Neo Carbons (P) Ltd., Kolkata V. D.C.I.T.,Circle-1(2), Kolkata

ITA 343/KOL/2020

• Counselvise Citation: [2020] 110 COUNSELVISE.COM (IT) 6293 (ITAT-KOLKATA)
• Duration Of Justice: 6 month(s) 3 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 23-09-2020
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: A
• Next Hearing Date: 09-09-2020
• Assessment Year: 2014-2015
• Appeal Filed On: 20-03-2020
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: DHRUBAJYOTI RAY
• Keywords: TDS
• Section: 143(3); 250

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL KOLKATA A BENCH, KOLKATA (VIRTUAL COURT) (BEFORE SRI J. SUDHAKAR REDDY, ACCOUNTANT MEMBER & SRI S.S. GODARA, JUDICIAL MEMBER) I.T.A. NO. 343/KOL/2020 ASSESSMENT YEAR: 2014-15 NEO CARBONS PVT. LTD...................................................................................APPELLANT [PAN: AABFH 5311 C] VS. DCIT, CIRCLE-1(2), KOLKATA............................................................................................RESPONDENT APPEARANCES BY: SH. SUBASH AGARWAL, ADV., APPEARED ON BEHALF OF THE ASSESSEE. SH. DHRUBAJYOTI RAY, JCIT, APPEARED ON BEHALF OF THE REVENUE. DATE OF CONCLUDING THE HEARING : SEPTEMBER 9 TH , 2020 DATE OF PRONOUNCING THE ORDER : SEPTEMBER 23 RD , 2020 ORDER PER J. SUDHAKAR REDDY, AM : THIS APPEAL FILED BY THE ASSESSEE IS DIRECTED AGAINST THE ORDER OF THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS)-6, KOLKATA, [HEREINAFTER THE CIT(A)], PASSED U/S. 250 OF THE INCOME TAX ACT, 1961 (THE ACT), DATED 02.03.2020 FOR THE ASSESSMENT YEAR 2014-15. 2. THE ASSESSEE IS A COMPANY AND IS ENGAGED IN THE MANUFACTURING OF CALCINED PETROLEUM COKE (CPC). IT FILED ITS RETURN OF INCOME ON 25.09.2014 FOR THE AY 2014-15 DECLARING TOTAL INCOME OF 63,29,360/-. THE AO COMPLETED THE ASSESSMENT U/S 143(3) OF THE ACT ON 30.12.2016 DETERMINING THE TOTAL INCOME AT 1,46,99,170/- INTER ALIA MAKING DISALLOWANCE OF (A) LABOUR CHARGES, (B) FINANCE COST, (C) PACKING MATERIAL CONSUMPTION ETC. AGGRIEVED, THE ASSESSEE CARRIED THE MATTER IN APPEAL WITHOUT SUCCESS. 3. FURTHER AGGRIEVED, THE ASSESSEE IS BEFORE US. 2 I.T.A. NO. 343/KOL/2020 ASSESSMENT YEAR: 2014-15 NEO CARBONS PVT. LTD. 4. THE LD. COUNSEL FOR THE ASSESSEE SUBMITTED THAT GROUND NOS. 1 & 7 ARE GENERAL IN NATURE AND GROUND NOS. 5 & 6 ARE NOT PRESSED IN VIEW OF THE SMALLNESS OF THE AMOUNTS. HENCE THESE GROUNDS ARE DISPOSED OFF AS SUCH. 5. ON GROUND NOS. 2 & 4, HE SUBMITTED THAT THE DISALLOWANCE WAS MADE BASED ON MATHEMATICAL CALCULATIONS/FORMULA BASED ON EARLIER YEARS DATA AND NOT ON FACTS OR EVIDENCE. HE SUBMITTED THAT THESE AD-HOC DISALLOWANCES WERE MADE IN AN ARBITRARY MANNER THOUGH THE ASSESSEE HAS FURNISHED ALL THE NECESSARY DOCUMENTS AND EVIDENCES TO PROVE THE GENUINENESS OF THE EXPENDITURE. HE POINTED OUT THAT TAX WAS DEDUCTED AT SOURCE ON LABOUR CHARGES AND WAS REMAINED TO THE GOVERNMENT, COPY OF WHICH IS PLACED AT PAGE 34 OF THE PAPER BOOK. HE VEHEMENTLY CONTENDED THAT, IN CASE THERE IS AN INCREASE IN EXPENDITURE IN THE SUBSEQUENT YEAR AT BEST IT WOULD TRIGGER AN INQUIRY BUT NOT DISALLOWANCE BASED ON MATHEMATICAL CALCULATIONS/COMPUTATION. HE CONTENDS THAT ALL EVIDENCES WERE FILED BOTH BEFORE THE AO AS WELL AS LD. CIT(A) AND NOTHING WRONG WAS FOUND AND THAT THESE EVIDENCES WERE NOT REJECTED NOR DEFECTS POINTED OUT AND ONLY AN AD-HOC DISALLOWANCE WAS MADE. THUD HE ARGUED THAT THESE DISALLOWANCES WERE ARBITRARY AND NOT BASED ON ANY MATERIAL. HE PRAYED THAT THE SAME BE DELETED. 6. ON DISALLOWANCE OF FINANCE COST, HE SUBMITTED THAT IT IS CLEAR FROM THE BALANCE SHEET THAT THE ASSESSEE HAS HUGE INTEREST FREE FUNDS IN THE FORM OF CAPITAL AND RESERVES AND THE AMOUNT OF THE CAPITAL WORK IN PROGRESS IS MUCH LESS, AS COMPARED TO THESE AVAILABLE INTEREST FREE FUNDS AND UNDER THESE CIRCUMSTANCES THE DISALLOWANCES CANNOT BE MADE AS THE PRESUMPTION IS THAT, INTEREST FREE FUNDS HAVE GONE INTO SUCH INVESTMENTS. HE RELIED ON THE FOLLOWING CASE LAWS: I. CIT VS. RELIANCE UTILITIES & POWER LTD. [2009] 313 ITR 340 (BOMBAY) II. CIT VS. TIN BOX CO. [2003] 260 ITR 637 (DELHI) III. MUNJAL SALES CORPN. VS. CIT [2008] 298 ITR 298 (SC) 7. THE LD. DR ON THE OTHER HAND SUBMITTED THAT THE ASSESSEE HAS NOT PROPERLY COOPERATED NOR PRODUCED THE NECESSARY EVIDENCES EITHER BEFORE THE AO NOR THE LD. CIT(A). HE SUBMITTED THAT THIS CASE CAN BE RESTORED TO THE FILE OF THE LD. CIT(A) FOR FRESH ADJUDICATION IN ACCORDANCE WITH LAW WITH THE DIRECTION TO THE ASSESSEE TO COOPERATE AND PRODUCE ALL NECESSARY EVIDENCES. HE RELIED ON THE ORDERS OF THE AUTHORITIES BELOW. 3 I.T.A. NO. 343/KOL/2020 ASSESSMENT YEAR: 2014-15 NEO CARBONS PVT. LTD. 8. IN REPLY, THE LD. COUNSEL FOR THE ASSESSEE SUBMITTED THAT WRITTEN SUBMISSIONS WERE FILED BEFORE THE LD. CIT(A) AND THESE WERE CONSIDERED AND MATTER ADJUDICATED. THUS, HE SUBMITS THAT THE ISSUE SHOULD NOT BE RESTORED TO THE FILE OF THE LD. CIT(A). 9. RIVAL CONTENTIONS HEARD. ON A CAREFUL CONSIDERATION OF THE FACTS AND CIRCUMSTANCES OF THE CASE, PERUSAL OF THE PAPERS ON RECORD AND CASE LAWS CITED, WE HOLD AS FOLLOWS. 10. THE AO DISALLOWED LABOUR CHARGES BY OBSERVING AS FOLLOWS: FROM THE NOTE NO.24 FORMING PART OF P&L A/C. IT IS OBSERVED THAT THIS YEAR FRESH CLAIM OF EXPENDITURE IN LABOUR CHARGE OF RS.32,30,821/- HAS BEEN MADE. THOUGH IN COURSE OF ASSESSMENT PROCEEDINGS DETAILS OF PARTIES TO WHOM THIS LABOUR CHARGES HAS BEEN PAID SHOWING DEDUCTION OF TAX DEDUCTED AT SOURCE HAVE BEEN FURNISHED BUT ASSESSEE COULD NOT ESTABLISH THE REQUIREMENT OF THIS EXPENDITURE. SO, THE SAME IS NOT ACCEPTED BECAUSE ASSESSEE HAD ALL OF A SUDDEN CLAIMED THIS EXPENDITURE THIS YEAR IN ORDER TO REDUCE THIS PROFIT. THEREFORE, THE SAME IS BEING DISALLOWED EVEN THOUGH THERE WAS TAX DEDUCTED AT SOURCE. THEREFORE, RS.32,30,821/- IS BEING DISALLOWED AND ADDED TO THE TOTAL INCOME OF THE ASSESSEE. 11. SIMILARLY, PACKING MATERIAL CONSUMPTION WAS DISALLOWED BY OBSERVING AS FOLLOWS: FROM THE P&L A/C. IT IS OBSERVED THAT EXPENSES ON ACCOUNT OF PACKING MATERIAL CONSUMPTION HAS INCREASED TO RS.1,37,48,121/- AS ON 31.03.2014 IN COMPARISON TO RS.81,84,068/- AS ON 31.03.2013. ON THE CONTRARY, THE SALE OF PRODUCT HAS REDUCED TO RS.75,08,00,894/- FROM 81,39,43,532/- WHICH SUGGESTS THERE HAS BEEN REDUCTION OF PRODUCTION OR MANUFACTURING VIS A VIS SALE. SO ASSESSEE HAS INFLATED EXPENDITURE ON ACCOUNT OF CONSUMPTION OF PACKING MATERIAL. THIS HAS INCREASED ALMOST DOUBLE. THEREFORE, 50% INCREASE OF RS.(1,37,48,121 - 81,84,068) =RS.27,82,027/- I.E. RS.3,15,71,319/- IS BEING DISALLOWED AND ADDED TO THE TOTAL INCOME OF THE ASSESSEE. 12. A PERUSAL OF THE ABOVE DEMONSTRATES THAT THE DISALLOWANCE WAS MADE ON THE GROUND THAT THE ASSESSEE COULD NOT ESTABLISH THE REQUIREMENT OF EXPENDITURE AND THAT THIS WAS INFLATED EXPENDITURE TO REDUCE PROFITS. WE ARE OF THE VIEW THAT THESE DISCLOSURES ARE BASED ON PRESUMPTIONS AND ASSUMPTIONS. THE ASSESSEE EXPLAINED BEFORE THE LD. AUTHORITIES THE REASONS FOR THE INCREASE IN THE EXPENDITURE. AT PAGE 34 OF THE PAPER BOOK, A COPY OF THE STATEMENT FILED BEFORE THE AO GIVING THE NAMES AND ADDRESS OF THE CONTRACT LABOURERS, THE AMOUNT AND THE TDS MADE ETC. IS FILED. THE SAME IS ACKNOWLEDGED AS FILED BY THE AO. AT THE BOTTOM OF THIS SHEET AN EXPLANATION WAS GIVEN AS FOLLOWS: DURING THE YEAR(F.Y 2013-14), WE HAVE TO HIRE SUM ADDITIONAL LABOUR ON TEMPORARY BASIS FOR KEEPING THE UNIT RUNNING IN FULL SPEED. THESE LABOURS ARE CONTRACTUAL LABOUR, HENCE LABOUR CHARGES. DURING EARLIER THERE ARE NO SUCH NEED OF HIRE SUCH TEMPORARY WORKERS. THEREFORE THERE WAS NO LABOUR CHARGES IN PREVIOUS YEAR. 4 I.T.A. NO. 343/KOL/2020 ASSESSMENT YEAR: 2014-15 NEO CARBONS PVT. LTD. 12. THE INCREASE IN EXPENDITURE FOR PACKED MATERIAL WAS EXPLAINED TO THE AO AS FOLLOWS: DIFFERENT TYPES OF BAGS ARE USED FOR DIFFERENT PRODUCTS SUCH AS LAMINATED HDPE/PP BAGS UNLAMINATED HDPE/PP BAGS, OLD BAGS. JUMBO BAGS ETC IT DEPENDS UPON PRODUCTS AS WELL AS PARTIES REQUIREMENT. SOMETIMES GOODS ARE SENT THROUGH RAILWAY IN RACKS WITHOUT BAGS ALI THIS ALSO IMPACTS THE COST OF PACKING MATERIALS CONSUMED 13. THESE EXPLANATIONS WERE REJECTED BY THE AO ONLY ON THE GROUND THAT (A) THE INTEREST OF LABOUR EXPENDITURE WAS NOT PROVED AND (B) THE EXPENDITURE ON PACKING MATERIAL IS PROPORTIONATELY HIGHER THIS YEAR. IN OUR VIEW, THE DISALLOWANCE WAS NOT BASED ON EVIDENCE. IT IS NOT THE CASE OF THE AO THAT SUCH EXPENDITURE WAS NOT INCURRED OR WAS BOGUS EXPENDITURE. THIS IS A SURMISE. THE FACT OF THE ASSESSEE INCURRING THIS EXPENDITURE IS NOT CHALLENGED BY THE AO. HENCE, WE ARE UNABLE TO SUSTAIN THE ADDITION IN QUESTION. SO, WE DELETE THE SAME. IN THE RESULT, GROUND NOS. 2 & 4 ARE ALLOWED. 14. GROUND NO. 3 IS ON ADDITION ON ACCOUNT OF FINANCE COST. WE FIND FROM THE BALANCE SHEET THAT THE CAPITAL WORK IN PROGRESS IS 55,35,248/- AS AGAINST FIXED ASSETS OF 31,21,14,926/-. THE CAPITAL AND RESERVES OF THE ASSESSEE WHICH ARE INTEREST FREE FUNDS ARE 39,09,33,400/- AND 16,45,65,603/- RESPECTIVELY. THUS THE CAPITAL WORK IN PROGRESS IS A FRACTION OF INTEREST FREE FUNDS HELD BY THE COMPANY. THE PROPOSITIONS OF LAW LAID DOWN BY THE HONBLE BOMBAY HIGH COURT IN THE CASE OF RELIANCE UTILITIES & POWER LTD. (SUPRA) IS THAT, IN SUCH CIRCUMSTANCES INTEREST FREE FUNDS WILL BE PRESUMED TO HAVE BEEN UTILIZED FOR INVESTING IN NON-INCOME YIELDING ASSETS. APPLYING THIS PROPOSITION OF LAW TO THE FACTS OF THIS CASE WE HOLD THAT DISALLOWANCE IN QUESTION OF INTEREST IS BAD IN LAW. IN THE RESULT, THIS GROUND OF THE ASSESSEE IS ALLOWED. 15. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS ALLOWED IN PART. KOLKATA, THE 23 RD SEPTEMBER, 2020. SD/- SD/- [S.S. GODARA] [J. SUDHAKAR REDDY] JUDICIAL MEMBER ACCOUNTANT MEMBER DATED: 23.09.2020 BIDHAN 5 I.T.A. NO. 343/KOL/2020 ASSESSMENT YEAR: 2014-15 NEO CARBONS PVT. LTD. COPY OF THE ORDER FORWARDED TO: 1. NEO CARBONS PVT. LTD., C/O SUBASH AGARWAL & ASSOCIATES, ADVOCATES SIDDHA GIBSON, 1, GIBSON LANE, SUITE 213, 2 ND FLOOR, KOLKATA-700 069. 2. DCIT, CIRCLE-1(2), KOLKATA. 3. CIT(A)-6, KOLKATA. (SENT THROUGH MAIL) 4. CIT- 5. CIT(DR), KOLKATA BENCHES, KOLKATA. (SENT THROUGH MAIL) TRUE COPY BY ORDER ASSISTANT REGISTRAR ITAT, KOLKATA BENCHES