Babul Products Pvt.Ltd., Ahmedabad V. ACIT(OSD), Range-1, Ahmedabad

ITA 560/AHD/2016

• Counselvise Citation: [2018] 121 COUNSELVISE.COM (IT) 7869 (ITAT-AHMEDABAD)
• Duration Of Justice: 2 year(s) 6 month(s) 13 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 17-09-2018
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: Not Allotted
• Assessment Year: 2011-2012
• Appeal Filed On: 04-03-2016
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: LALIT P JAIN
• Keywords: Depreciation
• Section: 143(3); 131

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD D BENCH BEFORE: SHRI AMARJIT SINGH , ACCOUNTANT MEMBER AND MS. MADHUMITA ROY , JUDICIAL MEMBER BABUL PRODUCTS PRIVATE LTD., URMIN HOUSE, SINDHU BAHVAN ROAD, OFF: S. G. HIGHWAY, BESIDE HOF LIVING, BEFORE MANN PARTY PLOT CROSS ROAD, BODAKDEV, AHMEDABA D PAN: AA B CB1866F (APPELLANT) VS THE ACIT (OSD) , RANGE - 1, AHMEDABAD (RESPONDENT) REVENUE BY : S H RI LALIT P. JAIN , SR. D . R. ASSESSEE BY: SHRI ASEEM THAKKAR, A.R. DATE OF HEARING : 06 - 08 - 2 018 DATE OF PRONOUN CEMENT : 17 - 09 - 2 018 / ORDER P ER : AMARJIT SINGH, ACCOUNTANT MEMBER : - THESE THREE APPEAL S FILED BY ASSESSEE FOR A. Y. 2011 - 12 TO 2013 - 14 , ARI SE FROM ORDER OF THE CIT(A) - 6, AHMEDABAD DATED 27 - 01 - 2 016 , IN PROCEEDINGS UNDER SECTION 143(3) OF THE INCOME TAX ACT, 1961; IN S HORT THE ACT . 2. THE GROUNDS OF APPEALS OF ITA NOS. 560, 561/AHD/2016 ARE IDENTICAL BASED ON SIMILAR ISSUES AND FACTS , GROUND NO. 2 OF ITA NO. 3537/AHD/2016 IS ALSO IDENTICAL TO THE GROUNDS O F APPEALS OF ITA NOS. 560 & 561/AHD/2016, THEREFORE, FOR THE SAKE OF CONVENIENCE, WE TAKE ITA NO. 560/AHD/2016 AS A LEAD CASE AND I T A NO S . 560, 561 & 3537 / A HD/20 16 A SS ESSMENT YEAR 2011 - 12 TO 2013 - 14 I.T.A NO S . 560, 561 & 35 37 /AHD/20 16 A.Y. 2011 - 12 TO 2013 - 14 PAGE NO BABUL PRODUCTS PVT. LTD. VS. ACIT (OSD) 2 ITS FINDINGS WILL BE APPLICABLE TO THE OTHER GRO UNDS OF APPEALS OF ITA NO. 561 & 3537/AHD/2016. 3 . THE ASSESSEE HAS FILED FOLLOWING GROUNDS OF APPEAL: - ITA NO. 560/AHD/2016 1. THE LEAR NED COMMISSIONER OF INCOME TAX (APPEALS) HAS ERRED IN CONFIRMING THE DISALLOWANCE OF DEPRECIATION OF RS.9,75,432/ - MADE BY THE ASSESSING OFFICER BEING AN AMOUNTS OF DEPRECIATION OF RS.5,81,432/ - CLAIMED ON FACTORY BUILDING & OF RS.3,93,984/ - CLAIMED ON FUR NITURE & FIXTURE. 2. THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) HAS ERRED IN CONFIRMING THE DISALLOWANCE OF RS.2,67,217/ - MADE BY THE ASSESSING OFFICER OUT OF ELECTRIC CONSUMPTION EXPENSES OF RS.3,27,217/ - AND ALLOWING THE SAME OF RS.60,000/ - ON ESTI MATIONS ONLY. 3. THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) HAS ERRED IN CONFIRMING THE DISALLOWANCE OF RS.21,90,440/ - MADE BY THE ASSESSING OFFICER OUT OF PAYMENT & PROVISIONS TO EMPLOYEES. 4. THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) HAS ERR ED IN HOLDING THAT THE BUSINESS OPERATION OF THE APPELLANT HAS BEEN DISCONTINUED SINCE LONG AND IT HAS DECLARED ONLY INCOME FROM OTHER SOURCES WITHOUT CONSIDERING THE FACT THAT THE REVENUE HAS ACCEPTED THE CONDUCTING OF BUSINESS OPERATIONS. 4. THE RETUR N OF INCOME DECLARING INCOME OF RS. 2 , 06 ,2 3 , 400/ - WAS FILED ON 30 TH SEP, 2001. THEREAFTER, THE CASE WAS SELECTED UNDER SCRUTINY BY ISSUING OF NOTICE U/S. 143(2) OF THE ACT ON 1 ST AUGUST, 2012. THE ASSESSEE WAS CARRYING ON THE BUSINESS OF MANUFACTURING O F CHEWING TOBACCO AND SALE THEREOF UNDER THE BRAND NAME BABUL & JANA K . HOWEVER ITS ACTIVIT Y HAS BEEN DISCONTINUED FOR THE LAST SO MANY YEARS. THE FURTHER FACT S OF THE CASE ARE DISCUSSED UNDER THE DIFFERENT GROUNDS OF APPEAL . 1 ST GROUND OF APPEAL: DIS ALLOWANCE OF DEPRECIATION OF RS. 9 , 75 , 432/ - (RS. 5 , 81 ,4 32/ - ON FACTORY BUILDING AND RS. 3 , 93 ,984/ - ON FURNITURE AND FIXTURE) 5. ON VERIFICATION , THE ASSESSING OFFICER NOTICED THAT ASSESSEE HAS CLAIMED DEPRECIATION ON FACTORY BUILDING AT RS. 5 , 81 , 448/ - AN D ON FURNITURE AND FIXTURE AT RS . 3 , 93 , 984/ - . T HE ASSESSING OFFICER OBSERVED THAT ASSESSEE COMPANY HAD SHOWN INCOME FROM INTEREST AND DIVIDEND ONLY , THEREFORE, THE CLAIM OF DEPRECIATION ON FACTORY BUILDING AND FURNITURE AND FIXTURE TO TH E AMOUNT AS M ENTIONED ABOVE HAS BEEN DISALLOWED. I.T.A NO S . 560, 561 & 35 37 /AHD/20 16 A.Y. 2011 - 12 TO 2013 - 14 PAGE NO BABUL PRODUCTS PVT. LTD. VS. ACIT (OSD) 3 6. ON APPEAL FILED BY THE ASSESSEE , THE LD. CIT(A) HAS CONFIRMED THE DISALLOWANCE STATING THAT NO MANUFACTURING ACTIVITY HAS BEEN CARRIED DURING THE YEAR, THEREFORE, HE HAS DISALLOWED THE CLAIM OF DEPRECIATION STATIN G THAT SIMILAR DISALLOWANCE W ERE MADE IN ASSESSMENT YEAR 2008 - 09. 7. WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE MATERIAL ON RECORD CAREFULLY. IT IS UNDISPUTED FACTS THAT DURING THE YEAR UNDER CONSIDERATION, THE ASSESSEE HAS DERIVED INCOME AND D IVIDEND AND NO BUSINESS ACTIVITY HAS BEEN CARRIED OUT DURING THE YEAR. IT IS NOTICED THAT FURNITURE AND FIXTURE HAS BEEN USED BY THE ADMINISTRATIVE ST AFF LOCATED IN THE OFFICE PREMISES OF THE ASSESSEE COMPANY. THE FURNITURE HAS BEEN USED BY THE EMPLOYE ES IN REGARD TO ACCOUNTING AND OFFICE WORK WHICH DIRECTLY LINKED TO EARNING OF INCOME FROM THE OTHER SOURCES. WE OBSERVE THAT AS NO BUSINESS ACTIVITY HAS BEEN CARRIED OUT, THEREFORE, THE FACTORY BUILDING WAS NOT USED FOR BUSINESS PURPOSES DURING THE YEAR UNDER CONSIDERATION. CONSIDERING THE ABOVE FACTS AND CIRCUMSTANCES , WE RESTRICT THE CLAIM OF DEPRECIATION OF THE ASSESSEE TO THE EXTENT OF FURNITURE AND FIXTURE TO THE AMOUNT OF RS. 3 , 93 , 984/ - AND SUSTAIN THE ADDITION O F DEPRECIATION O N FACTORY BUILDING TO THE AMOUNT O F RS. 5 , 81 , 448/ - , THEREFORE, THE APPEAL OF THE ASSESSEE ON THIS ISSUE IS PARTLY ALLOWED. 2 ND GROUND OF APPEAL: DISALLOWANCE OUT OF ELECTRIC CONSUMPTION EXPENSES 8. ON SCRUTINY , THE ASSESSING OFFICER HAS NOTICED THAT ASSESSEE HAS DEBITED A N AMOUNT OF RS. 3 , 27 , 217/ - UNDER THE HEAD ELECTRIC CONSUMPTION . T HE ASSESSEE EXPLAINED THAT THESE ELECTRIC EXPENSES WERE THE MINIMUM ELECTRICITY CHAR G ES AND THERE WAS NO MANUFACTURING ACTIVITY CARRIED OUT DURING THE YEAR UNDER CONSIDERATION. THE ASSESSI NG OFFICER HAS NOT ACCEPTED THE EXPLANA TION OF THE ASSESEE AND RESTRICTED THE EXPENDITURE ON ACCOUNT OF ELECTRICITY TO THE AMOUNT OF RS . 60,000/ - . I.T.A NO S . 560, 561 & 35 37 /AHD/20 16 A.Y. 2011 - 12 TO 2013 - 14 PAGE NO BABUL PRODUCTS PVT. LTD. VS. ACIT (OSD) 4 9. AGGRIEVED ASSESSEE FILED APPEAL BEFORE THE LD. CIT(A). THE LD. CIT(A) HAS SUSTAINED THE DISALLOWANCE IN ABSENCE OF ANY SUPPORTING DOCUMENT OR EVIDENCES. 10. WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE MATERIAL ON RECORD CAREFULLY. WE HAVE NOTICED THAT ASSESSEE INCURRED MINIMUM ELECTRICITY EXPENDITURE OF RS. 3 , 27 , 217/ - IN ORDER TO KEEP ELECTRICITY ALIVE. IT IS NOT ICED THAT EVEN IF THE COMMERCIAL PRODUCTION IS NOT UNDERTAKEN , THE MINIMUM ELECTRICITY CHARGES HA S TO BE PAID. IT IS ALSO NOTICED THAT ELECTRICITY CONNECTION WAS KEPT ALIVE AND ASSESSEE HAS USED PREMISES F OR GENERAT ING INTEREST & DIVIDEND INCOME DURING THE YEAR UNDER CONSIDERATION AND T HE OFFICE PREMISES W AS USED BY THE ADMINISTRATIVE STAFF . D URING THE COURSE OF APPELLATE PROCEEDINGS BEFORE US, THE LD. COUNS EL HAS ALSO FILED COPY OF BILL OF ELECTRICITY WHICH DEMONSTRAT ING THAT ASSESSEE HAS PAID MINIMUM ELECTRICITY CHARGES FOR KEEPING THE ELECTRICITY CONNECTION ALIVE . IN THE LIGHT OF ABOVE FACTS AND CIRCUMSTANCES, WE FIND MERIT IN THE APPEAL ON THIS ISSUE OF THE ASSESSEE, THEREFORE, THE CLAIM OF THE ELECTRICITY EXPENSE IS ALLOWED. IN THE RE SULT, THE GROUND OF APPEAL OF THE ASSESSEE IS ALLOWED. GROUND NO. 3: DISALLOWANCE OUT OF PAYMENT AND PROVISION S TO EMPLOYEES 11. DURING THE COURSE OF ASSESSMENT PROCEEDINGS, THE ASSESSING OFFICER NOTICED THAT ASSESSEE HAS DEBITED AN AMOUNT OF RS. 26,90,4 40/ - UNDER THE HEAD PAYMENT AND PROVISION S FOR EMPLOYEES. THE ASSESSING OFFICER OBSERVED THAT THIS CLAIM OF THE ASSESSEE IS NOT PROPER AS THE BUSINESS OPERATION OF THE ASSESSEE HAS BEEN DISCONTINUED SINCE LONG AND THE ASSESSEE HAS DECLARED ONLY INCOME FRO M OTHER SOURCES. THE ASSESSEE EXPLAINED THAT STATEMENT OF THREE EMPLOYEES WERE RECORDED U/S. 131 OF THE ACT AND THEY HA D ADMITTED THAT THEY WERE RENDERING SERVICES FOR THE PERFORMANCE OF WORK OF THE ASSESSEE COMPANY DURING THE YEAR UNDER CONSIDERATION , T HEREFORE, THERE WAS NO QUESTION OF DISALLOWING THE SALARY EXPENSES. THE ASSESSING OFFICER HAS NOT ACCEPTED THE EXPLANATION OF THE ASSESSEE STAT ING THAT THE FACTORY AND BUSINESS OPERATION OF THE ASSESSEE I.T.A NO S . 560, 561 & 35 37 /AHD/20 16 A.Y. 2011 - 12 TO 2013 - 14 PAGE NO BABUL PRODUCTS PVT. LTD. VS. ACIT (OSD) 5 COMPANY HAS BEEN CLOSED SINCE LONG T HEREFORE , HE HAS ALLOWED THE SALARY EXPENSES TO THE EXTENT OF RS. 5 LACS ONLY. THE ASSESSEE HAS PREFERRED APPEAL BEFORE T HE LD. LD. CIT(A) WHO HAS SUSTAINED THE DISALLOWANCE ON THE GROUND THAT SERVICES WERE NOT RENDERED FOR BUSINESS PURPOSES. 12. WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE MATERIAL ON RECORD CAREFULLY. IT IS NOTICED THAT ALL THE THREE EMPLOYEES WHOSE STATEMENTS WERE RECORDED HA D ADMITTED THAT THEY WERE WORKING FOR THE ASSESSEE COMPANY. THE ASSESSING OFFICER HAS NOT DISP ROVED THAT THE STAF F MEMBERS AND EMPLOYEES WERE NOT EMPLOYED AND NOT RENDERED SERVICES TO THE ASSESSEE COMPANY DURING THE YEAR UNDER CONSIDERATION. T HE ASSESSEE HAS SUBMITTED THE SUPPORTING DETAILS DURING THE COURSE OF ASSESSMENT PROCEEDINGS CLAIMING THAT THE STAFF EMPLOYEE S HAVE RENDERED SERVICES ON ACCOUNT OF WHICH IT HAS EARNED INCOME FROM OTHER SOURCES. LOOKING TO THE ABOVE FACTS AND CIRCUMSTANCES WE OBSERVE THAT THE ASSESSING OFFICER HAS MADE THE DISALLOWANCE ONLY ON E STIMATED BASIS WITHOUT DISPROVING THE CLAIM OF THE ASSESSEE THAT EMPLOYEES AND STAFF HAVE RENDERED SERVICES DURING T HE YEAR UNDER CONSIDERATION. HOWEVER , WE CONS IDER THAT EMPLOYEES HAVE ALSO RENDERED SE RVICES TO THE O THE R GROUP CONCERNS OF THE ASSESSEE, THEREFORE, WE ARE OF THE VIEW THAT DISALLOWANCE UND ER THE HEAD PAYMENT FOR EMPLOYEES PROVISION TO THE EXTENT OF 50% WILL BE THE REASON ABLE . THEREFORE, WE RESTRICT THE DISALLOWANCE TO THE EXTENT OF RS. 50% I.E. OF RS. 26 , 90 , 440/ - UNDER THE HEAD PAYMENT ON PROVISION OF EMPLOYEES AND ALLOW THE CLAIM TO THE E XTENT OF RS. 13 ,45,220/ - IN THE RESULT, THE APPEAL OF THE ASSESSEE ON THIS ISSUE IS PARTLY ALLOWED. ITA NO. 3537/AHD/2016 GROUND NO. 1: DISALLOWANCE OUT OF VEHICLE MAINTENANCE I.T.A NO S . 560, 561 & 35 37 /AHD/20 16 A.Y. 2011 - 12 TO 2013 - 14 PAGE NO BABUL PRODUCTS PVT. LTD. VS. ACIT (OSD) 6 13. DURING THE COURSE OF SCRUTINY ASSESSMENT, THE ASSESSING OFFICER NOTIC ED THAT ASSESSEE HAS CLAIMED DEPRECIATION ON MOTOR CAR OF RS. 5 , 18 ,632/ - AND VEHICLE MAINTENANCE EXPENSES OF RS. 3 , 55 , 572/ - . HE WAS OF THE VIEW THAT USE OF SUCH VEHICLE FOR PERSONAL CANNOT BE RULED OUT, THEREFORE, HE HAS DISALLOWED 1/5 ON VEHICLE MAINTENA NCE EXPENSES TO THE AMOUNT OF RS. 1 , 74 , 840/ - AND ADDED TO THE TOTAL INCOME OF THE ASSESSEE. 14. IN THE APPEAL, THE LD. CIT(A) HAS RESTRICTED THE ADDITION TO THE AMOUNT OF RS. 20,000/ - ON ACCOUNT OF USE OF VEHICLE FOR PERSONAL PURPOSE. 15. WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE MATERIAL ON RECORD CAREFULLY . WE HAVE NOTICED THAT ASSESSEE HAS MADE REFERENCE OF DECISION OF H ON BLE GUJARAT HIGH COURT IN THE CASE OF SAYAJI IRON ENGINEERING CO. ( 2002 ) 253 ITR 749 (GUJ). IT WAS STATED THAT H ON BL E GUJARAT HIGH COURT HAS CLEARLY LAID DOWN THAT IN THE CASE OF THE ASSESSEE THERE CANNOT BE ANY PERSONAL ELEMENT WHICH WOULD JUSTIFY THE MAKING OF DISALLOWANCE UNLIKE IN THE PARTNERSHIP FIRM WHETHER FIRM OR PARTNER VIRTUALLY THE SAME ENTITY. HOWEVER WE CON SIDER THAT THE FACTS IN THE CASE OF THE ASSESSEE ARE DISTINGUISHABLE FROM THE REFERRED CASE AS IN THE CASE OF THE ASSESSEE THE BUSINESS OPERATION HAS BEEN CLOSED DOWN DURING THE YEAR UNDER CONSIDERATION. AFTER CONSIDERING THE ABOVE WE DO NOT FIND ANY E RROR IN THE DECISI ON OF LD. CIT(A) AND THE APPEAL . THEREFORE THE APPEAL OF THE ASSESSEE ON THIS ISSUE IS DISMISSED . 16. IN THE COMBINED RESULT, TWO OF THE THREE APPEALS OF THE ASSESSEE ARE PARTLY ALLOWED AND LAST ONE IS DISMISSED AS ABOVE . ORDER PR ONOUNCED IN THE OPEN C OURT ON 17 - 09 - 201 8 SD/ - SD/ - ( MADHUMITA ROY ) ( AMARJIT SINGH ) JUDICIAL MEMBER ACCOUNTANT MEMBER I.T.A NO S . 560, 561 & 35 37 /AHD/20 16 A.Y. 2011 - 12 TO 2013 - 14 PAGE NO BABUL PRODUCTS PVT. LTD. VS. ACIT (OSD) 7 AHMEDABAD : DATED 17 /09 /2018 / COPY OF ORDER FORWARDED TO: - 1. ASSESSEE 2. REVENUE 3. CONCERNED CIT 4. CIT (A) 5. DR, ITAT, AHMEDABAD 6. GUARD FILE. BY ORDER/ , / ,