Appeal details
Counselvise Citation
[2010] 135 COUNSELVISE.COM (IT) 4321 (ITAT-MUMBAI)
Assessee PAN
Bench
Appeal Number
Duration Of Justice
1 year(s) 5 month(s) 15 day(s)
Appellant
Respondent
Appeal Type
Income Tax Appeal
Pronouncement Date
22-10-2010
Appeal Filed By
Assessee
Order Result
Allowed
Bench Allotted
I
Next Hearing Date
29-09-2010
Assessment Year
2005-2006
Appeal Filed On
07-05-2009
Judgement Text
ITA NO. 2941/M/09 MULTI ORGANICS PVT. LTD. 1 IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH I, MUMBAI BEFORE SHRI A.L. GEHLOT, A.M. AND SHRI R.S. PADVEKA R, J.M. ITA NO. 2941/M/2009 ASSESSMENT YEAR: 2005-06 MULTI ORGANICS PVT. LTD., APPELLANT 503, KESHAVA, BANDRA KURLA COMPLEX, BANDRA (E), MUMBAI 400 051 (PAN AAACM 4507 D) VS. ADDL. COMMISSIONER OF INCOME-TAX, RESPONDENT RANGE 10(1), ROOM NO. 461, AAYAKAR BHAVAN, M.K. ROAD, MUMBAI 400 020. ASSESSEE BY : MR. K. SHIVARAM/PARAS SAVLA REVENUE BY : MR. S.K. SINGH ORDER PER A.L. GEHLOT, A.M.: THIS APPEAL FILED BY THE ASSESSEE IS DIRECTED AGAI NST THE ORDER OF CIT(A) X, MUMBAI, DATED 12/03/2009 FOR THE ASSE SSMENT YEAR 2005-06. 2. GROUND NO. 1 RAISED BY THE ASSESSEE IS AS FOLLOW S:- 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E AND IN LAW, THE LEARNED CIT(A) ERRED IN UPHOLDING THE DISALLOWA NCES OF THE FOLLOWING DEPRECIATION CLAIMED BY YOUR APPELLANT: A) DEPRECIATION OF RS. 14,29,483/- ON THE ADDITION OF RS. 1,14,35,864/- MADE BY YOUR APPELLANT TO THE EXISTIN G BLOCK OF PLANT & MACHINERY BY INSTALLING NEW NICKEL CLADDED FUSION POT AND DOWNTHERM HEATING UNIT WHICH WAS USED BY YO UR APPELLANT DURING AY 2005-06 FOR THE PURPOSE OF ITS BUSINESS. B) DEPRECIATION OF RS. 1,09,744/- ON THE ADDITION OF R S. 21,94,874/- MADE BY YOUR APPELLANT TO THE FACTORY B UILDING BY CONSTRUCTING NEW ADDITIONAL BLOCK WHICH WAS USED BY YOUR APPELLANT FOR INSTALLING NEW PLANT & MACHINERY DURI NG AY 2005-06. ITA NO. 2941/M/09 MULTI ORGANICS PVT. LTD. 2 3. THE BRIEF FACTS OF THIS GROUND ARE THAT DURING THE COURSE OF ASSESSMENT PROCEEDINGS, THE AO ASKED THE ASSESSEE T O FILE THE FOLLOWING DETAILS: 1. FOR NEW NI CL FUSION POT AND DOWTHERN UNIT AND W IP, THE PRODUCT MANUFACTURED AND CAPACITY ADDITION AS A RES ULT OF THE SAME (FIXED ASSET ADDITION OF RS. 1,14,35,864/- P&M AND RS. 21,94,872/- BUILDING) 2. FOR NEW NI CL FUSION POT AND DOWTHERN UNIT, THE DATE OF TRANSPORTATION AND ALL TRANSPORTATION BILL WITH ORI GINAL BILLS AND LRS WITH EVIDENCE FOR ITS USE FROM 22/03/05. QUANTU M OF DEPRECIATION CLAIMED ON THIS PLANT.3 4. SINCE THE ASSESSEE FAILED TO FILE THE DETAILS, , THE AO DISALLOWED THE DEPRECIATION ON THE SAID PLANT AND MACHINERY, A MOUNTING TO RS. 15,39,236/-. BEFORE THE CIT(A) THE ASSESSEE FILED T HE FOLLOWING EVIDENCES IN SUPPORT OF ITS CONTENTION THAT THE PLA NT WAS COMMISSIONED ON 22/03/2005.: I) STATEMENT SHOWING RECEIPT OF EQUIPMENT WITH REGA RD TO THE NICL FUSION POT AND DOWTHERN UNIT. II) DETAILS OF EXCISE RECORD SHOWING THE RECEIPT OF THE ABOVE STATED EQUIPMENT. III) COMMISSIONING CERTIFICATE FROM G.M., TECHNICAL . IV) COMMISSIONING CERTIFICATE FROM THIRD PARTY SUPP LIER. 5. WHEN THE ABOVE EVIDENCE WAS CONFRONTED TO THE AO UNDER RULE 46A, BY CIT(A), THE AO OBJECTED TO THE SAME ON THE GROUND THAT SUFFICIENT OPPORTUNITY WAS PROVIDED TO THE ASSESSEE AT THE TIME OF ASSESSMENT PROCEEDINGS. IN THE REMAND REPORT THE AO SUBMITTED THAT ON EXAMINING THE EVIDENCE PRODUCED BY THE ASSESSEE, IT WAS SEEN THAT VARIOUS COMPONENTS FORMING PART OF THE NEW BLOCK WE RE PURCHASED AS LATE AS 31/03/2005. HE FURTHER SUBMITTED THAT IT IS NOT KNOWN WHEN THESE EQUIPMENTS WERE TRANSPORTED AND DELIVERED TO THE ASSESSEE AND HOW THE SAME HAS BEEN PUT TO USE. ON EXAMINATION OF THE EXCISE RECORD FILED BY THE ASSESSEE BEFORE THE CIT(A), THE CIT(A) FOUND THAT SOME OF THE EQUIPMENT WAS SUPPLIED AFTER 22/03/2001 . THE ASSESSEE AFTER SEEING THE REMAND REPORT, STATED AS UNDER:- ITA NO. 2941/M/09 MULTI ORGANICS PVT. LTD. 3 REGARDING SOME COMPONENTS WHICH HAD TO BE PURCHAS ED AFTER 22/03/2005 UNTIL 31/03/05, YOUR APPELLANT WISHES TO INFORM YOU THAT THE ABOVE SYSTEM COMPRISED OF HUNDRENDS OF SMA LLER EQUIPMENTS AND THE EXTRA COMPONENTS WHICH WERE PURC HASED AFTER 22/03/05 WAS IN FACT EXTRA EQUIPMENT WHICH PU T IN PLACE AS A BACKUP OR REDUNDANT OR BALANCING EQUIPMENT ONLY. ID NOT AFFECT THE COMMISSIONING OF THE SYSTEM IN ANY WAY AND EVEN IF THIS EQUIPMENT WAS INSTALLED AFTER THE COMMISSIONING DAT E, IT DOES NOT AMOUNT TO THE ENTIRE SYSTEM NOT BEING COMMISSIONED. 6. THEREAFTER, THE CIT(A) HELD AS UNDER:- FROM THE ABOVE REPLY OF THE APPELLANT IT IS QUITE C LEAR THAT SOME OF THE COMPONENTS WERE RECEIVED AFTER 22/03/2005. A S THE NICL PLANT IS ONE HOMOGENEOUS UNIT AND EACH AND EVERY CO MPONENT IS VITAL TO THE COMMISSIONING OF THE PLANT, I AM UNABL E TO SUBSCRIBE TO THE APPELLANTS CONTENTION THAT THE PLANT WAS CO MMISSIONED ON 22/03/2005. THE ADDITIONAL EVIDENCE, IS CLEARLY NOT RELIABLE IN THE FACE OF THE ABOVE DISCREPANCIES NOTED WITH REGA RD TO THE DELIVERY OF EQUIPMENT. HENCE, I FIND NO REASON TO I NTERFERE WITH THE AOS JUDGMENT ON THIS ISSUE. THIS GROUND OF APP EAL IS THEREFORE, DISMISSED. 7. THE LD. A.R. SUBMITTED THAT THE BOTH THE AO AND CIT (A), WITHOUT APPRECIATING THE FACTS OF THE CASE , DECIDE D AGAINST THE ASSESSEE. THE LD. A.R. REFERRED TO PAGE 32 OF THE P APER BOOK WHERE A COPY OF SCHEDULE OF FIXED ASSETS HAS BEEN PLACED AND POINTED OUT THAT DEPRECIATION HAS BEEN DISALLOWED ON RESIDENTIA L FLAT WITHOUT APPRECIATING THE FACTS AND WITHOUT EVEN GIVING ANY REASON BY THE AO FOR DISALLOWING SUCH DEPRECIATION. THE LD. A.R., WH ILE REFERRING TO PAGE 44 OF THE PAPER BOOK, SUBMITTED THAT THE ASSES SEE HAS SUCCESSFULLY COMMISSIONED THE PRODUCT, HIGH TEMPERA TURE THERMIC FLUID HEATER ON 22-03-2005. A COPY OF CERTIFICATE I N THIS REGARD HAS BEEN PLACED AT PAGE 44 OF THE PAPER BOOK. 8. THE LD. D.R., ON THE OTHER HAND, RELIED UPON HE ORDER OF THE CIT(A). 9. WE HAVE HEARD THE LD. REPRESENTATIVES OF THE PAR TIES AND THE RECORD PERUSED. WE FIND THAT THE AO, WITHOUT RECORD ING THE ITA NO. 2941/M/09 MULTI ORGANICS PVT. LTD. 4 COMPLETE FACTS OF THE CASE, DISALLOWED THE DEPRECIA TION CLAIM OF THE ASSESSEE. THE COMPLETE FACTS OF THE CASE ARE REQUIR ED TO BE PUT ON RECORD OF THE AO AFTER CONSIDERING THE ASSESSEES S UBMISSIONS AND MATERIAL ON RECORD. IN ABSENCE OF COMPLETE FACTS ON RECORD, THE ISSUE CANNOT BE DECIDED AT THIS STAGE. WE, THEREFOR E, THINK IT PROPER TO SEND BACK THIS ISSUE TO THE FILE OF AO WITH A DI RECTION TO DECIDE THE ISSUE AFRESH IN ACCORDANCE WITH LAW AFTER PROVI DING A REASONABLE OPPORTUNITY OF BEING HEARD TO THE ASSESSEE. 10. GROUND NO. 2 READS AS UNDER:- ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE A ND IN LAW, THE LEARNED CIT(A) ERRED IN UPHOLDING THE DISALLOWA NCE OF RS. 4,16,801/- U/S 14A MADE BY THE AO IN THE ASSESSMENT ORDER AND ERRED IN ENHANCING THE DISALLOWANCE UNDER THE SAID SECTION BY RS. 1,33,519/- BY WRONGLY INVOKING RULE 8D WHICH WA S INTRODUCED AND MADE EFFECTIVE ONLY FROM AY 2007-08 AND ON WARDS AND HENCE NOT APPLICABLE FOR AY 2005-06. 11. AFTER HEARING THE LEARNED REPRESENTATIVES OF TH E PARTIES, WE FIND THAT THIS ISSUE IS COVERED BY THE JUDGMENT OF JURIS DICTIONAL HIGH COURT IN THE CASE OF GODREJ & BOYCE MANUFACTURING CO. LTD . VIDE INCOME TAX APPEAL NO. 626 OF 2010 AND W.P. OF 758 OF 2010, JUD GMENT DATED 12.08.2010. RESPECTFULLY FOLLOWING THE SAID JUDGMEN T, WE RESTORE THIS MATTER TO THE FILE OF THE AO WITH A DIRECTION TO DE CIDE THE ISSUE IN THE LIGHT OF THE SAID JUDGMENT OF THE JURISDICTIONAL HI GH COURT.AFTER PROVIDING REASABLE OPP OF HEARING TO THE ASSESSEE 12. GROUND NO. 3 READS AS UNDER:- ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE A ND IN LAW, THE LEARNED CIT(A) ERRED IN INVOKING THE PROVISIONS OF SECTION 40A(2) TO UPHOLD THE DISALLOWANCE OF RS. 7,66,036/- BEING THE DISCOUNT ALLOWED BY YOUR APPELLANT TO M/S ABHIDEEP CHEMICALS PVT. LTD. ON THE SALE OF REFINED NAPHTHALENE ON HIG H SEA BASIS. 13. THE ASSESSEE HAS SOLD VIDE THREE INVOICES, NAPH THALENE ON HIGH SEA BASIS FOR A CONSIDERATION OF RS. 24,74,235/-, V IDE INVOICES DATED 15/12/2004, 01/12/2004 AND 15/12/2004. THE PURCHASE PRICE OF THESE GOODS WAS RS. 24,25,722/-. SUBSEQUENTLY, THE ASSESSEE, VIDE ITA NO. 2941/M/09 MULTI ORGANICS PVT. LTD. 5 CREDIT NOTE DATED 25/01/2005, GAVE A DISCOUNT OF RS . 7,66,036/- ON THE SAID SALE TO M/S ABHIDEEP CHEMICALS. THE AO OBJ ECTED TO THIS DISCOUNT AND ASKED THE ASSESSEE FOR EXPLANATION, TH E ASSESSEE VIDE ITS LETTER DATED 16/11/2007, THAT THE DISCOUNT GIVEN TO ABHIDEEP CHEMICALS WAS IN RELATION TO FALL IN DOMESTIC PRICE S. THE ASSESSEE SUBMITTED THAT THE PRICE OF NAPHTHALENE IN THE MARK ET WAS LOWER THAN THE IMPORTED PRICE AS AVAILABLE FROM SAIL AND HENCE , TO COMPENSATE, THE SAID DISCOUNT WAS GIVEN. THE AO, HOWEVER, DID N OT APPRECIATE THE ARGUMENT OF THE ASSESSEE AND DISALLOWED THE LOSS AC CRUING AS A RESULT OF DISCOUNT. BEFORE THE CIT(A) THE ASSESSEE HAD STA TED THAT THERE IS A TIME GAP OF 60 TO 75 DAYS BETWEEN THE PLACING OF TH E ORDER OVERSEAS AND DELIVERY OF THE GOODS AT BOMBAY. DURING THIS PE RIOD THERE IS WIDE FLUCTUATION IN THE PRICE OF NAPHTHALENE. THE HIGH S EAS SALES OF NAPHTHALENE WAS MADE AT CURRENT MARKET PRICES PREVA ILING IN THE COUNTRY. HOWEVER, AS THE CUSTOM RULES REQUIRED THAT HIGH SEAS SALES SHOULD BE MADE AT CIF PRICES + 2%, HENCE, THE INVOI CES HAD TO BE DRAWN UP AT A HIGHER RATE. SUBSEQUENTLY, TO COMPENS ATE M/S ABHIDEEP CHEMICALS A DISCOUNT WAS GIVEN. THE CIT(A ) CONSIDERED THE CIRCULAR, WHICH HAS BEEN FILED BY THE ASSESSEE AND THE CONTENTS OF THE SAME ARE AS UNDER:- AS PER EXISTING PRACTICE IN MUMBAI CUSTOM HOUSE, T HE HIGH- SEAS-CHARGES DECLARED BY THE ORIGINAL IMPORTER AND THE HIGH SEAS-SALES-BUYER ARE ADDED IN THE DECLARED CIF VALU E. SUCH HIGH- SEAS-SALES-CHARGES ARE TAKEN TO BE 2% OF THE CIT VA LUE AS A GENERAL PRACTICE. HOWEVER, IN CASES, WHERE ACTUAL H IGH-SEAS- SALES-CHARGES ARE MORE THAN 2% OF THE CIF VALUE THE N THE ACTUAL CHARGES ARE REQUIRED TO BE ADDED TO THE CIF VALUE. 14. AFTER CONSIDERING THE SUBMISSIONS OF THE ASSESS EE, THE CIT(A) SUSTAINED THE ADDITIONAL OF RS. 7,66,036/- BY OBSER VING AS UNDER:- NOW ALL THAT THE CIRCULAR IS PROVIDING IS THE METH OD FOR DETERMINING THE VALUE FOR ASSESSMENT OF CUSTOMS DUT Y. NOWHERE THE CIRCULAR SAYS THAT THE INVOICING SHOULD BE AT C IF + 2%. THEREFORE, NOTHING PREVENTED THE APPELLANT FROM INV OICING AT THE DISCOUNTED RATE AT THE TIME OF RAISING THE INVOICE. RAISING A DISCOUNT NOTE AFTER ONE MONTH OF THE INVOICE IS CLE ARLY NOT A NORMAL BUSINESS PRACTICE. THE ORIGINAL INVOICE HAS BEEN RAISED PURSUANT TO AN AGREEMENT BETWEEN THE APPELLANT AND M/S ABHIDEEP CHEMICALS, WHICH WAS PRESENTED BEFORE THE CUSTOM ITA NO. 2941/M/09 MULTI ORGANICS PVT. LTD. 6 AUTHORITIES AND WHOSE GENUINENESS CANNOT BE QUESTIO NED. THEREFORE, I AM IN AGREEMENT WITH THE AO THAT THE D ISCOUNT NOTE IS CLEARLY AN AFTER THOUGHT TO DEFLATE THE PROFITS OF THE APPELLANT; WHATEVER MAY HAVE BEEN THE MOTIVE FOR DOING SO. THE PAYMENT IS HIT BY THE PROVISIONS OF SECTION 40A(2). THE ORDER OF THE AO IS, THEREFORE, SUSTAINED. 15. WE HAVE HEARD THE LD. REPRESENTATIVES OF THE PA RTIES AND RECORD PERUSED. THE BRIEF FACTS OF THE ISSUE ARE THAT THE ASSESSEE IMPORTED NAPHTHALENE AND THE SAME WAS SOLD TO M/S.ABHIDEEP C HEMICALS, A SISTER CONCERN OF HE ASSESSEE. THE ASSESSEE CLAIMED LOSS OF `7,66,036/- ON THE GROUND THAT THERE IS A TIME GAP OF 60 TO 75 DAYS BETWEEN PLACING OF ORDER OVERSEAS AND DELIVERY OF G OODS AT BOMBAY. DURING THIS PERIOD, THERE IS A WIDE FLUCTUATION IN THE PRICE OF NAPHTHALENE. WHEN THE ASSESSEE HAS PURCHASED THE GO ODS FOR ITS SISTER CONCERN, THE ASSESSEE SHOULD NOT BEAR ANY LO SS. AT THE MOST, THE GOODS CAN BE TRANSFERRED ON COST TO COST BASIS, NEITHER EARNING ANY PROFIT NOR ANY LOSS. CONSIDERING THE FACTS OF T HE CASE AND ALSO CONSIDERING COMMERCIAL EXPEDIENCY, IT WILL BE FAIR AND REASONABLE IF THE ASSESSEE SOLD THE GOODS ON PURCHASE PRICE/COST TO THE ASSESSEE TO ITS SISTER CONCERN WITHOUT CHARGING ANY PROFIT OR B EAR ANY LOSS. WE, THEREFORE, DIRECT THE AO TO VERIFY THE PURCHASE COS T AND ADDITION, IF ANY, IS REQUIRED TO BE MADE ON THE BASIS OF ABOVE DISCUSSION, THE AO MAY MAKE THE ADDITION, AFTER PROVIDING OPPORTUNITY OF BEING HEARD TO THE ASSESSEE. 16. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS AL LOWED FOR STATISTICAL PURPOSES SD/- SD/- (R.S. PADVEKAR) (A.L. GEHLOT ) JUDICIAL MEMBER ACCOUNTANT MEMBER ITA NO. 2941/M/09 MULTI ORGANICS PVT. LTD. 7 PRONOUNCED IN THE OPEN COURT ON THIS 22 ND DAY OF OCTOBER, 2010. SD/- SD/- (R.V. EASWAR) (A.L. GEHLOT) JUDICIAL MEMBER ACCOUNTANT MEMBER DATED: 22 ND OCTOBER, 2010 COPY TO:- 1) THE APPELLANT. 2) THE RESPONDENT. 3) THE CIT (A) CONCERNED. 4) THE CIT CONCERNED. 5) THE DEPARTMENTAL REPRESENTATIVE, I BENCH, I.T .A.T., MUMBAI. BY ORDER //TRUE COPY// ASST. REGISTRAR, I.T.A.T., MUMBAI. KV
