ACIT 17(2), MUMBAI V. EASTERN OVERSEAS CORPORATION, MUMBAI

ITA 3463/MUM/2013

• Counselvise Citation: [2015] 120 COUNSELVISE.COM (IT) 9254 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 9 month(s) 9 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 12-02-2015
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: E
• Assessment Year: 2004-2005
• Appeal Filed On: 03-05-2013
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: NEIL PHILIP
• Assessee Lawyers: MILIND V SAHASRABUDHE
• Keywords: Capital expenditure

Judgement Text

, INCOME TAX APPELLATE TRIBUNAL,MUMBAI - E BENCH , !' , ! BEFORE S/SH.JOGINDER SINGH, JUDICIAL MEM BER & RAJENDRA,ACCOUNTANT MEMBER /. ITA NO.3463/MUM/2013, # # # # $ $ $ $ / ASSESSMENT YEAR-2004-05 ACIT -17(2), R.NO.217, 2ND FLOOR, PIRAMAL CHAMBERS, MUMBAI 400012 # V/S. M/S. EASTERN OVERSEAS CORPORATION, PO BOX, 6666 JOSEPHINE, GROUND FLOOR, 44 ST. ANDREWS ROAD, BANDRA WEST MUMBAI -400050 ( %& / ASSESSEE) ( '(%& / RESPONDENT) ) * ! / REVENUE BY : SHRI NEIL PHILIP (DR) #+, #+, #+, #+, * * * * ! !! ! /ASSESSEE BY :SHRI MILIND V. SAHASRABUDHE (AR) # # # # ) )) ) ,- ,- ,- ,- / DATE OF HEARING :12 -02-2015 .$ ) ,- / DATE OF PRONOUNCEMENT :12 -02-2015 # # # # , 1961 ) )) ) 254(1) ! !! ! ,, ,, ,, ,, !/ !/ !/ !/ ORDER U/S.254(1)OF THE INCOME-TAX ACT,1961(ACT) PER RAJENDRA, A.M. ! !' ! # : CHALLENGING THE ORDER DT. 19.02.2013OF THE CIT(A)-2 9,MUMBAI,ASSESSING OFFICER (AO) HAS RAISED FOLLOWING GROUNDS OF APPEAL: 1.'IN THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E AND IN LAW, THE LD. CIT(A) HAS ERRED IN DELETING THE PENALTY OF RS. 17,62,165/- LEVIED U/S 271(1) (C) EVEN THOUGH CONCEALMENT AND FILLING OF INACCURATE PARTICULARS OF INCOME HAVE BEEN ESTABLIS HED DURING THE ASSESSMENT PROCEEDINGS AND THE QUANTUM ADDITIONS HAVE ALSO BEEN CONFIRMED BY THE L D. CIT(A).' 2.THE APPELLANT PRAYS THAT THE ORDER OF THE CIT(A) ON THE ABOVE GROUNDS BE REVERSED AND THAT OF THE ASSESSING OFFICER BE RESTORED. 3. THE APPELLANT CRAVES LEAVE TO AMEND OR ALTER ANY GR OUND OR ADD A NEW GROUND WHICH MAY BE NECESSARY. ASSESSEE-FIRM,ENGAGED IN THE BUSINESS OF SUPPLYING AND IMPORTING OF POWER PROJECTS EQUIPMENTS , FILED ITS RETURN OF INCOME ON 29.10.2004,DECLARING TOTAL INCOME OF RS.1.92 CRORES.THE AO FINALISED THE ASSESSMENT U/S.143(3)OF THE ACT,ON29.11.2006,DE TERMINING THE TOTAL INCOME AT RS.2,54,64, 400/- .DURING THE ASSESSMENT PROCEEDINGS,THE AO MADE AN A DDITION OF RS.33,18,894/-(RS.19.91 LAKHS+ RS.13.27 LAKHS)ON ACCOUNT OF CESSATION OF LIABILITY OF ADVANCE FROM FOLLOWING TWO PARTIES: I.ELECTRIC STORE DIVISION,GOVT OF NAGALAND II.MEGHA LAYA NON CONSERVATION ENERGY DEVELOPMENT AGECNY. 2. DURING THE ASSESSMENT PROCEEDINGS IT WAS NOTICED BY THE AO THAT ASSESSEE SHOWED ADVANCES RECEIVED FROM VARIOUS PARTIES AT ANNEXURE A TO THE BALANCE SHEET.HE ASKED THE ASSESEE TO CO-RELATE THE ADVANCES SHOWN AS LIABILITY WITH THE ONGOING PR OJECTS APPEARING IN ANNEXURE D' OF THE ASSET SIDE OF THE BALANCE SHEET.THE ASSESSEE EXPLAINED TH AT THE ADVANCES RECEIVED EXCEPT TWO ADVANCES WERE AGAINST THE ONGOING PROJECTS IN THE S TATE OF MIZORAM.THE AO OBSERVED THAT THE ASSESEE'S ONGOING PROJECTS DURING THE RELEVANT YEAR WERE LOCATED IN MIZORAM WHEREAS THE ABOVE ADVANCES WERE SHOWN FROM GOVT. OF NAGALAN D & MEGHALAYA.WHEN THE ASSESSEE WAS CONFRONTED WITH THIS POINT BY THE AO,HE AGREED THAT THE AMOUNT OF LIABILITIES APPEARING AGAINST THE ABOVE TWO PARTIES COULD BE TREATED AS C ESSATION OF LIABILITY AND BE TAXED DURING THE A.Y.2004-05.THE AO MADE ADDITION OF RS.33,18,894/- TO THE INCOME OF THE ASSESSEE ON ACCOUNT OF CESSATION OF LIABILITIES.AGGRIEVED BY THE ORDER OF THE AO, THE ASSESSEE FILED APPEAL ON THIS GROUND WITH THE FIRST APPELLATE AUTHORITY(FAA),WHO HELD THAT IT WAS FOLLOWING PROJECT COMPLETION METHOD FOR ACCOUNTING INCOME FROM ITS PR OJECTS AND AS DURING THE YEAR NO INCOME FROM THE RELEVANT PROJECT HAD BEEN DECLARED,THAT EXPENDI TURE SHOULD BE CAPITALISED AND CLAIMED 2 ITA/3463/MUM/2013/EOC-AY.2004-05 2 AGAINST THE RELEVANT INCOME WHEN OFFERED TO TAX.SIM ILARLY,DURING THE ASSESSMENT PROCEEDINGS THE AO ASKED THE ASSESSEE TO EXPLAIN THE SUNDRY CRE DITORS OF RS.15,93,063/-SHOWN AT THE LIABILITIES SIDE OF THE BALANCE SHEET. IN RESPONSE THE ASSESSEE STATED THAT NONE OF THE CREDITORS HAD BEEN SETTLED IN SUBSEQUENT YEARS AND THE LIABILITY REMAINED AT THE SAME AMOUNT. LATER ON THE ASSESSEE AGREED THAT THE AMOUNT OF LIA BILITIES APPEARING AS SUNDRY CREDITORS COULD BE TREATED AS CESSATION OF LIABILITY.ACCORDINGLY,THE A O MADE THE ADDITION OF RS.15,93, 063/-ON ACCOUNT OF SUNDRY CREDITORS AS CESSATION OF LIABILITIES.THE AO ISSUED NOTICE U/S. 274 R.W.S.271(1)(C)OF THE ACT AND IMPOSED PENALTY OF RS .17,62,165/-U/S.271(1)(C)OF THE ACT FOR FURNISH -ING INACCURATE PARTICULARS OF INCOME. 3. AGGRIEVED BY THE ORDER OF THE AO,THE ASSESSEE FILED APPEAL BEFORE THE FAA.IT WAS CONTENDED BEFORE HIM THAT THAT BOTH THE ADDITIONS WERE MADE O N ACCOUNT OF CESSATION OF LIABILITIES WITH SPECIFIC COMMENT IN ASSESSMENT ORDER THAT AS AND WHEN ANY OF THE LIABILITY WAS PAID, THE DEDUCTION OF THE SAME SHOULD BE ALLOWED,THAT THE REASONS WHY EACH OF THE LIABILITIES WERE REGARDED AS BEING CONTINUED WERE DULY FURNISHED DURING THE ASSESSMENT PROCEEDINGS,THAT INSPITE OF THOSE SUBMISSIONS THE ADDITIONS WERE MADE ON THE GROUND OF LOW PROBAB ILITY OF PAYMENT,THAT ADDITIONS WERE PRESUMPTIVE IN NATURE AND COULD NOT BE REGARDED AS FURNISHING OF INACCURATE PARTICULARS.IT WAS FURTHER ARGUED THAT MATTER OF ADVANCE FROM MEGHALAYA NON CO NSERVATION ENERGY DEVELOPMENT AGENCY RS.13,36,286/- WAS SUB-JUDICE IN BOMBAY HIGH COURT, THAT LITIGATION ORIGINATED IN THE YEAR 1993 BUT JUST BECAUSE IT WAS OLD IT COULD NOT BE SAID THAT L IABILITY HAD CEASED TO EXIST,THAT THE AMOUNT CONTIN UED TO BE LIABILITY TILL FINAL DISPOSAL OF THE CASE,THAT A DDITION HAD BEEN MADE ON THE GROUNDS OF LOW PROBABILITY OF LIKELYHOOD OF ULTIMATE PAYMENT ARISI NG THEREFROM,THAT SUNDRY CREDITOR SHAKTI ENERGY INDIA P.LTD. RS.3,05,495/- HAD BEEN SETTLED WITH PAYMENT OF RS.3 LAKHS IN SUBSEQUENT YEAR,THAT THERE WAS NO CONCLUSIVE FINDING THAT LIAB ILITY DID NOT EXIST,THAT ASSESSMENT ORDER ITSELF CONTAINED DIRECTION THAT THE ASSESSEE CAN CL AIM THE AMOUNTS ACTUALLY PAID IN SUBSEQUENT YEARS TO BE AN EXPENDITURE IN YEAR OF PAYMENT CLEAR LY DEMONSTRATED THE FACT THAT THE GROUNDS EXISTED FOR BELIEF THAT SOME OF THE LIABILITIES TRE ATED AS CESSATION WOULD HAVE TO BE PAID IN SUBSEQUENT YEARS. AFTER CONSIDERING THE SUBMISSIONS OF THE ASSESSEE,A SSESSMENT AND PENALTY ORDERS,HE HELD THAT THE AO HAD MADE ADDITIONS ON ACCOUNT OF CESSATION OF LI ABILITY,THAT ALL THE FACTS RELATED TO THE TRANSACTION WITH THE RELEVANT PARTIES WERE DISCLOSE D BY THE ASSESSEE IN THE RETURN OF INCOME,THAT IN BUSINESS IT WAS NOT NECESSARY THAT ALL THE TRANSACT ION WERE TAKEN TO A LOGICAL END WITHIN A GIVEN TIME FRAME,THAT NOTHING RELATED TO THE TRANSACTION IN QU ESTION WAS HIDDEN FROM THE AO,THAT IT WAS A CASE WHERE THE BUSINESS TRANSACTION COULD NOT BE COMPLET ED CONCLUSIVELY,THAT THE AO HIMSELF HAD MENTIONED WHILE COMPLETING THE ASSESSMENT THAT THE ASSESSEE COULD CLAIM THE AMOUNTS ACTUALLY PAID IN SUBSEQUENT YEAR IN CASE OF THE LIABILITY WAS MAT ERIALISED IN FUTURE,THAT THE ADDITION WAS NOT CONCLUSIVE,THAT IT WAS ONLY PRESUMPTIVE ADDITION,TH AT ONE OF THE REASONS FOR MAKING ADDITION WAS THAT NONE OF THOSE LIABILITIES WERE SETTLED IN SUBS EQUENT YEARS,THAT IN THE CASE OF ONE OF THE CREDITO RS LIABILITY WAS ACTUALLY SETTLED IN THE FOLLOWING AY. ,THAT THAT THE AO HAD FOLLOWED THAT ORDER OF THE FAA HOLDING THAT THE DISPUTED AMOUNTS WERE NOT OF R EVENUE NATURE AND SAME SHOULD BE CAPITALISED AS THE ASSESSEE WAS FOLLOWING PROJECT COMPLETION ME THOD(PCM),THAT THERE WAS NO DISPUTE ABOUT THE OCCURRENCE OF EXPENDITURE AND ONLY NATURE OF EXPEND ITURE WAS DOUBTED,THAT CONSENT OF THE ASSESSEE FOR ADDITION OR DISALLOWANCE DID NOT AUTOMATICALLY POINT TOWARDS CONCEALMENT.THE FAA RELIED UPON THE CASES OF DR.SAMEER KANT AGARWAL,(113TTJ252),SMT .SANDHYA VARMA(114TTJ933),SURESH CHAND MITTAL(241ITR 124) AND RELIANCE PETROPRODUCT S PVT.LTD.(322ITR158). 4. BEFORE US,THE DEPARTMENTAL REPRESENTATIVE(DR)CONTEN TED THAT ADDITIONS MADE BY THE AO WERE UPHELD BY THE FAA,THAT THE ASSESSEE DID NOT AGITATE THE ISSUES BEFORE THE TRIBUNAL.AUTHORISED REPRESENTATIVE(AR)ARGUED THAT CERTAIN DOCUMENTS COU LD NOT BE PRODUCED BEFORE THE AO AS THE BANK LOCKER WHERE THE PAPERS WERE KEPT WAS DAMAGED IN FL OOD,THAT CERTIFICATE OF THE BANK WAS AVAILABLE AT PAGE NO.4 OF THE PAPER BOOK,THAT THE AO HIMSELF HAD DIRECTED THE ASSESSEE TO CLAIM THE AMOUNTS 3 ITA/3463/MUM/2013/EOC-AY.2004-05 3 ACTUALLY PAID IN SUBSEQUENT YEARS TO BE AN EXPENDIT URE IN YEAR OF PAYMENT,THAT THERE WAS NO EVIDENCE THAT THE ADVANCE OR THE CREDITORS HAD BECO ME NON-PAYABLE IN THE UNDER APPEAL.HE RELIED UPON THE CASE OF VIP INDUSTRIES LTD.(122TTJ289). 5. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL BEFORE US.WE FIND THAT THE AO HAD MADE ADDITIONS TO THE INCOME OF THE ASSESSEE ON TWO COUNTS NAMELY CESSATION OF LIABILITY AND SUNDRY CREDITORS,THAT THE ASSESSEE AGREED FOR THE ADDITION S DURING ASSESSMENT PROCEDDINGS,THAT THE FAA HAD HELD THAT THE ASSESSEE WAS FOLLOWING PCM AND SHOULD HAVE TREATED THE EXPENDITURE IN DISPUTE AS CAPITAL EXPENDITURE,THAT STILL ONE MATTER-ADVANCE F ROM MEGHALAYA NON CONSERVATION ENERGY DEVELOPMENT AGECNY-IS PENDING WITH HONBLE HIGH COU RT,THAT IN VERY NEXT AY. CREDITOR-LIABILITY, AMOUNTING TO RS.3 LACS,WAS SETTLED. IT IS SAID THAT ADDITION MADE DURING ASSESSMENT PRO CEEDINGS DO NOT LEAD TO AUTOMATIC LEVY OF CONCEALMENT PROCEEDINGS.IF THE ASSESSEE DISCLOSES A LL THE NECESSARY FACTS IN THE RETURN AND ADDITIONS ARE MADE BY THE AO AND CONFIRMED BY THE FAA IT WOUL D NOT MEAN THAT THE ASSESSEE HAS FURNISHED INACCURATE PARTICULARS OF INCOME.IN THE CASE UNDER CONSIDERATION ALL THE DETAILS ABOUT THE CESSATION OF LIABILITY WERE MADE AVAILABLE BY THE ASSESSEE.T HE FAA WAS OF THE OPINION THAT THE EXPENDITURE SHOULD HAVE BEEN CLAIMED UNDER THE HEAD CAPITAL GAI NS.THUS,THERE WAS NO DISPUTE ABOUT THE CORRECTNESS OF THE ENTRIES IN THE BOOKS OF ACCOUNTS .THERE WAS DISPUTE ABOUT THE NATURE OF THE DISPUTED AMOUNT.IN OUR OPINION,IN SUCH CASES IT CAN NOT BE HELD THAT THE ASSESSEE HAD CONCEALED THE PARTICULARS OF INCOME OR HAD FURNISHED INACCURATE P ARTICULARS.WE HAVE GONE THROUGH THE COPY OF THE SUIT STILL PENDING WITH THE CIVIL COURT.THESE FACTO RS ENDORSE THE VIEW OF THE FAA THAT DISPUTE HAD NOT REACHED FINALITY AND TILL THAT TIME IT CANNOT B E TERMED A CASE OF CONCEALING PARTICULAR OF INCOME.IT IS SAID THAT BUSINESS ACTIVITIES DO NOT F OLLOW CALENDAR AND THEY HAVE THEIR OWN PACE,OWN CODE OF CONDUCT.THE AO CANNOT DECIDE THE PACE OF CO MMERCIAL ACTIVITIES.IN THE MATTER OF VIP INDUSTRIES LTD.(SUPRA)SIMILAR ISSUED HAD ARISEN.DEC IDING THE APPEAL THE TRIBUNAL HELD AS UNDER: 14. THE SECOND COMPONENT OF THIS GROUND IS AGAINST THE DELETION OF PENALTY ON THE ADDITION UNDER S. 41(1) ON CESSATION OF LIABILITY. THE ASSESSEE WAS C ALLED UPON TO EXPLAIN SUNDRY CREDITORS ALONG WITH THE AGEING OF OUTSTANDING FOR MORE THAN THREE YEARS . A SUM OF RS. 18.20 LAKHS WAS FOUND TO BE DUE IN THE ACCOUNT OF M/S RELIANCE INDUSTRIES LTD. FOR MOR E THAN THREE YEARS. THE ASSESSEE AGREED TO THE PROPOSAL OF THE AO FOR WRITING BACK OF THIS AMOUNT IN THIS YEAR AND CONSEQUENTLY OFFERING IT FOR TAXATION SUBJECT TO THE CONDITION THAT IT SHALL CLA IM DEDUCTION WHENEVER IN FUTURE THE AMOUNT BECOMES PAYABLE. UNDER THESE CIRCUMSTANCES, THE AO MADE ADDITION AND LEVIED THE PENALTY, WHICH CAME TO BE DELETED IN THE FIRST APPEAL. 15. HAVING HEARD THE RIVAL SUBMISSIONS AND PERUSED THE RELEVANT MATERIAL ON RECORD WE AGAIN NOTICE THAT THERE IS NO CONCEALMENT OF INCOME BY THE ASSES SEE ON THIS ISSUE. STRICTLY SPEAKING, S. 41(1) IS ATTRACTED WHEN THERE IS CESSATION OR REMISSION OF A TRADING LIABILITY. SIMPLY BECAUSE A PERIOD OF THREE YEARS HAS EXPIRED AND THE CREDITOR CANNOT LAW FULLY ENFORCE HIS CLAIM, IT DOES NOT MEAN THAT THERE IS A CESSATION OR REMISSION OF LIABILITY. SUP POSE, IN THE FOURTH YEAR OR THEREAFTER, THE CREDITO R DEMANDS THE MONEY AND THE ASSESSEE AGREES TO PAY, W HICH IS OTHERWISE RIGHTFULLY PAYABLE TO HIM BASED ON A GENUINE AND EXISTING LIABILITY, CAN IT B E SAID THAT THE ASSESSEE SHOULD BE PREVENTED FROM MAKING THE PAYMENT BECAUSE THE LAWFULLY ENFORCEABLE RIGHT VESTED IN THE CREDITOR DOES NOT EXIST ? IN OUR CONSIDERED OPINION, THE ANSWER IS IN NEGATIVE. THERE MAY BE SEVERAL SITUATIONS WHEN THE MONEY IS NOT CLAIMED OR PAID BY ONE PARTY TO ANOTHER WITH IN THREE YEARS AND THEREAFTER THE CLAIM IS MADE AND HONOURED BY THE OTHER. SO, SIMPLY BECAUSE A PAR TICULAR AMOUNT IS OUTSTANDING FOR A PERIOD OF MORE THAN THREE YEARS, THAT DOES NOT CONSTITUTE INC OME UNDER S. 41(1). THE ACT OF THE ASSESSEE IN AGREEING FOR THE INCLUSION OF SUCH AMOUNT IN THE TO TAL INCOME DURING THE COURSE OF ASSESSMENT, SUBJECT TO THE CONDITION THAT THE DEDUCTION WILL BE CLAIMED AS AND WHEN THE AMOUNT IS PAID TO THE THIRD PARTIES, MANIFESTS THAT THE ASSESSEE HAD NOT CONCEALED ITS INCOME OR FURNISHED INACCURATE PARTICULARS OF ITS INCOME FOR WHICH HE COULD BE VIS ITED WITH THE PENALTY. THE DISCUSSION MADE SUPRA QUA THE CONFIRMATION OF DELETION OF PENALTY ON DEDU CTION CLAIMED BY THE ASSESSEE UNDER S. 35 HOLDS GOOD HERE ALSO. THUS, WE APPROVE THE VIEW TAKEN BY THE LEARNED CIT(A). 4 ITA/3463/MUM/2013/EOC-AY.2004-05 4 CONSIDERING THE ABOVE DISCUSSION,WE ARE OF THE OPIN ION THAT THE ORDER OF THE FAA DOES NOT SUFFER FROM ANY LEGAL INFIRMITY. SO,CONSIDERING THE PECULI AR FACTS AND CIRCUMSTANCES OF THE CASE,WE ARE CONFIRMING HIS ORDERS.EFFECTIVE GROUND OF APPEAL IS DECIDED AGAINST THE AO. AS A RESULT, APPEAL FILED BY THE AO STANDS DISMISSE D. 1,2 #+, - 3 4 ) #5 ) , 6 . ORDER PRONOUNCED IN THE OPEN COURT ON 12,F EBRUARY,2015. !/ ) .$ ! 7 8# 12 ,1- , ,, , 201 5 ) = SD/- SD/- ( /JOGINDER SINGH) ( !' / RAJENDRA) / JUDICIAL MEMBER ! ! ! ! / ACCOUNTANT MEMBER / MUMBAI, 8# /DATE: 12.02.2015 SK !/ !/ !/ !/ ) )) ) ',> ',> ',> ',> ?!>$, ?!>$, ?!>$, ?!>$, / COPY OF THE ORDER FORWARDED TO : 1. / %& 2. RESPONDENT / '(%& 3. THE CONCERNED CIT(A)/ @ A , 4. THE CONCERNED CIT / @ A 5. DR E BENCH, ITAT, MUMBAI / >B ',# , . . . 6. GUARD FILE/ 1 (>, ', //TRUE COPY// !/# / BY ORDER, C / DY./ASST. REGISTRAR , /ITAT, MUMBAI