DCIT, Nanded V. Jai Ambika SSK Ltd., Nanded

ITA 263/PUN/2009

• Counselvise Citation: [2010] 135 COUNSELVISE.COM (IT) 3269 (ITAT-PUNE)
• Duration Of Justice: 1 year(s) 7 month(s) 4 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 24-09-2010
• Appeal Filed By: Department
• Order Result: Partly Allowed
• Bench Allotted: B
• Assessment Year: 2004-2005
• Appeal Filed On: 19-02-2009
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: ABHAY DAMLE
• Assessee Lawyers: S N DOSHI
• Keywords: Business expenditure; Opportunity of being heard; Additional evidence; Notional interest
• Section: 43B; 37

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL PUNE BENCH A, PUNE BEFORE SHRI SHAILENDRAKUMAR YADAV AND SHRI D. KARUN AKARA RAO ITA NO. 263/PN/09 (ASST. YEAR 2004-05) DY. CIT, CIRCLE 3, NANDED .... APPELLANT VS. JAI AMBIKA SSK LTD. MOHAN NAGAR KUNTUR TQ. NAIGAON DIST. NANDED PAN NO. AAAAJ0481H . RESPONDENT APPELLANT BY : SHRI ABHAY DAMLE RESPONDENT BY : SHRI S.N. DOSHI ORDER PER D. KARUNAKARA RAO AM THIS IS AN APPEAL BY REVENUE AGAINST THE ORDER OF THE CIT(A), AURANGABAD DATED 21/11/2008 FOR THE ASSESSMENT YEAR 2004-05. 2. AT THE VERY OUTSET LD. COUNSEL FOR THE ASSESSEE ME NTIONED THAT GROUND NO. 1 IS COVERED IN FAVOUR OF THE ASSESSEE BY THE DEC ISION OF THE PUNE BENCH IN THE CASE OF M/S NARSINHA SSK LTD., BEARING ITA NO. 88 2 AND 883/PN/2007 A.Y 2000-01 AND 2003-04 ORDER DATED 30/01/2009 AND REFERRED TO PARAGRAPHS 5, 6, 7 & 8 OF THE ORDER. FURTHER, HE MENTIONED THAT THE CIT(A) DELETED THE DISALLOWANCE RELYING ON THE JUDGMENT OF PUNE ITAT IN CASE OF PANC HAGANGA SSK LTD AS CITED IN PAGE 3 OF IMPUGNED ORDER. WE HAVE HEARD THE PARTIE S AND PERUSED THE COPY OF THE DECISION IN THE CASE OF M/S NARSINHA SSK LTD (SUPRA) FILED BEFORE US. RELEVANT PARAGRAPHS 5 ONWARDS READ AS UNDER: 5. THE GROUND NO. 2 READS AS UNDER: ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE CIT(A) HAS ERRED IN NOT ALLOWING THE DEDUCTION OF WHICH REPRESENTS CON TRIBUTION PAYABLE TO VASANT DADA SUGAR INSTITUTE . 6. AFTER HEARING BOTH THE PARTIES, WE FIND THAT THI S ISSUE IS COVERED IN FAVOUR OF THE ASSESSEE BY THE FOLLOWING DECISIONS O F THIS BENCH OF THE TRIBUNAL. 1) ITAT PUNES ORDER IN THE CASE OF DOODHGANGA VEDG ANGA SSK LTD., IN ITA NO. 376/PN/1991 AND 196/PN/1994. ITA NO. 263/PN/09 A.Y 2004-05 PAGE 2 OF 6 2) ITA NOS. 901 AND 902/PN/95 DT. 15-10-2003 IN THE CASE OF VIGHNAHAR SSK LTD. FOR A.Y 1991-92 AND 1992-93. 3) ITA NO. 491 AND 1365/PN/91 DT. 20-7-1994 IN THE CASE OF PANCHAGANGA SSK LTD., FOR A.Y 1989-90 AND 1984-85. 7. THE ITAT VIDE ITS ORDER DATED 20-7-1994 IN ITA N O. 491 AND 1365/PN/1991 FOR A.Y 1989-90 AND 1984-85D HAS DEALT WITH THIS ISSUE VIDE PARA 11 OF ITS ORDER AS UNDER: WE HAVE CONSIDERED THE SUBMISSIONS OF THE PARTIES TO THE DISPUTE. THE EXPENDITURE ON SCIENTIFIC RESEARCH IS AN ALLOWA BLE DEDUCTION U/S. 35(1)(II) OF THE ACT, PROVIDED THE AMOUNT HAS BEEN ACTUALLY PAID BY AN ASSESSEE. THE WORD PAID HAS BEEN DEFIN ED U/S 43(2) OF T HE ACT, ACCORDING TO WHICH, THE WORD PAID MEANS ACTUALLY PAID OR INCURRED ACCORDING TO THE METHOD OF ACCOUNTING UPON THE BASIS OF WHICH THE PROFITS OR GAINS ARE COMPUTED UNDER THE HE AD PROFITS AND GAINS OF BUSINESS OR PROFESSION IN THE CASE OF THE ASSESSEE. THERE IS NO DISPUTE THAT THE ASSESSEE HAD MAINTAINED THE BOOKS OF ACCOUNTS ON MERCANTILE BASIS AND THE CONTRIBUTION T O DECCAN SUGAR INSTITUTE IS THE LIABILITY, WHICH THE ASSESSEE HAD INCURRED DURING THE ACCOUNTING YEAR RELEVANT TO ASSESSMENT Y EAR UNDER CONSIDERATION. SINCE THE ASSESSEE HAS INCURRED THIS LIABILITY DURING THE YEAR UNDER APPEAL, THE ASSESSEE IS ENTIT LED FOR THE DEDUCTION . MOREOVER, THE ASSESSEE ALSO HAS MADE THE PAYMENT AS PER THE DIRECTION OF THE DIRECTOR OF SUG AR, GOVERNMENT OF MAHARASHTRA. WE ARE, THEREFORE, OF THE VIEW THAT THE CIT(A) WAS NOT JUSTIFIED IN DISALLOWING THE CLAIM OF THE ASSES SEE. WE ACCORDINGLY REVERSE HIS ORDER AND DIRECT THE AO TO ALLOW THE CLAIM OF THE ASSESSEE. THE ASSESSEE SUCCEEDS ON THIS GROU ND. 8. RESPECTFULLY FOLLOWING THE AFORESAID DECISION OF ITAT THIS ISSUE IS DECIDED IN FAVOUR OF THE ASSESSEE AND AGAINST THE R EVENUE. 3. AS DEMONSTRATED BY THE ASSESSEE, THE DECCAN SUGAR INSTITUTE AND VASANT DADA SUGAR INSTITUTE CONSTITUTE THE SAME ENTITY. RESPECTFULLY FOLLOWING THE AFORESAID DECISION OF ITAT THIS ISSUE IS DECIDED IN FAVOUR OF THE ASSESSEE AND AGAINST THE REVENUE. GROUND NO. 1 OF THE REVENUE IS DISMISSED . 4. GROUND NO. 2 RELATES TO ADDITION OF RS. 30,000/- W HICH REPRESENT THE UNPAID SUBSCRIPTION TO MAHARASHTRA STATE CO OPERATIVE SUGAR SANGH. LD DR RELIED ON THE ORDER OF THE AO. ON THE OTHER HAND, LD. COUNSEL MENTIONED THAT THE PAYMENT IN QUESTION IS NOT COVERED BY THE PROVISI ONS OF SEC. 43B. IN THIS REGARD LD. COUNSEL RELIED ON THE JUDGMENT OF BOMBAY H IGH COURT IN THE CASE OF SHRI WARNA SAHAKARI SAKHAR KARKHANA (2002) 253 ITR 226 (BOM.) FOR THE PROPOSITION THAT THE AUDIT FEE IS NOT IF REFERRED TO SECTION 43B OF THE ACT. FURTHER, HE RELIED ON THE JUDGMENT FOR THE PROPOSITION T HAT SUCH PAYMENT DOES ITA NO. 263/PN/09 A.Y 2004-05 PAGE 3 OF 6 NOT ATTRACT THE MISCHIEF OF SEC. 43B OF THE ACT. TH E SUBMISSIONS OF LD. COUNSEL IN THIS REGARD ARE AS FOLLOWS:- VIDE THIS GROUND DEPARTMENT HAS CHALLENGED THE DEL ETION OF DISALLOWANCE OF RS. 30000 WHICH REPRESENT THE UNPAID SUBSCRIPTIO N TO MAHARASHTRA STATE CO OPERATIVE SUGAR SANGH. THE AO HAS MADE DIS ALLOWANCE DIRECTLY IN THE COMPUTATION OF TOTAL INCOME WITHOUT MAKING A NY DISCUSSION IN ASSESSMENT ORDER NOR THERE IS ANY MENTION OF ANY RE ASONING FOR THE SAID DISALLOWANCE. CIT(A) DELETED THIS DISALLOWANCE BY HOLDING THAT TH IS UNPAID SUBSCRIPTION IS CERTAINLY A LIABILITY AND . ASSESSEE IS CERTAINLY LIABLE TO INCORPORATE THE SAME IN BOOKS OF ACCOUNTS MENTION UNDER MERCANTILE SYSTEM OF ACCOUNTING. CIT(A) FURTHER HELD THAT THIS PROVISION OF LIABILIT Y IS NOT IN THE AMBIT OF SEC. 43 OF THE IT ACT. 5. WE HAVE HEARD THE PARTIES AND PERUSED THE ORDERS OF T HE REVENUE AND THE RELEVANT PROVISIONS OF SECTION 43B OF THE ACT. AOS O RDER DOES NOT CONTAIN ANY DISCUSSION ON THE REASONS FOR DISALLOWANCE. THE IMPUG NED ORDER ALSO DEFICIENT ON VITAL ISSUES SUCH AS WHETHER THE UNPAID SUBSCRIPTION IS PAID SUBSEQUENTLY OR NOT, WHAT IS THE ACCOUNTING METHOD FOLLOWED BY THE ASSES SEE IN THIS REGARD, HOW THIS SUBSECTION AMOUNT IS COVERED BY THE CLAUSE (A) TO (F ) OF THE SECTION 43B OF THE ACT, WHETHER THE SAID SUBSCRIPTION IS TAX OR DUTY OR CE SS OR FEE WITHIN THE MEANING OF SAID CLAUSE (A), IF THE CIT(A) IS OF THE VIEW THAT IT FALLS IN THE SAID CLAUSE (A), ETC. CIT(A) FAILED TO ADDRESS ON HOW THE THIS SUBSCRIPTION IS DISALLOWABLE IN ACCORDANCE WITH THE PROVISIONS OF SEC TION 250(6) OF THE ACT. IN ALL FAIRNESS TO THE PARTIES IN THE DISPUTE, IN OUR CONSIDE RED OPINION, THE ISSUE HAS TO BE REFERRED TO THE FILES OF THE CIT(A) FOR DETAILED AN D SPEAKING ORDER IN THIS REGARD. CIT(A) IS ALSO DIRECTED TO REFER TO THE RELEVANT LAW UNDER THE WHICH THE ASSESSEE IS UNDER OBLIGATION TO MAKE SUCH SUBSCRIPTIO N ANNUALLY. AS SUCH THE BOMBAY HIGH COURT JUDGMENT RELATES THE AUDIT FEE AND IT IS DISTINGUISHABLE AS THE SUBSCRIPTION TO THE SANGH IS THE RELEVANT ISSUE HERE. CIT(A) SHALL GRANT REASONABLE OPPORTUNITY OF BEING HEARD TO THE ASSESSEE DURING THE DE NEVO VERIFICATION OF THE ISSUE. ACCORDINGLY, GROUND NO. 2 OF THE REVENUE IS SET ASIDE . 6. GROUND NO. 3. LD. COUNSEL RELIED ON THE JUDGMENT OF HIGH COURT OF PUNJAB AND HARYANA IN THE CASE OF ATLAS CYCLE INDUSTRIES LTD . 134 ITR 458(P & H) FOR THE PROPOSITION THAT THE EXPENDITURE INCURRED ON THE CONSTRU CTION OF THE TEMPLE IN SIDE FACTORY PREMISES IS A ALLOWABLE EXPENDITURE U/S 3 7 OF THE ACT AS THEY BENEFIT THE EMPLOYEES. DR IS OF THE VIEW THE SAID CASE LAW IS DISTINGUISHABLE AS THERE ARE ITA NO. 263/PN/09 A.Y 2004-05 PAGE 4 OF 6 NO FACT AS TO HOW THE SAID EXPENDITURE WAS INCURRED EI THER INSIDE THE FACTORY OR OTHERWISE. THE ASSESSEE HAS NOT DISCHARGED THE ONUS I N THIS REGARD. ON THE OTHER HAND, LD COUNSEL FILED NOTE WITH THE FOLLOWING SUB MISSIONS WHICH ARE AS UNDER:- VIDE THIS GROUND DEPARTMENT HAS CHALLENGED THE DE LETION OF DISALLOWANCE OF RS. 32228/- WHICH REPRESENT EXPENDITURE INCURRED ON KARMACHARI GANESH MANDAL . THE AO AT PAGE 2 PARA (IV) HAD DISALLOWED THE SAME ON THE GROUND THAT THIS IS NOT RELATED TO THE BUSINESS. CIT(A) AT PAGE NO. 10 OF HIS ORDER DISCUSSED THIS I SSUE AND DELETED THE DISALLOWANCE BY ACCEPTING ASSESSEES CONTENTION THA T THESE EXPENDITURE ARE IN THE NATURE OF STAFF WELFARE. 7. WE HAVE HEARD THE PARTIES AND PERUSED THE ORDERS OF T HE REVENUE AND THE NOTE FILED BEFORE US. THE JUDGMENT OF HIGH COURT OF P UNJAB AND HARYANA IN THE CASE OF ATLAS CYCLE INDUSTRIES LTD (SUPRA) HAS ALSO B EEN PERUSED. IN THE SAID CASE, IT WAS DEMONSTRATED THAT THE EXPENDITURE WAS I NCURRED ON THE CONSTRUCTION OF THE TEMPLE WITH IN THE FACTORY CAMPUS AND ALSO FO R THE BENEFIT OF THE EMPLOYEES. IN THE LIGHT OF THE SAME, WE HAVE PERUSE D THE ORDERS OF THE REVENUE. EXCEPT STATING TAT THE SAID EXPENDITURE IS E XPANDED ON NON BUSINESS EXPENDITURE, THE AOS DOES NOT SAY ANYTHING. WE HAVE ALSO PERUSED THE IMPUGNED ORDER ON PAGE 11 AND FIND THE CIT(A) IS EQUA LLY SILENT ON THE ISSUE. HE MERELY STATED THAT IN VIEW OF THE AFORESAID FACTS, I DELETE THE ADDITI ON . THERE IS NO DISCUSSION ON WHICH ARE THOSE FACTS. CONSISTIN G THE ISSUE, WHICH IS PRIMA FACIE RECURRING IN NATURE, WE ARE OF THE OPINION, THIS ISSUE HAS TO BE SET ASIDE FOR RELEVANT DETAILS AND FACTS AS TO HOW THE SAID EXPEND ITURE IS INCURRED, WHERE THE IMPUGNED MANDEL WAS CONSTRUCTED, WHO ARE THE BENEFICI ARIES OF THE EXPENDITURE ETC. AS SUCH, THE PUNJAB AND HARYANA HIGH COURT JUDG MENT IS DISTINGUISHABLE. AO SHALL GRANT REASONABLE OPPORTUNITY OF BEING HEARD TO THE ASSESSEE DURING THE DE NEVO VERIFICATION OF THE ISSUE. ASSESSEE SHALL DEMONSTRAT E THAT THE SAID EXPENDITURE IS ALLOWABLE U/S 37 AND HE IS FREE TO ANY EVIDENCE OR ADDITIONAL EVIDENCES TO SUBSTANTIATE THE CLAIM. ACCORDINGLY, GROUND NO. 3 OF THE REVENUE IS SET ASIDE 8. GROUND NO. 4 RELATES TO THE DELETION OF INTEREST OF RS. 39,10,490 AND RS. 86,520 ATTRIBUTABLE TO THE OLD OUTSTANDING TRADE ADVA NCES. THESE AMOUNTS CONSTITUTE NOTIONAL INTEREST CALCULATED ON PROPORTION ATE BASIS ON THE TRADE ADVANCES. CIT(A) DELETED THE SAME ON HOLDING THAT T HE RELEVANT ADVANCES WERE ITA NO. 263/PN/09 A.Y 2004-05 PAGE 5 OF 6 GIVEN BY THE ASSESSEE IN THE REGULAR COURSE OF THE BUS INESS. THE SUBMISSIONS OF LD. COUNSEL IN THIS REGARD ARE AS FOLLOWS:- VIDE THIS GROUND DEPARTMENT HAS CHALLENGED THE DELE TION OF INTEREST OF RS. 3910490 & RS. 86520 ATTRIBUTABLE TO THE OLD OUT STANDING ADVANCES OF RS. 32587414 MADE FOR SUGAR CANE SEEDS AND FERTILIZ ER, ADVANCES TO CANE SUPPLIER, ADVANCES TO TRADERS AND ON UNADJUSTED ADV ANCE OF RS. 721000 MADE TO ARCHITECT. THE AO ON PAGE 2 PARA VIII AND IX OF THE ASSESSMENT ORDER DISALLOWED THE INTEREST ATTRIBUTABLE TO THESE ADVANCES ON THE GROU ND THAT ALL THESE ADVANCES ARE OLD AND NOT ADJUSTED. THE LD. CIT(A) HAS DISCUSSED THIS ISSUE ON PAGE NO. 12 AND 13 CIT(A) ORDER. CIT(A) DELETED THE SAID DISALLOWANCE ON ACCE PTING OUR CONTENTION THAT ALL THESE ADVANCES ARE MADE FOR BUSINESS PURPO SE. 9. DURING THE PROCEEDINGS BEFORE US, LD DR FOR THE REVEN UE RELIED ON THE ORDER OF THE AO. ON THE OTHER HAND, LD. COUNSEL ARGUED STATING THAT, THIS IS A CASE OF ADDITION OF INTEREST CALCULATED ON NOTIONAL BASIS WITH OUT APPRECIATING THE FACTS. WE HAVE HEARD THE PARTIES AND PERUSED THE ORDE R OF THE REVENUE. THERE IS NO DISPUTE ON THE FACT THAT THE ADVANCE IN QUEST ION ARE TRADE OR BUSINESS ADVANCES. FURTHER, THERE IS NO DISPUTE ON THE FACT THA T THE INTEREST AMOUNTS WERE ADDED ON NOTIONAL BASIS. THE SAME DO NOT HAVE THE S ANCTITY OF THE LAW. THEREFORE, WE ARE OF THE OPINION, THAT THE ORDER OF THE CIT(A) DOES NOT CALL FOR ANY INTERFERENCE. ACCORDINGLY, THE GROUND 4 OF THE REVE NUE IS DISMISSED . 10. IN THE RESULT APPEAL OF REVENUE IS PARTLY ALLOWED. ORDER PRONOUNCED ON 24 TH SEPTEMBER, 2010. SD/- SD/- (SHAILENDRAKUMAR YADAV) (D.KARUNAKAR A RAO) JUDICIAL MEMBER ACCOUNTANT MEMBE R PUNE DATED THE 24 TH SEPTEMBER, 2010 R ITA NO. 263/PN/09 A.Y 2004-05 PAGE 6 OF 6 COPY OF THE ORDER IS FORWARDED TO : 1. DCT, CIRCLE 3, NANDED 2. ASSESSEE 3. CIT(A), AURANGABAD 4. CIT, AURANGABAD 5. D.R. ITAT A BENCH BY ORDER ASSISTANT REGISTRAR I.T.A.T PUNE