M/s Star Tanning Industries, Kanpur V. Dy. Commissioner of Income Tax-I, Kanpur

ITA 303/LKW/2014

• Counselvise Citation: [2015] 120 COUNSELVISE.COM (IT) 9063 (ITAT-LUCKNOW)
• Duration Of Justice: 8 month(s) 22 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 13-01-2015
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: A
• Next Hearing Date: 25-11-2014
• Assessment Year: 2006-2007
• Appeal Filed On: 21-04-2014
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: SECOND APPEAL IS FILED
• Keywords: Principle of natural justice; Bad and doubtful debts; Revenue expenditure; Capital expenditure
• Section: 143(3); 80HHC; 80IB; 37(1)

Judgement Text

1 IN THE INCOME TAX APPELLATE TRIBUNAL LUCKNOW BENCH A, LUCKNOW BEFORE SHRI SUNIL KUMAR YADAV, JUDICIAL MEMBER AND SHRI A.K. GARODIA, ACCOUNTANT MEMBER ITA NO.303/LKW/2014 ASSESSMENT YEAR:2006 - 07 M/S STAR TANNING INDUSTRIES, 19, 150 FT. ROAD, JAJMAU, KANPUR. PAN:AANFS8853Q VS. DY.C.I.T. - 1, KANPUR. (APPELLANT) (RESPONDENT) ITA NO.310/LKW/2014 ASSESSMENT YEAR:2002 - 03 DY.C.I.T. - 1, KANPUR. VS. M/S STAR TANNING INDUSTRIES, 19, 150 FT. ROAD, JAJMAU, KANPUR. PAN:AANFS8853Q (APPELLANT) (RESPONDENT) O R D E R PER A. K. GARODIA, A.M. OUT OF THESE TWO APPEALS, ONE IS FILED BY THE ASSESSEE WHICH IS DIRECTED AGAINST THE ORDER OF CIT(A) - II, DEHRADUN HOLDING CONCURRENT CHARGE OF CIT(A) - II, KANPUR DATED 31/01/2014 FOR ASSESSMENT YEAR 2006 - 07 AND THE SECOND APPEAL IS FILED BY THE REVENUE WHIC H IS DIRECTED AGAINST THE ORDER OF SAME CIT(A) DATED 31/01/2014 FOR ASSESSMENT YEAR 2002 - 03. BOTH THESE APPEALS ASSESSEE BY SHRI PRADEEP SETH, C.A. REVENUE BY SHRI RAJNISH YADAV, D. R. DATE OF HEARING 26/11/2014 DATE OF PRONOUNCEMENT 1 3 /01/2015 2 WERE HEARD TOGETHER AND ARE BEING DISPOSED OF BY WAY OF THIS COMMON ORDER FOR THE SAKE OF CONVENIENCE. 2. FIRST WE TAKE UP THE APPEAL OF THE A SSESSEE I.E. I.T.A. NO.303/LKW/2014 FOR ASSESSMENT YEAR 2006 - 2007. IN THIS APPEAL, THE ASSESSEE HAS RAISED THE FOLLOWING GROUNDS: 1. THAT THE LEARNED C.I.T.(APPEALS) HAS ERRED IN LAW AND ON FACTS IN CONFIRMING THE DISALLOWANCE OF INTEREST OF RS.97,200 / - BY INCORRECTLY APPLYING THE JUDGMENT OF HON'BLE SUPREME COURT IN THE CASE OF S.A. BUILDERS REPORTED IN 288 ITR PAGE 1 TO THE FACTS OF THE ASSESSEE'S CASE AND NOT APPLYING HIS MIND TO THE WRITTEN SUBMISSIONS FILED BEFORE HIM AND THE JUDGMENT OF THE HON'BL E SUPREME COURT IN THE CASE OF MUNJAL SALES CORPORATION VS. C.I.T. AND ANOTHER REPORTED IN 2008 (12) MTC (10) (SC) AND THAT OF JURISDICTIONAL HIGH COURT IN THE CASE OF C.I.T. V S . PREM HEAVY ENGINEERING WORKS PVT. LTD. REPORTED IN 285 ITR PAGE 554 RELIED UP ON BY THE ASSESSEE IN THE AFORESAID WRITTEN SUBMISSIONS. 2. T HAT THE LEARNED C.I.T.(APPEALS) HAS FURTHER ERRED IN LAW AND ON FACTS IN CONFIRMING THE ABOVE ADDITION WITHOUT ANY MATERIAL ON RECORD TO SHOW THAT THERE WAS A NEXUS BETWEEN THE BORROWING OF FUNDS ON INTEREST AND ADVANCEMENT OF THE SAME AS LOAN TO MOHD. SAIF FREE OF INTEREST. 3. THAT THE LEARNED C.I.T.(APPEALS) HAS FURTHER ERRED IN LAW AND ON FACTS IN IGNORING THAT THE MATERIAL ON RECORD CLEARLY SHOWED THAT INTEREST FREE ADVANCES WERE MADE IN THE YEARS WHEN NO INTEREST WAS PAID ON ANY LOAN AND THAT THE ASSESSEE HAD SUFFICIENT FUNDS OF ITS OWN. 4. THAT THE LEARNED C.I.T.(APPEALS) HAS FURTHER ERRED IN LAW AND ON FACTS IN CONFIRMING THE DISALLOWANCE OF PAYMENT FOR ELECTRICITY & POWER AMOUNTING T O RS.8,04,720/ - DETERMINED ON THE BASIS OF THE ASSESSMENT 'ORDER PASSED U/S 126 OF ELECTRICITY ACT 2003 WITHOUT PROPERLY APPLYING HIS MIND TO THE 3 WRITTEN SUBMISSIONS FILED BEFORE HIM AND REPRODUCED IN THE APPELLATE ORDER AND TO THE VARIOUS JUDI CIAL PRONOUNCEMENTS AND PROVISIONS OF ELECTRICITY ACT 2003 RELIED UPON BY THE ASSESSEE IN THE SAID WRITTEN SUBMISSIONS. 5. THAT THE LEARNED C.IT.(APPEALS) HAS FURTHER ERRED IN LAW AND ON FACTS IN CONFIRMING THE DISALLOWANCE ON TOTALLY ERRONEOUS GROUND THA T THE APPELLANT WAS CAUGHT USING ELECTRICITY WITHOUT PAYING FOR IT AND TO HAVE BEEN UNDULY INFLUENCED BY THE WORD 'THEFT' USED BY THE OFFICER OF THE ELECTRICITY DEPARTMENT IN THEIR REPORT WHILE CLEARLY HOLDING IN THE SAID REPORT THAT THE ASSESSMENT ORDER W AS PASSED U/S 126 OF THE ELECTRICITY ACT WHICH APPLIED TO PAYMENT FOR ELECTRICITY AT A HIGHER RATE THAN THE NORMAL AS PER FORMULA PROVIDED IN THE SAID SECTION 126 OF THE ELECTRICITY ACT AND THAT PAYMENT WAS NOT FOR ANY INFRACTION OF LAW BUT FOR THE USE OF ELECTRICITY AT A HIGHER RATE. 6. THAT THE APPELLATE ORDER IS ARBITRARY, UNJUST, EXCESSIVE, BAD IN LAW AND AGAINST THE PRINCIPLES OF NATURAL JUSTICE. 3. REGARDING GROUND NO. 1 TO 3 IN RESPECT OF DISALLOWANCE OF INTEREST OF RS.97,200/ - , IT WAS SUBMITTED BY LEARNED A.R. OF THE ASSESSEE THAT AS PER THE ASSESSING OFFICER, INTEREST FREE ADVANCE GIVEN BY THE ASSESSEE IS OF RS.8.10 LAC S ONLY WHEREAS THE ASSESSEE FIRM IS HAVING PARTNERS CAPITAL ACCOUNT OF RS.20.43 LAC S AS PER BALANCE SHEET OF THE PARTNERSHIP FIRM. HE FURTHER POINTED OUT THAT AS PER SCHEDULE - 1 OF THE BALANCE SHEET, IT IS SEEN THAT THE FIXED CAPITAL WAS RS.2 LAC S AND CURRENT ACCOUNT WAS HAVING CRED IT BALANCE OF RS.18.43 LAC S . HE FURTHER SUBMITTED THAT AS PER THE TRADING AND PROFIT & LOSS ACCOUNT OF THE FIRM AS ON 31/03/2006, INTEREST OF RS. 0. 24 LAC WAS PAID TO PARTNER S IN RESPECT OF FIXED CAPITAL AND NO INTEREST WAS PAID TO PARTNER S FOR THEIR BALA NCE IN CURRENT ACCOUNT. HE SUBMITTED THAT IT HAS TO BE ACCEPTED THAT INTEREST FREE FUND OF RS.18.43 LAC S WAS AVAILABLE WITH THE ASSESSEE FIRM AND THEREFORE, AS PER THE JUDGMENT OF HON'BLE ALLAHABAD HIGH COURT RENDERED IN THE CASE OF CIT VS. 4 RADICO KHAITAN LTD. 274 ITR 354, IF INTEREST FREE FUNDS ARE SUFFICIENT FOR GIVING INTEREST FREE ADVANCE, NO DISALLOWANCE OF INTEREST CAN BE MADE. RESPECTFULLY, FOLLOWING THIS JUDGMENT, WE DELETE THE DISALLOWANCE MADE BY THE ASSESSING OFFICER BECAUSE IN THE PRESENT CASE , INTEREST FREE FUND AVAILABLE WITH THE ASSESSEE FIRM WAS SUFFICIENT TO COVER THE INTEREST FREE ADVANCES GIVEN BY THE ASSESSEE. GROUND NO. 1 TO 3 ARE ALLOWED. 4. REGARDING GROUND NO. 4 & 5, LEARNED A.R. OF THE ASSESSEE REITERATED THE SAME ARGUMENTS, WHIC H WERE RAISED BEFORE CIT(A) . LEARNED D.R. OF THE REVENUE SUPPORTED THE ORDER OF CIT(A). 5. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS. WE FIND THAT AS PER THE COPY OF BILL ISSUED BY KANPUR ELECTRICITY SUPPLY COMPANY LTD., APPEARING ON PAGE NO. 58, THE BILLS IS FOR RS.8,91,133/ - IN RESPECT OF EXTRA CONSUMPTION OF ELECTRICITY DETECTED AND THEREFORE , THIS IS NOT A PENALTY, WHICH CAN BE DISALLOWED BY INVOKING EXPLANATION TO SECTION 37(1) OF THE ACT. OUT OF THIS AMOUNT OF RS.8,91,133/ - , AS PER DETECTION ON 18/05/2006, RS.86,412/ - HAS BEEN CONSIDERED AS RELATABLE TO ASSESSMENT YEAR 2006 - 07 AND BALANCE AMOUNT OF RS.8,04,720/ - WAS CONSIDERED AS RELATABLE TO THE PRESENT YEAR. CONSIDERING THESE FACTS, WE ARE OF THE CONSIDERED OPINION THAT THE AMOUNT DEBITED BY THE ASSESSEE IS ALLOWABLE BECAUSE IN THE FACTS OF THE PRESENT CASE, IT CANNOT BE SAID THAT IT IS A PENALTY. THEREFORE, WE DELETE THE DISALLOWANCE. ACCORDINGLY, GROUND NO. 4 & 5 ARE ALSO ALLOWED. 6. IN THE RESULT, THE APPEAL OF THE ASSESSEE STANDS ALLOWED. 7. NOW WE TAKE UP THE REVENUES APPEAL I.E. I.T.A. NO.310/LKW/2014 FOR ASSESSMENT YEAR 2002 - 03. IN THIS APPEAL, THE REVENUE HAS RAISED THE FOLLOWING GROUNDS: 1. LD. COMMISSIONER OF INCOME TAX (APPEAL) - II, KANPUR HAS ERRED IN LAW AND ON FACTS IN DELETING THE ADDITION OF 5 RS.3,88,211/ - MADE BY THE ASSESSING OFFICER BY DISALLOWING THE ASSESSEE'S CLAIM OF DEDUCTION U/S 80IB OF I.T.ACT,1961, WITHOUT APPRECIATING THE FACT THAT THE ASSESSEE IS NOT ENGAGED IN MANUFACTURING ACTIVITIES. THE MAIN BUSINESS OF THE ASSESSEE IS JOB WORK HENCE IT IS NOT ENTITLED FOR DEDUCTION U/S 80IB. 2. LD. COMMISSIONER OF INCOME TAX (APPEAL) - II, KANPUR HAS ERRED IN LAW AND ON FACTS IN DELETING THE ADDITION OF RS.3,88,211/ - WITHOUT APPRECIATING THE FACT THAT THE REQUISITE FORM NO. 10CCB WAS ALSO NOT ENCLOSED WITH THE AUDIT REPORT. THE ASSESSEE EVEN FAILED TO PRODUCE THE SAME DURING THE COURSE OF ASSESSMENT PROCEEDINGS. 3. LD. COMMISSIONER OF INCOME TAX (APPEAL) - II, KANPUR HAS ERRED IN LAW AND ON FACTS IN DELETING THE ADDITION OF RS.94,798/ - MADE BY THE ASSESSING OFFICER ON ACCOUNT OF CAPITAL EXPENDITURE, WITHOUT APPRECIATING THE FACT THAT THE ASSESSEE FAILED TO SUBSTANTIATE TRANSFER OF CAPITAL EXPENDITURE INTO REVENUE EXPENDITURE. THE EXPENDITURE WAS MADE FOR THE RENOVATION OF BUILDING. HENCE, THE SAME IS LIABLE TO BE TREATED AS CAPITAL EXPENDITURE. 4. LD. COMMISSIONER OF IN COME TAX (APPEAL) - II, KANPUR HAS ERRED IN LAW AND ON FACTS IN DELETING THE ADDITION OF RS.2,19,406/ - MADE BY THE ASSESSING OFFICER ON ACCOUNT OF BAD DEBTS, WITHOUT APPRECIATING THE FACT THAT THE ASSESSEE COULD NOT PRODUCE ANY PROOF TO THE EFFECT THAT HE HA S MADE EFFORTS FOR COLLECTING THE AMOUNTS RECOVERABLE FROM THE DEBTORS. HENCE, DISALLOWANCE OF THE BAD DEBTS HAS RIGHTLY BEEN MADE BY THE A.O. 5. LD. COMMISSIONER OF INCOME TAX (APPEAL) - II, KANPUR HAS ERRED IN LAW AND ON FACTS IN DELETING THE ADDITION OF RS.2,11,573/ - , MADE BY THE ASSESSING OFFICER ON ACCOUNT OF FOREIGN TRAVEL EXPENSES WITHOUT APPRECIATING THE FACT THAT THE ASSESSEE COULD NOT SUBSTANTIATE THE EXPENDITURE ON FOREIGN TRAVEL. 6. THE ORDER OF THE LD. COMMISSIONER OF INCOME TAX(APPEAL) - II, KAN PUR DATED 31.01.2014 BE QUASHED AND THE ORDER DATED 30.03.2006 PASSED UNDER SECTION 143(3) OF INCOME TAX ACT, 1961 BY THE ASSESSING OFFICER BE RESTORED. 6 8. LEARNED D. R. OF THE REVENUE SUPPORTED THE ASSESSMENT ORDER WHEREAS LEARNED A. R. OF THE ASSESSEE SUPPORTED THE ORDER OF LEARNED CIT(A). LEARNED A.R. OF THE ASSESSEE ALSO PLACED RELIANCE ON THE JUDGMENT OF HON'BLE PUNJAB & HARYANA RENDERED IN THE CASE OF CIT VS. IMPEL FORGE AND ALLIED INDUSTRIES LTD. [2010] 326 ITR 27 (P&H) . HE SUBMITTED THAT IN THIS CASE, IT WAS HELD THAT EVEN IN RESPECT OF JOB WORK INCOME, DEDUCTION U/S 80IB IS ALLOWABLE. REGARDING THE JUDGMENT OF HON'BLE APEX COURT RENDERED IN THE CAS E OF CIT VS. K. RAVINDRANATHAN NAIR [2007] 295 ITR 228 (SC), IT WAS SUBMITTED THAT THIS JUDGMENT IS IN RESPECT OF DEDUCTION U/S 80HHC AND NOT U/S 80IB AND THEREFORE, NOT APPLICABLE. 9. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS. IN GROUND NO. 1 & 2, ONLY O NE ISSUE IS INVOLVED AS TO WHETHER THE ASSESSEE IS ELIGIBLE FOR DEDUCTION U/S 80IB, WHICH WAS DISALLOWED BY THE ASSESSING OFFICER TO THE EXTENT OF RS.38,200/ - ON THE BASIS THAT THE ASSESSEE IS ENGAGED IN THE JOB WORK. IN THE CASE OF CIT VS. IMPEL FORGE AN D ALLIED INDUSTRIES LTD. (SUPRA), IT WAS HELD THAT THE ASSESSEE IS ELIGIBLE FOR DEDUCTION U/S 80IB IN RESPECT OF OWN MANUFACTURING A S WELL AS FOR JOB WORK DONE FOR OTHERS. RESPECTFULLY FOLLOWING THIS JUDGMENT, WE DECLINE TO INTERFERE IN THE ORDER OF CIT(A ). ACCORDINGLY, GROUND NO. 1 & 2 ARE REJECTED. 10. REGARDING GROUND NO. 3, AS PER THE SUPPORTING VOUCHERS IN RESPECT OF BUILDING MATERIAL OF RS. 94,798/ - APPEARING ON PAGES 61 TO 74 OF THE PAPER BOOK, WE FIND THAT THESE ARE SMALL EXPENSES IN RESPECT OF PURCHASE OF BRICKS, CEMENT AND SAND ETC. AND LABOUR CHARGES FOR CARRYING OUT BUILDING REPAIRING WORK AND THEREFORE, ON THIS ISSUE ALSO , WE DO NOT FIND ANY REASON TO INTERFERE IN THE ORDER OF CIT(A). GROUND NO. 3 IS ALSO REJECTED. 11. REGARDING GROUND NO. 4, WE FIND THAT IT IS NOT THE CASE OF THE ASSESSING OFFICER THAT THE BAD DEBTS WERE NOT WRITTEN OFF AND THEREFORE, AS PER THE 7 JUDGMENT OF HON'BLE APEX COURT IN THE CASE OF TRF LTD. (SUPRA), BAD DEBT IS ALLOWABLE ON WRITING OFF AND IT IS NOT REQUIRED TO EXPECT THE ASSESSEE TO ESTABLISH THAT THE DEBTS HAVE ACTUALLY BECOME BAD. RESPECTFULLY FOLLOWING THIS JUDGMENT OF HON'BLE APEX COURT, WE DECLINE TO INTERFERE IN THE ORDER OF CIT(A). GROUND NO. 4 IS ALSO REJECTED. 12. REGARDING GROUND N O. 5, WE FIND THAT IT WAS THE SUBMISSION OF THE ASSESSEE BEFORE CIT(A) THAT THE TRAVELLING EXPENSES CLAIMED ARE IN RESPECT OF DOMESTIC TRAVELLING FOR BUSINESS PURPOSE AND NOT FOR FOREIGN TRAVELLING. THE DISALLOWANCE MADE BY THE ASSESSING OFFICER IS ON THE BASIS THAT THE AMOUNT OF RS.2,11,533/ - IS FOR FOREIGN TRAVELLING. THE DETAILS OF TRAVELLING EXPENSES IS APPEARING ON PAGES 106 & 107 OF THE PAPER BOOK FOR RS.2,11,533/ - AND IT INCLUDES VARIOUS SMALL TRIPS OF AGRA, DELHI, BOMBAY ETC. AND THERE IS NO EXPEN SE ON ACCOUNT OF FOREIGN TRAVELLING. HENCE, THE VERY BASIS ADOPTED BY THE ASSESSING OFFICER FOR MAKING DISALLOWANCE IS NOT CORRECT AND CONSIDERING ALL THESE FACTS, WE DECLINE TO INTERFERE IN THE ORDER OF CIT(A). GROUND NO. 5 IS ALSO REJECTED. 13. GROUND NO. 6 & 7 ARE GENERAL IN NATURE AND DO NOT REQUIRE ANY SEPARATE ADJUDICATION. 14. IN THE RESULT, THE APPEAL OF THE REVENUE STANDS DISMISSED. 15. IN THE COMBINED RESULT, THE APPEAL OF THE ASSESSEE IS ALLOWED AND THE APPEAL OF THE REVENUE IS DISMISSED. ( ORDER WAS PRONOUNCED IN THE OPEN COURT ON THE DATE MENTIONED ON THE CAPTION PAGE) SD/. SD/. (SUNIL KUMAR YADAV) ( A. K. GARODIA ) JUDICIAL MEMBER ACCOUNTANT MEMBER DATED: 1 3 /01/2015 *C.L.SINGH COPY OF THE ORDER FORWARDED TO : 1. THE APPELLANT 2. THE RESPONDENT. 3. CONCERNED CIT 4. THE CIT(A) 5. D.R., I.T.A.T., LUCKNOW ASSTT. REGISTRAR