEE COMPANY AND AS SUCH NO ADDITION CAN BE MADE IN THE HANDS OF THE COMPANY. ITA NO. 1956 /DEL/2014 6 THE ITAT , DELHI IN THE CASE SHIV SHAKTI ENGG. P LTD. VS . DCIT 1999, 106 TAXMAN 224, DELHI MAG FOLLOWING THE RATIO LAID BY THE HON'BLE S UPREME COURT IN THE CASE OF CIT VS BHARAT ENGG. & CONSTRUCTION CO. 83 ITR 187 WHILE EXAMINING IDENTICA L FA CTS OBSERVED THAT 'IN THE ABSENCE OF ANY COMMERCIAL ACTIVITY THERE IS NO SCOPE FOR EARNING ANY INCOME DURING THE YEAR AND THERE IS NO EVIDENCE BROUGHT ON RECORD TO PROVE THAT THE SHARE APPLICATION MONEY REPRESENTED THE INCOME OF THE ASSESSEE COMPANY, RATHER ON THE CONTRARY, IT STOOD PROVED THAT IT REPRESENTED THE SHARE CAPITAL SUBSCRIBED BY SHARE APPLICANTS.' IN THE CASE OF BHARAT ENGG (SUPRA) WHILE EXAMINING THE Q UESTION THAT CASH CREDITS MADE IN THE FIRST YEAR OF ASSESSEE'S BUSINESS DO NOT REPRESENT ITS INCOME AND THE ASSESSEE COULD NOT MAKE PROFITS SOON AFTER IT COMMENCED BUSINESS/THE APEX COURT OBSERVED THAT 'SINCE A CONSTRUCTION COMPANY TAKES TIME TO EARN PROFI TS, IT WAS REASONABLE TO ASSUME THAT THE CASH CREDITS REPRESENTED CAPITAL RECEIPTS, THOUGH FOR ONE REASON OR THE OTHER, THE ASSESSEE HAD NOT COME OUT WITH THE TRUE PICTURE REGARDING THE SOURCE'. THOUGH THE RATIO LAID DOWN BY THE HON'BLE S UPREME COURT IN THE CASE OF BHARAT ENGG. (SUP R A) ARE IN THE CONTEXT OF THE OLD ACT BUT THE RATIOS READ ALONG WITH THE PRINCIPALS LAID DOWN BY THE HON'BLE C OURT IN THE CASE OF P.K. NOORJAHAN (SUPRA), ARE THE GUIDING FORCE FOR INVOKING DISCRETION ULS 68 OF THE INCOME TAX AC T, 1961. THE PRINCIPLE LAID DOWN IN THE CASE OF BHARAT ENGG. (SUPRA) IS EQUALLY APPLICABLE TO THE ITA NO. 1956 /DEL/2014 7 NEW ACT AND IS REGULARLY BEING FOLLOWED E. G. (MITESH .ROLLING MILLS PVT. LTD. VS . CIT 258 ITR 278 (GUJ ) AY 1981 - 82, SHIV SHAKTI ENGG. CO. P.LTD. (SUPRA) DE LHI ITAT).' THE H ON'BLE SUPREME COURT IN THE CASE OF CIT VS. BHARAT ENGG & CONST CO 83 ITR 187 TO SUPPORT OF OUR CONTENTION THAT THE COMPANY DURING THE YEAR UNDER CONSIDERATION HAVE NOT COMMENCED ITS MANUFACTURING ACTIVITY AND AS SUCH NO ADDITION CAN BE M ADE IN THE HANDS OF THE COMPANY. T HE USE OF WORD MAY IN SECTION 68 OF THE INCOME TAX ACT, 1961 GIVES A DISCRETION TO THE AO TO TREAT A PARTICULAR SOME AS INCOME OR NOT AND THEREFORE THE ENTIRE FACTS AND CIRCUMSTANCES OF THE CASE ARE TO BE TAKEN INTO CONS IDERATION AND IT IS ALWAYS NOT NECESSARY IN ALL CASES TO TREAT THE AMOUNT AS TAXABLE INCOME (C IT VS. SMT. P.K. NOORJAHAN 237 ITR 570 SC). MITESH ROLLING MILLS PVT. LTD. VIS CIT 258 ITR 278 (GUJ) A. Y. 1981 - 82, SHIV SHAKTI ENGG. P LTD. VIS DCIT 1999, 106 TAXMAN 224, DELHI MAG GHAZIABAD FOOTWEARS (P.) LTD. VIS DCIT 2005, 142 TAXMAN 18 DELHI MAG. SURENDRA PRASAD MISRA VIS ITO, BASTI 2006, 7 SOT 457 LUCKNOW ACIT VS SMT. MEERA DEVI 2007, 14 SOT 190 ALLAHABAD' ITA NO. 1956 /DEL/2014 8 5 .6 IN FIND THAT BEFORE THE LD. CIT(A) A SSESSEE SUBMITTED RELEVANT P&L ACCOUNT AND THE BALANCE SHEET TO EXAMINE WHETHER ANY BUSINESS ACTIVITY WAS CARRIED OUT DUR I NG THE RELEVANT PERIOD. THE FINANCIAL ST ATEMENT SUBMITTED INDICATES FOLLOWING EXPENSES. DETAIL OF CAPITAL WORK IN PROGRESS IS AS UNDER: (RS.) B UILDING WORK IN PROGRESS 7,84,907.80 ADVANCE FOR MACHINERY EXTRUSION EQUIPMENT ENGINEERS PVT LTD 20,00,000.00 SHREEJI EXTRUSION ENGINEERS 7,50,000.00 TOTAL 3 5,34,907.80 OTHER LIABILITIES, AJIT & BOTHERS (CEMENT SUPPLIER) 1,45,200.00 SHRIRARN BUID (MATERIAL SUPPLIER) 2,60,000.00 M K STEEL TRADERS (MS BARS SUPPLIER) 1,01,170.00 TOTAL 5,06,370.00 DURING THE YEAR, THERE WAS INCREASE IN PAID UP SHARE CAPITAL FROM RS.2,OOO / - TO RS.23,84,500 / - AND SHARE APPLICATION MONEY OF RS.16,70,OOOI - . IT IS SUBMITTED THAT THE SHARE CAPITAL WAS INCREASED IN ORDER TO MEET THE CAPITAL EXPENDITURE OF THE PROJECT. SHARES ARE ITA NO. 1956 /DEL/2014 9 ISSUED/ALLOTTED ON 3 1 - 7 - 2001 AS PER F ORM NO 2 FILED WITH REGISTRAR OF COMPANIES, NCT OF DELHI AND HARYANA ON 20 - 8 - 2001. 5 .7 IN THE BACKGROUND OF THE AFORESAID DISCUSSIONS, LD. CIT(A) VIDE PARA NO. 3.7 AT PAGE NO. 7 OF HIS IMPUGNED ORDER HAS HELD AS UNDER: - 3.7 THE FAC TS SUBMITTED INDICATE THAT DURING THE RELEVANT YEAR, THE EXPENDITURE INCURRED BY THE APPELLANT IS TOWARDS CONSTRUCTION AND DEVELOPMENT OF THE PROJECT AND NOT TOWARDS RUNNING REGULAR BUSINESS. CONSIDERING THE TIME GAP BETWEEN THE OCCURRENCE OF THE EVENT AN D THE EXAMINATION TO BE CARRIED OUT AT PRESENT, THERE IS NO OTHER WAY BUT TO TAKE A DECISION ON THE BASIS OF FINANCIAL STATEMENTS OF THE A SSESSEE FOR THE RELEVANT PERIOD. IT CAN BE SEEN FROM THE FINANCIAL STATEMENTS THAT THERE WAS NO COMMERCIAL ACTIVITIES DURING THE YEAR. IN VIEW OF THIS, THE LIMITED SPECIFIC QUESTION DIRECTED BY ITAT FOR ADJUDICATION IS ANSWERED IN AFFIRMATIVE. FOR STATISTICAL PURPOSE THE GROUND OF APPEAL IS TREATED AS ALLOWED. 6. IN VIEW OF THE AFORESAID DISCUSSIONS, I FIND THAT THE L D. CIT(A) HAS ELABORATELY DISCUSSED THE ISSUE AND RIGHTLY HELD THAT THERE WAS NO COMMERCIAL ACTIVITIES DURING THE YEAR. THEREFORE, THE SAME DOES NOT ITA NO. 1956 /DEL/2014 10 REQUIRE ANY INTERFERENCE ON MY PART. HENCE, THE WELL REASONED IMPUGNED ORDER PASSED BY THE LD. CIT(A) I S UPHELD AND THE APPEAL FILED BY THE REVENUE STANDS DISMISSED. 7 . IN THE RESULT, THE APPEAL FILED BY THE REVENUE STANDS DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 1 0 / 9 /201 5 . SD / - [ H.S. SIDHU ] JUDICIAL MEMBER DATE: 1 0 / 9 /201 5 SRBHATNAGAR COPY FORWARDED TO: - 1. APPELLANT 2. RESPONDENT 3. CIT 4.CIT (A) 5. DR, ITAT TRUE COPY BY ORDER, ASSISTANT REGISTRAR, ITAT, DELHI BENCHES