ACIT CENT. CIR. 3(2), CENT. RANGE - 3, MUMBAI V. NITIN FIRE PROTECTION INDUSTRIES LTD., MUMBAI

ITA 2865/MUM/2017

• Counselvise Citation: [2019] 118 COUNSELVISE.COM (IT) 3771 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 9 month(s) 18 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 08-02-2019
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: Not Allotted
• Assessment Year: 2012-2013
• Appeal Filed On: 20-04-2017
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: C S SHARMA
• Assessee Lawyers: DR P DANIEL
• Keywords: Depreciation; Earning of tax free income; Bad and doubtful debts; Revenue expenditure; Capital expenditure
• Section: 143(3); 10AA; 14A; 37(1); 11

Judgement Text

IN THE INC OME TAX APPELLATE TRIBUNAL B BENCH, MUMBAI BEFORE HONBLE SHRI SANDEEP GOSAIN, JM & HONBLE SHRI G. MANJUNATHA, A M ./ I.T.A. NO . 2865/MUM/2017 ( / ASSESSMENT YEAR: 20 12 - 13 ) D CIT CC 3(2), CENTRAL RANGE - 3, R. NO. 1913, 19 TH FLOOR, AIR INDIA BUILDING, NARIMAN POINT, MUMBAI - 400 021 . / VS. M/S NITIN FIRE PROTECTION INDUSTRIES LTD. 501, DELTA, TECHNOLOGY CENTRE, HIRANANDANI GARDENS, POWAI, MUMBAI - 400 046. ./ ./ PAN/GIR NO. A A ACN1967G ( / APPELLANT ) : ( / RESPONDENT ) C.O. N O . 261/MUM / 2018 ( / ASSESSMENT YEAR: 20 12 - 13 ) M/S NITIN FIRE PROTECTION INDUSTRIES LTD. 501, DELTA, TECHNOLOGY CENTRE, HIRANANDANI GARDENS, POWAI, MUMBAI - 400 046. / VS. DCIT CC 3(2), CENTRAL RANGE - 3, R. NO. 1913, 19 TH FLOOR, AIR INDIA BUILDING, NARIMAN POINT, MUMBAI - 400 021. ( / APPELLANT ) : ( / RESPONDENT ) / APPELLANT BY : SHRI C. S. SHARMA , DR / RESPONDENTBY : DR. P. DANIEL , AR / DATE OF HEARING : 03/01 /201 9 / DATE OF PRONOUNCEMENT : 08.02.2019 2 I.T.A. NO. 2865/MUM/2017 AND C.O. NO. 261/MUM/2018 M/S NITIN FIRE PROTECTION INDUSTRIES LTD. / O R D E R PER SANDEEP GOSAIN, J UDICIAL MEMBER : THE P RESENT A PPEAL AS WELL AS CROSS OBJECTION HAVE BEEN FILED BY THE REVENUE AS WELL AS ASSESSEE ARE AGAINST THE ORDER OF COMMISS I ONER OF INCOME TAX (APPEALS) - 51, MUMBAI DATED 31.01.17 FOR AY 2012 - 13 . 2. SINCE, THE FACTS RAISED IN THE APPEAL FILED BY THE REVENUE AS WELL AS C.O. FILED BY THE ASSESSEE ARE IDENTICAL, THEREFORE FOR THE SAKE OF CONVENIENCE; THEY ARE CLUBBED, HEARD AND DISPOSED OF BY THIS CONSOLIDATED ORDER. 3. FIRST OF ALL WE TAKE UP APPEAL IN ITA NO. 2865 /MUM /201 7 FILED BY REVENUE FOR AY 2012 - 13 ON THE GROUNDS MENTIONED HEREIN BELOW: - 1. 'ON THE FACTS AND CIRCUMSTANCES OF THE CASE, THE LD. CIT(A) ERR ED IN DELETING IN DELETING THE ADDITION OF RS.2,96,16,556/ - MADE BY THE ASSESSING OFFICER U/S 10AA OF THE IT ACT. 1961, IGNORING THE FACT THAT THE ASSESSEE WAS PRIMARILY ENGAGED IN TRADING ACTIVITIES 3 I.T.A. NO. 2865/MUM/2017 AND C.O. NO. 261/MUM/2018 M/S NITIN FIRE PROTECTION INDUSTRIES LTD. AND NOT IN ANY KIND OF MANUFACTURING AND, THEREFORE, NOT ELIGIBLE FOR ANY DEDUCTION U/S 10AA OF THE I.T. ACT.' 2. 'ON THE FACTS AND CIRCUMSTANCES OF THE CASE, THE LD. CIT(A) ERRED IN DELETING THE DISALLOWANCE OF SALES TAX DUES OF RS.6,00,794/ - , IGNORING THE FACT THAT THE ASSESSEE IS NOT ELIGIBLE TO CLAIM SALES TAX LIABILITY NOT PERTAINING TO RELEVANT ASSESSMENT YEAR'. 3. 'ON THE FACTS AND CIRCUMSTANCES OF THE CASE, THE LD. CIT(A) ERRED IN TREATING THE EXPENDITURE OF RS. 7 LAKHS AS CREDIT RAT ING FEES AS REVENUE EXPENDITURE INSTEAD OF CAPITAL EXPENDITURE TREATED BY THE ASSE SSING OFFICER, IGNORING THE FACT THAT THE SAID EXPENDITURE WAS INCURRED FOR LOAN OBTAINED BY THE ASSESSEE COMPANY AND THE SAID LOAN AMOUNT WAS TREATED AS CAPITAL IN NATURE AN D HENCE THE RELATED EXPENSES FOR OBTAINING LOAN WAS REQUIRES TO BE CAPITALIZED.' 4. 'ON THE FACTS AND CIRCUMSTANCES OF THE CASE, THE LD. CIT(A) ERRED IN DELETING THE DISALLOWANCE OF RENT EXPENSES OF RS.6,20,437/ - , IGNORING THE FACT THAT ASSESSEE HAD ENTE RED INTO LEAVE AND LICENSE AGREEMENT DATED 14.2.2011 WITH M/S BOMBAY INTELLIGENCE SECURITIES INDIA LTD., AND THE RENTAL EXPENDITURE WAS OF 21 AND HALF MONTHS, HOWEVER, DUE TO LATE RECEIPT OF DEBIT NOTE FROM THE SAID COMPANY, RENT EXPENSES OF 21 AND HALF MO NTHS HAS BEEN CLAIMED 4 I.T.A. NO. 2865/MUM/2017 AND C.O. NO. 261/MUM/2018 M/S NITIN FIRE PROTECTION INDUSTRIES LTD. BY THE ASSESSEE DURING THE CURRENT YEAR AND BEING PRIOR PERIOD EXPENDITURE NOT RELATED TO THE RELEVANT AY UNDER CONSIDERATION.' 5. THE APPELLANT CRAVES TO LEAVE, TO ADD, TO AMEND AND / OR TO ALTER ANY OF THE GROUND OF APPEAL, IF NEED BE. 6. THE APPELLANT, THEREFORE, PRAYS THAT ON THE GROUNDS STATED ABOVE, THE ORDER OF THE CIT(A) - 51, MUMBAI, MAY BE SET ASIDE AND THAT OF THE ASSESSING OFFICER RESTORED. 4 . AS PER THE FACTS OF THE PRESENT CASE, T HE ASSESSEE COMPANY IS ENGAGED IN THE BUSINESS OF MANUFACTURING FIRE FIGHTING EQUIPMENTS, CNG CASCADES AND RELATED ACTIVITIES. T HE RETUR N OF INCOME FOR THE YEAR UNDER CONSIDERATION WAS FILED ON 27.09.2012 DECLARING TOTAL INCOME AT RS. 8,46,33,930/ - . SUBSEQUENTLY, T HE CASE WAS SELECTED FOR SCRUTINY UNDER CASS AND AFTER SERVING STATUTORY NOTICES, THE ASSESSMENT ORDER WAS PASSED BY THE AO U/S. 143(3) OF THE ACT ON 30.03.2015 ASSESSING THE TOTAL INCOME OF THE ASSESSEE AT RS. 18,26,63,480/ - THEREBY MAKING ADDITIONS /DISALLOWANCE UNDER DIFFERENT HEADS. 5 I.T.A. NO. 2865/MUM/2017 AND C.O. NO. 261/MUM/2018 M/S NITIN FIRE PROTECTION INDUSTRIES LTD. 5 . AGGRIEVED BY THE ORDER OF THE AO, THE ASSESSE E PREFE RRED APPEAL BEFORE LD .CIT(A) AND LD. CIT(A) AFTER APPRECIATING THE FACTS OF THE PRESENT CASE, HAD PARTLY ALLOWED THE APPEAL OF THE ASSESSEE. 6. NOW BEFORE US, THE REVENUE AS WELL AS ASSESSEE HAVE PR EFERRED THEIR RESPECTIVE APPEAL/ CROSS OBJECTION . FIRSTLY WE ARE DEALING WITH THE APPEAL FILED BY THE REVENUE. GROUND NO. 1. 7 . THIS GROUND R AISED BY THE REVENUE RELATES TO CHALLENGING THE ORDER OF LD. CIT(A) IN DELETING THE ADDITION OF RS.2,96,16,556 / - MADE BY THE AO U/S 10AA OF THE IT ACT. 1961. 8 . WE HAVE HEARD COUNSELS FOR BOTH THE PARTIES AT LENGTH AND WE HAVE ALSO PERUSED THE MATERIAL PLACED ON RECORD AS WELL AS THE ORDERS PASSED BY REVENUE AUTHORITIES. BEFORE WE DECIDE THE MERITS OF THE CASE, IT IS NECESSARY TO EVALUATE THE ORDERS PASSED BY LD. CIT(A). LD. CIT(A) HAS DEALT WITH THIS GROUND IN PARA NO. 5 TO 9 OF ITS DETAILED ORDER. THE 6 I.T.A. NO. 2865/MUM/2017 AND C.O. NO. 261/MUM/2018 M/S NITIN FIRE PROTECTION INDUSTRIES LTD. OPERATIVE PORTION OF THE ORDER OF LD. CIT(A) IS CONTAINED IN PARA NO. 6 TO 9 OF ITS ORDER AND THE SAME IS REPRODUCED BELOW: - 6. I HAVE CONSIDERED THE FACTS OF THE CASE, SUBMISSIONS AND CONTENTIONS OF THE ASSESSEE AS WELL AS THE ORDER OF THE ID. AO. FROM THE FACTS OF THE CASE , IT APPEARS THAT THE ASSESSEE COMPANY IS ENGAGED IN SUPPLY OF FIRE FIGHTING EQUIPMENT INCLUDING FIRE FIGHTING SYSTEMS WHICH WILL INCLUDE FIRE ALARM AND DETECTING SYSTEMS, FIRE FIGHTING PUMP SETS AND GAS SUPPRESSION SYSTEMS WHICH INCLUDES TANK, VALVES, GASES AND ACCESSORIES. IT IS GATHERED THAT MOST OF THE ITEMS OR PARTS ARE IMPORTED BY THE ASSESSEE COMPANY FROM CHINESE COMPANIES AND THEREAFTER VARIOUS ASSEMBLING, FITTING, REENGINEERING AND FABRICATION WORK IS DONE AND THEREAFTER GAS IS FILED IN CYLINDERS BEFORE THEY ARE SUPPLIED TO DIFFERENT CLIENTS THE DIFFERENT TYPE OF CUSTOMIZATION IS REQUIRED DEPENDINGL - LLBQILTHE CLIENT AND ITS NATURE OF B USINESS. THE PROCESS ITSELF INVOLVES A LOT OF VALUE ADDITION. THEREFORE, IT IS NOT UNDERSTANDABLE THAT HOW DID THE AO REACH ON THE CONCLUSION THAT THE ASSESSEE IS ENGAGED ONLY IN TRADING ACTIVITY AND NOT IN MANUFACTURING ACTIVITY. IN FACT THE WORD MANUFACTUREING HAS A SPECJAJLDFIFINITION AS PER SEZ ACT, 2005 AND IT ALSO INCLUDES FABRICATION, 7 I.T.A. NO. 2865/MUM/2017 AND C.O. NO. 261/MUM/2018 M/S NITIN FIRE PROTECTION INDUSTRIES LTD. ASSEMBLING, REENGINEERING ETC.. FOR CLARITY, THE DEFINITION OF MANUFACTURE IS REPRODUCED AS UNDER: 'MANUFACTURE' MEANS TO MAKE, P RODUCE, FABRICATE, ASSEMBLE, PROCESS OR BRING INTO EXISTENCE, BY HAND OR BY MACHINE,J3._NEU> PRODUCT HAVING_A_DISTINCTIVE NAME, CHARACTER OR USE AND SHALL INCLUDEPJOCESSES SUCH AS REFRIGERATION, CUTTING, POLISHING, BLENDING, REPAIR, REMAKING, RE - ENGINEERIN G AND INCLUDES AGRICULTURE, AQUACULTURE, ANIMAL HUSBANDRY, FLORICULTURE, HORTICULTURE, PISCICULTURE, POULTRY, SERICULTURE, VITICULTURE AND MINING.' FROM THE FACTS OF THE CASE, IT APPEARS THAT THE ASSESSEE IS ATLEAST DOING SOME KIND OF ASSEMBLING OR FABRICA TING WORK AND IS CUSTOMIZING THE PRODUCT AFTER ASSEMBLING TO FIT NEEDS OF ITS RESPECTIVE CLIENTS AND THEREFORE, IT WAS NOT PROPER ON THE PART OF THE AO TO CONCLUDE THAT THE ASSESSEE IS ENGAGED ONLY IN TRADING ACTIVITY . DURING THE COURSE OF APPELLATE PROCE EDINGS , THE ASSESSEE FURNISHED VARIOUS DETAILS , LIKE VARIOUS PARTS OR ITEMS REQUIRED TO ASSEMBLE A FIRE FIGHTING SYSTEMS , WHICH ARE IMPORTED AND THEN FILLING OF GASES AND FURTHER CUSTOMIZATION DEPENDING UPON THE REQUIREMENT OF CLIENTS . THEREFORE IN MY OPINION THE AO WAS NOT JUSTIFIED IN HOLDING THAT THE ASSESSEE WAS DOING ONLY TRADING ACTIVITIES. 8 I.T.A. NO. 2865/MUM/2017 AND C.O. NO. 261/MUM/2018 M/S NITIN FIRE PROTECTION INDUSTRIES LTD. 7. IT IS FURTHER GATHERED THAT THIS IS NOT FIRST YEAR OF SUCH CLAIM U/S 10AA. INFACT THIS CLAIM WAS MADE FOR THE FIRST TIME BY THE ASSESSEE IN THE AY 2009 - JO A ND THE PRESENT YEAR IS THE FOURTH SUCH YEAR IN WHICH SUCH CLAIM HAS BEEN MADE. FROM THE RECORDS IT FURTHER APPEARS THAT IN EARLIER THREE YEARS THIS CLAIM HAS BEEN ALLOWED BY THE AO AFTER DUE VERIFICATION AND THEREFORE IT IS NOT UNDERSTANDABLE AS TO WHAT LE D HIM TO CONCLUDE THAT ASSESSEE IS NOT ENGAGED IN ANY KIND OF MANUFACTURING AND IT WAS NOT ELIGIBLE FOR DEDUCTION U/S 10AA. IN CASE OF RADHASAOMI SATSANG V/S CIT, 193 ITR 321 THE HON'BLE SUPREME COURT HELD THAT IN THE ABSENCE OF ANY MATERIAL CHANGE, JUSTIF YING THE REVENUE TO TAKE A DIFFERENT VIEW OF THE MATTER, IF THERE WAS NO CHANGE, THE AO COULD NOT TAKE A DIFFERENT VIEW. FOR CLARITY THE RELEVANT PORTION OF THE JUDGEMENT IS REPRODUCED AS UNDER: 'WE ARE AWARE OF THE FACT THAI, STRICTLY SPEAKING, RES JUDICA TA DOES NOT APPLY TO INCOME - TAX PROCEEDINGS. AGAIN, EACH ASSESSMENT YEAR BEING A UNIT, WHAT IS DECIDED IN ONE YEAR MAY NOT APPLY IN THE FOLLOWING YEAR BUT WHERE A FUNDAMENTAL ASPECT PERMEATING THROUGH THE DIFFERENT ASSESSMENT YEARS HAS BEEN FOUND AS A FACT ONE WAY OR THE OTHER AND PARTIES HAVE ALLOWED THAT POSITION TO BE SUSTAINED BY NOT CHALLENGING THE 9 I.T.A. NO. 2865/MUM/2017 AND C.O. NO. 261/MUM/2018 M/S NITIN FIRE PROTECTION INDUSTRIES LTD. ORDER, IL WOULD NOT BE AT ALL APPROPRIATE TO ALLOW THE POSITION TO BE CHANGED IN A SUBSEQUENT YEAR. ON THESE REASONING'S, IN THE ABSENCE OF ANY MATERIAL CHANGE JUSTIFYING THE REVENUE TO TAKE A DIFFERENT VIEW OF THE MATTER AND, IF THERE WAS NO CHANGE, IT WAS IN SUPPORT OF THE ASSESSE - WE DO NOT THINK THE QUESTION SHOULD HAVE BEEN REOPENED AND CONTRARY TO WHAT HAD BEEN DECIDED BY THE COMMISSIONER OF INCOME - TAX IN THE EARLIER PROCEEDINGS, A DIFFERENT AND CONTRADICTORY STAND SHOULD HAVE BEEN TAKEN. WE ARE, THEREFORE, OF THE VIEW THAT THESE APPEALS SHOULD BE ALLOWED AND THE QUESTION SHOULD BE ANSWERED IN THE AFFIRMATIVE, NAMELY, THAT THE TRIBUNAL WAS JUSTIFIED IN HOLDING THAT THE INCOME DERIVED BY THE RADHASOAMI SATSANG WAS ENTITLED TO EXEMPTION UNDER SECTIONS 11 AND 12 OF THE INCOME - TAX ACT OF 1961.' SIMILAR FINDING HAS BEEN GIVEN BY THE HON'BLE APEX COURT IN CASE OF SUMATI DAYAL . 8. IT IS GATHERED THAT ASSESSEE HAS GOT A LICENSE FROM SEZ AUTHORITIES FOR THE MANUFACTURING ACTIVITIES TO BE CARRIED OUT AND EXPORT OF ITS PRODUCT . THE ASSESSEE'S OPERATION ARE ALSO SUPERVISED BY THE CUSTOM & EXCISE AUTHORITIES IN RESPECT OF IMPORTS AND MANUFACTURING ACTIVITIES AND THE ITEMS ARE IMPORTED UNDER HARMONIZED COMMODITY DESCRIPTION AND CODING 10 I.T.A. NO. 2865/MUM/2017 AND C.O. NO. 261/MUM/2018 M/S NITIN FIRE PROTECTION INDUSTRIES LTD. SYSTEMS. VARIOUS COURTS HAVE HELD THAT ONCE A PARTICULAR STAND HAS BEEN TAKEN BY THE AO IN THE EARLIER YEARS , THE SAME SHOULD NOT BE CHANGED UNLESS AND UNTIL THERE IS MATERIAL DIFFERENCE IN THE CIRCUMSTANCES OF THE CASE. THE DETAILS OF SUCH JUDGEMENT ARE UNDER: SUNILKUMAR GANERIWAL VS DCIT, CIR. 14(2), MUMBAI ITA NOS. 4276 (MUM.) OF 2OO8 AND 4143 (MUM.) OF 2OO9 DATED: 25.11.2011 'HELD THAT: - ONCE THE AO ACCEPTED THE TRANSACTION AS INVESTMENT IN THE EARLIER YEAR AND ALSO IN THE SUBSEQUENT YEARS, THEN, IN THE ABSENCE OF ANY GLARING MATERIAL CHANGE IN THE FACTS AND CIRCUMSTANCES, THE AO OUGHT TO HAVE MAINTAINED THE CONSISTENT VIEW ON THE ISSUE. AO CANNOT BE ALLOWED TO TREAT THE SHARE AS STOCK IN TRADE - WHEN ACCEPTED THE SAME AS INVESTMENT IN THE EARLIER YEAR. FURTHER, CONSISTENCY IN THE PATTENI OF PURCHASE AND SALES OF SHARE OVER THE YEARS AND ALSO UNIFORMITY IN TRE ATMENT OF THE TRANSACTIONS, SHOWS THAI THE INTENTION OF THE ASSESSEE TO HOLD THE SHARE AS INVESTMENT. ALSO THE LIKE INVESTMENT MADE OUT OF OWN FUNDS OR BORROWED FUNDS, FREQUENCY OF TRANSACTIONS, VALUATION OF SHARES IN BALANCE SHEET ETC THE INCOME IS ASSESS ABLE AS SHORT TERM CAPITAL GAIN. SEE GOPAL 11 I.T.A. NO. 2865/MUM/2017 AND C.O. NO. 261/MUM/2018 M/S NITIN FIRE PROTECTION INDUSTRIES LTD. PUROHIT. VERSUS JOT (2009 (2) TMI233 - ITAT BOMBAY - GJ - DECIDED IN FAVOR OFASSESSE.' THE RATIO OF THE ABOVE JUDGMENT IS SQUARELY APPLICABLE TO THE FACTS OF THE PRESENT CASE. BESIDES OTHER CASE LAWS RELIED UPON BY T HE ASSESSEE ALSO SUPPORT ITS VIEW POINT . 9. IN VIEW OF THE ABOVE FACTS AND LEGAL POSITION, IT IS HELD THAT AO WAS NOT JUSTIFIED IN DENYING THE CLAIM OF THE ASSESSEE TOWARDS DEDUCTION OF SECTION 10AA OF THE ACT , FIRSTLY BECAUSE THE AO HAS ITSELF ALLOWED S UCH CLAIM IN THE EARLIER YEARS AND SECONDLY THE ASSESSEE HAS FURNISHED ENOUGH DETAILS TO THE EFFECT THAT IT IS ENGANGED IN ASSEMPBLING, FABRICATION AND REENGINEERING OF THE IMPORTED PRODUCT AND ITS CUSTOMIZATION BEFORE IT IS SOLD TO ITS RESPECTIVE CLIENTS . THEREFORE THE DISALLOWANCE OF DEDUCTION CLAIMED U/S 10AA OF THE ACT , MADE BY THE AO IS DIRECTED TO BE DELETED. CONSEQUENTLY THIS GROUND TAKEN BY THE ASSESSEE IS ALLOWED. AFTER HAVING GONE THROUGH THE FACTS OF THE PRESENT CASE AS WELL AS CONSIDERING THE ORDERS PASSED BY REVENUE AUTHORITIES AND SUBMISSIONS MADE BY BOTH THE PARTIES, WE FIND THAT AS PER THE FACTS, THE ASSESSEE HAD SET UP A NEW EXPORT ORIENTED UNIT IN 12 I.T.A. NO. 2865/MUM/2017 AND C.O. NO. 261/MUM/2018 M/S NITIN FIRE PROTECTION INDUSTRIES LTD. VISHAKAPATTANAM, SEZ AND THE DEDUCTION U/S 10AA WAS CLAIMED IN RESPECT OF THE PROFITS OF TH IS UNIT. THE AO DURING THE ASSESSMENT PROCEEDINGS HELD THAT ASSESSEE WAS PRIMARILY ENGAGED IN THE TRADING ACTIVITY AND NOT IN ANY KIND OF MANUFACTURING. THUS, NO ENTITLED FOR DEDUCTION U/S 10AA OF THE ACT. LD. DR WHILE RELYING UPON THE ORDERS PASSED BY T HE AO, SUBMITTED THAT THE DOCUMENTS SUBMITTED BY THE ASSESSEE IN THE SHAPE OF PURCHASE INVOICES AND SALE INVOICES, IT IS CLEAR THAT THE DESCRIPTION OF ITEMS PURCHASED BY THE ASSESSEE WERE EXACTLY MATCHES WITH THE ITEMS SOLD BY THE ASSESSEE. SO IN THIS WAY, ACCORDING TO LD. DR, THE ASSESSEE CANNOT BE SAID IN DOING THE ASSEMBLING ACTIVITIES OF THE GOODS/ARTICLES. OUR ATTENTION WAS ALSO DRAWN TO PAGE NO. 81 OF THE PAPER BOOK, WHEREIN THE APPROVAL WAS GRANTED TO THE ASSESSEE BY THE OFFICE OF DEVELOPMENT COMMIS SIONER, VISHAKAPATTANAM, SPECIAL ECONOMIC ZONE, FOR THE PURPOSE OF SETTING UP A TRADING UNIT. ON THE OTHER HAND, LD. AR REITERATED THE SAME ARGUMENTS AS WERE RAISED BY HIM BEFORE LD. CIT(A). IT WAS SUBMITTED THAT THE ASSESSEE WAS ENGAGED INTO MANUFACTURIN G ACTIVITIES AND IN 13 I.T.A. NO. 2865/MUM/2017 AND C.O. NO. 261/MUM/2018 M/S NITIN FIRE PROTECTION INDUSTRIES LTD. THIS WAY, OUR ATTENTION WAS DRAWN TOWARDS PAGE NO. 82 OF THE PAPER BOOK, WHICH IS PART OF THE PERMISSION GRANTED BY OFFICE OF DEVELOPMENT COMMISSIONER, VISHAKAPATTANAM, SEZ, WHEREIN IT IS CATEGORICALLY MENTIONED THAT THE APPROVAL WAS GR ANTED TO THE ASSESSEE SUBJECT TO EXPORTING THE GOODS MANUFACTURED/GOODS IMPORTED BY THE ASSESSEE. LD. AR FURTHER RELIED UPON THE OTHER DOCUMENTS OF THE PAPER BOOKS IN THE SHAPE OF BILLS, CHALLANS, BANK DOCUMENTS, WHICH CORROBORATES THE STAND OF THE ASSESSE E. IT WAS ALSO SUBMITTED THAT ASSESSEE IS IN THE BUSINESS OF IMPORTING HIGH PRESSURE BASED CYLINDERS WHICH ARE USED FOR HIGH PRESSURE FIRE FIGHTING SOLUTIONS AND THE PRODUCT IS CUSTOMIZED AS PER THE CUSTOMERS REQUIREMENT AND VARIOUS VALUE ADDITIONS WERE MA DE AFTER IMPORTING THE EQUIPMENTS, LIKE ASSEMBLING OF VARIOUS PARTS, FILLING OF GASES, PUTTING VARIOUS ASSESSORIES AND OTHER SUCH THINGS. IN THIS RESPECT, RELIANCE WAS ALSO PLACED UPON DEFINITION OF MANUFACTURING AS PER SECTION 2 OF THE SEZ ACT 2005, WHICH INCLUDES FABRICATION, ASSEMBLING OR PROCESSING OF NEW PRODUCT, WHICH INCLUDES BLENDING, REPAIR, POLISHING, CUTTING, ETC. IT WAS ALSO SUBMITTED THAT AO HAD ITSELF ALLOWED SUCH CLAIM IN THE 14 I.T.A. NO. 2865/MUM/2017 AND C.O. NO. 261/MUM/2018 M/S NITIN FIRE PROTECTION INDUSTRIES LTD. EARLIER YEARS AND THE ASSESSEE HAS ALSO FURNISHED ENOUGH DETAILS TO PROVE THAT ASSESSEE IS ENGAGED IN THE MANUFACTURING ACTIVITIES. WE FIND THAT LD. CIT (A) WHILE APPRECIATING THE FACTS OF THE PRESENT CASE HAD RIGHTLY CONCLUDED THAT ASSESSEE WAS ENGAGED IN SUPPLY OF FIRE FIGHTING EQUIPMENT INCLUDING FIRE FIGHTING SYSTEMS WHICH WILL INCLUDE FIRE ALARM AND DETECTING SYSTEMS, FIRE FIGHTING PUMP SETS AND GAS SUPPRESSION SYSTEMS WHICH INCLUDES TANK, VALVES, GASES AND ACCESSORIES AND MOST OF THE ITEMS OR PARTS ARE IMPORTED BY THE ASSESSEE COMPANY FROM CHINESE COMPANIES AND THER EAFTER VARIOUS ASSEMBLING, FITTING, REENGINEERING AND FABRICATION WORK IS DONE AND THEREAFTER GAS IS FILED IN CYLINDERS BEFORE THEY ARE SUPPLIED TO DIFFERENT CLIENTS. SINCE THE CUSTOMIZATION WAS DONE BY THE ASSESSEE AS PER THE REQUIREMENT OF THE CLIENT AND THUS THE PROCESS ITSELF INVOLVES A LOT OF VALUE ADDITION. EVEN D URING THE COURSE OF APPELLATE PROCEEDINGS , THE ASSESSEE FURNISHED VARIOUS DETAILS , LIKE VARIOUS PARTS OR ITEMS REQUIRED TO ASSEMBLE A FIRE FIGHTING SYSTEMS , WHICH ARE IMPORTED AND THEN FIL LING OF GASES AND FURTHER CUSTOMIZATION DEPENDING UP ON THE REQUIREMENT OF CLIENTS. EVEN OTHERWISE, THE CLAIM U/S 10AA WAS MADE BY THE ASSESSEE FOR THE FIRST TIME IN THE YEAR AY 15 I.T.A. NO. 2865/MUM/2017 AND C.O. NO. 261/MUM/2018 M/S NITIN FIRE PROTECTION INDUSTRIES LTD. 2009 - 10 AND THE PRESENT YEAR IS THE FOURTH SUCH YEAR IN WHICH SUCH CLAIM HAS BEEN MADE AND IN EARLIER THREE YEARS THIS CLAIM HAS BEEN ALLOWED BY THE AO AFTER DUE VERIFICATION . IN SUCH CIRCUMSTANCES, THE HONBLE SUPREME COURT IN THE CASE OF RADHASAOMI SATSANG V/S CIT, 193 ITR 321 HAD HELD THAT IN THE ABSENCE OF ANY MATERIAL CHANGE, JUSTIFYING THE REVENUE TO TAKE A DIFFERENT VIEW OF THE MATTER, IF THERE WAS NO CHANGE, THE AO COULD NOT TAKE A DIFFERENT VIEW. APART FROM THAT IN THE CASE OF SUNIL KUMAR GANERIWAL VRS. DCIT (ITA 4276/MUM/2008 DATED 25.11.11), WHEREIN IT WAS HELD THAT ONCE A PARTICULAR STAND HAS BEEN TAKEN BY THE AO IN THE EARLIER YEARS, THE SAME SHOULD NOT BE CHANGED UNLESS AND UNTIL THERE IS MATERIAL DIFFERENCE IN THE CIRCUMSTANCES OF THE CASE. SINCE THE LD. CIT(A) HAD RIGHTLY APPRECIATED THE FACTS OF THE PRESENT CASE IN CORRECT PERSPECTIVE AND EVEN NO NEW FACTS OR CONTRARY JUDGMENTS HAVE BEEN BROUGHT ON RECORD BEFORE US I N ORDER TO CONTROVERT OR REBUT THE FINDINGS SO RECORDED BY LD. CIT(A). THEREFORE, WE SEE NO REASON S TO INTERFERE INTO OR DEVIATE FRO M THE FINDINGS RECORDED BY THE LD.CIT(A). HENCE , WE ARE OF THE CONSIDERED VIEW THAT THE FINDINGS SO RECORDED BY THE LD. CIT 16 I.T.A. NO. 2865/MUM/2017 AND C.O. NO. 261/MUM/2018 M/S NITIN FIRE PROTECTION INDUSTRIES LTD. (A) ARE JUDICIOUS AND ARE WE LL REASONED. RESULTANTLY, THIS GROUND RAISED BY THE REVENUE STANDS DISMISSED . GROUND NO. 2 . 9 . THIS GROUND RAISED BY THE REVENUE RELATES TO CHALLENGING THE ORDER OF LD. CIT(A) IN DELETING THE DISALLOWANCE OF SALES TAX DUES OF RS.6,00,794/ - . 10 . WE HAVE HEARD COUNSELS FOR BOTH THE PARTIES AT LENGTH AND WE HAVE ALSO PERUSED THE MATERIAL PLACED ON RECORD AS WELL AS THE ORDERS PASSED BY REVENUE AUTHORITIES. BEFORE WE DECIDE THE MERITS OF THE CASE, IT IS NECESSARY TO EVALUATE THE ORDERS PASSED BY LD. CIT(A). LD. CIT(A) HAS DEALT WIT H THIS GROUND IN PARA NO. 10 & 11 OF ITS DETAILED ORDER AND THE SAME IS REPR ODUCED BELOW: - 10. IN THE GROUND NO 2 OF THE APPEAL , THE ASSESSEE HAS DISPUTED THE DISALLOWANCE OF SALES TAX DUES OF RS 6,00,794/ - . IT IS GATHERED THAT DURING THE COURSE OF SALES TAX ASSESSMENT, THE DEMAND OF RS 3,12,574/ - WAS RAISED UPON THE ASSESSEE AP ART FROM INTEREST OF RS 2,88,OO0 / - . THIS INTEREST HAS BEEN PAID BY THE ASSESSEE 17 I.T.A. NO. 2865/MUM/2017 AND C.O. NO. 261/MUM/2018 M/S NITIN FIRE PROTECTION INDUSTRIES LTD. DURING THE YEAR AND THEREFORE HAS BEEN DEBITED UNDER P & L ACCOUNT. THE COMPLETE DETAILS IN THIS REGARD ALONG WITH SALES TAX DEPARTMENT ORDER, CHALLANS PAID AND OTHER RELEVANT DETAILS WERE FURNISHED BY THE ASSESSEE BEFORE THE AO. HOWEVER, THE AO FELT THAT ASSESSEE IS ELIGIBLE AS ONLY IN RESPECT OF SALES TAX PAID PRIOR TO ANY ASSESSMENT AND SUBSEQUENT DEMAND RAISED WAS NOT ELIGIBLE. IT IS GATHERED THAT THIS ISSUE HAS BEEN COVERED IN DETAIL B}' THE HON'BLE GUJARAT HIGH COURT IN THE CASE OF CIT V/S KAYPEE MECHANICAL INDIA P LTD AND HELD THAT SUCH EXPENDITURE WAS DIRECTED TO BE ALLOWED FOLLOWING HON'BLE SUPREME COURT DECISION IN THE CASE OF LAKSHMIDEVI SUGAR MILLS P LTD. FOR CLARITY, THE RELEVANT PORTION OF THE SAID DECISION IS REPRODUCED BELOW: 'THE GUJARAT HIGH COURT IN CASE OFRCIT VS KAYPEE MECHANICAL INDIA PVT LTDLTA NO. 186 OF 2014 (DATED: 21.04.2014) 'ALLOWABILITY OF DEDUCTION U/S 37(1) OF THE ACT - AMOUNT OF SERVICE TAX INCLUDE D WITH INTEREST - HELD THAT: - THE TRIBUNAL RIGHTLY WAS OF THE VIEW THAT THE LIABILITY HAS BEEN CRYSTALLIZED IN THE YEAR UNDER CONSIDERATION - REVENUE HAD NOT BROUGHT ON RECORD ANY MATERIAL THAT THE SERVICE TAX INCLUDING INTEREST HAD BEEN RECOVERED FROM THE PARTIES FOR WHICH 18 I.T.A. NO. 2865/MUM/2017 AND C.O. NO. 261/MUM/2018 M/S NITIN FIRE PROTECTION INDUSTRIES LTD. IT HAD RENDERED SERVICE - THE EXPENSES WERE INCIDENTAL AND ARISING OUT OF THE BUSINESS OF THE ASSESSEE - THE INTEREST PAYMENT IS COMPENSATORY IN NATURE - THE EXPENSES HAVE DIRECT NEXUS WITH THE BUSINESS OPERATION. RELYING UPON COMMISSIONE R OF INCOME TAX V. LUXMI DEVI SUGAR MILLS P. LIMITED FL 990 (9) TMI 8 - SUPREME COURT] - THE AMOUNT WAS EXPENDED BY THE ASSESSEE DURING THE COURSE OF BUSINESS, WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF BUSINESS - IF THE ASSESSEE HAD TAKEN PROPER STEPS AND CHARGED SERVICE TAX TO THE SERVICE RECIPIENTS AND DEPOSITED WITH THE GOVERNMENT, THERE WAS NO QUESTION OF ASSESSEE EXPENDING SUCH SUM - IT IS ONLY BECAUSE THE ASSESSEE FAILED TO DO SO, THAT HE HAD TO EXPEND THE SAID AMOUNT, THOUGH IT WAS NOT HIS PRIMARY LIA BILITY - THIS CANNOT BE STATED TO BE A PENALTY FOR INFRACTION OF LAW - PAYMENT OF INTEREST IS COMPENSATORY IN NATURE AND WOULD NOT PARTAKE THE CHARACTER OF PENALTY - DECIDED AGAINST REVENUE.' 11. IN VIEW OF THE ABOVE FACTS AND FOLLOWING HON'BLE GUJARAT HIG H COURT JUDGEMENT IN THE CASE OF CIT V/S KAYPE MECHANICAL INDIA P LTD IN ITA NO 186 OF 2014 DATED 21.04.2014, THE AO IS DIRECTED TO ALLOW THE CLAIM OF THE ASSESSEE IN RESPECT OF SALES TAX DUES OF RS 6,00,794/ - . CONSEQUENTLY, THIS GROUND TAKEN BY THE ASSESS EE IS ALLOWED. 19 I.T.A. NO. 2865/MUM/2017 AND C.O. NO. 261/MUM/2018 M/S NITIN FIRE PROTECTION INDUSTRIES LTD. AFTER HAVING GONE THROUGH THE FACTS OF THE PRESENT CASE AS WELL AS CONSIDERING THE ORDERS PASSED BY REVENUE AUTHORITIES AND SUBMISSIONS MADE BY BOTH THE PARTIES, WE NOTICE THAT DURING THE COURSE OF SALES TAX ASSESSMENT, APART FROM DEMAND OF SALES TAX, INTEREST WAS ALSO CLAIMED FROM THE ASSESSEE WHICH WAS PAID DURING THE YEAR AND THIS WAS DEBITED UNDER P & L ACCOUNT. LD. AR SUBMITTED THAT ALL THE REQUIRED DETAILS INCLUDING CHALLAN, ETC WERE FURNISHED BEFORE THE AO. LD. CIT(A) HAD DECIDED THE ISSUED BY RELYING UPON THE DECISION OF HONBLE SUPREME COURT AND HIGH COURT, WHEREIN IT HAD BEEN HELD THAT THE INTEREST EXPENSES ARE INCIDENTAL AND ARISES OUT OF THE BUSINESS OF THE ASSESSEE AND BEING COMPENSATORY IN NATURE HAS D IRECT NEXUS WITH THE BUSINESS OPERATIONS. THEREFORE, LD. CIT(A) WHILE FOLLOWING THE PRINCIPLES LAID DOWN BY THE HIGH COURTS, MORE PARTICULARLY IN THE CASE OF CIT VRS. KAYPE MECHANICAL INDIA P LTD IN ITA NO 186 OF 2014 DATED 21.04.2014 HAD DIRECTED THE AO T O ALLOW THE CLAIM OF THE ASSESSEE IN RESPECT OF SALES TAX DUES INCLUDING INTEREST. 20 I.T.A. NO. 2865/MUM/2017 AND C.O. NO. 261/MUM/2018 M/S NITIN FIRE PROTECTION INDUSTRIES LTD. MOREOVER, N O NEW FACTS OR CONTRARY JUDGMENTS HAVE BEEN BROUGHT ON RECORD BEFORE US I N ORDER TO CONTROVERT OR REBUT THE FINDINGS SO RECORDED BY LD. CIT(A). THEREFORE, WE SE E NO REASON S TO INTERFERE INTO OR DEVIATE FROM THE FINDINGS RECORDED BY THE LD.CIT(A). HENCE , WE ARE OF THE CONSIDERED VIEW THAT THE FINDINGS SO RECORDED BY THE LD. CIT (A) ARE JUDICIOUS AND ARE WE LL REASONED. RESULTANTLY, THIS GROUND RAISED BY THE REVENUE STANDS DISMISSED . GROUND NO. 3 . 11 . THIS GROUND RAISED BY THE REVENUE RELATES TO CHALLENGING THE ORDER OF LD. CIT(A) IN TREATING THE EXPENDITURE OF RS. 7 LAKHS AS CREDIT RATING FEES AS REVENUE EXPENDITURE INSTEAD OF CAPITAL EXPENDITURE TREATED BY THE ASSESSING OFFICER. 12 . WE HAVE HEARD COUNSELS FOR BOTH THE PARTIES AT LENGTH AND WE HAVE ALSO PERUSED THE MATERIAL PLACED ON RECORD AS WELL AS THE ORDERS PASSED BY REVENUE AUTHORITIES. BEFORE WE DECIDE THE MERITS OF THE CASE, IT IS NECESSARY TO EVALUATE THE ORDERS PASSED BY LD. CIT(A). LD. CIT(A) HAS DEALT 21 I.T.A. NO. 2865/MUM/2017 AND C.O. NO. 261/MUM/2018 M/S NITIN FIRE PROTECTION INDUSTRIES LTD. WITH THIS GROUND IN PARA NO. 26 TO 28 OF ITS DETAILED ORDER. THE OPERATIVE PORTION OF THE ORDER OF LD. CIT(A) IS CONTAINED IN PARA NO. 28 OF ITS ORDER AND THE SAME IS REPRODUCED BELOW: - 28. I HAVE CONSIDERED THE FACTS OF THE CASE. IT APPEARS THAT THIS AMOUNT OF RS 7,00,000/ - HAS BEEN PAID TO THE CREDIT RATING AGENCY, CRISIL LTD WHICH EVALUATES THE AFFAIRS OF THE ASSESSEE AND GRANTS IT INVESTMENTS RELATED RATINGS. IT IS FURTHER GATHERED THAT THE ASSESSEE HAS RAISED LOANS OF RS 300 CRORES IN NATURE OF WORKING CAPITAL LOAN AND SUCH LOAN HAS BEEN SANCTIONED BY THE FINANCIAL INSTITUTION BASED UPON CREDIT RATING GIVEN BY THE AGENCY. IT IS NOTICED THAT THE WORKING CAPITAL HAS BEEN ENHANCED BY THE IDBI BANK ON 25.10.2014. IT IS FURTHER ARGUED BY THE ASSESSEE THAT THIS AMOUNT OF RS 7,00,000/ - IS PAID BY IT ANNUALLY TO CRISIL AND THEREFORE IT IS IN NATURE OF REVENUE EXPENDITURE AND SHOULD BE ALLOWED. I HAVE EXAMINED THE FACTS OF THE CASE AND IT APPEARS THAT OUT OF RS 7,00,000/ - PAID TO CR ISIL, RS 5,00,000/ - IS RELATING TO INITIAL RATING FEES AND RS 2,00,OOO/ - IS ANNUAL SURVEILLANCE FEES. HOWEVER, AS THE CREDIT RATING EXPENDITURE IS RELATING TO ONLY WORKING CAPITAL LOAN AND NOT TO THE LOAN TAKEN FOR INVESTMENT IN FIXED ASSETS, ETC., THEREFO RE THIS IS CLEARLY A REVENUE EXPENDITURE. SINCE THE PART OF THE EXPENDITURE IS IN NATURE OF ANNUAL SURVEILLANCE FEE HAS 22 I.T.A. NO. 2865/MUM/2017 AND C.O. NO. 261/MUM/2018 M/S NITIN FIRE PROTECTION INDUSTRIES LTD. TO BE INCURRED ANNUALLY BY THE ASSESSEE ON THE BASIS OF THE AGREEMENT WITH CRISIL LTD., THIS AMOUNT IS EXCLUSIVELY IN NATURE OF REVENUE EXPENDITURE. IN VIEW OF THESE FACTS, THE AMOUNT OF RS 7,00,OOO/ - PAID TO CRISIL LTD IS TREATED AS REVENUE EXPENDITURE AND IS THEREFORE DIRECTED TO BE ALLOWED. THIS GROUND OF APPEAL IS ACCORDINGLY ALLOWED. AFTER HAVING GONE THROUGH THE FACTS OF THE PRESENT CASE AS WELL AS CONSIDERING THE ORDERS PASSED BY REVENUE AUTHORITIES AND SUBMISSIONS MADE BY BOTH THE PARTIES, WE FIND THAT THE ABOVE AMOUNT WAS PAID TO THE CREDIT RATING AGENCY, CRISIL LTD WHICH EVALUATES THE AFFAIRS OF THE ASSESSEE AND GRANTS IT INVESTM ENTS RELATED RATINGS. ON THE BASIS OF CREDIT RATING GIVEN BY THE AGENCY, THE ASSESSEE HAD RAISED LOANS OF RS 300 CRORES IN NATURE OF WORKING CAPITAL LOAN. SINCE, THIS AMOUNT OF WAS PAID ANNUALLY TO CRISIL, THEREFORE AFTER EXAMINING THE FACT, THE LD. CIT(A) HAD RIGHTLY TREATED THE SAID EXPENSES AS REVENUE EXPENSES. MOREOVER, N O NEW FACTS OR CONTRARY JUDGMENTS HAVE BEEN BROUGHT ON RECORD BEFORE US I N ORDER TO CONTROVERT OR REBUT THE FINDINGS SO RECORDED BY LD. CIT(A). THEREFORE, WE SEE NO 23 I.T.A. NO. 2865/MUM/2017 AND C.O. NO. 261/MUM/2018 M/S NITIN FIRE PROTECTION INDUSTRIES LTD. REASON S TO INTERFERE INTO OR DEVIATE FROM THE FINDINGS RECORDED BY THE LD.CIT(A). HENCE , WE ARE OF THE CONSIDERED VIEW THAT THE FINDINGS SO RECORDED BY THE LD. CIT (A) ARE JUDICIOUS AND ARE WE LL REASONED. RESULTANTLY, THIS GROUND RAISED BY THE REVENUE STANDS DISMISS ED . GROUND NO. 4 . 13 . THIS GROUND RAISED BY THE REVENUE RELATES TO CHALLENGING THE ORDER OF LD. CIT(A) IN DELETING THE DISALLOWANCE OF RENT EXPENSES OF RS.6,20,437/ - . 14 . WE HAVE HEARD COUNSELS FOR BOTH THE PARTIES AT LENGTH AND WE HAVE ALSO PERUSED THE M ATERIAL PLACED ON RECORD AS WELL AS THE ORDERS PASSED BY REVENUE AUTHORITIES. BEFORE WE DECIDE THE MERITS OF THE CASE, IT IS NECESSARY TO EVALUATE THE ORDERS PASSED BY LD. CIT(A). THE OPERATIVE PORTION OF THE ORDER OF LD. CIT(A) IS CONTAINED IN PARA NO. 3 6 TO 38 OF ITS ORDER AND THE SAME IS REPRODUCED BELOW: - 36. GROUND NO. 11 OF THE APPEAL IS DISALLOWANCE OF RENT EXPENSES OF RS 6,20,437/ - . LIT IS GATHERED THAT 24 I.T.A. NO. 2865/MUM/2017 AND C.O. NO. 261/MUM/2018 M/S NITIN FIRE PROTECTION INDUSTRIES LTD. THE ASSESSEE HAD ENTERED INTO A LEAVE AND LICENSE AGREEMENT DATED 14.02.2011 WITH M/S BOMBAY INTELLIGENCE SECURITIES INDIA LTD AS PER WHICH A PROPERTY WAS TAKEN ON MONTHLY RENT OF RS 2,25.000/ - AND SERVICE CHARGES @ 10.3%. THE AGREEMENT WAS FOR A PERIOD OF 12 MONTHS. THUS, THE RENTAL EXPENDITURE OF 21/2 MONTHS FOR A PERIOD OF 15.02.2011 TO 31.03.2 011, THOUGH ACCRUED IN AY 2011 - 12, HOWEVER, DUE TO LATE RECEIPT OF DEBIT NOTE FROM THE SAID COMPANY, THIS RENT OF 21/2 MONTHS FOR THE AY 2011 - 12 HAS BEEN CLAIMED BY THE ASSESSEE DURING THE CURRENT YEAR I.E. AY 2012 - 13. IT IS ON THIS GROUND THAT THE AO HAS DISALLOWED THIS RENTAL EXPENDITURE OF RS 6,20,437/~ AND ADDED BACK IN THE HANDS OF THE ASSESSEE. DURING THE COURSE OF APPELLATE PROCEEDINGS, THE LD AR ARGUED THAT THE RENT OF RS 6,20,437/ - WAS ACTUALLY PAID IN SUBSEQUENT YEAR ON THE BASIS OF THE DEBIT NOTE RECEIVED FROM THE ABOVE COMPANY AND THEREFORE THIS EXPENDITURE SHOULD BE ALLOWED IN AY 2012 - 13 EVEN THOUGH TECHNICALLY IT WAS RELATING TO AY 2011 - 12. IT IS GATHERED THAT DURING AY 2011 - 12 THE ASSESSEE HAS NOT .CLAIMED THIS EXPENDITURE AND IT IS ONLY IN AY 2012 - 13 THAT THIS AMOUNT HAS BEEN CLAIMED ON THE BASIS OF PAYMENT. THIS ERROR HAS TAKEN PLACE BECAUSE OF CERTAIN MISTAKE AT THE END OF THE ACCOUNTS DEPARTMENT 25 I.T.A. NO. 2865/MUM/2017 AND C.O. NO. 261/MUM/2018 M/S NITIN FIRE PROTECTION INDUSTRIES LTD. OF THE COMPANY AND THE ASSESSEE HAS ARGUED TH AT THE EXPENDITURE BEING FGENUME MAY PLEASE BE ALLOWED .IT IS NOTICED THAT AN IDENTICAL ISSUE HAS BEEN DECIDED BY THE HON'BLE DELHI HIGH COURT IN THE CASE OF CIT V/S HERBALIFE INTERNATIONAL LTD 384 ITR 276 VIDE ORDER DATED 13.05.2016 WHER IN THE HON'BLE CO URT DIRECTED TO ALLOW THE EXPENDITURE BY OBSERVING A UNDER: \ 'ALLOWANCE OF PRIOR EXPENSES - HELD THAT - THE COURT CONCURS WITH THE VIEW EXPRESSED BY THE ITAT IN THE PRESENT CASE, THAT THE EXPENSES FOR THE PERIOD 1ST JANUARY 2000 TO 31ST MARCH 2000 ACCRUED AS A LIABILITY TO THE ASSESSEE ONLY DURING THE PREVIOUS YEAR AND THAT THE SAID EXPENDITURE WAS RIGHTLY ALLOWED AS DEDUCTION DURING THE AY IN QUESTION DECIDED IN FAVOUR OF THE ASSESSEE.' 37. FURTHER A SIMILAR ISSUE HAS ALSO BEEN DECIDED BY HON'BLE DELHI IT AT IN THE CASE OF NATIONAL CO - OPERATIVE CONSUMERS FEDERATION LTD. IN I.T.A NO. 3626/DEL/LO (DATED: O4.07.2012), WHERE IN IT WAS HELD : - 'ADDITION ON ACCOUNT OF PRIOR PERIOD EXPENSE - WHETHER LIABILITY OF EARLIER YEARS HAS BEEN CRYSTALLIZED IN THIS YEAR - A SSESSEE CALCULATION OF INTEREST BASED ON 26 I.T.A. NO. 2865/MUM/2017 AND C.O. NO. 261/MUM/2018 M/S NITIN FIRE PROTECTION INDUSTRIES LTD. SIMPLE INTEREST WHILE THE BANK CHARGING AT COMPOUNDED INTEREST - BANK DEBIT THE INTEREST OF EARLIER YEARS IN CURRENT YEAR - INTEREST LIABILITY BOOKED BY ASSESSEE AS PRIOR PERIOD EXPENSE - HELD THAT: - THERE WOULD BE S OME DISPUTE OR AT LEAST MISUNDERSTANDING IN THE MIND OF THE ASSESSEE ABOUT METHOD OF ACCOUNTING THE INTEREST I.E. WHETHER IT SHOULD BE SIMPLE INTEREST OR COMPOUND INTEREST. THE RATE OF TAX FOR ALL THESE YEARS REMAINS THE SAME. THEREFORE, FOLLOWING THE DECI SION IN THE CASE OF CIT VS. SHRIRAM PISTONS & RINGS LTD AND VS. VISHNU INDUSTRIAL GASES PVT. LTD., ASSESSEE IS ENTITLED TO DEDUCT THIS AMOUNT IN COMPUTING THE INCOME. DECISION IS IN FAVOR OF ASSESSEE.' 38. CONSIDERING THE ABOVE LEGAL POSITION AND AS THE EXPENDITURE HAS BEEN CLAIMED BY THE ASSESSEE IN ANY OF THE OTHER YEAR, BUT IN THE PRESENT YEAR AND THERE ARE NOT DOUBTS ON GENUINENESS OF THE EXPENDITURE, THE EXPENDITURE OF RS 6,20,437/ - CLAIMED BY THE ASSES SEE IS DIRECTED TO BE ALLOWED. THIS GROUND OF APPEAL IS ALLOWED. AFTER HAVING GONE THROUGH THE FACTS OF THE PRESENT CASE AS WELL AS CONSIDERING THE ORDERS PASSED BY REVENUE AUTHORITIES AND SUBMISSIONS MADE BY BOTH THE PARTIES, WE FIND THAT AS PER THE 27 I.T.A. NO. 2865/MUM/2017 AND C.O. NO. 261/MUM/2018 M/S NITIN FIRE PROTECTION INDUSTRIES LTD. FACT S, THE ASSESSEE HAD ENTERED INTO A LEAVE AND LICENSE AGREEMENT DATED 14.02.2011 WITH M/S BOMBAY INTELLIGENCE SECURITIES INDIA LTD AS PER WHICH A PROPERTY WAS TAKEN ON MONTHLY RENT OF RS 2,25.000/ - AND SERVICE CHARGES @ 10.3%. THE AGREEMENT WAS FOR A PERIOD OF 12 MONTHS. THUS, THE RENTAL EXPENDITURE OF 21/2 MONTHS FOR A PERIOD OF 15.02.2011 TO 31.03.2011, THOUGH ACCRUED IN AY 2011 - 12, HOWEVER, DUE TO LATE RECEIPT OF DEBIT NOTE FROM THE SAID COMPANY, THIS RENT OF 21/2 MONTHS FOR THE AY 2011 - 12 HAD BEEN CLAIME D BY THE ASSESSEE DURING THE CURRENT YEAR I.E. AY 2012 - 13. WHEREAS THIS RENT OF RS. 6,20,437/ - WAS ACTUALLY PAID IN SUBSEQUENT YEAR ON THE BASIS OF THE DEBIT NOTE. THEREFORE IN SUCH CIRCUMSTANCES, LD. CIT(A)ALLOWED THE EXPENSES IN THE YEAR UNDER CONSIDERA TION WHILE RELYING UPON THE JUDGMENT OF HONBLE DELHI HIGH COURT IN THE CASE OF CIT V/S HERBALIFE INTERNATIONAL LTD 384 ITR 276 VIDE ORDER DATED 13.05.2016 WHEREIN THE HON'BLE COURT DIRECTED TO ALLOW THE EXPENDITURE BY OBSERVING AS UNDER: - 'ALLOWANCE OF P RIOR EXPENSES - HELD THAT - THE COURT CONCURS WITH THE VIEW EXPRESSED BY THE ITAT IN THE PRESENT CASE, THAT THE EXPENSES FOR THE PERIOD 1ST 28 I.T.A. NO. 2865/MUM/2017 AND C.O. NO. 261/MUM/2018 M/S NITIN FIRE PROTECTION INDUSTRIES LTD. JANUARY 2000 TO 31ST MARCH 2000 ACCRUED AS A LIABILITY TO THE ASSESSEE ONLY DURING THE PREVIOUS YEAR AND THAT THE SAI D EXPENDITURE WAS RIGHTLY ALLOWED AS DEDUCTION DURING THE AY IN QUESTION DECIDED IN FAVOUR OF THE ASSESSEE.' SINCE, IN THE PRESENT YEAR, THERE WAS NO DOUBTS ON THE GENUINESS OF THE EXPENDITURE, THEREFORE THE SAME WAS RIGHTLY ALLOWED IN VIEW OF THE ABOVE FACTS AND CIRCUMSTANCES. MOREOVER, N O NEW FACTS OR CONTRARY JUDGMENTS HAVE BEEN BROUGHT ON RECORD BEFORE US I N ORDER TO CONTROVERT OR REBUT THE FINDINGS SO RECORDED BY LD. CIT(A). THEREFORE, WE SEE NO REASON S TO INTERFERE INTO OR DEVIATE FROM THE FINDINGS RECORDED BY THE LD.CIT(A). HENCE , WE ARE OF THE CONSIDERED VIEW THAT THE FINDINGS SO RECORDED BY THE LD. CIT (A) ARE JUDICIOUS AND ARE WE LL REASONED. RESULTANTLY, THIS GROU ND RAISED BY THE REVENUE STANDS DISMISSED . G ROUND NO. 5 & 6 15 . THESE GROUNDS RAISED BY THE REVENUE ARE GENERAL IN NATURE, THUS REQUIRES NO SPECIFIC ADJUDICATION. 29 I.T.A. NO. 2865/MUM/2017 AND C.O. NO. 261/MUM/2018 M/S NITIN FIRE PROTECTION INDUSTRIES LTD. 16 . IN VIEW OF OUR ABOVE FINDINGS, THE APPEAL FILED BY THE REVENUE STANDS DISMISSED. 17 . N OW WE TAKE UP C.O. NO. 261/MUM/2018 FOR AY 2012 - 13 FILED BY THE ASSESSEE ON THE GROUNDS MENTIONED HEREIN BELOW: - 1. THE LD. CIT(A) ERRED IN MAKING ADDITION OF RS. 33,97,774/ - IN AND ERRED IN MAKING U/S 14A READ WITH I.T. RU LES 8D(2)(II) AND ERRED IN WORKI NG OF RULE 8D WHEN THERE WAS AN EXEMPTED INCOME OF RS. 1,25,000/ - ONLY. 2. THE LD. CIT(A) ERRED IN DISALLOWING THE DEPRECIATION ON MOTOR CAR OF RS. 1,78,645/ - WITHOUT ANY VALID OR COGENT REASONS. 3. THE LD. CIT(A) ERRED IN CONFIRMING THE DISALLOWANCE OF RS. 8,10,865/ - ON ADHOC BASIS WITHOUT ANY VALID OR COGENT REASONS. 4. THE LD. CIT(A) ERRED IN CONFIRMING THE DISALLOWANCE OF THE OTHER EXPENSES OF RS.6,30,000/ - WITHOUT ANY VALID OR COGENT REASONS. 5. THE LD. CIT(A) ERRED IN DISALLOWING THE LOSS ON SALE O F ASSETS RS. 3,03,036/ - AS IT IS IN THE BLOCK OF ASSETS. 30 I.T.A. NO. 2865/MUM/2017 AND C.O. NO. 261/MUM/2018 M/S NITIN FIRE PROTECTION INDUSTRIES LTD. 6. THE LD. CIT(A) ERRED IN DISALLOWING BAD DEBTS OF RS. 50,000/ - U/S. 36(1 )(VIII) WITHOUT ANY VALID OR COGENT REASONS. GROUND NO. 1 . 18 . THIS GROUND RAISED BY THE ASSESSEE RELATES TO CHALLENGING THE ORDER OF LD. CIT(A) IN MAKING ADDITIONS U /S 14A READ WITH I.T. RU LES 8D(2)(II) AND IN WORKING OF RULE 8D WHEN THERE WAS AN EXEMPTED INCOME OF RS. 1,25,000/ - ONLY. 19 . WE HAVE HEARD COUNSELS FOR BOTH THE PARTIES AT LENGTH AND WE HAVE ALSO PERUSED THE MATERIAL PLACED ON RECORD AS WELL AS THE ORDERS PASSED BY REVENUE AUTHORITIES. WE NOTICED THAT LD. CIT(A) IN ITS ORDER AT PARA NO. 12. TO 20 HAD DEALT IN DETAILS WITH THE FA CTS OF THE CASE AND WHILE DECIDING THE SAID GROUND HAD ALTHOUGH TAKEN INTO CONSIDERATION THAT THAT ASSESSEE HAD EARNED DIVIDEND INCOME OF RS. 1,25,465/ - ON INVESTMENTS MADE IN SHARES. HOWEVER WHILE TAKING INTO CONSIDERATION, THE TOTAL INVESTMENTS OF RS. 7 3,63,52,619/ - IN THE SHARES OF VARIOUS COMPANIES HAD 31 I.T.A. NO. 2865/MUM/2017 AND C.O. NO. 261/MUM/2018 M/S NITIN FIRE PROTECTION INDUSTRIES LTD. ACCORDINGLY UPHELD THE WORKING OF DISALLOWANCE MADE BY AO U/S 14A R.W.R 8D OF THE ACT AT RS. 33,97,774/ - . AFTER CONSIDERING THE ENTIRE FACTS OF THE PRESENT CASE, WE FIND THAT HONBLE DELHI HIGH COURT I N THE CASE OF JOINT INVESTMENT PVT. LTD. VRS. CIT (2015) 372 ITR 694 (DEL) HAD HELD THAT SECTION 14A OR RULE 8D OF THE I.T. RULES 1962, CANNOT BE INTERPRETED SO AS TO MEAN THAT THE ENTIRE EXEMPT INCOME IS TO BE DISALLOWED. THE WINDOW FOR DISALLOWANCE WAS I NDICATED IN SECTION 14A AND WAS ONLY TO THE EXTENT OF DISALLOWING EXPENDITURE INCURRED BY THE ASSESSEE IN RELATION TO THE TAX EXEMPT INCOME . THIS PROPOSITION OR PORTION OF THE EXEMPT INCOME SURELY CANNOT SWALLOW THE ENTIRE AMOUNT. THUS IT WAS HELD THAT T HE DISALLOWANCE CAN ONLY BE TO THE EXTENT OF EXPENDITURE INCOME INCURRED BY THE ASSESSEE IN RELATION TO TAX EXEMPT INCOME. IN THE DECISION RENDERED BY THE COORDINATE BENCH OF ITAT IN THE CASE OF K. RATANCHAND AND CO. VRS. ITO (2017) 83 TAXMANN.COM 242 (A HD - TRIB ), WHEREIN IT WAS HELD THAT ADDITION U/S 14A CANNOT BE MORE THAN EXEMPT INCOME . THUS, SUCH DISALLOWANCE SHOULD NOT EXCEED THE QUANTUM OF EXEMPT INCOME. 32 I.T.A. NO. 2865/MUM/2017 AND C.O. NO. 261/MUM/2018 M/S NITIN FIRE PROTECTION INDUSTRIES LTD. WHEREAS THE JUDGMENTS CITED BY LD. DR ARE NOT RELEVANT AND APPLICABLE TO THE FACTS OF THE PRESENT CASE. RESULTANTLY, THE DECISION OF LD. CIT(A) ON THIS GROUND IS SET ASIDE AND AO IS DIRECTED TO RESTRICT THE ADDITION TO THE EXTENT OF EXEMPT INCOME EARNED BY THE ASSESSEE DURING THE YEAR UNDER CONSIDERATION. ACCORDINGLY, THIS GROUND RAISED BY THE ASSESSEE IS ALLOWED . GROUND NO. 2 . 20 . THIS GROUND RAISED BY THE ASSESSEE RELATES TO CHALLENGING THE ORDER OF LD. CIT(A) IN DISALLOWING THE DEPRECIATION ON MOTOR CA R OF RS. 1,78,645/ - WITHOUT ANY VALID OR COGENT REASONS. 21 . WE HAVE HEARD COUNSELS FOR BOTH THE PARTIES AT LENGTH AND WE HAVE ALSO PERUSED THE MATERIAL PLACED ON RECORD AS WELL AS THE ORDERS PASSED BY REVENUE AUTHORITIES. WE NOTICED FROM THE RECORDS THAT ASSESSEE HAD CLAIMED DEPRECIATION @ 50% IN RESPECT OF MOTOR CAR, WHILE THE AO HAD ALLOWED THE SAME ONLY @ 15%. THE LD. AR REITERATED THE SAME ARGUMENTS AS WERE RAISED BY HIM BEFORE LD. CIT(A) WHICH ARE CONTAINED IN PARA NO. 21 OF THE ORDER OF LD. CIT(A). HOWEVER, THE ASSESSEE FAILED TO ESTABLISH THE 33 I.T.A. NO. 2865/MUM/2017 AND C.O. NO. 261/MUM/2018 M/S NITIN FIRE PROTECTION INDUSTRIES LTD. VEHICLE UNDER CONSIDERATION WAS ACTUALLY A COMMERCIAL VEHICLE IN THE NATURE OF TRUCK, ETC, AND NOT A MOTOR CAR. THEREFORE, LD. CIT(A) AFTER APPRECIATING THE FACTS HAD RIGHTLY CONCLUDED THAT ASSESSEE IS NOT ENTITLE FOR DEPRECIATION @ 50% AS THE MEDIUM PASSENGER MOTOR VEHICLE WILL NOT INCLUDE A MA XICAB AS IS DEFINED IN THE MOTOR VEHICLE ACT. MOREOVER, N O NEW FACTS OR CONTRARY JUDGMENTS HAVE BEEN BROUGHT ON RECORD BEFORE US I N ORDER TO CONTROVERT OR REBUT THE FINDINGS SO RECORDED BY LD. CIT(A). THEREFORE, WE SEE NO REASON S TO INTERFERE INTO OR DEVIA TE FROM THE FINDINGS RECORDED BY THE LD.CIT(A). HENCE , WE ARE OF THE CONSIDERED VIEW THAT THE FINDINGS SO RECORDED BY THE LD. CIT (A) ARE JUDICIOUS AND ARE WE LL REASONED. RESULTANTLY, THIS GROUND RAISED BY THE ASSESSEE STANDS DISMISSED . GROUND NO. 3 . 21 . THIS GROUND RAISED BY THE ASSESSEE RELATES TO CHALLENGING THE ORDER OF LD. CIT(A) IN CONFIRMING THE DISALLOWANCE OF RS. 8,10,865/ - ON ADHOC BASIS WITHOUT ANY VALID OR COGENT REASONS. 34 I.T.A. NO. 2865/MUM/2017 AND C.O. NO. 261/MUM/2018 M/S NITIN FIRE PROTECTION INDUSTRIES LTD. 22 . WE HAVE HEARD COUNSELS FOR BOTH THE PARTIES AT LENGTH AND WE HAVE AL SO PERUSED THE MATERIAL PLACED ON RECORD AS WELL AS THE ORDERS PASSED BY REVENUE AUTHORITIES. WE NOTICED FROM RECORD THAT ALTHOUGH THE ASSESSEE HAD CLAIMED TO HAVE INCURRED TOTAL EXPENDITURE OF RS. 1,62,17,312/ - UNDER THE HEAD CONVEYANCE AND TRAVELLING. HO WEVER, THE ASSESSEE COULD NOT PRODUCE SUPPORTING DETAILS, BILLS AND VOUCHERS AND THEREFORE 10% OF THE EXPENDITURE WAS DISALLOWED. LD. AR ARGUED BEFORE US THAT ASSESSEE HAD ALREADY FURNISHED ALL THE REQUIRED DOCUMENTS TO PROVE THE EXPENDITURE WAS INCURRED F OR BUSINESS PURPOSES AND MAJORITY OF THE EXPENDITURE WAS INCURRED THROUGH BANKING CHANNEL. WE NOTICED THAT LD. CIT(A) RESTRICTED THE DISALLOWANCE TO 5% OF THE EXPENDITURE WITHOUT MENTIONING ANY REASON THERETO. IN OUR VIEW, THE ASSESSEES BOOKS OF ACCOUNT S WERE NOT REJECTED AND THE AO HAD ACCEPTED THE ASSESSEES ACCOUNTS WHICH HAVE BEEN DULY AUDITED, THEREFORE NO DISALLOWANCE IS PERMISSIBLE FOR NON - PRODUCTION OF EVIDENCE OF EXPENDITURE CLAIMED BY THE ASSESSEE. THE ADDITIONS ON THE BASIS OF ESTIMATION IS NO T PERMISSIBLE ON THE FLIMSY GROUND PARTICULARY WHEN ALL THESE 35 I.T.A. NO. 2865/MUM/2017 AND C.O. NO. 261/MUM/2018 M/S NITIN FIRE PROTECTION INDUSTRIES LTD. DOCUMENTS HAVE BEEN DULY AUDITED AND AUDITED BOOKS OF ACCOUNTS AND BALANCE SHEET HAVE NOT BEEN REJECTED BY THE AO. IN THIS RESPECT, WE RESPECTFULLY FOLLOW THE JUDGMENT RENDERED BY THE HONBLE S UPREME COURT IN THE CASE OF PCIT VRS. R. G. BUILDWELL ENGINEERS LTD (2018) 259 TAXMANN 370/99 TAXMANN.COM 284(SC) AND GURUDEV SINGH VRS. ACIT (ITA NO. 105/CTK/2015) THEREFORE IN VIEW OF THE OUR FINDINGS, WE SET ASIDE THE DISALLOWANCE MADE BY THE LD. CIT(A) AND ALLOW THIS GROUND. GROUND NO. 4 TO 6 . 2 3. THESE GROUNDS RAISED BY THE ASSESSEE RELATES TO CHALLENGING THE ORDER OF LD. CIT(A) IN MAKING DISALLOWANCES. 2 4. WE HAVE HEARD COUNSELS FOR BOTH THE PARTIES AT LENGTH AND WE HAVE ALSO PERUSED THE MATERIAL PLACED ON RECORD AS WELL AS THE ORDERS PASSED BY REVENUE AUTHORITIES. WE NOTICED FROM THE RECORD THAT LD. CIT(A) HAS NOT DISCUSSED OR DECIDED ON MERITS THE ABOVE GR OUNDS, ALTHOUGH THE SAME WERE RAISED BY THE ASSESSEE BEFORE 36 I.T.A. NO. 2865/MUM/2017 AND C.O. NO. 261/MUM/2018 M/S NITIN FIRE PROTECTION INDUSTRIES LTD. LD. CIT(A), WHICH ARE MENTIONED IN PARA NO. 3 OF THE ORDER OF LD. CIT(A). THEREFORE IN SUCH CIRCUMSTANCES, KEEPING IN VIEW THE SUBSTANTIAL CAUSE OF JUSTICE , WE REMIT THE MATTER BACK TO THE FILE OF LD. CIT(A) WITH A DIRECTION TO DECIDE THE ABOVE GROUNDS ON MERITS BY PASSING SPEAKING ORDER AFTER PROVIDING SUFFICIENT OPPORTUNITY TO THE ASSESSEE. ASSESSEE IS ALSO DIRECTED TO APPEAR BEFORE LD. CIT(A) WITHIN 60 DAYS FROM THE DATE OF RECEIPT OF THIS ORD ER AND TO COOPERATE IN EARLY DISPOSAL OF THESE GROUNDS. BEFORE PARTING, WE MAY MAKE IT CLEAR THAT OUR DECISION TO RESTORE THE MATTER BACK TO THE FILE OF LD. CIT(A) SHALL IN NO WAY BE CONSTRUED AS HAVING ANY REFLECTION OR EXPRESSION ON THE MERITS OF THE DISPUTE, WHICH SHALL BE ADJUDICATED BY THE LD. CIT(A) INDEPENDENTLY IN ACCORDANCE WITH LAW. RESULTANTY, THESE GROUNDS RAISED BY THE ASSESSEE ARE ALLOWED FOR STATISTICAL PURPOSES. 25. CONSEQUENTLY, THE CO FILED BY THE ASSESSEE STANDS PARTLY ALLOWED. 37 I.T.A. NO. 2865/MUM/2017 AND C.O. NO. 261/MUM/2018 M/S NITIN FIRE PROTECTION INDUSTRIES LTD. 26 . IN THE NET RESULT , THE APPEAL FILED BY THE REVENEUE STANDS DISMISSED AND CROSS OBJECTION FILED BY THE A SSESSEE STANDS PARTLY ALLOWED WITH NO ORDER AS TO COST. ORDER PRONOUNCED IN THE OPEN COURT ON 8 TH FEB , 20 1 9 SD/ - SD/ - ( G. MANJUNATHA ) (SANDEEP GOSAIN) / ACCOUNTANT MEMBER / JUDICIAL MEMBER MUMBAI ; DATED : 08 .02 .201 9 SR.PS . DHANANJAY / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT 2. / THE RESPONDENT 3. ( ) / THE CIT(A) 4. / CIT - CONCERNED 5. , , / DR, ITAT, MUMBAI 6. / GUARD F I LE / BY ORDER, . / (DY./ASSTT.REGISTRAR) , / ITAT, MUMBAI