ACIT, UDAIPUR V. M/s. Amarjyoti Granites (India) P. Ltd., UDAIPUR

ITA 459/JODH/2014

• Counselvise Citation: [2016] 133 COUNSELVISE.COM (IT) 5255 (ITAT-JODHPUR)
• Duration Of Justice: 1 year(s) 6 month(s) 11 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 08-03-2016
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: DB
• Assessment Year: 2011-2012
• Appeal Filed On: 28-08-2014
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: S L MOURYA
• Assessee Lawyers: SHYAM S SINGHVI
• Keywords: Royalty expenses; Commercial expediency
• Section: 37(1); 37

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL JODHPUR BENCH, JODHPUR BEFORE SHRI N.S. SAINI , HONBLE ACCOUNTANT MEMBER AND SHRI GEORGE MATHAN, HONBLE JUDICIAL MEMBER ITA NO. 459 / JODH /201 4 (ASST. YEAR : 20 11 - 12 ) AC IT, CIRCLE - 2 , UDAIPUR . VS. M/S. AMARJYOTI GRANITES (INDIA) P VT . LTD. , NH - 8, SUKHER, UDAIPUR (RAJ.) . PAN NO. AAACA 7359 P (APPELLANT) (RESPONDENT) ASSESSEE BY : SHRI SHYAM S. SINGHVI FC A. DEPARTMENT BY : SHRI S.L. MOURYA - DR DATE OF HEARING : 08 / 0 3 /201 6 . DATE OF PRONOUNCEMENT : 08 / 03 /201 6 . O R D E R PER N.S. SAINI , ACCOUNTANT MEMBER THIS IS AN APPEAL FILED BY THE REVENUE AGAINST THE ORDER OF THE COMMISSIONER OF INCOME TAX (APPEALS) , UDAIPUR , DATED 02 /0 6 /201 4 . 2. IN GROUND NO.1 , THE GRIEVANCE OF THE REVENUE IS THAT THE COMMISSIONER OF INCOME TAX (APPEALS) ERRED IN DELET ING THE DISALLOWANCE UNDER SEC. 37(1) OF THE ACT AMOUNTING TO RS. 41,76,751/ - MADE ON ACCOUNT OF ILLEGAL MINING EXPENSES FOR ORISSA UNIT WITHOUT APPRECIATING THE FACTS THAT MINING ACTIVITY CARRIED OUT BY THE ASSESSEE IN ORISSA UNIT HAS BEEN PROHIBITED BY LAW. 3 . BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE IS A PRIVATE LIMITED COMPANY ENGAGED IN THE MINING, PROCESSING AND EXPORT OF MARBLE/ 2 ITA NO. 459 / JODH /201 4 GRANITE BLOCKS, SLABS & OTHER NATURAL STONES AT UDAIPUR & ORISSA . IN THE ASSESSMENT YEAR 2011 - 12 , THE ASSESSEE HAD S H OWN INCOME OF RS. 24,00,960/ - . THE ASSESSING OFFICER ASSESSED TOTAL INCOME OF THE A SSESSEE AT RS.67,89,540/ - . WHILE DOING SO, HE DISALLOWED ORISSA UNIT EXPENSES OF RS. 41,76,51/ - OBSERVING THAT MINING OPERATION AND MARBLE BUSINESS THEREOF IS DECLARED ILLEGAL, THEREFORE, IT IS PROHIBITED BY LAW BY ORISSA GOVERNMENT . THEREFORE, CONDUCTING BUSINESS OF MINING OF MARBLE ALSO BECOMES PROHIBITED BY LAW. THESE EXPENSES ALLEGEDLY RELATES TO MINING OPERATION AND MAR B LE BUSINESS THEREOF INASMUCH AS CONDUCTING MARBLE MINING HAVE BEEN DECLARED ILLEGAL AS PROHIBITED BY THE ORISSA GOVERNMENT . THEREFORE, ALL THE EXPENSES INCURRED BY THE ASSESSEE IN RELATION TO THE ORISSA MINE BECOME S IN THE NATURE OF EXPENDITURE INCURRED BY THE ASSESSEE FOR ANY PURPOSE WHICH IS AN OFFENCE OR WHICH IS PROHIBITED B Y LAW. 4 . BEFORE COMMISSIONER OF INCOME TAX (APPEALS), THE ASSESSEE SUBMITTED THAT THE COMPANY HAS TWO SET - UP IN ORISSA I.E. A MINE DECORATIVE STONE AND OTHER ONE A FACTORY OF MARBLE PROCESSING . THE COMPANY OWNS A LEASE HOLD MINES OF DECORATIVE STONES IN 31.808 HECTARE S IN GANJAM DISTRICT, ORISSA SINCE 11/09/1995 . THE MINING DEPARTMENT , ORISSA ALLEGEDLY HELD AND MADE OUT A CASE OF MINING BEYOND THE BOUNDARY PILLARS OF THE ML 31.808 HECTARES FOR 1.069 HECTARES . IN RESULT THE COMPANY CLOSED THE MINING IN 2009 AND SINCE THEN THE STATUS OF MINING HAS BEEN A CLOSED MINE . HOWEVER, FACTORY OF MARBLE PROCESSING IN ORISSA HAS BEEN RUNNING UNINTERRUPTED AND FINANCIALS OF THE FACTORY IS PART OF THE AUDITED RESULTS YEAR AFTER YEAR HAS BEEN REGULARLY ASSESSED IN INCOME TAX ASSESSMENTS . IN THE YEAR UNDER CONSIDERATION , MINES OF DECORATIVE STONES WERE CLOSED AND FACTORY OF MARBLE PROCESSING HAS BEEN FUNCTIONAL . THESE FACTS HAVE BEEN BROUGHT ON RECORD IN ASSESSMENT PROCEEDINGS BEFORE THE ASSESSING OFFICER AT MORE THAN ONE OCCASION . 3 ITA NO. 459 / JODH /201 4 5. THE COMMISSIONER OF INCOME TAX (APPEALS) AFTER CONSIDERING THE SUBMISSIONS OF THE ASSESSEE DELETED THE ADDITION BY OBSERVING AS UNDER: - I HA VE CONSIDER E D THE SUBMISSIONS OF THE APPELLANT AS WELL AS THE FINDINGS OF THE LD. AO. KEEPING INTO CONSIDERATION THE VARIOUS CA S E LAWS OF THE HIGHER APPELLATE AUTHORITIES AND THE HON'BLE COURTS I INCLINE TO AGREE WITH THE CONTENTION / SUBMISSION OF THE APPELLANT THAT THE LD. AO IS NOT JUSTIFIED IN DISALLOWING ORISSA UNIT EXPENSES I.E. MINING EXPENSES AND FACTORY EXPENSES RS. 41,76,751/ - ALLEGEDLY HOLDING TO BE ILLEGAL MINING EXPENSES IN VIEW OF THE FOLLOWING RELEVANT FACTS AND CIRCUMS TANCES OF THE CASE : - I) THE COMPANY HAS TWO SET - UP IN ORISSA VIZ. MINES OF DECORATIVE STONES AND FACTORY. THE LEASE HOLD MINES OWNED BY THE COMPANY IN ORISSA HAVE BEEN EVIDENTLY CLOSED IN 2009 AND THERE HAS NOT TAKEN PLACE MINING OR EXCAVATION ACTIVITY. II) THE REASON FOR THE CLOSURE OF MINES HAS BEEN THE DISPUTE OF BOUNDARY PILLARS ALLEGEDLY HOLDING TO HAVE DONE MINING ILLEGALLY BEYOND THE LEASED AREA. III) NEITHER MINES DEPARTMENT ORISSA NOR THE LD . AO DOUBTS THE CLOSURE OF MINING SINCE 2009 NOR THERE HAS BEE N ANY EVIDENCES FOUND TO ESTABLISH THAT THE COMPANY DID MINING ON THE CLOSED MINES IN SUPPORT OF THE ALLEGATION MADE ON THE COMPANY. IV) ORISSA UNIT EXPENSES RS.41,76,751/ - ARE RELATED TO FACTORY AT ORISSA AND CONSTRAINED FIXED EXPENSES RELATED TO ORISSA MINES MAINLY TOWARDS LEGAL & PROFESSIONAL EXPENSES INCURRED IN PROTESTING THE COMPANY TOWARDS ALLEGED ILLEGAL MINING CASE BEFORE HONBLE HIGH COURT, DISTRICT COURT AND OTHER APPROPRIATE FORUM TIME TO TIME. V) IT IS UNDISPUTED THAT THERE HAS BEEN CLOSURE STATUS O F ORISSA MINE SINCE 2009 HAS RESULTED ZERO MINING ACTIVITY & PRODUCTION AND THERE IS NOT FOUND ANY CIRCUMSTANTIAL EVIDENCES TO HOLD THAT THE COMPANY DID ANY OPERATION AT THE CLOSED MINE IN BOOKS OR OTHERWISE RESULTING INTO INCURRING OF EXPENSES AND THEREFO RE THERE WAS NO SCOPE OF DISALLOWANCE INVOKING PROVISION OF SECTION 37 (1) OF THE ACT. VI) THUS FINANCIAL AND QUANTITATIVE DETAILS FURNISHED BY THE COMPANY AT PAGE NO 93 - 95 OF HIS REPLY DATED 26.12.2013 FOLLOWED BY FURTHER DETAILED BREAK - UP OF EXPENDITURE VIDE REPLY DATED 14.01.2014 CLEARLY PROVES THAT ORISSA UNIT EXPENSES RS. 41,76,751/ RELATES TO FACTORY AND HAS NO RELATION TO THE MINE.(PAGE 27 - 28 & 31) . 4 ITA NO. 459 / JODH /201 4 VII) AS FOR LEGAL EXPENSES & ROYALTY EXPENSES CLAIMED IN THE LIST OF ORISSA EXPENSES, THOUGH RELATED TO ORISSA MINE ARE ALLOWABLE EXPENSES AS THESE ARE INCIDENTAL TO THE MAIN BUSINESS AND INCURRED IN COMMERCIAL EXPEDIENCY FOR THE EXISTENCE AND SURVIVAL OF MINING PROPERTIES AND SURFACE ALLOWABLE EXPENSE U/S 37 OF THE ACT. ON THE BASIS OF ENTIRETY OF FACTS AND CIRCU MSTANCES OF THE APPELLANTS CASE IT IS OBSERVED THAT APPLICABILITY OF EXPLANATION 1 TO SECTION 37 OF THE ACT LIMITING THE ALLOWABILITY, IF ANY ASSESSEE INCURS ANY EXPENDITURE FOR ANY PURPOSE WHICH IS ANY OFFENCE OR WHICH IS PROHIBITED BY LAW SHALL NOT BE D EEMED TO HAVE BEEN INCURRED FOR THE PURPOSE OF BUSINESS OR PROFESSION AND NO DEDUCTION OR ALLOWANCE SHALL BE MADE IN RESPECT OF SUCH EXPENDITURE. FACTUALLY ORISSA UNIT EXPENSES RS 41,76,751/ HAVE BEEN EVIDENTLY PROVED IN THE ASSESSMENT PROCEEDING TO BE REL ATED AND INCURRED EXCLUSIVELY FOR THE FACTORY EXPENSES , THUS EXPLANATION 1 TO SECTION 37 OF THE ACT HAS NO APPLICATION AND THEREFORE DISALLOWANCE DESERVES TO BE DELETED. ACCORDINGLY, THE DISALLOWANCE OF ORISSA UNIT EXPENSES OF RS. 41,76,751/ - IS DELETED. HENCE, THIS GROUND OF APPEAL IS ALLOWED. 6. DEPARTMENTAL REPRESENTATIVE RELIED ON THE ORDER OF THE ASSESSING OFFICER. HE COULD NOT CONTROVERT THE FINDING OF THE COMMISSIONER OF INCOME TAX (APPEALS) BY BRINING ANY COGENT MATERIAL ON RECORD THAT THUS, FINANCIAL AND QUANTITATIVE DETA I LS FU R NISHED BY THE COMPANY AT PAGE NO. 93 - 95 OF HIS REPLY DATED 26/12/2013 FOLLOWED BY FURTHER DETAILED BREAK - UP OF EXPENDITURE VIDE REPLY DATED 14/01/2014 CLEARLY PROVES THAT ORISSA UNIT EXPENSES RS. 41,76,751/ - RELATES TO FACTORY AND HAS NO RELATION TO THE MINE, HENCE, WE FIND NO GOOD REASON TO INTERFERE WITH THE ORDER OF THE COMMISSIONER OF INCOME TAX (APPEALS) WHICH IS CONFIRMED AND THE GROUND OF APPEAL OF THE REVENUE IS DISMISSED. 7. IN GROUND NO.2 , THE GRIEVANCE OF THE REVENUE IS THAT THE COMMISSIONER OF INCOME TAX (APPEALS) ERRED IN DELETING THE ADDITION OF RS. 2,11,830/ - ON ACCOUNT OF CESSATION OF LIABILITY UNDER SEC. 41(1) OF THE ACT WITHOUT APPRECIATING THE FACTS THAT THE AMOUNT OF RS. 2,11,830/ - WAS LYING UN CLAIMED AS SUNDRY CREDITOR S IN THE BOOKS OF THE ASSESSEE FOR YEARS TOGETHER. 5 ITA NO. 459 / JODH /201 4 8. BRIEF FACTS OF THE CASE ARE THAT THE ASSESSING OFFICER OBSERVED THAT THE AMOUNT OF RS. 2,11,830/ - ARE LYING AS SUNDRY CREDITORS IN THE BOOKS OF THE ASSESSEE FOR YEARS TOGETHER AND THEREFORE, HE ADDED THE SAME BY INVOKING THE PROVISIONS OF SEC. 41(1) OF THE ACT. 9. ON APPEAL, COMMISSIONER OF INCOME TAX (APPEALS) DELETED THE ADDITION BY OBSERVING THAT HIGHER APPELLATE AUTHORITIES AND THE HIGH COURT S HAVE HELD THAT THE PROVISIONS OF SEC. 41(1) ARE NOT APPLICABLE AS NEITHER THE ASSESSING OFFICER PROVED THAT THERE WAS CESSATION OF LIABILITIES FOR WHICH THE ASSESSEE HAS FINALLY OBTAINED BENEFITS NOR THE COMPANY HAS UNILATERALLY WRITTEN OFF THE LIABILITIES . 10. DEPARTMENTAL REPRESENTATIVE RELIED ON THE ORDER OF THE ASSESSING OFFICER , WHEREAS THE AUTHORIZED REPRESENTATIVE OF THE ASSESSEE SUPPORTED THE ORDER OF THE COMMISSIONER OF INCOME TAX (APPEALS). 11 . WE HAVE HEARD RIVAL SUBMISSIONS AND PERUSED THE ORDERS OF THE LOWER AUTHORITIES AND THE MATERIAL AVAILABLE ON RECORD. IN THE INSTANT CASE , WE FIND THAT THE ASSESSING OFFICER MADE THE ADDITION OF RS. 2,11,830/ - SHOWN UNDER THE HEAD SUNDRY CREDITORS BY INVOKING THE PROVISIONS OF SEC. 4191) OF THE ACT ON THE GROUND THAT THE LIABILITIES WERE LYING UNPAID FOR SEVERAL YEARS . ON APPEAL, COMMISSIONER OF INCOME TAX (APPEALS) DELETED THE ADDITION ON THE GRO U ND THAT NEITHER THE ASSESSING OF FICER HAS BROUGHT ANY MATERIAL ON RECORD TO S H OW THAT THERE WAS CESSATION OF LIABILITIES AND THE ASSESSEE HAS OBTAINED ANY BENEFIT NOR THE ASSESSEE HAS UNILATERALLY WRITTEN THEM OFF . BEFORE US ALSO , NO MATERIAL WAS BROUGHT ON RECORD BY THE REVENUE TO SHOW THAT THE LIABILITIES SHOWN BY THE ASSESSEE HAS CEASED TO EXIST OR THE ASSESSEE HAS OBTAINED ANY BENEFIT FOR THE SAME. THEREFORE, WE FIND NO GOOD REASON TO INTERFERE WITH THE ORDER OF THE COMMISSIONER OF INCOME TAX (APPEALS) WHICH IS CONFIR MED AND THE G R OUND OF APPEAL OF THE REVENUE IS DISMISSED. 6 ITA NO. 459 / JODH /201 4 12. IN THE RESULT, APPEAL OF THE REVENUE IS DISMISSED. ORDER PRONOUNCED IN THE COURT AT THE CLOSE OF THE HEARING ON TUESDAY , THE 08 TH DAY OF MARCH , 201 6 AT JODHPUR . SD/ - SD/ - (GEORGE MATHAN) (N.S.SAINI) JUDICIAL MEMBER ACCOUNTANT MEMBER D ATED : 08 TH MARCH , 201 6 . VR/ - COPY TO: 1. THE ASSESS E E. 2. THE REVENUE. 3. THE CIT 4. THE CIT(A) 5. THE D.R . 6. GUARD FILE. BY ORDER SR. PRIVATE SECRETARY I.T.A.T., JODHPUR . 7 ITA NO. 459 / JODH /201 4