The DCIT, Circle-3(3), Ahmedabad V. Vijay Steel, Ahmedabad

ITA 3065/AHD/2014

• Counselvise Citation: [2018] 118 COUNSELVISE.COM (IT) 9050 (ITAT-AHMEDABAD)
• Duration Of Justice: 4 year(s) 23 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 12-12-2018
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: A
• Assessment Year: 2010-2011
• Appeal Filed On: 19-11-2014
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: S K DEV
• Assessee Lawyers: RIDHI SHAH; ROHAN POPAT
• Keywords: Depreciation; Deemed to accrue or arise in india; Capital expenditure
• Section: 40(a)(ia)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD A BENCH (BEFORE SHRI PRAMOD KUMAR, VICE PRESIDENT & SHRI MAHAVIR PRASAD, JUDICIAL MEMBER) ITA. NO: 3065/AHD/2014 & C.O. NO. 309/AHD/2014 (ASSESSMENT YEAR: 2010-11) DEPUTY COMMISSIONER OF INCOME TAX, CIRCLE- 3(3),AHMEDABAD VIJAY STEEL, 13, RACHANA SOCIETY SATELLITE ROAD, SATELITE, AHMEDABAD- 380051 V/S V/S VIJAY STEEL, 13, RACHANA SOCIETY SATELLITE ROAD, SATELITE, AHMEDABAD- 380051 DEPUTY COMMISSIONER OF INCOME TAX, CIRCLE- 3(3),AHMEDABAD (APPELLANT) (RESPONDENT) PAN: AABFV 6595Q APPELLANT BY : SHRI S. K. DEV, SR. D.R. RESPONDENT BY: SMT. RIDHI SHAH & ROHAN POPAT, A.R . ( )/ ORDER DATE OF HEARING : 19 -09-201 8 DATE OF PRONOUNCEMENT : 12-12-2018 PER MAHAVIR PRASAD, JUDICIAL MEMBER ITA NO. 3065 & C.O. 309/AHD/2014 . A.Y. 2010- 11 2 1. THIS APPEAL BY THE REVENUE IS DIRECTED AGAINST THE ORDER OF THE LD. CIT(A)- XIV, AHMEDABAD DATED 05.08.2014 PERTAINING TO A.Y. 2010-11 AND FOLLOWING GROUNDS HAVE BEEN TAKEN: I) THE LD. COMMISSIONER OF INCOME TAX (A) HAS ERRED IN LAW AND ON FACTS IN DELETING THE ADDITION OF RS.L33,02,075/- ON ACCOUNT OF UNDERSTATED PRODUCTION/SUPPRESSED PRODUCTION. II) THE LD. COMMISSIONER OF INCOME TAX (A) HAS ERRED IN LAW AND ON FACTS IN DELETING THE DISALLOWANCE OF INTEREST EXPENSES OF R S.1,92,000/- MADE U/S.36(L)(III) OF THE ACT. III) ON THE FACTS AND CIRCUMSTANCES OF THE CASE , THE LD. COMMISSIONER OF INCOME TAX (A) OUGHT TO HAVE UPHELD THE ORDER OF THE ASSES SING OFFICER. IV) IT IS, THEREFORE, PRAYED THAT THE ORDER OF THE LD. COMMISSIONER OF INCOME TAX (A) MAY BE SET-ASIDE AND THAT OF THE ASSESSING OFFI CER BE RESTORED. 2. IN THIS CASE, DURING THE ASSESSMENT YEAR UNDER CONS IDERATION, THE ASSESSEE-FIRM HAS RECORDED TURNOVER OF RS. 23,88,91,361/- AND DIS CLOSED GROSS PROFIT OF RS. 1,62,17,370/- WHICH WORKS OUT AT 6.79% OF THE TOTAL TURNOVER. 3. DURING THE ASSESSMENT PROCEEDINGS, ASSESSEE WAS REQ UESTED TO FURNISH THE DETAILED PROCESS OF MANUFACTURING ACTIVITY UNDERTAK EN BY THE ASSESSEE WITH COMPLETE DETAILS OF LOSSES INCURRED OF ANY KIND AT VARIOUS STAGES OF PRODUCTION. IN RESPONSE TO THAT ASSESSEE STATED THE FIRM IS ENG AGED IN THE BUSINESS OF RE- ROLLING MILL. THE FIRM MANUFACTURES ANGLES, FLATS, SQUARE AND ROUND BARS, TMT ETC., BY EITHER USING IRON AND STEEL PLATES OR INGOTS AS ITS PRINCIPAL RAW MATERIAL. IN THIS LINE OF ACTIVITY, THE IRON AND ST EEL PLATES ARE FIRST CUT INTO SPECIFIC SIZED PIECES WITH THE HELP OF SHARING MACH INES. THE PIECES SO OBTAINED OR THE INGOTS PURCHASED ARE THEN FED INTO THE FURNA CE AND HEATED AT A TEMPERATURE OF APPROXIMATELY 1000 TO 1200 CELSIUS. THE PIECES/INGOTS ARE ITA NO. 3065 & C.O. 309/AHD/2014 . A.Y. 2010- 11 3 THEREAFTER REMOVED FROM THE FURNACE AND PASSED THRO UGH VARIOUS RE-ROLLING MILL STANDS SO AS TO MANUFACTURE ANGLES, FLATS, SQU ARES AND ROUND BARS ETC THEREFROM. 4. THEREAFTER, LD. A.O. ASKED THE ASSESSEE TO FURNISH THE DETAIL WITH REGARD TO DETAIL PRODUCTIONS AND ALSO GATHERED THE INFORMATION OF TH E SIMILAR FIRM WHICH WERE INVOLVED IN THE SIMILAR PRODUCTION. ASSESSEE DULY S UPPLIED ALL THE DETAILS BUT LD. A.O. WAS NOT SATISFIED AND HELD THAT THE HIGHEST BU RNING LOSS IS CLAIMED BY THE ASSESSEE IN THE MONTH OF DEC-09 AT 9,00% AND LOWEST AT 6.72% IN MAY-09 THUS THERE WAS WIDE GAP IN THE CLAIM OF BURNING LOSS, WH ICH REMAINED UN-EXPLAINED BY THE ASSESSEE. AND HELD THAT HAS UNDER STATED PR ODUCTION/SUPPRESSED PRODUCTION AND MADE ADDITION OF RS. 1,33,02,075/-. 5. AGAINST THE SAID ADDITION, ASSESSEE PREFERRED FIRST STATUTORY APPEAL BEFORE THE LD. CIT(A) WHO GRANTED RELIEF TO THE ASSESSEE. 6. WE HAVE GONE THROUGH THE RELEVANT RECORD AND IMPUGN ED ORDER. AS WE CAN SEE, ASSESSEE HAD SUPPLIED ALL THE RELEVANT DETAILS TO T HE LOWER AUTHORITIES SUCH AS REGISTER WHICH ARE SUBJECT TO REGULAR CHECK AND SUB JECT TO AUDIT, RAW MATERIAL REGISTER, PRODUCTION REGISTER AND AUDITED BOOKS OF ACCOUNT WITH TAX AUDIT REPORT AND THERE WAS SPECIFIC DEFECT WAS FOUND BY T HE LD. A.O. THEREFORE, IN OUR CONSIDERED OPINION, LD. CIT(A) HAS RIGHTLY DELE TED THE ADDITION OF RS. . 1,33,02,075/-. THEREFORE, WE DO NOT WANT TO INTERFE RE IN THE ORDER PASSED BY THE LD. CIT(A). 7. NOW WE COME TO DELETING THE DISALLOWANCE OF INTERES T EXPENSES OF RS. 1,92,000/- MADE U/S. 36(1)(III) OF THE ACT. BEING D EBITED IN PROFIT AND LOSS ITA NO. 3065 & C.O. 309/AHD/2014 . A.Y. 2010- 11 4 ACCOUNT AND CLAIMED U/S. 36(1)(III) OF THE ACT. THE LD. A.O. IN ITS ORDER CONSIDERED THE ISSUE OF GRANT OF ADVANCE OF RS. 8,0 0,000/- TO SHRI VIKAS AGARWAL WITHOUT CHARGING OF INTEREST ON ONE HAND AN D INTEREST PAID BY APPELLANT TO BANK. ASSESSEES CONTENTION WAS THAT T HE ADVANCE WAS CARRIED FORWARD OPENING BALANCE AND NO NEW ADVANCES WERE GI VEN DURING PREVIOUS YEAR. THEREFORE, THERE IS NO NEXUS THAT INTEREST BE ARING FUND ARE DIVERTED DURING PREVIOUS YEAR. 8. IN SUPPORT OF ITS CONTENTION, LD.A.R. CITED A JUDGM ENT OF JURISDICTIONAL HIGH COURT IN THE MATTER OF CIT VS. BHOGILAL RAMJIBHAI A TARA WHEREIN IT IS HELD: SECTION 41(1) OF THE INCOME-TAX ACT, 1961 - REMISS ION OR CESSATION OF TRADING LIABILITY (CESSATION OF LIABILITY) - ASSESSMENT YEA R 2007-08 - IN RETURN OF INCOME FOR ASSESSMENT YEAR 2007-08, ASSESSEE HAD SHOWN A C ERTAIN AMOUNT BY WAY OF HIS DEBTS - HE SUPPLIED DETAILS OF 27 DIFFERENT CRE DITORS - ASSESSING OFFICER UNDERTOOK EXERCISE TO VERIFY RECORDS OF SO CALLED C REDITORS AND FOUND THAT CREDITORS HAD NO DEALING WITH ASSESSEE - ASSESSING OFFICER FURTHER HAVING FOUND THAT DEBTS WERE OUTSTANDING SINCE SEVERAL YEARS APP LIED SECTION 41(1) AND ADDED ABOVE AMOUNT IN INCOME OF ASSESSEE AS DEEMED INCOME - THERE WAS NOTHING ON RECORD TO SUGGEST THAT THERE WAS REMISSI ON OR CESSATION OF LIABILITY THAT TOO DURING PREVIOUS YEAR RELEVANT TO ASSESSMEN T YEAR 2007-08 - WHETHER IN PECULIAR FACTS OF CASE AMOUNT IN QUESTION COULD NOT BE ADDED BACK IN INCOME OF ASSESSEE AS DEEMED INCOME UNDER SECTION 41(1) - HEL D, YES [PARA 8] [IN FAVOUR OF ASSESSEE] 9. AS WE CAN SEE FACTS OF THE ASSESSEE CASE IS IDENTIC AL TO THE ABOVE SAID JUDGMENT THEREFORE, RESPECTFULLY FOLLOWING THE AFORESAID JUD GMENT, WE ARE NOT INCLINED TO INTERFERE IN THE ORDER PASSED BY THE LD. CIT(A). TH EREFORE, APPEAL OF THE REVENUE IS DISMISSED. ITA NO. 3065 & C.O. 309/AHD/2014 . A.Y. 2010- 11 5 10. NOW WE COME TO C.O. NO. 309/AHD/2014. THE APPELLANT HAS TAKEN FOLLOWING GROUNDS: 1. CONFIRMING THE ADDITION OF RS.2,67,837/- ORIGINALLY MADE BY THE AO IN RESPECT OF THE OLD, BROUGHT FORWARD LIABILITY OF TH IS AMOUNT TOWARDS M/S OM STEEL, WHICH WAS REFLECTED IN THE BOOKS UNDER TH E HEAD ' ADVANCE FROM CUSTOMERS. 2. CONFIRMING THE ADDITION OF RS,14,029/- ORIGINALLY M ADE BY THE AO BY ARBITRARILY TREATING THIS AS 'THE ESTIMATED EXPENDIT URE INCURRED FOR SETTING UP THE SHED WITHOUT RECORDING THE SAME IN THE BOOKS OF ACCOUNT'; 3. CONFIRMING THE ACTION OF THE AO IN NOT ALLOWING THE CORRESPONDING CLAIM OF DEPRECIATION IN RESPECT OF THE REVENUE EXPENDITU RE OF RS. 15,000/- WHICH WAS TREATED AS CAPITAL EXPENDITURE IN RELATIO N TO DEPRECIABLE FIXED ASSET WHILE PASSING THE ASSESSMENT ORDER; 4. CONFIRMING AN ADDITION OF RS.29,815/- ORIGINALLY MA DE BY THE AO BY ARBITRARILY HOLDING THAT WHEN THE DAMAGED TRANSFORM ER WAS SUBJECTED TO WINDING ETC, THE SCRAP VALUE OF THE REPLACED WIRE W INDING MUST HAVE GENERATED REVENUE TO THE EXTENT OF 25% OF THE CORRE SPONDING COST OF REWINDING ETC.; AND 5. CONFIRMING THE ADDITION OF RS. 50,000/- ORIGINALLY MADE BY THE A.O. IN RESPECT OF THE PROFESSIONAL FEES PAID TO SHRI D.G. SOMPURA, BY INVOKING THE PROVISIONS OF SECTION 40(A)(IA) OF THE ACT. 11. SO FAR GROUND NO. 1 IS CONCERNED IN C.O. ALREADY WE HAVE DISMISSED GROUND OF THE DEPARTMENT IN ITA NO. 3065/AHD/2014 HAVE GIVEN BECAUSE IN THIS ADDITION OF RS. 2,67,837/- ORIGINALLY MADE BY THE A .O. IN RESPECT OF THE OLD, BROUGHT FORWARD LIABILITY OF THIS AMOUNT TOWARDS M/ S. OM STEEL, WHICH WAS REFLECTED IN THE BOOKS UNDER THE HEAD ADVANCE FROM CUSTORMERS. THE FINDING ITA NO. 3065 & C.O. 309/AHD/2014 . A.Y. 2010- 11 6 OF JUDGMENT IN THE CASE OF CIT VS. BHOGILAL RAMJI BHAI ATARA WILL APPLY TO THIS GROUND AS WELL. THEREFORE, WE ALLOW THIS OBJECTION OF THE ASSESSEE. 12. SO FAR GROUND NO. 2 OF C.O. IS CONCERNED WITH REGAR D TO CONFIRMING THE ADDITION OF RS. 14,029/- IS CONCERNED, BEING UNEXPL AINED EXPENDITURE FOR SETTING UP SHED BECAUSE FOR CONSTRUCTING A SHED, AS SESSEE DID NOT INCLUDED THE PAYMENT OF LABOUR CHARGES AND ASSESSEE DID NOT SUBM ITTED ANY EVIDENCE IN SUPPORT OF ITS CONTENTION. THEREFORE, LOWER AUTHORI TIES RIGHTLY MADE THE ADDITION OF RS. 14,029/- AND SAME DOES NOT REQUIRE ANY KIND OF ANY INTERFERENCE AT OUR END AND SAME IS DISMISSED. 13. SO FAR GROUND NO. 3 OF C.O. IS CONCERNED WITH REGAR D TO CONFIRMING THE ADDITION OF RS. 15,000/- IS CONCERNED, AT PAGE NO. 58 OF THE LD. CIT(A) AND PARA NO. 56 LD. CIT(A) ALREADY ALLOWED THE GROUND O F THE ASSESSEE IN ITS ORDER. THEREFORE, THE SAME IS DISMISSED AS INFRUCTUOUS. 14. NOW WE COME TO ADDITION OF RS. 29,815/- ORIGINALLY MADE BY THE A.O. BEING SCRAPE VALUE OF REPLACED WIRE WINDING OF DAMAGED TR ANSFORMER IS CONCERNED IN PARA NO. 5.7 AT PAGE NO. 58-59, LD. CIT(A) HAS ALRE ADY GRANTED RELIEF TO THE ASSESSEE. 15. NOW WE COME ADDITION OF RS. 50,000/- ORIGINALLY MAD E BY THE A.O. IN RESPECT OF THE PROFESSIONAL FEES PAID TO SHRI D.G. SOMPURA IS CONCERNED, SAME WAS DISALLOWED U/S. 40(A)(IA) OF THE ACT FOR NON DEDUCT ION OF TDS. THE A.O. CONFRONTED THE ASSESSEE ABOUT THE ISSUE OF NON DEDU CTION OF TDS U/S. 194JOF THE ACT AND AUTHORIZED REPRESENTATIVE AGREED FOR SU CH DEFAULT AS WELL AS ITA NO. 3065 & C.O. 309/AHD/2014 . A.Y. 2010- 11 7 ADDITION. SO IN THESE CIRCUMSTANCES, LD. CIT(A) RIG HTLY CONFIRMED THE ADDITION AS SAME WAS AGREED BY THE ASSESSEE BEFORE THE LOWER AUTHORITIES. 16. IN THE RESULT, APPEAL FILED BY THE REVENUE IS DISMI SSED AND CROSS OBJECTION FILED BY THE ASSESSEE ARE PARTLY ALLOWED. ORDER PRONOUNCED IN OPEN COURT ON 12- 12- 2018 SD/- SD/- (PRAMOD KUMAR) (MAHAVIR PRASAD) VICE PRESIDENT TRUE COPY JUDICIAL MEMBER AHMEDABAD: DATED 12/12/2018 RAJESH COPY OF THE ORDER FORWARDED TO: - 1. THE APPELLANT. 2. THE RESPONDENT. 3. THE CIT (APPEALS) 4. THE CIT CONCERNED. 5. THE DR., ITAT, AHMEDABAD. 6. GUARD FILE. BY ORDER DEPUTY/ASSTT.REGISTRAR ITAT,AHME DABAD