Sri Chaitya Rice Mill, V. THE DCIT, Kakinada

ITA 55/VIZ/2015

• Counselvise Citation: [2017] 127 COUNSELVISE.COM (IT) 8958 (ITAT-VISAKHAPATNAM)
• Duration Of Justice: 2 year(s) 2 month(s) 28 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 02-05-2017
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: DB
• Assessment Year: 2007-2008
• Appeal Filed On: 04-02-2015
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: M K SETHI
• Keywords: Capital asset; Opportunity of being heard; Proportionate interest; Revenue expenditure; Capital expenditure
• Section: 143(3); 263

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL VISAKHAPATNAM SMC BENCH, VISAKHAPATNAM BEFORE SHRI D. MANMOHAN, HONBLE VICE-PRESIDENT ITA NO. 55/VIZ/2015 (ASST. YEAR : 2007-08) SRI CHAITANYA RICE MILL, D.NO. 11-5/2, MAIN ROAD, RAYAVARAM MANDAL, CHELLURU. VS. DCIT, CIRCLE-1, KAKINADA. PAN NO. AAVFS 7708 J (APPELLANT) (RESPONDENT) ASSESSEE BY : SHRI G.V.N. HARI - ADVOCATE. DEPARTMENT BY : SHRI M.K. SETHI SR. DR DATE OF HEARING : 02/05/2017. DATE OF PRONOUNCEMENT : 02/05/2017. O R D E R THIS APPEAL BY THE ASSESSEE IS DIRECTED AGAINST THE ORDER PASSED BY THE LD. CIT(A)-2, VISAKHAPATNAM AND IT PERTAINS TO ASSESSMENT YEAR 2007-08. 2. ADDITION OF 28,20,707/- MADE BY THE ASSESSING OFFICER BY INVOKING THE PROVISIONS OF SECTION 40(A)(IA) OF THE ACT IS THE SUBJECT MATTER OF DISPUTE BEFORE THE TRIBUNAL. 3. THE ASSESSEE-FIRM IS ENGAGED IN THE BUSINESS OF CONVERSION OF PADDY INTO RICE AND SALE OF RICE AND ITS BY-PRODUCTS. FOR THE YEAR UNDER CONSIDERATION, IT DECLARED A LOSS OF 16,16,002/- AND ASSESSMENT WAS ORIGINALLY COMPLETED UNDER SECTION 143(3) ON THE TOTAL LOSS OF 2 ITA NO. 55/VIZ/2015 (SRI CHAITANYA RICE MILL) 8,22,020/-. THEREAFTER, REVISIONAL AUTHORITY SET ASIDE THE ASSESSMENT UNDER SECTION 263 OF THE ACT BY OBSERVING AS UNDER:- 23. IN VIEW OF THE FOREGOING DISCUSSION AND ANALYSIS WITH REGARD TO THE ABOVE SAID ISSUES, IT IS, HEREBY HELD THAT THE ASSESSMENT ORDER DATED 21/12/2009 PASSED BY THE ASSESSING OFFICER IS ERRONEOUS INSOFAR AS IT IS PREJUDICIAL TO THE INTERESTS OF THE REVENUE AND, AS SUCH, THE ORDER IS HEREBY SET ASIDE WITH A DIRECTION TO REVISE THE SAME ON THE LINES DISCUSSED HEREINABOVE BEFORE THE STIPULATED DATE AFTER ACCORDING A REASONABLE OPPORTUNITY OF BEING HEARD TO THE ASSESSEE. 4. I AM CONCERNED HEREIN WITH THE CLAIM OF DEDUCTION OF 52,28,927/- REFERABLE TO INTEREST PAID TO LOAN CREDITORS; ACCORDING TO THE ASSESSEE FIRM, THE LOANS WERE TAKEN FOR RUNNING OF THE BUSINESS AND CAPITALISED THE INTEREST PAID TO THE CREDITORS BEFORE COMMENCEMENT OF THE BUSINESS 5 . ON PERUSAL OF THE PROFIT & LOSS ACCOUNT, LD. COMMISSIONER CALLED UPON THE ASSESSEE TO FURNISH THE DETAILS IN THIS REGARD. SINCE NO SUCH DETAILS WERE FURNISHED, THE MATTER WAS SET ASIDE WITH A DIRECTION TO OBTAIN DETAILS AND TO EXAMINE THE MATTER AFRESH AND DISALLOW PROPORTIONATE INTEREST WHICH IS ATTRIBUTABLE TO THE ACQUISITION OF CAPITAL ASSETS. THE OBSERVATIONS IN PARA 17 OF THE ORDER PASSED BY THE LD.CIT(A) IS EXTRACTED FOR IMMEDIATE REFERENCE:- 17. INTEREST PAID TO CREDITORS : ON PERUSAL OF THE P & L ACCOUNT, IT IS OBSERVED THAT THE ASSESSEE CLAIMED INTEREST PAID TO LOAN CREDITORS TO THE TUNE OF 52,28,927/-. DURING THE COURSE OF REVISIONARY PROCEEDINGS THE ASSESSEE STATED TAHT LOANS WERE TAKEN FOR THE RUNNING OF THE BUSINESS, AND CAPITALISED THE INTEREST PAID TO THE CREDITORS BEFORE THE COMMENCEMENT OF THE BUSINESS. THE ASSESSEE DID NOT FURNISH ANY DETAILS IN THIS REGARD. THE ASSESSING OFFICER IS DIRECTED TO OBTAIN THE DETAILS AND THE SAME NEEDS TO BE EXAMINED AFRESH AT THE TIME OF GIVING EFFECT TO THIS ORDER AND DISALLOW PROPORTIONATE INTEREST WHICH IS ATTRIBUTABLE TO THE ACQUISITION OF CAPITAL ASSETS. 3 ITA NO. 55/VIZ/2015 (SRI CHAITANYA RICE MILL) 6. WHILE GIVING EFFECT TO THE ORDER OF THE LD. COMMISSIONER, THE ASSESSING OFFICER CALLED FOR THE DETAILS AND NOTICED THAT THE ASSESSEE PAID INTEREST OVER THRESHOLD LIMIT OF 5,000/-, OUT OF WHICH ASSESSEE DEDUCTED TAX AT SOURCE ON THE TOTAL AMOUNT OF 16,88,426/-. HE FURTHER OBSERVED THAT THE ASSESSEE FAILED TO DEDUCT TAX ON THE INTEREST PAID OVER AND ABOVE 5,000/- PRESCRIBED UNDER SECTION 194A AND SUCH INTEREST EXPENDITURE IS ATTRACTED BY THE PROVISIONS OF SECTION 40(A)(IA) OF THE ACT. HE LISTED OUT THE NAMES OF THE PERSONS TO WHOM INTEREST WAS PAID WITHOUT DEDUCTING TAX AT SOURCE WHICH WORKS OUT TO 28,20,717/- AND DISALLOWED THE SAME UNDER SECTION 40(A)(IA) OF THE ACT. 7. AGGRIEVED, ASSESSEE CONTENDED BEFORE THE LD. CIT(A) THAT THE ASSESSING OFFICER ERRED IN INVOKING THE PROVISIONS OF SECTION 40(A)(IA) OF THE ACT DURING THE SET ASIDE PROCEEDINGS SINCE THE DIRECTION OF THE LD.COMMISSIONER WAS MERELY TO CONSIDER AS TO WHETHER THE EXPENDITURE IS REVENUE IN NATURE AND THUS, THE ASSESSING OFFICER COULD NOT TRAVEL BEYOND THE SCOPE OF THE DIRECTION GIVEN BY THE REVISIONAL AUTHORITY. 8. THE LD. CIT(A) OBSERVED THAT THE ASSESSMENT WAS SET ASIDE UNDER SECTION 263 OF THE ACT ON THE GROUND THAT THE ASSESSING OFFICER FAILED TO MAKE CERTAIN ENQUIRIES IN REGARD TO VARIOUS MATTERS, INCLUDING APPLICABILITY OF TDS PROVISIONS WITH REGARD TO INTEREST PAYMENTS UNDER SECTION 194A IN EXCESS OF THRESHOLD LIMIT. ACCORDINGLY, ASSESSING OFFICER IS COMPETENT TO REVISE THE ASSESSMENT ON THE LINE SUGGESTED BY THE 4 ITA NO. 55/VIZ/2015 (SRI CHAITANYA RICE MILL) LD.COMMISSIONER WHICH INCLUDES APPLICABILITY OF TDS PROVISIONS AND DISALLOWANCE OF SECTION 40(A)(IA) OF THE ACT. 9. FURTHER AGGRIEVED, ASSESSEE IS IN APPEAL BEFORE THE TRIBUNAL. 10. LEARNED COUNSEL ADVERTED MY ATTENTION TO THE ORDER OF THE REVISIONAL AUTHORITY AND IN PARTICULAR REFERRED TO PARA 14.1 TO SUBMIT THAT WHEREVER THE ASSESSING OFFICER WAS TO INVOKE THE PROVISIONS OF SECTION 194A READ WITH SECTION 40(A)(IA) A SPECIFIC DIRECTION WAS GIVEN BY THE LD. COMMISSIONER WHICH IS CONSPICUOUSLY ABSENT WITH REGARD TO THE MATTER DISCUSSED IN PARA 17 OF THE ORDER AND THUS, THE ASSESSING OFFICER COULD NOT HAVE GONE BEYOND THE SCOPE OF THE DIRECTION GIVEN BY THE LD.COMMISSIONER. IN OTHER WORDS, THE ASSESSING OFFICER IS NOT JUSTIFIED IN INVOKING THE PROVISIONS OF SECTION 40(A)(IA) OF THE ACT. HE ALSO PLACED RELIANCE ON THE FOLLOWING DECISIONS TO SUBMIT THAT WHEN THERE IS A SPECIFIC DIRECTION GIVEN BY THE LD. COMMISSIONER, THE TAX AUTHORITIES CANNOT TRAVEL BEYOND THE SCOPE OF DIRECTION GIVEN BY THE REVISIONAL AUTHORITY:- A) DCIT VS. PRESCON BUILDERS (P) LTD. [171 TTJ 788 (MUMBAI)] B) CAWNPORE CHEMICAL WORKS PVT. LTD. VS. CIT [197 ITR 296 (ALL.)] 11. ON THE OTHER HAND, LEARNED DEPARTMENTAL REPRESENTATIVE STRONGLY RELIED UPON THE ORDERS OF THE TAX AUTHORITIES. 12. I HAVE CAREFULLY CONSIDERED RIVAL SUBMISSIONS AND PERUSED THE RECORD. 5 ITA NO. 55/VIZ/2015 (SRI CHAITANYA RICE MILL) 13. GROUND NOS. 1 TO 5 ARE GENERAL IN NATURE AND THEREFORE, NEED NOT REQUIRE INDEPENDENT CONSIDERATION. 14. GROUND NO.4 IS WITH REGARD TO FORM NO. 15G FROM THE CREDITORS. IN ABSENCE OF ANY EVIDENCE PLACED ON RECORD, GROUND NO. 4 IS REJECTED. 15 . VIDE GROUND NOS. 2 & 3, THE ASSESSEE CONTENDS THAT THE ASSESSING OFFICER TRAVELLED BEYOND THE SCOPE OF DIRECTIONS ISSUED BY THE LD.COMMISSIONER UNDER SECTION 263 OF THE ACT. I HAVE CAREFULLY ANALYSED THE PARTICULARS AND THE DIRECTION GIVEN BY THE LD. COMMISSIONER. SINCE THE ASSESSEE DID NOT FURNISH ANY DETAILS WITH REGARD TO INTEREST PAID TO THE CREDITORS, THE ASSESSING OFFICER WAS DIRECTED TO OBTAIN THE DETAILS AND TO EXAMINE AFRESH AT THE TIME OF GIVING EFFECT TO THIS ORDER AND DISALLOW PROPORTIONATE INTEREST WHICH IS ATTRIBUTABLE TO THE ACQUISITION OF CAPITAL ASSETS. AS RIGHTLY POINTED OUT BY THE LEARNED COUNSEL APPEARING ON BEHALF OF THE ASSESSEE WHEREVER THE REVISIONAL AUTHORITY THOUGHT FIT TO SET ASIDE THE MATTER IN TOTO OR WITH A SPECIFIC DIRECTION TO EXAMINE THE APPLICABILITY OF SECTION 40(A)(IA) OF THE ACT, SUCH DIRECTION WAS GIVEN IN THE VERY SAME ORDER WHEREAS, WITH REGARD TO INTEREST PAID TO THE CREDITORS, THERE IS A SPECIFIC DIRECTION TO DISALLOW PROPORTIONATE INTEREST WHICH IS ATTRIBUTABLE TO THE ACQUISITION OF CAPITAL ASSETS. IN OTHER WORDS, THE ASSESSING OFFICERS DUTY ENDS THE MOMENT ANALYSIS IS MADE WITH REGARD TO ATTRIBUTION OF INTEREST AS TO WHETHER IT IS FOR ACQUISITION OF CAPITAL ASSET OR A REVENUE EXPENDITURE. 6 ITA NO. 55/VIZ/2015 (SRI CHAITANYA RICE MILL) 16. WHILE GIVING EFFECT TO THE ORDER, THE ASSESSING OFFICER HOWEVER, DID NOT CONSIDER THE ISSUE AS TO WHETHER IT WAS CAPITAL OR REVENUE EXPENDITURE. SINCE THE SPECIFIC DIRECTION OF THE LD. COMMISSIONER WAS NOT FOLLOWED BY THE ASSESSING OFFICER, I AM OF THE VIEW THAT THE ORDER OF THE LD. CIT(A) AS WELL AS ASSESSING OFFICER DESERVES TO BE SET ASIDE ON THIS LIMITED ISSUE WITH A DIRECTION TO THE ASSESSING OFFICER TO EXAMINE THE NATURE OF THE EXPENDITURE AND TO DISALLOW PROPORTIONATE CAPITAL EXPENDITURE, IN LINE WITH THE DIRECTION GIVEN BY THE REVISIONAL AUTHORITY. WITH THESE OBSERVATIONS, I SET ASIDE THE ISSUE TO THE FILE OF THE ASSESSING OFFICER. 17. IN THE RESULT, AS PRONOUNCED IN THE OPEN COURT, THE APPEAL FILED BY THE ASSESSEE IS PARTLY ALLOWED. SD/- (D. MANMOHAN) VICE-PRESIDENT DATED : 02 ND MAY, 2017. VR/- COPY TO: 1. THE ASSESSEE SRI CHAITANYA RICE MILL, D.NO. 11-5/2, MAIN ROAD, RAYAVARAM MANDAL, CHELLURU. 2. THE REVENUE DCIT, CIRCLE-1, KAKINADA. 3. THE CIT-2, VISAKHAPATNAM. 4. THE CIT(A)-2, VISAKHAPATNAM. 5. THE D.R., VISAKHAPATNAM. 6. GUARD FILE. BY ORDER