Veer Plastics Pvt. Ltd., Ahmedabad V. The Dy.CIT, (OSD), Circle-8, Ahmedabad

ITA 449/AHD/2014

• Counselvise Citation: [2017] 127 COUNSELVISE.COM (IT) 8717 (ITAT-AHMEDABAD)
• Duration Of Justice: 3 year(s) 6 month(s) 7 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 17-08-2017
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: C
• Next Hearing Date: 04-07-2017
• Assessment Year: 2010-2011
• Appeal Filed On: 10-02-2014
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Assessee Lawyers: T P HEMANI

Judgement Text

, , , , IN THE INCOME TAX APPELLATE TRIBUNAL C BENCH, AHMEDABAD BEFORE SHRI RAJPAL YADAV, JUDICIAL MEMBER AND SHRI N.K. BILLAIYA, ACCOUNTANT MEMBER , .., ./ ITA NO. 449/AHD/2014 / ASSESSMENT YEAR: 2010-11 VEER PLASTICS PRIVATE LIMITED, 1 ST FLOOR, 104, SARDAR PATEL COLONY, STADIUM ROAD, AHMEDABAD PAN : AAACV 6291 P VS. DEPUTY COMMISSIONER OF INCOME-TAX (OSD), CIRCLE-8, AHMEDABAD / (APPELLANT) / (RESPONDENT) ASSESSEE BY : SHRI T.P. HEMANI, AR REVENUE BY : SHRI PRASOON KABRA, SR DR / DATE OF HEARING : 11/08/2017 ( * / DATE OF PRONOUNCEMENT: 17/08/2017 / O R D E R PER N.K. BILLAIYA, ACCOUNTANT MEMBER : THIS APPEAL BY THE ASSESSEE IS PREFERRED AGAINST TH E ORDER OF THE LD.CIT(A)-XIV, AHMEDABAD DATED 12.11.2013 PERTAINI NG TO ASSESSMENT YEAR 2010-11. 2. THE GRIEVANCE OF THE ASSESSEE IS TWO-FOLD; FIRST LY, THE ASSESSEE IS AGGRIEVED BY THE DISALLOWANCE MADE BY THE ASSESSING OFFICER OUT OF TRAVELLING EXPENSES OF RS.36,68,430/- AND SECONDLY, THE ASSESSEE IS AGGRIEVED BY THE DENIAL OF THE CLAIM OF DEDUCTION UNDER SECTI ON 35D OF THE ACT FOR AN AMOUNT OF RS.1,03,000/-. 3. THE ASSESSEE IS IN THE BUSINESS OF MANUFACTURE A ND SALES OF HDPE/PP WOVEN SACKS, BAGS AND FABRICS. THE RETURN FOR THE YEAR UNDER CONSIDERATION ITA NO. 449/AHD/2014 VEER PLASTICS PVT LTD VS. DCIT (OSD) AYS: 2010-2011 - 2 WAS SELECTED FOR SCRUTINY ASSESSMENT AND ACCORDINGL Y STATUTORY NOTICE WAS ISSUED AND SERVED UPON THE ASSESSEE. DURING THE COU RSE OF ASSESSMENT PROCEEDINGS, THE ASSESSING OFFICER NOTICED THAT THE ASSESSEE HAS CLAIMED RS.36,68,430/- AS TRAVELLING EXPENSES OF DIRECTOR; HOWEVER, ON FURTHER PROBE, THE ASSESSING OFFICER FOUND THAT THE SAID EXPENDITU RE PERTAINED TO FYS 2002- 03, 2003-04 AND 2004-05. TREATING THE SAME AS PRIO R PERIOD EXPENDITURE, THE ASSESSING OFFICER MADE THE ADDITION OF RS.36,68,430 /- . 4. THE ASSESSEE CARRIED THE MATTER BEFORE THE LD. C IT(A), BUT WITHOUT ANY SUCCESS. 5. BEFORE US, THE LD. COUNSEL FOR THE ASSESSEE EXPL AINED THAT THE APPELLANT- COMPANY HAD DEPUTED THE THEN DIRECTOR DURING FYS 20 02-03 TO 2004-05 TOWARDS FURTHER STUDIES INTO MANAGEMENT TO FOREIGN COUNTRIES. IT WAS AGREED THAT 50% OF THE EXPENSES WILL BE BORNE BY THE COMPA NY AND 50% WILL BE REIMBURSED BY THE DIRECTOR AFTER HIS STUDIES. THE LD. COUNSEL FURTHER STATED THAT AFTER COMING BACK THE DIRECTOR SERVED THE COMP ANY FROM FY 2005-06 ONWARDS. THE COMPANY ASKED FOR THE REIMBURSEMENT O F THE 50% OF THE EXPENDITURE AGREED TO BE BORNE BY HIM. THE DIRECTOR REFUSED TO REIMBURSE THE EXPENDITURE AND QUIT THE JOB. IT IS THE SAY OF THE COUNSEL THAT THE AMOUNT WRITTEN OFF DURING THE YEAR UNDER CONSIDERATION WAS THE 50% OF THE TRAVELLING EXPENDITURE DUE FROM THE DIRECTOR. 6. PER CONTRA, THE LD. DEPARTMENTAL REPRESENTATIVE STRONGLY SUPPORTED THE FINDINGS OF THE ASSESSING OFFICER AND RELIED UP ON THE JUDGMENT OF THE TRIBUNAL IN THE CASE OF M/S VISHESH ENTERTAINMENT L TD. VS. ACIT [(2011) 131 ITD 187 (MUMBAI)] IN ITA NO.305/MUM/2009; HONBLE M UMBAI HIGH COURTS JUDGMENT IN THE CASE OF M/S SHREENATH MOTOR S PVT. LTD [(2014) 365 ITR 536 (BOMBAY)] IN TAX APPEAL NOS.324 & 325 OF 20 12; ANOTHER JUDGMENT OF HONBLE MUMBAI HIGH COURT IN THE CASE OF DIVYAKA NT.C. MEHTA VS. ITO ITA NO. 449/AHD/2014 VEER PLASTICS PVT LTD VS. DCIT (OSD) AYS: 2010-2011 - 3 [(2014) 365 ITR 423 (BOMBAY) IN TAX APPEAL NO. 840 OF 2012 AND THE DECISION OF TRIBUNAL IN THE CASE OF INTERSIL INDIA LIMITED V S. ACIT, REPORTED IN (2006) 101 ITD 85 (MUM.). 7. WE HAVE CAREFULLY CONSIDERED THE ORDERS OF THE A UTHORITIES BELOW. WE HAVE ALSO GONE THROUGH THE JUDICIAL DECISIONS RELIE D UPON BY THE LD. DEPARTMENTAL REPRESENTATIVE. THE UNDISPUTED FACT I S THAT ONE OF THE DIRECTORS WENT ABROAD FOR FURTHER STUDIES. IT WAS AGREED BETWEEN THE DIRECTOR AND THE APPELLANT-COMPANY THAT OUT OF THE TOTAL EXPENDITURE SPENT ON HIS STUDIES, 50% SHALL BE REIMBURSED BY THE DIRE CTOR ON HIS RETURN. IT IS ALSO TRUE THAT AFTER RETURNING THE DIRECTOR JOINED THE COMPANY AND SERVED FOR A WHILE. WHEN PRESSED FOR REIMBURSEMENT OF THE TRA VELLING EXPENDITURE, THE DIRECTOR SHOWED HIS INABILITY AND QUIT THE JOB. TH ESE FACTUAL HAPPENINGS PROMPTED THE ASSESSEE TO WRITE OFF THE BALANCE DUE FROM THE DIRECTOR. IT IS NOT THE CASE OF THE REVENUE THAT THE EXPENDITURE WA S NEVER INCURRED FOR THE PURPOSES OF THE BUSINESS. ON THE CONTRARY, WE FIND THAT THE ASSESSING OFFICER HAS IN FACT ALLOWED 50% OF THE EXPENDITURE IN EARLIER YEARS. IN OUR CONSIDERED OPINION, THE BALANCE 50% OF THE EXPENDIT URE WHICH COULD NOT BE RECOVERED FROM THE DIRECTOR HAS TO BE ALLOWED AS A BUSINESS LOSS FOR THE YEAR UNDER CONSIDERATION AS THE CERTAINTY OF RECOVERABIL ITY WAS FIXED DURING THE YEAR UNDER CONSIDERATION ONLY. WE ACCORDINGLY SET ASIDE THE FINDINGS OF THE CIT(A) AND DIRECT THE ASSESSING OFFICER TO DELETE T HE DISALLOWANCE OF RS.36,68,430/-. 8. BEFORE PARTING, A CAREFUL ANALYSIS OF THE JUDICI AL DECISIONS RELIED UPON BY THE DEPARTMENTAL REPRESENTATIVE SHOWS THAT IN AL L THE DECISIONS, THE JUDICIAL AUTHORITIES HAVE DECIDED THE ISSUE IN FAVO UR OF THE REVENUE FINDING THAT THE EXPENDITURE WAS NEVER INCURRED FOR THE PUR POSES OF BUSINESS. ITA NO. 449/AHD/2014 VEER PLASTICS PVT LTD VS. DCIT (OSD) AYS: 2010-2011 - 4 HOWEVER, IN THE CASE IN HAND, THE ASSESSING OFFICER HIMSELF HAS ALLOWED 50% OF THE EXPENDITURE AS MENTIONED ELSEWHERE. 9. THE SECOND GRIEVANCE RELATES TO DISALLOWANCE OF RS.1,03,000/- BEING THE 20% OF THE EXPENDITURE AMORTIZED. WE FIND THAT THE ASSESSEE HAS WRITTEN OFF 1/5 TH OF PRELIMINARY EXPENSES INCURRED IN RELATION TO IN CREASE IN AUTHORIZED CAPITAL. THIS ISSUE HAS ALREADY BEEN DE CIDED BY THE HONBLE SUPREME COURT IN THE CASE OF BROOKE BOND INDIA LTD, REPORTED IN 225 ITR 798 (SC), IN FAVOUR OF THE REVENUE AND AGAINST THE ASSE SSEE BY HOLDING THAT ANY INCREASE IN THE AUTHORIZED SHARE CAPITAL HAS AN END URING BENEFIT TO THE ASSESSEE AND THEREFORE, THE EXPENDITURE IS OF A CAP ITAL NATURE. RESPECTFULLY FOLLOWING THE SAME, WE DECLINE TO INTERFERE WITH TH E FINDINGS OF THE CIT(A) IN THIS REGARD. 10. IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE IS PARTLY ALLOWED. ORDER PRONOUNCED IN THE COURT ON 17 TH AUGUST, 2017 AT AHMEDABAD. SD/- SD/- (RAJPAL YADAV) JUDICIAL MEMBER (N.K. BILLAIYA) ACCOUNTANT MEMBER AHMEDABAD; DATED, 17/08/2017 **BT ! / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT 2. / THE RESPONDENT. 3. $ & / CONCERNED CIT 4. & ) ( / THE CIT(A)- 5. $ , $ , /DR,ITAT, AHMEDABAD, 6. 1 / GUARD FILE. / BY ORDER, TRUE COPY (ASSTT. REGISTRAR) $ ITAT, AHMEDABAD