Rex Polyextrusion Ltd, Sangli V. Jt. CIT Rg-1 Sangli, Sangli

ITA 2323/PUN/2012

• Counselvise Citation: [2016] 133 COUNSELVISE.COM (IT) 2945 (ITAT-PUNE)
• Duration Of Justice: 3 year(s) 1 month(s) 10 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 06-01-2016
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: B
• Next Hearing Date: 09-12-2015
• Assessment Year: 2009-2010
• Appeal Filed On: 26-11-2012
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: HITENDRA NINAWE
• Keywords: Reason to believe; Capital expenditure
• Section: 143(3); 14A

Judgement Text

] ]] ] IN THE INCOME TAX APPELLATE TRIBUNAL PUNE BENCH B, PUNE , !', $ % BEFORE MS. SUSHMA CHOWLA, JM AND SHRI PRADIP KUMAR KEDIA, AM ITA NO.2323/PN/2012 ASSESSMENT YEAR : 2009-10 REX POLYEXTRUSION LTD., 1077, 1 ST FLOOR, KUMAR PLAZA, SHIVAJINAGAR (N), SANGLI 416 416. PAN : AAACR9290E . APPELLANT VS. THE JT. COMMISSIONER OF INCOME TAX, RANGE- 1, SANGLI. . RESPONDENT / APPELLANT BY : SHRI C. H. NANIWADEKAR / RESPONDENT BY : SHRI HITENDRA NINAWE / DATE OF HEARING : 14.12.2015 / DATE OF PRONOUNCEMENT: 06.01.2016 & / ORDER PER PRADIP KUMAR KEDIA, AM : THE PRESENT APPEAL PREFERRED BY THE ASSESSEE IS AGA INST THE ORDER OF CIT(A), KOLHAPUR DATED 03.10.2012 RELATING TO ASSES SMENT YEAR 2009-10 PASSED UNDER SECTION 143(3) OF THE INCOME-TAX ACT, 1961 (IN SHORT THE ACT). 2. THE GROUNDS OF APPEAL RAISED BY THE ASSESSEE ARE REPRODUCED AS UNDER :- 1.1. THE LEARNED COMMISSIONER OF INCOME - TAX (APP EALS), KOLHAPUR ['THE ID. CIT (A)] ERRED IN CONFIRMING THE ACTION OF THE JT. COMM ISSIONER OF INCOME TAX RANGE -1, SANGLI ('THE A.O.') WHEREBY THE A.O. HAS DISALLOWED AN AMOUNT OF RS. 2,07,217/- INCURRED FOR CONSTRUCTION OF WATER STORAGE TANK AND OF RS. 24,761/- INCURRED FOR DIESEL AND INSURANCE EXPENSES OF TRACTOR U/S. 14A O F THE INCOME TAX ACT, 1961 ['THE ACT']. 1.2. IT IS SUBMITTED THAT IN THE FACTS AND THE CIRC UMSTANCES OF THE CASE, AND IN LAW, NO SUCH DISALLOWANCE WAS CALLED FOR. 2.1 THE ID. CIT (A) ERRED IN CONFIRMING THE ACTION OF THE A.O. WHEREBY THE A.O. HAD DISALLOWED AN AMOUNT OF RS. 29,150 OUT OF THE T OTAL FOREIGN TOUR EXPENSES ON ACCOUNT OF NON BUSINESS PURPOSE OF THE EXPENDITURE. 2 ITA NO.2323/PN/2012 2.2 IT IS SUBMITTED THAT IN THE FACTS AND THE CIRCU MSTANCES OF THE CASE, AND IN LAW, NO SUCH DISALLOWANCE WAS CALLED FOR. 3.1 THE ID. CIT (A) ERRED IN CONFIRMING THE ACTION OF THE A.O. WHEREBY THE A.O. HAD DISALLOWED EXPENSES INCURRED TOWARDS DIESEL PUR CHASES U/S. 40A (3) OF THE ACT. 3.2 IT IS SUBMITTED THAT IN THE FACTS AND THE CIRCU MSTANCES OF THE CASE, AND IN LAW, NO SUCH DISALLOWANCE WAS CALLED FOR. 4. THE APPELLANT CRAVES LEAVE TO ADD, ALTER, DELETE OR MODIFY ALL OR ANY THE ABOVE GROUND AT THE TIME OF HEARING. 3. THE FIRST GROUND PERTAINS TO DISALLOWANCE OF EXP ENSES BY INVOKING SECTION 14A OF THE ACT. 4. THE RELEVANT FACTS CONCERNING THE ISSUE ARE THAT THE ASSESSEE IS A PUBLIC LIMITED COMPANY ENGAGED IN THE MANUFACTURE AND SALE OF PLASTIC PIPES, CONTRACT BUSINESS I.E. CONSTRUCTION OF SUB-SURFACE DRAINAGE (SSD) AND MAIN DRAIN AT DIGRAJ, TAL. MIRAJ, SANGLI. THE ASSESSEE IS ALSO E NGAGED IN AGRICULTURAL ACTIVITIES, INCOME FROM WHICH IS EXEMPT FROM TAXATI ON. DURING THE YEAR UNDER CONSIDERATION, THE ASSESSEE FILED ITS RETURN OF INC OME ON 19.09.2009 DECLARING TOTAL INCOME AT RS.2,26,76,290/- RELEVANT TO THE AS SESSMENT YEAR 2009-10. THE ASSESSMENT WAS COMPLETED UNDER SECTION 143(3) OF TH E ACT AND CERTAIN DISALLOWANCES WERE INTER-ALIA MADE BY INVOKING SECTION 14A OF THE ACT. 5. THE ASSESSING OFFICER NOTICED FROM THE AUDIT REP ORT THAT THE AUDITOR HAS MENTIONED RS.5,06,948/- (RECTIFIED AMOUNT) AS INADM ISSIBLE EXPENDITURE IN TERMS OF SECTION 14A ATTRIBUTABLE TO AGRICULTURAL I NCOME WHICH IS EXEMPT FROM TAXATION. BASED ON THE AUDITORS REMARK, THE ASSES SING OFFICER DISALLOWED EXPENSES TO THE TUNE OF RS.3,14,141/- UNDER SECTION 14A OF THE ACT, AFTER DEDUCTING AN AMOUNT OF RS.1,92,807/- BEING LOSS ON SALE OF TRACTOR CONSIDERED BY THE ASSESSEE IN ITS COMPUTATION OF INCOME. 6. HOWEVER, THE CIT(A) GRANTED RELIEF ON ACCOUNT OF DISALLOWANCE TO THE EXTENT OF RS.82,253/- WHICH WAS FOUND TO HAVE ALREA DY BEEN ATTRIBUTED TO AGRICULTURAL INCOME AND NOT CLAIMED AS ALLOWABLE EX PENSES BY THE ASSESSEE. HOWEVER, THE CIT(A) SUSTAINED DISALLOWANCE TO THE E XTENT OF RS.2,07,217/- STATED TO HAVE INCURRED TOWARDS CONSTRUCTION OF WAT ER STORAGE FACILITY FOR 3 ITA NO.2323/PN/2012 UNINTERRUPTED WATER SUPPLY TO THE MAIN DRAIN. THE CIT(A) ALSO SUSTAINED THE DISALLOWANCE OF RS.24,761/- TOWARDS DIESEL EXPENSES AND INSURANCE EXPENSES ATTRIBUTABLE TO TRACTOR. 7. THE ASSESSEE IS IN APPEAL BEFORE US AGAINST THE AFORESAID DISALLOWANCE. 8. THE LD. AUTHORIZED REPRESENTATIVE FOR THE ASSESS EE SUBMITTED THAT THE EXPENSES OF RS.2,07,217/- WAS INCURRED FOR CONSTRUC TION OF WATER STORAGE FACILITY FOR UNINTERRUPTED WATER SUPPLY TO THE MAIN DRAIN IN THE COURSE OF ITS ORDINARY BUSINESS ACTIVITY, UNCONNECTED TO THE AGRI CULTURAL ACTIVITY. IT WAS SUBMITTED THAT THE EXPENSES INCURRED ARE REVENUE IN NATURE AND NOT FOR EARNING ANY ENDURING BENEFIT. IT WAS POINTED OUT THAT ALTH OUGH THE WATER STORAGE TANK WAS CONSTRUCTED IN ITS OWN LAND BUT SAME IS PART OF THE AREA UNDER CONTRACT FOR LAYING OF PIPES FOR MAIN DRAIN. THE LD. AUTHORIZED REPRESENTATIVE FOR THE ASSESSEE RELIED UPON THE TEST REPORT FROM THE LAB A T PAGES 18 19 OF THE PAPER BOOK AS PROOF OF ITS CONTENTION THAT WATER IS NOT S UITABLE FOR DRINKING OR CROP IRRIGATION AND WATER STORAGE TANK WAS BUILT SOLELY FOR THE PURPOSE OF UNINTERRUPTED WATER SUPPLY FOR THE MAIN DRAIN WORK WHICH REQUIRES PITCHING OF STONE INTO SOIL. IT WAS CONTENDED THAT BY INCURRIN G THE AFORESAID EXPENSES, THE ASSESSEE HAS SAVED RECURRING EXPENSES ON BUYING WAT ER FROM OUTSIDE AND THEREFORE THE EXPENDITURE IS IN THE REVENUE FIELD. IN RESPECT OF EXPENDITURE OF RS.14,271/- TOWARDS DIESEL AND RS.10,400/- TOWARD I NSURANCE AGGREGATING TO RS.24,671/-, THE LD. AUTHORIZED REPRESENTATIVE FOR THE ASSESSEE REITERATED THAT THE ASSESSEE IS ALSO ENGAGED IN THE BUSINESS OF CIV IL CONSTRUCTION PARTICULARLY IN SUB-SURFACE DRAINAGE (SSD). THE SSD COMPRISES OF L AYING OF PIPES. THE PIPES ARE LAID WITH THE HELP OF TRENCHER. THE TREN CHER IS REQUIRED TO BE PULLED WITH THE HELP OF TRACTOR. IT WAS THEREAFTER SUBMIT TED THAT IT IS EVIDENT THAT THE TRACTORS ARE ONLY USED FOR CONTRACTING BUSINESS AND ARE NOT EMPLOYED IN AGRICULTURAL ACTIVITY GIVING RISE TO ANY TAX FREE I NCOME. THEREFORE, THE LD. AUTHORIZED REPRESENTATIVE FOR THE ASSESSEE CONCLUDE D THAT THERE IS NO JUSTIFICATION FOR RESORTING TO SECTION 14A OF THE A CT IN THE ABOVE FACTS. 4 ITA NO.2323/PN/2012 9. THE LD. DEPARTMENTAL REPRESENTATIVE FOR THE REVE NUE, ON THE OTHER HAND, RELIED UPON THE ORDER OF THE CIT(A). 10. WE HAVE CAREFULLY CONSIDERED THE RIVAL SUBMISSI ONS AND MATERIAL PLACED ON RECORD. IT IS OBSERVED THAT A SUM OF RS.2,07,21 7/- WAS SPENT FOR CONSTRUCTION OF WATER STORAGE FACILITY FOR UNINTERR UPTED WATER SUPPLY TO THE MAIN DRAIN IN THE COURSE OF ITS REGULAR BUSINESS AC TIVITY. THE ASSERTIONS OF THE ASSESSEE THAT THIS HAS RESULTED IN SAVING RECURRING EXPENSES ON BUYING WATER HAS NOT BEEN DISPUTED. THEREFORE, THE EXPENDITURE CANN OT BE CHARACTERIZED AS CAPITAL EXPENDITURE. THE ONLY CONTENTION PUT-FORTH BY THE REVENUE IS THAT THE STORAGE TANK HAS BEEN CONSTRUCTED IN ITS OWN LAND W HICH IS ALSO USED FOR CULTIVATION OF AGRICULTURAL PRODUCE AND THEREFORE T HERE IS REASON TO BELIEVE THAT THE STORAGE TANK HAS BEEN UTILIZED FOR THE USES FOR ITS AGRICULTURAL ACTIVITY. WE FIND THAT THE ASSESSEE HAS SUPPORTED ITS CASE THAT THE WATER STORAGE IS NOT FIT FOR CROP IRRIGATION BY LAB TEST REPORT PLACED AT PAGE 1 8-19 OF THE PAPER BOOK. THIS ONLY CONFIRMS THE VERSION OF THE ASSESSEE THAT THE CONSTRUCTION OF STORAGE SPACE WAS NOT FOR THE PURPOSE OF WATER SUPPLY ATTRIBUTABL E TO AGRICULTURAL INCOME BUT FOR UNINTERRUPTED SUPPLY TO THE MAIN DRAIN WORK. W E FIND JUSTIFICATION IN THE CONTENTION OF THE ASSESSEE THAT BY INCURRING EXPENS ES ON STORAGE OF WATER, THE ASSESSEE HAS POSSIBLY SAVED LOT OF EXTRA EXPENSES O N WATER PROCUREMENT REQUIRED FOR SSD CONSTRUCTION. THIS HAS RESULTED I N AUGMENTATION OF PROFITS AND ALTERNATIVELY REDUCTION IN THE REVENUE LOSSES A ND THEREFORE, THE EXPENDITURE IS REVENUE IN NATURE. 11. IN THE LIGHT OF ABOVE, WE HOLD THAT THE EXPENDI TURE INCURRED IS DIRECTLY ATTRIBUTABLE TO ITS ORDINARY BUSINESS ACTIVITY AND NOT CONNECTED TO AGRICULTURAL ACTIVITY OR INDIVISIBLE IN ANY MANNER. THEREFORE, THERE IS NO JUSTIFICATION TO APPLY SECTION 14A OF THE ACT IN RESPECT OF THE AFOR ESAID AMOUNT. 12. AS REGARDS ANOTHER DISALLOWANCE TOWARDS DIESEL AND INSURANCE EXPENSES ATTRIBUTABLE TO TRACTOR, IT IS THE CASE OF THE ASSE SSEE THAT TRENCHER UTILIZED FOR LAYING DOWN THE PIPES IN THE FIELD COULD BE PULLED WITH THE HELP OF THE TRACTOR AND THEREFORE THE EXPENSES ATTRIBUTABLE TO TRACTOR HAS DIRECT NEXUS TO TAXABLE 5 ITA NO.2323/PN/2012 BUSINESS AND NOT FOR THE PURPOSES OF EARNING TAX FR EE AGRICULTURAL INCOME. THE CIT(A) SUSTAINED THE DISALLOWANCE UNDER SECTION 14A OF THE ACT IN THE ABSENCE OF ANY LOG BOOK WHICH WOULD GIVE INDICATIONS OF USA GE OF TRACTOR. 13. ON CAREFUL CONSIDERATION OF THE FACTS AND SUBMI SSIONS PLACED ON RECORD, WE FIND MERIT IN THE CONTENTION OF THE ASSESSEE THA T THE EXPENSES HAVE DIRECT NEXUS TO EARNING TAXABLE INCOME AND NOT FOR EARNING TAX FREE INCOME. WE DO NOT FIND THE JUSTIFICATION PROPAGATED BY THE CIT(A) TO BE ON A VERY SOUND FOOTING. ONCE IT IS ADMITTED THAT THE TRACTORS ARE REQUIRED FOR THE PURPOSE OF SSD WORKS INVOLVING LAYING OF PIPES, THE EXPLANATIO N OF THE ASSESSEE BECOMES REASONABLE AND PLAUSIBLE. IT IS NOT EXPECTED FROM THE ASSESSEE TO PROVE HIS EXPLANATION TO THE HILT. IN THE LIGHT OF CIRCUMSTA NCES NARRATED, WE DELETE THE IMPUGNED DISALLOWANCE OF RS.24,671/- ALSO. 14. IN THE RESULT, THE GROUND NO.1 OF THE ASSESSEE S APPEAL IS ALLOWED. 15. THE GROUND NO.2 RELATES TO ESTIMATED DISALLOWAN CE OF 10% OUT OF FOREIGN TOUR PERCENTAGE ON ACCOUNT OF PROBABLE PERS ONAL ELEMENT INVOLVED. 16. IN THE ASSESSMENT PROCEEDINGS, THE ASSESSEE IS STATED TO HAVE FURNISHED DETAILS OF TOTAL EXPENSES OF RS.2,91,504/- INCURRED ON FOREIGN TOUR OF SHRI C. B. DANDEKAR, DIRECTOR. THE CIT(A) SUSTAINED THE ESTIM ATED DISALLOWANCE MADE BY THE ASSESSING OFFICER ON THE GROUND THAT POSSIBI LITY OF PERSONAL EXPENDITURE OR OTHER EXPENDITURE OF NON-BUSINESS NATURE INCURRE D DURING THE FOREIGN TOUR CANNOT BE RULED OUT. 17. THE LD. AUTHORIZED REPRESENTATIVE FOR THE ASSES SEE SUBMITTED THAT THE ASSESSEE IS A COMPANY WHEREIN PERSONAL ELEMENT DOES NOT SUBSIST. HE RELIED UPON THE DECISION OF THE HONBLE GUJARAT HIGH COURT IN THE CASE OF DINESH MILLS LIMITED, (2002) 254 ITR 673 (GUJ) TO SUBMIT T HAT IT IS WELL-SETTLED LEGAL POSITION THAT IN THE CASE OF COMPANY, NO DISALLOWAN CE CAN BE MADE ON ACCOUNT OF PERSONAL ELEMENT. 6 ITA NO.2323/PN/2012 18. WE OBSERVE THAT THE ASSESSING OFFICER HAS NOT P OINTED OUT ANY SPECIFIC DEFECT IN EXPENDITURE DETAILED, WHICH CAN BE VIEWED IN THE NATURE OF PERSONAL EXPENDITURE. THE ASSESSEE PER SE BEING ARTIFICIAL PERSON CANNOT BE VIEWED TO HAVE INCURRED ANY PERSONAL EXPENSES. THEREFORE, WE FIND MERIT IN THE SUBMISSIONS OF THE ASSESSEE AND DELETE THE ESTIMATE D DISALLOWANCE. 19. IN THE RESULT, THE GROUND NO.2 OF THE ASSESSEE S APPEAL IS ALLOWED. 20. THE GROUND NO.3 IS NOT PRESSED AND THE SAME IS ACCORDINGLY BEING DISMISSED. 21. RESULTANTLY, THE APPEAL OF THE ASSESSEE IS PART LY ALLOWED. ORDER PRONOUNCED ON THIS 06 TH DAY OF JANUARY, 2016. SD/- SD/- ( SUSHMA CHOWLA ) ( PRADIP KUMAR KEDIA ) / JUDICIAL MEMBER $ / ACCOUNTANT MEMBER PUNE ; DATED : 06 TH JANUARY, 2016. & ' ()* +*( / COPY OF THE ORDER IS FORWARDED TO : 1) THE ASSESSEE; 2) THE DEPARTMENT; 3) THE CIT(A), KOLHAPUR; 4) THE CIT-I, KOLHAPUR; 5) THE DR B BENCH, I.T.A.T., PUNE; 6) GUARD FILE. &, / BY ORDER , ' # //TRUE COPY// $ %& # '( / SR. PRIVATE SECRETARY ) '* , / ITAT, PUNE