ACIT, Mandi Gobindgarh V. M/s Industrial Cables (India) Ltd., Rajpura

ITA 434/CHANDI/2015

• Counselvise Citation: 43421514 RSA 2015
• Duration Of Justice: 2 month(s) 1 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 25-06-2015
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: SMC
• Next Hearing Date: 24-06-2015
• Assessment Year: 2010-2011
• Appeal Filed On: 23-04-2015
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: S K MITTAL
• Assessee Lawyers: G N GUPTA
• Keywords: Depreciation; Opportunity of being heard; Rule of consistency; Proportionate interest; Notional interest; Commercial expediency
• Section: 154

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL SMC,CHANDIGARH BEFORE SHRI BHAVNESH SAINI, JUDICIAL MEMBER ITA NO. 434/CHD/2015 ASSESSMENT YEAR: 2010-11 THE ACIT, VS M/S INDUSTRIAL CABLES CIRCLE, (INDIA) LTD., MANDI GOBINDGARH. INDUSTRIAL AREA, RAJPURA. PAN: AAACI3498P & ITA NO. 417/CHD/2015 ASSESSMENT YEAR: 2010-11 M/S INDUSTRIAL CABLES VS THE DCIT, (INDIA) LTD., CIRCLE, INDUSTRIAL AREA, MANDI GOBINDGARH. RAJPURA. PAN: AAACI3498P (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI S.K.MITTAL RESPONDENT BY : SHRI G.N. GUPTA DATE OF HEARING : 24.06.2015 DATE OF PRONOUNCEMENT : 25.06.2015 O R D E R PER BHAVNESH SAINI,JM BOTH THE CROSS APPEALS ARE DIRECTED AGAINST THE ORD ER OF LD. CIT(APPEALS) PATIALA DATED 26.02.2015 FOR ASSESSMENT YEAR 2010-11. 2. I HAVE HEARD LD. DR AND LD. COUNSEL FOR THE ASSE SSEE AND PERUSED THE MATERIAL ON RECORD. 2 DEPARTMENTAL APPEAL 3. IN THE DEPARTMENTAL APPEAL, REVENUE CHALLENGED T HE ORDER OF LD. CIT(APPEALS) IN DELETING THE ADDITION OF RS. 40,68,847/- ON ACCOUNT OF DISALLOWANCE OF INTEREST ON INTEREST FREE ADVANCES/LOANS GIVEN BY THE ASSESSEE TO THE SUBSIDIARY COMPANY M/S HARYANA TELCOM LTD. BY ACCEPTING THE GROUND OF COMMERCIAL EXPEDIENCY, WHER EAS NO COMMERCIAL EXPEDIENCY WAS MADE OUT. IT IS ALSO STATED IN THE GROUND OF APPEAL THAT LD. CIT(APPEALS) ERRED IN PLACING RELIANCE ON THE ORDER OF THE TRIBUNAL IN TH E CASE OF THE ASSESSEE FOR ASSESSMENT YEAR 2006-07 EVEN THOUG H THE DEPARTMENT IS IN APPEAL IN HON'BLE HIGH COURT. 4. THE LD. CIT(APPEALS) NOTED IN THE IMPUGNED ORDER THAT THE FACTS ARE THAT ASSESSEE HAS ADVANCED INTER EST FREE LOANS TO ITS SUBSIDIARY COMPANIES. THE ASSESSING O FFICER HELD THAT ASSESSEE HAD DIVERTED INTEREST BEARING LO AN FOR NON BUSINESS PURPOSE AND THEREAFTER DISALLOWED PROPORTIONATE INTEREST ACCORDINGLY. DURING THE APP ELLATE PROCEEDINGS, THE ASSESSEE SUBMITTED THAT THE ISSUE IS COVERED BY DECISION OF ITAT AND LD. CIT(APPEALS) IN EARLIER YEARS. THE ASSESSING OFFICER IN HIS COUNTER COMMEN TS RELIED UPON ASSESSMENT ORDER AND SUBMITTED THAT THE TRIBUNAL IN ITA NO. 237/CHD/2008 FOR ASSESSMENT YEA R 2005-06 HAS DELETED THE ADDITION OF RS. 32,98,600/- ON ACCOUNT OF INTEREST DISALLOWANCE. AS PER ORDER OF T HE TRIBUNAL, THE INTEREST OF RS. 32,98,600/- PERTAIN T O M/S HARYANA TELCOM LTD. 3 5. THE LD. CIT(APPEALS) CONSIDERING THE MATERIAL ON RECORD NOTED THAT ISSUE IS COVERED BY EARLIER DECIS ION OF THE TRIBUNAL IN ITA 799/CHD/2009 DATED 30.08.2011 F OR ASSESSMENT YEAR 2006-07 WHEREIN THE ADDITION IN RES PECT OF DISALLOWANCE OF INTEREST ON INTEREST FREE ADVANC E TO M/S HARYANA TELCOM IS DELETED. THE LD. CIT(APPEALS), FOLLOWING THE ORDER OF THE TRIBUNAL IN THE CASE OF THE ASSESSEE DELETED THE ADDITION IN RESPECT OF INTERES T FREE INTEREST TO M/S HARYANA TELECOM AND ACCORDINGLY ALL OWED THE APPEAL OF THE ASSESSEE. 6. THE LD. DR FILED COPY OF THE ORDER OF THE TRIBUN AL DATED 30.08.2011 (SUPRA) IN WHICH THE TRIBUNAL FOLL OWING THE EARLIER DECISION IN THE CASE OF THE SAME ASSESS EE CONFIRMED DELETION OF THE ADDITION IN RESPECT OF AM OUNT ADVANCED TO M/S HARYANA TELECOM LTD. THE ISSUE IS, THEREFORE, COVERED IN FAVOUR OF THE ASSESSEE AND AG AINST THE REVENUE BY ORDER OF THE TRIBUNAL DATED 30.08.20 11. EVEN THE ASSESSING OFFICER ADMITTED THAT THE ISSUE IS COVERED IN FAVOUR OF THE ASSESSEE BY EARLIER ORDER OF THE TRIBUNAL FOR ASSESSMENT YEAR 2005-06 IN HIS COMMENT S BEFORE LD. CIT(APPEALS). MERELY BECAUSE DEPARTMENT IS IN APPEAL AGAINST THE ORDER FOR ASSESSMENT YEAR 2006-0 7 IS NO GROUND TO TAKE A DIFFERENT VIEW IN THE MATTER. FOLLOWING THE RULE OF CONSISTENCY, I DO NOT FIND AN Y INFIRMITY IN THE ORDER OF THE LD. CIT(APPEALS) IN F OLLOWING THE ORDER OF THE TRIBUNAL FOR EARLIER YEAR. 7. THE DEPARTMENTAL APPEAL THUS, FAILS AND IS DISMI SSED. 4 ASSESSEE'S APPEAL 8. ON GROUND NO. 1 ASSESSEE CHALLENGED THE ORDER OF LD. CIT(APPEALS) IN UPHOLDING DISALLOWANCE OF DEPRECIAT ION OF RS. 13,09,167/-. THE LD. CIT(APPEALS) NOTED THAT F ACTS ARE THAT THE ASSESSING OFFICER HAS DISALLOWED DEPRECIAT ION ON ACCOUNT OF FACTORY BUILDING AND PLANT AND MACHINERY ON THE GROUND THAT ASSESSEE COMPANY HAS NOT DONE ANY MANUFACTURING ACTIVITY DURING THE YEAR. FURTHER, P ART OF THE DISALLOWANCE HAS BEEN DISALLOWED BY THE ASSESSI NG OFFICER FOR NON-MAINTENANCE OF PROPER RECORDS. DURI NG THE APPELLATE PROCEEDINGS, THE ASSESSEE HAS SUBMITTED T HAT DURING THE YEAR, MANUFACTURING ACTIVITY WAS SUSPEND ED DUE TO ABSENCE OF PROPER ORDERS AS THE COMPANY HAD INCURRED HUGE LOSS IN THE PAST. IT WAS FURTHER SUB MITTED THAT ASSETS OF THE MANUFACTURING ACTIVITY WERE KEPT READY FOR USE IN CASE SUFFICIENT ORDERS WERE RECEIVED BY THE ASSESSEE COMPANY. THE LD. CIT(APPEALS), FINDING TH AT NO MANUFACTURING ACTIVITY WAS DUNE IN THIS YEAR AND NO EVIDENCE REGARDING PLANT BEING READY FOR USE, DISMI SSED THIS GROUND OF APPEAL OF THE ASSESSEE. 9. I HAVE HEARD LD. REPRESENTATIVES OF BOTH THE PAR TIES. THE LD. COUNSEL FOR THE ASSESSEE REFERRED TO PAPER BOOK-21 WHICH IS NOTES TO FINANCIAL STATEMENT ENDING MARCH 31, 2010 AND SUBMITTED THAT SINCE ASSESSEE COULD NOT GE T SUFFICIENT ORDERS, THEREFORE, PLANT AND MACHINERY W ERE NOT USED FOR MANUFACTURING PURPOSES BUT THE SAME WERE K EPT READY FOR THE PURPOSE OF USE OF THE BUSINESS. THER EFORE, 5 ASSESSING OFFICER SHOULD HAVE ALLOWED DEPRECIATION ON FACTORY BUILDING AND PLANT AND MACHINERY. CONSIDER ING THE SUBMISSION OF THE LD. COUNSEL FOR THE ASSESSEE AND NOTE TO THE FINANCIAL STATEMENT, I AM OF THE VIEW T HE MATTER REQUIRES RE-CONSIDERATION AT THE LEVEL OF TH E ASSESSING OFFICER. THE LAW IS WELL SETTLED THAT IF THE PLANT AND MACHINERY AND FACTORY BUILDING IS KEPT READY FO R USE FOR THE BUSINESS PURPOSES, ON PASSIVE USER ALSO, DEPRECIATION COULD BE ALLOWED ON BUILDING AND PLANT AND MACHINERY. THE ORDER OF THE AUTHORITIES BELOW TO T HAT EXTENT IS SET ASIDE AND THE MATTER IN ISSUE IS REST ORED TO THE FILE OF ASSESSING OFFICER WITH DIRECTION TO RE- EXAMINE THIS ISSUE IN THE LIGHT OF THE MATERIAL PRODUCED BE FORE HIM. THE ASSESSING OFFICER SHALL GIVE REASONABLE SUFFICIENT OPPORTUNITY OF BEING HEARD TO THE ASSESS EE. 9(I) HOWEVER, AS REGARDS THE PART OF THE DEPRECIATI ON DISALLOWED BY THE ASSESSING OFFICER, LD. COUNSEL FO R THE ASSESSEE SUBMITTED THAT VEHICLE AND FURNITURE ETC. ARE PART OF THE SAME BLOCK AND ASSET, THEREFORE DISALLO WANCE SHOULD NOT BE MADE OUT OF THE DEPRECIATION ON THESE ITEMS. THE ASSESSING OFFICER NOTED IN THE ASSESSME NT ORDER THE CLAIM OF DEPRECIATION WITH REGARD TO FURN ITURE AND MOTOR VEHICLES. THE ASSESSING OFFICER CALLED F OR THE DETAILS OF FURNITURE WHICH IS USED IN THE FACTORY B UILDING AND NON FACTORY BUILDING. THE ASSESSEE FAILED TO G IVE DETAILS OF THE FURNITURE AS NO SUCH DETAILS OF THE RECORD IS AVAILABLE WITH THE ASSESSEE COMPANY. THEREFORE, IN THE ABSENCE OF PROPER RECORD, THE GENUINENESS OF THE CL AIM OF 6 THE ASSESSEE OF DEPRECIATION OF FURNITURE COULD NOT BE VERIFIED. FURTHER, ASSESSEE WAS ASKED TO GIVE DETAI LS OF THE NUMBER OF VEHICLES ON WHICH DEPRECIATION HAS BEEN CLAIMED BUT ASSESSEE SUBMITTED THAT IT DOES NOT EXA CTLY KNOW THE NUMBER OF VEHICLES WHICH ARE IN RUNNING CONDITION AS LARGE NUMBER OF VEHICLES ARE NOT IN RU NNING CONDITION. THEREFORE, IN THE ABSENCE OF COMPLETE D ETAILS, ASSESSING OFFICER DISALLOWED THE DEPRECIATION ON FU RNITURE AND VEHICLES. THE LD. CIT(APPEALS) ALSO DISALLOWED PART OF THE CLAIM OF ASSESSEE BECAUSE ASSESSEE DID NOT MAIN TAIN PROPER RECORDS. EVEN IF THE COUNSEL FOR ASSESSEE S TATED THAT FURNITURE AND VEHICLES ARE PART OF THE SAME BL OCK OF ASSET BUT ASSESSEE FAILED TO PROVE WHICH OF THE FUR NITURE WAS USED IN THE FACTORY BUILDING AND WHICH VEHICLES WERE KEPT ON RUNNING FOR BUSINESS PURPOSES. THEREFORE, IN THE ABSENCE OF COMPLETE DETAILS, THE ASSESSING OFFICER COULD NOT BELIEVE GENUINENESS OF CLAIM OF DEPRECIATION WI TH REGARD TO VEHICLE AND FURNITURE. THE AUTHORITIES B ELOW WERE, THEREFORE, JUSTIFIED IN DISALLOWING DEPRECIAT ION ON FURNITURE AND VEHICLES. THE ORDERS OF AUTHORITIES BELOW TO THAT EXTENT ARE CONFIRMED AND APPEAL OF THE ASSESSE E TO THAT EXTENT IS DISMISSED. 10. IN THE RESULT, GROUND NO. 1 OF APPEAL OF THE AS SESSEE IS PARTLY ALLOWED FOR STATISTICAL PURPOSES AS IS DI RECTED ABOVE. 11. ON GROUND NO. 2, ASSESSEE CHALLENGED THE ORDER OF LD. CIT(APPEALS) IN NOT RESTRICTING THE DISALLOWANCE OF 7 NOTIONAL INTEREST ON ACCOUNT OF LOAN ADVANCES TO SUBSIDIARY COMPANIES OF RS. 4,95,000/-, THE AMOUNT OF INTEREST PAID DURING THE YEAR. THIS GROUND IS SAME AS WAS CONSIDERED IN THE DEPARTMENTAL APPEAL ON WHICH THE LD. CIT(APPEALS) DELETED THE DISALLOWANCE OF INTEREST PERTAINING TO M/S HARYANA TELECOM LTD. HOWEVER, AS REGARDS THE DISALLOWANCE OF INTEREST ON INTEREST FR EE ADVANCES TO M/S ICL TOWER LTD. AND M/S GOOD STAR CR EDIT & PORTFOLIO PVT. LTD, THE LD. CIT(APPEALS) NOTED TH AT ADDITION HAS BEEN CONFIRMED BY THE TRIBUNAL IN ASSESSMENT YEAR 2006-07 ON THE SAME FACTS, THEREFOR E, FINDING THE ISSUE TO BE IDENTICAL, LD. CIT(APPEALS) DIRECTED THE CONFIRMATION OF THE DISALLOWANCE OF INTEREST TO THESE CONCERNS AND DISMISSED THIS PART OF THE GROUND OF A PPEAL OF THE ASSESSEE. 12. THE LD. DR FILED COPY OF THE ORDER OF TRIBUNAL DATED 30.08.2011 FOR ASSESSMENT YEAR 2006-07 IN WHICH THE TRIBUNAL DECIDED THE DEPARTMENTAL APPEAL AS WELL AS APPEAL OF THE ASSESSEE IN ITA 799/2009 AND 842/2009 . WHILE DECIDING APPEAL OF THE ASSESSEE IN ITA 842/20 09, THE TRIBUNAL CONSIDERED THE DISALLOWANCE OF INTERES T IN RESPECT OF M/S ICL POWER LTD. AND M/S GOOD STAR CRE DIT AND PORTFOLIOS LTD. WITH REGARD TO INTEREST FREE L OAN TO M/S ICL POWER LTD., THE TRIBUNAL NOTED THAT THIS IS SUE IS DECIDED AGAINST THE ASSESSEE BY JURISDICTIONAL HIGH COURT AS WAS ADMITTED BY LD. COUNSEL FOR THE ASSESSEE BEF ORE THE COURT. WITH REGARD TO INTEREST FREE LOAN ADVANCED TO M/S GOOD STAR CREDIT & PORTFOLIOS LTD., THE TRIBUNAL FO LLOWING 8 THE DECISION OF THE JURISDICTIONAL HIGH COURT IN TH E CASE OF CIT VS ABHISHEK INDUSTRIES 286 ITR 1 (P&H) DISMISSE D THIS GROUND OF APPEAL OF THE ASSESSEE. THEREFORE, THE TRIBUNAL, FOLLOWING THE DECISION OF THE JURISDICTIO NAL HON'BLE PUNJAB & HARYANA HIGH COURT, DECIDED THE IS SUE AGAINST THE ASSESSEE IN PRECEDING ASSESSMENT YEAR 2 006- 07 VIDE ORDER DATED 30.08.2011. THEREFORE, THERE I S NO INFIRMITY IN THE ORDER OF LD. CIT(APPEALS) IN FOLLO WING THE EARLIER DECISION OF THE TRIBUNAL IN THE CASE OF THE SAME ASSESSEE FOR ASSESSMENT YEAR 2006-07 FOR THE PURPOS E OF DISMISSING THE APPEAL OF THE ASSESSEE WITH REGARD T O DISALLOWANCE OF INTEREST IN RESPECT OF M/S ICL POWE R LTD. AND M/S GOOD STAR CREDIT & PORTFOLIOS PVT. LTD. TH E LD. COUNSEL FOR THE ASSESSEE, HOWEVER, SUBMITTED THAT DISALLOWANCE IS TO BE RESTRICTED TO RS. 4,95,000/- AND REFERRED TO PB-8 AND 16 IN THIS REGARD TO CLAIM THA T EXPENDITURE WAS CLAIMED ONLY FOR RS. 4,95,000/-. TH IS ISSUE IS NOT ARISING OUT OF THE IMPUGNED ORDERS OF THE AUTHORITIES BELOW, THEREFORE CANNOT BE DECIDED AT T HIS STAGE. 13. THE LD. COUNSEL FOR THE ASSESSEE FURTHER SUBMIT TED THAT THE ASSESSEE HAS MOVED APPLICATION UNDER SECTI ON 154 OF THE INCOME TAX ACT BEFORE ASSESSING OFFICER WHICH HAS NOT BEEN DECIDED. SINCE THE ASSESSEE HAS RAISE D THIS ISSUE FOR THE FIRST TIME BEFORE THE TRIBUNAL, THERE FORE, IT IS DIFFICULT TO ADJUDICATE UPON THE CLAIM OF ASSESSEE AT THIS STAGE BECAUSE NO COMPLETE DETAILS ARE AVAILABLE FRO M THE ORDERS OF THE AUTHORITIES BELOW. THEREFORE, THIS G ROUND OF 9 APPEAL OF THE ASSESSEE CANNOT BE ENTERTAINED. THE SAME IS, THEREFORE, DISMISSED. HOWEVER, ASSESSING OFFIC ER IS DIRECTED TO DECIDE THE RECTIFICATION APPLICATION OF THE ASSESSEE UNDER SECTION 154 OF THE ACT AS IS SUBMITT ED BY LD. COUNSEL FOR THE ASSESSEE DURING THE COURSE OF ARGUMENTS AT THE EARLIEST. WITH THESE OBSERVATIONS , GROUND NO. 2 OF THE APPEAL OF THE ASSESSEE IS DISMI SSED. IN THE RESULT, APPEAL OF THE ASSESSEE IS PARTLY ALL OWED FOR STATISTICAL PURPOSES. 14. IN THE RESULT, DEPARTMENTAL APPEAL IS DISMISSED AND APPEAL OF THE ASSESSEE IS PARTLY ALLOWED FOR STATIS TICAL PURPOSES. ORDER PRONOUNCED IN THE OPEN COURT ON 25 TH JUNE,2015. SD/- (BHAVNESH SAINI) JUDICIAL MEMBER DATED: 25 TH JUNE,2015. POONAM COPY TO: THE APPELLANT, THE RESPONDENT, THE CIT(A), THE CIT, DR ASSISTANT REGISTRAR, ITAT CHANDIGARH