Abhishek Exports (India) Pvt.Ltd., Surat V. The Income tax Officer,Ward-1(1), Surat

ITA 2967/AHD/2011

• Counselvise Citation: [2016] 133 COUNSELVISE.COM (IT) 1561 (ITAT-AHMEDABAD)
• Duration Of Justice: 4 year(s) 5 month(s) 19 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 19-05-2016
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: D
• Next Hearing Date: 18-05-2016
• Assessment Year: 2008-2009
• Appeal Filed On: 30-11-2011
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Keywords: Date of conversion
• Section: 143(3)

Judgement Text

, IN THE INCOME TAX APPELLATE TRIBUNAL D BENCH, AHMEDABAD BEFORE SHRI KUL BHARAT, JUDICIAL MEMBER AND SHRI MANISH BORAD , ACCOUNTANT MEMBER ./ ITA NO. 2967 /AHD/201 1 / ASSESSMENT YEAR 200 8 - 09 M/S. ABHISHEK EXPORTS (INDIA) PVT. LTD., ABHISHEK HOUSE, OPP. JIVAN BHARTI SCHOOL, TIMALIAWAD, NANPURA, SURAT - 395001 PAN : AAGCA 7230 H VS THE I.T.O., WARD 1 ( 1 ), SURAT / (APPELLANT) / (RESPONDENT) ASSESSEE(S) BY : NONE WRITTEN SUBMISSION REVENUE BY : SHRI MUKESH SHARMA , SR. DR. / DATE OF HEARING : 18 / 05 /201 6 / DATE OF PRONOUNCEMENT: 19 / 05 /201 6 / O R D E R PER KUL BHARAT, JUDICIAL MEMBER: - THIS APPEAL BY THE ASSESSEE IS DIRECTED AGAINST THE ORDER OF THE COMMISSIONER OF INCOME - TAX (APPEALS) - I , SURAT DATED 12 . 0 9 .201 1 PERTAINING TO ASSESSMENT YEAR 2008 - 09 . 2. THE ASSESSEE HAS RAISED FOLLOWING GROUNDS OF APPEAL: - 1 . THE LEARNED CIT(A) GROSSLY ERRED IN CONFIRMING ADDITION ON ACCOUNT OF DISALLOWANCE OUT OF VARIOUS EXPENSES OF TEXTILE DIVISION AMOUNTING TO RS.10,31,448/ - AS PER PAGE 10 OF THE CIT(A) ORDER. 2 . THE LEARNED CIT(A) GROSSLY ERRED IN CONFIRMING ADD ITION ON ACCOUNT OF DISALLOWANCE OUT OF VARIOUS EXPENSES OF POWER DIVISION AMOUNTING TO RS.7,24,700/ - AS PER PAGE 10 OF THE CIT(A) ORDER. 3 . THE APPELLANT RESERVES RIGHT TO ADD, ALTER AND WITHDRAW OF ANY GROUNDS OF APPEAL. 3. BRIEFLY STATED FACTS ARE THAT THE CASE OF THE ASSESSEE WAS PICKED UP FOR SCRUTINY ASSESSMENT AND THE ASSESSMENT U/S 143(3) OF THE INCOME - TAX ACT, ITA NO. 2967/AHD/ 2011 ABHISHEK EXPORTS ( INDIA ) PVT LTD VS. ITO AY : 2008 - 09 2 1961 (HEREINAFTER REFERRED TO AS 'THE ACT') WAS FRAMED VIDE ORDER DATED 20 . 12 .2010. WHILE FRAMING THE ASSESSM ENT, THE ASSESSING OFFICER OBSERVED THAT THE ASSESSEE - COMPANY CAME INTO EXISTENCE WITH EFFECT FROM 12.12.2007 BY CONVERTING THE ERSTWHILE FIRM ABHISHEK EXPORTS AND ALL THE ASSETS AND LIABILITIES OF THE ERSTWHILE FIRM WAS TAKEN OVER BY THE COMPANY FROM 12.1 2.2007. IT WAS OBSERVED BY THE ASSESSING OFFICER THAT THE ASSESSEE HAS NOT COMPUTED THE INCOME OF THE PREVIOUS YEAR IN WHICH THE SUCCESSION TOOK PLACE AS PER PROVISIONS OF THE ACT. ACCORDINGLY HE ISSUED A SHOW - CAUSE NOTICE DATED 13.12.2010, CALLING UPON THE ASSESSEE TO SHOW CAUSE AS TO WHY THE PROPORTIONATE DISALLOWANCE SHOULD NOT BE MADE IN RESPECT OF GARMENT/TEXTILE DIVISION AND POWER DIVISON. THE ASSESSEE, IN RESPONSE TO THE SHOW - CAUSE NOTICE, FILED A DETAILED REPLY; HOWEVER, THE ASSESSING OFFICER DID NOT ACCEPT THE EXPLANATION OF THE ASSESSEE AND PROCEEDED TO MAKE THE DISALLOWANCE OF RS. 10,31,448/ - ON ACCOUNT OF TEXTILE DIVISION AND RS.7,24,700/ - ON ACCOUNT OF POWER DIVISION. THE ASSESSEE, AGGRIEVED BY THESE TWO DISALLOWANCES, PREFERRED AN APPEAL BEF ORE THE LD. CIT(A) WHO, AFTER CONSIDERING THE SUBMISSIONS OF THE ASSESSEE, DISMISSED THE APPEAL OF THE ASSESSEE. NOW, THE ASSESSEE IS IN FURTHER APPEAL BEFORE THIS TRIBUNAL. 4. THE GROUND NO.1 IS AGAINST THE DISALLOWANCE OUT OF VARIOUS EXPENSES OF TEXTILE DIVISION AMOUNTING TO RS.10,31,448/ - . 4.1 AT THE TIME OF HEARING BEFORE US, NO ONE APPEARED ON BEHALF OF THE ASSESSEE; HOWEVER, A WRITTEN SUBMISSION HAS BEEN FILED WITH A RE QUEST TO DECIDE THE ISSUE ON THE BASIS OF THE WRITTEN SUBMISSION. AS PER THE WRITTEN SUBMISSION, THE DISALLOWANCE TO THE EXTENT OF RS.9,75,370/ - IS CONTESTED AND REST OF THE DISALLOWANCE IS NOT PRESSED. THE CONTENTION OF THE ASSESSEE IN RESPECT OF GROUND NO.1 IS AS UNDER: - NAT URE OF EXPENSES AMOUNT SUBMISSION FEES TO CA FOR FILING 2,80,900 LEGAL FEES ACCRUED AS AN WHEN THE BILL IS ITA NO. 2967/AHD/ 2011 ABHISHEK EXPORTS ( INDIA ) PVT LTD VS. ITO AY : 2008 - 09 3 RETURN OF INCOME FOR AY 2007 - 08 RAISED BY THE CONCERNED PROFESSIONAL. SINCE THE BILL IS RAISED ON 31.03.2008 AND, THEREFO RE, THE LIABILITY OF EXPENDITURE AROSE IN THE PERIOD IN WHICH THE COMPANY HAD OPERATIONS AFTER TAKING OVER THE BUSINESS. MERELY BECAUSE THE BILL PERTAINS TO AY 2007 - 08, DISALLOWANCE IS NOT JUSTIFIED. WAGES TO WORKERS 3,30,490 THE LIABILITY OF WAGES TO WORKER FOR THE MONTH DECEMBER AROSE ON 26 TH & 31 ST DECEMBER, 2007, I.E., IN THE END OF THE MONTH. SINCE THE PARTNERSHIP FIRM ABHISHEK EXPORTS WAS CONVERTED INTO COMPANY ON 12.12.2007 WILL ALL ITS ASSETS AND LIABILITIES, ANY LIABILITY WHICH AROSE AFTER THE CONVERSION BELONGS TO ABHISHEK EXPORTS (INDIA) PVT. LTD. IT IS THEREFORE URGED THAT PROPORTIONATE DISALLOWANCE OF 11 DAYS IS NOT JUSTIFIED. PACKING CREDIT BANK LOAN INTEREST 3,63,980 THE ACTUAL DISALLOWANCE WAS DISCUSSED AT RS.1,29,154/ - ON PAGE NO.4 ( FIRST TWO LINE) OF THE ASSESSMENT ORDER. IT IS SUBMITTED THAT, IF AT ALL DISALLOWANCE IS CALLED FOR, IT SHOULD BE RS.1,29,154/ - BEING PROPORTIONATE EXPENSES FOR 11 DAYS. THE LIABILITY OF BANK LOAN INTEREST AROSE WHEN THE BANK DEBITS THE INTEREST AMOUNT I N THE LOAN ACCOUNT. IN THIS CASE, BANK HAD DEBITED RS.3,63,980/ - ON 31.12.2007 AND, THEREFORE, THE LIABILITY AROSE ON 31.12.2007. IT IS THEREFORE URGED THAT PROPORTIONATE DISALLOWANCE OF 11 DAYS IS NOT JUSTIFIED. 9,75,370 4.2 ON THE CONTRARY, LD. SR. DR OPPOSED THESE SUBMISSIONS AND HE CONTENDED THAT AS PER SECTION 170(1) OF THE ACT, THE COMPUTATION WAS REQUIRED TO BE MADE BY THE ASSESSEE, BUT THE ASSESSEE HAS NOT MADE THE SAME IN ACCORDANCE WITH THE PROVISIONS OF SECTION 170 O F THE ACT. HE SUPPORTED THE ORDERS OF THE AUTHORITIES BELOW. ITA NO. 2967/AHD/ 2011 ABHISHEK EXPORTS ( INDIA ) PVT LTD VS. ITO AY : 2008 - 09 4 5. WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE MATERIAL ON RECORD. THE CONTENTION IN THE WRITTEN SUBMISSION CHALLENGING THE DISALLOWANCE IN RESPECT OF THIS GROUND IS THAT THE LEGAL FE ES ACCRUED AS AND WHEN THE BILL WAS RAISED BY THE CONCERNED PROFESSIONAL. IN RESPECT OF WAGES TO WORKERS, THE CONTENTION IS THAT LIABILITY OF WAGES TO WORKERS FOR THE MONTH DECEMBER AROSE ON 26 TH AND 31 ST DECEMBER, 2007, I.E., IN THE END OF THE MONTH. SI NCE THE PARTNERSHIP FIRM ABHISHEK EXPORTS WAS CONVERTED INTO COMPANY ON 12.12.2007 WITH ALL ITS ASSETS AND LIABILITIES, ANY LIABILITY WHICH AROSE AFTER THE CONVERSION BELONGS TO ASSESSEE, I.E., ABHISHEK EXPORTS (INDIA) PVT LTD. IT IS THEREFORE URGED THAT PROPORTIONATE DISALLOWANCE OF 11 DAYS IS NOT JUSTIFIED. IN RESPECT OF PACKING CREDIT BANK LOAN INTEREST, SIMILAR CONTENTION IS MADE THAT THE PROPORTIONATE DISALLOWANCE OF 11 DAYS WAS NOT JUSTIFIED. 5.1 WE HAVE GIVEN OUR THOUGHTFUL CONSIDERATION TO THE RI VAL CONTENTIONS OF THE PARTIES. AS PER SECTION 170(1), WHERE A PERSON CARRYING ON ANY BUSINESS OR PROFESSION HAS BEEN SUCCEEDED THEREIN BY ANY OTHER PERSON WHO CONTINUES TO CARRY ON THAT BUSINESS OR PROFESSION, THE PREDECESSOR SHALL BE ASSESSED IN RESPECT OF THE INCOME OF THE PREVIOUS YEAR IN WHICH THE SUCCESSION TOOK PLACE UPTO THE DATE OF SUCCESSION AND THE SUCCESSOR SHALL BE ASSESSED IN RESPECT OF INCOME OF THE PREVIOUS YEAR AFTER THE DATE OF SUCCESSION. FROM THE AFORESAID PROVIS I O N OF SECTION 170 OF THE ACT, IT IS CLEAR THAT THE EXPENSES INCURRED UPTO THE DATE OF CONVERSION OR SUCCESSION SHALL BE ALLOWED IN THE HANDS OF THE FIRM AND EXPENSES INCURRED AFTER THE CONVERSION OF SUCCESSION SHALL BE ALLOWED IN THE HANDS OF SUCCEEDING COMPANY . WE FIND THAT THE PROFESSIONAL EXPENDITURE PERTAINS TO EARLIER PERIOD. THEREFORE, IN RESPECT OF DISALLOWANCE TOWARDS CAS BILLS IS JUSTIFIED . IN RESPECT OF DISALLOWANCE OF WAGES TO WORKERS AND PACKING CREDIT BANK LOAN INTEREST, WE FIND NO MERIT INTO TH E CONTENTION OF THE ASSESSEE. ITA NO. 2967/AHD/ 2011 ABHISHEK EXPORTS ( INDIA ) PVT LTD VS. ITO AY : 2008 - 09 5 5.2 FROM THE ASSESSMENT ORDER, IT IS NOTICED THAT THE PROPORTIONATE DISALLOWANCE WITH REGARD TO PACKING CREDIT LOAN INTEREST FOR 11 DAYS COMES TO RS.1,29,154/ - , WHEREAS THE ASSESSING OFFICER COMPUTED THE SAME AS ON 31.12.20 07. A CCORDINGLY , WE DIRECT THE ASSESSING OFFICER TO RESTRICT THIS DISALLOWANCE TO THE EXTENT OF RS.1,29,154/ - AND THE REST OF THE DISALLOWANCE IS DELETED. 5.3 WITH REGARD TO WAGES TO WORKERS, THE LIABILITY OF WAGES TO WORKERS FOR THE MONTH OF DECEMBER 20 07 AROSE IN THE END OF THE MONTH, I.E., 31 ST DECEMBER 2007. SINCE THE WAGES ARE PAID ON DAILY BASIS, THE ASSESSING OFFICER WAS JUSTIFIED IN DISALLOWING THE EXPENDITURE PERTAINING TO 11 DAYS, I.E., THE PERIOD BEFORE SUCCESSION; THEREFORE, THE CONTENTION IN THIS REGARD IS REJECTED. THUS, THE GROUND N O. 1 IS PARTLY ALLOWED AS DISCUSSED HEREINABOVE. 6. NEXT GROUND IS AGAINST THE DISALLOWANCE OUT OF VARIOUS EXPENSES OF POWER DIVISION AMOUNTING TO RS.7,24,700/ - . OUT OF THIS DISALLOWANCE OF EXPENSES OF RS.7,24,700/ - , ONLY RS. 7 , 09 , 780 / - IS CONTESTED BEF ORE US; I.E., RS.5,55,210/ - OUT OF INTEREST ON TERM LOAN AND RS.1,54,570/ - ON ACCOUNT OF PRELIMINARY EXPENSES. WITH REGARD TO DISALLOWANCE ON ACCOUNT OF INTEREST ON TERM LOAN AMOUNTING TO RS.5,55,210/ - , THE CONTENTION OF THE ASSESSEE WAS THAT THE INTEREST FOR RS.15,65,807/ - ON TERM LOAN WAS DEBITED ON 31.12.2007. THEREFORE, THE LIABILITY OF BANK LOAN INTEREST AROSE WHEN THE BANK DEBITS THE INTEREST AMOUNT IN THE BANK ACCOUNT. IN THIS CASE, THE BANK HAD DEBITED RS.15,65,807/ - ON 31.12.2007 AND THEREFORE, THE LIABILITY AROSE ON 31.12.2007. WE DO NOT FIND FORCE IN THIS SUBMISSION OF THE ASSESSEE AS THE INTEREST IS DEBITED ON DAILY BASIS BUT NOT ON MONTHLY BASIS. THEREFORE, THE CONTENTION OF THE ASSESSEE IN THIS REGARD IS REJECTED, BEING DEVOID OF ANY MERIT . 6.1 WITH REGARD TO PRELIMINARY EXPENSES AMOUNTING TO RS.1,54,570/ - , IT IS SUBMITTED THAT THE PRELIMINARY EXPENSES OF RS.11,09,260/ - ACTUALLY ITA NO. 2967/AHD/ 2011 ABHISHEK EXPORTS ( INDIA ) PVT LTD VS. ITO AY : 2008 - 09 6 PERTAINED TO THE COMPANY ITSELF AND THEREFORE, 20% OF RS.11,09,260/ - , WHICH AMOUNTS TO RS.2,21,852/ - WAS DEBITE D TO THE PROFIT AND LOSS ACCOUNT U/S 35D OF THE ACT. WE FIND THAT THE PRELIMINARY EXPENSES ARE IN RESPECT OF INCORPORATION OF THE COMPANY; HOWEVER, THE ASSESSING OFFICER ASSUMED THE EXPENSES FOR THE WHOLE YEAR AND DISALLOWED PROPORTIONATELY. THEREFORE, NO DISALLOWANCE IS CALLED FOR IN THIS CASE AND THE ASSESSING OFFICER IS DIRECTED ACCORDINGLY. HENCE, GROUND NO.2 OF THE ASSESSEES APPEAL IS ALSO PARTLY ALLOWED. 6. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS PARTLY ALLOWED. ORDER PRONOUNCED IN THE COURT ON 1 9 T H MAY , 201 6 AT AHMEDABAD. SD/ - SD/ - ( MANISH BORAD ) ACCOUNTANT MEMBER (KUL BHARAT) JUDICIAL MEMBER AHMEDABAD; DATED 1 9 / 05 /201 6 *BIJU T. / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT 2. / THE RESPONDENT. 3. / CONCERNED CIT 4. ( ) / THE CIT(A) 5. , , / DR, ITAT, AHMEDABAD 6. / GUARD FILE . / BY ORDER, TRUE COPY / ( DY./ASSTT.REGISTRAR) , / ITAT, AHMEDABAD