M/S. POLYCHEM LTD., MUMBAI V. DCIT CIR 1(2), MUMBAI

ITA 2127/MUM/2011

• Counselvise Citation: [2012] 119 COUNSELVISE.COM (IT) 8789 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 6 month(s) 12 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 26-09-2012
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: J
• Next Hearing Date: 05-09-2012
• Assessment Year: 2005-2006
• Appeal Filed On: 15-03-2011
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Assessee Lawyers: DEEPAK SHUKLA
• Keywords: Business income; Depreciation; Bad and doubtful debts; Capital expenditure
• Section: 145

Judgement Text

, IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCHES J MUMBAI . . , . BEFORE SHRI B.R. MITTAL, JUDICIAL MEMBER / AND , . . SHRI RAJENDRA, ACCOUNTANT MEMBER . / ITA NO. 2127/MUM/2011 / ASSESSMENT YEAR 2005-06 M/S. POLYCHEM LTD., 7, J. TATA ROAD, CHURCHGATE, MUMBAI 400 020 PAN: AAACP 7184 M VS. DY. COMMISSIONER OF INCOME TAX CIRCLE 1(2), MUMBAI . ( / APPELLANT ) ( ! / RESPONDENT ) ' / APPELLANT BY : SHRI DEEPAK SHUKLA ! # ' / RESPONDENT BY : SHRI RAJARSHI DWIVEDY # $%& / DATE OF HEARING : 05 -09-2012 '( # $%& / DATE OF PRONOUNCEMENT : 26 -09-2012 )* / O R D E R PER RAJENDRA, A.M. THE FOLLOWING ARE THE GROUNDS OF APPEAL FILED BY TH E APPELLANT AGAINST THE ORDER DATED 10-12-2010 OF THE CIT(A)-2, MUMBAI : 1. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) ERRED IN CONFIRMING ADDITIO N MADE BY THE ASSESSING OFFICER U/S.145A OF THE INCOME TAX ACT 1961 AMOUNTING TO RS .2,20,962/-. 2. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND I N LAW THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) ERRED IN CONFIRMING DISALLOWAN CE MADE BY THE ASSESSING OFFICER OF DEPRECIATION ON PLANT AND MACHINERY AMOU NTING TO RS.18,34,294/- ITA NO. 2127/MUM/2011 M/S. POLYCHEM LTD. 2 3.(A) ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) ERRED IN CONFI RMING DISALLOWANCE MADE BY THE ASSESSING OFFICER OF RS. 17,09,977/- INCLUDED I N DISALLOWANCE OF RS.46,47,611/- IN RESPECT OF IRRECOVERABLE LOANS AND ADVANCES WRITTEN OFF BY THE APPELLANT IN ITS ACCOUNTS. (B) THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS ) ERRED IN IGNORING THE FACT THAT THE APPELLANT HAD ITSELF DISALLOWED THE SAID A MOUNT OF RS. 17,09,977/- FOR COMPUTING TAXABLE INCOME FOR THE ASST YEAR 2005-200 6 AND AS SUCH THE DISALLOWANCE MADE BY THE ASSESSING OFFICER RESULTED IN DOUBLE DI SALLOWANCE. 4. THE APPELLANT CRAVES LEAVE TO ADD, ALTER OR AME ND ANY OF THE GROUNDS OF APPEAL OR TO ADD NEW GROUNDS OF APPEAL IF CONSIDERED NECESSAR Y. VIDE ITS LETTER 12-04-2012 ASSESSEE-COMPANY FILED A N ADDITIONAL GROUND AND THAT READS AS UNDER : 5(A) ON THE FACTS AND CIRCUMSTANCES OF THE CASE A ND IN LAW THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) ERRED IN CONFI RMING ACTION OF THE ASSESSING OFFICER OF TAXING RS.3.80 CRORES RECEIVED BY THE AP PELLANT ON SALE OF TRADE MARK AS BUSINESS INCOME OF THE APPELLANT. (B) IT IS PRAYED THAT THE ASSESSING OFFICER BE DIR ECTED TO ASSESS THE SALE PROCEEDS OF TRADE MARK AMOUNTING TO RS.3.80 CRORES AS LONG TER M CAPITAL GAINS AND BE FURTHER DIRECTED TO SET OFF THE SAME AGAINST BUSIN ESS LOSS BROUGHT FORWARD FROM EARLIER YEARS IN ACCORDANCE WITH C.B.D.T LETTER NO .F.NO.2(149)/ D.I.T(R)/ BIFR/ 98- 99/164 DATED 16TH MAY, 2006. 2. THE ASSESSEE-COMPANY, ENGAGED IN THE BUSINESS OF MA NUFACTURING OF CROSS LINKED POLYSTYRENE, SPECIALTY CHEMICALS, FILED ITS RETURN OF INCOME ON 26-10-2005 DECLARING TOTAL INCOME AT RS. NIL. ASSESSMENT WAS FINALISED U/S.143(3) OF THE INCOME TAX ACT, 1961(ACT) ON 31-03-2005 BY THE ASSESSING O FFICER (AO) DETERMINING TOTAL INCOME AT RS.1,99,900/-. 2.1 DURING THE ASSESSMENT PROCEEDINGS, AO MADE CERTAIN ADDITIONS TO THE INCOME OF THE ASSESSEE-COMPANY. ONE OF THE ADDITIONS WAS O N ACCOUNT OF UN-UTILISED MODVAT AMOUNTING TO RS. 2.2 LAKHS. AS PER THE AO, ASSESSE E-COMPANY HAD SHOWN IN ANNEXURE-3A OF THE TAX AUDIT REPORT AN AMOUNT OF RS . 2,20,962/- AS UN-UTILISED MODVAT. AS PER THE AO, THE TREATMENT GIVEN BY THE ASSESSEE TO THE UN-UTILISED MODVAT WAS NOT AS PER THE PROVISIONS OF SECTION 145 A OF THE ACT. ADDITION AMOUNTING TO RS. 2.2 LAKHS WAS MADE UNDER THE PROVI SIONS OF THE SAID SECTION. IN THE APPELLATE PROCEEDINGS, FAA HELD THAT SECTION 145A WAS INTRODUCED IN 1998, THAT THE SAID PROVISIONS WERE IMPLEMENTED FOR THE FIRST TIME IN THAT YEAR, SO, THERE WAS BOUND TO BE AN IMPACT ON THE INCOME OF TH E APPELLANT, THE ASSESSEE HAD GIVEN EFFECT TO THE COMPUTATION OF THE INCOME FOR T HE FIRST TIME IN THE ASSESSMENT YEAR UNDER CONSIDERATION, THAT THEREFORE THERE WAS BOUND TO BE A POSITIVE IMPACT UPON THE INCOME OF THE APPELLANT. ACCORDINGLY, HE UPHELD TH E ADDITION MADE TO THE VALUE OF THE CLOSING STOCK OF THE ASSESSEE MADE BY THE AO. 3. BEFORE US AUTHORISED REPRESENTATIVE (AR) SUBMITTED THAT SECTION 145A REQUIRE THAT FOR THE PURPOSE OF DETERMINING INCOME CHARGEABLE UNDER THE HEAD PROFITS ITA NO. 2127/MUM/2011 M/S. POLYCHEM LTD. 3 AND GAINS OF BUSINESS PROVISION OF ANY TAX/DUTY/CE SS/FEE PAID INCURRED BY AN ASSESSEE SHOULD BE INCLUDED IN VALUATION OF PURCHASE AND SAL E OF GOODS AND INVENTORY, THAT MODVAT DUTY WAS REQUIRED TO BE INCLUDED IN VALUE OF PURCHASE/SALES ETC., THAT ON INTRODUCTION OF SECTION 145A, THE INSTITUTE OF CHAR TERED ACCOUNTANTS OF INDIA (ICAI) HAD ISSUED GUIDELINES NOTE ON MODVAT DUTY, THAT ASS ESSEE WAS FOLLOWING THE SAID GUIDE LINES, THAT THERE WAS NO DIFFERENCE ON INCLUD ING THE MODVAT DUTY IN PURCHASED, SALE AND CLOSING STOCK, THAT NO ADJUSTMENT WAS REQU IRED TO THE PROFITS RETURNED BY THE ASSESSEE-COMPANY TO COMPLY WITH THE PROVISIONS OF S ECTION 145A, THAT THE APPELLANT HAD NOT MADE ANY ADJUSTMENT TO PROFIT/LOSS FROM THE P&L A/C FOR THE YEAR UNDER CONSIDERATION. HE REFERRED TO PAGE NOS. 4 AND 5 OF THE PAPER BOOK. HE RELIED UPON THE ORDER OF THE C BENCH DT. 26-03-2012 (ITA NO. 2129/M/11 AY1998-99) WHERE THE SIMILAR ISSUE WAS DECIDED IN FAVOUR OF THE ASSE SSEE-COMPANY. DEPARTMENTAL REPRESENTATIVE (DR) RELIED ON THE ORDERS OF THE AO AND FAA. 4. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND PERUSE D THE MATERIAL AVAILABLE TO US. ON PAGE NO. 4 OF THE PAPER BOOK, ASSESSEE-C OMPANY HAD GIVEN PARTICULARS OF INCREASE AND DECREASE IN PROFIT WITH REGARD TO PROV ISIONS OF SECTION 145A OF THE ACT. ON PAGE NO.5, DETAILS OF MODVAT CREDIT AVAILED AND UTILISED AS PER THE RECORDS OF THE EXCISE DEPARTMENT AND AS PER THE BOOKS OF ACCOUNTS OF THE ASSESSEE HAS ALSO BEEN GIVEN. AFTER GOING THROUGH THESE DETAILS, WE FIND THAT THE ASSESSEE-COMPANY HAD COMPLIED WITH THE PROVISIONS OF SECTION 145A OF THE ACT. WE HAVE PERUSED THE ORDER OF THE TRIBUNAL FOR THE ASSESSMENT YEAR 1998-99 (SU PRA) IN THAT CASE, ISSUE OF MODVAT DUTY ADJUSTMENT WAS DECIDED IN FAVOUR OF THE ASSESS EE-COMPANY. RESPECTFULLY FOLLOWING THE ORDER OF THE CO-ORDINATING BENCH, WE DECIDE GROUND NO.1 IN FAVOUR OF THE ASSESSEE. 5. NEXT GROUND OF APPEAL IS ABOUT DIS-ALLOWANCE MADE B Y THE AO ON ACCOUNT OF DEPRECIATION AMOUNTING TO RS. 18.34 LAKHS. DURING THE ASSESSMENT PROCEEDINGS, AO FOUND THAT THE ASSESSEE-COMPANY HAD MARKED CERTAIN FIXED ASSETS UNDER THE HEAD FOR DISPOSAL. AO HELD THAT DEPRECIATION CLAIMED IN RE SPECT OF SUCH ASSETS WAS NOT ALLOWABLE SINCE SAME WERE NOT USED FOR THE PURPOSE OF BUSINESS, THAT DEPRECIATION IN RESPECT OF ASSETS PERTAINING TO THE UNIT WHICH WAS CLOSED WAS ALSO NOT ALLOWABLE. FINALLY, HE DIS-ALLOWED DEPRECIATION AMOUNTING TO R S. 18.34 LAKHS RELATING TO PLANT & MACHINERY. ASSESSEE PREFERRED AN APPEAL BEFORE THE FAA. HE HELD THAT VALUE OF THE ASSETS HELD FOR DISPOSAL WAS REQUIRED TO BE REDUCED FROM THE BLOCK, THAT ASSETS HAD BEEN DISCARDED FROM ACTIVE USE. HE REJECTED THE APP EAL FILED BY THE ASSESSEE-COMPANY. 5.1 BEFORE US, AR SUBMITTED THAT ASSETS WERE HELD FOR D ISPOSAL, THAT ASSESSEE- COMPANY HAD APPROACHED BIFR, THAT PLANT & MACHINERY WAS PART OF THE BLOCK ASSETS, THAT FOR ALLOWING DEPRECIATION IT WAS NOT NECESSARY THAT EACH AND EVERY MACHINE SHOULD BE USED DURING THE RELEVANT PERIOD, THAT ASS ESSEE HAD NOT GONE OUT OF THE PRODUCTION COMPLETELY HE REFERRED TO PAGE NOS. 6 AN D 7 OF THE PAPER BOOK, HE RELIED UPON THE CASES OF SWATI SYNTHETICS LTD., VS. ITO (2 10) 38 SOT 208; CIT VS. BHARAT ALUMINIUM CO. LTD., (2010) 187 TAXMAN 111 (DEL); AN D CIT VS. OSWAL AGRO MILLS LTD., 238 CTR 113 (DEL). ALTERNATIVELY, HE SUBMITTE D THAT PROPORTIONATE DISALLOWANCE SHOULD BE MADE. DR SUBMITTED THAT ASSETS IN QUESTI ON WERE DISCARDED, THAT DEPRECIATION ON SUCH ASSETS IS NOT ALLOWABLE. 5.2. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND PERUSE D THE MATERIAL AVAILABLE TO US. CASES RELIED UPON BY THE ASSESSEE ARE ABOUT THE ASSETS THAT ARE READY FOR USE, ITA NO. 2127/MUM/2011 M/S. POLYCHEM LTD. 4 WHERE AS IN THE CASE UNDER CONSIDERATION ASSETS IN QUESTION WERE SET APART FOR DISPOSAL. IT IS TRUE THAT FOR CLAIMING DEPRECIATION EACH AND EVERY MACHINERY IS NOT REQUIRED TO BE UTILISED FOR A PARTICULAR AY, BUT IF ASSETS ARE NOT IN A CONDITION TO BE USED FOR BUSINESS DEPRECIATION CANNOT BE ALLOWED. ALTERNATE ARGUMENT ADVANCED BY THE AR ABOUT PROPORTIONATE ALLOWANCE OF DEPRECIATION IS, IN OUR OPINION, AS PER THE PROVISIONS OF LAW. WE FIND THAT, IN THE PAPER BOOK, AR HAS SUBMI TTED A CHART IN THIS REGARD. IN THE INTEREST OF JUSTICE WE RESTORE BACK THE MATTER TO T HE FILE OF THE AO TO DECIDED THE ISSUE AFRESH. HE IS DIRECTED TO TAKE IN TO CONSIDERING T HE DEPRECIATION-CHART FILED BEFORE US. GROUND NO.2 STANDS PARTLY ALLOWED. 6. NEXT GROUND OF APPEAL IS ABOUT IR-RECOVERABLE LOANS AND ADVANCES AMOUNTING TO RS. 46,47,611/-WRITTEN-OFF BY THE APPELLANT DUR ING THE YEAR UNDER CONSIDERATION. AO FOUND THAT THE ASSESSEE-COMPANY HAD PAID RS. 25L AKHS AS AN ADVANCE FOR PURCHASE OF FACTORY BUILDING, THAT ASSESSEE COULD NOT GET PO SSESSION OF THE FACTORY BUILDING, THAT THE CHEQUE ISSUED BY THE SELLER OF THE FACTORY BOUN CED BACK, THAT A SUIT UNDER SECTION 138 OF THE NEGOTIABLE INSTRUMENT ACT WAS FILED. HE FURTHER FOUND THAT ANOTHER AMOUNT OF RS. 4.37 LAKHS PERTAINING TO LOANS AND ADVANCES TO EMPLOYEES COULD NOT BE RECOVERED, THAT ASSESSEE-COMPANY HAD WRITTEN-OFF SA ID AMOUNTS AS A LOAN INCURRED IN THE COURSE OF BUSINESS.AO HELD THAT ADVANCE OF RS. 25 LAKHS TOWARDS PURCHASE OF BUILDING WAS RELATING TO CAPITAL EXPENDITURE AND HE NCE NOT ALLOWABLE, THAT AMOUNT WRITTEN-OFF DID NOT REPRESENT MONEY LEND IN THE ORD INARY COURSE OF BUSINESS OR MONEY LENDING, AS PER THE PROVISIONS OF SECTION 36(2) OF THE ACT, THAT ASSESSEE-COMPANY WAS NOT ELIGIBLE FOR DEDUCTION OF SUCH AMOUNT. FINALLY, HE MADE AN ADDITION OF RS. 46.47 LAKHS TO THE RETURNED INCOME OF THE ASSESSEE. 6.1. IN THE APPELLATE PROCEEDINGS, FAA HELD THAT ASSESSE E HAD PAID ADVANCE OF RS. 30 LAKHS FOR PURCHASING A FACTORY BUILDING, THAT SU BSEQUENTLY AGREEMENT WAS CANCELLED AND THE ASSESSEE COULD RECEIVE BACK ONLY RS 5 LAKHS, THAT ASSESSEE COULD NOT EXPLAIN AS WHAT TRIGGERED THE CLAIM OF RS. 25 L AKHS DURING THE ASSESSMENT YEAR UNDER CONSIDERATION, THAT TRANSACTION ITSELF WAS VE RY OLD, THAT NO SATISFACTORY EXPLANATION WAS FURNISHED BY THE ASSESSEE-COMPANY F OR ALLOWING THE SAID CLAIM IN THE RELEVANT AY., THAT IT WAS AN ADHOC-CLAIM, THAT IT C OULD NOT BE HELD THAT THE SAID EXPENSES RELATING TO THE PREVIOUS YEAR. 6.2 BEFORE US, AR SUBMITTED THAT IN THE P&L A/C, ASSESS EE ITSELF HAD DIS-ALLOWED AN IRRECOVERABLE AND DOUBTFUL DEBTS AMOUNTING TO RS . 17 LAKHS, THAT WHILE PASSING THE ASSESSMENT ORDER, AO DID NOT CONSIDER THE SAID DIS ALLOWANCE, THAT THIS RESULTED IN DOUBLE TAXATION. DR SUBMITTED THAT IF THE MATTER IS RESTORED BACK TO THE FILE OF THE AO, HE WOULD NOT HAVE NO OBJECTION. AFTER PERUSING THE PAPERS SUBMITTED BY THE ASSESSEE- COMPANY, WE FIND THAT RS. 17 LAKHS HAS BEEN DISALLO WED TWICE-ONCE BY THE ASSESSEE ITSELF AND ONCE BY THE AO. IN OUR OPINION IT WOULD BE PROPER IF MATTER IS REMITTED BACK TO THE AO FOR PROPER VERIFICATION FOR MAKING VERIFI CATION IN THIS REGARD. WE ARE OF THE OPINION THAT CLAIM MADE BY THE ASSESSEE-COMPANY FOR RS. 25 LAKHS ON ACCOUNT OF PURCHASE OF BUILDING IS NOT ALLOWABLE. WE AGREE WI TH THE FAA THAT IN THIS CASE, AMOUNT IN QUESTION IS NOT RELATABLE TO THE ASSESSME NT YEAR UNDER CONSIDERATION. GROUND NO.3 STANDS PARTLY ALLOWED. ITA NO. 2127/MUM/2011 M/S. POLYCHEM LTD. 5 7. ADDITIONAL GROUND OF APPEAL DEALS WITH THE ADDITION /CONFIRMATION AMOUNTING TO RS.3.8 CRORES BY THE AO/FAA ON ACCOUNT OF SALE O F TRADE MARK AS BUSINESS INCOME. DURING THE ASSESSMENT PROCEEDINGS AO HELD THAT SALE PROCEEDS RECEIVED BY THE ASSESSEE WERE TAXABLE UNDER THE HEAD BUSINESS A ND FAA IN APPELLATE PROCEEDINGS REJECTED THE APPEAL FILED BY THE ASSESSEE. 7.1. BEFORE US, AR SUBMITTED THAT SALE OF TRADE MARK SHO ULD BE ASSESSED UNDER THE HEAD LONG TERM CAPITAL GAINS, THAT SAME SHOULD BE S ET OFF AGAINST BUSINESS LOSS, THAT BEING A BIFR COMPANY MATTER WAS REFERRED TO C.B.D.T ., THAT VIDE ITS LETTER NO. F. NO. 2(149)/D.I.T(R)/BIFR/ 98-99/164 DATED 16TH MAY, 200 6, C.B.D.T. HAD ISSUED SOME INSTRUCTIONS IN THIS REGARD (PB- PGS.30-31). HE RE FERRED TO THE CASES OF ISKRAEMECO REGENT LTD (331ITR317), BALKRISHNA HARILAL WANI (32 1ITR519), MAHINDRA AND MAHINDRA LTD (261,.575). DR SUBMITTED THAT IN LIGH T OF THE LETTER OF THE BOARD MATTER MIGHT BE SENT BACK TO THE AO. AFTER HEARING BOTH T HE PARTIES WE ARE OF THE OPINION THAT IN THE INTEREST OF JUSTICE MATTER SHOULD BE RE STORED TO THE FILE OF AO. HE IS DIRECTED TO FOLLOW THE INSTRUCTION OF THE C.B.D.T. (PB- PGS. 30-31) AND DECIDE THE ISSUE AFRESH AFTER GIVING PROPER OPPORTUNITY OF HEARING TO THE A SSESSEE-COMPANY. ADDITIONAL GROUNDS RAISED BY THE ASSESSEE ARE PARTLY ALLOWED IN FAVOUR OF THE ASSESSEE. AS A RESULT, APPEAL FILED BY THE ASSESSEE-COMPANY S TANDS PARTLY ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 26 TH SEPTEMBER, 2012. SD/- SD/- ( . . / B.R. MITTAL ) ( / RAJENDRA ) )+ / JUDICIAL MEMBER & )+ / ACCOUNTANT MEMBER MUMBAI, ,) DATE: 26 TH SEPTEMBER, 2012 TNMM )* )* )* )* # ## # $- $- $- $- .-$ .-$ .-$ .-$ / COPY OF THE ORDER FORWARDED TO : 1. APPELLANT 2. RESPONDENT 3. THE CONCERNED CIT (A) 4. THE CONCERNED CIT 5. DR J BENCH, ITAT, MUMBAI 6. GUARD FILE !-$ $ //TRUE COPY// )* )* )* )* / BY ORDER, / // / / 0 0 0 0 DY./ASSTT. REGISTRAR , / ITAT, MUMBAI