ORGANIC COATINGS LTD, MUMBAI V. DCIT 8(2), MUMBAI

ITA 5613/MUM/2009

• Counselvise Citation: [2011] 134 COUNSELVISE.COM (IT) 8907 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 2 month(s) 29 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 14-01-2011
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: C
• Next Hearing Date: 04-01-2011
• Assessment Year: 2004-2005
• Appeal Filed On: 15-10-2009
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: S K SINGH
• Assessee Lawyers: ARUN SATHE
• Keywords: Business income; Depreciation; Opportunity of being heard; Revenue expenditure

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH C : MUMBAI BEFORE SHRI D.K. AGARWAL, (JM) AND SHRI B. RAMAKO TAIAH,(AM) ITA NO.5613/MUM/2009 ASSESSMENT YEAR : 2004-05 ITA NO.1587/MUM/2010 ASSESSMENT YEAR : 2005-06 ORGANIC COATINGS LIMITED PLOT NO.31,VIMAL PUSHPA, TARUN BHARAT SOCIETY, CHAKALA, ANDHERI (E), MUMBAI 400 059. ..( APPELLANT ) P.A. NO. ( AAACO 0099 A ) VS. DY. COMMISSIONER OF INCOME TAX 8 (2), 2 ND FLOOR AAYKAR BHAVAN, M.K. ROAD, MUMBAI. ..( RESPONDENT ) APPELLANT BY : SHRI. ARUN SATHE AND MS. AARTI SATHE RESPONDENT BY : SHRI S.K. SINGH O R D E R PER D.K. AGARWAL (JM). THESE TWO APPEALS PREFERRED BY THE ASSESSEE ARE DIRECTED AGAINST THE SEPARATE ORDERS DATED 1.7.2009 AND 31.12. 2009 PASSED BY THE LD. CIT(A) FOR THE ASSESSMENT YEARS 2004-05 AND 2005 -06 RESPECTIVELY. SINCE FACTS ARE IDENTICAL AND COMMON ISSUES AR E INVOLVED BOTH THESE APPEALS ARE DISPOSED OF BY THIS COMMON ORDER FOR THE SAKE OF CONVENIENCE. ITA NO.5613/M/09 A.Y:04-05 2 2. BRIEFLY STATED FACTS OF THE CASE AS EXTRACTED FROM ITA NO.5613/MUM/2009 FOR THE ASSESSMENT YEAR 2004-05 ARE THAT THE ASSESSEE COMPANY IS ENGAGED IN THE BUSINESS OF MANUFACTURING OF PRINTING INKS, VARNISHES, RESIN AND ALLIED PRODUCTS FILE D RETURN DECLARING TOTAL INCOME OF RS.36,84,030/-. HOWEVER, THE ASSESSMEN T WAS COMPLETED AFTER ALLOWING BROUGHT FORWARD LOSSES AND UNA BSORBED DEPRECIATION AT AN INCOME OF RS.11,11,183/- INCLUDING THE DISALLOWANCE OF OUTSTANDING EXPENSES RS.3,03,638/-, OUT OF TRAVELLING AND CONVEYANCE EXPENSES AND SALE PROMOTION EXPENSES RS.48 ,620/- AND IN TREATING THE INTEREST INCOME RS.4,00,958/- AS IN COME FROM OTHER SOURCES NOT ELIGIBLE FOR DEDUCTION U/S.80 HHC VIDE ORDER DATED 20.12.2006 PASSED U/S.143(3) OF THE INCOME TAX ACT, 19 61(THE ACT). ON APPEAL THE LD. CIT(A) PARTLY ALLOWED THE APPEAL. 3. BEING AGGRIEVED BY THE ORDER OF THE LD. CIT(A) T HE ASSESSEE IS IN APPEAL BEFORE US. 4. GROUND NO.1 IS AGAINST THE SUSTENANCE OF DISALLOWANCE OF RS.3,03,638/- OUT OF OUTSTANDING EXPENSES. 5. THE BRIEF FACTS OF THE ABOVE ISSUE ARE THAT DURING T HE COURSE OF ASSESSMENT PROCEEDING IT WAS INTERAILA OBSERVED BY THE ASSESSING OFFICER THAT THE ASSESSEE HAS CLAIMED OUTSTANDING EXPENSES A MOUNTING TO RS.17,00,793/- WHICH ALSO INCLUDED PROVISION MADE FO R VARIOUS EXPENSES. ON BEING ASKED FOR THE ALLOWABILITY OF THE PROVISIONS, THE ASSESSEE SUBMITTED THE COMPLETE DETAILS OF EXPENSES INCLUDING THE DETAILS OF PROVISIONS MADE AND ALSO FURNISHED THE BILL S IN RESPECT OF SOME PARTIES. THE ASSESSING OFFICER AFTER CONSIDERING THE SA ME OBSERVED THAT IN MERCANTILE SYSTEM OF ACCOUNTING, EXPENSE S OF THE RELEVANT YEAR ARE ONLY ALLOWABLE IN THAT YEAR EVEN IF PAYMENTS WERE ITA NO.5613/M/09 A.Y:04-05 3 NOT MADE, THEREFORE, CLAIM OF PROVISION FOR EXPENSES MA DE BY THE ASSESSEE IS NOT AS PER LAW. ACCORDINGLY HE DISALLOWED RS.1 .00 LACS SHOWN AGAINST M/S. PHOENIX ENTERPRISES, RS.14,220/- SHOWN AGAINST DEPARTMENT OF SCIENTIFIC AND INDUSTRIAL RESEARCH, RS.1,31 ,418/- SHOWN AGAINST MANILAL KHER AMBALAL, RS.18,000/- SHOWN AGAIN ST M/S. VILAS K. SHAH & CO. AND RS.40,000/- SHOWN AGAINST M/S. MANS MARK ETING, THUS TOTALLING TO RS.3,03,638/- AND ADDED TO THE INCOME OF THE ASSESSEE. 6. ON APPEAL THE LD. CIT(A) WHILE RELYING ON THE RA TIO OF CERTAIN DECISIONS HELD THAT THE PROVISIONAL EXPENDITURE DEBITED TO THE P&L ACCOUNT IS NOT AN ALLOWABLE DEDUCTION AND ACCORDINGLY HE CONFIRMED THE DISALLOWANCE MADE BY THE ASSESSING OFFICER . 7. AT THE TIME OF HEARING THE LD. COUNSEL FOR THE A SSESSEE WHILE REITERATING THE SAME SUBMISSIONS AS SUBMITTED BEFORE THE ASSESSING OFFICER AND THE LD. CIT(A) FURTHER SUBMITS THAT ALL T HESE EXPENSES HAVE BEEN INCURRED IN THE NORMAL COURSE OF BUSINESS, THEREFORE , THE SAME ARE ALLOWABLE. HE ALSO PLACED ON RECORD THE DETAILS OF SUCH EXPENSES WHICH IS REPRODUCED AS UNDER :- ACCOUNT HEAD AMOUNT RS. STATUS SUBSEQUENT IN YEARS TO MARCH 2004 PHOENIX ENTERPRISES 1,00,000 PROVISION WAS MADE FOR SALES RETURN AND REIMBURSEMENT OF EXPENSES, AMOUNT WAS TRANSFERRED TO PROVISION FOR SALES RETURNS, RATE DIFFERENCE AND FREE SAMPLES IN F.Y. 2005-06 AND CREDIT NOTES WERE ISSUED AGAINST THIS PROVISION. D2D EXPRESS 14,220 ITS FREIGHT AMOUNT PAYABLE TO M/S. D2D EXPRESS AS PER THEIR BILL NO. 33464. AMOUNT CREDITED TO PARTY ACCOUNT IN F.Y. 2004-05 NET OFF TDS. MANILAL KHER AMBALAL & CO. 1,31,418 LEDGER COPY FOR PAYMENT IN SUBSEQUENT YEAR . VILAS K. SHAH & CO. 18,000 PROVISION REVERSED IN SUBSEQUENT YEAR. MANS MARKETING 40,000 PROVISION FOR RATE DIFFERENCE WAS MADE, ITA NO.5613/M/09 A.Y:04-05 4 AMOUNT WAS TRANSFERRED TO PROVISION FOR SALES RETURNS, RATE DIFFERENCE AND FREE SAMPLES IN F.Y. 2005-06 AND CREDIT NOTES WERE ISSUED AGAINST THIS PROVISION. TOTAL 3,03,638 IN THE LIGHT OF THE ABOVE HE SUBMITS THAT SINCE THE ISSU E HAS NOT BEEN EXAMINED IN DETAIL, THEREFORE, IN THE INTEREST OF JU STICE THE ISSUE MAY BE SET ASIDE TO THE FILE OF THE ASSESSING OFFICER . 8. ON THE OTHER HAND THE LD. DR WHILE RELYING ON TH E ORDER OF THE ASSESSING OFFICER AND THE LD. CIT(A) SUBMITS THAT HE HAS NO OBJECTION IF THE ISSUE IS SET ASIDE TO THE FILE OF THE ASSESSING OFFICER. 9. WE HAVE CAREFULLY CONSIDERED THE SUBMISSIONS OF THE RI VAL PARTIES AND PERUSED THE MATERIAL AVAILABLE ON RECORD. WE FIND THAT IT HAS BEEN OBSERVED BY THE ASSESSING OFFICER THAT IN RESPONSE TO THE A SSESSING OFFICERS QUERY THE ASSESSEE SUBMITTED COMPLETE DETAILS OF E XPENSES AND DETAILS OF PROVISIONS MADE ALONGWITH BILLS OF SOME P ARTIES. THE ASSESSING OFFICER MERELY OBSERVING THAT THE CLAIM OF PROVI SION FOR EXPENSES IS NOT ALLOWABLE UNDER THE MERCANTILE SYSTEM OF ACCOUNTING, DISALLOWED RS.3,03,638/-. THERE IS NO FINDING AS TO W HETHER THE ASSESSING OFFICER HAS EXAMINED THE NATURE AND PURPOSE OF T HE SAID EXPENSES. THE CLAIM OF THE ASSESSEE IS THAT THE ABOVE EXPEN SES HAVE BEEN INCURRED IN THE NORMAL COURSE OF BUSINESS AND ARE AL LOWABLE UNDER THE ACT AS REVENUE EXPENDITURE. THE POSITION IN LAW IS WELL SETTLED THAT MAKING OF AN ENTRY OR ABSENCE OF AN ENTRY CANNOT DETERMINE RIGHTS AND LIABILITIES OF THE PARTIES. SIN CE THIS ISSUE HAS NOT BEEN EXAMINED PROPERLY AT THE END OF THE ASSESSING OFFI CER, THEREFORE, IN THE INTEREST OF JUSTICE WE CONSIDER IT FAIR AND REASO NABLE THAT THE MATTER SHOULD GO BACK TO THE FILE OF THE ASSESSING OFFICER AND ACCORDINGLY WE SET ASIDE THE ORDERS PASSED BY THE REVENUE AUTHORITIES ITA NO.5613/M/09 A.Y:04-05 5 ON THIS ACCOUNT AND SEND BACK THE MATTER TO THE FILE OF THE ASSESSING OFFICER WHO SHALL DECIDE THE SAME AFRESH AND ACCORDING TO LAW AFTER PROVIDING REASONABLE OPPORTUNITY OF BEING HEARD TO T HE ASSESSEE. THE GROUND TAKEN BY THE ASSESSEE IS, THEREFORE, PARTLY ALLOW ED FOR STATISTICAL PURPOSES. 10. GROUND NO.2 IS AGAINST THE SUSTENANCE OF DISALLOWANCE OF RS.48,620/- OUT OF TRAVELLING AND CONVEYANCE EXPENSES AN D SALE PROMOTION EXPENSES. 11. THE ASSESSING OFFICER OBSERVED THAT FROM THE DETAILS OF TRAVELLING AND CONVEYANCE EXPENSES AND SALE PROMOTION EXPENSES, THE A SSESSEE HAS INCLUDED AN AMOUNT OF RS.78,581/- AND RS.1,64,520/ - AS PAYMENTS MADE THROUGH CREDIT CARDS. ON BEING ASKED I T WAS SUBMITTED BY THE ASSESSEE THAT THE EXPENDITURE IS NOT AT ALL PERSONAL IN NATURE AS IT HAS BEEN INCURRED DURING THE MEETINGS WI TH CUSTOMERS FOR SNACKS AND LUNCH AT HOTELS. HOWEVER, THE ASSESSING OFFICER WA S OF THE VIEW THAT THE ENTIRE EXPENSES CANNOT BE SAID TO HAVE BE EN WHOLLY AND EXCLUSIVELY INCURRED FOR THE PURPOSE OF BUSINESS OF THE A SSESSEE, THEREFORE, FOR THE ELEMENT OF PERSONAL EXPENSES, HE DI SALLOWED RS.48,620/- BEING 20% OF RS.78,581/- AND RS.1,64,520/ - . ON APPEAL, THE LD. CIT(A) FOR THE SAME REASONS CONFIRMED T HE DISALLOWANCE MADE BY THE ASSESSING OFFICER . 12. AT THE TIME OF HEARING THE LD. COUNSEL FOR THE A SSESSEE SUBMITS THAT THE DISALLOWANCE AT THE RATE OF 20% IS HIGHLY EXCE SSIVE AND APPROPRIATE RELIEF BE ALLOWED TO THE ASSESSEE. 13. ON THE OTHER HAND THE LD. DR SUPPORTS THE ORDER O F THE ASSESSING OFFICER AND LD. CIT(A) . ITA NO.5613/M/09 A.Y:04-05 6 14. HAVING CAREFULLY HEARD THE SUBMISSIONS OF THE RIVAL PARTIES AND PERUSING THE MATERIAL AVAILABLE ON RECORD WE FIND THA T EVEN AT THIS STAGE PERSONAL ELEMENT OF EXPENSES HAS NOT BEEN RULED OU T BY THE LD. COUNSEL FOR THE ASSESSEE FOR THE ASSESSEE. HOWEVER, KEEPING IN VIEW THE NATURE AND VOLUME OF BUSINESS WE CONSIDER IT FAIR AN D REASONABLE THAT 10% DISALLOWANCE WOULD MEET THE ENDS OF JUSTICE AS AGAINST 20% MADE BY THE ASSESSING OFFICER. ACCORDINGLY WE RESTRICT THE DISALLOWANCE TO 10% OF RS.78,581/- AND RS.1,64,520/- OU T OF TRAVELLING AND CONVEYANCE EXPENSES AND SALE PROMOTION EX PENSES . IN OTHER WORDS THE ASSESSEE GETS A RELIEF OF RS.24,310/-. T HE GROUND TAKEN BY THE ASSESSEE IS, THEREFORE, PARTLY ALLOWED. 15. GROUND NO.3 READS AS UNDER :- 3. THE LD. CIT(A) ERRED IN CONCLUDING THE ASSES SING OFFICER HAS RIGHTLY TREATED THE INTEREST INCOME UND ER THE HEAD INCOME FROM OTHER SOURCES WITHOUT GOING INTO THE NEXUS OF THE FUNDS WHICH WERE THE WORKING CAPITAL O F THE APPELLANT. HE FURTHER ERRED IN NOT GRANTING THE DED UCTION UNDER SECTION 80 HHC RIGHTLY CLAIMED BY THE APPELLANT . 16. AT THE TIME OF HEARING THE LD. COUNSEL FOR THE A SSESSEE SUBMITS THAT HE DOES NOT WANT TO PRESS THE ABOVE GROUND OF APP EAL WHICH WAS NOT OBJECTED TO BY THE LD DR. 17. THAT BEING SO AND IN THE ABSENCE OF ANY SUPPORTING MATERIAL PLACED ON RECORD BY THE LD. COUNSEL FOR THE ASSESSEE, THE GROUND TAKEN BY THE ASSESSEE IS, THEREFORE, REJECTED BEING NOT PRESSED. ITA NO.5613/M/09 A.Y:04-05 7 ITA NO.1587/MUM /10 (ASSESSMENT YEAR 2005-06) : 18. GROUND NO.1 IS AGAINST THE SUSTENANCE OF DISALLOWANCE OF RS.50,000/- OUT OF TRAVELLING, CONVEYANCE AND SALES PRO MOTION EXPENSES. 19. AFTER HEARING THE RIVAL PARTIES AND PERUSING THE MATERIAL AVAILABLE ON RECORD WE FIND THAT THERE IS NO DISPUTE T HAT THE ASSESSING OFFICER WHILE RELYING ON THE FINDING GIVEN IN THE ASSE SSMENT ORDER FOR THE ASSESSMENT YEAR 2004-05 IN THIS REGARD HAS MADE AN E STIMATED DISALLOWANCE OF RS.50,000/- OUT OF EXPENSES INCURRED ON T RAVELLING, CONVEYANCE AND SALES PROMOTION EXPENSES. SINCE IN THE APP EAL FOR THE ASSESSMENT YEAR 2004-05 WE HAVE RESTRICTED THE DISALLOWAN CE TO 50% OF THE DISALLOWANCE MADE BY THE ASSESSING OFFICER, THEREF ORE, FOLLOWING THE SAME VIEW AND KEEPING IN VIEW THAT THAT THE ASSESSI NG OFFICER HAS NOT POINTED OUT ANY ITEM OF DISALLOWABLE NATURE WE R ESTRICT THE DISALLOWANCE TO RS.25,000/- FOR THE EXPENSES INCURRED O N ACCOUNT OF PERSONAL IN NATURE. THE ASSESSING OFFICER IS DIRECTED TO ALLOW DUE RELIEF TO THE ASSESSEE. THE GROUND TAKEN BY THE ASSESSEE IS, THER EFORE, PARTLY ALLOWED. 20. GROUND NO.2 READS AS UNDER :- 2. THE LD. CIT(A) ERRED IN CONFIRMING TREATMENT O F INTEREST INCOME AS INCOME FROM OTHER SOURCES BY CONCLUDING THE INTEREST INCOME HAS NEXUS WITH THE DEPOSITS AND HENCE CANNOT BE BUSINESS INCOME, WITH OUT GOING INTO THE NEXUS OF THE FUNDS WHICH WERE THE WO RKING CAPITAL OF THE APPELLANT. 21. AT THE TIME OF HEARING THE LD. COUNSEL FOR THE A SSESSEE SUBMITS THAT HE DOES NOT WANT TO PRESS THE ABOVE GROUND OF APP EAL WHICH WAS NOT OBJECTED TO BY THE LD. DR. ITA NO.5613/M/09 A.Y:04-05 8 22. THAT BEING SO AND IN THE ABSENCE OF ANY SUPPORTING MATERIAL PLACED ON RECORD BY THE LD. COUNSEL FOR THE ASSESSEE, THE GROUND TAKEN BY THE ASSESSEE IS, THEREFORE, REJECTED BEING NOT PRESSED. 23. IN THE RESULT, ASSESSEE'S APPEAL FOR THE ASSESSMENT YEAR 2004- 05 IS PARTLY ALLOWED FOR STATISTICAL PURPOSES AND THE APP EAL FOR ASSESSMENT YEAR 2005-06 IS PARTLY ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 14.1.2011. SD/- SD/- (B. RAMAKOTAIAH) ( D.K. AGARWAL ) ACCOUNTANT MEMBER JUDICIAL MEMBER MUMBAI, DATED: 14.1.2011. JV. COPY TO: THE APPELLANT THE RESPONDENT THE CIT, CONCERNED, MUMBAI THE CIT(A) CONCERNED, MUMBAI THE DR BENCH TRUE COPY BY ORDER DY/ASSTT. REGISTRAR, ITAT, MUMBAI.