DCIT 6(2), MUMBAI V. BROOK CROMPTON GREAVES LTD, MUMBAI

ITA 7065/MUM/2013

• Counselvise Citation: [2017] 126 COUNSELVISE.COM (IT) 7901 (ITAT-MUMBAI)
• Duration Of Justice: 4 year(s) 9 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 13-12-2017
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: B
• Next Hearing Date: 27-07-2017
• Assessment Year: 2009-2010
• Appeal Filed On: 04-12-2013
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: SUMAN KUMAR LD
• Assessee Lawyers: PRADIP N KAPASI LD
• Keywords: Depreciation; Rule of consistency; Fair market value; Bad and doubtful debts; Unabsorbed depreciation
• Section: 143(3); 32

Judgement Text

ITA.NO.7065/MUM/2013 BROOK CROMPTION GREAVES LIMITED ASSESSMENT YEAR-2009-10 IN THE INCOME TAX APPELLATE TRIBUNAL B BENCH, MUMBAI . . , , BEFORE SHRI D.T. GARASIA, JM AND SHRI MANOJ KUMAR AGGARWAL, AM ./I.T.A. NO.7065/MUM/2013 ( / ASSESSMENT YEAR: 2009-10) DEPUTY COMMISSIONER OF INCOME TAX, CIRCLE-6(2) ROOM NO.563 AAYKAR BHAVAN M.K.ROAD MUMBAI-400 020 / VS. BROOK CROMPTON GREAVES LIMITED [SINCE AMALGAMATED WITH CROMPTON GREAVES LIMITED] 6 TH FLOOR, C.G.HOUSE DR.A.B.ROAD, PRABHADEVI MUMBAI-400 025 ! ./ ./PAN/GIR NO. AABCC-1922-F ( !# /APPELLANT ) : ( $%!# / RESPONDENT ) A SSESSEE BY : PRADIP N. KAPASI ,LD.AR RE VENUE BY : SUMAN KUMAR, LD. DR / DATE OF HEARING : 31/10/2017 / DATE OF PRONOUNCEMENT : 13/12 /2017 / O R D E R PER MANOJ KUMAR AGGARWAL (ACCOUNTANT MEMBER) 1. THE CAPTIONED APPEAL BY REVENUE FOR ASSESSMENT Y EAR [AY] 2009- 10 ASSAILS THE ORDER OF THE LD. COMMISSIONER OF INC OME-TAX (APPEALS)- IT/TP [CIT(A)], PUNE, APPEAL NO. PN/CIT(A)-17/IT/TP/DCIT AHMEDNAGAR ITA.NO.7065/MUM/2013 BROOK CROMPTION GREAVES LIMITED ASSESSMENT YEAR-2009-10 2 CIR/68/2011-12 DATED 04/10/2013 BY RAISING THE FOLLOWING EFFECTIVE GROUNDS OF APPEAL:- 1. WHETHER ON THE FACTS AND IN THE CIRCUMSTANCES O F THE CASE AND IN LAW, THE LD.CIT(A) IS RIGHT IN ALLOWING COMMISSION PAYMENT O F RS.1,71,99,634/- WITHOUT APPRECIATING THE FACT THAT NO SPECIAL OR EXTRA BENE FIT WAS DERIVED BY THE ASSESSEE AND THERE WERE NO BAD DEBTS EITHER IN PAST YEARS JUSTIFYING SUCH COMMISSION PURPORTEDLY PAID FOR LOOKING AFTER RECOV ERY. 2. WHETHER ON THE FACTS AND IN THE CIRCUMSTANCES O F THE CASE AND IN LAW, THE LD. CIT(A) WAS JUSTIFIED IN DIRECTING THE ASSESSING OFF ICER TO ALLOW SET OFF OF UNABSORBED DEPRECIATION LOSS OF A.Y.1999-2000 OF RS .1,87,23,318/- WHEN THERE WAS SPECIFIC PROHIBITION AS PER CLAUSE (III) (B) IF SUB SECTION (2) OF SEC 32 TO ALLOW CARRY FORWARD OF UNABSORBED DEPRECIATION ALLO WANCE BEYOND 8 YEAR FROM THE ASSESSMENT YEAR FOR WHICH THE DEPRECIATION ALLO WANCE WAS FIRST COMPUTED? 3. WHETHER ON THE FACTS AND IN THE CIRCUMSTANCES O F THE CASE AND IN LAW, THE LD. CIT(A) WAS JUSTIFIED IN DIRECTING THE ASSESSING OFF ICER TO ALLOW SET OFF OF UNABSORBED DEPRECIATION LOSS OF A.Y.1999-2000 BY TA KING RECOURSE TO AMENDMENT WHICH WAS BROUGHT IN SUB SECTION (2) OF S ECTION 32 BY WAY OF FINANCE ACT 2001 W.E.F 1.4.2002 WHICH DID NOT OPERA TE RETROSPECTIVELY IN RESPECT OF UNABSORBED DEPRECIATION ALLOWANCE OF YEA RS PRIOR TO A.Y.2002-03? 4. WHETHER ON THE FACTS AND IN THE CIRCUMSTANCES O F THE CASE AND IN LAW, THE LD. CIT(A) WAS JUSTIFIED IN DIRECTING THE ASSESSING OFF ICER TO ALLOW SET OFF OF UNABSORBED DEPRECIATION LOSS OF A.Y.1999-2000 BY RE LYING UPON THE DECISION OF THE GENERAL MOTORS INDIA PVT. LTD VS. DCIT (2012) 2 5 TAXMAN.COM (GUJ) SINCE THE DECISION IS NOT ACCEPTED BY THE DEPARTMENT AND APPEAL IS PENDING BEFORE SUPREME COURT. THE ASSESSMENT FOR IMPUGNED ASSESSMENT YEAR [AY] WA S FRAMED BY LD. DEPUTY COMMISSIONER OF INCOME TAX, AHMEDNAGAR CIRCL E U/S 143(3) OF THE INCOME TAX ACT, 1961 ON 29/12/2011. 2.1 FACTS LEADING TO THE SAME ARE THAT THE ASSES SEE BEING RESIDENT CORPORATE ASSESSEE ENGAGED IN THE BUSINESS OF MANUFACTURING AND SALE OF ELECTRIC MOTORS, SPARE PARTS AND PUMP SETS ETC. WAS ASSESSED U/S 143(3) AT RS.375.19 LACS AFTER CERTAIN ADJUSTMENTS / DISALLOWANCE AS AGAINST RETURNED INCOME OF RS.288.72 LACS E-FILED BY THE ASSESSEE ON 28/09/2009. 2.2 DURING ASSESSMENT YEAR PROCEEDINGS IT WAS NOTED THAT THE ASSESSEES 49% SHAREHOLDING WAS HELD BY ITS HOLDING COMPANY NAMELY CROMPTON GREAVES LIMITED [CGL] AND THE ASSESSEE PAID CERTAIN ITA.NO.7065/MUM/2013 BROOK CROMPTION GREAVES LIMITED ASSESSMENT YEAR-2009-10 3 COMMISSION TO THE HOLDING COMPANY WHICH WAS A PERSO N COVERED BY THE PROVISIONS OF SECTION 40A(2)(B). THE ASSESSEE PAID AGGREGATE COMMISSION OF RS.183.99 LACS TO ITS HOLDING COMPANY , WHICH COMPRISED OF EXPORT COMMISSION OF RS.107.35 LACS AND COMMISSI ON OF RS.76.64 LACS COMPUTED @15% AGAINST DOMESTIC SALES THROUGH B RANCHES OF CGL . THE SAID COMMISSION, IN THE OPINION OF LD. AO, WAS NOT FOR LEGITIMATE NEEDS OF THE ASSESSEE SINCE NO EXTRA BENEFIT WAS DE RIVED BY THE ASSESSEE FROM SERVICES OBTAINED FROM ITS HOLDING CO MPANY. FINALLY, LD. AO, APPLYING THE PROVISIONS OF SECTION 40A(2)(A), E STIMATED THAT VALUE OF SERVICES BEING OBTAINED BY THE ASSESSEE AT RS. 12 L ACS AND DISALLOWED THE BALANCE EXPENDITURE OF RS.171.99 LACS. 2.3 THE SECOND ISSUE UNDER THE APPEAL IS SET-OFF OF UNABSORBED DEPRECIATION PERTAINING TO AY 1999-2000. THE LD. AO , RELYING UPON THE DECISION OF SPECIAL BENCH, ITAT IN THE CASE OF TIMES GUARANTY LIMITED , ITA NO. 4917-18/MUM/2008 DATED 30/06/2010 , OPINED THAT SET-OFF OF THE SAME WAS NOT AVAILABLE TO THE ASSESSEE BEYOND EIGHT ASSESSMENT YEARS. 3. AGGRIEVED, THE ASSESSEE, INTER-ALIA, CONTESTED THE SAME WITH SUCCESS BEFORE LD. CIT(A) VIDE IMPUGNED ORDER DATED 04/10/2013. THE COMMISSION DISALLOWANCE WAS DELETED BY LD. CIT(A) BY MAKING FOLLOWING OBSERVATION:- 2.1.13 THEREFORE, THE LAW REQUIRES THAT THE EXPENDI TURE, WHICH IS EXCESSIVE AND UNREASONABLE HAVING REGARD TO FAIR MARKET VALUE OF GOODS, SERVICES OR FACILITIES, FOR WHICH PAYMENT IS MADE OR HAVING REG ARD TO THE LEGITIMATE NEEDS OF THE BUSINESS OF THE ASSESSEE OR BENEFITS DERIVED TH EREFROM SHALL NOT BE ALLOWED AS DEDUCTION. ALTHOUGH THE DISALLOWANCE IS BASED ON THE OPINION OF THE AO, WHICH HE CONSIDERS AS EXCESSIVE OR UNREASONABLE, IT IS FUNDAMENTAL THAT THE AOS OPINION CANNOT BE ARBITRARY OR WITHOUT ANY BAS IS. SUCH OPINION ALSO CANNOT BE A SUBJECTIVE OPINION OF THE AUTHORITY. THEREFORE , THE OPINION OF THE AO SHOULD BE BASED ON THE MATERIAL OR EVIDENCE WITH RESPECT T O THE APPELLANTS BUSINESS AND FAIR MARKET VALUE OF THE SERVICES AVAILED BY IT . FURTHER, THE WORDS EXCESSIVE OR UNREASONABLE ARE NOT ABSOLUTE BUT ARE RELATIVE. MEANING, ASCERTAIN AS TO WHETHER THE PAYMENT IS EXCESSIVE OR UNREASONABLE, ITA.NO.7065/MUM/2013 BROOK CROMPTION GREAVES LIMITED ASSESSMENT YEAR-2009-10 4 COMPARISON WILL HAVE TO BE MADE. THEREFORE, COMPARI SON WITH RESPECT TO FAIR MARKET VALUE IS IMPLICIT IN THE SECTION, HOWEVER TH E LEARNED AO HAS NOT DONE ANY COMPARISON. 2.1.14. THE PERUSAL OF THE ASSESSMENT ORDER SHOW T HAT THE LEARNED AO HAS COME TO CONCLUSION THAT THE APPELLANT HAS NOT DERIV ED BENEFIT FROM THE SERVICES AVAILED OR HAS STATED THAT THE PAYMENT IS EXCESSIVE AND UNREASONABLE WITHOUT HAVING ANY SUPPORTING MATERIAL. THE DECISION TO PAY THE COMMISSION FOR AVAILING SERVICES WOULD BE THAT OF THE BUSINESS MAN, WHICH C ANNOT BE QUESTIONED BY THE AO WITHOUT ANY MATERIAL. SECTION 40A(2) DOES NOT EM POWER AO TO DISALLOW PAYMENTS ON THE BASIS OF HIS SWEET WILL. FURTHER, A S FAR AS THE RATE OF THE COMMISSION IS CONCERNED, AS MENTIONED, THE EXCESSIV E RATE OR UNREASONABLE RATE CAN ONLY BE ESTABLISHED BY CITING COMPARABLE C ASES FOR AVAILING SIMILAR SERVICES. AS POINTED BY THE APPELLANT, THE LEARNED AO HAS NOT DISCUSSED THE FAIR MARKET VALUE OF THE SERVICES AVAILED BY IT. 2.1.15 IN ABSENCE OF ANY MATERIAL OF EVIDENCE AN D DISCUSSION ON FAIR MARKET VALUE OF AVAILING SIMILAR SERVICES, THE OPINION OF THE LEARNED AO IS A SUBJECTIVE OPINION, WHICH CAN BE SUCCESSFULLY CHALLENGED. THER EFORE, I DO NOT FIND ANY FACTUAL OR LEGAL BASIS ON WHICH, THE ADDITION CAN B E SUSTAINED. ACCORDINGLY, I DELETE THE ADDITION OF RS.1,71,99,634 MADE U/S 40A( 2)(A). THE GROUND OF SET-OFF OF UNABSORBED DEPRECIATION WA S ALLOWED AFTER CONSIDERING VARIOUS JUDICIAL PRONOUNCEMENTS, CBDT C IRCULAR AND STATUTORY PROVISIONS. AGGRIEVED, THE REVENUE IS IN FURTHER APPEAL BEFORE US. 4. SO FAR AS THE GROUND RELATING TO SET-OFF OF UNAB SORBED DEPRECIATION IS CONCERNED, WE CONCUR WITH THE SUBMISSIONS OF RES PECTIVE REPRESENTATIVES THAT THE ISSUE STOOD SQUARELY COVER ED IN ASSESSEES FAVOR BY CATENA OF JUDGMENTS OF THE HIGHER AUTHORIT Y AND CBDT CIRCULAR AND IN PARTICULAR, BY THE JUDGMENT OF HONBLE GUJAR AT HIGH COURT RENDERED IN THE CASE OF GENERAL MOTORS INDIA P. LTD. VS DCIT [354 ITR 244 23/08/2012] WHERE THE HONBLE COURT AFTER CONSIDERING THE RELE VANT STATUTORY PROVISIONS OF SECTION 32 AS AMENDED BY TH E FINANCE ACT, 2001 AND CBDT CIRCULAR NO. 14 OF 2001 HELD THAT SET-OFF OF UNABSORBED DEPRECIATION OF EARLIER YEARS WAS AVAILABLE TO THE ASSESSEE. FURTHER, SPECIAL LEAVE PETITION [SLP] FILED BY THE REVENUE AGAINST THE SAID JUDGMENT HAS BEEN DISMISSED BY THE APEX COURT. THE REVENUE NEITHER ITA.NO.7065/MUM/2013 BROOK CROMPTION GREAVES LIMITED ASSESSMENT YEAR-2009-10 5 COULD CONTROVERT THE SAME NOR WAS ABLE TO BRING ANY CONTRARY JUDGMENT ON RECORD. FOR EASE OF REFERENCE, THE RELEVANT PORT ION FROM THE SAID JUDGMENT IS EXTRACTED BELOW:- 38. THEREFORE, IT CAN BE SAID THAT, CURRENT DEPRECI ATION IS DEDUCTIBLE IN THE FIRST PLACE FROM THE INCOME OF THE BUSINESS TO WHICH IT RELATES . IF SUCH DEPRECIATION AMOUNT IS LARGER THAN THE AMOUNT OF THE PROFITS OF THAT BUSIN ESS, THEN SUCH EXCESS COMES FOR ABSORPTION FROM THE PROFITS AND GAINS FROM ANY OTHE R BUSINESS OR BUSINESS, IF ANY, CARRIED ON BY THE ASSESSEE. IF A BALANCE IS LEFT EV EN THEREAFTER, THAT BECOMES DEDUCTIBLE FROM OUT OF INCOME FROM ANY SOURCE UNDER ANY OF THE OTHER HEADS OF INCOME DURING THAT YEAR. IN CASE THERE IS A STILL B ALANCE LEFT OVER, IT IS TO BE TREATED AS UNABSORBED DEPRECIATION AND IT IS TAKEN TO THE NEXT SUCCEEDING YEAR. WHERE THERE IS CURRENT DEPRECIATION FOR SUCH SUCCEEDING YEAR THE U NABSORBED DEPRECIATION IS ADDED TO THE CURRENT DEPRECIATION FOR SUCH SUCCEEDING YEA R AND IS DEEMED AS PART THEREOF. IF, HOWEVER, THERE IS NO CURRENT DEPRECIATION FOR S UCH SUCCEEDING YEAR, THE UNABSORBED DEPRECIATION BECOMES THE DEPRECIATION AL LOWANCE FOR SUCH SUCCEEDING YEAR. WE ARE OF THE CONSIDERED OPINION THAT ANY UNA BSORBED DEPRECIATION AVAILABLE TO AN ASSESSEE ON 1ST DAY OF APRIL 2002 (A.Y. 2002- 03) WILL BE DEALT WITH IN ACCORDANCE WITH THE PROVISIONS OF SECTION 32(2) AS AMENDED BY FINANCE ACT, 2001. AND ONCE THE CIRCULAR NO.14 OF 2001 CLARIFIED THAT THE RESTRICTION OF 8 YEARS FOR CARRY FORWARD AND SET OFF OF UNABSORBED DEPRECIATION HAD BEEN DISPENSED WITH, THE UNABSORBED DEPRECIATION FROM A.Y.1997-98 UPTO THE A .Y.2001-02 GOT CARRIED FORWARD TO THE ASSESSMENT YEAR 2002-03 AND BECAME P ART THEREOF, IT CAME TO BE GOVERNED BY THE PROVISIONS OF SECTION 32(2) AS AMEN DED BY FINANCE ACT, 2001 AND WERE AVAILABLE FOR CARRY FORWARD AND SET OFF AGAINS T THE PROFITS AND GAINS OF SUBSEQUENT YEARS, WITHOUT ANY LIMIT WHATSOEVER. THEREFORE, RESPECTFULLY FOLLOWING THE ABOVE JUDGMEN TS, WE HOLD THAT THE SET-OFF OF THE UNABSORBED DEPRECIATION WAS AVAILABL E TO THE ASSESSEE DURING THE IMPUGNED AY AND ACCORDINGLY, DISMISS GRO UND NUMBERS 2, 3 & 4 OF REVENUES APPEAL. 5. QUA COMMISSION DISALLOWANCE, THE LD. COUNSEL FOR ASSESS EE [AR] HAS POINTED OUT THAT THE ASSESSEE HAS CONSISTENTLY PAID THE IMPUGNED COMMISSION TO ITS HOLDING COMPANY SINCE PAST SEVERA L YEARS, WHICH HAS BEEN ACCEPTED BY THE REVENUE IN VARIOUS ASSESSMENTS INCLUDING SCRUTINY ASSESSMENTS U/S 143(3). OUR ATTENTION WAS ALSO DRAW N TO THE FACT THAT COMMISSION WAS PAID PURSUANT TO AGREEMENT WITH ITS HOLDING COMPANY ITA.NO.7065/MUM/2013 BROOK CROMPTION GREAVES LIMITED ASSESSMENT YEAR-2009-10 6 AGAINST SERVICES RENDERED AND DUE TAX AT SOURCE WAS DEDUCTED FROM THE SAID PAYMENT. THE LD. AO, WITHOUT ASCERTAINING THE FAIR MARKET VALUE OF SERVICES OBTAINED BY THE ASSESSEE IN TERMS OF STATU TORY PROVISIONS ARBITRARILY DISALLOWED THE SAME, WHICH WAS NOT JUST IFIED. PER CONTRA, LD. DEPARTMENTAL REPRESENTATIVE CONTENDED THAT THE ONUS WAS ON ASSESSEE DEMONSTRATE THE AVAILMENT / UTILIZATION OF SERVICES AND FURTHER JUSTIFY THE QUANTUM OF PAYMENT MADE AGAINST THOSE SERVICES. IT WAS FURTHER POINTED OUT THAT THE PRINCIPLES OF RES-JUDICATA WAS NOT APPLICABLE TO INCOME TAX PROCEEDINGS. 6. HEARD AND PERUSED RELEVANT MATERIAL ON RECORD. A LTHOUGH WE CONCUR WITH THE SUBMISSION THAT RES-JUDICATA IS NOT APPLICABLE TO INCOME TAX PROCEEDINGS YET EQUITY AND RULE OF CONSISTENCY DEMANDS THAT SIMILAR VIEW IS TAKEN UNDER IDENTICAL SITUATION. IT IS ADMI TTED FACT THAT THE ASSESSEE IS PAYING IMPUGNED COMMISSION SINCE AY 200 5-06 ON DOMESTIC SALES AND COMMISSION ON EXPORT SALES SINCE AY 2008-09, WHICH HAS BEEN ALLOWED BY THE REVENUE OVER ALL THES E YEARS. THE NATURE OF SERVICES BEING AVAILED BY THE ASSESSEE HAS BEEN EXTRACTED BY THE LD. FIRST APPELLATE AUTHORITY IN PARA-2.1.4 OF HIS ORDE R AND THE SAME COULD NOT BE CONTROVERTED BY THE REVENUE. THERE IS NOTHING ON RECORD TO SUGGEST THAT THERE WAS ANY MATERIAL CHANGE IN NATURE OF SER VICES, RATE OF COMMISSION OR OTHER TERMS AND CONDITIONS IN THE IMP UGNED AY AS COMPARED TO EARLIER YEARS. THE ASSESSEE, BEFORE LD. AO, HAD PLEADED THAT DUE TAX AT SOURCE WAS DEDUCTED FROM THE IMPUGN ED PAYMENTS, WHICH HAS ALSO NOT BEEN CONTROVERTED AT ANY STAGE. MOREOVER, LD. AO HAS NOT DOUBTED THE FACTUM OF RECEIPT OF SERVICES BUT DISALLOWED THE SAME ONLY ON THE PREMISES THAT THE SAME SERVICES CO ULD BE OBTAINED BY ITA.NO.7065/MUM/2013 BROOK CROMPTION GREAVES LIMITED ASSESSMENT YEAR-2009-10 7 THE ASSESSEE BY EMPLOYING CERTAIN NUMBER OF QUALIFI ED PROFESSIONALS. IN OUR OPINION, IT WAS NONE OF REVENUES BUSINESS TO D ETERMINE THE MANNER IN WHICH THE ASSESSEE WAS TO CARRY OUT ITS BUSINESS OPERATIONS. MOREOVER, LD. AO COULD NOT BRING ON RECORD ANY COGE NT MATERIAL TO ESTABLISH THAT THE SAID PAYMENT WAS EXCESSIVE OR UN REASONABLE IN ANY MANNER HAVING REGARD TO THE FAIR MARKET VALUE OF TH ESE SERVICES IN TERMS OF SECTION 40A(2)(A). HENCE, THE FACTS OF THE CASE LEAD IS TO CONCUR WITH THE STAND OF LD. CIT(A) AND WE DO NOT FIND ANY REAS ON TO INTERFERE WITH THE SAME RESULTANTLY, GROUND NO.1 OF REVENUES APPE AL STANDS DISMISSED. 7. TO SUM UP, THE REVENUES APPEAL STANDS DISMISSED . ORDER PRONOUNCED IN THE OPEN COURT ON 13 TH DECEMBER, 2017. SD/- SD/- (D.T. GARASIA) (MANOJ KUMAR AGGARW AL) / JUDICIAL MEMBER / ACCOUNTANT MEMBER MUMBAI; DATED : 13.12.2017 SR.PS:- THIRUMALESH ! / COPY OF THE ORDER FORWARDED TO : 1. !# / THE APPELLANT 2. $%!# / THE RESPONDENT 3. + ( ) / THE CIT(A) 4. + / CIT CONCERNED 5. $'- , - , / DR, ITAT, MUMBAI 6. . / GUARD FILE / BY ORDER, / (DY./ASSTT. REGISTRAR) , / ITAT, MUMBAI