NITCO PRINTS P. LTD, MUMBAI V. ACIT CVEN CIR 34, MUMBAI

ITA 2854/MUM/2010

• Counselvise Citation: [2011] 140 COUNSELVISE.COM (IT) 49335 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 2 month(s) 11 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 24-06-2011
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: F
• Next Hearing Date: 20-06-2011
• Assessment Year: 2006-2007
• Appeal Filed On: 12-04-2010
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: T D SINGH
• Assessee Lawyers: VIMAL PUNMIYA
• Keywords: Depreciation; Commercial expediency; Revised return

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH F MUMBAI BEFORE SHRI P.M. JAGTAP (AM) AND SMT. ASHA VIJAYARA GHAVAN (JM) ITA NO. 2854/MUM/2010 ASSESSMENT YEAR-2006-07 M/S. NITCO PAINTS PVT. LTD., RECONDA ESTATE, MUNICIPAL ASPHALT COMPOUND, S.K. AHIRE MARG, WORLI, MUMBAI-400 030 PAN-AAACN 2593G VS. THE ACIT, CEN CIR 34, MUMBAI (APPELLANT) (RESPONDENT) APPELLANT BY: SHRI VIMAL PUNMIYA RESPONDENT BY: SHRI T.D. SINGH O R D E R PER ASHA VIJAYARAGHAVAN (JM) THIS APPEAL PREFERRED BY THE ASSESSEE IS DIRECTED A GAINST THE ORDER DATED 26.2.2010 PASSED BY THE LD. CIT(A)-41 FOR THE ASSESSMENT YEAR 2006-07. 2. THE ASSESSEE COMPANY WAS ENGAGED IN MANUFACTURIN G, PROCESSING OF EXTERIOR PAINTS. RETURN OF INCOME U/S. 139(1) W AS FILED ON 30 TH NOVEMBER, 2006 ALONG WITH THE TAX AUDIT REPORT BY D ECLARING TOTAL INCOME OF RS. 93,36,273/-. WHILE COMPLETING THE ASSESSMEN T U/S.143(3), THE ASSESSING OFFICER MADE CERTAIN DISALLOWANCES. 3. AGGRIEVED, ASSESSEE PREFERRED AN APPEAL BEFORE T HE LD. CIT(A). ITA NO. 2854/M/2010 2 4. THE FIRST GROUND RAISED BY THE ASSESSEE WITH RE SPECT TO DISALLOWANCE MADE TO THE TUNE OF RS. 1,00,000/- OUT OF MISCELLANEOUS EXPENDITURE ALTHOUGH THE EXPENSES WERE INCURRED WHO LLY AND EXCLUSIVELY FOR THE PURPOSE OF BUSINESS. 5. DURING THE YEAR THE ASSESSEE HAD INCURRED EXPEND ITURE OF RS. 30.76 LAKHS UNDER THE HEAD MISCELLANEOUS EXPENSES. BEFORE THE LD. CIT(A), THE AR OF THE ASSESSEE SUBMITTED THAT THE E XPENDITURE WAS INCURRED FOR THE PURPOSE OF BUSINESS AND THE AO HAS MADE ADHOC DISALLOWANCE OF RS. 1,00,000/-. THE LD. CIT(A) HEL D THAT THE ASSESSEE HAS FAILED TO PRODUCE THE DETAILS OF VOUCHERS OF T HE MISCELLANEOUS EXPENDITURE BEFORE THE AO AND ALSO BEFORE HIM. THER EFORE, THE LD. CIT(A) CONFIRMED THE DISALLOWANCE MADE BY THE AO. 6. AGGRIEVED, ASSESSEE CAME UPON APPEAL BEFORE US. THE LD. COUNSEL FOR THE ASSESSEE SHRI VIMAL PUNMIYA CONTENDED THAT IN APPLYING THE TAX OF COMMERCIAL EXPEDIENCY FOR DETERMINING WHETHER TH E EXPENDITURE WAS WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF BUSINESS. REASONABLENESS OF THE EXPENDITURE SHOULD BE JUDGED FROM THE POINT OF VIEW OF THE BUSINESSMAN. HE RELIED ON THE FOLLOWING DECISION IN SUPPORT OF ITS CASE: 1) NATIONAL INDUSTRIAL CORPN. 258 ITR 575 2) CIT VS GLOBAL MOTOR SERVICES PVT. LTD. (100 ITR 242 ) 3) CIT VS ALFA LAVAL (I) LTD. 282 TAXMAN 445(BOM) 7. THE ASSESSEE ALSO GAVE THE BREAK-UP OF THE MISCE LLANEOUS EXPENSES WHICH ARE AS FOLLOWS: ITA NO. 2854/M/2010 3 OOTHER EXPENSES 2005-06 BOOKS & PERIODICALS 14,730.00 STAMPS & FEES 63,210.00 DIWALI EXPENSES 8,77,578.00 MEMBERSHIP & SUBSCRIPTS 1,09,631.00 SAMPLING EXPENSES 18,97,663.32 COMPANYS PROF. TAX 5,000.00 FILING FEES 5,820.00 PHOTO EXPS. 91,813.00 WEALTH TAX W/OFF (A.Y. 2005-06 11,560.00 TOTAL 30,76,006.18 8. THE LD. DEPARTMENTAL REPRESENTATIVE SHRI T.D. SI NGH RELIED ON THE ORDER OF THE LOWER AUTHORITIES AND JUSTIFIED THE AO S ORDER BY STATING THAT THE AO WAS COMPELLED TO MAKE SOME ADHOC DISALLOWANC ES IN THE ABSENCE OF BUSINESS VOUCHERS AND BILLS WHICH OUGHT TO HAVE BEEN PRODUCED BY THE ASSESSEE. 9. WE HAVE PERUSED THE BREAK-UP OF THE DETAILS OF T HE EXPENSES. HOWEVER IN THE ABSENCE OF VOUCHERS WITH RESPECT TO THE MISCELLANEOUS EXPENSES, WE ARE OF THE OPINION THAT THE DISALLOWAN CE OF 1,00,000/- IS REASONABLE CONSIDERING THE TOTAL AMOUNT OF RS. 30,7 6,006.18 CLAIMED BY THE ASSESSEE. THE LD. CIT(A) HAS RIGHTLY CONFIRMED THE SMALL DISALLOWANCE MADE BY THE AO TAKING INTO CONSIDERATI ON THE LACK OF EVIDENCE FOR CLAIMING THE SAME. 10. GROUND NO. 2 IS WITH RESPECT TO DISALLOWANCE MA DE BY THE AO ON ACCOUNT OF DEPRECIATION TO THE EXTENT OF RS. 23,380 /- ON SCANNER AND UPS WHICH ARE PERIPHERAL OF COMPUTER. THE AO IN HI S ASSESSMENT ORDER HAS OBSERVED THAT THE ASSESSEE HAD MADE PURCHASE OF UPS OF RS. 16,800 AND SCANNER OF RS. 35,000/-. THE ASSESSEE HAS HOWE VER INCLUDED THE ITA NO. 2854/M/2010 4 SAME IN THE BLOCK OF COMPUTERS THOUGH IT IS IN THE NATURE OF OFFICE EQUIPMENT. THE ASSESSEE HAS CLAIMED DEPRECIATION @ 60%. THE AO OBSERVED THAT UPS IS A DEVICE, WHICH PROVIDE UNINTE RRUPTED POWER SUPPLY AND IT CAN BE USED FOR OTHER INSTRUMENT LIKE CAMERA , DVD PLAYERS, I PODS ETC. THEREFORE, THE AO HELD THAT DEPRECIATION OF 15% IS TO BE ALLOWED ON THE COMPUTERS AND SCANNERS AND NOT ON UPS. 11. AGGRIEVED ASSESSEE PREFERRED AND APPEAL BEFORE THE LD. CIT(A) AND REITERATED ITS STAND TAKEN BEFORE THE AO AND STATED THAT UPS AND SCANNER ARE PART OF THE COMPUTER AND ELIGIBLE FOR D EPRECIATION @ 60%. 12. THE LD. CIT(A) DISMISSED THE GROUND BY OBSERVIN G AS UNDER: I HAVE CONSIDERED THE REPLY OF THE APPELLANT AND F OUND THAT THE UPS CAN BE USED NOT ONLY IN COMPUTERS BUT OTHER DEVICES LIKE DVD THEREFORE, THE SAME CANNOT BE TERMED AS PERIPHE RAL OF THE COMPUTER. SIMILAR DECISION IS WITH REGARD TO SCANN ER THEREFORE, THE AO IS JUSTIFIED IN RESTRICTING DEPRECIATION ON UPS AND SCANNER @ 15%. THE ACTION OF THE AO IS JUSTIFIED AND CONFIRMED. T HIS GROUND OF APPEAL IS NOT ALLOWED. 13. AGGRIEVED, ASSESSEE IS IN APPEAL BEFORE US AND SUBMITTED THAT THE COMPUTERS INCLUDING COMPUTER PERIPHERALS LIKE UPS A ND SCANNER ARE ELIGIBLE FOR DEDUCTION AT 60% SINCE THEY HAVE BEEN USED EXCLUSIVELY AS PART OF COMPUTER AND THEY ARE NOTHING BUT PART AND PARCEL OF COMPUTER. 14. THE LD. COUNSEL FOR THE ASSESSEE RELIED ON THE FOLLOWING CASE LAWS: 1) CONTAINER CORPORATION OF INDIA LTD. VS ACIT (ITAT M UMBAI BENCH) ORDER DT. 27.2.2009 2) ITO VS SAMIRAN MAJUMDAR 98 ITD 119 (KOL) 3) KIRAN CORPN. VS ACIT 98 ITD 119(AHD) ITA NO. 2854/M/2010 5 15. THE LD. DR ON THE OTHER HAND POINTED OUT THAT T HE UPS IS A DEVICE WHICH PROVIDES UNINTERRUPTED POWER SUPPLY AND IT CA N BE USED WITH OTHER DEVICES ALSO AND THEREFORE THE SAME CANNOT BE TERMED AS PERIPHERAL OF THE COMPUTER. 16. WE HEARD BOTH THE PARTIES. IN THE CASE OF ITO VS SAMIRAN MAJUMDAR 98 ITD 119 (KOL) IT HAS BEEN HELD THAT PRI NTER AND SCANNER WERE INTEGRAL PART OF THE COMPUTER SYSTEM AND ARE T O BE TREATED AS COMPUTER FOR THE PURPOSE OF ALLOWING HIGHER RATE OF DEPRECIATION I.E. 60%. FURTHER IN THE CASE OF DCIT -VS-SURFACE FINISHING & EQUIPMENT81TTJ 448 (JODH) IT HAS BEEN HELD AS FOLLOWS: THE CLASSIFICATION OF AN ASSET FOR THE PURPOSE OF D EPRECIATION DEPENDS ON ITS PREDOMINANT FUNCTION AS HAD BEEN HELD IN KANODI A WAREHOUSING CORPORATION (1980) 121 ITR 996 (ALL). THE SOFTWARE AND UPS CANNOT FUNCTION WITHOUT COMPUTER AND HENCE THEIR CLASSIFIC ATION FOR THE PURPOSE OF DEPRECIATION CAN ONLY BE UNDER THE HEAD COMPUTER ELIGIBLE FOR DEPRECIATION @60%. THE EXPRESSION COMPUTER IN T HE DEPRECIATION SCHEDULE WAS ALWAYS INCLUSIVE OF ALL PERIPHERALS WH ICH CANNOT FUNCTION ON THEIR OWN BUT ONLY FUNCTION ALONG-WITH A COMPUTE R. THE DEPRECIATION SCHEDULE WAS AMENDED BY I.T.(TWENTY FOURTH AMENDMEN T) RULES, 2002, SO AS TO CLARIFY THAT THE SOFTWARE WOULD BE INCLUDE D UNDER THE HEAD COMPUTERS ONLY. THE PROPOSITION THAT ALL PERIPHER ALS THAT FUNCTION ONLY ALONG WITH COMPUTER ARE CLASSIFIABLE AS COMPUTER FO R THE PURPOSE OF DEPRECIATION IS SUPPORTED BY THE FOLLOWING JUDICIAL PRECEDENTS. 1) ACIT, NEW DELHI VS M/S CINCOM SYSTEM INDIA PVT LTD ITA NO. 1534/DEL/2008, A Y 2004-05 2) ACIT V CONTAINER CORPORATION OF INDIA LTD. APPEAL N O. : ITA NOS. 2851 & 3680/DEL/2007 (DECIDED O N: FEBRUARY 27, 2009) ITA NO. 2854/M/2010 6 3) ITO VS. SAMIRAN MAJUMDAR (2006) 98 ITD 119 (KOL). FOLLOWING THE ABOVE DECISIONS, WE ALLOW 60% ON UPS AND SCANNER. 17. THIRD GROUND OF APPEAL IS WITH RESPECT TO DISAL LOWANCE MADE ON ACCOUNT OF FBT OF RS. 17,50,000/- WHILE COMPUTING T HE BOOK PROFIT U/S. 115JB. DURING THE YEAR THE ASSESSEE HAS MADE FBT O F RS. 17,50,000/-. HOWEVER, DUE TO INADVERTENT MISTAKE WHILE FILING TH E RETURN OF INCOME U/S. 139(1), THE ASSESSEE HAS NOT REDUCED PROVISION FOR FBT IN COMPUTING THE BOOK PROFIT U/S. 115JB. VIDE LETTER DT. 31.10.2008, THE ASSESSEE SUBMITTED THE REVISED COMPUTATION OF INCOM E AFTER CLAIMING DEDUCTION ON ACCOUNT OF FBT OF RS. 17,50,000/- SHOW ING BOOK PROFIT OF RS. 3,87,42,486.85 AS COMPARED TO BOOK PROFIT OF RS ,.4,04,92,481/- SHOWN IN THE RETURN OF INCOME FILED U/S. 139(1) OF THE I.T. ACT. 18. THE LD. CIT(A) HELD AS FOLLOWS: I HAVE CONSIDERED THE REPLY OF THE APPELLANT AND P ERUSED THE ASSESSMENT ORDER. FIRSTLY THE APPELLANT HAS NOT FI LED COPY OF THE CLAIM MADE BEFORE THE AO DURING THE ASSESSMENT PROC EEDING IN APPELLATE PROCEEDINGS. SECONDLY, THE APPELLANT HAS NOT FILED REVISED RETURN IN RESPECT OF ITS CLAIM AND THE CLAIM HAS ON LY BEEN MADE THROUGH LETTER ONLY. THE HONBLE SUPREME COURT IN THE CASE OF GOETZ (INDIA) LTD. 284 ITR 323 HAVE HELD THAT THE AO CANN OT ENTERTAIN ANY CLAIM OF THE ASSESSEE WITHOUT REVISING OF THE RETUR N. IN VIEW OF THIS FACT, THE AO IS JUSTIFIED NOT ENTERTAINING THE CLAI M OF THE APPELLANT. THIS GROUND OF APPEAL IS NOT ALLOWED. 19. AGGRIEVED, ASSESSEE PREFERRED AN APPEAL BEFORE US. THE LD. COUNSEL FOR THE ASSESSEE SHRI VIMAL PUNMIYA SUBMITT ED AS FOLLOWS: 1) IN THE CASE OF CIT VS BHARAT ALUMINIUM CO. LTD. (2007) 163 TAXMAN 430 (DEL) IT WAS HELD THAT ASSESSEE CAN FILE REVISED COMPUTATION IN THE COURSE OF ONGOING ASSESS MENT PROCEEDINGS UNDER THE ACT, WITHOUT MAKING RECOURSE TO REVISED RETURN. ITA NO. 2854/M/2010 7 2) THE MUMBAI ITAT IN THE CASE OF CHICAGO PNEUMATIC INDIA LTD. VS DCIT 15 SOT 252 (MUM) IN CONTEXT OF ALLOWABILITY OF NEW CLAIMS DURING THE ASSESSMENT PR OCEEDINGS WITHOUT HAVING RECOURSE TO REVISED RETURN, PLACING RELIANCE ON PRINCIPLE EMBEDDED IN ARTICLE 265 OF INDIAN CONSTIT UTION (NO TAX CAN BE COLLECTED EXCEPT BY THE AUTHORITY OF LAW ) AND OLD CBDT CIRCULAR NO. 14 DT. 11 APRIL 1955 AND EXPLAINI NG THE RATIO OF GOETZ RULING OF SUPREME COURT REPORTED IN 284 ITR 323 (SC) HAS CATEGORICALLY HELD THAT ASSESSEE HAS THE R IGHT TO MAKE NEW CLAIMS DURING ASSESSMENT PROCEEDINGS WITHO UT RECOURSE TO REVISED RETURN. 20. WE HEARD BOTH THE PARTIES. WE ARE OF THE OPINI ON THAT THE ASSESSEE HAS THE RIGHT TO MAKE NEW CLAIMS DURING ASSESSMENT PROCEEDINGS WITHOUT RECOURSE TO REVISED RETURN RELYING ON THE D ECISION IN THE CASE OF GOETZ (INDIA) LTD. 284 ITR 323 (SUPRA) WHEREIN THE SUPREME COURT DISMISSED THE APPEAL, MAKING IT CLEAR THAT THE DEC ISION WAS RESTRICTED TO THE POWER OF THE ASSESSING AUTHORITY TO ENTERTAIN A CLAIM FOR DEDUCTION OTHERWISE THAN BY A REVISED RETURN, AND DID NOT IMP INGE ON THE POWER OF THE APPELLATE TRIBUNAL U/S. 254 OF THE I.T. ACT, 19 61. IN THESE CIRCUMSTANCES, WE SET ASIDE THE ISSUE TO THE FILE OF THE AO TO DECIDE THE SAME IN ACCORDANCE WITH LAW. 21. IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE IS PARTLY ALLOWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED ON THIS 24 TH DAY OF JUNE, 2011 SD/- SD/- (P.M. JAGTAP) (ASHA VIJAYARAGHAVAN) ACCOUNTANT MEMBER JUDICIAL MEMBER MUMBAI, DATED 24 TH JUNE, 2011 RJ ITA NO. 2854/M/2010 8 COPY TO : 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT-CONCERNED 4. THE CIT(A)-CONCERNED 5. THE DR F BENCH TRUE COPY BY ORDER ASSTT. REGISTRAR, I.T.A.T, MUMBAI ITA NO. 2854/M/2010 9 DATE INITIALS 1 DRAFT DICTATED ON: 21 . 0 6 . 201 1 SR. PS/PS 2. DRAFT PLACED BEFORE AUTHOR: 22 .0 6 .2011 ______ SR. PS/PS 3. DRAFT PROPOSED & PLACED BEFORE THE SECOND MEMBER: _________ ______ JM/AM 4. DRAFT DISCUSSED/APPROVED BY SECOND MEMBER: _________ ______ JM/AM 5. APPROVED DRAFT COMES TO THE SR. PS/PS: _________ ______ SR. PS/PS 6. KEPT FOR PRONOUNCEMENT ON: _________ ______ SR. PS/PS 7. FILE SENT TO THE BENCH CLERK: _________ ______ SR. PS/PS 8. 9. DATE ON WHICH FILE GOES TO THE HEAD CLERK: DATE ON WHICH FILE GOES TO AR _________ ______ 10 . DATE OF DISPATCH OF ORDER: _________ ______