ACIT, New Delhi V. M/s. Thai Summit Neel Auto Pvt. Ltd., New Delhi

ITA 5582/DEL/2011

• Counselvise Citation: [2013] 120 COUNSELVISE.COM (IT) 2657 (ITAT-DELHI)
• Duration Of Justice: 1 year(s) 6 month(s) 23 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 05-07-2013
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: H
• Next Hearing Date: 22-05-2013
• Assessment Year: 2008-2009
• Appeal Filed On: 12-12-2011
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: R SANTHAN AM; SUR ESH MALIK
• Assessee Lawyers: A K MISHRA
• Keywords: Depreciation; Revised return; Revenue expenditure; Capital expenditure
• Section: 143(3); 37(1)

Judgement Text

1 IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCHES : H NEW DELHI BEFORE SHRI J.SUDHAKAR REDDY, AM AND SHRI C.M. GARG, JM ITA NO. 5582/DEL/2011 ASSESSMENT YEA R : 2008-09 ACIT, CIRCLE 16(1) VS. M/S THAI SUMMIT NEEL AUTO P .LTD. NEW DELHI 601, HEMKUNT CHAMBERS 89, NEHRU PLACE NEW DELHI 110 019 PAN: AABCT 9860 D AND CROSS OBJECTION 295/DEL/2012 (IN ITA 5582/DEL/12) A.Y. 2008-09 THAI SUMMIT NEEL AUTO P.LTD. VS. ACIT, CIRCLE 16(1 ) NEW DELHI NEW DELHI (APPELLANT) (RESPONDENT) APPELLANT BY:- SH.R.SANTHANAM, ADV. & SH. SURESH MALIK, C.A. RESPONDENT BY:- SH. A.K.MISHRA, CIT, D.R O R D E R PER J.SUDHAKAR REDDY, AM THIS IS AN APPEAL FILED BY THE REVENUE DIRECTED AG AINST THE ORDER OF THE LD.COMMISSIONER OF INCOME TAX (APPEALS)-XIX DT. 1.9 .2011 PERTAINING TO THE ASSESSMENT YEAR 2008-09. THE CROSS OBJECTION IS FIL ED BY THE ASSESSEE. 2 2. FACTS IN BRIEF :- THE ASSESSEE COMPANY IS ENGAGED MAINLY IN THE BUSINESS OF MANUFACTURE AND SALE OF AUTO PARTS. DU RING THE YEAR UNDER REFERENCE THE ASSESSEE COMPANY WAS IN THE PROCESS O F SETTING UP A PLANT FOR MANUFACTURING OF VARIOUS AUTO COMPONENTS I.E. FUEL TANKS, GRIP REAR, STEP ASSEMBLY, FRAME FOR TWO WHEELERS SEGMENT. THE ASSE SSEE COMPANY IS A JOINT VENTURE BETWEEN JBM GROUP AND THAI SUMMIT GROUP OF THAILAND. THE COMPANY IS RUNNING THREE MANUFACTURING UNITS AT GUR GAON (HARYANA), CHAKAN (PUNE) AND HOSUR (TAMIL NADU). DURING THE IMPUGNED ASSESSMENT YEAR, THE APPELLANT HAD SET UP A NEW MANUFACTURING UNIT AT PA NTNAGAR IN UTTARAKHAND. THE ASSESSEE FILED ITS RETURN OF INCOME FOR THE ASS ESSMENT YEAR 2008-09 DECLARING A LOSS OF RS.21.07 CRORES ON 30 TH SEPTEMBER, 2008. SUBSEQUENTLY A REVISED RETURN OF INCOME WAS FILED ON 12 TH MARCH, 2010 DECLARING A LOSS OF RS.22,29,57,473/-. THE ASSESSING OFFICER PASSED AN ORDER U/S 143(3) ON 20.12.2010 ASSESSING THE LOSS AT RS.19,35,83,997/- INTER ALIA MAKING ADDITIONS ON ACCOUNT OF DISALLOWANCE OF EXPENSES ON PANT NAGA R UNIT ON THE GROUND THAT THESE ARE PREOPERATIVE EXPENSES, PRIOR PERIOD EXPE NSES ETC. AGGRIEVED THE ASSESSEE CARRIED THE MATTER IN APPEAL. 3. THE FIRST APPELLATE AUTHORITY ALLOWED THE CLAIM OF THE ASSESSEE FOR DEDUCTION OF PREOPERATIVE EXPENSES. FURTHER ON THE OTHER ISSUES HE GRANTED PART RELIEF. AGGRIEVED THE REVENUE IS IN APPEAL BE FORE US ON THE FOLLOWING GROUNDS. 1. ON THE FACTS AND THE CIRCUMSTANCES OF THE CASE AND IN LAW THE LD.CIT(A) HAS ERRED IN DIRECTING THE ASSESSING OFFICER TO TRE AT THE PREOPERATIVE 3 EXPENDITURE OF RS.3,44,51,263/- AS REVENUE EXPENDIT URE AS AGAINST THE CAPITAL EXPENDITURE HELD BY THE ASSESSING OFFICER A ND WITHDRAWING THE DEPRECIATION OF RS.51,67,990/-. 2. ON THE FACTS AND THE CIRCUMSTANCES OF THE CASE AND IN LAW THE LD.CIT(A) HAS ERRED IN DELETING THE DISALLOWANCE OF RS.37,692 /- MADE BY THE ASSESSING OFFICER OUT OF PRIOR PERIOD EXPENSES AS C APITAL EXPENDITURE AND ALLOWING DEPRECIATION. 4. THE ASSESSEE FILED A CROSS OBJECTION ON THE FOLL OWING GROUNDS. 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE C ASE, THE AUTHORITIES BELOW HAD ERRED, BOTH ON FACTS AND IN L AW, IN DISALLOWING INTEREST OF RS.50,511/- PAID BY THE ASS ESSEE TO THE CENTRAL EXCISE DEPARTMENT ON REVERSAL OF SERVICE TA X CREDIT TAKEN EARLIER ON OUTWARD FREIGHT FOR GTA SERVICES AND THE SAME OUGHT TO HAVE BEEN ALLOWED AS REVENUE EXPENDITURE U/S 37(1). 2. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE, THE ASSESSING OFFICER MADE THE ILLEGAL ADDITION OF RS.5 0,511/- WITHOUT EVEN ISSUE OF SHOW CAUSE NOTICE AND EFFECTIVE OPPOR TUNITY OF HEARING TO THE APPELLANT AND THE IMPUGNED ADDITION OUGHT TO HAVE BEEN DELETED BY THE CIT(A) BUT IN VIEW OF THE DISAL LOWANCE HAVING BEEN UPHELD BY HIM, THE ORDERS OF BOTH THE LOWER AU THORITIES ARE LIABLE TO BE QUASHED AND THE DEDUCTION RIGHTLY CLAI MED BE ALLOWED TO THE APPELLANT. 5. WE HAVE HEARD MR.R.SANTHANAM, THE LD.COUNSEL ON BEHALF OF THE ASSESSEE AND SHRI A.K.MISHRA, THE LD.CIT, D.R. ON B EHALF OF THE REVENUE. ON A CAREFUL CONSIDERATION OF THE FACTS AND CIRCUMSTANCE S OF THE CASE AND A PERUSAL 4 OF THE PAPERS ON RECORD AND THE ORDERS OF THE AUTHO RITIES BELOW, WE HOLD AS FOLLOWS. 6. AS FAR AS GROUND NO.1 IS CONCERNED, BOTH PARTIES SUBMITTED THAT THE ISSUE IN QUESTION IS COVERED BY THE DECISION OF HONBLE D ELHI H BENCH OF THE ITAT IN THE ASSESSEES OWN CASE FOR THE ASSESSMENT YEAR 200 6-07. IN ITA 5184/DEL/2010 ORDER DT. 18.2.2013 WHERE AT PARA 5 I T IS OBSERVED AS FOLLOWS. 5. WE HAVE HEARD RIVAL CONTENTIONS AND GONE THROUG H THE ENTIRE MATERIAL AVAILABLE ON RECORD. IT HAS NOT BEEN DISP UTED THAT GURGAEON PLANT COMMENCED MANUFACTURING AND INITIAL SALE WAS EFFECT ED ON 24.3.20905 WHICH IS ACCEPTED BY DEPARTMENT. THEREAFTER, FROM APRIL,2005 TO FEBRUARY,2006 THE MANUFACTURING ACTIVITIES ON TRIAL PRODUCTION AND SALES CONTINUED. THOUGH THE PLANT MAY NOT HAVE RUN ON IT S FULL COMMERCIAL CAPACITY, THE FACT NEVERTHELESS REMAINS THAT THERE WERE MANUFACTURING ACTIVITIES AND SALES OF SUCH PRODUCTION. THUS, THE MANUFACTURING BUSINESS OF THE ASSESSEE HAD COMMENCED. IN VIEW THEREOF, WE FIND NO INFIRMITY IN THE ORDER OF THE CIT(A), WHICH IN TURN HAS RELIED O N HONBLE DELHI HIGH COURT JUDGEMENT IN THE CASE OF L.G.ELECTRONICS (IND IA) LTD. (SUPRA). THE SAME IS UPHELD. 6.1. IN THE CASE ON HAND THE ASSESSEE COMPANY HAS S UBMITTED THAT THE PANT NAGAR UNIT WAS COMPLETED AND COMMISSIONED IN APRI L, 2007 AND THUS THE BUSINESS OF THE ASSESSEE COMPANY HAD BEEN SET UP. IT WAS POINTED OUT THAT THE COMMERCIAL PRODUCTION BEGAN ONLY IN OCTOBER, 2007, AS CERTAIN TESTS AND EXPERIMENTS WERE NECESSARY BEFORE COMMENCEMENT OF C OMMERCIAL PRODUCTION. 5 IT WAS SUBMITTED THAT DURING THE INTERIM PERIOD TE ST RUN WAS DONE. THE ASSESSING OFFICER HAD AT PAGE 7 OBSERVED AS FOLLOWS . I HAVE CAREFULLY CONSIDERED THE SUBMISSIONS OF THE ASSESSEE COMPANY. THERE IS NO DENYING OF THE FACT THAT THE ASSESSEE C OMPANY HAS INCURRED REVENUE EXPENDITURE OF RS.54,03,67,284/- AT ITS PAN T NAGAR PLANT DURING THE PERIOD 1.4.2007 TO 30.9.2007 AND GENERAT ED SALES REVENUE OF RS.50,59,14,021/- IN THIS PERIOD (AFTER CONSIDER ING OTHER INCOME AND IMPACT OF INCREASE/DECREASE IN STOCK). FURTHER, I FIND THAT MERE SETTING UP OF BUSINESS A ND CARRYING ON OF BUSINESS AT PANT NAGAR W.E.F. 1.4.2007 IS NOT ENOUG H, AND ACTUAL COMMENCEMENT OF COMMERCIAL PRODUCTION AND SALES ARE ESSENTIAL TO CLAIM DEDUCTION FOR THE EXPENSES U/S 37(1). THEREF ORE, I DISALLOW THE AFORESAID EXPENSES AMOUNTING TO RS.3,44,53,263/- IN CURRED AND CLAIMED BY THE ASSESSEE COMPANY FOR THE PERIOD APRI L,2007 TO SEPTEMBER,2007 PRIOR TO COMMENCEMENT OF COMMERCIAL PRODUCTION ON 1.10.2007 AT ITS PANT NAGAR UNIT AND TREAT THEM AS PRE-OPERATIVE IN NATURE, TO BE CAPITALIZED. 6.2. THESE OBSERVATIONS IN OUR CONSIDERED OPINION ARE CONTRARY TO THE PROPOSITIONS LAID DOWN BY VARIOUS COURTS AND TRIBUN ALS ON THIS ISSUE. THUS WE UPHOLD THE FINDING OF THE FIRST APPELLATE AUTHORITY ON THIS ISSUE. WE RESPECTFULLY FOLLOWING THE COORDINATE BENCH ORDER F OR THE ASSESSMENT YEAR 2006-07. IN THE RESULT THIS GROUND OF THE REVENUE IS DISMISSED. 7. GROUND NO.2 IS ON THE ISSUE OF DISALLOWANCE OF P RIOR PERIOD EXPENSES. THE LD.COMMISSIONER OF INCOME TAX (APPEALS) AGREED WITH THE CONTENTIONS OF THE ASSESSEE THAT THE EXPENDITURE IN QUESTION CRY STALLIZED DURING THE YEAR AND 6 UNDER THOSE CIRCUMSTANCES, THEY HAVE TO BE ALLOWED. WE FIND NO INFIRMITY IN THE SAME. 8. IN THE RESULT THE APPEAL OF THE REVENUE IS DISMI SSED. 9. COMING TO THE CROSS OBJECTION FILED BY THE ASSES SEE, THE FACT OF THE ISSUE IS EXPLAINED BY THE ASSESSEE IN ITS WRITTEN SUBMISS IONS BEFORE THE LD.COMMISSIONER OF INCOME TAX (APPEALS) WHICH IS EX TRACTED FOR READY REFERENCE. DURING THE YEAR UNDER CONSIDERATION, THE APPELLANT COMPANY HAS PAID RS.50,511/- AS INTEREST AT THE TIME OF REVERSAL OF SERVICE TAX CREDIT WRONGLY TAKEN EARLIER. THE SAID INTEREST IS REVENU E EXPENDITURE DEDUCTIBLE U/S 37(1) AS THE PAYMENT OF INTEREST REP RESENTS EXPENDITURE LAID OUT WHOLLY OR EXCLUSIVELY FOR THE PURPOSE OF T HE BUSINESS. AS PER PREVAILING PRACTICE, THE AGCR AUDIT PARTY VI SITS ALL BIG ASSESSES AND IF ON EXAMINATION OF THE RECORDS CONCERNING SER VICE TAX, THEY FIND ANY DEFICIENCY LIKE THE CREDIT FOR THE TAX PAID ON ANY ITEM/GOODS/SERVICES IS NOT ALLOWABLE THEN THEY INFO RM THE ASSESSEE TO CORRECT THE DEFICIENCY. DURING THE COURSE OF SUCH AN AUDIT, THE ASSESSEE COMPANY WAS INFORMED THAT IT HAD AVAILED WRONG CRED IT OF SERVICE TAX. ON BEING INFORMED, THE APPELLANT COMPANY REVERSED T HE SERVICE TAX CREDIT THOUGH PLA AND ON THAT SERVICE TAX AMOUNT, I T PAID RS.50,511/- AS INTEREST. THE VOUCHER AND THE CALCULATIONS OF T HE INTEREST ARE ENCLOSED AT PAGE NOS. 126 TO 127. 10. THE LD.COMMISSIONER OF INCOME TAX (APPEALS) HEL D THAT THE ASSESSEE WAS PENALIZED AND THE PAYMENT WAS NOT COMPENSATORY IN N ATURE. BEFORE US THE ASSESSEE FURNISHED DOCUMENTS WHERE THE TRANSACTION IN QUESTION IS RECORDED AS 7 FOLLOWS: BEING INTEREST ON GTA PAID TO CENTRAL EXC ISE AFTER REVERSAL ON 23.8.2007 TO PLA. A PERUSAL OF THE DETAILS SHOW S THAT THIS IS A CASE OF PAYMENT OF INTEREST AND NOT PENALTY. THUS IN OUR V IEW IT IS COMPENSATORY IN NATURE AND HAS TO BE ALLOWED AS A DEDUCTION U/S 37( 1). THUS WE ALLOW THIS GROUND OF THE ASSESSEE IN THE C.O. 11. IN THE RESULT THE C.O. FILED BY THE ASSESSEE IS ALLOWED. 12. IN THE RESULT THE APPEAL FILED BY THE REVENUE I S DISMISSED AND THE C.O. FILED BY THE ASSESSEE IS ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 05 TH JULY, 2013. SD/- SD/- (C.M. GARG) (J.SUDHAK AR REDDY) JUDICIAL MEMBER ACCOUNTANT MEMBE R DATED: THE 05 TH JULY, 2013 *MANGA COPY OF THE ORDER FORWARDED TO: 1. APPELLANT; 2.RESPONDENT; 3.CIT; 4.CIT (A); 5.DR; 6.GUARD FILE BY ORDER 8 ASST. REGISTRAR 1. DATE OF DICTATION: 2. DRAFT PLACED BEFORE THE AUTHOR ON: 3. DRAFT PROPOSED AND PLACED BEFORE SECOND MEMBER ON: 4. DRAFT DISCUSSED/APPROVED BY THE SECOND MEMBER ON: 5. APPROVED DRAFT CAME TO SR.P.S. ON: 6. DATE OF PRONOUNCEMENT : 7. FILE SENT TO BENCH CLERK ON : 8. DATE ON WHICH FILE GIVEN TO HEAD CLERK ON: 9. DATE OF DISPATCHING THE ORDER ON :