EMCO LTD, THANE V. ACIT CIR -1, THANE

ITA 3756/MUM/2010

• Counselvise Citation: 375619914 RSA 2010
• Duration Of Justice: 1 year(s) 4 month(s) 4 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 14-09-2011
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: J
• Next Hearing Date: 06-09-2011
• Assessment Year: 2006-2007
• Appeal Filed On: 10-05-2010
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: SATBIR SINGH
• Assessee Lawyers: H N SHAH
• Keywords: Capital expenditure

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCHES, J, MUMBAI BEFORE S/SHRI D.K.AGARWAL (JM) AND RAJENDRA SINGH(A .M ) ITA NO.2949/MUM/2010 (ASSESSMENT YEAR : 2006-07) ASSISTANT COMMISSIONER OF INCOME TAX, CIRCLE-1, VARDAAN BUILDING, LOWER GROUND FLOOR, WAGLE INDL.ESTATE, MIDC, THANE-400604. M/S EMCO LTD., PLOT NO.F-5, ROAD NO.28, WAGLE INDL.ESTATE, MIDC, THANE-400604 PAN:AAACE2764Q APPELLANT V/S RESPONDENT ITA NO.3756/MUM/2010 (ASSESSMENT YEAR : 2006-07) M/S EMCO LTD., PLOT NO.F-5, ROAD NO.28, WAGLE INDL.ESTATE, MIDC, THANE-400604 PAN:AAACE2764Q ASSISTANT COMMISSIONER OF INCOME TAX, CIRCLE-1, VARDAAN BUILDING, LOWER GROUND FLOOR, WAGLE INDL.ESTATEE, MIDC, THANE-400604 APPELLANT V/S RESPONDENT DATE OF HEARING : 6.9.2011 DATE OF PRONOUNCEMENT : REVENUE BY : SHRI SATBIR SINGH ASSESSEE BY : SHRI H.N.SHAH : O R D E R PER D.K.AGARWAL (JM) THESE CROSS-APPEALS BY THE REVENUE AND ASSESSEE ARE DIRECTED AGAINST THE ORDER DATED 22.12.2009 PA SSED BY ITA NO.2949/MUM/2010 ITA NO.3756/MUM/2010 (ASSESSMENT YEAR : 2006-07) 2 THE LD. CIT(A) FOR THE ASSESSMENT YEAR 2006-07. BO TH THESE APPEALS ARE DISPOSED OF BY THIS COMMON ORDER FOR T HE SAKE OF CONVENIENCE. 2. BRIEFLY STATED FACTS OF THE CASE ARE THAT THE AS SESSEE FIRM IS ENGAGED IN THE BUSINESS OF MANUFACTURING TRANSFORMERS AND ENERGY METERS FOR THE VARIOUS STAT E ELECTRICITY BOARDS AND VARIOUS OTHER COMPANIES. THE RETURN WAS FILED DECLARING TOTAL INCOME AT RS.31,43,09,930 /-. DURING THE COURSE OF ASSESSMENT PROCEEDINGS, IT WAS INTERA LIA OBSERVED BY THE AO THAT IN THE COMPUTATION OF INCO ME ASSESSEE HAS CLAIMED FUND RAISING EXPENSES OF RS.2,60,35,347/-. THE SAID EXPENDITURE HAS NOT BE EN ROUTED THROUGH PROFIT AND LOSS ACCOUNT AND HAS BEEN DIREC TLY REDUCED FROM THE BOOK PROFIT. HENCE NO MENTION OF T HE SAID EXPENDITURE HAS BEEN MADE BY THE AUDITOR IN THE TA X AUDIT REPORT. HOWEVER, IN THE PARA 7 OF NOTES FORMING P ART OF ACCOUNTS, FOLLOWING REMARKS ARE MADE: GLOBAL DEPOSITORY RECEIPT ISSUE THE COMPANY HAS ISSUED 12,50,000 GLOBAL DEPOSITORY RECEIPTS (GDRS) AT A PRICE OF US$ 8 AGGREGATING TO US$ 10 MILLION (USD TEN MILLION ONLY) EQUIVALENT TO RS.45.53 CRORES INCLUDING PREMIUM OF RS.42.28 CRO RES REPRESENTING 12,50,000 EQUITY SHARES OF RS.10 EACH . THE FUNDS WERE UTILISED FOR THE PURPOSE FOR WHICH I T WAS RAISED I.E. TO ENHANCE FINANCIAL RESOURCES FOR THE LONG TERM WORKING CAPITAL MARGINS AS WELL AS CAPITAL EXPENDITURE. THERE ARE NO OUTSTANDING GDRS AS ON 31.3.2006 ITA NO.2949/MUM/2010 ITA NO.3756/MUM/2010 (ASSESSMENT YEAR : 2006-07) 3 THE ASSESSEE WAS ASKED TO SHOW CAUSE AS TO WHY TH E SAID EXPENDITURE OF RS.2,60,35,347/- SHOULD NOT BE TREA TED AS CAPITAL EXPENDITURE AND BE ACCORDINGLY DISALLOWED. INSPITE OF VARIOUS OPPORTUNITIES OFFERED, NO SUBMISSION WAS M ADE BY THE ASSESSEE IN THIS REGARD. ACCORDINGLY A FINAL OP PORTUNITY WAS GIVEN TO ASSESSEE COMPANY. NO COMPLIANCE HAS BE EN MADE BY THE ASSESSEE ON THE SPECIFIED DATED I.E.19 .12.2008. ACCORDING TO THE AO THE ONUS IS ON THE ASSESSEE TO SUBSTANTIATE EACH AND EVERY CLAIM MADE IN THE RET URN. BY NOT FURNISHING ANY DETAIL THE ASSESSEE HAS FAILED T O DISCHARGE THE SAID ONUS HENCE THE AO TREATED THE SAID EXPEND ITURE AS CAPITAL EXPENDITURE. THE AO FURTHER OBSERVED THAT UNDER SECTION 35D AND RULE 6AB CERTAIN CAPITAL EXPENDITUR E INCURRED FOR EXTENSION OR SETTING UP A NEW INDUSTRIAL UNIT A RE ALLOWED TO BE AMORTIZED OVER A PERIOD OF 5 YEARS. HOWEVER, THE CLAIM OF ENTIRE EXPENSE IN ONE YEAR IS NOT ALLOWABLE. IN THE INSTANT CASE, NO CLAIM HAS BEEN MADE BY ASSESSEE COMPANY U NDER SECTION 35D. FURTHERMORE THE AUDITORS REPORT IN PR ESCRIBED FORM 3B HAS NOT BEEN SUBMITTED BY ASSESSEE ALONGWIT H THE RETURN OF INCOME. HENCE, THE ASSESSEE IS NOT ELIGI BLE FOR ANY CLAIM U/S 35D. ACCORDINGLY, THE AO TREATED THE ENTI RE EXPENDITURE INCURRED OF RS.26,035,347/- AS CAPITAL IN NATURE NOT ALLOWABLE AND ADDED TO THE INCOME OF THE ASSESS EE. ON APPEAL, BEFORE THE LD. CIT(A), THE ASSESSEE HAS FIL ED ITS ITA NO.2949/MUM/2010 ITA NO.3756/MUM/2010 (ASSESSMENT YEAR : 2006-07) 4 EXPLANATION ALONG WITH THE DETAILS OF SUCH EXPENSES . THE LD. CIT(A) AFTER CONSIDERING THE SAME HAS HELD THAT THE EXPENSES TO THE EXTENT OF RS.1,37,54,097/- RELATIN G TO BRINGING OUT THE GDR ISSUE ARE COVERED AS PER THE PROVISIONS OF SECTION 35D OF THE ACT AND DIRECTED THE AO TO ALLOW THE SAME. WITH REGARD TO THE EXPENSES OF PR OFESSIONAL FEES FOR FINANCIAL PLANNING RS.1,22,81,250/-, THE LD. CIT(A) HELD THAT THE BENEFITS DERIVED FROM SUCH STUDY ADV ISING WILL PROVIDE AN ENDURING BENEFIT FOR THE LONG RUN AND HENCE THE SAME IS CAPITAL IN NATURE AND ACCORDINGLY CONFIRME D THE DISALLOWANCE TO THE EXTENT OF RS.1,22,81,250/-. 3. BEING AGGRIEVED BY THE ORDER OF THE LD.CIT(A), T HE ASSESSEE AND REVENUE BOTH ARE IN APPEAL BEFORE US. 4. GROUND NO.1 AND 2 TAKEN BY THE REVENUE READ AS UNDER : 1. THE LD. CIT(A) ERRED IN FACT AND IN LAW IN DEL ETING THE ADDITION MADE ON ACCOUNT OF DISALLOWANCE OF DEBENTURE REDEMPTION PREMIUM PAID TO THE BANK. 2 . THE LD. CIT(A) ERRED IN LAW AND IN FACT IN GIV ING FINDING THAT A PART OF THE FUND RAISING EXPENSES I .E. RS.1,37,54,097/- SHOULD BE ALLOWED AS PER THE PROVISIONS OF SECTION 35D ITA NO.2949/MUM/2010 ITA NO.3756/MUM/2010 (ASSESSMENT YEAR : 2006-07) 5 5. GROUND NO.1 AND 2 TAKEN BY THE ASSESSEE READ AS UNDER : 1. THE LD. CIT(A) HAS ERRED IN LAW AND FACTS IN CONFIRMING DISALLOWANCE OF FINANCIAL PLANNING EXPEN SES OF RS.1,22,81,250/-; 2. THE LD. CIT(A) HAS ERRED IN LAW AND FACTS IN CONFIRMING DISALLOWANCE OF FINANCIAL PLANNING EXPEN SES INCURRED FOR IMPROVEMENT OF FINANCIAL EFFICIENCY O F RS.1,37,54,097/- 6. SINCE ALL THE ABOVE GROUNDS ARE INTERCONNECTED, ALL THE GROUNDS ARE CONSIDERED AS COMMON FOR THE SAKE OF CONVENIENCE. 7. AT THE TIME OF HEARING, BOTH THE PARTIES HAVE AG REED THAT DURING THE COURSE OF ASSESSMENT PROCEEDINGS IN SPITE OF VARIOUS OPPORTUNITIES PROVIDED TO THE ASSESSEE, THE ASSESSEE HAS NOT FILED ANY DETAILS OR SUPPORTING MATERIALS. IT WAS FURTHER AGREED THAT BEFORE THE LD. CIT(A), THE ASS ESSEE HAS FILED THE RELEVANT DETAILS SUPPORTED BY HIS EXPLANA TION. THE LD. CIT(A) WITHOUT PROVIDING ANY OPPORTUNITY TO TH E AO HAS CONSIDERED THE SAME AND PARTLY ALLOWED THE ASSESSEE S CLAIM. THEREFORE, IN THE INTERESTS OF JUSTICE THEY HAVE NO OBJECTION IF THE ISSUE IS SET ASIDE TO THE FILE OF THE AO. 8. HAVING CAREFULLY HEARD THE SUBMISSIONS OF THE RI VAL PARTIES AND PERUSING THE MATERIAL AVAILABLE ON REC ORD WE FIND MERIT IN THE PLEA OF THE PARTIES THAT BEFORE THE A O, THE ITA NO.2949/MUM/2010 ITA NO.3756/MUM/2010 (ASSESSMENT YEAR : 2006-07) 6 ASSESSEE INSPITE OF VARIOUS OPPORTUNITIES PROVIDED BY THE AO HAS FILED NO DETAILS OR EXPLANATION IN SUPPORT OF THE CLAIM OF FUND RAISING EXPENSES OF RS.26,035,347/-. HOWEVER, BEFORE THE LD. CIT(A) THE ASSESSEE HAS FILED HIS EXPLANATI ON ALONG WITH THE SUPPORTING DETAILS. THE LD. CIT(A) AFTER CONSIDERING THE SAME WITHOUT PROVIDING ANY OPPORTUNITY TO THE AO AS PROVIDED UNDER RULE 46A OF THE INCOME TAX RULES, 1 962 HAS ALLOWED PART RELIEF TO THE ASSESSEE. SINCE THERE I S VIOLATION OF RULE 46A, THEREFORE, WE ARE OF THE VIEW THAT IN THE INTERESTS OF JUSTICE, THE MATTER SHOULD GO BACK TO THE FILE OF THE AO AND ACCORDINGLY, WE SET ASIDE THE ORDER PAS SED BY THE REVENUE AUTHORITIES ON THIS ACCOUNT AND SEND B ACK THE MATTER TO THE FILE OF THE AO TO EXAMINE THE ISSUE A FRESH AND IN ACCORDANCE WITH LAW AFTER PROVIDING REASONABLE O PPORTUNITY OF BEING HEARD TO THE ASSESSEE. THE GROUNDS TAKEN B Y THE ASSESSEE AND REVENUE ARE, THEREFORE, PARTLY ALLOWED FOR STATISTICAL PURPOSES. 9. GROUND NO.3 TAKEN BY THE ASSESSEE READS AS UNDER : 3. THE LD. CIT(A) HAS ERRED IN LAW AND FACTS IN CONFIRMING DISALLOWANCE OF FINANCIAL EXPENSES OF RS.3,47,533/- 10. AT THE TIME OF HEARING, THE LEARNED COUNSEL FOR TH E ASSESSEE SUBMITS THAT HE DOES NOT WANT TO PRESS TH E ABOVE GROUND WHICH WAS NOT OBJECTED TO BY THE LD. DR. ITA NO.2949/MUM/2010 ITA NO.3756/MUM/2010 (ASSESSMENT YEAR : 2006-07) 7 11. THAT BEING SO AND IN THE ABSENCE OF ANY SUPPOR TING MATERIAL PLACED ON RECORD BY THE LEARNED COUNSEL F OR THE ASSESSEE, THE GROUND TAKEN BY THE ASSESSEE IS, THER EFORE, REJECTED BEING NOT PRESSED. 12. IN THE RESULT, THE ASSESSEES APPEAL AND REVENU ES APPEAL STAND PARTLY ALLOWED FOR STATISTICAL PURPOSE S. ORDER PRONOUNCED IN THE OPEN COURT ON 14TH SEPTEMBE R,2011. SD SD (RAJENDRA SINGH) (D.K .AGARWAL) ACCOUNTANT MEMBER JUDIC IAL MEMBER MUMBAI, DATED 14TH SEPTEMBER, 2011 SRL: COPY TO: 1. APPELLANT 2. RESPONDENT 3. CIT CONCERNED 4. CIT(A) CONCERNED 5. DR CONCERNED BENCH 6. GUARD FILE. BY ORDER TRUE COPY ASSTT. REGISTRAR, ITAT, MUMBAI