ACIT, Coimbatore V. M/s. Lakshmi Machine Works Ltd., Coimbatore

ITA 585/CHNY/2012

• Counselvise Citation: [2015] 120 COUNSELVISE.COM (IT) 8740 (ITAT-CHENNAI)
• Duration Of Justice: 2 year(s) 9 month(s) 13 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 02-01-2015
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: B
• Next Hearing Date: 03-12-2014
• Assessment Year: 2008-2009
• Appeal Filed On: 20-03-2012
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: S DAS GUPTA IRS
• Keywords: Gift

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL B BENCH, CHENNAI . , ! ' , # $ BEFORE SHRI A.MOHAN ALANKAMONY, ACCOUNTANT MEMBER & SHRI VIKAS AWASTHY JUDICIAL MEMBER. ./ I.T.A. NO.1414/MDS/2011 AND ITA NO.585/MDS/2012 ( / ASSESSMENT YEARS : 2007-2008 & 2008-2009) THE ASSISTANT COMMISSION OF INCOME TAX, COMPANY CIRCLE IV (2), COIMBATORE ( '% /APPELLANT) VS M/S. LAKSHMI MACHINE WORKS LTDS, PERIANAICKANPALAYAM, COIMBATORE 641 020. [PAN :AAACL5244N] ( &''% /RESPONDENT) / APPELLANT BY : SHRI. S. DASGUPTA, IRS, JCIT. / RESPONDENT BY : SHRI. SAROJ KUMAR PARIDA, ADVOCATE /DATE OF HEARING : 03.12.2014. !' /DATE OF PRONOUNCEMENT : 02.01.2015. ( / O R D E R PER VIKAS AWASTHY, JUDICIAL MEMBER THESE TWO APPEALS HAVE BEEN FILED BY THE REVENUE IMPUGNING THE ORDERS OF COMMISSIONER OF INCOME TAX (APPEALS) I, I.T.A.NO.1414 /MDS/2011 & I.T.A. NO.5 85/MDS/2012. . :- 2 -: COIMBATORE, DATED 30.05.2011 FOR THE ASSESSMENT YEA R 2007-08 AND 22.12.2011 FOR THE ASSESSMENT YEAR 2008-09, RESPECT IVELY. 2. IN THE APPEAL FOR THE ASSESSMENT YEAR 2007-2008, TH E REVENUE HAS RAISED THREE ISSUES (I) ALLOWING LOCAL AREA EXP ENSES TO THE EXTENT OF 50%; (II) ALLOWING BUSINESS PROMOTION EXPENSES T O THE EXTENT OF 50%; AND (III) DELETING OF DISALLOWANCE ON RESEARC H AND DEVELOPMENT EXPENSES. IN THE APPEAL FOR ASSESSMENT YEAR 2008-2 009, THE REVENUE HAS RAISED SINGLE ISSUE WITH REGARD TO RESEARCH AND DEVELOPMENT EXPENSES . 3. THE APPEAL FOR THE ASSESSMENT YEAR 2008-2009 HAS BE EN FILED WITH THE DELAY OF 15 DAYS. THE REVENUE HAS PLACED ON RECORD AFFIDAVIT OF SHRI. A.S. DINESH KUMAR, ASSISTANT COMMISSIONER OF INCOME TAX, COMPANY CIRCLE IV(2), COIMBATORE, GIVING REASONS F OR DELAY IN FILING OF THE APPEAL. AFTER PERUSAL OF THE SAME, WE FIND TH AT DELAY IN FILING OF APPEAL IS NOT DELIBERATE OR INTENTIONAL. THE DELAY OF 15 DAYS IN FILING OF THE APPEAL IS CONDONED AND THE APPEAL IS ADMITTED T O BE HEARD ON MERITS. 4. THE BRIEF FACTS OF THE CASE ARE, THAT THE ASSESSEE IS A COMPANY ENGAGED IN MANUFACTURE OF TEXTILES MACHINERY. THE ASSESSEE FILED I.T.A.NO.1414 /MDS/2011 & I.T.A. NO.5 85/MDS/2012. . :- 3 -: RETURN OF INCOME FOR THE ASSESSMENT YEAR 2007-2008 ON 29.10.2007 DECLARING INCOME OF G.2,57,19,02,523/-. THE CASE O F ASSESSEE WAS SELECTED FOR SCRUTINY AND NOTICE UNDER SECTION 143( 2) WAS ISSUED TO THE ASSESSEE ON 26.08.2008. DURING THE ASSESSMENT PROC EEDINGS, THE ASSESSING OFFICER MADE CERTAIN ADDITIONS/DISALLOWAN CES WHICH INTER-ALIA INCLUDE DISALLOWANCE OF LOCAL AREA EXPENSES G.21,6 5,286/-, BUSINESS PROMOTION EXPENSES G.29,48,957/- AND EXPENDITURE O N RESEARCH AND DEVELOPMENT G.2,00,00,000/-. AGGRIEVED BY THE ASSESSMENT ORDER DATED 30.12.2009, THE ASSESSEE PREFERRED AN APPEAL BEFORE THE COMMISSIONE R OF INCOME TAX (APPEALS). THE COMMISSIONER OF INCOME TAX (APPEALS) VIDE IMPUGNED ORDER RESTRICTED DISALLOWANCE OF LOCAL AREA EXPENDI TURE AND BUSINESS PROMOTION EXPENDITURE TO 50% AND ALLOWED EXPENDITUR E ON RESEARCH AND DEVELOPMENT IN FULL. 5. FOR THE ASSESSMENT YEAR 2008-09, THE ASSESSEE FILED RETURN OF INCOME ON 29.09.2008, DECLARING TOTAL INCOME OF G.3 22,93,19,130/-. DURING THE COURSE OF SCRUTINY ASSESSMENT, THE ASSES SING OFFICER DISALLOWED RESEARCH AND DEVELOPMENT EXPENDITURE AMO UNTING TO G.50,00,000/-. I.T.A.NO.1414 /MDS/2011 & I.T.A. NO.5 85/MDS/2012. . :- 4 -: IN APPEAL, THE FIRST APPELLATE AUTHORITY REVERSED T HE FINDINGS OF ASSESSING OFFICER AND ALLOWED THE CLAIM OF ASSESSEE WITH REFERENCE TO RESEARCH AND DEVELOPMENT EXPENSES. THE REVENUE HAS NOW IMPUGNED THE FINDINGS OF COMMISSIONER OF INCOME TAX (APPEALS) ON THIS ISSUE. 6. SHRI. S. DASGUPTA, REPRESENTING THE DEPAR TMENT SUBMITTED THAT THE COMMISSIONER OF INCOME TAX (APPEALS) ERRED IN A LLOWING LOCAL AREA EXPENSES TO THE EXTENT OF 50%. THE ASSESSEE H AS NOT PLACED ON RECORD ANY EVIDENCE IN SUPPORT OF THE SAID EXPENDIT URE. FURTHER, THE ASSESSEE HAS NOT DEDUCTED TAX AT SOURCE ON THE ALLE GED PAYMENTS MADE TO OWNERS OF THE LAND WHERE PARKING FACILITY F OR THE TRUCKS HAVE BEEN MADE. ON THE ISSUE OF BUSINESS PROMOTION EXPE NSES, THE LEARNED DEPARTMENTAL REPRESENTATIVE CONTENDED THAT NO PLAUS IBLE REASON HAS BEEN GIVEN BY THE COMMISSIONER OF INCOME TAX (APPEA LS) FOR ALLOWING 50% BUSINESS PROMOTION EXPENDITURE. IN RESPECT OF F INDINGS OF THE COMMISSIONER OF INCOME TAX (APPEALS) ON THE RESEARC H AND DEVELOPMENT EXPENDITURE, THE LEARNED DEPARTMENTAL R EPRESENTATIVE POINTED OUT THAT COMMISSIONER OF INCOME TAX (APPEAL S) HAS ALLOWED SUCH EXPENDITURE ON THE BASIS OF PERSONAL VISIT TO THE PREMISES OF THE ASSESSEE COMPANY, WHEREAS MACHINERY HAS BEEN INSTAL LED AT THE I.T.A.NO.1414 /MDS/2011 & I.T.A. NO.5 85/MDS/2012. . :- 5 -: PREMISES OF M/S. ADWAITH TEXTILES LIMITED. THE COM MISSIONER OF INCOME TAX (APPEALS) HAS GRANTED RELIEF TO THE ASSE SSEE ON THE BASIS OF CERTAIN DOCUMENTS WHICH WERE NOT AVAILABLE BEFOR E THE ASSESSING OFFICER, NOR ANY REMAND REPORT WAS SOUGHT ON THE INFORMATION/DOCUMENTS PLACED BEFORE THE COMMISSION ER OF INCOME TAX (APPEALS) FOR THE FIRST TIME. THUS, THE PROVIS IONS OF RULE 46A HAVE BEEN VIOLATED. THE LEARNED DEPARTMENTAL REPRESENT ATIVE VEHEMENTLY SUPPORTED THE ORDER OF ASSESSING OFFICER FOR BOTH T HE IMPUGNED ASSESSMENT YEARS. 7. ON THE OTHER HAND, SHRI. SAROJ KUMAR P ARIDA, APPEARING ON BEHALF OF THE ASSESSEE, VEHEMENTLY DEFENDED THE ORD ER OF THE COMMISSIONER OF INCOME TAX (APPEALS). THE LEARNED COUNSEL FOR THE ASSESSEE CONTENDED THAT THE IMPUGNED ORDER IS DETA ILED AND SPEAKING. HE PRAYED FOR SUSTAINING THE SAME AND DISMISSING TH E APPEALS OF THE REVENUE. 8. WE HAVE HEARD THE SUBMISSIONS MADE BY THE REPRESENTATIVES OF BOTH SIDES AND HAVE PERUSED THE ORDERS OF THE AU THORITIES BELOW. THE FIRST ISSUE IN APPEAL FOR THE ASSESSMENT YEAR 2 007-08 IS WITH REGARD TO ALLOWING OF 50% OF LOCAL AREA EXPENDITURE . THE ASSESSEE HAS I.T.A.NO.1414 /MDS/2011 & I.T.A. NO.5 85/MDS/2012. . :- 6 -: CLAIMED G.21,65,286/- AS LOCAL AREA EXPENDITURE. T HE SAID EXPENDITURE IS ALLEGEDLY MADE FOR CREATING PARKING FACILITIES O F THE TRUCKS CARRYING INWARD AND OUTWARD MATERIALS/GOODS OF THE ASSESSEE COMPANY. THE ASSESSEE HAS ALSO ALLEGED TO HAVE SPENT MONEY FOR R EPAIR OF LINK ROAD CONNECTING UNIT OF THE ASSESSEE AT PERIANACIKENPALA YAM. THE ASSESSEE HAS NOT PLACED ON RECORD THE COMPLETE DETAILS OF TH E LOCAL AREA EXPENSES. THE COMMISSIONER OF INCOME TAX (APPEALS) HAS DISALLOWED 50% OF THE EXPENDITURE CLAIMED BY THE ASSESSEE AFTE R SITE INSPECTION. THE COMMISSIONER OF INCOME TAX (APPEALS) HAS OBSERV ED IN HIS ORDER THAT THE ROAD WAS IN BAD SHAPE AND THE SAME BEEN LA ID OUT TEMPORARILY FOR FACILITATION OF THE MOMENT OF THE COMPANY TRUC KS. THE COMMISSIONER OF INCOME TAX (APPEALS) RESTRICTED LO CAL AREA EXPENSES TO 50% BASED ON HIS PERSONAL VISIT AND INFORMATION COLLECTED. WE OBSERVE THAT THE DISALLOWANCE HAS BEEN RESTRICTE D TO 50% ON THE BASIS OF PERSONAL VISIT TO THE SITE BY COMMISSI ONER OF INCOME TAX (APPEALS). THE COMMISSIONER OF INCOME TAX (APPEALS) HAS NOT RAISED ANY DOUBT OVER THE EXPENDITURE INCURRED BY THE ASSE SSEE ON LOCAL AREA DEVELOPMENT. IN THE FACTS OF THE CASE, WE ARE NOT I NCLINED TO INTERFERE WITH THE FINDINGS OF FIRST APPELLATE AUTHORITY ON T HIS ISSUE. ACCORDINGLY, THIS GROUND OF APPEAL OF THE REVENUE I S DISMISSED. I.T.A.NO.1414 /MDS/2011 & I.T.A. NO.5 85/MDS/2012. . :- 7 -: 9. THE NEXT ISSUE IN APPEAL IS WITH REGARD TO BUSINESS PROMOTION EXPENSES. THE ASSESSEE HAS CLAIMED G.29,48,957/- A S BUSINESS PROMOTION EXPENDITURE. THE ASSESSEE HAS NOT PLACED ON RECORD ANY DOCUMENT IN SUPPORT OF SUCH EXPENDITURE. THE FIRST APPELLATE AUTHORITY HAS RESTRICTED THE EXPENDITURE TO 50% MER ELY ON ESTIMATION. WHILE ALLOWING 50% EXPENDITURE, THE COMMISSIONER OF INCOME TAX (APPEALS) HAS NOT GIVEN ANY REASON. THE CONTENTION OF THE ASSESSEE IS THAT BUSINESS PROMOTION EXPENDITURE IS TOWARDS INCE NTIVES/GIFTS GIVEN TO THE REPRESENTATIVES OF CUSTOMER COMPANIES TO MA INTAIN CORDIAL BUSINESS RELATIONS. HOWEVER, THE ASSESSEE HAS NOT PLACED ON RECORD THE DETAILS OF THE PERSONS TO WHOM SUCH INCENTIVES WERE GIVEN. WE DO NOT FIND ANY REASON IN ALLOWING EVEN 50% OF SUCH EX PENDITURE IN THE ABSENCE OF ANY DOCUMENT OR ANY OTHER EVIDENCE. THI S GROUND OF THE REVENUE IS ALLOWED AND THE ENTIRE BUSINESS PROMOTIO N EXPENSES ARE DISALLOWED. 10. THE THIRD ISSUE RAISED BY THE REVENUE IN APPEAL FOR THE ASSESSMENT YEAR 2007-2008 IS WITH REGARD TO RESEARC H AND DEVELOPMENT EXPENSES. THIS ISSUE IS ALSO RAISED IN APPEAL FOR THE ASSESSMENT YEAR 2008-09. THE ASSESSEE HAS MADE PAYM ENT OF G.2,00,00,000/- IN ASSESSMENT YEAR 2007-2008 AND G. 50,00,000/- IN ASSESSMENT YEAR 2008-2009 TO M/S. ADWAITH TEXTILES LIMITED FOR USING I.T.A.NO.1414 /MDS/2011 & I.T.A. NO.5 85/MDS/2012. . :- 8 -: ITS PREMISES FOR INSTALLING MACHINES AND MAKING OBS ERVATION UNDER ACTUAL WORKING CONDITIONS. THE ASSESSEE HAD ENTERED INTO AN AGREEMENT DATED 14 .12.1998 WITH M/S. ADWAITH TEXTILES LIMITED TO UNDERTAKE RE SEARCH AND DEVELOPMENT ACTIVITIES UNDER MILL CONDITIONS. THE ASSESSEE HAS INSTALLED DIFFERENT KIND OF MACHINES AT THE PREMISE S OF M/S. ADWAITH TEXTILES LIMITED TO MONITOR THEIR PERFORMANCES UNDE R REAL TIME WORKING CONDITIONS. DURING THIS TRIAL PERIOD, THERE WAS A LOSS OF PRODUCTION AS MACHINERY HAD TO BE STOPPED ON SEVERAL DAYS FOR NUM BER OF HOURS. THE ASSESSEE PAID G.2,00,00,000/- AS COMPENSATION F OR PRODUCTION LOSS ON ACCOUNT OF FREQUENT INTERVENTION DURING PRODUCTI ON PERIOD. THE COMMISSIONER OF INCOME TAX (APPEALS) IN HIS ORDER H AS LISTED OUT DIFFERENT MACHINES THAT WERE PUT TO TEST ON THE PRE MISES OF M/S. ADWAITH TEXTILES LIMITED FOR CARRYING OUT VARIOUS T ESTS ON THE MACHINES. IT HAS BEEN HIGHLIGHTED THAT EXTRA MANPOW ER WAS REQUIRED FOR OBSERVATIONS AND STUDY OF ACTIVITIES SUCH AS: (I) MONITORING CONSISTENCY OF YARN QUALITY; (II) NOISE LEVEL, VIBR ATION STUDY; (III) SILVER BREAKAGE STUDY ETC. THE ASSESSEE HAD SUBMITTED TH E DETAILS OF THE SUBSYSTEM AND THE TECHNICIANS WHO WERE MAINTAINING THE MACHINES DURING THE RELEVANT PERIOD. THE ASSESSEE FURTHER PR OVIDED THE DETAILS OF VARIOUS TESTS WHICH WERE CONDUCTED TO IMPROVE THE E FFICIENCY, I.T.A.NO.1414 /MDS/2011 & I.T.A. NO.5 85/MDS/2012. . :- 9 -: ENDURANCE, PRODUCTION QUALITY AND EFFICACY OF THE MACHINES. THE ASSESSEE COMPANY CONTINUED TO EXPERIMENT WITH DIFFE RENT MACHINE MODELS AND ALSO WITH DIFFERENT SPACES AND RAW MATER IALS TILL THE MACHINE STABILIZES. THE ASSESSEE HAS FURTHER FURNI SHED DETAILS OF ACTUAL UTILIZATION CAPACITY OF M/S. ADWAITH TEXTIL ES LIMITED DURING R & D ACTIVITIES. THE ASSESSEE WAS ABLE TO ESTABLISH BE FORE THE COMMISSIONER OF INCOME TAX (APPEALS) THAT M/S. ADWA ITH TEXTILES LIMITED SUFFERED PRODUCTION LOSS AND ALSO THE QUALI TY OF YARN BECAUSE OF FREQUENT INTERRUPTION IN PRODUCTION. THE COMMIS SIONER OF INCOME TAX (APPEALS) IN HIS ORDER HAS CATEGORICALLY OBSERV ED THAT THE AMOUNT PAID BY THE ASSESSEE TO M/S. ADWAITH TEXTILES LIMIT ED FOR USING THE MILL FLOOR FACILITY HAS BEEN ASSESSED TO TAX IN THE RELE VANT ASSESSMENT YEARS. THE REVENUE HAS NOT BEEN ABLE TO CONTROVERT THE FINDINGS OF THE COMMISSIONER OF INCOME TAX (APPEALS). WE DO FIND A NY REASON TO INTERFERE WITH THE WELL REASONED FINDINGS OF THE FI RST APPELLATE AUTHORITY IN DELETING THE DISALLOWANCE OF RESEARCH AND DEVELOPMENT EXPENSES. THIS GROUND OF APPEAL OF THE REVENUE IS DISMISSED, ACCORDINGLY. 11. SO FAR AS THE OBJECTION OF REVENUE FOR VIOLATIN G THE PROVISIONS OF RULE 46A IS CONCERNED, WE DO NOT FIND ANY MERIT IN THE SAME. THE REVENUE HAS NOT BEEN ABLE TO LIST OUT THE FRESH MAT ERIAL BROUGHT FOR I.T.A.NO.1414 /MDS/2011 & I.T.A. NO.5 85/MDS/2012. . :- 10 -: THE FIRST TIME ON RECORD BEFORE COMMISSIONER OF INC OME TAX (APPEALS) BY THE ASSESSEE. A PERUSAL OF THE IMPUGNED ORDER SHOWS THAT THE COM MISSIONER OF INCOME TAX (APPEALS) HAS NOT ACCEPTED ANY FRESH EVIDENCE TO COME TO FINAL CONCLUSION EXCEPT PERSONAL VISIT TO THE FA CTORY PREMISES TO HAVE FIRST HAND INFORMATION ON RESEARCH AND DEVELOPMENT ACTIVITIES. 12. IN RESULT, THE APPEAL OF THE REVENUE IN ITA NO .1414/MDS/2011 FOR THE ASSESSMENT YEAR 2007-2008 IS PARTLY ALLOWED AND THE REVENUES APPEAL IN ITA NO.585/MDS/2012 FOR THE ASS ESSMENT YEAR 2008-09 IS DISMISSED. ORDER PRONOUNCED ON FRIDAY, THE 2ND OF JANUARY, 2015, AT CHENNAI. SD/- SD/- ( . ) (A.MOHAN ALANKAMONY) / ACCOUNTANT MEMBER ( ! ' ) (VIKAS AWASTHY) # / JUDICIAL MEMBER #$ /DATED:02.01.2015. K.V $% &' (' /COPY TO: 1. ) APPELLANT 2. / RESPONDENT 3. * ( )/CIT(A) 4. * /CIT 5. '+, - /DR 6. ,. / /GF. I.T.A.NO.1414 /MDS/2011 & I.T.A. NO.5 85/MDS/2012. . :- 11 -: