M/s Sunrise Overseas, Kanpur V. Income Tax Officer, Kanpur

ITA 343/LKW/2015

• Counselvise Citation: [2015] 121 COUNSELVISE.COM (IT) 2065 (ITAT-LUCKNOW)
• Duration Of Justice: 4 month(s) 12 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 09-10-2015
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: A
• Next Hearing Date: 02-09-2015
• Assessment Year: 2001-2002
• Appeal Filed On: 27-05-2015
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Keywords: Capital expenditure
• Section: 143(3); 80IB; 37(1); 154

Judgement Text

1 IN THE INCOME TAX APPELLATE TRIBUNAL LUCKNOW BENCH A, LUCKNOW BEFORE SHRI SUNIL KUMAR YADAV, JUDICIAL MEMBER AND SHRI A.K. GARODIA, ACCOUNTANT MEMBER ITA NO.343/LKW/2015 ASSESSMENT YEAR:2001-02 INCOME TAX OFFICER, WARD-1(4), KANPUR. VS M/S SUNRISE OVERSEAS, 150 FT. ROAD, JAJMAU, KANPUR. PAN:AALFS6704J (RESPONDENT) (APPELLANT) SHRI PRADEEP SETH, C.A. APPELLANT BY SHRI AMIT NIGAM, D.R. RESPONDENT BY 02/09/2015 DATE OF HEARING 09/10/2015 DATE OF PRONOUNCEMENT O R D E R PER A. K. GARODIA, A.M. THIS IS ASSESSEES APPEAL DIRECTED AGAINST THE OR DER PASSED BY LEARNED CIT(A)-I, KANPUR DATED 06/02/2015 FOR THE ASSESSMEN T YEAR 2001-2002. 2. GROUND NO. 1 IS AS UNDER: 2. THAT THE LEARNED C.I.T.(APPEALS) HAS ERRED IN L AW AND ON FACTS IN CONFIRMING THE DISALLOWANCE OF RS.5,000/- UNDER THE HEAD GENERAL EXPENSES WITHOUT APPRECIATING THE ASSESSEE'S WRITTEN SUBMISSIONS FILED BEFORE HER ON THE ABOVE ISSUE AND JUDICIAL PRONOUNCEMENTS RELIED UPON THEREIN. 3. IT WAS SUBMITTED BY LEARNED A.R. OF THE ASSESSEE THAT GROUND NO. 1 IS NOT PRESSED AND THEREFORE, GROUND NO. 1 IS REJECTED AS NOT PRESSED. 4. GROUND NO. 2 IS AS UNDER: 2 2. THAT THE LEARNED C.I.T.(APPEALS) HAS FURTHER ER RED IN LAW AND ON FACTS IN CONFIRMING THE CAPITALIZATION OF IN SURANCE EXPENSES INCURRED IN RESPECT TWO NEW CARS AMOUNTING TO RS.32,112/- MISINTERPRETING THE PROVISIONS OF SECTI ON 31 OF THE I.T. ACT AND WITHOUT APPLYING HER MIND PROPE RLY TO THE WRITTEN SUBMISSIONS FILED BEFORE HER ON THE ABO VE ISSUE AND THE JUDICIAL PRONOUNCEMENT RELIED UPON THEREIN. 5. IT WAS SUBMITTED BY LEARNED A.R. OF THE ASSESSEE THAT THE WRITTEN SUBMISSIONS FILED BEFORE LEARNED CIT(A) ARE AVAILAB LE IN PAPER BOOK ON PAGES A TO K. HE REITERATED THE SAME SUBMISSIONS. 6. LEARNED D. R. OF THE REVENUE SUPPORTED THE ORDER S OF THE AUTHORITIES BELOW. 7. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS. WE FI ND THAT THE ISSUE INVOLVED IN THIS GROUND IS REGARDING CAPITALIZATION OF INSURANCE EXPENSES PAID IN RESPECT OF TWO NEW CARS AMOUNTING TO RS.32,112/- . THE SAME WAS DISALLOWED BY THE ASSESSING OFFICER ON THE BASIS TH AT IT IS CAPITAL EXPENDITURE BECAUSE THE SAME IS REQUIRED TO BE INCURRED BEFORE THE NEW CAR CAN BE USED. BEFORE CIT(A), RELIANCE WAS PLACED BY LEARNED A.R. OF THE ASSESSEE ON A JUDGMENT OF HON'BLE ANDHRA PRADESH HIGH COURT REN DERED IN THE CASE OF NATHMAL BANKATLAL PARIKH AND COMPANY VS. CIT, A.P.- III [1980] 122 ITR 168 (AP). LEARNED CIT(A) HAS OBSERVED IN PARA 4.3 OF H IS ORDER THAT THIS JUDGMENT IS DISTINGUISHABLE ON FACTS BUT IN OUR CON SIDERED OPINION, CIT(A) IS NOT CORRECT IN SAYING SO. IN FACT THIS IS THE RATI O OF THIS JUDGMENT OF FULL BENCH OF HON'BLE ANDHRA PRADESH HIGH COURT THAT THE QUESTION WHETHER A PARTICULAR EXPENDITURE IS CAPITAL OR REVENUE IN NAT URE IS ONLY RELEVANT FOR THE PURPOSE OF ALLOWING A CLAIM U/S 37(1) OF THE ACT AN D FOR ALLOWING THE CLAIM OF DEDUCTION U/S 30 TO 36, THE CONDITION WHETHER TH E EXPENDITURE IS CAPITAL OR REVENUE IN NATURE IS IMMATERIAL. THE DEDUCTION ON ACCOUNT OF INSURANCE EXPENSES IS ALLOWABLE U/S 31 OF THE ACT. THEREFORE , FOR ALLOWING THE CLAIM OF 3 INSURANCE EXPENDITURE U/S 31 OF THE ACT, THIS ASPEC T IS NOT RELEVANT AS TO WHETHER THIS IS CAPITAL EXPENDITURE OR NOT AS PER T HIS JUDGMENT OF HON'BLE ANDHRA PRADESH HIGH COURT. RESPECTFULLY FOLLOWING T HIS JUDGMENT OF HON'BLE ANDHRA PRADESH HIGH COURT, WE HOLD THAT THE DISALLO WANCE MADE BY THE ASSESSING OFFICER AND CONFIRMED BY CIT(A) ON ACCOUN T OF PAYMENT OF INSURANCE PREMIUM OF RS.32,112/- IS NOT PROPER AND JUSTIFIED. WE, THEREFORE, DELETE THE SAME. GROUND NO. 2 IS ALLOWE D. 8. GROUND NO. 3 TO 8 ARE INTER-CONNECTED, WHICH REA D AS UNDER: 3. THAT THE LEARNED C.I.T.(APPEALS) HAS FURTHER ER RED IN LAW AND ON FACTS IN CONFIRMING THE ADDITION OF RS.26,15 ,237/- IN THE VALUE OF CLOSING STOCK BY DISCARDING THE REC OGNIZED METHOD OF VALUATION OF CLOSING STOCK, NAMELY, WEIGH TED AVERAGE COST AS CONSISTENTLY ADOPTED BY THE ASSESSE E AND ACCEPTED BY THE DEPARTMENT AND BY IMPOSING THE FIFO - METHOD OF VALUATION OF CLOSING STOCK BY THE A.O. 4. THAT THE LEARNED C.I.T.(APPEALS) HAS FURTHER ERR ED IN LAW AND ON FACTS IN UPHOLDING THE REJECTION OF ASSESSEE 'S BOOKS BY INVOKING THE PROVISIONS OF SECTION 145(3) WITHOUT SATISFYING THE NECESSARY CONDITIONS LAID DO WN IN THE ABOVE PROVISIONS OF THE ACT AND IN NOT PROPERLY APPLYING HER MIND TO THE WRITTEN SUBMISSIONS AND JU DICIAL PRONOUNCEMENTS RELIED UPON THEREIN BY THE ASSESSEE AND IN TRYING TO ERRONEOUSLY DISTINGUISH THE SAME. 5. THAT THE LEARNED C.I.T.(APPEALS) HAS FURTHER ERR ED IN LAW AND ON FACTS IN UPHOLDING THE REJECTION OF THE METH OD OF STOCK VALUATION ADOPTED BY THE ASSESSEE AND THE WRI TTEN SUBMISSIONS AND CASE LAW FILED BY THE ASSESSEE BEFO RE HER AND IN ERRONEOUSLY TRYING TO DISTINGUISH THE SA ME. 6. THAT THE LEARNED C.I.T.(APPEALS) HAS FURTHER ERR ED IN NOT APPLYING HER MIND TO THE EXPLANATION FILED BY THE ASSESSEE FOR FALL IN THE GROSS PROFIT RATE. 7. THAT THE LEARNED C.I.T. (APPEALS) HAS FURTHER FA ILED TO APPRECIATE THAT THERE WERE INCONSISTENCIES IN THE S TAND OF 4 THE A.O. EVEN WHILE APPLYING THE FIFO-METHOD OF VAL UATION OF COST OF CLOSING STOCK AT DIFFERENT STAGES OF ASS ESSMENT. 8. THAT THE LEARNED C.I.T.(APPEALS) HAS FURTHER ERR ED IN LAW AND ON FACTS IN NOT APPRECIATING THAT THE A.O. HAS NOT ALLOWED ADJUSTMENT OF THE ENHANCEMENT OF VALUE OF CLOSING STOCK IN THE OPENING STOCK OF SUBSEQUENT ASSESSMENT YEAR I.E. 2002-03 IN SPITE OF THE ASSESS EE'S SPECIFIC REQUEST IN APPLICATION U/S 154 FILED BEFOR E THE A.O. 9. IT WAS SUBMITTED BY LEARNED A.R. OF THE ASSESSEE THAT THE ASSESSMENT ORDER PASSED BY THE ASSESSING OFFICER U/S 143(3) FO R ASSESSMENT YEAR 97-98 IS AVAILABLE ON PAGES 148 TO 150 OF THE PAPER BOOK. HE ALSO SUBMITTED THAT ON PAGES 146 AND 147 IS ASSESSMENT ORDER PASSED BY THE ASSESSING OFFICER U/S 143(3) FOR THE ASSESSMENT YEAR 2004-05. THEREA FTER HE SUBMITTED THAT IN ALL EARLIER YEARS AND LATER YEARS, THE ASSESSEE IS FOLLOWING THE SAME METHOD OF VALUATION OF CLOSING STOCK AND AS PER THE SE TWO ASSESSMENT ORDERS PASSED BY THE ASSESSING OFFICER U/S 143(3), NO ADDITION WAS MADE IN THOSE YEARS ON THIS BASIS THAT VALUATION OF CLOSING STOCK BY THE ASSESSEE IS NOT PROPER. HE FURTHER SUBMITTED THAT ON PAGE NO. 151 IS THE VALUATION OF CLOSING STOCK AS ON 31/03/97 AND ON PAGE NO. 35 IS THE VALUATION OF CLOSING STOCK FOR THE PRESENT YEAR I.E. AS ON 31/03/2001 AN D IT CAN BE SEEN THAT THE BASIS OF VALUATION OF CLOSING STOCK IS IDENTICAL. RELIANCE WAS PLACED BY HIM ON A JUDGMENT OF HON'BLE RAJASTHAN HIGH COURT RENDE RED IN THE CASE OF CIT VS. WOLKEM INDIA LTD. [2009] 315 ITR 211 (RAJ) IN S UPPORT OF THIS CONTENTION THAT IF THE METHOD OF VALUATION OF CLOSI NG STOCK ADOPTED BY THE ASSESSEE IS A RECOGNIZED METHOD, IT CANNOT BE REJEC TED. 10. LEARNED D. R. OF THE REVENUE SUPPORTED THE ORDE RS OF THE AUTHORITIES BELOW. 5 11. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS. WE F IND THAT THIS IS ADMITTED POSITION OF FACT THAT THE ASSESSEE IS FOLL OWING THE WEIGHTED AVERAGE METHOD FOR VALUING THE CLOSING STOCK IN THE PRESENT YEAR AS WELL AS IN EARLIER YEARS AND ALSO IN LATER YEARS. THIS IS ALSO SEEN T HAT IN ASSESSMENT YEAR 1997-98 I.E. EARLIER AND ASSESSMENT YEAR 2004-05 I. E. LATER YEAR, THE ASSESSMENTS WERE COMPLETED BY THE ASSESSING OFFICER U/S 143(3) AND IN THOSE YEARS, THERE IS NO ADDITION MADE BY THE ASSES SING OFFICER ON THIS ACCOUNT THAT THE METHOD ADOPTED BY THE ASSESSEE FOR VALUATION OF CLOSING STOCK IS NOT PROPER. IT MEANS THAT THE METHOD ADOP TED BY THE ASSESSEE FOR VALUATION OF CLOSING STOCK IS ACCEPTED BY THE DEPAR TMENT IN EARLIER YEARS AS WELL AS IN LATER YEARS AND THE METHOD ADOPTED BY TH E ASSESSEE IS SAME IN THE PRESENT YEAR, IN EARLIER YEARS AND LATER YEARS ALSO. AS AGAINST THIS, THIS IS THE CASE OF THE ASSESSING OFFICER THAT ADOPTING FIF O METHOD FOR VALUATION OF CLOSING STOCK IS MORE SUITABLE IN PRESENT CASE. IN OUR CONSIDERED OPINION, ON THIS REASONING, AN ACCEPTED AND RECOGNIZED METHOD O F VALUATION OF CLOSING STOCK AS BEING ADOPTED BY THE ASSESSEE CANNOT BE DI SCARDED AND ANOTHER METHOD CANNOT BE ADOPTED BY THE ASSESSING OFFICER. THIS IS NOT THE CASE OF THE ASSESSING OFFICER THAT THE METHOD ADOPTED BY TH E ASSESSEE FOR VALUING CLOSING STOCK IN THE PRESENT YEAR, IN EARLIER YEARS AND LATER YEARS IS NOT A RECOGNIZED METHOD OF VALUATION OF CLOSING STOCK. I N OUR CONSIDERED OPINION, THE ADDITION MADE BY THE ASSESSING OFFICER IS NOT J USTIFIED BECAUSE HE CANNOT REJECT A RECOGNIZED METHOD OF VALUATION OF C LOSING STOCK FOLLOWED BY THE ASSESSEE AND ACCEPTED BY THE DEPARTMENT IN ASSE SSMENT YEAR 1997-98 AND 2004-05 AS PER ASSESSMENT ORDERS PASSED BY THE ASSESSING OFFICER IN THOSE YEARS U/S 143(3) OF THE ACT. THE JUDGMENT OF HON'BLE RAJASTHAN HIGH COURT CITED BY LEARNED A.R. OF THE ASSESSEE RENDER ED IN THE CASE OF CIT VS. WOLKEM INDIA LTD. (SUPRA) ALSO SUPPORTS THIS VIEW O F US BECAUSE IT WAS HELD BY HON'BLE RAJASTHAN HIGH COURT IN THIS CASE THAT I F THE METHOD OF VALUATION ADOPTED BY THE ASSESSEE IS A RECOGNIZED METHOD, IT CANNOT BE REJECTED ON 6 THE GROUND THAT THE NET REALIZABLE VALUE/MARKET VAL UE HAS BEEN DETERMINED ON THE BASIS OF ESTIMATE. RESPECTFULLY FOLLOWING T HIS JUDGMENT OF HON'BLE RAJASTHAN HIGH COURT AND IN VIEW OF ABOVE DISCUSSIO N, WE HOLD THAT THE ADDITION MADE BY THE ASSESSING OFFICER BY REJECTING THE METHOD OF VALUATION OF CLOSING STOCK ADOPTED BY THE ASSESSEE AND BY ADO PTING FIFO METHOD IS NOT JUSTIFIED. WE, THEREFORE, DELETE THE SAME. TH ESE GROUNDS ARE ALLOWED. 12. GROUND NO. 9 & 10 ARE INTER-CONNECTED, WHICH RE AD AS UNDER: 9. THAT THE LEARNED C.I.T.(APPEALS) HAS FURTHER ER RED IN LAW AND ON FACTS IN CONFIRMING THE DISALLOWANCE OF CLAI M OF DEDUCTION U/S 80IB OF THE I.T. ACT AMOUNTING TO RS.11,99,090/- WITHOUT APPLYING HER MIND PROPERLY T O THE WRITTEN ARGUMENTS FILED BEFORE HER AND THE JUDICIAL PRONOUNCEMENT RELIED UPON THEREIN. 10. THAT THE LEARNED C.I.T.(APPEALS) HAS FURTHER ER RED IN LAW AND ON FACTS IN NOT APPRECIATING THAT THE ASSESSEE WAS FULLY ENTITLED TO CLAIM THE DEDUCTION U/S 80IB AS I T SATISFIED ALL THE CONDITIONS LAID DOWN THEREIN. 13. LEARNED A.R. OF THE ASSESSEE PLACED RELIANCE ON A JUDGMENT OF HON'BLE BOMBAY HIGH COURT RENDERED IN THE CASE OF C IT VS. PENWALT INDIA LTD. [1992] 196 ITR 813 (BOM). HE ALSO SUBMITTED T HAT THE PROFIT & LOSS ACCOUNT OF THE ASSESSEE FOR THE PRESENT YEAR IS AVA ILABLE ON PAGE NO. 5 OF THE PAPER BOOK. HE ALSO DRAWN OUR ATTENTION TO PAG ES 71 & 72 OF THE PAPER BOOK WHICH CONTAINS MANUFACTURING PROCESS OF SHOE U PPER AND DETAILS OF SHOE MANUFACTURING MATERIALS. 14. LEARNED D. R. OF THE REVENUE SUPPORTED THE ORDE RS OF THE AUTHORITIES BELOW. 15. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS. WE F IND THAT AS PER THE ASSESSMENT ORDER IN PARA 13, A CLEAR FINDING HAS BE EN GIVEN BY THE ASSESSING OFFICER THAT THE ASSESSEE HAS NOT ADDUCED ANY DOCUMENTARY 7 EVIDENCE TO SHOW THAT THE ASSESSEE IS MANUFACTURING OR PRODUCING ANY ARTICLE OR THING. HE HAS ALSO OBSERVED THAT THE AS SESSEE HAS EMPLOYED ITS SISTER CONCERN M/S SUNRISE TANNERY FOR TANNING OF R AW HIDES TO FINISHED HIDES AND MANUFACTURE OF SHOE UPPER ON JOB BASIS AS ALSO PURCHASE OF FINISHED HIDES AND EXPORT THEREOF. HE HAS ALSO NOT ED THAT AS PER SCHEDULE OF FIXED ASSETS, THERE IS SHOE UPPER MACHINE OF RS.1,9 6,515/- AND EMBOSSING PLATE OF RS.4,26,293/- AND WAGES PAID ARE RS.2,25,4 97/-. HE HAS ALSO NOTED THAT THE ELECTRIC POWER EXPENSES DEBITED TO MANUFAC TURING ACCOUNT RELATES TO M/S SUNRISE TANNERY WHICH IS BORNE BY THE ASSESS EE. HE HAS ALSO GIVEN A FINDING THAT ALL THE HIDES HAVE BEEN PROCESSED ON J OB BASIS. LEARNED CIT(A) HAS ALSO GIVEN A FINDING THAT NO EVIDENCE HAVE BEEN BROUGHT ON RECORD TO SUBSTANTIATE THAT MANUFACTURING AND PRODUCTION IS U NDERTAKEN BY THE ASSESSEE TO JUSTIFY ITS CLAIM OF DEDUCTION U/S 80IB OF THE ACT. IN THE LIGHT OF THESE FINDINGS OF AUTHORITIES BELOW, WE EXAMINE THE PROFIT & LOSS ACCOUNT OF THE ASSESSEE APPEARING ON PAGE NO. 5 OF THE PAPER B OOK. AS PER THE SAME, AGAINST SALES OF RS.915.52 LAC, THE ASSESSEE IS CLA IMING DEDUCTION ON ACCOUNT OF WAGES OF RS.2,25,497/- AND JOB WORK CHAR GES DEBITED IS RS.44,19,315/-. THESE TWO FIGURES ITSELF MAKE IT C LEAR THAT ALMOST ENTIRE WORK IS GET DONE BY THE ASSESSEE ON JOB WORK BASIS. THEREAFTER, WE CONSIDER THE APPLICABILITY OF JUDGMENT OF HON'BLE B OMBAY HIGH COURT CITED BY LEARNED A.R. OF THE ASSESSEE RENDERED IN THE CAS E OF CIT VS. PENWALT INDIA LTD. (SUPRA). IN THIS CASE, IT WAS HELD THAT IF THE ASSESSEE IS GETTING MANUFACTURING DONE BY SOMEBODY ELSE UNDER DIRECT SU PERVISION AND CONTROL, THEN IT SHOULD BE ACCEPTED THAT THE ASSESSEE IS DOI NG MANUFACTURING. BUT IN THE PRESENT CASE, THIS IS NOT COMING OUT THAT THE M ANUFACTURING WAS DONE BY SISTER CONCERN UNDER DIRECT SUPERVISION AND CONTROL OF THE ASSESSEE BECAUSE THE ASSESSEE IS NOT DEBITING ANY AMOUNT ON ACCOUNT OF SALARY BEING PAID TO ANY TECHNICAL EXPERT WHO CAN DO THIS DIRECT SUPERVI SION AND CONTROL OF THE MANUFACTURING PROCESS BEING DONE BY THE SISTER CONC ERN. HENCE, IN THE 8 FACTS OF THE PRESENT CASE, THIS JUDGMENT OF HON'BLE BOMBAY HIGH COURT IS NOT APPLICABLE. AS PER THE FACTS OF THE PRESENT CA SE, AS DISCUSSED ABOVE, WE DO NOT FIND ANY REASON TO INTERFERE IN THE ORDER OF LEARNED CIT(A). ACCORDINGLY, GROUND NO. 9 & 10 ARE REJECTED. 16. IN THE RESULT, THE APPEAL OF THE ASSESSEE STAND S PARTLY ALLOWED. (ORDER WAS PRONOUNCED IN THE OPEN COURT ON THE DATE MENTIONED ON THE CAPTION PAGE) SD/. SD/. (SUNIL KUMAR YADAV) ( A. K. GAROD IA ) JUDICIAL MEMBER ACCOUNTANT MEM BER DATED:09/10/2015 *SINGH COPY OF THE ORDER FORWARDED TO : 1.THE APPELLANT 2.THE RESPONDENT. 3.CONCERNED CIT 4.THE CIT(A) 5.D.R., I.T.A.T., LUCKNOW ASSTT. REG ISTRAR