The ACIT, 2(1), Bhopal V. M/s Madhya Pradesh State Industries Corporation, Bhopal

ITA 259/IND/2012

• Counselvise Citation: [2012] 140 COUNSELVISE.COM (IT) 66734 (ITAT-INDORE)
• Duration Of Justice: 5 month(s) 25 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 01-11-2012
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: Not Allotted
• Assessment Year: 2008-2009
• Appeal Filed On: 07-05-2012
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: DARSHAN SINGH
• Keywords: Depreciation; Unabsorbed depreciation
• Section: 37

Judgement Text

1 IN THE INCOME TAX APPELLATE TRIBUNAL INDORE BENCH, INDORE BEFORE SHRI JOGINDER SINGH, JUDICIAL MEMBER AND SHRI R.C. SHARMA, ACCOUNTANT MEMBER ITA NO. 259/IND/2012 A.Y. 2008-09 ASSTT.COMMISSIONER OF INCOME TAX 2(1) BHOPAL :: APPELLANT VS M/S MADHYA PRADESH STATE INDUSTRIES CORPORATION, BHOPAL PAN AABCB 9653P :: RESPONDENT APPELLANT BY SHRI DARSHAN SINGH RESPONDENT BY WRITTEN SUBMISSIONS DATE OF HEARING 1.11.2012 DATE OF PRONOUNCEMENT 1.11.2012 O R D E R PER JOGINDER SINGH, JUDICIAL MEMBER THE REVENUE IS AGGRIEVED BY THE IMPUGNED ORDER DAT ED 24 TH FEBRUARY, 2012 PASSED BY THE LEARNED FIRST APPELLAT E AUTHORITY, 2 BHOPAL. THE FIRST GROUND RAISED IS THAT ON THE FAC TS AND IN THE CIRCUMSTANCES OF THE CASE, THE LEARNED CIT(A) ERRED IN ALLOWING THE EXPENSES AMOUNTING TO RS.30,89,247/- UNDER THE TITLE HEAD OFFICE INCURRED FOR MAINTAINING THE HEAD OFFICE AN D TO KEEP THE CORPORATE ENTITY LIVE WHEN SUCH EXPENSES ARE NEITHE R COVERED U/S 37 OF THE ACT AS NO MANUFACTURING/TRADING ACTIVITY WAS UNDERTAKEN UNDER THE YEAR UNDER CONSIDERATION, NOR COVERED U/S 57 OF THE ACT AS THE SAID EXPENSES WERE NOT INCURRE D SOLELY AND EXCLUSIVELY FOR THE PURPOSE OF EARNING INCOME. 2. DURING HEARING, WE HAVE HEARD SHRI DARSHAN SINGH , LEARNED CIT DR WHEREAS THE ASSESSEE HAS FILED WRITTEN SUBMI SSIONS. MR. DARSHAN SINGH ADVANCED HIS ARGUMENTS WHICH ARE IDEN TICAL TO THE GROUND RAISED BY SUPPORTING THE ASSESSMENT ORDE R. WE HAVE CONSIDERED THE WRITTEN SUBMISSIONS OF THE ASSESSEE ALONG WITH THE ARGUMENTS ADVANCED BY THE LEARNED CIT DR. FOR COMING TO A FAIR CONCLUSION WE ARE SUMMARISING HEREUNDER THE UN IT AND HEADWISE DETAILS OF THE EXPENSES INCURRED BY THE AS SESSEE :- 3 HEAD OF EXPENSES/UNIT RACP RATLAM DEWAS UDYOG DEWAS HEAD OFFICE TOTAL (IN RS.) SALARY/ALLOWANCES & BONUS 7349033.4 5 0.00 805982.00 8155015.45 EMPLOYERS CONTRIBUTION TO PROVIDENT FUND & PENSION FUND 148092.15 0.00 21603.00 169695.15 STAFF WELFARE 30660.00 0.00 .00 30660.00.0 GRATUITY 139865.00 73278.00 0.00 213143.00 TELEPHONE 0.00 0.00 49085.00 49085.00 SALARY TO HOME GUARD 0.00 0.00 1785976.00 1785976.00 TRAVELLING EXPENSES 7207.60 0.00 72818.00 80025.00 PRINTING/ POSTAGE 1828.00 0.00 66024.00 67852.00 LEGAL EXPENSES 20000.00 0.00 264026.00 284026.00 RENT, RATES & TAXES 0.00 0.00 1600050.00 1600050.00 ELECTRICITY & WATER 0.00 0.00 2824.00 2824.00 ADVERTISEMENT 0.00 0.00 4562.00 4562.00 MISCELLANEOUS 173298.80 37486.00 22006.00 232790.80 FINANCE CHARGES 1679.00 0.00 7291.66. 8970.66 TOTAL EXPENSES BEFORE 7871664.00 110764.00 4702247.66 12684675.66 DEPRECIATION 192653.00 18027.00 0.00 210680.00 TOTAL 80643 I 7.00 128791.00 4702247.66 12895355.66 FRINGE BENEFIT TAX 0.00 0.00 1891.00 1891.00 GRAND TOTAL 8064317.00 128791.00 4704138.66 12897246.66 IF THE EXPENSES INCURRED BY THE ASSESSEE UNDER DIFF ERENT HEADS ARE ANALYSED, IN THE LIGHT OF THE FINDING RECORDED BY THE LEARNED CIT(A), WE FIND THAT THE AMOUNT OF RS.30,89,247/- W AS INCURRED ON ACCOUNT OF MAINTENANCE AND OPERATION OF HEAD OF FICE ESPECIALLY WHEN THE ASSESSEE IS A CORPORATE ENTITY AND HAS NOT WOUND UP ITS BUSINESS. SUCH EXPENSES HAVE BEEN INCU RRED FOR SMOOTH RUNNING AND TO KEEP THE CORPORATE ENTITY LIV E. REGARDING THE REMAINING EXPENSES OF RS. 78,71,664/- OUT OF TH E TOTAL EXPENSES OF RS.1,28,95,256/- WHEREVER THE LEARNED C IT(A) FOUND 4 THAT SUCH EXPENSES WERE ESSENTIALLY NOT INCURRED FO R GENUINE PURPOSES, THE SAME WERE DISALLOWED AND THE GENUINE EXPENSES TO THE EXTENT OF RS.30,89,247/- WHICH WERE NECESSARY F OR SMOOTH FUNCTIONING WERE ONLY ALLOWED BY THE LEARNED CIT(A) . WHILE COMING TO THIS CONCLUSION, RELIANCE HAS ALREADY BEE N PLACED IN CIT VS. RAMPUR TIMBER & TANNERY CO. PVT. LTD.; 129 ITR 58 (ALL) AND CHENNAI & CO. PVT. LTD. V. CIT; 206 ITR 616. I T IS PERTINENT TO MENTION HERE THAT NO EXPENSES IN RESPECT OF MANU FACTURING ACTIVITIES HAVE BEEN ALLOWED BY THE LEARNED CIT(A). IT IS FURTHER NOTED THAT THE EXPENSE LIKE SALARY, EMPLOYEES CONT RIBUTION TO PF AND PENSION FUND, STAFF WELFARE, TELEPHONE, SALARY TO HOME GUARD, TRAVELLING EXPENSES, PRINTING AND POSTAGE, LEGAL EX PENSES, ELECTRICITY AND WATER CHARGES, ETC. ARE NECESSARY T O KEEP THE CORPORATE ENTITY LIVE. NOWHERE THE ASSESSING OFFICE R HAS BROUGHT ON RECORD THAT ANY EXPENDITURE WAS INCURRED FOR EXT RANEOUS CONSIDERATION, THEREFORE, THE ITO IS NOT EXPECTED T O DECIDE THE REASONABLENESS BECAUSE IT IS THE ASSESSEE WHO KNOWS HIS BUSINESS INTEREST BETTER. REASONABLENESS IS TO BE D ECIDED BY THE ASSESSEE THOUGH THE ASSESSING OFFICER IS EMPOWERED TO DISALLOW THE PAYMENT/EXPENDITURE IF MADE FOR EXTRA COMMERCIA L CONSIDERATION. IN VIEW OF THE UNCONTROVERTED FINDIN G RECORDED BY 5 THE LEARNED CIT(A), WE FIND NO INFIRMITY IN THE ORD ER OF THE LEARNED CIT(A) ON THE ISSUE AND CONFIRM THE SAME, RESULTING INTO DISMISSAL OF THE GROUND. 3. THE NEXT GROUND PERTAINS TO SET OFF OF UNABSORBE D DEPRECIATION OF EARLIER YEARS AGAINST THE INCOME FR OM OTHER SOURCES AMOUNTING TO RS. 79,82,428/-. AT THE OUTSE T, IN ITS WRITTEN SUBMISSION, IT WAS CLAIMED THAT THE IMPUGNE D ISSUE IS COVERED IN FAVOUR OF THE ASSESSEE BY THE DECISION O F THE TRIBUNAL FOR THE A.Y. 2007-08 (ITA NO. 393/IND/2010) IN THE CASE OF THE ASSESSEE ITSELF. THIS FACTUAL MATRIX WAS FAIRLY CO NSENTED TO BE CORRECT BY THE LEARNED CIT DR. 4. WE HAVE PERUSED THE RECORD AVAILABLE ON THE FIL E AND CONSIDERED THE WRITTEN SUBMISSIONS OF THE ASSESSEE ALONG WITH THE SUBMISSIONS OF THE LEARNED CIT DR. THE FACTS, I N BRIEF, ARE THAT THE ASSESSEE COMPANY IS ENGAGED IN THE BUSINES S OF MANUFACTURING AND TRADING OF VARIOUS ITEMS. THE AS SESSEE DECLARED LOSS OF RS.5,14,588/- IN ITS RETURN FILED ON 29.9.2008. THE CLAIM OF THE ASSESSEE IS THAT MOST OF THE UNITS OF THE ASSESSEE COMPANY WERE RUNNING UNDER HEAVY LOSSES. THE ASSESS EE CLAIMED UNABSORBED DEPRECIATION OF RS.2,11,29,222/- SINCE 1 997-98. THE QUESTION BEFORE US IS WHETHER UNABSORBED DEPRECIATI ON IS ALLOWED 6 TO BE SET OFF AGAINST ANY OTHER INCOME I.E. INCOME FROM ANY OTHER SOURCES. WE FIND THAT THE TRIBUNAL FOR THE A.Y. 20 07-08 IN THE CASE OF THE ASSESSEE (ITA NO. 393/IND/2010) HELD AS UNDER :- 6. WE HAVE CONSIDERED THE RIVAL CONTENTIONS, CAREFUL LY GONE THROUGH THE ORDERS OF THE AUTHORITIES BELOW AN D FOUND FROM RECORD THAT THE A.O. HAS DECLINED SET OFF OF UNABSO RBED DEPRECIATION AGAINST INCOME FROM OTHER SOURCES, ON THE PLEA THAT SUCH UNABSORBED DEPRECIATION IS PART OF BROUGHT FOR WARD BUSINESS LOSSES, WHICH CAN BE ALLOWED TO SET OFF TO THE EXTENT OF SPECIFIED PERIOD AS MENTIONED U/S 73(3). AS PER OUR CONSIDERED VIEW JOINT READING FO SECTION 32(2) WITH SECTION 72 (2) AND 73(3) CLEARLY PROVIDE THAT UNABSORBED DEPRECIATION CARRIE D FORWARD IN EARLIER EYARS IS TO BE ADDED TO THE AMOUNT OF DEPRE CIATION OF THE CURRENT YEAR AND IT IS DEEMED TO BE PART OF THE CUR RENT YEARS DEPRECIATION ALLOWANCE. ONCE THE UNABSORBED DEPRECI ATION IS TREATED AS A PART OF THE CURRENT YEARS DEPRECIATIO N ALLOWANCE. ONCE THE UNABSORBED DEPRECIATION IS TREATED AS A PA RT OF THE CURRENT YEARS DEPRECIATION, THE RESULTANT BUSINESS LOSS OF CURRENT YEAR IS ELIGIBLE TO BE ALLOWED TO BE SET OF F AGAINST INCOME FROM OTHER SOURCES...... WE FURTHER FIND THAT WHILE COMING TO THE AFORESAID CONCLUSION, THE TRIBUNAL RELIED UPON VARIOUS DECISIONS LIKE CIT VS. JAIPUR CHINA CLAY MINES (P) LTD. (1996) 59 ITR 55 (SC) GAR DEN SILK 7 WVG.; GARDEN SILK WVG. FACTORY V. CIT (1991) 189 IT R 512 (SC); CIT VS. VRMANI INDUSTRIES PVT. LTD., ETC. ETC. (199 5) 216 ITR 607 (SC); RAJAPALAYAM MILLS LTD. VS. CIT (1978) 115 ITR 777 (SC); ESCORTS ELECTRONICS LTD. VS. CIT (2002) 124 TAXMAN 718 DEL.; JT. CIT VS. INFOCON INTERNATIONAL LTD. (2005) 2 SOT 444 (BANG) AND CZIT VS. HIMATASINGIKA SEIDE LTD. (2006) 286 ITR 25 5 156 TAXMAN 151 (KAR.). THE TRIBUNAL FURTHER HELD AS UN DER :- 7. IN VIEW OF THE ABOVE DISCUSSION, WE DO NOT FIND ANY INFIRMITY IN THE ORDER OF THE CIT(A) FOR ALLOWING SET OFF OF UNABSORBED DEPRECIATION BY TREATING THE SAME AS PART OF THE CURRENT YEARS DEPRECIATION AGAINST INCOME FROM OTHER SOURCES. 8. IN THE RESULT, THE APPEAL OF THE REVENUE IS DISMISSED. IN THE ABSENCE OF ANY CONTRARY DECISION OR FACTS BR OUGHT ON RECORD BY THE REVENUE, WE FIND NO INFIRMITY IN THE CONCLUSION DRAWN IN THE IMPUGNED ORDER. SO FAR AS THE DECISION RELIED UPON BY THE LEARNED CIT DR IS CONCERNED, IT WOULD NOT HE LP THE REVENUE BEING DISTINGUISHABLE ON FACTS. FINALLY, THE APPEAL OF THE REVENUE IS DISMISSED. THIS ORDER WAS PRONOUNCED IN THE OPEN COURT IN THE PRESENCE OF LD. REPRESENTATIVES FROM BOTH SIDES AT THE CONCLUSION OF THE HEARING ON IST NOVEMBER, 2012. 8 SD SD/- (R.C.SHARMA) (JOGINDER SINGH ) ACCOUNTANT MEMBER JUDICIAL ME MBER DATED: IST NOVEMBER, 2012 COPY TO: APPELLANT, RESPONDENT, CIT, CIT(A), DR, GU ARD FILE DN/-11