Eagle Synthetics Pvt.Ltd., Surat V. The Dy.CIT.,Circle-1, Surat

ITA 3003/AHD/2008

• Counselvise Citation: [2010] 135 COUNSELVISE.COM (IT) 9147 (ITAT-AHMEDABAD)
• Duration Of Justice: 2 year(s) 3 month(s) 28 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 23-12-2010
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: D
• Next Hearing Date: 13-12-2010
• Assessment Year: 2003-2004
• Appeal Filed On: 25-08-2008
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: U B MISHRA
• Keywords: Depreciation; Fair market value

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD BENCH D BEFORE SHRI MUKUL KR. SHRAWAT, JUDICIAL MEMBER AND SHRI N.S. SAINI, ACCOUNTANT MEMBER DATE OF HEARING : 13/12/2010 DRAFTED ON: 13/12/2010 1. ITA NO.3003/AHD/2008 - A.Y. 2003-04 2. ITA NO.3295/AHD/2008 - A.Y. 2003-04 1. EAGLE SYNTHETICS PVT.LTD. 302, TRIVIDH CHAMBERS RING ROAD,SURAT 2. DY.CIT CIRCLE-1, SURAT VS. 1. DY.COMMR.OF INCOME TAX CIRCLE-1, SURAT 2. EAGLE SYNTHETICS PVT.LTD. RING ROAD, SURAT PAN/GIR NO. : AAACE 8086 B ( APPELLANTS ) .. ( RESPONDENTS ) ASSESSEE BY : NONE (WRITTEN SUBMISSION) REVENUE BY : SHRI U.B. MISHRA, SR. D.R. O R D E R PER SHRI MUKUL KR. SHRAWAT, JUDICIAL MEMBER : BOTH THESE CROSS APPEALS EMANATED FROM THE ORDER OF LEARNED CIT(APPEALS)-I, SURAT DATED 24/07/2008. THE LEARNED CIT(APPEALS) HAS SUSTAINED THE PENALTY OF RS.1,00,403/- WHICH WAS IN RESPECT OF TWO DISALLOWANCES, I.E. I) BROKERAGE EXPENSES AND II) F OREIGN TOUR EXPENSES. IN RESPECT OF THE SAID CONFIRMATION OF PENALTY THE ASSESSEE IS IN APPEAL. IN RESPECT OF THE REST OF THE PENALTY THERE WAS AN AN OTHER PART OF THE SAID JUDGMENT IN WHICH THE LEARNED CIT(APPEALS) HAS DEL ETED THE PENALTY OF RS.6,31,640/- WHICH WAS IN RESPECT OF CLAIM OF HIGH ER RATE OF DEPRECIATION, STATED TO BE ON THE MACHINERIES PURCH ASED UNDER TUF ITA NO.3003/AHD/2008 (BY ASSESSEE) ITA NO.3295/AHD/2008 (BY REVENUE) ASST.YEAR - 2003-04 - 2 - SCHEME. AGAINST THE DELETION OF THE PENALTY REVENUE IS IN APPEAL. IN THIS MANNER AGAINST THE PART RELIEF GRANTED BY THE FIRST APPELLATE AUTHORITY, NOW BOTH THE SIDES ARE IN APPEAL BEFORE US. 2. FACTS IN BRIEF AS EMERGED FROM THE CORRESPONDING PENALTY ORDER PASSED U/S.271(1) (C) OF THE I.T. ACT, 1961 DATED 17/03/2008 AND ASSESSMENT ORDER PASSED U/S.143(3) OF THE I.T.ACT D ATED 27/01/2006 WERE THAT THE ASSESSEE-COMPANY IS IN THE BUSINESS OF TEXTURISING AND TWISTING OF YARN AS ALSO TRADING OF YARN. PENALTIE S WERE LEVIED IN RESPECT OF THE FOLLOWING THREE DISALLOWANCES: (I) DISALLOWANCE OF BROKERAGE PAID TO SPECIFIED PERSONS COVERED U/S.40A(2)(B) OF THE I.T.ACT RS.1,65,595/- (II) DISALLOWANCE OUT OF TRAVELLING EXPENSE IN RESPECT OF FOREIGN TOUR RS.1,07,610/- (III) DISALLOWANCE OF EXCESS DEPRECIATION CLAIMED ON MACHINERY & PLANT RS.18,04,688/ 3. LET US FIRST TAKE UP THE REVENUES APPEAL. WHEN THE MATTER HAD GONE IN APPEAL IN RESPECT OF CLAIM OF DEPRECIATION, AS PER COLUMN (III) HEREIN ABOVE, THE PENALTY WAS DELETED AFTER ASSIGNI NG FOLLOWING REASON:- 2.7.1. I HAVE CONSIDERED THE SUBMISSION MADE BY TH E APPELLANT AND OBSERVATION OF THE AO. WITH RESPECT TO THE DISALLOWANCE OF DEPRECIATION, IT IS SEEN THAT THE A PPELLANT HAD CLAIMED HIGHER DEPRECIATION UNDER THE BONAFIDE BELI EF BECAUSE THE APPELLANT HAD OBTAINED LOAN UNDER TUF SCHEME AND PU RCHASED THESE MACHINES. DURING THE APPELLATE PROCEEDINGS A GAINST THE DISALLOWANCE IT WAS OBSERVED BY THE CIT(A) THAT ALT HOUGH THE APPELLANT HAD OBTAINED MACHINERY FROM THE BANK WHO GAVE LOAN ITA NO.3003/AHD/2008 (BY ASSESSEE) ITA NO.3295/AHD/2008 (BY REVENUE) ASST.YEAR - 2003-04 - 3 - UNDER TUF SCHEME FOLLOWING THE RESOLUTION OF MINIST RY OF TEXTILES BUT DEPRECIATION CAN BE ALLOWED ONLY IF THE PROVISI ON IS AVAILABLE IN THE INCOME-TAX RULES. THE CIT(A) HELD THAT THE DIRECTION OF THE MINISTRY OF TEXTILES FOR GIVING LOAN MAY BE BINDING ON BANKS BUT THE SAME CANNOT AUTOMATICALLY LEAD TO HIGHER DEPREC IATION. THE CIT(A) POINTED OUT THAT THE APPELLANT WAS ENGAGED I N THE TWISTING ACTIVITY WHICH WAS AN ACTIVITY PRIOR TO WEAVING, PR OCESSING AND GARMENT SECTOR OF TEXTILE INDUSTRY AND THEREFORE TH E ACTIVITY OF THE APPELLANT WAS NOT COVERED BY THE INCOME-TAX RULES W HERE THE PROVISIONS FOR HIGHER DEPRECIATION ON TUF MACHINERI ES ARE PROVIDED. THEREFORE, THE HIGHER DEPRECIATION WAS C LEARLY NOT ALLOWABLE. BUT AS REGARDS PENALTY LEVIED IT CAN BE STATED THAT THE APPELLANT WAS UNDER THE BONA FIDE BELIEF THAT SINCE THE BANK HAD GIVEN LOAN UNDER THE TUF SCHEME THE DEPRECIATION WO ULD ALSO BE AVAILABLE AUTOMATICALLY. IN VIEW OF THESE REASONS I AGREE WITH THE APPELLANT THAT THERE IS NO DELIBERATENESS OR CONSCI OUSNESS IN FURNISHING INACCURATE PARTICULARS. THOUGH THE ASSE SSEE HAD CONCEALED THE INCOME BY CLAIMING HIGHER DEPRECIATIO N BUT IT WAS UNDER BONA FIDE BELIEF THAT SINCE THE BANK HAD ALLO WED PURCHASE OF THIS MACHINERY UNDER TUF SCHEME BY GIVING LOANS, TH EREFORE DEPRECIATION WOULD ALSO BE AUTOMATICALLY AVAILABLE AT HIGHER RATE UNDER TUF SCHEME. 4. ON THE DATE OF HEARING, NO ONE APPEARED FROM THE SIDE OF THE ASSESSEE, HOWEVER, WRITTEN SUBMISSIONS HAVE BEEN PL ACED ON RECORD WHICH HAVE BEEN DULY CONSIDERED BY US. FROM THE SIDE OF THE REVENUE, LEARNED DEPARTMENTAL REPRESENTATIVE, MR.U.B.MISHRA, SR.DR APPEARED AND PLACED STRONG RELIANCE ON THE ACTION OF THE ASS ESSING OFFICER. 5. WE HAVE CONSIDERED THE MATERIAL PLACED ON RECORD . AS FAR AS THE REVENUES APPEAL IN RESPECT OF EXCESS CLAIM OF DEPR ECIATION ON MACHINERY IS CONCERNED, THE ASSESSING OFFICER HAD MADE A DISA LLOWANCE OF DEPRECIATION OF RS.18,04,688/- PRIMARILY ON THE GROUND THAT THE ITA NO.3003/AHD/2008 (BY ASSESSEE) ITA NO.3295/AHD/2008 (BY REVENUE) ASST.YEAR - 2003-04 - 4 - DEPRECIATION ON MACHINERY AND PLANT (TUF SCHEME) WA S ALLOWABLE @ 25%, HOWEVER, THE ASSESSEE HAD CLAIMED THE DEPRECIA TION AT 50%. ACCORDING TO ASSESSING OFFICER, THE ELIGIBLE DEPREC IATION AS PER THE INCOME TAX RULES WAS ONLY 25%, HENCE, THE SAME WAS RESTRICTED TO THAT EXTENT ONLY. THE EXCESS CLAIM OF DEPRECIATION WA S AFFIRMED BY THE LEARNED CIT(APPEALS) IN FIRST APPEAL. CONSEQUENT TH EREUPON THE ASSESSING OFFICER HAS THOUGHT IT PROPER TO LEVY THE PENALTY. HOWEVER, WHEN THE QUESTION OF LEVY OF PENALTY WAS CHALLENGED , LEARNED CIT(APPEALS) HAS NOTED, AS PER THE PARAGRAPH REPROD UCED ABOVE, THAT THE MACHINERIES WERE ONLY PURCHASED OUT OF THE LOAN GIV EN BY THE BANK UNDER A TUF SCHEME FLOATED BY MINISTRY OF TEXTILE. THE A SSESSEE WAS UNDER AN IMPRESSION THAT THE CLAIM OF DEPRECIATION WAS AS PER THE SPECIFIC RATES PRESCRIBED, HOWEVER, IT WAS FOUND BY THE ASSESSING OFFICER THAT THOSE SPECIFIC RATE OF DEPRECIATION WAS NOT ADMISSIBLE AS PER THE INCOME TAX RULES, 1962. 5.1. ON DUE EXAMINATION OF THE CIRCUMSTANCES, ONCE THE CLAIM OF DEPRECIATION WAS NOT ALTOGETHER BOGUS OR MALA FIDE BUT THE DISPUTE WAS IN RESPECT OF THE CORRECT RATE OF DEPRECIATION, THEN I N OUR CONSIDERED VIEW THAT THOUGH THE RATE OF DEPRECIATION AS PER ASSESSI NG OFFICER WAS CORRECT BUT ASSESSEES ACTION SHOULD NOT BE HELD AS CONCEAL MENT OF INCOME OR FURNISHING OF INACCURATE PARTICULARS. IT IS ALSO E VIDENT THAT STILL THE ASSESSEE IS HARPING UPON THE INTERPRETATION OF APPE NDIX ANNEXED TO I.T. RULES, 1962 FOR THE PURPOSE OF HIGHER DEPRECIATION ALLOWANCE, THEREFORE, THIS FACT ITSELF PROVES THAT THE CORRECT ENTITLEMEN T OF DEPRECIATION WAS A DEBATABLE ISSUE. TO BUTTRESS THIS VIEW, WE PLACE RELIANCE ON A LATEST ITA NO.3003/AHD/2008 (BY ASSESSEE) ITA NO.3295/AHD/2008 (BY REVENUE) ASST.YEAR - 2003-04 - 5 - DECISION OF HON'BLE APEX COURT IN THE CASE OF CIT V S. RELIANCE PETROPRODUCTS (P) LTD. REPORTED AT [2010]322 ITR 1 58 (SC), WHEREIN IT WAS LAID DOWN THAT NO PENALTY COULD BE LEVIED MEREL Y ON DISALLOWANCE OF A DEDUCTION, WHICH WAS MADE BY TAKING A DIFFERENT V IEW. FOLLOWING THIS DECISION, WE FIND NO FORCE IN THIS GROUND OF THE RE VENUE AND AFFIRM THE FINDINGS OF THE LEARNED CIT(APPEALS). 6. NOW, WE SHALL TAKE UP THE ASSESSEES APPEAL. IN RESPECT OF CLAIM OF BROKERAGE THE PENALTY WAS AFFIRMED AFTER ASSIGNING THE FOLLO WING REASON:- 2.7.3. FROM THE ABOVE, IT IS SEEN THAT THE APP ELLANT HAS FAILED TO SHOW AS TO WHY THE BROKERAGE WAS PAID. THE ASSESSE E HAS FAILED TO PROVE OR GIVE ANY EVIDENCE THAT SALES WERE MADE THR OUGH THESE PARTIES. THE ASSESSEE HAS EVEN FAILED TO SHOW HO W THESE PARTIES HELPED THE ASSESSEE FOR MAKING THE PURCHASES OR SAL ES. THE APPELLANT HAS FAILED TO ADDUCE ANY EVIDENCE AND HEN CE IT IS CLEAR THAT THE CLAIM MADE COULD NOT BE SUBSTANTIATED AT A LL. HENCE, THE ASSESSEE HAS CLEARLY GIVEN INACCURATE PARTICULARS A ND CONCEALED ITS INCOME DELIBERATELY BY SHOWING EXPENDITURE WHICH IT COULD NOT SUBSTANTIATE EVEN TO A SMALL EXTENT. HENCE, PENALT Y IN RESPECT OF THIS DISALLOWANCE IS CONFIRMED. 6.1. ASSESSEE HAS ALSO CONTENTED AN ANOTHER CONFIRM ATION OF PENALTY IN RESPECT OF FOREIGN TRAVELLING EXPENSES. THE PENALTY WAS CONFIRMED AFTER ASSIGNING THE FOLLOWING REASON: 2.7.5. FROM THE ABOVE, IT IS CLEAR THAT THE APPEL LANT HAS FAILED TO EVEN GIVE SUCH BASIC DOCUMENT/EVIDENCE AS THAT OF P ASSPORT TO ITA NO.3003/AHD/2008 (BY ASSESSEE) ITA NO.3295/AHD/2008 (BY REVENUE) ASST.YEAR - 2003-04 - 6 - SHOW THAT THE FOREIGN TRAVEL WAS MADE TO CHINA OR S INGAPORE ON SOME PARTICULAR DAYS. THE APPELLANT FAILED TO SHOW THAT THE TRIP WAS INDEED MADE AND IF THE TRIP WAS MADE IT WAS FOR THE PURPOSE OF BUSINESS. IN THE ABSENCE OF SUCH BASIC DETAILS, TH E EXPENDITURE BOOKED IS CLEARLY WRONG AND DELIBERATE AND HENCE PE NALTY IN RESPECT OF THIS DISALLOWANCE IS CONFIRMED. 6.2. REGARDING ASSESSEES APPEAL, IN RESPECT OF THE PENALTY LEVIED ON ACCOUNT OF DISALLOWANCE OF BROKERAGE , THE OBSERVATION OF THE ASSESSING OFFICER WAS THAT THE PAYMENT WAS MADE TO ONE SHRI A NUP R. JAJU AND TO SHRI MANGILAL BHANWARILAL (HUF) WHICH WAS FOUND UNR EASONABLE AND FOR THE PURPOSES OF DISALLOWANCE, THE PROVISIONS OF SE CTION 40A(2)(B) WERE INITIATED. THE ASSESSEE HAS PAID BROKERAGE OF RS .86,070/- TO SHRI ANUP R.JAJOO IN RESPECT OF SALES OF RS.86,07,022/- . L IKEWISE, THE ASSESSEE HAS PAID A BROKERAGE OF RS.79,525/- TO SHRI MANGILAL BH ANWARLAL (HUF) ON CERTAIN PURCHASES. SINCE THE PAYMENTS HAVE BEEN MADE TO THE PERSONS SPECIFIED U/S.40A(2)(B) OF THE I.T.ACT, THE IMPUGNE D DISALLOWANCES WERE MADE. SINCE UNDISPUTEDLY THE CONTROVERSY HAD ARISE N ONLY BY THE INVOCATION OF SECTION 40A, THEREFORE, IT IS CLEAR T HAT THOSE EXPENDITURE WERE EITHER EXCESSIVE OR UNREASONABLE IN THE OPINIO N OF THE ASSESSING OFFICER HAVING REGARD TO THE FAIR MARKET VALUE OF T HE SERVICES RENDERED. MEANING THEREBY THAT THE GENUINENESS OF THE EXPENDI TURE WAS NOT IN DOUBT BUT IN THE OPINION OF THE ASSESSING OFFICER, THEY WERE EXCESSIVE COMPARING TO THE FAIR MARKET VALUE. THIS ISSUE HA D COME UP BEFORE A RESPECTED CO-ORDINATE BENCH IN THE CASE OF JHAVAR PROPERTIES (P) LTD. VS. ASSTT.CIT REPORTED AT [2010]123 ITD 429 (MUM) WHEREIN IT WAS HELD THAT ONCE THE DISALLOWANCE HAS BEEN MADE MEREL Y ON THE GROUND OF UNREASONABLENESS BY INVOKING SECTION 40A(2)(B), THE N IT IS NOT A CASE OF ITA NO.3003/AHD/2008 (BY ASSESSEE) ITA NO.3295/AHD/2008 (BY REVENUE) ASST.YEAR - 2003-04 - 7 - WITHHOLDING OF FACTS OR CONCEALMENT OF PARTICULARS, THEREFORE, NOT A GOOD REASON FOR LEVY OF CONCEALMENT PENALTY. WE THEREFOR E REVERSE THE FINDINGS OF THE AUTHORITIES BELOW AND DIRECT TO DELETE THE P ENALTY IN RESPECT OF DISALLOWANCE OF BROKERAGE. 6.3. ABOUT ASSESSEES APPEAL , NOW WE ARE LEFT WITH THE LEVY OF PENALTY PERTAINING TO DISALLOWANCE OF TRAVELLING EXPENSES . DURING THE ASSESSMENT PROCEEDINGS, IT WAS NOTED BY THE ASSESSI NG OFFICER THAT TOWARDS FOREIGN TOUR AN EXPENDITURE OF RS.2,15,217/ - WAS MADE BY THE ASSESSING OFFICER. ONE OF THE DIRECTOR HAD VISITE D CHINA WHICH WAS ARRANGED BY SOUTH GUJARAT CHAMBER OF COMMERCE. T HEREAFTER, HE HAD GONE TO SINGAPORE AS WELL. THE ASSESSING OFFICER HAS ASKED THE EVIDENCE AND LETTER FROM CHAMBER OF COMMERCE AND PU RPOSE OF VISIT TO SINGAPORE. THE ASSESSEE WAS NOT ABLE TO PRODUCE THE EVIDENCE IN RESPECT OF THE PAYMENTS MADE TO CHAMBER OF COMMERCE FOR FOREIGN TOUR TO CHINA. IN RESPECT OF THE DIRECTORS VISIT TO SINGAPORE, THE EXPLANATION WAS THAT THE FOREIGN TOUR WAS UNDERTAKE N TO EXPLORE NEW BUSINESS OPPORTUNITIES. THE VEHEMENT CONTENTION OF THE ASSESSEE WAS THAT SINCE THE PAYMENTS HAVE BEEN MADE THROUGH A/C.PAYE E CHEQUE BY THE COMPANY AND THE EXPENDITURE WAS DULY DEBITED TO THE ACCOUNTS OF THE COMPANY, THEREFORE, THERE WAS NO OCCASION ON THE PA RT OF THE ASSESSING OFFICER TO DISALLOW AN ADHOC 50% AMOUNT OF THE CLAI M. ON THAT VERY BASIS, FIRSTLY IN THE CASE OF COMPANY NO SUCH DISAL LOWANCE SHOULD HAVE BEEN MADE, HOWEVER, IN ANY CASE, IT WAS NOT FIT FOR LEVY OF PENALTY. WE FIND FORCE IN THE CONTENTIONS OF THE ASSESSEE AND, THEREFORE, DEEM IT FIT TO DIRECT NOT TO LEVY A PENALTY IN RESPECT OF AN ADHOC DISALLOWANCE WHICH ITA NO.3003/AHD/2008 (BY ASSESSEE) ITA NO.3295/AHD/2008 (BY REVENUE) ASST.YEAR - 2003-04 - 8 - PERTAINED TO A CLAIM WHICH WAS MADE BY A COMPANY TO WARDS FOREIGN TOUR EXPENDITURE OF ONE OF ITS DIRECTOR. WE HOLD ACCORD INGLY. 7. IN THE RESULT, REVENUES APPEAL IS DISMISSED WHE REAS ASSESSEES APPEAL IS ALLOWED. ORDER SIGNED, DATED AND PRONOUNCED IN THE COURT ON 23/ 12 /2010. SD/- SD/- ( N.S. SAINI ) ( MUKUL KR. SHRAWAT ) ACCOUNTANT MEMBER JUDICIAL MEM BER AHMEDABAD; DATED 23/ 12 /2010 T.C. NAIR, SR. PS COPY OF THE ORDER FORWARDED TO : 1. THE ASSESSEE. 2. THE DEPARTMENT. 3. THE CIT CONCERNED 4. THE LD. CIT(APPEALS)-I, SURAT 5. THE DR, AHMEDABAD BENCH 6. THE GUARD FILE. BY ORDER, //TRUE COPY// (DY./ASSTT.REGISTRAR), ITAT, AHMEDABAD 1. DATE OF DICTATION..13.12.10 2. DATE ON WHICH THE TYPED DRAFT IS PLACED BEFORE THE DICTATING MEMBER 13.12.10 OTHER MEMBER 3. DATE ON WHICH THE APPROVED DRAFT COMES TO THE SR.P. S./P.S.. 4. DATE ON WHICH THE FAIR ORDER IS PLACED BEFORE THE D ICTATING MEMBER FOR PRONOUNCEMENT 5. DATE ON WHICH THE FAIR ORDER COMES BACK TO THE SR.P .S./P.S23/12/10 6. DATE ON WHICH THE FILE GOES TO THE BENCH CLERK 23/12/10 7. DATE ON WHICH THE FILE GOES TO THE HEAD CLERK . 8. THE DATE ON WHICH THE FILE GOES TO THE ASSISTANT RE GISTRAR FOR SIGNATURE ON THE ORDER.. 9. DATE OF DESPATCH OF THE ORDER