M/s. HADEN INTERNATIONAL GROUP INDIA P. LTD., THANE V. ACIT CIR. - 1, THANE

ITA 3395/MUM/2008

• Counselvise Citation: [2012] 140 COUNSELVISE.COM (IT) 59712 (ITAT-MUMBAI)
• Duration Of Justice: 3 year(s) 8 month(s) 3 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 18-01-2012
• Appeal Filed By: Assessee
• Bench Allotted: H
• Next Hearing Date: 11-01-2012
• Assessment Year: 2003-2004
• Appeal Filed On: 15-05-2008
• Court: TRIBUNAL
• Department Lawyers: C G K NAIR
• Keywords: Opportunity of being heard; Revenue expenditure
• Section: 244A; 68; 28

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH H BEFORE SHRI J. SUDHAKAR REDDY(AM) & SHRI V.DURGA RA O(JM) I.T.A.NO. 3395/MUM/2008 (ASSESSMENT YEAR : 2003-04) EISENMANN SURFACE FINISHING SYSTEMS INDIA PVT. LTD. (FORMERLY HADEN INTERNATIONAL GROUP INDIA PVT. LTD.) TECHNOSOFT KNOWLEDGE GATEWAY 1 ST FLOOR, PLOT NO. B-14, ROAD NO. 1 WAGLE INDUSTRIAL ESTATE THANE WEST-400 604. VS. ACIT CIRCLE 1 VARDAAN BUILDING LOWER GROUND FLOOR MIDC, WAGLE INDUSTRIAL ESTATE THANE-400 604. APPLICANT RESPONDENT PAN/GIR NO. : AAACH1459D ASSESSEE BY : SHRI FARROKH V. IRANI DEPARTMENT BY : SHRI C.G.K. NAIR DATE OF HEARING : 11.1.2012 DATE OF PRONOUNCEMENT : 18.1.2012 ORDER PER J. SUDHAKAR REDDY(AM) :- THIS APPEAL IS FILED BY THE ASSESSEE DIRECTED AG AINST THE ORDER DATED 22.2.2008 OF LEARNED CIT(A)-II, THANE FOR A.Y . 2003-04 ON THE FOLLOWING GROUNDS :- 1. THE LEARNED CIT(A) ERRED IN CONFIRMING THE ADDITION ON ACCOUNT OF DISALLOWANCE OF WARRANTY PROVISION OF ` 2,18,950/- ON THE GROUND THAT THE SAID EXPENDITURE HAS NOT CRYSTALLI ZED AND HENCE PROVISIONS FOR PERFORMANCE GUARANTY AMOUNTS T O CONTINGENT LIABILITY. 2. WITHOUT PREJUDICE TO GROUND NO. 1 ABOVE, LEARNED CI T(A) ERRED IN NOT ADJUDICATING THE ALTERNATIVE GROUND OF THE A PPELLANT TO EXCLUDE FROM THE TOTAL INCOME ASSESSED FOR THE YEAR , THE REVERSAL OF WARRANTY PROVISION OF EARLIER YEARS, AM OUNTING TO ` 26,94,333/- WHICH WAS DISALLOWED IN THE ASSESSMENT YEAR 2002-03, AND REMAINED UNUTILIZED AND CREDITED TO TH E PROFIT AND LOSS ACCOUNT FOR THE YEAR UNDER APPEAL. EISENMANN SURFACE FINISHING SYSTEMS INDIA PVT. LTD. 2 3. THE LEARNED CIT(A) ERRED IN CONFIRMING THE ADDITION OF ` 14,45,265/- TO THE TOTAL INCOME, IN TERMS OF SECTIO N 28 OF THE I.T. ACT, 1961, AS ITEM NOT CREDITED TO THE PROFIT AND LOSS ACCOUNT, ON THE GROUND THAT THE BALANCE AMOUNT CAN NOT BE ATTRIBUTED TO A SPECIFIC CONTRACT, WITHOUT CALLING FOR ANY DETAILS PERTAINING TO VARIOUS CONTRACTS AND GOING INTO MERI TS OF THE CASE. 4. WITHOUT PREJUDICE TO GROUND NO. 3 ABOVE, LEARNED CI T(A) ERRED IN NOT ADJUDICATING THE GROUND OF THE APPELLANT TO EXCLUDE FROM THE TOTAL INCOME ASSESSED, A SUM OF ` 9,48,833/-, BEING THE AMOUNT CONSIDERED BY THE APPELLANT AS INCOME IN THE ASSESSMENT YEAR UNDER APPEAL, OUT OF UNAMORTIZED SE T UP CONST REVENUE OF ` 7,73,333/-, THE WHOLE OF WHICH WAS ALREADY CONSIDERED AS INCOME BY THE ASSESSING OFFICER AND A DDED TO THE TOTAL INCOME ASSESSED FOR THE INCOME TAX ASSESS MENT YEAR 2002-03. 5. THE LEARNED CIT(A) ERRED IN CONFIRMING THE DISALLOW ANCE OUT OF CERTAIN EXPENSES, ON THE GROUND THAT PERSONAL USAG E TO SOME EXTEND AT LEAST CAN NOT BE RULED OUT AS PER DETAIL S OF SUCH EXPENSES TABULATED BELOW :- NATURE OF EXPENSES TOTAL EXPENSES ( ` ) PERCENTAGE CONSIDERED AS PERSONAL BY THE AO AMOUNT DISALLOW ED BY THE AO ( ` ) PERCEN TAGE UPHELD AS PERSNA L BY THE CIT(A) ENTERTAINMENT EXPENSES 19,800 25% 4,950 15% MISCELLANEOUS EXPENSES 9,95,371 25% 2,48,843 15% COMMUNICATION EXPENSES 25,52,790 10% 6,77,463 10% TRAVELLING AND CONVEYANCE 67,74,634 10% 6,77,463 10% TOTAL AMOUNT DISALLOWED 11,86,535 6. (A) THE LEARNED CIT(A) ERRED IN NOT ADJUDICATING T HE GROUND OF THE APPELLANT ON THE DISALLOWANCE OF BUSINESS DEVEL OPMENT EXPENDITURE TO THE EXTENT OF ` 1,19,289/- MADE BY THE ASSESSING OFFICER, ARBITRARILY AND WITHOUT ANY BASI S, BY TREATING SUCH EXPENDITURE TO BE IN THE NATURE OF DEFERRED RE VENUE EXPENDITURE, AS PER DETAILS TABULATED BELOW :- DESCRIPTION TOTAL EXPENSES ` AMOUNT ALLOWED (1/3 RD ) AMOUNT DISALLOWED (2/3 RD ) BUSINESS DEVELOPMENT EXPENDITURE 1,78,934 59,645 1, 19,289 (B) WITHOUT PREJUDICE TO GROUND NO. 6(A) ABOVE, LEA RNED CIT(A) FURTHER ERRED IN DISALLOWING 15% OF ` 42,497/- ( ` 1,19,289/- EISENMANN SURFACE FINISHING SYSTEMS INDIA PVT. LTD. 3 LESS EARLIER YEARS DEFERMENT OF ` 76,792/-), OUT OF THE EXPENDITURE INCURRED ON BUSINESS DEVELOPMENT ON ACC OUNT OF PERSONAL ELEMENT OF THE EXPENSES, ARBITRARILY AND WITHOUT ANY BASIS WITHOUT UNDERSTANDING THE ACTUAL GROUND OF AP PEAL AND WITHOUT GIVING THE APPELLANT AN OPPORTUNITY TO BE H EARD IN THE MATTER. 7. THE LEARNED CIT(A) ERRED IN NOT ADJUDICATING THE GR OUND OF THE APPELLANT TO EXCLUDE FROM THE TOTAL INCOME ASSESSED , A SUM OF ` 18,433/- BEING 1/3 RD OF THE TOTAL EXPENDITURE OF ` 55,300/- INCURRED ON REPAIRS AND MAINTENANCE IN THE ASSESSME NT YEAR 2002-03, WHICH WAS HELD BY THE ASSESSING OFFICER AS DEFERRED REVENUE EXPENDITURE IN THAT YEAR, WITH A DIRECTION THAT ` 36,867/- WILL BE ALLOWED OVER THE NEXT TWO YEARS IN EQUAL INSTALLMENTS OF ` 18,433/- EACH. 8. THE LEARNED CIT(A) ERRED IN CONFIRMING THE ADDITION OF ` 42,51,363/- ON ACCOUNT OF EXCHANGE LOSS, WITHOUT UNDERSTANDING THE FACTS AND CIRCUMSTANCES OF THE CA SE AND MERELY AGREEING TO THE RELIANCE PLACED BY THE ASSES SING OFFICER ON THE DECISIONS OF HON'BLE SUPREME COURT IN TUTIC ORIN ALKALIES VS. CIT, 227 ITR 172 AND IN THE CASE OF IN DIAN MOLASSES IN 37 ITR 66, AS ALSO ON THE DECISION OF H ON'BLE KARNATAKA HIGH COURT IN CIT VS. MOTOR INDUSTRIES LT D., 229 ITR 137. 9. THE LEARNED CIT(A) ERRED IN NOT ADJUDICATING THE GR OUND OF THE APPELLANT PERTAINING TO INTEREST PAYABLE UNDER SECT ION 244A OF THE ACT, ON THE REFUND OF TAXES DUE NOT HAVING BEEN COMPUTED BY THE ASSESSING OFFICER. 2. THE ASSESSEE IS A COMPANY WHICH IS ENGAGED IN TH E BUSINESS OF DESIGNS SUPPLY AND INSTALLATION OF PAINT FINISHING SYSTEM AND CONVEYORS. IT ALSO PROVIDES INTEGRATED FACILITIES AND MANAGEME NT SERVICES. 3. WE HAVE HEARD MR. FARROKH V. IRANI, LEARNED COUN SEL FOR THE ASSESSEE AND MR. C.G.K. NAIR, SENIOR AR ON BEHALF O F THE REVENUE. WE NOW CONSIDER THE ISSUE IN SERIATIM. GROUND NO. 1 IS ON THE DISALLOWANCE OF WARRANTY PROVISION OF ` 2,18,950/-. THE DISALLOWANCE WAS MADE ON THE GROUND THAT THE EXPENDITURE HAS NOT CRYSTALLIZED AN D HENCE PROVISIONS FOR PERFORMANCE GUARANTY AMOUNTED CONTINGENT LIABILITY. THIS ISSUE CAME UP BEFORE H BENCH OF THE TRIBUNAL IN ASSESSEES OWN CASE FOR EARLIER ASSESSMENT YEAR 2002-03 IN ITA NO. 188/MUM/2006 DAT ED 3.11.2008, AND THE TRIBUNAL FOLLOWING ITS OWN ORDERS FOR A.YS. 1996-97 TO 2000-01 EISENMANN SURFACE FINISHING SYSTEMS INDIA PVT. LTD. 4 ALLOWED THE CLAIM OF THE ASSESSEE. RESPECTFULLY FOL LOWING THE SAME, WE ALLOW GROUND NO. 1 OF THE ASSESSEE. 4. GROUND NO. 2 IS ON THE REVERSAL OF WARRANTY PROV ISION MADE IN EARLIER YEARS. THIS GROUND IS CONSEQUENTIAL TO GROU ND NO. 1. AS IN THE EARLIER YEAR, THIS GROUND IS DECIDED AGAINST THE AS SESSEE FOR THIS YEAR ALSO. 5. GROUND NO. 3 IS ON THE ADDITION TO THE TOTAL INC OME U/S. 68 OF ITEMS NOT CREDITED TO THE PROFIT AND LOSS ACCOUNT. SIMILAR ISSUE HAS COME UP BEFORE THE TRIBUNAL AND AT PARAGRAPH 9, PAGE 5-6 OF THE ORDER FOR A.Y. 2002-03, THE TRIBUNAL HELD AS FOLLOWS :- 9. WE HAVE HEARD RIVAL SUBMISSIONS AND PERUSED THE ORDERS OF THE LOWER AUTHORITIES. WE FIND FROM PARAGRAPH 4 OF THE ASSESSMENT ORDER THAT THE SAID AMOUNT RELATES TO ON E-TIME- PAYMENT PAID BY THE CUSTOMER FOR INITIAL START UP O F THE CONTRACT BETWEEN THE ASSESSEE AND M/S. SHILPA LTD. THE CASE OF THE ASSESSEE IS THAT THE AMOUNT IS MERE ONE TIME PAYMENT AND IT RELATES TO THE CONTRACT TO BE EXECUT ED OVER THE PERIOD OF 5 YEARS AND, THEREFORE, THE AMOUNT HA S TO BE STAGGERED OVER THE YEARS, AS DONE BY THE ASSESSEE. ON THE OTHER HAND, THE CASE OF REVENUE IS THAT THE AMOUNT IS A TAXABLE RECEIPT AND RELATES TO INITIAL START-UP OF CONTRACT AND ONE-TIME-PAYMENT AND IT IS TAXABLE IN THIS YEAR ITS ELF. IN THE LIGHT OF THE ABOVE POSITION, WE HAVE TO DECIDE WHET HER THE SAID AMOUNT OF ` 8 LAKHS IS INCOME OF THE YEAR OR NOT. WE HAVE LOOKED FOR THE BASIC FACT AND THE AGREEMENTS B ETWEEN THE ASSESSEE AND M/S. SHILPA LIMITED, WHICH ARE MIS SING IN THE ORDERS. AS SUCH, THE ASSESSING OFFICERS DECISI ON OF HOLDING IT AS REVENUE RECEIPT WAS NOT ARRIVED AT AF TER EXAMINING THE RELEVANT DOCUMENTS AND AGREEMENTS IN THIS REGARD. THE ORDERS OF BOTH THE ASSESSING OFFICER AN D LEARNED CIT(A) IN THIS REGARD DO NOT SPEAK OF THE BASIC FAC TS AS TO THE NATURE OF ARRANGEMENT/AGREEMENT BETWEEN THE ASS ESSEE AND CLIENT AND RELEVANT FACTS REGARDING PAYMENT OF ` 8 LAKHS IN THIS REGARD. THEREFORE, WE ARE CONSIDERED OPINIO N THAT THE ASSESSING OFFICER HAS TO BRING OUT RELEVANT BASIC F ACTS RELATING TO THE NATURE OF THE RECEIPT OF ` 8 LAKHS, TERMS OF CONTRACT, INCOME RECOGNITION METHODS FOLLOWED BY TH E ASSESSEE ETC. AND DECIDE THE ISSUE AFRESH AFTER GIV ING REASONABLE OPPORTUNITY OF BEING HEARD TO THE ASSESS EE. ACCORDINGLY, GROUND 3 OF THE ASSESSEE IS SET ASIDE. EISENMANN SURFACE FINISHING SYSTEMS INDIA PVT. LTD. 5 6. CONSISTENT WITH THE VIEW TAKEN THEREIN, WE SET A SIDE THE ISSUE TO THE FILE OF THE ASSESSING OFFICER FROM FRESH ADJUDI CATION IN ACCORDANCE WITH LAW. 7. GROUND NO. 4 IS CONSEQUENTIAL TO GROUND NO. 3 AN D HENCE CONSISTENT WITH THE VIEW TAKEN WE SET ASIDE THE MAT TER TO THE FILE OF THE ASSESSING OFFICER. 8. GROUND NO. 5 IS ON THE ISSUE OF ADHOC DISALLOWAN CE ON THE GROUND THAT EXPENDITURE IS PERSONAL IN NATURE. 9. THE TRIBUNAL IN EARLIER ASSESSMENT YEAR AT PARAG RAPH 13 ON PAGE 8 HELD AS FOLLOWS :- WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED TH E RELEVANT MATERIAL IN THIS REGARD. PERUSAL OF THE SAID DECISI ONS MENTIONED ABOVE REVEALED THAT THE DISALLOWANCE MADE BY THE RE VENUE AUTHORITIES IS NOT IN ORDER. THEREFORE, THE DECISIO N OF LEARNED CIT(A) IN THIS REGARD IS SET ASIDE AND THE CLAIM OF THE ASSESSEE SHOULD BE ALLOWED. ACCORDINGLY, GROUND NO. 4 IS ALL OWED. 10. THE ASSESSING OFFICER DURING THE YEAR HAS TAKEN A VIEW THAT THE EXPENDITURE IS IN THE NATURE OF DEFERRED REVENUE EX PENDITURE. LEARNED CIT(A) HAS NOT DEALT WITH THIS ISSUE. AFTER CONSID ERING THE FACTS OF THE CASE, WE PREFER TO FOLLOW THE DECISION OF THE BENCH FOR A.Y. 2002-03 AND ALLOW GROUND OF THE ASSESSEE. AS REGARDS FINDING TH AT THIS IS DEFERRED REVENUE EXPENDITURE, WE FIND THAT THIS EXPENDITURE CANNOT BE CLASSIFIED AS DEFERRED REVENUE EXPENSES. THESE ARE IN THE REV ENUE FIELD; HENCE, WE ALLOW THIS GROUND OF THE ASSESSEE. GROUND NO. 7 IS TO BE DECIDED AGAINST THE ASSESSEE AND IS DISMISSED. 11. GROUND NO. 8 IS ON THE LIABILITY OF EXCHANGE LO SS. 12. THE ASSESSING OFFICER AT PAGE 3 PARAGRAPH 5 OF HIS ORDER HAS CONSIDERED THE ARGUMENTS OF THE ASSESSEE AND CAME T O THE CONCLUSION THAT THE EXPENDITURE HAS NOT CRYSTALLIZED. THE UNDI SPUTED FACT IS THAT THE FOREIGN EXCHANGE LOSS IS ON THE REVENUE ITEMS. LEAR NED CIT(A) CONFIRMED THE ADDITION BY OBSERVING AS FOLLOWS :- EISENMANN SURFACE FINISHING SYSTEMS INDIA PVT. LTD. 6 I HAVE CAREFULLY CONSIDERED BOTH THE ARGUMENTS. IT IS SEEN THAT THE SALE PARTICULARS GUARANTEED IN THE P&L A/C. INCLUDE S EXPENDITURE TO BE INCURRED ON PERFORMANCE GUARANTY QUANTIFICATI ON OF WHICH MAY TAKE PLACE AT A LATER DATE, HAS BEEN TAKEN INTO ACCOUNT IN COMPUTING THE PROFITS LIABLE TO TAX BY THE ASSESSEE . FROM THE ABOVE, IT IS CLEAR THAT THE SAID EXPENDITURE WAS NO T CRYSTALLIZED AND HENCE PROVISIONS OF PERFORMANCE GUARANTY AMOUNT S TO CONTINGENT LIABILITY. IN THE LIGHT OF THE ABOVE, TH E ASSESSING OFFICER HAS CORRECTLY DISALLOWED AN AMOUNT OF ` 2,18,950/- TOWARDS W.P. FOR THIS YEAR ALSO AS IN EARLIER YEAR. THE ADDITION IS CONFIRMED. 13. LEARNED COUNSEL FOR THE ASSESSEE SUBMITS THAT T HIS ISSUE IS COVERED IN FAVOUR OF THE ASSESSEE BY THE DECISION O F HON'BLE SUPREME COURT IN THE CASE OF CIT VS. WOODWARD GOVERNOR INDI A P. LTD., 312 ITR 254 (SC). AFTER CONSIDERING RIVAL CONTENTION, WE AR E OF THE CONSIDERED OPINION THAT THE ISSUE SHOULD BE SET ASIDE TO THE F ILE OF THE ASSESSING OFFICER, AS THE FACTS ARE NOT CLEAR. THE ASSESSING OFFICER SHALL EXAMINE THE CLAIM OF THE ASSESSEE AFRESH, IN THE LIGHT OF THE J UDGMENT OF HON'BLE SUPREME COURT IN THE CASE OF WOODWARD GOVERNOR INDI A P. LTD. (SUPRA). IN THE RESULT, GROUND NO. 8 IS ALLOWED FOR STATISTI CAL PURPOSES. 14. GROUND NO. 9 IS ON THE CLAIM OF INTEREST U/S. 2 44A ON THE REFUND OF TAXES DUE. THE FIRST APPELLATE AUTHORITY HAS NOT DEALT WITH THIS ISSUE. AS WE HAVE SET ASIDE CERTAIN ISSUES TO THE FILE OF THE ASSESSING OFFICER, WE SENT BACK THIS ISSUE ALSO TO THE FILE OF THE ASSESS ING OFFICER FOR DISPOSAL IN ACCORDANCE WITH LAW. 15. IN THE RESULT, APPEAL OF THE ASSESSEE IS ALLOWE D IN PART. ORDER HAS BEEN PRONOUNCED ON 18 TH DAY OF JANUARY, 2012. SD/- (V. DURGA RAO) JUDICIAL MEMBER SD/- (J. SUDHAKAR REDDY) ACCOUNTANT MEMBER DATED : 18 TH JANUARY, 2012. COPY TO : 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT(A)-CONCERNED. 4. THE CIT, CONCERNED. EISENMANN SURFACE FINISHING SYSTEMS INDIA PVT. LTD. 7 5. THE DR CONCERNED, MUMBAI 6. GUARD FILE BY ORDER TRUE COPY ASSTT. REGISTRAR, ITAT, MUMBAI PS