Avi Global Plast Pvt. Ltd., Daman & Diu (UT) V. Assistant Commissioner of Income Tax, Vapi Circle, Vapi

ITA 300/SRT/2022

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The case involves Avi Global Plast Pvt. Ltd., which appealed against the order of the Learned Commissioner of Income Tax (Appeals) confirming the disallowance of a long-term capital loss of Rs.56,04,446/- on land. The land was leased from GIDC and later transferred back, with the assessee claiming various expenses as capitalized. The Assessing Officer disallowed the excess claimed loss, finding that the assessee had not capitalized the expenses but had claimed them as revenue expenditures. The Tribunal found merit in the Departmental Representative's argument that the matter required further examination and thus remitted the case back to the Assessing Officer.

• Counselvise Citation: [2023] 140 COUNSELVISE.COM (IT) 301842 (ITAT-SURAT)
• Duration Of Justice: 6 month(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 16-04-2023
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: DB
• Next Hearing Date: 05-02-2023
• Assessment Year: 2017-2018
• Appeal Filed On: 16-10-2022
• Laws Referred To: Income Tax Act, 1961
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Capital asset; Principle of natural justice; Cost of acquisition; Revenue expenditure
• Section: 143(3); 142(1); 143(2)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL, SURAT BENCH, SURAT BEFORE SHRI PAWAN SINGH, JM & DR. A. L. SAINI, AM आयकर अपील सं./ITA No.300/SRT/2022 Ǔनधा[रण वष[/Assessment Year: (2017-18) (Virtual Court Hearing) Avi Global Plast Pvt. Ltd., Survey No.266/4, 266/5, 266/6, 268/1, 269/4, Village – Dunitha Bhenslore Nani Daman – 396210, Damand and Diu (UT), India. Vs. The ACIT, Vapi Circle, Vapi. (Appellant) (Respondent) èथायीलेखासं./जीआइआरसं./PAN/GIR No.: AABCC5843R Appellant by Shri Shailesh Bandi, CA Respondent by Shri Vinod Kumar, Sr. DR Date of Hearing 06/02/2023 Date of Pronouncement 17/04/2023 आदेश / O R D E R PER DR. A. L. SAINI, AM: Captioned appeal filed by the assessee, pertaining to Assessment Year (AY) 2017-18, is directed against the order passed by the Learned Commissioner of Income Tax (Appeals), [in short “the ld. CIT”], National Faceless Appeal Centre (in short ‘NFAC’) which in turn arises out of an assessment order passed by Assessing Officer under section 143(3) of the Income Tax Act, 1961 (hereinafter referred to as “the Act”), dated 24.12.2019. 2. The grounds of appeal raised by the assessee are as follows: “1. On the facts and circumstances of the case and in law, the Ld. CIT(A) erred in confirming the assessment order passed u/s 143(3) of the I.T. Act which interalia is against the principles of natural justice and thus void-ab-initio and therefore bad-in-law as well. 2. On the facts and circumstances of the case and in law, the Ld. CIT(A) erred in confirming the disallowance made the AO of Rs.56,04,446/-, in respect of the Long term capital loss on land, being the interest cost and other cost incurred towards the acquisition of the Land. Page | 2 ITA 300/SRT/2022/AY.2017-18 Avi Global Plast Pvt. Ltd. The Appellant craves leave to add, alter, modify, amend or delete any of the above Grounds on or before or at the time of hearing.” 3. Brief facts qua the issue are that assessee before us is a Private Limited Company and filed its return of income for the A.Y. 2017-18, on 31/10/2017, declaring total income of Rs.59,59,930/-. Thereafter, the assessee`s case was selected for scrutiny through CASS. Notice u/s 143(2) of the Income Tax Act was issued on 17/08/2018, which was duly served on the assessee. Thereafter, a notice u/s 142(1) of the Income Tax Act, along with a detailed questionnaire, calling for details and explanations, was issued on 04/09/2019 & 26/11/2019 and served on the assessee through e-mail. In response to notice, the assessee has e- filed his submission on 26/09/2019, 02/12/2019, 11/12/2019, 20/12/2019 & 23/12/2019 and furnished the required details called for on the questionnaire issued on various dates. The assessee company is engaged in manufacturing of rigid PVC films used in packing of various FMCG products. During the year, the assessee has earned income from business profession. 4. During the assessment proceedings, the assessee submitted working of capital loss of Rs.1,53,48,524/-. The working of the said capital loss is reproduced by the Assessing Officer on page no. 2 of assessment order. To seek the details of capital loss shown by the assessee in its return, details of the asset sold along with copy of sale and purchase deed, improvement expense etc. were called. The assessee vide its submission dated 20.12.2019 provided the details called for. On perusal of the submission, it was observed by the assessing officer that during the year, the assessee firm has transferred a land to GIDC, which was taken on lease from GIDC on 02/11/2011. The assessee submitted the copy of lease, transfer details and ledger, of the said GIDC Land. On perusal of the ledger account, it was noted by AO that the assessee leased the land from GIDC for a consideration of Rs.2,03,05,933/- (including frontage charges) on 02/11/2011. The assessee had also debited various other expense like DD issue charges, interest expense, payment made to ALL India Plastic manufacturer's association in various financial year. In the ledger account given, the assessee has shown to have capitalized all these expense. Later, during the F.Y.2016-17, the assessee transferred the land back to GIDC for consideration of Page | 3 ITA 300/SRT/2022/AY.2017-18 Avi Global Plast Pvt. Ltd. Rs.1,93,56,782/-. Since, the assessee had shown all the expense capitalized in the ledger, therefore the assessee was asked to furnish the proof that the expense of interest and various other expense have been capitalized. Content of the letter of AO is produced as under: "On perusal of details of capital loss incurred by you during the year, it is seen that that loss is primarily due to: interest expense capitalized by you and various other charges paid like payment made to Plastic association and DD issue charges. In this regard, please provide the supporting documents to prove that these charges were capitalized by you in earlier year. You are requested to produce year wise computation of income, audit report reflecting that these expenses were in fact capitalized in respective years. Failing to prove that these charges were capitalized in earlier years, you are hereby show caused why above amount of these charges included in cost of acquisition should not be subtracted and capital gain/loss should be calculated only of cost of lease." 5. The assessee vide its submission dated 23/12/2019 submitted the copy of acknowledgment and computation of income for the A.Y. 2012-13 to 2016-17. On perusal of computation of income for the A.Y. 2012-13 & 2013-14, it was observed by AO that assessee had disallowed ‘interest on BCs’ of Rs.2,06,400/- and Rs.2,35,590/- in F.Y.2011-12 and 2012-13 respectively. However, the same were allowed in computation of income for the F.Y. 2013-14. Thus, the assessee had not capitalized any expense relating to the land. Also on perusal of Audit reports for A.Y. 2012-13 to 2015-16, filed by the assessee, available on e-filing portal, it was observed by AO that the assessee had not capitalized any expense in earlier years. This proves that the assessee had debited all the interest expense and other expense in the year they were incurred and had not capitalized any expense other than land value. Total long term capital loss is worked out at Rs.97,44,078/-. As the assessee has wrongly claimed loss of Rs.1,53,48,524/-, excess long term claimed capital loss of Rs.56,04,446/- (1,53,48,524 – 97,44,078) claimed by the assessee was disallowed by the assessing officer. 6. Aggrieved by the order of the Assessing Officer, the assessee carried the matter in appeal before the ld. CIT(A), who has confirmed the action of the Assessing Officer, observing as follows: “6. While computing long term capital loss; the Assessing Officer has rightly allowed the allotment price of land of Rs.2,03,05,993/- as cost of acquisition. No other expenses have been allowed by the Assessing Officer as cost of acquisition or cost of improvement PCPIR charges of Rs.4,05,713/- has not Page | 4 ITA 300/SRT/2022/AY.2017-18 Avi Global Plast Pvt. Ltd. been allowed by the Assessing Officer. I find from the allotment letter of GIDC that this expenditure is tentative. Also nature of this charge has not been given by the appellant. As regards, interest on installments paid to GIDG and other expenses, the Assessing Officer has given a finding that interest expenses and other expenses have not been capitalized by the assessee but have been claimed as revenue expenditure. During appeal proceedings, the appellant has not submitted any evidence to show that these expenses have been capitalized and not claimed as revenue expenditure. Therefore, the disallowance of capital loss made by the A.O. is sustained. Ground no.2 is dismissed.” 7. Aggrieved by the order of Ld. CIT(A), the assessee is in further appeal before us. 8. The Ld. Counsel for the assessee submitted that the addition sustained by the ld CIT(A) to the tune of Rs.56,04,446/- is not in accordance with law. The assessee submitted the copy of the ledger account and explanation on the items which is to be capitalised and the items which is not to be capitalised. The Ld. Counsel submitted that the entire cost has been capitalized by assessee in the books of accounts and there were no revenue expenses. These expenses were paid by the assessee hence the same should be allowed, as capital expenses. 9. On the other hand, Ld. Departmental Representative (Ld. DR) for the Revenue submitted that treatment given in the books of accounts cannot be decisive factor to examine the nature of expenses. Since the assessee has made entry in the books of accounts stating the expenses as capital in nature, in fact these expenses are not in capital in nature just by making entry in the books of accounts and showing in the narration with the entries that the expenses are capitalized. The Ld. DR also pointed out that these details of the expenses, which were submitted before the Bench, have neither been explained before the Assessing Officer nor before the Ld. CIT(A). Besides, the explanation given by the Ld. Counsel during the course of hearing before the Bench, have not been examined by the assessing officer. Therefore, ld DR contended that this matter should be remitted back to the file before the Assessing Officer with the direction to the assessee to explain all the ledger accounts and the treatment made in the books of accounts with documentary evidences. Page | 5 ITA 300/SRT/2022/AY.2017-18 Avi Global Plast Pvt. Ltd. 10. In rebuttal, Ld. Counsel submitted that section 36(1)(iii) of the Act clearly says that any interest on the loan taken for acquisition of capital asset are be capitalized till the asset is put to use and the assessee has done the same treatment, therefore addition should be deleted. 11. We have heard both the parties and perused the material available on record. We note that Ld. Counsel for the assessee submitted before us the ledger copy for capital expenses and reconciliation of the figures, which is reproduced below: 12. We note that in the assessment order, assessing officer has stated that Assessee has not capitalized any expenses related to the land and thereby has restricted the long term capital Loss to Rs. 97,44,078/- only. As the assessee has wrongly claimed loss of Rs.1,53,48,524/-, excess long term capital loss of Rs.56,04,446/- (1,53,48,524 – 97,44,078) claimed by the assessee was disallowed by the assessing officer. We find merit in the submission of Ld. DR that these details of the expenses, which were submitted before the Bench, have neither been explained before the Assessing Officer nor before the Ld. CIT(A) Page | 6 ITA 300/SRT/2022/AY.2017-18 Avi Global Plast Pvt. Ltd. and required documents were not submitted before lower authorities. Therefore, we remit this lis back to the file of the assessing officer with the direction to examine ledger account, evidence and documents which show that assessee has capitalized the expenses. The assessee is also directed to submit before assessing officer ledger account, evidence and documents to prove its claim. For statistical purposes, the assessee`s appeal is treated to be allowed. 13. In the result, appeal filed by the assessee is allowed for statistical purposes. Order pronounced on 17/04/2023 by placing the result on the Notice Board. Sd/- Sd/- (PAWAN SINGH) (Dr. A.L. SAINI) JUDICIAL MEMBER ACCOUNTANT MEMBER lwjr /Surat Ǒदनांक/ Date: 17/04/2023 SAMANTA Copy of the Order forwarded to 1. The Assessee 2. The Respondent 3. The CIT(A) 4. CIT 5. DR/AR, ITAT, Surat 6. Guard File By Order // True Copy // Assistant Registrar/Sr. PS/PS ITAT, Surat