ACIT, Panipat V. M/s Vogue Fabrics,

ITA 447/DEL/2009

• Counselvise Citation: [2009] 114 COUNSELVISE.COM (IT) 9945 (ITAT-DELHI)
• Duration Of Justice: 5 month(s) 29 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 05-08-2009
• Appeal Filed By: Department
• Order Result: Partly Allowed
• Bench Allotted: E
• Assessment Year: 2003-2004
• Appeal Filed On: 06-02-2009
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: KISHAORE B
• Assessee Lawyers: O P SAPRA
• Keywords: Depreciation; Set aside
• Section: 234B

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL (DELHI BENCH `E : NEW DELHI) BEFORE HONBLE SR. VICE PRESIDENT SHRI R.P. GARG A ND HONBLE JUDICIAL MEMBER, SHRI A.D. JAIN ITA NO.447/DEL./2009 (ASSESSMENT YEAR : 2003-04) ACIT, CIRCLE, VS. M/S VOGUE FABRICS, PANIPAT. G.T. ROAD, PANIPAT. (PAN/GIR NO.AABFV1872E) AND (ITA NO.524/DEL./2009 (ASSESSMENT YEAR : 2003-04) M/S VOGUE FABRICS, VS. ACIT, CIRCLE, PANIPAT. PANIPAT. (APPELLANT) (RESPONDENT) ASSESSEE BY : SHRI O.P. SAPRA, ADV. REVENUE BY : SHRI KISHAORE B.SR.DR, ORDER PER R.P. GARG, SR.VP THESE CROSS APPEALS ARE AGAINST THE ORDER OF THE COMMISSIONER OF INCOME-TAX (APPEALS) FOR ASSESSMENT YEAR 2003-04. 2. IN THE REVENUES APPEAL, THE ISSUES RAISED ARE FIRST WITH REGARD TO THE DISALLOWANCE OF WAGES OF RS.9 LAKH AND THE OTHER TW O WITH REGARD TO THE DEPRECIATION ON BUILDING OF UNIT-II AND THE ELECTRICAL INSTALLATIO N INSTALLED THEREIN. THE ASSESSING OFFICER NOTICING THE FACTS THAT WAGES HAVE INCREASE D TO RS.21.82 LAKH IN THE YEAR UNDER CONSIDERATION AS AGAINST RS.12.55 LAKH IN THE EARLI ER YEAR, DISALLOWED A SUM OF RS.9 LAKH OUT OF THE WAGES TO COVER THE DISCREPANCIES. HE OB SERVED THAT THE TURNOVER OF THE ASSESSEE HAD DECREASED FROM 20.19 CRORES TO RS.6.95 CRORES A ND THE ASSESSEE HAD PURCHASED ITA NOS.447 & 524/DEL./2009 (ASSESSMENT YEAR : 2003-04) 2 FINISHED MATERIAL OF RS.35.36 LAKH WHEREAS IT WAS 2 7.55 LAKH IN THE LAST YEAR. THE ASSESSEE SUBMITTED THAT THE INCREASE IN EXPENSES UN DER THE ABOVE HEAD WAS DUE TO THE FACT THAT THE FIRM HAS STARTED ITS OWN MANUFACTURING UNI T, NAMELY, UNIT-II WHEREAS IN THE EARLIER YEAR ALL THE MANUFACTURING ACTIVITIES WERE GOT DONE ON JOB WORK BASIS FROM VARIOUS PARTIES AND THE FIRM USED TO PURCHASE MANUFACTURED MATERIAL AND FINISHED GOODS, AND THE PACKING ACTIVITIES WERE GOT IN ITS OWN PREMISES. T HE ASSESSING OFFICER WAS NOT SATISFIED WITH THE EXPLANATION AND MADE THE DISALLOWANCE. TH E COMMISSIONER OF INCOME-TAX (APPEALS), HOWEVER, ALLOWED THE CLAIM OF THE ASSES SEE BY OBSERVING IN PARA.6 OF HIS ORDER AS UNDER: 6. I HAVE CONSIDERED THE FACTS OF THE CASE AND THE SUBMISSIONS OF THE ASSESSEE. THE ASSESSING OFFICER HAS NOT FOUND OUT ANY DEFECT IN THE BOOKS OF ACCOUNT OR WAGES EXPENDITURE OF THE ASSESSEE. NO SPECIFIC EXPE NDITURE HAS BEEN FOUND TO BE WRONG, WHEREAS, THE BOOKS OF ACCOUNT OF THE ASSESSE E ARE AUDITED AND NO SIGNIFICANT DEFECT IN THE BOOKS OF ACCOUNT HAS BEEN NOTICED AND THEREFORE, THE BOOKS OF ACCOUNT HAVE NOT BEEN REJECTED. THE ASSES SING OFFICER HAS MERELY COMPARED THE WAGES WITH THE PRECEDING YEAR, WHEREAS , HE SIMPLY BRUSHED ASIDE THE EXPLANATION OF THE ASSESSEE THAT FROM THIS YEAR IT HAS STARTED ITS OWN MANUFACTURING AND THEREFORE, WAGES BILL IS HIGHER B ECAUSE EARLIER MANUFACTURING WAS GOT DONE ON JOB BASIS FROM OUTSIDE PARTIES OR F INISHED GOODS USED TO BE PURCHASED. AS PER THE CLAIM OF THE ASSESSEE IT HAS PAID RS.8,49,609 EXTRA WAGES ON ACCOUNT OF MANUFACTURING IN UNIT-II WHICH HAS BE EN STARTED IN THE YEAR UNDER CONSIDERATION ONLY. WITH THE PAPER BOOK, THE ASSES SEE HAS FILED DETAILS OF WAGES AND SALARY PAYMENT IN THE FORM OF LEDGER OF WAGES A ND SALARY SHEET WHICH CLEARLY SUPPORTS OF THE CLAIM OF THE ASSESSEE AND THEY ARE VERY MUCH LEGIBLE. THE ASSESSING OFFICER HAS MADE THE AD HOC DISALLOWANCE WITHOUT ANY BASIS OR LOGIC AND WITHOUT FINDING ANY DEFECT IN THE CLAIM OF THE ASSESSEE. MERELY BECAUSE WAGES HAVE INCREASED AND TURNOVER HAS DECLINED CAN NOT BE THE AUTOMATIC REASON FOR DISALLOWANCE OF WAGES BECAUSE ASSESSEE HAS GIVE N AN EXPLANATION AND ASSESSING OFFICER HAS NOT FOUND ANY DEFECT IN THE E XPLANATION BUT MADE THE AD HOC DISALLOWANCE, THEREFORE, DISALLOWANCE OF RS.9 LAC O UT OF WAGES IS DELETED AND THE GROUND OF APPEAL OF THE ASSESSEE IS ALLOWED. 3. WE HAVE HEARD THE PARTIES AND CONSIDERED THE RIV AL SUBMISSIONS. WE FIND THAT THE ASSESSING OFFICER WHILE OBSERVING THAT MERELY BECAU SE THE WAGES HAVE INCREASED AND THE TURNOVER HAS DECLINED CANNOT BE THE GROUND FOR AUTO MATIC DISALLOWANCE OF WAGES. THE ASSESSEE HAS GIVEN THE EXPLANATION AND NO DEFECT IS FOUND THEREIN, PARTICULARLY IN VIEW OF THE FACT THAT IT HAD STARTED ITS OWN MANUFACTURING AND, THEREFORE, WAGE BILL WOULD BE HIGHER COMPARED TO LAST YEAR. THE ORDER OF THE COM MISSIONER OF INCOME-TAX (APPEALS), IN OUR OPINION, IS JUST AND PROPER AND IS ACCORDING LY UPHELD. ITA NOS.447 & 524/DEL./2009 (ASSESSMENT YEAR : 2003-04) 3 4. THE OTHER DISPUTE WHICH IS IN THE REVENUES APPE AL IS ALSO RAISED IN THE ASSESSEES APPEAL WITH REGARD TO THE DISALLOWANCE OF DEPRECATI ON ON BUILDING. THE DISALLOWANCE WAS MADE BY THE ASSESSING OFFICER ON THE GROUND THAT BU ILDING WAS INCOMPLETE DURING THE ASSESSMENT UNDER CONSIDERATION. THE COMMISSIONER O F INCOME-TAX (APPEALS) HELD THAT THE COMMERCIAL PRODUCTION IN THE BUILDING HAD BEEN CARRIED OUT DURING THE F.Y. 2002-03 RELEVANT TO THE YEAR UNDER CONSIDERATION AND, THERE FORE, HELD THAT THE DEPRECIATION IS ALLOWABLE. HE, HOWEVER, NOTICING THE FACT THAT THE PAYMENT OF CERTAIN BILS HVE BEEN MADE BY THE ASSESSEE AFTER SEPTEMBER, 2002, THE COMMERCI AL USE OF THE BUILDING WAS STARTED ONLY AFTER SEPTEMBER, 2002 AND, THEREFORE, THE ASSE SSEE WAS ENTITLED TO 50% OF THE NORMAL DEPRECATION. BOTH THE REVENUE AND THE ASSESSEE ARE IN APPEAL. 5. LD.COUNSEL FOR THE ASSESSEES CONTENTION IS THAT IT INSTALLED 297 HANDLOOMS WHICH HAVE BEEN PURCHASED PRIOR TO 31.3.2002, BUT INSTALL ED BEFORE 30 TH SEPTEMBER, 2002 OF WHICH 100% WAS CLAIMED AND ALLOWED BY THE ASSESSING OFFICER. HE ALSO STATED THAT DATE- WISE ELECTRICITY BILL UP TO SEPTEMBER, 2002 AND THE REAFTER WAS FILED SHOWING THAT THE ASSESSEE HAD CONSUMED ELECTRICITY WORTH RS.92,797 U P TO 30.9.2002 AND FOR THE NEXT SIX MONTHS, THE EXPENDITURE WAS RS.82,019. IT WAS STAT ED THAT TWO TELEPHONES WERE STALLED IN BUILDING NO.2 WHOSE EXPENDITURE HAS BEEN INCURRED A ND ALLOWED BY THE ASSESSING OFFICER AND THAT IN THE SUBSEQUENT YEAR, THE DEPRECIATION H AS BEEN ALLOWED ON WRITTEN DOWN VALUE OF THE BUILDING AFTER REDUCING THE FULL AMOUNT OF D EPRECIATION ALLOWABLE. 6. LD.DR ON THE OTHER HAND, SUBMITTED THAT THE BUIL DING WAS INCOMPLETE AND THE ASSESSING OFFICER WAS JUSTIFIED IN DISALLOWING THE CLAIM OF THE ASSESSEE. EVEN 50% CLAIM WAS NOT ALLOWABLE ACCORDING TO HIM. 7. WE HAVE HEARD THE PARTIES AND CONSIDERED THE RIV AL SUBMISSIONS. PRIMA FACIE WHAT THE ASSESSEE STATES SEEMS TO BE CORRECT, BUT THESE FACTS REQUIRED VERIFICATION, NAMELY, WHETHER 297 HANDLOOMS WERE INSTALLED BEFORE 30.9.20 02 AND ANY PRODUCTION WAS MADE BY THE ASSESSEE WITH RESPECT TO THESE HANDLOOMS. THE ELECTRICITY BILLS ALSO SHOULD BE VERIFIED SO ALSO THE INSTALLATION OF THE TELEPHONES IN THE S AID UNIT. THE ASSESSEE SHOULD PRODUCE THE EVIDENCE BEFORE THE ASSESSING OFFICER AND AFTER TAK ING INTO CONSIDERATION THE CLAIM OF THE ASSESSEE BE ALLOWED IN ACCORDANCE WITH THE FACTS SU BMITTED BY THE ASSESSEE ON THIS ASPECT. AS REGARDS DEPRECIATION ON ELECTRICAL INSTALLATION WHICH IS ALSO DISPUTED IN THE APPEALS BY ITA NOS.447 & 524/DEL./2009 (ASSESSMENT YEAR : 2003-04) 4 BOTH THE PARTIES. THERE ALSO, DEPRECIATION HAS BEE N ALLOWED AT 100% BY THE COMMISSIONER OF INCOME-TAX (APPEALS). BOTH THE PART IES AGREED THAT THE FACTS AND CIRCUMSTANCES OF THE ABOVE CLAIM ARE SIMILAR TO TH E DEPRECIATION ON FACTORY BUILDING UNIT- II WHICH WE HAVE SET ASIDE FOR CONSIDERATION TO THE FILE OF THE ASSESSING OFFICER FOR THE SAME REASONS, WE SET ASIDE THIS ISSUE ALSO TO THE F ILE OF THE ASSESSING OFFICER AFRESH IN THE LIGHT OF THE ABOVE DECISION. 8. IN ASSESSEES APPEAL, THE GROUND REGARDING DISAL LOWANCE OF MISCELLANEOUS EXPENSES OF RS.2800 WAS NOT PRESSED AND IS ACCORDIN GLY REJECTED. 9. THE NEXT GROUND IN ASSESSEES APPEAL IS IN RESPE CT OF 1/8 TH DISALLOWANCE OUT OF VEHICLE RUNNING AND MAINTENANCE EXPENSES. LOOKING TO PERSONAL USE OF THE VEHICLE, THE ASSESSING OFFICER DISALLOWED 1/6 TH OF THE CLAIM WHICH WAS REDUCED TO 1/8 TH BY THE COMMISSIONER OF INCOME-TAX (APPEALS). LOOKING TO T HE FACTS AND CIRCUMSTANCES OF THE CASE, IN OUR OPINION, IT WOULD MEET THE ENDS OF JUS TICE, IF THE DISALLOWANCE IS REDUCED TO 1/10 TH OF THE EXPENSES. WE DIRECT ACCORDINGLY. 10. SIMILARLY, EVEN TELEPHONE EXPENSES, THE ASSESSI NG OFFICER DISALLOWED RS.50,000 OUT OF RS.3,85,727 WHICH WAS REDUCED TO RS.36,000 B Y THE COMMISSIONER OF INCOME-TAX (APPEALS). THE ASSESSEES COUNSEL SUBMITTED THAT IN THE ASSESSMENT YEAR 2002-03 ONLY THE DISALLOWANCE OF RS.10,000 WAS MADE OUT OF THE EXPEN DITURE OF RS.5,75,888. LOOKING TO THE FACTS AND CIRCUMSTANCES OF THE CASE, IT WOULD M EET THE ENDS OF JUSTICE, IF THE DISALLOWANCE IS RETRACTED TO RS.10,000. WE DIRECT TO THE EXTENT AS ABOVE. 11. THE ISSUE OF CHARGE OF INTEREST U/S 234B AND 2 34D RAISED IN THE ASSESSEES APPEAL IS CONSEQUENTIAL AND REQUIRES NO ADJUDICATION AT TH IS STAGE.. 12. IN THE RESULT, BOTH THE APPEALS ARE ALLOWED FOR STATISTICAL PURPOSE. 13. ORDER PRONOUNCED IN OPEN COURT ON 05.08.2009. (A.D. JAIN) (R.P. GARG) JUDICIAL MEMBER SR. VICE PRESIDENT DATED: AUG. 05, 2009. *SKB* ITA NOS.447 & 524/DEL./2009 (ASSESSMENT YEAR : 2003-04) 5 COPY FORWARDED TO:- 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT 4. THE CIT(A), KARNAL. 5. THE DR, ITAT, LOKNAYAK BHAWAN, KHAN MARKET, NEW DELHI. AR/ITAT