DCIT, Nainital V. M/s. Panchachuli Women Weavers Ltd, Almora

ITA 3020/DEL/2009

• Counselvise Citation: [2010] 136 COUNSELVISE.COM (IT) 3896 (ITAT-DELHI)
• Duration Of Justice: 11 month(s) 5 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 04-06-2010
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: F
• Next Hearing Date: 25-05-2010
• Assessment Year: 2006-2007
• Appeal Filed On: 29-06-2009
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: MEENAKSHI J GOSWAMI
• Keywords: Gift; Depreciation; Fair market value; Capital receipt
• Section: 143(3); 12AA; 56; 12; 11

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH F DELHI BEFORE SHRI A.D. JAIN AND SHRI K.G. BANSAL ITA NO. 3020(DEL)/2009 ASSESSMENT YEAR: 2006-07 DEPUTY COMMISSIONER OF INCOME M/S PANC HACHULI WOMEN WEAVERS TAX, GOLGHAR, BARA BAZAR, VS. LTD. , PATALDEVI, ALMORA, MALLITAL, NAINITAL. (UTTRAKHAND) (APPELLANT) (RESPONDENT) APPELLANT BY : SMT. MEENAKSHI J. GOSWAMI, SR. DR RESPONDENT BY: NO NE AMICUS-CURIE : SH RI AJAY VOHRA ORDER PER K.G. BANSAL : AM THIS APPEAL OF THE REVENUE EMANATES FROM THE ORDER OF THE CIT(APPEALS)-II, DEHRADUN, PASSED ON 17.3.2009 I N APPEAL NO. 99/NTL/2008-09, PERTAINING TO ASSESSMENT YEAR 2006-07. THE ASSESSMENT ORDER FOR THIS YEAR WAS PASSED BY THE DEPUTY COMMISSIONER OF INCOME-TAX, NAINITAL (HEREINAFTER CALLED THE AO) ON 18.12.2008 UNDER THE PROVISION CONTAINED IN SECTION 143(3) OF T HE INCOME-TAX ACT, 1961. THE REVENUE HAS TAKEN TWO GROUNDS IN THE APP EAL, THE SUM AND SUBSTANCE OF WHICH IS THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT(A) ERRED IN DELET ING THE ADDITION OF RS. 14,31,543/-, MADE BY THE AO ON ACCOUNT OF PROFI T DETERMINED OUT OF ITA NO. 3020(DEL)/2009 2 GRANT REC.EIVED FROM JAN JAGRAN SAMITI (THE J JS FOR SHORT) IN THE FORM OF RAW-MATERIAL WHILE NO EXPENDITURE HAD BEEN INCURRED IN RESPECT OF THE SAME. IT IS MENTIONED THAT HE ERRED IN HOLDIN G THAT NO MATERIAL HAS BEEN BROUGHT ON RECORD TO DISPROVE THE RECEIPT OF R AW-MATERIAL AND FINISHED GOODS FROM JJS WHILE THE FINDING OF THE AO IS THAT NO EXPENDITURE HAS BEEN INCURRED SINCE THE MATERIAL HAS BEEN REC EIVED AS DONATION. 2. IN ORDER TO APPRECIATE THE CONTROVERSY, IT IS PROFITABLE TO NARRATE BACKGROUND FACTS. THE ASSESSEE IS A COMPANY I NCORPORATED ON 7.10.2005 U/S 25 OF THE COMPANIES ACT, 1956. IT STARTED ITS BUSINESS ACTIVITIES FROM 01.01.2006 WITH CAPITAL OF RS. 7,000/- PAID BY JJS, A SOCIETY REGISTERED U/S 12AA OF THE ACT. THE ASSESSEE-COMPANY WAS REFUSED REGISTRATION U/S 12AA BY THE COMMISSIONER OF INCOME-TAX, HALDWA NI. 2.1 DURING THIS YEAR THE ASSESSEE RECEIVED MACHINERY AND PLANT, BUILDING, RAW-MATERIAL, CASH AT BANK ETC. FROM JJS OSTENSIBLY AS CONTRIBUTION TOWARDS CORPUS FUND. THE DETAILS O F THE CONTRIBUTION ARE AS UNDER:- BUILDING RS. 13,21,431/- BUILDING WIP RS. 6,58,148/- LOOM CHARKHA RS. 90,380/- STOCK IN HAND RS. 59,61,527/- CASH AT BANK RS. 7,80,028/- TOTAL RS. 88,11,515/ - ITA NO. 3020(DEL)/2009 3 2.2 THE AO NOTED THAT THE CONTRIBUTION INTER-ALIA CONSISTED OF RAW- MATERIAL AND FINISHED GOODS OF THE VALUE OF RS. 5 9,61,527/- FOR WHICH NO COST WAS INCURRED BY THE ASSESSEE. THERE IS NO EVIDENCE THAT THIS GRANT WAS TOWARDS THE CORPUS FUND OF THE ASSESSEE. IN VIEW THEREOF, SHE RE-CAST THE MANUFACTURING AND TRADING ACCOUNT AND HELD T HAT AN AMOUNT OF RS. 11,27,154/- IS FURTHER INCLUDIBLE IN THE TOTAL INCOME. 3. AGGRIEVED BY THIS ORDER, THE ASSESSEE MOVED A N APPEAL BEFORE THE LD. CIT(APPEALS). HE DELETED THE ADDITION BY RETURNING A FINDING THAT THE AO HAS GIVEN DIFFERENTIAL TREATMENT TO THE A MOUNT BROUGHT TO TAX AND OTHER AMOUNTS NOT BROUGHT TO TAX, FOR WHICH THER E IS NO JUSTIFIABLE REASON. FOR THE SAKE OF READY REFERENCE, REL EVANT PORTION OF HIS ORDER FROM PARAGRAPH 5.4 AND 5.5 ARE REPRODUCED BEL OW:- 5.4 I HAVE CONSIDERED THE ABOVE SUBMISSIONS OF T HE LD. COUNSEL OF THE APPELLANT AND THE FACTS STATED IN THE ASSESSMENT ORDER BY THE AO. IT IS OBSERVED THA T THE APPELLANT COMPANY RECEIVED BY WAY OF DONATIONS FROM JAN JA GRAN SAMITI TOWARDS PLANT AND MACHINERY, BUILDING, RAW -MATERIALS AND CASH AT BANK AGGREGATING TO RS. 88,11,515/-. THESE DONATIONS COMPRISED OF CONTRIBUTION AS RAW MAT ERIALS AND FINISHED GOODS AMOUNTING TO RS. 59,61,527/-. THE AO HAS ACCEPTED THAT THE FIXED ASSETS AND CASH AT BANK TRANSFERRED WERE OF THE NATURE OF CORPUS FUND BUT DENIED SUC H BENEFIT ON ACCOUNT OF CONTRIBUTION AS RAW MATERIALS AND FI NISHED GOODS AMOUNTING TO RS. 59,61,527/-. THE LD. COUNSEL O F THE APPELLANT HAS ARGUED THAT THE LD. AO INTERPRETE D RESOLUTION OF THE DONOR SOCIETY THAT THE CONTRIBUTIONS MAD E BY THE SOCIETY ITA NO. 3020(DEL)/2009 4 TO THE APPELLANT COMPANY DID NOT CONSTITUTE CORPU S FUND. HOWEVER, THE LD. AO FAILED TO DISTINGUISH THAT IF THE RESOLUTION OF THE SAID JAN JAGRAN SAMITI WAS TO BE INTERPRETED ACCORDINGLY, THEN WHY THE AMOUNT OF RAW MATERIALS AND FINISHED GOODS WERE ALONE TAKE N AS INCOME AND WHY CONTRIBUTION TOWARDS FIXED ASSETS A ND CASH AT BANK WERE SPARED TO BE INCLUDED IN INCOME AND WHY DEPRECIATION ON FIXED ASSETS HAS BEEN ALLOWED? FURTHER, IT WAS NOWHERE MENTIONED IN THE JJS RESOLUTION THA T IT WAS NOT A CORPUS CONTRIBUTION. IT IS PERTINENT TO NOT E THAT ALL THE ASSETS VIZ., BUILDING, PLANT AND MACHINERY, RAW M ATERIALS, FINISHED GOODS AND CASH AT BANK WERE TRANSFERRED ON SAME DAY I.E. 31.12.2005 AS A CONSOLIDATED CONTRIBUT ION TOWARDS THE CORPUS OF THE COMPANY AND, THEREFORE, SEGREGAT ING THE CONTRIBUTION INTO TWO PARTS, AS CORPUS FUND AN D DONATION, IS INCORRECT AND UNLAWFUL. FURTHER, A COPY OF LETTER OBTAINED FROM JJS WILL MAKE THE ISSUE CLEAR THAT THE SAMI TI WAS TO TRANSFER THE ASSETS AS CORPUS FUND AS A WHOLE. SO, IT HAS BEEN REQUESTED THAT THE ADDITION MADE IN THI S REGARD SHOULD BE DELETED. 5.5 AFTER LOOKING INTO THE ABOVE SUBMISSIONS OF T HE COUNSEL OF THE APPELLANT, IT APPEARS THAT THE AO HAS EXCLUDED THE PURPORTED DONATIONS OF RAW-MATERIALS AND FINIS HED GOODS AS A PART OF CORPUS DONATION AND HAS ACCORDINGLY RE-C AST THE TRADING AND P & L ACCOUNT AND DEDUCED THE NOTI ONAL PROFIT OF RS. 11,27,154/- WHICH HAS BEEN ADDED TO THE TOTAL INCOME. HOWEVER, THE APPROACH OF THE AO HAS BEEN DISCRIMIN ATORY AND NO MATERIALS HAVE BEEN BROUGHT ON RECORD TO DI SPROVE THE RECEIPT OF RAW MATERIALS AND FINISHED GOODS FRO M JJS. SINCE NO ADVERSE MATERIALS HAVE BEEN GATHERED IN THI S RESPECT, THE DISALLOWANCE OF SUCH EXPENDITURE ON ACCOUNT OF RAW MATERIALS AND FINISHED GOODS AND THE CONSEQUENTI AL DETERMINATION OF THE PROFIT AT RS. 11,27,154/- CA NNOT BE UPHELD AND THE AO IS HEREBY DIRECTED TO DELETE SUCH ADDITION. 3.1 AGGRIEVED BY THIS ORDER, THE REVENUE IS IN A PPEAL BEFORE US. ITA NO. 3020(DEL)/2009 5 4. BEFORE US, THE LD. DR SUBMITS THAT THE ASSE SSEE RECEIVED ASSETS FROM THE JJS AS DONATION FOR WHICH THERE WAS NO COST INCURRED BY IT. HE DRAWS OUR ATTENTION TO PAGES 3, 4 AND 5 OF THE ASSESSMENT ORDER. ON THE BASIS OF FINDING GIVEN THEREIN, IT IS ARGUE D THAT THE GRANT CONSISTS OF CAPITAL CONTRIBUTION AND REVENUE CONTRIBUTION. T HE REVENUE CONTRIBUTION HAS RIGHTLY BEEN BROUGHT TO TAX BY THE AO. FU RTHER, HE DRAWS OUR ATTENTION TO THE ORDER OF THE LD. CIT(APPEALS) AND SUBMITS THAT HIS FINDING REGARDING CORPUS DONATION IS INCORRECT . IT IS ARGUED THAT SINCE THE RAW-MATERIAL WAS RECEIVED FREE OF COST, ITS VALUE CANNOT BE CHARGED TO PROFIT AND LOSS ACCOUNT. 4.1 NONE ATTENDED ON BEHALF OF THE ASSESSEE ON THE DATE OF HEARING, BUT WRITTEN SUBMISSIONS WERE FILED AND IT WAS MENTIONED THAT THE APPEAL MAY BE DECIDED ON THE BASIS OF THE SUBMISSIONS. TH ESE SUBMISSIONS HAVE BEEN CONSIDERED BY THE LD. CIT(A) IN THE IMPUGNED ORDER. 4.2 IN THE COURSE OF HEARING, THE LD. DR WAS REQUESTED TO EXPLAIN AS TO HOW A GIFT FROM JJS TO THE ASSESSEE COULD BE CHARGED TO TAX. IT IS SUBMITTED THAT NO SUCH CASE HAS BEEN MADE OUT BY THE ASSESSEE BEFORE ANY ITA NO. 3020(DEL)/2009 6 OF THE LOWER AUTHORITIES OR IN THE WRITTEN SU BMISSIONS FILED BEFORE THE TRIBUNAL. 5. WE HAVE CONSIDERED THE FACTS OF THE CASE AND SUBMISSIONS MADE BEFORE US. THE ADMITTED FACTS ARE THAT THE ASSESSEE-COMPANY IS NOT REGISTERED U/S 12AA OF THE ACT. IN THE YEAR UND ER CONSIDERATION, IT RECEIVED ASSETS FROM THE JJS, VALUED AT RS. 88,11,515/-. THE QUESTION IS- WHETHER, ANY PART THEREOF IS LIABLE TO B E TAXED IN THE HANDS OF THE ASSESSEE? IT HAS BEEN MENTIONED EARLIER THAT T HE ASSESSEE IS NOT REGISTERED U/S 12AA. THE NECESSARY CONSEQUENCE THEREOF IS THAT EXEMPTION UNDER SECTIONS 11 AND 12 ARE NOT ADMISSIBLE TO THE ASSESSEE. IN OTHER WORDS, IT HAS TO BE ASSESSED ON ITS INCOME AS ANY OTHER COMPANY. IN THE YEAR UNDER CONSIDERATION, IT RECEIVED ASSETS OF THE VALUE OF ABOUT RS. 88.00 LAKH FROM THE JJS OSTENSIBLY TOWARDS CORPUS FUND. SINCE THE ASSESSEE IS NOT ENTITLED TO EXEMPTION UNDER SECTIONS 1 1 AND 12, THE CONCEPT OF CORPUS DONATION AND ITS EXEMPTION ARE NOT APPL ICABLE TO IT. THEREFORE, THE ASSETS RECEIVED FROM THE JJS CONSTITUTE GIFT SIMPLICITER. IN THIS CONTEXT, THE PROVISION CONTAINED IN SECTION 56 (V) WAS DISCUSSED WITH THE LD. DR. THIS PROVISION BRINGS TO TAX ANY SUM OF MONEY EXCEEDING TWENTY FIVE THOUSAND RUPEES RECEIVED WITHOUT CON SIDERATION BY AN ITA NO. 3020(DEL)/2009 7 INDIVIDUAL OR A HINDU UNDIVIDED FAMILY FROM A NY PERSON ON OR AFTER 1.9.2004 BUT BEFORE 1 ST DAY OF APRIL, 2006. AFTER DISCUSSION, IT IS FO UND THAT THE GIFT RECEIVED BY THE ASSESSEE DOES NO T CONSTITUTE INCOME UNDER THE AFORESAID PROVISION FOR THE REASONS THAT TH E AMOUNT TAXED BY THE AO IS NOT A GIFT IN TERMS OF MONEY AND THAT THE ASSESSEE IS A COMPANY AND NOT AN INDIVIDUAL OR A HINDU UNDIVIDED FAMILY. AT TH IS STAGE, SHRI AJAY VOHRA, ADVOCATE, WAS REQUESTED TO EXPLAIN THE P OSITION OF LAW IN SUCH A CASE AND HE ACCEPTED TO ACT AS AMICUS-CURIE FO R THIS PURPOSE. IT HAS BEEN EXPLAINED BY HIM THAT A GIFT RECEIVED BY ANY P ERSON BECOMES A PROPERTY OF PERSONAL NATURE. IF SUCH PROPERTY IS BROUGH T INTO THE BUSINESS AS STOCK-IN-TRADE, THE ASSESSEE WILL BE ENTITLED T O ENTER THE SAME IN THE ACCOUNTS AT THE FAIR MARKET VALUE ON THAT DATE . HAVING CONSIDERED THE AFORESAID EXPLANATION, WITH WHICH WE AGREE, IT IS CLEAR THAT (I) THE GIFT IS NOT TAXABLE AS IT IS A CAPITAL RECEIPT, (II ) IF ANY PORTION THEREOF IS BROUGHT INTO BUSINESS, THE ASSESSEE CAN ADOPT THE VALUE OF THE GOODS ON THAT DATE IN ITS BOOKS OF ACCOUNT. THE RESULT OF THIS DISCUSSION IS THAT THE ASSESSEE COULD CLAIM THE COST OF RAW-MATERIAL I N THE PROFIT AND LOSS ACCOUNT ON THE BASIS OF ITS FAIR MARKET VALUE ON THE DATE OF RECEIPT THEREOF. WE ARE NOT AWARE OF THE BASIS ON WHICH THE AS SETS WERE VALUED AT THE TIME OF DONATION. HOWEVER, IT APPEARS REASONA BLY CERTAIN THAT THESE ITA NO. 3020(DEL)/2009 8 ASSETS WERE DONATED TO THE ASSESSEE AND THEY HAV E BEEN ENTERED IN ITS BOOKS OF ACCOUNT AS PER THE VALUES IN THE DONO RS BOOKS. IN ABSENCE OF ANY FINDING OR ARGUMENT IN REGARD TO THE FAIR MARKET VALUE, WE DEEM IT FIT TO VALUE THE RAW-MATERIAL ON THE BASIS OF T HE ACCOUNTS OF THE ASSESSEE, WHICH IN ANY CASE HAS NOT BEEN DISPUTED BY THE A O. 5.1 THE LD. DR ALSO ARGUED THAT THE ASSESSEE NEVER RAISED THE PLEA OF GIFT AND ITS NON-TAXABILITY U/S 56(V) OF THE A CT. IN THIS CONNECTION, IT MAY BE MENTIONED THAT THE RESPONDENT CAN RAISE ANY PLEA OR GROUND IN THE COURSE OF THE ARGUMENTS BEFORE US SO HOWEVER TH AT THE LIABILITY FIXED AS PER THE ORDER OF LD. CIT(APPEALS) IS NOT REDUCED. FOR THIS PURPOSE, WE PLACE RELIANCE ON THE DECISION OF HONBLE BO MBAY HIGH COURT IN THE CASE OF B.R.BAMSI VS. CIT (1972) 83 ITR 223. O THERWISE ALSO, IT IS THE DUTY OF THE TRIBUNAL TO DECIDE AN APPEAL ON CO RRECT INTERPRETATION OF FACTS AND LAW, MORE SO WHEN NO NEW FACT IS REQUIRED T O BE DISCOVERED. THE DECISION ARRIVED AT BY US FOLLOWS FAIRLY FROM T HE FACTS ON RECORD. CONSEQUENTLY, IT IS HELD THAT THE LD. CIT(APPEALS) WAS RIGHT IN DELETING THE ADDITION MADE BY THE AO ALBEIT FOR DIFFERENT REAS ONS. ITA NO. 3020(DEL)/2009 9 5.2 BEFORE PARTING, WE PLACE ON RECORD OUR AP PRECIATION OF THE ASSISTANCE RENDERED BY SHRI AJAY VOHRA IN APPRE CIATING THE POSITION OF LAW IN RESPECT OF VALUATION OF STOCK-IN-TRADE RE CEIVED AS GIFT. 6. IN THE RESULT, THE APPEAL IS DISMISSED. THIS ORDER WAS PRONOUNCED IN THE OPEN COURT ON 4 TH JUNE, 2010. SD/- SD/- (A.D. JAIN) (K.G.BANSAL) JUDICIAL MEMBER ACCOUNTANT MEMBER DATE OF ORDER: 4TH JUNE, 2010. SP SATIA COPY OF THE ORDER FORWARDED TO:- 1. M/S PANCHACHULI WOMEN WEAVERS LTD., ALMORA. 2. DY. CIT, NAINITAL. 3. CIT(A) 4. CIT 5. THE DR, ITAT, NEW DELHI. ASSISTANT REGISTRAR.