The ACIT, Circle-5, Ahmedabad V. PBM Polytex Ltd., Ahmedabad

ITA 2972/AHD/2007

• Counselvise Citation: [2011] 135 COUNSELVISE.COM (IT) 2328 (ITAT-AHMEDABAD)
• Duration Of Justice: 3 year(s) 6 month(s) 3 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 13-01-2011
• Appeal Filed By: Department
• Order Result: Partly Allowed
• Bench Allotted: D
• Next Hearing Date: 03-01-2011
• Assessment Year: 2004-2005
• Appeal Filed On: 10-07-2007
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: SUMIT KAUR
• Assessee Lawyers: J P SHAH SRAR
• Keywords: Depreciation; Additional evidence; Reasonable cause
• Section: 40A(3); 14A

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD BENCH D AHMEDABAD BEFORE SHRI MAHAVIR SINGH, JUDICIAL MEMBER, AND SHRI D. C. AGRAWAL, ACCOUNTANT MEMBER ITA NO.2972/AHD/2007 ASSESSMENT YEAR :2004-05 DATE OF HEARING:3.1.11 DRAFTED:4.1.11 DCIT, CIRCLE-5, 2 ND FLOOR, C.U. SHAH COLLEGE BUILDINGS, AHMEDABAD V/S . PBM POLYTEX LTD., JAISINGH BHAVAN, NR. BODIWALA COLLEGE, KALUPUR TANKSHAL, AHMEDABAD PAN NO.AAACP9271H (APPELLANT) .. (RESPONDENT) APPELLANT BY :- SMT. SUMIT KAUR, DR RESPONDENT BY:- SHRI J.P. SHAH, SR-AR O R D E R PER MAHAVIR SINGH, JUDICIAL MEMBER:- THIS APPEAL BY THE REVENUE IS ARISING OUT OF THE O RDER OF COMMISSIONER OF INCOME-TAX (APPEALS)-XI, AHMEDABAD IN APPEAL NO. CIT(A)-XI/299/2006-07 DATED 26-01-2007. THE ASSESSMENT WAS FRAMED BY ACIT , CIRCLE-5, AHMEDABAD U/S143(3) R.W.S 144A OF THE INCOME-TAX AC T, 1961 (HEREINAFTER REFERRED TO AS THE ACT) VIDE HIS ORDER DATED 27- 12-2006 FOR ASSESSMENT YEAR 2004-05. 2. THE FIRST ISSUE IN THIS APPEAL OF REVENUE IS AGA INST THE ORDER OF CIT(A) IN DELETING THE DISALLOWANCE OF DEPRECIATION ON ASS ETS AT SILVASA UNIT. FOR THIS, REVENUE HAS RAISED THE FOLLOWING GROUND NO.1 :- ITA NO.2972/AHD/2007 A.Y.2004-05 DCIT, CIR-5 ABD V. PBM POLYTEX LTD. PAGE 2 1. THE LD. COMMISSIONER OF INCOME TAX (A)-XI, AHME DABAD HAS ERRED IN LAW AND ON FACTS IN DELETING THE ADDITION MADE O F RS.2,28,585/- ON ACCOUNT OF DISALLOWANCE OF DEPRECIATION ON ASSETS AT SILVASA UNIT. 3. WE HAVE HEARD THE RIVAL CONTENTIONS AND GONE THR OUGH THE FACTS AND CIRCUMSTANCES OF THE CASE. WE FIND THAT ASSESSING O FFICER HAS DISALLOWED THE DEPRECIATION BY HOLDING THAT ASSESSEE HAS NOT SHOWN ANY MANUFACTURING ACTIVITY FOR ITS OWN PRODUCTION IN VIEW OF TAX AUDI T REPORT BUT SHOWN ONLY A SUM OF RS.25,180/- AS JOB WORK RECEIPTS AS AGAINST THE JOB RECEIPTS OF EARLIER YEAR AT RS.30,35,348/-. ACCORDING TO ASSESSING OFFICER, THIS MEAGER JOB RECEIPTS ONLY ESTABLISHED THAT PLANT & MACHINERY INSTALLED A T SILVASA UNIT WAS NOT FULLY USED FOR MANUFACTURING ACTIVITY. THE AO FURTHER NOT ED IN HIS ASSESSMENT ORDER IN PARA-4.3 AT PAGE 4, THE RELEVANT PORTION READS AS UNDER:- FURTHER, THE JOB RECEIPTS SHOWN ARE ONLY OF RS.25 ,180/- AS AGAINST THAT OF RS.30,35,348/-. THIS MEAGER AMOUNT OF JOB R ECEIPTS CAN ONLY ESTABLISH THAT THE PLANT & MACHINERY INSTALLED AT S ILVASA UNIT WAS NOT FULLY USED FOR MANUFACTURING ACTIVITIES. AGGRIEVED AGAINST THE DISALLOWANCE OF DEPRECIATION ASSESSEE PREFERRED APPEAL BEFORE CIT(A). THE CIT(A) DELETED THE DISALLOWANCE BY HOLDING THAT ASSESSEE- COMPANY HAS CARRIED OUT JOB WORK AT ITS SILVASA UNI T AND ACCORDINGLY CIT(A) DELETED THE DISALLOWANCE. AGGRIEVED, NOW REVENUE CA ME IN APPEAL BEFORE THE TRIBUNAL. 4. WE FIND THAT ASSESSING OFFICER HIMSELF HAS RECOR DED THE FACT THAT THE ASSESSEE HAS CARRIED OUT JOB WORK AT SILVASA UNIT A ND ACCORDING TO HIM, THE PLANT AND MACHINERY INSTALLED AT SILVASA UNIT WAS O PERATIONAL BUT NOT FULLY USED FOR MANUFACTURING ACTIVITIES AND RELEVANT LINES IN PARA-4.3 , WHICH READS AS UNDER:- ..ANNEXURE 7 OF THE ASSESSEES REPLY DATED 16.11.2 006 GIVING DETAILS OF TEXTURISING & FILAMENT DIVISION OF SILVASA, THE ASS ESSEE HAS CLAIMED TO HAVE DONE THE JOB WORK OF ONLY 2933 KGS IN THE MONT H OF OCTOBER,2003 ONLY AS AGAINST THE TOTAL 276079 KGS. FOR THE WHOLE YEAR ENDING ON 31.3.2002. FOR THE REMAINING PERIOD, THE PLANT REMA INED NON-FUNCTIONAL. EVEN IF THE FIGURES OF POY PROCESSED IN OCTOBER, 20 02 ARE TAKEN CARE OF ITA NO.2972/AHD/2007 A.Y.2004-05 DCIT, CIR-5 ABD V. PBM POLYTEX LTD. PAGE 3 THE PLANT PROCESSED 3877086 KGS. IN 25 WORKING DAYS GIVING AVERAGE PROCESSING OF 1491 KGS. THUS, IT IS EVIDENT THAT TH E JOB WORK RECEIPTS ARE OFFERED SO AS TO PROVE THAT THE PLANT & MACHINERY W ERE USED FOR BUSINESS PURPOSES. THIS APPEARS TO BE AN ARTIFICIAL ENTRY WITHOUT BEING SUBSTANTIATED WITH OTHER SUPPORTING DETAILS I.E. TH E MANPOWER EMPLOYED, ELECTRICITY CONSUMED, CONSUMABLE GOODS, ETC. WITH A VIEW TO CLAIM FULL DEPRECIATION ON ALL THE ASSETS AT SILVASA UNIT, THE CLAIM OF THE ASSESSEE CANNOT BE ENTERTAINED. JUDGMENTS CITED BY THE ASSES SEE ARE ALSO NOT FOUND TO BE APPLICABLE IN VIEW OF THE FACTS DISCUSS ED ABOVE. FROM THE ABOVE, IT IS CLEAR THAT THE PLANT & MACHIN ERY AT SILVASA UNIT WAS IN WORKING CONDITION AND ASSESSEE HAS USED THE SAME FO R THE PURPOSE OF JOB WORK AND HAD RECEIVED THE JOB WORK CHARGES AND THE CLAIM OF THE ASSESSEE OF DEPRECIATION ON THIS PLANT & MACHINERY IS AS PER TH E PROVISION OF THE ACT. ACCORDINGLY, WE FIND NO INFIRMITY IN THE ORDER OF C IT(A). HENCE, WE CONFIRM THE ORDER OF CIT(A) AND THIS ISSUE OF REVENUES APPEAL IS DISMISSED. 5. THE NEXT ISSUE IN THIS APPEAL OF REVENUE IS AGAI NST THE ORDER OF CIT(A) IN DELETING THE DISALLOWANCE OF INTEREST U/S.14A OF THE ACT. FOR THIS, REVENUE HAS RAISED THE FOLLOWING GROUND NO.2 :- 2. THE LD. COMMISSIONER OF INCOME TAX (A)-XI, AHME DABAD HAS ERRED IN LAW AND ON FACTS IN DELETING THE ADDITION MADE O F RS.89,023/- ON ACCOUNT OF DISALLOWANCE OF INTEREST UNDER SECTION 14A OF THE INCOME TAX ACT, 1961. 6. WE HAVE HEARD THE RIVAL CONTENTIONS AND GONE THR OUGH THE FACTS AND CIRCUMSTANCES OF THE CASE. WE FIND THAT ASSESSING O FFICER DISALLOWED INTEREST EXPENDITURE OF RS.89,023/- APART FROM DISALLOWANCE MADE BY ASSESSEE AT RS.50,000/- ON ACCOUNT OF INTEREST ON BORROWED FUN DS, WHICH WERE INVESTED IN MUTUAL FUNDS. ACCORDING TO AO, THE ASSESSEE HAS INV ESTED IN MUTUAL FUNDS OUT OF BORROWED FUNDS AND EARNED EXEMPTED INCOME U/S.14 A OF THE ACT AND THEREBY MADE DISALLOWANCE OF INTEREST. AGGRIEVED, A SSESSEE PREFERRED APPEAL BEFORE CIT(A). THE CIT(A) DELETED THE DISALLOWANCE BY STATING THAT ASSESSEE- COMPANY HAS EARNED SUBSTANTIAL CASH PROFIT DURING T HE YEAR AND ALSO THERE IS INCREASE IN NON-INTEREST BEARING FUNDS ON THE BASIS OF CASH FLOW FILED BEFORE ITA NO.2972/AHD/2007 A.Y.2004-05 DCIT, CIR-5 ABD V. PBM POLYTEX LTD. PAGE 4 CIT(A). ACCORDING TO CIT(A) ASSESSEE-COMPANY HAS EA RNED SUFFICIENT NET PROFIT FROM BORROWING ACTIVITIES AND INVESTED SURPL US FUNDS IN MUTUAL FUNDS ON SHORT TERM BASIS. ACCORDINGLY, CIT(A) DISALLOWED TH E DISALLOWANCE MADE BY ASSESSING OFFICER ON ACCOUNT OF INTEREST ON BORROW ED FUNDS IN RESPECT OF TAX FREE INCOME. AGGRIEVED, NOW REVENUE CAME IN APPEAL BEFORE TRIBUNAL. 7. WE FIND FROM THE AUDITED BALANCE-SHEET OF THE AS SESSEE-COMPANY AND CASH FLOW STATEMENT, THE AMOUNTS GENERATED FROM OPE RATION AMOUNTING TO RS.8.06 CRORES AND CASH FLOW FROM OPERATING ACTIVIT IES WORKS OUT TO RS.1.94 CRORES AS CERTIFIED BY TAX AUDITORS AND IN FACT THE CURRENT LIABILITIES AND PROVISIONS HAVE INCREASED FROM RS.10.90 CRORES IN T HE PREVIOUS YEAR TO RS.13.22 CRORES, RESULTING INTO INCREASE OF RS.2.32 CRORES. DURING THE YEAR UNDER CONSIDERATION THE COMPANY HAS EARNED A NET PR OFIT OF RS.4.84 CRORES AFTER PROVIDING FOR DEPRECIATION OF RS.6.36 CRORES AND THUS CASH PROFIT FOR THE YEAR WAS RS.11.20 CRORES. THE ASSESSEE-COMPANY IS I N THE BUSINESS OF TEXTILE YARN AND IN THE MONTHS OF AUGUST TO OCTOBER, WHICH ARE LEAN MONTHS FOR PURCHASE OF COTTON IT HAD INVESTED SURPLUS FUNDS IN MUTUAL FUNDS ON SHORT TERM BASIS ONLY FOR THE ABOVE PERIOD AND EARNED DIVIDEND INCOME DURING THE SAME. IN VIEW OF THE ABOVE, WE ARE OF THE VIEW THAT ASSES SEE-COMPANY HAS DISALLOWED REASONABLE AMOUNT OF RS.50,000/- ON ESTI MATE BASIS. ACCORDINGLY, WE FIND NO INFIRMITY IN THE ORDER OF CIT(A) AND WE CONFIRM THE SAME. THIS ISSUE OF REVENUES APPEAL IS DISMISSED. 8. THE NEXT ISSUE IN THIS APPEAL OF REVENUE IS AGAI NST THE ORDER OF CIT(A) IN DELETING THE ADDITION MADE BY ASSESSING OFFICER ON ACCOUNT OF SHORTAGE IN PRODUCTION OF COTTON YARN OF BORGAON UNIT. FOR THIS , REVENUE HAS RAISED THE FOLLOWING GROUND NO.3 & 4 :- 3. THE LD. COMMISSIONER OF INCOME TAX (A)-XI, AHME DABAD HAS ERRED IN LAW AND ON FACTS IN DELETING THE ADDITION MADE O F RS.45,69,107/- ON ACCOUNT OF SHORTAGE IN PRODUCTION OF COTTON YARN O F BORGAON UNIT. 4. THE LD. COMMISSIONER OF INCOME TAX (A)-XI, AHMED ABAD HAS ERRED IN LAW AND ON FACTS IN DELETING THE ADDITION MADE OF R S.45,69,107/- ON ITA NO.2972/AHD/2007 A.Y.2004-05 DCIT, CIR-5 ABD V. PBM POLYTEX LTD. PAGE 5 ACCOUNT OF SHORTAGE IN PRODUCTION OF COTTON YARN O F BORGAON UNIT BY ACCEPTING A DIFFERENT EXPLANATION REGARDING SHORTAG E FURNISHED BY THE ASSESSEE THAN THAT GIVEN BEFORE THE ASSESSING OFFIC ER BY ADMITTING ADDITIONAL EVIDENCE AS MENTIONED IN PARAGRAPHS 5.2. 2, 5.2.3, 5.2.4 AND 5.2.9 OF THE APPELLATE ORDER IN CONTRAVENTION OF RU LE 46A(3) OF THE INCOME TAX RULES, 1962. 9. WE HAVE HEARD THE RIVAL CONTENTIONS AND GONE THR OUGH THE FACTS AND CIRCUMSTANCES OF THE CASE. WE HAVE ALSO CONSIDERED THE ORDERS OF THE LOWER AUTHORITIES. WE FIND THAT THE REVENUES PLEA IS AGA INST THE ADMISSION OF ADDITIONAL EVIDENCES WITHOUT PROVIDING OPPORTUNITIE S TO THE ASSESSING OFFICER. THIS SPECIFIC PLEA WAS RAISED BEFORE US BY LD. DR, SMT. SUMIT KAUR AND SHE REFERRED TO GROUND NO.4 , WHEREIN THIS OBJECTION IS RAISED SPECIFICALLY BY REVENUE. LD. DR TAKEN US TO PARA-5.2.7 AND 5.2.9 , WHEREIN CERTIFICATE OF CHARTERED ACCOUNTANT AND DETAILS OF PRODUCTION IS S UBMITTED. WE FIND THAT CIT(A) HAS ADMITTED THIS EVIDENCE AND NOT REFERRED THE SAME TO THE ASSESSING OFFICER. ON QUERY FROM THE BENCH, LD. SR.COUNSEL FO R THE ASSESSEE, SHRI J.P.SHAH CLEARLY ADMITTED THAT THIS ISSUE CAN BE RE FERRED BACK TO THE FILE OF AO IN VIEW OF THE ADDITIONAL EVIDENCES. IN VIEW OF THE ABOVE FACTS, WE ARE OF THE VIEW THAT AO WILL EXAMINE THE VERACITY OF FIGURE PR ODUCED BEFORE CIT(A) AND AFTER EXAMINING THE SAME AND DECIDED THIS ISSUE AFR ESH. ACCORDINGLY, THIS ISSUE OF REVENUES APPEAL IS ALLOWED FOR STATISTICA L PURPOSES AS INDICATED ABOVE. 10. THE NEXT ISSUE IN THIS APPEAL OF REVENUE IS AGA INST THE ORDER OF CIT(A) IN DELETING THE DISALLOWANCE MADE BY ASSESSING OFFI CER BY INVOKING THE PROVISIONS OF SECTION 40A(3) OF THE ACT. FOR THIS, REVENUE HAS RAISED THE FOLLOWING GROUND NO.5 :- 5. THE LD. COMMISSIONER OF INCOME TAX (A)-XI, AHME DABAD HAS ERRED IN LAW AND ON FACTS IN DELETING THE ADDITION MADE O F RS.34,140/- ON ACCOUNT OF DISALLOWANCE OF CASH PAYMENT FOR TRANSP ORTATION EXPENSES UNDER SECTION40A(3) OF THE INCOME TAX ACT, 1961. ITA NO.2972/AHD/2007 A.Y.2004-05 DCIT, CIR-5 ABD V. PBM POLYTEX LTD. PAGE 6 11. WE HAVE HEARD THE RIVAL CONTENTIONS AND GONE TH ROUGH THE FACTS AND CIRCUMSTANCES OF THE CASE. WE FIND THAT ASSESSING O FFICER HAS DISALLOWED THE CASH PAYMENT FOR TRANSPORTATION EXPENSES MADE IN EX CESS OF RS.20,000/- TO TRACK OPERATORS. WE FIND FROM THE ASSESSMENT ORDER THAT AO HAS RECORDED THE FINDING THAT THE PAYMENTS ATTRACTS SECTION 40A(3) O F THE ACT AS THE PAYMENTS TO EACH TRANSPORTER IN EXCESS OF RS.20,000/-. THE C IT(A) DELETED THE ADDITION IN VIEW OF THE RULE 6DD OF I.T. RULE, 1962. WE FIND THAT THIS EXCEPTION AS PROVIDED RULE 6DD OF I.T. RULE, 1962 IS WITHDRAWN B Y IT (FOURTEENTH AMDT.) RULES, 1995, W.E.F. 25-7-1995. HENCE, ON QUERY FROM BENCH THE LD. SR. COUNSEL, SHRI SHAH COULD NOT CONTROVERT THIS FINDIN G ARGUED BY LD. DR. ACCORDINGLY, WE ARE OF THE VIEW THAT ASSESSEE COULD NOT ADDUCE ANY REASONABLE CAUSE AND THIS CASE DOES NOT FALL UNDER RULE 6DD OF I.T. RULES,1962 AS ARGUED BY LD. DR. ACCORDINGLY, THIS I SSUE OF REVENUES APPEAL IS ALLOWED. 12. THE NEXT ISSUE IN THIS APPEAL OF REVENUE IS AGA INST THE ORDER OF CIT(A) IN DELETING THE ADDITION MADE BY ASSESSING OFFICER ON ACCOUNT OF SHORT TERM CAPITAL GAINS. FOR THIS, REVENUE HAS RAISED THE FOL LOWING GROUND NO.6 :- 6. THE LD. COMMISSIONER OF INCOME TAX (A)-XI, AHME DABAD HAS ERRED IN LAW AND ON FACTS IN DELETING THE ADDITION MADE O F RS.2,63,479/- UNDER THE HEAD SHORT TERM CAPITAL GAINS. 13. WE HAVE HEARD THE RIVAL CONTENTIONS AND GONE TH ROUGH THE FACTS AND CIRCUMSTANCES OF THE CASE. WE FIND THAT ASSESSING O FFICER MADE THIS ADDITION OF THE DIFFERENCE BETWEEN THE REPURCHASE PRICE OF U NIT OF MUTUAL FUNDS AND CAPITAL VALUE OF INVESTMENT WHICH AMOUNTING TO CAPI TAL GAINS AS PER SECTION 45(6) R.W.S 80CCB(2) OF THE ACT. THE AO WORKED OUT THE AMOUNT OF INVESTMENT IN MUTUAL FUNDS AND REDEMPTION THEREOF DURING THE P ERIOD OF 25 TH AUG. TO 7 TH OCT. 03 IN TABULATED FORM. ACCORDINGLY, HE WORKED OUT THE CAPITAL GAIN AT RS.3,07,225/- AND MADE ADDITION OF RS.2,63,479/- BE ING THE DIFFERENCE AS EITHER BY ASSESSEE AT RS.43,476/-. AGGRIEVED, ASSES SEE PREFERRED APPEAL ITA NO.2972/AHD/2007 A.Y.2004-05 DCIT, CIR-5 ABD V. PBM POLYTEX LTD. PAGE 7 BEFORE CIT(A). THE CIT(A) DELETED THE ADDITION BY G IVING FOLLOWING FINDINGS IN PARA-7.3.1 OF HIS APPELLATE ORDER:- 7.3.1 HAVING VERIFIED THE FACTS OF THE CASE, IT AP PEARS THAT THE APPELLANT BEING COMPANY SECTION 80CCB IS NOT APPLICABLE SINCE SECTION 80CCB IS APPLICABLE TO INDIVIDUAL OR HUF. THEREFORE, I AM IN CLINED TO ACCEPT THE A.RS CONTENTIONS. ACCORDINGLY, THE ADDITION MADE BY THE A.O IS DELETED. WE FIND FROM THE CONTENTION OF LD. SR-COUNSEL THAT ASSESSING OFFICER HAS ERRED IN APPLYING THE PROVISIONS OF SECTION 80CCB OF THE ACT AND TREATING THE DIFFERENCE AS SHORT TERM CAPITAL GAINS OF RS.2,63,4 79/-. ACCORDING TO LD. SR- COUNSEL SECTION 80CCB IS WHOLLY AND EXCLUSIVELY APP LICABLE ONLY TO INDIVIDUAL OR HUF AND NOT TO CORPORATE. ACCORDING TO LD. SR-CO UNSEL VERY BASIS OF THE ADDITION IS ON WRONG. WE ARE IN FULL AGREEMENT WITH THE ARGUMENT OF LD.SR- COUNSEL AND ACCORDINGLY WE UPHOLD THE ORDER OF CIT( A). THIS ISSUE OF REVENUES APPEAL IS DISMISSED. 14. IN THE RESULT, REVENUES APPEAL IS PARTLY ALLOWED A S INDICTED. ORDER PRONOUNCED IN OPEN COURT ON 13/01/2011 SD/- SD/- (D.C.AGRAWAL) (MAHAVIR SIN GH) (ACCOUNTANT MEMBER) (JUDICIAL MEMBER) AHMEDABAD, DATED : 13/01/2011 *DKP COPY OF THE ORDER FORWARDED TO :- 1. THE ASSESSEE. 2. THE REVENUE. 3. THE CIT(APPEALS)-XI, AHMEDABAD 4. THE CIT CONCERNS. 5. THE DR, ITAT, AHMEDABAD 6. GUARD FILE. BY ORDER, /TRUE COPY/ DEPUTY / ASSTT.REGISTRAR ITAT, AHMEDABAD