M/s B.K. Duplex Board Limted, Ludhiana V. ACIT, Ludhiana

ITA 468/CHANDI/2014

• Counselvise Citation: [2016] 133 COUNSELVISE.COM (IT) 8512 (ITAT-CHANDIGARH)
• Duration Of Justice: 1 year(s) 8 month(s) 29 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 29-01-2016
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: SMC
• Next Hearing Date: 06-11-2015
• Assessment Year: 2007-2008
• Appeal Filed On: 30-04-2014
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: JATINDER KUMAR
• Keywords: Capital asset; Revenue expenditure; Capital expenditure

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL CHANDIGARH BENCHES SMC CHANDIGARH BEFORE SHRI H.L.KARWA, HON'BLE VICE PRESIDENT ITA NO. 468/CHD/2014 ASSESSMENT YEAR: 2007-08 M/S B.K. DUPLEX BOARD LIMITED, VS. THE CIT, CIRCLE -III, LUDHIANA LUDHIANA PAN NO. AAACB8809J (APPELLANT) (RESPONDENT) APPELLANT BY : NONE (WRITTEN SUBMISSIONS) RESPONDENT BY : SH. JATINDER KUMAR DATE OF HEARING : 29.01.2016 DATE OF PRONOUNCEMENT : 29 .01.2016 ORDER PER H.L.KARWA, VP THIS APPEAL FILED BY THE ASSESSEE IS DIRECTED AGAIN ST THE ORDER OF CIT(A)- II, LUDHIANA DATED 24.2.2014 RELATING TO ASSESSMENT YEAR 2007-08. 2. IN THIS APPEAL THE ASSESSEE HAS RAISED THE FOLLO WING GROUNDS:- 1. THAT THE LD CIT (A), HAS ERRED IN LAW AND FACTS OF THE CASE, BY CONFIRMING THE ORDER OF A.O, WHILE NOT CONSIDER ING RS 10,68,562/- (RS TEN LACS SIXTY EIGHT THOUSAND FIVE HUNDRED AND SIXTY TWO ONLY),AS REVENUE EXPENDITURE, RATHER TREATING IT AS CAPITAL EXPENDITURE, THUS OVER STATING THE INCOM E TO THAT EXTENT. 2. THAT THE LD CIT (A), HAS ERRED IN LAW AND FACTS OF THE CASE, BY CONFIRMING THE ORDER OF A.O, WHILE NOT CONSIDERI NG RS. 13,45,000/- (RS. THIRTEEN LACS AND FORTY FIVE THOUS AND 2 ONLY) AS REVENUE EXPENDITURE, RATHER TREATING IT AS CAPITAL EXPENDITURE, THUS OVERSTATING THE INCOME TO THAT EX TENT. 3. BRIEFLY STATED THE FACTS OF THE CASE ARE THAT TH E ASSESSEE IS ENGAGED IN TRADING OF CLOTH AND PAPER. THE ASSESSEE SUBMITTED ITS RETURN OF INCOME ON 2.11.2007 DECLARING LOSS OF RS. 1,91,05,895/-. THE ASSESSING OFFICER NOTICED THAT THE ASSESSEE HAD DEBITED SECURITIES FORFEITED AMOUN TING TO RS. 10,68,562/- AND LOSS ON SCRAP AND SPARES AMOUNTING TO RS. 24,47,050 /- TO PROFIT AND LOSS ACCOUNT AS REVENUE EXPENDITURE. THE ASSESSING OFFICER REQUI RED THE ASSESSEE TO EXPLAIN AS TO WHY THE ABOVE EXPENSES SHOULD NOT BE DISALLOW ED AS CAPITAL EXPENDITURE. IN RESPONSE TO THE ABOVE QUERY, THE ASSESSEE SUBMIT TED REPLY DATED 14.12.2009, WHICH READS AS UNDER:- REGARDING THE SECURITIES FORFEITED AMOUNTING TO RS.10,68,562/- DEBITED IN PROFIT AND LOSS ACCOUNT A S REVENUE EXPENDITURE, WE SUBMIT THAT THE ASSESSEE HAS GIVEN SECURITIES TO PUNJAB STATE ELECTRICITY BOARD, EXCISE DEPARTMENT AND OTHERS OF RS.10,68,562/-. THE ASSESSEE HAS SOLD OUT ITS FACTORY AND DISCONTINUED ITS MANUFACTURING ACTIVITIES IN THE FINANCIAL YEA R 2006-07 RELEVANT TO ASSESSMENT YEAR 2007-08 AND PSEB AND OTHER DEPARTMENTS HAS FORFEITED THE SECURITIES THEREFORE THE ASSESSEE DEBITED THE SAME IN PROFIT A ND LOSS ACCOUNT AS REVENUE EXPENSES. REGARDING LOSS ' ON SCRAP AND SPARES AMOUNTING TO RS.24,47,050/- DEBITED IN T HE PROFIT AND LOSS ACCOUNT AS REVENUE EXPENDITURE, WE SUBMIT THAT THE ASSESSEE HAS VALUED THE STOCK OF CONSUMABLE STO RES AND OTHERS AS ON 31.03.2007 WHICH IS DEVALUED BY RS.24, 47,050/- AND THE SAME HAS DEBITED TO PROFIT AND LOSS ACCOUN T AS REVENUE EXPENSES. EXPENSES OF CONSUMABLE STORES ARE OF THE NATURE OF REVENUE EXPENDITURE. THEREFORE BOTH EXPENDITURE ARE OF REVENUE NATURE NOT CAPITAL NATUR E' 4. THE ASSESSING OFFICER DID NOT ACCEPT THE ABOVE R EPLY OF THE ASSESSEE AND HELD THAT THE ABOVE EXPENSES ARE IN THE NATURE OF CAPITAL EXPENDITURE. ACCORDING 3 TO HIM, THEY GIVE ENDURING BENEFIT TO THE ASSESSEE. THE ASSESSING OFFICER FURTHER OBSERVED THAT THE LOSS ON SCRAP AND SPARES IS MACHI NERY SPARE PARTS AND NOT CONSUMABLE STORES. ACCORDING TO HIM, THE LOSS OF MA CHINERY SPARES IS A CAPITAL LOSS AND NOT REVENUE EXPENDITURE. 5. ON APPEAL, THE CIT(A) CONFIRMED THE ORDER OF ASS ESSING OFFICER HOLDING THAT THE FORFEITURE OF SECURITIES AMOUNTING TO RS. 10,68,562/- IS CLEARLY LOSS IN THE CAPITAL FILED. ACCORDING TO HIM, THE SECURITIES ARE GIVEN FOR ENDURING BENEFIT OVER THE YEARS. ACCORDINGLY, THE FORFEITURE OF SECU RITIES HAS BEEN HELD TO BE REVENUE EXPENDITURE. 6. AS REGARDS THE LOSS ON SCRAP AND SPARES AMOUNTIN G TO RS. 24,47,050/-, THE CIT(A) ALLOWED A RELIEF OF RS. 1,80,600/- HOLDING T HAT THE LOSS ON CHEMICALS AMOUNTING TO RS. 1,80,600/- FALL UNDER THE HEAD CON SUMABLE STORES. HE ACCORDINGLY, ALLOWED A LOSS OF RS. 1,80,600/- ON AC COUNT OF DEVALUATION OF STOCK OF CHEMICALS AS REVENUE LOSS. AS REGARDS LOSS OF M ACHINERY STORE AND SPARES, AMOUNTING TO RS. 13,45,000/-, LOSS ON FURNITURE AN D FIXTURES AMOUNTING TO RS. 2,33,052/- AND LOSS OF ELECTRIC FITTINGS AMOUNTIN G TO RS. 6,88,398/-, THE LD. CIT(A) HELD THAT THESE ITEMS ARE ASSETS. HE FURTHER HELD THAT ANY LOSS ON ACCOUNT OF DEVALUATION OF THESE ASSETS CANNOT BE HELD TO BE REVENUE LOSS. 7. THE ASSESSEE VIDE ITS LETTER DATED 6.8.2015 HAS STATED THAT THE INSTANT APPEAL MADE BE DECIDED ON MERITS ON THE BASIS OF WR ITTEN SUBMISSIONS AND ALSO REQUESTED TO WAIVE PERSONAL APPEARANCE. THE WRITTEN SUBMISSIONS SUBMITTED BY THE ASSESSEE READS AS UNDER:- GROUND OF APPEAL NO.L UNDISPUTED FACT, BORNE OUT OF RECORD IS THAT ASSESS EE HAS DEBITED A SUM OF RS.10,68,562/- IN PROFIT & LOSS AC COUNT ON ACCOUNT OF FORFEITURE OF SECURITIES. RS.L0,45,950/- WERE 4 FORFEITED BY P.S.E.B. AND 22,582/- WERE FORFEITED B Y EXCISE DEPARTMENT. SECURITY AS A MATTER OF FACT, IS TAKEN BY ANY DEPAR TMENT OR ANY OTHER BODY, FOR THE REASON THAT IN THE EVENT OF FAILURE TO FULFILL THE COMMITMENT W.R.T. PAYMENT OR OTHERWISE, THE FINANCIAL CONSEQUENCE OF THE SAME MAY BE ADJUSTED A GAINST THE SECURITY AMOUNT. SO IS THE CASE OF P.S.E.B. PUN JAB STATE ELECTRICITY BOARD TAKES THE SECURITY FROM CONSUMER, AMOUNT BEING BASED ON QUANTUM OF LOAD OF CONNECTION BEING APPLIED BY CONSUMER. THIS IS ONLY AFTER DEPOSIT OF PRESCRIB ED SECURITY WITH DEPARTMENT THAT ELECTRICITY CONNECTION IS INST ALLED AT THE PREMISES OF CONSUMER. IN THE EVENT OF FAILURE OF PA YMENT OF BILLS PAYABLE FOR CONSUMPTION OF ELECTRIC POWER, SU CH BILLS ARE ADJUSTED AGAINST THE PRE-RECEIVED SECURITY. IN THE INSTANT CASE RS.10,45,980/- WERE GIVEN AS ELECTRIC SECURITY . BUT, IN CURRENT YEAR, BECAUSE OF CLOSURE OF FACTORY THE BIL LS COULD NOT BE PAID. SUCH BILLS WERE ADJUSTED WITH SECURITY LYI NG WITH P.S.E.B. NECESSARILY SUCH UNADJUSTED AMOUNT, BEING NON- RECOVERABLE FROM DEPARTMENT IS ALLOWABLE EXPENSE, S INCE ELECTRICITY EXPENSE IS AN ALLOWABLE EXPENSE. THE SA ME IS TRUE ALSO FOR RS.22,582/- ON ACCOUNT OF SAME REASONING. DULY NOTARISED AFFIDAVIT GIVEN BY DIRECTOR IS ENCLOSED H EREWITH, STATING THE FACT THAT SUCH AMOUNTS WERE FORFEITED B Y DEPARTMENTS AND WERE NEVER RECEIVED BY COMPANY OR A NY OF ITS DIRECTORS. GROUND OF APPEAL NO.2 FURTHER, REGARDING LOSS ON ACCOUNT OF DEVALUATION O F MACHINERY STORES & SPARES AMOUNTING TO RS.13,45,000 /- IT IS HUMBLY SUBMITTED THAT SUCH STORES & SPARES ARE PART OF CONSUMABLE STORES. THESE WERE THE ITEMS, WHICH WERE REGULARLY BEING CONSUMED BY THE COMPANY IN ITS MANUFACTURING PROCESS. HOWEVER, ON 31.03.2007, DURI NG PHYSICAL VERIFICATION IT WAS FOUND THAT NO SUCH STO CKS WERE IN EXISTENCE. DETAILS OF INVENTORY AS AT 31.03.2006 AND 31,03,20 07 IS GIVEN BELOW: 5 PARTICULARS STOCK AS ON 31.03.2006 STOCK AS ON 31.03.2007 CHEMICALS 3286000 3105400 RICE HUSK 96500 96500 PACKING MATERIAL 1482000 1482000 CONSUMABLE 1148000 1148000 MACHINERY STORE & SPARES 1345000 MACHINERY SCRAP(TRADING) 7200000 4559800 WASTE PAPER 4761242 TOTAL STOCK 14557500 15152942 FROM THE ABOVE IT IS VERY MUCH CLEAR THAT MACHINERY STORES & SPARES WERE DEVALUED TO THE EXTENT OF RS.13,45,000/ -. THESE STORES & SPARES ARE OTHERWISE USED IN REGULAR MANUF ACTURING PROCESS. SINCE, STOCKS WERE NOT PHYSICALLY AVAILABL E AS ON 31.03.2007,THE RESULTANT LOSS IS DEFINITELY REVENUE LOSS. PRAYER: IT IS PRAYED BEFORE THE HON'BLE MEMBERS TO DELETE T HE ADDITIONS TO THE TUNE OF RS. 24,13,562 /-. 8. I HAVE CAREFULLY PERUSED THE WRITTEN SUBMISSIONS OF THE ASSESSEE AND ALSO THE CASE RECORDS. SHRI JATINDER KUMAR, LD. DR STRON GLY SUPPORTED THE ORDER OF THE LOWER AUTHORITIES. IT IS APPARENT FROM THE RECO RDS THAT THE SECURITY WAS GIVEN TO THE PUNJAB STATE ELECTRICITY BOARD (PSEB) AND EX CISE DEPARTMENT. THE ASSESSEE SOLD OUT ITS FACTORY AND DISCONTINUED MANU FACTURING ACTIVITY DURING THE ASSESSMENT YEAR 2007-08. DURING THE YEAR UNDER CONS IDERATION, PSEB, LUDHIANA AND OTHER DEPARTMENTS FORFEITED THE ELECTRIC SECURI TY OF RS. 10,45,980/- DUE TO NON DEPOSIT OF CURRENT YEAR ELECTRICITY BILLS. THE COMPANY COULD NOT DEPOSIT THE CURRENT YEAR ELECTRICITY BILLS BECAUSE THE COMPANY HAD DISCONTINUED THE 6 MANUFACTURING ACTIVITIES. EXCISE DEPARTMENT AND OT HER DEPARTMENTS HAVE ALSO FORFEITED THE SECURITY OF RS. 22,582/- AND ADJUSTED THE SAME WITH PENDING BILLS OF CURRENT YEAR. IN MY OPINION, THE LD. CIT(A) HAS CORRECTLY HELD THAT THE FORFEITURE OF SECURITIES AMOUNTING TO RS. 10,68,562 /- IS CLEARLY LOSS IN THE CAPITAL FILED. IT IS TRUE THAT THE SECURITIES ARE GIVEN FOR ENDURING BENEFIT OVER THE YEARS. THERE IS NO MATERIAL ON RECORD TO CONTROVERT THE FI NDINGS OF THE CIT(A) ON THIS ISSUE. IN MY CONSIDERED VIEW, THE FORFEITURE OF SEC URITIES CANNOT BE HELD TO BE REVENUE EXPENSES. ACCORDINGLY, I UPHOLD THE ORDER O F THE CIT(A) ON THIS ISSUE AND REJECT GROUND NO.1 OF THE APPEAL, 9. AS REGARDS THE LOSS ON SCRAP AND SPARES, WHICH C ONSIST OF THREE ITEMS I.E. MACHINERY STORE AND SPARES, LOSS ON FURNITURE AN D FIXTURES AND LOSS OF ELECTRIC FITTINGS, I AM OF THE VIEW THAT THE LD. CIT(A) HAS CORRECTLY HELD THE SAME AS CAPITAL ASSETS. IN THIS REGARD THE CONTENTI ON OF THE ASSESSEE WAS THAT DUE TO CLOSE DOWN OF MANUFACTURING ACTIVITY AND SALE OF FACTORY THE VALUE OF CONSUMABLE STORES IS DEVALUED AND THE SAME WAS DEBI TED TO THE PROFIT AND LOSS ACCOUNT AS REVENUE EXPENDITURE. IN MY OPINION, ANY LOSS ON ACCOUNT OF DEVALUATION OF CAPITAL ASSETS CANNOT BE HELD AS REV ENUE LOSS. TAKING INTO CONSIDERATION THE RELEVANT FACTS OF THE CASE AND SE TTLED LEGAL POSITION, I DO NOT FIND ANY INFIRMITY IN THE ORDER OF CIT(A) ON THIS I SSUE. ACCORDINGLY, I UPHOLD THE ORDER OF CIT(A) AND REJECT GROUND NO.2 OF THE A PPEAL. 9. IN THE RESULT, THE APPEAL IS DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 29.01.2016 SD/- (H.L.KARWA) VICE PRESIDENT DATED : 29 TH JANUARY, 2016 RKK 7 COPY TO: 2. THE APPELLANT 3. THE RESPONDENT 4. THE CIT 5. THE CIT(A) 6. THE DR