M/S. RODAN MULTI MEDIA LTD, V. THE ACIT CIRCLE PANVEL,

ITA 500/MUM/2005

• Counselvise Citation: [2016] 133 COUNSELVISE.COM (IT) 4421 (ITAT-MUMBAI)
• Duration Of Justice: 10 year(s) 11 month(s) 17 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 06-01-2016
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: I
• Next Hearing Date: 23-09-2015
• Assessment Year: 1996-1997
• Appeal Filed On: 20-01-2005
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Depreciation; Block assessment
• Section: 133A; 132

Judgement Text

, IN THE INCOME TAX APPELLATE TRIBUNAL I BENCH, MUMBAI BEFORE S/SHRI B.R.BASKARAN (AM) AND RAMLAL NEGI , (JM) ./ I.T.A. NO. 500 / MUM/20 05 ( / ASSESSMENT YEAR - 1996 - 97 ) RADAN MULTIMEDIA LIMITED, SADHANA RAYON HOUSE, 2 ND FLOOR, DR.D N ROAD, FORT, MUMBAI - 400001 / VS. ASSTT. COMMISSIONR OF INCOME TAX, PANVEL CIRCLE, PANVE L , TRIF I ED TOWER, 3 RD FLOOR, OPP. KHANDA COLONY, NEW PANVEL, DIST. RAIGAD. ( / APPELLANT ) .. ( / RESPONDENT ) ./ ./PAN : AAACR3515N / APPELLANT BY SHRI SALIL KAPOOR / RSPONDENT BY SHRI VINOD KUMAR / DATE OF HEARING : 12.10.2015 / DATE OF PRONOUNCEMENT : 6.1 .2016 / O R D E R PER B.R. BASKARAN (AM) THE ASSESSEE HAS FILED THIS APPEAL CHALLENGING THE ORDER DATED 29 - 10 - 2004 PASSED BY LD CIT(A) - XXXIII, MUMBAI AND IT RELATES TO TH E ASSESSMENT YEAR 1996 - 97. 2. THE ASSESSEE IS AGGRIEVED BY THE DECISION OF LD CIT(A) IN CONFIRMING THE FOLLOWING ADDITIONS MADE BY THE ASSESSING OFFICER: - (A) MACHINERY PURCHASE RS.1,04,15,121/ - (B) FINANCIAL CHARGES RS. 43,01,071/ - (C) EXPENDITURE RELATED TO BOGUS SALES RS. 32,52,353/ - (D) DISALLOWANCE OF DEPRECIATION RS.1,36,11,269/ - ITA NO. 500 / MUM/ 2005 2 3. THE ASSESSEE HAS ALSO RAISED FOLLOWING LEGAL ISSUES: - (A) SCOPE OF ASSESSMENT IN THE SET ASIDE PROCEEDINGS. (B) SCOPE OF ASSESSMENT OF ITEMS ASSESSED IN THE BLOCK ASSESSMENT ORDER. 4. THE FACTS RELATING TO THE CASE ARE STATED IN BRIEF. THE ORIGINAL ASSESSMENT IN THIS CASE WAS COMPLETED ON 31.3.1999 DETERMINING A TOTAL INCOME OF RS.1,72,05,380/ - ON THE BASIS OF FINDINGS RECORDED DURI NG THE COURSE OF SURVEY OPERATIONS CONDUCTED U/S 133A OF THE ACT ON 23.03.1999. THE ASSESSEE FILED APPEAL BEFORE LD CIT(A) CHALLENGING THE ORIGINAL ASSESSMENT ORDER. IN THE MEAN TIME, THE REVENUE ALSO CARRIED OUT SEARCH OPERATIONS U/S 132 OF THE ACT IN T HE HANDS OF THE ASSESSEE ON 05 - 08 - 1999. CONSEQUENT THERETO, THE BLOCK ASSESSMENT WAS ALSO DONE IN THE HANDS OF THE ASSESSEE UNDER CHAPTER XIV - B OF THE ACT. IN THE ORIGINAL ASSESSMENT PROCEEDINGS, THE ASSESSEE HAD CLAIMED 100% DEPRECIATION ON ENERGY SAVING DEVICES AND THE SAME HAD BEEN DISALLOWED BY THE AO, SINCE THE ASSESSEE FAILED TO SUBSTANTIATE THE CLAIM OF ENERGY SAVING DEVICES. BEFORE THE LD CIT(A), THE ASSESSEE CHANGED ITS STAND AND CLAIMED THE CLAIM OF 100% DEPRECIATION WAS NOT CORRECT AND FURTHER THE ASSESSEE CLAIMED THAT IT HAS PURCHASED RAW MATERIALS IN THE FORM OF FILMS TO THE TUNE OF RS.1.04 CRORES AND THE SAME WAS WRONGLY CLAIMED AS ENERGY SAVINGS DEVICES. SINCE A NEW CLAIM WAS MADE, THE LD CIT(A) SET ASIDE THE MATTER WITH THE FOLLOWING OBSER VATIONS: - ..AT THE TIME OF APPEAL HEARINGS THE APPELLANT HAS STATED THAT ITS CLAIM FOR 100% DEPRECIATION WAS NOT CORRECT BUT IT WAS PURCHASED OF RAW MATERIALS IN THE FORM OF FILMS WHICH HAVE BEEN CONSUMED AND THE SALES HAVE BEEN SHOWN AFTER DUE PICTURISA TION. IN SUPPORT OF THIS HE HAS FURNISHED THE PURCHASE AND SALES ADVICES. ALL THESE HAVE BEEN FURNISHED FOR THE FIRST TIME BEFORE ME. THIS IS ALTOGETHER A DIFFERENT STORY THAN WHAT WAS NARRATED BEFORE THE A.O. IN VIEW OF ALL THESE, I FEEL THAT THIS ASS ESSMENT HAS TO BE REDONE KEEPING IN VIEW THE COMPREHENSIVE VIEW TO BE TAKEN IN THE BLOCK ASSESSMENTS ITA NO. 500 / MUM/ 2005 3 WHICH INCLUDES THE PERIOD UNDER CONSIDERATION. ALL THE ITEMS WHICH HAVE BEEN DOUBTED BY THE A.O HAVE TO BE LOOKED INTO VIS - - VIS THE MATERIALS FOUND DURIN G THE COURSE OF SEARCH, WHETHER THE ASSETS ON WHICH DEPRECIATION HAS BEEN CLAIMED WERE FOUND IN THE PHYSICAL VERIFICATION OF THE ASSETS DURING THE SEARCH HAVE TO BE VERIFIED AND RECONCILE. ALL THIS NEEDS THOROUGH SCRUTINY AND INVESTIGATION. THEREFORE, IN THE INTEREST OF JUSTICE, I SET ASIDE THE ASSESSMENT TO BE REDONE AFTER GIVING REASONABLE OPPORTUNITY TO THE APPELLANT TO PROVE ITS FRESH CLAIMS MADE AT THE TIME OF APPEAL HEARINGS. THE A.O IS ALSO DIRECTED TO APPLY HIS FINDINGS IN THE COURSE OF THE BLOCK ASSESSMENTS TO THE FACTS IN THE YEAR UNDER CONSIDERATION. 5. ACCORDING TO THE ASSESSEE, THE ASSESSING OFFICER HAS MADE NEW ADDITIONS IN THE SET ASIDE PROCEEDINGS AND ACCORDINGLY CLAIMED THAT THE SAID ACTION OF THE AO IS BEYOND THE HIS SCOPE AND POWER F OR COMPLETING THE ASSESSMENT IN THE SET ASIDE PROCEEDINGS. IN SUPPORT OF THIS PROPOSITION, THE ASSESSEE RELIED UPON THE DECISION RENDERED BY HONBLE GUJARAT HIGH COURT IN THE CASE SAHELI SYNTHETICS P LTD VS. CIT REPORTED IN 302 ITR 126. 6. WE AGREE WITH THE SAID CONTENTIONS OF THE ASSESSEE. IT IS A WELL SETTLED PROPOSITION OF LAW THAT THE ASSESSING OFFICER IS NOT ENTITLED TO TRAVEL BEYOND THE SCOPE OF SET ASIDE. THE HONBLE GUJARAT HIGH COURT IN THE CASE CITED ABOVE HAS CLEARLY HELD THE SET ASIDE ENVIS AGED BY THE ORDER OF CIT(A) WAS IN THE CONTEXT OF THE ADDITIONS OR DISALLOWANCES WHICH WERE IN APPEAL BEFORE THE APPELLATE AUTHORITY. THE ORDER OF LD CIT(A) COULD NOT BE READ AS EXPANDING THE JURISDICTION OF THE ASSESSING OFFICER. 7. THE NEXT LEGAL ISS UE CONTESTED BY THE ASSESSEE IS THAT THE ASSESSING OFFICER HAS ASSESSED THE ITEMS, WHICH HAVE ALREADY BEEN CONSIDERED IN THE BLOCK ASSESSMENT PROCEEDINGS. ACCORDING TO LD A.R, THE DISALLOWANCE OF DEPRECIATION TO THE EXTENT OF RS.1.36 CRORES HAS ALREADY BE EN MADE IN THE BLOCK ASSESSMENT ORDER AS DECIDED BY THE ITAT AND HENCE THE ASSESSING ITA NO. 500 / MUM/ 2005 4 OFFICER WAS NOT JUSTIFIED IN DISALLOWING THE SAME AGAIN IN THE SET ASIDE PROCEEDINGS. 8. WE HAVE EARLIER NOTICED THAT THE ASSESSEE HAD INITIALLY CLAIMED 100% DEPRECIA TION ON ENERGY SAVINGS DEVICES, WHICH WAS DISALLOWED IN THE ORIGINAL ASSESSMENT PROCEEDINGS. LATER, THE ASSESSEE CHANGED ITS STAND AND SUBMITTED THAT THE CLAIM OF RS.1.36 CRORES DEPRECIATION ON ENERGY SAVINGS DEVICE WAS WRONG, BUT THE SAID EXPENDITURE INC LUDES PURCHASE OF FILMS WORTH RS.1.04 CRORES. IN THE SET ASIDE PROCEEDINGS, THE AO DISALLOWED THE CLAIM OF DEPRECIATION AS WELL AS THE EXPENDITURE CLAIMED TOWARDS PURCHASE OF FILMS CITED ABOVE. 9. UNDER THESE SET OF FACTS, THE ASSESSEE IS RAISING TWO C ONTENTIONS, VIZ., (A) THE DISALLOWANCE OF DEPRECIATION OF RS.1.36 CRORES IS WRONG, SINCE THE SAME AMOUNT HAS BEEN DISALLOWED UNDER BLOCK ASSESSMENT PROCEEDINGS AND WAS ASSESSED AS UNDISCLOSED INCOME. (B) THE AMOUNT OF RS.1.36 CRORES INCLUDES THE PURCHASE OF FILMS WORTH RS.1.04 CRORES (DUE TO CHANGE IN STAND) AND HENCE DISALLOWING THE AMOUNT OF RS.1.04 CRORES WOULD AMOUNT TO DOUBLE DISALLOWANCE. 10. THE SETTLED LEGAL PROPOSITION IS THAT THE BLOCK ASSESSMENT AND REGULAR ASSESSMENT ARE TWO DIFFERENT AS SESSMENT PROCEEDINGS AND THEY WILL RUN PARALLELLY. THE ITEMS THAT ARE REQUIRED TO BE CONSIDERED IN THE BLOCK ASSESSMENT CANNOT BE CONSIDERED IN THE REGULAR ASSESSMENT PROCEEDINGS AND VICE VERSA. HENCE THE ITEMS WHICH HAVE BEEN ASSESSED AS UNDISCLOSED INC OME IN BLOCK ASSESSMENT PROCEEDINGS CANNOT BE CONSIDERED/ASSESSED IN REGULAR ASSESSMENT PROCEEDINGS. ACCORDING TO THE LD A.R THE DISALLOWANCE OF DEPRECIATION OF RS.1.36 CRORES HAS BEEN ASSESSED AS UNDISCLOSED INCOME IN THE BLOCK ASSESSMENT PROCEEDINGS. HE NCE THE AO CANNOT ASSESS THE ITA NO. 500 / MUM/ 2005 5 SAME AGAIN IN THE REGULAR ASSESSMENT PROCEEDINGS. HOWEVER, THESE FACTUAL ASPECTS REQUIRE VERIFICATION. ACCORDINGLY, WE SET ASIDE THIS ISSUE TO THE FILE OF THE AO WITH THE DIRECTION TO EXAMINE THIS CLAIM OF THE ASSESSEE AND TA KE APPROPRIATE DECISION IN ACCORDANCE WITH THE LAW IN THE LIGHT OF DISCUSSIONS MADE SUPRA. 11. THE NEXT LEGAL ISSUE CONTESTED BY THE ASSESSEE RELATES TO THE SCOPE OF SET ASIDE PROCEEDINGS. IN THE PRECEDING PARAGRAPHS, WE HAVE DISCUSSED ABOUT THE SAME . BEFORE US, THE LD A.R SUBMITTED THAT THE FOLLOWING ADDITIONS MADE BY THE ASSESSING OFFICER IN THE SET ASIDE PROCEEDINGS ARE NEW ADDITIONS, WHICH WILL NOT BE COVERED BY THE SCOPE OF SET ASIDE: - (A) MACHINERY PURCHASE RS.1,04,15,121/ - (B) EXPENDITU RE RELATED TO BOGUS SALES RS. 32,52,353/ - HOWEVER, WE NOTICE THAT THE AMOUNT OF RS.1,04,15,121/ - DISALLOWED AS MACHINERY PURCHASE ACTUALLY RELATE TO THE CLAIM OF THE ASSESSEE THAT THE SAME REPRESENTS PURCHASE OF FILMS. HENCE WE ARE OF THE VIEW THAT THE AMOUNT OF RS.1,04,15,121/ - FALLS UNDER THE SCOPE OF SET ASIDE PROCEEDINGS. WE NOTICE THAT THE ASSESSING OFFICER HAS PROVED THAT THE PURCHASES OF FILMS CLAIMED BY THE ASSESSEE WAS BOGUS. 12. HOWEVER, WE NOTICE THAT THE ASSESSEE HAS CLAIMED THAT IT HAS DECLARED THE SALES OF FILMS PICTURISED BY USING THE FILMS OF RS.1.04 CRORES REFERRED ABOVE. THERE SHOULD NOT BE ANY DOUBT THAT THE PICTURES COULD NOT BE PRODUCED WITHOUT THE USE OF FILMS AND IF THE SALE OF PICTURES IS ASSESSED, THEN THE CORRESPONDING EXP ENDITURE SHOULD BE ALLOWED. EVEN THOUGH THE ASSESSING OFFICER HAS CONSIDERED THE SALES ALSO AS BOGUS, HE DID NOT EXCLUDE THE VALUE OF SALES FROM THE INCOME OF THE ASSESSEE. SINCE THE PURCHASE OF FILMS HAVE NOT BEEN PROVED BY THE ASSESSEE, WE ARE OF THE VI EW THAT THIS ISSUE SHOULD BE SETTLED BY DISALLOWING SOME PORTION OF THE ITA NO. 500 / MUM/ 2005 6 PURCHASES IN ORDER TO TAKE CARE OF THE DEFICIENCIES IN THE PURCHASE CLAIM. ACCORDINGLY, WE DIRECT THE ASSESSING OFFICER TO DISALLOW 20% OF THE FILM COST OF RS.1.04 CRORES, SINCE THE A SSESSING OFFICER HAS ASSESSED THE SALE OF PICTURES. WE ORDER ACCORDINGLY. 13. WITH REGARD TO THE DISALLOWANCE OF EXPENSES, WE AGREE WITH THE CONTENTIONS OF THE ASSESSEE THAT THE SAME IS BEYOND THE SCOPE OF THE SET ASIDE PROCEEDINGS. AS NOTICED EARLIER, THOUGH THE ASSESSING OFFICER HAS TAKEN THE VIEW THAT THE SALE OF PICTURES ALSO IS BOGUS ONE, HE HAS NOT ELIMINATED THE SAME FROM THE TOTAL INCOME OF THE ASSESSEE. ACCORDINGLY, WE ARE OF THE VIEW THAT THERE IS NO REASON TO DISALLOW THE EXPENSES ARRIVED ON A PROPORTIONATE BASIS. ACCORDINGLY WE DIRECT THE AO TO DELETE THIS DISALLOWANCE. 14. WITH REGARD TO THE DISALLOWANCE OF FINANCE CHARGES, THE LD A.R SUBMITTED THAT THE SAID ADDITION WAS ALSO MADE IN THE ORIGINAL ASSESSMENT PROCEEDINGS. THE ASSESSEE CLA IMED TO HAVE PURCHASED MACHINERIES THROUGH HIRE PURCHASE FINANCE OBTAINED FROM FINANCE COMPANIES. SINCE THE MACHINERY PURCHASE WAS FOUND TO BE BOGUS, THE ASSESSING OFFICER HAS DISALLOWED THE CLAIM OF FINANCE CHARGES. HOWEVER, THE ASSESSEE ITSELF HAS CHAN GED ITS STAND THAT THE CLAIM OF MACHINERY PURCHASES ACTUALLY INCLUDES THE PURCHASE OF FILMS. UNDER THESE SET OF FACTS, IT IS NOT CLEAR AS TO HOW THE ASSESSEE COULD OBTAIN HIRE PURCHASE FINANCE FACILITY ON THE NON - EXISTING MACHINERIES. IF THE ASSESSEE HAS ACTUALLY OBTAINED THE HIRE PURCHASE FINANCE, THEN THE QUESTION ARISES ABOUT ITS UTILISATION. IF THE LOAN OBTAINED HAS BEEN USED BY THE ASSESSEE FOR BUSINESS PURPOSES, WE ARE OF THE VIEW THAT THE FINANCE CHARGES ARE ALLOWABLE AS DEDUCITON, AS THE HIRE PURC HASE FINANCE IS ONLY ONE OF THE MODES OF RAISING LOANS. HENCE, IN OUR VIEW, THIS ISSUE REQUIRES FRESH EXAMINATION. ACCORDINGLY, WE SET ASIDE THE ORDER OF LD CIT(A) ON THIS ISSUE AND DIRECT THE AO TO EXAMINE THE MANNER OF ITA NO. 500 / MUM/ 2005 7 UTILIZATION OF LOAN AVAILED FROM THE FINANCE COMPANIES. THE ASSESSEE IS ALSO DIRECTED TO FUNISH RELEVANT DETAILS TO THE AO. IF THE SAID LOAN HAS BEEN USED FOR BUSINESS PURPOSES, THEN WE DIRECT THE AO TO ALLOW THE FINANCE CHARGES. 15. THE NEXT ISSUE RELATES TO THE DISALLOWANCE OF DEPR ECIATION OF RS.1.36 CRORES. THIS ISSUE IS COMBINED WITH THE DISALLOWANCE OF RS.1.04 CRORES REFERRED ABOVE. IN THE EARLIER PARAGRAPHS, THE ASSESSEE HAS CLAIMED THAT THE ABOVE SAID SUM OF RS.1.36 CRORES WAS ASSESSED AS UNDISCLOSED INCOME OF THE ASSESSEE IN THE BLOCK ASSESSMENT PROCEEDINGS. IF THE SAID CLAIM IS FOUND TO BE CORRECT, THEN THERE IS NO REQUIREMENT OF ADDING THE SAME IN THE REGULAR ASSESSMENT PROCEEDINGS. IF IT IS NOT FOUND TO BE CORRECT, THEN IT IS THE RESPONSIBILITY OF THE ASSESSEE TO SHOW TH AT THE DIFFERENCE AMOUNT OF RS.0.32 CRORES (1.36 LESS 1.04) REPRESENTS THE VALUE OF MACHINERY ON WHICH 100% DEPRECIATION IS ALLOWABLE. FURTHER IT IS ALSO THE RESPONSIBILITY OF THE ASSESSEE TO SHOW THAT THE MACHINERIES WORTH 0.32 CRORES WAS ACTUALLY PURCHA SED. ACCORDINGLY, THIS ISSUE IS ALSO SET ASIDE TO THE FILE OF THE AO WITH THE DIRECTION TO EXAMINE THE SAME AFRESH. 16. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS TREATED AS ALLOWED FOR STATISTICAL PURPOSES. PRONOUNCED ACCORDINGLY ON 6TH JAN , 201 6 . 6 TH JAN , 201 6 SD SD ( RAMLAL NEGI ) ( B.R. BASKARAN ) / JUDICIAL MEMBER / ACCOUNTANT MEMBER MUMBAI: 6TH JAN , 201 6 . . . ./ SRL , SR. PS ITA NO. 500 / MUM/ 2005 8 / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT 2. / THE RESPONDENT. 3. ( ) / THE CIT(A) - CONCERNED 4. / CIT CONCERNED 5. , , / DR, ITAT, MUMBAI CONCERNED 6. / GUARD FILE. / BY ORDER, TRUE COPY (ASSTT. REGISTRAR) , /ITAT, MUMBAI