ITO 19(2)(2), MUMBAI V. WELLWORTH LABORATORIES, MUMBAI

ITA 3560/MUM/2010

• Counselvise Citation: [2015] 140 COUNSELVISE.COM (IT) 87877 (ITAT-MUMBAI)
• Duration Of Justice: 4 year(s) 7 month(s) 26 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 02-01-2015
• Appeal Filed By: Department
• Bench Allotted: G
• Next Hearing Date: 18-12-2014
• Assessment Year: 1996-1997
• Appeal Filed On: 06-05-2010
• Court: TRIBUNAL
• Department Lawyers: R N DSOUZA
• Assessee Lawyers: VASANT PATEL
• Keywords: Business expenditure; Additional evidence
• Section: 143(3)

Judgement Text

IN THE INCO ME TAX APPELLATE TRIBUNAL G BENCH, MUMBAI BEFORE SHRI VIJAY PAL RAO, JUDICIAL MEMBER AND SHRI D. KARUNAKARA RAO, ACCOUNTANT MEMBER ./I.T.A. NO. 3560/M/2010 (AY 1996 - 1997) ./I.T.A. NO. 3561/M/2010 (AY 1997 - 1998) INCOME TAX OFFICER - 19(2)(2), R.NO.309, 3 RD FLOOR, PIRAMAL CHAMBERS, LALBAUG, PAREL, MUMBAI 400 012. / VS. M/S. WELLWORTH LABORATORIES, NOVAMED PHARMACEUTICAL PVT LTD (SUCCESSOR OF WELLWORTH LABORATORIES) 159; CST ROAD, KALINA, SCRUZ (E), MUMBAI 400 098. ./ PAN : AAAFW0348P ( / APPELLANT) .. ( / RESPONDENT ) / APPELLANT BY : SHRI R.N. DSOUZA, DR / RESPONDENT BY : MS. VASANT PATEL / DATE OF HEARING : 18.12.2014 / DATE OF PRONOUNCEMENT : 2. 01.2015 / O R D E R PER D. KARUNAKARA RAO, AM: THERE ARE TWO APPEALS UNDER CONSIDERATION. BOTH THESE APPEALS ARE FILED BY THE REVENUE INVOLVING THE ASSESSMENT YEARS 1996 - 97 AND 1997 - 98. SINCE, THE ISSUES INVOLVED IN BOTH THESE APPEALS ARE IDENTICAL, THEREFORE, FOR THE SAKE OF CONVENIENCE, THEY ARE CLUBBED, HEARD COMBINEDLY AND DISPOSED OF IN THIS CONSOLIDATED ORDER. APPEAL WISE ADJUDICATION IS GIVEN IN THE FOL LOWING PARAGRAPHS OF THIS ORDER. 2. FIRSTLY WE SHALL TAKE UP THE APPEAL ITA NO.3560/M/2010 FOR THE AY 1996 - 97 WHICH IS FILED AGAINST THE ORDER OF THE CIT (A) - 30, MUMBAI DATED 15.2.2010. IN THIS APPEAL, REVENUE RAISED THE FOLLOWING GROUNDS WHICH READ AS UNDER: 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD CIT (A) HAS ERRED IN DELETING THE ADDITION OF RS. 73,49,830/ - ON ACCOUNT OF DISCOUNT CHARGES MADE BY THE ASSESSING OFFICER. 2. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD CIT (A) FAILED T APPRECIATE THAT THE ASSESSEE FIRM HAD NOT BEEN ABLE TO 2 PROVE THAT THE DISCOUNTING CHARGES HAVE BEEN PAID WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF THE BUSINESS OF THE ASSESSEE. 3. ON THE FACTS AND IN THE CIRCUMSTANCES O F THE CASE AND IN LAW, THE LD CIT (A) FAILED TO APPRECIATE THAT THE ASSESSEE WAS GIVEN OPPORTUNITY TO PRODUCE THE COPIES OF BILLS OF DISCOUNTING / FINANCE CHARGES WHICH WERE NOT PRODUCED AT THE TIME OF ORIGINAL ASSESSMENT AS WELL AS AT THE TIME OF FRESH AS SESSMENT. 3. AT THE OUTSET, LD COUNSEL FOR THE ASSESSEE BROUGHT OUR ATTENTION TO THE ORDER OF THE CIT (A) AND MENTIONED THAT PARA 4.4 OF THE IMPUGNED ORDER IS RELEVANT. IN THIS REGARD HE READ OUT THE SAID PARA 4.4, WHICH READS AS UNDER: 4.4. ACCORDING TO THE A/R, THE ASSESSING OFFICER WAS REQUIRED TO EXAMINE THE ISSUE OF ALLOWABILITY OF FINANCE / DISCOUNTING CHARGES PAID STRICTLY WITHIN THE FOUR CORNERS OF THE DIRECTIONS GIVEN IN THIS REGARD BY THE MUMBAI ITAT. IN OTHER WORDS, THE ASSESSING OFFICER WAS DEBARRED AND PRECLUDED BY THE HONBLE MUMBAI ITAT FROM TRAVELLING TO EXTRANEOUS ISSUES AND CONSIDERATIONS LIKE COMMON ADDRESSES, COMMON PARTNERS / DIRECTIONS, INTERLACING OF FUNDS AND MANAGEMENT, CONNECTION OF THE COMPANY / FIRMS WITH LUPIN GROUIP, ETC., WHILE ADJUDICATING UPON THE JUSTIFIABILITY OF FINANCE CHARGES INCURRED BY THE APPELLANT. THE ASSESSING OFFICERS ROLE WAS THUS LIMITED TO THE ISSUE OF VERIFYING THE CORRECT NATURE OF EXPENSES INCURRED AND CLAIMED UNDER THE HEAD FINANCE AND DISCOUNTING CH ARGES AND WHETHER THE SAME HAVE BEEN INCURRED FOR ITS BUSINESS PURPOSE AND THE ISSUE OF DISALLOWANCE ON ANY OTHER GROUND WAS NOT AT ALL RELEVANT IN THE PRESENT CONTEXT. HOWEVER, THE ASSESSING OFFICER WITHOUT ABIDING BY AND RESTRICTING HIMSELF TO THE DIRE CTIONS OF THE HONBLE MUMBAI ITAT, DISALLOWED THE FINANCE CHARGES OF RS. 38,53,824/ - BY FOLLOWING THE DETAILED REASONING GIVEN BY THE ASSESSING OFFICER IN THE ORIGINAL ASSESSMENT ORDER. THE A/R FURTHER SUBMITTED THAT THE ASSESSING OFFICER OUGHT TO HAVE DE CIDED THE NECESSARY DETAILS AND EXPLANATIONS WERE FURNISHED BEFORE THE ASSESSING OFFICER. 4. FROM THE ABOVE, LD COUNSEL FOR THE ASSESSEE MENTIONED THAT IDENTICAL ISSUE OF ALLOWABILITY OF DISCOUNT CHARGES / FINANCE CHARGES WAS RAISED IN THE GROUP CONCERN S CASE OF THE ASSESSEE NAMELY ITO VS. M/S. DELTA INTERNATIONAL AND ITO V/S. M/S. ALPHA CORPORATION AND THE CIT (A) ALLOWED THE APPEAL OF THE ASSESSEE AND DELETED THE ADDITION MADE ON ACCOUNT OF DISCOUNT ING CHARGES / FINANCING CHARGES . LD COUNSEL FOR THE ASSESSEE FURTHER MENTIONED THAT THE REVENUE TOOK THE ISSUES TO THE TRIBUNAL AGAINST THE CONCLUSION OF THE CIT (A) IN THE CASE OF M/S. DELTA INTERNATIONAL AND M/S. ALPHA CORPORATION (SUPRA), AND THE TRIBUNAL DECIDED THE ISSUE IN FAVOUR OF THE ASSESSEE AND F ILED COPIES OF THE ORDERS OF THE TRIBUNAL VIDE ITA NO.5028/M/2009 (AY 1996 - 97) AND ITA NO.5366/M/2009 (AY 1996 - 1997), DATED 24.07.2013. LD COUNSEL BROUGHT OUR ATTENTION TO PARA 2 TO 4 OF THE ORDER OF THE TRIBUNAL IN THE CASES OF M/S. DELTA INTERNATIONAL AND OTHERS VIDE ITA NOS. 5340/M/2011 (AY 1997 - 98) AND OTHERS , WHEREIN THE ASSESSEES APPEALS ARE ALLOWED. FOR THE SAKE OF COMPLETENESS OF THIS 3 ORDER, THE SAID PARAS 2 TO 4 OF THE SAID ORDER OF THE TRIBUNAL (ITA NOS. 5028/M/2009 AND OTHERS) ARE EXTRACTED W HICH READ AS UNDER: 2. BRIEFLY STATED THE FACTS OF M/S. DELTA INTERNATIONAL IN ITA NO.5028/MUM/2009 ARE THAT THE ORIGINAL ASSESSMENT IN THIS CASE WAS COMPLETED MAKING ADDITION, INTER A LIA, OF RS. 62 LAKH ON ACCOUNT OF DISCOUNTING CHARGES PAID TO BANK AND RS. 108 . 49 LAKH PAID TO OTHERS. WHEN THE MATTER FINALLY CAME UP BEFORE THE TRIBUNAL, THE ISSUE WAS RESTORED TO THE FILE OF A.O. WITH A DIRECTION TO EXAMINE AS TO WHETHER SUCH DISCOUNT/INTEREST WAS INCURRED BY THE ASSESSEE IN CARRYING ON OF ITS BUSINESS. T HIS ORDER WAS PASSED BY THE TRIBUNAL BY FOLLOWING ANOTHER ORDER B Y THE TRIBUNAL IN THE CASE OF FELLOWSHIP CORPORATION V. JCIT [ITA NO . 4352/MUM/2001], WHICH IS ALSO INVOLVED IN THE PRESENT BATCH OF APPEALS. PURSUANT TO THE D IR ECTION G I VEN BY THE TRIBUNAL, THE ASSESSING OFFICER REPEATED T HE ADDITION OF RS. 1.16 CRORE TOWARDS FINANCE CHARGES IN THE PRESENT CASE. THE LEARNED CIT(A), HOWEVER DELETED THE SAID ADDITION. THE REVENUE HAS COME UP IN APPEAL AGAINST SUCH DELETION . 3. AFTER CONSI DERING THE RIVAL SUBMISSIONS AND PERUSING THE RELEVANT MATERIAL ON RECORD, WE FIND THAT THE TRIBUNAL IN ITS EARLIER ORDER DIRECTED THE ASSESSING OFFICER TO EXAMINE THE NATURE OF INTEREST/DISCOUNT INCURRED AND ITS NEXUS WITH THE CARRYING ON OF THE BUSINESS . FROM THE ASSESSMENT ORDER IT IS APPARENT THAT AFTER RECORDING THE DATES ON WHICH NOTICES WERE ISSUED, THE A.O. REPRODUCED THE ORIGINAL ORDER PASSED BY HIM U/S 143(3) AND THEREAFTER REPRODUCED ITS CONFIRMATION BY THE LEARNED CIT(A) IN THE FIRST ROUND. IT IS ON PAGE NO.8 THAT THE ASSESSING OFFICER HAS GIVEN HIS FINDING AS UNDER: - AS THE ASSESSEE HAS NOT PRODUCED ANY ADDITIONAL EVIDENCE NOW TO SHOW THAT FINANCING CHARGES PAID ARE ATTRIBUTABLE TO THE BUSINESS EXPENDITURE AND IN VIEW OF THE DETAILED REASONING GIVEN BY THE A. O. IN HIS ORIGINAL ASSESSMENT ORDER AND SUBSEQUENTLY UPHELD BY THE CIT(A). I HAVE NO REASON TO DEVIATE FROM THE STAND TAKEN BY THE A. O. IN THE ORIGINAL ORDER, HENCE, ASSESSEE'S CLAIM OF LOSS IS REJECTED . ACCORDINGLY, THE FINANCIN G CHARGES AMOUNTING TO RS. 1,16,42,135/ - ARE DISALLOWED AND PENALTY PROCEEDINGS U/S 271 (1)(C) ARE INITIATED FOR CONCEALING THE INCOME AND ALSO FURNISHING INACCURATE PARTICULARS OF HIS INCOME. 4. FROM THE BODY OF THE ASSESSMENT ORDER IT CAN BE SEEN THAT THE ASSESSING OFFICER SIMPLY REPEATED THE ASSESSMENT AND FIRST APPELLATE AUTHORITY'S ORDER WITHOUT DISCUSSING ANYTHING NEW ABOUT THE MATTER ON WHICH THE TRIBUNAL GAVE DIRECTION. HE SIMPLY NOTICED TH AT THE ASSESSEE DID NOT PRODUCE ANY ADDITIONAL EVIDENCE TO CO - RELATE THE FINANCING CHARGES WITH THE BUSINESS EXPENDITURE. AS AGAINST THAT, THE LEARNED AR INVITED OUR ATTENTION TOWARDS VARIOUS DETAILS FURNISHED BEFORE THE ASSESSING OFFICER DURING THE COURSE OF SUCH FRESH PROCEEDINGS. FIRST LETTER OF THE ASSESSEE IN THE FRESH PROCEEDINGS IS DATED 05.09.2006 BY WHICH IT FURNISHED FUND FLOW STATEMENT, BALANCE SHEET AND PROFIT AND LOSS ACCOUNT FOR THE YEAR IN QUESTION AND FOR THE EARLIER YEAR, DETAILS OF DISCOUN T CHARGES PAID, STATEMENT OF ACCOUNT, PARTIES IN SUPPORT OF RECEIPT / PAYMENT OF DISCOUNTING CHARGES, COPIES OF ACCOUNT OF PARTIES TRACING THE ORIGINAL FUNDS, . USER OF FUNDS AND REPAYMENT OF CHARGES WITH DISCOUNTING CHARGES ETC. ANOTHER LETTER WAS FILED BE FORE THE ASSESSING OFFICER ON 24.11 . 2006 PRODUCING COMPLETE BOOKS OF ACCOUNT , DETAILS OF FINANCE CHARGES PAID WITH BIFURCATION OF PARTIES AND RATE OF INTEREST AND A COPY OF ASSESSMENT ORDER PASSED BY THE A.O. FOR THE PRECEDING YEAR IN WHICH SIMILAR DEDUCTION WAS ALLOWED. THE PRESENT ASSESSMENT ORDER WAS PASSED BY THE A.O. ON 18.12 . 2006 AFTER FILING OF THE ABOVE REFERRED DOCUMENTS BY THE ASSESSEE. IT IS SURPRISING THAT THE ASSESSING OFFICER DID NOT MAKE A WHISPER IN THE ASSESSMENT ORDER OF SUCH DETAIL S HAVING BEEN FILED BY THE ASSESSEE. WHAT TO TALK OF ADVERSELY COMMENTING, THE A.O. EVEN D I D NOT BOTHER TO INCORPORATE OR DISCUSS . SUCH FACTS IN THE ASSESSMENT ORDER. THIS FACT HAS BEEN 4 ELABORATELY ' CONSIDERED BY THE LEARNED CIT (A), THE DISCUSSION ON WHIC H HAS BEEN MADE IN PARAS 1.10 TO 1.14 OF THE IMPUGNED ORDER. ON THE APPRECIATION OF THE ENTIRE MATERIAL/EVIDENCE PLACED BY THE ASSESSEE BEFORE THE A . O. IN THE FRESH ROUND O F PROCEEDINGS, THE LEARNED CIT(A) HAS RECORDED A CATEGORICAL FINDING THAT THESE EXPE NSES WERE INCURRED DURING THE COURSE OF BUSINESS . APART FROM RELYING ON THE ASSESSMENT ORDER, THE LEARNED DEPARTMENTAL REPRESENTATIVE COULD NOT CONTROVERT THE FINDINGS GIVEN BY THE LD CIT (A) IN SUPPORT OF THE GRANT OF DEDUCTION. WE, THEREFORE, UPHOLD THE IMPUGNED ORDER IN DELETING THE SAID ADDITION. 5. CONSIDERING THE ABOVE COVERED NATURE OF THE ISSUE, WE ARE OF THE OPINION THAT THE DECISION TAKEN BY THE CIT (A) IN DIRECTING THE ASSESSING OFFICER TO DELETE THE ADDITION IS FAIR AND REASONABLE AND WE UPH OLD THE SAME. ACCORDINGLY, GROUNDS RAISED BY THE REVENUE ARE DISMISSED. 6. IN THE RESULT, APPEAL OF THE REVENUE IS DISMISSED. ITA NO. 3561/M/2010 (AY 1997 - 1998 ) 7. THIS APPEAL FILED BY THE REVENUE ON 6.5.2010 IS AGAINST THE ORDER OF THE CIT (A) 30, MUMBAI DATED 9.2.2010 FOR THE AY 1997 - 1998 . IN THIS APPEAL, REVENUE RAISED THE FOLLOWING GROUNDS WHICH READ AS UNDER: 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD CIT (A) HAS ERRED IN DELETING THE ADDITION OF RS. 38,53,824 / - ON ACCOUNT OF DISCOUNT CHARGES MADE BY THE ASSESSING OFFICER. 2. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD CIT (A) FAILED T APPRECIATE THAT THE ASSESSEE FIRM HAD NOT BEEN ABLE TO PROVE THAT THE DISCOUNTING CHARGES HAVE BEEN PAID WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF THE BUSINESS OF THE ASSESSEE. 3. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD CIT (A) FAILED TO APPRECIATE THAT THE ASSESSEE WAS GIVEN OPPORTUNITY TO PRODUCE THE COPIES OF BILLS OF DISCOUNT ING / FINANCE CHARGES WHICH WERE NOT PRODUCED AT THE TIME OF ORIGINAL ASSESSMENT AS WELL AS AT THE TIME OF FRESH ASSESSMENT. 8. IN THIS APPEAL, REVENUE RAISED THE ABOVE GROUNDS WHICH ARE EXACTLY IDENTICAL TO THAT OF THE GROUNDS RAISED FOR THE AY 1996 - 1997. SINCE, THE ISSUES RAISED IN THIS APPEAL ARE SIMILAR TO THAT OF THE ISSUES ADJUDICATED BY US WHILE DEALING WITH THE APPEAL ITA NO.3560/M/2010 (AY 1996 - 1997), THE DECISION GIVEN BY US IN THAT APPEAL SQUARELY APPLIES TO THIS APPEAL TOO. CONSIDERI NG THE SAME, WE UPHOLD THE DECISION TAKEN BY THE CIT (A). ACCORDINGLY, GROUNDS RAISED BY THE REVENUE ARE DISMISSED. 9. IN THE RESULT, APPEAL OF THE REVENUE IS DISMISSED . 5 ORDER PRONOUNC ED IN THE OPEN CO URT ON 2 N D JANUARY, 2015. S D / - S D / - (VIJAY PAL RAO) (D. KARUNAKARA RAO) JUDICIAL MEMBER ACCOUNTANT MEMBER MUMBAI ; 2 .1.2015 . . ./ OKK , SR. PS / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT 2. / THE RESPONDENT. 3. ( ) / THE CIT(A) - 4. / CIT 5. , , / DR, ITAT, MUMBAI 6. / GUARD FILE . //TRUE COPY// / BY ORDER, / (DY./ASSTT. REGISTRAR) , / ITAT, MUMBAI