ACIT CIR 6(3), MUMBAI V. INDIAN ALUMINIUM CO. LTD, KOLKATTA

ITA 3866/MUM/2013

• Counselvise Citation: [2014] 140 COUNSELVISE.COM (IT) 84555 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 7 month(s) 11 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 26-12-2014
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: I
• Next Hearing Date: 02-12-2014
• Assessment Year: 2005-2006
• Appeal Filed On: 15-05-2013
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: SACCHIDANAND DUBEY
• Assessee Lawyers: NARESH JAIN
• Keywords: Maximum Marginal Rate; Revenue expenditure; Capital expenditure
• Section: 43B

Judgement Text

, INCOME TAX APPELLATE TRIBUNAL,M UMBAI - I BENCH. , , BEFORE S/SH. RAJENDRA, ACCOUNTANT MEMB ER & VIVEK VARMA, JUDICIAL MEMBER /. ITA NO.3866/MUM/2013, ! ! ! ! ' ' ' ' / ASSESSMENT YEAR-2005-06 ACIT CIRCLE 6(3), R.NO. 522, 5TH FLOOR, AAYAKAR BHAVAN, M.K.ROAD, MUMBAI -400020 V/S. M/S INDIAN ALMUNIUM CO. LTD. (NOW MERGED WITH HINDALCO INDUSTRIES LTD.) 1, MIDDLETON STREET, KOLKATA- 71. # # # # . . . /PAN:AAACI5375F ( #$ / APPELLANT) ( %&#$ / RESPONDENT) ' ( / REVENUE BY : SHRI SACCHIDANAND DUBEY !)* !)* !)* !)* ( ( ( ( / ASSESSEE BY : SHRI NARESH JAIN ! ! ! ! ' '' ' *+ *+ *+ *+ / DATE OF HEARING : 02-12-2014 ,-' ' *+ / DATE OF PRONOUNCEMENT : 26-12-2014 ! ! ! ! , 1961 ' '' ' 254 )1 ( *.* *.* *.* *.* / / / / ORDER U/S.254(1)OF THE INCOME-TAX ACT,1961(ACT) PER RAJENDRA,AM ! ! ! ! : CHALLENGING THE ORDER DATED 08.10.2012 OF THE CIT(A )-XXXII,KOLKATA THE ASSESSING OFFICER (AO) HAS RAISED FOLLOWING GROUNDS OF APPEAL: 1.'ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E, THE LD. CIT(A) ERRED IN DIRECTING THE ASSESSING OFFICER TO DELETE THE DISALLOWANCE OF RS. 28,40,000 /- CLAIMED ON REPAIRS & MAINTENANCE OF MACHINERY, HOLDING THE SAME TO BE REVENUE EXPEND ITURE IN NATURE, WITHOUT APPRECIATING THE FACT THAT THE SAID EXPENDITURE PROVIDES ENDURING BENEFIT TO THE ASSESSEE COMPANY AND ACCORDINGLY IS CAPITAL IN NATURE.' 2.'ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E, THE LD. CIT(A) ERRED IN DIRECTING THE ASSESSING OFFICER TO VERIFY THE DISALLOWANCE OF RS. 16,43,133/- RELATING TO EARLIER YEAR AND CLAIMED U/S 43B IN EARLIER YEAR NOW WRITTEN BACK, WITHOUT A PPRECIATING THE FACT THAT THE LD.CIT(A) HAS NO POWER TO SET ASIDE ANY ISSUE AND HE SHOULD HAVE GIV EN A SPECIFIC FINDING OF FACT WHILE DELETING THE ADDITION.' 3.'ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E, THE LD. CIT(A) ERRED IN DIRECTING THE ASSESSING OFFICER TO DELETE THE DISALLOWANCE OF RS. 39,40,640/-BEING PAYMENT MADE TO M/S HINDALCO INDUSTRIES LTD.,A RELATED PARTY, U/S 40A(2 )(B) BY MERELY RELYING ON THE CASE LAWS, WITHOUT APPRECIATING THE FACT THAT THE ASSESSEE, EVEN ON RE QUISITION, HAS NOT FURNISHED ANY DETAILS OF PURCHASE/SALES WITH THE RELATED PARTY AND HENCE ONU S OF PROVIDING COMPARATIVE CASES WAS NOT ON THE ASSESSING OFFICER.' 2. ' THE APPELLANT PRAYS THAT THE ORDER OF CIT(A) O N THE ABOVE GROUNDS BE SET ASIDE AND THAT OF THE ASSESSING OFFICER BE RESTORED.' 3. 'THE APPELLANT CRAVES LEAVE TO AMEND OR ALTER AN Y GROUND OR ADD A NEW GROUND WHICH MAY BE NECESSARY.' ASSESSEE-COMPANY,ENGAGED IN THE BUSINESS OF MANUFAC TURE AND SALE OF ALUMINIUM,FILED ITS RETURN OF INCOME ON 31.10.2005,DECLARING TOTAL INCOME OF R S.23,24,189/-.FINALISING THE ASSESSMENT U/S.143(3) OF THE ACT,ON 24.12. 2007,THE AO DETERMI NED THE TOTAL INCOME OF THE ASSESSEE AT RS.1, 43,96,990/-. 2. FIRST GROUND OF APPEAL IS RELATED TO THE ADDITION O F RS. 28,40,000/-.DURING THE ASSESSMENT PROCEEDINGS,THE AO FOUND THAT THE ASSESSEE HAD CHAN GED ITS POLICY RELATING TO ACCOUNTS OF CERTAIN MACHINERY COMPONENTS,WHICH WERE HITHERTO CAPITALISE D,THAT IT HAD CLAIMED THE COST OF SUCH 2 ITA NO. 3866/M/2013 M/S INDIAN ALMUNIUM CO. LTD. COMPONENTS INCURRED DURING THE YEAR IN THE BOOKS OF ACCOUNTS.AS PER THE AO THE EXPENDITURE INCURRED BY THE ASSESSEE WAS CAPITAL IN NATURE.THER EFORE,HE DISALLOWED THE SAME. 2.1. AGGRIEVED BY THE ORDER OF THE AO,THE ASSESSEE PREFE RRED AN APPEAL BEFORE THE FIRST APPELLATE AUTHORITY (FAA).IT WAS SUBMITTED BEFORE HIM THAT TH E ABOVE EXPENDITURE WERE IN THE NATURE OF REPLACEMENT OF PARTS OF OLD PLANT AND MACHINERY,THA T THE EXPENDITURE WAS INCURRED TO MAINTAIN THE PLANT AND MACHINERY IN RUNNING CONDITION,THAT THE A SSESSEE DID NOT DERIVE ANY ENDURING BENEFIT FROM THE REPLACEMENT OF PLANT AND MACHINERY AND THE REFORE THE AFORESAID EXPENDITURE SHOULD BE ALLOWED AS REVENUE EXPENSES.AFTER CONSIDERING THE A SSESSMENT ORDER AND SUBMISSION OF THE ASSESSEE,THE FAA HELD THAT THE IMPUGNED EXPENDITURE WAS INCURRED FOR PURCHASING PARTS OF MACHINERIES AND NO NEW ASSET HAD COME INTO EXISTENC E,THAT THE ASSESSEE HAD ALSO DEBITED THE EXPENDITURE TO ITS PROFIT AND LOSS ACCOUNT,THAT THE ABOVE ISSUE ALSO CAME UP FOR CONSIDERATION IN THE APPELLANT'S OWN CASE FOR THE ASSESSMENT YEAR 19 97-98 AND 1998-99 IN I TA. NO. 443 & 444 (KOL) OF 2003,THAT ITAT, 'E' BENCH, KOLKATA TRIBUN AL IN ITS DECISION DATED 15/12/2006 HAD DECIDED THE ISSUE IN FAVOUR OF THE ASSESSEE,THAT IN THE ASSESSMENT YEARS 1997-98 THE ASSESSEE HAD NOT CAPITALISED SUCH EXPENDITURE IN THE BOOKS OF AC COUNT AND HAD CLAIMED THE SAME IN THE RETURN AS REVENUE EXPENDITURE,THAT THE FACTS OF THE YEAR UNDE R CONSIDERATION WERE IDENTICAL TO THE FACTS OF ASSESSMENT YEAR 1997-98.REFERRING TO THE ABOVE MENT IONED ORDER OF THE TRIBUNAL,THE FAA DELETED THE ADDITION MADE BY THE AO. 2.2. BEFORE US,THE DEPARTMENTAL REPRESENTATIVE(DR)SUPPOR TED THE ORDER OF THE AO.AUTHORISED REPRESENTATIVE(AR)RELIED UPON THE ORDER OF THE TRIB UNAL.WE FIND THAT THE TRIBUNAL WHILE DECIDING THE APPEAL FOR THE AY.1998-99(SUPRA)HAD HELD AS UND ER: ...WE HAVE CAREFULLY CONSIDERED THE RIVAL SUBMISS IONS AND PERUSED THE MATERIAL PLACED BEFORE US.AFTER CONSIDERING THE FACTS OF THE CASE WE FIND THE SUBMISSIONS OF THE LEARNED COUNSEL FOR THE ASSESSEE TO BE CORRECT.THE FACTS OF ASSESSMENT YEAR 2002-03 ARE DIFFERENT THAN THE YEAR UNDER CONSIDERATION. AS DISCUSSED IN PARA 2.1 ABOVE, IN A SSESSMENT YEAR 2002-03 THE ASSESSEE ITSELF HAD CAPITALIZED THE EXPENDITURE ON REPAIRS OF PLANT & M ACHINERY AND ACCOUNTED FOR THE SAME IN THE BOOKS OF ACCOUNT AS CAPITAL EXPENDITURE, WHEREAS AT THE SAME TIME IN THE RETURN OF INCOME FILED, THE SAME WAS CLAIMED AS CAPITAL EXPENDITURE.BUT IN THE ASSESSMENT YEAR UNDER CONSIDERATION, I.E. 1997-98, THE ASSESSEE HAD NOT CAPITALIZED THIS EXPE NDITURE IN THE BOOKS OF ACCOUNT AND CLAIMED THE SAME IN THE RETURN S REVENUE EXPENDITURE. THERE WAS THEREFORE, DISTINCT DIFFERENT IN THE FACTS OF THESE TWO YEARS. IN THE YEAR UNDER CONSIDERATION, T HE EXPENDITURE WAS INCURRED FOR REPLACEMENT OF PART OF THE PLAN & MACHINERY, WHICH IS CLEARLY REVE NUE EXPENDITURE. IN VIEW OF THE ABOVE, WE DO NOT FIND ANY INFIRMITY IN THE ORDER OF THE CIT(A). GROUND NO.1 OF THE REVENUE'S APPEAL IS REJECTED.' IN VIEW OF THE ABOVE, THE ACTION OF THE A.O ILL DIS ALLOWING THE SAID EXPENDITURE IS FOUND TO BE NOT JUSTIFIED. THEREFORE, THE A.O. IS DIRECTED TO ALLOW THIS EXPENDITURE ON ACCOUNT OF REPAIRS AND MAINTENANCE IN MACHINERIES IN FULL. THEREFORE, THIS GROUND OF APPEAL IS ALLOWED. RESPECTFULLY FOLLOWING THE ABOVE ORDER OF THE KOLKA TA TRIBUNAL,WE DECIDE GROUND NO.1 AGAINST THE AO. 3. GROUND NO.2 PERTAINS TO DISALLOWANCE OF RS.16,43,13 3/-.DURING THE ASSESSMENT PROCEEDINGS THE AO FOUND THAT THE ASSESSEE-COMPANY HAD CLAIMED A SU M OF RS. 16.43LAKHS IN RESPECT OF ITEMS DISALLOWED U/S 43B IN EARLIER YEARS THAT WERE WRITT EN BACK/PAID.AFTER EXAMINING THE ANNEXURE-8 & 9 TO THE TAX AUDIT REPORT,THE AO HELD THAT IT WAS N OT CLEAR THAT THE AFORESAID AMOUNT HAD BEEN PAID/WRITTEN OFF,THAT AS PER THE PROVISIONS OF SECT ION 43B DEDUCTION WAS ALLOWABLE ONLY IF ANY STATUTORY DUE WAS ACTUALLY PAID.FINALLY,HE DISALLOW ED RS.16.43 LAKS U/S 43B OF THE ACT. 3.1. BEFORE THE FAA,THE ASSESSEE STATED THAT IT HAD CLAI MED A SUM OF RS. 16,43,133/-IN RESPECT OF ITEMS DISALLOWED U/S 43B IN EARLIER YEARS WRITTEN B ACK/PAID DURING THE YEAR,THAT THE DETAILS OF THE SAME WERE FILED WITH THE AO,THAT THE AMOUNT IN QUES TION WAS WRITTEN BACK IN PROFIT AND LOSS ACCOUNT BEING EARLIER YEAR LIABILITY NO MORE PAYABL E,THAT THE AFORESAID SUM WHEN DEBITED TO PROFIT AND LOSS ACCOUNT IN EARLIER YEARS WAS NOT ALLOWED I N EARLIER YEARS BECAUSE OF THE PROVISIONS OF SECTION 43B, THAT DURING THE YEAR UNDER APPEAL SAID PROVISIONS WERE WRITTEN BACK THROUGH PROFIT AND LOSS ACCOUNT,THAT THE SAID BOOK PROFIT WAS ADOP TED FOR COMPUTATION OF INCOME AS WELL AS ASSESSMENT OF INCOME. 3 ITA NO. 3866/M/2013 M/S INDIAN ALMUNIUM CO. LTD. AFTER CONSIDERING THE SUBMISSION OF THE ASSESSEE AN D THE ASSESSMENT ORDER,THE FAA DIRECTED THE AO TO VERIFY THE ABOVE CONTENTION OF THE APPELLANT REGARDING OF THE SAID AMOUNT(S) AGGREGATING TO RS.16,43,133/- AND TO ALLOW DEDUCTION OF THE SAME I N THE YEAR IN QUESTION AS PER THE PROVISION OF LAW AFTER DUE VERIFICATION. 3.2. DR LEFT THE ISSUE TO THE DISCRETION OF THE BENCH.AR SUPPORTED THE ORDER OF THE FAA.IN OUR OPINION THERE IS NOTHING WRONG WITH THE DIRECTION O F THE FAA.HE HAS NOT ALLOWED THE CLAIM MADE BY THE ASSESSEE. HE HAS DIRECTED THE AO TO ALLOW TH E CLAIM ONLY AFTER DUE VERIFICATION. THEREFORE, WE ARE OF THE OPINION THAT GROUND NO.2 HAS TO BE DE CIDED AGAINST THE AO. 4. LAST GROUND OF APPEAL IS ABOUT DISALLOWANCE OF RS.3 9,40,640/-,BEING PAYMENT MADE TO M/S HINDALCO INDUSTRIES LTD.(HIL),A RELATED PARTY,U/S.4 0A(2)(B)OF THE ACT.DURING THE ASSESSMENT PROCEEDINGS,THE AO FOUND THAT THE ASSESSEE HAD MADE PAYMENT TO HIL ON ACCOUNT OF PURCHASE AND SALE OF FINISHED/UNFINISHED GOODS AND SALE OF SERVI CE/JOB WORK,THAT THE TOTAL PURCHASES AND SALES FROM THE RELATED PARTY WAS RS.39,40,64,000/-(RS.7,8 0,15,000+31,60,49,000/-).ON REQUISITION BY THE AO THE ASSESSEE FURNISHED 110 DETAILS OF SUCH P URCHASES AND SALES.AFTER GOING THROUGH THEM,HE HELD THAT IT WAS VERY DIFFICULT TO ASCERTA IN WHETHER SUCH PURCHASES AND SALES WERE AT THE PREVAILING MARKET PRICE AND EXPENSES LIKE TRANSPORT ATION, LOADING & UNLOADING ETC. WERE NOT INCURRED BY THE ASSESSEE COMPANY,THAT IN ABSENCE OF SPECIFIC DETAIL/CONTACT, ARGUMENT ETC. 1% OF THE TOTAL PURCHASE OF RS. 39,40,64,000/-(I.E.RS.39. 40 LAKHS)WAS TO DISALLOWED AND ADDED BACK TO THE TOTAL INCOME OF THE ASSESSEE. 4.1. DURING THE APPELLATE PROCEEDINGS BEFORE THE FAA IT WAS SUBMITTED THAT THERE WAS NO ATTEMPT TO EVADE TAX,THAT THE ASSESSEE-COMPANY AS WELL AS HIL WERE ASSESSED AT HIGHEST TAX RATES.THE FAA AFTER CONSIDERING THE AVAILABLE MATERIAL,HELD THAT THE AO HAD NOT GIVEN ANY COMPARATIVE ANALYSIS TO SHOW THAT THE PAYMENTS TO THE SISTER CONCERN WAS EXCESSIVE,THAT IN THE ABSENCE OF ANY SUCH COMPARABLE CASES THE CONCLUSION THAT THE PURCHASES FROM HIL WERE MADE AT AN EXCESSIVE OR UNREASONABLE RATE COULD NOT BE SUSTAINED,THAT HIL W AS TAXED AT MAXIMUM MARGINAL RATE. KEEPING IN VIEW THE C.B.D.T CIRCULAR NO. 6 AND THE CASE OF INDO SAUDI SERVICES (TRAVEL) LTD. DELIVERED BY THE HONBLE BOMBAY HIGH COURT(219 CTR 562),HE HELD THAT NO DISALLOWING U/S.40A(2)(B) OF THE ACT WAS CALLED FOR.HE ALLOWED THE APPEAL FILED BY T HE ASSESSEE. 4.2. BEFORE US,THE DR SUPPORTED THE ORDER OF THE AO AND THE AR SUPPORTED THE ORDER OF THE FAA. WE HAVE PERUSED THE MATERIAL AVAILABLE ON RECORD.AS PER THE SETTLED LAW OF TAXATION JURISPRUDENCE ADDITION U/S.40A(2)(B)CAN BE MADE BY THE AO ONLY AF TER HE ESTABLISHES THAT PAYMENT MADE BY THE ASSESSEE TO THE RELATED PARTY WAS EXCESSIVE OR UNRE ASONABLE AS COMPARED TO MARKET RATE.MERE PAYMENT TO A RELATED PARTY DOES NOT ATTRACT PROVISI ONS OF SAID SECTION.THE AO HAS TO GIVE A COMPARATIVE CHART OF THE RATES/PRICE PAID BY THE AS SESSEE TO THE RELATED PARTY FOR AVAILING SERVICES/ FOR PURCHASING GOODS AND HAS TO PROVE THAT SUCH RAT ES WERE HIGHER THAN THE PREVALENT MARKET RATES. WITHOUT COMPLETING THE SAID EXERCISE,NO DISALLOWAN CE CAN BE MADE.IN THE MATTER UNDER CONSIDERATION,THE AO HAS MADE AN ADHOC DISALLOWANCE ,WITHOUT ANY BASIS.THEREFORE,IN OUR OPINION THE FAA HAS RIGHTLY ALLOWED THE APPEAL FILED BY THE ASSESSEE.CONFIRMING HIS ORDER,WE DECIDED GROUND NO.3 AGAINST THE AO. AS A RESULT,THE APPEAL FILED BY THE AO STANDS DISMI SSED. 1*2 !)* + 3 4 !5 ' * 67 . ORDER PRONOUNCED IN THE OPEN COURT ON 26TH ,DECEMBER 2014 . / ' ,-' 8 9! 26 FNLA FNLA FNLA FNLA , 201 4 - ' . : SD/- SD/- ( / VIVEK VARMA) ( / RAJENDRA) / JUDICIAL MEMBER /ACCOUNTANT MEMBER / MUMBAI, 9! /DATE: 26.12 . 2014. 4 ITA NO. 3866/M/2013 M/S INDIAN ALMUNIUM CO. LTD. / / / / ' '' ' %* %* %* %* ; '* ; '* ; '* ; '* / COPY OF THE ORDER FORWARDED TO : 1. ASSESSEE / #$ 2. RESPONDENT / %&#$ 3. THE CONCERNED CIT(A)/ < = , 4. THE CONCERNED CIT / < = 5. DR I BENCH, ITAT, MUMBAI / >. %*! , . . . 6. GUARD FILE/ . 1 & * & * & * & * %* %*%* %* //TRUE COPY// /! / BY ORDER, ? / 6 DY./ASST. REGISTRAR , /ITAT, MUMBAI