JCIT(OSD), Circle - 10, Kolkata, Kolkata V. Stadmed Pvt. Ltd., Kolkata

ITA 222/KOL/2012

• Counselvise Citation: 22223514 RSA 2012
• Duration Of Justice: 3 year(s) 9 month(s) 16 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 27-11-2015
• Appeal Filed By: Department
• Order Result: Partly Allowed
• Bench Allotted: A
• Assessment Year: 2006-2007
• Appeal Filed On: 10-02-2012
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Keywords: Capital asset; Depreciation; Capital receipt; Revenue expenditure
• Section: 10

Judgement Text

I.T.A. NO. 222/KOL./2012 ASSESSMENT YEAR: 2006-2007 PAGE 1 OF 7 IN THE INCOME TAX APPELLATE TRIBUNAL, KOLKATA A BENCH, KOLKATA BEFORE SHRI P.M. JAGTAP, ACCOUNTANT MEMBER AND SHRI S.S. VISWANETHRA RAVI, JUDICIAL MEMBER I.T.A. NO. 222/KOL/ 2012 ASSESSMENT YEAR : 2006-2007 JOINT COMMISSIONER OF INCOME TAX (OSD),............ ................APPELLANT CIRCLE-10, KOLKATA, AAYAKAR BHAWAN, P-7, CHOWRINGHEE SQUARE, 3 RD FLOOR, KOLKATA-700 069 -VS.- STADMED PRIVATE LIMITED,........................... .......................RESPONDENT BLOCK-AA-21, SECTOR-1, SALT LAKE CITY, KOLKATA-700 061 [PAN : AAJCS 1122 P] APPEARANCES BY: SHRI S.M. SARFARAZUT TAUHEED, JCIT, SR. D.R., FOR T HE DEPARTMENT SHRI SUBASH AGARWAL, ADVOCATE , FOR THE ASSESSEE DATE OF CONCLUDING THE HEARING : NOVEMBER 19, 2015 DATE OF PRONOUNCING THE ORDER : NOVEMBER 27, 2015 O R D E R PER SHRI P.M. JAGTAP :- THIS APPEAL FILED BY THE REVENUE IS DIRECTED AGAINS T THE ORDER OF LD. COMMISSIONER OF INCOME TAX (APPEALS)-XII, KOLKATA D ATED 25.11.2011 FOR THE ASSESSMENT YEAR 2006-07. 2. IN GROUND NO. 1, THE REVENUE HAS CHALLENGED THE ACTION OF THE LD. CIT(APPEALS) IN DELETING THE ADDITION MADE BY THE A SSESSING OFFICER TO THE TOTAL INCOME OF THE ASSESSEE ON ACCOUNT OF INDUSTRI AL PROMOTIONAL ASSISTANCE RECEIVED FROM GOVERNMENT OF WEST BENGAL. I.T.A. NO. 222/KOL./2012 ASSESSMENT YEAR: 2006-2007 PAGE 2 OF 7 3. THE ASSESSEE IN THE PRESENT CASE IS A COMPANY, W HICH IS ENGAGED IN THE BUSINESS OF MANUFACTURING OF ALLOPATHIC MEDICIN E. THE RETURN OF INCOME FOR THE YEAR UNDER CONSIDERATION WAS FILED B Y IT ON 30.11.2006 DECLARING TOTAL INCOME OF RS.39,63,242/-. IN THE SA ID RETURN, A SUM OF RS.18,73,680/- RECEIVED UNDER THE WEST BENGAL INDUS TRIAL PROMOTION SCHEME FOR THE EXPANSION OF ITS ACTIVITY, MODERNIZA TION AND IMPROVING THEIR MAKING CAPABILITIES WAS CLAIMED TO BE EXEMPT BY THE ASSESSEE- COMPANY BEING IN THE NATURE OF CAPITAL RECEIPT. DUR ING THE COURSE OF ASSESSMENT PROCEEDINGS, IT WAS BROUGHT TO THE NOTIC E OF THE ASSESSING OFFICER BY THE ASSESSEE THAT A SIMILAR ISSUE HAS AL READY BEEN DECIDED BY THE TRIBUNAL IN ITS OWN CASE FOR A.YS. 1997-98, 199 8-99 AND 2001-02 BY HOLDING THE SIMILAR AMOUNT RECEIVED UNDER THE SAME SCHEME AS CAPITAL RECEIPT. IT WAS, HOWEVER, NOTICED BY THE ASSESSING OFFICER THAT AS PER THE RELEVANT SCHEME OF THE WEST BENGAL GOVERNMENT, THE ASSISTANCE RECEIVED BY THE ASSESEE WAS LIABLE TO BE ADJUSTED AGAINST TH E REVENUE EXPENDITURE THAT IS COMMERCIAL TAXES. HE ALSO NOTED THAT THE AS SESSEE HAS NOT REDUCED THE VALUE OF ITS CAPITAL ASSET BY THE IMPUGNED AMOU NT WHILE CLAIMING THE DEPRECIATION FOR THE YEAR UNDER CONSIDERATION. THE ASSESSING OFFICER ALSO NOTED THAT THERE WAS NO OBLIGATION ON THE ASSESSEE TO APPLY THE AMOUNT IN QUESTION FOR A PARTICULAR PURPOSE NEITHER THE SCHEM E REQUIRED THAT UTILIZATION CERTIFICATE SHOULD BE SUBMITTED BY THE ASSESSEE HE, THEREFORE, HELD THAT IT WAS IMPROPER TO CONSIDER THE SAID AMOU NT AS CAPITAL IN NATURE AND RELYING ON THE DECISION OF THE HONBLE SUPREME COURT IN THE CASE OF SAHNEY STEEL & PRESS WORKS LIMITED VS.- CIT REPOR TED IN 288 ITR 253, HE CONSIDERED THE AMOUNT OF RS.18,73,680/- RECEIVED BY THE ASSESESE AS REVENUE IN NATURE. ACCORDINGLY, THE SAID AMOUNT WAS ADDED BY HIM TO THE TOTAL INCOME OF THE ASSESSEE. 4. ON APPEAL, THE LD. CIT(APPEALS) DELETED THE ADDI TION MADE BY THE ASSESSING OFFICER ON THIS ISSUE RELYING, INTER ALIA, ON THE DECISION OF THE TRIBUNAL RENDERED IN ASSESSEES OWN CASE FOR THE EA RLIER YEARS, WHEREIN A I.T.A. NO. 222/KOL./2012 ASSESSMENT YEAR: 2006-2007 PAGE 3 OF 7 SIMILAR AMOUNT RECEIVED BY THE ASSESSEE UNDER THE S AME SCHEME WAS HELD TO BE CAPITAL RECEIPT NOT CHARGEABLE TO TAX. 5. WE HAVE HEARD THE ARGUMENTS OF BOTH THE SIDES AN D ALSO PERUSED THE RELEVANT MATERIAL AVAILABLE ON RECORD. ALTHOUGH THE LD. D.R. HAS AGREED THAT THIS ISSUE INVOLVED IN GROUND NO. 1 OF THE REV ENUES APPEAL IS SQUARELY COVERED IN FAVOUR OF THE ASSEESSEE, INTER ALIA, BY THE VARIOUS DECISIONS OF THE TRIBUNAL IN ASSESSEES OWN CASE, H E HAS CONTENDED THAT ONCE THE AMOUNT IN QUESTION IS TREATED AS CAPITAL R ECEIPT, THE SAME IS REQUIRED TO BE REDUCED FOR WORKING OUT THE WRITTEN DOWN VALUE FOR THE PURPOSE OF CLAIMING DEPRECIATION THEREON. IN SUPPOR T OF THIS CONTENTION, HE HAS RELIED ON EXPLANATION 10 TO SECTION 43(1) RE AD WITH PROVISO THERETO. THE SAID EXPLANATION ALONG WITH THE PROVIS O THERETO IS EXTRACTED BELOW:- EXPLANATION 10 : WHERE A PORTION OF THE COST OF A N ASSET ACQUIRED BY THE ASSESSEE HAS BEEN MET DIRECTLY OR I NDIRECTLY BY THE CENTRAL GOVERNMENT OR A STATE GOVERNMENT OR ANY AUTHORITY ESTABLISHED UNDER ANY LAW OR BY ANY OTHER PERSON, IN THE FORM OF A SUBSIDY OR GRANT OR REIMBURSEMENT (BY WHATEVER NAME CALLED), THEN, SO MUCH OF THE COST AS IS RELATABLE TO SUCH SUBSIDY OR GRANT OR REIMBURSEMENT SHALL NOT BE INCLUDED IN THE ACTUAL COST OF THE ASSET TO THE ASSESSEE: PROVIDED THAT WHERE SUCH SUBSIDY OR GRANT OR REIMBURSEMENT IS OF SUCH NATURE THAT IT CANNOT BE D IRECTLY RELATABLE TO THE ASSET ACQUIRED, SO MUCH OF THE AMO UNT WHICH BEARS TO THE TOTAL SUBSIDY OR REIMBURSEMENT O R GRANT THE SAME PROPORTION AS SUCH ASSET BEARS TO ALL THE ASSETS IN RESPECT OF OR WITH REFERENCE TO WHICH THE SUBSIDY O R GRANT OR REIMBURSEMENT IS SO RECEIVED, SHALL NOT BE INCLUDED IN THE ACTUAL COST OF THE ASSET TO THE ASSESSEE. 6. THE LD. COUNSEL FOR THE ASSESSEE, ON THE OTHER H AND, HAS RELIED ON THE DECISION OF THE COORDINATE BENCH OF THIS TRIBUN AL IN THE CASE OF UNIVERSAL CABLES LIMITED (I.T.A. NO. 679/KOL/2013 & OTHERS DATED 27.02.2015), WHEREIN IT WAS HELD THAT THE EXPRESSIO N MET DIRECTLY OR INDIRECTLY AS ANALYZED BY THE HONBLE SUPREME COUR T IN THE CASE OF P.J. CHEMICALS LIMITED REPORTED IN 210 ITR 830, EVEN AFT ER INSERTION OF I.T.A. NO. 222/KOL./2012 ASSESSMENT YEAR: 2006-2007 PAGE 4 OF 7 EXPLANATION 10 TO SECTION 43(1) OF THE ACT, WOULD C OVER THE CASE WHERE THE SUBSIDY OR OTHER GRANT IS GIVEN TO OFFSET THE C OST OF AN ASSET AND NOT IN THE CASE WHERE THE SUBSIDY IS RECEIVED MERELY TO AC CELERATE THE INDUSTRIAL DEVELOPMENT OF THE STATE. IT IS, HOWEVER, OBSERVED THAT IN THE CASE OF UNIVERSAL CABLES LIMITED (SUPRA), THE SUBSIDY WAS R ECEIVED BY THE ASSESSEE UNDER THE SCHEME FRAMED BY THE STATE OF MA DHYA PRADESH, WHEREAS THE AMOUNT IN QUESTION RECEIVED BY THE ASSE SSEE IN THE PRESENT CASE, IS RECEIVED UNDER DIFFERENT SCHEME FRAMED BY THE GOVERNMENT OF WEST BENGAL. IT IS, THEREFORE, NECESSARY TO ANALYZE AND LOOK INTO THE SAID SCHEME OF WEST BENGAL TO FIND OUT OR ASCERTAIN AS T O WHETHER EXPLANATION 10 TO SECTION 43(1) READ WITH PROVISO THERETO IS AP PLICABLE THERETO OR NOT. SINCE THIS EXERCISE HAS NOT BEEN SPECIFICALLY DONE EITHER BY THE ASSESSING OFFICER OR BY THE LD. CIT(APPEALS), WE RESTORE THIS ISSUE TO THE FILE OF THE ASSESSING OFFICER FOR THIS LIMITED PURPOSE. GROUND NO. 1 OF THE REVENUES APPEAL IS ACCORDINGLY TREATED AS PARTLY ALLOWED FOR STATISTICAL PURPOSES. 7. IN GROUND NO. 2, THE REVENUE HAS CHALLENGED THE ACTION OF THE LD. CIT(APPEALS) IN DELETING THE ADDITION MADE BY THE A SSESSING OFFICER TO THE TOTAL INCOME OF THE ASSESSEE ON ACCOUNT OF EXCISE D UTY PERTAINING TO FINISHED GOODS. 8. DURING THE COURSE OF ASSESSMENT PROCEEDINGS, IT WAS NOTICED BY THE ASSESSING OFFICER THAT THE EXCISE DUTY RELATABLE TO CLOSING STOCK OF FINISHED GOODS HAS NOT BEEN TAKEN INTO ACCOUNT BY T HE ASSESSEE WHILE VALUING THE CLOSING STOCK. HE, THEREFORE, REQUIRED THE ASSESSEE TO EXPLAIN AS TO WHY THE AMOUNT OF EXCISE DUTY RELATABLE TO TH E CLOSING STOCK OF FINISHED GOODS SHOULD NOT BE ADDED IN ACCORDANCE WI TH THE PROVISIONS OF SECTION 145A. IN REPLY, IT WAS EXPLAINED BY THE ASS ESSEE THAT THE EXCISE DUTY IS PAYABLE ONLY AT THE TIME OF REMOVAL OF THE STOCK AND THE SAME, THEREFORE, IS NOT LIABLE TO BE INCLUDED IN THE VALU E OF CLOSING STOCK OF FINISHED GOODS EVEN AS PER THE PROVISIONS OF SECTIO N 145A. IT WAS ALSO POINTED OUT THAT EXCISE DUTY PAYABLE ON FINISHED GO ODS AT THE TIME OF REMOVAL WAS NOT CLAIMED AS EXPENDITURE BY DEBITING IT TO THE PROFIT & I.T.A. NO. 222/KOL./2012 ASSESSMENT YEAR: 2006-2007 PAGE 5 OF 7 LOSS ACCOUNT. THIS EXPLANATION OF THE ASSESSEE WAS NOT FOUND ACCEPTABLE BY THE ASSESSING OFFICER AND RELYING ON EXPLANATION TO SECTION 145A, HE ADDED THE AMOUNT OF RS.47,61,851/- TO THE TOTAL INC OME OF THE ASSESESE BY INCREASING THE VALUE OF CLOSING STOCK OF FINISHED G OODS. 9. ON APPEAL, THE LD. CIT(APPEALS) DELETED THE ADDI TION MADE BY THE ASSESSING OFFICER ON THIS ISSUE BY RELYING ON THE D ECISION DATED 17.07.2006 OF THE ITAT, ALLAHABAD BENCH IN THE CASE OF SHYAM BIRI WORKS LIMITED VS.- ACIT REPORTED IN 108 ITD 489. 10. AFTER CONSIDERING THE RIVAL SUBMISSIONS AND PER USING THE RELEVANT MATERIAL AVAILABLE ON RECORD, IT IS OBSERVED THAT T HIS ISSUE INVOLVED IN GROUND NO. 2 OF THE REVENUES APPEAL IS SQUARELY CO VERED, INTER ALIA , BY THE DECISION OF THE HONBLE MADHYA PRADESH HIGH COU RT IN THE CASE OF ACIT VS.- D & H SECHERON ELECTRODES (P) LIMITED [ 2008] 173 TAXMAN 188, WHEREIN IT WAS HELD THAT IT IS ONLY WHEN TAX, DUTY, CESS OR FEE IS ACTUALLY PAID OR INCURRED BY THE ASSESSEE IN BRINGI NG THE GOODS TO THE PLACE OF ITS LOCATION THAT THE SAID AMOUNT FORMS PA RT OF VALUE OF STOCK AND THE EXCISE DUTY, WHICH HAD NOT BEEN PAID BY THE ASS ESSEE ON GOODS LYING IN STOCK, THERE IS NO JUSTIFICATION ON THE PART OF THE ASSESSING OFFICER IN ADDING SUCH EXCISE DUTY TO THE VALUE OF CLOSING STO CK EVEN AS PER THE PROVISIONS OF SECTION 145A. RESPECTFULLY FOLLOWING THE SAID DECISION OF THE HONBLE MADHYA PRADESH HIGH COURT, WE UPHOLD THE IM PUGNED ORDER OF THE LD. CIT(APPEALS) DELETING THE ADDITION MADE BY THE ASSESSING OFFICER ON ACCOUNT OF EXCISE DUTY PERTAINING TO FINISHED GO ODS AND DISMISS GROUND NO. 2 OF THE REVENUES APPEAL. 11. IN GROUND NO. 3, THE REVENUE HAS CHALLENGED THE ACTION OF THE LD. CIT(APPEALS) IN DELETING THE ADDITION MADE BY THE A SSESSING OFFICER ON ACCOUNT OF INTEREST ATTRIBUTABLE TO THE LOANS AND A DVANCES GIVEN BY THE ASSESSEE-COMPANY TO ITS DIRECTORS, WHICH WERE OTHER WISE THAN FOR BUSINESS PURPOSES. I.T.A. NO. 222/KOL./2012 ASSESSMENT YEAR: 2006-2007 PAGE 6 OF 7 12. FROM THE PERUSAL OF THE DETAILS OF LOANS AND AD VANCES, IT WAS NOTICED BY THE ASSESSING OFFICER THAT THE ASSESSEE HAS GIVEN ADVANCES OF RS.11,80,463/- TO ITS DIRECTORS AND ADVANCES OF RS. 28,04,531/- TO OTHERS FOR OTHER THAN BUSINESS PURPOSES. SINCE INTEREST @ 15% WAS PAID BY THE ASSESSEE ON THE BORROWED FUNDS, DISALLOWANCE OUT OF INTEREST TO THE EXTENT OF RS.4,78,199/- WAS MADE BY THE ASSESSING O FFICER AS CALCULATED AT THE RATE OF 12% ON THE AMOUNT OF RS.39,84,994/- ADV ANCED BY THE ASSESSEE FOR OTHER THAN BUSINESS PURPOSES. 13. ON APPEAL, THE LD. CIT(APPEALS) DELETED THE DIS ALLOWANCE MADE BY THE ASSESSING OFFICER OUT OF INTEREST EXPENDITURE A FTER HAVING FOUND THAT THE ASSESSEE-COMPANY HAD ITS OWN FUND OF RS.5.33 CR ORES IN THE FORM OF SHARE CAPITAL AND RESERVE AT THE RELEVANT TIME TO G IVE THE ADVANCES IN QUESTION FOR OTHER THAN BUSINESS PURPOSE AND THERE WAS NO NEXUS ESTABLISHED BY THE ASSESSING OFFICER BETWEEN THE BO RROWED FUNDS AND SUCH ADVANCES. HE ALSO FOUND THAT A SIMILAR DISALLO WANCE MADE BY THE ASSESSING OFFICER ON ACCOUNT OF INTEREST WAS DELETE D BY THE TRIBUNAL IN ASSESSEES OWN CASE FOR A.Y. 2001-02. 14. WE HAVE HEARD THE ARGUMENTS OF BOTH THE SIDES A ND ALSO PERUSED THE RELEVANT MATERIAL AVAILABLE ON RECORD. AS POINTED O UT BY THE LD. COUNSEL FOR THE ASSESSEE FROM THE RELEVANT BALANCE-SHEET OF THE ASSESSEE PLACED AT PAGE NO. 4 OF THE PAPER BOOK, THE ASSESSEE-COMPANY DURING THE YEAR UNDER CONSIDERATION HAD OWN FUNDS OF RS.5.45 CRORES IN TH E FORM OF SHARE CAPITAL AND RESERVES AND THE SAME BEING MORE THAN SUFFICIEN T TO GIVE THE ADVANCES OF RS.39,84,994/- FOR OTHER THAN BUSINESS PURPOSES, THERE WAS NO QUESTION OF MAKING ANY DISALLOWANCE OUT OF INTER EST AS THE SAID ADVANCES WERE CLEARLY GIVEN BY THE ASSESSEE OUT OF ITS OWN FUNDS AND THERE WAS NO UTILIZATION OF BORROWED FUNDS BY THE A SSESSEE TO GIVE SUCH ADVANCES. IT IS THUS CLEAR THAT THE ISSUE INVOLVED IN THE YEAR UNDER CONSIDERATION IS SIMILAR TO THE ONE INVOLVED IN ASS ESSEES OWN CASE FOR A.Y. 2001-02, WHEREIN RELIEF WAS ALLOWED BY THE TRI BUNAL TO THE ASSEESSEE AND RESPECTFULLY FOLLOWING THE SAME, WE UPHOLD THE IMPUGNED ORDER OF THE I.T.A. NO. 222/KOL./2012 ASSESSMENT YEAR: 2006-2007 PAGE 7 OF 7 LD. CIT(APPEALS) DELETING THE DISALLOWANCE MADE BY THE ASSESSING OFFICER ON ACCOUNT OF INTEREST. GROUND NO. 3 OF THE REVENUE S APPEAL IS ACCORDINGLY DISMISSED. 15. IN THE RESULT, THE APPEAL OF THE REVENUE IS TRE ATED AS PARTLY ALLOWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED IN THE OPEN COURT ON NOVEMBER 27, 2015. SD/- SD/- (S.S. VISWANETHRA RAVI) (P.M. JAGTAP) JUDICIAL MEMBER ACCOUNTANT MEMBER KOLKATA, THE 27 TH DAY OF NOVEMBER, 2015 COPIES TO : (1) JOINT COMMISSIONER OF INCOME TAX (OSD), CIRCLE-10, KOLKATA, AAYAKAR BHAWAN, P-7, CHOWRINGHEE SQUARE, 3 RD FLOOR, KOLKATA-700 069 (2) STADMED PRIVATE LIMITED, BLOCK-AA-21, SECTOR-1, SALT LAKE CITY, KOLKATA-700 061 (3) COMMISSIONER OF INCOME-TAX (APPEALS)-XII, KOL KATA (4) COMMISSIONER OF INCOME TAX, KOLKATA (5) THE DEPARTMENTAL REPRESENTATIVE (6) GUARD FILE BY ORDER ASSISTANT REGISTRAR, INCOME TAX APPELLATE TRIBUNAL, KOLKATA BENCHES, KOLKATA LAHA/SR. P.S.