PHOENIX CHEMICAL WORKS P.LTD, MUMBAI V. ADDL CIT RG 7(1), MUMBAI

ITA 3480/MUM/2013

• Counselvise Citation: [2015] 134 COUNSELVISE.COM (IT) 1787 (ITAT-MUMBAI)
• Duration Of Justice: 2 year(s) 7 month(s) 27 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 31-12-2015
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: C
• Next Hearing Date: 01-06-2015
• Assessment Year: 2009-2010
• Appeal Filed On: 03-05-2013
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: SATYA PAL KUM
• Assessee Lawyers: P M PARULEKAR
• Keywords: Depreciation
• Section: 133(6)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL, MUMBAI BENCH C, MUMBAI BEFORE SHRI R.C.SHARMA, ACCOUNTANT MEMBER AND SHRI PAWAN SINGH, JUDICIAL MEMBER ITA NO.3480/MUM/2013 ASSESSMENT YEAR: 2009-10 PHOENIX CHEMICAL WORKS PVT. LTD. GROUND FLOOR, 36/A, P.L.KALA GURUJI MARG, DADAR (W), MUMBAI-400028. PAN: AAACP8948H VS. ACIT RANGE-7(1), MUMBAI. (APPELLANT) (RESPONDENT) ASSESSEE BY : SHRI P.M.PARULEKAR (AR) REVENUE BY : SHRI SATYA PAL KUM AR (DR) DATE OF HEARING : 19.08.201 5 DATE OF PRONOUNCEMENT : 31.12.2015 O R D E R PER PAWAN SINGH, JM: 1. THE PRESENT APPEAL HAS BEEN FILED BY THE ASSESSEE A GAINST THE ORDER DATED 12.02.2013 IN RESPECT OF ASSESSMENT YEAR (AY) 2009-10 ON THE F OLLOWING GROUNDS OF APPEAL: THE ASSESSING OFFICER AND CIT(A) HAS ERRED IN 1) ADDING TO INCOME RS.4,50,124/- ON ACCOUNT OF DEP RECIATION ON PLANT & MACHINERY WITHOUT BUSINESS ACTIVITY. THE ADDITION MADE BY THE ASSESSI NG OFFICER BE DELETED. 2) ADDING TO INCOME RS.4,86,657/- ON ACCOUNT OF EXP ENDITURE CONSIDERING AS THERE WAS NO BUSINESS ACTIVITY:- I) POWER & FUEL RS.2,08,905/- II) REPAIRS & MAI NTENANCE TO PLANT & MACHINERY RS. L,49,46 2/- III) WATER CHARGE S RS.L,14,959/ - IV) LABORATORIES EXPENSES RS. 13,361/- TOTAL RS.4,86,657/- THE ADDITION MADE BY THE ASSESSING OFFICER BE DELET ED. 3) ADDING TO INCOME RS.1,01,00,000/- ON ACCOUNT OF PAYMENT TO VACATE THE OCCUPATION ON THE ASSESSEE'S FACTORY LAND. THE ADDITION MADE BY THE A SSESSING OFFICER BE DELETED. 2 ITA NO. 3480/M/2013 PHOENIX CHEMICAL WORKS PVT. LTD. THE APPELLANT CRAVES LEAVE TO ADD, ALTER, AMEND OR REVISE THE ABOVE GROUNDS OF APPEAL AT THE TIME OF HEARING OF THE ABOVE APPEAL. 2. BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE FILED HIS RETURN OF INCOME FOR AY-2009-10, ON 30.09.2009 DECLARING TOTAL INCOME OF RS. 23,75,3 9,808/-. THE RETURN OF INCOME WAS SELECTED FOR SCRUTINY AND AFTER SERVING STATUTORY N OTICE AND GIVING AN OPPORTUNITY, THE ASSESSING OFFICER (AO) MADE THE ADDITION OF RS. 4,5 0,125/- ON ACCOUNT OF DEPRECIATION ON PLANT & MACHINERY, RS. 4,86,657/- O N ACCOUNT OF EXPENDITURE CONSIDERING AS THERE WAS NO BUSINESS ACTIVITY AND F URTHER ADDED RS. 1.01 CRORES ON ACCOUNT OF PAYMENT TO VACATE THE FACTORY LAND IN AS SESSMENT ORDER ON 29.12.2011 AGAINST WHICH THE APPEAL WAS FILED BEFORE THE CIT(A ). 3. THE LD. CIT(A) WHILE DISPOSING OF THE APPEAL SUSTAI NED ALL THE ADDITION IN ITS ORDER DATED 14.02.2003, AGAINST WHICH THE PRESENT APPEAL IS FILED BEFORE US. 4. WE HAVE HEARD THE AUTHORISED REPRESENTATIVE (AR) OF THE ASSESSEE AND DEPARTMENTAL REPRESENTATIVE (DR) OF THE REVENUE AND GONE THROUGH THE MATERIAL AVAILABLE ON RECORD. 5. IN RESPECT OF GROUND NO.1, THE AR OF THE ASSESSEE H AS ARGUED THAT THE ASSESSEE WAS MANUFACTURER/JOB WORK CONTRACTOR AND DURING THE REL EVANT AY THE ASSESSEE COULD NOT CONDUCT ANY MANUFACTURING ACTIVITY AS HE WAS BUSY I N SALE OF ITS LEASEHOLD LAND AND BUILDING ON WHICH MACHINERY WAS INSTALLED , AS THE SAME WAS ALSO PUT FOR SALE AND COULD NOT CONDUCT ANY BUSINESS ACTIVITY, THOUGH THE MACHINERY WAS KEPT READY FOR PRODUCTION. HOWEVER, THE AO WHILE MAKING THE ADDITI ONS HAS OBSERVED THAT THE ASSESSEES FACTORY LAND WAS SOLD ON 20.09.2008 AND HOW ASSESSEE COULD CONDUCT BUSINESS ACTIVITY. THE AO FURTHER OBSERVED THAT THE BUYER TO WHOM THE FACTORY LAND WAS SOLD GAVE A CONFIRMATION LETTER DATED 20.12.201 1 WHEREIN THE BUYER CONFIRMED THAT ASSESSEE WAS ALLOWED TO INSTALL THE PLANT & MA CHINERY AT HIS PURCHASE PREMISES TILL 2010 WHICH WAS NOT ACCEPTED AND THE CLAIM OF D EPRECIATION OF ASSETS OF RS. 4,50,125/- WAS DISALLOWED. 6. THE CIT(A) WHILE DEALING WITH THIS GROUND HAS OBSER VED IN ITS ORDER THAT DURING THE YEAR, THE ASSESSEE HAS SOLD LAND ON 20.09.2008, BY RETAINING ITS PLANT & MACHINERY AND ON SALE ON LAND THE ASSESSEE HAS SHOWN CAPITAL GAIN AND CLAIMED DEPRECIATION ON PLANT & MACHINERY UNDER THE HEAD JOB WORK CHARGES, THE ASSESSEE HAD REPORTED NIL INCOME UNDER THE HEAD WORK-IN-PROGRESS IN JOB WORK , THE ASSESSEE REPORTED NIL INCOME AND THERE WAS NO BUSINESS ACTIVITY AND THE A SSESSEE CLAIMED DEPRECIATION ON PLANT & MACHINERY. THE CIT(A) CATEGORICALLY HELD TH AT WHEN FACTORY BUILDING WAS SOLD AND BUILDING LAND WAS VACATED BY THE ASSESSEE AND THERE WAS NO POSSIBILITY OF USE 3 ITA NO. 3480/M/2013 PHOENIX CHEMICAL WORKS PVT. LTD. OF SUCH PLANT & MACHINERY BY THE ASSESSEE AND THAT THE ASSESSEE HAD FAILED TO PROVE PASSIVE USE OF MACHINERY AND TO EXPLAIN HOW AND WHE RE THE PLANT & MACHINERY WAS KEPT READY FOR USE AND AFFIRMED THE DISALLOWANCE MA DE BY AO. 7. WE HAVE CONSIDERED THE ARGUMENT ADVANCED BY THE AR OF THE ASSESSEE AND ALSO PERUSED THE ORDER OF AO AND FIRST APPELLATE AUTHORI TY (FAA). 8. WE ARE NOT CONVINCED WITH THE ARGUMENTS OF LD AR, WHEN THE FACTORY LAND AND BUILDING HAS BEEN SOLD, HOW THE PURCHASER/BUYER ALL OWED THE ASSESSEE TO USE THE PLANT & MACHINERY INSTALLED AT THE PURCHASED LAND AND BUI LDING IN ABSENCE OF ANY COGENT AND DOCUMENTARY EVIDENCE WHICH MAY PROVE EITHER REL ATIONSHIP OF TENANT-LANDLORD OR LICENSE-LICENSEE IN RESPECT OF THE LAND ON WHICH PL ANT & MACHINERY WAS INSTALLED AND WERE READILY KEPT READY FOR PASSIVE USE, THE ASSESS EE HAS FAILED TO PROVE HIS CONTENTION AND THE SUBMISSION MADE BEFORE THE AO AS WELL AS CI T(A) AND THUS THE DISALLOWANCE MADE ON ACCOUNT OF DEPRECIATION DOES NOT REQUIRE AN Y INTERFERENCE AT OUR END, HENCE THIS GROUND IS DISMISSED. 9. NEXT GROUND FOR OUR CONSIDERATION IS ADDING OF RS. 4,86,657/- ON ACCOUNT OF EXPENDITURE CONSIDERING AS THERE WAS NO BUSINESS AC TIVITY. 10. THE AR OF THE ASSESSEE HAS ARGUED THAT THE ASSESSEE HAS INCURRED RS. 2,08,905/- ON ACCOUNT OF POWER & FUEL, RS. 1,49,662/- ON REPAIRS AND MAINTENANCE OF PLANT & MACHINERY, RS. 1,14,959/- ON WATER CHARGES AND RS. 13,331/- ON LABORATORY EXPENSES AND ALL THE EXPENSES INCURRED BY THE ASSESSEE SHOUL D HAVE BEEN ALLOWED BY THE AO. WE HAVE SEEN THAT AO, WHILE MAKING THIS DISALLOWAN CE BY CONSIDERING THAT THERE WAS NO BUSINESS ACTIVITY AND OUT OF BUSINESS EXPENDITUR E, THE AO HAS ALLOWED THE AMOUNT INCURRED IN RATES & TAXES, TRAVEL & CONVEYANCE, POS TAGE, TELEPHONE AND INTERNET, STATIONARY, PROFESSIONAL FEES, LEGAL AND PROFESSION AL FEES, VEHICLE EXPENSES, DIRECTORS FEES, DIRECTORS REMUNERATION, FREIGHT & FORWARD CH ARGES AND OFFICE RENT BY CONSIDERING THAT THESE EXPENSES ARE ESSENTIAL FOR R UNNING THE ASSESSEES BUSINESS AND DISALLOWANCE WAS MADE AS NOT CARRIED OUT ANY BUSINE SS ACTIVITY. 11. THE CIT(A) WHILE DEALING WITH THIS GROUND HAS OBSER VED THAT DURING THE YEAR UNDER CONSIDERATION, THE ASSESSEE HAS SOLD ITS FACTORY LA ND AND BUILDING, HOWEVER, THE PLANT AND MACHINERY HAD NOT BEEN SOLD AND AO IN THE ASSES SMENT ORDER HAS DISCUSSED ALL THE FACTS AND COULD NOT PROVE THAT PLANT AND MACHINERY WAS NOT REMOVED AND WAS KEPT FOR ACTUAL OR PASSIVE USE AND ALTOGETHER THE CIRCUMSTAN CES FOR INCURRING ON POWER AND FUEL WERE IN DOUBT AND CONFIRMED THE ADDITION. THE AR OF THE ASSESSEE HAS ARGUED THAT THE 4 ITA NO. 3480/M/2013 PHOENIX CHEMICAL WORKS PVT. LTD. ASSESSEE WAS ENTITLED FOR DEDUCTION ON THE BASIS OF CASE TITLED AS CIT VS. OSWAL AGRO MILLS REPORTED VIDE (2012) 341 ITR 467 (DEL). 12. WE HAVE GONE THROUGH THE ORDER OF AO AS WELL AS CIT (A), BOTH THE AUTHORITIES BELOW HAVE CONSIDERED THE FACT AND LAW REFERRED BY LD AR. WE FOUND THAT THERE WAS NOT BUSINESS ACTIVITY AND THE PLANT AND MACHINERY WAS N OT USED FOR PRODUCTION PURPOSE, HENCE THE EXPENDITURE ON ACCOUNT OF POWER AND FUEL, REPAIR AND MAINTENANCE, WATER CHARGES WAS DISALLOWED. THE ASSESSEE HAS NOT BROUGH T ON RECORD ANY EVIDENCE WHICH MAY SUBSTANTIATE THE CLAIM OF ASSESSEE TO JUSTIFY T HE EXPENDITURE DURING THE PERIOD, WHEN THERE WAS NO BUSINESS ACTIVITY AND PLANT AND M ACHINERY WAS NOT USED FOR THE PURPOSE OF PRODUCTION. THE LEGITIMATE EXPENSES WERE ALREADY ALLOWED BY THE AO. 13. THE AR OF THE ASSESSEE HAS RELIED UPON THE JUDGMENT OF DELHI HIGH COURT REPORTED VIDE 341 ITR 467 WHEREIN THE HONBLE COURT HAS HELD THAT ANY FORCED IDLENESS OF THE MACHINERY CANNOT DISENTITLED THE ASSESSEE FROM GETT ING THE BENEFIT OF ALLOWANCE, THE ASSESSEE-COMPANY COMPETED THE CONSTRUCTION OF BUILD ING AND INSTALLATION OF MACHINERY BUT COULD NOT START REGULAR MANUFACTURING WITH THE AID OF THAT MACHINERY BECAUSE OF FREQUENT LABOUR UNREST AND CLAIMED DEVEL OPMENT IN RESPECT OF THIS MACHINERY. HOWEVER, IN THE CASE OF ASSESSEE, THE AS SESSEE HAS SOLD THE FACTORY LAND AND PLANT AND MACHINERY WAS LYING IDLE AND WAS ALLE GEDLY SHOWN READY FOR PASSIVE USE, HENCE, THE FACT OF THE ASSESSEES CASE ARE AT VARIANCE FROM THE FACT OF CASE OF OSWAL AGRO MILLS AND THE SAME IS HELPFUL TO THE ASS ESSEE, HENCE THIS GROUND IS REJECTED. 14. NEXT GROUND FOR OUR CONSIDERATION IS THE ADDITION OF RS. 1.01 CRORE ON ACCOUNT OF PAYMENT TO VACATE THE LAND OF THE ASSESSEES FACTOR Y, THE AO WHILE DEALING WITH THIS ADDITION IN PARA-5 OF ITS ADDITION HAS OBSERVED THA T THE ASSESSEE WHILE COMPUTING THE LONG TERM CAPITAL GAIN (LTCG) FOR SALE OF FACTORY L AND CLAIMED THAT HE HAD TO PAY COMPENSATION OF RS. 1.01 CRORE TO M/S SIMRAN ENTERP RISES. THE ASSESSEE WAS ASKED TO GIVE THE DETAILS ABOUT THE GENUINENESS OF THE TRANS ACTION AND THE ASSESSEE VIDE LETTER DATED 01.11.2011 CONTENDED THAT IT PAID COMPENSATIO N TO M/S SIMRAN ENTERPRISES. THE AO SENT A NOTICE U/S 133(6) DATED 07.01.2011 TO M/S SIMRAN ENTERPRISES AND CALLED THE BOOKS OF ACCOUNT, BANK TRANSACTION, NATURE OF BUSIN ESS AND THE DETAIL OF THE ADVANCE RECEIVED FROM THE ASSESSEE AND PAN NUMBER. IT WAS O BSERVED THAT NO RESPONSE TO THE NOTICE U/S 133(6) WAS RECEIVED AND THAT INSPECTOR O F INCOME-TAX WAS DEPUTED TO CONDUCT FIELD ENQUIRY, THE INSPECTOR SUBMITTED HIS REPORT ON 05.12.2011 STATING THAT HE WAS NOT ABLE TO TRACE OUT M/S SIMRAN ENTERPRISES AN D THE ADDRESS GIVEN BY THE ASSESSEE 5 ITA NO. 3480/M/2013 PHOENIX CHEMICAL WORKS PVT. LTD. WAS FOUND TO BE THE RESIDENTIAL PREMISES OF MR. VIK AS VORA, WHO WAS NOT AWARE ABOUT M/S. SIMRAN ENTERPRISES. THE AO OBSERVED THAT THE ASSESSEE COULD NOT PRODUCE THE PERSON NOR COULD CONFIRMED THE PAN NUMBER OF RECIPI ENT OF BIG AMOUNT THOUGH THE ASSESSEE HAS FURNISHED THE DETAILS OF CHEQUES ISSUE D WHICH ALONE DOES NOT PROVE THE GENUINENESS OF THE PAYMENT AND THUS DOUBTED THE GEN UINENESS OF PAYMENT OF RS. 1.01 CRORE AND MADE THE DISALLOWANCE. 15. THE CIT(A) WHILE DEALING WITH ISSUE HAS OBSERVED TH AT THE ASSESSEE, DURING THE ASSESSMENT PROCEEDING AS WELL AS AT APPELLATE PROCE EDING FAILED TO PROVE THE EXISTENCE OF TENANT/M/S SIMRAN ENTERPRISES AND FAILED TO PROV E GENUINENESS OF THE AMOUNT OF SUCH PAYMENT AND IN ABSENCE OF GENUINENESS AND BONA FIDE THE EXPENDITURE CLAIMED WAS NOT PROVED AND THUS UPHELD THE ADDITION. 16. THE AR OF THE ASSESSEE HAS ARGUED THAT THE ASSESSEE HAS MADE EXPENDITURE FOR MAKING HIS TITLE CLEAR AND FREE FROM ENCUMBRANCES FOR TRA NSFER OF THE PROPERTY AND AS PER SECTION 41(I), THE ASSESSEE IS ENTITLED FOR THE ENT IRE EXPENDITURE INCURRED WHOLLY AND EXCLUSIVELY IN CONNECTION WITH TRANSFER. 17. WE HAVE PERUSED THE ORDER OF AO AS WELL AS FAA, IT WAS BROUGHT ON RECORD THAT THE PAYMENT ALLEGED BY THE ASSESSEE WAS MADE THROUGH CH EQUES, COPIES OF WHICH ARE PLACED AS PAGE NO. 41, 42 & 43 OF THE PAPER BOOK, A ND THE DETAILS OF CHEQUE NUMBER(S) AND DATES ARE MENTIONED AT PAGE NO. 45 OF PB. NEITH ER THE AO NOR THE FAA HAS CONSIDERED IN ITS ORDER THAT, IF THE CHEQUE WHICH W ERE A/C PAYEE CHEQUE ISSUED TO SHRI MERVIN SUSHANK ANDRADE, PROPRIETOR OF M/S SIMRAN EN TERPRISES WAS CLEARED FROM THE BANK ACCOUNT OF THE ASSESSEE OR NOT. HAVING CONSIDE RED THESE FACT, WE DEEM IT PROPER TO RESTORE THIS ISSUE TO THE FILE OF AO TO VERIFY W HETHER THE CHEQUE MENTIONED AT PB NO. 41,42 & 43 WHOSE DETAILS ARE GIVEN ON PAGE NO. 44 OF PB WERE ENCASED IN THE ACCOUNT OF PROPRIETOR OF M/S SIMRAN ENTERPRISES OR NOT TO AND TO GET VERIFY FROM THE BANKERS OF THE ASSESSEE AND PASS THE APPROPRIATE OR DER IN ACCORDANCE WITH LAW IN TERMS OF CLAUSE 1 OF SECTION 48 OF I.T. ACT. THE ASSESSEE IS ALSO DIRECTED TO FULLY COOPERATE AND FILE THE STATEMENT OF ACCOUNT OR ANY OTHER DOCU MENTS IF REQUIRE BY AO DURING THE REMAND PROCEEDINGS. 18. THE AR OF THE ASSESSEE HAS RELIED UPON THE JUDGMENT OF DELHI HIGH COURT REPORTED VIDE 341 ITR 467 WHEREIN THE HONBLE COURT HAS HELD THAT ANY FORCED IDLENESS OF THE MACHINERY CANNOT DISENTITLED THE ASSESSEE FROM GETT ING THE BENEFIT OF ALLOWANCE, THE ASSESSEE-COMPANY COMPETED THE CONSTRUCTION OF BUILD ING AND INSTALLATION OF MACHINERY BUT COULD NOT START REGULAR MANUFACTURING WITH THE AID OF THAT MACHINERY 6 ITA NO. 3480/M/2013 PHOENIX CHEMICAL WORKS PVT. LTD. BECAUSE OF FREQUENT LABOUR UNREST AND CLAIMED DEVEL OPMENT IN RESPECT OF THIS MACHINERY. HOWEVER, IN THE CASE OF ASSESSEE, THE AS SESSEE HAS SOLD THE FACTORY LAND AND PLANT AND MACHINERY WAS LYING IDLE AND WAS ALLE GEDLY SHOWN READY FOR PASSIVE USE, HENCE, THE FACT OF THE ASSESSEES CASE ARE AT VARIANCE FROM THE FACT OF CASE OF OSWAL AGRO MILLS AND THE SAME IS HELPFUL TO THE ASS ESSEE, HENCE THIS GROUND IS REJECTED. 19. IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE IS ALLOWED FOR STATISTICAL PURPOSE ORDER PRONOUNCED IN THE OPEN COURT ON THIS 31 ST DECEMBER 2015. SD/- SD/- (R.C.SHARMA) (PAWAN SINGH) ACCOUNTANT MEMBER JUDICIAL MEMBER MUMBAI; DATED 31 /12/2015 S.K.PS / COPY OF THE ORDER FORWARDED TO : / BY ORDER, / (ASSTT.REGISTRAR) , / ITAT, MUMBAI 1. / THE APPELLANT 2. / THE RESPONDENT. 3. ( ) / THE CIT(A), MUMBAI. 4. / CIT 5. , , / DR, ITAT, MUMBAI 6. !'# / GUARD FILE. $ //TRUE COPY/