M/s Model Tanners (India) Pvt. Ltd, Kanpur V. Asstt. Commissioner of Income Tax-6, Kanpur

ITA 557/LKW/2013

• Counselvise Citation: [2014] 120 COUNSELVISE.COM (IT) 5735 (ITAT-LUCKNOW)
• Duration Of Justice: 7 month(s) 11 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 28-02-2014
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: B
• Assessment Year: 2003-2004
• Appeal Filed On: 17-07-2013
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Section: 14A; 80IB

Judgement Text

1 IN THE INCOME TAX APPELLATE TRIBUNAL LUCKNOW BENCH B, LUCKNOW BEFORE SHRI SUNIL KUMAR YADAV, JUDICIAL MEMBER AND SHRI A.K. GARODIA, ACCOUNTANT MEMBER ITA NOS.557 TO 560/LKW/13 A.YRS.03 - 04, 04 - 05, 06 - 07 & 07 - 08 M/S MODEL TANNERS (INDIA) PVT. LTD C/O SULTAN TANNERS, JAJMAU, KANPUR. PAN:AAACM3919D VS. A.C.I.T. - 6, KANPUR. (APPELLANT) (RESPONDENT) APPELLANT BY SHRI RAKESH GARG, ADVOCATE RESPONDENT BY SHRI AJAY KUMAR, D.R. DATE OF HEARING 26/02/2014 DATE OF PRONOUNCEMENT 2 8 /02/2014 O R D E R PER A. K. GARODIA, A.M. ALL THESE FOUR APPEALS ARE FILED BY THE ASSESSEE WHICH ARE DIRECTED AGAINST FOUR SEPARATE ORDERS OF LEARNED CIT(A) - I I, KANPUR ALL DATED 2 8 /0 3 /201 2 FOR THE ASSESSMENT YEARS 200 3 - 0 4 , 200 4 - 0 5, 2006 - 07 & AND 200 7 - 0 8 . ALL THESE APPEALS WERE HEARD TOGETHER AND ARE BEING DISPOSED OF BY THIS COMMON ORDER FOR THE SAKE OF CONVENIENCE. 2. FIRST WE TAKE UP THE APPEAL FOR ASSESSMENT YEAR 2003 - 2004 I.E. I.T.A. NO.557/LKW/2013. IN THIS APPEAL , THE ASSESSEE HAS R AISED THE FOLLOWING GROUNDS: 1. BECAUSE THE CIT(A) HAS ERRED ON FACTS AND IN LAW IN UPHOLDING THE ERRONEOUS COMPUTATION OF DEDUCTION MADE U/S.80IB ALLOWABLE TO THE ASSESSEE, BY STATING THAT THE INCENTIVES ON EXPORTS ARE NOT DERIVED FROM THE INDUSTRIAL UNDERTAKING. 2 2. BECAUSE THE CIT ( A ) HAS FAILED TO APPRECIATE THAT THE INCENTIVES ON EXPORTS RECEIVED BY THE ASSESSEE COMPANY ARE ALL RELATABLE TO BUSINESS AND ARE DERIVED FROM THE INDUSTRIAL UNDERTAKING. 3. REGARDING THIS ISSUE, IT WAS FAIRLY CONCEDED BY LEARNED A.R. OF THE ASSESSEE THA T THIS ISSUE IS COVERED AGAINST THE ASSESSEE BY THE JUDGMENT OF HON'BLE APEX COURT RENDERED IN THE CASE OF LIBERTY INDIA VS COMMISSIONER OF INCOME - TAX [2009] 317 ITR 218 (SC) . RESPECTFULLY FOLLOWING THIS JUDGMENT OF HON'BLE APEX COURT, THIS ISSUE IS DECID ED AGAINST THE ASSESSEE. AS A RESULT, THE APPEAL OF THE ASSESSEE STANDS DISMISSED. 4. NOW WE TAKE UP THE APPEAL FOR ASSESSMENT YEAR 2004 - 05 IN I.T.A. NO.558/LKW/2013. IN THIS APPEAL , THE ASSESSEE HAS RAISED THE FOLLOWING GROUNDS: 1. BECAUSE THE CIT(A) HAS ERRED ON FACTS AND IN LAW IN ARBITRARILY DISALLOWING THE DEDUCTION OF RS.71,20,915/ - CLAIMED BY THE ASSESSEE UNDER SECTION 80IB OF THE ACT. 2. BECAUSE ON A PROPER CONSIDERATION OF FACTS AND CIRCUMSTANCES OF THE CASE, THE CIT(A) HAS ERRED ON FACTS AND IN LAW IN NOT APPRECIATING THAT THE COMPONENT OF EXCISE DUTY ON THE INPUTS IN RESPECT OF EXPORTS IS TO BE ADJUSTED AGAINST THE DUTY DRAW BACK RECEIVED, AS SUCH, THE COMPUTATION MADE BY THE ASSESSING OFFICER AND UPHELD BY THE CIT(A) IS ERRONEOUS. THE DISAL LOWANCE MADE BE DELETED. 3. BECAUSE THE CIT(A) WAS NOT JUSTIFIED IN UPHOLDING THE DISALLOWANCE OF RS.1,50,000/ - ON AD HOC BASIS OUT OF THE FOLLOWING EXPENSES, WHICH EXPENSES BEING INCURRED FOR THE BUSINESS PURPOSE SHOULD OUGHT TO HAVE BEEN ALLOWED IN FULL: - RS.50,000/ - OUT OF CONVE YANCE EXPENSES RS.1,00,000/ - OUT OF TELEPHONE EXPENSES RS.50,000/ - OUT OF TRAVELLING EXPENSES RS. 25,740/ - OUT OF BUSINESS PROMOTION EXPENSES RS.1,50,000/ - OUT OF VEHICLE RUNNING EXPENSES RS.1,00,000/ - OUT OF GENERATOR REPAIRING & RUNNING EXPENSES RS.1,00, 000/ - OUT OF MACHINE REPAIRS & RUNNING. 3 5. REGARDING GROUND NO. 1 & 2, IT WAS SUBMITTED BY LEARNED A.R. OF THE ASSESSEE THAT IN THIS YEAR ALSO, THE ISSUE INVOLVED IN THESE TWO GROUNDS IS COVERED AGAINST THE ASSESSEE BY THE SAME JUDGMENT OF HON'BLE APEX C OURT RENDERED IN THE CASE OF LIBERTY INDIA (SUPRA). ACCORDINGLY, THIS ISSUE IS DECIDED AGAINST THE ASSESSEE AND GROUND NO. 1 & 2 ARE REJECTED. 6. REGARDING GROUND NO. 3, IT WAS SUBMITTED BY LEARNED A.R. OF THE ASSESSEE THAT LEARNED CIT(A) WAS NOT JUSTIFIED IN UPHOLDING THE DISALLOWANCE OF RS.1,50,000/ - ON AD HOC BASIS OUT OF VARIOUS DISALLOWANCES MADE BY THE ASSESSING OFFICER ON HOC BASIS. 7. LEARNED D.R. OF THE REVENUE SUPPORTED THE ORDER OF LEARNED CIT(A). 8. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS, PERUSED THE MATERIAL AVAILABLE ON RECORD AND GONE THROUGH THE ORDERS OF THE AUTHORITIES BELOW. WE FIND THAT THIS ISSUE WAS DECIDED BY LEARNED CIT(A) AS PER THE FOLLOWING PARA ON PAGE 16 OF HIS ORDER: THE ABOVE G ROUND RELATES TO EXPENSES CLAIMED UNDER DIFFERENT HEADS OF EXPENDITURE INCURRED FOR THE PURPOSES OF BUSINESS. IT IS THE CASE OF THE AO THAT THE EXPENSES CLAIMED ARE NOT FULLY VERIFIABLE AND THEREBY ARE TO BE DISALLOWED. THE AR HAS SUBMITTED THAT THE ACCOUN TS HAVE BEEN TAX AUDITED. THE DETAILS AS ASKED FOR WERE FURNISHED. NO SPECIFIC DEFECT OR DISCREPANCY HAS BEEN POINTED OUT IN THE SAME. NO DISALLOWANCE CAN BE MADE ON AD HOC BASIS OR FOR POSSIBLE LEAKAGES UNLESS AND UNTIL THERE ARE SOME DEFECTS WHICH ARE S PECIFICALLY POINTED OUT BY THE AO. HAVING CONSIDERED THE SUBMISSIONS MADE BY THE AR, AND KEEPING THE FACT IN MIND THAT THIS IS A CASE OF LIMITED COMPANY, NO DISALLOWANCE CAN BE MADE FOR ANY PERSONAL USE. HOWEVER THE SHORT COMINGS CANNOT BE IGNORED AT ALL. IN MY CONSIDERED OPINION, THE DISALLOWANCE IS RESTRICTED TO A SUM OF RS.1,50,000/ - IN AGGREGATE ON UNDER ALL THE HEADS. THE APPELLATE SHALL THEREFORE GET A RELIEF OF RS.3,75,740/ - [RS.5,25,740 - RS.1,50,000]. 4 8.1 FROM THE ABOVE PARA OF LEARNED CIT(A), WE FIND THAT CIT(A) HAS HIMSELF STATED THAT NO DEFECT OR DISCREPANCY HAS BEEN POINTED OUT BY THE ASSESSING OFFICER IN THE AUDITED BOOKS OF ACCOUNT. HE HAS ALSO OBSERVED THAT NO DISALLOWANCE CAN BE MADE ON AD HOC BASIS OR FOR POSSIBLE LEAKAGES UNLESS AND UN TIL THERE ARE SOME DEFECTS WHICH ARE SPECIFICALLY POINTED OUT BY THE ASSESSING OFFICER. HAVING OBSERVED SO, IT WAS NOT JUSTIFIED ON HIS PART TO UPHOLD A PART AMOUNT OF AD HOC DISALLOWANCE TO THE EXTENT OF RS.1,50,000/ - ON THE BASIS THAT THE SHORT COMINGS CANNOT BE IGNORED AT ALL. THE CIT(A) HAS ALSO NOT POINTED OUT ANY SPECIFIC DEFECT ON THE BASIS OF WHICH HE IS UPHOLDING THE DISALLOWANCE OF RS.1,50,000/ - . WE, THEREFORE, DELETE THE SAME. THIS GROUND IS ALLOWED. AS A RESULT, THE APPEAL STANDS PARTLY ALL OWED. 9. NOW WE TAKE UP THE APPEAL FOR ASSESSMENT YEAR 2006 - 07 I.E. I.T.A. NO.559/LKW/2013. IN THIS APPEAL, THE ASSESSEE HAS RAISED THE FOLLOWING GROUNDS: 1. BECAUSE THE CIT(A) HAS ERRED ON FACTS AND IN LAW IN UPHOLDING THE ERRONEOUS COMPUTATION OF DE DUCTION MADE U/S.80IB ALLOWABLE TO THE ASSESSEE, BY STATING THAT THE INCENTIVES ON EXPORTS ARE NOT DERIVED FROM THE INDUSTRIAL UNDERTAKING. 2. BECAUSE THE CIT(A) HAS FAILED TO APPRECIATE THAT THE INCENTIVES ON EXPORTS RECEIVED BY THE ASSESSEE COMPANY ARE ALL RELATABLE TO BUSINESS AND ARE DERIVED FROM THE INDUSTRIAL UNDERTAKING. 3. BECAUSE THE CIT(A) HAS ERRED ON FACTS AND IN LAW IN DIRECTING THE ASSESSING OFFICER TO COMPUTE THE DISALLOWANCE U/S.14A, READ WITH RULE 8D, WHICH FINDING IS CONTRARY TO THE PROVISIONS OF LAW, IN AS MUCH AS RULE 8D IS APPLICABLE FROM A.Y. 2008 - 09 AND IS NOT APPLICABLE FOR A.Y. 2006 - 07. 4. BECAUSE ON A PROPER CONSIDER ATION OF FACTS AND CIRCUMSTANCES OF THE CASE, IT WOULD BE FOUND THAT THE PROVISIONS OF SEC. 14A ARE NOT APPLICABLE. 5 10. REGARDING GROUND NO. 1 & 2, THE ISSUE IS DECIDED AGAINST THE ASSESSEE BY FOLLOWING THE SAME JUDGMENT OF HON'BLE APEX COURT RENDERED IN THE CASE OF LIBERTY INDIA (SUPRA). 11. REGARDING GROUND NO. 3 & 4 RELATING TO DISALLOWANCE U/A 14A READ WITH RULE 8D, IT WAS SUBMITTED BY LEARNED A.R. OF THE ASSESSEE THAT RULE 8D IS NOT APPLICABLE IN THE PRESENT YEAR BECAUSE RULES 8D IS APPLICABLE FROM ASSESSMENT YEAR 2008 - 09 ONWARDS. 12. LEARNED D.R. OF THE REVENUE SUPPORTED THE ORDERS OF THE AUTHORITIES BELOW. 13. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS. ADMITTEDLY, RULE 8D IS NOT APPLICABLE IN THE PRESENT CASE BEING ASSESSMENT YEAR 2006 - 07 BUT STI LL AS PER THE JUDGMENT OF HON'BLE BOMBAY HIGH COURT RENDERED IN THE CASE OF GODREJ & BOYCE AS REPORTED IN , REASONABLE DISALLOWANCE IS TO BE MADE EVEN PRIOR TO ASSESSMENT YEAR 2008 - 09. IN THE PRESENT CASE, WE FIND THAT THE ASSESSEE HAS MADE AN INVESTMENT OF RS.7,40,785/ - . THE ASSESSING OFFICER HAS MADE DISALLOWANCE OF RS.12,913/ - INCLUDING INTEREST EXPENDITURE OF RS. 9 ,20 9 / - AND ADMINISTRATIVE EXPENDITURE OF RS.3,704/ - . THE ASSESSEE HAS NOT BROUGHT ON RECORD THE BALANCE SHEET OF THE ASSESSE E COMPANY TO ESTABLISH THAT INTEREST FREE FUNDS WERE AVAILABLE WITH THE ASSESSEE COMPANY FOR MAKING INVESTMENT. IN THE ABSENCE OF THE SAME, WE FEEL THAT THE DISALLOWANCE MADE BY THE ASSESSING OFFICER OF RS.12,913/ - IS NOT UNREASONABLE AND HENCE, WE DECLIN E TO INTERFERE IN THE ORDER OF CIT(A) ON THIS ISSUE. AS A RESULT, THIS APPEAL OF THE ASSESSEE STANDS DISMISSED. 14. NOW WE TAKE UP THE REMAINING APPEAL FOR ASSESSMENT YEAR 2007 - 08 I.E. I.T.A. NO.560/LKW/2012. IN THIS APPEAL, THE ASSESSEE HAS RAISED THE FOLLOWING GROUNDS: 6 1. BECAUSE THE CIT(A) HAS ERRED ON FACTS AND IN LAW IN UPHOLDING THE DISALLOWANCE OF RS.26, 0 25/ - BY APPLYING THE PROVISIONS OF SECTION 14A OF THE ACT. 2. BECAUSE ON A PROPER INTERPRETATION OF THE PROVISIONS OF THE ACT, IT WOULD BE FOUND THAT THE PROVISIONS OF SECTION 14A ARE NOT APPLICABLE IN THE INSTANT CASE AND AS SUCH, NO DISALLOWANCE SHOULD OUGHT TO HAVE BEEN MADE. 3. BECAUSE THE CIT(A) HAS ERRED ON FACTS AND IN LAW IN ARBITRARILY DISALLOWING THE DEDUCTION OF RS.81,89,584/ - CLA IMED BY THE ASSESSEE UNDER SECTION 80IB OF THE ACT. 4. BECAUSE ON A PROPER CONSIDERATION OF FACTS AND CIRCUMSTANCES OF THE CASE, THE CIT(A) HAS ERRED ON FACTS AND IN LAW IN NOT APPRECIATING THAT THE COMPONENT OF EXCISE DUTY ON THE INPUTS IN RESPECT OF EXP ORTS IS TO BE ADJUSTED AGAINST THE DUTY DRAW BACK RECEIVED, AS SUCH, THE COMPUTATION, MADE BY THE ASSESSING OFFICER AND UPHELD BY THE C I T(A) IS ERRONEOUS. THE DISALLOWANCE MADE BE DELETED. 5. BECAUSE THE CIT(A) HAS ERRED ON FACTS AND IN LAW IN ARBITRARILY RESTRICTING THE DISALLOWANCE UNDER THE FOLLOWING HEADS @7% WITHOUT POINTING ANY DEFECTS IN THE DETAILS FILED, WHICH DISALLOWANCE IS ARBITRARY AND BE DELETED: - 1. LUBRICANT EXPENSES RS.21,06,519/ - 2. GENERATOR REPAIRS RS.17,38,215/ - 3. ELECTRICAL REPAI RS RS . 9,29,082/ - 4. OIL & LUBRICANT RS. 10,39 ,645/ - 5. REPAIRS & MAINTENANCE RS.18,52,560/ - 6. SPLITTING & SHAVING KNIVES RS.35,46,777/ - 7. CONSUMABLES RS.45,92,276/ - 6. BECAUSE THE ENTIRE EXPENSES INCURRED UNDER THE ABOVE HEADS HAVING BEEN INCURRED FOR THE PURPOSE OF BUSINESS, DETAILS HAVE BEEN FURNISHED, THE CIT(A) WAS NOT JUSTIFIED IN UPHOLDING THE DISALLOWANCE ON ADHOC BASI S. 15. OUT OF THE ABOVE SIX GROUNDS, IT WAS SUBMITTED BY LEARNED A.R. OF THE ASSESSEE THAT GROUND NO. 1 & 2 ARE THE SAME AS GROUND NO. 3 & 4 IN ASSESSMENT YEAR 2006 - 07 AND GROUND NO. 3 & 4 IN THE PRESENT YEAR IS COVERED AGAINST THE ASSESSEE BY THE SAME JUDGMENT OF HON'BLE APEX COURT RENDERED IN THE CASE OF LIBERTY INDIA (SUPRA). REGARDING GROUND NO. 5 & 6, IT WAS 7 SUBMITTED TH AT THIS ISSUE IS SIMILAR TO GROUND NO. 3 IN ASSESSMENT YEAR 2004 - 05. 16. LEARNED D.R. OF THE REVENUE SUPPORTED THE ORDERS OF THE AUTHORITIES BELOW. 17. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS. REGARDING GROUND NO. 1 & 2 IN RELATION TO DISALLOWANCE OF R S.26,025/ - U/S 14A, WE FIND THAT IT IS NOTED BY THE ASSESSING OFFICER IN THE ASSESSMENT ORDER THAT IN THIS YEAR , THE INVESTMENT OF THE ASSESSEE COMPANY WERE TO THE TUNE OF RS.8,20,875/ - AS AGAINST OPENING BALANCE OF RS.7,40,875/ - . IN THIS YEAR ALSO , THE A SSESSEE HAS NOT BROUGHT ON RECORD ANY EVIDENCE TO SHOW THAT THE ASSESSEE WAS HAVING INTEREST FREE FUNDS FOR MAKING INVESTMENT. IN THE ABSENCE OF SUCH A DETAIL REGARDING OWN FUNDS, WE FEEL THAT THE DISALLOWANCE MADE BY THE ASSESSING OFFICER OF RS.2 6 , 025 / - IS NOT UNREASONABLE AND HENCE, WE UPHOLD THE SAME. GROUND NO. 1 & 2 ARE REJECTED. 18. REGARDING GROUND NO. 3 & 4, WE FIND THAT THIS ISSUE IS COVERED AGAINST THE ASSESSEE BY THE JUDGMENT OF HON'BLE APEX COURT RENDERED IN THE CASE OF LIBERTY INDIA (SUPRA) AND THEREFORE, THESE GROUNDS ARE REJECTED. 19. REGARDING GROUND NO. 5 & 6, WE FIND THAT THIS ISSUE WAS DECIDED BY LEARNED CIT(A) BY MAKING FOLLOWING OBSERVATIONS ON PAGE NO. 15 OF HIS ORDER AS UNDER: I HAVE CONSIDERED THE FACTS AND CIRCUMSTANCES OF THE CASE, ADMITTEDLY THE ACCOUNTS HAVE BEEN TAX AUDITED, BOOKS OF ACCOUNTS WERE PRODUCED WHICH WERE EXAMINED. THE DETAILS HAVE BEEN FILED. REASON GIVEN BY THE AO THAT THERE IS AN ABNORMAL INCREASE IN EXPENSES MAY BE GOOD AS AN EYE OPENER BUT CANNOT BE THE REAS ON FOR DISALLOWANCE OF EXPENDITURE ON AD - HOC BASIS, THE AO SHOULD HAVE POINTED THE DEFECTS IF ANY IN THE DETAILS FILED. HOWEVE R , TO COVER THE POSSIBLE LEAKAGE AND TO M E ET THE ENDS OF JUSTICE, THE DISALLOWANCE MAY BE RESTRICTED TO 7% INSTEAD OF 15%. 8 19.1 IN THE ABOVE PARA OF CIT(A), HE HAS OBSERVED THAT THE R EASON GIVEN BY THE ASSESSING OFFICER THAT THERE IS AN ABNORMAL INCREASE IN EXPENSES MAY BE GOOD AS AN EYE OPENER BUT CANNOT BE THE REASON FOR DISALLOWANCE OF EXPENDITURE ON AD - HOC BASIS . HE HAS ALSO O BSERVED THAT THE ASSESSING OFFICER SHOULD HAVE POINTED OUT THE DEFECTS , IF ANY , IN THE DETAILS FILED. AFTER MAKING THESE OBSERVATIONS, THE CIT(A) HAS CONFIRMED THE DISALLOWANCE TO THE EXTENT OF 7% OF THESE EXPENSES INSTEAD OF 15% ON THE BASIS THAT THE SAM E IS UPHELD TO COVER THE POSSIBLE LEAKAGE AND TO MEET THE ENDS OF JUSTICE . THE CIT(A) HAS NOT GIVEN ANY BASIS FOR CONFIRMING THIS PART DISALLOWANCE. HE HAS ALSO NOT POINTED OUT ANY SPECIFIC DEFECT IN THE DETAILS FILED BY THE ASSESSEE AND HENCE, IN OUR CO NSIDERED OPINION, THE ORDER OF CIT(A) IS NOT SUSTAINABLE ON THIS ISSUE. WE, THEREFORE, DELETE THIS DISALLOWANCE CONFIRMED BY CIT(A). GROUND NO. 5 & 6 OF THE APPEAL ARE ALLOWED. AS A RESULT, THIS APPEAL IS PARTLY ALLOWED. 20. IN THE COMBINED RESULT, THE APPEAL FOR ASSESSMENT YEAR 2003 - 04 AND 2006 - 07 ARE DISMISSED AND THE APPEAL FOR ASSESSMENT YEAR 2004 - 05 AND 2007 - 08 ARE PARTLY ALLOWED. (ORDER WAS PRONOUNCED IN THE OPEN COURT ON THE DATE MENTIONED ON THE CAPTION PAGE) SD/. SD/. (SU NIL KUMAR YADAV) ( A. K. GARODIA ) JUDICIAL MEMBER ACCOUNTANT MEMBER DATED: 2 8 /02/2014. *C.L.SINGH COPY OF THE ORDER FORWARDED TO : 1. THE APPELLANT 2. THE RESPONDENT. 3. CONCERNED CIT 4. THE CIT(A) 5. D.R., I.T.A.T., LUCKNOW ASSTT. REGISTRAR