M/s Indore Dugdh Sangh Sahakari Mydt., Indore V. The Deputy Commissioner of Income Tax 1(1), Indore

ITA 456/IND/2010

• Counselvise Citation: 45622714 RSA 2010
• Duration Of Justice: 1 year(s) 3 month(s) 2 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 11-10-2011
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: DB
• Assessment Year: 2007-2008
• Appeal Filed On: 09-07-2010
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: ARUN DEWAN
• Assessee Lawyers: SURESH KEEMTI
• Keywords: Business income; Depreciation; Scheme of amalgamation

Judgement Text

1 IN THE INCOME TAX APPELLATE TRIBUNAL INDORE BENCH, INDORE BEFORE SHRI JOGINDER SINGH, JUDICIAL MEMBER AND SHRI R.C. SHARMA, ACCOUNTANT MEMBER ITA NO.456/IND/2010 A.Y. 2007-08 INDORE DUGDH SANGH SAHAKARI MARYADIT, TALAWALI CHANDA, MANGLIYA, INDORE PAN AAAJI 0016 N ... APPELLANT VS DCIT-1(1), INDORE ... RESPONDENT APPELLANT BY : SHRI SURESH KEEMTI, CA DEPARTMENT BY : SHRI ARUN DEWAN, SR. DR DATE OF HEARING : 11.10.2011 DATE OF PRONOUNCEMENT : 11.10.2011 O R D E R PER JOGINDER SINGH BY WAY OF THIS APPEAL THE ASSESSEE IS BEFORE US ON THE FOLLOWING GROUNDS: 2 ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE LD. FIRST APPELLATE AUTHORITY ERRED IN 1. DISALLOWING THE PRIOR PERIOD EXPENSES OF RS.9,58,495/- WHICH WERE CRYSTALLIZED DURING THE ACCOUNTING YEAR 2006-07 AND THE SAID EXPENSES WERE NOT CLAIMED ANYWHERE ELSE IN ANY OTHER ACCOUNTING YEAR. 2. MAKING ADDITION U/S 144A OF RS.22,116/- IGNORING THE FACT THAT THE LONG TERM INVESTMENTS WERE STATUTORY REQUIREMENT. THAT INVESTMENT DID NOT YIELD INCOME IN THE YEAR UNDER REFERENCE. 3. DISALLOWING VRS EXPENSES WHICH WERE REIMBURSED BY GOVERNMENT OF INDIA AND GOVERNMENT OF M.P. AND WAS NOT CLAIMED AGAINST ROUTINE BUSINESS INCOME KNOWING THIS FACT THAT SECTION 35DDA WAS NOT APPLICABLE IN OUR CASE. 2. DURING HEARING OF THIS APPEAL, WE HAVE HEARD SHR I SURESH KEEMTI, LD. COUNSEL FOR ASSESSEE AND SHRI ARUN DEWA N, LD. SR. DR. SECOND GROUND AS REPRODUCED HEREINABOVE WAS NOT PRESSED BY THE LD. COUNSEL FOR ASSESSEE BEING SMALL NESS OF AMOUNT INVOLVED, THEREFORE, THE SAME IS DISMISSED A S NOT PRESSED. 3. THE FIRST GROUND PERTAINS TO DISALLOWANCE OF PRI OR PERIOD EXPENSES OF RS.9,58,495/- WHICH WERE CLAIMED TO BE CRYSTALISED 3 DURING THE ACCOUNTING YEAR 2006-07. THE LD. COUNSEL FOR ASSESSEE CONTENDED THAT THE SAID EXPENSES WERE NOT CLAIMED ANYWHERE ELSE IN ANY OTHER ACCOUNTING YEAR. THIS FA CTUAL MATRIX WAS NOT CONTROVERTED BY THE REVENUE, HOWEVER, THE L D. SR. DR DEFENDED THE IMPUGNED ORDER ON THIS ISSUE. 3.1 ON PERUSAL OF RECORD AND AFTER HEARING THE RIVA L SUBMISSIONS, THE FACTS, IN BRIEF, ARE THAT THE LD. ASSESSING OFFICER DISALLOWED PRIOR PERIOD EXPENSES OF RS.9,58 ,495/- OUT OF WHICH THE EXPENSES OF RS.8,93,263/- PERTAINS TO DIE SEL RATE DIFFERENCE, LEAKED PACKETS COMPENSATION, COAL, MILK TRANSPORTATION AND MILK SALE MARGIN PROFITS, HOME D ELIVERY CHARGES ETC. THE AMOUNT OF RS.57,232/- WAS RAW MATE RIAL (DORB) SUPPLIED BY APOORVA AGRO ON 19.9.2005, REJEC TED BY QUALITY CONTROL DEPARTMENT, RS.8,000/- FOR BOILER R EPAIRING DONE BY M/S. BHURU ENGG. WORKS ETC. THESE ABOVE PAYMENTS WERE FINALISED AFTER DUE DATE OF FILING OF INCOME-TAX RE TURNS AND HAD TO BE ACCOUNTED IN THE YEAR UNDER REFERENCE. IN VIE W OF THESE FACTS, WE ARE OF THE CONSIDERED OPINION THAT THESE EXPENSES ARE ALLOWABLE BECAUSE THE SAME WERE NOT CLAIMED ANYWHER E/OTHER 4 ACCOUNTING YEAR ESPECIALLY WHEN THE SAME WERE ASCER TAINED AND CRYSTALISED DURING THE ACCOUNTING YEAR 2006-07. THE CLAIM OF ASSESSEE GETS SUPPORT FROM THE DECISION IN SAURA SHTRA CEMENT & CHEMICAL INDUSTRIES (213 ITR 523) (GUJ). I T IS PERTINENT TO MENTION HERE THAT THE LIABILITY OF EAR LIER YEAR CANNOT BE STRAIGHTWAY IGNORED AND DEPENDS UPON MAKING A DE MAND AND ITS ACCEPTANCE BY THE ASSESSEE ESPECIALLY WHEN IT WAS ACTUALLY CLAIMED AND PAID IN THE LATER PREVIOUS YEA R, THEREFORE, IT CANNOT BE DISALLOWED AS DEDUCTION MERELY ON THE GRO UND THAT THE ACCOUNTS ARE MAINTAINED ON MERCANTILE BASIS AND IT RELATED TO EARLIER YEAR. ADMITTEDLY, THE ASSESSING OFFICER HAS THE RIGHT AND DUTY TO INQUIRE INTO PURPOSE OF EXPENDITURE. AT THE SAME TIME, HE CAN ALSO INQUIRE WHETHER THE EXPENSES WERE INCURRED FOR BUSINESS PURPOSES OR NOT. THE HON'BLE BOMBAY HI GH COURT IN THE CASE OF PHALTON SUGAR WORKS LTD. (162 ITR 62 2) (BOM), WHERE A LIABILITY AROSE OUT OF A CONTRACTUAL OBLIGA TION, IT WAS HELD THAT THE ASSESSEE IS ENTITLED FOR DEDUCTION WH EN IT FINALLY ADJUDICATED UPON/SETTLED. IN ANOTHER CASE OF CIT VS . CENTRAL PROVINCES MANGNESE OR CO. LTD. (112 ITR 724), HON'B LE 5 BOMBAY HIGH COURT HELD THAT A STATUTORY LIABILITY C AN BE CLAIMED AT ANY STAGE OF PROCEEDINGS. THE MERE FACT THAT SUC H A DEDUCTION WAS NOT CLAIMED BEFORE THE ITO IS NOT OF MUCH IMPORTANCE. IF THE LIABILITY ARISES THEN A CLAIM CA N BE MADE BONA-FIDELY AT ANY STAGE BEFORE ANY HIGH AUTHORITY, WHO IS COMPETENT TO GRANT RELIEF. IN VIEW OF THESE FACTS A ND JUDICIAL PRONOUNCEMENTS, THIS GROUND IS ALLOWED. 4. THE LAST GROUND PERTAINS TO DISALLOWING VRS EXPE NSES, WHICH WERE REIMBURSED BY GOVT. OF INDIA AND GOVT. O F MP AND WERE NOT CLAIMED AGAINST ROUTINE BUSINESS INCOME. T HE ASSERTION OF THE LD. COUNSEL FOR ASSESSEE IS THAT T HE VRS EXPENSES HAVE TO BE ALLOWED IN FULL AS DUE TO HEAVY LOSSES, THE REPAYMENT OF LOAN AND INTEREST, DUE THEREON, COULD NOT BE PAID FULLY. IT WAS ALSO CONTENDED THAT THE MATTER OF REH ABILITATION WAS UNDER CONSIDERATION WITH THE STATE AND CENTRAL GOVT . WHICH WAS ON 50-50 SHARING BASIS. ON THE OTHER HAND, THE LD. SR. DR STRONGLY CONTENTED THAT AS PER THE PROVISIONS OF SE CTION 35DDA OF THE ACT, ONLY 1/5 TH OF THE EXPENSES CAN BE ALLOWED AND NOT FULLY. 6 4.1 WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND PE RUSED THE MATERIAL AVAILABLE ON FILE. BRIEF FACTS ARE THA T THE LD. ASSESSING OFFICER DISALLOWED THE PAYMENT OF VRS EXP ENSES. THE MATTER OF REHABILITATION WAS UNDER CONSIDERATIO N WITH THE GOVT. OF INDIA AND STATE OF MP. THE GOVT. OF INDIA, MINISTRY OF AGRICULTURE HAS UNDER CENTRAL SECTOR PLAN SCHEME AS SISTANCE TO COOPERATE ON 50-50 SHARING BASIS. BEFORE SANCTIO N OF REHABILITATION PLAN FOR RS.1500 LACS TO BE SHARED 7 50 LACS EACH BY BOTH THE GOVERNMENTS. IT WAS A PRECONDITION TO CUT DOWN FIXED OVERHEADS OF SALARY BY APPLYING VRS/CRS TO ST AFF. THE REHABILITATION PLAN OF RS. 15 LACS INCLUDED RS. 100 LACS TO BE PAID TO VRS STAFF IN THE YEAR 2006-07 SO AS TO CUT DOWN THE FIXED OVER HEADS AND ALSO TO KEEP THE SUSTENANCE OF THE ASSESSEE. THE ASSESSEE WAS REQUIRED TO MAKE PAYMEN T OFRS.41.64 LACS ONLY WHICH WAS DEBITED TO PROFIT AN D LOSS ACCOUNT, THUS THE PAYMENT EFFECTIVE FROM THE FUNDS OF RS. 10 CRORES RECEIVED FROM GOVERNMENTS, THE AMOUNT WAS OF FERED FOR TAXATION AND THE PAYMENT OF RS. 41.64 LACS WAS NOT CLAIMED AGAINST REGULAR BUSINESS INCOME FROM THE FUNDS REIM BURSED BY 7 BOTH THE GOVERNMENTS. THE ASSESSEE WAS ASKED TO EX PLAIN THE ADMISSIBILITY OF THE AMOUNT IN QUESTION. HOWEVER, THE ASSESSEE CLAIMED THE IMPUGNED AMOUNT AS ADMISSIBLE DEDUCTION. THE LEARNED ASSESSING OFFICER, IN VIEW O F SECTION 35DDA, WAS OF THE VIEW THAT ONLY 1/5 TH OF THE EXPENSES IS ALLOWABLE IN THE YEAR UNDER CONSIDERATION, CONSEQUE NTLY HE MADE DISALLOWANCE OF RS.33,31,098/-. ON APPEAL, STA ND OF THE LEARNED ASSESSING OFFICER WAS AFFIRMED WHICH IS UND ER CHALLENGE BEFORE THIS TRIBUNAL. UNDER THESE CIRCUMS TANCES WE ARE REPRODUCING HEREUNDER SECTION 35DDA OF THE ACT WHICH DEALS WITH AMORTISATION OF EXPENDITURE INCURRED UND ER VOLUNTARY RETIREMENT SCHEME :- 35DDA. (1) WHERE AN ASSESSEE INCURS ANY EXPENDITURE IN ANY PREVIOUS YEAR BY WAY OF PAYMEN T OF ANY SUM TO AN EMPLOYEE 61 [IN CONNECTION WITH] HIS VOLUNTARY RETIREMENT, IN ACCORDANCE WITH ANY SCHEME OR SCHEMES OF VOLUNTARY RETIREMENT, ONE-FIFTH OF THE A MOUNT SO PAID SHALL BE DEDUCTED IN COMPUTING THE PROFITS AND GAINS OF THE BUSINESS FOR THAT PREVIOUS YEAR, AND T HE BALANCE SHALL BE DEDUCTED IN EQUAL INSTALMENTS FOR EACH OF THE FOUR IMMEDIATELY SUCCEEDING PREVIOUS YEARS. 62 [(2) WHERE THE ASSESSEE, BEING AN INDIAN COMPANY, I S ENTITLED TO THE DEDUCTION UNDER SUB-SECTION (1) AND THE UNDERTAKING OF SUCH INDIAN COMPANY ENTITLED TO THE DEDUCTION UNDER SUB-SECTION (1) IS TRANSFERRED, BEF ORE THE EXPIRY OF THE PERIOD SPECIFIED IN THAT SUB-SECTION, TO ANOTHER INDIAN COMPANY IN A SCHEME OF AMALGAMATION, 8 THE PROVISIONS OF THIS SECTION SHALL, AS FAR AS MAY BE, APPLY TO THE AMALGAMATED COMPANY AS THEY WOULD HAVE APPLIED TO THE AMALGAMATING COMPANY IF THE AMALGAMATION HAD NOT TAKEN PLACE. (3) WHERE THE UNDERTAKING OF AN INDIAN COMPANY ENTI TLED TO THE DEDUCTION UNDER SUB-SECTION (1) IS TRANSFERR ED, BEFORE THE EXPIRY OF THE PERIOD SPECIFIED IN THAT S UB- SECTION, TO ANOTHER COMPANY IN A SCHEME OF DEMERGER , THE PROVISIONS OF THIS SECTION SHALL, AS FAR AS MAY BE, APPLY TO THE RESULTING COMPANY, AS THEY WOULD HAVE APPLIED T O THE DEMERGED COMPANY, IF THE DEMERGER HAD NOT TAKEN PLA CE. (4) WHERE THERE HAS BEEN REORGANISATION OF BUSINESS , WHEREBY A FIRM IS SUCCEEDED BY A COMPANY FULFILLING THE CONDITIONS LAID DOWN IN CLAUSE ( XIII ) OF SECTION 47 OR A PROPRIETARY CONCERN IS SUCCEEDED BY A COMPANY FULFI LLING THE CONDITIONS LAID DOWN IN CLAUSE ( XIV ) OF SECTION 47 , THE PROVISIONS OF THIS SECTION SHALL, AS FAR AS MAY BE, APPLY TO THE SUCCESSOR COMPANY, AS THEY WOULD HAVE APPLIED T O THE FIRM OR THE PROPRIETARY CONCERN, IF REORGANISATION OF BUSINESS HAD NOT TAKEN PLACE. (5) NO DEDUCTION SHALL BE ALLOWED IN RESPECT OF THE EXPENDITURE MENTIONED IN SUB-SECTION (1) IN THE CAS E OF THE AMALGAMATING COMPANY REFERRED TO IN SUB-SECTION (2), IN THE CASE OF DEMERGED COMPANY REFERRED TO IN SUB- SECTION (3) AND IN THE CASE OF A FIRM OR PROPRIETAR Y CONCERN REFERRED TO IN SUB-SECTION (4) OF THIS SECT ION, FOR THE PREVIOUS YEAR IN WHICH AMALGAMATION, DEMERGER O R SUCCESSION, AS THE CASE MAY BE, TAKES PLACE. (6) NO DEDUCTION SHALL BE ALLOWED IN RESPECT OF THE EXPENDITURE MENTIONED IN SUB-SECTION (1) UNDER ANY OTHER PROVISION OF THIS ACT.]] IF THE AFORESAID SECTION IS ANALYSED, IT BECOMES CL EAR BY SUB- SECTION (1) THAT IN ACCORDANCE WITH ANY SCHEME OF V OLUNTARY RETIREMENT 1/5 TH OF THE AMOUNT, SO PAID, SHALL BE DEDUCTED IN THE COMPUTATION AND THE BALANCE SHALL BE DEDUCTED IN EQ UAL INSTALMENTS FOR EACH OF THE FOUR IMMEDIATELY SUCCE EDING 9 PREVIOUS YEARS, CONSEQUENTLY, THE 1/5 TH OF THE EXPENSES ARE ALLOWABLE EXPENDITURE IN THE YEAR UNDER CONSIDERATI ON, THEREFORE, THE STAND OF LEARNED COMMISSIONER OF INC OME TAX (APPEALS) IS AFFIRMED. FINALLY, THE APPEAL OF THE ASSESSEE IS PARTLY ALLO WED. (R.C.SHARMA) (JOGINDER SINGH) ACCOUNTANT MEMBER JUDICIAL MEMBER DATED: 11.10.2011 COPY TO: APPELLANT, RESPONDENT, CIT, CIT(A), DR, GU ARD FILE !VYAS!