LECHLER (INDIA) P. LTD, MUMBAI V. ACIT CIR 1, THANE

ITA 3384/MUM/2009

• Counselvise Citation: [2010] 135 COUNSELVISE.COM (IT) 3744 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 5 month(s) 19 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 10-11-2010
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: G
• Next Hearing Date: 30-09-2010
• Assessment Year: 2004-2005
• Appeal Filed On: 22-05-2009
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Depreciation; Revenue expenditure; Capital expenditure
• Section: 143(3); 263

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCHES, G, MUMBAI BEFORE SHRI R K PANDA, ACCOUNTANT MEMBER AND SHRI VIJAY PAL RAO, JUDICIAL MEMBER ITA NO. 3384//MUM/2009 (ASSESSMENT YEAR : 2004-05) LECHLER (INDIA) P LTD PLOT NO.B2, WAGLE INDL. ESTATE, MAIN ROAD THANE (W) PAN: AAACL2921N APPELLANT VS ACIT CIR-1 THANE RESPONDENT ASSESSEE BY : SHRI YOGESH THAR REVENUE BY : SHRI PAVAN VED O R D E R PER VIJAY PAL RAO THIS APPEAL BY THE ASSESSEE IS DIRECTED AGAINST THE REVISION ORDER DATED 20.03.2009 OF CIT PASSED UNDE R SECTION 263 OF THE INCOME TAX ACT, 1961 FOR THE ASSESSMENT YEAR 2004-05. 2. THE ASSESSEE HAS RAISED THE FOLLOWING GROUNDS : 1. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE LEARNED COMMISSIONER OF INCOME TAX - I, THANE (THE CIT) ERRED IN INVOKING PROVISIONS OF SECTION 263 OF THE IT ACT, 1961 AND DIRECTING REVISION OF THE ASSESSMENT ORDER PASSED UNDER SECTION 143 (3) OF THE ACT BY THE ACIT, CIRCLE-1, THANE (THE AO) ON THE ALLEGED GROUND THAT THE ASSESSMENT ORDER WAS ERRONEOUS AND PREJUDICIAL TO THE INTEREST OF THE REVENUE; ITA NO. 3384//MUM/2009 (ASSESSMENT YEAR : 2004-05) 2 2. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE LEARNED COMMISSIONER OF INCOME TAX - I ERRED IN DIRECTING THE AO TO TREAT THE AMOUNT INCURRED FOR PURCHASE OF GENERAL TOOLS AS CAPITAL EXPENDITURE INSTEAD OF REVENUE EXPENDITURE AS TREAT ED BY THE ASSESSEE AND THEREBY DISALLOWING AN AMOUNT OF RS.30,93,477/- 3. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE LEARNED COMMISSIONER OF INCOME TAX - I, ERRED IN DIRECTING THE AO TO TREAT UN-ACCRUED S ALES TAX SET OFF AS INCOME OF THE ASSESSEE; 3. GROUND NO.1 REGARDING VALIDITY OF INVOKING THE JURISDICTION UNDER THE PROVISIONS OF SECTION 263 OF THE ACT. THE ASSESSEE COMPANY IS ENGAGED IN THE BUSINESS OF MANUFACTURING OF SPRAY NOZZLES. THE RETURN OF INCO ME WAS FILED BY THE ASSESSEE ON 30.10.2004. THE AO PASSED THE ASSESSMENT UNDER SECTION 143(3) VIDE ORDER DATED 22.12.2006. SUBSEQUENTLY, THE CIT NOTICED THAT THE AO HAS NOT EXAMINED THE ISSUE OF EXPENSES ON ACCOUNT OF TOOLS AND ACCORDINGLY PROPOSED TO REVISE THE ASSESSMENT BY IS SUING A SHOW CAUSE NOTICE DATED 30.1.2009. AFTER CONSIDERIN G THE REPLY AND CONTENTION OF THE ASSESSEE, THE CIT(A) H AS PASSED THE IMPUGNED REVISION ORDER WHEREBY THE EXPENDITURE S ON ACCOUNT OF TOOLS ARE HELD TO BE CAPITAL IN NATURE A ND ACCORDINGLY, HE DISALLOWED THE EXPENDITURE OF RS.41 ,24,636/- AND ALLOWED THE DEPRECIATION AT THE RATE OF 25% OF THE SAME. APART FROM THIS, THE CIT HAS ALSO HELD THAT THE SAL ES TAX SET OFF OF RS.10,50,000/-ACCRUED IS THE INCOME OF THE ASSES SEE FOR THE ITA NO. 3384//MUM/2009 (ASSESSMENT YEAR : 2004-05) 3 ASSESSMENT YEARS UNDER CONSIDERATION AND ACCORDINGL Y THE SAME WAS ORDERED TO BE ADDED IN THE TOTAL INCOME OF HE ASSESSEE. 4. THE LEARNED AR OF THE ASSESSEE HAS SUBMITTED TH AT IN THIS CASE, THE ASSESSMENT ORDER WAS PASSED BY THE AO U/S 143(3) AFTER VARIOUS ADDITIONS AND DISALLOWANCE AND DETERMINED THE TOTAL INCOME AT RS.3,12,52,003/- AS AGAINST THE RETURN OF INCOME AT RS.3,10,79,260/-. HE HAS THUS SUBMITTED THAT ONCE THE AO HAS TAKEN ONE OF THE POSSIBLE VI EW AFTER EXAMINATION AND SCRUTINY OF THE RECORD THEN THE C IT CANNOT TAKE A DIFFERENT VIEW FROM THE VIEW SO TAKEN BY THE AO AND NO REVISION IS ALLOWABLE U/S 263 OF THE IT ACT. TH E LEARNED AR OF THE ASSESSEE HAS REFERRED A SAMPLE COPY OF CATAL OGUE OF SOME OF THE TOOLS AND SUBMITTED THAT THE LIFE OF T HE TOOLS USED IN THE MANUFACTURING PROCESS IS VERY SHORT AND THER EFORE THESE TOOLS ARE ONLY THE CONSUMABLE ITEMS IN THE PROCESS OF MANUFACTURING DUE TO SHORT SPAN OF LIFE. WHEREAS T HE AO HAS ALLOWED THE CLAIM OF THE ASSESSEE IN SCRUTINY ASSES SMENT, THEN THE CIT HAS NO JURISDICTION TO INVOKE THE PRO VISIONS OF SECTION 263 AND IT IS NOT SUSTAINABLE IN LAW. 5. AS REGARDS THE SALES TAX SET OF, THE LEARNED AR HAS SUBMITTED THAT THE SALES TAX IS PAYABLE ON THE GOOD S SOLD BY THE ASSESSEE AND AS PER THE SALES TAX LAW THE ASSES SEE IS TO GET SET OF AS RECOGNIZED INCOME AND OFFERED TO TAX IN THE YEAR ITA NO. 3384//MUM/2009 (ASSESSMENT YEAR : 2004-05) 4 IN WHICH THE ASSESSMENT ORDER PASSED BY THE SALES T AX OFFICER. SO LONG THE SALES TAX SET OFF RECEIPT IS UNCERTAIN THE SAME CANNOT BE RECOGNIZED AS AN INCOME OF THE ASESE EE THEREFORE, THE RECEIPT OF SALES TAX SET OFF IS UNCE RTAIN TILL THE SALES TAX OFFICER PASS THE ORDER. THE ISSUE HAS BEE N EXAMINED BY THE AO DURING THE ASSESSMENT PROCEEDIN GS FOR THE ASSESSMENT YEAR 2000-01, AFTER THE QUERY RAISE D BY THE AO AND REPLIED BY THE ASSESSEE. THE LD. AR HAS SUB MITTED THAT THE AO ALLOWED THE SET OFF CLAIM TO THE EXT ENT OF RS.10,50,000/- WHICH WAS ACTUALLY RECEIVED BY THE A SSESSEE AND CREDITED TO THE PROFIT AND LOSS ACCOUNT AND RE MAINING AMOUNT WHICH WAS SHOWN IN THE AUDIT REPORT L AS SAL ES TAX SET OFF CLAIM FROM THE SALES TAX DEPARTMENT BUT THE AS SESSMENT OF WHICH IS PENDING AND THE ASSESSEE HAS NOT RECEI VED SALES TAX SET OFF THUS, WHEN THE AO HAS DECIDED THE IS SUE FOR THE ASSESSMENT YEAR 2000-01 AND THE CLAIM OF THE ASSE SSEE WAS ALLOWED FOR THIS ASSESSMENT YEAR IN TERMS OF THE EA RLIER ASSESSMENT YEAR, THEN THE CIT CANNOT TAKE A DIFFER ENT VIEW. HE HAS RELIED UPON THE DECISION OF THE HON.SUPREME COURT IN THE CASE OF MALABAR INDUSTRIES CO. V/S CIT (243 IT R 83)(SC) AND THE DECISION OF ALLAHABAD HIGH COURT IN THE CAS E OF COMMISSIONER OF INCOME TAX V/S RENU SAGAR POWER CO. LTD.. (298 ITR 94 (ALL) AND THE ORDER OF THIRD MEMB ER OF THIS TRIBUNAL IN THE CASE OF DCIT V/S MAHARASHTRA SC OOTERS LTD (1997) 61 ITD 12 (PUNE). HE HAS ALSO RELIED UPON TH E DECISION ITA NO. 3384//MUM/2009 (ASSESSMENT YEAR : 2004-05) 5 OF THIS TRIBUNAL IN THE CASE OF DCIT V/S ASSOCIA TE CAPSULE PVT LTD REPORTED IN 21 SOT 420. 6. ON THE OTHER HAND, THE LEARNED DR HAS SUBMITTE D THAT THE AO HAS NOT AT ALL EXAMINED THE ISSUE OF THE EX PENDITURES OF TOOLS AS WELL AS THE SETTING OFF THE SALES TAX RECEIPT. HE HAS FURTHER CONTENDED THAT WHEN THE AO HAS NOT EXAM INED THE ISSUE WHICH IS A SUBJECT MATTER OF THE REVISION OR DER WHICH CLEARLY SHOWS THAT THE AO HAS NOT APPLIED HIS MIND WHILE PASSING THE ASSESSMENT ORDER AND ACCORDINGLY IT AM OUNTS TO ERRONEOUS AND PREJUDICIAL TO THE INTERESTS OF THE R EVENUE. THUS, THE LEARNED DR HAS SUBMITTED THAT THE CIT IS JUSTIFIED IN INVOKING THE PROVISIONS OF SECTION 263. THE LEAR NED DR HAS POINTED OUT THAT THE ASSESSEE HAS NOT FILED ANY DET AILS TO ESTABLISH THAT THE EXPENDITURES OF TOOLS IS A REVEN UE EXPENDITURE. THE AO HAS ALSO NOT BROUGHT ON RECO RD ANY DETAILS ON THIS ISSUE WHILE PASSING THE ORDER. HE HAS FURTHER SUBMITTED THAT THE DESCRIPTION OF CATALOG FILED B Y THE AR AT PAGE 8 OF THE PAPER BOOKS IS ONLY REGARDING ONE TO OL AND NOTHING HAS BEEN PRODUCED REGARDING OTHER TOOLS AGA INST WHICH THE EXPENDITURE HAS BEEN CLAIMED BY THE ASSESSEE. THE BURDEN IS ON THE ASSESSEE TO PROVE THAT THE EXPENDI TURE INCURRED ON THE TOOLS IS A REVENUE IN NATURE. THE LEARNED DR HAS FURTHER CONTENDED THAT THE LIST OF TOOL IS NOT RELEVANT FOR ITA NO. 3384//MUM/2009 (ASSESSMENT YEAR : 2004-05) 6 ALLOWABILITY OF THE EXPENDITURE UNDER THE INCOME TA X ACT. HE HAS RELIED UPON TOE ORDER OF THE CIT(A). 7. IN REBUTTAL, THE LEARNED AR HAS SUBMITTED THAT, IN REPLY TO THE SHOW CAUSE NOTICE ISSUED UNDER SECTION 263, THE ASSESSEE HAS REQUESTED FOR PERSONAL HEARING BUT THE CIT(A) HAS PASSED THE IMPUGNED ORDER WITHOUT GIVING ANY OPPORTUNITY O F BEING HEARD TO THE ASSESSEE. 8. WE HAVE CONSIDERED THE RIVAL CONTENTIONS AND RE LEVANT RECORD. WE FIND THAT WHILE PASSING THE ASSESSMENT ORDER U/S 143(3) FOR THE ASSESSMENT YEAR UNDER CONSIDERATION, THE AO HAS NOT DISCUSSED ANY THING IN RESPECT OF THE CLAIM OF EXPENDITURES OF TOOLS AS WELL AS ON THE ISSUE OF SE T OFF OF SALES TAX RECEIPT. THUS, IT IS CLEAR THAT THE AO HAS N OT APPLIED HIS MIND ON THESE ISSUES BECAUSE NOTHING HAS BEEN RECOR DED IN THE ASSESSMENT ORDER FOR ADDRESSING THE ISSUES WHIC H ARE THE SUBJECT MATTER OF THE REVISION ORDER. IN ORDER TO CONCLUDE THAT THE AO HAS APPLIED HIS MIND AND TAKEN A VIEW ON T HE ISSUE, THE ASSESSMENT ORDER SHALL EXHIBIT SOME THOUGHT PRO CESS ON THE PART OF THE AO IN ADDRESSING THE ISSUE. THEREFO RE, WHEN THE AO HAS NOT DISCUSSED ANYTHING AND ACCORDINGL Y NOT APPLIED HIS MIND THEN IT IS CLEAR THAT THE AO HAS NOT TAKEN ANY VIEW IN RESPECT OF THE ISSUE OF EXPENDITURE OF TOOLS. THE HON. SUPREME COURT IN THE CASE OF MALABAR INDUSTRI ES CO. V/S ITA NO. 3384//MUM/2009 (ASSESSMENT YEAR : 2004-05) 7 CIT (SUPRA) HAS HELD THAT WHEN THE INCOME TAX OF FICER HAS PASSED THE ORDER WITHOUT APPLICATION OF MIND AND E RRONEOUS, THEN THE ORDER PASSED BY HIM WAS ERRONEOUS AND PRE JUDICIAL TO THE INTEREST OF THE REVENUE, THEREFORE, THE CIT( A) IS JUSTIFIED IN INVOKING THE PROVISIONS OF SECTION 263. THUS, W HEN THE ASSESSMENT ORDER DOES NOT SHOW ANY APPLICATION OF M IND BY THE AO WITH RESPECT OF THE ISSUE OF EXPENDITURE OF TOOLS THEN COMMISSIONER OF INCOME TAX WAS RIGHT AND JUSTIFIED IN EXERCISING THE POWERS OF REVISION U/S 263 OF THE ACT. THE DECISIONS RELIED UPON BY THE LEARNED AR ON THE POIN T OF VALIDITY OF INVOKING THE PROVISIONS OF JURISDICTION OF SECTI ON 263 BY THE CIT(A) ARE NOT APPLICABLE IN THE FACTS AND CIRCUMST ANCES OF THE CASE. IN THE CASE OF CIT V/S SUNBEAM AUTO LTD (DEL HI) 189 TAXMAN 436 (DELHI), THE AO TAKEN ONE OF THE POSSIB LE VIEWS ON THE ISSUE WHICH WAS A SUBJECT MATTER OF THE RE VISION ORDER. EVEN IN THAT CASE, THE HON. DELHI HIGH COURT HAS OB SERVED THAT ONLY IN THE CASE OF LACK OF INQUIRY WOULD GIVE TO CIT TO PASS THE ORDER U/S 263 BUT NOT IN CASE OF INADEQUA TE INQUIRY. IN THE CASE IN HAND, WHEN NO INQUIRY WAS MADE BY THE AO, THEN, THE SAID DECISION IS NOT APPLICABLE. THE CAS E OF CIT V/S RENU SAGAR (SUPRA) IS RELATING TO THE MERITS OF THE EXPENDITURE ON DIES AND THEREFORE THE SAME IS NOT RELEVANT WH ILE DECIDING THE VALIDITY OF INVOKING THE PROVISIONS OF SECTION 263. HOWEVER, ON THE ISSUE OF SALES TAX SET OFF, THE ASS ESSEE IS CONSISTENTLY FOLLOWING THE METHOD OF ACCOUNTING BY TREATING ITA NO. 3384//MUM/2009 (ASSESSMENT YEAR : 2004-05) 8 THE INCOME ON ACCOUNT OF SALES TAX SET OFF AND TH E AO EXAMINED THIS ISSUE FOR THE ASSESSMENT YEAR 2000- 01 WHILE PASSING THE ASSESSMENT ORDER U/S 143(3) AND ACCEPTE D THE CLAIM OF THE ASSESSEE IN TREATING THE INCOME OF S ALES TAX SET OFF WHEN THE SALES TAX ASSESSMENT IS MADE. WE FU RTHER NOTE THAT FOR THE ASSESSMENT YEAR 2000-01, THE AO HAS IS SUED A LETTER DATED 14.2.2003 TO THE ASSESSEE WHEREIN IN PARAGRAPH 11, THE AO HAS SPECIFICALLY POINTED OUT THAT ON THE PERUSAL OF THE ANNEXURE A-IV OF THE AUDIT REPORT IT IS SEEN T HAT SALES TAX LIABILITY WHICH WAS NOT PAID AT THE END OF THE PREV IOUS YEAR RELEVANT TO THE ASSESSMENT YEAR UNDER CONSIDERATION IS SHOWN AT RS.1,22,27,750/-. FURTHER, ON 2.05.2000, RS.73, 231/- APPEARS TO HAVE BEEN PAID AND SET OFF OF RS.11,54, 527/- APPEAR TO HAVE BEEN CLAIMED. THE AO HAS RAISED QUE RY AND ASKED THE ASSESSEE TO FILE THE DETAILS AS TO HOW TH E SALES TAX IS ACCOUNTED IN THE PROFIT AND LOSS ACCOUNT AND THE BALANCE SHEET AND ALSO TO FILE THE DETAILS AS TO HOW THE SALES TAX SET OFF HAS BEEN ACCOUNTED IN THE CURRENT PREVIOUS YEAR AS WELL AS IN THE EARLIER ASSESSMENT YEAR. THE ASSESSEE FILE D REPLY DATED 04.03.2003 AND EXPLAINED THAT THE SALES TAX S ET OF IS ACCOUNTED IN THE YEAR IN WHICH THE SAME IS ACCEPTED BY THE SALES TAX AUTHORITY BY PASSING THE ORDER UNDER THE RELEVANT SALES TAX LAWS. WE NOTE THAT AFTER THIS QUERY BY T HE AO AND REPLY THERETO BY THE ASSESSEE, THE AO ACCEPTED THE CLAIM OF THE ASSESSEE WHILE PASSING THE ASSESSMENT ORDER FOR THE ITA NO. 3384//MUM/2009 (ASSESSMENT YEAR : 2004-05) 9 ASSESSMENT YEAR 2000-01. WE FURTHER NOTE THAT TH IS ISSUE IS A DEBATABLE ISSUE AND AS RELIED UPON BY THE LEARNED AR, THIS TRIBUNAL HAS TAKEN A VIEW IN FAVOUR OF THE ASSESSEE IN THE CASE OF DCIT V/S MALABAR INDUSTRIES CO.(SUPRA) WHI CH WAS FOLLOWED BY THIS TRIBUNAL IN THE CASE DCIT V/S AS SOCIATE CAPSULE PVT LTD. THUS, WHEN THE AO HAS TAKEN ONE OF THE POSSIBLE VIEW BASED ON THE EARLIER ASSESSMENT ORDER , THEN THE CIT CANNOT TAKE A DIFFERENT VIEW THAN THE VIEW SO T AKEN BY THE AO. ACCORDINGLY, TO THE EXTENT, THE ISSUE OF EXPEN DITURE OF TOOLS INVOKING THE JURISDICTION OF SECTION 263 IS J USTIFIED AND VALID. ON MERITS 9. THE AO HAS NOT AT ALL EXAMINED THE ISSUE AND THE CIT HAS DECIDED THE ISSUE ON MERITS WITHOUT EXAMINATIO N OF ANY EVIDENCE ON THIS ISSUE. IT IS APPARENT FROM THE IM PUGNED ORDER THAT THE CIT HAS NOT EVEN AFFORDED THE ASSESSEE A N OPPORTUNITY WHILE DECIDING THE ISSUE ON MERITS. TH EREFORE, WE ARE OF THE VIEW THAT ON MERITS, THE ISSUE REQUIRES TO BE EXAMINED PROPERLY BY THE AO. ACCORDINGLY, WE MOD IFY THE IMPUGNED REVISION ORDER ON THE ISSUE OF EXPENDITURE S OF TOOLS AND REMIT THIS ISSUE TO THE RECORD OF THE AO TO EX AMINE AND VERIFY THE CLAIM AND DECIDE THE SAME AS PER LAW. NEEDLESS TO SAY THE ASSESSEE SHOULD BE GIVEN PROPER OPPORTUNITY OF HEARING BEFORE PASSED THE ORDER. ITA NO. 3384//MUM/2009 (ASSESSMENT YEAR : 2004-05) 10 10. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS PA RTLY ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 10.11.2020 SD SD (R. K. PANDA) (VIJAY P AL RAO) ACCOUNTANT MEMBER JUDICIAL MEMBER MUMBAI, DATED 10 TH NOV 2010 SRL:181010 COPY TO: 1. APPELLANT 2. RESPONDENT 3. CIT CONCERNED 4. CIT(A) CONCERNED 5. DR CONCERNED BENCH BY ORDER TRUE COPY ASSTT. REGISTRAR, ITAT, MUMBAI