M/s. Mercury Industries Ltd., Kanpur V. Dy. Commissioner of Income Tax, Kanpur

ITA 54/LKW/2017

• Counselvise Citation: [2018] 126 COUNSELVISE.COM (IT) 1157 (ITAT-LUCKNOW)
• Duration Of Justice: 11 month(s) 29 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 19-01-2018
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: B
• Assessment Year: 2013-2014
• Appeal Filed On: 20-01-2017
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Keywords: Depreciation

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL LUCKNOW BENCH B , LUCKNOW BEFORE SHRI. T.S. KAPOOR, ACCOUNTANT MEMBER AND SHRI PARTHA SARATHI CHAUDHURY, JUDICIAL MEMBER ITA NO. 54/LKW/2017 ASSESSMENT YEAR: 2013 - 14 M/S MERCURY INDUSTRIES LTD. C - 9, PANKI INDUSTR IAL AREA , SITE 1 KANPUR V. DY. CIT - 4 KANPUR T AN /PAN : AABCM19950B (APP ELL ANT) (RESPONDENT) APPELLANT BY: SHRI RAKESH GARG, ADVOCATE RESPONDENT BY: SHRI HIMANSHU PANDEY, D.R. DATE OF HEARING: 17 01 201 8 DATE OF PRONOUNCEMENT: 19 01 201 8 O R D E R PER P ARTHA SARATHI CHAUDHURY, J.M : THIS APPEAL PREFERRED BY THE ASSESSEE EMANATES FROM THE ORDER OF THE LD. CIT(A) - II, KANPUR DATED 17/11/2016 ON THE FOLLOWING GROUNDS OF APPEAL: - 01. BECAUSE THE CIT(A) HAS ERRED ON FACTS AND IN LAW IN DISALLOWING A SUM O F RS.2,93,672 / - BEING INTEREST PAID TO M/S. KOTAK MAHINDRA PREMIUS LTD. BY APPLYING THE PROVISIONS OF SECTION 40(A)(IA) OF THE INCOME TAX ACT, 1961, THE DISALLOWANCE IS CONTRARY TO THE PROVISIONS OF LAW AND BE DELETED. 02. BECAUSE THE CIT(A) HAS ERRED O N FACTS AND IN LAW IN DISALLOWING A SUM OF RS.3,54,786 / - BY APPLYING THE EXPLANATION TO SECTION 36(I)(III) OF THE ACT, HOLDING THAT THE CAPITAL HAS BEEN BORROWED FOR THE PURPOSE OF 'EXTENSION' OF EXISTING BUSINESS WHEREAS, THE FACTS ARE THAT THE CAPITAL HA S BEEN BORROWED FOR THE PURPOSE OF 'EXPANSION' OF EXISTING BUSINESS, THE PROVISO TO SEC.36(I)(III) IS NOT APPLICABLE, THE ADDITION MADE BE DELETED. ITA NO.54/LKW/2017 PAGE 2 OF 8 03. BECAUSE WITHOUT PREJUDICE TO THE GROUND NO. (02) THE CIT(A) HAS ERRED ON FACTS AND IN LAW IN NOT ALLO WING DEPRECIATION ON THE ADDITION MADE TO THE BUILDING, WHICH ADDITION BEING ON CAPITAL ACCOUNT, DEPRECIATION SHOULD HAVE BEEN ALLOWED. 2 . WITH REGARD TO THE FIRST GROUND RELATING TO DISALLOWANCE OF A SUM OF RS.2,93,672/ - BEING INTEREST PAID TO M/S KOTAK MAHI NDRA PREMIUS LTD. BY APPLYING THE PROVISIONS OF SECTION 40(A)(IA) OF THE ACT, THE FACTS ARE THAT THE ASSESSING OFFICER IN THE ASSESSMENT ORDER NO TED THAT FROM A PERUSAL OF THE BOOKS OF ACCOUNT, IT IS SEEN THAT THE ASSESSEE HAS DEBITED A SUM OF RS.1,42,55,0 57/ - UNDER THE HEAD BANK CHARGES AND OUT OF WHICH INTEREST AMOUNT ING TO RS.2,93,672/ - HAS BEEN PAID TO KOTAK MAHINDRA PREMIUS LTD. TOWARDS INTEREST ON CAR LOAN. THE ASSESSEE WAS REQUIRED TO FURNISH THE DETAILS OF PAYMENTS OF INTEREST ON CAR LOAN AND DEDUCT ION OF TAX THEREUPON. THE ASSESSEE FILED WRITTEN SUBMISSION AND FURNISHED REQUIRED DETAILS WHEREFROM IT WAS FOUND THAT ASSESSEE HAS NOT DEDUCTED TAX ON PAYMENT OF INTEREST ON CAR LOANS. THEREFORE, LOOKING TO THE FACTS, AN AMOUNT OF RS.2,93,672/ - WAS DISALL OWED AND ADDED TO THE TOTAL INCOME OF THE ASSESSEE BY INVOKING THE PROVISIONS OF SECTION 40(A)(IA) OF THE ACT. 3 . AGGRIEVED BY THE ORDER OF THE ASSESSING OFFICER, ASSESSEE PREFERRED AN APPEAL BEFORE THE LD. CIT(A) AND SUBMITTED THAT WHILE FRAMING THE ASSESSM ENT, THE ASSESSING OFFICER HAS MADE ADDITION OF RS.2,93,672/ - WHICH WAS PAID TO M/S KOTAK MAHINDRA PREMIUS LTD. TOWARDS INTEREST ON CAR LOAN. THE ASSESSING OFFICER WAS OF THE OPINION THAT THE ASSESSEE SHOULD HAVE DEDUCTED TAX ON THE SAME AS PER THE PROVISI ONS OF SECTION 40(A)(IA) OF THE ACT. THE ASSESSEE SUBMITTED THAT NO TAX AT SOURCE WAS DEDUCTED, HOWEVER, THE PROVISIONS OF SECTION 40(A)(IA) OF THE ACT ATTRACTS ONLY TO THOSE PAYMENTS WHICH HAVE NOT SUFFERED TAX. THE MANDATE OF SECTION 40(A)(IA) IS THAT T HE AMOUNT CLAIMED AS EXPENDITURE BY THE ASSESSEE , WHICH FORMS RECEIPTS IN THE ITA NO.54/LKW/2017 PAGE 3 OF 8 HANDS OF THE RECIPIENTS, SHOULD SUFFER TAX. SINCE M/S KOTAK MAHINDRA PREMI US IS A LIMITED COMPANY AND IS ASSESSED TO TAX , THE AMOUNT OF INTEREST PAID BY THE ASSESSEE AMOUNTING TO RS.2,93,672/ - CLAIMED AS DEDUCTION IS BOUND TO HAVE BEEN DECLARED BY M/S KOTAK MAHINDRA PREMIUS LTD. AS INTEREST RECEIVED IN THEIR BOOKS OF ACCOUNT. IN SUCH A SITUATION, THE OBLIGATION , WHICH CAST UP ON THE ASSESSEE TO DEDUCT TAX AT SOURCE , STOOD DISCHARGE D. AN ASSESSEE CAN BE HELD TO BE IN DEFAULT, ONLY IF THE ASSESSEE FAILS TO DEDUCT TAX AT SO URCE ON THE PAYMENTS TO BE MADE; ONLY WHEN IT IS FOUND THAT THE RECIPIENT HAS NOT ACCOUNTED FOR THE RECEIPT AS ITS INCOME OR HAS NOT PAID THE TAX ON THE SAME. THE LD . A.R. OF THE ASSESSEE HAS ALSO PLACED RELIANCE UP ON THE DECISION OF THE HON'BLE JURISDICTIONAL HIGH COURT IN THE CASE OF DAINIK JAGRAN PRAKASHAN LTD. (2012) 345 ITR 288 (ALL) WHEREIN IT HAS BEEN HELD THAT THE ONUS IS ON THE ASSESSING OFFICER TO FIRST FIND OUT AS TO WHETHER THE RECIPIENT HAS PAID TAX OR NOT AND ONLY WHEN IT IS FOUND THAT THE RECIPIENT HAS NOT ACCOUNTED FOR THE SAID RECEIPTS AS ITS INCOME AND HAS NOT PAID THE TAX, THEN ONLY THE ASSESSEE CAN BE HELD TO BE IN DEFAULT. THE LD. A.R. OF THE ASSES SEE HAS ALSO PLACED RELIANCE UPON THE DECISION OF THE HON'BLE APEX COURT IN THE CASE OF HINDUSTAN COCA COLA BEVERAGE PVT. LTD. VS. CIT, 293 ITR 226 (SC). 4 . THE LD. CIT(A) , AFTER CONSIDERING THE SUBMISSIONS OF THE ASSESSEE AND THE ASSESSMENT ORDER, HELD AND OBSERVED THAT THE FACTS ARE THAT THE ASSESSEE HAS TAKEN A LOAN FROM M/S KOTAK MAHINDRA PREMIUS LTD. AND HAS PAID INTEREST DURING THE YEAR AND AT THE SAME TIME ASSESSEE HAS NOT DEDUCTED TAX AT SOURCE. THE LD. CIT(A) FURTHER HELD THAT THE CLAIM OF THE ASSE SSEE THAT INTEREST PAID TO M/S KOTAK MAHINDRA PREMIUS LTD. IS BOUND TO HAVE BEEN DECLARED AS INTEREST RECEIVED IN THEIR BOOKS OF ACCOUNT AND THAT THEY MUST HAVE PAID TAX THEREON, BUT ASSESSEE HAS SIMPLY PRESUMED THAT THIS AMOUNT MUST HAVE BEEN ITA NO.54/LKW/2017 PAGE 4 OF 8 DECLARED BY M/S KOTAK MAHINDRA PREMIUS LTD. AS INTEREST RECEIVED. HOWEVER, NO EVIDENCE IN THIS REGARD WAS PLACED ON RECORD BY THE ASSESSEE. IN ORDER TO TAKE BENEFIT OF THE DECISION OF THE HON'BLE APEX COURT IN THE CASE OF HINDUSTAN COCA COLA BEVERAGE PVT. LTD. VS. C IT (SUPRA), THE ONUS IS ON THE ASSESSEE TO PROVE BEFORE THE ASSESSING OFFICER THAT THE RECIPIENT HAS DULY DECLARED THE AMOUNT AS INCOME AND HAS COMPUTED DUE TAXES ON THE SAME. WITH THIS OBSERVATION, THE LD. CIT(A) CONFIRMED THE ADDITION MADE BY THE ASSESS ING OFFICER ON THIS ISSUE. 2 . AT THE TIME OF HEARING BEFORE US, THE LD. A.R. OF THE ASSESSEE REITERATED THE SUBMISSIONS MADE BEFORE THE S UBORDINATE AUTHORITIES AND PLACED RELIANCE UPON THE DECISION OF THE HON'BLE APEX COURT IN THE CASE OF HINDUSTAN COCA COLA BEVERAGE PVT. LTD. VS. CIT (SUPRA). THE LD. COUNSEL FOR THE ASSESSEE HAS ALSO PLACED RELIANCE UPON THE ORDER OF THE AGRA BENCH OF THE TRIBUNAL IN THE CASE OF RAJEEV KUMAR AGARWAL VS. ACIT, MATHURA IN I.T.A. NO. 337/AGRA/2013. COP IES OF THE ORDER S ARE PLAC ED ON RECORD. 5 . THE LD. D.R., ON THE OTHER HAND, RELIED UPON THE ORDERS OF THE AUTHORITIES BELOW. 6 . WE HAVE PERUSED THE CASE RECORD, HEARD THE RIVAL CONTENTIONS AND WE FIND THAT THE FACTS ON RECORD ARE THAT AN AMOUNT OF RS.2,93,672/ - HAS BEEN PAID TO KOTAK MAH INDRA PREMIUS LTD. TOWARDS INTEREST ON CAR LOAN AND TDS WHICH WAS SUPPOSED TO BE DEDUCTED ON SUCH INTEREST WAS NOT DEDUCTED BY THE ASSESSEE. HOWEVER, ASSESSEE HAS CLAIMED THAT EVEN IF THEY HAVE NOT DEDUCTED TAX BUT IF THE RECIPIENT , TO WHOM INTEREST HAS B EEN PAID , HA S RECORDED THE SAME AS INCOME IN THEIR BOOKS OF ACCOUNT AND HAS PAID TAXES THEREON, THEN THE ASSESSEE WILL NOT FACE THE HARDSHIP OF THE TAXABLE PROVISIONS. HOWEVER, N O DOCUMENTARY EVIDENCE HAS BEEN PLACED BEFORE US TO SHOW AND ITA NO.54/LKW/2017 PAGE 5 OF 8 DEMONSTRATE THAT THE RECIPIENT I.E. M/S KOTAK MAHINDRA PREMIUS LTD. HAS RECORDED SUCH RECEIPTS AS ITS INCOME AND HAS PAID TAXES THEREO N . WE, HOWEVER, IN THE INTEREST OF JUSTICE , FOLLOWING THE ORDER OF THE AGRA BENCH OF THE TRIBUNAL IN THE CASE OF RAJEEV KUMAR AGARWAL VS. ACIT, MATHURA (SUPRA), HOLD THAT ONCE IT IS PROVED THAT THE RECIPIENT HAS PAID TAXES ON THE INTEREST RECEIVED FROM THE ASSESSEE, THE ASSESSEE SHALL BE DEEMED TO HAVE DEDUCTED AND PAID TAXES OF SUCH SUM ON THE DATE OF FURNISHING THE RETURN OF INCOME. IN T HE LIGHT OF THIS PROPOSITION, WE ARE OF THE VIEW THAT NO DISALLOWANCE UNDER SECTION 40(A)(IA) OF THE ACT CAN BE MADE IF IT IS ESTABLISHED THAT THE RECIPIENT HAS RECORDED THE SAME AS INCOME IN THEIR BOOKS OF ACCOUNT AND HAS PAID TAXES THEREON AND FOR ITS VE RIFICATION THE MATTER HAS TO BE RESTORED BACK TO THE FILE OF THE ASSESSING OFFICER. WE ACCORDINGLY SET ASIDE THE ORDER OF THE LD. CIT(A) ON THIS ISSUE AND RESTORE THE MATTER TO THE FILE OF THE ASSESSING OFFICER FOR MAKING NECESSARY VERIFICATION AND THE AS SESSING OFFICER SHALL ADJUDICATE THE ISSUE AFRESH CONSIDERING THE OBSERVATIONS AS RECORDED HEREINABOVE AND AFTER ACCORDING REASONABLE OPPORTUNITY OF HEARING TO THE ASSESSEE. ACCORDINGLY, G ROUND NO.1 TAKEN BY THE ASSESSEE IS ALLOWED FOR STATISTICAL PURPOSE S. 7 . WITH REGARD TO GROUND NO.2 , WHICH RELATES TO DISALLOWANCE OF A SUM OF RS.3,54,786/ - BY APPLYING THE EXPLANATION TO SECTION 36(I)(III) OF THE ACT AND HOLDING THAT THE CAPITAL HAS BEEN BORROWED FOR THE PURPOSE OF EXPANSION OF EXISTING BUSINESS , T HE FACTS ARE THAT THE ASSESSING OFFICER , FROM THE PERUSAL OF THE BOOKS OF ACCOUNT , FOUND THAT THE ASSESSEE HAS MADE PAYMENT OF INTEREST ON LOAN TAKEN FOR CONSTRUCTION OF BUILDING. THE ASSESSEE WAS REQUIRED TO SUBMIT DETAILS OF INTEREST PAID AND TO JUSTIFY WHETHER THIS AMOUNT HAS BEEN CAPITALIZED OR NOT. THE ASSESSEE FILED WRITTEN SUBMISSION ALONG WITH COMPUTATION OF INTEREST. THE SUBMISSION FILED BY THE ASSESSEE WAS EXAMINED BY THE ASSESSING ITA NO.54/LKW/2017 PAGE 6 OF 8 OFFICER AND IT WAS FOUND THAT INTEREST PAID , UPTO THE DATE ON WHICH BUIL DING WAS FIRST PUT ON USE , COMES TO RS.3,54,486/ - AND THIS AMOUNT HAS NOT BEEN ADDED IN THE ACTUAL COST OF BUILDING. THEREFORE, KEEPING IN VIEW THE PROVISIONS OF SECTION 36(I)(III) OF THE ACT , AN AMOUNT OF RS.3,54,486/ - WAS DISALLOWED AND ADDED TO THE TOT AL INCOME OF THE ASSESSEE. 8 . AT THE FIRST A PPELLATE STAGE, THE ASSESSEE SUBMITTED THAT ADDITION MADE BY THE ASSESSING OFFICER WITH RESPECT TO THE CAPITAL BORROWED FOR THE PURPOSE OF BUSINESS ON THE PREMISE THAT THE SAID CAPITAL HAS BEEN BORROWED FOR EXTENSI ON OF EXISTING BUSINESS WHEREAS THE FACTS ARE THAT THE CAPITAL HAS BEEN BORROWED FOR THE PURPOSE OF EXPANSION OF EXISTING BUSINESS . SINCE THE CAPITAL HAS BEEN BORROWED FOR THE PURPOSE OF EXPANSION OF EXISTING BUSINESS AND NOT FOR EXTENSION OF EXISTI NG BUSINESS , THERE SHOULD NOT BE ANY DISALLOWANCE. PROVISIONS OF SECTION 36(I)(III) SPEAKS OF 'FOR EXTENSION OF EXISTING BUSINESS OR PROFESSIONS'. THE ABOVE PHRASE DOES NOT SPEAK OF DISALLOWANCE OF INTEREST INCURRED FOR THE PURPOSE OF EXPANSION OF BUSINES S. THERE IS A VAST DIFFERENCE BETWEEN THE WORD EXPANSION AND EXTENSION . IN SIMPLE TERMS , IF THE ASSESSEE PUTS AN ADDITIONAL LINE OF PRODUCTION FOR NEW ITEM THAT WOULD AMOUNT TO EXTENSION OF BUSINESS, BUT IF AN ASSESSEE IS ALREADY IN BUSINESS OF MANUFA CTURING AND INCREASES THE VOLUME OF PRODUCTION, THEN IT WOULD BE A CASE OF EXPANSIO N. 9 . THE LD. CIT(A) , AFTER CONSIDERING THE SUBMISSIONS OF THE ASSESSEE AND THE ASSESSMENT ORDER, HELD THAT THE ASSESSING OFFICER FOUND THAT THE INTEREST UPTO THE DATE , ON WHIC H BUILDING WAS FIRST PUT TO USE AMOUNTING TO RS. 3,54,486/ - , HAS NOT BEEN ADDED IN ACTUAL COST OF BUILDING. ACCORDINGLY, THIS AMOUNT HAS BEEN CAPITALIZED BY THE ASSESSING OFFICER . THE LD. A.R. OF THE ASSESSEE HAS NOT REFUTED THESE FACTS RECORDED BY THE ASSESSING OFFICER, R ATHER THE LD. A.R. OF THE ASSESSEE ITA NO.54/LKW/2017 PAGE 7 OF 8 HAS TRIED TO BRING OUT A NEW CONTROVERSY OF DIFFERENCE BETWEEN THE EXPA N SION AND EXTENSION . THE LD. CIT(A) OBSERVED THAT THIS ASPECT IS PURELY A QUESTION OF FACT WHICH WAS NEVER EXAMINED BY THE ASSESS ING OFFICER AND NO MATERIAL HAS BEEN PLACED BEFORE THE LD. CIT(A) DURING THE APPELLATE PROCEEDINGS FOR ADJUDICATION OF THIS ISSUE. IN THE ABSENCE OF ANY MATERIAL FACT AVAILABLE ON RECORD, THE ACTION OF THE ASSESSING OFFICER ON THIS ISSUE WAS UPHELD BY THE LD. CIT(A) AND ACCORDINGLY HE CONFIRMED THE ORDER OF THE ASSESSING OFFICER ON THIS ISSUE . 10 . AT THE TIME OF HEARING BEFORE US, THE LD. A.R. OF THE ASSESSEE INVITED OUR ATTENTION TO SCHEDULE H PLACED AT PAGE 19 OF THE PAPER BOOK , WHICH IS THE DETAILS OF THE CONSOLIDATED FIXED A SSETS AS AT 31/3/2013 RELEVANT TO THE ASSESSMENT YEAR 2013 - 14 AND SUBMITTED THAT THERE HAS BEEN ADDITION IN THE BUILDING WHICH IS BROUGHT OUT IN THIS CONSOLIDATED FIXED ASSETS AND THE SAME HAS BEEN PLACED BEFORE THE DEPARTMENT AL AUTHOR ITIES . SIMILARLY, DEPRECIATION ASPECT WAS ALSO STATED IN THIS CHART AND IT WAS ALSO F URNISHED BEFORE THE DEPARTMENT AL AUTHORITIES . THE LD. A.R. OF THE ASSESSEE FURTHER RELIED UPON THE DECISION OF THE MUMBAI BENCH OF THE TRIBUNAL IN THE CASE OF DEWACHAND RAMSARAN INDUSTRIES PVT. LTD. VS. ACIT IN ITA NO.4587/MUM/2013. 11 . THE LD. D.R., ON THE OTHER HAND, RELIED UPON THE ORDERS OF THE SUBORDINATE AUTHORITIES. 12 . WE HAVE PERUSED THE CASE RECORD, HEARD THE RIVAL CONTENTIONS AND WE FIND THAT THE ASPECT WHETHER IT IS EXTENSION OF BUSINESS O R EXPANSION OF BUSINESS WAS NEVER EXAMINED BY THE ASSESSING OFFICER AND NO MATERIAL WAS EVEN PLACED BEFORE THE FIRST APPELLATE AUTHORITY FOR ADJUDICATION OF THIS ISSUE. THE LIST OF C ONSOLIDATED FIXED A SSETS AS AT 31/3/2013 IS FIL ED IN THE PAPER BOOK AND THE LD. A.R. OF THE ASSESSEE HAS PLACED RELIANCE UPON VARIOUS JUDICIAL PRONOUNCEMENTS AS APPEARING IN ITA NO.54/LKW/2017 PAGE 8 OF 8 THE PAPER BOOK ON THIS ISSUE, ESPECIALLY DEWACHAND RAMSARAN INDUSTRIES PVT. LTD. VS. ACIT (SUPRA). SINCE THE ASSESSING OFFICER H AS NOT EXAMINED THE ASPECT OF EXTENSION OF BUSINESS OR EXPANSION OF BUSINESS, WE ARE OF THE CONSIDERED VIEW THAT IN THE INTEREST OF JUSTICE THIS MATTER SHOULD GO TO THE FILE OF THE ASSESSING OFFICER TO EXAMINE THE ASPECT WHETHER IT IS EXTENSION OF BUS INESS OR EXPANSION OF BUSINESS AND TO DECIDE THE ISSUE AFRESH AFTER AFFORDING REASONABLE OPPORTUNITY OF HEARING TO THE ASSESSEE. WE ACCORDINGLY RESTORE THIS MATTER TO THE FILE OF THE ASSESSING OFFICER TO DECIDE THE SAME AFRESH CONSIDERING THE OBSERVATI ONS AS RECORDED HEREINABOVE AND AFTER ACCORDING REASONABLE OPPORTUNITY OF HEARING TO THE ASSESSEE. ACCORDINGLY, GROUND NO. 2 TAKEN BY THE ASSESSEE IS ALSO ALLOWED FOR STATISTICAL PURPOSES. 13 . GROUND NO.3 IS INTERLINKED WITH GROUND NO.2, THEREFORE, THIS GROUND IS ALSO RESTORED BACK TO THE FILE OF THE ASSESSING OFFICER FOR FRESH ADJUDICATION. ACCORDINGLY, GROUND NO.3 IS ALLOWED FOR STATISTICAL PURPOSES. 14 . IN THE RESULT, APPEAL OF THE ASSESSEE IS ALLOWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED IN THE OPEN COUR T ON 19 / 01 / 201 8 . SD/ - SD/ - [ T.S. KAPOOR ] [PARTHA SARATHI CHAUDHURY ] ACCOUNTANT MEMBER JUDICIAL MEMBER DATED: 19 TH JANUARY , 201 8 JJ: 1701 COPY FORWARDED TO: 1 . APPELLANT 2 . RESPONDENT 3 . CIT(A) 4 . CIT 5 . DR