DCIT, Ernakulam V. Appollo Tyres Ltd, Cochin

ITA 719/COCH/2007

• Counselvise Citation: [2012] 140 COUNSELVISE.COM (IT) 65069 (ITAT-COCHIN)
• Duration Of Justice: 5 year(s) 4 month(s) 17 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 21-12-2012
• Appeal Filed By: Department
• Bench Allotted: DB
• Next Hearing Date: 22-10-2012
• Assessment Year: 2004-2005
• Appeal Filed On: 03-08-2007
• Court: TRIBUNAL
• Department Lawyers: SUSAN GEORGE VARGHESE
• Assessee Lawyers: V SATHYANARAYANAN
• Keywords: Capital asset; Depreciation; Revenue expenditure; Capital expenditure
• Section: 43B; 143(3); 80HHC

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL COCHIN BENCH, COCHIN BEFORE S/SHRI N.R.S.GANESAN, JM AND B.R.BASKAR AN, AM I.T.A. NOS. 719/COCH/2007 & 379/COCH/2009 ASSESSMENT YEAR: 2004-05 THE DEPUTY COMMISSIONER OF INCOME-TAX,CIRCLE-1(1), ERNAKULAM VS. M/S. APOLLO TYRES LTD., 6 TH FLOOR, CHERUPUSHPAM BLDG., SHANMUGHAM ROAD, ERNAKULAM. KOCHI-682 031 [PAN :AAACA 6990Q] (REVENUE-APPELLANT) (ASSESSEE-RESPONDENT ) REVENUE BY SMT.SUSAN GEORGE VARGHESE, SR. DR ASSESSEE BY SHRI V. SATHYANARAYANAN, CA DATE OF HEARING 23/10/2012 DATE OF PRONOUNCEMENT 21/12/2012 O R D E R PER B.R.BASKARAN, ACCOUNTANT MEMBER: BOTH THE APPEALS FILED BY THE REVENUE ARE DIRECTED AGAINST THE ORDERS PASSED BY LD CIT(A)-II, KOCHI AND THEY RELATE TO TH E ASSESSMENT YEAR 2004-05. WHILE THE APPEAL NUMBERED AS ITA 719/COCH/2007 IS D IRECTED AGAINST THE ORDER PASSED BY LD CIT(A) AGAINST THE ASSESSMENT ORDER PA SSED U/S 143(3) OF THE ACT, THE APPEAL NUMBERED AS ITA 379/COCH/09 RELATES TO T HE ORDER PASSED BY LD CIT(A) AGAINST THE ASSESSMENT ORDER PASSED U/S 1439 3) R.W.S. 147 OF THE ACT. 2. WE SHALL FIRST TAKE UP THE APPEAL FILED BY T HE REVENUE IN ITA NO.379/COCH/2009. THE SOLITARY ISSUE URGED IN THIS APPEAL IS WHETHER THE LD CIT(A) IS JUSTIFIED IN HOLDING THAT THE DG POWER GE NERATION UNITS I & II CONSTITUTED AN UNDERTAKING IN TERMS OF SUB. SEC.4 (IV) OF SEC. 80IA OF THE ACT. I.T.A. NOS.719 /COCH/2007 & 379/COCH/2009 2 AT THE TIME OF HEARING, BOTH THE PARTIES AGREED THA T THE SAID ISSUE IS DECIDED IN FAVOUR OF THE ASSESSEE BY THE TRIBUNAL IN THE ASSES SEES OWN CASE IN ITA NO.377/COCH/2006 RELATING TO THE ASSESSMENT YEAR 20 02-03, VIDE ITS ORDER DATED 05-10-2010. THE SAID ORDER WAS FOLLOWED BY THIS BE NCH OF TRIBUNAL IN THE ASSESSEES OWN CASE IN ITA NO.378/COCH/2009 RELATIN G TO THE ASSESSMENT YEAR 2003-04. SINCE THE DECISION RENDERED BY LD CIT(A) IS IN ACCORDANCE WITH THE VIEW TAKEN BY THE TRIBUNAL IN THE ABOVE CITED TWO O RDERS, WE DO NOT FIND ANY INFIRMITY IN HIS ORDER. 3. WE SHALL NOW TAKE UP THE APPEAL FILED BY THE REVENUE IN ITA NO.719/COCH/2007. THE FIRST ISSUE RELATES TO THE C LAIM OF EXPENDITURE OF RS.83,01,309/- ON PURCHASE OF EQUIPMENTS FOR APOLL O TYRES WORLD (ATW) SHOWROOMS OWNED BY ITS DEALERS. THE ASSESSEE CLAI MED THE ENTIRE COST OF MACHINERIES AS REVENUE EXPENSES. HOWEVER, THE ASSE SSING OFFICER DID NOT ACCEPT THE CLAIM AS REVENUE EXPENDITURE FOR THE FOLLOWING OBSERVATIONS:- IN THIS CONNECTION, THE FOLLOWING POINTS ARE WORT H MENTIONING: I) OWNERSHIP OF THESE MACHINERIES/EQUIPMENTS RESTS WITH THE ASSESSEE DURING THE YEAR. II) THESE ASSETS ARE CAPITAL IN NATURE AND HAVE BE EN CAPITALIZED IN THE BOOKS OF ACCOUNTS. III) THESE ASSETS GIVE ENDURING BENEFITS TO THE AS SESSEE AND COULD BE TRANSFERRED FROM ONE DEALER TO THE OTHER. EVEN THE ASSESSEE CAN WITHDRAW THESE ASSETS ON CANCELLATION OF THE DEALERSHIP. T HUS THE TOTAL CONTROL OF THESE ASSETS LIES WITH THE ASSESSEE COMPANY, BEING ITS OWNER. ACCORDINGLY, THE ASSESSING OFFICER HELD THAT THESE ASSETS ARE CAPITAL ASSETS OWNED BY THE ASSESSEE AND HENCE, THE EXPENDITURE IN CURRED ON THEIR ACQUISITION CANNOT BE CLAIMED AS REVENUE EXPENDITURE. AFTER AL LOWING ELIGIBLE DEPRECIATION, THE ASSESSING OFFICER ADDED THE NET AMOUNT OF RS. 6 3,26,616/- TO THE TOTAL INCOME OF THE ASSESSEE. THE LD. CIT(A), BY FOLLOWI NG HIS ORDER FOR THE EARLIER I.T.A. NOS.719 /COCH/2007 & 379/COCH/2009 3 YEAR, DELETED THE DISALLOWANCE AND ALSO DIRECTED TH E AO TO REWORK THE DEPRECIATION AMOUNT. 4. WE NOTICE THAT AN IDENTICAL ISSUE HAS COME UP BE FORE THE BENCH IN THE ASSESSEES OWN CASE IN I.T.A. NO. 430/COCH/2006 REL ATING TO THE ASSESSMENT YEAR 2003-04. THE TRIBUNAL, VIDE ITS ORDER DATED 24-08- 2012 HAS SET ASIDE THE ORDER OF THE LD. CIT(A) WITH THE FOLLOWING OBSERVATIONS 4. HOWEVER, FROM THE RIVAL SUBMISSIONS MADE, IT TRANSPIRES THAT THE OWNERSHIP OF THESE ASSETS WOULD CONTINUE TO REMAIN WITH THE ASSESSEE ONLY. HENCE, THE VIEW OF THE LD CIT(A) IS CONTRAR Y TO THE FACTS. THE LD COUNSEL PLACED RELIANCE ON THE COMMON ORDER DATED 09-09-2009 RENDERED BY THIS BENCH IN THE ASSESSEES OWN CASE IN ITA NO S. 538/COCH/2005, ITA NO.273/COCH/05 AND ITA NO.25/COCH/04 AND SUBMITTED THAT THE TRIBUNAL HAS CONSIDERED AN IDENTICAL ISSUE IN PARAGRAPHS 21 -23 OF THE SAID ORDER AND HAS TAKEN THE VIEW THAT THE EXPENDITURE INCURR ED ON RENOVATION OF THE SHOW ROOMS IS REVENUE EXPENDITURE. 5. WE HAVE CAREFULLY CONSIDERED THE TRIBUNALS ORDER RELIED UPON BY THE LD A.R. IN THE SAID ORDER, THE TRIBUNAL HAS ACTUA LLY CONSIDERED THE NATURE OF EXPENDITURE INCURRED ON INTERIOR DECORATION OF THE SHOW ROOMS AND TOOK THE VIEW THAT THEY ARE TEMPORARY STRUCTURES, WHICH CANNOT BE RETRIEVED BACK. ACCORDINGLY, THE TRIBUNAL TOOK THE VIEW THA T THE EXPENDITURE INCURRED ON INTERIOR DECORATION IS REVENUE IN NATU RE. HOWEVER, IN THE INSTANT CASE, THE ASSESSEE HAS INSTALLED EQUIPMENT S, WHICH CAN BE REMOVED AND ALSO CAN BE TAKEN BACK AND REUSED IN S OME OTHER PLACE. HENCE THE FACTS PREVAILING IN THE INSTANT CASE IS TOTALLY DIFFERENT AND ACCORDINGLY THE DECISION OF THE TRIBUNAL RELIED UP ON BY THE ASSESSEE, IN OUR VIEW, IS NOT APPLICABLE. FURTHER WE NOTICE TH AT THE ASSESSEE WOULD CONTINUE TO BE THE OWNER OF THESE EQUIPMENTS, THOU GH THEY WERE INSTALLED IN THE PREMISES OF THE DEALERS. HENCE, WE ARE OF THE VIEW THAT THEY HAVE TO BE CONSIDERED AS THE CAPITAL ASSETS OF THE ASSE SSEE COMPANY. ACCORDINGLY, WE SET ASIDE THE ORDER OF THE LD CIT( A) ON THIS ISSUE AND RESTORE THE DISALLOWANCE MADE BY THE ASSESSING OF FICER. CONSISTENT WITH THE VIEW TAKEN IN THE PRECEDING YEA R, IN THE INSTANT YEAR ALSO WE SET ASIDE THE ORDER OF LD CIT(A) ON THIS ISSUE AND RESTORE THE DISALLOWANCE MADE BY THE ASSESSING OFFICER. I.T.A. NOS.719 /COCH/2007 & 379/COCH/2009 4 5. THE NEXT ISSUE RELATES TO THE CLAIM OF DEFERRED SALES TAX PAYMENTS OF RS. 1,91,749/-, WHICH WAS DISALLOWED BY THE ASSESSING O FFICER BY INVOKING THE PROVISIONS OF SEC. 43B OF THE ACT. AN IDENTICAL I SSUE WAS CONSIDERED BY THIS BENCH IN THE ASSESSEES OWN CASE IN I.T.A. NO. 430/ COCH/2006 RELATING TO THE ASSESSMENT YEAR 2003-04 WHEREIN THE TRIBUNAL HAS RE STORED THE ISSUE TO THE FILE OF THE ASSESSING OFFICER WITH THE FOLLOWING OBSERVA TIONS:- 9. THE NEXT ISSUE RELATES TO THE CLAIM OF DEFERR ED SALES TAX PAYMENT OF RS.3,85,29,891/-. THE ASSESSEE WAS ALLOWED TO DEF ER THE PAYMENT OF SALES TAX FOR ITS KALAMASSERY UNIT UNDER THE BIFR SCHEME. DURING THE ASSESSMENT YEARS 1996-97 TO 2002-03, THE ASSESSEE COMPANY TREATED THE SALES TAX/PURCHASE TAX SO DEFERRED AS DEEMED PAYM ENT AND CLAIMED THE SAME AS DEDUCTION U/S 43B OF THE ACT. FOR THIS PU RPOSE, THE ASSESSEE PLACED RELIANCE ON THE CIRCULAR NO. 674 DATED 29.1 2.1993 AND CIRCULAR NO.496 DATED 25.9.1987 ISSUED BY CBDT, WHEREIN IT WAS STATED THAT THE SALES TAX DEFERRED AND CONVERTED INTO LOAN WILL BE ALLOWED AS DEDUCTION U/S 43B OF THE ACT, AS BEING DEEMED PAYMENT. THE AO AS WELL AS THE LD CIT(A) DISALLOWED THE SAID CLAIM. IT IS STATED TH AT THE TRIBUNAL HAS RESTORED THIS MATTER TO THE FILE OF THE AO VIDE IT S ORDER DATED 05.10.2010 PASSED FOR THE ASSESSMENT YEAR 2001-02. THE LD CO UNSEL FOR THE ASSESSEE SUBMITTED THAT THE ASSESSEE COMPANY HAS A CTUALLY MADE THE PAYMENT OF RS.3,85,29,891/- DURING THE YEAR UNDER CONSIDERATION AND ACCORDINGLY PRAYED THAT THE SAME BE ALLOWED U/S 43 B OF THE ACT ON PAYMENT BASIS. 10. THERE SHOULD NOT BE ANY DISPUTE THAT, IF T HE CLAIM OF DEFERRED SALES TAX AMOUNT AS DEEMED PAYMENT HAS BEEN ALLOWED IN T HE EARLIER YEARS, THEN THE ACTUAL PAYMENT MADE DURING THE YEAR CANNO T BE ALLOWED AS DEDUCTION AGAIN. THE LD COUNSEL HAS SUBMITTED THAT THE TRIBUNAL HAS RESTORED THE IDENTICAL ISSUE TO THE FILE OF THE AO FOR ASSESSMENT YEAR 2001- 02. IT IS NOT CLEAR WHETHER THE TRIBUNAL ALLOWED THE CLAIM OF DEEMED PAYMENT IN ASSESSMENT YEARS 1996-97 TO 2000-01 AND 2002-03. THUS, IN OUR VIEW, THE FACTS SURROUNDING THIS CLAIM WERE NO T CLEARLY BROUGHT OUT ON RECORD. IN ANY CASE, THE CLAIM FOR DEDUCTION MADE BY THE ASSESSEE WOULD DEPEND UPON THE OUTCOME OF THE DECISION TAKEN IN T HE EARLIER YEARS. ACCORDINGLY, THIS ASPECT REQUIRES VERIFICATION. I F THE CLAIM OF DEEMED PAYMENT HAD BEEN DISALLOWED IN THE EARLIER YEARS, THEN THE ASSESSEE IS ENTITLED FOR DEDUCTION OF THE AMOUNT REFERRED SUPR A. ACCORDINGLY, WE RESTORE THIS ISSUE TO THE FILE OF AO WITH THE DIRE CTION TO EXAMINE THE CLAIM OF THE ASSESSEE AFRESH IN ACCORDANCE WITH THE LAW BY DULY CONSIDERING THE OBSERVATIONS MADE SUPRA. I.T.A. NOS.719 /COCH/2007 & 379/COCH/2009 5 CONSISTENT WITH THE VIEW TAKEN BY THE TRIBUNAL IN T HE PRECEDING YEAR ON THE IDENTICAL ISSUE, WE SET ASIDE THE ORDER OF THE LD. CIT(A) ON THIS ISSUE AND RESTORE THE SAME TO THE FILE OF THE ASSESSING OFFICER WITH A DIRECTION TO EXAMINE THE CLAIM OF THE ASSESSEE AFRESH IN ACCORDANCE WITH LAW BY DU LY CONSIDERING THE OBSERVATIONS MADE ABOVE. 6. THE NEXT ISSUE RELATES TO THE DISALLOWANCE OF DE PRECIATION AND REPAIR CHARGES AGGREGATING TO RS. 24,37,755/- RELATING TO THE LET OUT PROPERTIES. BOTH THE PARTIES HAVE POINTED OUT SIMILAR DISALLOWANCE M ADE IN THE IMMEDIATELY PRECEDING ORDER IN THE HANDS OF THE ASSESSEE WAS CO NFIRMED BY THE TRIBUNAL IN I.T.A. NO. 430/COCH/2006, BY FOLLOWING THE DECISION RENDERED IN THE ASSESSEES OWN CASE IN I.T.A. NO. 429/COCH/2006 RELATING TO TH E ASSESSMENT YEAR 2002-03. BY FOLLOWING THE SAID ORDERS OF THE TRIBUNAL, WE SE T ASIDE THE ORDER OF THE LD. CIT(A) ON THIS ISSUE AND RESTORE THE ADDITION MADE BY THE ASSESSING OFFICER. 7. THE NEXT ISSUE RELATES TO THE REDUCTION OF PROPO RTIONATE HEAD OFFICE EXPENSES FROM THE PROFIT OF D.G. POWER GENERATION U NITS FOR THE PURPOSE OF COMPUTATION OF DEDUCTION U/S. 80IA OF THE ACT. THE ASSESSEE CLAIMED A DEDUCTION OF RS.13,25,51,240/- U/S 80IA OF THE ACT IN RESPECT OF THE DG POWER GENERATION UNIT LOCATED AT LIMDA (BARODA). THE AO NOTICED THA T THE ASSESSEE COMPANY DID NOT ALLOCATE A PORTION OF EXPENSES INCURRED IN ITS HEAD OFFICE WHILE COMPUTING THE PROFIT, WHICH ACCORDING TO THE AO SHOULD HAVE BEEN ALLOCATED. ACCORDINGLY, HE WORKED OUT THE PROPORTIONATE EXPENSES AT RS.1,88,90 ,235/- AND REDUCED THE SAME FROM THE PROFIT OF DG POWER GENERATION UNIT. THE LD CIT(A) SET ASIDE THE SAID ORDER OF THE AO. 8. IT WAS SUBMITTED BEFORE US THAT THE AO HAD MA DE SIMILAR REDUCTION IN THE IMMEDIATELY PRECEDING YEAR ALSO. WHEN THE MATTER WE NT TO THE ITAT, THE TRIBUNAL TOOK THE VIEW THAT AN AD-HOC REDUCTION OF RS.12.00 LAKHS TOWARDS HEAD OFFICE EXPENSES AND A FURTHER REDUCTION OF INTEREST ATTRIBUTABLE TO THE DG POWER I.T.A. NOS.719 /COCH/2007 & 379/COCH/2009 6 GENERATION UNIT WOULD MEET THE ENDS OF JUSTICE. AC CORDINGLY, THE TRIBUNAL SET ASIDE THE MATTER OF ASCERTAINING THE AMOUNT OF INTE REST TO THE FILE OF THE AO. THE COPY OF THE ORDER OF THE TRIBUNAL IN ITA NO. 430/CO CH/2006 AND 378/COCH/2009 ARE PLACED IN THE PAPER BOOK AND THE TRIBUNAL HAS D ISCUSSED THIS ISSUE IN PARAGRAPHS 15 TO 17 OF ITS ORDER. 9. BY FOLLOWING THE ORDER OF THE TRIBUNAL REFER RED SUPRA, WE ALSO HOLD THAT AN AD-HOC REDUCTION OF RS.12.00 LAKHS TOWARDS HEAD OFF ICE EXPENSES AND ALSO THE INTEREST EXPENDITURE ATTRIBUTABLE TO THE DG POWER G ENERATION UNIT WOULD MEET THE ENDS OF JUSTICE. ACCORDINGLY, WE SET ASIDE THE ISSUE OF DETERMINATION OF INTEREST EXPENDITURE TO THE FILE OF THE AO. THE OR DER OF LD CIT(A) STANDS MODIFIED ACCORDINGLY. 10. THE NEXT ISSUE RELATES TO THE DISALLOWANCE OF D EPRECIATION TO THE TUNE OF RS. 14,08,765/-. WE HAVE ALREADY NOTICED THAT THE A SSESSEE HAD CLAIMED THE COST OF MACHINERY INSTALLED IN THE ATW SHOWROOMS AS REVE NUE EXPENDITURE. HOWEVER, THE ASSESSING OFFICER TREATED THE SAME AS CAPITAL EXPENDITURE AND ACCORDINGLY ALLOWED DEPRECIATION THEREON. BUT THE LD. CIT(A) REVERSED THE ORDER OF THE AO BY HOLDING THAT THE SAID EXPENDITURE IS REVENUE IN NATURE. HOWEVER THE TRIBUNAL, IN FURTHER APPEAL MADE BY THE REVENUE , SET ASIDE THE ORDER OF THE LD. CIT(A) AND CONFIRMED THAT OF THE ASSESSING OFFI CER. CONSEQUENT TO THE ORDERS PASSED BY THE LD CIT(A) AND THE TRIBUNAL, THE WORKI NG OF WRITTEN DOWN VALUE OF ASSETS HAS GONE FREQUENT CHANGE AND THE AO HAS R ESORTED TO MAKE THE DISALLOWANCE BY ADOPTING THE WDV AS PER THE APPELLA TE ORDER THAT WAS PREVAILING ON THE DATE OF ASSESSMENT. CONSEQUENT TO THE ORDER S PASSED BY THE TRIBUNAL, THE WORKING OF WRITTEN DOWN VALUE NEEDS VERIFICAT ION AFRESH. ACCORDINGLY, WE SET ASIDE THE ORDER OF THE LD. CIT(A) ON THIS ISSUE AND RESTORE THE SAME TO THE FILE OF THE AO WITH THE DIRECTION TO WORK OUT THE C ORRECT AMOUNT OF DEPRECIATION BY ADOPTING THE CORRECT AMOUNT OF WRITTEN DOWN VAL UE AS PER THE ORDERS OF THE TRIBUNAL. I.T.A. NOS.719 /COCH/2007 & 379/COCH/2009 7 11. THE NEXT ISSUE RELATES TO THE TREATMENT OF INTE REST RECEIVED FROM BANK DEPOSITS, DEBENTURES, BOND AND I.T. REFUNDS AGGREGA TING TO RS.2,17,56,427/- FOR THE PURPOSE OF COMPUTATION OF DEDUCTION U/S. 80HHC OF THE ACT. THE ASSESSING OFFICER TREATED THE SAID INTEREST RECEIPTS AS INCOM E ASSESSABLE UNDER THE HEAD INCOME FROM OTHER SOURCES AND ACCORDINGLY, EXCLUD ED THEM FROM COMPUTATION OF DEDUCTION U/S. 80HHC. HOWEVER, THE LD CIT(A) SE T ASIDE THE ORDER OF THE AO. THE ISSUE RELATING TO THE TREATMENT OF INTEREST INC OME FOR THE PURPOSE OF COMPUTATION OF DEDUCTION U/S. 80HHC HAS SINCE BEEN SETTLED BY THE HONBLE SUPREME COURT IN THE CASE OF ACG ASSOCIATED CAPSULE S PVT. LTD. VS. CIT (343 ITR 89). ACCORDINGLY THIS ISSUE NEEDS TO BE RE-EXA MINED AT THE END OF THE ASSESSING OFFICER IN THE LIGHT OF THE HONBLE SUPRE ME COURT DECISION (REFERRED SUPRA). ACCORDINGLY, WE SET ASIDE THE ORDER OF THE LD. CIT(A) ON THIS ISSUE AND RESTORE THE MATTER TO THE FILE OF THE ASSESSING OFF ICER WITH A DIRECTION TO EXAMINE THE ISSUE AFRESH IN THE LIGHT OF THE DECISION RENDE RED BY THE HONBLE SUPREME COURT (REFERRED SUPRA). 12. THE LAST ISSUE RELATES TO THE CLAIM OF DEDUCTIO N ON ACCOUNT OF QUALITY LOSS AMOUNTING TO RS.1,24,12,348/-. IT IS PERTINE NT TO NOTE THAT THE ASSESSEE DID NOT CLAIM THIS EXPENDITURE IN ITS RETURN OF INCOME AND HENCE THERE WAS NO OCCASION FOR THE AO TO EXAMINE THIS CLAIM. THE FAC TS RELATING THERETO ARE STATED IN BRIEF. IT WAS STATED THAT M/S APOLLO TYRES LTD MANUFACTURED CERTAIN TYPE OF TYRES IN THE PLANT BELONGING TO M/S PREMIER TYRES L TD, WHICH IT HAD TAKEN ON LEASE. THE SAID PRODUCTS WERE SUPPLIED TO THE EXPOR T MARKET THROUGH M/S APOLLO INTERNATIONAL TRADING LLC, DUBAI. SINCE THERE WERE CERTAIN MANUFACTURING DEFECTS, THE ABOVE SAID M/S APOLLO INTERNATIONAL TR ADING LLC, DUBAI LODGED QUALITY CLAIMS TO THE TUNE OF RS.1,25,12,348/- WITH M/S APOLLO TYRES LTD. SINCE THE PRODUCTS WERE MANUFACTURED FROM THE FACTORY BEL ONGING TO M/S PREMIER TYRES LTD, M/S APOLLO TYRES LTD PASSED ON THIS QUAL ITY CLAIM TO THE SAID COMPANY. IN THE ASSESSMENT PROCEEDING OF M/S PREMIER TYRES L TD, THE AO DISALLOWED THE I.T.A. NOS.719 /COCH/2007 & 379/COCH/2009 8 SAID CLAIM ON THE REASONING THAT THE PRODUCTS HAVE BEEN MANUFACTURED BY M/S APOLLO TYRES LTD, WITH WHICH M/S PREMIER TYRES LTD WAS NOT CONCERNED WITH. THE SAID DISALLOWANCE WAS ALSO CONFIRMED BY THE LD CIT( A) IN THE APPEAL PREFERRED BEFORE HIM BY M/S PREMIER TYRES LTD. 13. SINCE THE EXPENDITURE RELATING TO THE QUALIT Y CLAIM WAS DISALLOWED IN THE HANDS OF M/S PREMIER TYRES LTD AND WAS ALSO CONFIRM ED BY LD CIT(A), THE ASSESSEE HEREIN FILED AN ADDITIONAL GROUND BEFORE L D CIT(A) SEEKING DEDUCTION OF THE ABOVE SAID AMOUNT OF RS.1,25,12,348/- RELATING TO THE QUALITY CLAIMS IN ITS HANDS. THE LD CIT(A), AFTER GETTING THE OPINION OF AO, ALLOWED THE CLAIM MADE BY THE ASSESSEE AND HENCE THE REVENUE IS IN APPEAL BEFORE US. 14. THOUGH THE LD. A.R REITERATED THE SUBMISSIONS MADE BEFORE THE LD CIT(A), YET HE COULD NOT FURNISH THE DETAILS RELATING TO TH E QUALITY CLAIMS. HE SUBMITTED THAT THE ASSESSEE HAS ONLY PASSED JOURNAL ENTRIES I N ITS BOOKS OF ACCOUNT ON THE BASIS OF CERTAIN CORRESPONDENCES AND HE FAIRLY ADMI TTED THAT HE COULD NOT PRODUCE THE DETAILS AT THIS STAGE. 15. BEFORE PROCEEDING TO DECIDE THIS ISSUE, IT I S PERTINENT TO REFER TO THE DECISION RENDERED BY THE HONBLE HIGH COURT OF KERA LA IN THE CASE OF M/S MIL CONTROLS LIMITED VS. CIT IN ITA NO.94 & 99 OF 2002 IN ITS ORDER DATED 01-06-2011. IN THE ABOVE SAID CASE, THE ASSESSEE THEREIN MADE A PAYMENT OF RS.16.00 LAKHS IN ONE YEAR AND RS.37.00 LAKHS IN ANOTHER YEAR TO A GROUP COMPANY TOWARDS CORPORATE SERVICE CHARGES AND CLAIMED THE SAME AS EXPENDITURE. HOWEVER, IT COULD NOT FURNISH THE NATURE AND DETAILS OF SERVICE S EXCEPT A STATEMENT SHOWING SERVICES IN BROAD TERMS. THE AO DISALLOWED 75% OF THE CLAIM AND THE LD CIT(A) RESTRICTED THE DISALLOWANCE TO 50%, WHICH WAS ALSO CONFIRMED BY THE TRIBUNAL. IN THE APPEAL PREFERRED BY THE ASSESSEE BEFORE THE HONBLE HIGH COURT, IT WAS HELD AS UNDER:- I.T.A. NOS.719 /COCH/2007 & 379/COCH/2009 9 4. AFTER HEARING BOTH SIDES AND AFTER GOING THROU GH THE ORDERS, WE DO NOT FIND ANY JUSTIFICATION TO INTERFERE WITH THE ORDER S PASSED BY THE TRIBUNAL AS WELL AS THE LOWER AUTHORITIES LIMITING THE APPELLA NTS CLAIM FOR DEDUCTION OF SERVICE CHARGES PAID AT 50% OF THE CLAIM AMOUNT. T HE FINDING OF THESE AUTHORITIES IS THAT THE APPELLANT DID NOT FURNISH SPECIFIC DETAILS ABOUT THE SERVICES RENDERED AND WHAT IS STATED IS ABOUT THE BROAD SUPPORT AND HELP RECEIVED BY THE APPELLANT FROM THE GROUP COMPANY T O JUSTIFY PAYMENTS. WE DO NOT KNOW WHY THE APPELLANT COULD NOT FURNISH BRAKE UP DETAILS OF THE PAYMENTS MADE WITH REFERENCE TO THE CORRESPOND ING SERVICE RENDERED FOR PROCURING ORDERS, FOR USE OF THE FACILITIES OF THE PAYEE COMPANY ETC. THE APPELLANTS CONTENTION THAT THE CLAIM IS ALLOW ABLE MERELY BECAUSE PAYMENT IS MADE AND THE SAME IS BONAFIDE CANNOT BE ACCEPTED. THIS IS BECAUSE PAYEE IS A RELATED COMPANY WITHIN THE GROU P AND THEREFORE THE STANDARD OF PROOF REQUIRED FOR ALLOWING THE CLAIM IS MORE THAN WHAT IS REQUIRED IN OTHER CASES. IF THE PAYMENT WAS TO A STRANGER AND BONAFIDE, PRESUMPTION OF REASONABLENESS OF PAYMENT WOULD APP LY BUT NOT WHEN PAYMENTS ARE BETWEEN RELATED COMPANIES BENEFICIARI ES ARE THE SAME SET OF PEOPLE AND THEREFORE, UNLESS DETAILS ARE FURNISHED JUSTIFYING THE PAYMENT OF SERVICE CHARGES, DEPARTMENT IS NOT BOUN D TO ALLOW THE CLAIM. ON THE WHOLE, WE FIND THAT A LIBERAL APPROACH IS T AKEN BY THE OFFICER AND STILL MORE LIBERAL WERE THE FIRST APPELLATE AUTHOR ITY AND THE TRIBUNAL BECAUSE THE CLAIM MADE IS SUSTAINED AT 50% WITHOUT PROOF OF THE SERVICE RENDERED JUSTIFYING ALLOWANCE OF EVEN SO MUCH OF T HE CLAIM. 16. IN THE INSTANT CASE, THERE IS NO DISPUTE TH AT THE DEBIT NOTE FOR QUALITY CLAIM HAS BEEN RECEIVED FROM A GROUP CONCERN. THE ASSESSEE HEREIN HAS NOT ACCEPTED THE SAID CLAIM AND HENCE IT HAS PASSED ON THE CLAIM TO THE LESSOR (M/S PTL ENTERPRISES LTD) FROM WHOM, THE ASSESSEE HAD TAK EN THE PLANT ON LEASE. IN THE NORMAL COURSE, THE LESSOR HAS ALSO ACCEPTED THE LIABILITY AND ACCORDINGLY ACCOUNTED THE SAME IN ITS BOOKS OF ACCOUNT. THUS, THE ASSESSEE HEREIN DID NOT BEAR THE LIABILITY, BUT HAS ACTED AS A PIPE LINE IN COLLECTING THE LIABILITY FROM THE LESSOR AND PASSING ON THE SAME TO THE GROUP CONCERN , M/S APOLLO INTERNATIONAL TRADING LLC, DUBAI. HOWEVER, IN THE INCOME TAX PRO CEEDING CARRIED IN THE HANDS OF M/S PTL ENTERPRIESES LTD, THE ASSESSING OFFICER T HEREIN DID NOT ALLOW THE CLAIM, SINCE THE LEASE AGREEMENT DID NOT PROVIDE FOR SUCH AN EVENTUALITY AND FURTHER NO PROOF WAS PRODUCED IN RESPECT OF THE SAID CLAIM. I.T.A. NOS.719 /COCH/2007 & 379/COCH/2009 10 17. THERE CANNOT BE ANY DISPUTE THAT EXPENDITUR E CLAIM IS ALLOWABLE UNDER THE INCOME TAX ACT SUBJECT TO THE PROVISIONS CONTAINED THEREIN, IF IT WAS INCURRED FOR THE PURPOSES OF THE BUSINESS. IN THE INSTANT CASE, THE ASSESSEE HEREIN HAS NOT ACCEPTED THE LIABILITY RELATING TO THE QUALITY CLA IM. IT HAS PASSED ON THE LIABILITY TO THE LESSOR AND THE LESSOR HAS ALSO ACCEPTED THE SAID LIABILITY. IT IS PERTINENT TO NOTE THAT THE LESSOR M/S PTL ENTERPRISES LTD IS ALSO A GROUP COMPANY. THE ASSESSEE IS PUTTING FORTH CLAIM FOR DEDUCTION OF EX PENDITURE RELATING TO QUALITY CLAIM ONLY FOR THE REASON THAT THE SAID CLAIM WAS DISALLOWED IN THE HANDS OF M/S PTL ENTERPRISES LTD, EVEN THOUGH THE SAID COMPANY HA D ACCEPTED THE LIABILITY FOR THE SAME. WE HAVE ALREADY NOTICED THAT THE DISALLO WANCE WAS MADE IN THE HANDS OF M/S PTL ENTERPRISES LTD FOR THE REASON THAT THE SAID ASSESSEE FAILED TO FURNISH ANY PROOF. THE VIEW EXPRESSED BY THE HONB LE KERALA HIGH COURT IN RESPECT OF TRANSACTIONS BETWEEN GROUP CONCERNS HAVE BEEN EXPRESSED ABOVE. UNDER THESE CIRCUMSTANCES, IN OUR VIEW, THE ASSESSE E HEREIN IS NOT ENTITLED TO CLAIM DEDUCTION RELATING TO QUALITY CLAIMS. ACCO RDINGLY, WE SET ASIDE THE ORDER OF LD CIT(A) ON THIS ISSUE. 18. IN THE RESULT, THE APPEAL OF THE REVENUE IN ITA 719/COCH/07 IS TREATED AS PARTLY ALLOWED FOR STATISTICAL PURPOSES AND THE OTH ER APPEAL OF THE REVENUE IS DISMISSED. PRONOUNCED ACCORDINGLY ON 21-12-2012 SD/- SD/- (N.R.S.GANESAN) (B.R.BASKARAN) JUDICIAL MEMBER ACCOUNTANT MEMBER PLACE: KOCHI DATED: 21ST DECEMBER, 2012 GJ I.T.A. NOS.719 /COCH/2007 & 379/COCH/2009 11 COPY TO: 1. M/S. APOLLO TYRES LTD., 6 TH FLOOR, CHERUPUSHPAM BLDG., SHANMUGHAM ROAD, ERNAKULAM, KOCHI-682 031. 2.THE ASSISTANT COMMISSIONER OF INCOME-TAX,CIRCLE-1 (1), ERNAKULAM. 3.THE DEPUTY COMMISSIONER OF INCOME-TAX,CIRCLE-1(1) , ERNAKULAM 4.THE COMMISSIONER OF INCOME-TAX(APPEALS)-II, KOCHI . 4.THE COMMISSIONER OF INCOME-TAX, KOCHI. 5. D.R., I.T.A.T., COCHIN BENCH, COCHIN. 6. GUARD FILE. BY ORDER (ASSISTANT REGISTRAR) I.T.A.T, COCHIN