MARDIA EXTRUSION LTD, MUMBAI V. ITO 4(2)(4), MUMBAI

ITA 304/MUM/2011

• Counselvise Citation: [2013] 120 COUNSELVISE.COM (IT) 3635 (ITAT-MUMBAI)
• Duration Of Justice: 2 year(s) 3 month(s) 7 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 19-04-2013
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: B
• Assessment Year: 2007-2008
• Appeal Filed On: 12-01-2011
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: SHYAM C AGRAWAL
• Keywords: Depreciation; Business expenditure

Judgement Text

, IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCHES B MUMBAI . . , . / , . . BEFORE SHRI B.R. MITTAL, JUDICIAL MEMBER / AND SHRI RAJENDRA, ACCOUNTANT MEMBER . / ITA NO. 304/MUM/2011 / ASSESSMENT YEAR 2007-08 M/S. MARDIA EXTRUSION LTD., MARDIA HOUSE, 96 C.P. TANK ROAD, MUMBAI 400 004. VS. I.T.O. WARD 4(2)(4), R.H. 647, ALANKAR BHAVAN, M.K. ROAD MUMBAI 400 020. PAN: AAACM 3024 F ( / APPELLANT) ( ! / RESPONDENT) ' / APPELLANT BY : SHRI SHYAM C. AGRAWAL ! $ ' /RESPONDENT BY : SHRI MOHIT JAIN $ %&' / DATE OF HEARING : 15-04-2013 () $ %&' / DATE OF PRONOUNCEMENT : 19-04-2013 *+ / O R D E R PER RAJENDRA, A.M. THE PRESENT APPEAL IS DIRECTED AGAINST THE ORDER DT . 03-12-2010 PASSED BY THE CIT(A)-11, MUMBAI. FOLLOWING GROUNDS OF APPEAL HAV E BEEN RAISED BY THE ASSESSEE- COMPANY : GROUND NO. 1 DISALLOWANCE OF RS. 2631568/- OUT OF EXPENSES OF RS . 2923964/- THE LEARNED COMMISSIONER OF INCOME TAX APPEAL ERRE D IN CONFIRMING THE DISALLOWANCE OF 90% EXPENSES OUT OF OTHER EXPENSES. 1) MANUFACTURING & OTHER EXPENSES RS. 14,81,285/- 2) PAYMENT TO AND PROVISION TO EMPLOYEES RS. 11,62,239/- 3) ADMINISTRATIVE AND SELLING EXPENSES RS. 2,80,440/ - TOTAL RS. 29,23,964/ - WITHOUT APPRECIATING THE FACT THAT A) THAT THE APPELLANT COMPANY HAS TEMPORARILY SUSPE NDED MANUFACTURING ACTIVITIES. B)THAT THE EXPENSES ARE GENUINE BUSINESS EXPENSES A ND SUPPORTED BY BILLS AND VOUCHERS. ITA NO. 304/MUM/2011 M/S. MARDIA EXTRUSION LTD 2 GROUND NO. 2 DISALLOWANCE OF DEPRECIATION RS. 715349/- ON THE FACTS AND CIRCUMSTANCES OF THE CASE THE LEAR NED COMMISSIONER OF INCOME TAX ERRED IN DISALLOWING THE DEPRECIATION ON PLANT & MACHINERY W ITHOUT APPRECIATING THE FACT THAT A) THAT THE APPELLANT HAS ONLY TEMPORARY SUS PENDED THE MANUFACTURING EXPENSES. B) THAT THE DEPRECIATION IS ALLOWED ON THE BLOCK O F THE ASSETS. C) THAT EVEN ON THE PASSIVE VIEW OR THE ASSET S DEPRECIATION IS TO BE ALLOWED. THE APPELLANT CRAVES LEAVE TO ADD, ALTER, AMEND AND /OR DELETE THE ABOVE GROUND OR GROUNDS OF APPEAL. 2. ASSESSEE-COMPANY, ENGAGED IN THE BUSINESS OF MANUFA CTURING OF NON-FERROUS METAL, COPPER WIRE TUBES, FILED ITS RETURN OF INCOM E ON 31.10.2007 DECLARING TOTAL INCOME OF RS. NIL. ASSESSING OFFICER (AO) FINALISED THE ASSESSMENT ORDER U/S.143(3) OF THE INCOME-TAX ACT,1961(ACT), ON 14-12-2009, DET ERMINING THE TOTAL INCOME AT RS. 2,99,699/-. 3. FIRST GROUND OF APPEAL PERTAINS TO DISALLOWANCE OF EXPENSES AMOUNTING TO RS.29.23 LAKHS. DURING THE ASSESSMENT PROCEEDINGS AO FOUND THAT APPELLANT COMPANY HAD TEMPORARILY SUSPEND-ED ITS MANUFACTURING ACTIVI TIES AND CARRIED OUT ONLY TRADING ACTIVITIES THAT IT WAS CLAIMING LOSS ON ITS TRADING ACTIVITIES, THAT COMPANY HAD CLAIMED EXPENDITURE OF RS.29,23,964/- UNDER THE HEADS MANUF ACTURING AND OTHER EXPENSES RS.(14,81,285/-), PAYMENT TO AND PROVISION TO EMPLO YEES (RS. 11,62,239/-) AND ADMINISTRATIVE AND SELLING EXPENSES(RS 2, 80,440/-) . AO HELD THAT EXPENDITURE INCURRED BY THE ASSESSEE WAS NOT DIRECTLY RELATED T O THE TRADING ACTIVITIES UNDERTAKEN BY IT. THEREFORE, HE DISALLOWED 90% OF THE TOTAL EX PENSES I.E.RS. 26,31,568/-,AS HE WAS OF THE OPINION THAT SAME WAS UNREASONABLE. 3.1. AGAINST THE ORDER OF THE AO ASSESSEE PREFERRED AN A PPEAL BEFORE THE FIRST APPELLATE AUTHORITY (FAA). AFTER CONSIDERING THE S UBMISSIONS OF THE ASSESSEE AND THE ASSESSMENT ORDER HE HELD THAT DURING THE YEAR U NDER CONSIDERATION APPELLANT COMPANY HAD NOT CARRIED OUT ANY MANUFACTURING ACTIV ITIES, THAT IT HAD CARRIED OUT ONLY TRADING ACTIVITIES, THAT ASSESSEE HAD CLAIMED EXCES SIVE AND UNREASONABLE EXPENSES, THAT IT HAD DECLARED BUSINESS LOSS AT SIGNIFICANTLY HIGH ER LEVEL, THAT AO HAD RIGHTLY RESTRICTED THE CLAIM OF THE ASSESSEE. HE CONFIRMED THE DISALLOWANCE MADE BY THE AO. 3.2. BEFORE US, AUTHORISED REPRESENTATIVE (AR) SUBMITTED THAT THE APPELLANT COMPANY HAD INCURRED EXPENSES UNDER THE HEADS ELEC TRICITY AND WATER CHARGES, SALARY AND WAGES, OTHER OPERATING EXPENSES, THA T ASSESSEE WAS REQUIRED TO PAY THE MINIMUM CHARGES OF ELECTRICITY, WATER AND OTHER UTI LITIES, THAT THE MACHINERIES WERE ALSO TO BE KEPT IN WORKING CONDITION, THAT THE PERM ANENT EMPLOYEES COULD NOT BE RETRENCHED, THAT THE TECHNICAL STAFF HAD TO BE RETA INED IN ORDER TO RESTART THE MANUFACTURING ACTIVITIES, THAT ALL THE EXPENSES WER E SUPPORTED BY BILLS, THAT THE AO HAD NOT DOUBTED GENUINENESS OF THE EXPENDITURE, THA T BIFR HAS PASSED ORDER IN THE CASE OF THE ASSESSEE, THAT DISALLOWANCE MADE/CONFIR MED BY THE AO/FAA WAS TOTALLY UNREASONABLE. HE RELIED UPON THE DECISION DELIVERE D BY THE HONBLE KARNATAKA HIGH COURT DELIVERED IN THE CASE OF BLEND WELL BOTTLES P VT. LTD. (323 ITR 18). DEPARTMENTAL REPRESENTATIVE (DR) SUPPORTED THE ORDE R OF THE FAA. ITA NO. 304/MUM/2011 M/S. MARDIA EXTRUSION LTD 3 3.3. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL ON RECORD. AO HAD DISALLOWED THE EXPENDITURE AS HE WAS OF THE OPI NION THAT EXPENDITURE WAS UNREASONABLE AND SAME WAS NOT DIRECTLY RELATED TO T HE TRADING ACTIVITIES UNDERTAKEN BY THE ASSESSEE. FAA CONFIRMED THE DISALLOWANCE, AS A SSESSEE DID NOT CARRY OUT MANUFACTURING ACTIVITIES. SECOND REASON GIVEN BY T HE FAA IS UNREASONABLENESS OF THE EXPENSE. IN OUR OPINION NONE OF THESE REASONS JUST IFY THE DISALLOWANCE. ASSESSEE HAD PRODUCED ALL THE BILLS AND GENUINENESS OF THE EXPEN DITURE WAS NEVER DOUBTED BY THE AO OR THE FAA. IT IS SAID THAT AO CANNOT STEP INTO SHOES OF A BUSINESSMAN FOR DECIDING THE REASONABLENESS OF THE EXPENDITURE. AO HAS NOT INVOKED PROVISIONS OF SECTION 40A OF THE ACT, WHICH AUTHORIZES THE AO TO QUESTION REASONABLENESS OF THE EXPENDITURE IN CERTAIN SITUATION. EXPENDITURE HAS TO BE ALLOWED, IF SAME IS INCURRED FOR RUNNING BUSINESS. IT IS NOT THE CASE OF THE AO/FAA THAT EXPENDITURE WAS NOT INCURRED OR THAT THE EXPENDITURE WAS OF CAPITAL OR PERSONAL NATURE. FOR A TEMPORARY PERIOD, IF THE ASSESSEE DECIDES THAT SERVICES OF THE EMPLOYEES SHOULD NOT BE TERMINATED THEN EXPENDITURE INCURRED ON ACCOUNT OF SALARY TO EMPLOY EES HAS TO BE ALLOWED. SIMILARLY, PAYMENTS MADE TOWARDS WATER AND ELECTRICITY CHARGES FOR THE YEAR UNDER CONSI- DERATION CANNOT BE DISALLOWED, IF FACTUM OF PAYMENT IS PROVED. JUSTIFICATION OF PAYMENT IS TO DECIDED BY THE ASSESSEE LOOKING IN TO THE NEEDS OF HIS BUSINESS. IT IS A FACTS THAT MANUFACTURING ACTIVITIES WERE SUSPENDED TEMPORARILY ONLY AND IN THE VERY NEXT AY ASSESSEE RE-STARED MANUFACTURING. IT IS AL SO A FACT THAT BIFR HAS PASSED ORDER IN THE CASE OF THE ASSESSEE AND IT HAD INCURRED HEA VY LOSSES. SUCH TEMPORARY SETBACKS ARE PART OF BUSINESS. THEREFORE, CONSIDERING THE TO TALITY OF THE CIRCUMSTANCES AND FACTUM OF THE MATTER WE REVERSE THE ORDER OF THE FA A. GROUND NO.1 IS DECIDED IN FAVOUR OF THE ASSESSEE. 4. NEXT GROUND OF APPEAL DISALLOWANCE OF DEPRECIATION OF RS. 7,15,349/-. DURING THE ASSESSMENT PROCEEDINGS, AO FOUND THAT THE ASSES SEE HAD CLAIMED DEPRECIATION OF RS.7.15 LAKHS. AS THE ASSESSEE HAD NOT CARRIED OUT ANY MANUFACTURING ACTIVITIES DURING THE YEAR, SO, AO DISALLOWED THE CLAIM MADE BY THE A SSESSEE UNDER THE HEAD DEPRECIATION. AGAINST THE ORDER OF THE AO ASSESSEE PREFERRED AN APPEAL BEFORE THE FAA. AFTER CONSIDERING THE SUBMISSIONS OF THE ASSE SSEE AND THE ASSESSMENT ORDER HE HELD THAT AO HAD RIGHTLY DISALLOWED DEPRECIATION T O THE APPELLANT COMPANY ,THAT THE ASSETS OF THE COMPANY WERE NOT USED AND BROUGHT TO USE IN THE MANUFACTURING ACTIVITIES, THAT THE APPELLANT COMPANY WAS NOT ENTI TLED TO THE DEPRECIATION. 4.1. BEFORE US, AR SUBMITTED THAT MACHINERY WAS READY FO R USE, THAT BECAUSE OF ADVERSE CIRCUMSTANCES MANUFACTURING COULD NOT BE CA RRIED OUT DURING THE YEAR UNDER CONSIDERATION, THAT IN THE NEXT AY PRODUCTION START ED, THAT MACHINERY WAS IN PASSIVE USE. HE RELIED UPON THE CASES OF BLEND WELL BOTTLE S PVT LTD.(323 ITR 18), OSWAL AGRO MILLS LTD.(197 TAXMAN 25) GEO TECH CONSTRUCTIO N CORPORATION. (244 ITR 452), NIRMA CREDIT & CAPITAL LTD. (220 CTR 537) DELIVERED BY THE HONBLE HIGH COURTS OF KARNATAKA, DELHI, KERLA AND THE SUPREME COURT RESPE CTIVELY. DR SUPPORTED THE ORDERS OF THE REVENUE AUTHORITIES. 4.2. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL BEFORE US. IT IS A FACT THAT BECAUSE OF COMPELLING CIRCUMSTANCES ASS ESSEE WAS NOT ABLE TO CARRY OUT MANUFACTURING DURING THE AY UNDER CONSIDERATION BUT MANUFACTURING ACTIVITIES STARTED DURING THE NEXT AY. IN TAXATION JURISPRUDENCE CONC EPTS OF PASSIVE USE OF MACHINERY AND MACHINERY AND PLANT READY FOR USE ARE WELL RE COGNIZED. IN OUR OPINION, CASE OF ITA NO. 304/MUM/2011 M/S. MARDIA EXTRUSION LTD 4 THE ASSESSEE IS COVERED BY THESE PRINCIPLES. THERE FORE, WE DECIDE GROUND NO.2 IN FAVOUR OF THE ASSESSEE-COMPANY. AS A RESULT, APPEAL FILED BY THE ASSESSEE STANDS AL LOWED. , -. ,% / *01 $ 2 34 $ % 56. ORDER PRONOUNCED IN THE OPEN COURT ON 19 TH APRIL, 2013 *+ $ () ' 8 9* 19 6,2013 ) $ 2 ? SD/- SD/- ( . . / B.R. MITTAL ) ( / RAJENDRA ) *- / JUDICIAL MEMBER ' *- / ACCOUNTANT MEMBER / MUMBAI, 9*/ DATE: 19 TH APRIL, 2013 TNMM *+ *+ *+ *+ $ $$ $ %A %A %A %A BA% BA% BA% BA% / COPY OF THE ORDER FORWARDED TO : 1. APPELLANT 2. RESPONDENT 3. THE CONCERNED CIT (A) 4. THE CONCERNED CIT 5. DR B BENCH, ITAT, MUMBAI 6. GUARD FILE !A% % //TRUE COPY// *+ *+ *+ *+ / BY ORDER, C CC C / 5 5 5 5 DY./ASST. REGISTRAR , / ITAT, MUMBAI