ACIT, Kota V. MANGLAM CEMENT LTD., Kota

ITA 329/JPR/2011

• Counselvise Citation: [2011] 140 COUNSELVISE.COM (IT) 54093 (ITAT-JAIPUR)
• Duration Of Justice: 3 month(s) 17 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 05-08-2011
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: B
• Assessment Year: 1994-1995
• Appeal Filed On: 18-04-2011
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: SUBHASH CHANDRA
• Keywords: Gift; Depreciation

Judgement Text

1 IN THE INCOME TAX APPELLATE TRIBUNAL JAIPUR BENCH B JAIPUR (BEFORE SHRI R.K.GUPTA AND SHRI N.L.KALRA) ITA NO.329/ JP/2011 ASSESSMENT YEAR 1994-95 PAN: AABCM 6602 Q THE ACIT VS. M/S. MANGLAM CEMENT LTD. CIRCLE- 1 ADITYA NAGAR, MORAK KOTA KOTA (APPELLANT ) (RESPONDENT) C.O. NO.57/JP/2011 (ARISING OUT OF ITA NO.329/ JP/2011) ASSESSMENT YEAR 1994-95 PAN: AABCM 6602 Q M/S. MANGLAM CEMENT LTD. VS. THE ACIT ADITYA NAGAR, MORAK CIRCLE- 1 KOTA KOTA (APPELLANT ) (RESPONDENT) DEPARTMENT BY : SHRI SUBHASH CHANDRA ASSESSEE BY : SHRI P.C. PARWAL ORDER PER N.L. KALRA, AM:- THE REVENUE HAS FILED AN APPEAL AGAINST THE ORDER OF THE LD. CIT(A), AJMER DATED 14-02-2011 FOR THE ASSESSMENT YEAR 1994 -95. THE ASSESSEE HAS FILED THE CROSS OBJECTION. 2 2.1 THE ISSUE RAISED IN THE APPEAL OF THE REVENUE OR IN THE C.O. FILED BY THE ASSESSEE IS THE SAME. IT WILL THEREFORE, BE RE LEVANT TO MENTION THE GROUND OF APPEAL OF THE REVENUE AS UNDER:- ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAE, THE LD. CIT(A) HAS ERRED IN DIRECTING TO ALLOW DEPRECIATION ON PRE-OPERATIVE EXPENSES, AT RS. 3,13,26,880/-, CONFIRMED IN APPEAL. 2.2 THE ASSESSMENT IN THIS CASE WAS COMPLETED ON 19 -12-1995. THE QUANTUM APPEAL CAME BEFORE THE TRIBUNAL AND THE TRI BUNAL VIDE ORDER DATED 26-04-2005 SET ASIDE THE ISSUE OF EXPENDITURE OF RS . 29,337/- OF GIFT AND PRE- OPERATIVE NET EXPENDITURE OF RS. 3,13,36,880/- IN R ELATION TO NEW PLANT M/S. NEER SHREE CEMENT, FOR ADJUDICATION AFTER ALLOWING AN OPPORTUNITY OF HEARING TO THE ASSESSEE. THE OPPORTUNITY OF HEARING WAS PROVIDED TO THE ASSESSEE VIDE NOTICE DATED 31-08-2006. BEFORE THE A O, IT WAS SUBMITTED THAT THERE IS NO PRE-OPERATIVE INCOME NOR THE EXPENSES C LAIMED ARE IN THE NATURE OF PRE-OPERATIVE EXPENSES SINCE THE OPERATION OF NE W UNIT STARTED ON 27-03- 1993. ACCORDING TO THE AO, THE ASSESSEE DURING THE COURSE OF ASSESSMENT PROCEEDINGS FOR ASSESSMENT YEAR 1995-96 CLAIMED THA T THE NEW UNIT WHICH WAS UNDER TRIAL RUN IN THE LAST YEAR (I.E. ASSESSME NT YEAR 1993-94) HAS STARTED COMMERCIAL PRODUCTION FROM 20-04-1994. IN SCHEDULE 17, NOTE NO. 11, THE ASSESSEE SHOWED CAPITAL WORK IN PROGRESS. THE CAPIT AL WORK IN PROGRESS INCLUDES INTEREST OF RS. 25,15,63,056/- ON FUNDS BO RROWED FOR THE NEW PLANT 3 AND DEPRECIATION OF RS. 9,34,625/- AND OTHER EXPEN SES OF RS. 3,13,26,880/-. ACCORDING TO THE AO, THE ASSESSEE HAS CAPITALIZED T HESE EXPENSES IN THE BOOKS OF ACCOUNTS. FROM THIS, THE AO CONCLUDED THAT A SUM OF RS. 3,13,26,880/- ARE THE PRE-OPERATIVE EXPENSES CONSID ERED BY THE AUDITOR AS WORK IN PROGRESS. ACCORDINGLY, THESE EXPENSES WERE DISALLOWED. 2.3 THE LD. CIT(A) DIRECTED THE AO TO ALLOW DEPRECI ATION IN CASE THE EXPENSES ARE TREATED AS PRE-OPERATIVE EXPENSES. THE LD. CIT(A) HAS REFERRED TO THE FACT THAT REVENUE HAS FILED THE APPEAL BEFOR E HON'BLE JURISDICTIONAL HIGH COURT IN RESPECT OF ALLOWABILITY OF INTEREST EXPENSES. THUS REVENUE IS AGGRIEVED AGAINST THE DIRECTION OF THE LD. CIT(A) I N ALLOWING DEPRECIATION WHILE THE ASSESSEE IN THE C.O. IS AGGRIEVED AGAINST THE FINDING OF THE LD. CIT(A) IN HOLDING THAT THE EXPENSES HELD AS PRE-OPE RATIVE EXPENSES ARE TO BE CAPITALIZED. 2.4 WE HAVE HEARD BOTH THE PARTIES. SCHEDULE NO. 17 OF THE BALANCE SHEET AND P & L A/C HAS BEEN SUMMARIZED BY THE LD. AR OF THE ASSESSEE IN HIS WRITTEN SUBMISSION AS UNDER:- SALE OF CEMENT, OTHER INCOME RS. 16,45,06,268/- & INCREASE IN INVENTORY LESS: INTEREST RS. 25,15,63,056/- DEPRECIATION RS. 9,34,625/- OTHER EXPENDITURE RS. 19,58,33,148/- RS. 44,83,30,829/- NET EXPENDITURE RS. 28,38,24,561/- 4 THE ISSUE OF INTEREST AND DEPRECIATION STAND ALREAD Y ALLOWED. THUS THE DIFFERENCE OF RECEIPT OF RS. 16,45,06,268/- AND OTH ER EXPENDITURE OF RS. 19,58,33,148/- IS TO BE CONSIDERED FOR ALLOWABILITY . THE DETAILS OF SUCH EXPENSES HAVE BEEN FILED BY THE LD. AR. WE ARE REPR ODUCING SOME OF THE EXPENSES CONTAINED IN RS. 19,58,38,148/- AND THE RE CEIPTS OF RS. 16,45,06,268/- ARE NOT IN DISPUTE. SALARY AND ALLOWANCES RS. 70,80,452/- CONSULTANCY, PROFESSIONAL & LEGAL CHARGES RS., 1,76,57,299/- POWER, FUEL AND ELECTRICITY CHARGES RS. 10,17,8 0,870/- INTER UNIT TRANSFER AND STOCK IN PROCESSES RS. 99,98,724/- RAW MATERIAL CONSUMED RS. 2,64,73,012/- PACKING, FORWARDING & DISTRIBUTION EXPENSES RS. 71,11,652/- EXCISE DUTY RS. 1,52,75,531/- (WE HAVE REPRODUCED EXPENSES WHICH EXCEEDED RS. 50 .00 LACS) WE FIND THAT NONE OF THE ABOVE EXPENSES CAN BE CONS IDERED AS CAPITAL EXPENSES. IF THE REVENUE WANTED TO TREAT CERTAIN EX PENSES AS CAPITAL EXPENSES THEN ONUS WAS ON THE REVENUE. THE AO CANNOT MAKE TH E ADDITION ON THE BASIS OF BOOK ENTRY. IT IS WELL SETTLED LAW THAT BOOK ENT RIES ARE NOT RELEVANT TO DECIDE THE ISSUE AS THE ISSUE IS TO BE DECIDED AS P ER PROVISIONS OF THE INCOME TAX ACT, 1961. THE HON'BLE APEX COURT IN THE FOLLOW ING CASES HAVE HELD THAT BOOK ENTRIES ARE NOT CONCLUSIVE. 1.KEDARNATH JUTE MFG. CO. LTD. VS. CIT,, 82 ITR 3 63 (SC) 5 2. CIT VS. INDIAN DISCOUNT CO. LTD. 75 ITR 191 (SC) 3. SATLUJ COTTON MILLS LTD. VS. CIT, 116 ITR 1 (S C) 4. CIT VS. TUTICORIN ALKALI CHEMICALS & FERTILIZERS LTD. 227 ITR 172 SC 5. CIT VS. SHOORJI VALLABHDAS & CO. , 46 ITR 144 (SC) 6. CIT VS. TRIVENI ENGINEERNG & INDUSTRIES LTD. 181 TA XMAN 5 (DEL.) UNLESS AND UNTIL THE REVENUE RECORDS THE FINDING IN RESPECT OF A PARTICULAR EXPENDITURE AS CAPITAL, THE TRIBUNAL CANNOT MAKE T HE INVESTIGATION OF THE EXPENSES AS TO WHICH EXPENSES ARE OF CAPITAL NATURE . 2.5 DURING THE COURSE OF PROCEEDING BEFORE US, THE LD. DR STATED THAT THE EXPENSES CONTAINED IN SCHEDULE NO. 14 MAY CONTAIN T HE EXPENSES RELATING TO EARLIER YEAR. WE HAVE VERIFIED FROM THE ANNUAL ACCO UNTS WHICH CONTAINS THE EXPENSES OF THIS YEAR AS WELL AS OF THE LAST YEAR. THE PRE-OPERATIVE EXPENSES INCURRED UPTO THE PREVIOUS YEAR HAVE BEEN SHOWN SEP ARATELY AND ARE NOT INCLUDED IN THE TOTAL OF RS. 44,38,30,829/- 2.6 IN RESPECT OF SETTING UP A BUSINESS, WE HAVE H ELD IN THE CASE OF ITO VS. MAHENDRA WORLD CITY (JAIPUR) (ITA NO.1170/JP/20 10 DATED 22-07- 2011) THAT BUSINESS CAN BE CONSIDERED AS SET UP WHE N THE TRIAL RUN IS MADE. FOR THIS, WE HAVE PLACED RELIANCE ON THE FOLLOWING DECISIONS. 6 1. WEST INDIA VEGETABLE PRODUCTS LTD. VS. CIT, 26 I TR 151 (BOM.) 2. CWT VS. RAMRAJ SURGICAL LTD. 63 ITR 478 (SC) 3. CIT VS. HUGHES ESCORTS COMMUNICATION LTD., 311 ITR 253 (DEL.) 4. WHIRL POOL INDIA LTD. 318 ITR 347 (DEL.) THUS EXPENDITURE OF RS. 3,13,36,880/- IS TO BE CONS IDERED AS REVENUE. THUS THE C.O. OF THE ASSESSEE IS ALLOWED AND THE APPEAL OF THE REVENUE IS DISMISSED. 3. IN THE RESULT, THE APPEAL OF THE REVENUE IS DISM ISSED AND THE C.O. OF THE ASSESSEE IS ALLOWED. THE ORDER IS PRONOUNCED IN THE OPEN COURT ON 05-08 -2011. SD/- SD/- (R.K. GUPTA) (N.L. KALRA) JUDICIAL MEMBER ACCOUNTANT MEMBER JAIPUR DATED; 05/08/2011 *MISHRA COPY FORWARDED TO :- 1. ACIT, CIRCLE- 1 KOTA 2. M/S. MANGALAM CEMENT LTD., KOTA 3 THE LD. CIT BY ORDER 4. THE LD. CIT(A) 5 THE LD.DR 6 THE GUARD FILE (ITA NO.329/JP /11) A.R, ITAT, JAIPUR 7