Appeal details
Counselvise Citation
[2016] 133 COUNSELVISE.COM (IT) 8594 (ITAT-BANGALORE)
Assessee PAN
Bench
Appeal Number
Duration Of Justice
4 year(s) 1 month(s) 5 day(s)
Appellant
Respondent
Appeal Type
Income Tax Appeal
Pronouncement Date
30-03-2016
Appeal Filed By
Assessee
Order Result
Partly Allowed
Bench Allotted
B
Next Hearing Date
09-02-2016
Assessment Year
2004-2005
Appeal Filed On
24-02-2012
Judgement Text
IN THE INCOME TAX APPELLATE TRIBUNAL BANGALORE BENCH B BEFORE SHRI ABRAHAM P GEORGE, ACCOUNTANT MEMBER AND SHRI VIJAY PAL RAO, JUDICIAL MEMBER I.T. (T.P ) A. NO. 272 /BANG/201 2 (ASSESSMENT YEAR : 2004-05) M/S. INGERSOLL RAND (INDIA) LTD., PLOT NO.35, KIADB INDL. AREA, BIDADI, BANGALORE 562 109. PAN AAACI 3099Q VS. DY. COMMISSIONER OF INCOME TAX, CIRCLE 11(4), BANGALORE. APPELLANT RESPONDENT. APPELLANT BY : SHRI K.R. VASUDEVAN, ADVOCATE. RESPONDENT BY : MRS. S. PRAVEENA, ADDL. CIT (D.R) DATE OF HEARING : 09.02.2016. DATE OF PRONOUNCEMENT : 30.03.2016. O R D E R PER SHRI VIJAY PAL RAO, J.M. : THIS APPEAL BY THE ASSESSEE IS DIRECTED AGAINST TH E ORDER DT.14.11.2011 OF COMMISSIONER OF INCOME TAX (APPEALS) FOR THE ASSESS MENT YEAR 2004-05. 2. THE ASSESSEE HAS RAISED THE FOLLOWING GROUND S :- 2 IT(T.P)A NO.272/BANG/2012 GROUND 1 PROVISION FOR REPLACEMENT OF SPARES AND ACCESSORIES RS.4,45,31,941. 1.1 THE LEARNED COMMISSIONER OF INCOME TAX (APPEAL) HEREINAFTER REFERRED TO AS CIT(A) HAS ERRED IN CONFIRMING THE ORDER OF LEARNED ASSESSING OFFICER (HEREINAFTER REFERRED TO AS THE AO). 1.2 THE LEARNED CTT(A) ERRED IN HOLDING THAT THE P ROVISION FOR REPLACEMENT OF STORES AND SPARES IS NOT CREATED ON SCIENTIFIC BASIS. 1.3 THE LEARNED CIT(A) ERRED IN NOT CONSIDERING TH E FACT THAT AMOUNT OF PROVISION HAS ALREADY BEEN DISALLOWED BY THE LEARNE D AO CONSISTENTLY AND THEREBY CHARGED TO TAX IN THE EARLIER ASSESSMENT YE ARS IN THE YEAR OF CREATION OF PROVISION. 1.4 THE LEARNED CIT(A) ERRED IN NOT CONSIDERING TH E DECISION OF THE HONBLE HIGH COURT AND THE TRIBUNAL IN APPELLANTS OWN CASE. 1.5 WITHOUT PREJUDICE TO THE ABOVE, THE LEARNED CIT (A) ERRED IN NOT ADJUDICATING ON THE INCONSISTENCY OF DISALLOWANCE B Y THE LEARNED AO DURING THE YEAR AS COMPARED TO THE EARLIER ASSESSMENT YEAR S. GROUND 2 ADDITION OF UNUTILIZED CENVAT CREDIT R S.3,30,782 2.1 THE LEARNED CIT(A) ERRED IN CONFIRMING THE DIS ALLOWANCE OF UNUTILIZED CENVAT CREDIT ON CLOSING STOCK AMOUNTING TO RS.3,30,782 ON THE GROUND THAT THE APPELLANT HAS NOT FOLLOWED INCLUSIV E METHOD OF ACCOUNTING.. 2.2 THE LEARNED CIT(A) ERRED IN NOT FOLLOWING THE DECISION OF THE HONBLE SUPREME COURT IN THE CASE OF CIT V. INDO NI PPON CHEMICAL COMPANY [261 ITR 273]. 2.3 THE LEARNED CIT(A) ERRED IN NOT CONSIDERING TH E DECISION OF HONBLE BANGALORE TRIBUNAL IN APPELLANTS OWN CASE. 2.4 WITHOUT PREJUDICE TO THE ABOVE, THE LEARNED CI T(A) ERRED IN CONSIDERING EVEN THE CENVAT CREDIT ON CAPITAL GOODS IN COMPUTING THE ADDITION OF RS. 3,30,782. GROUND 3 DISALLOWANCE OF CLUB EXPENSE RS.437,75 2 3.1 THE LEARNED C]T(A) ERRED IN CONFIRMING THE DISA LLOWANCE OF RS. 398,607 TOWARDS CLUB ENTRANCE FEES AND RS.39,145 TO WARDS CLUB SERVICE FEES. 3 IT(T.P)A NO.272/BANG/2012 3.2 THE LEARNED CIT(A) ERRED IN CONCLUDING THAT TH ESE EXPENSES ARE NOT CONNECTED TO THE BUSINESS OF THE APPELLANT AND ARE THEREFORE NOT BUSINESS EXPENSES. GROUND 4 DISALLOWANCE OF ELECTRONIC DATA PROCESSI NG CHARGES RS.92,52,120 4.1 THE LEARNED CIT(A) ERRED IN CONFIRMING THE DIS ALLOWANCE OF RS.92,52,120 TOWARDS ELECTRONIC DATA PROCESSING (E DP) EXPENSES ON THE GROUND THAT IT IS CAPITAL IN NATURE. 4.2 NOTWITHSTANDING AND WITHOUT PREJUDICE TO THE A BOVE, THE LEARNED CIT(A) ERRED IN NOT ADJUDICATING IN GRANTING DEPREC IATION ON EDP EXPENSES TREATED TO BE CAPITAL IN NATURE. GROUND 5 DISALLOWANCE OF MISCELLANEOUS EXPENSES R S.20,00,000 5.1 THE LEARNED CIT(A) ERRED IN CONFIRMING THE ADHO C DISALLOWANCE MADE BY LEARNED AO. 5.2 THE LEARNED CIT(A) ERRED CONFIRMING THE DISALLO WANCE INTER ALIA ON THE BASIS THAT THE APPELLANT HAD NOT SUBMITTED THE DETAILS OF THE EXPENSES, WHEN THE APPELLANT HAD IN FACT SUBMITTED THE DETAIL S DURING THE ASSESSMENT PROCEEDINGS. 5.3 THE LEARNED CIT(A) ERRED IN NOT APPRECIATING T HE FACT THAT THE ENTIRE EXPENDITURE INCURRED WERE FOR BUSINESS PURPOSES ONL Y. GROUND 6 REDUCTION IN DEDUCTION UNDER SECTION 80H HC OF THE I.T. ACT 6.1 THE LEARNED CIT(A) ERRED IN CONFIRMING THE LOWE R DEDUCTION OF RS. 2,54.43,467 AS AGAINST RS. 2,84,82,759 CLAIMED BY T HE APPELLANT. NON-ADJUDICATION ON THE APPEAL FILED 6.2 THE LEARNED CIT(A) ERRED IN NOT ADJUDICATING O N THE ABOVE GROUNDS HOLDING THAT THE ORDER TINDER SECTION 143(3) READ W ITH SECTION 143(3) READ WITH SECTION 263 HAS BEEN PASSED BASED ON THE ORDER OF THE COMMISSIONER OF INCOME TAX-I UNDER SECTION 263 OF THE ACT. ADJUSTMENTS TO TOTAL TURNOVER 4 IT(T.P)A NO.272/BANG/2012 6.3 THE LEARNED CIT(A) ERRED IN CONFIRMING THE ADDI TION OF RS.42,61,50,000 IN RESPECT OF EXCISE DUTY AND RS. 9 9,35,000 IN RESPECT OF SATES TAX TO THE TOTAL TURNOVER IN ARRIVING AT TH E DEDUCTION UNDER SECTION 80HHC OF THE ACT. 6.4 NOTWITHSTANDING AND WITHOUT PREJUDICE TO THE AB OVE, THE LEARNED CIT(A) ERRED IN NOT FOLLOWING THE DECISION OF THE H ONBLE SUPREME COURT IN THE CASE OF CIT V. LAKSHMI MACHINE WORKS [290 ITR 6 67]. ADJUSTMENTS TO BUSINESS PROFITS 6.5 THE LEARNED CIT(A) ERRED IN CONFIRMING THE RED UCTION IN PROFITS OF THE BUSINESS FOR THE DEDUCTION UNDER SECTION 80HHC OF THE ACT BY REDUCING 90% OF THE FOLLOWING INCOME: A. SUNDRY INCOME (CASH DISCOUNT ON PURCHASES) RS . 1,20,000 B. RECOVERY OF FREIGHT AND INSURANCE AND PACKING EX PENSES RS.1,76,90,000 C. INCOME FROM SERVICES RENDERED RS.2,92,60,000 D. INCOME FROM LONG TERM INVESTMENTS BEING DIVIDEND INCOME RS.2,69,30,000. 6.6 THE LEARNED CIT(A) ERRED IN CONFIRMING THE ERR ONEOUS FINDING OF THE LEARNED AO THAT THE COMPANY HAD EARNED INCOME FROM LONG-TERM INVESTMENTS AMOUNTING TO RS.2,69,30,000 WHEREAS THE ACTUAL INCO ME FROM LONG TERM INVESTMENT AMOUNTED TO RS.11,88,000. GROUND 7 REDUCTION IN DEDUCTION UNDER SECTION 80H HE OF THE I.T. ACT 7.1 THE LEARNED CIT(A) ERRED IN NOT ADJUDICATING ON THE ABOVE GROUNDS HOLDING THAT THE ORDER UNDER SECTION 143(3) READ WI TH SECTION 263 HAS BEEN PASSED ON THE ORDER BY THE COMMISSIONER OF INCOME T AX-I UNDER SECTION 263 OF THE ACT. NON-ADJUDICATION ON THE APPEAL FILED 7.2 THE LEARNED CIT(A) ERRED IN NOT ADJUDICATING ON THE ABOVE GROUNDS HOLDING THAT THE ORDER UNDER SECTION 143(3) R.W.S. 263 HAS BEEN PASSED ON THE ORDER BY THE COMMISSIONER OF INCOME TAX-1 UNDER SEC TION 263 OF THE ACT. 7.3 THE LEARNED CIT(A) ERRED IN CONFIRMING THE ADDI TION OF RS.42,61,50,000 IN RESPECT OF EXCISE DUTY AND RS.99 ,35,000 IN RESPECT OF 5 IT(T.P)A NO.272/BANG/2012 SALES TAX TO THE TOTAL TURNOVER IN ARRIVING AT TH E DEDUCTION UNDER SECTION 80HHC OF THE ACT. 7.4 NOTWITHSTANDING AND WITHOUT PREJUDICE TO THE AB OVE, THE LEARNED CIT(A) ERRED IN NOT FOLLOWING THE DECISION OF THE H ONBLE SUPREME COURT IN THE CASE OF CIT V. LAKSHMI MACHINE WORKS [290 ITR 6 67]. ADJUSTMENTS TO BUSINESS PROFITS 7.5 THE LEARNED CIT(A) ERRED IN CONFIRMING THE REDU CTION OF 90% OF THE AMOUNTS CONTEMPLATED UNDER CLAUSE 1 OF EXPLANATION (4) OF SECTION 80HHE(5) OF THE ACT. THE LEARNED AO. ERRED IN REDUCING THE FOLLOWING: A. SUNDRY INCOME (CASH DISCOUNT ON PURCHASES) RS . 1,20,000 B. RECOVERY OF FREIGHT AND INSURANCE AND PACKING EX PENSES RS.1,76,90,000 C. INCOME FROM SERVICES RENDERED RS.2,92,60,000 D. INCOME FROM LONG TERM INVESTMENTS BEING DIVIDEND INCOME RS.2,69,30,000. 7.6 THE LEARNED CIT(A) ERRED IN CONFIRMING THE ERR ONEOUS FINDING OF THE LEARNED AO THAT THE COMPANY HAD EARNED INCOME FROM LONG-TERM INVESTMENTS AMOUNTING TO RS.2,69,30,000 WHEREAS THE ACTUAL INCO ME FROM LONG TERM INVESTMENT AMOUNTED TO RS.11,88,000. 7.7 THE LEARNED AO ERRED IN REDUCING AN AMOUNT OF R S.21,92,19,000 WITHOUT PROVIDING ANY BASIS FOR SUCH REDUCTION. GROUND 8 LEVY OF INTEREST UNDER SECTION 234B THE LEARNED AO AND CIT(A) ERRED IN LEVYING INTEREST UNDER SECTION 234B OF THE ACT. 3. GROUND NO.1 IS REGARDING PROVISIONS FOR REPLA CEMENT OF SPARES AND ACCESSORIES. 4. WE HAVE HEARD THE RIVAL SUBMISSIONS AS WELL AS CONSIDERED THE RELEVANT MATERIAL ON RECORD. AT THE OUTSET, WE NOTE THAT THI S ISSUE HAS BEEN CONSIDERED 6 IT(T.P)A NO.272/BANG/2012 BY THIS TRIBUNAL IN ASSESSEE'S OWN CASE FOR ASSESSM ENT YEAR 1998-99 AND 2001- 02. FOR ASSESSMENT YEAR 2001-02, THE TRIBUNAL VID E ITS ORDER DT.30.8.2010 IN ITA NO.3952/MUM/2005 DECIDED THIS ISSUE IN PARAS 40 TO 42 AS UNDER :- 40. THE SECOND GROUND RAISED BY THE ASSESSEE IS TH AT THE COMMISSIONER OF INCOME-TAX(A) HAS ERRED IN UPHOLDING THE ACTION OF THE ASSESSING OFFICER IN NOT CONSIDERING THE DEDUCTION OF RS.1,66,81,000/ -, BEING THE PROVISION FOR REPLACEMENT OF SPARES AND ACCESSORIES TRANSFERRED T O DRESSER-RAND INDIA P. LTD., WHILE COMPUTING THE PROFITS OF THE BUSINESS. THE COMMISSIONER OF INCOME-TAX(A) HAS CONFIRMING THE DISALLOWANCE MADE BY THE ASSESSING OFFICER FOLLOWING THE ORDER PASSED FOR THE EARLIER ASSESSMENT YEARS 1998-99 AND 1999-00 AND DIRECTED THE ASSESSING OFFICER TO G IVE DEDUCTION FOR THE ACTUAL EXPENDITURE INCURRED DURING THE RELEVANT PRE VIOUS YEAR. 41. WE DO NOT ACCEPT THE ABOVE SHORT-CUT METHOD ADO PTED BY THE COMMISSIONER OF INCOME-TAX(A). IF THE ASSESSEE COM PANY IS MAKING SALES ALONG WITH A BINDING CONTRACT FOR UNDERTAKING FUTUR E REPAIRS AND MAINTENANCE UNDER AN ENFORCEABLE WARRANTY, THE ASSESSEE IS ENTI TLED TO PROVIDE FOR APPROPRIATE AMOUNT TOWARDS MEETING SUCH FUTURE LIAB ILITIES. THIS IS BECAUSE THE LIABILITY IS UNDERTAKEN BY THE ASSESSEE COMPANY NOT AT THE TIME OF ACTUAL REPAIR OR REPLACEMENT BUT AT THE TIME OF CONCLUDING THE SALES-CONTRACT ITSELF. THE LIABILITY OF THE ASSESSEE COMPANY FOR METING TH E OBLIGATION TOWARDS REPAIRS AND REPLACEMENT THROUGH WARRANTY SCHEME IS ARISING SIMULTANEOUSLY WITH THE GENERATION OF INCOME BY WAY OF SALES. THE REFORE, BOTH IN LAW AND IN FACT, I.E., BOTH ON THE BASIS OF THE POINT OF COMME NCEMENT OF THE LIABILITY AND THE MATCHING PRINCIPLE, IT IS NECESSARY TO SEE THAT THE ASSESSEE HAS TO PROVIDE FOR SUCH WARRANTY OBLIGATION IN THE YEAR WHEN THE S ALES WERE MADE AND NOT AT THE TIME WHEN ACTUAL SERVICES TOWARDS REPAIR AND RE PLACEMENTS ARE RENDERED. A DEVIATION FROM THE ABOVE STATED POSITION CAN BE A DOPTED ONLY WHEN THE ASSESSING OFFICER ON EXAMINING THE PROVISIONS AND E XPENSES ACCOUNTS OF THE ASSESSEE COMES TO A CONCLUSION THAT THE ASSESSEE IS USING THE PROVISION ACCOUNTS TO MANIPULATE/UNDERSTATE ITS PROFITS FROM YEAR TO YEAR. THE QUESTION OF DISALLOWANCE SHALL ARISE ONLY WHEN THE PROVISION FOR WARRANTY IS USED AS A TOOL FOR TAX EVASION/TAX AVOIDANCE/TAX DEFERMENT. T HE CASE OF THE ASSESSEE HAS TO BE EXAMINED IN THE ABOVE PERSPECTIVE. A PERUSAL OF THE STATEMENT OF ACCOUNTS OF THE ASSESSEE SHOWS THAT THE ASSESSEE IS PROVIDING FOR THE PROVISION OF WARRANTY OBLIGATION IN A CONSISTENT MA NNER ON THE BASIS OF THE 7 IT(T.P)A NO.272/BANG/2012 STUDY MADE OF ITS PAST EXPERIENCES AND THE PROVISIO N AS WELL AS THE ACTUAL EXPENDITURE ARE IN FACT HIGHLY COMPARABLE FROM ASSE SSMENT YEAR TO ASSESSMENT YEAR. IT IS ALSO STATED THAT THE ASSESS EE HAS OFFERED THE YEARWISE BALANCE AVAILABLE IN THE PROVISION ACCOUNT FOR WHIC H LIABILITY HAS BEEN EXPIRED, AS INCOME OF THAT ASSESSMENT YEAR U/S. 41( 1). 42. IN THE FACTS AND CIRCUMSTANCES OF THE CASE, THE DECISIONS OF THE LOWER AUTHORITIES ON THIS POINT ARE SET ASIDE AND THE ISS UE IS REMITTED BACK TO THE ASSESSING OFFICER FOR FRESH CONSIDERATION IN THE LI GHT OF THE ABOVE DIRECTIONS AND ALSO AFTER PROVIDING AN OPPORTUNITY TO THE ASSE SSEE OF BEING HEARD AND PRODUCING NECESSARY MATERIALS BEFORE THE ASSESSING AUTHORITY. FOLLOWING THE EARLIER ORDER OF THIS TRIBUNAL IN ASS ESSEE'S OWN CASE (SUPRA), WE SET ASIDE THIS ISSUE TO THE RECORD OF ASSESSING OFF ICER FOR FRESH CONSIDERATION IN THE LIGHT OF THE DIRECTIONS GIVEN BY THE TRIBUNAL I N THE SAID ORDER. 5.1 GROUND NO.2 IS REGARDING ADDITION OF UTILIZ ED CENVAT CREDIT. 5.2 WE HAVE HEARD THE RIVAL SUBMISSIONS AS WEL L AS CONSIDERED THE RELEVANT MATERIAL ON RECORD. AT THE OUTSET, WE NOTE THAT AN IDENTICAL ISSUE HAS BEEN CONSIDERED AND DECIDED BY THIS TRIBUNAL IN ASSESSEE 'S OWN CASE FOR THE ASSESSMENT YEAR 2001-02 VIDE ORDER (SUPRA) IN PARAS 43 & 44 AS UNDER :- 43. THE THIRD GROUND RAISED BY THE ASSESSEE IS THA T THE COMMISSIONER OF INCOME-TAX(A) HAS ERRED IN ENHANCING THE VALUE OF C LOSING STOCK OF THE ASSESSEE TO RS.2,41,83,367/-, AS AGAINST THE ADDITI ON OF RS.1,31,07,285/- MADE BY THE ASSESSING OFFICER ON ACCOUNT OF MODVAT CREDI T. 44. THE HONBLE SUPREME COURT IN THE CASE OF COMMIS SIONER OF INCOME- TAX V. INDO NIPPON CHEMICALS CO. LTD., (2003) 261 I TR 275 HAS HELD THAT WHATEVER METHOD THE ASSESSING OFFICER ADOPTS AFTER INVOKING SECTION 145, IT 8 IT(T.P)A NO.272/BANG/2012 HAS TO BE SUSTAINED WITH THE ACCEPTED PRINCIPLES OF ACCOUNTANCY. THE COURT HELD THAT IT IS NOT PERMISSIBLE TO USE GROSS METHOD S FOR THE PURPOSES AND NET METHOD FOR THE UNCONSUMED STOCK AT THE END OF THE Y EAR. ACCORDINGLY, IT WAS HELD THAT MODVAT CREDIT AVAILABLE TO ASSESSEE COULD NOT BE LIABLE TO BE TAXED. AFFIRMING THE JUDGMENT OF THE BOMBAY HIGH C OURT IN THIS REGARD THE SUPREME COURT HELD THAT MERELY BECAUSE THE MODVAT C REDIT WAS AN IRREVERSIBLE CREDIT AVAILABLE TO MANUFACTURERS UPON PURCHASE OF DUTY-PAID RAW MATERIAL, THAT WOULD NOT AMOUNT TO INCOME THAT WOUL D BE TAXED UNDER THE ACT. IN THE LIGHT OF THE ABOVE JUDGMENTS, WE HOLD THAT E NHANCEMENT OF THE ADDITION TO RS.2,41,83,367/- HAS TO BE DELETED. ORDER ACCOR DINGLY. THIS GROUND OF THE ASSESSEE IS ALLOWED. FOLLOWING THE EARLIER ORDER OF THIS TRIBUNAL IN ASS ESSEE'S OWN CASE, WE DECIDE THIS ISSUE IN FAVOUR OF THE ASSESSEE AND CONSEQUENT LY THE ADDITION MADE BY THE ASSESSING OFFICER ON THIS ACCOUNT IS DELETED. 6.1 GROUND NO.3 IS REGARDING DISALLOWANCE OF CL UB EXPENSES. 6.2 WE HAVE HEARD THE RIVAL SUBMISSIONS AS WELL AS CONSIDERED THE RELEVANT MATERIAL ON RECORD. THIS ISSUE HAS BEEN CONSIDERED BY THIS TRIBUNAL FOR THE ASSESSMENT YEAR 1997-98 AS WELL AS FOR A.Y. 2000-01 . THE APPEAL FOR THE ASSESSMENT YEAR 1997-98 WAS DECIDED BY THE MUMBAI B ENCH OF THIS TRIBUNAL IN FAVOUR OF THE ASSESSEE WHEREAS THIS ISSUE HAS BEEN DECIDED AGAINST THE ASSESSEE FOR THE ASSESSMENT YEAR 2000-01 VIDE ORDER DT.30.8.2010 IN ITA NO.7254/BANG/2003 BY THE BANGALORE BENCH OF THIS TR IBUNAL. IT IS PERTINENT TO NOTE THAT THE BANGALORE BENCH OF THE TRIBUNAL HAS F OLLOWED THE DECISION OF THE 9 IT(T.P)A NO.272/BANG/2012 HON'BLE JURISDICTIONAL HIGH COURT WHILE DECIDING T HIS ISSUE WHICH IS BINDING ON THE BANGALORE BENCHES OF THIS TRIBUNAL. THEREFORE, THE DECISION OF THE BANGALORE BENCHES OF THIS TRIBUNAL IS THE LATEST DE CISION AND HAS BEEN PASSED BY THE FOLLOWING BINDING DECISION OF THE HON'BLE JURIS DICTIONAL HIGH COURT AND CONSEQUENTLY THE SAID DECISION IS NOW BINDING ON TH E CO-ORDINATE BENCH AT BANGALORE. THE TRIBUNAL FOR THE ASSESSMENT YEAR 20 00-01 DECIDED THIS ISSUE IN PARA 16 AS UNDER : 16. IN THE CASE CONSIDERED BY THE HONBLE HIGH COU RT OF KERALA, THE AMOUNT CLAIMED BY WAY OF DEDUCTION BY THE ASSESSEE WAS TOWARDS INSTITUTIONAL MEMBERSHIP FEE. THE COURT HELD THAT EXPENDITURE WAS IN THE NATURE OF CAPITAL EXPENDITURE. AS THE PAYMENT WAS MADE FOR ONCE AND FOR ALL RESULTING IN AN ENDURING BENEFIT, THE SAME CANNOT B E ALLOWED AS A DEDUCTION. THE HONBLE KERALA HIGH COURT HAS RELIED ON THE JUD GMENT OF THE HONBLE SUPREME COURT IN THE CASE OF PUNJAB STATE INDUSTRIA L DEVELOPMENT CORPN. LTD. V. COMMISSIONER OF INCOME-TAX (1997) (225 ITR 792). IN THE PRESENT CASE ALSO, WE FIND THAT EXCEPT FOR CERTAIN NOMINAL AMOUNTS ,THE MAJOR PAYMENTS WERE MADE FOR PROCURING/RETAINING THE CORP ORATE MEMBERSHIP OF THE ASSESSEE. IN THE LIGHT OF THE JUDGMENT OF THE HON BLE KERALA HIGH COURT, WE HOLD IT AS CAPITAL IN NATURE. THEREFORE, THE ORDER OF THE COMMISSIONER OF INCOME-TAX(A) ON THIS POINT IS REVERSED AND THE DIS ALLOWANCE IS RESTORED. FOLLOWING THE EARLIER ORDER OF THIS TRIBUNAL, WE DE CIDE THIS ISSUE AGAINST THE ASSESSEE. 7.1 GROUND NO.4 IS REGARDING DISALLOWANCE OF EL ECTRONIC DATA PROCESSING (EDP) CHARGES. 10 IT(T.P)A NO.272/BANG/2012 7.2 WE HAVE HEARD THE RIVAL SUBMISSIONS AS WELL A S CONSIDERED THE RELEVANT MATERIAL ON RECORD. THIS ISSUE HAS BEEN CONSIDERED BY THIS TRIBUNAL IN ASSESSEE'S OWN CASE (SUPRA) FOR THE ASSESSMENT YEAR 2000-01 IN PARA 31 AS UNDER : 31. W CONSIDERED THE MATTER. THE ASSESSEE HAS CLA IMED THIS EXPENDITURE AS REVENUE FOR THE PURPOSE OF DEDUCTION WHEREAS THE REVENUE HAS TREATED THE SAME AS CAPITAL EXPENDITURE AND ALLOWED APPROPRIATE DEPRECIATION ALLOWANCE. THE ASSESSEE HAS SPENT A HUGE AMOUNT OF MORE THAN R S.60 LAKHS TO SET UP ITS EDP SYSTEM. THE CONTENTION OF THE ASSESSEE IS THAT A MAJOR PART OF THE EXPENSES RELATED TO THE PAYMENTS MADE FOR THE CONSU LTANCY WORKS INVOLVED IN INSTALLING THIS EDP SYSTEM. EDP SYSTEM IS NOT A FAC ILITY FOR OVERNIGHT. THE EDP SYSTEM OF A COMPANY IS A SOLD INFORMATION SYSTE M HAVING ENDURANCE VALUE IN HELPING TO SMOOTH WORKING OF THE ENTERPRIS E. THE CONSULTATIONS AVAILED FOR ERECTING THE EDP SYSTEM WAS IN THE NATU RE OF SERVICES RENDERED FOR ESTABLISHING A REGULAR AND PERMANENT SYSTEM IN THE NATURE OF VALUABLE ASSET IN MONITORING THE OPERATIONS OF THE ENTERPRIS E. THEREFORE, THE CONSULTANCY EXPENSES INCURRED FOR ESTABLISHING A CA PITAL FACILITY CANNOT BE TREATED AS IN THE NATURE OF A REVENUE EXPENDITURE. IN THE FACTS AND CIRCUMSTANCES OF THE CASE ,WE FIND THAT THE EXPENDI TURE INCURRED BY THE ASSESSEE COMPANY IN THIS REGARD WAS IN THE NATURE O F A CAPITAL EXPENDITURE AND THE LOWER AUTHORITIES HAVE RIGHTLY DISALLOWED T HE WHOLESALE DEDUCTION, BUT ALTERNATIVELY GRANTING THE STATUTORY DEPRECIATI ON ALLOWANCE. THIS GROUND OF THE ASSESSEE IS REJECTED. FOLLOWING THE EARLIER ORDER OF THIS TRIBUNAL IN ASS ESSEE'S OWN CASE, WE DECIDE THIS ISSUE AGAINST THE ASSESSEE. HOWEVER, ON THE A SSESSEE'S ALTERNATE PLEA THAT DEPRECIATION ON CAPITALIZED AMOUNT MAY BE ALLOWED W E DIRECT THE ASSESSING OFFICER TO CONSIDER THE DEPRECIATION ON CAPITALIZED AMOUNT. 11 IT(T.P)A NO.272/BANG/2012 8.1 GROUND NO.5 IS REGARDING DISALLOWANCE OF MI SCELLANEOUS EXPENSES. 8.2 WE HAVE HEARD THE RIVAL SUBMISSIONS AS WELL AS CONSIDERED THE RELEVANT MATERIAL ON RECORD. WE NOTE THAT AN IDENTICAL ISSU E HAS BEEN CONSIDERED AND DECIDED BY THIS TRIBUNAL IN ASSESSEE'S OWN CASE FOR THE ASSESSMENT YEAR 2000- 01 VIDE ORDER (SUPRA) IN PARAS 20 TO 23 AS UNDER : 20. THE THIRD GROUND RAISED BY THE REVENUE IS THAT THE COMMISSIONER OF INCOME-TAX (A) HAS ERRED IN DELETING THE DISALLOWAN CE OF RS.10 LAKHS MADE ON ESTIMATE BASIS OUT OF ENTERTAINMENT, BUSINESS ME ALS, GIFTS, MEMBERSHIP FEES AND MISCELLANEOUS EXPENSES WITHOUT APPRECIATIN G THE FACT THAT THE ASSESSING OFFICER HAD TO RESORT TO ESTIMATE THE DIS ALLOWANCE AS THE ASSESSEE DID NOT FILE THE EXACT DETAILS IN RESPECT OF THESE EXPENSES. IT IS THE CASE OF THE REVENUE THAT THE GENUINENESS OF THESE EXPENSES HAD NOT BEEN ESTABLISHED. 21. THE ASSESSEE IS RELYING ON THE DECISION OF THE TRIBUNAL IN ITA 1863/MUM/2003 RENDERED IN ASSESSEES OWN CASE DELET ING SUCH ADHOC DISALLOWANCE. THE ASSESSEE HAS ALSO PLACED RELIANC E ON THE DECISIONS OF THE HONBLE SUPREME COURT IN THE CASE OF COMMISSIONER O F INCOME-TAX, BOMBAY V. M/S. WALCHAND & CO. P. LTD., (1967) 65 ITR 381 A ND COMMISSIONER OF INCOME-TAX V. M/S. EDWARD KEVENTER P. LTD., (1978) 115 ITR 149 AND ALSO ON THE JUDGMENT OF THE HONBLE DELHI HIGH COURT IN THE CASE OF COMMISSIONER OF INCOME-TAX V. DALMIA CEMENT P. LTD. (2002) (254 ITR 377). 22. WE HAVE CONSIDERED THE ISSUE IN THE LIGHT OF TH E ABOVE JUDGMENTS AND IN THE LIGHT OF THE ITAT ORDER PASSED IN ASSESSEES OWN CASE FOR EARLIER ASSESSMENT YEAR. BUT THIS IS NOT A CASE OF AD-HOC DISALLOWANCE PER SE AS STRENUOUSLY ARGUED BY THE ASSESSEE COMPANY. APART FROM PROVING THE GENUINENESS OF THE EXPENSES AND THE AVAILABILITY OF DETAILS AND EVIDENCES RELATING THERETO, THERE IS ANOTHER QUESTION WHETHER CERTAIN EXPENSES ARE DEDUCTIBLE AS SUCH IN COMPUTING THE TAXABLE INCOME OF THE ASSESSEE. THE QUESTION IS VERY RELEVANT IN MATTERS OF ENTERTAINME NT, GIFTS AND MEMBERSHIP FEES. THEREFORE, IT IS NOT POSSIBLE TO HOLD THAT T HE DISALLOWANCE OF RS.10 LAKHS HAS BEEN MADE BY THE ASSESSING AUTHORITY ONLY ON TH E GROUND OF VOUCHING OF THESE EXPENSES. WE HAVE TO CONSIDER THE STATUTORY DISALLOWABILITY ALSO. 12 IT(T.P)A NO.272/BANG/2012 23. TAKING INTO CONSIDERATION ALL THESE ASPECTS OF THE ISSUE, WE RESTORE AN ADDITION OFRS.5 LAKHS AGAINST THE ORIGINAL ADDITION OF RS.10 LAKHS MADE BY THE ASSESSING AUTHORITY. THE ORDER OF THE COMMISSIONER OF INCOME-TAX(A) ON THIS ISSUE IS PARTLY REVERSED AND THE GROUND RAISED BY T HE REVENUE IS PARTLY ALLOWED. IT IS CLEAR THAT THE TRIBUNAL HAS RESTRICTED THE AD DITION FROM RS.10 LAKHS TO RS.5 LAKHS FOR THE ASSESSMENT YEAR 2000-01 VIDE ITS ORDE R (SUPRA). 8.3 FOLLOWING THE EARLIER ORDER OF THE TRIBUNAL AND TO MAINTAIN THE RULE OF CONSISTENCY, WE RESTRICT THE DISALLOWANCE TO RS.10 LAKHS AS AGAINST THE DISALLOWANCE MADE BY THE ASSESSING OFFICER OF RS.20 LAKHS. 9.1 GROUND NO.6 IS REGARDING REDUCTION IN DEDUC TION UNDER SECTION 80HHC/80HHE OF THE INCOME TAX ACT, 1961 (IN SHORT ' THE ACT'). THE ORIGINAL ASSESSMENT WAS PASSED BY THE ASSESSING OFFICER UNDE R SECTION 143(3) VIDE ORDER DT.27.12.2006. SUBSEQUENTLY, THE CIT VIDE I TS ORDER DT.18.3.2009 PASSED UNDER SECTION 263 SET ASIDE THE ASSESSMENT ON THIS ISSUE OF ALLOWING EXCESS DEDUCTION UNDER SECTION 80HHC/80HHE OF THE ACT. CO NSEQUENTLY, THE ASSESSING OFFICER PASSED AN ASSESSMENT ORDER DT.30. 9.2009 UNDER SECTION 143(3) RWS 263 AND RESTRICTED THE DEDUCTION UNDER S ECTION 80HHC AND 80HHE IN TERMS OF REVISION ORDER PASSED UNDER SECTION 263 . THE ASSESSEE CHALLENGED 13 IT(T.P)A NO.272/BANG/2012 THE ACTION OF THE ASSESSING OFFICER BEFORE THE CIT (APPEALS). THE CIT (APPEALS) DECIDED THE ISSUE IN PARAS 13.1 AND 13.2 AS UNDER : - 13. ISSUE NO.6 REDUCTION IN DEDUCTION LI/SS.8OHHC& 8OEIHE OF 1.T.ACT (GROUND NOS. 16 &17) 13.1. THE ASSESSEE HAS CLAIMED DEDUCTION U/S.8OHHC OF 1.T.ACT AT RS.28,482,759/-. IN THE ORIGINAL ASSESSMENT ORDER, IT WAS DETERMINED AT RS.2,60,42,343/-. HOWEVER, THE CIT-I, BANGALORE FOU ND SUCH COMPUTATION PREJUDICIAL TO THE INTEREST OF REVENUE AND SET ASID E THE ORDER U/S.263 OF I.T. ACT VIDE F.NO27/47/2E33/CIT-I DATED 18-3-2009. THE AO HAS RECOMPUTED THE DEDUCTION NOW AT RS.25,443,467/- THUS MAKING DI SALLOWANCE OF RS.3,039,292/-. APPEAL HAS BEEN PREFERRED AGAINST S UCH REDUCTION BEFORE ME. BUT ADMITTEDLY NO APPEAL HAS BEEN PREFERRED AGAINST THE ORDER PASSED U/S.263 OF I.T.ACT BY THE CIT-I, BANGALORE. UNDER SUCH CIRC UMSTANCES, IT HAS BEEN HELD BY ME IN THE CASE OF - VIDE ITA NO.266/AC-11(4)/A-I/IQ-II DATED I8-IO2O1I IN THE CASE OF M/S HEWLETT PACKARD GLOBAL SOFT PVT. LTD. (AY 2005-06) THAT I HAVE NO AUTHORITY TO TROD UPON SUCH ISSUE. T HE RELEVANT PORTION OF THE ABOVE DECISION IS EXTRACTED BELOW FOR READY REFEREN CE- RELIANCE IS PLACED ON THE RATIO OF CASES OF - SEASON RUBBER LTD. VS. CIT (2003) 263 ITR 385 (KER ) AND DR A. NARESH BABU VS. ITO (2009) 123 TTJ (HYD TRIB ) 836 IN THESE CASES THE ASSESSES HAVE NOT PREFERRED ANY APPEAL AGAINST SUCH DIRECTION OF THE LEARNED CIT TO THE ITAT. IT HAD BEEN HELD THEREIN THAT, THEREFORE IT HAS REACHED FINALITY. THEREFORE I HAVE NO AUTHORITY TO DISTURB THE SAME. THE RATIO OF CASE OF SADHURAM PATEL & SONS V. ITO (2009) 120/712291 (MUM ) IS NOT APPLICABLE HERE BECAUSE IN THAT CASE THE DIR ECTION OF THE CIT U/S. 263 OF I. T ACT WAS NOT IN CERTAIN TERMS. THE LEARNED CIT THEREIN HAD DIRECTED THE AO TO EXAMINE WHETHER SHORT TERM CAPITAL GAINS LIAB LE FOR TAXATION HAD BEEN 14 IT(T.P)A NO.272/BANG/2012 OMITTED OR NOT? WHILE COMPLETING THE ORIGINAL ASSE SSMENT AND TO ADD THE SAME IN THE SET ASIDE ASSESSMENT, IF OMITTED, THUS GIVING A LATITUDE TO THE AO., WHICH IS CAPABLE OF BEING QUESTIONED IN AN APPEAL B EFORE THE CIT(A). IN THIS CASE IT CAN BE INFERRED, FROM THE LEARNED CITS ORD ER U/S. 263 QUOTED IN THE ASSESSMENT ORDER VIDE PARA 1, 2 CC 3 (PAGES 2 & 3) THAT HE IS NOT PROVIDING ANY SUCH FREEDOM TO THE A.O. AND ALSO HAD DECIDED S OME OF THE GROUNDS OF APPEAL RAISED BEFORE ME HEREIN, AGAINST THE ASSESSE E. IN VIEW OF THE ABOVE I HOLD THAT I HAVE NO AUTHORITY TO ADJUDICATE THE ISS UE INVOLVED AT (I) (II) AND (III) VIDE PARA 2 PAGE 2 ABOVE. IN TOTO IT IS HELD THAT THE ISSUE DECIDED IN A ORDER PASSED U/S. 263 OF I.T. ACT CANNOT BE DECIDED BY A CIT(A) U/S.246A OF I. T. ACT. 13.2. HENCE, GROUNDS OF APPEAL IS DECIDED AGAINST THE ASSESSEE. THUS THE CIT (APPEALS) HAS HELD THAT HE HAS NO AUTH ORITY TO ENTERTAIN SUCH ISSUE WHICH HAS BEEN DECIDED BY THE COMMISSIONER OF INCOM E TAX WHILE PASSING THE REVISION ORDER UNDER SECTION 263 OF THE ACT. 9.2 BEFORE US, THE LEARNED AUTHORISED REPRESENT ATIVE OF THE ASSESSEE HAS SUBMITTED THAT THIS TRIBUNAL IN THE CASE OF STATE B ANK OF MYSORE VS. ACIT IN ITA NOS.21 & 22/BANG/2006 DT.29.3.2010 HAS HELD THAT EV EN THOUGH THE ASSESSMENTS WERE REVISED AS A RESULT OF ORDER PASS ED UNDER SECTION 263, THE ASSESSMENT ORDERS ARE SUBJECT TO APPELLATE JURISDIC TION OF THE COMMISSIONER (APPEALS). 9.3 ON THE OTHER HAND, THE LEARNED DEPARTMENTA L REPRESENTATIVE HAS SUBMITTED THAT THE REVISION ORDER UNDER SECTION 26 3 HAS ATTAINED THE FINALITY AS 15 IT(T.P)A NO.272/BANG/2012 THE ASSESSEE DID NOT CHALLENGE THE SAID REVISION OR DER. THEREFORE, THE ISSUE SETTLED AND DECIDED BY THE CIT IN THE REVISION ORDE R CANNOT BE AGITATED BEFORE THE TRIBUNAL. 9.4 HAVING CONSIDERED THE RIVAL SUBMISSIONS AND THE RELEVANT MATERIAL ON RECORD, WE NOTE THAT THE ASSESSING OFFICER HAS REPR ODUCED THE GIST OF THE FINDINGS OF THE CIT IN THE REVISION ORDER PASSED UN DER SECTION 263 IN PARA 2 AS UNDER : 2. AS THE ASSESSING OFFICER WHILE WORKING OUT THE QUALIFYING BUSINESS PROFITS FOR ARRIVING AT THE DEDUCTION U/S 80HHC HAD WRONGLY DEDUCTED RS. 11,49,213/- BEING THE DEDUCTION ALLOWED U/S. 80HHE INSTEAD OF THE PROFITS OF RS.38,30,713/- IN RESPECT OF WHICH DEDUCTION U/S 8O HHE IS ALLOWABLE, AS REQUIRED UNDER SUB-SECTION (5) OF SECTION 80HHE. TH IS RESULTED IN EXCESS ALLOWANCE OF DEDUCTION U/S 80HHC OF THE IT ACT 1961 . FURTHER, THE DEDUCTION U/S 80HHC HAD ALSO BEEN ALLOWED ON THE EX PORT PROCEEDS THAT HAVE NOT BEEN REALIZED WITHIN THE PERIOD OF 12 MONTHS FR OM THE DATE OF SHIPMENT AND THE ASSESSEE ALSO DID NOT FURNISH ANY PERMISSIO N FROM THE RBI FOR EXTENSION OF TIME FOR REALIZING THE SALE PROCEEDS B EYOND THE PERIOD OF 12 MONTHS. THE ASSESSING OFFICER HAD FAILED TO EXCLUDE THE INELIGIBLE EXPORT PROCEEDS OF RS.1,95,25,246/-, WHILE COMPUTING THE D EDUCTION ALLOWABLE U/S 80HHC OF THE I.T. ACT. IN ADDITION TO THE ABOVE, TH E DIVIDEND INCOME OF RS.11,88,000/- WHICH IS ENTIRELY EXEMPT U/S 10(34) HAD NOT BEEN EXCLUDED FROM THE TOTAL BUSINESS PROFITS OF RS.69,10,29,072/ - AND THE BUSINESS PROFITS WAS WRONGLY TAKEN AT RS.69,10,29,072/- INSTEAD OF R S..68,,98,41,072/- FOR THE PURPOSE OF COMPUTING THE DEDUCTIONS ALLOWABLE U/S 8 OHHC AND 80HHE. THIS HAS RESULTED IN THE EXCESS ALLOWANCE OF DEDUCT IONS U/S 80HHC AND 8OHHE OF THE I.T. ACT.. 1961. 16 IT(T.P)A NO.272/BANG/2012 THUS IT IS CLEAR THAT IN THE REVISION PROCEEDINGS, THE CIT HAS ADJUDICATED THE ISSUE EVEN BY GIVING THE QUANTUM OF PROFIT TO BE C ONSIDERED FOR THE PURPOSE OF COMPUTING THE DEDUCTION ALLOWABLE UNDER SECTION 80H HC AND 80HHE OF THE ACT. THUS IN THE ASSESSMENT ORDER PASSED IN PURSUA NT TO THE REVISION ORDER PASSED UNDER SECTION 263, THE ASSESSING OFFICER HAD NO DISCRETION OR CHOICE TO TAKE HIS OWN DECISION BUT HAS TO FOLLOW THE ORDER O F THE CIT PASSED UNDER SECTION 263 OF THE ACT. THERE IS NO DISPUTE THAT I F THE CIT SIMPLY REVISED THE ASSESSMENT ORDER WITH A DIRECTION TO THE ASSESSING OFFICER TO RE-ADJUDICATE THE ISSUE, THEN SO FAR AS THE ISSUE WHICH WAS NOT FINAL LY SETTLED IN THE REVISION ORDER, THE SAME CAN BE CHALLENGED IN THE APPEAL PROCEEDING S BEFORE THE CIT (APPEALS). HOWEVER, WHEN AN ISSUE HAS BEEN SETTLED BY THE CIT IN THE REVISION ORDER PASSED UNDER SECTION 263 AND THE ASSESSEE DID NOT P REFER ANY APPEAL AGAINST THE REVISION ORDER, THEN THE ASSESSEE IS NOT PERMIT TED TO CHALLENGE THE ASSESSMENT ORDER ON THE SAID ISSUE HAVING ATTAINED FINALITY AS PER THE REVISION ORDER. THE CIT (APPEALS) HAS RELIED UPON VARIOUS J UDGMENTS ON THIS POINT THAT IT HAS NO AUTHORITY TO ENTERTAIN OR DECIDE SUCH AN ISS UE WHICH HAS BEEN DECIDED BY THE CIT IN THE REVISION ORDER UNDER SECTION 263. THEREFORE, IN VIEW OF THE FACT THAT THE ISSUE WAS DECIDED BY THE CIT IN THE REVISI ON ORDER PASSED UNDER SECTION 17 IT(T.P)A NO.272/BANG/2012 263 AND ATTAINED FINALITY CANNOT BE RE-AGITATED IN THE APPEAL PROCEEDINGS BEFORE THE CIT (APPEALS). ACCORDINGLY THIS GROUND OF APPEAL IS DECIDED AGAINST THE ASSESSEE. 10. GROUND NO.8 IS REGARDING LEVY OF INTEREST UN DER SECTION 234B OF THE ACT WHICH IS CONSEQUENTIAL IN NATURE AND MANDATORY. 11. IN THE RESULT, THE ASSESSEE'S APPEAL IS PAR TLY ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON T HIS 30 TH DAY OF MARCH, 2016. SD/- SD/- (ABRAHAM P GEORGE) ACCOUNTANT MEMBER (VIJAY PAL RAO) JUDICIAL MEMBER DATED, THE 30 TH MARCH, 2016. *REDDY GP / DS / COPY TO : 1. APPELLANT 2. RESPONDENT 3. C.I.T. 4. CIT(A) 5. DR, ITAT, BANGALORE. BY ORDER 6. GUARD FILE. ASST. REGISTRAR, ITAT, BANGALORE.
