EXCEL CROP CARE LTD, MUMBAI V. ASST CIT CEN CIR 38, MUMBAI

ITA 4042/MUM/2014

• Counselvise Citation: [2017] 128 COUNSELVISE.COM (IT) 0089 (ITAT-MUMBAI)
• Duration Of Justice: 3 year(s) 17 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 21-06-2017
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: E
• Assessment Year: 2006-2007
• Appeal Filed On: 03-06-2014
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: DR A K NAYAK LD
• Assessee Lawyers: KIRIT KAMDAR LD
• Keywords: Proportionate interest; Reassessment proceedings
• Section: 43B; 143(3); 147; 148

Judgement Text

ITA NO.4042/MUM/2014 EXCEL CROP CARE LIMITED ASSESSMENT YEAR 2006-07 IN THE INCOME TAX APPELLATE TRIBUNAL E BENCH, MUMBAI . , , BEFORE SHRI C.N. PRASAD, JM AND SHRI MANOJ KUMAR AGGARWAL, AM ./I.T.A. NO.4042/MUM/2014 ( / ASSESSMENT YEAR:2006-07) EXCEL CROP CARE LIMITED 13, ARADHANA IND. DEV. CORP. NEAR VIRWANI INDUSTRIAL ESTATE GOREGAON (E) MUMBAI-400 063 / VS. ASSISTANT COMMISSIONER OF INCOME TAX CENTRAL CIRCLE-38 AAYKAR BHAVAN M.K.ROAD MUMBAI 400 020 ! ./ ./ PAN/GIR NO.AAACW-3810-D ( !# /APPELLANT ) : ( $!# / RESPONDENT ) REVENUE BY : DR. A.K. NAYAK, LD. DR ASSESSEE BY : KIRIT KAMDAR, LD. AR / DATE OF HEARING : 07/06/2017 / DATE OF PRONOUNCEMENT : 21/06/2017 2 ITA NO.4042/MUM/2014 EXCEL CROP CARE LIMITED ASSESSMENT YEAR 2006-07 / O R D E R PER MANOJ KUMAR AGGARWAL (ACCOUNTANT MEMBER) 1. THE CAPTIONED APPEAL BY ASSESSEE FOR ASSESSMENT YEAR [AY] 2006- 07 ASSAILS THE ORDER OF LD. COMMISSIONER OF INCOME TAX (APPEALS)-39 [CIT(A)], MUMBAI DATED 12/02/2014 ON VARIOUS GROUND S OF APPEALS. GROUND NO. 1 ASSAILS REOPENING U/S 148 WHICH HAS BEEN WITHDRAWN BY THE LD. COUNSEL FOR ASSESSEE [AR] DURING PROCEEDINGS BEFORE US AND THEREFORE, THE SAME IS DISMISSED IN LIMINE AS BEING NOT PRESSED.. NOW, WE PROCEED TO DECIDE THE REMAINING GROUNDS OF APPEAL IN THE SUCCE EDING PARAGRAPHS. 2. BRIEFLY STATED, THE ASSESSEE, BEING RESIDENT CORPORATE ASSESSEE ENGAGED IN THE BUSINESS OF MANUFACTURING AND TRADING OF AGRO-CHEMICALS (TECHNICAL AND FORMULATIONS) AND ALSO GENERATION OF WIND POWER, WAS SUBJECTED TO REASSESSMENT PROCEEDINGS U/S 143(3) READ WITH SECTION 147 FOR IMPUGNED AY VIDE ASSESSING OFFICER [AO] ORDER D ATED 30/12/2011 WHEREIN TOTAL INCOME OF THE ASSESSEE WAS DETERMINED AT RS.35,14,66,550/-. THE ORIGINAL RETURN OF INCOME WAS FILED AT RS.32,57 ,29,673/- WHICH WAS ASSESSED U/S 143(3) AT RS.33,27,34,046/-. 3. THE DISALLOWANCES WHICH ARE SUBJECT MATTER OF TH IS APPEAL ARE RS.85.87 LACS TOWARDS CERTAIN PRIOR PERIOD ITEMS & RS.21.69 LACS ON ACCOUNT OF INTEREST ATTRIBUTABLE TO CAPITAL WORK-IN-PROGRESS . THE 3 ITA NO.4042/MUM/2014 EXCEL CROP CARE LIMITED ASSESSMENT YEAR 2006-07 DISALLOWANCE OF RS.85.87 LACS WAS MADE SINCE THE SA ME, IN THE OPINION OF LD. AO, WERE PRIOR PERIOD EXPENDITURE AND THEREFORE , NOT ALLOWABLE TO ASSESSEE UNDER MERCANTILE SYSTEM OF ACCOUNTING. FUR THER, IT WAS NOTICED THAT THE ASSESSEE MADE INVESTMENT IN CAPITAL WIP FOR RS.271.18 LACS AND THEREFORE, PROPORTIONATE INTEREST DISALLOWANCE @8% AGAINST THE SAME, WHICH AMOUNTED TO RS.21.69 LACS, WAS MADE. 4. AGGRIEVED THE ASSESSEE CONTESTED THE SAME WITH P ARTIAL SUCCESS BEFORE LD. CIT(A) VIDE IMPUGNED ORDER DATED 12/02/2 014. REGARDING PRIOR PERIOD EXPENSES OF RS.85,87,882/-, THE ASSESSEE CON TENDED THAT THE PRIOR PERIOD ITEMS WERE ALLOWABLE SINCE THE SAME CRYSTALL IZED DURING IMPUGNED AY AND THEREFORE, DEBITED IN THE PROFIT & LOSS ACCO UNT AS REQUIRED BY ACCOUNTING STANDARDS. AFTER APPRECIATING THE NATURE OF THE EXPENSES, LD. CIT(A) DELETED DISALLOWANCE TO THE EXTENT OF RS.54, 70,864/- BUT CONFIRMED THE SAME TO THE EXTENT OF RS.21,39,001/- AGAINST FI VE ITEMS AS PER DETAILS GIVEN ON PAGE-7 OF THE APPELLATE ORDER. NO FINDINGS WERE GIVEN AGAINST BALANCE DISALLOWANCE OF RS.9,78,017/-. THE ASSESSEE GOT FURTHER RELIEF TO THE EXTENT OF RS.90,439/- U/S 43B OUT OF DISALLOWAN CE OF RS.21,39,001/- CONFIRMED BY LD. CIT(A). 5. REGARDING INTEREST DISALLOWANCE AGAINST CAPITAL WIP, THE ASSESSEE CONTENDED THAT NO BORROWED FUNDS WERE USED AGAINST THE SAME AND THE SAME WAS FUNDED OUT OF INTERNAL ACCRUALS OF THE COM PANY. HOWEVER, NOT CONVINCED, LD. CIT(A) CONFIRMED THE SAME. 4 ITA NO.4042/MUM/2014 EXCEL CROP CARE LIMITED ASSESSMENT YEAR 2006-07 6. AGGRIEVED, THE ASSESSEE IS IN APPEAL BEFORE US B Y WAY OF GROUND NOS. 2 TO 6 AGAINST THESE ADDITIONS. 7. FIRST OF ALL, IT IS NOTICED THAT IN GROUND NO. 3 , THE ASSESSEE IS AGGRIEVED BY NON-ADJUDICATION OF PRIOR-PERIOD ITEMS TO THE EX TENT OF RS.9,78,017/- BY LD. CIT(A). SINCE, WE HAVE ALREADY NOTED THE SAME F ACT, THEREFORE, THE ISSUE IS RESTORE BACK TO THE FILE OF LD. CIT(A) FOR RE-ADJUDICATION. THIS GROUND OF ASSESSEES APPEAL SUCCEEDS. 8. PROCEEDING FURTHER, THE LD. AR, BY DRAWING OUR A TTENTION TO THE DOCUMENTS PLACED IN THE PAPER BOOK, CONTENDED THAT THE ASSESSEE MADE ADJUSTMENT OF PRIOR PERIOD ITEMS BY WAY OF DEBIT AS WELL AS CREDIT TO THE PROFIT & LOSS ACCOUNT. THE AMOUNT SO DEBITED WAS RS .85,87,582/- WHEREAS THE AMOUNT SO CREDITED WAS RS.41,42,196/- AND THERE BY NET AMOUNT DEBITED TO PROFIT & LOSS ACCOUNT WAS RS.44,45,386/-. THESE ADJUSTMENTS WERE RELATED TO EARLIER YEARS BUT QUANTIFIED / CRYSTALLI ZED IN THE IMPUGNED AY AND HENCE ALLOWABLE. THE LD. AO ACCEPTED THE CREDIT ITE MS WHEREAS DISALLOWED THE DEBIT ITEMS WHICH IN ITSELF WAS CONTRARY AND NO T JUSTIFIED. THE LD. CIT(A) AFTER APPRECIATING THE STAND OF THE ASSESSEE PROVID ED MAJOR RELIEF TO THE ASSESSEE FOR RS.54,70,864/- AND THE REMAINING AMOUN T IN DISPUTE IS RS.20,48,562/- OUT OF WHICH MAJOR ITEM WAS GODOWN RENT FOR RS.16,56,260/-. OUR ATTENTION WAS DRAWN TO THE FACT THAT THE PROVISION THEREOF WAS NOT CREATED IN THE EARLIER AY. HOWEVER, THE ASSESSEE WAS LIABLE TO DEDUCT TDS AGAINST THE SAME WHICH HAS BEEN DEDUC TED IN THE IMPUGNED AY AND THEREFORE, THE SAME IS OTHERWISE ALLOWABLE T O THE ASSESSEE IN THE 5 ITA NO.4042/MUM/2014 EXCEL CROP CARE LIMITED ASSESSMENT YEAR 2006-07 IMPUGNED AY IN TERMS OF PROVISIONS OF SECTION 40(A) (IA). RELIANCE HAS BEEN PLACED ON THE JUDGMENT OF HONBLE BOMBAY HIGH COURT IN CIT VS. NAGRI MILLS LTD. [1957 33 ITR 681] AND HONBLE GUJARAT HIGH COURT IN SAURASHTRA CEMENT & CHEMICAL INDUSTRIES LTD. VS. CIT [1994 80 TAXMAN 61] FOR THE CONTENTION THAT THE REVENUE WAS OBLIGED TO COMPUTE FAIR DETERMINATION OF TAX LIABILITY OF THE ASSESSEE AND COULD NOT DISALLO W THE EXPENDITURE WHICH WAS OTHERWISE ALLOWABLE CONSIDERING THE FACT THAT T HE TAX RATES APPLICABLE TO THE ASSESSEE WERE UNIFORM IN DIFFERENT YEARS. 9. PER CONTRA, LD. DR OPPOSED THE SAME AND ASSERTED THAT THE ASSESSEE COULD NOT BE ALLOWED DEDUCTION OF EXPENDIT URE PERTAINING TO EARLIER YEARS SINCE IT WAS FOLLOWING MERCANTILE SYS TEM OF ACCOUNTING. 10. WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE RELEVANT MATERIAL ON RECORD. THE DETAIL OF EXPENDITURE, REMA INING IN DISPUTE, AS NOTED FROM THE RECORDS IS AS FOLLOWS:- WE AGREE WITH THE CONTENTION OF THE LD. AR THAT SIN CE TDS ON GODOWN RENT IS DEDUCTED IN THE IMPUGNED YEAR, THE DEDUCTION TH EREOF SHALL BE OTHERWISE ALLOWABLE IN THIS YEAR ONLY IN TERMS OF P ROVISIONS OF SECTION 40(A)(IA). THEREFORE, THE ISSUE OF ADMISSIBILITY OF GROUND RENT IS RESTORED BACK TO THE FILE OF LD. CIT(A) FOR LIMITED PURPOSE OF VERIFICATION OF THE NO. NATURE AMOUNT (RS.) 1. INSURANCE CHARGES 1,52,106/- 2. SALES PROMOTION EXPENSES 1,65,751/- 3. GODOWN RENT 16,56,260/- 4. OTHER INCENTIVES/MISC. RECEIPTS 74,445/- TOTAL 20,48,562/- 6 ITA NO.4042/MUM/2014 EXCEL CROP CARE LIMITED ASSESSMENT YEAR 2006-07 AFORESAID FACT WITH A DIRECTION TO ALLOW THE SAME, IF ADMISSIBLE, IN TERMS OF SECTION 40(A)(IA). 11. REGARDING THE BALANCE EXPENDITURE OF RS.3,90,30 2/-, WE SEE NO REASON TO DISTURB THE ASSESSMENT OF EARLIER YEARS A ND INCLINED TO ALLOW THE SAME PARTICULARLY WHEN THE REVENUE HAS TAXED THE PR IOR PERIOD CREDIT ITEMS OF RS.41,42,196/- IN THE IMPUGNED AY. NO DOUBT, THE ASSESSEE IS OBLIGED TO PAY ONLY LEGITIMATE TAXES DUE FROM HIM AND THE REVE NUE WAS OBLIGED TO UNDERTAKE FAIR DETERMINATION OF THE ASSESSEES INCO ME AS PER THE RATIO OF CITE CASE LAWS. THEREFORE, THE SAME SHALL BE ALLOWA BLE TO THE ASSESSEE IN THE IMPUGNED AY. ACCORDINGLY, GROUND NO. 2 AND 5 OF ASSESSEES APPEAL SUCCEEDS WHICH MAKES GROUND NO. 4 INFRUCTUOUS. 12. GROUND NO. 6 IS RELATED WITH PROPORTIONATE INTE REST DISALLOWANCE @8% AMOUNTING TO RS.21,69,465/- AGAINST CAPITAL WIP CARRIED OUT BY ASSESSEE FOR RS.2,71,18,306/-. THE LD. AR DREW OUR ATTENTION TO THE FACT THAT THE ASSESSEE WAS ENGAGED IN THE BUSINESS OF MANUFACTURI NG OF CHEMICALS AND GENERATION OF WIND POWER AND WAS REGULARLY REQUIRED TO UNDERTAKE REPAIRS TO EXISTING PLANT AND MACHINERY FOR WHICH IT INCURR ED THE SAID EXPENDITURE AND CAPITALIZED THE SAME TILL THE MACHINERY WAS REA DY TO USE. AS PER THE ACCOUNTING POLICY FOLLOWED BY THE ASSESSEE, THE INT EREST INCURRED BY THE ASSESSEE TOWARDS ACQUISITION OF PLANT & MACHINERY W AS CAPITALIZED BY THE ASSESSEE TILL THE PLANT WAS READY TO USE. THEREFORE , SEPARATE DISALLOWANCE IN THAT RESPECT WAS NOT WARRANTED FOR. THE ASSESSEE DID NOT CARRY OUT ANY SUBSTANTIAL EXPANSION OF ITS BUSINESS DURING THE YE AR WHICH DISENTITLED HIM 7 ITA NO.4042/MUM/2014 EXCEL CROP CARE LIMITED ASSESSMENT YEAR 2006-07 TO CLAIM THE SAID INTEREST U/S 36(1)(III) RATHER TH E EXPENDITURE PERTAINED TO ROUTINE REPLACEMENT OF PARTS OF PLANT & MACHINERY. ALTERNATIVELY, THE ASSESSEE HAD SUFFICIENT INTERNAL ACCRUALS WITH HIM TO FUND THE SAID CAPITAL WIP AND SINCE THE REVENUE COULD NOT ESTABLISH ANY DIREC T NEXUS OF BORROWED FUNDS WITH CAPITAL WIP AND THEREFORE, A PRESUMPTION HAS TO BE DRAWN THAT THE CAPITAL WIP WAS FUNDED OUT OF INTEREST FREE OWN FUNDS AS PER THE SETTLED LEGAL POSITION. OUR ATTENTION HAS BEEN DRAWN TO THE CASH FLOW STATEMENT PLACED IN THE PAPER BOOK. RELIANCE HAS BEEN PLACED ON THE JUDGMENT OF THIS TRIBUNAL RENDERED IN HIND RECTIFIERS LTD. VS. ACIT [ITA NO. 3364/M/2011 ORDER DATED 29/06/2012] . 13. PER CONTRA, LD. DR DREW OUR ATTENTION TO THE FACT THAT THE ASSE SSEE HAS USED MIXED FUNDS TOWARDS CAPITAL WIP AND THEREFORE, RIGHTLY BEEN SADDLED WITH IMPUGNED DISALLOWANCE. 14. WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE RELEVANT MATERIAL ON RECORD INCLUDING CITED CASE LAW. WE FIND STRENGT H IN THE VARIOUS ARGUMENTS ADVANCED BY LD. AR. THE DETAIL OF CAPITAL WIP FURNISHED BEFORE US REVEALS THAT THE SAID EXPENDITURE REPRESENT SAP RELATED WORK, INTERIOR WORK & REPAIRS, LIGNITE BOILER, JEEP AND JOB WORK. AN AMOUNT OF RS.1,15,207/- REPRESENTING INTEREST HAS ALSO BEEN C APITALIZED AGAINST THE SAME, THE CALCULATION OF WHICH HAS BEEN PROVIDED SE PARATELY. FURTHER, NET CASH FROM OPERATIONS GENERATED BY THE ASSESSEE DURING THE YEAR AS PER CASH FLOW STATEMENT STOOD AT RS.3451.21 LACS WHICH ARE SUFFICIENT ENOUG H TO COVER CAPITAL WIP OF RS.271.18 LACS. SINCE REVEN UE HAS NOT ESTABLISHED 8 ITA NO.4042/MUM/2014 EXCEL CROP CARE LIMITED ASSESSMENT YEAR 2006-07 ANY DIRECT NEXUS OF BORROWED FUNDS WITH THE INVESTM ENT, THE PRESUMPTION GOES IN ASSESSEES FAVOR THAT SELF OWNED INTEREST F REE FUNDS HAVE BEEN USED TOWARDS THE SAME WHICH IS FURTHER SUPPORTED BY THE FACT THAT THE OVERALL LOAN FUNDS IN THE IMPUGNED AY, IN FACT, DEC LINED IN COMPARISON TO IMMEDIATELY PRECEDING AY. EVEN OTHERWISE, THE CAPITAL WIP DID NOT RESULT INTO ANY SUBSTANTIAL EXPANSION OF ASSESSEES BUSINE SS OR IT WAS NOT THE CASE THAT THE ASSESSEE WAS IN PURSUIT OF ANY NEW LI NE OF BUSINESS SO AS TO BE HIT BY THE PROVISIONS OF SECTION 36(1)(III). OUR VIEW IS FURTHER FORTIFIED BY THE CITED DECISION OF THE TRIBUNAL. THEREFORE, WE D O NOT FIND THE IMPUGNED DISALLOWANCE SUSTAINABLE. THE GROUND OF ASSESSEES APPEAL SUCCEEDS. 15. GROUND NO. 7 IS RELATED WITH DEDUCTION OF LEASE RENT. GROUND NO. 8 IS RELATED WITH DISALLOWANCE U/S 14A. GROUND NO. 9 IS RELATED WITH ASSESSEES CLAIM U/S 80-IA. GROUND NO. 10 IS RELATED WITH INTE REST U/S 234C. OUR ATTENTION HAS BEEN DRAWN TO THE FACT THAT THESE MAT TERS WERE ALREADY AGITATED BY THE ASSESSEE IN AN APPEAL AGAINST 143(3 ) ASSESSMENT ORDER BEFORE TRIBUNAL VIDE ITA NOS. 3100-01, 8741 & 7155/ MUM/2010 ORDER DATED 25/07/2014 AND SINCE THE SAME HAS ALREADY BEEN ADJU DICATED AND THEREFORE, REQUIRE NO FURTHER ADJUDICATION. THE LD. DR ALSO CONCEDED THE SAME. SINCE THE ISSUES HAVE ALREADY BEEN ADJUDICATE D BY THE TRIBUNAL, OUR INTERFERENCE ON THESE ISSUES IS NOT REQUIRED. NEEDL ESS TO SAY, LD. AO SHALL FOLLOW THE TRIBUNALS DECISION / DIRECTIONS ON ALL THESE GROUNDS AS RENDERED IN ITA NOS. 3100-01, 8741 & 7155/MUM/2010 ORDER DAT ED 25/07/2014. 9 ITA NO.4042/MUM/2014 EXCEL CROP CARE LIMITED ASSESSMENT YEAR 2006-07 16. IN NUTSHELL, THE ASSESSEES APPEAL STANDS PARTL Y ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 21 ST JUNE, 2017. SD/- SD/- (C. N. PRASAD) (MANOJ KUMAR AGGARWAL) / JUDICIAL MEMBER / ACCOUNTANT MEMBER MUMBAI; DATED : 21 .06.2017 SR.PS:- THIRUMALESH / COPY OF THE ORDER FORWARDED TO : 1. !# / THE APPELLANT 2. $!# / THE RESPONDENT 3. + ( ) / THE CIT(A) 4. + / CIT CONCERNED 5. &- , - , / DR, ITAT, MUMBAI 6. ./ / GUARD FILE / BY ORDER, / (DY./ASSTT. REGISTRAR) , / ITAT, MUMBAI