SPR Publications Private Limited, Hyderabad V. ACIT, Circle-3(2), Hyderabad

ITA 353/HYD/2013

• Counselvise Citation: 35322514 RSA 2013
• Duration Of Justice: 1 year(s) 3 month(s) 5 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 25-06-2014
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: A
• Assessment Year: 2009-2010
• Appeal Filed On: 20-03-2013
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: P SOMASEKHAR REDDY
• Assessee Lawyers: P MURALI MOHAN RAO
• Keywords: Depreciation; Additional evidence
• Section: 143(3)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL HYDERABAD BENCH A, HYDERABAD BEFORE SHRI B. RAMAKOTAIAH, ACCOUNTANT MEMBER AND SMT. ASHA VIJAYARAGHAVAN, JUDICIAL MEMBER ITA NO. 353/HYD/2013 ASSESSMENT YEAR 2009-10 M/S. SPR PUBL ICATIONS PVT. LTD., HYDERABAD PAN: AAKCS2889Q VS. THE ASST. CIT CIRCLE-3(2) HYDERABAD APPELLANT RESPONDENT ITA NO. 665/HYD/2013 ASSESSMENT YEAR 2009-10 THE ASST. CIT CIRCLE-3(2) HYDERABAD VS. M/S. SPR PUBLICATIONS PVT. LTD., HYDERABAD PAN: AAKCS2889Q APPELLANT RESPONDENT ASSESSEE BY: SRI P . MURALI MOHAN RAO REVENUE BY: SRI P. SOMA SEKHAR REDDY DATE OF HEARING: 12 .0 6 .2014 DATE OF PRONOUNCEMENT: 25 .06.2014 ORDER PER ASHA VIJAYARAGHAVAN, J.M.: THESE ARE CROSS APPEALS, BY THE ASSESSEE AND THE DEPARTMENT, DIRECTED AGAINST THE ORDER OF THE CIT(A )-IV, HYDERABAD DATED 27.2.2013 FOR ASSESSMENT YEAR 2009- 10. 2. FIRST WE WILL ADJUDICATE THE ASSESSEE'S APPEAL IN I TA NO. 353/HYD/2013. BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE-COMPANY VIZ., M/S. SPR PUBLICATIONS PVT. L TD. IS ENGAGED IN THE BUSINESS OF PUBLICATION OF A VERNACU LAR DAILY NEWSPAPER BY NAME 'SURYA'. THE ASSESSEE FILE D ITS 2 ITA NO. 353/HYD/2013 & ANR. M/S. SPR PUBLICATIONS PVT. LTD. ======================== ORIGINAL RETURN OF INCOME FOR A.Y. 2009-10 ON 29.9. 2009 DECLARING A LOSS OF RS. 3,27,14,445. THE RETURN WA S PROCESSED U/S. 143(3) R.W.S. 144 OF INCOME-TAX ACT, 1961. THE AO PASSED AN EX-PARTE ORDER U/S. 144 AND DETERMINED THE INCOME AT RS. 4,16,23,519. THE AO DISALLOWED AN AMOUNT OF RS. 5,55,31,298 OUT OF EXPENDITURE CLAIM. FURTHER, THE AO MADE DISALLOWAN CE U/S. 40(A)(IA) OF THE ACT AMOUNTING TO RS. 2,89,05, 040. THE AO ALSO DISALLOWED DEPRECIATION OF RS. 46,14,44 3. AGGRIEVED THE ASSESSEE PREFERRED APPEAL BEFORE THE CIT(A). 3. THE FIRST ISSUE BEFORE THE CIT(A) WAS WITH RESPECT TO DISALLOWANCE MADE BY THE AO OF A SUM OF RS. 2,89,05 ,040 US. 40(A)(IA) OF THE ACT. BEFORE THE CIT(A), THE A SSESSEE STATED THAT IT HAD REMITTED TDS INTO GOVERNMENT ACC OUNT ON 5.10.2009. THE CIT(A) HELD, FOLLOWING DECISION IN THE CASE MERILYN SHIPPING AND TRANSPORT, 16 ITR (TRIB.) 1 (SB) (VIZ) AND THE DECISION OF PARNIKA CONSTRUCTIONS PVT . LTD. (ITA NO. 1081/HYD/2009 DATED 16.7.2010), THAT THE A O WAS RIGHT IN MAKING DISALLOWANCE U/S. 40(A)(IA) AS THE ASSESSEE HAD NOT REMITTED THE TDS WITHIN THE TIME ALLOWED IN CHAPTER-XVII OF THE INCOME-TAX ACT, 1961 . 4. WITH REGARD TO THE SECOND ISSUE, BEFORE THE CIT(A) IT WAS SUBMITTED THAT THE AO WAS NOT JUSTIFIED IN NOT CONSIDERING THE DEPRECIATION OF RS. 46,14,443 ON AD DITION TO FIXED ASSETS MADE DURING THE YEAR UNDER CONSIDER ATION. IT WAS SUBMITTED THAT THE ASSESSEE IS HAVING ALREAD Y BILLS WITH RESPECT TO PURCHASES MADE DURING THE YEAR UNDE R CONSIDERATION. THE CIT(A) HELD THAT THE ASSESSEE H AD FAILED TO PRODUCE BILLS OF ASSETS CLAIMED TO HAVE B EEN ADDED DURING THE YEAR AND HENCE DISALLOWANCE OF 3 ITA NO. 353/HYD/2013 & ANR. M/S. SPR PUBLICATIONS PVT. LTD. ======================== DEPRECIATION MADE BY THE AO ON FIXED ASSETS MADE DU RING THE YEAR WAS JUSTIFIED. 5. THE THIRD ISSUE WHICH WAS AGITATED BEFORE THE CIT(A ) RELATES TO THE EXPENDITURE OF RS. 4,43,22,334 ON MA TERIAL CONSUMPTION AND EXPENDITURE ON PACKING CHARGE OF RS . 9,68,958, EXPENDITURE ON COMMISSION EXPENSES AT RS. 33,69,667 AND EXPENDITURE ON DISTRIBUTION CHARGES O F RS. 66,70,339. THE AO NOTED THAT WHILE THE GROSS REVEN UE OF THE ASSESSEE HAS INCREASED FROM RS. 34.6 CRORES IN THE PRECEDING YEAR TO RS. 71 CRORES IN THE CURRENT YEAR , THE CONSUMPTION OF MATERIAL HAD INCREASED FROM RS. 16 C RORES TO RS. 44 CRORES IN THE SAME PERIOD. THE AO HELD T HAT THE INCREASE IN MATERIAL CONSUMPTION WAS DISPROPORTIONA TELY HIGH AND COULD NOT BE EXPLAINED MERELY AS A RESULT OF PRICE FLUCTUATION. THE AO, THEREFORE, DISALLOWED T HE CLAIM OF MATERIAL CONSUMPTION ON THE FOLLOWING BASIS: GROSS REVENUE FOR FY 2007-08 (A) : RS. 34,63,64,919 GROSS REVENUE FOR FY 2008-09 (B) : RS. 71,04,78,996 MATERIAL CONSUMPTION FOR FY 2007-08 (C) : RS. 16,03,82,275 MATERIAL CONSUMPTION FOR FY 2008-09 C*B/A : RS. 32,89,83,195 ADD: 20% FOR PRICE FLUCTUATION : RS. 6,57,96,639 TOTAL : RS. 39,47,79,834 EXCESS OVER ASSESSEE'S CLAIM OF RS. 43,93,02,168 WORKS OUT TO : RS. 4,45,22,334 6. THE AR SUBMITTED THAT THE TURNOVER OF RS. 71.04 CRORES CONSISTED OF REVENUE FROM CIRCULATION AND RE VENUE FROM ADVERTISING. THE AR FURTHER SUBMITTED THAT WH ILE THE REVENUE FROM CIRCULATION HAD A CORRELATION WITH THE MATERIAL CONSUMPTION, THERE WAS NO SIMILAR NEXUS BETWEEN MATERIAL CONSUMPTION AND ADVERTISING REVENU E. THE AR, THEREFORE, PLEADED THAT THE COMPARISON WITH THE 4 ITA NO. 353/HYD/2013 & ANR. M/S. SPR PUBLICATIONS PVT. LTD. ======================== PREVIOUS YEAR SHOULD BE CONFINED TO THE CIRCULATION REVENUE ALONE AND IF THAT WERE DONE, THE INCREASE I N MATERIAL CONSUMPTION WAS NOT DISPROPORTIONATE. THE AR SUBMITTED THE FOLLOWING INFORMATION IN THIS REGARD: (RS. IN CRORES) PARTICULARS A.Y. 2009-10 A.Y. 2008-09 RS. RS. RS. RS. CIRCULATION (A) 20.29 7.2 ADVERTISING 50.75 27.43 GROSS REVENUE 71.04 34.63 MATERIAL CONSUMED (B) 44.00 16.00 % OF MATERIAL CONSUMED TO REVENUE FROM CIRCULATION B/A*100 217% 222% 7. THE CIT(A) HELD THAT THE ADVERTISING REVENUE PER SE DOES NOT HAVE ANY INCREASE WITH THE CONSUMPTION OF MATERIAL. HE ALSO OBSERVED THAT WHEN THE CIRCULATI ON REVENUE RAISED THERE WOULD BE A CORRESPONDING INCRE ASE IN THE MATERIAL CONSUMPTION. HE ACCEPTED THE SUBMISSI ON OF THE LEARNED AR THAT THERE IS NO NEXUS BETWEEN THE ADVERTISING REVENUE AND CONSUMPTION OF RAW MATERIAL AND, THEREFORE, THE ADVERTISING REVENUE SHOULD NOT BE TAKEN INTO CONSIDERATION FOR ANALYSIS OF ITS REASON ABILITY BY THE AO. THE CIT(A) POINTED OUT THAT AS PER THE DATA SUBMITTED BY THE ASSESSEE, THE INCREASE IN MATERIAL CONSUMPTION IS COMMENSURATE WITH THE INCREASE IN CIRCULATION REVENUE AND HELD THAT EXPLANATION OF TH E AR IS REASONABLE. THE CIT(A) ALLOWED THE EXPENDITURE IN CURRED FOR MATERIAL CONSUMED. THE CIT(A) PARTLY ALLOWED T HE APPEAL OF THE ASSESSEE. 8. AGGRIEVED, THE ASSESSEE PREFERRED APPEAL BEFORE THE TRIBUNAL. 5 ITA NO. 353/HYD/2013 & ANR. M/S. SPR PUBLICATIONS PVT. LTD. ======================== 9. THE ASSESSEE RAISED ADDITIONAL GROUNDS BEFORE US. HOWEVER, AT THE TIME OF HEARING HE STATED THAT THE ADDITIONAL GROUNDS SHALL BE WITHDRAWN BY HIM. 10. GROUND NO. 1 IS GENERAL IN NATURE AND NEEDS NO ADJUDICATION. 11. THE NEXT GROUND IS ON THE ISSUE OF DISALLOWANCE U/S. 40(A)(IA) OF THE ACT. AS IT HAS BEEN ADMITTED BY THE ASSESSEE ITSELF THAT THE TDS HAS BEEN REMITTED INTO GOVERNMENT ACCOUNT ON 5.10.2009, WE DIRECT THE CIT( A) TO ALLOW THE TDS PAYMENT IN THE NEXT YEAR. 12. THE NEXT ISSUE IS WITH RESPECT TO THE DISALLOWANCE OF DEPRECIATION MADE BY THE AO. WE FIND THAT THE AO H AS PASSED EX-PARTE ORDER U/S. 144 OF THE ACT AND REASO NABLE OPPORTUNITY WAS NOT GIVEN TO THE ASSESSEE TO REPRES ENT ITS CASE. THE LEARNED COUNSEL FOR THE ASSESSEE SUBMITT ED THAT THE ASSESSEE IS IN POSSESSION OF RELEVANT BILLS WIT H RESPECT TO PURCHASES MADE DURING THE YEAR UNDER CONSIDERATI ON. HOWEVER, THE SAME WERE NOT PRODUCED EVEN BEFORE THE CIT(A). IN THE INTEREST OF JUSTICE, WE REMIT THE I SSUE BACK TO THE FILE OF THE CIT(A) TO EXAMINE THE BILLS AND THEREAFTER CONSIDER THE CLAIM OF DEPRECIATION MADE BY THE ASSE SSEE. 13. THE LAST GROUND OF THE APPEAL IS WITH RESPECT TO VARIOUS EXPENSES INCURRED BY THE ASSESSEE. THOUGH THE CIT(A) HAS ADJUDICATED ON ONE EXPENDITURE CLAIMED V IZ., MATERIAL CONSUMPTION AND DELETED THE DISALLOWANCE O F RS. 4,45,22,334, THE CIT(A) HAS NOT, BY OVER SIGHT, ADJUDICATED UPON THE DISALLOWANCE MADE WITH RESPECT OF PACKAGING CHARGES AMOUNTING TO RS. 9,68,958 AND COMMISSION EXPENSES OF RS. 33,69,667. THE CIT(A) H AS 6 ITA NO. 353/HYD/2013 & ANR. M/S. SPR PUBLICATIONS PVT. LTD. ======================== ALSO NOT ADJUDICATED UPON THE EXPENDITURE INCURRED FOR DISTRIBUTION CHARGES OF RS. 66,70,339. WE FIND THA T THE CIT(A) HAS NOT APPLIED HIS MIND ON DISALLOWANCE PERTAINING TO (1) PACKAGING CHARGES, COMMISSION EXP ENSES AND (2) DISTRIBUTION CHARGES AND, THEREFORE, WE REM IT THE ISSUE OF DISALLOWANCE OF EXPENDITURE IN RESPECT OF THE ABOVE THREE ITEMS TO THE FILE OF THE CIT(A) WITH A DIRECTION TO ADJUDICATE UPON THESE ITEMS IN THE LIGHT OF THE EVIDENCES PRODUCED BY THE ASSESSEE BEFORE HIM, AND DECIDE IN ACCORDANCE WITH LAW. 14. IN THE RESULT, APPEAL OF THE ASSESSEE IS ALLOWED FO R STATISTICAL PURPOSES. 15. NOW WE WILL ADJUDICATE UPON THE DEPARTMENTAL APPEAL IN ITA NO. 665/HYD/2013. THE DEPARTMENT RAI SED THE FOLLOWING GROUNDS OF APPEAL: (A) THE LEARNED CIT(A) ERRED BOTH IN LAW AND ON FACTS OF THE CASE. (B) THE LEARNED CIT(A) OUGHT NOT HAVE GIVEN RELIEF WITHOUT VERIFYING THE GENUINENESS OF THE EXPENDITURE. (C) THE LEARNED CIT(A) OUGHT NOT HAVE ADMITTED THE ADDITIONAL EVIDENCE IN VIOLATION OF RULE 46A WITHOUT THE ASSESSING OFFICER BEING ALLOWED REASONABLE OPPORTUNITY TO EXAMINE THE SAME. 16. WITH RESPECT TO CONSUMPTION OF RAW MATERIAL, THE CIT(A) HAS GIVEN A FINDING THAT INCREASE IN MATERIA L CONSUMPTION HAS EFFECTED A CORRESPONDING INCREASE I N CIRCULATION REVENUE. IT IS THE BASIC PRINCIPLE THAT WHEN THERE IS A RISE IN CIRCULATION REVENUE THERE SHOULD BE A CORRESPONDING INCREASE IN MATERIAL CONSUMPTION. TH E 7 ITA NO. 353/HYD/2013 & ANR. M/S. SPR PUBLICATIONS PVT. LTD. ======================== CONSUMPTION OF RAW MATERIAL INCREASES ON PRINTING M ORE NUMBER OF COPIES OF PRINTED PUBLICATION. HENCE, WE ARE IN CONFORMITY WITH THE ORDER OF THE CIT(A) ON THIS ISS UE AND ALLOW THE EXPENDITURE INCURRED FOR MATERIAL CONSUME D OF RS. 4,45,22,334. THE LEARNED CIT(A) HAS NOT ADMITT ED ANY NEW MATERIAL HENCE GROUND (3) IS INFRUCTUOUS. 17. IN THE RESULT, REVENUE APPEAL IS DISMISSED. PRONOUNCED IN THE OPEN COURT ON 25 TH JUNE, 2014 SD/ - (B. RAMAKOTAIAH) ACCOUNTANT MEMBER SD/ - (ASHA VIJAYARAGHAVAN) JUDICIAL MEMBER HYDERABAD, DATED THE 25 TH JUNE, 2014 TPRAO COPY TO: 1. M/S. SPR PUBLICATIONS PVT. LTD., C/O. P. MURALI & CO., CHARTERED ACCOUNTANTS, 6-3-655/2/3, 1 ST FLOOR, SOMAJIGUDA, HYDERABAD-82. 2. THE ASST. CIT, CIRCLE - 3(2), HYDERABAD. 3. THE CIT(A) - IV, HYDERABAD. 4. THE CIT - III, HYDERABAD. 5. THE DR, A - BENCH, ITAT, HYDERABAD.