DCIT circle 18 (1), V. Uniproducts (I) Ltd,

ITA 4448/DEL/2007

• Counselvise Citation: [2009] 114 COUNSELVISE.COM (IT) 9679 (ITAT-DELHI)
• Duration Of Justice: 1 year(s) 9 month(s) 26 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 04-09-2009
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: H
• Next Hearing Date: 26-08-2009
• Assessment Year: 2003-2004
• Appeal Filed On: 08-11-2007
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: N K CHAND
• Assessee Lawyers: S R MEHRA
• Keywords: Depreciation; Additional evidence; Bad and doubtful debts; Scheme of amalgamation; Capital expenditure; Set aside
• Section: 115JB; 192

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCHES : H: NEW DELHI BEFORE SHRI R.P. TOLANI AND SHRI K.G. BANSAL ITA NO.4448/D/2007 ASSESSMENT YEAR : 2003-04 D.C.I.T. VS. M/S UNIPRODUCTS (INDIA) LTD., CIRCLE-18(1), KHASRA NO.360-361, VILLAGE NEW DELHI JONAPUR, MEHRAULI, NEW DELHI PAN/GIR NO. AAA-CU-0224-D ( APPELLANT ) ( RESPONDENT ) CROSS OBJECTION: 93/D/2008 ( IN ITA NO.4448/D/2007 ) ASSESSMENT YEAR : 2003-04 M/S UNIPRODUCTS (INDIA) LTD. VS. A.C.I.T., KHASRA NO.360-361, VILLAGE CIRCLE-18(1), JONAPUR, MEHRAULI, NEW DELHI NEW DELHI ( APPLICANT ) ( RESPONDENT ) ASSESSEE BY : SHRI S.R. MEHRA, CA DEPARTMENT BY : SHRI N.K. CHAND, SR. DR O R D E R PER K.G. BANSAL, AM: THE AFORESAID APPEAL AND THE CROSS OBJECTIONS OF TH E ASSESSEE WERE ARGUED IN A CONSOLIDATED MANNER BY THE LEARNED DR A ND THE LEARNED COUNSEL FOR THE ASSESSEE. THEREFORE, A CONSOLIDATED ORDER IS PASSED. ITA NO.4448/D/07 & 93/D/0 8 2 ITA NO.4448/D/07 APPEAL OF THE REVENUE 2. GROUND NO.1 IS THAT ON THE FACTS AND IN THE CIRC UMSTANCES OF THE CASE, THE LEARNED CIT(A) ERRED IN DELETING THE ADDITION O F RS.2,10,000/-, MADE BY THE ASSESSING OFFICER U/S 40(A)(II) OF THE I.T. ACT , 1961. 2.1 IN THIS CONNECTION, IT IS MENTIONED IN THE ASSE SSMENT ORDER THAT THE ASSESSEE COMPANY PAID CONVEYANCE CHARGES OF RS.1,20 ,000/- TO SHRI R.S. CHAUHAN, GENERAL MANAGER, AND RS.90,000/- TO SHRI R . TONDON, SALES MANAGER. THESE AMOUNTS WERE NOT INCLUDED IN THE SA LARY OF THE AFORESAID PERSONNEL FOR THE PURPOSE OF DEDUCTION OF TAX AT SO URCE FROM SALARIES U/S 192 OF THE ACT. THE AMOUNT WAS, IN FACT, SALARY PAID I N THE GARB OF CONVEYANCE EXPENSES. THE EXPENDITURE WAS NOT SUPPORTED BY PRI MARY VOUCHERS. THEREFORE, THE AMOUNT WAS DISALLOWED U/S 40(A)(II) OF THE ACT. IT WAS SUBMITTED BEFORE THE LEARNED CIT(A) THAT THE PAYMEN TS WERE VOUCHED, AND THE COPIES WERE PLACED BEFORE ASSESSING OFFICER. I T WAS FOUND THAT THE EXPENDITURE REPRESENTED TRAVELING EXPENSES, REIMBUR SED AT THE RATE OF 3.30 PER KM. THEREFORE, THE LEARNED CIT(A) CAME TO THE CONCLUSION THAT THE PAYMENTS DID NOT AMOUNT TO PAYMENT OF SALARIES. TH US, THE ADDITION WAS DELETED. 2.2 BEFORE US, THE LEARNED DR RELIED ON THE FINDING S OF THE ASSESSING OFFICER. AS AGAINST THE AFORESAID, THE LEARNED COU NSEL SUBMITTED THAT THE ITA NO.4448/D/07 & 93/D/0 8 3 ASSESSEE WAS RUNNING FOUR FACTORIES LOCATED AT DIFF ERENT PLACES. THESE PERSONNEL HAD TO TRAVEL FROM ONE PLACE TO ANOTHER B ECAUSE OF THE AFORESAID REASON. AS PER THE POLICY OF THE COMPANY, CONVEYAN CE EXPENDITURE INCURRED WAS REIMBURSED AT THE RATE OF 3.30 PER KM. THE EXP ENDITURE WAS VOUCHED AS THE BILLS RAISED BY THESE PERSONS WERE VERIFIED ON THE BASIS OF LOCAL CONVEYANCE BILLS PRESENTED BY THEM. THE BILLS RAIS ED BY THEM EXCEEDED THE SUM OF RS.2,10,000/- BUT THE CLAIM WAS RESTRICTED T O RS.2,10,000/-. VOUCHERS WERE PLACED IN THE PAPER BOOK BEFORE US ON PAGES 3 TO 29. 2.3 WE HAVE CONSIDERED THE FACTS OF THE CASE AND RI VAL SUBMISSIONS. WE FIND THAT THE EXPENDITURE IS SUPPORTED BY THE BILLS PRESENTED BY THE AFORESAID PERSONNEL TO THE COMPANY. IT IS ALSO SEEN THAT THE PAYMENT WAS MADE AT THE RATE OF RS.3.30 PER KM. OF THE MILEAGE LOGGED BY TH ESE PERSONS. SINCE THE AMOUNT REPRESENTED REIMBURSEMENT OF ACTUAL EXPENDIT URE INCURRED BY THESE PERSONS IN THE COURSE OF THE BUSINESS OF THE ASSESS EE COMPANY, THE SAME CANNOT BE TERMED AS SALARY PAID TO THEM. FURTHER, THE EXPENDITURE IS PROPERLY VOUCHED. THEREFORE, THERE IS NO REASONS TO INTERFE RE WITH THE ORDER OF LEARNED CIT(A) IN THIS MATTER. ACCORDINGLY THIS GROUND IS DISMISSED. 3. GROUND NO.2 IS THAT ON THE FACTS AND IN THE CIRC UMSTANCES OF THE CASE, THE LEARNED CIT(A) ERRED IN DELETING THE DISALLOWAN CE OF DEPRECIATION OF RS.1,40,610/-, MADE BY THE ASSESSING OFFICER IN RES PECT OF MOULDING ITA NO.4448/D/07 & 93/D/0 8 4 MACHINES. IT IS FURTHER MENTIONED THAT HE ADMITTED ADDITIONAL EVIDENCE IN VIOLATION OF RULE 46A OF THE I.T. RULES, 1962. 3.1 IN THIS CONNECTION, IT IS MENTIONED IN THE ASSE SSMENT ORDER THAT THE ASSESSEE PURCHASED MACHINE TOOLS FOR A SUM OF RS.7, 06,320/- AND RS.4,18,560/- ON 31.03.2003. THIS EXPENDITURE WAS TREATED BY IT AS CAPITAL EXPENDITURE. FROM THE BILLS, IT IS SEEN THAT THE M ACHINES WERE REMOVED FROM THE FACTORY PREMISES OF THE PAYEE AFTER 6 PM. THE ASSESSEE COULD NOT SHOW AS TO HOW THE ESSENTIAL CONDITION FOR DEDUCTION OF DEPRECIATION REGARDING ACTUAL USER OF THE MACHINERY IN THE RELEVANT PREVIO US YEAR WAS SATISFIED. THUS, A FINDING WAS GIVEN THAT THE MACHINERY COULD NOT HAVE BEEN USED FOR THE PURPOSE OF BUSINESS IN THIS YEAR. THE ASSESSEE HAD CLAIMED 50% OF THE ADMISSIBLE DEPRECIATION ON THE MACHINERY BY DEDUCTI NG RS.1,40,610/- FROM THE TOTAL INCOME. THIS CLAIM WAS DENIED. BEFORE T HE LEARNED CIT(A), IT WAS SUBMITTED THAT THE FACTORY OF THE ASSESSEE WORKED D OUBLE SHIFT ON THE LAST DAY OF THE PREVIOUS YEAR. THE BILL OF THE MACHINERY AL SO SHOWED THAT CENVAT CREDIT WAS GRANTED TO THE ASSESSEE AND CORRESPONDIN G ENTRY WAS MADE IN RG 23C REGISTER AT SERIAL NOS.227 & 228 ON 31.03.2003. THE MACHINERY WORKED FOR 65.29 SHIFTS DURING 31 DAYS OF MARCH, 2003. ON THESE FACTS, THE LEARNED CIT(A) CAME TO THE CONCLUSION THAT THE MACHINERY WA S PUT TO USE IN THIS ITA NO.4448/D/07 & 93/D/0 8 5 YEAR. ACCORDINGLY, THE DISALLOWANCE MADE BY THE AS SESSING OFFICER WAS DELETED. 3.2 BEFORE US, THE LEARNED DR REFERRED TO THE FINDI NGS OF THE ASSESSING OFFICER AND THE LEARNED CIT(A). HE EXPRESSED THE V IEW THAT THE MACHINERY WHICH WAS SHIFTED FROM THE PREMISES OF THE PAYEE ON THE LAST DAY OF THE PREVIOUS YEAR AFTER 6 PM. COULD NOT HAVE BEEN USED FOR 65.29 SHIFTS IN MARCH, 2003. THUS, IT WAS STRONGLY ARGUED THAT THE ORDER OF THE ASSESSING OFFICER MAY BE RESTORED IN THIS MATTER AND THAT OF THE LEAR NED CIT(A) MAY BE SET ASIDE. NOTHING WAS POINTED OUT AS ADDITIONAL EVIDE NCE AND NO PARTICULAR ARGUMENT WAS MASDE IN RELATION TO ADMISSION OF THE ADDITIONAL EVIDENCE. 3.3 IN REPLY, THE LEARNED COUNSEL DREW OUR ATTENTIO N TO PAGE 61 OF THE PAPER BOOK, BEING A PART OF THE LETTER ADDRESSED TO THE LEARNED CIT(A) IN THE COURSE OF APPELLATE PROCEEDINGS, IN WHICH IT WAS ME NTIONED THAT THE MACHINERY WORKED WELL BEYOND 6 PM ON 31.03.2003, IT WORKED FOR 65.29 SHIFTS IN THE MONTH OF MARCH, 2003 AND, THEREFORE, THE ASSESSEE WAS ENTITLED TO THE DEDUCTION OF DEPRECIATION. OUR ATTENTION WA S ALSO DRAWN TO THE PAGE 25 OF THE PAPER BOOK WHICH SHOWS THAT ONE MACHINE W AS SHIFTED ON 31.03.2003 BY VEHICLE NO.HNG/569, AND THAT CENVAT W AS COMPUTED AT 16% OF THE BASIC VALUE AT RS.1,08,000/-, BRINGING THE T OTAL VALUE OF THE MACHINERY TO RS.8,14,320/-. SIMILARLY, CENVAT WAS WORKED IN RESPECT OF SECOND ITA NO.4448/D/07 & 93/D/0 8 6 MACHINE AT RS.64,000/-, WHICH WAS TRANSPORTED BY VE HICLE NO.HR06/1935. IT MAY BE MENTIONED HERE THAT THE VEHICLE NO.HNG/56 9 WAS STRUCK OFF IN THIS BILL AND VEHICLE NO.HR06/1935 WAS WRITTEN IN P LACE THEREOF. PAGE 27 OF THE PAPER BOOK SHOWS THAT MOULD/4 MYER MACHINERY WO RKED OUT 65.29 SHIFTS IN THE MONTH OF MARCH, 2003. ON THE BASIS O F THESE FACTS, IT WAS CONTENDED THAT THE ASSESSEE WAS ENTITLED TO DEDUCT DEPRECIATION AT ONE-HALF OF THE NORMAL RATE. BUT THE QUESTION AS TO HOW THE MA CHINERY WHICH WAS DISPATCHED ON 31.03.2004 AFTER 6.30PM, COULD WORK F OR 65.29 SHIFTS, WAS NOT SATISFACTORILY EXPLANATION AS HE MERELY RELIED ON T HE MATERIAL PLACED ON THE PAPER BOOK. 3.4 WE HAVE CONSIDERED THE FACTS OF THE CASE AND TH E RIVAL SUBMISSIONS. WE FIND THAT AS PER THE EVIDENCE PLACED ON RECORD, THE TWO MACHINES WERE SHIFTED FROM THE PREMISES OF THE VENDOR ON 31.03.20 03 AT 6.34PM. AND 6.44PM BY VEHICLE NOS.HNG/569 AND HR06/1935. THERE FORE, IT IS OBVIOUS THAT THESE MACHINES COULD NOT HAVE WORKED FOR 65.29 SHIFTS IN THE MONTH OF MARCH, 2003. THUS, THERE IS AN OBVIOUS CONTRADICTI ON BETWEEN THE BILLS, THE DESCRIPTION GIVEN IN THE BILLS OF THE MACHINES AND SHIFTS SUMMARY MAINTAINED BY THE ASSESSEE. APART FROM THIS UNRELIABLE EVIDEN CE, THERE IS NO OTHER EVIDENCE OF USER OF THE MACHINES EVEN ON 31.03.2003 . IN THESE CIRCUMSTANCES, WE AGREE WITH THE ASSESSING OFFICER THAT THE MACHINES COULD ITA NO.4448/D/07 & 93/D/0 8 7 NOT HAVE BEEN USED ON 31.03.2003 AS SOMETIME WOULD HAVE TAKEN IN TRANSPORTATION TO AND INSTALLING THE MACHINERY IN T HE PREMISES OF THE ASSESSEE. THEREFORE, WE ARE OF THE VIEW THAT THE A SSESSING OFFICER WAS RIGHT IN REJECTING THE CLAIM OF DEPRECIATION ON THESE MAC HINES. THUS, THIS GROUND IS ALLOWED. 4. GROUND NO.3 IS THAT THE LEARNED CIT(A) ERRED IN DELETING THE DISALLOWANCE OF RS.12,13,234/- FROM PROVISIONS MADE FOR GRATUITY AND ENCASHMENT OF LEAVE PAYABLE. 4.1 IN THIS CONNECTION, IT IS MENTIONED IN THE ASSE SSMENT ORDER THAT THE ASSESSEE MADE A PROVISION OF RS.3,41,304/- IN RESPE CT OF LEAVE ENCASHMENT AND ANOTHER OF RS.8,72,020/- IN RESPECT OF GRATUITY PAYABLE. CERTIFICATES FROM THE ACTUARY WERE FILED IN RESPECT OF THE COMPU TATION OF THE AMOUNTS PROVIDED IN THE BOOKS IN THIS BEHALF. IT WAS SUBMI TTED THAT THE LIABILITIES WERE ASCERTAINED LIABILITIES AND THUS, DEDUCTIBLE I N COMPUTING THE TOTAL INCOME AS PER THE DECISION OF HONBLE SUPREME COURT IN THE CASE OF BHARAT EARTHMOVERS LIMITED. THE ASSESSING OFFICER MENTION ED THAT THE PROVISION U/S 40A(7) HAS TO BE WORKED OUT FOR ITS ASCERTAINME NT AND ITS PRESENT VALUE SHOULD BE FAIRLY DETERMINED. THIS CONDITION IS NOT SATISFIED. SINCE ONLY A PROVISION WAS MADE, IT SHOWS THAT THE LIABILITY WAS AN UNASCERTAINED LIABILITY, THEREFORE, THESE AMOUNTS WERE ADDED WHILE COMPUTING THE TOTAL INCOME. IT ITA NO.4448/D/07 & 93/D/0 8 8 WAS SUBMITTED BEFORE THE LEARNED CIT(A) THAT THESE LIABILITIES WERE ENTERED IN THE BOOKS OF ACCOUNT ON THE BASIS OF ACTURIAL WO RKING AND CERTIFICATION. THE WORKING AND THE CERTIFICATES WERE PROVIDED TO T HE ASSESSING OFFICER. THE LIABILITY WAS AN ASCERTAINED LIABILITY IN VIEW OF THE DECISION OF HONBLE SUPREME COURT IN THE CASE OF BHARAT EARTHMOVERS LIM ITED 112 TAXMAN 1. ON THE BASIS OF THE FACTS AND THE SUBMISSIONS, THE LEARNED CIT(A) CAME TO THE CONCLUSION THAT THE DISALLOWANCE HAS BEEN MADE WITHOUT ANY PROPER REASONS. THE ISSUE WAS HELD TO BE COVERED BY THE A FORESAID DECISION OF THE APEX COURT. THEREFORE, THE ASSESSING OFFICER WAS D IRECTED TO ALLOW THE LIABILITY. 4.2 BEFORE US, THE LEARNED DR REFERRED TO THE FINDI NGS OF THE ASSESSING OFFICER AND THE LEARNED CIT(A) AND SUBMITTED THAT T HE CASE OF THE ASSESSING OFFICER WAS THAT THE LIABILITY WAS UNASCERTAINED AN D THE CASE OF THE LEARNED CIT(A) WAS THAT THE LIABILITY WAS AN ASCERTAINED LI ABILITY. IN REPLY, THE LEARNED COUNSEL SUBMITTED THAT THE ONLY OBJECTION O F THE ASSESSING OFFICER WAS THAT THE LIABILITIES WERE NOT PROPERLY WORKED O UT. THIS IS FACTUALLY INCORRECT, AS THE WORKINGS AND THE CERTIFICATES WER E PLACED BEFORE THE ASSESSING OFFICER. THESE WORKINGS WERE PLACED IN T HE PAPER BOOK AT PAGES 37 TO 47. THUS, IT WAS ARGUED THAT THERE WAS NO RE ASON TO DISALLOW THE LIABILITIES, WHICH HAD, IN FACT, BEEN INCURRED. ITA NO.4448/D/07 & 93/D/0 8 9 4.3 WE HAVE CONSIDERED THE FACTS OF THE CASE AND RI VAL SUBMISSIONS. WE FIND THAT THE WORKING OF THE LIABILITIES HAD BEEN F URNISHED TO THE ASSESSING OFFICER WHICH WAS DONE ON A REASONABLE BASIS. THE DECISION IN THE CASE OF BHARAT EARTHMOVERS LIMITED (SUPRA) IS CLEARLY APPLI CABLE. THEREFORE, WE DO NOT FIND ANY ERROR IN THE ORDER OF THE LEARNED CIT( A). THUS, THIS GROUND IS DISMISSED. 5. GROUND NO.4 IS THAT THE LEARNED CIT(A) ERRED IN DELETING THE ADDITION OF RS.19,37,526/-, MADE BY THE ASSESSING OFFICER TO THE BOOK PROFITS, WHILE WORKING OUT ADJUSTED BOOK PROFITS U/S 115JB OF THE ACT. 5.1 IN THIS CONNECTION, IT IS MENTIONED IN THE ASSE SSMENT ORDER THAT APART FROM PROVISIONS FOR LEAVE ENCASHMENT AND GRATUITY P AYABLE, THE ASSESSEE MADE A FURTHER PROVISION OF RS.1,45,980/-. NO ADJU STMENT WAS MADE IN RESPECT OF THESE PROVISIONS WHILE COMPUTING ADJUSTE D BOOK PROFITS U/S 115JB. THUS, THESE AMOUNTS WERE ADDED TO THE BOOK PROFITS BY HOLDING THEM TO BE UNASCERTAINED LIABILITIES. IT WAS ALSO MENTIONED T HAT A SUM OF RS.5,78,312/- WAS DEBITED IN THE PROFIT AND LOSS ACCOUNT UNDER TH E HEAD PRIOR PERIOD EXPENSES. THE ASSESSEE WAS FOLLOWING MERCANTILE S YSTEM OF ACCOUNTING AND, THEREFORE, THIS AMOUNT WAS ALSO NOT DEDUCTED I N COMPUTING THE BOOK PROFITS. IT WAS SUBMITTED BEFORE THE LEARNED CIT(A ) THAT THE ASSESSING OFFICER HAD NO JURISDICTION TO ALTER THE PROFIT AS CERTIFIED BY STATUTORY ITA NO.4448/D/07 & 93/D/0 8 10 AUDITORS, AS HELD BY HONBLE SUPREME COURT IN THE C ASE OF APOLLO TYRES LIMITED 225 ITR 234. FOLLOWING THE AFORESAID DECIS ION, THE LEARNED CIT (A) DELETED THE AMOUNT OF RS.19,37,526/- FROM THE BOOK PROFITS. 5.2 BEFORE US, THE LEARNED DR REFERRED TO THE FINDI NGS OF THE ASSESSING OFFICER AND THE LEARNED CIT(A). IN REPLY, THE LEAR NED COUNSEL FOR THE ASSESSEE SUBMITTED THAT THE LIABILITIES IN RESPECT OF LEAVE ENCASHMENT AND GRATUITY WERE ASCERTAINED LIABILITY. THE PROVISION FOR DOUBTFUL DEBTS REPRESENTED THE DIMINUTION IN THE VALUE OF ASSETS, BEING THE DEBTS, WHICH WAS NOT IN THE NATURE OF A PROVISION FOR UNASCERTAINED LIABILITY, AS HELD IN THE CASE OF CIT VS. HCL COMNET SYSTEMS AND SERVICES LIMITED (2008) 305 ITR 409. FURTHER, THE ASSESSING OFFICER COULD NOT ALTER THE FIGURE OF PROFITS ARRIVED AT BY THE AUDITOR IN PROFITS AND LOSS ACCOUNT PREPARED AS PER COMPANIES ACT AS HELD IN THE CASE OF APOLLO TYRES LIMITED (SUPRA). THEREFORE, IT WAS VEHEMENTLY ARGUED THAT THE BOOK PROFITS COULD NOT H AVE ENHANCED ON ANY OF THE ITEMS MENTIONED BY THE ASSESSING OFFICER IN HIS ORDER. 5.3 WE HAVE CONSIDERED THE FACTS OF THE CASE AND TH E RIVAL SUBMISSIONS. WE FIND THAT IN SO FAR AS PRIOR PERIOD EXPENSES ARE CONCERNED, THE SAME CANNOT BE CONSIDERED FOR THE PURPOSE OF COMPUTING A DJUSTED BOOK PROFITS U/S 115JB; AS IT WAS HELD BY HONBLE SUPREME COURT IN T HE CASE OF APOLLO TYRES LIMITED (SUPRA) THAT THE PROFITS AND LOSS ACCOUNT, PREPARED IN ACCORDANCE ITA NO.4448/D/07 & 93/D/0 8 11 WITH THE COMPANIES ACT, CANNOT BE REOPENED BY THE A SSESSING OFFICER. FURTHER, IT HAS ALREADY BEEN HELD THAT PROVISIONS I N RESPECT OF LEAVE ENCASHMENT AND GRATUITY PAYABLE ARE ASCERTAINED LIA BILITIES AND NOT UNASCERTAINED LIABILITIES. THUS, THESE PROVISIONS COULD NOT BE ADDED TO THE BOOK PROFITS. IT IS TRUE THAT THE PROVISION FOR BA D DEBT WAS CONSIDERED TO BE THE REDUCTION IN THE VALUE OF ASSETS, IN THE CASE O F HCL COMMNET LIMITED. HOWEVER, THE RATIO OF THIS DECISION HAS BEEN SUPERC EDED BY THE FINANCE ACT, 2009, MADE RETROSPECTIVELY W.E.F. 01.04.2001, UNDER WHICH SUCH A REDUCTION HAS TO BE ADDED TO THE BOOK PROFITS, IF DEBITED TO THE PROFITS AND LOSS ACCOUNT. THEREFORE, IT IS HELD THAT WHILE THE LEARNED CIT(A) WAS RIGHT IN REDUCING THE AMOUNTS OF RS.5,78,312/- AND RS.12,13,234/- FROM TH E ADJUSTED BOOK PROFITS COMPUTED BY THE ASSESSING OFFICER, HE WAS NOT RIGHT IN REDUCING THE AMOUNT OF RS.1,45,980/-. THUS, THIS GROUND IS PARTLY ALLO WED. CROSS OBJECTION NO.93D/08 OBJECTIONS OF THE ASSES SEE: 6. OBJECTION NO.1 IS THAT THE LEARNED CIT(A) ERRED IN DISALLOWING THE SUM OF RS.4,55,000/- PAID ON ACCOUNT OF COURT FEE A ND ROC FEE FOR EXPANSION OF THE CAPITAL ON AMALGAMATION OF COMPANY , WHICH IS SPECIFICALLY ALLOWABLE U/S 35DD OF THE ACT. ITA NO.4448/D/07 & 93/D/0 8 12 6.1 IN THIS CONNECTION, IT IS MENTIONED IN THE ASSE SSMENT ORDER THAT THE ASSESSEE COMPANY INCREASED ITS SHARE CAPITAL FROM R S.4.50 CRORE TO RS.6.00 CRORE. EXPENDITURE OF RS.4.55 LAC WAS INCURRED BY WAY OF FEE OF RS.3.50 LAC PAID TO REGISTRAR OF COMPANIES AND COURT FEE OF RS. 1.05 LAC. THESE EXPENSES WERE HELD TO BE CAPITAL IN NATURE. THE CI T(A) UPHELD THIS ORDER BY RELYING ON THE DECISION OF HONBLE SUPREME COURT IN THE CASE OF PUNJAB INDUSTRIAL DEVELOPMENT AND FINANCE CORPORATION VS. CIT 225 ITR 792. 6.2 BEFORE US, THE LEARNED COUNSEL MENTIONED THAT U NI NVH PRIVATE LIMITED WAS AMALGAMATED IN THE ASSESSEE COMPANY UND ER THE SCHEME OF AMALGAMATION APPROVED BY THE HONBLE PUNJAB & HARYA NA HIGH COURT IN COMPANY PETITION NO.66/2003, ON 22.05.2003. THE AM ALGAMATION TOOK EFFECT FROM 01.04.2002. AS A CONSEQUENCE TO THIS A MALGAMATION THE CAPITAL OF THE ASSESSEE COMPANY HAD TO BE INCREASED TO ACCO MMODATE THE CAPITAL OF THE AMALGAMATED COMPANY. THEREFORE, THE FEE PAID T O ROC AND THE COURT FEE WERE THE EXPENDITURE INCURRED IN CONNECTION WIT H THE AMALGAMATION OF THE TWO COMPANIES. THE ALLOWANCE OF THE EXPENDITUR E IS GOVERNED BY THE PROVISIONS CONTAINED IN SECTION 35DD, WHICH PROVIDE S THAT THE SAME SHALL BE ALLOWED IN 5 YEARS STARTING FROM THE YEAR IN WHICH AMALGAMATION TOOK PLACE. THEREFORE, IT WAS URGED THAT NECESSARY RELIEF MAY B E GRANTED TO THE ASSESSEE UNDER THIS PROVISION. IN REPLY, THE CASE OF THE LE ARNED DR WAS THAT THE ITA NO.4448/D/07 & 93/D/0 8 13 EXPENDITURE WAS INCURRED IN CONNECTION WITH ENHANCE MENT OF THE CAPITAL AND, THEREFORE, THE LEARNED CIT(A) HAD RIGHTLY DISALLOWE D THE SAME BY FOLLOWING THE DECISION IN THE CASE OF PUNJAB INDUSTRIAL FINAN CE CORPORATION DEVELOPMENT (SUPRA). 6.3 WE HAVE CONSIDERED THE FACTS OF THE CASE AND RI VAL SUBMISSIONS. IT IS NO DOUBT TRUE THAT THE IMPUGNED EXPENDITURE HAS BEE N INCURRED FOR ENHANCING THE CAPITAL OF THE COMPANY, WHICH OCCASIONED ON ACC OUNT OF THE AMALGAMATION OF ANOTHER COMPANY WITH IT. THEREFOR E, THE EXPENDITURE IS CAPITAL IN NATURE AS HELD IN THE PUNJAB INDUSTRIAL FINANCE CORPORATION DEVELOPMENT. HOWEVER, THE EXPENDITURE IS COVERED B Y THE PROVISION CONTAINED IN SECTION 35DD WHICH PERMITS DEDUCTION O F 1/5 TH OF THE EXPENDITURE IN THIS YEAR. THEREFORE, THE ASSESSING OFFICER IS DIRECTED TO ALLOW 1/5 TH OF THE EXPENDITURE IN COMPUTING THE INCOME. THUS, THIS OBJECTION OF THE ASSESSEE IS PARTLY ALLOWED. 7. OBJECTION NO.2 IS THAT THE LEARNED CIT(A) ERRED IN CONFIRMING THE DISALLOWANCE OF PRIOR PERIOD EXPENSES AMOUNTING TO RS.5,78,312/-. 7.1 IN THIS CONNECTION, IT IS MENTIONED IN THE ASSE SSMENT ORDER THAT A SUM OF RS.5,78,312/- WAS DEBITED TO PROFIT AND LOSS ACC OUNT AS PRIOR PERIOD EXPENSES. THE ASSESSEE HAS BEEN FOLLOWING MERCANTI LE SYSTEM OF ACCOUNTING AND, THEREFORE, THIS AMOUNT WAS NOT DEDUCTIBLE IN C OMPUTING THE INCOME. ITA NO.4448/D/07 & 93/D/0 8 14 SIMILAR EXPENDITURE WAS DISALLOWED IN THE PROCEEDIN GS OF ASSESSMENT YEAR 1998-99. THIS ORDER WAS UPHELD BY THE LEARNED CIT( A) AND HONBLE ITAT. THUS, THIS AMOUNT WAS NOT ALLOWED TO BE DEDUCTED IN COMPUTING THE INCOME. BEFORE THE LEARNED CIT(A), IT WAS SUBMITTED THAT TH E EXPENDITURE WAS INCURRED IN THIS YEAR, ALTHOUGH IT RELATES TO EARLI ER YEARS. THE MAJOR SUM OF RS.4,92,811/- WAS JUTE SUBSIDY RECEIVABLE FROM GOVE RNMENT OF INDIA, WHICH WAS CREDITED TO PROFIT AND LOSS ACCOUNT OF ASSESSME NT YEAR 1992-93. SINCE THIS AMOUNT WAS NOT RECEIVED, THE SAME WAS WRITTEN OFF FROM THE BOOKS AND WAS SHOWN AS EXPENDITURE OF THE PRIOR PERIOD BY THE AUDITOR. THE APPEAL OF THE ASSESSEE FOR ASSESSMENT YEAR 1998-99 WAS DISMIS SED FOR NON APPEARANCE AND, THEREFORE, THAT ORDER CANNOT BE TAKEN AS A PRE CEDENT TO DECIDE THIS ISSUE IN THIS YEAR. THE ASSESSEE HAS REQUESTED FOR THE RESTORATION OF THAT APPEAL BEFORE THE TRIBUNAL. HOWEVER, THE LEARNED CIT(A) D ISALLOWED THE CLAIM ON THE GROUND THAT THE APPEAL OF THE ASSESSEE WAS DISM ISSED BY THE TRIBUNAL FOR ASSESSMENT YEAR 1998-99. 7.2 BEFORE US, THE LEARNED COUNSEL SUBMITTED THAT E XPENDITURE OF RS.5,78,312/- WAS CLASSIFIED AS PRIOR PERIOD EXPEND ITURE. THE MAJOR AMOUNT OF RS.4,92,811/- WAS IN RESPECT OF JUTE SUBSIDY REC EIVABLE FROM THE GOVERNMENT. THE DETAILS OF THESE EXPENSES WERE PLA CED ON PAGE 35 OF THE PAPER BOOK. OUR ATTENTION WAS DRAWN TO PAGES 62 AN D 63 OF THE PAPER BOOK ITA NO.4448/D/07 & 93/D/0 8 15 BEING SUBMISSIONS MADE BEFORE THE LEARNED CIT(A), I N WHICH IT WAS SUBMITTED THAT THIS AMOUNT WAS SHOWN AS INCOME IN A SSESSMENT YEAR 1992- 93, BEING JUTE SUBSIDY RECEIVABLE. HOWEVER, THE SU BSIDY WAS NOT RECEIVED OVER A CONSIDERABLE PERIOD OF TIME, THEREFORE, HIS CASE WAS THAT THE AMOUNT HAS BEEN WRONGLY CLASSIFIED AS PRIOR PERIOD EXPENSE S PROBABLY BECAUSE OF THE REASON THAT IT RELATED TO THE INCOME EARNED IN ASSE SSMENT YEAR 1992-93. IN REPLY, THE LEARNED DR SUBMITTED THAT THERE IS NO EV IDENCE THAT THIS OR ANY OTHER EXPENDITURE UNDER THIS HEAD CRYSTALLIZED IN T HIS YEAR. 7.3 WE HAVE CONSIDERED THE FACTS OF THE CASE AND RI VAL SUBMISSIONS. WE FIND THAT THE LEARNED COUNSEL HAS ARGUED ONLY THE M ATTER REGARDING JUTE SUBSIDY BEFORE US. THE FACTS ARE THAT THE INCOME B Y WAY OF JUTE SUBSIDY WAS CREDITED TO PROFIT AND LOSS ACCOUNT OF ASSESSMENT Y EAR 1992-93, BY WAY OF REDUCTION FROM THE COST OF MANUFACTURE. THEREFORE, THIS AMOUNT WAS TAXED AS INCOME IN THAT YEAR. AFTER CONSIDERABLE EFFORTS, T HE AMOUNT COULD NOT BE RECOVERED EVEN AFTER LAPSE OF A LONG PERIOD OF TIME . THEREFORE, THE AMOUNT WAS WRITTEN OFF FROM THE BOOKS OF ACCOUNT OF THIS Y EAR. THUS, IT IS A CLAIM OF BAD DEBT AND NOT A CLAIM IN RESPECT OF PRIOR PERIOD EXPENSES. HOWEVER, IT IS RATHER STRANGE THAT A DEBT DUE FROM THE GOVERNMENT OF INDIA IS WRITTEN OFF FROM THE BOOKS OF ACCOUNT. THE CIRCUMSTANCES LEADI NG TO SUCH A WRITE OFF HAVE NOT BEEN FULLY NARRATED BEFORE US. NO DOUBT, A BAD DEBT, WRITTEN OFF IN ITA NO.4448/D/07 & 93/D/0 8 16 THE BOOKS OF ACCOUNT, HAS TO BE ALLOWED IN THE YEAR OF WRITE OFF PROVIDED THAT IT IS A BONAFIDE ACTION ON THE PART OF THE ASSESSEE . THE PECULIAR FACT IN THIS CASE IS THAT THE DEBT IS DUE FROM THE GOVERNMENT OF INDIA. THEREFORE, THE QUESTION IS WHETHER THE RIGHT OFF IS BONAFIDE? AS ALL THE FACTS ARE NOT AVAILABLE BEFORE US, WE THINK IT PROPER TO RESTORE THIS MATTER TO THE FILE OF THE ASSESSING OFFICER FOR CONSIDERING THE MATTER DE NOV O AND DECISION AS PER LAW AFTER HEARING THE ASSESSEE. THUS, THIS OBJECTION O F THE ASSESSEE IS TREATED AS PARTLY ALLOWED FOR STATISTICAL PURPOSES. 8. IN RESULT, THE APPEAL OF THE REVENUE IS PARTLY A LLOWED AND THE CROSS OBJECTIONS OF THE ASSESSEE ARE ALSO PARTLY ALLOWED AS DISCUSSED ABOVE. 9. ORDER PRONOUNCED IN THE OPEN COURT ON 04-09-200 9. SD/- SD/- ( R.P. TOTALI ) ( K.G. BANSAL ) JUDICIAL MEMBER ACCOUNTANT MEMBER DATED : 04/09/2009 NS : COPY OF THE ORDER IN ITA NO.4448/D/2007 FORWARDED T O : - 1. ASSESSEE 2. DEPARTMENT 3. CIT 4. CIT(A) 5. DR, ITAT TRUE COPY DY. REGISTRAR,