DCIT-6, Kanpur V. M/s Super Tannery Ltd., Kanpur

ITA 340/LKW/2011

• Counselvise Citation: [2013] 120 COUNSELVISE.COM (IT) 5162 (ITAT-LUCKNOW)
• Duration Of Justice: 2 year(s) 5 month(s) 14 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 27-11-2013
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: B
• Next Hearing Date: 14-11-2013
• Assessment Year: 2000-2001
• Appeal Filed On: 13-06-2011
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: ALOK MITRA
• Assessee Lawyers: P K KAPOOR
• Keywords: Business expenditure

Judgement Text

1 IN THE INCOME TAX APPELLATE TRIBUNAL LUCKNOW BENCH B, LUCKNOW BEFORE SHRI SUNIL KUMAR YADAV, JUDICIAL MEMBER AND SHRI A.K. GARODIA, ACCOUNTANT MEMBER ITA NO.340/LKW/2011 A.Y.:2000 - 01 DY. C.I.T. - 6, KANPUR. VS. M/S SUPER TANNERY LTD., 87/170, JAJMAU, KANPUR. PAN:AACCS4340N (APPELLANT) (RESPONDENT) C.O.NO.19/LKW/2011 (IN ITA NO.340/LKW/2011) A.Y.:2000 - 01 M/S SUPER TANNERY LTD., 87/170, JAJMAU, KANPUR. PAN:AACCS4340N VS. DY. C.I.T. - 6, KANPUR. (OBJECTOR) (RESPONDENT) REVENUE BY SHRI ALOK MITRA, D.R. ASSESSEE BY SHRI P. K. KAPOOR, C.A. DATE OF HEARING 14/11/2013 DATE OF PRONOUNCEMENT 2 7 /11/2013 O R D E R PER A. K. GARODIA, A.M. THE APPEAL IS FILED BY THE REVENUE AND THE CROSS OBJECTION IS FILED BY THE ASSESSEE, WHICH ARE DIRECTED AGAINST THE ORDER OF CIT(A) - I, KANPUR DATED 30/03/2011 FOR ASSESSMENT YEAR 2000 - 2001. 2 2. FIRST WE TAKE UP THE APPEAL FILED BY THE REVENUE. THE GROUND NO. 1 & 2 ARE INTER CONNECTED, WHICH ARE AS UNDER: 1. THE LD. CIT (A) HAS ERRED IN LAW AND ON FACTS IN DIRECTING THE A.O. TO TREAT THE JOB WORK RECEIPTS AS A PART OF TOTAL TURNOVER FOR ALLOWING DEDUCTION U/S 80 HHC WITHOUT APPRECIATING THE FACT TH AT JOB WORK RECEIPTS ARE COVERED UNDER CLAUSE (BAA) TO SUB - SECTION 4B OF SECTION 80 HHC. 2. THE LD. CIT(A) HAS ERRED IN LAW AND ON FACTS IN DIRECTING THE A.O. TO RECOMPUTE AND ALLOW DEDUCTION U/S 80 HHC OF THE I . T . ACT, 1961 TREATING EXCHANGE FLUCTUATION RE CEIPTS AMOUNTING TO RS.9,28,970 / - AS A PART OF DIRECT SALES REALIZATION WITHOUT APPRECIATING THE FACT THAT THE R ECEIPTS ARE COVERED U NDER CLAUSE (BAA) TO SUB - SECTION 4B OF SECTION 80 HHC OF INCOME TAX ACT, 1961. 3. THE LEARNED D.R. OF THE REVENUE SUPPO RTED THE ASSESSMENT ORDER. HE ALSO PLACED RELIANCE ON THE JUDGMENT OF HON'BLE APEX COURT RENDERED IN THE CASE OF COMMISSIONER OF INCOME - TAX VS K. RAVINDRANATHAN NAIR [2007] 295 ITR 228 (SC) . AS AGAINST THIS , THE LEARNED A.R. OF THE ASSESSEE SUPPORTED THE ORDER OF LEARNED CIT(A). HE ALSO PLACED RELIANCE ON THE JUDGMENT OF HON'BLE BOMBAY HIGH COURT RENDERED IN THE CASE OF CIT VS. BANGLORE CLOTHING AS REPORTED IN 127 TAXMAN 637. REGARDING THE JUDGMENT OF HON'BLE APEX COURT ON WHICH RELIANCE HAS BEEN PLACED BY LEARNED D.R. OF THE REVENUE, IT WAS SUBMITTED BY LEARNED COUNSEL FOR THE ASSESSEE THAT THIS JUDGMENT IS NOT APPLICABLE IN THE FACTS OF THE PRESENT CASE. 4. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND WE FIRST EXAMINE THE APPLICABILITY OF THE JUDGMENT OF HON'BLE APEX COURT RENDERED IN THE CASE OF 3 K. RAVINDRANATHAN NAIR (SUPRA). IN THAT CASE , THE FACTS WERE THAT THE ASSESSEE WAS HAVING A FACTORY IN WHICH THE ASSESSEE PROCESSED THE CASHEW NUTS, WHICH ARE GROWN IN HIS FIELD . THEREAFTER, THE ASSESSEE EXPORTED THE CASHEW NUTS AS EXPORTER. FOR PROCESSING, THE ASSESSEE HAD COMPLETE INFRASTRUCTURE INCLUDING PLANT & MACHINERY IN HIS FACTORY. AT THE SAME TIME THE ASSESSEE PROCESSED CASHEW NUTS, WHICH WERE SUPPLIED TO HIM BY OTHER EXPORTERS ON JOB WORK BASIS. AFTER PROCESSING, THE ASSESSEE RETURNED THE CASHEW NUTS TO THE EXPORTERS AND IN THE PROCESS , THE ASSESSEE EARNED PROCESSING CHARGES. HENCE, THE ASSESSEE WAS EXPORTER AND JOB WORKER. UNDER THESE FACTS, IN THAT CASE , IT WAS H ELD BY HON'BLE APEX COURT THAT 90% OF THE PROCESSING CHARGES INCOME BEING AN INDEPENDENT INCOME HAS TO BE DEDUCTED FROM GROSS TOTAL INCOME TO ARRIVE AT THE BUSINESS PROFIT TO WHICH THE FRACTION HAS TO BE APPLIED. IT WAS ALSO HELD THAT SUCH PROCESSING CHAR GES IS TO BE ADDED IN TOTAL TURNOVER FOR THE PURPOSE OF COMPUTING THE DEDUCTION ALLOWABLE TO THE ASSESSEE U/S 80HHC. 4.1 IN THE LIGHT OF ABOVE NARRATED FACTS OF THAT CASE, WE NOW EXAMINE THE FACTS OF THE PRESENT CASE. IN THE PRESENT CASE, THE ASSESSEE COM PANY IS ENGAGED IN THE MANUFACTURING OF FINISHED LEATHER FROM RAW SKIN/HIDES AND LEATHER PRODUCTS FROM FINISHED LEATHER AND SALES INCLUDING EXPORT THEREOF. IT IS ALSO NOTICED IN THE PRESENT CASE THAT THE ASSESSEE HAS INCOME OF JOB WORK CHARGES OF RS.13,46 ,800/ - . HENCE THE FACTS ARE IDENTICAL IN THE PRESENT CASE AND IN THE CASE OF K. RAVINDRANATH NAIR (SUPRA). HENCE, WE HAVE NO HESITATION IN HOLDING THAT THIS ISSUE IS SQUARELY COVERED AGAINST THE ASSESSEE BY THIS JUDGMENT. 4 4.2 NOW WE EXAMINE THE APPLICAB ILITY OF HON'BLE BOMBAY HIGH COURT JUDGMENT RENDERED IN THE CASE OF BANGALORE CLOTHING (SUPRA) ON WHICH RELIANCE HAS BEEN PLACED BY LEARNED D.R. IN THIS REGARD, WE WOULD LIKE TO OBSERVE THAT WHEN THE ISSUE IN HAND IS COVERED BY A SUBSEQUENT JUDGMENT OF HO N'BLE APEX COURT CITED BY LEARNED D.R., THERE IS NO NEED TO EXAMINE THE APPLICABILITY OF THE JUDGMENT OF HON'BLE BOMBAY HIGH COURT BECAUSE IN PREFERENCE TO JUDGMENT OF ANY HIGH COURT, THE JUDGMENT OF HON'BLE APEX COURT IS TO BE FOLLOWED. 4. 3 IN VIEW OF T HE ABOVE DISCUSSION, WE RESPECTFULLY FOLLOW THE JUDGMENT OF HON'BLE APEX COURT CITED BY LEARNED D.R. AND REVERSE THE ORDER OF LEARNED CIT(A) ON THIS ISSUE AND RESTORE THAT OF THE ASSESSING OFFICER. THESE TWO GROUNDS OF REVENUE ARE ALLOWED. 5. GROUND NO. 3 OF THE REVENUES APPEAL IS AS UNDER: 3. THE LD. CIT(A) HAS ERRED IN LAW AND ON FACTS IN DELETING THE ADDITION OF RS.3,36,749/ - MADE ON ACCOUNT OF SHORT /EXCESS ESTIMATION OF INCOME/EXPENSES WITHOUT APPRECIATING THE FACT THAT THE ASSESSEE WAS FOLLOWING MERCANTILE SYSTEM OF ACCOUNTING AT THE TIME OF FINALIZATION OF ACCOUNTS. 6. LEARNED D.R. OF THE REVENUE SUPPORTED THE ASSESSMENT ORDER WHEREAS THE LEARNED A.R. OF THE ASSESSEE SUPPORTED THE ORDER OF LEARNED CIT(A). HE ALSO SUBMITTED THAT THIS ISSUE WAS DECIDED BY THE TRIBUNAL IN ASSESSEES OWN CASE FOR ASSESSMENT YEAR 2001 - 2002 AND 2002 - 2003 AS PER TRIBUNAL DECISION DATED 06/06/2008, COPY OF WHICH IS AVAILABLE ON PAGES 1 TO 15 OF THE PAPER BOOK. HE ALSO POINTED OUT THAT IN THAT YEAR , THE TRIBUNAL HAS R ESTORED BACK THE ISSUE TO THE FILE OF THE ASSESSING OFFICER FOR 5 A FRESH DECISION AS PER PARA NO. 44 OF THE TRIBUNAL ORDER, AVAILABLE ON PAGE 14 OF THE PAPER BOOK. 7. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND WE FIND THAT IT IS NOTED BY THE ASSESSING OF FICER IN PARA 10 OF THE ASSESSMENT ORDER THAT OUT OF TOTAL DISALLOWANCE OF RS.8,81,768/ - ON ACCOUNT OF PRIOR PERIOD EXPENSES, AN AMOUNT OF RS.3,36,749/ - WAS CLAIMED BY THE ASSESSEE ON ACCOUNT OF THE FACT THAT SHORT/EXCESS PROVISION IN RESPECT OF DUTY DRAW BACK RECEIVABLE, EXCHANGE FLUCTUATION, IMPORT EXPENSES AND COMMISSION PAYABLE ON EXPORT SALES WERE MADE DURING THE ACCOUNTING YEAR RELEVANT TO ASSESSMENT YEAR 98 - 99. IN ASSESSMENT YEAR 2001 - 2002 AND 2002 - 2003 ALSO , SIMILAR ISSUE WAS BEFORE THE TRIBUNAL AND IT IS NOTED BY THE TRIBUNAL THAT IT WAS THE CLAIM OF THE ASSESSEE THAT IT USED TO RECEIVE DUTY DRAW BACK ON EXPORT SALE MADE BY IT AND IT USED TO ACCOUNT FOR DUTY DRAW BACK IN ITS ACCOUNTS AS PER ITS OWN ESTIMATE BUT LATER, CENTRAL EXCISE DEPARTMENT WORKED OUT DIFFERENT FIGURE OF DUTY DRAW BACK WHICH RESULTED IN EITHER INCREASE IN THE LIABILITY TO THE ASSESSEE OR DECREASE IN THE LIABILITY AND WHENEVER ASSESSEE HAS ACCOUNTED FOR HIGHER AMOUNT OF DUTY DRAW BACK WHILE MAKING SALES AND LATER CENTRAL EXCISE DEPARTMENT HAS WORKED OUT LESSER AMOUNT OF DUTY DRAW BACK THEN ASSESSEE HAS TO CLAIM DEDUCTION OF THE DIFFERENCE IN ITS ACCOUNTS. HENCE, IT IS SEEN THAT THE FACTS ARE IDENTICAL. IN THAT YEAR , THE ISSUE WAS DECIDED BY THE TRIBUNAL AS PER PARA 44 PAGE 14 OF THE PAPER BOOK, WHICH IS REPRODUCED BELOW: 44. WE HAVE HEARD THE LD. DR AND LD. AR. IN OUR CONSIDERED VIEW, ASSESSEE HAS A RIGHT TO ADJUST THE SHORT OR EXCESS CLAIM OF DUTY DRAW BACK AS COMPARED TO ORIGINALLY MA DE BY IT WHILE CARRYING OUT THE BUSINESS. THE FINAL DUTY DRAW BACK AVAILABLE TO THE ASSESSEE CAN BE DECIDED BY CENTRAL 6 EXCISE DEPARTMENT ONLY AND IF THERE IS ANY VARIATION IN THE AMOUNT FINALLY WORKED OUT BY CENTRAL EXCISE DEPARTMENT AND THE FIGURES ADOPTE D BY THE ASSESSEE IN ITS ACCOUNT THEN ASSESSEE IS DUTY BOUND TO MAKE NECESSARY MODIFICATION IN ITS BOOKS. THE ASSESSEE HAS TO OFFER THE SURPLUS FOR TAXATION OR CLAIM THE DEFICIT AS EXPENDITURE IN THE YEAR WHEN CENTRAL EXCISE DEPARTMENT ISSUES THE ORDER. TH EREFORE, WE RESTORE THIS MATTER TO THE FILE OF AO TO VERILY THE FIGURE. THE ASSESSEE WILL PROVIDE ALL NECESSARY DOCUMENTS TO THE AO AS TO HOW MUCH CLAIM OF DUTY DRAW BACK IT HAD MADE IN ITS BOOKS OF ACCOUNT IN THE NORMAL COURSE AND HOW MUCH DUTY DRAW, BACK CENTRAL EXCISE DEPARTMENT HAD WORKED OUT FINALLY. THE ACTUAL FIGURE OF ALLOWABILITY OF THE DUTY DRAW BACK WOULD DEPEND UPON THE OUTCOME OF THIS EXERCISE. 7.1 SINCE THE FACTS IN THE PRESENT YEAR ARE ALSO SIMILAR, RESPECTFULLY FOLLOWING THE PRECEDENCE, WE SET ASIDE THE ORDER OF CIT(A) IN THE PRESENT APPEAL AND RESTORE BACK THIS ISSUE TO THE FILE OF THE ASSESSING OFFICER FOR FRESH DECISION WITH SAME DIRECTION. THIS GROUND IS ALLOWED FOR STATISTICAL PURPOSES. 8. GROUND NO. 4 OF THE REVENUES APPEAL IS AS UNDER: 4. THE LD. CIT(A) HAS ERRED IN LAW AND ON FACTS IN DELETING THE DISALLOWANCES MADE ON ACCOUNT OF DISALLOWANCE OF RS.57,232/ - OUT OF TELEPHONE AND TELEX EXPENSES AND DISALLOWANCE OF RS.1,02,702/ - OUT OF FOREIGN TRAVELING EXPENSES WITHOUT APPREC IATING THE FACT THE POSSIBILITY OF NON - BUSINESS USE MAY NOT BE RULES OUT AS NO ANY RECORD WAS KEPT WHICH COULD CONCLUSIVELY DEMONSTRATE THAT THE ENTIRE CLAIM UNDER THIS HEAD PERTAINED EXCLUSIVELY FOR BUSINESS PURPOSES. 9. LEARNED D.R. OF THE REVENUE SUPP ORTED THE ASSESSMENT ORDER WHEREAS THE LEARNED A.R. OF THE ASSESSEE SUPPORTED THE ORDER OF LEARNED CIT(A). HE ALSO PLACED RELIANCE ON THE JUDGMENT OF HON'BLE GUJARAT HIGH 7 COURT AS REPORTED IN SAYAJI IRON AND ENGG. CO. VS COMMISSIONER OF INCOME - TAX [2002] 253 ITR 749 (GUJ) . 10. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS, PERUSED THE MATERIAL AVAILABLE ON RECORD AND THE JUDGMENT CITED BY LEARNED A.R. OF THE ASSESSEE. WE FIND THAT IN THE PRESENT CASE , THE ASSESSING OFFICER HAS MADE AD HOC DISALLOWANCE OF 10% OF THE EXPENSES INCURRED BY THE ASSESSEE UNDER THE HEAD FOREIGN TRAVELLING AND TELEPHONE & TELEX EXPENSES. IN THE CASE OF SAYAJI IRON AND ENGG. (SUPRA) , IT WAS HELD BY HON'BLE GUJARAT HIGH COURT THAT EVEN IF THE VEHICLES ARE UTILIZED BY THE DIRECTORS/EMPLOYEES OF THE ASSESSEE COMPANY FOR THE IR PERSONAL USE, THE EXPENDITURE IS ALLOWABLE AS BUSINESS EXPENDITURE IN THE HANDS OF THE ASSESSEE COMPANY ALTHOUGH THE SAME MAY BE CONSIDERED AS PERQUISITES IN THE HANDS OF THE DIRECTORS/EMPLOYEES. IN THE PRESENT CASE ALSO, THE ASSESSEE IS A COMPANY AND ON SIMILAR LOGIC, EVEN IF SOME EXPENSES INCURRED UNDER THESE TWO HEADS ARE FOR PERSONAL USE OF THE DIRECTORS OF THE ASSESSEE COMPANY, THE SAME HAS TO BE CONSIDERED AS BUSINESS EXPENDITURE FOR THE ASSESSEE C OMPANY ALTHOUGH THE SAME MAY BE CONSIDERED AS PERQUISITE IN THE HANDS OF SUCH DIRECTOR/EMPLOYEE WHO HAS MADE SOME PERSONAL USE OUT OF THAT AND HENCE, NO DISALLOWANCE IS JUSTIFIED IN THE HANDS OF THE ASSESSEE ON THE BASIS OF THIS ALLEGATION THAT THERE WAS S OME PERSONAL USE BY THE DIRECTORS/EMPLOYEES. THEREFORE, WE DO NOT FIND ANY JUSTIFICATION TO INTERFERE IN THE ORDER OF LEARNED CIT(A) ON THIS ISSUE . THE SAME IS UPHELD. GROUND NO. 4 OF THE APPEAL IS REJECTED. 11. AS A RESULT, THE APPEAL OF THE REVENUE STANDS PARTLY ALLOWED IN THE TERMS INDICATED ABOVE. 8 1 2 . NOW WE TAKE UP THE CROSS OBJECTION FILED BY THE ASSESSEE. IT WAS SUBMITTED BY LEARNED A.R. OF THE ASSESSEE THAT ALTHOUGH THE ASSESSEE HAS RAISED 4 GROUNDS BUT THE ISSUES INVOLVED ARE TWO ONLY. HE S UBMITTED THAT THE FIRST ISSUE IS AS PER GROUNDNO.1,2 AND 4(A) AND THE SECOND ISSUE INVOLVED IS AS PER GROUND NO. 3AND 4(B). 1 3 . REGARDING THE FIRST ISSUE I.E. GROUNDNO.1,2 & 4(A) THE LEARNED A.R. OF THE ASSESSEE SUBMITTED THAT THE EXPLANATION SUBMITTED BY THE ASSESSEE BEFORE THE LEARNED CIT(A) IS AVAILABLE ON PAGES 16 TO 20 OF THE PAPER BOOK AND HE REITERATED THE SAME. LEARNED D.R. SUPPORTED THE ORDER OF LEARNED CIT(A). 1 4 . WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND WE FIND THAT A CLEAR FINDING IS GIV EN BY LEARNED CIT(A) IN PARA 17 OF HIS ORDER THAT THESE EXPENSES WERE RELATED TO PURCHASE OF MATERIAL ETC. F OR EARLIER YEAR AND THEREFORE, THE SAME CANNOT BE ALLOWED IN THE PRESENT YEAR. FROM THE REPLY SUBMITTED BY THE ASSESSEE BEFORE THE LEARNED CIT(A), WE FIND THAT THIS IS THE CLAIM OF THE ASSESSEE THAT THE BILLS WERE RECEIVED IN THE PRESENT YEAR BUT WE ARE NOT SATISFIED WITH THIS EXPLANATION BECAUSE THE ACCOUNTING FOR THE PROVISION IN RESPECT OF THE EXPENSES INCURRED IS NOT DEPENDENT ON RECEIPT OF BIL L. EXACT QUANTIFYING OF THE EXPENSES MA Y BE DEPENDENT ON THE BILL BUT ESTIMATED PROVISION CAN BE MADE EVEN WITHOUT THE BILL AND IN THAT EVENT IF SUCH ESTIMATE IS BIT LOWER OR HIGHER, SUITABLE ADJUSTMENT IN THE SUCCEEDING YEAR ON THE RECEIPT OF THE BILL CA N BE CONSIDERED AS INCOME OR EXPENDITURE BUT NOT MAKING THE PROVISION AT ALL ON THE PRETEXT THAT THE BILL WAS NOT RECEIVED, CANNOT BE SAID TO BE PERMISSIBLE WHEN THE ASSESSEE IS FOLLOWING MERCANTILE SYSTEM OF ACCOUNTING. UNDER THESE FACTS, WE DO NOT 9 FIND A NY REASON TO INTERFERE IN THE ORDER OF CIT(A) ON THIS ISSUE. ACCORDINGLY, THESE GROUNDS OF CROSS OBJECTION ARE REJECTED. 1 5 . REGARDING GROUND NO. 3AND 4(B), THE BENCH ASKED THE LEARNED A.R. OF THE ASSESSEE TO SHOW THE DETAILS OF SUCH ADJUSTMENTS OF OLD B ALANCE OF RS.3,92,962/ - TO SEE AS TO WHETHER THESE ADJUSTMENTS ARE IN RESPECT OF DEBTORS OR ADVANCES IN COURSE OF ORDINARY COURSE OF BUSINESS OR ON SOME OTHER ACCOUNT BUT NO SUCH DETAILS COULD BE MADE AVAILABLE BEFORE US BY LEARNED A.R. OF THE ASSESSEE AND HENCE, IN THE ABSENCE OF DETAIL, WE DO NOT FIND ANY REASON TO INTERFERE IN THE ORDER OF LEARNED CIT(A) ON THIS ISSUE ALSO. ACCORDINGLY, THESE GROUNDS OF CROSS OBJECTION ARE REJECTED. AS A RESULT, THE CROSS OBJECTION STANDS REJECTED. 1 6 . IN THE RESULT, TH E APPEAL OF THE REVENUE STANDS PARTLY ALLOWED WHEREAS THE CROSS OBJECTION OF THE ASSESSEE STANDS DISMISSED. (ORDER WAS PRONOUNCED IN THE OPEN COURT ON THE DATE MENTIONED ON THE CAPTION PAGE) SD/. (SUNIL KUMAR YADAV) ( A. K. GARODIA ) JUDICIAL MEMBER ACCOUNTANT MEMBER DATED: 2 7 / 1 1 / 2 0 1 3 *C.L.SINGH COPY OF THE ORDER FORWARDED TO : 1. THE APPELLANT 2. THE RESPONDENT. 3. CONCERNED CIT 4. THE CIT(A) 5. DR, ITAT, LUCKNOW ASSTT. REGISTRAR