Appeal details
Counselvise Citation
[2011] 140 COUNSELVISE.COM (IT) 55097 (ITAT-MUMBAI)
Assessee PAN
Bench
Appeal Number
Duration Of Justice
2 year(s) 9 month(s) 17 day(s)
Appellant
Respondent
Appeal Type
Income Tax Appeal
Pronouncement Date
30-08-2011
Appeal Filed By
Department
Order Result
Dismissed
Bench Allotted
B
Next Hearing Date
23-08-2011
Assessment Year
2005-2006
Appeal Filed On
12-11-2008
Judgement Text
IN THE INCOME TAX APPELLATE TRIBUNAL B BENCH, MUMBAI BEFORE SHRI J. SUDHAKAR REDDY, ACCOUNTANT MEMBER AN D SHRI VIJAY PAL RAO, JUDICIAL MEMBER ITA NO. 6552/MUM./2008 (ASSESSMENT YEAR : 2005-06 ) MAFATLAL DENIM LTD. (FORMERLY KNOWN AS MAFATLAL BURLINGTON INDUSTRIES LTD.) APSARA HOUSE, 7, S.V. ROAD, SANTACRUZ (WEST), MUMBAI 400 054 PAN AAACM3977B .. APPELLANT V/S ADDL. COMMISSIONER OF INCOME TAX RANGE-9(2), AAYAKAR BHAVAN 101, M.K. ROAD, MUMBAI 400 020 .... RESPONDENT ITA NO. 6588/MUM./2008 (ASSESSMENT YEAR : 2005-06 ) ADDL. COMMISSIONER OF INCOME TAX RANGE-9(2), AAYAKAR BHAVAN 101, M.K. ROAD, MUMBAI 400 020 .. APPELLANT V/S MAFATLAL DENIM LTD. (FORMERLY KNOWN AS MAFATLAL BURLINGTON INDUSTRIES LTD.) APSARA HOUSE, 7, S.V. ROAD SANTACRUZ (WEST), MUMBAI 400 054 PAN AAACM3977B .... RESPONDENT ASSESSEE BY : MR. S.E. DASTUR A/W MR. NIRAJ SHETH REVENUE BY : MR. G.Y. WAGH DATE OF HEARING 23.8.2011 DATE OF ORDER 30.8.2011 MAFATLAL DENIM LTD. ITA NO.6552/MUM./2008 ITA NO.6588/MUM./2008 2 O R D E R PER J. SUDHAKAR REDDY, A.M. THESE CROSS APPEALS ARE DIRECTED AGAINST THE IMPUGN ED ORDER DATED 4 TH SEPTEMBER 2008, PASSED BY THE COMMISSIONER (APPEALS )-IX, MUMBAI, FOR ASSESSMENT YEAR 2005-06. 2. WE FIRST TAKE UP ASSESSEES APPEAL IN ITA NO.6558/M UM./2008, AND THE ISSUES ARISING FROM THIS APPEAL ARE DISALLOWANCE MA DE UNDER SECTION 35B OF THE INCOME TAX ACT, 1961 (FOR SHORT THE ACT ) AND AN ADDITION OF AN ESTIMATED AMOUNT UNDER THE HEAD INCOME FROM SALE OF SCRAP & WASTE . 2. WE HAVE HEARD THE LEARNED COUNSEL, MR. S.E. DASTUR, APPEARING ON BEHALF OF THE ASSESSEE AND THE LEARNED DEPARTMENTAL REPRESENTATIVE, MR. G.Y. WAGH, APPEARING ON BEHALF OF THE REVENUE. 3. THE ASSESSING OFFICER DISALLOWED THE CLAIM UNDER SE CTION 35D OF THE ACT ON THE GROUND THAT THE SCRUTINY OF THE AUDIT REPORT REVEALS THAT SUPPORTING EVIDENCES ARE NOT AVAILABLE. 4. IN APPEAL, THE COMMISSIONER (APPEALS) AGREES WITH T HE FINDING OF THE ASSESSING OFFICER. 5. BEFORE US, THE LEARNED COUNSEL CONTENDS THAT, PRIMA RILY, EXPENDITURE HAS BEEN INCURRED PRIOR TO ASSESSMENT YEAR 1998-99 AND AMORTIZATION OF THE SAME FOR A PERIOD OF TEN YEARS, AS SPECIFIED IN SEC TION 35D, WAS BEING ALLOWED FROM ASSESSMENT YEAR 1998-99 ONWARDS. IT WA S ALSO POINTED OUT THAT FOR ASSESSMENT YEAR 2001-02 AND 2003-04, AMORT IZATION OF THE SAME EXPENDITURE @ 1/10 TH WAS ALLOWED IN ORDERS PASSED UNDER SECTION 143(3) OF THE ACT AND THE COMMENTS OF THE AUDITORS IN THE AUD IT REPORT IN THOSE YEARS WAS IDENTICAL TO THE COMMENTS MADE IN THE AUDIT REP ORT OF THIS YEAR. IN ALL THE OTHER YEARS, THE RETURN OF INCOME WAS PROCESSED UNDER SECTION MAFATLAL DENIM LTD. ITA NO.6552/MUM./2008 ITA NO.6588/MUM./2008 3 143(1)(A). WHILE POINTING OUT THAT THE ISSUE IN QUE STION WAS NOT CONSIDERED IN ANY OF THE EARLIER YEARS, HE SUBMITS THAT THERE IS NO BASIS FOR DISALLOWANCE AND THERE IS NO CHANGE OF CIRCUMSTANCES BETWEEN THE CURRENT YEAR AND THE EARLIER YEAR. HE PLACED RELIANCE ON THE FOLLOWING C ASE LAWS:- CIT V/S PAUL BROTHERS, 216 ITR 548 (BOM.); AND SAURASHTRA CEMENT & CHEMICAL INDUSTRIES LTD. V/S CI T, 123 ITR 669 (GUJ.) 6. LEARNED COUNSEL SUBMITS THAT THE AMORTIZATION CANNO T BE WITHDRAWN MIDWAY. HE FILED A PAPER BOOK WHEREIN AT PAGE-22, T HE DETAILS OF PRE- OPERATIVE EXPENDITURES ARE CONTAINED, WHICH READS A S FOLLOWS:- REGISTRATION FEES PAYABLE DURING INCORPORATION ` 6,07,960 REGISTRATION FEE PAYABLE FOR INCREASE IN AUTHORISED CAPITAL ` 9,00,120 OTHER ESTABLISHMENT EXPENSES (PRINTING OF MEMORANDUM, ARTICLE, ETC. ` 2,63,680 TOTAL:- ` 17,71,760 7. EVIDENCE OF PAYMENT OF FEES TO THE REGISTRAR OF COM PANIES WAS ENCLOSED. IT WAS SUBMITTED THAT ONLY IN CASE OF OTH ER ESTABLISHMENT, EXPENDITURE I.E., 2,63,680, NO EVIDENCE WAS PRODUCE D DURING THE YEAR. THE LEARNED DEPARTMENTAL REPRESENTATIVE RELIED ON THE O RDER OF THE COMMISSIONER (APPEALS). 8. RIVAL CONTENTIONS HEARD. ON A CAREFUL CONSIDERATION OF THE FACTS AND CIRCUMSTANCES OF THE CASE AND ON PERUSAL OF THE PAP ERS ON RECORD, AS WELL AS THE CASE LAWS CITED BEFORE US, WE ARE OF THE CONSID ERED OPINION THAT THE CLAIM OF THE ASSESSEE CANNOT BE REJECTED IN 7 TH YEAR OF AMORTIZATION OF EXPENDITURE. EVIDENCES OF PAYMENT OF FEES TO ROC, TOWARDS INCORP ORATION AND THEREAFTER FOR INCREASE IN AUTHORIZED CAPITAL HAVE BEEN ADDUCE D BY THE ASSESSEE. THE ONLY ISSUE IN EVIDENCES FOR A MINOR AMOUNT OF ` 2,63,680. PRELIMINARY MAFATLAL DENIM LTD. ITA NO.6552/MUM./2008 ITA NO.6588/MUM./2008 4 EXPENDITURES HAVE BEEN DETERMINED FOR THE FIRST TIM E IN ASSESSMENT YEAR 1998-99 AND NO QUESTIONS WERE RAISED THEN. HENCE, I N OUR VIEW, DISALLOWANCE IN THIS YEAR IS NOT WARRANTED. THERE I S NO BASIS FOR DISALLOWANCE AS THE ASSESSEE HAS GIVEN EVIDENCE FOR THE MAJOR PO RTION OF THE EXPENDITURE EVEN IN THIS YEAR. AMORTIZATION CANNOT BE DISTURBED MIDWAY. IN VIEW OF THE ABOVE DISCUSSION, WE SET ASIDE THE IMPUGNED ORDER P ASSED BY THE COMMISSIONER (APPEALS) AND ALLOW GROUND NO.1 RAISED BY THE ASSESSEE. 9. GROUND NO.2 IS ON THE ADDITION OF ` 18,16,671, AS ESTIMATED INCOME FROM SALE OF SCRAP / WASTE. 10. THE ASSESSING OFFICER HAS MADE ADDITION ON THE GROU ND THAT THE ASSESSEE DID NOT EXPLAIN AS TO WHY THERE WAS A DROP OF 14.5% IN THE AMOUNT REALIZED ON SALE OF WASTE AND SCRAP AS AGAINST DROP OF 5.2% IN THE PRODUCTION. IT WAS ALSO STATED THAT THE ASSESSEE HA D NOT PRODUCED PROOF REGARDING CHANGE IN QUALITY OF THE COTTON USED IN T HE CURRENT YEAR AS COMPARED TO THE PRECEDING YEAR AND AN ESTIMATED ADD ITION WAS MADE. 11. IN APPEAL, THE COMMISSIONER (APPEALS) RECORDED THAT THE ASSESSEE HAD SUBMITTED A COMPARATIVE CHART OF PRODUCTION. HE REC ORDED THAT THE EXPLANATION OF THE ASSESSEE IS GENERAL IN NATURE AN D THAT THE SAME IS NOT SUPPORTED BY FACTS AND FIGURES. HE HELD THAT THE ON US IS ON THE ASSESSEE TO PROVE THAT, DURING THE YEAR, BETTER QUALITY OF COTT ON WAS USED WHICH RESULTED IN LOWER WASTAGE. HE, ACCORDINGLY, CONFIRMED THE OR DER PASSED BY THE ASSESSING OFFICER. AGGRIEVED, THE ASSESSEE IS IN FU RTHER APPEAL BEFORE THE TRIBUNAL. 12. LEARNED COUNSEL, BEFORE US, SUBMITS THAT THERE IS N O BASIS FOR THE ADDITION AND THAT THE ONUS LIES ON THE ASSESSING OF FICER FOR PROVING THAT THE ASSESSEE HAS, IN FACT, INCOME FROM SALE OF SCRAP. H E VEHEMENTLY CONTENDED THAT THE ASSESSING OFFICER PROCEEDED ON THE GROUND THAT THE TURNOVER, PROFITS, PRODUCTION, SCRAP SALES, ETC., WOULD BE CO NSTANT YEAR-AFTER-YEAR IN A MAFATLAL DENIM LTD. ITA NO.6552/MUM./2008 ITA NO.6588/MUM./2008 5 THE BUSINESS ORGANISATION AND THAT THIS CANNOT BE S USTAINED AND THAT MERELY BASED ON THE OPERATING RESULTS FOR THE LAST TWO YEA RS, ADDITION CANNOT BE MADE. LEARNED DEPARTMENTAL REPRESENTATIVE, ON THE O THER HAND, RELIED ON THE ORDERS OF THE LOWER AUTHORITIES. 13. ON A CAREFUL CONSIDERATION OF THE FACTS AND CIRCUMS TANCES OF THE CASE AND ON A PERUSAL OF THE PAPERS ON RECORD, WE ARE OF THE CONSIDERED OPINION THAT THE ADDITION IS NOT BASED ON ANY EVIDENCE. THE ASSESSING OFFICER MADE THE ADDITION, ON THE GROUND THAT THERE IS A DROP IN THE AMOUNT REALIZED FROM THE SALE OF SCRAP / WASTAGE. NO EFFORT HAS BEEN MAD E TO SCIENTIFICALLY ANALYSE THE PRODUCTION AND OTHER FIGURES OF THE ASSESSEE. S IMPLY BECAUSE THERE IS A FALL IN RECEIPT FROM SALE OF WASTAGE / SCRAP, ADDIT ION HAS BEEN MADE BY THE ASSESSING OFFICER TO THE EXTENT OF THE FIGURE OF RE DUCTION. NO ADDITION CAN BE MADE ON SUCH ASSUMPTION THAT RECEIPT FROM THE SALE OF SCRAP / WASTAGE WOULD BE CONSISTENT YEAR-AFTER-YEAR. NO EVIDENCE WA S GATHERED BY THE REVENUE TO SUGGEST THAT THE ASSESSEE HAS, IN FACT, RECEIVED CERTAIN UNACCOUNTED AMOUNTS FROM SALE OF SCRAP AND WASTAGE. WHEN THE ASSESSING OFFICER INTENDS TO MAKE AN ADDITION, THE BURDEN LIE S ON HIM TO SUBSTANTIATE THE ADDITION WITH EVIDENCE. IN THIS CASE, THE REVEN UE AUTHORITIES FAILED TO SUBSTANTIATE ITS CLAIM THAT THE ASSESSEE HAS EARNED CERTAIN UNACCOUNTED INCOME FROM SALE OF SCRAP / WASTAGE. IN VIEW OF THE SE DISCUSSIONS, WE SET ASIDE THE IMPUGNED ORDER PASSED BY THE COMMISSIONER (APPEALS) AND ALLOW THE GROUND RAISED BY THE ASSESSEE. 14. IN THE RESULT, ASSESSEES APPEAL IS ALLOWED. 15. IN REVENUES APPEAL IN ITA NO.6588/MUM./2008, FOLLO WING GROUNDS HAVE BEEN RAISED:- 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E AND IN LAW, THE LEARNED CIT(A) ERRED IN DELETING THE ADDITION O F ` 1,17,99,604 ON ACCOUNT OF DISALLOWANCE OF LICENCE FEE FOR TECHNICA L INFORMATION AND USE OF TRADEMARK PAID TO BURLINGTON MILLS INC. (BMI) WI THOUT APPRECIATING THAT THE NATURE OF TECHNICAL INFORMATION AND COMMER CIAL EXPEDIENCY OF MAFATLAL DENIM LTD. ITA NO.6552/MUM./2008 ITA NO.6588/MUM./2008 6 SUCH EXPENSES WAS NOT ESTABLISHED BY THE ASSESSEE D URING THE CUORSE OF ASSESSMENT PROCEEDINGS. 2. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E AND IN LAW, THE LEARNED CIT(A) FURTHER ERRED IN ALLOWING THE SA ID EXPENDITURE OF ` 1,17,99,604 AS REVENUE EXPENDITURE WITHOUT APPRECIA TING THAT THE SAID EXPENDITURE IS IN THE NATURE OF CAPITAL EXPENDITURE WHICH IS EVIDENT FROM THE ASSESSEES REPLY REPRODUCED BY THE LEARNED CIT(A) IN PARA- 4.2(1) OF HER ORDER ACCORDING TO WHICH THE APPELLAN T HAD PAID A SUM OF ` 1,17,99,604 AS LICENCE AND TECHNOLOGY FEE TO BURLI NGTON MILLS INC. (BMI) IN CONSIDERATION FOR TH ERIGHTS AND LICENSES GRANTED BY THE SAID PARTY TO THE APPELLANT. THIS HAS BEEN FURTHER CLARI FIED IN PARA-4.2(2) OF HER ORDER THAT THE SAID BMI HAD LICENSED TECHNICAL INFORMATION AND THE TRADE MARK BURLINGTON TO THE APPELLANT (ASSESSEE) . 16. AFTER HEARING RIVAL CONTENTIONS, WE FIND THAT THE A SSESSING OFFICER HAS MADE THE DISALLOWANCE ON A TOTAL MISUNDERSTANDING O F THE FACTS OF THE CASE. WHILE THE ASSESSEE IS REQUIRED TO PAY A SUM EQUIVAL ENT TO 4% OF THE NET SALES TO BMI AS LICENSE AND TECHNOLOGY FEE ON THE T URNOVER RELATABLE TO BMI PRODUCTS, THE ASSESSING OFFICER WRONGLY CALCULATED THE SAME @ 2% ON A SALES FIGURE OF ` 95,67,56,145. WHILE A SUM OF ` 1,17,99,604, WAS PAYABLE TO BMI, THE ASSESSING OFFICER LANDED UP IN DISALLOWING ` 1,85,94,699 I.E., THE DISALLOWANCE IS MORE THAN THE AMOUNT CLAIMED. THE D ISALLOWANCE WAS NOT MADE BY THE ASSESSING OFFICER ON THE GROUND THAT TH E PAYMENT IS IN THE CAPITAL FIELD. ON THE OTHER HAND, A PERUSAL OF PARA -2 / PAGE-2 OF HIS ORDER DEMONSTRATE THAT HE WAS UNDER THE IMPRESSION THAT A PORTION OF THE CLAIM SHOULD BE ALLOWED. ACCORDING TO THE ASSESSING OFFIC ER, OUT OF ` 3,77,29,822, ONLY AN AMOUNT OF ` 1,91,35,123, IS TO BE ALLOWED. WHILE THE NET SALES RELATABLE TO BMI WAS ` 29,49,90,100, THE ASSESSING OFFICER WRONGLY INCLUD ED NET SALES OF MAFATLAL INDUSTRIES LTD. AND WRONGLY D ETERMINED THE NET SALES AT ` 95,67,56,145. THE COMMISSIONER (APPEALS) HAS RECOR DED THIS FACTUAL ERRORS MADE BY THE ASSESSING OFFICER. BEFORE US, LEARNED D EPARTMENTAL REPRESENTATIVE RELIED ON CERTAIN CASE LAWS AND TRIE D TO SUPPORT THE ORDER OF THE ASSESSING OFFICER BY ARGUING THAT THE EXPENDITU RE IS IN THE CAPITAL FIELD. WHEN THE DISALLOWANCE WAS NOT MADE ON THAT BASIS AN D WHEN THE ASSESSING OFFICER WANTED TO ALLOW PORTION OF THE CLAIM AS REV ENUE EXPENDITURE, SUCH MAFATLAL DENIM LTD. ITA NO.6552/MUM./2008 ITA NO.6588/MUM./2008 7 ARGUMENTS, AT THIS STAGE, CANNOT BE ENTERTAINED. IN THE LIGHT OF THE ABOVE DISCUSSION, WE UPHOLD THE FINDINGS OF THE FIRST APP ELLATE AUTHORITY RECORDED AT PAGE-5 / PARA-3.4. THESE GROUNDS ARE, THUS, DISMISS ED. 17. IN THE RESULT, REVENUES APPEAL IS DISMISSED. 18. TO SUM UP, ASSESSEES APPEAL IS ALLOWED AND REVENUE S APPEAL IS DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 30.8.2011 SD/- VIJAY PAL RAO JUDICIAL MEMBER SD/- J. SUDHAKAR REDDY ACCOUNTANT MEMBER MUMBAI, DATED: 30.8.2011 COPY TO : (1) THE ASSESSEE; (2) THE RESPONDENT; (3) THE CIT(A), MUMBAI, CONCERNED; (4) THE CIT, MUMBAI CITY CONCERNED; (5) THE DR, B BENCH, ITAT, MUMBAI. TRUE COPY BY ORDER PRADEEP J. CHOWDHURY ASSISTANT REGISTRAR SR. PRIVATE SECRETARY ITAT, MUMBAI BENCHES, MUMBAI
