ADI Artech Transducers Pvt. Ltd., Baroda V. The ACIT, Circle-1(1), Baroda

ITA 301/AHD/2006

• Counselvise Citation: [2009] 115 COUNSELVISE.COM (IT) 0414 (ITAT-AHMEDABAD)
• Duration Of Justice: 3 year(s) 9 month(s) 12 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 20-11-2009
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: D
• Next Hearing Date: 17-11-2009
• Assessment Year: 2002-2003
• Appeal Filed On: 08-02-2006
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: C K MISHRA
• Assessee Lawyers: S N SOPARKAR
• Keywords: Opportunity of being heard; Bonafide belief; Revenue expenditure; Set aside
• Section: 80IA; 80HH

Judgement Text

1 IN THE INCOME TAX APPELLATE TRIBUNAL : D BENCH : AHMEDABAD (BEFORE HONBLE SHRI T.K. SHARMA, J.M. & HONBLE SH RI N.S. SAINI, A.M.) I.T.A. NO. 301/AHD./2006 ASSESSMENT YEAR : 2002-2003 ADI ARTECH TRANSDUCERS PRIVATE LTD. VS.- ASSISTANT COMMISSIONER OF INCOME TAX, (P.A. NO. AABCA 6598 D) CIRCLE-1(1), BAROD A (APPELLANT) (R ESPONDENT) APPELLANT BY : SHRI S.N. SOPARKAR RESPONDENT BY : SHRI C. K. MISHRA, SR . D.R. O R D E R PER SHRI T.K. SHARMA, JUDICIAL MEMBER :- THIS APPEAL FILED BY THE ASSESSEE IS AGAINST THE ORDER DATED 18.10.2005 OF LEARNED COMMISSIONER OF I NCOME TAX (APPEALS) -I, BORADA FOR THE ASSESSMENT YEAR 2002-03. 2. GROUND NO. 1 OF THE APPEAL READS AS UNDER :- THE LD. C.I.T.(A) HAS ERRED IN TREATING THE EXPEND ITURE ON CONSUMPTION OF COTTON, WASTE, KEROSENE, GLOVES POWDER, DRILL BI TS, HAND GLOVES, BANDAGE, END MILLS, DISTILLED WATER, PAPER, DRILL, ARALDITE, CHEMICAL, HACKSAW BLADES, M-SEAL, BRUSH, INSERTS, ACETONE, NE EDLE FILE, TAP SET, WASHER, BOLT, SOLUBLE CUTTING OIL, THINNER, NUT, CU TTER, ALCOHOL, BEARINGS, PRIMER, GLASS BITS, SOLDRON BIT, FEVIQUICK AS BEING OF PLANT AND MACHINERY AND DISALLOWED THE SUM OF RS.45,09,440/- . THE SAID DISALLOWANCE BE DELETED SINCE THE ENTIRE E XPENDITURE IS OF A REVENUE NATURE AND THE METHOD OF ACCOUNTING HAS BEE N EMPLOYED CONSISTENTLY BASED ON NATURE OF ITEMS PURCHASED. ALTERNATIVELY, THE ASSESSEE CLAIMS THE ENTIRE PURCH ASE OF THE SAID ITEMS SHOULD BE ALLOWED TO BE WRITTEN OFF IN ONE YEAR SIN CE THE SAID ITEMS ARE CONSUMABLES AND NOT IN NATURE OF PLANT OR MACHINERY . 3. AT THE TIME OF HEARING, SHRI S.N. SOPARKAR, LD. COUNSEL OF THE ASSESSEE APPEARED AND CONTENDED THAT SIMILAR DISALLOWANCE WAS MADE IN EAR LIER YEARS AND ON APPEAL, THE MATTER WAS RESTORED TO THE FILE OF A.O. IN SUPPORT OF THIS, TH E LD. COUNSEL OF THE ASSESSEE FILED A COPY OF THE DECISION OF ITAT, AHMEDABAD, B BENCH, CAMP AT BAR ODA DATED 24.09.2008 IN ITA NO. 2 4395/AHD./2007 FOR THE ASSESSMENT YEAR 2004-05, WHE REIN SIMILAR ADDITION OF RS.42,53,034/- WAS RESTORED TO THE FILE OF A.O. WITH THE FOLLOWING DIR ECTIONS :- WE NOTED THAT DURING THE YEAR UNDER CONSIDERATION THE GROUND DOES NOT RELATE ONLY TO THE TOOLS AND INSTRUMENTS BUT TO THE CONSUMABLES ALSO. SOME OF THE ITEMS DURING THE YEAR ARE COMMON SUCH AS DRI LL BITS, HAND GLOVES, BANDAGE, END MILLS, DISTILLED WATER, PAPER, DRILL, ARALDITE, CHEMICAL, HACKSAW BLADES, M-SEAL, BRUSH, INSERTS, ACETONE, NE EDLE FILE, TAP SET, WASHER, BOLT, ETC. DURING THE COURSE OF HEARING A C OMPARATIVE CHART OF THE ITEMS AS CLAIMED BY THE ASSESSEE DURING THE YEAR AN D AS THE ISSUE UNDER DISPUTE IN ITA NO. 2993/AHD./2002 WAS NOT SUBMITTED BEFORE US. WE, THEREFORE, IN THE INTEREST OF JUSTICE AND FAIR PLAY TO BOTH THE PARTIES, SET ASIDE THE ORDER OF THE C.I.T(A) AND RESTORE THIS IS SUE TO THE FILE OF THE A.O. WITH THE DIRECTION THAT THE A.O. SHALL LOOK INTO TH E FACTS OF THE CASE AND COMPARE THE ITEMS IN RESPECT OF WHICH THE EXPENDITU RE HAS BEEN INCURRED BY THE ASSESSEE WITH THE ITEMS WHICH ARE INCLUDED IN T HE TOOLS AND INSTRUMENTS, WHICH HAS BEEN DEBITED TO THE P&L ACCOUNT IN AY 199 8-99. IF THE ITEMS DEBITED BY THE ASSESSEE DURING THE YEAR TO ITS P&L ACCOUNT ARE THE SAME, THE ASSESSEE WILL NOT BE ALLOWED DEDUCTION OF THE E XPENDITURE AS REVENUE EXPENDITURE, BUT TO THE EXTENT THE A.O. FINDS THAT THE ITEMS ARE DIFFERENT AS COMPARED TO THE AY 1998-99 AND ARE CONSUMABLES BEIN G CONSUMED DURING THE MANUFACTURING PROCESS, THE EXPENDITURE INCURRED IN THOSE ITEMS SHOULD BE TREATED AS REVENUE EXPENDITURE AND THE ASSESSEE BE ALLOWED DEDUCTION FOR THE SAME. THUS, THIS GROUND IS ALLOWED FOR STAT ISTICAL PURPOSE. IN VIEW OF THIS, THE LD. COUNSEL OF THE ASSESSEE SU BMITTED THAT FOR THIS YEAR ALSO, THE REASONS FOR MAKING THE ADDITION ARE IDENTICAL. THEREFORE, FOLLO WING THE DECISION OF THE ITAT, B BENCH, AHMEDABAD, CAMP AT BORADA IN ITA NO. 4395/AHD./2007 (SUPRA) IN EARLIER YEARS, THE MATTER BE RESTORED TO THE FILE OF A.O., WHO WILL RE-ADJUDICAT E THIS ADDITION AFRESH AFTER GIVING OPPORTUNITY OF BEING HEARD TO THE ASSESSEE. 4. SHRI C.K. MISHRA, LD. DEPARTMENTAL REPRESENTATIV E COULD NOT CONTROVERT THE AFORESAID SUBMISSION OF THE LD. COUNSEL OF THE ASSESSEE. 5. WE HAVE CAREFULLY GONE THROUGH THE ORDERS OF AUT HORITIES BELOW AND PERUSED THE MATERIAL PLACED ON RECORD. IT IS PERTINENT TO NOTE THAT THE REASONING GIVEN BY A.O. IN MAKING THE IMPUGNED ADDITION IS SAME AS GIVEN IN EARLIER YEARS. IN EARL IER YEARS, THE TRIBUNAL VIDE ORDER DATED 24.09.2008 HAS RESTORED THE MATTER BACK TO THE FILE OF A.O. WE, THEREFORE, FOLLOWING THE DECISION OF TRIBUNAL IN ASSESSEES OWN CASE IN ITA NO. 4395/ AHD./2007 (SUPRA) RESTORE THE ADDITION OF 3 RS.42,53,034/- TO THE FILE OF A.O., WHO WILL RE-ADJ UDICATE THE SAME KEEPING IN VIEW THE DIRECTION OF THE TRIBUNAL IN EARLIER YEARS AFTER GIVING OPPOR TUNITY OF BEING HEARD TO THE ASSESSEE. 6. THE ONLY OTHER GROUND OF APPEAL IS AGAINST DISA LLOWANCE OF DEDUCTION UNDER SECTION 80IA ON INTEREST ON F.D. OF RS.7,33,811/- (RELATE TO LET TER OF CREDIT) AND ALTERNATIVELY NOT CONSIDERING THE NET INTEREST INCOME FOR THE PURPOSE OF CALCULAT ING DISALLOWANCE OF DEDUCTION UNDER SECTION 80IA OF THE INCOME TAX ACT, 1961. 7. BRIEF FACTS RELATING TO CONTROVERSY INVOLVED IN THIS GROUND OF APPEAL ARE THAT ACCORDING TO A.O. INTEREST INCOME OF RS.7,33,811/- DID NOT QUALI FY FOR DEDUCTION BECAUSE IT IS NOT DERIVED FROM MANUFACTURING ACTIVITY OF THE INDUSTRIAL UNDERTAKIN G. THIS WAS CONFIRMED BY THE LEARNED COMMISSIONER OF INCOME TAX(APPEALS) IN THE IMPUGNED ORDER FOLLOWING THE JUDGMENT OF THE HON'BLE SUPREME COURT IN THE CASE OF TUTICORIN & AL KALIES CHEMICALS & FERTILIZERS LTD. (227 ITR 572), WHEREIN IT WAS HELD THAT INTEREST RECEIPT S ON SHORT TERM DEPOSITS IS TAXABLE INCOME UNDER THE HEAD INCOME FROM OTHER SOURCES. THE HON 'BLE MADRAS HIGH COURT FOLLOWING THE AFORESAID DECISION OF THE HON'BLE SUPREME COURT IN THE CASE OF SOUTH INDIA SHIPPING CORPN. (240 ITR 24) HAS HELD THAT INTEREST EARNED FROM SHORT-TE RM BANK DEPOSITS IS NOT THE INCOME FROM BUSINESS BUT INCOME FROM OTHER SOURCES. THE LEARNED COMMISSIONER OF INCOME TAX(APPEALS) ALSO REFERRED THE JUDGMENT OF THE HON'BLE MADRAS HI GH COURT IN THE CASE OF PANDYAN CHEMICALS LTD. (233 ITR 497), WHEREIN THE HON'BLE MADRAS HIGH COURT CONSIDERED THE DEDUCTION UNDER SECTION 80HH (SIMILAR TO THE PROVISIONS OF SECTION 80IA) AND OBSERVED THAT INCOME MUST BE DERIVED FROM ACTUAL CONDUCT OF BUSINESS FOR QUALIFY ING DEDUCTION. THE EXPRESSION DERIVED FROM SHOULD BE GIVEN A RESTRICTED MEANING AND WHENEVER L EGISLATURE WANTS TO GIVE A WIDER MEANING, IT EMPLOYS THE EXPRESSION ATTRIBUTABLE TO. THE LEARN ED COMMISSIONER OF INCOME TAX(APPEALS) ACCORDINGLY UPHELD THE ACTION OF A.O. AGGRIEVED BY THE ORDER OF LEARNED COMMISSIONER OF INCOME TAX(APPEALS), THE ASSESSEE IS IN APPEAL BEFO RE US. 8. AT THE TIME OF HEARING, THE LD. COUNSEL OF THE A SSESSEE SUBMITTED THAT EVEN IF THE INCOME IS ASSESSED UNDER THE HEAD INCOME FROM OTHER SOURCES , IN THAT EVENT ALSO THE ASSESSEE IS ENTITLED TO BENEFIT OF NETTING AS HELD BY THE ITAT, C BENCH, MUMBAI IN THE CASE OF DCIT VS.- DIAMOND CREEK REPORTED IN (2002) 82 ITD 291 (MUM.). THE LD. COUNSEL OF THE ASSESSEE FURTHER ADMITTED THAT ONUS IS SQUARELY ON THE ASSESSEE TO PROVE THAT BORROWED FUNDS WERE USED FOR MAKING INVESTMENT IN FDR FROM WHICH INTEREST INCOME IS REC EIVED. 4 9. SHRI C.K. MISHRA APPEARED FOR THE REVENUE AND SU BMITTED THAT IN THE ASSESSMENT ORDER THE A.O. HAS GIVEN A FINDING THAT MONEY WAS INVESTE D FROM SURPLUS FUND, THEREFORE, NO USEFUL PURPOSE WILL BE SERVED IN SENDING THE MATTER BACK T O THE FILE OF A.O. FOR THE PURPOSE OF GIVING BENEFIT OF NETTING AS CLAIMED FOR THE FIRST TIME BE FORE THE TRIBUNAL. AS AGAINST THIS, THE LD. COUNSEL OF THE ASSESSEE SUBMITTED THAT THE ASSESSEE WAS OF THE BONAFIDE BELIEF THAT ON THE ENTIRE INTEREST INCOME, THE ASSESSEE IS ENTITLED TO DEDUCTION UNDER SECTION 80IA. THEREFORE, THE SAID PLEA WAS NOT TAKEN. WHATEVER FINDING IS GIVEN BY A.O. IN THE ASS ESSMENT ORDER WAS WITHOUT CONFRONTING THE ASSESSEE OR GIVING AN OPPORTUNITY TO THE ASSESSEE, THEREFORE, IN THE INTEREST OF JUSTICE, THE MATTER BE RESTORED TO THE FILE OF A.O. 10. HAVING HEARD BOTH THE SIDES, WE HAVE CAREFULLY GONE THROUGH THE ORDERS OF AUTHORITIES BELOW. IN THE IMPUGNED ORDER, THE LD. LEARNED COMMI SSIONER OF INCOME TAX(APPEALS) IS LEGALLY AND FACTUALLY CORRECT IN HOLDING THAT INTEREST IS N OT DERIVED FROM INDUSTRIAL UNDERTAKING AND THEREFORE, RIGHTLY EXCLUDED FOR THE PURPOSE OF COMP UTING DEDUCTION UNDER SECTION 80IA. EVEN IF THE INTEREST INCOME IS ASSESSED UNDER THE HEAD INC OME FROM OTHER SOURCES, IN THAT EVENT, IF IT IS PROVED BEFORE THE A.O. THAT BORROWED MONEY WAS UTIL IZED FOR MAKING INVESTMENT IN FD ON WHICH INTEREST WAS RECEIVED, THEN INTEREST ON SUCH BORROW INGS SHOULD BE REDUCED FROM THE INTEREST RECEIVED MEANING THEREBY ONLY NET INTEREST SHOULD B E EXCLUDED FOR THE PURPOSE OF ASSESSING UNDER THE HEAD INCOME FROM OTHER SOURCES. FOR THIS PURP OSE, THE MATTER IS RESTORED TO THE FILE OF A.O. WITH THE DIRECTION THAT TO THE EXTENT IT IS PROVED THAT BORROWED FUNDS WAS INVESTED IN BUYING FDRS, THE A.O. WILL ALLOW APPROPRIATE RELIEF TO THE ASSESSEE. NEEDLESS TO ADD THAT ONUS IS ON THE ASSESSEE TO PROVE THAT BORROWED MONEY WAS UTILIZED FOR MAKING THE INVESTMENT IN FDRS. FOR THIS LIMITED PURPOSE, THE MATTER IS RESTORED TO THE FILE OF A.O., WHO WILL RE-COMPUTE THE DEDUCTION UNDER SECTION 80IA AFRESH IN ACCORDANCE WITH LAW. 11. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS PA RTLY ALLOWED. THE ORDER PRONOUNCED IN THE COURT ON 20.11.2009 SD/- SD/- (N.S. SAINI) (T.K. SHARMA) ACCOUNTANT MEMBER JUDICIAL MEMBER DATED : 20 / 11 / 2009 5 COPY OF THE ORDER IS FORWARDED TO : 1) THE ASSESSEE (2) THE DEPARTMENT 3) CIT(A) CONCERNED; (4) CIT CONCERNED, (5) D.R., ITAT, AHMEDABAD. TRUE COPY BY ORDER DEPUTY REGISTRAR, ITAT, AHMEDABAD LAHA/SR.P.S.