DCIT CIR 6(1), MUMBAI V. BALKRISHNA INDUSTRIES LTD, MUMBAI

ITA 2380/MUM/2013

• Counselvise Citation: [2016] 131 COUNSELVISE.COM (IT) 1783 (ITAT-MUMBAI)
• Duration Of Justice: 3 year(s) 8 month(s) 6 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 01-12-2016
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: B
• Next Hearing Date: 29-06-2015
• Assessment Year: 2006-2007
• Appeal Filed On: 26-03-2013
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: SAURABH RAIDR
• Assessee Lawyers: RUCHITA JAIN
• Keywords: Depreciation; Additional depreciation; Earning of tax free income; Tangible material; Wrong claim; Difference of opinion; Reason to believe; Change of opinion; Capital expenditure
• Section: 143(3); 14A; 147; 148; 37; 2

Judgement Text

, INCOME-TAX APPELLATE TRIBUNAL -BBENCH MUMBAI , , BEFORE S/SH.RAJENDRA,ACCOUNTANT MEMBER AND AMARJIT SINGH,JUDICIAL MEMBER ./I.T.A./2380/MUM/2013, / ASSESSMENT YEAR: 2006-07 ./I.T.A./2381/MUM/2013, / ASSESSMENT YEAR: 2007-08 DCIT-6(1) 5TH FLOOR,R.NO.506, AAYAKAR BHAVAN, MK ROAD MUMBAI-20. VS. M/S. BALKRISHNA INDUSTRIES LIMITED BKT HOUSE, TRADE WING, C WING 15 TH FLOOR, KAMALA MILL COMPOUND, SENAPATI BAPAT MARG, LOWER PAREL MUMBAI-400 013. PAN:AAACB 3333 J ( /APPELLANT ) ( / RESPONDENT) / REVENUE BY: SHRI SAURABH RAI-DR /ASSESSEE BY: MS. RUCHITA JAIN -AR / DATE OF HEARING: 01.12.2016 / DATE OF PRONOUNCEMENT: 01.12.2016 ,1961 254(1) ORDER U/S.254(1)OF THE INCOME-TAX ACT,1961(ACT) , / PER RAJENDRA A.M. - CHALLENGING THE ORDERS DATED 31.12.2012 OF CIT(A)-1 4, MUMBAI THE ASSESSING OFFICER (AO) HAS FILED THE APPEALS FOR THE ABOVE MENTIONED TWO A Y.S. ASSESSEE-COMPANY, IS ENGAGED IN THE BUSINESS OF MANUFACTURING OF TYRES. THE DETAILS OF RETURNED INCOMES, ASSESSED INCOMES CAN BE SUMMARISED AS UNDER :- A.Y. RETURNED INCOME(RS.) ASSESSMENT DT. ASSESSED INCOME(RS.) 2006-07 90,34,55,520/- 31.12.2008 6,88,48,190/- 2007-08 111,41,60,846/- 26.12.2011 114,47,52,990/- ITA/2380/MUM/13-AY.2006-07: 2. DURING THE ASSESSMENT PROCEEDINGS,THE AO MADE AN AD DITION OF RS.1.05CRORES TO THE INCOME OF THE ASSESSEE ON ACCOUNT OF INTEREST AND O THER INCOME FOR NOT OFFERING THE SAME FOR TAXATION.THE ASSESSEE PREFERRED AN APPEAL BEFORE T HE FIRST APPELLATE AUTHORITY(FAA). BEFORE HIM, IT WAS ARGUED THAT THE AO HAD MADE THE ADDITIO N BY REFERRING THE NOTES ON ACCOUNT, THAT HE HAD NOT APPRECIATED THE FACT THAT DISPUTED AMOUN T HAD BEEN ALREADY BEEN OFFERED FOR TAXATION, THAT IT WAS A CASE OF DOUBLE ADDITION. 2.1. THE FAA DIRECTED THE AO TO VERIFY THE POSITION AS T O WHETHER THE SAID AMOUNT WAS OFFERED FOR TAXES OR NOT. THE AO,WHILE GIVING EFFEC T TO THE ORDER OF THE FAA MADE THE IDENTICAL ADDITIONS TO THE INCOME OF THE ASSESSEE. 2380/M/13-BALKRISHNA 2 IN THE SECOND ROUND OF APPEAL BEFORE THE FAA,THE AS SESSEE ARGUED THAT INTEREST AMOUNT IN QUESTION WAS CAPITALISED BY ASSESSEE AND THAT IT WA S NET OF INTEREST INCOME,THAT CORRESPONDING EXPENSES HAD BEEN CHARGED TO P&L ACCOUNT TO THE EXT ENT OF INTEREST INCOME,THAT THE AO HAD MADE DISALLOWANCE OF RS.1.05 CRORES BY WRONGLY INTE RPRETING THE NOTES TO ACCOUNTS.AFTER CONSIDERING THE MATERIAL AVAILABLE,THE FAA HELD THA T AO HAD WRONGLY ADDED THE DISPUTED AMOUNT TO THE INCOME OF THE ASSESSEE ,WHILE GIVING EFFECT TO THE ORDER PASSED BY THE THEN FAA. 2.2. BEFORE US,THE DEPARTMENTAL REPRESENTATIVE(DR) STATE D THAT MATTER COULD BE DECIDED ON MERITS.THE AUTHORISED REPRESENTATIVE (AR)CONTENDED THAT IT WAS A SIMPLE CASE OF DOUBLE ADDITION, THAT THE AO HAD IGNORED THE DETAILS SUBMI TTED BY THE ASSESSEE. 2.3. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE AVAILABLE MATERIAL. WE FIND THAT DURING THE ORIGINAL APPELLATE PROCEEDINGS,THE FAA D IRECTED THE AO TO VERIFY AS TO WHETHER IT WAS A CASE OF DOUBLE ADDITION.WHILE GIVING EFFECT T O THE ORDER OF THE FAA,THE AO IGNORED THE SUBMISSIONS OF THE ASSESSEE AND DID NOT TAKE INTO C OGNISANCE THE FACT THAT THE ASSESSEE HAD ALREADY OFFERED THE DISPUTED AMOUNT FOR TAXATION.AS THE FAA HAS DELETED THE DOUBLE ADDITION, SO,IN OUR OPINION HIS ORDER DOES NOT SUFFER FROM AN Y LEGAL OR FACTUAL INFIRMITY.CONFIRMING HIS ORDER WE DECIDE THE EFFECTIVE GROUND OF APPEAL AGAI NST THE ASSESSING OFFICER. ITA /2381/M/13 AY.2007-08: 3. THE EFFECTIVE GROUND OF APPEAL RAISED BY THE ASSESS ING OFFICER IS ABOUT QUASHING THE RE- OPENING OF THE ASSESSMENT.IN THIS CASE THE ORIGINAL ASSESSMENT WAS MADE U/S.143(3) OF THE ACT ON 31.12.2009 ASSESSING THE TOTAL INCOME OF THE ASS ESSEE AT RS111.41 CRORES.SUBSEQUENTLY, THE AO ISSUED A NOTICE U/S. 148 AND COMPLETED THE A SSESSMENT,U/S.143(3)R.W.S.147 OF THE ACT, DETERMINING THE INCOME OF ASSESSEE AT RS.114.47 CR ORES.WHILE ISSUING THE NOTICE U/S. 148 OF THE ACT, THE AO RECORDED THE FOLLOWING REASONS:- 'FROM THE RECORDS, IT IS FOUND THAT THE ASSESSEE HA D CLAIMED ADDITIONAL DEPRECIATION ON 'POWER DISTRIBUTION HEAVY DUTY CABLE', TRANSFORMER, FIRE EXTINGUISHER, LABORATORY EQUIPMENT, DG SET. AS THESE ARE NOT MACHINERY OR PL ANT RELATED TO MANUFACTURING ACTIVITY, ADDITIONAL DEPRECIATION ON THESE ITEMS ARE NOT ALLO WABLE. AS PER SECTION 32(L)(II) OF THE IT ACT, 1961, ADDITIONAL DEPRECIATION AT THE RATE OF T WENTY PERCENT OF ACTUAL COST OF NEW MACHINERY OR PLANT ACQUIRED AND INSTALLED AFTER 31. 03.2005 BY AN ASSESSEE ENGAGED IN THE BUSINESS OF MANUFACTURE OR PRODUCTION OF ANY ARTICL E OR THINGS, IS ALLOWED. THEREFORE, I HAVE REASON TO BELIEVE THAT AT LEAST A N AMOUNT OF INCOME OF RS.2,95,25,439/- CLAIMED AS ADDITIONAL DEPRECIATION OVER THE ASSETS MENTIONED IN THE ABOVE PARA HAS ESCAPED ASSESSMENT FOR THE A.Y.2007-08. 2380/M/13-BALKRISHNA 3 (II) AS PER SECTION 37 OF THE ACT, ANY EXPENDITURE NOT BEING EXPENDITURE OF NATURE DESCRIBED IN SECTION 30 TO 36 AND BEING IN THE NATURE OF CAPITAL OR PERSONAL EXPENDITURE OF ASSESSEE LAID OUT OR EXPENDED WHOLLY AND EXCLUSIVELY FOR THE PURP OSE OF BUSINESS SHALL BE ALLOWED IN COMPUTING INCOME CHARGEABLE UNDER PROFITS AND GAINS OF BUSINESS OR PROFESSION. IN RESPECT OF LEGAL AND PROFESSION FEES DEBITED TO PROFIT & LOSS ACCOUNT, IT IS FURTHER FOUND FROM THE RECORDS THAT THE FOLLOWING EXPENDITURE WER E CAPITAL IN NATURE AND SAME WERE NOT ADMISSIBLE FOR DEDUCTION: 1. CONSULTANCY FOR ISO REGISTRATION : RS. 145000 /- 2.LIASONING WORK FOR TRANSFORMER : RS. 164016/- 3.TRADE MARK REGISTRATION : RS. 20000/- 4.MARKETING CONSULTANCY : RS 10146110/- 5.CONSULTANCY TOWARDS MACHINE PROCUREMENT : RS. 655 2904/- 6.PREPARING AND FINALIZING OPINION ON PARKING OF FC CB FUND :RS.1000/- TOTAL : RS. 1,72,42,502/ LESS: : RS.4310625/- DEPRECIATION ALLOWABLE @25% (INTANGIBLE ASSETS): RS.12931876/- THEREFORE I HAVE REASON TO BELIEVE THAT AT LEAST AN AMOUNT OF INCOME OF RS. 1,29,31,876/ ON THIS ACCOUNT HAS ESCAPED ASSESSMENT FOR THE A. Y. 2 007-08. (III) AS PER SECTION 14A OF THE INCOME TAX ACT, 19 61, ANY EXPENDITURE INCURRED FOR EARNING THE EXEMPT INCOME IS NOT AN ALLOWABLE EXPENDITURE A ND RULE 8D OF THE INCOME TAX RULE PROVIDES FOR MODE FOR COMPUTING SUCH EXPENDITURE. THE ASSESSEE HAS DEBITED IN P&L ACCOUNT AN AMOUNT O F RS. 170169594/- ON ACCOUNT OF INTEREST EXPENDITURE ON BORROWED FUND. THE ASSESSEE IS USING OWN FUNDS AS WELL AS BORROWED FUNDS FOR ITS ACTIVITY INCLUDING THE INVESTMENT. TH E ASSESSEE HAD CLAIMED THE INCOME EARNED FROM SUCH INVESTMENT AS EXEMPT INCOME. THEREFORE, T HE EXPENDITURE ATTRIBUTABLE TO EXEMPT INCOME WAS DISALLOWED APPLYING SECTION 14A R. W.RU1 E 8D. IT IS FOUND FROM THE RECORDS THAT THE EXPENDITURE UNDER RULE 8D (II) WAS COMPUTED IN CORRECTLY AT RS. NIL AS AGAINST THE CORRECT AMOUNT OF RS. 8,77,786/- AS UNDER: INTEREST EXPENDITURE: RS. 170169594/ (AS PER P&LA/C) AVERAGE INVESTMENT: RS. (21827821 + 51167647)/2 = R S. 36497734/ (AS PER BALANCE SHEET) AVERAGE TOTAL ASSETS = (7933075187 + 6217998895)/2= RS. 7075537041/ EXPENDITURE DISALLOWABLE UNDER RULE 8D(II) AXB/C= 170169594 X 36497734/7075537041 = RS. 877786 /- THEREFORE, I HAVE REASON TO BELIEVE THAT AT LEAST A N AMOUNT OF INCOME OF RS.8,77,786/- ON THIS COUNT HAS ESCAPED ASSESSMENT FOR THE A.Y.2007-08. WHILE COMPLETING THE RE-ASSESSMENT ORDER,THE AO MAD E ADDITIONS ON ALL THE THREE COUNTS I.E. ADDITIONAL DEPRECIATION ON MACHINERY (RS.2.95CRORES ); WRONG CLAIM OF CAPITAL EXPENDITURE (RS. 1.29CRORES) AND DISALLOWANCE U/S. 14A (RS.8.77 LAKH S). 3.1. AGGRIEVED BY THE ORDER OF THE ASSESSING OFFICER THE ASSESSEE PREFERRED AN APPEAL BEFORE THE FAA AND CHALLENGED THE RE-OPENING AS WELL AS TH E ADDITIONS MADE.BEFORE HIM,THE ASSESSEE 2380/M/13-BALKRISHNA 4 CONTENDED THAT THE ISSUE OF ADDITIONAL DEPRECIATION WAS RAISED BY THE AO DURING THE ORIGINAL ASSESSMENT PROCEEDINGS VIDE HIS QUESTIONNAIRE DT.28 .8.2009,THAT THE ASSESSEE HAD FILED ITS REPLY IN THAT REGARD VIDE ITS LETTER DT.27.10.2009, THAT THE AO HAD SPECIFICALLY MADE ENQUIRIES ABOUT THE LEGAL AND PROFESSIONAL FEE, THAT HE WAS S ATISFIED THAT THE EXPENDITURE WAS NOT OF CAPITAL NATURE, THAT HE HAD ALSO MADE ENQUIRIES ABO UT DISALLOWANCE,IF ANY,TO BE MADE U/S. 14A OF THE ACT,WHILE COMPLETING THE ORIGINAL ASSESSMENT , THAT NO NEW MATERIAL WAS BROUGHT ON RECORD BY THE ASSESSING OFFICER FOR REOPENING THE C OMPLETED SCRUTINY ASSESSMENT, THAT IT WAS A CASE OF MERE CHANGE OF OPINION.THE ASSESSEE REL IED UPON SEVERAL CASE LAWS. AFTER CONSIDERING THE SUBMISSIONS OF THE ASSESSEE A ND THE ASSESSMENT ORDER THE FAA HELD THAT THE AO HAD CALLED FOR AND EXAMINED THE DETAILS/SUBM ISSIONS /CLARIFICATIONS ON ALL THE THREE ISSUES,THAT HE WAS NOT JUSTIFIED TO RE-OPEN THE ASS ESSMENT ON THE BASIS OF SAME ISSUES AND THE SAME MATERIAL,THAT IT WAS A SIMPLE CASE OF CHANGE O F OPINION.ACCORDINGLY, HE QUASHED THE ORDER PASSED BY THE AO. 3.2. THE DR LEFT THE ISSUE TO THE DISCRETION OF THE BENC H. THE AR REFERRED TO THE QUESTIONNAIRE ISSUED BY THE AO,WHILE COMPLETING THE ORIGINAL ASSE SSMENT PROCEEDINGS AND VARIOUS REPLIES FILED BY ASSESSEE BEFORE HIM. 3.3. WE HAVE PERUSED THE MATERIAL AVAILABLE AND HEARD BO TH THE SIDE.WE FIND THAT THE AO HAD ISSUED A DETAILED QUESTIONNAIRE ON 28.9.2009, THAT IN HIS FOUR PAGE-QUESTIONNAIRE HE HAD ASKED THE ASSESSEE TO FILE THE DETAILS AND BASIS FOR CLAI MING ADDITIONAL DEPRECIATION (Q.NO.9, ABOUT DETAILS OF COMPUTATION OF EXPENSES ATTRIBUTABLE U/S .14A OF THE ACT (Q.16) AND DETAILS OF LEGAL AND PROFESSIONAL CHARGES(Q.27(II)). WE FURTHER FUND THAT THE ASSESSEE HAD FILED THE DETAILS CALLED FOR BY THE AO ABOUT ALL THE THREE QUERIES, H AT HE HAD COMPLETED THE ASSESSMENT U/S. 143(3) OF THE ACT AFTER CONSIDERING THE SUBMISSIONS OF THE ASSESSEE. IN THESE CIRCUMSTANCES, WE ARE OF THE OPINION THAT THE AO WAS NOT JUSTIFIED IN RE-OPENING THE ASSESSMENT ON THE BASIS OF SAME MATERIAL.WE WOULD LIKE TO REFER TO THE CASE OF KELVINATOR OF INDIA LTD (320ITR561) OF THE HON'BLE SUPREME COURT AND IT READS AS UNDER :- THE CONCEPT OF CHANGE OF OPINION ON THE PART OF T HE ASSESSING OFFICER TO REOPEN AN ASSESSMENT DOES NOT STAND OBLITERATED AFTER THE SUB STITUTION OF SECTION 147 OF THE INCOME-TAX ACT, 1961, BY THE DIRECT TAX LAWS (AMENDMENT) ACTS, 1987 AND 1989. AFTER THE AMENDMENT, THE ASSESSING OFFICER HAS TO HAVE REASON TO BELIEVE THAT INCOME HAS ESCAPED ASSESSMENT, BUT THIS DOES NOT IMPLY THAT THE ASSESSING OFFICER CAN REOPEN AN ASSESSMENT ON MERE CHANGE OF OPINION. THE CONCEPT OF CHANGE OF OPINION MUST BE TREATED AS AN IN-BUILT TEST TO CHECK THE ABUSE OF POWER. HENCE AFTER APRIL 1, 1989, THE ASSE SSING OFFICER HAS POWER TO REOPEN AN ASSESSMENT, PROVIDED THERE IS TANGIBLE MATERIAL T O COME TO THE CONCLUSION THAT THERE WAS 2380/M/13-BALKRISHNA 5 ESCAPEMENT OF INCOME FROM ASSESSMENT. REASON MUST H AVE A LINK WITH THE FORMATION OF THE BELIEF. FROM THE ABOVE IT IS CLEAR THAT THE ASSESSMENT REOP ENED BY AN AO WITHOUT ANY TANGIBLE MATERIAL OR ON THE BASIS OF CHANGE OF OPINION HAS T O BE QUASHED.IN THE CASE UNDER CONSIDERATION THERE WAS NO TANGIBLE MATERIAL TO INV OKE THE PROVISIONS OF SECTION 147 OF THE ACT.IN THESE CIRCUMSTANCES,WE ARE OF THE OPINION T HAT THE ORDER OF FAA DOES NOT SUFFER FROM ANY LEGAL INFIRMITY.SO,CONFIRMING HIS ORDER,WE DECI DE THE EFFECTIVE GROUND OF APPEAL AGAINST THE AO. AS A RESULT, APPEALS FILED BY THE ASSESSING OFFICER FOR BOTH THE AY.S STAND DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 1ST DECEMB ER, 2016. 1 , 2016 SD/- SD/- ( / AMARJIT SINGH ) ( / RAJENDRA ) / JUDICIAL MEMBER / ACCOUNTANT MEMBER MUMBAI; DATED : 01.12.2016. JV.SR.PS. / COPY OF THE ORDER FORWARDED TO : 1. APPELLANT / 2. RESPONDENT / 3. THE CONCERNED CIT(A)/ , 4. THE CONCERNED CIT / 5. DR B BENCH, ITAT, MUMBAI / , , . . . 6. GUARD FILE/ //TRUE COPY// / BY ORDER, / DY./ASST. REGISTRAR , /ITAT, MUMBAI.