EPC INDUSTRIES LTD, NASHIK V. ACIT 10(3), MUMBAI

ITA 5618/MUM/2011

• Counselvise Citation: [2014] 140 COUNSELVISE.COM (IT) 83580 (ITAT-MUMBAI)
• Duration Of Justice: 3 year(s) 16 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 20-08-2014
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: E
• Next Hearing Date: 11-08-2014
• Assessment Year: 2008-2009
• Appeal Filed On: 03-08-2011
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Keywords: Capital asset; Business income; Opportunity of being heard; Bad and doubtful debts

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL E BENCH, MUMBAI BEFORE SHRI N.K.BILLAIYA, AM, AND SHRI SANJAY GARG, JM ./ I.T.A. NO. 5618/MUM/2011 ( / ASSESSMENT YEAR: 2008-09) E PC INDUSTRIES LTD. PLOT NO.H-109, MIDC AMBAD, NASHIK-422010 / VS. ACIT - 10(3), AAYAKAR BHAVAN, M.K.ROAD, MUMBAI-400020 ./ PAN : AAACE2659J ( / APPELLANT) .. ( / RESPONDENT ) / ASSESSEE BY: SHRI VIPUL JOSHI & SHRI NISHIT GANDHI / RESPONDENT BY : SHRI KISHORE DHULE / DATE OF HEARING : 11/08/2014 / DATE OF PRONOUNCEMENT : 20/08/2014 !' / O R D E R PER N.K.BILLAIYA, AM: THIS APPEAL BY THE ASSESSEE IS PREFERRED AGAI NST THE ORDER OF THE CIT(A)-22, MUMBAI, DATED 06/06/2011 PERTAINING TO A .Y. 2008-09. 2. THE FIRST GRIEVANCE OF THE ASSESSEE RELATES TO T HE DISALLOWANCE OF ` .7,58,82,547/- BEING 15% OF THE EXPENSES CLAIMED AT ` .11,39,93,239/-. DURING THE COURSE OF SCRUTINY AS SESSMENT PROCEEDINGS, THE ASSESSEE WAS ASKED TO FILE DETAILS IN RESPECT OF THE EXPENSES DEBITED IN PROFIT & LOSS ACCOUNT AMOUNTING TO ` .11,39,93,239/-. THE ASSESSEE FILED DETAILS IN RES PECT OF FEW ITEMS OF EXPENSES AMOUNTING TO ` .3,81,10,692/-. ON RECEIVING NO DETAILS PERTAINING TO EXPENDITURE OF ` .7,58,82,547/-, THE AO PROCEEDED BY DISALLOWING 15% WORKING OUT TO ` .11,382,382-. THE ASSESSEE CARRIED THE MATTER BEFORE THE CIT(A) AND FILED COMPLETE DE TAILS IN RESPECT OF ITA NO.5618/MUM/2011 2 EXPENSES DEBITED TO PROFIT & LOSS ACCOUNT. THE CIT (A) HAS CONSIDERED THE GRIEVANCE OF THE ASSESSEE AT PARA 6.1 OF HIS OR DER AND HAS HELD THAT FOR WANT OF NON-AVAILABILITY OF DETAILS FROM T HE ASSESSEE, THE AO HAVE NO OPTION BUT TO MAKE DISALLOWANCE ON ESTIMATE D BASIS AND THE DISALLOWANCE IS REASONABLE. 3. BEFORE US, THE LD. COUNSEL FOR THE ASSESSEE VEH EMENTLY SUBMITTED THAT ALL THE DETAILS WERE FURNISHED BEFOR E THE LOWER AUTHORITIES WHICH HAVE NOT BEEN CONSIDERED BY THEM. THE COUNSEL DREW OUR ATTENTION TO THE RELEVANT PAGES OF THE PAP ER BOOK FILED AND POINTED OUT THAT THE FINDINGS OF THE CIT(A) ARE ERR ONEOUS IN AS MUCH AS COMPLETE DETAILS OF EXPENSE WERE BEFORE HIM. PER CONTRA , THE LD. DR STATED THAT THE AO HAS ALLOWED THE EXPENSES FOR WHICH DETAILS WERE FURNISHED AND ON THE BALANCE AN ESTIMATED DISA LLOWANCE AT THE RATE OF 15% WAS MADE BECAUSE THE AO HAVE NO OTHER OP TION. 4. WE HAVE CAREFULLY PERUSED THE ORDERS OF THE AUTH ORITIES BELOW AND ALSO THE RELEVANT DOCUMENTS REFERRED BEFORE US. ADMITTEDLY, THE ASSESSEE HAS DEBITED ` 11,39,93,239/- TO ITS PROFIT AND LOSS ACCOUNT. THE BIFURCATIONS OF THE EXPENSES ARE FOUND AT SCHED ULE-9 TO THE PROFIT & LOSS ACCOUNT. PAGE 95 OF THE PAPERBOOK SHO WS THAT THE DETAILS WERE FURNISHED BY THE ASSESSEE BEFORE THE A O AND THE CIT(A). A PERUSAL OF THE COMPUTATION OF INCOME SHOWS THAT T HE ASSESSEE HAS SUO MOTO MADE CERTAIN DISALLOWANCE IN RESPECT OF INADMISSIB LE ITEMS WHICH INCLUDE EXPENSES INADMISSIBLE ` .10,00,000/- COMMISSION ` .98.41 LAKHS PROVISION FOR DOUBTFUL DEBT ` .43.09 LAKHS, STATUTORY LIABILITY ` .53.17 LAKHS, FREIGHT OF ` .6.90 LAKHS, SITE INSTALLATION ` .4.61 LAKHS AND PRIOR PERIOD EXPENSES OF ` .2.04 LAKHS. THE DETAILS OF EXPENDITURE DEBITED TO PROFIT & LOSS ACCOUNT ALSO I NCLUDES REPAIRS TO ITA NO.5618/MUM/2011 3 MACHINERIES, SITE EXPENSE, COMMISSION, BAD DEBTS AN D MISCELLANEOUS EXPENSES AND SOME OTHER EXPENSES. THE AO HAS MADE AD-HOC DISALLOWANCE ON 15% IN RESPECT OF EXPENDITURE AMOUNT ING TO ` .7,58,82,547/-. CONSIDERING THE FACTS IN TOTALITY IN THE LIGHT OF SUO MOTO DISALLOWANCES BY THE ASSESSEE FURTHER DISALLOWANCE BY THE AO SEEMS UNWARRANTED AS THE NECESSARY DETAILS WERE MUC H AVAILABLE BEFORE THE LD. CIT(A) WHICH HAS NOT BEEN CONSIDERED BY THE CIT(A) AND SINCE THE ASSESSEE ITSELF HAS DISALLOWED EXPENS ES A FURTHER DISALLOWANCE IS UNCALLED FOR. WE THEREFORE SET-ASI DE THE FINDINGS OF THE CIT(A) AND DIRECT THE AO TO DELETE THE ADDITION OF ` .11,382,382/-. 5. FIRST GRIEVANCE OF THE ASSESSEE IS ALLOWED. 6. THE SECOND GRIEVANCE RELATES TO ATTRIBUTION OF E STIMATED INTEREST OF ` .14,03,810/- TOWARDS WORK IN PROGRESS. THE AO NOTI CED THAT THE ASSESSEE HAS SHOWN CAPITAL WORK IN PROGRESS AT ` .1,75,47,620/-. THE AO FURTHER FOUND THAT THE ASSESSEE HAS DEBITED AN A MOUNT OF ` .1,99,22,738/- AS INTEREST. THE ASSESSEE WAS ASKED TO EXPLAIN WHETHER ANY INTEREST IS CAPITALIZED AND IF NOT WHY THE SAME SHOULD NOT BE CAPITALIZED. THE ASSESSEE STATED THAT NO IN TEREST WAS CAPITALIZED. THE AO ESTIMATED INTEREST ATTRIBUTABL E TO THE CAPITAL WORK IN PROGRESS AT THE RATE OF 8%AND WORKED OUT TH E ATTRIBUTION TO ` .14,03,810/-. THE CIT(A) CONFIRMED THE FINDINGS OF THE AO, ON FINDING THAT NO DETAILS WERE PRODUCED BY THE ASSESS EE TO JUSTIFY WHY INTEREST SHOULD NOT BE CAPITALIZED. BEFORE US, THE COUNSEL FOR THE ASSESSEE STATED THAT OUT OF TOTAL INTEREST AT ` .1.99CRORES INTEREST AMOUNTING TO ` .1.44 CRORES PERTAIN TO INTEREST ON DEBENTURES. IT IS THE SAY OF THE COUNSEL THAT DEBENTURES WERE ISSUED MUCH EARLIER AND ITA NO.5618/MUM/2011 4 THEREFORE THERE IS NO QUESTION IN ATTRIBUTING INTER EST OUT OF THIS. THE DR SIMPLY SUPPORTED THE FINDINGS OF THE LOWER AUTHO RITIES. 7. WE HAVE CAREFULLY PERUSED THE ORDERS OF THE AUTH ORITIES BELOW AND THE RELEVANT DOCUMENTARY EVIDENCE BROUGHT BEFOR E US. SCHEDULE C AND SCHEDULE D OF THE BALANCE SHEET SHOW THE AMOUNT OF SECURED LOANS AND UNSECURED LOANS, SECURED LOANS CONTAIN TE RM LOAN FROM BANK, CASH CREDIT/WORKING CAPITAL FROM BANK AND TER M LOAN FOR MACHINERY. UNSECURED LOANS REFERS TO THE OPTIONALL Y CONVERTIBILITY DEBENTURES AND INTEREST FREE LOAN UNDER SALES TAX D EFERRAL SCHEME. ON THESE BORROWINGS, THE ASSESSEE HAS PAID INTEREST AMOUNTING TO ` .1.99 CRORES OUT OF WHICH INTEREST ON DEBENTURES IS ` .1.44 CORES AND OTHER INTEREST IS ` .54.83 LAKHS. SO FAR AS, INTEREST ON DEBENTURES IS CONCERNED NO ATTRIBUTION IS REQUIRED. HOWEVER, CON SIDERING THE NATURE OF THE SECURED LOAN CERTAIN PART OF THE INTE REST APPEARS TO BE PERTAINING TO SOME CAPITAL ASSETS. WE THEREFORE RE STORE THIS ISSUE TO THE FILES OF THE AO. THE ASSESSEE IS DIRECTED TO F ILE THE DETAIL OF INTEREST AMOUNTING TO ` .54,83,286/- AND JUSTIFY THAT NO INTEREST IS ATTRIBUTABLE. THE AO IS DIRECTED TO EXAMINE SUCH D ETAILS AND DECIDE THE ISSUE AFRESH CONSIDERING THE INTEREST AMOUNTING TO ` .54,83,286/- ONLY. 8. SECOND GRIEVANCE IS ALLOWED FOR STATISTICAL PURP OSE. 9. THE THIRD GRIEVANCE RELATES TO THE DISALLOWANCE OF THE CLAIM ON ACCOUNT OF SALES TAX DEFERRED. IT IS THE CLAIM OF THE ASSESSEE THAT A REVISED COMPUTATION OF INCOME WAS FILED DURING THE COURSE OF ASSESSMENT PROCEEDINGS IN WHICH THE DEFERRED SALES TAX CLAIM AMOUNTING TO ` .24,83,103/-, WHICH WAS ADDED BACK IN THE ORIGINAL COMPUTATION OF INCOME, HAS BEEN WITHDRAWN. IT IS T HE SAY OF THE ITA NO.5618/MUM/2011 5 COUNSEL THAT THE LOWER AUTHORITIES HAVE NOT CONSIDE RED THE REVISED COMPUTATION OF INCOME. WE FIND FORCE IN THE CONTEN TION OF THE LD. COUNSEL. THE ASSESSMENT ORDER IS FRAMED ON THE BASI S OF ORIGINAL COMPUTATION OF INCOME. WE THEREFORE RESTORE THIS I SSUE TO THE FILES OF THE AO, THE AO IS DIRECTED TO DECIDE THE ISSUE AFRE SH IN THE LIGHT OF THE REVISED COMPUTATION OF INCOME AS PER THE PROVIS ION OF LAW AFTER GIVING A REASONABLE OPPORTUNITY OF BEING HEARD TO T HE ASSESSEE. 10. THE THIRD GRIEVANCE OF THE ASSESSEE IS ALLOWED FOR STATISTICAL PURPOSE. 11. THE LAST GRIEVANCE OF THE ASSESSEE RELATES TO T HE TREATMENT OF INTEREST INCOME AMOUNTING TO ` .19,26,941/- UNDER THE HEAD INCOME FROM OTHER SOURCES AS AGAINST UNDER THE HEAD PRO FIT & LOSS OF BUSINESS. 12. DURING THE COURSE OF ASSESSMENT PROCEEDINGS, TH E AO FOUND THAT THE ASSESSEE HAS SHOWN INTEREST INCOME OF ` .19,26,941/- UNDER THE HEAD BUSINESS INCOME. THE AO WAS OF THE OPIN ION THAT SINCE THE ASSESSEE IS ENGAGED IN THE BUSINESS OF MANUFACT URING OF HDPE PIPES, FITTINGS AND SPRINKLER SYSTEM, THE INTEREST IS TO BE TAXED UNDER THE HEAD INCOME FROM OTHER SOURCES. THE LD. CIT( A) CONFIRMED THE FINDINGS OF THE AO RELYING UPON THE DECISION OF THE HONBLE SUPREME COURT IN THE CASE OF PANDIAN CHEMICALS LTD. 129 TAXMAN 539 . BEFORE US, THE LD. COUNSEL STATED THAT DEPOSITS WER E MADE OUT OF COMMERCIAL REASONS TO AVAIL FACILITIES FROM THE BAN K AND THEREFORE INTEREST RECEIVED ON SUCH DEPOSITS SHOULD BE TREATE D AS BUSINESS INCOME. PER CONTRA , THE LD. DR SUPPORTED THE FINDINGS OF THE LOWER AUTHORITIES. A PERUSAL OF SCHEDULE G OF CURRENT A SSETS FORMING PART OF THE BALANCE SHEET SHOW THAT THE FIXED DEPOSITS ARE LODGED WITH ITA NO.5618/MUM/2011 6 BANKS AS MARGIN FOR FUNDING WORKING CAPITAL FACILI TIES, WHICH SHOWS THAT THE FIXED DEPOSITS HAVE A DIRECT NEXUS WITH TH E WORKING CAPITAL FACILITIES AVAILED FROM THE BANK. IN OUR CONSIDERE D VIEW, THE INTEREST EARNED FROM SUCH DEPOSITS OF THE MONEY KEPT APART F OR THE PURPOSE OF BUSINESS IS TO BE TAXED UNDER THE HEAD INCOME FROM THE BUSINESS AND COULD BE NOT TAXED UNDER INCOME FROM OTHER SOU RCES. WE DRAW SUPPORT FROM THE DECISION OF THE HONBLE BOMBAY HIG H COURT IN THE CASE INDO SWISS JEWELS LTD. 284 ITR 389 . WE ACCORDINGLY DIRECT THE AO TO TREAT THE INTEREST INCOME UNDER THE HEAD PROFIT & GAINS OF THE BUSINESS AS DECLARED BY THE ASSESSEE. 13. THE LAST GRIEVANCE OF THE ASSESSEE IS ALLOWED. 14. IN THE RESULT, APPEAL FILED BY THE ASSESSEE IS ALLOWED IN PART FOR STATISTICAL PURPOSE. ORDER PRONOUNCED IN THE OPEN COURT ON 20/08/201 4 !' # $ % &! 20 /08/2014 , ' ( SD/- (SANJAY GARG) SD/- (N.K.BILLAIYA) JUDICIAL MEMBER ACCOUNTANT MEMBER $ ) MUMBAI; &! /DATED : 20 TH AUGUST, 2014. F{X~{TA F{X~{TA F{X~{TA F{X~{TA P.S. P.S. P.S. P.S. !' # $%&' (!'% / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT 2. / THE RESPONDENT. 3. * ( ) / THE CIT- , MUMBAI. 4. * / CIT(A)- , MUMBAI ITA NO.5618/MUM/2011 7 5. +,' --./ , ./ , $ ) / DR, ITAT, MUMBAI 6. '01 2 / GUARD FILE. !' ) / BY ORDER, + - //TRUE COPY// * / )+ , (DY./ASSTT. REGISTRAR) , $ ) / ITAT, MUMBAI