Hindustan Vacuum Glass Pvt. Ltd., New Delhi V. DCIT, New Delhi

ITA 3582/DEL/2011

• Counselvise Citation: [2012] 140 COUNSELVISE.COM (IT) 58739 (ITAT-DELHI)
• Duration Of Justice: 7 month(s) 13 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 02-03-2012
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: C
• Next Hearing Date: 14-02-2012
• Assessment Year: 2007-2008
• Appeal Filed On: 19-07-2011
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: RENUKA JAIN GUPTA
• Assessee Lawyers: R K KAPOOR
• Keywords: Business income

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH C NEW DELHI BEFORE SHRI R.P. TOLANI AND SHRI A.N. PAHUJA ITA NO. 3582/DEL/2011 ASSTT. YR: 2007-08 HINDUSTAN VACCUM GLASS PVT. LTD. VS. DCIT CIR. 12( 1), DIAMOND PRESS BUILDING, NEW DELHI. JHANDEWALAN EXTN., NEW DELHI. PAN/GIR NO. AAACH0068G (APPELLANT) ( RESPONDENT ) APPELLANT BY : SH. PRADEEP DINODIA FCA & SH. R.K. KAPOOR CA RESPONDENT BY : MS. RENUKA JAIN GUPTA SR. DR O R D E R PER R.P. TOLANI, J.M : THIS IS ASSESSEES APPEAL AGAINST CIT (A)S ORDER DATED 25-5-2011 RELATING TO A.Y. 2007-08. FOLLOWING GROUNDS ARE RA ISED : 1.1. THAT THE ORDER PASSED BY THE ASSESSING OFFICE R AND SUSTAINED BY LEARNED COMMISSIONER OF INCOME TAX APP EALS) IS BAD IN LAW ON ALL THE POINTS OF ADDITIONS AND DISAL LOWANCES. 2.1. THAT ON THE FACTS AND CIRCUMSTANCES OF THE CAS E, THE LEARNED COMMISSIONER OF INCOME TAX APPEALS) HAS ERR ED IN UPHOLDING THE ACTION OF THE ASSESSING OFFICER IN AD DING TO THE INCOME OF THE APPELLANT A SUM OF RS. 37,13,319/- BE ING CREDITORS, WHICH ARE OUTSTANDING FOR MORE THAN 3 YE ARS WITHOUT ASSIGNING ANY REASON, UNDER SECTION 41(1) OF THE IN COME TAX ACT. 2.2. THAT THE LEARNED COMMISSIONER OF INCOME TAX AP PEALS) OUGHT TO HAVE HELD THAT THE ADDITION/ DISALLOWANCE ON ACCOUNT OF STATIC CREDITORS CAN ONLY BE DONE PROVIDED THE SAME HAS BEEN WRITTEN BACK IN THE BOOKS OF ACCOUNTS FOR THE RELEV ANT PERIOD UNDER CONSIDERATION AS HAS BEEN HELD IN NUMEROUS CO URT CASES. ITA 3582/DEL/11 HINDUSTAN VACCUM GLASS PVT. LTD. 2 3.1.2012THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE, THE LEARNED COMMISSIONER OF INCOME TAX APPEALS) HAS ERR ED IN UPHOLDING THE ACTION OF THE ASSESSING OFFICER IN DI SALLOWING A SUM OF RS. 4,44,290/- BEING AMOUNT OF WATER AND SEW ERAGE CHARGES FOR THE PERIOD UP TO DECEMBER 2006 AS PER N OTICE RECEIVED FROM THE AUTHORITIES, HOLDING THE SAME THA T T EH AMOUNT HAS NOT ACCRUED SINCE THE NOTICE WAS RECEIVED AFTER THE END OF THE FINANCIAL YEAR. 3.2. THAT THE LEARNED COMMISSIONER OF INCOME TAX AP PEALS) OUGHT TO HAVE HELD THAT SINCE THE APPELLANT IS MAIN TAINING ITS BOOKS OF ACCOUNTS ON MERCANTILE BASIS AND THE CHARG ES RELATED TO THE PERIOD UPTO DECEMBER 2006, WHICH FELL IN THE PR EVIOUS YEAR RELEVANT FOR THE ASSESSMENT YEAR UNDER APPEAL, THE SAME ARE ALLOWABLE IN THIS YEAR ONLY. 4.1. THAT ON THE FACTS AND CIRCUMSTANCES OF THE CAS E, THE LEARNED COMMISSIONER OF INCOME TAX APPEALS) HAS ERR ED IN UPHOLDING THE ACTION OF THE ASSESSING OFFICER IN DI SALLOWING A SUM OF RS. 2,08,976/- OUT OF COMMISSION PAID BY THE APPELLANT TO ITS AGENTS. 4.2. THAT THE LEARNED COMMISSIONER OF INCOME TAX AP PEALS) OUGHT TO HAVE HELD THAT SINCE THE COMMISSION PAID B Y THE APPELLANT COMPANY WAS A CONTRACTUAL LIABILITY OF TH E COMPANY, THE SAME IS PROPERLY ALLOWABLE U/S 36 OF THE ACT. 4.3. WITHOUT PREJUDICE TO THE OUR ABOVE CONTENTION THAT NO AMOUNT OF COMMISSION PAID IS TO BE DISALLOWED, THE DISALLOWANCE MADE BY THE ASSESSING OFFICER AND CONF IRMED BY THE LEARNED COMMISSIONER OF INCOME TAX APPEALS) IS EXCESSIVE AND WITHOUT ANY BASIS. 5.1. THAT ON THE FACTS AND CIRCUMSTANCES OF THE CAS E, THE LEARNED COMMISSIONER OF INCOME TAX APPEALS) HAS ERR ED IN UPHOLDING THE ACTION OF THE ASSESSING OFFICER IN IN ITIATING PENALTY PROCEEDINGS UNDER SECTION 271(1)(C) OF THE ACT. 6.1. THAT THE APPELLANT CRAVE LEAVE TO VARY, ALTER, AMEND OR ADD TO THE AFORESAID GROUNDS OF APPEALS EITHER AT O R BEFORE THE TIME OF HEARING AND IT IS PRAYED THAT THE ORDER OF THE ASSESSING OFFICER BE MODIFIED TO THE EXTENT CONSIDERED FAIR AND PROPER. ITA 3582/DEL/11 HINDUSTAN VACCUM GLASS PVT. LTD. 3 2. GROUND NO. 1.1 AND 6.1. ARE GENERAL IN NATURE AN D REQUIRE NO ADJUDICATION. GROUND NO. 5.1 REGARDING INITIATION O F PENALTY PROCEEDINGS U/S 271(1)(C) IS PREMATURE AND CANNOT BE ADJUDICATED AT THIS STAGE. ACCORDINGLY, THESE GROUNDS STAND DISMISSED AS SUCH. 3. APROPOS GROUND NO. 2.1 & 2.2., LD. COUNSEL FOR T HE ASSESSEE CONTENDS THAT DURING THE COURSE OF ASSESSMENT, AO FOUND THAT ASSESSEE HAD SUNDRY CREDITS AMOUNTING TO RS. 37,13,319/- AND IT WAS PRO POSED AS TO WHY THEY SHOULD NOT BE ADDED TO THE ASSESSEES INCOME U/S 41 (1). IN REPLY ASSESSEE CONTENDED THAT: I. ALL THE CREDITS WERE ALIVE AS THERE WERE LITIGATION AND/ OR FREQUENT DEMANDS, THUS THEY WERE PENDING SETTLEMENT. II. ASSESSEE WAS FACING PAUCITY OF FUNDS AS IT WAS INCU RRING HEAVY LOSSES SINCE SEVERAL YEARS. III. THE TRACK CREDITS ARE NOT WRITTEN OFF IN THE BOOKS OF ACCOUNTS AND WITHOUT ACTUAL WRITE OFF, THEY COULD NOT BE ADDED U /S 41(1). ACCORDING TO EXPLANATION 1, THERE SHOULD BE REMISSI ON OR CESSATION OF LIABILITY BY WAY OF WRITING OFF. 3.1. IN RESPECT OF OUTSTANDING CREDITS, FOLLOWING D ETAILS WERE GIVEN: - TWO OF THE PARTIES I.E. KISHAN CHAND & SONS AND S.G . OIL TANKERS HAD FILED SUITS FOR RECOVERY OF PENDING AMO UNTS. - M/S MENDHIRATTA & ASSOCIATES WAS DEMANDING CLEARANC E OF OUTSTANDING AMOUNT. - M/S VERSA TRADING LTD. (FORMERLY DCM SHRIRAM LEASIN G & FINANCE LTD. HAD CONFIRMED THE OUTSTANDING BALANCE AND HAS BEEN DEMANDING THE AMOUNTS. - M/S SVM ENERGY PVT. LTD. WITH WHOM THE ACCOUNT WAS SETTLED IN SEPTEMBER 2008 FOR RS. 1.56 LACS. ITA 3582/DEL/11 HINDUSTAN VACCUM GLASS PVT. LTD. 4 3.2. AO, HOWEVER, MADE THE ADDITIONS U/S 41(1) HOLD ING THAT THERE WAS CESSATION OF LIABILITY IN RESPECT OF THESE CREDITOR S. THIS ORDER IS UPHELD BY CIT(A). 4. APROPOS GROUND NO. 3.1 & 3.2, BRIEF FACTS ARE: A O DISALLOWED THE CLAIM OF THE ASSESSEE IN RESPECT OF WATER AND SEWER AGE CHARGES, HOLDING THAT THE DEMAND HAD BEEN RAISED BY DEMAND NOTE DATED 24 -4-2007, WHICH WAS AFTER THE CLOSE OF THE FINANCIAL YEAR. ASSESSEE CON TENDED THAT DEMAND WAS RAISED ON 3-2-2007 AND WHAT HAS BEEN REFERRED BY AO WAS THE REMINDER THEREOF. ON THE BASIS OF MECHANICAL SYSTEM, THE DEM AND HAVING BEEN RAISED AND CRYSTALLIZED WITHIN THE FINANCIAL YEAR THE SAME WAS ALLOWABLE. AO, HOWEVER, MADE THE ADDITION, WHICH WAS CONFIRMED CIT (A). 5. APROPOS GROUND NO. 4.1, 4.1 & 4.2; IN RESPECT OF COMMISSION PAID BY THE ASSESSEE TO AGENTS; BRIEF FACTS ARE: ASSESSEE IS ENGAGED IN THE BUSINESS OF MANUFACTURE AND SALE OF VACUUM FLASKS, HAVING AG ENTS IN DIFFERENT CITIES. THE COMMISSION IS PAID TO AGENTS IN ORDINARY COURSE OF BUSINESS AFTER DEDUCTING NECESSARY TDS. AO WAS OF THE VIEW THAT AV ERAGE COMMISSION PAID TO THESE AGENTS WAS INCREASED FROM LAST YEAR I .E. FROM 3.17% TO 4.92%. ASSESSEE PLEADED THAT: I. ALL THE PARTIES ARE NOT RELATED TO THE ASSESSEE. II. AO HAS NOT POINTED OUT ANY SPECIFIC INSTANCE OF PAY ING UNREASONABLE COMMISSION. III. THE EXPENDITURE WAS INCURRED DURING THE COURSE OF ITS REGULAR BUSINESS. IV. AOS APPROACH WAS GENERAL IN NATURE. 5.1. THE AO, HOWEVER, DISALLOWED THE COMMISSION, W HICH ACTION WAS CONFIRMED CIT(A). ITA 3582/DEL/11 HINDUSTAN VACCUM GLASS PVT. LTD. 5 6. LD. COUNSEL FOR THE ASSESSEE APROPOS FIRST ISSUE , RELIES ON THE LATEST JUDGMENT OF HONBLE DELHI HIGH COURT DATED IN THE CASE OF CIT VS. SHRI VARDHMAN OVERSEAS LTD. IN ITA NO. 774/2009, HOLDING INTER ALIA, AS UNDER: IF THE ARGUMENT OF THE REVENUE IS ACCEPTED, IT WOU LD ALSO INTRODUCE AN ELEMENT OF UNCERTAINTY OR SUBJECTIVENE SS IN ASCERTAINING AS TO WHAT WOULD BE THE LAPSE OF TIME AND WOULD BE NECESSARY TO RENDER A LIABILITY TO PAY THE CREDITOR S INEFFECTIVE, WHICH WOULD RESULT IN AN ALLEGED BENEFIT TO THE ASS ESSEE. MOREOVER, IF AFTER THE TAXING OF THE AMOUNT U/S 28( IV) ON THE GROUND THAT CONSIDERABLE TIME HAS ELAPSED FROM THE DATE OF THE DEBT DURING WHICH THE ASSESSEE HAD THE BENEFIT OF T HE MONIES IN HIS BUSINESS, IT IS FOUND THAT IN ANOTHER LATER YEA R THE CREDITOR HAS RECOVERED THE MONEY FROM THE ASSESSEE, THERE IS NO PROVISION IN THE ACT TO ALLOW DEDUCTION FOR SUCH PA YMENT. THE SECTION CANNOT BE MADE SUBJECT TO SUCH VAGARIES OR SUBJECTIVENESS IN ITS APPLICABILITY. IT IS A WELL S ETTLED RULE OF INTERPRETATION OF STATUTES THAT A CONSTRUCTION THAT REDUCES ONE OF THE TWO PROVISIONS IN A STATUTE TO A USELESS LUMBER OR A DEAD LETTER WOULD NOT AMOUNT TO A HARMONIOUS CONSTRUCTIO N AND THAT A FAMILIAR APPROACH IN SUCH CASES IS TO FIND OUT WHIC H ONE OF THE TWO PROVISIONS IS A SPECIAL PROVISION MADE TO GOVER N A CERTAIN SITUATION AND TO EXCLUDE THAT SITUATION FROM THE AP PLICABILITY OF THE GENERAL PROVISION. WHILE SECTION 28(IV) WOULD A PPLY GENERALLY TO ALL BENEFITS OR PERQUISITES WHICH ARIS E TO THE ASSESSEE FROM THE BUSINESS CARRIED IN BY HIM, THE B ENEFIT WHICH HE OBTAINS BY WAY OF REMISSION OR CESSATION OF A TR ADING LIABILITY IN A LATER YEAR, IN RESPECT OF WHICH HE AHS OBTAINE D A DEDUCTION IN AN EARLIER YEAR IN COMPUTING THE BUSINESS INCOME , SHOULD BE GOVERNED BY SECTION 41(1) WHICH IS THE SPECIFIC PRO VISION GOVERNING THE FACTUAL SITUATION AND NOT BY SECTION 28(IV). THE JUDGMENT IS ONLY ON THE APPLICABILITY OF CLAUSE (A) OF SUB- SECTION (1) OF SECTION 41 AND AS TO WHAT WOULD CONS TITUTE REMISSION OR CESSATION OF A TRADING LIABILITY. THE ASSESSEE HAS NOT UNILATERALLY WRITTEN BACK THE ACCOUNTS OF THE S UNDRY CREDITORS IN ITS PROFIT AND LOSS ACCOUNT. HENCE ADD ITION CANNOT BE MADE. ITA 3582/DEL/11 HINDUSTAN VACCUM GLASS PVT. LTD. 6 6.1. IT IS PLEADED THAT HONBLE HIGH COURT HAS ALSO CONSIDERED RELEVANT JUDGMENTS INCLUDING THOSE RAISED BEFORE CIT(A). AO HAS NOT DISPUTED ASSESSEES PRECARIOUS FINANCIAL POSITION; THE PENDI NG DISPUTES BETWEEN THE ASSESSEE AND CREDITORS AND THE FACT THAT AMOUNTS AR E NOT WRITTEN OFF IN THE BOOKS OF ACCOUNT. THE LIABILITIES ARE ACKNOWLEDGED BY THE ASSESSEE IN ITS BOOKS OF ACCOUNTS AND NOT WRITTEN OFF, THE ADDITIO N DESERVES TO BE DELETED. 6.2. APROPOS THE ISSUE OF WATER AND SEWERAGE CHARGE S, LD. COUNSEL DREW OUR ATTENTION TO PAGE 23 OF THE PAPER BOOK, WHICH I S THE COPY OF THE REMINDER ISSUED BY EXECUTIVE ENGINEER, FARIDABAD, REMINDING OF THE BILL DATED 3-2- 2007. IT IS PLEADED THAT AO HAS TAKEN REMINDER LETT ER DATED 24-4-2007 TO BE THE DEMAND NOTE INSTEAD OF 3-2-2007. AS THE ASSESSE E IS FOLLOWING MERCANTILE SYSTEM OF ACCOUNTING, LIABILITIES HAVING CRYSTALLIZED ON 3-2-2007, THE AMOUNT DESERVES TO BE ALLOWED. 6.3. APROPOS REMAINING AMOUNT ABOUT COMMISSION INCO ME, IT IS PLEADED THAT THE SAME DESERVES TO BE ALLOWED AS ALL THE PA RTIES ARE NOT RELATED AND THE COMMISSION HAS BEEN PAID DURING THE COURSE OF CARRY ING ON ITS REGULAR BUSINESS AND ENTERED IN THE BOOKS OF ACCOUNT AND DU E TDS HAVING BEEN DEDUCTED THEREON. AO WAS NOT RIGHT IN TAKING AVERAG E COMMISSION AS BASIS. 7. LD. DR, ON THE OTHER HAND, SUPPORTED THE ORDERS OF LOWER AUTHORITIES. 8. WE HAVE HEARD RIVAL CONTENTIONS AND PERUSED THE RELEVANT MATERIAL AVAILABLE ON RECORD. APROPOS ADDITION U/S 41(1), TH E LIABILITIES DUE IN THE BOOKS OF ACCOUNTS; ASSESSEES PRECARIOUS FINANCIAL CONDITIONS AND PENDING DISPUTE BETWEEN CREDITORS AND ASSESSEE ARE NOT DISP UTED BY AO. THE LIABILITIES REMAINING IN FORCE IN THE EYE OF LAW, I N VIEW OF ABOVE FACTS AND RESPECTFULLY FOLLOWING HONBLE DELHI HIGH COURT JUD GMENT IN THE CASE OF ITA 3582/DEL/11 HINDUSTAN VACCUM GLASS PVT. LTD. 7 SHRI VARDHMAN OVERSEAS LTD. (SUPRA), WE HOLD THAT T HE AMOUNT IN QUESTION CANNOT BE ADDED U/S 41(1) OF THE ACT AS THERE WAS N O REMISSION OR CESSATION OF LIABILITIES. GROUND IS ALLOWED. 8.1. APROPOS THE ISSUE OF WATER AND SEWERAGE CHARGE S, IT IS AMPLY CLEAR FROM PAGE 23 OF THE PAPER BOOK THAT THE DEMAND NOTE ABOUT THE PENDING WATER CHARGES WAS RAISED BY EXECUTIVE ENGINEER, MUN ICIPAL CORPORATION FARIDABAD ON 3-2-2007, WHICH FALLS IN THE ACCOUNTIN G PERIOD. THE ASSESSEE IS FOLLOWING MERCANTILE SYSTEM OF ACCOUNTING. THE LIAB ILITY HAVING CRYSTALLIZED ON THIS DATE, THE ADDITION CANNOT BE MADE IN THE H ANDS OF THE ASSESSEE. THIS GROUND IS ALLOWED. 8.2. APROPOS REMAINING GROUND ON ISSUE OF PAYMENT O F COMMISSION, THERE IS NO ALLEGATION THAT THE COMMISSION AGENTS ARE REL ATED PARTIES . PROPER ENTRIES OF THE COMMISSION ARE NOT DISPUTED AND DUE TDS THEREON HAS BEEN DEDUCTED. THERE IS NO JUSTIFICATION IN SUSTAINING T HIS ADDITION ON AVERAGE BASIS WITHOUT POINTING ANY SPECIFIC INSTANCE. THE S AME IS DELETED. 8. IN THE RESULT, ASSESSEES APPEAL IS ALLOWED. ORDER PRONOUNCED IN OPEN COURT ON 02-03-2012. SD/- SD/- ( A.N. PAHUJA ) ( R.P. TOLANI) ACCOUNTANT MEMBER JUDICIAL MEMBER DATED: 02-03-2012. MP COPY TO : 1. ASSESSEE 2. AO 3. CIT 4. CIT(A) 5. DR ITA 3582/DEL/11 HINDUSTAN VACCUM GLASS PVT. LTD. 8