MAZDA IMAGING P. LTD, MUMBAI V. ACIT 6(3), MUMBAI

ITA 7115/MUM/2008

• Counselvise Citation: [2011] 134 COUNSELVISE.COM (IT) 8255 (ITAT-MUMBAI)
• Duration Of Justice: 2 year(s) 2 month(s) 26 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 11-03-2011
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: F
• Next Hearing Date: 18-10-2010
• Assessment Year: 2005-2006
• Appeal Filed On: 16-12-2008
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: MRS ASHIMA GUPTA
• Keywords: Depreciation; Opportunity of being heard; Earning of tax free income; Proportionate interest; Additional evidence
• Section: 43B; 14A

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCHES F, MUMBAI BEFORE SHRI D.K. AGARWAL (J.M.) AND SHRI J. SUDHAKA R REDDY (A.M.) ITA NO. 7115/MUM /2008 ASSESSMENT YEAR : 2005-06 M/S MAZDA IMAGING PVT. LTD., 10, V.K. INDUSTRIAL ESTATE, K KHADYE MARG, JACOB CIRCLE, MUMBAI 400 011. PAN : AAACM7245E VS. A SST. COMMISSIONER OF INCOME - TAX, 6(3), AAYAKAR BHAVAN, MUMBAI 400 020. (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI VIJAY MEHTA RESPONDENT BY : MRS. ASHIMA GUPTA O R D E R PER D.K. AGARWAL, J.M. THIS APPEAL PREFERRED BY THE ASSESSEE IS DIRECTED A GAINST THE ORDER DATED 23.10.2008 PASSED BY THE LD. CIT (A) FOR THE A.Y 2005-06. 2. BRIEFLY STATED FACTS OF THE CASE ARE THAT THE AS SESSEE COMPANY IS ENGAGED IN THE BUSINESS OF DEVELOPING AND PRINTING OF COLOUR PHOTOGRAPHS REPAIRING, SERVICING AND RENTAL OF CAMERAS, FILED R ETURN DECLARING TOTAL INCOME OF ` 62,16,550/-. HOWEVER, THE ASSESSMENT WAS COMPLETE D AT AN INCOME OF 83,44,900/-INCLUDING DISALLOWANCE U/S 14A , DEPRECIATION ON CAMERA, ADDITION ON ACCOUNT OF DIFFERENCE IN TDS CE RTIFICATE AND ADDITION U/S 145A VIDE ORDER DATED 24.12.2007 PASSED U/S 143 (3) OF THE INCOME TAX ACT, 1961 (THE ACT). ON APPEAL, THE LD. CIT(A) SUBJECT TO CERTAIN DIRECTIONS, UPHELD THE ABOVE DISALLOWANCE/ADDITIONS MADE BY THE A.O. ITA NO. 71 15/MUM/2008 M/S MAZDA IMAGI NG PVT. LTD. 2 3. BEING AGGRIEVED BY THE ORDER OF THE LD. CIT(A), THE ASSESSEE IS IN APPEAL BEFORE US. 4. GROUND NO. 1 IS AGAINST THE SUSTENANCE OF DISALL OWANCE U/S 14A. 5. BRIEF FACTS OF THE ABOVE ISSUE ARE THAT THE A.O. HAS NOTED THAT THE ASSESSEE HAS RECEIVED DIVIDEND OF ` 1,45,389/- AND CLAIMED THE SAME AS EXEMPT U/S 10(34) OF THE ACT. THE A.O. FURTHER NOT ED THAT THE ASSESSEE HAS DEBITED A SUM OF ` 4,56,433/- AS NET INTEREST PAID. SINCE THE ASSESSEE HAS NOT DISALLOWED ANY EXPENDITURE FOR EAR NING EXEMPT INCOME, THE A.O. HAS DISALLOWED PROPORTIONATE INTEREST OF ` 2,09,466/- AS PER THE WORKING GIVEN AT PAGE 3 OF THE ASSESSMENT ORDER. A PART FROM THIS, THE A.O. HAS ALSO NOTED THAT THE ASSESSEE HAS NOT DISAL LOWED ANYTHING OUT OF INDIRECT EXPENSES. ACCORDING TO THE A.O., INDIRECT EXPENSES INCURRED BY THE ASSESSEE ARE (I) DIRECTORS REMUNERATION ` 24,88,668/-, (II) AUDIT FEES ` 1,40,610, (III) COMMUNICATION EXPENSES ` 5,91,822/-, (IV) BUILDINGS REPAIRS ` 21,13,531/- AND OTHER EXPENDITURE ` 5,01,007/- AGGREGATING TO ` 58,35,638/-. ACCORDINGLY, THE A.O. DISALLOWED PROP ORTIONATE EXPENSES OF ` 1,48,567/- AS PER THE WORKING GIVEN AT PAGE NO. 4 OF THE ASSESSMENT ORDER AND ADDED TO THE INCOME OF THE ASSESSEE. ON A PPEAL, THE LD. CIT(A) WHILE OBSERVING THAT SOME DISALLOWANCE IS DEFINITEL Y CALLED FOR, DIRECTED THE A.O. TO FOLLOW THE METHODOLOGY LAID DOWN IN THE NOTIFICATION ISSUED BY THE CBDT VIDE NO. 45/2008 DATED 24.03.2008 AND MAKE THE DISALLOWANCE PRESCRIBED IN RULE 8D(1) OF THE INCOME TAX RULES. 6. AT THE TIME OF HEARING, BOTH THE PARTIES HAVE AG REED THAT THIS ISSUE STANDS COVERED BY THE JUDGMENT OF HON'BLE JURISDICT IONAL HIGH COURT IN GODREJ & BOYCE MFG. CO. LTD., VS. DCIT, THEREFORE, THE ISSUE MAY BE SET ASIDE TO THE FILE OF THE ASSESSING OFFICER. ITA NO. 71 15/MUM/2008 M/S MAZDA IMAGI NG PVT. LTD. 3 7. HAVING CAREFULLY HEARD THE SUBMISSIONS OF THE RI VAL PARTIES AND PERUSING THE MATERIAL AVAILABLE ON RECORD, WE FIND MERIT IN PLEA OF THE PARTIES THAT THE ISSUE STANDS COVERED BY THE RECENT JUDGMENT OF THE HONBLE JURISDICTIONAL HIGH COURT IN GODREJ & BOYCE MFG. CO. LTD. VS. DCIT IN INCOME TAX APPEAL NO.626 OF 2010 AND WRIT PETITION NO.758 OF 2010 DATED 12.8.2010 SINCE REPORTED IN (2010) 328 ITR 81 (BOM.) WHEREIN THEIR LORDSHIPS AFTER CONSIDERING THE DECIS ION OF THE TRIBUNAL IN DAGA CAPITAL MANAGEMENT PVT. LTD. (117 ITD 169 (MUM )(SB), WHILE HOLDING THAT THE PROVISIONS OF SUB SECTIONS (2) AND (3) OF SEC.14A OF THE ACT ARE CONSTITUTIONALLY VALID HAVE HELD VIDE PLAC ITUM 88(VI) APPEARING AT PAGE 138 OF THE ITR AS UNDER : (VI) EVEN PRIOR TO ASSESSMENT YEAR 2008-09, WHEN RULE 8D WAS NOT APPLICABLE, THE ASSESSING OFFICER H AS TO ENFORCE THE PROVISIONS OF SUB SECTION (1) OF SECTIO N 14A. FOR THAT PURPOSE, THE ASSESSING OFFICER IS DUTY BOUND T O DETERMINE THE EXPENDITURE WHICH HAS BEEN INCURRED I N RELATION TO INCOME WHICH DOES NOT FORM PART OF THE TOTAL INCOME UNDER THE ACT. THE ASSESSING OFFICER MUST A DOPT A REASONABLE BASIS OR METHOD CONSISTENT WITH ALL THE RELEVANT FACTS AND CIRCUMSTANCES AFTER FURNISHING A REASONAB LE OPPORTUNITY TO THE ASSESSEE TO PLACE ALL GERMANE MA TERIAL ON THE RECORD; RESPECTFULLY FOLLOWING THE ABOVE JUDGMENT WE SET AS IDE THE ORDERS PASSED BY THE REVENUE AUTHORITIES ON THIS ACCOUNT AND SEND BACK THE MATTER TO THE FILE OF THE ASSESSING OFFICER WHO SHALL DECIDE THE SAME AFRESH IN THE LIGHT OF THE DIRECTIONS OF THE HON'BLE JURISDICTION AL HIGH COURT IN THE ABOVE CITED CASE AFTER PROVIDING REASONABLE OPPORTU NITY OF BEING HEARD TO THE ASSESSEE AND ACCORDINGLY THE GROUND TAKEN BY TH E ASSESSEE IS PARTLY ALLOWED FOR STATISTICAL PURPOSES. 8. GROUND NO. 2 IS AGAINST THE SUSTENANCE OF DISALL OWANCE OF DEPRECIATION ON TWO CAMERAS. ITA NO. 71 15/MUM/2008 M/S MAZDA IMAGI NG PVT. LTD. 4 9. AT THE TIME OF HEARING, THE COUNSEL FOR THE ASSE SSEE SUBMITS THAT HE DOES NOT WANT TO PRESS THE ABOVE GROUND WHICH WA S NOT OBJECTED TO BY THE LD. D.R. 10. THAT BEING SO AND IN THE ABSENCE OF ANY SUPPORT ING MATERIAL PLACED ON RECORD BY THE LD. COUNSEL FOR THE ASSESSEE, THE GROUND TAKEN BY THE ASSESSEE IS, THEREFORE, REJECTED BEING NOT PRESSED. 11. GROUND NO. 3 IS AGAINST THE SUSTENANCE OF ADDI TION OF ` 5,06,711/- IN RESPECT OF ALLEGED DIFFERENCE IN THE INCOME AS P ER TDS CERTIFICATE. 12. BRIEF FACTS OF THE ABOVE ISSUE ARE THAT IN THE ASSESSMENT ORDER, THE A.O. HAS GIVEN A CHART SHOWING THE DETAILS OF TDS A ND CORRESPONDING INCOME SHOWN BY THE ASSESSEE AS PER RETURN RESULTIN G A DIFFERENCE OF ` 5,06,711/- WHICH WAS NOT BEEN RECONCILED BY THE ASS ESSEE AND ACCORDINGLY HE ADDED THE DIFFERENCE OF ` 5,06,711/- TO THE TOTAL INCOME OF THE ASSESSEE. ON APPEAL, THE LD. CIT(A) IN THE ABSE NCE OF ANY RECONCILIATION, CONFIRMED THE ADDITION MADE BY THE A.O. 13. AT THE TIME OF HEARING, THE LD. COUNSEL FOR THE ASSESSEE FILED RECONCILIATION STATEMENT AND DETAILS OF SALES APPEA RING AT PAGE NO. 1 TO 10 OF ASSESSEES PAPER BOOK WITH THE REQUEST THAT T HE SAID ADDITIONAL EVIDENCE MAY BE ADMITTED AS THE SAME COULD NOT BE F ILED BEFORE THE A.O. DUE TO SHORT OF TIME AVAILABLE. HE FURTHER SUBMITS THAT IN THE LIGHT OF THE ABOVE ADDITIONAL EVIDENCE, THE ISSUE MAY BE SET ASI DE TO THE FILE OF THE A.O. 14. ON THE OTHER HAND, THE LD. D.R. WHILE DID NOT S ERIOUSLY OBJECT TO THE ADMISSION OF ADDITIONAL EVIDENCE, SUPPORTS THE ORDER OF A.O. AND LD. CIT(A). ITA NO. 71 15/MUM/2008 M/S MAZDA IMAGI NG PVT. LTD. 5 15. AFTER HAVING CAREFULLY HEARD THE SUBMISSIONS OF THE RIVAL PARTIES AND PERUSING THE MATERIAL AVAILABLE ON RECORD, WE F IND THAT THE A.O. HAS MADE THE ADDITION ON THE GROUND THAT THE ASSESSEE H AS FAILED TO FILE THE RECONCILIATION STATEMENT OF THE DIFFERENCE OF THE P AYMENTS SHOWN IN THE TDS CERTIFICATE AND IN THE BOOKS OF ACCOUNT. SINCE NOW THE ASSESSEE HAS FILED THE RECONCILIATION STATEMENT WITH THE REQUEST TO ADMIT THE SAME AND KEEPING IN VIEW THAT THE SAID RECONCILIATION STATEM ENT GOES TO THE ROOT OF THE MATTER, WE, IN THE INTEREST OF JUSTICE, ADMIT T HE SAME. SINCE, THE SAID RECONCILIATION STATEMENT HAS NOT BEEN EXAMINED BY T HE A.O., THEREFORE, WE CONSIDER IT FAIR AND REASONABLE THAT THE MATTER SHOULD GO BACK TO THE FILE OF THE A.O. AND ACCORDINGLY WE SET ASIDE THE O RDER PASSED BY THE REVENUE AUTHORITIES ON THIS ACCOUNT AND SEND BACK T HE MATTER TO THE FILE OF THE A.O. WHO SHALL DECIDE THE SAME AFRESH IN THE LIGHT OF THE OBSERVATIONS HEREINABOVE AND ACCORDING TO LAW AFTER PROVIDING REASONABLE OPPORTUNITY OF BEING HEARD TO THE ASSESSEE. THE GR OUND TAKEN BY THE ASSESSEE IS THEREFORE PARTLY ALLOWED FOR STATISTICA L PURPOSE. 16. GROUND NO. 4 IS AGAINST THE DIRECTION OF THE LD . CIT(A) TO MAKE ADJUSTMENTS IN RESPECT OF ADDITION MADE U/S 145A OF THE ACT. 17. IN THE ASSESSMENT ORDER, THE A.O. HAS NOTED THA T THE ASSESSEE IS FOLLOWING EXCLUSIVE METHOD FOR BOOKING PURCHASES, S ALES, OPENING STOCK AND CLOSING STOCK BY NOT CONSIDERING THE DUTIES PAI D. ACCORDING TO THE A.O., AS PER SECTION 145A ALL PURCHASES, SALES, OPE NING STOCK, CLOSING STOCK HAS TO BE VALUED BY INCLUSIVE OF THE DUTIES/T AXES PAYABLE OR PAID. THEREFORE, 145A HAS IMPACT ON P&L A/C IN TWO WAYS; FIRST BY INCLUSION OF EXCISE DUTY IN FINISHED GOODS, WHICH HOWEVER, HAS T O BE DEBITED IN THE P&L A/C SUBJECT TO 43B. THE MAIN IMPACT OF 145A CO MES BECAUSE OF VALUE ADDITION. AS ASSESSEE PURCHASED THE GOODS (R AW MATERIAL AND CONSUMABLES) AND CONSUMED A PART OF THE SAME AND WH ICH IS ALWAYS SOLD ITA NO. 71 15/MUM/2008 M/S MAZDA IMAGI NG PVT. LTD. 6 AT A HIGHER VALUE THAN THE VALUE OF RAW MATERIAL AN D CONSUMABLES AND COLLECT DUTY ON SALE OF GOODS, WHICH IS GENERALLY H IGHER THAN THE AMOUNT OF DUTY PAID ON RAW MATERIAL AND CONSUMABLES AND FO R THE PAYMENT OF THE SAME UTILIZES A HIGHER VALUE OF MODVAT/CENVAT. THEREFORE, ASSESSEE UTILIZES THE DUTY MORE THAN THE ACTUAL AMOUNT OF DU TY PAID ON GOODS CONSUMED. THEREFORE, THE IMPACT OF THE SAME COMES EQUIVALENT TO ACTUAL DUTY PAID BY THE ASSESSEE ON RAW MATERIALS AND CONS UMABLES AVAILABLE IN THE CLOSING STOCK (-) THE UNUTILIZED MODVAT OF THE ASSESSEE. AS THE ASSESSEE HAS NOT GIVEN THE DESIRED FIGURE TO REACH AT THE EXACT ADDITION NEEDED U/S 145A OF THE ACT, SAME IS BEING CALCULATE D AS DUTY AVAILABLE ON CLOSING STOCK I.E. ` 6.4 LACS, AS CALCULATED ABOVE, MINUS UNUTILIZED MODVAT/CENVAT IN RG 23A ACCOUNT, WHICH IS ` 48,968/-. THUS, THE A.O. HAS MADE NET ADDITION U/S 145A ` 5,91,532/-. ON APPEAL, THE LD. CIT(A) WHILE UPHOLDING THE ACTION OF THE A.O. DIRECTED THE A.O. TO MAKE THE ADJUSTMENT IN THE MANNER PROVIDED U/S 145A AFTER VE RIFICATION FROM THE EXCISE RECORDS IN REGARD TO THE STOCKS, PURCHASE, S ALES, EXCISE DUTY PAYMENTS AND IF SUCH ADJUSTMENT RESULTS IN AN ADDIT ION TO THE INCOME OF THE APPELLANT, RESTRICT THE ADDITION ONLY TO THAT E XTENT. 18. AT THE TIME OF HEARING, THE LD. COUNSEL FOR THE ASSESSEE SUBMITS THAT THE LD. CIT(A) WHILE GIVING THE DIRECTIONS, HA S NOT CONSIDERED THE APPLICABILITY OF THE PROVISIONS OF SECTION 43B OF T HE ACT. HE, THEREFORE, SUBMITS THAT THE ORDER PASSED BY THE LD. CIT(A) BE MODIFIED BY GIVING SUITABLE DIRECTION IN THIS REGARD TO THE A.O. 19. ON THE OTHER HAND, THE LD. D.R. SUPPORTS THE OR DER OF THE A.O. AND LD. CIT(A). 20. WE HAVE CAREFULLY CONSIDERED THE SUBMISSIONS OF THE RIVAL PARTIES AND PERUSED THE MATERIAL AVAILABLE ON RECORD. UNDER THE PROVISIONS OF SECTION 145A OF THE ACT, ADJUSTMENTS ON ACCOUNT OF MODVAT ARE REQUIRED ITA NO. 71 15/MUM/2008 M/S MAZDA IMAGI NG PVT. LTD. 7 TO BE MADE IN RESPECT OF PURCHASES, SALES AND INVEN TORY IN THE CLOSING STOCK. WE FIND THAT RECENTLY THE HONBLE JURISDICTI ONAL HIGH COURT IN CIT VS. MAHALAXMI GLASS WORKS PVT. LTD. (2009) 318 ITR 116(BOM.) WHILE AGREEING WITH THE REASONING AND FINDING GIVEN BY T HE HONBLE DELHI HIGH COURT IN CIT VS. MAHAVIR ALUMINIUM LTD. (2008) 297 ITR 77(DEL.) THAT TO GIVE EFFECT TO SECTION 145A, IF THERE IS ANY CHANGE IN THE CLOSING STOCK AT THE END OF THE YEAR THEN THERE MUST NECESSARILY BE A CORRESPONDING ADJUSTMENT MADE IN THE OPENING STOCK OF THAT YEAR A ND THIS WOULD NOT AMOUNT TO GIVE DOUBLE BENEFIT TO THE ASSESSEE AND W OULD BE NECESSARY TO COMPUTE THE TRUE AND CORRECT PROFIT FOR THE PURPOSE OF ASSESSMENT, UPHELD THE ORDER OF THE TRIBUNAL IN DIRECTING THE ASSESSING OFFICER TO MAKE NECESSARY CORRESPONDING ADJUSTMENT IN THE OPE NING STOCK OF NEXT YEAR. IN THE ABSENCE OF ANY DISTINGUISHING FEATUR E BROUGHT ON RECORD BY THE PARTIES WE RESPECTFULLY FOLLOWING THE JUDGMENT OF HONBLE JURISDICTIONAL HIGH COURT SUPRA, SET ASIDE THE ISSU E TO THE FILE OF THE ASSESSING OFFICER WHO SHALL DECIDE THE SAME AFRESH IN THE LIGHT OF THE DECISION OF THE HONBLE JURISDICTIONAL HIGH COURT A ND ACCORDING TO LAW INCLUDING THE APPLICABILITY OF THE PROVISIONS OF SE CTION 43B AFTER PROVIDING A REASONABLE OPPORTUNITY OF BEING HEARD TO THE ASSE SSEE. THE GROUND TAKEN BY THE ASSESSEE IS THEREFORE PARTLY ALLOWED F OR STATISTICAL PURPOSES. 21. IN THE RESULT, ASSESSEES APPEAL STANDS PARTLY ALLOWED FOR STATISTICAL PURPOSE. ORDER PRONOUNCED ON THIS 11 TH OF MARCH, 2011. SD/- (J. SUDHAKAR REDDY) ACCOUNTANT MEMBER SD/- (D.K. AGARWAL) JUDICIAL MEMBER MUMBAI, DATED 11 TH MARCH, 2011. RK ITA NO. 71 15/MUM/2008 M/S MAZDA IMAGI NG PVT. LTD. 8 COPY TO: 1. THE APPELLANT 2. THE RESPONDENT 3. COMMISSIONER OF INCOME TAX (APPEALS)- 22, MUMBA I 4. COMMISSIONER OF INCOME TAX, 10, MUMBAI 5. DEPARTMENTAL REPRESENTATIVE, BENCH F, MUMBAI //TRUE COPY// BY ORDER ASSTT. REGISTRAR, ITAT, MUMBAI ITA NO. 71 15/MUM/2008 M/S MAZDA IMAGI NG PVT. LTD. 9 1 DRAFT DICTATED ON 8.3.11 SR PS 2 DRAFT PLACED BEFORE AUTHOR ON 9.3.11 SR PS 3 DRAFT PROPOSED & PLACE BEFORE THE 2 ND MEMBER JM/AM 4 DRAFT DISCUSSED/APPROVED BY 2 ND MEMBER JM/AM 5 A PPROVED DRAFT COMES TO THE SR PS SR.PS 6 KEPT FOR PRONOUNCEMENT ON SR PS 7 FILE SENT TO THE BENCH CLERK SR PS 8 DATE ON WHICH FILE GOES TO THE HEAD CLERK 9 DATE ON WHICH FILE GOES TO THE AR 10 DAT E OF DESPATCH SR PS