CRAY VALLEY RESINS INDIA P. LTAD, NAVI MUMBAI V. ITO 10(3)(4), MUMBAI

ITA 684/MUM/2010

• Counselvise Citation: [2012] 140 COUNSELVISE.COM (IT) 62185 (ITAT-MUMBAI)
• Duration Of Justice: 2 year(s) 2 month(s) 14 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 11-04-2012
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: C
• Next Hearing Date: 03-04-2012
• Assessment Year: 2006-2007
• Appeal Filed On: 28-01-2010
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: AATIQ AHMED
• Assessee Lawyers: KESHAV B BHUJLE; S K MUFSADDI
• Keywords: Depreciation
• Section: 43B; 14A; 263

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCHES C , MUMBAI BEFORE SHIRI N.V. VASUDEVAN, JM AND SHRI N.K. BILLA IYA, AM ITA NO. : 684/MUM/2010 ASSESSMENT YEAR : 2006-07 M/S. CRAY VALLEY RESINS INDIA PVT. LTD. PLOT NO.D-43/1/TTC INDUSTRIAL AREA, MIDC, NERUL, SHIRVANE VILLAGE, NAVI MUMBAI-400 706 PAN NO: AAACC 6482 F VS. ITO-10(3)(4), AAYAKAR BHAVAN, M.K. ROAD, MUMBAI-400 020 (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI KESHAV B. BHUJLE & SHRI S.K. MUFSADDI RESPONDENT BY : SHRI AATIQ AHMED DATE OF HEARING : 03.04.2012 DATE OF PRONOUNCEMENT : 11.04.2012 ORDER PER N.K. BILLAIYA, AM : THE PRESENT APPEAL IS DIRECTED BY THE ASSESSEE AGAI NST THE ORDER OF THE CIT[A] 22 MUMBAI , DATED 23.01.2009. THE GROU NDS OF APPEAL FILED WITH THE FORM NO. 36 ON 28.01.2010 WERE AMENDED BY FILING AMENDED GROUNDS OF APPEAL DATED 09.09.2011. 2. THE APPELLANT HAS RAISED 2 GROUNDS, GROUND NO.1 HAVING 4 SUB GROUNDS . GROUND 1 [I] RELATES TO UPHOLDING OF DISALLOWANCE M ADE U/S 43B AT RS. 6650482.00 TOWARDS EXCISE DUTY PAYABLE ON FINIS HED GOODS. GROUND 1[II] RELATES TO DISALLOWANCE MADE U/S 43B A T RS. 120816.00 IN RESPECT OF SALES TAX . GROUND 1[III] RELATES TO UPHOLDING DISALLOWANCE OF DEPRECIATION OF RS. 3012926.00 , AND 2 ITA NO: 684/MUM/2010 M/S. CRAY VALLEY RESINS INDIA PVT. LTD. GROUND 1[IV] RELATES TO UPHOLDING DISALLOWANCE MADE U/S 14A AMOUNTING TO 394537.00 AT THE VERY OUTSET THE LD COUNSEL APPEARING FOR THE APPELLANT STATED THAT HE IS NOT PRESSING GROUND 1[II] RELATING TO TH E DISALLOWANCE IN RESPECT OF UNPAID SALES TAX AT RS.120816.00, HOW EVER WE NO TICE THAT THE AMOUNT CONTESTED IN GROUND NO.1[I] INCLUDES UNPAID SALES T AX ALSO. ACCORDINGLY TO KEEP THE FACTS IN APPEAL STRAIGHT WE DISMISS GROUND NO.1[II] AS THE APPELLANT IS NOT PRESSING THIS GROUND AND AT THE SA ME TIME EXCLUDE RS. 120816.00 FROM GROUND NO.1[I] SO THAT THE UNPAID EX CISE DUTY WHICH IS CONTESTED BY GROUND NO.1[I] COMES TO 6529666.00 . 3. BRIEFLY STATED THE FACTS OF THE CASE ARE THAT TH E APPELLANT IS ENGAGED IN THE BUSINESS OF MANUFACTURING / TRADING OF SYNTH ETIC RESIN AND FOR THE YEAR UNDER CONSIDERATION, THE RETURN OF INCOME WAS FILED ON 03.11.2006 WHICH WAS SELECTED FOR SCRUTINY ASSESSMENT, AND ACC ORDINGLY NOTICES U/S 143[2] AND 142[1] WERE ISSUED AND SERVED UPON THE A SSESSEE . 4. DURING THE COURSE OF THE ASSESSMENT PROCEEDINGS THE AO POINTED OUT TO THE ASSESSEE THAT THE AUDITORS HAVE QUALIFIED T HE AUDIT REPORT TO THE EXTENT OF NON PAYMENT OF EXCISE DUTY AMOUNTING TO RS. 6529666.00 AND SALES TAX OF RS. 120816.00 ON OR BEFORE THE DUE DAT ES, TOTALLING TO RS. 6650482.00 AND SOUGHT CLARIFICATION. ON RECEIVING N O EVIDENCE THE AO ADDED 6650482.00 U/S 43B OF THE ACT. FURTHER THE AO POINTED OUT THE DIFFERENCE IN THE DEPRECIATION CLAIMED IN THE INCOM E TAX RETURN AND THE DEPRECIATION SHOWN IN THE TAX AUDIT REPORT AND ASKE D THE APPELLANT TO RECONCILE THE SAME. THE ASSESSEE SUBMITTED THAT WHI LE COMPUTING THE DEPRECIATION AS PER INCOME TAX RULES AT RS. 1375929 4.00, CERTAIN EXPENDITURES WHICH HAVE BEEN CAPITALISED HAVE BEEN TAKEN INTO CONSIDERATION WHEREAS IN THE TAX AUDIT REPORT DEPR ECIATION AT RS.10746368.00 IS DEVOID OF SUCH CAPITAL EXPENDITUR E. FURTHER THE ASSESSEE SUBMITTED THAT THE CLAIM OF DEPRECIATION H AS BEEN ALLOWED IN AY 2001 02 I.E, THE INITIAL YEAR OF DEPRECIATION ON INTANGIBLE ASSETS THEREFORE, THE ISSUE HAS ATTAINED FINALITY AND NO INTERFERENCE IS CALLED FOR ON THIS 3 ITA NO: 684/MUM/2010 M/S. CRAY VALLEY RESINS INDIA PVT. LTD. ISSUE. AO WAS NOT CONVINCED BY THIS SUBMISSION AND ADDED THE DIFFERENCE BETWEEN THE TWO AT RS. 3012926.00 AS EXCESS DEPRECI ATION CLAIMED. LASTLY THE AO DISALLOWED RS.394537.00 OUT OF THE INTEREST CLAIMED BY THE ASSESSEE U/S 14A READ WITH RULE 8D OF THE I.T ACT. 5. AGGRIEVED BY THE ORDER OF THE AO , ASSESSEE TOOK THE MATTER BEFORE THE CIT[A]. THE LD CIT[A] HAS DEALT THE ISSUES AS U NDER. 5A] REGARDING THE CLAIM OF DEPRECIATION VIS-A`-VI S DEPRECIATION ALLOWED BY THE AO , THE LD CIT[A] FOUND THAT FOR TH E CLAIM OF DEPRECIATION ON CERTAIN EXPENDITURES CAPITALISED BY THE ASSESSEE , THE ASSESSMENTS OF AY 2002-03 AND 2004-0 5 WERE RE-OPENED TO DISALLOW THESE EXPENDITURES THERE FORE THE CLAIM OF THE ASSESSEE THAT THE ISSUE HAS ATTAINED FINALITY I N EARLIER YEARS DOES NOT STAND.IT WAS FURTHER CONCLUDED BY THE LD C IT[A] THAT THE CLAIM OF DEPRECIATION BY THE ASSESSEE ON INTANG IBLE ASSETS IS CONTRARY TO LAW AND THERE FORE CONFIRMED THE DISALL OWANCE MADE BY THE AO. 5B] REGARDING THE DISALLOWANCE OF INTEREST TO THE T UNE OF RS. 394537.00 THE LD CIT[A] HAS OBSERVED THAT DURING TH E YEAR UNDER CONSIDERATION THE ASSESSEE HAS MADE INVESTMEN TS IN SHARES OF ITS SUBSIDIARY TO THE TUNE OF RS. 1350700 0.00 FOR WHICH IT HAD BORROWED SECURED FUNDS AND UNSECURED F UNDS TO THE TUNE OF RS. 394400000.00 AND THERE FORE AGREED WITH THE FINDINGS OF THE AO THAT SEC 14A R.W RULE 8D SQUAREL Y APPLIES TO THE FACTS OF THE CASE . THE LD CIT[A] DISCARDED THE SUBMISSION OF THE ASSESSEE THAT RULE 8D IS PROSPECTIVE AND IS APP LICABLE ONLY W.E.F 01.04.2007 . 5C] REGARDING THE DISALLOWANCE U/S 43B OF THE ACT , THE LD CIT[A] OBSERVED THAT THE ASSESSEE HAS NOT SUBMITTED ANY DOCUMENTARY EVIDENCE REGARDING PAYMENT OF EXCISE DU TY AND SALES TAX THERE FORE DISALLOWANCE TO THE TUNE OF RS . 6650482.00 U/S 43B OF THE ACT IS JUSTIFIED . 6. AGGRIEVED BY THE ORDER OF THE LD CIT[A], THE ASS ESSEE IS IN APPEAL BEFORE US. THE LD COUNSEL APPEARING FOR THE APPELLA NT ASSAILED THE ORDER OF THE LD CIT[A] ON THE GROUNDS OF APPEAL ONE BY ONE. 7. FOR THE ISSUE RAISED THROUGH GROUND 1[I] THE LD AR RAISED AN ADDITIONAL PLEA AND SUBMITTED THAT PROVISIONS OF SE C 43B ARE NOT AT ALL 4 ITA NO: 684/MUM/2010 M/S. CRAY VALLEY RESINS INDIA PVT. LTD. APPLICABLE ON THE FACTS OF THE CASE BECAUSE THE LIA BILITY FOR THE EXCISE DUTY FOUND CREDITED IN THE BALANCE SHEET HAS NOT ARISEN AS THE GOODS ARE LYING IN THE FACTORY PREMISES AND EXCISE DUTY IS PAYABLE ONLY WHEN THE GOODS ARE CLEARED FROM THE FACTORY PREMISES, WHERE AS PROVISI ONS OF SEC 43B ARE APPLICABLE ON UN PAID STATUTORY LIABILITY BUT IN TH E INSTANT CASE THE STATUTORY LIABILITY HAS NOT AT ALL ARISEN, THEREFOR E INVOKING PROVISIONS OF SEC 43B IS BAD IN LAW AS WELL ON FACTS. TO SUBSTANTIATE HIS SUBMISSION LD COUNSEL DREW OUR ATTENTION TO THE DECISION OF THE H ONBLE JURISDICTIONAL HIGH COURT OF BOMBAY IN THE CASE OF COMMISSIONER OF INCOME-TAX V. LOKNETE BALASAHEB DESAI S. S. K. LTD [2011] 339 ITR 288 SECTION 145A OF THE INCOME-TAX ACT, 1961, WAS INS ERTED BY THE FINANCE (NO. 2) ACT, 1998, WITH EFFECT FROM APRIL 1 , 1999. IT PROVIDES FOR VALUATION OF PURCHASE AND SALE OF GOOD S AND INVENTORY FOR THE PURPOSES OF DETERMINING THE INCOM E CHARGEABLE UNDER THE HEAD 'PROFITS AND GAINS OF BUSINESS OR PR OFESSION'. THE EXPRESSION 'INCURRED BY THE ASSESSEE' IN SECTIO N 145A(B) IS FOLLOWED BY THE WORDS 'TO BRING THE GOODS TO THE PL ACE OF ITS LOCATION AND CONDITION AS ON THE DATE OF VALUATION' . THUS, THE EXPRESSION 'INCURRED BY THE ASSESSEE' RELATES TO TH E LIABILITY DETERMINED AS TAX, DUTY, CESS OR FEE PAYABLE IN BRI NGING THE GOODS TO THE PLACE OF ITS LOCATION AND CONDITION OF THE GOODS. THE EXPLANATION TO SECTION 145A(B) MAKES IT FURTHER CLE AR THAT THE INCOME CHARGEABLE UNDER THE HEAD 'PROFITS AND GAINS OF BUSINESS' SHALL BE ADJUSTED BY THE AMOUNT PAID AS T AX, DUTY, CESS OR FEE. THEREFORE, THE EXPRESSION 'INCURRED' I N SECTION 145A(B) MUST BE CONSTRUED TO MEAN THE LIABILITY ACT UALLY INCURRED BY THE ASSESSEE. THOUGH THE DATE OF MANUFA CTURE IS THE RELEVANT DATE FOR DUTIABILITY, THE RELEVANT DAT E FOR THE DUTY LIABILITY IS THE DATE ON WHICH THE GOODS ARE CLEARE D. IN OTHER WORDS, IN RESPECT OF EXCISABLE GOODS, MANUFACTURED AND LYING IN STOCK, THE EXCISE DUTY LIABILITY WOULD GET CRYSTALLISED ON THE DATE OF CLEARANCE OF GOODS AND NOT ON THE DATE OF MANUFACTURE . THE ASSESSEE WAS ENGAGED IN THE BUSINESS OF MANUFACTURE AND SALE OF WHITE SUGAR. IN THE ASSESSM ENT YEAR 2001-02 THE ASSESSING OFFICER HELD THAT THE EXCISE DUTY ON SUGAR MANUFACTURED BUT NOT SOLD AND LYING IN CLOSIN G STOCK WAS A LIABILITY INCURRED BY THE ASSESSEE UNDER SECTION 145A(B) AND HAD TO BE CONSIDERED FOR DISALLOWANCE UNDER SECTION 43B OF THE ACT. THE TRIBUNAL DELETED THE ADDITION. ON APPEAL T O THE HIGH COURT : 5 ITA NO: 684/MUM/2010 M/S. CRAY VALLEY RESINS INDIA PVT. LTD. HELD, THAT THE MANUFACTURED SUGAR WAS LYING IN STO CK AND WAS NOT CLEARED FROM THE FACTORY. THEREFORE, TH E TRIBUNAL WAS JUSTIFIED IN HOLDING THAT IN RESPECT O F THE UNSOLD SUGAR LYING IN STOCK, CENTRAL EXCISE LIABILI TY WAS NOT INCURRED AND CONSEQUENTLY THE ADDITION OF EXCIS E DUTY MADE BY THE ASSESSING OFFICER TO THE VALUE OF THE EXCISABLE GOODS WAS LIABLE TO BE DELETED . [BOLD LETTERS BY US ] 8. THE LD AR SUBMITTED THAT THOUGH THE CASE REFERRE D TO RELATES TO PROVISIONS OF SEC 145A, THE RATIO LAID DOWN BY THE HONBLE JURISDICTIONAL HIGH COURT SQUARELY APPLIES ON THE FACTS OF THE APP EAL UNDER CONSIDERATION. 9. LD DR RELIED UPON THE ORDERS OF THE LOWER AUTHOR ITIES. WE HAVE PERUSED THE ORDERS OF THE LOWER AUTHORITIES AND THE RIVAL SUBMISSIONS. ADMITTEDLY THE GOODS WERE LYING IN THE FACTORY PREM ISES AND WERE NOT CLEARED, THEREFORE, THE CONTENTION OF THE LD COUNSE L THAT THE LIABILITY TO PAY EXCISE DUTY HAS NOT ARISEN HOLDS GOOD. THE FINDINGS OF THE HONBLE BOMBAY HIGH COURT SQUARELY APPLY ON THE FACTS OF THE CASE. RESPECTFULLY FOLLOWING THE RATIO LAID DOWN BY THE HONBLE JURISDICTIONAL H IGH COURT, WE HOLD THAT ON FACTS OF THE CASE PROVISIONS OF SEC 43B DO NOT A PPLY. ACCORDINGLY WE ALLOW THE APPEAL ON GROUND NO.1[I] AND REVERSE THE FINDINGS OF THE LD CIT[A]. 10. ARGUING FOR GROUND NO.1[III] , LD COUNSEL SUBM ITTED THAT THE CIT[A] HAS GROSSLY ERRED IN NOT APPRECIATING THE FACTS OF THE CASE. THE LD COUNSEL DREW OUR ATTENTION TO EXHIBIT 6 OF THE PAPER BOOK F ILED BY HIM WHICH IS THE CHART OF DEPRECIATION ON FIXED ASSETS FOR THE AY 20 01 02 AND STATED THAT IN THE AY 2001 02 THE ASSESSEE HAS CAPITALISED CE RTAIN EXPENDITURES TO THE TUNE OF RS.11458964.00 IN ADDITION TO ADDITIONS OF CERTAIN INTANGIBLE ASSETS OF TRADE MARK AND MARKETING NETWORK OF RS.3 CRORES, ON WHICH IT HAS NOT CLAIMED ANY DEPRECIATION BUT WHILE COMPLETI NG THE ASSESSMENT FOR THE AY 2001 -02 THE AO ALLOWED DEPRECIATION ON THE AMOUNT OF CAPITALISATION OF EXPENDITURE AND DEPRECATION ON IN TANGIBLE ASSETS HAVE 6 ITA NO: 684/MUM/2010 M/S. CRAY VALLEY RESINS INDIA PVT. LTD. BEEN ALLOWED IN SCRUTINY ASSESSMENTS SINCE AY 2001 02 , WHICH MEANS THAT THE DEPRECIATION WAS ACTUALLY ALLOWED AS PER T HE PROVISIONS OF THE ACT. LD COUNSEL FURTHER SUBMITTED THAT THOUGH AS PER THE TAX AUDIT REPORT FOR THE YEAR UNDER CONSIDERATION DEPRECIATION HAS BEEN PROVIDED AT RS 10746368.00, BUT THE SAME HAS BEEN CLAIMED WHILE CO MPUTING THE INCOME AS PER THE PROVISIONS OF THE INCOME TAX ACT AT RS. 13759294.00, THEREFORE, THERE IS A DIFFERENCE IN THE AMOUNT OF DEPRECIATION AS PER AUDIT REPORT AND AS PER COMPUTATION OF INCOME TO THE TUNE OF RS 3012 926.00. LD COUNSEL CONCLUDED THAT SINCE THE DEPRECIATION HAS BEEN ALLO WED BY THE AO HIMSELF IN THE AY 2001 02, IE., THE INITIAL YEAR, THE AO CANNOT DISTURB THE DEPRECIATION ON THE SAME ASSETS IN SUBSEQUENT YEARS . LD COUNSEL RELIED UPON THE DECISION OF COMMISSIONER OF INCOME-TAX V. PAUL BROTHERS [ 1995 ] 216 ITR 548 IN WHICH WHILE DECIDING ON THE ISSUE OF THE MERGER OF THE ASSESSMENT ORDER WITH THE APPELLATE ORDER VIS-A`-VI S POWERS OF REVISION OF THE COMMISSIONER U/S 263 OF THE ACT , THE HONBLE D ELHI HIGH COURT HELD : THAT (I) SINCE THE ASSESSMENT ORDER FOR THE YEAR 1 981-82 HAD MERGED IN THE APPELLATE ORDER, REVISIONAL JURISDICT ION COULD NOT BE EXERCISED; (II) THE ASSESSING OFFICER'S ORDER BA SED ON A BINDING DECISION OF THE HIGH COURT, COULD NOT BE IN TERFERED WITH IN REVISIONAL JURISDICTION; (III) UNLESS DEDUCTIONS ALLOWED FOR THE ASSESSMENT YEAR 1980-81 ON THE SAME GROUND WERE WITHDRAWN, THEY COULD NOT BE DENIED FOR THE SUBSEQU ENT YEARS. EITHER IN SECTION 80HH OR IN SECTION 80J THE RE IS NO PROVISION FOR WITHDRAWAL OF SPECIAL DEDUCTION FO R BREACH OF CERTAIN CONDITIONS. [ BOLD BY US ] 11. THE LD DR RELIED UPON THE ORDERS OF THE LOWER A UTHORITIES. WE HAVE HEARD RIVAL SUBMISSIONS AND PERUSED THE ORDERS OF T HE LOWER AUTHORITIES AND THE EXHIBITS SHOWN BY THE LD COUNSEL FOR THE AP PELLANT. ADMITTEDLY THE DEPRECIATION ON AMOUNT CAPITALISED AND ALSO ON INTA NGIBLE ASSETS HAVE BEEN ALLOWED BY THE AO WHILE COMPLETING THE ASSESSM ENT OF AY 2001 02, THOUGH IT IS ALSO A FACT THAT THE ASSESSMENTS OF AY 2002 -03 & 2004 -05 WERE REOPENED TO DISALLOW THE DEPRECATION ON THE AB OVE MENTIONED ASSETS. BE AS IT MAY. THE UNDISPUTED FACT IS THAT THE DEPRE CIATION OF THE INITIAL 7 ITA NO: 684/MUM/2010 M/S. CRAY VALLEY RESINS INDIA PVT. LTD. YEAR HAS NOT BEEN DISTURBED WHICH VIEW IS ALSO SUPP ORTED BY THE RATIO LAID DOWN BY THE HONBLE DELHI HIGH COURT [ SUPRA ] THERE FORE WE DIRECT THE ASSESSING OFFICER TO ALLOW THE DEPRECIATION AS CLAIMED BY THE APPELLANT THEREBY REVERSING THE ORDE R OF THE LD CIT[A] ON THIS ISSUE. GROUND NO.1[III] IS ALLOWED . 12. FOR ISSUES RAISED THROUGH GROUND NO.1[IV], LD C OUNSEL FOR THE APPELLANT SUBMITTED THAT THE DISALLOWANCE OF INTER EST TO THE TUNE OF RS. 394537.00 INVOKING SEC 14A R.W RULE 8D IS AGAINST THE LAW AS RULE 8D IS APPLICABLE FROM 01.04.2007 AND IT IS PROSPECTIVE AN D FURTHER SUBMITTED THAT THE AO HAS GROSSLY ERRED IN NOT APPRECIATING T HE FACT THAT INVESTMENTS HAVE BEEN MADE SOLELY OUT OF OWN FUNDS AND NOT FROM BORROWED FUNDS. LD DR CONTENDED THAT RULE 8D SQUARELY APPLY TO THE FAC TS OF THE CASE. WE HAVE HEARD RIVAL CONTENTIONS AND FIND THAT THE AO H AS ERRED IN APPLYING RULE 8D WHICH IS PROSPECTIVE AND IS APPLICABLE FROM 01.04.2007. WE, THEREFORE, DIRECT THE AO TO DECIDE THIS ISSUE WITHO UT APPLYING RULE 8D AFTER GIVING ASSESSEE AN OPPORTUNITY TO EXPLAIN HIS CONTE NTION THAT THE INVESTMENTS ARE FROM OWN FUNDS AND NOT OUT OF BORRO WED FUNDS. GROUND NO.1[IV] IS ALLOWED FOR STATISTICAL PURPOSES. 13. IN THE RESULT, APPEAL IS ALLOWED AS DISCUSSED H ERE IN ABOVE . ORDER PRONOUNCED ON THIS 11 TH DAY OF APRIL, 2012. SD/- - SD/- ( N.V. VASUDEVAN ) ( N.K. BILLAIYA ) JUDICIAL MEMBER ACCOUNTANT MEMBER MUMBAI, DT: 11.04.2012 8 ITA NO: 684/MUM/2010 M/S. CRAY VALLEY RESINS INDIA PVT. LTD. COPY FORWARDED TO : 1. THE APPELLANT, 2. THE RESPONDENT, 3. THE C.I.T. 4. CIT (A) 5. THE DR, - BENCH, ITAT, MUMBAI //TRUE COPY// BY ORDER ASSISTANT REGISTRAR ITAT, MUMBAI BENCHES, MUMBAI ROSHANI