Resinova Chemie Limited, Kanpur V. Asstt. Commissioner of Income Tax, Kanpur

ITA 697/LKW/2014

• Counselvise Citation: [2015] 121 COUNSELVISE.COM (IT) 0571 (ITAT-LUCKNOW)
• Duration Of Justice: 9 month(s) 9 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 12-06-2015
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: B
• Next Hearing Date: 20-04-2015
• Assessment Year: 2003-2004
• Appeal Filed On: 02-09-2014
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: PINKI MAHAWAR
• Assessee Lawyers: P K KAPOOR
• Keywords: Capital expenditure

Judgement Text

1 IN THE INCOME TAX APPELLATE TRIBUNAL LUCKNOW BENCH B , LUCKNOW BEFORE SHRI SUNIL KUMAR YADAV, JUDICIAL MEMBER AND SHRI A.K. GARODIA, ACCOUNTANT MEMBER ITA NO S . 697 TO 699 /LKW/201 4 A .YRS :20 0 3 - 04, 2004 - 05 & 2006 - 07 M/S RESINOVA CHEMIE LTD., 54/38, NAYAGANJ , KANPUR 2 08001 PAN:AA BCR6406M VS . ACIT RANGE 4, LUCKNOW (APPELLANT) (RESPONDENT) ASSESSEE BY SHRI P. K. KAPOOR, C.A. DEPARTMENT BY SMT. PINKI MAHAWAR, SR. DR DATE OF HEARING 20/04/2015 DATE OF PRONOUNCEMENT 1 2 /06/2015 O R D E R PER A. K. GARODIA, A.M. T H ESE ARE ASSESSEES APPEAL S DIRECTED AGAINST TH RE E SEPARATE ORDER S OF LEARNED CIT (A) I KANPUR DATED 24 .0 5 .201 4 FOR A.Y. 20 0 3 04, DATED 29.05.2014 A.Y. 2004 05 AND DATED 23.06.2014 FOR A.Y. 2006 07 . ALL THESE APPEALS WERE HEARD TOGETHER AND ARE BEING DISPOSED BY THIS COMMON ORDER FOR THE SAKE OF CONVENIENCE . 2. FIRST WE TAKE THE APPEAL FOR A.Y. 2003 04. 3 . GROUND NO. 1 IS GENERAL. GROUND NO. 2 IS AS UNDER : - THAT THE LD CIT (A) I HAS ERRED IN LAW AND ON FACTS WHILE CONFIRMING THE DISALLOWANCE OF RS. 36 0,000/ - BEING 50% OF THE REMUNERATION PAID TO WHOLE TIME MANAGING DIRECTOR OF THE ASSESSEE/APPELLANT U/S 40A (2) (B) . 4 . LEARNED AR OF THE ASSESSEE SUBMITTED THAT ON PAGES 8 TO 10 OF TH E PAPER BOOK IS REPLY FILED BY THE ASSESSEE BEFORE THE A.O. HE REITERATED THE 2 SAME. LEARNED DR OF THE REVENUE SUPPORTED THE ORDERS OF THE AUTHORITIES BELOW. 5 . WE HAVE CONSIDERED THE RIVAL SUBMISSIONS. WE FIND THAT ON PAGE NO. 2 OF THE ASSESSMENT ORDER, IT IS NOTED BY THE A.O. THAT THE LEARNED AR OF THE ASSESSEE HAS NOWHERE MENTIONED THAT THE DETERMINATION OF THE REMUNERATION TO M.D. HAS BEEN APPROVED IN AGM OF THE SHAREHOLDERS. HE HAS ALSO STATED THAT THEREFORE, THE INCREAS E IN REMUNERATION TO M.D. IN CONTRAVENTION OF THE PROVISIONS OF COMPANIES ACT. IN SPITE OF THIS CATEGORICAL FINDING BY THE A.O. IN THE ASSESSMENT ORDER, SUCH AGM RESOLUTION IS NOT MADE AVAILABLE TO CIT (A) OR BEFORE US. HENCE, WE DO NOT FIND ANY REASON TO INTERFERE IN THE ORDER OF CIT (A) ON THIS ISSUE. THIS GROUND IS REJECTED . 6 . GROUND NO. 3 IS AS UNDER: - THAT THE LD CIT (A) I HAS ERRED IN LAW AND ON FACTS WHILE CONFIRMING THE FOLLOWING DISALLOWANCES: I TELEPHONE EXPENSES RS. 10,000/ - (TOTAL EXPENSES RS. 551,450/ - ) II CONVEYANCE EXPENSES RS. 10,000/ - (TOTAL EXPENSES RS. 397,976/ - ) III TRAVELLING EXPENSES RS. 20,000/ - (TOTAL EXPENSES RS. 1838,080/ - ) IV GENERAL EXPENSES RS. 10,000/ - (TOTAL EXPENSES RS. 310,725/ - ) 7 . LEARNED AR OF THE ASSESSEE SUBMITTED THAT THESE ARE AD HOC DISALLOWANCES AND THEREFORE NOT JUSTIFIED. LEARNED DR OF THE REVENUE SUPPORTED THE ORDERS OF THE AUTHORITIES BELOW. 8 . WE HAVE CONSIDERED THE RIVAL SUBMISSIONS. WE FIND THAT ON PAGE 3 OF THE ASSESSMENT ORDER, A CLEAR FINDING HAS BEEN GIVEN BY LEARNED A.O. THAT THE SE EXPENSES ARE NOT FULLY VERIFIABLE. BUT NOT EVEN A SINGLE INSTANCE HAS BEEN GIVEN BY THE A.O. ABOUT SUCH UNVERIFIABLE EXPENSES. WE ARE OF THE CONSIDERED OPINION THA T IN THE ABSENCE OF ANY INSTANCE OF UNVERIFIABLE 3 EXPENSES, SUCH AD HOC DISALLOWANCE CANNOT BE SUSTAIN E D. WE, THEREFORE, DELETE THE SAME. THIS GROUND IS ALLOWED. 9 . IN THE RESULT, TH IS APPEAL OF THE ASSESSEE IS PARTLY ALLOWED . 10. NOW WE TAKE THE APPEAL FOR A.Y. 2004 05: - 11 . GROUND NO. 1 IS GENERAL. GROUND NO. 2 IS AS UNDER: - THAT THE LD CIT (A) I HAS ERRED IN LAW AND ON FACTS WHILE CONFIRMING THE DISALLOWANCE OF RS. 240,000/ - BEING THE INCREASE IN RENT PAID TO WHOLE TIME MANAGING DIRECTOR AGAINST U SE OF LAND ON WHICH MANUFACTURING PLANT OF THE ASSESSEE/APPELLANT HAS BEEN CONSTRUCTED U/S 40A (2) (B). 12 LEARNED AR OF THE ASSESSEE SUBMITTED THAT THE LAND IS IN USE SINCE 1995 . LEARNED DR OF THE REVENUE SUPPORTED THE ORDERS OF THE AUTHORITIES BELOW. 13. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS. WE FIND THAT ON PAGE NO. 2 OF THE ASSESSMENT ORDER, IT IS NOTED BY THE A.O. THAT THE LEARNED AR OF THE ASSESSEE HAS NO T JUSTIFIED THE ENHANCED PAYMENT OF RENT BY MAKING COMPARISON OF RATE WITH MARKET RENT AS R EQUIRED U/S 40A(2) (B). HE HAS ALSO NOTED THAT THE ASSESSEE HAS NOT FURNISHED THE COPY OF AGREEMENT IN RESPECT OF RENT FOR THE EARLIER YEARS AND FOR THE PRESENT YEAR. IN SPITE OF THIS CATEGORICAL FINDING BY THE A.O. IN THE ASSESSMENT ORDER, SUCH AGREEMENT IN RESPECT OF RENT FOR THE EARLIER YEARS AND FOR THE PRESENT YEAR AS WELL AS COMPARISON CHART OF RATE WITH MARKET RENT AS REQUIRED U/S 40A(2) (B) ARE NOT MADE AVAILABLE TO CIT (A) OR BEFORE US. HENCE, WE DO NOT FIND ANY REASON TO INTERFERE IN THE ORDER OF CIT (A) ON THIS ISSUE. THIS GROUND IS REJECTED. 14. GROUND NO. 3 IS AS UNDER: THAT THE LD CIT (A) I HAS ERRED IN LAW AND ON FACTS WHILE CONFIRMING THE DISALLOWANCE OF RS. 164,042/ - BEING THE IRRECOVERABLE AMOUNT WRITTEN OFF, WHICH WA S PAID AS ADVANCE TO CONSULTANCY AGENCIES FOR FINANCIAL ADVICE/CONSULTANCY REGARDING INCREASE IN CAPITAL BASE OF THE COMPANY THROUGH ISSUE OF SHARES OR OTHER MODES, BY CONSIDERING THE SAME AS CAPITAL EXPENDITURE. 4 15. LEARNED AR OF THE ASSESSEE SUBMITTED H AT THERE IS NO ACTUAL CAPITAL ACCRETION IN THE PRESENT YEAR AND HENCE, IT IS NOT A CAPITAL EXPENDITURE. HE ALSO SUBMITTED THAT EVEN IF IT IS HELD THAT IT IS CAPITAL EXPENDITURE, DEDUCTION SHOULD BE ALLOWED U/S 35D. HE ALSO SUBMITTED THAT RELEVANT LEDGER CO PIES ARE AVAILABLE ON PAGES 28 TO 30 OF THE PAPER BOOK. LEARNED DR OF THE REVENUE SUPPORTED THE ORDERS OF THE AUTHORITIES BELOW. 1 6 . WE HAVE CONSIDERED THE RIVAL SUBMISSIONS. WE FIND THAT ON PAGE NO. 8 OF HIS ORDER, IT IS NOTED BY THE LEARNED CIT (A) THAT AS PER THE SUBMISSIONS OF LEARNED AR OF THE ASSESSEE , THESE EXPENSES WERE FOR NEW BUSINESS VENTURE UNDER NEW MANAGEMENT AND THEREFORE, THEY WERE NOT FOR EXPANSION OF THE SAME BUSINESS UNDER SAME MANAGEMENT. THESE FINDINGS OF LEARNED CIT (A) COULD NOT BE CONTROVERTED BY LEARNED AR OF THE ASSESSEE AND HENCE SAME HAS TO BE ACCEPTED AS VALID. LEARNED CIT (A) HAS REFERRED TO VARIOUS JUDGMENTS OF HONBLE APEX COURT HAVING BEEN RENDERED IN THE CASE OF BALLIMAL NAVAL KISHORE VS. CIT, 224 ITR 414 AND IN THE CA SE OF ASSAM BENGAL CEMENT CO. LTD. VS. CIT, 27 ITR 34 AND FOLLOWED THE SAME TO HOLD THAT THESE ARE CAPITAL EXPENSES IN THE FACTS OF THE PRESENT CASE NOTED ABOVE. REGARDING SECTION 35D, WE FIND THAT THIS SECTION IS NOT APPLICABLE BECAUSE THE ASSESSEE DOES N OT FULFILL THE REQUIREMENTS OF THIS SECTION. HENCE, WE DECLINE TO INTERFERE IN THE ORDER OF CIT (A) ON THIS ISSUE. THIS GROUND IS ALSO REJECTED. 17 . GROUND NO. 4 IS AS UNDER: - THAT THE LD CIT (A) I HAS ERRED IN LAW AND ON FACTS WHILE CONFIRMING THE FOLLOWING DISALLOWANCES: I TELEPHONE EXPENSES RS. 10,000/ - (TOTAL EXPENSES RS. 5 74 , 664 / - ) II CONVEYANCE EXPENSES RS. 2 0,000/ - (TOTAL EXPENSES RS. 456 , 878 / - ) III TRAVELLING EXPENSES RS. 5 0,000/ - (TOTAL EXPENSES RS. 27 18, 41 0/ - ) IV GENERAL EXPENSES RS. 10,000 / - (TOTAL EXPENSES RS. 117 , 524 / - ) 18 . LEARNED AR OF THE ASSESSEE SUBMITTED THAT THESE ARE AD HOC DISALLOWANCES AND THEREFORE NOT JUSTIFIED. LEARNED DR OF THE REVENUE SUPPORTED THE ORDERS OF THE AUTHORITIES BELOW. 5 19 . WE HAVE CONSIDERED THE RIVAL SUBMISSIONS. WE FIND THAT ON PAGE 3 OF THE ASSESSMENT ORDER, ALTHOUGH A FINDING HAS BEEN GIVEN BY LEARNED A.O. THAT THESE EXPENSES ARE NOT FULLY VERIFIABLE. BUT NOT EVEN A SINGLE INSTANCE HAS BEEN GIVEN BY THE A.O. ABOUT SUCH UNVERIFIABLE EXPENSES. WE ARE OF THE CONSIDERED OPINION THAT IN THE ABSENCE OF ANY INSTANCE OF UNVERIFIABLE EXPENSES, SUCH AD HOC DISALLOWANCE CANNOT BE SUSTAINED . WE, THEREFORE, DELETE THE SAME. THIS GROUND IS ALLOWED. 20 . IN THE RESULT, THIS APPEAL OF THE ASSESSEE IS PARTLY ALLOWED. 21. NOW WE TAKE THE APPEAL FOR A.Y. 2006 07: - 22. GROUND NO. 1 IS GENERAL. GROUND NO. 2 IS AS UNDER: - THAT THE LD CIT (A) I HAS ERRED IN LAW AND ON FACTS WHILE CONFIRMING THE DISALLOWANCE OF RS. 690,000/ - U/S 40A (2) (B ) OF THE INCOME TAX ACT, 1961, OUT OF TOTAL RENT OF RS. 28,50,000/ - PAID DURING THE RELEVANT ASSESSMENT YEAR AS AGAINST RS. 18,00,000/ - IN PREVIOUS ASSESSMENT YEAR PAID TO WHOLE TIME MANAGING DIRECTOR AGAINST USE OF LAND ON WHICH MANUFACTURING PLANT OF THE ASSESSEE /APPELLANT HAS BEEN CONSTRUCTED. 23 . LEARNED AR OF THE ASSESSEE SUBMITTED THAT THE LAND IS IN USE SINCE 1995. HE ALSO SUBMITTED THAT THE PRICE OF LAND HAS GONE UP TO RS. 2400/ - PER SQ. MTR. AS ON 16.06.2006 AS AGAINST RS. 600/ - PER SQ. MTR. AS O N 02.11.1999 AND RS. 1000/ - PER SQ. MTR. AS ON 18.07.2003 AND THEREFORE INCREASE IN RENT IS JUSTIFIED. LEARNED DR OF THE REVENUE SUPPORTED THE ORDERS OF THE AUTHORITIES BELOW. 24 . WE HAVE CONSIDERED THE RIVAL SUBMISSIONS. WE FIND THAT ON PAGE NO. 3 OF THE ASSESSMENT ORDER, IT IS NOTED BY THE A.O. THAT THE LEARNED AR OF THE ASSESSEE HAS NOT JUSTIFIED THE ENHANCED PAYMENT OF RENT BY MAKING COMPARISON OF RATE WITH MARKET RENT AS REQUIRED U/S 40A(2) (B). HE HAS ALSO NOTED THAT THE ASSESSEE HAS NOT FURNISHED TH E COPY OF AGREEMENT IN RESPECT OF RENT FOR THE EARLIER YEARS AND FOR THE PRESENT YEAR. IN SPITE OF THIS CATEGORICAL FINDING BY THE A.O. IN THE ASSESSMENT ORDER, SUCH AGREEMENT IN RESPECT OF RENT FOR THE EARLIER YEARS AND FOR THE PRESENT YEAR AS WELL AS COM PARISON CHART OF RATE WITH MARKET RENT AS REQUIRED U/S 40A(2) (B) ARE NOT 6 MADE AVAILABLE TO CIT (A) OR BEFORE US. MERELY BECAUSE PRICES OF LAND HAS GONE UP, RENT CANNOT BE INCREASED PARTICULARLY TO PERSONS COVERED U/S 40A (2) (B) OF THE I. T. ACT WITHOUT L OOKING INTO SUCH AGREEMENT IN RESPECT OF RENT FOR THE EARLIER YEARS AND FOR THE PRESENT YEAR, IT CANNOT BE ACCEPTED THE INCREASE IN RENT IS PROPER AND AS PER THE AGREEMENT. IF THE AGREEMENT PROVIDES FOR INCREASE IN RENT AFTER A PERIOD THEN ONLY IT CAN BE I NCREASED THAT TOO AFTER THE PRESCRIBED PERIOD. MOREOVER, WE ARE CONCERNED WITH RENT RATE AND NOT THE PRICE OF LAND. THERE MAY BE CASES WHERE IN SPITE OF RISE IN LAND PRICE, RENT MAY BE SAME OR INCREASE IN RENT MAY BE NOMINAL AND THEREFORE WITHOUT LOOKING I NTO MARKET RATE OF RENT, IT CANNOT BE SAID THAT MERELY BECAUSE PRICES OF LAND HAS GONE UP, ANY INCREASE IN RENT IS PROPER. IN THE PRESENT CASE, IN THE ABSENCE OF SUCH AGREEMENT IN RESPECT OF RENT FOR THE EARLIER YEARS AND FOR THE PRESENT YEAR AS WELL AS C OMPARISON CHART OF RATE WITH MARKET RENT AS REQUIRED U/S 40A(2)(B), WE DO NOT FIND ANY REASON TO INTERFERE IN THE ORDER OF CIT (A) ON THIS ISSUE. THIS GROUND IS REJECTED. 25. IN THE RESULT, THIS APPEAL OF THE ASSESSEE IS DISMISSED. 26. IN THE COMBINED RESULT, APPEALS FOR A.Y. 2003 04 & 2004 05 ARE PARTLY ALLOWED AND APPEAL FOR A.Y. 2006 07 IS DISMISSED. (ORDER WAS PRONOUNCED IN THE OPEN COURT ON THE DATE MENTIONED ON THE CAPTION PAGE) SD/. SD/. (SUNIL KUMAR YADAV) ( A. K. GARODIA ) JUDICIAL MEMBER ACCOUNTANT MEMBER DATED: 1 2 /0 6 /201 5 *C.L. SINGH COPY OF THE ORDER FORWARDED TO : 1. THE APPELLANT 2. THE RESPONDENT. 3. CONCERNED CIT 4. THE CIT(A) 5. D.R., I.T.A.T., LUCKNOW ASSTT. REGISTRAR