Sunshine Fasteners Pvt. Ltd., Wadhwan V. The Joint Commissioner of Income Tax, Surendranagar Range, Surendranagar

ITA 428/RJT/2013

• Counselvise Citation: [2017] 128 COUNSELVISE.COM (IT) 6672 (ITAT-RAJKOT)
• Duration Of Justice: 3 year(s) 4 month(s) 14 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 22-03-2017
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: DB
• Assessment Year: 2009-2010
• Appeal Filed On: 08-11-2013
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: AVINASH KUMAR
• Assessee Lawyers: DM RINDANI
• Keywords: Capital asset; Depreciation; Capital expenditure
• Section: 43B

Judgement Text

: : IN THE INCOME TAX APPELLATE TRIBULAL: RAJKOT BENCH: RAJKOT BEFORE SHRI S.V. MEHROTRA, ACCOUNTANT MEMBER AND SHRI K. NAR ASIMHA CHA RY , JUDICIAL MEMBER ./ ITA NO . 428 /R JT /201 3 / ASSESSMENT YEAR : 200 9 - 10 M/S.SUNSHINE FASTENERS PVT. LTD. PLOT NO.1601/1602, GIDC PHASE - III, WADHWAN, DIST SURRENDRANAGAR PAN : AAJCS8400N VS THE JOINT COMMISSIONER OF INCOME TAX, SURENDRANAGAR / (APPELLANT) / (RESPONDENT) ASSESSEE BY : SHRI D.M. RINDANI, C.A REVENUE BY : SHRI AVINASH KUMAR, D.R / DATE OF HEARING : 21 / 03/2017 / DATE OF PRONOUNCEMENT: 22 /03/2017 / O R D E R PER SHRI S.V. MEHROTRA , ACCOUNTANT MEMBER : THE ASSESSE E HAS FILED THE ABOVE APPEAL AGAINST THE ORDER OF LD.CIT(A) - XVI, AHMEDABAD F OR ASSESSMENT YEAR 200 9 - 10 . 2 . BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE HAD FILE D ITS RETURN OF INCOME DECLAR ING INCOME OF R S .72,87,590/ - THE ASSESSMENT WAS COMPLE TED AT A TOTAL INCOME OF RS.88,95,260/ - , INTER - ALIA , AFTER MAKING FOLLOWING ADDITION S/ DISALLOWANCE S: - ADDITION ON ACCOUNT OF SHORTFALL IN THE GROSS PROFIT RATIO RS.3,00,000/ - ADDITION ON ACCOUNT OF THE PAYMENT FOR INCREASING THE SHARE CAPITAL RS.47,000/ - ADDITION ON ACCOUNT OF THE PAYMENT OF PGVCL RS.3,32,700/ - ITA NO. 428/RJT/2013 A.Y.2009 - 10 - 2 - FOR ENHANCEMENT OF POWER ADDITION ON ACCOUNT OF DISALLOWANCE OF ARREAR MUNICIPAL TAXES RS.3,32,486/ - 3. LD.CIT(A) DISMISSED THE ASSESSEE S APPEAL . B EING AGGRIEVED , THE ASSESSEE IS IN APPEAL BEF ORE US AND HAS TAKEN FOLLOWING GROUND OF APPEAL : - 1. THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) - XVI, AHMEDABAD ERRED IN CONFIRMING ACTION OF THE ASSESSING OFFICER IN MAKING LUMP SUM ADDITION OF RS.3,OO,OOO/ - BY WAY OF SHORT FALL IN GROSS PROFIT. 2. THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) - XVI, AHMEDABAD ERRED IN CONFIRMING ACTION OF THE ASSESSING OFFICER IN DISALLOWING R.O.C. EXPENSES OF RS.47,OOO/ - BY TREATING IT AS CAPITAL EXPENDITURE. 3. THE LEARNED COMMISSIONER OF INCOME TAX (AP PEALS) - XVI, AHMEDABAD ERRED IN CONFIRMING ACTION OF THE ASSESSING OFFICER IN DISALLOWING ELECTRIC POWER ENHANCEMENT CHARGES OF RS.3,32,700/ - BY TREATING IT AS CAPITAL EXPENDITURE. 4. THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) - XVI, AHMEDABAD E RRED IN CONFIRMING ACTION OF THE ASSESSING OFFICER IN DISALLOWING PAYMENT OF MUNICIPAL TAXES OF RS.3,32,486/ - BY TREATING IT AS PAYMENT OF EARLIER YEARS AND BY NOT APPLYING PROVISIONS OF SEC. 43B. 5. THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) - XV I, AHMEDABAD ERRED IN CONFIRMING ACTION OF THE ASSESSING OFFICER IN DISALLOWING DEPRECIATION ON CAR OF RS.5,95,484/ - ON THE GROUND THAT CARS WERE NOT REGISTERED IN THE NAME OF THE ASSESSEE COMPANY BUT IN NAMES OF ITS DIRECTORS. 4. AT THE TIME OF HE ARING LD.COUNSEL DID NOT PRESS GROUND NO.2 . ACCORDINGLY , THE SAME IS DISMISSED AS NOT PRESSED. 5. BRIEF FACT APROPOS GROUND NO.1 ARE THAT ASSESSING OFFIC ER NOTICED THAT THERE WAS SHORT FALL OF 3.5% IN THE G.P RATIO. THE ASSESSEE EXPLAINED THE REASON FOR SHORT FALL WHICH HAVE BEEN REPRODUCED AT PAGE 2 AND 3 OF THE ASSESSMENT ORDER. THE ASSESSING O FFICER DID NOT ACCEPT ITA NO. 428/RJT/2013 A.Y.2009 - 10 - 3 - THE ASSESSEE S EXPLANATION AND MADE LUMPSUM ADDITION OF RS.3 LACS . THE LD. CIT (A) CONFIRMED THE ADDIT ION. 6. THE LD. COUNSEL POINTED OUT THAT THE ADDITION HA D BEEN MADE ONLY FOR THE SHORTF ALL OF TH E G.P. THE ASSESSING OFFICER DID NOT POINT OUT ANY DEFECT IN THE BOOKS OF ACCOUNT AND NO COMPARABLE CASE W AS ALSO BEEN CITED BY THE ASSESSING OFFICER. 7. THE LD.DR RELIED ON THE ORDER OF CIT(A). 8 . WE HAVE CONSIDERED THE SUBMISSIONS OF BOTH THE PARTIES AND PERUSED THE RECORD OF THE CASE. ADMITTEDLY , THE ASSESSING OFFICER HAS NOT POINTED OUT ANY SPECIFIC DEFECT IN THE BOOKS OF ACCOUNT AND HAS MADE THE ADDITION FOR FALL IN G.P AFTER MAKING GENERAL OBSE RVATIONS. IT IS WELL SETTLE D LAW THAT MERE FALL IN G.P DOES NOT JUSTIFY ADDITION TO TOTAL INCOME UNLESS A SPECIFIC DEFECT I S POINTED OUT IN THE BOOKS OF ACCOUNT. THE HON BLE PUNJAB AND HARYANA HIGH COURT IN THE CASE OF PANDIT BROTHERS VS CIT , 26 ITR 159 (P &H) H AS OBSERVED AS UNDER : HELD, THAT THERE WAS NO DEFINITE FINDING BY THE INCOME - TAX OFFICER THAT THE CASE FELL WITHIN THE PROVISO TO SECTION 13 . EVEN IF SUCH FINDING WERE TO BE IMPLIED FROM HIS OR DER IT COULD NOT BE SAID THAT THERE WAS MATERIAL BEFORE HIM WHICH WOULD ENABLE HIM TO COME TO SUCH A FINDING. THE FACT THAT THE PROFITS APPEARED TO HIM TO BE INSUFFICIENT AND THE FACT THAT NO STOCK REGISTER WAS MAINTAINED BY THE ASSESSEE WERE NOT MATERIALS UPON WHICH SUCH A FINDING COULD BE GIVEN, BUT THEY WERE CIRCUMSTANCES WHICH MIGHT PROVOKE AN ENQUIRY. THE INCOME - TAX OFFICER MUST DISCOVER EVIDENCE OR MATERIAL ALIUNDE BEFORE HE COULD GIVE SUCH A FINDING. IN INCREASING THE TAXABLE INCOME THE INCOME - TAX OF FICER DID NOT ADOPT ANY METHOD OR BASIS AND HE WAS NOT ACTING ACCORDING TO THE PROVISIONS OF THE STATUTE' ITA NO. 428/RJT/2013 A.Y.2009 - 10 - 4 - RESPECTFULLY, FOLLOWING THE ABOVE DECISION, THE ADDITION IS DELETED. IN THE RESULT THIS GROUND IS ALLOWED. 9 . APROPOS GROUND NO.3, BRIEF FACTS OF THE CASE ARE THAT ASSESSEE HAD CLAIMED A SUM OF RS,3,32,700/ - AS ELECTRIC POWER ENHANCEMENT CHARGE . I T WAS EXPLAINED THA T THE PAYMENTS WERE MADE TO GUJARAT ELECTRIC BOARD(PGVCL RAJKOT) ON ACCOUNT OF ADDITIONAL POWER FACILITY PROVIDED IN THE FACTORY . T HE AS SESSING OFFICER TREATED THIS EXPENDITURE IN THE CAPITAL FIELD . LD. CIT (A), CONFIRMED ASSESSING OFFICER S ACTION , INTER - ALIA , OBSERVING THAT IT WAS NOT AN EXPENDITURE WHICH THE ASSESSEE WAS REQUIRED TO PAY ON REGULAR BASIS BUT ONE TIME EXPENDITURE. 10 . T HE LD. COUNSEL SUBMITTED THAT BY INCURRING THIS EXPENDITURE ASSESSEE ONLY GOT RI GHT TO USE MORE ELECTRICITY. THU S , IT WAS ONLY IN THE NATURE OF DEVELOPMENT CHARGE. HE SUBMITTED THAT RIGHT OF POWER IS NOT CAPITAL ASSETS . 11 . THE LD.DR RELIED ON THE ORDER OF CIT(A). 1 2 . HAVING CONSIDERED THE SUBMISSION OF BOTH THE PARTIES , WE FIND THAT REASONING GIVEN BY LOW ER REVENUE AUTHORITIES CANNOT BE S USTAINED BECAUSE MERELY THE EXPENDITURE IS A ONE TIME EXPENDITURE DOES NOT IP SO FACTO LEAD S TO T HE CONCLUSION THAT EXPENDITURE IS IN THE CAPITAL FIELD. IF THE ASSESSEE IS ABLE TO RUN BUSINESS MORE EFFICIENTLY BY INCURRING A PARTICULAR EXPENDITURE WITHOUT MAKING ANY ADDITION TO ITS PROFIT EARNING APPARATUS THEN , T HIS EXPENDITURE WOULD BE IN REVENUE FIELD. IN THE PRESENT CASE INCREASE IN LOAD ONLY FACILITATED THE ASSESSE S OPERATIONS MORE EFFICIENTLY. WE ARE FORTIFIED BY THE DECISION OF HON BLE SUPREME COURT IN THE CASE OF EMPIRE JUTE COMPANY VS CIT 124 ITR PAGE 1 WHEREIN IT HAS BEEN , INTER - ALIA , HELD AS UNDER : ITA NO. 428/RJT/2013 A.Y.2009 - 10 - 5 - (II) T HERE MAY BE CASES WHERE EXPENDITURE, EVEN IF INCURRED FOR OBTAINING AN ADVANTAGE OF ENDURING BENEFIT, MAY, NONE THE LESS, BE ON REVENUE ACCOUNT AND THE TEST OF ENDURING BENEFIT MAY BREAK DOWN. IT IS NOT EVERY ADVANTAGE OF ENDURING NATURE ACQUIRED BY AN ASS ESSEE THAT BRINGS THE CASE WITHIN THE PRINCIPLE LAID DOWN IN THIS TEST. WHAT IS MATERIAL TO CONSIDER IS THE NATURE OF THE ADVANTAGE IN A COMMERCIAL SENSE AND IT IS ONLY WHERE THE ADVANTAGE IS IN THE CAPITAL FIELD THAT THE EXPENDITURE WOULD BE DISALLOWABLE ON AN APPLICATION OF THIS TEST. IF THE ADVANTAGE CONSISTS MERELY IN FACILITATING THE ASSESSEE'S TRADING OPERATIONS OR ENABLING THE MANAGEMENT AND CONDUCT OF THE ASSESSEE'S BUSINESS TO BE CARRIED ON MORE EFFICIENTLY OR MORE PROFITABLY WHILE LEAVING THE FIXE D CAPITAL UNTOUCHED, THE EXPENDITURE WOULD BE ON REVENUE ACCOUNT, EVEN THOUGH THE ADVANTAGE MAY ENDURE FOR AN INDEFINITE FUTURE. THE TEST OF ENDURING BENEFIT IS, THEREFORE, NOT A CERTAIN OR CONCLUSIVE TEST AND IT CANNOT BE APPLIED BLINDLY AND MECHANICALLY WITHOUT REGARD TO THE PARTICULAR FACTS AND CIRCUMSTANCES OF A GIVEN CASE. (III) WHAT IS AN OUTGOING OF CAPITAL AND WHAT IS AN OUTGOING ON ACCOUNT OF REVENUE DEPENDS ON WHAT THE EXPENDITURE IS CALCULATED TO EFFECT FROM A PRACTICAL AND BUSINESS POINT OF VIE W RATHER THAN UPON THE JURISTIC CLASSIFICATION OF THE LEGAL RIGHTS, IF ANY, SECURED, EMPLOYED OR EXHAUSTED IN THE PROCESS. THE QUESTION MUST BE VIEWED IN THE LARGER CONTEXT OF BUSINESS NECESSITY OR EXPEDIENCY. RESPECTFULLY, FOLLOWING THE DECISION OF THE HON BLE SUPREME COURT, THIS GROUND IS ALLOWED 13 . BRIEF FACT S APROPOS GROUND NO. 4 ARE THAT ASSESSEE HAD CLAIMED MUNICIPAL TAXES OF RS.3,85, 0 18 . THE ASSESSING OFFICER NOTICED THAT THE FOLLOWING PAYMENT S PERTAIN ED TO EARLIER YEARS: - BILL NO. DATE AMOUNT (RS.) 0051054 04.12.2008 86,503 0051055 04.12.2008 61,693 008219 31.12.2008 57,917 008220 31.12.2008 34,657 007435 17.12.2008 28,586 007436 17.12.2008 26,676 ITA NO. 428/RJT/2013 A.Y.2009 - 10 - 6 - 001008 20.07.2007 36,454 TOTAL RS.3,32,486 HE DISAL LOWED THE ASSESSEE S CLAIM OBSERVIN G THAT PROPERTY TAX HAD FALLE N DOWN IN THE RESPECTIVE YEARS AND THESE PAYMENTS SHOUD HAVE BEEN DEBITED IN THE RESPECTIVE ACCOUNTING YEAR ITSELF. 1 4 . BEFORE THE LD. CIT(A) , IT WAS SUBMITTED THAT THE IMPUGNED EXPENSES WERE ALLOWABLE UNDER SECTION 43B OF THE A CT . H OWEVER, LD. CIT(A) DID NOT AGREE WITH THE ASSESSEE OBSERVING THAT AS PER MERCANTILE SYSTEM OF ACCOUNTING FOLLOWED BY THE ASSESSEE , THE IMPUGNED EXPENDITURE OUGHT TO HAVE BEEN DEBITED DURING THE YEAR IN WHICH THEY WERE INCURRE D. 1 5 . HAVING HEARD BOTH THE PARTIES WE FIND SECTION 43B SPECIFIC ALLY ALLOWS THE PAYMENT OF TAXES IN THE YEAR IN WHICH THEY ARE ACTUALLY PAID. THEREFORE , THE REASONING GIVEN BY LD. CIT(A) IS NOT CORRECT. ACCORDINGLY , THIS GROUND IS ALLOWED. 1 6 . APROPOS GROUND NO.5 , THE FACTS ARE THAT ASSESSING OFFICER NOTICED THAT ASSES S EE HAD CLAIMED DEPRECIATION OF FIVE CAR S OUT OF WHICH FOUR CARS WERE NOT REGI STERED IN THE NAME OF ASSESSEE COMPANY BUT WERE IN THE NAME OF DIRECTORS. HE DISALLOWED THE ASSESSEE S CLAIM OF DEPRECIATION QU A FOUR VEHICLES, I NTER - ALIA , OBSERVING THAT DEPRECIATION COULD BE CLAIMED ONLY BY OWNER OF THE VEHICLE. THE LD.CIT(A) CONFIRMED THE ASSESSING OFFICER S ACTION REJECTING THE ASSESSEE S CONTENTION THAT THE PAYMENT FOR THE IMPUGNED VEHICLE WAS MADE FROM THE COMPANY S FUND AND MERELY THE REGISTRATION WAS DONE IN THE DIRECTOR S NAME AND , THEREFORE , THE CLAIM OF DEPRECIATION COULD NOT BE DENIED. ITA NO. 428/RJT/2013 A.Y.2009 - 10 - 7 - 1 7 . WE HAVE CONSIDERED THE SUBMISSIONS OF BOTH THE PARTIES AND PERUSED THE RECORD OF APPEAL. IT I S NOT DISPUTED THAT THE CARS WERE USED BY THE COMPANY AND THE BENEFICIAL OWNERSHIP WAS OF THE COMPANY ONLY. THE HON BLE SUPREME COURT IN CASE OF CIT VS PODAR CEMENT PVT. LIMITED 226 ITR 625 HELD THAT WHERE THE POSSESSION OF PROPERTY IS ACQUIRED WITH A RIGH T TO EXERCISE SUCH NECESSARY CONTROL OVER TH E PROPERTY ACQUIRED WHICH IT IS CAPABLE OF, IT IS THE INTENT ION TO EXCLUDE OTHERS WHICH EVINCES AN ELEMENT OF OWNERSHIP. THEREFORE, MERELY ON THE GROUND OF REGISTRATION OF VEHICLE BEING IN THE NAME OF DIRECTOR S , THE BENEFIT OF DEPRECIATION COULD NOT BE DENIED TO THE BENEFICIAL OWNER OF THE VEHICLE VIZ. THE ASSESSEE. IN THE RESULT THIS GROUND IS ALLOWED. 1 8 . IN THE RESULT ASSESSEE S APPEAL IS PARTLY ALLOWED. ORDER PR ONOUNCED IN THE COURT ON 22 ND MARCH, 2017. SD/ SD/ - ( K. NAR ASIMHA CHA RY ) JUDICIAL MEMBER ( S.V. MEHROTRA ) ACCOUNTANT MEMBER TRUE COPY AHMEDABAD , DATED 22 / 03 /20 17 * MANISH / COPY OF ORDER FORWARDED TO: - 1 . / APPELLANT - 2 . / RESPONDENT - 3 . / CONCERNED CIT /DIT 4 . - / CIT (A) - IV, RAJKOT 5 . , , / DR, I TAT, RAJKOT 6 . / GUARD FILE. / BY ORDER, / ( DY./ASSTT.REGISTRAR) / ITAT, RAJKOT