SHAHSI OFFSET, MUMBAI V. ITO 24(3)(3), MUMBAI

ITA 2003/MUM/2011

• Counselvise Citation: [2014] 140 COUNSELVISE.COM (IT) 79309 (ITAT-MUMBAI)
• Duration Of Justice: 3 year(s) 3 month(s) 23 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 02-07-2014
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: J
• Assessment Year: 2007-2008
• Appeal Filed On: 10-03-2011
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: MOURYA PRATAP
• Assessee Lawyers: VIJAY C KOTHARI
• Keywords: Business income; Depreciation
• Section: 234B; 32; 2

Judgement Text

IN THE INCO ME TAX APPELLATE TRIBUNAL J BENCH, MUMBAI BEFORE SHRI D. KARUNAKARA RAO, ACCOUNTANT MEMBER AND SHRI SANJAY GARG , JUDICIAL MEMBER ./I.T.A. NO. 2003/M/2011 ( AY: 2007 - 2008 ) M/S. SHASHI OFFSET, C/O. P.N. SHANBHAG LEENA HOUSE, FLAT NO.12, RAMBHAU MOHADIKAR ROAD, BEHIND KONKAN NAGAR, MAHIM, MUMBAI - 16. / VS. ITO - 24(3)(3), BANDRA KURLA COMPLEX, MUMBAI. ./ PAN : AAAFS2860A ( / APPELLANT) .. ( / RESPONDENT ) / A PPELLANT BY : SHRI VIJAY C. KOTHARI / RESPONDENT BY : SHRI MOURYA PRATAP / DATE OF HEARING :02 .07 .2014 / DATE OF PRONOUNCEMENT :02 .07 .2014 / O R D E R PER D. KARUNAKARA RAO, AM: THIS APPEAL FILED BY THE ASSESSEE ON 10.3.2011 IS AGAINST THE ORDER OF THE CIT (A) - 34, MUMBAI DATED 29.12.2010 FOR THE ASSESSMENT YEAR 2007 - 2008. 2. IN THIS APPEAL, ASSESSEE RAISED THE FOLLOWING GROUNDS WHICH READ AS UNDER: 1. THE LD CIT (A) ERRED IN ASSESSING THE PROFIT ON SALE OF MACHINERY OF RS. 10,14,167/ - U/S 41(2) OF THE ACT AND WHILE DOING SO HE AMONGST OTHER FAILED TO APPRECIATE THAT THE PROVISIONS OF SECTION 41(2) WERE NOT APPLICABLE TO THE FACTS OF APPELLANTS CASE. 2. THE LD CIT (A) ERRED IN CONFIRMING THE DISALLOWANCE OF EXPENSES OF RS. 1,02,676/ - FOR THE REASON THAT THE DISALLOWANCE OF EXPENSES ARE ROUTINE IN NATURE AND NOT EXCESSIVE AND WHILE DOING SO HE AMONGST OTHER FAILED TO APPRECIATE THAT THE EXPENSES DEBITED TO THE PROFIT AND LOSS ACCOUNT WERE WHOLLY AND EXCLUSIVELY INCURRED FOR THE PURPOSE OF APPELLANTS BUSINESS. 3. THE LD CIT (A) ERRED IN CONFIRMING THE CHARGING OF INTEREST U/S 234B AND 234D OF THE ACT AND HAVING REGARD TO THE FACTS AND CIRCUMSTANCES OF THE C ASE AND IN LAW THE APPELLANT DENIED ITS LIABILITY TO PAY ANY INTEREST U/S 234B AND 234D OF THE ACT. 3. A T THE OUTSET, SHRI VIJAY C KOTHARI, LD COUNSEL FOR THE ASSESSEE BROUGHT OUR ATTENTION TO THE ABOVE GROUNDS AND MENTIONED THAT THERE ARE TWO ISSUES INV OLVED IN THESE GROUNDS. THE FIRST ISSUE RELATES TO THE APPLICABILITY OF THE PROVISIONS OF 2 SECTION 41(2) OF THE ACT IN RESPECT OF PROFITS ON SALE OF MACHINERY , W H E N ASSESSEE IS N O T ENGAGED IN GENERATION OR GENERATION AND DISTRIBUTION OF POWER AS REFERRED TO IN SECT ION 32(1)(I) OF THE ACT . T HE SECOND ISSUE RELATES TO THE DISALLOWANCE ON CERTAIN EXPENSES ON AD - HOC BASIS. 4. REFERRING TO THE FIRST ISSUE, LD COUNSEL FOR THE ASSESSEE DEMONSTRATED THAT THE ASSESSEE I S ENGAGED IN THE BUSINESS OF OFFSET PRINTING AND THE SAME IS NOTHING TO DO WITH GENERATION OR GENERATION AND DISTRIBUTION OF POWER . DURING THE YEAR, ASSESSEE SOLD CERTAIN DEPRECIABLE ASSETS GIVEN IN PAGE 4 OF THE PAPER BOOK. THE SAME WERE DEALT WITH BY THE ASSESSEE AS PER THE PROVISIONS OF SECTION 50 OF THE ACT. HOWEVER, AO IS OF THE OPINION THAT THE SAME IS REQUIRED TO BE TREATED AS A BUSINESS INCOME AS PER THE PROVISIONS OF SECTION 41(2) OF THE ACT AND THE SAME WERE TREATED AS INCOME FROM BUSINESS. 5. DURING THE PROCEEDINGS BEFORE US, LD COUNSEL FOR THE ASSESSEE SUBMITTED THAT THE SAID PROVISIONS OF SECTION 41(2) OF THE ACT HAVE NO RELEVANT WHATSOEVER TO THE FACTS OF THE PRESENT CASE. IN THIS REGARD, HE DEMONSTRATED THE NAT URE OF ASSETS USED AND THEIR UN CONNECTIVITY TO THE P OWER GENERATION. HE ALSO BROUGHT OUR ATTENTION TO THE FACT THAT THE PROVISIONS OF SECTION 32(1) HAS TWO CLAUSE (I) AND THE FIRST ONE IS IN CONNECTION WITH THE CLASSIFICATION OF ASSETS (TANGIBLE OR INTANGIBLE) AND THE SECOND CLAUSE (I) WAS MENTIONED IN CONNECTION WITH ELIGIBLE BUSINESS ASSETS. THIS CLAUSE (I) IS INSERTED W.E.F. 1.4.1998 BY THE INCOME TAX (AMENDMENT) ACT, 1998. FURTHER, LD COUNSEL FILED A COPY OF THE BOARD CIRCULAR NO.772, DATED 23.12.1998 (1998) 235 ITR (ST.) 35. THE RELEVANT PARA 16.1 IS READ OUT BY THE LD C OUNSEL BEFORE US AND THE SAME READS AS UNDER: 16.1 SECTION 32 OF THE INCOME TAX ACT WAS AMENDED BY THE INCOME TAX (AMENDMENT) ACT, 1998 TO PROVIDE FOR ALLOWANCE OF DEPRECIATION IN THE CASE OF A S SETS OF AN UNDERTAKING ENGAGED IN GENERATION OR GENERATION AN D DISTRIBUTION OF POWER ON STRAIGHT LINE METHOD. DEPRECIATION ON THESE ASSETS IS TO BE ALLOWED ON INDIVIDUAL ASSETS AND NOT ON THE BLOCK OF ASSETS. THE ACT BRINGS ABOUT CONSEQUENTIAL AMENDMENTS IN SECTION 32 AND 41 OF THE INCOME TAX ACT TO PROVIDE FOR THE MANNER OF COMPUTATION OF DEPRECIATION AND ALSO THE AMOUNT CHARGEABLE TO INCOME TAX WHEN SUCH AN ASSET IS SOLD, DISCARDED, DEMOLISHED OR DESTROYED IN THE PREVIOUS YEAR. 6. ON THE OTHER HAND, LD DR HEAVILY RELIED ON THE ORDERS OF THE REVENUE AUTHORITIES. 7. WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE ORDERS OF THE REVENUE AUTHORITIES AS WELL AS THE RELEVANT MATERIAL PLACED BEFORE US. ON HEARING BOTH THE 3 PARTIES ON THIS ISSUE AND ON PERUSAL OF THE ABOVE REFERRED AMENDMENT BROUGHT IN BY THE ACT IN 1998 A S EXPLAINED BY THE BOARD VIDE ITS CIRCULAR NO.772 (SUPRA), WE ARE OF THE OPINION THAT THE DEPARTMENTAL OFFICERS HAVE TRAVELLED INTO THE ERROR ZONE BY APPLYING THE PROVISIONS OF SECTION 41(2) TO THE DEPRECIABLE ASSETS WHICH ARE UNCONNECTED TO THE ASSETS REF ERRED TO IN CLAUSE (I), INSERTED BY THE SAID ACT IN 1998. THEREFORE, WE ARE OF THE OPINION THAT THE ORDER OF THE CIT (A) IS REQUIRED TO BE REVERSED THEREBY GRANTING RELIEF TO THE ASSESSEE. ACCORDINGLY, FIRST ISSUE IS ALLOWED IN FAVOUR OF THE ASSESSEE. 8. REGARDING THE SECOND ISSUE, IT IS SUBMITTED THAT THE ASSESSEE DEBITED AN AMOUNT OF RS. 6,82,512/ - ON ACCOUNT OF PUJA EXPENSES, OFFICE EXPENSES, REPAIRS OF MACHINERY, REPAIRS OF FURNITURE, PACKING AND FORWARDING EXPENSES, WELFARE EXPENSES AND TRAVELLING EX PENSES ETC. THESE EXPENSES ARE INCURRED IN CASH. ON FINDING THAT THEY ARE SUPPORTED BY THE SELF - VOUCHERS, AO MADE DISALLOWANCE @ 15% ON AD - HOC BASIS. THE DISALLOWANCE WORKS OUT TO RS. 1,02,676/ - . CIT (A) CONFIRMED THE SAME HOLDING THAT THE DISALLOWANCES ARE ROUTINE ONE AND NOT EX CESSIVE. 9. DURING THE PROCEEDINGS BEFORE US, LD COUNSEL FOR THE ASSESSEE MENTIONED THAT THE DISALLOWANCE ON AD - HOC BASIS @ 15% IS ON VERY HIGH SIDE. 10. ON THE OTHER HAND, LD DR RELIED ON THE ORDER OF THE CIT (A). 11. ON HEARI NG BOTH THE PARTIES, WE ARE OF THE OPINION THAT THE EXPENSES CLAIMED ARE UNVERIFIABLE AS THERE ARE NO THIRD PARTY VOUCHERS AND THE TRANSACTIONS WERE HELD IN CASH. THEREFORE, WE ARE OF THE OPINION THERE IS CERTAINLY ANY NEED FOR SOME DISALLOWANCE. HOWEVER , AS ARGUED BY THE LD COUNSEL FOR THE ASSESSEE, DISALLOWANCE OF 15% IS ON HIGH SIDE. THEREFORE, IN OUR VIEW MAKING AD - HOC DISALLOWANCE SHOULD MEET THE ENDS OF JUSTICE. ACCORDINGLY, WE DISALLOW A ROUND SUM OF RS.35,000/ - AND THE SECOND ISSUE IS ALLOWED PA RTLY . 12. IN THE RESULT, APPEAL OF THE ASSESSEE IS PARTLY ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 2ND JULY, 2014. S D / - S D / - (SANJAY GARG ) (D. KARUNAKARA RAO ) / JUDICIAL MEMBER / ACCOUNTANT MEMBER MUMBAI ; 2.7.2014 . . ./ OKK , SR. PS 4 / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT 2. / THE RESPONDENT. 3. ( ) / THE CIT(A) - 4. / CIT 5. , , / DR, ITAT, MUMBAI 6. / GUARD FILE . //TRUE COPY// / BY ORDER, / (DY./ASSTT. REGISTRAR) , / ITAT, MUMBAI