SEMPERTRANS NIRLON P. LTD, RAIGAD V. ADDL CIT, PANVEL

ITA 6269/MUM/2010

• Counselvise Citation: [2012] 140 COUNSELVISE.COM (IT) 62362 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 8 month(s) 10 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 30-04-2012
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: E
• Next Hearing Date: 04-01-2012
• Assessment Year: 2007-2008
• Appeal Filed On: 20-08-2010
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Assessee Lawyers: SANJAY R PARIKH
• Section: 37

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH E, MUMBAI BEFORE SHRI P.M.JAGTAP, ACCOUNTANT MEMBER & SHRI AMIT SHUKLA, JUDICIAL MEMBER. I.T.A. NO. 6269/MUM/2010 ASSESSMENT YEAR : 2007-08. SEMPOERTRANS NIRLON P. LTD., ADDL. COMMISSIONER OF 21/1, MIDC, DHATAV, ROHA, VS. INCOME-TAX, DIST. RAIGAD-402116 PANVEL RANGE, PANVEL, PAN AAECS9279E DIST. RAIGAD. APPELLANT. RESPONDENT . APPELLANT BY : SHRI SANJAY R. PARIKH. RESPONDENT BY : SHRI DINESH KUMAR. DATE OF HEARI NG : 12-03-2012. DATE OF PRONOUNC EMENT : 30-04-2012, O R D E R PER P.M. JAGTAP, A.M. : THIS APPEAL FILED BY THE ASSESSEE IS DIRECTED AGA INST THE ORDER OF LEARNED CIT(APPEALS)-I, THANE DATED 30-06-2010. 2. GROUND NO. 1, 2 AND 3 RAISED BY THE ASSESSEE IN THIS APPEAL INVOLVE THE ISSUES RELATING TO DISALLOWANCE MADE BY THE AO AND CONFIRM ED BY THE LEARNED CIT(APPEALS) ON ACCOUNT OF PRIOR PERIOD EXPENSES CL AIMED BY THE ASSESSEE IN RESPECT OF PAYMENT OF ROYALTY AMOUNTING TO RS.1,28, 83,519/- AND FORK LIFT CHARGES AMOUNTING TO RS.15,000/-. 3. THE ASSESSEE IN THE PRESENT CASE IS A COMPANY WH ICH FILED ITS RETURN OF INCOME FOR THE YEAR UNDER CONSIDERATION ON 12-11-2 007 DECLARING TOTAL INCOME OF 2 ITA NO.6269/MUM/2010 RS.8,48,99,523/-. DURING THE COURSE OF ASSESSMENT P ROCEEDINGS, IT WAS NOTICED BY THE AO THAT THE ASSESSEE COMPANY HAS CLAIMED EXPEND ITURE OF RS.1,28,83,519/- ON ACCOUNT OF ROYALTY WHICH WAS PERTAINING TO ASSESSME NT YEAR 2006-07. HE ALSO NOTED THAT SIMILARLY FORK LIFT CHARGES AMOUNTING TO RS.15 ,000/- PERTAINING TO ASSESSMENT YEAR 2006-07 WERE CLAIMED BY THE ASSESSEE. SINCE TH E ASSESSEE COMPANY WAS FOLLOWING MERCANTILE SYSTEM OF ACCOUNTING, IT WAS C ALLED UPON BY THE AO TO EXPLAIN WHY THE ROYALTY AND FORK LIFT CHARGES PERTA INING TO EARLIER YEAR I.E. ASSESSMENT YEAR 2006-07 SHOULD NOT BE DISALLOWED. I N REPLY, IT WAS SUBMITTED BY THE ASSESSEE THAT THE PROVISION FOR THE SAID EXPENS ES WAS MADE IN THE BOOKS OF ACCOUNT FOR THE YEAR UNDER CONSIDERATION ON 31-03-2 007 AND SINCE TAX DEDUCTED AT SOURCE FROM THE SAID AMOUNTS WAS PAID BEFORE THE DU E DATE FOR FILING OF RETURN FOR THE YEAR UNDER CONSIDERATION, THE CORRESPONDING EXP ENSES WERE CLAIMED IN THAT YEAR AS PER THE PROVISIONS OF SECTION 40(A)(IA). THIS ST AND OF THE ASSESSEE WAS NOT FOUND ACCEPTABLE BY THE AO. ACCORDING TO HIM, THE FIRST A ND FOREMOST QUESTION WAS WHETHER THE EXPENSES CLAIMED BY THE ASSESSEE WERE P ERTAINING TO THE YEAR UNDER CONSIDERATION OR NOT. HE HELD THAT ONLY WHEN THE EX PENDITURE ARE PERTAINING TO THE RELEVANT PREVIOUS YEAR, THE QUESTION OF DEDUCTION O F TAX WILL ARISE AND NOT OTHEREWISE. SINCE THE EXPENDITURE INCURRED BY THE A SSESSEE ON ACCOUNT OF ROYALTY AND FORK LIFT CHARGES WERE PERTAINING TO THE EARLIE R YEAR I.E. A.Y. 2006-07, THE AO DISALLOWED THE SAME HOLDING THAT THE SAME COULD NOT BE ALLOWED AGAINST INCOME OF THE ASSESSEE FOR THE YEAR UNDER CONSIDERATION I.E. ASSESSMENT YEAR 2007-08. 4. THE MATTER WAS CARRIED BEFORE THE LEARNED CIT(AP PEALS) AND IT WAS SUBMITTED ON BEHALF OF THE ASSESSEE BEFORE HIM THAT ALTHOUGH THE ROYALTY PAYMENT WAS PERTAINING TO THE PREVIOUS YEAR RELEVANT TO ASS ESSMENT YEAR 2006-07, THERE WAS A DISPUTE REGARDING THE SAID PAYMENT. IT WAS SUBMIT TED THAT THE DISPUTE GOT FINALLY SETTLED DURING THE PREVIOUS YEAR RELEVANT TO ASSESS MENT YEAR 2007-08 AND 3 ITA NO.6269/MUM/2010 ACCORDINGLY THE PROVISION FOR ROYALTY WAS MADE IN T HE BOOKS OF ACCOUNT FOR ASSESSMENT YEAR 2007-08. IT WAS CONTENDED THAT EVEN THE TAX DEDUCTED AT SOURCE FROM THE ROYALTY AMOUNT WAS PAID BY THE ASSESSEE B EFORE THE DUE DATE FOR FILING OF RETURN FOR ASSESSMENT YEAR 2007-08 AND THE SAME, TH EREFORE, WAS LIABLE TO BE ALLOWED IN THAT YEAR AS PER THE PROVISIONS OF SECTI ON 40(A)(IA) WHICH HAVE OVERRIDING EFFECT. THE LEARNED CIT(APPEALS) DID NOT FIND MERIT IN THESE SUBMISSIONS MADE BY THE ASSESSEE AND UPHELD THE ACT ION OF THE AO IN DISALLOWING THE EXPENSES OF ROYALTY AND FORK LIFT CHARGES FOR T HE FOLLOWING REASONS GIVEN IN PARAGRAPH NO. 3.4, 3.5 AND 4 OF HIS IMPUGNED ORDER : 3.4 THE ARGUMENT IS HEARD AND THE SUBMISSION ARE C ONSIDERED. THE VIEW OF SHRI NAVAL JIT KAPUR, ADDL CIT, PANVEL RANGE, PANVE L, WHO PASSED THE ASSESSMENT ORDER IS ALSO TAKEN. THE ARGUMENT OF THE AR IN THIS CONNECTION IS THAT, BECAUSE TDS IS DEDUCTED AND PAID INTO GOVERNM ENT ACCOUNT DURING THE CURRENT AY, IT SHOULD BE ALLOWED AS EXPENDITURE. I HAVE CONSIDERED THE ARGUMENTS. I HAVE ALSO PERUSED THE COPY OF AGREEMEN T. THE AGREEMENT IS UNDATED AND UNREGISTERED. ALSO, THERE IS NO WITNESS TO THE AGREEMENT. AS PER THE TERMS & CONDITIONS OF THE AGREEMENT, THE APPELL ANT (LICENSEE) SHALL PAY ROYALTY TO THE LICENSOR @ 3% ON THE NET SALE AND TH E SAME WOULD BE PAID AT QUARTERLY BASIS. IT IS FURTHER STATED THAT, THE LIC ENSOR WAIVED THE ROYALTY PAYMENT IN RESPECT OF FY 04-05, AS THERE WAS NO PRO FIT IN THAT YEAR AND THE PAYMENT IS DUE ONLY FOR THE FY 05-06 RELEVANT TO TH E AY 06.07. 3.5 FROM THE DETAILS, DISCUSSION AND FINDINGS, I FI ND MYSELF IN DISAGREEMENT WITH THE VIEW OF THE APPELLANT. I DO N OT THINK, THAT A COMPANY INCORPORATED IN AUSTRIA WOULD BE A PARTY TO AN AGRE EMENT, WHICH IS UNDATED, UNREGISTERED AND UN-WITNESSED. EVEN OTHERWISE, SECT ION 37 PROVIDES FOR WRITE OFF OF EXPENSES AGAINST INCOME OF THE RELEVANT YEAR . HERE IN THIS CASE, THE EXPENSES ARE NOT PERTAINING TO THE CURRENT AY RATHE R, THE PAYMENTS RELATED TO THE AY 06-07 AND, THEREFORE, I HOLD THAT, THIS IS N OT AN EXPENDITURE, WHICH COULD BE ALLOWED AS EXPENDITURE OF THE CURRENT YEAR . ACCORDINGLY, I HOLD THAT, THERE IS NO INFIRMITY IN THE ASSESSMENT ORDER OF TH E AO AND THUS, I CONFIRM THE ADDITION. THE GROUND IS DISMISSED. 4 ITA NO.6269/MUM/2010 4. GROUND A-2. AS REGARDS, THE DISALLOWANCE OF RS.15,000/- OF FOR K LIFT CHARGES, THE APPELLANT HAS TAKEN THE STAND THAT, THE EXPENDITURE THOUGH PERTAIN TO THE PREVIOUS AY 06-07, WAS OMITTED TO BE CLAIMED IN THA T YEAR AND CONSIDERING THE HUGE VOLUME OF TURNOVER, THE EXPENDITURE OF RS. 15,000/- IS TOO SMALL AN AMOUNT TO BE TAKEN COGNIZANCE OF. THE PLEA IS CONSI DERED. WHETHER THE EXPENDITURE IS SMALL OR BIG, WHAT NEEDS TO SEEN IS WHETHER THIS IS A GENUINE EXPENDITURE INCURRED IN CONNECTION WITH THE BUSINES S DURING THE RELEVANT YEAR. WHEN AN EXPENDITURE IS FOUND NOT TO PERTAIN T O THE YEAR CONCERNED, IT NEEDS TO BE DISALLOWED. THE AO HAS, THEREFORE, RIGH TLY DISALLOWED THE EXPENDITURE. ACCORDINGLY, I DEEM IT FIT NOT TO INTE RFERE WITH THE ORDER OF THE AO. THE GROUND IS DISMISSED. 5. WE HAVE HEARD THE ARGUMENTS OF BOTH THE SIDES AN D ALSO PERUSED THE RELEVANT MATERIAL ON RECORD. IT IS AN UNDISPUTED FACT THAT T HE ROYALTY IN QUESTION WAS PERTAINING TO THE PREVIOUS YEAR RELEVANT TO ASSESSM ENT YEAR 2006-07. ALTHOUGH IT HAS BEEN SUBMITTED ON BEHALF OF THE ASSESSEE BEFORE THE AUTHORITIES BELOW AS WELL AS BEFORE US THAT THERE WAS A DISPUTE RELATING TO THE PAYMENT OF THE SAID ROYALTY WHICH WAS FINALLY SETTLED IN THE YEAR UNDER CONSIDERATION , THERE IS NO EVIDENCE WHATSOEVER FILED BY THE ASSESSEE EITHER BEFORE THE AUTHORITIES BELOW OR EVEN BEFORE US TO SUPPORT AND SUBSTANTIATE THE SAME. AT THE TIME OF H EARING BEFORE US, THE LEARNED COUNSEL FOR THE ASSESSEE HAS MAINLY RELIED ON THE P ROVISIONS OF SECTION 40(A)(IA) IN SUPPORT OF THE ASSESSEES CLAIM FOR DEDUCTION ON AC COUNT OF ROYALTY PERTAINING TO ASSESSMENT YEAR 2006-07 IN THE YEAR UNDER CONSIDERA TION I.E. ASSESSMENT YEAR 2007- 08. HE HAS CONTENDED THAT TAX DEDUCTED AT SOURCE FR OM ROYALTY HAVING BEEN PAID BY THE ASSESSEE ON 30 TH MAY, 2007 I.E. BEFORE THE DUE DATE FOR FILING OF T HE RETURN FOR THE YEAR UNDER CONSIDERATION, THE ASSESSEE WAS ENTI TLED TO CLAIM DEDUCTION FOR ROYALTY IN THAT YEAR AS PER FIRST PROVISO TO SECTIO N 40(A)(IA). AS PER THE SAID PROVISO, WHERE TAX HAS BEEN DEDUCTED INTER ALIA, IN RESPECT OF ROYALTY IN ANY SUBSEQUENT YEAR, OR HAS BEEN DEDUCTED DURING THE PREVIOUS YEAR BUT PAID AFTER THE DUE DATE SPECIFIED IN SUB-SECTION (1) OF SECTION 139, SUCH S UM SHALL BE ALLOWED AS A 5 ITA NO.6269/MUM/2010 DEDUCTION IN COMPUTING THE INCOME OF THE PREVIOUS Y EAR IN WHICH SUCH TAX HAS BEEN PAID. IN THE PRESENT CASE, THE TAX IN RESPECT OF RO YALTY PERTAINING TO ASSESSMENT YEAR 2006-07 WAS DEDUCTED IN THE SUBSEQUENT YEAR I.E. AS SESSMENT YEAR 2007-08 AND, THEREFORE, AS PER THE PROVISO TO SECTION 40(A)(IA), ROYALTY IS TO BE ALLOWED AS DEDUCTION IN COMPUTING THE INCOME OF THE PREVIOUS Y EAR IN WHICH SUCH TAX HAS BEEN PAID. SINCE THE TAX WAS PAID BY THE ASSESSEE IN THE MONTH OF MAY, 2007 I.E. DURING THE PREVIOUS YEAR RELEVANT TO ASSESSMENT YEAR 2008- 09, THE DEDUCTION ON ACCOUNT OF ROYALTY CAN BE CONSIDERED IN COMPUTING THE INCOME O F THE ASSESSEE FOR ASSESSMENT YEAR 2008-09 IS AS PER THE PROVISO TO SECTION 40(A) (IA) AND NOT CERTAINLY IN THE YEAR UNDER CONSIDERATION. WE, THEREFORE, FIND NO JUSTIFI ABLE REASON TO INTERFERE WITH THE IMPUGNED ORDER OF THE LEARNED CIT(APPEALS) CONFIRMI NG THE DISALLOWANCE MADE BY THE AO ON ACCOUNT OF ROYALTY AND FORK LIFT CHARGES AND UPHOLDING THE SAME ON THESE ISSUES, WE DISMISS GROUND NOS. 1,2 AND 3 OF THE ASS ESSEES APPEAL. 6. GROUND NO. 4 RELATES TO THE ADDITION OF RS.1,21, 380/- MADE BY THE AO AND CONFIRMED BY THE LEARNED CIT(APPEALS) ON ACCOUNT OF DIFFERENCE IN CLOSING STOCK VALUATION. 7. FROM THE QUANTITATIVE DETAILS OF RAW MATERIAL C ONSUMPTION, PRODUCTION AND CLOSING STOCK FURNISHED BY THE ASSESSEE, THE AO FOU ND THAT THE SCRAP OF C BELT INCLUDED IN THE FINISHED GOODS WAS VALUED BY THE AS SESSEE AT A FLAT RATE OF RS.10/- PER KG. HE ALSO FOUND FROM THE SALE BILLS OF SCRAP THAT THE SAME WAS SOLD AT THE RATES RANGING FROM RS.13/- PER KG. TO RS.42/- PER KG. ACC ORDING TO THE AO, THE RATE OF RS.10/- PER KG. TAKEN BY THE ASSESSEE FOR VALUATION OF CLOSING STOCK OF SCRAP OF C BELT THUS WAS UNREASONABLY LOW AND SINCE NO SATISFA CTORY EXPLANATION COULD BE OFFERED BY THE ASSESSEE IN THIS REGARD, HE ADOPTED THE RATE OF RS.20/- PER KG. TO VALUE THE STOCK OF SCRAP OF C BELT AND MADE AN ADDI TION OF RS.1,21,380/- TO THE TOTAL INCOME OF THE ASSESSEE. ON APPEAL, THE LEARNE D CIT(APPEALS) CONFIRMED THE 6 ITA NO.6269/MUM/2010 SAID ADDITION HOLDING THAT THE RATE OF RS.20/- PER KG. ADOPTED BY THE AO WAS QUITE FAIR AND REASONABLE IN THE FACTS OF THE CASE. 8. WE HAVE HEARD THE ARGUMENTS OF BOTH THE SIDES ON THIS ISSUE AND ALSO PERUSED THE RELEVANT MATERIAL ON RECORD. ALTHOUGH THE LEARN ED COUNSEL FOR THE ASSESSEE HAS MADE AN ATTEMPT TO JUSTIFY THE VALUATION ADOPTED BY THE ASSESSEE BY SUBMITTING THAT MARKET FOR C BELT SCRAP WAS UNCERTAIN, HE HAS NOT B EEN ABLE TO BRING ANYTHING ON RECORD TO SUPPORT AND SUBSTANTIATE THE SAME. AS FOU ND BY THE AO FROM THE RELEVANT SALE BILLS, THE C BELT SCRAP WAS SOLD BY THE ASSESS EE AT THE RATES RANGING FROM RS.13/- PER KG. AND RS.42/- PER KG. WHICH, IN OUR O PINION, WAS A SOUND BASIS FOR DETERMINING THE VALUE OF C BELT SCRAP LYING IN THE CLOSING STOCK. ON THE BASIS OF THE SAID RATES OF ACTUAL SALE, THE AVERAGE SALE PRICE W AS WORKED OUT BY THE AO AT MORE THAN RS.25/- PER KG. AND AFTER DEDUCTING THE PROFIT MARGIN, COST OF C BELT SCRAP WAS DETERMINED BY HIM AT RS.20/- PER KG. WHICH, IN OUR OPINION, WAS QUITE FAIR AND REASONABLE. THE VALUATION OF STOCK OF C BELT SCRAP THUS WAS MADE BY THE AO AT COST OF RS.20/- PER KG. BY FOLLOWING A VERY SOUND AND CO NVINCING BASIS AND ADDITION MADE BY HIM ON THIS ISSUE, IN OUR OPINION, WAS FULL Y JUSTIFIED. WE, THEREFORE, UPHOLD THE IMPUGNED ORDER OF THE LEARNED CIT(APPEAL S) CONFIRMING THE ADDITION MADE BY THE AO ON THIS ISSUE AND DISMISS GROUND NO. 4 OF THE ASSESSEES APPEAL. 9. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS DIS MISSED. ORDER PRONOUNCED ON THIS 30 TH DAY OF APRIL, 2012. SD/- SD/- (AMIT SHUKLA) (P.M. JAGTAP) JUDICIAL MEMBER ACC OUNTANT MEMBER MUMBAI, DATED: 30 TH APRIL, 2012. 7 ITA NO.6269/MUM/2010 COPY TO : 1. APPELLANT 2. RESPONDENT 3. C.I.T. 4. CIT(A) 5. DR, E-BENCH. (TRUE COPY) BY ORDER ASSTT. REGISTRAR, ITAT, MUMBAI. WAKODE