M/s. Ambuja Intermediates Ltd., Ahmedabad V. The ACIT.,Circle1, Ahmedabad

ITA 353/AHD/2012

• Counselvise Citation: [2016] 133 COUNSELVISE.COM (IT) 0983 (ITAT-AHMEDABAD)
• Duration Of Justice: 4 year(s) 5 month(s) 21 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 28-07-2016
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: A
• Next Hearing Date: 25-07-2016
• Assessment Year: 2008-2009
• Appeal Filed On: 07-02-2012
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: K MADHUSUDHAN
• Keywords: Capital asset; Depreciation; Opportunity of being heard; Fair market value; Corroborative evidences; Revenue expenditure; Capital expenditure
• Section: 143(3); 37; 6; 2

Judgement Text

, IN THE INCOME TAX APPELLATE TRIBUNAL A BENCH, AHMEDABAD BEFORE SHRI R.P. TOLANI, JUDICIAL MEMBER AND SHRI AMARJIT SINGH, ACCOUNTANT MEMBER ./ ITA NO. 353/AHD/2012 / ASSESSMENT YEAR : 2008-09 AMBUJA INTERMEDIATES LTD, 901-A, NARNARAYAN COMPLEX, SWASTIK CHAR RASTA, OFF. C. G. ROAD, NAVRANGPURA, AHMEDABAD 380009 PAN : AACCA 1236 B VS THE ACIT, CIRCLE-1, AHMEDABAD / (APPELLANT) / (RESPONDENT) ASSESSEE BY : NONE REVENUE BY : K. MADHUSUDHAN, SR DR / DATE OF HEARING : 25/07/2016 / DATE OF PRONOUNCEMENT: 28/07/2016 / O R D E R PER AMARJIT SINGH, ACCOUNTANT MEMBER :- THIS APPEAL BY THE ASSESSEE IS DIRECTED AGAINST THE ORDER OF THE COMMISSIONER OF INCOME-TAX (APPEALS)-6, AHMEDABAD D ATED 02.12.2011 FOR ASSESSMENT YEAR 2008-09. 2. EFFECTIVE GROUNDS RAISED BY THE ASSESSEE ARE TO THE EFFECT THAT THE LD. CIT(A) ERRED IN LAW AND ON FACTS:- I) IN CONFIRMING THE DISALLOWANCE OF REVENUE EXPENDITU RE OF RS.21,00,000/- FOR CONTRIBUTION PAID TO KALOL GIDC ASSOCIATION FOR COMMON EFFLUENT TREATMENT PLANT (CETP) CONSIDERING IT AS CAPITAL IN NATURE AS PER PROVISION OF SECTION 37 OF THE ACT; II) IN CONFIRMING THE DISALLOWANCE OF INTEREST U/S 40A( 2)(B) OF THE ACT OF RS.10,19,378/- MADE BY THE ASSESSING OFFICER ON THE GROUND THAT THE APPELLANT HAS PAID INTEREST TO THE PERSONS SPECIFIED IN ITA NO.353/AHD/2012 AMBUJA INTERMEDIATES LTD VS. ACIT AY : 2008-09 2 SECTION 40A(2)(B) OF THE ACT IN EXCESS AS COMPARED TO THE FAIR MARKET VALUE. 3. THE BRIEF FACTS OF THE CASE ARE THAT THE ASSESSE E IS A PRIVATE LIMITED COMPANY, ENGAGED IN THE BUSINESS OF MANUFACTURING A ND EXPORTER OF INTERMEDIATE DYES AND CHEMICALS. FOR THE YEAR UNDE R CONSIDERATION, THE ASSESSEE HAS FILED RETURN ON 27.09.2008, DECLARING TOTAL INCOME OF RS.5,21,65,744/-. SUBSEQUENTLY, THE ASSESSMENT U/S 143(3) OF THE INCOME-TAX ACT, 1961 (HEREINAFTER REFERRED TO AS 'THE ACT') WA S FRAMED VIDE ORDER DATED 30.11.2010 DETERMINING TOTAL INCOME AT RS.5,53,55,1 22/-. THE DISALLOWANCE OF RS.21,00,000/- U/S 37 WAS MADE BY THE ASSESSING OFFICER BY TREATING THE FOLLOWING EXPENSES AS CAPITAL IN NATURE:- DATE NARRATION AMOUNT 01.08.2007 CONTRIBUTION FOR BUILDING FUND 3,50,000/ - 01.10.2007 CONTRIBUTION FOR CETP DEVELOPMENT 5,00,0 00/- 31.03.2008 CAPITAL CONTRIBUTION PAID TO KALOL GIDC ASS FOR ETP 12,50,000/- TOTAL 21,00,000/- 3.1 THE BRIEF OF THE SUBMISSION MADE BY THE ASSESSE E BEFORE THE ASSESSING OFFICER IS THAT IT HAD MADE PAYMENT TOWARDS CONTRIB UTION FOR COMMON EFFLUENT TREATMENT PLANT (CETP) DEVELOPED BY KALOL GIDC INDUSTRIES ASSOCIAITON. THE GIDC INDUSTRIES ASSOCAITION HAS C ONSTRUCTED COMMON EFFLUENT TREATMENT PLANT FOR DISPOSAL OF EFFLUENT G ENERATED BY ALL INDUSTRIES IN THE AREA. THE OWNERSHIP OF THE ASSET OF EFFLUEN T TREATMENT PLANT CONSTRUCTED BY THE GIDC INDUSTRIES ASSOCIATION REMA INS WITH THEM AND THE ASSESSEE HAS NO OWNERSHIP OR LEGAL SHARING IN THE S AID EFFLUENT TREATMENT PLANT. AS THE OWNERSHIP IS NOT WITH THE COMPANY, I T IS NOT CAPITAL EXPENDITURE SUBJECT TO DEPRECIATION AS PER DEFINITI ON OF COST OF ASSETS DEFINED IN THE PROVISIONS OF THE INCOME-TAX ACT AND THEREFO RE, IT IS A REVENUE EXPENDITURE. ITA NO.353/AHD/2012 AMBUJA INTERMEDIATES LTD VS. ACIT AY : 2008-09 3 3.2 ON THE OTHER HAND, THE ASSESSING OFFICER CONCLU DED THAT THE AMOUNT OF RS.21,00,000/- PAID BY THE ASSESSEE-COMPANY IS T OWARDS CONTRIBUTION FOR CREATION OF CAPITAL ASSETS THAT WOULD PROVIDE ENDUR ING BENEFITS TO THE ASSESSEE FOR TREATMENT OF EFFLUENTS. 3.3 THE ASSESSING OFFICER HAD MADE DISALLOWANCE OF RS.10,19,378/- AS EXCESS PAYMENT OF INTEREST UNDER THE PROVISIONS OF SECTION 40A(2)(B) OF THE INCOME-TAX ACT ON THE REASONING THAT THE ASSESSEE H AS CHARGED INTEREST @ 12% FROM SISTER CONCERNS, WHEREAS INTEREST HAS BEEN PAID @ 15% TO PERSONS SPECIFIED U/S 40A(2)(B) OF THE ACT. FURTHER, THE I NTEREST ON INTER-CORPORATE DEPOSITS HAS BEEN PAID @ 6%. MOREOVER, THE PREVAILI NG MARKET RATE IS THAT OF 12%, WHEREAS THE ASSESSEE SUBMITTED BEFORE THE ASSE SSING OFFICER THAT IT HAD GRANTED LOANS/ADVANCES TO ITS SISTER CONCERNS OPERA TING ON CURRENT ACCOUNT BASIS FOR SHORT PERIODS ON WHICH INTEREST WAS CHARG ED AT 12%, WHEREAS THE INTEREST WAS PAID @ 15% ON THE UNSECURED LOANS TAKE N FROM PERSONS SPECIFIED U/S 40A(2)(B). 3.4 ON APPEAL, THE LD. CIT(A) CONFIRMED THE ADDITIO N OF RS.21,00,000/- ON THE REASONING THAT THE ASSESSEE-COMPANY DERIVED AN ENDURING BENEFIT BY WAY OF TREATMENT OF ITS EFFLUENTS AND STATING THE C ONTRIBUTION MADE BY THE ASSESSEE-COMPANY TOWARDS BUILDING FUND, CETP DEVELO PMENT FUND AND CAPITAL CONTRIBUTION AGGREGATING TO RS.21,00,000/- AS CAPITAL IN NATURE AND THE SAME WAS DISALLOWED AS DEDUCTION AS PER THE PRO VISIONS OF SECTION 37 OF THE IT ACT, 1961 ON THE REASONING THAT CREATION OF CAPITAL ASSETS IN THE COMMON POOL IS NOTHING BUT CAPITAL EXPENSE INCURRED BY THE ASSESSEE AND NOT ALLOWABLE AS REVENUE. 3.5 THE LD. CIT(A) ALSO CONFIRMED THE ADDITION OF R S.10,19,378/- MADE BY THE ASSESSING OFFICER AS PER THE PROVISIONS OF SECT ION 40A(2)(B) OF THE IT ACT, ITA NO.353/AHD/2012 AMBUJA INTERMEDIATES LTD VS. ACIT AY : 2008-09 4 1961 ON THE REASONING THAT THE PARTIES TO WHOM INTE REST WAS PAID ARE RELATED AND COVERED WITHIN THE PROVISIONS OF SECTION 40A(2) OF THE IT ACT AND THE RELATED PARTIES WERE PAID MORE INTEREST THAN THE UN RELATED PARTIES ON THE SIMILAR LOANS RECEIVED BY THE ASSESSEE. HE ALSO ST ATED THAT LOANS RECEIVED FROM RELATED PARTIES ARE NOT PERMANENT AND STABLE B ECAUSE OF REGULAR INFLOW AND OUTFLOW OF FUNDS. 4. AGGRIEVED BY THE ORDER OF THE LD. CIT(A), THE AS SESSEE IS IN FURTHER APPEAL BEFORE US. 5. AT THE TIME OF HEARING BEFORE US, NO ONE WAS PRE SENT ON BEHALF OF THE ASSESSEE. HOWEVER, IT HAS BEEN NOTICED THAT THE LD. COUNSEL FOR THE ASSESSEE HAS FILED AN APPLICATION FOR ADJOURNMENT OF THE HEA RING ON THE GROUND THAT HE WAS NOT IN POSITION TO REMAIN PRESENT IN THE HEA RING FIXED ON 25.07.2016 AS HE WAS OUT OF STATION FOR ONE MONTH. THE REASON STATED IN THE ADJOURNMENT APPLICATION WAS NOT FOUND CONVINCING BY THE BENCH AND THEREFORE, THE ADJOURNMENT APPLICATION WAS REJECTED AND THE BENCH PROCEEDED TO DECIDE THE APPEAL ON MERITS ON THE BAS IS OF THE MATERIAL AVAILABLE ON RECORD AND AFTER CONSIDERING THE SUBMI SSIONS OF THE DEPARTMENTAL REPRESENTATIVE. 6. THE LD. DEPARTMENTAL REPRESENTATIVE SUPPORTED TH E ORDERS OF THE AUTHORITIES BELOW. 7. WE HAVE HEARD THE RIVAL CONTENTIONS, PERUSED THE MATERIAL AVAILABLE ON RECORD AND GONE THROUGH THE ORDERS OF THE AUTHOR ITIES BELOW. APROPOS GROUND NO.1, WE FIND THAT THE ASSESSEE HAS MADE PAY MENT OF RS.21 LACS TO KALOL GIDC INDUSTRIAL ASSOCIATION TOWARDS CONTRIBUT ION AND MEMBERSHIP FOR COMMON EFFLUENT TREATMENT PLANT (CETP) AND CLAI MED THE SAME AS REVENUE EXPENDITURE BEING THE AMOUNT INCURRED FOR T HE PURPOSE OF BUSINESS, WHICH HAS BEEN DISALLOWED BY THE LD. ASSESSING OFFI CER TREATING IT AS CAPITAL ITA NO.353/AHD/2012 AMBUJA INTERMEDIATES LTD VS. ACIT AY : 2008-09 5 EXPENDITURE. THE ASSESSEE CONTENDED THAT THE CETP O N WHICH THE EXPENDITURE INCURRED WAS NOT THE ASSETS OF THE ASSE SSEE, BUT THE ASSETS OF THE KALOL GIDC INDUSTRIAL ASSOCIATION AND THE ONLY ADVA NTAGE DERIVED BY THE COMPANY BY INCURRING THE EXPENDITURE WAS THAT IT OB TAINED MEMBERSHIP OF THE CETP SO THAT IT CAN SEND THE EFFLUENT GENERATED OUT OF MANUFACTURING PROCESS TO CETP FOR TREATMENT ON PAYMENT OF CHARGES FIXED BY THE CETP. THE OWNERSHIP OF THE ASSETS OF EFFLUENT TREATMENT P LANT REMAINS WITH THE KALOL GIDC INDUSTRIES ASSOCIATION AND IT HAS PAID C ONTRIBUTION FOR CETP FOR BUSINESS PURPOSE. THE ASSESSEE-COMPANY HAS NO OWNER SHIP AND IT IS NOT CAPITAL EXPENDITURE AND NOT SUBJECT TO DEPRECIATION AS PER THE DEFINITION OF COST OF ASSETS DEFINED IN THE PROVISIONS OF THE INC OME-TAX ACT AND THEREFORE, IT IS A REVENUE EXPENDITURE. WE FIND THAT THESE ASP ECTS HAVE NOT BEEN CONSIDERED BY THE LOWER AUTHORITIES WHILE DECIDING THE APPEAL OF THE ASSESSEE. THEREFORE, WE RESTORE THIS ISSUE BACK TO THE FILE OF THE LD. ASSESSING OFFICER FOR EXAMINATION OF ALL THE FACTS AND SUBMIS SION MADE BY THE ASSESSEE WITH DIRECTION TO DECIDE THE SAME AFRESH IN ACCORDA NCE WITH LAW AFTER PROVIDING ADEQUATE OPPORTUNITY OF BEING HEARD TO TH E ASSESSEE. 8. APROPOS GROUND NO.2 ALSO, I.E. DISALLOWANCE OF I NTEREST U/S 40A(2)(B), WE ARE INCLINED TO SET ASIDE THE MATTER BACK TO THE FILE OF THE LD. ASSESSING OFFICER TO RE-EXAMINE THE INTEREST PAID B Y THE ASSESSEE ON UNSECURED LOANS TAKEN FROM PERSONS SPECIFIED U/S 40 A(2)(B) OF THE ACT AS THE ASSESSEE CHARGED INTEREST @ 12% FROM SISTER CON CERNS, WHEREAS, INTEREST HAS BEEN PAID @ 15% TO PERSONS SPECIFIED U/S 40A(2) (B) OF THE ACT. IN THIS CONNECTION, THE ASSESSEE HAS CONTENDED THAT IT HAS GRANTED LOANS/ADVANCES TO ITS SISTER CONCERNS FOR SHORT PERIODS ON WHICH I NTEREST IS CHARGED @ 12%, WHEREAS INTEREST IS PAID @ 15% ON THE UNSECURED LOA NS TAKEN FROM PERSONS SPECIFIED U/S 40A(2)(B) ON LONG TERM BASIS. IT IS NOTICED THAT ASSESSING OFFICER HAS NOT BROUGHT ANY CORROBORATIVE EVIDENCES WHILE REJECTING THE CLAIM OF THE ASSESSEE FOR DEDUCTION OF INTEREST PAI D TO PERSONS SPECIFIED ITA NO.353/AHD/2012 AMBUJA INTERMEDIATES LTD VS. ACIT AY : 2008-09 6 UNDER SECTION 40A(2)(B) OF THE ACT. IN VIEW THEREO F, THIS MATTER IS ALSO SET ASIDE TO THE FILE OF LD. ASSESSING OFFICER FOR DECI DING THE SAME AFRESH IN ACCORDANCE WITH LAW AFTER PROVIDING ADEQUATE OPPORT UNITY OF BEING HEARD TO THE ASSESSEE. 9. IN THE RESULT, APPEAL OF THE ASSESSEE IS ALLOWE D FOR STATISTICAL PURPOSES. ORDER PRONOUNCED IN THE COURT ON 28 TH JULY, 2016 AT AHMEDABAD. SD/- SD/- (R.P. TOLANI) JUDICIAL MEMBER (AMARJIT SINGH) ACCOUNTANT MEMBER AHMEDABAD; DATED 28/07/2016 *BIJU T. / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT 2. / THE RESPONDENT. 3. / CONCERNED CIT 4. ( ) / THE CIT(A) 5. , , / DR, ITAT, AHMEDABAD 6. / GUARD FILE . / BY ORDER, TRUE COPY / ( DY./ASSTT.REGISTRAR) , / ITAT, AHMEDABAD