DCIT, Circle - 6, Kolkata, Kolkata V. M/s. Kilburn Engineering Ltd., Kolkata

ITA 504/KOL/2010

• Counselvise Citation: [2010] 136 COUNSELVISE.COM (IT) 2520 (ITAT-KOLKATA)
• Duration Of Justice: 3 month(s) 19 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 30-06-2010
• Appeal Filed By: Department
• Bench Allotted: A
• Next Hearing Date: 29-06-2010
• Assessment Year: 2005-2006
• Appeal Filed On: 11-03-2010
• Court: TRIBUNAL
• Department Lawyers: SRI PIYUSH KOLHE
• Assessee Lawyers: SHRI R N SAHA
• Keywords: Business income; Corroborative evidences; Liquidation

Judgement Text

, A , , IN THE INCOME TAX APPELLATE TRIBUNAL A BENCH : KOLKATA () BEFORE . . . . . . . . , , , , , !' !' !' !' /AND . .. . . .. .! !! !, , , , # , ,, , [BEFORE HONBLE SRI D. K. TYAGI, JM & HONBLE SRI C. D. RAO , AM] '$ '$ '$ '$ / ITA NO. 504 /KOL/2010 %&' !() %&' !() %&' !() %&' !()/ // / ASSESSMENT YEAR : 2005-06 DEPUTY COMMISSIONER OF INCOME- TAX, CIRCLE-6, KOLKATA . M/S. KILLBURN ENGG. LTD. (PA NO. AABCK 3421 H) (+, / APPELLANT ) - !& - - VERSUS -. (.+,/ RESPONDENT ) +, / 0 / FOR THE APPELLANT: / SHRI SRI PIYUSH KOLHE .+, / 0 / FOR THE RESPONDENT : / SHRI SHRI R. N. SAHA 1 / ORDER PER D. K. TYAGI, JM ( . . . . . . . . , , , , ) THIS APPEAL PREFERRED BY THE REVENUE IS DIRECTED A GAINST THE ORDER OF THE LD. CIT(A), KOLKATA DATED 29.12.2009 FOR THE ASSESSMEN T YEAR 2005-06 ON THE FOLLOWING GROUNDS : 1. THAT THE LD. CIT(A) HAS ERRED IN LAW AS WELL AS ON FACTS, IN DELETING THE DISALLOWANCE OF LIQUIDATED DAMAGES TO THE TUNE OF R S.32,46,654/- WITHOUT CONSIDERING THE FACT THAT THE ASSESSEE FAILED TO PRODUCE ANY DO CUMENTARY EVIDENCE OF DEDUCTION CLAIMED. 2. THAT LD.CIT(A) HAS ERRED IN LAW AS WELL AS ON FA CTS, IN DELETING THE DISALLOWANCE OF CLAIM OF WEIGHTED DEDUCTION RELATED TO SCIENTIFIC R ESEARCH & DEVELOPMENT TO THE TUNE OF RS.23,77,577/- WITHOUT CONSIDERING THE FACT THAT ASSESSEE WAS NOT RECOGNIZED BY THE CENTRAL GOVT. FOR SUCH WEIGHTED DEDUCTION DURING TH E FY 2004-05. 2. GROUND NO. 1 RELATES TO DELETION OF DISALLOWANCE OF LIQUIDATED DAMAGES TO THE TUNE OF RS.32,46,654/-. IN THE ASSESSMENT ORDER, T HE AO OBSERVED THAT THE ASSESSEE HAS DEBITED THE AFORESAID SUM TO THE P&L ACCOUNT. THE ASSESSEE CONTENDED THAT THE AMOUNTS REPRESENTED DEDUCTIONS MADE BY THE CUSTOMER S NAMELY M/S. CABOT FRANCE RS. 31,42,894/- AND M/S. INDIAN PETROCHEMICALS CORP. LT D. RS.1,03,760/- FROM PAYMENTS MADE TO THEM THE AO POINTED OUT TO THE ASSESSEE TH AT THERE IS NO EVIDENCE PRODUCED IN SUPPORT OF DEDUCTIONS MADE BY THE CUSTOMERS FROM TH E PAYMENTS. THE ASSESSEE AGAIN VIDE ITS REPLY SUBMITTED THAT THE ABOVE AMOUNTS REP RESENTS DEDUCTIONS MADE BY THE CUSTOMERS FROM THEIR PAYMENTS ON ACCOUNT OF LIQUIDA TED DAMAGES. THE AMOUNT OF RS.32,46,654/- HAS BEEN DEBITED TO THE P&L ACCOUNT AND THEREFORE, IS ALLOWABLE. THUS, THE AO FOUND THAT THE ASSESSEE FAILED TO ESTABLISH ITS CLAIM FOR DEBITING THE SAID AMOUNT 2 BY PRODUCTION OF DETAILS AND DOCUMENTS WHEREFROM IT WOULD BE EVIDENCED THAT THE TWO CUSTOMERS CONCERNED DEDUCTED THE AMOUNT. THE ASSES SEE HAS ALSO FAILED TO FURNISH ANY CLARIFICATION FOR LIQUIDATED DAMAGES IN RESPECT OF TWO CUSTOMERS. THE AO ALSO OBSERVED THAT IT IS ALSO NOT CLEAR WHETHER THE PAYMENTS TO C ABOT FRANCE WAS OF CAPITAL NATURE OR REVENUE NATURE. IN THE CIRCUMSTANCES, HAVING REGAR D TO THE FACTS OF THE CASE AND IN ABSENCE OF ANY EVIDENCE AND CLARIFICATION IN SUPPOR T OF LIQUIDATED DAMAGES, THE ENTIRE SUM OF RS.32,46,654/- DEBITED AND CLAIMED UNDER THE HEAD LIQUIDATED DAMAGES IS DENIED AND DISALLOWED. IN APPEAL, THE LD. CIT(A) D ELETED THE DISALLOWANCE AND ALLOWED THE GROUND OF APPEAL OF THE ASSESSEE. AGGRIEVED BY THE SAID ORDER, NOW THE REVENUE IS IN APPEAL BEFORE US. 3. AT THE TIME OF HEARING BEFORE US, THE LD. DR REL IED ON THE ORDER OF THE AO AND PRAYED BEFORE THE BENCH TO CONFIRM HIS ACTION. 4. ON THE OTHER HAND, THE LD. COUNSEL FOR THE ASSES SEE WHILE REITERATING HIS SAME SUBMISSIONS AS SUBMITTED BEFORE THE LOWER AUTHORITI ES RELIED ON THE ORDER OF THE LD. CIT(A) AND URGED BEFORE THE BENCH TO CONFIRM THE SA ME. HE ALSO CONTENDED THAT THE AO DISALLOWED THE CLAIM OF THE ASSESSEE FOR WRITE OFF ARBITRARILY AND WITHOUT ANY REASONS. HE ALSO CONTENDED THAT THE ASSESSEE SUBMITTED FULL DE TAILS OF THE LIQUIDATED DAMAGES BEFORE THE AO AS WELL AS AT THE APPELLATE STAGE. H E ALSO CONTENDED THAT THE ASSESSEE HAD OFFERED THE TOTAL VALUE OF THE BILL AS INCOME FOR T HE RELEVANT ASSESSMENT YEAR IN WHICH SUPPLY WAS EXECUTED AND SUBSEQUENTLY THE PARTIES HA VE REDUCED THE BILL AMOUNTS PAID, HENCE THE ASSESSEE HAS CLAIMED THE UNPAID AMOUNT AS LIQUIDATED DAMAGES. HE LASTLY CONCLUDED THAT THE LD. CIT(A) HAS RIGHTLY DELETED THE DISALLOWANCE AND ALLOWED THE GROUND OF APPEAL OF THE ASSESSEE. 5. WE HAVE CAREFULLY CONSIDERED THE ARGUMENTS OF BO TH THE SIDES AND PERUSED THE MATERIAL PLACED BEFORE US. WE FIND THAT THE AO MA DE THE DISALLOWANCE BY OBSERVING THAT THE ASSESSEE FAILED TO ESTABLISH ITS CLAIM FOR DEBITING THE SAID AMOUNT BY PRODUCTION OF DETAILS AND DOCUMENTS. THE AO ALSO DOUBTED THE PAYMENTS MADE TO CABOT FRANCE WHETHER THEY ARE CAPITAL OR REVENUE IN NATURE. THE LD. CIT(A) BY OBSERVING THE FOLLOWING HAS DELETED THE SAID ADDITION : I HAVE GONE THROUGH THE SUBMISSIONS OF THRE APPELL ANT AND ALSO THE ASSESSMENT ORDER OF THE A.O. THE A.O. IN HIS ORDER CONCLUDED THAT TH E APPELLANT FAILED TO ESTABLISH ITS CLAIM FOR DEBITING THE SAID AMOUNT BY PRODUCTION OF DETAILS AND DOCUMENTS THE APPELLANT FILED THE COPY OF THE LETTER FILED BEFORE A.O. DURING THE COURSE OF ASSESSMENT PROCEEDINGS. IN THIS LETTER THE DETAILS OF THE LIQU IDATED DAMAGES WERE FILED BEFORE A.O. 3 THE A.O. DOUBTED THE PAYMENTS MADE TO CABOT FRANCE WHETHER THEY ARE CAPITAL OR REVENUE IN NATURE. AS SEEN FROM THE DEBIT NOTE FILE D DURING THE COURSE OF APPEAL, THE REFERENCE WAS TO PURCHASE ORDER. THE APPELLANT COMP ANY WAS INVOLVED IN SUPPLYING MACHINERY FOR SPECIFIC PROCESS. SIMILARLY AS SEEN F ROM THE DETAILS OF PAYMENT ADVICE OF INDIAN PETROCHEMICALS CORPORATION LIMITED AN AMOUNT OF RS.1,03,760 WAS CLAIMED AS LIQUIDATION DAMAGES. IN MY OPINION, THE DETAILS FIL ED BY THE APPELLANT DO JUSTIFY THE CLAIM FOR LIQUIDATED DAMAGES. SINCE THE APPELLANT H AS BOOKED THE TOTAL VALUE OF INVOICES IN THE PROFIT AND LOSS ACCOUNT IN EARLIER YEAR, THE AMOUNTS NOT RECOVERED CAN BE CLAIMED AS DEDUCTION. THE APPELLANT HAS ALSO FURNISHED DETA ILS OF P & L ACCOUNT WHERE THE TOTAL SALES MADE TO THESE PARTIES ARE ACCOUNTED. THE SALE S TO CABOT FRANCE WERE MADE DURING THE FINANCIAL YEAR 2003-04 AND SALES WERE MADE TO I NDIAN PETROCHEMICAL CORPORATION IN THE F.Y. 2004-05. THE APPELLANT MAINTAINED SEPAR ATE LIQUIDATED DAMAGES ACCOUNT ALSO. THE A.O. HAS NOT BROUGHT ANY ADVERSE FACTS ON RECORD TO DENY THE DEDUCTION TO THE APPELLANT.. IN VIEW OF THIS, THE A.O. IS DIRECTED T O ALLOW THE DEDUCTION AS CLAIMED BY THE APPELLANT. THIS GROUND OF APPEAL IS ALLOWED. SINCE THE LD. DR DID NOT CONTROVERT THE ABOVE FINDI NG OF THE LD. CIT(A) BY ADDUCING ANY COGENT MATERIAL/EVIDENCE AT THE TIME OF HEARING BEFORE US, WE DO NOT SEE ANY REASON TO INTERFERE WITH HIS ORDER AND THE SAME IS HEREBY UPHELD. THIS GROUND OF APPEAL OF THE REVENUE IS, THEREFORE, DISMISSED. 6. GROUND NO. 2 RELATES TO DELETION OF DISALLOWANCE OF CLAIM OF WEIGHTED DEDUCTION RELATED TO SCIENTIFIC RESEARCH & DEVELOPMENT TO THE TUNE OF RS.23,77,577/-. FACTS IN BRIEF AS OBSERVED BY THE AO ARE AS UNDER : THE ASSESSEE HAS SHOWN EXPENDITURE OF RS.19,02,062 /- ON A/C OF SCIENTIFIC RESEARCH AND HAS CLAIMED A WEIGHTED DEDUCTION OF RS.23,77,57 7/- FOR THE SAID EXPENDITURE. THE ASSESSEE HAS FURNISHED SOME DOCUMENTS AND DETAILS V IDE ITS REPLY DT. 19.11.07. THOSE WERE EXPLAINED. IT WAS POINTED OUT TO THE ASSESSEE THE DOCUMENT (XEROX FRONT PAGE ONLY) SHOWS RENEWAL OF RECOGNITION OF IN HOUSE R&D UNIT BEYOND 31.03.06 AND UP TO 31.03.09. IT WAS ALSO POINTED OUT THAT THE SAID DOC UMENT IS ALSO NOT A COMPLETE ONE BECAUSE REVERSE SIDE WAS NOT FURNISHED. MOREOVER, T HE CERTIFICATE RELATING TO F.Y. 2004- 05, I.E. RELEVANT TO PRESENT ASSESSMENT I.E. A.Y. 2 005-06 HAS NOT BEEN FILED. IT WAS FURTHER POINTED OUT TO THE ASSESSEE DOCUMENT VIDE ANNEXURE -7 TO ASSESSEES REPLY DATED 19.11.07 IS A COPY OF BIFRS ORDER DTD. 14.05.2004. IT IS NOTED FROM THE SAID OR DER THAT INITIALLY THERE WAS PROPOSAL FOR DISPOSAL OF THE BHANDUP (MUMBAI) UNIT AND REVIV AL OF THE BARODA (GUJARAT UNIT) .SUBSEQUENTLY, IT WAS DECIDED TO SELL THE BARODA UN IT AND TO REVIVE THE BHANDUP (MUMBAI) UNIT. THUS, IT IS IMPLIED THAT BHANDUP (MU MBAI) UNIT WAS OPERATING DURING THE F.Y. 2004-05(A.Y. 2005-06).THE EXISTENCE OF SCI ENTIFIC RESEARCH UNIT IN BHANDUP FACTORY, AND ACTIVITY AND OPERATION IN SCIENTIFIC N ATURE ARE NOT ESTABLISHED BEYOND DOUBT. IT IS NOTICED THAT THE ASSESSEE WAS ENGAGED IN SUPP LY OF UNIT OPERATION DRYING SYSTEMS AND WAS FOCUSING ON MAINTENANCE .TEA DRYERS WERE AL READY DEVELOPED BY THE ASSESSEE. THE ASSESSEE HAS CONTINUING AGREEMENTS WITH FOREIGN COLLABORATIONS WITH VARIOUS COMPANIES IN JAPAN, GERMANY, USA, & SWITZERLAND. 4 IN THIS BACK GROUND, THE ASSESSEE MUST PROVE THAT I N HOUSE SCIENTIFIC RESEARCH DIVISION UNIT WAS ESTABLISHED IN BHANDUP(MUMBAI) AND APPOINT MENT OF COMPETENT PERSONNEL FOR RESEARCH ACTIVITY WAS MADE. A SEPARATE A/CS FOR ITS RESEARCH ACTIVITY IS REQUIRED TO BE MAINTAINED AND PRODUCED FOR EXAMINATION AND VERIFIC ATION .OTHERWISE, THE ASSESSEES CLAIM FOR DEDUCTION FOR RESEARCH AND DEVELOPMENT CA NNOT BE ENTERTAINED. IT WAS POINTED OUT FURTHER TO THE ASSESSEE THAT IT FAILED TO COMPL Y WITH REQUISITION AT SL NO.2.2 WHEREIN IT WAS REQUESTED TO JUSTIFY THE EXPENSES CLAIMED TO B E INCURRED ON SCIENTIFIC RESEARCH BY PRODUCING RELEVANT DOCUMENTS IN SUPPORT OF EXPENSES . MERE FURNISHING OF BREAK UP OF RESEARCH EXPENSES VIDE ANNEXURE 4 TO THE REPLY DT. 19.11.07 CANNOT ESTABLISH THE GENUINENESS OF THE EXPENSES RELATED TO SCIENTIFIC R ESEARCH. FROM THE FIXED ASSETS SCHEDULE, IT IS ALSO NOTED THAT ONLY ONE ELECTRONIC WEIGHING SCALE VALUING RS 11922/- WAS ACQUIRED ON 15.10.2004 FOR R AND D DEPTT .IN TH E CIRCUMSTANCES, THE ASSESSEE WAS ONCE AGAIN REQUESTED TO SHOW CAUSE WHY EXPENSES CLA IMED UNDER THE HEAD RESEARCH AND DEVELOPMENT WILL NOT BE DENIED. IN REPLY TO ABOVE, THE ASSESSEE SUBMITTED VIDE ITS REPLY DTD.12.12.07 AS UNDER: THE COMPANY HAS AN APPROVED R & D CENTRE AND A DED ICATED TEAM OF R & D PERSONNEL. EVEN THOUGH THE WEIGHTED DEDUCTION MAY N OT BE APPLICABLE AS OUR INDUSTRY DOES NOT FALL UNDER THE PURVIEW OF THE SEC 35D, THE EXPENSES ARE TO BE ALLOWED AS A NORMAL EXPENSE. IN FINE, THE ASSESSEE HAS FAILED TO PROVE THE EXIST ENCE OF ESTABLISHMENT/UNIT FOR SCIENTIFIC RESEARCH DURING THE YEAR INVOLVED. MERE FILING OF A STATEMENT SHOWING BREAK UP OF SO CALLED SCIENTIFIC RESEARCH EXPENDITURE IS NOT SUFFI CIENT AND CONVINCING IN SUPPORT OF THE ASSESSEES CLAIM. IN SPITE OF WRITTEN REQUEST, THE ASSESSEE FAILED TO PROVE THE GENUINENESS OF EXPENDITURE CLAIMED FOR SCIENTIFIC R ESEARCH AND IT FAILED TO PRODUCE RELEVANT A/C S WITH SUPPORTING EVIDENCE FOR MY EXAM INATION AND VERIFICATION. THEREFORE, THE CLAIM FOR DEDUCTION OF RS 2377577/- (WEIGHTED D EDUCTION) IS DENIED AND DISALLOWED LEADING TO ADDITION OF THE SAID SUM TO THE TOTAL IN COME. IN APPEAL, THE LD. CIT(A) HELD THAT THE EXPENDITURE CLAIMED BY THE ASSESSEE IS TO BE ALLOWED U/S. 35(1)(I) OF THE I. T. ACT AND ALLOWED THE ASSESEES GROUND OF APPEAL. AGGRIEVED BY THE SAID ORDER, NOW THE REVENUE IS IN APPEAL BEFORE US. 7. AT THE TIME OF HEARING BEFORE US, THE LD. DR CON TENDED THAT THE ASSESSEE IS NOT ENTITLED FOR WEIGHTED DEDUCTION AS THE REQUIREMENT FOR GETTING THIS DEDUCTION IS THAT HE SHOULD GET CERTIFICATE FROM DG, EXEMPTION IN CONCU RRENCE WITH SECRETARY OF DEPTT. OF SCIENTIFIC & INDUSTRIAL RESEARCH AS PER RULE 6(1) O F THE I. T. RULES READ WITH SECTION 35(1)(I) OF THE I. T. ACT. SINCE THE ASSESSEE IS ADMITTEDLY HAVING NOT ACQUIRED THIS CERTIFICATE THE ASSESSEE IS NOT ENTITLED TO WEIGHTE D DEDUCTION. 8. ON THE OTHER HAND, THE LD. COUNSEL FOR THE ASSES SEE WHILE RELYING ON THE ORDER OF THE LD. CIT(A) REITERATED HIS SAME SUBMISSIONS AS S UBMITTED BEFORE THE LOWER AUTHORITIES AND PRAYED BEFORE US TO CONFIRM THE SAM E. 5 9. AFTER HEARING THE RIVAL SUBMISSIONS AND CAREFULL Y PERUSING THE MATERIAL AVAILABLE ON RECORD, WE FIND THAT THE LD. COUNSEL FOR THE ASS ESSEE DID NOT CONTROVERT THE SUBMISSIONS MADE BY THE LD. DR AT THE TIME OF HEARI NG BEFORE US. THEREFORE, THE GROUND OF APPEAL OF THE REVENUE IS ALLOWED TO THE E XTENT THAT THE ASSESSEE IS NOT ENTITLED TO WEIGHTED DEDUCTION BUT EXPENSES AMOUNTING TO RS. 19 LAKHS WILL REMAIN ALLOWABLE. THIS GROUND OF APPEAL OF THE REVENUE IS PARTLY ALLO WED. 10. IN THE RESULT, THE APPEAL FILED BY THE REVENUE IS ALLOWED IN PART. ORDER PRONOUNCED IN THE OPEN COURT ON 30.6.2010 SD/- SD/- . .. . . .. .! !! !, , , , # . . . . . . . . , , , , (C. D. RAO) (D. K. TYAGI) ACCOUNTANT MEMBER JUDICIAL MEMBER ( (( (# # # #) )) ) DATED : 30 TH JUNE, 2010 !23 %&45 %6! JD.(SR.P.S.) 1 / .%%7 87(9- COPY OF THE ORDER FORWARDED TO: 1. +, /APPELLANT - D CIT, CIRCLE-6, KOLKATA 2 .+, / M/S. KILBURN ENGG. LTD., 4, MANGOE LANE, KOLKATA- 1. 3. %1&/ THE CIT, 4. %1& ()/ THE CIT(A), 5. !?% .%& / DR, KOLKATA BENCHES, KOLKATA 7 .%/ TRUE COPY , 1&@/ BY ORDER , A '5 / DEPUTY REGISTRAR .