Valco Friction Materials India Limited, Kancheepuram V. DCIT, CHENNAI

ITA 2375/CHNY/2014

• Counselvise Citation: [2016] 121 COUNSELVISE.COM (IT) 2694 (ITAT-CHENNAI)
• Duration Of Justice: 1 year(s) 5 month(s) 27 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 16-03-2016
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: C
• Next Hearing Date: 11-01-2016
• Assessment Year: 2005-2006
• Appeal Filed On: 19-09-2014
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: A V SREEKANTH
• Assessee Lawyers: A CHANDAN ANCHALIA
• Keywords: Reopening of assessment
• Section: 143(3); 148; 154

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL , C B ENCH, CHENNAI . . . , . , % BEFORE SHRI N.R.S.GANESAN, JUDICIAL MEMBER AND SHRI A.MOHAN ALANKAMONY, ACCOUNTANT MEMBER ./ I.T.A.NOS.2375 & 2376/MDS/2014 ( / ASSESSMENT YEARS:2005-06 & 2007-08) M/S. VALEO FRICTION MATERIALS INDIA LTD. 16A, SENGUDRAM INDUSTRIAL AREA, MELROSAPURAM 603 204. KANCHEEPURAM DIST. VS THE DEPUTY COMMISSIONER OF INCOME TAX, COMPANY CIRCLE-III(4) CHENNAI. PAN:AAACV3671K ( /APPELLANT) ( /RESPONDENT) / APPELLANT BY : MR.A.CHANDAN ANCHALIA, C.A /RESPONDENT BY : MR. A.V.SREEKANTH, JCIT /DATE OF HEARING : 11 TH JANUARY, 2016 /DATE OF PRONOUNCEMENT : 16 TH MARCH, 2016 / O R D E R PER A. MOHAN ALANKAMONY, AM:- THESE TWO APPEALS ARE FILED BY THE ASSESSEE AGGRIEV ED BY THE COMMON ORDER OF THE LEARNED COMMISSIONER OF INCOME TAX(APPEALS)-III, CHENNAI, DATED 25.06.2014 IN ITA NO.1362 & 1372/MDS/13-14 PASSED UNDER SECTION 143(3) R.W.S 147 OF THE ACT. 2. THE ASSESSEE IN BOTH THESE APPEALS HAS RAISED SE VERAL GROUNDS, HOWEVER, THE CRUXES OF THE ISSUES IN BOTH THE APPEALS ARE AS FOLLOWS:- 2 ITA NOS.2375 & 2376 /MDS/2014 I) THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS ) HAS ERRED IN UPHOLDING THE VALIDITY OF REOPENING OF ASSESSMENT UNDER SECTION 147 OF THE ACT BY THE LEAR NED ASSESSING OFFICER FOR THE ASSESSMENT YEAR 2005-06, AS THE REOPENING WAS BARRED BY LIMITATION. II) THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) HAS ERRED IN CONFIRMING THE ORDER OF THE LEARNED ASSESSING OFFICER IN BOTH THE APPEALS REGAR DING DISALLOWANCE OF PROVISIONS OF SCRAP DISPOSAL. 3. BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE CO MPANY FILED ITS RETURN FOR THE ASSESSMENT YEARS 2005-06 & 2007-08 ON 28.10.2005 & 29.10.2007 ADMITTING INCOME OF ` 1,93,94,865/- AND ` 11,60,33,823/- RESPECTIVELY. THE RETURN FOR THE ASSESSMENT YEAR 2005-06 WAS INITIALLY PROCE SSED UNDER SECTION 143(1) OF THE ACT RESULTING IN DEMAND OF ` 4,16,932/-. THEREAFTER, THE LEARNED ASSESSING OFFI CER HAS PASSED ORDER UNDER SECTION 154 OF THE ACT ON 11.02. 2009 ASSESSING THE INCOME OF THE ASSESSEE AT ` 2,42,14,640/-. SUBSEQUENTLY, THE LEARNED ASSESSING OFFICER WAS OF THE VIEW THAT INCOME CHARGEABLE TO TAX HAS ESCAPED ASSESSMEN T AND THEREFORE REOPENED THE ASSESSMENT UNDER SECTION 147 BY ISSUE OF NOTICE UNDER SECTION 148 OF THE ACT ON 03. 12.2009. THE REASONS FOR REOPENING STATED BY THE LEARNED ASS ESSING OFFICER ARE AS FOLLOWS:- 3 ITA NOS.2375 & 2376 /MDS/2014 I) THE ASSESSEE HAD DEBITED IN ITS PROFIT AND LOSS ACCOUNT RS. 39,18,575/- AS PROCESS SCRAP DISPOSAL EXPENSES AND CREDITED THE SAME TO PROVISION ACCOUNT . II) THE ACCUMULATED PROVISION FOR PROCESS SCRAP DISPOSAL EXPENSES STOOD IN THE BALANCE SHEET AS RS.97,03,000/- . 4. ON APPEAL, LEARNED COMMISSIONER OF INCOME TAX (APPEALS) UPHELD THE REOPENING BY OBSERVING AS UNDE R:- 9.1. I HAVE CAREFULLY EXAMINED THE FACTS OF THE CASE AND THE SUBMISSIONS OF THE LEARNED AUTHORIZED REPRESENTATIVE. THE AR WAS INFORMED ABOUT THE SUPREME COURTS DECISION NIT EH CASE OF RAJESH JHAVERI STOCK BROKERS P.LTD. 2007 291 ITR 500 WHEREIN THE HONBLE SUPREME COURT HELD THAT NO OPINION IS FORMED BY THE ASSESSING OFFICER UNDER SECTION 143(1). IN THE PRESENT CASE, THE REOPENING IS LESS THAN FOUR YEARS. THE AR HAS FAIRLY CONCEDED THAT THE ISSUE OF 147 IS COVERED BY THE HONBLE SUPREME COURTS DECISION CITED SUPRA. THE GROUND IS DISMISSED. THE REOPENING IS UPHELD. 5. BEFORE US, THE LEARNED AUTHORIZED REPRESENTATIV E REITERATED HIS ARGUMENTS MADE ON THE EARLIER OCCASI ON BEFORE THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) BY STATING THAT IN THE ABSENCE OF ANY FRESH MATERIALS THE 4 ITA NOS.2375 & 2376 /MDS/2014 REOPENING IS BAD IN LAW AND IN THE CASE OF THE ASSE SSEE THERE WAS NO FRESH MATERIAL WHICH HAS SURFACED BASED ON W HICH THE LEARNED ASSESSING OFFICER HAS REOPENED THE ASSESSME NT. HENCE, IT WAS PLEADED THAT THE ASSESSMENT ORDER PAS SED BY THE LEARNED ASSESSING OFFICER IS WITHOUT JURISDICTI ON AND MAY BE QUASHED. 6. THE LEARNED DEPARTMENTAL REPRESENTATIVE ON THE O THER HAND, RELIED IN THE ORDER OF THE LEARNED COMMISSION ER OF INCOME TAX (APPEALS) AND ARGUED IN SUPPORT OF THE S AME. 7. AFTER CONSIDERING THE RIVAL SUBMISSIONS, WE FIND MERIT IN THE ORDER OF THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS). IN THE PRESENT CASE, THE REOPENING OF TH E ASSESSMENT WAS WITHIN A PERIOD OF FOUR YEARS FROM T HE END OF THE RELEVANT ASSESSMENT YEAR. FURTHER, IT HAS CAME TO THE NOTICE OF THE LEARNED ASSESSING OFFICER THAT THE AS SESSEE HAD DEBITED CERTAIN EXPENDITURE IN ITS PROFIT AND LOSS ACCOUNT WHICH IS IN THE NATURE OF PROVISION FOR EXPENSES GI VING ARISE TO A REASONABLE BELIEF THAT THE INCOME HAS ESCAPED ASS ESSMENT BASED ON WHICH THE LEARNED ASSESSING OFFICER HAS R EOPENED. 5 ITA NOS.2375 & 2376 /MDS/2014 THEREFORE, WE UPHOLD THE ORDER OF THE LEARNED COMMI SSIONER OF INCOME TAX (APPEALS) ON THIS ISSUE. GROUND NO.2 -DISALLOWANCE OF PROVISIONS WITH RESPEC T TO PROCESS SCRAP DISPOSAL IN BOTH THE ASSESSMENT YEAR S: 8. DURING THE ASSESSMENT YEARS 2005-06 & 2007-08, T HE ASSESSEE HAD DEBITED IN ITS PROFIT AND LOSS ACCOUNT RS.39,18,575/- AND RS.28,22,013/- AS PROCESS SCRAP DISPOSAL EXPENDITURE RESPECTIVELY BY CREATING A PROVISION. THE LEARNED ASSESSING OFFICER DISALLOWED THIS CLAIM OF EXPENDIT URE BECAUSE IT WAS ONLY A PROVISION MADE DURING THE REL EVANT ASSESSMENT YEARS. THE EXPLANATION SUBMITTED BY THE LEARNED AUTHORIZED REPRESENTATIVE BEFORE THE LEARNED COMMIS SIONER OF INCOME TAX (APPEALS) WAS THAT THE SCRAP GENERATE D BY THE ASSESSEE IS HAZARDOUS IN NATURE AND HENCE THEY HAVE TO ENGAGE THE SERVICES OF SPECIALIZED AGENCY TO REMOVE THE HAZARDOUS MATERIALS FROM THE PREMISES OF THE ASSESS EE AND DISPOSE THE SAME AS PER THE NORMS OF THE POLLUTION CONTROL AUTHORITIES. THE ASSESSEE HAD ALSO PRODUCED COPIES OF INVOICES INDICATING THE QUANTITY, RATE PER KG., ETC ., BEFORE THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) TO EST ABLISH 6 ITA NOS.2375 & 2376 /MDS/2014 THAT THE EXPENDITURE HAD ACTUALLY CRYSTALLIZED DURI NG THE RELEVANT ASSESSMENT YEARS. HOWEVER, THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) REQUIRED THE ASSESSEE TO PRODUCE THE COPIES OF AGREEMENT BETWEEN THE SAID AGENCY AND THE APPELLANT IN ORDER TO VERIFY WH ETHER THE AGENCY WAS AUTHORIZED BY POLLUTION CONTROL AUTHORIT Y TO DISPOSE OF THE HAZARDOUS SCRAP MATERIALS OF THE ASS ESSEE. THE LEARNED AUTHORIZED REPRESENTATIVE HAD SUBMITTED BEFORE THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) TH AT THE ASSESSEE WAS UNABLE TO FURNISH THE REQUISITE AGREEM ENTS AT THAT POINT OF TIME, BUT INSTEAD FURNISHED CERTAIN E -MAIL CORRESPONDENCE. IN THE ABSENCE OF THE AGREEMENT, TH E LEARNED COMMISSIONER OF INCOME TAX (APPEALS) WAS OF THE OPINION THAT THE TRANSACTION MADE BY THE ASSESSEE C ANNOT BE RELIED UPON AND THEREFORE DISALLOWED THE EXPENDITUR E DEBITED IN THE PROFIT AND LOSS ACCOUNT WITH RESPECT TO PROC ESS SCRAP MATERIAL FOR BOTH THE ASSESSMENT YEARS. 9. THE LEARNED AUTHORIZED REPRESENTATIVE SUBMIT TED BEFORE US THAT IT WAS MANDATORY FOR THE ASSESSEE TO ENGAGE THE ABOVE MENTIONED AGENCY TO DISPOSE OFF THE WASTE . IT WAS 7 ITA NOS.2375 & 2376 /MDS/2014 FURTHER SUBMITTED THAT AMOUNT TO BE PAID FOR DISPOS ING THE WASTE IS ASCERTAINABLE AND THAT HAS TO BE MANDATORI LY INCURRED BY THE ASSESSEE. HENCE IT IS AN EXPENDITUR E THAT IS IDENTIFIABLE AND RELATED TO THE RELEVANT ASSESSMENT YEAR WHICH CANNOT BE AVOIDED. IT WAS THEREFORE ARGUED TH AT THE ADDITION MADE BY THE REVENUE MAY BE DELETED. ON THE OTHER HAND THE LEARNED D.R ARGUED IN SUPPORT OF THE ORDER S OF THE REVENUE. 10. AFTER HEARING BOTH SIDES AND EXAMINING THE PAPE R BOOK AND THE MATERIALS FURNISHED BY THE LEARNED AUTHORIZ ED REPRESENTATIVE, WE ARE OF THE VIEW THAT THE ASSESSE E WILL BE ENTITLED TO CLAIM THE EXPENDITURE TOWARDS PROCESS S CRAP MATERIAL PROVIDED THE CLAIM OF THE ASSESSEE IS GENU INE. IN ORDER TO VERIFY THE GENUINESS OF THE TRANSACTIONS, THE REVENUE HAS TO EXAMINE THE INVOICES, THE ACTUAL PAYMENT MAD E BY THE ASSESSEE DURING THE SUBSEQUENT YEAR AND THE SUBSTAN CE IN THE TRANSACTION. THE REVENUE MAY ALSO MAKE THEIR INDEPENDENT INVESTIGATION BY SUMMONING THE PARTY WH O HAS RECEIVED THE PAYMENT FOR SUCH SERVICE RENDERED. IT IS NOT MANDATORY FOR THE ASSESSEE AND SERVICE PROVIDER TO HAVE ANY 8 ITA NOS.2375 & 2376 /MDS/2014 PRE-WRITTEN AGREEMENTS. THE TERMS AND CONDITIONS M AY BE PROVIDED IN THE INVOICE ITSELF OR IN ANY OTHER RELE VANT DOCUMENTS. IN THESE CIRCUMSTANCES, WE ARE OF THE CO NSIDERED VIEW THAT THE MATTER SHOULD BE REMITTED BACK TO THE FILE OF THE LEARNED ASSESSING OFFICER TO EXAMINE THE ISSUE IN D ETAIL AND THEREAFTER PASS APPROPRIATE ORDERS AS PER MERIT AND AS PER LAW FOR BOTH THE ASSESSMENT YEARS. ACCORDINGLY, WE REMIT THE ISSUE BACK TO THE FILE OF THE LEARNED ASSESSING OFF ICER FOR DENOVO CONSIDERATION. 11. IN THE RESULT, BOTH THE APPEALS OF THE ASSESSEE ARE PARTLY ALLOWED FOR STATISTICAL PURPOSES AS INDICATE D HEREIN ABOVE. ORDER PRONOUNCED IN THE OPEN COURT ON THE 16 TH MARCH, 2016 SD/- SD/- ( . . . ) ( . ) (N.R.S.GANESAN) ( A.M OHAN ALANKAMONY ) # % / JUDICIAL MEMBER % / ACCOUNTANT MEMBER # /CHENNAI, ( /DATED 16 TH MARCH, 2016 SOMU *+ ,+ /COPY TO: 1. APPELLANT 2. RESPONDENT 3. - () /CIT(A) 4. - /CIT 5. + 1 /DR 6. /