ITO 24(3)1, MUMBAI V. ABHA J. KARIWALA, MUMBAI

ITA 4319/MUM/2013

• Counselvise Citation: 431919914 RSA 2013
• Duration Of Justice: 2 year(s) 3 month(s) 23 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 23-09-2015
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: A
• Next Hearing Date: 12-03-2015
• Assessment Year: 2008-2009
• Appeal Filed On: 30-05-2013
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: KAMLESH N DOSHI
• Assessee Lawyers: VINITA J MENON
• Keywords: Depreciation; Business expenditure; Proportionate interest; Additional evidence; Capital expenditure

Judgement Text

1 , ' INCOME TAX APPELLATE TRIBUNAL,MUMBAI - A,BENCH , , BEFORE S/SH. RAJENDRA,ACCOUNTANT ME MBER & SANJAY GARG,JUDICIAL MEMBER /. ITA NO.4 3 1 9 /MUM/2013, / ASSESSMENT YEAR - 20 08 - 09 INCOME TAX OFFICER - 24(3)(1) ROOM NO.703 C - 11, 7 TH FLOOR B.K.C. BANDRA (E) MUMBAI - 51. VS MS. ABHA J. KARIWALA 403 - B, LAKSHCHANDI A PARTMENT GOKULDHAM, GOREGAON(E) MUMBAI - 400 062. PAN:AAMPK 1512 B ( / ASSESSEE ) ( / RESPONDENT ) /ASSESSEE BY : MS. VINITA J. M ENON / REVENUE BY :SHRI KAMLESH N. DOSHI / DATE OF HEARING : 14 - 09 - 2015 / DATE OF PRONOUNCEMENT : 23 - 09 - 2015 , 1961 254 ( 1 ) ORDER U/S.254(1)OF THE INCOME - TAX ACT,1961(ACT) PER RAJENDRA, AM - CHALLENGING THE ORDERS DT. 07 . 03.2013 OF CIT(A) - 34, MUMBAI, THE ASSESSING OFFICER(AO), HAS FILED FOLLOWING GROUNDS OF APPEAL: 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD.CIT(A) ERRED IN DELETING ADDITION ON ACCOUNT OF DISALLOWANCE OF DEPRECIATION OF RS.9,84,141/ - MADE BY THE AO. ON THE NEW MACHINERY PURCHASED BY ADMITTING ADDIT IONAL EVIDENCE IN CONTRAVENTION OF RULE 46A DESPITE ASSESSEE FAILING TO PRODUCE NECESSARY EVIDENCE REGARDING PURCHASE AND PROOF OF NEW MACHINERY PUT TO USE DESPITE SEVERAL OPPORTUNITIES GIVEN BY THE AO DURING ASSESSMENT PROCEEDINGS. 2. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD.CIT(A) ERRED IN DELETING ADDITION ON ACCOUNT OF DISALLOWANCE OF RENT OF RS.6,55,720/ - BY ADMITTING ADDITIONAL EVIDENCE IN CONTRAVENTION OF RULE 46A DESPITE ASSESSEE FAILING TO PRODUCE NECESSARY DET AILS OF RENT CLAIMED DESPITE SEVERAL OPPORTUNITIES GIVEN BY THE AO DURING THE ASSESSMENT PROCEEDINGS. 3. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD.CIT(A) ERRED IN DELETING ADDITION ON ACCOUNT OF DISALLOWANCE OF INTEREST TO T HE COST OF MACHINERY AS CAPITAL EXPENDITURE AND HOLDING THAT THE CAPITAL BORROWED FOR BUSINESS NEEDS TO BE ALLOWED AS BUSINESS EXPENDITURE BY ADMITTING ADDITIONAL EVIDENCE IN CONTRAVENTION OF RULE 46A DESPITE ASSESSEE FAILING TO PRODUCE THE SAME DESPIT E SEVERAL OPPORTUNITIES GIVEN BY THE AO DURING ASSESSMENT PROCEEDINGS. 4. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD.CIT(A) ERRED IN DELETING ADDITION MADE OF RS.27,827/ - BEING DIFFERENCE BETWEEN PAYMENT SHOWN BY A SUMMONED PARTY AND CREDITED BY THE ASSESSEE ON ACCOUNT OF SUPPRESSING OF SALES BY ADMITTING EVIDENCE IN CONTRAVENTION OF RULE 46A DESPITE ASSESSEE FAILING TO PRODUCE THE SAME DESPITE SEVERAL OPPORTUNITIES GIVEN BY THE AO DURING THE ASSESSMENT PROCEEDINGS. T HE APPELLANT PRAYS THAT THE ORDER OF THE CIT(A) BE SET ASIDE AND MATTER ACCORDING TO LAW. THE APPELLANT CRAVES LEAVE TO AMEND OR OR ADD NEW GROUND WHICH MAY BE NECESSARY. ASSESSEE ,AN INDIVIDUAL,DERIVING INCOME FROM LABOUR JOG WORK ON TEXTILE MACHINER Y, FILED HER RETURN OF INCOME ON 27. 0 8 .200 8 ADMITTING TAXABLE INCOME OF RS. 1 . 57 LACS.THE AO COMPLETED THE ASSESSMENT ON 1 0. 12 . 2010,U/S. 14 4 OF THE ACT, DETERMINING INCOME OF THE ASSESSEE AT RS. 21 , 81 , 8 0 5 / - . AB HA J 4 319 /M /1 3.AY.08 - 09 2 2. FIRST GROUND OF APPEAL IS ABOUT DELETION OF ADDI TION ON ACCOUNT OF DISALLOWANCE OF DEPRECIATION OF RS.9.84 LAKHS ON THE NEW MACHINERY .DURING THE ASSESSMENT PROCEEDINGS,THE AO FOUND THAT THE ASSESSEE HAD PURCHASED NEW MACHINERY FROM CHINA OF RS.28.11 LAKHS,THAT IT WAS PURCHASED IN THE MONTH OF MAY,2007,T HAT TOTAL RECEIPTS ON ACCOUNT OF LABOUR CHARGES REDUCED FROM RS.60.74 LAKHS TO RS.52.06 LAKHS.THE AO ASKED THE ASSESSEE TO FILE EXPLANATION ABOUT FALL IN RECEIPT,USAGE OF NEW MACHINERY AND LABOUR CHARGES PAID ON NEW MANCHINE.AS PER THE AO,THE ASSESSEE DID NOT FILE ANY OF THE ABOVE DETAILS.REFERRING TO THE PROVISIONS OF SECTION 32(1)OF THE ACT, HE HELD THAT THE OUT OF THE TOTAL DEPRECIATION OF RS.16.33 LAKHS RS.9.94 PERTAINED TO NEW MACHINERY.HE ADDED THE SAID AMOUNT TO HER TOTAL INCOME. 2.1. AGGRIEVED BY THE ORDER OF THE AO THE ASSESSEE PREFERRED AN APPEAL BEFORE THE F IRST APPELLATE AUTHORITY (FAA).BEFORE HIM, IT WAS ARGUED THAT T HE ASSESSEE HAD PURCHASED MACHINERY PRIOR TO MARCH 2005,WORTH RS.40.64 LAKHS,THAT DURING FY.2006 - 07 AND FY.2007 - 08,SHE PURCHASED MA CHINERY OF RS 27.05 LAKHS AND 28.11 LAKHS RESPECTIVELY,THAT SHE HAD SOLD MACHINERY WORTH RS.32.52 LAKHS DURING THE YEAR UNDER APPEAL,THAT FACTS OF PURCHASE AND SALE OF NEW/OLD MACHINE WAS EVIDENT FROM THE FIXED ASSETS SCHEDULE OF THE BALANCES SHEET THAT WA S FILED ALONG - WITH THE RETURN OF INCOME,THAT LABOUR CHARGES WERE DIRECTLY CO - RELATED TO THE USES OF MACHINES,THAT THE AO HAD IGNORED THE SALE OF OLD MACHINE DURING THE YEAR,THAT LABOUR RECEIPT AND ELECTRICITY CHARGES PAID WERE ALMOST CONSTANT WHEN COMPARED TO VALUE OF MACHINERY,THAT RENT EXPENDITURE HAD INCREASED TILL THE OLD MACHINES WERE SOLD,THAT IN THE SUCCEEDING AY.,AFTER SALE MACHINERY,RENT HAD DECERASED,THAT BILL OF PURCHASE OF MACHINERY, BILL OF INSTALLATION FROM LICENSED ELECTRICAL CONTRACTOR HAD B EEN FILED BEFORE THE AO DURING THE ASSESSMENT PROCEEDINGS,THAT THE ASSESSEE HAD HIRED TWO NEW GALAS WHERE THE NEW MACHINERY WAS INSTALLED.THE ASSESSEE FILED DETAILS OF FUEL EXPENSES,RENT EXPENSES,DETAILED WORKING OF GALA WISE ELECTRICITY CHARGES PAYMENT WE RE FILED BEFORE THE FAA AND IT WAS CONTENDED THAT THERE WAS DIRECT NEXUS BETWEEN THE BUSINESS ASSETS PUT TO USE AND THE REVENUE GENERATED,THAT SHE HAD RIGHTLY MADE A CLAIM FOR DEPRECIATION. AFTER CONSIDERING THE SUBMISSIONS OF THE ASSESSEE AND THE ASSESSME NT ORDER,THE FAA HELD THAT SHE HAD PURCHASED NEW MACHINERY DURING THE FY.S.2006 - 07 AND 2007 - 08 AND HAD SOLD AWAY OUTDATED MACHINERY,THAT THE SCHEDULE E OF THE BALANCE - SHEET CLEARLY INDICATED THAT HAD SOLD OLD MACHINERY AND HAD PURCHASED MACHINERY OF RS.28. 11 LAKHS,THAT THE ASSESSEE PUT TO USE NEW MACHINERY DURING THE YEAR UNDER APPEAL.HE PREPARED A COMPARATIVE CHART OF MACHINERY PUT TO USE,LABOUR CHARGES RECEIVED,ELECTRICITY CHARGES PAID AND RENT PAID FOR THE PERIOD AY.2004 - 05 TO 2008 - 09.HE FOUND THAT RENT CHARGES HAD COME DOWN TO RS.8.36 LAKHS FOR THE YEAR UNDER APPEAL FROM RS.13.27 LAKHS FROM AY.2009 - 10,THAT THE COPIES OF BILLS RECEIVED FROM THE ELECTRICAL CONTRACTOR,ENGINEER AND ERECTION CONTRACTOR WERE FILED BEFORE THE AO,THAT THE NEW MACHINERY WAS INSTA LLED IN MONTH OF MAY,2007.THE FAA DIRECTED THE ASSESSEE TO FILE THE DETAILS OF BILL OF LADING OF MACHINERY AND HE FOUND THAT SAME WERE IMPORTED FROM CHINA IN THE MONTH OF APRIL,2007.HE ALSO CHECKED THE BILLS RAISED BY THE CLEARING AGENTS.ON THE BASIS OF TH E PAYMENT OF ELECTRICITY CHARGES AND RENT HE CONCLUDED THAT THE AO HAD FAILED TO ANALYZE VARIOUS DOCUMENTS, THAT THE AO ARRIVED AT A WRONG FINDINGS.FINALLY,HE ALLOWED THE APPEAL FILED BY THE ASSESSEE . 2.2. BEFORE US, DEPARTMENTAL REPRESETATIVE(DR)RELIED UPON THE ORDER OF THE AO AND ARGUED THAT NO EVIDENCE WAS FILED BEFORE HIM IN SUPPORT OF THE CLAIM MADE BY THE ASSESSEE .AUTHORISED REPRESETATIVE(AR)CONTENDED THAT THE AO DID NOT CONSIDER THE DOCUMENTS PRODUCED BY THE ASSESSEE . HE REFERRED TO THE PAGE NO.67,106 - 2 2 OF THE PAPER BOOK(PB). 2.3 . WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL ON RECORD.WE FIND THAT THE AO HAD PASSED THE ASSESSMENT ORDER U/S.144 OF THE ACT,THAT THE ASSESSEE HAD FILED THE DETAILS OF FIXED ASSETS,THAT DETAILS OF MACHINERY CLE ARLY PROVED THE SALE OF OLD MACHINERY,THAT BILL OF LADING, PURCHASE BILLS,OCTRI RECEIPT, AND PROOF CHARGES PAID FOR ERECTION WERE PRODUCED BEFORE AB HA J 4 319 /M /1 3.AY.08 - 09 3 THE AO, THAT THE FAA HAD FURTHER VERIFIED THE INSTALLATION OF MACHINERY,THAT THE AO HAD NOT CONSIDERE D THE VIT AL FACTORS LIKE REDUCTION OF RENT CHARGES AND ELECTRIC CHARGES PAID BY THE ASSESSEE .THEREFORE, WE ARE OF THE OPINION THAT THE ORDER OF THE FAA DOES NOT SUFFER FROM ANY LEGAL INFIRMITY. CONFIRMING THE SAME,WE DECIDE FIRST GROUND AGAINST THE AO. 3 .NEXT GROU ND OF APPEAL IS ABOUT DISALLOWANCE OF RENT,AMOUNTING TO RS.6.55 LAKHS.DURING THE ASSESSMENT PROCEEDINGS,THE AO HELD THAT THE ASSESSEE HAD NOT INSTALLED NEW MACHINERY,THAT THE RENT PAID BY HER WAS NOT INCURRED WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF BUSIN ESS. ACCORDINGLY, HE DISALLOWED RS.6,55,720/ - U/S.37(1)OF THE ACT. 3.1. T HE ASSESSEE PREFERRED AN APPEAL BEFORE THE FAA AND ARGUED THAT A COPY OF LEAVE AND LICENCE AGREEMENT PROVED THAT SHE HAD HIRED THE PROPERTY,THAT PURCHASE OF MACHINERY WAS NOT IN DISPUTE ,THAT ELECTRICITY BILL OF THE GALAS HAD INCREASED AFTER MACHINERY WAS INSTALLED,THAT RENT EXPENDITURE WAS INCURRED FOR BUSINESS PURPOSES,THAT OTHERWISE IT SHOULD HAVE BEEN ALLOWED U/S.30 OF THE ACT.THE FAA HELD THAT THE NEW MACHINERIES WERE PURCHASED AND I NSTALLED IN THE NEW PREMISES,THAT SAME WERE PUT TO USE FOR BUSINESS PURPOSES.HE DELETED THE ADDITION MADE BY THE AO. 3.2. BEFORE US, THE DR AND THE AR SUPPORTED THE ORDERS OF THE AO AND THE FAA RESPECTIVELY. WE FIND THAT THE PAYMENT OF RENT IS NOT DISPUTED - T HE ONLY DISPUTE IS WHETHER SAME CAN BE ALLOWED U/S.37(1)OF THE ACT OR NOT.WE HAVE HELD THAT THE ASSESSEE PRODUCED NECESSARY DOCUMENTS ABOUT PURCHASE AND INSTALLATION OF NEW MACHINERY IN NEW PREMISES. THEREFORE, THERE WAS NO JUSTIFICATION FOR DISALLOWING TH E RENT PAID FOR THE GALAS HIRED BY HER.CONFIRMING THE ORDER OF THE FAA, WE DECIDE GROUND NO.2 AGAINST THE AO. 4 . NEXT GROUND OF APPEAL IS ABOUT DELETION OF ADDITION ON ACCOUNT OF DISALLOWANCE OF INTEREST TO THE COST OF MACHINERY AS CAPITAL EXPENDITURE AND H OLDING THAT THE SAME IS TO BE ALLOWED AS BUSINESS EXPENDITURE.DURING THE ASSESSMENT PROCEEDINGS THE AO FOUND THAT THE ASSESSEE HAD DEBITED RS.8.82 LAKHS TO THE P&L A/C. UNDER THE HEAD INTEREST PAID,THAT INTEREST WAS PAID ON THE BORROWED FUND OF RS.60.74 LA KHS,THAT OUT OF THAT A SUM OF RS.20.40 LAKHS PERTAINED TO LOAN PAYMENT FOR THE PURPOSE OF IMPORTING THE MACHINERY FROM CHINA.THE AO WAS OF THE VIEW THAT THE PROPORTIONATE INTEREST INCURRED FOR THE SAID LOAN WAS TO BE CAPITALIZED AND HAD TO BE ADDED BACK TO THE COST OF THE MACHINERY.REFERRING TO THE PROVISIONS OF SECTION 36(1)(III)OF THE ACT, THE AO MADE A DISALLOWANCE OF RS.2.91 LAKHS. 4 .1. T HE ASSESSEE BEFORE THE FAA ARGUED THAT THE ASSESSEE PAID THE INTEREST FOR CARRYING OUT BUSINESS AND SAME WAS TO BE ALL OWED,THAT THE MACHINERY WAS PUT TO USE.THE FAA HELD THAT IMPORTED MACHINERY WAS PUT TO USE FOR BUSINESS BY THE ASSESSEE DURING THE YEAR UNDER APPEAL, THAT THE AO WAS NOT JUSTIFIED IN CAPITALISING THE DISPUTED AMOUNT. 4.2. THE DR AND THE AR RELIED UPON THE OR DERS OF THE AO AND THE FAA.WE HAVE ENDORSED THE VIEW OF THE FAA THAT THE NEW MACHINERY WAS INSTALLED AT THE PREMISES HIRED BY THE ASSESSEE DURING THE YEAR.IN OUR OPINION THERE WAS NO JUSTIFICATION TO TREAT THE MACHINE AS WORK IN PROGRESS AND TO CAPITALIZE PROPORTIONATE INTEREST EXPENDITURE.REVENUE GENERATED FROM THE MACHINERY WAS OFFERED FOR TAXATION FOR THE YEAR UNDER APPEAL.THEREFORE,INTEREST EXPENDITURE HAS TO BE ALLOWED AS LEGITIMATE BUSINESS EXPENDITURE.GROUND NO.3 IS DECIDED AGAINST THE AO. 5. LAST GR OUND OF APPEAL DEALS WITH SUPPRESSION OF SALES OF RS.27,827/ - . DURING THE ASSESSMENT PROCEEDINGS,NOTICE U/S.133(6)OF THE ACT WERE ISSUED TO CRYSTALINE EXPORTS P.LTD. FROM WHOM THE ASSESSEE HAD RECEIVED LABOUR CHARGES.AS PER THE DETAILS FILED BY HER THE LABO UR CHARGES RECEIVED AMOUNTED TO RS.2.74,296/ - .HOWEVER,THE DETAILS FILED BY HER SHOWED PAYMENT OF RS.3,02,323 / - .AS PER THE AO THE ASSESSEE DID NOT FILE ANY EXPLANATION IN THAT REGARD. THEREFORE,HE ADDED RS. 27, 827/ - TO THE TOTAL INCOME OF THE ASSESSEE .BEF ORE THE FAA, THE AB HA J 4 319 /M /1 3.AY.08 - 09 4 ASSESSEE ARGUED THAT THE AO HAD NOT CONSIDERED THE RECONCILIATION ABOUT THE DIFFERENCE, THAT THERE WAS RARE DIFFERENCE OF RS.15,937/ - ALONG WITH VAT & TDS OF RS.10, 172/ - .AFTER CONSIDERING THE SUBMISSIONS OF THE ASSESSEE ,HE HELD THAT S HE H AD EXPLAINED THE DIFFERENCE , THAT THERE WAS NO JUSTIFICATION FOR MAKING ADDITION. 5.1. THE DR AND THE AR LEFT THE ISSUE TO THE DISCRETION OF THE BENCH.WE FIND THAT THE FAA HAS ANALYSED THE RECONCILIATION STATEMENT AND HAD GIVEN A CATEGORICAL FINDING OF FACT THAT THE ALLEGED DIFFERENCE WAS EXPLAINED SATISFACTORILY.CONFIRMING HIS ORDER,WE DECIDE LAST GROUND OF APPEAL AGAINST THE AO. AS A RESULT,APPEAL FILED BY THE AO STANDS DISMISSED. . ORDER PRONOUNCED IN THE OPEN COURT ON 23 RD SEPTEMBER ,2015. 23 , 2015 SD/ - SD/ - ( / SANJAY GARG) ( / RAJENDRA) / JUDICIAL MEMBER / ACCOUNTANT MEMBER / MUMBAI, /DATE: 23 .09.2015 . . . JV. SR.PS. / COPY OF THE ORDER FORWARDED TO : 1. APPELLANT / 2. RESPONDENT / 3. THE CONCERNED CIT(A)/ , 4. THE CONCERNED CIT / 5. DR A BENCH, ITAT, MUMBAI / , , . . . 6. GUARD FILE/ //TRUE COPY// / BY ORDER, / DY./ASST. REGISTRAR , / ITAT, MUMBAI.