M/s. Plastichemix Industries, Baroda V. The ACIT.,Cent.Circle-2, Baroda

ITA 1992/AHD/2012

• Counselvise Citation: [2016] 133 COUNSELVISE.COM (IT) 9383 (ITAT-AHMEDABAD)
• Duration Of Justice: 3 year(s) 5 month(s) 23 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 29-02-2016
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: D
• Next Hearing Date: 25-08-2015
• Assessment Year: 2008-2009
• Appeal Filed On: 06-09-2012
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: A K
• Keywords: Unexplained investment; Unexplained expenditure; Depreciation; Income from undisclosed sources; Revenue expenditure
• Section: 143(3)

Judgement Text

I.T.A. NOS.: 1316/AHD/2009, 397 /AHD/2011 AND IT(SS)A 114 /AHD/2011, 1992/AHD/1 2 ASSESSME NT YEARS: 2006 - 07, 2007 - 08, 2008 - 09 PAGE 1 OF 5 IN THE INCOME TAX APPELLATE TRIBUNAL, AHMEDABAD D BENCH, AHMEDABAD [CORAM : PRAMOD KUMAR AM AND S S GODARA JM] I.T.A. NO S . : 1316/AHD/2009, 397/AHD/2011, 1992/AHD/1 2 ASSESSMENT YEAR S: 2006 - 07, 2007 - 08, 2008 - 09 AND IT (SS) A NO.114 /AHD/2011 ASSESSMENT YEAR 2006 - 07 PLASTICHEMIX INDUSTRIES .APPELLANT 6 TH FLOOR, KIRTI TOWERS, TILAK ROAD, SAYAJIGANJ, BARODA [PAN: AABFP8519L] VS. ASSISTANT COMMISSIONER OF INCOME TAX CENTRAL CIRCLE 2, BARODA . RESPONDENT APPEARANCES BY: S N SOPARKAR AND URVASHI SHODHAN FOR THE APPELLANT SANJAY AGARWAL AND A K PANDE Y FOR THE RESPONDENT DATE OF CONCLUDING THE HEARING : DECEMBER 29 , 2016 DATE OF PRONOUNCING THE ORDER : FEBRUARY 29 , 201 6 O R D E R PER PRAMOD KUMAR AM : 1. THESE FOUR APPEALS PERTAIN TO THE SAME ASSESSEE, INVOLVE SOME COMMON ISSUES AND WERE HEARD TOGETHER. AS A MATTER OF CONVENIENCE, THEREFORE, ALL THE FOUR APPEALS ARE BEING DISPOSED OF BY WAY OF THIS CONSOLIDATED ORDER. ITA NO. 1316/AHD/ 2009 2. THIS APPEAL, FILED BY THE ASSESSEE, IS DIRECTED AGAINST THE ORDER DATED 11 TH DECEMBER 2008 PASSED BY THE CIT(A), IN THE MATTER OF ASSESSMENT UNDER SECTION 143(3) OF THE INCOME TAX ACT, 1961, FOR THE ASSESSMENT YEAR 2006 - 07. 3. IN FIRST AND SECOND GROUNDS OF APPEAL, WH ICH WE WILL TAKE UP TOGETHER, THE ASSESSEE HAS RAISED THE FOLLOWING GRIEVANCES: 1. LEARNED CIT(A) HAS ERRED IN LAW AND ON FACTS IN CONFIRMING THE ACTION OF THE AO IS DISALLOWING DEPRECIATION ON GOODWILL AMOUNTING TO RS 32,11,524. I.T.A. NOS.: 1316/AHD/2009, 397 /AHD/2011 AND IT(SS)A 114 /AHD/2011, 1992/AHD/1 2 ASSESSME NT YEARS: 2006 - 07, 2007 - 08, 2008 - 09 PAGE 2 OF 5 2. ALTERNATIVELY AND WIT HOUT PREJUDICE, LEARNED CIT(A) HAS ERRED IN LAW AND ON FACTS IN NOT ALLOWING GOODWILL EXPENDITURE AS REVENUE EXPENDITURE FOR THE YEAR UNDER CONSIDERATION. 4. BRIEFLY STATED, THE RELEVANT MATERIAL FACTS ARE LIKE THIS. THE ASSESSEE BEFORE US A PARTNERSHI P FIRM AND IS ENGAGED IN THE BUSINESS OF MANUFACTURING OF PLASTIC COLOUR MASTER BATCHES. DURING THE FINANCIAL YEAR 1998 - 99, CIBA INDIA PVT LTD (CIBA, IN SHORT) HAD JOINED THE FIRM AS A PARTNER WITH A SHARE OF 50%. DURING THE RELEVANT PREVIOUS YEAR 2002 - 0 3, CIBA RETIRED FROM THE PARTNERSHIP FIRM AND WAS PAID RS 13 CRORES, INCLUDING RS 2.61 CRORE FOR GOODWILL. THE ASSESSEE HAS CAPITALIZED THE SAME AND DEPRECIATION ON THIS INTANGIBLE ASSET IS CLAIMED. THE CLAIM OF THE ASSESSEE IS THAT THE ASSESSEE HAS PAID R S 2.61 CRORES FOR GOODWILL TO CIBA, AND THIS AMOUNT REPRESENTS THE DIFFERENCE BETWEEN THE AMOUNT DUE TO CIBA IN THE BOOKS, INCLUDING THE PROFIT SHARE, AND THE AMOUNT ACTUALLY PAID. IT WAS ALSO SUBMITTED THAT NONE OF THE OTHER PARTNERS HAD ANY OTHER ASSOCIA TION WITH CIBA AND THAT THERE ARE NO DOUBTS ABOUT THE BONAFIDES OF THIS PAYMENT. IT WAS ALSO CONTENDED THAT THE CONCEPT OF DEPRECIATION ON INTANGIBLE ASSETS EXTENDS DEPRECIATION ON KNOW - HOW, PATENTS, COPYRIGHTS, TRADEMARKS, LICENCES, FRANCHISEES OR ANY O THER BUSINESS OR COMMERCIAL RIGHT OF SIMILAR NATURE , AND THAT GOODWILL IS COVERE D BY THE RESIDUARY CLAUSE THEREIN I.E. ANY OTHER BUSINESS OR COMMERCIAL RIGHT OF SIMILAR NATURE . THIS CLAIM WAS, HOWEVER, DECLINED BY THE ASSESSING OFFICER. IT WAS ALSO HELD THAT THE PAYMENT WAS NOT OF THE CAPITAL NATURE NOR ANY ASSET WAS ACQUIRED BY THIS PAYMENT. THE CLAIM WAS THUS DISALLOWED. IN APPEAL, LEARNED CIT(A) CONFIRMED THE ACTION OF THE ASSESSING OFFICER. THE ASSESSEE IS NOT SATISFIED AND IS IN FURTHER APPEAL BEFO RE US. 5. WE HAVE HEARD THE RIVAL CONTENTIONS, PERUSED THE MATERIAL ON RECORD AND DULY CONSIDERED FACTS OF THE CASE IN THE LIGHT OF THE APPLICABLE LEGAL POSITION. 6. WE HAVE NOTED THAT ALL THAT THE LEARNED COUNSEL SEEKS IN THIS CASE IS RESTORATION OF THE MATTER TO THE FILE OF THE ASSESSING OFFICER WITH A DIRECTION THAT THE MATTER CAN BE DECIDED AFRESH IN THE LIGHT OF, INTER ALIA, HON BLE SUPREME COURT S JUDGMENT IN THE CASE OF CIT VS SMIFS SECURITIES LIMITED [(2012) 348 ITR 302 (SC)]. LEARNED DEPARTMENTA L REPRESENTATIVE, HOWEVER, CONTENDS THAT THE RATIO OF THIS DECISION DOES NOT APPLY ON THE FACTS OF THIS CASE. WE, HOWEVER, SEE NO NEED TO GO INTO ALL THOSE FINE DETAILS AS ADMITTEDLY THE AUTHORITIES BELOW HAVE NOT EXAMINED THAT ASPECT OF THE MATTER. IN OUR CONSIDERED VIEW, THE RIGHT COURSE OF ACTION WILL BE TO REMIT THE MATTER TO THE FILE OF THE ASSESSING OFFICER FOR ADJUDICATION DE NOVO IN ACCORDANCE WITH THE LAW, PARTICULARLY IN THE LIGHT OF HON BLE SUPREME COURT DECISION IN THE CASE OF SMIFS SECURITIES ( SUPRA), BY WAY OF A SPEAKING ORDER AND AFTER GIVING YET ANOTHER OPPORTUNITY OF HEARING TO THE ASSESSEE. WE DIRECT SO. I.T.A. NOS.: 1316/AHD/2009, 397 /AHD/2011 AND IT(SS)A 114 /AHD/2011, 1992/AHD/1 2 ASSESSME NT YEARS: 2006 - 07, 2007 - 08, 2008 - 09 PAGE 3 OF 5 7. GROUND NO. 1 AND 2 ARE THUS ALLOWED FOR STATISTICAL PURPOSES AS ABOVE. 8. IN GROUND NO. 3, THE ASSESSEE HAS RAISED THE FOLLOWING GRIE VANCE: LEARNED CIT(A) ERRED IN LAW AND ON FACTS IN CONFIRMING THE ACTION OF THE AO IN NOT GRANTING SET OFF OF ADDITION MADE ON ACCOUNT OF SALE OF SCRAP OF RS 7,46,744 AGAINST THE ADDITION MADE ON ACCOUNT OF EXCESS STOCK FOUND DURING SURVEY AT RS 9,89,086 ASS WELL OF RS 2,65,500 MADE ON ACCOUNT OF UNACCOUNTED EXPENSES. LEARNED CIT(A) OUGHT TO HAVE GRANTED SET OFF ON THE BASIS OF PRINCIPLES OF TELESCOPING. 9. THERE IS NO DISPUTE THAT THERE IS AN UNACCOUNTED SALE OF SCRAP FOR RS 7,46,744 AND THAT THERE IS AN UNACCOUNTED INVESTMENT OF RS 9,89,086 AS ALSO OTHER UNACCOUNTED EXPENSES OF RS 2,50,000. YET THE SET OFF HAS NOT BEEN GIVEN ON THE GROUND, AS CIT(A) PUTS IT, THE ASSESSEE HAS ADMITTED THAT BESIDES KALOL UNIT, OTHER UNITS GENERATE SCRAP WHICH WAS SOLD AND HAS NOT ACCOUNTED FOR AND, THEREFORE, IT FOLLOWS THAT IN OTHER WORDS, THE APPELLANT HAS ADMITTED THAT THERE WAS A SALE OF SCRAP WHICH WAS NOT ACCOUNTED FOR IN THE FORM OF INVESTMENT O EXCESS STOCK OR UNEXPLAINED EXPENDITURE . THE ASSESSEE IS AGGRIEVED AND IS IN APPEAL BEFORE US. 10. HAVING HEARD THE RIVAL CONTENTIONS AND HAVING PERUSED THE MATERIAL ON RECORD, WE ARE INCLINED TO UPHOLD THE CONTENTION OF THE ASSESSEE. THERE IS NO JUSTIFICATION FOR THE INFERENCE OF THE LEARNED CIT(A). ONCE THE ASSESSEE IS FOUND TO HAVE EARNED UNACCOUNTED INCOME OF RS 7,46,744, UNEXPLAINED EXPENDITURE OR UNEXPLAINED INVESTMENT SHOULD BE TREATED AS EXPLAINED TO THAT EXTENT. WE, THEREFORE, DIRECT THE ASSESSING OFFICER TO GIVE THE SET OFF ACCORDINGLY. 11. GROUND NO. 3 IS THUS ALLOWED. 12. IN THE RESULT, THE APPEAL IS PARTLY ALLOWED IN THE TERMS INDICATED ABOVE. ITA NO. 397/AHD/2011 AND ITA NO . 1992/AHD/2012 13. THESE TWO APPEALS ARE DIRECTED AGAINST THE ORDERS DATED 7 TH DECEMBER 2010 AND 6 TH JULY 2012 PASSED BY THE CIT(A) IN THE MATTER OF ASSESSMENT UNDER SECTION 143(3) OF THE ACT, FOR THE ASSESSMENT YEARS 2007 - 08 AND 2008 - 09 RESPECTIVELY. 14. THE ONLY GRIEVANCE RAISED BY THE ASSESSEE IN THESE TWO APPEALS IS AGAINST LEARNED CIT(A) S UPHOLDING THE DENIAL OF DEPRECIATION ON GO ODWILL. I.T.A. NOS.: 1316/AHD/2009, 397 /AHD/2011 AND IT(SS)A 114 /AHD/2011, 1992/AHD/1 2 ASSESSME NT YEARS: 2006 - 07, 2007 - 08, 2008 - 09 PAGE 4 OF 5 15. LEARNED REPRESENTATIVES FAIRLY ACCEPT THAT WHATEVER WE DECIDE FOR THE ASSESSMENT YEAR 2006 - 07 WILL APPLY MUTATIS MUTANDIS TO THESE ASSESSMENT YEARS AS WELL. 16. AS HELD EARLIER IN THIS ORDER, WHILE DEALING WITH THE ASSESSMENT YEAR 2006 - 07, TH E MATTER REGARDING DEPRECIATION ON GOODWILL HAS BEEN REMITTED TO THE FILE OF THE AO FOR FRESH ADJUDICATION. THEREFORE, WE REMIT THE SAME ISSUE FOR THE ASSESSMENT YEARS 2007 - 08 AND 2008 - 09 TO THE ASSESSING OFFICER AS WELL. OUR DIRECTIONS FOR THE ASSESSMENT YEAR 2006 - 07 WILL APPLY MUTATIS MUTANDIS FOR THIS ASSESSMENT YEAR AS WELL. 17. IN THE RESULT, THESE TWO APPEALS ARE ALLOWED FOR STATISTICAL PURPOSES IN THE TERMS INDICATED ABOVE. ITA (SS) NO. 114/AHD /11 18. BY WAY OF THIS APPEAL, THE ASSESSEE APPELLANT HAS CHALLENGED CORRECTNESS OF THE ORDER DATED 8 TH DECEMBER 2010 PASSED BY THE CIT(A) CONFIRMING THE PENALTY UNDER SECTION 271(1)(C) OF THE ACT FOR THE ASSESSMENT YEAR 2006 - 07. 19. GRIEVANCE OF THE ASSESSEE, IN SUBSTANCE, IS THAT THE LEARNED CIT(A) ERRED IN UPHOLDING THE IMPOSITION OF IMPUGNED PENALTY OF RS 18,30,000 IMPOSED ON THE ASSESSEE UNDER SECTION 271(1)(C) OF THE ACT. 20. THE IMPUGNED PENALTY WAS LEVIED IN RESPECT OF FOUR ADDITIONS/DISALLOWANCES TO THE INCOME RETURNED BY THE ASSESSEE, NAMELY (A) RS 7,46,744 ON ACCOUNT OF SALE OF SCRAP, (B) RS 32,11,524 ON ACCOUNT OF DENIAL OF DEPRECIATION ON GOODWILL, (C) RS 2,65,500 ON ACCOUNT OF UNEXPLAINED EXPENDITURE, AND (D) RS 9,89,086 ON ACCOUNT OF INVESTMENT IN UNACCOUNTED STOCK. AS FOR THE ITEM (A) IS CON CERNED, VIDE OUR ORDER ABOVE IN THE MATTER OF QUANTUM PROCEEDINGS, THE ADDITION STANDS DELETED. AS FOR ITEM (B), VIDE OUR ORDER ABOVE IN THE QUANTUM MATTER, THE MATTER HAS BEEN REMITTED TO THE FILE OF THE ASSESSING OFFICER. FOR THIS SHORT REASON ALONE, THE PENALTY IN RESPECT OF (A) AND (B) STANDS DELETED. AS FOR THE ADDITION IN RESPECT OF INVESTMENT IN UNACCOUNTED STOCK, THE STAND OF THE ASSESSEE IS THAT THE STOCK VALUATION WAS DONE IN HAPHAZARD MANNER AND THE ADDITION WAS ACCEPTED MORE TO BUY PEACE THAN ON MERITS. AS FOR THE ADDITION ON ACCOUNT OF UNEXPLAINED EXPENDITURE, THE STAND OF THE ASSESSEE HAS BEEN THAT THE EXPENSES WERE FULLY ALLOWABLE AS DEDUCTION BUT FOR THE DEEMING FICTION UNDER SECTION 69C. THE ASSESSEE ALSO RELIED UPON THE JUDGMENT OF HON BLE JURISDICTIONAL HIGH COURT IN THE CASE OF CIT I.T.A. NOS.: 1316/AHD/2009, 397 /AHD/2011 AND IT(SS)A 114 /AHD/2011, 1992/AHD/1 2 ASSESSME NT YEARS: 2006 - 07, 2007 - 08, 2008 - 09 PAGE 5 OF 5 VS BARODA TIN WORKS [(1996) 221 ITR 661 (GUJ)]. NONE OF THESE SUBMISSIONS, HOWEVER, IMPRESSED THE ASSESSING OFFICER. HE PROCEEDED TO IMPOSE THE IMPUGNED PENALTY WHICH WAS ALSO CONFIRMED, IN APPEAL , BY THE LEA RNED CIT(A) AS WELL. THE ASSESSEE IS AGGRIEVED AND IS IN FURTHER APPEAL BEFORE US. 21. HAVING HEARD THE RIVAL CONTENTIONS AND HAVING PERUSED THE MATERIAL ON RECORD, WE ARE INCLINED TO UPHOLD THE GRIEVANCE OF THE ASSESSEE. WE HAVE NOTED THAT AS FAR AS THE UNACCOUNTED INVESTMENT IN STOCK IS CONCERNED, PARTICULARLY HAVING REGARD TO THE SMALLNESS OF AMOUNT VIS - - VIS THE OPERATIONS OF THE BUSINESS, SUCH VARIATIONS ARE MATTER OF ROUTINE, AND THE ASSESSEE S STAND DESERVES TO BE ACCEPTED. AS FOR THE UNEXPLAINED E XPENDITURE ALSO, LOOKING TO THE SMALLNESS OF AMOUNT VIS - - VIS THE LEVEL OF OPERATIONS OF THE ASSESSEE, AND PARTICULARLY HAVING REGARD TO THE FACT THAT THE EXPENDITURE INCURRED BY THE ASSESSEE WAS OTHERWISE ELIGIBLE FOR DEDUCTION BUT FOR THE FICTION UNDER S ECTION 69C, WE ARE OF THE CONSIDERED VIEW, THAT IT WAS NOT A FIT CASE FOR IMPOSITION OF PENALTY UNDER SECTION 271(1)(C). IN VIEW OF THESE DISCUSSIONS, AS ALSO BEARING IN MIND ENTIRETY OF THE CASE, WE DEEM IT FIT AND PROPER TO DELETE THE IMPUGNED PENALTY. W E ORDER SO. 22. IN THE RESULT, THE APPEAL IS ALLOWED. 23. TO SUM UP, IT (SS) A NO.114 /AHD/11 IS ALLOWED, ITA NO.1316/AHD/ 2009 IS PARTLY ALLOWED AND ITA NOS 397/AHD/11 AND 1992/AHD/12 ARE ALLOWED FOR STATISTICAL PURPOSES. PRONOUNCED IN THE OPEN COURT TODAY ON 29 TH D AY OF FEBRUARY, 2016. SD/ - SD/ - S S GODARA PRAMOD KUMAR (JUDICIAL MEMBER) (ACCOUNTANT MEMBER) DATED: THE 29 TH DAY OF FEBRUARY , 2016 . COPIES TO : (1) THE APPELLANT (2) THE RESPON DENT (3) CIT (4) CIT(A) (5) DR (6) GUARD FILE BY ORDER ETC ASSISTANT REGISTRAR INCOME TAX APPELLATE TRIBUNAL AHMEDABAD BENCHES, AHMEDABAD