DCIT 3(2), MUMBAI V. MUKAND LTD, MUMBAI

ITA 626/MUM/2009

• Counselvise Citation: [2010] 136 COUNSELVISE.COM (IT) 1044 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 5 month(s) 23 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 23-07-2010
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: B
• Assessment Year: 2000-2001
• Appeal Filed On: 30-01-2009
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: S S RANA
• Keywords: Depreciation; Audit objection; Retrospective amendment; Revenue expenditure
• Section: 244A; 37(1); 154

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL 'B' BENCH, MUMBAI BEFORE SHRI D. MANMOHAN, VICE PRESIDENT AND SHRI B. RAMAKOTAIAH, ACCOUNTANT MEMBER ITA NO. 626/MUM/2009 (ASSESSMENT YEAR: 2000-01) DCIT 3(2) M/S. MUKAND LTD. ROOM NO. 608, 6TH FLOOR BAJAJ BHAVAN, 3RD FLOOR AAYAKAR BHAVAN, M.K. ROAD VS. 226, NARIMAN POINT, MUMBAI 400021 MUMBAI 400020 PAN - AAACM 5008 R APPELLANT RESPONDENT APPELLANT BY: SHRI S.S. RANA RESPONDENT BY: MS. CHARUL TOPRANI/SHRI KIRIT KAMDAR O R D E R PER B. RAMAKOTAIAH, A.M. THIS APPEAL BY THE REVENUE IS AGAINST THE ORDER OF THE CIT(A) III, MUMBAI DATED 25.11.2008. 2. REVENUE HAS RAISED THE FOLLOWING GROUNDS: - 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE AND IN LAW, THE LD. CIT(A) HAS ERRED IN HOLDING THAT THE DEPRECIATI ON RELATING TO JINIGERA STEEL PLANT WAS NOT CLAIMED BY THE ASSESSE E WHEREAS ON FACT THE ASSESSEE HAS DEBITED FULL AMOUNT OF DEPREC IATION OF RS.32,15,57,174/- AS PER BOOKS IN THE PROFIT & LOSS ACCOUNT AND ONLY AMOUNT OF RS.17,65,65,490/- IS ADDED IN THE CO MPUTATION OF INCOME. THUS, THE DIFFERENCE OF (RS.32,15,57,174 RS.17,65,65,490) RS.14,49,91,683/- WAS REQUIRED TO BE ADDED TO THE C OMPUTATION OF INCOME. 2. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E AND IN LAW, THE LD. CIT(A) ERRED IN DELETING AMOUNT OF RS.10,93,281 /- BEING THE INTEREST U/S 244A WITHDRAWN IN F.Y 2001-02 RELEVANT TO A.Y. 2002- 03 OUT OF THE INTEREST GRANTED TO THE ASSESSEE U/S 244A IN A.Y. 2000-01. 3. WE HAVE HEARD THE LEARNED D.R. AND THE LEARNED COUN SEL IN DETAIL. 4. THE ISSUE IN GROUND NO. 1 IS WITH REFERENCE TO THE ADDITION OF RS.14,49,91,683/- MADE BY THE A.O., STATED TO HAVE BEEN CLAIMED BUT NOT ADDED BY THE ASSESSEE IN THE COMPUTATION OF INCOME, IN THE REASSESSMENT ITA NO. 626/MUM/2009 M/S. MUKAND LTD. 2 PROCEEDINGS. AFTER COMPLETION OF ASSESSMENT UNDER S ECTION 143(3), CONSEQUENT TO AN AUDIT OBJECTION, THE A.O. REOPENED THE ASSESSMENT AND IN THOSE PROCEEDINGS ADDED THE ABOVE AMOUNT. IT WAS TH E CONTENTION OF THE ASSESSEE THAT THE AMOUNT WAS NOT CLAIMED AS THE SAI D AMOUNT WAS CAPITALISED IN THE ACCOUNTS TOWARDS JINIGERA STEEL PLANT AND REFERRED TO NOTE 16 TO THE ACCOUNTS IN SUPPORT OF THE SAME. THE A.O. DID NOT ACCEPT THE SAME BUT THE CIT(A) HAS ACCEPTED THE CONTENTIONS AFTER E XAMINING THE RECORD. 5. WE HAVE CONSIDERED THE SUBMISSIONS AND PERUSED THE RECORD. THERE IS NO MERIT IN THE GROUND RAISED BY THE REVENUE. AS SE EN FROM THE P & L ACCOUNT THE ASSESSEES GROSS RECEIPTS ARE RS.83,83, 903,000/-. FROM THIS THE ASSESSEE CLAIMED VARIOUS EXPENDITURES INCLUDING DEP RECIATION AT RS.32,15,57,000/-. FROM THE GROSS FIGURE OF RS.9,28 ,02,42,000/- OF EXPENDITURE THE EXPENDITURE CAPITALISED AT RS.95,95 ,33,000/- WAS REDUCED TO MAKE NET EXPENDITURE CLAIM OF RS.8,32,08,09,000/ - THUS ARRIVING AT A PROFIT OF RS.6,30,94,000/- IN THE P & L ACCOUNT. TH IS AMOUNT IS TAKEN AS BASIS IN THE COMPUTATION OF INCOME AND THE ASSESSEE ADDED THE DEPRECIATION CLAIMED AT RS.32,15,57,174/- AS REDUCED BY THE CAPI TALISED DEPRECIATION AT RS.14,49,91,683/- AND CLAIMED ACTUAL DEPRECIATION O N THE ASSETS OTHER THAN CPITALISED AT JINIGERA PLANT.. 6. THE ONLY ISSUE REQUIRED TO BE EXAMINED IS WHETHER T HE ASSESSEE HAS CLAIMED DEPRECIATION ON THE ASSETS ON WHICH DEPRECI ATION IS CLAIMED IN THE COMPANY ACCOUNT AS THE ASSESSEE HAS CLAIMED THE BAL ANCE OF THE REVENUE EXPENDITURE IN THE COMPUTATION OF INCOME. THE ASSES SEE HAS FURNISHED DETAILED CLARIFICATIONS AND THE CASE WAS REFIXED FO R CLARIFICATION AS THE RECORD DOES NOT INDICATE WHETHER THE ASSESSEE HAS CLAIMED DEPRECIATION IN THE YEAR ON THE ASSETS SO CAPITALISED. THE ASSESSEE HAS FURN ISHED THE FOLLOWING CLARIFICATION ALONGWITH NOTES ON COMPUTATION WHICH HAS BEEN VERIFIED BY THE LEARNED D.R AT THE OUTSET, OUR CLIENTS INVITE YOUR ATTENTION T O THE PROFIT & LOSS ACCOUNT FOR THE YEAR ENDED 31 MARCH 2000 WHEREIN DE PRECIATION OF RS.321,557,000/- HAS BEEN DEBITED. (REFER PAGE 5 OF THE COMPILATION SUBMITTED). THE AFORESAID DEPRECIATION ALSO INCLUDE S DEPRECIATION ON PLANT AND MACHINERY ON ACCOUNT OF TRIAL RUN OF GINI GERA STEEL PLANT AMOUNTING TO RS.144,991,683/-, WHICH HAS BEEN REDUC ED FROM THE ITA NO. 626/MUM/2009 M/S. MUKAND LTD. 3 EXPENDITURE DEBITED TO THE PROFIT AND LOSS ACCOUNT AS PART OF EXPENDITURE TRANSFERRED TO CAPITAL ACCOUNTS/CAPITA L WORM IN PROGRESS [INCLUDING TRIAL RUN EXPENDITURE] AMOUNTING TO RS. 959,533,000/-. THE SAME WOULD BE CLEAR FROM NOTE NO. B(16) OF SCHEDULE 21 TO THE FINANCIAL STATEMENTS (PAGE 6 OF COMPILATION), WHEREIN DETAILS OF EXPENDITURE TRANSFERRED TO CAPITAL ACCOUNTS/CAPITAL WORK IN PRO GRESS [INCLUDING TRIAL RUN EXPENDITURE] HAVE BEEN GIVEN. ACCORDINGLY, OUR CLIENTS SUBMIT THAT ALTHOUGH THE DEPRECIATION ON TRIAL RUN WAS INCLUDED IN THE TOTAL DEPRECIATION AS PER BOOKS OF ACCOUNT, THE SAME WAS REDUCED SEPARATELY IN THE PROFIT AND LOSS ACCOUNT AS A PART OF THE EXP ENDITURE TRANSFERRED TO CAPITAL WORK IN PROGRESS. HENCE, THE NET DEPRECIATI ON DEBITED TO THE PROFIT AND LOSS ACCOUNT AMOUNTED TO RS.176,565,491/ - (RS.321,557,174/- - RS.144,991,683/-). THE SAID SUM WAS ACCORDINGLY ADDED WHILE COMPUTING THE TOTAL INCOME (REFER PAGE 1 OF COMPILATION). FURTHER IN THE COMPUTATION OF TOTAL INCOME, EXPEN DITURE DURING TRIAL RUNS OF STEEL PLANT AT GINIGERA AMOUNTING TO RS.81 1,144,250/- HAS BEEN CLAIMED AS A DEDUCTION (REFER PAGE 3 OF COMPILATION ). IN THIS CONNECTION, YOUR ATTENTION IS INVITED TO NOTE NO. 9 OF THE NOTE S TO COMPUTATION OF TOTAL INCOME SUBMITTED ALONG WITH THE RETURN OF INCOME (C OPY ENCLOSED), THE EXTRACTS OF WHICH ARE AS FOLLOWS: IN THE ACCOUNTS OF THE PREVIOUS YEAR ENDED 31 ST MARCH 2000, EXPENDITURE OF RS.956,135,933/- INCURRED DURING THE TRIAL RUNS OF THE COMPANYS NEW STEEL PLANT AT GINIGERA, KARNATAKA, H AS BEEN CAPITALIZED AND INCLUDED IN CAPITAL WORK-IN-PROGRESS, AS PER DE TAILS GIVEN IN NOTE NO. B(16) IN SCHEDULE 21 TO THE ACCOUNTS. . THE SAID EXPENDITURE ALSO INCLUDES DEPRECIATION AS PER BOOKS OF ACCOUNT ON THE ASSETS OF THE SAID PLANT AMOUNTING T O RS.144,991,683/- ACCORDINGLY, THE EXPENDITURE AMOUNTING TO RS.811,14 4,250 (RS.956,135,933/- - RS.144,991,683/-) HAS BEEN CLAI MED AS DEDUCTION ON THE GROUND THAT THE SAME QUALIFIES FOR DEDUCTION AS REVENUE EXPENDITURE UNDER SECTION 37(1) AND 36(1)(III) PART ICULARLY IN VIEW OF THE FACT THAT THE SAID NEW STEEL PLANT IS A PART OF EXI STING BUSINESS OF THE COMPANY. ACCORDINGLY, WHILE COMPUTING THE TOTAL INCOME, OUR CLIENTS HAVE NOT CLAIMED DEDUCTION FOR DEPRECIATION AMOUNTING TO RS. 144,991,683/-. FURTHER, IN THE PREVIOUS YEAR RELEVANT TO ASSESSME NT YEAR 2002-03 THE EXPENDITURE INCURRED ON TRIAL RUN (INCLUDING DEPREC IATION ON PLANT AND MACHINERY ON ACCOUNT OF TRIAL RUN) HAS BEEN CAPITAL ISED IN THE BOOKS OF ACCOUNT. IT MAY BE NOTED THAT THE SAID YEAR ALSO, N EITHER HAS THE EXPENDITURE OF RS.811,144,250/- CLAIMED AS DEDUCTIO N NOR HAS THE DEPRECIATION AMOUNTING TO RS.144,991,683/-, BEEN AD DED OR INCLUDED IN ANY BLOCK OF ASSET WHILE COMPUTING DEPRECIATION FOR INCOME TAX PURPOSES. ACCORDINGLY NO DEPRECIATION HAS BEEN CLAIMED IN THE SUBSEQUENT YEAR ALSO. ITA NO. 626/MUM/2009 M/S. MUKAND LTD. 4 7. IN VIEW OF THE CLARIFICATION WE ARE OF THE OPINION THAT THE ORDER OF THE CIT(A) DOES NOT REQUIRE ANY MODIFICATION AND ACCORD INGLY REVENUES GROUND IS REJECTED. 8. GROUND NO. 2 IS WITH REFERENCE TO DELETION OF AN AM OUNT OF RS.10,93,281/- WITHDRAWN OUT OF INTEREST GRANTED TO THE ASSESSEE IN A.Y. 2000-01. DURING THE FINANCIAL YEAR RELEVANT TO A.Y. 2000-01 FOR A.Y. 1998-99 THE ASSESSEE WAS GRANTED INTEREST UNDER SECTION 244 A OF RS.1,37,41,588/-. SUBSEQUENTLY IN PROCEEDINGS UNDER SECTION 154 DATED 16.05.2001 THE INTEREST WAS REVISED TO RS.1,26,48,307/-. SINCE THE ASSESSEE HAS OFFERED THE ORIGINALLY GRANTED INTEREST IN A.Y. 2000-01 IT MADE A CLAIM FOR DEDUCTION OF THE AMOUNT OF RS.10,93,281/- AT THE TIME OF ASSESSM ENT, WHICH THE A.O. HAS GRANTED. CONSEQUENT TO THE AUDIT OBJECTIONS ON VARI OUS ISSUES THE ASSESSMENT WAS REOPENED AND THE A.O., INSPITE OF TH E CLARIFICATIONS OF THE ASSESSEE, DID NOT AGREE WITH THE REDUCTION OF THE A MOUNT AND MADE AN ADDITION TO MAKE IT TO THE ORIGINAL AMOUNT GRANTED DURING THE FINANCIAL YEAR RELEVANT TO THE ASSESSMENT YEAR ON THE REASON THAT THE WITHDRAWAL WAS IN THE LATER ASSESSMENT YEAR. THE MATTER WAS AGITATED BEFORE THE CIT(A). CONSEQUENT TO THE REPLY GIVEN TO THE AUDIT BY THE A O THAT THE DEDUCTION WAS CORRECTLY GRANTED IN A.Y. 2000-01, HE DELETED THE A DDITION. 9. IT WAS THE SUBMISSION OF THE LEARNED D.R. THAT THE INTEREST ORIGINALLY GRANTED DURING THE ASSESSMENT YEAR AT RS.1,37,41,58 8/- WAS TO BE TAXED INSTEAD OF REDUCED AMOUNT AS IT HAPPENED IN A.Y. 20 02-03 IN WHICH YEAR THE DEDUCTION CAN BE CLAIMED BY THE ASSESSEE, BUT NOT I N THIS ASSESSMENT YEAR. 10. THE LEARNED A.R. REFERRING TO THE ORDER OF THE CIT( A) SUBMITTED THAT EVEN THOUGH A HIGHER AMOUNT WAS ORIGINALLY GRANTED THE SAME WAS REDUCED BY WAY OF SECTION 154 AND ACCORDINGLY THE A.O. CONS IDERED ONLY REDUCED AMOUNT AS INCOME THEREBY GIVING BENEFIT OF THE DIFF ERENCE IN THE ASSESSMENT ORDER. IT WAS HIS SUBMISSION THAT THE AMOUNT HAS NO T ACCRUED TO THE ASSESSEE AND SO THE CIT(A) HAS CORRECTLY DELETED TH E AMOUNT. HE ALSO REFERRED TO THE FINDING OF THE ITAT SPECIAL BENCH I N THE CASE OF AVADA TRADING CO. (P.) LTD. VS. ACIT 100 ITD 131 (SB) (MU M), PARTICULARLY TO PARA 14 WHERE IT HAS BEEN CONSIDERED AS UNDER: - ITA NO. 626/MUM/2009 M/S. MUKAND LTD. 5 14. IT HAS BEEN APPREHENDED BY THE ASSESSEES COUN SEL THAT ASSESSEE WOULD BE WITHOUT REMEDY IF THE INTEREST IS REDUCED BY VIRTUE OF ASSESSMENT UNDER SECTION 143(3). THIS APPREHENSION, IN OUR OPINION, IS UNFOUNDED. IF INTEREST IS REDUCED BY VIRTUE OF SUB- SECTION (3) OF SECTION 244A ON ACCOUNT OF ASSESSMENT UNDER SECTION 143(3), THE INTEREST GRANTED IN EARLIER YEAR GETS SUBSTITUTED AND IT IS THE REDU CED AMOUNT OF INTEREST THAT WOULD FORM PART OF INCOME OF THAT YEAR. THUS, IT WOULD AMOUNT TO MISTAKE RECTIFIABLE UNDER SECTION 154 OF THE ACT. I N OUR OPINION, IF THE BASIS, ON WHICH INCOME WAS ASSESSED IS VARIED OR CE ASES TO EXIST, THEN SUCH ASSESSMENT WOULD BECOME ERRONEOUS AND CAN BE R ECTIFIED. THIS CAN BE EXPLAINED WITH AN EXAMPLE. FOR INSTANCE, LAND IN A VILLAGE BELONGING TO VARIOUS PERSONS IS ACQUIRED BY GOVERNMENT FOR SOME DEVELOPMENT WORKS AND THE COMPENSATION IS AWARDED BY THE COLLECTOR WI TH INTEREST, IF ANY. BUT ONE OF THE LAND HOLDERS CHALLENGES THE ACQUISIT ION PROCEEDINGS IN THE HIGH COURT AND LATER ON SUCCEEDS AS THE ACQUISITION IS DECLARED ILLEGAL. BY VIRTUE OF SUCH HIGH COURT ORDER, SUCH COMPENSATION HAS TO BE RETURNED AND GOVERNMENT WILL HAVE TO RESTORE THE LAND TO THE VILLAGERS. THEREFORE, IF CAPITAL GAIN HAS BEEN ASSESSED IN THE HANDS OF SOME OF THE PERSONS WHERE LANDS WERE ACQUIRED, SUCH ASSESSMENT WOULD BE COME PATENTLY ERRONEOUS, AS THE BASIS ITSELF HAS CEASED TO EXIST. SUCH ASSESSMENT WOULD, THEREFORE, AMOUNT TO MISTAKE, WHICH, IN OUR OPINION, CAN BE RECTIFIED. SIMILARLY, ANY INCOME ASSESSED MAY BECOM E NON-TAXABLE BY THE VIRTUE OF RETROSPECTIVE AMENDMENT AND CONSEQUENTLY, ERRONEOUS ASSESSMENT CAN BE RECTIFIED. THEREFORE, IN OUR HUMB LE OPINION, IF THE INTEREST GRANTED UNDER SECTION 244A(1) IS VARIED UN DER SUB-SECTION (3) OF SUCH SECTION, THEN THE INTEREST ORIGINALLY GRANTED WOULD BE SUBSTITUTED BY THE REDUCED/INCREASED AMOUNT AS THE CASE MAY BE. TH US, INCOME ON ACCOUNT OF INTEREST IF ASSESSED CAN BE RECTIFIED UN DER SECTION 154. 11. SINCE THE CIT(A)S FINDINGS ARE CONSISTENT WITH THE VIEW TAKEN BY THE SPECIAL BENCH AND SINCE THE A.O. WITHDREW THE INTER EST GRANTED FOR A.Y. 1998-99, THE ORDER OF THE CIT(A) DOES NOT REQUIRE A NY MODIFICATION. THE CLAIM MADE BY THE ASSESSEE AND ALLOWED BY THE AO IN ORIGINAL ASSESSMENT IS CORRECT ACCORDING TO THE FACTS AND LAW. ACCORDINGLY THE GROUND IS REJECTED. 12. IN THE RESULT, APPEAL OF THE REVENUE IS DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 23 RD JULY 2010. SD/- SD/- (D. MANMOHAN) (B. RAMAKOTAIAH) VICE PRESIDENT ACCOUNTANT MEMBER MUMBAI, DATED: 23 RD JULY 2010 ITA NO. 626/MUM/2009 M/S. MUKAND LTD. 6 COPY TO: 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT(A) III, MUMBAI 4. THE CIT III, MUMBAI CITY 5. THE DR, B BENCH, ITAT, MUMBAI BY ORDER //TRUE COPY// ASSISTANT REGISTRAR ITAT, MUMBAI BENCHES, MUMBAI N.P.