M/S Dhananjay Confectionaries Pvt. Ltd., Indore V. THE DCIT-1(1), Indore

ITA 362/IND/2016

• Counselvise Citation: [2016] 121 COUNSELVISE.COM (IT) 4446 (ITAT-INDORE)
• Duration Of Justice: 5 month(s) 10 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 29-09-2016
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: Not Allotted
• Next Hearing Date: 09-08-2016
• Assessment Year: 2007-2008
• Appeal Filed On: 18-04-2016
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: MOHD JAVED
• Assessee Lawyers: S S DESHPANDE
• Keywords: Business income; Depreciation; Opportunity of being heard; Capital receipt; Revenue expenditure

Judgement Text

ITA NO. 362/IND/2016 ITA NO. 362/IND/2016 1 , , IN THE INCOME TAX APPELLATE TRIBUNAL, INDORE BENCH, INDORE .., ..!', #$ # !% BEFORE SHRI D.T. GARASIA, JUDICIAL MEMBER AND SHRI O.P. MEENA, ACCOUNTANT MEMBER M/S DHANANJAY CONFECTIONARIES PVT. LTD. INDORE .#.& ./ PAN: AABCD0729M VS. DEPUTY COMMISSIONER OF INCOME TAX 1(1) INDORE APPELLANT RESPONDENT APPELLANT BY SHRI S.S. DESHPANDE RESPONDENT BY SHRI MOHD. JAVED DATE OF HEARING 24.8.2016 DATE OF PRONOUNCEMENT 29.9.2016 ' O R D E R PER SHRI D.T. GARASIA, JM THIS APPEAL HAS BEEN FILED BY THE ASSESSEE AGAINST THE ORDER OF THE LEARNED CIT(A)-I, INDORE, DATED 29.1 .2016. # # $ # I.T.A. NO. 362/IND/2016 %&'' ASSESSMENT YEAR: 2007-08 ITA NO. 362/IND/2016 ITA NO. 362/IND/2016 2 2. BY WAY OF GROUND NOS. 1 AND 1.1 THE ASSESSEE HAS CHALLENGED THE ORDER OF THE LEARNED CIT(A) WHEREBY TH E ORDER OF ASSESSING OFFICER MAKING THE ADDITION OF RS. 5 LACS ON ACCOUNT OF REIMBURSEMENT OF COST OF MACHINERY RECE IVED FROM THE PRINCIPALS WAS CONFIRMED. 3. THE BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE I S A COMPANY DOING THE BUSINESS OF MANUFACTURE OF CONFECTIONERY ON JOB WORK FOR PARLE INDIA. THE BOOKS OF ACCOUNTS ARE AUDITED AND THE BALANCE SHEET WAS FILED. THE RETURN OF INCOME WAS FILED DECLARING THE TOTAL INCOME OF RS. 21,45,340/-. THIS WAS CREDITED IN THE MACHINERY ACCO UNT AND NO DEPRECIATION WAS CLAIMED. THIS AMOUNT HAS NOT BEEN CHARGED IN THE PROFIT AND LOSS ACCOUNT. THE ASSES SING OFFICER REMARKED THAT THE PARLE INDIA WOULD DEBIT THE EXPENDITURE ACCOUNT AND THE DEPRECIATION WOULD BE ALLOWABLE IN THE HAND OF THE ASSESSEE. THE ASSESSING OFFICER FURTHER MENTIONED THAT THERE IS AN ANOTHER NARRATION IN THE ITA NO. 362/IND/2016 ITA NO. 362/IND/2016 3 ADVISE NOTE THAT THE PAYMENT IS PROCESSING ADVANCE CHARGES WHICH INDICATES THAT THE INTENSION OF THE PRIN CIPAL IS TO DEBIT THE ASSESSEES ACCOUNT ON ACCOUNT OF PROC ESSING CHARGES. THE ASSESSING OFFICER TREATED THIS AMOUNT AS A REVENUE RECEIPT AND ADDED IT TO THE INCOME OF THE ASSE SSEE. WHILE FRAMING THE ASSESSMENT, THE ASSESSING OFFICER H AS MADE THE ADDITION OF RS.5,00,000/- ON ACCOUNT OF THE CONTRIBUTION RECEIVED FROM THE PRINCIPAL FOR PUTTING UP THE SPECIAL MACHINERY FOR MANUFACTURE OF CONFECTIONERY ITE M. ON APPEAL, THE LEARNED CIT(A) UPHELD THE ACTION OF THE ASSESSING OFFICER. NOW THE ASSESSEE IS IN APPEAL BEFOR E THE TRIBUNAL. 4. BEFORE US, THE LEARNED COUNSEL FOR THE ASSESSEE SUBMITTED THAT THE AMOUNT OF RS. 5 LACS WAS BEEN RECEIV ED AS REIMBURSEMENT FOR THE COST OF BOILER AND, THEREF ORE, THE SAME HAS BEEN CREDITED IN THE MACHINERY ACCOUNT AND NOT CHARGED TO THE PROFIT AND LOSS ACCOUNT. HE FURTHER ITA NO. 362/IND/2016 ITA NO. 362/IND/2016 4 SUBMITTED THAT THE PAYMENT ADVISE AND THE LETTER DATED 25/09/2006 CLEARLY STATES THAT THE PAYMENT IS MADE TOWARDS REIMBURSEMENT FOR BOILER INSTALLATION. HE SUBMITTED THAT THUS IT CANNOT BE TREATED AS A REVENUE RECEIPT ON ASSUMPTION AND PRESUMPTION AND AS SUCH THE ADDITION MADE ON THIS ACCOUNT DESERVES TO BE DELETED. 5. ON THE OTHER HAND, THE LEARNED DR RELIED UPON THE ORDERS OF THE AUTHORITIES BELOW WITH THE SUBMISSION THAT THE AUTHORITIES BELOW HAVE TAKEN A CORRECT VIEW ONLY AF TER TAKING INTO ACCOUNT EACH AND ASPECT OF THE CASE AND AS SUCH THE ORDERS OF THE AUTHORITIES BELOW DESERVE TO BE SUSTAINED. 6. WE HAVE HEARD BOTH THE SIDES. WE FIND THAT THE LEARN ED CIT(A) HAS OBSERVED AS UNDER :- AS MENTIONED ABOVE THE ASSESSEE HAD RECEIVED RS. 500000/- FROM PARLE INDIA AND HAD NOT CREDITED THE AMOUNT TO P&L A/C BUT HAD ITA NO. 362/IND/2016 ITA NO. 362/IND/2016 5 CREDITED IT TO ASSET ACCOUNT. THE A.O. HAS OBSERVED AS UNDER IN THE ASSESSMENT ORDER :- THE ASSESSEE IS CARRYING ON THE JOB WORK FOR PARLE INDIA LTD. DURING THE YEAR IT HAS RECEIVED A SUM OF RS. 5,00,000/- ON 15.09.2006 WHICH HAS NOT BEEN CREDITED TO THE PROFIT & LOSS ACCOUNT. THE ASSESSEE HAS CREDITED THE SAME IN THE ASSETS A/C. IT HAS BEEN CONTENDED THAT THE ABOVE MONEY HAS BEEN PAID BY THE PRINCIPAL PARLE INDIA LTD. TO SUBSIDIZE THE MACHINERY USED IN THE JOB WORK. IN SUPPORT OF THE ABOVE, THE ASSESSEE HAS FURNISHED A PAYMENT ADVICE. THE NARRATION GIVEN IN THE SAID ADVICE IS 50% REIMBURSEMENT FOR BOILER INSTALLATION. THE ASSESSEE HAS CONTENDED THAT THE AMOUNT HAS BEEN CREDITED TO THE PLANT AND MACHINERY ACCOUNT THEREBY REDUCED THE COST AS PER ADVICE LETTER RECEIVED FROM THE PRINCIPAL. IT HAS ITA NO. 362/IND/2016 ITA NO. 362/IND/2016 6 BEEN FURTHER SUBMITTED THAT NO DEPRECIATION HAS BEEN CHARGED ON THE ABOVE AMOUNT OF RS.5,00,000/-. IN SUPPORT OF THE CONTENTION, THE ASSESSEE HAS SUBMITTED A CONFIRMATION LETTER FROM ITS PRINCIPAL CERTIFYING THAT THE AMOUNT PAID WAS T O SUBSIDISE THE COST OF BOILER. THE ASSESSEES ARGUMENT IS NOT ACCEPTABLE. IT HAS ITS OWN FIXED ASSETS INCLUDING PLANT AND MACHINERY USED IN THE MANUFACTURING OF THE ITEMS AS PER THE JOB WORK AGREEMENT WITH THE PRINCIPAL. THE AMOUNT RECEIVED HAS BEEN SUBJECTED TO TDS. EVEN IF THE PRINCIPAL HAS ADVISED FOR ACCOUNTING THE ABOVE AMOUNT UNDER THE HEAD PLANT AND MACHINERY, THEN ALSO THERE CANNOT BE ANY COMPROMISE ON THE ACCOUNTING PART. REFERENCE IS AGAIN MADE TO THE PAYMENT ADVICE REFERRED TO ABOVE, IN WHICH THERE IS ANOTHER NARRATION ITA NO. 362/IND/2016 ITA NO. 362/IND/2016 7 PROCESSIN ADVANCE/CHARGES. OBVIOUSLY, THE INTENTION OF THE PRINCIPAL IS TO DEBIT THE ASSESSEES ACCOUNT ON ACCOUNT OF PROCESSING CHARGES. IF WE LOOK INTO THE OTHER SIDE OF THE COIN I.E. THE ACCOUNTING PART OF PRINCIPAL, IT CAN VERY WELL BE PERCEIVED THAT PARLE INDIA WOULD DEBIT THE EXPENDITURE ACCOUNT ONLY AND NOT THE PARTY AS THE ACCOUNT CANNOT REMAIN STANDING FOREVER BY THE ABOVE AMOUNT OF RS.500,000/-. OBVIOUSLY, THE SAME AMOUNT IS BEING SUBJECT TO CHARGE BY WAY OF EXPENDITURE IN THE HANDS OF THE PRINCIPAL COMPANY AND DEPRECIATION IN THE HANDS OF THE ASSESSEE. CONFIRMATION SUBMITTED BY THE ASSESSEE ALSO DOES NOT EXPLAIN THE ISSUE. EVEN A COPY OF ACCOUNT OF THE ASSESSEE IN THE BOOKS OF THE PRINCIPAL HAS NOT BEEN FURNISHED, THUS, THE CLAIM OF THE ASSESSEE IS NOT ACCEPTED. ACCORDINGLY, THE ABOVE RECEIPT OF ITA NO. 362/IND/2016 ITA NO. 362/IND/2016 8 RS.5,00,000/- IS ASSESSED IN THE HANDS OF THE ASSESSEE AS BUSINESS INCOME DURING THE APPELLATE PROCEEDINGS ALSO THE A/R REITERATED THE EARLIER STAND THAT THE RECEIPT OF RS.5,00,000/- WAS CAPITAL RECEIPT. THE A/R WAS ASKED TO EXPLAIN IF IT WAS CAPITAL RECEIPT WHY M/S PARLE INDIA HAD DONE TDS ON THIS AMOUNT. THE A/R WAS ALSO ASKED TO CLARIFY WHETHER THE ASSESSEE HAD TAKEN CREDIT OF THE TDS AMOUNT AS PER FORM 16A ISSUED BY M/S PARLE INDIA. THE A/R VIDE LETTER DATED 29/1/2016 CLAIMED THAT BY MISTAKE PARLE INDIA HAD DONE TDS ON THIS AMOUNT IN A ROUTINE WAY AND THE ASSESSEE HAD ALSO TAKEN CREDIT OF THAT TDS IN A ROUTINE WAY. THE REPLY OF THE ASSESSEE IS SELF CONTRADICTORY. IF THIS WAS CAPITAL RECEIPT, NO TDS SHOULD HAVE BEEN DONE ON THE AMOUNT. IF M/S PARLE INDIA HAD ITA NO. 362/IND/2016 ITA NO. 362/IND/2016 9 DONE TDS, IT SIMPLY MEANT THAT IT WAS A REVENUE EXPENDITURE FOR THEM. SINCE THE ASSESSEE ITSELF HAD TAKEN CREDIT OF THE TDS, ITSELF TREATING THE AMOUNT AS A REVENUE RECEIPT THE A.O. HAS RIGHTLY HELD IT T O BE REVENUE RECEIPT AND ADDED IT TO THE INCOME OF THE ASSESSEE. HENCE GROUND NO. 1 OF APPEAL IS REJECTED. AFTER CAREFUL CONSIDERATION OF THE ORDER OF THE LEARNE D CIT(A) IN THE SAKE OF THE FACTS OF THE CASE AND THE SUBMISSIONS OF THE PARTIES, WE DIRECT THE ASSESSEE T O FURNISH A COPY OF ACCOUNT OF THE ASSESSEE IN THE BOOKS OF THE PRINCIPAL COMPANY I.E. PARLE INDIA COMPANY BEFORE TH E ASSESSING OFFICER AND THE ASSESSING OFFICER IS DIREC TED TO DECIDE THE MATTER AFRESH AFTER CONSIDERING THE SAME AND AFFORDING THE ASSESSEE REASONABLE OPPORTUNITY OF BEING HEARD. ITA NO. 362/IND/2016 ITA NO. 362/IND/2016 10 7. GROUND NO. 2 RELATES TO MAINTAINING THE ADDITION OF RS.1,14,000/- FOR ALLEGED EXCESS PAYMENT OF INTEREST . 8. BRIEFLY STATED, THE LD AO OBSERVED THAT THE ASSESSE E PAID INTEREST TO PERSONS COVERED U/S 40A(2)(B) @ 24% WHEREAS THE BANKS ARE GIVING INTEREST AT 10% TO 12%. T HE ASSESSING OFFICER, THEREFORE, ALLOWED INTEREST EXPEN DITURE TO THE SAID PERSONS @ 12% PER ANNUM AND ACCORDINGLY MADE A DISALLOWANCE OF RS.1,14,000/- BEING HALF OF THE TOTAL INTEREST PAID TO THE RELATIVES. ON APPEAL, THE LEARNED C IT(A) UPHELD THE ACTION OF THE ASSESSING OFFICER WITH THE FOLLOWING OBSERVATIONS :- THE A.O. HAS OBSERVED THAT THE ASSESSEE PAID INTEREST TO PERSON COVERED U/S 40A(2)(B) WHERE AS BANK GOING RATE WAS 10 TO 12%. IN WRITTEN SUBMISSION THE ASSESSEE HAS MENTIONED THAT THE BANK RATE WAS 15 TO 18% WHERE AS THE A.O. HAS MENTIONED THAT THE BANK RATE WAS 10-12%. IN F.Y. ITA NO. 362/IND/2016 ITA NO. 362/IND/2016 11 2006-07 INTEREST RATES WERE QUITE LOW AND WERE AROUND 10 TO 12%. THEREFORE, THERE IS NO NEED TO INTERFERE WITH THE DISALLOWANCE MADE BY THE A.O. GROUND NO. 2 OF THE APPEAL IS THEREFORE REJECTED. 9. AGAINST THE ABOVE ORDER OF THE LEARNED CIT(A), TH E ASSESSEE IS IN APPEAL BEFORE THE TRIBUNAL. 10. BEFORE US, THE LEARNED COUNSEL FOR THE ASSESSEE SUBMITTED THAT DURING THE RELEVANT YEAR UNDER CONSIDERATION THE RATE OF INTEREST CHARGED BY THE BANK S WAS APPROXIMATELY 15% TO 18% ON THE CUMULATIVE BASIS CHARGING THE SAME QUARTERLY. THE ASSESSEE BORROWED THE FUNDS WHICH WERE REQUIRED FOR THE PURPOSE OF BUSINES S AND AS SUCH THE DISALLOWANCE IS NOT WARRANTED. 11. ON THE OTHER HAND, THE LEARNED DR RELIED UPON THE ORDERS OF THE AUTHORITIES BELOW. 12. WE HAVE HEARD BOTH THE SIDES. AFTER CONSIDERING T HE RIVAL SUBMISSIONS OF THE PARTIES, WE FIND THAT THE LEAR NED ITA NO. 362/IND/2016 ITA NO. 362/IND/2016 12 CIT(A) HAS RIGHTLY HELD THAT THE RATE OF INTEREST AT T HE RELEVANT POINT OF TIME WAS 10% TO 12%. WE, THEREFORE , FIND NO INFIRMITY IN THE FINDINGS OF THE AUTHORITIES BELO W AND CONFIRM THE SAME. THIS GROUND IS, THEREFORE, DISMISS ED. 10. IN THE RESULT, THE APPEAL OF THE ASSESSEE STANDS P ARTLY ALLOWED FOR STATISTICAL PURPOSES. THE ORDER HAS BEEN PRONOUNCED IN OPEN COURT ON 29 SEPTEMBER, 2016. SD/- SD/- ( ..!') (..) #$ (O.P.MEENA) (D .T.GARASIA) ACCOUNTANT MEMBER JUDIC IAL MEMBER *'& / DATED : 29 SEPTEMBER, 2016. DN/ ITA NO. 362/IND/2016 ITA NO. 362/IND/2016 13