DCIT 10(3), MUMBAI V. GANESH POLYCHEM LTD, MUMBAI

ITA 5910/MUM/2013

• Counselvise Citation: [2015] 121 COUNSELVISE.COM (IT) 0651 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 7 month(s) 23 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 27-05-2015
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: G
• Next Hearing Date: 28-04-2015
• Assessment Year: 2008-2009
• Appeal Filed On: 04-10-2013
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: VIJAY KUMAR BORA
• Assessee Lawyers: DEEPESH T CHHEDA
• Keywords: Revenue expenditure; Capital expenditure
• Section: 10B; 10

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL, MUMBAI BENCH G , MUMBAI BEFORE SHRI R.C. SHARMA , ACCOUNTANT MEMBER AND SHRI VIJAY PAL RAO, JUDICIAL MEMBER ITA NO. 5910/M/2013 ASSESSMENT YEAR: 200 8 - 09 DY . COMMISSIONER OF INCOME TAX 10(3), ROOM NO.451, 4 TH FLOOR, AAYAKAR BHAVAN, MAHARSHI KARVE ROAD, MUMBAI - 400020 VS. M/S. GANESH POLYCHEM LTD. , 71, UDYOG KSHETRA, 2 ND FLOOR, MULUND GOREGOAN, LINK ROAD, MULUND (W), MUMBAI 400 0 80 PAN: AABCG 6160B (APPELLANT) (RESPONDENT) PRESENT FOR: ASSESSEE BY : SHRI DEEPESH T. CHHEDA, A.R. REVENUE BY : SHRI VIJAY KUMAR BORA , D.R. DATE OF HEARING : 25 .0 5 . 201 5 DATE OF PRONOUNCEMENT : 27.05. 2015 O R D E R PER VIJAY PAL RAO , JUDICIAL MEMBER: THIS APPEAL BY THE REVENUE IS DIRECTED AGAINST THE ORDER DATED 23 .0 7 .201 3 OF THE CIT(A) FOR THE ASSESSMENT YEAR 200 8 - 0 9 . THE REVENUE H AS RAISED THE FOLLOWING GROUNDS IN THIS APPEAL: 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT(A) ERRED IN HOLDING THAT SETTING OFF OF THE LOSS OF NON - ELIGIBLE UNDERTAKING AGAINST THE PROFITS OF THE ELIGIBLE UNDERTAKING BEFORE ALLOWING EXEMPTION U/S 10B OF THE ACT. 2. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT(A) ERRED IN DEL ETING ADDITION OF RS. 1,26,46,787/ - REPRESENTING DISALLOWANCE OF EXEMPTION U/S 10 B WAS UNTENABLE WITHOUT APPRECIATING THE FACT THAT CAPITAL EXPENDITURE OF AN 2007 - 08 IS NOT ALLOWABLE AS REVENUE EXPENDITURE FOR THE YEAR UNDER CONSIDERATION. ITA NO.5910/M/2013 M/S. GANESH POLYCHEM LTD. 2 3. THE APPELLAN T CRAVES LEAVE TO ADD, AMEND, VARY, OMIT OR SUBSTITUTE ANY OF THE AFORESAID GROUNDS OF APPEAL AT ANY TIME BEFORE OR AT THE TIME OF HEARING OF APPEAL. 2. GROUND NO.1 IS REGARDING RESTRICTING THE CLAIM OF RESOLUTION UNDER SECTION 10B BY SETTING OFF OF THE LOSS OF NON ELIGIBLE UNDERTAKING AGAINST THE PROFITS OF ELIGIBLE UNDERTAKING. 3. WE HAVE HEARD THE LD. D.R. AS WELL AS THE LD. A.R. AND CONSIDERED THE RELEVANT MATERIAL ON RECORD. AT THE OUTSET, WE NOTE THAT THIS IS A RECURRING ISSUE AND THIS TRIBUNAL I N ASSESSEES OWN CASE FOR THE A.YS. 2006 - 07 AND 2007 - 08 HAS DECIDED THIS ISSUE IN FAVOUR OF THE ASSESSEE. FOR THE A.Y. 2007 - 08 THE TRIBUNAL HAS CONSIDERED AN IDENTICAL ISSUE VIDE ORDER DATED 28.09.12 IN ITA NO.6834/M/2010 IN PARA 3 AS UNDER: 3. WE HAVE HEARD THE ARGUMENTS OF BOTH THE SIDES AND ALSO PERUSED THE RELEVANT MATERIAL ON RECORD. ALTHOUGH THE LEARNED DR HAS RELIED ON THE ORDER OF THE AO IN SUPPORT OF THE REVENUE'S CASE ON THE ISSUE UNDER CONSIDERATION, THE LEARNED COUNSEL FOR THE ASSESSEE HAS PO INTED OUT THAT A SIMILAR ISSUE HAS BEEN DECIDED BY THE TRIBUNAL IN FAVOUR OF THE ASSESSEE IN ASSESSEE'S OWN CASE FOR THE EARLIER YEARS. COPIES OF THE RELEVANT ORDERS OF THE TRIBUNAL ARE ALSO PLACED ON RECORD BY HIM BEFORE US AND PERUSAL OF THE SAME SHOWS T HAT A SIMILAR ISSUE HAS BEEN DECIDED BY THE TRIBUNAL IN FAVOUR OF THE ASSESSEE IN ASSESSEE'S OWN CASE FOR ASSESSMENT YEAR 2006 - 07 FOLLOWING THE DECISION OF HON'BLE BOMBAY HIGH COURT IN THE CASE OF CIT VS. BLACK & VEATCH CONSULTING (P) LTD. (2012) 20 TAXMANN.COM 727 (ITA NO. 1237 OF 2011 DATED 09 - 04 - 2012) WHEREIN IT WAS HELD THAT BROUGHT FORWARD LOSSES OF THE UNIT, INCOME OF WHICH IS NOT ELIGIBLE FOR DEDUCTION U/S 10A, CANNOT BE SET OFF AGAINST CURRENT PROFIT OF ELIGIBLE U NIT FOR COMPUTING DEDUCTION U/S !OA. FOLLOWING THE SAID DECISION OF THE HON'BLE JURISDICTIONAL HIGH COURT IN THE CASE OF CIT VS. BLACK VEATCH CONSULTING (P) LTD. (SUPRA), THE TRIBUNAL HAS ALSO DECIDED A SIMILAR ISSUE IN FAVOUR OF THE SSESSEE FOR ASSESSMENT YEAR 2005 - 06 VIDE ITS ORDER DATED 14TH SEPT., 2012 PASSED IN ITA NO. 22/MUM/2009. RESPECTFULLY FOLLOWING THIS JUDICIAL PRONOUNCEMENT, WE UPHOLD THE IMPUGNED ORDER OF THE LEARNED CIT(APPEALS) DIRECTING THE AO TO ALLOW DEDUCTION U/S 1013 FROM THE INCOME OF THE ASSESSEE BEFORE SET OFF OF BROUGHT FORWARD BUSINESS LOSSES AND DISMISS THIS APPEAL OF THE REVENUE. ITA NO.5910/M/2013 M/S. GANESH POLYCHEM LTD. 3 4. WE FURTHER NOTE THAT THE APPEAL FILED BY THE REVENUE AGAINST THE ORDER OF THIS TRIBUNAL HAS BEEN DISMISSED BY THE HONBLE HIGH COURT VIDE ORDER DATE D 28.02.13 WHEREBY THE ORDER OF THIS TRIBUNAL HAS BEEN CONFIRMED. FOLLOWING THE EARLIER ORDER OF THIS TRIBUNAL AS WELL AS HONBLE JURISDICTIONAL HIGH COURT IN ASSESSEES OWN CASE, WE DO NOT FIND ANY ERROR OR ILLEGALITY IN THE IMPUGNED ORDER OF THE LD. CIT (A) QUA THIS ISSUE. 5. THE GROUND NO.2 IS REGARDING DISALLOWANCE OF THE DEDUCTION UNDER SECTION 10B BY NOT ALLOWING THE ASSESSEE TO REDUCE THE EXPENDITURE ON ACCOUNT OF REPAIRS AND MAINTENANCE WHICH WAS ALREADY DEBITED TO THE PROFIT AND LOSS ACCOUNT. I N THE STATEMENT OF COMPUTATION OF INCOME THE ASSESSEE HAS CLAIMED DEDUCTION OF CONSUMABLE STORES & SPARES OF RS.73,21,585/ - AND REPAIRS AND MAINTENANCE OF RS.53,25,202/ - TOTAL AMOUNTING TO RS.1,26,46,787/ - . ON QUERY FROM THE A SSESSING O FFICER (AO) THE ASS ESSEE SUBMITTED THAT THE COMPANY HAS INADVERTENTLY CONSIDERED CAPITAL EXPENDITURE OF RS.1,26,46,787/ - AS REVENUE IN NATURE IN ITS ACCOUNTS FOR THE YEAR ENDING 31.03.07. THE SAID MISTAKE WAS REALIZED BY THE COMPANY AT THE TIME OF PREPARATION OF COMPUTATION OF INCOME FOR THE A.Y. 2007 - 08 AND AFTER FINALISATION OF THE ACCOUNT FOR THE SAID YEAR. SINCE THE ACCOUNTS FOR THE YEAR UNDER 31.03.07 WERE FINALIZED AT THAT P O INT OF TIME IT WAS NOT POSSIBLE TO CHANGE THE ACCOUNTS FOR THE YEAR ENDED 31.03.07. THE ASSES SEE COMPANY TAKING CORRECTIVE STEPS HAD ADDED THE SAID AMOUNT UNDER THE HEAD REPAIRS & MAINTENANCE AND STORES & SPARES TO THE NET PROFIT WHILE PREPARING THE COMPUTATION OF THE INCOME FOR THE A.Y. 2007 - 08. FURTHER, THE SAID EXPENDITURE WAS REDUCED WHILE WO RKING OUT THE NET PROFIT OF THE ELIGIBLE UNDERTAKING FOR SECTION 10B DEDUCTION AND WAS ALSO ADDED TO NET PROFIT FOR THE COMPUTATION OF DEDUCTION UNDER SECTION 10B. THUS THE ASSESSEE HAS CONTENDED THAT TO RECTIFY THE SAID MISTAKE IN THE ACCOUNT THE ASSESSE E HAS REDUCED THE STORE S & SPARES AND REPAIRS & MAINTENANCE BY THE SAME AMOUNT WHILE ITA NO.5910/M/2013 M/S. GANESH POLYCHEM LTD. 4 PREPARING THE ACCOUNTS FOR THE YEAR ENDED 31.03.08. CORRESPONDINGLY, THE SAME AMOUNT WAS REDUCED FROM THE NET PROFIT WHILE COMPUTING THE INCOME FOR THE A.Y. 2008 - 09 . THE AO HAS NOT ACCEPTED THIS EXPLANATION OF THE ASSESSEE AS TO HOW THE CAPITAL EXPENDITURE FOR A.Y. 2007 - 08 CAN BECOME THE REVENUE EXPENDITURE IN THE A.Y. 2008 - 09. ACCORDINGLY, THE AO DISALLOWED THE SAID CLAIM OF DEDUCTION OF RS.1,26,46,787/ - AND THE DEDUCTI ON UNDER SECTION 10B WAS REVISED. 6. ON APPEAL, THE LD. CIT(A) HAS ALLOWED THE CLAIM OF THE ASSESSEE BY ACCEPTING THE EXPLANATION OF THE ASSESSEE THAT THE SAID AMOUNT WAS NOT REDUCED FROM THE PROFITS OF THE A.Y. 2007 - 08 AND ACCORDINGLY IN THE YEAR UNDER CONSIDERATION IT WAS A RECTIFICATION AND CONSEQUENT IAL ENTRY CARRIED OUT IN THE BOOKS OF ACCOUNT. 7. WE HAVE HEARD THE LD. D.R. AS WELL AS THE LD. A.R. AND CONSIDERED THE RELEVANT MATERIAL ON RECORD. THE LD. D.R. HAS FORCIBLY CONTENDED THAT HOW AN EXP ENDITURE OF THE A.Y. 2007 - 08 CAN BE ALLOWED FOR THE A.Y. 2008 - 09. HE HAS RELIED UPON THE ORDER OF THE AO. ON THE OTHER HAND, THE LD. A.R. HAS SUBMITTED THAT THE SAID AMOUNT OF RS.1,26,46,787/ - WAS DEBITED BY THE ASSESSEE IN THE PROFIT & LOSS ACCOUNT FO R THE A.Y. 2007 - 08. SUBSEQUENTLY, DURING THE COURSE OF TAX AUDIT IT CAME TO THE NOTICE OF THE ASSESSEE THAT THESE EXPENSES WERE CAPITAL IN NATURE AND HAVE BEEN INADVERTENTLY DEBITED TO THE PROFIT & LOSS ACCOUNT. THIS ERROR COULD NOT BE RECTIFIED IN THE A .Y. 2007 - 08 AS THE ACCOUNTS WERE ALREADY SIGNED AND APPROVED. HOWEVER, FOR THE PURPOSE OF FILING THE RETURN OF INCOME FOR THE YEAR UNDER CONSIDERATION THE ASSESSEE HAS MADE THE ADJUSTMENTS IN THE STATEMENT OF INCOME AND ADDED BACK THE EXPENSES THAT WAS IN ADVERTENTLY CLAIMED IN ITS PROFIT & LOSS ACCOUNT. HE HAS SUPPORTED THE IMPUGNED ORDER OF THE LD. CIT(A). ITA NO.5910/M/2013 M/S. GANESH POLYCHEM LTD. 5 8. HAVING CONSIDERED THE RIVAL SUBMISSIONS AS WELL AS RELEVANT MATERIAL ON RECORD, WE FIND THAT AN ERROR WAS COMMITTED BY THE ASSESSEE IN THE BOOKS OF ACCOUNTS RELEVANT TO THE A.Y. 2007 - 08 BY DEBITING THE CAPITAL EXPENDITURE TO THE PROFIT & LOSS ACCOUNT . HOWEVER, THE ASSESSEE OFFERED CORRECT INCOME TO TAX FOR A.Y. 2007 - 08 . FOR THE YEAR UNDER CONSIDERATION THE ASSESSEE HAS CARRIED OUT THE NECESSARY E NTRIES TO RECTIFY THE SAID MISTAKE OCCURRED IN THE FINANCIAL YEAR 2006 - 07 BY CREDITING THE SAID AMOUNT OF RS.1,26,46,787/ - TO THE RESPECTIVE EXPENDITURES LEDGER ACCOUNTS AND CORRESPONDINGLY DEBITING THE FIXED CAPITAL ACCOUNT. THUS, AS A RESULT OF THE SAI D RECTIFICATION ADJUSTMENT MADE IN THE BOOKS OF ACCOUNTS FOR THE YEAR UNDER CONSIDERATION THE PROFIT OF THE ASSESSEE WAS INCREASED BY THE SAID AMOUNT IN COMPARISON TO THE REAL PROFIT OF THE YEAR. THEREFORE, THE ASSESSEE IN COMPUTATION OF INCOME FOR THE AS SESSMENT YEAR UNDER CONSIDERATION HAS DEDUCTED THE SAID AMOUNT TO BRING THE INCOME AT THE CORRECT AMOUNT. WE FIND THAT IF THE INCOME FOR THE YEAR UNDER CONSIDERATION IS NOT CORRECTLY COMPUTED IN THE STATEMENT OF INCOME IT WOULD HAVE RESULTED IN DOUBLE TAX ATION BECAUSE THE ASSESSEE HAS ALREADY ADDED BACK A SUM OF RS.1,26,46,787/ - IN THE PROFIT & LOSS ACCOUNT IN ORDER TO RECTIFY THE MISTAKE OCCURRED IN THE ACCOUNTS IN THE EARLIER YEAR. IN VIEW OF THE ABOVE FACTS AND CIRCUMSTANCES OF THE CASE, WE DO NOT FIND ANY ERROR OR ILLEGALITY IN THE IMPUGNED ORDER OF THE LD. CIT(A) QUA THIS ISSUE. 9. IN THE RESULT, THE APPEAL OF THE REVENUE IS DISMISSED . ORDER PRONOUNCED IN THE OPEN COURT ON 27. 0 5 . 201 5 . SD/ - SD/ - ( R .C. SHARMA ) ( VIJAY PAL RAO ) ACCOUNTANT MEMBER JUDICIAL MEMBER MUMBAI, DATED: 27. 0 5 .2015 . * KISHORE , SR. P.S. ITA NO.5910/M/2013 M/S. GANESH POLYCHEM LTD. 6 COPY TO: THE APPELLANT THE RESPONDENT THE CIT, CONCERNED, MUMBAI THE CIT ( A) CONCERNED, MUMBAI THE DR CONCERNED BENCH //TRUE COPY// [ BY ORDER DY/ASSTT. REGISTRAR, ITAT, MUMBAI.