ACIT, Kota V. INSTRUMENTATION LTD.M, Kota

ITA 331/JPR/2011

• Counselvise Citation: 33123114 RSA 2011
• 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: 2003-2004
• Appeal Filed On: 18-04-2011
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: SUBHASH CHANDRA
• Keywords: Gift; Revenue expenditure; Capital expenditure
• Section: 43B; 37

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.331/ JP/2011 ASSESSMENT YEAR 2003-04 PAN: AAACL 4212 G THE ACIT VS. M/S. INSTRUMENTATION LTD. CIRCLE- 1, KOTA JHALAWAR ROAD, KOTA (APPELLANT ) (RESPONDENT) C.O. 60/JP/2011 (ARISING OUT OF ITA NO.331/ JP/2011) ASSESSMENT YEAR 2003-04 PAN: AAACL 4212 G M/S. INSTRUMENTATION LTD. VS. THE ACIT JHALAWAR ROAD, KOTA CIRCLE- 1, KOTA (APPELLANT ) (RESPONDENT) ITA NO.333/ JP/2011 ASSESSMENT YEAR 2004-05 PAN: AAACL 4212 G THE ACIT VS. M/S. INSTRUMENTATION LTD. CIRCLE- 1, KOTA JHALAWAR ROAD, KOTA (APPELLANT ) (RESPONDENT) C.O. 61/JP/2011 (ARISING OUT OF ITA NO.333/ JP/2011) ASSESSMENT YEAR 2004-05 PAN: AAACL 4212 G M/S. INSTRUMENTATION LTD. VS. THE ACIT JHALAWAR ROAD, KOTA CIRCLE- 1, KOTA (APPELLANT ) (RESPONDENT) DEPARTMENT BY : SHRI SUBHASH CHANDRA ASSESSEE BY : SHRI P.C. PARWAL 2 ORDER PER N.L. KALRA, AM:- THE REVENUE HAS FILED THE APPEAL AGAINST TWO DIFF ERENT ORDERS OF THE LD. CIT(A), AJMER DATED 15-02-2011FOR THE ASSESSMEN T YEAR 2003-04 & 2004-05. THE ASSESSEE HAS FILED THE CROSS OBJECTION S. 2.0 FIRST OF ALL, WE TAKE UP THE APPEAL OF THE REVE NUE FOR THE ASSESSMENT YEAR 2003-04. 2.1 THE FIRST GROUND OF APPEAL OF THE REVENUE IS T HAT THE LD. CIT(A) HAS ERRED IN DELETING THE DISALLOWANCE OF RS. 14,06,233 /- ON ACCOUNT OF GUEST HOUSE EXPENSES. 2.2 THE AO DISALLOWED THE GUEST HOUSE EXPENSES AFTE R HOLDING THAT THE EXPENSES HAVE NOT BEEN INCURRED WHOLLY AND EXCLUSIV ELY FOR THE PURPOSE OF BUSINESS. THE AO HAS ALSO MENTIONED THAT SUCH EXPEN SES WERE DISALLOWED IN PRECEDING YEARS AND THE ISSUE IS PENDING FOR ADJUDI CATION BEFORE HON'BLE JURISDICTIONAL HIGH COURT. 2.3 THE LD. CIT(A) HAS DELETED THE ADDITION AS ACCO RDING TO HIM SECTION 37(4) OF THE ACT HAS BEEN REMOVED W.E.F. ASSESSMENT YEAR 1998-99 BY FINANCE ACT 1997. 2.4 WE HAVE HEARD BOTH THE PARTIES. THE AO HAS DISA LLOWED GUEST HOUSE EXPENSES ON THE GROUND THAT SUCH DISALLOWANCE HAS B EEN MADE IN EARLIER YEARS AND THE ISSUE IS PENDING FOR ADJUDICATION BEF ORE HON'BLE JURISDICTIONAL 3 HIGH COURT. EARLIER GUEST HOUSE EXPENSES WERE NOT A LLOWABLE AS PER SECTION 37(4) OF THE ACT. HOWEVER, SECTION 37(4) OF THE ACT HAS BEEN REMOVED AND THEREFORE, NO DISALLOWANCE COULD HAVE BEEN MADE UNL ESS THE AO WAS ABLE TO JUSTIFY THAT THERE WERE EXPENDITURE WHICH HAVE NOT BEEN INCURRED WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF BUSINESS. HENCE THE LD. CIT(A) WAS JUSTIFIED IN DELETING THE DISALLOWANCE. 3.1 THE SECOND GROUND OF APPEAL OF THE REVENUE IS THAT THE LD. CIT(A) HAS ERRED IN DELETING THE DISALLOWANCE OF RS. 9,86,932/ - ON ACCOUNT OF GIFTS AND PRESENTS IN BUSINESS PROMOTION EXPENSES. 3.2 THE AO HAS DISALLOWED THE EXPENSES ON THE BASIS THAT SUCH EXPENSES WERE DISALLOWED IN EARLIER YEARS. 3.3 THE LD. CIT(A) HAS DELETED THE ADDITION BECAUSE RULE 6B HAS BEEN OMITTED W.E.F. 19-11-1999. 3.4 AFTER HEARING BOTH THE PARTIES, WE FEEL THAT TH E LD. CIT(A) WAS JUSTIFIED IN DELETING THE DISALLOWANCE. THERE IS NOTHING ON R ECORD TO SUGGEST THAT THE GIFTS & PRESENTS WERE NOT MADE FOR THE PURPOSE OF T HE BUSINESS. 4.1 THE THIRD AND FOURTH GROUNDS OF APPEAL OF THE R EVENUE ARE IN RESPECT OF DELETION OF ADDITION IN RESPECT OF EMPLOYERS P .F. CONTRIBUTION AND EMPLOYEES P.F. CONTRIBUTION. 4 4.2 THE ABOVE REFERRED ISSUE STANDS DECIDED AGAINST THE REVENUE BY THE TRIBUNAL IN THE CASE OF SOMA BLOCK PRINTS (P) LTD. IN ITA NO.1173/JP/2010 DATED 28 TH APRIL, 2011 FOR THE ASSESSMENT YEAR 2007-08. IT WI LL BE USEFUL TO REPRODUCE THE PARA 5.2 FROM THE ABOVE DECISION. 5.2 THIS ISSUE HAS BEEN DECIDED AGAINST THE REVEN UE BY THE TRIBUNAL IN THE CASE OF M/S. SWASTIK METAL CASTING VS. ACIT (IT A NO.964/JP/2010) VIDE ORDER DATED 20-04-2011. IT WILL BE USEFUL TO R EPRODUCE PARA 3.2 AND 3.3 OF THE ABOVE REFERRED ORDER 3.2 THE LD. CIT(A) HELD THAT THE EMPLOYEES CONTRI BUTION TO PF AND ESI IS NOT TO BE ALLOWED AS THE SAME HAS NOT BE EN PAID WITHIN THE STIPULATED TIME AS PROVIDED IN RESPECTIVE ACT OF PF AND ESI. THE LD. CIT(A) CONFIRMED THE ACTION OF THE AO. 3.3 WE HAVE HEARD BOTH THE PARTIES. HON'BLE APEX CO URT IN THE CASE OF CIT VS ALOM EXTRUSIONS LTD., 319 ITR 306 HA S HELD THAT THE PROVISO INTRODUCED BY THE FINANCE ACT, 2003 IS CURATIVE IN NATURE AND IS RETROSPECTIVE. HOWEVER, WE ARE CONCERNED WITH THE A SSESSMENT YEAR 2007- 08. THE HON'BLE APEX COURT HAS REFERRED TO THE EXPL ANATION GIVEN IN SECTION 36(1)(V)(A) OF THE ACT. THE ISSUE OF EMPLOY EES CONTRIBUTION COVERED U/S 43B HAS BEEN CONSIDERED BY THE HON'BLE KARNATAKA HIGH COURT IN THE CASE OF CIT VS SABRI ENTERPRISES, 298 ITR 141. THE HON'BLE APEX COURT HAS UPHELD THE DECISION OF HON'BLE KARNA TAKA HIGH COURT IN THE CASE OF CIT VS SABRI ENTERPRISES (SUPRA) WHILE DECIDING THE APPEAL IN THE CASE OF CIT VS ALOM EXTRUSIONS LTD. (SUPRA). TH E HON'BLE APEX COURT HAS DISMISSED THE SLP IN THE CASE OF CIT VS VINAY C EMENT 313 ITR 1 (ST.). WHILE DISMISSING THE SLP, THE HON'BLE APEX C OURT HAS REFERRED TO DECISION OF HON'BLE GAUHATI HIGH COURT IN THE CASE OF CIT VS GEORGE WILLIAMSON (ASSAM) LTD., 284 ITR 619. IN THE CASE B EFORE HON'BLE GAUHATI HIGH COURT, THE ISSUE WAS IN RESPECT OF CON TRIBUTION OF PF AND ESI RELATING TO EMPLOYEES SHARES. IT IS NOTICED FROM TH E AUDIT REPORT THAT ALL THE 5 PAYMENTS HAVE BEEN PAID BEFORE THE DUE DATE OF FILI NG OF RETURN AND THEREFORE, THE LD. CIT(A) WAS NOT JUSTIFIED IN NOT DELETING THE SUM OF RS. 150,294/-. THE SAME IS DELETED. THUS THE LD. CIT(A) HAS RIGHTLY DELETED THE DISALLO WANCE MADE BY THE AO. 4.3 MOREOVER, THE HON'BLE DELHI HIGH COURT IN THE C ASE CIT VS. AIMIL LTD. ,321 ITR 508 HAS HELD THAT NO DISALLOWANCE CAN BE MADE IN RESPECT OF EMPLOYERS P.F. CONTRIBUTION AND EMPLOYEES P.F. CONT RIBUTION IN CASE SUCH CONTRIBUTIONS ARE PAID BEFORE DUE DATE OF FILING. I T IS NOT IN DISPUTE BEFORE US THAT THE CONTRIBUTIONS HAVE NOT BEEN PAID BEFORE DU E DATE OF FILING OF THE RETURN. WE THEREFORE, HOLD THAT THE LD. CIT(A) WAS JUSTIFIED IN DELETING THE EMPLOYERS P.F. CONTRIBUTION AND EMPLOYEES P.F. CONT RIBUTION. 5.0 NOW WE TAKE UP THE C.O. FILED BY THE ASSESSEE F OR THE ASSESSMENT YEAR 2003-04. 5.1 THE FIRST GROUND OF C.O. OF THE ASSESSEE IS TH AT THE LD. CIT(A) HAS ERRED IN CONFIRMING THE DISALLOWANCE OF EXPENSES OF RS. 12,74,949/- INCURRED FOR ISSUE OF BONDS BY TREATING THE SAME AS CAPITAL EXPENDITURE. 5.2 THE AO TREATED THE EXPENDITURE INCURRED ON RAIS ING THE FUNDS THROUGH BONDS AS CAPITAL AND THE THEREFORE, THE SAME WAS DI SALLOWED. 5.3 THE LD. CIT(A) HAS CONFIRMED THE ACTION OF THE AO. 6 5.4 WE HAVE HEARD BOTH THE PARTIES. THE ASSESSEE RA ISED THE FUNDS OF RS. 35.00 CRORES BY ISSUE OF PRIVATE PLACEMENT SECURED REDEEMABLE NON- CONVERTIBLE BONDS. THE HON'BLE JURISDICTIONAL HIGH COURT IN THE CASE OF CIT VS. SECURE METERS LTD., 321 ITR 611 HELD THAT THE E XPENDITURE INCURRED IN RELATION TO ISSUE OF DEBENTURES WERE ALLOWABLE AS D EDUCTION U/S 37 OF THE ACT AS REVENUE EXPENDITURE. THUS THIS ISSUE STANDS COVE RED BY THE DECISION OF HON'BLE JURISDICTIONAL HIGH COURT. THEREFORE, THE E XPENDITURE FOR RAISING THE FUNDS THROUGH BONUS IS ALLOWABLE AS REVENUE EXPENDI TURE. 6.1 THE SECOND GROUND OF THE C.O. OF THE ASSESSEE IS THAT THE LD. CIT(A) HAS ERRED IN CONFIRMING THE ADDITION OF RS. 1,05,87 ,365/- MADE BY THE AO ON ACCOUNT OF DISALLOWANCE OF PROVISION FOR CONTRACTU AL OBLIGATION. 6.2 THE LD. CIT(A) HAS CONFIRMED THE DISALLOWANCE F OR THE REASON THAT IN EARLIER YEARS THE DEPARTMENT HAS FILED THE APPEAL B EFORE HON'BLE HIGH COURT. 6.3 AFTER HEARING BOTH THE PARTIES, WE FEEL THAT TH IS ISSUE STANDS DECIDED BY THE TRIBUNAL IN THE CASE OF THE ASSESSEE FOR THE EA RLIER ASSESSMENT YEAR I.E. 1988-89 AND 1989-90. THE ISSUE MAY BE PENDING BEFOR E HON'BLE JURISDICTIONAL HIGH COURT AND THE DECISION OF HON'B LE JURISDICTIONAL HIGH COURT WILL BE BINDING FOR BOTH THE PARTIES. THEREFO RE, FOLLOWING THE ORDER OF THE TRIBUNAL IN THE CASE OF THE ASSESSEE FOR EARLIE R YEARS, WE HOLD THAT THE LD. CIT(A) WAS NOT JUSTIFIED IN CONFIRMING THE DISALLOW ANCE OF RS.1,05,87,365/-. 7 7.0 NOW WE TAKE UP THE APPEAL OF THE REVENUE FOR TH E ASSESSMENT YEAR 2004-05. 7.1 THE FIRST GROUND OF APPEAL OF THE REVENUE IS T HAT THE LD. CIT(A) HAS ERRED IN DELETING THE DISALLOWANCE OF RS. 15,64,645 /- ON ACCOUNT OF GUEST HOUSE EXPENSES. 7.2 FOLLOWING OUR ORDER FOR THE ASSESSMENT YEAR 200 3-04, WE HOLD THAT THE LD. CIT(A) WAS JUSTIFIED IN DELETING THE DISALLOWAN CE. 8.1 THE SECOND GROUND OF APPEAL OF THE REVENUE IS THAT THE LD. CIT(A) HAS ERRED IN DELETING THE DISALLOWANCE OF RS. 12,72,189 /- ON ACCOUNT OF GIFTS & PRESENTS IN BUSINESS PROMOTION EXPENSES. 8.2 FOLLOWING OUR ORDER FOR THE ASSESSMENT YEAR 200 3-04, WE HOLD THAT THE LD. CIT(A) WAS JUSTIFIED IN DELETING THE DISALLOWAN CE. 9.1 THE THIRD AND FOURTH GROUNDS OF APPEAL OF THE R EVENUE ARE IN RESPECT OF DELETION OF ADDITION IN RESPECT OF EMPLOYERS P.F. CONTRIBUTION AND EMPLOYEES P.F. CONTRIBUTION. 9.2 FOLLOWING OUR ORDER FOR THE ASSESSMENT YEAR 200 3-04, WE HOLD THAT THE LD. CIT(A) WAS JUSTIFIED IN DELETING BOTH THE DISAL LOWANCES 10.0 NOW WE TAKE UP THE C.O. OF THE ASSESSEE FOR TH E ASSESSMENT YEAR 2004-05. 8 10.1 THE FIRST GROUND OF C.O. OF THE ASSESSEE IS T HAT THE LD. CIT(A) HAS ERRED IN CONFIRMING THE DISALLOWANCE OF EXPENSES OF RS. 3,74,854/- INCURRED FOR ISSUE OF BONDS BY TREATING THE SAME AS CAPITAL EXPENDITURE. 10.2 FOLLOWING OUR ORDER FOR THE ASSESSMENT YEAR 20 03-04, WE HOLD THAT SUCH EXPENDITURE IS ALLOWABLE AS REVENUE EXPENDITUR E. 11.1 THE SECOND GROUND OF C.O. OF THE ASSESSEE IS THAT THE LD. CIT(A) HAS ERRED IN CONFIRMING THE ADDITION OF RS. 31,16,091/- MADE BY THE AO ON ACCOUNT OF DISALLOWANCE OF PROVISION FOR CONTRACTU AL OBLIGATION. 11.2 FOLLOWING OUR ORDER FOR THE ASSESSMENT YEAR 20 03-04, WE HOLD THAT THE AO WAS NOT JUSTIFIED IN DISALLOWING A SUM OF RS. 31 ,16,091/-. 12. IN THE RESULT, THE APPEALS OF THE REVENUE ARE D ISMISSED AND THE CROSS OBJECTIONS OF THE ASSESSEE ARE 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. THE ACIT, CIRCLE- 1, KOTA 2. M/S. INSTRUMENTATION LTD., KOTA 3 THE LD. CIT BY ORDER 4. THE LD. CIT(A) 5 THE LD.DR 6 THE GUARD FILE (ITA NO.331 /11) A.R. ITAT , JAIPUR 9