M/s Recorders and Medicare Systems Pvt. Ltd., Chandigarh V. ACIT, Chandigarh

ITA 654/CHANDI/2017

• Counselvise Citation: [2020] 111 COUNSELVISE.COM (IT) 0893 (ITAT-CHANDIGARH)
• Duration Of Justice: 3 year(s) 1 month(s) 15 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 28-05-2020
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: Not Allotted
• Assessment Year: 2012-2013
• Appeal Filed On: 12-04-2017
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Keywords: Depreciation; Revenue expenditure; Capital expenditure
• Section: 43B; 143(3); 201; 13

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL, CHANDIGARH BENCH B , CHANDIGARH , !' # $ % &' , '( BEFORE SHRI SANJAY GARG, JUDICIAL MEMBER AND SMT.ANNAPURNA GUPTA, ACCOUNTANT MEMBER ./ ITA NOS.653 & 654/CHD/2017 / ASSESSMENT YEARS : 2011-12 & 2012-13 M/S RECORDERS & MEDICARE SYSTEMS PVT., 181/5, INDUSTRIAL AREA-1, CHANDIGARH. THE A.C.I.T., CIRCLE 2(1), CHANDIGARH. ./PAN NO: AACCR6241B /APPELLANT /RESPONDENT /ASSESSEE BY: SHRI TEJ MOHAN SINGH, ADV. ! / REVENUE BY: SMT.C.CHANDERKANTA, CIT DR SHRI RAJESH DHANESHTHA, ADDL.CIT ' # $ /DATE OF HEARING : 04 .03.2020 %&'( $ /DATE OF PRONOUNCEMENT:. 28/05/2020 ') /ORDER PER ANNAPURNA GUPTA, ACCOUNTANT MEMBER : BOTH THE ABOVE APPEALS HAVE BEEN PREFERRED BY THE S AME ASSESSEE AGAINST THE ORDER OF THE COMMISSIONER OF I NCOME TAX(APPEALS)-2, AMRITSAR [(IN SHORT REFERRED TO AS CIT(A)] BOTH DATED 03.02.2017 RELATING TO ASSESSMENT YEARS 2011- 12 AND 2012-13 RESPECTIVELY, PASSED U/S 250(6)) OF THE INC OME TAX ACT, 1961 (HEREINAFTER REFERRED TO AS ACT. 2. AT THE OUTSET ITSELF, THE LD.COUNSEL FOR THE ASS ESSEE DREW OUR ATTENTION TO THE FACT THAT A FIRE HAD BROKEN OU T AT ITS ITA NOS.653 & 654/CHD/2017 A.YS. 201 1-12 & 2012-13 2 PREMISES AT PLOT NO.196, PHASE-I, INDUSTRIAL AREA P ANCHKULA ON 13.06.2013 IN WHICH ALL STOCK, MACHINERY, ALL ITS E QUIPMENTS, FURNITURE, COMPUTERS SOFTWARE AND ALL DOCUMENTS REL ATING TO SALE, PURCHASE, ASSETS AND LIABILITIES WERE DESTROY ED. THAT DURING ASSESSMENT PROCEEDINGS FOR THE IMPUGNED YEAR THIS FACT WAS BROUGHT TO THE NOTICE OF THE AO ALSO. HE FURTHE R DREW OUR ATTENTION TO THE COPY OF THE FIRE REPORT ISSUED BY THE FIRE STATION OFFICER PANCHKULA ON 21.6.2013 CONFIRMING T HE OCCURRENCE OF FIRE AT THE ASSESSEE PREMISES. THE L D. COUNSEL FOR THE ASSESSEE CONTENDED THAT ON ACCOUNT OF THE S AME IT WAS PRACTICALLY IMPOSSIBLE FOR THE ASSESSEE TO PRODUCE EVIDENCES BEFORE THE AO AND EVEN THE LD.CIT(A), AS A CONSEQU ENCE OF WHICH VARIOUS ADDITIONS HAD BEEN MADE BY THE AO AN D UPHELD BY THE LD.CIT(A). IN ASSESSMENT YEAR 2011-12, THE L D.COUNSEL FOR THE ASSESSEE CONTENDED, THAT THE ADDITION CONFI RMED BY THE LD.CIT(A) RELATED TO DISALLOWANCE OF PRIOR PERIOD E XPENSES, EXCHANGE RATE FLUCTUATION AND DEPRECIATION ON TECHN ICAL KNOW- HOW AND THE GROUNDS RAISED BY THE ASSESSEE IN RESPE CT OF THE SAME ARE AS UNDER: ITA NOS.653/CHD/2017(A.Y. 2011-12): 1 ) THAT THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS)-II HAS FAILED TO APPRECIATE THE FACTS AND CIRCUMSTANCES OF THE CASE AND HAS THEREBY ERRED IN SUSTAINING THE FOLLOWING ADDITIONS: A.) DISALLOWANCE OF PRIOR PERIOD INTEREST OF RS. 16 ,63,027/- ITA NOS.653 & 654/CHD/2017 A.YS. 201 1-12 & 2012-13 3 B.) DISALLOWANCE OF EXCHANGE RATE FLUCTUATION OF RS . 90,88,894/-. C). DISALLOWANCE OF RS. 2,67,55,819/- ON ACCOUNT O F DEPRECIATION ON TECHNICAL KNOW-HOW. 3. IT WAS POINTED OUT THAT IN ASSESSMENT YEAR 2012- 13 THE DISALLOWANCE CONFIRMED BY THE LD.CIT(A) RELATED TO DISALLOWANCE OF EARNEST MONEY DEPOSIT WRITTEN OFF AND DISALLOWAN CE OF DEPRECIATION ON TECHNICAL KNOW-HOW AND THE GROUND S RAISED IN THIS REGARDS READ AS UNDER: ITA NOS.654/CHD/2017(A.Y. 2012-13): 1 ) THAT THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS)-II HAS FAILED TO APPRECIATE THE FACTS AND CIRCUMSTANCES OF THE CASE AND HAS THEREBY ERRED IN SUSTAINING THE FOLLOWING ADDITIONS: A.) DISALLOWANCE OF EARNEST MONEY DEPOSIT WRITTEN O FF OF RS.73,33,358/-. B.) DISALLOWANCE OF RS.16935691/- ON ACCOUNT OF DEP RECIATION ON TECHNICAL KNOW-HOW. 4. THE LD.COUNSEL FOR THE ASSESSEE CONTENDED THAT T HE DISALLOWANCE OF PRIOR PERIOD EXPENSES, FOREIGN EXCH ANGE FLUCTUATION AND EARNEST MONEY DEPOSIT HAD BEEN MADE AND CONFIRMED SINCE THE ASSESSEE WAS UNABLE TO SUBSTANT IATE ITS CLAIM WITH EVIDENCE. REFERRING TO THE FACTS OF EACH DISALLOWANCE HE POINTED OUT THAT IN ASSESSMENT YEAR 2011-12 THE AO HAD NOTED FROM THE TAX AUDIT REPORT FURNISHED BY THE AS SESSEE THAT THE ASSESSEE HAD CLAIMED PRIOR PERIOD INTEREST OF RS.16,63,027/- ON LOAN AGAINST PROPERTY IN ITS PROF IT & LOSS ACCOUNT AND HAD ACCORDINGLY DISALLOWED THE SAME. TH E ITA NOS.653 & 654/CHD/2017 A.YS. 201 1-12 & 2012-13 4 LD.COUNSEL FOR THE ASSESSEE CONTENDED THAT THE EXPL ANATION OF THE ASSESSEE ALL ALONG WAS THAT THE LIABILITY HAD C RYSTALLIZED DURING THE YEAR AND EVEN OTHERWISE SINCE IT WAS INT EREST PAID TO BANK THE SAME WAS ALLOWABLE ON PAYMENT BASIS AS PER SECTION 43B OF THE ACT. THE LD.COUNSEL FOR THE ASSESSEE CON TENDED THAT SINCE THE ASSESSEE WAS UNABLE TO SUBSTANTIATE HIS E XPLANATION THAT THE LOAN HAD BEEN TAKEN FROM ANY BANK OR FINA NCIAL INSTITUTION, SO AS TO BE ELIGIBLE FOR DEDUCTION ON PAYMENT BASIS U/S 43B OF THE ACT, THE LD.CIT(A) HAD UPHELD THE DI SALLOWANCE. 5. SIMILARLY THE LD.COUNSEL FOR THE ASSESSEE POINTE D OUT THAT THE DISALLOWANCE OF EXCHANGE RATE FLUCTUATION OF RS .90,88,894/- HAD BEEN MADE BY THE AO SINCE THE ASSESSEE WAS UNAB LE TO SUBSTANTIATE HIS CLAIM THAT THE SAME RELATED TO THE BUSINESS OF THE ASSESSEE. THE LD.COUNSEL FOR THE ASSESSEE POINT ED OUT THAT IT HAD BEEN EXPLAINED TO THE AO THAT THE FLUCTUATIO N RELATED TO THE ADVANCE RECEIVED BY THE ASSESSEE AGAINST EXPOR T ORDER WHICH WAS RETURNED DURING THE YEAR AND THE DIFFEREN CE IN EXCHANGE RATE WAS BOOKED AS EXCHANGE FLUCTUATION. S INCE THE DOCUMENTARY EVIDENCE SUBSTANTIATING THE AFORESAID EXPLANATION WAS NOT AVAILABLE WITH THE ASSESSEE, THE AO HAD MAD E THE DISALLOWANCE WHICH WAS CONFIRMED BY THE CIT(A). THE LD.COUNSEL FOR THE ASSESSEE POINTED OUT THAT SIMILA RLY IN ASSESSMENT YEAR 2012-13 THE AO HAD DISALLOWED THE E ARNEST MONEY DEPOSIT WRITTEN OFF BY THE ASSESSEE OF RS.73, 33,348/- WHICH IT HAD BEEN EXPLAINED AS EARNEST MONEY DEPOSI T MADE BY ITA NOS.653 & 654/CHD/2017 A.YS. 201 1-12 & 2012-13 5 THE ASSESSEE AGAINST THE TENDERS APPLIED FOR AND WH ICH HAD BECOME IRRECOVERABLE AND THUS WRITTEN OFF, IN THE A BSENCE OF ANY EVIDENCE TO SUBSTANTIATE THE SAME. THE LD.COUNS EL FOR THE ASSESSEE CONTENDED THAT CONSIDERING THE FACT THAT A MAJOR FIRE HAD DESTROYED ALL DOCUMENTS AVAILABLE WITH THE ASSE SSEE IT WAS FACTUALLY IMPOSSIBLE FOR THE ASSESSEE TO SUBSTANTIA TE ITS EXPLANATION WITH EVIDENCE. THE LD.COUNSEL FOR THE A SSESSEE CONTENDED THAT THE ASSESSEE IS IN THE PROCESS OF OB TAINING WHATEVER POSSIBLE EVIDENCE IT CAN POSSIBLY NOW IN T HE FORM OF BANK STATEMENTS TO SUBSTANTIATE ITS EXPLANATION OF INTEREST HAVING BEEN PAID TO BANKS AND THUS BEING ALLOWABLE U/S 43B OF THE ACT,OF EXCHANGE FLUCTUATION LOSS BEING ON ACCO UNT OF DIFFERENCE IN EXCHANGE RATE OF RETURN OF ADVANCE RE CEIVED BY IT AGAINST THE EXPORT ORDER AND TO SHOW THAT THE EARNE ST MONEY WRITTEN OFF HAD BEEN DEPOSITED IN PAST YEARS BY THE ASSESSEE FOR VARIOUS TENDERS. HE PLEADED THAT CONSIDERING THE PE CULIAR SITUATION OF THE ASSESSEE ONE MORE OPPORTUNITY BE G RANTED TO FURNISH WHATEVER POSSIBLE EVIDENCE THE ASSESSEE WAS ABLE TO PROCURE IN SUPPORT OF ITS CONTENTION AND THE MATTER , THEREFORE, BE RESTORED BACK T THE AO FOR RECONSIDERATION. AS F OR THE ISSUE OF DISALLOWANCE OF DEPRECIATION ON TECHNICAL KNOW-H OW THE LD.COUNSEL FOR THE ASSESSEE CONTENDED THAT IT HAD B EEN EXPLAINED TO THE AUTHORITIES BELOW THAT BEING IN TH E BUSINESS OF MANUFACTURING OF ALL KINDS OF ELECTRONIC MEDICAL DI AGNOSTIC EQUIPMENTS LIKE ECG, EEG, TMT, ETC., IT HAD ITS OWN IN-HOUSE R ITA NOS.653 & 654/CHD/2017 A.YS. 201 1-12 & 2012-13 6 & D DEPARTMENT DULY RECOGNIZED BY THE MINISTRY OF S CIENCE & TECHNOLOGY FOR DEVELOPMENT OF NEW PROJECTS AND IMPR OVEMENT IN EXISTING PROJECTS. THE LD.COUNSEL FOR THE ASSESSEE CONTENDED THAT THIS R & D EXPENDITURE HAD, THEREFORE, BEEN TR EATED AS CAPITAL EXPENDITURE AND DEPRECIATION CLAIMED ON THE SAME. THE LD.COUNSEL FOR THE ASSESSEE CONTENDED THAT IT HAD B EEN POINTED OUT TO THE AUTHORITIES BELOW THAT IT HAD BEEN CONSI STENTLY FOLLOWING THIS METHOD ALL ALONG SINCE THE CREATION OF ITS R & D FACILITIES AND HAD BEEN ALLOWED DEPRECIATION EVEN I N SCRUTINY ASSESSMENT IN THE PRECEDING ASSESSMENT YEARS I.E. A SSESSMENT YEARS 2009-10 AND 2010-11. COPY OF THE ASSESSMENT O RDERS PASSED U/S 143(3) FOR THE SAID YEAR WAS PLACED BEFO RE US AT PAGE NOS.46 TO 56. THE LD.COUNSEL FOR THE ASSESSEE CONTENDED THAT THE AO, ON THE OTHER HAND, HAD REJECTED THE CL AIM OF THE ASSESSEE THAT ITS R & D EXPENDITURE WERE CAPITAL IN NATURE AND HAD TREATED THE SAME TO BE A REVENUE IN NATURE AND ACCORDINGLY ALLOWED THE CLAIM OF ENTIRE R & D EXPENSES INCURRED IN THE YEAR BUT HAD DISALLOWED THE ASSESSEES CLAIM OF DEPRECIA TION ON THE WRITTEN DOWN VALUE OF THE TECHNICAL KNOW-HOW AS AT THE BEGINNING OF BOTH THE YEARS. THE LD.COUNSEL FOR THE ASSESSEE POINTED OUT THAT THE ONLY REASON FOR DOING SO WAS T HAT THE REVENUE AUTHORITIES NOTED THAT THE ASSESSEE DID NOT HAVE ANY PATENTS, WAS ONLY IN THE BUSINESS OF ASSEMBLING MAC HINERY AND THERE WAS, THEREFORE, NO EXPENDITURE ON ANY ASSET I N THE FORM OF TECHNICAL KNOW-HOW BEING CREATED BY THE ASSESSEE. T HE ITA NOS.653 & 654/CHD/2017 A.YS. 201 1-12 & 2012-13 7 LD.COUNSEL FOR THE ASSESSEE CONTENDED THAT HAVING N OT DOUBTED THE GENUINENESS OF THE EXPENDITURE, THE TREATMENT O F THE SAME AS REVENUE EXPENDITURE AND DISALLOWANCE OF CLAIM OF DEPRECIATION ON THE WDV OF THE TECHNICAL KNOW-HOW W AS AN EXERCISE TO THE DETRIMENT OF THE REVENUE AND WAS UN JUSTIFIED FOR THE REASON THAT IN THE EARLIER YEARS ALSO THE ASSES SEE OUGHT TO HAVE BEEN ALLOWED ITS ENTIRE CLAIM AS OPPOSED TO AL LOWING ONLY CLAIM OF DEPRECIATION. 6. THE LD. DR, ON THE OTHER HAND, RELIED UPON THE O RDERS OF THE AUTHORITIES BELOW. 7. WE HAVE HEARD THE ASSESSEE ON ALL THE GROUNDS RA ISED BEFORE US IN BOTH THE YEARS. VIS--VIS GROUNDS RAI SED IN ASSESSMENT YEAR 2011-12 RELATING TO DISALLOWANCE OF PRIOR PERIOD EXPENSES AND FOREIGN EXCHANGE FLUCTUATION AN D IN ASSESSMENT YEAR 2012-13 RELATING TO DISALLOWANCE OF WRITE OFF OF EARNEST MONEY DEPOSIT, WE FIND MERIT IN THE CLAIM O F THE ASSESSEE THAT ONE MORE OPPORTUNITY BE GRANTED TO TH E ASSESSEE TO SUBSTANTIATE ITS ABOVE CLAIM CONSIDERING THE UND ISPUTED FACT THAT ALL THE DOCUMENTS WERE LOST BY THE ASSESSEE IN A MAJOR FIRE AND PROCURING EVIDENCE TO SUBSTANTIATE ITS CLAIM TH EREFORE WAS A VERY DIFFICULT PROCESS. IN THE INTEREST OF JUSTIC E WE, THEREFORE, CONSIDER IT FIT TO GRANT ONE MORE OPPORTUNITY TO TH E ASSESSEE TO PROCURE ALL POSSIBLE EVIDENCES TO SUBSTANTIATE ITS AFORESTATED CLAIM OF PRIOR PERIOD EXPENSES AND FOREIGN EXCHANGE FLUCTUATION ITA NOS.653 & 654/CHD/2017 A.YS. 201 1-12 & 2012-13 8 IN ASSESSMENT YEAR 2011-12 AND WRITE OFF OF EARNEST MONEY DEPOSIT IN ASSESSMENT YEAR 2012-13. WE, THEREFORE, RESTORE THE ISSUE BACK TO THE AO TO CONSIDER THE ISSUE AFRESH A FTER GIVING DUE OPPORTUNITY OF HEARING TO THE ASSESSEE. GROUND OF APPEAL NO.1(A) & (B) IN ITA NO.653/CHD/2017 AND GROUND OF APPEAL NO.1(A) IN ITA NO.654/CHD/2017 ARE, THEREFORE, ALLO WED FOR STATISTICAL PURPOSES. 8. AS FOR GROUND OF APPEAL NO.1(C) IN ITA NO.653/CH D/2017 AND GROUND OF APPEAL NO.1(B) IN ITA NO.654/CHD/2017 RELATING TO DISALLOWANCE OF DEPRECIATION ON TECHNICAL KNOW-H OW WE ARE UNABLE TO FATHOM WHAT THE REVENUE WAS ATTEMPTING TO DO ON THE ISSUE. UNDOUBTEDLY, THE REVENUE HAS NOT DISPUTED TH E GENUINENESS OF THE CLAIM OF EXPENSES. IT IS NOT THE REVENUES CASE THAT THE IMPUGNED EXPENSES WERE BOGUS. WHAT IT HAS ONLY DONE IS THAT IT HAS TREATED THE R & D EXPENDITURE I NCURRED BY THE ASSESSEE AS REVENUE IN NATURE AS OPPOSED TO CAP ITAL TREATED BY THE ASSESSEE. ACCORDINGLY, IT HAS RESULTED IN AL LOWING THE ENTIRE CLAIM OF THE EXPENSES INCURRED IN THE IMPUGN ED YEAR AND DISALLOWING THE CLAIM OF DEPRECIATION ON THE OPENIN G VALUE OF WDV OF THE SAME. WE DO NOT FIND ANY JUSTIFICATION I N THIS EXERCISE OF THE REVENUE, CONSIDERING THE FACT THAT IN ALL THE PAST YEARS THE ASSESSEE HAS BEEN CONSISTENTLY FOLLO WING THIS METHOD OF ACCOUNTING AND HAS ALSO BEEN ALLOWED THE SAME IN SCRUTINY ASSESSMENT U/S 143(3) OF THE ACT FOR THE P RECEDING TWO YEARS ALSO. MOREOVER, THE REVENUE BY THIS EXERCISE HAS PUT THE ITA NOS.653 & 654/CHD/2017 A.YS. 201 1-12 & 2012-13 9 ASSESSEE AT A LOSS WHEN OTHERWISE ITS CLAIM OF EARL IER YEARS WERE ALLOWABLE IN ENTIRETY AS PER THE REVENUE ITSEL F IN THE YEAR OF INCURRING THE EXPENDITURE ONLY AS AGAINST THE AS SESSEE CLAIMING ONLY DEPRECIATION ON THE SAME. WE DO NOT S EE ANY JUSTIFICATION OR MERIT IN THIS EXERCISE OF THE REVE NUE AND DIRECT, THEREFORE, THAT THE ENTIRE EXPENSES BE TREATED AS C APITAL IN NATURE AND DEPRECIATION BE ALLOWED ON THE SAME. THE ADDITION MADE, THEREFORE, ON ACCOUNT OF DEPRECIATION IN BOTH THE YEARS IS DIRECTED TO BE DELETED. GROUND OF APPEAL NO.1(C) OF ITA NO.753/CHD/2017 AND GROUND OF APPEAL NO.1(B) OF ITA NO.754/CHD/2017 ARE, THEREFORE, ALLOWED. 9. IN EFFECT, BOTH THE APPEALS OF THE ASSESSEE ARE PARTLY ALLOWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED ON 28/05/2020. SD/- SD/- # $ % &' (SANJAY GARG) (ANNAPURNA GUPTA) /JUDICIAL MEMBER '( /ACCOUNTANT MEMBER *# /DATED: 28/05/2020 * ' * &) *+ ,+ / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT 2. / THE RESPONDENT 3. ' - / CIT 4. ' - ( )/ THE CIT(A) 5. +./ 0 , $ 0 , 123/4 / DR, ITAT, CHANDIGARH 6. /3 5# / GUARD FILE &) ' / BY ORDER, 6 ! / ASSISTANT REGISTRAR